SCHNABEL v. SCHNABEL (1993)

OPINION

I

After a 20–year marriage, Terry and Marilyn Schnabel separated in 1991.   In her dissolution petition, Marilyn requested spousal support and attorney's fees.   She alleged the full nature and extent of the parties' community and separate property was unknown and requested their property rights be determined by the court.   Terry's response also omitted a specific property delineation.

Terry is employed by Orange Container, Inc. (Orange).   Thirty percent of its stock, while issued to him, is owned by the community.   Marilyn has attempted to verify this information, to appraise the corporation's value and to ascertain Terry's actual remuneration and other benefits.   She hired a certified public accountant who asked Orange to voluntarily supply the necessary information.   When Terry and Orange rejected the request, Marilyn served them with a subpoena duces tecum and deposition subpoena for production of business records.¹  The trial court denied Orange's motion and we denied its writ petition.   The Supreme Court granted Orange's petition for review and transferred the matter to us with directions to issue an alternative writ.   After hearing, we denied the writ petition in a published opinion.   Again, Terry and Orange petitioned the Supreme Court, which granted review and vacated our opinion.   The matter is currently pending in the Supreme Court.  (Schnabel v. Superior Court (1992) 9 Cal.App.4th 1588, 12 Cal.Rptr.2d 63, rev. granted Nov. 30, 1992 (S024822).)

The saga continues.   Marilyn filed the underlying notice of motion and declaration for joinder, seeking to join Orange as a party in the dissolution action.   Marilyn asked the court to direct the corporation “not to make any disposition of said stockholder's interest in Orange Container, Inc., except by way of further order of the court․”   The trial court denied the joinder motion and this writ petition followed.

II

Marilyn alleged in her declaration that “[t]he community claims a community property stockholder's interest (30%) in Orange Container Inc., with the balance of 70% owned by one other person.   The community stockholder's interest is held in the name of Respondent TERRY L. SCHNABEL.   The Respondet [sic] and Claimant Orange Container have the exclusive control of any disposition of the said interest except as may be restricted by orders of this court.   It is reasonable and necessary the Claimant be joined herein in order to provide this court jurisidiction [sic] over Claimant to protect the interest of the community.  [¶] The Claimant in collusion with Respondent has refused to produce corporate records previously ordered by the court.   Claimant and Respondent have lost their appeal of said order but continues [sic] to refuse to produce said records.   Petitioner has incurred attoreny [sic] fees and costs in said appeal in excess of $13,000.00.   Petitioner will seek an order for attorney fees and costs against claimant.”   She also alleged:  “The Claimant, Orange Container Inc., (and the majority stockholder) is in control of community's minority stockholder's interest.   It is necessary that Claimant be joined as it is an indispensable party in determining the nature and extent of community's stockholder's interest.   Joinder of Claimant is necessary to provide the court binding jurisidiction [sic] over the Claimant, to make necessary orders to protect community interests.”

In short, Marilyn advised the court she suspected that Terry and Orange were in collusion.   At the very least, together they refused to allow her access to the corporation records.   At worst, her interest was in jeopardy.   Joinder was her only recourse.²

Orange's opposition insisted joinder was unnecessary because “there [was] no showing that those interests [were] in danger.”   It challenged its alleged status as an indispensable party, explaining that “there is no showing of any facts that [it is in control of the community's minority shareholder interest].”

The trial court concluded the corporation was not an indispensable party and was not claiming an interest in the property at issue.   It found unconvincing Marilyn's declaration, suggesting its charge of collusion “appear[ed] to be somewhat speculative in nature.”

III

 The court rules regarding joinder are fairly straightforward.   The court may join a person who controls an interest subject to its disposition or its jurisdiction.   In deciding whether to join a party, the court should consider if that party is either indispensable to its determinations or necessary to the enforcement of its judgment.³

With these principles in mind, we consider whether the trial court abused its discretion in denying the request for joinder.

 Orange maintains it is not subject to joinder because Marilyn and Terry own and control the stock.   This is too literal a reading of the rules.   Orange's dominion over the stock is exactly that to which the rules refer and that which Marilyn seeks to restrict.   As her declaration explained, without joinder and appropriate orders thereafter, the corporation could pledge its assets, reorganize or even sell itself.   And, as explained in In re Marriage of Wilson (1989) 209 Cal.App.3d 720, 257 Cal.Rptr. 477, joinder is possible when no possessory interest exists.   In Wilson, “a labor union ․ [was] joined as a party to the marital dissolution action of one of its members for the purpose of ordering the union to notify the other spouse of such referrals in order to enforce the member's obligation․”   (Id. at pp. 721–722, 257 Cal.Rptr. 477.)

 There is another reason the joinder motion should have been granted.   Orange was an indispensable party in the court's determination of significant issues.   From the filing of the petition for dissolution through this writ petition, Marilyn has sought information most basic to a determination of core issues.   How much stock does the community really own and how much is it worth?   The requested information reflects not only on the stock, but on each issue before the court and each aspect of it, i.e., property division, spousal support and attorney's fees.

Orange has blocked every opportunity for Marilyn to gather the needed information for presentation to the court.   Maintaining Marilyn and Terry possess a 30 percent interest, it argues no proof is necessary beyond its own statement.   Orange discounts Marilyn's need to be able to value her interest and verify Terry's remuneration.   Indeed, the only items Orange was willing to disclose were in-house records incapable of independent verification.   Even the proffered financial statements were unaudited.   Conversely, the withheld documents were prepared by nonparty independent sources.⁴

The determination of the nature and extent of the community interest in Orange is not only appropriate, it is essential.  “Before a trial judge can effect an equal division of community property [or award spousal support or attorney fees], the nature and extent of the parties' community assets must be ascertained.”  (Lehman v. Superior Court (1986) 179 Cal.App.3d 558, 562, 224 Cal.Rptr. 572.)

There is no doubt the trial court could have joined Orange.   The question is whether it abused its discretion in failing to do so.   The short answer is “yes”.

The purpose of California Rules of Court, rules 1250, 1252 and 1254 is clear.   The court is to have jurisdiction over whatever parties are necessary for it to make and carry out meaningful orders.   Orange's refusal to supply Marilyn with the requested information leaves her and the court unable to proceed.

Moreover, the trial court seems to have forgotten that Marilyn and Orange are not strangers.   She possesses a substantial community property interest in it and has the right to know the corporate business.  (See Corp.Code, § 1601, subd. (a).) ⁵

Marilyn is in a “Catch–22” situation.   The court indicated Marilyn failed to prove that Terry and Orange were in collusion.⁶  But she has been refused access to all verified information regarding the corporation and the community interest in it.   Because of this lack of information, she is unable to prove she needs it.   This cannot be.   The cart does not come before the horse.  (Lehman v. Superior Court, supra, 179 Cal.App.3d 558, 224 Cal.Rptr. 572.)   Marilyn is entitled to join the corporation to determine her exact interest and the nature of it.

If Orange were to prevail, spouses would be able to be employed by and maintain community assets in a closely-held corporation without ever having to render a verifiable accounting.   Such is not the law's intent.   Recently enacted Civil Code sections leave no doubt as to the public policy mandates.⁷  “Sound public policy further favors the reduction of the adversarial nature of marital dissolution and the attendant costs by fostering full disclosure and cooperative discovery.  [¶] In order to promote this public policy, a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of the dissolution of marriage action, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties.   Moreover, each party has a continuing duty to update and augment that disclosure so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have as full and complete knowledge of the relevant underlying facts as is reasonably possible under the circumstances of the case.”  (Civ.Code, § 4800.10, subd. (a), eff. Jan. 1, 1993.)

The issuance of a peremptory writ in the first instance is proper.   The real parties in interest filed an informal reply at our request.  (Palma v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171, 178, 203 Cal.Rptr. 626, 681 P.2d 893.)

Let a peremptory writ of mandate issue directing the Orange County Superior Court to vacate its order denying joinder and to enter a new and different order granting in its entirety petitioner's motion to join Orange.

FOOTNOTES

1.   Marilyn sought to discover the following:“1. Corporate tax returns prepared and/or filed for fiscal years ending September 30, 1990, covering the period of 1986 to 1990.“2. Copies of all profit and loss statements and financial statements relative to said corporation for the period commencing with the end of the period for which the last corporate tax return was prepared and/or filed (to include but not limited to such financial records for period ending May 28 to June 30, 1991).“3. Bank activity statements, check registry setting forth nature of payment and payee (or canceled checks in lieu of check registry) for all bank depository accounts maintained in behalf of said corporation for the period of January 1, 1991 to date.“4. Records of said corporation setting forth charges made by Terry Lee Schnabel through business credit cards for the period of January 1, 1991 to present.“5. Records of all expenses reimbursements made to Terry Lee Schnabel for the period of January 1, 1991 to present (setting forth nature of expense and amount).“6. Records of all perquisites [sic] or benefits provided to Terry Lee Schnabel by said corporation for the period of January 1, 1991 to the present, including, but not limited to, auto expense allowance, insurance (life, medical and auto).“7. Records of all officer loans made to or from Terry Lee Schnabel setting forth activity thereon (distribution and payments) for the period of January 1, 1990 to the present.“8. Records of all pension, retirement, 401K savings, stock options offered or maintained by the corporation in which Terry Lee Schnabel has an interest.   Said records to include from the inception of said plans, copies of the plans, participant account records, annual federal reports such as form 50000C if any.“9. Compensation records of Terry Lee Schnabel for the period of January 1, 1990, to the present, setting forth wages, commissions, bonuses or other compensation paid by said corporation to Terry Lee Schnabel (said records to show gross compensation, deductions, and net payments).“10.  Records of all monies paid to third parties in behalf of Terry Lee Schnabel, or for his benefit, for the period of January 1, 1991, to the present.“11.  Corporate books for all business and/or professional savings for a period of October 1, 1989 to date.“12.  Detailed aged listing of accounts receivable and accounts payable at the date of the latest financial statement of May 31, and/or July 1, 1991.“13.  General ledgers, cash receipts, cash disbursements, daily charge sheets, sales and purchase registers and journals for period November 1, 1989 to date for general and trust accounts.“14.  Federal and California quarterly payroll tax returns for period of October 1, 1989 to date.“15.  Corporate Minute and Stock record books for all Corporate entities.“16.  Leases on all real or personal property owned and/or rented out by said corporation.“17.  Business credit card statements, and receipts such as Bank of America Mastercharge, American Express, etc., for October 1, 1989 to date.“18.  Copies of all Corporate bank loan documents and applications for all loans active or applied for relative to period of October 1, 1989 to date (to include any records for loan guarantees).“19.  Copies of any pending or prior offers to purchase or business assets such as patients [sic] or otherwise.”

2.   She also requested that the corporation be joined so it can be ordered to pay her attorney's fees.  (In re Marriage of Siller (1986) 187 Cal.App.3d 36, 231 Cal.Rptr. 757.)   Because her first two reasons are sufficient, we do not consider the last.   However, we note in Siller the question was whether attorney's fees were warranted after the corporation had been joined.   Here, the issue is whether the corporation should be joined in order to be able to award fees.

3.   The following California Rules of Court provide:Rule 1250:“․ a person who ․ controls an interest subject to disposition in the proceeding may be joined as a party to the proceeding․“․Rule 1252:“(a) The petitioner or the respondent may apply to the court for an order joining a person as a party to the proceeding who has ․ in his possession or control or claims to own any property subject to the jurisdiction of the court in the proceeding.“․Rule 1254:“․“The court may order that a person be joined as a party to the proceeding if the court finds that it would be appropriate to determine the particular issue in the proceeding and that the person to be joined as a party is either indispensable to a determination of that issue or necessary to the enforcement of any judgment rendered on that issue.”

4.   On our own motion, we have taken judicial notice of the superior court file.

5.   Corporations Code section 1601, subdivision (a) provides:  “The accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation, and of any foreign corporation keeping any such records in this state or having its principal executive office in this state, shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of such voting trust certificate.   The right of inspection created by this subdivision shall extend to the records of each subsidiary of a corporation subject to this subdivision.”

6.   Consider the following:  The same law firm represents both Terry and the corporation.   Indeed, the superior court file and the instant pleadings indicate a joining of forces and a unity of interests.   Terry's declarations relay corporate desires and facts.   Orange's corporate lawyers file briefs indicating joint representation.   The corporation, it would appear, is “siding” with Terry.

7.   Amended in 1991, Civil Code section 5125, subdivision (e) provides:  “Each spouse shall act with respect to the other spouse in the management and control of the community property in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 5103, until such time as the property has been divided by the parties or by a court.   This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest ․ and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.”  (Emphasis added.)Civil Code section 5103, subdivision (b), also amended in 1991, states in part:  “[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 ․ including the following:“․“(2) Rendering upon request, true and full information of all things affecting any transaction which concerns the community property.”  (Emphasis added.)

SONENSHINE, Associate Justice.

SILLS, P.J., and WALLIN, J., concur.