Opinion
A120045
10-30-2008
CLAUDIA CHILDRESS, Plaintiff and Respondent v. ANNA MARIE STENBERG, as Trustee, etc. Defendant and Appellant,.
Not to be Published
I. INTRODUCTION
In this appeal, we review an order of the Mendocino County Superior Court in which, after a two-day court trial, it surcharged the trustee of a trust a little over $11,000 for four separate instances in which the court found the trustee mishandled funds and personal property of the trust. The trustee, appearing in pro per in this court, appeals and asks that we overturn that order. After reviewing the several issues she raises, we decline to do so and, instead, affirm the order.
II. FACTUAL AND PROCEDURAL BACKGROUND
Jerome and Marlene Seidner (hereafter Jerome and Marlene) were married for 27 years and lived in Fort Bragg. Both had been married before and had adult children by their prior marriages. Jerome had one child (respondent Childress) and Marlene had two, a daughter Kim and a son, Christopher Fritschi (Fritschi). The marriage of Jerome and Marlene apparently caused somewhat of a family schism, as both Fritschi and respondent testified that they had not visited or seen Jerome and Marlene for over 20 years.
Jerome died in April 2000; the following year, Marlene established the Marlene Ruby Seidner Revocable Living Trust (the trust). The trust document was drafted by a Fort Bragg attorney, James Larson. It gave one-third of its assets to each of her two children, i.e., Kim and Fritschi, and also gave them an option to purchase the home she and Jerome had lived in (hereafter the Seidner home). The remaining one-third was given to respondent Childress—again, Jeromes daughter by a previous marriage. The trust appointed appellant—apparently a close friend of both Jerome and Marlene —as successor trustee to Marlene, the settlor and original trustee.
Appellant testified that she met Jerome and Marlene in 1989, and that they became "surrogate parents" to her. In one of her early e-mails to respondent after Marlenes death, she described herself as a "trusted friend" of the decedent. Finally, in her in pro per opening brief to us, she states that she "had a long term close personal friendship and daily contact with" Marlene.
On March 7, 2003, Marlene executed an amendment to the trust which cut out her daughter Kim completely. Respondent, her step-daughter, was still given one-third of the trusts assets and Fritschi, her son, two-thirds, except appellant, still the successor trustee, was given $10,000 from the trust and Marlenes pets. Fritschi was given the sole option to purchase the Seidner home.
Marlene died in August 2004. Apparently the first person to enter her home after her death was her son, Fritschi. Among other things he found there were two checks, both in the sum of $3,000, one made out to himself and the other to appellant. Fritschi subsequently deposited the check made out to him and gave appellant the check made out to her. She cashed that check sometime later.
Shortly thereafter, appellant assumed her role and undertook the duties of successor trustee. As is discussed extensively in appellants 54-page opening brief, this included cleaning and repairing the house Marlene had occupied prior to her death and undertaking various other necessary aspects of getting the trust estate in order. These tasks principally included: (1) cleaning the house, which was apparently in bad shape; (2) finding new homes for the pets; (3) meeting with attorney Larson and getting his counsel on inventorying the estate and arranging for an appraisal of the real property involved, (4) hiring a bookkeeper, a personal friend of appellants named Roanne Withers, and a handyman for home clean-up and repair purposes, another friend of appellants named Ronald Guenther; (5) getting an appraisal of the real property from a California Probate Referee appraiser recommended by attorney Larson; and (6) giving miscellaneous personal property in the home to the three adult children, donating them to charities, or otherwise disposing of them., etc. Per appellants testimony to the trial court and her brief to us, in order to do these and related tasks, she "took a leave of absence from her regular employment and worked ten hour days, six days a week, until the work was completed."
Appellants opening brief consumes over a dozen pages in describing her efforts as trustee in late 2004 and early 2005; by contrast, respondents brief devotes a regrettably-short two paragraphs to the events of that period.
One of the items disposed of, the process of which became one of the issues before the trial court, involved Marlenes car, a 1994 Mercury Sable, which had a Kelley Blue Book value of $2,300 if in excellent condition. It was sold to Withers for $1 (paid "in kind") because, per appellant and Guenther, it was allegedly "unsafe."
The first indication that there might be a problem between appellant and respondent regarding the formers handling of the estate occurred in December 2004, when respondent personally called appellant to discuss the appraisal done on the real property, an appraisal which had opined that the property was worth $320,000. Respondent allegedly contended that a professional real estate appraisal be done before Fritschi should be allowed to exercise his option to purchase the property.
In the time period from December 2004 to May 2005, a number of other things happened: (1) Various e-mails were exchanged between appellant and respondent on this subject; (2) an attorney for respondent (the same attorney who represented her below and does so on this appeal) supported her position regarding the appraisal of the real property; (3) a new appraisal was obtained by appellant, which valued the property at $495,000 (if certain improvements were made); (4) a petition challenging Fritschis option to purchase the home was filed by respondent through her attorney; (5) Fritschi decided he did not wish to exercise any such option; (6) as a result, that first petition of respondent was dismissed with prejudice; and (7) the property was sold for exactly the second appraisal value, i.e., $495,000, and on May 17, 2005, the net proceeds from that sale were distributed two-thirds to Fritschi and one-third to respondent.
Although any controversy between appellant and Fritschi apparently ceased at this point, it did not cease as between appellant—the trustee—and respondent Childress, the other trust beneficiary. More specifically, in June 2005 respondent advised appellant that, after meeting with a tax advisor, she had become concerned that her tax liability might increase because Marlenes home had sold for more than its original appraised value. Many communications between either the trustee or her bookkeeper, Withers, and respondent or respondents attorney followed over the next several months. These concerned the proposed IRS forms to be filed, a proposed annual accounting by the trustee, and also the taxes payable on the real property sale. Appellant sought, and got, further advice from her attorney regarding some of these issues and advised respondent and her attorney what she was doing in reliance on that advice.
On November 23, 2005, Withers advised respondent that revised tax returns had been filed, that the sale price of $495,000 had been used as the tax basis for the sale of the home, and that final distributions of the trust estate were to be distributed, again two-thirds to Fritschi and one-third to respondent. It also stated that the $10,000 bequeathed to appellant by Marlene had been distributed, but that an additional $10,000 would be retained by appellant to cover any possible final trust expenditures.
On December 1, 2005, respondent filed a petition pursuant to Probate Code sections 11001 and 17200, subdivisions (b) (5) and (6). It first objected to the fact that, although Marlene had died over a year before, no annual accounting as required by sections 1061 or 16063 "has been provided by the Trustee." It then requested a surcharge of the trust and instructions from the court. In so doing it listed some 10 instances in which appellant had allegedly "failed to administer the trust with reasonable care, skill and caution" and concluded by asking for an award of attorney fees, an order that appellant "file with the Court an accounting in compliance with . . . § 16063," a surcharge of appellant in accordance with the proof offered at trial, and various other relief, including attorney fees.
Unless otherwise noted, all further statutory references are to the Probate Code.
An accounting pursuant to section 16063 was filed on April 20, 2006, and as a result of that accounting and discovery undertaken by the parties, respondent "chose to abandon certain issues raised by her" December 2005 petition. Thus, when the case went to trial on April 30, 2007, the issues before the court had apparently been reduced to six, namely: (1) the trusts handling of Marlenes car and various other items of personalty; (2) "pet related expenses"; (3) money paid to Withers for the preparation of tax returns and accountings; (4) the handling of the two $3,000 checks discovered by Fritschi two days after Marlene died; (5) whether trustee fees should be impacted by any mismanagement by appellant; (6) whether attorney fees should be awarded.
As noted above, a two-day trial was held on April 30 and May 1, 2007; both sides were represented by counsel. At that trial, the court heard testimony from both appellant and respondent and, in addition, Guenther, Withers, Fritschi, and attorney Larson, who had originally advised appellant. It also received into evidence scores of exhibits, mainly related to the administration of the estate and trust, and ordered that the parties submit their arguments on the issues before it via two sets of simultaneous briefs, which they did.
In respondents first post-trial brief, she argued that appellant should be held liable in the total amount of $42,150.32 for the various breaches of trust allegedly committed by her.
On July 17, 2007, the trial court issued a detailed ruling on the issues before it, a ruling described in more detail below. It ruled in favor of appellant on some issues and in favor of respondent on others, and concluded by ordering that "a surcharge in the amount of $11,214 shall be levied against Anna Marie Stenberg in her capacity as trustee of the Marlene Ruby Seidner Revocable Living Trust." However, the order provided that neither party would be awarded attorney fees.
No statement of decision was requested by either party. (See Code Civ. Proc., § 632.)
After several orders amending and clarifying various aspects of its ruling, a final order was entered by the court on November 2, 2007. It specified that the surcharge imposed was "to be enforced against Anna Marie individually and not against the assets or principal of the trust." (Emphasis in original.) Costs in the amount of $2,931.70 were awarded to respondent Childress.
Appellant, now in pro per, filed a timely notice of appeal a few weeks later.
III. DISCUSSION
A. Our Standard of Review.
The first issue before us is our standard of review. Appellant argues that it is de novo. She is manifestly incorrect. As will be discussed in more detail below, the thrust of the trial courts ruling in this case was that, with regard to four specific matters, appellant mishandled her duties as trustee, resulting in losses to the trust estate. These four instances were: (1) the sale of Marlenes car to Withers for $ 1, (2) the alleged expenditure of $3,880 for care and maintenance of the three pets found in Marlenes home, (3) Withers "flawed" handling of tax preparation and accounting matters, and (4) appellants cashing of the $3,000 check made out to her by Marlene and her inaction in not "pursu[ing] reimbursement" of the same amount from Fritschi.
All of these matters involve almost entirely factual determinations and, as such, are clearly subject to a substantial evidence standard of review. (See, e.g., Foreman & Clarke Corp. v. Fallon (1971) 3 Cal.3d 875, 881; Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 766; Obregon v. Superior Court (1998) 67 Cal.App.4th 424, 430; see, generally, Eisenberg, et al., Cal. Practice Guide, Civil Appeals & Writs (The Rutter Group 2007) ¶¶ 8:38-8:50.) This is particularly so when some of the findings of the trial court hinge on its determinations regarding the credibility of witnesses. (See id. ¶ 8:53.) Here, the trial court several times noted its doubts regarding the credibility of appellant and her bookkeeper-friend, Withers.
Even if, as appellant contends, the case involves mixed questions of law and fact, the issues litigated in the trial court were clearly "predominantly factual," and hence the substantial evidence standard of review still applies. (See Crocker National Bank v. City and County of San Francisco (1989) 49 Cal.3d 881, 888.)
Additionally, and as respondent points out, the Probate Code specifically provides that a court "in its discretion may make any orders and take any other action necessary or proper to dispose of the matters presented by" a beneficiarys petition concerning the internal affairs of the trust. (§17206, emphasis supplied; see also Hollaway v. Edwards (1998) 68 Cal.App.4th 94, 99.)
B. Appellants Substantive Arguments are Unpersuasive.
We can and will condense and combine appellants arguments into five categories, as follows:
(1) First of all, appellant argues that, because the trial court stated in a separate sentence at the close of its ruling that her "errors [did] not constitute a substantial breach of her fiduciary duty," she should not have been surcharged any amount at all. However, the context of the courts statement undercuts this argument. One of the many contentions made by respondent in her final briefs to the trial court was that appellant should be "denied all compensation," including the $ 7,688 she had already received from the trust. The trial courts statement that there was no "substantial breach of [appellants] fiduciary duty" in its ruling came after a separate heading entitled "Trustee Fees," and hence relates only to its denial of respondents request that appellant be denied all compensation for her services as trustee. In no way does the language undermine the findings of the trial court regarding the several significant errors it found appellant did make, i.e., those relating to the sale of the car, the expenses incurred regarding the pets, the performance of Withers, and the handling of the two $3,000 checks.
(2) Second, appellant contends that the record establishes that she was not guilty of gross negligence or willful misconduct in her handling of the estate and, further, that in administering the trust, she followed the settlors instructions and the advice received from her attorney, Larson.
The starting point of this argument is an express term of the trust reading: "No Trustee shall be liable to any person for acts or omissions as the Trustee except those resulting from gross negligence or willful misconduct." Stressing that she was a non-professional trustee who sought the advice of counsel, she contends that because "[n]o bad faith, gross negligence or willful misconduct was found, . . . therefore there was no breach . . . ." Citing Estate of Greenleaf (1951) 101 Cal.App.2d 658, 662, appellant contends that the court did not find, as that case said it must, "some abuse of discretion or bad faith before it will interfere."
It is true that the trial courts ruling does not contain the phrases willful misconduct, gross negligence, or bad faith. However, some or all of those conclusions are implicit in several of the trial courts findings, findings we believe are supported by substantial evidence.
In the first place, the trial court specifically found that appellants testimony regarding the condition of the Mercury Sable, which she effectively gifted to her friend Withers, was "not credible." Secondly, and regarding an issue on which it ruled in favor of appellant—whether some furniture eventually donated to charity had any value—it noted that "Withers and/or Stenberg thought it was necessary to conceal the wording of . . . ads" they had previously placed apparently advertising that furniture "at a substantial value." Third, the court found that Withers—a friend of appellant— deliberately mischaracterized several entries on her accounting "apparently to conceal or confuse the true purpose of some transactions." And, finally and most importantly, as respondent correctly points out in her brief, appellants argument that the trial court found "[n]o bad faith, gross negligence or willful misconduct" fails because appellant did not request a Statement of Decision from the trial court pursuant to Code of Civil Procedure section 632. That being the case, we must and will assume that the trial court found all material facts in favor of respondent, including the presence of either or both bad faith and gross negligence, and we then must "indulge all presumptions in favor of the order" being appealed from. (Tusher v. Gabrielsen (1998) 68 Cal.App.4th 131, 140; see also, Fladeboe v. American Isuzu Motors, Inc. (2007) 150 Cal.App.4th 42, 58-60, and cases cited therein.)
There is substantial evidence supporting each of these implied findings of the trial court. Regarding the 1994 Mercury Sable effectively gifted by appellant to Withers, the record includes ample evidence that (a) Withers and Guenther had driven that car over 3,000 miles before it was given to Withers, (b) appellant incorrectly represented to respondent that the vehicle had been "junked" and, at a different point in time, that it had been "donated," and (c) one of those three had written the words "unsafe vehicle" on a CHP ticket Guenther had received while driving the car without a seatbelt. Guenther testified that the car was basically "a good car" and "in good shape" except for some repairs that he had to do on it. The trial courts finding that the car was worth the Kelley Blue Book value of $2,300 less $500 for Guenthers repairs, or $1,800, is supported by substantial evidence in the record.
Not only were Guenther and Withers both personal friends of appellant, they were neighbors and, certainly at one point of time, more than merely friends themselves. Guenther was the father of Withers son.
So, too, and based largely on simple common sense, is the trial courts second finding that appellant wasted considerable trust assets in spending $3,880 for the care of the three pets of Marlene over the 15 months between Marlenes death in August 2004 and November 2005, when appellant gave the pets to herself. And, during that period, she did not advise either respondent or Fritschi of the amounts she was spending on the pets. In view of the law specifically noted by the trial court that a trustee "has a duty to administer the trust solely in the interest of the beneficiaries" (§ 16002, subd. (a)), its conclusion that $1,000 was a reasonable expenditure on the three pets seems eminently generous to us.
Also generous to appellant was the trial courts limiting the surcharge of the $2,500 paid from the trust to Withers for tax preparation and accounting work to only a third of that amount, or $534. Although she had some past experience preparing tax returns and doing bookkeeping for other individuals, Withers admittedly had no licenses or training as a tax preparer. Her work for appellant included not only preparing the trust account, but also including "cleaning the Seidner house." Regarding the trusts tax returns, on examination by respondents counsel Withers admitted that she had not signed the first IRS form 1041 because she "didnt read the regulations carefully" and hence made a "mistake on my part." Then she admitted that the primary reason she did not sign that first return was because she didnt want "to be liable in case there was a problem."
All things considered, there was ample evidence to support the trial courts surcharge of $534, or one-third of Withers tax preparation and accounting charges to the trust.
Which leaves only the largest part of the $11,214 surcharge assessed by the trial court, the $6,000 representing the face value of the two checks, one to appellant and one to Fritschi, found by the latter when he first entered Marlenes house after her death. But, although reciting the facts concerning the checks and stating that she "disagrees" with the trial court regarding its ruling surcharging her with the full $6,000, nowhere in her lengthy briefs to us does appellant present any legal argument at all as to why the trial court was wrong in assessing this surcharge. We will, therefore, not discuss the point further, except to note that we agree with the trial courts holding that, under the circumstances, those two checks were neither effective inter vivos gifts (which requires a showing of both intent to make a gift and delivery) nor a valid testamentary act.
(3) Third, appellant argues that the trial court erred in amending its original order to make her "individually" liable—and not simply liable "as trustee"—for the $11,214 it assessed against her. Her argument is that, if she were liable only qua trustee, that liability could and should be paid out of whatever was left of the trust estate.
The confusion as to what the trial court intended in this regard started almost immediately after the entry of its ruling on July 19, 2007. That ruling specifically stated that the $ 11,214 surcharge was to be "levied against [appellant] in her capacity as trustee . . . ." Shortly thereafter, a letter debate apparently ensued between counsel for the parties regarding the language of a draft order submitted to the court by respondents counsel. The only letter in our file, however, is that from appellants counsel in which he maintained that the courts ruling, and not the apparent language of the proposed order submitted by respondents counsel, was correct on this point. The court seemed to think so, too, because on August 17, 2007, it signed and filed an order surcharging appellant "as trustee" and, in so doing, striking out the language proposed by respondents counsel, which would have surcharged her "in her individual capacity."
This order was formally entered by the clerk of the superior court on August 31, 2007, and was maintained in that form when, the following month, a stipulation and order was filed correcting the amount of costs assessed against appellant.
However, things changed on November 2, 2007, when the court issued a "Clarification of Orders Settling Final Account." The gist of that "clarification" was "that the surcharge was imposed against [appellant] as a result of her activities in her capacity as the trustee of the [Seidner] Trust. The surcharge is to be enforced against Anna Marie individually and not against the assets or principal of the trust." (Emphasis in original.)
Although the record is not clear as to what communications between counsel and the court preceded this "clarification," it is clear that, now, appellant objects to it. She maintains, as her attorney did in the trial court, that any surcharge should be against the trust assets and not against her personally. Respondent argues that the language of section 16420, subdivision (a)(3), allows a court to assess a trustee personally for losses caused to the trust estate by his, her or its mistakes or errors. That section provides: "If a trustee commits a breach of trust . . . a beneficiary . . . of the trust may commence a proceeding . . . (3) To compel the trustee to redress a breach of trust by payment of money or otherwise." (§ 16420, subd. (a)(3).)
Although not cited by either party, section 16440, subdivision (a), is also relevant on this point. It provides: "If the trustee commits a breach of trust, the trustee is chargeable with any of the following that is appropriate under the circumstances: [¶] (1) Any loss or depreciation in value of the trust estate resulting from the breach of trust, with interest. [¶] (2) Any profit made by the trustee through the breach of trust, with interest. [¶] (3) Any profit that would have accrued to the trust estate if the loss of the profit is the result of the breach of trust." (§ 16440, subd. (a).)
The cases decided under these (and their predecessor) statutes make clear that, as respondent argues and the trial court concluded in its "clarification" order, a trustee is personally liable to a beneficiary of a trust for negligent administration or where, e.g., "a trustee has used the trust property for his own benefit." (Estate of Piercy (1914) 168 Cal. 755, 757; see, to the same effect, MacIssac v. Pozzo (1947) 81 Cal.App.2d 278, 285-286, and cf. this courts decision in Estate of Gump (1991) 1 Cal.App.4th 582, 597-598; see generally, 60 Cal.Jur.3d, Trusts, §§ 244-245, 248, and 13 Witkin, Summary of Cal. Law, Trusts (10th ed. 2005) §§ 124, 128, 132, pp. 690-691, 696-697.)
Appellant erroneously relies on sections 18000 and 18002 in support of her "no personal liability" argument. These sections deal with the liability of the trustee to third persons. So, too, does the one case appellant cites which relies on and applies these sections, Haskett v. Villas at Desert Falls (2001) 90 Cal.App.4th 864.
California is not unique in so holding; as an examination of the principal secondary authority on this subject makes clear, personal liability of a trustee for losses incurred by a trust beneficiary because of the trustees negligence or breach of trust is the universal rule. (See Rest.2d Trusts, §§ 199, 205-208.) The trial courts final "clarification" of its order holding that appellant was and is personally liable for the surcharges is thus correct.
(4) Next, appellant contends that, because she prevailed on many, if not most, of the issues litigated, she should be entitled to an award of attorney fees. In particular, she notes that respondent asked for over $42,000 after the close of trial, but the court surcharged appellant only a little over $11,000, plus costs. Appellant particularly stresses that respondent did not present evidence regarding many of the items raised via her petition and/or the court ruled in her favor on many of those claims.
Notwithstanding these circumstances, under section 17211, the court clearly could have awarded attorney fees to either the trustee (appellant) or respondent (the beneficiary) in litigation such as this. Or, equally clearly, it could have done exactly what it did: not award attorney fees to either party. It plainly had discretion in such a matter under section 17211. (See, e.g., Eisenberg, et al., supra, ¶ 8:94.2, and cases cited therein.) We find no abuse of that discretion here.
Under the language of this section, added to the Probate Code in 1996, when "a beneficiary challenges the trustees account," a trial court may award attorney fees to the trustee if the court determines that the "contest was without reasonable cause and in bad faith" or to the beneficiary if it determines that "the trustees opposition to the contest was without reasonable cause and in bad faith." (§ 17211, subd. (b).)
(5) Finally, appellant argues that costs should not have been assessed against her. As noted earlier, in its final order, the trial court assessed appellant court costs in the amount of $2,931.70. As section 1002 makes clear, this charge is entirely within the discretion of the court and, again, we find no abuse of that discretion.
That section provides: "Unless it is otherwise provided by this code or by rules adopted by the Judicial Council, either the superior court or the court on appeal may, in its discretion, order costs to be paid by any party to the proceedings, or out of the assets of the estate, as justice may require." (§ 1002, emphasis supplied.)
IV. DISPOSITION
The order appealed from is affirmed.
We concur:
Kline, P.J.
Lambden, J.