Opinion
A166134
04-26-2024
TRAVIS R. MAXON et al., Plaintiffs and Appellants, v. SHIRLEY BERNICE ROSA et al., Defendants and Respondents.
NOT TO BE PUBLISHED
(Humboldt County Super. Ct. No. PR180297)
We resolve this case by memorandum opinion. (Cal. Stds. of Jud. Admin., § 8.1.) We do not recite the factual and procedural background because our opinion is unpublished and the parties know, or should know, "the facts of the case and its procedural history." (People v. Garcia (2002) 97 Cal.App.4th 847, 851 [unpublished opinion merely reviewing correctness of trial court's decision "does not merit extensive factual or legal statement"].)
STEWART, P.J.
This is an appeal from a judgment entered after a bench trial rejecting a claim for imposition of a constructive trust over approximately $400,000 in inheritance proceeds in a dispute stemming from a family rift.
Plaintiffs and appellants Travis R. Maxon ("Travis") and David L. Maxon ("David"), who are brothers, contend the disputed money is traceable to proceeds from the sale of property they inherited from their late father under a trust agreement, and that their mother wrongfully diverted the money to her own benefit shortly before her own death in breach of their late father's testamentary wishes under the written trust agreement. The disputed funds are now in the possession of their late mother's sister, Respondent Shirley Bernice Rosa ("Bernice"), who took possession of the money immediately upon her sister's death. Travis and David sued their aunt to recover the money, the trial court rejected their claim and entered judgment against them.
We conclude the trial court erred in rejecting the plaintiffs' claim for the imposition of a constructive trust and will reverse the judgment.
DISCUSSION
We presume the parties are familiar with the facts as found by the trial court in its statement of decision. To summarize, plaintiffs' parents, David Mark Maxon ("Mark" or "plaintiffs' father") and Terri Maxon ("plaintiffs' mother"), established a joint living trust (the "2005 Trust") that provided that, upon Mark's death, any property he transferred into the trust be distributed to his two sons, Travis and David. One of the assets plaintiffs' father transferred into the 2005 Trust was the home he shared with plaintiffs' mother (the "Long Street house") which he had purchased before their marriage.
Both parents were heavy drinkers. Travis testified their mother was "never really good with managing her money," and their father loved her tremendously, "just did everything for her," and wanted his sons to take care of her after he died and make sure that "everything was not lost." Their father explained that was the reason he structured the 2005 Trust to provide for the house to pass directly to them rather than their mother if he predeceased her. Their mother was part of these discussions, and all four family members understood and agreed that even though Travis and David would own the house upon their father's death, their mother would be allowed to live there for the rest of her life if she survived him so she would continue to be cared for.
In 2015, plaintiffs' father died in a tragic accident. David testified that they knew this meant he and his brother had become the owners of the Long Street House, but they didn't take any steps to put the house in their own individual names because it was unnecessary since title to the house was in the name of the trust and they were the beneficiaries. David also testified their mother knew they had become the owners of the house and had no objection, and the brothers allowed their mother to continue to live there as their father had wished.
After their father's death, their mother's drinking significantly worsened. The brothers also discovered she'd begun doing methamphetamine with a neighbor. The combination of excessive drinking and methamphetamine use took a heavy toll on her physical and mental health, and it affected her relationship with her sons and their families.
In 2018, Travis and David persuaded her to move to a new community to start a new life, be closer to them and distance herself from the drug culture into which she'd fallen. The Long Street house was sold, and the proceeds (approximately $370,554) were deposited into a joint account held by their mother and Travis. The brothers testified the three had discussed and agreed that the proceeds would be used to buy a new home for her to live in, and that the new home would be put into the trust. They didn't expect the money to stay in the joint bank account for long because a new home had already been identified. In addition, their mother left them a voicemail message stating, "I'll put this other house in the trust too, so if something happens to me you guys get, you have to deal with it, I don't want to deal with it anymore."
The trial court erroneously stated that David was the joint owner on the account; both parties agree it was Travis.
Three days after sale of the Long Street house closed, the proceeds were used to buy a new home in another community (the "Americana Way" house). Title was taken in their mother's name alone, which David testified he discovered only after the sale closed. That concerned him. Title was never changed to the trust, however, because about a month after their mother moved in to the new home, it was destroyed in a wildfire.
Their mother's drinking continued to worsen, she refused to seek substance abuse treatment, the brothers declined to allow her to live with their families due to the danger she posed to their children (one child had been injured), and she went to live with her sister Bernice. Ultimately, she became angry at her sons and alienated from them.
In the meantime, their mother was paid approximately $400,000 in insurance proceeds for the home's destruction, which she deposited back into the joint account she had with Travis. Nine days later, unbeknownst to either of her sons, she transferred the money to a joint account she had recently opened with her sister, Bernice. A month and a half later she died from complications due to chronic substance abuse, and the next business day after her death her sister Bernice emptied the account and moved the money elsewhere.
David and Travis sued their Aunt Bernice seeking, among other remedies, imposition of a constructive trust over the money Bernice withdrew from the joint account she and their mother had opened. And Bernice, who prevailed below, has filed an appellate brief conceding on its opening page that the funds she siphoned from that joint account "trace back to [the house] that [Terri and Mark] transferred into a trust in 2005, naming [the sons] as the trustees and as the beneficiaries of the property upon [father's] death."
"[T]he imposition of a constructive trust[] is used to prevent unjust enrichment or to compel restoration of property by one who is not justly entitled to it. The usual situation in which the relief is granted is found in cases where the substantive basis of the action is that the property has been obtained through actual fraud, violation of a confidential relationship, or breach of trust." (Day v. Greene (1963) 59 Cal.2d 404, 411 (Day).) Thus, "[o]ne who gains a thing by . . . the violation of a trust . . ., 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." (Civ. Code, § 2224; see also id., § 2223; 13 Witkin, Summary of Cal. Law (11th ed. 2017) Trusts, § 361, p. 939 ["Where a trustee or other fiduciary transfers property in breach of trust, the transferee who takes with notice or not for value (i.e., not as a bona fide purchaser) holds as constructive trustee for the beneficiary"], italics added.)
The trial court rejected David and Travis' constructive trust claim, finding that Bernice had engaged in no wrongdoing herself, a factual finding we will not revisit or second-guess.
The trial court also ruled that "[a] constructive trust can . . . be used to compel an innocent co-owner or joint tenant to return the property to [the] person entitled to it, where it was wrongfully acquired by the other joint tenant" (see Harris v. Lee (1954) 123 Cal.App.2d 177,179-180)-a legal principle that Bernice does not contest on appeal. The trial court found that plaintiffs' mother did not engage in any conduct that brought her actions within this rule. It found she did not assert ownership over the funds by mistake, accident, fraud, by means of undue influence or by means of the violation of a trust. Rather, the trial court reasoned that because the insurance proceeds were deposited into a joint account with mother as one of the two joint account holders, she had the right to dispose of those funds as she wished. So, it reasoned, she did nothing wrong by secretly transferring that money to another account over which neither of her sons had any control: that is, the joint account she set up with her sister Bernice.
On the contrary, as explained in the authority Bernice cites," 'a constructive trust may be imposed in practically any case where there is a wrongful acquisition or detention of property to which another is entitled.'" (Martin v. Kehl (1983) 145 Cal.App.3d 228, 238 [affirming imposition of constructive trust].)
On appeal, Travis and David contend their mother did violate a trust, and therefore a constructive trust should have been imposed on the funds now in possession of their aunt. We agree.
We review this question de novo because the relevant facts are undisputed and, although the parties' briefing is not terribly clear, we understand them both to agree. (See, e.g., Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 989, 991-992 [reversing ruling on request for constructive trust where trial court "erred as a matter of law" based on review of "undisputed" evidence]; Higgins v. Higgins (2017) 11 Cal.App.5th 648, 658 (Higgins) [reversing denial of constructive trust after a bench trial because "undisputed evidence . . . established all of the conditions necessary to impose a constructive trust"].)
Here, David and Travis assert that under the 2005 Trust their parents created, they became the beneficial owners of the Long Street house upon their father's death under the express terms of the agreement between their parents establishing the trust. Bernice does not refute that but, on the contrary, concedes that they "had the right to take title to the [house] immediately" upon their father's death.
Citing Redke v. Silvertrust (1971) 6 Cal.3d 94 (Redke), David and Travis assert that their mother's actions in diverting the proceeds of the trust property (i.e., the insurance money) to a joint account with Bernice constituted constructive fraud that justifies the imposition of a constructive trust.
Redke supports this contention. In that case, a husband promised his wife that if she pre-deceased him, he would bequeath all her separate property to her daughter by another marriage (i.e., his stepdaughter) but after his wife died he breached the promise by bequeathing the property to others. (Redke, supra, 6 Cal.3d at pp. 99-100.) The stepdaughter sued the representatives of the husband's estate, the trial court awarded the disputed assets to the stepdaughter, and the Supreme Court affirmed. (Id. at pp. 99, 100.) It explained that the stepdaughter's cause of action "arose out of [husband's] violation of his confidential relationship with [wife] by his failure to perform his part of their agreement," and that" '[s]uch a violation of a confidential relationship constitutes constructive fraud and where, as here, unjust enrichment results a constructive trust may be imposed.'" (Id. at p. 106; accord, Day, supra, 59 Cal.2d at p. 411.)
To similar effect are the authorities Bernice cites. (See Higgins, supra, 11 Cal.App.5th 648; Cabral v. Soares (2007) 157 Cal.App.4th 1234, 1241.) Indeed, one is practically on all fours. In Higgins, a husband and wife were the named owners of a joint bank account containing assets expressly held in trust for the benefit an elderly relative of the husband. (Higgins, at pp. 653654.) After the husband died, the wife removed the elderly relative's name from the joint account, converted the account to an individual account in her own name and used the money for her own purposes (including, coincidentally, transferring some of it to a sibling). (Id. at pp. 654, 656, 660.) The elderly relative's executor brought suit against the wife to impose a constructive trust on the funds and, after a bench trial, the trial court denied the request, albeit reluctantly. (Id. at pp. 656, 658.) Like the trial court here, the trial court in Higgins reasoned that the wife had done nothing wrong because as a surviving joint tenant on the bank account, "she had the right to do as she pleased with the funds in the accounts." (Id. at p. 658.)
The appellate court reversed. It held the undisputed facts warranted imposition of a constructive trust because the wife had engaged in a wrongful act: she breached her express agreement with her late husband that the funds belonged to the elderly relative and would be held in trust for her. (Id. at pp. 658, 660, 664.) Although the wife held legal title to the bank account after her husband died, the elderly relative "held the beneficial title" (id. at p. 662), and the wife repudiated the trust by treating the money as her own. (Id. at p. 663). "Although [wife] changed the form of the accounts" when she put them in her own sole name, "she did not have any beneficial interest in them." (Ibid.) Undisputed evidence that the wife had removed the relative's name from the account and used the money for her own purposes "was sufficient to impose a constructive trust on the funds to prevent unjust enrichment." (Id. at p. 660.)
These authorities compel us to reverse. Here, as in Redke, plaintiffs' parents agreed that property would be devised to plaintiffs, but the surviving spouse breached the agreement. In this case, that occurred when plaintiff's mother-in the words of respondent's brief-"acted as the legal owner of the funds" by withdrawing the trust funds from the joint account with Travis and asserting possession and control over them to the exclusion of her sons by depositing them in an account in her own and Bernice's names. Under Redke, that constitutes constructive fraud. And just as in Higgins, the fact that plaintiffs' mother had legal title to the insurance proceeds when they were deposited into her and Travis' joint bank account did not make her the owner of the funds or permit her to spend them as she wished, because her sons were the beneficial owners. The trial court in this case made the same legal error as the trial court in Higgins.
Bernice does not address this issue. She makes numerous appellate arguments but none directed to plaintiffs' mother's undisputed breach of the trust agreement and her husband's testamentary wishes.
The trial court erred in concluding Terri Maxon committed no wrongdoing and no violation of a trust. The undisputed evidence demonstrates that she did, and it warranted imposition of a constructive trust to rectify that wrongdoing and prevent the unjust enrichment of Bernice.
DISPOSITION
The judgment is reversed. Appellants shall recover their costs.
We concur. MILLER, J., MAYFIELD, J. [*]
[*] Judge of the Mendocino Superior Court assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.