Diller v. Richardson CA1/3

Filed 3/17/22 Diller v. Richardson CA1/3
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
RONALD DILLER,
Plaintiff and Appellant,
v. A162139
THOMAS RICHARDSON, (San Mateo County
Individually and as Super. Ct. No. 18-PRO-01127)
Co-Trustee, etc., et al.,
Defendants and Respondents.
In this trust proceeding brought under the Probate Code, plaintiff
Ronald Diller (Ron)1 challenges the administration of a marital trust
created pursuant to a family trust established by his now-deceased
parents Helen and Sanford Diller. The appeal is from a judgment of
dismissal in favor of defendants Thomas Richardson (Richardson) (co-
trustee of the marital trust) and the law firm of Arnold & Porter Kaye
Scholer, LLP (Arnold & Porter) (trust counsel) following an order
sustaining their demurrer to the second amended petition without
leave to amend. 2
1 For ease of reference, and with no disrespect intended, we refer to
certain parties by their first names.
2 Ron also named as a defendant his sister Jaclyn Safier (Jackie),
both individually and as a trustee. Jackie is not a party to this appeal.
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We conclude the pleading contains sufficient factual allegations
to withstand demurrer. Therefore, we reverse the judgment of
dismissal and remand for further proceedings.
BACKGROUND3
In February 1981, Ron’s parents – Helen and Sanford Diller –
created a family trust, entitled the “DNS Trust,” delineating how they
wished their assets to be dispersed after their deaths.4 Helen died in
2015 and Sanford died in 2018.
A. The DNS Trust
The DNS Trust provided that, following Helen’s death, the assets
in the trust were to be allocated to the following four sub-trusts after
expenses were paid and certain bequests made: (1) a Marital Trust; (2)
a Survivor’s Trust, (3) a Family Trust; and (4) a reverse “QTIP Marital
Trust.” The DNS Trust allowed Sanford, as the trustee of the Marital
Trust, to select and appoint a co-trustee of the Marital Trust; he
selected Richardson.
The DNS Trust provided for the distribution of principal and
income from the Marital Trust during the surviving spouse’s life as
follows:
3 Because this case concerns a demurrer for failure to state a cause
of action, we set forth pertinent facts as alleged in the second amended
petition to give context to our resolution of the appeal. Our factual
recitation should not be read as expressing an opinion as to the
accuracy of these factual allegations.
4 The second amended petition did not include a copy of the DNS
Trust, which was “amended and restated many times over the years.”
Because the parties cite to the provisions in the “Sixteenth Amendment
and Complete Restatement of the DNS Trust,” of which the superior
court took judicial notice in deciding an earlier demurrer, we use that
version in resolving this appeal.
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“1. The Trustees shall distribute to the Surviving Spouse
the net income of the [Marital Trust] at least annually.
“2. The Trustees shall distribute to the Surviving Spouse
as much of the principal of [the Marital Trust] as the
Trustees may from time to time determine for the
Surviving Spouse’s health, education, maintenance and
support, in his or her accustomed manner of living.
“3. The Trustees shall distribute to the Surviving Spouse
as much of the principal of the [Marital Trust] as the
Trustees (excluding, however, any Interested Trustee) may
from time to time determine, for any purpose.”
The DNS Trust defined “Interested Trustee” and, conversely,
“Disinterested Trustee” as follows:
“ ‘Interested Trustee’ means, for any trust, a Trustee who is (i) a
transferor of property to the trust, including a person whose
qualified disclaimer resulted in property passing to the trust; or
(ii) a person who is or in the future may be eligible to receive
income or principal pursuant to the terms of the trust. A Trustee
described in (i) is an Interested Trustee only with respect to
transferred property (including income and gain on, and
reinvestment of, such property). A person is described in (ii) even
if he or she has a remote contingent remainder interest. A
Trustee who is not an Interested Trustee is a ‘Disinterested
Trustee.’ ”
B. Ron’s Petition
By his second amended petition brought pursuant to Probate
Code sections 850 and 859, Ron, as a beneficiary of the Marital Trust,
seeks the return of approximately $1.2 billion in assets, which were
allegedly wrongfully transferred from the Marital Trust to Sanford for
placement in the Survivor’s Trust (hereinafter also referred to as
“transfer from Marital Trust to Survivor’s Trust”). The transferred
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assets are allegedly now being held by his sister, Jackie, “as trustee of
the Survivor’s Trust and/or Jaclyn Safier Management Trust.”
The “heart” of the second amended petition is found at
paragraphs 9 through 11, in which it is alleged that, “[o]f the sub-
trusts, perhaps none was more important than [the] Marital Trust,
which became irrevocable upon [Helen’s] death and from which Sanford
(aided and abetted by his co-conspirator, agent and servant Richardson
and Arnold & Porter) improperly ‘funneled’ out of the Marital Trust its
entire contents, i.e., over $1.2 billion in assets. This is directly
contrary not only to the terms of the trust but . . . also to Helen’s stated
wishes.” (Bolded and italicized language in original.)
The pleading goes on to allege, “More specifically, prior to her
death, Helen made known her intention to leave a ‘legacy’ for her
children and grandchildren from her one-half share of the family
fortune. Documentary evidence confirms that Sanford did not like
Helen’s plans; so, aided and abetted by his . . . agent and servant
Richardson and Arnold & Porter, Sanford and Respondents conspired
and concocted a scheme to ‘funnel’ over $1.2 billion in assets out of [the]
Marital Trust to the Survivor’s Trust, for Sanford’s personal use.”
According to Ron, “Sanford, aided by his agent, servant and co-
conspirator Richardson, and with Jackie’s tacit approval, put in motion
and consummated a scheme to eviscerate Helen’s dispositive plans and
testamentary wishes completely by (i) gaining control over all the
assets in the Marital Trust, and (ii) then disposing of them (along with
his half of the family fortune) as he saw fit – and in ways that were
utterly inconsistent with Helen’s intent. The scheme is expressly
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confirmed in a letter from Richardson to Sanford, dated March 4, 2015,
sent shortly after Helen’s death: The letter stated [in pertinent part]:
“The DNS Trust was fully amendable while you and Helen
were both alive. But because the DNS Trust was a joint trust
between you and Helen, and Helen is now deceased, portions of
the trust are now irrevocable. Nevertheless, most of these
changes can still be implemented. [¶] . . .[¶]
“Second, the changes that were to take effect at your death
can be made but require several steps. As currently drafted, the
DNS Trust provides that Helen’s property and her share of the
community property passes to the Marital Trust for your benefit.
The terms of the Marital Trust provide for the disposition of
these assets upon your death, but the Marital Trust can no longer
be amended. In order to preserve your ability to change the
disposition of the assets at your death, we propose that all assets
be distributed out of the Marital Trust to you, then contributed
by you to the Survivor’s Trust. The Survivor’s Trust is a separate
trust under the DNS Trust that governs your property, and this
Survivor’s Trust remains fully amendable by you during your
lifetime. By funneling the property through the Marital Trust to
you then back into the Survivor’s Trust, we are able to keep all
property in the DNS Trust but guarantee your ability to amend
the terms of the trust and ultimate disposition of such property.”
Hence, according to Ron, “Richardson documented a plan to ‘funnel’
assets out of [the] Marital Trust to Sanford by manipulating the
Marital Trust language in ways that dishonored Helen’s intent and
fulfilled Sanford’s intent instead. This plan further relied on
appointing an individual as Co-Trustee who would appear independent
and disinterested on the surface, but who would really be completely
controlled and subservient to Sanford, and, thus, an Interested
Trustee.”
In addressing the language of the trust, Ron asserted, among
other things, that Richardson was not a “ ‘Disinterested Trustee,’ ” and
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that the phrase “ ‘for any purpose’ ” could not be used to defeat public
policy or Helen’s intent, or to negate a breach of a trustee’s duty of
loyalty to all beneficiaries, . . . [but] . . . must be read to mean ‘for any
legitimate purpose intended by Helen.’ Here, Sanford had no need for
the assets in the Marital Trust, as he had his own assets exceeding $1.2
[b]illion, which fully provided all requirements for his health,
education, maintenance and support for the remainder of his life.
Instead . . . the purpose of the transfer of assets from the Marital Trust
to Sanford was a wrongful scheme and conspiracy undertaken wholly to
allow Sanford to evade Helen’s testamentary intent and the bequests
she had made. Such an intent violates public policy, the intent of the
Marital Trust, the terms of the Marital Trust, and the fiduciary duties
of Richardson and Sanford, rendering the transfer void or at leas[t]
voidable by this petition. . . . [B]ecause Richardson, as Helen’s
attorney, owed continuing duties of loyalty to her after she died,
Richardson’s fiduciary duties absolutely forbade him from acting
contrary to her interests.”
The second amended petition also alleged Ron was entitled to
relief under Probate Code section 859 as “Sanford – aided and abetted
by Richardson and Arnold & Porter and ratified by Jackie – in bad
faith, wrongfully transferred over $1.2 billion in assets from the
Marital Trust to himself, for his personal use and his ultimate
disposition contrary to Helen’s testamentary intent. . . .”
C. Demurrer Ruling
The superior court sustained a demurrer to the second amended
petition for relief under Probate Code sections 850 and 859 without
leave to amend. The court found the DNS Trust clearly permitted a
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trustee to transfer assets from the Marital Trust to the Surviving
Spouse, for any purpose, so long as that trustee was not an “Interested
Trustee.” The court noted that only conclusory allegations were added
to the second amended petition and Ron again failed to allege facts
showing that Richardson was an interested trustee. “Based on the
clear language of the DNS Trust, and Ron’s failure to allege Richardson
was an ‘Interested Trustee’ as that term is defined in the Trust, the
Court finds that any further attempt to amend would be futile.”
Following the entry of judgment in favor of Richardson and Arnold &
Porter, this timely appeal ensued.
ANALYSIS
Probate Code section 850 governs who may file a petition
requesting that a court make an order under Part 19 of the Probate
Code. The parties do not dispute that Ron has standing to file the
petition.5 Probate Code section 859 provides that, in addition to any
other remedies available in law, “[i]f a court finds that a person has in
bad faith wrongfully taken, concealed, or disposed of property belonging
to . . . a trust . . ., the person shall be liable for twice the value of the
property recovered by an action under this part,” and the court may, in
its discretion, award reasonable attorney fees and costs.
5 Specifically, Ron seeks the return of the assets transferred to the
Marital Trust, under Probate Code section 850, subdivision (3), which
provides, in pertinent part, as follows: “(3) The trustee or any
interested person [may seek relief] in any of the following cases: (A)
Where the trustee is in possession of, or holds title to, real or personal
property, and the property, or some interest is claimed to belong to
another. (B) Where the trustee has a claim to real or personal
property, title to or possession of which is held by another.”
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The second amended pleading alleges, in pertinent part, that
Sanford (together with Richardson and Arnold & Porter) had
consummated an arrangement to eviscerate Helen’s dispositive plans
“by (i) gaining control over all the assets in the Marital Trust, and (ii)
then disposing of them (along with [Sanford’s] half of the family
fortune) as he saw fit,” thereby amending the terms of the irrevocable
Marital Trust and changing the ultimate disposition of the assets,
contrary to Helen’s intent and in violation of duties of loyalty that were
owed by Richardson and Arnold & Porter to Helen to effectuate her
intent.
In sustaining the demurrer the superior court found the pleading
was fatally deficient based on the language used in the DNS Trust.
Specifically, it determined Helen had granted a disinterested trustee
the discretionary authority to transfer all of the assets of the Marital
Trust to the Survivor’s Trust for any purpose, and therefore as Ron had
failed to allege facts calling into question Richardson’s status as a
disinterested trustee, no challenge could be made to his transfer of
assets.
In reviewing the ruling on demurrer, “[w]e independently
evaluate the [pleading], construing it liberally, giving it a reasonable
interpretation, reading it as a whole, and viewing its parts in context.
[Citation.] Treating as true all material facts properly pleaded, we
determine de novo whether the factual allegations . . . are adequate to
state a cause of action under any legal theory.” (Burns v. Neiman
Marcus Group, Inc. (2009) 173 Cal.App.4th 479, 486.) Doing so, we
conclude the superior court’s reasons for sustaining the demurrer
cannot be upheld.
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First, we find unavailing the superior court’s reliance on the
purportedly “clear” language used in the DNS Trust as we do not find
the terms therein to be so unambiguous that an evaluation of extrinsic
evidence is not required. “In order to determine initially whether the
terms of any written instrument are clear, definite and free from
ambiguity the court must examine the instrument in the light of the
circumstances surrounding[] its execution so as to ascertain what the
parties meant by the words used. Only then can it be determined
whether the seemingly clear language of the instrument is in fact
ambiguous. ‘Words are used in an endless variety of contexts. Their
meaning is not subsequently attached to them by the reader but is
formulated by the writer and can only be found by interpretation in the
light of all the circumstances that reveal the sense in which the writer
used the words. The exclusion of parol evidence regarding such
circumstances merely because the words do not appear ambiguous to
the reader can easily lead to the attribution to a written instrument of
a meaning that was never intended.’ ” (Estate of Russell (1968) 69
Cal.2d 200, 208-209; accord, Prob. Code, § 21102, subds. (a), (c) [“[t]he
intention of the transferor as expressed in the instrument controls the
legal effect of the dispositions made in the instrument;” but “[n]othing
in this section limits the use of extrinsic evidence, to the extent
otherwise authorized by law, to determine the intention of the
transferor”]; see Estate of Cairns (2010) 188 Cal.App.4th 937, 947-948
[“[p]rovisions in a testamentary instrument are to be given a liberal
and reasonable interpretation rather than a narrow and technical one,
with a view to discovering the decedent’s testamentary intent, and the
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apparent meaning of particular words, phrases and provisions is to be
subordinated to the testator’s plan or dominant purpose”].)
Because a demurrer concerns only the factual allegations of the
pleading, we conclude the superior court erred in sustaining the
demurrer based on its interpretation of the language in the DNS Trust,
and without a consideration of the “circumstances surrounding the
execution of the document in order to ascertain what the parties meant
by the words used.” (Wells Fargo Bank v. Huse (1976) 57 Cal.App.3d
927, 932-933 (Wells Fargo Bank); see also Parsons v. Bristol
Development Co. (1965) 62 Cal.2d 861, 865 [“[i]t is . . . solely a judicial
function to interpret a written instrument unless the interpretation
turns upon the credibility of extrinsic evidence]; Estate of Platt (1942)
21 Cal.2d 343, 352 [“[a]n appellate court is not bound by a construction
of the contract solely upon the terms of the written instrument without
the aid of evidence”]; Safai v. Safai (2008) 164 Cal.App.4th 233, 244
[“[i]n ascertaining the trustor’s intent, [the court] look[s] first to the
terms of the trust, though extrinsic evidence is admissible to ascertain
the meaning of the trust and the intent of the trustor”].) Significant
here is the fact that “the cases emphasize that among the
circumstances to be considered are relevant statutes, case law and
public policy in effect at the time of the execution of the document
which, in the absence of a contrary intent, are deemed to become a part
of the testamentary scheme.” (Wells Fargo Bank, supra, at p. 933.) We
therefore reject the arguments of Richardson and Arnold & Porter that
an interpretation of the language in the DNS Trust must be made
without any consideration of Helen’s testamentary intent or the tax
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laws that may have been extant at the time of the creation of the DNS
Trust.
We also find unavailing the superior court’s rationale for
sustaining the demurrer on the basis that Ron had purportedly failed
to allege facts showing Richardson was not a disinterested trustee as
his status as a disinterested trustee does not insulate his discretionary
actions from court review. “It is contrary to sound policy, and a
contradiction in terms, to permit the settlor to relieve a ‘trustee’ of all
accountability. [Citation.] Once it is determined that the authority
over trust distributions is held [by a] trustee . . ., [e]ven under the
broadest grant of fiduciary discretion, a trustee must act honestly and
in a state of mind contemplated by the settlor. Thus, the court[s] will
not permit the trustee to act in bad faith or for some purpose or motive
other than to accomplish the purposes of the discretionary power.”
(Rest.3d Trusts (2003, Oct. 2021 Update) § 50, com. subsec. 1 (c); see
Estate of Ferrall (1953) 41 Cal.2d 166, 174 (Ferrall) [“ ‘[i]t is against
public policy to permit the settlor to relieve the trustee of all
accountability to the courts,’ ” quoting Rest. Trusts, § 187, com. k];
Coberly v. Superior Court (1965) 231 Cal.App.2d 685, 689 [the grant of
absolute discretion “does not authorize a trustee to neglect its trust or
abdicate its judgment”]; accord, Prob. Code, § 16081, subd. (a) [“if a
trust instrument confers ‘absolute,’ ‘sole,’ or ‘uncontrolled’ discretion on
a trustee, the trustee shall act in accordance with fiduciary principles
and shall not act in bad faith or in disregard of the purposes of the
trust”].)
We therefore conclude that even if the DNS Trust is construed to
allow a disinterested trustee to exercise unbridled discretion in
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transferring assets from the Marital Trust to the Survivor’s Trust, and
Richardson is found to be a disinterested trustee (an issue we need not
now decide), his exercise of his discretionary authority is not “beyond
court review. If it were exercised fraudulently, in bad faith or in an
abuse of discretion, it is subject to such review. Whether good faith has
been exercised, or whether fraud, bad faith or an abuse of discretion
has been committed is always subject to consideration by the court
upon appropriate allegations and proof. [Citations.]” (Ferrall, supra,
41 Cal.2d at pp. 173-174.)
We also see no merit to Richardson and Arnold & Porter’s
argument that the second amended petition includes allegations of
other misconduct, unrelated to the transfer of assets from the Marital
Trust to the Survivor’s Trust. On demurrer, “ ‘the complaint will be
held good, although the facts may not be clearly stated, or may be
intermingled with a statement of other facts irrelevant to the cause of
action shown, or although the plaintiff may demand relief to which he
is not entitled under the facts alleged.’ ” (Gruenberg v. Aetna Ins. Co.
(1973) 9 Cal.3d 566, 572.)
Accordingly, we reverse the judgment of dismissal in favor of
Richardson and Arnold & Porter as the second amended petition’s
allegations are sufficient to withstand demurrer. Whether Ron will be
able to establish his claims is not before us, and our decision is not to be
read as expressing an opinion on that issue, which will be resolved in
future proceedings.6
DISPOSITION
6 In light of our determination, we do not address the parties’ other
contentions.
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The judgment of dismissal in favor of defendants Thomas
Richardson and Arnold & Porter Kaye Scholar, LLP, is reversed. The
matter is remanded to the superior court with directions to vacate its
order sustaining the demurrer to the second amended petition, and
issue a new order overruling the demurrer. Plaintiff Ronald Diller is
awarded costs on this appeal.
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_________________________
Petrou, J.
WE CONCUR:
_________________________
Fujisaki, Acting P.J.
_________________________
Rodríguez, J.
A162139/Diller v. Richardson
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