Court Opinion

ID: 3156941
Source: CourtListenerOpinion
Date Created: 2015-11-23 20:03:01.865159+00
Date Added: 2024-06-11T12:01:15.888381
License: Public Domain

Filed 11/23/15 Yianilos v. Hunter CA4/1
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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                    COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                  DIVISION ONE

                                           STATE OF CALIFORNIA

KAREN KERRY YIANILOS, as Cotrustee                                  D066333
etc.,

         Plaintiff and Appellant,
                                                                    (Super. Ct. No. P174593)
         v.

CHRISTINE HUNTER et al.,

         Defendants and Respondents.

         APPEAL from orders of the Superior Court of San Diego County, Julia Craig

Kelety, Judge. Affirmed.

         Goodwin, Brown, Gross & Lovelace and Craig Gross for Plaintiff and Appellant.

         Law Office of Herb Fox, Herb Fox; Hughes & Pizzuto and Laurie E. Barber for

Defendants and Respondents Christine Hunter, Nicholas Hunter and Alexandra Moran.

         Richard E. Showen for Defendant and Respondent Becky Yianilos.
       Karen Kerry Yianilos (Kerry),1 a former cotrustee and a beneficiary of her late

parents' trust, appeals from orders of the probate court surcharging her for certain costs

unnecessarily incurred by the trust due to Kerry's breach of fiduciary duty as cotrustee.

The surcharges were ordered following a trial on objections filed by trust beneficiaries

(Objectors) to accountings filed by Kerry. Specifically, Kerry contends the probate court

erred in imposing the following surcharges against her: (1) approximately $200,000

resulting from the cotrustees' delay in selling the trust's main asset, residential real

property; (2) $97,214.30 for attorney fees incurred by Objectors; and (3) $20,000 for

attorney fees paid from the trust to one of Kerry's attorneys.

       We conclude that Kerry's arguments are without merit, and we accordingly affirm

the probate court's orders.

                                               I

                   FACTUAL AND PROCEDURAL BACKGROUND

       Spero and Theresa Yianilos were trustors of the Spero and Theresa Yianilos

Family Trust (the Trust). After Spero died, the Trust, by its terms, split into three

separate subtrusts (A, B and C) and Theresa became the surviving trustor. A third

amendment to the Trust, made in 2007, appointed Theresa's two daughters, Becky

Yianilos (Becky) and Kerry, as successor cotrustees upon Theresa's death. The Trust

identifies as beneficiaries Kerry, Becky, Kerry's daughter Laurel, and Becky's children

1      The evidence at trial was that appellant is known by the name "Kerry," and we
will accordingly refer to her as such. Further, to avoid confusion when referring to
family members, we will use first names, and intend no disrespect by doing so.

                                               2
Christine Hunter, Alexandra Moran,2 and Nicholas Hunter.3 As a terminating trust, the

Trust provides that upon the death of the surviving trustor, the Trust's assets are to be

distributed "[a]s soon as practical," and the trustee is instructed "to obtain the fair market

value of the assets."

       Theresa died on March 24, 2008, and Becky and Kerry accepted their appointment

as successor cotrustees. At Theresa's death, the Trust had approximately $90,000 in cash

and owned real property in La Jolla (the Property), which had been Theresa and Spero's

home for many years. The home on the Property had been built by noted architect Cliff

May, and sat on a large parcel of land, comprised of several different legal lots.

However, due to several years of deferred maintenance, the house was in disrepair and

was also cluttered with an accumulation of personal property, which was to pass to

family members under the terms of Theresa's will.

       Becky and Kerry started the process of cleaning out the house, and Kerry

consulted with a real estate broker in October 2008, about possibly listing the Property

for sale. However, Becky and Kerry were not able to cooperate as cotrustees, and the

process of cleaning out the house and listing the Property for sale did not significantly

progress after the initial effort.

2       The Trust documents refer to Alexandra by the surname Hunter, but the record
reflects that Alexandra's current surname is Moran.

3     In respects not relevant here, the percentage interests of the beneficiaries varied
between the three different subtrusts.

                                              3
         Although Kerry received estimates from cleaning services in early 2009 indicating

that it would cost approximately $3,500 to clear out the house, she elected not to spend

the Trust's money on hiring such a service. Instead, Kerry took control of the Trust's

finances, depleting all of the Trust's cash on various expenditures that she failed to

adequately document, including paying her housekeeper, her daughter and others for

cleaning work at the Property. According to Kerry, the Trust's cash was depleted by the

fall of 2009. Despite these expenditures, the house was not completely cleared of

personal property until 2013 and was still in disarray at least two years after Theresa's

death.

         The initial attorney representing the cotrustees filed an estate tax return with the

Internal Revenue Service (IRS) in June 2009, which indicated that the estate owed

$138,962.99 in estate taxes. Given the Trust's limited cash, the Trust paid only

$38,962.99 of the estate taxes and began to accrue penalties on the unpaid balance.

Property taxes also came due, but were not paid, giving rise to the accrual of penalties.

As early as 2008, the cotrustees were advised by their attorney that they should obtain a

loan for the Trust so that taxes could be paid, but they did not do so until 2011.

         Kerry purported to use some of her own money for the Trust's expenses after the

Trust's cash was depleted. She also conducted numerous undocumented transactions for

the Trust in cash, without adequate receipts, totaling as much as $50,000. Instead of

properly utilizing the Trust's bank accounts, Kerry often ran transactions through her own

bank accounts or through the client trust fund account that she maintained as a practicing

                                                4
attorney, or deposited her clients' payments into the Trust's bank accounts to fund Trust

expenditures.

       One of the Trust's beneficiaries, Christine, spoke with Kerry in July 2009 to

request an accounting and to inquire about when the Property was going to be sold. As

Christine described the encounter, Kerry was verbally and physically aggressive, refused

to provide an accounting, and stated that the Property would not be listed for sale.

       Instead of promptly preparing to list the Property for sale, Kerry allowed her

daughter, Laurel, to live on the Property without paying rent from October 2009 to

September 2011, over the objection of Becky. In addition to providing free housing to

Laurel, Kerry made payments from the Trust to Laurel of at least $5,000 for Laurel's

work at the Property to clean it up.

       Faced with actions by Kerry that she did not agree with, Becky hired her own

attorney in the summer of 2009 and started threatening to seek relief in court. Within

days of being retained, Becky's attorney determined that the cotrustees should have taken

advantage of a fractional interest discount that would have resulted in no estate taxes

being owed, instead of $138,962.99, and advised that an amended estate tax return be

filed to seek a refund from the IRS. Becky was in favor of filing an amended return, but

Kerry opposed the idea, and the cotrustees accordingly did not end up filing an amended

                                             5
return.4 Further, according to Becky and her attorney, although they believed that the

Property should be sold, Kerry was not willing to list the Property.

       In approximately March 2011, the IRS began to take steps to collect the unpaid

estate tax liability and indicated that it intended to levy upon the Property. For several

months, Becky and her attorney were not informed by Kerry about the IRS activity.

Eventually, when it became clear to everyone that something had to be done regarding

the IRS, Becky's attorney negotiated a reprieve from the IRS, and Kerry and Becky began

looking for a loan to pay the delinquent estate taxes. Kerry then unilaterally obtained a

$395,000 loan from a private lender on behalf of the Trust in May 2011, not informing

Becky until after the fact, and then hiding the location of the funds from Becky by

placing them in her client trust fund account. Of the loan proceeds, $100,000 was held

back by the title company to be applied toward the payment of the delinquent property

taxes. However, for reasons that were not fully explained at trial, Kerry did not obtain

release of the $100,000 from the title company to pay the property taxes during her tenure

as cotrustee.5

4       Eventually, when a successor trustee took over, an amended estate tax return was
filed taking advantage of the fractional interest discount, and the IRS refunded the estate
taxes and penalties that had been paid by the Trust.

5      The successor trustee appointed by the probate court eventually obtained release
of the $100,000 to pay some of the property taxes. In addition, by the time the successor
trustee took over the administration of the Trust, the $395,000 loan was in default
because Kerry had once again depleted the Trust's cash and could not make the loan
payments.

                                              6
       In June 2011, the cotrustees finally listed the Property for sale. The Property had

been appraised at a value of $3.6 million in 2008, but the 2011 listing was set at a price

range of $6.2 to $6.7 million. The real estate brokers handling the listing testified that

they thought the price was too high, but Kerry wanted the Property listed at that price.

When no offers were received after a few months, the realtors recommended dropping the

price and Becky concurred, but Kerry was opposed. The listing price stayed as originally

set. No offers were made for purchase of the Property while Becky and Kerry were

cotrustees.

       In August 2011, Christine filed a petition to remove or suspend the cotrustees,

appoint a temporary trustee, order an accounting and award attorney fees. Nicholas and

Alexandra filed supporting declarations. The petition alleged, among other things, that

because of "ongoing bickering, fighting and disagreement among the Co-trustees no

meaningful administration leading to the distribution of this Estate has occurred for over

3 years." At a January 23, 2012 hearing on the petition for removal, the probate court

suspended the cotrustees, and on February 6, 2012, it appointed a private fiduciary, Diane

Peters, as successor trustee.6 A written order that formally suspended the cotrustees'

powers was entered on March 27, 2012.

6      As there was still personal property devised to Becky and Kerry that had not been
cleared out of the Property several months after the successor trustee took over, the
probate court ordered on October 15, 2012, that Becky and Kerry remove all the personal
property by November 19, 2012, and that they coordinate access to the Property with the
successor trustee.

                                              7
       When the successor trustee took over administration of the Trust in March 2012,

she lowered the listing price of the Property to $4.4 million and received an offer within

30 days. Although that buyer did not end up closing the sale, the successor trustee

received two more offers, and the Property was eventually sold in May 2013 for $3.5

million.

       After an order from the probate court on September 27, 2011, requiring Kerry to

file an accounting covering the period of Theresa's death through the end of 2010, Kerry

filed an accounting on January 23, 2012, and a petition for an order settling and

approving the account (the First Account) (Prob. Code, §§ 1060-1064, 16063, 17200,

subd. (b)(5)).7 In February 2012, Kerry filed an accounting for 2011 (the Second

Account), and in May 2012 filed an accounting for the period January 1, 2012, to

March 29, 2012 (the Third Account), along with petitions for orders approving them.

       On July 26, 2012, the Objectors (i.e., Christine, Nicholas and Alexandra) filed

objections to the First Account, Second Account and Third Account (the Objections).

Among the many issues raised, the Objectors alleged that Kerry had comingled Trust

assets with her personal or client funds and paid out Trust funds in cash without proper

documentation, that property taxes had not been paid, even after Kerry obtained a loan to

pay them, and that Kerry failed to file an amended estate tax return to receive a refund

from the IRS and instead paid estate taxes that were not owed. The Objectors sought an

7     Unless otherwise indicated, all further statutory references are to the Probate
Code.

                                             8
order (1) denying approval of the petitions to approve the accounts; (2) denying or

reducing any trustee fees claimed by the cotrustees; (3) surcharging the cotrustees for

various "unnecessary costs" incurred by the Trust; and (4) awarding attorney fees that

Objectors incurred in connection with the Objections.

       The probate court held a nine-day trial on the Objections over a 10-month period

between May 2013 and March 2014. After orally issuing its ruling on the last day of trial

and considering a subsequent ex parte application by Kerry to "clarify and/or modify" the

ruling, the probate court issued three written orders on May 9, 2014, as to each of the

three accounts.

       Among other things, the probate court denied approval of the accounts, ordered

the cotrustees surcharged for certain costs incurred by the Trust, and ordered the

cotrustees surcharged for the attorney fees and expert fees incurred by the Objectors.8

       Each of the three orders contained the same prefatory finding that the cotrustees

breached their fiduciary duties to the Trust's beneficiaries. 9

       As relevant here, the probate court found:

       "1.    Co-trustees [Becky] and [Kerry] breached their fiduciary duties
       owned to the Trust beneficiaries because they failed to properly administer
       the Trust to the serious detriment of all the beneficiaries. They failed to act

8      Ruling on a petition filed by Becky, the probate court also issued an order
authorizing a payment of trustee fees of $5,000 to Becky and $25,000 to her attorney for
fees incurred. Kerry was awarded trustee fees of $15,000.

9       A slight and immaterial difference in wording appears in the order ruling on the
First Account, which we do not reflect here. The quoted language appears exactly as
stated in the order on the Second Account and Third Account.

                                              9
       in a reasonably prompt fashion to liquidate the real property and distribute
       the Trust assets. They failed to work together . . . . Both Trustees failed to
       avoid conflicts of interest and self-dealing; and failed to allocate between
       the sub-trusts.

       "2.    [Kerry] breached her fiduciary duty by co-mingling her personal
       accounts with trust accounts and her attorney-client trust account; failed to
       properly manage the Trust's liquidity; and improperly accounted for
       transfers between her personal and Trust accounts.

       "3.    [Kerry] failed to maintain appropriate and complete Trust records.

       "4.    The Co-trustees' breaches of fiduciary duty caused damages to the
       Trust beneficiaries."

       In the three orders, Kerry was surcharged a total of $388,177.11. Becky was

surcharged a total of $242,423.02.

       No party requested a statement of decision (Code Civ. Proc., §§ 632, 634), and the

probate court did not issue one.

                                             II

                                      DISCUSSION

A.     Kerry's Challenges to the Surcharges for Unnecessary Costs Incurred by the Trust
       Because of the Delay in the Sale of the Property

       Kerry's first series of arguments pertain to the probate court's orders surcharging

her for certain costs that the Trust incurred because the cotrustees unreasonably delayed

the sale of the Property. Specifically, the probate court found that the Property should

have been sold by July 2009, and based on that finding determined that Kerry was

responsible for unnecessary costs incurred by the Trust in a total amount of $193,151.84

after that date. The main components of the unnecessary costs consisted of (1) property

taxes incurred after July 2009, including penalties incurred for nonpayment of those

                                             10
property taxes; (2) the expenses associated with obtaining the $395,000 loan in May

2011; and (3) miscellaneous expenses related to maintaining the Property after July 2009,

such as gardeners and utilities.

       1.     The Objections Sufficiently Set Forth a Claim for Surcharges Based on the
              Delay in Selling the Property

       Kerry first argues that the probate court improperly ordered that she be surcharged

for costs incurred by the Trust due to the delay in selling the Property because Objectors

purportedly did not raise that issue in the Objections. As a legal basis for this argument,

Kerry relies on the general principle that " '[t]he complaint in a civil action serves . . . to

frame and limit the issues . . . and to apprise the defendant of the basis upon which the

plaintiff is seeking recovery' " (Centex Homes v. Superior Court (2013) 214 Cal.App.4th

1090, 1102), and cites case law stating that evidence is properly excluded when it pertains

to issues not raised by the pleadings. (Willis v. Bank of America (1973) 33 Cal.App.3d

745, 751; Schweitzer v. Westminster Investments, Inc. (2007) 157 Cal.App.4th 1195,

1214.)10 As we will explain, we conclude that Kerry's argument is without merit.

       As an initial matter, we reject the basic premise of Kerry's argument, namely that

the Objections failed to allege that the Trust unnecessarily incurred costs due to the

cotrustees' delay in selling the Property. Indeed, the Objections allege, "the Trust has

been stymied for over four years without any forward progress. Ms. Yianilos has cost the

10     Significantly, although Kerry primarily cites case law concerning the exclusion of
evidence that pertains to issues outside the scope of the pleadings, Kerry does not argue
on appeal that any evidence should have been excluded as being outside the scope of the
pleadings.

                                               11
Trust estate substantial losses due to her failure to properly administer the Trust.

Specifically, the Trust has . . . lost revenue because the Co-trustees failed to list the

properties for sale in a reasonable amount of time. Objectors are aware of several

reasonable offers to purchase the Trust properties that were not considered by

Ms. Yianilos despite the beneficiaries' request to sell immediately, despite the need to sell

immediately because of the looming tax liabilities, and despite the lack of funds to hold

on to the property without any rental income. . . . Ms. Yianilos'[s] actions have caused

unnecessary costs to be incurred by the Trust . . . ." (Capitalization omitted.) Although

the prayer for relief in the Objections lists requested surcharges against Kerry for several

specific items and does not specifically identify the costs incurred as a result of the delay

in selling the Property, the prayer for relief also requests "such further orders or relief the

Court deems appropriate."

       "In the construction of a pleading, for the purpose of determining its effect, its

allegations must be liberally construed, with a view to substantial justice between the

parties." (Code Civ. Proc., § 452.) Further, the Probate Code gives the court broad

authority to "make any orders and take any other actions necessary or proper to dispose

of the matters presented." (§ 17206.) Applying these general principles, we conclude

that the allegations in the Objections that the Trust unnecessarily incurred costs based on

the cotrustees' delay in selling the Property, along with the broadly stated prayer for

relief, adequately pleads a claim for a surcharge against Kerry for the costs incurred by

the Trust because of the delay in selling the Property.

                                              12
       Moreover, even had the Objections lacked a specific allegation seeking a

surcharge against Kerry for the unnecessary costs incurred by the Trust due to the

cotrustees' delay in selling the Property, a surcharge would still be proper because the

issue was fully and fairly litigated during trial. " 'It has long been settled law that where

(1) a case is tried on the merits, (2) the issues are thoroughly explored during the course

of the trial and (3) the theory of the trial is well known to court and counsel, the fact that

the issues were not pleaded does not preclude an adjudication of such litigated issues and

a review thereof on appeal.' " (Frank Pisano & Associates v. Taggart (1972) 29

Cal.App.3d 1, 16.) "[V]ariance between pleadings and proof is not a basis for reversal

unless it prejudicially misleads a party. A variance must be disregarded if the issues on

which the decision is actually based were fully and fairly tried." (Franz v. Board of

Medical Quality Assurance (1982) 31 Cal.3d 124, 143-144.)

       Here, the evidence and argument during trial covered, at length, the costs to the

Trust caused by the cotrustees' delay in selling the Property. Among other things, after

numerous percipient witnesses testified about the delays in listing the Property for sale

and the costs to the Trust associated with the delay, Objectors' expert witness, Vickie

Wolf, presented a comprehensive analysis of the monetary damage to the Trust due to the

delay in selling the Property. Counsel for Kerry made no objection to any of that

testimony on the basis that it related to issues outside the scope of the pleadings. Further,

the parties' closing arguments discussed at length whether the cotrustees should be

surcharged for the various costs that were associated with the delay in selling the

Property. Counsel for Kerry argued in closing that the surcharges should not be imposed

                                              13
because they were speculative and because the Objectors had not established causation,

but he did not argue that the issue was not raised in the Objections.11 " 'A party cannot

permit an issue to be litigated and on appeal escape the consequences by claiming that

such issue was not pleaded.' " (Collison v. Thomas (1961) 55 Cal.2d 490, 498.)

       We accordingly conclude that there was no error in assessing surcharge damages

against Kerry for the delay in selling the Property as that issue was presented in the

Objections and was also fully and fairly litigated at trial without any meaningful

objection by Kerry.

       2.     Substantial Evidence Supports a Finding That the Property Should Have
              Been Sold by July 2009

       As we have explained, the probate court based the surcharges against Kerry on its

finding, made orally at the end of the trial, that the Property should have been sold by

July 2009. Kerry challenges this finding, arguing that the evidence does not establish that

the Property could have been sold by July 2009, so that the surcharge based on that

finding was impermissibly speculative. As we will explain, we disagree.

11      We note that in November 2013, after three days of trial had taken place, Kerry
filed a supplemental trial brief with a topic heading stating, "Objectors' efforts at trial to
claim additional surcharge damages from a delay in listing should fail as it was never
claimed, lacks requisite causation, and is speculative." (Capitalization omitted.)
Although Kerry argues that this constitutes a substantive objection to the imposition of a
surcharge for delay in selling the Property on the ground that the issue was not presented
in the Objections, we do not view this topic heading as raising a substantive argument.
Specifically, although the topic heading states the surcharge associated with a delay in
listing the Property "was never claimed," that statement is not explained or substantiated
in any following discussion after the topic heading and was never mentioned at trial.

                                              14
       As relevant here, "case law establishes that a court may not surcharge a fiduciary

without substantial evidence that the particular loss was caused by the fiduciary's fault."

(Borissoff v. Taylor & Faust (2004) 33 Cal.4th 523, 531.) Further, " '[i]t is fundamental

that "damages which are speculative, remote, imaginary, contingent, or merely possible

cannot serve as a legal basis for recovery." ' " (In re Estate of Kampen (2011) 201

Cal.App.4th 971, 991.) We apply a substantial evidence standard of review in

determining whether the findings underlying an award of damages is supported by the

record. (Id. at p. 992.) We accordingly turn to the evidence in the record that supported a

finding the Property could have been sold by July 2009.

       Theresa died on March 24, 2008, and there was evidence at trial that days later, on

April 3, 2008, Kerry was sent a letter from William Warren, a wealthy individual who

was interested in possibly buying the Property. Kerry ignored Warren's letter, and

Warren followed up by trying to make contact through a third party, but Kerry rudely

rejected the inquiries. Other witnesses testified that Kerry was aware of Warren's interest

but did not want to consider him as a buyer. Warren testified at trial that he would have

been very interested to engage in a negotiation for the Property if the sale price was

between $3.6 and $3.8 million, and he would have paid cash for any eventual purchase.

Although, as the probate court recognized, Warren may not have ended up being the

ultimate buyer, the record supports a reasonable inference that willing buyers existed in

the 2008 and 2009 timeframe had the Property been listed for sale.

       Further, the evidence supports a reasonable inference that the cluttered and

neglected state of the Property would not have been an impediment to promptly listing it

                                             15
for sale had the cotrustees sought to do so. According to Kerry's own testimony, she

received offers from cleaning services to prepare the Property for sale for approximately

$3,500. Further, according to the real estate broker that Kerry initially consulted in 2008,

only a few cosmetic repairs were recommended to prepare the Property for sale (repairs

to the floors and walls, and repainting), which he estimated would have cost

approximately $50,000, as any potential buyer would likely be planning to undertake a

complete remodel of the house.

       Kerry argues that the Property was difficult to sell, pointing to evidence that

(1) there were no offers on the Property while the cotrustees had it listed between June

2011 and March 27, 2012, when the successor trustee took over; (2) the Property was

unique in that the house was potentially entitled to a historical designation, which would

have made the Property more difficult to develop; and (3) 2008 to 2012 was a slow

period in the local real estate market. However, as a real estate broker testified at trial,

the lack of offers during the cotrustees' administration of the Trust was attributable to the

unreasonably high price at which Kerry insisted the Property be listed, not the slow real

estate market. After the successor trustee lowered the listing price for the Property, an

offer was received in less than 30 days. This evidence supports a reasonable inference

that the cotrustees could have sold the Property much earlier had they listed it at a

reasonable and realistic price, despite any slowdown in the real estate market during the

relevant time period or any unique features of the Property that may have discouraged

certain buyers.

                                              16
       In addition, the evidence shows that it took the successor trustee a total of 14

months to close the sale on the Property. Applying that same 14-month timeframe in

deciding whether the cotrustees could have reasonably sold the Property by July 2009, we

note that Theresa died 16 months prior to July 2009, which would have given the

cotrustees two months to prepare the Property for sale and 14 months to find a buyer.

Based on that evidence, the probate court could reasonably find that the Property should

have been sold by July 2009.

       In sum, we conclude that substantial evidence in the record supports the probate

court's finding that the Property should have been sold by July 2009, and the probate

court therefore properly calculated the surcharge against Kerry based on costs incurred by

the Trust after July 2009.12

12      Kerry also argues that substantial evidence does not support a finding that she
caused the Trust to incur any costs after she was removed as cotrustee, and accordingly
we should reduce the surcharge against her to include only those costs incurred by the
Trust until the time that the successor trustee took over in March 2012. Specifically,
Kerry was surcharged for certain property tax liability and loan interest charges incurred
after the successor trustee took over. Kerry's argument lacks merit. As a matter of logic,
if — as the probate court found — the cotrustees' breach of duty caused the Property to
remain unsold at the time the successor trustee took over, the ramifications of that breach
would not have immediately ceased when the cotrustees were removed. Instead, the
negative impacts caused by the cotrustees' failure to sell the Property continued until the
Property was sold because the Property would continue to incur property taxes and loan
interest liability. All of the evidence shows that the successor trustee took prompt and
reasonable steps to sell the Property as soon as possible to mitigate the costs that
continued to accrue due to the cotrustees' failure to sell the Property. Accordingly,
substantial evidence supports a finding that all of the expenses attributable to the delay in
selling the Property, even after the successor trustee took over, were proximately caused
by the cotrustees' breach of their fiduciary duty to the Trust's beneficiaries, not by the
successor trustee.

                                             17
       3.     The Trust Provisions Conferring Discretion to Hold Property and Delay
               Distributions Do Not Bar the Surcharges Against Kerry for Unnecessary
               Expenses Caused by the Delay in Selling the Property

       Kerry contends that the probate court erred in finding that she breached her

fiduciary duty by failing to sell the Property by July 2009 because Trust provisions

purportedly gave the cotrustees absolute discretion to decide when to sell Trust assets.

For her argument, Kerry relies on three provisions of the Trust.

       First, under the heading "Trustee's Discretion," section 6.12 of the Trust states:

"All discretions granted to or vested in the Trustee by any provision of this instrument are

to be exercised in the sole and absolute discretion of the Trustee."

       Second, under the heading "Retention of Assets," section 6.03 of the Trust states:

"The Trustee is expressly authorized to hold and retain any securities, properties, or other

investments, . . . and continue to hold, manage, and operate any property . . . received or

acquired at any time hereunder, as long as in its discretion it elects to do so, the profits or

losses therefrom, if any, to inure to or be chargeable against the Trust Estate and not the

Trustee."

       Third, under the heading "Timing of Distributions," section 7.12 of the Trust

provides: "(a) The Trustee hereof may delay the division of the Trust Estate and/or the

distribution of Trust assets therefrom for a period of up to six months following the death

of any Trustor. Said delay . . . may occur . . . if it is contemplated that the alternate

valuation date may be selected in connection with the filing of any United States Estate

Tax Return. [¶] (b) Notwithstanding any other provisions hereof, the Trustee may delay

the distribution of Trust assets herefrom for up to one year following the date that said

                                              18
distribution would otherwise be made. Said delay shall occur, if in the Trustee's sole

discretion, unnecessary expenses would be incurred in connection with sale of Trust

assets at that time, if said distribution would create unnecessary expenses for the Trust

that could otherwise be avoided by the delay, and/or a loss in principle value may be

suffered with regard to one or more trust assets to accomplish the distribution."

       Based on these provisions, Kerry contends that "the co-trustees were given

absolute discretion as to the method and timing for sale of property of the Trust and in

regard to the timing of distribution following the settlor's death," so that the probate court

erred in concluding that Kerry breached her fiduciary duty by not selling the Property by

July 2009. As we will explain, we reject Kerry's argument.

       As an initial matter, we note that Kerry's claim that she was afforded absolute

discretion by section 6.12 of the Trust is necessarily limited by a statutory provision

stating that even when a trustee is afforded absolute discretion, the trustee must

nevertheless avoid bad faith and act in accordance with fiduciary principles. Specifically,

section 16081 states that "if a trust instrument confers 'absolute,' ' sole,' or 'uncontrolled'

discretion on a trustee, the trustee shall act in accordance with fiduciary principles and

shall not act in bad faith or in disregard of the purposes of the trust." (§ 16081, subd. (a).)

Thus, "even a trustee with 'absolute discretion' may not 'neglect its trust or abdicate its

judgment,' . . . or show a 'reckless indifference' to the interests of the beneficiary."

(Estate of Collins (1977) 72 Cal.App.3d 663, 672, citation omitted.) Therefore, to the

extent that the record supports a finding that Kerry acted in bad faith or in disregard of

the purposes of the trust or the interests of the beneficiaries, she may be found to have

                                               19
acted improperly despite the Trust's conferral of sole and absolute discretion on the

cotrustees in certain instances.

       Turning to section 6.03 of the Trust, although that provision gives the cotrustees

discretion to continue to hold property, we conclude that the evidence reasonably

supports a finding that Kerry did not act according to fiduciary principles and engaged in

bad faith in continuing to hold the Property beyond July 2009 rather than selling it.13

Kerry contends that she acted in good faith by delaying the sale of the Property because

she wanted to wait until the real estate market improved and the Property would sell at a

higher price and benefit the beneficiaries. However, that view of Kerry's conduct is not

the only possible interpretation of the evidence presented at trial. Indeed, the probate

court could reasonably find that instead of delaying the sale of the Property to obtain a

higher price in an improved market to profit the beneficiaries, Kerry delayed selling the

Property because of any of a number of unacceptable reasons, including being motivated

by meanspirited intrafamily conflicts, inattention and neglect of her duties, or the desire

to provide her daughter with a free residence for two years. Under that reasonable

interpretation of the evidence, the probate court could properly conclude that Kerry was

motivated by bad faith or disregarded the interests of the beneficiaries. Based on that

implied finding, section 6.03 of the Trust does not authorize Kerry's delay in selling the

13     Although the probate court did not make an express finding that Kerry acted in
bad faith, because the parties did not request a statement of decision, we apply the
doctrine of implied findings and presume that the probate court made all necessary
findings supported by substantial evidence. (Acquire II, Ltd. v. Colton Real Estate Group
(2013) 213 Cal.App.4th 959, 970 (Acquire II).)

                                             20
Property and does not absolve her from liability for the costs incurred by the Trust due to

the delay.

       Although Kerry also relies on section 7.12 of the Trust, that provision does not

advance her argument. Specifically, section 7.12 allows the Trustee to delay a

distribution of assets to the beneficiaries for up to a year if doing so will avoid expenses

or increase value. Here, however, Kerry delayed far more than a year, not even

attempting to start selling the Property until more than three years after Theresa's death.

       4.     Substantial Evidence Supports the Probate Court's Decision to Surcharge
              Only Kerry for the Penalties on the Unpaid Property Taxes

       As a result of not selling the Property by July 2009, the Trust incurred

$137,416.22 in property taxes that would not otherwise have been incurred, and due to

nonpayment of those property taxes, the Trust also incurred penalties of $53,507.39. The

probate court ordered that Becky and Kerry each be surcharged half of the property taxes

unnecessarily incurred, but as to the penalties for nonpayment of those taxes, it ordered

that only Kerry be surcharged, imposing a surcharge against her for the entire amount of

$53,507.39. Kerry argues that the probate court erred in failing to order that Becky be

surcharged for half of the penalties. According to Kerry, the probate court's order was

"inconsistent with the [probate] court's determination that 'both [Kerry] and [Becky]

breached their fiduciary duties . . .' and 'failed to act in a reasonably prompt fashion to

liquidate the real property.' " As we will explain, we reject Kerry's argument.

       Section 16402, subdivision (b) provides: "A trustee is liable to the beneficiary for

a breach committed by a cotrustee . . . : (1) Where the trustee participates in a breach of

                                              21
trust committed by the cotrustee. (2) Where the trustee improperly delegates the

administration of the trust to the cotrustee. (3) Where the trustee approves, knowingly

acquiesces in, or conceals a breach of trust committed by the cotrustee. (4) Where the

trustee negligently enables the cotrustee to commit a breach of trust. (5) Where the

trustee neglects to take reasonable steps to compel the cotrustee to redress a breach of

trust in a case where the trustee knows or has information from which the trustee

reasonably should have known of the breach." Applying this standard, although the

probate court found that both Kerry and Becky shared fault for the delay in selling the

Property as they failed to work together to get the Property listed for sale, substantial

evidence supports an implied finding that Kerry's breach of fiduciary duty alone was the

cause of the penalties for the nonpayment of property taxes incurred by the Trust.14

       The evidence at trial established that Kerry took control of the Trust's finances and

did not allow Becky to participate in decisions about how the Trust's funds were used and

did not provide Becky with an accounting. Accordingly, there is no evidence that Becky

played any part in the decision as to whether to apply the Trust's funds to pay property

taxes on the Property while the Trust still had the liquidity to do so. Second, when it

became apparent that the cotrustees would have to obtain a loan to pay the tax liabilities

because the Property was not going to be listed for sale and the Trust's cash was depleted,

14      In the absence of a statement of decision explaining the basis for the probate
court's decision to surcharge Kerry alone for the amount of the property tax penalty, we
imply all necessary findings supported by substantial evidence. (Acquire II, supra, 213
Cal.App.4th at p. 970.)

                                             22
Becky's attorney advocated to Kerry that she obtain a loan, but Kerry refused to do so,

and delayed obtaining a loan until 2011. When that loan was finally obtained, Becky was

shut out by Kerry from anything having to do with the loan or the use of its proceeds.

Although $100,000 of the loan was supposed to be applied to the delinquent property

taxes, Kerry did not have those funds released from the title company, causing the

property tax penalties to continue to increase. Accordingly, the record supports a finding

that Kerry alone was responsible for the property tax penalties and was thus properly

surcharged for the full amount of those penalties.

B.     The Probate Court Properly Surcharged Kerry for the Attorney Fees and Expert
       Fees Incurred by the Objectors in Litigating Their Objections

       In addition to surcharging Kerry for the costs associated with the delay in the sale

of the Property, the probate court surcharged Kerry in the amount of $97,214.30 for half

of the attorney fees incurred by the Objectors in litigating the Objections, surcharging

Becky for the other half.

       The Objections include a general request that probate court award Objectors the

attorney fees and costs incurred in connection with the Objections, but do not specify the

legal basis for the fee request. However, in their trial brief and during closing argument,

the Objectors identified section 17211, subdivision (b) as one of the grounds for requiring

the cotrustees to pay the attorney fees.15 Although not specifically referencing section

15     The Objectors also identified the common fund theory as a possible basis for an
order requiring Kerry to pay their attorney fees. (See Estate of Reade (1948) 31 Cal.2d
669, 671-672.) As we conclude that the attorney fee award is supported by section
                                            23
17211 when ordering the surcharge for the attorney fees, the probate court generally

identified section 17211 as the basis for the surcharges that it imposed during its rulings

on the Objections to the three accounts.

       Section 17211, subdivision (b) provides: "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." (See Leader v. Cords (2010) 182 Cal.App.4th

1588, 1595 (Leader) [explaining that § 17211 is an exception to the rule that "[t]rust

beneficiaries must ordinarily pay their own attorney fees in challenging the trustee's

conduct, even when they are successful"].)

       Based on this provision, Kerry could be surcharged for the Objectors' attorney fees

if her opposition to the Objections was without reasonable cause and in bad faith. Here,

because the parties did not request a statement of decision, we imply all necessary

findings supported by substantial evidence in the record. (Acquire II, supra, 213

Cal.App.4th at p. 970.) The issue presented, accordingly, is whether substantial evidence

17211, we need not, and do not, discuss whether the common fund theory is applicable
here.

                                             24
in the record supports a finding that Kerry opposed the Objections without reasonable

cause and in bad faith.16

       Within the meaning of section 17211, " 'reasonable cause' . . . to oppose a contest

of an account" means "an objectively reasonable belief, based on the facts then known to

the trustee, either that the claims are legally or factually unfounded or that the petitioner

is not entitled to the requested remedies." (Uzyel v. Kadisha (2010) 188 Cal.App.4th 866,

927.) " '[B]ad faith' in this context concerns the trustee's subjective state of mind . . . ."

(Id. at p. 926, fn. 47.) "[I]n enacting section 17211, the Legislature intended to

discourage frivolous litigation about a trustee's accounting . . . ." (Chatard v. Oveross

(2009) 179 Cal.App.4th 1098, 1110.)

       Here, based on the extensive evidence at trial about Kerry's poor record keeping

that made it impossible to understand the specific transactions concerning the Trust; the

tens of thousands of dollars in undocumented cash transactions involving Trust funds;

and Kerry's comingling of Trust funds with her own funds and those of her clients, which

also made it impossible to understand the relevant transactions and cash flow, the probate

16      This case is distinguishable from Leader, supra, 182 Cal.App.4th 1588, upon
which Kerry relies. In Leader, the probate court erroneously concluded that section
17211 did not apply, and it accordingly had no occasion to make a finding as to whether
the trustee acted without reasonable cause and in bad faith. (Id. at p. 1599.) Leader
remanded for the probate court to make findings on those issues. (Id. at pp. 1599-1600.)
Here, in contrast, because relief was expressly sought under section 17211, and the
probate court cited that provision in making the surcharge award, in the absence of a
statement of decision we imply findings supporting the probate court's decision
(Acquire II, supra, 213 Cal.App.4th at p. 970), namely that Kerry acted without
reasonable cause and in bad faith in opposing the Objections.

                                               25
court reasonably could conclude that Kerry had no reasonable cause to oppose the

Objections to the accountings. Specifically, it is a reasonable inference from the

evidence presented at trial that any objective person would know that the accountings

could not be approved due to Kerry's failure to maintain proper records and properly

document transactions. Further, based on evidence of Kerry's animosity and hostile

attitude toward Christine as described in Christine's testimony, the probate court could

reasonably find that Kerry's opposition to the petition to approve the accountings was

made in a bad faith attempt to cause the Objectors to incur unnecessary attorney fees and

thereby deplete the value of any eventual distribution of the Trust funds to them rather

than in a good faith effort to defend the accountings that she prepared.

       We accordingly conclude that substantial evidence supports an implied finding

that Kerry acted without reasonable cause and in bad faith in opposing the Objections,

and that she was properly surcharged for the attorney fees and expert fees incurred by the

Objectors under the authority of section 17211, subdivision (b).

C.     Kerry's Challenge to the Surcharge for the Trust's Payment of Her Attorney Is
       Without Merit

       The probate court surcharged Kerry for $20,000 paid from the Trust to her

attorney, Susan Wilson, to defend against the petition to remove her as cotrustee. Kerry

argues that "to the extent this Court sets aside the trial court's surcharge damages award

against [Kerry], or any portion thereof, the surcharge for Ms. Wilson's fees should then

also be set aside." Although Kerry's reasoning is not clearly expressed, she appears to

contend that in the event there is merit to any of her other arguments in this appeal, we

                                            26
must necessarily find that Wilson's fees incurred in defending the petition to remove

Kerry as cotrustee are a reasonable expense of the Trust.

       We reject Kerry's argument because it is contingent on her prevailing on any of

her other appellate challenges to the surcharges imposed by the probate court. As we

have concluded that the whole of Kerry's appeal lacks merit, we necessarily also reject

her argument challenging the surcharge of $20,000 for the Trust's payment of Wilson's

fees.17

                                      DISPOSITION

       The probate court's orders are affirmed.

                                                                                   IRION, J.

WE CONCUR:

BENKE, Acting P. J.

O'ROURKE, J.

17     In their respondents' brief, Objectors state that "they are entitled to their fees and
costs on appeal" and contend that we "should award such fees and costs in an amount to
be determined on remand," either pursuant to section 17211 or the common fund theory.
We express no view on whether respondents should be awarded their attorney fees on
appeal, as that issue should be raised in the first instance in the probate court. (See
Nestande v. Watson (2003) 111 Cal.App.4th 232, 238 ["whether a party has met the
statutory requirements for an award of attorney fees is a question best decided by the trial
court in the first instance"].)

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