Walter v. Estate Strategies CA2/6 ( 2022 )

Filed 12/5/22 Walter v. Estate Strategies CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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has not been certified for publication or ordered published for purposes of rule 8.1115.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
SECOND APPELLATE DISTRICT
DIVISION SIX
SALLY PATTON WALTER et al., 2d Civil No. B280172
(Super. Ct. No. P079997)
Plaintiffs and Appellants, (Ventura County)
v.
ESTATE STRATEGIES, INC., et
al.,
Defendants and Appellants.
VENTURA COUNTY COUNCIL
OF BOY SCOUTS OF AMERICA
et al.,
Defendants and Respondents.
Sally Patton Walter, as an individual, as trustee of
the Patton Family Lead Trust and as executor of the estate of
Lowell Patton, and Jodi Patton Ream (plaintiffs) appeal from the
judgment entered after a court trial in favor of defendants Estate
Strategies, Inc. (ESI), Richard Sorensen 1, Matthew Mack, Mark
Sherwood, Jack Patton and the Ventura County Council of the
Boy Scouts of America (VCC) (collectively, defendants).
Plaintiffs contend defendants defrauded, breached
fiduciary duties toward, were professionally negligent and
engaged in elder financial abuse when they drafted and
administered an estate plan for their parents, Lowell and Mary
Lou Patton (the Pattons). The estate plan included three
charitable remainder unitrusts (the CRUTs) and a charitable
lead annuity trust (CLAT or lead trust) through which the
Pattons made substantial, irrevocable gifts to various charities.
They contend the trusts did not significantly benefit their parents
or satisfy their desire to leave the maximum amount possible to
their children. Although ESI, Sorensen and Mack disclosed that
their fees for creating the estate plan would be paid by the
charities, they did not disclose the estimated amount of their
compensation or that it would be based on the size of the Pattons’
gifts.
Sitting as trier-of-fact, the trial court found in favor
of defendants, concluding the estate plan was competently
designed to achieve the Pattons’ goals and that defendants had
no duty to disclose how the charities would calculate respondents’
compensation because the Pattons’ money was not used to pay it.
In addition to awarding costs, the trial court awarded defendants
their expert witness fees under Code of Civil Procedure section
1Counsel has informed the Court that Richard Sorensen
died in March 2021.
2
998.2 Although the trial court denied defendants ESI and
Sorensen’s motion for contractual attorney fees, it awarded them
cost of proof sanctions of $1,000,981.50 based on plaintiffs’ denial
of 32 requests for admission. (§ 2033.420.) Plaintiffs contend the
trial court erred because the section 998 offers to compromise
were not made in good faith and because they had a reasonable
basis for denying the requests for admission. We agree. In a
cross-appeal, ESI and Sorensen contend the trial court erred
when it denied their motion for contract-based attorney fees.
We reverse the order awarding costs of proof
sanctions and in all other respects affirm.
Facts
Lowell and Mary Lou Patton, both of whom were
born in 1928, had been married for more than 40 years when
Mary Lou became seriously ill with leukemia in early 2002.3 She
died of the disease on April 8, 2002. Before January 2002, the
couple did not have an estate plan. They had three adult
children, Sally Patton Walter, Jodi Patton Ream and Jack
Patton, and several grandchildren. In addition to Lowell’s
pharmacy business, the Pattons owned commercial and
residential real estate and other assets. As relevant here, these
assets included a commercial building on 16th Street in Santa
All further statutory references are to the Code of Civil
2
Procedure unless otherwise noted.
3 Like the trial court and the parties, we occasionally use
the first names of the parties for clarity, intending no disrespect.
3
Monica, and a minor league baseball team known as the
Bakersfield Blaze.4
The Pattons’ 2002 Estate Plan
Lowell’s long-time accountant, Don Hedrick, urged
him to create an estate plan. Hedrick introduced the Pattons to
Mark Sherwood, a lawyer Hedrick knew from church.5 Hedrick
gave Sherwood some background information about the Pattons
and their assets before Sherwood met with the Pattons at
Hedrick’s office for the first time. That information indicated the
Pattons’ assets were worth about $15,000,000. It assigned a
value of $3,800,000 to the Bakersfield Blaze and $3,000,000 to
the 16th Street property.
At his first meeting with the Pattons and Hedrick on
February 5, 2002, Sherwood talked with the Pattons in general
terms about creating an estate plan. Based on his conversation
with the Pattons, Sherwood understood that Mary Lou was
concerned Lowell would treat their daughters unfairly in the
estate planning. She did not want their daughters to receive a
large, lump sum of money because she was concerned about their
ability to manage it. Mary Lou was also concerned that the sons-
4In addition to these assets, the Pattons also owned their
home on Berkeley St. in Santa Monica, another commercial
building on Montana Ave. in Santa Monica, a single family house
in Bakersfield, an interest in a Kingman, Arizona radio station
and a retirement account. These assets were not transferred to
the trusts at issue here.
5 The Pattons and most of the other individuals involved in
this case, including Hedrick, Sherwood, Richard Sorensen and
Matthew Mack were or are members of the Church of Jesus
Christ of Latter Day Saints (LDS).
4
in-law would exert too much influence over the surviving spouse,
Lowell or Mary Lou, after the first spouse died. Although she
wanted as much money as possible to go to her daughters, she
also wanted the distributions to be managed over time. During
the meeting, the Pattons retained Sherwood to prepare several
documents for them including pour-over wills, living trusts,
advanced health care directives, a community property
agreement, durable powers of attorney and a family revocable
trust.
Sherwood understood from this and other meetings
that the Pattons were also interested in giving money to charity.
They were life-long members of the LDS Church and had given
generously to it by tithing and making other donations. He
recommended that the Pattons engage an estate planner to
design the remainder of their estate plan, including any
charitable trusts they decided to establish, and to draft the
necessary documents. Although he gave them several names, the
Pattons wanted to work with Richard Sorensen and his firm,
Estate Strategies, Inc. (ESI) because they knew him from church.
After the meeting, Sherwood spoke with Sorensen
about creating charitable remainder unitrusts (CRUTs) for the
Pattons. Sorensen provided Sherwood with illustrations of how a
CRUT would impact future tax liability and generate income. All
of the written illustrations that were shown to the Pattons
included the purchase of life insurance by the trust. The Pattons
were not shown a written illustration of a CRUT that did not
involve the purchase of life insurance.
On February 7, 2002, Sherwood met with the Pattons
again. They reviewed and signed the documents Sherwood had
drafted, including their wills and the revocable trust. These
5
documents do not reflect that the Pattons had decided to make
any charitable donations or to transfer assets to a charitable
trust.
Sorensen joined the meeting later that afternoon; it
was the first time he met with the Pattons in person. Sorensen
understood that Mary Lou was very ill. At the meeting, however,
she was alert, interested and engaged. The estate plan was very
important to her. She wanted an irrevocable estate plan that
would provide a controlled income stream to her children. She
also wanted to reduce their tax liability. Minimizing taxes and
avoiding attorney and estate planning fees were more important
to Lowell but were also of interest to Mary Lou. Sorensen
believed the CRUT was the best way to accomplish all of these
goals simultaneously.
At the February 7 meeting, Sorensen and Sherwood
reviewed the ESI engagement letter with the Pattons and they
signed it. The engagement letter explained that ESI would
prepare the Pattons’ charitable trust documents for them, at no
cost to the Pattons, if they chose to make gifts to participating
charities. Alternatively, the Pattons could pay an hourly rate for
ESI’s services, and for the services of its attorney, Matthew
Mack. The Pattons did not ask Sorensen to explain how ESI’s
compensation agreements with the charities worked or how much
his compensation would be.
Sorensen explained to the Pattons that a charitable
remainder unitrust (CRUT) would require them to irrevocably
transfer an asset to the trust. Income generated by the trust
could be distributed either to the Pattons or to their designated
income beneficiaries. After 20 years, the trust would terminate
and the charities would receive the remainder. Sorensen,
6
Hedrick and Sherwood advised that the Blaze should be
incorporated and sold to fund a CRUT because the asset had
appreciated in value and its sale would otherwise generate
significant tax liability.6 Transferring the asset to a CRUT would
remove the asset from the estate and generate tax deductions.
Sorensen prepared illustrations to show the Pattons how a CRUT
would impact their tax liability. These illustrations compared a
taxable sale of the Blaze to a sale that occurred after ownership
of the team was transferred to a tax-exempt trust. Sorensen did
not prepare an illustration comparing the CRUT to a taxable sale
that occurred after the death of one spouse caused a step-up in
the basis of that asset.
By the end of the meeting, the Pattons had agreed
that they would incorporate the Blaze baseball team, establish a
CRUT, and fund it with the Blaze stock. They engaged Sherwood
to be the management trustee of the CRUT. The Pattons had
also agreed to form an LLC or LLP to hold ownership of the 16th
Street property. Sherwood and Sorensen discussed with them
the possibility of placing the 16 Street property into a CLAT.
The Pattons eventually designated four charities as
charitable remaindermen for the CRUTs: the LDS Church, the
Ventura County Council of the Boy Scouts of America (VCC), the
YMCA of Metropolitan Los Angeles, and the Casa Colina Centers
for Rehabilitation Foundation.7 The LDS Church was not one of
6Lowell Patton purchased the team for $200,000 in the mid
1980s and held it as a sole proprietorship. In 2002, Hedrick
estimated it was worth about $4,000,000. Others, including
Sherwood, believed its value was closer to $2,000,000.
7The Patton Family Lead Trust, established in February
2003, designated five charities as income beneficiaries: the LDS
7
ESI’s participating charities and did not pay any fees, costs or
commissions to ESI. Sorensen described the other charities to
the Pattons; they did not have prior relationships with any of
these charities. Sorensen chose them because he understood
Lowell Patton had been involved with the Santa Monica YMCA
and that they both had an interest in helping special needs
children. They decided to distribute income from the CRUT to
their children, rather than themselves, and to establish three
separate trusts so that each child could manage their own trust.
On February 27, 2002, Sherwood, Sorensen and their
notary, Jessica Horgan, met the Pattons in Mary Lou’s room at
UCLA hospital to sign the CRUT documents which had been
drafted by Matthew Mack. The Pattons signed Mack’s
engagement letter. Each CRUT appoints Sherwood as the
management trustee and Mack as the administrative trustee.
Lowell was not at the hospital when Sorensen and
Sherwood arrived, so they first met with Mary Lou alone. They
went through the trust documents, reviewed the charitable
beneficiaries and talked about how the income distribution to the
children would work. Mary Lou understood the children would
not receive income distributions from the CRUTs until the Blaze
was sold. When Lowell arrived, they again went through the
documents with him and Mary Lou. Both Pattons signed the
CRUTs.
The Bakersfield Blaze
The Bakersfield Blaze Baseball Club Inc. was
incorporated on March 19, 2002. Lowell was named the
president of the corporation and Jack Patton was named its vice-
Church, VCC, Casa Colina Foundation and Vista Del Mar Child
and Family Services.
8
president. On April 1, 2002, Mary Lou signed certificates issuing
1,000 shares of stock in the corporation. Lowell signed the
certificates on April 4 or 5, 2002. Six hundred shares were
transferred to Jack’s CRUT, while the CRUTs for Sally and Jodi
received 200 shares each. Because Sherwood was the
management trustee of each CRUT, he controlled the corporation
after the shares of stock were distributed to each CRUT.
Lowell Patton had acquired the Bakersfield Blaze
baseball team in late 1984 or 1985 for $200,000. The team was a
member of the California League of Professional Baseball (the
“League”). In 1996, Jack Patton became its vice president of
baseball operations and general manager. The Blaze appears to
have been plagued by poor attendance and an aging ballpark
where home plate faces into the setting sun. Its financial records
were described by some witnesses as having been in disarray. By
2002, the team did not have sufficient revenue to pay all of its
operating expenses. Jack had to periodically ask Lowell for cash
to make payroll, pay other expenses and pay dues owed to the
League. The team was being sued by vendors of uniforms, caps,
equipment, buses and hotel rooms and owed back taxes to both
the state and federal governments. In addition, the League
routinely threatened to foreclose on the franchise itself because
the team failed to pay its league dues.
Sherwood testified that, after Mary Lou’s death,
Lowell contacted him and wanted to resign as President of the
Blaze. He wanted Jack to handle the decision making for the
team. Sherwood drafted a document entitled “Unanimous
Written Consent of President and Shareholder of Bakersfield
Blaze Baseball Club, Inc.” in which Lowell stated that he wished
to resign as president of the corporation and to have Jack
9
appointed president. Sherwood, the sole shareholder, noted his
agreement with both actions.
Sherwood testified that he either mailed the
document to Lowell or gave it to one of Lowell’s daughters, Sally
or Jodi, to have it signed. He did not recall how or when he got
the signed document back, but at some point Sherwood placed it
in the corporate book for the Blaze. Sherwood also testified that,
on one occasion, Lowell told Sherwood he did not care about the
team anymore, did not want to invest more money into it and
wanted to just return the team’s franchise to the League.
Sherwood refused. Jack testified that, by the summer of 2003,
Lowell was tired of dealing with the Blaze and wanted to return
the franchise to the League instead of paying the outstanding
League dues.
In October 2003, the California Restaurant
Association (CRA) offered to purchase the Blaze for $3.5 million.
The offer was withdrawn in December 2003, after the CRA
reviewed the team’s finances and did other due diligence. The
team had received other offers as well, but those failed because
they relied on tax incentives that were not available, the
construction of a new stadium or financing terms the CRUTs
could not meet.
On November 30, 2003, while the offer from the CRA
was still pending, Lowell and Sally sent notice to Sherwood and
Mack that they “formally seek to remove” the men as
management and administrative trustees. Both men remained in
their positions and continued their efforts to sell the team.
Sherwood believed the notice of removal was ineffective because,
among other things, it did not identify the specific trusts to which
it pertained, did not identify successor trustees or indicate
10
whether the successors had agreed to serve, and did not provide
notice to the other beneficiaries of the trusts, as required by the
trust documents. Mack was willing to resign, but agreed with
Sherwood that they had a fiduciary duty to the CRUTs to finalize
the sale of the team, if possible, before leaving. Neither
Sherwood nor Mack advised the Pattons of the defects they saw
in the notice of removal.
After the CRA declined to exercise its option, the
League itself expressed an interest in buying the Blaze.
Although Sherwood and Jack Patton initially demanded a
purchase price between $3 million and $3.5 million, the parties
agreed in May 2004 on a sales price of $2.2 million. While this
offer was pending, the team transferred its franchise to the
CRUTs and the CRUTs granted the team a license to continue
operating under that franchise. Both of these documents were
signed by Jack Patton as “President” of the Bakersfield Blaze
Baseball Club, Inc. and by Mark Sherwood as the management
trustee of the CRUTs.
The sale of the team to the League finally closed in
November 2004. Sherwood did not notify Lowell, Sally or Jodi of
the sale before it closed. Mark Sherwood and Matthew Mack
signed the purchase agreement on behalf of the CRUTs. After
the sale closed and expenses were deducted, $1.9 million was
distributed to the CRUTs. Consistent with the terms of the
CRUTs, Sherwood made early distributions to the designated
charities. He also paid trustee fees to himself and to Mack, the
administrative trustee.
The Lead Trust
In late 2002, while they were finalizing Mary Lou’s
estate, Sherwood and Hedrick contacted Sorensen for help
11
planning the Patton Family Lead Trust, an irrevocable CLAT, or
lead trust, that would hold the 16th Street property and then the
proceeds from its sale. Mack drafted the trust document. In
general terms, the lead trust makes annual distributions equal to
7.5% of the fair market value of the trust estate to its income
beneficiaries for a period of 15 years. The income beneficiaries
are five charities: the LDS Church, the VCC, Casa Colina and
Vista Del Mar Child & Family Services. After the trust
terminates, the remainder is distributed in equal shares to Sally,
Jodi and Jack. Distributions to the charities are payable
annually in arrears. In other words, distributions are owed even
before the trust property is sold and will be made from principle
if the trust lacks sufficient income. Sally was named the
management and administrative trustee of the lead trust.
Sorensen and Lowell met at Lowell’s home on
February 21, 2003. Sorensen explained the trust document to
Lowell, who then signed the trust and a warranty deed
transferring the 16th Street property to the trust. Jodi was
present while Sorensen was explaining the trust to Lowell.
Sally signed the lead trust later that same day at
Sorensen’s office. She was also presented with a “negotiating
agreement” that designated Sorensen the trust’s exclusive
“negotiating agent” for the sale of the 16th Street property. If
Sorensen negotiated a sale, he would be paid the greater of 1.5%
of the sale price or 15% of the difference between the gross sale
price and $2,000,000.8 Sally signed the agreement. Sorensen
was not a licensed real estate broker or agent.
8A pervious version of the agreement, signed only by
Lowell, would have paid Sorensen 50% of the difference between
the sales price and $2,000,000.
12
On Father’s Day 2003, members of the Patton family
met with Sorensen, Mack and Hedrick regarding the negotiating
agreement and other issues. The meeting was taped for Lowell’s
benefit and became hostile, as Steve Walter, Sally’s husband,
criticized Sorensen for unfairly trying to extract a huge
commission on the sale of the 16th Street property. After the
meeting, Lowell rescinded the negotiating agreement.
The 16th Street property was sold in June 2006. Net
proceeds of about $2.9 million were deposited in the lead trust.
ESI received no payment from any of the charities, or any other
source, relating to the lead trust.
Altered Documents
Plaintiffs’ expert forensic document examiner, Frank
Hicks, concluded that signatures appearing on five documents
are not authentic, original signatures but are instead cut-and-
paste signatures, photocopied from other documents. Defendants
do not dispute these conclusions. The documents involved are:
A. Exhibits 26, 43, 44 and 163: Exhibit 26 is an
engagement letter dated February 7, 2002 in which Mary Lou
and Lowell engage Sherwood to incorporate the Blaze, form an
LLC to hold the Montana St. property and review a CLAT to be
formed to own the 16th St. property. Exhibit 163 is also an
engagement letter dated February 7, 2002. In it, the Pattons
engage Sherwood to form an LLC to own the Blaze and an LLP to
own both the Montana St. and 16th St. properties. Hicks
testified that the entire signature block from one letter had been
cut-and-pasted onto the other letter, although he could not
determine which contained the original signatures. Exhibits 43
and 44 are also engagement letters in which Sherwood is hired by
Lowell and Jack to represent the Blaze, and by Lowell to finalize
13
Mary Lou’s estate. Hicks testified Lowell’s signatures on these
documents were cut-and-pasted from either Exhibit 26 or 163.
B. Exhibits 113 and 130: Exhibit 113 is the
“Unanimous Written Consent” in which Lowell resigns as
President of the Blaze and consents to the appointment of Jack to
that position. The document is dated May 1, 2002 and is also
signed by Sherwood as the sole shareholder of the corporation.
Exhibit 130 is a “Uniform Statutory Form Power of Attorney,”
dated October 14, 2003, in which Lowell grants his power of
attorney to Sally. Lowell’s signature on this document is
notarized. Hicks concluded that this is the original signature.
Lowell’s signature on the Unanimous Written Consent was cut-
and-pasted from the Power of Attorney.
C. Exhibits 23 and 114: Exhibit 23 is a “Living Trust
Fee Agreement” in which Mary Lou and Lowell retain Sherwood
to complete the initial estate plan. It is dated February 5, 2002.
Exhibit 114 is a letter dated December 12, 2003 in which Lowell
acknowledges that Sherwood returned client files to him. Hicks
concluded that Lowell Patton’s signature on Exhibit 23 is an
original and that it was cut-and-pasted onto Exhibit 114.
Procedural History
Litigation relating to the trusts began almost
immediately. In February 2005, Lowell filed a proceeding in the
probate court to remove Sherwood and Mack as trustees. (In the
Matter of Lowell & Mary Lou Patton Trust, No. P078851.) They
petitioned for approval of their accountings and for payment of
trustee fees. The probate court removed Sherwood and Mack,
declined to authorize additional trustee fees and appointed an
independent trustee for the CRUTs.
14
In February 2006, Lowell filed a complaint against
ESI, Sorensen, Mack and Sherwood relating to the CRUTs. That
complaint was later amended to name as defendants the
charitable beneficiaries other than the LDS Church. (Lowell T.
Patton v. Estate Strategies, Inc., et al., No. CIV238964.) Casa
Colina and the YMCA filed separate petitions in the probate
court against Sally Patton Walter for breach of trust. (In the
Matter of the Patton Family Lead Trust Dated February 21, 2003,
No. P079997; In the Matter of the Patton Family Lead Trust
Dated February 21, 2003, No. P080083.)
Lowell Patton died on April 2, 2007. In November
2007, his estate filed a complaint against the charitable
beneficiaries of the lead trust. (Estate of Patton v. YMCA of
Metropolitan Los Angeles, et al., No. 56-2007-00307094-CU-FR-
VTA.) All of these actions were consolidated in the present
matter.
In late 2011, a settlement was reached with the
charities, except the Ventura County Council of the Boy Scouts of
America (VCC). They agreed to assign their interests in the
CRUTs and the CLAT to the LDS Church.
This litigation continued against Sherwood, ESI,
Sorensen, Mack and the VCC. In March 2013, Sally amended the
complaint to add Jack as a Doe defendant on the theory that he
conspired with and aided and abetted the remaining defendants’
torts. In April 2014, the trial court denied defendants’ motions
for summary judgment. ESI made a section 998 statutory offer to
compromise for $350,000. Mack made an offer to compromise for
$50,000 and Sherwood offered $45,000. Plaintiffs rejected each
offer.
15
After a 31-day non-jury trial, the trial court found in
favor defendants. It later awarded expert witness costs to the
defendants whose section 998 offers were rejected. The trial
court denied ESI and Sorensen’s motion for $1,988,383.50 in
contract-based attorney’s fees. However, it awarded them
$1,000,981.50 based on plaintiffs’ unreasonable denial of 32
requests for admission. (§ 2033.420.) In their cross-appeal, ESI
and Sorensen contend the trial court erred in denying their
motion for attorneys fees.
Standard of Review
Plaintiffs insist that, because the issues on appeal
“require[] a critical consideration, in a factual context, of legal
principles and their underlying values, the question is
predominantly legal and its determination is reviewed
independently.” (Crocker National Bank v. City and County of
San Francisco (1989) 49 Cal.3d 881, 888.) But we are also
required here to review the trial court’s findings of fact. Those
findings are reviewed for substantial evidence. “Under that
standard, our review begins and ends with a determination as to
whether there is any substantial evidence, contradicted or
uncontradicted, to support the findings below.” (Williamson v.
Brooks (2017) 7 Cal.App.5th 1294, 1299 (Williamson).) “[I]t is not
our role to reweigh the evidence, redetermine the credibility of
the witnesses, or resolve conflicts in the testimony, and we will
not disturb the judgment if there is evidence to support it.”
(Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th
892, 916.) This traditional rule on appeal is lost on plaintiffs and
their counsel. The “facts” as alleged by them, were not credited
by the trial court.
16
Alleged Breach of Fiduciary Duty
Plaintiffs contend defendants ESI, Sorensen, Mack
and Sherwood breached their fiduciary duties to the Pattons
because they did not disclose that the participating charities
would calculate ESI, Sorensen and Mack’s compensation based
on the size of the Pattons’ donations, the amount these
defendants estimated they would be paid, or that their
compensation would be more than they would earn if paid a
reasonable hourly rate. Plaintiffs contend the decisions to create
both the CRUTs and the lead trust were breaches of fiduciary
duty because the trusts served no purpose other than to generate
ongoing “kickbacks” or “commissions” for defendants. They
contend the attorney, defendants, Sherwood and Mack, breached
their duties by failing to give the Pattons any advice about how
the trusts would impact their children or whether other estate
plans could also meet their objectives while increasing the
amount their children would receive. Plaintiffs contend the
individual defendants breached their fiduciary duties when they
“refused” to be terminated as trustees of the CRUTs and
continued to work on selling the Blaze to fund the CRUTs.
Finally, they contend defendants breached their fiduciary duties
when they copied Lowell’s signature onto the altered documents.
Defendants contend they breached no fiduciary
duties. Because the Pattons’ funds were not used to pay any of
their compensation, defendants contend they had no duty to
disclose the amount of their compensation or how it was
calculated. Defendants contend they provided competent estate
planning and legal representation, that the trusts were
consistent with the Pattons’ estate planning goals, and that the
documents were drafted within the applicable standards of care.
17
They further contend their conduct with respect to the Blaze was
consistent with their fiduciary duties and did not proximately
cause any damage to plaintiffs.
“The elements of a cause of action for breach of
fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of
the fiduciary duty; and (3) damage proximately caused by the
breach.” (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086
(Stanley).) While the existence of a fiduciary duty is a question of
law, which we review de novo, the question whether that duty
has been breached is one of fact which we review for substantial
evidence. (Id. at pp. 1086-1087; see also Williamson, supra, 7
Cal.App.5th at p. 1300.)
“A fiduciary or confidential relationship can arise
when confidence is reposed by persons in the integrity of others,
and if the latter voluntarily accepts or assumes to accept the
confidence, he or she may not act so as to take advantage of the
other’s interest without that person’s knowledge or consent.”
(Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1101-1102.)
Fiduciaries owe a “duty of undivided loyalty” to beneficiaries.
(Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 30.)
Consequently, transactions between them will be “‘“closely
scrutinized with the utmost strictness for any unfairness.” . . .’”
(Fair v. Bakhtiari (2011) 195 Cal.App.4th 1135, 1141 (Fair).)
Business transactions between a fiduciary and beneficiary are
presumed to have been the product of undue influence. That
presumption may be overcome by showing that the transaction
was fair and just and that the beneficiary was fully advised about
it. (Ferguson v. Yaspan (2014) 233 Cal.App.4th 676, 684-685; see
also BGJ Associates v. Wilson (2003) 113 Cal.App.4th 1217, 1227-
1228 (BGJ); Prob. Code, § 16004.)
18
We conclude, as did the trial court, that defendants
Sherwood, Mack, Sorensen and ESI owed fiduciary duties to the
Pattons because they acted as the Pattons’ attorneys and/or
estate planners. (Fair, supra, 195 Cal.App.4th 1135 at pp. 1140-
1141.) We further conclude that substantial evidence supports
the trial court’s finding that these defendants did not breach
their fiduciary duties.
First, ESI, Sorensen and Mack adequately disclosed
that they would be compensated by the participating charities for
their estate planning services.9 Mack’s engagement letter stated
that he had been retained by ESI to prepare the Pattons’ CRUTs
and notes that the Pattons had also retained Sherwood. It
further provided, “Mack PC understands that our fees, costs and
expenses will be reimbursed by one or more charitable
organizations through Estate Strategies.”
ESI’s engagement letter explained that fees and costs
associated with preparing the Pattons’ estate plan would be paid
by the participating charities, so long as the estate plan met
certain criteria. The principal criteria was that the estate plan
would establish one or more irrevocable trusts in favor of the
participating charities. ESI explained, “A charity incurs its own
planned giving overhead, costs and fees (herein “Planned Giving
Fees”) in working with independent donors. In obtaining a
charity’s commitment to be a participating charity, [ESI]
completes the charity’s planned giving services, and, the charity
reimburses [ESI] for the Planned Giving Fees saved.” ESI
disclosed that this compensation arrangement could create a
conflict of interest between the Pattons and the charities,
Sherwood required his fees to be paid directly by the
9
Pattons.
19
“because it may be in the best interest of a charity to receive the
largest possible remainder interest gift at the earliest date, on
the other hand, it may be in your best interest to receive the
greatest amount of income over the longest period of time.”
Mack’s engagement letter included similar conflict disclosures.
ESI did not disclose the amount of the “Planned
Giving Fees saved,” it would be “reimbursed” by the participating
charities or how that amount would be calculated.10 The
charities paid ESI a percentage of the net present value of the
charitable gifts it arranged. These amounts were paid from the
general funds of the charities themselves. They were not paid
from the Pattons’ assets or with the Pattons’ money, and did not
reduce the amount of money placed in either the CRUTs or the
Lead Trust.
The fiduciary duty of loyalty requires the fiduciary to
behave fairly and justly toward the client and to provide the
information required for the client to act with full knowledge of
the relevant facts and full understanding of their effect. (BGJ,
supra, 113 Cal.App.4th at pp. 1227-1228; see also Stanley, supra,
35 Cal.App.4th at pp. 1089-1090.) ESI, Sorensen and Mack
satisfied that duty when they disclosed that their fees and costs
would be reimbursed by participating charities, and that they
would receive a percentage of the “planned giving fees saved” by
the charities. The engagement letters explained that the Pattons
could pay fees and costs associated with creating an estate plan,
or they could have others pay in exchange for irrevocable
10The trial court referred to these amounts as commissions.
Plaintiffs refer to them as “kickbacks.” The trial court granted
defendants’ motion in limine to prohibit use of the term
“kickback” at trial.
20
charitable donations. This gave the Pattons the information
required to make an informed decision about how they wanted to
proceed.
Defendants did not have a fiduciary duty to disclose
the estimated amount they would ultimately be paid or how their
compensation would be calculated because their compensation
was paid by the charities’ general funds, not the Pattons’ gifts.
Information about the calculation or amount of the fees had no
impact on the fundamental decision the Pattons were asked to
make: whether they wanted to pay for the estate planning
themselves or make substantial gifts to charity in exchange for
having those fees paid by the charities.
Plaintiffs protest that the commissions were a breach
of fiduciary duty, even if the Pattons’ money did not fund them,
because the arrangement gave ESI, Sorensen and Mack a
pecuniary interest adverse to the Pattons, in violation of Probate
Code section 16004 and former California Rules of Professional
Conduct 3-300 and 3-310.11 But, as we explained above,
defendants’ engagement letters disclosed the potential conflict
between the charities’ interest in receiving the largest possible
donation and any interest the Pattons had in making larger
bequests to their children or others. Defendants did not acquire a
pecuniary interest adverse to the Pattons because the charities
had already agreed to compensate them for planned gifts. When
11California’s Rules of Professional Conduct, which apply
only to the attorneys, Mack and Sherwood, were reorganized and
renumbered in November 1, 2018. The substance of former rules
3-300 and 3-310 is currently found in rules 1.7 (Conflict of
Interest: Current Clients) and 1.8.1 (Business Transactions with
a Client and Pecuniary Interests Adverse to a Client).
21
the Pattons agreed to establish the CRUTs, defendants’
compensation was assured. Had the Pattons rejected the idea of
charitable giving, defendants would have either charged the
stated hourly rates for their services or declined the
representation.
Plaintiffs contend defendants breached their
fiduciary duties when they convinced the Pattons to create
CRUTs without life insurance and when they created the lead
trust because the trusts served no purpose other than to pay
commissions to defendants. The trial court rejected this claim
and credited the opinions of defendants’ four expert witnesses. It
concluded that defendants complied with the applicable
standards of care in designing and documenting the Pattons’
estate plan and in disclosing the terms of the trusts to the
Pattons. Substantial evidence supports these findings.
Sherwood testified that he understood the Pattons
wanted to ensure their children would receive an income stream
from their estate rather than a lump sum inheritance. Mary Lou
wanted the plan to be irrevocable to prevent Lowell from
changing the bequests to their daughters after her death. Lowell
was adamant that he would not pay legal fees, life insurance
premiums or taxes. The couple also had a history of charitable
giving, especially to their church and to the Santa Monica YMCA.
The CRUTs and lead trust met these objectives. The CRUTs
were irrevocable and produced an income stream for the
beneficiaries. The lead trust reduced their gift and estate tax
liability. Defendants’ expert witness on charitable giving and
planned gifts testified that it is not unusual for CRUTs to be
funded without life insurance. Life insurance provides a lump
sum pay out to the beneficiaries, which would have been
22
inconsistent with the Pattons’ stated preferences. The Pattons
also expressed a preference to minimize or avoid paying taxes on
their estate. The CRUTs and lead trust were consistent with this
preference because they generated tax deductions.
As the trial court noted, other estate plans might also
have met the Pattons’ objectives. The fact that defendants might
have recommended other plans to meet some or all of the Pattons’
goals does not establish they breached their fiduciary duties by
recommending this one. (See, e.g., Barner v. Leeds (2000) 24
Cal.4th 676, 690; Banerian v. O’Malley (1974) 42 Cal.App.3d 604,
613.)
Plaintiffs contend defendants Sherwood and Mack
breached their fiduciary duties when they continued their efforts
to sell the Blaze even after Lowell attempted to terminate their
appointments as management and administrative trustees in
November 2003. As the trial court found, however, the Blaze was
plagued by operational and managerial problems that reduced its
value. Substantial evidence supports its finding that plaintiffs’
estimate of the team’s market value was not based on an
appraisal or other evidence and that the $2.2 million sales price
was the “only viable offer which came along in the two years that
the team was being offered for sale.”
One element of the cause of action for breach of
fiduciary duty is that damages were proximately caused by the
breach. (Slovensky v. Friedman (2006) 142 Cal.App.4th 1518,
1534; Stanley, supra, 35 Cal.App.4th at p. 1086.) Even assuming
Sherwood and Mack were effectively terminated as trustees and
that they breached a fiduciary duty by arranging the sale of the
Blaze, plaintiffs failed to carry their burden to prove the breach
proximately caused damage.
23
Plaintiffs contend Sherwood, Mack and Jack Patton
breached their fiduciary duties because, in late 2004, they sold
the Blaze franchise to the California League for $2.2 million
when its fair market value was closer to $4 million. But
plaintiffs never had the team appraised and no other evidence
supported the $4 million estimate. An offer to purchase the team
for $3.5 million was withdrawn after the prospective buyer
reviewed the team’s finances. Other offers failed because they
relied on tax incentives that were not available, the construction
of a new stadium or other financing terms the CRUTs could not
meet. The team’s financial records were in disarray. It had no
stable source of funds to pay its operating expenses. The team
was being sued by vendors of uniforms, caps, equipment, busses
and hotel rooms and owed back taxes to both the state and
federal governments. There was also a looming threat that the
League would foreclose on the franchise itself for failure to pay
league dues. This is substantial evidence supporting the trial
court’s finding that “the Blaze was sold to the California League
for the only viable offer which came along in the two years that
the team was being offered for sale.”
Plaintiffs argue the sales price was too low because,
in 2005, the California League sold the franchise to another
buyer for $4 million. As the trial court noted, however, there was
no evidence of the basis for the sales price. There was also no
evidence of the franchise’s financial condition in 2005 or the
condition of its stadium and other facilities. The trial court did
not err when it concluded plaintiffs failed to carry their burden to
prove defendants breached fiduciary duties in connection with
the sale of the Blaze.
24
Plaintiffs contend defendants breached fiduciary
duties and demonstrated their intent to defraud the Pattons by
“cutting and pasting” Lowell’s signature onto the altered
documents. The trial court declined to draw those inferences
because it found, “There was conflicting evidence as to who was
responsible for these cut and paste signatures. This was
curiously left hanging without significant follow up. Plaintiffs
did not meet their burden of proving a causal connection between
these signatures and any damage allegedly sustained by
Plaintiffs. As such, the court does not need to make findings as
to the identity of the party responsible for these signatures.”
Plaintiffs insist only Sherwood had a motive to alter
the signatures on his engagement letters (Exhibits 23, 26, 43, 44
and 163) and that he and Jack together added Lowell’s signature
to the Unanimous Consent, to close the Blaze sale without
Lowell’s involvement. We are not convinced. The legal work
described in the engagement letters was performed and paid for,
apparently without any objection that Sherwood hadn’t been
retained for that work. As for the Unanimous Consent (Ex. 113),
appellants failed to prove that Sherwood or Jack ever had access
to the source document, Lowell’s October 2003 power of attorney.
Sherwood and Jack denied ever seeing the power of attorney
before it was made public in February 2005. Sally testified she
never provided a copy of it to either Sherwood or Jack.
Plaintiffs had the burden to prove these altered
documents played a role in the alleged breaches of fiduciary duty,
professional negligence or fraud. They did not because they did
not carry their burden to prove who was responsible for the
alterations or how the documents caused any of their alleged
damages. Given these gaps in the evidence, the trial court
25
properly declined to rely on the altered documents to infer that
any defendants intended to breach fiduciary duties toward, or to
defraud the Pattons.
Alleged Fraud by Concealment or Misrepresentation
The elements of a cause of action for fraudulent
concealment are “‘(1) the defendant . . . concealed or suppressed a
material fact, (2) the defendant [was] under a duty to disclose the
fact to the plaintiff, (3) the defendant . . . intentionally concealed
or suppressed the fact with the intent to defraud the plaintiff, (4)
the plaintiff [was] unaware of the fact and would not have acted
as he did if he had known of the concealed or suppressed fact, and
(5) as a result of the concealment or suppression of the fact, the
plaintiff must have sustained damage.’ [Citation.]”
(Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223
Cal.App.4th 1105, 1130l see also Small v. Fritz Companies, Inc.
(2003) 30 Cal.4th 167, 173.) Nondisclosure may constitute
actionable fraud “‘“(1) [W]hen the defendant is in a fiduciary
relationship with the plaintiff; (2) when the defendant had
exclusive knowledge of material facts not known to the plaintiff;
(3) when the defendant actively conceals a material fact from the
plaintiff; and (4) when the defendant makes partial
representations but also suppresses some material facts. . . .”’”
(OCM Principal Opportunities Fund, L.P. v. CIBC World Markets
Corp. (2007) 157 Cal.App.4th 835, 859, quoting LiMandri v.
Judkins (1997) 52 Cal.App.4th 326, 336; see also American Trust
Co. v. California Western States Life Ins. Co. (1940) 15 Cal.2d 42,
65 [“one who does speak must speak the whole truth, and not by
partial suppression or concealment make the utterance
untruthful and misleading”].)
26
Plaintiffs contend defendants Mack, Sorensen, and
ESI fraudulently concealed their compensation arrangements
with the participating charities and did not disclose that they
were steering the Pattons to contribute to those charities. The
trial court found defendants had no duty to disclose their
compensation arrangements because the charities, not the
Pattons, paid for their services. It further found “there was no
fraudulent conduct” by any of the defendants and “no
misrepresentations of a material fact. Any misrepresentations
alleged were not false, were non-actionable opinions, were mere
projections or estimates with appropriate disclaimers, were not
material, and/or were not reasonably relied upon.”
For the reasons we have already stated, we conclude
the trial court’s legal conclusions are correct and that its findings
of fact are supported by substantial evidence. Sorensen, Mack
and ESI disclosed to the Pattons that participating charities
would pay the fees and costs associated with creating their estate
plan if the Pattons made substantial gifts to those charities.
They further disclosed that their compensation would be based on
the “planned giving fees saved” by the participating charities as a
result of defendants’ work. These disclosures gave the Pattons
sufficient information to determine whether they wanted to
proceed with an estate plan that was drafted at no cost to them
but required them to make substantial gifts to charity.
Defendants had no duty to disclose more specific terms of their
compensation agreements with the preferred charities because
the compensation was paid by the charities, not the Pattons.
Plaintiffs repeatedly refer to the compensation
defendants received from the charities as a “kickback.” This is
inaccurate. Arcturus Mfg. Corp. v. Rork (1961) 198 Cal.App.2d
27208, a case relied on by plaintiffs, provides a classic example of a
kickback. There, Rork was employed by Arcturus to hire
inspectors to certify Arcturus’ products. Unbeknownst to
Arcturus, Rork only hired inspectors who agreed to pay him a
portion of the fee they received from Arcturus. That payment
was a kickback. In affirming an order requiring Rork to repay
these amounts, the court of appeal noted, “The duty of the agent
to account to his principal for secret profits and kickbacks is
fundamental.” (Id. at p. 210.)
Defendants are not in the same position as Rork.
They were paid by charities to arrange planned gifts to the
charities. They performed that service by creating estate plans
for clients like the Pattons and they informed the clients of their
relationship with the charities. The “commissions” or “planned
giving fees saved” are not kickbacks or secret profits because they
are paid by the principal (the charities) to the agents
(defendants) for services performed by the agents, not by a third
party (e.g., the Pattons) as a fee for connecting that party with
the principal.
Like the trial court, we are not convinced that any
deceptive half-truths were told to, or material facts concealed
from the Pattons. It is true the Pattons were not told how much
money defendants were paid by the charities to arrange planned
gifts. But the Pattons knew the charities were paying defendants
and would foot the bill for their estate plan only if the Pattons
made substantial gifts. Failure to disclose the amount ultimately
paid to defendants was not fraud because that information does
not alter the fundamental bargain presented to the Pattons.
28
Alleged Elder Financial Abuse
Plaintiffs alleged that defendants committed
financial abuse of an elder adult within the meaning of Welfare &
Institutions Code, section 15610.30 (hereafter, §15610.30) when
they advised the Pattons to contribute the Blaze stock to the
CRUTS and to contribute the 16th Street property to the lead
trust and then accepted commissions from the charities based on
the present value of those contributions. The trial court found
there was no actionable elder abuse because defendants “did not
breach the applicable standard of care in their dealings with the
Pattons . . . .” Plaintiffs contend the trial court erred because the
trusts served no purpose other than to generate commissions for
defendants. In plaintiffs’ view, defendants advised Lowell to
transfer his property to the trusts for their own benefit, not his.
We are not persuaded.
When the events at issue here occurred, section
15610.30 provided that financial abuse of an elder adult occurs
when a person takes the property of an elder adult “to a wrongful
use or with intent to defraud, or both.” (Former §15610.30, subd.
(a)(1).) Property is taken “to a wrongful use” when it is taken in
“bad faith.” (Id., subd. (b).) A person acts in “bad faith” if “the
person . . . knew or should have known that the elder . . . had the
right to have the property transferred or made readily available
to the elder . . . .” (Id., subd. (b)(1).) Undisclosed commissions or
finders fees arising from an abusive transaction may constitute
financial abuse of an elder within the meaning of section
15610.30. (Mahan v. Charles W. Chan Ins. Agency, Inc. (2017) 14
Cal.App.5th 841, 865 (Mahan); Wood v. Jamison (2008) 167
Cal.App.4th 156, 164-165 (Wood).)
29
Although section 15610.30 does not require proof of
an intent to defraud, under both the former and current versions
of the statute, it is still necessary to prove that a defendant took
the elder’s property for a “wrongful” use or with knowledge that
the taking will deprive the elder of property to which he or she is
otherwise entitled. (Das v. Bank of America, N.A. (2010) 186
Cal.App.4th 727, 744-745; Paslay v. State Farm General Ins. Co.
(2016) 248 Cal.App.4th 639, 656-657 (Paslay).) “[T]o establish a
‘wrongful use’ of property to which an elder has a contract right,
the elder must demonstrate a breach of the contract, or other
improper conduct.” (Paslay, supra, at p. 657.)
The trial court correctly found that no financial elder
abuse occurred. As we have discussed, the compensation paid to
defendants was not a taking of the Pattons’ property because it
was not paid by the Pattons or with their assets.12 Substantial
evidence also established that respondents did not “take” the
Pattons’ property “to a wrongful use” or with an “intent to
defraud” within the meaning of section 15610.30. The testimony
of defendants’ expert witnesses provided substantial evidence in
support of the trial court’s finding that the trusts were
competently documented and consistent with the Pattons’ intent
to both make substantial gifts to charities and provide an income
stream for their children. Transferring the Pattons’ property to
the trusts for the purpose of making charitable donations was not
taking it “to a wrongful use” because the Pattons requested those
12Mahan and Wood, on which plaintiffs rely, are
distinguishable for this reason, among many others. In both
cases, the defendants were paid a commission or finders fee
directly from the elder’s assets. (Mahan, supra, 14 Cal.App.5th
at p. 865; Wood, supra, 167 Cal.App.4th at p. 159.)
30
transfers and donations be made. (Paslay, supra, 248
Cal.App.4th at p. 657; see also Stebley v. Litton Loan Servicing,
LLP (2011) 202 Cal.App.4th 522, 527-578.)
Alleged Professional Negligence
“The elements of a cause of action for professional
negligence are (1) the existence of the duty of the professional to
use such skill, prudence, and diligence as other members of the
profession commonly possess and exercise; (2) breach of that
duty; (3) a causal connection between the negligent conduct and
the resulting injury; and (4) actual loss or damage resulting from
the professional negligence.” (Oasis West Realty, LLC v.
Goldman (2011) 51 Cal.4th 811, 820 (Oasis West).)
Here, the trial court found defendants Sherwood,
Mack, ESI and Sorensen acted within the standard of care for
their respective professions. Plaintiffs contend the trial court
erred because their expert witness, Andrew Wallet, testified that
defendants’ conduct fell below the standard of care for many of
the reasons we have already discussed. But the trial court
rejected Wallet’s analysis and credited that of the defense
experts. In determining whether the judgment is supported by
substantial evidence, we do not re-weigh conflicts and disputes in
the evidence. (Regalado v. Callaghan (2016) 3 Cal.App.5th 582,
596.) The testimony of a single witness, including an expert
witness or a party, may constitute substantial evidence. (Chase
v. Wizmann (2021) 71 Cal.App.5th 244, 257; Flores v. Liu (2021)
60 Cal.App.5th 278, 296.) The expert witness testimony credited
by the trial constitutes substantial evidence in support of the
judgment.
Plaintiffs contend Mack was negligent as a matter of
law because, for a short period of time while he worked on the
31
Pattons’ estate plan, he was not eligible to practice law because
he failed to submit documentation that he complied with
continuing legal education requirements. There is, however, no
substantial evidence that Mack’s temporary disability impacted
the work he performed for the Pattons. Without evidence that
Mack’s temporary inability to practice law proximately caused
damage to the Pattons, appellants cannot prevail on the cause of
action for professional negligence. (Oasis West, supra, 51 Cal.4th
at p. 820; Neel v. Magana, Olney, Levy, Cathcart & Gelfand
(1971) 6 Cal.3d 176, 180-181.)
Plaintiffs also contend defendants were negligent
because they allowed the Pattons to create irrevocable trusts
without their informed consent. Again, however, the trial court
rejected that contention when it found defendants acted within
their respective standards of care in advising the Pattons about
the features of the trusts and other aspects of their estate plan.
Defendants’ expert witnesses opined that the advice and
information given to the Pattons complied with defendants’
standard of care. Sherwood testified that he explained the trusts
to the Pattons at face-to-face meetings and in a letter before the
documents were finalized, and again while the Pattons were
signing the documents. Sorensen also testified that he met with
both of the Pattons to review the trusts and other aspects of their
estate plan. During these meetings, Sorensen explained the
trusts would be irrevocable, would make large gifts to charities
and would provide income to the children. Sorensen also
explained the trusts would not include life insurance. The
notary, Jessica Hogan, testified that it was Sherwood’s practice to
explain documents to clients while they were being signed. She
also remembered that it took the Pattons several hours to sign all
32
of their estate planning documents. This is substantial evidence
supporting the trial court’s conclusion that respondents obtained
the Pattons’ informed consent to create the CRUTs.
Alleged Vicarious Liability of the Boy Scouts
Plaintiffs’ second amended complaint alleges that the
Ventura County Council of Boy Scouts of America (VCC) is
vicariously liable for torts committed by defendants Sorensen,
Mack and ESI because they acted as agents of VCC in obtaining
the Pattons’ charitable gifts. The trial court granted VCC’s
motion for judgment under section 631.8 because it made the
factual finding that respondents were not the agents of VCC.
Plaintiffs contend the trial court erred. We conclude the trial
court correctly granted VCC’s motion for judgment because there
is no substantial evidence that VCC had any authority to control
defendants’ actions. (Violette v. Shoup (1993) 16 Cal.App.4th 611,
620; McCollum v. Friendly Hills Travel Center (1985) 172
Cal.App.3d 83, 91.)
According to plaintiffs, VCC’s liability is entirely
derivative of defendants Sorensen, Mack and ESI. We have
determined, however, that those defendants have no liability
arising out of their dealings with the Pattons. It follows that
VCC is also not liable to plaintiffs. Because there is no basis for
VCC’s vicarious or derivative liability, any error the trial court
may have made in granting VCC’s motion for judgment was not
prejudicial. (F.P. v. Monier (2017) 3 Cal.5th 1099, 1107-1108.)
Alleged Liability of Jack Patton
Plaintiffs filed their original complaint in February
2006 and their second amended complaint in May 2012. In
February 2013, plaintiffs filed an amendment to name Jack
Patton as one of the Doe defendants. They allege Jack aided and
33
abetted Sherwood and Mack in defrauding and breaching
fiduciary duties owed to the Pattons. They further alleged that
Jack conspired with the other defendants, that he was in an
agency relationship with them and that he was their alter ego.
Following the close of plaintiffs’ case at trial, Jack
moved for judgment under section 631.8. The trial court granted
the motion, reasoning that the Doe amendment was untimely
and that, “on a substantive basis, there is no evidence that [Jack]
participated in the preparation of the estate plan,” in a
conspiracy to harm his father or siblings, or that he had
mismanaged the Blaze baseball team.
Plaintiffs contend the trial court erred. First, they
contend their Doe amendment was timely because they did not
have actual knowledge that Jack altered documents related to
the sale of the Blaze until those documents were produced in the
probate case, in November 2012. Second, they contend there was
substantial evidence that Jack assisted Sherwood in selling the
Blaze without Lowell’s consent. The judge in Jack’s will contest
case factually found that Jack altered documents required to sell
the Blaze and that he intentionally concealed the sale of the team
from Lowell. Plaintiffs contend the trial court erred when it
granted defendants’ motion in limine and excluded findings made
by the court after the will contest trial. They further contend
collateral estoppel bars Jack from denying that he created the
photocopied signatures and used the altered documents to sell
the Blaze behind Lowell’s back.
“The substantial evidence standard of review applies
to judgment given under Code of Civil Procedure section 631.8;
the trial court’s grant of the motion will not be reversed if its
findings are supported by substantial evidence. [Citation.]
34
Because section 631.8 authorizes the trial court to weigh evidence
and make findings, the court may refuse to believe witnesses and
draw conclusions at odds with expert opinion. [Citation.]” (Roth
v. Parker (1997) 57 Cal.App.4th 542, 549-550.) Here, in addition
to finding the Doe amendment untimely, the trial court factually
found there was no substantial evidence that Jack “participated
in the preparation of the estate plan,” that “he was involved in a
conspiracy,” or that “he ran the Blaze into the ground . . . .” In
reaching these conclusions, the trial court credited defendants’
evidence that Jack was not involved in the estate planning, that
Lowell and Mary Lou consented to the incorporation of the Blaze
and that Jack, as a corporate officer, had authority to sell the
team.
The record supports the trial court’s conclusion.
Plaintiffs introduced no evidence supporting their allegation that
Jack conspired with the other defendants, that he had an agency
relationship with them, or that he was their alter ego. He denied
any involvement in creating the 2002 estate plan, in the Pattons’
decision to incorporate the Blaze or in their decision to distribute
60% of the Blaze shares to Jack’s CRUT. Plaintiffs introduced no
evidence to the contrary.13 Finally, we have already determined
that the remaining defendants did not defraud the Pattons,
breach their fiduciary duties or engage in financial elder abuse.
13Plaintiffs’ opening brief insists that “Sorensen recruited
Jack to assist in the fraud on his parents,” and that Jack both
“despised his father” and “played an integral role in getting
documents signed by Lowell.” These statements are unsupported
by any citation to the record. Similarly unsupported is
appellants’ assertion, made most directly in their reply brief, that
Jack was responsible for “forg[ing]” or “fabricat[ing]” documents
relating to the sale of the Blaze.
35
Because they have no liability to plaintiffs, Jack has no
derivative liability. The trial court did not err when it granted
Jack’s motion for judgment.
Section 998 Costs
In April 2014, the trial court denied defendants’
motions for summary judgment or summary adjudication.
Twelve days later, defendants ESI and Sorensen made a
statutory offer to compromise for $350,000. (§998.) Mack made a
section 998 offer of $50,000 and Sherwood made an offer of
$45,000. Plaintiffs rejected each offer. After trial, the trial court
awarded ESI and Sorensen expert witness fees of $148,887.90. It
awarded Mack expert witness fees of $50,938.21, and Sherwood
was awarded expert witness fees of $16,300. Plaintiffs contend
the trial court erred because the offers were only “tokens,” and
were not made in good faith.
“A prevailing party who has made a valid pretrial
offer pursuant to . . . section 998 is eligible for specified costs, so
long as the offer was reasonable and made in good faith.” (Nelson
v. Anderson (1999) 72 Cal.App.4th 111, 134.) Whether an offer
was reasonable and made in good faith “is a matter left to the
sound discretion of the trial court.” (Elrod v. Oregon Cummins
Diesel, Inc. (1987) 195 Cal.App.3d 692, 700 (Elrod).) When a
party obtains a judgment more favorable than its offer, the offer
“is presumed to have been reasonable and the opposing party
bears the burden of showing otherwise.” (Thompson v. Miller
(2003) 112 Cal.App.4th 327, 338-339 (Thompson).)
Here, the trial court found in favor of defendants and
against plaintiffs on each of plaintiffs’ causes of action. This
supports the trial court’s finding that defendants’ offers were
reasonable. (Thompson, supra, 112 Cal.App.4th at pp. 338-339;
36
see also Elrod, supra, 195 Cal.App.3d at p. 700 [“Where, as here,
the offeror obtains a judgment more favorable than its offer, the
judgment constitutes prima facie evidence showing the offer was
reasonable and the offeror is eligible for costs as specified in
section 998”].)
Plaintiffs contend they reasonably rejected the offers
because the offers were made days after the trial court denied
defendants’ motions for summary judgment. But the order
denying summary judgment was not a determination that
plaintiffs’ legal theories had merit. (See, e.g., Wilson v. Parker,
Covert & Chidester (2002) 28 Cal.4th 811, 824.) Rather, the trial
court denied the motions because it concluded that defendants
did not “conclusively negate” every theory of damages asserted by
plaintiffs and that triable issues of fact remained to be resolved.
Although plaintiffs estimated their potential recovery
was in the millions, they also had to realize there was a chance
they would not prevail at trial, exposing them to liability for
substantial costs. Accepting the offers to compromise would have
eliminated that exposure and delivered plaintiffs at least a
partial recovery. (Jones v. Dumrichob (1998) 63 Cal.App.4th
1258, 1264.) The trial court considered these factors, as well as
the state of the evidence when the offers were made. We
conclude it did not abuse its discretion in awarding defendants
their expert witness fess under section 998.
Cost of Proof Sanctions
ESI and Sorensen propounded identical sets of
requests for admission (RFAs) to plaintiffs. Each set of 32 RFAs
asked plaintiffs to admit facts or legal conclusions such as:
defendants never made false representations to plaintiffs;
defendants did not owe a fiduciary duty to plaintiffs or breach
37
any such duty; defendants did not fail to disclose any important
fact known only to them and not to plaintiffs; defendants never
took any of plaintiffs’ property; defendants were not negligent;
and defendants’ actions were not a substantial factor in causing
harm to plaintiffs. Plaintiffs denied each RFA.
After defendants prevailed at trial, the trial court
granted them $1,000,981.50 in cost of proof sanctions because it
concluded plaintiffs had no reasonable basis for the denials when
they were made. Plaintiffs contend the trial court erred because
their denials were reasonable, because the RFAs improperly
sought conclusions of law or conclusions based on facts they were
not requested to admit, and because defendants provided no
evidence of the costs they incurred to prove each fact.
“When a party propounds requests for admission of
the truth of certain facts and the responding party denies the
requests, if the propounding party proves the truth of those facts
at trial, he or she may seek an award of the reasonable costs and
attorney fees incurred in proving those facts. [Citation.] The
court is required to award those costs and fees unless it finds the
party who denied the requests ‘had reasonable ground to believe
[he or she] would prevail on the matter’ or ‘[t]here was other good
reason for the failure to admit.’ [Citation.]” (Grace v.
Mansourian (2015) 240 Cal.App.4th 523, 529 (Grace).)
An RFA may relate to a “controversial matter, or one
involving complex facts,” or call for a legal conclusion. (Bloxham
v. Saldinger (2014) 228 Cal.App.4th 729, 752.) “In evaluating
whether a ‘good reason’ exists for denying a request to admit, ‘a
court may properly consider whether at the time the denial was
made the party making the denial held a reasonably entertained
good faith belief that the party would prevail on the issue at
38
trial.’ [Citation.]” (Laabs v. City of Victorville (2008) 163
Cal.App.4th 1242, 1276.) We review the trial court’s
determination that costs of proof should be awarded for abuse of
discretion. (Grace, supra, 240 Cal.App.4th at p. 529.)
Plaintiffs note that, in 2014, the trial court denied
defendants’ motions for summary judgment after finding
disputed issues of material fact remained to be resolved on each
cause of action. They contend these findings demonstrate they
had a reasonable basis for denying the RFAs in 2009. The trial
court rejected that reasoning, finding instead that, “There is no
evidence offered as to why [plaintiffs] thought their denials to be
reasonable when they made them in 2009.”
Plaintiffs’ basis for denying the RFAs in 2009 was the
same as their basis for opposing the motions for summary
judgment in 2014 and for trying the case in 2017. Throughout
this litigation, they have consistently maintained that defendants
had a duty to disclose their relationships with, and the
compensation they received from the participating charities, and
that they convinced the Pattons to create the trusts in order to
enrich themselves and not to benefit the Pattons. Although
plaintiffs ultimately failed to carry their burden of proof on the
factual issues, their case was not without an evidentiary basis. It
relied on the illustrations defendants provided to the Pattons,
correspondence between the parties and the trust documents
themselves. They also had qualified expert witnesses who
supported their claims.
Plaintiffs were unsuccessful at trial. But, that is not
the same thing as having acted unreasonably or in bad faith.
(Universal Home Improvement, Inc. v. Robertson (2020) 51
Cal.App.5th 116, 130-132 [reasonable basis to deny RFAs shown
39
where responding party later defeated propounding party’s
motion for summary judgment and presented evidence at trial to
contest each RFA]; Orange County Water Dist. v. The Arnold
Engineering Co. (2018) 31 Cal.App.5th 96, 116 [“expert opinion
evidence may provide a party with a reasonable ground to believe
it will prevail on a matter covered by an RFA”].) We conclude the
trial court erred in awarding cost of proof sanctions.
ESI’s Cross-Appeal for
Contractual Attorney Fees
The engagement letter between ESI, Sorensen and
the Pattons included an attorneys fee clause that provides, “The
prevailing Party in any proceeding to enforce any provision of
this Agreement shall be awarded reasonable attorney’s fees and
costs incurred in the proceeding . . . .” After prevailing at trial,
ESI moved for an award of contract-based attorneys fees of
$1,988,383.50. The trial court denied the motion concluding the
attorney fee provision at issue here was not broad enough to
encompass appellants’ tort claims. ESI contends the trial court
erred because, although plaintiffs did not allege a cause of action
for breach of contract, their tort causes of action all arose out of
the Pattons’ contractual relationship with ESI.
“The issue of a party’s entitlement to attorney fees is
a legal issue subject to de novo review. [Citations.] . . . The
normal rules of appellate review apply to an order granting or
denying attorney fees; i.e., the order is presumed correct, all
intendments and presumptions are indulged to support the order,
conflicts in the evidence are resolved in favor of the prevailing
party, and the trial court’s resolution of factual disputes is
conclusive. [Citation.]” (Apex LLC v. Korusfood.com (2013) 222
Cal.App.4th 1010, 1016–1017.)
40
“[A] broadly phrased contractual attorney fee
provision may support an award to the prevailing party in a tort
action.” (Gil v. Mansano (2004) 121 Cal.App.4th 739, 743 (Gil).)
Where the action involves tort claims, “the question of whether to
award attorneys’ fees turns on the language of the contractual
attorneys’ fee provision, i.e., whether . . . the type of claim is
within the scope of the provision.” (Exxess Electronixx v. Heger
Realty Corp. (1998) 64 Cal.App.4th 698, 708 (Exxess Electronixx).)
“Where, as here, there is no conflicting extrinsic
evidence, we independently review the trial court’s interpretation
of the attorney fees clause. [Citation.] A ‘contract containing
. . . attorney fees provisions must be analyzed on its own terms,
and in context, pursuant to the usual rules of contract
interpretation for determining the actual intent of the parties.
[Citations.]’ [Citation.]” (GoTek Energy, Inc. v. SoCal IP Law
Group, LLP (2016) 3 Cal.App.5th 1240, 1248–1249 (GoTek
Energy).)
We agree with the trial court that the attorney fees
provision at issue here does not apply to plaintiffs’ tort claims. It
is not broadly phrased to authorize an award of fees in any action
“arising out of” the engagement letter, or in any “dispute . . .
relating to” it. (See, e.g., Santisas v. Goodin (1998) 17 Cal.4th
599, 607-608 (Santisas) [provision authorizing attorney fee award
in legal action “arising out of the execution of this agreement”
broad enough to support an award of fees in action alleging both
contract and tort claims]; GoTek Energy, supra, 3 Cal.App.5th at
pp. 1248-1249 [provision authorizing fee award in “‘any dispute
between us relating to this agreement . . .’” applied to legal
malpractice claim]; Siligo v. Castellucci (1994) 21 Cal.App.4th
873, 878, fn. 5 [agreement allowing attorney fees in “‘any action
41
or proceeding arising out of this [a]greement’” applies to fraud
claim].)
Instead, the provision is drafted more narrowly, to
authorize an award of attorney fees “in any proceeding to enforce
any provision of this Agreement . . . .” “[A] tort claim does not
‘enforce’ a contract.” (Exxess Electronixx, supra, 64 Cal.App.4th
at p. 709.) Thus, a contractual attorneys fees provision that
authorizes a fee award only in an action to “enforce” the terms of
the contract does not encompass tort claims, including claims for
fraud or negligence. (See, e.g., Santisas, supra 17 Cal.4th at p.
622, fn. 9; Gil, supra, 121 Cal.App.4th at p. 745 [provision
allowing fees in an action to enforce a release does not apply to
fraud claim].) The trial court correctly denied the motion for
attorney fees.
Disposition
The order awarding cost of proof sanctions pursuant
to section 2033.420 to ESI and Sorensen is reversed. In all other
respects, the judgment is affirmed. Defendants shall recover
their costs on appeal.
NOT TO BE PUBLISHED.
YEGAN, J.
We concur:
GILBERT, P. J.
BALTODANO, J.
42
Henry Walsh, Judge
Superior Court County of Ventura
______________________________
Smith Law Firm and Craig Smith, for Plaintiffs and
Appellants.
Nemecek & Cole, Frank W. Nemecek, Jonathan B. Cole,
Mark Schaeffer, Jon D. Robinson, for Defendants and Appellants.
Young Wooldridge and Robert J. Noriega, for Defendant
and Respondent, Jack Patton.
Matthew B. Mack, for Defendants and Respondents,
Matthew B. Mack, Matthew B. Mack Counselor at Law and
Matthew B. Mack, A Professional Corp.
Law Offices of Greg May and Greg May; Jones & Lester
and Mark A. Lester, for Defendant and Respondent, Ventura
County Council of the Boy Scouts of America.
Monroy, Averbuck & Gysler and Jon F. Monroy, for
Defendant and Respondent, Mark Sherwood.