Opinion
G053908
02-06-2018
Estate of BARBARA PALMER, Deceased. DONALD SWARTZBAUGH, Petitioner and Respondent, v. GLEN CHRIS PALMER, as trustee, etc., Objector and Respondent.
Baker & Baker, William E. Baker, Jr., for Objector and Appellant. Rogers, MacLeith & Stolp, Douglas R. MacLeith, for Petitioner and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2013-00693340) OPINION Appeal from an order of the Superior Court of Orange County, Thomas Schulte, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Reversed. Baker & Baker, William E. Baker, Jr., for Objector and Appellant. Rogers, MacLeith & Stolp, Douglas R. MacLeith, for Petitioner and Respondent.
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In this dispute between two beneficiaries of a trust, the court applied the unclean hands defense to deprive the trustee of $30,000 to which he is entitled based upon his behavior after the trust had been signed. The issue before the trial court involved the trustor's intent in making distributions to her sons. The trustor's intent is to be determined at the time she executed the trust and is unaffected by subsequent events. Because the trial court considered subsequent events in making its decision, we reverse.
FACTS
The Trust
Barbara Palmer executed the Barbara Palmer Trust (trust) in October 2008. Barbara named her son, appellant Glen Chris Palmer trustee. The trust provided upon Barbara's death, the trustee shall first allocate the trust estate through gifts of tangible personal property as specified and then gifts of money and other property as specified. The balance of the trust estate was to be allocated: "one equal share for each of my children who survives me and one equal share for each deceased child of mine who has issue who survive me."
We will refer to the Palmer parties by their first names for clarity, not out of disrespect.
This appeal concerns the proper interpretation of paragraph 6.1, "Gift of Money," contained within article 6, "Gifts of Money and Other Property." Paragraph 6.1 provides in relevant part: "Upon my death, the Trustee shall distribute the sum of two hundred thousand dollars ($200,000) outright to Glen Chris Palmer, provided he survives me . . . . The gift designated above by a dollar amount may be funded in cash or in property having a net fair market value on the date of distribution equal to the dollar amount designated. [¶] I have made loans pursuant to agreements in the amount of $230,000.00 to my son Randall James Palmer. It is my desire that these loans be deemed preliminary distributions from my estate to him. As such, I am making the above gift to my son Glen in order to equalize the distributions among my children. If my son Randall has paid back the loan(s) prior to the distribution of this trust, then the additional gift which is the subject of this article shall lapse and not be made."
Within a week of the trust's execution, on October 10, 2008, Glen determined the $200,000 as referenced in the trust should be changed to $230,000 and executed a document attempting to change the dollar amount to be gifted to him upon Barbara's death. During the course of this litigation, the parties stipulated the amendment was void and inoperable.
Barbara died on October 19, 2012. She was survived by her sons Glen and Randall. Her daughter, Hallie, predeceased her. Hallie had four surviving sons, including appellant Donald Swartzbaugh.
Barbara's Grandson Files Suit
Swartzbaugh commenced this case in December 2013 by filing a petition to determine the validity of the trust, for relief from breach of trust, and for an accounting. Among other allegations, Swartzbaugh alleged Glen had changed the decedent's express wishes for distribution and had taken money well in excess of $230,000. Glen filed a response to the petition in February 2014. In January 2014, Glen filed a trustee's petition for instructions seeking the court's guidance as to the manner in which the estate should be distributed.
According to the first account and report of the trustee submitted to the court in September 2014 (accounting), Glen received a $122,000 disbursement from the trust in April 2010, for which he and his wife executed a promissory note. The loan "accrued interest at the same rate of interest that would have been earned in the Wells Fargo Bank account from which it originated." Glen also received $108,000 in a cash distribution in November 2012. These two distributions to Glen total $230,000.
In March 2015, Swartzbaugh filed objections to the accounting.
The Trial
On November 10, 2015, the parties appeared for trial on two issues raised by Swartzbaugh's objections: whether Glen took $30,000 to which he was not entitled and whether the $122,000 loan to Glen violated the Probate Code for being made at a below market interest rate. Swartzbaugh, Glen, and Attorney Albert Rasch testified at trial.
Rasch testified he prepared Barbara's estate plan. He spoke with Barbara before drafting the trust, and she indicated there were loans in the estate consisting of two promissory notes from her son Randall totaling $230,000. Glen, however, had no outstanding debt. Barbara wanted to forgive Randall's loans and interest as part of the gift section. They had a long discussion, and Barbara was under the impression Randall may have paid some of the loans back, but she was not sure. Barbara wanted to make sure she treated her two sons equally. Rasch followed Barbara's instructions to draft paragraph 6.1 to give a $200,000 gift to Glen. Rasch testsified that Barbara "wanted some type of number to be put in there so that there could be an immediate distribution to give us time to see if there was disparity, some difference between Glen and [Randall]." When asked what instructions Barbara gave Rasch to make sure her sons received the same amount, he testified, "As we would be doing the accounting, that information would come up and we could find out if any money was received from [Randall] that would pay down the loan." Rasch advised Barbara she could change the $200,000 figure if she ever found out the $230,000 was incorrect. When asked what Barbara said the trust should do on her death if Randall still owed $230,000, Rasch testified, "She wanted to have the extra $30,000 given to Glen, as the document states, to equalize the payments." That was the purpose of including in the trust the words, "as such in order to equalize the distributions among my children."
After Barbara died, a paralegal in Rasch's office prepared an accounting with documents provided by the Palmers. They determined Randall still owed $230,000, because there was no evidence he had repaid any portion of the loans. Rasch included this information in the accounting filed with the court. At that point, Rasch informed Glen he could take the extra $30,000, because based on the trust and Barbara's intent, he saw no problem.
Glen testified he had never been a trustee before and he went to Rasch for advice on how to distribute trust money to himself. Rasch told him he was entitled to $230,000. Glen testified he never spoke with Barbara about the amendment he signed giving himself $230,000, but rather, he just did it on his own. Barbara never saw the document. Glen stated Barbara never expressed to him that she intended he receive an amount equal to the loans outstanding to Randall. He learned about the equalization from Rasch and when he received the trust.
Swartzbaugh testified when he filed the petition, he was objecting to the amendment signed by Glen. Afterwards, when the accounting was filed, he objected to the distributions taken by Glen. However, Swartzbaugh never discussed the trust with Barbara, was not present when she signed it, and does not know what instructions she gave Rasch.
Following the evidence, the court took the matter under submission. On November 24, 2015, the court issued its ruling. The court granted Swartzbaugh's request that Glen be surcharged $30,000 but denied his request that Glen be surcharged regarding the interest on the $122,000 loan.
Glen unsuccessfully moved for a new trial, and on August 1, 2016, the court entered an order surcharging trustee $30,000 for the excess distribution. The court ordered Glen to repay to the trust estate the full sum of $30,000 and denied Swartzbaugh's request to enter a surcharge for interest on the loan Glen made to himself. On August 8, 2016, Glen filed a notice of appeal from the August 1, 2016 order.
The order is appealable. (Code Civ. Proc., § 904.1, subd. (a)(10); Prob. Code, §§ 1304, subd. (a), 17200, subd. (b)(1), (3), (4)).
All further statutory references are to the Probate Code.
DISCUSSION
The only issue before this court is the interpretation of paragraph 6.1, the gift language in the trust. We must determine whether Barbara intended Glen to receive only $200,000 or whether she intended him to receive $230,000 like Randall had received (assuming Randall had not repaid any of his loan upon Barbara's death, which he had not).
The court agreed with Swartzbaugh that Glen should be surcharged $30,000 for overpaying himself from trust assets. In making its ruling, the court found paragraph 6.1 of the trust was ambiguous and then considered parol evidence in an attempt to determine Barbara's intent. The court considered Rasch's testimony that Barbara intended the $200,000 was to equalize the distributions between her two sons and that Barbara did not know whether Randall had repaid any of the $230,000 he had borrowed. However, the court then commented on the purported amendment signed by Glen as trustee, stating, "The court is effected [sic] by Glen's failed attempt to amend [paragraph] 6.1. What is most troublesome is the fact that the document was signed only by Glen and included a representation that the amendment was drafted 'at the direction of Barbara.' Glen testified under oath that said representation was false. All he had to do, in order to resolve the conflict, was to have his mother sign the amendment. As a result of his failure to do so, we will never really know what Barbara's true intent was." The court then reasoned Glen engaged in self-dealing, had not explained his actions, and came "to this debate with unclean hands." The court determined the evidence was insufficient to find Barbara intended to increase the bequest to Glen and ordered Glen surcharged $30,000 for the excess distribution.
On appeal, Glen contends the trial court erred in considering his conduct which occurred after the creation of the trust as a factor to ascertain Barbara's intent at the time of execution. Glen contends the only evidence of Barbara's intent was the language of the trust and Rasch's uncontradicted testimony. We agree.
In conducting our review, we first apply an independent standard of review to determine whether the extrinsic evidence in this case shows the language of the trust is ambiguous, i.e., whether it is reasonably susceptible to two different meanings. (See ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1270.) We then apply a substantial evidence standard of review to determine whether the court's finding Glen should be surcharged $30,000 is supported by substantial evidence. (See id. at p. 1275.)
We begin with several statutory guides to interpretation of the trust instrument. (See § 21101 ["this part applies to a . . . trust"].) Section 21102 provides: "(a) The intention of the transferor as expressed in the instrument controls the legal effect of the dispositions made in the instrument. [¶] (b) The rules of construction in this part apply where the intention of the transferor is not indicated by the instrument. [¶] (c) Nothing 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 Russell (1968) 69 Cal.2d 200, 206 [when language is ambiguous or uncertain, resort may be had to extrinsic evidence to ascertain intention of testator].)
"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; see Estate of Powell (2000) 83 Cal.App.4th 1434, 1439-1440 [in de novo review of trust, appellate court looks to document as a whole to determine trustor's intent]; Brock v. Hall (1949) 33 Cal.2d 885, 889 [trust construction depends on trustor's intent at time of execution as shown by face of document and not on any secret wishes, desires or thoughts after the event].) The "words of an instrument are to be given their ordinary and grammatical meaning unless the intention to use them in another sense is clear and their intended meaning can be ascertained." (§ 21122; see Wells Fargo Bank v. Huse (1976) 57 Cal.App.3d 927, 932.) The trust's "construction depends upon the trustor's intent at the time of execution as shown by the face of the document and not on any wishes, desires or thoughts after the event." (Mummert v. Security-First Nat. Bank (1960) 183 Cal.App.2d 195, 199, italics added; see O'Farrell v. American Trust Co. (1957) 149 Cal.App.2d 691, 697 [will was not admissible to show what testator meant in trust agreement executed five years earlier].) Paragraph 6.1 is Ambiguous
"[A]n ambiguity is said to exist when, in the light of the circumstances surrounding the execution of an instrument, 'the written language is fairly susceptible of two or more constructions.'" (Estate of Russell, supra, 69 Cal.2d at p. 211.) Here we have no trouble concluding paragraph 6.1 is ambiguous. It states both that Barbara gifted Glen $200,000 outright "in order to equalize the distributions among my children" and that $230,000 in loans to Randall should be deemed preliminary distributions to him. The sums of $200,000 and $230,000 are not equal even though paragraph 6.1 states Barbara was making "the above gift" to Glen in order to "equalize" distributions. An ambiguity appears on the face of the trust. Therefore, we agree extrinsic evidence was necessary to determine Barbara's intent.
Rasch's testimony provided the only extrinsic evidence of intent. His uncontradicted testimony was clear, though the words he drafted left more to be desired. He testified Barbara intended both sons to receive equal distributions. He said if Randall still owed $230,000 upon Barbara's death, she wanted Glen to receive an extra $30,000 to equalize gifts to both sons.
Substantial Evidence Does Not Support the Trial Court's Order
Despite the clear testimony from Rasch that Barbara intended to equalize gifts to Glen and Randall but could not precisely determine how much to give Glen because she was unsure whether Randall had repaid any of his loans when the trust was executed, the trial court faulted Glen for his actions after the trust was executed. Swartzbaugh's objection did not raise direct allegations of malfeasance against Glen, only that a wrongful $30,000 distribution had been made. The court incorrectly applied the doctrine of unclean hands to deprive Glen of the distribution Barbara intended him to receive.
The unclean hands doctrine "is an equitable rationale for refusing a plaintiff relief where principles of fairness dictate that the plaintiff should not recover, regardless of the merits of his claim." (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 985.) "The misconduct that brings the unclean hands doctrine into play must relate directly to the cause at issue. Past improper conduct or prior misconduct that only indirectly affects the problem before the court does not suffice. The determination of the unclean hands defense cannot be distorted into a proceeding to try the general morals of the parties. [Citation.] Courts have expressed this relationship requirement in various ways. The misconduct 'must relate directly to the transaction concerning which the complaint is made, i.e., it must pertain to the very subject matter involved and affect the equitable relations between the litigants.' [Citation.] '[T]here must be a direct relationship between the misconduct and the claimed injuries . . . "'so that it would be inequitable to grant [the requested] relief.'"' [Citation.] 'The issue is not that the plaintiff's hands are dirty, but rather "'"that the manner of dirtying renders inequitable the assertion of such rights against the defendant."'"' [Citation.] The misconduct must '"'prejudicially affect . . . the rights of the person against whom the relief is sought so that it would be inequitable to grant such relief.'"'" (Id. at p. 979; see Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 680 ["It has long been held that the misconduct asserted in an unclean hands defense must be sufficiently related to the matter currently before the court."].)
Here, Glen's act of signing the amendment a week after Barbara executed the trust is irrelevant to Barbara's intent a week earlier. Glen's act has no relation to whether or not Barbara intended to give him $230,000 if Randall still owed $230,000 at her death. Accordingly, we hold construction of the trustor's intent cannot be based on events occurring after the execution of the trust.
We are mindful it appears the court considered Glen less than credible. As to the amendment, at one point during trial the court commented, "It's evidence and it's relevant. How much weight the court gives it is another matter." The court agreed with Swartzbaugh's counsel it was a question of credibility. The court stated, "I'm only considering this document for how it's relevant to the issues before the Court. And the issue of credibility is important as it relates to the issues before the Court. I'm not reading the document or considering it for anything above the lines that I have described." However, Glen's credibility has no relevance to Rasch's uncontradicted testimony regarding Barbara's intent. They are unrelated.
Perhaps as a result, on appeal Swartzbaugh attacks Rasch's credibility, pointing out Rasch drafted the trust and testified "contrary to the words he put in the document itself," behavior Swartzbaugh characterizes as "highly suspect under the circumstances." But the credibility of witnesses is not reviewable by this court. Resolution of conflicts in the evidence and assessment of credibility of witnesses are matters within the exclusive province of the trier of fact. (In re Marriage of Ackerman (2006) 146 Cal.App.4th 191, 204.) The trial court credited Rasch's testimony, as reflected in its minute order.
The payment to Glen was an equalization in accordance with Barbara's wishes, Glen's subsequent bad behavior notwithstanding. The trial court erred in applying the unclean hands defense when the evidence showed Barbara intended to equalize gifts to Glen and Randall when she executed the trust.
DISPOSITION
The order surcharging the trustee with $30,000 is reversed. Glen shall recover his costs incurred on appeal.
IKOLA, J. WE CONCUR: MOORE, ACTING P. J. FYBEL, J.