Monday, August 31, 2020
Page 1
Court of Appeal:
Husband Must Compensate Wife for Losses From Unauthorized Deals
Fact That Transactions, Made in Violation of TRO, Benefitted Community Estate Overall, Does Not Preclude Penalization for Bad Investment, Opinion Says
By a MetNews Staff Writer
A husband who lost community funds through investments he made in contravention of a temporary restraining order issued in a divorce action brought by his wife, cannot be excused on the ground that his wife never took an interest in their financial affairs so there was no point in consulting her, the First District Court of Appeal has held.
Its opinion was filed Aug. 1 and certified for publication on Thursday. Presiding Justice Peter J. Siggins of Div. Three was the author.
The opinion also declares that an investment made by the husband, Francis DeSouza, that increased the community’s funds by millions of dollars does not invalidate the decision by San Francisco Superior Court Judge Richard C. Berra to penalize him for the bad investments.
A temporary restraining order barred either party from “[t]ransferring, encumbering, hypothecating, concealing, or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life.”
Bitcoin Purchases
Without the consent of his wife, Erica DeSouza, the husband in April 2013 made three purchases of bitcoins from Mt. Gox Company Ltd. a Japanese bitcoin exchange. He made a $45,000 purchase, by personally wiring money to the company; then bought more bitcoins for $99,451 through a friend; and paid $44,940 for additional bitcoins, again using a straw man.
Mt. Gox, Siggins recited, “lost hundreds of thousands of bitcoins to hacking, embezzlement, or both.”
The husband did not disclose to his wife the fact of his purchases, nor did he tell her of Mt. Gox going into bankruptcy in 2014. In the end, he was able to gain possession of 613.53 of the 1062.21 bitcoins he purchased with community funds—basically, the bitcoins purchased in the second transaction.
A judgment of dissolution of marriage was entered.
Division of Property
In dividing the property in postjudgment proceedings, Berra initially ordered that Francis DeSouza hand over half of the 613.53 bitcoins to Erica DeSouza. In finalizing the division, taking into account the unauthorized dealings by the husband and loss of bitcoins, the judge ordered the relinquishment by him of an additional 249.445 bitcoins and $22,500 in cash, as well as her share of dividends (bitcoin gold and bitcoin cash).
Appealing from the order, Francis DeSouza argued that during the marriage, his wife took no interest in their finances, so it would have made no difference if he had disclosed his transactions to her. Siggins wrote:
“Erica’s lack of involvement or interest in the couple’s finances before they separated is undisputed, but it sheds little if any light on what she would do to protect her financial interests after retaining divorce counsel, filing for divorce, and serving Francis with restraining orders that barred him from making unilateral decisions involving the community estate. Even Francis acknowledges in his reply brief the ‘general validity’ of Erica’s point that ‘[a] spouse who may be reliant on and trusting of the other during marriage, may well exercise independent judgment and rely on new advisors after separation.’ Indeed.
The jurist continued:
“Nor did Francis’s evidence compel the court to accept his view that Erica ‘continued her indifference to issues surrounding the community’s investments’ after the parties separated. His support for this characterization consists of his own conclusory testimony to that effect and one post-separation incident in which Erica agreed to his request to invest $50,000 of community funds in a friend’s company. None of this, plainly, compels a finding that Erica would have done nothing throughout years of divorce litigation to preserve her interest in an investment that was worth millions of dollars by the time the property judgment issued.”
Overall Benefit Irrelevant
The fact that the bitcoins had burgeoned in value, earning the “millions of dollars” for the community, outshadowed the loss of bitcoins, Francis DeSouza asserted, meaning that his investing did not impair—but enhanced—his wife’s interest in the community estate.
Siggins responded:
“True, the bitcoins [a friend] purchased for Francis and moved out of Mt. Gox before the bankruptcy grew from an initial value of roughly $100,000 to around $3.45 million by August 2018. But the financial success of one undisclosed investment does not erase the harm to the community estate, and Erica, occasioned by a separate undisclosed transaction.”
The case is DeSouza v. DeSouza, A156311.
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