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Minkoff v. Koppelman

California Court of Appeals, Second District, Seventh Division
Jan 28, 2008
No. B195081 (Cal. Ct. App. Jan. 28, 2008)

Opinion


ALYSSE MINKOFF, Plaintiff and Respondent, v. HILLARI KOPPELMAN, Individually and as Trustee, etc., Defendant and Appellant. B195081 California Court of Appeal, Second District, Seventh Division January 28, 2008

NOT TO BE PUBLISHED

APPEAL from an order of the Superior Court of Los Angeles County No. BP097667, Aviva K. Bobb, Judge.

Anker, Reed, Hymes, Schreiber & Cohen, Martin S. Reed and Douglas K. Schreiber for Defendant and Appellant.

Steptoe & Johnson, Mark A. Neubauer and Rebecca Edelson for Plaintiff and Respondent.

PERLUSS, P. J.

The probate court granted Alysse Minkoff’s petition, filed pursuant to Probate Code section 21320, seeking a declaration her proposed petition alleging breaches of fiduciary duty by her aunt Hillari Koppelman, trustee of the Koppelman Community Property Trust (CP Trust), would not violate the CP Trust’s no contest clause. On appeal Koppelman contends the probate court erred in concluding the proposed petition would not violate the no contest clause and improperly denied an evidentiary hearing to consider extrinsic evidence relevant to Minkoff’s petition. We affirm.

Statutory references are to the Probate Code.

FACTUAL AND PROCEDURAL BACKGROUND

1. The CP Trust and Subtrusts

In 1985 Edward and Nettie Koppelman, the parents of Koppelman and grandparents of Minkoff, created the CP Trust, which was subsequently amended on three occasions before Edward’s death in 1997. The trust’s provisions indicate it was created for estate planning purposes, as well as to provide income to Edward and Nettie while they lived. When Nettie died, Edward allocated equal undivided shares in the assets of the CP Trust to two subtrusts, the Marital Trust and the Survivor’s Trust. Minkoff is one of a number of beneficiaries of the CP Trust and its subtrusts, as is Koppelman, who also serves as successor trustee to Edward for the various trusts.

Nettie died in 1995. We refer to Edward and Nettie Koppelman by their first names not out of disrespect but for convenience and clarity. (Cruz v. Superior Court (2004) 120 Cal.App.4th 175, 188, fn. 13.)

The stated purpose of this transaction was to enable the Survivor’s Trust to obtain a marital deduction under federal tax law. (See McIndoe v. Olivos (2005) 132 Cal.App.4th 483, 488-489 [discussing marital deduction trusts].)

The primary assets owned by Edward and Nettie during their lifetime and now subject to the interests of the respective CP Trust beneficiaries were derived from Edward’s development, in conjunction with a collaborator, Ted Venners, of a process for producing a cleaner pre-combustion coal for electric and industrial power generation, known as K-Fuel technology. The assets include royalty rights to a percentage of future revenue derived from the commercialization of K-Fuel technology by a company known as KFx, Inc. and a contingent promissory note from Venners, which is now estimated to be worth in excess of $10 million (the Venners Note). In 1997, shortly before his death and again for tax and estate planning purposes, Edward created a limited liability company, Koppelman Ventures LLC (KVLLC), into which he contributed as trustee of the CP Trust and relevant subtrusts the royalty rights and Venners Note in exchange for a 98 percent ownership interest in KVLLC. In effect, therefore, the CP Trust beneficiaries remain the beneficial owners of the assets. As part of the same transaction, Edward created Koppelman Management Corporation (KMC) through which he intended to manage KVLLC. During Edward’s lifetime, he was the sole owner of KMC, but, in the third amendment to the CP Trust, he bequeathed 100 percent of KMC’s stock to Koppelman free and clear of the trust. Thus, Koppelman is now the sole owner of KMC, the managing entity of KVLCC.

The Survivor’s Trust sold its undivided interest in the assets to the Marital Trust, which then contributed the assets to KVLLC in return for a 98 percent ownership interest in the limited liability company.

The remaining 2 percent interest in KVLCC was divided equally between Koppelman and KMC.

The Venners Note, which does not appear in the record, apparently provides that payments are to be made from the proceeds of any sales by Venners of his stock in KFx, Inc. Koppelman’s failure to pursue collection of the Venners Note forms the basis for Minkoff’s proposed petition alleging Koppelman, as trustee of the CP Trust, has breached her fiduciary duties to the trust beneficiaries.

2. The No Contest Clause and Minkoff’s Safe Harbor Petition

The CP Trust contains a no contest clause, which provides: “‘We have intentionally and with full knowledge omitted to provide for our heirs except for such provisions as are made specifically in this trust and in our Wills. If any person, who is or claims under or through a beneficiary of this trust or any amendment thereto, in any manner whatsoever, directly or indirectly, contests or attacks this trust or our Wills or performs any act that would frustrate the dispositive plan contemplated in this trust and our Wills or conspires or cooperates with anyone attempting to contest, attack, or frustrate this trust or our Wills (an ‘objector’), then in that event we specifically disinherit each such objector, and any portion of our estate not disposed of under the foregoing provisions of this trust shall pass to the other trust beneficiaries, excluding all objectors and all persons conspiring with or voluntarily assisting any objector; provided, however, that a petition, made in good faith and not opposed by the Trustee, seeking an interpretation of this trust or our Wills shall not be considered a contest of, an attack on, or an attempt to frustrate the dispositive plan of this trust or our Wills.’”

Minkoff, recognizing the import of this clause, filed a petition for declaratory relief under section 21320 seeking a determination as to whether her proposed petition alleging breaches of fiduciary duty by Koppelman and requesting an accounting of trust assets would violate the CP Trust’s no contest clause. Koppelman filed objections to the petition for declaratory relief as frivolous, contending “[n]either the [CP Trust nor the subtrusts] has any interest whatsoever in [KVLCC].” At a subsequent hearing, over Koppelman’s oral request for an evidentiary hearing on extrinsic evidence she argued would demonstrate Edward’s true intentions with respect to administration of the trust, the probate court granted the petition for declaratory relief; and the proposed petition was deemed filed.

CONTENTIONS

Koppelman contends the probate court erred in concluding Minkoff’s proposed petition would not violate the trust’s no contest clause and in failing to consider extrinsic evidence or conduct an evidentiary hearing on Edward’s intent to make her solely responsible for the management of the underlying assets, which would have demonstrated Minkoff’s petition is frivolous.

DISCUSSION

1. The Statutory Scheme

“‘[S]ection 21320 provides . . . a “safe harbor” for beneficiaries who seek an advance judicial determination of whether a proposed legal challenge would be a contest [under a particular no contest clause].’” (Estate of Kaila (2001) 94 Cal.App.4th 1122, 1130.) “If a court determines that a particular proposed action would constitute a contest, the beneficiary will then be able to make an informed decision whether to pursue the contest and forfeit his or her rights under a will or to forgo that contest and accede to the will’s provisions.” (Ibid. at p. 1130.)

Section 21305, which exempts specific actions from no contest clauses, took effect after Edward’s death and is not applicable to this case. (See Hermanson v. Hermanson (2003) 108 Cal.App.4th 441, 445-446.)

“No contest clauses are valid in California and are favored by the public policies of discouraging litigation and giving effect to the purposes expressed by the testator. [Citations.] Because a no contest clause results in a forfeiture, however, a court is required to strictly construe it and may not extend it beyond what was plainly the testator’s intent. [Citations.] [¶] ‘Whether there has been a “contest” within the meaning of a particular no-contest clause depends upon the circumstances of the particular case and the language used.’ [Citations.] ‘[T]he answer cannot be sought in a vacuum, but must be gleaned from a consideration of the purposes that the [testator] sought to attain by the provisions of [his] will.’ [Citation.] Therefore, even though a no contest clause is strictly construed to avoid forfeiture, it is the testator’s intentions that control, and a court ‘must not rewrite the [testator’s] will in such a way as to immunize legal proceedings plainly intended to frustrate [the testator’s] unequivocally expressed intent from the reach of the no-contest clause.’” (Burch v. George (1994) 7 Cal.4th 246, 254-255, fn. omitted; see also § 21102, subd. (a) [“[t]he intention of the transferor as expressed in the instrument controls the legal effect of the dispositions made in the instrument”]; § 21304 [“[i]n determining the intent of the transferor, a no contest clause shall be strictly construed”].)

We review the language of the trust de novo, considering the circumstances under which the document was made in order to place ourselves in the position of the trustor to interpret the document. (Wells Fargo Bank v. Marshall (1993) 20 Cal.App.4th 447, 453; Burch v. George, supra, 7 Cal.4th at pp. 254-255; In re Estate of Davies (2005) 127 Cal.App.4th 1164, 1173.) Extrinsic evidence relevant to the intended meaning of the no contest clause is admissible only if it is relevant to show a meaning to which the language is reasonably susceptible. (See Estate of Kaila, supra, 94 Cal.App.4th at p. 1133.) When there is ambiguity in the trust instrument, the construction giving the no contest clause the narrower scope should be adopted. (Ballard v. McCallum (1940) 15 Cal.2d 439, 444.) In the end, “[e]ach case depends upon its own peculiar facts and thus case precedents have little value when interpreting a trust.” (McIndoe v. Olivos (2005) 132 Cal.App.4th 483, 487; Betts v. City National Bank (2007) 156 Cal.App.4th 222, 233.)

2. The Probate Court Did Not Err in Granting Minkoff’s Section 21320 Petition

a. The proposed petition does not violate the trust’s no contest clause

As quoted above, the CP Trust’s no contest clause is directed to “any person . . . [who] . . . directly or indirectly, contests or attacks this trust or our Wills or performs any act that would frustrate the dispositive plan contemplated in this trust . . . .” The crux of the proposed petition, on the other hand, is not a challenge to Nettie and Edward’s plan for distributing trust assets but Minkoff’s attempt to secure definitive information about those assets and to determine whether Koppelman, in her capacity as trustee, has managed them in keeping with her fiduciary duties to the trust beneficiaries, including Minkoff. The proposed verified petition identifies a series of inconsistent statements and actions by Koppelman, including a disturbing lack of transparency in her handling of the assets, and seeks redress for these alleged breaches of her fiduciary duty. There is simply no effort in the proposed petition to “contest or attack” the terms of the Trust or “to frustrate” the dispositive plan contemplated by the Trust.

For instance, according to the allegations of the proposed petition, Koppelman failed to provide Minkoff or the other beneficiaries copies of the documents purportedly transferring the assets from the trust to KVLLC or, to this day, a copy of the Venners Note itself. Koppelman announced in 2004 her intention to close the CP Trust by distributing shares of KVLCC and “a small amount of cash.” Until 2005 Koppelman also declined to provide a formal accounting of trust income and expenses and distributed seemingly random sums drawn on her own personal checking account. Minkoff’s suspicions created by her aunt’s inexplicable refusal to disclose the nature and status of the assets were exacerbated by her discovery that Venners had engaged in multiple transactions related to his stock in KFx, which Koppelman had apparently disregarded based on her assertion, “Papa would have wanted it this way.” Minkoff alleges, based on information and belief, that Venners, who has long been an officer and director of KFx, has never disclosed the existence of the note to his board of directors or to regulatory authorities.

Koppelman counters her powers as trustee include the discretion to manage the assets in any way she sees fit, as she is empowered “[t]o collect, hold, and retain any property received from a Settlor or any other person by Will or otherwise until, in the judgment of the Trustee, disposition of the property should be made”; . . . “[t]o continue or participate in the operation of any business or other enterprise . . . that is part of the trust property at the risk of the trust estate and not at the risk of the Trustee”; . . . and “[t]o invest and reinvest principal, and income if accumulated, in such securities, properties, and business enterprises as the Trustee may deem advisable . . . .” She contends those broad powers make her position in this action comparable to that of the trustees in Hearst v. Ganzi (2006) 145 Cal.App.4th 1195 (Hearst), whose alleged “favoring [of] the remainder beneficiaries over the income beneficiaries” (id. at p. 1200) was at issue in a petition filed pursuant to section 21320. Our colleagues in Division Three concluded the trust language conferring upon the trustees the power “‘to decide what is income and what is corpus or principal’ of the Trust, as well as ‘to hold funds either uninvested or invested in non-income producing securities or property in such amounts, for such periods of time and to such extent as to them may from time to time seem best . . .,’” authorized the trustees’ actions and barred the filing of the proposed petition challenging the alleged favoritism under the trust’s no contest clause. (Hearst, at p. 1211.)

Koppelman’s reliance on Hearst is misplaced. The language of the Hearst trust expressly authorized the trustees’ actions, which favored remainder beneficiaries over current income beneficiaries by maintaining a dividend policy that retained the bulk of available cash for growth, so long as they exercised their discretion in good faith. (Hearst, supra, 145 Cal.App.4th at p. 1211.) The no contest clause safeguarded the exercise of that discretion by prohibiting actions seeking to invalidate any provision of the trust at issue. (Id. at p. 1210.) Because the proposed petition in Hearst failed to allege the trustees’ dividend policy had been “grounded in bad faith or an improper motivation,” it amounted to a proscribed contest. (Id. at p. 1211.)

In stark contrast, Minkoff’s proposed petition alleges Koppelman breached her fiduciary duties to the trust beneficiaries by failing to preserve trust assets, conduct that is nowhere authorized in the CP Trust. As Hearst itself explains, “‘[T]he power of the court is invoked in probate matters, at least in substantial measure, to protect the estate and ensure its assets are properly protected for the beneficiaries.’” (Hearst, supra, 145 Cal.App.4th at p. 1213; see §§ 16006, 16007 & 16010.) Thus, “‘beneficiaries who believe an executor is engaged in misconduct [are allowed] to bring the potential malfeasance to the court’s attention without fear of being disinherited . . . .’” (Id. at p. 1214; see also Estate of Ferber (1998) 66 Cal.App.4th 244, 253 (Ferber) [“‘[i]t is always proper for a beneficiary of an estate who believes that the executor is not fulfilling his duty to make the objections which the code permits without risk of suffering a penalty provided by an in terrorem clause’”].) Under any analysis,the inherent limitations on Koppelman’s discretion as trustee, including her fiduciary duties to trust beneficiaries and her obligation to protect trust assets, undermine her assertion of unfettered discretion to manage those assets without second-guessing or oversight by trust beneficiaries. Accordingly, based on the language of the CP Trust document itself, the probate court correctly granted Minkoff’s petition under section 21320.

The CP Trust clearly imposes these duties on Koppelman: “The enumeration of certain powers of the Trustee shall not limit the Trustee’s general or implied powers. The Trustee, subject always to the obligations of a fiduciary, is vested with all rights, powers, and privileges which an outright owner of the same property would have.” (Italics added.) In a similar clause Koppelman’s discretion is circumscribed by the duty to exercise her powers “with the care, skill, prudence, and diligence under the circumstances then prevailing . . . and with like aims to accomplish the purposes of the trust as determined from the trust instrument.”

b. Koppelman’s attempt to demonstrate Minkoff’s petition is frivolous does not warrant denial of the safe harbor petition

Relying on language from Ferber, supra, 66 Cal.App.4th 244, Koppelman asserts, even if the language of the CP Trust itself does not bar Minkoff’s challenge, the undisputed extrinsic evidence demonstrates the proposed petition is frivolous and, therefore, warrants denial of the petition. Koppelman’s argument fundamentally misconstrues the holding in Ferber.

The no contest clause at issue in Ferber was drafted to go as far as possible “to avoid any litigation at all involving [Ferber’s] estate.” (Ferber, supra, 66 Cal.App.4th at pp. 247-248.) The clause, in part, purported to disinherit any person who “objects in any manner to any action taken or proposed to be taken by my Executor” or “unsuccessfully requests the removal of any person acting as an executor.” (Id. at 248) One of the beneficiaries brought a petition under section 21320 for a determination whether filing objections to an accounting by the executor would violate the no contest clause. (Id. at p. 249.) The trial court held the proposed objections could be filed because the no contest clause violated public policy insofar as it sought to prevent such action. (Ibid.) The trial court also held the no contest provision regarding removal of the executor violated public policy. (Id. at p. 252.) The Court of Appeal agreed in part: “No contest clauses that purport to insulate executors completely from vigilant beneficiaries violate the public policy behind court supervision.” (Id. at p. 253.) Nonetheless, balancing the interests of the beneficiary with the public policy in favor of the validity of no contest clauses, the court held no contest clauses purporting to preclude any action against an executor were enforceable against “beneficiaries who attempt to oust the executor with a frivolous challenge.” (Id. at p. 254.) Similarly, the Court of Appeal held the trial court should have found the no contest clause was valid “insofar as it prohibited frivolous objection’s to the accounting, but otherwise was invalid.” (Id. at p. 255.)

The fact the no contest clause provided for forfeiture only if the complaining beneficiary was unsuccessful did not save the clause because “even that type of clause casts much too great of a chilling effect on beneficiaries. Determining whether a beneficiary would be successful in ousting an executor involves factual questions, foreclosing an advance ruling under section 21320. [Citation.] Without the protection of that section, few, if any, beneficiaries would be bold enough to challenge an executor on penalty of disinheritance.” (Ferber, supra, 66 Cal.App.4th at p. 254.)

Ferber thus stands for the following limited proposition: If a proposed petition implicates a will’s or trust’s no contest clause and full enforcement of the no contest clause would violate public policy by insulating an executor or trustee from scrutiny by beneficiaries and court supervision, then the clause is invalid in part, but may nonetheless be enforced to the extent the proposed petition can be found to be frivolous “as a matter of law without reference to any factual matters.” (Ferber, supra, 66 Cal.App.4th at p. 251; see Hearst, supra, 145 Cal.App.4th at pp. 1213-1214.) In this case, unlike Ferber, the probate court correctly concluded Minkoff’s proposed petition does not trigger the no contest clause as written. Accordingly, we have no occasion to determine whether the no contest clause violates public policy in whole or in part; and the Ferber frivolous petition exception to the public policy analysis is simply not germane.

c. The probate court did not err in failing to set the matter for an evidentiary hearing

Koppelman finally contends the court erred when it failed to consider the extrinsic evidence of Edward’s intent submitted with Koppelman’s objections to the petition and when it refused to schedule an additional evidentiary hearing on her objections. This contention is meritless.

With her opposition to Minkoff’s section 21320 petition, Koppelman submitted evidence, described as undisputed, that purported to prove Edward had intended to give Koppelman complete discretion to manage the assets (the royalty rights and the Venners Note) as she saw fit and, in any event, all of the assets had been removed from the CP Trust or distributed to the beneficiaries, and, therefore, were no longer subject to her control as trustee. Specifically, Koppelman presented to the court a purported assignment of the trust assets to KVLLC executed by Edward Koppelman in 1997 and a 1993 instruction from him appointing her to make all decisions in matters involving KFx, Inc. and Edward Venners. In addition, Koppelman attached documents she asserts demonstrate the trust’s 98 percent ownership interest in KVLLC, obtained in 1997, was distributed to the beneficiaries in 2004, leaving the CP Trust effectively without any corpus.

Whatever the significance of this evidence to resolving Minkoff’s allegations Koppelman has breached her fiduciary duties as trustee of the CP Trust, they are irrelevant to resolution of the section 21320 petition. The trust’s no contest clause is not ambiguous, and consideration of this extrinsic evidence is unnecessary. (Estate of Kaila, supra, 94 Cal.App.4th at p. 1133.) Moreover, any analysis of the legal import of Koppelman’s evidence would involve a determination of the merits of Minkoff’s proposed petition -- an inquiry not permitted in ruling on a section 21320 petition: “As a general rule, the decision about whether the beneficiary’s proposed action would be a will contest may not involve a determination of the merits of the action itself, a rule that ‘makes sense’ because the summary safe harbor procedure could otherwise ‘be used to allow the very form of challenge and protracted litigation the testator sought to prevent.’” (Estate of Davies, supra, 127 Cal.App.4th at p. 1173; cf. Ferber, supra,66 Cal.App.4th at p. 251 [“[a] ruling on whether the beneficiary’s proposed action would be a will contest may not involve a determination on the merits of the action itself”].) Any determination here as to whether the CP Trust beneficiaries have the right to challenge Koppelman’s management of KVLLC would necessarily require us to determine factual issues beyond the scope of this proceeding.

Finally, even were the language of the CP Trust sufficiently ambiguous to warrant consideration of extrinsic evidence, Koppelman’s assertion the court disregarded the evidence she submitted is not supported by the record and rests on pure speculation. While it is true the court did not refer to the additional documents submitted by Koppelman, the court’s silence on this issue -- absent a timely request for an express ruling on the admissibility or import of the evidence -- is meaningless. “‘[A] judgment or order of the lower court is presumed correct. All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown.’” (Rappenecker v. Sea-Land Service, Inc. (1979) 93 Cal.App.3d 256, 266.)

DISPOSITION

The order of the probate court is affirmed. Minkoff is to recover her costs on appeal.

We concur: WOODS, J., ZELON, J.


Summaries of

Minkoff v. Koppelman

California Court of Appeals, Second District, Seventh Division
Jan 28, 2008
No. B195081 (Cal. Ct. App. Jan. 28, 2008)
Case details for

Minkoff v. Koppelman

Case Details

Full title:ALYSSE MINKOFF, Plaintiff and Respondent, v. HILLARI KOPPELMAN…

Court:California Court of Appeals, Second District, Seventh Division

Date published: Jan 28, 2008

Citations

No. B195081 (Cal. Ct. App. Jan. 28, 2008)