Opinion
F084659
01-23-2024
PAUL GEYER et al., Plaintiffs and Respondents, v. DIANE BARTLETT, Defendant and Appellant.
Cyril Lawrence, Inc. and Cyril L. Lawrence for Defendant and Appellant. Law Office of Nini Lee, Inc. and Nini Lee for Plaintiffs and Respondents Paul Geyer and Robert Geyer. Fores Macko Johnston &Chartrand and Anthony D. Johnston for Plaintiff and Respondent Karen Werth.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Merced County, No. 17PR-00108 Harry Jacobs, Judge.
Cyril Lawrence, Inc. and Cyril L. Lawrence for Defendant and Appellant.
Law Office of Nini Lee, Inc. and Nini Lee for Plaintiffs and Respondents Paul Geyer and Robert Geyer.
Fores Macko Johnston &Chartrand and Anthony D. Johnston for Plaintiff and Respondent Karen Werth.
OPINION
LEVY, Acting P. J.
INTRODUCTION
Respondent/defendant Diane Bartlett (Diane), appeals from a judgment rendered against her and others following a court trial. The case involved allegations that Diane and her husband at the time, respondent/defendant Leon Bartlett (Leon), wrongfully converted assets from a trust created by Leon and his prior spouse, Alice Bartlett (Alice), deceased, and wrongfully used those assets for Leon and/or Diane's own benefit and to the detriment of the trust's rightful beneficiaries.
Except as otherwise stated, we refer to the parties by their first names for convenience and to avoid unnecessary complexity. No disrespect is intended.
Diane has advised this court that Leon, who testified at trial, passed away at the age of 97 on November 29, 2022, after judgment was entered.
The lawsuit was initiated by the petition of Alice's only children from a prior marriage, petitioners/plaintiffs Paul Geyer (Paul) and Robert Geyer (Robert) (sometimes collectively, the "Geyers"). A separate petition, consolidated herein, was filed by Leon's only child from his first marriage, petitioner/plaintiff Karen Bartlett Werth (Karen). Paul, Robert and Karen (collectively "plaintiffs") were the only named remainder beneficiaries of the trust created by Leon and Alice.
The trial court found in favor of the Geyers, and against Diane, Leon, and others on numerous causes of action, and found in favor of Karen, and against Diane and Leon, on the causes of action in Karen's petition. We modify the judgment and affirm it as modified.
Karen filed a separate notice of appeal of the judgment. She subsequently requested her appeal be dismissed and this court granted her request on May 19, 2023.
FACTUAL AND PROCEDURAL BACKGROUND
I. Brief Family Histories
Leon and Alice married in 1981. Among other things, the couple owned a petroleum distribution business known as Leon H. Bartlett, Inc. ("LHBI") and ran a cattle ranch. Together, they had no children but Alice had two children, Paul and Robert, from a prior marriage and Leon had one child, Karen, from a prior marriage. Karen is married to respondent/defendant Mervin E. Werth, Jr. (Mervin).
Leon and Alice remained married until Alice passed away on April 25, 1993. Approximately eight months later, Leon married Diane. Leon and Diane had no children from their marriage.
Diane had three children from a prior marriage including respondent/defendant Tina D. DeLeon (nee Morrow) (Tina). According to the Geyers' petition, Tina is married to respondent/defendant Jaime DeLeon (Jaime).
II. The Trust Created By Leon and Alice, and As Amended By Leon
On September 28, 1992, Leon and Alice, as settlors, executed a Declaration of Trust and Trust Agreement for the Leon and Alice Bartlett Revocable Trust (unnecessary capitalization omitted) ("Leon/Alice trust"). Following Alice's death in 1993, Leon was the sole trustee of the Leon/Alice trust.
A. Select Provisions of the Original Leon/Alice Trust
1. Creation of Separate Trusts Upon the First Death of a Settlor
The Leon/Alice trust provided that upon the first death of either settlor, the trustee "shall apportion the trust estate, including any additions made to the trust by reason of the Deceased Settlor's death ... into three (3) separate trusts, herein designated as follows: [¶] Trust A, (... 'The Survivor's Trust'); [¶] Trust B, (... 'The ByPass Trust'); and [¶] Trust C, (... 'The Marital Trust')."
Trust A property: Trust A was to be funded with "all of the Surviving Settlor's separate property that [was] a part of the trust estate and the Surviving Settlor's interest in any of Settlors' community property . . . included in or added to the trust estate . . .."
Trust B property: Subject to considerations not relevant here, Trust B was to be funded with "that portion of the Deceased Settlor's interest in the community and jointly owned assets . . . then included in the trust estate, and that portion of the Deceased Settlor's separate property ... then included in the trust estate" up to the amount of the federal estate tax exemption.
The parties do not dispute that the amount of the federal estate tax exemption at the date of Alice's death was $600,000.
Trust C property: The beginning trust estate of Trust C was to "consist of the balance of the trust estate."
Upon Alice's passing, Leon was entitled to pay from Trust B and/or Trust C Alice's outstanding debts, estate and inheritance taxes, last-illness and funeral expenses, attorney fees, and other costs of administering Alice's probate estate.
2. Allowable Distributions to Leon, as the Surviving Spouse
As the surviving spouse, Leon was entitled to "as much of the net income" and "any of the principal" as he may demand from Trust A; distributions of net income from Trust B that he, in his discretion, deemed necessary for his "health, education, support, and maintenance, in accordance with [his] accustomed standard of living" at the time of Alice's death; and the entire net income of Trust C to be paid at least annually. Leon also had narrowly limited powers to invade the principal of Trusts B and C.
No evidence was elicited, and no contention is made, that Leon invoked the provision that authorized him, under certain conditions, to invade the principal of Trust B or Trust C.
3. Disposition of Trusts A, B and C Upon the Death of the Last Settlor
Subject to payment of certain allowed expenses, the Leon/Alice trust provided for the following disposition of trust assets upon the death of the last settlor: All principal and accrued income of Trust A were to be distributed pursuant to a general power of appointment if exercised or, if not exercised, added to Trust B. Personal effects held in Trust B were to be distributed as plaintiffs might agree, or otherwise sold with the proceeds added to the residue of Trust B. The residue of Trust B was to be distributed equally among the plaintiffs. Undistributed income accumulated in Trust C was to be distributed to the last deceased settlor's estate. Personal effects were to be distributed to plaintiffs as they might agree, or, absent agreement, as the trustee might determine, subject to any specific distributions designated by the last deceased settlor. The residue of Trust C was to be added to Trust B.
4. The No Contest Provision
The Leon/Alice trust contained a no contest provision that read: "If any person, whether claiming to be an heir of Settlors or not, should either directly or indirectly, contest the provisions of this [trust instrument] or object to any provisions hereof or attempt to oppose or set aside this [trust instrument] or to impair or invalidate any of the provisions hereof, such person shall receive from the trust the sum of One Dollar ($1.00) only, and no more _."
B. The Leon/Alice Trust Estate Assets as of Alice's Date of Death
The Leon/Alice trust identified the separate and community property holdings Leon and Alice initially added to the trust. In addition, Alice executed a pour-over will by which she contributed additional holdings to the trust. Leon, through his certified public accountant [CPA], Grey Roberts, filed a Form 706 estate tax return for Alice's estate ("706 return"). The 706 return listed assets and liabilities comprising the Leon/Alice trust estate at Alice's date of death and provided net values for those assets and liabilities as of Alice's date of death, as follows:
The 706 return is prepared on Internal Revenue Service Form 706 titled United States Estate (and Generation-Skipping Transfer) Tax Return.
1. Community Assets and Liabilities
Bulk plant: LHBI's petroleum distribution plant operated on a one-acre parcel located at 1450 G Street, Merced, California ("bulk plant"). The real property was valued at $196,000 and its improvements were valued at $154,000, for a total value of $350,000.
Values stated in the 706 return appear to have been rounded to the nearest dollar.
101 acres: 101.70 acres of vacant land located at 6922 North G Street, Merced, California ("101 acres") valued at $570,735 net of debt.
Homeplace and 67 acres: Leon and Alice's residence along with 67.60 acres of real property ("homeplace and 67 acres") valued at $547,466 net of debt.
Tri-State stock: 20 shares of preferred stock of Tri-State Livestock Credit Corporation ("Tri-State stock") valued at $2,000.
Chevron stock: 94.0845 shares of Chevron Corp. common stock valued at $7,656.13.
Leasehold interest No. 1: A leasehold interest in approximately 9,000 acres of grazing land valued at $20,000.
Leasehold interest No. 2: A leasehold interest in approximately 3,100 acres of grazing land valued at $39,167.
Livestock: Livestock and cattle valued at $1,186,705 net of debt.
Equipment: Equipment valued at $47,500.
Personal effects: Personal effects valued at $9,000.
Old mobile home: An old mobile home valued at $200.
Debt owed to Federal Land Bank: An outstanding loan balance owed to Federal Land Bank in the amount of <$179,212>.
Debt owed to LHBI: An outstanding note payable to LHBI in the amount of <$106,620>.
2. Leon's Separate Property Assets
LHBI shares: 73,500 shares of LHBI stock issued in Leon's name valued at $857,502.
3. Alice's Separate Property Assets
LHBI shares: 76,500 shares of LHBI stock issued in Alice's name valued at $892,503.
Jewelry: Alice's jewelry valued at $8,000.
4. Additions to the Leon/Alice Trust Following Alice's Death
The 706 return also lists death benefits payable to Paul and Robert, valued in total at $1,417 which the 706 return shows as having been allocated to Trust B. In addition, the 706 return lists two Wells Fargo checking accounts valued at $5,499 and $3,603, respectively. Half the value of each checking account was shown as having been allocated to Trust A with the remainder unallocated.
Chevrolet pickup - a community asset valued at $1,200.
Note receivable from LHBI - a community asset valued at $6,000.
"Open A L" cattle brand - a community asset valued at $100.
Tax refund - Federal income tax refund receivable valued at $25,859.
A.L.B. stock - 500 shares of common stock of A.L.B. Enterprises, Inc., valued at $500.
Funeral expenses - in the amount of <$9,715>.
Attorney fees - in the amount of <$8,041>.
Accountant fees - in the amount of <$4,000>.
III. Amendment to the Leon/Alice Trust After Leon's Marriage to Diane
On January 21, 1994, shortly following his marriage to Diane, Leon executed an amendment to the Leon/Alice trust. The amendment reaffirmed the statement in the Leon/Alice trust that plaintiffs were to be considered the children of the settlors "for all purposes under [the Leon/Alice trust] instrument pertaining to Trust 'B' and Trust 'C.'" However, the amendment provided "[f]or all purposes of this instrument pertaining to Trust 'A,' the terms 'child' and/or 'children' shall refer solely to" Karen.
In the amendment, Leon directed that, upon his death (1) all personal effects held in Trust A be distributed to Diane if living, otherwise to Karen, and (2) Diane, if living, would receive part of Trust A's interest in the homeplace and 67 acres. Specifically, the amendment directed the trustee to "take such steps as are necessary to have a parcel split approved and ... then distribute the residence together with the minimum number of acres upon which it is situated, which can be approved as a separate parcel, to" Diane with the balance of the real property and improvements to be distributed as part of the residue. The residue of Trust A would be distributed to Karen, or to her living issue if she predeceased Leon, or to Diane if neither Karen nor her issue were living.
IV. Sale of Cardlock Improvements to Trust C
On January 26, 1994, Leon caused LHBI to sell to Trust C cardlock improvements "associated with the cardlock system at 1 West 15th Street, in the City of Merced." The improvements (i.e., two 10,000 gallon tanks, two 5,000 gallon tanks, two cardlock readers, blacktop cement and light fixtures, eight dispensers, and lights) were said to have both a book value, and a fair market value, of $138,548.90. In exchange, Trust C transferred 11,876 shares of LHBI common stock to LHBI.
"[C]ardlock fueling is a fleet fuel management method that uses a fleet card to track and control fuel purchases at cardlock fueling stations.... [¶]... [¶] Cardlock fueling stations . are unmanned fuel stations with 18 wheel access that are specifically made for businesses. Unlike retail stations, most cardlocks . aren't open to the general public.." (<https://cnrgfleet.com/cardlock-fueling>.)
V. The Agreement for Division of Leon/Alice Trust Assets Into the Sub-Trusts
On September 29, 1994, Leon executed an Agreement for Division of Trust Assets of the Leon and Alice Bartlett Revocable Trust (unnecessary capitalization omitted) effective April 25, 1993 (Alice's date of death) ("allocation agreement"). The purpose of the agreement was to apportion the Leon/Alice trust assets among the three resulting sub-trusts-i.e., Trust A, Trust B, and Trust C.
A. Trust A Assets/Liabilities Upon Initial Division
Pursuant to the allocation agreement, Trust A received a one-half interest in the community assets and liabilities held by the Leon/Alice trust, namely: the bulk plant (with improvements); the 101 acres (and associated debt); the homeplace and 67 acres (and associated debt); the Tri-State stock; the Chevron stock; Leasehold interest No. 1; Leasehold interest No. 2; the livestock (and associated debt); the equipment; personal effects; and the old mobile home. Similarly, Trust A assumed one-half of the debt of the Leon/Alice trust, i.e., debt owed to Federal Land Bank and to LHBI. Trust A also received all of Leon's original contribution of separate property, i.e., 73,500 shares of LHBI stock. The value of Trust A was stated as $2,054,800.77. The remainder of trust assets and liabilities were allocated between Trusts B and C.
B. Trust B Assets/Liabilities Upon Initial Division
Pursuant to the allocation agreement, Trust B received a 45.802 percent interest in equipment, and Alice's separate property contribution of 51,428 shares of LHBI stock. Trust B assumed liability for Alice's funeral expenses, and professional fees incurred in administering her estate. The value of Trust B was stated as $600,000.
C. Trust C Assets/Liabilities Upon Initial Division
Pursuant to the allocation agreement, Trust C received the remaining one-half interest in community assets and liabilities held by the Leon/Alice trust. (See section V.A., above.) Trust C also received Alice's separate property interest in her jewelry; an undivided 4.1979 percent interest in the equipment, and the remaining 25,072 shares of LHBI stock. (As stated, Trust C previously sold 11,876 shares of LHBI stock to LHBI in exchange for certain cardlock improvements.) In addition, Trust C received the following assets added to the trust by Alice's will: a one-half community interest in a $6,000 note receivable from LHBI, a Chevrolet pick-up, and the "Open A L" cattle brand; and separate property consisting of 500 shares of A.L.B. Enterprises, Inc. stock and the 1990 federal income tax refund receivable. The value of Trust C was stated as $1,506,053.86.
The Geyers' retained expert, attorney John Hartog, a certified specialist in estate planning, probate and trust law, and taxation law, testified that Leon met the standard of care as a trustee when he split trust assets down the middle as much as possible in accordance with the allocation agreement.
VI. The Asset Exchange Agreement
Things went awry according to expert/attorney Hartog, however, when Leon, on the same day he executed the allocation agreement, executed an Agreement for Exchange of Assets effective April 25, 1993 ("asset exchange agreement"). By way of the agreement, Leon caused an exchange of assets between Trust A and Trust C for the stated purpose of "consolidat[ing] the ownership and operations of various business properties into single trusts ... to make the future ownership and operation of various assets easier to handle."
Specifically, Leon transferred all of Trust C's interest in the following assets to Trust A: The 101 acres (with associated debt); the homeplace and 67 acres (with associated debt); the Tri-State stock; the Chevron stock; the livestock (with associated debt); the 4.1979 percent interest in equipment; personal effects; the old mobile home; jewelry; Chevrolet pick-up; the note receivable from LHBI; the "Open A L" cattle brand; the 1990 federal income tax refund receivable; and the 500 shares of A.L.B. common stock. Trust A also assumed Trust C's liability on debt owed to Federal Land Bank and to LHBI.
In exchange, Leon transferred Trust A's interest in the bulk plant to Trust C such that it now held the bulk plant outright. Because the exchanged value between the subtrusts was unequal, Leon, as trustee of Trust A, executed a promissory note to Trust C for $833,969 ("~$834,000 promissory note") secured by Trust A's LHBI stock. The note provided for interest payments at the annual rate of 8 percent which Leon, as income beneficiary of Trust C, would be entitled to receive. However, the note provided that no principal payments were due until 2025 (approximately 30 years after execution of the note) when Leon, had he survived, would have attained the age of 98 or 99. At trial, Leon testified he still owed the principal balance of the note.
As justification for the transfers, Leon testified that "the living trust was established because Alice wanted to make sure that Paul inherited the bulk plant and the business." Leon later clarified that Alice wanted Paul, Robert and Karen to inherit the bulk plant and the business.
VII. The Agreement for Purchase and Sale of Cardlock Improvements
Also on September 29, 1994, Leon entered into an agreement by which the cardlock improvements previously sold to Trust C, were sold to A.L.B. Enterprises, Inc. In exchange, Trust C received a promissory note in the amount of $138,548.90 from A.L.B. Enterprises ("~$138,000 promissory note"). The note (like the ~$834,000 promissory note) provided for interest payments at the annual rate of 8 percent and no principal payments until the year 2025. No principal was ever paid on the note.
VIII. Additional Transactions, Transfers and Property
A. Transfer and Transmutation of Trust A Assets
On October 20, 1995, Leon and Diane created The Leon and Diane Bartlett Community Property Trust-1995 ("Leon/Diane 1995 trust"). The trust's initial assets consisted of the 1,000 shares of A.L.B. Enterprises, Inc. common stock. Diane did not contribute any separate property to the trust.
In 2012, Leon and Diane caused A.L.B. Enterprises, Inc. to be renamed Leon and Diane Bartlett Enterprises, Inc. Notwithstanding, to avoid unnecessary confusion, we will continue to refer to the corporation as A.L.B. Enterprises, Inc.
On November 20, 2003, Leon terminated Trust A and distributed all of its assets to himself as an individual. In a series of contemporaneous transactions, Leon caused the 101 acres (with associated debt), and the homeplace and 67 acres (with associated debt), to be transferred to the Leon/Diane 1995 trust, and assigned to the trust all right, title and interest in the following property: two County Bank checking accounts; the Tri-State stock; Leon's 73,500 shares of LHBI stock; the livestock; the equipment and vehicles; all personal effects; the old mobile home; a doublewide mobile home located on the homeplace and 67 acres ("Fleetwood mobile home"); the "Open A L" cattle brand; and two leasehold interests in grazing land. The Leon/Diane 1995 trust assumed liability on the ~$834,000 promissory note and other debt.
Also on November 20, 2003, Leon and Diane executed an Agreement Regarding Ownership of Property (unnecessary capitalization omitted) in which they agreed the assets of the terminated Trust A, and all assets in the Leon/Diane 1995 trust, are their community property; any income Leon received from Trust B would remain his separate property unless and until deposited in a joint account with Diane; and all other assets acquired by them during their marriage would be community property.
B. Sale of the 101 Acres and Partial Cancellation of the Sale
In 2004, Leon and Diane, as trustees of the Leon/Diane 1995 trust, sold approximately 60 acres of the 101 acres to Fahrens Creek, LLC for $1,925,000. In 2005, they sold the remaining 40 acres +/- to Michael Gallo for $5,000,000. Gallo paid $1.5 million in cash for the 40 acres +/- and executed an installment note for the remainder of the purchase price. In 2007, the parties to the Gallo transaction agreed to cancel the installment note in exchange for return of the 40 acres +/- ("returned 40 acres") and Gallo's forfeiture of the $1.5 million cash down payment. Expert attorney Hartog opined the $1.5 million retained its character as principal (rather than income) because it was received in connection with the sale of a principal asset.
C. Leon and Diane Use the Forfeited $1.5 Million Down Payment to Purchase Real Property for Karen and Tina
Leon and Diane used the $1.5 million down payment forfeited by Gallo to purchase two properties: 6226 Josie Street, Atwater, California ("Josie property") and 3046 Bailey Avenue, Merced, California ("Bailey property"). They purchased the Josie property for $689,500 and gifted it to Diane's daughter, Tina. They purchased the Bailey property for $740,000 and gifted it to Leon's daughter, Karen.
The Bailey property was subsequently transferred to Karen and Mervin as trustees of the Werth 2015 Living Trust dated April 14, 2015.
D. Leon Sells Trust B and Trust C's Shares of LHBI Common Stock to an LHBI Employee Stock Ownership Plan
In 2004, Leon caused all of Trust B and Trust C's shares of LHBI stock to be sold for use in a newly created employee stock ownership plan (ESOP) for LHBI. LHBI borrowed money from County Bank to fund the purchase, then loaned the money to the ESOP which paid a total of $777,426 to Trust B and Trust C for the stock. Then Leon took the money out of both sub-trusts and, in exchange, gave Trust B a promissory note in the amount of $618,678 ("~$618,000 promissory note") and Trust C a promissory note in the amount of $158,747 ("~$158,000 promissory note"). Both notes required monthly payments of principal and interest and had a 10-year balloon payment. Leon used the borrowed money to repay a loan he owed to LHBI in the amount of $119,476, and a loan A.L.B. Enterprises, Inc. owed to LHBI in the amount of $370,265. He loaned the remainder of the borrowed money ($287,685) to LHBI. LHBI then repaid the County Bank loan using those funds.
E. The Returned 40 Acres and Homeplace and 67 Acres Are Transferred to Diane as Her Sole and Separate Property
In 2008, in a series of transactions, Leon and Diane transferred the homeplace and 67 acres and the returned 40 acres to Diane as her sole and separate property. In 2013, Diane transferred the homeplace and 67 acres to her own separate property trust ("Diane separate property trust").
F. Diane Sells the Returned 40 Acres
In 2010, Diane sold the returned 40 acres to Surjit Chahal for $385,000. She testified she put the money into an annuity and bank account in her own name, subsequently withdrew $300,000, and was robbed of the withdrawn money while sitting in a Raley's parking lot.
G. Sale of Cardlock Improvements
On February 11, 2011, Leon and Diane were in the process of selling LHBI's business and assets to Tesei Petroleum, Inc. As part of the transaction, they sold the previously discussed cardlock improvements and underlying land (located at 1 W. 15th Street, Merced) to Gail Tesei, Inc. for $1,300,000. In A.L.B. Enterprises, Inc.'s 2011 tax return, the corporation allocated $864,000 of the purchase price to the cardlock improvements and the remaining $436,000 to the cardlock land. Proceeds from the Tesei sale were used to pay off debts relating to LHBI.
H. Leon and Diane Sell the Livestock and Use Proceeds to Buy Devonwood Property and San Pablo Property for Diane and to Pay Off Personal Guarantees
After Leon suffered the second of two strokes in 2014, he sold all of the livestock. The proceeds were initially put into A.L.B. Enterprises, Inc. and were used, in part, to pay off Leon and Diane's personal guarantees.
In 2014, Diane bought real property located at 1274 Devonwood Drive, Merced, California ("Devonwood Property") for $170,000 cash. The purchase money was money left over from the cattle sale. Leon signed an interspousal transfer grant deed conveying his interest in the property to Diane. Diane holds title to the property in the Diane Bartlett separate property trust and receives approximately $1,000 per month in rent for the property.
In or about 2015, Leon gave proceeds from the cattle sale to Diane to purchase real property located at 3537 San Pablo Avenue, Merced, California at a cost of $200,000 ("San Pablo property"). Again, Leon signed an interspousal transfer grant deed conveying his interest in the property to Diane. Diane holds title to the San Pablo property in the Diane Bartlett separate property trust.
I. Sale of Equipment and Tools
Leon sold the equipment and tools for $47,500 and put the money into a checking account for A.L.B. Enterprises, Inc. He and Diane receive monthly payments from the account. The equipment and tools were community assets of Leon and Alice at the time of Alice's death.
J. A.L.B. Enterprises, Inc. Owns Real Property Located On West 15th Street and East 15th Street, in Merced
At trial, it was revealed that A.L.B. Enterprises, Inc. owns 15 W. 15th Street, Merced, California, and 39, 41 and 49 E. 15th Street, Merced, California free and clear. The properties were purchased after Alice passed away but before the allocation agreement and asset exchange agreement were executed. At least one of the properties was purchased with cash. Diane testified she believed the properties generated rental income of $16,000 per month but she was not certain.
K. Fleetwood Mobile Home
Leon testified the Fleetwood mobile home (i.e., the newer mobile home located on the homeplace and 67 acres) was purchased before Alice died and was community property of Leon and Alice.
IX. The Petitions
A. Paul and Robert's Petition
The Geyers filed this action on April 12, 2017. On July 14, 2017, they filed the governing amended petition. Named respondents/defendants (hereafter "defendants") included Leon (individually and as trustee of the Leon/Alice trust and sub-trusts), Diane (individually and as trustee of the Diane separate property trust), Tina and Jaime, and Karen and Mervin (individually and as trustees of the Werth 2015 Living Trust dated April 14, 2015).
The Geyers alleged causes of action against (unless otherwise stated) all named defendants for (1) fraudulent conveyance; (2) a claim under Probate Code section 850;(3) double damages pursuant to section 859; (4) quiet title; (5) breach of trust, removal of Leon as trustee, and surcharge (against Leon); (6) constructive trust; (7) money had and received (against Leon and Diane); (8) violation of no contest clause (against Leon and Karen); (9) concealment; (10) aiding and abetting (against Diane, Tina, Jaime, Karen and Mervin); and (11) civil conspiracy.
All statutory references are to the Probate Code unless otherwise stated.
B. Karen's Petition
On April 23, 2019, Karen filed her petition against Leon (individually and as trustee of the Leon/Alice trust and sub-trusts) and Diane (individually and as trustee of the Diane Bartlett separate property trust), alleging causes of action for breach of Trust B and Trust C and seeking similar relief to that sought by the Geyers.
X. Witnesses at Trial
With the exception of Tina and Jaime, all named parties testified at trial. In addition, CPA Roberts and attorney Callister, both of whom assisted Leon in drafting the Leon/Alice trust instrument, the allocation agreement, and asset exchange agreement testified at trial. Expert/attorney Hartog testified for the Geyers on issues related to estate planning and a trustee's standard of care. CPA James Peter Braun testified for the Geyers on valuation and economic issues. CPA Michelle Gallagher testified for Karen concerning various balances due on obligations and the calculation of interest. CPA Casey Gordon Johnson testified for Leon concerning the tracing of assets.
XI. The Judgment
The judgment was filed on May 27, 2022.
Diane's notice of appeal was filed on July 8, 2022, and is appended with a copy of the judgment signed by the judge, and filed, on May 27, 2022. The clerk's transcript contains what appears to be an identical judgment except it was signed by the judge, and filed, on August 2, 2022. No explanation for the discrepancy was provided. However, the notice of appeal was timely filed with regard to the earlier version of the judgment. Accordingly, we attribute no significance to the discrepancy for purposes of the appeal.
A. The Geyers' First Cause of Action-Fraudulent Conveyance
The trial court found the transfers of Leon/Alice trust property, the use of trust assets to purchase property, and the "conveyance of such properties to individuals who were not beneficiaries ..., without consideration, constituted a breach of fiduciary duty by [Leon], was intended to place such assets beyond the reach of the creditors and beneficiaries of the Trust; was intended to hinder, delay, and defraud all [plaintiffs]; [and] rendered Leon ... insolvent and without sufficient assets to pay his known debts." As a result, the court ordered the following properties be conveyed to Laurie Jamison, successor trustee of Trust C: (1) the bulk plant; (2) the homeplace and 67 acres; (3) the Devonwood property; (4) the San Pablo property; (5) the Bailey property; (6) 15 W. 15th Street, Merced; (7) 39, 41, and 49 E. 15th Street, Merced; and (8) the Fleetwood mobile home (collectively "recovered properties").
The trial court awarded prejudgment interest to the successor trustee of Trust C.However, the court found "equitable considerations dictate" that Karen and Mervin, or their trust, "retain title to the Bailey property to the extent its value does not exceed Karen['s] ... distributive share of trust assets" and to assess its value against her distributive share.
The court awarded prejudgment interest through March 10, 2022 (with daily prejudgment interest thereafter), payable by Leon and Diane, jointly and severally, as follows: (1) $126,126.03 in connection with the Devonwood property; (2) $130,356.16 in connection with the San Pablo property; (3) $1,196,975.34 in connection with the Bailey property; and (4) $1,106,600.27 in connection with the Josie property. The latter award was also payable jointly and severally by Tina and Jaime, "plus $260,909.03 proceeds from the sale of [the Josie property]."
Diane contends the same equitable considerations should result in Tina being allowed to keep the Josie property. We disagree. Karen was a beneficiary of the Leon/Alice trust, Tina was not. Karen testified as to substantial improvements made to the Bailey property whereas no similar testimony was provided on behalf of Tina. Moreover, Tina has not appealed the judgment.
B. The Geyers' Second Cause of Action-Section 850
The trial court granted the Geyers' section 850 claim and ordered the recovered properties be conveyed to the Leon/Alice trust for allocation among the sub-trusts and ordered the properties conveyed to the successor trustee of Trust C. The court made an identical award of interest as in the preceding cause of action and ordered money judgments against Leon and Diane, jointly and severally.
The trial court ordered judgment in the following amounts: (1) $1,692,296.84 "arising from the sale of 51,248 shares of Trust B's stock in [LHBI]"; (2) $434,227.74 "arising from the sale of 13,960 shares of Trust C's stock in [LHBI]"; (3) $833,076.71 "arising from the sale of [the returned 40 +/- acres] to Surjit Chahal"; (4) $5,384,198.63 "arising from the sale of [60 acres] to Fahrens Creek, LLC"; (5) $323,132.46 "arising from profit on rents on [the bulk plant]"; and (6) $2,709,698.63 "arising from the profits on the sale of real property to Gail Tesei, Inc."
C. The Geyers' Third Cause of Action-Double Damages, Section 859 The trial court granted double damages against Leon and Diane under section 859.
In doing so, the court found "the conveyance of such properties or use of trust assets to purchase such properties was intended to conceal and dispose of property belonging to a trust, or was the product of undue influence within the meaning of ... [section] 859."
Double damages were awarded in the following amounts: (1) $1,200,000 for the bulk plant; (2) $4,210,000 for the homeplace and 67 acres; (3) $480,000 for the Devonwood property; (4) $550,000 for the San Pablo property; (5) $1,480,000 for the Bailey property; (6) $80,000 for the Fleetwood mobile home; (7) $317,494.24 for "the proceeds from the sale of 13,960 shares of Trust C's stock in [LHBI]"; (8) $770,000 "for the proceeds" from the sale of [40 +/- acres] to Surjit Chahal; (9) $3,850,000 "for the proceeds of the sale of [approximately 60 acres] to Fahrens Creek, LLC"; (10) $2,350,000 "for the real properties located at 15 W. 15th Street and 39-41-49 E. 15th Street, Merced"; and (11) $1,237,356.46 "for the proceeds from the sale of Trust B's 51,248 shares of stock in [LHBI]." The judgment read, in part: "All real property values were as of July 15, 2020, as set forth in the appraisal report by Cogdill & Associates, which was admitted into evidence .... Each double damage award ... was calculated as follows: appraised value multiplied by two." All parties stipulated that the appraised values were the current fair market values as of July 15, 2020.
D. The Geyers' Fourth Cause of Action-Quiet Title
The trial court granted the Geyers' cause of action to quiet title and ruled "title to the [recovered] properties is hereby vested in and judgment is entered conveying" the recovered properties to the successor trustee of Trust C.
E. The Geyers' Fifth Cause of Action-Breach of Trust, Removal of Trustee, Surcharge
The trial court removed Leon as trustee of the Leon/Alice trust and sub-trusts "for multiple breaches of trust" and found Leon was unable to remember or understand the terms of the trust and "to resist fraud or undue influence." The court appointed a successor trustee and ordered the recovered properties conveyed to her as trustee of Trust C. The court made an identical award of damages and interest as awarded in connection with the Geyers' second cause of action.
F. The Geyers' Seventh Cause of Action-Money Had and Received
The trial court granted the Geyers' cause of action for money had and received but did not award damages in connection with the cause of action.
G. The Geyers' Eighth Cause of Action-Violation of No Contest Clause The trial court determined Leon violated the no contest provision in the Leon/Alice trust instrument but Karen did not violate the provision. The court ruled Leon is "entitled to $1 dollar to be paid free of trust and is no longer a beneficiary of [the Leon/Alice trust and sub-trusts]. Leon ... is deemed to have predeceased Alice ... and has no right to any trust asset, no right to transfer any trust asset, and no right to the proceeds obtained from the sale of any trust asset." The court determined plaintiffs' interests in the sub-trusts "is deemed to have vested on the date of Alice['s] . . . death on April 23, 1993. Accordingly, as of April 23, 1993, [plaintiffs] each held an undivided 1/3 equitable interest in all real property of the [Leon/Alice trust and sub-trusts], and any subsequently purchased real property, for tax reassessment purposes only...."
H. The Geyers' Tenth Cause of Action-Aiding and Abetting
The trial court found Diane aided and abetted Leon in breaching his trustee duties but denied the claim as to other defendants. The relief granted was identical to that granted in connection with the Geyers' section 850 claim.
I. Resolution of the Geyers' Remaining Causes of Action
The trial court denied the Geyers' causes of action for concealment and civil conspiracy and did not expressly address their causes of action for constructive trust.
J. Karen's First and Second Causes of Action
The trial court granted Karen's causes of action alleging breaches of Trust B and Trust C. The relief granted with respect to Karen's petition is largely identical to certain relief granted in connection with the Geyers' amended petition.
K. Additional Provisions of the Judgment
The trial court made findings of "fraud and defalcation" against both Leon and Diane and determined the judgment was not dischargeable in bankruptcy. The court determined all gifts from Leon to Diane of assets and income from the Leon/Alice trust "were fraudulent conveyances made without consideration to hinder creditors from collecting debts. Subsequent attempts to launder the assets by gifting them to additional third parties [were] also fraudulent conveyances." The court ruled they had "no legal or equitable interest in any asset that belonged to the Trust or that was acquired with the proceeds of trust assets." Having determined damages were an inadequate remedy, the court concluded "complete disgorgement of all trust assets and all assets acquired with the proceeds of trust assets is the only viable remedy." The court issued injunctions to enforce the various provisions of the judgment and "deem[ed] ... the pleadings ... amended to conform to the evidence present[ed] at trial."
Diane timely appealed the judgment.
See footnote 13, ante.
DISCUSSION
Diane's opening brief is riddled with inaccurate (and often misleading) quotes, legal contentions without supporting legal citation or coherent argument, and factual contentions without citation to the record. The arguments presented are often difficult to understand. We do our best to address Diane's contentions below.
I. Diane's Contentions on Appeal
On appeal, Diane makes the following contentions: (1) Paul and Robert were not credible witnesses; (2) plaintiffs' claims are precluded by the statute of limitations; (3) there were no fraudulent conveyances; (4) the quiet title action was not viable; (5) sections 850 and 859 should not apply after 23 years; (6) Diane did not aid and abet Leon in committing defalcations; (7) the no contest provision was not violated; and (8) Leon did not forfeit his rights as trust beneficiary or to his own separate property.
II. Standards of Review
"In general, in reviewing a judgment based upon a statement of decision following a bench trial, 'any conflict in the evidence or reasonable inferences to be drawn from the facts will be resolved in support of the determination of the trial court decision. [Citations.]' [Citation.] In a substantial evidence challenge to a judgment, the appellate court will 'consider all of the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference, and resolving conflicts in support of the [findings]. [Citations.]' [Citation.] We may not reweigh the evidence and are bound by the trial court's credibility determinations. [Citations.] Moreover, findings of fact are liberally construed to support the judgment." (Estate of Young (2008) 160 Cal.App.4th 62, 75-76 (Young).)
"The usual definitions of substantial evidence apply: it is 'evidence ... "of ponderable legal significance, ... reasonable in nature, credible, and of solid value."' [Citation.] In determining its existence, we look at the entire record on appeal rather than simply considering the evidence cited by a party. [Citation.] 'The ultimate determination is whether a reasonable trier of fact could have found for [a given party] based on the whole record. [Citation.] While substantial evidence may consist of inferences, such inferences must be "a product of logic and reason" and "must rest on the evidence" [citation]; inferences that are the result of mere speculation or conjecture cannot support a finding [citations].'" (Young, supra, 160 Cal.App.4th at p. 76, italics omitted.)
Questions of statutory interpretation present questions of law and are reviewed de novo. (Barron v. Superior Court (2023) 90 Cal.App.5th 628, 634-635.) "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." (Crocker National Bank v. City and County of San Francisco (1989) 49 Cal.3d 881, 888.)
III. The Trial Court's Credibility Determinations Are Binding On This Court
This court "may not reweigh the evidence and are bound by the trial court's credibility determinations." (Young, supra, 160 Cal.App.4th at p. 76.) An exception exists where testimony" 'is inherently improbable or incredible, i.e.," 'unbelievable per se,'" physically impossible or" 'wholly unacceptable to reasonable minds.'" '" (People v. Ennis (2010) 190 Cal.App.4th 721, 729.) The testimony challenged by Diane does not fall within the exception.
For example, Diane contends Paul was not credible when he denied receiving a letter from attorney Callister seeking to set up a meeting to discuss "the revised Trust Asset Inventory Schedules and the revised method for separating the assets between the various trusts." There is nothing inherently improbable in Paul denying receipt of the letter. She also contends Paul and Robert were not credible in denying that such a meeting occurred. However, the court found that a meeting did occur but that the meeting was insufficient to put Paul and Robert on inquiry notice of a possible claim against Leon or other defendants. Diane further contends Karen was not credible in denying she attended the meeting with Leon, Diane, attorney Callister and CPA Roberts to discuss the agreement to divide assets and asset exchange agreement. There is nothing inherently improbable in Karen's denial.
IV. Statute of Limitations
Diane argues plaintiffs "fail[ed] to justify their 23 year delay [in] bring[ing] their Petition." She argues "the court applied the wrong burden of proof, and [plaintiffs'] explanation 'they just didn't tell us' was inadequate."
A. Relevant Law
The Code of Civil Procedure provides a three-year limitation period for "[a]n action for relief on the ground of fraud or mistake. The cause of action .. is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." (Code Civ. Proc., § 338, subd. (d).) Similarly, Probate Code section 16460 provides a three-year limitations period to claims alleging fraud against a trustee and "a similar, if not identical, delayed discovery rule." (Prakashpalan v. Engstrom, Lipscomb &Lack (2014) 223 Cal.App.4th 1105, 1126.) Section 16460 provides, in part:
"(a) Unless a claim is previously barred by adjudication, consent, limitation, or otherwise:
"(1) If a beneficiary has received an interim or final account in writing, or other written report, that adequately discloses the existence of a claim against the trustee for breach of trust, the claim is barred as to that beneficiary unless a proceeding to assert the claim is commenced within three years after receipt of the account or report.. ..
Plaintiffs testified that, prior to initiation of the lawsuit, they never received an accounting or financial information regarding the Leon/Alice trust.
"(2) [I]f a beneficiary does not receive any written account or report, the claim is barred as to that beneficiary unless a proceeding to assert the claim is commenced within three years after the beneficiary discovered, or reasonably should have discovered, the subject of the claim." (§ 16460, subd. (a).)
Once a party becomes aware of "facts sufficient to put one on inquiry notice, the fraud statute of limitations starts running even when the defendant is a fiduciary." (Britton v. Girardi (2015) 235 Cal.App.4th 721, 725.)"' "If a person becomes aware of facts which would make a reasonably prudent person suspicious, he or she has a duty to investigate further and is charged with knowledge of matters which would have been revealed by such an investigation." '" (Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1251.)
Ordinarily, a defense premised on the statute of limitations is an affirmative defense. (Shapiro v. Equitable Life Assur. Soc. (1946) 76 Cal.App.2d 75, 95 (Shapiro).) Where a plaintiff premises liability on fraudulent acts that occurred, or are alleged to have occurred, well beyond the three-year limitation period, "the burden ... is on the plaintiff to prove that he did not discover the facts constituting the fraud within three years prior to the commencement of the action; and he must further show the time and the circumstances under which they were brought to his knowledge." (Ibid.)
B. The Court Applied the Correct Burden of Proof
Diane contends the trial court applied the wrong burden of proof in applying the relevant statute of limitation. Her argument is undeveloped and lacks coherence. She appears to be arguing the court placed the burden on defendants to demonstrate plaintiffs had sufficient knowledge to put them on inquiry notice.
Diane writes "the court shifted the burden stating: 'the [plaintiffs] were not given enough information or it was not presented in a way, so as to put them on notice to take action. [Citation.]' '[C]onsidering all the evidence presented, contradicted and uncontradicted and the inferences from that evidence, it is clear the Geyers were not presented with sufficient information to put them on notice that they had a claim against the trustee.'" (Although no record citation was provided, Diane appears to be referencing the court's tentative ruling on a motion for judgment and directed judgment on the statute of limitations issue.) Diane argues "[e]xpanding the statute of limitations to 23 years because of a 'he didn't tell me' excuse, and forcing [her to] carry the burden of proving Leon's lack of fraud, was prejudicial error."
Diane's contention is not supported by the record. The trial court merely stated what the evidence at trial demonstrated and then concluded, for purposes of the motion, that a directed verdict could not be rendered on the limitations issue. Notably, in the court's Statement of Decision, the court determined the plaintiffs had proven or established, by a preponderance of evidence, sufficient facts to justify why they did not earlier bring an action against Leon and other defendants. This was a proper allocation of the burden of proof.
C. Diane's Contention That Plaintiffs Were On Inquiry Notice Lacks Merit
Diane contends six events put the Geyers on inquiry notice. First, she contends "Robert admitted he and Paul received a packet from [attorney] Callister in 1993 ... but claimed neither of them looked at the info for 24 years" and that Robert testified that, after the meeting with Callister wherein he purportedly received the packet, "[he] said, basically, something's not-probably not quite right here." Diane contends, "lack of a signed Trust agreement should have put [plaintiffs] on notice, made them suspicious." We disagree.
The meeting Diane references occurred in 1993-prior to any alleged fraudulent conveyance. The document received was merely an unsigned, misdated copy of the original Leon/Alice trust instrument and disclosed no information concerning any misuse or misappropriation of trust assets that might occur in the future.
Second, Diane contends Karen was at the meeting with her, Leon, attorney Callister, and CPA Roberts when Leon signed the asset exchange agreement, and was on notice of the asset exchanges. Karen testified she did not attend the meeting but Diane argues Karen's testimony is not credible. The trial court, as trier of fact, was entitled to credit Karen's testimony over Diane's testimony. (Young, supra, 160 Cal.App.4th at p. 76.)
Third, Diane points to a memo written by attorney Callister on March 17, 1995, in which he stated he met with the Geyers to discuss the asset exchange agreement and Callister's testimony to the same effect. The trial court found the meeting did occur but that Paul and Robert proved "there was [nothing] more than some general discussion of the allocation, and the promissory notes contributed by ... Leon" and there was "no evidence that any specific document[s]" were reviewed by, or specific information provided to, the Geyers to put them on inquiry notice. The court also found Paul and Robert proved the memorandum was never received by them but, even if it was, the memorandum was insufficient to put them on notice of a potential breach of trust. The court correctly noted that "[n]o description of the assets is mentioned in the memo, and no details of the terms of the promissory notes are there either, such as the interest only payments, or the unusually long period before the principal became due." The court also determined attorney Callister, acting as Leon's agent, previously induced Paul and Robert into erroneously believing they could not object to any actions Leon might take lest they trigger the no contest clause. The court's findings are supported by substantial evidence.
Fourth, Diane contends that in October of 2004, Paul, as LHBI's general manager, "knew or should have known that [LHBI] borrowed [money from Trust A and Trust B] to fund the ESOP...... [and] Leon's plan to borrow that money to repay County Bank." However, Paul testified his last day at LHBI was May 31, 2002. The court was entitled to credit Paul's testimony in that regard. (Young, supra, 160 Cal.App.4th at p. 76.) Diane's only citation to the record in support of her contention is to bank statements she contends shows Leon made payments on the ESOP promissory notes-a fact which, by itself, imparts no notice to plaintiffs. The cited evidence does not show Paul was on inquiry notice of the ESOP transaction.
The bank statements were addressed to Leon. Diane points to no evidence demonstrating Paul received the statements, or that he was named on the account.
Fifth, Diane contends (without any citation to the record) that Paul and Robert met with an attorney in 2007. However, Robert testified the meeting was to discuss his and Paul's own estate planning and was not for the purpose of discussing their own inheritance. Robert and Paul both denied discussing the Leon/Alice trust with the attorney. The testimony was uncontradicted. Diane does not explain how this uncontradicted testimony indicates Paul and Robert were on notice of possible defalcations involving the Leon/Alice trust.
Sixth, and finally, Diane contends the LHBI bankruptcy in 2009 "should have put [plaintiffs] on notice" and that "[r]easonable diligence would require [plaintiffs] to seek an account, some information on the financial status of the Marital and ByPass Trust." Again, Diane fails to explain how the LHBI bankruptcy would have put plaintiffs on notice of possible defalcations of trust assets. Instead, she spends several pages in this section of the argument discussing Leon's failure to recall certain events during his testimony. A party must support their contentions on appeal with cogent legal argument. (In re Marriage of Falcone &Fyke (2008) 164 Cal.App.4th 814, 830 (Falcone).) "We are not bound to develop appellants' arguments for them." (Ibid.) We fail to appreciate the significance of the LHBI bankruptcy to the issue of whether plaintiffs were on notice of possible defalcations involving the Leon/Alice Trust.
Diane also focuses on the passage of time between the first alleged defalcation by Leon and trial (approximately 23 years) and certain witnesses' inability to recall certain details of events. The mere passage of time does not establish a limitations defense to a fraud cause of action where the plaintiffs have demonstrated they were not on inquiry notice sufficient to trigger commencement of the limitations period. (§ 16460, subd. (a); Code Civ. Proc., § 338, subd. (d); see Shapiro, supra, 76 Cal.App.2d at p. 95.) It is worth noting the transactions at issue were the subject of documentary evidence and Leon's recollection of related events, while not complete, was substantial.
We reject Diane's contention that the limitations period barred the Geyers and/or Karen from prosecuting their petitions.
V. Fraudulent Conveyances
A. Fraudulent Conveyances Need Only Be Proved By a Preponderance of Evidence
Diane contends, without citation to authority, that the standard of proof for a fraudulent conveyance is clear and convincing evidence. We disagree.
In Liodas v. Sahadi (1977) 19 Cal.3d 278, the state's high court noted, "The decisions of the Courts of Appeal are divided on the question of the correct standard of proof in civil actions in which fraud is an issue: some permit that issue to be proved by the general civil standard of preponderance of the evidence, while others require the higher standard of clear and convincing evidence." (Id. at p. 287, fns. omitted.) After examining the historical roots underpinning this conflict among the courts, the court reaffirmed its prior holdings that "should have laid to rest the early belief that civil fraud must be proved by more than a preponderance of the evidence." (Id. at p. 289; see Evid. Code, § 115 ["Except as otherwise provided by law, the burden of proof requires proof by a preponderance of the evidence."].)
Notably, the Uniform Voidable Transactions Act ("UVTA") (Civ. Code, § 3439 et seq.) provides that a creditor making a claim for relief under Civil Code section 3439.04 and/or 3439.05, "has the burden of proving the elements of the claim for relief by a preponderance of the evidence." (Civ. Code, §§ 3439.04, subd. (c), 3439.05, subd. (b).)
B. Plaintiffs Were "Creditors"
Diane contends, again without citation to authority or cogent argument, that plaintiffs "are contingent residual beneficiaries, not ... Trust creditors for purposes of a fraudulent transfer." Diane is incorrect. The term "creditor" is defined in the UVTA as "a person that has a claim ...." (Civ. Code, § 3439.01, subd. (c).) The term "claim" is defined in the UVTA as "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." (Id., subd. (b).) Moreover," 'the relationship of debtor and creditor arises in tort cases the moment the cause of action accrues.'" (Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1057-1058.)
"[W]hen the litigation involves claims of misfeasance on the part of the trustee and third parties, the beneficiaries do indeed have standing to sue." (Harnedy v. Whitty (2003) 110 Cal.App.4th 1333, 1339.) As discussed below, fraudulent conveyances occurred commencing with the 1994 asset exchange agreement and continued thereafter. Accordingly, plaintiffs had claims against the trustee and transferees of the properties so conveyed and were "creditors" as that term is used in the UVTA.
C. Liability May Be Imposed Where Leon Transferred his Fifty Percent Interest In Assets Without Consideration In Order to Avoid Creditors
Diane argues that, even if plaintiffs were creditors, "only Alice's [50 percent] interest in [the recovered] properties were exchanged." She then proceeds to discuss issues that have no relevance to the argument. (We address those issues in the following section of this opinion.) She returns briefly to her original argument by stating "[e]ven if the court concluded the [~$834,000 promissory note] was insufficient [consideration], it should have recognized: Leon['s] community interest in [the 101 acres and homeplace and 67 acres]; the Survivor Trust's transfer of its half interest in the bulk plant; and the [] assumption of Marital Trust debt."
Diane is impliedly suggesting that liability under the UVTA cannot be imposed to the extent the transfers involved Leon's 50 percent interest in trust assets. The point is without merit. "The purpose of the [UVTA] is' "to prevent debtors from placing property which legitimately should be available for the satisfaction of demands of creditors beyond their reach ...." '" (Optional Capital, Inc. v. DAS Corp. (2014) 222 Cal.App.4th 1388, 1401.) Thus, the statute is designed to provide relief where a debtor's assets are transferred to others in an effort to avoid creditor claims. Judgment may be entered against a transferee who receives the property without providing the debtor "reasonably equivalent value." The UVTA is designed to provide relief to creditors under a variety of circumstances where a debtor's assets are transferred to others, the debtor does not receive "a reasonably equivalent value in exchange for the transfer," and the debtor is unable to meet his debt obligations as a result. (Civ. Code, §§ 3439.04, subds. (a) &(b), 3439.05, subd. (a), 3439.07.) In such situations, the remedies available to a creditor may include, without limitation, the "[a]voidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim" (Civ. Code, § 3439.07, subd. (a)(1)) and recovery of the "asset transferred or its proceeds" (Civ. Code, § 3439.08, subd. (b)(2)). Except where a transferee is a bona fide purchaser for value, judgment may be entered against "the first transferee of the asset or the person for whose benefit the transfer was made" or against "[a]n immediate or mediate transferee of the first transferee." (Civ. Code, § 3439.08, subd. (b).)
D. Additional Argument Raised By Diane
The additional arguments raised by Diane and referenced in the preceding subsection of this opinion are addressed below.
(1) Diane contends there must be "direct evidence" to support a cause of action under the UVTA but provides no support for the contention. Accordingly, the contention is waived. (Falcone, supra, 164 Cal.App.4th at p. 830.) Moreover, "[i]t is well settled that fraud may be proved by circumstantial evidence." (Snyder v. City Bond &Finance Co. (1930) 106 Cal.App. 745, 748; People v. Bollaert (2016) 248 Cal.App.4th 699, 715.)
(2) Diane contends there is no evidentiary support for the trial court's conclusion that properties were conveyed to "individuals who were not beneficiaries" of the Leon/Alice trust (boldface type and italics omitted). Her argument is that "Leon was the sole beneficiary of [Trust A] that received the two 6692 [sic] N[orth] G. Street properties[,]" presumably referring to the 101 acres and homeplace with 67 acres. Diane conveniently glosses over the fact that Leon was only an income beneficiary as to Trust C-yet he conveyed most of the principal assets of Trust C (i.e., undivided one-half interests in recovered properties) to Trust A. Thereafter, those assets were sold to third parties or conveyed to Diane and were not held in trust at the time of trial. Substantial evidence supports the court's finding.
(3) Diane also contends the trial court's finding that certain exchanges were "without consideration" is not supported by substantial evidence. The court was referencing recovered properties, most of which were eventually titled to Diane or others. Diane does not cite to any evidence of consideration exchanged for the property and we are aware of none. Instead, she relies largely on consideration provided in the asset exchange agreement to make her point. However, CPA Braun and attorney Hartog, both testified the ~$834,000 promissory note was not marketable and had little value due to its 30-year balloon payment structure. Moreover, neither attorney Callister nor CPA Roberts analyzed the exchange to determine whether the consideration was fair and reasonable under the Probate Code. Substantial evidence supports the finding that the consideration was not fair and reasonable under the Probate Code (see section 16002) nor "reasonably equivalent value" as contemplated by the UVTA (Civ. Code, §§ 3439.04, subd. (a)(2), 3439.05, subd. (a)).
Attorney Hartog testified his analysis is the same with regard to the ~$138,000 promissory note.
Section 16002, subdivision (a) states, "The trustee has a duty to administer the trust solely in the interest of the beneficiaries." Subdivision (b) of that statute reads, "It is not a violation of the duty provided in subdivision (a) for a trustee who administers two trusts to . . . participate in the sale or exchange of trust property between the trusts, if both of the following requirements are met: [¶] (1) The sale or exchange is fair and reasonable with respect to the beneficiaries of both trusts. [¶] (2) The trustee gives to the beneficiaries of both trusts notice of all material facts related to the sale or exchange that the trustee knows or should know."
(4) Diane next contends there is no evidentiary support for the trial court's statement that "the [~$834,000 promissory note]: 'rendered Leon ... insolvent' " (boldface type and italics omitted). This contention does not accurately state the trial court's judgment or Statement of Decision. Rather, the court found that the transfer of the recovered properties to others rendered Leon insolvent. Diane contends, without analysis or citation to the record, that Leon was not insolvent in 1994, 2004, 2014, or 2022, and that, because all of the recovered properties, collectively, were valued at $4,485,040, Leon could not be considered insolvent. The contention defies common sense since Leon had no title to any of the recovered properties (except for title to the bulk plant which he admitted he holds as trustee of Trust C). Moreover, Diane has not fairly summarized either the trial court's findings nor the evidence favorable to the judgment and has not provided any analysis to demonstrate the accuracy of her contention. Consequently, we deem the issue forfeited. (Falcone, supra, 164 Cal.App.4th at p. 830.)
In any event, Leon testified his only known asset is the 50 percent interest he owns in A.L.B. and that he owns no real estate. He testified he does not have enough money to pay debts owed to Trust B and Trust C. Even if we were to credit Leon with a 50 percent interest in the A.L.B. Enterprises, Inc. properties, the values of those interests (as stipulated to by all parties) was $587,500-far less than was owed even on the single ~$834,000 promissory note. Substantial evidence supports a finding that the transfers rendered Leon insolvent.
The parties stipulated that the values of the properties owned by A.L.B. Enterprises, Inc. totaled $1,175,000. Fifty percent of that total equals $587,500.
(5) Diane also contends the finding that Leon's actions were" 'intended to place ... assets beyond the reach of creditors and beneficiaries of the [Leon/Alice trust]'" (boldface type and italics omitted) is not supported by the evidence. She contends Leon was the "sole income beneficiary" of Trust C and the "primary beneficiary" of Trust B and argues, therefore, the assets remained within reach of beneficiaries because they were within Leon's reach. We fail to appreciate how assets that were conveyed to others remained within Leon's reach. Substantial evidence demonstrates the conveyed assets were outside the reach of both plaintiffs and Leon.
(6) Diane contends "[t]here was no evidence [she] directly or indirectly participated in, created, prepared, reviewed, or certifying [sic] to Leon any of the documents [CPA] Roberts and [attorney] Callister prepared in 1994." However, Diane admits elsewhere in her brief that she was present at the meeting with Leon, CPA Roberts, attorney Callister and others, when the asset exchange agreement was signed. She further contends that she had no involvement in Leon's decision to borrow ESOP money from Trusts B and C, and that neither she, nor Karen, received any benefit from Leon using that money to pay off LHBI's debt to County Bank. These are straw man arguments. The extent to which Diane may or may not have directly participated in the asset exchange agreement, or whether she received a benefit from payments toward Leon paying off the loans to County Bank incurred to fund the ESOP program does not exonerate her from liability for subsequent property transfers she participated in, and Diane makes no coherent argument that it does.
(7) Diane argues certain of the recovered properties were not fraudulently conveyed because they were never held in trust. Diane provides no case or statutory authority or analysis to support her contention. Thus, we deem the contention forfeited. (Falcone, supra, 164 Cal.App.4th at p. 830.) Moreover, when a trustee commits a breach of trust, a beneficiary may "trace trust property that has been wrongfully disposed of and recover the property or its proceeds." (§ 16420, subd. (a)(9).)
E. No Evidence the Bulk Plant Was Fraudulently Conveyed
Diane argues the bulk plant was not fraudulently conveyed because it never left Trust C. Leon testified the bulk plant is currently in the Leon/Alice trust (specifically, Trust C). However, Leon admitted he did not transfer the bulk plant out of his name- presumably indicating it is not titled in the Leon/Alice trust. We have not seen evidence of title. No witnesses testified that title to the bulk plant was ever formally conveyed to the Leon/Alice trust.
Diane's point has partial merit. It does not appear from the record that a conveyance of title to the bulk plant-either to or from the Leon/Alice trust-ever occurred. To the extent there was a transfer of the bulk plant as a result of the asset exchange agreement, the transfer was to Trust C. Because plaintiffs were the remainder beneficiaries of Trust C, any transfer of the bulk plant to Trust C was not in avoidance of plaintiffs' claims as creditors, did not put the bulk plant asset beyond their reach, and did not cause them injury." 'A transfer in fraud of creditors may be attacked only by one who is injured thereby.... It cannot be said that a creditor has been injured unless the transfer puts beyond [the creditor's] reach property [the creditor] otherwise would be able to subject to the payment of [the creditor's] debt.'" (Mehrtash v. Mehrtash (2001) 93 Cal.App.4th 75, 80.) Accordingly, we conclude the judgment should be modified to remove the real property located at 1450 G Street, Merced, California (i.e., the bulk plant) from the trial court's adjudication under the fraudulent conveyance cause of action. However, the trial court was within its authority to order the bulk plant conveyed to the successor trustee in its section 850 award (i.e., the Geyers' second cause of action). (§ 850, subd. (a)(3)(A), (B).) As a result, we will not disturb the court's determination that the bulk plant be conveyed to the successor trustee.
VI. The Quiet Title Claims
Diane argues "quiet title claim[s] can only be brought by the true party in interest. '[W]hatever interest [plaintiffs] might have is only equitable, and the holder of equitable title cannot maintain a quiet title action against the legal owner[,]'" citing Stafford v. Ballinger (1962) 199 Cal.App.2d 289, 294-295. She further argues, without citation to authority or cogent argument, that "[a]ssuming the [trial] court's decision is correct, which [Diane] disputes, after 23 years only Alice's [one-half] community interest is subject to quiet title .."
"[T]he [Quiet Title] Act creates a special procedural mechanism for seeking and obtaining in rem judgments resolving adverse claims to property that would be binding even to nonparties and hence be' "good against all the world." '" (Tsasu LLC v. U.S. Bank Trust, N.A. (2021) 62 Cal.App.5th 704, 715.) While it is true that "as a general matter an action to quiet title cannot be maintained by the owner of equitable title as against the holder of legal title" (Warren v. Merrill (2006) 143 Cal.App.4th 96, 113), an exception exists where legal title has been fraudulently obtained (id. at pp. 113-114). "[W]hen legal title has been acquired through fraud any number of remedies are available and appropriate. These remedies include quieting title in the defrauded equitable title holder's name and making the legal title holder the constructive trustee of the property for the benefit of the defrauded equitable titleholder." (Id. at p. 114; Walters v. Fidelity Mortgage of California (2010) 730 F.Supp.2d 1185, 1198 ["Because plaintiff asserts that the legal title to the Property was acquired through fraud and alleges a factual basis for her assertion, the rule precluding a holder of equitable title from bringing a quiet title claim against the legal title holder is inapplicable here."]; De Leonis v. Hammel (1905) 1 Cal.App. 390, 394 [same].) Thus, quiet title is a remedy available to an equitable interest holder to challenge the legal title to property obtained through fraud.
"[A] trust beneficiary can bring a proceeding against a trustee for breach of trust. [Citations.] Moreover, it is well established ... that a trust beneficiary can pursue a cause of action against a third party who actively participates in or knowingly benefits from a trustee's breach of trust." (Estate of Bowles (2008) 169 Cal.App.4th 684, 691-692.) If a trustee breaches his trust by transferring property to a third party," 'the beneficiaries can maintain a suit in equity against the transferee, if he took with notice of the breach of trust or paid no value.'" (Id. at pp. 692-693, quoting with approval 4 Scott on Trusts (4th ed. 1989) § 294.1, pp. 98-100, fns. omitted.)
Similarly, creditors may sue for the "[a]voidance of [a fraudulent] transfer or obligation to the extent necessary to satisfy the creditor's claim" (Civ. Code, § 3439.07, subd. (a)(1)) and for "[a]ny other relief the circumstances may require" (id., subd. (a)(3)(C)). Such relief may, in appropriate circumstances, include the quieting of title to real property. (Santa Ana Mortg. &Inv. Co. v. Kinslow (1938) 30 Cal.App.2d 107 [judgment quieting title upheld on proof a conveyance in fraud of creditors].)
Robert and Paul brought suit in both capacities-i.e., as beneficiaries of Trusts B and C and as creditors of Trust A. As a result, we conclude they had standing to pursue a quiet title action to properties fraudulently conveyed out of the three sub-trusts. To the extent plaintiffs established superior equities in the Leon/Alice trust or sub-trusts, the court was within its authority to quiet title to the recovered properties in those trusts.
VII. The Court Did Not Err in Applying Section 850
In connection with the Geyers' second cause of action, the trial court stated that the recovered properties "were wrongfully taken or purchased with wrongfully taken trust assets" and ordered the properties to be conveyed to the successor trustee.
Diane contends, without citation to authority, that the "ruling greatly expands the limitation under [section] 850 by allowing tracing of purchases and sales over 23 years." She further contends, again without citation to authority, that a trial court "does not have under [section] 850 the ... authority to grant judgment for legal interest, or money damages. It has no authority to claw back assets never held by the Trust." We disagree with these contentions.
Diane's argument is limited to arguing the trial court's authority to grant certain types of relief. She does not argue, for example, that the amount of damages awarded under section 850 was incorrectly calculated.
As plaintiffs note in their reply brief, there is nothing in the statute that precludes recovery where defalcations have occurred over a 23-year period. As previously discussed, a cause of action for fraud accrues when the claimant discovers or reasonably should have discovered facts upon which a claim might be based. (§ 16460, subd. (a); Code Civ. Proc., § 338, subd. (d).)" '[T]he date-of-discovery rule is applied to a fiduciary when strict adherence to the date of injury rule would result in unfairness to the plaintiff and would encourage wrongdoers to mislead their fiduciary to delay bringing suit. It is particularly appropriate when the defendant maintains custody and control of a plaintiff's property or interests.'" (Parsons v. Tickner (1995) 31 Cal.App.4th 1513, 1529.)
Section 850 authorizes interested persons to file a petition requesting relief under sections 850 through 859 "[w]here the trustee has a claim to real or personal property, title to or possession of which is held by another." (§ 850, subd. (a)(3)(B).)" '[T]he statutory scheme's purpose is to effect a conveyance or transfer of property belonging to ... a trust ... under specified circumstances, to grant any appropriate relief to carry out the decedent's [or settlor's] intent, and to prevent looting of . estates. [Citations.] It provides the probate court with a mechanism to determine rights in property belonging to a decedent or to someone else.'" (Dudek v. Dudek (2019) 34 Cal.App.5th 154, 170171.)
"An action brought under [sections 850-859] may include claims, causes of action, or matters that are normally raised in a civil action to the extent that the matters are related factually to the subject matter of a petition filed under this part." (§ 855.) Subject to exceptions not relevant here, "if the court is satisfied that a conveyance, transfer, or other order should be made, the court shall make an order authorizing and directing . the person having title to or possession of the property, to execute a conveyance or transfer to the person entitled thereto, or granting other appropriate relief." (§ 856.) Where, the "court finds that a person has in bad faith wrongfully taken, concealed, or disposed of property belonging to . an elder, a dependent adult, a trust, or the estate of a decedent, or has taken, concealed, or disposed of the property by the use of undue influence in bad faith or through the commission of elder or dependent adult financial abuse, . the person shall be liable for twice the value of the property recovered by an action under this part.. The remedies provided in this section shall be in addition to any other remedies available in law to a person authorized to bring an action pursuant to this part." (§ 859.)
In addition, when a trustee commits a breach of trust, a beneficiary may "trace trust property that has been wrongfully disposed of and recover the property or its proceeds." (§ 16420, subd. (a)(9).)
The above referenced statutes demonstrate a court has authority to trace fraudulently conveyed properties and the proceeds of such properties, to order that those properties and proceeds be conveyed to the successor trustee, and to award damages, double damages, and prejudgment interest in the proper case. Diane's claim to the contrary is without merit.
VIII. The Award of Double Damages Under Section 859 Is Modified
Diane contends the trial court erred in awarding double damages under section 859. She contends the finding of undue influence is not supported by substantial evidence. She also argues there was no evidence of bad faith on her part sufficient to support an award of double damages, stating "[u]ndue influence especially between spouses is not by itself evidence of bad faith, or wrongfully taken, or concealed or disposed of property of a trust."
Section 859 provides: "If a court finds that a person has in bad faith wrongfully taken, concealed, or disposed of property belonging to ... an elder, a dependent adult, a trust, or the estate of a decedent, or has taken, concealed, or disposed of the property by the use of undue influence in bad faith or through the commission of elder or dependent adult financial abuse, .. the person shall be liable for twice the value of the property recovered by an action under this part...." (§ 859.)
"The statutory language contains three different clauses describing the three different categories of conduct that can support double damages, each of which is separated by the conjunction 'or.'" (Keading v. Keading (2021) 60 Cal.App.5th 1115, 1128-1129.) In the judgment, the trial court concluded the recovered properties "were wrongfully taken or purchased with wrongfully taken trust assets, that the conveyance of such properties or use of trust assets to purchase such properties was intended to conceal and dispose of property belonging to a trust, or was the product of undue influence within the meaning of Probate Code [section] 859." Thus, the trial court found that Diane and Leon met two of the categories of conduct specified in section 859.
Diane, however, focuses only on one of the two bases upon which the court found liability for double damages-i.e., undue influence-and largely ignores the court's finding that the recovered properties were wrongfully taken (or purchased with wrongfully taken trust assets) and conveyed in an effort to conceal and dispose of property belonging to a trust. This latter finding also requires a finding of bad faith. (§ 859.)
As discussed previously, we uphold the trial court's determination that the recovered properties (with the exception of the bulk plant) were fraudulently conveyed. Substantial evidence supports that aspect of the judgment. We now turn to Diane's argument that substantial evidence does not support a finding of bad faith.
Section 859 does not define "bad faith." In support of her argument, Diane does not proffer a definition for "bad faith." Plaintiffs, on the other hand, contend "bad faith" is the opposite of "good faith" which has been defined as "that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one's duty or obligation," quoting People v. Nunn (1956) 46 Cal.2d 460, 468. As stated in Hill v. Superior Court (2016) 244 Cal.App.4th 1281 (Hill), malice is not required in order to demonstrate bad faith for purposes of section 859. "Rather, 'bad faith' can be many different things, depending on the context. For example: The general rule is that an agent is not liable on a written contract in the name of the principal. So, if the agent has no authority to make the contract, the usual remedy of the third party is on the warranty of authority. But if, in addition to the lack of authority, there is 'bad faith'-that is, the agent enters into the contract without believing, in good faith, that he or she has authority to do so-the California rule makes the agent liable on the contract as a principal. [Citations.] [¶] Code of Civil Procedure section 580b is the antideficiency statute, shielding a mortgagor from liability in damages. However, if the mortgagor commits waste in 'bad faith,' he or she can be liable for damages. [Citation.] [¶] The most frequent application of 'bad faith' is in insurance cases, the concept based on a tortious breach of the covenant of good faith and fair dealing. [Citation.]." (Hill, supra, 244 Cal.App.4th at pp. 1287-1288.) In the insurance context, bad faith for the denial of benefits or delay in payment of benefits may be demonstrated where the "insurer acted unreasonably or without proper cause." (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 347, italics omitted.) In Bruno v. Hopkins (2022) 79 Cal.App.5th 801, 823, the court defined bad faith as" 'subjective determination of the contesting party's state of mind- specifically, whether he or she acted with an improper purpose'" for purposes of determining whether to award attorney fees against a party who, in bad faith, files a petition to remove a trustee under section 15642.
Substantial evidence supports a finding that Diane acted in bad faith. She was present with Leon, attorney Callister, and CPA Roberts when Leon executed the asset exchange agreement. According to Leon, Diane asked that property "be transferred into her name as much as possible" in order to avoid a "fight with Karen" over the property. Leon testified that when he transferred the homeplace and 67 acres to Diane, his intent was to only transfer 20 acres to Diane. When Leon told Diane it was a mistake, Diane ignored him. Diane signed the 2003 assignment of assets by which trust assets were transferred to the Leon/Diane 1995 trust. The assignment expressly references the assumption of the ~$834,000 promissory note and other liabilities and Leon testified Diane knew the liabilities were assumed. Diane convinced Leon to create the Leon/Diane 1995 trust and to transfer all of his assets to the trust. Thereafter, Diane transferred various assets of the Leon/Diane 1995 trust to her as her sole and separate property and to others. In addition, Leon testified that Diane fraudulently caused him to sign a release of claims to the homeplace and 67 acres, and the San Pablo and Devonwood properties by having him sign a blank piece of paper which she later filled out with the release language.
Because we conclude substantial evidence supports a finding that Diane acted in bad faith by wrongfully taking, concealing and disposing of property belonging to the Leon/Alice trust and sub-trusts-a sufficient basis for liability under section 859- we need not consider her separate contention that undue influence was not proven.
In addition, Leon testified that Diane would frequently threaten to put him in a rest home and implied that he acceded to unspecified demands as a result. He also testified that Diane angered easily and that her anger would last for days unless he did as she wanted.
However, because we have determined that there is no evidence the bulk plant was ever fraudulently conveyed, we conclude the judgment should be modified to omit the award of $1.2 million in section 859 damages associated with the real property located at 1450 G Street, Merced, California (i.e., the bulk plant).
IX. Diane Aided and Abetted Leon In Committing Defalcations
Diane contends substantial evidence does not support the trial court's determination that she aided and abetted Leon in breaching his fiduciary duties. Her contention is that she did not have actual knowledge of the wrong being committed. Her contention lacks merit for the reasons discussed above.
X. The Trial Court Did Not Err in Determining Leon Violated the No Contest Provision
Diane contends the court erred in determining Leon violated the no contest provision in the Leon/Alice Trust and that Leon should not have been denied his interest in Trusts A, B or C. She argues the Probate Code provides only "three ways to violate a no contest clause." Specifically, section 21311 provides: "(a) A no contest clause shall only be enforced against the following types of contests: [¶] (1) A direct contest that is brought without probable cause. [¶] (2) A pleading to challenge a transfer of property on the grounds that it was not the transferor's property at the time of the transfer. A no contest clause shall only be enforced under this paragraph if the no contest clause expressly provides for that application. [¶] (3) The filing of a creditor's claim or prosecution of an action based on it. A no contest clause shall only be enforced under this paragraph if the no contest clause expressly provides for that application." (§ 21311, subd. (a).)
Section 21311, cited by Diane, was not in effect in 1993 when the Leon/Alice trust became irrevocable as to Trusts B and C. (Added by Stats. 2008, ch. 174, § 2, operative Jan. 1, 2010.) Moreover, the Legislature declared that Part 3 of Division 11 of the Probate Code (which includes section 21311) "does not apply to an instrument that became irrevocable before January 1, 2001." (§ 21315.) "If the new law does not apply to a matter that occurred before the operative date, the old law continues to govern the matter notwithstanding its amendment or repeal by the new law." (§ 3, subd. (g); Funsten v. Wells Fargo Bank, N.A. (2016) 2 Cal.App.5th 959, 976-977; see also Sefton v. Sefton (2012) 206 Cal.App.4th 875, 886 ["wills and trusts, 'in the absence of showing a contrary intent, [must] be accorded the effect given them by statutory or case law [citations] prevailing at the time of the execution of the documents'" (italics omitted)].) Consequently, Diane's cited authority is inapplicable.
The relevant statute in effect when Trust B and Trust C became irrevocable read: "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." (Former § 21303, Stats. 1990, ch. 79, § 14, operative July 1, 1991.) Thus, it is necessary to determine whether Leon's conduct, as proven at trial, constituted a contest under the language of the no contest provision in the Leon/Alice trust.
Notably, the parties did not elicit any evidence at trial directed at the interpretation of the no contest provision. "Where, as here, '[t]here is no conflict or question of credibility in the relevant extrinsic evidence [,] ... interpretation of the trust is a question of law for our independent review.'" (Fazzi v. Klein (2010) 190 Cal.App.4th 1280, 1285 (Fazzi).) "[B]ecause a no contest clause may result in a forfeiture, 'a court is required to strictly construe it and may not extend it beyond what was plainly the testator's intent.'" (McIndoe v. Olivos (2005) 132 Cal.App.4th 483, 487 (McIndoe).)" 'In construing a trust instrument, the intent of the trustor prevails and it must be ascertained from the whole of the trust instrument, not just separate parts of it.'" (Ibid.)
For the convenience of the reader, we again set forth the text of the no contest provision contained in the Leon/Alice trust.
"If any person, whether claiming to be an heir of Settlors or not, should either directly or indirectly, contest the provisions of this [trust instrument] or object to any provisions hereof or attempt to oppose or set aside this [trust instrument] or to impair or invalidate any of the provisions hereof, such person shall receive from the trust the sum of One Dollar ($1.00) only, and no more ...."
The Fazzi case is similar to the present case in that it involved the interpretation of a no contest provision in a revocable trust that was to be split into three separate subtrusts upon the death of first settlor. (Fazzi, supra, 190 Cal.App.4th at p. 1282.) A beneficiary of two of the sub-trusts brought a safe harbor petition under former section 21320 to determine whether a proposed petition to remove the successor trustees of the three sub-trusts would violate the no contest provision. (Fazzi, at p. 1283.) The petitioning beneficiary contended "that because the Trust does not explicitly state the 'no contest' clause applies to the sub[-]trusts, it must be strictly construed as applying only to the original trust." (Id. at p. 1285.) The court concluded that such an interpretation would not only violate the settlor's intent "as revealed in 'the whole of the trust,' it [was] also patently unreasonable." (Ibid.) Among other things, the court stated, "Because the original trust was revocable, a 'contest' was never a possibility during the joint life of the [settlors]." (Ibid.) The court reasoned that only upon the first settlor's death, "when the remainder beneficiaries gained their irrevocable interests in Trusts B and C, did the possibility of a 'contest' pose a risk to the trustors' [estate] plan _." (Ibid.) Consequently, the court determined that the no contest provision applied to Trusts B and C. (Id. at pp. 1285-1286.)
The no contest provision of the Leon/Alice trust was contained in the miscellaneous provisions applicable to the trust as a whole. Under the reasoning of Fazzi, the no contest provision had no possible application while the trust remained revocable. Upon Alice's death, however, Trusts B and C became irrevocable and, it was only then that the no contest provision had potential application. Under such circumstances, and viewing the trust instrument as a whole, we conclude the no contest provision applied to Trusts B and C.
Leon's conduct, as described in previous sections of this opinion, had the effect of impairing provisions of the Leon/Alice trust governing Trust B and Trust C. Accordingly, we will not disturb the trial court's determination that Leon violated the no contest provision as to those sub-trusts.
With regard to Diane's contention that Leon should not have been denied his interest in Trust A, we acknowledge the above quoted language in Fazzi suggests that a contest to Trust A was not possible while Trust A remained revocable. (See also McIndoe, supra, 132 Cal.App.4th at pp. 486-490 [interpreting no contest provision in the general provisions of the trust as applicable to all sub-trusts but concluding the settlors did not intend that a contest to one sub-trust would constitute a contest to all sub-trusts].)
Under different circumstances, we might have been more receptive to an argument that Leon's acts did not constitute a contest to Trust A because it was revocable during his lifetime. The difficulty with Diane's position that Leon should have remained a beneficiary under Trust A is two-fold. First, Leon himself did not appeal the judgment and Diane's standing to appeal this aspect of the judgment is questionable at best. Second, even assuming Diane had the requisite standing to appeal on this issue, the undisputed evidence shows that Leon, in his capacity as a settlor, terminated Trust A. Neither party has argued that Leon's act as settlor in terminating Trust A was invalid or that the termination itself should be set aside. Thus, for all relevant purposes, Trust A no longer existed.
Our conclusion that the termination of Trust A was valid does not affect our determination that the trial court was within its authority to return the recovered properties to the Leon/Alice trust and specifically to the successor trustee of Trust C. As discussed herein, the court had broad authority to fashion appropriate remedies under section 850 through 859 including, without limitation, ordering that fraudulent conveyances be set aside. (Adams v. Bell (1936) 5 Cal.2d 697, 700-701; Cortez v. Vogt (1997) 52 Cal.App.4th 917, 936; Civ. Code, §§ 3439.04, subd. (a), 3439.05, subd. (a).)
DISPOSITION
The judgment against Diane is modified (1) with respect to the Geyers' first cause of action for fraudulent conveyance, as follows: to omit reference to the real property located at 1450 G Street, Merced, California (i.e., the bulk plant); and (2) with respect to the Geyers' third cause of action for double damages under section 859, as follows: to omit the award of $1,200,000 for the real property located at 1450 G Street, Merced, California. As modified, the judgment is affirmed.
Each party shall bear his or her own costs on appeal.
WE CONCUR: PENA, J. SNAUFFER, J.