Opinion
A144566
02-07-2017
BARBARA A. BARTOSHUK, Plaintiff and Respondent, v. CARLEEN WHITTELSEY, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Mateo County Super. Ct. No. PRO122577)
This case involves the interpretation of a trust and related instruments. In 1988, shortly after he married his third wife, the settlor executed a trust confirming that the Woodside home he and his second wife had built was his separate property. Six years later, the settlor's intention changed, and he executed a first restatement of trust and accompanying documents, transmuting all property, including the Woodside home, into community property. The documents included a side agreement. The ensuing years brought several more amendments, and the revocation of the side agreement. All documents were prepared by the attorney who represented the settlor from the beginning.
Unfortunately, a provision in the first amendment—a four-line provision known as the "Woodside Property Allocation Provision"— remained throughout, a provision, the drafting attorney testified, that had been included only in connection with the revoked side agreement, and thus should have been removed and ignored. The attorney provided a 12-page declaration explaining why, testifying in detail about the settlor's intention over the 19 years during which the various documents were executed. Moreover, if the mistaken provision were not ignored, it would result in the settlor's 77-year-old widow losing her community property interest in the home and some $3,200,000, which was contrary to her husband's intent—not to mention saddling her with a tax penalty in excess of $1,500,000.
Despite that testimony from the attorney and similar testimony from the widow, the trial court held "there was no dispute" about the provision, that it was "not reasonably susceptible" of any interpretation other than one adverse to the widow, and ruled against her. We conclude the court erred, and we reverse.
BACKGROUND
The Parties and the Property
This appeal arises out of the trust of Stuart G. Whittelsey (Stuart), who died in 2009, at the age of 79. He was survived by his third wife, Carleen, to whom he had been married for 22 years. Carleen is the appellant here. She is now 77 years old.
As is typical in disputes involving competing claims of family, we refer to the family parties by first names.
Stuart and his first wife had two children. Stuart's second marriage was to Clara Stucky (Clara), whom he married in approximately 1971. Clara had six children from a prior marriage, one of whom is Barbara Bartoshuk (Barbara). Barbara is the respondent here.
In 1975, Stuart and Clara, as joint tenants, purchased unimproved real property at 180 Fox Hollow Road, Woodside (usually, the Woodside property; sometimes, the Fox Hollow property). They built a home on the Woodside property and lived there together until November 1986, when Clara died. At that point, Stuart had 100 percent ownership in the Woodside property.
In November 1987, Stuart married Carleen, who had three children from her prior marriage. Stuart was 58 years old, Carleen 50.
The Trust and Other Documents
On April 27, 1988, Stuart executed the Stuart G. Whittelsey Jr. Family Trust (the Trust). Stuart was designated the sole settlor and sole trustee. The Trust was prepared by attorney Bruce Roberts (Roberts), of the firm of Hopkins & Carley. The Trust confirmed that the Woodside property was Stuart's separate property, and allocated that property to the Trust.
Six years later, Stuart's intention changed. According to the undisputed evidence that would come before the court via the declarations of Roberts and Carleen, in 1994 Stuart and Carleen decided they wanted to transmute their separate property to community property, transfer their property to the Trust, and make Carleen a co-trustee and co-settlor.
In furtherance of this intent, Roberts drafted, and on June 23, 1994, Stuart and Carleen executed, the "First Restatement of the Trust" (First Restatement). Among other things, the First Restatement confirmed that "All property listed in Schedule A as 'community property' is and shall remain the community property of the Settlors whether such property was held as joint tenants, as tenants in common, as the separate property of either or both Settlors, or as community property prior to its transfer to this Trust." In addition, "Schedule A" provided in pertinent part as follows: "[T]he undersigned hereby agree that the within Schedule 'A' . . . does hereby constitute a transmutation and declaration as to the characterization of all property described in this within Schedule 'A' and that any right, title and interest which either or both of us may have had which contradicts the within characterization shall be null and void."
Stuart and Carleen never re-transmuted the Woodside property to separate status. To the contrary, various documents executed thereafter continued to reaffirm their intent that the Woodside property was community property.
The First Restatement also provided that upon the death of the first settlor, the Trust assets were to be allocated among various subtrusts, specifically providing as follows:
"The Trustee shall divide the Trust Estate, including any additions made to the Trust by reason of either Settlor's death, into four separate trusts, designated 'Trust A', 'Trust B', 'Trust C', and 'Trust D.'
"A. Trust A shall consist of the following property:
"1. The surviving spouse's interest in the Settlor's community estate included in or added in any manner to the Trust Estate.
"2. The surviving spouse's separate and quasi-community property, included in or added in any manner to the Trust Estate.
"B. Trust B shall consist of the following property: '. . . The minimum dollar amount necessary as a marital deduction to eliminate (or to reduce to the greatest extent possible) any federal estate tax at the deceased spouse's death . . . '
"C. Trust C shall consist of all or any portion of the deceased spouse's property, or interest therein, distributable to or allocable to Trust B under the provisions of paragraph B of this article FOURTH, and which is disclaimed by the surviving spouse with respect to Trust B.
"D. Trust D shall consist of the balance of the Trust Estate. . . .
"E. In allocating assets among the foregoing subtrusts, the Settlors' interest in the real property and improvements commonly known as 180 Fox Hollow Road, Woodside, California . . . shall be allocated to Trust A if the husband is the surviving spouse, and to any subtrust other than Trust A if the wife is the surviving spouse."
This last paragraph, E, which came to be called the Woodside Property Allocation Provision, is at the heart of the dispute here.
The referenced and attached Schedule A to the First Restatement did four things: (1) declared the transmutation of all property listed on the schedule, including the Woodside property, from separate property to community property; (2) declared that "any right, title and interest which either or both of us may have had which contradicts the within characterization shall be null and void"; (3) transferred all property listed on Schedule A, including the Woodside property, to the Trust; and (4) confirmed that the settlors were transferring no separate property to the Trust.
On the same day they executed the First Restatement, Stuart and Carleen executed a "Side Agreement," which confirmed that the Woodside property was the separate property of Stuart. That, of course, is inconsistent with the transmutation of all property, including the Woodside property. And as to it—again, according to the evidence from the drafter Roberts—the Woodside Property Allocation Provision was drafted to enforce the Side Agreement. That is, while the Trust documents unconditionally transmuted the settlors' separate property to community property, the Side Agreement purported to create conditions where the property would retain its separate status. This was an estate planning practice utilized at that time for tax purposes, so that Stuart would benefit by receiving a step up in half of his property if Carleen died first.
Beginning in 2008, Courts of Appeal held that provisions similar to the side agreement were ineffective in overcoming transmutation, and unenforceable. (In re Marriage of Lund (2009) 174 Cal.App.4th 40, 54; In re Marriage of Holtemann (2008) 166 Cal.App.4th 1166, 1173-1174.)
On February 21, 1998, Stuart and Carleen executed a revised Schedule A, which again confirmed the transmutation of their assets to community property. The 1998 Schedule A listed the Woodside property as community property, and included a statement confirming that the 1998 Schedule A is "a transmutation and declaration as to the characterization of all property described" therein, also confirming that the Trust holds no separate property of either settlor.
Four years later came yet another document: the "First Amendment to the First Restatement" (First Amendment), executed by Stuart and Carleen on May 20, 2002. The revised Schedule A attached to the First Amendment again listed the Woodside property as community property, included a statement confirming that the settlors intended "a transmutation and declaration as to the characterization of all property described" therein, and confirmed that the Trust held no separate property of either settlor.
The First Amendment for the first time provided for successor trustees and distribution to grandchildren. More pertinent to the issue here, in connection with the First Amendment, Stuart and Carleen told Roberts they wanted all of their property, including the Woodside property, to be community property for all purposes. And according to Roberts, they revoked the Side Agreements—Stuart "tearing [it] up."
With that revocation, the Woodside Property Allocation Provision, which had been included in the First Restatement only to enforce the Side Agreement, should have been removed from the document. But it was not.
Five years later, on December 30, 2007, Stuart and Carleen executed a "Second Amendment to the First Restatement" (Second Amendment). The Second Amendment addressed various distributions for the benefit of grandchildren. It did not change the community property characterization of the assets.
Stuart died on June 1, 2009, and Carleen became the sole trustee. She hired Roberts for the post-death administration of the trust.
Carleen's Post-Death Administration
As will be discussed below, Roberts claims he first discovered in July or August 2009 that he had mistakenly failed to remove the Woodside Property Allocation Provision, later to testify that it "shouldn't have been there . . . it was revoked." Roberts testified that he informed Carleen during this same time period that it "shouldn't have been there." Carleen disputes that Roberts told her at this time. Whatever the timing, in the words of Barbara's brief: "Rather than file a Petition to Reform the Trust to obtain the probate court's approval to remove the Woodside Property Allocation Provision (and notify the affected beneficiaries of such action), they decided to simply administer the Trust 'as if' the Woodside Property Allocation Provision did not exist."
On March 16, 2010, on the advice of Roberts, Carleen, as trustee, executed a trust transfer deed allocating 42.0549 percent of the Woodside property to her "Survivor's Trust 'A.' " This, of course, was contrary to the Woodside Property Allocation Provision, which says to allocate the Woodside property "to any subtrust other than Trust A . . . ."
On June 7, 2010, Carleen, in her individual capacity, revoked the Survivor's Trust 'A' and established her new personal trust, the "Carleen Whittelsey Trust."
On July 18, 2010, Carleen, as trustee, executed another trust transfer deed in which she transferred the 42.0549 percent Woodside property interest out of her Survivor's Trust 'A' and into the Carleen Whittelsey Trust.
Apparently things proceeded on that basis for some two years, until sometime in 2012, when Barbara hired an attorney at the firm of Kramer Radin to draft a special needs trust for the benefit of her sister, Carol Alvarez, who was also a beneficiary of the Trust. An attorney at Kramer Radin saw what Carleen had done, and on behalf of Barbara, attorney Jerome Galli of Kramer Radin wrote to Roberts, inquiring about the property transfer and the claimed noncompliance with the Trust.
Roberts responded by letter of April 4, stating that the community property Schedule A had revoked the Woodside Property Allocation Provision, that all assets were community property, and that Carleen had every right to transfer the property. Roberts's letter included the June 23, 1994 Schedule A.
Galli responded on June 21, reiterating his "previous demand that Carleen Whittelsey immediately transfer the 42.0549% interest in the Residence from her new trust to Trust B (QTIP Trust) of the Stuart G. Whittelsey, Jr. Family Trust."
Roberts refused, and formal court proceedings followed.
The Parties File Petitions
On July 31, 2012, Barbara filed a "Petition for Relief From Breach of Trust; to Compel Return of Real and Personal Property; For an Accounting; Double Damages; Removal of Trustee; Instructions to Trustee; Creation of Common Fund; and Related Relief" (original petition).
On September 14, Carleen filed her response to the original petition.
On October 26, 2012, Barbara filed a "First Amended Petition for Instructions; to Recover Assets Improperly Redirected From the Trust; to Compel Accounting; to Surcharge Trustee; and for Recovery of Attorneys' Fees and Costs [Probate Code §§ 17200, 850]" (first amended petition). The first amended petition expressly stated that it amended the original petition, and requested the court rule on five specific issues, including, as pertinent here, these two dealing with interpretation of the Trust:
"Does the Woodside Property Allocation Provision require the Trustee to allocate all of the Woodside Property to either Trust B or Trust D (and none to Trust A) following the death of Stuart Whittelsey?"; and
"Does Carleen's improper allocation of the Woodside Property and commingling of trust assets require her to reallocate the trust assets as of Stuart's death and account for her administration of the trust assets since Stuart's death?"
The conclusion of the first amended petition requested that the court find and order the following: "1. The Trustee shall allocate the Trust's entire interest in the Woodside Property to either Trust B or Trust D; [¶] 2. Carleen shall execute a deed transferring 42.0549% of the Woodside Property from Carleen's Trust to the Whittelsey Trust in general and to Trust B and Trust D in particular; [¶] 3. Carleen shall reallocate the remaining trust assets as of Stuart's date of death pro rata, 50% to Trust A, on the one hand, and 50% to Trust B and Trust D, on the other hand."
As pertinent to the Trust issue, Barbara's first amended petition had one argument: the Trust is "unambiguous and requires distribution of the Woodside Property solely to Trust B and Trust D." Among the subarguments was that the "Trust is Unambiguous and Extrinsic Evidence Must be Excluded."
On November 26, 2012, Carleen filed two separate responses to the first amended petition, one in her capacity as trustee, one in her individual capacity. Carleen was represented by separate counsel in each response, and separate counsel appeared for her at the various hearings that ensued. The prayers in both responses included that the court "determine that the [Trustee/Respondent] has not engaged in any breach of her fiduciary duties" and that it "find that the allocation by the [Trustee/Respondent] is true and correct."
The First Hearing and the Supplemental Filings
The matter first came on for hearing on December 3, 2012, at which Barbara's counsel argued that the Trust was not ambiguous. Carleen's counsel argued it was. The court ordered the issue briefed, beginning with Barbara to argue her "claim as to why extrinsic evidence should not be necessary," to be followed by oppositions and replies.
Meanwhile, on February 14, 2013, Carleen filed a petition for modification of the Trust (Carleen's petition).
On March 1, Barbara filed her supplemental brief in support of her first amended petition, in which she argued the Trust is unambiguous and extrinsic evidence should not be considered.
On March 14, Barbara filed her objection to Carleen's petition.
Also on March 14, Carleen filed her response, as an individual, in support of the petition for modification. It was a brief four pages, with two arguments, the first that the Woodside Property Allocation Provision "was revoked by the 1998 and 2002 Schedule As." The response ended with this conclusion: "The position taken by Petitioner would unconscionably strip Respondent of her one-half community property interest in her home that she shared with the decedent for 22 years. Such a position is patently unsound both in equity and in law. Accordingly, the Court should grant the Petition for Modification, and reform the Trust so as to conform to the intention of the settlors."
On March 15, Carleen filed two supplemental briefs regarding the admissibility of extrinsic evidence, one in her capacity as trustee, the other as an individual.
On March 22, Barbara filed her reply.
The Second Hearing and the Declarations That Followed
Against the background of those pleadings, the matter came on for hearing on March 27. The hearing began with the following introduction by the court:
"A number of issues on this matter. There have been—there are now three petitions pending as I understand it. A petition for relief from breach of trust, the petition for modification of the family trust, and a first amended petition for instructions to recover assets improperly redirected. That is where we are.
"There are a number of issues floating around throughout these matters. My thinking on the entirety of the case is to make some interim orders with regard to an . . . offer of proof as to what evidence there might be of extrinsic nature that the Court should consider. But frankly, on the face of it, it would appear that there is no extrinsic evidence that should be considered.
"But in an abundance of caution, it would be appropriate for a Court to review whatever possible evidence there might be that might bear on the Court's interpretation of the trust. Which seems to be self-evident on the face of it."
After brief colloquy, the court said there are "a couple of other things that I wanted to add here before we go too much further," the second of which was that the court was "concerned about the trustee's role in the entirety of the situation given the reinterpretation—the attempts to reinterpret what appears to be a fairly straight forward meaning of the trust documents. At least in the Court's reading thus far without any enlightenment that you may offer on that issue. And I'm concerned with this becoming a trust issue as opposed to, what appears to be, an entirely personal issue between the beneficiaries."
Following more colloquy, the court agreed that it would allow extrinsic evidence, doing so with some detail. The court said it would "order Carleen Whittelsey to file . . . a declaration containing an offer of proof of extrinsic evidence that Carleen Whittelsey contends is necessary to interpret the trust provisions with an explanation of, number one, how the 1994 allocation provision for the Fox Hollow Property is reasonably susceptible of interpretation that the distribution of property would depend on its characterization as community property when the existing provision makes no such distinction; and why the 1998 and 2002 amendments should not be viewed as ratifying the 1994 allocation of the Fox Hollow Property.
"Order Carleen Whittelsey to file, by that same date, May 28th, a declaration providing an offer of proof as to, one, whether the trust ever provided an equal allocation among heirs given the fact that the provision relating to Fox Hollow provided that 100 percent would go to one set of heirs if one settlor died first, and to a different set of heirs if the other settlor died first without any countervailing consideration to the non-receiving heirs.
"Second, whether the appreciation of the Fox Hollow was unforeseen in 1994 when the trust was established and in 1998 and 2002 when it was amended.
"And three, any extrinsic evidence that Carleen Whittelsey contends would provide grounds for modification."
Barbara's counsel raised the issue of discovery necessary to provide Barbara an opportunity to impeach Carleen's evidence and to present Barbara's own evidence. The court responded as follows: "The issue is whether or not there is sufficient extrinsic evidence that the Court should consider in interpreting this trust in the first instance." "Because if there isn't, this matter should be decided as a matter of law. If there is, it needs to be tried. And before a trial occurs, it seems to me, you will have an opportunity to conduct full discovery."
On May 28, in her individual capacity, Carleen submitted her "Supplemental Brief Regarding Extrinsic Evidence." The brief was accompanied by three declarations, those of: Attorney Roberts, C.P.A. Michael Jones, and Carleen herself. All declarations stated they were "Regarding Extrinsic Evidence in Support of Objection of Respondent Carleen Whittelsey to First Amended Petition For Instructions."
Roberts's declaration was extensive indeed, 12 pages comprised of 23 paragraphs, beginning with his history with Stuart, whom he came to represent shortly after his marriage to Carleen. Attorney Roberts went on to describe all he did—and why. His testimony was as follows:
"Stuart Whittelsey hired me to prepare the 'Stuart G. Whittelsey, Jr. Family Trust' dated April 27, 1988 (the '1988 Trust'). Carleen was not my client in this engagement. Stuart was the sole settlor of the 1988 Trust and the sole Trustee of the 1988 Trust. . . . Pursuant to the terms of the 1988 Trust, Stuart kept all of his separate property separate. This 1988 Trust allocated the sum of $100,000 in cash plus the real property known as 180 Fox Hollow Road, Woodside, San Mateo, California (the 'Woodside Property') to a Residence Trust. Carleen was the lifetime beneficiary of the Residence Trust, entitled to live rent-free in the Woodside Property, to receive all net income from the Residence Trust and entitled to invade the principal of the Residence Trust for her health, maintenance and support. (Exh. A, Art. Fourth, ¶A). Carleen was named the trustee of the Residence Trust. (Id.). . . . Upon Carleen's death, the assets of the Residence Trust were to be distributed to Stuart's children and step-children. (Trust, Art. Second and Fourth¶4).
"3. In 1994, after Stuart and Carleen had been married for seven years, Stuart contacted me and asked that I restate the 1988 Trust to add Carleen as a co-settlor and co-trustee to his trust. I prepared a trust restatement and went to the Woodside Property to meet with him and Carleen. Since this new trust would hold both Stuart and Carleen's property, I asked them whether they intended to continue to hold their property as separate or community property. During our discussion, I advised Stuart and Carleen about the tax consequences on death of holding property as separate property or as community property. I told the couple that community property receives a full step-up in basis at the death of the first settlor to die and that, therefore, the capital gains tax on pre-death capital gain is eliminated when the property is sold. Stuart owned significant separate property. I explained that if he pre-deceased Carleen, then only his separate property would receive a basis step-up at his death. However if Carleen pre-deceased Stuart, he would not receive a step-up in the basis of any of his separate property. I explained to Stuart and Carleen that the only way Stuart would receive a step-up in basis in his separate property at Carleen's predecease was if he made it community property.
"4. At the same meeting, I advised Carleen and Stuart that both of them were now my clients and that I had a duty to advise them impartially and a duty to avoid conflicts of interest. I advised them of the potential conflicts that would arise as a consequence of joint representation. Stuart and Carleen agreed that I could represent them jointly. I then discussed with Stuart and Carleen, what it meant to transmute separate property to community property. . . . In 1994, I was aware of an estate planning practice whereby a testamentary instrument was drafted so that all property would look like community property for purposes of obtaining a step-up in basis on the death of a spouse, but that a side-agreement was drafted at the same time stating that the property was not transmuted to community property for any purpose other than death. I explained to Stuart and Carleen that a transmutation agreement meant they were consenting and agreeing that each of them was changing the character of their separate property to community property, giving the other spouse a right to a one-half interest in their former separate property. I explained that estate planners had a recent practice of preparing side agreements that were intended to cancel those community property rights, in the event of divorce or one spouse changing his or her estate plan. I suggested that a side agreement be drafted that governed their property rights. Since this estate plan with side agreement created a potential conflict of interest between my two clients, both Stuart and Carleen waived the conflict, as evidenced by the paragraph contained in the Agreement dated June 23 1994 signed by each of them: [¶] . . . [¶]
"5. I then returned to my office to re-draft the trust restatement. That re-draft was entitled the 'First Restatement of the Stuart G. Whittelsey, Jr. Family Trust' and was signed by Stuart and Carleen on June 23, 1994 (the 'Trust'). On that same date, Stuart and Carleen signed the side 'Agreement' ('the Side Agreement'). . . . The purpose of this Trust was to obtain a step-up in basis on Stuart's separate property in the event Carleen predeceased him, by transmuting all separate property to community property in the Trust; however, Stuart would actually keep his separate property rights by entering into the Side Agreement which deliberately contradicted the provisions of the Trust by stating that notwithstanding the property characterization in the Trust, all assets listed on Exhibit A to the Side Agreement were in fact Stuart's separate property. The terms of the Trust were intended to demonstrate that all assets of Stuart and Carleen are community property assets and would be entitled to a step-up in basis on the pre-decease of Carleen, while under the Side Agreement Stuart would retain his separate property rights. [¶] . . . [¶]
"7. Other provisions of the Side Agreement were drafted to contradict the Trust for the purpose of protecting Stuart's separate property rights. The Trust provides that during their joint lifetimes, either spouse could unilaterally revoke the Trust and take their share of community property and exercise all incidents of community property ownership. (Exh. B, Part II, Art. Fourth, ¶A and Art. Sixth, ¶A). The Side Agreement contradicts this provision by stating that the assets are not community property. (Exh. C, ¶1). The Trust states that either spouse can unilaterally revoke the Trust and create their own estate plan. (Exh. B, Part I, Art. Fifth, ¶D and Part II, Art. Sixth, ¶A & ¶B.) The Side Agreement requires Carleen to agree not to change her estate plan in any way. (Exh. C, ¶¶2&3). Since Carleen could breach the Side Agreement after Stuart died, I drafted Paragraph E, Article Fourth, Part I of the Trust (the 'Woodside Allocation Provision') to enforce the terms of the Side Agreement.
"8. I drafted the Woodside Allocation Provision to enforce the provisions of the Side Agreement. . . . Now that Stuart and Carleen had transmuted all separate property to community property, the Woodside Property would be split equally between them, under the terms of the Trust. The Woodside Allocation Provision was drafted to enforce the Side Agreement, by allocating the Woodside Property as though it was Stuart's separate property, while making it look like an allocation of community property for tax purposes.
"9. The Woodside Allocation Provision was not drafted by me to be a re-transmutation of Carleen's community property back to Stuart as his separate property. I did not discuss with Carleen or Stuart that the Woodside Allocation Provision could be a re-transmutation of Carleen's community property back to Stuart as his separate property. I never told Carleen that if she agreed to the Woodside Allocation Provision, that on Stuart's death, she would lose her right to sell her half of the Woodside Property, or lose her right to devise her half of the Woodside Property. The reason I did not advise Carleen of this consequence is because I believed that the Side Agreement was enforceable and binding. However, in 2008 and 2009 the California Court of Appeal handed down two separate opinions stating that such Side Agreements are not enforceable, and that a 're-transmutation' of community property back to separate property cannot happen without an express declaration of consent by the spouse it adversely affects.
"10. I am informed and believe that [the trial court] instructed at the hearing on March 27, 2013 a declaration 'providing an offer of proof as to, one, whether the trust ever provided for equal allocation among heirs given the fact that the provision relating to Fox Hollow provided that 100 percent would go to one set of heirs if one settlor died first, and to a different set of heirs if the other settlor died first without any countervailing consideration to the non-receiving heirs.' A true and correct copy of the transcript of the March 27, 2013 transcript is attached hereto as Exhibit D. The foregoing quote is an incorrect reading of the Trust. The Trust does not provide that one set of heirs inherits if one spouse dies first, and a different set of heirs inherits if the other spouse dies first. The Trust provides that Stuart's heirs inherit no matter which spouse dies first or second. The Trust, with its amendments, provides that if the surviving spouse leaves his or her assets in this Trust, then all assets are allocated to Trust D, which is distributed as follows: (1) Stuart's daughter and her husband receive the first $900,000 in trust to care for Samuel, (2) Stuart's heirs receive the next $1 million, (3) the next $200,000 are used to create special needs trusts for Stuart's grandchild Samuel and step grandchild Sheryl, (4) then $20,000 is distributed to each of Stuart's 13 grandchildren and Carleen's four grandchildren finally (5) any residual is divided equally among eleven heirs: Stuart's eight children and stepchildren and Carleen's three children. Therefore, under the Trust and its amendments, if Carleen chose to leave her separate and community property in this Trust, then approximately $2.5 million in distributions would come off the top before her children received 1/11th share of the residual. Regardless of whether Carleen or Stuart died first, this is the manner in which the assets would be distributed under the Trust.
"11. However, the estate plan does change if the surviving settlor revokes his or her survivor's trust, removing their share of the community property from the Trust. Upon death of the first spouse, the surviving spouse has the right to revoke his or her survivor's Trust. (Trust, Part II, Art. Sixth, ¶C). In such a case, the provisions of Article Fifth, ¶D (2) apply. If Stuart died first and Carleen removed her community property by revoking her survivors trust (as she has done) then her three children inherit nothing from Trust D. (Art. Fifth, ¶D2 (a)). If Carleen died first, and Stuart removed his community property by revoking his survivor's trust, then all of Stuart's heirs are disinherited from Trust D. The purpose of allowing revocation of the survivor's trust is to give the surviving spouse control over their own assets; the consequence of exercising that revocation is that the surviving spouse's heirs are disinherited from the deceased spouse's trust.
"12. Periodically, Stuart would update his Schedule A, and send me a copy to retain in my files. On October 16, 1995 Stuart sent me a revised Schedule A; I have the letter transmitting the document but cannot locate the schedule. . . . I received a Revised Schedule A from Stuart shortly after February 21, 1998. Attached hereto as Exhibit F is a true and correct copy of the revised Schedule A I received from Stuart in 1998. This Schedule A is signed by both Stuart and Carleen and states that they have again transmuted all of their property to community property and that 'any right, title and interest which either or both of us may have had which contradicts the within characterization shall be null and void.'
"13. I visited Stuart and Carleen at their home in 2002 to prepare the First Amendment to the First Restatement. During that meeting, Stuart and Carleen told me they wanted all their property, including but not limited to the Woodside Property, to be their community property for all purposes. I told Stuart that he could revoke the Ante-nuptial and Side Agreement by tearing them up. I witnessed Stuart rip up one original of both his Ante-nuptial Agreement and the Side Agreement during that meeting. Based upon Stuart's statements to me that day (and thereafter) and his action in tearing up the Side Agreement and the Ante-Nuptial Agreement, I know that it was Stuart's intent to revoke the Side Agreement, the Ante-Nuptial Agreement, and the orphaned Woodside Allocation Provision.
"14. When this claim by Barbara Bartoshuk first arose, I was surprised to see a copy of the Side Agreement and Ante-Nuptial Agreement because I knew Stuart revoked them by tearing them up. However, in retrospect, looking at the first page of the Side Agreement, I recognize the handwritten note (Exhibit C) of my secretary stating that two originals had been hand-delivered to Stuart and Carleen. I only saw Stuart rip up one original of each document.
"15. The First Amendment to the First Restatement is a complicated amendment. I told Stuart and Carleen that I should not try to amend the Trust, but rather we should do a second restatement. Stuart told me that he did not want to pay for an entire restatement; he only wanted to pay for an amendment reflecting the particular changes he and Carleen had in mind. Due to the fact that Stuart did not want to pay for a complete restatement of the Trust, I focused on the amendment at hand. Since it had been eight years since I originally drafted the Trust, I did not remember the Woodside Allocation Provision. In fact, on the day I met with Stuart and Carleen about the First Amendment to the Trust, I did not even recall there was a Side Agreement to the Trust; my recollection was only refreshed when Stuart pulled it out and ripped it up.
"16. The purpose of the First Amendment to the First Restatement was to (1) change a successor trustee and (2) to provide bequests for the couples' grandchildren. . . . At the bottom of Schedule A, Stuart typed in the transmutation language confirming that all of their property was community property, and stating that 'any, right, title and interest which either or both of us may have had which contradicts the within characterization shall be null and void.' It is my opinion that because Stuart revoked the Side Agreement in May of 2002, the Woodside Allocation provision which was drafted for the purpose of enforcing that Side Agreement was also revoked, or at minimum, irrelevant surpluses [sic]. Furthermore, Schedule A which is part of the First Amendment to the Trust clearly states that any 'right', title or interest that either settlor may have had 'which contradicts the within characterization shall be null and void'. Therefore, any right that Stuart had to place the entirety of the Woodside Property into his own subtrust, treating it as his separate property, is null and void because such a characterization is contrary to the characterization in the First Amendment as community property. Moreover, because the Woodside Allocation Provision would divest Carleen of her one-half community-property interest in the Woodside Property—which was contrary to Stuart and Carleen's express intentions as stated to me during the 2002 meeting at their home—the rights, title, and interests purportedly created by the now-defunct Woodside Allocation Provision would contradict the community property characterization of the Woodside Property, and were therefore 'Null and void' under Schedule A of the First Amendment to the Trust.
"17. In or about December of 2007, Stuart and Carleen requested that I prepare the Second Amendment to the Trust. The purpose of this Second Amendment was (1) to correct typographical errors in the First Amendment, (2) to create a special needs trust for grandchild Sheryl Alvarez-Dixon of $100,000 and (3) to create a $900,000 trust for the parents of Samuel Blakey to assist them in caring for their child. I again encouraged Stuart to let me do a complete restatement of the Trust, but Stuart did not want to pay for a full restatement. I again focused only on the provisions he requested be amended. If I had been asked to review the entire Trust, I would have removed the Woodside Allocation Provision since I know that it was not in accordance with the settlors' express intentions.
"18. After Stuart died, I prepared the 'Schedule of Allocation' of assets for the subtrusts, a true and correct copy of which is attached hereto as Exhibit I. I compared the Schedule A I prepared in 1994 with the Schedule of Allocation I prepared at Stuart's death. I have determined that of the assets listed on the 1994 Schedule A, only four assets remained at Stuart's death: (1) the Woodside Property, (2) the IRA's (3) stock in Applied Signal Tech Inc., and (4) six oriental rugs that belong to Clara's stepchildren. I learned that in the 15 years between 1994 and 2009 the value of the Woodside Property had gone up but that the number and the value of the liquid assets had declined because Stuart and Carleen had lived off those assets or used them to improve the Woodside Property. It is my recollection that in 1994 the Woodside Property was worth about $2 million; today, the Schedule of Assets values the Woodside Property at $6.489 million. Since 1994, all of the securities, except for one, have been sold. Real property in La Quinta was sold. The interest in Geary Partners (worth about $365,000 in 1994) has been sold. Stuart's IRAs located at Paine Webber in 1994 were worth about $230,000 in 1994; today those IRAs have been transferred to UBS and I am informed and believe are worth less now. The grand total of all other bank accounts at Stuart's date of death was $314,272.40. Indebtedness owed by family members to the Trust, which indebtedness did not exist in 1994, had a face value of $264,222.55 in 1994. I am informed and believe that none of such indebtedness is collectible today.
"19. Since there were not enough community assets to place the Woodside Property entirely in Stuart's subtrusts, I prepared the Schedule of Allocation to place all the liquid assets in Carleen's survivor's trust and as much of the Woodside Property into Stuart's subtrusts as was possible, while still splitting the community property equally. (See Exhibit H). I proposed this allocation because I knew it was Stuart's intent that Carleen receive all of her community property, because the Trust requires that each spouse receive their own share of community property, and because I could not allocate more than what Stuart had as community property to his subtrusts.
"20. As shown in the Schedule of Allocation of Assets, one-half of the community assets were allocated to Trust A (Carleen's interest) and one-half of the community assets were allocated to Trusts B and D (Stuart's interest). In order to effectuate this allocation, the trustee allocated 4.0124% of the Woodside Property to Trust B and 53.9327% of the Woodside Property to Trust D and then the trustee allocated the remaining assets to Trust A. As a result of such allocation, Trust A received $3,760,388.04 worth of assets while Trusts B and D collectively received $3,760,388.05 worth of assets , as shown in the following table:
| Carleen's Interest(Trust A) | Stuart's Interest(Trusts B and D) | |
| Woodside Property | $2,717,742.95 | $3,760,388.05 |
| Bank and Brokerage Accounts | $721,477.54 | $0.00 |
| Outstanding Family Loans | $264,222.55 | $0.00 |
| Miscellaneous Trust Property | $56,945.00 | $0.00 |
| Total: | $3,760,388.04 | $3,760,388.05 |
"21. I have reviewed the briefs of Barbara Bartoshuk. The interpretation promoted by Barbara Bartoshuk is not consistent with Stuart's intention as explained by him to me. Barbara Bartoshuk's interpretation would require that a disproportionate amount of the community property be allocated to Stuart's irrevocable subtrusts and that Carleen's survivor's trust would receive far less than the value of her half of the couple's community property. According to my calculations, if the Trust were interpreted as Bartoshuk wants, the allocation of community property is estimated as follows:
| Carleen's Interest(Trust A) | Stuart's Interest(Trusts B and D) | |
| Woodside Property | $0.00 | $6,489,573.00 |
| Bank and Brokerage Accounts | $360,738.77 | $360,738.77 |
| Outstanding Family Loans | $132,111.28 | $132,111.28 |
| Miscellaneous Trust Property | $28,472.50 | $28,472.50 |
| Total: | $521,322.55 | $7,010,895.55 |
"22. Based upon my conversations with Stuart, I was certain then and I am certain now that: he intended that all of his assets were community property, including the Woodside Property; he intended that Carleen would be entitled to possess her one-half of that community property; and he did not intend such (or any) disproportionate allocation of the couple's community property as is proposed by Barbara Bartoshuk.
"23. Moreover, I am informed and believe that if Carleen were to be forced to transfer her community property interest in the Woodside Property to Trust B or D, it could be considered a taxable gift as of Stuart's death in 2009. Based on my discussions with Stuart and my knowledge of his intentions for the disposition of his estate, I know that Stuart did not intend for Carleen to pay any such gift taxes resulting from his death."
Carleen's declaration testified that Stuart's intention was to make all his separate property community property; that both Stuart and she intended that the Woodside property be community property; and that her one-half community property interest was to be hers to have or dispose of at her discretion and without restriction. Carleen also testified that it was never her intention to give up her interest in the Woodside property or transfer that interest to any subtrust other than Trust A.
Testifying in reference to paragraph 23 of attorney Roberts's declaration, Jones, a C.P.A., said that if it were to be determined by the taxing authorities that placement of Carleen's community property share into Stuart's trust constituted a gift, it would result in taxes, penalty, and interest in the total amount of $1,543,897.
On June 6, Barbara filed her supplemental reply brief in support of her petition for instructions. As her brief describes it, it essentially argued that Carleen did not address all the facts the court had ordered at the March 27 hearing. Barbara asserted that attorney Roberts's testimony was "suspect" and "strains credulity." Following the assertion that not all the questions were addressed, there was a two-page discussion that ended with an argument why the Woodside Property Allocation Provision was not reasonably susceptible to more than one meaning. This is how Barbara's brief below put it:
"Carleen cannot provide another interpretation of the Woodside Property Allocation Provision because the provision is clear and unambiguous:
"It expressly qualifies the preceding text regarding allocation of assets to the subtrusts—'In allocating among the foregoing subtrusts . . .'
"It expressly precludes allocation of the Woodside residence to Trust A—'shall be allocated . . . to any subtrust other than Trust A if the wife is surviving spouse.'
"It provides that the portion of the Woodside property that must be so allocated is the entirety of 'Settlors' interest' in the Woodside property. This reference is both possessive and plural.
"The Woodside Property Allocation Provision 'means what it says.' It is not reasonably susceptible of two or more meanings."
Barbara's reply did not object to any of the declarations submitted by Carleen.
The Third Hearing
Against that background, the matter came on for hearing on June 14, prior to which the court had entered a tentative ruling, which ruling is not in the record on appeal. The hearing began, however inexplicably, with this observation by the court: "The Court had issued a tentative ruling in this matter. This is a followup to a proceeding that we had here back on March the 27th at which time the Court had ordered some additional briefing with regard to the petition for instructions that was on calendar. What's happened since then is the tenor of the proceeding has apparently changed and appears to be, the focus of the proceeding now appears to be on modification of the trust provisions as opposed to reinterpretation of the trust provisions. So what remains is a Petition for Instructions, which is outstanding, which it was never supplementally briefed, and the new petition for modification. The tentative ruling addresses both. Comments?"
Lengthy colloquy followed, colloquy that Barbara's own brief describes as "at times confusing." That's putting it mildly.
Barbara's attorney was the first to respond to the trial court's invitation to comment, as follows:
"MR. BIORN [attorney for Barbara]: Yes, a couple questions, Your Honor. One, when you say the Petition for Instructions was not supplementally briefed, I'm not sure what you mean. I know that both sides did prepare, file and serve briefs.
"THE COURT: Originally for the first hearing in March.
"MR. BIORN: And for this hearing.
"THE COURT: I have no new briefing with regard to the Petition for Instructions for this hearing. Do you have it?
"MR. BIORN: Yes.
"THE COURT: May I see it?
"MR. BIORN: This is our supplemental brief. And Mr. Hansen filed numerous documents as well.
"THE COURT: May I see those?
"MR. HANSEN [counsel for Carleen, in her individual capacity]: These documents, those were relating to the Petition for Instructions—excuse me, the Petition of Modification.
"THE COURT: Those I have.
"MR. HANSEN: The declaration and then the supplemental brief summarized.
"MR. BIORN: Well, it says, 'Declaration of Drafting Attorney,' etcetera, 'To First Amended Petition for Instructions.'
"THE COURT: But there is no substance as far as the first amended—as far as the Petition for Instructions.
"MR. BIORN: Okay.
"THE COURT: Regardless, notwithstanding the filing, there is nothing in that brief that suggests that there's any additional briefing as to the Petition for Instructions.
"MR. BIORN: Okay. So as to the Petition for Instructions, the tentative is to deny it but, yet, the text of it appears that you are not, that you are believing there is no extrinsic evidence that would alter the terms of the trust which would lead me to the conclusion that you would be granting the Petition for Instructions. I wonder if there—my Petition for Instructions says, The Woodside Property Allocation Provision is clear, straightforward and unambiguous.
"THE COURT: All right.
"MR. BIORN: Therefore
"THE COURT: I see your point. You're raising the point that it's actually in your petition and so
"MR. BIORN: Yes.
"THE COURT: —the effect of the ruling is the opposite of what's contemplated. You're right.
"MR. BIORN: Thank you.
"THE COURT: You're right. So to the extent that that means it's granted as opposed to denied, so be it. The point is there is no, no basis for that petition to afford any further evidence on that petition since none has been filed with the court that I'm aware of.
"So, Mr. Hansen.
"MR. HANSEN: I'm having a little bit of tracking now. The Petition for Modification is the petition we're seeking to have the Woodside allocation revision essentially removed from the trust.
"THE COURT: Well, the Petition for Modification is a separate issue.
"MR. HANSEN: Correct.
"THE COURT: The first issue that we were dealing with at the last hearing back in March was the Petition for Instructions, which Mr. Biorn has pointed out was filed by him and not by you with regard to whether or not there was extrinsic evidence to modify the terms of the trust. The Court's tentative ruling, there was no additional such evidence that you brought to the Court's attention at the time since the last hearing, which the Court allowed at that time, additional briefing on that issue. There was no additional briefing filed supporting that claim. So the Petition for Instructions should be granted on that basis at this time. [¶] . . . [¶] The only issue that remains is whether or not the trust should be modified that's been added since that date.
"MR. HANSEN: Okay. So, then, let me see if I can address that, Your Honor. So the question on the Petition for Instructions is whether the Court should construe the trust so as to give force and effect to the Woodside allocation provision, is that the issue as being framed for the purpose of that petition? I'm trying to, trying to figure out exactly what it is. Because the last hearing was really about whether or not we should have extrinsic evidence.
"THE COURT: Exactly.
"MR. HANSEN: Anything to modify the trust.
"THE COURT: Well, as I understood at the last hearing, and correct me if I'm wrong, was to file the Petition for Instructions to construe the existing terms of the trust. You are now asking to modify the terms of that trust, so two different issues.
"MR. HANSEN: This, this is true in that we are seeking to have the Woodside allocation provision thrown out.
"THE COURT: Right.
"MR. HANSEN: Straightforward. On the basis with the additional evidence we submitted that one of the settlers [sic] never consented to it, the other settler [sic] revoked it and, in any event, it was designed to enforce unlawful provision.
"THE COURT: Okay.
"MR. HANSEN: So, then, meanwhile, the Petition for Instructions is to have assets placed, removed from one trust and put back into the other trust, is that what the Court is granting?
"THE COURT: I'm granting the Petition for Instructions, which, as I understood it, and maybe I'm misinterpreting the point of the Petition for Instructions, was to 25 determine the meaning of the trust language in the context of these proceedings as written. The issue arose as to what the extrinsic evidence might mean. I allowed additional briefing on that point. No additional briefing supported that there was extrinsic evidence to alter the meaning of the trust as provided in the Petition for Instructions. So
"MR. HANSEN: Well, part of the Petition for Instructions requires a construction of the trust and what we had submitted was noting that there were both grounds, there's revocation, of course, and lack of consent. But then in the beginning as well there were latent, or patent and latent ambiguities with the trust that require a construction that, to resolve those ambiguities. And the Court cannot construe the trust and give life to the property allocation provision because it conflicts with other provisions in the trust. And when you look at the extenuating, the circumstances of those extrinsic evidence those reveal that the provision is a provision that should fail and that the other provisions such as section A.1, Article IV, which instructs the trustee to put the community property in, Ms. Whittelsey's shared community property in Trust A. That is the provision that must be enforced.
"THE COURT: We start with the premise of what the trust provides. That's my understanding of what Mr. Biorn's petition, original petition intended to accomplish. Mr. Biorn's point is well taken that that petition should be granted and not denied. But the affirmative claim that was being sought, as I understand it, and you can correct me if I'm wrong, was that there was extrinsic language that could be interpreted to have a different meaning. Okay. No additional briefing was provided on that point, so there is no extrinsic language that can provide a different meaning, except you are now seeking to modify the trust. That's a separate issue."
Counsel for Carleen as trustee briefly addressed what he referred to as the "confusion," to which the court replied, "Thank you . . . . That's probably the heart of the lack of communication right here."
The court then heard further from counsel for Barbara. And also from Mr. Hansen, counsel for Carleen as an individual, who concluded his remarks with the proposal that "the Court delay ruling on any petitions, that we set the matter for trial, the parties will maintain the status quo, and then the Court will make, ultimately make a decision on whether this provision should or should not remain in the trust."
The court responded as follows: "Here's what I'm going to do: We are going to set the Petition for Modification [for] trial at this time. I'm going to take the issue of the Petition for Instructions under submission and rework the language. It's clearly defective. I need to rework that part. [¶] We'll set the Petition for Modification [for] Trial. I'm not satisfied that this shows adequate showing was made that that shouldn't be tried. If it should happen that I end up denying the Petition for Instructions it will be set for the same date and I'm going to review that."
The Court Issues Its Order
On June 17, the next business day, the court issued its "Order re Pending Petitions." It provided as follows:
"The Petitions for (1) Relief From Breaches of Trust, to Compel Return of Real and Personal Property; For Accounting and Double Damages; Removal of Trustee, Instructions to Trustee, Creation of Common Fund and Related Relief [hereafter 'Petition for Breach of Trust']; (2) For Instructions (First Amended), To Recover Assets Improperly Redirected from the Trust, To Compel Accounting, To Surcharge Trustee, and Recovery of Attorneys['] Fees and Costs [hereafter 'Petition for Instructions'], and (3) Modification of Stuart G. Whittelsey J. Family Trust Due to Change In Circumstances To Modify Trust [hereafter 'Petition to Modify'] came regularly on for hearing . . . .
"After receiving the papers submitted by the parties and hearing the arguments of counsel, the matter was submitted.
"The Petition for Breach of Trust is ordered OFF CALENDAR. The parties agree that the Petitions for Breach of Trust was superseded by the Petition for Instructions now pending before this court and that the appearance of the Petition for Breach of Trust on the court's calendar as a separate calendar item was a mistake.
"The Petition for Instructions is GRANTED in part and the remainder of the Petition for Instructions is CONTINUED to 9:00 A.M. September 16, 2013 in Department 28 for trial setting.
"On March 27, 2013, this court ordered respondent trustee to provide supplemental briefing demonstrating how the 1994 Allocation Provision of the Fox Hollow Property is reasonably susceptible of interpretation that the distribution of property would depend on its characterization as community property when the existing provision in the trust makes no such distinction. The trustee did not provide offer [sic] supplemental briefing on the issue of interpretation, opting instead to submit evidence supporting the trustee's contention that the trust should be modified to provide for an allocation of the Fox Hollow Property different than that currently existing in the trust. Accordingly, there is no dispute that the existing trust provisions for allocation of the Fox Hollow Property are not reasonably susceptible of any interpretation other than an interpretation that the trust's entire interest in the Fox Hollow Property should be allocated to either Trust B or Trust D. Accordingly, that portion of the Petition for Instructions is GRANTED. [¶] . . . [¶]
"The portion of the Petition for Instructions seeking an order that the Trustee execute a deed transferring 42.0549% of the Fox Hollow Property (item (a) above) is GRANTED, but IS STAYED pending the disposition of the Petition for Modification. [¶] . . . [¶]
"The Petition for Modification is continued to September 16, 2013 for trial setting."
Carleen Files a New Petition
On October 8, 2013, in her individual capacity, Carleen filed a petition to "(1) Reform Trust Based on Scrivener's Error and (2) Construe Trust Provisions re Funding of Blakey Trust" (petition to reform). The petition to reform stated it was based in part on the three declarations earlier filed in the proceeding, copies of which were attached as exhibits.
On November 19, 2013, Barbara filed her objection to the petition to reform, six months later, an amended objection to the petition, and also an amended objection to the petition for modification.
On August 1, 2014, Barbara filed a motion for summary adjudication on the petition to reform and a motion for summary judgment on the petition for modification. The basis of the first motion was that the petition was barred by the three year statute of limitations in Code of Civil Procedure section 338, subdivision (d). The bases of the second motion was (1) that the petition for modification was not timely filed under the applicable statute of limitations, and (2) Carleen's allegations as a matter of law did not rise to a prima facie case sufficient to grant the requested relief.
On October 3, 2014, Carleen filed opposition to the two motions: one, as an individual, opposition to the motion for summary adjudication; the other, as trustee, opposition to the motion for summary judgment. Carleen's arguments were both legal and factual. As to the legal, Carleen argued that no limitation provision applied to her petition, for two independent reasons: (1) the petition was one regarding community property (Fam. Code, § 1100, subd. (d)), and (2) the petition was defensive in nature, filed in response to Barbara's petition. As to the factual, Carleen contended that if a limitation period applied, it began to run no earlier than the date that Barbara filed her adverse claim against the Trust; and the doctrine of imputed knowledge is capacity-specific, so that knowledge acquired by attorney Roberts as trustee in administering the trust could not be imputed to Carleen as beneficiary. All told, Carleen's papers in opposition to the motions totaled 111 pages.
On October 10, 2014, Barbara filed reply briefs on both motions.
The motions came on for hearing on October 17, a hearing that began as follows:
"THE COURT: On calendar today we have a motion for summary judgment on the Petition for Modification, and the motion for summary adjudication on the Petition for Reformation. I have read the moving papers and I will hear your arguments at this time on both. How you want to organize those arguments is up to you, I will leave that up to you.
"Mr. Biorn, you are the moving party, do you wish to address them separately, or together? There are overlapping issues, obviously."
The attorneys argued for some 20 pages of transcript, during which the court asked no questions. Other than calling on Carleen's counsel when it was his turn to argue, the sum total of the court's involvement was to respond to counsel that the court had "no questions," and to end the hearing with this: "All right, matter stands submitted. You will be notified in writing of my decision."
That decision came approximately 87 days later, on January 12, 2015 when the court filed its order granting summary adjudication and summary judgment. And quite an order it was: 70 pages long, discussing at great length at least two issues the court described as issues of "first impression"—indeed, going so far as to adjudicate an issue that Barbara had not even requested it to.
In this regard, Barbara's brief acknowledges that "Carleen is correct that the probate court order improperly adjudicated Carleen's claims with respect to the Blakey Trust. To that extent only, the order should be remanded."
As to the motion for summary adjudication, the court found that the three-year statute of limitations under Code of Civil Procedure section 338, subdivision (d), began to accrue in 2002 at the earliest, and in August 2009 at the latest. And since Carleen did not file her petition until October 2013, it was barred by the statute of limitations.
Carleen, respectively as trustee and as an individual, filed notices of appeal, appealing from the orders entered June 17, 2013 and January 12, 2015.
DISCUSSION
Introduction to the Issue
The dispute here originated with Barbara's Petition for Instructions filed under Probate Code section 17200, a section that says a beneficiary's petition may include "(1) [d]etermining questions of construction of a trust instrument." The petition was generated when Carleen, as trustee, placed the Woodside property in Trust A, doing so on the advice of attorney Roberts. Barbara's petition claimed this was wrong, as the First Restatement to the Trust expressly provided that the Woodside property be put in a trust "other than Trust A."
So, the issue before the trial court was joined: what was the proper interpretation of the Trust.
Extensive extrinsic evidence of how the trust and related documents came to be, and what they intended to accomplish, was introduced, via the declarations of attorney Roberts and Carleen. That evidence was undisputed. The trial court—which, it will be recalled, indicated at the hearing on March 27, 2013, before it heard anything, that "on the face of it, it would appear that there is no extrinsic evidence that should be considered" and also observed that the provision appeared to have a "fairly straight forward meaning"—ignored that evidence, holding that "there is no dispute that the existing trust provisions for allocation of the [Woodside property] are not reasonably susceptible of any interpretation other than an interpretation that the trust's entire interest in the [Woodside property] should be allocated to either Trust B or Trust D."
That is the setting in which the case comes to us.
The parties dispute what the trial court did—or did not do. Barbara asserts that the court considered the extrinsic evidence submitted by Carleen and found it was insufficient to create an ambiguity. Carleen asserts the order itself confirms that Barbara is wrong, as it "recites erroneously that no evidence had been offered on the issue of interpretation. The court mistakenly deemed the declarations submitted by Carleen as pertaining only to a separate petition for modification which it deferred for later adjudication." We deem the dispute irrelevant, since the court erred in either event. The court was required to consider the extrinsic evidence, and it either erred in failing to do so or erred failing to find the evidence demonstrated that the trust is ambiguous.
Our Review—and Our Function
Barbara admits that the standard of review is de novo, but then adds this: "[B]ecause a judgment or order is presumed correct, the appellant has the burden of demonstrating prejudicial error. Moreover, the appellate court must resolve all conflicts in the evidence and make all legitimate and reasonable inferences to uphold the probate court's orders, if possible. When two or more inferences can be reasonably deduced from the facts, the reviewing court may not substitute its deductions for those of the trial court." This is not correct. (Carnes v. Superior Court (2005) 126 Cal.App.4th 688, 694.) To the contrary, and as the leading appellate commentary describes it, on de novo review we give "no deference to the trial court's ruling or the reasons for its ruling, but instead [decide] the matter anew." (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2016) ¶ 8:106, p. 8-76, citing Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191; Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799; and Topanga & Victory Partners, LLP v. Toghia (2002) 103 Cal.App.4th 775, 780-781.) And that we do.
The Supreme Court set forth the governing principles in Estate of Dodge (1971) 6 Cal.3d 311, 318, (fn. omitted) (Dodge), where in connection with the review of the interpretation of a will the court began as follows:
"We begin our discussion with a statement of the applicable principles of appellate review. As set forth in Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865, it is 'a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence.' The possibility that conflicting inferences can be drawn from uncontroverted evidence does not relieve the appellate court of its duty independently to interpret the instrument; it is only when the issue turns upon the credibility of extrinsic evidence, or requires resolution of a conflict in that evidence, that the trial court determination is binding (Parsons v. Bristol Development Co., 62 Cal.2d at p. 866, fn. 2.). These same principles define the appellate function in the construction of wills. (Estate of Russell (1968) 69 Cal.2d 200, 212.) Since the record in the present case discloses no conflict in the extrinsic evidence, and no issues of credibility, it becomes our task to arrive at an independent interpretation of the will.
"In reaching that interpretation, we may utilize extrinsic evidence to aid in construing the will if we find that the will is 'ambiguous' or, more precisely, that in the light of both the language of the will and the circumstances under which it was made, the will is reasonably susceptible of more than one interpretation. (See Estate of Russell (1968) 69 Cal.2d 200, 208-211.)"
The Supreme Court spoke to this in detail, in the opinion cited and quoted in Dodge—Estate of Russell, supra, 69 Cal.2d 200 (Russell). There, in a scholarly opinion written by Justice Sullivan, the discussion began with the observation that "[e]xtrinsic evidence always may be introduced initially in order to show that under the circumstances of a particular case the seemingly clear language of a will describing either the subject of or the object of the gift actually embodies a latent ambiguity for it is only by the introduction of extrinsic evidence that the existence of such an ambiguity can be shown. Once shown, such ambiguity may be resolved by extrinsic evidence." (Id. at p. 207.)
Then, citing and quoting extensively from Wigmore, Corbin, Holmes, and other leading scholars and commentators, Justice Sullivan went on to explain why:
" 'The court must determine the true meaning of the instrument in the light of the evidence available. It can neither exclude extrinsic evidence relevant to that determination nor invoke such evidence to write a new or different instrument.' [Citations.] '[When] a judge refuses to consider relevant extrinsic evidence on the ground that the meaning of written words is to him plain and clear, his decision is formed by and wholly based upon the completely extrinsic evidence of his own personal education and experience'; [Citations].
"The foregoing reflects the modern development of rules governing interpretation, for in the words of Wigmore[,] 'The history of the law of Interpretation is the history of a progress from a stiff and superstitious formalism to a flexible rationalism.' [Citation.] While 'still surviving to us, in many Courts, from the old formalism . . . [is] the rule that you cannot disturb a plain meaning' [citation] nevertheless decisions and authorities like those cited above bespeak the current tendency to abandon the 'stiff formalism of earlier interpretation' and to show the meaning of words even though no ambiguity appears on the face of the document. [¶] . . . [¶]
"Accordingly, we think it is self-evident that in the interpretation of a will, a court cannot determine whether the terms of the will are clear and definite in the first place until it considers the circumstances under which the will was made so that the judge may be placed in the position of the testator whose language he is interpreting. [Citation.] Failure to enter upon such an inquiry is failure to recognize that the 'ordinary standard or "plain meaning," is simply the meaning of the people who did not write the document.' [Citation.]
"Thus we have declared in a slightly different context that extrinsic evidence as to the circumstances under which a written instrument was made is ' "admissible to interpret the instrument, but not to give it a meaning to which it is not reasonably susceptible" [citation], and it is the instrument itself that must be given effect. [Citations.]' [Citation.] . . . . On the other hand an ambiguity is said to exist when, in the light of the circumstances surrounding the execution of an instrument, 'the written language is fairly susceptible of two or more constructions.' [Citations.]" (Russell, supra, 69 Cal.2d at pp. 209-211, fns. omitted.)
In sum, Russell held that extrinsic evidence was allowed to show that an ambiguity exists despite the seemingly clear language of the instrument.
This approach was sometimes described as the modern trend, to show the true intent of the instrument despite no obvious ambiguity. Indeed, in its most recent interpretation case, our Supreme Court held that extrinsic evidence may support reformation of an instrument even where the instrument is unambiguous, if to do so will achieve the intent of the testator. That case is Estate of Duke (2015) 61 Cal.4th 871 (Duke), which involved a holographic will in which the testator devised his estate to his wife. The will also provided that if they died at the same time, the estate would go to two charities. The will did not provide for disposition of the estate if the wife predeceased the testator, which she did. The intestate heirs and the charities both claimed the estate. (Id. at p. 876.)
The trial court excluded extrinsic evidence of the testator's intent, finding that the will was unambiguous because it failed to provide a devise in the event the wife predeceased, and thus held the intestate heirs entitled to the estate. (Duke, supra, 61 Cal.4th at p. 877.) The Supreme Court reversed. The court began by noting that California law, codified in Probate Code section 6111.5, allows the admission of extrinsic evidence to determine the meaning of a will if the meaning is unclear; and under Probate Code section 21102 extrinsic evidence, to the extent authorized by law, may be used to determine the intention of a transferor in a donative instrument. Historically, however, extrinsic evidence has been inadmissible to correct a mistake in an unambiguous will. (Duke, supra, 61 Cal.4th at pp. 884-885.) But, the court went on, "This history of statutory provisions concerning the admissibility of evidence of a testator's intent reflects that the Legislature has codified legal principles developed by the courts, and has taken steps to ensure that its enactments do not restrict the admissibility of extrinsic evidence beyond the principles established by the courts. Nothing in this history suggests that the Legislature intended to foreclose further judicial developments of the law concerning the admissibility of evidence to discern the testator's intent . . . ." (Duke, supra, 61 Cal.4th at p. 885.)
Then, citing Russell, the court observed it could continue to develop the law regarding admission of extrinsic evidence to determine the testator's intent even where the language of the document is clear on its face. (Duke, supra, 61 Cal.4th at p. 886.) And the court concluded, where clear and convincing evidence establishes both a mistake in drafting a will and the testator's actual and specific intent at the time the will was drafted to deny reformation would defeat the testator's intent—and result in the unjust enrichment of unintended beneficiaries. (Id. at p. 890.)
As to how that interpretation is to be made—how the intent is to be analyzed—many well-settled principles exist, some set forth by statute, some developed by case law. These principles include the following:
"The words of an instrument are to receive an interpretation that will give every expression some effect, rather than one that will render any of the expressions inoperative." (Prob. Code, § 21120.)
"All parts of an instrument are to be construed in relation to each other and so as, if possible, to form a consistent whole. If the meaning of any part of an instrument is ambiguous or doubtful, it may be explained by any reference to or recital of that part in another part of the instrument." (Prob. Code, § 21121.)
These statutory provisions codify the familiar, and long-standing, doctrine that different parts of one instrument are, if possible, to be harmonized. (See Estate of Brunet (1949) 34 Cal.2d 105, 109; In re Estate of Briggs (1921) 186 Cal. 351, 354; In re Robinson's Estate (1911) 159 Cal. 608, 609.) As one Court of Appeal put it, "In construing a trust instrument, the intent of the trustor prevails and it must be ascertained from the whole of the trust instrument, not just separate parts of it." (Scharlin v. Superior Court (1992) 9 Cal.App.4th 162, 168, citing California First Bank v. Townsend (1981) 124 Cal.App.3d 922, 930.)
So, in interpreting the trust instruments we seek the intent of the settlor as revealed in the documents considered as a whole. (Ike v. Doolittle (1998) 61 Cal.App.4th 51, 73.) In addition, " '[i]n interpreting a document such as a trust, it is proper for the trial court in the first instance and the appellate court on de novo review to consider the circumstances under which the document was made so that the court may be placed in the position of the testator or trustor whose language it is interpreting, in order to determine whether the terms of the document are clear and definite, or ambiguous in some respect.' " (Ibid., quoting Russell, supra, 69 Cal.2d at pp. 208-210.) As Duke confirms, citing Russell, "the paramount concern in construing a [document] is to determine the subjective intent of the testator." (Duke, supra, 61 Cal.4th at p. 890.)
In light of the above, the trial court's conclusion here was error.
The Trial Court's Ruling Against Carleen Was Error
Despite the confusion manifest at the third hearing, the issue was clear: what was the intent of the Trust? As Carleen's attorney there described it, "the question on the Petition for Instructions is whether the Court should construe the trust so as to give force and effect to the Woodside allocation provision, is that the issue as being framed for the purpose of that petition? I'm trying to, trying to figure out exactly what it is. Because the last hearing was really about whether or not we should have extrinsic evidence." The court replied, "Exactly."
Here, the evidence of that intent was undisputed, as set forth in attorney Roberts's testimony, which demonstrated among other things the following:
The Woodside Property Allocation Provision was included in the First Restatement in 1994 in connection with the Side Agreement, part of an estate planning practice that was formerly utilized in California for tax purposes.
In 2002, Stuart and Carleen having been married for 15 years, told attorney Roberts they wanted all their property to be community property for all purposes. This, of course, included the Woodside property. So, the Side Agreement would no longer apply, and Stuart revoked it, ripping it up in the presence of Roberts. With no Side Agreement, the Woodside Property Allocation Provision would have no purpose, Roberts describing it as the "orphaned Woodside Allocation Provision." But it nevertheless remained in the document Roberts had earlier prepared. A mistake.
Over seventy years ago, the Supreme Court dealt with a similar situation, in a case we find persuasive: Estate of Heard (1944) 25 Cal.2d 322. There, the will had seven sections, section 4 of which had 15 numbered paragraphs, which paragraphs the court quoted at length. The court summed up the evidence before it:
" 'The language used in paragraph 13 [of section 4] expresses something which is different from the general intention which seems to be expressed by other language repeatedly used in other parts of the will. Obviously, a mistake was made in drafting either paragraph 13 or paragraph 14. Paragraph 14 gives the remainder to the organizations named in the event no lawful issue of the respondent are living at the termination of the trust, while under the same situation paragraph 13 would give this remainder to the heirs of any lawful issue. Paragraph 13 is inconsistent for this reason as well as for the reasons above noted.'
"If we disregard the words 'the heirs of' in paragraph 13 or regard them as synonymous with the words 'lawful issue' in that paragraph, the will would be complete, the trust would be good, and the disposition of the remainder would be clear. On the other hand, if we do not disregard the words 'the heirs of' or regard them as synonymous with 'lawful issue' that paragraph is void as unduly suspending the power of alienation. 'If a word has no meaning, or is absurd, or repugnant to the clear intention manifested in other parts, it may be regarded as surplusage, or restricted in its application.' [Citations.] In our opinion the words 'the heirs of' are repugnant to the clear intention manifested in other parts of the will and should be disregarded or regarded as synonymous with 'lawful issue.' This interpretation carries out the dominant scheme and purpose of the testatrix as expressed in her will and not only avoids conflicts between portions of the will but protects the main intentions of the testatrix from being nullified by words that were obviously used by mistake." (Estate of Heard, supra, 25 Cal.2d at pp. 327-328.)
Civil Code section 1640 provides that "[w]hen, through fraud, mistake, or accident, a written contract fails to express the real intention of the parties, such intention is to be regarded, and the erroneous parts of the writing disregarded." Along those same lines, Civil Code section 1653 provides that "[w]ords in a contract which are wholly inconsistent with its nature, or with the main intention of the parties, are to be rejected." The section applies to a trust (Estate of Ryan (1950) 96 Cal.App.2d 787), and as one Court of Appeal put it in providing guidance to the trial court on remand, a "trust can be modified if provisions are ambiguous or if 'slavish adherence' to the terms of the trust would defeat the primary purpose of the trust." (Estate of Sigourney (2001) 93 Cal.App.4th 593, 605.)
The Woodside Property Allocation Provision is contrary to Stuart's express intentions as stated to attorney Roberts during the 2002 meeting, as it would divest Carleen of her community property interest in the Woodside property. Put otherwise, it is impossible to enforce the Woodside Property Allocation Provision and also comply with the settlors' intent that Carleen receive an equal share of community property.
Moreover, through Stuart's and Carleen's work and contributions, the value of the Woodside property substantially increased during the marriage. And the value of other community assets decreased. Due to this disparity, the Woodside property could not be allocated entirely to Stuart's subtrusts, as there were insufficient community assets of equal value to allocate to Carleen. So, attorney Roberts allocated as much of the Woodside property into Stuart's subtrusts as possible, while still splitting the community property equally. This allocation is in accord with the settlors' intent that each spouse receive their equal community share, and comports with the rules of interpretation.
As quoted above, attorney Roberts's declaration included an allocation of assets under which Carleen's interest was $3,760,338.04, equal to Stuart's interest. Prior to oral argument we sent a letter advising counsel to be prepared to address whether there was any dispute as to that allocation. Barbara's counsel did not dispute it.
By contrast, enforcement of the Woodside Property Allocation Provision would result in a substantial inequity, contrary to the settlors' intent. Transferring Carleen's community share of the Woodside property to Stuart's subtrusts will more than double the amount that Clara's children will inherit, while Carleen will be deprived of over 80 percent of her community property. Enforcement of the provision will also deprive Carleen of the right to devise her property to her heirs, perhaps foreclosing her children from any ability to inherit her interest in the Woodside property.
The Trust includes a provision allowing the surviving spouse to revoke Trust A, and dispose of her assets as she desires, and Carleen exercised her right to revoke Trust A. The settlors' intent in allowing the surviving spouse to revoke Trust A was to give the spouse control over disposition of her own assets. However, enforcement of the Woodside Property Allocation Provision would have the unintended consequence of transforming the revocation provision from a benefit to a penalty. Carleen would be foreclosed from leaving any share of the Woodside Property to her heirs, and could not devise it directly, because she will be forced to forfeit her share of the Woodside property to Stuart's subtrusts.
Roberts's declaration also demonstrated the dramatic effect that the interpretation proposed by Barbara would have on Carleen who, as noted, was at the time in her mid-70s, having been married to Stuart for 22 years. The computations by Roberts—computations with which Barbara does not take issue—showed Carleen's interest would be diminished by some $3.2 million, from $3,760,388.04 to $521,322.55. Not only is that allocation contrary to Stuart's intent, the effect of it is that it would more than double the amount the children of Clara, Stuart's second wife, would inherit, while leaving Carleen's children with nothing.
On top of all that, Stuart did not intend for Carleen to have to pay gift tax resulting from his death. But if Carleen were to be forced to transfer her community property interest in the Woodside property to Stuart's subtrusts, it could be considered a taxable gift, resulting in an enormous tax.
The Trust is ambiguous. The Woodside Property Allocation Provision conflicts with another provision regarding the allocation of community property, both of which provisions cannot be enforced. It also conflicts with other provisions that confirm the settlors' intent that Carleen receive and control disposition of her community property share of the Woodside property. The Trust must be interpreted to conform with that intent.
Barbara's arguments to the contrary are unconvincing. Barbara first argues that the Trust and Woodside Property Allocation Provision are "clear and unambiguous," and "unequivocal." Maybe the Woodside Property Allocation Provision is, if read in isolation. But it cannot be read in isolation.
Barbara next argues that the court "Appropriately Accepted and Reviewed Carleen's Extrinsic Evidence and Her Claims of Ambiguity," and in a similar vein, that Carleen's " 'Offer of Proof' by Way of Three Declarations Fails to Raise Any Ambiguity in the Trust or the Woodside Property Allocation Provision." If that is what the court did—which, we note, is not clear from the record or the order—we reach a different conclusion.
Barbara's brief has this description of the hearing and the court's ruling: "While the discussion between the probate court and counsel is at times confusing, it is apparent that the Court reviewed the three declarations submitted by Carleen as her 'offer of proof' and determined that such evidence was insufficient to raise an ambiguity such that the Trust and the Woodside Property Allocation Provision needed to be interpreted." At a later point the brief says this: "Carleen made her offers of proof and the probate court found that all were insufficient to create an ambiguity and that Carleen failed to offer any alternate interpretation, let alone a reasonable one. Contrary to Carleen's assertions, the probate court accepted and reviewed any and all evidence submitted in support of her prima facie case of ambiguity. The probate court found Carleen failed to present sufficient evidence to meet her initial burden of proof of ambiguity, a need for interpretation and a reasonable alternate interpretation."
Barbara's other brief arguments—that "Specific Provisions in the Trust Prevail Over General Provisions," and that there was no scrivener's error—are without merit. Indeed, the latter argument is frivolous.
In sum, our de novo review leads to the conclusion that the trial court erred, that the evidence before the court led inescapably to the conclusion that the intent of the Trust was to give Carleen a community interest in the Woodside property—and thus the Woodside Property Allocation Provision had to be ignored. Based on that, in the usual situation we would remand with instructions to carry out that clear intent, and to enter an order that in essence holds that the Woodside Property Allocation Provision is unenforceable and the allocation of the property as done by Carleen was correct.
However, this case is complicated by the court's observation at the March 27 hearing that if Carleen provided "sufficient extrinsic evidence," it would allow Barbara the right to discovery.
Barbara has asserted such right, her brief asserting, among other things, that "If this matter is remanded and proceeds to trial, the character of the property as community or separate is one of many factual issues Barbara will contest. Because this matter was before the probate court simply to determine whether Carleen could make a prima facie case of ambiguity, the probate court never accepted evidence from Barbara on this characterization issue."
We do not understand this, as the issue of transmutation is to be decided based on the sufficiency of the writings, and whether there is an express statement of change—not extrinsic evidence, as we held in In re Marriage of Barneson (1999) 69 Cal.App.4th 583, 588 ["The determination whether the language of a writing purporting to transmute property meets the MacDonald test must be made by reference to the writing itself, without resort to parol evidence."]. (Accord, Estate of MacDonald (1990) 51 Cal.3d 262.) Indeed, two cases address the statement of change requirement in a context virtually identical to that here, an issue of transmutation where the instrument had another provision that could be inconsistent. (In re Marriage of Lund, supra, 174 Cal.App.4th at p. 52 [property transmutation agreement unambiguously changed all of husband's separate property into community property, even though agreement stated that property would be community property "for estate planning hereto," and even though agreement was executed simultaneously with estate planning documents]; In re Marriage of Holtemann, supra, 166 Cal.App.4th at p. 1172 [separate property transferred to family trust by express transmutation agreement designating it as community property became community property, notwithstanding stated limitations in agreement].)
Nevertheless, counsel for Barbara has maintained his position vis-à-vis the discovery the trial court said it would allow. This issue was pursued at oral argument, especially as it developed that Barbara has already taken discovery, including depositions of attorney Roberts and Carleen, albeit in connection with the petition for reformation that continued after the trial court's ruling on appeal here. And, counsel admitted, he asked questions of Roberts about the documents, and about intent. And, he said, he had "boxes of documents." Pressed further about this, and what other discovery might exist that bears on the fundamental issue, counsel indicated he might "ask other questions," that some questions "might be changed." Counsel also stated that Roberts's testimony via declaration was "hearsay," and that he might have to appear in person. Finally, counsel stated that other evidence would include an expert witness who would testify about the side agreement.
Commenting on Roberts's testimony, Barbara's counsel stated Roberts "came into court with outright lies," and that his story was made up. Roberts, he said, "lied to us and lied to the beneficiaries." Later, Barbara's counsel said perhaps he should not have used the word "lies," that Roberts "misremembered." Barbara's counsel stated as an illustration of Roberts's veracity that he has a copy of the "side agreement," so that there were at least three copies, not the two mentioned by Roberts.
Thus, and because the trial court said what it said promising Barbara discovery, we are constrained to honor this promise. Were we not, and were we to decide the issue of intent once and for all, we would not reach the appeal of the January 12, 2015 order. Since we cannot, we thus address the order granting summary adjudication—and decide it was granted in error.
The Summary Adjudication Was Wrong
The Standard of Review
The standard of review is well established, as we summarized in Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 253-254:
"Code of Civil Procedure section 437c, subdivision (c) provides that summary judgment is properly granted when there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. [Citation.] As applicable here, moving defendants can meet their burden by demonstrating that 'a cause of action has no merit,' which they can do by showing that '[o]ne or more elements of the cause of action cannot be separately established . . . .' [Citations.] Once defendants meet this burden, the burden shifts to plaintiff to show the existence of a triable issue of material fact. [Citation.]
"On appeal '[w]e review a grant of summary judgment de novo; we must decide independently whether the facts not subject to triable dispute warrant judgment for the moving party as a matter of law. [Citations.]' [Citation.] Put another way, we exercise our independent judgment, and decide whether undisputed facts have been established that negate plaintiff's claims. [Citation.] As we put it in Fisherman's Wharf Bay Cruise Corp. v. Superior Court (2003) 114 Cal.App.4th 309, 320: '[W]e exercise an independent review to determine if the defendant moving for summary judgment met its burden of establishing a complete defense or of negating each of the plaintiff's theories and establishing that the action was without merit.' [Citation.]
"But other principles guide us as well, including that '[w]e accept as true the facts . . . in the evidence of the party opposing summary judgment and the reasonable inferences that can be drawn from them.' (Morgan v. Regents of University of California (2000) 88 Cal.App.4th 52, 67.) And we must ' "view the evidence in the light most favorable to . . . the losing part[y]" and "liberally construe [his] evidentiary submissions and strictly scrutinize [the moving party's] own evidence, in order to resolve any evidentiary doubts or ambiguities in [the losing party's] favor." ' (McDonald v. Antelope Valley Community College Dist. (2008) 45 Cal.4th 88, 96-97.)"
The Statute of Limitations Does Not Bar Carleen's Petition
Carleen argued below that no statute of limitations applied, citing a case that dealt with a drafting error. Carleen maintains her argument here, but based on different authority than that cited below, specifically Family Code section 1101, subdivision (b), which provides that no limitation period applies to claims brought after a marriage ends through death to determine rights of ownership in, or access to, community property and the classification of marital property.
Barbara's response is threefold. First, she contends that the community status of the Woodside property does not matter, that the status of the property is a "red herring and irrelevant." But Carleen's petition for reformation necessarily encompasses the issue of the community characterization of the Woodside property, and Carleen's right to access to that property.
Second, Barbara asserts that Family Code section 1101 only applies to a claim of breach of fiduciary duty. But the section is not so limited, and a claim does not have to name Family Code section 1101, subdivision (b), in order to be governed by it, as illustrated by Patrick v. Alacer Corp. (2011) 201 Cal.App.4th 1326. There, the court held that a widow's declaratory relief claim regarding her community property interest in a trust " 'essentially arises out of Family Code § 1101,' " and therefore no statute of limitations applied. (Patrick v. Alacer Corp., supra, 201 Cal.App.4th at pp. 1334, 1337.)
Third, Barbara asserts that Family Code section 1101 was not cited below in opposition to the summary adjudication. Barbara cites cases holding that a party is not permitted to change positions and adopt a new theory on appeal, and argues that if a party assumes a particular statute applies, that party may be barred from arguing a different statute on appeal. However, Carleen has not changed her position, and she never assumed a three-year statute applies. To the contrary, she has always contended that no statute of limitation applies. And as we held in Giraldo v. Department of Corrections & Rehabilitation (2008) 168 Cal.App.4th 231, 251, fn. 7, it is always permissible to cite new authorities to support a position taken below. (Accord, Schmidt v. Bank of America, N.A. (2014) 223 Cal.App.4th 1489, 1505, fn. 11; see Porter v. Board of Retirement of Orange County Employees Retirement System (2013) 222 Cal.App.4th 335, 347 [defendant " 'confuse[s] the concepts of new issues not presented below . . . with new legal authority for the issue . . . .' [Citation.] Because the meaning of the phrase 'any leave of absence with compensation' had been previously raised at the administrative level, plaintiff was not precluded from citing new authority to support her interpretation"].)
Moreover, a court may consider a new theory on appeal when a question of law is presented on the facts appearing in the record. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 24; Tyre v. Aetna Life Ins. Co. (1960) 54 Cal.2d 399, 405.) So, even if Family Code section 1101 is considered a "new theory," it is permissible for Carleen to raise it, as application of the section presents a question of law based on undisputed facts.
But even if a three-year statute of limitations applied, it does not necessarily bar Carleen's claim here.
As indicated above, the trial court granted summary adjudication based on a three-year statute of limitations, first finding that the statute began to run in 2002, when the first amendment was prepared, a finding that Barbara nowhere attempts to justify, her brief nowhere relying on this aspect of the court's order. Rather, Barbara focuses on the court's alternative finding, that the statute of limitations began to run in July or August 2009 when in the course of trust administration Roberts discovered he had failed to remove the Woodside Property Allocation Provision. And it was this knowledge the court imputed to Carleen to hold that her petition was time-barred.
This is perhaps not surprising, as we do not understand how the statute could begin to run in 2002. Carleen, as beneficiary, had no standing to sue until such time as the trust became irrevocable. (Estate of Giraldin (2012) 55 Cal.4th 1058, 1067.) This was only upon Stuart's death in 2009. A cause of action cannot accrue and expire before the holder of that cause even has standing to assert it.
Carleen argued below, and maintains here, that her petition was not time-barred for several reasons, all of which the trial court rejected. We need not consider all these reasons, because we agree with Carleen on one: the doctrine of imputed knowledge is capacity specific, and there is a triable issue of material fact whether the knowledge acquired by Roberts as trustee in administering the trust is to be imputed to Carleen as beneficiary.
The evidence before the court was that Roberts had two capacities: the drafting attorney, hired by Stuart and Carleen as settlors, and attorney for post-death trust administration, hired by Carleen as trustee. Carleen had three capacities: settlor, beneficiary, and trustee. These separate capacities cannot be disregarded. But the trial court did so, holding that once a person is deemed to have notice of a fact, they are deemed to have notice of it for all purposes; and because Carleen was deemed to have imputed knowledge of the drafting error in her capacity as trustee, she was deemed to also have notice in her capacity as beneficiary. As the trial court put it: "There is no provision in the law of agency providing that once a person is deemed to have notice of a fact known to their agents in the course and scope of such agency, that they are not deemed to have knowledge of such fact for all purposes. Accordingly, this court finds as a matter of law, that Carleen Whittelsey, both in her capacity as trustee and her capacity as beneficiary, is deemed to have had knowledge of the Fox Hollow Woodside Property Allocation Provision in July or August of 2009. Accordingly, the statute of limitations for either a motion to modify or a motion to reform began to run in August of 2009, at the latest."
The trial court said what it said ignoring Carleen's authorities, authorities that included California Supreme Court and Court of Appeal cases, a Ninth Circuit case, and Witkin. Not only that, even the authority the trial court did cite supports Carleen's position, illustrated by Otis v. Zeiss (1917) 175 Cal. 192, 195-196: "While the knowledge of an attorney is the knowledge of his client [citations], the principal will ordinarily be charged with constructive notice only where the knowledge of the attorney has been gained in the course of the particular transaction in which he has been employed by that principal."
Other cases cited by the trial court are similar. Thus, In re Marriage of Cloney (2001) 91 Cal.App.4th 429, 439, which held that the scope of the imputation of knowledge is directly related to the scope of duty arising from the agency agreement. And Zirbes v. Stratton (1986) 187 Cal.App.3d 1407, 1413-1414, holding that knowledge acquired by the wife's divorce lawyer regarding an answer filed by husband's lawyer on the wife's behalf in another action was not imputed to the wife, as the dissolution proceeding was an independent transaction from that in the other action.
Almost 70 years ago, the Supreme Court rejected the conclusion reached here by the trial court, and confirmed that the doctrine of imputed knowledge must be applied in a capacity-specific manner. That was in Hale v. Depaoli (1948) 33 Cal.2d 228, where defendant was sued in two capacities, as a contractor for defects in construction of a house, and as a lessor for failing to warn the tenant of known defects. The Supreme Court held that the doctrine of imputed knowledge could not be applied with respect to the claim against defendant as a contractor, as plaintiff tenant had no dealings with defendant in his capacity as a builder. (Id. at pp. 232-233.)
Superimposed on the above is that the circumstances here do not fit the setting that the doctrine of imputed knowledge is designed to address. The doctrine is based upon the necessity of commercial relationships: where a principal acts through an agent, a third person dealing with the agent is entitled to rely upon his knowledge and bind the principal. (Hale v. Depaoli, supra, 33 Cal.2d at p. 232.) Here, there was no commercial relationship between Carleen and Barbara, and Barbara had no dealings with Carleen in her capacity as beneficiary. Barbara cannot be permitted to misuse the doctrine to deprive Carleen of a defense to Barbara's adverse claim to the Woodside property.
In sum, Roberts's knowledge of the error acquired in his capacity as attorney for trustee cannot be imputed to Carleen as beneficiary, who had no actual knowledge of the drafting error until 2012. At a minimum, there is a triable issue of material fact that precludes summary adjudication on statute of limitations grounds.
DISPOSITION
The order granting the petition for instructions and the order granting summary adjudication are reversed. Carleen shall recover her costs on appeal.
/s/_________
Richman, Acting P.J.
We concur:
/s/_________
Stewart, J.
/s/_________
Miller, J.