California

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Lynn A. Devine v. Jeff Carter,
No. A108843 (Cal.App. 09/12/2005)

A108843

COURT OF APPEAL OF CALIFORNIA, FIRST APPELLATE DISTRICT,
DIVISION FOUR

2005 Cal. App. Unpub. LEXIS 8169

September 12, 2005, Filed

NOTICE: [*1] NOT TO BE PUBLISHED IN OFFICIAL REPORTS. CALIFORNIA RULES OF COURT, RULE 977(a), PROHIBIT COURTS AND PARTIES FROM CITING OR RELYING ON OPINIONS NOT CERTIFIED FOR PUBLICATION OR ORDERED PUBLISHED, EXCEPT AS SPECIFIED BY RULE 977(B). THIS OPINION HAS NOT BEEN CERTIFIED FOR PUBLICATION OR ORDERED PUBLISHED FOR THE PURPOSES OF RULE 977.

PRIOR HISTORY: Napa County Super. Ct. No. 26-15394.

JUDGES: Reardon, Acting P.J.; Sepulveda, J., Munter, J. * concurred.

* Judge of the San Francisco Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

OPINIONBY: Reardon

OPINION: The trial court denied appellant Jeff Carter's request to partially vacate a judgment entered enforcing the terms of a marital settlement agreement. He appeals the denial order, contending that the trial court should have set aside a part of the judgment on grounds of material mistake. (See Fam. Code, n1 § 2122, subd. (e).) We affirm the trial court's denial order.

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n1 All statutory references are to the Family Code unless otherwise indicated.

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I. FACTS

Appellant Jeff Carter was once married to Tami Bastianelli. When the marriage was dissolved, Carter owed Bastianelli certain sums of money. Carter conveyed property to respondent Lynn A. DeVine-to whom he was then married-and to a corporation in which she owned a majority interest-Sierra Bay Enterprises, Inc. Then, he filed for bankruptcy in federal court. (See 11 U.S.C. §§ 701-784.) The bankruptcy trustee challenged the transfer of assets from Carter to DeVine and to the corporation as fraudulent. (See 11 U.S.C. §§ 544, 548.) At the trustee's request, DeVine and Sierra Bay Enterprises, Inc. were made parties to Carter's bankruptcy proceedings. Carter, DeVine and Sierra Bay Enterprises each denied the allegations against them in bankruptcy court.

In June 1999, the parties entered into a bankruptcy settlement, agreeing that Carter, DeVine and Sierra Bay Enterprises would pay a total of $ 143,000-$ 60,000 to the bankruptcy trustee and $ 83,000 to Bastianelli. The settlement agreement contained two waiver clauses that are pertinent to the case at bar. In the first, DeVine and Sierra Bay Enterprises waived and released any [*3] claims they had against Carter's bankruptcy estate. In a second, more general waiver, Carter, DeVine and Sierra Bay Enterprises agreed that the parties waived all known and unknown claims against any other party that "relate in any way to or otherwise arise out of the subject matter of the [adversarial bankruptcy proceedings]."

Carter paid $ 35,000 on this debt from a separate property source. He and DeVine obtained an equity line of credit against the marital home-a community asset-in order to raise the remaining $ 108,000.

Later, DeVine petitioned for dissolution of her marriage to Carter. In November 2002, Carter and DeVine-after mediation-entered into a handwritten n2 marital settlement agreement regarding distribution of their marital property. One term of this marital settlement agreement required Carter to reimburse the community as much as $ 108,000 for the debt paid to Bastianelli. The marital settlement agreement provided that if Carter could provide timely evidence that a $ 15,000 payment on this debt came from a separate property source, the amount of reimbursement would be reduced by this amount to $ 93,000.

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n2 In August 2003, DeVine filed a typewritten version of the marital settlement agreement with the court.

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Carter did not provide proof of the separate property source of the $ 15,000 payment to Bastianelli within the agreed-upon time period. In June 2003, DeVine moved for an order seeking enforcement of the terms of this marital settlement agreement. (See Code Civ. Proc., § 664.6.) In August 2003, Carter opposed the motion to the extent that the judgment would order him to pay $ 108,000, to reimburse the community for his separate property debt, on two alternative grounds. He argued that the community was not entitled to any reimbursement because DeVine waived her right to receive any reimbursement in the bankruptcy proceedings. He also argued that the federal bankruptcy settlement preempted the marital settlement agreement.

Alternatively, Carter argued that the community was not entitled to reimbursement for $ 60,000 of the $ 108,000-specifically, the $ 60,000 paid to the bankruptcy trustee for attorney fees. Carter reasoned that this part of the bankruptcy payment was a community obligation incurred because the couple had tried to shield assets from the bankruptcy. As the $ 60,000 was a community obligation, Carter argued that the community was not [*5] entitled to reimbursement. He also alleged that DeVine did not have clean hands regarding the bankruptcy proceedings because she made fraudulent transfers in an attempt to shield his assets from Bastianelli.

In November 2003, the trial court conducted a hearing on DeVine's motion to seek enforcement of the terms of the marital settlement agreement. At that hearing, Carter urged the trial court to consider his mistake before deciding to enforce the judgment, citing its authority to set aside a judgment based on that ground. The trial court indicated that if a "mistake" was made, that issue should be raised after judgment entered, not as an affirmative defense at the enforcement stage. n3

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n3 Carter argued at the hearing on the motion to set aside the judgment that the trial court at the earlier hearing on the motion to enforce the marital settlement agreement wanted to consider that issue but that DeVine had not agreed, but the record on appeal does not bear out this characterization of the facts.

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In March 2004, [*6] an order was filed commanding that judgment be entered pursuant to the terms of the marital settlement agreement. It set the amount of the reimbursement to the community for Carter's payment to Bastianelli at $ 108,000. Judgment was entered accordingly. n4

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n4 Although Carter asserts that judgment was entered in March 2004, the only judgment in the record on appeal was filed in May 2004.

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In April 2004, Carter moved for an order vacating part of the judgment, alleging factual and legal mistakes. (See § 2122, subd. (e).) He argued that when the parties entered into the marital settlement agreement, he had forgotten about the waiver provisions of the bankruptcy settlement agreement. He reasoned that because DeVine signed the agreement, she waived any right to reimbursement of the equity line funds obtained against the community. (See § 2122, subd. (e).) DeVine opposed this motion. She argued that Carter's claim was that once she was named in the bankruptcy proceeding, the nature of his obligation was transmuted [*7] from a separate obligation to a community obligation.

In October 2004, the trial court conducted a hearing on Carter's motion to set aside part of the judgment. In November 2004, the trial court was persuaded that "a type of mistake" had been made, but denied the motion to partially vacate the judgment. It concluded that, when weighed against the public policy in favor of the finality of judgments, the mistake was not sufficiently material to warrant vacating part of the judgment. In May 2004, judgment was filed in accordance with the terms of the marital settlement agreement.

II. MATERIAL MISTAKE

On appeal, Carter attacks the trial court's order denying his motion to set aside that part of the judgment compelling him to reimburse the community in the amount of $ 108,000. He argues that this aspect of the marital settlement agreement was made as the result of a mistake of fact and/or law-specifically, that he had forgotten about a waiver contained in the bankruptcy settlement at the time that he entered into the marital settlement agreement. He reasons the trial court erred when it concluded that his mistake was not sufficiently material to entitle him to relief from that [*8] part of the judgment ordering him to pay $ 108,000 to the community. He asks us to order the judgment to be set aside.

We set out the guiding legal principles before we delve into the particular issues Carter raises on appeal. If parties to pending litigation stipulate to a settlement in a writing signed by the parties outside the trial court's presence, the court may enter judgment pursuant to the terms of the settlement. (Code Civ. Proc., § 664.6; Murphy v. Padilla (1996) 42 Cal.App.4th 707, 711-712.) Within one year after the judgment is entered, a party may move to set aside all or part of it on grounds of mutual or unilateral mistake of law or fact. ( § 2122, subd. (e).)

In order to prevail on a motion to set aside a judgment based on a marital settlement agreement, the moving party must establish four elements. First, he or she must establish inequity-an essential premise to a successful motion to set aside, but one that is not sufficient in and of itself to warrant setting aside a judgment. ( § 2123; In re Marriage of Brewer & Federici(2001) 93 Cal.App.4th 1334, 1344-1345; In re Marriage of Rosevear(1998) 65 Cal.App.4th 673, 684-685 & fn. 11.) [*9] Second, the party must establish one or more statutory grounds for setting aside the judgment, such as mistake or failure to comply with statutory disclosure requirements. (See § 2122, subds. (e), (f).) Third, the party must show that the statutory ground materially affected the original outcome. ( § 2121, subd. (b); In re Marriage of Steiner & Hosseini(2004) 117 Cal.App.4th 519, 527; In re Marriage of Rosevear, supra, 65 Cal.App.4th at p. 685, fn. 11; In re Marriage of Brewer & Federici, supra, 93 Cal.App.4th at p. 1345; In re Marriage of Varner(1997) 55 Cal.App.4th 128, 137.) Fourth, the moving party must demonstrate that he or she would materially benefit if the judgment were set aside. ( § 2121, subd. (b); In re Marriage of Brewer & Federici, supra, 93 Cal.App.4th at p. 1345.) As the proponent of the motion to set aside the judgment, Carter has the burden of proof on each of these issues. (See Evid. Code, §§ 115, 500.)

Although the trial court has considerable deference in ruling on a motion to set aside judgment, it must act in a manner that is [*10] consistent with fixed legal principles. (In re Marriage of Heggie(2002) 99 Cal.App.4th 28, 33; In re Marriage of Varner, supra, 55 Cal.App.4th at p. 138.) A trial court's order denying a motion to set aside a judgment pursuant to section 2122 will be reversed on appeal if we find an abuse of discretion. n5 (In re Marriage of Varner, supra, 55 Cal.App.4th at p. 138.) In effect, the trial court abuses its discretion if it fails to follow applicable rules of law when exercising that discretion. If we conclude that Carter's motion to set aside the judgment should have been granted on a limited ground, then we may order the trial court to set aside only that part of the judgment materially affected by that ground. ( §§ 2122, subd. (e), 2125.)

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n5 By contrast, any factual issues arising on a motion to enforce a marital settlement agreement are determined by the trial court in its capacity as trier of fact. On appeal from the judgment, we would review the trial court's findings for substantial evidence. (In re Marriage of Assemi(1994) 7 Cal.4th 896, 905, 911; Kohn v. Jaymar-Ruby, Inc.(1994) 23 Cal.App.4th 1530, 1533; Fiore v. Alvord(1985) 182 Cal. App. 3d 561, 565, 221 Cal. Rptr. 400; see Code Civ. Proc., § 664.6.)

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Carter challenges the denial order, contending that the trial court erred in finding that his mistake was not material. He reasons that as the mistake cost him at least $ 60,000, and perhaps as much as the $ 108,000 n6 reimbursement to the community ordered, it was necessarily sufficiently material to warrant setting aside the judgment entered enforcing the marital settlement agreement. n7

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n6 Carter mistakenly argues that the mistake could have cost him as much as $ 143,000-the total amount owed to Bastianelli and the bankruptcy trustee. However, as the judgment requires him to reimburse the community with $ 108,000-the total amount owed less the separate property payments he had already made-that lesser amount is actually the highest possible value of Carter's claimed "mistake."

n7 It is not completely clear from the briefs whether the full $ 108,000, or only $ 60,000 of it is in dispute as a result of Carter's mistake. In his opening brief on appeal, in his written motion to vacate the judgment, and at the hearing on that motion in the trial court, he argues that DeVine was not entitled to any reimbursement despite the judgment requiring him to pay $ 108,000 for this purpose. At the hearing on his motion to vacate and in his reply brief on appeal, Carter argues that the $ 60,000 paid to the bankruptcy trustee was a community obligation because he and DeVine attempted to defraud Bastianelli by shielding Carter's assets from her reach. The trial court's ruling was that Carter made "a type of mistake" when he forgot about the bankruptcy settlement agreement. This ruling was about DeVine's waiver of any right to reimbursement-suggesting that the sum at issue was the entire $ 108,000. The trial court did not make any specific finding about Carter's alternative argument that the $ 60,000 debt was a community obligation. In light of the resolution we reach below, we need not reach the question of which amount is in dispute.

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Mistake is a statutory ground for setting aside the judgment entered on the marital settlement agreement. The definition of mistake in this context is very broad, including mutual and unilateral mistakes of fact and mistakes of law. (See § 2122, subd. (e).) The trial court agreed that Carter made a mistake. However, it is not enough for Carter to prove a mistake in order to be entitled to set aside the challenged part of the judgment. A judgment may not be set aside on the ground of mistake unless that mistake materially affected the challenged portion of the judgment. (See In re Marriage of Steiner & Hosseini, supra, 117 Cal.App.4th at p. 527.)

In order to prevail on his materiality claim, Carter must prove that the cited language in the bankruptcy settlement constitutes a valid waiver of DeVine's right to reimbursement. Otherwise, the waiver would not have the effect that Carter claims it does. Even though the question of materiality is usually a factual question for the trial court to resolve, when the meaning and effect of a written instrument determines the question of the materiality of a mistake of law, the issue of materiality becomes a legal question for [*13] our independent review on appeal. (See Regan Roofing Co. v. Superior Court (1994) 24 Cal.App.4th 425, 435; Milazo v. Gulf Ins. Co. (1990) 224 Cal. App. 3d 1528, 1534, 274 Cal. Rptr. 632.)

Typically, a debt that Carter incurred before the date of his marriage to DeVine-such as a debt to his former spouse, Bastianelli-would be confirmed to Carter without offset. (See § 2621.) Likewise, a debt that Carter incurred for his separate benefit would ordinarily be confirmed to him. (See § 2625.) As funds obtained from a loan against the family home-a community asset-were used to pay this separate obligation, DeVine would usually be entitled to reimbursement from Carter for this part of it. (See, e.g., In re Marriage of Epstein(1979) 24 Cal.3d 76, 89, 154 Cal. Rptr. 413.) Carter contends that by agreeing to the bankruptcy settlement, DeVine also waived his obligation to reimburse her.

In this language, DeVine waived all known and unknown claims against any other party relating to or arising out of the adversarial bankruptcy proceeding. Several reasons persuade us that the language of the bankruptcy settlement does not have the effect that [*14] Carter contends that it does. First, we are satisfied that the right of reimbursement at issue in our case was beyond the scope of the bankruptcy litigation and the waiver contained in the settlement agreement. DeVine's right of reimbursement from Carter was not at issue in the bankruptcy proceedings.

Second, the conduct of both parties in this litigation satisfies us that neither Carter nor DeVine ever intended this language to apply to any right of reimbursement. Certainly, the fact that the dispute between DeVine and Carter during most of this case focused on the amount of reimbursement is strong evidence that neither party doubted that DeVine was, in fact, entitled to reimbursement.

Third, it is not clear whether the bankruptcy settlement could have the legal effect of a waiver of a right of reimbursement. Such a waiver requires an intentional act done with knowledge of the right being waived. (In re Marriage of Carpenter(2002) 100 Cal.App.4th 424, 428.) DeVine must have actually intended to relinquish that right or must have conducted herself in a manner that was so inconsistent with the intent to enforce the right as to induce a reasonable belief that [*15] it has been relinquished. (See id. at pp. 428-429.) Her conduct tends to show that DeVine did not intend when she signed the bankruptcy settlement to waive any right of eventual reimbursement to the community from Carter.

Fourth, the proposed interpretation of the contract raises issues of breach of Carter's fiduciary duty to DeVine during their marriage. A husband and wife are in a confidential relationship with each other. In transactions between husband and wife, that confidential relationship imposes on each spouse a duty of the highest good faith and fair dealing toward the other. Neither may take advantage of the other. ( § 721, subd. (b); see In re Marriage of Lange(2002) 102 Cal.App.4th 360, 364.) If the bankruptcy settlement applied in the manner that Carter reasons that it does, he would have obtained a significant benefit at DeVine's expense. In such circumstances, a rebuttable presumption of undue influence would arise because he obtained this advantage over DeVine in the bankruptcy proceeding, which Carter could overcome by dispelling the presumption of undue influence. (See, e.g., ibid.) He has not done so.

Considering all [*16] these circumstances, we find that any mistake on Carter's part in failing to recall or locate the terms of the bankruptcy settlement was not material because the bankruptcy settlement did not have the legal effect that he asserted it did. Thus, we find that the trial court did not abuse its discretion when it denied Carter's motion to set aside the judgment for lack of material mistake. (See § 2122, subd. (e).) n8

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n8 In light of our conclusion that Carter's mistake did not materially affect the original outcome, the other issues he raises on appeal are moot. We also need not consider whether the application of the bankruptcy settlement in the manner that he proposes would have been inequitable, thus precluding the trial court from granting Carter the relief he seeks. ( § 2123; In re Marriage of Brewer & Federici, supra, 93 Cal.App.4th at pp. 1344-1345; In re Marriage of Rosevear, supra, 65 Cal.App.4th at pp. 684-685 & fn. 11.)

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The order denying the motion to set aside the [*17] judgment is affirmed.

Reardon, Acting P.J.

We concur:

Sepulveda, J.

Munter, J. *

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* Judge of the San Francisco Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

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