Opinion
G031781.
11-6-2003
KATHY W. REYNOLDS et al., Plaintiffs and Respondents, v. JOSEPH I. SAADI, as Trustee, etc., Defendant and Appellant.
Michael R. Lawler, Jr., for Defendant and Appellant. Richard H. Wise for Plaintiffs and Respondents.
Joseph I. Saadi (appellant), trustee of the trust of Mary Van Dyke, appeals from a judgment following a three-day bench trial of the beneficiaries petition for relief from breach of trust and appellants petition for approval of accounting. Finding in favor of the beneficiaries, Kathy W. Reynolds, Tina Ray, and Robert Weidmann (respondents), the court awarded them substantial damages, attorney fees and costs, ordered appellant to disgorge certain funds wrongfully withdrawn from the trust, and removed him from his position. Appellant challenges various components of the judgment, as detailed in the legal discussion, post. Finding no basis for reversal, we affirm.
FACTS[]
In large part, the recited facts are derived from the parties joint pretrial statement and undisputed facts.
Appellant has practiced as an accounting professional for nearly 30 years. He holds an M.B.A. with an emphasis in accounting from the University of Texas at Austin. Although he is not a certified public accountant (CPA), he has passed the CPA exam in both Texas and California. Appellant is also an enrolled agent with the Internal Revenue Service (IRS), where he was a service agent for nearly five years. He thus has special education, experience, and expertise in accounting and tax matters. He also holds California licenses as a real estate broker and a general contractor.
Appellant was a close friend of Mary Van Dyke (Van Dyke) and her children from the early 1970s. Van Dyke, familiar with appellants educational and professional background, named him to act as executor of her estate and successor trustee under a living trust she executed in September 1994. Van Dyke died on July 6, 1996. As the court stated, from that point on, "[appellant] wore two hats and was in full control of all of [Van Dykes] assets."
The due date for filing federal and state estate tax returns and paying estate taxes was April 6, 1997, nine months from the date of Van Dykes death. Appellant applied for an extension, utilizing an IRS form divided into separate parts regarding time to file and time to pay. In each section, appellant sought a six-month extension to October 6, 1997. The IRS granted the application, allowing appellant until October 6, 1997, to file the federal tax return, and cautioning by stamped caveat, "THE MAXIMUM EXTENSION ALLOWED FOR FILING IS 6 MONTHS." In approving the application for an extension of time to pay, however, the IRS interlineated in handwriting that appellant would have until April 6, 1998, i.e., an additional six months over and above what he had requested, to pay the taxes.
The October 6, 1997 extended due date for filing the federal return came and went. Appellant, who said he was confused by the IRSs extension approval, waited for nearly six months, until March 31, 1998, to sign, date, and file the federal and state tax returns and pay federal taxes of $294,373 and state taxes of $60,000.
On May 4, 1998, the IRS requested payment of $114,797.36 in interest and penalties on the estate taxes. When appellant sought reconsideration, the IRS abated the penalty for failure to timely pay, but left unchanged the penalty for failure to timely file. Eventually, the IRS and the state imposed penalties and interest, paid by appellant out of the trust funds — $102,639 to the IRS and $27,812 to the state, of which latter sum $3,115 represented a deficiency tax payment. Appellant did not disclose to the beneficiaries the nature of these payments.
In January 2002, pursuant to Probate Code section 17200, respondents filed a petition for relief from breach of trust. They alleged appellant violated his duties as trustee, failed to exercise reasonable skill, care and diligence in administering the trust, and engaged in specific self-dealing misconduct to the detriment of the beneficiaries. Inter alia, respondents sought damages, reimbursement of funds to the trust, disgorgement of appellants various fees paid to himself from the trust, an accounting, and appellants removal from his office.
All further statutory references are to the Probate Code unless otherwise stated.
Four days after respondents filed their petition, appellant, acting alone, closed a trust account with Farmers and Merchants Bank which had required the signature of the designated beneficiary, Tina Ray, and put more than $50,000 from that account into a newly opened trust account from which appellant could withdraw funds without Rays cosignature. Out of the new trust account, without the knowledge or consent of the beneficiaries, he paid $5,000 to his attorney and $29,022 to himself for services to the trust.
It is unclear how appellant was able to close the original trust bank account without Rays signature. We note, however, that in its statement of decision, the court alluded to the purported signature of Ray on the check to the IRS for $294,373. The court "strongly believe[d] that the check . . . was not signed by Tina Ray," but declined, without sufficient evidence, to "find that such was a forgery by [appellant]." The record does not indicate whether there was a like second signature on the withdrawal of funds in the bank account.
Thereafter, appellant responded to the verified petition, averring, in pertinent part, that because the trust did not have sufficient cash available to pay the estate taxes when due, he applied for an extension to file the federal estate tax return. Appellant claimed his failure to timely file the return did not cause damage to the trust or beneficiaries because, in order to pay the taxes earlier, he "would have had to sell the Trusts real property quickly and at a substantial discount or refinance the Trusts real estate," costing the estate a loss exceeding the penalties. He alleged all the fees he had collected for performance of accounting, tax and brokerage services and in his role as executor and trustee were reasonable and within the law. He claimed entitlement to an additional $100,000, in earned, but unpaid, fees for his services. Appellant also filed a petition for approval of accounting and trustees fees, final distribution and termination of the trust.
Following a three-day bench trial, the court issued a judgment as follows: The court (1) removed appellant as trustee and appointed one of the beneficiaries as successor trustee; (2) ordered appellant to turn over to the successor trustee "all assets of every kind and nature in his possession or under his control both as Trustee herein and as Executor in the Mary A. Van Dyke Estate"; (3) directed appellant to "receive no further payments of any kind or nature out of the Trust [including] no further Trustee fees, no accounting fees, no tax preparation fee, no attorney fees, no costs, no money at all out of the Trust"; and (4) ordered appellant to "render a supplemental accounting to the Court in proper form," pay the beneficiaries "the sum of $176,147.00[] which is a surcharge against [appellant] personally," personally pay the beneficiaries fees and costs, including reasonable attorney fees, and "return to the Trust bank account . . . the sum of $31,632.00 which [appellant] wrongfully withdrew from that account on January 8, 2002."
The total comprises the trust estates $127,335 loss of principal, plus interest of $48,811 caused by appellants "gross negligence in filing and paying the estate taxes."
In its 10-page statement of decision, the court found appellants failure to timely file the tax return "without excuse." Inter alia, he was "grossly negligent in connection with the preparation, filing and payment of the federal and California estate taxes": The form was "clear and unambiguous," and appellant, particularly with his experience, knew the maximum allowable extension for filing the return was six months, as evidenced by his specific request for a six-month extension. Appellant was also negligent in administering the estate, delaying the close of probate without cause, i.e., "no claims filed or presented in the estate and no creditor lawsuits to delay administration." As a result of inexcusable delay, the trust was injured.
Van Dyke died July 6, 1996. Appellant submitted his petition to administer estate, in pro. per., on November 15, 1996, but letters testamentary did not issue to him until September 12, 1997. The will was a pour-over will to the trust of which appellant was trustee. On August 17, 1998, over two years after Van Dykes death, the court had to issue an order that appellant file his inventory and appraisal in the estate. He did not file his first and final account until June 23, 2000, and the order for final distribution was not made until September 29, 2000, more than four years after the death.
The court further found appellant violated his fiduciary duties as trustee and repeatedly acted in bad faith. For example, the court noted, "[Appellant] failed to properly notify the beneficiaries of the status of the Trust being administered, in violation of Sec[tion] 16060," and he failed to timely inform them "of the charges for his services in preparing and filing fiduciary income tax returns for the Trust." Moreover, the court found "there was no need to delay paying the taxes beyond the normal due date nine months after the date of death," and appellant presented no evidence showing why he could not and should not have sold securities earlier, rather than later, "to raise cash to pay the California and Federal estate taxes" in a timely manner. Additionally, "no beneficiary knew about, consented to or consulted with the Trustee regarding his late filings and late payments of the estate taxes," and no beneficiary consented to appellants "paying interest and penalty charges out of the Trust assets." The court further found appellant breached his fiduciary duties by receiving an executors fee on specific inventoried assets and then including those same assets in his trust accounting and requesting trustee fees on such assets, i.e., attempting to recover duplicate payment of fees.
The court also found appellant "was guilty of self-dealing throughout the administration of the Trust," including in his "bad faith" failure to account to the beneficiaries on an annual basis and his "failure to distribute assets promptly to the beneficiaries following payment of the taxes and penalties." The latter delay benefited only appellant, "as his retention as Trustee continued to allow him to pay himself fees and costs for his work allegedly done for the benefit of the Trust."
Finally, the court denied appellants petition for approval of accounting and determined appellant could not assert the statute of limitations against respondents claims because he had failed to plead it as an affirmative defense. Moreover, even if the defense were procedurally available, the court found the evidence showed none of the beneficiaries discovered or had reason to discover their claims more than three years before they filed their petition.
DISCUSSION
Before turning to our discussion of appellants contentions on appeal, we remind him we consider the record in the light most favorable to the judgment. In doing so, we disregard each fact he asserts without a supporting citation to the evidence. (See Cal. Rules of Court, rule 14(a)(1)(C).) It is not our task to search for facts as to which no proper record reference is offered. (See, e.g., Fox v. Erickson (1950) 99 Cal.App.2d 740, 742.)
Measure of Damages
We reject appellants argument the court erred in measuring the damages occasioned by the extended date for paying the estate taxes. Appellant says the court failed to take into account and credit him with income produced by trust assets that he would have had to sell if he had paid the taxes when originally due. He claims had the asset income been offset against the interest assessed on the tax payment, the estate would have realized a net gain, rather than a loss. The only record cite in support of this purported fact is to appellants posttrial objections to the proposed statement of decision: This is not evidence. Nor does appellants trust accounting support his claim. While the value of the trusts assets rose between Van Dykes death on July 6, 1996, and the extended due date for payment of the taxes, April 6, 1998, there is no evidence of a valuation corresponding to the relevant extension period. Thus, appellant did not prove he was entitled to the claimed credit against damages, and for that reason, the authority he cites, Estate of De Laveaga (1958) 50 Cal.2d 480, is inapt.
Under section 16440, subdivision (a)(1), in considering the trustees breach of trust, the court was authorized to charge appellant with any consequent loss or depreciation in the value of the trust estate, with interest. The evidence supports the courts finding the trust incurred needless interest charges on the late tax payments.
In the alternative, citing section 16440, subdivision (b) and section 16441, subdivision (b), appellant argues the court had discretion to excuse him from liability for the loss if he acted reasonably and in good faith under the circumstances known to him. He contends his late filing of the tax returns "was clearly unintentional," and the court did not make a finding of bad faith in this regard. The argument misses the point. The court found appellant did not act reasonably: It found he was grossly negligent. This finding renders academic any discussion of the courts discretion under the cited statutes.
Section 16440, subdivision (b) and section 16441, subdivision (b) both provide, "If the trustee has acted reasonably and in good faith under the circumstances as known to the trustee, the court, in its discretion, may excuse the trustee in whole or in part from liability under subdivision (a) if it would be equitable to do so." (Italics added.) Appellant presents no argument regarding the equities of the situation. Under the facts, this is not surprising.
Standard of Care
Appellant next contends the court needed expert testimony on the standard of care to support its finding that appellant breached his duty in filing the tax returns late. While it is true the standard of care is a matter that sometimes requires the testimony of a professionally qualified expert, the rule applies only where the injury or its causes are beyond common knowledge. (See, e.g., Estate of Beach (1975) 15 Cal.3d 623, 635.)
There are two standard of care statutes in this case: As an ordinary trustee, appellant was required to "administer the trust with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument." (§ 16040, subd. (a).) As a trustee with special training and expertise in accounting and tax matters, appellant had a duty "to apply the full extent of [his] skills." (§ 16014, subd. (a).) It matters not which standard the court applied: It is well within common knowledge that everyone, trustee or not, must file tax returns and pay taxes on time, and no expert testimony is required to interpret an IRS form that sets forth in clearly identified separate sections two different deadlines for performing two distinct tasks.
Appellants expert said he personally found the form confusing. Appellant testified the same. But that evidence was not binding on the court, nor did it obligate respondents to present countervailing expert evidence as to the forms clarity. (See, e.g., Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 636 [court may reject expert testimony offered by plaintiff, even though defendant does not offer expert testimony of its own].) Additionally, as stated in City of Chino v. Jackson (2002) 97 Cal.App.4th 377, 382-383, "`It is . . . solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence." The court determines whether the language of a document is ambiguous or reasonably susceptible to an interpretation urged by a party. The courts ruling in this threshold matter is a question of law, not of fact, and is subject to independent review. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165-1166.) Here, we agree with the courts appraisal that the document was clear and unambiguous. Further, substantial evidence supports the courts finding of inexcusability regarding appellants failure to file the return for almost six months beyond the extended date he himself requested and was granted. There was no need for expert testimony on the issue.
Fees for Services
Appellant contends the court erred in denying him reasonable fees for trustees services. He argues he was entitled to reasonable fees under the terms of the trust. He asserts the "customary" fee in Orange County is "an annual fee of 1% of the market value of the trust assets," which is what he asked the court to approve. In his petition, appellant prayed for $70,946.36 in earned, but unpaid, fees. However, during the litigation, that figure rose to about $150,000. And the accounting appellant submitted with his petition itemizes about $77,000 in fees received, with a claimed remaining balance of approximately $144,000. Needless to say, these figures cannot be reconciled. However, the court found appellant had been paid approximately $78,000, closely coinciding with the total set forth in appellants accounting. Of this amount, the court ordered appellant to return $31,632 to reimburse respondents for the funds he had wrongfully removed from the trust bank account to pay himself and his attorney. The court further found appellant had received executors fees on nearly $483,000 in inventoried assets, which he had then included in his trust accounting as a basis for trustees fees, withdrawing the request for duplicate payment only on the last day of trial.
"While the court may properly consider comparable or customary charges within the private sector based upon a percentage of the value of the administered trust assets, it is not obliged to do so and is free to consider other relevant factors including — inter alia — the success or failure of the trustees administration of the trust." (Estate of Gump (1982) 128 Cal.App.3d 111, 116.)
Appellant contends this surcharge against him constituted an abuse of discretion because the trust provided for him to employ counsel and because a portion of the fees he paid himself was court-approved statutory executors fees for the decedents probate and the remainder was for accounting services and tax return preparation. Once again, appellant fails to appreciate the significance of having taken funds from a trust account without prior authorization from any beneficiary. In ordering appellant to return the funds, the court noted this self-dealing breach of appellants fiduciary duty. Appellant does not explain why the surcharge in the amount of funds to which he helped himself constitutes an abuse of discretion. We see no need to belabor the point.
Section 16420 provides in pertinent part that in a proceeding against a trustee for breach of trust, a beneficiary may seek to "reduce or deny compensation of the trustee." (§ 16420, subd. (a)(7).) This remedy for breach is cumulative to "any other appropriate remedy provided by statute or the common law." (§ 16420, subd. (b).) Respondents petition for breach of trust was brought under section 17200. In such an action, the court has statutory authority to "make any orders and take any other action necessary or proper to dispose of the matters presented by the petition." (§ 17206.) Respondents petition asked the court to "order that the Trustee receive no compensation [] and be required to disgorge his accounting fees in an amount according to proof, and his fees for tax services in an amount according to proof."
Under Estate of Gump, supra, 128 Cal.App.3d at page 117, a trustees negligence in administering a trust allows the court to exercise its discretion to "deny compensation for services rendered in conjunction with the mismanaged trust asset." We thus review for abuse of discretion. "The test is not whether we would have made a different decision had the matter been submitted to us in the first instance. Rather, the discretion is that of the trial court, and we will only interfere with its ruling if we find that under all the evidence, viewed most favorably in support of the trial courts action, no judge reasonably could have reached the challenged result." (Estate of Billings (1991) 228 Cal.App.3d 426, 430.)
The issue of reasonable trustee fees is determined from the facts of the specific case. Guidelines for awarding trustee fees are enunciated in Estate of Nazro (1971) 15 Cal.App.3d 218, 221: "Among factors to be considered in determining the compensation allowable to a trustee are (1) the gross income of the trust estate, (2) the success or failure of the administration of the trustee, (3) any unusual skill or experience which the trustee in question may have brought to his work, (4) the fidelity or disloyalty displayed by the trustee, (5) the amount of risk and responsibility assumed by the trustee, (6) the time consumed by the trustee in carrying out the trust, (7) the custom in the community as to allowances to trustees by settlors or courts and as to charges exacted by trust companies and banks, (8) the character of the work done in the course of administration, whether routine or involving skill and judgment, and (9) any estimate which the trustee has given of the value of his own services."
Appellant urges us to focus solely on the last factor. Respondents argue we should look at the whole picture. They assert appellants administration of the trust was a complete failure. He showed no unusual skill as a trustee, he was neither faithful nor loyal, but self-serving. He assumed no particular responsibility; he presented no evidence of the time he put into his services; he gave conflicting estimates of the value of his work.
The record supports respondents position. In the statement of decision, the court found appellant repeatedly put his own interests above those of the trust. He violated his duty under section 16014 to apply his skills. He violated his duty under section 16060 by failing to keep the beneficiaries notified of the status of the trust. He failed to inform the beneficiaries in a timely manner of the charges for his services in preparing and filing fiduciary income tax returns for the trust, and he negligently prepared and filed the returns. He was grossly negligent in preparing, filing and paying the federal and state estate taxes, and his malfeasance was inexcusable. He delayed paying the estate taxes beyond the normal due date without any need. In this respect, he caused a $176,147 loss to the trust estate. He was negligent as well in administering the probate estate, and his delay in closing it was inexcusable; there were no claims filed or presented in the estate and no creditor lawsuits to delay administration. The delay caused the estate to remain open, as the will was a pour-over will into the trust. (See fn. 5, ante.) Appellant intentionally withheld information from the beneficiaries regarding the interest and penalties he had paid out of the trust. He paid the interest and penalties by subterfuge, i.e., having Tina Ray sign checks for such payments to the tax authorities on the premise that they were routine payments. Without reasonable cause and in bad faith, he opposed the beneficiaries request for a court accounting and opposed their contest of his account. In violation of section 16004, subdivision (a), he was guilty of self-dealing throughout the administration of the trust. His failure to distribute assets promptly to the beneficiaries following payment of the taxes and penalties was in bad faith; the delay did not benefit the beneficiaries, only the trustee, who could continue "to pay himself fees and costs for his work allegedly done for the benefit of the Trust." His failure to account annually was a bad faith "intentional breach of trust under Section 16062," which permitted appellant "to continue to withhold the information relative to the penalties and interest he had previously paid and the payments to himself." The court further found appellant filed an improper accounting, requiring him to file a supplemental accounting "correcting the deficiencies" and necessitating an additional hearing.
More specifically, the court found, "There was no reason shown why [appellant] could not and should not have sold the balance of the securities sooner, i.e., before the tax due date, rather than later. Wearing both hats, [appellant] could and should have managed to take whatever steps were necessary to pay the estate taxes on time. In the end the taxes were paid out of the proceeds of security sales anyway."
The above litany is representative, not all-inclusive. Other examples abound. Taken in totality, the statement of decision, based on undisputed facts found true by the court, demonstrates appellant mismanaged the trust in its entirety. Under these circumstances, the court did not abuse its discretion in denying appellant his request for trustees fees.
Appellant protests the court abused its discretion in denying him fees owed for accounting and tax preparation services over the years. He neither points to evidence establishing his entitlement to such fees in any amount nor presents legal argument in support of his challenge. We deem the point waived. (Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, 228.)
Statute of Limitations
Appellant contends respondents action for breach of trust with regard to the IRS penalties and interest is barred by the three-year statute of limitations set forth in section 16460. He contends he was unfairly deprived of the opportunity to plead the statute or put on evidence to prove his case.
Section 16460 provides, in pertinent part: "(a) Unless a claim is previously barred by adjudication, consent, limitation, or otherwise: [¶] (1) If a beneficiary has received an interim or final account in writing, or other written report, that adequately discloses the existence of a claim against the trustee for breach of trust, the claim is barred as to that beneficiary unless a proceeding to assert the claim is commenced within three years after receipt of the account or report. An account or report adequately discloses existence of a claim if it provides sufficient information so that the beneficiary knows of the claim or reasonably should have inquired into the existence of the claim."
Further background discussion will place our legal analysis in context. Initially, we note appellant did not raise the statute of limitations issue in his answer or in the joint case management statement filed July 11, 2002, just three months before trial. He claimed it for the first time in his trial brief filed October 18, 2002, four days before trial, but did not then seek leave to amend his answer to plead the defense. During a break in appellants counsels opening statement, respondents counsel argued the statute of limitations was lost by virtue of appellants failure to plead it and asked the court to exclude evidence on the issue. At that time, appellant asked for leave to amend. The court replied, "Oh, no, not with affirmative defenses . . . . [¶] You dont plead them, they are waived. They are just not part of the case, counsel." Respondents counsel asked the court "that there be no evidence allowed on the topic of the [section] 16460 limitation," and the court stated, "All right." The court denied appellants oral request for a continuance to file a motion under Code of Civil Procedure section 473.
Trial proceeded, the parties and the court alike ignoring the informal ruling excluding evidence on the statute of limitations issue. In fact, a great deal of evidence was received, without objection, having little or no relevance to any issue except the statute of limitations. All three beneficiaries testified they did not know about the federal tax penalties and interest until depositions were taken just a few months before trial.
Beneficiary Robert Weidmann testified he and his sisters, Kathy Reynolds and Tina Ray, met with appellant in appellants office in July 2000. They were displeased with the fees being charged by appellant and "had not gotten any itemized list of what each of those were for and how he arrived at those numbers," so they "had no idea what his fees were." (Appellant had not sent billings for his services in 1996, 1997, or 1998.) The topic of penalties and interest to the IRS came up at that time: As appellant talked about his tax accounting fees, "he then shared that there were some penalties and interest. But he did not disclose the amount," nor was there a balance sheet, an accounting, or anything from the probate file in front of them at the meeting. The court asked Weidmann when he first learned that over $125,000 in penalties and interest had been paid out of the trust to the federal and state governments, and Weidmann answered, "Monday." The court said, "Monday of this week?" which Weidmann affirmed. Thus, Weidmann learned of the amount the day before trial started.
Kathy Reynolds agreed with her brothers testimony about the July 2000 meeting with appellant. She said the first time she saw the application for an extension of time to pay the IRS was after the litigation started. Appellant had never shown her the document. At appellants deposition in July 2002, she learned the extent of the penalties and interest.
The third beneficiary, Tina Ray, testified appellant never told her the trust was paying interest and penalties to the federal government until the July 2000 meeting, when she and her sister and brother all found out, but did not learn how much money was involved. They discovered the amount in July 2002 at appellants deposition. Two years earlier, at the meeting with appellant about his fees, appellant "never mentioned that we owed a lot of money in penalties and interest for our income tax." At the time she signed the check to the IRS, Ray believed it was "[j]ust for taxes." She had received the check in the mail from appellant with a little post-it note saying it was for taxes. This was a typical procedure: When appellant sent her checks to sign for outstanding bills, such notes would say, "`Tina, please, sign and mail." The January 1, 1999 check to the IRS, in reality for payment of penalties and interest, had "`Final balance" written on the notation line; Tina signed and mailed it, believing "that was the last increment [on the taxes that] we needed to pay."
Appellant, on the other hand, testified respondents knew about the federal taxes and the adverse consequences to the trust in May 1998, when he confessed everything to them during an unrelated proceeding in bankruptcy court. Appellant said he told the beneficiaries, "I just received a letter from the Internal Revenue Service asking us for $100,000 at least for interest and penalties. And I am expecting definitely something from the State. [¶] And I turned to Tina . . . and I told her: I think we [have] screwed [up] on our interpretation on approval of the extension. . . . [¶] . . . [¶] [T]his is the first day that they [knew] of that situation." Further, appellant said he had the beneficiaries come to his office, where he showed them the request for extension form and asked their interpretation of it. He contradicted Tinas testimony about her signing of the check to the IRS, saying he had not mailed it to her, but had had her sign it right in his office, with Kathy present. Appellant also said he talked with the beneficiaries four or five times about whether he should file an appeal with the IRS regarding the penalties and interest, but they did not want to appeal because they were afraid of an audit and valuation of the assets. Appellant said Tina and Kathy had been so understanding and forgiving about the mistake he had made, that their testimony in court surprised him.
After respondents rested, appellant again attempted to assert the statute of limitations through renewal of a motion for judgment on the pleadings and a request for leave to amend. Appellant argued respondents had waived their right to avoid the statute of limitations because they failed to plead the facts relating to the federal taxes and also failed to allege facts that their claim was being brought within the statutory period, which he contended was their burden. As for the motion to amend, appellant argued respondents had been allowed to prove up a cause they had not pleaded, and fairness dictated appellant be accorded the opportunity to plead his defense.
The court was unimpressed. It found the petition "more than adequate," noting parties are not required to plead something until they find out about it, and in any event, no amendment to the complaint was necessary because "once an equity proceeding is filed with the court, all claims are subject to the courts disposition on an accounting once we get it in front of us and everything is disclosed." The court further found it "very telling" that the petition did not talk about the federal taxes, although it specifically mentioned "the late penalty to the State, because that was disclosed." Finally, the court decided "[t]he earliest time [respondents] even knew they had a problem with [appellant] in regard to those penalties and interests was in July of 2000 when they met in his office," and that even if respondents had discovered all of the information at that time, they filed their petition in January 2002, well within the three-year statute of limitations of section 16460. The court added, "There is absolutely no grounds for any statute of limitations defense." Denying appellants motions, it found "as a matter of law on the evidence presented — as a matter of law — there is no statute that has run that has barred any claims by these people." (Italics added.)
In its statement of decision at the end of trial, the court ruled, "as a matter of law, that any defense which otherwise would have been available to [appellant] based on Section 16460 is unavailable to [appellant] because he did not plead it in his Response." Noting that appellant "presented evidence through his own testimony and through cross-examination of the beneficiaries, and the beneficiaries presented testimony on direct examination bearing on the question of when they discovered their claim," the court found "none of the beneficiaries discovered nor should they have reasonably discovered that they had a claim for surcharge against [appellant for federal tax penalties and interest] more than three years before they filed their Petition on January 4, 2002. . . . [T]he evidence indicates in fact that they did not discover the claim with respect to the federal tax penalties and interest until discovery in this case in the summer of 2002."
On appeal, appellant asserts the court erred in denying him judgment on the pleadings or leave to amend to state a statute of limitations defense. First, appellant argues respondents had a duty to plead facts showing their claim was within the statute of limitations, and absent such allegations, the petition was defective on its face and subject to a judgment on the pleadings. Appellant cites Williams v. Pacific Mutual Life Ins. Co. (1986) 186 Cal.App.3d 941, 948-950, for this proposition. The cited passage discusses accrual of a private right of action under FEHA. It notes that the prohibitions against employment discrimination contained in the fair employment statutes are "`"in no sense declaratory of preexisting common law doctrine but rather include areas and subject matters of legislative innovation, creating new limitations on an employers right to hire, promote or discharge its employees."" (Id. at p. 949.) For that reason, a substantive time limit was involved (i.e., one in which the right to maintain suit can expire), and "`the plaintiff must allege facts which show that the right has not expired." (Id. at pp. 949-959.) The rule expressed by the Williams court is entirely inapt here, where, unlike employment discrimination, the right of recovery finds its genesis in the common law.
Turning to appellants argument the court abused its discretion in denying leave to amend to assert the statute of limitations defense, we need not decide the issue, although we note in passing that, in the absence of exceptions not applicable here, "the statute of limitations is a personal privilege which `. . . must be affirmatively invoked in the lower court by appropriate pleading . . . or else it `is waived." (Mysel v. Gross (1977) 70 Cal.App.3d Supp. 10, 15.) In any event, were we to assume, arguendo, the court abused its discretion, appellant has demonstrated no prejudice. The court received evidence on the issue, adjudged the credibility of the witnesses, and believed respondents, and we do not secondguess that appraisal. In light of the unquestionably substantial evidence on the issue, an amendment to assert the statute of limitations would have been a futility.
At oral argument, appellants counsel represented to this court that at trial, appellant had not been allowed to present evidence on the statute of limitations. As can be seen from the above recitation, the record is otherwise.
Attorney Fees and Costs
The court ordered appellant to "personally pay the fees and costs, including reasonable attorneys fees, of the beneficiaries" in an amount to be determined. Appellant argues attorney fees are not allowable in California absent contractual or statutory authorization. Appellants generalization is true, but to no avail. Section 17211, subdivision (b) provides, "If a beneficiary contests the trustees account and the court determines that the trustees opposition to the contest was without reasonable cause and in bad faith, the court may award the contestant the costs of the contestant and other expenses and costs of litigation, including attorneys fees, incurred to contest the account. The amount awarded shall be a charge against the compensation or other interest of the trustee in the trust. The trustee shall be personally liable and on the bond, if any, for any amount that remains unsatisfied." (Italics added.) Furthermore, Code of Civil Procedure section 1026, subdivision (b) provides, "Costs allowed under subdivision (a) shall, by the judgment, be made chargeable only upon the estate, fund, or party represented, unless the court directs the costs to be paid by the fiduciary personally for mismanagement or bad faith in the action or defense."
Here, the courts findings supporting the award of attorney fees and costs stated, "The Court has further considered the evidence regarding [respondents] request for attorneys fees and costs to be assessed against [appellant] personally and grants such request pursuant to [section 17211, subdivision (b)] finding that [appellants] opposition to [respondents] request that he file a Court accounting and his opposition to their contest of his Account were without reasonable cause and in bad faith. Moreover, costs are awarded against [appellant] personally under Code of Civil Procedure [section] 1026(b) for his mismanagement and bad faith conduct." Substantial evidence supports these findings. The court was clearly authorized to award attorney fees and costs against appellant personally.
We do not reach the merits of appellants contention the cost bill contains "excessive and unreasonable attorney fees," including "airfare, hotel, rental car and other travel expenses from San Francisco to Orange County, several trips." He filed no motion to tax costs, thus he has waived the right to object to the costs awarded. (See, e.g., Santos v. Civil Service Bd. (1987) 193 Cal.App.3d 1442, 1447.)
Finally, in his reply brief, appellant argued for the first time that under California Rules of Court, rules 870(a) and 870.2, respondents were required to file a noticed motion to recover fees, and under Russell v. Trans Pacific Group (1993) 19 Cal.App.4th 1717, the court exceeded its jurisdiction in awarding attorney fees in any amount without such motion. In Russell, the reviewing court affirmed an order taxing costs where the appellant had presented its Civil Code section 1717 contractual attorney fees in the cost memorandum, without a concurrent motion for such fees as statutorily required under Code of Civil Procedure section 1033.5. In pertinent part, the latter statute provides that when attorney fees are authorized by contract or statute, they are allowable as costs and shall be fixed upon a noticed motion. Russell concluded the trial court "does not have discretion to disregard noncompliance," (Russell v. Trans Pacific Group, supra, 19 Cal.App.4th at p. 1725), therefore it properly granted the motion to tax.
Russell is of no help to appellant because (1) appellant did not make a motion to tax costs, and (2) appellant waived the issue by failing to object to the courts proposed judgment insofar as it announced it would allow respondents to submit their request for reasonable attorney fees and costs "in the form of a cost bill." (See Cal. Rules of Court, rule 232(c) & (d).) It is firmly established that an appellate court will not consider erroneous rulings where an objection could have been, but was not, presented to the lower court. (See, e.g., Sea & Sage Audubon Society, Inc. v. Planning Com. (1983) 34 Cal.3d 412, 417.)
DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal.
WE CONCUR: BEDSWORTH, ACTING P. J. and ARONSON, J.