Archive for February, 2011

Marriage of Fossum – Mandatory Award of Attorney’s Fees to Spouse for Breach of Fiduciary Duty

Monday, February 21st, 2011

The opinion in In re Marriage of Fossum (Feb. 1, 2011) 2011 DJDAR 1629 focused on the characterization of a house that was owned by Edward and Sandra Fossum.  Like many couples, title was taken in the name of one spouse to obtain better credit terms.  The court found that the house was community property, notwithstanding the fact that the wife knowingly and intentionally signed a quitclaim deed in favor of her husband.

That result is interesting, but not as interesting as the finding that the wife was liable to the ex-husband for attorney’s fees as a result of an undisclosed loan in favor of the wife.  Read on.

Concerning the house, “Edward Fossum and his ex-wife, respondent Sandra Fossum purchased a house [at 21557 Placerita Canyon Road, Santa Clarita] in 1994 . . . Edward had a better credit rating than Sandra.  Because of that, a lender recommended, and Edward and Sandra agreed, that Edward should finance the house and take title to the property in his name [only], in order to obtain a better interest rate.”

Here is the essential fact that sunk Edward’s argument.  “After the loan closed in October 1994, Edward kept his promise and executed a quitclaim deed, dated August 16, 1995, in favor of Edward and Sandra Fossum, as joint tenants.”

This was followed by a second loan in 1998.  “Edward told Sandra that because her credit history remained a problem, they should do the same thing they had done when they first bought the house, in order to obtain a better interest rate. “

“Sandra and Edward agreed to refinance the property in Edward’s name alone and that, just as before, Edward would restore Sandra’s name to title once the transaction was complete.  Sandra believed Edward, and signed a quitclaim deed in his favor in May 1998.”

“But, Sandra and Edward ‘got busy,’ and Edward never got around to executing a new quitclaim deed.  By 2002, the marriage was in trouble and, at Edward’s urging, the couple was undergoing counseling. At that point, Edward conditioned his willingness to return Sandra’s name to title on a list of requirements that she behave in a certain way, and become a ‘Godly woman and a good Christian wife,’ with a ‘heart . . . free of sin.’”

In the end, Edward refused to acknowledge that Sandra held a community property interest in the house.  Now, the fact that Sandra voluntarily signed a deed in favor of her ex-husband would seem to be a bad fact.  The court found that “Sandra agreed to execute the third quitclaim deed, and understood what she was doing.”

Mekong Delta4Yet, the court made short work of the deed, noting that “spouses occupy a confidential and fiduciary relationship with each other.  The nature of this relationship imposes a duty of the highest good faith and fair dealing on each spouse as to any interspousal transaction.”   As such, the court explained that “if an interspousal transaction results in one spouse obtaining an advantage over the other, a rebuttable presumption of undue influence will attach to the transaction.”

Edward then bore the burden of proof, meaning that the deed was, for practical purposes, disregarded.  “The advantaged spouse must show, by a preponderance of evidence, that his or her advantage was not gained in violation of the fiduciary relationship.”

More bluntly, “The problem with Edward’s argument is that it essentially ignores the rule that the form of title presumption simply does not apply in cases in which it conflicts with the presumption that one spouse has exerted undue influence over the other.”

The court noted that “Sandra did testify she executed the 1998 deed freely and voluntarily, and that she understood the legal import of a quitclaim deed.  However, when Sandra agreed to deed her interest in the property to Edward, she did so based on his promise to restore her name to the title once the refinance was complete.  She now claims the transaction was predicated on a false promise, that Edward never intended to fulfill.”

So, Sandra prevailed on her claim based on the deed.  Yet, the second part of the decision is the surprise.  Found the court, “Prior to the parties’ separation, Sandra took a cash advance on a credit card of $24,000, but never disclosed the transaction to Edward.  The trial court found Sandra had breached her statutory fiduciary duty to her spouse.”

OK, so Sandra drew on a credit card before the couple separated.  “Spouses have fiduciary duties to each other as to the management and control of community property.”  Here’s the clincher.  “Once a breach is shown, the trial court lacks discretion to deny an aggrieved spouse’s request for attorney fees . . . The matter must be remanded to permit the trial court to determine the amount of attorney’s fee to which Edward is entitled.”

That is a profound holding.  Regardless of the lack of malice or bad faith, the finding of a breach of fiduciary duties triggered a mandatory award of attorney’s fees to the other spouse.

The dissent emphasized this point, stating “as a leading treatise observes, the statutorily imposed fiduciary duties in marital dissolution actions are extremely strict, making innocent violations easy to commit.  A mandatory award of attorney fees, imposed regardless of the value of the asset at issue and irrespective of need and ability to pay, is a harsh remedy for a violation that is merely technical and wholly innocent, as might often be the case.”

In re Marriage of Fossum (Feb. 1, 2011) 2011 DJDAR 1629

Aceves v. U.S. Bank – Promise by Lender to Negotiate with Borrower Gives Rise to Lawsuit

Monday, February 14th, 2011

For anyone dealing with distressed mortgages, the story about the lender who said it would “work” with a defaulted loan, only to abruptly proceed to foreclosure, is all-to-familiar.  A legal challenge against the lender must be based on existing legal precedent.

The January 27, 2011 decision in Aceves v. U.S. Bank, N.A. gives hope to borrowers who have been led on by their lender during the foreclosure period, only to have the lender change course and proceed with the sale of the property.

The decision provides a measure of relief by expressly stating that “promissory estoppel” is a theory of relief under California.  (More on this below).  However, the scope of the remedy is not certain, and the concluding portion of the opinion casts a damper over any expectation that Aceves will generate expansive relief for beleaguered homeowners.

The underlying facts were not complicated.  According to the lawsuit, Mrs. Aceves obtained an adjustable rate loan secured by a deed of trust on her residence. “About two years into the loan, she could not afford the monthly payments and filed for bankruptcy under chapter 7 of the Bankruptcy Code.”

According to the lawsuit, “Mrs. Aceves intended to convert the chapter 7 proceeding to a chapter 13 proceeding and to enlist the financial assistance of her husband to reinstate the loan, pay the arrearages, and resume the regular loan payments.”

In her complaint, Mrs. Aceves said that “she contacted the bank, which promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings. In reliance on that Mrs. Aceves did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank’s motion to lift the bankruptcy stay.”

The lender sought to have the complaint dismissed, which motion was rejected.  According to the court, “By promising to work with Mrs. Aceves to modify the loan in addition to reinstating it, U.S. Bank presented Mrs. Aceves with a compelling reason to opt for negotiations with the bank instead of seeking bankruptcy relief . . . But the bank did not work with plaintiff in an attempt to reinstate and modify the loan.  Rather, it completed the foreclosure.”

The decision does not reach the merits of the dispute, holding only that the action could proceed because the plaintiff stated a legally-recognized claim.  The court relied on the doctrine of “promissory estoppel,” which lies somewhere between fraud and contract.

Explained the court, “The elements of a promissory estoppel claim are (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.”

Thus, even where there is no legal contract, the injured party can seek relief.  Held the court, “To be enforceable, a promise need only be definite enough that a court can determine the scope of the duty, and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages . . . That a promise is conditional does not render it unenforceable or ambiguous.”

The famous decision in Hoffman v. Red Owl Stores, Inc., 26 Wis. 2d 683 (1965) explained that “Originally the doctrine of promissory estoppel was invoked as a substitute for consideration rendering a gratuitous promise enforceable as a contract.  In other words, the acts of reliance by the promisee to his detriment provided a substitute for consideration.”

The Wisconsin Supreme Court continued.  “We deem it would be a mistake to regard an action grounded on promissory estoppel as the equivalent of a breach-of-contract action . . .  The third requirement, that the remedy can only be invoked where necessary to avoid injustice, is one that involves a policy decision by the court.   ¶ We conclude that injustice would result here if plaintiffs were not granted some relief because of the failure of defendants to keep their promises which induced plaintiffs to act to their detriment.”

Returning to Mrs. Aceves, “the question [is] whether U.S. Bank made and kept a promise to negotiate with Mrs. Aceves, not whether [ ] the bank promised to make a loan or, more precisely, to modify a loan . . . The bank either did or did not negotiate.”

The court added that an oral promise to postpone either a loan payment or a foreclosure is unenforceable.  “In the absence of consideration, a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under Civil Code section 1698.  The same holds true for an oral promise to allow the postponement of mortgage payments.”

Yet, the court explained that “the doctrine of promissory estoppel is used to provide a substitute for the consideration which ordinarily is required to create an enforceable promise. The purpose of this doctrine is to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange.  Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement.”

Finally, a frosty conclusion.  “A promissory estoppel claim generally entitles a plaintiff to the damages available on a breach of contract claim.  Because this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure.”

The inescapable fact is that there is no way to know whether a lender will approve a request for a loan modification.  There are no unified rules or procedures for lenders to use in evaluating a request for a loan modification, meaning that the platitudes offered by lenders are almost always empty promises.

Aceves v. U.S. Bank, N.A. (January 27, 2011) 2011 DJDAR 1613

Kucker v. Kucker – General Assignment to Trust Includes Unspecified Stock

Monday, February 7th, 2011

The recent decision in Kucker v. Kucker focused on a narrow issue.  Is a general assignment of assets valid for transfer of stock into an estate planning trust?  The court answered in the affirmative, but not before confronting the statute of frauds.  And not before stating an important distinction regarding real property.

The facts were as follows. “On June 29, 2009, at the age of 84 years, [Mona Berkowitz]  signed a declaration creating a revocable inter vivos trust.  On the same date, [Mrs. Berkowitz] signed a general property assignment stating, “I . . . hereby assign, transfer and convey to Mona S. Berkowitz, Trustee of the [the Trust], all of my right, title and interest in all property owned by me, both real and personal and wherever located.”

Mrs. Berkowitz “died in November 2009. In February 2010, appellants filed a petition to confirm that 3,017 shares of stock in Medco Health Solutions, Inc., (Medco) were an asset of the Trust.”

Here is where the dispute arose.  “Medco was not mentioned in the assignment of stock signed by the Trustor on October 29, 2009.  Appellants declared that the Medco shares were not held in the Trust’s brokerage account at the time of the Trustor’s death.”

The beneficiaries of the estate planning trust sought a declaration that the Medco stock was an asset of the trust.  The trial court held that “Probate Code section 15207 must be read in conjunction with Civil Code section 1624(a)(7).  In those instances where the settler intends to transfer assets in excess of $100,000, a writing specifically describing the property is required. Accordingly, the petition confirming assets in the trust is denied.”

Mekong Delta

This ruling was reversed on appeal.  The appellate court first dealt with the statute of frauds issue, holding that, “Civil Code section 1624, subdivision (a)(7), cannot be construed as applying to the transfer of shares of stock to a Trust.  The plain meaning of the words of the statute manifests a legislative intent to limit the statute’s application to agreements to loan money or extend credit made by persons in the business of loaning money or extending credit.”

Then the court turned to the effect of the assignment.  As to land, a general assignment is not effective.  “The General Assignment was ineffective to transfer the Trustor’s real property to the Trust.  To satisfy the statute of frauds, the General Assignment was required to describe the real property so that it could be identified.”

According to the court, this restriction does not apply to shares of stock.  “The issue here concerns the Trustor’s transfer of shares of stock, not real property. The statute of frauds does not apply to such a transfer. (Civ. Code, § 1624.)  There is no California authority invalidating a transfer of shares of stock to a trust because a general assignment of personal property did not identify the shares.  Nor should there be.”

Held the court, “it was unnecessary for the General Assignment to identify the Medco stock.  The practice guide says that such a general assignment of personal property is a commonly used estate planning tool.”

So, the general assignment saves the day for the transfer of stock into an estate planning trust.

Kucker v. Kucker (Jan. 26, 2011) 2011 DJDAR 1477