Cassady v. Cassady
Filed 5/21/13 Cassady v. Cassady CA2/7
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
SEVEN
RALPH CASSADY, as Trustee,
etc.,
Plaintiff and Appellant,
v.
CONSTANCE L. CASSADY, as
Trustee, etc., et al.,
Defendants and Respondents.
B237815
(Los Angeles
County
Super. Ct.
No. BP084663)
APPEAL from
an order of the Superior Court
of
County, Michael I. Levanas, Judge. Affirmed.
Law Offices of Julian Pollok and
Julian A. Pollok; Greines, Martin, Stein & Richland and Marc J. Poster for
Plaintiff and Appellant.
Poindexter
& Doutré, James P. Drummy, Jeffrey A. Kent and Robert D. Schwartz for
Defendants and Respondents.
________________________
The Cassady family has been mired in strife over the
distribution of Dorothea Cassady’s estate for 24 years.
Ralph, the trustee of the Dorothea J. Cassady Trust, lent money to his two
brothers Michael and Peter. Those loans
had not been repaid when Michael died in 2001, leaving his wife Constance as
successor to his interest in the trust, or before Peter declared bankruptcy in
2009. The probate court denied Ralph’s
petition for repayment of these loans from sums that were part of the final
distribution of Dorothea’s estate to Constance and the
bankruptcy trustee for Peter’s estate on grounds including the trust contained
a spendthrift provision. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
1. Discussions About Assigning Peter’s Expectancy Interest in Dorothea’s
Estate to Ralph and Ralph’s Subsequent Loan to Peter
In 1988
Peter and his wife Beverly owed Ralph money and were concerned they would have
to disclose the debt in their application for a loan to purchase a new
house. According to Ralph, to avoid the
problem Peter suggested he transfer his expectancy in Dorothea’s estate to
Ralph to satisfy the obligation. Ralph
agreed subject to Dorothea’s approval.
During a discussion with Dorothea, however, Peter said he wanted to
exclude his interest in Dorothea’s personal effects from the assignment. Although Dorothea approved the arrangement,
as well as the general concept of family members assigning their interests
among themselves, Ralph rejected the modified terms.
Notwithstanding
their failure to reach agreement on resolving the existing debt, Ralph agreed
to loan Peter and Beverly an additional $150,000. Because Ralph did not have sufficient cash
available, he arranged for his retirement plan to loan the money. Ralph testified the loan had to have a
reasonable rate of interest and a due date and be memorialized with a
promissory note and secured by a deed of trust in order for the retirement plan
to make the loan. Ralph, an attorney,
drafted a promissory note and security agreement, but Peter and Beverly never
signed the documents or made payments.
2. Creation of the Dorothea J. Cassady Trust, the
the Additional $27,500 Loan to Peter
After
Dorothea had a stroke in April 1989, she asked Ralph to prepare a testamentary
trust providing the family home on Midvale Avenue would be divided equally
among her four children—Ralph, Michael, Peter and Patricia; Dorothea’s personal
things (for example, clothing, jewelry and china) would be given to Patricia to
distribute in accordance with Dorothea’s wishes; and other furniture,
furnishings and personal effects located in the Midvale home would be divided
according to a 38-page, handwritten list stored in a safe deposit box, which
the family refers to as the 1980 list.
you want to exchange with each other okay.
If you don’t want, then inform others first.â€
The trust
included a spendthrift provision, stating, “No interest in the principal or
income of any trust created under the Declaration of Trust shall be
anticipated, assigned, or encumbered, or be subject to any creditor’s claim or
to legal process, prior to its actual receipt by the beneficiary.†Ralph testified he explained to Dorothea that
the clause was intended to prevent creditors of trust beneficiaries from
accessing trust assets without the approval of the trustee. He further explained the clause should not
have any effect on Dorothea’s prior approval of Peter’s assignment of his share
of the estate to Ralph, even though it was never formally documented, because
she had already consented to it. He also
told Dorothea her approval of future transfers would be permissible as
amendments to the trust. According to Ralph,
Dorothea said, “I want you to also be able to approve it. And I want it so that within the family,
people can do assignments.â€
Dorothea
died in May 1989 shortly after executing the declaration of trust, and the
battle began. Peter disputed Dorothea’s
personal property should be distributed in accordance with the 1980 list, contending
it was “overwhelmingly unfair.â€
Demonstrative of the deep current of discontent, Peter made a multimedia
presentation to the family in February 1990 complete with a 15 page,
single-spaced letter and approximately 30 pages of attachments comparing
Dorothea’s wishes regarding distribution of her personal property as reflected
in her will executed in 1964, a note written in 1975, the 1980 list, a codicil
executed in 1983, a codicil executed in 1988 and the trust executed in 1989 and
providing summaries by room of the value of the property given to each
sibling. While the dispute over the
distribution of the personal property continued for years with numerous letters
exchanged between Peter and Ralph in which Peter disputed virtually everything,
Peter refused to cooperate in any efforts to sell, rent or renovate the Midvale
residence, which was in need of substantial repair. Ralph, however, did not press the matter
because the real estate market was depressed.
Notwithstanding
the disharmony among the siblings, Ralph loaned Peter an additional $27,500 in
1992. In sworn statements Peter has
acknowledged, “To the extent these loans were not preliminary distributions but
advances against my interest in the trust, I do not [dispute] that $27,500
(without any interest or other charges) should be paid [from] my interest in
the trust estate to Ralph.†In various
letters to Ralph from 1991 through 2003, Peter also insisted he had already
sold his interest in the Midvale residence to Ralph to satisfy the $150,000
loan while Ralph insisted through 1998 that the loan was evidenced by a
promissory note to be secured by a deed of trust.
3. Ralph’s Loans to Michael; the Dismissal of Ralph’s Civil Action To
Recover the Debt Against Michael’s Estate After His Death
In addition
to loaning money to Peter, Ralph loaned approximately $90,000 to Michael
between 1997 to 2001. Ralph testified he
and Michael agreed the loans would be repaid from the first distributions of
Dorothea’s estate; this testimony is consistent with correspondence between
Ralph and Michael. However, as reflected
in a December 2000 letter from Michael to Ralph, Michael believed Ralph had
purposely delayed distributing the estate and thus owed him at least $300,000
as income Michael could have earned on the proceeds from his interest in the
Midvale home had it been timely sold.
Michael
unexpectedly died in July 2001. In May
2003 Constance was appointed executor of his estate. In March 2004, after Constance had rejected
Ralph’s creditor claim for the $90,000 debt, Ralph filed a complaint in
Los Angeles Superior Court against Constance as executor. In response to Constance’s demurrer
contending the complaint was barred by the one-year
claims against decedents (Code Civ. Proc., § 366.2), Ralph amended the
complaint to allege a cause of action for equitable lien. Ralph contended Constance, by thanking Ralph
for having financially aided Michael during his lifetime and concealing she
intended to renege on his promise to repay the debt, lulled Ralph into a false
sense of security that caused him to refrain from initiating legal action until
more than one year after Michael’s death.
In December
2004 the court sustained Constance’s demurrer to Ralph’s third amended
complaint without leave to amend, explaining, “[Ralph] has not alleged facts
which would permit this court to grant equitable relief despite the fact that
this action is time-barred by code of Civil Procedure section 366.2.†In March 2005 the court ordered final
distribution of Michael’s estate, comprised solely of his 25 percent interest
in Dorothea’s trust, to Constance as trustee of Michael’s family trust.
4. Trial on Constance and Peter’s Petition; the Sale of the Midvale Home
December 2004, after Ralph’s complaint was dismissed, Constance petitioned to
remove Ralph as trustee of the Dorothea J. Cassady Trust, for judicial review
of his accountings and to surcharge him in an amount of at least $500,000 for
the 15-year delay in distributing trust assets.
Peter joined the petitions. In
October 2005 the probate court approved the sale of the Midvale home for
$1.26 million in its “as is†condition.
In April 2006 the
probate court denied Constance and Peter’s removal petition, imposed a
surcharge against Ralph as trustee for approximately $11,000 in unreasonable
expenses to maintain the Midvale home and ordered Ralph to distribute the
remaining trust assets, including Dorothea’s personal property in accordance
with the 1980 list. The court found
Peter’s “disruptive conduct†was primarily the cause of the failure to rent the
Midvale home and the delay in selling it.
We upheld the probate court’s ruling in an unpublished decision filed
October 15, 2007. (Cassady v. Cassady (Oct. 15, 2007, B191947) [nonpub. opn.].)
5. The Instant Petition for Approval of Accounts and Proposed
Distribution; Peter’s Bankruptcy
In August 2008 Ralph filed a
first amended petition seeking an award of fees for services as trustee and
approval of accounts and distribution of the remaining trust assets. Ralph claimed he was entitled to distribution
of Peter’s entire share of the estate based on unpaid loans to him of more than
$250,000, and to $88,951.83 of Constance’s share for the unpaid loans to
Michael. Peter and Constance objected,
contending in part the claims based on the loans were barred by the statute of
limitations.
Peter and
Beverly filed for bankruptcy under Chapter 7 of the United States Bankruptcy
Code (11 U.S.C. §§ 701-784) in April 2009; David Y. Farmer was appointed
trustee of the bankruptcy estate. In
October 2009 Peter and Beverly’s debts were discharged in bankruptcy. In November 2009 Farmer, as bankruptcy
trustee, was substituted for Peter in the probate proceedings.
Trial on
the petition occurred over eight days in June, August and December 2010. The probate court provisionally considered
extrinsic evidence, including Ralph’s testimony Dorothea wanted her children to
be able to transfer trust assets among themselves, to determine whether the
spendthrift clause was reasonably susceptible to the meaning Ralph’s loans to
his brothers were exempt from its scope.
On March 25, 2011 the court filed its statement of decision denying
Ralph’s petition to distribute to him any money from Constance or Peter’s share
of the trust.
title="">[4] Among other grounds, the court found the
claims were barred by the spendthrift provision. The court explained, “The court finds that
the extrinsic evidence provided by Ralph regarding communications with his
mother about her intent did not demonstrate that the language of the
Spendthrift Clause is susceptible to more than one meaning and, therefore, the
court rules the extrinsic evidence is inadmissible. The extrinsic evidence offer contradicts the
plain language of the Spendthrift Clause.â€
The court ordered Ralph to distribute the trust assets to all four
beneficiaries in equal shares after payment of fees and costs.
DISCUSSION
1. Principles
of Trust Interpretation; Standard of Review
Like the fundamental goal of
contract interpretation, in construing a trust instrument “‘“the duty of the
court is to first ascertain and then, if possible, give effect to the intent of
the maker.†[Citations.]’ [Citation.]
‘[Probate Code s]ection 21102 provides, “[T]he intention of the
transferor as expressed in the instrument controls the legal effect of the
dispositions made in the instrument.â€â€™ [Citations.] ‘“In construing a trust instrument, the
intent of the trustor prevails and it must be ascertained from the whole of the
trust instrument, not just separate parts of it.â€â€™â€ (Estate of Cairns (2010)
188 Cal.App.4th 937, 944.)
“[P]arol
evidence is properly admitted to construe a written instrument when its
language is ambiguous. The test of
whether parol evidence is admissible to construe an ambiguity is not whether
the language appears to the court to be unambiguous, but whether the evidence
presented is relevant to prove a meaning to which the language is ‘reasonably
susceptible.’ [Citation.] [¶]
The decision whether to admit parol evidence involves a two-step
process. . . . [T]he
court provisionally receives (without actually admitting) all credible evidence
concerning the parties’ intentions to determine ‘ambiguity,’ i.e., whether the
language is ‘reasonably susceptible’ to the interpretation urged by a
party. If in light of the extrinsic
evidence the court decides the language is ‘reasonably susceptible’ to the
interpretation urged, the extrinsic evidence is then admitted to aid in the
second step—interpreting the contract.â€
(Winet v. Price (1992) 4 Cal.App.4th 1159, 1165; see
116, 125 (De Mille).)
The trial
court’s threshold determination of ambiguity is a question of law subject to
independent review. (Winet v. Price,
supra, 4 Cal.App.4th at p. 1165.)
“The second step—the ultimate construction placed upon the ambiguous
language—may call for differing standards of review, depending upon the parol
evidence used to construe the contract.
When the competent parol evidence is in conflict, and thus requires
resolution of credibility issues, any reasonable construction will be upheld as
long as it is supported by substantial evidence. [Citation.]
However, when no parol evidence is introduced (requiring construction of
the instrument solely based on its own language) or when the competent parol
evidence is not conflicting, construction of the instrument is a question of
law, and the appellate court will independently construe the writing.†(Winet, at pp. 1165-1166.)
2. The Probate Court Did Not Err in Ruling the Spendthrift Clause Barred
Ralph’s Recovery of the Outstanding Debt from Trust Distributions
As a general matter, a
spendthrift provision in a trust prohibits the trust beneficiary from assigning
or otherwise encumbering his or her interests in trust assets while the
property remains in the trust. (See
Cal.App.4th 1098, 1104 [“[a] spendthrift trust is created where the settlor
gives property in trust for another, and provides that the beneficiary cannot
assign or otherwise alienate his or her interest, and that it shall not be
subject to the claims of the beneficiary’s creditorsâ€]; 13 Witkin, Summary
of Cal. Law (10th ed. 2005) Trusts, § 151, p. 715 [same]; see also Prob. Code,
§ 15301, subd. (a) [“if the trust instrument provides that a beneficiary’s
interest in principal is not subject to voluntary or involuntary transfer, the
beneficiary’s interest in principal may not be transferred and is not subject
to enforcement of a money judgment until paid to the beneficiaryâ€];
principal interests of the beneficiaries from third party claims as long as the
income or principal is properly held by the Trustâ€].)
Ralph
contends the probate court erred in concluding his claims against Peter and
Michael were barred by the spendthrift clause because his conversation with
Dorothea and the note at the end of the 1980 list stating the siblings can
“exchange with each other†is proof she intended Ralph and his siblings be able
to assign interests in her estate among themselves. To be sure, this evidence is
uncontroverted. Nevertheless, extrinsic
evidence may not be admitted to “show that what was meant by the words used was
something to which, under all of the circumstances, the words are not
reasonably susceptible.†(
(1971) 14 Cal.App.3d 102, 104; see Estate
of Lensch (2009) 177 Cal.App.4th 667, 674-675 [in light of extrinsic
evidence, if “provisions of the will are not reasonably susceptible of two or
more meanings, there is no uncertainty arising upon the face of the will
[citations] and any proffered evidence attempting to show an intention
words therein, giving them only the meaning to which they are reasonably
susceptible, is inadmissibleâ€].) The key
words in the spendthrift clause—that “no
interest†shall be anticipated, assigned, encumbered or subject to “
susceptible to a meaning that would create an exclusion to this all-inclusive
restriction for other beneficiaries under the trust. “An ambiguity arises when language may be
applied in more than one way. To say
that language is ambiguous is to say there is more than one semantically
permissible candidate for application, though it cannot be determined from the
language which is meant.†(See
966, 976.) Coupled with the principle
that a decedent is presumed to know the law, there is no basis on which to find
the spendthrift clause is ambiguous regardless of what Ralph, the lawyer who
drafted the provision, now claims that Dorothea may have intended. (See id.
at p. 977 [“These tendered facts do not create any ambiguity in the will
because they fail to raise a semantically plausible alternative candidate of
meaning. If true, they show his father
should have consulted a lawyer, because to effectuate his beliefs he needed to
have a valid will disinheriting his adopted-out children.â€].)
Ralph
argues the court in De Mille,
examine the circumstances surrounding the inclusion of a spendthrift clause in
a testamentary trust and concluded, notwithstanding that provision, it would
enforce against trust assets the estate beneficiaries’ agreement to share
equally in their mother’s estate even though her will directed a different, and
uneven, distribution.
the case at bar. Significantly,
general rule was stated in Kelly v. Kelly
(1938) 11 Cal.2d 356 in which the Supreme Court held the assignment by a trust
beneficiary of one-half his interest in property he was to receive from a trust
that contained a spendthrift clause did not give the assignee (his former wife)
a claim against trust property upon its distribution to him. (Kelly,
at p. 363; see De Mille, at
p. 124.)
title="">[5] The De Mille
court distinguished Kelly based upon
the trial court’s finding, supported by substantial evidence that included
language in the trust document itself, that the spendthrift provision was
created for the sole purpose of protecting the inheritance of one of the
testator’s daughters (Carla) from the creditors of her estranged husband. The evidence supporting that finding was not
only Carla’s testimony but also language by the testator in the will and trust
explaining, “this trust is created for the protection of my daughter from
possible claims of creditors†and giving the trustee discretion to terminate
the trust and distribute the entire proceedings to Carla if “there is no longer
a need for such protection.†Given the
limited purpose of the spendthrift provision, the De Mille court concluded that enforcing the agreement by Carla and
her sister to share equally their mother’s entire estate did not frustrate the
trust provision and was not inconsistent with the principles expressed in
Unlike in De Mille, there
is no language in Dorothea’s trust instrument that is susceptible of two different
meanings, nor is there any expression of intent in the trust document that
authorizes exclusions for Michael’s or Peter’s share to secure loans from
Ralph.
Ralph’s
additional arguments challenging the spendthrift provision are without
merit. Citing Frazier v. Wasserman (1968) 263 Cal.App.2d 120, Ralph argues the
trust terminated by its own terms no later than May 20, 2010, thus the
spendthrift clause was no longer in effect when the court entered its final
order in October 2011.
name="_ftnref6" title="">[6] In Frazier
the court stated, “[T]he donor of a
spendthrift trust can only protect his gift from the claims of the
beneficiary’s creditors during the life of the trust. Therefore, once the corpus of a spendthrift
trust vests in the beneficiary and is placed in his hands, or under his direct
control, it may not only be dissipated by the beneficiary contrary to what the
donor may have wanted, but it may also be reached by the beneficiary’s
creditors through attachment or execution to satisfy his debts (antecedent or
otherwise).†(Id. at p. 127.) We, of
course, agree with the general principle stated in Frazier, but it is specious for Ralph to argue it is applicable
here: Ralph’s petition for final
distribution was filed in August 2008, well before the trust terminated. Although the trial was delayed and did not
actually conclude before the technical termination date, the corpus of the
trust had not vested in the beneficiaries and was not under their direct
control prior to the court’s final order.
Regarding Ralph’s contention a probate
court may disregard a spendthrift clause once it has outlived its purpose and
usefulness—for example, when there has been a long delay in distributing the
income or principal (see Rest.3d Trusts, § 58, p. 355)—or deviate from the
terms due to unforeseen circumstances (see Prob. Code, § 15409), these are
arguments involving questions of fact that should have been made before the
probate court. They are not properly
raised for the first time on appeal.
(See Lambert v. Carneghi (2008)
158 Cal.App.4th 1120, 1129; Sea &
Sage Audubon Society, Inc. v. Planning Com. (1983) 34 Cal.3d 412, 417.)
DISPOSITION
The order is affirmed. Constance and Farmer are to recover their
costs on appeal.
PERLUSS,
P. J.
We
concur:
ZELON,
J.
JACKSON,
J.
most of the Cassadys share a surname, we refer to them individually by their
first names for convenience and clarity.
(See Jones v. ConocoPhillips Co.
(2011) 198 Cal.App.4th 1187, 1191, fn. 1.)
is not a party to the litigation.
