Villelli v. R.A.V., Inc.

















Filed 12/28/12
Villelli v. R.A.V., Inc. CA4/3

















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NOT TO BE PUBLISHED IN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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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




>

LESLIE LARAINE VILLELLI, Plaintiff and Appellant, v. R.A.V., INC., et al., Defendants and Respondents.

G046045 (Super. Ct. No. 30-2011-00439586) O P I N I O N

Appeal from a judgment of the Superior Court of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Orange
County, James Di Cesare, Judge. Affirmed.

Ross Law Group and Mark A. Ross for Plaintiff and Appellant.

Corbett, Steelman & Specter, Susan J. Ormsby and Ken E. Steelman
for Defendants and Respondents R.A.V., Inc., Villelli Enterprises, Inc.,
Richard A. Villelli, Lee M. Deierling and Judith A. Deierling.

Stephen R. Rykoff for Defendant and Respondent Joanne Rocks.

* * *

Plaintiff and appellant Leslie Laraine Villelli appeals from a
judgment entered after the trial court sustained demurrers by defendants and
respondents R.A.V., Inc. (RAV), Villelli Enterprises, Inc. (Villelli
Enterprises), Richard A. Villelli (Dick), Lee M. Deierling, Judith A. Deierling,
and Joanne Rocks (collectively, Defendants).
As a beneficiary of her husband Thomas R. Villelli’s revocable trust
(Trust), Leslie sued Defendants claiming Dick and Rocks coerced and
fraudulently induced her to sign documents transferring Villelli Enterprises
and RAV shares from the Trust to Dick and the Deierlings during a period when
she served as one of the Trust’s cotrustees.href="#_ftn1" name="_ftnref1" title="">[1]

The trial court found Leslie lacked standing to bring this action as
a Trust beneficiary because the current trustee is the only real party in
interest with standing to sue for damage to property the Trust holds. Leslie primarily contends she has standing to
sue as a Trust beneficiary under the third-party participant doctrine, which
allows trust beneficiaries to sue in their own name to recover damages or trust
property from third parties who participate in or knowingly benefit from a
trustee’s breach of trust. Leslie argues
she breached her duties as a cotrustee when she transferred the Villelli
Enterprises and RAV shares without adequate consideration, and Dick and Rocks
participated in that breach by coercing and fraudulently inducing her to make
the transfers.

Although Leslie alleges she breached her duties as a cotrustee by
transferring the shares, we affirm the trial court’s judgment because she also
alleges she acted as Tom’s attorney in fact rather than as a cotrustee when she
made the transfers. Because she did not
act as a cotrustee when she transferred the shares, Leslie did not breach her
duties as a cotrustee and the third-party participant doctrine does not apply
to give her standing. We also reject
Leslie’s secondary contentions that she has standing because (1) Idaho law
applies and allows trust beneficiaries to sue for damage to trust property;
(2) the current trustee authorized her to bring this action as a Trust
beneficiary; and (3) trust beneficiaries may sue third parties for damage
to trust property when the trustee wrongfully refuses to do so.

I

Facts and Procedural Historyhref="#_ftn2" name="_ftnref2" title="">[2]

Tony Villelli formed Villelli Enterprises in 1957 and RAV in
1973. He retired in 2000, leaving his
sons, Tom and Dick, as the sole shareholders for both corporations. Leslie is Tom’s widow.

Tom established the Trust in 1997 and later amended and restated it
three times. He also executed a
pour-over will to transfer to the Trust all property held in his individual
name when he died. The Trust names
Leslie as a beneficiary entitled to one‑half of the Trust’s residual
corpus. Leslie’s pleadings do not
identify the other Trust beneficiaries and, as explained below, are
inconsistent on whether the Trust held Tom’s Villelli Enterprises and RAV
shares before his death or only after he died.
The Trust is registered and its principal place of administration is in Idaho, where Tom
and Leslie lived.

By January 2007, Tom became seriously ill with terminal cancer and
no longer possessed the mental capacity to conduct his own financial
affairs. Before his illness, Tom signed
a durable power of attorney appointing Leslie as his attorney in fact if he
lost the capacity to act on his own behalf.

On January
21, 2007, Dick and Rocks, the longtime
attorney and business associate of Tom, Dick, Villelli Enterprises, and RAV,
came to Leslie and Tom’s home in Sandpoint, Idaho. At the time, Tom was in a
coma with Leslie and his son, Richard T. Villelli (Rick), at his bedside. Dick and Rocks told Leslie she must sign
several documents as Tom’s attorney in fact to prevent estate taxes from
consuming Tom’s entire estate.
Distraught over her husband’s impending death, Leslie initially declined
to sign the documents. Dick and Rocks
nonetheless continued to “pressure and persuade” Leslie to sign the documents
Rocks had prepared. Rick also encouraged
Leslie to sign the documents.

Leslie eventually succumbed to Dick’s and Rocks’s pressure and
signed the following documents as Tom’s attorney in fact: (1) the Stock Purchase Agreement
transferring some of Tom’s shares in Villelli Enterprises to Dick and the
Deierlings; (2) the Stock Purchase Agreement transferring some of Tom’s
shares in RAV to Dick; (3) the Shareholder’s Agreement by and among
Villelli Enterprises and its shareholders; and (4) the Shareholder’s
Agreement by and among RAV and its shareholders (collectively, Stock
Documents).

Because of her emotional distress over her husband’s condition,
Leslie signed the Stock Documents without reading them or understanding Dick’s
and Rocks’s representations about their content. She did not realize the Stock Documents reduced
Tom’s ownership interest in Villelli Enterprises from 51 percent to
33 percent and his ownership interest in RAV from 51 percent to
49 percent. After Leslie signed the
Stock Documents, Rocks took the originals with her and did not provide Leslie
with copies. Leslie did not see the
Stock Documents again or understand their effect until approximately February
2010.

Tom died on January 23, 2007, less than 48
hours after Leslie signed the Stock Documents.
Leslie and Rick succeeded Tom as cotrustees pursuant to the Trust’s
terms. As part of her efforts to
complete the Trust’s administration and distribute its assets to the
beneficiaries, Leslie sought to negotiate an agreement with Villelli
Enterprises and RAV to redeem all shares the Trust held in the two
corporations. Despite lengthy discussions
with Dick and other corporate representatives, Leslie could not reach an
agreement to redeem the shares. It was
during these negotiations that Leslie first learned the Stock Documents had
reduced the number of shares held in the Trust.

In January 2010, Rick resigned as cotrustee and Dick succeeded to
the position under the Trust’s terms.
Numerous disagreements quickly arose between Leslie and Dick regarding
the Trust’s administration and the two corporations. In December 2010, an Idaho court heard Dick’s
petition to remove Leslie as a cotrustee and Leslie’s petition to file a
lawsuit on the Trust’s behalf to invalidate the Stock Documents and recover
damages from Dick and Rocks. On its own
motion, the Idaho court removed both Leslie and Dick as cotrustees and appointed a
professional fiduciary as the Trust’s trustee.
The court also refused to authorize Leslie to pursue any claims on the
Trust’s behalf.

Leslie next asked the court-appointed trustee to pursue the claims
she contends the Trust has against Defendants.
When the trustee refused, Leslie filed this action on the Trust’s behalf
to dissolve Villelli Enterprises and RAV, unwind the stock transfers made when
she signed the Stock Documents, and recover monetary damages from Dick and
Rocks for fraudulently inducing her to sign the Stock Documents. Leslie’s verified first amended complaint
alleged both the Idaho court overseeing the Trust’s administration and the court-appointed
trustee authorized her to bring this action on the Trust’s behalf. The pleading further alleged Tom held his
Villelli Enterprises and RAV shares in his own name until his death, and Leslie
and Rick did not succeed Tom as the Trust’s cotrustees until Tom’s death.

Defendants demurred to Leslie’s first amended complaint on the
ground she lacked standing to pursue any claims on the Trust’s behalf because
she no longer was a trustee. The trial
court sustained the demurrers with leave to amend, finding only the trustee had
standing to sue on the Trust’s behalf and Leslie’s conclusory allegations that
the trustee and Idaho court authorized her to bring this action did not
establish standing.

Contrary to her prior pleadings, Leslie’s verified second amended
complaint alleged (1) the Trust held Tom’s Villelli Enterprises and RAV
shares before he died and
(2) Leslie and Rick succeeded Tom and began serving as cotrustees >before Tom died because his illness
rendered him “incapacitated as it is defined in the Trust.” The second amended complaint alleged the same
claims as the first amended complaint, but Leslie asserted those claims as a
Trust beneficiary rather than on the Trust’s behalf.

Leslie alleged three independent grounds to support her argument she
had standing to maintain this action as a Trust beneficiary. First, she relied on the third-party
participant doctrine, which allows trust beneficiaries to sue in their own name
to recover damages or trust property from third parties who participated in or
knowingly benefited from a trustee’s breach of trust. To support that theory, Leslie alleged she
breached her duties as cotrustee when she signed the Stock Documents and
transferred some of the Villelli Enterprises and RAV shares the Trust held
without adequate consideration. She also
alleged Dick and Rocks participated in that breach of trust by inducing her to
sign the Stock Documents through their coercion and misrepresentations. Second, Leslie alleged Idaho law authorizes
trust beneficiaries to sue in their own names and the Trust specifically states
Idaho law governs “[a]ll questions concerning the validity, interpretation, and
administration of the [Trust].” Finally,
Leslie claimed the court‑appointed trustee authorized her or any other
beneficiary to bring this action in their own name.

Defendants demurred to the second
amended complaint, challenging Leslie’s standing to bring this action as a
Trust beneficiary. The trial court
agreed Leslie lacked standing and sustained the demurrers without leave to
amend. After the trial court entered
judgment dismissing Leslie’s claims, she timely appealed.

II

Discussion

A. Standard of Review

When the trial court sustains a demurrer, we review the complaint de
novo to determine whether it alleges facts stating a cause of action on any
legal theory. (Koszdin v. State Comp. Ins. Fund (2010) 186 Cal.App.4th 480,
487 (Koszdin).) “Reading the complaint as a whole and giving
it a reasonable interpretation, we treat all material facts properly pleaded as
true. [Citation.] The plaintiff has the burden of showing that
the facts pleaded are sufficient to establish every element of the cause of
action and overcoming all of the legal grounds on which the trial court
sustained the demurrer, and if the defendant negates any essential element, we
will affirm the order sustaining the demurrer as to the cause of action. [Citation.]
We will affirm if there is any ground on which the demurrer can properly
be sustained, whether or not the trial court relied on proper grounds or the
defendant asserted a proper ground in the trial court proceedings. [Citation.]”
(Martin v. Bridgeport Community
Assn., Inc. (2009) 173 Cal.App.4th 1024, 1031 (Martin).)

“When a demurrer is sustained without leave to amend, we also must
decide whether there is a reasonable possibility that the defect can be cured
by amendment.” (Koszdin, supra,
186 Cal.App.4th at p. 487.)
“The plaintiff bears the burden of proving there is a reasonable
possibility of amendment.
[Citation.] . . . [¶] To
satisfy that burden on appeal, a plaintiff ‘must show in what manner he can
amend his complaint and how that amendment will change the legal effect of his
pleading.’ [Citation.]” (Rakestraw
v. California Physicians’ Service (2000) 81 Cal.App.4th 39, 43.)

B. Trust Beneficiaries Generally Lack Standing to Pursue Claims Against
Third Parties for Damage to Trust Property

“Standing is the threshold element required to state a cause of
action and, thus, lack of standing may be raised by demurrer.” (Martin,
supra, 173 Cal.App.4th at
p. 1031.) Code of Civil Procedure
section 367 requires that “[e]very action must be prosecuted in the name of the
real party in interest, except as otherwise provided by statute.” “A party who is not the real party in
interest lacks standing to sue because the claim belongs to someone else. [Citations.]
. . . ‘A real party in interest ordinarily is defined as
the person possessing the right sued upon by reason of the substantive
law. [Citation.]’ [Citations.]”
(Estate of Bowles (2008)
169 Cal.App.4th 684, 690.)

When a claim is prosecuted on a trust’s behalf, the trustee is the
real party in interest because the trustee has legal title to the claim. (Wolf
v. Mitchell, Silberberg & Knupp (1999) 76 Cal.App.4th 1030, 1036 (>Wolf); Pillsbury v. Karmgard (1994) 22 Cal.App.4th 743, 753 (>Pillsbury).) “‘The corollary to this rule is that the
beneficiary of a trust generally is not the real party in interest and may not
sue in the name of the trust. . . .’” (Pillsbury,
at p. 753.)

“Generally, the beneficiary of a trust, having no legal title or
ownership interest in the trust assets, is not the real party in interest and
may not sue in the name of the trust.
[Citations.] A trust beneficiary’s
‘right to sue is ordinarily limited to the enforcement of the trust, according
to its terms.’ [Citations.]” (Wolf,
supra, 76 Cal.App.4th at
p. 1036; Pillsbury, >supra, 22 Cal.App.4th at
p. 753; Saks v. Damon Raike &
Co. (1992) 7 Cal.App.4th 419, 427 (Saks).) “‘“[B]ecause an ordinary express trust is not
an entity separate from its trustees, action may not be maintained in the name
of the trust. [Citation.] Thus, absent special circumstances, an action
prosecuted for the benefit of a trust estate by a person other than the trustee
is not brought in the name of a real party in interest and is demurrable.” [Citation.]’
[Citation.]” (>Pillsbury, at pp. 753‑754; >Wolf, at p. 1036; >Saks, at p. 427.)

As a Trust beneficiary, Leslie sued third parties for damage they
allegedly caused to assets the Trust held.
She claims Dick and Rocks wrongfully obtained Trust assets by coercing
or defrauding her into transferring some of the Villelli Enterprises and RAV
shares the Trust held when she was a cotrustee.
Because the second amended complaint alleged the trustee held legal
title to the shares, the trustee is the real party in interest with standing to
pursue the claims. (Wolf, supra,
76 Cal.App.4th at p. 1036; Pillsbury,
supra, 22 Cal.App.4th at
p. 753; Saks, >supra, 7 Cal.App.4th at
p. 427.) Leslie does not challenge
this analysis, but nonetheless argues the trial court erred in sustaining
Defendants’ demurrers because several exceptions to the foregoing rule allowed
her to pursue this action as a Trust beneficiary. Accordingly, we must determine whether any
exception to the foregoing standing rule applies in this case.

C. Leslie Failed to Allege Facts Establishing an Exception to the Rule
Vesting Standing in the Trustee Only

1. The Third-Party Participant Doctrine
Does Not Provide Leslie with Standing

An exception to the foregoing standing rule exists for claims
against third parties who participated in or knowingly benefited from a
trustee’s breach of his or her duties:
“[I]t is well established that where a trustee has committed a breach of
trust, the trust beneficiaries may prosecute an action against third persons
who, for their own financial gain or advantage, induced the trustee to commit
the breach of trust; actively participated with, aided or abetted the trustee
in that breach; or received and retained trust property from the trustee in
knowing breach of trust.” (>City of Atascadero v. Merrill Lynch, Pierce,
Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 462 (>Atascadero); King v. Johnston (2009) 178 Cal.App.4th 1488, 1500 (>King) [“a beneficiary may pursue claims
against a third party on his or her own, without participation by the trustee,
when that third party actively participated in, or knowingly benefited from, a
trustee’s breach of trust”].)

“‘Ordinarily, when a third party acts to further his or her own
economic interests by participating with a trustee in such a breach of trust,
the beneficiary will bring suit against both
the trustee and the third party.
However, it is not necessary to join the trustee in the suit, because
“primarily it is the beneficiaries who are wronged and who are entitled to
sue. . . .”
[Citation.] The liability of the
third party is to the beneficiaries, rather than to the trustee, “and the right
of the beneficiaries against the [third party] is a direct right and not one that is derivative through the
trustee.” [Citation.]’ [Citations.]
Thus, ‘“[w]hen the claim being asserted rests in whole or in part on
alleged breaches of trust by the trustee, a beneficiary has standing to pursue
such a claim against either (1) the trustee directly, (2) the trustee
and third parties participating in or benefiting from his, her, or its breach
of trust, or (3) such third parties alone.”’
[Citations.]” (>King, supra, 178 Cal.App.4th at pp. 1500-1501, original
italics.)

In her second amended complaint, Leslie changed her allegations to
allege she served as one of the Trust’s cotrustees before she signed the Stock Documents, the Trust held title to
Tom’s Villelli Enterprises and RAV shares before
Leslie signed the Stock Documents, Leslie breached her duties as a cotrustee by
signing the Stock Documents without receiving adequate consideration for the
shares those documents transferred, and Dick and Rocks participated in Leslie’s
breach of trust by coercing and fraudulently inducing her to sign the Stock
Documents. These allegations, however,
are not sufficient to establish Leslie has standing under the third-party
participant doctrine.

Although Leslie alleges she breached her duties as a cotrustee by
signing the Stock Documents, she fails to allege she signed those documents in
her capacity as a cotrustee. To the
contrary, all of Leslie’s verified complaints allege she signed the Stock
Documents as Tom’s attorney in fact.
Moreover, the signed copy of the Villelli Enterprises and RAV
Shareholder Agreements Leslie attached to her complaints confirm she signed in
her capacity as Tom’s attorney in fact.
Leslie’s handwritten signatures on those documents state, “Thomas R.
Villelli by Leslie Laraine McHenry attorney
in fact.”href="#_ftn3"
name="_ftnref3" title="">[3] (Italics added.) Leslie’s conduct as Tom’s attorney in fact is
separate from her conduct as one of the Trust’s cotrustees.

Leslie acted on Tom’s behalf concerning all subjects and purposes
described in the power of attorney appointing her as Tom’s attorney in
fact. (Prob. Code, § 4123,
subd. (a); see also § 4014.)href="#_ftn4" name="_ftnref4" title="">[4] Depending on the power of attorney’s terms,
Leslie had authority to control Tom’s property, including all stocks he
held. (§ 4123, subd. (a).) She owed Tom fiduciary duties that required
her to act solely in his best interest (§ 4232, subd. (a)) and her
acts on Tom’s behalf bound Tom as if he had acted himself (§§ 4125, 4301).

As one of the Trust’s cotrustees, Leslie held legal title to Tom’s
Villelli Enterprises and RAV shares for the benefit of all beneficiaries the
Trust named. (Moeller v. Superior Court (1997) 16 Cal.4th 1124, 1133.) She owed the Trust’s beneficiaries fiduciary
duties that required her to administer the Trust solely in their interest, take
control of and preserve all Trust property, and make the Trust property productive. (Id.
at p. 1134; §§ 16002, subd. (a), 16006.)

The duties Leslie owed as a cotrustee are separate from the duties
she owed as Tom’s attorney in fact, and she owed these distinct
responsibilities to the Trust beneficiaries and Tom, two separate parties. (Cf. Arnolds
Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, 581 [“‘[An]
attorney in fact is not a trustee. One
who is described in an instrument . . . as the attorney in fact of
another, does not hold the character of trustee’”].)

As explained above, the third-party participant doctrine allows a
trust beneficiary to sue a third party only
when the third party participates in a trustee’s breach of trust. (King,
supra, 178 Cal.App.4th at
p. 1500; Atascadero, >supra, 68 Cal.App.4th at
p. 460.) If the trustee did not
commit a breach of trust, the doctrine does not apply and a trust beneficiary
may not sue a third party for damage to trust assets. (Ibid.) In that instance, the trustee is the only one
with standing to pursue the claims against the third party. (Pillsbury,
supra, 22 Cal.App.4th at
pp. 753-754, 756.)

By conceding she acted as Tom’s attorney in fact when she signed the
Stock Documents and transferred the Villelli Enterprises and RAV shares, Leslie
also implicitly concedes she did not breach any duty she owed as one of the
Trust’s cotrustees. Any duty Leslie
breached by signing the Stock Documents was necessarily a duty she owed Tom as
his attorney in fact because that is the capacity in which she signed the Stock
Documents. Because she did not act as a
cotrustee, Leslie did not breach any duty she owed as a cotrustee and therefore
the third-party participant doctrine does not provide her with standing.

Leslie contends whether she signed the Stock Documents as Tom’s
attorney in fact or one of the Trust’s cotrustees is irrelevant because her
conduct in signing the Stock Documents while she was a cotrustee damaged the
Trust and its beneficiaries. This
argument fails because a beneficiary lacks standing to sue third parties unless
it is shown the trustee breached her fiduciary duty in conjunction with the
third party.

Despite Leslie’s conclusory allegations that she breached her duties
as a cotrustee, the facts alleged in the second amended complaint do not
support this claim. Instead, the facts
alleged point to a claim involving the two corporations transferring shares the
Trust held without permission from the Trust’s then-current trustees. Indeed, the second amended complaint alleges
the Trust held Tom’s Villelli Enterprises and RAV shares and Tom had been
replaced by Rick and Leslie as the Trust’s trustee, but the two corporations
nonetheless relied on the Stock Documents signed by Tom’s attorney in fact to
transfer some of Tom’s shares. Because
that claim does not involve a breach of trust by a cotrustee, the third-party
participant doctrine does not apply.href="#_ftn5" name="_ftnref5" title="">[5]

Leslie offers several additional arguments to support application of
the third‑party participant doctrine.
We need not discuss these other arguments because Leslie’s failure to
allege facts establishing a breach of trust prevents her from using the
third-party participant doctrine to establish standing under any circumstances.

2. Leslie Failed to Allege Facts Showing
Idaho Law Applies to Provide Her with Standing

The second amended complaint alleges Leslie has standing to pursue
this action as a Trust beneficiary because (1) the Trust provides, “All
questions concerning the validity, interpretation, and administration of this
instrument . . . shall be governed by the laws of the State of
Idaho,” and (2) a trust beneficiary is the real party in interest on a
claim against a third party under Idaho law.
These allegations do not provide Leslie with standing.

As Leslie concedes, “this action is not one seeking relief
concerning the validity, interpretation, and administration of [the]
Trust.” Instead, this action seeks
relief from third parties who allegedly coerced and fraudulently induced a
cotrustee to transfer Trust property for inadequate consideration. The claims for relief turn on the propriety
of the third parties’ conduct, not “the validity, interpretation, and
administration” of the Trust. The
Trust’s choice-of-law provision therefore does not apply under these
circumstances to determine standing.href="#_ftn6" name="_ftnref6" title="">[6]

A California court applies California law unless a party
demonstrates a choice-of-law provision or public policy requires the court to
apply another state’s laws. (>Washington Mutual Bank v. Superior Court
(2001) 24 Cal.4th 906, 919 (Washington
Mutual).) Leslie fails to allege any
facts establishing a basis for applying Idaho law on standing and therefore we
apply California law denying trust beneficiaries standing to sue third parties.href="#_ftn7" name="_ftnref7" title="">[7]

3. The Court-Appointed Trustee Did Not
Confer Standing on Leslie

The second amended complaint also alleges Leslie has standing to
bring this action as a Trust beneficiary because the court-appointed trustee
expressly authorized her to do so. To
support this allegation, the second amended complaint attaches a letter from
the trustee refusing to pursue the claims alleged in this action, but stating
he “authorize[s] any vested beneficiary of the Trust to pursue the allegations
and claims made in the [action]” at the beneficiary’s own expense. This authorization, however, does not provide
Leslie with standing to bring this action because a trustee may not delegate
his or her duty to protect trust property.

“[A] trustee has a duty not to delegate to others the performance of
acts that the trustee can reasonably be required personally to perform . . . .” (§ 16012, subd. (a).) Pursuing claims against third parties for
damaging trust property is a personal responsibility reasonably imposed on the
trustee. Indeed, trustees have the power
and the duty to sue to protect trust property (§§ 16006, 16249) and they
are the real parties in interest with standing to pursue claims against third
parties for damage to trust property (King,
supra, 178 Cal.App.4th at
p. 1500; Pillsbury, >supra, 22 Cal.App.4th at
p. 753). Accordingly, the
court-appointed trustee could not delegate to Leslie the authority to pursue
any claim for damage to Trust property caused by a third party.href="#_ftn8" name="_ftnref8" title="">[8]

Leslie contends Pillsbury
and Powers v. Ashton (1975)
45 Cal.App.3d 783, implied a
trust beneficiary has standing to pursue claims against third parties if the
trustee expressly authorizes the beneficiary to do so. She is mistaken. Pillsbury
rejected a trust beneficiary’s argument that a trustee’s letter refusing to
pursue claims against a third party impliedly authorized the beneficiary to
pursue those claims. (>Pillsbury, supra, 22 Cal.App.4th at pp. 756-757.) Powers
held the trust document in that case did not authorize the trust beneficiary to
sue a third party for damage to trust property.
(Powers, at
pp. 788-789.) Neither case addressed
whether a trustee could delegate his or her duty to pursue claims against third
parties for damage to trust property.
“[A]n appellate court’s opinion is not authority for propositions the
court did not consider or on questions it never decided.” (People
v. Braxton (2004) 34 Cal.4th 798, 819.) Moreover, any decision allowing a trust
beneficiary to bring an action against third parties based on a trustee’s
authorization would violate section 16012’s prohibition against
delegation.

Leslie is bound by the court-appointed trustee’s decision not to
pursue the claims Leslie alleges unless she establishes the trustee’s refusal
to pursue the claims is “negligent, wrongful or otherwise improper.” (Pillsbury,
supra, 22 Cal.App.4th at
p. 756; see also Wolf, >supra, 76 Cal.App.4th at
pp. 1037-1038.) As we explain
below, the second amended complaint makes no such allegation.

4. The Trustee’s Refusal to Pursue These
Claims Does Not Provide Leslie with Standing

The final exception to the rule prohibiting trust beneficiaries from
suing third parties for damaging trust property arises from the trustee’s
“negligent, wrongful or otherwise improper” refusal to file suit against such
third parties. (Pillsbury, supra,
22 Cal.App.4th at p. 756; Wolf,
supra, 76 Cal.App.4th at
pp. 1037-1038; Saks, >supra, 7 Cal.App.4th at
pp. 427-428.) “‘[W]here a trustee
cannot or will not enforce a valid cause of action that the trustee >ought to bring against a third person, a
trust beneficiary may seek judicial compulsion against the trustee. In order to prevent loss of or prejudice to a
claim, the beneficiary may bring an action in equity joining the third person
and the trustee. [Citations.]’ [Citations.]”
(Pillsbury, at p. 754,
original italics.)

Unlike the third-party participant doctrine, this exception does not
allow a beneficiary to proceed directly against the third party who allegedly
damaged trust property. Instead, this
exception allows a beneficiary to compel
the trustee to pursue claims against the third party or have a new trustee
appointed to pursue those claims. (>Saks, supra, 7 Cal.App.4th at p. 430; Pillsbury, supra,
22 Cal.App.4th at p. 754.) The
third party who allegedly damaged trust property may be joined in the
beneficiary’s action against the trustee to avoid any prejudice to the trust’s
claim while the beneficiary seeks to compel the trustee to pursue the
claim. (Pillsbury, at p. 754.)

In Pillsbury, third
parties unsuccessfully sued the trustee in an earlier action seeking specific
performance on a contract to sell the trust’s real property. The trustee declined a beneficiary’s request
to sue the third parties for malicious
prosecution based on that earlier action.
The trustee considered the request, but determined a malicious
prosecution action was not in the trust’s best interests because of the costs
required to pursue the claim and the uncertain chances of success. (Pillsbury,
supra, 22 Cal.App.4th at
p. 751.) The beneficiary therefore
sued the third parties in his own name, but the trial court granted the third
parties’ nonsuit motion because the beneficiary lacked standing. (Id.
at pp. 752-753.) The Court of
Appeal affirmed, explaining the beneficiary was bound by the trustee’s decision
not to pursue the malicious prosecution action unless the beneficiary
established the trustee’s “failure to bring the lawsuit was negligent, wrongful
or otherwise improper,” and the beneficiary failed to make that showing. (Id.
at p. 756; see also Wolf, >supra, 76 Cal.App.4th at
pp. 1037-1038 [“‘If the trustee does not commit a breach of trust in
failing to bring an action against the third person, as for example where it is
prudent under the circumstances to refrain from bringing an action
. . . the beneficiary cannot maintain a suit against the trustee and
the third person’”].)

Here, after the Idaho court overseeing the Trust’s administration
removed Leslie and Dick as cotrustees and appointed a professional fiduciary as
trustee, Leslie asked the court-appointed trustee to pursue the claims she
alleges in this action. The trustee
considered Leslie’s request, but refused to file this lawsuit on the Trust’s
behalf because he believed doing so “would do more harm to the Trust’s interests
than good.” In reaching this conclusion,
the trustee relied in part on the Idaho court’s earlier ruling denying Leslie’s
request for authorization to file this action when she was a cotrustee.

The second amended complaint does not name the court-appointed
trustee as a party nor does it allege the trustee’s refusal to bring this
action was “negligent, wrongful, or otherwise improper.” (Pillsbury,
supra, 22 Cal.App.4th at
p. 756.) Consequently, the
trustee’s refusal to bring this action does not provide Leslie with
standing. (Wolf, supra, 76 Cal.App.4th
at p. 1038 [to invoke the wrongful refusal standing exception a
beneficiary must name the trustee as a party and allege the trustee breached
his or her duties by failing to pursue the claims]; see also >Pillsbury, at p. 756; >Saks, supra, 7 Cal.App.4th at pp. 427-428.)

D. The Trial Court Properly Denied Leslie Leave to Amend

Leslie contends she can amend her pleading to state additional facts
to “[c]larify any [a]mbiguities” regarding her standing to pursue this action
under the third‑party participant doctrine. She argues she can allege facts regarding
(1) Rick breaching his duties as a cotrustee; (2) the other Trust
beneficiaries; (3) the Trust holding Tom’s Villelli Enterprises and RAV shares
before his death; (4) the damages the Trust suffered; and (5) Rocks’
misconduct. None of these proposed
allegations, however, overcome the fact the third-party participant doctrine
does not apply because Leslie concedes she signed the Stock Documents as Tom’s
attorney in fact rather than as a cotrustee.


In her opening brief, Leslie also asserts she “can join the
Successor Trustee as a party if necessary,” but she fails to explain how
joining the trustee would provide her with standing to pursue this action as a
Trust beneficiary. We invited Leslie to submit
a proposed third amended complaint naming the trustee as a party and alleging
all additional facts she could to establish her standing to pursue this
action. Because the exception arising
from a trustee’s wrongful refusal to pursue claims against a third party is the
only exception requiring the trustee to be named as a party, we also invited
Leslie and Defendants to submit supplemental briefing addressing whether
Leslie’s proposed pleading alleged sufficient facts to establish standing under
that exception.href="#_ftn9"
name="_ftnref9" title="">[9]

Although Leslie’s proposed pleading alleges facts to show the
trustee wrongfully refused to pursue this action, those allegations do not
provide Leslie with standing because the California courts lack jurisdiction to
compel the Trust’s trustee to pursue the claims alleged in this action. As explained above, the wrongful refusal
standing exception does not allow a beneficiary to proceed directly against the
third parties who allegedly damaged trust property. Instead, the exception allows a beneficiary
to join the third parties in an action either to compel the trustee to pursue
the claims against the third parties or to appoint a new trustee to pursue the
claims. (Saks, supra,
7 Cal.App.4th at p. 430; see also Pillsbury,
supra, 22 Cal.App.4th at
p. 754.) An action to compel a
trustee to pursue third party claims must be brought in the court with
jurisdiction over the trust’s internal affairs.
(Saks, at pp. 429-430.)

In Saks, a trustee
purchased real property based on advice from an attorney and real estate broker
the trustee hired. Shortly after the
purchase, defects and other problems with the property damaged the value of the
trust, but the trustee refused to sue the attorney and broker to recover those
damages. The trust’s beneficiaries therefore
sued the attorney and broker directly, alleging they failed to disclose defects
in the property and breached various duties they owed the trust. The beneficiaries argued the trustee’s
refusal to bring suit gave them standing to sue on the trust’s behalf. The attorney and broker demurred, arguing the
beneficiaries lacked standing to sue them directly. The trial court sustained the demurrer
without leave to amend and the Court of Appeal affirmed. (Saks,
supra, 7 Cal.App.4th at
pp. 422-425.)

Under the wrongful refusal standing exception, the >Saks court explained, the beneficiaries’
“only proper course was to proceed against the trustee . . . seeking
either to compel [the trustee] to proceed against [the attorney and broker], or
to remove [the trustee] and to appoint a trustee ad litem to sue [the attorney
and broker].” (Saks, supra,
7 Cal.App.4th at p. 430.) The >Saks court further explained the Probate
Code vested exclusive jurisdiction over the internal affairs of the trust in
the superior court probate division. (>Id. at pp. 428-429.) Accordingly, because the question whether the
trustee negligently, wrongfully, or improperly refused to bring suit against
the attorney and broker involved the trust’s internal affairs and the trustee’s
proper performance of his duties, the beneficiaries were required to bring
their petition to compel the trustee to file suit in the probate division,
which is the only court with jurisdiction over those questions. (Id.
at pp. 429-430.) The beneficiaries
therefore lacked standing to bring the general civil action at issue in >Saks.
(Ibid.)

Here, Leslie filed a general civil action directly against
Defendants without joining the trustee or seeking to compel the trustee to
pursue the claims alleged in this action.
Leslie’s proposed third amended complaint joins the trustee and alleges
he wrongfully refused to pursue these claims, but the pleading does not seek to
compel the trustee to bring this action nor does it seek to have a trustee ad
litem appointed for that purpose. More
importantly, Leslie brings this action in a court that lacks jurisdiction to
compel the trustee (or a trustee ad litem) to pursue the claims Leslie alleges.

The Trust is registered with the Idaho state court and that court
has overseen the Trust’s administration since Tom’s death. The Idaho Probate Code grants the court where
a trust is registered exclusive jurisdiction over proceedings concerning the
trust’s internal affairs. (Idaho Code,
§ 15-7-201.) Both Leslie and Dick
have invoked the Idaho state court’s jurisdiction over the Trust by filing
various petitions for orders relating to the Trust’s internal affairs. Accordingly, to invoke the wrongful refusal
standing exception, Leslie must proceed in the Idaho state court that currently
oversees the Trust’s administration and petition it to compel the trustee to
pursue these claims or to appoint a trustee ad litem for that purpose.href="#_ftn10" name="_ftnref10" title="">[10]

Leslie’s proposed third amended complaint fails to establish her
standing under the wrongful refusal standing exception, or any other exception
to the rule prohibiting a trust beneficiary from suing third parties for damage
to trust property. Consequently, we
affirm the trial court’s decision denying Leslie leave to amend.

III

Disposition

The judgment is affirmed. Defendants
shall recover their costs on appeal.







ARONSON,
J.



WE CONCUR:







MOORE, ACTING P. J.







FYBEL, J.