Court Opinion

ID: 4015545
Source: CourtListenerOpinion
Date Created: 2016-07-13 23:02:23.771084+00
Date Added: 2024-06-11T14:30:59.785957
License: Public Domain

Filed 7/13/16 Shelton v. Larson CA4/3

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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

                                     FOURTH APPELLATE DISTRICT

                                                DIVISION THREE

DANA K. SHELTON,

     Plaintiff and Appellant,                                          G050935

         v.                                                            (Super. Ct. No. 30-2012-00539610)

DANIEL KEITH LARSON et al.,                                            OPINION

     Defendants and Respondents;

PETER KOTE, as Trustee etc.

     Movant and Respondent.

                   Appeal from an order of the Superior Court of Orange County, Kim R.
Hubbard, Judge. Reversed and remanded.
                   Law Offices of Evan L. Ginsburg and Evan L. Ginsburg for Plaintiff and
Appellant.
                   Daniel Keith Larson, in pro. per., for Defendant and Respondent.
                   Sharon Deon Sims, in pro. per. for Defendant and Respondent.
                Law Offices of Teresa Gorman and Teresa Gorman for Movant and
Respondent Peter Kote, as Trustee of the Gerald Raymond Larson and Barbara Anne
Larson Trust.
                                 *             *              *
                This appeal arises out of a dispute over attorney fees and trustee fees to be
paid to a trustee of the Gerald Raymond Larson and Barbara Anne Larson Revocable
Trust (Trust), both of whom are deceased.
                The primary beneficiaries of the Trust are the trustors’ children, plaintiff
and appellant Dana K. Shelton, who was named the successor trustee (Trustee), and
respondents Daniel Keith Larson (Larson) and Sharon Dion Sims (Sims; together with
Larson, Objectors), each receiving a 25 percent share. While Trustee was serving in that
capacity she and Objectors had many disagreements and disputes, resulting in, among
other things, the ultimate removal of Trustee based on a conflict of interest.
                After a trial on Objectors’ objections to two of Trustee’s accounts, the court
found certain acts by the Trustee, while neither inuring to her benefit nor gross
negligence or willful misconduct, were breaches of her fiduciary duties. The court
surcharged her for another transaction and further found as to an additional transaction
she had a conflict of interest. As a result, it found she should not benefit from those acts
and denied her request for trustee fees and costs and attorney fees and costs and also
required her to disgorge certain attorney fees, trustee fees, and costs already paid.
                Trustee argues these rulings were erroneous. She claims Objectors waived
their right to challenge attorney fees and cost already paid, and that the court abused its
discretion in denying her additional attorney fees and costs she sought to have approved.
She further contends she exercised her discretion as Trustee in good faith and that the
court abused its discretion by requiring her to disgorge trustee fees and costs already paid
and denying her trustee fees and costs to which she was entitled.

                                               2
               We agree the court erred in denying any trustee fees and costs or attorney
fees and costs based on Trustee’s breach of fiduciary duty and conflict of interest, or
ordering disgorgement of those fees and costs on that basis. Therefore, we reverse and
remand for the court to determine the reasonable amount of trustee fees and costs and
attorney fees and costs to be paid or approved.
               Respondent Peter Kote, who succeeded Trustee (Successor Trustee), asks
us to clarify the trial court’s ruling about the disgorgement of attorney fees. We deny that
request as outside the scope of the appeal.
                        FACTS AND PROCEDURAL HISTORY
                                                                                       1
               Upon the death of the second trustor, Barbara Anne Larson (Barbara), one
of the Trust’s assets was a piece of residential real property in Anaheim (Residence), in
which Barbara had been living. Barbara or the Trust (the record is unclear) had borrowed
$290,000 from Bank of America (BofA Loan), apparently to loan money to Trustee’s son
Christopher and his wife (Perezes). In 2010, the Perezes borrowed approximately
$330,000 from Barbara or from the Trust (again, the record is unclear) to purchase real
                                                          2
property. The loan was evidenced by a promissory note secured by a deed of trust on the
property purchased (Perez loan).
               In 1991, Trustee herself borrowed almost $120,000 from Barbara and
Larson (Trustee Loan). This was evidenced by a promissory note and secured by a trust
deed on Trustee’s residence. The Trustee Loan was an asset of the Trust upon Barbara’s
death. The Trust also owned a truck.

       1
           We use Barbara’s first name for clarity, not out of disrespect.
       2
          In her first account, Trustee stated that the deed of trust referred to a promissory
note but she could not find it.

                                              3
               Paragraph 7.10 of the Trust, entitled “Compensation of Individual
Trustees,” stated that “[e]ach individual who is a trustee under this instrument shall be
entitled to reasonable compensation for services rendered, payable without court order.”
               Paragraph 7.12 of the Trust, entitled “General Powers of Trustee,”
provided: “To carry out the purposes of the trusts created under this instrument, and
subject to any limitations stated elsewhere in this instrument, the trustee shall have all of
the following powers . . . . [¶] . . . [¶] (f) Employ and discharge agents and employees,
including but not limited to attorneys . . . to advise and assist the trustee in the
management of any trusts created under this trust instrument, and compensate them from
the trust property. . . . [¶] . . . [¶] (o) At trust expense, prosecute or defend actions,
claims, or proceedings of whatever kind for the protection of the trust property and of the
trustee in the performance of the trustee’s duties, and employ and compensate
attorneys . . . as the trustee deems advisable.”
               Paragraph 7.23 of the Trust, entitled “Trustee’s Liability,” stated a trustee
shall not be liable “to any interested party for acts or omissions of that trustee, except
those resulting from that trustee’s willful misconduct or gross negligence.”
               In the Second Account Current and Report of Administration and Petition
for its Settlement (Second Account), Trustee, among other things, asked the court to
approve the approximately $24,300 attorney fees she had paid.
               Objectors filed objections, including a claim Trustee was renting the
Residence to Trustee’s son Daniel and a roommate below market, with the rent being
insufficient to pay the mortgage, insurance, and taxes. They also maintained Trustee was
improperly accounting for payments on the BofA Loan and the Perez Loan, including,
among other things, misrepresenting the principal on the Perez loan had been reduced
when the payments were actually made to reduce principal on the BofA loan. Objectors
also asserted Trustee unreasonably delayed listing the Residence for sale for almost two
years. Objectors further asserted Trustee substantially misrepresented the balance owed

                                                4
to Barbara and Larson on the Trustee Loan. Objectors sought to have Trustee surcharged
for any losses the Trust incurred.
              Shortly thereafter Larson filed a petition to have Trustee removed as trustee
and to review the reasonableness of her compensation. The petition included numerous
claims of wrongdoing by Trustee. After a hearing, the court ordered Trustee removed
and appointed Successor Trustee. The basis for removal was an unspecified conflict of
interest.
              Prior to that order, Trustee filed a supplement to the Second Account and
Objectors filed supplemental objections. Just after she was removed, Trustee filed the
Third Account Current and Report of Administration and Petition for its Settlement
(Third Account) and an Amended Third and Final Account of Report of Administration,
Petition for its Settlement and for Allowance of Trustee’s Fees (Amended Third
Account). In the Third Account, Trustee asked the court to approve the just over $82,000
she had paid for attorney fees and costs. In the Amended Third Account she requested
the court approve her additional payment of more than $37,000 in attorney fees and costs.
She also sought approval of her trustee fees.
              Objectors filed objections to both the Third Account and Amended Third
Account. These generally paralleled the objections to the Second Account. In addition,
Objectors objected to attorney fees they claimed Trustee had paid for non-Trust related
matters. They also challenged the attorney fees of more than $163,000 paid for an estate
Trustee valued at $750,000, a good deal of the fees incurred for “answering for her
misconduct, avoiding her legitimate debt to the estate and minimizing her son’s debt to
the estate, which has resulted in a significant depletion of the trust estate.”
              Objectors also asserted many of the trustee fees, at $75 per hour, were for
unnecessary activities such as attending several trial setting conferences, and time spent
defending against the petition to have her removed as Trustee. They asked she not be
awarded any trustee fees or mileage.

                                                5
              After a trial on the objections, the court ruled as follows. Objectors had
alleged Trustee sold the Residence below market value and complained about Trustee’s
son’s removal of fixtures from it. The court found there was no gross negligence or
willful misconduct and Trustee had not benefitted. Thus it denied a surcharge.
              As to failure to charge fair market rent for the Residence, delay in listing it
for sale, and applying the Trust’s payments to reduce principal on the Perez Loan instead
of the BofA Loan, the court found Trustee breached her fiduciary duties, although the
acts were not gross negligence of willful misconduct. It denied Objectors’ request for a
surcharge.
              The court surcharged Trustee $2,500 for the truck sale to herself for $2,000
when the fair market value was $4,500. It also found Trustee had a direct conflict of
interest when she resisted foreclosure of her residence, which secured the Trustee Loan.
              The court concluded Trustee should not benefit from her breaches of
fiduciary duty and conflict of interest. As a result it denied her request for trustee fees
and costs and attorney fees and costs sought in her Second Account, Third Account, and
Third Amended Account. It also required her to disgorge all attorney fees and costs and
trustee fees and costs paid out during the period covered by those accounts. Finally, any
attorney fees and costs paid to defend against the foreclosure of her home that were
“mis[]billed” to the Trust had to be disgorged. The Second Account and Third Amended
Account were otherwise approved.
                                       DISCUSSION
1. Standard of Review
              As set out above, the Trust provided a trustee is entitled to “reasonable
compensation” that can be paid “without court order.” Trustee argues the language
means she was given “absolute discretion” to decide the amount of her compensation. As
a result, she maintains, we must interpret the meaning of “without court order” using a de
novo standard of review. Trustee is mistaken.

                                              6
              There is no need for us to interpret the Trust. The language is clear,
regardless of Trustee’s mistaken interpretation. Trustee fails to consider the Trust’s
requirement she may be paid only “reasonable compensation.” That is the issue here.
We review a determination of the reasonableness of trustee fees for an abuse of
discretion. (Finkbeiner v. Gavid (2006) 136 Cal. App. 4th 1417, 1422.)
              The standard of review of the court’s ruling on attorney fees is also abuse
of discretion. (Donahue v. Donahue (2010) 182 Cal. App. 4th 259, 267-268.)
2. Trustee and Attorney Compensation
              Probate Code section 16243 (all further statutory references are to this code
unless otherwise stated) provides a trustee may pay herself “reasonable compensation”
and may pay “employees and agents of the trust, and other expenses incurred in the
collection, care, administration, and protection of the trust.” Further, a trustee may pay
“properly incurred” administration expenses. (§ 15684, subd. (a).) “Attorneys hired by a
trustee to aid in administering the trust are entitled to reasonable fees paid from trust
assets.” (Kasperbauer v. Fairfield (2009) 171 Cal. App. 4th 229, 235.)
3. Denial and Disgorgement of Trustee Fees and Costs
              Trustee appeals from the denial of trustee’s fees and costs for the second
and third accounting periods and from the order requiring her to disgorge any trustee fees
and costs already paid to her for that period. In making this order, the court relied on its
findings Trustee had breached her fiduciary duties and had a conflict of interest, as
described above. The court did not believe plaintiff should benefit from those acts.
              Generally, a trustee must exercise “reasonable care, skill, and caution under
the circumstances then prevailing that a prudent person acting in a like capacity would
use.” (§ 16040, subd. (a).) However, a trust may vary this standard if it expressly states.
(Id., subd. (b).) “A trustee is not liable to a beneficiary for the trustee’s good faith
reliance on these express provisions.” (Ibid.) In fact, “the trustee has a duty to

                                               7
administer the trust according to the trust instrument and, except to the extent the trust
instrument provides otherwise, according to this division.” (§ 16000.)
              Here, the Trust provided Trustee would incur liability only for her “willful
misconduct or gross negligence.” This provision limited the court’s power to deny
trustee fees except for such misconduct. The court explicitly found Trustee did not
commit either willful misconduct or gross negligence.
              As a result, then, it was error for the court to deny Trustee her trustee fees
and costs or to require her to disgorge trustee fees and costs she had already been paid on
the basis of her breach of fiduciary duty or conflict of interest. This is true despite the
general rule a court has broad discretion to rule on trustee fees and costs and we do not
disturb its ruling absent an abuse of that discretion. (Estate of Gump (1991) 1
Cal. App. 4th 582, 597.)
              However, contrary to her argument, Trustee did not have absolute
discretion to determine the amount of those fees. In conformance with section 16243, the
Trust allowed Trustee to pay herself “reasonable compensation for services rendered.”
              Objectors contested the reasonableness of the fees Trustee had already paid
herself and the amount sought for the second and third accounting periods. In her brief,
Trustee sets out a summary of the actions for which she claims compensation. The
reasonableness of her fees is a decision for the trial court, not us, to make.
              Because the court denied all trustee fees and costs for the second and third
accounting periods and required Trustee to disgorge all fees and costs she had already
paid herself, it did not rule on the reasonableness of those fees. We reverse and remand
for the court to make that determination and award Trustee reasonable fees and costs.
4. Disgorgement and Denial of Attorney Fees
              Trustee also attacks the order requiring her to disgorge attorney fees. She
claims Objectors never objected to her requests for approval of fees she had already paid.

                                              8
Thus, she maintains, those fees were never put in issue and objections to those fees were
waived. We disagree.
                In the objections to the Amended Third Account, in addition to challenging
the Trust’s payment of attorney fees for services rendered to Trustee in her personal
capacity, Objectors complained Trustee had incurred attorney fees substantially
disproportionate to the Trust’s overall value. This was sufficient to put Trustee on notice
Objectors challenged any attorney fees she had already paid.
                The court denied all attorney fees for the period encompassed by the second
and third accounting periods and ordered any fees and costs paid for that period to be
disgorged. This was also based on the finding Trustee had breached her fiduciary duty
and her conflict of interest.
                Trustee contends this was error, arguing the Trust’s attorney was entitled to
be paid his reasonable fees for assistance in administering the Trust, including such
services as preparing the accounting and defending against Objectors’ objections. She
hired the Trust’s lawyer to do just that, she claims, and he helped her prepare the three
            3
accounts.
                We agree there was no reasonable basis for the court to deny attorney fees
entirely or to require fees and costs already paid to be disgorged based on Trustee’s
breach of fiduciary duty or conflict of interest.
                The Trust authorized Trustee to retain and compensate attorneys to assist in
the performance of her duties to prosecute or defend claims or actions or to take
necessary steps to preserve Trust property, and also to protect Trustee as she performed
her duties. Pursuant to the Trust and sections 16243 and 15684, subdivision (a), the
Trustee was authorized to pay reasonable attorney fees to a lawyer assisting in the

       3
         Larson also filed a $98,000 creditor’s claim against Trustee and the Trust for
repairs and improvements to the Residence and Trustee asserts the attorney defended
against that as well.

                                               9
administration of the Trust. Thus, the issue the trial court should have considered is
whether the attorney fees and costs requested and those already paid were for actions
taken to assist in management of the Trust or to protect the Trust property or the Trustee
in the performance of her duties.
               Reasonable attorney fees incurred or paid to lawyers to assist in trust
administration are proper. (Kasperbauer v. Fairfield, supra, 171 Cal.App.4th at p. 235.)
This includes preparation of accountings and dealing with objections of beneficiaries.
(Ibid.) Moreover, attorney fees and costs incurred by Trustee in a successful defense of
claims made against the estate are proper. (Estate of Cassity (1980) 106 Cal. App. 3d 569,
574.) Any fees incurred on behalf of claims made against the Trustee for
mismanagement of the Trust or for the Trustee’s own benefit, however, may not be paid
from the Trust. (Terry v. Conlan (2005) 131 Cal. App. 4th 1445, 1461; see Whittlesey v.
Aiello (2002) 104 Cal. App. 4th 1221, 1231 [no attorney fees allowed where trustee
represented his own interests in defending amendment rather than taking neutral
position].)
               Therefore, we reverse and remand the case for the court to determine the
reasonable amount of attorney fees and costs properly paid and to be paid for acts taken
on behalf of the Trust and to award such an amount.
5. Amount of Attorney Fees to Be Disgorged
               In his brief Successor Trustee raises the question as to the amount of
attorney fees the Trustee is to disgorge and whether the order requires just the Trustee or
both the Trustee and the Trust’s lawyer to disgorge them. Trustee did not raise these
issues on appeal. Successor Trustee did not appeal and has no standing to do so since the
Trust is not an aggrieved party. (Code Civ. Proc., § 902 [“Any party aggrieved may
appeal”].) An aggrieved party is one who has a legal interest “that is adversely affected
by the judgment.” (Serrano v. Stefan Merli Plastering Co., Inc. (2008) 162 Cal. App. 4th
1014, 1026.)

                                             10
              Our remand to the court to determine the reasonable amount of attorney
fees and costs paid and to be paid should cover this issue. To the extent it does not,
Successor Trustee may seek clarification from the Probate Court. (§ 17200, subd. (b)(6).)
                                     DISPOSITION
              The order is reversed and remanded for the court to determine the
reasonable amount of attorney fees and costs and trustee fees and costs already paid and
sought by Trustee and confirm or make awards of such amounts as applicable. If any
fees or costs already paid are to be disgorged, the court shall also specify such amounts in
the order. Trustee is awarded costs on appeal.

                                                  THOMPSON, J.

WE CONCUR:

O’LEARY, P. J.

ARONSON, J.

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