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San Pasqual Fiduciary Trust Co. v. Holt

COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE
Dec 5, 2018
No. G054571 (Cal. Ct. App. Dec. 5, 2018)

Opinion

G054571

12-05-2018

SAN PASQUAL FIDUCIARY TRUST COMPANY, as Trustee, etc., Plaintiff and Respondent, v. CLUNIES A. HOLT et al., Defendants and Appellants, DAVID M. DENHOLM, Defendant and Respondent.

Law Offices of William B. Hanley and William B. Hanley for Defendants and Appellants. Poindexter & Doutré and Jeffrey A. Kent for Plaintiff and Respondent. Hinojosa and Forer, Jeffrey Forer and Shannon H. Burns for Defendant 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. A239915) OPINION Appeal from orders of the Superior Court of Orange County, Mary Fingal Schulte, Judge. Affirmed. Law Offices of William B. Hanley and William B. Hanley for Defendants and Appellants. Poindexter & Doutré and Jeffrey A. Kent for Plaintiff and Respondent. Hinojosa and Forer, Jeffrey Forer and Shannon H. Burns for Defendant Respondent.

* * *

This is hopefully the last appeal arising from a long protracted dispute among the beneficiaries of a family trust formed in 1973. This appeal concerns a challenge to the probate court's decision to affirm David M. Denholm's accounting for the time he served as trustee and the court's refusal to surcharge Denholm for attorney fees paid by the trust. Two of the trust's beneficiaries who are mother and daughter, Clunies A. Holt and Clunies E. Holt (hereafter collectively referred to as the Holts unless the context requires otherwise), argue the probate court abused its discretion in approving the payment of trustee and attorney fees when the trustee was found to be liable in a civil action for breaching his fiduciary duty to the trust. The current trustee, San Pasqual Fiduciary Trust Company (San Pasqual), filed a brief stating it was "neutral" on the issues raised in the appeal.

In 2008 four different probate petitions were placed on hold due to the flurry of litigation and appeals between the Holts and San Pasqual, which had sought the probate court's instructions on several matters (not relevant to this appeal). The probate court also postponed ruling on Denholm's 2008 accounting because it was waiting for a final judgment in the Holts' civil action against Denholm, which resulted in a nearly $6 million award to the family trust. In 2016 the probate court finally considered the above five pending matters in one hearing, ruling on all the remaining issues in this complex probate case. This appeal challenges the probate court's approval of the accounting, which authorized trustee fees for Denholm's services, and payments of attorney fees incurred to prepare the accounting and other legal services. On appeal, the Holts maintain the probate court abused its discretion in awarding these fees because Denholm breached his fiduciary duty and was found liable for fraud and conversion. We affirm the probate court's orders.

FACTS

I. Background Facts

Before describing the facts relevant to this appeal, we begin with a brief recap of the civil and probate proceedings concerning the parties leading up to trial on the 2008 accounting. The case concerns the David Scott Denholm and Clunies Manson Denholm Trust dated April 2, 1973 (the Trust). David Scott Denholm (Father) died in 1984 and Clunies Manson Denholm (Mother) died in 2005. The Trust is irrevocable. The primary beneficiaries of the Trust are the settlors' son, Denholm, and daughter, Clunies A.

The Trust provided that after Mother's death, Denholm became a 50 percent income beneficiary until the fifth anniversary of her death. After that date, Denholm was entitled to receive a distribution of one-half of the Trust's assets. Clunies A. was also a 50 percent income beneficiary until the fifth anniversary date, after which she was to be the sole income beneficiary of the Trust. Clunies A.'s three children, Clunies E., James Holt, Jr., and Cameron Holt Schmidt, were entitled to whatever assets remained in the Trust upon Clunies A.'s death.

Denholm was the trustee of the Trust from its inception until he resigned in December 2007. The court appointed San Pasqual as the interim trustee.

Denholm is a real estate developer. He entered into various real estate ventures, investing the Trust's money by creating and using various limited liability companies (LLCs), corporations, and partnerships (Denholm Related Entities). The catalyst for Denholm's resignation as trustee was the Holts' decision to attack him in both the probate court and with a civil lawsuit. The civil action alleging breach of fiduciary duty and other torts, named Denholm's partner, ex-wife, business partner, his companies, the Denholm Related Entities, as well as, Denholm, individually, and as trustee of the Trust. In the probate action, the Holts filed petitions to remove Denholm as trustee and executor of the estate raising similar complaints as those alleged in the civil action.

After Denholm voluntarily resigned, the Holts filed an ex parte application seeking an order to show cause (OSC) regarding contempt against Denholm. The Holts asserted Denholm violated the probate court's prior order directing Denholm, when he was trustee, to only "'pay normal expenses of the trust that are ordinary and necessary.'" The Holts complained Denholm violated the order by paying from the Trust his attorney fees (listing eight different payments on specific dates) and expert fees (three payments on specified dates).

On our own motion, we took judicial notice of the documents and orders relating to the removal and contempt proceedings. (Evid. Code, § 452.) The probate court also took judicial notice of this evidence.

The contempt proceedings were held by Judge Marjorie Lair Carter, who concluded Denholm had not violated the order, and therefore, was not in contempt. Judge Carter ruled, "Payment of witness fees and attorney fees are normal and ordinary expenses of the Trust and, unless specifically requiring Court approval, could be paid by the Trust." Judge Carter noted, "Had [the Holts] wished to restrict payment of attorney fees and expert witness fees, that should have been requested. But it was not."

The civil action was tried in 2010 before Judge David C. Velasquez. The court dismissed one cause of action, found in favor of Denholm on three causes of action, and in favor of the Holts (on behalf of the Trust) on the first, second, and seventh causes of action (breach of fiduciary duty, constructive fraud, and conversion respectively). The court awarded the Trust damages totaling $5,751,682 (hereafter $5.7 million judgment).

After the civil court entered the judgment, it ordered the Holts to pay attorney fees totaling $479,164.25 to Denholm's company HGC Irvine, LLC (HGC) and his business partner, Waterpointe Development Companies, LLC (Waterpointe). The civil court had dismissed these entities from the lawsuit, along with all the other defendants except Denholm, after the Holts presented their case-in-chief. We affirmed the trial court's dismissal ruling and attorney fee award in Clunies A. Holt v. David M. Denholm (Apr. 28, 2014, G045496) [nonpub. opn.] (hereafter Holt I). In this opinion, we also rejected Denholm's and the Holts' challenges to several aspects of the trial court's judgment that we need not repeat here. (Ibid.) We affirmed the $5.7 million judgment in favor of the Trust.

In a separate opinion, we considered several additional appeals filed by Denholm, one of his LLCs (CALCO Properties), and the Holts regarding postjudgment attorney fee awards. (Clunies A. Holt v. David M. Denholm (Apr. 28, 2014, G046293) [nonpub. opn.] (hereafter Holt II).) We affirmed the trial court's ruling denying the Holts' request for attorney fees. We affirmed the order granting CALCO Properties' request for attorney fees, but remanded the matter with directions for the trial court to calculate the amount based on facts and evidence rather than applying a simplistic formula. (Ibid.)

Meanwhile, San Pasqual petitioned the probate court for instructions about several concerns it had about distribution obligations and managing the Trust's assets. We affirmed two probate court orders. First, in San Pasqual Fiduciary Trust Company v. Clunies A. Holt (Nov. 8, 2013, G046003) [nonpub. opn.] (San Pasqual I), we rejected the Holts' challenge to the probate court's order granting the interim trustee's petition for instructions about leasing real property of the Trust and directing the payment of net income to Clunies A. We determined the Holts' contention the trustee lacked standing to bring the petition lacked merit and that Clunies A. was not entitled to additional income.

Second, in San Pasqual Fiduciary Trust Company v. Clunies A. Holt (Nov. 8, 2011, G047029) [nonpub. opn.] (San Pasqual II), we rejected the Holts' challenge to the probate court's order granting the interim trustee's petition for instructions about what conditions, if any, should be placed on the required distribution of one-half of the Trust's principal to Denholm in light of the $5.7 judgment Denholm will owe the Trust if he loses his appeal that was, at the time, pending before this court. We affirmed the probate court's order holding (1) Denholm was a beneficiary having a vested interest in 50 percent of the Trust's assets, which would also include the civil judgment, and (2) distribution of those assets must be made whenever the remittitur issued in Holt I and Holt II.

II. San Pasqual II

Relevant to this appeal, we mentioned in the San Pasqual II opinion that the Holts objected to Denholm's "Amended First Account" (AFA), filed for a one-year period he served as trustee. Specifically, the Holts argued Denholm was not entitled to the credits he took as trustee and they wanted to surcharge him. The probate court had not ruled on the AFA or the objections. Consequently, San Pasqual included in its petition a request for instructions on how to distribute the Trust's principle in view of the objections to Denholm's accounting (in addition to the $5.7 million judgment against him). (San Pasqual II, supra, G047029.)

In San Pasqual II, we considered the Holts' argument on appeal regarding the right to a surcharge. The Holts maintained that if this court determined Denholm was entitled to one-half of the judgment his interest should be surcharged by that amount. However, we did not address the issue in the opinion because we determined it was brought prematurely. Because the probate court had not yet ruled on any surcharge requests, there was no order for us to review on appeal. (San Pasqual II, supra, G047029.)

We noted, "The record shows that in response to Denholm's request that the Trust property be sold to help pay his debt, the probate court noted San Pasqual had a duty under [Probate Code] section 16006 'to preserve [T]rust property and under [Probate Code] section 16010 to enforce claims that are part of the [T]rust property. Such claims include the civil judgment, and any surcharges against [Denholm] in connection with the pending accounting. [San Pasqual] asserts the trustee's right to claim an offset, which is an equitable principle. [Citations.] There has been no surcharge to date. [¶] . . . [¶] We anticipate San Pasqual will file a petition when the remittitur has issued, seeking instructions on the amount to be distributed. Issues regarding offsets and surcharges can properly be addressed at that time." (San Pasqual II, supra, G047029.) That time is now.

All further statutory references are to the Probate Code, unless otherwise indicated.

III. The Accounting

In 2008, Denholm filed the AFA, seeking "settlement" and requesting payment of attorney fees and trustee fees. Denholm provided a factual history leading up to the accounting, stating that shortly after Mother's death, Clunies A. demanded an accounting for the 33-year period he served as trustee while taking care of their parents. Unsatisfied with the tax returns and other documents Denholm provided, the Holts filed a petition to compel an accounting of the Trust on the one-year anniversary of Mother's death. The court ordered Denholm to provide an accounting for the year prior to Mother's death (October 7, 2004, through November 30, 2006).

Before he could file the accounting, the Holts filed their civil complaint against him and petitions to remove him as trustee/executor. At a hearing on December 3, 2007, Denholm resigned as trustee and the Holts withdrew their removal petition. The court asked Denholm to amend the accounting to include a longer period of time, starting one year before Mother's death (October 7, 2004) until the time of his official resignation as trustee (December 5, 2007). Although the Holts had initiated contempt proceedings in January 2008 and the matter was still pending, Denholm filed the AFA on February 1, 2008, which listed and sought approval of the same Trust payments disputed in the contempt action. The AFA also described other Trust payments and requested trustee fees. A. Trustee Fees

Denholm maintained that for the past 34 years he never paid himself trustee fees. His fee request related to two periods. First, Denholm requested $265,287.50 for his services during the accounting period (October 2004 through December 2007). Second, Denholm sought $919,256.12 for his trustee services from inception of the trust in April 1973 "up and through the accounting period" (April 1973 through October 2004). Denholm stated that if he was surcharged for self-dealing trust funds in investments (the $5.7 judgment), he should be awarded the requested reasonable trustee fees to offset the surcharge. B. Attorney Fees

With respect to the issue of attorney fees, Denholm noted the Trust authorized the trustee to hire an attorney to "defend his position." Denholm hired Hinojosa & Wallet (the Hinojosa Firm) to address the Holts' complex litigation and probate petitions. He requested $577,163 for attorney fees incurred December 15, 2006, through November 15, 2007. Denholm asked the court to approve these fees already paid to the law firm.

Denholm stated the Trust owed an additional $121,042.10 to the Hinojosa firm for services provided from November 15 to when he resigned as trustee in December 2007. He requested that the court direct San Pasqual to pay those fees.

Before trial, Denholm stated in his trial brief that in addition to fees incurred during litigation of the removal petition, he was requesting attorney fees incurred for the preparation, filing, and defense of the AFA. "To date [the Hinojosa Firm was] owed in excess of $75,000 and $285.56 in costs."

IV. The Trial

After our opinions in San Pasqual I and San Pasqual II became final in 2014, the probate court scheduled a trial to consider the following five remaining matters: (1) San Pasqual's petition for instructions concerning distribution of Trust principal to Denholm (Distribution Petition); (2) The Holts' petition for an order authorizing a surcharge of Denholm's distributive share of the Trust with the $5.7 million judgment; (3) San Pasqual's petition for instructions concerning a request to loan Trust funds; (4) approval of Denholm's AFA; and (5) the Holts' petition to expand the accounting.

Trial lasted several days, during which the court considered witness testimony, exhibits, judicially noticed documents, and oral argument. The court prepared a statement of decision, which began with a brief description of background facts. The court also described the prior trials and appeals, stating, "[u]nder the doctrines of law of the case and collateral estoppel, the prior orders and appellate opinions frame and guide the disposition of the issues concerning the calculation and distribution of . . . Denholm's one-half distributable share of the Trust."

The court discussed the May 2011 civil judgment of approximately $5.7 million in favor of the Trust, affirmed by this court in April 2014. Second, it discussed the May 15, 2012, probate court order, explaining the Trust terms changed on the fifth anniversary of Mother's death (October 7, 2010). On that day, Denholm was supposed to receive half of the trust. However, San Pasqual did not proceed with the distribution because the court in the civil action issued a minute order in September 2010, awarding the Trust over $5.7 million. On May 15, 2012, the probate court made the following ruling in response to San Pasqual's petition for instructions: (1) 50 percent of the trust assets, as of October 7, 2010, vested with Denholm; (2) the Trust assets on that date include the $5.7 million civil judgment; and (3) San Pasqual should proceed with distribution after the remittitur was filed in the appeals of the civil judgment. The probate court noted the May 2012 ruling was affirmed on appeal and the opinion also determined the Holts' argument regarding the right to a surcharge was premature.

Next, the court ruled on the five petitions before it. It started with Denholm's AFA. "[Denholm's AFA] is approved. The reporting in the [AFA] of financial matters appears accurate and complete. There are no surcharges in addition to those already encompassed by the [c]ivil [j]udgment."

The court ruled on the attorney fee requests as follows: "[Denholm], while still trustee, incurred attorney[] fees, expert fees and costs in defense of the [r]emoval [p]etition, $577,163[] of which was paid by the Trust, $121,042.10 was not. The [r]emoval [p]etition ultimately was dismissed by the stipulation that resulted in San Pasqual's appointment as [i]nterim [t]rustee. [Denholm's] request for an award in the unreimbursed amount of $121,042.10 is granted. [Citations.] The [c]ourt finds that the reimbursed and unreimbursed amounts were reasonable in amount and necessarily incurred by . . . Denholm as trustee in defense of the [r]emoval [p]etition. There was no credible evidence challenging either the reasonableness or necessity of these attorney[] fees, expert fees[,] and costs. The [c]ourt took judicial notice of the proceedings in respect to the [r]emoval [p]etition and also determined from that review the reasonableness and necessity of these attorney[] fees, expert fees[,] and costs. Additionally, [the judge in the civil action] determined in contempt proceedings in the [c]ivil [a]ction that the amounts paid by . . . Denholm from the Trust to his counsel and experts qualified as reasonable expenses that were both ordinary and necessary payments from the Trust, and that these payments were in defense of the [r]emoval [p]etition and this trust proceeding, and were not related to the [c]ivil [a]ction."

The court also awarded attorney fees incurred for the costs incurred for the preparation, filing, and defense of the AFA, incurred after Denholm was no longer trustee. It determined the amount "reasonable or necessary" was $75,000 for attorney fees and $258.56 in costs after taking judicial notice of the proceedings concerning the AFA.

The court denied the Holts' petition to expand the accounting to a starting date of April 2, 1973, when Denholm first was appointed trustee. It concluded this was not necessary because Denholm's actions for this period were reviewed in the civil action.

In the statement of decision, the court discussed San Pasqual's distribution petition and provided several instructions. It determined San Pasqual, not the Holts, would collect the civil judgment. It ordered the Holts to cease and desist their collection attempts. It rejected the Holts' argument Denholm must pay the judgment before any distributions. The court discussed how certain Trust assets, including real property, should be valued and distributed.

The court acknowledged the civil judgment had a per diem interest rate exceeding $1,000. It ordered the effective date for calculating the amount of the civil judgment, for purposes of calculating Denholm's distribution, was April 1, 2016 (the date of the statement of decision). The court also addressed the effective date to calculate undistributed income and the amount of interest that accrued on that income.

The statement of decision also discussed trustee fees. The court awarded $265,287.50 for services during the period of accounting until Denholm's resignation (October 7, 2004, to December 5, 2007). The court explained the Trust did not have a provision regarding trustee fees and it found credible the expert opinion of Ken Feinfield on the issue of trustee compensation. It considered and weighed the evidence and the various factors set forth in California Rules of Court, rule 7.776. It added, the factor concerning the trustee's fidelity or disloyalty was not an issue because Denholm's liability in the civil judgment "was not determined to be bad faith."

For the time Denholm served as trustee before the accounting (1973 through 2004) the court awarded $30,000. The court noted that although Denholm sought $919,356 for this same time period, Denholm also admitted he would not have requested any trustee fees but for the Holts' civil litigation. The court concluded the award "balances these considerations."

The final section of the statement of decision (relevant to this appeal) concerned the Holt's surcharge petition. The court determined most of the claims against Denholm were resolved in the court's previous ruling on the AFA and the distribution petition. It determined the Holts were not entitled to a surcharge for, or an award of, attorney fees incurred in the civil action. It noted this same request was made and denied in the civil action. It concluded the Holts were not entitled to attorney fees under section 17211, subdivision (b) [beneficiary contesting trustee account entitled to fees if trustee's opposition was in bad faith]. The court also noted the civil action decided Denholm did not act in bad faith in opposing the lawsuit.

The court rejected the Holts' assertion they were entitled to a surcharge or award of attorney fees incurred for the removal petition. It concluded the matter was dismissed years ago without any discussion of attorney fees. The court found no merit to the Holts' request to surcharge Denholm for fees sought by Irell & Manella of $78,585.98. It reasoned this fee claim "was not pursued by anyone at trial," and in any event, the fees would be paid by the Trust, not Denholm. Finally, the court determined the Holts failed to meet their burden of proof in establishing a double surcharge pursuant to section 859.

DISCUSSION

I. Trustee Fees

The Holts assert Denholm is not entitled to trustee fees because he was found liable to the Trust in the civil action. The Holts maintain there is no factual basis to support the award because of the evidence Denholm borrowed money from the trust, engaged in self-dealing, and was found liable for conversion.

When there has been a settlement of each account, the trustee is entitled to reasonable compensation for services rendered. (§§ 15680-15684; former § 1122; Estate of Gump (1991) 1 Cal.App.4th 582, 597.) Allowance of trustee expenses rests in the probate court's sound discretion, and its ruling will not be disturbed on appeal absent a showing of manifest abuse. (Estate of Gump, supra, 1 Cal.App.4th at p. 597.) In ruling on a trustee's request for reimbursement, the court may "tak[e] into consideration the interests of the beneficiaries under all of the circumstances." (Johns v. Peterson (1942) 52 Cal.App.2d 720, 724.)

The Holts suggest the civil judgment makes "it clear Denholm's conduct precludes any award of trustee fees." But there is no such bright line test. When there has been a breach of trust, the trustee is liable to the beneficiary for any loss (which in this case the civil court determined was $5.7 million). However, it is a different question whether the trustee's compensation should be denied. "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 full compensation." (Rest.2d Trusts, § 243, italics added.) "When the compensation of the trustee is reduced or denied, the reduction or denial is not in the nature of an additional penalty for the breach of trust but is based upon the fact that the trustee has not rendered or has not properly rendered the services for which compensation is given." (Ibid., com. a.)

The California Rules of Court, rule 7.776 (hereafter Rule 7.776) sets forth eight non-exclusive factors the court may consider. "In determining or approving compensation of a trustee, the court may consider, among other factors, the following: [¶] (1) The gross income of the trust estate; [¶] (2) The success or failure of the trustee's administration; [¶] (3) Any unusual skill, expertise, or experience brought to the trustee's work; [¶] (4) The fidelity or disloyalty shown by the trustee; [¶] (5) The amount of risk and responsibility assumed by the trustee; [¶] (6) The time spent in the performance of the trustee's duties; [¶] (7) The custom in the community where the court is located regarding compensation authorized by settlors, compensation allowed by the court, or charges of corporate trustees for trusts of similar size and complexity; and [¶] (8) Whether the work performed was routine, or required more than ordinary skill or judgment."

The Holts' entire argument on appeal focuses on one of the eight factors (factor No. 4). They fail to discuss evidence relating to the other seven factors or the evidence cited by the trial court in its statement of decision. In essence, the Holts appear to be suggesting a civil judgment against a trustee should automatically preclude the payment of trustee fees. The argument attempts to turn the standard of review on its head. It completely ignores the Holts had the burden of proving the court's ruling was an abuse of discretion. (Denham v. Superior Court (1970) 2 Cal.3d 557, 566 ["The burden is on the party complaining to establish an abuse of discretion"].)

Abuse of discretion may occur if the court misunderstood the law, applied improper criteria, or indicated it did not exercise its discretion. (See e.g., Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 436; Gabriel P. v. Suedi D. (2006) 141 Cal.App.4th 850, 862.) Here, there is no indication of these types of mistakes. The statement of decision proves the court understood the applicable law and it expressly stated it considered and weighed the factors listed in Rule 7.756. There is nothing suspicious in the record suggesting the court did not understand the trustee fee award was a discretionary call.

We recognize there is case authority holding a court may abuse its discretion if there is evidence it misunderstood the facts or there was insufficient evidence to support the facts it relied on. However, an appellant simply listing all the favorable evidence does not satisfy the burden of proving there was this type of abuse of discretion. "A '. . . showing on appeal is wholly insufficient if it presents a state of facts, a consideration of which, for the purpose of judicial action, merely affords an opportunity for a difference of opinion. An appellate tribunal is neither authorized nor warranted in substituting its judgment for the judgment of the trial judge. To be entitled to relief on appeal from the result of an alleged abuse of discretion it must clearly appear that the injury resulting from such a wrong is sufficiently grave to amount to a manifest miscarriage of justice . . . .' [Citation.] '"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. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error." [Citations.]' [Citation.]" (Estate of Gilkison (1988) 65 Cal.App.4th 1443, 1449, first italics added (Gilkison).)

If there was a factual and rational basis supporting the award of trustee fees, a reviewing court cannot find an abuse of discretion (unless the order also rests on an error of law). Here, the trial court articulated a sound factual basis for the trustee fee award. In its statement of decision, the court noted it relied on and found credible Feinfield's expert testimony on trustee compensation. The court stated it weighed Feinfield's opinion and other "evidence" when considering the factors listed in Rule 7.776, before reaching a decision on fees. It also found relevant that Denholm's liability was not due to finding of bad faith, which addressed Rule 7.776's fourth factor, i.e., a trustee's fidelity or disloyalty.

Noticeably missing from the opening brief is any mention, or discussion, of Feinfield's testimony. This is fatal to an abuse of discretion claim. To obtain a reversal, the Holts were required to show how the trial court's ruling "exceeded the bounds of reason" by relying on the cited evidence. (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478 [appropriate appellate test for abuse is whether trial court "exceeded the bounds of reason"].) The Holts do not contend the court relied on unreliable testimony and they did not present at trial any contrary expert testimony on the issue of trustee compensation.

We need not consider the Holts' unsupported comment the "'token'" award of $30,000 had no factual basis because Denholm did not offer testimony to support these fees. The court determined this sum represented 30 year of services, and there was no dispute Denholm performed many duties as trustees, managing real property and other assets. We may deem waived argument unsupported by legal analysis or citation to legal authority. "It is not our place to construct theories or arguments to undermine the judgment and defeat the presumption of correctness. When an appellant . . . asserts [a point] but fails to support it with reasoned argument and citations to authority, we treat the point as waived. [Citation.]" (Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852, fn. omitted.)

In conclusion, we have no reason to disturb the judgment because the probate court articulated a sound basis for the fee award and the record unquestionably shows it correctly understood its discretion and the applicable law. The Holts failed to demonstrate the court's discretionary decision exceeded the bounds of reason or was "arbitrary, capricious, or whimsical." (See In re Marriage of Martin (1991) 229 Cal.App.3d 1196, 1200.)

II. Attorney Fees

The court made three separate rulings regarding attorney fees. First, the court affirmed the portion of the AFA listing $577,163 in attorney fees paid for services provided in defense of the removal petition. Second, the court acknowledged additional fees were incurred regarding the removal petition ($121,042), which were not paid by the Trust, and it awarded that "unreimbursed amount." Third, the court awarded Denholm $75,000 for attorney fees relating to the Hinojosa firm's preparation and defense of the AFA.

In their briefing, the Holts assert all "attorney fees should have been denied" and Denholm should be surcharged for attorney fees ($695,724) the Trust paid for his defense in the civil action. (Bold, underline, and all capitalization omitted.) Their case authority and legal analysis focuses entirely on the issue of whether attorney fees are recoverable in this case because the Trust did not benefit from Denholm's participation in the civil action.

Before we begin our analysis, we note the Holts never explain how they calculated the $695,724 sum of attorney fees. The AFA requested approval of $577,163 in fees paid to the Hinojosa firm, and requested the Trust pay the outstanding balance of $121,042. These two figures do not equal $695,724.

It appears the Holts have confused matters by adding together the Trust's partial payment to the attorneys ($577,163) with the Trust's separate payment to a forensic accounting firm ($118,560). In the AFA, Denholm explained he hired the accountant to address issues raised in the "[r]emoval [p]etitions and the objections filed to the accounting." These two payments equal the sum of $695,724.

Returning to the issue at hand, we surmise the Holts' dispute with the Trust's prior payment of $695,724, and the probate court's order regarding the unreimbursed $121,042, centers on their belief these fees all related to Denholm's defense of the civil action, which would not be for the Trust's benefit. They discuss ample case authority discussing limits when a trustee may recover attorney fees. It appears they do not dispute such fees are permitted if a trustee defends himself against a petition for removal (which was the probate court's factual conclusion).

Consequently, to obtain a reversal on this issue, the Holts needed to challenge the sufficiency of the evidence supporting the court's factual determination instead of treating the issue as a legal one, i.e., the court misunderstood or did not apply the correct legal principles. In other words, the Holts cannot prevail by presenting a sound legal argument that is based on a faulty factual premise, i.e., the fees related to the civil action.

Citing to the court's statement of decision and final judgment, the Holts assert the fees related to "defending the [c]ivil [a]ction." However, those pages of the record do not support this claim. The statement of decision and final judgment both unequivocally state the fees were incurred "in defense of the [r]emoval [p]etition[.]"

"As has been said many times and by many courts, when the 'findings of fact are challenged in a civil appeal, we are bound by the familiar principle that "the power of the 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.]' [Citation.] 'In applying this standard of review, we "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 . . . ." [Citation.]' [Citation.] '"Substantial evidence" is evidence of ponderable legal significance, evidence that is reasonable, credible and of solid value.' [Citation.] We do not reweigh evidence or reassess the credibility of witnesses. [Citation.] We are 'not a second trier of fact.' [Citation.] A party 'raising a claim of insufficiency of the evidence assumes a "daunting burden." [Citation.]' [Citation.]" (Pope v. Babick (2014) 229 Cal.App.4th 1238, 1245-1246 (Pope).)

"Moreover, when a losing party challenges the verdict for a lack of substantial evidence, they 'must set forth, discuss, and analyze all the evidence on that point, both favorable and unfavorable. [Citation.]' . . . [Citation.] Appellants' 'fundamental obligation to this court, and a prerequisite to our consideration of their challenge' [citation], is to 'set forth the version of events most favorable to [respondent ]' [citation]. 'Accordingly, if, as defendants here contend, "some particular issue of fact is not sustained, they are required to set forth in their brief all the material evidence on the point and not merely their own evidence. Unless this is done the error is deemed to be waived."' [Citation.]" (Pope, supra, 229 Cal.App.4th at p. 1246, first italics in original, second italics added.)

The Holts' briefing on the attorney fee issue skips over the showing necessary to challenge the sufficiency of the evidence. The opening brief contains merely a one-sentence footnote saying the court got the facts wrong, followed by a short string of record citations. The Holts do not discuss the significance of these citations or explain why these record references prove the court got the facts wrong. Our review of the Holts' record citations reveals they merely cited to their own evidence and omitted other evidence relevant to the issue. We may deem the alleged error waived. (Pope, supra, 229 Cal.App.4th at p. 1246.)

For example, the first record citation is to a portion of Denholm's testimony on direct examination. His counsel asked if the sum of $577,163 related to the defense of the removal action. Denholm replied, "Correct." The court sustained an objection that the question was leading. Denholm's counsel rephrased the question as follows: "And what were those fees paid for?" Denholm stated, "Defense counsel." Counsel then asked, "For what action?" Denholm replied, "Lawsuit my sister . . . and her daughter brought against me." The Holts argue this undisputed and unequivocal testimony proves the court got it wrong. We disagree.

The Holts also rely on this snapshot of Denholm's testimony later in their briefing regarding the court refusal to surcharge the attorney fees. In that portion of the brief, they offered slightly more analysis on the significance of the testimony, claiming it is unequivocal proof the fees related to the civil action, and not the removal action. Because there are overlapping issues, we will treat the surcharge argument as also relating to the attorney fee dispute, and address it here.

In closing arguments, Denholm's counsel argued this portion of the testimony contained a misstatement. He explained, "Denholm, who is a layman . . . obviously made a mistake with the term . . . . He considers this a long, continuous drubbing that he has been receiving at the hands of the Holts, and it is hard for him to compartmentalize what is in the probate case, what is in the removal action, what is in the civil action, et cetera. [¶] Suffice it to say that Judge Carter looked at the bills before she made her ruling, and her ruling was that the number of fees that were charged that . . . Denholm was being charged with contempt for paying all related to amounts he paid to his counsel for purposes of the defense of the removal action." The court replied, "That was my understanding."

Counsel's argument was supported by other evidence in the record. That Denholm misspoke was feasible for several reasons. After all, it was the third time he had been asked about the fees. During direct examination, Denholm twice before identified "Schedule D1" as listing the money paid to his counsel in "defense in the removal petition." When asked a third time about the source of these fees, Denholm stated they related to his sister's lawsuit. The testimony does not amount to a strong admission because it was not an unequivocal statement the fees specifically paid for the civil action, rather than the removal action. Moreover, there is no dispute the Holts' removal petition was not a simple matter and raised many of the same arguments ultimately litigated in the civil action. Denholm's statement must be viewed in the context of his entire testimony and with the understanding he was a layperson dealing with the complexity of numerous motions, hearings, and lawsuits.

Schedule D1, admitted as Exhibit No. 309, listed the Trust's partial payment to the attorneys ($577,163) with the Trust's payments to a forensic accounting firm ($118,560). The Holts do not assert there were any other payments from the Trust to the Hinojosa firm.

The remaining record citations listed in footnote nine of the Holts' briefing are arguably favorable to the Holts' argument, but do not conclusively prove the fees at issue related to the civil action or refute the evidence the court found more persuasive. The pages refer to Denholm's cross-examination testimony discussing Schedule D1, and the corresponding exhibits. In one part of his testimony, Denholm confirmed exhibit No. 309 contained a schedule of Trust payments made to attorneys totaling $577,163 and accountants totaling $118,560. Denholm confirmed these fees were paid for defense of "the lawsuit." The Holts' counsel did not seek clarification of his answer by asking which lawsuit, i.e., the removal action, probate action, or the civil action.

In another part of his cross-examination, Denholm was asked to look at exhibit No. 566, and identify it as being the same document contained in exhibit No. 309 (both exhibits have identical copies of Schedule D1). Denholm confirmed it was a page showing his accounting of a $577,163 payment to the Hinojosa firm and a $118,560 payment to an accounting firm. The court agreed to accept exhibit No. 566 as a separate exhibit. That was all. This portion of the transcript sheds no light on the issue of whether the unreimbursed sum of fees related to the civil action or the removal petition.

In ruling the fees related to the removal action, and not the civil action, the probate court concluded, "There was no credible evidence challenging either the reasonableness or necessity of these attorney[] fees, expert fees[,] and costs" incurred during Denholm's defense of the removal petition. The court stated it took judicial notice of the removal petition proceedings, and "determined from that review the reasonableness and necessity" of the attorney fees. (Italics added.) The Holts do not assert it was improper for the court to rely on this evidence. We conclude they have not met their burden of proving insufficiency of the evidence.

We could end our analysis here but we recognize the Holts' criticism on appeal was mostly focused on the probate court's reliance on Judge Carter's contempt ruling. This argument fails primarily because the statement of decision plainly stated this evidence was in addition to other evidence considered by the probate court. Moreover, the Holts' argument concerning the significance of Judge Carter's contempt ruling makes the common mistake of merging the doctrine of judicial notice with the doctrines of res judicata and collateral estoppel. "Whether a factual finding is true is a different question than whether the truth of that factual finding may or may not be subsequently litigated a second time." (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1569.) The probate court did not suggest Judge Carter's contempt ruling was binding with respect to subsequent orders in the probate case. The probate court merely took judicial notice of Judge Carter's ruling. The Holts' legal discussion about the doctrines of res judicata and collateral estoppel are clearly irrelevant.

The court stated, "Additionally, Judge Carter determined in contempt proceedings in the [c]ivil [a]ction that the amount paid by . . . Denholm from the Trust to his counsel and experts qualified as reasonable expenses that were both ordinary and necessary payments from the Trust, and that these payments were in defense of the [r]emoval [p]etition and this trust proceeding, and were not related to the [c]ivil [a]ction." (Italics added.)

The probate court was permitted to take "judicial notice of the existence of judicial opinions, court documents, and verdicts reached" but not the "truth of hearsay statements in other decisions or court files [citation], or of the truth of factual findings made in another action [citations]." (Johnson & Johnson v. Superior Court (2011) 192 Cal.App.4th 757, 768.) There is nothing to suggest the probate court did anything more than judicially notice that Judge Carter's ruling addressed some of the same attorney fees, incurred on the same date, and to the same law firm, as the fees listed in the accounting. There is no indication the court improperly took judicial notice of the truth of Judge Carter's factual findings about the source of those fees when ruling Denholm was not in contempt. In any event, the AFA listed many more attorney fee payments than the eight litigated in the contempt proceedings.

We conclude the Holts final two arguments on this issue also lack merit. The Holts assert Judge Carter's ruling was irrelevant on the issue of whether $695,724 qualified as reasonable Trust expenses because it "was issued [in] 2008" long before the civil action took place. The passage of time between Judge Carter's ruling and the civil action appears to have no significance to the weight a probate court should give to the judicially noticed ruling. The Holts do not explain why the timing between those two events had any relevance to these probate proceedings. We can think of no logical connection and conclude this argument does not require further consideration.

The Holts also note Judge Velasquez in the civil action determined Judge Carter's ruling was not relevant to those proceedings because there had "'been no showing of identity of issues . . . where the issue is solely whether there was a reasonable doubt whether [Denholm] in this action committed contempt.'" Judge Velasquez's statement about the weight given to a judicially noticed ruling has no relevance to these probate court proceedings.

In light of all the above, we conclude there is no reason to question the sufficiency of the evidence supporting the probate court's factual finding the fees at issue were incurred for Denholm's defense of the removal action. Accordingly, the Holts' legal argument regarding when trustees may theoretically recovery attorney fees incurred defending a civil action is irrelevant.

III. Surcharge

In the joint pre-trial statement, the parties described the basis for the Holts' petition for an order authorizing the surcharging of Denholm's distributive share of the trust. Relevant to this appeal was the assertion Denholm "spent from the Trust in 2006-2007 in defense of litigation for breach of trust $695,724" and he must be surcharged this amount plus interest for the past nine years (making a total sum of $1,276,705). In denying the Holts' surcharge petition, the trial court did not mention $695,724. It simply stated, "Most of the claims against . . . Denholm . . . already have been resolved in the ruling on [the AFA and the] [d]istribution [p]etition." Indeed, the probate court resolved the issue of attorney fees when it approved the accounting, which listed the Trust's payment of fees incurred to defend Denholm from the removal petition.

The Holts' maintain that for the "same reasons" attorney fees should be denied, the fees paid by the Trust should be surcharged against Denholm. They do not add any new arguments. Accordingly, we incorporate our prior legal analysis of the sufficiency of the evidence supporting the probate court's factual finding the fees at issue related to the removal action and not the civil lawsuit. Having determined there was no reason to disturb the probate court's approval of the accounting, we also affirm the court's ruling he should not be surcharged for appropriate Trust expenses.

IV. AFA Preparation and Defense

The court granted Denholm's request for attorney fees incurred "in the preparation, filing, and defense" of the AFA. It awarded $75,000 for attorney fees and $258.56 in costs. In their appeal, the Holts assert this order must be reversed because there was no evidence or testimony presented about these fees. They conclude there was no evidence the fees were necessary, reasonable, or reasonably incurred. This argument ignores the trial court's statement of decision, which plainly states the following: "There was no credible evidence challenging either the reasonableness or necessity of these attorney[] fees and costs. The [c]ourt took judicial notice of the proceedings concerning the [AFA], and also determined from that review the reasonableness and necessity of these attorney[] fees and costs." (Italics added.) This ruling on its face refutes the Holts' assertion there was absolutely "no evidence" on the issue. By taking judicial notice of the proceedings, the court could consider the reasonable time expended and complexity of the issues facing counsel in preparing and litigating the AFA. To prevail on appeal, the Holts had the burden of showing why this type of review was inadequate, or better yet, present evidence challenging the necessity of those fees. Because they do not dispute the fees were necessary or reasonable, and the court based its order on sound evidence, we have no basis to disturb the probate court's discretionary ruling on attorney fees.

DISPOSITION

The orders are affirmed. Respondent Denholm shall recover his costs on appeal.

O'LEARY, P. J. WE CONCUR: BEDSWORTH, J. ARONSON, J.


Summaries of

San Pasqual Fiduciary Trust Co. v. Holt

COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE
Dec 5, 2018
No. G054571 (Cal. Ct. App. Dec. 5, 2018)
Case details for

San Pasqual Fiduciary Trust Co. v. Holt

Case Details

Full title:SAN PASQUAL FIDUCIARY TRUST COMPANY, as Trustee, etc., Plaintiff and…

Court:COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE

Date published: Dec 5, 2018

Citations

No. G054571 (Cal. Ct. App. Dec. 5, 2018)