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Kahn v. Brandt

California Court of Appeals, Second District, Second Division
Sep 30, 2008
No. B206664 (Cal. Ct. App. Sep. 30, 2008)

Opinion


JAMY KAHN, Plaintiff and Appellant, v. BARBARA BRANDT, Defendant and Respondent. B206664 California Court of Appeal, Second District, Second Division September 30, 2008

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

APPEAL from an order of the Superior Court of Los Angeles County, No. LP012903. Mitchell L. Beckloff, Judge.

Law Offices of Linda Louise Scott, Linda Louise Scott; Greenberg Traurig, Eric V. Rowen, Scott D. Bertzyk, Karin L. Bohmholdt; Sacks, Glazier, Franklin & Lodise and Robert N. Sacks for Plaintiff and Appellant.

Irell & Manella, Paul N. Frimmer and Joseph M. Lipner for Defendant and Respondent.

DOI TODD, J.

Plaintiff and appellant Jamy Kahn appeals following the trial court’s order sustaining the objections filed by respondent Barbara Brandt to appellant’s petition under Probate Code section 21320. Appellant sought to file a proposed petition challenging amendments to a trust on the ground that the trust did not authorize the manner in which the amendments were executed. The trial court ruled that appellant’s proposed petition would violate the trust’s no contest clause.

Unless otherwise indicated, all further statutory references are to the Probate Code.

We reverse. Although certain language in appellant’s petition sought to invalidate the amendments to the Trust, the petition essentially sought to ascertain the trustors’ intent regarding their power to amend. Moreover, the Legislature has determined in section 21305, subdivision (b)(1) that pleadings seeking relief pursuant to section 15400 et seq. do not violate no contest clauses as a matter of public policy. Because appellant’s petition expressly addressed whether the trust could be modified via a power of attorney when the trust instrument did not so provide (§ 15401, subd. (c)), the petition did not violate the no contest clause as a matter of public policy.

FACTUAL AND PROCEDURAL BACKGROUND

The Trust.

On August 26, 1992, husband and wife Larry and Leah Superstein as trustors and trustees established the Larry and Leah Superstein Family Trust (Trust). The Trust property included real estate, bank accounts and interests in various businesses and partnership investments. The Trust provided for income distributions to Larry and Leah during their lifetime and for the ability to distribute amounts from the Trust corpus necessary for their own support, for gifts to any person and for the “health, support, maintenance and education” of their children Barbara and appellant and any issue of their children. With respect to distributions to anyone other than Larry or Leah, the Trust provided: “Such distributions shall be made only on the instructions of both Husband and Wife if neither is incapacitated; or if either is incapacitated, on the instructions of the one who has legal authority.”

On occasion, we will refer to individuals by their first names for purposes of clarity and not out of disrespect. (E.g., Zwirn v. Schweizer (2005) 134 Cal.App.4th 1153, 1154, fn. 2.)

Upon the death of Larry or Leah, the Trust estate was to be divided into two separate trusts; the Trust provided specific instructions with respect to the formation and operation of those trusts. Upon the death of both Larry and Leah, the Trust provided that following payment of specified expenses, including burial expenses, death taxes and certain bequests, the two trusts would be merged into an exempt trust and a residue trust. Each trust would then be divided into two equal shares—one share held for the benefit of Barbara and one for the benefit of appellant. Those shares were equalized to account for any gifts made to one individual in excess of gifts made to the other and to account for taxes paid by one but not the other. Once each share was funded, the Trust directed that “each child’s share shall be administered independently of the other child’s share.” The Trust provided the trustee with discretion to make distributions to Barbara and appellant first from the residue trust and then from the exempt trust to provide for health, maintenance and support, education and the purchase of a home. Until the shares were funded, the Trust provided that City National Bank would act as trustee. Upon the funding of the shares, Barbara was to act as trustee of her own share and appellant and City National Bank would act together as the trustees of appellant’s share.

Article XII of the Trust addressed the rights reserved by the trustors, stating that during Larry and Leah’s lifetime “Trustors acting together shall have the right at any time, and from time to time, by instrument in writing delivered to the Trustee, to alter, amend or revoke this Declaration of Trust, in whole or in part, and in any other respect.” In the event of the death of Larry or Leah, the survivor had the right, acting alone, to alter, amend or revoke the Trust, with certain limited exceptions.

The Trust contained a “no contest” clause which provided: “If any beneficiary under this Declaration of Trust, or any legal heir of Husband and/or Wife, or any other person, shall contest this Declaration of Trust, . . . or attack or seek to impair or invalidate any of the provisions thereof, . . . then, in that event, Husband and Wife specifically disinherits [sic] such contesting person, and all interest given to that contesting person under . . . this Declaration of Trust shall be forfeited . . . .”

In January 1997, a physician certified that Larry was no longer able to act as trustee. Leah assumed the role of sole trustee pursuant to Article XIII, paragraph (a) of the Trust, which provided that “[i]n the event of the death, resignation or incapacity of either LARRY SUPERSTEIN or LEAH SUPERSTEIN, then the other of them shall act as Trustee hereunder.” In October 2000, Leah amended the Trust to delete a provision that addressed assets to be provided to Leah’s sister. Subsequently, Leah executed three additional amendments. For all three amendments, she expressly relied on the right to amend reserved in Article XII of the Trust. For the two latter amendments, she also relied on the authority granted to her by Larry pursuant to a Durable General Power of Attorney (power of attorney) executed and recorded in December 1988.

The “First Amendment,” executed in July 2004, addressed the powers of appointment and order of successor trustees related to Barbara’s share of the Trust. The “Second Amendment,” executed in May 2005, revoked the First Amendment and modified the bequests to Leah’s sister and other third parties, provided Barbara with certain powers of appointment upon her death, established an education trust for appellant’s children and changed the successor trustees so as to remove appellant as a co-trustee from her share once funded. Lastly, the “Third Amendment,” executed in February 2007, revoked the Second Amendment. In addition to revising certain bequests to third parties and confirming the removal of appellant as a successor trustee for her own share, the Third Amendment amended Article VI, subsection 4(b) of the Trust to provide: “The RESIDUE TRUST shall be divided into two (2) shares, with one such share held for the benefit of BARBARA BRANDT (hereinafter ‘BARBARA’) and with one such share held for the benefit of JAMY KAHN (hereinafter ‘JAMY’); provided, however, that the share for the benefit of JAMY shall include no more than forty-nine and one-half percent (49.5%) of the outstanding common stock of BARAMY INVESTMENTS, LTD.” The Third Amendment also restated Article XVI, section 9 of the Trust and added that it was Leah’s intent that the no contest clause contained in that provision apply not only to the original Trust but also to any amendments thereto.

Leah and Larry died within two weeks of each other in March 2007.

Trial Court Proceedings.

Appellant prepared a petition captioned “Petition to Determine the Construction of August 26, 1992 Trust of Larry and Leah Superstein Family Trust and to Determine the Validity of the First, Second and Third Amendments Thereto (Probate Code § 17200, subd. (b)(1), (b)(2) and (b)(3)” (petition). She alleged that the amendments contradicted and violated Article XII, paragraph 1, of the Trust which “required that the settlors act together during their lifetime to alter, amend or revoke the declaration of trust in whole or in part or in any other respect.” She further alleged that because the Trust did not expressly provide for the use of a power of attorney, any reliance on a durable power of attorney to execute the amendments violated Probate Code section 15401, subdivision (c). Accordingly, the petition averred: “The Amendments to the trust executed by Leah Superstein acting alone and dated July 20, 2004, May 22, 2005, and February 22, 2007, are invalid in that Leah Superstein did not possess the authority unilaterally to amend the TRUST pursuant to Article XII of the TRUST instrument which requires that during the lifetime of both Leah and Larry Superstein, both trust settlors must act together to alter, amend or revoke the TRUST, in whole or in part, and in any other respect. These unauthorized amendments should therefore be determined invalid and the original 1992 TRUST, which represents the intent of the settlors acting together pursuant to its terms, should be upheld without modification.” She sought an order declaring each of the three amendments invalid and declaring the August 26, 1992 trust valid and enforceable.

In July 2007, appellant filed an application under the “safe harbor” provision in section 21320 seeking a determination that her petition did not violate the Trust’s no contest clause. She asserted that her petition was not a contest because it sought construction of the terms of the Trust. Barbara opposed on the basis that the petition was a direct contest in that it challenged the effectiveness of the execution of the Third Amendment.

Following a hearing on January 15, 2008, the trial court issued an order determining that the petition as drafted would violate the Trust’s no contest clause and, accordingly, sustained Barbara’s objections to the petition. In its ruling, the trial court looked behind the form of the petition and focused on its substance, determining that the petition did not ask the court to interpret the relevant documents, but rather, asked the court to invalidate the amendments as not properly executed.

This appeal followed.

DISCUSSION

The sole issue on appeal is whether the filing of appellant’s petition would constitute a contest in violation of the Trust’s no contest clause. “Where, as here, a trial court rules on a section 21320 application without referring to extrinsic evidence, the appeal presents a question of law and requires us to independently construe the trust to determine whether the proposed petition violates the no contest clause. [Citation.] ‘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.’ [Citations.] We review the trust de novo, considering the circumstances under which the document was made in order to place ourselves in the position of the trustor to interpret the document. [Citation.] Each case depends upon its own peculiar facts and thus case precedents have little value when interpreting a trust. [Citation.]” (McIndoe v. Olivos (2005) 132 Cal.App.4th 483, 487.) Likewise, interpretation of the applicable Probate Code provisions and their application to appellant’s petition are questions we decide as a matter of law. (See Estate of Rossi, supra, 138 Cal.App.4th at p. 1336.)

Because Leah expressed her intent to apply the no contest clause to amendments to the Trust and added a no contest clause within the Third Amendment itself, the parties do not suggest the limitations of Estate of Rossi (2006) 138 Cal.App.4th 1325 should apply. There, the court held that a no contest clause does not apply to challenges to separately executed amendments unless it expressly states that it does. “As we explained, [section 21305] subdivision (c) now reads: ‘Subdivision (a) does not apply to a codicil or amendment to an instrument that was executed on or after January 1, 2001, unless the codicil or amendment adds a no contest clause or amends a no contest clause contained in an instrument executed before January 1, 2001.’” (Id. at p. 1337.)

A no contest clause “essentially acts as a disinheritance device, i.e., if a beneficiary contests or seeks to impair or invalidate the trust instrument or its provisions, the beneficiary will be disinherited and thus may not take the gift or devise provided under the instrument.” (Burch v. George (1994) 7 Cal.4th 246, 265.) Section 21300, subdivision (d) defines a “‘[n]o contest clause’” as “a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary if the beneficiary files a contest with the court.” In turn, section 21300, subdivision (a) defines a “‘[c]ontest’” as “any action identified in a ‘no contest clause’ as a violation of the clause. . . .” “Although no contest clauses are valid and favored by the public policies of discouraging litigation and giving effect to the testator’s intent, they are also disfavored by the policy against forfeitures and therefore are strictly construed and may not extend beyond what plainly was the testator’s intent. [Citations.]” (Estate of Kaila (2001) 94 Cal.App.4th 1122, 1128, 1129.)

Under section 21320, “a beneficiary may, without violating a no contest clause, apply to the court for a determination whether a particular act would be a contest provided that no determination of the merits of the petition is required.” (McIndoe v. Olivos, supra, 132 Cal.App.4th at p. 487.) “‘[S]ection 21320 provides . . . a “safe harbor” for beneficiaries who seek an advance judicial determination of whether a proposed legal challenge would be a contest [under a particular no contest clause].’ [Citation.] If a court determines that a particular proposed action would constitute a contest, the beneficiary will then be able to make an informed decision whether to pursue the contest and forfeit his or her rights under a will or to forgo that contest and accede to the will’s provisions.” (Estate of Kaila, supra, 94 Cal.App.4th at p. 1130; accord, Genger v. Delsol (1997) 56 Cal.App.4th 1410, 1428–1429.)

Section 21320, subdivision (a) provides: “If an instrument containing a no contest clause is or has become irrevocable, a beneficiary may apply to the court for a determination of whether a particular motion, petition, or other act by the beneficiary . . . would be a contest within the terms of the no contest clause.”

Here, the trial court ruled that appellant’s petition amounted to a contest. Citing Estate of Kruse (1970) 7 Cal.App.3d 471, 476, the trial court determined that appellant’s petition sought “to ‘set aside’ or ‘annul’ the amendments ‘rather [than] to ascertain the true meaning of the [trustors] and to enforce what [they] desired.’” The trial court analogized appellant’s petition to the creditor’s claim in Zwirn v. Schweizer, supra,134 Cal.App.4th 1153. There, the appellant was an income beneficiary of a one-quarter interest in a trust, and he sought to file a creditor’s claim seeking to enforce an alleged oral agreement with the trustors that he would instead receive one-half of their assets upon their death. (Id. at pp. 1154–1155.) Notwithstanding section 21305, subdivision (a), providing that the filing of a creditor’s claim does not constitute a contest unless expressly identified in a no contest clause executed on or after January 1, 2001, the court ruled that the appellant’s claim was a contest because it directly attacked a provision of the trust and plainly frustrated the trustors’ intent. (Zwirn v. Schweizer, supra, at p. 1160.) By parity of reasoning, the trial court concluded that appellant’s petition sought to thwart the trustors’ intent by invalidating the amendments.

We do not see the same parallel. Although appellant’s petition sought an interpretation of the Trust that was seemingly inconsistent with the amendments, it sought to ascertain the meaning of the trustors’ intent expressed in the Trust requiring that they must act together to amend the Trust. For this reason, Graham v. Lenzi (1995) 37 Cal.App.4th 248 provides a more apt analogy. There, a trust provided that it could be amended during the lifetime of the trustors by a writing signed by both of them. After one of the trustors died, the survivor executed an amendment changing the distribution of the trust residue upon his death, leaving one-half of it to his friend and stockbroker. Following the surviving trustor’s death, the plaintiff—who had been the trust’s sole beneficiary prior to its amendment—brought an application under section 21320 seeking to file a petition challenging the stockbroker’s right to any of the trust residue. (Graham v. Lenzi, supra, at pp. 252–253.) Relevant here, one of the plaintiff’s claims requested declaratory relief as to whether the trust could be amended by one trustor after the death of the other. (Id. at p. 258.) Relying on the principle that “‘[s]eeking an interpretation of a will does not in and of itself constitute an attempt to thwart the will of a testator,’” the court concluded that the plaintiff’s “claims for declaratory relief would not be contests within the meaning of the no contest clause at issue here, as they seek construction of the terms of the Trust. While the third claim may indirectly challenge the amendment, it essentially seeks to ascertain the trustors’ intent regarding their power to amend rather than thwart that intent.” (Ibid.)

Here, while the effect of appellant’s petition was to challenge the amendments to the Trust, the petition essentially sought to ascertain Larry and Leah’s intent regarding their power to amend. The petition pointed to the operative provision in the Trust that “[d]uring the lifetime of both Husband and Wife, Trustors acting together shall have the right at any time, and from time to time, by instrument in writing delivered to the Trustee, to alter, amend or revoke this Declaration of Trust, in whole or in part, and in any other respect.” It alleged that in light of this provision, Leah did not have the power unilaterally to amend the Trust and that the amendments were contrary to the terms of the original Trust, which represented the intent of Larry and Leah acting together. Thus, the petition sought to ascertain Larry and Leah’s original intent in requiring that they act together in amending the Trust. Though the petition failed to use the neutral language in Graham v. Lenzi, supra, 37 Cal.App.4th at page 253, requesting declaratory relief, and instead advocated that the amendments be declared invalid, appellant’s requested relief would be the effective consequence of a successful declaratory relief action. (See Estate of Watson (1986) 177 Cal.App.3d 569, 572 [“The fact a legal proceeding results in changing the distribution under a will is not in itself determinative of whether a prohibited contest has occurred”].)

But notwithstanding the similarity of this action to Graham v. Lenzi, supra, 37 Cal.App.4th 248, our decision is premised primarily on section 21305, which exempts certain types of actions from the reach of a no contest clause as a matter of public policy. In pertinent part, section 21305 provides: “(b) Except as provided in subdivision (d), notwithstanding anything to the contrary in any instrument, the following proceedings do not violate a no contest clause as a matter of public policy: [¶] (1) A pleading seeking relief under Chapter 3 (commencing with Section 15400) of Part 2 of Division 9.” Section 21305, subdivision (f), explains “[t]he term ‘pleading’ in subdivision (b) includes a petition, complaint, response, objection, or other document filed with the court that expresses the position of a party to the proceedings.”

Section 21305 has been repealed but will remain in effect until January 1, 2010. (2008 Cal. Legis. Serv., ch. 174 (Sen. Bill No. 1264), July 22, 2008.)

Section 21305, subdivision (d) states: “Subdivision (b) shall apply only to instruments of decedents dying on or after January 1, 2001, and to documents that become irrevocable on or after January 1, 2001. However, paragraphs (9), (11), and (12) of subdivision (b) shall only apply to instruments of decedents dying on or after January 1, 2003, and to documents that become irrevocable on or after January 1, 2003.”

Appellant’s petition expressed the position that the Trust amendments were executed in violation of section 15401, subdivision (c), which provides: “A trust may not be modified or revoked by an attorney in fact under a power of attorney unless it is expressly permitted by the trust instrument.” (See also § 4465 [“If a statutory form power of attorney under this part empowers the agent to modify or revoke a trust created by the principal, the trust may only be modified or revoked by the agent as provided in the trust instrument”].) Neither Article XII nor any other section of the Trust permitted the Trust to be modified or revoked pursuant to a power of attorney, despite the fact that the durable power of attorney on which Leah relied was executed prior to the creation of the Trust.

Appellant’s petition expressly alleged that the amendments to the Trust did not comply with section 15401, subdivision (c) and sought relief by reason of that violation. Section 15401, subdivision (c) falls squarely within “Chapter 3 . . . of Part 2 of Division 9” referenced in section 21305, subdivision (b)(1). In view of the public policy expressed in the plain language of section 21305, subdivision (b), we must conclude that appellant’s petition does not violate the Trust’s no contest clause. (See Lennane v. Franchise Tax Bd. (1994) 9 Cal.4th 263, 268 [“If there is no ambiguity in the language of the statute, ‘then the Legislature is presumed to have meant what it said, and the plain meaning of the language governs’”].) Barbara’s assertions that section 21305, subdivision (b) did not intend to encompass section 15401, subdivision (c), or that the statute requires the involvement of a public policy beyond that embodied in section 15401, subdivision (c), are unsupported by the plain language of the statute.

Moreover, in light of the requirement in section 15401, subdivision (c) that the trust instrument itself must permit modification through a power of attorney, we reject Barbara’s assertion that Leah’s execution of the amendments through a durable power of attorney was merely a matter of due execution. According to Barbara, appellant’s challenge to the amendments was a direct contest within the meaning of section 21300, subdivision (b)(9), which provides that a direct contest is “a pleading in a proceeding in any court alleging the invalidity of an instrument or one or more of its terms based on . . . [l]ack of due execution.” But “due execution” is limited to issues concerning the witnessed signing of a will, and “exist to protect the testator from fraud or undue influence when the will is executed.” (Estate of Burdette (2000) 81 Cal.App.4th 938, 945; § 6110.) Appellant’s petition did not contend that Leah’s signature to the amendments was invalid or that she executed the amendments by reason of fraud or undue influence. Rather, her petition alleged that the amendments were executed in a manner contrary to Larry and Leah’s intent as expressed in the Trust and contrary to the mandate of section 15401, subdivision (c). These issues involved more than the question of due execution under section 21300, subdivision (b)(9).

DISPOSITION

The order sustaining Barbara’s objections is reversed and the matter is remanded. Appellant is entitled to her costs on appeal.

We concur: BOREN, P. J., CHAVEZ, J.


Summaries of

Kahn v. Brandt

California Court of Appeals, Second District, Second Division
Sep 30, 2008
No. B206664 (Cal. Ct. App. Sep. 30, 2008)
Case details for

Kahn v. Brandt

Case Details

Full title:JAMY KAHN, Plaintiff and Appellant, v. BARBARA BRANDT, Defendant and…

Court:California Court of Appeals, Second District, Second Division

Date published: Sep 30, 2008

Citations

No. B206664 (Cal. Ct. App. Sep. 30, 2008)