Opinion
D070878
05-18-2017
MARY CRABILL et al., Plaintiffs and Respondents, v. FRANK BROWN, Defendant and Appellant.
T.Burd Law Group and Tara R. Burd for Defendant and Appellant. Law Office of Julia Perkins and Alexandra T. Webber for Plaintiffs and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2010-00151394-PR-TR-CTL) APPEAL from an order of the Superior Court of San Diego County, Julia Craig Kelety, Judge. Affirmed. T.Burd Law Group and Tara R. Burd for Defendant and Appellant. Law Office of Julia Perkins and Alexandra T. Webber for Plaintiffs and Respondents.
Defendant Frank Brown appeals from the denial of his motion to vacate an order assessing over $250,000 in penalties arising from a breach of his duties as a trustee. Brown's motion, filed approximately 14 months after the penalty assessment order, claimed he simply forgot to disburse payments as the trustee and did not read his mail to receive notice of the subsequent court proceedings. The probate court denied the motion, finding that the time periods for statutory relief had long since passed and equitable relief was not warranted. Brown now contends the court abused its discretion in denying his motion because he presented compelling evidence that he had a satisfactory excuse for not appearing, acted diligently in seeking to set aside the order and, if he had appeared, had a meritorious defense. We see no abuse of discretion and accordingly affirm.
FACTUAL AND PROCEDURAL BACKGROUND
This appeal arises from a dispute between two siblings over the assets of their recently deceased mother, Ethel Moody. At the time of her death, Moody had two surviving children: Mary Crabill and Frank Brown.
When Moody died, the family assets were held in a trust established decades earlier. Crabill was named as the original trustee upon the death of Moody. The trust directed Crabill to distribute the assets as directed in Moody's will, with approximately one-third going to Crabill, one-third to Brown, and one-third to be equally divided among the surviving grandchildren. Less than a year after Moody's death, however, one of the grandchildren petitioned the probate court to replace Crabill as trustee due to her failure to properly administer the trust. The court agreed and entered an order suspending Crabill. As Moody's only remaining child, Brown then became trustee.
Brown believed that Crabill had allowed her daughters, Brenda James and Diane Smidebush, to remove money from one of the trust bank accounts, live in Moody's house rent free, and remove personal property belonging to the trust. Accordingly, he issued payments to all beneficiaries, but surcharged Crabill for the assets lost during her tenure as trustee. As a result, Crabill received no distribution. Brown also deducted $10,000 from Smidebush's distribution on the basis that she removed personal property from Moody's house. He states he sent a check to Smidebush for her reduced distribution in November 2011.
Rather than cash the check, Smidebush filed a petition with the probate court claiming Brown had breached the trust. Crabill also petitioned the court to challenge Brown's calculations. After almost two years of hearings, the court entered a final order regarding the proper distribution of trust funds. The court found Crabill's share had to be reduced due to the misappropriation of trust assets during her tenure as trustee, but she was still entitled to $95,926. As to Smidebush, the court found she was entitled to an unadjusted share, totaling $31,283.
The court's final order was entered in August 2013. Brown believed the order neglected to address additional deductions to Crabill's distribution and asked the court for further instructions, but the court confirmed its final order and did not endorse additional deductions. No party appealed from the probate court's order.
Crabill and Smidebush allege that over the course of the next year they sent letters to Brown's attorney seeking their distributions. Brown's attorney told them that he forwarded their letters to Brown but did not receive any response. Ultimately, in June 2014, Brown's attorney informed counsel for Crabill and Smidebush that he no longer represented Brown.
In October 2014, after not receiving any response from Brown, Crabill and Smidebush petitioned the probate court to remove Brown as trustee based on a finding that he breached the trust by failing to make court-ordered distributions. The petition also sought damages pursuant to Probate Code section 859 for double the amount actually owed on the basis that Brown acted in bad faith. A service copy of the petition was sent to Brown's personal residence. Based on the earlier representation of Brown's attorney that he no longer represented Brown, Crabill and Smidebush did not serve the petition on that attorney.
Brown did not appear at the hearing on the petition. The court granted most of the relief sought in the petition, including a surcharge pursuant to Probate Code section 859 for double the amount owed, or $254,418, against Brown individually. The court's order was filed on December 17, 2014 and, in January 2015, notice of entry of the order was served on both Brown personally and his former attorney.
Seven months later, in August 2015, Crabill and Smidebush recorded an abstract of judgment in Brown's home county, causing a notice of lien on Brown's residence to be sent to Brown. According to Brown, this notice of lien was the first time he learned of the removal petition and resulting order. He claims he then retained a new attorney, who contacted the attorney representing Crabill and Smidebush in an attempt to settle the matter. From September to December 2015, Brown's attorney attempted to communicate with opposing counsel regarding settlement. When those efforts failed, Brown filed his motion to vacate the order. The motion was not filed until March 2016, nearly 14 months after entry of the penalty assessment order.
The motion to vacate sought relief pursuant to Code of Civil Procedure sections 473, subdivision (b) and 663. In support of his motion, Brown declared that after the court's final disbursement order, he believed he did not need to take any further action in regard to Smidebush because he had sent her a check for her distribution years earlier. He claimed he never paid Crabill because he wanted to directly hand her a check, but her family prevented him from seeing her. After several months of attempting to personally deliver a check to Crabill, he "came to believe" he had sent the trust disbursement, although he now recognizes he was mistaken. He attributed his mistake to "old age, medical issues and memory loss problems." He listed a broad range of medical issues, including a serious car accident, that "distracted from any trust-related matters."
Brown further declared that he never saw any mail concerning trust issues because he does not have a "secure home mailbox," and that it was possible the mail "was inadvertently discarded or lost." He also explained that during the entire time period, he believed he was still represented by his former attorney.
The probate court denied the motion. In its written order, the court considered each of the possible statutory bases for relief and found that under all of them, Brown's motion was untimely. Although not discussed in the written order, the court considered Brown's entitlement to equitable relief at the hearing on the motion and found he did not make the required showing.
DISCUSSION
The Code of Civil Procedure provides multiple avenues of relief from a default judgment. (Id., §§ 473, subd. (b), 473.5, subd. (a), 663.) If the defaulting party can show the default was the result of a mistake, surprise, inadvertence, or excusable neglect, and seeks relief within designated time periods, courts will liberally grant relief. (See, e.g., Fasuyi v. Permatex, Inc. (2008) 167 Cal.App.4th 681, 696.) These statutes evince a legislative preference for resolving the merits of a case rather than providing a windfall to a party due to the mistake of an adversary. (Ibid.)
Once the statutory time periods have passed, however, the policy in favor of disposing of cases on the merits must generally yield to the strong public policy in favor of the finality of judgments. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981 (Rappleyea).) Accordingly, when statutory relief is no longer available, the court can still order equitable relief, but only in "exceptional circumstances" on a showing of an extrinsic fraud or mistake. (Id. at pp. 981, 982.)
An order denying relief from a default judgment is reviewed for an abuse of discretion. (Rappleyea, supra, 8 Cal.4th at p. 981.) Although the same standard of review applies regardless of whether the basis for relief is statutory or equitable, the extent of the court's discretion varies with the shift from the policy in favor of relief in the period immediately after a default judgment towards the policy in favor of the finality of judgment after time has more firmly fixed that judgment in place. Because relief is particularly encouraged in the former instance, what may appear to be an abuse of discretion in denying statutory relief under section 473, subdivision (b) of the Code of Civil Procedure would not necessarily amount to an abuse of discretion in denying equitable relief.
Applying these principles here, we must determine whether Brown was entitled to relief from the adverse default order. As an initial matter, Crabill and Smidebush assert, without authority, that the court's order awarding penalties does not constitute a "default" judgment such that Brown cannot avail himself of any request for relief. Although courts have reached different decisions regarding whether the mandatory provision of Code of Civil Procedure section 473 applies to judgments and orders analogous to true defaults, it is undisputed that the discretionary provision of section 473 can be applied to decisions that are the functional equivalent of a default judgment. (See, e.g., English v. IKON Business Solutions, Inc. (2001) 94 Cal.App.4th 130, 148-150.) Similarly, we see no reason why the court's equitable power for relief should not apply to the type of situation presented here, where the court enters an adverse order or judgment against a party during a proceeding at which he does not appear.
Turning to the merits, the question on appeal is narrow. Brown conceded at the hearing on his motion that his statutory claims for relief were untimely. He likewise acknowledges on appeal that he is precluded from the statutory remedies. The sole issue, therefore, is whether the trial court abused its discretion in denying equitable relief.
Brown raised his claim for equitable relief for the first time in a reply to the opposition to his motion. This ordinarily precludes consideration of the claim, but the probate court considered the claim at the hearing despite not addressing it in the written order denying the motion. We see no reason to decline consideration of the issue on appeal in light of the probate court's decision to exercise its discretion to consider the claim. (See, e.g., Bae v. T.D. Service Co. of Arizona (2016) 245 Cal.App.4th 89, 98, fn. 5 [when claim for equitable relief based on undisputed facts, failure to raise claim in motion does not preclude consideration of claim on appeal].)
To establish a claim for equitable relief, the courts have created a three-pronged test: " 'First, the defaulted party must demonstrate that it has a meritorious case. Second[], the party seeking to set aside the default must articulate a satisfactory excuse for not presenting a defense to the original action. Last[], the moving party must demonstrate diligence in seeking to set aside the default once . . . discovered.' " (Rappleyea, supra, 8 Cal.4th at p. 982.)
Here, the probate court appeared to accept Brown's excuse for not responding to Crabill and Smidebush's petition. As Brown explained in his declaration, he suffered from a variety of health issues—several of which affected his memory and mental capacity—that "distracted" him from trust-related matters. The court reasoned, "[i]f we were just talking about the illness precluding him from acting, I guess we could talk about that." Although the court's statement is not an express finding that Brown satisfied this element, and despite our reservations about the adequacy of Brown's declaration to establish a true inability to appear, we need not consider this element given the court's other findings.
On appeal, Brown also argues his nonappearance was caused in part by Crabill and Smidebush's failure to properly serve his attorney with a copy of their petition and subsequent filings. He relies on Probate Code section 1214, which requires a party to serve all parties and their attorney of record. In turn, Crabill and Smidebush explain that they did not serve the attorney because the attorney directly told them he no longer represented Brown. Because the probate court implicitly found Brown's failure to appear was excusable, we need not consider whether there was any error in service.
Despite accepting Brown's excuse for not appearing, the court found that Brown could not establish he had a meritorious defense to the claim for damages pursuant to Probate Code section 859. The court explained: "[T]his entire matter . . . was characterized by foot dragging, and kind of sort of pulling teeth to get to the right answer. I just never felt like [Brown] was on board with trying to get things squared away. In fact, his view from the very beginning was he would sort of figure out what everybody gets, if I recall. And that was sort of his way of handling everything. So to me, this is just sort of more of the same."
Probate Code section 859 permits a court to award a penalty of double the amount of actual damages when it finds a "person has in bad faith wrongfully taken, concealed, or disposed of property belonging to a . . . trust." In their verified petition seeking the penalty, Crabill and Smidebush represented that there were insufficient funds in the trust account to satisfy the court-ordered distributions. Because Brown did not oppose the petition, he offered no evidence of the location of the funds at that time. Similarly, in his motion to set aside the order Brown offered no evidence that he did not take, conceal, or dispose of the funds. At most, the record offers hints unsupported by actual evidence suggesting Brown did take at least some of the money. In his reply, Brown contended that "the money remained in his bank account." (Italics added.) Additionally, at the hearing, counsel for Crabill and Smidebush clarified that after the successor trustee was appointed to replace Brown, there were insufficient funds in the trust account to satisfy the court order.
Although the record is inconclusive, it appears that the trust account, at the time it was controlled by Brown, did not hold sufficient funds to make the disbursements owed to Crabill and Smidebush. Given Brown's role as trustee, the only logical inference is that he removed some or all of the remaining funds and placed them in "his" account. Accordingly, without an evidentiary showing that the money owed to Crabill and Smidebush sat safely in the trust account, Brown cannot establish Probate Code section 859 penalties were inappropriate in this circumstance because the trust property was not "taken, concealed, or disposed of" during his tenure as trustee.
Perhaps in recognition of the dearth of evidence regarding the location of the funds, Brown focuses on arguing that he did not take the funds in bad faith because a finding of bad faith requires a showing that his conduct involved "actual malice, ill will, or is not related to a legitimate purpose."
"Bad faith" is not defined in the Probate Code. But at least one court has concluded that a showing of " 'bad faith' " under Probate Code section 859 does not require a showing of malice. (Hill v. Superior Court (2016) 244 Cal.App.4th 1281, 1287, 1288.) Although not directly related to the current issue, Probate Code section 259, subdivision (a) provides that a person who abuses an elder in "bad faith" and who was "reckless, oppressive, fraudulent, or malicious" in the commission of abuse will be deemed to have predeceased the decedent. Thus, as applied in section 259 of the Probate Code, "bad faith" does not itself require a showing of malicious intent, which is instead a separate element.
In other contexts, "bad faith" does not require a showing of malice. Most commonly, in both insurance and contract law a party acts in bad faith when it acts "unreasonably or without proper cause." (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 347.) Bad faith may "consist of inaction," including "lack of diligence and slacking off." (R.J. Kuhl Corp. v. Sullivan (1993) 13 Cal.App.4th 1589, 1602, quoting Rest.2d Contracts, § 205, com. d.)
Here, there is little doubt that Brown was not diligent in distributing the trust assets as required by both the trust itself and the probate court's earlier order. When Brown succeeded Crabill as trustee, he declared that he would perform the duties and follow the instructions of the trustor. From that moment forward, Brown owed a fiduciary duty to all the beneficiaries, including Crabill and Smidebush. (See 13 Witkin, Summary of Cal. Law (10th ed. 2005) Trusts, § 63, p. 637.) To act in good faith, Brown had a duty to actively manage the trust and protect the rights of the beneficiaries. Although he contends he did not act maliciously towards Crabill and Smidebush, the probate court properly found that his unreasonable inaction constituted bad faith.
Brown believed he had no continuing duty to pay Smidebush because he had sent her a check two years earlier. But it is undisputed that Smidebush elected to reject that distribution and instead petition the court for a larger one. After six months, a bank no longer has a duty to honor a check. (Cal. U. Com. Code, § 4404.) Although Brown can be excused from not knowing the intricacies of the Commercial Code, it is entirely inconsistent with his duties as trustee to assume Smidebush would someday cash the stale check. To act reasonably, Brown should have simply communicated with Smidebush to confirm she still possessed the check or tendered a new payment. Likewise, Brown, acting as trustee, was not in a position where he could reasonably avoid reading his mail for over one year to avoid letters from Smidebush demanding her distribution.
Similarly, Brown's dogged insistence on personally delivering a disbursement check to Crabill despite his inability to do so is inexplicable. Such an impulse may have been reasonable, if not laudable, immediately after the entry of the court's final order on disbursement. But after several months of being thwarted by relatives, Brown had a duty to act reasonably to ensure Crabill obtained her disbursement regardless of his personal preferences regarding delivery.
Brown declares that at some point he simply forgot he never paid Crabill and assumed Smidebush could deposit the stale check. These statements, however, demonstrate the inherent unreasonableness of Brown's position. As trustee, he had an ongoing duty to administer the trust with reasonable care, skill, and caution. (Prob. Code, § 16040, subd. (a).) If he was performing his duties as trustee, it would have been obvious that Smidebush's check was never cashed and that Crabill never received her disbursement. To accept Brown's representation of innocent forgetfulness, we would have to assume he was totally neglecting his continuing duties as trustee. Accordingly, we see no abuse of discretion in the trial court's determination that Brown did not have a meritorious defense to the allegation he was acting in bad faith.
Addressing the next element, the probate court also found that Brown did not demonstrate diligence in seeking to set aside the default. As explained in his motion and the supporting declarations, Brown first learned of the order against him in August 2015, when he received a notice of a lien on his residence. He did not file his motion to vacate the order, however, until over six months later, in March 2016. During the interim, his newly-retained attorney was attempting to negotiate a settlement with Crabill and Smidebush's attorney. According to Brown's attorney, it took her a month to first speak with opposing counsel, another month to confirm counsel represented Crabill and Smidebush, and another month to obtain a rejection of Brown's settlement offer. Brown did not file his motion to vacate until another three months had passed.
There is no absolute time period within which it would constitute diligence in seeking equitable relief to set aside a judgment. It is well established, however, that the period is measured in months, not years, unless extenuating circumstances explain the delay. This court has held that an unexplained delay of nine months demonstrates a lack of diligence. (Cruz v. Fagor America, Inc. (2007) 146 Cal.App.4th 488, 506.) Under the statutory basis for relief, courts routinely require that a motion for relief from default be brought within three months of discovery of the default or default judgment. (Minick v. City of Petaluma (2016) 3 Cal.App.5th 15, 34; Stafford v. Mach (1998) 64 Cal.App.4th 1174, 1183-1184.)
We see no abuse of discretion by the probate court in its finding that Brown did not act diligently to set aside the order. The record contains no evidence as to why Brown could not immediately file a motion for relief and concurrently attempt to settle the matter. On appeal, Brown suggests opposing counsel's idleness in responding to his own counsel's settlement communications explains the delay, but he offers no basis to support the conclusion that opposing counsel had an obligation to ensure expedient settlement discussions concerning a judgment in her clients' favor. Given the severity of the order against Brown, the most prudent and diligent course would have been to immediately file a motion to set aside the order.
Brown contends that Crabill and Smidebush present no evidence of prejudice if the order is set aside. Although lack of prejudice is one factor the court should consider, it is not a decisive factor. (Cruz v. Fagor America, Inc., supra, 146 Cal.App.4th at p. 509.) Of course, this contention ignores the glaring fact that setting aside the order prejudices Crabill and Smidbush by "disturbing [their] justifiable reliance on the award" of over $250,000 in damages. (Falahati v. Kondo (2005) 127 Cal.App.4th 823, 834.) --------
Brown failed to establish that this proceeding involved the type of exceptional circumstance warranting equitable relief in setting aside a final order. We cannot say the probate court abused its discretion in making this determination.
DISPOSITION
The order is affirmed. Respondents are entitled to costs on appeal.
DATO, J. WE CONCUR: McCONNELL, P. J. AARON, J.