Opinion
B228769
11-03-2011
JAMES L. HUFF et al., Plaintiffs and Appellants, v. LINDA HUFF, Defendant and Respondent.
Jay Oberholtzer for Plaintiffs and Appellants. Palermo, Barbaro, Chinen & Pitzer, Philip Barbaro, Jr. and Philip J. Marr for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. GC045130)
APPEAL from an order of the Superior Court of Los Angeles County. Jan A. Pluim, Judge. Reversed.
Jay Oberholtzer for Plaintiffs and Appellants.
Palermo, Barbaro, Chinen & Pitzer, Philip Barbaro, Jr. and Philip J. Marr for Defendant and Respondent.
Plaintiffs and appellants James L. Huff and Richard A. Huff (plaintiffs) appeal from the dismissal of their action after the trial court sustained, without leave to amend, the demurrer filed by defendant and respondent Linda Huff (defendant) to their complaint for breach of contract, breach of fiduciary duty, and declaratory relief. We reverse the trial court's order.
BACKGROUND
1. The May 26, 2000 Document
The parties are the children of Aileen Huff (Huff), who died on June 6, 2008. Before her death, Huff executed a document, dated May 26, 2000, advising her children that she was arranging for many of her assets to be held in a form enabling their transfer upon her death without probate. In the document, Huff explained that some of her assets may be held in joint tenancy accounts or in a Totten trust naming some or all of the children as beneficiaries, and that she may designate some of the children as beneficiaries on a life insurance contract or individual retirement account. Huff stated her intent that "[r]egardless of the form or location of the asset, any assets in which you may be a co-owner or which pass or are payable to you by reason of my death, shall be deemed to be held pursuant to the terms of this agreement."
A Totten trust is not a trust but a recognized exception to the law of testamentary disposition that obviates the need to comply with the statutory requirements for executing a will. (Estate of Collins (1978) 84 Cal.App.3d 928, 932-933.) Funds in a Totten trust account belong to the named beneficiary on the account upon the death of the trustee. (Prob. Code, § 5302, subd. (c).)
Huff also expressed her intent regarding distribution of the subject assets. In the May 26, 2000 document, Huff stated: "I want you to hold these assets IN TRUST . . . . [¶] . . . [¶] You are to have no personal ownership of these assets; you are to receive them as a trustee for the sole purpose of distributing them as I have directed in this letter." With regard to distribution of the assets, the document provides: "All of the assets remaining after the payment of debts, taxes, and expenses should be distributed in equal shares as follows: One (1) share to each of my sons, Thomas C. Huff, Richard A. Huff, and James L. Huff, who survives me, and one (1) share to the lawful issue of each son who predeceases me, said issue to take by right of representation."
Thomas C. Huff is not a party to this action.
Huff also explained why she did not include her daughter Linda, the defendant in this action, in the proposed distribution: "I have not included Linda in this distribution as she will receive my personal automobile and real property." The May 26, 2000 document expressly excludes any real property Huff owned with defendant.
The May 26, 2000 document was signed by Huff. It was also signed by each of her four children, including the parties to this action, immediately below the following acknowledgment: "We accept this trust exactly on the terms you have provided above and agree to carry out your wishes."
2. Probate Case
On August 8, 2008, defendant, as executor of Huff's estate, initiated a probate action for the administration of Huff's will. The will states that it is Huff's intention to dispose of all property to which she is entitled to dispose of by will, but specifically excepts "any property held in joint tenancy" and "assets which are held in a totten trust bank or savings and loan account and Individual Retirement Accounts." With respect to the excepted categories of property, the will provides: "I hereby confirm any beneficiary designation made by me prior to my death with respect to any pension plan, profit sharing plan, stock bonus plan, IRA, or similar employment related plan or trust in which I have any interest, and direct that any interest in any such plan or trust shall pass in accordance with such designation."
Huff's will was probated, and the probate court's order on final accounting and distribution of estate was issued on May 27, 2010.
3. Huff I
On April 15, 2009, plaintiff James Huff filed a "petition to compel distribution pursuant to terms of trust," in Riverside County Superior Court case No. GP014397 (Huff I) in which he sought to enforce the terms of the May 26, 2000 document as a trust. Defendant demurred to the petition, arguing that there was no trust because no trust property existed when the purported trust was created. The superior court in that case sustained defendant's demurrer on the ground that the petition failed to state facts sufficient to constitute a cause of action for the relief requested.
4. The Instant Action
Plaintiffs filed this action on April 28, 2010. Defendant demurred to the complaint, arguing that the May 26, 2000 document could not be a contract because it lacked consideration. Defendant further argued that plaintiffs' complaint was inconsistent with the verified petition filed in Huff I, that plaintiffs were seeking recovery for the same "primary right" as that sought to be enforced in Huff I, and that plaintiffs should be barred from seeking the same relief under a different legal theory. Defendant also contended that plaintiffs' action was barred because they should have sought relief in the probate action by filing a petition pursuant to Probate Code section 850.
Defendant has not raised the "primary right" argument in this appeal.
All further statutory references are to the Probate Code unless otherwise indicated.
The trial court ruled that the May 26, 2000 document was neither a contract nor a trust, and that plaintiffs' action was barred by the doctrines of res judicata and collateral estoppel because they should have raised their arguments in the probate case in which Huff's estate was administered. The trial court sustained the demurrer without leave to amend. This appeal followed.
DISCUSSION
I. Standard of Review
"On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed 'if any one of the several grounds of demurrer is well taken. [Citations.]' [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.] And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment. [Citation.]" (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) The legal sufficiency of the complaint is reviewed de novo. (Montclair Parkowners Assn. v. City of Montclair (1999) 76 Cal.App.4th 784, 790.)
II. Breach of Contract
The existence of a contract is an element of a cause of action for breach of contract. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821 (Oasis West).)The trial court ruled that plaintiffs' complaint failed to state a breach of contract cause of action because the May 26, 2000 document is not a contract. Defendant contends the document cannot be a contract because it lacks mutuality of obligation and is unsupported by consideration. She argues that because Huff could have altered the arrangement at any time during her life, any promise made by Huff was illusory. Defendant further contends the purported agreement cannot be enforced because its terms are too uncertain and indefinite, and it conflicts with the language of Huff's will. As we discuss, the trial court's ruling was in error, and defendant's contentions are contradicted by the applicable law.
Defendant's mutuality of obligation argument fails for two reasons. First, the appropriate time for determining whether a subject contract lacks mutuality is as of the time its enforcement is sought, not as of its execution. (Henderson v. Fisher (1965) 236 Cal.App.2d 468, 476.) The prevailing rule is that "contracts which lack mutuality in their inception may be specifically enforced after the want of mutuality is removed by the performance by one party of his obligation under the contract. [Citations.]" (Ibid.)That Huff might during her lifetime have decided not to transfer any of her assets to her children does not preclude enforcement of the parties' agreement upon her death.
Second, the mutual obligations sought to be enforced here are not between Huff and defendant, but between the parties to this action. The parties agreed to take title to the various assets covered by the May 26, 2000 agreement subject to the conditions imposed by Huff and to carry out her wishes regarding distribution of those assets after her death.
The parties' agreement is supported by consideration, consisting of their relinquishing the possibility of receiving a greater share of Huff's assets in exchange for the right to share equally in those assets. The reciprocal benefit that might accrue to the parties to such an agreement constitutes adequate consideration. (De Mille v. Ramsey (1989) 207 Cal.App.3d 116, 122-123 (De Mille); Spangenberg v. Spangenberg (1912) 19 Cal.App. 439 (Spangenberg).)
Courts have held agreements such as the one at issue here to be enforceable. In Spangenberg, six siblings made a contract to divide equally whatever their father might leave them in his will. The consideration for the contract was stated to be "'their love and affection for one another'" and "being 'desirous of avoiding litigation over the estate.'" The father died and his will left equal bequests to the siblings and the entire residue to two of them. One of the residuary beneficiaries objected to the contract, arguing that the agreement was void because the heirs could not make a contract to divide property they might never inherit. The court disagreed, finding there was adequate consideration for the contract. (Spangenberg, supra, 19 Cal.App. at p. 447.)
In De Mille, two sisters entered into a written agreement to share equally in their mother's estate, even if a will might provide for an unequal disposition. After the mother's death, one sister sought to rescind the agreement, claiming that at the time of the agreement, neither sister knew how the decedent would structure her will. The court held the agreement to be enforceable, even though it changed the outcome of the terms of the will. (De Mille, supra, 207 Cal.App.3d at p. 125.)
In Jarkieh v. Badagliacco (1946) 75 Cal.App.2d 505, a case factually similar to the instant one, a mother established a joint tenancy bank account in the names of herself and her daughter with the expressed intent that upon her death the daughter would share the funds equally with her brother. After the mother's death, the daughter refused to do so, claiming she was the sole owner of those funds. In upholding a judgment for the brother, the court stated that the daughter as the surviving joint tenant, "only takes title to the account" and that nothing precluded the court from holding, in a proper case, that the surviving joint tenant holds that legal title in trust for another. (Id. at p. 510.)
Jarkieh was disapproved on another ground in Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30.
As the foregoing authorities establish, the agreement plaintiffs seek to enforce in this action is supported by adequate consideration, its terms are sufficiently certain, and it may be enforced notwithstanding provisions in Huff's will to the contrary.
Huff's will, which confirms beneficiary designations made before her death with respect to "any pension plan, profit sharing plan, stock bonus plan, IRA or other similar employment related plan or trust" and directs that "any interest in any such plan or trust shall pass in accordance with such designation," are not inconsistent with the relief sought in this action. Plaintiffs do not challenge the initial passing of title in any such assets to defendant. They seek to enforce a subsequent obligation by defendant to distribute certain of those assets in accordance with the provisions of the May 26, 2000 agreement.
III. Breach of Fiduciary Duty
"The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, breach of fiduciary duty, and damages. [Citation.]" (Oasis West, supra, 51 Cal.4th at p. 820.) "A fiduciary relationship is '"any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter's knowledge or consent. . . . "' [Citations.]" (Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29.)
Plaintiffs here allege a duty by defendant to hold certain assets transferred to her upon Huff's death for their benefit and to distribute those assets to them. Plaintiffs further allege that defendant breached that duty by refusing to distribute the assets to them. The complaint alleges facts sufficient to state a cause of action for breach of fiduciary duty.
IV. Res Judicata and Collateral Estoppel
Plaintiffs' breach of contract and breach of fiduciary duty claims are not barred by the doctrines of res judicata or collateral estoppel. "'Res judicata' describes the preclusive effect of a final judgment on the merits. Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them. Collateral estoppel, or issue preclusion, 'precludes relitigation of issues argued and decided in prior proceedings.' [Citation.] Under the doctrine of res judicata, if a plaintiff prevails in an action, the cause is merged into the judgment and may not be asserted in a subsequent lawsuit; a judgment for the defendant serves as a bar to further litigation of the same cause of action." (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896-897, fn. omitted.)
"Application of the doctrine of res judicata requires an affirmative answer to the following three questions: (1) Was there a final judgment on the merits? (2) Was the issue decided in the prior adjudication identical with the one presented in the subsequent litigation? (3) Was the party against whom the principle is invoked a party or in privity with a party to the prior adjudication? [Citation.]" (Estate of Redfield (2011) 193 Cal.App.4th 1526, 1534.)
A. The court's ruling in Huff I does not bar plaintiffs' claims
The first two res judicata questions cannot be answered in the affirmative with regard to the superior court's ruling in Huff I. First, there is no evidence in the record showing that the court's ruling on the demurrer in Huff I was reduced to a final judgment, such as an order of dismissal. The doctrine of res judicata applies only to judgments and orders that are final. Intermediate determinations, such as rulings on motions and interlocutory orders, are not final. (Service Employees International Union v. Hollywood Park, Inc. (1983) 149 Cal.App.3d 745, 756 [prior ruling was an order sustaining a demurrer; absent a showing that this ruling was reduced to a final judgment such as an order of dismissal, it has no res judicata effect].)
Second, the issued decided in Huff I -- whether the May 26, 2000 document was a trust -- is not identical to the one presented here -- whether that document is an enforceable contract and whether defendant breached fiduciary duties owed to plaintiffs. The superior court's ruling on the demurrer in Huff I therefore does not bar the causes of action in this case.
B. The probate court proceeding does not bar plaintiffs' claims
The probate court's order for a final accounting and distribution of assets from Huff's estate also has no res judicata effect on plaintiffs' claims against defendant. This is because the assets covered by the May 26, 2000 agreement that are the subject of this lawsuit were not part of Huff's probate estate.
A decedent's estate consists of the decedent's personal property, wherever located, and all the decedent's real property located in California. (§ 6600, subd. (a).) Certain types of property are statutorily excluded from a decedent's probate estate, including (1) sums remaining on deposit at the time of death in a Totten trust account (§ 5302, subd. (c); Estate of Allen (1993) 12 Cal.App.4th 1762, 1766-1767); (2) property in which the decedent held an interest as a joint tenant or other interest terminable upon the decedent's death (§ 6600, subd. (b)(1)); (3) sums remaining on deposit at the time of death in a multiple party account to the extent those sums belong to the surviving party upon death of the decedent (§§ 5302 & 6600, subd. (b)(2)); and (4) property which has been disposed of by provision for nonprobate transfer on death in an insurance policy, account agreement, individual retirement plan or other written instrument (§ 5000; Estate of Peterson (1994) 28 Cal.App.4th 1742, 1746). The assets that were the subject of the May 26, 2000 agreement all come within one of the foregoing types of property and were thus excluded from Huff's probate estate.
There is no evidence in the record that the assets plaintiffs seek to recover in this action were administered during the probate of Huff's estate. The probate court order approving the final accounting and petition for distribution of Huff's estate does not list any insurance policy proceeds, joint tenancy account, Totten trust account, or other similar asset of the type described in the May 26, 2000 agreement. Because the assets at issue were not administered during the probate of Huff's estate, neither res judicata nor collateral estoppel bars plaintiffs' breach of contract action with respect to those assets.
Although the record indicates the trial court took judicial notice of the probate court's order approving the final accounting and distribution of Huff's estate, the record on appeal did not include a copy of the May 27, 2010 probate court order. By our own motion, we augment the record to include that order. (Cal. Rules of Court, rule 8.155(a)(1)(A).)
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Plaintiffs' action is not barred by their failure to seek relief in the probate court action.
Plaintiffs' claim in this case is not against Huff's estate but against defendant as the recipient of nonprobate transfers that allegedly should have been thereafter distributed to them. Section 850, which authorizes "any interested person" to file a petition for a probate court to specifically enforce a contract in which "the decedent while living binds himself or herself or his or her personal representative by a contract in writing to convey real property or to transfer personal property upon or after his or her death" therefore does not apply. (§ 850, subd. (a)(2)(B).)
Plaintiffs' claims are not subject to the exclusive jurisdiction of the probate court. Although the complaint refers to assets held in trust, trustees, and trust beneficiaries, the causes of action asserted are for breach of contract and breach of fiduciary duty, and not for the administration of a trust. (Cf. § 17000, subd. (a) [providing for probate court's exclusive jurisdiction over matters relating to internal trust affairs].)
The trial court erred by concluding that plaintiffs' action is barred by the doctrines of res judicata and collateral estoppel and that their sole remedy was to raise their claims during the probate of Huff's estate.
DISPOSITION
The order sustaining the demurrer without leave to amend and dismissing plaintiffs' action is reversed. Plaintiffs are awarded their costs on appeal. NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
____, J.
CHAVEZ
We concur:
_, P. J.
BOREN
_, J.
DOI TODD