California Court of Appeal Sep 25, 2015 No. E060133MUnpublished
Filed 9/25/15 Olson v. Adkins CA4/2 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
CHRISTOPHER SCOTT OLSON et al., E060133 & E060782
Plaintiffs and Respondents, (Super.Ct.No. PSP1300082)
v. ORDER MODIFYING OPINION AND DENIAL OF PETITION LOWELL D. ADKINS, Individually and as FOR REHEARING Trustee etc., [NO CHANGE IN JUDGMENT] Defendant and Appellant.
Respondent’s petition for rehearing filed September 17, 2015, is denied. The
opinion filed in this matter on September 9, 2015, is modified as follows:
On page 16, the first full sentence of paragraph two should read:
“Therefore, in spite of the Solano court’s finding that the trust owed Nancy $6,204.32,
there was no money available for distribution until the Buxton settlement was
completed.”
On page 18, remove footnote 3 in its entirety.
1
Except for this modification, the opinion remains unchanged. This modification
NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
CHRISTOPHER SCOTT OLSON et al.,
Plaintiffs and Respondents, E060133 & E060782
v. (Super.Ct.No. PSP1300082)
LOWELL D. ADKINS, Individually and as OPINION Trustee etc.,
Defendant and Appellant.
APPEAL from the Superior Court of Riverside County. James A. Cox, Judge.
Affirmed.
Law Office of Michael A. Kruppe, Michael A. Kruppe; Greines, Martin, Stein &
Richland, Timothy T. Coates, Marc J. Poster and Alana H. Rotter for Defendant and
Appellant.
Best Best & Krieger, Kira L. Klatchko, G. Henry Wells and Irene S. Zurko for
Plaintiffs and Respondents.
1
I
INTRODUCTION1
Lowell D. Adkins, appellant, was the trustee for a testamentary trust between 2004
and 2013. The primary beneficiary of the trust was Adkins’s live-in partner, Nancy P.
Jones. Two of the six remainder beneficiaries were Nancy’s nephews, respondents
Christopher Scott Olson and Kevin Linne Olson. While Adkins was trustee, the value of
the trust was reduced from $280,000 in 2007 to $30,175 in 2013. After Nancy died in
2011, the Olsons filed a petition in 2013 to remove Adkins as trustee. After a trial, the
probate court entered a total judgment of about $280,000 in favor of the Olsons.
Adkins appeals. After reviewing his challenges, we hold substantial evidence
supports the judgment and the probate court did not abuse its discretion. We affirm the
judgment.
II
FACTUAL AND PROCEDURAL BACKGROUND
A. 1983-1987
W. Kenneth Jones executed a will in 1983 and died in 1986. His will established a
testamentary trust, naming Nancy, his wife, as the primary beneficiary, and six other
relatives—including the two Olson respondents—as remainder beneficiaries. The final
decree of distribution, creating the testamentary trust, was entered in Solano County in
1 We use first names for ease of reference when necessary.
2
August 1987. The value of the total assets then was $1,820,059.86.
Kenneth’s will gave most of his estate to Nancy. The residue of the estate was
shares of Suisun Valley Foods, Inc. stock worth $500,000, or assets of an equivalent
value, to be placed into the trust. The will states that Kenneth’s “primary concern in
establishing this trust is my wife’s support, and that the interests of others in the trust are
to be subordinate to hers.” Nancy was entitled to the trust’s entire net income during her
lifetime. It included several other provisions for distributing principal to her as
necessary. Any remainder was to be distributed to the six remainder beneficiaries. Roy
L. Olson, Nancy’s brother-in-law and Christopher and Kevin’s father, was appointed as
the first trustee.
B. 1990-2004
Nancy and Adkins began their relationship in 1992 or 1993. They lived in her
house, which they held in joint tenancy. Adkins was the beneficiary of Nancy’s will,
executed in July 2004.
The trust was not funded by the Suisun Valley Foods, Inc. stock. When the stock
was sold in the early 1990’s for cash and a promissory note (the Buxton note), Nancy
kept the proceeds. In the late 1990’s, Roy sued Nancy, contending that she had retained
the sales proceeds instead of funding the trust. Roy was subsequently removed for cause
and replaced by Jim Grassman. Grassman, acting on behalf of the trust, settled the
litigation with Nancy. The Solano County Superior Court approved the settlement
agreement in a written order in 2004.
3
The settlement provided that the value of the assets due to the trust was
$218,516.22. The 2004 order found that the trust consisted of the “unfunded present
value (that is, the right to receive all proceeds) of” the Buxton note, and required Nancy
to assign her right to proceeds of the note to the trust. The court further found that the
trust owed Nancy $6,304.32 for various credits but that there were no liquid assets in the
trust to pay her.
C. 2004-2013
The 2004 order approving the settlement appointed Adkins as trustee. He had no
experience as a trustee. No beneficiary objected to Adkins’s appointment. Adkins
interpreted the language of the trust to mean that he owed no fiduciary duty to the other
trust beneficiaries during Nancy’s lifetime.
Adkins instituted litigation to enforce the Buxton note and obtained $280,000 in
settlement in 2007. Adkins posted a trust bond in that amount.
Beginning in 2007, Adkins made various distributions to Nancy, amounting to
$153,042 over five years. Adkins also repaid the loans of about $54,000 used to finance
the Buxton litigation, and paid himself trustee’s fees of $18,225.
Nancy died in May 2011. In 2012, the trust balance was about $37,000. Adkins
reduced the amount of the trustee’s bond to reflect that amount.
In December 2012, Adkins, acting as an individual, filed a notice of levy against
Christopher’s interest in the trust. The notice of levy was based on a $40,000 default
4
judgment that Adkins and Nancy had obtained against the Olson brothers in 2004.
Adkins subsequently learned the levy violated the trust and did not enforce it.
Also in December 2012 and acting as an individual, Adkins sued Merrill Lynch
and four of the remainder beneficiaries, including the Olsons, regarding the distribution
of assets in Nancy’s IRA account. Although the four remainder beneficiaries were
designated as beneficiaries on the IRA account, Adkins contended that Nancy had
intended to make him the beneficiary. Adkins did not prevail and the four beneficiaries
each received about $67,000 from the IRA account.
On January 31, 2013, Adkins formally notified the trust’s six remainder
beneficiaries by letter that he was in the process of closing the trust and distributing its
remaining assets of $30,175. An accounting showing that each remainder beneficiary
was entitled to either $4,828 or $5,129.75. The notice requested that each beneficiary
acknowledge receipt of his or her distribution, waive any further accounting, and release
Adkins from all claims and objections.
D. The Trust Litigation
On February 5, 2013, the Olsons filed the present litigation, alleging that Adkins
had made improper payments to the primary beneficiary, Nancy, and had breached
various fiduciary duties. The petition sought to remove Adkins and compel an
accounting; to appoint a successor trustee; to surcharge Adkins; and to award petitioners
their attorney’s fees. The petition alleged the value of the trust was about $366,000. The
other four remainder beneficiaries did not join the petition. Adkins opposed the petition,
5
contending that he had properly administered the trust. By September 2013, there was
only $10,000 remaining in the trust.
In its written decision, the probate court found that Nancy had failed to fund the
trust until the 2004 settlement, which funded the trust in the net amount of $218,516.22,
the value of the Buxton note. The court found Adkins had a conflict of interest because
he was Nancy’s live-in partner and because she was entitled to limited invasion rights of
the trust res. The probate court concluded that Adkins had breached his fiduciary duty
and acted without reasonable cause and the court imposed various surcharges. The
judgment ordered Adkins to pay the trust $154,086.82 in damages, plus $74,436.35 in
prejudgment interest.
The probate court also awarded the Olsons their attorney’s fees under Probate
Code section 17211, subdivision (b),2 because it found Adkins had acted in bad faith and
without reasonable cause. As set forth in the statement of decision: “In this action,
respondent [Adkins] was defending the account which he presented to the remainder
beneficiaries with his letter of January 31, 2013 . . . . Taking into consideration all of the
findings set forth above, the court finds that the opposition to the account was without
reasonable cause and the court may award the contesting beneficiaries their costs and
attorney fees pursuant to Probate Code § 17211(b). The court finds the contesting
beneficiaries are entitled to recover from respondent their reasonable attorney fees
2 All statutory references are to the Probate Code unless stated otherwise.
6
together with their costs of suit. The reasonable attorney fees shall be determined and
apportioned by the court as the court, in its discretion, deems fair and just.”
The Olsons made a motion for fees and costs of about $62,000. Adkins did not
object to the motion on the grounds that he did not act without reasonable cause. The
trial court found that $325 per hour was an appropriate lodestar rate for attorney time and,
on that basis, awarded fees of $51,252.50. The total amount awarded against Atkins was
$279,775.67.
III
DISCUSSION
A. General Principles
A trustee owes all beneficiaries a fiduciary duty. (Hearst v. Ganzi (2006) 145
Cal.App.4th 1195, 1208.) A trustee’s duties include the “duty to administer the trust
solely in the interest of the beneficiaries” (§ 160002, subd. (a)); the duty to deal
impartially with multiple beneficiaries, “taking into account any differing interests”
(§ 16003); and the “duty to take reasonable steps under the circumstances to take and
keep control of and to preserve the trust property.” (§ 16006.) A trustee must avoid
conflicts of interest. (§ 16004.) Even when a trustee has absolute discretion—such as
Adkins seems to claim here—sections 16080 and 16081 require a trustee to exercise his
discretion reasonably, acting in accordance with fiduciary principles and not acting in bad
faith or in disregard of the purposes of the trust. (Hearst, at p. 1208.)
7
A trustee’s exercise of discretion is not subject to court control except to prevent
an abuse of that discretion or bad faith: “Whenever a trust properly comes under judicial
supervision, it is the general rule that where a trustee is given discretionary powers, the
court will not control the trustee’s actions exercised pursuant thereto merely because it
disagrees with him, but it must find some abuse of discretion or bad faith before it will
interfere. (Estate of Greenleaf [(1951)] 101 Cal.App.2d 658, 662.) Too, while the court
may not substitute its judgment for that of the trustee, if it finds on substantial evidence
that his powers have been reasonably exercised, the question is not open to review
(Estate of Genung [(1958)] 161 Cal.App.2d 507, 512); a contrary finding, of necessity, is
governed by the same legal principle. The determination whether the evidence is
sufficient to support the finding of the trial court that the trustee has been guilty of an
abuse of discretion compels an inquiry into the intentions of the settlor in providing for
the beneficiary as was done and an examination of the conduct of the trustee in the
administration of the trust. (Estate of Ferrall [(1953)] 41 Cal.2d 166, 174.)” (Estate of
Flannery (1969) 269 Cal.App.2d 890, 896-897.)
B. Breach of Fiduciary Duty
The Olsons sued Adkins for breach of fiduciary duty: “In order to plead a cause of
action for breach of fiduciary duty against a trustee, the plaintiff must show the existence
of a fiduciary relationship, its breach, and damage proximately caused by that breach; the
absence of any one of these elements is fatal to the cause of action. [Citation.] The
beneficiary of the trust has the initial burden of proving the existence of a fiduciary duty
8
and the trustee’s failure to perform it; the burden then shifts to the trustee to justify its
actions. (Van de Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 853.)”
(LaMonte v. Sanwa Bank California (1996) 45 Cal.App.4th 509, 517.)
The parties strenuously argue about whether the probate court correctly applied
the burden of proof. Both parties cite Van de Kamp, holding that a beneficiary has “the
initial burden of proving the existence of a fiduciary duty and the trustee’s failure to
perform it. . . . The burden then shifts to the trustee to justify its actions.” (Van de Kamp
v. Bank of America, supra, 204 Cal.App.3d at p. 853, citing Jones v. H. F. Ahmanson &
Co. (1969) 1 Cal.3d 93, 108, and Remillard Brick Co. v. Remillard-Dandini (1952) 109
Cal.App.2d 405, 420; Estate of Ferrall, supra, 41 Cal.2d at p. 177.)
Adkins argues the probate court incorrectly shifted the burden of proof by
applying a presumption that Adkins acted improperly in obtaining an advantage over the
remainder beneficiaries and by improperly relying on section 16004, subdivision (c).
Instead, Adkins maintains there should be a presumption in favor of the regularity of his
actions. (Neel v. Barnard (1944) 24 Cal.2d 406, 420-421.) Adkins also objects to the
trial court requiring him to act impartially as between Nancy and the remainder
beneficiaries because his primary duty under the terms of the trust was to Nancy. (Estate
of Cairns (2010) 188 Cal.App.4th 937, 944; Hearst v. Ganzi, supra, 145 Cal.App.4th at
p. 1208; §§ 16003, 16202, 16335, and 21102, subd. (a).)
In response, the Olsons argue that, when a plaintiff establishes a fiduciary
relationship and alleges wrongdoing by a trustee, the trustee is presumed to have
9
breached his fiduciary obligations and the burden of proof shifts to him. (Bradner v.
Vasquez (1954) 43 Cal.2d 147, 152; Estate of Ferrall, supra, 41 Cal.2d at pp. 173-174;
Neel v. Barnard, supra, 24 Cal.2d at p. 420.) Furthermore, the Olsons contend section
16004, subdivision (c), applies to any transaction taken by a trustee, acting as a fiduciary,
on behalf of the beneficiaries. (Remillard Brick Co. v. Remillard-Dandini, supra, 109
Cal.App.2d at p. 420.) Thus, Adkins had to prove there was no presumption of
wrongdoing by a preponderance of the evidence. (Evid. Code, §§ 115, 190, 604, and
606; Pryor v. Bistline (1963) 215 Cal.App.2d 437, 448.)
We recognize that the probate court’s reference to section 16004 occurs only in
the portion of its decision in which it discussed Adkins’s distributions of principal in the
amount of $17,500. The probate court found that Atkins had not acted impartially
because he had personally benefitted from the distributions. Citing section 16004, the
probate court stated: “A trustee has a duty to avoid a conflict of interest and creates a
presumption in favor of the beneficiary which shifts the burden of proof.”
In our view, whether section 16004 expressly applies to every act by Adkins as a
trustee or whether the probate court applied a presumption against Adkins, the court
correctly allocated the burden of proof. Once the Olsons alleged a breach of fiduciary
duty and it was established that the value of the trust had fallen from $280,000 in 2007 to
$30,175 in 2013, the burden fell on Adkins to justify his administration of the trust to the
probate court. A surcharge order is reviewed for abuse of discretion. (Estate of
Bonaccorsi (1999) 69 Cal.App.4th 462, 467-468.) With respect to each of Adkins’s
10
challenges to the various surcharges, as discussed below, we agree the probate court
properly analyzed his claims in its decision and did not abuse its discretion.
C. The Surcharge of $68,690.03
After Adkins sued on the Buxton note and recovered $280,000 in 2007, he paid
Nancy $74,031, characterizing it as income to which she was entitled during her lifetime
because it reflected interest due on the note between 2004 and 2007. The court found
that, because Adkins had failed to keep proper records, all uncertainty about how to
allocate the $280,000 settlement should be resolved against him. (Estate of McCabe
(1950) 98 Cal.App.2d 503, 505.)
We reject Adkins’s argument that $74,031 of the $280,000 settlement should have
been allocated as interest (or income) before principal, in accordance with the Uniform
Principal and Income Act and with Kenneth’s primary purpose to provide for Nancy’s
support. (§§ 16335, subd. (b), 16361, subds. (a)(l), (2)(b).) Both of the statutes relied
upon by Adkins involve the trustee’s discretion to make allocations between principal
and income. The probate court found that Adkins’s records were not adequate to explain
or justify his decision to allocate more than 25 percent of the settlement to income.
Adkins provided little documentation about the characterization of the $280,000
settlement or about Nancy’s needs from the trust. The trustee’s failure to keep proper
accounts meant the probate court could resolve all doubts against the trustee. (Purdy v.
Johnson (1917) 174 Cal. 521, 527; Estate of McCabe, supra, 98 Cal.App.2d at p. 505.)
11
Section 16361 actually required the settlement to be allocated to principal: “If no
part of a payment is required to be made or the payment received is the entire amount to
which the trustee is entitled, the trustee shall allocate the entire payment to principal.”
(§ 16361, subd. (c).) The probate court allocated $218,516.22 as the principal balance of
the note under the 2004 settlement agreement. The additional amounts for fees and costs
were subtracted from the settlement amount, leaving a balance of net income of
$5,340.97 to Nancy. Even under the terms of the trust, that amount is what she was
entitled to receive as the trust income, not $74,031. The surcharge of $68,690.03—the
difference between $74,031 and $5,340.97—was not an abuse of discretion.
D. The Surcharge of $17,500 for Principal Distributions
Adkins distributed $17,500 in principal for Nancy’s support: $10,000 in 2008 and
$7,500 in 2011. The trial court surcharged Adkins for this entire amount, plus
prejudgment interest from the dates of distribution, for a total of $24,135.61. The court
cited Adkins’s testimony, in which he said he believed he had no duty to the remainder
beneficiaries while Nancy was alive, and the fact that Adkins indirectly benefitted from
distributions because he and Nancy lived together and shared expenses. The court found
Adkins had a conflict of interest that “affected his handling of this trust” and applied a
presumption in favor of the remainder beneficiaries, shifting the burden of proof to
Adkins. The court also found that Adkins failed to meet his burden of overcoming that
presumption because he presented little evidence, except his own testimony, about
Nancy’s available assets and resources at the time he made the distributions.
12
The trust gave Adkins discretion to make principal distributions he deemed
necessary for Nancy’s support. The interests of others in the trust were to be subordinate
to hers. Adkins believed he had no limits on his absolute discretion: “I was to exercise
my discretion based on evaluating her annual requests as to whether or not she had other
assets that could take care of that. But my understanding of this was, that there were no
limitations on the discretionary nature of the principal.” Adkins’s discretion, however,
was not unfettered. He was required by statute to act impartially, while “taking into
account any differing interests of the beneficiaries.” (§ 16003; Hearst v. Ganzi, supra,
145 Cal.App.4th at p. 1208.) Even if he had absolute discretion, sections 16080 and
16081 require a trustee to act reasonably, in accordance with fiduciary principles and not
in bad faith or in disregard of the purposes of the trust. (Ibid.)
Furthermore, Adkins did not submit persuasive evidence to support his contention
that he gave due consideration to Nancy’s needs and resources in authorizing the
principal distributions of $17,500. (Estate of Bissinger (1964) 60 Cal.2d 756, 771, citing
Purdy v. Johnson, supra, 174 Cal. at pp. 527-531.) He claimed he based the distributions
in 2008 and 2011 on what he generally knew about Nancy’s health problems and
financial needs for mortgage payments, lawyer’s fees, and living expenses. But he
offered little support for these assertions except for a 2004 document showing Nancy had
few assets and that her income was about $1,450 monthly in social security and about
$2,000 in yearly income from securities. The probate court found there was no similar
evidence offered in support of the 2008 and 2011 distributions. We conclude substantial
13
evidence supports the probate court’s findings that Adkins had a conflict of interest and
did not act impartially, given the differing interests of the beneficiaries. The probate
court properly surcharged Adkins $24,135.61.
E. Surcharge for 5-or-5 Distributions of $47,016.82
Nancy was entitled upon written request to regular distributions of principal
during her lifetime, in an amount up to $5,000 or 5 percent of the value of the principal
each year, the “5-or-5” provision: “This right of withdrawal is non-cumulative, so that if
my wife does not withdraw, during any calendar year, the full amount to which she is
entitled under this provision, her right to withdraw the amount not withdrawn shall lapse
at the end of that calendar year.” The Cairns court concluded that the “noncumulative”
limitation “refers to the total amount of the permissible distributions in a calendar year,
not the date by which the demand must be exercised.” (Estate of Cairns, supra, 188
Cal.App.4th at p. 945.)
In July 2004, the Solano County Superior Court found that Nancy’s “2003
entitlement” under the 5-or-5 provision was $10,839.23, offset against a debt Nancy
owed to the Trust, “leaving the Trust owing [Nancy] the sum of $6,304.32.” The trust
had no liquid assets to pay Nancy.
After Adkins obtained the $280,000 Buxton settlement in 2007, he made annual
distributions to Nancy totaling $47,016.82: 1) $37,016.82, representing her entitlement
for 2003-2006 (including the $6,304.32 obligation), paid in April 2007; 2) $5,000
representing her 2007 entitlement, paid in January 2008; and 3) $5,000, representing her
14
2008 entitlement, paid in February 2009. The trial court found that these distributions
breached the 5-or-5 provision’s “time limitations,” and surcharged Adkins the total
amount of $47,016.82, plus $28,845.05 in prejudgment interest.
Section 16440 gives the court discretion to excuse the trustee from liability for a
breach of trust where the trustee has “acted reasonably and in good faith under the
circumstances as known to the trustee.” (§ 16440, subd. (b).) Adkins argues the
surcharge was not equitable. Adkins reasons that the trust evinces a clear intent to
provide for Nancy’s support, entitling her to receive the net income, the principal as
necessary for her support, and payments under the 5-or-5 provision.
Adkins testified that he thought Nancy was entitled to retroactive 5-or-5 payments
because the 2004 court order found that the trust owed Nancy 5 percent of the value of
the unpaid Buxton note for 2003, and the settlement agreement underlying the 2004 order
also gave Nancy a $93,914.20 credit as a 5-or-5 entitlement for 1997-2002. Adkins
contends he could reasonably conclude, based on the 2004 settlement, that Nancy was
entitled to retroactive 5-or-5 payments. He also explained the $5,000 distributions for
2007 and 2008 were properly made in 2008 and 2009 for favorable tax purposes.
Adkins further argues the 5-or-5 payment did not need to be made in the calendar
year for which it was requested, even if the right of withdrawal was noncumulative.
Otherwise, the probate court’s interpretation that the trustee must pay in the same year in
which the entitlement arises—that is, must pay Nancy’s 2007 and 2008 entitlements in
the same years—would create a practical difficulty in calculating amounts. Adkins
15
maintains there is no reason why a payment should be impermissible because it occurred
a month or two after the year in which the entitlement arose and was requested.
One problem with Adkins’s argument is the trust had no assets until 2007.
Therefore, in spite of the Solano court’s finding that the trust owed Nancy $56,204.32,
there was no money available for distributions until the Buxton settlement was
completed. The Solano court did not order the trustee to pay Nancy. Under these
circumstances, the 5-or-5 distribution could not occur until 2007. Therefore the
distributions made for 2003-2006 were untimely because they were made years after the
right to withdraw had lapsed.
As for the $5,000 distribution for 2007, the probate court observed there was no
written request from Nancy. The court regarded all the written requests submitted by
Adkins later as lacking credibility. Furthermore, although the probate court let stand the
5-or-5 distributions for 2009-2011, it apparently regarded the distributions for 2007 and
2008 as not being based on legitimate requests from Nancy even if they had been timely
made at the end of the calendar year.
Based on its view of Adkins’s overall administration of the trust, the probate court
did not abuse its discretion. The record establishes that, in 2007, Adkins paid $74,031 to
Nancy as income. Between 2007 and 2009, Adkins paid Nancy a total of $57,061.62 as
principal distributions. He also paid $72,225 for attorney and trustee’s fees. A trust
worth $500,000 in 1986 and $280,000 in 2007 was reduced in value to about $77,000 by
2009. For that reason, and in light of Adkins’s other conduct as a trustee in suing the
16
Olsons involving Nancy’s IRA account, as well as levying on their trust interests, it was
not an abuse of discretion for the probate court to find that Adkins had acted in bad faith
and breached the trust by making untimely payments to Nancy of $47,016.82 under the 5-
or-5 provision for the years 2003-2008. (Estate of Markham (1946) 28 Cal.2d 69, 73-74.)
F. Surcharge of $74,436.35 for Prejudgment Interest
The probate court also imposed a surcharge of $74,436.35 for prejudgment interest
at 10 percent from the date of the distributions until the date of the court’s decision in
September 2013, pursuant to sections 16440 and 16441. The purpose of prejudgment
interest is to compensate for the loss of income, not to punish a trustee. (Edgar v. Bank
of America (1942) 50 Cal.App.2d 827, 833; Greater Westchester Homeowners Assn. v.
City of Los Angeles (1979) 26 Cal.3d 86, 102-103; Title Ins. & Trust Co. v. Ingersoll
(1910) 158 Cal. 474, 488-489.)
Adkins asserts the remainder beneficiaries were not entitled to any interest that the
trust earned before Nancy’s death in 2011. Therefore, the court’s award of prejudgment
interest dating back to 2007 effectively requires Adkins to pay income from Nancy’s
lifetime to the remainder beneficiaries. Adkins argues any prejudgment interest should
accrue only from the date of Nancy’s death, May 2, 2011.
However, in view of Adkins’s ongoing decimation of the trust res, it was not an
abuse of discretion for the probate court to exercise its discretion, according to statute and
its equitable powers, and award prejudgment interest from the date of each of Adkins’s
breaches of the trust: “(a) If the trustee is liable for interest pursuant to Section 16440,
17
the trustee is liable for . . . . [¶] (1) The amount of interest that accrues at the legal rate
on judgments in effect during the period when the interest accrued.” (§ 16441; Uzyel v.
Kadisha (2010) 188 Cal.App.4th 866, 923.)
G. Attorney’s Fees
The court awarded attorney’s fees under section 17211, which provides that “If a
beneficiary contests the trustee’s account and the court determines that the trustee’s
opposition to the contest was without reasonable cause and in bad faith, the court may
award the contestant” costs and attorney’s fees. (§ 17211, subd. (b).) The court found
that section 17211 applied here because “the opposition to the account was without
reasonable cause” and “[t]he evidence supports findings of trustee’s bad faith in the
presentment of and the defense of his account.”3 The court awarded fees of $51,252.50.
“Reasonable cause” is an objectively reasonable belief: “The question here is the
meaning of ‘reasonable cause’ with reference to the defense, rather than the prosecution,
of a proceeding. Contrary to the trial court, we believe that reasonable cause in this
context does not require an objectively reasonable belief, based on the facts then known
to the trustee, that the trustee would be completely exonerated. Instead, we believe that
reasonable cause to oppose a contest of an account requires an objectively reasonable
belief, based on the facts then known to the trustee, either that the claims are legally or
3In light of the probate court’s express finding there was not reasonable cause, we do not understand why Adkins’s counsel argued the opposite in oral argument.
18
factually unfounded or that the petitioner is not entitled to the requested remedies.
Conversely, there would be no reasonable cause to oppose a contest of an account only if
all reasonable attorneys would have agreed that the opposition was totally without merit,
or, in other words, no reasonable attorney would have believed that the opposition had
any merit. As with probable cause, we independently review the trial court’s finding on
the existence of reasonable cause absent any factual dispute as to [a trustee’s] knowledge
at the time.” (Uzyel v. Kadisha, supra, 188 Cal.App.4th at p. 927.)
Adkins prevailed on a few issues. The probate court did not find fault with the
expense of the Buxton litigation. The court allowed an income distribution to Nancy in
2009 and trustee’s fees for administration of the trust between 2004 and 2007. The court
also found that, following the Buxton note settlement, Adkins overpaid Nancy less than
petitioners claimed. Overall, Adkins prevailed as to about $76,000, an impact not
“'totally without merit.” (Uzyel v. Kadisha, supra, 188 Cal.App.4th at p. 927.) The
Olsons recovered less than the $366,000 sought in their petition.
Nevertheless, the court expressly found Adkins acted in bad faith and without
reasonable cause. Overall, his conduct as a trustee was a significant breach of his
fiduciary duties. (Estate of Gump (1991) 1 Cal.App.4th 582, 597, 605.) The award of
fees against Adkins was not a palpable abuse of discretion. (Kasperbauer v. Fairfield
(2009) 171 Cal.App.4th 229, 234.)
We also reject Adkins’s argument that his success on a few items meant that the
Olsons could not recover any attorney’s fees. The Olsons asked for $62,000 in fees and
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costs. The probate court awarded less, apparently engaging in an apportionment
according to its discretion. The Uzyel case specifically declined to consider
apportionment under section 17211, subdivision (b).
IV
DISPOSITION
After the subject trust dwindled in value from $500,000 in 1986 to $280,000 in
2007, Adkins reduced it to about $30,000 by January 2013. He also instituted two legal
proceedings—the lawsuit involving Nancy’s IRA account and the notice of levy—against
the Olsons in violation of the trust.
Based on Adkins’s breach of fiduciary duty, the probate court properly surcharged
him and awarded prejudgment interest and attorney’s fees. We affirm the judgment. The
Olsons, as prevailing parties, shall recover their costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
CODRINGTON J. We concur:
KING Acting P. J.
MILLER J.
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Holding. The court affirmed the probate court's judgment, holding that substantial evidence supported the findings that the trustee breached his fiduciary duties, acted in bad faith, and failed to properly administer the trust, thereby justifying the surcharges and attorney fee awards.
Issues
Whether substantial evidence supports the probate court's finding that the trustee breached his fiduciary duties.
Whether the probate court correctly allocated the burden of proof regarding the trustee's administration of the trust.
Whether the probate court abused its discretion in imposing surcharges for improper principal distributions and untimely '5-or-5' payments.
Whether the probate court properly awarded attorney's fees under Probate Code section 17211, subdivision (b).
Disposition. Affirmed.
Quotations verified verbatim against the opinion
“After reviewing his challenges, we hold substantial evidence supports the judgment and the probate court did not abuse its discretion. We affirm the judgment.”
“The probate court concluded that Adkins had breached his fiduciary duty and acted without reasonable cause and the court imposed various surcharges.”