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Cardelucci v. Cardelucci
Cardelucci v. Cardelucci
12/16/11

Cardelucci v




Cardelucci v. Cardelucci







Filed 12/8/11 Cardelucci v. Cardelucci CA4/2





NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.


IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO



MARK S. CARDELUCCI,

Plaintiff and Appellant,

v.

SAMUEL CARDELUCCI as Trustee, etc.,

Defendant and Appellant.



E049975

(Super.Ct.No. RIP085844)

OPINION


APPEAL from the Superior Court of Riverside County. Kenneth Andreen, Judge. (Retired Associate Justice of the Court of Appeal, Fifth Appellate District, assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Affirmed.
Rutan & Tucker, Richard K. Howell and Heather N. Herd for Plaintiff and Appellant.
Freeman, Freeman & Smiley, Stephen M. Lowe, Duncan P. Hromadka and Thomas C. Aikin for Defendant and Appellant.
I
INTRODUCTION
For over 10 years Sam Cardelucci (Sam) and his son, Mark Cardelucci (Mark), have been fighting over the administration of an inter vivos trust, formed two days before the death of Jacqueline Cardelucci (Jackie), Sam’s wife and Mark’s mother. Sam was named the trustee and beneficiary of Sam and Jackie’s trust (the trust) and Mark is the sole remainder beneficiary. Mark filed a petition to (1) to compel a further accounting from the trustee, Sam, (2) for a court order sustaining objections to the initial accounting, (3) for removal of the trustee and appointment of Mark as successor trustee, (4) to compel transfer of property to the trust, (5) for damages and double damages for breach of the trust, and (6) for punitive damages for fraud.
After a 10-day court trial, the trial court issued a written decision detailing its findings and orders, which included finding that Sam had breached his fiduciary duty as trustee by improperly distributing trust assets to himself, failing to provide, or unreasonably delaying in providing, Mark with requested trust information and accountings, unreasonably delaying the transfer to the trust of assets, and suing Mark in bad faith for conversion of Jackie’s jewelry. The trial court granted Mark’s request to remove Sam as trustee and awarded Mark a portion of his attorney fees incurred in Mark’s petition litigation and in the jewelry litigation. The trial court rejected Mark’s claim that Sam orally agreed to transfer to the trust all of his and Jackie’s joint tenancy property. The court also rejected Mark’s request for double damages under Probate Code section 859[1] and punitive damages for fraud.
Dissatisfied with the trial court’s resolution of the matter, the parties now bring cross-appeals. Mark appeals the judgment on his petition. He contends the trial court erred in denying his request for a jury trial on his claim that Sam breached an oral agreement to transfer Sam and Jackie’s joint tenancy property to the trust (joint tenancy litigation). Mark also contends the trial court erred in denying double damages against Sam for charging the trust in bad faith with Sam’s personal litigation expenses for the jewelry litigation.
Sam cross-appeals the judgment as well. In his cross-appeal, Sam raises numerous contentions, including arguing that the trial court erred in ordering him to reimburse the trust for his litigation expenses incurred in the jewelry litigation, the joint tenancy litigation, and Mark’s petition litigation, which he charged to the trust. Sam also contends the trial court erred in ordering him to restore accounting and appraisal expenses charged to the trust. In addition, Sam claims that the court erred in requiring him to restore $145,509.51 to the trust, which he paid to himself as a net income distribution from the trust. He also objects to paying a portion of Mark’s attorney fees and contends the trial court abused its discretion in removing him as trustee of the trust.
We reject Mark’s contentions on appeal and Sam’s contentions raised in his cross-appeal for the reasons stated below. The judgment is affirmed.
II
FACTUAL AND PROCEDURAL BACKGROUND
Sam and Jackie had two children during their marriage, James and Mark. James predeceased Sam and Jackie, without issue, leaving Mark the sole beneficiary of Jackie’s estate under her 1976 will. During Sam and Jackie’s marriage, Sam established and operated several trash hauling businesses, which developed into multi-million dollar companies. In the early 1990’s, Jackie was diagnosed with cancer. On July 17, 2001, three days before Jackie’s death from brain cancer, Sam’s attorney, Jeffrey Gardner, learned that Jackie was gravely ill with cancer and visited her at home. Mark arrived with Jackie’s 1976 will. Gardner reviewed the will. Under the 1976 will, Jackie left her share of Sam and Jackie’s estate to Mark, as sole beneficiary. The Cardeluccis’s estate was worth approximately $30 million.
Sam, Mark, and Gardner discussed the ramifications of the 1976 will. Gardner explained to Sam and Mark that under Jackie’s 1976 will, Jackie’s estate, consisting of a one-half community property interest in all of the estate assets, including various real properties and the trash hauling businesses, would be distributed outright to Mark, as sole beneficiary. Gardner told Sam and Mark that the 1976 will would create family strife and significant tax-related burdens upon Sam and Mark. Therefore Gardner recommended that Sam and Jackie create a new estate plan, which included pour-over wills and a trust.
In response to Gardner’s recommendation, Mark stated that he did not object to Sam and Jackie creating a new estate plan. Gardner called an estate planning attorney, Eric Rasmussen, to prepare the new pour-over wills and trust for Sam and Jackie. The following day, July 18, 2001, Rasmussen brought the Cardeluccis’s new wills and trust over to the Cardeluccis’s home for signatures and notarization. Sam and Jackie executed the wills and trust in Mark and Gardner’s presence on July 18, 2001.[2] Sam’s administrative assistant and notary, Patricia Newton, was also present. Sam and Jackie also executed on July 18, 2001, assignments of interests, transferring to the trust their stock shares of Sam’s three trash hauling businesses. Sam and Jackie also transferred to the trust their community property interest in real property located in Palm Desert. Mark believed that Sam was going to transfer in the future Jackie and Sam’s joint tenancy property to the trust as well. The joint tenancy property did not have to be transferred before Jackie’s death because it was not subject to probate.
Jackie died two days later, on July 20, 2001. Jackie’s will appointed Sam as executor and bequeathed all of her personal property, including her jewelry, to Sam. The residue of her estate was to be distributed to the trust. The trust named Sam as sole trustee and provided that, upon Jackie’s death, the trustee was to “divide the residue of the trust estate (including any additions made by the Will of the predeceased spouse . . . into three (3) separate trusts, designated ‘Trust A’ (Survivor’s Trust), ‘Trust B’ (Marital Deduction Trust), and ‘Trust C’ (By-Pass Trust).” (Trust [¶] 2.3.) Trust A was to consist of the surviving spouse’s interest in the community estate and his separate estate, if any, included in the trust estate. (Trust [¶] 2.3.2.) Trust B was to consist generally of trust assets equal in value to the amount of the unlimited federal estate tax marital deduction allowable under the Internal Revenue Code. (Trust [¶] 2.3.3.) Trust C was to consist of the balance of the trust estate. (Trust [¶] 2.3.4.)
During Sam’s lifetime, he was entitled to receive all net income from subtrusts A, B, and C. He was also entitled to receive principal from subtrust A (trust A) if necessary to maintain his health, support, and maintenance, and principal from subtrust B (trust B) for this purpose if trust A assets were depleted. If all assets were exhausted from trusts A and B, Sam could receive trust principal from subtrust C (trust C) to maintain his health, support, and maintenance. Pursuant to the trust, upon the death of the surviving spouse (Sam), the trustee shall distribute the balance of trust B by dividing the trust estate into equal shares among each of the children (Mark) of the settlors (Jackie and Sam). (Trust [¶]s 2.6.3, 2.8.) The trust states that the trust C net income is to be distributed to the surviving spouse during his or her lifetime, quarter-annually. (Trust [¶] 2.7.1.) The trust C principal could also be distributed to the surviving spouse if trusts A and B were exhausted and the trustee deemed it necessary or advisable for the surviving spouse’s proper health, support and maintenance or for Jackie’s issue’s proper health, support and maintenance. (Trust [¶] 2.7.2.) Upon the death of the surviving spouse (Sam), the trustee shall distribute the balance of trust C to the settlors’ children (Mark). (Trust [¶]s 2.7.3, 2.8)
According to Sam, this litigation began after Mark claimed Sam agreed to transfer joint tenancy property into the trust, and Sam refused. Mark repeatedly demanded Sam provide information regarding the trust assets and administration. Dissatisfied with Sam’s response or, rather, lack thereof, Mark filed a petition to compel a trust report and accounting in March 2004 (initial petition). In April, 2004, the night before trial on the initial petition, Sam provided an accounting. In response, Mark dismissed the petition. Mark, however, was dissatisfied with the trust report and accounting. He claimed asset information was omitted from the accounting. Mark, through his attorney, requested Sam to provide more complete information and an amended accounting. In addition, Mark demanded that Sam transfer all community property and joint tenancy property assets to the trust.
On July 7, 2004, Sam filed a complaint against Mark, accusing Mark of conversion of Jackie’s jewelry, estimated to be worth $5 million. After Jackie’s death, Sam discovered that Mark had taken some of Jackie’s jewelry. Sam filed the jewelry lawsuit because he had repeatedly asked Mark to return the jewelry and Mark failed to do so. After two days of trial in November 2005, the parties settled the jewelry litigation. Mark agreed to pay Sam $25,000 and Sam dismissed his complaint.
The day after Sam filed his jewelry complaint, Mark filed a petition to compel a further accounting and remove Sam as trustee (Mark’s petition). Mark alleged Sam, as trustee, breached the trust by failing to account fully and properly, and by failing to transfer to the trust a one-half interest in the joint tenancy property, consisting of seven properties. Mark requested in the petition prayer that the trial court remove Sam as trustee and replace him with Mark, award Mark reasonable attorney fees, compel Sam to provide a further accounting, compel Sam to convey to the trust a one-half interest in the joint tenancy property and proceeds of such property, if sold, and award Mark damages for Sam’s breach of the trust, including double damages and punitive damages.
In October 2006, Sam provided an amended accounting in response to Mark’s petition. Thereafter, Sam provided updated annual trust accountings in January 2008 and November 2008. Sam claimed at trial that delays in providing accountings were due to waiting until corporate income tax returns were filed for the trust’s corporate assets.
Mark’s petition was tried in November 2008, beginning with a bifurcated court trial of Mark’s breach of oral agreement claim regarding the joint tenancy property. In December 2008, the court issued a tentative decision. In October 2009, after posttrial briefing and argument, the trial court issued a detailed written statement of decision, with judgment entered in November. The trial court found that Sam had committed numerous breaches of his fiduciary duties and ordered him removed as trustee of the trust. The court ordered Sam to reimburse the trust for expenses, attorney fees, and administration fees Sam paid from the trust to himself. Sam was also ordered to pay a portion of Mark’s attorney fees. The trial court rejected Mark’s promissory fraud and breach of oral contract claims, as well as his request for double and punitive damages.
Additional facts are set forth in the discussion of the issues to which they pertain.
MARK’S APPEAL
III
MARK’S RIGHT TO A JURY TRIAL
Mark contends the trial court erred in denying his request for a jury trial of his breach of oral contract claim. We disagree.
A. Procedural Background
In Mark’s petition, Mark alleged Sam committed fraud by orally promising to transfer Jackie and Sam’s joint tenancy property to the trust, without intending to perform his promise. In reliance on the promise, Mark refrained from disputing or contesting the new will and trust. Mark did not discover the fraud until he received the trust accounting. Sam filed a motion to bifurcate the trial on Mark’s petition. Sam requested the court to bifurcate trial of (1) the accounting issues, (2) breach of oral contract, and (3) promissory fraud. Sam also requested the court to bifurcate liability from damages issues. Sam suggested that Mark’s breach of oral contract claim, seeking transfer of the joint tenancy property to the trust, be tried by a court trial. Mark opposed bifurcation and objected to a court trial, rather than a jury trial, on his breach of oral contract claim.
After receiving supplemental briefing, on September 14, 2007, the trial court entered an order granting bifurcation of the issues of an accounting, breach of oral contract, and promissory fraud. The court rejected Sam’s request to bifurcate liability from damages. The court ordered that the breach of oral contract claim be tried first as a court trial. Next, the promissory fraud claim would be tried by a jury, assuming the claim survived the court’s decision as to the breach of oral contract claim. The third phase would resolve the accounting issues, breach of trust, and trustee removal issues.
The trial court explained in its written decision on the motion to bifurcate that Mark’s breach of oral contract claim was entirely equitable in nature because it was contingent upon an equitable claim for relief: “i.e., [Mark’s] contention that Sam is estopped from asserting the bar of the statute of frauds. Therefore, the Court finds that the gist of the action is equitable, even if some portion of the ultimate relief being sought is in the form of damages rather than specific performance. (See, e.g., C & K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, pp. 6-11 . . . .)”
At a subsequent status conference conducted by a different judge, Mark’s attorney objected to the previous ruling on Sam’s motion for bifurcation. The court stated that the matter was not properly before it and, if Mark wished to challenge the ruling, Mark would have to do so by filing a writ in the Court of Appeal. At the beginning of the court trial, conducted by a third judge, Mark’s attorney again argued that the trial court had erred in bifurcating the breach of oral contract claim from the promissory fraud claim. The court stated that bifurcation had already been decided and there was no basis for reconsideration under Code of Civil Procedure section 1008.
The trial court issued a detailed written statement of decision in which the court found that there was no oral agreement by Sam to place the joint tenancy property in the trust. The court explained that its decision was based on the findings that, when Mark, Sam, and Sam’s attorney, Jeffrey Gardner met to discuss Jackie’s 1976 will, “there was an expectation on the part of Mark that Sam would place the joint tenancy property into a trust which was going to be prepared for Jacqueline Cardelucci’s signature. But Sam did not agree to do that. Further, Mark did not agree to forego a challenge of the planned July 17, 2001 will and/or the expected trust based on any representation by anyone that the joint tenancy property would be placed into the trust. Both Sam and Mark were distraught because Jackie was dying and neither should be called a liar, but the evidence is clear that there was an expectation the joint tenancy property would be placed in trust, but there was no agreement it would. Mark did not agree to do anything relative to the expected will, trust and power of attorney based upon what anyone said in the garage or elsewhere nor did he change his position based upon any representation.” The court further found that “The disastrous tax consequences of the 1976 will and nothing else was what motivated Mark to accede to the new will, trust, and power of attorney.” The court concluded that attorney Eric Rasmussen recommended the joint tenancy property be placed in the trust in order to avoid probate. Sam told Rasmussen he would do so but later told Rasmussen “he had changed his mind. This created no right in Mark, for Sam did not misrepresent his intention; he simply changed his mind. Mark did not change [his] position on the basis of what Sam told Rasmussen.”
B. Applicable Law
It is well-established that “‘[t]he jury trial is a matter of right in a civil action at law, but not in equity.’ [Citations]” (C & K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, 8 (C & K Engineering).) “In classifying a given action as legal or equitable, the court looks to its substance, viz., the nature of the rights at issue and the remedy sought. The label attached to a complaint or cause of action does not control. [Citations.] ‘Although . . . “the legal or equitable nature of a cause of action ordinarily is determined by the mode of relief to be afforded” [citation], the prayer for relief in a particular case is not conclusive [citations] . . . .’” [Citations.] Rather, the ‘practice of the court is to examine also the allegations of the complaint in reaching its determination as to the kind of action the plaintiff is bringing.’ [Citation.]” (Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 845.)
“‘Under our system, equitable and legal rights are determined in the same forum. It is within the discretion of the court to control the order of proof upon the issues joined.’” (Jaffe v. Albertson Co. (1966) 243 Cal.App.2d 592, 609.) “[W]hen a case involves both legal and equitable issues the court may in its discretion decide the equitable issues first.” (Ibid.) This is what the trial court in the instant case determined was appropriate. The trial court first conducted a court trial of the breach of oral contract claim since enforceability of the agreement was dependent upon the equitable doctrine of promissory estoppel and was key to the other claims.
C. Discussion
Mark complains his breach of oral contract claim was a legal action and therefore he was entitled to a jury trial. But under C & K Engineering, supra, 23 Cal.3d 1, the trial court acted within its discretion in conducting a court trial. In C & K Engineering, the court concluded the trial court properly treated a breach of contract action as equitable in nature because the claim turned on the doctrine of promissory estoppel, which is equitable in nature. (Id. at pp. 6, 8, 11.) The Supreme Court held that, even though the plaintiff sought money damages for a breach of contract, the defendant had no right to a jury trial because relief was available to the plaintiff only in equity, and without applying the doctrine of promissory estoppel, the plaintiff would have no remedy at all. (Id. at pp. 9-10.)
Likewise in this case, Mark’s claim was dependent upon the equitable doctrine of promissory estoppel. Under the statute of frauds, Sam’s agreement to transfer the joint tenancy property to the trust was required to be in writing and enforceable, unless the equitable doctrine of promissory estoppel applied. (Civ. Code, § 1624, subd. (a)(3); Pellerito v. Dragna (1940) 41 Cal.App.2d 85, 89.) In addition, Mark’s petition prayer requested equitable relief, as well as damages. Mark requested the court compel transfer of the joint tenancy property to the trust and, if the property had already been sold, transfer the funds from the sale to the trust (Sam sold four of the seven properties). Since the gist of Mark’s breach of contract claim was equitable, the trial court appropriately tried the claim as a court trial.
Mark argues that C & K Engineering, supra, 23 Cal.3d 1 is distinguishable because he did not exclusively rely on an equitable doctrine in seeking recovery for breach of contract. Mark also argues he was seeking damages, as well as equitable relief. But Mark could not enforce the oral agreement without relying on promissory estoppel and he prayed primarily for equitable relief, consisting of specific performance.
Mark’s reliance on Unilogic, Inc. v. Burroughs Corp. (1992) 10 Cal.App.4th 612 is misplaced. In Unilogic, the plaintiff brought a lawsuit for damages for conversion and misappropriation. The defendant asserted the equitable defense of unclean hands. The Unilogic court affirmed the trial court’s ruling submitting the entire case to the jury on the grounds the equitable defense was “intertwined” with the legal claim and raised questions of fact and credibility properly submitted to the jury. (Id. at pp. 616, 622-623.) The Unilogic court explained that the “gist of Unilogic’s action for conversion was legal. Burroughs simply asserted an affirmative defense of unclean hands. As the court observed in Ford v. Superior Court (1959) 176 Cal.App.2d 754, in which defendants asserted seven affirmative equitable defenses, including unclean hands, to an action at law for breach of contract: ‘The assertion of such defenses in a law action will not change it to an action in equity or warrant separate and prior trial by the court.’ (Id. at p. 759.)” (Unilogic, at p. 622.)
Unilogic is distinguishable in that the Unilogic plaintiff’s theory of relief did not turn on equitable principles. The gist of the plaintiff’s claims for conversion and misappropriation was entirely legal. In the instant case, Mark’s recovery for breach of oral contract was premised on the equitable theory of promissory estoppel. The gist of Mark’s claim, unlike in Unilogic, was equitable. Mark was not entitled to a remedy absent application of the equitable doctrine of promissory estoppel. Having concluded Mark had no right to a jury trial, we need not consider whether Mark waived his right to a jury trial.
IV
BAD FAITH DAMAGES
Mark contends the trial court erred in denying him an award of double damages under section 859. Section 859, as relevant here, 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, . . . the person shall be liable for twice the value of the property recovered by an action under this part.” (§ 859; see also Estate of Young (2008) 160 Cal.App.4th 62, 89-90 (Young).)
The trial court found that Mark was not entitled to double damages under section 859 because “Sam did not attempt to conceal any transactions, including his charges for defending the jewelry litigation. The Court exercises its discretion to decline to order double damages pursuant to Probate Code section 859 or any other authority.” The court’s reference to “bad faith” related to Mark recovering his attorney fees under section 17211, subdivision (b) on the ground Sam acted in bad faith in opposing Mark’s contest of an accounting. There was no finding of a bad faith taking of estate property under section 859. Furthermore, although the trial court found it was “outrageous” Sam charged the trust for his legal costs in the jewelry litigation and then kept the settlement proceeds, this also was not necessarily a finding Sam acted in bad faith in taking trust property. The outrageousness was the fact Sam initially claimed the trust was responsible for his legal costs in the jewelry litigation but then deprived the trust of the jewelry litigation settlement proceeds. There was no finding that Sam’s initial act of charging the trust for his legal costs was in bad faith.
Furthermore, there was evidence supporting the finding of an absence of bad faith. Sam testified he was trying to recover from Mark the jewelry in accordance with Jackie’s instructions. Sam believed that under Jackie’s will, the jewelry was to go to him. He therefore was suing Mark to recover the jewelry so that Sam could put the jewelry in the trust (in which Mark was the sole beneficiary). Sam stated that he would put any jewelry that was valuable in the trust. Sam further testified that he did not know where some of Jackie’s jewelry was but, if he could find it, he would put it in the trust.
Bruce Zummo, who was Sam’s accountant, testified that the January 2008 accounting showed payments from the trust to Sam for reimbursement of Sam’s jewelry litigation costs. Sam’s various advisors, including his attorneys and accountants, discussed with Sam these charges to the trust. Zummo, testified that charging Sam’s legal costs for the jewelry litigation was considered proper because Sam believed the jewelry was a trust asset, which he was attempting to return to the trust. Zummo testified that, in talking to Sam and his attorneys, it was believed “that these were assets [the jewelry] that belonged to the trust. They were misappropriated, and we felt strongly that all avenues had to be exhausted to try to get them back into the trust, including going as far as a lawsuit.”
This evidence was sufficient to support the trial court’s finding that Sam did not act in bad faith in charging the trust for his jewelry litigation costs. Although there was conflicting evidence regarding bad faith, “[I]n reviewing a judgment based upon a statement of decision following a bench trial, ‘any conflict in the evidence or reasonable inferences to be drawn from the facts will be resolved in support of the determination of the trial court decision. [Citations.]’ [Citation.] In a substantial evidence challenge to a judgment, the appellate court will ‘consider all of the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference, and resolving conflicts in support of the [findings]. [Citations.]’ [Citation.] We may not reweigh the evidence and are bound by the trial court’s credibility determinations. [Citations.] Moreover, findings of fact are liberally construed to support the judgment. [Citation.]” (Young, supra, 160 Cal.App.4th at pp. 75-76.) Accordingly, we conclude there was sufficient evidence to support the trial court’s finding there was insufficient evidence of bad faith and affirm the trial court’s ruling denying double damages.
SAM’S CROSS-APPEAL
V
INTRODUCTION TO CROSS-APPEAL
Sam appeals from an order that imposed nearly $1 million in penalties against Sam for breaching his duties as trustee, bringing the jewelry litigation against Mark, and opposing Mark’s petition for a further trust accounting and for removal of Sam as trustee. The trial court ordered Sam to pay a portion of Mark’s litigation expenses and restore to the trust funds Sam received for his litigation expenses, administration expenses, and income as trust beneficiary. Sam argues he did not act in bad faith as trustee. He claims he acted in accordance with the provisions of the trust in an attempt to protect the trust’s assets. Sam further contends the trial court erred in removing him as trustee.
We conclude the evidence was sufficient to support the trial court’s factual findings that Sam breached various fiduciary duties as trustee, and affirm the trial court’s order removing Sam as trustee and requiring him to restore to the trust inappropriate distributions of trust funds to himself. We also conclude there was no abuse of discretion in requiring Sam to pay a portion of Mark’s litigation expenses.
VI
STANDARD OF REVIEW
We begin with the well-known proposition that “‘A judgment or order of the lower court is presumed correct. All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown.” (Briano v. Rubio (1996) 46 Cal.App.4th 1167, 1173 (Briano), quoting 9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 268, p. 276.) Sam argues his appeal presents only questions of law on undisputed facts, triggering the abuse of discretion standard. Sam claims his appeal concerns whether the trial court upheld the trust’s purpose, which is governed by trust law; specifically section 16440. Under section 16440, this court applies the abuse of discretion standard in assessing remedies and trustee penalties for breaching a trust. However, the determination of whether a trustee has breached his fiduciary duty, and the underlying factual findings required in making such a determination, are subject to the substantial evidence standard of review. (Briano, at pp. 1172-1173; Penny v. Wilson (2004) 123 Cal.App.4th 596, 603 [substantial evidence review applied to trial court’s determination of whether trustee breached duties].)
The parties are in agreement the abuse of discretion standard of review applies to the determination of removal of Sam as trustee. (Jones v. Stubbs (1955) 136 Cal.App.2d 490, 502.) In applying the abuse of discretion standard, we will not interfere with the trial court’s decision unless the trial court has clearly abused its discretion. (Estate of Effron (1981) 117 Cal.App.3d 915, 930.) We apply the substantial evidence standard, however, in determining the factual issue of whether Sam, as trustee, acted in good or bad faith. (Ibid.)
As to awarding attorney fees, “Allowance of litigation expenses rests in the sound discretion of the trial court, whose ruling will not be disturbed on appeal absent an abuse. [Citation.] ‘The underlying principle which guides the court in allowing costs and attorneys’ fees incidental to litigation out of a trust estate is that such litigation is a benefit and a service to the trust.’ [Citation.] Consequently, where the trust is not benefited by litigation, or did not stand to be benefited if the trustee had succeeded, there is no basis for the recovery of expenses out of the trust assets.” (Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221, 1230 (Whittlesey); see also Terry v. Conlan (2005) 131 Cal.App.4th 1445, 1461 (Terry).)
VII
BREACH OF DUTY AS TRUSTEE
Sam challenges on appeal the trial court’s determination that he breached his fiduciary duties as trustee and therefore must reimburse the trust for his litigation expenses and other inappropriate trust fund distributions to himself.
Section 16400 provides that “[a] violation by the trustee of any duty that the trustee owes the beneficiary is a breach of trust.” “Among the duties of the trustee is the duty to administer the trust and to manage trust property ‘with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument.’ [Citation.]” (Estate of Gump (1991) 1 Cal.App.4th 582, 596, quoting § 16040, subd. (a); see also § 16000.)
Trustee duties under the Probate Code include a duty: “to administer the trust solely in the interest of the beneficiaries” (§ 16002, subd. (a)); “to take reasonable steps under the circumstances to take and keep control of and to preserve the trust property” (§ 16006); “(a) [t]o keep the trust property separate from other property not subject to the trust [and] [¶] (b) [t]o see that the trust property is designated as property of the trust” (§ 16009); “to keep the beneficiaries of the trust reasonably informed of the trust and its administration” (§ 16060); and “on reasonable request by a beneficiary, . . . [to] report to the beneficiary by providing requested information to the beneficiary relating to the administration of the trust relevant to the beneficiary’s interest” (§ 16061).
Under section 16420, subdivision (a) “If a trustee commits a breach of trust, or threatens to commit a breach of trust, a beneficiary . . . may commence a proceeding . . . [¶] (1) To compel the trustee to perform the trustee’s duties. [¶] (2) To enjoin the trustee from committing a breach of trust. [¶] (3) To compel the trustee to redress a breach of trust by payment of money or otherwise. [¶] . . . [¶] (5) To remove the trustee. [¶] (6) Subject to Section 18100, to set aside acts of the trustee. [¶] (7) To reduce or deny compensation of the trustee.”
Sam asserts that in determining whether he breached his fiduciary duty as trustee, this court must look to the terms of the trust. Sam argues that, in doing so, this court must find there was no breach of trust, because under its terms he was entitled to payment from the trust for (1) litigation expenses and (2) administration expenses. We disagree.
A. Litigation Expenses
Sam contends the trial court erred in finding that he improperly charged the trust with various litigation expenses. Such litigation expenses include: (a) Sam’s jewelry litigation expenses, (b) Sam’s joint tenancy litigation expenses, (c) expenses incurred in responding to and complying with Mark’s requests for trust reports and accountings, and (d) Sam’s other litigation expenses opposing Mark’s petition. Sam relies on paragraph 3.1.6 of the trust, which provides that a trustee may “commence or defend such litigation with respect to the trust or any property of the trust estate as the Trustee may deem advisable, at the expense of the trust.” [Italics added.]
Under section 15684, “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.” Sam argues paragraph 3.1.6 of the trust is broader than section 15684, which provides that litigation expenses may be paid from trust assets only upon the showing that such “litigation was for the benefit of the trust.” (Whittlesey, supra, 104 Cal.App.4th at p. 1227.) Sam claims that the litigation expenses he charged to the trust were proper, even if they did not benefit the trust, because they were permissible under the litigation fees clause of the trust, paragraph 3.1.6 of the trust, as “litigation with respect to the trust or any property of the trust estate as the Trustee may deem advisable, at the expense of the trust.” [Italics added.]
Even if not expressly stated, paragraph 3.1.6 of the trust can be reasonably construed as requiring, consistent with section 15684, that litigation expenses charged to the trust be incurred for the benefit of the trust. Otherwise a trustee would not reasonably deem charging the trust with such expenses advisable, as required under paragraph 3.1.6 of the trust. As the court in Whittlesey, supra, 104 Cal.App.4th 1221 noted: “‘[W]here litigation is necessary for the preservation of the trust, it is both the right and duty of the trustee to employ counsel in the prosecution or defense thereof, and the trustee is entitled to reimbursement for his expenditures out of the trust fund.’” (Id. at pp. 1226-1227, quoting Metzenbaum v. Metzenbaum (1953) 115 Cal.App.2d 395, 399.) The Whittlesey court added that this presupposes “that the litigation was for the benefit of the trust estate. [Citation.] For example, the defense of a lawsuit that has the potential for depleting trust assets would be for the benefit of the trust, justifying the employment of counsel. However, litigation seeking to remove or surcharge a trustee for mismanagement of trust assets would not warrant the trustee to hire counsel at the expense of the trust. Such litigation would be for the benefit of the trustee, not the trust.” (Whittlesey, supra, 104 Cal.App.4th at p. 1227.)
Under the terms of the trust, Sam was not entitled to recover litigation expenses incurred for his own benefit, merely because the litigation related to the trust or trust property. As the court in Whittlesey stated, “‘The underlying principle which guides the court in allowing costs and attorneys’ fees incidental to litigation out of a trust estate is that such litigation is a benefit and a service to the trust.’ [Citation.] Consequently, where the trust is not benefited by litigation, or did not stand to be benefited if the trustee had succeeded, there is no basis for the recovery of expenses out of the trust assets.” (Whittlesey, supra, 104 Cal.App.4th at p. 1230; see also Terry, supra, 131 Cal.App.4th at p. 1461.)
We conclude that, under the terms of the trust and under section 15684, Sam could not recover litigation expenses from the trust unless the litigation was for the benefit of the trust: “If litigation is necessary for the preservation of the trust, the trustee is entitled to reimbursement for his or her expenditures from the trust; however, if the litigation is specifically for the benefit of the trustee, the trustee must bear his or her own costs incurred, and is not entitled to reimbursement from the trust. [Citation.]” (Terry, supra, 131 Cal.App.4th at p. 1461.) We thus must determine whether Sam’s participation in the litigation was necessary to protect the trust property or was for the benefit of the trust. (Ibid.)
1. Sam’s Jewelry Litigation Expenses
Sam argues the trial court erred in ordering him to reimburse the trust $158,981 for his jewelry litigation expenses. Sam, in his individual capacity, filed a conversion lawsuit against Mark to recover $5 million in jewelry belonging to Jackie. Sam alleged that he had a community property interest in the jewelry and became the sole owner of the jewelry at the time of Jackie’s death. Sam accused Mark of conversion of the jewelry and claimed Jackie could not give Mark Sam’s community property interest in the jewelry.
Sam argues for the first time on appeal that, as the executor of Jackie’s 2001 will, he was entitled to recover his litigation expenses in the jewelry litigation. Under the will, Jackie gave him all of her jewelry and other personal property (¶ 2.1 of the 2001 will). The remainder of her estate was placed in the trust (¶ 2.2.1 of the 2001 will). Sam argues that under paragraph 2.2 of the trust, Sam was entitled to charge the trust for his jewelry litigation expenses ($158,981) because, as executor, he brought the jewelry litigation in good faith to protect Jackie’s estate’s assets (the jewelry). Paragraph 2.2 of the trust states: “Upon the death of the first of the Settlors to die (hereinafter called the ‘predeceased spouse’wink, the Trustee may pay out of the assets of this trust estate the predeceased spouse’s last illness and funeral expenses, attorneys’ fees and other costs incurred in administering the predeceased spouse’s probate or trust estate, . . .”
Sam forfeited this argument by not raising it in the trial court. “It is axiomatic that arguments not asserted below are waived and will not be considered for the first time on appeal.” (Martinez v. Scott Specialty Gases, Inc. (2000) 83 Cal.App.4th 1236, 1249 (Martinez); see also Easterby v. Clark (2009) 171 Cal.App.4th 772, 783, fn. 7 (Easterby).) Sam’s complaint against Mark for recovery of the jewelry did not allege that Sam was seeking recovery of the jewelry as executor of the will or as trustee. Rather Sam alleged in his complaint that he had a community property interest in the jewelry, and at the time of Jackie’s death, the jewelry became Sam’s separate property under the will. Sam’s complaint was brought in his individual capacity and Sam did not argue that he was seeking recovery of the jewelry as executor of Jackie’s will.
Sam’s attorney, Eric Rasmussen, testified during the trial that Sam sought recovery of the jewelry as Sam’s separate property and not as a trust asset. Rasmussen could not think of any valid reason for charging Sam’s jewelry litigation expenses to the trust. Rasmussen further indicated it was inappropriate to charge the trust with such expenses. Furthermore, in an attempt to establish that Sam had not breached any fiduciary duties as executor of Jackie’s will, Sam’s attorney argued at trial that Sam was not the executor of Jackie’s will because Sam was never appointed by the court as executor.
Even if Sam did not forfeit his claim that, as executor of Jackie’s 2001 will, he was entitled to recover his jewelry litigation expenses, the argument lacks merit because the jewelry litigation was brought by Sam individually, not as executor of the will, and the jewelry litigation was not brought for the benefit of the trust since it was not a trust asset.
2. Sam’s Joint Tenancy Litigation Expenses
Sam contends the trial court erred in requiring him to restore to the trust $217,324.20 for his joint tenancy litigation expenses. Sam incurred the expenses in defending against Mark’s petition seeking to compel Sam to transfer joint tenancy property to the trust. Mark claimed that before Jackie died, Sam orally agreed to put all of Sam’s and Jackie’s joint tenancy property in the trust. Sam thereafter refused to do so and charged the trust with his litigation expenses incurred in defending against Mark’s claim. Although the trial court found that there was no enforceable oral agreement to transfer the joint tenancy property to the trust, Sam was not entitled to reimbursement of his joint tenancy litigation expenses from the trust because Sam’s litigation expenses were not for the benefit of the trust. They were solely for his own benefit, and therefore he could not be recovered from the trust.
The trial court’s findings that Sam’s litigation expenses solely benefited himself, and not the trust, are supported by substantial evidence. Christopher Wynkoop, who testified as an expert witness for Mark regarding the standard of care of a trustee, stated that “the jewelry is not an asset of a trust, it’s clearly written in the will that it goes directly to [Sam]. Therefore, as the trustee, I don’t think the trustee had any business charging a trust for expenses related to personal assets.” When asked, “what if [Sam] claims that he was going to put the jewelry in the trust if he did recover it‌”, Wynkoop responded: “That’s absurd, too. Then he’d be spending $179,000 in legal fees of Mark’s money, future money, to take an asset away from Mark to put it in the trust, eventually give it back to Mark upon termination of a trust. The trustee is like a businessman, he has to do prudent things.” Wynkoop stated that, in his opinion, charging the trust with Sam’s jewelry litigation expenses was not proper.
Because Sam claimed at trial that the joint tenancy property was his own separate property, and not trust property, the trial court appropriately ordered Sam to reimburse the trust for his attorney fees. The $217,324 in attorney fees were incurred for Sam’s sole benefit, and to the detriment of the trust. The joint tenancy property at issue, amounting to about $8 million in real property, was Sam’s separate property, not trust property. The trial court did not abuse its discretion in concluding that Sam improperly charged the trust with his litigation expenses for his personal defense in the joint tenancy litigation.
3. Litigation Expenses for Compelling Trust Accountings and Trustee Removal
Sam contends the trial court erred in holding him personally responsible for $140,000 in litigation expenses Sam incurred as a result of Mark’s petition, seeking to obtain trust information and accountings, and Sam’s removal as trustee.
(a) Background Facts
In September 2003, Mark began requesting trust information from Sam under section 16061, which requires a trustee, “on reasonable request by a beneficiary, . . . [to] report to the beneficiary by providing requested information to the beneficiary relating to the administration of the trust relevant to the beneficiary’s interest.” (§ 16061.) Because Sam did not provide Mark with the requested trust information and accounting, on March 12, 2004, Mark filed a petition for an order compelling Sam to report trust information to Mark and for a trust accounting. In April 2004, on the eve of trial on Mark’s initial petition, Sam responded to Mark’s request for trust information and provided an accounting. Mark dismissed his initial petition but later complained that the accounting was inadequate. Mark requested an amended accounting and a copy of the form 706 tax return for Jackie’s estate. In July 2004, Mark filed a petition to compel a further accounting and for removal of Sam as trustee. Finally, in January 2006, Sam provided Mark with an amended accounting.
The trial court found Sam, and not the trust, responsible for legal expenses incurred as a result of Sam’s delay in providing a full and complete accounting to Mark. The court therefore ordered Sam to reimburse the trust for $40,000 in attorney fees charged to the trust for Sam’s opposition to Mark’s accounting requests and for $100,000 for attorney fees charged to the trust for opposing Mark’s petition for removal of Sam as trustee.
As to the trial court’s order that Sam reimburse the trust for $100,000 in attorney fees, the trial court stated: “An important part of this litigation was Mark’s contention Sam should be removed as trustee. The Court found he should be and that his opposition was unreasonable and in bad faith. Sam’s actions were so inimical to the Trust that they demand a finding that he did not act reasonably or in good faith. This issue was a part of all the activities mentioned above. In those, Mark has been compensated fully by orders for reimbursement and it would not be just to order double reimbursement. The Court finds that work in opposition to removal, which has not been charged, is $100,000 through trial, which must be reimbursed.”
(b) Delay in Providing Trust Accountings
Sam does not argue there was insufficient evidence supporting the trial court’s finding that Sam attempted to thwart Mark’s legitimate requests for accountings. Rather, citing Estate of Cassity (1980) 106 Cal.App.3d 569, Sam argues that under paragraph 3.1.6 of the trust, he is entitled to charge the trust for his expenses opposing Mark’s accounting demands and Sam’s removal as trustee, because the expenses related to the trust. In Cassity, at page 574, the court stated: “The fact that some surcharges were assessed against the trustee is not, in itself, grounds for completely denying him compensation and expenses. Section 243 of Restatement Second of Trusts provides: ‘If the trustee commits a breach of trust, the court may in its discretion deny him all compensation or allow him a reduced compensation or allow him whole compensation.’ Here the trustee admittedly was guilty of some malfeasance, however, most of the charges were disproven. A considerable portion of the trustee’s efforts and expenditures must necessarily have been for the purpose of protecting himself from unjust surcharge for conduct in administering the trust which the court’s findings of October 5, 1977, determined were perfectly proper. Such efforts and expenditures in the trustee’s successful defense are chargeable against the trust estate. (Estate of Beach (1975) 15 Cal.3d 623, 644.) The determination that the trustee is to recover no part of his requested compensation and expenditures for attorney’s fees would therefore appear to be an abuse of discretion.” (Italics added.)
Here, the trial court explained that it did not completely deny Sam compensation and expenses for a breach of trust. The court only denied a portion of his attorney fees “from which we can deduce that some of that was expended in an attempt to thwart Mark’s legitimate requests for accountings. It is reasonable to hold that $40,000 was charged to the trust for Sam’s attorney fees in opposing those requests.” Sam has not demonstrated that the trial court abused its discretion in imposing such reimbursement. There was evidence Sam delayed providing requested information and accountings until compelled to do so by Mark filing petitions to compel.
Sam attempts to justify the delays but, since there is substantial evidence supporting the trial court’s findings Sam unreasonably delayed providing the initial requested accountings, “it is of no consequence that the trial court believing other evidence, or drawing other reasonable inferences, might have reached a contrary conclusion. [Citations.]” (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 874.) As trust expert Christopher Wynkoop summed it up, “Here, we’ve got a trustee that has not produced financial statements after many, many, many requests, has not added the proper assets to the trust, has not funded the other trust, charged too much money to this trust so it resulted in the beneficiary having to launch an exhaustive lawsuit against the trustee, I think the trustee has so many flagrant violations that there is no way the trust should be paying for his defense. If there was one small violation, the accounts are two weeks late, that is a frivolous lawsuit. This is not a frivolous lawsuit. [¶] . . . [¶] I’ve only seen one other case with horrendous legal fees like that. And with that one, the Court cut off the trustee from being able to charge the trust with anymore legal fees. [¶] . . . [¶] The trustee has a fiduciary responsibility to handle the moneys in this trust in accordance with the trust documents, and that was not being done in this case.”
Wynkoop further testified that, based on various documents he reviewed, it appeared that Sam’s attorney advised Sam as to what he needed to do to fulfill his duties as trustee, including providing trust information and preserving trust assets, and Sam nevertheless failed properly to carry out his fiduciary responsibilities as trustee. It was not until Mark filed petitions to compel trust accountings that Sam finally provided full and complete accountings.
Sam argues that Mark was not entitled to an accounting, other than for trust C, because Mark was only principal beneficiary of trust C, and there was nothing in trust C until it was funded in 2004. Sam therefore concludes Mark was not entitled to any accounting at all, other than as to trust C, after it was funded. We disagree.
Section 16060 requires the trustee “to keep the beneficiaries of the trust reasonably informed of the trust and its administration.” (§ 16060.) In this regard, section 16061 states that, “[e]xcept as provided in Section 16069,[[3]] on reasonable request by a beneficiary, the trustee shall report to the beneficiary by providing requested information to the beneficiary relating to the administration of the trust relevant to the beneficiary’s interest.” (Italics added.) Section 16062, subdivision (a) provides in relevant part that, “Except as otherwise provided in this section and in Section 16064,[[4]] the trustee shall account at least annually . . . to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed.”
Even though, at the time of Mark’s initial requests for trust information and accounts, he was only a remainder beneficiary of trust C, he nevertheless had an interest in the administration of the trust and its assets as a whole because he would become sole beneficiary of the assets remaining in the trust at the time of Sam’s demise. Wrongful wasting of trust assets was a significant concern to Mark as the sole remainder beneficiary. Therefore, under section 16061, at Mark’s request, Sam was required to provide Mark with requested information and accountings as to the entire trust.
The trial court found that Sam breached his fiduciary duties and duties as trustee by withholding trust accountings from Mark. The trial court explained: “The parties disputed whether and when accountings were due. Irrespective of that, Sam permitted his anger towards his beneficiary, Mark, to cause him to withhold Trust accountings, even for the C Trust, that he otherwise should have provided. Further, the Court finds that the seven-month period to file one of the accountings was far too long. [¶] A substantial expenditure of time by Mark’s attorneys was necessary to secure the first Trust accounting, finally filed in April 2004. Such work continued until Nora Teasley was engaged, thereafter the accounting information flowed at a reasonable rate.”
The trial court’s findings were supported by substantial evidence, which this court cannot reweigh. Moreover, we must liberally construe the trial court’s findings of fact in support of the judgment. (Young, supra, 160 Cal.App.4th at pp. 75-76.) There therefore was no abuse of discretion in ordering Sam to reimburse the trust for fees and expenses related to the initial accountings.
(c) Sam’s Attorney Fees for Opposing Removal of Sam as Trustee
Sam objects to reimbursing the trust for $100,000 he charged the trust for his own litigation expenses incurred in unsuccessfully opposing his removal as trustee. Sam argues he was entitled to recover his attorney fees even though he was removed as trustee, because California law provides that, if a trustee believes in good faith that the removal petition is unmeritorious and it is objectively reasonable that the trustee oppose the petition, the trustee may be reimbursed for his or her attorney fees from the trust. (Conservatorship of Lefkowitz (1996) 50 Cal.App.4th 1310, 1314-1315.) Both “objective reasonableness and subjective good faith are necessary. . . . [I]f no reasonable trustee could have believed that there was a sound basis for resisting the petition for the trustee’s removal, a trial court’s order reimbursing the trustee for its attorney’s fees incurred in opposing the petition must be reversed, even if the trustee honestly believed that the petition was groundless.” (Id. at pp. 1314-1315.)
Here, the trial court did not abuse its discretion in ordering Sam to reimburse the trust for his litigation expenses incurred in opposing Mark’s removal petition since there was substantial evidence that no reasonable trustee could have believed there was a valid basis for opposing Sam’s removal as trustee. There was evidence Sam repeatedly breached his duties as trustee. Furthermore, as expert trust witness Wynkoop noted, “In this case, the trustee was not independent and partial and had no loyalty to the beneficiary. [A]cording to depositions . . . in discussing the beneficiary, [Sam] said, ‘I have no son.’ You can’t have this type of anger to a – towards a beneficiary and remain independent and unbiased and avoid conflicts of interest.” The trial court reasonably concluded that Sam’s opposition of Mark’s removal petition was not motivated by a good-faith belief that it would be in the best interests of Mark, as a remainder beneficiary, for Sam to defeat the removal petition and continue serving as trustee. Furthermore, any belief Sam may have had to the contrary would not have been objectively reasonable.
B. Trust Administration Expenses
Sam contends the trial court erred in ordering him to reimburse the trust for administration expenses, which included accounting expenses and property appraisal fees. Sam relies on paragraph 3.1.11 of the trust, which authorizes the trustee “[t]o employ any attorney, accountant, broker, tax specialist, custodian, or other agent deemed necessary in the discretion of the Trustee, and to rely on the advice of said agent; and to pay from the trust estate reasonable compensation for all services performed by any of them; and the Trustee shall not be liable for any act, omission, or default of any such attorney, accountant, broker, tax specialist, custodian or other agent so employed if reasonable care was exercised by the Trustee in the selection.” Also, section 15684 states: “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.”
Sam argues that he was authorized to charge the trust for administration expenses which were necessary to carry out the intentions of the trust and for its benefit. The accounting expenses of $67,793 were incurred in response to Mark’s requests for accountings and related to preparation of the annual trust income tax returns. Sam retained accountant Bruce Zummo to assist in preparing the accountings and tax returns.
The trust was also charged $9,000, plus interest, for preparation of appraisals of the joint tenancy properties. Zummo testified that nothing required Sam to get an appraisal of his half interest in the property. The only reason it was done was because Jackie’s estate was required to file a form 706 and the information was required in the tax return. According to Zummo, Jackie’s estate and the trust were billed for the appraisal expenses, not Sam, because the expenses were not his. They did not benefit him.
The trial court stated in its written decision regarding the $67,793 in accounting fees that “Zummo’s charges
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