Filed 9/12/17 Brown v. Jimenez CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

APPEAL from a judgment of the Superior Court of Mariposa County. Michael A. Fagalde, Judge.

Thomas H. Bonte for Defendant and Appellant.

Berliner Cohen and Leslie Kalim McHugh for Plaintiff and Respondent.

-ooOoo-

Plaintiff Rozalynn D. Brown is the beneficiary of a living trust established by her mother. When the mother died, Brown’s grandmother, Patricia Jimenez, became the successor trustee. After Jimenez exhausted the corpus of the trust through various purchases and expenditures, Brown petitioned the probate court to remove her as trustee, direct her to produce an accounting, and require her to reimburse the trust. Brown also sought double damages, attorneys’ fees, and interest. The probate court entered a judgment awarding Brown substantially all the requested relief. The total award was about $1.2 million plus interest, based on a trust balance at the time of the mother’s death of $345,000. Jimenez appeals.

We agree with Jimenez that certain portions of the probate court’s award were erroneous, but we reject her contentions that double damages and attorneys’ fees were not applicable forms of relief in this case. We will affirm in part, reverse in part, and remand.

BACKGROUND

Brown was born on June 22, 1994. Her mother, Rochelle Powers (Rochelle), established the Rochelle Powers Living Trust in 2006, with Brown as a 75 percent beneficiary and Jimenez as a 25 percent beneficiary. Jimenez, who was Rochelle’s mother, was designated the successor trustee who would become trustee upon Rochelle’s death. By the terms of the trust, Brown would not control her share until she reached age 25. Rochelle died of a heart attack at age 44 in 2008. Brown was 14 years old. The value of the trust at that time was $345,000.

On June 22, 2012, Brown turned 18. On August 30 of that year, Brown’s counsel wrote Jimenez to request an accounting of the trust’s activities and assets from the date of Powers’s death, including proof of payment of property taxes on three parcels in Delhi and one in Turlock. The properties are referred to throughout the record as Corner Street, Angelus Street, Johnson Street, and Karen Street. The letter requested proof of payment of property taxes by September 15, 2012, and a full accounting by October 29, 2012.

Brown’s counsel received a letter purporting to be written by Jimenez on September 12, 2012, addressing the issue of property taxes. The letter stated that no property tax information would be forthcoming because the trust did not own any of the properties. One property was said never to have belonged to the trust, two were said to belong to Jimenez as an individual, and one was said to have been transferred from the trust to Brown as an individual.[1]

On October 23, 2012, Brown filed in the probate court a petition to compel an accounting by Jimenez and to remove her as trustee. The petition alleged that Jimenez never provided a full accounting despite Brown’s request. Regarding the request for property tax information, the petition alleged that recorded documents contradicted Jimenez’s claim that the trust did not own the parcels. The petition included copies of a set of deeds showing that three of the properties had been held in the trust’s name at various times, one remained in the trust’s name, and Jimenez, as trustee, had transferred two to her son, Lance Powers (Lance), and his wife. The property Jimenez claimed had been transferred to Brown was in reality held in the name of Jimenez as an individual. One recorded and notarized deed stated that Powers personally appeared and conveyed a property to the trust on March 2, 2011, two years after her death.

The petition asked the court to compel Jimenez to provide an accounting. It also asked the court to remove and replace Jimenez as trustee, on the ground that she had breached the trust by giving away trust assets to her son and daughter-in-law for no consideration. The petition further sought an order directing the reconveyance of parcels of real property to the trust and payment to the trust of uncollected rents on the parcels. Finally, the petition alleged that attorneys’ fees should be awarded pursuant to Probate Code section 17211, subdivision (b),[2] because Jimenez had acted in bad faith.

An opposition to the petition was filed on November 28, 2012, by Jon Powers (Jon) in propia persona. Jon was Jimenez’s son. His opposition stated that he had recently learned he was designated in the trust document as a successor trustee in case of the incapacity of Jimenez. He alleged that Jimenez was incapacitated because she was “currently in the hospital and [had] suffered two mild strokes in the past year.” A note was attached dated November 27, 2012, with a signature purporting to be that of a physician, stating only that Jimenez was “incapacitated due to her medical condition” and would be so for six weeks. Also attached was a document titled Declaration of Incapacity signed by Jon, setting forth his statement that Jimenez was incapacitated, as well as copies of a letter in which Jimenez resigned as trustee and a recorded affidavit of change of trustee. Citing a provision of the trust document, Jon stated that he was not liable for actions of a predecessor trustee.

Jon’s opposition described real property transactions carried out by Jimenez through the trust. The opposition included an admission that she had bought all the properties at issue with trust funds, but claimed she did so in good faith. It also included various accusations against Brown and her father, Randy Brown: It claimed that Brown had taken personal property from her mother’s house and disposed of it when her mother died; that Brown was not enrolled in school and did not graduate from high school, even though the trust specified that distributions would be made to her only for her basic needs unless she was enrolled in school with passing grades; and that Randy Brown had been collecting rents on some of the properties involved in the dispute.

The opposition did not contain any acknowledgement of a trustee’s duty to provide an accounting upon the request of a beneficiary. It did not state any reasons why an accounting had not been provided and did not state that one would ever be provided. It did not offer any explanation of the discrepancy between Jimenez’s letter claiming the trust held none of the properties and facts indicated by the recorded deeds. Instead, it asked for affirmative relief for Jon: an acknowledgement that he was now trustee, the removal of notices of lis pendens that had been recorded against the properties, and an award of fees and costs.

Brown filed a reply asserting that the opposition was without reasonable cause and in bad faith. The court issued an order setting a hearing for January 16, 2013, and stating that an accounting must be produced.

On January 16, 2013, Jon filed in the probate court a declaration stating that Jimenez had provided him with a set of documents he described as two accountings for the trust, one from December 14, 2008, to February 28, 2010, and another from some point until the end of 2012. A miscellaneous collection of documents was attached. It included numerous handwritten pages appearing to describe various expenses, as well as some letters, lease agreements, receipts, and cancelled checks.

On January 30, 2013, the probate court ordered a suspension of the powers of the trustee and appointed Richard E. Huber as interim trustee, specifically giving him authority over the four parcels. On February 20, 2013, the parties filed a stipulation to continue the hearing on Brown’s petition. The stipulation stated that a continuation was necessary because the documents submitted by Jon did “not satisfy the requirements of an accounting at all,” as counsel for both sides “cannot decipher the information provided” and “it appears likely that the Interim Trustee will be required to prepare the accounting.” The stipulation further stated that all books and records for the trust would be submitted to the interim trustee, the parties would cooperate with the interim trustee in obtaining the necessary information and in causing title to the parcels to be returned to trust, and Jimenez would bear the cost of preparing the accounting.

The court held a hearing on May 8, 2013, and found that no accounting had yet been presented. It authorized the recording of a lis pendens against another property, a ranch in Mariposa County.

On September 30, 2013, Brown filed a new pleading, a petition to “surcharge” Jimenez for assets missing from the trust (the surcharge petition). This petition alleged that Jimenez purchased the Corner Street and Karen Street properties with trust funds after Rochelle’s death. Subsequently, as trustee, she transferred the Corner Street property to her son Lance Powers (Lance) and the Karen Street property to Lance and his wife. The Johnson Street property was owned by Rochelle at the time of her death. The surcharge petition alleged that Jimenez caused it to be transferred to the trust and then to Lance and Bret Powers. By these transactions, according to the petition, Jimenez gave the trust’s assets away. Then she failed to collect rents on the properties on the trust’s behalf. When Brown asked Jimenez for funds to pay educational expenses, as authorized by the trust’s terms, Jimenez told her there was nothing left, according to the petition.

The surcharge petition alleged that Jimenez purchased the Angelus Street property with trust funds and transferred it to Brown, even though the trust terms barred her from receiving trust principal until she reached age 25.

The surcharge petition also alleged that Jimenez commingled the trust’s money with her own. According to the petition, Jimenez used a single bank account to transact both the trust’s and her own financial affairs.

The petition requested a judgment for the recovery of all the following: the funds used to buy the parcels of real property and any other non-trust assets; costs associated with the purchase of the parcels; rents not collected for the trust; any trustee fees taken by Jimenez; “twice the value of the property recovered” within the meaning of section 859; fees and costs for the appointed interim trustee; Brown’s attorneys’ fees and costs; and interest.

In her response to the surcharge petition, filed by new counsel on November 8, 2013, Jimenez made a number of crucial admissions. The “facts asserted in the petition for surcharge are true for the most part,” the response stated. Jimenez appropriated trust funds for her own use, used trust money to purchase real estate, transferred that real estate out of the trust, never produced an accounting, and was not capable of producing an accounting. Further, Brown did incur significant attorneys’ fees.

The response further stated that Lance was willing to cooperate to transfer properties back to the trust and Jimenez was prepared to give a “further interview” in order to “determine how much money would be owed by her to the trust.” Counsel requested that the hearing on the surcharge petition be continued to allow the parties to attempt to settle the matter. Counsel suggested that there could be a settlement based on conveyance of the parcels of real property to the trust and surrender of Jimenez’s 25 percent interest. The response stated that the alternative to this settlement was “long expensive litigation that will further deplete the trust assets or will result in a judgment against [Jimenez] that will never be collected.” It alleged that Jimenez’s only asset was “the ranch on which she and her husband live,” in which they had “little equity.” Brown’s counsel filed a declaration objecting to any further continuance.

Extensive pretrial proceedings took place in 2014 and 2015. In a statement for a trial-setting conference filed on February 11, 2014, Jimenez argued that the trial should not be set until after the real estate could be liquidated. In another statement filed on May 23, 2014, Jimenez stated that the property had not been sold yet and, in her view, the case was still not ready for trial for this reason. In a settlement conference statement filed on May 23, 2014, Brown stated that she had attempted to meet and confer, but Jimenez had refused to meet with her. On July 23, 2014, the probate court awarded Brown and the court-appointed trustee $1,500 in sanctions against Jimenez for Jimenez’s failure to appear at a mandatory settlement conference. Jimenez filed a settlement conference statement on August 22, 2014, in which she argued that the next settlement conference should be delayed for 90 days because some of the property still had not been liquidated and because Brown’s settlement demand was too high.

On September 5, 2014, Jimenez filed a motion to expunge the lis pendens that had been recorded against the Mariposa County ranch. This motion was not finally disposed of until December 22, 2014, when, after having first granted the motion, the probate court reconsidered and denied it.

On March 9, 2015, the probate court finally set a trial to begin on June 2, 2015. Motions in limine were filed before trial and heard on the first day. The trial took place over four days, June 2 to 5, 2015.

The court issued a proposed statement of decision on July 30, 2015, considered objections by the parties, and issued a statement of decision on October 28, 2015. In the statement of decision, the court found that at the time of Rochelle’s death, the trust consisted of $318,628 in a Schwab investment account, $6,154 in a bank account, and the Johnson Street property, valued at $20,000, for a total value stipulated by the parties to be $345,000 (apparently a rounded figure). The court found that Jimenez should have obtained a taxpayer identification number and a separate bank account for the trust, and should have divided the trust property into shares of 75 percent for Brown and 25 percent for herself. Further, she was required by the terms of the trust to administer Brown’s share, distributing as much of the principal and interest as were needed for her health, education, and support, with the remaining property to be available for Brown to withdraw when she reached age 25. Jimenez did none of these things, however. Instead, she purchased real property, deeded it to her sons, and allowed them to live on it rent-free. Jimenez allowed one of her sons to occupy the Johnson Street property rent-free as well. Another parcel was deeded to Brown when she turned 18, although the trust barred her from receiving her share until she was 25. Jimenez also spent money from the trust for her own personal expenses and other non-trust purposes. In 2012, around the time she turned 18, Brown’s father told her he was concerned about Jimenez’s management of the trust. When Brown questioned Jimenez on the subject, Jimenez said there was no money left in the trust and she was behind on the taxes on the properties she had caused the trust to buy and give away. Brown then asked for an accounting, but Jimenez never provided one. After the court removed her as trustee, she never provided any books or records to her court-appointed successor. The court summarized its findings using words Jimenez’s own counsel had written in a brief: “‘Patricia Jimenez spent all the cash assets of the trust until the money was gone.’”

The court found Jimenez’s behavior breached her duty as trustee in several ways: (1) She breached her duty of loyalty (§ 16002) by using the trust’s assets for her own benefit and adverse to the interests of Brown, and by commingling trust assets with her own; (2) she failed to take control of and preserve the trust’s property (§ 16006) and failed to make the property productive (§ 16007) when she gave the property away, failed to collect rents, and allowed the property to fall into disrepair; (3) she failed to separate and identify property as that of the trust (§ 16009) by not separating her own share from Brown’s and not keeping records; and (4) she failed ever to provide Brown an accounting (§§ 16062, 16063). In all these ways, Jimenez failed to use the reasonable, care, skill and caution that a prudent person ought to use under the circumstances, as is required of a trustee by section 16040.

In addition to finding that Jimenez failed to satisfy the applicable standard of care, the statement of decision also found that she acted in bad faith. The court stated:

“The Court finds that Patricia Jimenez acted in bad faith in that she wrongfully used Trust funds to purchase homes she then deeded to her various children for no consideration. The Court does not find credible Respondent’s argument that she merely allowed title to be taken in the name of ‘nominees’ as allowed by the trust in light of the fact that she collected no rents on behalf of the Trust, that the taxes had gone unpaid for each property, that one property was encumbered by her son and then allowed to go into default, and that there was no accounting for the expenses she allegedly made to rehabilitate the properties to make them rentable. Further, the Court also finds that Respondent acted in bad faith in using the Trust assets to pay for non-trust expenses.

“Had Petitioner not rung the bell by filing a petition for an accounting and for removal of the trustee, and then a petition to surcharge, the efforts of her mother to financially protect Petitioner by establishing a Trust would have been in vain.”

The statement of decision ordered several remedies. First, there was a “surcharge,” i.e., an order requiring Jimenez to pay into the trust a sum equivalent to the losses caused by her breaches of duty. The court imposed a surcharge of $318,064. This amount represented the value of the trust when it fell into Jimenez’s hands, reduced by a short list of legitimate expenses and by the amounts returned to the court-appointed trustee after the real estate was liquidated, but increased by the fair rental value of the properties for the periods when Jimenez controlled them. The calculation was as follows:

The court stated that Brown would be entitled to interest on this amount at the rate of 10 percent from January 16, 2013, the date by which the court had first ordered an accounting to be produced.

The court explained that it was not deducting from the surcharge any amount representing Jimenez’s 25 percent share of the original trust property or any compensation for her services as trustee. The court stated that it was so ruling because Jimenez breached her fiduciary duty as trustee and did so willfully and in bad faith.

Next, the statement of decision awarded damages pursuant to section 859. Section 859 provides: “If a court finds that a person has in bad faith wrongfully taken, concealed, or disposed of property belonging to a conservatee, a minor, … a trust [or] the estate of a decedent, … the person shall be liable for twice the value of the property recovered by an action under this part.” The court awarded $636,128, which was twice the amount of the surcharge.

On attorneys’ fees and costs, the statement of decision explained that the court was deferring the issue to a future hearing.

A judgment reflecting the amounts stated in the statement of decision was filed on December 2, 2015. It included $97,160.27 in interest on the surcharge amount of $318,064, calculated at the rate of 10 percent per year from January 16, 2013, to October 31, 2015, plus $113.76 per day until entry of judgment. The calculation included annual compounding.

The parties submitted briefing on the issue of attorneys’ fees. Brown’s counsel requested an award of $40,091.07 related to the petition to compel and $225,413.18 related to the surcharge petition. The request was supported by detailed billing records. At a hearing, the court stated it had reviewed the billing records. It found Jimenez’s opposition to Brown’s litigation was unreasonable and in bad faith within the meaning of section 17211, subdivision (b). In an amended judgment filed on December 14, 2015, the court added the requested amounts of attorneys’ fees and costs, plus interest, to the award in favor of Brown.

DISCUSSION

I. Double Damages

Jimenez argues that the award of double damages pursuant to section 859 was erroneous because section 859 does not apply to the action on Brown’s surcharge petition, which was the action upon which the double damages remedy was awarded.

As noted above, section 859 provides a double damages remedy where a defendant has “taken, concealed or disposed of property” wrongfully and in bad faith, and a plaintiff recovers the property “by an action under this part.” “[T]his part” means part 19 of the Probate Code (part 19). Jimenez’s contention is that the surcharge petition was not an action under part 19.

Section 850 authorizes in specific terms the types of actions that can be filed under part 19. For instance, a “personal representative or any interested person” may file a petition requesting an order under part 19 where “the decedent died having a claim to real or personal property, title to or possession of which is held by another.” (§ 850, subd. (a)(2)(D).) Beneficiaries of a testamentary trust could use this provision to seek relief where another person took a decedent’s property by means of a deathbed fraud against the decedent, for example. (See In re Estate of Kraus (2010) 184 Cal.App.4th 103, 106-108, 112-113 (Kraus).) Several other categories of actions are described in section 850. Claims not directly falling within any of these categories can still be included in an action under part 19 if they have a sufficient relationship with a claim that does fall within one of the categories: An action brought under part 19 “may include claims, causes of action or matters that are normally raised in a civil action to the extent that the matters are factually related to the subject matter of a petition filed under this part.” (§ 855.) A court’s order upon a petition filed under part 19 can include orders to convey or transfer property. (§ 856.) This scheme’s “purpose is to effect a conveyance or transfer of property belonging to a decedent or a trust or another person under specified circumstances, to grant any appropriate relief to carry out the decedent’s intent, and to prevent the looting of decedent’s estates.” (Kraus, supra, at p. 117.)

Brown’s surcharge petition did not state that it was a petition pursuant to section 850 (although it did expressly state a prayer for double damages pursuant to section 859). But it is the substance of the petition, not its label, that matters. In our view, the surcharge petition was in substance a petition under section 850, subdivision (a)(3)(B). That statute provides: “(a) The following persons may file a petition requesting that the court make an order under this part: [¶] … [¶] (3) The trustee or any interested person in any of the following cases: [¶] … [¶] (B) Where the trustee has a claim to real or personal property, title to or possession of which is held by another.”

Brown, an interested person, filed a petition where the court-appointed trustee had a claim on property the title to which, or possession of, was held by others. Brown’s allegation was that Jimenez gave away all the property that had been held by the trust, which was now in the possession of others in the form of real and personal property; the court-appointed trustee had a claim on it; and the court was being asked to order real property to be transferred to the trustee, or money to be paid to the trustee, or both. It appears that section 850, subdivision (a)(3)(B), covered all that was being claimed and requested in the surcharge petition; and if it did not, then section 855 covered the remainder. It follows that the action upon the surcharge petition was an action under part 19, and the relief awarded was property recovered under such an action. Consequently, and in light of the court’s bad-faith finding, the section 859 remedy was applicable.

Jimenez asserts that in the surcharge petition’s prayer for relief, Brown sought reimbursement of funds used to buy non-trust assets, rather than the conveyance of the assets themselves (by which she evidently means the parcels of real property) to the trust. Jimenez argues that this means the action was not one for recovery of property within the meaning of section 859, so the double-damages remedy was not applicable. Section 859, however, does not refer to recovery of real property—just property. Property, of course, includes personal property, and money is personal property. At the time of Rochelle’s death, the trust property was almost all money in two accounts; there also was one parcel of real property. The trust’s money was lost to the trust when Jimenez took it to buy houses for her sons and other things; and by Brown’s surcharge petition the money was recovered. All the real property was liquidated by the trustee for purposes of returning its value to the trust, but this hardly shows the trust’s property was not being recovered. Jimenez’s argument on this point thus has no merit.

Jimenez’s opening brief also makes a passing remark about the amount of the section 859 damages the court awarded, averring that this amount was not “proper.” She says the amount should be “double the value of the property returned” and criticizes the court for awarding “double the entire surcharge amount.” The discussion in the brief cites no authority and makes no argument about why the court’s calculation was wrong, so the issue is forfeited due to inadequate briefing. (Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal.4th 352, 366 fn. 2; Nielsen v. Gibson (2009) 178 Cal.App.4th 318, 324.) Jimenez’s point could be that the remedy should be calculated only on the basis of the real property that was returned, but, as we have already indicated, there is no reason to construe section 859 as being limited in that way. (For reasons we will discuss, however, the underlying surcharge amount must be reduced. It will be necessary to adjust the amount of the section 859 award accordingly.)

Finally, Jimenez argues that the surcharge petition was not a petition under section 850 because it was not served on the parties in the required manner. She cites section 851, which calls for service in accordance with certain provisions of the Code of Civil Procedure on the trustee and persons claiming an interest in, or having title to or possession of disputed property. She asserts that those provisions of the Code of Civil Procedure require either personal service or, if service is by mail, service of two copies with and acknowledgement of receipt and a return envelope. Jimenez further asserts that neither she nor any of her sons were served by these means. She concludes that this means there was no section 850 action.

This argument is entirely meritless. Jimenez appeared in the probate court to defend the action (and no other defendant is before the court on appeal). It is settled beyond any possible dispute that a general appearance by a party is equivalent to personal service and cures any defects in service, or even a complete failure of service. (Code Civ. Proc., § 410.50; Fireman’s Fund Ins. Co. v. Sparks Const., Inc. (2004) 114 Cal.App.4th 1135, 1145.) If Jimenez intends to say that a defect in service changed the substance and character of the action (from a section 850 action to something else) even if it did not deprive the probate court of jurisdiction, she presents this argument without a scrap of authority or a semblance of a supporting rationale.

For all these reasons, we reject Jimenez’s contention that the section 859 remedy was awarded in error.

II. Attorneys’ Fees

The prayer for attorneys’ fees in the petition to compel an accounting cited section 17211, subdivision (b). The prayer for attorneys’ fees in the surcharge petition cited section 17211, as well as sections 1002 and 16442. The judgment did not cite any statutory authority for the award of attorneys’ fees, but at the hearing on the issue the court orally cited section 17211, subdivision (b). Jimenez now contends that the award was unauthorized. Brown argues that section 17211, subdivision (b), authorized it. Section 1002 authorizes an award only of costs, not attorneys’ fees, and section 16442 merely states that express statutory provisions regarding liability do not preclude other available remedies. Thus the only question presented to us here is whether section 17211, subdivision (b), supports the award. We conclude that the award was proper under that statute.

Section 17211, subdivision (a), provides for an award of attorneys’ fees to a trustee when a beneficiary challenges the trustee’s account in bad faith. Section 17211, subdivision (b), is a mirror image of this, providing for an award to the beneficiary in the opposition situation:

“If a beneficiary contests the trustee’s account and the court determines that the trustee’s opposition to the contest was without reasonable cause and in bad faith, the court may award the contestant the costs of the contestant and other expenses and costs of litigation, including attorney’s fees, incurred to contest the account. The amount awarded shall be a charge against the compensation or other interest of the trustee in the trust. The trustee shall be personally liable and on the bond, if any, for any amount that remains unsatisfied.” (§ 17211, subd. (b).)

In this case, Brown’s action against Jimenez included a contention that the papers submitted to the court as an accounting were inadequate, and the court’s findings included a finding that Jimenez’s opposition to Brown’s action was undertaken in bad faith, but the case included much else in addition. The case was initiated as an effort to force Jimenez to produce an accounting in the first place. After she was ordered to produce one and failed do so adequately, the court appointed a new trustee, and Brown sought and obtained an order that Jimenez restore to the trust the value her actions had caused to be lost. The question we must answer thus is whether section 17211, subdivision (b), encompasses not only a challenge to an accounting but the broader challenge that was made here. Jimenez argues that we must construe the statute narrowly to cover only those fees earned specifically in challenging an account where that specific challenge is opposed in bad faith, while Brown suggests we should interpreted it broadly to include fees earned in challenging a trust’s administration.

In interpreting a statute, our objective is “to ascertain and effectuate legislative intent.” (People v. Woodhead (1987) 43 Cal.3d 1002, 1007.) To the extent that the language in the statute may be unclear, we look to legislative history and the statutory scheme of which the statute is a part. (People v. Bartlett (1990) 226 Cal.App.3d 244, 250.) We look to the entire statutory scheme in interpreting particular provisions “so that the whole may be harmonized and retain effectiveness.” (Clean Air Constituency v. California State Air Resources Bd. (1974) 11 Cal.3d 801, 814.) “In the end, we ‘“must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences.”’” (Torres v. Parkhouse Tire Service, Inc. (2001) 26 Cal.4th 995, 1003.) We review a trial court’s interpretation of a statute de novo. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432.)

The question here is not an easy one. Pitfalls are presented by both parties’ approaches. If the statute is construed strictly, counterintuitive consequences could follow. It would appear that if a trustee loots a trust and provides a false account to conceal the wrongdoing, a beneficiary challenging the account could recover attorneys’ fees when the trustee opposes that challenge in bad faith, but the beneficiary could not recover attorneys’ fees for expanding the action to remedy the underlying breach thus uncovered, even if the trustee continues to oppose the action in bad faith. On the other hand, if it is thought that the statute must be extended to a trustee’s bad-faith opposition to a beneficiary’s claims in general, then the statutory language specifically referencing a challenge to an account appears mystifying.

Jimenez relies on Soria v. Soria (2010) 185 Cal.App.4th 780 (Soria). In that case, parents and grandparents entered into an agreement whereby the parents would transfer a house to the grandparents, and the grandparents would later transfer it to their grandchildren if certain conditions were fulfilled. Subsequently, the mother and grandchildren filed a lawsuit against the father and grandparents. Among other things, the complaint alleged that the agreement was a trust, the grandchildren were beneficiaries, and the grandparents were trustees. The complaint further alleged that the grandparents breached their fiduciary duty as trustees by not transferring title to the grandchildren. The complaint prayed for an injunction ordering the grandparents to prepare an accounting and to convey the property, among other forms of relief. (Id. at p. 784.) A jury returned a verdict finding that the agreement was a trust, the grandparents breached it, and the grandchildren were entitled to the property. A judgment was entered ordering the grandparents to convey the property upon the payment of money and assumption of the mortgage by the grandchildren. No accounting was ordered. The trial court granted the grandchildren’s motion for an award of attorneys’ fees pursuant to section 17211, subdivision (b). (Id. at p. 785.)

The Court of Appeal reversed the fee award. In the court’s view, section 17211, subdivision (b), was inapplicable because the grandchildren’s action did not contest a trustee’s account. (Soria, supra, 185 Cal.App.4th at p. 783.) The grandparents presented an account at trial and this was used as a basis for making calculations on which the judgment was based. But the grandchildren did not contest this account, or, if they did, the contest was unsuccessful, since the figures presented in the account were accepted by the trial court. (Id. at p. 787.) The grandchildren’s suit might have been an action to compel an accounting, but in the opinion of the Court of Appeal, fees could be awarded under section 17211, subdivision (b), only for an action to contest an accounting that had actually been made, not to compel the making of it in the first place. (Id. at pp. 787-788.) The Court of Appeal rested its decision on the additional ground that section 17211 is intended to apply to proceedings in probate, initiated by means of a petition filed under section 17200 et seq., but the plaintiffs had instead chosen to file a complaint and proceed by way of a civil action before a jury. (Id. at pp. 783-784, 788.)

Brown relies on Leader v. Cords (2010) 182 Cal.App.4th 1588 (Leader). In Leader, the time for final distribution of trust property arrived and the beneficiaries demanded an accounting. The trustee provided an accounting, showing that the trust had net assets, but he refused to distribute the property unless the beneficiaries first agreed to his proposed settlement of an unrelated dispute. The trustees filed a probate petition for an order requiring a final distribution. (Id. at pp. 1591-1593.) The probate court issued the requested order. It denied the beneficiaries’ section 17211 motion for attorneys’ fees, however, stating that the action was not an action contesting an accounting. (Id. at p. 1594.)

The Court of Appeal reversed and remanded for findings regarding bad faith. (Leader, supra, 182 Cal.App.4th at p. 1591.) It stressed that although the accuracy of the account was not challenged, the “petition arose from and was directly related to” the account, which demonstrated that the trust had assets that were due to be distributed. (Id. at p. 1598.) The account “should have, but did not, indicate a forthcoming distribution” of the assets. (Id. at p. 1599.) In light of these facts, the court believed section 17211, subdivision (b), should be construed as a basis for an attorneys’ fees award where the account is accurate but reveals—and leads to a petition regarding—the trustee’s breach of duty:

“We do not envision that the Legislature intended to leave beneficiaries in [these beneficiaries’] position without potential recourse under section 17211, subdivision (b), for unreasonable and bad faith opposition to a petition for distribution, merely because they do not challenge the accuracy of the account’s enumerated receipts and distributions, or assets and liabilities. Such a narrow reading of section 17211, subdivision (b) would defeat its remedial purpose.” (Leader, supra, 182 Cal.App.4th at p. 1599.)

As we will explain, in our view, if a beneficiary’s action in probate is related to a trustee’s account—either alleging that the trustee has improperly failed to account or that an account is erroneous or inadequate—then section 17211, subdivision (b), is applicable if the trustee opposes the action unreasonably and in bad faith. Further, the scope of the representation the fee award can cover can include activities to obtain a remedy, such as a surcharge, for breaches of duty uncovered through the account-related action.

First, contrary to Soria, the expression “contests a trustee’s account” in section 17211, subdivision (b), must be understood to include a challenge to a trustee’s wrongful failure to provide an account. It is unlikely the Legislature intended to allow trustees to escape the effect of section 17211, subdivision (b), by refusing a proper request to provide an accounting instead of providing a false one. That is the sort of absurd result we are obliged to avoid when interpreting a statute open to more than one reasonable interpretation.

Second, in context of probate estates—closely related to the trust context— a contest to an account can include a claim for a surcharge for a breach of duty. In In re Estate of Fain (1999) 75 Cal.App.4th 973 (Fain), a successor administrator challenged an account of a prior administrator, alleging that the prior administrator could not account for missing assets and asking the probate court to order a surcharge against the prior administrator for breaches of fiduciary duty. (Id. at p. 991.) The court stated:

“These are all matters which may be the subject of a contest [relating to an account]. (Prob. Code, § 11001.) It is the court’s duty to scrutinize accounts and determine all issues raised by a petition to approve any account. (See generally Ross, Cal. Practice Guide: Probate (The Rutter Group 1998), PP 16:164-16:164.1.) … ‘Objections to accountings commonly raise surcharge claims against [the] representative for purported acts of misconduct, neglect, waste, mismanagement or other breach of fiduciary duty. These grounds fall under the general category of “all matters relating to an account” which may be contested “for cause shown.” (Prob. C[ode,] § 11001.)’ (Id. at P 16:177.)” (Fain, supra, 75 Cal.App.4th at p. 991.)

From this reasoning, it follows that in a case involving a decedent’s estate, a contest to an accounting that includes a claim for a surcharge can be a basis for an award of attorneys’ fees if the administrator opposes the contest in bad faith. Section 11001 provides that “[a]ll matters relating to an account may be contested,” and section 11003, subdivision (b), states that attorneys’ fees can be awarded if the contest is opposed and “the opposition to the contest was without reasonable cause and in bad faith.”

For two reasons, section 11003 and section 17211 should be read in pari materia. First, the two provisions are the same almost word for word.[3] Second, when the Legislature enacted section 17211 in 1996, it did so at the urging of the Estate Planning, Trust and Probate Law Section of the State Bar of California, which wanted to harmonize the law of trusts with that of estates on the attorneys’ fees issue. (Leader, supra, 182 Cal.App.4th at p. 1597; Chatard v. Oveross (2009) 179 Cal.App.4th 1098, 1109 (Chatard).) In its legislative proposal, the Estate Planning, Trust and Probate Law Section described section 11003 and argued as follows:

“‘It is advisable to enact a counterpart to these provisions which would apply in settlement of a trustee’s account. Without a specific statutory counterpart in the trust law, parties challenging or defending a trustee’s accounts are governed by Civil Code Procedure Sections 128.5 et seq. which provide, generally, that a trial court may order a party or the party’s attorney, or both to pay any reasonable expenses incurred by another party as a result of bad faith actions or tactics that are frivolous or solely intended to cause unnecessary delay. Frivolous is defined as “totally and completely without merit or for the sole purpose of harassing an opposing party.” The standards of CCP Sections 128.5 et seq. appear to be more narrow than those incorporated into Probate Code Section 11003. In the context of a challenge of a fiduciary’s account, the broader standards of Section 11003 should be adopted and should apply whether the contest occurs during the administration of a probate estate or upon settlement of a trustee’s account.’” (Chatard, supra, 179 Cal.App.4th at p. 1109-1110.)

By this thinking, according to which the remedies available in the trust context should match those available in the context of decedents’ estates, a contest to a trustee’s account would support an award of attorneys’ fees if opposed in bad faith; and because such a contest in the estate context could include a claim for a surcharge, fees associated with a claim for a surcharge would be awardable in the trust context as well. Finally, since a challenge to an account should be understood to include a challenge to a failure to produce an account, fees should be awardable where the necessary bad faith finding has been made in a case like this one, which began with a challenge to a failure to produce an account and ended with a successful claim for a surcharge.

Jimenez suggests she did not act in bad faith in opposing Brown’s petitions. The probate court’s finding of bad faith is a finding of fact, which we review under the substantial evidence standard. When considering a challenge to the sufficiency of the evidence to support a judgment, we review the record in the light most favorable to the judgment and decide whether it contains substantial evidence from which a reasonable finder of fact could make the necessary finding beyond a reasonable doubt. The evidence must be reasonable, credible and of solid value. We presume every inference in support of the judgment that the finder of fact could reasonably have made. We do not reweigh the evidence or reevaluate witness credibility. We cannot reverse the judgment merely because the evidence could be reconciled with a contrary finding. (People v. D’Arcy (2010) 48 Cal.4th 257, 293.)

An appellant attempting to demonstrate that a judgment was not based on sufficient evidence must, in his or her brief, marshal all the record evidence relevant to the claim—not just the evidence favorable to the appellant—and affirmatively show its insufficiency under the substantial evidence standard. An appellant’s failure to proceed in this manner forfeits the claim regarding the sufficiency of the evidence. (Chicago Title Ins. Co. v. AMZ Ins. Services, Inc. (2010) 188 Cal.App.4th 401, 415-416.) Jimenez has not marshalled all the evidence relevant to the bad-faith finding and has not even referred to the substantial evidence standard, let alone demonstrated that the judgment is erroneous under that standard. She simply re-argues the facts. The claim therefore is forfeited.

Finally, Jimenez argues that the amount of the fee award is unreasonable. This claim has not been preserved for appeal. The question of the amount of the attorneys’ fees award was before the probate court at a post-trial hearing on December 14, 2015. Jimenez filed an opposition in response to Brown’s papers setting forth the requested amount, but the trial court found the opposition was untimely filed and ordered it stricken. Jimenez did not appear at the hearing, having waived oral argument. She did not argue at the time, and does not argue now, that her opposition was timely filed.

If the claim had been preserved by some proper method in the trial court, we would hold that it has been forfeited on appeal. The finding that the fees awarded were reasonable is a finding of fact, reviewable under the substantial evidence standard. Again, Jimenez has forfeited her claim of insufficient evidence by failing to marshal all the relevant evidence in the record and show insufficiency under the substantial evidence standard.

Jimenez also suggests the court erred because it failed to use the lodestar method to calculate the amount of the award. Under the lodestar method, an award of attorneys’ fees is determined by multiplying the attorneys’ documented reasonable hours of work by reasonable hourly rates. (Press v. Lucky Stores, Inc. (1983) 34 Cal.3d 311, 322.) The record here contains counsel’s hourly billing records and shows the hourly rates that were applied. Jimenez has not even attempted to show that the amount awarded is not based on these records, that the records are insufficient, or that a reasonable finder of fact could not find the hours and rates reported were reasonable. Instead, she simply asserts that the total is unreasonable and urges us to reduce the fee award to zero. “The ‘experienced trial judge is the best judge of the value of professional services rendered in his court, and while his judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong.’” (Serrano v. Priest (1977) 20 Cal.3d 25, 49.) Jimenez has not shown that the amount awarded was clearly wrong.

For all the above reasons, Jimenez has not shown any error in the attorneys’ fees award.

III. Forfeiture of Jimenez’s Share of the Trust Corpus

By the terms of the trust, Jimenez was entitled to 25 percent of the property it contained. By the stipulation of the parties, this amount was $86,250 at the time of Rochelle’s death. Jimenez argues that the probate court erred when it refused to offset this amount against the judgment. This contention has merit.

It is undisputed that if a trustee is found liable for a breach of fiduciary duty, and the trustee has an interest in the trust as a beneficiary or a claim against it for administrative fees or costs, the trustee can be deprived of that interest or claim in order to satisfy the liability. That is not what happened in this case, however. When the court calculated the losses to the trust for which Jimenez was liable, it assumed the entire $345,000 value was lost, and then made adjustments to that figure based on value recaptured from the sale of real property, value lost through failure to collect rents, legitimate market losses, and legitimate expenses related to Rochelle’s last illness and funeral. No credit was given for the $86,250 that was Jimenez’s money to spend from the outset. In other words, her share of the trust was taken, but as an additional liability, not a credit against the liability found on other grounds. In rejecting her claim for a credit in this amount, the probate court stated: “I’m going to deny that. I find that she forfeited her interest because of her bad faith actions.”

In effect, the court awarded Jimenez’s share of the trust to Brown as an additional punitive or deterrent measure, on top of the section 859 double damages remedy and the fee-shifting remedy, and on top of the compensatory remedy. Brown has cited no authority in support of this additional punishment. We conclude that portion of the award was unauthorized.

It would not be rational, however, to credit Jimenez with the entire $86,250. The court’s calculations included legitimate losses and expenses to the trust: $27,966 for financial market losses and $2,742 for expenses related to Rochelle’s last illness and funeral, a total of $30,708. There is no reason why 100 percent of these losses and expenses should be charged against Brown’s share. We will deduct 25 percent of those amounts from the credit for Jimenez’s share of the trust, as follows: $86,250 – ($30,708 x 25%) = $78,573.

IV. Rents

Jimenez contends that the probate court erred when it awarded Brown $108,500 for the reasonable value of rents that should have, but did not, flow to the trust from the real property. She says “neither party was prepared to prove up the rents” at trial, and the court made an award based on figures proffered by Brown only because it erroneously allocated the burden of proof to Jimenez. Jimenez is mistaken. The court allocated the burden of proof correctly. Indeed, Jimenez admits this, rendering her argument fundamentally incoherent.

Jimenez’s argument about the burden of proof is based on the probate court’s order granting Brown’s motions in limine to strike Jimenez’s responsive pleadings. The court first struck Jimenez’s opposition to the petition to compel on the ground that it was untimely. Then the court struck her opposition to the surcharge petition on the same ground, noting that Jimenez first filed an opposition that was improper because it was unverified, and then filed a verified opposition that was untimely and also improper because she submitted it without first obtaining leave to amend. According to Jimenez, these rulings were the basis of the court’s subsequent remark that she had the burden “to prove up every item” and “[a]ll of the presumptions will be against her.”

Jimenez then goes on to present a lengthy argument about why the rulings on the motions in limine were erroneous. She suggests that without those rulings, the court would somehow have given more weight to “mitigating evidence” she presented, even though that evidence “[a]dmittedly … could have been clearer.” According to Jimenez, this evidence showed that the lost rental value was $32,000 less than the $108,500 the court found.

Overall, Jimenez’s argument here is rather obscure, but the point seems to be that the court applied an incorrect burden of proof and this caused it accept Brown’s figures over hers.

In claiming that the court placed the burden of proof on her because of its rulings on the motions in limine, Jimenez misrepresents the record. The court’s actual statement was: “I find that there are several bases—based on the surcharge petition, that there are five reasons why I find that there was a breach of duty as a trustee: First is the failure to provide [an] accounting, which shifts the burden now to the former trustee to prove up every item. All of the presumptions will be against her.” In other words, it was because of the breach of Jimenez’s duty to provide an accounting that the burden of proof shifted to her, not because of her failure to file proper responsive pleadings. (And Jimenez does not argue that if her pleadings had not been struck, the court would have found she did provide an accounting.) This ruling was correct, as it is settled law that if a trustee fails to account, each item of the account will be presumed against the trustee unless he or she makes proof to the contrary. (In Re McCabe’s Estate (1950) 98 Cal.App.2d 503, 505; Purdy v. Johnson (1917) 174 Cal. 521, 527.)

A few pages after making the incorrect assertion that the court placed the burden of proof on her because of the rulings on the motions in limine, leading to error on the issue of rents, Jimenez reverses course and says those rulings “did not make much difference when it came to the accounting issues, since the burden of proof falls on the fiduciary when he or she has no supporting records.” In other words, Jimenez admits the burden of proof was allocated correctly after all.

If the burden of proof was allocated correctly, however, Jimenez’s argument amounts to nothing more than a challenge to the sufficiency of the evidence supporting the court’s findings that Jimenez failed to disprove the correctness of Brown’s figures on the issue of rents. But Jimenez has not made a proper presentation on the issue of sufficiency of evidence, for the reasons we have already discussed in the context of other issues: She has not marshalled all the relevant record evidence and has not shown how it failed to be sufficient under the substantial evidence standard. To the contrary, she concedes both that the burden of proof was properly allocated to her and that she was not prepared to prove up her claims. She has, thus, not only failed to demonstrate error, but has effectively refuted her own contentions.

V. Interest

In her opening brief, Jimenez argues that the interest awarded as part of the judgment should have been seven percent, not 10 percent, and should not have included compounding. Brown, in her brief, says nothing about the rate, but correctly points out that compound interest can be awarded where a trustee is found to have acted wrongfully or fraudulently, an issue long settled. (In re Thompson (1894) 101 Cal. 349, 354-355; Falkner v. Hendy (1889) 80 Cal. 636, 645.) In her reply brief, Jimenez concedes that because contract principles apply to an action on a trust, 10 percent is the correct rate after all. For this reason, she withdraws her argument on that point. She adds a new argument, however, that the interest on the lost rents should be recalculated to accrue as the rents became due, rather than on the full amount from the outset.

Jimenez’s argument on compounding is wrong for the reason given by Brown. Her argument on the rate is withdrawn. We decline to consider her argument about accrual as rents became due because she has presented it for the first time in a reply brief. (People v. Tully (2012) 54 Cal.4th 952, 1075.)

VI. Proceeds of Sale of Real Property

As we have mentioned, in calculating the losses to the trust caused by Jimenez, the probate court used a stipulated starting value of $345,000, assumed all of this was lost, and then made adjustments. The adjustments included credits for amounts recovered through the sale of the real estate. As recited in the statement of decision, the trust recovered the following net amounts when the properties were liquidated:

Nothing was recovered on the Corner Street property. The court-appointed trustee declined to accept the property on behalf of the trust because it was in poor condition due to thefts and vandalism and because a foreclosure was pending.

Although the actual sum of the amounts recovered by the trust was $172,869, the statement of decision includes a credit of only $104,728 for the net return to the trust from the sale of the real property. No explanation for this discrepancy is given, but the difference—$68,141—is equal to the purchase price paid by Jimenez in 2009 for the Corner Street property.

Jimenez argues that the court must have erroneously deducted the price of the Corner Street property from the total of the credit for the money returned when the properties were sold. Brown agrees that a deduction for the price of that property is the explanation for the figure at which the court arrived, but contends that the court was right to deduct that amount as a measure of the value lost via the foreclosure.

Jimenez is correct. As noted, the court’s method of calculating the surcharge was to begin with the assumption that the entire value of the trust was lost, and then to make adjustments, including credits for money recovered when the real estate was sold. Deducting the value of the property for which nothing was recovered from the amounts that were recovered would be double-counting the loss attributable to Jimenez’s purchase of that property, since that loss was already included in the assumption that the entire $345,000 was lost. In other words, the correct adjustment for recovery of money upon sale of the Corner Street property was $0, since the court-appointed trustee did not accept or sell that property. The court, however, effectively made an adjustment of minus $68,141. We will order this corrected.

VII. Recalculation of the Judgment

In light of our conclusions in parts III and VI above, the surcharge must be recalculated as follows:

The remedy under section 859 must also be recalculated to reflect this change in the surcharge amount. The damages under section 859 are $171,350 x 2, for a total of $342,700. The total base judgment, excluding interest and attorneys’ fees and costs, thus is $514,050, not the $954,192 calculated by the probate court.

The attorneys’ fees award is not affected. On remand, it will be necessary to recalculate the interest.

DISPOSITION

The judgment is reversed with respect to the amounts awarded for the surcharge and the section 859 remedy as stated in part VII of the Discussion above. The attorney’s fees award is affirmed. The matter is remanded to the probate court with directions to enter a new judgment consistent with this opinion, including the figures shown in part VII of the Discussion and recalculation of interest in accordance with those figures. The parties are to bear their own costs on appeal.

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SMITH, J.

WE CONCUR:

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HILL, P.J.

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DETJEN, J.