Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County, Super. Ct. No. BP070166, Aviva K. Bobb, Judge.
Folger Levin & Kahn, J. Daniel Sharp and Michael Y. Kao for Objector and Appellant.
Goodson Wachtel and Petrulis and Kenneth G. Petrulis for Petitioner and Respondent.
MALLANO, P. J.
Appellant The Prudential Insurance Company of America (Prudential) and respondent Kenneth Petrulis, the personal representative of the Estate of Dan K. Stevenson (Estate), are both creditors of the Estate owed debts for expenses of administration. The probate court, upon Petrulis’s petition, granted Petrulis and his attorneys a “priority lien” against Estate assets with “priority over any other judgment lien to which Prudential might be entitled.” Prudential appeals from the order. We reverse the order because there is no authority for a “priority lien” and it is contrary to Probate Code section 11420, subdivision (b), providing in pertinent part that “the debts of each class are without preference or priority one over another.... If property in the estate is insufficient to pay all debts of any class in full, each debt in that class shall be paid a proportionate share.”
Because the order encumbers property of Estate, it is appealable under Probate Code section 1300, which provides in pertinent part: “In all proceedings governed by this code, an appeal may be taken from the making of, or the refusal to make, any of the following orders: [¶] (a) Directing, authorizing, approving, or confirming the sale, lease, encumbrance, grant of an option, purchase, conveyance, or exchange of property.”
BACKGROUND
Before Dan Stevenson killed himself in 2001, he had purchased a series of life insurance policies from Prudential. Prudential paid over $5 million to the beneficiaries on four of the policies but denied the claims of the beneficiaries on one of the policies with a suicide exclusion (suicide exclusion policy). Petrulis, as personal representative of Estate, brought a civil action against Prudential, seeking damages under various theories with respect to the suicide exclusion policy. After a jury trial, Petrulis obtained a judgment against Prudential for over $6 million. Prudential appealed the judgment. In an unpublished opinion filed on July 11, 2007, Division Two of the Court of Appeal, Second Appellate District, reversed that judgment and directed that judgment be entered in favor of Prudential on the breach of contract and related claims but remanded the negligence cause of action for a new trial. (Petrulis v. Prudential Insurance Company of America (July 11, 2007, B184869), p. 19 [nonpub. opn.].)
After the remittitur was issued in the civil action involving the suicide exclusion policy, Prudential filed a memorandum of costs, claiming $117,133 in costs, most of which consisted of premiums on the surety bond posted during the appeal period. Petrulis did not object to the costs or file a motion to tax costs, and the trial court in the civil action eventually entered a judgment awarding Prudential $117,133.
Our record does not contain the judgment entered on the cost award, but Petrulis does not dispute the claim in Prudential’s opening brief that such a judgment indeed was entered. Any such judgment would have been entered sometime between February and October 2008.
In February 2008, Petrulis filed a “petition for payment of statutory and extraordinary attorneys fees and personal representative’s commission or alternatively that a lien and a reserve be established for payment of such fees, commissions, and the expenses of the estate.” The probate court had ordered in 2007 that Petrulis as the personal representative and the firm of Goodson Wachtel and Petrulis as the attorney for the representative were entitled to statutory and extraordinary fees; as of February 2008, the unpaid portion of those fees exceeded $40,000. According to Petrulis, as of February 2008, Estate had cash and liquid assets of approximately $26,500 and shares of stock with a “carrying value” of $15,000. An additional asset of Estate was a chose in action, the negligence claim against Prudential, which Petrulis wanted to be able to retry and which he claimed “will likely lead to another substantial verdict [in favor of Estate].”
Petrulis argued that if Prudential enforced its judgment for costs, Estate would be left without any assets and would be unable to prosecute a retrial of the negligence claim. The petition also asserted the following: “Probate Code [section] 11420 sets forth the priority for payment of debts of an estate. The first priority is the expenses of administration, which have priority over all other debts other than those secured by a lien. In order to ensure that the expenses of administration are given priority over the impending judgment lien, which Prudential Insurance seeks to impose, this court should establish a reserve and lien on the remaining assets of the Estate. This will ensure the continued orderly administration of the Estate and the compensation of the Personal Representative and his attorneys as contemplated by Probate Code [section] 11420.”
Section 11420 provides in pertinent part: “(a) Debts shall be paid in the following order of priority among classes of debts, except that debts owed to the United States or to this state that have preference under the laws of the United States or of this state shall be given the preference required by such laws: [¶] (1) Expenses of administration. With respect to obligations secured by mortgage, deed of trust, or other lien, including, but not limited to, a judgment lien, only those expenses of administration incurred that are reasonably related to the administration of that property by which obligations are secured shall be given priority over these obligations. [¶] (2) Obligations secured by a... lien, including, but not limited to, a judgment lien, in the order of their priority, so far as they may be paid out of the proceeds of the property subject to the lien. If the proceeds are insufficient, the part of the obligation remaining unsatisfied shall be classed with general debts. [¶] (3) Funeral expenses. [¶] (4) Expenses of last illness. [¶] (5) Family allowance. [¶] (6) Wage claims. [¶] (7) General debts, including judgments not secured by a lien and all other debts not included in a prior class. [¶] (b) Except as otherwise provided by statute, the debts of each class are without preference or priority one over another. No debt of any class may be paid until all those of prior classes are paid in full. If property in the estate is insufficient to pay all debts of any class in full, each debt in that class shall be paid a proportionate share.”
In opposition to the petition, Prudential maintained that its cost award constituted an expense of administration that was of equal priority with the fees of the personal representative and his attorneys and that Petrulis sought to “re-write the Probate Code and extend a super-priority and security interest to Petrulis and his law firm.” In supplemental opposition, Prudential argued that as to the remanded civil action Petrulis had not identified any cognizable theory of liability or damages on a negligence theory; rather than pursue that alleged “meritless litigation,” a better course for Estate would be to liquidate the negligence claim by a sale to the highest bidder. With such sale, Prudential could bid up to the amount of its costs judgment and Estate would avoid liability for the costs and any additional liability resulting from pursuit of the negligence claim.
In reply, Petrulis argued that “Prudential’s suggestion that the chose in action be auctioned is an obvious attempt to win its case because it can afford to outbid the Estate.... It is just this type of thinking and consideration of Prudential’s own interests first that laid the factual basis for the initial $6,000,000 verdict against it and will likely lead to another substantial verdict.”
At the hearing on the petition, Petrulis conceded that Prudential’s costs award was an expense of administration within the meaning of section 11420 and that his fees and Prudential’s costs were in the same class; but Petrulis also asserted that the establishment of a lien on Estate assets for payment of the attorney fees and costs of the personal representative would prevent Prudential’s cost award from depleting Estate assets and permit Estate to pursue the negligence claim against Prudential. The attorney for Estate’s largest creditor, William Wilks, argued that “the only way that there will be any money for the creditors is if the personal representative is able to proceed with their lawsuit against Prudential. It’s the only way. And so that’s why I’m in favor of allowing money to stay in the estate for the personal representative for those purposes.” Petrulis also clarified that he was not asking that the personal representative’s attorney fees be paid at that time, but that he wanted only “[a] lien and authority not to pay the fees right now, but to be able to pay other costs of administration that I would normally pay, including litigation costs. And if all of that money is gone and I have a lousy cause of action, I won’t get any of that money either, neither will the law firm.”
The court granted the petition and on April 30, 2008, entered an order providing that a reserve was to be set aside, consisting of the remainder of Estate assets; that a lien was established against all Estate assets for the payment of the personal representative’s fees, attorney fees, and costs of administration; that the lien had priority over any other judgment lien to which Prudential might be entitled; and that no attorney fees or personal representative’s commissions were to be paid without further court order.
Prudential appealed from the April 30, 2008 order.
DISCUSSION
Petrulis conceded below that Prudential’s cost award is in the same class (administration expenses) as the statutory fees of the personal representative and his attorney within the meaning of section 11420, subdivision (a)(1). The general rule set out in subdivision (b) of section 11420 is that the debts of each class are without preference or priority one over another; there is an exception to this rule if a statute provides otherwise. (See fn. 3, ante.) Petrulis maintains that the statutory fees for the personal representative and his attorney mandated by sections 10800 and 10810 are exceptions to the general rule in section 11420, subdivision (b). He reasons that because sections 10800 and 10810 employ the word “shall,” the statutory fees for the personal representative and his attorney are mandatory and thus have priority over other classes of administration expenses. He also argues that the probate court has common law authority to establish a lien for the payment of such preferred fees under Estate of Lee (1981) 124 Cal.App.3d 687 (Lee).
Section 10800 provides in pertinent part: “(a) Subject to the provisions of this part, for ordinary services the personal representative shall receive compensation based on the value of the estate accounted for by the personal representative.... [¶]... [¶] (b) For the purposes of this section, the value of the estate accounted for by the personal representative is the total amount of the appraisal value of property in the inventory, plus gains over the appraisal value on sales, plus receipts, less losses from the appraisal value on sales, without reference to encumbrances or other obligations on estate property.”
We disagree with Petrulis’s interpretation of the foregoing statutes. Nor does Lee support the lower court’s order.
“Our task in construing a statute is to ascertain the Legislature’s intent so as to effectuate the purpose of the law. [Citation.] We begin by examining the words of the statute, giving them their usual and ordinary meaning. [Citations.] We construe statutory words and clauses in the context of the statute as a whole. [Citation.] We cannot insert what has been omitted, omit what has been inserted, or rewrite the statute to conform to a presumed intention that is not expressed. [Citation.] If the plain language of the statute is unambiguous and does not involve an absurdity, then the plain meaning governs. [Citations.]” (Lewis v. Clarke (2003) 108 Cal.App.4th 563, 567.) Thus, “[w]e may not, under the guise of interpretation, insert qualifying provisions not included in the statute.” (Estate of Griswold (2001) 25 Cal.4th 904, 917.)
Although sections 10800 and 10810 provide that the personal representative and his attorney “shall receive compensation based on the value of the estate,” the statutes do not address the issue of priority among creditors of the estate in the same class as the personal representative or his attorney. In light of section 11420, subdivision (b), which specifically addresses the issue of priority among debts of an estate, neither section 10800 nor 10810 can reasonably be construed to afford the personal representative or his attorney priority among other creditors with administration expense claims or the right to a “priority lien” on assets of the estate.
Lee is of no assistance to Petrulis’s position because the case did not deal with the issue of liens or the issue of whether the fees of the personal representative had priority among other expenses of administration. Indeed, the words “lien” and “priority” do not appear in the Lee decision. In Lee, the Court of Appeal vacated an order for payment of a portion of the extraordinary attorney fees of the estate’s attorneys by the conveyance to the attorneys of a real property interest owned by the executor as an individual, and thus outside the property of the decedent’s estate. The court determined that the order was “beyond the jurisdiction of the probate court” and also “contrary to the statutory mandate as to the source of payment” from the estate. (Lee, supra, 124 Cal.App.3d at p. 693.)
Petrulis similarly misplaces reliance on Estate of Ledbetter (1958) 50 Cal.2d 283 and Estate of Kerr (1966) 63 Cal.2d 875. Neither of the foregoing cases is dispositive or instructive because they do not involve the issue of priority among estate debts for administration expenses.
As there is no authority for the trial court’s order affording Petrulis a “priority lien,” the order must be reversed.
DISPOSITION
The April 30, 2008 order is reversed. Appellant The Prudential Insurance Company of America is entitled to costs on appeal.
We concur: ROTHSCHILD, J., WEISBERG, J.
Retired Judge of the Los Angeles Superior Court assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Unspecified statutory references are to the Probate Code.
Section 10810 contains identical provisions for the attorney for the personal representative.