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 publised 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 reasonbly prudent investor, and may not invest in overly risky companies.
All this is straightfoward, 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 publically-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 legistlative 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 bankrtupcy claiming she had no significant assets. The husband filed an adversarial compaint in the bankrtupcy 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 appeIlate 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
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 appeIlate 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