Sonntag v. Franz CA1/1 ( 2021 )

Filed 12/16/21 Sonntag v. Franz CA1/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or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
FIRST APPELLATE DISTRICT
DIVISION ONE
DEBORAH SONNTAG, et al.,
Plaintiffs and Respondents, A161466
v. (Marin County
Super. Ct. No. CIV1701027,
GAYLYN DEMARTINI FRANZ,
PRO1800579)
Defendant and Appellant.
Appellant Gaylyn DeMartini Franz appeals from the trial court’s
postjudgment order denying her motion for attorney fees.
As we have recounted in our nonpublished opinion in the appeal from
the judgment (Sonntag v. DeMartini (Dec. 16, 2021, A160247) (Sonntag I),
the underlying matter involved a dispute among four siblings over the
distribution of trust proceeds. The siblings are all beneficiaries of the Ronald
DeMartini Exemption Trust (exemption trust), of which sibling Steven
DeMartini is the designated successor trustee.1
Siblings Deborah Sonntag and Loriann DeMartini brought two actions,
which were later consolidated, against Steven and Gaylyn. One was a civil
action against Gaylyn, individually and in her role as executor of their
mother’s will, alleging she had acted as a “de facto [c]o-[t]rustee” of the
1 We refer to the siblings by their first names to avoid confusion.
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exemption trust, and in doing so, had breached her fiduciary duty to Deborah
and Loriann by retaining the proceeds of a loan encumbering exemption trust
property in her mother’s estate. The second action, against both Gaylyn and
Steven, was a probate petition to compel redress of alleged breaches of trust
and to remove Steven as the trustee of the exemption trust.
Following a 15-day trial, the trial court concluded Gaylyn had acted as
a de facto trustee of the exemption trust for about six months after her
mother’s death. However, the court found no breaches of fiduciary duty by
either Gaylyn or Steven and, in any event, also found there were no damages
resulting from the alleged breaches. We affirmed that judgment in the
related appeal.
Following the entry of judgment, Gaylyn filed a motion for attorney fees
incurred in defending the action against her, claiming entitlement to fees
based on the finding she was the de facto trustee for six months. She also
sought costs as the prevailing party. The court granted her motion as to
statutory costs but denied it as to attorney fees. We affirm.
BACKGROUND
We here quote from our opinion in the related appeal, Sonntag I, supra,
A160247:2
The genesis of the exemption trust was the “ ‘Ronald P. DeMartini and
Joyce E. DeMartini Family Trust’ (family trust) created by the siblings’
parents in 1993. That trust provided that after the death of the first parent,
the trust would be divided into two separate trusts, ‘designated the survivor’s
trust and the exemption trust.’ The surviving parent had the power to
We take judicial notice of our opinion in that case, Sonntag I, supra,
2
A160247. (Evid. Code, § 451, subd. (a).)
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‘amend, revoke, or terminate the survivor’s trust; but the exemption trust
[could] not be amended, revoked, or terminated.’
“The family trust provided that when the surviving parent died, ‘the
Trustees shall add to the exemption trust any portion of the survivor’s trust
not disposed of and shall then distribute to the children . . . in equal shares,
all assets of the exemption trust, together with any and all undistributed
income.’
“Ronald DeMartini died in 1994, and the family trust was duly split in
two—the exemption trust being irrevocable, with each of the four siblings
holding equal interests in the remainder.
“Joyce DeMartini became the successor trustee of both the survivor’s
trust and the exemption trust.
“As the trustee of the survivor’s trust, Joyce was authorized to pay
herself, as the surviving spouse, the income from the trust, and could also
pay any ‘sums from the principal . . . in the Trustees’ discretion, consider[ed]
necessary for the surviving spouse’s proper health, support, comfort,
enjoyment, and welfare.’ The trust also provided the trustee ‘shall pay the
surviving spouse as much of the principal . . . as he or she shall request in
writing.’
“As the trustee of the exemption trust, Joyce was authorized to pay
herself, as the surviving spouse, the income from the exemption trust ‘in all
sums and in any proportion that may be necessary, in the Trustees’
discretion, for . . . her health, education, support, and maintenance. . . .’ If
the trustee considered the income insufficient, she had discretion to pay ‘all
sums from the principal as [she] . . . consider[ed] necessary for the
beneficiary’s proper health, education, support and maintenance. . . .’
Although ‘[p]ayments from principal to the surviving spouse shall be made
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first from the survivor’s trust until it is exhausted and thereafter from the
exemption trust, . . . all or any part of those payments may be made from the
exemption trust without exhausting the survivor’s trust if the Trustees
consider it advisable.’
“The trust instrument provided that on the surviving spouse’s death, ‘if
and to the extent that the surviving spouse shall not have effectively disposed
of all property of the trust estate of the survivor’s trust through a valid and
effective exercise of a power of appointment, all of the remaining trust assets
of the trust shall be distributed to the then-acting trustees of the exemption
trust to be added to and form part of the assets of the exemption trust. . . .’
“In 2012, Joyce executed a revised will and an amendment to the
survivor’s trust, by which she excluded Deborah and Loriann as beneficiaries
of her estate and that trust. Joyce named Gaylyn and Steven as the
beneficiaries of both.
“In 2013, Joyce amended the survivor’s trust to appoint Gaylyn as co-
trustee. Joyce also executed an agency agreement authorizing Gaylyn to act
on Joyce’s behalf with respect to the exemption trust.
“By the end of 2013, Joyce’s financial condition had become reduced.
She had moved into a retirement home, increasing her monthly expenses.
She was also involved in litigation with her sister-in-law, Patricia Ryerson
(Ryerson), regarding a Forestville rental property they owned together, and
was receiving less income as a result.
“In 2014, Joyce took out a $258,000 mortgage on a Novato property,
which was part of the exemption trust. The net proceeds of the cash-out
refinance amounted to $220,286.82. Joyce used some of those funds to pay
her expenses and loaned or gave $9,000 to her granddaughter Jessica Rankin
(Loriann’s daughter).
4
“The proceeds of the Novato loan were deposited into a checking
account held by the survivor’s trust, of which Joyce and Gaylyn were the
trustees. Joyce then transferred $200,000 from that account into a separate
account in her name, alone.
“Joyce died in 2015. . . . [¶] At the time of Joyce’s death, there was
about $189,000 remaining of the Novato loan proceeds, held in her separate
account.
“Gaylyn became the successor trustee of the survivor’s trust, of which
she was a beneficiary. She was also the executor and a beneficiary of Joyce’s
will.
“Although Steven was the successor trustee of the exemption trust,
Gaylyn also managed that trust for the first six months following Joyce’s
death. According to Steven, Gaylyn managed the exemption trust with his
‘expressed consent’ because she had more experience handling ‘matters like
these.’
“[¶] . . . [¶]
“Deborah and Loriann then filed a civil action against Gaylyn,
individually and as executor of Joyce’s estate, for breach of trust, conspiracy
to breach trust, and intentional interference with economic advantage, and
sought imposition of a constructive trust. The complaint also alleged Joyce
had breached her fiduciary duties by encumbering the Novato property, and
conspired with Gaylyn to do so. They additionally filed a probate petition ‘for
redress of breach of trust and for removal of trustee’ against both Gaylyn and
Steven. (Capitalization omitted.) They alleged Gaylyn, as de facto trustee of
the exemption trust, and Steven, as successor trustee, had breached their
fiduciary duties in relation to the Novato loan. They also alleged Steven’s
distribution of trust assets was unequal.
5
“After settlement negotiations broke down, Steven filed a Probate Code
section 850[3] petition seeking to have the remaining Novato loan proceeds
transferred to the exemption trust. Gaylyn filed a consent to the transfer and
agreed to transfer the $189,758.96 remaining balance in Joyce’s personal
bank account to the exemption trust. Gaylyn explained, however, that her
consent was an effort to resolve the litigation with her sisters, not a
concession that the Novato loan proceeds had been wrongfully transferred
from the exemption trust. She stated in her reply memo ‘the 850 Petition
simply represents Steven and Gaylyn’s attempt to anticipate the most that
Deborah and Loriann could possibly derive from a recovery in this litigation
and have sought (in Steven’s case) and consented to (in Gaylyn’s case) an
order that should moot the majority of Deborah and Loriann’s damages
claims. Although Deborah and Loriann’s claims are unfounded, it is for these
reasons that Steven filed, and Gaylyn consented to, the 850 Petition.’
“The court granted the petition (the section 850 order) in an order
providing, the exemption trust ‘is entitled to title and ownership of the Bank
of Marin account . . . held in the name of Gaylyn . . . Executor of the Estate of
Joyce. . . . [¶] Gaylyn . . . is ordered to transfer title of ownership of the Bank
of Marin . . . account . . . which holds $189,758.96 . . . to Steven . . . as Trustee
of the Exemption Trust.’ The order further provided, ‘This Order is made
without prejudice to the rights of any party to pursue additional remedies,
damages and defenses in the litigation. . . .’
“The return of the Novato funds, however, did not end the litigation.
The civil and probate cases were consolidated and proceeded to trial.
3 All further undesignated statutory references are to the Probate
Code.
6
“Following a 15-day trial, the court issued a 26-page statement of
decision. The court found Gaylyn was the de facto trustee of the exemption
trust from the date of Joyce’s death until April 20, 2016 (when Steven sent a
letter to his siblings stating he was ‘ “taking a more active role as the Trustee
of the Exemption Trust” ’) and Gaylyn therefore had a fiduciary duty to the
beneficiaries during that time. However, the court also found neither Joyce,
Gaylyn, nor Steven, breached their fiduciary duties to the trust beneficiaries
in relation to the Novato property loan proceeds.
“The court further found that the loan proceeds had been placed in
Joyce’s separate bank account and were therefore part of her estate.
However, since Gaylyn had transferred the remaining funds to the exemption
trust pursuant to the section 850 order (‘because she was hoping that if she
returned the money . . . this litigation would end’), the court ruled the
beneficiaries had, in any event, suffered no damages from any asserted
breach of the trustees’ fiduciary duties.” (Sonntag I, supra, A160247.)
After trial, Gaylyn filed a motion for $482,678.60 in attorney fees and
$36,513.18 in costs/fees. She claimed she was entitled to attorney fees since
the court found she was a de facto trustee and the trust provided the trustee
may defend legal actions relating to the trust at the expense of the trust.4
Gaylyn also maintained the court should exercise its equitable powers to
award attorney fees because Deborah and Loriann had acted in bad faith.
The court denied her motion for attorney fees but granted it as to costs.
The court stated: “Ultimately, the Court determined that for a brief period of
time, Gaylyn (by continuing to manage Trust property after her mother died)
4 Gaylyn sought consolidation of this appeal with the appeal from the
judgment in the underlying action. We previously declined to consolidate the
appeals.
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acted as a de facto trustee of the Trust and as such was required to protect
the interests of the beneficiaries. Her role as de facto trustee however, was
contrary to the specific terms of the Trust. The terms of the Trust stated that
upon the surviving spouse’s death, Steven (and not Gaylyn) was to be the
trustee (See Section 12.2 of the Exemption Trust) and as such, he was
authorized to defend his actions at Trust expense. (See Sections 10.2 and
10.3(d) of the Exemption Trust.) That authorization did not include the
payment of attorney’s fees for any person not designated trustee who, on
their own, assumed this role. Accordingly, the request pursuant to this
claim/theory is denied.” (Boldface, underscoring & italics omitted.)
The court likewise rejected Gaylyn’s claim it should exercise its
equitable powers and award attorney fees due to her siblings alleged bad
faith in pursuing the lawsuits. The court ruled, “Although Petitioner’s
litigation was prolonged and potentially ‘ill-conceived,’ this Court does not
believe Petitioners were acting in bad faith.”
DISCUSSION
Gaylyn continues to maintain she is entitled to attorney fees under the
terms of the trust instrument because the court found she was the de facto
trustee for six months and breached no fiduciary duties.5
Gaylyn first claims the trial court “failed to apply the correct legal
standard as it pertains to a trustee’s reimbursement of attorneys’ fees. . . .”
She maintains this standard is set forth in Copley v. Copley (1981) 126
Cal.App.3d 248, 295, which provides that where the trust instrument
provides the “trust is required to bear the cost of legal expenses incurred for
contesting claims against the trust estate by means of litigation [and] . . .
5 She does not pursue her claim for fees based on her sibling’s alleged
bad faith.
8
[t]he litigation undertaken by the trustees . . . was not in bad faith or without
probable cause . . . the trial court’s denial of the litigation expenses cannot
stand.”
There is no dispute that a trustee may hire and seek reimbursement for
attorneys hired to assist in administration of the trust. “ ‘[T]he Probate Code
is studded with provisions authorizing the trustee to hire and pay (or seek
reimbursement for having paid) attorneys to assist in trust administration.’
[Citation.] Section 16247 empowers the trustee ‘to hire . . . attorneys . . . or
other agents . . . to advise or assist the trustee in the performance of
administrative duties.’ Section 16243 provides, ‘The trustee has the power to
pay . . . reasonable compensation . . . of . . . agents of the trust . . . incurred in
the . . . administration . . . and protection of the trust.’ Section 15684,
subdivision (a) provides, ‘A trustee is entitled to the repayment out of the
trust property for . . . [¶] . . . [e]xpenditures that were properly incurred in
the administration of the trust.’ [¶] ‘ “The underlying principle which guides
the court in allowing costs and attorneys’ fees incidental to litigation out of a
trust estate is that such litigation is a benefit and a service to the trust,” ’ and
not for the personal benefit of the trustee.” (People ex rel. Harris v. Shine
(2017) 16 Cal.App.5th 524, 534.)
Indeed, the trust instrument provided the “Trustees are authorized and
empowered in the Trustees’ discretion as follows: [¶] [10.3](d) To commence
or defend, at the expense of the trusts, legal actions relating to the trusts or
any trust property as the Trustees deem advisable. [¶] . . . [¶] 10.4
Employment of Agents. The Trustees are authorized and empowered to
employ attorneys, investment counsel, accountants, bookkeepers or other
persons to render services for the Trustees or in the Trustees’ behalf with
respect to all matters pertaining to any trust provided for in this instrument
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and to pay from the trust estate the reasonable fees and compensation of
such persons for their services. . . .”6
The issue, however, is not whether a named trustee can recover fees, but
whether an individual found to have voluntarily assumed the role of a de facto
trustee for a limited amount of time, is entitled to fees.7
In claiming such entitlement, Gaylyn relies on King v. Johnston (2009)
178 Cal.App.4th 1488 (King) wherein the court explained, “ ‘ “It is a well
settled rule in the law of trusts that if a person not being in fact a trustee
acts as such by mistake or intentionally, he thereby becomes a trustee de son
tort. The rule is thus laid down by a recent writer: ‘A person may become a
trustee by construction, by intermeddling with and assuming the
management of property without authority. Such persons are trustees de son
tort [just] as persons who assume to deal with a deceased person’s estate
without authority are administrators de son tort. . . [.] During the possession
and management by such constructive trustees they are subject to the same
rules and remedies as other trustees.’ [Citations.] . . . It is plain that this
branch of the law does not rest on the strict ground of estoppel as usually
expounded in the law books. It rather depends upon a principle of public
policy connected with the right administration of justice. [Citation.] The
principle to be extracted from the cases is that the party acting as trustee
shall not be allowed, in a court of justice, to set up, as against parties
interested in the administration of the trust, a state of things inconsistent
6 Pursuant to this provision, the trial court granted Steven’s attorney
fees of $258,924.65 payable from the remaining trust cash assets
($215,575.79) and reimbursement in equal shares from his three siblings.
7 “For a person to be deemed a de facto trustee, he or she must assume
the office or position under color of right or title, and exercise the duties of
the office.” (90 C.J.S. (2021) Trusts § 327.)
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with his assumed character.” ’ ” (King, at p. 1506, citing England v. Winslow
(1925) 196 Cal. 260, 267–268, italics added.)
Gaylyn focuses on the italicized language quoted above from King.
King involved similar allegations by one trust beneficiary that another trust
beneficiary was acting as a trustee de son tort and had breached her fiduciary
duties in that regard. (King, supra, 178 Cal.App.4th at p. 1491.) The
plaintiff in King alleged, specifically, that the other beneficiary had unduly
influenced and conspired with the original trustee to transfer a piece of
property out of the trust. (Ibid.) The plaintiff also alleged the other
beneficiary had acted as the trustee, both before and after the death of the
original trustee and had wrongfully deposited trust rental income into her
personal account. The trial court concluded the plaintiff did not have
standing to sue the other beneficiary for her “role as a third party participant
in a trustee’s breach.” (Id., at pp. 1491–1492.)
The Court of Appeal reversed, concluding the plaintiff did have
standing. It remanded the case for the trial court to consider whether the
plaintiff could recover under the theory the other beneficiary was acting as a
trustee de son tort and had breached her fiduciary duties. (King, supra,
178 Cal.App.4th at p. 1492.) Although the plaintiff asserted the other
beneficiary should be responsible for attorney fees and costs, the court
declined to address that issue because the trial court “made no findings with
regard to damages because the court determined [plaintiff] did not have
standing to sue [the other beneficiary], and because the court made no
determination as to whether [the other beneficiary] might be liable as a
trustee de son tort. . . .” (Id. at pp. 1507–1508.) In short, the issue of whether
a de facto trustee is entitled to attorney fees was neither raised nor
addressed.
11
Moreover, the language on which Gaylyn relies does not suggest a de
facto trustee is entitled to attorney fees. Indeed, the quote indicates de facto
trustees are “ ‘ “ ‘subject to the same rules and remedies as other
trustees,’ ” ’ ” not that they are entitled to the rights of a de jure trustee.
(King, supra, 178 Cal.App.4th at p. 1506, italics added.) As King explains,
“ ‘ “[t]he principle to be extracted from the cases is that the party acting as
trustee shall not be allowed, in a court of justice, to set up, as against parties
interested in the administration of the trust, a state of things inconsistent
with his assumed character.” ’ ” (Ibid.) Gaylyn cites no case in which a
temporary de facto trustee was awarded attorney fees for defending an
action.8
Gaylyn further maintains that since trustees are “generally entitled to
reimbursement” for successful defense costs, “[p]ublic policy supports the
mutuality of remedies as it pertains to a de facto trustee.” However, she cites
no authority for this proposition, suggesting only that “[t]his Court has the
opportunity—if it were to grant Gaylyn’s appeal—to discourage
[unscrupulous, disgruntled beneficiaries] from pursuing ‘ill-conceived’ and
‘prolonged’ litigation.”
8 Our own research disclosed one Indiana case in which the court
awarded attorney fees as a charge against the trust to the de facto trustees.
(Gray v. Union Trust Co. (1938) 213 Ind. 675, 678; 14 N.E.2d 532.) The facts,
however, are very different. In that case, the trustees were considered de
facto because, although they were appointed as trustees by the United States
District Court and acted and were recognized as such by the parties for seven
years, the Seventh Circuit Court of Appeals later concluded the District
Court had no jurisdiction to appoint trustees or administer the trust estate.
(Gray v. Union Trust Co. of Indianapolis (1938) 12 N.E.2d 931, 935–937.) At
the very least, in that case equitable considerations would have dictated that
the de facto trustees have been reimbursed for expenses incurred in reliance
on orders of the court and with the consent of the beneficiaries.
12
We decline to do so. “[A]side from constitutional policy, the
Legislature, and not the courts, is vested with the responsibility to declare
the public policy of the state.” (Green v. Ralee Engineering Co. (1998)
19 Cal.4th 66, 71.) We also observe, as a practical matter, that Gaylyn,
knowing she was not the trustee, certainly was under no obligation to incur
expenses on behalf of the trust and she could have, and certainly should
have, looked to the designated trustee, Steven, to shoulder his
responsibilities as trustee to defend the trust against, as the trial court
charitably described them, his siblings “ill-conceived” claims.
DISPOSITION
The postjudgment order is affirmed. Each side to bear their own costs
on appeal.
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BANKE, J.
WE CONCUR:
HUMES, P. J.
MARGULIES, J.
A161466
Sonntag v. De Martini
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