Gone Surfin: Ventura County’s Eclectic Collection Of Lawyers Who Surf (Or Surfers Who Lawyer)


By Gregory W. Herring, CFLS, AAML, IAFL

“Captain James Cook, later killed and perhaps eaten by Hawaiians, noted that Tahitians were not ‘strangers to the soothing effects produced by particular sorts of motion’ — meaning surfing–‘which in some cases seem to allay any perturbation of mind with as much success as music’.”1 A good number of Ventura County’s attorneys, too, are familiar with the sport/art. With miles of coastline available right outside our office doors, many of us regularly suit up and hit the waves as a means of dispelling the mental “perturbations” arising from the stress and worries of our practices.

Rick Loy, for instance, began surfing in 1958 on a 7’6″ Hobie balsa board at Laguna and Doheny Beaches. During the monster swell in January 1998, he took the morning off from work to check out the “closeout” (unsurfable) waves at “Mandos,” near Faria Beach. The Los Angeles Times interviewed him on the beach, after which he was quoted in print, stating that he tells his clients that something “big” has come up whenever significant swells hit the area. He makes the surfing experience a family adventure whenever possible, too.

Alan Templeman has also garnered press attention through his association with the South Jetty Swells. The team, including Bob Owens, Dean Hazard, 82- year-old Bill Lucking and, sometimes, Mike O’Brien and Bob Davidson, has been a winner at the World Bodysurfing Championships for several years.

1   Daniel Duane, Caught Inside, A Surfer’s Year on the California Coast, 1996, North Point Press.

Once a year, the team travels to Central America to blow off steam. There, Alan’s legal skills once enabled him to successfully return home. After sinking a rental car in a river, he was able to convince the rental car company that the vehicle might have been saved had not the company’s salvage crew stopped for several hours beforehand at a local whorehouse (how Alan knew that the residence was a whorehouse is unknown). When confronted with the rental contract, stating that the vehicle should not be driven off road, Alan pointed out that the company’s brochure, itself, advertised a similar vehicle “4-wheeling” across the sands.

Alan has learned that if he leaves the outside shower at South Jetty at 1:14, he can make it to court on time for afternoon hearings by dressing while driving to the Courthouse. Fortunately, he has never been stopped by the Police.

Ben Schuck began surfing more than 40 years ago when he was about 14 years old. He describes his first board as a “terrible thing, huge and heavy and nearly impossible to turn or ride on the nose.” Ben has had more boards than he cares to remember.

His present board is his best ever. It is fast, light, and forgiving, and is fun for a self-described “old man” to ride. Only three years old, it already has “dings on top of dings.”

Ben says his favorite wave is the last good one that he rode, mainly because he can’t remember any others.  Now, Ben is joined much of the time by his daughter – even the lousy, small wave days are enjoyable when he is with her.

Thomas Kitchens learned to surf on a longboard when he was 15 in the summer of 1965. Like the other attorneys mentioned, Thomas tries to balance his commitment to surfing against his work. He figures that by working during the week, he can afford to enjoy the waves on weekends, holidays and vacations.

In 1990 Thomas traveled to Kuai to compete against law enforcement officers of Australia, Hawaii and California in a contest called the South Pacific Challenge. He arrived in town the day a large swell hit the Islands. As one of the few contestants who had never surfed in Hawaii, Thomas was concerned about the stories of the double overhead waves which were dominating the contest. Gathering all his courage, Thomas eventually paddled into the lineup with the other surfers, but backed-out of many waves at the last minute. He finally dropped into a blackwater pit, riding his first wave without wiping out. He then enjoyed riding one after another throughout the contest.

John Howard, who started surfing in 1959, experienced his worst wipeout back in the mid- 60’s at Silverstrand on a friend’s brand new Dewey Weber Performer which he had borrowed.  After promising his friend that he would not take the board on any lefts near the jetty, he could not help dropping in on a “perfect left near the jetty.” It wasn’t until the mid-70’s that John’s friend next spoke to him.

John balances work and surfing by thinking about surfing while he’s at work; the sick thing is that he admits to occasionally thinking about work while he’s surfing.

In 1966, John and Cary and Kenny Brokaw decided to walk 6 miles down the railroad tracks to Government Point from Ja Lama State Beach North of Santa Barbara. (On the right day Government Point is one of the best surf spots in all of California.) Because the entire 6 miles was on heavily guarded private property (Hollister Ranch), they chose to walk down in the cold and dark early morning hours. Each of them carried their heavy long boards, warm clothing, water and canned goods.

The group finally approached its destination, only to find that the ocean was as calm as a meadow on a windless night. Worse, the Ranch Patrol materialized, chasing the would-be surfers into the water with all of their possessions except the canned goods and drinking water. While John and his friends sat for hours in the cold water and hot sun, their nemeses enjoyed an impromptu picnic on the beach with their food.

Eventually the Ranch Patrol left, allowing the group to leave the water and begin walking back to Ja Lama. It was hot in the afternoon as they started walking back on the train tracks, tired, thirsty and unhappy.

During the hike back, John and his friends saw the Patrol watching them. Since the patrol did nothing more, they figured that the Patrol felt it was worse to simply let them “walk the walk” back to Jalama with their tails between their legs; the Patrol was right.

Over the many years, John had the opportunity to surf with legends like Mickey Dora, Rennie Yater, Phil Edwards (including on the last day Dana Point was ever rideable), Joyce Hoffman, Whitey Harrison, Bob McTavish, Margot Godfrey and many others. Having said that, John’s best day of surfing, by far, was just a couple of years ago in two foot waves at Waikiki Beach with his then- 10 year-old son and 9 year-old daughter.

Ferguson Case Orr Paterson LLP is a hotbed of surfers. Lou Carpiac was previously known for carrying a boogeyboard in the back of his Mercedes, ready for impromptu sessions on  the way back from court appearances in  Santa Barbara. Longtime surfer, Bill Smith, regularly rips at Oxnard Shores. David Shea breaks out his longboard from time to time. Jim McDermott is known for claiming the need to attend unspecified “ex parte hearings” when the big Northwests start rolling into the Pierpont breaks.

The author is known for leaving the offices of FCOP in the early evenings from time-to-time for an hour or so of surfing in the Pierpont area. He regularly recommends “surf therapy” to his family law clients who surf as a means of reducing their stress, and from time-to-time accepts congratulations for actually talking his new wife into spending their honeymoon at a surf resort in Mexico. He also recently hooked his 8 year-old daughter on the sport/art; she caught her first wave on her new Morey “softboard” at Mandos in front of Rick and Victoria Loy a few weeks ago.

Eminent longboarder, Bob Noe, regularly haunts popular local breaks. He also recently introduced his young son to the joy of surfing.

Bob Bartosh began surfing at about seven years-old on longboards rented at Hollywood-by-the-Sea. Having returned to Ventura County from San Diego about twelve years ago, Bob has been able to increase the frequency of his surfing. Failing to make the transition from longboarding to shortboarding, he is proud to surf on a 9’6″ Rich Harbour HP1. The McTavish Ray Gleeve model is also a favorite, and Bob also sports a 10′ classic Yater for those small Summer breaks.

Bob has competed in the longboard contest at the California Beach Party since 1986. He finds it a great opportunity to reunite with old acquaintances.

The County Bar’s premier shredder is apparently Deputy District Attorney Mitch Disney. He started surfing at 12 years old, and has been surfing for 24 years. Dana Hills, in Dana Point, had an official surf team, and he was the team’s captain. By his senior year, Mitch was enrolled in two accredited “beach activities” P.E. classes, one during first period, and one during sixth period. He only had three other classes during third, fourth and fifth periods, so he got to surf twice a day, every day, while carrying a “full load.”

Mitch competed throughout high school and college. He took third place in the schoolboy division of the Ocean Pacific Pro-Am contest in circa 1979 (before it became the OP Pro), held at T-Street in San Clemente. He also made it to the semi-finals of the NSSA National Championships during his last year of high school.

Mitch then enrolled at Pepperdine in Malibu (guess why), where he joined the surf team and consistently surfed third point, Zuma and Point Dume. After Mitch graduated from law school, he joined Nordman, Cormany, Hair & Compton, which he says required significantly fewer billable hours than the Century City firm where he had previously clerked; plus the surf was much closer.

Mitch now lives in Port Hueneme and surfs there (or the Base, if he can get in) during the summer. In the winter he surfs wherever it is breaking.

Other lawyer-surfers include Eric Dobroth of the District Attorney’s Office, who surfs several times a week. Kevin Rose surfs frequently. Ken High reportedly still goes in once in a while. Jim Thonis at County Counsel, Brian Rafelson and Miles Weiss at the District Attorney’s Office, plus James Harmon at the Public Defenders’ Office all surf from time to time.

Clearly, an eclectic collection of attorneys in our local bar find that taking to the waves is a great way to find adventure, make and keep friendships, build family ties and avoid those pesky mental “perturbations.”

(Citations, 1999)

 

Gregory W. Herring
Certified Specialist, Family Law
The California Board of Legal Specialization of the State Bar of California
Fellow of the American Academy of Matrimonial Lawyers
Fellow of the International Academy of Family Lawyers
Writer’s direct email: [email protected]

Lawsuit of the ‘Jungle’

 

Litigation: Family says chimp bite during filming of ‘Mowgli’s Story’ stunted young actor’s career.
June 08 ,1998, | HILARY E. MacGREGOR | LA TIMES STAFF WRITER

THOUSAND OAKS — Out of the wild comes an untold tale. . .

It’s not only “Mowgli’s Story,” Walt Disney’s soon-to-be released “Jungle Book” video.
It’s the stoiy of Tarzan, a chimp from Thousand Oaks, and Brandon Baker, a boy from Orange County who plays Mowgli in the video.

The 12-year-old was cavorting on the set in his loincloth when he was bitten in the face by the chimp. Instead of a sequence of jungle bonding, the result was a child actor with a permanent scar on his face. Two years later, Brandon still has not been able to land another job with as much status and prestige as his Mowgli role for Disney. He and his family claim that the reason why is the inch-long scar Tarzan left on his left cheek, so they have filed a lawsuit against the chimp’s trainers, agent and owner for damages.

He and his family claim that the reason why is the inch-long scar Tarzan left on his left cheek, so they have filed a lawsuit against the chimp’s trainers, agent and owner for damages.

“It creates a dent when he smiles,” Greg Herring, the Baker family’s attorney, said of Brandon’s scar. “It’s noticeable. And we believe it affects his career.”

Read Full Article on LATimes.com

What Every Attorney Should Know about Newly Amended Family Code Section 721 (2002)

 

By Gregory W. Herring, CFLS, AAML, IAFL

The Governor’s recent signing of Senate Bill 1936, which will go into effect on January 1, 2003, amends section 721 of the Family Code in a manner that raises a minefield of issues concerning the duties and liabilities of spouses engaging in financial transactions during marriage. The amendments to section 721 are highly ambiguous. They are also potentially extremely far-reaching in effect. All family law and other civil law practitioners should be aware of the changes in Family Code section 721 in advising their clients, including individuals and businesses, who and which are involved in any financial transactions concerning marital (“community”) property.

Amended Family Code section 721 will continue to provide that, in any property transactions between themselves, spouses are fiduciaries who owe each other the highest duty of good faith and fair dealing. It will continue to expressly incorporate, as part of this marital duty, the obligations that are set forth in Corporations Code sections 14403, 16404 and 16503 in relation to duties between business partners. These require a businessperson, when requested by a partner, to provide access to books, information and accountings relating to particular business transactions. Thus, the law will continue to treat spouses as business partners in the marital context.

Until the Governor signed SB 1936 last month, the duty set forth in Family Code section 721 clearly excluded the so-called “Prudent Investor Rule,” which is stated in Probate Code section 16040.

The Prudent Investor Rule strictly governs the nature and scope of transactions in which a trustee may reasonably engage while managing a trust.  Under Probate

Code section 16040, a trustee’s standard of care is to administer a trust “with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument.”

Under Probate Code section 16047(c), the circumstances that a trustee must consider as part of the above include:

  • General economic
  • The possible effect of inflation or
  • The expected tax consequences of investment decisions or
  • The rule that each investment or course of action plays within the overall trust
  • The expected total return from income and the appreciation of
  • Other resources of the beneficiaries known to the trustee as determined from information provided by beneficiaries.
  • Needs for liquidity, regularity of income, and preservation or appreciation of
  • An asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the:

AMBIGUITIES:

The main ambiguity with SB 1936 is that it is unclear whether or not it incorporates the Prudent Investor Rule into amended Family Code section 721.

An analysis of the ambiguity requires a brief review of the recent marital dissolution case, Marriage of Duffy ((2001) 91 Cal.App.4th 923). The wife in that case, which involved a 34-year marriage, had been a “stay-at-home mom” while raising the parties’ seven children. Early in the marriage she had managed the parties’ checkbook. She had never managed a checking account before, however, and she had no experience with managing finances. In her own words at trial, her management of the checkbook was “a disaster.”

The husband consequently took complete charge of the family finances. During the marriage he guided the family’s purchase of a large house, certain real property and a small business. Some of the investments turned out well, and some turned out poorly.

As part of his management of the family finances, the husband rolled the community’s interest in his prior employer’s profit sharing plan into a brokerage account. The wife knew about this, and she even accompanied the husband to the bank to accomplish the transaction. After the account was established, however, the husband did not affirmatively discuss it with the wife. Nor did the wife, who reviewed some of the pertinent statements from time to time, ever affirmatively ask for information about the account’s performance.

At trial, the wife complained that the husband had mismanaged the account and had failed to fully disclose the account’s risks and performance. The trial court agreed, and awarded a judgment against the husband of over $400,000.

The Court of Appeal reversed. It held that, as a factual matter, the husband did not breach the duty of full disclosure, as there was no evidence that he refused to provide information when asked. It also held that the husband did not owe the wife a duty of care in investing the community assets. Inasmuch as the husband did not owe the wife a duty of care, the Court held that he, therefore, could not have breached that duty.

SB 1936 adds a provision to Family Code section 721, stating “[i]t is the intent of the Legislature in enacting this act to . . . abrogate the ruling in In re Marriage of Duffy . . . .” While it is unclear which of the two above holdings is abrogated (the holding as to the duty of full disclosure or the holding as to the lack of a duty of care, or both), this language could reasonably be interpreted to indicate that the Prudent Investor Rule is incorporated. Moreover, this interpretation would be consistent with the express goals of the women’s groups that helped promote the Bill into law.

This is bolstered by the introduction to SB 1936, stating, “[t]his bill would subject a husband or wife that enters into any real property transaction with the other to those general rules governing fiduciary relationships where the transaction involves the administering of a trust.”

Unfortunately, even this “explanatory” language is unclear. The reference to only “real property” is inexplicable, inasmuch as section 721 otherwise expressly applies to all property transactions. Nonetheless, this language does undeniably express a general intent to import the Prudent Investor Rule, at least to some extent, into section 721.

On the other hand, amended Family Code section 721(b) provides, “[e]xcept as provided in sections . . . 16040, and 16047 of the Probate Code, . . . a husband and wife are subject to the general rules governing fiduciary relationships . . . .” This is substantially identical to the prior language of section 721, which expressly excluded the Prudent Investor Rule. This would indicate that the Prudent Investor Rule is not incorporated.

The legislative history of SB 1936 (particularly including the Governor’s pertinent press release) is unclear as to whether or not the Prudent Investor Rule is included.

Attorneys are thus advised to take the most cautious route and assume that the Prudent Investor Rule is now incorporated into amended Family Code section 721.

FAR-REACHING EFFECTS:

Assuming, in an abundance of caution, that the Prudent Investor Rule will now be part of every transaction involving community property, the law’s effects will be extremely far-reaching.

Under this analysis, family law lawyers will be ensured of full employment. With every economic downturn will come the prospect of “breach of duty” lawsuits, whether or not a marital dissolution case is pending. This is because nothing in section 721, as presently existing or as modified, requires a pending marital dissolution case for one spouse to sue the other.

Marital dissolution cases will now require a scrutiny of every financial transaction during the marriage. Purchases and sales of residences and businesses, investments in equities, applications for loans and decisions regarding retirement planning will all be scrutinized in the heat of battle in family court. As in Marriage of Duffy, the historical communications (or lack thereof) between the spouses concerning each transaction will require intricate analysis. The analyses will be particularly complicated and expensive to the extent transactions under review may have included intermingled community and separate funds.

Additionally, all civil practitioners will be wise to begin advising their married clients that the clients may effectively become “guarantors” of all financial transactions involving any community funds. To avoid potential malpractice liability, attorneys will also need to consider routinely advising such clients to “get it in writing” (although what “it” would be is also unclear under SB 1936) with the other spouse every time the client enters into a subject transaction. Additionally, counsel may have to begin advising clients to routinely retain investment advisors for purely prophylactic purposes.

Further, corporate counsel will face special considerations. To the extent that a couple may have a community interest in a close corporation, for instance, counsel will have to consider whether the new law requires express disclosures to both spouses of all corporate transactions.

Due to the ambiguities in SB 1936, we will likely have to wait for cases to percolate through the courts for a dependable interpretation of whether or not the Prudent Investor Rule is or is not included in amended Family Code section 721. Assuming for now that the Rule is included, the far reaching effects of the law warrant that all attorneys would be advised to carefully consider the ramifications to their clients’ marital “enterprises.”

Gregory W. Herring
Certified Specialist, Family Law
The California Board of Legal Specialization of the State Bar of California
Fellow of the American Academy of Matrimonial Lawyers
Fellow of the International Academy of Family Lawyers
Writer’s direct email: [email protected]

What Words Don’t You Understand – Fiduciary or Duty? In Amending Family Code Section 721, The Legislature Gives Unhappy Couples One More Thing to Fight About (2002)

 

Peter M. Walzer and Gregory W. Herring, CFLS, AAML, IAFL

The amendments to Family Code section 721 as fashioned by Senate Bill 1936 are effective January 1, 2003. The purpose of the amendment is to clarify that “the fiduciary relationship between spouses includes all of the same rights and duties in the management of community property as the rights and duties of unmarried business partners managing partnership property, as provided in sections 16403, 16404, and 16503 of the Corporations Code.” The legislature apparently intends by this amendment that, henceforth, any financial transactions that result in a loss to the community or any act that results in a loss of a community opportunity will be actionable as a breach of fiduciary duty. But because there is ambiguity in the wording of the statute, it is not clear what the duty one spouse actually has to the other.

The amendment to section (b) of 721 specifically excludes the application of the Prudent Investor Rule as set forth in Probate Code section 16047 to transactions between spouses. This language of exclusion can be construed as being inconsistent with the new uncodified intent language in section 2 of section 721, which abrogates the holding in In re Marriage of Duffy (2000) 91 Cal. App.123 (holding in part that the Prudent Investor Rule does not apply to transactions between spouses). Despite this apparent inconsistency, the Coalition for Family Equity, which was the sponsor of this legislation, intends to clarify that spouses do have a fiduciary duty to one another and it is akin to the duty that business partners have to one another. The sponsors refer to this duty as the Prudent Investor Rule.

Amended Family Code section 721 continues to provide that, in transactions between themselves, spouses are fiduciaries who owe each other the highest duty of good faith and fair dealing. It continues to expressly incorporate, as part of this marital duty, the obligations that are set forth in Corporations Code sections 16403, 16404 and 16503 (formerly Corporations Code sections 15019, 15020, and 15022) in relation to duties between business partners. These sections require a businessperson, when requested by a partner, to provide access to books, information and an accounting relating to particular business transactions. Thus, the law will continue to treat spouses as business partners in the marital context.

Until the Governor signed SB 1936 last month, however, spouses were not held to the standard of A Prudent Investor.” This was per the holding in In re Marriage of Duffy (2001) 91 Cal.app.4th 923.

The Prudent Investor Rule defines the duty of a trustee to the beneficiaries of a trust. Under Probate Code section 16040, a trustee must administer a trust With reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument.

Under Probate Code section 16047(c), the circumstances that a trustee must consider as part of his duty include:

  • General economic
  • The possible effect of inflation or
  • The expected tax consequences of investment decisions or
  • The rule that each investment or course of action plays within the overall trust
  • The expected total return from income and the appreciation of
  • Other resources of the beneficiaries known to the trustee as determined from information provided by beneficiaries.
  • Needs for liquidity, regularity of income, and  preservation or appreciation of
  • An assets special relationship or special value, if any, to the purposes of the trust or to one or more of the

It would be a high standard, indeed, if the Prudent Investor Rule as described above were applied to married couples.

AMBIGUITIES:

It is unclear whether the newly amended Family Code section 721 makes the Prudent Investor Rule the standard for reviewing marital transactions. An analysis of Marriage of Duffy, supra, is necessary to understand the nature of this ambiguity, and to understand why the Legislature initiated this amendment.

The Duffys were married 34 years. Patricia was a stay-at-home mom who raised their seven children. She managed the parties’ checkbook early in the marriage. She had never managed a checking account before, and she had no experience in financial management. She testified at trial that her management of the checkbook was “a disaster.”

Vincent later took charge of the family finances. He purchased a large house, certain real property and a small business during the marriage. Some of the investments increased in value, but others failed.

When Vincent left his long-term employment with MCA Records, he rolled the MCA stock and other funds in his profit-sharing plan into an IRA account. Patricia accompanied Vincent when he went to the bank to transfer the funds.

Vincent later transferred the funds to a brokerage account. After establishing the account, however, he refrained from further discussing “his” investments with Patricia. On the other hand, Patricia, who reviewed some of the pertinent statements from time to time, never asked for information about the account’s performance. Vincent invested his entire portfolio in a volatile technology stock, Excaliber Technologies Corporation. The stock portfolio at one time rose to a value of $611,698, then declined to $261,483.

At trial, Patricia asserted that Vincent had mismanaged the account and that he had failed to fully disclose the risks involved in the investment as well as its decidedly negative performance. The trial court agreed and found that Vincent had breached his fiduciary duty of disclosure under Family Code section 1100. It awarded Patricia a judgment of over $400,000.

The Court of Appeal reversed. It held that, as a factual matter, Vincent did not breach his duty of full disclosure to Patricia under Family Code section 1100. The Court held that there was no evidence that Vincent refused to provide information to Patricia when asked. The court also held that Vincent did not owe Patricia a duty of care under Family Code section 721 to invest the community assets prudently. This holding, in particular, incensed the members of the Coalition for Family Equity, who were the progenitors of fiduciary duty legislation in California in the late nineteen eighties.

In reaction to the ruling in Duffy, the Coalition for Family Equity sponsored Senate Bill 1936, which added an uncodified provision to Family Code section 721, stating, “[I]t is the intent of the Legislature in enacting this act to . . . abrogate the ruling in In re Marriage of Duffy . . . . It is unclear, however, which holding in Duffy was abrogated.  Whether it was the holding (1) that Vincent did not violate his duty of full disclosure or the holding (2) that he lacked a duty of care to Patricia, or both, the amendment can, at any rate, reasonably be interpreted to indicate that the Prudent Investor Rule now defines the duty spouses have to each other. Moreover, this interpretation would be consistent with the express goals of the Coalition for Family Equity.

The Duffy court narrowed the application of Family Code section 721 by limiting the duty one spouse owes to another by its reference to duties expressly set forth in the statute. The court said:

By narrowing the scope of the fiduciary duty to rights specifically enumerated therein, the Legislature removed another duty of care. The Legislature did this by deleting the phrase, “but not limited to,” from the phrase, “including, but not limited to,” the enumerated rights. The enumerated rights directly echo the rights found in the sections of the Corporations Code that former Civil Code § 5103(b), identified as delineating the scope of spouses’ fiduciary duty.”

In order to “abrogate the ruling” in Duffy and to expand the rights of spouses to hold each other accountable to one another, Senate Bill 1936 also adds the language, “but not limited to” after the word “including” when referring to the specific duties listed in Family Code section 721(b) (1), (2) and (3).

The sponsors wanted it to be clear that the duties one spouse owes the other are not just the duties which are specifically outlined in sections (1), (2), and

  • of 721(b). By not limiting the right of spouses to sue each other for only the rights specifically enumerated in Family Code section 721(b), the new code section allows spouses to sue each other for breach of fiduciary duty even though not specifically listed in Family Code section 721(b).

Family Code section 721 (b) now states as follows

Except as provided in Sections 143, 144, 146, 16040, and 16047 of the Probate Code, in transactions between themselves, a husband and wife are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, and 16503 of the Corporations Code, including, but not limited to, the following:

  • Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and
  • Rendering upon request, true and full information of all things affecting any transaction which concerns the community Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions.
  • Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the community property.

The interpretation that the fiduciary duty described in the newly amended section 721 is the same obligation as that mandated by the Prudent Investor Rule is bolstered in the introduction to Senate Bill 1936 in the Legislative Digest. The introduction says, A[T]his bill would subject a husband or wife that enters into any real property transaction with the other to those general rules governing fiduciary relationships where the transaction involves the administering of a trust. Unfortunately, even this explanatory language is confusing. The reference to only real property makes no sense, inasmuch as section 721 otherwise expressly applies to all property transactions. Nonetheless, this language undeniably expresses an intent to apply the Prudent Investor Rule to marital transactions.

There is likely to be an issue as to whether Family Code section 721 is simply a clarification of prior law and is retroactive or a new statute entirely and is therefore not retroactive. It is not clear whether the law will only apply to cases that are filed after January 1, 2003, or whether it will apply to cases still pending on January 1.

When counseling clients, advise them to take the most cautious route and assume that there is at least a fiduciary duty akin to the Prudent Investor Rule in the amended Family Code section 721.

FAR-REACHING EFFECTS:

Assuming that spouses will be accountable to one another for every transaction involving community property, the new section 721 will fundamentally affect every marital transaction.

If trial court judges have to review every transaction during marriage, every opportunity lost, and every debt incurred with an eye to a potential breach of fiduciary duty, the courts will have a new category of fiscal misfeasance with which to cope. Economic downturns will fuel a breach of duty litigation. On the other hand, prosperity will fuel breach of fiduciary duty litigation for missed opportunities.

Family law counsel and their forensic accountants will scrutinize every marital transaction. Purchases and sales of property, investments in equities, decisions regarding retirement planning, and incurring excessive debt will be examined in our family courts. Communications (or lack thereof) between the spouses concerning each transaction will require detailed analysis.

Attorneys who represent married businesspersons should now advise their clients that community property transactions are risky without obtaining the express written consent of the spouse. Without this consent, the businessperson may be liable for financial losses. Express written consent may not even be sufficient protection without the full disclosure required by Family Code section 1100.

Corporate counsel should advise clients who have a community interest in a close corporations that they should consider disclosing the details of corporate transactions and obtain the necessary written consent.

We will likely have to wait for cases to percolate through the courts for a dependable interpretation of whether or not the Prudent Investor Rule is or is not the standard of care in the amended Family Code section 721. Assuming for now that the Rule is the standard, the far reaching effects of the law will require us to carefully advise our clients of the risks of conducting business during marriage.

 

Gregory W. Herring
Certified Specialist, Family Law
The California Board of Legal Specialization of the State Bar of California
Fellow of the American Academy of Matrimonial Lawyers
Fellow of the International Academy of Family Lawyers
Writer’s direct email: [email protected]