Mr. Adelstein has handled several appeals involving family law issues.
The Court of Appeal in this case adopted Mr. Adelstein's interpretation of the law of spousal fiduciary duties under Family Code, sections 721 and 1100. After the published decision in this case, the California Legislature amended the statute to clarify the law further.
First, some general background on fiduciary duties. Certain relationships involve one person in a position of trust acting on behalf on another person or entity. These are called fiduciary relationships, and examples include lawyers and clients, corporate officers or directors and corporations, and trustees and beneficiaries. In such situations, the fiduciary owes "fiduciary duties" to the beneficiary. But just what are these fiduciary duties? Justice Frankfurter noted this question in a different context when he wrote, "But to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary?" (SEC v. Chenery Corp. (1943) 318 U.S. 80, 85-86, 63 S.Ct. 454, 458, 87 L.Ed. 626.)
In general, there are two broad fiduciary duties: the duty of loyalty and the duty of care. The duty of loyalty requires the fiduciary to place the beneficiary's interests above his own. For example, a corporate director nay not take profitable corporate opportunities for himself. The duty of care requires that the fiduciary exercise reasonable care in performing his duties. For example, a trustee who invests money for a beneficial must act as a reasonably prudent investor, and may not invest in overly risky companies.
All this is straightforward, at least as far as it goes. But the application of these principals to spouses has caused some problems.
By statute, spouses are fiduciaries. Each spouse owes the other fiduciary duties. But what does these duties include?
Well, they certainly include the duty of loyalty. A spouse may not, for example, take marital assets and secretly transfer them to their own separate property assets. And a spouse must truthfully disclose information regarding marital property to the other spouse.
But does it include the duty of care? In particular, is a spouse required to invest community property as prudently as, say, a trustee?
The answer is no. But the trial court in this case said yes.
Here, Mr. Adelstein represented the husband. During the marriage, he was responsible for investing the family's assets. During the dot come boom, he had invested in a several profitable publicly-traded companies. He eventually consolidated all of the investments in one company, and it fell in value. Later, the parties filed for divorce, and the wife claimed that the husband had violated the duties of a reasonably prudent investor by making these investments. The trial court agreed (sort of) and reduced the husband's share of the marital property he would receive.
The Court of Appeal reversed. After a detailed analysis of the statutory language, case law history, and legislative history, the court adopted Mr. Adelstein's argument that spousal fiduciary duties did not include the duty of care. That is, spouses are not required to act as reasonably prudent investors with regard to marital assets.
(The opinion was initially unpublished, but Mr. Adelstein petitioned the Supreme Court to publish the opinion. Once Mr. Adelstein filed this petition, the Court of Appeal issued an order stating that it changed its mind and now believed its opinion should be published. The Supreme Court then ordered it published.)
This case has a complex aftermath. After the appeal was resolved, the wife filed bankruptcy claiming she had no significant assets. The husband filed an adversarial complaint in the bankruptcy action, and the trial court dismissed it on technical grounds. Mr. Adelstein represented the husband again, and the 9th Circuit BAP reversed the judgment and the 9th Circuit affirmed. Details here.
Case Comment
Mr. Adelstein obtained a triple appellate victory for this client in these related matters: a reversal in the underlying family law case, a reversal in the BAP, and an affirmance in the 9th Circuit.
Case Data
Court of Appeal Opinion.
Court: California Court of Appeal, Second Appellate District, Division One (Los
Angeles)
Case No. B136160
Citation: In Re Marriage of Duffy (2001) 91 Cal.App.4th. 923
Author: Presiding Justice Vaino Spencer
Opinion Date: May 31, 2001
Trial Counsel: Miles J. Rubin and Lauri
Kritt Martin
The Court of Appeal agered with Mr. Adelstein that the trial court had miscalculated child support by estimating the timeshare rather than actually calculating it. However, the Court of Appeal disagreed with Mr. Adelstein's claim that the trial court had miscalculated the percentage of the husband's bonus due under a marital settlement agreement and Smith-Ostler.
Case Data
Court of Appeal Opinion.
Court: California Court of Appeal, Second Appellate District, Division One (Los
Angeles)
Case No. B251847
Author: Justice Victoria Chaney
Opinion Date: October 16, 2015
Trial Counsel: Alan Klein
Mr. Adelstein's client was involved in an odd and complex family law case, involving a marriage process that was never completed, mulistate proceedings dismissed pursuant to stipulated judgments, and ongoing California proceedings. The other side filed a motion to set aside these stipulatied judgments years later, lost, renewed the motion based on a new appellate court case, and lost that renewed motion. She then appealed. Mr. Adelstein briefed the issue on the merits, but -- realizing that the other side had not appealed from an appealable order -- briefed that extenstively. The issue was so complex thsat the Court of Appeal deferred a motion to dismiss the appeal until after the appellate briefing was completed and it had heard oral argument. But the Court of Appeal agreed with Mr. Adelstein that the appellant had not appealed from an appealable order and dismissed the appeal without reaching the merits.
Case Comment
This case shows the importance of thinking about both the appellate procedural issues as well as the underlying facts and relelvant law. Mr. Adelstein prevailed here without the Court of Appeal ever discussing the underlying issues.
Case Data
Court of Appeal Opinion.
Court: California Court of Appeal, Second Appellate District, Division Seven
(Los Angeles)
Case No. B233650
Citation: Leticia V. v. Jonathan A.
Author: Justice Fred Woods
Opinion Date: August 14, 2013
Trial Counsel: Manley Fried and Cori B. Steinberg at Fried and Goldsman
Mr. Adelstein represented the husband in this family law appeal. The wife initially appealed, and the husband (my client), who is an orthodontist, cross-appealed. There were several issues on appeal. The wife claimed Watts credits for the husband's "use" of the community orthodontic practice. This is complex issue that will probably see more litigation. She also claimed he breached his fiduciary duties involving a tax refund. The husband asserted that the trial court had misvalued the community orthodontic practice, including the value of its goodwill, and had made some technical accounting errors. The Court of Appeal in Los Angeles (Second Appellate District, Division Seven) affirmed everything. So we prevailed against the wife's appeal, but unfortunately were not successful on our cross-appeal.
Case Comment
This case raised at last two interesting issues that courts will continue to wrestle with. In In re Marriage of Watts (1985) 171 Cal.App.3d 366, the Court of Appeal held that the trial court has discretion to require a spouse who has exclusive use of the community-owned residence to reimburse the community for the value of that exclusive use. Cases involving these "Watts credits" typically involve the use of marital residences. However, Watts itself involved not just the community residence but also a community medical practice. The issue of whether a professional spouse can be charged for the "use" community assets in the professional practice is an interesting and complicated one, and one that the Courts of Appeal had not completely analyzed. Watts leaves open this possibility, and it does seem proper to charge the spouse for using a community asset. On the other hand, there are countless problems with doing so. The first is an offset for interim spousal support. Interim spousal support depends on the income of the two parties, and if one spouse pays the other what is essentially rent for the use of a community asset, it would simply decrease that spouse's net income and increase the other spouse's income. Depending on the way interim support is calculated, that offset is probably not 100% but is probably very close to it. Moreover, any number is going to be very imprecise since there is no rental market for such assets. Also, it is complex and expensive to hire experts to value community assets. So allowing this may force the parties to spent considerable sums to determine an imprecise estimate of rental value, almost all of which will be offset in any case. We prevailed on this issue, and the Court of Appeal held that the trial court had the discretion not to award a Watts credit here, especially in light of the evidence the wife submitted
Case Comment
The second issue is whether the trial court must use market data in determining the value of a marketable community asset, or whether the trial court may use more artificial methods that are untethered from real-world market transactions. In re Marriage of Sharp (1985) 171 Cal.App.3d 366 holds that market-based methods are required, at least where there is good data, and economic theory supports this conclusion. Courts would not permit a trial court to value a residence without referring to actual market data; it is not clear why a marketable professional practice should be any different. However, many cases hold that the trial court has the broad discretion to choose any valuation method. Unfortunately, we did not prevail on this issue. The Court of Appeal here sided with the cases that allowed the trial court broad discretion. This issue will come to a head when a trial court chooses a valuation method that produces a value that is markedly different than the market value of the practice. My advice to trial attorneys facing this issue: present solid evidence of market value, argue both In re Marriage of Sharp and economic theory, and if you lose, call me.
Case Data
Court of Appeal Opinion.
Court: California Court of Appeal, Second Appellate District, Division Seven
(Los Angeles)
Case No. B196973
Citation: In Re Marriage of Theurer
Author: Presiding Justice Dennis Perluss
Opinion Date: November 17, 2009
Trial Counsel: Lionel Levin at Levin, Margolin & Itzkowitz
This case involved the interpretation of a contract.
The husband and wife were contemplating divorce, but were living in separate bedrooms in the husband's separate property five-bedroom house. They entered into an agreement under which the wife received 40% of the total value of the house in exchange for assuming the full balance of the loan. The loan balance was exactly equal to 40% of the value of the house. Both parties expected the house to increase in value.
The wife made the loan payments for several years. She then moved out, stopped making the loan payments, and filed for divorce. Unfortunately, by this time the house had decreased in value. The trial court misinterpreted the contract to give the wife 40% of the equity in the house rather than 40% of the total value of the house and 100% of the total debt. The court ordered the house transferred to the wife and ordered the wife to pay the husband his share of the proceeds. The result was that the wife obtained a huge windfall.
Mr. Adelstein represented the husband on appeal and obtained a reversal. The Court of Appeal held that the trial court had misinterpreted the contract and increased the husband's share of the property.
Case Comment
Mr. Adelstein obtained a double appellate victory for this client: a reversal in the underlying family law case here and a reversal of an order denying the husband's request to recover some of these proceeds. Details here.
Case Data
Court of Appeal Opinion.
Court: California Court of Appeal, Second Appellate District, Division Three
(Los Angeles)
Case No. B109039
Author: Presiding Justice Joan Dempsey Klein
Opinion Date: December 22, 1998
This case involved two unfavorable orders modifying child support. Mr. Adelstein represented the custodial parent who was receiving support, and obtained a reversal of both orders.
Case Data
Court of Appeal Opinion.
Court: California Court of Appeal, Fourth Appellate District, Division One (San
Diego)
Case No. D042346
Author: Justice Joan K. Irion
Opinion Date: January 24, 2005
The non-custodial father filed a request for a modification in the child custody order increasing his custody time. In response, the wife filed a declaration seeking to increase her time. The trial court sided with the mother. The father appealed. Mr. Adelstein represented the mother on appeal.
The father (who represented himself) asserted that Family Code, section 3040 subdivision (b) (which gives the trial court broad discretion to determine the best interest of the child) is unconstitutional. He argued that court's lacked the ability to determine the best interest of the child, and under the due process clause this required courts to split custody 50-50, unless the parties agreed otherwise, or unless one parent was actually abusive. This was an interesting and complex constitutional argument, and the Court of Appeal rejected it.
Case Comment
In one key way, this opinion represented the best in judging. Litigants who represent themselves sometimes make unusual arguments, and more often then not, these are unsound and poorly researched arguments. When faced with this situation, both trial courts and appellate courts sometimes reject the novel argument in a curt and dismissive way. I think this is a huge mistake. The justice system depends upon widespread acceptance of both the impartiality and the rationality of judicial decision making. And while it is difficult for a court to parse, consider, analyze, and respond to a complex and strange argument, it is incumbent upon the court to do so. The failure to do so seriously undermines confidence in the justice system as a whole.
The Court of Appeal here did exactly what it should have done. The father made his argument clearly and coherently. There were some flaws in his reasoning, at least as I saw it, especially regarding the allocation of powers between the legislature and the courts. But the issue was quite serious: the amount of time the father spent with his children was at stake. Justice Hastings (and his research attorneys, no doubt) carefully analyzed the father's arguments and responded in detail to every one. The father was no doubt disappointed in the result, but I do not think he could fairly claim that he did not have a fair and impartial hearing by competent judges who took his claims seriously.
Case Data
Court of Appeal Opinion.
Court: California Court of Appeal, Second Appellate District, Division Four
(Los Angeles)
Case No. B151452
Author: Justice Gary Hasting
Opinion Date: June 20, 2002
Trial Counsel: Fern Topas Salka of Family
Resolution Services.
In this case, the parents had joint legal custody and the wife had primary physical custody. The father moved to obtained sole legal custody, essentially as punishment for what he claimed was the wife's failure to comply with a court order. The trial court held that the wife largely complied with the court's order, and her inability to comply completely was caused by the husband's lack of cooperation. Moreover, even if the wife had not complied, depriving her of legal custody was not an appropriate punishment for such a violation. For some reason, the father appealed. Mr. Adelstein represented the mother on appeal. The trial court's decision was obviously correct, and the Court of Appeal affirmed in a very short and somewhat snippy opinion.
Case Data
Court: California Court of Appeal, Second Appellate
District, Division One (Los Angeles)
Case No. B135164
Author: Justice Miriam A. Vogel
Opinion Date: April 27, 2000
The trial court ordered the proceeds from the sale of the house to be used to pay certain community debts. The wife, dissatisfied with this result, appealed and filed a petition for a writ of supersedeas. Mr. Adelstein represented the husband on appeal and opposed the supersedeas petition. The Court of Appeal denied the petition, and the wife then abandoned her appeal.
Case Data
Court: California Court of Appeal, Second Appellate
District, Division One (Los Angeles)
Case No. B174099
Order Date: April 12, 2004
Trial Counsel: Susan E. Wiesner at Susan
E. Wiesner, A Law Corporation.