Opinion
NOT TO BE PUBLISHED
APPEAL from orders of the Superior Court of Los Angeles County Nos. BP112725, BP115450, Aviva K. Bobb and Michael I. Levanas, Judges.
Sacks, Glazier, Franklin & Lodise and Matthew W. McMurtrey for Objector and Appellant.
Law Offices of Steven W. Kerekes and Steven W. Kerekes for Petitioner and Respondent.
ALDRICH, J.
INTRODUCTION
Appellant, Dawn Arnall, as trustee of the Roland and Dawn Arnall Living Trust and special administrator of the estate of Roland Edmond Arnall, appeals from the rulings of the probate court on the safe harbor applications filed by respondent, Claude Arnall (Prob. Code, § 21320). The probate court ruled that Claude’s creditor’s claim did not violate the no contest clauses of the Will and Trust. We agree with the probate court and so we affirm the rulings.
All further statutory references are to the Probate Code, unless otherwise noted.
FACTUAL AND PROCEDURAL BACKGROUND
Claude is the brother of Roland Arnall. Roland passed away suddenly in March 2008, leaving a very sizeable estate.
Under the terms of the Trust, an administrative trust pays all specified expenses, and then funds a survivors’ trust for Roland’s widow Dawn and various other subtrusts, including $25 million subtrusts for the benefit of each of Roland’s children and a $10 million subtrust for the benefit of Claude and Claude’s wife, among others. The subtrust has not been funded as of this proceeding. When it is, Lewis Greenblatt and Philip Holthouse are to serve as the co-trustees of the subtrust for Claude’s benefit.
Both the Will and the Trust contain identical no-contest clauses that are in two parts, an Incontestability clause and Disinheritance for Assertion of Claims clause. The Incontestability clauses provide in relevant part: “Any and every legatee or devisee under this Will or any heir of mine (singly or in conjunction with any other person or persons) who shall contest, attack or seek to impair or invalidate in any court any provision of the following:
“(a) this Will...;
“(b) any revocable or irrevocable trust established by me (including any trusts created thereunder)...; [¶]... [¶]
“(e) any buy-sell agreements;.... [¶]... [¶]
“[A]nd any and all persons who shall conspire with or voluntarily assist anyone attempting to do any of these things, shall not be entitled to any devises, legacies or benefits provided under this Will... and any and all devises, legacies and portion of the income or corpus of my Estate otherwise provided to be paid to that person, shall be paid... as though that person had predeceased me without issue. The provisions of this Paragraph shall apply even though such person or entity shall be found by a court of law to have originated the judicial proceeding in good faith and with probable cause.”
The “Disinheritance for Assertion of Claims” clauses state: “Any and every individual (singly or in conjunction with any other person or persons) who asserts any claim against my Estate, the Living Trust, or against any other trust created in whole or in part by me based on: [¶]... [¶]
“(d) a constructive trust theory; or
“(e) an alleged oral agreement... claiming that I agreed to give or bequeath anything to such person or to pay such person for services rendered (whether or not the court finds such agreement exists), [¶] or otherwise files a frivolous petition or objection... shall not be entitled to any devises, legacies or benefits provided under this Will.... The provisions of this Paragraph shall apply even though such person or entity shall be found by a court of law to have originated the judicial proceeding in good faith and with probable cause.”
These quotes are taken from the relevant clauses of the will. With the exception of words tailored to trust instruments, the Incontestability and Disinheritance for Assertion of Claims clauses in the trust here are identical to those clauses quoted above.
Claude filed two identical safe harbor applications (§ 21320), one with respect to the Trust and one with respect to the Will. The applications concern Claude’s creditor’s claim based on an alleged, partially performed, oral contract.
In particular, Claude’s application alleges that in 2002 Roland and Claude established a wholesale lending company called Olympus Mortgage. Claude held a 50-percent ownership interest in Olympus Mortgage. In 2004, Roland offered to purchase Claude’s interest. The brothers orally agreed that Claude would sell to Roland his shares of stock for $50 million, plus one half of the total undistributed net profits held by Olympus Mortgage, and the net profits on loans which had already been approved but not yet funded and closed, through December 31, 2004. Claude claims that Roland paid him $25 million on the contract, and since April 2005, made monthly payments as interest on the unpaid balance. Roland made another $2.4 million payment in February 2006 and then asked Claude to be patient about receiving the remaining payments. Claude’s creditor’s claim seeks $47.6 million representing the unpaid portion of the contract.
Dawn, as trustee of the Trust and special administrator of the Estate opposed both safe harbor applications raising the same grounds as to each: (1) the alleged oral agreement between Claude and Roland is a “claim” that violated the no-contest clause; and Claude’s claim (2) asserts a “constructive trust;” (3) is a “frivolous filing;” and (4) is an attempt to impair a “buy-sell agreement, ” all in violation of the Disinheritance clauses.
The probate court ruled as to both the Trust and the Will that Claude’s proposed claim would violate neither the Incontestability nor the Disinheritance clauses. Dawn filed appeals after both rulings. The parties stipulated to consolidate the appeals.
DISCUSSION
An in terrorem or no contest clause in a will or trust instrument creates a condition upon gifts and dispositions in those instruments. A no contest clause conditions the right of a beneficiary to take under the instrument on the beneficiary’s agreement to acquiesce to the terms of the instrument. (Burch v. George (1994) 7 Cal.4th 246, 254-255, abrogated on a different point by legislation as explained in In re Estate of Rossi (2006) 138 Cal.App.4th 1325, 1339.)
No contest clauses “are valid in California and are favored by the public policies of discouraging litigation and giving effect to the purposes expressed by the testator. [Citations.] Because a no contest clause results in a forfeiture, however, a court is required to strictly construe it and may not extend it beyond what was plainly the testator’s intent. [Citations.]” (Burch v. George, supra, 7 Cal.4th at pp. 254-255, fn. omitted.)
“ ‘Whether there has been a “contest” within the meaning of a particular no-contest clause depends upon the circumstances of the particular case and the language used.’ [Citations.] ‘[T]he answer cannot be sought in a vacuum, but must be gleaned from a consideration of the purposes that the [testator] sought to attain by the provisions of [his] will.’ [Citation.] Therefore, even though a no contest clause is strictly construed to avoid forfeiture, it is the testator’s intentions that control, and a court ‘must not rewrite the [testator’s] will in such a way as to immunize legal proceedings plainly intended to frustrate [the testator’s] unequivocally expressed intent from the reach of the no-contest clause.’ [Citation.]” (Burch v. George, supra, 7 Cal.4th at pp. 254-255; Johnson v. Greenelsh (2009) 47 Cal.4th 598, 604.)
The determination of whether the proposed petition violates the no contest clause presents a question of law unless it turns on the credibility of extrinsic evidence. (Burch v. George, supra, 7 Cal.4th at p. 254.)
“ ‘Section 21320 provides “a safe harbor for beneficiaries who seek a judicial determination whether a proposed legal challenge would be a contest, and that is the only issue to be decided when such an application is made. [Citation.]” ’ ” (Meyer v. Meyer (2008) 162 Cal.App.4th 983, 991.)
In 1989, the Legislature enacted a series of statutes that codified much of the law governing enforcement of no contest clauses. (Stats. 1989, ch. 544, § 19, p. 1825.) These statutes were repealed and reenacted in 1990 (Stats. 1990, ch. 79, § 14, operative July 1, 1991), and again repealed and reenacted effective January 1, 2010. (Stats. 2008, ch. 174, §§ 1 & 3.) As a preliminary matter, the parties agree that the version of section 21320, in effect until January 1, 2010, applies to this case.
With these rules in mind, we turn to Dawn’s various contentions.
2. Claude’s claim is not a creditor’s claim and does not violate the no contest clauses.
The version of section 21305, subdivision (a), in effect and applicable to this case [see fn. 2], reads: “For instruments executed on or after January 1, 2001, the following actions do not constitute a contest unless expressly identified in the no contest clause as a violation of the clause: [¶] (1) The filing of a creditor’s claim or prosecution of an action based upon it.” (Italics added.) Claude’s claim is a creditor’s claim and is not expressly identified in the instruments as a violation of the forfeiture clauses, with the result his claim does not constitute a contest.
To avoid the implication of section 21305, Dawn argues that Claude’s claim is not a “creditor’s” claim. A creditor’s claim is characterized thusly, “if the beneficiary had a contractual claim that did not involve a result which, if successful, would alter the intent of the testator regarding the general disposition plan of the trust or will estate containing the no contest [clause], that claim would be a ‘creditor’s claim’ pursuant to section 21305.” (Zwirn v. Schweizer (2005) 134 Cal.App.4th 1153, 1158, italics added.) That is, a claim is a “creditor’s” claim and not a contest if it would not “nullify or thwart the provisions in the trust instrument that provide for the allocation of all assets placed in the trust estate to the various subsidiary trusts.” (Burch v. George, supra, 7 Cal.4th at p. 261.)
In Zwirn v. Schweizer, supra, 134 Cal.App.4th 1153, the appellant contended, based on an oral contract he had with decedents Sam and Freida, that he was entitled to receive 50 percent of all of the couple’s assets. After Sam died, Freida changed her estate plan to leave the majority of the assets to her blood relatives and a 25 percent share of a trust for appellant and Frieda’s grandnephew. (Id. at p. 1157.) The appellant filed a safe harbor petition based on the oral contract entitling him to 50 percent of the estate. Zwirn held that the proposed claim was not a creditor’s claim and so it violated the no contest clauses. The court explained, “if Sam and Frieda had contracted with appellant to fix their roof or buy them clothes, a claim for the money owing would probably be appropriate as a ‘creditor’s claim’ and not in contravention of the no contest clauses. [¶] The issue in the case at bench is more complex, involving a claim that goes directly to the testator’s plan of distribution, not merely the amount of money given to a creditor or the reduced amount given to other beneficiaries because of the creditor’s claim.” (Id. at p. 1158, italics added.) Dawn argues, like Zwirn, that Claude’s claim would “dramatically alter” the general disposition plan merely because the size of Claude’s claim would deplete the Trust.
We disagree with Dawn and conclude that the reasoning, but not the conclusion, of Zwirn controls. Unlike the creditor in Zwirn who sought to rewrite the entire disposition, Claude seeks only to collect the money owed him under the oral sales agreement. Just as the hypothetical in Zwirn of a contract to buy clothing, Claude’s claim is based on an oral contract to sell his interest in Olympus Mortgage to Roland, and so he has a “claim for the money owing [which] would... be appropriate as a ‘creditor’s claim’ and not in contravention of the no contest clauses.” (Zwirn v. Schweizer, supra, 134 Cal.App.4th at p. 1158.) Stated differently, Clause asserts a contractual claim that does not involve a result which, if successful, would alter Roland’s intent concerning the general disposition plan of his trust and estate. His creditor’s claim would merely reduce the amount of the money given to the other beneficiaries. (Ibid.) Nothing in Claude’s safe harbor applications challenges the Trust’s or Will’s characterization of the decedent’s dispositions or the relative percentage allocation to each beneficiary. Therefore, Claude’s claim is a creditor’s claim pursuant to section 21305, and for that reason, does not violate the no contest clauses. (§ 21305, subd. (a)(1).)
Nairne v. Jessop-Humblet (2002) 101 Cal.App.4th 1124 does not aid Dawn. The claim in that case was to 100 percent ownership interest in a specific item of property – an emu ranch – that was listed on the trust’s schedule of property and specifically identified and bequeathed, one half to the claimant and one half to the children of the surviving spouse. (Id. at pp. 1126-1127.) By contrast, Claude’s creditor’s claims does not seek a specifically bequeathed item of property; he claims money owed him on an alleged oral sales agreement.
Finally, with respect to the no contest clauses, we agree with the trial court that Claude’s creditor’s claim is not an attack on any provision of a buy-sell agreement, Dawn’s contention to the contrary notwithstanding. The instruments preclude any one from inheriting if that person “shall contest, attack or seek to impair or invalidate... [¶]... [¶] (e) any buy-sell agreements[.]” Claude’s creditor claim seeks to enforce the terms of an agreement, not attack, invalidate, impair, or contest that agreement.
In her reply brief, Dawn raises, for the first time, the contention that the trial court might “find” a buy-sell agreement that Claude’s creditor claim would invalidate. Apart from the fact that the only contract at issue is the one in Claude’s creditor’s claim and not some potential or hypothetical buy-sell agreement, we decline to address the contention in general. Claude moved to strike portions of Dawn’s reply brief on this ground. We grant the motion. “ ‘ “[P]oints raised in the reply brief for the first time will not be considered, unless good reason is shown for failure to present them before....” ’ [Citations.]” (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894-895, fn. 10.) Dawn has failed to demonstrate good reason.
Accordingly, the probate correctly ruled that Claude’s claim is a creditor’s claim and not a contest.
3. Claude’s creditor’s claim does not violate the Disinheritance clauses.
Dawn contends that Claude’s creditor’s claim violates paragraph 15.4 of the Trust and 6.2 of the Will, the Disinheritance for Assertion of Claims clauses. These provisions disinherit a beneficiary who: “asserts any claim against the Trust Estate... based on: [¶]... [¶] (d) a constructive trust theory; or [¶] (e) an alleged oral agreement... claiming that either or both of the Grantors agreed to give[, ] or bequeath anything to such person or to pay such person for services rendered... [¶] or [(f)] otherwise files a frivolous petition or objection....”
Forfeiture clauses in testamentary dispositions “ ‘must be strictly construed [citation], and no wider scope is to be given to their language than is plainly required [citations]. Only where an act comes strictly within the express terms of the forfeiture clause may a breach thereof be declared. [Citations.]’ [Citation.]” (Varney v. Superior Court (1992) 10 Cal.App.4th 1092, 1103.) Reading paragraphs 15.4 and 6.2 strictly, as we are required (§ 21304), they do not define Claude’s creditor’s claim as a claim that would violate the Disinheritance clauses.
Indeed, paragraphs 15.4 of the Trust and 6.2 of the Will are not so broad as to disinherit every possible type of claim. Rather, these paragraphs specify the kinds of claims that will constitute a contest. Such claims are “based on, ” as relevant here, either (1) a constructive trust theory, (2) an alleged oral agreement under which the grantor agreed to give or bequeath, or pay for services rendered, or (3) a frivolous petition or objection. Claude’s claim is based on none of these.
First, Claude’s claim is not based on a constructive trust theory. “A constructive trust... is an equitable remedy, not a substantive claim for relief. ‘A constructive trust is an involuntary equitable trust created by operation of law as a remedy to compel the transfer of property from the person wrongfully holding it to the rightful owner. [Citations.] The essence of the theory of constructive trust is to prevent unjust enrichment and to prevent a person from taking advantage of his or her own wrongdoing.’ ” (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 398, italics omitted; Civ. Code, § 2224.) Claude is not asking the court to impose a constructive trust on the proceeds from the sale of Olympus Mortgage. Nor does he contend that Dawn, as trustee or special administrator, is taking advantage of her own wrongdoing. (Civ. Code, § 2224.) Nowhere do the words “constructive trust” appear in Claude’s claim. Indeed, he specifically waived any right to assert such a remedy. Rather, Claude seeks to recover amounts allegedly owed him under the contract to sell Roland his half of Olympus Mortgage, which contract, he contends, Roland partially performed.
Civil Code section 2224 reads: “One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he or she has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.”
Second, Claude’s claim is not based on “an alleged oral agreement... claiming that I [Roland] agreed to give or bequeath anything to such person or to pay such person for services rendered (whether or not the court finds such agreement exists)....” Admittedly Claude’s claim is based on an alleged oral agreement, but he does not contend that the agreement was for Roland to give or bequeath anything to Claude, or to pay Claude for services rendered.
Dawn argues that Claude is actually seeking payment for “services rendered.” She argues Claude’s safe harbor application “is replete with services purportedly performed by [Claude] for which he now seeks payment. As examples, in paragraph 6 [Claude] claims that he closed down one business and began to ‘organize the staff and structure of’ a new company.... In Paragraph 8, [Claude] claims that under his ‘direction and supervision’ the business grew substantially.” The argument is meritless.
A review of the safe harbor applications indicates that Claude’s references to closing down a business and organizing the staff and structure of another business were not for the purpose of valuing services he rendered, but to show that Claude changed position in reliance on promises Roland allegedly made involving the creation of Claude’s interest in Olympus Mortgage, not the sale of his interest. According to our review of the safe harbor applications, Claude’s creditor’s claim is based on an alleged oral agreement under which Roland agreed to purchase Claude’s interest in Olympus Mortgage. The final paragraph of the safe harbor application states: “There remains owing and unpaid the balance of $22,600,000 on the sale of [Claude’s] shares in Olympus, as well as [Claude’s] half of undistributed profits in Olympus at the time of the sale, which [Claude] is informed and believes was in excess of $25,000,000.”
Again, Nairne v. Jessop-Humblet, supra, 101 Cal.App.4th 1124 is of no help to Dawn. Nairne claimed the right to the emu ranch based on an oral contract under which the decedent promised if the claimant moved onto the property, and remained there helping with the business venture, the decedent would leave the ranch to the claimant. Thus, the contract was for claimant’s performance of services. Claude’s creditor’s claim, by contrast was for money for the sale of his interest in Olympus Mortgage, not for services.
In her reply brief, Dawn also raises for the first time, the suggestion that Claude’s claim seeks a right to stock. We will not consider the contention. As we noted in footnote 4, ante, because Dawn makes this argument for the first time in her reply brief. (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., supra, 78 Cal.App.4th at pp. 894-895, fn. 10.)
As for the third type of claim listed in the Disinheritance clauses, namely, one based on a frivolous petition or objection, Dawn “asks that the ruling in this appeal include a determination that [Claude] will have violated the no contest clause if a Court later finds that his claim was (as Dawn contends) frivolous.” Dawn’s request is beyond the scope of this appeal. “ ‘As a general rule, the decision about whether the beneficiary’s proposed action would be a will contest may not involve a determination of the merits of the action itself....” [Citation.]’ [Citation.]” (Meyer v. Meyer, supra, 162 Cal.App.4th at p. 991.) This rule “ ‘ “makes sense” because the summary safe harbor procedure could otherwise “be used to allow the very form of challenge and protracted litigation the testator sought to prevent.” [Citation.]’ ” (Perrin v. Lee (2008) 164 Cal.App.4th 1239, 1244.) To determine whether Claude’s creditor’s claim is frivolous, we would have to consider the merits of his claim in violation of this rule. That is why Dawn did not raise the frivolity argument in the probate court. Likewise, this court cannot make such an assessment here.
Dawn’s attempts to distinguish Varney v. Superior Court, supra, 10 Cal.App.4th 1092 and Jacobs-Zorne v. Superior Court (1996) 46 Cal.App.4th 1064, are unavailing. Although decided before section 21320 was enacted, both cases explain that claims that are consistent with the testators’ intent and do not seek to achieve a result contrary to the testator’s intent do not constitute a contest in violation of a no contest clause. (Varney, supra, at p. 1107; Jacobs-Zorne, supra, at pp. 1078-1080; see also Burch v. George, supra, 7 Cal.4th at p. 261 [cases preceding passage of section 21320 “do not stand for the categorical proposition that any proceeding based upon a claim of right independent of a will or trust instrument is never a contest.... [T]hese cases simply followed the established rule for construing a no contest cause and determined that the particular claims asserted were consistent with the respective testators’ intentions”].)
For the foregoing reasons, the probate court did not err in ruling that Claude’s creditor’s claim did not violate the Incontestability clauses and Disinheritance clauses of the Trust and Will.
DISPOSITION
The orders are affirmed. Respondent to recover costs on appeal.
We concur: KLEIN, P. J.; CROSKEY, J.