Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. GP001393 Arnold H. Gold, Referee and Coleman A. Swart, Judge.
Law Offices of Phillip C. Lemmons, Phillip C. Lemmons, Tracy A. Stevenson; John L. Dodd & Associates, John L. Dodd for Plaintiff and Appellant.
Richard T. Kayaian for Defendant, Cross-complainant and Appellant.
KLEIN, P. J.
In this probate proceeding, Timothy Hayden, the former administrator of his father’s estate, appeals an order adopting the Third Engrossed Statement of Decision of Referee. Dale Hayden, the current administrator of the estate, has cross-appealed. We affirm those aspects of the order attacked in Dale Hayden’s cross-appeal. On Timothy Hayden’s appeal, we reverse the elimination of credit for Timothy Hayden’s preliminary distribution. We also reverse the surcharge imposed for lost rental income and remand the matter to the trial court with directions to issue a statement of decision that addresses the issues of laches and unclean hands as they relate to the surcharge for lost rental income and to grant such other relief as may be appropriate under the circumstances. Because the matter must be remanded for further proceedings with respect to the surcharge for lost rental income, we decline to address the propriety of the award of attorney fees under Probate Code section 11003, subdivision (b).
The order is appealable pursuant to Code of Civil Procedure section 904.1, subdivision (a)(10) and Probate Code section 1300, subdivisions (b), (f) and (g).
FACTS AND PROCEDURAL BACKGROUND
1. Timothy’s administration of the estate.
Donald Hayden died in August of 1991, his wife having predeceased him by several months. Donald’s estate consisted of a single family residence in Duarte, two vehicles and cash assets in the approximate amount of $248,000. The cash assets consisted of what the parties have referred to as the First Nationwide checks in the amount of $104,145.99, the Barnes checks in the approximate amount of $64,000, a death benefit of $40,702.34, and a joint account containing $35,291.01.
For convenience and clarity, we refer to members of the Hayden family by their given names. No disrespect is intended.
The beneficiaries of the estate are Donald’s five children: Timothy, an engineering products representative who lives in Long Beach and owns rental property; Dale, a commercial real estate broker who lives in Rolling Hills and owns rental property; Janice, who lives in Duarte; Tom, who lives in Texas; and Jerry, who lives in South Carolina and owns rental property. Letters testamentary were issued to Timothy in October of 1991.
In 1993 Timothy deposited the First Nationwide and the Barnes checks in the total amount of $168,000 into his personal account and used the money to pay personal notes bearing interest at the rate of 9.35 percent. Shortly thereafter, Timothy made preliminary distributions to his siblings in the total amount of $191,173.01. Timothy asserted he borrowed the funds necessary to make these distributions and did not give himself a preliminary distribution.
Timothy allowed the residence in Duarte to stand vacant. He did not sell the residence, claiming the real estate market was depressed, and did not rent the residence because it needed $5,000 in repairs to make it habitable. Timothy claimed his siblings agreed in 1991 to hold the residence until the real estate market improved. When estate funds were exhausted, Timothy paid the expenses of maintaining the residence with his personal funds and funds he borrowed from Janice.
At a family meeting in June of 2002, Timothy suggested the residence be repaired and sold. He told his siblings the repairs would cost $150,000 and that Janice would loan the estate the necessary funds. Dale and Jerry objected to the estate borrowing money and requested estimates of the repair work. Dale went to the Duarte residence in September of 2002, found remodeling work in progress and wrote Timothy a letter objecting to the scope of the project.
Dale hired an attorney shortly after the family meeting but did not attempt to remove Timothy as executor until after Timothy had completed the project in April of 2004 at a cost of $205,000 and had entered into an escrow to sell the property in 2005 for $625,000. Dale’s motion to remove Timothy as executor was granted in June of 2005. Timothy asserted this caused the buyer to fail to perform. Letters of administration were issued to Dale in July of 2005. Dale sold the residence in September of 2005 for $609,000.
2. Timothy’s final account.
In January of 2006, Timothy filed an Amended First and Final Account and Report of Administration and Petition for Settlement (Timothy’s final account). It listed as charges the residence, the vehicles, cash assets valued at $189,967.95 and $357,000 in loans to the estate. The loans consisted of loans Janice made to the estate totaling $194,759.78 and loans Timothy made to the estate in the total amount of $162,241. Timothy sought credit for the preliminary distributions made to the heirs and for disbursements Timothy made to maintain and remodel the residence in the amount of $388,357.24. Timothy indicated the remodeling required significant structural repairs.
The cash assets listed in an inventory filed with Timothy’s final account did not include the $64,000 Barnes checks.
Timothy asserted he performed 5, 675.5 hours of extraordinary services for the estate overseeing the construction and marketing the residence for which he sought payment at the rate of $25 per hour or $141,887.50.
3. Dale’s objections to Timothy’s final account.
Dale filed exceptions and objections to Timothy’s final account. Dale objected to the preliminary distributions, the loans to the estate made by Timothy and Janice, the extent of the remodeling Timothy had undertaken as well as most of the expenses claimed by Timothy.
Dale attached to his objections numerous declarations regarding the invoices submitted by Timothy to substantiate the work performed at the residence. The owner of the security firm Timothy allegedly paid $8,300 indicated the invoices submitted by Timothy for security service from his firm were phony and that he has never provided security services for Timothy. Bernard Bessey declared he was paid approximately $32,000 for work performed at the residence, not the $80,302.77 reflected in the invoices Timothy submitted. Rubin Cesena declared an invoice in the amount of $7,800 submitted by Timothy for air conditioning equipment is not his invoice and he was not paid the amount specified on the invoice.
Dale requested disallowance of all credits submitted by Timothy, disallowance of the loans and a surcharge for lost rental income. Dale also claimed Timothy failed to account for First Nationwide funds totaling $101,686.52, which Dale asserted were different than the $104,145.99 in First Nationwide funds included in the final account.
Six weeks after filing exceptions and objections to Timothy’s final account, Dale filed supplemental exceptions and objections which asserted Timothy had not disclosed the Barnes checks or estate funds held at Cardinal Federal Savings Bank in the amount of $90,414.
The following day, the trial court referred the matter for trial to Honorable Arthur Gold, referee. When the trial court suggested a 60-day return date, Timothy objected he had not completed discovery with respect to Dale’s supplemental objections. The trial court selected a 90-day return date.
4. Trial before Referee Gold.
Referee Gold conducted a ten-day trial over a five-month period.
a. Testimony of the Hayden siblings.
Timothy admitted he did not include the Barnes checks in the amount of $64,000 in his inventory and that he deposited these checks and the First Nationwide checks into his personal credit union account, even though estate bank accounts were available. Timothy also admitted he used these funds to pay personal notes and other expenses. Timothy refinanced his home in order to place sufficient funds into his credit union account to make the preliminary distributions. Timothy claimed his siblings preferred a preliminary distribution to investing money in the residence and that Jerry and Dale requested preliminary distributions. Timothy asserted the First Nationwide funds in the amount of $104,145.99 reflected in his inventory were the same funds as the First Nationwide funds in the amount of $101,686.52 and the Cardinal funds in the amount of $90,414, which Dale claimed Timothy had misappropriated.
Timothy testified he expended approximately $150,000 maintaining the residence over the 14-year life of the estate and the remodeling project cost $205,000. Timothy borrowed $125,000 in 2002 to complete the remodeling and borrowed the balance of the money from Janice. Timothy first learned his siblings disagreed with his plan not to rent the house when Dale’s attorney informed Timothy he would seek to recoup lost rent.
Timothy admitted that in 1993 he signed and returned to his attorney a letter regarding the duties and obligations of an executor but he did not read the letter. Timothy’s probate attorney withdrew from the case later that year.
Dale testified he encouraged Timothy in 1993 to rent the house or sell it and told Timothy to make the repairs necessary to rent the residence. Dale denied he had requested a preliminary distribution. In 1998, Timothy said he had replaced the roof but a leak had caused significant damage to the interior of the residence. Dale claimed Timothy would not say how much Timothy and Janice had lent the estate.
Jerry testified Timothy said the residence could not be rented because he did not want to manage it or entrust it to anyone and the house would require $5,000 in repairs before it could be rented.
Thomas testified Timothy told him the home could not be sold until a Florida probate had been settled. Timothy never said he could not sell the house because it was in disrepair.
Janice testified her siblings asked her to contribute to the remodeling project and she believed they promised to repay her loans when the house sold.
b. Testimony related to the expenses claimed by Timothy.
Bernard Bessey testified he was paid approximately $32,000 for work done on the remodeling project. Timothy testified the $80,302.77 reflected in the Bessey receipts was paid for work on the residence but not all the money was paid to Bessey. In ruling on the admissibility of the Bessey invoices, the referee indicated it was “absolutely clear” they had been prepared by Timothy to mislead.
Raul Cervantes testified he and his father worked on the residence for 18 months and Timothy paid them approximately $1,500 in cash every two weeks. However, Cervantes did not prepare the invoices that Timothy submitted as his.
David Clock, a construction consultant, reviewed the invoices submitted by Timothy in connection with the repair of the home and concluded the expense of the remodel, $208,000 or $100 per square foot, in Clock’s opinion, was “very low” for the amount of work done.
Irving Tons, a residential real estate broker, testified other properties in the area with less square footage sold for $555,000.
c. The arguments of the parties.
Timothy argued his siblings should be estopped from seeking lost rent after they waited 14 years to raise the issue. Counsel asked the referee to “consider our doctrine of laches request for just about everything that they have going on.”
Dale’s attorney argued Timothy admitted in his testimony that he had no intention of renting the property. Further, “[t]his business of estoppel and laches is an equitable argument; but he who comes into equity has to come in with clean hands, and he has to do equity. Tell me what clean hands Timothy had when he came into these proceedings[?]” The referee responded, “Not a lot.”
5. Orders of the referee culminate in the Third Engrossed Statement of Decision.
a. Order and Statement of Tentative Decision of Referee.
The referee’s order and statement of tentative decision charged Timothy with the First Nationwide funds in the amount of $104,145.99, which Timothy had accounted for in the final account, and First Nationwide funds in the amount of $101,686.52, which the referee found were unrelated to the $104,145.99 sum. The referee surcharged Timothy $63,975.99 representing the Barnes checks and $183,600 for lost rental income from July 25, 1992 to May 13, 2005. The referee ordered compound interest at the rate of 4.25 percent per annum on all these amounts.
The referee denied Timothy credit for payments to Bessey to the extent they exceeded $32,000 and denied credit for the air conditioning expense of $7,800, finding no such payment was made. The referee denied credit for other expenses Timothy conceded were improper. The referee did not disallow any other credits for disbursements claimed by Timothy, finding expenditures to repair the house would have been necessary to generate the rental income for which Timothy was being surcharged.
The referee approved Janice’s loan to the estate in the full amount of $194,759.78 and Timothy’s loan to the estate in the amount of $78,377.93, rather than the $162,241 Timothy had sought. The referee approved the preliminary distributions to Timothy’s siblings in the total amount of $191,173.01.
The referee allowed Timothy and his attorney statutory commissions and fees but disallowed Timothy’s request for $141,887.50 in commissions for extraordinary services. In denying these commissions, the referee observed Timothy had “mismanaged this state in countless ways....” The referee also denied Timothy’s counsel fees for extraordinary services finding “[f]ees for extricating Timothy from the predicament he himself created should be borne by Timothy personally, not by the estate.”
Finally, the referee found Timothy’s opposition to Dale’s contest of Timothy’s final account was undertaken without reasonable cause and in bad faith within the meaning of Probate Code section 11003, subdivision (b). The referee awarded Dale attorney’s fees in the amount of $120,000 and costs of $41,076.57.
b. Timothy’s motion for new trial.
Timothy sought a new trial before the referee on six issues, namely, whether the First Nationwide funds in the amount of $101,686.52 were included in the $104,145.99; whether the rent surcharge was barred by laches; whether Timothy should have been awarded credit for the work reflected in the phony invoices; the propriety of the award of attorney fees; the propriety of compound interest; and, the allocation of attorney fees and costs.
On the day Timothy filed the motion for new trial, Timothy’s counsel wrote a letter to Dale and the referee which stated: “Please be advised that we are not objecting to the Engrossed Proposed Statement of Decision” which previously was served on Timothy. The referee found this letter dated March 16, 2007, prevented Timothy from objecting to “any provision contained in any subsequent proposed Statement of Decision” if the provision was contained in the Engrossed Proposed Statement of Decision.
The referee thereafter granted Timothy’s motion to reopen the trial to address whether the First Nationwide funds in the amounts of $101,686.52 and $104,145.99 were separate amounts. After conducting a hearing at which an expert testified for each side, the referee found the $101,686.52 was included in the $104,145.99. The referee eliminated the surcharge in the amount of $101,686.52 and replaced it with a surcharge in the amount of $797.77.
c. The Third Engrossed Statement of Decision of Referee.
In addition to the previous findings, the proposed Third Engrossed Statement of Decision of Referee indicated that in 1993 the estate had $247,913.04 in cash and that Timothy made unauthorized preliminary distributions that stripped the estate of $191,173.01. These improper preliminary distributions and Timothy’s misappropriation of at least $64,773.70 in estate funds left the estate with virtually no cash and a house Timothy stated was uninhabitable.
Regarding the surcharge for lost rental income, the referee noted Timothy testified he “never intended to rent the Duarte property” and he did not intend to sell the property until the real estate market improved. The referee found Timothy negligently managed the estate assets and breached his duty to the estate and the beneficiaries.
The referee found the remodeled property, which Timothy kept in probate for over 14 years at an expense of at least $334,451, was sold by Dale for $609,500, netting the estate $562,171.59. However, similar properties sold for $550,000 and the difference between the sales price of the Duarte residence and the sales price of comparable homes left the estate with “virtually no benefit... when one considers that the heirs have had to wait 14 years for the sale” and they were now faced with unauthorized loans of $357,000 and the costs of litigation.
The referee noted Timothy had conceded many of the disbursements challenged by Dale were inappropriate, including the security charges of $8,300. The referee found the disallowed amount of the Bessey invoices was not paid to others, as Timothy claimed at trial. The referee approved the preliminary distributions to the heirs. The referee found Timothy did not receive a preliminary distribution and that he was entitled to offset the interest he would have earned on a preliminary distribution against the interest he was being surcharged.
Timothy filed a request for a statement of decision which sought findings as to whether the beneficiaries knew the residence was vacant between October 1991 and May 2005, whether the beneficiaries should have taken legal action to force rental of the residence and whether the beneficiaries should be barred by the doctrine of laches from faulting Timothy for not renting the residence.
Dale filed objections to portions of the proposed Third Engrossed Statement of Decision of Referee. Dale asserted Timothy should be surcharged in the amount of $104,145.99, the interest rate on all surcharges should be 10 percent, the estate should not have to repay the unauthorized loans and Timothy should not be allowed a statutory commission.
The referee overruled these objections and filed the Third Engrossed Statement of Decision of Referee as its statement of decision.
6. Proceedings before the trial court.
Before the trial court, Dale sought to reinstate the First Nationwide surcharge and to disallow Timothy’s loans. Although Dale’s moving papers sought disallowance of Janice’s loans, at the hearing Dale conceded Janice’s loans should be repaid because Timothy may have misled her. Dale also sought interest at the rate of 10 percent per annum on each of the surcharges.
Timothy argued the referee “completely overlooked the issue of laches.” Timothy asserted: “The entire family knew this property was not being rented [yet they]... waited 13 years before they came in to court to have Timothy removed.” Dale’s counsel responded a party seeking equity must have clean hands. Here, “every issue... in this case is tied to a violation of Timothy’s duties a[s] personal representative of the estate.”
The trial court adopted the Third Engrossed Statement of Decision as modified to increase the award of attorney fees under Probate Code section 11003, subdivision (b) by $30,000, making a total award of $191,076.57 in attorney fees and costs. The trial court also struck Timothy’s statutory commission and statutory attorney fees (each in the amount of $14,260.34), eliminated credit for Timothy’s preliminary distribution and the interest Timothy would have earned on the preliminary distribution.
Timothy filed a motion for new trial in the trial court. With respect to the award of attorney fees under Probate Code section 11003, subdivision (b), Timothy argued he prevailed on the vast majority of the disputed disbursements and the loans, he was not surcharged for the preliminary distributions and most of the funds Dale claimed Timothy had misappropriated were not misappropriated. Timothy further asserted the surcharge for lost rent constituted excessive damages because the heirs were aware the residence was not being rented but did nothing. Timothy noted the referee failed to address the issue of laches.
At the hearing on the motion for new trial, the trial court addressed Timothy’s assertion he was forced to trial before the referee without an opportunity to conduct discovery. The trial court found the estate was in probate for 15 years and, if Timothy believed discovery was outstanding, he should have filed a motion for a continuance. Further, Timothy had ample time to prepare for trial and Timothy, as the former administrator of the estate, had all necessary documentation at his disposal and the need for discovery would have been with the objecting party.
The trial court denied the motion for new trial and adopted the Third Engrossed Statement of Decision.
CONTENTIONS
Timothy contends the doctrine of laches bars imposition of a surcharge for lost rental income as a matter of law. Alternatively, Timothy asserts the surcharge must be vacated and the matter remanded to permit the trial court to address the issue of laches in the statement of decision. Timothy also contends the credit for Timothy’s preliminary distribution must be reinstated and the award of attorney fees under Probate Code section 11003, subdivision (b) must be set aside.
Dale contends the trial court erred in failing to surcharge Timothy in the amount of $101,686.52, the interest rate on surcharged items resulting from breach of fiduciary duty should be 10 percent per annum, and Timothy and Janice may not recover their alleged loans to the estate.
DISCUSSION
1. The matter must be remanded with directions to address the issues of laches and unclean hands in the statement of decision.
a. General principles.
“Laches is an equitable defense.” (Rouse v. Underwood (1966) 242 Cal.App.2d 316, 323.) “ ‘The defense of laches requires unreasonable delay plus either acquiescence in the act about which plaintiff complains or prejudice to the defendant resulting from the delay.’ [Citation.]” (Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 68.) “ ‘Generally speaking, the existence of laches is a question of fact to be determined by the trial court in light of all the applicable circumstances.... [Citations.]’ [Citations.]” (City of Coachella v. Riverside County Airport Land Use Com. (1989) 210 Cal.App.3d 1277, 1286.) However, the issue may be addressed as one of law if the facts are undisputed. (San Bernardino Valley Audubon Society v. City of Moreno Valley (1996) 44 Cal.App.4th 593, 607.)
A party with unclean hands may be prevented from asserting the defense of laches. (See Magic Kitchen LLC v. Good Things Internat., Ltd. (2007) 153 Cal.App.4th 1144, 1165.) “The defense of unclean hands arises from the maxim, ‘ “ ‘He who comes into Equity must come with clean hands.’ ” ’ [Citation.]... Whether the doctrine of unclean hands applies is a question of fact. [Citation.] [¶] The unclean hands doctrine protects judicial integrity and promotes justice. It protects judicial integrity because allowing a [litigant] with unclean hands to recover in an action creates doubts as to the justice provided by the judicial system. Thus, precluding recovery to the unclean [litigant] protects the court’s, rather than the opposing party’s, interests. [Citations.]” (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978.)
“The misconduct that brings the unclean hands doctrine into play must relate directly to the cause at issue. Past improper conduct or prior misconduct that only indirectly affects the problem before the court does not suffice.” (Kendall-Jackson Winery, Ltd. v. Superior Court, supra, 76 Cal.App.4th at p. 979.) Like laches, application of the doctrine of unclean hands is heavily fact dependent. (Id. at p. 978; Lovett v. Carrasco (1998) 63 Cal.App.4th 48, 55.) However, where the facts are not disputed, the matter may be resolved as one of law. (See, e.g., Pond v. Insurance Co. of North America (1984)151 Cal.App.3d 280, 290 [summary judgment].)
b. The claims of laches and unclean hands cannot be determined as issues of law in this case.
Timothy contends the doctrine of laches bars imposition of a surcharge for lost rental income as a matter of law. Timothy claims each of his siblings was aware the Duarte home was vacant. They periodically mentioned the vacancy of the home but acquiesced in Timothy’s decision to wait until the real estate market improved and did not seek to remove Timothy as executor until he had remodeled the property and prepared it for sale.
Dale argues the doctrine of laches has no application in this case because Timothy had unclean hands in that he misappropriated estate funds that could have been used to repair the house. Dale points to Timothy’s trial testimony that he never intended to rent the property and notes Timothy told his siblings he could not close the estate until a Florida probate proceeding had concluded. Dale claims Timothy violated virtually every Probate Code section that applied to the actions he undertook.
Dale further asserts the Third Engrossed Statement of Decision contains findings which support the conclusion Timothy had unclean hands such as the finding Timothy made unauthorized preliminary distributions of $191,173.01 that “stripped” the estate of funds and the finding Timothy “misappropriate[ed]... estate funds in the sum of at least $64,733.70 [leaving the] estate with virtually no cash assets as of September, 1993, and a house that Timothy stated was uninhabitable.” The Third Engrossed Statement of Decision further states the failure to rent or sell the residence prior to July 25, 1992, constituted negligent mismanagement of “estate assets and [a breach of Timothy’s] duty to the estate and its beneficiaries.” In denying Timothy extraordinary compensation, the Third Engrossed Statement of Decision states: “To say that [Timothy] mismanaged this estate in countless ways would be a gross understatement.”
Timothy responds there was no showing his mismanagement of the estate was related directly to his failure to rent or sell the residence. Timothy did not, for example, misrepresent to his siblings that he was trying to rent or sell the house. Thus, even if Timothy had unclean hands in some respects, his misconduct did not relate to the rental of the residence. (See Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 846.)
The Third Engrossed Statement of Decision does not address whether Timothy’s siblings were guilty of laches, whether Timothy had unclean hands or whether Timothy’s unclean hands related directly to the loss of rental income. Although the Third Engrossed Statement of Decision contains findings which might support a finding of unclean hands, the approval of the entire amount of the preliminary distributions, the entire amount of Janice’s loans, approximately half of Timothy’s loans, and $300,331.46 of the $388,357.24 Timothy claimed as expenses related to the residence is at odds with such an inference. Thus, neither the evidence presented below nor the findings embodied in the Third Engrossed Statement of Decision permit resolution of these issues as matters of law. We therefore conclude there remain unresolved factual questions that prevent review of the surcharge for lost rental income.
c. The parties are entitled to a statement of decision that addresses the issues of laches and unclean hands.
Code of Civil Procedure section 632 provides, in relevant part: “The court shall issue a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial upon the request of any party appearing at the trial.... The request for a statement of decision shall specify those controverted issues as to which the party is requesting a statement of decision.” (Code Civ. Proc., § 632.) The statement of decision is the “touchstone” for appellate review in determining whether the trial court’s decision is supported by the facts and law. (Slavin v. Borinstein (1994) 25 Cal.App.4th 713, 718; Miramar Hotel Corp. v. Frank B. Hall & Co. (1985) 163 Cal.App.3d 1126, 1129.) When the trial court fails to make findings on a material issue that would fairly disclose the trial court’s determination, so long as the aggrieved party objects, reversible error results. (Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1230.)
Here, the issues of laches and unclean hands consistently were raised before the referee and the trial court. Timothy pleaded laches as an affirmative defense and both parties addressed the issue in their trial briefs. Timothy filed a pre-trial brief on the issue. Timothy raised the issue in a motion for new trial before the referee and before the trial court. Timothy requested a finding on the issue of laches and Dale requested a finding on the issue of unclean hands. However, the Third Engrossed Statement of Decision did not address either issue. This was error.
The referee refused to address the issue of laches in connection with the first motion for new trial because Timothy’s counsel stated in a letter dated March 16, 2007, that Timothy was not objecting to a proposed statement of decision previously served on Timothy. However, notwithstanding counsel’s one sentence letter, Timothy preserved the issue for appeal by raising the issue in a motion for new trial.
Further, when the statement of decision fails to address a controverted issue, this court may not infer that the trial court decided the issue in favor of the prevailing party. (Code Civ. Proc., § 634; In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1134.) In light of the foregoing, the surcharge for lost rent must be reversed and the matter remanded to permit the trial court to address the issue of laches and unclean hands in the statement of decision. In so doing, the trial court may order such other related relief as it deems appropriate.
Code of Civil Procedure section 634: “When a statement of decision does not resolve a controverted issue, or if the statement is ambiguous and the record shows that the omission or ambiguity was brought to the attention of the trial court either prior to entry of judgment or in conjunction with a motion under Section 657 or 663, it shall not be inferred on appeal... that the trial court decided in favor of the prevailing party as to those facts or on that issue.”
2. Remand for further statement of decision renders premature any resolution of the propriety of the award of attorney fees under Probate Code section 11003, subdivision (b).
Generally, attorney’s fees are not recoverable absent a statute or agreement of the parties. This rule applies in probate matters. (Estate of Marré (1941) 18 Cal.2d 191, 192.) However, Probate Code section 11003, subdivision (b) provides: “If the court determines that the opposition to the contest was without reasonable cause and in bad faith, the court may award the contestant the costs of the contest and other expenses and costs of litigation, including attorney’s fees, incurred to contest the account....”
A similar statute, Probate Code section 17211, subdivisions (a) and (b), permits an award of attorney’s fees and costs in favor of a trustee when a beneficiary contests the trustee’s account without reasonable cause and in bad faith, or when a trustee opposes a beneficiary’s contest without reasonable cause and in bad faith.
Here, Timothy contends his contest of Dale’s objections, as a matter of law, was not unreasonable or in bad faith in that he prevailed on the majority of Dale’s objections. Dale responds virtually every action undertaken by Timothy violated the Probate Code and it was apparent to the referee and the trial court that Timothy entertained a premeditated plan to decimate the estate and cheat his siblings. Thus, Timothy’s conduct satisfied the requirements of Probate Code section 11003, subdivision (b).
In reviewing an award of attorney fees under Probate Code section 11003, subdivision (b), one of the primary considerations is the relative balance sheet as between the opposing sides. For example, in Estate of Bonaccorsi (1999) 69 Cal.App.4th 462, beneficiaries objected to the account of an executor who engaged in self-dealing concerning estate assets. After a trial, the executor was surcharged in the amount of $134,200 and the trial court imposed an additional charge of $50,000 in attorney fees under Probate Code section 11003, subdivision (b). On appeal, it was determined that $50,000 of the $134,200 surcharge was attributable to market conditions, not the executor’s malfeasance. Based thereon, Bonaccorsi found the executor could not be faulted for opposing the contest and held the award of $50,000 in attorney fees could not be affirmed where a substantial part of the surcharge had been reversed. It is thus apparent that a comparison of the relative recoveries of the competing factions is highly relevant in determining whether an award of attorney fees under Probate Code section 11003, subdivision (b) may be sustained on appeal.
Here, as indicated above, the matter must be remanded for further statement of decision with respect to the issues of laches and unclean hands as they relate to the surcharge for lost rental income. Thus, the surcharge for lost rental income, which was a substantial portion of Dale’s recovery, remains in dispute. Absent resolution of this significant surcharge, we are presently unable to determine whether Timothy’s opposition to Dale’s contest was without reasonable cause and in bad faith. Further clouding the issue is the possibility the trial court, upon reconsideration of the lost rental income surcharge, may amend other aspects of Timothy’s recovery. Indeed, the expenses incurred by Timothy in maintaining the vacant residence were approved, in part, because Timothy was surcharged for lost rent. Stated differently, if the trial court finds the surcharge for lost rental income is barred by the equitable doctrine of laches, it might also disapprove some portion of the expenses Timothy claimed in connection with the maintenance of the residence.
Under these circumstances, it would be premature to address at this juncture the propriety of the attorney fees and costs awarded under Probate Code section 11003, subdivision (b). We decline to speculate on the outcome on remand and, because a substantial adjustment in Timothy’s recovery may be forthcoming, the propriety of the award of fees and costs cannot presently be determined
Notwithstanding this conclusion, we are able to address Timothy’s claim the award of attorney fees and costs must be reversed because Timothy was forced to trial while discovery concerning the Barnes checks and the Cardinal account remained outstanding. The trial court rejected this claim and ruled that, if Timothy believed discovery remained outstanding, he should have filed a motion for a continuance. Further, Timothy had ample time to prepare for trial and Timothy, as the former administrator of the estate, had all necessary documentation at his disposal and the need for discovery would have been with the objecting party. This reasoning is persuasive and dispositive of Timothy’s claim of unfair surprise. However, as noted above, final determination of the propriety of the award of fees and costs must await further proceedings.
3. Elimination of credit for Timothy’s preliminary distribution must be reversed.
Timothy contends the trial court lacked authority to eliminate credit for Timothy’s preliminary distribution as this was Timothy’s share of the estate. Timothy asserts there is no statutory authority for this penalty. He notes all estate funds were accounted for and Timothy was surcharged plus interest for misappropriated funds, he was denied credit for expenses he could not substantiate, he received no credit for the personal labor he contributed to the remodeling and repair work, and he was denied statutory compensation and attorney fees.
Dale responds Timothy gave himself the largest preliminary distribution by depositing the First Nationwide and Barnes checks into his personal account and using the funds to pay personal loans. Dale further asserts Timothy waived the preliminary distribution by not taking it in 1993 and he should not be permitted to receive it now after having caused the estate substantial attorney fees and costs. Dale notes the unauthorized preliminary distributions made by Timothy stripped the estate of cash when the Duarte property needed repairs. Timothy later entered into a debtor-creditor relationship with the estate which constituted a conflict of interest. Dale concludes a court of equity is not required to issue an order that promotes a conflict of interest. (Estate of Hammer (1993) 19 Cal.App.4th 1621, 1640.)
It appears Timothy has the better argument. Dale offers no statutory authority permitting an executor to be surcharged the executor’s share of the estate as a penalty for mismanagement of the estate. As Timothy points out, Timothy was surcharged plus interest for misappropriated funds, his request for extraordinary compensation was denied and he was denied statutory compensation and attorney fees. These were the only sanctions permitted under the Probate Code. We therefore reverse the order adopting the Third Engrossed Statement of Decision to the extent it denied Timothy a preliminary distribution.
4. No error in the referee’s reversal of the First Nationwide surcharge.
The referee initially found two First Nationwide checks totaling $101,686.52 were separate from the $104,145.99 reported in Timothy’s final account and that Timothy improperly failed to include the $101,686.52 amount in the final account. Based thereon, the referee surcharged Timothy in the amount of $101,686.52 plus interest. However, after a partial new trial, the referee concluded the $101,686.52 was included in the $104,145.99 and reversed the surcharge.
Dale contends the reversal of the surcharge was error because Timothy misappropriated the First Nationwide checks totaling $101,686.52 and used the funds to pay personal obligations. Based on this conduct, Timothy should have been surcharged not only for the Barnes funds but for all of the misappropriated funds, including the First Nationwide checks totaling $101,686.52
Dale’s argument is not persuasive. The referee initially surcharged Timothy in the amount of $101,686.52 because the referee believed these funds were different than the $104,145.99. When the referee concluded at the partial new trial these were the same funds, the basis for the surcharge was removed and the referee properly could reverse the surcharge. Consequently, Dale’s attempt to impose a surcharge in the amount of $101,686.52 must be rejected.
5. The interest rate.
Dale contends the interest rate on surcharged items resulting from breach of fiduciary duty should be 10 percent per annum as required by Probate Code section 9601, subdivisions (a)(1) and (a)(2). Dale notes the interest rate on the real estate loans Timothy paid with estate funds was 9.35 percent and concludes the rate of 10 percent per annum is appropriate under the circumstances of this case.
Probate Code section 9601 provides: “(a) If a personal representative breaches a fiduciary duty, the personal representative is chargeable with any of the following that is appropriate under the circumstances:
Dale essentially is arguing inadequacy of the damages, which must be raised in a motion for new trial or it is waived. (Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 918, fn. 6; County of Los Angeles v. Southern Cal. Edison Co. (2003) 112 Cal.App.4th 1108, 1121.) Because Dale did not object to the referee’s award of compound interest at the rate of 4.25 percent in a motion for new trial, he has waived the claim on appeal.
In any event, the referee had discretion to choose any one of the three measures of liability found in Probate Code section 9601, subdivision (a). Here, the referee chose the measure of liability stated in section 9601, subdivision (a)(3), the profit that would have accrued to the estate. The referee surcharged Timothy for the misappropriated amount plus the interest the estate would have earned had the money been invested in a low risk prudent investment. The trial court was not required to measure Timothy’s liability under section 9601, subdivisions (a)(1) or (a)(2), which would have required surcharging Timothy the misappropriated amount, plus statutory interest. The referee and the trial court were entitled to conclude that compound interest at the rate of 4.25 percent was sufficient to make the estate whole.
6. The loans to the estate made by Timothy and Janice.
The referee approved all of Janice’s loans and approved $78,377.93 of Timothy’s loans in the asserted amount of $162,241.
Dale contends the estate should not have to repay these loans noting Timothy offered no evidence to support his alleged loans, the loans were not authorized by the Probate Court, were not made in accordance with Probate Code section 9800, subdivision (a)(1)(3), and notice of proposed action was not given to the heirs as required by Probate Code section 10510. Further, Timothy’s loans created a conflict of interest between the estate and Timothy and the estate needed to borrow funds only because Timothy made improper preliminary distributions of $191,173.
Regarding Janice’s loans, Dale contends the loans were not made to the estate or to Timothy in his capacity as executor and the funds were not deposited into an estate account. Also, Janice did not receive assurances the loans would be repaid from Dale, Jerry or Tom and Janice was present at the June 2002 meeting at which Dale and Jerry expressed disapproval of the remodeling project. Further, Timothy and Janice refused to disclose the amount of their loans to the estate until after Timothy was removed as executor.
Lastly, Dale argues the estate did not receive any benefit from the loans, citing the referee’s finding the estate benefited from the sale of the residence, at most, in the amount of $59,500.
Initially, we note Dale withdrew his opposition to Janice’s loans in the trial court. Putting that aside, unauthorized, “[t]ransactions in violation of [Probate Code] section 9880 are not void – only voidable.” (Estate of Martin (1999) 72 Cal.App.4th 1438, 1443.) Thus, the trial court was not required to disallow the loans. Indeed, whether Janice and Timothy made the loans to the estate is a factual question the trial court resolved adversely to Dale. The fact the home was substantially remodeled constitutes circumstantial evidence the estate borrowed funds and this, combined with the testimony of Timothy and Janice that they lent substantial funds to the estate, is sufficient to support the approval of the loans.
Probate Code section 9880 provides that “[e]xcept as provided in this chapter, ” an executor may neither “(a) Purchase any property of the estate..., directly or indirectly, ” nor “(b) Be interested in any such purchase.”
DISPOSITION
The elimination of credit for Timothy Hayden’s preliminary distribution and the surcharge for lost rental income are reversed; the matter is remanded to the trial court with directions to issue a statement of decision that addresses the issues of laches and unclean hands as they relate to the surcharge for lost rental income and to grant such other relief as may be appropriate under the circumstances. In all other respects, the order under review is affirmed. The parties shall bear their own costs on appeal
We concur: KITCHING, J., ALDRICH, J.
(1) Any loss or depreciation in value of the decedent’s estate resulting from the breach of duty, with interest.
(2) Any profit made by the personal representative through the breach of duty, with interest.
(3) Any profit that would have accrued to the decedent’s estate if the loss of profit is the result of the breach of duty.”