Johnson v. Mantegani

Filed 8/29/06 Johnson v. Mantegani CA5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

APPEAL from an order of the Superior Court of Stanislaus County. John E. Griffin, Jr., Judge.

Dowling, Aaron & Keeler, William J. Keeler, Jr., and Leigh W. Burnside for Plaintiffs and Appellants.

Mayall, Hurley, Knutsen, Smith & Green and Steven A. Malcoun for Defendant and Respondent.

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Appellants, Karon A. Johnson, Peter A. Cassinerio, and Agnes M. O’Connor, filed a petition to enforce an irrevocable trust’s no contest clause against respondent, Bernadette Montegani. According to appellants, respondent violated this no contest clause when she filed a complaint against them challenging the validity of certain gifts made by the trustor. Respondent “demurred” to the petition. The trial court sustained this demurrer without leave to amend for failure to state a cause of action. Appellants contend the trial court erred by ruling on the merits of the petition without considering extrinsic evidence. Alternatively, appellants argue the trial court should have ruled in their favor as a matter of law. As discussed below, respondent did violate the irrevocable trust’s no contest clause when she attacked a “gift which Trustor has made or will make during Trustor’s lifetime.” Thus, the order will be reversed.

BACKGROUND

In 1993, Lena M. Cassinerio (Decedent), established a revocable trust, the Lena M. Cassinerio Family Trust (Family Trust). Appellants and respondent, Decedent’s children, were the beneficiaries of this trust.

The Family Trust was amended and restated on December 8, 1999. At the same time, Decedent executed the Cassinerio Irrevocable Trust (Irrevocable Trust). The Irrevocable Trust assets were to be distributed equally between appellants and respondent. The Irrevocable Trust assets included a $750,000 life insurance policy. Both the Family Trust and the Irrevocable Trust contain a no contest clause.

Decedent purchased two annuity policies with a total death value of approximately $400,000 naming appellants and respondent equal beneficiaries.

On February 28, 2001, Decedent revoked the Family Trust and executed the Lena M. Cassinerio Revocable Living Trust (2001 Trust) and a pour-over will. The 2001 Trust disinherited respondent.

At some point, Decedent, through a power of attorney, also changed the beneficiary designation on the annuity policies to exclude respondent.

Decedent died on November 5, 2001.

In March 2002, respondent filed a separate civil action against appellants alleging a single cause of action for intentional interference with economic relations. Respondent alleged that appellants, by the exertion of unjustified pressure and undue influence, caused Decedent to revoke the Family Trust, to change the annuity beneficiary designations and to execute the 2001 Trust. Respondent sought to impose personal liability on appellants. Appellants’ demurrer to this complaint was sustained without leave to amend and judgment was entered for appellants. On appeal, this court affirmed. (Montegani v. Johnson (May 21, 2003) F041158.)^[1]

After receiving an advanced ruling in their favor under Probate Code^[2] section 21320,^[3] appellants filed an amended petition to enforce the no contest clause in the Irrevocable Trust. Appellants argued that the filing of respondent’s March 2002 complaint for damages violated the no contest clause because respondent challenged the validity of Decedent’s gift of annuity policies to appellants. The complaint had alleged that Decedent changed the beneficiary designation to exclude respondent due to appellants’ fraud and undue influence. According to appellants, this allegation violated the no contest clause in the Irrevocable Trust in that it attacked or sought to impair or invalidate “any gift which Trustor has made or will make during Trustor’s lifetime.”

Respondent filed a “response in the form of a demurrer“ to the petition. According to respondent, the petition failed to state a cause of action in that her complaint did not violate the Irrevocable Trust’s no contest clause.

The trial court sustained the demurrer to the petition without leave to amend for failure to state a cause of action.

DISCUSSION

I. The Irrevocable Trust’s no contest clause is independently reviewed.

Through the “demurrer,” respondent requested a ruling in her favor on the merits of appellants’ amended petition as a matter of law. When the court sustained the demurrer without leave to amend it in effect denied appellants’ petition. Accordingly, the order is appealable as a ruling on a petition to determine the construction of a trust instrument. (§ 1304; Scharlin v. Superior Court (1992) 9 Cal.App.4th 162, 167.)

Appellants first argue that the trial court abused its discretion in sustaining the demurrer without leave to amend because it made the ruling without considering evidence related to the meaning of the Irrevocable Trust’s no contest clause. However, the interpretation of a trust instrument presents a question of law unless interpretation turns on the credibility of extrinsic evidence or a conflict therein. (Burch v. George (1994) 7 Cal.4th 246, 254.) Appellants have not identified any extrinsic evidence nor explained how such evidence would aid in resolving the subject issue. Accordingly, appellants have not met their burden of demonstrating an abuse of discretion. Nevertheless, this court is not bound by the lower court’s interpretation but, rather, must independently review the instrument at issue. (Scharlin v. Superior Court, supra, 9 Cal.App.4th at p. 168.)

II. Respondent’s filing of the complaint triggered the Irrevocable Trust’s no contest clause.

A “contest” is defined as “any action identified in a -no contest clause’ as a violation of the clause.” (§ 21300, subd. (a).) It may be direct or indirect. A direct contest is a pleading that alleges the invalidity of an instrument or one or more of its terms based on one or more of the enumerated grounds. These grounds include lack of capacity, fraud, duress and undue influence. (§ 21300, subd. (b).)

“No contest clause” is defined as “a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary if the beneficiary files a contest with the court.” (§ 21300, subd. (d).) Such clauses are valid in California and are favored by the public policies of discouraging litigation and giving effect to the testator’s expressed purposes. (Burch v. George, supra, 7 Cal.4th at p. 254.) However, because a no contest clause results in forfeiture, a court is required to strictly construe it. (Ibid.) Only where an act comes precisely within the express terms of the no contest clause may a breach of it be declared. (Scharlin v. Superior Court, supra, 9 Cal.App.4th at p. 169.)

The Irrevocable Trust recites various acts that would constitute a contest of that trust. The relevant provisions are as follows:

“If any beneficiary in any manner, singly or in conjunction with any other person or persons, directly or indirectly, does any of the following, then the beneficiary absolutely forfeits any and all beneficial interests which the beneficiary might otherwise have under this Trust. That beneficiary’s interest shall then be distributed as if the beneficiary had predeceased Trustor without issue:

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“(I) attacks or seeks to impair or invalidate any designation of beneficiaries for any insurance policy on Trustor’s life; any designation of beneficiaries for any pension plan or IRA account; any trust created or which may be created during Trustor’s lifetime or any provision thereof; any gift which Trustor has made or will make during Trustor’s lifetime; any transaction by which Trustor has sold any asset to any Child or Children of Trustor (whether or not any such attack or attempt is successful).” (Italics added.)

Respondent’s complaint was premised on her claim that appellants intentionally and knowingly interfered with respondent’s inheritance and with her relationship with Decedent, her mother. The complaint stated that, as a result of appellants’ undue influence and deception and Decedent’s physical and mental infirmities, appellants were able to direct Decedent to change all of her testamentary documents to benefit only appellants and to disinherit respondent. According to respondent, these documents, i.e., the 2001 Trust and pour-over will, did not represent Decedent’s intent. The complaint further alleged that

“[Appellant], Johnson, secured Power of Attorney over Decedent’s finances pursuant to [appellants’] concerted plan to control Decedent’s assets. [Appellants] Cassinerio and Johnson, with consent and agreement of [appellant], O’Connor, transferred the entire portfolio inclusive of the annuity policies to the Morgan Stanley Dean Witter office in Modesto and changed the beneficiaries of the annuity policies to exclude [respondent].”

Although the complaint did not seek to set aside the 2001 documents and transfers, it requested damages from appellants to compensate respondent for the inheritance that she was denied due to those documents and transfers.

Appellants argue respondent’s complaint attacked or sought to impair or invalidate Decedent’s gift of annuity policies to appellants and therefore violated the Irrevocable Trust’s no contest clause. Respondent counters that her complaint was not a contest as a matter of law because it did not challenge the validity of the gifts. Rather, the complaint sought to impose personal liability on appellants. To support her position, respondent relies on Poag v. Winston (1987) 195 Cal.App.3d 1161.

In Poag, the plaintiff and respondent, Laura Winston, was Ben Weingart’s companion and caretaker. She was one of approximately 29 beneficiaries of the “Ben Weingart Revocable Trust Number One.” This trust contained a no contest clause that prohibited the “obtaining for anyone of any assets in which I had an interest immediately prior to my death, grounded on, arising out of, or related to any claimed or actual agreement, representation or understanding not expressly set forth in a written and executed agreement that I would (or would cause another to) deliver to anyone anything of value (directly or indirectly, in trust, by will, or otherwise) as a gift, or for services or any other thing of value .” (195 Cal.App.3d at pp. 1166-1167.)

Approximately three years after the revocable trust was established, Weingart directed the preparation of an irrevocable trust of which Laura Winston was to be the lifetime beneficiary, an agreement to make a codicil to his will for Winston’s benefit, and such a codicil. Weingart signed and dated the irrevocable trust document and initialed the paragraphs in the codicil that identified gifts to Winston.

However, shortly thereafter, Weingart became the object of a petition for conservatorship and conservators of his person and estate were appointed. The conservators ousted Winston from Weingart’s residence and failed to comply with Weingart’s stated wishes to provide for Winston by preventing him from funding the irrevocable trust.

Winston filed a complaint against the conservators and, after Weingart’s death, several petitions in the probate proceeding. The complaint sought to impose personal liability on the conservators, as individuals, for their tortious interference with Winston’s contractual relations and identifiable prospective economic advantages. Winston asserted the conservators had acted wrongfully in refusing to implement the express written and signed agreements.

The conservators asserted that Winston had violated the no contest clause in the “Ben Weingart Revocable Trust Number One” by filing the civil complaint and other petitions. The court disagreed. The court held that, in seeking to impose personal liability on the conservators, the complaint asserted no claim to any asset of and posed no threat to the Ben Weingart revocable trust. Further, the complaint did not assert any claim to any of the estate’s assets. Rather, the complaint sought only to recover damages from the individual defendants based on their failure to honor Weingart’s unequivocally expressed intent. Accordingly, the court concluded that Winston’s initiation of the action could in no manner be deemed a violation of the no contest clause. (Poag v. Winston, supra, 195 Cal.App.3d at pp. 1175-1176.)

The situation here, however, is distinguishable. Although respondent’s complaint was couched as seeking to recover damages from appellants individually, it was in effect seeking to invalidate Decedent’s gifts to appellants. Respondent alleged that Decedent changed her estate plan only because of appellants’ undue influence and fraud and thus the 2001 Trust and annuity beneficiary designation are invalid. Such issues, i.e., fraud and undue influence in the context of an estate plan, are traditionally involved in a “contest.” (Estate of Pittman (1998) 63 Cal.App.4th 290, 298.)

It is the allegations made that determine the character of a legal proceeding. (Poag v. Winston, supra, 195 Cal.App.3d at p. 1176.) Although respondent prayed for damages based on appellants’ alleged misconduct, she was actually attacking the validity of a gift, i.e., the annuities, that Decedent made during her lifetime. Thus, respondent breached the provision of the Irrevocable Trust’s no contest clause by attacking or seeking to invalidate a “gift which Trustor has made or will make during Trustor’s lifetime.” Such a breach cannot be avoided simply by suing the beneficiaries of the subject trust and/or gift individually in tort when the plaintiff’s ultimate goal is to invalidate such trust or gift. Accordingly, the trial court erred in sustaining the demurrer to appellants’ amended petition. Respondent’s complaint triggered the no contest clause of the Irrevocable Trust as a matter of law.

DISPOSITION

The order is reversed and the matter remanded to the trial court for further proceedings consistent with this opinion. Costs on appeal are awarded to appellants.

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Levy, Acting P.J.

WE CONCUR:

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Dawson, J.

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Kane, J.

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^[1] Appellants’ request that this court judicially notice its prior opinions in this matter is granted.

^[2] All further statutory references are to the Probate Code.

^[3] Section 21320 provides in part: “If an instrument containing a no contest clause is or has become irrevocable, a beneficiary may apply to the court for a determination of whether a particular motion, petition, or other act by the beneficiary would be a contest within the terms of the no contest clause.”