Opinion
B294264
02-27-2020
Estate of SUSAN BELINDA SCHROEDER. HUSSAM M. KHATIB, Appellant, v. ADAM NEVARREZ, Respondent.
The Wagner Firm, Avi Wagner; Zarmi Law, David Zarmi for Appellant. Moran Law, Michael F. Moran and Lisa Trinh Flint for Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. BP155518) APPEAL from orders of the Superior Court of Los Angeles County. Clifford Klein, Judge. Reversed with directions. The Wagner Firm, Avi Wagner; Zarmi Law, David Zarmi for Appellant. Moran Law, Michael F. Moran and Lisa Trinh Flint for Respondent.
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Probate Code permits a beneficiary under a will to disclaim all or part of any interest in the decedent's estate. A beneficiary might wish to disclaim such an interest, for example, if it presents an undue burden, perhaps a tax burden, or if the beneficiary simply disagrees with the decedent's bequests.
The Probate Code does not, however, permit a beneficiary both to accept and disclaim an estate interest. Once the beneficiary accepts such an interest, any purported disclaimer is nugatory.
The issue here is whether a beneficiary's trading a putative disclaimer for value constitutes prior acceptance of the interest, thus rendering the disclaimer invalid and the trade a mere assignment.
BACKGROUND
A. Factual Backdrop
1. Nursing Home Lawsuit
In 2009, Samuel Nevarrez fell eight times in a nursing home, sustaining dire injuries from which he never recovered. He sued the home on theories of negligence, elder abuse, and violation of the Patients Bill of Rights, and obtained a $4.5 million verdict, including $3 million for pain and suffering. In 2013, Division Four of this District reversed the judgment on Nevarrez's negligence and elder abuse claims, primarily due to the erroneous admission of a citation issued by the State Department of Public Health against the nursing home. (Nevarrez v. San Marino Skilled Nursing & Wellness Centre, LLC (2013) 221 Cal.App.4th 102.)
Nevarrez passed away during the appeal and was survived by his wife, Susan Belinda Schroeder, and his three children from a prior relationship, Adam, Lysa and David Nevarrez. We will refer to Adam, Lysa and David as the Nevarrez family.
Schroeder, herself suffering from cancer, substituted in as plaintiff in the nursing home lawsuit but died on March 7, 2014, two weeks after the remittitur was issued.
B. Schroeder's Estate
Schroeder's will named Hussam Khatib her executor and bequeathed him a car, funds in a bank account, $160,000 to repay a debt, and "the residuary of the estate." Schroeder's estate held insufficient capital from which to satisfy the $160,000 debt, but the residuary included the estate's primary asset, the right to continue Nevarrez's lawsuit against the nursing home.
The will made no mention of the Nevarrez family.
After Schroeder died, Moran Law, the firm that had represented her and Samuel Nevarrez in the nursing home lawsuit, began representing the Nevarrez family. Lisa Flint, an attorney with Moran Law, believing that Samuel Nevarrez's lawsuit passed to his children upon the death of his widow, filed a motion in the superior court to substitute Adam Nevarrez for Schroeder as the plaintiff. The court denied the motion on the ground that the lawsuit had passed to Schroeder's estate, and Nevarrez failed to establish he was Schroeder's personal administrator or successor in interest.
Moran Law then met with Khatib and explained the status of the lawsuit. Moran explained that in the hands of the Nevarrez family, the chose in action against the nursing home would have significant value, as the first trial had resulted in a multimillion judgment. But in Khatib's hands the chose in action would be worth little because Khatib was simply a third party creditor, unrelated either to Nevarrez or Schroeder, and thus would not make a sympathetic plaintiff.
C. Assignment of the Lawsuit to the Nevarrez Family
Over the next three months the Nevarrez family negotiated for Khatib's interest in the Schroeder estate.
Khatib at first refused to cede the interest. On July 1, 2014, he stated in an email to Flint, "It seems that disclaiming my interest in the will would mean giving up all rights under the will, and I am not willing to do that."
On August 20, 2014, Khatib told Flint, "I understand that [by disclaiming] I would be giving away my percentage of the lawsuit. . . . I also understand that you are demanding that I relinquish all rights to the legitimate debt of $160,000 that Susan Schroeder owed me. I am getting pennies of the lawsuit. Why should I also give up everything that Suzie had that nobody had anything to do with. This is not a lot it is the money in the checking account and the BMW, the total of which does not equal $3000. At least I would be getting something back from all that I gave Susan Schroeder for the last 5 years. [¶] You asked me to give away the percentage of my lawsuit. You are asking me to give up my legal repayment of the amount that Susan Schroeder owed me. You are giving me pennies from the amount that Susan Schroeder owed me. [¶] . . . . I have receive[d] demands but I never receive anything in writing of what you are offering me as inducement. [¶] Please send me in writing the offer you are making me and further acknowledge that all the personal property that Susan Schroeder owned, such as the bank account and the ownership of the BMW are mine . . . , and upon receipt of this offer and acknowledgement, my wife and I will sign the [disclaimer]."
On August 21, 2014, the Nevarrez family offered Khatib $20,000 to disclaim his interest in the Schroeder estate and decline to serve as executor, conditioned on the success of the nursing home lawsuit. If the lawsuit resulted in a net recovery of between $701,000 and $799,000, the family would pay him $25,000, raised to $30,000 if the recovery was over $800,000. On behalf of the family, Flint stated, "I know the proposed amount is not near the amount you had given to Suzie, but at least it is some recovery, versus nothing if the lawsuit does not go forward." "If this is acceptable to you, then please sign the Declarations and overnight the original Will to our office so that we can file them with the Probate Court." Otherwise, Flint said, "we will have the case dismissed."
On August 25, 2014, Michael Moran, the principal at Moran Law, told Khatib in an email, "Because of our duties to the Court, we would be forced to file a dismissal, if we do not file Suzie's Will and the Declarations within the next day or two. Once the dismissal is filed, please understand the case will be over, and your right to recover any monies will be gone."
Khatib made a counteroffer, pursuant to which he would disclaim his interest in the Schroeder estate and decline to serve as executor in return for "a percentage of the judgment" equaling $25,000 out of any recovery in the nursing home lawsuit up to $700,000, and an additional $5,000 for each additional $100,000 recovered. The Nevarrez family accepted the offer and agreed "to transfer any remaining personal property or assets of Susan Schroeder" to Khatib.
On August 28, 2014, the parties created a document we will call the "Authorization." It provided as follows:
"Moran Law acknowledges that Lysa Nevarrez, Adam Nevarrez, and David Nevarrez (hereinafter the 'Nevarrez Family') authorizes and directs Moran Law to distribute the following amount to Hussam Khatib in the event any settlement and/or judgment is recovered in the [nursing home lawsuit]. The amount to be distributed to Hussam Khatib from the Nevarrez family's net distribution of the settlement will depend on the gross settlement/judgment amount recovered . . . ." The Authorization specified that Khatib would receive $25,000 for any recovery in the lawsuit up to $700,000, and an additional $5,000 for each additional $100,000 recovered.
Flint and Khatib signed the Authorization on August 28, 2014, and Adam, Lysa and David Nevarrez signed it on September 2, 19 and 22, respectively.
D. Disclaimer of an Interest in Schroeder's Estate
Also on August 28, 2014, after he had signed the Authorization but before any of the Nevarrez family had, Khatib signed a declaration stating:
"I voluntarily and knowingly, disclaim all my interest in Ms. Schroeder's Last Will and Testament. I do not wish to be a beneficiary under her Will. I fully understand by disclaiming my interest in Ms. Schroeder's Will, I will not receive any of the personal property she left me . . . or any monies that may be recovered in the [nursing home lawsuit]."
On September 3, 2014, Adam Nevarrez petitioned the superior court to probate Schroeder's will, and on October 16 the court confirmed him as administrator of the estate. On December 2, 2014, Flint became Adam Nevarrez's attorney of record in the nursing home lawsuit.
The Nevarrez family proceeded with the nursing home lawsuit, adding a cause of action for wrongful death, but in 2017, approximately a month before retrial, Khatib moved to intervene in that action and petitioned the probate court to invalidate his disclaimer. The court in the civil action put that matter on hold pending resolution of the probate proceedings.
E. The Instant Probate Proceedings
On June 27, 2017, Khatib petitioned the probate court to invalidate his disclaimer on the ground that it was procured by fraud and violated Probate Code section 285. Khatib alleged that Moran Law and Adam Nevarrez had misrepresented that if he refused to disclaim his interest in the Schroeder estate they would dismiss the nursing home lawsuit. He sought $3 million in damages and replacement of Adam Nevarrez with himself as administrator of the estate.
Undesignated statutory references will be to the Probate Code.
In a joint trial statement the parties agreed the contested issues were whether Khatib's disclaimer was invalid due to fraud in the inducement, and whether it was "invalid in view of [an] agreement regarding Khatib's residual interest."
Khatib's theory at trial was that Schroeder intentionally disinherited her stepchildren, who had neglected both her and Samuel Nevarrez, and Moran Law had rejected a $3 million settlement offer from the nursing home without communicating it to Schroeder. Khatib and his wife testified they provided financial and emotional support to Schroeder in her last months, but after she died Adam Nevarrez and Moran Law highjacked the nursing home lawsuit and bullied and threatened Khatib into disclaiming his interest in the Schroeder estate. Khatib testified that Moran told him that if he refused to disclaim his interest, Moran Law would dismiss the nursing home lawsuit and seek from him repayment of litigation costs to date, as well as two liens granted to third parties by Schroeder and a Medi-Cal lien, all amounting to hundreds of thousands of dollars.
Flint and Moran testified that Khatib isolated and exerted undue influence over Schroeder in her final months, and she feared him. When Flint met with Schroeder outside Khatib's presence, they prepared a will that Schroeder executed before a notary, naming Adam and Susan Nevarrez her executors. At a later date she created the will that is the subject of this action, which the Nevarrez family ultimately declined to contest.
Flint and Moran testified that the trial judge in the nursing home lawsuit had been pressing them to name a new plaintiff, and "was on the eve of" dismissing the case for lack of progress. They passed this information to Khatib, who at all times well understood the lawsuit, and "thought the case was his golden goose." They held a two-hour meeting about the case, Moran testified, after which Khatib "understood everything completely. The only follow-up after the meeting was about money for [Khatib]. Period." "He came through the door . . . and it was all about him: What can I get? I loaned her money. How much can I get? How's it work? . . . [H]e was clinging to this lawsuit like it was the Titanic. He wanted a piece of this, he wanted as much as he could." "We went through everything. I said: [Khatib], you don't have any relationship to the decedent. You know. And he understood that. Because his concern, his vested interest is getting money. Period. I will make that clear. He wanted to get money back because he had loaned some money to [Schroeder]. And so he understood when he left after that two hours, it was abundantly clear that he wanted the case to proceed, he understood that he would not be a wrongful death plaintiff for tactical reasons in front of a jury . . . ."
Moran testified that in response to the Nevarrez family's offer of a scaled percentage of any recovery, Khatib made a counteroffer in which he demanded more money. "He started negotiating frequently with Ms. Flint, . . . and then in the end, . . . Ms. Flint said: You know what, you draft an agreement that you are comfortable with. Which he did. With the percentages, counsel, the exact percentages. . . . [I]t was a percentage he was comfortable with because he signed it." Moran testified, "So [Khatib] writes up an agreement after we meet on the percentages and all of that. And he drafts it, and that's the one that he signs. And Ms. Flint was working with [him] in that regard. They had an agreement with the intent that [the motion to substitute Adam Nevarrez as executor] go forward, because we needed a family member on a wrongful death case."
When asked whether he had tried to bully Khatib, Moran testified, "Why would I? He is coming to my office to understand the case. He—at that time he was the purported executor. You know, it would not be prudent, would it, doesn't make any strategic sense for me to be trying to pick a fight with him . . . ."
When asked whether he rejected a settlement offer from the nursing home during Schroeder's tenure as plaintiff, Moran testified, "No. After a case is reversed, people aren't offering you money."
In his posttrial brief, Khatib contended his disclaimer was invalid under section 285 because it was made after he had accepted an interest in the Schroeder estate.
On September 19, 2018, the court issued a proposed statement of decision in which it found Khatib lacked credibility, and his disclaimer was obtained not by threats or misrepresentations but "essentially as a business transaction." "Khatib was not acting due to threats," the court stated, "he was negotiating for as much money as he possibly could get for any disclaimer." The court found no grounds existed to remove Adam Nevarrez as administrator of the Schroeder estate, award Khatib damages, or invalidate his disclaimer due to fraud.
Khatib objected to the proposed statement of decision, arguing it failed to address the validity of his disclaimer under section 285.
On October 5, 2018, the court issued its final statement without substantive change.
Khatib appealed.
DISCUSSION
A. Khatib's Disclaimer Was Invalid
Khatib contends his disclaimer was invalid because to assign his interest in the estate to the Nevarrez family he necessarily had to first accept the interest, rendering the disclaimer invalid pursuant to section 285. We agree.
The recipient of an interest created by a will may disclaim the interest in whole or part. (§ 275.) However, "[a] disclaimer may not be made after the beneficiary has accepted the interest sought to be disclaimed." (§ 285, subd. (a).) A beneficiary has accepted an interest if he or she contracts to assign the interest or part thereof, or accepts a "benefit thereunder." (§ 285, subds. (b)(1) & (3).)
Section 285 provides, in pertinent part: "(a) A disclaimer may not be made after the beneficiary has accepted the interest sought to be disclaimed. [¶] (b) . . . [A] beneficiary has accepted an interest if any of the following occurs before a disclaimer is filed with respect to that interest: [¶] (1) The beneficiary . . . makes a voluntary assignment, conveyance, encumbrance, pledge, or transfer of the interest or part thereof, or contracts to do so; provided, however, that a beneficiary will not have accepted an interest if the beneficiary makes a gratuitous conveyance or transfer of the beneficiary's entire interest in property to the person or persons who would have received the property had the beneficiary made an otherwise qualified disclaimer pursuant to this part. [¶] . . . [¶] (3) The beneficiary . . . accepts the interest or part thereof or benefit thereunder."
Whether a beneficiary's actions constitute an acceptance for purposes of section 285 is a question of law we review de novo. (Estate of Goshen (1985) 167 Cal.App.3d 97, 100 (Goshen) ["validity of the disclaimer is a question of law"]; see Haworth v. Superior Court (2010) 50 Cal.4th 372, 385 [mixed questions of fact and law are generally reviewed de novo].)
In Estate of Murphy (1979) 92 Cal.App.3d 413 (Murphy), the decedent executed a will in which he left his estate to his wife and named her executrix. After the marriage was dissolved, each party waived any interest in the other's estate. After the decedent's death, his now ex-wife entered into an agreement with his parents in which she agreed to disclaim any interest under the will in exchange for one-fifth of the estate. The court found that by executing the settlement agreement the beneficiary effectively assigned to the decedent's parents the interest passed to her by the will, which constituted an acceptance of the interest, rendering the disclaimer invalid. (Id. at p. 424.) The court stated, "We note that the terms of the document indicate that [the beneficiary] was bargaining as opposed to disclaiming. Pursuant to [former] section 190, subdivision (c), a 'disclaimer' is a written instrument which declines, renounces, refuses, or disclaims any interest which would otherwise be succeeded to by a beneficiary. Logically, a disclaimer does not involve an agreement with other parties but rather implies a unilateral action which conveys no interest to other parties." (Id. at p. 423.) The court concluded the settlement agreement was an assignment and compromise, and not a disclaimer. (Ibid.)
Former section 190 is equivalent to current section 285. --------
In Goshen, a decedent left her entire estate to a nonrelated party, and named him executor. The decedent's daughter filed a will contest, which the beneficiary opposed. The daughter and beneficiary settled the contest and entered into a stipulation which provided that the beneficiary would disclaim his interest in the estate's assets in exchange for a life estate in a $50,000 investment fund. The parties agreed the remainder of the estate would go to the daughter. In accordance with the terms of the settlement agreement, the beneficiary executed a disclaimer of his interest in the decedent's estate in exchange for a life estate in income accruing from a $50,000 investment fund. (Goshen, supra, 167 Cal.App.3d at p. 100.)
The court held the beneficiary's disclaimer was invalid because his opposition to the daughter's will contest and agreement to disclaim his interest in the estate in exchange for a life estate in an investment fund constituted an acceptance. The court stated, "it is clear that respondent was bargaining rather than disclaiming. For more than a year respondent opposed [the daughter's] will contest. He then entered into a contract with [her] whereby he agreed to disclaim his interest 'in exchange for' a lifetime benefit in an investment fund. This agreement was an assignment and compromise rather than a disclaimer. Because [the beneficiary] accepted his interest before disclaiming it, the purported disclaimer . . . was invalid . . . ." (Goshen, supra, 167 Cal.App.3d at p. 102.)
Here, as in Murphy and Goshen, Khatib was bargaining as opposed to disclaiming. He explicitly said he was unwilling to "giv[e] up all rights" under Schroeder's will for no consideration, which a disclaimer requires, and for almost six months bargained to retain a percentage of the estate's primary asset, a chose in action against a nursing home. His agreement with the Nevarrez family was, in the trial court's words, "essentially . . . a business transaction" rather than a disclaimer. By entering into it Khatib effectively assigned his interest to the family, which constituted an acceptance. "Logically, a disclaimer does not involve an agreement with other parties but rather implies a unilateral action which conveys no interest to other parties." (Murphy, supra, 92 Cal.App.3d at p. 423.) The disclaimer was therefore invalid.
Respondent argues Khatib obtained no "tangible benefit" from the agreement with the Nevarrez family, but only "a future promise on an interest that has not realized yet." The argument is without merit.
A chose in action "is a right to recover money or other personal property by a judicial proceeding." (Civ. Code, § 953.) It is a property right, and "may be transferred by the owner." (Civ. Code, § 954.) Depending on the nature of the judicial proceeding, a chose in action might be quite valuable.
That the Nevarrez family pursues the nursing home action to this day indicates that the estate's chose in action—and Khatib's contingent interest in it—holds value.
Respondent argues the agreement by which Khatib retained an interest in the Nevarrez chose in action became effective only when the last Nevarrez sibling signed it on September 22, 2014, almost a month after Khatib disclaimed his interest in the Schroeder estate. Therefore, respondent argues, Khatib accepted the interest after disclaiming it, not before.
The argument is without merit because the Authorization is merely a result of the agreement, not the agreement itself. It sets forth no offer, acceptance, or obligation, nor mentions Khatib, but instructs Moran Law to carry out the Nevarrez family's obligations under the true agreement, i.e., to disburse funds to Khatib should the nursing home lawsuit succeed. The agreement by which Khatib assigned (and thus accepted) his interest in the Schroeder estate was negotiated over the course of several months, and went into effect before any party signed the Authorization and before Khatib disclaimed the interest.
In sum, before Khatib could cede his interest in the Schroeder estate to the Nevarrez family he first had to accept the interest. Any disclaimer thereafter was invalid under section 285.
Invalidation of Khatib's disclaimer will have no effect on administration of Schroeder's will. It will not, for example, reinstate Khatib as executor. After he declined to serve as executor, the probate court named Adam Nevarrez administrator. This remains unchanged. (An executor is named by the testator; an administrator is named by a court.)
Nor will invalidation of Khatib's disclaimer reinstate his interest in the Schroeder estate, as he already assigned that interest to the Nevarrez family for consideration. That consideration—a scaled share of any tort recovery—remains valid.
B. Substantial Evidence Supported Denial of Khatib's Fraud Claims
Khatib claimed at trial that fraud perpetrated by Moran and Adam Nevarrez to induce him to disclaim his interest in the Schroeder estate invalidated the disclaimer and disqualified Nevarrez as administrator. Khatib argues the court's finding of no fraud controverts uncontested evidence. We disagree.
Fraud in the inducement to contract has five elements: "(a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage." (Hinesley v. Oakshade Town Ctr. (2005) 135 Cal.App.4th 289, 294.)
Whether there has been a fraud is a question of fact. We review the trial court's fraud finding for substantial evidence. (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1052-1053.) " 'Where findings of fact are challenged on a civil appeal, we are bound by the "elementary, but often overlooked principle of law, that . . . the power of an appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted," to support the findings below. [Citation.] We must therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor in accordance with the standard of review so long adhered to by this court.' " (Id. at p. 1053.)
Here, substantial evidence supported the trial court's finding that there had been no fraud. Flint and Moran testified they never misled Khatib to disclaim his interest in Schroeder's estate, but instead accurately explained their intentions, the status of the nursing home lawsuit, and the tactics necessary to win an elder abuse case. Khatib, a businessman, understood their communications, knew what was necessary to protect his interests, and freely and knowingly bargained his 100 percent interest in an unwinnable case into a scaled interest in a winnable one. This evidence, which was credited by the court, supported its ruling that Khatib disclaimed his interest not because of any representation by Moran but as part of a dispassionate business transaction.
The ruling was further supported by the court's disbelief of Khatib's testimony that Moran had deceived or bullied him. The miscarriage of a petitioner's evidence fails the petitioner's burden of proof and justifies a ruling for the respondent.
Khatib argues Moran misrepresented to him that if he did not disclaim his interest he, Moran, would dismiss the nursing home lawsuit. This language does appear in an at least two communications, and is improper on its face, as an attorney cannot dismiss a lawsuit. But Moran also communicated to Khatib that the civil suit had languished since the remittitur, and the trial court was increasingly pressing him to name a viable plaintiff or face dismissal for lack of prosecution. Further, Moran was a highly experienced trial attorney, having conducted dozens of trials over the course of many years. At trial here, he ridiculed the notion of an attorney dismissing a lawsuit: "I don't wear the robes. . . . I don't have the authority to dismiss the case." In this context the trial court could reasonably infer that when Moran said he would dismiss the lawsuit he simply meant, and Khatib understood, that he would cease any further efforts to preserve it against dismissal by the court. Such an inference negates the fraud elements of scienter, intent to induce reliance, and justifiable reliance.
DISPOSITION
The judgment is reversed insofar as it upholds Khatib's disclaimer. In all other respects the judgment is affirmed. The matter is remanded with directions to enter a new judgment declaring the disclaimer invalid. Each side is to bear its own costs on appeal.
NOT TO BE PUBLISHED
CHANEY, J. We concur:
ROTHSCHILD, P. J.
BENDIX, J.