Opinion
A146978
03-15-2017
PATRICIA DAVIS DANEMAN AMSTER, Plaintiff and Respondent, v. FRANK I. MULBERG, as Trustee, etc., Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Marin County Super. Ct. No. PRO-1400334)
Frank I. Mulberg served as trustee for a trust with a single beneficiary, Patricia Davis Daneman Amster. Mulberg and Amster's relationship was positive at first, but later soured. Amster and Mulberg filed competing petitions with the probate court concerning Mulberg's compensation, among other things. Following a trial, the probate court issued a statement of decision finding Mulberg breached his fiduciary duties, approving a trustee's fee of $227,897.59, and surcharging Mulberg for excess fees totaling $267,222.16. The court also denied Mulberg's fee petition, which requested posttermination trustee's fees and attorney fees and costs. Mulberg now appeals from the denial of his fee petition. We affirm.
I. BACKGROUND
In November 2009, Arlene T. Davis executed the Patricia Davis Daneman Amster 2009 Irrevocable Trust (the Trust). Amster, Davis's daughter, was named as the sole beneficiary of the Trust. After Davis passed away in September 2011, Amster removed the appointed trustee and appointed Mulberg. In January 2014, Amster filed a petition for "accountings, suspensions of powers and removal of trustee; for appointment of successor trustee, and for sanctions or surcharge, punitive damages and attorney's fees." Amster asserted Mulberg had refused to make requested accountings or to otherwise respond to her requests for information, and had also refused to resign as trustee.
Around the same time, on January 28, 2014, Mulberg filed a cross-petition for approval of the Trust accounting, requesting approval of the settlement of the Trust accounts and instructions regarding (1) Amster's right to remove him as trustee, (2) whether the proposed successor trustee was a qualified corporate trustee, (3) the procedure to transfer assets to a successor trustee, and (4) "for appointment of trustee for 529 college plans and settlement." In the cross-petition, Mulberg stated that, while he does not seek to stay on as trustee, "he does question several things about his removal." Mulberg filed a supplemental petition for approval and settlement of accounts and for instructions on March 4, 2014.
A hearing on the cross-petitions was held on March 10, 2014. Following the hearing, on March 26, 2014, the probate court entered an order stating "Amster has the right to remove the current trustee and appoint a successor trustee," and "Amster has removed [Mulberg] as trustee and has appointed Marlene Getchell as successor trustee." The court denied Mulberg's request to hold a reserve for the payment of his fees, but stated Mulberg "shall be allowed to make application for trustee fees he has not been paid for as a result of his removal, and for attorney fees incurred in defending his accounting."
On May 21, 2015, about a week and a half before trial, Mulberg filed a "supplement" to his supplemental petition, requesting the court award him all fees related to resignation, Trust administration, and defending against Amster's objections to accountings and resignation petitions. Amster objected to the supplement, arguing it was substantively and procedurally defective. Among other things, Amster argued the supplement was actually an amendment to the original petition, Mulberg failed to give timely notice, and the supplement itself was untimely. At trial, the probate court deferred ruling on the objections.
Trial on the cross-petitions commenced on June 1, 2015. During the trial, Mulberg attempted to introduce redacted bills he submitted to the Trust, as well as bills from his attorneys. The probate court sustained Amster's objections to the bills, finding they were "completely unreliable" given the scope of the redactions. Amster's counsel then stated "it would be most efficient" to resolve the issue of attorney fees by way of a posttrial motion. The court agreed.
After trial, on June 29, 2015, Mulberg filed yet another supplemental petition for trustee's fees and attorney fees. Amster objected to the supplemental petition as both untimely and premature, among other things. The probate court vacated the supplemental petition, finding it was premature.
A statement of decision was issued on September 10, 2015. The probate court held Mulberg's compensation was limited by the Marin County Superior Court Local Rules. The court also held Mulberg breached his fiduciary duty by charging for his services as both a trustee and as an attorney, billing for attorney work performed by his son, and failing to provide an annual accounting of the Trust assets. The court found a qualified corporate trustee would have charged the Trust 1 percent of the Trust corpus per annum for the same services. However, the court also found Amster should not benefit from her conduct as a demanding and often unreasonable beneficiary, and therefore exercised its equitable discretion to award Mulberg a 1.75 multiplier of the fee. The court surcharged Mulberg $267,222.16, the difference between the $495,119.75 the Trust paid him for his services and the $227,897.59 in approved fees. With the exception of the approval of Mulberg's requested posttermination fees and attorney fees, the court granted Mulberg's petition for settlement of accounts.
In the statement of decision, the probate court also indicated it was granting Mulberg's request for attorney fees pursuant to Probate Code section 17211, subdivision (a). The probate court explained: "Perhaps Mr. Mulberg could have been more careful as trustee on many levels, but there was ample evidence that Trust investments grew and Trust properties were bought and sold under his direction during the period in question. His hard fought defense of his performance as trustee was satisfied in light of the demands imposed on him by Ms. Amster." The court reserved jurisdiction to make appropriate findings on this issue and set a briefing schedule and a hearing on Mulberg's fee petition.
All statutory references are to the Probate Code.
As discussed below, the probate court later found the award of fees and costs was not justified under section 17211.
On September 17, 2015, Mulberg filed a notice of hearing. The notice is not the model of clarity, but in his appellate briefing, Mulberg asserts he was trying to renotice the "Fee Petition," which the probate court had earlier vacated as premature. Mulberg also requested the court take judicial notice of hundreds of pages of documents filed in connection with his prior petition, and he also filed two declarations in support of his request for trustee's fees and attorney fees.
A hearing was held, and on October 28, 2015, the probate court entered an order denying Mulberg's request for fees. The court first rejected Mulberg's contention that he was entitled to fees pursuant to section 5.5.15 of the Trust, which provides a trustee is entitled to be paid for fees arising of the trustee's resignation or the termination of the Trust: "[T]he Trust does not provide for fees arising out of the Trustee's removal from trust administration. Here, the Trustee was in fact removed by the beneficiary, Ms. Amster[,] on March 22, 2014. The court notes that this material fact is not mentioned in the former trustee's papers." Second, the court held the supplement to the supplemental petition filed on May 21, 2015, was both procedurally defective and untimely. The court therefore struck the supplement. Finally, the court found Mulberg was not entitled to fees under section 17211, because Amster's challenge to Mulberg's accounting was not frivolous or in bad faith. Mulberg had already paid himself an additional $49,000 from the Trust to cover his defense costs. The court authorized that payment, even though "the amount paid was not part of a legally enforceable contract."
Mulberg argues the probate court's decision to strike his supplement "is of no consequence." We are skeptical of the claim, as the supplement was the only pending pleading in which Mulberg asserted he was entitled to posttermination compensation and fees. Nevertheless, we need not reach the issue as we affirm the probate court's order on other grounds.
II. DISCUSSION
As a preliminary matter, we affirm the probate court's finding that Mulberg was not entitled to fees pursuant to section 17211, subdivision (a). That statute provides: "If a beneficiary contests the trustee's account and the court determines that the contest was without reasonable cause and in bad faith, the court may award against the contestant the compensation and costs of the trustee and other expenses and costs of litigation, including attorney's fees, incurred to defend the account." Here, Amster's claims were clearly brought with reasonable cause and in good faith, as the probate court's statement of decision found in favor of Amster on a number of issues and surcharged Mulberg.
While Mulberg does not argue Amster lacked reasonable cause to bring her claims, he nevertheless contends we should reverse because the probate court rendered inconsistent findings. As Mulberg points out, the probate court initially found he was entitled to fees pursuant to section 17211, in its September 10, 2015 statement of decision. However, the court later changed course in its October 28, 2015 order denying fees, finding fees were not warranted under the statute.
Mulberg cites to case law holding that inconsistent verdicts are against the law and grounds for a new trial. (See City of San Diego v. D.R. Horton San Diego Holdings Co., Inc. (2005) 126 Cal.App.4th 668, 682; Oxford v. Foster Wheeler LLC (2009) 177 Cal.App.4th 700, 721.) Courts have found inconsistent verdicts where, for example, a jury finds a defendant negligent, but also finds there was no defect in the product at issue in the case. (See Hasson v. Ford Motor Co. (1977) 19 Cal.3d 530, 540, 544, disapproved on other grounds in Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 574, 580.) This case law is readily distinguishable. There was no jury or special verdict here. Rather, in the instant action, the probate court initially found the award of fees and costs was appropriate under section 17211 and reserved jurisdiction to render an award at a later date. The court later reversed itself and found fees and costs were not available under section 17211. Nothing precluded the probate court from changing its decision, especially since its initial finding on costs and fees was not final. (See 7 Witkin, Cal. Procedure (5th ed. 2008) Judgment, § 363, p. 985 ["Intermediate determinations, such as rulings on motions and interlocutory orders, are not conclusive."]
Moreover, at no point did the probate court render inconsistent factual findings. The court initially found Mulberg was entitled to fees under section 17211, because "there was ample evidence that Trust investments grew and Trust properties were bought and sold under his direction during the period in question." Of course, these facts are largely irrelevant for the purposes of determining whether a trustee is entitled to recover attorney fees under section 17211. The pertinent question is not whether Trust investments grew, but whether a beneficiary's contest was brought in bad faith or without reasonable cause. The trial court appeared to realize this, and later found section 17211 was inapplicable because Amster's challenge to Mulberg's accounting was not frivolous or in bad faith. B. Trust Instrument's Compensation Provisions
Mulberg asserts the probate court failed to recognize or apply the Trust's compensation provisions, specifically sections 5.5.1.10 and 5.5.15. Mulberg contends that, pursuant to these provisions, he and his attorneys were entitled to reasonable compensation for their services. Mulberg further argues the probate court erred in finding these provisions did not apply because he was removed as trustee. We independently review the Trust's provisions, and find Mulberg's contentions on this point unavailing.
Section 5.5.1.10 of the Trust is not an attorney fees provision. Rather, it authorizes the trustee to discharge various costs and expenses incurred by the Trust. Specifically, section 5.5.1.10 states the trustee has the power "[t]o discharge all taxes, insurance premiums, operating expenses, overhead and other charges imposed upon or incurred in connection with said trust estate and properly incident to its care, preservation and management, and all other reasonable and necessary costs and charges incident to the administration of said trust, including but not limited to the employment of any custodian, attorney, accountant, or any other agent or fiduciary to assist and advise the Trustee in the administration of the trust, and to rely on such advice, and to pay reasonable compensation for all such services out of the income or principal, or partially from income and partially from principal, of the trust without decreasing any compensation to which the Trustee is otherwise entitled."
Section 5.5.15 of the Trust does deal with trustee compensation. It states: "Any Trustee serving hereunder shall be entitled to be paid reasonable fees for services rendered in such capacity, including any fees arising out of the Trustee's resignation or the termination of any trust created hereunder, and to charge such fees to income and principal of any trust estate created hereunder in such proportions, or entirely to income or principal, as in its discretion it may deem appropriate or desirable at the time of account to the court having jurisdiction over the trust estate, as the case may be."
Nothing in either of these provisions requires the Trust to compensate a discharged trustee for expenses incurred in defending against the type of petition filed by Amster in this case. As an initial matter, we fail to see why section 5.5.1.10 of the Trust would have any application here. On its face, the provision pertains to the general powers of the trustee to pay the costs and expenses of the Trust and those of its agents and fiduciaries. The provision does not explicitly or implicitly say anything about the costs and expenses of a discharged trustee. To read the provision otherwise would be tantamount to ignoring its plain meaning. Nor does section 5.5.15 of the Trust particularly help Mulberg. This provision states the trustee is entitled to be paid reasonable fees for services rendered to the Trust, including services arising out of the trustee's resignation. However, like section 5.5.1.10, section 5.5.15 says nothing about the compensation of a trustee who has been removed from his or her position.
The probate court reached a similar conclusion as to section 5.5.15 of the Trust (though it did not discuss section 5.5.1.10). It also stated: "[T]he Trust does not provide for fees arising out of the Trustee's removal from trust administration. Here, the Trustee was in fact removed by the beneficiary, Ms. Amster[,] on Mach 22, 2014. The court notes that this material fact is not mentioned in the former trustee's papers. . . . [¶] As a result, because Mr. Mulberg was removed as trustee, he cannot recover fees under the Trust document." Mulberg argues the record contradicts the probate court's finding he was " 'forcibly removed' " and was therefore not entitled to seek recovery of his fees. Mulberg's arguments on this point are not altogether persuasive. In any event, this is a distinction without a difference. Regardless of whether Mulberg was removed, forcibly removed, or resigned, the fact remains that he is seeking compensation for posttermination work. Nothing in the Trust instrument requires the Trust to compensate him in this context. C. Other Authority on Posttermination Fees
For similar reasons, Mulberg's reliance on sections 16200, 16243, and 16247 is misplaced. Section 16200 provides a trustee may exercise the powers conferred by the trust instrument and statute without need to obtain court authorization, section 16243 states the trustee has the power to pay trust expenses, and section 16247 provides a trustee has the power to hire various persons. None of these provisions relate to a trustee's entitlement to compensation and attorney fees posttermination.
Mulberg further argues he is entitled to recover trustee's fees and attorney fees because he successfully defended against many of the claims raised in Amster's petition and his defense benefitted the Trust by eliminating charges raising serious questions about whether he had administered the Trust properly. The probate court did not discuss this issue in the order on appeal, though the court implicitly rejected Mulberg's arguments as it ultimately denied his request for fees. We conclude the court did not abuse its discretion in doing so.
Attorney fees and litigation costs incurred in a trustee's successful defense of an action brought by a beneficiary are generally recoverable. (Estate of Gump (1991) 1 Cal.App.4th 582, 604.) On the other hand, " 'If the trustee commits a breach of trust, the court may in its discretion deny him all compensation or allow him a reduced compensation or allow him whole compensation.' " (Estate of Cassity (1980) 106 Cal.App.3d 569, 574 (Cassity).) Moreover, "an estate may not be charged with fees incurred in unsuccessfully contesting a trustee's surcharge. [Citation.] A trustee is not entitled to attorney fees and expenses of litigation where it is determined that the trustee breached the trust, unless the court otherwise orders as provided in subdivision (b) of section 15684 where the trustee's actions resulted in a benefit to the trust." (Gump, at p. 605.) Section 15684 provides a trustee is entitled to repayment out of the trust property for (1) "[e]xpenditures that were properly incurred in the administration of the trust; and (2) "[t]o the extent that they benefited the trust, expenditures that were not properly incurred in the administration of the trust."
In Cassity, a resigned trustee filed a petition to recover trustee's fees and attorney fees and costs incurred in defending litigation commenced by the beneficiary attempting to reopen several accountings. (Cassity, supra, 106 Cal.App.3d at p. 571.) In the underlying litigation brought by the beneficiary, the trustee was surcharged, but "the amount of the actual surcharges was but a small percentage of the total sought by the beneficiary." (Id. at p. 574.) The probate court concluded the trustee was not entitled to recover costs incurred in the litigation. (Id. at p. 571.) The Second Appellate District held the probate court abused its discretion: "The fact that some surcharges were assessed against the trustee is not, in itself, grounds for completely denying him compensation and expenses. . . . [T]he trustee admittedly was guilty of some malfeasance, however, most of the charges were disproven. A considerable portion of the trustee's efforts and expenditures must necessarily have been for the purpose of protecting himself from unjust surcharge for conduct in administering the trust which the court's findings . . . determined were perfectly proper. Such efforts and expenditures in the trustee's successful defense are chargeable against the trust estate." (Id. at p. 574.)
The instant action is distinguishable. Unlike in Cassity, the surcharge imposed against the trustee in this case is not a small. Mulberg paid himself $495,119.75 using Trust funds, and the probate court surcharged him $267,222.16. Moreover, it was found that Mulberg breached his fiduciary duties in a variety of ways. Specifically, Mulberg (1) charged for his services as both a trustee and as an attorney without an express waiver by the beneficiary, (2) illegally billed the Trust for attorney work performed by his son without an express waiver, and (3) failed to provide an annual accounting of the Trust assets. Mulberg argues he is entitled to compensation because he successfully defended against Amster's allegations of fraud, embezzlement, disloyalty, self-dealing conflicts of interest, double billing, confidentiality breach, failures to account, and failure to pay taxes, among other things. But in light of the size of the surcharge assessed against Mulberg, as well as the scope and nature of his breaches of fiduciary duty, we cannot conclude the probate court abused its discretion in determining he was precluded from recovering compensation and fees. The probate court reasonably concluded trustee and attorney fees incurred after Mulberg's termination did not benefit the trust.
Mulberg asserts Amster stipulated to withdraw her claims for breach of fiduciary duty, and the probate court disregarded this stipulation in rendering in its statement of decision. To the extent this argument was properly raised—it is mentioned only in the background section of Mulberg's opening brief—we find it unconvincing. As we held in a prior related appeal by Mulberg, Amster only stipulated to withdraw her fraud and punitive damage claims. (Amster v. Mulberg (Nov. 18, 2016, A146374) [nonpub. opn.].)
Neither party appears to contest the probate court's determination Mulberg was entitled to keep the $49,000 in defense costs he had already paid himself from the Trust. It is unclear from the order or the parties' briefing to what extent this amount covered the costs incurred by Mulberg in the underlying litigation.
Mulberg argues he is entitled to recover under Kasperbauer v. Fairfield (2009) 171 Cal.App.4th 229. That case is inapposite. In Kasperbauer, the beneficiaries appealed an order withholding funds from the proceeds of the sale of real property held by the trust for the " 'possible payment' " of trustee expenses in completing an accounting. (Id. at p. 231.) The court held interim attorney fee awards were authorized by the Probate Code, noting the code is " 'studded with provisions authorizing the trustee to hire and pay (or seek reimbursement for having paid) attorneys to assist in trust administration.' " (Kasperbauer, at pp. 234-235.) The court also found the probate court had authority to order the beneficiaries to pay attorney fees incurred by the trustee in completing and defending the accounting. (Id. at p. 235.) But the court did not hold the trustee was entitled to retain the compensation and fees, regardless of the outcome of the accounting. To the contrary, the court stated the beneficiaries "may seek reimbursement from [the trustee] at the conclusion of the case should they prevail on their claim that [the trustee] breached his fiduciary duty or that his expenditures for Trust administration were excessive." (Id. at p. 238.)
Mulberg also argues the probate court's decision is inconsistent with section 15644, which provides a removed trustee "has the powers reasonably necessary under the circumstances to preserve the trust property until it is delivered to the successor trustee and to perform actions necessary to complete the resigning or removed trustee's administration of the trust." Mulberg asserts he should also be compensated for such work. But nowhere in his briefs does Mulberg explain what work he performed after he was removed to preserve Trust property or to complete his administration of the Trust, other than to unsuccessfully defend against Amster's petition. Nor does Mulberg explain what he is owed for this work or whether his fees were encompassed in the fees already paid to him by the Trust. We decline to sift through the record to independently determine whether Mulberg's claims have merit. "[I]t is the appellant's responsibility to affirmatively demonstrate error." (Nichols v. Century West, LLC (2016) 2 Cal.App.5th 604, 617.) Mulberg has failed to meet that burden here.
In a footnote, Mulberg does argue the probate court refused to recognize his entitlement to outstanding trustee's fees for administrative matters performed during the time he remained trustee, prior to being replaced. This issue was never clearly raised in Mulberg's fee petition, and it appears the only supporting evidence Mulberg submitted on this issue was his own declaration, stating he incurred $15,616 during the relevant period. Mulberg points to nothing in the record which would suggest this amount was not subsumed in the $227,897.59 in fees allowed by the probate court. --------
III. DISPOSITION
The probate court's order denying Mulberg's fee petition is affirmed. The parties shall bear their own costs.
/s/_________
Margulies, Acting P.J. We concur: /s/_________
Dondero, J. /s/_________
Banke, J.