Nassimi v. Nassimi (In re Nassimi)

3 Cal.App.5th 667

207 Cal.Rptr.3d 764

IN RE MARRIAGE OF Shary NASSIMI and Esther Nassimi.

Shary Nassimi, Appellant,

v.Esther Nassimi, Respondent.

B259704

B260574

Court of Appeal, Second District, Division 4, California.

Filed September 26, 2016

As Modified October 14, 2016

Honey Kessler Amado, Beverly Hills, for Appellant.

Lurie, Zepeda, Schmalz, Hogan & Martin, Kurt L. Schmalz and Shawn M. Ogle, Beverly Hills, for Respondent.

MANELLA, J.

Appellant Shary Nassimi, formerly married to respondent Esther Nassimi, contends the trial court erred in concluding that he, alone, was financially responsible for defending and settling a claim brought by a third party seeking, among other things, rescission of an agreement to sell the business he owned and operated during the marriage. We conclude the liability arising from the claim for rescission and other relief initiated by the third party was a community obligation omitted from the marital dissolution judgment that divided the couple's assets and obligations, subject to division under Family Code section 2556.¹ We find, therefore, that respondent was obligated to pay half the cost of settling the litigation and reverse the court's order to the extent it denied appellant this relief.

With respect to the costs and attorney fees appellant incurred prior to the settlement, appellant's litigation expenses included the cost of his unsuccessful pursuit of certain counterclaims. The expense of pursuing those claims was allocated to him by the judgment, and appellant failed to present sufficient evidence to enable the trial court to distinguish fees and costs potentially chargeable to respondent for defense of the third party's claims for affirmative relief from fees and costs incurred in pursuit of appellant's counterclaims. Accordingly, we affirm the court's order to the extent it denied appellant's request for reimbursement of attorney fees and costs.

The trial court, having found against appellant on the above issues and on other issues raised in the underlying family law proceeding that are not part of this appeal, awarded respondent attorney fees as the “prevailing party” pursuant to the terms of the judgment. We agree the prevailing party provision of the judgment controlled. However, in view of our partial reversal of the trial court's order, we reverse the attorney fee award in favor of respondent and remand for reconsideration of the identity of the prevailing party, if any.

FACTUAL AND PROCEDURAL BACKGROUND

Appellant and respondent were married for 21 years. In August 2008, they separated. Their judgment of dissolution was entered in June 2009.

A. Sale of Appellant's Business

In July 2007, one year prior to the couple's separation, appellant sold International Electronics, Inc. (IEI), the business he owned and operated during the marriage, to The Chamberlain Group, Inc. (Chamberlain).² Under their agreement (hereafter, “the Purchase Agreement”), Chamberlain agreed to pay $14 million up front, a $12,000 per month consulting fee for two years, and a percentage of net sales revenue attributable to IEI products for five years, up to a total of an additional $10 million.³ One million dollars of the up front payment was held in an escrow account as a reserve against any claims by Chamberlain against appellant that might arise within 24 months of the sale.⁴ The Purchase Agreement stated that “[t]o Seller's Knowledge, no event has occurred or circumstance exists that ... may cause [IEI] to violate any Law....”⁵

Although appellant owned all the shares of IEI in his own name and signed the Purchase Agreement as the sole “Seller,” he has never disputed that IEI was community property. In July 2007, respondent signed a “Consent of Spouse” document, consenting to the sale, approving the provisions of the Purchase Agreement, and acknowledging that IEI and its assets, “including any community property interest that [she] may have in them,” were subject to the Purchase Agreement. A substantial portion of the cash proceeds from the sale were spent on the couple's residence on Sea View Drive in Malibu, which they owned free of mortgage at the time of separation.⁶

B. Judgment of Dissolution

In June 2009, the parties entered into a stipulated judgment of dissolution, which included a mediated financial settlement. The judgment incorporated the parties' agreement concerning the division of property, referred to as the marital settlement agreement.⁷ The couple's two residences, including the home on Sea View, were deemed community property, as was the $12,000 per month consulting fee due appellant under the Purchase Agreement. Each spouse was awarded 50 percent of these assets.

The 2009 judgment addressed the funds in the escrow account. Paragraph 7(g) of the judgment provided: “All right, title, and interest in the following claims is awarded to the parties equally: Escrow claim against IEI in the amount of $1 million. The parties shall share in any recovery equally, and shall pay the cost of pursuing such claim (including attorneys' fees) equally.”

The next paragraph, 7(h), dealt with earn-out payments. It provided: “All right, title, and interest in any claim against Chamberlain arising from conflicting interpretations of the earn-out provisions of the sale of [IEI] to Chamberlain is awarded to [appellant]. Respondent shall have no right to share in any recovery, and no obligation to pay all or any part of the cost of pursing any such claim (including attorneys' fees). [Appellant] shall indemnify and hold respondent harmless against liability on account of any counter-claim or cross-complaint that may be filed by Chamberlain against the parties, excluding any claim covered by paragraph 7.g.i. [sic] of this Judgment.”⁸

Paragraph 10 dealt with “[c]ommunity [d]ebts.” Paragraph 10(f) stated: “Except as otherwise provided in this Judgment, any community debt or joint debt that has not been previously paid or provided for shall be paid by the party who incurred such debt who shall indemnify and hold the other party harmless against any liability on account thereof.”

Paragraph 13 was entitled “Separate Liabilities.” Subparagraph (a) provided that appellant “shall pay and discharge as and when due all debts incurred by him after the date of separation and shall indemnify and hold respondent free and harmless against any liability on account thereof.” Subparagraph (b) imposed a similar liability on respondent. Subparagraph (c) provided: “[T]he parties acknowledge and agree that neither party has an obligation to pay any expense incurred by the other except as provided in this Judgment. Unless the parties agree to allocate payment responsibility between themselves for an expense incurred by one of them, the expense shall be paid by the party who incurred it, who shall indemnify and hold the other party harmless against liability on account thereof.”

Paragraph 34 contained the parties' mutual releases. In paragraphs 34(a) and (b), appellant and respondent released each other from “any and all rights, claims, demands, debts, obligations, liabilities, costs, expenses, causes of action, and judgments, which exist or which [appellant] may claim to exist in favor of [appellant] and against respondent with regard to or arising out of any transactions or event[s] that occurred prior to the date of this Judgment.” Paragraph 34(c) stated: “[T]he parties understand and agree that the released claims are intended to and do include all claims, known or unknown, suspected or unsuspected, foreseen or unforeseen, which either [appellant] or respondent ha[s] or may have against the other arising out of or relating to any transaction or event that occurred prior to the date of this Judgment....” Paragraph 34(c) included a waiver of rights under section 1542 of the California Civil Code.⁹

C. Chamberlain Litigation

In April 2008, nine months after the sale and several months before the parties separated, Chamberlain sent a “Claim Notice of Buyer to Seller and Escrow Agent,” asserting that there were eight IEI products not in compliance with Federal Communications Commission (FCC) regulations, as they were “not being manufactured in accordance with the approved specifications,” and that necessary certification could not be located for three other products.¹⁰ The letter stated: “Seller's failure to disclose that numerous products failed to meet FCC regulations prior to and as of the closing date of the transaction constitutes a breach of [various provisions in the Purchase Agreement]. [¶] ... [¶] Jim Crider [IEI's chief engineer] has admitted ... that he had actual knowledge of these issues and has admitted ... that Seller had actual knowledge of these issues. Indeed, Mr. Crider will testify that Seller instructed him to make the change to the Transmitter [one of the products identified as noncompliant] which resulted in noncompliance with FCC regulations.” The next month, Chamberlain sent a follow-up letter, in which it estimated the cost of addressing the product noncompliance identified in the April letter at approximately $285,000, not including any FCC fines or penalties that might be imposed.¹¹

In July 2009, Chamberlain filed suit against appellant in the United States District Court for the Western District of Washington.¹² The complaint was based on the provision in the Purchase Agreement representing that IEI was in compliance with all applicable laws and regulations. It alleged that Chamberlain had discovered that “many, if not all” of the devices manufactured by IEI did not comply with applicable regulations. Chamberlain contended that IEI's employees, acting under appellant's direction, modified software coding to make it appear the devices at issue were transmitting in a low-power range when tested by FCC laboratories, but thereafter restored the higher power levels for manufacture and sale. Chamberlain sought to rescind the transaction or, in the alternative, to obtain monetary damages for breach of contract and...