Sommerfield v. Wells Fargo Bank CA4/3

Filed 8/25/14 Sommerfield v. Wells Fargo Bank CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
JEAN LAWRENCE (“LARRY”)
SOMMERFIELD II et al.,
G048695
Plaintiffs and Appellants,
(Super. Ct. No. 30-2011-00504701)
v.
OPINION
WELLS FARGO BANK, N.A., as Trustee,
etc.
Defendant and Respondent.
Appeal from a judgment of the Superior Court of Orange County, Randall
J. Sherman, Judge. Reversed.
Bunt & Shaver and David N. Shaver for Plaintiffs and Appellants.
Vogt, Resnick & Sherak, David A. Sherak, and Jeany A. Duff for
Defendant and Respondent.
* * *
Jean Lawrence Sommerfield II (Larry), on behalf of himself and his mother
Jane, petitioned the court for redress from Wells Fargo Bank, N.A. (Wells Fargo). (See
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Prob. Code, §§ 16420, 17200.) When Wells Fargo took over as trustee of the
Sommerfield family trust (The Trust), Jane was insured through Larry’s company under a
Blue Shield preferred provider organization (PPO) plan. Wells Fargo assisted in
converting Jane’s Medicare benefits into a Blue Shield Medicare Advantage health
maintenance organization (HMO) plan. The selection of this plan negatively affected
Jane’s ability to maintain care with existing physicians. Moreover, Wells Fargo did not
instigate the cancellation of the PPO plan already in place, “thereby creating double
insurance costs.” By these acts and omissions, Wells Fargo allegedly violated its
statutory duties as trustee under the Probate Code, plus additional obligations incurred as
a result of its representations concerning its experience and competency in providing
elder care services.
Wells Fargo moved for summary judgment. The court found (and Wells
Fargo conceded on appeal) “there are triable issues of fact as to whether or not [Wells
2
Fargo] breached its fiduciary duties.” But the court granted summary judgment on two
alternative grounds: (1) there was no evidence of damages; and (2) Wells Fargo had a
complete defense to the claim based on an exculpatory clause in the Trust. We reverse.
1
All statutory references are to the Probate Code unless otherwise stated.
2
“The violation by a trustee of any duty owed to the beneficiaries of the trust
constitutes a breach of trust. [Citation.] Such duties include the duty of loyalty, the duty
to avoid conflicts of interest, the duty to preserve trust property, the duty to make trust
property productive, the duty to dispose of improper investments, and the duty to report
and account.” (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998)
68 Cal.App.4th 445, 462.)
2
FACTS
Our review of the court’s grant of summary judgment is de novo. (Benson
v. Superior Court (2010) 185 Cal.App.4th 1179, 1185.) We review the evidence “in the
light most favorable” to Larry. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826,
843.)
Background Information Concerning the Trust and the Sommerfield Family
Jane and her husband Jean were the settlors and original trustees of the
Trust. Jean died in April 2007. Jane became the sole beneficiary of the Trust at that
time. Other family members, including Larry, are residual beneficiaries of the Trust.
Jane is in her nineties. She struggles with a variety of medical problems and has
depended on the Trust to manage her affairs, including the payment of living expenses.
Since Jean’s death, Larry has been Jane’s attorney in fact for health care
decisions pursuant to a 1999 document. Starting in May 2005, Larry and his sister Sue
Ann Davidson served as co-attorneys in fact for Jane with regard to more general
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financial decisions.
Larry is a certified public accountant and a California lawyer. He owns a
company called Direct Print Communications, Inc. (Direct Print), which has been in
operation since 2000. Larry has been “intricately involved in [his] parents’ healthcare
since right around 2000. They would rely on [him]. And that’s why they gave [him]
medical directive power of attorney.” Larry made “[e]very major medical decision” for
Jane as of 2009 (when Wells Fargo took over as trustee).
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Davidson resigned this position in October 2011, leaving Larry as the sole
attorney in fact for Jane since that time. Davidson’s resignation was triggered by a
separate proceeding brought against her by Larry in connection with the same dispute at
issue in this case.
3
Larry’s parents had a Blue Shield PPO health insurance plan through a
company they (and later Larry) owned; this company obtained its group plan insurance
through a trade group. When the company ceased operations, Larry’s father asked Larry
to continue health insurance for himself and Jane with the same PPO plan. Larry obliged;
Direct Print obtained the same PPO plan from the same trade group.
Wells Fargo as Trustee and Provider of “Elder Services”
In January 2009, at the invitation of Jann Watenpaugh of Wells Fargo, Jane
entered Wells Fargo’s elder services program. One service in the elder service package
was “Health Care Planning and Coordination that may include the facilitation of health
and wellness assessments; arranging for the coordination of Medicare and insurance
benefits; review of hospital, nursing home and care center alternatives; advocating for
Client at care conferences; and assisting with the selection of care managers, caregivers
and additional service providers consistent with Client needs and wishes.” (Italics
added.) Other elder services documentation indicated that Wells Fargo would, among
other things, “Access, review and retain financial and health care documents” and “Assist
in the selection and coordination of medical and health care services.” Consideration to
Wells Fargo for providing elder services consisted of a fee percentage of Jane’s managed
assets.
On March 9, 2009, Wells Fargo (through corporate officers, not
Watenpaugh) accepted appointment as a successor trustee of the Trust. At all relevant
times (i.e., since March 2009 when Wells Fargo became trustee), Watenpaugh served as
the sole trust officer for the Trust.
Watenpaugh Participates in Electing Medicare HMO
On August 28, 2009, Watenpaugh sent an e-mail to Larry with the subject
line “Medical Bills.” Among other things, this e-mail stated, “At the end of the year we
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evaluate the medical bills against all certified plans. They do this matching doctors,
coverage etc. If we find a program that is less expensive and is service wise identical we
may switch her coverage.” Watenpaugh wanted to lower Jane’s insurance rates.
Watenpaugh was frustrated at the end of 2009 because Larry had not responded regarding
the question of switching Jane’s insurance.
Davidson informed Watenpaugh that “the window [was] closing” to enroll
Jane in a Medicare plan. Davidson located the same HMO form she had used for her
husband. Watenpaugh told Davidson to fill out the form for Jane. After receiving the
completed paperwork from Davidson, Watenpaugh submitted the HMO application by e-
mail on December 24, 2009, copying Davidson. The Medicare HMO did not result in
any out of pocket costs to the Trust; there were no premiums charged or paid.
In April 2011, health care providers informed Larry they could not treat
Jane because she had signed up for an HMO plan. Larry “believed Wells Fargo had
extensive experience in health insurance related matters, based on their verbal
representations, written materials, and course of conduct.” “At no time
did . . . Watenpaugh . . . or any representative with Wells Fargo . . . ever discuss with
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[Larry] a specific alternative health insurance plan for [his] mother, Jane . . . .”
4
In her declaration, Watenpaugh attempts to deflect blame from herself and
Wells Fargo. Wells Fargo “never represented . . . that it had experience in insurance
matters.” “Wells Fargo had no power to effectuate any change in [Jane’s] insurance
coverage.” “Wells Fargo never directly paid any premiums for [Jane’s] healthcare
insurance. However, at the request of Larry, Wells Fargo began reimbursing his
company, Direct Print . . . , for premiums that it paid on behalf of [Jane] for healthcare
insurance.” Larry refused to discuss high premiums charged on this PPO policy or the
fact that Jane was on an employer group plan even though she was not an employee.
Watenpaugh repeatedly requested copies of the PPO policy and other information, but
was rebuffed. “The Trust [was] never notified that the HMO Plan had been implemented,
never received a bill for payment of any premiums for the HMO Plan, and never paid any
such premiums.”
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With the benefit of hindsight, Larry asserts his parents could have received
equivalent coverage with a Medicare supplemental plan (rather than continuing to receive
employer-provided coverage through Direct Print). Larry succeeded in changing Jane to
the Medicare PPO supplemental insurance around June 2011. It cost approximately $500
per month for a PPO plan supplementing Medicare, as opposed to the approximately
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$1,600 to $1,800 per month paid for Jane’s PPO insurance through Direct Point.
In this lawsuit, Larry seeks the difference between the cost of the Medicare
PPO supplemental insurance and the Direct Point PPO insurance, which he calculates as
$24,485.94 from December 2009 through June 2011. In taking the initiative to remedy
the alleged breaches by Wells Fargo, Larry lost three weeks of his own time and an
employee’s time, which he valued at $38,400 and $2,980.80, respectively. Direct Print
also lost approximately $22,000 as a result of a business opportunity ruined by these
events.
DISCUSSION
Summary judgment may be granted to a defendant if it is shown that the
plaintiff cannot establish one or more elements of his cause of action or that there is a
complete defense to the claim. (Code Civ. Proc., § 437c, subd. (p)(2).)
5
There is a copy of Jane’s unsigned Medicare card in the record, which
indicates an effective date of February 1, 1984. At his deposition, Larry stated that the
trade group, Blue Shield, Wells Fargo, and the previous bank trustee “were all negligent
in failing to advise [his] parents that they could have accessed the same basic healthcare
coverage for a lot less money by using Medicare as a primary insurer and then getting a
Blue Shield PPO Medicare supplemental plan that cumulatively would provide the same
level of coverage that the primary PPO plan provided, if not better.” This suggests Wells
Fargo is being sued for not doing something any number of parties (including Jane
herself and Larry himself) might have done as many as 25 years before — relying on
Medicare and a supplemental policy rather than employer insurance obtained through
family-owned companies.
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The Court Erred in Concluding There Was No Evidence of Damages
“If the trustee commits a breach of trust, the trustee is chargeable with any
of the following that is appropriate under the circumstances: [¶] (1) Any loss or
depreciation in value of the trust estate resulting from the breach of trust, with interest.”
(§ 16440, subd. (a)(1).) There is evidence that Jane’s employer-based PPO coverage
could have been cancelled and replaced with Medicare and a Medicare PPO supplement
in December 2009. There is evidence that this option would have reduced Jane’s
premiums significantly (which were ultimately paid for by the Trust) without affecting
her access to preferred medical providers (as the HMO option did). Larry succeeded in
making this transition happen in June of 2011.
Wells Fargo responds to this straightforward analysis by trying to change
the subject, essentially reinserting the question of breach into the damages analysis. It is
true Wells Fargo provided some of the services it promised. It is true there is evidence
suggesting Larry was not particularly helpful or responsive at all times. It is true Wells
Fargo could not, by itself, bind Jane to a policy of insurance. It is true there is plenty of
blame to go around with regard to the failure to switch Jane’s health insurance to a lower
cost Medicare option before her mid-nineties. It is also true that the Medicare HMO plan
(which Watenpaugh aided in procuring in 2009 and 2010) did not cause the Trust to
accrue additional premiums, as it was essentially paid for by Jane’s government provided
standard Medicare benefit. But none of these facts eliminate the loss of funds expended
on the unnecessary employer PPO plan.
Hence, just as there is a triable issue of fact as to whether Wells Fargo
breached its duty as trustee by failing to effect an appropriate change in Jane’s health
insurance in December 2009, there is also a triable question of fact as to whether the
Trust lost approximately $24,000 in value as a result of this failure. There is no need to
address the other damages alleged by Larry, which have a much more tenuous connection
with the value of the Trust estate.
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Exculpatory Clause Does Not Entitle Wells Fargo to Summary Judgment
We turn to the alternative ground upon which the court granted summary
judgment, the exculpatory clause in the Trust. “[T]he trustee can be relieved of liability
for breach of trust by provisions in the trust instrument.” (§ 16461, subd. (a).) But “[a]
provision in the trust instrument is not effective to relieve the trustee of liability (1) for
breach of trust committed intentionally, with gross negligence, in bad faith, or with
reckless indifference to the interest of the beneficiary, or (2) for any profit that the trustee
derives from a breach of trust.” (Id., subd. (b).)
A clause in the Trust entitled “Trustee’s Liability” states in relevant part:
“Trustee in carrying out its powers and performing its duties may act in its discretion. No
trustee (other than a corporate trustee) shall be liable to any beneficiary or any heir of
either of Grantors for that trustee’s acts or failure to act, unless the act or failure to act
constituted willful misconduct, gross negligence, bad faith or fraud. Trustee, however,
shall never have personal or corporate liability for making or failing to make any
discretionary distributions to any beneficiary or any election under any tax law. Trustee
shall not personally or corporately be liable for any act or omission of any agent or
employee of Trustee unless Trustee has acted in bad faith in the selection and retention of
such agent or employee.” (Italics added.)
Wells Fargo asserts the second italicized sentence defines its potential
liability in this case. Watenpaugh was an employee of Wells Fargo. Watenpaugh is the
only individual actor against whom evidence of breach of trust has been presented. There
is no evidence in the record that Wells Fargo (the corporate trustee) acted in bad faith in
its selection or retention of Watenpaugh (the individual employee). Thus, Wells Fargo is
not “personally or corporately” liable for any of Watenpaugh’s acts or omissions. The
strength of Wells Fargo’s case is in the plain language of one sentence of the Trust.
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Conversely, Larry contends the first italicized sentence (i.e., “No trustee
(other than a corporate trustee) shall be liable to any beneficiary”) should be the focus of
our analysis. Wells Fargo, as a corporate trustee, does not enjoy the benefit of this
exculpatory clause, which tracks section 16461, subdivision (b). Instead, Wells Fargo is
subject to the standard duty of care of a trustee: “The trustee shall administer the trust
with reasonable care, skill, and caution under the circumstances then prevailing that a
prudent person acting in a like capacity would use in the conduct of an enterprise of like
character and with like aims to accomplish the purposes of the trust as determined from
the trust instrument.” (§ 16040, subd. (a).)
According to Larry, the second italicized sentence is either void because it
violates section 16461, subdivision (b) and related Probate Code sections, or it was not
intended to apply to a corporate trustee in the manner advanced by Wells Fargo. Instead,
this provision was intended to apply to situations in which trustees (whether individual or
corporate) hired “accountants, attorneys, auditors, investment advisers, appraisers,” or
other specially retained agents, “to advise or assist the trustee in the performance of
administrative duties.” (See § 16247.)
In particular, Larry posits that the second italicized sentence in the
“Trustee’s Liability” section was intended to replace or supplement section 16401,
subdivision (b)(3): “(a) Except as provided in subdivision (b), the trustee is not liable to
the beneficiary for the acts or omissions of an agent. [¶] (b) Under any of the
circumstances described in this subdivision, the trustee is liable to the beneficiary for an
act or omission of an agent employed by the trustee in the administration of the trust that
would be a breach of the trust if committed by the trustee: (1) Where the trustee directs
the act of the agent. [¶] (2) Where the trustee delegates to the agent the authority to
perform an act that the trustee is under a duty not to delegate. [¶] (3) Where the trustee
does not use reasonable prudence in the selection of the agent or the retention of the agent
selected by the trustee. [¶] (4) Where the trustee does not periodically review the agent’s
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overall performance and compliance with the terms of the delegation. [¶] (5) Where the
trustee conceals the act of the agent. [¶] (6) Where the trustee neglects to take
reasonable steps to compel the agent to redress the wrong in a case where the trustee
knows of the agent’s acts or omissions.” (§ 16401.) By Larry’s reasoning, the second
italicized sentence (assuming it is valid) was intended to raise the bar for liability from
“reasonable prudence” to “bad faith” in the selection or retention of agents hired to
perform specialized tasks, not to exempt corporate trustees from liability for the acts of
its employees.
As the court’s interpretation of the exclusionary clause did not turn on
extrinsic evidence, we interpret the Trust de novo. (Estate of Hilton (1988) 199
Cal.App.3d 1145, 1170.) “The words of an instrument are to receive an interpretation
that will give every expression some effect, rather than one that will render any of the
expressions inoperative.” (§ 21120.) “All parts of an instrument are to be construed in
relation to each other and so as, if possible, to form a consistent whole. If the meaning of
any part of an instrument is ambiguous or doubtful, it may be explained by any reference
to or recital of that part in another part of the instrument.” (§ 21121.) Exculpatory
clauses are “subject to the rule of strict construction.” (Estate of Collins (1977) 72
Cal.App.3d 663, 673.)
We agree with Larry’s interpretation of the “Trustee’s Liability” section of
the Trust. Wells Fargo, not Watenpaugh, was the trustee. But as a corporation, Wells
Fargo can only act through its employees. (See Burwell v. Hobby Lobby Stores, Inc.
(2014) ___ U.S. ___ [134 S.Ct. 2751, 2768] [“Corporations, ‘separate and apart from’ the
human beings who own, run, and are employed by them, cannot do anything at all”].) In
seeking to limit its liability to the realm of its decisions to hire and retain Watenpaugh,
Wells Fargo suggests that every corporate trustee is delegating to others (its employees)
the entire administration of the trust, conduct explicitly forbidden by the Probate Code.
(§ 16012, subd. (a) [“The trustee has a duty not to delegate to others the performance of
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acts that the trustee can reasonably be required personally to perform and may not
transfer the office of trustee to another person nor delegate the entire administration of
the trust to a cotrustee or other person”].)
The Trust’s basic exculpatory clause (the first italicized sentence)
specifically excludes corporate trustees from its scope, thereby imposing a higher duty of
care on corporate trustees than that imposed on individual trustees. Contrary to sound
principles of interpretation, Wells Fargo reads the first italicized sentence out of the Trust
with regard to corporate trustees. Wells Fargo’s interpretation only works by ignoring all
context, including the language of the Trust, the background Probate Code provisions
against which the Trust was drafted, and general principles of respondeat superior
liability. If Wells Fargo were correct, corporate trustees would gain more out of the
“Trustee’s Liability” section of the Trust than individual trustees (who are often family
members; indeed, Jean and Jane were the initial trustees of the Trust). A better
interpretation of the second italicized sentence treats the phrase “agent or employee” as
inapplicable to employees of a corporate trustee. The settlors of the Trust did not intend
for a corporate trustee like Wells Fargo to escape liability in all cases in which it did not
hire or retain in bad faith the particular employee working on Trust business.
In sum, the court erred in its interpretation of the Trust. Wells Fargo is not
entitled to summary judgment based on the “Trustee’s Liability” section of the Trust.
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DISPOSITION
The judgment is reversed. Larry shall recover costs incurred on appeal.
IKOLA, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
MOORE, J.
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