Court Opinion

ID: 4653265
Source: CourtListenerOpinion
Date Created: 2021-01-21 19:02:53.834675+00
Date Added: 2024-06-11T07:50:04.652081
License: Public Domain

Filed 1/21/21 Klein v. Hughes CA2/6
     NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 not
certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                          SECOND APPELLATE DISTRICT

                                           DIVISION SIX

CONRAD LEE KLEIN et al.,                                         2d. Civ. No. B294822
                                                               (Super. Ct. No. BP063500)
     Plaintiffs and Appellants,                                  (Los Angeles County)

v.

ALEXANDER HUGHES,

     Defendant and Appellant.

            This appeal—the latest in a long-running series of
disputes surrounding the Mark Hughes Family Trust (the
Trust)—involves breach-of-trust claims related to a December
2000 settlement agreement entered into by Alexander Hughes
through his mother, Suzan Hughes, in her role as his then-
guardian; his former stepmother, Darcy LaPier Hughes; and the
then-trustees of the Trust, Conrad Lee Klein, Christopher Pair,
and Jack Reynolds (the former trustees).1 It presents a single,

          1 Klein,
             Pair, and Reynolds were removed as trustees in
2013. Klein passed away in 2019.
narrow question: Did the probate court correctly conclude that
Alexander’s2 breach-of-trust claims were barred by the statute of
limitations set forth in Probate Code3 section 16460? We
conclude that it did, and affirm the order granting the former
trustees’ motion for summary adjudication.
            FACTUAL AND PROCEDURAL HISTORY
             Mark Hughes was the founder of Herbalife
International, Inc. He formed the Trust in 1987, naming himself
as sole trustee and his then-wife Suzan as successor trustee.
Four limited-liability companies (LLCs) held the majority of the
Trust’s assets. Mark was the manager of each LLC.
             Mark and Suzan had one son, Alexander, who was
born in 1991. Alexander was the sole non-contingent beneficiary
of the Trust and the sole income beneficiary. When Suzan filed
for divorce in 1997, Mark removed her as successor trustee and
replaced her with the former trustees. The former trustees were
also appointed executors of Mark’s estate. His will directed that
any property he owned at the time of his death was to be
contributed to the Trust.
             Mark and Darcy married in 1999. Their prenuptial
agreement provided that, upon Mark’s death, Darcy would
receive: (1) a lump sum payment of $10 million, payable within
45 days of Mark’s demise, and (2) a “residence right” that
included the use of a residence plus the payment of associated
costs, which extended until Darcy either remarried or died.
Separately from the prenuptial agreement, Mark gifted Darcy a

      2 We   use the Hughes family members’ first names to avoid
confusion.

      3 Unlabeled   statutory references are to the Probate Code.

                                  2
one-percent interest in HIP Management, one of his four LLCs.
The Trust could repurchase Darcy’s interest upon Mark’s death.
             Mark died in May 2000, leaving behind an estate
worth over $330 million. Upon his death, the former trustees
took over as co-trustees of the Trust. In that capacity they
named Klein as manager of the four LLCs. Neither he nor his
co-trustees elected to exercise the option to repurchase Darcy’s
interest in HIP Management.
             The Trust paid Darcy $10 million in June. In August
the former trustees petitioned the probate court for an order
clarifying the “nature and extent” of her residence right and
whether that right pertained only to the Beverly Hills estate she
shared with Mark, or also to the Malibu estate Mark owned. The
former trustees also sought guidance regarding whether one or
both of the estates could be sold.
             The parties—Klein, acting on behalf of the Trust;
Suzan, acting on behalf of Alexander; and Darcy, acting on her
own behalf—entered mediation and reached a settlement
agreement in December. The agreement provided that the Trust
would pay Darcy $20 million to “satisfy all [of her] outstanding
rights, entitlements[,] and claims . . . under [the] [p]renuptial
[a]greement.” Payments were to be made in two installments:
$19 million upon approval of the settlement, and $1 million when
Darcy vacated the Beverly Hills estate. In exchange, Darcy
agreed to “waive[], relinquish[][,] and release[] any and all claims,
rights, obligations[,] and causes of action that she may have
against the . . . Trust,” including those arising under her
prenuptial agreement. The probate court approved the
settlement in February 2001.

                                 3
            In May, the former trustees mailed a copy of the first
accounting to Suzan in her capacity as Alexander’s guardian. A
schedule attached to the accounting disclosed that the Trust had
made two payments to Darcy: $10 million in June 2000, and $19
million in January 2001. The former trustees sent Suzan a copy
of the second accounting in December 2001. A schedule attached
to that accounting disclosed that the Trust had made a third
payment to Darcy—in the amount of $1 million—sometime
between March and August 2001.
            In March 2002, Suzan objected to the two
accountings, claiming that they “lack[ed] detail and [did] not
adequately disclose and explain the actions taken by the [former
trustees].” She requested more information. She did not lodge
any substantive objections to either accounting, however, nor did
she seek affirmative relief.
            In July the former trustees petitioned the probate
court to approve the first and second accountings.4 They served
Suzan with copies of the accountings and petition. These
documents again listed the three payments—$10 million, $19
million, and $1 million—that the Trust had made to Darcy.
             Suzan objected to the petition in August, reiterating
her claim that the accountings lacked adequate information. In
October, the former trustees submitted additional documents,
including a chart showing that Darcy owned a one-percent
interest in HIP Management. The chart said that her interest
was “limited to $1 million.”
             One year later, in October 2003, Suzan filed amended
objections to the first and second accountings. These objections

      4 Theprobate court has yet to approve these or any of the
subsequent accountings.

                                4
included neither an objection to the December 2000 settlement
agreement nor an objection to the Trust’s decision not to
purchase Darcy’s interest in HIP Management.
              The following month, Suzan filed a petition
requesting that the probate court order the former trustees to
purchase Darcy’s interest in HIP Management. The former
trustees moved for summary judgment on Suzan’s petition,
arguing that Darcy’s interest in HIP Management had no effect
on the LLC’s operations. The court granted the motion, expressly
denying Suzan’s request to “issue orders instructing the [former
trustees] . . . to buy[] out the interest of Darcy LaPier [Hughes].”
              In June 2009, Suzan filed additional objections to the
first through seventh accountings. These objections stated that
they “replace[d] and supersede[d]” her prior objections. No
objection to the December 2000 settlement agreement or to the
Trust’s failure to buy out Darcy’s interest in HIP Management
was made. Alexander joined in these objections when he turned
18 in December.
              In February 2011, Alexander filed his own objections
to the first and second accountings. Among his objections was
that the $20 million paid to Darcy pursuant to the December
2000 settlement agreement was excessive.
              Alexander filed additional objections and surcharge
claims in April 2018. Included among these was an objection to
the former trustees’ decision not to repurchase Darcy’s interest in
HIP Management as part of the December 2000 settlement
agreement. Alexander sought to surcharge the former trustees.
He acknowledged, however, that the probate court had previously
approved the settlement agreement.

                                 5
             In July, Alexander moved for summary adjudication.
He claimed that the former trustees breached their fiduciary
duties to the Trust by failing to: (1) disclose that they had
already paid Darcy $10 million when they sought approval of the
December 2000 settlement agreement, and (2) repurchase
Darcy’s interest in HIP Management. The former trustees
brought their own motion for summary adjudication, urging the
probate court to find Alexander’s claims barred by section 16460’s
three-year statute of limitations.
             The probate court denied Alexander’s motion and
granted the former trustees’ motion. First, the undisputed
evidence showed that Suzan participated in the December 2000
settlement negotiations and thus knew that Darcy was to receive
a total of $20 million under the settlement agreement. Five
months later she received a copy of the first accounting, which
disclosed a $10 million payment to Darcy in June 2000 and a $19
million payment the following January. That disclosure was
sufficient to put Suzan—and by extension, Alexander—on notice
that the $10 million payment to Darcy was separate from the
settlement agreement.
             Second, the undisputed evidence showed that the
former trustees filed and served their response to Suzan’s initial
objections in October 2002. This response disclosed that Darcy
held a one-percent interest in HIP Management. That disclosure
was sufficient to put Suzan on notice that the settlement did not
include Darcy’s interest in that company. Additionally, Suzan
petitioned the probate court for an order forcing the former
trustees to purchase Darcy’s interest in HIP Management in
November 2003. That reinforced that she knew that Darcy’s

                                6
interest in the company had not been part of the December 2000
settlement agreement.
             Finally, the undisputed evidence showed that
Alexander first objected to the payments to Darcy and her
retention of an interest in HIP Management in February 2011
and April 2018, respectively, well after the three-year statute of
limitations imposed by section 16460 had expired.
             In finding his claims barred by the statute of
limitations, the probate court rejected Alexander’s argument that
section 1043 allowed him to raise new objections at any point
before or during the hearing on the former trustees’ petition to
approve the accountings. The court found section 1043 to be a
general procedural provision that did not displace section 16460’s
specific substantive provisions relating to trusts. It also found
that section 1043 did not result in a waiver of a section 16460
statute-of-limitations defense when trustees petitioned to
approve accounts.
                            DISCUSSION
             Alexander contends the probate court erred when it
granted the former trustees’ motion for summary adjudication
because section 16460 does not bar the breach-of-trust claims
stemming from the December 2000 settlement agreement. We
disagree.
                       Summary adjudication
             A probate court properly grants a motion for
summary adjudication if the moving party “show[s] that there is
no triable issue as to any material fact and that [they are]
entitled to a judgment as a matter of law.” (Code Civ. Proc.,
§ 437c, subd. (c).) The moving party may meet this burden by
showing that “‘there is a complete defense’” to a cause of action.

                                7
(Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 356, italics
omitted; see Code Civ. Proc., § 437c, subd. (p)(2).) “The
expiration of the applicable statute of limitations is one
such complete defense.” (Genisman v. Carley (2018) 29
Cal.App.5th 45, 49.)
              When reviewing an order granting a motion for
summary adjudication, “we independently examine the record . . .
to determine whether triable issues of fact exist to reinstate the
[cause of] action.” (Wiener v. Southcoast Childcare Centers,
Inc. (2004) 32 Cal.4th 1138, 1142.) We view the evidence in the
light most favorable to the nonmoving party, “liberally
constru[ing their] evidentiary submissions and strictly
scrutiniz[ing] the [movant’s] own evidence.” (Ibid.) Any
evidentiary doubts or ambiguities are resolved in favor of the
nonmoving party. (Ibid.)
                             Section 16460
              “If a beneficiary has received an interim or final
account[ing] . . . or other written report . . . that adequately
discloses the existence of a claim against the trustee for breach of
trust, the claim is barred as to that beneficiary unless a
proceeding to assert the claim is commenced within three years
[of] receipt of the account[ing] or report.” (§ 16460, subd. (a)(1).)
A minor beneficiary will be deemed to have received an
accounting at the time it was received by their parent or
guardian. (Id., subd. (b)(3).) An accounting adequately discloses
the existence of a claim if it “provides sufficient information so
that the beneficiary knows of the claim or reasonably should have
inquired into the existence of the claim.” (Id., subd. (a)(1).)
              The probate court here correctly determined that
section 16460’s three-year statute of limitations bars Alexander

                                 8
from raising breach-of-trust claims related to the December 2000
settlement agreement. The first accounting disclosed that the
Trust paid Darcy $10 million in June 2000 and $19 million in
January 2001. The former trustees sent Suzan, in her capacity
as Alexander’s guardian, a copy of that accounting in May 2001.
The second accounting disclosed that the Trust made a third
payment of $1 million to Darcy sometime between March and
August 2001. Suzan received a copy of that accounting in
December. And in October 2002, following her objections to the
first and second accountings, the former trustees sent Suzan a
chart showing that Darcy retained a one-percent interest in HIP
Management. These documents were sufficient to put Suzan on
notice of any claim against the former trustees for breaches of
trust related to the settlement agreement. (See, e.g., Britton v.
Girardi (2015) 235 Cal.App.4th 721, 733; Prakashpalan v.
Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1123;
Noggle v. Bank of America (1999) 70 Cal.App.4th 853, 860, fn. 5
(Noggle).) Accordingly, pursuant to section 16460, those claims
had to be asserted no later than October 2005. Because they
were not, they are barred by the statute of limitations.
                      Conflict with section 1043
             Alexander’s attempts to avoid this result are not
persuasive. He first argues that section 16460 is inapplicable
because that section is in Division 9 of the Probate Code, which
applies to accountings that have yet to be filed with the probate
court. Here, however, the former trustees filed the first and
second accountings with the court, which commenced a
“proceeding” that subjects this case to the provisions of Division 3
of the Probate Code. (See § 1060 [Division 3 “governs all accounts
to be filed with the court”].) Within Division 3 is section 1043,

                                 9
which permits an interested person, such as a beneficiary, to
object to an accounting at any point before or during the hearing
on the accounting. (§ 1043, subds. (a) & (b); see § 48
[beneficiaries are interested persons].) Because the hearing on
the first two accountings has yet to occur, Alexander claims his
objections to them are still permitted.
             Alexander misconstrues the procedural posture of his
case. In his briefing, Alexander attempts to frame this case
around his 2011 and 2018 objections to the December 2000
settlement agreement. But this case is about claims made
against the former trustees for their alleged breaches of trust
when they entered into the settlement agreement. Those claims
are related to Alexander’s objections, but the objections
themselves are not at issue here.
             Alexander also misreads the applicable Probate Code
provisions. Section 1043 applies “except where the statute that
provides for the hearing of the matter prescribes a different
procedure.” (§ 1040, emphasis added.) By requiring a claim to be
brought “within three years [of] receipt of the account or report,”
section 16460 prescribes one such “different procedure.” The two
sections are easily reconciled.
             And even if they were not, we would nevertheless
apply section 16460 here. Division 3 of the Probate Code sets
forth “General Provisions of a Procedural Nature.” Division 9, in
contrast, sets forth the provisions specific to “Trust Law.” “When
two statutes of limitations are applicable, the specific takes
precedence over the general.” (Yeh v. Tai (2017) 18 Cal.App.5th
953, 963.)

                                10
                                Tolling
              Alexander next argues that even if section 16460
applies, the filing of the July 2002 petition to approve the first
and second accountings tolled the statute of limitations. This
again misreads what the Probate Code requires.
              A “proceeding to assert [a] claim” must be brought
within three years of the date when an accounting discloses the
existence of that claim. Alexander incorrectly asserts that the
proceeding was commenced when the former trustees filed their
July 2002 petition. But that makes no sense; the former trustees
did not bring claims against themselves. The relevant claims
were Alexander’s claims for breach of trust that he asserted in his
motion for summary adjudication. (§ 16460, subd. (a)(1) [“the
claim is barred as to that beneficiary” (emphasis added)].)
              Moreover, Alexander’s argument would require us to
construe the July 2002 petition as the “complaint” and his
breach-of-trust claims as a “cross-complaint.” (Cf. § 1000, subd.
(a) [rules applicable to civil actions generally apply to probate
proceedings].) But a cross-complaint can be filed only against “[a]
party against whom a cause of action has been asserted.” (Code
Civ. Proc., § 428.10.) The petition did not assert any cause of
action against Alexander.
                             Relation back
              Alternatively, Alexander argues that he filed his
claims within the statute of limitations imposed by section 16460
because the bases for those claims—the 2011 and 2018 objections
to the first and second accountings—relate back to the objections
Suzan lodged in March 2002, August 2002, and October 2003.
But a claim relates back “only if it rests on the same general set
of facts and refers to the same ‘offending instrumentalities,’

                                11
accident, and injuries as the original.” (Davaloo v. State Farm
Ins. Co. (2005) 135 Cal.App.4th 409, 415; see also Norgart v.
Upjohn Co. (1999) 21 Cal.4th 383, 408-409.) Nowhere in her
objections did Suzan challenge the $10 million payment made to
Darcy prior to the December 2000 settlement agreement or
Darcy’s continued ownership of a one-percent interest in HIP
Management. And though Suzan requested more information
from the former trustees after she received the first and second
accountings, such a general request is not enough to permit
Alexander to take advantage of the relation-back doctrine: “It is
not enough to allege there might be as yet undiscovered reporting
violations.” (McCauley v. Howard Jarvis Taxpayers Assn. (1998)
68 Cal.App.4th 1255, 1258, emphasis original.)
                       Issues of material fact
             Alexander next argues that even if section 16460
applies here, there were issues of material fact as to whether the
documents provided to Suzan in 2001 and 2002 adequately
disclosed the existence of breach-of-trust claims against the
former trustees. We again disagree.
             As Alexander’s trustee, Suzan was aware that Darcy
would receive a $10 million gift from the Trust upon Mark’s
death. Suzan then participated in the December 2000 settlement
negotiations, and knew that Darcy would receive a $19 million
payment and a $1 million payment under that agreement. When
she received the first accounting a few months later, it detailed
that the Trust had made two payments to Darcy, one for $10
million and one for $19 million. The second accounting then
detailed that the Trust made a third, $1 million payment to
Darcy. Considered together, this provided sufficient information
for Suzan to know that she could bring breach-of-trust claims

                                12
against the former trustees for any excessive payments to Darcy.
At the very least, she reasonably should have inquired into the
existence of such a claim. (Miller v. Bechtel Corp. (1983) 33
Cal.3d 868, 874-875 (Miller) [trustee’s role as fiduciary does not
relieve beneficiary of duty to investigate]; see also Noggle, supra,
70 Cal.App.4th at p. 860, fn. 5; Di Grazia v. Anderlini (1994) 22
Cal.App.4th 1337, 1346.)
             The same is true with respect to Darcy’s interest in
HIP Management. In October 2002, after Suzan objected to the
petition to approve the first and second accountings, the former
trustees provided her with a chart detailing the relationship of
the various LLCs owned by the Trust. That chart showed that
Darcy owned a one-percent interest in HIP Management. Suzan
confirmed that she knew of this interest the following year when
she petitioned the probate court to order the former trustees to
exercise the Trust’s option to purchase it. Given this knowledge,
it was Suzan’s duty to inquire into the existence of any breach-of-
trust claim based on the former trustees’ failure to purchase
Darcy’s interest. (Miller, supra, 33 Cal.3d at pp. 874-875.)
             Graham-Sult v. Clainos (9th Cir. 2013) 756 F.3d 724,
on which Alexander relies, is not to the contrary. In that case,
the duty to investigate was not triggered because the trustee did
not provide the beneficiaries with the assignment of intellectual
property at issue. (Id. at p. 744.) Here, in contrast, the
undisputed evidence showed that the first and second
accountings detailed the three payments made to Darcy. It also
showed that the trustees provided Suzan with a chart delineating
Darcy’s interest in HIP Management. Thus, unlike the
beneficiaries in Graham-Sult, Suzan knew of facts sufficient to
trigger her duty, as Alexander’s guardian, to inquire into the

                                13
existence of any breach-of-trust claim related to the December
2000 settlement agreement.
                              Absurdity
             Finally, Alexander argues that applying section
16460 here will lead to absurd results, including “turn[ing] the
Probate Code on its head” by requiring a beneficiary to establish
the accuracy of an account. (See, e.g., Estate of McLaughlin
(1954) 43 Cal.2d 462, 465-466 [trustee, not beneficiary, bears
burden of showing accuracy of an accounting].) But this case
does not stem from claims related to a petition to settle an
account pursuant to section 17200; it stems from the claims set
forth in dueling motions for summary adjudication, neither of
which sought to settle any of the Trust accountings. Alexander
implicitly acknowledges as much, noting in his briefs that all of
the Trust accountings have yet to be approved. The trustees will
still bear the burden of proving their accuracy whenever they are
settled.
             We also reject Alexander’s assertion that applying
section 16460 here will “bypass[] the probate court’s supervisory
and protective role.” The cases on which Alexander relies to
support this assertion discuss the court’s role when a petition to
settle an account is filed. (See, e.g., Schwartz v. Labow (2008)
164 Cal.App.4th 417, 427.) Again, however, this case deals with
the claims set forth in motions for summary adjudication, not a
section 17200 petition. And even if the court’s section 17200
supervisory powers were triggered, the court was required to
“exercise those powers ‘within the procedural framework laid out
in the governing statutes’ of the Probate Code.” (Babbitt v.
Superior Court (2016) 246 Cal.App.4th 1135, 1144.) Section
16460 is one of the governing statutes that lays out that

                                14
procedural framework. The probate court correctly applied it
when it granted the former trustees’ motion for summary
adjudication.
                          DISPOSITION
             The probate court’s order granting the former
trustees’ motion for summary adjudication, entered December 20,
2018, is affirmed. The former trustees shall recover their costs
on appeal.
             NOT TO BE PUBLISHED.

                                    TANGEMAN, J.

We concur:

             YEGAN, Acting P. J.

             PERREN, J.

                               15
                     David J. Cowan, Judge

             Superior Court County of Los Angeles

                ______________________________

             Greenberg Traurig, Eric V. Rowen, Scott D. Bertzyk
and Lisa C. McCurdy for Defendant and Appellant.
             Loeb & Loeb, Oleg Stolyar and Donald A. Miller for
Plaintiffs and Appellants.