Opinion
NOT TO BE PUBLISHED
Superior Court County of Ventura, No. CIV 238964, Kent M. Kellegrew, Judge
Mitchell Silberberg & Knupp; Richard B. Sheldon and Daniel M. Hayes, for Casa Colina Centers for Rehabilitation Foundation, Appellant.
Nemecek & Cole; Jonatha B. Cole and Jon D. Robinson, for Estate Strategies, Inc., and Richard B. Sorenson, Appellants.
Horvitz & Levy; Jeremy B. Rosen and Margaret S. Thomas. Smith Law Firm, Craig R. Smith, for Respondent.
YEGAN, J.
Appellants, Casa Colina Centers For Rehabilitation Foundation (Casa Colina), Estate Strategies, Inc. (Estate Strategies) and its president Richard Sorensen, appeal from an order denying their motions to compel arbitration. (Code Civ. Proc., § 1294, subd. (a).) The trial court impliedly found that arbitration of a consolidated action for elder financial abuse and a charitable trust accounting dispute would result in piecemeal litigation and the possibility of conflicting rulings. We affirm. (Code Civ. Proc., § 1281.2, subd. (c); Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 349-350.)
Facts and Procedural History
In 2002, respondent Lowell T. Patton (age 74) and his wife consulted Mark Sherwood for estate planning advice. Sherwood recommended that Patton go to Estate Strategies which, unknown to Patton, was a fundraising service for certain charities.
Patton passed away after the notice of appeal was filed. On July 20, 2007, Sally Patton Walter, executor of the estate of Lowell T. Patton, was substituted in place of respondent Lowell T. Patton.
Estate Strategies agreed to provide financial and estate planning services, and referred Patton to Attorney Matthew Mack. Before the referral, Estate Strategies President, Richard Sorensen, had Patton sign a letter of engagement that contained an arbitration clause.
On February 27, 2002, Patton met with Mack and executed a second engagement agreement. Mack prepared three charitable remainder unitrusts (CRUTs) for Patton's children, designating four charities (Casa Colina; Boy Scouts of America, Ventura County Council; Young Men's Christian Association of Metropolitan Los Angeles; and The Church of Jesus Christ of Latter-Day Saints) as trust remainder beneficiaries. The trust instruments named Mack as administrative trustee and Sherwood as management trustee. Acting on appellants' advice, Patton funded the CRUTS with his personal property which included professional minor league baseball stock worth $2.4 million.
A CRUT is a trust that pays out a defined percentage of its net worth annually, leaving whatever remains at the end of term (a specified number of years of the life of the beneficiary) to charity. (See 26 U.S.C. § 664(d)(2); Patton v. Sherwood (2007) 152 Cal.App.4th 339, 341, fn. 1.)
When trust management problems arose, Patton petitioned the court to remove Mack and Sherwood as trustees and objected to the trust accounting, alleging that Mack and Sherwood had charged excessive fees and breached their fiduciary duties. In a separate action, Patton sued Sorensen, Estate Strategies, Mack, Sherwood, and three of the trust charities for fraud, elder financial abuse, rescission, and constructive trust. The first amended complaint alleged that appellants "had a prearranged deal with the charities to pay a commission fee or kickback for the gift." To avoid the possibility of inconsistent rulings, the trial court consolidated the fraud action and the trust accounting action. (Code Civ. Proc., § 1048, subd. (a).)
Appellants filed motions to compel arbitration based on the Estate Strategies/Mack engagement letters. In his opposition papers, Patton asked the trial court to take judicial notice that Estate Strategies was a suspended California corporation and that Mack was not licensed to practice law when the CRUTs were created. Patton was elderly and suffered from Alzheimer's and prostrate cancer, which was the subject of a protective order after appellants noticed Patton's deposition.
Article 3, Section 2.5 of the Estate Strategies "Letter of Engagement" is captioned "Resolution of Differences" and provides: "The Parties are encouraged to quickly bring all differences arising out of this Engagement to the attention of the other, and each Party shall use its best efforts to maintain a harmonious relationship and continue performance of this Engagement. Further, the Parties shall cooperate and use each Party's facilities for the prompt and effective adjustment of any and all such differences, either by mail, telephone, or personal meeting under friendly and courteous circumstances. Any differences which the Parties are unable to resolve to their mutual satisfaction shall be resolved through arbitration before the American Arbitration Association, Los Angeles, California (or other agreed upon arbitrator). The prevailing Party in any proceeding to enforce any provision of this Agreement shall be awarded reasonable attorney's fees and costs incurred in the proceeding or in its efforts to negotiate a resolution of any difference between the Parties."
At the hearing on the motions to compel arbitration, the trial court voiced its concern about Patton's deteriorating health, the problem of piecemeal arbitration and inconsistent rulings, and whether the trust accounting dispute was arbitrable. Patton argued that the agreement to arbitrate was a fraud ab initio and that arbitration would undermine laws protecting the elderly. (Code Civ. Proc., § 36, subd. (a) [trial preference for elderly]; Welf. & Inst. Code, § 15600 et seq.)
The trial court took the matter under submission and, in a minute order, denied the motions to compel arbitration. The order stated that "not all non-profit organizations have filed motions to compel the arbitration. The Court has received evidence in a separate discovery motion that Lowell T. Patton is confronted with serious medical problems. The Court is persuaded that it would be inequitable to force this plaintiff to endure both arbitration and Superior Court litigation, given his fragile health. Had all non-profit corporations joined in Casa Colina's motion to compel arbitration, the Court would likely reach a different result."
Discussion
We review for abuse of discretion. (Mercury Ins. Group v. Superior Court, supra, 19 Cal.4th at p. 349.) The trial court correctly found that Casa Colina could bring a motion to compel arbitration even though it is non-signator to the arbitration agreement. (See e.g., Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271-272.) The other trust charities, however, have not requested arbitration, making it impossible to resolve the entire matter by binding arbitration. "There is no public policy favoring arbitration of disputes which the parties have not agreed to arbitrate. [Citation.]" (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.)
Patton's Death
Appellants argue that but for Patton's fragile health, the trial court would have granted the motion to compel arbitration. Patton and his wife have since passed away, an event which in appellants' eyes defeats the court's rational for not arbitrating the matter.
On July 20, 2007, Sally Patton Walter, the executor of the estate of Lowell T. Patton, was substituted in place of respondent Lowell T. Patton.
We reject the argument because the trial court's order is based on the finding that, unless all the trust charities agree to arbitrate the matter, arbitration would result in piecemeal litigation. The trial court was vested with the discretion to deny arbitration due to "a possibility of conflicting rulings on a common issue of law or fact." (§ 1281.2, subd. (c); Mercury Ins. Group v. Superior Court, supra, 19 Cal.4th at p. 350.)
Appellants complain that the trial court did not fully state its reasons but are precluded from relying on the court's contemporaneous remarks at the hearing. (See e.g., Patarak v. Williams (2001) 91 Cal.App.4th 826, 830; People v. Bravot (1986) 183 Cal.App.3d 93, 95.) Trial judges are permitted to think aloud and clarify the issues during oral argument. This is especially so where a complex fraud action and trust accounting dispute is transferred to a busy probate department for trial. The fair import of the minute order is that the matter cannot be resolved by private arbitration, that there are common issues, and that the parties are not required "endure" both arbitration and superior court litigation. "Had the trial court tersely stated only that [the motion to compel arbitration was denied], we would affirm based upon whatever implied factual finding was necessary to support the [decision]. [Citations.]" (Patarak v. Williams, supra, 91 Cal.App.4th at p. 830.)
Before the motion to compel arbitration was heard, appellants demurred and moved to strike portions of Patton's complaint. Casa Colina and Mack demanded that Patton appear for his deposition and an independent medical examination, which was the subject of a protective order. Mack also filed a cross-complaint for equitable indemnity, apportionment of fault, and declaratory relief against Patton's family, the Boy Scouts of America, the Patton family trusts, the estate of Patton's wife (Mary Lou Patton), and an accountancy corporation. Other than Patton's wife (Mary Lou Patton), none of the cross-defendants were signators to the arbitration agreements.
The pleadings clearly support the finding that arbitration would result in piecemeal litigation and the possibility of conflicting rulings. Trust accounting matters are in rem and must be decided by the probate court. (Copley v. Copley (1978) 80 Cal.App.3d 97, 106-107; Security-First Nat. Bk. v. Superior Court (1934) 1 Cal.2d 749, 775.) The trial court reasonably concluded that it could not send the trust accounting dispute to private arbitration without the consent of all interested parties. Other than Casa Colina, none of the other trust charities wanted to arbitrate the matter.
Two charities named in the trusts, Young Men's Christian Association of Metropolitan Los Angeles and Boys Scouts of America, Ventura County Council, appeared at the hearing and argued that they had a right to jury trial. The fourth charity, Church of Jesus Christ of Latter-Day Saints, filed a notice of opposition to arbitration.
A more compelling reason to deny arbitration is that the first amended complaint seeks rescission of the charitable trusts. Our Legislature has granted the Attorney General special standing to enforce charitable trusts, to assure that the trusts are properly supervised and enforced. (Gov. Code, §§ 12591, 12598; L.B. Research & Education Foundation v. UCLA Foundation (2005) 130 Cal.App.4th 171.) "The Attorney General is a necessary party to proceedings affecting the disposition of the assets of a charitable trust." (In re L.A. County Pioneer Society (1953) 40 Cal.2d 852, 861; see Estate of Horton (1970) 11 Cal.App.3d 680, 685.)
In a prior appeal, the trustees (Sherwood and Mark) argued that the Attorney General, not Patton, had standing to object to trust accounting. (Patton v. Sherwood, supra, 152 Cal.App.4th 339.) We held that although the state, as parens patria, superintends the management of charitable trusts, the settlor of a charitable trust may, pursuant to the terms of the trust instrument, reserve the power to object to trust accountings. (Id., at p. pp. 341-342.)
Appellants assume that the settlor of a charitable trust may, by letter agreement, agree to submit trust accounting disputes to arbitration even though the agreement is not referenced in the trust instrument. Such a rule would undermine the authority of the Attorney General to supervise and oversee charitable trusts. The Legislature has declared that "no court shall have jurisdiction to modify or terminate any trust of property for charitable purposes unless the Attorney General is a party to the proceedings." (Gov. Code, § 12591.)
The first amended complaint also alleges that appellants violated charitable solicitation laws and engaged in the practice of law without a license. It seeks injunctive relief to enjoin appellants from engaging in fraudulent fundraising schemes, a public interest matter not subject to arbitration. (Klussman v. Cross County Bank (2005) 134 Cal.App.4th 1283, 1290 [claims to remedy public wrongs and further public interest are not subject to arbitration]; see Bus. & Prof. Code, § 17510 et seq; 13 Witkin, Summary of Cal. Law (10th ed. 2005) Trusts, § 307, pp. 880-881.)
An action to enjoin alleged deceptive fundraising practices, "whether designated as a claim under the CLRA [Consumer Legal Remedies Act; Civ. Code, § 1750 et seq.] or Business and Professions Code section 17200 or section 17500, . . . is designed to prevent further harm to the public at large rather than to redress or prevent injury to a plaintiff. As such, for the reasons discussed in Broughton [v. Cigna Healthplans (1991) 21 Cal.4th 1066], there is an '"inherent conflict" between arbitration and the underlying purpose of [those statutes"] injunctive relief remedy.' [Citation.]" (Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 316.)
Appellants make no showing that the trial court abused its discretion. A probate court's jurisdiction over charitable trust accountings is not trumped by an arbitration agreement signed before the charitable trust is created. (Prob. Code, §§ 17000, subd. (a); 17200.) This is especially so where the trust accounting dispute includes an action to rescind the charitable trust based on fraud and elder financial abuse.
The judgment (order denying motions to compel arbitration) is affirmed. Respondent is awarded costs and attorney's fees on appeal. (Otay River Constructors v. San Diego Expressway (2008) 158 Cal.App.4th 796, 808-809.)
We concur: GILBERT, P.J., COFFEE, J.
Paragraph 1.c. of the Mack engagement letter, entitled "LETTER OF UNDERSTANDING & DISCLOSURES" provides: "c. Dissolution Resolution – Each Party is free to bring any different, misunderstanding or dispute (herein 'Difference') concerning this Engagement to the attention of the other Party, without prejudicing the Parties' harmonious working relationship. Each Party may act by mail, telephone, or personal meeting in a friendly and courteous manner to bring about the prompt and effective resolution of any Difference. If the Parties are unable to resolve any Difference to their mutual satisfaction, then each Party agrees that the Difference shall be resolved through arbitration before the American Arbitration Association, Los Angeles, California (or other agreed upon arbitrator). The prevailing Party in any proceeding to interpret or enforce any provision of this Engagement shall be awarded reasonable attorney fees and costs in such proceeding."