Brown v. Marinos

Filed 8/20/07 Brown v. Marinos CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from a judgment of the Superior Court of Los Angeles County, Patricia Collins, Judge. Reversed.

John A. Strain for Defendant and Appellant.

Hathaway, Perrett, Webster, Powers, Chrisman & Gutierrez, Michael F. Perrett and Greg W. Jones for Plaintiff and Respondent.

* * * * * *

At issue is the validity of a substituted judgment, entered pursuant to Probate Code section 2580 et seq.,^[1]that effectively deprived appellant Kenneth Marinos of his interest in a trust created by his mother, Helen W. Marinos (not a party hereto). After respondent Jeffrey C. Brown, who was the conservator of Helen Marinos and the trustee of a trust established by her, filed a quiet title action regarding one of Helen Marinoss assets, the Chart House Property located on Pacific Coast Highway in Malibu, appellant filed a cross-complaint in that action in which he alleges that the substituted judgment is void. The trial court sustained respondents demurrer to the cross-complaint without leave to amend, and this appeal followed. We reverse with directions.

FACTS

The quiet title action was filed by respondent on June 2, 2005; the cross-complaint thereto was filed on April 4, 2006. We turn to the allegations of the cross-complaint; for the purpose of testing the legal sufficiency of that pleading, all material, issuable facts properly pleaded in the cross-complaint are deemed admitted. (Pasadena Live v. City of Pasadena(2004) 114 Cal.App.4th 1089, 1092.)

In 1946, Harry Marinos, his brother Chris Marinos and their sister Mary Naegeli entered into an oral partnership agreement to operate a restaurant. In 1953, Harry^[2]acquired the Chart House Property in Malibu. Harry and Chris jointly signed leases to the Chart House Property and divided income from the property evenly between them, except that during some periods distributions may have been made to MARY NAEGELI. Sometime during or after the year 1983, Harry prepared a handwritten schedule that shows the fractional interests in various properties owned by Harry, Chris and Mary. This schedule states that Harry and Chris each have a 45 percent interest in the Chart House Property and that Mary has a 10 percent interest.

Helen was Chriss wife. Harry died in 1985 and Chris died in 1987. Before Chris died, he and Helen established the Chris and Helen Marinos Family Trust (Family Trust).

Paul Galen Marinos is Harrys son. In 1992, a property settlement agreement between Paul, Mary and Helen confirmed the handwritten schedule prepared by Harry before his death, which gave Paul (Harrys son) and Helen (Chriss widow) as trustee of the Family Trust each a 45 percent interest in the Chart House Property, and 10 percent to Mary.

The Family Trust recognized two further trusts; they were the Survivors Trust and the Decedents Trust. After Chriss death in 1987, Helen used her powers of appointment as trustee to allocate 91.954 percent of the income received by the Family Trust from the Chart House Property to the Decedents Trust and 8.046 percent to the Survivors Trust.

In 1992, Helen executed another power of appointment; it is this appointment on which appellant Kenneth relies. This appointment provided that, upon Helens death, certain amounts would pass from the Survivors Trust to Helens grandchildren and that the remainder of the assets from both Decedents Trust and the Survivors Trust would pass to yet another trust, the Charitable Remainder Unitrust (Unitrust). Appellant Kenneth and his brother Daniel (both being adopted sons of Chris and Helen) were entitled to 6 percent of the value of the assets in the Unitrust for a 10-year period and the Ventura County Community Foundation was the remainder beneficiary. In his brief (but not in the cross-complaint), appellant claims that the value of the assets in Unitrust was $6 million and that his, and Daniels, income would therefore have been $360,000 per year.

Although the 1992 exercise of Helens power of appointment is pivotal to appellants case, this document was not included in the record. In any event, the substance of this exercise of the power of appointment, which is set forth in the cross-complaint and that we have summarized in the preceding paragraph, is not questioned by respondent.

Respondent met Helen in 1991 or 1992 (Chris had died in 1987). In 1993, respondent, who does not have a family relationship with Helen, was named conservator of Helens person and the Bank of America was named conservator of her estate. The cross-complaint alleges that sometime prior to December 1992, respondent devised a scheme to become successor Trustee of the . . . Family Trust, to cause a charitable trust to be established, and to bring about changes in the estate plan of HELEN MARINOS, so that he would eventually have perpetual control [over] the substantial Marinos family fortune through the guise of such charitable trust and that, as conservator, respondent contrived to and did isolate HELEN MARINOS in order to deny her contact with her longtime friends, family and advisors so that he could exercise undue influence over her.

As we relate below, appellants action focuses on the entry of the substituted judgment in 1996. Before addressing that judgment, the cross-complaint alleges the occurrence of several events that reflect respondents efforts to gain control of the Marinos family fortune. Thus, in November 1994, Helen signed a last will and testament that exercised her power of appointment over the Decedents Trust in favor of respondent. And, at some point, respondent pressured the Bank of America to resign as conservator of Helens estate because the bank would not agree to or facilitate [respondents] scheme to gain control of the Marinos family assets. The cross-complaint also alleges the creation of yet another trust, the Helen Marinos Revocable Trust, that was used to channel assets to the Chris and Helen W. Marinos Charitable Foundation (Foundation) that was created pursuant to the terms of the substituted judgment (see text immediately following).

In September 1995, Helen, represented by the firm of Hathaway, Perrett, Webster, Powers, Chrisman & Gutierrez, respondents current counsel, filed a petition to authorize, under Probate Code section 2580 et seq., a variety of actions. Because the petition was granted, and because appellants action is directed at the ensuing substituted judgment, we examine the petition in some detail.^[3]

The petition alleged that Helens estate, as of 1994, was valued at $4,926,403, including cash and liquid assets of $3,279,657 and that the estate produced an annual income of approximately $236,896. The petition sought approval of the revocable trust, which was intended to provide for the disposition of Helens assets upon her death. The petition noted that Helen intended to transfer the bulk of her assets to charity for some time past, and that the revocable trust left her estate to 10 charities.

The petition next sought approval of the exercise of Helens power of appointment under the Family Trust that: (1) revokes all prior exercises of the power of appointment under the Family Trust and (2) appoints all of the assets of the Decedents and Survivors Trusts to the Foundation. The petition also sought approval of the Foundation as the residuary beneficiary of Helens estate.

Although these changes in Helens testamentary dispositions effectively set aside the Unitrust, under which appellant and his brother Daniel would have enjoyed 6 percent of the assets of Helens estate for a period of 10 years, Helens last will and testament, executed in November 1994, had already accomplished the same result. In that will, which is attached to the petition as an exhibit, Helen stated that she had already provided for her adopted sons Kenneth and Daniel by naming them as the beneficiaries of an irrevocable insurance trust.^[4]Thus, this will states that Helen has intentionally omitted making provisions for Kenneth and Daniel in this will because she had already provided for them.

We return to the petition. As far as notice of the impending hearing on the petition is concerned, the petition stated that notice had been given to the beneficiaries under Helens November 1994 will. The petition sought leave to dispense with notice to beneficiaries under any prior testamentary documents, as required by subdivision (c) of Probate Code section 2581, in light of the following circumstances: (1) on April 5, 1993, and December 20, 1993, the court had found Helen to be competent and of sufficient capacity to exercise her powers under the then existing testamentary documents; (2) the most recent testamentary document was executed by Helen in November 1994, not long after the court had held her to be competent; and (3) it was unlikely that any documents executed prior to the November 1994 will would have testamentary effect.

The record reflects that on September 28, 1995, notice of the hearing was served by mail. Appellant was served under his booking number in the Ventura County jail and Daniel was served at Corcoran State Prison.

The petition was granted by an order entered on January 12, 1996. In substance, and as it relates to appellants claims advanced in the cross-complaint, the order granted the powers, and allowed the actions, that were sought by the petition.

PROCEEDINGS IN THE TRIAL COURT AND THE RELIEF SOUGHT BY THE CROSS-COMPLAINT

Since the cross-complaint was filed relatively late, the trial court bifurcated the trial and first addressed the issue of the fractional ownership interests in the Chart House Property. The court determined that Harrys family trust and the (Chris and Helen Marinos) Family Trust each owned 45 percent and Mary owned 10 percent of the Chart House Property.

This finding rendered moot the first cause of action of the cross-complaint, which sought a determination that appellant has a 50 percent interest in the Chart House Property. (Daniel has filed a disclaimer waiving any claims to the Chart House Property.) Appellant concedes that this cause of action is moot.

The second cause of action seeks an order confirming that HELEN MARINOS 1992 exercise of her Limited Power of Appointment transferred the assets of the Decedents Trust, effective upon Helen Marinos death, to the . . . Unitrust described in such exercise. The second cause of action also seeks an order quieting title in Unitrust to a 50 percent interest in the Chart House Property and a further order disqualifying respondent as a trustee of Unitrust.

DISCUSSION

1. Appellant Should Have Been Given Leave To Amend the Cross-complaint

Respondent contended in the trial court that leave to amend the cross-complaint should not be given because: (1) the record affirmatively shows that appellant received notice of the hearing on the petition on or after September 28, 1995; and (2) extrinsic fraud sufficient to set aside a judgment occurs only if the party claiming fraud was deliberately kept in ignorance of the proceedings, and therefore did not participate therein.

If there is a reasonable possibility that a plaintiff can amend his complaint to cure the defects, leave to amend must be granted. (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1042.) An amendment should be allowed where the defect, though one of substance, may possibly be cured by supplying omitted allegations, and the plaintiff has not had a fair opportunity to do so, as where the demurrer was sustained to his first complaint. [Citations.] (5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, 944, p. 402.) In this case, the trial court sustained respondents demurrer without leave to amend to the original and first pleading filed by appellant.

While respondent is correct in stating that extrinsic fraud is understood to cover situations where a party was prevented from learning about the proceedings, did not attend the proceedings and was therefore deprived of its day in court, extrinsic fraud is not necessarily limited to such situations. Extrinsic fraud may be found to exist when a party was prevented from learning of its claim or defense by fraud or fraudulent acts. As an example, in Caldwell v. Taylor (1933) 218 Cal. 471, the plaintiff, who sought to set aside a decree admitting his fathers will to probate, contended that his stepmother, who obtained his fathers estate under the will, prevented the plaintiff from learning facts about the stepmother that would have enabled him to contest the will. After observing that the distinction between extrinsic and intrinsic fraud is quite nebulous, the court held: The main requirement to establish extrinsic fraud is that the unsuccessful party was prevented by his adversary from presenting all of his case to the court. One of the examples given is that of a party who is prevented from appearing in court. It would seem that the deceit practiced in the instant case was just as effective to prevent the proper presentation of the contest as if the plaintiff had been prevented from being present at the hearing. (Id. at p. 479.) That this expands the concept of extrinsic fraud from situations when there was no notice of the proceedings (and hence no participation) to situations where a party, even though present during the proceedings, was fraudulently kept in the dark as to a claim or defense, has been recognized in the cases, as well as by Witkin. (Stenderup v. Broadway State Bank (1933) 219 Cal. 593, 597 [extrinsic fraud perhaps extended by Caldwell]; 8 Witkin, Cal. Procedure, supra, Attack on Judgment in Trial Court, 227, pp. 732-733.) Although Caldwellis an expansion of the doctrine of extrinsic fraud, it is certainly not novel, nor is it an obscure point of law.

Thus, it may be that appellant can allege facts that would show that he was prevented by fraud or fraudulent acts from asserting his claim for his interest in the Chart House Property or in Unitrust, as the case may be. The possibility of this is suggested by allegations in the cross-complaint that respondent was intent on gaining control over the Marinoss family assets by improper means. Nor is this the only theory that appellant may rely on. If there are facts that show excusable neglect on appellants part in presenting his claim, this may be a case for the invocation of the doctrine of extrinsic mistake. (See generally 8 Witkin, Cal. Procedure, supra, Attack on Judgment in Trial Court, 231, pp. 741-742.)

In sum, we conclude that it was error to sustain the demurrer to the original cross-complaint without leave to amend. We agree with the trial court, however, that the demurrer had to be sustained. While the cross-complaint explicitly alleges that the cross-defendants engaged in extrinsic fraud, the allegations on which this rests are, for the most part, not material either to extrinsic fraud, properly understood, nor to extrinsic mistake. In large part, the cross-complaint relies on alleged errors of law committed in the proceedings that led to the substituted judgment. In order to provide guidance to the trial court and to counsel, we turn to the subject of the 1996 substituted judgment proceedings and how those proceedings and that judgment are to be treated in this case.

2. The Holdings That Are To Be Followed on Remand

We note, for claritys sake, that our holdings in this opinion are the law of the case and are therefore binding on the court and the parties in such further proceedings as may take place. (See generally 9 Witkin, Cal. Procedure, supra, Appeal, 895 et seq.) In addition to our holding in part 1, ante, there are five holdings that apply to further proceedings.

First, the substituted judgment entered on January 12, 1996, is not subject to collateral attack.  If a judgment, no matter how erroneous, is within the jurisdiction of the court, it can only be reviewed and corrected by one of the established methods of direct attack.  (People v. $6,500 U.S. Currency (1989) 215 Cal.App.3d 1542, 1548.) This means that appellant is barred from contending that the substituted judgment is erroneous, either in fact or law, and should therefore be set aside. This renders paragraphs 44, 45, 47, 48, 49 and 50 of the cross-complaint surplusage and immaterial; these paragraphs should be stricken from the cross-complaint. This also disposes of arguments D and E in appellants opening brief, which are limited to pointing out alleged errors of law in the substituted judgment.

Appellants contention that the trial court in the substituted judgment proceedings lacked jurisdiction to enter the orders that it did enter is mistaken. Probate Code section 2580, a comprehensive statute, empowers the conservator, among other things, to propose action to make gifts of principal or income, or both, of the estate,^[5]to create revocable or irrevocable trusts^[6]and to revoke or modify a revocable trust, to name only three examples.^[7]The court was empowered by Probate Code sections 2580 and 2584^[8]to enter the orders that it did enter in the substituted judgment proceedings.

Second. We have interpreted the cross-complaint to be an independent action to set aside the substituted judgment. (See generally 8 Witkin, Cal. Procedure, supra, Attack on Judgment in Trial Court, 214, pp. 718-719.) As such an action, it is a direct, and not a collateral, attack on the judgment.^[9] The issue in such an action, however, is whether the judgment is tainted by extrinsic fraud or mistake,^[10]not whether it was correctly decided, or whether it is tainted by errors of fact or law. A contrary rule would open up judgments to repeated attacks and review for correctness, long after the judgment has become final.

Third. Appellant is in error when he claims that the substituted judgment is void because of extrinsic fraud. Even if there was extrinsic fraud, and we do not say that there was, the judgment would not be void. A judgment is void only if the court lacked jurisdiction over: (1) the subject matter of the action or (2) the parties. (Strathvale Holdings v. E.B.H. (2005) 126 Cal.App.4th 1241, 1249.) The lack of jurisdiction must appear from the face of the record or the judgment roll. (Superior Motels, Inc. v. Rinn Motor Hotels, Inc. (1987) 195 Cal.App.3d 1032, 1049; 8 Witkin, Cal. Procedure, supra, Attack on Judgment in Trial Court, 11(a)(2), p. 518.) In this case, the record shows that the court had jurisdiction both over the subject matter of the action and over the parties.

Fourth, the relief that appellant is seeking is to reinstate Helens exercise of her power of appointment in 1992, and her appointment of the remainder of the Decedents and Survivors Trusts to the Unitrust. Since this is the relief he seeks, appellant must allege and, at the appropriate time, prove that his participation in the proceedings leading to the substituted judgment would have led to the result and the relief that he now seeks. Given that by 1994 Helen had substantially restructured her estate and her testamentary dispositions, this is a heavy burden.

Five. The order on the petition stated that [f]or good cause, notice to beneficiaries of testamentary documents prior to the existing Last Will [November 1994] of Helen W. Marinos may be dispensed with. We have previously summarized the showing in the petition that supports this order. (See text, ante, pp. 5-6.) For reasons already expressed, this order is presumed to be correct. Since there was no requirement that appellant receive notice of the hearing, appellants claim that the notice was defective because it did not explain what the hearing was about is irrelevant. In any event, the statute requires only [n]otice of the hearing of the petition (Prob. Code,  2581) and does not require documents that would explain the purpose and content of the hearing.

Finally, while we reverse the judgment, we are remanding for further proceedings with directions that impose appropriate guidelines on this case. To some extent, those guidelines constitute a favorable outcome for respondent. For this reason, we deem it appropriate that the parties are to bear their own costs on appeal.

DISPOSITION

The judgment is reversed and the case is remanded with directions: (1) to sustain respondents demurrer to the cross-complaint with leave to amend, and (2) to conduct further proceedings, if any, in accordance with the views expressed in this opinion. The parties are to bear their own costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

FLIER, J.

We concur:

COOPER, P. J.

BOLAND, J.

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line Lawyers.

^[1] The doctrine of substituted judgment permits a court to authorize a variety of actions that a conservatee would have undertaken if he or she been competent to act. This doctrine, judicially created, is now enacted in Probate Code section 2580 et seq. (14 Witkin, Summary of Cal. Law (10th ed. 2005) Wills and Probate, 1025, pp. 1140-1141.)

^[2] We use first names for the sake of brevity and intend no disrespect thereby.

^[3] It is appropriate for us to take judicial notice of court records. (Evid. Code,  452, subd. (d)(1).)

^[4] Respondent claims in his brief that the value of this trust was in excess of $500,000.

^[5] Subdivision (b)(1).

^[6] Subdivision (b)(5).

^[7] Subdivision (b)(11).

^[8] Probate Code section 2584 empowers the court to approve, as it did in this case, the actions proposed pursuant to Probate Code section 2580.

^[9] A direct attack has been narrowly defined as an attack on the judgment in the action in which it was rendered, as by motion for new trial or appeal. But it is more accurately described as a proceeding instituted for the specific purpose of vacating, reversing, or otherwise attacking the judgment. This more inclusive definition covers direct attack by independent action in equity (infra, 214) and by certiorari and other writs (see 8 Cal. Proc. (4th), Extraordinary Writs, 1 et seq.). (8 Witkin, Cal. Procedure, supra, Attack on Judgment in Trial Court, 1, p. 507.)

^[10] That is the issue in this case. There are other grounds for such an independent action to set aside the judgment, such as when the judgment is void for lack of jurisdiction. (8 Witkin, Cal. Procedure, supra, Attack on Judgment in Trial Court, 222, p. 726.)