McDonnell v. Jarvis
Filed 11/15/13 McDonnell v. Jarvis CA6
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opinion has not been certified for publication or ordered published for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.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH
APPELLATE DISTRICT
John McDonnell, Jr., as Trustee,
etc.,
Plaintiff and
Respondent,
v.
TODD JARVIS,
Defendant and
Appellant.
H036490
(Monterey
County
Super. Ct.
No. P31598)
ORDER MODIFYING OPINION
AND DENYING REHEARING
[NO
CHANGE IN JUDGMENT]
BY THE COURT:
It is
ordered that the opinion filed herein on October 23, 2013, be
in the following particulars:
1. In the
paragraph commencing at the bottom of page 16 with “James does not†and ending
at line 7 of page 17 with “ ‘a grave injustice,’ †the name “James†is replaced
with “McDonnell,†so that the paragraph reads as follows:
McDonnell
does not agree that the appeal is moot.
He points out that the trial court’s order granting the petition was
automatically stayed pending appeal pursuant to section 1310 and that he, as
trustee, entered into a January 2011 letter agreement with Hancock
acknowledging that the contract “remains in full force and effect during the
appellate stay.†McDonnell explains that
the performance deadlines in the contract, including the deadline for close of
escrow, run from the date that court approval of the Hancock contract is final,
not the date of entry of the court order approving it. Further, McDonnell urges that “[i]f Todd
could thwart the completion of the Contract . . . by forcing its expiration
simply by filing an appeal of the approval, it would make the entire Petition
process required by the Trust meaningless and work a grave injustice.â€
2. On page 19, in the third paragraph, the name
“James†is replaced with “McDonnell,†so the paragraph reads as follows:
According
to McDonnell, it is undisputed that the settlors’ intent when the Trust was
created was to sell the Jarvis Ranch for a value greater than agricultural land
value, and the circumstances “ ‘at this time’ †included negotiation with
Centex/Shea to buy the Jarvis Ranch for development. However, McDonnell argues that the Trust
instrument includes language demonstrating the settlors’ contemplation of the
possibility that the land could not be sold for development; in particular, the
language stating that the Trust’s purposes included evaluation of the “
‘economic viability of the sale and development’ †of the Jarvis Ranch and
giving the trustee the authority to sell the Trust property.
3. On page 22, in the second full paragraph, the
name “James†is replaced with “McDonnell,†so the paragraph reads as follows:
McDonnell
responds that the failure to hold an evidentiary hearing does not constitute
reversible error because Todd did not request an evidentiary hearing on
material factual issues and both parties submitted evidence by declarations
with attached documents. We agree.
4. In the paragraph commencing at the bottom of
page 24 with “James argues†and ending on line 4 of page 25 with “environmental
issues,†the name “James†is replaced with “McDonnell,†so that the paragraph
reads as follows:
McDonnell
argues to the contrary that the trial court appropriately determined that sale
of the Jarvis Ranch to Hancock was in the best interest of the Trust and its
beneficiaries; it is undisputed that the sale price of $11.6 million is fair
market value; there was no evidence that the Jarvis Ranch could be sold for
development in the foreseeable future; the Hancock contract includes a process
for opening the sale to overbids; an Internal Revenue Code section 1031
exchange will be accommodated as required by the Trust; and the Hancock
contract expressly provides for disclosure of the pending eminent domain
actions and environmental disclosures and does not provide a warranty relating
to environmental issues.
There is no
change in the judgment.
Appellant’s
petition for rehearing is denied.
_________________________________
BAMATTRE-MANOUKIAN,
J.
_________________________________
ELIA,
ACTING P.J.
_________________________________
MÃRQUEZ,
J.
Filed
10/23/13 McDonnell v. Jarvis CA6 (unmodifed version)
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.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH
APPELLATE DISTRICT
John McDonnell, Jr., as
Trustee, etc.,
Plaintiff and
Respondent,
v.
TODD JARVIS,
Defendant and
Appellant.
H036490
(Monterey County
Super. Ct. No. P31598)
INTRODUCTION
The Jarvis
Ranch, which includes more than 300 acres of agricultural land in Monterey
County, is an asset of the Jarvis Replacement Administrative Trust (the
Trust). Appellant Todd Jarvis and his
brother James Jarvis
name="_ftnref1" title="">[1]
are co-settlors and beneficiaries of the Trust.
Respondent John McDonnell, Jr. is the court-appointed trustee.
In his capacity as trustee, McDonnell filed a petition
for authority to perform a real estate purchase contract for sale of the Jarvis
Ranch to Hancock National Resources Group, Inc. (Hancock) for $11.6
million. The terms of the Trust required
McDonnell to petition the court since Todd had objected to the proposed sale
while James had consented. The trial
court granted the petition on December 4, 2010.
For the reasons stated below, we conclude that the court did not abuse
its discretion and we will affirm the order.
FACTUAL AND PROCEDURAL BACKGROUND
A. The
Petition
In August 2010 McDonnell
filed a verified petition for authority to perform a real estate purchase
contract pursuant to Probate Code section 17200.
created as part of a court-supervised settlement of a protracted dispute
between brothers [Todd] and [James] concerning the Jarvis Family Trusts,
created under an agreement between Todd and [James] dated December 18,
1998.†In 2004, Todd and James executed
a first amendment to the Trust and
McDonnell was confirmed as trustee by court order.
As stated in the petition, the Trust provides that “[t]he
primary purposes of the settlors in the creation of this trust (in no
particular order) are to provide (1) for the management and administration of
the JARVIS RANCH . . . and the JARVIS PROPERTIES real estate . . . ; (2) the
distribution of income from the trust assets . . . .; (3) an evaluation of the
economic viability of the sale and development of the JARVIS RANCH and JARVIS
PROPERTIES real estate; and (4) the negotiation [of] the sale and the
development of the JARVIS RANCH and JARVIS PROPERTIES real estate.â€
The Trust further provides that “[t]he trustee and
settlors agree that, at this time, the settlors are only interested in selling
the JARVIS RANCH for a value substantially greater than that which would be
paid for just farmland, meaning that the sale should be for the property
entitled for a use greater than farmland (such as mixed use, residential use,
or commercial use).â€
The petition specified that the subject of the proposed
real estate purchase contract was the Jarvis Ranch, which consists of 333.5
acres currently zoned and used for agriculture.
In his capacity as trustee, McDonnell “began to pursue the possibility
of accomplishing the stated goal†of entitling the Jarvis Ranch for a purpose
other than farmland. Before McDonnell’s
appointment, Todd was the trustee and an attorney retained by Todd had
negotiated an agreement with Centex Homes, Shea Homes and Shea Properties
(Centex/Shea) for the possible acquisition and development of the Jarvis
Ranch. After McDonnell was appointed, he
pursued the creation of an alternative highway route known as the “ ‘West Side
Bypass’ †to improve freeway access to the Jarvis Ranch.
However, as stated in the petition, it became “clear that
the West Side Bypass will not be constructed in the foreseeable future for a
complicated combination of political and economic reasons.†Also, Centex/Shea exercised its right to
withdraw from the agreement to acquire and develop the Jarvis Ranch. McDonnell consulted John Piini, a real estate
broker and appraiser with knowledge of property values and property development
in Monterey County. McDonnell also
consulted Jeffrey Gilles, an attorney with experience in Monterey County land
use and property development. The
petition stated that McDonnell “has been informed by Mr. Piini and Mr. Gilles,
and believes, that it is highly unlikely that the Jarvis Ranch can be entitled
for mixed use within the foreseeable future, not only within the remaining less
than four-year term of the Trust, but possibly for many years beyond that
time.â€
In 2009, McDonnell received an unsolicited proposal from
Hancock for purchase of the Jarvis Ranch for $11 million, based on the
property’s value as farmland. McDonnell
notified Todd and James that he believed that it was in the best interests of
the Trust to negotiate a sale to Hancock since development of the Jarvis Ranch
would be impossible in the foreseeable future.
After investigating Hancock and determining it was a well-known and
respected company specializing in the acquisition of agricultural property,
McDonnell negotiated a sales price of $11.6 million. He also negotiated contract terms regarding
the need for court approval of the contract if a beneficiary objected to the
sale and also a hearing at which overbids would be solicited, as well as a
provision permitting termination of the contract if James or Todd agreed to
purchase the other’s interest in the Jarvis Ranch prior to final approval of
the contract.
In August 2010 McDonnell sent James and Todd a notice of
proposed action that “informed them that he intended to perform the terms of
the executed real estate purchase contract with Hancock (‘the Hancock
contract’).†James signed a consent to
the proposed action, while Todd signed an objection. McDonnell stated in the petition that he
believed that Todd’s objection was unreasonable. Although the statement of intent in the Trust
provided that Todd and James were “ ‘at this time’ †only interested in selling
the Jarvis Ranch for a value substantially greater than would be paid for
farmland, that intent was “based upon an economic climate in which development
was booming and real estate values were steadily climbing.â€
McDonnell further explained in the petition that “the
Trust was created and [McDonnell] appointed as trustee because of a bitter and
longstanding dispute between Trust beneficiaries Todd and [James]. . . . In addition, although [McDonnell’s] relationship
with Todd was cordial at the time the Trust was established, and, in fact, it
was Todd who nominated [McDonnell] to serve as independent trustee of the
Trust, for the past several years Todd has become increasingly hostile towards
[McDonnell]. This hostility has
significantly interfered with [McDonnell’s] administration of the Trust and has
dramatically increased the cost of the Trust administration.â€
In conclusion, McDonnell stated that he “is in complete
agreement [with James] that the Hancock contract is a fair and reasonable
contract which will allow the Jarvis Ranch to be sold and the net proceeds
distributed so that these brothers can sever the business relationship which
has been so extraordinarily costly to them both for many years. If the Jarvis Ranch is not sold pursuant to
the Hancock contract, [McDonnell] fears that the remaining four years term of
the Trust will be similar to the last few years, in which an inordinate amount
of Trust assets are spent dealing with Todd’s efforts to impede administration
of the Trust.†McDonnell also stated
that “Todd’s opposition to this proposed action is unreasonable and that
granting [McDonnell] the authority to perform the Hancock contract is not only
in the best interests of Todd and [James] but offers the only possible solution
to a deeply troubling and intractable situation.â€
B. Declarations
Filed in Support of the Petition
In support of the petition, McDonnell submitted the
declarations of himself, Piini, and James.
In his declaration, James stated, among other things,
that when he “entered into negotiations with Todd Jarvis in 2004 to create a
new trust agreement, [he] was assured by Todd and his attorneys that the Centex
‘deal’ was legitimate and that Centex was in the process of presenting a
serious offer. [He] agreed to this
second trust under the belief that the Jarvis Ranch and Jarvis Properties would
be sold, one of the four specific purposes of the trust. Only after the Agreement was signed did [he]
discover that Centex considered development of the property unfeasible. . .
. [¶]
. . . The 2004 Trust memorializes
[his] thinking where it states that ‘at this time’ [he] hoped for the Jarvis
Ranch to be sold for more than agricultural value as [he] had been led to
believe by Todd. However, [he] also recognized
that such a sale might not be possible if circumstances changed. . . . ‘AT THAT TIME’ we did hope to sell to a
developer for greater than farmland value, based solely on Todd’s
representations. However, the reason
that phrase is in there is in recognition that ‘times can change,’ which they
have. If we never intended to sell to
anyone but a developer, we would have said so and the phrase ‘at this time’
would not have been included.â€
James also stated:
“We have before us an all cash offer from a legitimate buyer for $11.6
million which, [he] understand[s], is at or above fair market value. There is no assurance that other or better
offers will be forthcoming. In fact, a
number of similar properties near the Jarvis Ranch which have been for sale for
a number of years have received no offers.â€
Referring to “Todd’s enmity towards [him],†James concluded that “[t]he
equitable solution to this problem is to permit the sale of the Jarvis Ranch to
Hancock, sell Jarvis Properties through a managed court-ordered process,
terminate the trust, and allow us to go our own ways.â€
Piini stated in his declaration that he is a licensed
real estate broker and has been a professional real estate appraiser for 35
years, with a specialty in agricultural property. He was familiar with the Jarvis Ranch and had
prepared a 1997 appraisal of the property in another matter. He determined that “the acreage useable for
agricultural purposes is 328.5 acres. In
evaluating a purchase offer for agricultural property, the proposed purchase
price is divided by the useable acreage in order to obtain a per-acre
value.†Piini also stated that he was
very familiar with land use issues in Monterey County and “the history of
efforts to obtain entitlements for other than agricultural use for properties
such as the Jarvis Ranch on the west side of the City of Salinas.†He did not “believe that the Jarvis Ranch
property has a potential for development as other than agricultural land in the
foreseeable future.â€
Piini was asked to evaluate Hancock’s offer to purchase
the Jarvis Ranch for $11 million.
He advised McDonnell that the price was “ ‘a little low,’ †and
McDonnell might be able to negotiate an increase. In Piini’s opinion, the negotiated purchase price
of $11.6 million, based on a rent estimate of approximately $1,800 per acre,
“represents a return to the buyer of 5.1% on the sales price of $11,600,000.
. . . [T]his is consistent with current rates reflected in sales
of similar agricultural property in the Salinas area, which are generally
between 5.0% and 5.5% and most recently between 5.0% and 5.25%.â€
Finally, Piini stated that when he was deposed he “was
candid with respect to [his] belief that ordinarily it is good practice to
market property for a period of time in order to expose it to a range of
potential buyers. However, . . . when a
good offer is received from a reputable buyer, [he] believe[s] that such an
offer should be taken seriously. In
[his] opinion, Hancock is a reputable [buyer] and the current offer should be
taken seriously.â€
McDonnell stated in his declaration, among other things,
that he understood at the time the Trust was created that Todd and James hoped
to increase the value of the Jarvis Ranch by obtaining entitlements to develop
the property for a use other than agricultural use. However, “the collapse of the real estate
market and the dramatically changed political climate in Salinas over the past
six years have made it clear that this hope cannot be realized in the the
foreseeable future.†When he negotiated
the $11.6 million sale to Hancock, McDonnell insisted that the sale be subject
to “confirmation and possible overbid in accordance with a sale of real
property conducted in an estate under the California Probate Code.†McDonnell had also entered into a letter
agreement with Hancock that amended the proposed real estate purchase agreement
“to provide that the buyer will cooperate with a [Internal Revenue Code
section] 1031 exchange and to extend close of escrow to sixty (60) days after
the environmental contingencies have been removed or waived.†If the petition was granted, McDonnell
intended to immediately begin marketing the Jarvis Ranch to other prospective
bidders with the assistance of real estate brokers and agents.
McDonnell also stated that he has “worked hard as a
trustee of the Jarvis Trust for six years, under difficult conditions. [He] believe[s] that it is in the best
interests of the two beneficiaries that this sale be approved; the price is a
fair one, and the level of animosity between the two beneficiaries has risen to
the point that [he] fear[s] that the administrative costs will continue to
climb in this Trust, driven by the continuing dispute between these two brothers. [His] interactions with each them lead [him]
to believe that they are unable to co-own property if they must deal directly
with each other.â€
McDonnell denied Todd’s allegations that terms of the
Hancock contract were “ ‘hidden’ †from Todd and that he had engaged in “
‘secret’ discussions†with James.
McDonnell also denied Todd’s allegations that he favored James in his
administration of the Trust and that his law firm was responsible for changing
the structure of the Trust in a way that interfered with Todd’s ability to
complete an Internal Revenue Code section 1031 exchange. McDonnell stated that the primary drafting
attorney for the Trust was Todd’s attorney and that the Trust was negotiated
between Todd, James, and their respective counsel before the final version was
agreed upon.
C. Todd’s
Opposition to Petition
Todd filed a
memorandum of points and authorities in opposition to the petition. He argued that the proposed sale of the
Jarvis Ranch to Hancock was contrary to the express intent of the Trust
settlors that the Jarvis Ranch be sold for a value substantially greater than
its farmland value. Additionally, Todd
argued that James had “secretly solicited†the Hancock offer and failed
to disclose “defects involving the drainage and CalTrans issuesâ€; the sale was
a “[d]esperation†sale that was not in the best interest of the Trust;
based on Piini’s deposition testimony, the sale should be delayed until the
market for agricultural land strengthened and the property was put on the open
market; the drainage and CalTrans issues should be resolved before selling the
property; the proposed sale would require modification of the Trust to permit a
sale for farmland value; the proposed sale will result in a $1 million tax
liability to Todd because the Trust is not structured to accommodate an
Internal Revenue Code section 1031 exchange; and the trustee had not been
impartial but had favored James’s interests and ignored “Todd’s legitimate
desire to maintain the favorable income stream from Jarvis Ranch.â€
Todd also filed evidentiary objections in opposition to
the petition. His objections to nine
sentences and paragraphs in the petition included lack of foundation, hearsay,
and speculation. Todd also requested an
evidentiary hearing “if the Court is going to consider any of these allegations
[in the petition] respecting [Todd’s] objections to unspecified trustee
activities, [Todd’s] objection to the Trustee’s purported settlement of
litigation with CalTrans and alleged but unspecified costs to the Trust.†Todd also requested an evidentiary hearing
“if the Court is inclined to consider any of those allegations [about Trust
expenses] as ‘evidence.’ â€
D. Declarations
Filed in Support of Todd’s Opposition
In support of his
opposition, Todd submitted his own declaration and the declarations of his
attorneys with deposition excerpts attached.
In his
declaration, Todd stated that the Jarvis Ranch “remains a lucrative businessâ€
due to farm rents paid by tenants and he did not want to sell the property to
“Hancock for their price.†Todd asserted
that when the Trust was formed in 2004, he had no intention of selling the
Jarvis Ranch if a developer did not purchase the property. The proposed sale to Hancock violates the intent
of the settlors, according to Todd, because the Trust’s language reflects an
intent to sell the Jarvis Ranch only for development and to provide income to
the beneficiaries.
Todd also asserted that a provision in an earlier draft
of the Hancock contract included the trial court’s modification of the Trust to
permit the sale of the Jarvis Ranch for farmland and that provision was
“secretly removed†from the signed version of the Hancock contract without his
knowledge. He urged the trial court to
reject the Hancock contract on the grounds that the contract “
very bad and
ability to “defer approximately $1,000,000 in tax liability if the sale is
consummated†due to McDonnell’s “gross negligence†in “disrupting a tax
structure set up by the trust attorneys who created the 1998 Trust.â€
In his supplemental declaration, Todd stated that his
objections to the proposed actions of McDonnell as trustee were based on advice
from his attorneys and were not due to “a sense of animus towards my brother
[James] or anyone else . . . .†Todd
also recounted his disputes with James regarding their parents’ estate and the
Trust, denied that he had guaranteed the Centex/Shea developer opportunity
“would bear fruit,†and denied that he had ever been removed as trustee or
committed any misconduct when he was the trustee.
Attorney Vernon H. Granneman submitted a declaration in
which he stated that he represented Todd in connection with the petition. According to Granneman, the proposed sale to
Hancock would “take away the Trust’s primary income producing asset.†Granneman also stated that if the Jarvis
Ranch is not sold before the Trust terminates in 2014 and the result is a
partition action, “it is not a negative.â€
He attached excerpts from the depositions of James, McDonnell, and
Piini.
Attorney Timothy P. Burns stated that he is a tax
attorney and had “analyzed the question whether or not the current trust
agreement for the [Trust] is structured to accommodate a[n] [Internal Revenue
Code] Section 1031 exchange.†His
conclusion was “that the trust is not structured to accommodate a Section 1031
exchange of Todd’s 50% interest in the Trust property.†If the sale price for the Jarvis Ranch is $11
million, Burns estimated that Todd would incur tax liability of $850,000 “in
comparison to what he could instead obtain in a tax efficient exchange.â€
Attorney Scott A. Sommer stated that he also represents
Todd and had reviewed the transcripts of the depositions of Piini, Jeffrey
Gilles, and McDonnell. In Sommer’s
opinion, the sale of the Jarvis Ranch should be delayed “until at least
2011†to maximize the value of the
property by resolving issues arising from the Caltrans project and related
drainage problems and to allow a marketing plan to be developed.
E. Order
After Hearing
The hearing on the
petition was set for November 5, 2010.
When the hearing began, the trial court noted that the parties had filed
additional documents during the two days immediately preceding the hearing and
that Todd had filed documents on the morning of the hearing. The court continued the hearing to November
8, 2010, to allow the court to review the recently filed documents. Todd did not request an evidentiary hearing
on November 5. During argument on
November 8, Todd’s attorney stated that “the only proper way to resolve this is
through an evidentiary hearing†because it was not “appropriate for a matter of
this magnitude to be decided on declarations and argument of this type.†The record does not reflect an express denial
by the trial court of Todd’s request for an evidentiary hearing or any express
rulings on Todd’s evidentiary objections.
The trial court
filed its order after hearing on December 4, 2010. The court stated that the issues raised by
Todd in opposition to the petition included (1) “he had not been kept apprised
of contract negotiationsâ€; (2) “full disclosure had not been made to the
proposed purchaserâ€; (3) “no competent evidence ha[d] been submitted regarding
the developmental potential of the propertyâ€; (4) “the trust must be modified
before the property can be sold for mere farm valueâ€; and (5) “the purchase
price is speculative.â€
The order includes the following findings: (1) McDonnell advised Todd and James of
Hancock’s offer in December 2009; (2)
Copies of the proposed contract and a request for comments were provided to Todd
and James in April 2010; (3) No comments
were received from Todd, who at all times was represented by counsel; (4) the
involvement of the property in eminent domain actions was public record, the
buyer had been given the opportunity to discuss the eminent domain issues with
the Trust’s attorney, and it would not be appropriate to release confidential
documents until there is a signed contract; (5) the proposed contract allows
for a net reduction of the purchase price if the net farmed and irrigated
acreage falls below a specified amount due to the eminent domain actions; and
(6) the purchase price of $11.6 million is consistent with the sales of similar
agricultural property in the Salinas area, as stated in Piini’s
declaration.
The trial court also ruled on the issue of whether the
terms of the Trust permitted the sale of the Jarvis Ranch for farm value. The court began its interpretation by
addressing the Trust’s provision that the “ ‘trustee and settlors agree that,
at this time, the settlors are only interested in selling the Jarvis Ranch for
a value substantially greater than that which would be paid for just farmland .
. . .’ †The court determined that
“[b]y its own terms, [the Trust] states that ‘at this time’ (this time being
June of 2004), the settlors were only interested in selling the property for
more than farm value. At that time,
discussions were being conducted with national developers Centex/Shea. Those discussions ended soon after
establishment of the [Trust]. More than
six (6) years have now passed since the [Trust] was established and more than
thirteen (13) years since the original Petition for Modification was
filed. It does not appear that any other
serious proposals have appeared on the horizon since.â€
Further, the trial court determined that “[w]hile the
settlors were, and presumably still are, interested in selling the trust
property for its highest price, built in to the [Trust] is the recognition that
development may not be economically feasible.
Among the four purposes of the trust was for ‘an evaluation of the
economic viability of the sale and development of the Jarvis Ranch and Jarvis
Properties real estate.’ This language
would not have been necessary if the settlors’ intent was only to sell the
properties for development. Further,
John W. Piini, an expert initially retained by Todd Jarvis as Trustee of the
[Trust], states ‘I do not believe that the Jarvis Ranch property has a
potential for development as other than agricultural land in the foreseeable
future.’ â€
The trial court therefore determined “that it is in the
best interest of the trust to take the proposed action†and granted the
petition for authority to perform a real estate purchase contract. Todd filed a timely notice of appeal.
III. DISCUSSION
A.
McDonnell’s petition for authority to perform a real
estate purchase contract was filed pursuant to section 17200, which provides in
part: “Except as provided in Section
15800, a trustee or beneficiary of a trust may petition the court under this
chapter concerning the internal affairs of the trust . . . . [¶]
Proceedings concerning the internal affairs of a trust include, but are not
limited to, proceedings for any of the following purposes:
[¶] . . . [¶] (8) Granting powers to the
trustee.†(§ 17200, subds. (a),
(b)(8).)
“The probate court has wide discretion to make any order
and take any action necessary or proper to dispose of matters presented by a
petition under section 17200.
(§ 17206.) The applicable
standard of review is therefore abuse of discretion. We are mindful, however, that ‘[t]he abuse of
discretion
standard; the deference it calls for varies according to the aspect of a trial
court’s ruling under review. The trial
court’s findings of fact are reviewed for substantial evidence, its conclusions
of law are reviewed de novo, and its application of the law to the facts is
reversible only if arbitrary and capricious.’
[Citation.]†(
Cal.App.4th 1244, 1258-1259 (Manson).)
B. Issues
Cognizable On Appeal
At the outset, we
must determine which of the many issues that Todd attempts to raise may be
considered on appeal. “As a general rule, ‘issues not raised
in the trial court cannot be raised for the first time on appeal.’ [Citations.]â€
(Sea & Sage Audubon Society,
Inc. v. Planning Com. (1983) 34 Cal.3d 412, 417.) Thus,
an argument raised for the first time on appeal is usually forfeited. (Kaufman & Broad Communities, Inc. v.
Performance Plastering, Inc. (2006) 136 Cal.App.4th 212, 226 (
seeks to raise in his opening brief and his supplemental opening brief.
In his opening brief, we understand Todd to attempt to
raise the following issues: (1) the
trial court’s failure to allow an evidentiary hearing as required by section
1022 constitutes prejudicial error; (2) the court erred in failing to analyze
the Hancock contract “in the context of the California Prudent Investor Act
. . . [§ 16047]â€; (3) the
court erroneously interpreted the language of the Trust to allow sale of the
Jarvis Ranch for agricultural land value because the settlors only intended to
sell the property for development; (4) there was evidence that McDonnell’s
original opinion was that the Trust had to be modified to allow a sale for
agricultural land value; and (5) the court acted in excess of its jurisdiction
in effectively changing the terms of the Trust absent compliance with Probate
Code procedures, and a remand for consideration of whether changed
circumstances warrant a modification of the Trust is not the appropriate
remedy.
We understand Todd to make the following additional
arguments in his supplemental opening brief:
(1) the appeal is moot because the Hancock contract expired in March
2011 and the trustee has no authority to extend it; (2) the Hancock contract is
not enforceable because it is “a disguised option contractâ€; (3) the Hancock contract is unenforceable
under Civil Code section 1611 because the amount of the consideration is left
to Hancock to determine; (4) the trustee is collaterally estopped from
asserting that there will be no development of the Jarvis Ranch in the
foreseeable future because he sought funds for payment of a land use planner in
the related eminent domain action; and (5) contrary to the trustee’s assertions,
there is no evidence that the Jarvis Ranch could not be partitioned between
Todd and James.
Our review of the record shows that Todd did not raise
several of the above issues in the trial court, including whether the court
erred in failing to analyze the Hancock contract “in the context of the
California Prudent Investor Act . . . [§ 16047]â€; whether the court acted in excess of its
jurisdiction in effectively changing the terms of the Trust absent required
Probate Code procedures; whether the appeal is moot because the Hancock
contract expired in March 2011 and the trustee has no authority to extend it;
whether the Hancock contract is unenforceable because it is “a disguised option
contractâ€; whether the Hancock contract
is unenforceable under Civil Code section 1611; whether the trustee should be
collaterally estopped from asserting that there will be no development of the
Jarvis Ranch in the foreseeable future because he sought funds for payment of a
land use planner in the eminent domain action; and there is no evidence that
the Jarvis Ranch could not be partitioned between Todd and James. Since all of these issues are raised for the
first time on appeal, with the exception of the mootness issue that we will discuss
below, we will not consider them. (Kaufman & Broad, supra, 136 Cal.App.4th at p. 226.)
In his reply brief, Todd adds
two new arguments that we understand as follows: (1) the trial court failed to consider
whether the Hancock contract would result in a capital loss to the beneficiaries,
in conflict with unspecified Trust provisions that aid deferral of large
capital gains; and (2) the trial court failed to consider the adverse tax
consequences of the Hancock contract.
However, “[p]oints raised in the reply brief for the first time will not
be considered, unless good reason is shown for failure to present them
before.†(Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn. 3 (
expressed its hostility to the practice of raising new issues in an appellate
reply brief.†(Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764.) “ ‘Obvious reasons of fairness militate
against consideration of an issue raised initially in the reply brief of an
appellant.’ [Citation.]†(Ibid.)
We determine that Todd has
forfeited the capital loss issue because he has raised it for the first time on
appeal in his reply brief. (Kaufman & Broad, supra, 136 Cal.App.4th at p. 226; see
tax consequences argument for the first time in his reply brief, to the extent
he raised the tax issue below and makes that argument in connection with the
issue of whether the trial court abused its discretion in granting the
petition, we will consider it.
For
these reasons, we determine that the following issues are cognizable in this
appeal: (1) whether the appeal is moot;
(2) whether the Trust may be interpreted to allow the sale of the Jarvis Ranch
for agricultural land value; (3) whether the trial court erred in failing to
allow an evidentiary hearing; and (4) whether the trial court abused its
discretion in granting the petition for authority to perform
a real estate purchase contract for sale of the Jarvis Ranch to Hancock.
C. Mootness
We will begin our evaluation with consideration of Todd’s
claim that the appeal is moot. We
understand Todd to argue, in his supplemental opening brief filed in September
2012, that the appeal is moot because the Hancock contract terminated by its
own terms on March 9, 2011, which was the deadline for close of escrow, and
McDonnell did not seek court approval of a contract extension. Todd has not requested dismissal of the
appeal.
James does not agree that the appeal is moot. He points out that the trial court’s order
granting the petition was automatically stayed pending appeal pursuant to
section 1310 and that McDonnell, as trustee, entered into a January 2011 letter
agreement with Hancock acknowledging that the contract “remains in full force
and effect during the appellate stay.â€
James explains that the performance deadlines in the contract, including
the deadline for close of escrow, run from the date that court approval of the
Hancock contract is final, not the date of entry of the court order approving
it. Further, James urges that “[i]f Todd
could thwart the completion of the Contract . . . by forcing its expiration
simply by filing an appeal of the approval, it would make the entire Petition
process required by the Trust meaningless and work a grave injustice.â€
We determine that the appeal is not moot. Section 1310, subdivision (a), provides that
with certain exceptions not relevant here, “an appeal pursuant to Chapter 1
(commencing with Section 1300) stays the operation and effect of the judgment
or order.†As we have previously noted,
the December 4, 2010 order granting the petition and giving McDonnell authority
to sell the Jarvis Ranch to Hancock is appealable pursuant to section 1304,
subdivision (a). Under section 1310,
subdivision (a), therefore, the trial court’s December 4, 2010 order is stayed
pending appeal in both its operation and its effect. Accordingly, the performance deadlines in the
Hancock contract, including the deadline for close of escrow that is argued by
Todd as a basis of his mootness argument, have not expired since the trigger
for those deadlines—court approval of the contract—is not yet effective.
Having determined that the appeal is not moot, we will
next consider the threshold issue of whether the Trust may be properly
interpreted to allow the sale of the Jarvis Ranch for agricultural land value,
beginning with an overview of the rules governing the interpretation of trust
instruments.
of Trust Instrument
“In construing trust instruments, as in the construction
and interpretation of all documents, the duty of the court is to first
ascertain and then, if possible, give effect to the intent of the maker.†(Estate of Gump (1940) 16 Cal.2d 535,
548; accord, Ephraim v. Metropolitan Trust Co. (1946) 28 Cal.2d 824, 834
[“the primary rule in construction of trusts is that the court must, if
possible, ascertain and effectuate the intention of the trustor or settlorâ€]; §
21102, subd. (a) [trustor’s intent controls].)
“It is axiomatic that we must look to the instrument
creating the trust to determine the nature, extent and object of said
trust.†(Moxley v. Title Ins. &
Trust Co. (1946) 27 Cal.2d 457, 463.)
“Accordingly, in ascertaining the intention of the trustor the court is
not limited to determining what is meant by any particular phrase but may also
consider the necessary implication arising from the language of the instrument
as a whole.†(Brock v. Hall
(1949) 33 Cal.2d 885, 890 (Brock);
see §§ 21120, 21121.)
The court also examines the relevant circumstances
surrounding creation of the trust. (Estate
of Powell (2000) 83 Cal.App.4th 1434, 1440.) “ ‘ “In interpreting a document such as a
trust, it is proper for the trial court in the first instance and the appellate
court on de novo review to consider the circumstances under which the document
was made so that the court may be placed in the position of the testator or
trustor whose language it is interpreting, in order to determine whether the
terms of the document are clear and definite, or ambiguous in some respect.â€
’ [Citations.]†(Estate
of Powell (2000) 83 Cal.App.4th 1434, 1440.) “ ‘Thus, extrinsic evidence as to the
circumstances under which a written instrument was made is admissible to
interpret the instrument, although not to give it a meaning to which it is not
reasonably susceptible.’ †(
51,73; see Burch v. George (1994) 7
Cal.4th 246, 258, fn. 8 [“Evidence of the circumstances surrounding the
execution of the trust instrument is properly admissible to ascertain its
meaning and intent. [Citations.]â€].)
In reviewing a trial court’s construction of a trust, “
‘we are free to independently interpret the instrument as a
interpretation turned upon the credibility of extrinsic evidence or required
resolution of a conflict in the evidence.
[Citations.] “The possibility
that conflicting inferences can be drawn from uncontroverted evidence does not
relieve the appellate court of its duty independently to interpret the
instrument; it is only when the issue turns upon the credibility of extrinsic
evidence, or requires resolution of a conflict in that evidence, that the trial
court[’s] determination is binding.†[Citation.]’ [Citation.]â€
(Estate of Goyette (2004)
123 Cal.App.4th 67, 71.)
On appeal, Todd acknowledges that the Trust instrument
does not expressly prohibit the sale of the Jarvis Ranch for agricultural land
value. He argues, however, that the
trial court erred in determining that the Trust permits the sale of the Jarvis
Ranch for agricultural land value because the language of the Trust instrument,
specifically the phrases “ ‘at this time’ †and “ ‘sale and development,’ â€
shows that the settlors only wanted to sell Jarvis Ranch if it could be
developed. Todd also asserts that
McDonnell stated in an email earlier in the case that James was no longer
interested in amending the Trust to allow a sale for agricultural land value.
According to James, it is undisputed that the settlors’
intent when the Trust was created was to sell the Jarvis Ranch for a value
greater than agricultural land value, and the circumstances “ ‘at this time’ â€
included negotiation with Centex/Shea to buy the Jarvis Ranch for development. However, James argues that the Trust
instrument includes language demonstrating the settlors’ contemplation of the
possibility that the land could not be sold for development; in particular, the
language stating that the Trust’s purposes included evaluation of the “
‘economic viability of the sale and development’ †of the Jarvis Ranch and
giving the trustee the authority to sell the Trust property.
Having reviewed the language of the Trust instrument and
the evidence of the circumstances surrounding its making, we agree with the
trial court that the Trust permits the trustee to sell the Jarvis Ranch for
agricultural land value. In our
analysis, we look first to the language of the Trust as a whole, as required by
the standard of review. (Brock, supra, 33 Cal.2d at
p. 890.)
The Trust instrument includes the following statement of
intent, at paragraph 1.3: “The primary
purposes of the settlors in the creation of this trust (in no particular order)
are to provide (1) for the management and administration of the JARVIS RANCH .
. . and the JARVIS PROPERTIES real estate . . .; (2) the distribution of income
from the trust assets as provided in section 5.1; (3) an evaluation of the economic viability of the sale and development of
the JARVIS RANCH and JARVIS PROPERTIES real estate; and (4) the negotiation
of the sale and the development of the JARVIS RANCH and the JARVIS PROPERTIES
real estate.†(Italics added.)
The statement of intent also provides that “[t]he trustee
and settlors agree that, at this time,
the settlors are only interested in selling the JARVIS RANCH for a value
substantially greater than that which would be paid for just farmland, meaning
that the sale should be for the property entitled for a use greater than
farmland (such as a mixed use, residential or commercial use).†(Italics
added.)
At paragraph 7.8, the Trust states the general powers of
the trustee, which include in part:
“[T]he trustee shall have all of the following powers, in his fiduciary
capacity . . . [¶] . . . With or without court
authorization, negotiate, sell (for cash or on deferred payments and with
security), convey, exchange, partition, and divide trust property . . . .â€
The Trust also specifies special powers and duties of the
trustee relating to the proposed sale of the Jarvis Ranch, including (1) “The
trustee shall reasonably cooperate with any requests from the beneficiaries . .
. that the sale of the JARVIS RANCH real estate . . . be structured to
accommodate an Internal Revenue Code Section 1031 exchange in order to defer
income taxes on the proceeds of the saleâ€; and (2) “The trustee may, but is not
required to, execute an exclusive negotiation agreement (‘ENA’) by and between
the trust and a developer or developers.
Attached as Exhibit B is a copy of an ENA with [Centex/Shea] which was
signed by them and dated December 29, 2003, which the trustee shall promptly
consider and may amend and sign if the trustee deems it in the interests of the
trust to pursue this opportunity.â€
As Todd acknowledges, the Trust instrument does not
expressly provide that the settlors (Todd and James) intended that sale of the
Jarvis Ranch be prohibited unless the property could be sold for a value
greater than agricultural land value. We
find that the plain language of the Trust authorizes the trustee to sell Jarvis
Ranch property and does not restrict the use for which the property may be
sold. Additionally, the Trust instrument
expressly provides that one of the Trust’s purposes is to evaluate “the
economic viability of the sale and development†of the Jarvis Ranch, which
necessarily implies that the settlors contemplated that sale of the Jarvis
Ranch for development might not be economically viable. Moreover, as the trial court noted, the
phrase “at this time†in the statement of intent (“[t]he trustee and settlors
agree that, at this time, the settlors are only interested in selling the
JARVIS RANCH for a value substantially greater than that which would be paid
for just farmland . . . .â€) would not have been necessary if the settlors had
intended to sell the Jarvis Ranch only for development or did not contemplate a
sale for agricultural land value at a later time. We therefore determine that the Trust
authorizes the trustee to sell the Jarvis Ranch for agricultural land value.
Our interpretation of the Trust instrument is supported
by substantial evidence of the circumstances surrounding the creation of the
Trust. (See Cutrera v. McClallen (1963) 215 Cal.App.2d 604, 608.) It is undisputed that when the Trust was amended
in 2004, negotiations with Centex/Shea to purchase the Jarvis Ranch for
development were pending and the sale had not been agreed upon. It is also undisputed that Centex/Shea
withdrew from those negotiations shortly after the Trust was established and
the trustee thereafter determined on the basis of expert opinion that sale and
development of the Jarvis Ranch was not economically viable in the foreseeable
future. Accordingly, we interpret the
Trust instrument to authorize McDonnell, as trustee, to sell the Jarvis Ranch
for agricultural land value after negotiations to sell the property to
Centex/Shea for development failed and development of the property was no
longer economically viable.
E. Evidentiary
Hearing
Todd contends that the trial court erred in failing to
grant his requests for an evidentiary hearing in this contested proceeding,
since section 1022 only allows the use of affidavits as evidence in uncontested
probate proceedings.
James responds that the failure to hold an evidentiary hearing
does not constitute reversible error because Todd did not request an
evidentiary hearing on material factual issues and both parties submitted
evidence by declarations with attached documents. We agree.
Section 1022 provides that in a proceeding under the
Probate Code, “[a]n affidavit or verified petition shall be received as
evidence when offered in an uncontested proceeding.â€
name="_ftnref7" title="">[7] Therefore, “when challenged in a lower court,
affidavits and verified petitions may not be considered as evidence at a contested
probate hearing. [Citation].†(Evangelho
v. Presoto (1998) 67 Cal.App.4th 615, 620 (Evangelho).) Under that
general rule, where a party opposing a motion in probate court requested an
evidentiary hearing on the ground that there were “factual conflicts presented
by the parties’ competing declarations,†the trial court committed reversible
error in denying the request for an evidentiary hearing. (Estate
of Bennett (2008) 163 Cal.App.4th 1303, 1309-1310 (Bennett); see also Estate of
Lensch (2009) 177 Cal.App.4th 667, 676 (Lensch).)
However,
there is an exception that is applicable in the present case. “[W]here the parties do not object to the use
of affidavits in evidence, and where both parties adopt that means of
supporting their positions, the parties cannot question the propriety of the
procedure on appeal. [Citation.]†(Estate
of Nicholas (1986) 177 Cal.App.3d 1071, 1088; see Estate of Fraysher (1956) 47 Cal.2d 131, 135; Evangelho, supra, 67
Cal.App.4th at p. 620.) Here, both
parties submitted declarations as evidence in support of their positions on the
petition. Todd made evidentiary
objections, such as lack of foundation, to certain portions of James’s
declarations, but Todd did not object to the use of declarations as evidence.
Moreover, Todd’s written request for an evidentiary
hearing did not identify any material factual conflicts arising from either
McDonnell’s verified petition or the parties’ declarations that required an
evidentiary hearing. (See
Cal.App.4th at p. 1309.) Todd only
requested an evidentiary hearing “if the Court is going to consider any of
these allegations [in the petition] respecting [Todd’s] objections to
unspecified trustee activities, [Todd’s] objection to the Trustee’s purported
settlement of litigation with CalTrans and alleged but unspecified costs to the
Trust;†or “if the Court is inclined to
consider any of those allegations [about Trust expenses] as ‘evidence.’ †The record does not reflect that the trial
court considered these matters in deciding the petition or that they
constituted material factual conflicts with respect to the petition. Moreover, Todd’s oral request for an
evidentiary hearing on the day of the hearing on the petition was based on the
insufficient conclusory assertion that “the only proper way to resolve this is
through an evidentiary hearing†because it was not “appropriate for a matter of
this magnitude to be decided on declarations and argument of this type.â€
We therefore determine that the trial court did not err
in failing to grant Todd’s request for an evidentiary hearing on the petition.
F. Abuse
of Discretion
We next consider the ultimate issue of whether the trial
court abused its discretion in granting the petition. As we have stated, the abuse of discretion
standard of review is applicable where, as here, the trial court’s order
concerns a petition filed under section 17200.
(§ 17206; see Manson,
“ ‘[O]ne of the essential attributes of abuse of
discretion is that it must clearly appear to effect injustice. [Citations.]
Discretion is abused whenever, in its exercise, the court exceeds the
bounds of reason, all of the circumstances before it being considered. The burden is on the party complaining to
establish an abuse of discretion, and unless a clear case of abuse is shown and
unless there has been a miscarriage of justice a reviewing court will not
substitute its opinion and thereby divest the trial court of its discretionary
power.’ [Citations.]†(Denham
v. Superior Court (1970) 2 Cal.3d 557, 566 (Denham).) In other words,
“[a] trial court will abuse its discretion
by action that is arbitrary or ‘that transgresses the
confines of the applicable principles of law.’
[Citations.]†(
Cal.App.4th 229, 281 (Shaw.))
Although neither party framed his arguments regarding the
merits of the trial court’s order under the abuse of discretion standard, we
understand their arguments with respect to the trial court’s exercise of its
discretion to be as follows.
Todd contends that the trial court erred because the
Trust does not permit the sale of the Jarvis Ranch for agricultural land value;
the proposed sale to Hancock will cause him to suffer adverse tax consequences;
the Hancock contract is unfair and uncertain; and McDonnell secretly changed
language in the draft contract.
James argues to the contrary that the trial court
appropriately determined that sale of the Jarvis Ranch to Hancock was in the
best interest of the Trust and its beneficiaries; it is undisputed that the
sale price of $11.6 million is fair market value; there was no evidence that
the Jarvis Ranch could be sold for development in the foreseeable future; the
Hancock contract includes a process for opening the sale to overbids; an
Internal Revenue Code section 1031 exchange will be accommodated as required by
the Trust; and the Hancock contract expressly provides for disclosure of the
pending eminent domain actions and environmental disclosures and does not
provide a warranty relating to environmental issues.
We determine that Todd has failed to meet his burden as
the appellant to show a clear case of abuse of discretion resulting in a
miscarriage of justice. (See
566.) As we have previously determined
as a matter of law, the trial court did not err in interpreting the Trust to
permit the sale of the Jarvis Ranch for agricultural land value. Further, the trial court properly relied on
the undisputed expert opinion of Piini, a real estate broker specializing in
agricultural land sales, that the purchase price of $11.6 million was
consistent with the sales of similar agricultural properties and that there was
no potential for sale of the property for development in the foreseeable
future.
As to Todd’s claim regarding the adverse tax consequences
of the Hancock contract, which the trial court implicitly rejected, we observe
that McDonnell stated in his declaration that he had entered into a letter
agreement with Hancock that amended the proposed real estate purchase agreement
“to provide that the buyer will cooperate with a [Internal Revenue Code
section] 1031 exchange.†Additionally,
the Trust expressly provides that “[t]he trustee shall reasonably cooperate
with any requests from the beneficiaries . . . that the sale of the JARVIS
RANCH real estate . . . be structured to accommodate an Internal Revenue Code
Section 1031 exchange in order to defer income taxes on the proceeds of the sale.â€
The trial court’s finding that the sale of the Jarvis
Ranch to Hancock was in the best interests of the Trust was also supported by
McDonnell’s evidence, as stated in his verified petition and his declaration,
that the sale would benefit the Trust by reducing the high conflict between
beneficiaries Todd and James and by reducing the administrative costs caused by
their conflict. Accordingly, Todd has
not shown that the trial court abused its discretion by an action that was
arbitrary or transgressed the applicable principles of law. (Shaw,
supra, 170 Cal.App.4th at p. 281.)
For these reasons, we
conclude that the trial court did not err in granting the petition for for
authority to perform a real estate purchase contract for sale of the Jarvis Ranch
to Hancock for $11.6 million and we will affirm the order.
G. Sanctions
Motions
Finally, we address
the parties’ motions for monetary sanctions.
Todd has filed a motion for
monetary sanctions against McDonnell’s attorneys. We understand Todd to argue in his 44-page
motion that McDonnell’s attorneys filed a frivolous motion for sanctions
against him; filed a frivolous defense of the appeal; submitted false and
misleading statements to the court; and committed unreasonable violations of
unspecified rules of the California Rules of Court.
McDonnell has filed a motion for
monetary sanctions against Todd on the ground that Todd filed a frivolous
“motion to reverse with directions to the probate court to dismiss case.†McDonnell argues that Todd misled this court
by asserting that he did not know the grounds for the
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