Matheson v. Rossi CA1/4 ( 2022 )

Filed 12/29/22 Matheson v. Rossi CA1/4
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not
been certified for publication or ordered published for purposes of rule 8.1115.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 FOUR
LESLEY MATHESON,
Plaintiff and Respondent,
A165822
v.
DAVID B. ROSSI, (Santa Clara County
Super. Ct. No.
Defendant and Appellant.
19PR187053)
David B. Rossi appeals from a probate court order
establishing the validity of an irrevocable trust he created with
his wife, Lesley Matheson (Lesley). Rossi argues the probate
court erred by deciding the matter without an evidentiary
hearing. We agree and will reverse.
BACKGROUND
Because this case was decided without an evidentiary
hearing, we draw the background facts of this case from Lesley’s
petition and the trust instrument attached as an exhibit to it.
Rossi and Lesley are married and have three children. In
January 2016, Rossi and Lesley created an irrevocable trust. The
trust states that Rossi and Lesley created it to provide a safety
net for Lesley’s mother, Joyce Harold Matheson (Joyce), in her
1
remaining years, as well as a safety net for the education of the
couple’s children, and to minimize taxes on the transfer of wealth
to the next generation. To those ends, the trust allowed for the
distribution of trust income and principal for the benefit of Joyce
and the children’s education during Joyce’s life. The trust gave
Joyce a power of appointment, which allowed her to determine
who would receive any undistributed trust income and principal
upon her death. This power was limited to the power to appoint
the trust assets to Joyce’s other descendants and to the creditors
of her estate. On Joyce’s death, the trust assets were to be
distributed according to her appointment, with any assets that
were not appointed to pass to Rossi and Lesley’s living
descendants or, if none, to other named individuals. The trust
named Lesley as the initial trustee, with Rossi as first successor
trustee, followed by other named successor trustees. The trust
was initially funded with a property in Discovery Bay.
In November 2017, Rossi filed a petition to dissolve the
couple’s marriage. In that dissolution proceeding, he claimed
ownership of the Discovery Bay property, as well as other
property that had been transferred into the trust. Believing that
Rossi would seek to establish the invalidity of the trust, either in
the marital dissolution action or in a separate action, in October
2019 Lesley filed a petition under Probate Code section 17200,
subdivision (b)(3) to confirm the validity of the trust.
Rossi filed a response and objection to the petition in which
he requested an evidentiary hearing. He admitted that the
couple had tried to create a trust but alleged that the formation
2
of the trust failed for various reasons. One of the reasons Rossi
alleged was mistake. Rossi alleged that Joyce’s power of
appointment allowed her to transfer trust assets to Lesley,
thereby frustrating the trust’s stated purpose of ensuring that
the trust assets ultimately passed to the couple’s children. Rossi
also alleged that Joyce had given Lesley a power of attorney that
allowed Lesley to exercise the power of appointment.
The court held a hearing, which was apparently not
reported as there is no transcript of the hearing in the record.
Following the hearing, Lesley filed a reply in which she argued
that the power of appointment was not unusual and was plainly
and unambiguously stated in the trust, so that Rossi’s mistake
argument “lack[ed] credibility.” Lesley argued that her power of
attorney was irrelevant to the validity of the trust, and that if the
power of attorney threatened to frustrate the purpose of the
trust, Rossi’s recourse was to petition to reform or terminate the
trust.
Rossi filed a reply of his own, repeating that an evidentiary
hearing was required because affidavits and verified petitions
cannot be considered as evidence at contested probate hearings.
Rossi also elaborated on his mistake theory, alleging that he did
not understand the significance of Joyce’s power of appointment
to the possible detriment of the children or that Lesley could use
the power of attorney to exercise the power of appointment to
appoint the trust assets to herself. He argued that these
allegations raised issues of fact as to his state of mind when he
signed the trust, what was communicated to him about the power
3
of appointment, and Lesley’s failure to disclose the power of
attorney.
Two days before the hearing, Lesley filed a declaration by
Joyce stating that the power of attorney only gave Lesley limited
powers, which did not include the power to exercise the power of
appointment. Attached to Joyce’s declaration was a copy of the
power of attorney.
At the hearing, a transcript of which is in the record,
Rossi’s counsel made an offer of proof to the court that at an
evidentiary hearing, Rossi would testify that his intention was
that the property would pass only to the children. After the
execution of the trust, he learned from his counsel and Lesley’s
counsel that Lesley intended to have the trust assets passed back
to her. Rossi therefore reviewed the trust and was surprised to
find that Lesley could reacquire the trust property through
Joyce’s exercise of the power of appointment. Rossi’s counsel also
said that he wanted to depose the attorney who drafted the trust,
to determine how she had explained the power of appointment to
Rossi.
Lesley argued that the power of attorney did not allow her
to exercise Joyce’s power of appointment. She theorized that
Rossi was only trying to invalidate the trust to get the trust
property back during the divorce. Rossi conceded that the power
of attorney might not allow Lesley to exercise the power of
appointment, but he reiterated that he was also concerned about
Joyce herself using the power of appointment to transfer the
trust property to Lesley.
4
The probate court ruled that while Rossi’s objections
concerned the formation or validity of the trust, Rossi had not
raised a legal issue that would support denying the validity of the
trust or indicated what evidence he could provide that would
affect the determination of the validity of the trust. The court
therefore granted the petition and entered an order declaring the
trust to be “valid, enforceable, and in full force and effect.”1
DISCUSSION
“ ‘It has long been the rule that in probate matters
“affidavits may not be used in evidence unless permitted by
statute. . . .” ’ [Citation.] ‘[T]he Probate Code limits the use of
affidavits to “uncontested proceeding[s].” ’ [Citation.]
‘Consequently, “when challenged in a lower court, affidavits and
verified petitions may not be considered as evidence at a
contested probate hearing . . . .” ’ ” (Conservatorship of Farrant
(2021) 67 Cal.App.5th 370, 377 (Farrant).) Accordingly, when a
party contests a probate petition, the probate court should grant
a party’s request for an evidentiary hearing. (Estate of Lensch
(2009) 177 Cal.App.4th 667, 677–678; see also Dunlap v. Mayer
(2021) 63 Cal.App.5th 419, 425–426 [probate court erred by
1 Rossi asserts that after filing his notice of appeal, he filed
a separate complaint in Santa Clara County for rescission and
reformation of the trust, which was stayed pending the outcome
of this appeal. The record here contains nothing about this
separate action, and Rossi has not asked us to take judicial notice
of any records from it. Our reversal of the probate court’s order
to allow Rossi to pursue rescission and reformation of the trust
makes it unnecessary to address Rossi’s alternative argument
that the probate court’s order was overbroad to the extent that it
would bar this separate complaint.
5
dismissing petition at case management conference based on
response to petition, without holding evidentiary hearing].)
These general principles do not mean, however, that a
party has an unfettered right to an evidentiary hearing in
probate matters. A probate court may properly deny a request
for an evidentiary hearing if the party requesting the hearing
does not specify the factual issues he or she intends to litigate
and the relevant testimony or exhibits he or she would produce.
(Farrant, supra, 67 Cal.App.5th at pp. 377–378.)
Rossi urges us to review the probate court’s denial of his
request for an evidentiary hearing de novo because the probate
court did not consider any evidence and the interpretation of
statutes and application of statutes to undisputed facts are
subject to independent review. Lesley argues the standard of
review of a denial of an evidentiary hearing is abuse of discretion,
based on Farrant’s application of that standard. (Farrant, supra,
67 Cal.App.5th at p. 377.) We need not decide which standard of
review applies, however, because the probate court erred even
under the abuse of discretion standard.
Rossi requested an evidentiary hearing to pursue several
defenses to Lesley’s petition, but we need only consider his
defense of mistake. The parties agree that Walton v. Bank of
California, Nat’l Asso. (1963) 218 Cal.App.2d 527 (Walton) sets
out the proper standard for when a settlor’s mistake will justify
rescission or reformation of a trust. “The law is clear that where
no consideration is received by the trustor for the creation of an
inter vivos trust, it can be rescinded or reformed for mistake to
6
the same extent that an outright gift can be rescinded or
reformed. (Rest. 2d Trusts, § 333, see com. a; 3 Scott on Trusts
(2d ed.) § 333, p. 2424; § 333.4, pp. 2427-2428; see 59 A.L.R.2d
1229.) As Scott, op. cit., states: ‘[Where] the settlor receives no
consideration for the creation of the trust, as is usually the case,
a unilateral mistake is ordinarily a sufficient ground for
rescission, as it is in the case of an outright gift. It is immaterial
that the beneficiaries of the trust did not induce the mistake or
know of it or share it. It is immaterial whether the mistake was
a mistake of fact or a mistake of law. The mistake may be such
as to justify reformation rather than rescission of the trust.’ ” (Id.
at pp. 542–543.)
Walton relied in part on the second Restatement of the Law
of Trusts, but the current version of the Restatement maintains
the same rule. (Walton, supra, 218 Cal.App.2d at p. 543.) It
states, “A trust may be rescinded or reformed upon the same
grounds as those upon which a transfer of property not in trust
may be rescinded or reformed.” (Rest.3d Trusts, § 62.)
Rossi identified to the probate court specific evidence to
justify an evidentiary hearing on his proposed theory of mistake.
His counsel told the probate court that at an evidentiary hearing,
Rossi would likely testify that his intention was that the trust
property would pass only to the children, that he discovered after
signing the trust that Joyce could use her power of appointment
to transfer the property to Lesley, and that this was a surprise to
him. His counsel further clarified that the intention was not to
allow Joyce and Lesley to use the power of appointment to
7
convert the property, which had been owned by Rossi and Lesley
as community property, into Lesley’s separate property. Rossi’s
position was that he did not see the power of appointment in the
trust and did not agree to it, despite the provision being
conspicuous in the trust. In addition to his own testimony, Rossi
indicated that he intended to depose the attorney who drafted the
trust about how the attorney explained the power of appointment
to Rossi at the time.
Even if we defer to the probate court’s discretion about the
scope of relevant evidence, as Lesley urges us to do by pressing
for the abuse of discretion standard of review, we conclude the
probate court erred by denying Rossi a hearing at which he could
introduce this evidence. His evidence would have helped
establish that he made a unilateral mistake about the effect of
the trust, in that he did not realize that the trust document he
signed would allow Lesley to acquire the trust property indirectly
and prevent trust assets from passing to the couple’s children. A
mistake about the legal effect of a transaction like this can
support the legal defense of mistake. (Cf. Stafford v. California
Canning Peach Growers (1938) 11 Cal.2d 212, 217–218 [mutual
mistake about legal effect of contract justified reformation].)2
2 Where, as here, the creation of a trust is a unilateral
action, a trustor may argue for rescission based on mistake even
if the trustor does not read the trust instrument. (Levy v.
Crocker-Citizens Nat. Bank (1971) 14 Cal.App.3d 102, 104
[dicta].) The law of mistake for unilateral trusts is different in
this regard from the law of mistake for contracts. (Hartog &
Kovar, Matthew Bender Practice Guide: California Trust
Litigation (2022) § 5.49[3]; Rest.3d Trusts § 62 (2003).)
8
The probate court should have allowed Rossi an opportunity to
develop evidence for this defense to the validity of the trust in
discovery—in particular, through a deposition of the attorney
who drafted the lengthy trust document as to how she explained
to Rossi the power of appointment—and present it at an
evidentiary hearing.
Lesley’s various arguments in support of the probate court’s
ruling to the contrary are not persuasive. First, she cites two
cases that upheld the denial of evidentiary hearings where the
proponents of the hearings did not identify the evidence that they
intended to introduce. (Farrant, supra, 67 Cal.App.5th at p. 378;
Estate of Cairns (2010) 188 Cal.App.4th 937, 951.) She urges us
to reach the same result here because Rossi did not identify any
documentary evidence and did not point to testimony to explain
how Lesley intended to have the property passed back to her.
Rossi did not mention any documents, but he did explain
specifically how Lesley could have the property passed back to
her: through Joyce’s exercise of the power of appointment to
appoint the trust assets to Lesley.
Lesley notes that the probate court focused on whether
Lesley could use the power of attorney to use Joyce’s power of
appointment to transfer property to herself, and she contends
that Rossi conceded that the power of attorney did not give Lesley
this power. She further argues Rossi’s concession was correct, as
the power of attorney, attached to Joyce’s declaration, does not
permit Lesley to give gifts to herself. Given that affidavits are
only admissible in uncontested proceedings, it is not clear that
9
Joyce’s declaration or the exhibit attached to it were properly
before the probate court. (Farrant, supra, 67 Cal.App.5th at
p. 377.) Even so, had Rossi relied only on the power of attorney
to support his claim of mistake, we might agree with Lesley that
Rossi’s claim of mistake failed as a matter of law, given his
concession below that the power of attorney did not allow Lesley
to exercise Joyce’s power of appointment. However, Rossi was
explicit in his written filings and in his argument at the hearing
that his mistake argument relied on both Lesley’s potential use of
the power of attorney to exercise Joyce’s power of appointment
and Joyce’s own personal exercise of the power of appointment.
The insufficiency of Rossi’s mistake theory based on Joyce’s
power of attorney therefore does not mean the probate court
could deny him an evidentiary hearing regarding his mistake
theory based on Joyce’s exercise of the power of appointment.3
In her second argument, Lesley argues Rossi has not shown
he was prejudiced by the probate court’s denial of a hearing. This
argument largely relies on the same premise as her first, that
Rossi did not adequately identify a mistake that would render the
trust invalid. As discussed ante, Rossi adequately identified his
theory of a mistake about Joyce’s power of appointment and the
evidence he believes would support it. As best we can tell on this
3 In a footnote, Lesley says that she agrees with Rossi that
trust assets may not be distributed to her, as it would be contrary
to the purpose of the trust to provide for the children’s education.
But Rossi challenges the validity of the trust because he believes
it currently does allow Joyce to use the power of appointment in
this manner. The parties are therefore not in agreement.
10
record, this theory has a reasonable probability of success, so that
the denial of a hearing prejudiced Rossi. (See People v. Watson
(1956) 46 Cal.2d 818, 836.) If Rossi intended the trust to provide
for Joyce’s needs during her life and for Lesley and Rossi’s
children’s education after Joyce’s death, it is reasonable to believe
that he would not have agreed to allow Joyce to divert assets
from the children upon her death. To be sure, Rossi may have
difficulty establishing that he did not know of the power of
appointment, given that it is specifically identified by a
subheading in the trust. But given Rossi’s offer of his expected
testimony, as well as the possibility of testimony he might secure
from the attorney who drafted the trust, Rossi has sufficiently
demonstrated prejudice to obtain a reversal of the probate court’s
order.
Lesley does not dispute that Rossi’s mistake theory would
invalidate the trust. Instead, she faults Rossi for not making
clear in the probate court that Joyce’s power of appointment was
so central to the essence of the transaction that he was entitled to
rescission because he would not have executed the trust at all
had he known of Joyce’s power of appointment, as opposed to
merely being entitled to reform the power of appointment
provision of the trust. (Walton, supra, 218 Cal.App.2d at
pp. 545–546 [in determining whether settlor had established
right to rescind irrevocable inter vivos trust based on mistake,
“ ‘The mistake must be such that it animated and controlled the
conduct of the party; go to the essence of the object in view and not
be merely incidental. The court must be satisfied that but for the
11
mistake the complainant would not have assumed the obligation
from which he seeks to be relieved’ ”], quoting Reid v. Landon
(1958) 166 Cal.App.2d 476, 483.) Rossi expressly declined at the
hearing to elect between rescission and reformation remedies
because of the undeveloped evidentiary record. But he
nonetheless made clear that he did want to pursue rescission of
the trust, and he cited evidence that could support his defense,
which is sufficient. He cannot be faulted for admitting, as was
proper, that he could not definitively predict which remedy a full
evidentiary record would ultimately support.4
Finally, Lesley construes Rossi’s mistake theory as merely
an attempt to gain leverage in the couple’s ongoing divorce. We
defer such contentions to the probate court, confident in its
ability to distinguish between a bona fide mistake about the
terms of the trust and a “mere claim of error disguising a new,
postdrafting, dispositive intent.” (Bilafer v. Bilafer (2008)
161 Cal.App.4th 363, 371 [allowing trustor to petition to reform
irrevocable trusts does not treat an irrevocable trust as a
revocable one].)
Accordingly, we hold that the trial court erred in denying
Rossi’s request for an evidentiary hearing on his objection that
the trust is invalid because it was based on his mistake as to
Joyce’s power of appointment. Lesley believes Rossi’s mistake
4 We leave to the probate court’s discretion the question of
whether, on remand, to limit an evidentiary hearing on Lesley’s
petition to a theory of mistake warranting rescission or whether
to also consider related arguments concerning reformation or
other issues.
12
theory based on the power of appointment “lacks credibility,” and
that skepticism may ultimately prove to be well-founded. But
such a determination cannot be made without an evidentiary
hearing, during which the parties will be permitted to probe
Rossi’s understanding of the power of appointment and the court
can judge the credibility of his mistake theory on a full, post-
discovery record.
DISPOSITION
The probate court’s order is reversed.
BROWN, J.
WE CONCUR:
POLLAK, P. J.
STREETER, J.
Matheson v. Rossi (A165822)
13