Dunlap v. Mayer ( 2021 )

Filed 4/23/21
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
JOHN T. DUNLAP, as Executor, etc., D077561
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2018-
00033083-PR-TR-CTL)
MARIA E. MAYER, as Trustee, etc.,
Defendant and Respondent.
APPEAL from an order of the Superior Court of San Diego County,
Jeffrey S. Bostwick, Judge. Reversed.
Withers Bergman; Mary F. Gillick and Matthew R. Owens; Kimura
London & White and William O. London, for Plaintiff and Appellant.
Henderson, Caverly, Pum & Trytten; Kristen E. Caverly and Lisa B.
Roper, for Defendant and Respondent.
Plaintiff John T. Dunlap is the executor of the New York estate (Estate)
of Josephine A. Mayer,1 who passed away in 2016. Josephine was the
lifetime beneficiary of a testamentary trust (Marital Trust) established by
1 We refer to members of the Mayer family by their first names, for
clarity. No disrespect is intended.
Josephine’s husband, Erwin Mayer. The Estate petitioned the trustee of the
Marital Trust, defendant Maria E. Mayer, for an accounting. Maria objected
to the petition, alleging that she was never a trustee of the Marital Trust and
that she never had possession or control of the assets of the trust. The court
dismissed the petition at a case management conference, without an
evidentiary hearing to resolve the contested facts. The court abused its
discretion in doing so. We reverse the order of the court and remand for
further proceedings.
BACKGROUND
Facts
Josephine and Erwin Mayer were married and had two children, Maria
and Claudia. Erwin was a resident of San Diego County when he passed
away in 1995 and his estate was probated here. Erwin created a trust in his
will for the benefit of Josephine. In litigation over Erwin’s estate, family
members and business entities entered into a settlement agreement that
modified the terms of the Marital Trust. The settlement agreement,
including the terms of the Marital Trust, was approved by the San Diego
probate court. Pursuant to the settlement agreement, Josephine was the sole
income beneficiary of the Marital Trust during her lifetime, and Maria was
the sole principal beneficiary upon Josephine’s death. The court appointed
Maria as the sole trustee of the Marital Trust, pursuant to the terms of the
settlement agreement. Claudia disclaimed any interest in the Marital Trust.
The Marital Trust was to be funded with Erwin’s 99 percent interest in
Peterson & Ross Limited Partnership (P&R) and his stock in Fillmore
Mercantile, Inc. (FMI). Maria’s husband at that time, Ray F. Garman, III,
was the president of FMI. P&R was a subsidiary of, affiliate of, or related to
FMI. Maria and Garman subsequently divorced. Josephine, as executor of
2
Erwin’s estate, and Maria, as trustee of the Marital Trust, were responsible
for funding the Marital Trust with the identified assets.
Procedural Background
The Estate filed this petition for an accounting of the Marital Trust for
the period from Erwin’s death until Josephine’s death, January 21, 1995,
through September 30, 2016. Maria filed a verified objection to the petition.
The objection stated that Maria did not know if the Marital Trust was ever
funded; she never acted as a trustee of the Marital Trust; to the best of her
knowledge she never possessed the assets as a trustee of the Marital Trust;
and upon investigation, information and belief, the entities that were to fund
the Marital Trust had been defunct for more than 15 years. Maria further
stated that she could not provide an accounting of the Marital Trust because
she never served as a trustee. In her objection she claimed that she was not
involved with, did not administer, and held no assets of the Marital Trust,
other than being nominally named as a trustee in the settlement agreement.
The court held an initial case management conference in October 2019,
and set another case management conference in January 2020, to give the
Estate time to conduct discovery into the Marital Trust assets. The Estate
sent discovery requests to Maria, but the responses were not received before
the January conference. The Estate filed a progress report in advance of the
hearing attaching documents showing that in 1996 the court approved a
creditor claim for more than one million dollars to be transferred to FMI, and
Maria signed a partnership agreement for P&R, as trustee of the Marital
Trust, agreeing that the trust would provide a capital contribution of more
than three million dollars to P&R.
3
At the case management conference on January 13, 2020, the court
dismissed the petition without prejudice pursuant to Probate Code2 sections
17202 and 17206.3 The Estate timely appealed.
DISCUSSION
The court dismissed the petition at a case management conference
without advance notice that the conference could result in a dismissal. The
court based its order on Maria’s objection. There was no evidentiary hearing
and consequently no evidence was accepted into the record.
I
STANDARD OF REVIEW
Sections 17202 and 17206 both provide the court with discretion to
make orders regarding trusts. (Gregge v. Hugill (2016) 1 Cal.App.5th 561,
567.) The court must exercise its discretion within the “ ‘ “limitations of legal
principles governing the subject of its action.” ’ ” (Id. at p. 568.) A court
abuses its discretion if “ ‘it exceeded the bounds of reason or contravened the
uncontradicted evidence [citation], failed to follow proper procedure in
reaching its decision [citation], or applied the wrong legal standard to the
determination.’ ” (Conservatorship of Becerra (2009) 175 Cal.App.4th 1474,
1482 (Becerra).)
2 Further statutory references are to the Probate Code unless otherwise
noted.
3 Section 17202 states: “The court may dismiss a petition if it appears
that the proceeding is not reasonably necessary for the protection of the
interests of the trustee or beneficiary.”
Section 17206 states: “The court in its discretion may make any orders
and take any other action necessary or proper to dispose of the matters
presented by the petition, including appointment of a temporary trustee to
administer the trust in whole or in part.”
4
Because the court dismissed the petition based solely on the pleadings,
without an evidentiary hearing, we must accept the allegations of the petition
as true. (Chacon v. Union Pacific Railroad (2018) 56 Cal.App.5th 565, 572.)
II
THE ESTATE HAD STANDING TO REQUEST AN ACCOUNTING
Maria contends that the Estate had no standing to petition for an
accounting pursuant to section 17200 because the Estate was not a present
beneficiary of the trust. She relies on section 24, subdivision (c), which states
that a beneficiary is “a person who has any present or future interest, vested
or contingent.” The complete definition of a trust beneficiary under section
24, however, states: “ ‘Beneficiary’ means a person to whom a donative
transfer of property is made or that person’s successor in interest; and
[¶] . . . [¶] (c) As it relates to a trust, means a person who has any present or
future interest, vested or contingent.” (Italics added.)
In interpreting section 24, our Supreme Court has recently reminded
us that “the Probate Code ‘ “was intended to broaden the jurisdiction of the
probate court so as to give that court jurisdiction over practically all
controversies which might arise between the trustees and those claiming to
be beneficiaries under the trust.” ’ [Citations.] . . . [A]n expansive reading of
the standing afforded to trust challenges under section 17200 ‘not only makes
sense as a matter of judicial economy, but it also recognizes the probate
court’s inherent power to decide all incidental issues necessary to carry out
its express powers to supervise the administration of the trust.’ [Citation.]”
(Barefoot v. Jennings (2020) 8 Cal.5th 822, 827–828.) Construing the words
of section 24 with these precepts in mind, and with general tenets of
statutory interpretation (see People v. Salcido (2008) 166 Cal.App.4th 1303,
1310–1311), persons with a present or future interest in a trust include those
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persons’ successors in interest. The Estate, as successor in interest to
Josephine’s interest in the trust, can pursue an accounting for the time when
Josephine was the beneficiary of the trust, i.e. during her lifetime.
The general rules of survivability apply to proceedings under the
Probate Code.4 (Code Civ. Proc., § 377.305; Elliott v. Superior Court (1968)
265 Cal.App.2d 825, 831 (Elliott).) The court in Elliott held that a
beneficiary’s cause of action against the trustee survives the death of the
beneficiary. (Id. at p. 831.) The court relied on former section 573, which
was repealed in 1992 and “restated without substantive change in Code of
Civil Procedure sections 377.20(a) (survival of actions), [and] 377.30
(commencement of action decedent could have brought) . . . .” (Former § 573,
repealed by Stats. 1992, ch. 178 (S.B. 1496) § 31, Law Revision Commission
Comm.) The court said that the Legislature created “a comprehensive rule of
survivability, and . . . there are no longer any nonsurvivable causes of action.”
(Elliott, at p. 831.) Maria distinguishes Elliott because it involved the
survivability of a cause of action when the beneficiary died while the action
was pending. The Elliott court’s legal interpretation of former section 573
applies to both of its two successors in the Code of Civil Procedure, sections
377.20 and 377.30, regarding survivability and commencement of actions
respectively.
4 Probate Code section 1000 states: “Except to the extent that [the
Probate Code] provides applicable rules, the rules of practice applicable to
civil actions . . . apply to, and constitute the rules of practice in, proceedings
under this code.”
5 Code of Civil Procedure section 377.30 provides as relevant: “A cause of
action that survives the death of the person entitled to commence an action or
proceeding passes to the decedent’s successor in interest, . . . and an action
may be commenced by the decedent’s personal representative or, if none, by
the decedent’s successor in interest.”
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In sum, Josephine’s right to request an accounting of the Marital Trust
during her lifetime, when she was a beneficiary, continued after her death.
The Estate, as the successor in interest to Josephine, was authorized to
initiate this petition for an accounting from the trustee. (Code Civ. Proc.,
§ 377.30; Elliott, supra, 265 Cal.App.2d at p. 831.)
III
DISMISSAL OF PETITION AT CASE MANAGEMENT CONFERENCE
The probate court erred in dismissing the petition at a case
management conference, without an evidentiary hearing or completion of
discovery and without giving the Estate notice that the conference could
result in dismissal of the petition.
When matters within the purview of the Probate Code are contested,
“[t]he court shall hear and determine any matter at issue and any response
or objection presented, consider evidence presented, and make appropriate
orders.” (§ 1046.) There was no hearing here, and no evidence was
presented. The court relied on Maria’s objection to the petition, which stated
that Maria did not know if the Marital Trust was ever funded, she never took
title to or controlled any of the assets of the Marital Trust, and two
businesses that were to fund the trust were defunct. The latter two
statements were “to the best of her knowledge” and “upon information and
belief,” respectively. The Estate contested these statements and produced
documents showing that in 1996 money was transferred to the two entities
that were the assets of the Marital Trust.
The court could not rely on Maria’s objections, even though verified, as
a basis for its ruling because the facts were contested. “[W]hen challenged in
a lower court, affidavits and verified petitions may not be considered as
evidence at a contested probate hearing.” (Evangelho (1998) 67 Cal.App.4th
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615, 620.) “[S]ection 1022 authorizes the use of declarations only in an
‘uncontested proceeding.’ ” (Estate of Bennett (2008) 163 Cal.App.4th 1303,
1309.) “When a petition is contested, as it was here, . . . absent a stipulation
among the parties to the contrary, each allegation in a verified petition and
each fact set forth in a supporting affidavit must be established by competent
evidence. [Citations.]” (Estate of Lensch (2009) 177 Cal.App.4th 667, 676.)
The Estate contested Maria’s declarations about the trust. There was no
competent evidence establishing the allegations stated by Maria in her
objection to the petition.
Maria contends that under section 17206, the court has the discretion
to “make any orders and take any action necessary or proper to dispose of the
matters presented by the petition . . . .” (§ 17206; see Schwartz v. Labow
(2008) 164 Cal.App.4th 417, 427.) “The probate court has general power and
duty to supervise the administration of trusts.” (Schwartz, at p. 427.) This
power, however, comprises only the “ ‘inherent power to decide all incidental
issues necessary to carry out [the court’s] express powers to supervise the
administration of the trust.’ ” (Ibid., emphasis added.) In Schwartz, the
court suspended the trustee and appointed an interim trustee pending a
hearing. The court took these actions sua sponte, as part of its duties to
supervise administration of the trust, and to inquire into the prudence of the
trustee’s actions. (Ibid.) In another case, a probate court’s sua sponte
request for an accounting under section 17206 was affirmed as part of the
probate court’s duty to supervise the administration of the trust. (Christie v.
Kimball (2012) 202 Cal.App.4th 1407, 1413.)
Dismissal of a petition altogether is not an incidental issue; it is the
complete resolution of the petition. The probate court does not have the
power to dismiss an action sua sponte and without notice when, as here,
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there are disputed issues. The Probate Code requires that “[a] hearing under
this code shall be on notice unless the statute that provides for the hearing
dispenses with notice.” (§ 1042.) Neither section 17206 nor section 17202
dispense with notice for a hearing on a motion to dismiss. There was no
notice of dismissal before the conference. Notice of the hearing stated only
that it was set for a “[p]rogress report on pending discovery.” There was no
notice to the Estate that dismissal of the petition would be considered, much
less granted. (See Lee v. An (2008) 168 Cal.App.4th 558, 565 [court erred in
imposing sanctions that resulted in a default judgment at case management
conference when party had no notice that sanctions leading to dismissal could
be imposed if party failed to appear].)
We note that reviewing courts are “increasingly wary” of using
procedural shortcuts because they “circumvent procedural protections
provided by the statutory motions or by trial on the merits; they risk
blindsiding the nonmoving party; and, in some cases, they could infringe a
litigant’s right to a jury trial.” (Amtower v. Photon Dynamics, Inc. (2008) 158
Cal.App.4th 1582, 1594 [discussing in limine motions used to dispose of
causes of action].) “The purpose of the pretrial is to expedite the proceedings
and to facilitate the correct determination of the issues. The pretrial
proceeding should not become a trap for the unwary.” (Mays v. Disneyland,
Inc. (1963) 213 Cal.App.2d 297, 300.)
The court was required to hold a hearing and consider competent
evidence on the contested issue concerning an accounting of the assets of the
Marital Trust during Josephine’s lifetime. (§ 1046.) The court abused its
discretion because it failed to follow the proper procedure in reaching its
decision. (Becerra, supra, 175 Cal.App.4th at p. 1482; Gregge, supra, 1
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Cal.App.5th at p. 571 [court abused its discretion in accepting dismissal that
deprived petitioner of trial].)
DISPOSITION
We reverse the order of the probate court and remand for further
proceedings in accordance with this opinion. Costs to be awarded to
appellant.
BENKE, J.
WE CONCUR:
McCONNELL, P. J.
HUFFMAN, J.
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