Marriage of Simmons CA2/6 ( 2020 )

Filed 11/19/20 Marriage of Simmons CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
In re Marriage of WINDY and 2d Civil No. B298608
GEORGE SIMMONS. (Super. Ct. No. D351612)
(Ventura County)
WINDY SIMMONS,
Appellant, [REDACTED]
v.
GEORGE SIMMONS,
Respondent.
Windy Simmons (wife) appeals from a second judgment on
reserved issues filed in April 2019 and a postjudgment order
denying her motion to set aside portions of the judgment. Wife
contends that the trial court erroneously ruled that proceeds
received by wife’s former husband, George Simmons (husband),
are his separate property. Years after the parties had separated,
husband received the proceeds in settlement of his claim against
a company that had purchased his business, employed him to
help run the business, and subsequently fired him. Wife argues
that the proceeds are community property that must be divided
equally between the parties. In addition, wife claims that the
trial court erroneously denied her request for additional child
support. We affirm.
Sealed Clerk’s Transcript
The record consists of a reporter’s transcript of a court trial,
a two-volume clerk’s transcript, and a sealed clerk’s transcript
that includes, inter alia, the agreement for the purchase of
husband’s business. We have concurrently filed public (redacted)
and sealed (unredacted) versions of this opinion. We hereby
order the unredacted version sealed. Both the redacted and
unredacted versions shall be provided to the parties. Omissions
in the public (redacted) version are shown by the notation,
[REDACTED AND FILED UNDER SEAL].
Pursuant to rule 8.46(g)(2)(A) and (B) of the California
Rules of Court, the parties were required to file a public redacted
version and a confidential unredacted version of their briefs.
Husband complied with this requirement, but wife failed to
comply. Although wife’s briefs refer to the sealed clerk’s
transcript, she filed only a public unredacted version. To protect
the confidentiality of the sealed documents, we hereby order
wife’s opening and reply briefs sealed.
Facts
The parties married in June 1996. They separated in July
2012. A judgment of dissolution of marriage was filed in October
2015. During the marriage and before the parties separated,
husband acquired a 20 percent interest in Zindagi Games, Inc.
2
(Zindagi). The remaining 80 percent was owned by Umrao
Mayer.
In 2016 Zindagi’s business was sold to AZ pursuant to an
“asset purchase agreement,” hereafter “purchase agreement.”1
[REDACTED AND FILED UNDER SEAL]
After the sale Zindagi continued to exist, but it had no
assets. A stipulated judgment on reserved issues, signed by the
court and parties in February 2019, decreed that after the sale
husband “has a 20% interest in Zindagi Games, Inc. which is
entirely community property.”
The purchase agreement “provided for a lump sum
payment [from AZ to Zindagi] . . . of approximately $15,000,000
minus certain escrow funds.” [REDACTED AND FILED
UNDER SEAL]
Husband received his 20 percent share in 2016. His gain
on the sale was $2.775 million. According to the February 2019
stipulated judgment on reserved issues, the proceeds from the
sale are community property.
AZ hired about 63 of Zindagi’s employees, including
husband and Mayer. The statement of decision states that
“[b]oth [h]usband and Mayer accepted . . . employment contracts
as at-will employees of AZ.”
[REDACTED AND FILED UNDER SEAL]
The purchase agreement “provided for certain performance
consideration to be paid to Zindagi.” [REDACTED AND FILED
UNDER SEAL] Umrao Mayer explained: “There were metrics
1 Wife’s opening brief notes: “‘AZ’ is a pseudonym used . . .
at Trial for the purchasing company. That is not the true name
of the company . . . .” The true name is confidential.
3
that we [Zindagi’s business as sold to AZ] had to hit. And if we
hit these metrics that had to do with how much revenue per day
and how profitable we were, then we got some multiple of that
profit paid back to us as performance consideration.” “After 18
months, we had to be at $60,000 a day and profitable or AZ could
pull the plug and close down the business unit . . . .”
Mayer referred to the performance consideration as
“‘earnouts.’” [REDACTED AND FILED UNDER SEAL] The
earnouts were payable “[a]t the end of each year for three years”
– 2016, 2017, and 2018. They were to “be paid to Zindagi [which
was] obligated to distribute [them] to . . . [Mayer] and [husband]”
in proportion to their ownership interest in Zindagi.
The earnouts “were measured by annual net income of the
Zindagi business unit.” [REDACTED AND FILED UNDER
SEAL]
[REDACTED AND FILED UNDER SEAL]
Before selling Zindagi’s business, Mayer contemplated that,
including the expected performance consideration, Zindagi would
receive $75 million from the sale. Thus, he expected performance
consideration of approximately $60 million. Mayer testified,
“[W]e wouldn’t have sold our company for $15,000,000.”
No performance consideration was paid. Effective
December 1, 2016, just short of one year after husband had
started working for AZ, his employment was terminated. AZ also
terminated Mayer’s employment.
In April 2017 husband and Mayer filed a demand for
arbitration of the performance consideration issue. They claimed
that AZ’s termination of their employment had denied them the
opportunity to earn performance consideration.
4
The arbitration was settled by AZ’s payment of $13 million
to Zindagi. Mayer treated his 80 percent share of the $13 million
as a capital gain “because it was gained on the sale of the Zindagi
assets.” Mayer testified, “This was just like when we sold the
business, I got my 80 percent, [husband] got his 20 percent. It
was part of the business sale.”
Husband’s 20 percent share of the settlement, less attorney
fees, was $2,231,368. On his 2017 federal income tax return,
husband reported his share as a long-term capital gain of
$2,099,626 from the sale of Zindagi’s assets. Husband testified
that it “was a mistake” to characterize the transaction as
“proceeds from the sale of Zindagi assets.”
The parties agree that they have a community property
interest in $225,000 of husband’s share of the settlement
proceeds. According to husband, the $225,000 is 20 percent “of
the amount AZ had held back from the purchase price” of
Zindagi’s assets. Wife contends that the remainder of the
settlement proceeds, hereafter referred to as “the settlement
proceeds” or “the arbitration recovery,” is also community
property. Husband claims that the remainder is his separate
property. In February 2019 a court trial was conducted on this
issue.
Statement of Decision
The trial court filed an 11-page statement of decision. It
concluded that the settlement proceeds are husband’s separate
property. The court reasoned: “Notwithstanding Mayer’s
testimony that he would not have sold Zindagi for 15 million (the
original sale price), the additional earnout payments were not
guaranteed. The payments were based on the performance of the
employees of AZ working in the Zindagi Business Unit. Had
5
those earnouts been received, they would have been the result of
the [Zindagi] team’s post-separation efforts as employees, not
owners. Husband no longer had an ownership interest in Zindagi
. . . . Further, the court is not persuaded by Husband’s and
Mayer’s designation of the arbitration settlement (for the
performance payments) as capital gains on the sale of Zindagi.
What may be designated in one way for favorable tax treatment
is not dispositive for the purpose of characterization [of property]
in the marital action. [Citation.]” (Underlining omitted.)
Standard of Review
“[W]e review the trial court’s factual findings regarding the
character[ization] . . . of the parties’ property [as separate or
community] under the substantial evidence standard.” (In re
Marriage of Sivyer-Foley & Foley (2010) 189 Cal. App. 4th 521,
526.) “But de novo review is appropriate where resolution of ‘the
issue . . . requires a critical consideration, in a factual context, of
legal principles and their underlying values [because] the
determination in question amounts to the resolution of a mixed
question of law and fact that is predominantly one of law.’” (In re
Marriage of Rossin (2009) 172 Cal. App. 4th 725, 734.)
No Error in Characterizing Settlement
Proceeds as Husband’s Separate Property
Wife argues that the trial court erroneously characterized
the settlement proceeds as husband’s separate property. Wife
reasons: “[T]he real question is, what is the ‘source’ of the
arbitration settlement recovery? The ‘source’ was, in fact,
community property. The recovery was based upon claims
derived from a claimed breach of the Assets Purchase Agreement.
That agreement was obtained in exchange for a sale of Zindagi
assets. Since the Court found that [husband’s] 20% interest in
6
Zindagi at the time of sale was community property, the ultimate
‘source’ of the arbitration recovery was, therefore, community
property.” Wife contends that, because the source of the
arbitration recovery was community property, the recovery itself
was also community property: “Once the source [of an asset] is
determined to be community property, then that asset, as well, is
community property.” (Capitalization and bold omitted.) (See In
re Marriage of Mahone (1981) 123 Cal. App. 3d 17, 24 [“where
property has been acquired with commingled separate and
community funds, . . . each retain[s] its own character if clearly
ascertainable by tracing its source”].)
The parties’ 20 percent community property interest in
Zindagi was the source of husband’s share of the $15 million
purchase price for Zindagi’s business. Since the source was
community property, husband’s share of the $15 million was also
community property. But the source of the arbitration recovery
was not the parties’ community property interest in Zindagi. The
source was (1) an employment contract between AZ and husband,
and (2) a provision in the purchase agreement that gave husband
a contractual right to earn performance consideration if, during
his employment, Zindagi’s business as sold to AZ exceeded
specified levels of profitability.
“[C]ontractual rights, where the right to payment is earned
during marriage, are community property . . . .” (In re Marriage
of Fonstein (1976) 17 Cal. 3d 738, 746.) Husband’s right to the
payment of performance consideration could not be earned during
his marriage to wife. The parties separated in 2012, and
Zindagi’s business was sold more than three years later in 2016.
Thus, performance consideration could be earned only after
separation. The use of the term “earned” is appropriate because
7
AZ employed husband to help run the business. [REDACTED
AND FILED UNDER SEAL] “The earnings and accumulations
of a spouse . . . after the date of separation of the spouses, are the
separate property of the spouse.” (Fam. Code, § 771, subd. (a).)
If performance consideration had actually been paid to
husband pursuant to the purchase agreement, it would have been
his separate property because it would have been earned through
his post-separation performance as AZ’s employee. (See Garfein
v. Garfein (1971) 16 Cal. App. 3d 155, 159 [“Since the payments
made after [the date of separation] were ‘earned’ after that date,
they were separate property”].) The settlement proceeds were
paid to husband as compensation for the denial of the
opportunity to earn performance consideration.2 Since
performance consideration, if earned, would have been husband’s
separate property, it follows that the settlement proceeds paid to
compensate him for the denial of the opportunity to earn
performance consideration is also his separate property.
Wife maintains that husband’s arbitration recovery should
be characterized as community property because on his federal
income tax return he reported the transaction as a capital gain
from the sale of Zindagi’s assets. But recitals in income tax
returns are not conclusive proof as to the character of property.
(Hopkins v. Detrick (1950) 97 Cal. App. 2d 50, 56-57.) Husband
testified that it “was a mistake” to characterize the transaction as
“proceeds from the sale of Zindagi assets.” The proceeds were
2 [REDACTED AND FILED UNDER SEAL]
8
from “the arbitration settlement, not the sale of the assets,
obviously.”3
In its statement of decision the trial court concluded that,
because husband’s “cause of action against AZ arose post-
separation,” wife “has the burden to establish that the settlement
of the cause of action is traceable to a community claim.” Wife
contends that the trial court erred in imposing on her the burden
of proving that the arbitration recovery was community property.
She asserts that “the burden should have [been imposed on
husband] to prove that the recovery was not community
property.” We need not consider this issue. If husband had the
burden of proving that the recovery was not community property,
he met his burden.
We reject as baseless wife’s claim that “[t]o allow [husband]
to keep the arbitration settlement without compensation to the
community is contrary to his duty as a fiduciary.” Wife reasons:
“[I]f the arbitration settlement proceeds were separate property,
that means that [husband] somehow ‘converted’ the Zindagi
[community property] assets into separate property by selling
them through an Assets Purchase Agreement, and then later
collecting the benefits of that contract through an arbitration
settlement. Or, he gave away Zindagi assets without
consideration to the community estate.” Husband did not convert
community property into separate property or give away
3 The tax return was prepared by husband’s accountant,
who testified at the trial. The accountant was asked, “Do you
recall there having been an arbitration that was the source of the
settlement?” The accountant replied: “I don’t know what the
source of the settlement was. I just got the number.”
9
community property. The settlement proceeds compensated him
for the lost opportunity to earn performance consideration.
Child Support
The parties have three children. In view of the trial court’s
ruling that the settlement proceeds are husband’s separate
property, wife maintains that the court erroneously denied her
request for additional child support. The court did not err
because wife had failed to file a notice of motion or order to show
cause to modify child support. (See Cal. Rules of Court, rule 5.92;
In re Marriage of Gruen (2011) 191 Cal. App. 4th 627, 640.)
Disposition
The second judgment on reserved issues and the
postjudgment order denying wife’s motion to set aside portions of
the judgment are affirmed. Husband shall recover his costs on
appeal.
NOT TO BE PUBLISHED.
YEGAN, J.
We concur:
GILBERT, P. J.
PERREN, J.
10
JoAnn Johnson, Judge
Superior Court County of Ventura
______________________________
Brian M. Moore, a Law Corporation; Feinberg & Waller
and Brian M. Moore for Appellant.
Norris Legal Group and Gary W. Norris; Ferguson Case
Orr Paterson, Wendy C. Lascher and John A. Hribar for
Respondent.