Yeager v. DAngelo
Filed 8/22/08 Yeager v. DAngelo CA3
NOT TO BE PUBLISHED
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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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
THIRD APPELLATE DISTRICT
SUSAN F. YEAGER et al.,
Plaintiffs and Appellants,
VICTORIA D'ANGELO et al.,
Defendants and Appellants.
This case is a family dispute involving the assets of famed test pilot Chuck Yeager. Those assets were held in a revocable living trust of which Yeager and his daughter Susan were cotrustees. Some of the assets had been transferred to a family corporation, Yeager, Inc.; Yeager and his four children were the shareholders. The dispute began when the widowed Yeager met Victoria DAngelo and decided that she, rather than his children and grandchildren, should be the beneficiary of his largesse.
Various complaints and cross-complaints were consolidated and heard, by stipulation, by a referee. The referee determined that Susan had breached her duty as trustee in the sale of a property to the trust and ordered her to reimburse the trust $915,018.68, her profit on the transaction and some additional damages. The referee also decided the ownership of certain disputed assets. Both sides appeal. The children and Yeager, Inc. contend the referee erred in finding a breach of trust and in calculating the profit on the real estate transaction. They further contend Susan is entitled to an award of fees and costs for the trust accounting; it was error to dismiss Victoria DAngelo; it was error to award tax penalties and capital gains tax as damages; Yeager has only a 10 percent interest in Yeager, Inc.; and the referee lacked jurisdiction to determine the rights to Yeagers life story.
On cross-appeal, Yeager and Victoria, now his wife, seek additional damages. They contend Susan acted in bad faith and the referee erred in not awarding prejudgment interest, double damages under Probate Code section 859, and punitive damages.
We modify the judgment and affirm. We find substantial evidence supports the conclusion that Susan breached her duty as trustee in the sale of the Pleasant Valley property and must forfeit her profit. The calculation of that profit, however, is incorrect; the award of damages is reduced, but bears prejudgment interest. We find no merit in the remaining contentions.
Charles Yeager (Yeager) was married to Glennis; they had four children, Susan, Donald, Sharon and Michael. After he retired from the United States Air Force as a Brigadier General, Yeager made a considerable amount of money due to his fame. His income included a military pension, a small disability pension, money from the Screen Actors Guild for his AC Delco commercials, speaking fees, and proceeds from the sale of autographed lithographs and other items. Originally, Glennis handled all the finances; she took care of the details and consulted Yeager only about major decisions. In the 1980s, a corporation, Yeager, Inc., was established and 40 shares were issued; half to Yeager and Glennis and the other half to the children. The corporation was established to beat the IRS and to give the proceeds from Yeagers autobiography to the children. Proceeds from Yeagers personal services were transferred to Yeager, Inc. Yeager made a lot of money and gave much of it to his children. Yeager and Glennis adopted an estate plan to minimize inheritance taxes and maximize gifts to the children.
When Glennis became ill with cancer, Susan quit her job and helped her mother with medical appointments and bookkeeping. Susan eventually took over the family finances. Glennis died in 1990 and Susan was executor of her estate. After the probate experience, Yeager formed a revocable trust for his assets, the Charles E. Yeager Revocable Living Trust (the Trust). Yeager was the settlor and beneficiary; he and Susan were cotrustees. Yeager did not know what was in the Trust. Susan continued to handle the finances and Yeager was happy to let her do so.
Yeager met Victoria DAngelo in March 2000 and she moved in with him about one month later. Yeager did not want to end up in a rest home and he knew his children had their own families to care for. He was concerned about becoming a burden to his children and was looking for someone to take care of him. Victoria was exactly what [he] was looking for. She fit the bill perfectly. Once Yeager decided he and Victoria would spend their life together, he decided to put as much of his property as possible in her name. In 2003, several months after this case began, Yeager married Victoria. Yeager admitted that after he met Victoria, his relationship with his family went to hell.
Some time in 2001, Yeager decided to take over his finances. At the end of the year, on a hunting trip to Jawbone Canyon with his son Donald, Yeager made his intentions clear. He wanted out of Yeager, Inc., and wanted to give his money to Victoria; he would not take back anything he had already given his children. Yeager asked Susan for all the original documents concerning his finances, but she refused to turn them over.
Meanwhile, Susan was concerned about the financial risk of Yeagers relationship with Victoria. She arranged to have Yeagers mail sent elsewhere so Victoria would not see it. Susan consulted an attorney and an accountant about further estate planning for Yeager, including setting up a qualified personal residence trust, which would take control of Yeagers residence from him. Yeager was unaware of her plans and unhappy when he learned of them. In January 2002, Yeager called his attorney; he wanted to revoke his power of attorney for financial matters, change his health care directive, and remove Susan as trustee of the Trust.
Pleasant Valley Road Property
One of the major issues in contention involved Susans dealings with the Trust concerning the Pleasant Valley Road property (the PV Property). The 60-acre PV Property was purchased in 1993, half by the Trust and half by Susan. Each contributed $50,519 in cash and a $45,000 note to the sellers. The Trust paid off the $90,000 note in 1995 and Susan paid the Trust $45,000 later that year. In 1997, the Trust transferred its 50 percent interest to Susan in exchange for her $95,000 note. Susan claimed the sale had been agreed to by Yeager a few years earlier, but the documents were not drawn up until 1997. Yeager had no idea how title to the PV Property was originally held. Although he did not recall signing the 1997 deed, Yeagers attorney discussed the 1997 deed with him.
Susan made arrangements to split the PV Property into two 30-acre parcels. She eventually sold the southern parcel for $300,000.
In 1997, it was decided to build two homes on the PV Property, one for Yeager and one for Susan. Yeager was able to get many of the materials for the homes at a reasonable cost from Louisiana Pacific, where he was a board member. Yeager did not know how the houses were paid for. He left the payment up to Susan.
By 2002, the friction between Susan and Victoria had increased so that Susan wanted to move from the PV Property. In January 2002, Susan sold the PV Property to the Trust for its appraised value of $1,350,000. Susan claimed she told Yeager about the sale, but he did not know if he agreed to it. Susan contacted the family attorney, Richard Hawkins, about the sale. He told her the transaction with the Trust had to be at arms length and she needed an appraisal. Hawkins told Susan that Yeager should be involved in the transaction. Despite this advice, Susan executed the deed for the transfer in her capacity as trustee; Yeager did not sign. Susan made sure that Victoria did not know about the sale; she was afraid that if Victoria knew, the sale would not go through.
In exchange for the PV Property, Susan received $803,000 in cash, the Gracie Road condominium worth $145,000, the Feagley note worth $80,000, and cancellation of Susans debts to the Trust in the amount of $316,000, for a total of $1,345,000. In calculating Susans profit from the transaction, Yeagers accountant included other costs, such as interest on her loans from the Trust and $300,000 from the sale of the southern parcel after the lot split. In addition, there was capital gains tax due on the transfer of the Gracie condominium and the Feagley note. The accountant testified the transaction could have been structured differently to avoid that tax.
Another point of contention at trial was the family corporation Yeager, Inc.; both Yeagers share of the corporation and what assets the corporation owned were contested. The corporation had been set up to shelter Yeagers personal service income from taxes. For example, the rights to Yeagers autobiography, Yeager, were owned by Yeager, Inc. and distributed to the shareholders. In Yeagers view, Yeager, Inc. was cross-fertilized with his name; he did not recall that certain assets were owned by Yeager, Inc. According to Victoria, Yeager thought Yeager, Inc. was just a tax vehicle and he owned its assets because he had earned them.
The corporation had 40 shares; the original ownership was Yeager, 10, Glennis, 10, and each of the children 5. When Glennis died, Yeager and each of the children received two of her shares. In 1996, Yeager transferred one share to each of his children, leaving him with 8 shares or 20 percent of the corporation. Susan claimed Yeager actually transferred two shares to each child, leaving his interest only 10 percent. She said it was a mistake that only one additional share had been issued to each child; she claimed she did not have enough stock certificates to correct the mistake.
There was considerable testimony at trial about the ownership of two groups of lithographs and covers, some commemorating Yeagers flight that broke the sound barrier. The referee found the Siegfried materials were Yeagers property and the Aviation Autographs belonged to Yeager, Inc. Neither party challenges this aspect of the referees findings.
Another contested issue was ownership of Yeagers life story rights. It was undisputed that Yeager had given his children the royalties from his autobiography, Yeager. Yeager understood from an attorney, Roger Armstrong, that he still owned the rights to his life story. The children believed the rights to Yeagers life story had been given to Yeager, Inc. In March of 2002, Yeager withdrew $50,000 from Yeager, Inc.s bank account with WestAmerica Bank. He claimed he needed the money for expenses. When Donald tried to move $100,000 from the account, Yeager and Victoria blocked it. Donald told the bank to freeze the account. The bank later filed an action in interpleader to resolve the dispute over the account.
After Yeager filed a grant deed, purporting to transfer to Victoria a 50 percent interest in the Gracie condominium, which Susan had received in the PV Property transaction, Susan responded by filing an action against Victoria, Yeager and the Trust to quiet title to the condominium. Susan sought punitive damages against Victoria only. In an amended complaint, Susan sought to rescind the PV Property transaction or to quiet title in the Gracie Condominium.
Yeager filed a cross-complaint for recovery of Trust property and an accounting, challenging Susans dealings with the PV Property. The cross-complaint also alleged elder financial abuse. In a supplemental cross-complaint, Yeager expanded the allegations of breach of trustees duties by Susan in handling the assets of the Trust.
Susan filed a cross-complaint against Victoria for slander and intentional infliction of emotional distress. She also sought a lien against assets of the Trust for accounting expenses.
WestAmerica Bank filed an action in interpleader as to the dispute over the funds in Yeager, Inc.s frozen account.
Yeager, Inc., cross-complained against Yeager for declaratory relief as to control and management of the corporation and for conversion of the $113,482.66 that had been deposited in interpleader.
Yeager cross-complained against his children for breach of fiduciary duty, declaratory relief, and an accounting of matters relating to Yeager, Inc.
The cases were ordered consolidated. The parties stipulated to have the matter heard by a retired judge acting as a referee.
Before trial, the parties stipulated to the dismissal of the causes of action for slander of title, elder abuse, and conversion. WestAmerica Bank was dismissed and awarded its attorney fees out of the interpleaded funds.
A 10-day trial was held. At the conclusion the referee issued a statement of decision. The referee found that until this dispute arose, Yeager acquiesced in Susan handling the finances. Yeager had no interest in the details; so long as he had adequate resources to fly and fish, had a roof over his head, and his children were treated equally, he had no interest in the information.
The referee found Susan disliked and distrusted Victoria. The other children shared these feelings to various degrees. Their feelings arose from mixed motives, both genuine concern for their father and some fear of loss of his historic financial generosity. The children also believed Yeager ought to honor their perception of Glenniss estate plan.
Late in 2001, Susan as cotrustee made several large payments out of the Trust, including a payment of $40,000 to herself for bookkeeping services and gifts to the Yeager children of $80,000. She decided to sell the PV Property to the Trust, but did not have Yeager sign any documents. The referee found Yeager had no knowledge of the structure of the transaction. It was less clear whether Yeager knew or should have known about the sale in general.
The referee found the 2002 sale of the PV Property was done without Yeagers informed consent and was a breach of Susans duties as trustee. While Yeager as trustee had an obligation to become aware of Trust transactions, the referee found the PV Property transaction was unique. It involved the bulk of the Trusts assets and materially altered the nature and liquidity of the Trust holdings. Completing the PV Property transaction without Yeagers knowledge and consent was inconsistent with past administration of the Trust and inconsistent with the pattern of asset management begun by Glennis. Yeager was always to be consulted for approval of the big picture. The referee found Yeagers consent to the PV Property transaction could not be implied from past conduct and approvals. Yeager did not breach his obligations as cotrustee of the Trust by delegating principal responsibility for Trust management to Susan. She actively concealed the transaction from Yeager, ignoring the advice of counsel to have Yeager sign the documentation.
The referee ordered Susan to turn over her profit of $850,599 to the Trust. In calculating Susans profit, the referee accepted Yeagers calculation, except that he found Susan had established that the portion of construction costs Yeager deemed contested costs were proper costs spent on the property. The breakdown of Susans profit was as follows:
Proceeds from sale of 15995 Pleasant Valley Road:
Transferred Feagley Note $80,236
Transfer of 314 Gracie $145,000
Forgiven 5/1/97 Note $95,000
Forgiven interest on 5/1/97 Note $36,219
Forgiven construction loans $221,381
Forgiven interest on const. loans $104,949
Other costs paid $12,768
Loss on 5/1/97 sale $519
Escrow expense $1,719
Interest on other costs $2,795
Sale of 15945 Pleasant Valley $300,000
(the southern 30-acre parcel)
Less Investment by Susan Yeager
Construction Costs $948,175
Escrow expense $4,858
Total profit to Susan Yeager $850,599 The referee found Susan was not entitled to rescission, but was entitled to confirmation of the sale of the Gracie condominium. The PV Property transaction caused the Trust to incur capital gains tax as a result of the transfer of the Gracie condominium and the Feagley Note, so Susan was liable for $34,865 in tax.
While the referee found breach of trust, he did not find bad faith sufficient for double damages under Probate Code section 859 or punitive damages. The referee found Susan acted, in the main, in good faith with respect to the PV Property, and while it was difficult to find good faith in the 2002 sale, the referee declined to award interest due to the consistency between the sales price and the appraised value and the difficult situation.
The referee made findings as to other disputed assets. As relevant to this appeal, Susan was also liable for $25,628.68 for interest and penalties due to late filing of Trust tax returns and $3,926 for negligent deposit of note payoff proceeds. The Trust owned 20 percent of Yeager, Inc., and the claim for distributions based on that ownership was sustained. The life story rights were owned by Yeager personally. The actions against Victoria were dismissed. Susans request for attorney and accounting fees was denied.
Judgment was entered, confirming ownership of Gracie condominium in Susan and ordering her to pay $915,018.68. Both sides appealed.
I. Sale of PV Property - Breach of Trust
Yeagers children and Yeager, Inc. (collectively referred to hereafter as the children) contend the referee erred in finding a breach of trust in the 2002 sale of the PV Property to the Trust. The referee found the sale was a breach of trust because Susan did not obtain Yeagers informed consent to the transaction. The children argue there was no breach because the PV Property was sold for its appraised value and Susan had authority, as a cotrustee of the Trust, to make the sale. They ignore, however, the referees findings that this transaction was inconsistent with past Trust dealings in which Yeager was always consulted about big picture items and that Susan actively concealed the details of the transaction from Yeager, as well as the impact -- on holdings and liquidity -- that this single transaction had on the Trust. Further, the referee found Susan benefitted in excess of the appraised value of the PV Property because several of her obligations to the Trust, and interest, were forgiven as part of the PV Property transaction. The referee found the benefit to Susan was over $1.8 million, considerably in excess of the $1.3 million appraised value. While the referee did not find her earlier dealings with Trust property were self-dealing, he found the details of the PV Property sale were not disclosed to Yeager and Yeager was not involved in the transaction, despite the advice of attorney Hawkins that the principal should be involved. Indeed, the referee questioned Susans testimony that she told Yeager the details of the transaction when no such details had been disclosed about any other Trust transaction.
Despite the substantial evidence supporting the referees finding, the children assert several reasons why the finding of breach of trust is in error. We consider each in turn.
A. Judicial Admission of Consent in Pleading
The children contend Yeagers consent to the sale of the PV Property was established by his judicial admission in his cross-complaint. They argue his admission that he agreed to buy the
PV Property was conclusive in establishing consent. (Valerio v. Andrew Youngquist Construction (2002) 103 Cal.App.4th 1264, 1271-1272.)
In Yeagers cross-complaint to Susans action to quiet title to the Gracie condominium, Yeager alleged Susan used trust funds to acquire and improve the PV Property. Paragraph 12 of the cross-complaint alleged as follows:
On or about January 23, 2002, plaintiff and cross defendant SUSAN F. YEAGER sold the real property known as 15995 Pleasant Valley Road, Penn Valley, California to defendant and cross complainant CHARLES E. YEAGER as trustee of the Charles E. Yeager Revocable Living Trust for $850,000 in cash plus other consideration to include the condominium which is the subject of the complaint on file herein. At the time defendant and cross complainant CHARLES E. YEAGER agreed to purchase and purchased the property 15995 Pleasant Valley Road, Penn Valley, California from plaintiff and cross defendant SUSAN F. YEAGER, he did not know that plaintiff and cross defendant SUSAN F. YEAGER had acquired and improved the property using funds belonging to the Charles F. Yeager Revocable Living Trust. (Italics added.)
As the italicized portion shows, the cross-complaint does state that Yeager agreed to the purchase of the PV Property. The cross-complaint, however, also alleges that his consent was not informed. It alleged Yeager did not know that Susan used Trust funds to acquire and improve the PV Property. The referees finding of breach of trust was based on Susans failure to obtain Yeagers informed consent to the PV Property sale. The referee found Yeager did not know the material terms of the transaction or its effect on the Trust as a whole. The referee found Susan actively concealed the transaction from Yeager. Accordingly, even if the cross-complaint is read as a judicial admission of consent, it cannot be read as a judicial admission of informed consent.
In general, the consent of the beneficiary relieves a trustee of liability for breach of trust. (Prob. Code, 16463, subd. (a).) That is not the rule, however, when the consent is not informed. Mere acquiescence is not a defense to breach of trust. (Ferro v. Citizens Nat. Trust & Sav. Bank (1955) 44 Cal.2d 401, 414.) A beneficiarys consent to an act does not eliminate a trustees liability for breach of trust where the beneficiary did not know material facts and the trustee knew such facts and did not reasonably believe the beneficiary knew them. (Prob. Code, 16463, subd. (b)(2).) The referee found Yeager did not know the material facts of the PV Property transaction and Susan actively concealed the transaction from Yeager. There was no judicial admission of informed consent sufficient to relieve Susan of liability for breach of trust.
The children also argue that Yeager actually consented to the PV Property sale by giving Susan his informal okay. This informality was, they contend, consistent with past management of the Trust. It was undisputed that Yeager wanted to remain at the PV Property. Susan testified she told Yeager she was selling the PV Property to the Trust. Yeager testified both that he could not recall if he knew about the sale and that he did not know about it. Although the evidence was conflicting as to exactly what Yeager knew about the PV Property transaction, substantial evidence supported the referees finding that he did not know the details of the transaction or its effect on the Trust. Susans breach of trust is not excused by consent.
B. Yeagers Breach of Duty as CoTrustee
The children contend Yeager cannot hold Susan liable for breach of trust because he breached his duty as a cotrustee to participate in administration of the Trust. The children contend that Yeager as beneficiary of the Trust is imputed with knowledge he had or should have had as cotrustee.
Trust law does not permit a cotrustee to delegate the entire administration of the Trust to another. (Prob. Code, 16012, subd. (a).) If a trust has more than one trustee, each trustee has a duty to do the following:  (a) To participate in the administration of the trust.  (b) To take reasonable steps to prevent a cotrustee from committing a breach of trust or to compel a cotrustee to redress a breach of trust. (Prob. Code, 16013.) A cotrustee is not liable for a breach of trust committed by another trustee unless he (1) participates in the breach; (2) improperly delegates administration of the trust; (3) approves, knowingly acquiesces in, or conceals a breach of trust by another trustee; (4) negligently enables the breach; or (5) neglects to take reasonable steps to redress the breach where he knows or should have known of the breach. (Prob. Code, 16402.)
Certainly, Yeager was purposefully not involved in the details of administration of the Trust. He assumed Susan was acting in his best interests. The referee found, however, that Yeager did not breach his duties as cotrustee because he remained involved in the big picture decisions. Susans breach was failing to involving Yeager in the PV Property transaction because it was a big picture item. Her handling of the PV Property transaction was markedly inconsistent with past practices. In 1997, Yeager signed documents for the sale of the Trusts share of the PV Property to Susan, but he did not sign any documents for the 2002 transaction. Further, Susan actively concealed the transaction from Yeager, so knowledge of its material facts could not be imputed to him. (See Tunis v. Barrow (1986) 184 Cal.App.3d 1069, 1078 [notice of lawsuit not imputed to client where attorney actively concealed it].) Yeagers failure to discover Susans breach does not relieve her of liability.
C. Sale within Trustees Absolute Discretion
The children contend that the PV Property transaction resulted in a benefit to Yeager because he got the home he wanted. Susans actions in acquiring that home for him were in accordance with the broad discretion granted her as trustee under the Trust. They contend her actions cannot be a breach of trust.
The Trust does grant the trustees broad discretion in dealing with Trust principal for the benefit of Yeager. The Trust permits a trustee to use Trust principal for Yeager as the Trustees in their absolute discretion deemed necessary for his care and comfortable support in his accustomed manner of living. As cotrustee, Susan had authority to execute documents on behalf of the Trust. She had no authority, however, to deal with the Trust for less than full and adequate consideration. The childrens argument, however, ignores the findings of the referee. The referee found Susan acted without the informed consent of Yeager as to the structure of the PV Property transaction. Further, the referees calculation of profit indicates he found Susan received more than the fair market value of the PV Property, as determined by the appraisal, because her debts to the Trust with interest were forgiven in the transaction. Thus, her dealings with the Trust were not for full and adequate consideration. These findings indicate Susans actions were a breach of trust.
D. Finding re Advice of Counsel
The children take issue with the referees finding that Susan acted against the advice of attorney Hawkins by not having Yeager sign the documents for the PV Property transaction. The children dispute the finding that Susan actively concealed the transaction from Yeager, which is based in part on the finding that Susan did not follow Hawkinss advice to have Yeager sign the documents.
Hawkins testified Susan told him she wanted to move and to get her money out of the PV Property. He told her that any transaction with the Trust must be at arms length and at fair market value. He advised she needed an appraisal. Susan said she was going to do that.
On cross-examination Hawkins testified he could not recall any further specific advice, but his general advice in dealing with trust property is to have the principal participate in the transaction if possible. In his deposition, Hawkins testified he told Susan that if she was going to take actions herself, it would be better to involve the principal, to involve her father. He did not recall any response to that comment.
While Hawkins did not testify that he specifically advised Susan to have Yeager sign the documents for the PV Property transaction, the referee reasonably interpreted Hawkins advice to involve Yeager to include such advice. Certainly keeping the details of the transaction from Yeager was counter to the attorneys advice and supported the finding that Susan actively concealed the PV Property transaction from Yeager.
II. Ratification of Sale of PV Property
In an argument related to consent, the children contend Yeager affirmed the transaction under Probate Code section 16465, so Susan cannot be held liable for breach of trust. They assert Yeager affirmed the transaction because he never sought to rescind it and affirmed at trial that he wanted the property. Because Yeager did not know the material facts of the transaction, he did not affirm it.
Probate Code section 16465 provides: (a) Except as provided in subdivision (b), if the trustee, in breach of trust, enters into a transaction that the beneficiary may at his or her option reject or affirm, and the beneficiary affirms the transaction, the beneficiary shall not thereafter reject it and hold the trustee liable for any loss occurring after the trustee entered into the transaction.  (b) The affirmance of a transaction by the beneficiary does not preclude the beneficiary from holding a trustee liable for breach of trust if, at the time of the affirmance, any of the following circumstances existed:  (1) The beneficiary was under an incapacity.  (2) The beneficiary did not know of his or her rights and of the material facts (A) that the trustee knew or reasonably should have known and (B) that the trustee did not reasonably believe that the beneficiary knew.  (3) The affirmance was induced by improper conduct of the trustee.  (4) The transaction involved a bargain with the trustee that was not fair and reasonable.
First, subdivision (a) of Probate Code section 16465 does not apply because Yeager is not now seeking to reject the transaction and hold Susan liable for subsequent loss. Rather, having learned the details of the transaction, he is seeking damages for breach of trust. Further, if Yeagers failure to rescind the PV Property transaction could be viewed as an affirmance, as discussed above he was not aware of material facts, so he can hold Susan liable for breach of trust under subdivision (b)(2) of Probate Code section 16465. Yeager was not required to rescind the PV Property transaction. As the wronged party, the choice of remedies was his. (Walters v. Marler (1978) 83 Cal.App.3d 1, 16, disapproved on another point in Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 507.)
III. Calculation of Susans Profit
If a trustee commits a breach of trust, the trustee is chargeable with any profit made through the breach of trust. (Prob. Code, 16440, subd. (a)(2).) The referee found Susan committed a breach of trust in the sale of the PV Property and ordered her to pay the Trust her profit of $850,599. Susan declined to provide any calculation of her profit on the sale. The referee accepted the calculation provided by Yeager and set forth above, except the referee gave Susan credit for all construction costs, even those Yeager claimed were unsubstantiated.
The children contend the referee erred in the calculation of Susans profit. The result was a double recovery or windfall for Yeager. They contend the referee failed to take into account that Susan owned the PV Property. We agree in part.
On appeal, Yeager continues to claim all of Susans dealings with the PV Property were improper self-dealing. The referee, however, found only the 2002 sale was a breach of trust. Accordingly, the 1997 sale of the Trusts 50 percent share of the PV Property to Susan was upheld. Therefore, at the time of the 2002 sale, she owned the entire PV Property.
Under Probate Code section 16440, subdivision (a)(2), the Trust is entitled to receive Susans profit on the sale of the PV Property to the Trust. The referee stated the calculation of Susans profit was determined by her purchase price equivalent less her costs of acquisition. Our review of the calculations indicates some items are missing and others are improperly included.
In calculating Susans acquisition costs, some legitimate acquisition costs are missing. Her original investment of $95,519 ($50,519 cash and a $45,00 note she later repaid) is not included; it should be as part of her acquisition costs. Also, her $95,000 note to the Trust for the 1997 sale should be included, although this amount is offset because the note was forgiven by the Trust in the 2002 sale; the net effect is a wash, except that Susan received the gift of interest on the note.
In calculating the proceeds to Susan from the sale, there are two errors. First, the $519 loss on the 1997 sale should not be included because the referee did not find that sale was a breach of trust. Since there was no breach of trust in this sale, Susan is not liable for the Trusts small loss on the sale. Second, since Susan owned the entire PV Property, the $300,000 proceeds from the sale of the lower 30-acre parcel should not be included. That transaction was not part of the referees finding of breach of trust.
Revising the calculations to include the additional acquisition costs and eliminate two items of proceeds, the revised profit to Susan is $359,561. We modify the judgment accordingly.
IV. Award of Fees and Costs for Probate Accounting
The children contend the referee erred in denying Susan fees and costs for the Trust accounting. They contend both the Trust document and Probate Code 15684 provide the trustee is entitled to reimbursement for costs incurred in administration of the Trust.
The referee declined to award costs and fees because Susan committed a breach of trust and failed and refused to turn over Trust records. Her actions were largely responsible for the ensuing litigation. While Susan prevailed on some contested matters, the referee determined the totality of the circumstances supported no recovery of fees and costs. Further, Susan failed to provide any evidence to support an apportionment.
We find no error. A trustee is entitled to reasonable compensation for services rendered and the court has discretion in determining the allowance of compensation. (Estate of Gump (1991) 1 Cal.App.4th 582, 597.) Compensation may be reduced or denied where the trustee acts negligently or in breach of the trust. (Ibid.) 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 full compensation. (Rest.2d Trusts, 243.)
V. Dismissal of Victoria
The children contend the referee erred in dismissing Victoria as a party. They claim she must be a party to the judgment to effectively quiet title to the Gracie condominium. Victorias claim to an interest in the condominium arose when Yeager deeded an undivided one-half interest in the condominium to Victoria in September 2002. Susans first amended complaint to quiet title requested that the court cancel that deed. Victorias answer denied Susans claim to the condominium. The judgment cancels the deed from Yeager to Victoria.
Yeager responds that substantial evidence supports the ruling of dismissal because the children have no evidence that Victoria asserts a claim against the condominium. Before trial, Victoria recorded a disclaimer of interest in the condominium. Evidence of her disclaimer of interest was properly introduced at trial to establish ownership. (Maddox v. Herrington (1949) 94 Cal.App.2d 265, 266.)
While the referee ordered the quiet title action against Victoria dismissed, the judgment does not include this aspect of the referees ruling. The judgment confirms Susans ownership of the condominium and cancels the deed to Victoria. It does not dismiss Victoria as a party; in fact, she (as well as Yeager) is awarded costs. Because Victoria remains a party to the judgment, the referees ruling, whether or not correct, has no effect.
VI. Tax Penalties and Capital Gains Tax
The referee found Susan conceded she delayed providing information necessary for the Trust tax returns, which caused the Trust to incur interest and penalties of $25,628.68. She also negligently delayed depositing the proceeds of two note payoffs and a distribution from Yeager, Inc., resulting in lost interest to the Trust of $3,926. Susan was ordered to reimburse the Trust these amounts.
The children contend these elements of damages are improper as Yeager had the same duties as Susan in administration of the Trust. They contend he is as much responsible for these losses to the Trust as Susan. As discussed above, Yeagers delegation of the details of administration of the Trust was not a breach of his duties. Since there was no evidence he participated or knew of these additional breaches of duty by Susan, he is not liable for them. (Prob. Code, 16402.) Susan was properly held solely liable to the Trust for tax penalties and interest and lost interest due to negligent deposits.
The referee found the PV Property sale caused the Trust to incur capital gains tax due to the transfer of the Gracie condominium and the Feagley note. Since the transfer was part of Susans breach of trust, she was liable to reimburse the Trust $34,865.
The children contend the capital gains would have been incurred eventually; the capital gains was offset by savings on the cost of acquiring the PV Property if Yeager had taken out a mortgage; and these costs were less than three percent of the transaction and therefore reasonable.
Yeagers accountant testified the transaction could have been structured differently to avoid these costs. The children offered no evidence to dispute this claim. Because there was substantial, even uncontradicted, evidence these costs could have been avoided, the referee did not err in awarding these costs as damages for the breach of trust.
VII. Yeagers Interest in Yeager, Inc.
Yeagers accountant testified Yeager (through the Trust) received distributions of 10 percent from Yeager, Inc., from 1997 to 2001, but the actual corporate records showed he owned twenty percent of the stock. Susan explained that when she issued stock certificates for Yeagers gift of stock to each child in 1996, it was supposed to be for two shares rather than just one. She took the remaining shares to Yeager to reissue another share to each child, but she did not have enough stock certificates to correct her mistake.
The referee found Yeager had a 20 percent interest in Yeager, Inc. and he was entitled to distributions from the corporation equal to 20 percent for 1997 to 2001. He found no documentary evidence to support Susans claim and found it lacked credibility because it was raised for the first time at trial.
The children contend Susans account is consistent with the historical intent of Yeager and Glennis that the corporation be eventually transferred to the children. They contend Yeagers interest in the corporation is only 10 percent. The referee, as the trier of fact, has exclusive province to determine issues of credibility. (Sabbah v. Sabbah (2007) 151 Cal.App.4th 818, 823.) His decision is supported by substantial evidence, the documentary evidence of the share certificates.
VIII. Rights to Yeagers Life Story
The children contend the referee lacked jurisdiction to determine the ownership rights to Yeagers life story. They assert the issue was incompletely framed by the pleadings because Yeager made no claim for a determination of ownership of the rights to his life story. Further, there are federal questions of copyright to be resolved.
It is true that Yeagers cross-complaint in the interpleader action did not seek a declaration of the assets of Yeager, Inc., only a declaration of the ownership of Yeager, Inc. Nonetheless, a considerable portion of the trial concerned whether Yeager or the corporation owned certain assets, such as lithographs, the John Deere tractor and Yeagers life story rights.
The children contend the absence of an allegation concerning the life story rights from the pleadings presents a failure of proof. We disagree. No variance between the allegation in a pleading and the proof is to be deemed material, unless it has actually misled the adverse party to his prejudice in maintaining his action or defense upon the merits. (Code Civ. Proc., 469.) The children were not misled to their prejudice. Rather, they introduced evidence, corporate board resolutions, to prove the corporation owned the life story rights. The issue was fully litigated and the children are estopped to complain that the referee acted in excess of jurisdiction due to the lack of procedural prerequisites. (Thompson Pacific Construction, Inc. v. City of Sunnyvale(2007) 155 Cal.App.4th 525, 537.)
The referee noted there may be need for future litigation to determine the scope of the life story rights, which are separate and distinct from the rights to Yeagers autobiography. Those issues were not before the referee and they are not before this court.
In their reply brief, the children contend the referees decision on the life story rights lacks substantial evidence. We do not consider a point first raised in a reply brief; it was forfeited by the failure to argue it in the opening brief. (Mocek v. Alfa Leisure, Inc. (2003) 114 Cal.App.4th 402, 409.)
I. PreJudgment Interest
Yeager contends he is entitled to interest on the profit Susan received on the sale of the PV Property. He contends the referee erred in denying interest because there was not sufficient bad faith to require interest. He asserts interest is required unless the court finds the trustee acted reasonably and in good faith; there is no qualitative assessment of bad faith.
If the trustee commits a breach of trust, she is chargeable with [a]ny profit made by the trustee through the breach of trust, with interest. (Prob. Code, 16440, subd. (a)(2).) If the trustee has acted reasonably and in good faith under the circumstances as known to the trustee, the court, in its discretion, may excuse the trustee in whole or in part from liability under subdivision (a) if it would be equitable to do so. (Prob. Code, 16440, subd. (b).)
In ruling on Yeagers request for interest, the referee found as follows: The Referee finds that it would be inequitable to award prejudgment interest under the circumstances. The Referee finds that, in the main, Susan acted in good faith with respect to the acquisition and improvement of the PV property. It is more difficult to find good faith in connection with the sale of the property to the Trust, particularly in light of the active concealment of the transaction details from General Yeager and the condition Trust finances were left in after the purchase. In light of the consistency between the sales price and fair market value, and in light of the difficult surrounding circumstances, the Referee finds the conduct was, at least, not in sufficient bad faith as to require an interest assessment to make the Trust whole.
The children contend the referee acted within his discretion in denying interest. We disagree.
Under Probate Code section 16440, the presumption is that the trustees profit will be returned with interest. The referee had discretion to excuse interest only if he found the trustee (Susan) acted reasonably and in good faith and it was equitable to excuse interest. (Prob. Code, 16440, subd. (b).) The referee properly found it was equitable to excuse interest due to the fair market value sales price and the difficult circumstances. The referee did not, however, find Susan acted reasonably and in good faith in the sale of the PV Property. He admitted it was difficult to find good faith, particularly in light of the concealment and that the sale divested the Trust of most of its liquid assets. Instead, the referee found her conduct was not in sufficient bad faith. As Yeager argues, that is not the proper standard; there must be an affirmative finding of good faith, not simply no finding of bad faith. A trial court abuses its discretion when it applies the wrong legal standards applicable to the issue at hand. (Paterno v. State of California (1999) 74 Cal.App.4th 68, 85.) It was error to deny interest on Susans profit.
Relying on cases over 80 years old, Yeager contends he is entitled to compound interest. He is wrong.
Prior to 1986, California permitted a court to award compound interest in some cases of breach of fiduciary duty, but the law was changed in 1987. (Nickel v. Bank of America Nat. Trust and Sav. (9th Cir. 2002) 290 F.3d 1134, 1137.) Probate Code section 16441, subdivision (a)(1) provides for interest at the legal rate on judgments. Under Cal. Civ.Proc.Code 685.010(a), the legal rate on judgments is calculated with simple interest. [Citations.] (Nickel, supra, at p. 1137.) Yeager is entitled to simple prejudgment interest on Susans profit of $359,561.
II. Double Damages
Yeager contends the referee erred in denying him double damages under Probate Code section 859. He contends that the referee found bad faith and could not make a qualitative judgment. We disagree because the referee explicitly found no bad faith for purposes of Probate Code section 859.
Probate Code section 859 provides in part: 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 bad faith required under Probate Code section 859 must occur in the disposition of trust property. (13 Witkin, Summary of Cal. Law (10th ed. 2005) Trusts, 115, p. 682.)
The referee stated he found Susans actions with respect to the PV property were in breach of her duties as Trustee, but the Referee does not find that they were in bad faith as required by [P]robate Code 859 . . . . The referee did not find bad faith in taking, concealing or disposing of Trust property; Susan followed the attorneys advice to obtain an appraisal. The only concealment was of the details of the transaction, not the transaction itself. Susans breach of trust was her failure to obtain informed consent. The referee did not err in refusing to award double damages under Probate Code section 859.
III. Punitive Damages
Yeager contends the referee erred as a matter of law in failing to award punitive damages pursuant to Civil Code section 3294. He contends the record is clear that Susan acted with fraud, oppression or malice. In particular, he asserts her concealment of the PV Property transaction mandates a finding of fraud. He further contends the referee could draw an inference of fraud from Susans withholding of evidence and failure to recollect such things as the financial professionals her mother relied upon and conversations with Yeager at the offices of attorney Hawkins.
Civil Code section 3294, subdivision (a) provides: In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant. The referee found no clear and convincing evidence of oppression, fraud, or malice. Substantial evidence supports that finding.
For purposes of punitive damages, fraud is defined as an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury. (Civ. Code, 3294, subd. (c)(3).) [A] breach of a fiduciary duty alone
without malice, fraud or oppression does not permit an award of punitive damages. [Citation.] The wrongdoer must act with the intent to vex, injure, or annoy, or with a conscious disregard of the plaintiffs rights. [Citations.] Punitive damages are appropriate if the defendants acts are reprehensible, fraudulent or in blatant violation of law or policy. The mere carelessness or ignorance of the defendant does not justify the imposition of punitive damages . . . . Punitive damages are proper only when the tortious conduct rises to levels of extreme indifference to the plaintiff's rights, a level which decent citizens should not have to tolerate. (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1287.)
The evidence did not support an award of punitive damages as there was absolutely no evidence Susan acted with an intent to injure Yeager. The referee found her actions arose from mixed motives -- a genuine concern for her father and some fear of loss of his generosity. The referee did not err in refusing to award punitive damages.
The judgment is modified to reduce Yeagers recovery from Susan from $850,599 to $359,561 for her profit on the PV Property transaction, plus prejudgment interest on that amount. The award of $64,419.68 for other damages remains unchanged. In
all other respects, the judgment is affirmed. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(3).)
MORRISON , J.
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 For convenience, the other Yeager family members are referred to by their first names only.
 In a letter to Yeager and his children, Armstrong explained life story rights are personal rights, such as to publicity, while the rights to the autobiography are intellectual property rights. Armstrong explained that to make a movie out of Yeager, the producer would want to acquire the rights both to the book and to Yeagers life story.
 Resolution of this appeal was delayed due to the referees failure to deliver the exhibits in a timely manner.