SUPERIOR COURT, STATE OF CALIFORNIA COUNTY OF SANTA CLARA ) ) ) ) ) ) ) ) ) ) ) )

In re the Marriage of: JANET VERSON, Petitioner, and JACK VERSON, Respondent.

Case No.: 105-FL-126612 ORDER DENYING SECTION 271 SANCTIONS Department 76

Petitioner seeks Family Code section 271 sanctions against Respondent for allegedly taking an unreasonable, bad faith stance regarding spousal support. The parties reached an agreement in terms of their divorce settlement on March 18, 2008. Spousal support was addressed, and the parties indicated they had reached a stipulation on March 3, 2008 that both the ongoing monthly amount and the Smith-Ostler amount would be calculated by the Dissomaster. At the settlement Ms. Stephenson, Petitioners attorney, said, Support shall be as set forth in that agreement, meaning it says the Smith-Osler will include any and all income over the base income for husband set for in that stipulation. And other income shall include, but not be limited to, contributions to any tax deferred savings plan made on behalf of husband, made by his employer on behalf of husband (emphasis added). Ms. Stephenson drafted a Judgment of Dissolution, incorporating the quoted language regarding calculation of spousal support, and sent the Judgment and proposed Dissomaster calculations to Respondent. Respondents first attorney, David Knapp, Jr.,

objected to Ms. Stephensons inclusion of Respondents SEP IRA contributions in the proposed Dissomaster calculations. He later proposed eliminating any language of including Respondents employers contributions to his SEP IRA in spousal support calculation in his May 20, 2008 letter. Ms. Stephenson disagreed in her May 23, 2008 letter, stating the agreement stipulated the inclusion of any contributions by Respondents employer (as income) for spousal support calculation. Soon thereafter, Mr. Kilmer replaced Mr. Knapp as Respondents attorney. From the beginning Mr. Kilmer did not refute including Respondents SEP IRA contributions in the Dissomaster calculations. His concern was how to characterize the amounts; this is complex because they are tax-deferred and not shown on Respondents W-2 pay stub. In his June 11, 2008 letter to Ms. Stephenson, Mr. Kilmer presented the possible characterizations for the SEP IRA contributions: 1) taxable income, 2) non-taxable income, 3) a taxable Adjustment to Income (ATI), 4) a non-taxable ATI, or 5) mandatory retirement. He attached eight separate support runs, showing how each different characterization brought about a different spousal support amount. Petitioner did not welcome Mr. Kilmers concern regarding how to characterize the SEP IRA contributions. At an impasse regarding the SEP IRA contributions, Mr. Kilmer stated he would file a motion on August 6, 2008 to ask the Court to rule on the spousal support issue. However, he offered to delay filing the motion if the parties could meet to settle the issue. Mr. Kilmer also suggested revising the language in the proposed Judgment to reflect the parties disagreement so the judgment could be filed, leaving the SEP IRA issue for further litigation. He maintained that the SEP IRA contributions were to be used in the Dissomaster calculations for spousal support, but was unsure how to input the data. Throughout the period of Ms. Stephenson and Mr. Kilmers correspondence, Mr. Kilmer offered repeatedly to meet with Ms. Stephenson in hopes of settling the case. Mr.

Kilmer last offer to meet with Ms. Stephenson was in his September 16, 2008 email, where he said I have tried to make what I think are reasonable attempts at settlement. I have tried to offer you avenues of alternative dispute resolution short of litigation. Ms. Stephenson kept refusing Mr. Kilmers attempts to characterize the SEP IRA contributions. She argued there was no ambiguity regarding its characterization; it was income. Contrarily, in her August 9, 2008 email, Ms. Stephenson writes of a dispute regarding whether the SEP IRA contributions were taxable or non-taxable income. Conversely, her response to Mr. Kilmers attempts at characterizing the SEP IRA contributions was that Respondent has consistently taken an unreasonable position that is inconsistent with the Judgment of Dissolution. Therefore, based on Respondents behavior, Petitioner seeks Family Code section 271 sanctions and requests attorneys fees and costs. Under Family Code Section 271, the court may base an award of attorneys fees and costs on the extent to which the conduct of each party or attorneyfrustrates the policy of the law to promote settlement of litigation and, where possible, to reduce cost of litigation by encouraging cooperation between the parties and attorneys. To obtain an award under section 271, the party requesting the award of attorneys fees and costs is not required to demonstrate any financial need. Neither does a party seeking the sanction need to prove actual injury. In re Marriage of Feldman, (2007) 153 Cal.App.4th 1470. However, section 271 also states that the court shall not impose a sanction that imposes an unreasonable financial burden on the party against whom the sanction is imposed. To merit an award of section 271 sanctions, the behavior of the party against whom sanctions are being sought must be particularly egregious. In re Marriage of Abrams (2003) 105 Cal.App.4th 979, provides an example of sanctions being appropriate when the settlement offer was so onerous, so one-sided, that it would not be seriously

considered; therefore the policy of promoting settlement was not being met. Other sanctionable types of behavior include: failure to disclose required financial information in a dissolution proceeding, In re Marriage of Feldman, (2007) 153 Cal.App.4th 1470, refusing to return opposing partys counsels phone calls and failing to correct errors in documents, In re Marriage of Daniels, 19 Cal.App.4th 1102, and unnecessary collateral forays into court, See Neal v. Superior Court, (2001) 90 Cal.App.4th 22 (action brought by husband in civil court duplicative to existing action in family court), In re Marriage of Mason, (1996) 46 Cal.App.4th 1025 (issuing section 271 sanctions against husband for bringing repetitive challenges that were barred by res judicata). Petitioner is seeking section 271 sanctions because Respondent has allegedly taken an unreasonable stance regarding spousal support, specifically with regard to imputation of Respondents employers SEP IRA contributions. Petitioner claims that Respondent refuses to comply with the terms of the spousal support agreements he made and that he has taken bad faith, unreasonable, and unsupported positions on the spousal support issue. There is no question that Respondents employers SEP IRA contributions are to be included in the calculation of spousal support. That much is clear from the settlement hearing transcript. Initially, section 271 sanctions might have been appropriate. After the settlement hearing, Respondents first attorney, Mr. Knapp sent an email to Ms. Stephenson questioning the inclusion of the SEP IRA contributions at all, and proposed that the language she had put in the proposed Judgment of Dissolution (contributions to any tax deferred savings plan made on behalf of husband, made by his employer on behalf of husband) be stricken completely. This is contradictory to what the parties had clearly agreed to, and something to which Petitioner would most certainly not agree to. The offer could have been construed as so one-sided that settlement was inhibited.

However, soon thereafter, Mr. Knapp was replaced as Respondents attorney by Mr. Kilmer. From the beginning, Mr. Kilmer did not refute the requirement of imputing Respondents SEP IRA contributions. His and Respondents concern was focused on the ambiguity surrounding how to impute the SEP IRA contributions. Mr. Kilmer presented five different possible ways to treat the SEP IRA contributions: 1) taxable income, 2) non-taxable income, 3) a taxable Adjustment to Income (ATI), 4) a non-taxable ATI, or 5) mandatory retirement. This was reasonable because there is no language in the settlement about how to characterize the SEP IRA contributions. It was to be included, yes, but how it was to be inputted for spousal support calculation was unclear. Respondent and his attorney, Mr. Kilmer, have consistently argued that the spousal support agreement is vague, thus their inability to agree with Petitioner that the agreement is unambiguous. Ms. Stephenson took this to mean that Respondent was being unreasonable and trying to shirk his agreements. Yet, in her August 9, 2008 email, Ms. Stephenson stated she did not know whether the SEP IRA contributions were taxable or non-taxable income. This undermines her position that the spousal support agreement is uncontroversial, and that Respondents desire to determine how to characterize the SEP IRA contributions is bad faith and unreasonable. Respondents actions were possibly in bad faith when Mr. Knapp sought to eliminate all language regarding Respondents SEP IRA contributions in connection with spousal support, but this request was quickly abandoned when Mr. Kilmer became Respondents main attorney. Mr. Kilmer did not seek to re-do the spousal support agreement; he did not seek to alter the parties settlement such that the SEP IRA contributions were not used to compute spousal support. He agreed that they should be included, the only question was how. There was a genuine issue regarding the treatment of the SEP IRA contributions.

The parties took polar positions regarding their dispute. Petitioner and Ms. Stephenson have adamantly espoused the clarity of the spousal support agreement and communication of a contrary or slightly different perception was rejected. This was manifested by the lack of welcome Mr. Kilmers repeated offers to meet with Ms. Stephenson to discuss the settlement agreements lack of guidance regarding the treatment of SEP IRA contributions received. Apart from the initial questionable offer by Mr. Knapp, Respondent and Mr. Kilmer have not acted unreasonably to merit sanctions. It is Petitioners and Ms. Stephensons actions that are questionable. Sanctions are severe, and reserved for the most egregious behavior. Upon review, Respondent and his attorney did not act unreasonably, nor did they act in bad faith. After initial bad faith maneuvering by Respondents first attorney, Respondents arguments became increasingly meritorious, have been justified, and made in good faith. His actions do not warrant sanctions. Dated: June 15, 2009

Hon. Aaron Persky Judge of the Superior Court