Anderson v. Noble

Filed 7/31/07 Anderson v. Noble CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 FIVE

APPEAL from an order of the Superior Court of Los Angeles County, Chris R. Conway, Judge. Affirmed.

Law Office of E. Thomas Dunn, Jr. and E. Thomas Dunn, Jr. for Defendant and Appellant.

Law Offices of Cuevas & Gregg, G. Steven Cuevas and Dean L. Lippi for Plaintiffs and Respondents.

I. INTRODUCTION

Paul R. Noble appeals from the July 9, 2006 probate court order removing him as trustee of The Randall B. Anderson Trust dated January 1, 1983 and directing him to render a full and complete accounting. Mr. Noble challenges that portion of the order removing him as trustee because he breached his fiduciary duties to The Randall B. Anderson Trust. We affirm.

II. BACKGROUND

On October 18, 2004, Julie C. and Christine Anderson^[1], as guardian for a minor, filed a petition to remove Mr. Noble as trustee and to appoint a successor trustee. Julie is an adult. Christine is the mother of Julie and the minor. The petition was amended on March 1, 2005. The amended petition alleged Mr. Noble was the trustee of three trusts in which Julie and the minor are beneficiaries. The first trust is The Randall B. Anderson Trust which was created by Andrew H. Anderson. There are also two separate minors trusts entitled The Randall B. Anderson Minors Trust dated January 1, 1994 for which Julie and the minor are each the sole beneficiary.

The amended petition further alleged that Mr. Noble had breached his fiduciary duties under Probate Code^[2]section 15642 by failing and refusing to provide an accounting or report in 10 years and neglecting to properly manage the assets of The Randall B. Anderson Trust. The petition requested Mr. Nobles removal and an order directing him to account for his acts as the trustee. A supplement to the amended petition was filed on October 17, 2005. Mr. Noble filed objections to the amended petition on December 15, 2005.

Mr. Noble testified, under Evidence Code section 776, that he has been a tax consultant for 55 years and a trust manager for about 48 years. He generally creates the trusts he manages including the one at issue in this case. The trust instrument, which is exhibit No. 1, shows that Randall B. Anderson and his issue were the primary beneficiaries of The Randall B. Anderson Trust. Randall who is now deceased, was the nephew of Andrew, the trustor. Randall was also the father of Julie and the minor. Mr. Noble was appointed the original trustee of the trust.

A duplex in Downey, California was purchased for $395,000 in the name of Paul R. Noble, trustee for The Randall B. Anderson Trust on May 24, 2001. Mr. Noble testified that he took title to the Downey property as trustee of The Randall B. Anderson Trust. Mr. Noble took title as a trustee pursuant to an oral trust agreement with Blaine J. and Ina B. Anderson, the grandparents of Julie and the minor. In Mr. Nobles words, the May 24, 2001 purchase was placed in the oral trust under the rubric of The Randall B. Anderson Trust. According to Mr. Noble, the Downey property was not purchased for the benefit of Julie and the minor but for investment purposes.

Mr. Noble admitted he could not recall where the money came from to purchase the Downey property because he managed about 75 trusts. Mr. Noble frequently formed investment trusts. According to Mr. Noble, the original corpus of The Randall B. Anderson Trust was $1. Mr. Noble designated The Randall B. Anderson Trust as Trust A. However, additional corpus was placed in The Randall B. Anderson Trust by Blaine and Ina, the grandparents of Julie and the minor. Funding of the corpus was pursuant to an oral trust created for investment purposes by Blaine and Ina. Mr. Noble designated the oral trust as Trust B. Mr. Noble testified that the Downey property was purchased under the oral trust to allow Christine to rent the property. Mr. Noble further testified that the grandparents wanted their grandchildren who were living under substandard conditions to have a better place to live.

On May 22, 2001, Mr. Noble prepared a trust deed on the Downey property. When asked where he borrowed the money to purchase the Downey property, Mr. Noble answered, It was the beneficiaries of an Investment Trust Number 907 which was a combination of a number of other trusts whose money was banded together to make this loan. According to Mr. Noble, he borrowed the money from Investment Trust Number 907 in order to purchase the property. Mr. Noble had the deed notarized on August 12, 2001, and recorded on September 10, 2001.

In July 2004, Christine and Julie sent a demand letter for an accounting and information about The Randall B. Anderson Trust. Mr. Noble did not provide an accounting until after the lawsuit was filed. On June 30, 2004, Mr. Noble quitclaimed from himself as the trustee of The [Randall] B. Anderson Trust to himself as the trustee of the Blaine J. Anderson Trust a one-half undivided interest in the Downey property. Mr. Noble explained the purpose of the quitclaim deed thusly, What I did was to merge the interests of The [Randall] B. Anderson Trust B with the Blaine J. Anderson Trust, and I returned the corpus of Trust A to Christina Anderson in the form of a one dollar bill. In October 2004, Mr. Noble refinanced the Downey property by borrowing $200,000 from The Harrison Investment Trust Number 188, which is another trust he managed. There was $80,000 to $90,000 which was placed in The Blaine J. Anderson Trust. The balance of the funds was used to pay off an existing loan that was placed by The Randall B. Anderson Trust.

Mr. Noble sold one-half an interest in the Downey property to Randy S. and Rioa S. Van Ausdall, who were tenants living in a portion of the duplex. The Van Ausdalls purchased their interest in the property for $205,000, as best Mr. Noble could recall, with a $30,000 or $35,000 cash payment. The $30,000 or $35,000 cash down payment went into Trust B, the alleged oral portion of The Randall B. Anderson Trust. On November 8, 2004, a trust deed was recorded against the Downey property in the amount of $214,000. This deed was to secure a debt against the Van Ausdalls one-half undivided interest in the property. On November 30, 2004, the Van Ausdalls signed a deed of trust to Mr. Noble as trustee for the Harriet Investment Trust Number 192 in the amount of $234,234.87.

On December 20, 2004, Christine and Julie caused a lis pendens to be recorded on the property. On January 2, 2005, Mr. Noble had notarized the aforementioned quitclaim deed dated June 30, 2004. The quitclaim deed, which was recorded on August 5, 2005 provides for the transfer of the trusts interests in the Downey property as follows: Paul R. Noble, Trustee for The [Randall] B. Anderson Trust dated January 3, 1980, hereby grants to Paul R. Noble, Trustee for the Blaine J. Anderson Trust dated January 1, 1983.

Mr. Noble created oral private annuity transactions for Blaine and Ina involving real property. At one point, Mr. Noble testified: They were properties, not monies. The properties were received and then sold and the propertythe money was placed into an account in the named of The [Randall] B. Anderson Trust. Mr. Noble was holding the properties or money in the name of The Randall B. Anderson Trust at one time but he could not say where the money was at the time of trial. He testified: Well, its all in one pot. I dont have a bottle with sections in it, so that I can identify which sip of water came out of which. Its out of one bottle.

Mr. Noble testified that he and Christine were in a dispute about her failure to pay $17,500 in back rent on the Downey property. They were also in a dispute regarding some documents and computer files that Christine had obtained from him while working as his secretary. Christine worked as his secretary between May 2001 and sometime in 2004 when he discharged her. Mr. Noble filed an action for possession of personal property and an unlawful detainer action against Christine in October 2004.

Mr. Noble testified that, over the years, he and his wife gave Christine about $20,000. Mr. Noble explained the private annuity arrangement with Blaine and Ina, the grandparents of Julie and the minor as follows: Blaine and Ina . . . , at my recommendation entered into the private annuity arrangements under . . . Section 72 of the Internal Revenue Code whereby property is transferred into the name of an individual, a trust, a partnership, whatever, in exchange for nonrecorded, nonsecured promises of lifetime payments. Mr. Noble did this on three separate occasions.

Christine testified. Christine discussed the purpose of the purchase of the Downey property with Mr. Noble and Blaine and Ina. Blaine and Ina Anderson talked about putting $50,000 down on a house for their grandchildren. The purpose of the purchase of the Downey property was to allow Julie and the minor to ultimately own the parcel. The transaction was to be an investment for Julie and the minor. Mr. Noble told Christine that The Randall B. Anderson Trust would buy the property and she would be renting the property. The rental proceeds would go back into The Randall B. Anderson Trust for the benefit of Julie and the minor. Christine initially promised to pay $1,200 a month in rent. However, when Julie lost her social security benefits, the rent was reduced to $800 per month. Blaine and Ina agreed to reduce the rent to $800 per month.

Christine, who is the minors guardian, wanted Mr. Noble removed as trustee because he refused to render an account of The Randall B. Anderson Trust. Also, Julie testified that as a beneficiary of The Randall B. Anderson Trust, she wanted Mr. Noble removed because he had not provided an accounting. Julie did not know how the money had been distributed from The Randall B. Anderson Trust.

The probate court found that Mr. Noble had breached his fiduciary duty as trustee to The Randall B. Anderson Trust dated January 1, 1983 and removed him as trustee. The probate court further ordered Mr. Noble to file a full and complete accounting of the trust. The probate court entered an order on June 9, 2006, removing Mr. Noble as trustee and directing the accounting to be filed on or before July 14, 2006. On July 19, 2006, Mr. Noble filed a notice of appeal challenging the portion of the June 9, 2006 order removing him as trustee. ( 1300, subd. (g) & 1304, subd. (a).)

III. DISCUSSION

Mr. Noble argues his good faith understanding of trust law was that he was only required to provide an accounting of Trust B. That accounting was to be provided to Blaine and Ina. He further argues his good faith belief, even if erroneous, did not provide a sufficient cause to justify his removal as trustee. We disagree.

Section 17000 gives a probate court exclusive jurisdiction over the proceedings concerning the internal affairs of trusts. (Johnson v. Kotyck (1999) 76 Cal.App.4th 83, 86-87; Conservatorship of Irvine (1995) 40 Cal.App.4th 1334, 1341-1343; Estate of Heggstad (1993) 16 Cal.App.4th 943, 951; Stewart v. Towse (1988) 203 Cal.App.3d 425, 428-429.) Section 17001 states: In proceedings commenced pursuant to this division, the court is a court of general jurisdiction and has all the powers of the superior court. Section 17200, subdivision (b)(5) gives the probate court the power, upon petition of a beneficiary, to determine the internal affairs of the trusts including settling accounts and reviewing the trustees conduct. (See also  17206.) A trustee is a fiduciary. (Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 631; Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1160; Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 271.) The trustees duties are as follows, The trustee shall administer the trust with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character . . . to accomplish the purposes of the trust as determined from the trust instrument. ( 16040, subd. (a); Persson v. Smart Inventions, Inc., supra, 125 Cal.App.4th at p. 1160.) The violation by a trustee of any duty owed to the beneficiaries of the trust constitutes a breach of trust. ( 16400; CityofAtascaderov. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 462.) If a trustee commits a breach of trust, the probate court has wide discretion to make any order and take any action necessary or proper to dispose of matters presented by a section 17200 petition. ( 17206.) The courts power to protect the trust includes removal of the trustee: for a breach of trust; where the trustee fails to act; or where the trustee declines to act. ( 15642 subds. (b)(1) & (4).) The probate courts decision to remove a trustee is reviewed for abuse of discretion. (Estate of Gilmaker (1962) 57 Cal.2d 627, 633; Estate of Bixby (1961) 55 Cal.2d 819, 826; Estate of Baird (1955) 135 Cal.App.2d 343, 351, overruled on another point in Estate of Schloss (1961) 56 Cal.2d 248, 256; see also Estate of Bonaccorsi (1999) 69 Cal.App.4th 462, 467, 472 [orders of court regarding trustees acts reviewed for substantial evidence].)

We initially disagree with Mr. Noble that his good faith belief he was only required to render an account under the oral Trust B requires a reversal of the order removing him as trustee. No doubt, a trustees actions are presumed to be in good faith. (Estate of Ferrall (1953) 41 Cal.2d 166, 177; Young v. McCoy (2007) 147 Cal.App.4th 1078, 1087.) However, the key question is whether the trustee acted in a manner inconsistent with the intent of the settlor or to defeat the purpose of the trust. ( 16081, subd. (a) [a trustee is prohibited from acting in bad faith or in disregard of the purposes of the trust]; Estate of Miller (1964) 230 Cal.App.2d 888, 909; Estate of Greenleaf (1951) 101 Cal.App.2d 658, 662.) The Supreme Court has held, Whether good faith has been exercised, or whether fraud, bad faith or an abuse of discretion has been committed is always subject to consideration by the court upon appropriate allegations and proof. (Estate of Ferrall, supra, 41 Cal.2d at pp. 173-174; accord Young v. McCoy, supra, 147 Cal.App.4th at p. 1087.) For the reasons stated below, the probate court did not abuse its discretion in removing Mr. Nobler as trustee.

As noted above, Mr. Noble claims that he had no duty to account to the beneficiaries of The Randall B. Anderson Trust for the transactions which were conducted in his capacity as trustee. A trustee has a duty to furnish information and account to each beneficiary upon demand. ( 16061; Strauss v. Superior Court of Los Angeles County (1950) 36 Cal.2d 396, 401-402; Esslinger v. Cummins (2006) 144 Cal.App.4th 517, 523-524; Zottarelli v. Pacific States Sav. & Loan Co. (1949) 94 Cal.App.2d 480, 488.) Section 16061 provides: Except as provided in Section 16064, on reasonable request by a beneficiary, the trustee shall provide the beneficiary with a report of information about the assets, liabilities, receipts, and disbursements of the trust, the acts of the trustee, and the particulars relating to the administration of the trust relevant to the beneficiarys interest, including the terms of the trust. The evidence shows written demand was made for an accounting on July 21, 2004, and Mr. Noble refused to account for the trust property. Mr. Noble admittedly sold and exchanged trust property among the various trusts he administered. Then Mr. Noble refused to render an accounting or provide information to The Randall B. Anderson Trust. He thus violated the duty to account to The Randall B. Anderson Trust. ( 16061; Strauss v. Superior Court of Los Angeles County, supra, 36 Cal.2d at pp. 401-402; Esslinger v. Cummins, supra, 144 Cal.App.4th at pp. 523-524.) Because the trustee, Mr. Noble, denied the request, the beneficiaries acted properly under section 17200, subdivision (b)(7) in seeking to compel an accounting. ( 16061; Esslinger v. Cummins, supra, 144 Cal.App.4th at pp. 523-529; compare  16062 [requiring annual accounting duty for trusts created after July 1, 1987]; City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at p. 462.)

Furthermore, Mr. Noble maintained he was only required to disclose his activities to the beneficiaries of other trusts. This violated his duty of loyalty to The Randall B. Anderson Trust in favor of the other trust or trusts. ( 16002; City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at p. 462; Zottarelli v. Pacific States Sav. & Loan Co., supra, 94 Cal.App.2d at p. 500.) Section 16002 provides: (a) The trustee has a duty to administer the trust solely in the interest of the beneficiaries. []  (b) It is not a violation of the duty provided in subdivision (a) for a trustee who administers two trusts to sell, exchange, or participate in the sale or exchange of trust property between the trusts, if both of the following requirements are met: []  (1) The sale or exchange is fair and reasonable with respect to the beneficiaries of both trusts. []  (2) The trustee gives to the beneficiaries of both trusts notice of all material facts related to the sale or exchange that the trustee knows or should know. (Italics added.) Mr. Noble admitted that he failed to disclose to the beneficiaries of The Randall B. Anderson Trust the circumstances of the sale or exchange. This violated his duty to administer the trust in the interests of the beneficiaries. (Ibid; Assets Corp. v. Perrin Properties, Inc. (1941) 48 Cal.App.2d 220, 226.) In short, Mr. Noble has persisted in arguing his primary duties in administering the trusts were owed to other trusts to the exclusion of The Randall B. Anderson Trust beneficiaries. This provided sufficient evidence of his divided loyalty.

Moreover, both Christine, the minors guardian, and Julie wanted Mr. Noble removed as the trustee because he refused their demands to provide an accounting. Hostility or antagonism existing between a beneficiary and a trustee may be a ground for removal of the trustee when the enmity threatens to impair the proper administration of the trust. (Estate of Gilmaker, supra, 57 Cal.2d at p. 632; IFS Industries, Inc. v. Stephens (1984) 159 Cal.App.3d 740, 754; Copley v. Copley (1981) 126 Cal.App.3d 248, 288; Brown v. Memorial Nat. Home Foundation (1958) 162 Cal.App.2d 513, 534.) In this case, Mr. Noble refused to provide an accounting which prompted the filing of the removal petition. After the removal petition was filed, Mr. Noble distributed $1 to Christine purportedly as the entire corpus of The Randall B. Anderson Trust. Furthermore, after Christine and Julie demanded an accounting, Mr. Noble recorded a quitclaim deed granting The Randall B. Anderson Trusts interest in the Downey property to himself as trustee for The Blaine Anderson Trust. Thus, there is substantial evidence of hostility between the trustee and the beneficiaries as well as impairment in administration of The Randall B. Anderson Trust.

Finally, Mr. Noble testified that he commingled assets that were taken in the name of the trust with assets from other trusts. According to Mr. Noble, the assets of the various trusts were in one bottle and he did not know where the assets were and could no longer separate them. His failure to keep the trusts assets separated and his inability to identify them is a violation of section 16009. Thus, Mr. Nobles testimony in this respect provided the probate sufficient grounds to remove him as trustee. ( 17000, 17001, 17200, 17206; Conservatorship of Irvine, supra, 40 Cal.App.4th at pp. 1341-1343; Estate of Heggstad, supra, 16 Cal.App.4th at p. 951; Stewart v. Towse, supra, 203 Cal.App.3d at pp. 428-429.) Mr. Nobles breach of these statutory duties was sufficient cause for his removal.

IV. DISPOSITION

The June 9, 2006 removal order is affirmed. Julie C. and Christine Anderson are to recover their costs incurred on appeal from Paul R. Noble.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

TURNER, P. J.

We concur:

ARMSTRONG, J.

MOSK, J.

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^[1] For purposes of clarity and not out of any disrespect the Andersons will be referred to by their first names.

^[2] Unless otherwise noted, all further statutory references are to the Probate Code.