Opinion ID: 2609771
Heading Depth: 3
Heading Rank: 2

Heading: Strict Construction Applied

Text: As noted earlier, the no contest clause in the trust instrument in this case provided: In the event that any beneficiary under this Trust ... contests in any court the validity of this Trust or of Trustor's last will, or seeks to obtain in any proceeding in any court an adjudication that this Trust or any of its provisions or that such Will or any of its provisions is void, or seeks otherwise to void, nullify or set aside this Trust or any of its provisions, then the right of that person to take any interest given to him or her by this Trust shall be determined as it would have been determined had such person predeceased the execution of this trust instrument without issue. It is undisputed that Marlene's proposed federal and state court complaints do not seek to set aside the trust in its entirety. The question, therefore, is whether either proposed complaint seeks ... an adjudication that ... any ... provision [] [of the trust instrument] is void, or seeks otherwise to void, nullify or set aside any provision of the trust instrument. In accordance with Probate Code section 21304, this clause must be strictly construed. I turn first to the proposed state court complaint. It names as defendants the trust and the subsidiary trusts, and all of their beneficiaries and trustees. The proposed state court complaint sets forth causes of action for declaratory relief to construe the trust instrument, conversion, breach of fiduciary duty and partition, and seeks to impose a constructive trust and to set aside fraudulent conveyances. The proposed state court complaint does not seek an adjudication that any provision of the trust instrument is void or should be set aside. It is therefore not, on its face, an attack on a provision in the trust instrument, and accordingly it cannot be a contest. The proposed federal court complaint names only the pension plan trustees as defendants. It sets forth causes of action for breach of statutory obligations under ERISA, for conversion, for declaratory relief, and for breach of fiduciary duties. Like the proposed state court complaint, the proposed federal court complaint does not seek an adjudication that any provision of the trust instrument is void or should be set aside. It is also, on its face, not an attack on a provision in the trust instrument, and accordingly it cannot be a contest. Nevertheless, the trustees contend that the proposed state and federal court complaints necessarily and in substance seek an adjudication that a provision of the trust instrument is void and should be set aside. The trustees focus on this provision of the instrument: Trustor states that the property subject to this Trust is his separate property and that his interest therein, and in the proceeds and income therefrom, shall remain his separate property. The trustees contend that Marlene's proposed state court complaint challenges this clause because Marlene claims that the property subject to the trust is not Frank's separate property, but community property instead. Similarly, the trustees contend that the proposed federal court complaint challenges this clause because Marlene claims that the ERISA death benefits that were made subject to the trust are under federal law payable to Marlene only. The difficulty with the trustees' argument is that Frank did not expressly identify in the trust instrument what property he considered to be his separate property. In this case, the trust instrument does not even purport to dispose of any interest in the property that Marlene claims is community property, or of any interest in property that Marlene claims is her separate property. Thus, Marlene does not seek to set aside the provision in the trust instrument quoted above, but merely to have a court construe that provision so as not to include property that is rightfully hers. As the proposed state court complaint confirms, Marlene has strong claims that the Pacific Coast Ford stock and the life insurance proceeds were community property and not Frank's separate property. Under Family Code section 760, all property acquired by a married person during the marriage is presumed to be community property. The record in this case shows that Frank and Marlene were married in December 1985; although Frank's initial ownership interest in the dealership preceded the marriage, Frank became president and sole shareholder of Pacific Coast Ford in June 1986. Similarly, the record confirms that the life insurance policies at issue were purchased during the marriage. Moreover, Marlene also has a strong claim that the ERISA death benefits were also not Frank's separate property that he was entitled to dispose of as he wished. ERISA generally mandates that each pension plan must provide a qualified preretirement survivor annuity to the surviving spouses of plan participants. (29 U.S.C. § 1055(a)(2).) The plan, a copy of which is attached to Marlene's proposed federal court complaint, appears to comply with the requirement for qualified preretirement survivor annuities. No party other than the surviving spouse has any claim under federal law to this death benefit. The majority places great reliance on the language in the trust instrument that the trustee is to hold the property listed on the attached `Schedule A' and any other property added to the Trust Estate according to the terms of the Trust. The majority seems to conclude that this language shows that Frank expressly intended the Pacific Coast Ford stock, the life insurance proceeds, and the pension plan assets to be added to the trust corpus. No schedule A was ever prepared, however. And the majority ignores the instrument's requirement that property added to the trust estate must be added according to the terms of the Trust. But the terms of the trust specify that only Frank's separate property is subject to disposition. There is nothing in the terms of the trust that indicates that Frank sought to dispose of Marlene's property. Thus, reading the language of the trust strictly, community property and Marlene's separate property could not have been added to the trust estate according to the terms of the Trust. Because Frank did not expressly identify in the trust instrument what property he considered to be his separate property, we must give the phrase separate property its usual legal meaning. (See Estate of Carter (1956) 47 Cal.2d 200, 205 [302 P.2d 301].) Whatever ambiguity may be said to inhere in the phrase separate property, it plainly cannot be construed to mean community property or separate property of another. Nevertheless, that is exactly what the majority does in this case. The majority first purports to find ambiguity in this unambiguous phrase, and then turns to evidence extrinsic to the trust instrument itself  specifically, the declarations of two lawyers. One of the lawyers is also a trustee of the trust and is named as a defendant in Marlene's proposed state court complaint, and the other is the attorney who drafted the trust instrument and could face potential liability in this matter. As I shall discuss, however, the majority's approach to construction of no contest clauses is contrary to the statutory mandate. Probate Code section 21304, as noted above, requires that no contest clauses be strictly construed. In determining the legislative intent of a statute, it is proper to look to comments by a law revision commission, which are persuasive evidence of the intent of the Legislature in enacting commission recommendations. (E.g., People v. Garfield (1985) 40 Cal.3d 192, 199 [219 Cal. Rptr. 196, 707 P.2d 258].) This is particularly true when, as happened with section 21304, the Legislature adopts without any change the statute proposed by a commission. (40 Cal.3d at p. 199; accord, Van Arsdale v. Hollinger (1968) 68 Cal.2d 245, 250 [66 Cal. Rptr. 20, 437 P.2d 508].) The Law Revision Commission comment on Probate Code section 21304 states: In the interest of predictability, it resolved a conflict in the case law in favor of strict construction. Cf. Garb, The In Terrorem Clause: Challenging California Wills, 6 Orange County [Bar] J. 259 (1979). Strict construction is consistent with the public policy to avoid a forfeiture. Cf. Selvin, Comment: Terror in Probate, 16 Stan. L. Rev. 355 (1964).... (20 Cal. Law Revision Com. com., Deering's Ann. Prob. Code, § 21304 (1991 ed.) p. 578.) The report of the Law Revision Commission relies on the same sources and is to the same effect. (Recommendation Relating to No Contest Clauses (Jan. 1989) 20 Cal. Law Revision Com. Rep. (1990) p. 12.) As the preceding comment indicates, the conflict in the case law perceived by the drafters of Probate Code section 21304 was based on the analysis of a bar journal article, Garb, The In Terrorem Clause: Challenging California Wills (1979) 6 Orange County Bar J. 259 (Garb). This article observed that [a]lthough numerous cases state that a no-contest clause should be strictly construed and should be limited in scope so as to include no conduct other than that which the language plainly requires, some recent cases have construed such clauses so broadly as to bring into question the validity of the rule of strict construction. ( Id. at p. 262.) The author distinguished those cases in which the concept of a contest was given its definitive legal meaning or limited to technical attack[s] on the competency of the testator, fraud or undue influence, from those cases in which the court considered whether or not the action thwarted the decedent's intent or whether there was a purpose to defeat the provisions of the will on the part of a beneficiary. ( Id. at pp. 263-264.) As an example of a case that signal[ed] a departure from the earlier cases requiring a strict interpretation of the clause, (Garb, supra, at p. 263) the author cited Estate of Kazian (1976) 59 Cal. App.3d 797 [130 Cal. Rptr. 908]. In Estate of Kazian, the court recited the rule of strict construction, but then proceeded to state that whether there was a contest must be gleaned from a consideration of the purpose[s] that the [testator] sought to attain by the provisions of [his or her] will. (59 Cal. App.3d at p. 802.) The purposes approach of the Kazian court is virtually identical to the analytic approach used by the majority in this case. (See maj. opn., ante, at p. 255.) It is, however, an approach that was flatly rejected by the Legislature when it adopted Probate Code section 21304. By enacting this statute, the Legislature resolved the conflict in the case law by rejecting the Kazian purposes approach and by embracing the rule of strict construction. Here, the majority, following the approach of cases rejected by the Legislature when it endorsed the rule of strict construction by adopting Probate Code section 21304, determines that the purposes of the testator would be best served by a construction of the language of the trust instrument that is dependent upon references to extrinsic indicia of the testator's intent. This construction flies in the face of the rule that [a]n intention on the part of the testator to dispose of his wife's interest in the community property will not be implied where another construction is permissible. ( Estate of Wolfe (1957) 48 Cal.2d 570, 576 [311 P.2d 476].) The majority recognizes that it must identify a provision of the trust instrument that, in its view, Marlene seeks to void, nullify, or set aside. Thus, the majority asserts that Marlene seeks to void, nullify or set aside the provision of the trust instrument that provides for the allocation of trust assets to the subsidiary trusts. (Maj. opn., ante, at p. 261.) The problem with this assertion is obvious. As noted earlier, the instrument requires that the property added to the trust estate must be added according to the terms of the Trust, and the terms of the trust specify only that Frank's separate property, not Marlene's property, is subject to disposition. Therefore, Marlene's claim that her property was improperly added to the trust corpus cannot rationally be considered an attempt to void any provision of the trust instrument relating to the subsidiary trusts; instead, it is an attempt to enforce the provision that specifies that property added to the trust estate must be added according to the terms of the Trust. The majority's approach is not strict construction; it is arbitrary and expansive construction. It is at odds with the Legislature's plainly expressed intent that no contest clauses be strictly construed. Under a strict and narrow construction of the no contest clause in this case, the clause would be triggered only if a beneficiary sought to have the trust or some particular provision of the trust declared void, or otherwise nullified or set aside. Because the proposed state and federal court complaints in this case seek neither to have the trust instrument nor any of its provisions declared void, or otherwise nullified or set aside, the filing of either complaint would not trigger the no contest clause. This is the only interpretation that is consistent with the Legislature's express command that no contest clauses be strictly construed. To do otherwise, as the majority in this case has done by disregarding the literal meaning of the words in the trust instrument in favor of attempting to divine the testator's intent through declarations of his lawyers, is to abandon the rule of strict construction and to resurrect the very conflict in the case law that the Law Revision Commission and the Legislature sought to put to rest with Probate Code section 21304.