Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. BP066539 C/W BP073345, Aviva K. Bobb, Judge.
Law Offices of Paul L. Stanton and Paul L. Stanton, John F. Eyrich and Robert J. Muller for Plaintiff and Appellant.
Hill, Farrer & Burrill and Michael K. Collins; John T. Blanchard, P.C. and John T. Blanchard for Defendant and Respondent
PERLUSS, P. J.
Richard Taubman appeals from the probate court’s order denying his petition to enforce the no contest clause in the Janice L. Taubman 1990 Revocable Trust against his sister Anne. Richard contends the probate court’s findings in prior removal and surcharge actions that Anne had breached her fiduciary duty as special trustee to the trust -- determinations we affirmed on appeal -- compel a finding Anne also violated the no contest clause in the trust, which disinherits any beneficiary who attacks or seeks to “impair or invalidate” any of the trust’s provisions. The probate court concluded Anne’s conduct as special trustee did not constitute a contest. We agree.
We refer to Anne, Richard and Janice Taubman by their first names not out of disrespect but for convenience and clarity. (Cruz v. Superior Court (2004) 120 Cal.App.4th 175, 188, fn. 13.)
See Estate of Taubman (Sept. 15, 2004, B170510) [nonpub. opn.] (Taubman I) (appeal from order removing Anne as special trustee to trust for breach of fiduciary duty); Taubman v. U.S. Bank (Oct. 24, 2007, mod. Nov. 26, 2007, B177712, B185170) [nonpub. opn.] (Taubman II) (appeal from judgment surcharging Anne for damages to trust caused by breach of fiduciary duty).
FACTUAL AND PROCEDURAL BACKGROUND
1. The Janice L. Taubman Revocable Intervivos Trust
A more comprehensive factual recitation concerning the establishment of the trust and prior removal and surcharge actions can be found in Taubman II, supra, B177712, B185170.
In 1990 Anne and Richard’s mother Janice established the Janice L. Taubman 1990 Revocable Intervivos Trust naming herself as sole trustee. When Janice died in September 1999, the trust became irrevocable. Santa Monica Bank became co-trustee of the trust along with Gilda Ulloa-Ochoa.
Under the trust’s terms, Janice’s various ownership interests in Seaport Village, a shopping center and tourist attraction in San Diego, were placed in a sub-trust (the Seaport Village sub-trust) for Anne, who, along with being an officer of the entities operating Seaport Village, was named in the trust instrument as the special trustee of the sub-trust. Richard and his son Wyatt were named as contingent beneficiaries of the Seaport Village sub-trust, entitled to benefit from the sub-trust’s assets only if Anne did not survive Janice by 10 years. Janice’s interests in business ventures other than Seaport Village were placed in a sub-trust for Richard. In the trust instrument Janice declared her express intent to divide the trust assets equally between Anne and Richard. To effectuate this intent, the trust instrument expressly provided for an equalizing payment, if necessary, at the time of distribution.
2. Prior Actions for Removal and Surcharge
a. The removal petitions
In May 2002 Anne filed a petition in the probate court to remove and surcharge U.S. Bank (the Bank), successor in interest to Santa Monica Bank, which had become sole trustee of the trust following Ochoa’s death. In support of her petition Anne argued the Bank had a conflict of interest and had been improperly partial to Richard’s interest in administering the trust.
On February 18, 2003 the Bank filed its own action to remove Anne as special trustee of the Seaport Village sub-trust, alleging Anne had concealed from the Bank and from Richard transactions with GMS Realty, Inc. (GMS) in which Anne sold sub-trust assets and transferred the proceeds from the sale to entities outside the trust that she controlled. After an eight-day trial, on September 17, 2003 the probate court denied Anne’s petition and granted the Bank’s and Richard’s petitions to permanently remove Anne as special trustee of the Seaport Village sub-trust for breach of fiduciary duty. The court rejected Anne’s defense that she was the sole beneficiary of the Seaport Village sub-trust and, as a result, had no duty to anyone other than herself. The court found under the terms of the trust instrument Richard was a contingent beneficiary of the Seaport Village sub-trust whose contingent interest would vest if Anne did not survive Janice by 10 years. In other words, Richard remains a co-beneficiary of the Seaport Village sub-trust until, at a minimum, September 2009. The probate court also rejected Anne’s argument the GMS transaction did not utilize trust assets.
b. The first appeal: Taubman I
Anne appealed from the portion of the September 17, 2003 order removing her as special trustee of the sub-trust for breach of fiduciary duty and denying her petition to remove the Bank as trustee. On appeal Anne reasserted that, under the trust’s terms, she was the sole beneficiary of the Seaport village sub-trust. Alternatively, she argued her removal as special trustee to the Seaport Village sub-trust was not justified because, among other things, the GMS transaction did not involve trust assets.
In our September 15, 2004 opinion addressing Anne’s appeal, we rejected the first argument (Anne’s status as sole beneficiary) on its merits and found the second argument (whether the GMS transaction involved trust assets) had been forfeited for failure to support it with citations to authority and record references. (See Estate of Taubman (Sept. 15, 2004, B170510) [nonpub. opn.] (Taubman I).)
c. The surcharge trial
While the appeal from the removal order was pending, Anne submitted an accounting of her administration of the Seaport Village sub-trust. The Bank and Richard objected to the accounting reports and requested the court surcharge Anne more than $11 million for her breach of fiduciary duty as special trustee of the sub-trust. After a trial to address “the surcharge issues left unresolved” following the court’s September 17, 2003 order removing Anne as special trustee, the trial court found Anne liable to the trust for $7,935,150 and $870,536 in prejudgment interest. The court refused the Bank’s and Richard’s requests to double the amount of the surcharge under Probate Code section 859, finding that, although Anne had breached her fiduciary obligations, she had not engaged in the GMS transaction in bad faith.
Probate Code section 859 provides, “If a court finds that a person has in bad faith wrongfully taken, concealed, or disposed of property belonging to the estate of a decedent, conservatee, minor, or trust, the person shall be liable for twice the value of the property recovered by an action under this part. The remedy provided in this section shall be in addition to any other remedies available in law to a trustee, guardian or conservator, or personal representative or other successor in interest of a decedent.” Statutory references are to the Probate Code.
d. The second appeal: Taubman II
Anne, Richard and the Bank appealed from the surcharge judgment. Anne argued the trial court lacked subject matter jurisdiction to issue its surcharge order because the GMS transaction did not involve trust assets. The Bank and Richard, on the other hand, argued the court erred in finding Anne’s conduct did not amount to bad faith. We affirmed the surcharge judgment. Observing the trial court’s finding that trust assets had been utilized to consummate the GMS transaction had not been properly raised in the initial appeal from the removal order, we held that finding, necessary to the court’s prior removal order, had become final, and Anne’s attempt to relitigate the issue in the appeal from the surcharge judgment was barred under principles of res judicata. (See Taubman v. U.S. Bank (Nov. 26, 2007) B177712, B185170) [nonpub. opn.] (Taubman II). We also found substantial evidence supported the trial court’s finding Anne had not acted in bad faith when she orchestrated the GMS transaction. (Ibid.)
3. Richard’s Petition for a Judicial Determination Anne Had Violated the Trust’s No Contest Clause
The trust contains a no contest clause. As amended in 1998 the no contest clause, contained in the eighth amendment to the trust, provides in part: “If any beneficiary or person named as Trustee under this Living Trust or any Trust created hereunder . . . shall contest this Living Trust or any Trust created hereunder or the Trustor’s Will, or attack or seek to impair or invalidate any of the provisions thereof, or shall file or have filed any type of claim, proceeding in arbitration, legal action, or equitable action pertaining to any of the foregoing against the Trustor or the Trustor’s Estate, the Trustee, this Living Trust, or any beneficiary thereof or against any entity owned in whole or in part by the Trustor, or in which the Trustor has any interest, claiming among other things: [¶] (1) legal or equitable rights in any real or personal property of which title is held in the name of the Trust or the Trustee or in the name of the Trustor; [¶] . . . [¶] (5) to object to, seek to modify, restrict, or otherwise limit (i) the valuation procedure provided for in Section 3.02H hereof . . . [¶] In each of the above events, each such person shall take nothing under the terms of this Living Trust, and all interests given or to be distributed under this Living Trust to any of the foregoing persons shall be forfeited as if said person had predeceased the occasion on which he was to receive his interest, without issue surviving at the time of his death, and shall augment proportionally the Share going under this Living Trust to, or in trust for, such of the beneficiaries as shall not have participated in such acts or proceedings. . . .”
Paragraph 3.02H, also contained in the eighth amendment to the trust, provides an appraisal procedure for valuing the estate at the time of distribution and classifies conduct challenging the appraisal procedure as a violation of the no contest provision: “The Trustor intends that the foregoing valuation procedure and the final valuation determined thereunder be the sole and exclusive method for determining the fair market value of the real estate and business interests which constitute a part of the Trust Estate for the sole purpose of allocating trust assets between the Shares created hereunder. Any objection raised to the foregoing valuation procedure, the selection of an appraiser, the valuation arrived at by an appraiser or the final valuation arrived at in accordance with this section, by a beneficiary or person claiming under them shall be regarded as a contest and shall expressly be subject to the provisions of [the no contest clause] Section 5.03 hereof.”
On April 18, 2006 Richard filed a petition to enforce the no contest clause, contending the court’s findings Anne had prematurely used trust assets to orchestrate the GMS transaction for her own benefit compelled a finding she had impaired trust property in violation of the clause. Richard also argued Anne had violated the no contest clause when she claimed in the prior litigation that the property belonging to the trust actually belonged to her alone.
Before filing his petition to enforce the no contest clause, Richard sought and obtained a court order pursuant to section 21320 determining that his proposed petition to enforce the clause would itself not constitute a contest. (See § 21320, subd. (a) [“[i]f 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, including but not limited to, creditor claims . . . would be a contest within the terms of the no contest clause”].)
The probate court concluded none of Anne’s conduct in administering the trust or in defending the breach of fiduciary duty allegations amounted to a “contest” as defined in the trust instrument, including the amendments thereto. Accordingly, the court denied Richard’s petition to enforce the no contest clause.
DISCUSSION
1. Governing Law and Standard of Review
“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.] ‘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 or her] 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.’” (Burch v. George (1994) 7 Cal.4th 246, 255, fn. omitted; see also Prob. Code, §§ 21102, subd. (a) [“[t]he intention of the transferor as expressed in the instrument controls the legal effect of the dispositions made in the instrument”], 21304 [“[i]n determining the intent of the transferor, a no contest clause shall be strictly construed”].)
We review the language of 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. (Wells Fargo Bank v. Marshall (1993) 20 Cal.App.4th 447, 453; Burch v. George, supra, 7 Cal.4th at pp. 254-255; In re Estate of Davies (2005) 127 Cal.App.4th 1164, 1173.) Extrinsic evidence relevant to the intended meaning of the no contest clause is admissible only if it is relevant to show a meaning to which the language is reasonably susceptible. (See Estate of Kaila (2001) 94 Cal.App.4th 1122, 1133.) When there is ambiguity in the trust instrument, the construction giving the no contest clause the narrower scope should be adopted. (Ballard v. MacCallum (1940) 15 Cal.2d 439, 444.) In the end, “[e]ach case depends upon its own peculiar facts and thus case precedents have little value when interpreting a trust.” (McIndoe v. Olivos (2005) 132 Cal.App.4th 483, 487; Betts v. City National Bank (2007) 156 Cal.App.4th 222, 233.)
2. The Trial Court Did Not Err in Concluding Anne’s Mismanagement of the Trust as Special Trustee Did Not Constitute a Contest
Although Richard and Anne spend the majority of their respective appellate briefs disputing whether Anne actually breached her fiduciary duty by entering into the GMS transaction, that controversy is immaterial because, as we explained in Taubman II, supra, those findings by the probate court have long since become final. The question presented in this appeal is whether Anne’s breach of her fiduciary duty in engaging in the GMS transaction itself, and her litigation positions in the underlying removal and surcharge actions, compel the corollary conclusion she violated the trust’s no contest clause.
Citing language from the no contest clause that expressly disinherits a trustee if he or she “attack[s] or seek[s] to impair or invalidate any of the provisions thereof, or shall file or have filed any type of claim.” Claiming “legal or equitable rights in any real or personal property of which title is held in the name of the Trust,” Richard contends the provision reflects Janice’s intent to disinherit Anne if, as special trustee, she engaged in actions that in any way impaired the trust. By taking and disposing of trust assets for her own benefit in connection with the GMS transaction six years prior to the time those assets were to be distributed, Richard argues, Anne knowingly sought to “impair and invalidate” several trust provisions, including those establishing the 10-year trust term and ensuring, through an equalizing payment at the time of distribution, that Richard and Anne would inherit equally under the trust.
Although the no contest clause is broadly worded to apply to any attempt to “impair or invalidate” any provision of the trust, it does not state that a trustee’s mismanagement of the trust itself, rather than a direct or indirect challenge to the validity of the trust’s terms, amounts to a contest, nor would such an interpretation be consistent with the definition of contest contained in the Probate Code. In 1998, when the no contest clause at issue in this case was amended and in 1999, when Janice died and the trust became irrevocable, former section 21300 defined the term “contest” for purposes of a no contest clause as “an attack in a proceeding on an instrument or on a provision in an instrument.” (See Stats. 1990, ch. 79, § 14 at p. 463.) That definition was amended in 2002 to define contest as “any action identified in a ‘no contest clause’ as a violation of the clause” and to clarify that such a contest may be either direct -- “a pleading in a proceeding in any court alleging the invalidity of an instrument or one or more of its terms” based on grounds enumerated in the statute (§ 21300, subd. (b)) -- or indirect -- a “pleading in a proceeding in any court that indirectly challenges the validity of an instrument or one or more of its terms” based on any other ground not contained in section 21300, subdivision (b). (§ 21300, subd. (c); see Sen. Com. on Judiciary, Analysis of Sen. Bill No. 1878 (2001-2002 Reg. Sess.) as amended April 29, 2002 [“[t]his bill would define ‘a contest’ to a will, trust or other estate planning instrument for purposes of a no contest clause, and separately define a ‘direct contest’ and an ‘indirect contest’”].)
Because the 2002 amendment to section 21300 does not state it applies retroactively, we would ordinarily presume it does not; and the definition of “contest” in the 1991 legislation, applicable at the time the no contest clause was drafted and at the time the trust became irrevocable, should control. (See Evangelatos v. Superior Court (1988) 44 Cal.3d 1188, 1208 [“legislative provisions are presumed to operate prospectively, and . . . they should be so interpreted ‘unless express language or clear and unavoidable implication negatives the presumption’”].)
In this case, however, we need not resolve whether the definition of “contest” contained in former section 21300 or in the statute’s current form applies. Under either definition, absent some legal proceeding challenging, directly or indirectly, the validity or intent of the trust instrument, there can be no “contest.” (See Stats. 1990, ch. 79, § 14 at p. 463 [former § 21300 defining “contest” as an attack in a proceeding]; § 21300, subds. (b), (c) [contests, whether direct or indirect, require “pleading in a proceeding in any court”], (d) [“‘[n]o contest clause’ means a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary if the beneficiary files a contest with the court,” italics added]; see also Estate of Watson (1986) 177 Cal.App.3d 569, 572 [“[t]he word ‘contest’ has been variously construed to mean ‘any legal proceeding which is designed to result in the thwarting of the testator’s wishes as expressed in his [or her] will’ [citation]; to be limited to how the word ‘contest’ is used in the Probate Code [citation]; [and] to include only challenges which seek to acquire the testator’s property by intestate succession [citation]”]; cf. McKenzie v. Vanderpoel (2007) 151 Cal.App.4th 1442, 1454 [beneficiary’s petition in court proceeding to reallocate principal and income is designed to impair trust provisions and thus constitutes contest under no contest provision requiring forfeiture for conduct seeking to impair trust].)
Richard’s reliance on Estate of Bonaccorsi (1999) 69 Cal.App.4th 462, 469 and In re Barreiro’s Estate (1932) 125 Cal.App.752, 763, 767 to support his contention Anne’s breach of her fiduciary duty as special trustee in connection with the GMS transaction itself constitutes a “contest” is entirely misplaced. Those cases stand for the proposition that a manager/trustee cannot hide behind corporate formalities in order to escape surcharges for losses sustained by his or her mishandling of the estate. (See, e.g., Estate of Bonaccorsi, at p. 468 [estate administrator who ran closely held corporation at same time he was responsible to beneficiaries as a fiduciary could not hide behind corporate role to avoid liability to beneficiaries for breach of fiduciary duty]; In re Barreiro’s Estate, at p. 763, 767 [executor who disregarded corporate entity cannot himself hide behind it to protect himself from losses caused by his breach of fiduciary duties].) They do not involve the interpretation of a no contest clause, much less hold that a contest need not involve some pleading in a proceeding directly or indirectly challenging the trust terms.
Genger v. Delsol (1997) 56 Cal.App.4th 1410, which involved a section 21320 petition seeking an advance ruling whether a trustor’s widow could proceed with certain litigation without violating the no contest clause contained in the trust, is also inapposite. There, the appellate court held, consistent with the Supreme Court’s analysis in Birch v. George, supra,7 Cal.4th 246, that a contest is not confined to a direct attack on a will or trust but may include separate legal proceedings designed to thwart the testator’s expressed wishes. Thus, a separate complaint in civil litigation proceedings challenging the effect of a corporate stock redemption agreement, a trust asset, is an indirect contest even though the will or trust is not being challenged directly. (Id. at p. 1421; see also Estate of Pittman (1998) 63 Cal.App.4th 290, 296.)
The actions undertaken by Anne to consummate the GMS transaction, in contrast, involved no legal pleading seeking to impair or invalidate the trust or any of its provisions, either directly or indirectly, but rather were accomplished in her capacity as an officer of the corporate entities involved in the transaction. Although Anne’s dual status as special trustee made her liable for breach of her fiduciary duty in engaging in a transaction to the detriment of her co-beneficiary (see Estate of Bonaccorsi, supra, 69 Cal.App.4th at p. 468), the remedy for Anne’s misconduct as special trustee is removal and surcharge for breach of fiduciary duty (ibid.;see also § 17200), not forfeiture of her inheritance.
Richard alternatively asserts, if Anne’s conduct in effecting the GMS transaction does not itself amount to a contest, certainly her insistence in pleadings filed in the removal and surcharge actions in the trial court and in briefs in the appeals in those actions that the assets used to consummate the deal belonged to her and not to the trust amounts to an indirect contest. That is, by taking legal positions that, if successful, would have devalued the sub-trust and decreased Richard’s equalization payment at the time the trust assets are distributed, Anne sought generally to impair the trust, and in particular, Janice’s expressed intent that both her children inherit equally under it.
Once again Richard cites no pertinent authority for the proposition that litigation positions Anne took in defending herself in the removal action both in the trial court and on appeal amount to a contest seeking to invalidate a trust provision, nor does he explain how the twin purposes of a no contest clause -- discouraging litigation and giving effect to the expressed wishes of the testator (Burch v. George, supra, 7 Cal.4th at p. 255) -- are advanced by concluding a defensive argument relating to Janice’s intent concerning the timing of the distribution amounts to a contest. If the trust instrument had been executed after January 1, 2001 such that section 21305 would apply (see § 21305 [applicable by its terms to trusts executed after Jan. 1, 2001]; Estate of Rossi (2006) 138 Cal.App.4th 1325, 1333), it would be clear neither Richard’s petition for removal nor Anne’s responses would constitute a contest. (See § 21305, subds. (a)(2) [action to determine character, title, or ownership of property is not a contest], (b)(7) [pleading regarding appointment or removal of fiduciary not a contest], (f) [“pleading” includes “a petition, complaint, response, objection, or other document filed with the court that expresses the position of a party to the proceeding”].) There is no cogent reason to come to a different conclusion under the applicable common law. If Richard’s nonfrivolous petition to remove Anne for breach of fiduciary duty would not violate the no contest clause (see Estate of Ferber, supra, 66 Cal.App.4th at pp. 253-255 [to the extent no contest clause bars nonfrivolous petition to remove fiduciary for malfeasance, it is void as violation of public policy]), neither, by analogy, would Anne’s nonfrivolous, defensive response. (Cf. Bertero v. National General Corp. (1974) 13 Cal.3d 43, 52-53 [although a claim asserted in a cross-pleading could give rise to an action for malicious prosecution, pleadings that are wholly defensive do not; “a defendant, involuntarily haled into court, [has the right] to conduct a vigorous defense” without risk of liability].)
In any event, whether a defensive pleading in the removal action could in some circumstances constitute a contest, it is plain it did not in this case. In the removal and surcharge action, Anne sought a determination of Janice’s intent in connection with the timing of the asset distribution of the trust, not to undermine the valuation or distribution procedures devised by Janice or set them aside. It is well established that efforts to interpret the testator’s intent do not amount to a contest. (See Estate of Kruse (1970) 7 Cal.App.3d 471, 474-475 [“‘[I]t is the privilege and right of a party beneficiary to an estate at all times to seek a construction of the provisions of the will. An action brought to a construe a will is not a contest within the meaning of the usual forfeiture clause, because it is obvious that the moving party does not by such means seek to set aside or annul the will.’”]; Estate of Miller (1964) 230 Cal.App.2d 888, 893 [same]; accord, Estate of Strader (2003) 107 Cal.App.4th 996, 1004 [ordinarily a beneficiary’s attempt to characterize property is not an attack on the will or provisions within the will but an effort to determine testator’s intent; such efforts violate the no contest clause “only when the will or other instrument already sets forth the manner in which the property is to be characterized”].)
In sum, although Richard’s appellate briefs are replete with examples of Anne’s breaches of fiduciary duty in connection with the GMS transaction, they are devoid of any authority supporting his argument Anne’s mismanagement of the trust or her legal position in the removal and surcharge litigation constituted a “contest” so as to compel Anne’s forfeiture of her trust inheritance.
DISPOSITION
The order denying the petition to enforce the no contest clause against Anne is affirmed. Anne is to recover her costs on appeal.
We concur: WOODS, J., ZELON, J.