Opinion
NOT TO BE PUBLISHED
APPEAL from orders of the Superior Court of Los Angeles County Nos. BP097671, BP097677, BP097674. Aviva K. Bobb, Judge.
Rutter Hobbs & Davidoff Incorporated, Terence S. Nunan and Steven E. Formaker for Plaintiff and Appellant.
Hahn & Hahn and Clark R. Byam for Defendant and Respondent.
Oldman, Cooley, Sallus, Gold, Birnberg & Coleman, Marshal A. Oldman, Susan R. Izenstark, and Jamie N. Gonzalez for Objector and Appellant.
CHAVEZ, J.
In this consolidated appeal, Rutter Hobbs & Davidoff Incorporated (RHD) appeals from orders entered in three related trust proceedings denying its petitions for payment of attorney fees and costs. Jilliene Taper Marrero (Marrero), former trustee of the Mark Taper Trusts A, C, and 1 (collectively “Taper trusts” or “trusts”) and Bessemer Trust Company of California, N.A. (Bessemer), current trustee of the Taper trusts, oppose RHD’s appeal. In addition, Marrero cross-appeals from a single finding in the statement of decision issued by the probate court.
RHD filed a motion to dismiss Marrero’s cross-appeal and for a finding that, having been removed as trustee, Marrero had no right to participate in this appeal as a respondent. Marrero opposed the motion, arguing that she was a party in the trial court action and was aggrieved by the decision. On May 20, 2009, this court denied RHD’s motion without prejudice to a motion to strike Marrero’s respondent’s brief after it was filed. RHD has declined to file a motion to strike Marrero’s respondent’s brief, and no longer contests Marrero’s standing because “the current trustee, [Bessemer], has joined in [Marrero’s] Brief, thereby correcting the standing defect.”
We reverse the orders denying RHD’s petitions for payment, and remand for further proceedings. Marrero’s cross-appeal is rendered moot therefore we do not address it.
RHD argues that Marrero’s cross-appeal from the statement of decision is improper. Because Marrero’s cross-appeal is rendered moot by our decision, we do not reach this question.
CONTENTIONS
RHD argues that (1) the probate court erred in determining that the contract for services between RHD and Marrero, acting as trustee, was not properly entered into; (2) the probate court misinterpreted the requirements of Probate Code sections 18000 through 18005; and (3) the probate court erroneously relied on section 15684 in concluding that RHD was not entitled to the fees and costs it requested.
All further statutory references are to the Probate Code unless otherwise indicated.
FACTUAL AND PROCEDURAL BACKGROUND
The three Taper trusts at issue were created by S. Mark Taper (Taper). The primary beneficiary of the Taper trusts is his granddaughter, Claudia Eve Taper Kleefeld (Kleefeld). Marrero, who is also Taper’s granddaughter, was the trustee of the Taper trusts for more than 20 years.
Beginning in April 2006, Kleefeld filed actions to surcharge and remove Marrero as trustee of the Taper trusts (surcharge actions). Kleefeld sought to surcharge Marrero for legal fees paid by Marrero to Evan Schenkel, Marrero’s husband. In October 2006, RHD was hired by Marrero, in her capacity as trustee, to represent her in defending the surcharge actions. Marrero and RHD formalized their relationship by a written contract dated October 26, 2006, which Marrero signed as trustee.
During the time that Marrero was represented by RHD in her capacity as trustee, the probate court found that surcharges against Marrero in excess of $600,000 were warranted. On November 8, 2007, the probate court suspended Marrero and appointed Bessemer as interim trustee of the Taper trusts.
Marrero later resigned and Bessemer became the successor trustee of the Taper trusts.
RHD received its last payment for legal services from the Taper trusts on September 26, 2007. However, RHD continued to represent Marrero, in her capacity as trustee, through November 2007. On November 27, 2007, the court ordered RHD to file a petition for any unpaid fees and costs. Pursuant to the court’s order, RHD filed petitions requesting unpaid fees and costs incurred through the end of November 2007. After a hearing on April 18, 2008, the court took RHD’s petition for fees and costs under submission.
Marrero states that RHD received $277,318.35 from the Taper trusts for its work in the surcharge actions.
On June 6, 2008, the trial court conducted a hearing on other matters concerning the Taper trusts. Marrero and Kleefeld were present at the hearing, but RHD was not present. Marrero and Kleefeld informed the probate court that they had reached a “global settlement.” They also requested that the court issue a ruling on RHD’s petition for fees and costs. At the hearing, the court announced its decision that “the attorney’s fees incurred by [Marrero] were not properly incurred in the administration of the trust and did not benefit the trust.” Therefore, after surcharging Marrero for the fees and costs that the trusts already paid to RHD, the court held that RHD’s petition “for payment of additional attorney’s fees by the trusts for the defense of the surcharge should be denied for the same reason.”
On the same date, the court issued minute orders denying RHD’s petitions. The orders stated:
“With respect to RHD’s request for further fees, the Court rules that a Trustee is not entitled to attorney’s fees and expense of litigation where, as in this case, it is determined that the trustee breached the Trust unless the court finds under Probate Code 15684(b) that the Trustee’s actions resulted in a benefit to the Trust. Estate of Gump (1991) 1 Cal.App.4th 582. This Court finds that the attorney’s fees incurred in the administration of the Trust and did not benefit the Trust, but rather were for the benefit of Trustee Marrero individually.”
RHD requested a statement of decision, and later lodged three identical proposed statements of decision with the trial court. Marrero filed objections to RHD’s proposed statements of decision and submitted her own proposed statements of decision. On August 13, 2008, after removing certain wording from RHD’s proposed statements of decision, the probate court signed and filed a statement of decision, which read, in part:
“1. The Court finds that the contract for legal services between RHD and Jilliene Taper Marrero as trustee was not properly entered into in the trustee’s fiduciary capacity as defined in Probate Code Section 18000. The reason such contract was not properly entered into was that the contract was for the benefit of Jilliene Taper Marrero and did not benefit the trust estate.
“2. The contract between RHD and Jilliene Taper Marrero as trustee would be enforceable against the trust estate, as provided in Probate Code sections 18000 through 18005, except for the fact that the court has found the legal services performed did not benefit the trust estate.
“3. The Court has made no findings that Jilliene Taper Marrero as trustee breached her fiduciary duties as trustee of the trust.”
Notices of appeal were timely filed on August 4, 2008. On January 27, 2009, this court granted RHD’s motion to consolidate the appeals.
DISCUSSION
I. Applicable law
Sections 18000 through 18005 govern the rights of third parties against a trust or trustee. Section 18000, subdivision (a), provides that “[u]nless otherwise provided in the contract..., a trustee is not personally liable on a contract properly entered into in the trustee’s fiduciary capacity in the course of administration of the trust unless the trustee fails to reveal the trustee’s representative capacity or identify the trust in the contract.” Under section 18004, “[a] claim based on a contract entered into by a trustee in the trustee’s representative capacity... may be asserted against the trust by proceeding against the trustee in the trustee’s representative capacity, whether or not the trustee is personally liable on the claim.”
Under these rules, a contract properly entered into by a trustee in his or her representative capacity is enforceable against the trust assets. If the contracting third party ends up with a claim for breach of the contract, the third party “‘may assert the claim against the trust by bringing an action against the trustee in the trustee’s representative capacity.’” (Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1348.) This is true regardless of whether the trustee has committed an intentional or negligent act which places personal fault with the trustee. “‘The question of ultimate liability as between the trust estate and the trustee may then be determined in the proceedings concerning the internal affairs of the trust or may be settled informally among the parties to the trust.’ [Citation.]” (Ibid., fn. omitted.)
II. Standard of review
Under the law set forth above, RHD was entitled to proceed against Marrero in her representative capacity on its claims for attorney fees and costs. Instead of allowing the claims against the trust estate, however, the probate court determined that the claims would not be allowed because the contract between RHD and Marrero was “not properly entered into in the trustee’s fiduciary capacity as defined in Probate Code Section 18000.” Our review of the court’s determination that the contract was not properly entered into under section 18000 requires us to evaluate the court’s application of facts to the statute in question. Our interpretation of the Probate Code and its application to undisputed facts are questions of law subject to de novo review. (CBS Broadcasting Inc. v. Superior Court (2001) 91 Cal.App.4th 892, 906.)
To the extent that there are disputed issues of fact, we use the substantial evidence test. (20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 271.) However, the facts relating to the formation of the contract between RHD and Marrero are undisputed.
We reject Marrero’s attempt to cast this as a question of the reasonableness of RHD’s fee request, which would be subject to an abuse of discretion standard of review. Marrero claims that “the probate court denied RHD’s request for additional fees after reviewing the parties’ pleadings and hearing oral argument as to the reasonableness of those fees.” Marrero focuses her argument on two facts: (1) that RHD’s representation of Marrero was not successful, and (2) that RHD had already received $277,318.35 from the Taper trusts for its work in the surcharge actions. Marrero insists that the probate court did not abuse its discretion in ruling that “RHD was not entitled to any additional fees.” Marrero cites Melnyk v. Robledo (1976) 64 Cal.App.3d 618, 623 (Melnyk), as support for the proposition that in determining reasonable attorney fees the trial court must weigh issues such as “‘the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure, and other circumstances in the case.’”
Marrero has misconstrued the results of RHD’s fee petitions. Notably, the probate court did not weigh any of the Melnyk factors. Neither the quality of RHD’s representation of Marrero, nor the reasonableness of the fees requested in light of amounts already paid, were relevant to the probate court’s decision.
As Marrero acknowledges, none of the previous payments to RHD had been subject to the approval of the probate court. In fact, the finding that the contract between Marrero as trustee and RHD was improperly entered into, thus unenforceable against the trust assets, would have prohibited payment of the previous fees out of trust assets as well. The fact that RHD was already paid for previous work was simply not relevant to the probate court’s determination that the contract was not properly entered into.
Because the probate court did not make a determination as to the reasonableness of RHD’s fees, we decline to address Marrero’s arguments regarding the probate court’s discretionary authority to award fees. The court focused on the question of whether, under the applicable law, the contract was properly entered into by the trustee. The matter thus concerns the proper interpretation and application of sections 18000 et seq., an analysis which requires de novo review.
Marrero makes much of the fact that the probate court deleted the following sentence from the proposed statement of decision drafted by RHD: “The legal fees and costs requested by RHD were reasonable and appropriate.” However, contrary to Marrero’s assertion, the court’s deletion of that sentence does not suggest that the court “determined that RHD’s requested fees were not reasonable or appropriate.” Instead, it confirms that the probate court did not consider these issues.
III. RHD was entitled to payment from Taper trusts pursuant to sections 18000 et seq.
Under section 18004, a claim based on a contract entered into by a trustee in the trustee’s representative capacity, on an obligation arising from ownership or control of trust property, is enforceable against the trust.
The parties do not dispute that the contract for services between RHD and Marrero was entered into by Marrero in her representative capacity. She signed the contract as “Jilliene Taper Marrero, Trustee.” Nevertheless, the probate court determined that the contract was not enforceable against the Taper trusts because it “was not properly entered into in the trustee’s fiduciary capacity as defined in Probate Code Section 18000.” As set forth below, we find that the probate court’s determination that the contract was not properly entered into under section 18000 is contrary to law.
Marrero agrees that the contract was properly entered into under section 18000. She argues stridently that “the Contract between RHD and [Marrero] as trustee was unequivocally properly entered into in [Marrero’s] fiduciary capacity, pursuant to Probate Code [section] 18000.”
A. Marrero had the power to enter the contract with RHD
Section 18000 provides that a trustee is not personally liable on a contract “[u]nless otherwise provided in the contract or in this chapter” if the contract was “properly entered into in the trustee’s fiduciary capacity in the course of administration of the trust unless the trustee fails to reveal the trustee’s representative capacity or identify the trust in the contract.”
The parties do not argue that the trustee failed to reveal the trustee’s representative capacity or identify the trusts, nor do they argue that the contract required that Marrero undertake personal liability for the contractual obligations.
As the Law Revision Commission comments to section 18000 explain, “properly entered into” means that “the trustee is exercising an available power and is not violating a duty.” (Cal. Law Revision Com. com., 54A West’s Ann. Prob. Code (1991 ed.) foll. § 18000, p. 236.)
1. The hiring of attorneys was an available power
Section 16247 expressly authorizes a trustee to hire attorneys “to advise or assist the trustee in the performance of administrative duties.” The terms of the Taper trusts likewise empower its trustee to hire counsel. Under section 16249, a trustee “has the power to prosecute or defend actions, claims, or proceedings for the protection of trust property and of the trustee in the performance of the trustee’s duties.”
The trusts also provide that the trustee “may freely act under all or any of the powers by this agreement given to him in all matters concerning the trusts herein created, after forming his judgment based upon all the circumstances of any particular situation... without the necessity of obtaining the consent or permission of any person... or the consent or approval of any court....”
Marrero’s act of hiring of attorneys to defend her in the surcharge actions was necessary to the continued performance of her duties as trustee. The plain language of the above referenced statutes, as well as the trusts themselves, permitted her to hire attorneys. Thus, Marrero’s act of entering the contract with RHD for legal services was within her power as trustee.
2. The hiring of attorneys was not a violation of any duty
At the time Marrero entered the contract with RHD, the question of whether she had violated a duty in paying her husband for legal services had not yet been answered. However, the act of hiring RHD to assist in her defense was separate from the acts which were the subject of the surcharge action. Neither party suggests that the act of hiring attorneys to defend her actions as trustee was, in and of itself, a violation of any duty.
In a case where the trustee is ultimately found liable in the underlying surcharge action, the trustee would likely be required to reimburse the trust for attorney fees incurred in defending the surcharge. However, under the plain language of section 18004, the ultimate liability of the trustee to the trust is irrelevant to the question of whether the attorneys should be paid from the trust assets: “A claim based on a contract entered into by a trustee in the trustee’s representative capacity... may be asserted against the trust... whether or not the trustee is personally liable on the claim.” (§ 18004.)
Prior to July 1987, the date that section 18000 et seq. went into effect, “the prior case-law rule in California [was] that a trustee was personally liable on a contract unless the contract stipulated that the trustee was not liable.” (Cal. Law Revision Com. com., 54A West’s Ann. Prob. Code, supra, foll. § 18000, p. 236.) Section 18000 is therefore “the reverse” of the prior rule. (Ibid.) In addition, “[s]ection 18004 alter[ed] the prior case law rule that the trustee could not be sued in a representative capacity where the trust estate was not liable.” (Cal. Law Revision Com. com., 54A West’s Ann. Prob. Code, supra, foll. § 18004, p. 239.) However, even under the prior rules, a trustee could be indemnified by the trust for attorney fees paid by the trustee in defense of an unjust surcharge action. (See, e.g., Estate of Cassity (1980) 106 Cal.App.3d 569, 574 [“efforts and expenditures in the trustee’s successful defense are chargeable against the trust estate”].)
The probate court did not identify a specific duty that was breached by Marrero’s entry into the contract for services with RHD, nor do the parties. We find no breach of duty in Marrero’s act of hiring attorneys to defend her actions as trustee. In fact, it was necessary to the continued “performance of the trustee’s duties.” (§ 16249.)
Because Marrero was exercising an available power and not violating a duty, she “properly entered into” the contract with RHD under section 18000.
B. Section 18000 contains no requirement that the contract benefit the trust
The court stated: “The reason such contract was not properly entered into was that the contract was for the benefit of Jilliene Taper Marrero and did not benefit the trust estate.” However, section 18000 contains no requirement that the contract signed by the trustee “benefit the trust.” The only specific requirements of the statute are that the trustee reveal his or her representative capacity and identify the trust.
Section 18000 “does not excuse any liability the trustee may have for breach of trust.” (Cal. Law Revision Com. com., 54A West’s Ann. Prob. Code, supra, foll. § 18000, p. 236.) However, pursuant to the plain language of section 18005, “[t]he question of liability as between the trust estate and the trustee personally may be determined in a proceeding under Section 17200.” Section 17200 allows a trustee or beneficiary of a trust to “petition the court... concerning the internal affairs of the trust.”
Thus, while section 18000 et seq. requires that the trust assets be available to satisfy contractual obligations properly incurred by the trustee in his or her representative capacity, the beneficiaries may, in a separate proceeding under section 17200, ultimately establish the personal liability of the trustee.
The Law Revision Commission comments to section 18005 explain that “ultimate liability as between the estate and the trustee need not be determined before the third person’s claim can be satisfied.” (Cal. Law Revision Com. com., 54A West’s Ann. Prob. Code, supra, foll. § 18005, p. 240.)
IV. Section 15684 is irrelevant
In its minute orders of June 6, 2008, the probate court found that:
“With respect to RHD’s request for further fees, the Court rules that a Trustee is not entitled to attorney’s fees and expense of litigation where, as in this case, it is determined that the trustee breached the Trust unless the court finds under Probate Code 15684(b) that the Trustee’s actions resulted in a benefit to the Trust. Estate of Gump (1991) 1 Cal.App.4th 582. This Court finds that the attorney’s fees incurred in the administration of the Trust and did not benefit the Trust, but rather were for the benefit of Trustee Marrero individually.”
The minute order states that “the trustee breached the Trust” -- a finding which directly conflicts with the statement of decision, in which the court specified that “[t]he Court has made no findings that Jilliene Taper Marrero as trustee breached her fiduciary duties as trustee of the trust.” As we have emphasized throughout this opinion, the ultimate liability of the trustee to the trust is irrelevant to the question of whether a third party who contracts with the trustee in her representative capacity is entitled to payment on the contract.
Section 15684 is irrelevant. It governs situations where a trustee seeks repayment for expenditures that the trustee has made. Section 15684 provides:
“A trustee is entitled to the repayment out of the trust property for the following:
“(a) Expenditures that were properly incurred in the administration of the trust.
“(b) To the extent that they benefited the trust, expenditures that were not properly incurred in the administration of the trust.”
No party to this appeal argues that Marrero made any “expenditures” to RHD out of her personal funds. She was not seeking “repayment” of any money. Instead, RHD, a third party, sought direct payment from the trust estate on a contractual obligation. The language in subdivision (b) of section 15684 requiring that expenditures paid by a trustee be reimbursed if they “benefit the trust” is therefore inapplicable.
In Estate of Gump (1991) 1 Cal.App.4th 582, the trustee, Wells Fargo Bank, appealed from a judgment disallowing the bulk of its request for compensation, including reimbursement for certain attorney fees. Because the matter involved an action for reimbursement on the part of a trustee -- not direct payment to a contracting third party -- it is also irrelevant to our analysis.
The relevant rules are section 18000 et seq., governing the rights of third parties that contract with a trustee. As set forth above, those rules dictate that RHD’s claim for attorney fees and costs must be allowed against the Taper trusts’s assets, regardless of the trustee’s ultimate liability.
DISPOSITION
The probate court’s orders denying RHD’s petitions for fees and costs are reversed. The matter is remanded for further proceedings consistent with this opinion. RHD is awarded its costs of appeal.
We concur: DOI TODD, Acting P. J., ASHMANN-GERST, J.