Court Opinion

ID: 8484255
Source: CourtListenerOpinion
Date Created: 2022-11-16 20:01:29.82183+00
Date Added: 2024-06-11T16:49:52.062061
License: Public Domain

Filed 11/16/22 Hudson v. Hudson CA2/7
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                      DIVISION SEVEN

DANIEL HUDSON et al.,                                        B322589

         Plaintiffs and Appellants,                          (Santa Clara County
                                                             Super. Ct. No. 18PR184315)
         v.

KENNON HUDSON,

           Defendant and
           Respondent.

      APPEAL from an order of the Superior Court of
Santa Clara County, Julie A. Emede, Judge. Affirmed.
      Hopkins & Carley, Steven A. Ellenberg and Ryan D.
Cunningham for Plaintiffs and Appellants Daniel Hudson and
Michael Hudson.
      McManis Faulkner, James McManis and Abimael Bastid
for Defendant and Respondent.
                   ________________________
      Daniel Hudson and Michael Hudson appeal from the
probate court’s order denying their petition to enforce the no
contest clause in the 2017 Amendment and Restatement of the
Robert B. Hudson Trust against their stepmother, Kennon
Hudson.1 Daniel and Michael contend the probate court erred in
finding Kennon’s creditor’s claim in the probate proceeding did
not violate the no contest clause in the trust. We affirm.
      FACTUAL AND PROCEDURAL BACKGROUND
      1. The 2017 Amendment and Restatement of the Robert B.
         Hudson Trust
       In 2007 Daniel and Michael’s father, Robert Hudson,
established the Robert B. Hudson Trust, which was amended
several times, most recently on July 12, 2017. The trust stated
that, upon Robert’s death, the trust assets were to be distributed
mainly to Kennon, Daniel and Michael. After $10,000 gifts to
two of Robert’s nephews, Kennon was to receive $350,000 cash,
the contents of all bank and brokerage accounts, certain real and
personal property and interests in several partnerships and
corporations. Daniel and Michael were to receive interests in
various corporate entities. In addition, certain real estate and
corporate interests would be held in a qualified terminable
interest property (QTIP) trust for Kennon’s benefit and, upon her
death, the QTIP trust property would be distributed to Daniel’s
and Michael’s children or grandchildren. Any remaining assets
of the trust were to be divided between Daniel and Michael.

1    Because the parties share the same surname, we refer to
them by their first names for clarity.

                                2
       The trust contained a no contest clause, which stated, “If
any beneficiary under this instrument, singularly or in
combination with any other person or persons, directly or
indirectly does any of the following acts, then the right of that
person to take any interest given to him or her by this
instrument shall be void . . . . [¶] (a) Without probable cause
challenges the validity of this instrument, or the validity of any
contract, . . . or other document executed by the settlor . . . . [¶]
(b) Files a pleading to challenge the transfer of property under
this trust or a settlor’s will . . . on the grounds that it was not the
transferor’s property at the time of transfer; [¶] (c) Files a
creditor’s claim or prosecutes any action against the trust for any
debt alleged to be owed to the beneficiary-claimant.”
       2. The Last Will of Robert B. Hudson
      On July 12, 2017, after signing the trust amendment,
Robert executed a pour-over will, bequeathing the residue of his
estate to the trustee of the Robert B. Hudson Trust to be added to
the trust principal and distributed in accordance with the trust
provisions. The will contained a no contest clause similar to the
no contest clause of the trust, including a provision that the no
contest clause would apply to any beneficiary who “[f]iles a
creditor’s claim or prosecutes any action against my estate for
any debt alleged to be owed to the beneficiary-claimant.”
      3. Robert’s Death and Kennon’s Creditor’s Claim
      Robert died on December 20, 2017. At the time of his
death, the direct distributions to Kennon under the trust were
estimated to be worth more than $5 million, the value of assets
transferred to the QTIP trust were estimated to be approximately
$15 million and the distributions to Daniel and Michael were
valued at approximately $4.5 million each. Robert’s share of

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community property, valued at approximately $2 million, was
held for Kennon’s benefit in a different trust not subject to this
dispute.
       In the two months following Robert’s death Kennon wrote
two checks to herself for approximately $600,000 from a checking
account that had become trust property. Kennon later explained
the payments were reimbursements for living expenses incurred
by the couple in 2017 that she had paid from her separate
property. In August 2018 the trustee filed a petition seeking
return of the $600,000 of trust assets from Kennon. After an
evidentiary hearing the probate court ordered Kennon to return
the funds to the trustee, and it appears she complied with that
order.
       On December 17, 2018 Kennon filed a petition for letters of
special administration, which stated she was “potentially a
creditor of the decedent[,] and in order to present a proper claim,
a formal probate proceeding must be commenced.” The probate
court granted the petition and appointed the trustee as special
administrator of the estate. On December 19, 2018 Kennon filed
a creditor’s claim against Robert’s estate seeking reimbursement
of the $600,000 she had expended for the couple’s living expenses
in 2017. In July 2019 the special administrator rejected
Kennon’s claim. Kennon has abandoned the claim, and it is now
time-barred.
       4. The Petition To Enforce the No Contest Clauses in the
          Trust and the Will
      On October 18, 2019 Daniel and Michael filed a petition to
enforce the no contest clauses contained in the trust and the will.
They contended Kennon’s creditor’s claim in the probate
proceeding violated the prohibition against filing a creditor’s

                                 4
claim against Robert’s estate. Further, they argued, because
there were no assets in the estate, a successful claim against the
estate could be satisfied only by the personal representative
seeking payment from the trustee of trust assets. Accordingly,
Daniel and Michael argued, Kennon’s claim sought funds from
the trust assets and violated the trust’s prohibition against filing
a claim against the trust.
      In her opposition Kennon argued her claim did not violate
the no contest clauses because its payment would not affect the
distribution of trust assets and it was Robert’s intent that she be
reimbursed for her payment of the couple’s living expenses.
Kennon submitted a declaration explaining that, during their
16-year marriage, it was the couple’s practice that Kennon would
pay their joint expenses and Robert would reimburse her at the
end of the year. Kennon claimed she was merely acting in
accordance with that practice when she wrote herself the checks
after Robert’s death and she had not understood all payments at
that point had to be made by the trustee.
      Kennon’s opposition also included two documents she
maintained corroborated her account that Robert annually
reimbursed her for living expenses. First, Kennon filed a copy of
the couple’s premarital agreement, which stated Robert would
pay all living expenses from his separate property funds and
would not be entitled to any reimbursement from Kennon for
those expenses. Second, Kennon filed a copy of a declaration
signed by Robert six weeks before his death. In the declaration
Robert acknowledged that Daniel believed Kennon had been
improperly withdrawing funds from Robert’s bank and securities
accounts for more than 10 years. Robert stated he had reviewed
the accounts in detail with his accountant and his attorney prior

                                 5
to signing the declaration, and he understood there had been a
significant increase in yearly withdrawals during the latter
years. However, Robert declared, “I have no issue and no
complaint with Kennon receiving the amounts [paid]. I
wholeheartedly approve her receipt of these funds.” Regarding
Daniel’s claim Kennon was taking advantage or stealing from
Robert, Robert stated, “I wholeheartedly reject that claim. I do
not want, intend or plan to pursue any such claim during my
lifetime, nor do I want anyone to pursue any such claim after my
death. As noted above, the sums that went to Kennon have my
approval and blessing.” Robert’s signing of the declaration was
witnessed by his attorney. Daniel and Michael objected to the
filing of the premarital agreement and Robert’s declaration on
the ground they were inadmissible extrinsic evidence.
       5. The Court’s Order and the Appeal
       The probate court heard argument from the parties on
August 19, 2020. The court found it need not consider Daniel and
Michael’s evidentiary objections because “the information I need
to consider is contained in the trust document itself, as well as
the papers that have already been filed with the Court in the
estate matter.”
       During the hearing Kennon’s counsel conceded the no
contest clause in the will was violated by the filing of Kennon’s
creditor’s claim in the probate matter but maintained that action
did not trigger the no contest clause in the trust. The court
agreed, stating, “I believe the no contest provision requires the
creditor’s claim to be made against the trust. If Ms. Hudson had
proceeded with her creditor’s claim, obtained a judgment, and
then went against the trust, now I think we’re having a very
different conversation. But that is not what happened in this

                                6
particular case.” Accordingly, the court entered an order finding
Kennon had violated the no contest clause of the will but not that
of the trust. Daniel and Michael filed a timely notice of appeal
from the court’s order.2
                         DISCUSSION
       1. Governing Law and Standard of Review
       “No contest clauses, whether in wills or trusts, have long
been held valid in California. [Citations.] Such clauses promote
the public policies of honoring the intent of the donor and
discouraging litigation by persons whose expectations are
frustrated by the donative scheme of the instrument. [Citation.]
[¶] In tension with these public policy interests are the policy
interests of avoiding forfeitures and promoting full access of the
courts to all relevant information concerning the validity and
effect of a will, trust, or other instrument.” (Donkin v. Donkin
(2013) 58 Cal.4th 412, 422; see also Burch v. George (1994)
7 Cal.4th 246, 255.) In light of these opposing interests both the
statutory and common law recognize no contest clauses must be
“‘strictly construed and may not extend beyond what plainly was
the testator’s intent.’” (Meyer v. Meyer (2008) 162 Cal.App.4th
983, 991; see Donkin, at p. 422 [“the common law in California
recognized the enforceability of no contest clauses, albeit strictly
construed”]; Burch, at p. 256 [“[f]ollowing the rule of strict
construction [citation], we must ascertain from these provisions
whether [the trustor] unequivocally intended that [the
beneficiary] would forfeit the distribution provided for her under
the trust instrument”]; Scharlin v. Superior Court (1992)

2     Pursuant to an order of the Chief Justice on August 9,
2022, this matter was transferred from the Sixth District Court
of Appeal to the Second District Court of Appeal.

                                  7
9 Cal.App.4th 162, 169 [“‘[o]nly where an act comes strictly
within the express terms of the forfeiture clause may a breach
thereof be declared’”]; see also Prob. Code, § 21311, subd. (a) [“[a]
no contest clause shall only be enforced against the following
types of contests: [¶] . . . [¶] (3) The filing of a creditor’s claim or
prosecution of an action based on it. A no contest clause shall
only be enforced under this paragraph if the no contest clause
expressly provides for that application”].)
      “‘“Whether there has been a ‘contest’ within the meaning of
a particular no-contest clause depends upon the circumstances of
the particular case and the language used.”’” (Meyer v. Meyer,
supra, 162 Cal.App.4th at p. 991.) We review the language of the
trust de novo unless its interpretation depends upon the
credibility of extrinsic evidence or a conflict therein. (Burch v.
George, supra, 7 Cal.4th at pp. 254-255; Key v. Tyler (2019)
34 Cal.App.5th 505, 540.)
      2. The Trial Court Did Not Err in Concluding Kennon’s
          Creditor’s Claim Against the Estate Did Not Constitute a
          Claim Against the Trust
       As discussed, the no contest clause in the 2017 Amendment
and Restatement of the Robert B. Hudson Trust applies to a
beneficiary who files a creditor’s claim “against the trust.” Daniel
and Michael acknowledge Kennon’s claim was filed only in the
probate proceeding rather than directly against the trust, but
argue it nonetheless triggered the clause because “the purpose
and effect of the creditor’s claim [was] to initiate a legal process
for the recovery of trust assets.” While this may have been the
purpose and effect of the creditor’s claim if successful, the plain
meaning of the phrase “against the trust” is not reasonably
susceptible to the expansive definition proposed by Robert’s sons,
nor is there any indication Robert intended the provision to

                                   8
disinherit anyone who filed a creditor’s claim that had the
potential to impair the trust.
       This common sense interpretation of the no contest clause
is reinforced by the fact that Robert, had he intended to void the
trust distribution to any beneficiary who filed a creditor’s claim
against the estate or a claim that could ultimately be satisfied by
trust assets, could have easily, and explicitly, done so. In fact,
unlike the prohibition on creditor’s claims, other sections of the
no contest clause include language expanding their prohibitions
beyond challenges to the trust itself. The paragraph prohibiting
challenges to the validity of the trust states a beneficiary may
not, without probable cause, challenge “the validity of this
instrument, or the validity of any contract, agreement (including
any trust agreement), declaration of trust, beneficiary
designation, or other document executed by the settlor.” The
next paragraph states a beneficiary may not file a pleading to
challenge the transfer of property “under this trust or a settlor’s
will.” Robert, however, did not use similar expansive language in
the paragraph concerning creditor’s claims.
       Daniel and Michael’s reliance on the no contest clause’s
prohibition on a beneficiary “directly or indirectly do[ing] any of
the following acts” is unavailing. They argue this language is
triggered by any creditor’s claim that indirectly sought the assets
of the trust. However, the words “directly or indirectly” do not
modify the phrase “against the trust,” they modify the act of
filing the claim. In other words, a beneficiary who indirectly files
a creditor’s claim against the trust, perhaps through a guardian
ad litem or a corporate entity, would trigger the no contest
clause. However, a claim that is indirectly against the trust,
perhaps filed against the estate or a business entity associated

                                 9
with the decedent, even if it may ultimately be paid by trust
assets, would not trigger the no contest clause here.
       Finally, Daniel and Michael argue that failing to find
forfeiture here creates a loophole allowing beneficiaries to file
creditor’s claims against empty probate estates and then seek
payment from trust assets as a way to avoid triggering the no
contest clause of a decedent’s trust. This argument is not
compelling. First, as discussed, trust settlors can easily avoid
this hypothetical result by including more expansive language in
their trust documents. Second, a beneficiary who follows this
procedure would still be required to seek recourse against the
trust for payment of the claim. Such a demand for payment,
whether made through the trust claims procedures set forth in
the Probate Code (see Prob. Code, § 19000 et seq.) or by a request
for payment from the estate’s personal representative pursuant
to the applicable provisions of the trust document, would
constitute a creditor’s claim against the trust and would trigger
the no contest clause.
       In sum, the plain meaning of the trust language in this
case does not demonstrate an unequivocal intent on Robert’s part
to disinherit a beneficiary who files a creditor’s claim against the
probate estate.

                                 10
                         DISPOSITION
      The order of the probate court is affirmed. Kennon is to
recover her costs on appeal.

                                          PERLUSS, P. J.

      We concur:

            SEGAL, J.

            FEUER, J.

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