Opinion
G055670
10-30-2018
NATIONAL JEWISH HEALTH, Plaintiff and Respondent, v. JASON A. BLONSKA, Defendant and Appellant.
Slovak Baron Empey Murphy & Pinkney, H. Neal Wells III, Charles L. Gallagher and Wendy S. Dowse for Defendant and Appellant. Weinstock Manion, Blake A. Rummel and Andrew G. Smith for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2014-00759639) OPINION Appeal from an order of the Superior Court of Orange County, Kim R. Hubbard, Judge. Reversed. Slovak Baron Empey Murphy & Pinkney, H. Neal Wells III, Charles L. Gallagher and Wendy S. Dowse for Defendant and Appellant. Weinstock Manion, Blake A. Rummel and Andrew G. Smith for Plaintiff and Respondent.
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Plaintiff National Jewish Health is a beneficiary of a trust of which defendant Jason A. Blonska is the current trustee. After the trustor of the trust died, various parties with claims regarding the trust, or related claims, filed several actions. All of the parties to those actions entered into a global settlement agreement, whereby, among other things, plaintiff and two other charities compromised the amounts due them under the trust. The settlement agreement required the former trustee to pay plaintiff and the two other charities. When he failed to do so but instead paid only himself his trustee's fees and paid his attorney, he was surcharged and ordered to pay the three charities and resign as trustee. Defendant was then appointed trustee.
The former trustee did not pay the surcharge amount. For a year defendant also failed to pay the charities. Plaintiff then filed a motion to enforce the settlement, which the court granted.
Defendant argues the court erred in granting the motion for several reasons. The trust appears to have insufficient assets to pay all three charities plus federal and state taxes owed in an unknown amount. If there were insufficient funds to pay the taxes, defendant would be personally liable for any unpaid amount. In addition, payment to plaintiff without payment to the other two charities would require defendant to breach his duties of loyalty and impartiality to all the charities equally. Further, payment to only plaintiff without concurrent payment to the other charities violates and improperly modifies the court-approved settlement agreement. We agree with these arguments and reverse. Because we decide the case on this basis we need not discuss defendant's claim the order granting the motion violated his due process rights.
FACTS
In 1980 Lorane W. Katz (decedent) established the Lorane W. Katz Separate Property Trust, which was subsequently amended (Trust). Among the beneficiaries of the Trust were plaintiff, St. Joseph Hospital, and City of Hope (collectively Charities). After decedent died in 2014, Peter Kote (Kote) served as the successor trustee of the Trust.
In 2015 there were several actions pending by and among various parties, including claims in probate court and family law court, and regarding the Trust. In an effort to resolve all of the outstanding actions the various parties to these actions, Kote, and the Charities entered into a global settlement agreement (Settlement Agreement). Pursuant to the Settlement Agreement, Kote was to immediately resign as trustee, effective upon court approval of the settlement, and to provide an accounting within 60 days. Any objections would be resolved by binding arbitration.
The Charities agreed to compromise the amounts due under the Trust. Plaintiff agreed to accept $181,250 and the other two Charities agreed to accept $72,500. Kote was to make these distributions concurrently with payment of his trustee's fees prior to his resignation.
The trial court entered an order approving the Settlement Agreement. Plaintiff was subsequently appointed as the successor trustee.
Kote filed the accounting but failed to pay the Charities, instead paying only his trustee fees and his lawyer's fees. When objections to Kote's accounting were arbitrated, the arbitrator surcharged him not quite $99,000 to be paid pro rata to plaintiff and the other two Charities. Defendant also did not make the required payments to the Charities after his appointment as successor trustee.
Thirteen months after the order approving the Settlement Agreement, plaintiff filed a motion to enforce the Settlement Agreement. In his opposition to the motion defendant stated he did not have the funds to pay any of the Charities. He cited to Kote's failure to pay pursuant to the Settlement Agreement or to pay the surcharge amount. He also stated most of the Trust's assets were held by a receiver in a family law matter between decedent and her former husband; thus he could not make the payments set out in the Settlement Agreement.
Defendant further stated decedent had not filed income tax returns "for decades" nor had Kote filed any returns during his tenure as trustee. According to defendant Kote had not taken steps to gather necessary documents or take any other measures to determine what might be owed. Thus, defendant did not know the amount of any taxes due, which taxes have priority over any distributions to the Charities. In addition, expenses of administration of the Trust take priority over payment to the Charities. Defendant also stated he had searched through documents left in decedent's home but had been unable to find tax information. He was "working diligently" to determine what was owed.
In April the court granted the motion to enforce the Settlement Agreement and also awarded plaintiff $1,860 in attorney fees and costs. In the minute order the court noted that payment to plaintiff did "not appear to be the only material term not yet performed." Plaintiff and defendant were ordered to meet and confer "as to the form of judgment" and within 30 days of the order they were to file a joint proposal or, if unable to agree, separate proposals and serve all parties to the Settlement Agreement. Any other party to the Settlement Agreement had the right to file a counterproposal.
In a July minute order the court noted it had received separate proposed orders from the parties plus an order from Kote. The court noted it had ordered plaintiff and defendant to meet and confer and the parties had not provided any information as to whether they had done so. It stated the parties need to "sufficiently clarify" the matter. Thereafter it would either consider the separate orders or refuse to do so until after the parties met and conferred.
The court noted it had not asked for an order from Kote.
There is no information in the record as to whether the parties ever met and conferred or filed a report explaining what had or had not been done. In September the court simply signed the order in the form submitted by plaintiff (Order), requiring defendant to "honor the terms of the Settlement Agreement" and pay plaintiff $181,250 plus interest, and not quite $2,000 in attorney fees and costs.
DISCUSSION
1. Introduction and Standard of Review
The parties dispute the standard of review, with defendant arguing a de novo standard and plaintiff asserting a substantial evidence standard. We disagree with both parties.
In deciding a motion to enforce a settlement agreement the court may adjudicate factual disputes as to its terms and conditions. (Skulnick v. Roberts Express, Inc. (1992) 2 Cal.App.4th 884, 889; Malouf Bros. v. Dixon (1991) 230 Cal.App.3d 280, 283, 284.) And in that case substantial evidence would be the proper standard of review. (Skulnick v. Roberts Express, Inc., at p. 889.)
Here, however, as discussed below, the court failed to adjudicate issues raised by defendant regarding the propriety of enforcing part of the Settlement Agreement as to plaintiff alone to the exclusion of payment of taxes and distribution to the other two Charities. Instead, after acknowledging there were other material terms of the Settlement Agreement that had not been performed, it signed the Order without taking those other terms into account, in effect modifying the Settlement Agreement. This failure constituted an abuse of discretion. (Ryan v. Crown Castel NG Networks Inc. (2016) 6 Cal.App.5th 775, 786 [court's failure to exercise power is improper failure to exercise discretion]; Leeman v. Adams Extract & Spice, LLC (2015) 236 Cal.App.4th 1367, 1375 [court's modification of settlement agreement abuse of discretion].) Thus, we review the Order according to that standard of review. (569 E. County Boulevard LLC v. Backcountry Against the Dump, Inc. (2016) 6 Cal.App.5th 426, 434 [trial court's failure to apply correct legal standards reviewed for abuse of discretion].) 2. Preferential Treatment of Plaintiff
The Order requiring defendant to pay plaintiff, without consideration of the potential tax liability and payments to the other two Charities, constitutes preferential treatment of plaintiff, and it cannot stand. As defendant points out, the Order poses three substantial problems. First, as a result of the Order to pay only plaintiff, the other two Charities stood to lose all or a part of their gifts as confirmed in the Settlement Agreement. Payment solely to plaintiff violates defendant's duties of loyalty and impartiality owed to all the Charities equally. (Prob. Code, §§ 16002, 16003, 16004; Hearst v. Ganzi (2006) 145 Cal.App.4th 1195, 1208 [trustee must deal impartially with all beneficiaries and may not favor one over another].)
We did not find a proof of service for the motion. Thus, it is impossible to know if the other two Charities even received notice of the motion and had an opportunity to oppose it. In addition, although the parties did not raise this and we do not rule on it, given the alleged insufficiency of funds to pay all sums owed, we question whether the other two Charities were indispensable or necessary parties to the motion. --------
Second, under 31 United States Code section 3713(a)(1)(B), when an estate has insufficient funds to pay all debts, any money owed to the United States government must be paid first. Failure to do so renders the estate or trust representative liable for any unpaid amounts (31 U.S.C. § 3713(b)). A trustee is likewise personally liable for the trust's unpaid state taxes. (Rev. & Tax. Code, §§ 19071-19073, 17006.) Consequently, the Order impermissibly requires payment to plaintiff without regard to the potential tax liability, thereby improperly exposing defendant to personal liability.
Third, the Order requiring defendant to pay plaintiff without payment to the other two Charities was an improper modification of the court-approved Settlement Agreement requiring payment to be made to the Charities concurrently. (Leeman v. Adams Extract & Spice, LLC, supra, 236 Cal.App.4th at p. 1375 [court had no authority to modify express term settlement agreement without parties' consent].)
The court apparently did not take the foregoing facts and principles into consideration, thereby abusing its discretion in making the Order. (Miyamoto v. Department of Motor Vehicles (2009) 176 Cal.App.4th 1210, 1218-1219 [discretion must "'"be exercised in conformity with the spirit of the law and in a manner to subserve and not to impede or defeat the ends of substantial justice"'"].) Thus, the Order must be reversed.
DISPOSITION
The Order is reversed. Defendant is entitled to costs on appeal.
THOMPSON, J. WE CONCUR: ARONSON, ACTING P. J. IKOLA, J.