Secrest v. Vaughn CA4/1 ( 2015 )

Filed 10/9/15 Secrest v. Vaughn CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
KIMBERLY S. SECREST, D066702
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2011-00150210-
PR-TR-NC)
ALLEN CRAIG VAUGHN, as trustee, etc.,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of San Diego County, Jay M.
Bloom, Judge. Affirmed.
Law Offices of Rancho Santa Fe and Michael W. Jacobs for Plaintiff and
Respondent.
Best Best & Krieger, Patrick E. Monroe and Rebecca Andrews for Defendant and
Appellant.
Allen Craig Vaughn (Vaughn) appeals a postjudgment order denying his motion
for contractual attorney fees, based on a 2013 settlement agreement that he negotiated in
his capacity as the trustee of the Donald D. Secrest Revocable Trust dated December 13,
1995, as amended (the trust). The settlement agreement (the Agreement) was reached
with one of the trust's beneficiaries, respondent Kimberly Secrest (Secrest), who
challenged the manner in which Vaughn had administered the trust. Shortly after Secrest
filed a petition in probate court to enforce the Agreement as formalized by a stipulated
judgment, Vaughn resigned as trustee in September 2013. The parties then went to trial
on Secrest's amended petition (the operative petition), which continued to challenge the
manner in which Vaughn administered the trust, and also sought to reinstate him.
After trial, the superior court issued a statement of decision and entered another
judgment, which (1) enforced the Agreement's late fee clause in favor of Secrest on one
of her claims, to impose a $15,000 late fee that was payable from the trust, and (2)
enforced the Agreement's attorney fees clause, awarding Secrest such fees payable from
the trust. The court ruled that Vaughn was not personally liable for his actions as trustee
and his resignation was a statutorily authorized act. (Prob. Code,1 § 15640.)
In the subject postjudgment motion proceedings, Vaughn claimed he was the
prevailing party on contractual issues, under the Agreement's attorney fees clause. The
trial court determined that Vaughn had entered into the Agreement in his fiduciary
capacity, not in his capacity as an individual, and therefore he was not contractually
entitled to recover under its attorney fees clause.
Vaughn argues on appeal that the trial court erred in denying his motion. He
contends that all claims in Secrest's operative petition were directed against him
1 All statutory references are to the Probate Code unless otherwise indicated.
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individually, and under the reciprocity principles of Civil Code section 1717, he was
entitled to attorney fees. Civil Code section 1717 was enacted to establish mutuality of
remedy where a contractual provision makes recovery of attorney fees available for only
one party. (Reynolds Metals Co. v. Alperson (1979) 25 Cal. 3d 124, 127-128 (Reynolds).)
Vaughn claims that if Secrest, a party to the Agreement, could show a contractual
entitlement to such fees, he could likewise do so on a reciprocal basis.
We are required to address contractual interpretation issues on the scope and effect
of the attorney fees clause in the Agreement between Secrest and Vaughn, as trustee. On
de novo review of the questions of law on whether the statutory criteria for an award of
attorney fees have been satisfied, we determine that Civil Code section 1717 does not
authorize an award of attorney fees to Vaughn under the Agreement. (See
Conservatorship of Whitley (2010) 50 Cal. 4th 1206, 1213.) Vaughn, in his personal
capacity, was not a party to the Agreement and the operative petition dealt with acts he
performed in his representative capacity. The trial court correctly found no basis for a
reciprocal fee award arising out of the Agreement. We affirm the postjudgment order.
FACTUAL AND PROCEDURAL BACKGROUND
Both parties contend the other did not accurately represent the record. We outline
the contents of the operative pleadings and the evidence before the trial court.
A. Settlement Agreement
Donald Secrest (Don) appointed Vaughn as trustee of the trust. Don died in 2010.
His first marriage produced two children, who are beneficiaries of the trust. His widow
Secrest and their son are the remaining two beneficiaries. Secrest filed the underlying
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petition in probate court in May 2011. She sought certain assets under a premarital
agreement, the reimbursement of real estate proceeds from the trust, insurance proceeds,
and an order to compel Vaughn, as trustee, to account for and distribute certain trust
assets to herself and her son.
After about two years of litigation, Secrest and Vaughn, in his capacity as trustee,
entered into the written Agreement settling her claims in April 2013. The Agreement
provided for distribution of trust property, and included a penalty or late fee provision if
the time requirements agreed upon were not met. The Agreement also contained an
attorney fees provision awarding such fees to the prevailing party if litigation continued.
This section provided that if there were any dispute as to which party had prevailed for
purposes of the clause, "the court shall decide." The Agreement was incorporated into a
stipulated judgment and entered by the court in May 2013.
B. Operative Petition to Enforce the Stipulated Judgment
Secrest's petition was originally filed in July 2013 under sections 16420 and
17200, claiming Vaughn, as trustee, had breached the Agreement so that thousands of
dollars of additional distributions should be made to her, and several sets of late fees
($15,000 each) should be imposed.2 Vaughn had already distributed all but about $2,000
of the assets of the trust. He resigned as trustee in September 2013.
2 Although Vaughn requested the clerk include Secrest's initial petition in the record
on appeal, it has not been included. We are required to construe the operative (amended)
petition, and the original petition is not essential to the record.
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Secrest subsequently filed the operative petition, adding a claim that Vaughn had
breached the trust by resigning. She sought an order to compel Vaughn to continue
performing as trustee.
At the two-day trial held in February 2014, Vaughn brought a motion in limine to
dismiss the case, and Secrest filed opposition. Although the court initially granted the
motion for dismissal and/or a continuance, on the grounds that some of the beneficiaries
had not been served with notice of the trial, Vaughn withdrew that motion, and the court
proceeded to try the operative petition, on the issues identified in the trial briefs.
After trial, the court issued a statement of decision, resolving only one of Secrest's
substantive claims in her favor. The court ruled that Vaughn, as trustee, had breached the
Agreement by failing to timely file an inventory of property as required, although the
court viewed this as a management glitch that did not show any negligent or intentional
trustee misconduct that would justify personal liability. The court observed that the
Probate Code allowed it to enforce the Agreement as related to the trust litigation.
(§§ 800, 1000, 1049, 17206.) Secrest was therefore awarded $15,000 payable from the
trust assets as a late fee, as well as attorney fees payable by the trust, all pursuant to
clauses in the Agreement. However, Vaughn was not held personally liable for his
actions as trustee and no attorney fees were allowed against him personally. (§ 18005
[petition on trust administration issues may determine the question of liability between
the trust estate and the trustee personally].)
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C. Vaughn's Attorney Fees Motions
Vaughn brought a motion to recover his own attorney fees, claiming he, in his
personal capacity, had prevailed in Secrest's action on the Agreement. He had incurred
$45,272.75 in fees and costs during the litigation subsequent to his resignation. The court
denied the motion without prejudice until judgment could be entered on the statement of
decision.
Entry of judgment was obtained and Vaughn renewed the motion, now seeking
$47,822.75 in fees and costs. He interpreted Secrest's operative petition as being directed
against him individually, contending that "it is of no consequence to the analysis that
Vaughn signed the Settlement Agreement in his capacity as Trustee, rather than
individually." Generally, Vaughn argued that the operative petition identified him
individually by name, rather than in his fiduciary capacity as trustee, and he theorized
that since there were no longer any substantial funds left in the trust, Secrest must have
been seeking to have him pay any further amounts individually. She seemed to indicate
as much in her deposition.
In opposition, Secrest argued that her operative petition was based on Vaughn's
actions as trustee that arguably breached the terms of the Agreement, not on allegations
against him as an individual party to the contract. She had prevailed by showing that he
had failed to make a timely inventory as required, and accordingly she opposed any
award of fees to Vaughn.
The court denied Vaughn's motion, finding he was not a party to the Agreement
and therefore could not benefit from the fee shifting provision in it. The court explained
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in the ruling that under section 18000, subdivision (a), Vaughn would not be held
personally liable on a contract entered into in his fiduciary capacity, unless he had failed
to reveal his representative capacity or had failed to identify the trust as the party to the
contract, but that was not the case here. Vaughn appeals.
DISCUSSION
I
PROCEDURAL CONCERNS
On the undisputed facts disclosed by this record, we conduct a de novo reading of
the documents to determine whether a legal basis for a contractual fee award has been
shown. (Conservatorship of Whitley, supra, 50 Cal. 4th 1206, 1213; Sessions Payroll
Management v. Noble Construction Co. (2000) 84 Cal. App. 4th 671, 677.) Although the
amount of any fees award would be discretionary, there can be no award without
statutory or contractual authorization. (Santisas v. Goodin (1998) 17 Cal. 4th 599, 614
(Santisas); Real Property Services Corp. v. City of Pasadena (1994) 25 Cal. App. 4th 375,
379; Code Civ. Proc., § 1021.)
We first observe that Secrest briefly argues for dismissal of the appeal, on the
ground that Vaughn lacks standing to pursue it. The operative petition sought resolution
of trust disputes under sections 17200 and 16420. Fee awards are allowed in such
proceedings, on a proper showing. (§ 17211.) A court's postjudgment order denying a
motion for attorney fees is an appealable order. (Code Civ. Proc., §§ 902, 904.1, subd.
(a)(2); §§ 1300, subd. (e), 1304.) We conclude this appeal is properly before us,
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presenting questions of law on an undisputed record on whether Vaughn qualifies, on a
contractual basis, for the requested award.
II
EFFECT OF VAUGHN'S CAPACITY AS TRUSTEE
A trust is not a legal entity, but an aggregate of assets and liabilities. (Stoltenberg
v. Newman (2009) 179 Cal. App. 4th 287, 293.) A trustee has the power to collect and
hold the assets of the trust. (§ 16220.) Only the trustee may enforce the trust's claims or
defend claims against the trust. (§ 16249, Stoltenberg, supra, at p. 293.) The courts have
the authority to supervise trust administration issues. (§§ 800, 16420, 17200 et seq.)
Generally, "[t]he remedies of a beneficiary against the trustee are exclusively in
equity" and the beneficiary cannot sue the trustee for breach of contract. (§ 16421.)
However, a trustee may be required to repay money lost due to his or her breach of trust,
whether the repayment is characterized as damages, restitution, or a surcharge. (§ 16420,
subd. (a)(3); see Estate of Talbot (1956) 141 Cal. App. 2d 309, 322; 13 Witkin, Summary
of Cal. Law (10th ed. 2005) Trusts, § 124, p. 690.) Under section 16420, subdivision
(a)(1), a beneficiary may sue "to compel the trustee to perform the trustee's duties." (13
Witkin, Summary of Cal. Law, supra, § 122, p. 689.) For example, the court could
theoretically have made orders determining distributions or settling accounts pursuant to
section 17200, subdivisions (b)(4) and (b)(5), but no such relief was being sought.
A party can assert a claim against a trustee in the trustee's personal capacity, or in
a representative capacity, or in both capacities, depending on the circumstances.
(§§ 18000, subd. (a) [contracts], 18002 [tort claims], 18004 [asserting claims v. trust];
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Stoltenberg v. Newman, supra, 179 Cal.App.4th at pp. 293-295.) A trustee who failed to
reveal the trustee's representative capacity or to identify the trust in the contract could,
under section 18000, subdivision (a), be held personally liable on the contract. However,
if the agreement were properly arranged in the trustee's fiduciary capacity, in the course
of administration of the trust, the trustee is protected from personal liability.
(Stoltenberg, supra, at pp. 293-295.)
III
CONTRACT PRINCIPLES
We next examine if Vaughn is justified in claiming that Secrest's operative petition
was directed against him individually and that he prevailed on claims that were
contractual in nature, thus authorizing the requested award of attorney fees under Civil
Code section 1717. (Sears v. Baccaglio (1998) 60 Cal. App. 4th 1136, 1159.) In relevant
part, Civil Code section 1717, subdivision (a) provides: "In any action on a contract,
where the contract specifically provides that attorney's fees and costs, which are incurred
to enforce that contract, shall be awarded either to one of the parties or to the prevailing
party, then the party who is determined to be the party prevailing on the contract . . . shall
be entitled to reasonable attorney's fees in addition to other costs." (Italics added.) The
"prevailing party" is usually defined as "the party who recovered a greater relief in the
action on the contract." (Civ. Code, § 1717, subd. (b)(1); italics added.)
In Reynolds, the court interpreted Civil Code section 1717 to provide a reciprocal
remedy for nonsignatory defendants who were sued on a contract as if they were parties
to it, when the plaintiff would clearly be entitled to attorney fees if he had prevailed in
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enforcing the contractual obligation against the defendants. (Reynolds, supra, 25 Cal.3d
at p. 128.) That plaintiff had entered into a contract containing an attorney fees provision
with two companies. The companies went bankrupt, and the plaintiff sought to hold
defendants personally liable for debts by claiming the defendants were "alter egos" of the
bankrupt companies. (Id. at p. 127.) The plaintiff did not prevail on its claim that the
defendants were "alter egos" of the corporation. (Id. at p. 129.)
Nevertheless, the court in Reynolds, supra, 25 Cal.3d at page 128 determined that
the defendants were entitled to recover attorney fees because they were sued on the
contract as if they were parties to it (alter egos), and had the plaintiff prevailed, they
would have been responsible for plaintiff's attorney fees.
In general, contractual attorney fees are awarded when the lawsuit is between
signatories to the contract. (Cargill, Inc. v. Souza (2011) 201 Cal. App. 4th 962, 966-967.)
However, a nonsignatory party may be entitled to attorney fees under Civil Code section
1717 in two types of situations. First, a nonsignatory party may "stand in the shoes of a
party to the contract." Second, a nonsignatory party may be a third party beneficiary of
the contract. (Cargill, supra, at pp. 966-967, citing Blickman Turkus, LP v. MF
Downtown Sunnyvale, LLC (2008) Cal.App.4th 858, 897 ["a nonsignatory seeking relief
as a third party beneficiary may recover fees under a fee provision only if it appears that
the contracting parties intended to extend such a right to one in his position"; original
italics]; Real Property Services Corp. v. City of Pasadena, supra, 25 Cal. App. 4th 375,
379, 382.)
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Vaughn claims he fits into the Reynolds category as a nonsignatory, and that he
defeated Secrest's request for recovery on the only contract claim litigated in the action
(the trustee's alleged breaches of the Agreement). (See Hsu v. Abbara (1995) 9 Cal. 4th
863, 871-877.) This attorney fees clause required the court to determine which party
prevailed on the Agreement, in the event of a dispute. He accordingly argues the court
erred by finding he was not a prevailing party for contractual attorney fees purposes.
IV
ANALYSIS
The face of the Agreement shows it was entered into by Secrest and Vaughn in his
fiduciary capacity as trustee. To determine whether Secrest also sued Vaughn in his
personal capacity, as if he were a party to the Agreement, we examine its provisions and
Secrest's pleadings. We find it instructive that Secrest was requesting in the operative
petition that Vaughn should be ordered "to continue to perform his duties as trustee."
Secrest's trial brief, filed after her operative petition, states on the cover page that it is "in
support of her petition against Allen Craig Vaughn, trustee." Even though most of the
assets of the trust had been distributed by the time Vaughn resigned, Secrest was seeking
to bring him back as trustee. Possibly, she sought to have him redistribute assets as she
wished through his additional trust administration. (§ 15400 et seq. [modification and
termination of trusts]; § 16000 et seq. [duties of trustees].)
As a trustee, Vaughn had acted on behalf of the trust during the events described
in the operative petition, but he was not "standing in the shoes of a party to the contract,"
such as an alter ego would. (See Cargill, Inc. v. Souza, supra, 201 Cal.App.4th at p. 966;
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see Apex LLC v. Korusfood.com (2013) 222 Cal. App. 4th 1010, 1017-1018.) The party to
the contract was the trust. Although Secrest's operative petition denominates the
respondent as "Vaughn" as opposed to "Trustee," her prayer for relief could only apply to
Vaughn in his role as trustee because the trustee holds title and controls the assets of the
trust. (§ 16200 et seq.) The relief she requested, to "account for the identity, quantity,
and location of each and every piece of personal property of the Trust" or "revise and
update the account," is within the purview of a trustee's powers. (§ 16227 [management
of trust property].)
Vaughn, however, relies on excerpts from Secrest's deposition as showing she
thought she was trying to hold him personally liable, but the pleadings do not support that
legal conclusion. The prayer in the operative petition does not seek to surcharge Vaughn
personally for any misconduct, such as entering into the Agreement without making
proper disclosures about the trust's identity. (§ 18000, subd. (a).) The trial court
appropriately found that Secrest's operative petition was brought against Vaughn in his
capacity as trustee.
Vaughn has not pointed to anything in the record showing that his defense of the
operative petition was in an action on a contract to which he was personally a party.
(Civ. Code, § 1717, subd. (a).) He did not personally prevail on the Agreement's
provisions. He did not show he qualified as a third party beneficiary to the Agreement.
Rather, he was paid directly out of the trust for his services as trustee. When Secrest
prevailed on one of her claims in the operative petition, she received trust funds in the
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form of the late fee and the attorney fees award. The matter was treated as a trust
administration issue throughout and the Agreement was confined to that context.
In construing the pleadings and the history of the case, the court properly
determined that Secrest's operative petition did not attempt to enforce the Agreement
against Vaughn personally, but rather sought to collect from the trust while compelling
him to resume acting as trustee. As a matter of law, the court correctly denied his motion
for attorney fees under Civil Code section 1717. (See Reynolds, supra, 25 Cal.3d at
p. 128.) Likewise, no attorney fees on appeal are awardable to him.
DISPOSITION
The order is affirmed. Each party shall bear its own costs on appeal.
HUFFMAN, J.
WE CONCUR:
McCONNELL, P. J.
AARON, J.
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