Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from the Superior Court of San Bernardino County. Ct. No. RPRRS03040, Cynthia Ann Ludvigsen, Judge.
Buxbaum & Chakmak and John Chakmak for Defendants and Appellants.
Ward & Ward, Alexandra S. Ward; James B. Church & Associates and James B. Church for Plaintiff and Respondent.
OPINION
RAMIREZ, P.J.
Defendants challenge the probate court’s ruling granting plaintiff’s safe harbor application filed under Probate Code section 21320. The court determined that plaintiff’s proposed petition to remove the trustee (Petition) would not constitute a contest within the terms of the no contest clauses contained in the applicable trust documents. Defendants argue: (1) the court incorrectly determined that the no contest clauses violate California common law and public policy; and (2) the order is overbroad and subject to reversal because the court based its order, in part, on no contest clauses that were not before it. As discussed below, we conclude that the trial court erred in granting the safe harbor application. This is because it is California common law that no contest clauses may be enforced against beneficiaries who petition the courts to remove a trustee only if the grounds for removal are frivolous. Further, such a determination normally cannot be made in a section 21320 proceeding because it would require both a factual inquiry and a determination of the petition’s merits, which are beyond the scope of a section 21320 proceeding.
All further statutory references are to the Probate Code unless otherwise indicated.
Statement of Facts and Procedure
Plaintiff and respondent Thomas J. Forney (Thomas) is the beneficiary of a series of trusts established by his parents, Daniel and Lillian Forney. Defendant and appellant John C. Forney (John), is Thomas’s brother and the current trustee of the various trusts. Defendant and appellant Elizabeth Greenawalt (Greenawalt) is a professional trustee, whom John appointed as the special trustee of the trust discussed below and described as the Child’s Trust, apparently because of difficulties John and Thomas encountered when dealing directly with each other.
On November 14, 1997, John and Thomas’s father, Daniel C. Forney (Daniel) executed a document entitled “Declaration of Trust, Thomas J. Forney Irrevocable Child’s Trust” (Child’s Trust). John was designated the trustee and remains in that capacity. The Child’s Trust contains a no contest clause which provides:
“If any person shall seek to set aside this instrument or to contest the validity of any part of it, then I disinherit that person and his or her spouse and descendants, and all of them shall be deemed to be deceased for all purposes of this instrument.”
The Child’s Trust was funded by distributions from: (1) the Forney Family Survivor’s Trust (Survivor’s Trust), dated October 18, 1990, as amended and restated on August 7, 1997, and further amended on June 30, 1999, December 7, 1999, and January 13, 2000; (2) the Forney Family Exemption Trust (Exemption Trust); and (3) the Forney Family Marital Trust (Marital Trust). The June 30, 1999, amendment to the Survivor’s Trust consists of an extensive no contest clause, which reads, in part, as follows:
“I have intentionally and with full knowledge of the consequences, provided for THOMAS JEFFREY FORNEY in the Survivor’s Trust, in a manner that I believe to be in his best interests, based on his past criminal activities, and actions. The manner in which I have provided for THOMAS JEFFREY FORNEY is designed to limit his access to the trusts established for him at my death. If he or anyone on his behalf, singly or in conjunction with any person or persons, directly or indirectly . . . (vii) unsuccessfully seeks the removal of any person acting as Trustee of any Trust created under this instrument, or of the personal representative of my Will . . . then his right to receive any interest in the Trust or my estate, shall be determined as it would be determined if he predeceased me without issue. . . .” (Italics added.)
On May 7, 2007, Thomas filed a “safe harbor” application (Application) asking the court to declare that the proposed Petition does not constitute a will or trust contest under the terms of the Child’s Trust or the Survivor’s Trust.
On June 6, 2007, Greenawalt responded to the Application, arguing that the Petition is clearly a contest of the Child’s Trust under the terms of the Survivor’s Trust, specifically under the no contest clause added by the first amendment dated June 30, 1999, and that the court must strictly construe this no contest clause.
At the hearing held on July 25, 2007, the trial court stated that it is against public policy to forbid a trust beneficiary to ask the court to determine whether the trustee breached his fiduciary duty. In a written ruling filed the next day, the trial court granted the Application and ruled that the Petition “would not be a contest within the terms of the no-contest clauses of the Thomas J. Forney Irrevocable Child’s Trust, the TJF Child’s Special Needs Trust, the Forney Family Trust, or the related trusts and will of the decedent.” (Capitalization omitted.)
Thomas filed the Petition on July 31, 2007. Before the court could hear the Petition, Elizabeth and John filed this appeal. The trial court stayed the Petition pending this appeal.
Discussion
1. Standard of Review
We apply the de novo standard of review to challenges to a trial court’s ruling on the applicability of a no contest clause. (Hearst v. Ganzi (2006) 145 Cal.App.4th 1195, 1200.)
2. California Common Law Applies
The parties agree that the common law of California applies in this case, as opposed to statutory law. Section 21301 provides: “This part is not intended as a complete codification of the law governing enforcement of a no contest clause. The common law governs enforcement of a no contest clause to the extent this part does not apply.” Section 21305, subdivision (b)(7), specifies that “[a] pleading regarding the appointment of a fiduciary or the removal of a fiduciary” does not violate a no contest clause “as a matter of public policy” “notwithstanding anything to the contrary in any instrument.” However, subdivision (b) applies “only to instruments of decedents dying on or after January 1, 2001, and to documents that become irrevocable on or after January 1, 2001.” (§ 21305, subd. (d).) Here, Daniel died on August 14, 2000, and the Child’s Trust and the Survivor’s Trust became irrevocable at least by that date. Thus, section 21305, subdivision (b)(7), which provides that pleadings such as the Petition do not violate the trusts’ no contest clauses, does not apply here because the trusts became irrevocable prior to January 1, 2001. Pursuant to section 21301, then, we next determine what the common law is in California regarding no contest clauses and their validity as to petitions to remove the trustee of a trust.
3. California Common Law on No Contest Clauses
Section 21320, subdivision (a) allows a beneficiary of an instrument containing a no contest clause that had become irrevocable to “apply to the court for a determination of whether a particular motion, petition, [etc.] . . . would be a contest within the terms of the no contest clause.” Subdivision (c) of that section states that “[a] determination under this section of whether a proposed motion, petition, [etc.] . . . violates a no contest clause may not be made if a determination of the merits of the motion, petition, [etc.] is required.”
The leading case on the validity of no contest clauses that prohibit the filing of a petition to remove a trustee or executor is Estate of Ferber (1998) 66 Cal.App.4th 244 (Ferber). In that case, the beneficiary of an estate sought a determination under section 21320 that several proposed actions, including a petition to remove the executor, would not violate the “no-contest” clause in the decedent’s will. The trial court found that the beneficiary would not violate the no contest clause by seeking to remove the executor. The appellate court reversed. In doing so, it balanced two competing public policies. First, the court recognized the value in allowing beneficiaries to bring instances of executor malfeasance to the court’s attention without fear of being penalized by disinheritance. “No contest clauses that purport to insulate executors completely from vigilant beneficiaries violate the public policy behind court supervision.” (Ferber, supra, at p. 253.) However, the court also acknowledged that no contest clauses are “‘favored by the public policies of discouraging [unnecessary] litigation and giving effect to the purposes expressed by the testator.’ [Citation.]” (Id. at p. 254.)
In California, the law treats no contest clauses in wills and trusts the same. The California Law Revision Commission, in its 1989 Recommendation Relating to No Contest Clauses (20 Cal. Law Revision Com. Rep., p. 11 et seq.) stressed that the “issues involved are the same” regarding no contest clauses in wills, trusts, and other donative instruments, even though the development of much of the law has occurred in the context of wills and will contests. (See 14 Witkin, Summary of Cal. Law (10th ed. 2005) Wills and Probate, § 560, pp. 641-643; see also Ferber, supra, 66 Cal.App.4th at pp. 252-253, fn. 7 [“we see no analytical difference between wills and testamentary trusts” regarding no contest clauses].)
The pertinent portion of the no contest clause disinherits any beneficiary who “‘unsuccessfully requests the removal of any person acting as an executor.’” (Ferber, supra, 66 Cal.App.4th at p. 248.)
The appellate court balanced these opposing public policies by setting forth the following rule. The courts will enforce no contest clauses only against beneficiaries who attempt to oust the executor based on frivolous grounds, as opposed to beneficiaries who are merely “unsuccessful” as set forth in the will’s no contest clause. The court believed this would still allow the courts to intervene to eliminate “errant executors” and protect beneficiaries, while discouraging unnecessary probate litigation and supporting the testator’s intent in including the no contest clause. (Ferber, supra, 66 Cal.App.4th at pp. 254-255.) This might at first glance lead one to conclude that most petitions to remove an executor or trustee would be approved under section 21320, the safe harbor statute, with the exception of those based on frivolous grounds. However, the court went on to conclude that: “Whether [the beneficiary’s] challenge was frivolous involves a factual determination that would be improper for a section 21320 proceeding.” Citing the extensive analysis of section 21320 contained in Genger v. Delsol (1997) 56 Cal.App.4th 1410, the Ferber court reasoned: “A ruling on whether the beneficiary’s proposed action would be a will contest may not involve a determination on the merits of the action itself. [Citation.] This makes sense. Otherwise, the summary procedure could be used to allow the very form of challenge and protracted litigation the testator sought to prevent.” (Ferber, supra, at p. 251.) The court then reversed the trial court’s order finding the no contest clause invalid as to the petition to remove the executor, explaining the determination as to whether the petition was frivolous should not be made in a section 21320 hearing, as such a determination is normally not then ripe for adjudication. (Ferber, supra, at pp. 255-256.)
This is the same operative language contained in the first amendment to the Survivor’s Trust.
In other words, the safe harbor procedure set forth in section 21320 is not available to immunize a beneficiary from forfeiture prior to filing a petition to remove an executor or trustee. Whether the petition is frivolous must be determined as part of the proceedings on the petition, at least to the extent the determination is based upon the particular facts of the case, not just a review of the law. When filing a petition to remove an executor or trustee, the beneficiary thus takes his or her chances as to whether the trial court will ultimately determine that the petition was frivolous.
Thomas argues that Ferber was poorly reasoned and that this court should disregard it because it differed from the common law upon which it purported to be based. Thomas contends that, before the decision in Ferber, “public policy as expressed in the common law of California invalidated or precluded the enforcement of a no-contest clause to the extent that it prohibited a beneficiary from seeking the removal of a trustee or executor.” Thomas bases this argument in part on the holdings of the two major cases to which the Ferber court cites when it discusses the public policy value in allowing beneficiaries to bring instances of executor malfeasance to the court’s attention without fear of being penalized by disinheritance. In both Estate of Miller (1964) 230 Cal.App.2d 888 and Estate of Bullock (1968) 264 Cal.App.2d 197, the appellate courts emphasized that the beneficiary of a trust should be able to petition the courts to determine whether a trustee is properly carrying out his or her fiduciary duties toward the beneficiary, without fear of forfeiture.
The holdings of these two cases do not in themselves express the common law of California as it stands today. First, as discussed above, the court in Ferber balanced the public policy expressed in these two cases against the public policy in avoiding unnecessary litigation and supporting the wishes of the trustor or testator. The reasonable result of this balancing was to apply the penalties of no contest clauses only to such actions that are based on frivolous grounds. Second, as defendants point out, the common law of California evolved in the 30-year interval between these two cases and Ferber, as illustrated by section 21303, enacted in 1989, and Burch v. George (1994) 7 Cal.4th 246. As a result of these two considerations (the need to balance conflicting public policies and the evolution of the common law since the 1960’s) we conclude that Ferber did not err in failing to adopt, without change, the holdings in Miller and Bullock.
“Except to the extent otherwise provided in this part, a no contest clause is enforceable against a beneficiary who brings a contest within the terms of the no contest clause.” (§ 21303.)
“No contest clauses are valid in California and favored by the public policies of discouraging litigation and giving effect to the purposes expressed by the testator.” (Burch v. George, supra, 7 Cal.4th at p. 254.)
We reject Thomas’s argument that section 21305, subdivision (b)(7), represents the current state of the common law. This provision, which was enacted in 2000, expressly states that, for instruments enacted on or after January 1, 2001, a “pleading regarding the appointment of a fiduciary or the removal of a fiduciary” does “not violate a no contest clause as a matter of public policy.” However, as defendants argue, section 21305 expressly provides in subdivision (d) that the provisions of subdivision (b), declaring that certain actions do not violate a no contest clause, apply only to “instruments of decedents dying on or after January 1, 2001 and to documents that become irrevocable on or after January 1, 2001.” Thus, even if section 21305 were to set forth the current state of the common law, that law specifically does not apply to the instruments in this case. Thus, we conclude that Ferber correctly states the common law of California regarding the no contest clauses at issue here, and is dispositive in this case.
We hereby grant Thomas’s request for judicial notice, filed in this court on May 16, 2008, regarding the legislative history of section 21305, as enacted by Assembly Bill No. 1491 (1999-2000 Reg. Sess.).
A useful definition of exactly what the “common law” is can be found in Ballentine’s Law Dictionary (3d ed. 1969), which states: “Those principles, usages and rules of action applicable to the government and security of persons and property which do not rest for their authority upon any express or positive statute or other written declaration, but upon statements of principles found in the decisions of the courts.” The entry references 15A American Jurisprudence Second (2008) Common Law, section 1, which further comments that common law “is applied in the absence of controlling statutory law.” Here, section 21305 expressly states that it is not controlling statutory authority for instruments such as those at issue in this case.
Curiously, Thomas argues that we should affirm the trial court’s ruling because defendants have failed to establish that the ruling was prejudicial. Let there be no doubt that we consider the ruling to be manifestly prejudicial in that it makes the no contest clauses in the applicable instruments unenforceable and thus ineffective in assisting defendants to carry out the trustor’s intentions.
Applying the reasoning and holding of Ferber to the matter at hand, the trial court erred when it determined that the Petition would not be a contest according to the terms of the applicable trust documents. This is because the court would have had to make a factual determination as to whether the Petition was based on frivolous grounds. Such a determination would further require a decision on the ultimate merits of the Petition, which is beyond the scope of a section 21320 proceeding.
Disposition
We reverse the trial court’s ruling granting Thomas’s safe harbor Petition. Appellants shall recover their costs on appeal.
We concur: GAUT, J., KING, J.