Opinion
A156402
08-17-2021
Estate of HENRY ERNEST IMPERIAL, Deceased. v. ROBERT C. IMPERIAL, Individually and as Administrator, etc., Objector and Respondent SAN FRANCISCO PUBLIC ADMINISTRATOR, Petitioner, AMERICAN RESEARCH BUREAU, INC., Claimant and Appellant.
NOT TO BE PUBLISHED
City & County of San Francisco Super. Ct. No. PES-16-299740
STREETER, J.
Henry Ernest Imperial (Imperial) died intestate with no known heirs. American Research Bureau, Inc. (ARB), a private heir-hunting firm, successfully located Imperial's two sons, who were his next of kin, and claimed a 25 percent finder's fee from the estate based on assignments by the sons shortly after ARB informed them of their father's death. The probate court reduced the award to 10 percent of the heirs' share of the estate, ruling the 25 percent fee-which amounted to $106,445.76-was “grossly unreasonable” under Probate Code section 11604, subdivision (c)(1). ARB appeals, claiming the court abused its discretion in reducing its distribution to $42,578.30. We shall affirm. The court based its findings on substantial evidence and did not abuse its discretion in reducing the amount of ARB's finder's fee.
Statutory references, unless otherwise indicated, are to the Probate Code.
I. BACKGROUND
After Imperial died intestate on January 25, 2016, at the San Francisco Veterans Administration Hospice, the matter was referred to the San Francisco Public Administrator (Public Administrator) because Imperial had no known relatives. Beginning shortly after Imperial's death, an estate investigator from that office tried to find Imperial's next of kin by contacting his case worker at the Veterans Hospital, interviewing his emergency contact and tax accountant, interviewing whatever distant family she could locate, searching at his banks for any listed beneficiaries or a safe deposit box, searching his storage locker and mail, and researching public records on Accurint and ancestry.com. By late April, she located only a nephew as the closest relative.
The Public Administrator petitioned for letters of administration on April 29, 2016, declaring that Imperial was not survived by a spouse, registered domestic partner, child, issue of a predeceased child, stepchild or foster child, had no predeceased spouse, and there were no known heirs. The value of the estate was estimated at $480,000. The search for heirs continued until approximately May 25, 2016, with the estate investigator then believing the nephew to be the closest relative and the only potential heir. In fact, however, Imperial had two sons from a second marriage whom he had apparently abandoned in his lifetime and about whom his friends and surviving family knew nothing.
ARB, an heir-hunting firm that has been in operation since 1935, admits the filing of the petition for letters on April 29, 2016, was the “starting gun” for its heir search efforts. It did not take long for ARB's search to produce results. The very next day, April 30, 2016, ARB located Hal Henry Imperial (Hal) in Oak Run, California, and Hal put ARB in touch with Robert C. Imperial (Robert) in Martinez. ARB believed Hal and Robert to be Imperial's two previously unidentified sons. On May 3 and May 6, 2016, the brothers executed assignments to ARB of one-fourth of their share of their father's estate in exchange for ARB's revealing the facts about their father's estate to them and helping them to document their relationship to Imperial. Robert claims he was not told the size of Imperial's estate before he signed the agreement.
Two other heir-hunting firms also searched for Imperial's heirs. One of the two was able to locate more distant relatives, but ARB was the only entity to successfully locate the two sons, who proved to be the next of kin and only beneficiaries of Imperial's estate. The Public Administrator remained unaware of Imperial's sons until informed of their existence and whereabouts by ARB's attorney in June 2016.
On May 9, 2018, the estate's attorney filed a first and final account and petition for final distribution (Petition) in probate court, verified by Mary Ann Warren, Assistant Public Administrator. Warren reported ARB's assignments for a total of $106,445.76 and noted there would be an objection. Warren took no position on whether the 25 percent fee was “grossly unreasonable.” She suggested the fee should be reviewed and compared to industry norms, reporting she was unaware of the services rendered by ARB.
Warren reported that the current range of fees for heir hunters is comparatively less than it was in years past, and suggested the current range is 7 percent to 40 percent, with 25 percent being “a more present and regularly submitted percentage.” She estimated dollar amounts reflecting both a 10 percent and a 40 percent distribution to ARB, implying an industry-appropriate distribution would be between $42,000 and $168,000. She pointed out that “a successful completion of a contingency fee contract call[s] for compensation that would be considered grossly unreasonable if ascertained on an hourly quantum merit [sic] basis.” She questioned whether the heirs knew the size of the estate when they executed the assignments and recommended that the assignments not be approved because they were against public policy in that they had been secured before the Public Administrator had been allowed a reasonable opportunity to locate the heirs. On July 23, 2018, a successor attorney for the estate was appointed, and shortly thereafter she filed a supplement to and an amendment to the Petition, withdrawing opposition to payment of ARB's assignments because the estate investigator ended her search while still ignorant of the sons' existence, until ARB identified them.
On July 12, 2018, Robert, as an individual and as administrator of Hal's estate (respondent), filed an objection to the Petition on grounds including that there was no time or cost showing by ARB and that the total amount was “excessive” because it far exceeded the Public Administrator's and the estate attorney's statutory fees. On July 26, 2018, ARB filed a response to the Petition in support of the validity of the assignments, with a supporting declaration by ARB's Executive Director. Those filings emphasized the risk taken on by ARB, the highly competitive nature of heir hunting (see Estate of Wright (2001) 90 Cal.App.4th 228, 239 (Wright)), the practical necessity that ARB use contingency fee contracts, and the business necessity that ARB make a sizable profit on the investigations that turn up missing heirs because it makes nothing on the investigations that do not.
Hal died in February 2017, and Robert was appointed administrator of his estate.
A hearing was conducted on October 30, 2018, without a court reporter. A settled statement substitutes for a transcript. (Cal. Rules of Court, rule 8.137.) The settled statement says, “[t]he Court further found that [ARB] submitted nothing to document its efforts in this case to the Court's examiners and the Court before or after the hearing.”
On November 13, 2018, the probate court issued an order for final distribution, allowing Robert's and Hal's estates each to receive a distribution of $191,602.36, and limiting the amount of ARB's assignments to 10 percent of each beneficiary's share of the estate, or $42,578.30 total, calling the full amount of the assignments “grossly unreasonable.”
ARB appeals, acknowledging the matter is largely discretionary, but claiming the court made four distinct errors in reaching its conclusions and thereby abused its discretion.
II. DISCUSSION
A. The Standard of Review
Without meaningful citation of authority, ARB states that the abuse of discretion standard of review applies. Respondent, on the other hand, contents himself with factually distinguishing each of ARB's cited cases, elaborating upon the abuse of discretion standard but taking no position on whether it is the correct standard. Our own research suggests that rulings on motions under section 11604 and its predecessor statute (former § 1020.1) have traditionally been reviewed under the substantial evidence standard. (Wright, supra, 90 Cal.App.4th at p. 238 [“sufficient evidence”]; Estate of Simmons (1963) 217 Cal.App.2d 580, 585 (Simmons); but see Wright, supra, at p. 239 [also using abuse of discretion standard].) This is because the court's determination of gross unreasonableness “presents a question of fact.” (Burchell v. Strube (1955) 43 Cal.2d 828, 837 (Burchell).) The resolution of factual questions normally is reviewed for substantial evidence. (In re Caden C. (2021) 11 Cal.5th 614, 639-640.)
But as in In re Caden C., supra, 11 Cal.5th at page 630, a hybrid standard of review seems appropriate because the court's determination, while based on facts, consists primarily of applying legal standards to the particular facts (whether the contractual fees are “grossly unreasonable” and whether a substituted amount would be “just and equitable”). These two ultimate determinations are not purely factual; they are decisions involving both legal concepts and matters of opinion. Presumably the judge's legal training informs his judgment on both accounts. Yet both decisions inherently require great latitude and independent judgment. (See Simmons, supra, 217 Cal.App.2d at p. 585.) We need not choose a single mode of review, however, because under either component of this hybrid standard of review-abuse of discretion, or substantial evidence if the issue under review is conceived of as a question of fact under Burchell, supra, 43 Cal.2d at page 837-we owe significant deference to the trial court.
B. The Probate Court Did Not Commit Reversible Error
1. Heir-hunting Contracts in California
The heir-hunting profession has a checkered past and historically has been viewed with judicial distrust. (See, e.g., Nelson v. McGoldrick (1995) 127 Wn.2d 124, 129-130 [896 P.2d 1258, 1260-1261]; Note, Heir Hunting-A Profession or a Racket? (1953-1954) 7 Vand. L.Rev. 104, 104.) Heir hunters have been likened to ambulance chasers. (Estate of Butler (1947) 29 Cal.2d 644, 648; Wright, supra, 90 Cal.App.4th at p. 234; Estate of O'Donnell (1948) 85 Cal.App.2d 1, 16 (dis. opn. of Ward, J.) (O'Donnell)[disparaging ARB].) Their contracts, where they included hiring an attorney for the heir, have been refused enforcement on grounds that the heir hunter's business practices amounted to the unlawful practice of law and were contrary to public policy. (Butler, at pp. 647, 652; accord Estate of Molino (2008) 165 Cal.App.4th 913, 923.)
Nevertheless, we recognize that heir hunters do perform a public service and deserve to be fairly remunerated when they successfully locate heirs whom the Public Administrator has been unable to locate or whose existence was unknown, as in this case. And, as the Assistant Public Administrator also recognized, they deserve to be compensated in an amount greater than a quantum meruit recovery based on hours invested.
California does not purport to regulate heir hunting directly by dictating a maximum percentage of the heir's share of the estate that may be charged, but general authority to modify or disallow any “fees, charges, or consideration paid or agreed to be paid by a beneficiary” that the probate court finds to be “grossly unreasonable” is included within the court's power to make distributions from a decedent's estate. (§ 11604, subd. (c)(1); Estate of Bennett (2008) 163 Cal.App.4th 1303, 1311-1312.) The court may order a modified distribution “on any terms that the court deems just and equitable.” (§ 11604, subd. (c).) The statute does not apply exclusively to heir hunters, but “the original motivation behind the enactment of the section was prevention of a disproportionate share of an inheritance being paid to heir hunters and permitting the court to set such assignments aside if they were found to be inequitable.” (Simmons, supra, 217 Cal.App.2d at p. 586.)
The California Legislature officially gave its imprimatur to heir-hunter contracts when it enacted former sections 530 and 530.1 in 1939, giving courts the power to “approve or disapprove” such contracts. (Stats. 1939, ch. 588, §§ 1 & 2, pp. 1992-1994; Estate of Cohen (1944) 66 Cal.App.2d 450, 456, 458.) In 1941 it repealed those sections and enacted former section 1020.1, which was similar to current section 11604, including the language “grossly unreasonable” and “just and equitable.” (Stats. 1941, ch. 1162, §§ 1 & 2, p. 2893.) We will treat cases applying former section 1020.1 as being equally persuasive under section 11604.
2. A 25 Percent Fee May Be Deemed Grossly Unreasonable and There Was Substantial Evidence To Support the Court's Finding
In its first allegation of error, ARB argues the trial court abused its discretion and acted arbitrarily in deciding that 25 percent of the value of the heirs' interest in the estate was “grossly unreasonable” under section 11604, subdivision (c)(1). ARB contends its contractual entitlement to “one-fourth” of each heir's interest in the estate should have been honored because ARB successfully located Robert and Hal while the estate investigator and other search firms failed to find them.
ARB argues that, in fact, the judge found the amount was “grossly excessive, ” which it claims is an improper standard. That is a red herring. The judge made a written finding that the amount was “grossly unreasonable” in November 2018; the word “excessive” crept into the settled statement through respondent's counsel in March 2019 and thereafter. And even if the judge uttered the words “grossly excessive” at the hearing, it is a non-issue on appeal because he clearly knew and applied the correct standard.
ARB argues that its 25 percent contract rate was reasonable within the heir-hunting industry. It is true that one may find examples of heir-hunter contracts demanding as much as 50 percent of the heir's share of the estate. (E.g., Estate of Butler, supra, 29 Cal.2d at p. 648 [“ten to fifty per cent” for foreign heirs]; Wright, supra, 90 Cal.App.4th at p. 232 [35 percent]; Burchell, supra, 43 Cal.2d at p. 831 [40 percent]; Estate of Larson (1949) 92 Cal.App.2d 267, 270-271 (Larson) [30 percent]; O'Donnell, supra, 85 Cal.App.2d at p. 11 [40 percent unsuccessfully demanded by ARB “as a matter of law”]; Estate of Cohen, supra, 66 Cal.App.2d at p. 454 [30 percent].) But as we shall discuss, not all these contractually specified fee percentages were approved by the courts, and so, while the foregoing cases represent a range of compensation that heir hunters contracted to receive, they do not represent the range of compensation they actually received. Both parties emphasize that another heir-hunter firm involved in this case had written assignments entitling it to 15 percent of its proposed heirs' shares of the estate. Respondent claims this shows ARB's contractual fee was too high; ARB claims it shows the court's award of 10 percent for its one-day search was too low. We conclude the probative value of the specified fee amounts in those cases was for the trial court, in its discretion, to decide. And we see no reason to second-guess the discretionary call it made.
“ ‘The right to contract is not absolute and unqualified, and reasonable restrictions are not prohibited by the constitutional provisions.' ” (Burchell, supra, 43 Cal.2d at p. 836.) In fact, since heir hunters initiate their contracts knowing the statute authorizes judicial avoidance or modification, the statute is deemed incorporated into their contracts. (Id. at p. 835.)
In assessing the reasonableness of consideration exchanged for an assignment of an interest in a probate estate the court may give much stricter scrutiny to the fairness of the exchange than would be the case under ordinary contract principles. (Estate of Boyd (1979) 98 Cal.App.3d 125, 131.) It is clear from the statutory language that a “grossly unreasonable” finding may be based on the sheer amount of the fee; there is no requirement of overreaching conduct on the part of the heir hunter, although fraud, duress or undue influence provides a separate reason for refusing to enforce the contract. (§ 11604, subd. (c)(1) & (2); cf. OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 [both procedural and substantive unconscionability are required to refuse enforcement of a contract based on unconscionability].)
ARB, for its part, relies heavily on Wright, supra, 90 Cal.App.4th 228, which affirmed a trial court's award to an heir hunter of 35 percent of the heir's share of the estate, though the raw fee in that case was more than the fee ARB claimed here, approximately $122,000 from an estate worth $1.39 million. (Id. at pp. 232-233, 238.) But Wright was an unusual case, distinguishable from an evidentiary perspective, and it does not support the notion that a 35 percent fee is standard in the industry.
In Wright, the missing heir was a sister of the decedent whose whereabouts were unknown to her siblings. (Wright, supra, 90 Cal.App.4th at p. 231.) A private investigator undertook considerable efforts to find her; he “declared that he and an employee spent approximately 150 hours searching databases and interviewing leads, ” he described in detail the steps undertaken, and he sent another investigator to personally locate the sister through her employer in Reno, Nevada, where the investigator spent two days searching for her. (Id. at pp. 232, 239.) These facts regarding efforts figured prominently in the Wright court's reasoning. (Id. at p. 239.) And significantly, Wright involved the affirmance of the trial court's exercise of discretion, whereas ARB urges us to reverse the trial court's exercise of discretion based on Wright's holding. Neither Wright nor the other cases cited by ARB compel the courts to honor a 25 percent finder's fee.
3. The Statutory Fees for the Public Administrator and the Estate's Counsel Were Used Only as a Baseline Comparison
As a second issue, ARB contends the probate court erred in comparing the assigned fee to the statutory fees dictated for the Public Administrator and the estate's attorney. The Public Administrator's commissions for “ordinary” services are set by statute as a percentage of the value of the estate: 4 percent of the first $100,000, 3 percent of the next $100,000, and only 2 percent of the next $800,000 in estate value, with additional amounts being available for “extraordinary” services. (§§ 10800, subd. (a)(1)-(3), 10801.) The estate's attorney may be paid the same percentages. (§ 10810, subd. (a)(1)-(3).) Applying those rates to Imperial's roughly $488,000 estate resulted in compensation of $12,794.07 each for the administrator and the attorney.
We might agree with ARB that the court's comparison between the fees awarded for two quite different roles-and differently compensated roles-would have been a questionable point of comparison if undertaken as a one-to-one match. But it was used only as a rough yardstick for judging the appropriate range of compensation for ARB. The judge ultimately awarded ARB more than three times the amount the Public Administrator was paid, and he awarded it as a percentage of the heirs' share of the estate as contingency fee contracts do, not as hourly compensation. The comparison to statutory fees was merely one of several bases for the trial court's conclusion that ARB's fee was grossly unreasonable, and its use for comparative purposes falls far short of invalidating the court's order.
4. Awarding a 10 Percent Fee Was Supported by Substantial Evidence and Was Not an Abuse of Discretion
As a third point, ARB suggests the court acted arbitrarily and abused its discretion in choosing a 10 percent figure as the “just and equitable” distribution to ARB after rejecting the percentage specified in the assignment. (§ 11604, subd. (c).) In making that determination the court was expressly authorized to “inquire into the circumstances surrounding the execution of, and the consideration for, the transfer, agreement, request, or instructions, and the amount of any fees, charges, or consideration paid or agreed to be paid by the beneficiary.” (Id., subd. (b).) In this case, however, the judge seemed to be moved by the raw amount of the fee and lack of evidence of significant efforts by ARB.
Upon reviewing the case law to determine fees actually approved by the courts, we find a reduction as large as the one in this case is not unprecedented. Burchell, supra, 43 Cal.2d 828 involved a court's reduction in an heir hunter's recovery from 40 percent under the assignment to 10 percent under the statute. (Id. at pp. 830-831.) Our review of the cases convinces us there is no standardized percentage that has been accepted by the courts in granting heir-hunter compensation, and no minimum percentage that is considered fair. We agree with ARB that 10 percent is near the lower end of the spectrum. But Warren stated under oath that heir-hunter fees now typically run between 7 percent and 40 percent, which provides evidentiary support for a fee to ARB of 10 percent or even less. As noted above, we decline to second-guess the call the judge made to place the allowable fee in this case on the lower end of the range.
5. ARB Was Not Improperly Required To Produce Time Records
Fourth and finally, ARB argues the trial court erred in reducing its percentage of compensation for failure to submit documentation regarding time and efforts to justify the value of ARB's services to respondent. The order for final distribution did state, “Counsel for [ARB] was asked for documentary evidence re time spent and did not provide any.” This, too, ARB claims, was an improper consideration because of the contingent nature of heir-hunter fee agreements and the consequent lack of timekeeping records. But “documentary evidence” does not necessarily require historical timesheets.
Because the parties had a written assignment, the heirs bore the initial burden to prove grounds for their agreement to be set aside or modified. (Estate of Bennett, supra, 163 Cal.App.4th at p. 1310; Civ. Code, § 1614.) Once the judge decided the contractual percentage was grossly unreasonable, however, the burden shifted to ARB to justify the “ ‘real value' ” of the consideration conferred. (Burchell, supra, 43 Cal.2d at p. 836; Wright, supra, 90 Cal.App.4th at p. 239 [“heir hunter bears the burden of establishing the adequacy of consideration”]; Larson, supra, 92 Cal.App.2d at p. 273; see O'Donnell, supra, 85 Cal.App.2d at p. 12; Estate of O'Donnell (1948) 85 Cal.App.2d 816 [opinion on denial of rehearing].)
ARB resisted providing details about the nature and extent of its efforts, reciting the highly competitive nature of the heir-hunting business, touting its own expertise in search techniques, and emphasizing the necessity that it operate on a contingent fee basis. Of course, ARB stresses that it succeeded in discovering the existence and location of Robert and Hal, whereas other investigators including the Public Administrator's investigator failed. Without its services, ARB argues, respondent and his brother would have remained unknown and would have received nothing from the estate.
But ARB was admonished more than 70 years ago that such factors are not enough: “[T]he court must be advised of the extent and nature of the services rendered before using its own judgment of the reasonable value of those services. Certainly, in this case, the court was not advised of the extent of the services claimed to be rendered, nor of the nature other than the bald claim that without these services, O'Donnell would not have been found. When the court, from its own knowledge and experience, is fixing the fees, based on evidence of the nature and extent of the services performed, it probably can take into consideration the result achieved and the fact that the fees are contingent. But merely because a certain result is achieved and the fee is contingent, does not justify the lack of evidence of the extent of the services.” (O'Donnell, supra, 85 Cal.App.2d at p. 12.) The court disallowed the entire amount of ARB's $4,000 assignment in O'Donnell. (Id. at p. 14.)
Notably, the private investigator in Wright did not balk at estimating in a declaration that he and his employees had spent more than 150 hours investigating the heir's whereabouts, plus his agent's two days of on-the-ground searching. (Wright, supra, 90 Cal.App.4th at p. 239.) In contrast, ARB refused even to give an estimate of the hours invested, probably because it located the heirs on the day after the petition for letters of administration was filed. The only other work by ARB documented in the record was its attorney's assistance to respondent and his brother in filling out heirship affidavits and its provision of marriage and birth records and a family chart to the Public Administrator in January 2017 to establish their relationship to Imperial. ARB failed to prove the “ ‘real value' ” of its services. (Burchell, supra, 43 Cal.2d at p. 836; Larson, supra, 92 Cal.App.2d at p. 273.)
We are not convinced the court reduced ARB's distribution for failure to produce time records. The clerk's mini minutes suggest the court believed time records should be kept for the sake of the client and the court, but the settled statement does not indicate the court reduced ARB's fee for failure to produce them. The court found ARB “submitted nothing to document its efforts in this case.” (Italics added.) This does not suggest an unyielding insistence upon contemporaneous timesheets.
In our view, the court merely placed on ARB the burden of production and proof to demonstrate in whatever way it could the value of its services. (Larson, supra, 92 Cal.App.2d at p. 273; Estate of Lynch (1978) 83 Cal.App.3d 296, 301.) A declaration estimating hours would have sufficed, as in Wright, supra, 90 Cal.App.4th at page 239. The judge found, however, that ARB's declarations, without evidence of time or efforts invested, did not justify a fee of more than 10 percent.
The probate judge implicitly decided that $42,578.30 was “just and equitable.” (§ 11604, subd. (c).) Substantial evidence supported his choice of 10 percent. He could infer from the timing of the probate filings and the dates of the assignments that ARB had expended little time locating the sons. The Assistant Public Administrator's sworn statement supported an award as low as 7 percent. Accordingly, we conclude the judge did not abuse his discretion by awarding only 10 percent of the net distributable estate to ARB.
III. DISPOSITION
The order for final distribution dated November 13, 2018, is affirmed. Robert C. Imperial, individually and as administrator of the estate of Hal Henry Imperial, shall recover costs on appeal.
WE CONCUR: POLLAK, P. J., TUCHER, J.