Opinion
A130523
11-08-2011
MARGARET D. BOYDEN, as Trustee, etc. Plaintiff and Respondent, v. LAUREN HINTON, Defendant and Respondent. KAPLAN & SAM et al., Claimants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Marin County
Super. Ct. No. PR052234)
Helen R. Davis died in 2005, survived by two children, Charles Pirro (Pirro) and respondent Lauren Hinton (usually Hinton, sometimes Lauren). Davis had an estate of some $12 million, in connection with which she created a trust by which she left $1 million and a house in Sausalito to Pirro, some $6 million in specific gifts of money and property to various individuals and institutions, with the residue to be divided equally between Pirro and Hinton. Shortly after the last amendment to that trust, Davis created a second trust. It halved Pirro's monetary gift, eliminated his gift of the house, slashed the gifts to others by some 75 percent—and left the entire residue to Hinton.
Pirro filed a contest. Hinton decided to retain her own counsel to assist in defense of the contest, and hired appellant Kaplan & Sam LLP. The contest was vigorously litigated and was ultimately settled, on terms very favorable to Hinton. She, along with the trustee, agreed that $1,167,220 was the proper fee for Kaplan & Sam, and petitioned the superior court for approval of that fee. The petition was uncontested, and the trial court ordered the trustee to pay that amount—an order, not incidentally, that enabled the trust to obtain a tax deduction that increased the trust by some $480,000.
Kaplan & Sam were not paid anything for over a year, and were not paid in full for some 19 months. Despite that, Kaplan & Sam forbore from any action to enforce the order against the trustee, and in fact never did, even after learning that Hinton was apparently the reason why no payments were forthcoming. What Kaplan & Sam did was to ultimately seek interest as a judgment creditor, a position with which the trustee seemingly agreed. Hinton "declined" to allow the trustee to pay interest, and the trustee filed a petition for instructions as to the payment of interest. Following two rounds of briefing from Kaplan & Sam and Hinton, the trial court issued an order that, in one paragraph, without citation and without analysis, denied Kaplan & Sam interest.
Kaplan & Sam appeal. We independently review the matter. And we reverse.
The Parties, The Trust, and the Contest
This case has its genesis in the estate plan of Helen R. Davis, who died on February 11, 2005. She was survived by two children: Pirro, an adopted son born in 1947, and Hinton, a natural daughter born in 1957.
On June 7, 1994, Davis created the Helen R. Davis Revocable Trust (the First Trust), which was amended four times, the last of which was on June 17, 1997. The First Trust left substantial gifts to Pirro, including a house in Sausalito with an agreed value of $725,000 and $1 million in cash. Pirro would also receive one-half of the residue, with the other half going to Hinton. The First Trust also left substantial gifts to numerous other persons and institutions, gifts that totaled over $5 million in cash and a rental property in Sausalito.
On November 3, 1997, less than six months after the last amendment to the First Trust, Davis executed the Restated Helen R. Davis Revocable Trust (the Second Trust), which itself was amended four months later. The Second Trust made dramatic changes to Davis's estate plan, specifically: Concerning Pirro, the Second Trust eliminated his gift of the Sausalito home, reduced his $1 million bequest to $500,000, and removed him from the residue—leaving it all to Hinton. The Second Trust also eliminated, or significantly reduced, the substantial gifts to the other individuals and institutions in the First Trust, including eliminating the gift of the property and reducing the apparently $6 million in gifts to approximately $1.5 million. As represented in the Kaplan & Sam brief—a representation not challenged by Hinton—the net effect of the Second Trust was to increase the residue by $5,960,000, the entirety of which would go to Hinton.
Pirro filed a contest to the Second Trust, essentially accusing Hinton of undue influence on Davis. Margaret D. Boyden was the trustee of the Second Trust (the Trustee), and filed an answer to the contest. Hinton decided to participate in the defense, and retained Kaplan & Sam.
Hinton Retains Kaplan & Sam
On May 27, 2005, Hinton entered into an attorney-client engagement letter with Kaplan & Sam. The letter was four pages long, single spaced, and among other things set forth the firm's hourly rates and provided when the fees were due and payable. The letter did not provide for interest on any past due fees, or mention interest at all.
Apparently Hinton was unable to keep current on the attorney fees, and on June 2, 2006 she entered into another letter agreement. This agreement was eight pages long, also single spaced. It, too, set forth Kaplan & Sam's hourly rates, and went on to provide a rather elaborate contingency fee arrangement, contingent on what would result from the contest. In a section entitled "When fees are payable," this agreement provided that "Attorney fees, whether hourly or contingent fees are payable within six months of distribution of trust assets to . . . Hinton. Any cash distributions to Hinton shall first be paid to Attorney to apply to costs, attorney hourly fees and contingency fees." This second agreement also gave Kaplan & Sam a lien on Hinton's beneficial interest in the Trust and in any settlement arising from the contest. Again, nothing was said about interest on any fee.
For example, the agreement set valuations of the houses that were subjects of Davis's estate plan, as well as the Trust's 40 percent share in a partnership.
Settlement of the Contest
The contest was vigorously litigated, and Kaplan & Sam spent thousands of hours defending against it. Such defense included the depositions of 37 witnesses, which depositions involved 78 sessions. It also included the filing of, and defense against, numerous motions; participation in mediation sessions; and a mandatory settlement conference lasting several days.
In January 2008, the contest was settled, on terms that essentially confirmed all provisions of the Second Trust, with the exception that Pirro's $500,000 bequest was increased to $1,700,000. The settlement was memorialized in a comprehensive 16-page settlement agreement and mutual general release (Settlement Agreement) signed by all interested parties: Pirro, Hinton, Trustee Boyden, and their attorneys. The Settlement Agreement addressed interest on settlement amounts. It made no provision for the payment of interest on any attorney fee.
According to a representation in Kaplan & Sam's brief—another representation unchallenged by Hinton—the benefit of the settlement to Hinton was some $4,392,000: "If [Pirro] had succeeded on his undue influence claim, [Hinton] would have received about $20,000 . . . instead of the approximately $4,392,022 she received pursuant to the settlement."
The Petition for Attorney Fees
On June 3, 2008, Hinton filed her "Petition for Instructions re Payment of [Hinton's] Attorneys Fees by Trustee." The petition was prepared by Kaplan & Sam, and was accompanied by numerous supporting documents, including declarations of Hinton, attorney Benjamin Kaplan, and attorney Robert Epstein, the attorney for Trustee Boyden. Hinton's petition sought attorney fees and expenses in the amount of $1,167,220, an amount with which Trustee Boyden agreed. The petition prayed "for an Order of this Court instructing Trustee Margaret Boyden to pay, from the Trust estate, Petitioner's attorneys' fees and expenses incurred in the joint defense against the Contest."
The petition made a compelling case for the fee request, a case perhaps best shown by the declaration of the Trustee's attorney Epstein, whose testimony included the following:
"4. I began performing services in this matter in late January 2006. Shortly after I became involved in the case, I met Benjamin Elliot Kaplan, Esq., the primary attorney for Hinton. For the next two years, I worked closely with Mr. Kaplan and his staff in the defense of this matter.
"5. In my nearly 17-year experience as an attorney, this case has been unique in terms of the extent of the discovery work required. Dozens of depositions were taken and numerous discovery pleadings were exchanged. There also was extensive motion practice concerning attorney client and work product privilege and other questions.
"6. Early on in the case, Mr. Kaplan and I agreed to share responsibility for preparation for the depositions and handling of other discovery matters. Neither one of us could have taken over sole responsibility for these matters without shutting down the remainder of our respective law practices. . . .
"7. Indeed, all parties and their counsel were prepared to commence trial in late August 2007 when the Court ordered more mandatory settlement conferences to occur in this matter. Numerous days of expert depositions had been taken, which had followed the dozens of percipient witness depositions. Notably, the percipient witness depositions included extensive multi-day depositions of the two attorneys who had been involved in representing the decedent Trustor, Helen Davis, with respect to her estate planning. These depositions were complex and challenging. The time-frame covered by the depositions was essentially Ms. Davis's entire adult life, and in particular, the last approximately 15 years following the death of her spouse. The details of the events of Ms. Davis's life during this period were reviewed in exquisite detail during the course of the depositions of the attorneys, numerous care providers, petitioner and respondent, friends, and others. The documents produced in this case and the deposition transcripts filled three entire shelves in my office.
"8. Mr. Kaplan and I shared responsibility for the preparation and taking of the depositions so that we had little duplication of effort. I relied on his efforts, and he relied upon mine. Prior to the settlement of this case, Mr. Kaplan and I had made plans and preparations for similar sharing of our efforts in the trial of this matter.
"9. As for costs, again there was virtually no duplication. Mr. Kaplan's office advanced payment for various court reporter and other costs, and our office advanced payment for similar costs for different and separate depositions, filing fees, and other litigation related expenses. The difference is that the bills for our firm were paid regularly by the Trustee from the Trust, as had been ordered by the Court. . . . [¶] . . . [¶]
"11. On behalf of the Trustee, our firm was defending the Trust against the Contest to protect the interests of all the beneficiaries, including Respondent Hinton. For his part, Mr. Kaplan was representing only Respondent Hinton. However, because Respondent Hinton was the remainder beneficiary who stood by far the most to lose if the Contest were successful, our interests were closely aligned. For this reason, virtually all the services performed by Mr. Kaplan substantially benefited the Trust and assisted our defense of our client, the Trustee. . . .
"12. I have reviewed the amounts requested in connection with this motion, and based on my intimate familiarity with the services performed by KAPLAN & SAM in this matter, I believe the amounts requested to be reasonable and appropriate, and to reflect services and costs that were reasonably necessary to the litigation of this matter.
"13. For the above reasons, I think it reasonable and appropriate for the Court to order that the Trustee make direct payment from the Trust for the attorneys' fees and costs incurred and requested by Respondent LAUREN HINTON."
None of the papers submitted in connection with the petition mentioned, much less sought, interest.
The petition was unopposed, and by order dated July 16, 2008, the trial court (the Honorable Terrence Boren) granted it. Judge Boren's order, an order prepared by Kaplan & Sam, provided in pertinent part as follows: "Good cause appearing therefore [Trustee Boyden] IS HEREBY ORDERED and INSTRUCTED to pay the sum of $1,167,220.46 for Hinton's attorneys' fees and expenses incurred in the joint defense of the Contest from the assets of the Trust."
While the petition was pending, on June 23, 2008, Pirro, Hinton, and Trustee Boyden executed what is labeled the "Second Addendum to Settlement Agreement." The purpose of the amendment was to effectuate and permit the payment of attorney fees, in which regard the addendum provides as follows: "Section 4 of the Settlement Agreement sets forth the schedule for distribution of the trust estate, including the settlement payment to [Pirro] and payment of specific bequests. To ensure sufficient liquidity in the Trust estate to effectuate the Settlement Agreement, Hinton hereby agrees and requests that the Trustee, until after making all of the payments set forth in Section 4 of the Settlement Agreement, defer paying any attorneys' fees and costs, and expenses that the Court may order to be paid to Hinton's attorneys pursuant to the fee petition." Again, there was no mention of interest.
According to Hinton's brief, while this addendum "implied that a First Amendment exists, . . . a copy of [it] has not been located by counsel."
In sum and in short, as of July 16, 2008—the date of Judge Boren's order— Kaplan & Sam had at no point indicated any claim for any interest on any attorney fees.
Hinton's brief goes further and states, without explanation, that "In an October 17, 2008 email, Benjamin Kaplan states: 'There is NO WAY as of this date that I am owed more than the $1,167,220.00 provided in the court's order that the Trustee pay me for Lauren's attorneys' fees and costs incurred in defense of the Trust Contest.' [Citation]"
Some explanation would have been helpful, however, as a reading of that email in context reveals that it was a reply to attorney Elizabeth Marks, who had become involved in assisting Hinton, apparently to assuage Hinton's concern that future work might exceed the amount in the order. Thus, immediately after the above quotation, Mr. Kaplan's email continues as follows: "Furthermore, since you were seeking yesterday whatever assurances I could reasonably provide to Lauren to put her mind at restd [sic], I can reasonably assure Lauren and you that barring some significant action initiated or created by the Trustee and her attorneys, or initiated or created by Charles Pirro and his attorneys, that it is is [sic] VERY unlikely that the figure of $1,167,220.00 would be exceeded prior to the closing of the estate. There might yet be 'a slip between the cup and the lip' that cannot yet be anticipated because it is not within my control or ostensible clairvoyance. What I do know is that I am thankfully doing precious little now in respect to Lauren's representation BECAUSE there is no need for me to do anything other than as related to the appearance of the 22nd."
On December 12, 2008, a substitution of attorneys was filed, substituting Elizabeth Anne Marks as attorney for Hinton in place of Kaplan & Sam.
At some point attorneys Chris Kemos and Neil Moran became involved as attorneys for Hinton, though the precise date is not apparent from the record. They represent Hinton on appeal.
Payment of Attorney Fees
As noted above, Hinton's second agreement with Kaplan & Sam provided that "Attorney fees, whether hourly or contingent fees are payable within six months of distribution of trust assets to . . . Hinton." Despite this, as of June 2009—almost a year after Judge Boren's order—Kaplan & Sam had not received any payment. Then, early on the morning June 4, 2009, trustee attorney Epstein sent Mr. Kaplan a copy of an email he had just sent to Ms. Marks, Hinton's new attorney. As pertinent here, the email provided as follows: "Hi Liz, [¶] . . .[¶] I notified Kaplan of your position that payment to him should be deferred until all funds are received, to enable the trust to earn income on the money until then. . . ."
On June 4, 2009, Mr. Kaplan sent a five-page, single-spaced letter to Mr. Epstein, expressing concern that his firm had not been paid. While civil and courteous in tone, the letter stated in no uncertain terms that promises made to him had been unkept—and Judge Boren's order ignored. This is some of what Mr. Kaplan said:
"After I ceased representing Lauren Hinton on December 8, 2008, I requested that you keep me informed regarding the pending distributions to the specific beneficiaries, the sale of the assets of the Trust estate, and other such matters related to the payment of my attorneys fees and costs pursuant to [Judge Boren's order]. . . .
"I informed you that, if you did not agree to keep me so informed, I would file a Petition/Motion with the court to compel you to do so. . . .
"You stated that you acknowledged my right to be informed as I had a direct interest in getting paid the attorneys fees and expenses awarded by the court pursuant to the Order. You said that there was no reason for the Trustee to be put to the expense of defending such a Petition/Motion which, in all probability, would be granted. You agreed to keep me informed.
"Based upon that assurance from you I did not file a Petition/Motion. While I obviously cannot know what has not been told or shown to me, I have no reason to believe that you have not shared any material aspect of matters that impacted upon my entitlement to be paid pursuant to the Order.
"In keeping with your agreement to keep me informed, last week you told me that you had received a request from Lauren Hinton that the Trustee not pay me the court ordered attorneys fees and expenses. You stated that Lauren had requested that the Trustee retain any money that was ordered to be paid to me for the purpose of the Trustee earning interest thereon. You invited me to respond to Lauren's request if I wished to do so. In addition, you told me that you had invited Liz Marks to state her legal position on this issue."
Mr. Kaplan's letter then went on to remind Mr. Epstein of his client's fiduciary duties, including with citation of statutes. The letter then referred to the reason for the addendum to the Settlement Agreement:
"You may also recall that prior to the granting of the Order, and to avoid any opposition to Lauren's Petition/Motion, Lauren executed a SECOND ADDENDUM TO SETTLEMENT AGREEMENT . . . that I also signed. The Second Addendum became part of the Settlement Agreement that had been executed by the parties to the litigation.
"The Second Addendum was prepared so that the Contestant Charles Pirro [Pirro], who was already entitled, pursuant to the SETTLEMENT AGREEMENT . . . to payment along with the specific beneficiaries, would not object to the granting of the Petition/Motion. If the Second Addendum had not been executed the Probate Code would have required the Trustee to pay me in full before Pirro was paid his settlement. The Probate Code would also have required that I be paid in full prior to the payments to the other specific beneficiaries [¶] . . . [¶]
"The Second Addendum mandates that I be paid after the specific beneficiaries have been paid. You informed me some months ago that all the specific beneficiaries, including Pirro, had been paid. There was no mention in the Second Addendum of further deferring payment to me once the specific beneficiaries had been paid. . . .
"I find it extremely quizzical, to say the least, that Lauren should suggest that the Trustee is under any duty to keep and hold moneys due to me based upon the idea that the Trustee would be earning interest on money that is rightfully and lawfully required to be paid by the Trustee. I cannot imagine that you would ever suggest to Ms. Boyden, much less advise her, to violate a court Order simply because Lauren perceives some apparent, but mistaken, financial advantage."
Mr. Kaplan's letter then went on to discuss the law of judgment creditors, including that under Code of Civil Procedure section 685.010 interest was accruing on the court order at the rate of 10 percent. And the letter ended with this:
"Based upon the Order, [Trustee] Boyden, acting by and through her Certified Public Accountant, claimed from the Internal Revenue Service that those attorney's fees and expenses should be deductions from the Federal Estate taxes previously paid. Lauren now requests the Trustee to withhold payment of those fees and expenses that resulted in a refund of Federal Estate taxes. Lauren also goes a step further in suggesting that the Trustee should be earning interest on the moneys that were claimed as a deduction and refunded by the Federal government, which is something that was never contemplated by the Trustee, and therefore never disclosed by the Trustee to the Internal Revenue Service.
"The burden is not on me to show why a court Order should not be violated. Lauren has known since July 16, 2008, that I was to be paid immediately after the specific beneficiaries were paid. So if Lauren has any intention of trying to obstruct payment to me the burden is on Lauren to demonstrate to the court that there is some lawful basis upon which payment should be withheld. [¶] . . . [¶]
"So at the risk of being repetitive, I have not seen any lawful basis that would permit the Trustee to violate the Order or permit the Trustee to delay the payment of court ordered attorney's fees and expenses to me.
"Although I certainly hope that my office is not put to the test, I can state, based upon my forty years of practice, that there are any number of different actions or remedies I might take to enforce the Order. If I am compelled to take such action or pursue such remedies you may expect that, among other things, I will also seek the award of attorney's fees and costs pursuant to the Settlement Agreement and other statutory authority.
"I want to be unambiguously clear that I believe Ms. Boyden is under a strict duty to pay the moneys owed to me pursuant to the Order. In that respect, I reserve each and every available remedy if such payment is not made immediately after the moneys received from the first installment of the sale of Wolfback Ridge have been deposited in the account of the Trustee. [¶] . . . [¶]
"I am either going to get promptly paid pursuant to the court Order or I will take action. If I am compelled to take action, it will not be restricted to moving against the Trustee.
"I have tried to be patient because of the numerous reasonable assurances I received from you that once funds were available from the sale of the Wolfback Ridge property that I would be paid. My patience has worn out. [¶] Very truly yours, /s/ Benjamin Elliot Kaplan."
A month or so after Mr. Kaplan's letter, Trustee Boyden made the first payment to Kaplan & Sam. It was in the amount of $150,000, via check no. 846, payable to "Kaplan & Sam," and the memo line of which read as follows: "Ct. Ordered Att. Fees on a/c."
This payment was followed by eight other payments, all made payable to Kaplan & Sam, all sent directly to them, in the total amount of the order—$1,167,220.46. The details of the payments were as follows:
+-------------------------------------------------------------+ ¦Date ¦Check no.¦Amount ¦Memo line entry ¦ +--------+---------+-----------+------------------------------¦ ¦7/15/09 ¦847 ¦$150,000 ¦"Ct. Ordered Att. Fees on a/c"¦ +--------+---------+-----------+------------------------------¦ ¦7/15/09 ¦848 ¦$135,312.14¦"Ct. Ordered Att. Fees on a/c"¦ +--------+---------+-----------+------------------------------¦ ¦11/13/09¦858 ¦$100,000 ¦"on a/c of fees per C.O." ¦ +--------+---------+-----------+------------------------------¦ ¦11/13/09¦859 ¦$100,000 ¦"on a/c of fees per C.O." ¦ +--------+---------+-----------+------------------------------¦ ¦1/5/10 ¦862 ¦$150,000 ¦"Court ordered attorney fees" ¦ +--------+---------+-----------+------------------------------¦ ¦1/5/10 ¦863 ¦$150,000 ¦"court ordered attorney fees" ¦ +--------+---------+-----------+------------------------------¦ ¦1/5/10 ¦864 ¦$200,000 ¦"Court ordered attorney fees" ¦ +--------+---------+-----------+------------------------------¦ ¦2/12/10 ¦258 ¦$31,908.32 ¦"Bal. of Court Ordered fees" ¦ +-------------------------------------------------------------+
The Request for Interest
On July 9, 2010, Trustee Boyden filed a "Petition for Approval and Settlement of Third Account, For Instructions Regarding Payment to Lauren Hinton's Former Attorney, and For Approval of Distribution to Beneficiaries." As pertinent to the request regarding the payment to Hinton's former attorney, the petition involved the subject of interest which, as noted, was among the things discussed in Mr. Kaplan's June 4, 2009 letter. As pertinent to that issue, the petition provided in its entirety as follows:
"10. As set forth above, the Petitioner paid Kaplan & Sam the sum of $1,167.220.46 in installments over a period of one year and seven months as funds became available. Benjamin Elliot Kaplan has now requested that the Petitioner pay his law firm, Kaplan & Sam, an additional $146,174.89 from the David Trust for interest, which he claims is owed on his firm's award of attorney fees pursuant to Code of Civil Procedure Section 685.010. . . .
"11. Petitioner has calculated herself the interest that would be due to Kaplan & Sam if the Court determines that Code of Civil Procedure Section 685.010 applies to the award of attorney fees. Petitioner's [sic] has calculated that such amount would be $145,965.633 [sic]. . . .
"12. Petitioner is informed and believes, and thereon alleges that the attorney fee award to Kaplan & Sam was obtained to allow such fee to be deducted to lower the estate tax liability for the Davis Trust. Upon audit, the Internal Revenue Service did allow a deduction for the Estate of Helen Davis for the $1,167,220.46 payment to Kaplan & Sam that was ordered by the Court.
"13. Lauren Hinton, the sole remainder beneficiary of the Davis Trust, has objected to the payment of interest to Kaplan & Sam.
"14. Because of this dispute, Petitioner requests that the Court provide her instructions on whether Kaplan & Sam is entitled to be paid from the Davis Trust interest on the July 16, 2008 Court Order award of attorney fees pursuant to Code of Civil Procedure Section 685.010. Petitioner invites both Kaplan & Sam and Lauren Hinton to file with the Court their respective positions and legal authorities for such positions."
Kaplan & Sam and Hinton both filed responses to the Trustee's petition. Hinton's brief was 11-pages long, seven of which were her version of the statement of facts. The "Application of Law" section contained three arguments, each one page or less, as follows:
"A. Lauren Hinton Is The Judgment Creditor."
"B. Kaplan & Sam Has No Right To Interest Under Contract."
"C. Kaplan & Sam's Failure to Account to Lauren Hinton."
Kaplan & Sam's response included a memorandum, the declaration of Mr. Kaplan, to which were appended three exhibits, and a request for judicial notice.
The parties then filed opposition or reply to the other's responses. Hinton's brief reply began with this: "Kaplan & Sam's request for interest is fully unsupported in law and fact, and should be denied. Lauren Hinton is the judgment creditor of the July 16, 2008 Order which awarded Ms. Hinton her attorneys' fees." Hinton's reply included a 24-line declaration of the Trustee's attorney Epstein, which included these two paragraphs:
"4. I began performing services in this matter in late January 2006 until the present. Shortly after I became involved in the case, I met Benjamin Kaplan, who was the primary attorney representing Lauren Hinton. I worked closely with Mr. Kaplan and his staff in the defense of this matter throughout this case.
"5. To the best of my knowledge and recollection, I received no oral or written communication from Ben Kaplan concerning the concept of interest payable to Kaplan & Sam on the court-ordered fees prior to, or in conjunction with, the filing of Lauren Hinton's petition instructing the Trustee of the Trust to pay Ms. Hinton's attorneys' fees and expenses."
Kaplan & Sam's opposition to Hinton's response began with this:
"Lauren Hinton's Response starts out at page 1, lines 9-13 stating:
" 'The . . . Order . . . awarded $1,167,220.46 to Lauren Hinton . . . By the unambiguous language of the July 16, 2009 Order, Lauren Hinton is the judgment creditor, not Kaplan & Sam.' [emphasis in original]
"The statement is less than credible. The July 16, 2009 Order states:
" 'Good cause appearing therefore, Margaret D. Boyden, as Trustee of the RESTATED HELEN R. DAVIS REVOCABLE LIVING TRUST DATED NOVEMBER 3, 1997 IS HEREBY ORDERED and INSTRUCTED to pay the sum of $1,167,220.46 for Hinton's attorneys' fees and expenses incurred in the joint defense of the Contest from the assets of the Trust.'
"No language in that ORDER says that payment should be to Lauren Hinton."
The opposition went on at length in support of its arguments that the Trustee— and, indeed, Hinton herself—understood that Kaplan & Sam was the judgment creditor. In support of this argument, Kaplan & Sam submitted a May 26, 2009 email from the Trustee's attorney Epstein to Ms. Marks, advising that the Trustee intended to "distribute an initial payment to Kaplan & Sam pursuant to the court order."
Kaplan & Sam's opposition also demonstrated that if Hinton were the judgment creditor, the trustee would not have been able to take the attorney fees expense as a tax deduction, thereby defeating the whole purpose of how the payment was structured. In support of this, Kaplan & Sam submitted a January 29, 2008 letter from the Trustee's attorney Epstein, page 6 of which read as follows: "Finally, on the issue of fees, we have discussed the potential benefits of seeking an additional tax refund based on your fees and costs that Lauren has thus far personally incurred in this matter. . . . [¶] There is a predicate to this position, however, namely that the Trust actually pay for your fees, or at least be ordered to do so. It is our understanding that Lauren has now instructed you to petition for court approval of the payment of your fees from the Trust."
The petition came on for hearing on September 20, 2010 before the Honorable Faye D'Opal. Apparently there was no reporter and thus no transcript, and so we do not know what transpired at the hearing. What we do have is the register of actions, where the entry for that day reads in pertinent part as follows:
"Minute order posted - Appearance: 9/20/2010 at 08:30 AM for Petition
"Judge/Protem/Referee Judge Faye D'Opal, Reporter No Reporter . . . [¶] . . . [¶] "The court notes the issues before the court are attorney fees as to whether Kaplan and Sam are judgment creditors.
"Petition heard and argued.
"It is ordered: that the court does not find sufficient evidence to establish a fact that Kaplan and Sam are judgment creditors and in review of the letter and fee agreement, interest was not stated as a condition of the fee agreement.
"Approval for third account and distribution is granted.
"Petition granted.
"Mr. Franceschini [attorney for Trustee] will prepare the formal order.
"It is ordered: order instructing trustee regarding payment to beneficiary's former attorney, for settlement of third account, and for distribution to beneficiary granted.
"Signed by Judge Faye D'Opal."
On October 12, 2010, Judge D'Opal signed one of the orders submitted by the trustee's attorney, without any substantial change. Following recitals about appearances, the substance of the order provides in its entirety as follows:
The only addition to the order was the handwritten entry at the end of the order that reads, "Following review of conflicting orders, the court orders as set forth above."
"On evidence given to the satisfaction of the court, the court makes the following findings:
"1. Notice of the time and place of the hearing was given as required by law.
"2. All fact set forth in the petition as to the third account are true and correct.
"3. The third account and report of administration covers the period from December 31, 2007 through July 1, 2010. The account and report is full, verified, true and correct, and should be settled, allowed, and approved as filed. All acts and transactions of the trustee during the period of the account are truly shown and should be approved for this period.
"4. The Law Offices of Kaplan & Sam were not a judgment creditor under the order issued by the court on July 16, 2008 that approved the payment from the trust of $1,167,220.46 to the Law Offices of Kaplan & Sam for Lauren Hinton's attorney fees. Since Lauren Hinton filed the petition for such order, she was the moving party. The Law Offices of Kaplan & Sam are not entitled to interest on the attorney fee award under Code of Civil Procedure Section 686.10 since they were not the judgment creditor."
The order goes on to hold that Kaplan & Sam are not entitled to interest.
Judge D'Opal apparently refused to sign another proposed order that Hinton was the judgment creditor.
On December 6, 2010, Kaplan & Sam filed a notice of appeal.
DISCUSSION
Standard of Review
We start, as usual, with the standard of review, a subject on which the parties do not agree.
Kaplan & Sam contend that our review is de novo, its argument asserting in its entirety as follows: "The application of law to undisputed facts is subject to the appellate court's independent review. Crocker National Bank v. City & County of San Francisco (1989) 49 Cal.3d 881, 888. In ruling on the motion, the trial court resolved no issues of credibility. Because the facts are undisputed, the standard of review is de novo."
Hinton, on the other hand, claims our review is substantial evidence. Hinton points to the "extensive facts" put before Judge D'Opal by the parties "to support their positions on the interest issue." As Hinton sees it, "Kaplan & Sam itself submitted hundreds of pages of evidence in support of its petition for interest; the evidence considered by the Trial Court went far beyond the July 16, 2009 Order itself. [Citation.] In making its determination, the Trial Court considered documents regarding whether Kaplan & Sam brought the fee petition on its own behalf, whether Kaplan & Sam had a contractual right to interest, and whether Kaplan & Sam had previously claimed a right to interest on fees. [¶] For example, as part of the Petition Re Interest, attorney Kaplan submitted a declaration in which he claims that the trustee, the trustee's attorney, and Lauren Hinton 'understood' that Kaplan & Sam was the judgment creditor. [Citation.] Attorney Kaplan's declaration goes on for twenty-six paragraphs, replete with factual assertions in support of Kaplan & Sam's claim for interest."
While Hinton's assertions about the volume of material are accurate, nowhere does Hinton point out the claimed "dispute" in the facts, inferentially, at least, supporting that the facts were "undisputed." And we ourselves can find no disagreement about what happened here. Regardless, we need not decide whether the facts are truly undisputed, for at the least there is a mixed question of law and fact, thus calling for our independent, or de novo, review. Crocker National Bank v. City & County of San Francisco, supra, 49 Cal.3d at p. 888 (Crocker National Bank), the case cited by Kaplan & Sam, is persuasive.
In Crocker National Bank defendant City of San Francisco had classified the bank's electronic data processing equipment as fixtures; the bank sought refunds for real property taxes it paid on the equipment, claiming it was in fact personal property. The trial judge rejected Crocker's claim, agreeing with the City's classification as fixtures. The Court of Appeal affirmed, reviewing the trial court's decision as the resolution of a fact question and governed by the substantial evidence test. The Supreme Court reversed, in language particularly apt here:
"The second issue to be addressed and resolved is the standard of review on appeal for a trial court's classification of a particular item of personal property as a fixture of the host real property for purposes of taxation. Our analysis is guided by the following general principles.
"Questions of fact concern the establishment of historical or physical facts; their resolution is reviewed under the substantial-evidence test. Questions of law relate to the selection of a rule; their resolution is reviewed independently. Mixed questions of law and fact concern the application of the rule to the facts and the consequent determination whether the rule is satisfied. If the pertinent inquiry requires application of experience with human affairs, the question is predominantly factual and its determination is reviewed under the substantial-evidence test. If, by contrast, the inquiry requires a critical consideration, in a factual context, of legal principles and their underlying values, the question is predominantly legal and its determination is reviewed independently. [Citation.]
"Thus, it is plain that on appeal a trial court's classification of a particular item as a fixture must be reviewed independently. The question of classification is mixed: it involves the application of the rule to the facts and the consequent determination whether the rule is satisfied. And the question is predominantly legal: the pertinent inquiry bears on the various policy considerations implicated in the solution of the problem of taxability, and therefore requires a critical consideration, in a factual context, of legal principles and their underlying values." (Crocker National Bank, supra, 49 Cal.3d at p. 888. Accord Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 800-801 [usury]; 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 271 [insurance rate regulations].)
As described in a leading appellate treatise, when we deal with mixed questions of fact and law, "the questions of fact are reviewed by giving deference to the trial court's decision, and the questions of law are reviewed independently. The standard of review for the application of the law to the facts will depend on whether such application requires an inquiry that is 'essentially factual.' If so, the rule of deferential review applies; if not, the rule of independent review applies. (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2010) ¶8:4.2, p. 8-3, citing Haworth v. Superior Court (2010) 50 Cal.4th 372, 384; Ghirardo v. Antonioli, supra, 8 Cal.4th at pp. 800-801;and CUNA Mutual Life Ins. Co. v. Los Angeles County Metropolitan Transportation Authority (2003) 108 Cal.App.4th 382, 391.)
Clearly, the inquiry here is not "essentially factual." It is legal. And our review is independent. Or "de novo."
Summary of Arguments
Acknowledging that Judge Boren's order does not expressly state that Kaplan & Sam was a judgment creditor, it argues that it necessarily was, an argument that runs as follows: "Unfortunately, this order fails to expressly state to whom the Trustee is to pay the $1,167,220. Nevertheless, the context in which the order was issued makes it quite clear that the Trustee was to pay Kaplan & Sam. The whole point of this order was to enable the Trustee to obtain a tax deduction which it would pass along to Lauren. The IRS would not have allowed the Trustee to deduct attorneys fees for payments made to someone other than the law firm that did the work. [Citation.] The Trustee confirmed this understanding by her actions: she paid the entire $1,167,220 directly to Kaplan & Sam, and not one penny of the court-ordered amount to Lauren Hinton."
Following its arguments supporting its position, Kaplan & Sam's opening brief ends with this:
"If Kaplan & Sam is not the judgment creditor, who is? The court order directs the Trustee to pay somebody the $1,167,220. The only other possibility is Lauren Hinton. But there is no evidence that the court intended that the Trustee pay this amount to Lauren.
"• No language in that ORDER says that payment should be to Lauren.
"• No evidence exists that Lauren instructed the Trustee to pay her.
"• No evidence exists that the Trustee did pay Lauren.
"• No evidence exists that Lauren objected to payment to Kaplan & Sam.
"• No evidence exists that Lauren would have received the same tax benefit had the money been paid directly to Lauren."
Hinton's respondent's brief does not respond to the question, or any of the bullet point assertions. Instead, it makes four substantive arguments: (1) the standard of review is substantial evidence, and such evidence supports the order; (2) even if a de novo standard of review applies, Kaplan & Sam failed to show it was a judgment creditor; (3) Kaplan & Sam's claim is unethical, because its fee agreement did not provide for interest; and (4) Kaplan & Sam has "failed to show prejudice."
Hinton also argues that Kaplan & Sam has "briefing deficiencies."
As indicated above, and as reflected in her petition for instructions below, Trustee Boyden took no position on the interest issue. Indeed, if anything, it could be said she agreed with Kaplan & Sam, representing to the court she asked Hinton if the Trustee could pay the interest requested, and that Hinton declined. Here, however, with no explanation and somewhat curiously, the Trustee joins in Hinton's brief, a position that we find puzzling as it appears to be a position 180 degrees from the Trustee's position with the IRS.
Hinton's standard of review argument is discussed above and determined to be wrong. This disposes of her first argument. Kaplan & Sam correctly point out that its claim is "not based on contract, but on statute. . ." and thus Hinton's "lengthy discussion of retainer agreements . . . is simply irrelevant." This disposes of her third argument. And Hinton's fourth argument, that loss of over $145,000 in interest "does not show prejudice," is fatuous.
That leaves only argument two, an issue we determine on independent review. And we hold for Kaplan & Sam.
Kaplan & Sam is a Judgment Creditor
Code of Civil Procedure section 680.230 provides that " 'Judgment' means a judgment, order, or decree entered in a court of this state." And section 680.240 says that a " 'judgment creditor'' means the person in whose favor a judgment is rendered. . . ."
As mentioned above, on July 16, 2008, Judge Boren entered an order that provided for the payment of the attorney fees, which order provided in relevant part as follows: "Good cause appearing therefore, MARGARET D. BOYDEN, as Trustee of the RESTATED HELEN R. DAVIS REVOCABLE LIVING TRUST DATED NOVEMBER 3, 1997, IS HEREBY ORDERED and INSTRUCTED to pay the sum of $1,167,220.46 for Hinton's attorney's fees and expenses incurred in the joint defense of the Contest from the assets of the Trust."
With the "order," there is no question there is a judgment. (See Code Civ. Proc., § 680.230.) In fact, it was a "money judgment." (Code Civ. Proc. § 680.270 [" 'Money judgment' means that part of a judgment that requires the payment of money."]; see Kittle v. Lang (1951) 107 Cal.App.2d 604, 612.) The question, then, is in whose "favor" was the "judgment rendered." (§ 680.240.) It was Kaplan & Sam.
To begin with, the trustee made all payments directly to Kaplan & Sam, all via checks that indicated that the payments were "court ordered," "ct. ordered," or "a/c of fees per C.O.," with the final payment for "Bal. of Court Ordered fees." So, we have direct payments to Kaplan & Sam that were "court ordered."
Not only did Trustee Boyden make the payments directly to Kaplan & Sam, such payments were critical to the Trustee's position vis-à-vis the Internal Revenue Service. Such payments were "a predicate" to the Trustee's position, so that the Trust could claim a tax deduction for the fees. Trustee Attorney Epstein's January 29, 2008 letter to Mr. Kaplan made this point, in spades: "Finally, on the issue of fees, we have discussed the potential benefits of seeking an additional tax refund based on your fees and costs that Lauren has thus far personally incurred in this matter. . . . [¶] There is a predicate to this position, however, namely that the Trust actually pay for your fees, or at least be ordered to do so. It is our understanding that Lauren has now instructed you to petition for court approval of the payment of your fees from the Trust."
And the plan worked. As Trustee Boyden put it in her verified petition: "12. Petitioner is informed and believes, and thereon alleges that the attorney fee award to Kaplan & Sam was obtained to allow such fee to be deducted to lower the estate tax liability for the Davis Trust. Upon audit, the Internal Revenue Service did allow a deduction for the Estate of Helen Davis for the $1,164,220.46 payment to Kaplan & Sam that was ordered by the court." And as Mr. Kaplan's declaration described in detail, that "Attorneys Fee Order Benefited Lauren Hinton by Approximately $488,972.40."
The details included this testimony from Mr. Kaplan:
"9. On September 16, 2008, I received an email from Richard Franceschini of Ragghianti Freitas, LLP, attorney for the Trustee . . . . That email stated that the Internal Revenue Service Agent C.W. Cade had concluded his review and provided estimates of the tax refund to the Trust as follows:
"a. the "Net Decrease of Taxable Estate" for the Trust to be $1,704,000. This $1,704,000 (according to the email) included all fees requested in the ORDER GRANTING PETITION FOR INSTRUCTIONS AND MOTION FOR ATTORNEYS' FEES plus additional attorneys fees for the Trustee's attorneys;
"b. the 'tax refund' to be $852,000 and
"c. the 'interest on refund' to be $180,000. [¶] . . . [¶]
"10. On September 19, 2008, I received an email from Attorney Franceschini stating 'Attached is the official examination report from the IRS regarding the audit.' . . . Part of the IRS audit included Form 886A which had a line item under Schedule J indicating 'Legal fees defending law suit (sic) brought by son: . . . Kaplan & Sam.' Next to that line item was the amount of $1,164,220 which verifies the amount the IRS allowed for the Trust to deduct as an expense.
"11. On that same Schedule J there was an indication of the 'increase' for deductions to be $1,972,221. The last page of that attachment indicates the decrease in taxes (i.e. a tax refund) of $826,834. The tax rate is 42% (determined by taking the total refund of $826,834 and dividing by the total deduction of $1,972,221). Thus, since Kaplan & Sam attorneys fees and expenses allowed by the IRS audit was $1,164,220, the tax refund based on that deduction alone is $488,972.40 (1,164,220 multiplied by 42%).
"12. On March 25, 2009, I received an email from Robert Epstein . . . who forwarded to me an email from Alan Markle (Trustee's CPA) confirming that the Trustee would be receiving a check in the approximate amounts as indicated above. The email stated: [¶] 'Here is the latest news. The check [from IRS] was mailed last Friday the 10th in an amount of $980,530.79. It included interest in an amount of $204,430.79. Peggy [the trustee] should receive it anytime now."
The essence of Hinton's position is that she, "not Kaplan & Sam brought the Petition" that resulted in Judge Boren's order. As indicated above, this "fact" was the basis—the only basis—of Judge D'Opal's order, which order had no explanation, no reasoning, and cited nothing. This fact is irrelevant.
It is true that Hinton was the petitioner, but the reason was to gain a tax advantage: if the Trust paid the attorneys fees, the Trust could deduct them; if Hinton paid them, she could not. So, the Trust obtained a large tax deduction, a deduction that would effectively benefit only Hinton. Moreover, all payments were made directly to Kaplan & Sam, "per court order." Beyond this, we add the observation that "the law respects form less than substance." (Civ. Code, § 3528.) As was said in Schisler v. Mitchell (1959) 174 Cal.App.2d 27, 29, "It is an ancient axiom that the law regards the substance of the words used rather than their form [citation] and this rule is applied in construing the effect of judgments."
We conclude that Kaplan & Sam was a judgment creditor under Judge Boren's order, and thus entitled to interest at the rate of 10 percent per annum. (Code of Civ. Proc., § 685.010.) Such interest is mandatory. (See In re Marriage of McClellan (2005) 130 Cal.App.4th 247, 259 ["the accrual of interest is not a discretionary matter but is instead controlled by statute and continues until a judgment is satisfied"].)
DISPOSITION
Judge D'Opal's order of October 12, 2010 is reversed, and the matter remanded for determination of the full amount of interest payable to Kaplan & Sam. Kaplan & Sam shall recover its costs on appeal.
Richman, J.
We concur:
Kline, P.J.
Haerle, J.