Taubman v. U.S. Bank

Filed 10/24/07 Taubman v. U.S. Bank CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEALS from a judgment and postjudgment order of the Superior Court of Los Angeles County, Leonard S. Wolf, Temporary Judge. (Pursuant to Cal. Const., art. VI,  21.) The judgment is affirmed. The postjudgment order is affirmed in part and reversed in part.

Hill, Farrer & Burrill, LLP and Michael K. Collins; John T. Blanchard, P.C., and John T. Blanchard for Plaintiff and Appellant Anne C. Taubman.

Christensen, Glaser, Fink, Jacobs, Weil & Shapiro, LLP, Nabil L. Abu-Assal and and Amman A. Khan for Defendant and Appellant U.S. Bank, N.A.

Law Offices of Paul L. Stanton, Paul L. Stanton, John F. Eyrich and Robert J. Muller for Defendant and Appellant Richard J. Taubman.

___________________

Anne C. Taubman appeals from the judgment entered after the trial court surcharged her more than $8.8 million for breaching her fiduciary duties as a special trustee for the Janice L. Taubman 1990 Revocable Intervivos Trust. U.S. Bank, N.A. (the Bank), the sole trustee for the trust following Annes^[1]removal as special trustee in September 2003, and Annes brother Richard, a co-beneficiary of the trust, have also appealed from the judgment, contending the court erred in denying their joint request to assess Anne double damages for bad faith pursuant to Probate Code section 859.^[2] In addition, Anne, Richard and the Bank have each separately appealed from the courts postjudgment order awarding the Bank and Richard a portion of their requested attorney fees and costs. We affirm the judgment. We reverse the postjudgment order to the extent it awards expert witness fees and, in all other respects, affirm that order.

FACTUAL AND PROCEDURAL HISTORY

This trust dispute has a protracted history in the trial and appellate courts. Although we briefly discussed some of that history in our prior opinion in this matter (see Estate of Taubman (Sept. 15, 2004, B170510) [nonpub. opn.] (Taubman I), we provide a more comprehensive factual summary here because of its significance to the instant appeal.

1. The Establishment of the Janice L. Taubman Revocable Intervivos Trust

In 1990 Anne and Richards mother, Janice, established the Janice L. Taubman 1990 Revocable Intervivos Trust naming herself as sole trustee. In accordance with the terms of the final trust instrument, when Janice died in September 1999, Santa Monica Bank (the Banks predecessor-in-interest) became co-trustee of the trust along with Ms. Gilda Ulloa-Ochoa.

2. The SeaportVillage Sub-trust

Under the trusts terms Janices various ownership interests in Seaport Village, a shopping center and tourist attraction in San Diego, were placed in a sub-trust (the Seaport Village sub-trust) for Anne, who was named special trustee for the sub-trust. Richard and his son Wyatt were named as contingent beneficiaries of the Seaport Village sub-trust entitled to benefit from the sub-trusts assets only if Anne did not survive Janice by 10 years. Janices interests in business ventures other than Seaport Village were placed in a sub-trust for Richard.^[3]

The Seaport Village sub-trust possesses ownership interests in Seaport Village through various entities: It has a 45 percent direct ownership interest in a limited partnership called San Diego Seaport Village, Ltd. (Limited), which leases the waterfront property from the San Diego Port Authority and earns income by subleasing to approximately 50 commercial retailers and collecting a percentage of their sales revenue as rent. The sub-trust also wholly owns San Diego Seaport Village, Inc. (SVI),^[4]the general partner of another entity, Anton, Ltd. (Anton). SVI owns one percent of Limited; Anton owns 54 percent of Limited; and Anne personally and independently of the trust owns nearly 100 percent of Anton.

3. Annes Petitions To Remove the Bank as Trustee

In May 2002 Anne filed a petition to remove and surcharge the Bank for breach of fiduciary duties and declared in a supplemental petition filed on June 14, 2002 that the Bank had a conflict of interest and was improperly partial to Richards interests in administering the trust.^[5]

4. The Banks and Richards Petitions To Remove Anne as Special Trustee

On February 12, 2003 the Bank filed its own ex parte application to suspend Annes powers as special trustee of the Seaport Village sub-trust, alleging that, when it had taken Annes deposition in connection with her petition to remove it as trustee, it had learned for the first time Anne had concealed from the Bank and from Richard transactions with GMS Realty, Inc. (GMS) that had depleted sub-trust assets for her personal gain.

On February 18, 2003 the Bank filed a petition to permanently remove Anne as special trustee and sought an accounting. Richard filed his own petition asserting essentially the same arguments in the Banks petition. On February 28, 2003 the trial court granted the Banks ex parte application and suspended Anne as special trustee pending a hearing on each of the petitions.

5. The Courts Decisions Regarding the Various Petitions to Remove Trustee

The court conducted an eight-day trial in April and May 2003 in connection with the parties respective petitions for removal and surcharge of trustee. After taking the matter under submission, on September 17, 2003 the court denied Annes multiple petitions and granted the Banks and Richards petitions to permanently remove Anne as special trustee of the Seaport Village sub-trust for breaches of fiduciary duty. In a comprehensive statement of decision, the trial court made detailed findings supporting its order removing Anne as special trustee to the Seaport Village sub-trust.

a. Annes purchase of the Yasuda Bank note

Prior to Janices death, Limited became the obligor on a $39.8 million loan from Yasuda Bank (the Yasuda note) secured by Limiteds ground lease for the Seaport Village waterfront property. In 1999, after learning Yasuda Bank intended to auction the note, Anne requested the Bank purchase the note using trust assets. The Bank refused.

In December 1999 Anne purchased the Yasuda note herself at a 40 percent discount (for $25 million), but continued to charge Limited interest on the full $39.8 million face value of the note. Anne used her own funds and borrowed $19 million to consummate the purchase, using the Yasuda note, itself secured by the Seaport Village ground lease, to secure the loan. Anne formed a limited liability company, Seaport Lending Company LLC (Lending Company) for the purpose of purchasing the Yasuda note and collecting payments from Limited.

b. Annes breach of fiduciary duty

In January 2003 Anne sold GMS a 50 percent interest in the Yasuda note by transferring to GMS a controlling interest in Lending Company. Anne also assigned GMS various interests in other Seaport Village-related entities. In consideration, GMS paid approximately $7.2 million to an entity outside the trust called Davanne Enterprises LLC (Davanne), an entity controlled by Anne personally and not by the trust.

The court found Anne had accomplished the GMS transaction in her capacity as special trustee for the Seaport Village sub-trust and breached her fiduciary duties by orchestrating the sale to bypass the trust for her own financial benefit, then actively concealed the GMS transaction from the Bank and from Richard, a contingent co-beneficiary under the sub-trust, to ensure the transaction would go through unhindered by any objections from Richard or the Bank.

The trial court rejected Annes assertion she was the sole beneficiary of the Seaport Village sub-trust and, as a result, had no duty to anyone other than herself. The court found that, under the terms of the trust instrument, Richard was a contingent beneficiary of the Seaport Village sub-trust if Anne did not survive Janice by 10 years. In other words, Richard remains a co-beneficiary of the Seaport Village sub-trust until, at a minimum, September 2009.^[6]

c. Anne used trust assets to accomplish the GMS transaction

The trial court also rejected Annes argument the GMS transaction did not utilize trust assets, finding ample evidence that the GMS transaction involved the capture of all Seaport Villages substantial cash flow, the assignment of the master lease, the sublease of the entire Seaport Village, and the assignment or sale of most, if not all of Seaport Villages remaining assets.

The court also dismissed Annes assertion that, because the transactions themselves were conducted by entities Anne controlled, the Banks and Richards recourse was to file a derivative action against her as the officer of Limited or of other Seaport Village-related entities that had engaged in the transaction being disputed. The court explained a shareholder or partnership derivative action was not the only means for the Bank or Richard to attack Annes breaches of trust.

The court ordered Anne to provide an accounting of her administration of the Seaport Village sub-trust, including a complete report on the approximately $7 million paid by GMS to Davanne, as well as a report on any transaction she was involved in concerning any promissory note signed by any of the Seaport Village entities to which she was connected.

6. The First Appeal

Anne appealed from the portion of the September 17, 2003 order removing her as special trustee of the sub-trust for breach of fiduciary duty and denying her petitions to remove the Bank as trustee of the Janice L. Taubman trust. (See 1300, subd. (g) [order [s]urcharging, removing or discharging a fiduciary or order denying motion to do same is immediately appealable].)^[7] Anne challenged the trial courts interpretation of the trust instrument and its conclusion she had breached her fiduciary duties, asserting that, under the trusts terms, she was the sole beneficiary of the Seaport Village sub-trust and had no duty to anyone but herself. She also maintained that, in effect, the assets had already been distributed to her. Alternatively, she argued her removal as special trustee to the Seaport Village sub-trust was not justified because she did not breach her duties as special trustee: Neither the Yasuda note acquisition nor the GMS transaction involved trust assets.

In our September 15, 2004 opinion addressing Annes appeal, we rejected the first argument (Annes status as sole beneficiary) on its merits and found the second argument (whether the GMS involved trust assets) had been forfeited for failure to support it with citations to authority and record references. (See Taubman I, supra, B170510.)

7. The Second Trial: The Surcharge Trial

While the appeal from the first trial was pending, Anne submitted an accounting of her administration of the Seaport Village sub-trust to the trial court on November 14, 2003.^[8]The Bank and Richard objected to the accounting reports and reiterated their request to surcharge Anne more than $11 million for her multiple breaches of her fiduciary responsibilities as special trustee of the Seaport Village sub-trust.

Again, the trial court presided over an eight-day trial, this time specifically to address the the surcharge issues left unresolved following the courts September 17, 2003 ruling. Although Anne once again argued at trial she had not breached any fiduciary duties, the trial court expressly rejected those arguments, labeling them misguided efforts to re-litigate the issues relating to liability already determined in its September 17, 2003 ruling.^[9]

On July 21, 2004 the trial court found Anne liable to the trust for $7,935,150 as a result of her breaches of fiduciary duties and imposed an additional $870,536 in prejudgment interest, for a total surcharge of $8,805,686, less credit for payments already made. The court refused the Banks and Richards requests to double the amount of the surcharge under section 859, finding Anne did not act in bad faith.

8. The Instant Appeal of the Surcharge Order

On August 27, 2004 Anne filed her notice of appeal from the July 21, 2004 surcharge judgment. The Bank and Richard also filed timely notices of appeal from the surcharge judgment contesting the courts refusal to double the amount of the surcharge based on Annes purported bad faith.

9. The Postjudgment Proceedings and Order for Attorney Fees and Costs

While the appeals on the surcharge judgment were pending, the Bank and Richard filed postjudgment motions to charge Anne with their costs (including expert witness fees) and attorney fees they had incurred in prosecuting the removal and surcharge action. Anne opposed the motions, asserting there was no legal or statutory basis, absent a finding she had acted in bad faith, to hold her personally accountable for their attorney fees.

On November 26, 2004 the probate court ruled that, while a prevailing party could not recover attorney fees in a removal or surcharge action absent bad faith, the Bank and Richard were entitled to recover, as an additional element of surcharge damages, those attorney fees incurred as part of trust administration expenses to remedy problems caused by Annes breach.

After ordering the Bank and Richard to segregate those attorney fees incurred in the litigation from those fees incurred as part of trust administration and holding another hearing on the matter, on June 27, 2005 the court ruled Anne was personally liable for the Banks attorney fees in the amount of $95,157 and for Richards attorney fees in the amount of $79,158. The court found recovery of those fees was justified because they were incurred as a trust expense and were not directly related to the litigation.

The court rejected the Banks request for $339,623 for costs incurred in hiring James R. Parks, certified public accountant, as an expert witness, concluding those fees were not authorized under Code of Civil Procedure section 1033.5 because Parks was not appointed by the court. However, the court did charge Anne with part of Parkss fee, $60,200, concluding that Parks had provided administrative assistance unrelated to the litigation that was compensable as an element of damages.

CONTENTIONS

Anne contends the surcharge judgment is void for lack of subject matter jurisdiction because neither the Yasuda note nor the proceeds from its sale are trust property over which the probate court has jurisdiction.

In their appeals from the judgment the Bank and Richard contend the court erred in concluding Annes actions did not warrant doubling the surcharge under section 859.

In their respective appeals from the postjudgment order awarding attorney fees, Anne contends the court erred in awarding any attorney and expert witness fees because such fees are not legally authorized and the court lacked jurisdiction to award such fees as an item of surcharge once the surcharge judgment had become final and the matter was pending on appeal. The Bank and Richard, on the other hand, observing Anne does not dispute that the fees were reasonably incurred, contend the court erred in limiting the amount of attorney fees recoverable to those that could be properly deemed an item of surcharge.

DISCUSSION

Annes Appeal from the Surcharge Order

1. Annes Appeal Challenging the Probate Courts Factual Findings Relating to Her Removal as Special Trustee Is Untimely

In her appeal from the surcharge judgment following an accounting, Anne devotes nearly all of her lengthy appellate brief to her contention the GMS transaction involved her separate property, not property of the trust. Anne made the same arguments in the first trial in response to the Banks petition to remove her as special trustee. At the conclusion of that trial, the court granted the Banks petition, expressly finding the GMS transaction involved trust assets and Anne, acting as special trustee, actively concealed the GMS transaction from the Bank and from Richard in breach of her fiduciary duties.

The courts factual findings were immediately appealable as part of Annes appeal from the order removing her as special trustee. (See Code of Civ. Proc. 904.1, subd. (a)(10) [an appeal . . . may be taken . . . [] [f]rom an order made appealable by the provisions of the Probate Code];  1300, subd. (g) [in probate proceedings, appeal may be taken from any order surcharging, removing, or discharging a fiduciary]; see also 1304, subd. (a) [appeal may be had from any final order under  17200, including any order under 17200, subd. (b)(10) involving the appoint[ment] or remov[al] of a trustee].)

Although Anne timely appealed from the order removing her as special trustee, she did not properly raise in that first appeal her challenge to the trial courts July 21, 2004 finding trust assets were utilized to consummate the GMS transaction. Her attempt to do so in this subsequent appeal is untimely. (See Cal. Rule of Court, rule 8.104; Estate of Gilkison (1998) 65 Cal.App.4th 1443, 1450, fn. 5 [[t]he orders listed as appealable in the Probate Code must be challenged timely or they become final and binding]; In re Marriage of Padilla (1995) 38 Cal.App.4th 1212, 1216 [in appeal from August 22, 1994 appealable order, court has no jurisdiction to consider appeal from prior January 26, 1994 order that itself was appealable; because [appellant] waited too long to complain about the January 26 order [citation] we are without jurisdiction to consider it. (Code Civ. Proc.,  906)]; cf. In re Estate of Richards (1941) 17 Cal.2d 259, 267-268 [order approving exchange of real property, which had not been appealed, could not thereafter be challenged on appeal from decree settling the final account].)^[10]

Anne insists she could not have appealed earlier the probate courts finding she had used trust assets in connection with the GMS transaction. She observes that, although the order removing her as special trustee was immediately appealable, the order mandating an accounting for the transaction was not. (See 1304, subd. (a)(1) [any final order under chapter commencing with  17200 is appealable except order [c]ompelling the trustee to submit an account or report acts as trustee].) From that basic rule of appellate procedure and without citation of any relevant legal authority, Anne argues any finding in the first trial that the GMS transaction involved trust assets was necessarily preliminary and did not become final until a trial was held on the amount of the surcharge to be levied following a proper accounting. Although Anne is certainly correct that the probate courts findings concerning the GMS transaction are a factual predicate to its subsequent surcharge order, those factual findings were also the necessary basis for the courts earlier order removing Anne as special trustee. As such, they were immediately reviewable in her appeal from that removal order. Because Anne failed to properly seek appellate review of the findings regarding the GMS transaction at that time, we are without jurisdiction to allow Anne to correct her mistake now. (See Estate of Gilkison, supra, 65 Cal.App.4th at p. 1450, fn. 5 [orders made appealable by Probate Code must be timely challenged or they become final and binding]; see also Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2006) [] 2:191:2, p. 2-105.)

In an effort to salvage the issue in this appeal, Anne contends the probate court enjoys only limited, in rem jurisdiction over trust property and a judgment that purports to surcharge her for her treatment of non-trust assets, therefore, is necessarily void for lack of subject matter jurisdiction and can be attacked at any time and by any means, including on appeal from a subsequent order. Contrary to Annes contention, section 17001, enacted and amended in 1990, provides that, in trust proceedings to remove a trustee, the [probate] court is a court of general jurisdiction and has all the powers of the superior court. (See Cal. Law Revision Com. com., 54A Wests Ann. Prob. Code (1991) foll. 17001, p. 184 [This section . . . is intended to eliminate any notion that the probate court is one of limited power or that it cannot dispose of matters properly brought before it . . . ]; see also 800 [court in proceedings under this code is a court of general jurisdiction and the court, or a judge of the court, has the same power and authority with respect to the proceedings as otherwise provided by law for a superior court, or a judge of the superior court . . .].) In any event, whether the court had general or limited jurisdiction is beside the point. The court plainly had the authority to determine ‑‑ and did determine ‑‑ Anne had breached her fiduciary duty to the trust by using trust assets to consummate the GMS transaction. Those findings were appealable, and Annes failure to timely and properly challenge them in the first appeal precludes consideration of those issues here.

Annes remaining arguments, although crafted to suggest a challenge to the surcharge amount, are really challenges to the courts factual findings in the first trial. For example, although Anne purports to contest item number five of the surcharge judgment, contending the court erred in surcharging her $539,817 for the net interest differential on the Yasuda note after the GMS transaction closed,^[11]her dispute rests not with the amount of the calculation of the excess interest differential, but with the courts finding in the first trial that, as a result of Annes breach of fiduciary duties in using and encumbering trust assets to consummate the GMS transaction, the trust has an interest in Anne Taubmans share of the interest over-payments on the Yasuda note from and after the GMS deal to the present. Annes claim the trust has no such interest was a proper argument for the first appeal, not in this appeal from the subsequent surcharge order.

Similarly, Anne challenges item number one of the surcharge judgment, insisting the court erred in surcharging her for 100 percent of the proceeds of the GMS transaction, or $7,226,773. She characterizes the surcharge as an effort to restore monies to Limited (not the trust), and urges she be entitled to keep 54 percent of the proceeds in accordance with her individual ownership interest in Limited (through her entities Anton and Davanne) independent of the trust. In essence, she likens the surcharge order to a court-ordered distribution of Limiteds assets but laments the surcharge fails to take into account her own right to Limiteds assets independent of the trust.

Again, the argument is untimely. The court found in the first trial that, as a result of Annes breach of fiduciary duty, Anne owed the trust (not Limited) 100 percent of the proceeds she received from the GMS transaction. In the first appeal, we affirmed the courts finding that Anne had breached her fiduciary duties by engaging in the GMS transaction, but did not address, because Anne did not properly assert, whether the court erred in concluding the transaction involved trust assets. In the second trial, Anne insisted that, if anything, the GMS transaction involved Limiteds assets, not the trusts; therefore, the proceeds she received from the GMS transaction belonged to Limited, not the trust. The probate court in the surcharge hearing rejected Annes attempt to renew arguments challenging factual findings that had been made in the first trial and had since become final. For the reasons we have already explained, we reject it as well.^[12]

The Banks and Richards Cross-appeal

2. The Probate Court Did Not Err in Denying the Banks and Richards Request To Double Damages Against Anne for Disposing of Trust Property in Bad Faith

Section 859 requires the court to double the amount of surcharge if it finds the trustee has in bad faith wrongfully taken, concealed, or disposed of property belonging to the trust.^[13] The court concluded that, although Anne had breached her fiduciary duties by concealing the GMS transaction from the Bank and from Richard, she had done so with the good faith belief she had the authority under the trust instrument to engage in the transaction and no duty to inform the trust because she was its principal beneficiary.

The Bank and Richard insist the court abused its discretion^[14]by applying the wrong standard in determining whether to double the surcharge under section 859. Citing the statutes governing a trustees duty to act reasonably with respect to the trust (see, e.g., 16040, subd. (a) [trustee shall administer the trust with reasonable care, skill, and caution under circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument]; 16047, subd. (a) [trustee shall invest and manage trust assets as a prudent investor would]), the Bank and Richard contend Annes subjective good faith in engaging in the GMS transaction is irrelevant. Once the court determined Anne had breached her duties to the trust by behaving unreasonably under the circumstances, it had no choice under section 859 but to double the amount of the surcharge. They misapprehend the statute.

Section 859 is punitive. By its terms it requires more than a finding the trustee breached his or her fiduciary duties; it also requires a finding the trustees violations of his or her fiduciary duties were in bad faith. (See Day v. City of Fontana (2001) 25 Cal.4th 268, 272 [absent ambiguity, plain language of statute controls].) To hold otherwise and find unreasonable or wrongful conduct is tantamount to bad faith in every instance would render the statutes bad faith requirement superfluous and, therefore, meaningless. (See Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th 257, 274 [statutory interpretations that render terms meaningless or inoperative are to be avoided]; Palos Verdes Faculty Assn. v. Palos Verdes Peninsula Unified Sch. Dist. (1978) 21 Cal.3d 650, 659 [statutory construction making some words surplusage is to be avoided]; Select Base Materials, Inc. v. Board of Equalization (1959) 51 Cal.2d 640, 645 [effect should be given whenever possible to every work and phrase of a statute so that no part is left without meaning].)

The Bank alternatively contends the bad faith requirement of section 859 is to be measured by an objective rather than a subjective standard. That is, the court must look to whether Annes actions were reasonable without regard to whether Anne held a subjective belief in the propriety of her conduct. However, apart from those Probate Code sections governing liability for breach of fiduciary duty, which do not govern this punitive sanction, the Bank offers no support for its contention. In fact, although bad faith is not defined in section 859 or elsewhere in the Probate Code, in analogous punitive statutes bad faith is generally understood to pertain, at least in part, to ones subjective motives and whether the conduct complained of was engaged in for a malicious or nefarious purpose. (See, e.g., Gemini Aluminum Corp. v. California Custom Shapes, Inc. (2002) 95 Cal.App.4th 1249, 1263 [Civ. Code, 3426.4s authorization for recovery of costs and attorney fees for claim of misappropriation made in bad faith requires an inquiry into a partys subjective state of mind in filing the action : Did he or she believe the action was valid? What was his or her intent or purpose in pursuing it? [B]ad faith means simply that the action or tactic is being pursued for an improper motive]; see also Shelton v. Rancho Mortgage & Investment Corp. (2002) 94 Cal.App.4th 1337, 1346 [to impose sanctions under [Code Civ. Proc., ] 128.5, there must be a showing the action or tactic was meritless or frivolous and that it was pursued in bad faith, and whether the action is taken in bad faith must be judged by a subjective standard. [Citations.] While the trial court may infer subjective bad faith from the pursuit of a frivolous tactic [citation], it is within a courts discretion not to draw that inference if convinced the party was acting in the good faith belief the action was meritorious]; Orange County Dept. of Child Support Services v. Superior Court (2005) 129 Cal.App.4th 798, 804-806 [sanctions award under Code Civ. Proc.,  128.5 requires finding of subjective bad faith].)

In any event, in finding Anne did not accomplish the GMS transaction in bad faith, the court did not base its finding wholly on Annes subjective state of mind. It also determined Annes position with regard to the GMS transaction was not so wholly unreasonable as to justify a sanction for bad faith. It rejected the Banks and Richards depiction of Anne as a faithless fiduciary who cared nothing for the trust. It found, Anne has been portrayed as a dishonest Trustee who gutted the value of a valuable asset for her personal economic gain. The Court is not convinced that is the case. . . . It is likely that the Seaport Village would have been lost to the Trust if Anne had done nothing to salvage the situation. And it appears that she did so. The court concluded Annes testimony concerning her belief in the propriety of her actions and her legal arguments offered in support of those beliefs were justifiable controversies and were not so grossly meritless as to mandate a finding that her positions were held in bad faith.

Citing evidence from its own expert indicating Annes breaches of fiduciary duty were particularly egregious, the Bank contends this lack-of-bad-faith finding is not supported by substantial evidence.^[15] Although there is little question there was ample evidence from which the court could have found that Anne had acted in bad faith, including the testimony of the Banks expert who opined Annes actions were so malevolently designed that they involved the worst conduct he had ever seen by a fiduciary in his 30-plus years in the industry, there was also evidence, including Annes own testimony, suggesting Annes intent was not to defraud the trust but to consummate a transaction she believed did not require the Banks approval. The court found her testimony on that point credible, even though it rejected her legal arguments.^[16]The Bank and Richard may have hoped for a different determination, but the courts findings that Anne did not accomplish the GMS transaction in bad faith are sufficiently supported by the evidence. (Von Beltz v. Stuntman, Inc. (1989) 207 Cal.App.3d 1467, 1481 [not duty of appellate court to reweigh evidence]; Jensen v. BMW of North America, Inc. (1995) 35 Cal.App.4th 112, 134 [[T]he testimony of a single witness, even [a] party . . . , may be sufficient to support judgment].)^[17]

The Appeals from the Postjudgment Order for Attorney and Expert Witness Fees

3. The Probate Courts Attorney Fee Award Is Proper

a. The postjudgment proceedings

In its July 21, 2004 surcharge judgment the probate court stated it would retain jurisdiction to consider in a separate proceeding and after noticed motions were filed whether Anne could be held personally liable for the Banks and Richards respective attorney fees and other costs. Accordingly, on August 6, 2004 the Bank filed its costs memorandum seeking, among other things, expert witness fees. It also indicated in that memorandum it would seek attorney fees by noticed motion.

In the meantime, Anne, the Bank and Richard filed separate notices of appeal from the July 21, 2004 surcharge judgment. On September 20, 2004, while those appeals were pending, the Bank filed a noticed motion seeking from Anne $1,574,264.75 in attorney fees relating to the litigation, including the first appeal. On October 4, 2004 the Bank amended its motion to seek an additional $60,263.75 for attorney fees incurred in January 2003 in connection with its petition to approve its accounting and to discharge it as trustee, explaining that that amount had been inadvertently omitted from the original motion.

Anne filed a motion to tax costs, including the expert witness fees. She also filed oppositions to the attorney fee motions, arguing there was no authority allowing a prevailing party to recover attorney fees in a surcharge litigation absent a finding the trustee had acted in bad faith; and the court had already ruled Annes litigation position was not undertaken in bad faith.

On November 26, 2004, following a hearing, the court agreed with Anne the recovery of attorney fees incurred by the Bank and Richard in prosecuting the surcharge litigation were not recoverable in this surcharge litigation absent bad faith, but concluded that, pursuant to Estate of Gerber (1977) 73 Cal.App.3d 96 (Gerber), the Bank and Richard could recover extraordinary attorney fees incurred in the course of trust administration in order to remedy the problems caused by Annes breach. The court ordered the Bank and Richard to submit further documentary evidence segregating their attorney fees into three categories: (1)  The fees attributable to the trials of May 28 to 30, 2003, and to the trial of January 20 to 30 2004, including time expended in trial preparation and at trial; (2) discovery undertaken by the Bank to locate trust assets, to furnish its forensic accountant with the data needed to prepare trust accountings and to analyze the GMS transaction; and (3) services related to the seeking of temporary restraining orders, preliminary injunctions and transfer orders pertaining to funds held in various financial institutions.

The court explained attorney fees in the first category (those incurred in the litigation) were not recoverable because Annes position in the proceedings was not so grossly meritless as to mandate a finding of bad faith. However, attorney fees in the second and third categories were incurred as part of the trust administration costs required to remedy Annes breach and thus could be charged to Anne as a trust administration expense. Alternatively, the court ruled attorney fees in the second and third categories could be awarded because, as the court had previously found in its July 21, 2004 surcharge judgment, Annes post-removal conduct that specifically prompted those fees was unreasonable and unjustified.^[18] The court stated it would determine the proper amounts following submission of the supplemental evidence and a hearing.

Pursuant to the November 26, 2004 order, on March 18, 2005 the Bank filed amended declarations stating it had incurred $631,663.75 in attorney fees relating to trial preparation and trial (category 1), $938,733.75 in attorney fees attributable to administrative matters and $66,857.50 in fees relating to turn-over orders and money collection (categories 2 and 3). Richard, who paid his attorneys out of his share of the trust, also filed amended declarations seeking $1,015,404 in attorney fees from Anne that he claimed were solely related to trust administration expenses caused by Annes breach.

On June 19, 2005, following a hearing, the court concluded Anne was liable for $95,157 in attorney fees incurred by the Bank for trust administration not directly related to the litigation and for $79,158 in attorney fees incurred by Richard. The court awarded those extraordinary attorney fees as items of surcharge, but alternatively concluded those fees were also justified by Annes bad faith post-removal conduct that caused the Bank and Richard to incur additional attorney fees in excess of those that would have been incurred had Anne not engaged in the conduct described in the courts surcharge judgment.

The court rejected the Banks request to recover $339,623 from Anne for fees paid to its expert witness, James R. Parks, a certified public accountant. The court ruled that, because Parks was not a court-appointed expert, the Bank was not entitled to recover his expert witness fees as costs under Code of Civil Procedure section 1033.5. However, because some of Parkss services (totaling $60,200) were necessary to remedy the problems caused by Annes breach and would have been incurred irrespective of the litigation, the court charged Anne with $60,200 of Parkss fees as an item of surcharge.

b. Governing law on the recovery of attorney fees

Under the American rule, codified in Code of Civil Procedure section 1021, a prevailing litigant is generally not entitled to an award of attorney fees absent statutory or contractual provisions expressly authorizing such recovery. (Trope v. Katz (1995) 11 Cal.4th 274, 278; Consumer Cause, Inc. v. Mrs. Goochs Natural Food Markets, Inc. (2005) 127 Cal.App.4th 387, 396.)^[19] Consistent with that rule, California law prohibits the recovery of attorney fees as costs except when expressly allowed by statute or law or agreed to by contract. (Cal. Code Civ. Proc.,  1033.5, subd. (a)(10).)

The rule is the same in probate proceedings. (Estate of Beach (1975) 15 Cal.3d 623, 646 (Beach) [probate court erred in charging contestant attorney fees incurred by the executor of an estate as costs of litigation; absent express authorization, attorney fees not available to prevailing party in probate proceeding; [a] contrary rule would unduly deter contestants such as these from questioning the stewardship of executors and administrators through proceedings brought in good faith]; Estate of Marre (1941) 18 Cal.2d 191, 192 [There is no general rule which permits the recovery of attorneys fees by a successful litigant. Compensation for the services of an attorney must ordinarily be paid by the client employing him, in the absence of exceptional circumstances, such as a special agreement or special statutory provision]; Gerber, supra, 73 Cal.App.3d at p. 117 [attorney fees not recoverable by prevailing party in surcharge action: [I]t is statutory law that, except as attorneys fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties; but parties to actions or proceedings are entitled to costs and disbursements as provided herein. [Citation.] Too, it is the general rule of prevailing decisional law that attorneys fees are not recoverable as costs except where expressly allowed by statute or agreed by express contract]; Ross, Cal. Practice Guide: Probate (The Rutter Group 2006) [] 16:204, p. 16-60 [attorney fees generally not recoverable in surcharge litigation; [t]his rule is in accordance with the general principle that, absent statute or agreement, attorney fees are to be paid by the party employing the attorney].)

Extraordinary attorney fees are, however, recoverable as an item of surcharge when incurred in the course of trust administration to remedy problems caused by the trustees breach of fiduciary duty. (Gerber, supra, 73 Cal.App.3dat p. 117 [attorney fees for surcharge hearing and employing experts to testify on behalf of estate are expenses attributable to litigation and not recoverable; however, those attorney fees incurred in the course of segregating assets and mitigating losses are recoverable as a proper surcharge item if not solely related to litigation]; Estate of Fain (1999) 75 Cal.App.4th 973, 992 [extraordinary attorney fees ‑‑ attorney fees not directly related to surcharge litigation, such as those incurred in segregating assets, reconstructing inventories and solving other problems caused by former administrators negligence ‑‑ are recoverable as item of surcharge]; Cal. Practice Guide: Probate, supra, 16:204, p. 16-60.)

c. The probate court properly concluded that, absent bad faith, there is no legal or statutory authorization for the recovery of attorney fees by the prevailing party in the surcharge action

The Bank and Richard contend the court erred in relying on Gerber, supra, 73 Cal.App.3d 96, in refusing to award them all their attorney fees reasonably incurred in prosecuting the surcharge litigation both in the probate court and in the appellate court. They cite Estate of Ivey (1994) 22 Cal.App.4th 873 (Ivey)and several Probate Code statutes, namely sections 1002, 15645, 17211, 16420, 16440 and 17200, subdivision (b)(12), as authority for charging Anne with all of their attorney fees, observing there is no dispute that such fees were reasonable and actually incurred. None of the authorities relied on by the Bank and Richard supports their position.

In Ivey, supra, 22 Cal.App.4th 873, a one-sixth beneficiary to a trust filed objections to the trustees third accounting. After the accounting was approved by the court, the trustee and the other five beneficiaries filed a motion under Code of Civil Procedure section 128.5 seeking a determination the one-sixth beneficiarys opposition was frivolous and in bad faith.^[20] The probate court agreed, found the objections frivolous and in bad faith under Code of Civil Procedure section 128.5 and instructed the trustee to charge the objecting beneficiarys share of the trust with expenses and attorney fees incurred by the trustee and other beneficiaries in responding to the bad-faith objections, explaining it would be inequitable to the other income beneficiaries to have their expenses (including attorney fees) borne by the trust as a whole. (Id. at pp. 882-883.)

In upholding that order, our Division Four colleagues, in an opinion by Justice Charles S. Vogel, emphasized the award was proper because it was based on the objectors bad faith in bringing the objections: [A] probate court has equitable power to charge one beneficiarys share of a trust for frivolous litigation against the trust . . . . (Ivey, supra, 22 Cal.App.4th at p. 883.) Otherwise, a beneficiary with no substantial separate assets could engage in frivolous bad faith litigation against the trust, contrary to the interests of the remaining beneficiaries, knowing that the other beneficiaries would have to bear the ultimate cost of protecting their own interests. This would be inequitable. (Id. at p. 884.)

Significantly, the court in Ivey, supra, 22 Cal.App.4th 873,distinguished Beach, supra, 15 Cal.3d at page 646, in which the Supreme Court held the [probate] courts authority to award costs did not include power to impose upon contestants the entire burden of the extraordinary compensation of the executor and its attorneys for conducting the executors defense against the contests. Unlike Beach, where the issue was the propriety of awarding attorney fees as costs, in Ivey the objections to the trustees account were found to be frivolous and brought in bad faith, thus warranting sanctions in the form of attorney fees under Code of Civil Procedure section 128.5. (Ivey, supra, 22 Cal.App.4th at p. 885.)

Since Ivey was decided, the authority of the probate court to charge a contestant with the attorney fees incurred by a trustee in responding to bad faith and frivolous objections to an account has been codified in section 17211, which also authorizes an objector to recover his or her attorney fees if the trustees opposition to the contest is in bad faith.^[21] Not surprisingly, the Bank and Richard rely on section 17211 as authority for awarding attorney fees in this action. However, both Ivey and section 17211 require a finding of bad faith. Although the court charged Anne for attorney fees incurred by the Bank and Richard in seeking preliminary injunctions and turn-over orders and in objecting to Annes improper accountings, finding Annes conduct in those specific contexts was unreasonable and unjustified, it did not charge her with all of the attorney fees incurred in the litigation, concluding that, apart from certain post-removal conduct, Annes overall position in the litigation was not unreasonable or in bad faith. As we have explained (see discussion, above,at pp. 16-17), that finding is supported by substantial evidence. Accordingly, neither Ivey, supra, 22 Cal.App.4th 873 nor section 17211 provides the requisite statutory basis for charging Anne with all of the Banks and Richards attorney fees.

The other statutes relied on by the Bank and by Richard to recover the entirety of the attorney fees sought are similarly unhelpful to them. Section 1002 authorizes the probate court generally to award costs in probate proceedings,^[22]but does not expressly authorize attorney fees as an item of costs. (See Estate of Marre, supra, 18 Cal.2d at p. 192 [attorney fees not available as costs of litigation unless expressly provided in statute or agreement]; Gerber, supra, 73 Cal.App.3d at p. 117 [same]; see also Code Civ. Proc.,  1021 & 1033.5, subd. (a)(10).)

Similarly, section 17200, subdivision (b)(12), simply authorizes a trustee or beneficiary to bring a petition [c]ompelling redress of a breach of trust by any available remedy. It does not expressly provide for the recovery of attorney fees as costs in litigation. Sections 16420, subdivision (a)(3), and 16440, subdivision (a), also authorize an action against a breaching fiduciary; neither expressly permits the recovery of attorney fees by the prevailing party. (See 16420, subd. (a)(3) [allowing co-trustee or beneficiary to pursue an action against the trustee to compel the trustee to redress a breach of trust by payment of money or otherwise], 16440, subd. (a) [holding breaching trustee accountable for breach of trust for (1) [a]ny loss or depreciation in value of the trust estate resulting from the breach of trust, with interest; (2) [a]ny profit made by the trustee through the breach of trust, with interest; (3) [a]ny profit that would have accrued to the trust estate if the loss of profit is the result of the breach of trust].)

Like the other statutes cited by the Bank and Richard, section 15645 is also inapposite. It provides, If the trustee of a trust that is not revocable has refused to transfer administration of the trust to a successor trust company on request of the beneficiaries described in subdivision (c) of Section 15640 and the court in subsequent proceedings under Section 17200 makes an order removing the existing trustee and appointing a trust company as successor trustee, the court may, in its discretion, award costs and reasonable attorney fees incurred by the petitioner in the proceeding to be paid by the trustee or from the trust as ordered by the court. The Bank insists that Anne should be held liable for its fees under section 15645 because Anne did not comply with Richards request to resign as special trustee, thereby forcing this action.

In allowing the beneficiaries of an irrevocable trust to recover attorney fees from a trustee who refuses to transfer duties to a successor trustee, section 15645 is intended to encourage an out of court solution where the beneficiaries of a trust want to transfer administration of the trust to a successor corporate trustee. (Cal. Law Revision Com. com., 54 Wests Ann. Prob. Code (1991 ed.) foll. 15645, p. 618.) Section 15645 applies only when all adult beneficiaries who are receiving or who are entitled to receive income under the trust or to receive a distribution of principal consent to the transfer. ( 15640, subd. (c), italics added; see 15645 [ 15645 applies when trustee of nonrevocable trust refuses to transfer administration of the trust to trust beneficiaries described in  15640, subd. (c).) The statute is inapplicable to the circumstances in this case because Anne, who, of course, is a beneficiary, did not consent to the transfer of her trustee duties to the Bank.

The Bank and Richard also cite a number of cases, including Hollaway v. Edwards (1998) 68 Cal.App.4th 94 (Hollaway) and Metzenbaum v. Metzenbaum (1953) 115 Cal.App.2d 395, 399, for the proposition that removal of a trustee and preservation or recovery of trust or estate property confers a benefit to the trust entitling the person protecting the trust to attorney fees. The cited cases are inapposite. In Hollaway the trustee sought reimbursement from the trust under section 15684 for attorney fees and expenses incurred in defending the trust in litigation. Recovery of such fees is expressly authorized by section 15684, which allows a trustee to be repaid from trust property for expenditures properly incurred in the administration of the trust and for expenditures not necessarily incurred in administration of the trust but nonetheless benefitting the trust. (See also Evans v. Superior Court (1939) 14 Cal.2d 563, 574 [trustee has power to employ assistants, including attorneys, to defend trust and to compensate such assistants out of the assets of the trust]; Metzenbaum v. Metzenbaum, supra, 115 Cal.App.2d. at p. 399 [[W]here litigation is necessary for the preservation of the trust, it is both the right and duty of the trustee to employ counsel in the prosecution or defense thereof, and the trustee is entitled to reimbursement for his expenditures out of the trust fund]; Thomas v. Gustafson (2006) 141 Cal.App.4th 34, 44 [when trustee defends trust in litigation in capacity as trustee, trustee entitled to reimbursement of those expenses from trust as part of trust administration].)

Here, in contrast, the Bank and Richard do not seek reimbursement from the trust for attorney fees. Rather, they seek to charge Anne personally (or her share of the trust alone) with all of their attorney fees incurred in prosecuting the removal and surcharge action. Such fees are authorized only when the trustees position is unreasonable and in bad faith (Ivey, supra, 22 Cal.App.4th 873) or as an item of surcharge when not directly related to the litigation. (Gerber, supra, 73 Cal.App.3d at p. 117.) The court properly awarded those fees it found were directly related to Annes bad faith litigation conduct. There is simply no authority for charging Anne with all of the attorney fees incurred by the Bank and Richard in prosecuting this dispute in the trial and appellate courts.

d. Although the court lacked jurisdiction to award the Bank and Richard a portion of their attorney fees as an item of surcharge, those fees were properly awarded under Ivey

In her appeal from the post-judgment attorney fee order, Anne contends the court erred in charging her with any attorney fees. She asserts that, once the surcharge judgment had been entered and the notice of appeal filed, the probate court lacked jurisdiction to augment the surcharge damage award. She is correct. (See Code Civ. Proc., 916 [perfecting an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby . . . but the trial court may proceed upon any other matter embraced in the action and not affected by the judgment or order]; Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 196-197 [under Code Civ. Proc., 916, the trial court is divested of subject matter jurisdiction over any matter embraced in or affected by the appeal during the pendency of the appeal; the purpose of that divestiture is to prevent[] the trial court from rendering an appeal futile by altering the appealed judgment or order by conducting other proceedings that may affect it].)

The Bank and Richard did not seek to include a portion of their attorney fees as an item of surcharge until the court ordered them to do so in conjunction with their post-judgment motions to recover fees, nor did they object to the postjudgment procedure, believing, erroneously, recovery of such fees was available as part of an award of the costs of litigation. By the time they segregated those fees as an item of surcharge, it was too late. The surcharge judgment had been entered; and the matter had been appealed, divesting the probate court of jurisdiction to award further items of surcharge.

Anne correctly argued in the probate court the court had no jurisdiction to augment the surcharge judgment with additional damages in the form of attorney fees. The court erroneously rejected that argument, concluding the probate courts equitable jurisdiction gave it flexibility in determining when to order attorney fees. (See, e.g., Hollaway, supra, 68 Cal.App.4th at p. 99 [We are loath to circumscribe the probate courts [equitable] discretion by importing California Rules of Court, rule 870.2s [now rule 3.1702] strict time limits as to when attorney fee requests must be brought].) Although the probate court operates with the flexibility inherent in courts of equity, that flexibility cannot serve to confer jurisdiction where none exists in the first place.

Nonetheless, the court also based its award of those fees on the ground they were directly incurred as a result of some of Annes post-removal conduct, which the court found was undertaken in bad faith. (See Ivey, supra, 22 Cal.App.4th at p. 885.) Anne does not expressly challenge that basis for the award, other than to argue it conflicts with the courts finding that doubling the surcharge was unwarranted under section 859 because Annes legal position was not wholly without merit. There is no conflict. The court concluded Annes conduct in the GMS transaction, while a breach of her fiduciary duty, was undertaken in the good faith but improper belief she had no duty to disclose the transaction to the trust. On the other hand, certain of Annes litigation conduct, such as improper accountings and violation of turn-over orders, was in bad faith; for that specific conduct, the court properly awarded attorney fees under Ivey.

4. The Court Erred in Awarding Expert Witness Fees

The court awarded the Bank a portion of Parkss expert witness fees ($60,200) not as costs, but as an item of surcharge. Ordinarily, this would have been appropriate. (See, e.g., Gerber, supra, 73 Cal.App.3d at p. 117 [awarding extraordinary expert witness fees incurred to remedy breach as item of surcharge in surcharge judgment].) However, as Anne asserts, and as we have explained, the probate court had no jurisdiction following entry of judgment and the perfecting of an appeal to augment its damage award. The Bank did not seek expert witness fees as an item of surcharge nor did it seek to reopen the damage proceedings with a motion for a new trial. Accordingly, the probate court was without jurisdiction to enhance the damage award by charging Anne with $60,200 in expert witness fees as an