Opinion
B311491
09-29-2022
ROBERT J. ALLAN et al., Plaintiffs and Respondents, v. VIRGINIA POPE et al., Appellants.
Jay M. Spillane, Spillane Trial Group for Appellants. Freeman Mathis &Gary, Stephen M. Caine, Frances M. O'Meara for Plaintiffs and Respondents.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, No. 19STCP04559 Jon R. Takasugi, Judge.
Jay M. Spillane, Spillane Trial Group for Appellants.
Freeman Mathis &Gary, Stephen M. Caine, Frances M. O'Meara for Plaintiffs and Respondents.
COLLINS, J.
INTRODUCTION
Decedent Ken Roberts and his company, Majoken, Inc., sued respondents Allan Law Group P.C. (ALG) and attorney Robert J. Allan for professional negligence arising from respondents' representation of Roberts in a lawsuit involving royalty rights to music. Pursuant to the parties' agreement, the case went to arbitration. While the action was pending, Roberts created a revocable living trust for which he was the sole trustee, and transferred his rights to the malpractice action into the trust. Roberts also transferred his rights to the royalties and rights to the ongoing royalty litigation into the trust.
Roberts died while the malpractice action was pending, and the trust assets were distributed to appellant Virginia Pope, Roberts's life partner. Pope moved to take Roberts's place as claimant in the arbitration. Respondents then moved for summary judgment, asserting that Pope did not have standing to continue Roberts's action, because the transfer of Roberts's claim into the trust and then to Pope violated the California rule that legal malpractice actions may not be assigned to third parties. The arbitrator granted the motion, finding that Roberts's claim survived his death, but could only be continued by the personal representative of his estate rather than Pope as successor in interest. The arbitrator entered a final award finding for respondents, the trial court confirmed the award, and the trial court entered judgment in favor of respondents.
We reverse. Pursuant to the parties' agreement that the arbitrator's ruling is reviewable for legal error, we consider the merits of the arbitrator's decision. First, we find that Roberts's transfer of his malpractice claim into a lifetime revocable trust for which he was the sole trustee did not violate the nonassignability rule for malpractice actions. Second, we find that Pope had standing as successor in interest to maintain Roberts's action. We therefore reverse the judgment and remand the cause for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
A. Background
As characterized by respondents, "This suit is the latest branch of lengthy, Byzantine underlying litigation involving the right to receive public performance royalties from the commercial exploitation of musical compositions and sound recordings thereof written and performed by Mr. Sylvester Stewart, known professionally as Sly Stone, with his band Sly and the Family Stone."
Roberts began managing Stone in the 1970s. Stone had an agreement with Broadcast Music Inc. (BMI), under which BMI agreed to collect all royalties on Stone's behalf and pay the royalties, minus a fee, to Stone. After Stone became indebted to Roberts, Stone executed two agreements entitling Roberts and his company, Majoken, to the BMI royalties.
Years later, Stone's new manager, Goldstein, allegedly fraudulently converted the BMI royalties to himself and his associates. His alleged actions included creating a second company called "Majoken," unrelated to Roberts, in order to claim entitlement to the BMI royalties. Additional information about this litigation is in nonpublished opinion Pope v. Even St. Productions (Sept. 22, 2021, B275199).
Stone engaged respondent attorney Allan and his law firm, ALG, to represent him to address Goldstein's fraud and recover the BMI royalties. Roberts and Majoken, as the parties with rights to the BMI royalties, also later engaged respondents against Goldstein. Respondents state that portions of the Goldstein litigation are still ongoing.
B. This litigation and arbitration
Roberts and Majoken retained respondents in 2010. According to Roberts and Majoken's complaint, "only two days after Roberts executed and delivered the retainer agreement and conflict waiver agreement to ALG, BMI wired $166,112.20 into the ALG client trust account 'representing royalties due and owing.'" In February and March 2010, ALG received another $500,000.00 from BMI in advances against future royalties. Respondents allegedly did not disclose to Roberts or Majoken that the money had been received.
According to the complaint, in "April 2013, when Roberts demanded to see copies of pleadings filed on his behalf, . . . he discovered the faithless and self-dealing actions of Allan and ALG. At that time Roberts reviewed a declaration from Allan admitting to receipt of $666,112.20 in BMI Royalties over three years prior." Roberts and Majoken contended that "Allan and ALG were, at minimum, negligent," but "more likely, self-dealing and fraudulent" because they "acted at all times to serve their interests . . . all counter to the interests of Roberts, in order to arrogate to themselves the BMI Royalties." Roberts and Majoken terminated respondents' representation in August 2013.
In October 2013, Roberts and Majoken filed this action against respondents for professional negligence, breach of fiduciary duty, constructive fraud, and declaratory relief. Pursuant to the parties' retainer agreement, Roberts and Majoken filed a demand for arbitration.
It appears the fraud claim has been abandoned; the parties agree that appellants' claims against respondents sound in professional negligence.
While the case was pending, in March 2014, Roberts created a revocable living trust, naming himself as trustee, and in the event of his death, his life partner Virginia Pope and another individual as successor trustees. The property transferred into the trust included "all rights to performance royalties from Sly Stone works payable by BMI or any successor," all shares in Majoken, "all claims" asserted in the Goldstein action, and "all claims" asserted in the arbitration action against respondents. Roberts died on May 22, 2014. The successor trustees distributed all trust property to Pope as the sole beneficiary of the trust.
The arbitrator granted Pope's unopposed motion to substitute into the case as the claimant. Although respondents did not object to the substitution, in their answer to an amended complaint they included lack of standing as an affirmative defense. In the Goldstein action, Pope was substituted for Roberts pursuant to Code of Civil Procedure 377.31.
All further statutory references are to the Code of Civil Procedure unless otherwise indicated. Section 377.31 states, "On motion after the death of a person who commenced an action or proceeding, the court shall allow a pending action or proceeding that does not abate to be continued by the decedent's personal representative or, if none, by the decedent's successor in interest."
C. Motion for summary judgment and ruling
In the arbitration, respondents filed a motion for summary judgment asserting that Pope lacked standing to assert Roberts's claims. They argued that Roberts's claims sounded in legal malpractice, and such claims are not assignable to another person or entity. They asserted that while the personal representative of an estate may prosecute such claims belonging to a decedent, Pope appeared individually rather than as representative of Roberts's estate, and therefore she did not have standing to assert the causes of action initially asserted by Roberts.
Appellants opposed the motion. They contended that Pope had standing to assert Roberts's claims as his successor in interest. They argued that California law allows a decedent's claims to be asserted by a successor in interest, and such claims are not limited to prosecution by the decedent's estate.
The arbitrator granted respondents' motion for summary judgment. The arbitrator noted in her written opinion that "[c]ase authority does not permit an assignment of a malpractice claim" on public policy grounds. (See, e.g., Goodley v. Wank &Wank, Inc. (1976) 62 Cal.App.3d 389, 395 (Goodley) ["a chose in action for legal malpractice is not assignable [based] on the uniquely personal nature of legal services and the contract out of which a highly personal and confidential attorney-client relationship arises, and public policy considerations based thereon."].) She stated, "If Roberts' assignment of this claim to his Trust was invalid, Pope does not own the claim and has no standing.... If this claim was non-assignable, the claim would have remained as an asset of the estate and the decedent's personal representative would have had the right to pursue this claim on behalf of Robert's [sic] estate. Pope was the executor under Roberts' will, but does not purport to bring this claim in that capacity ...."
A probate proceeding was pending in New York regarding the sole asset in Roberts's estate, an apartment.
The arbitrator continued, "Given [Roberts's] retention of control over the Trust assets, it is arguable whether the assignment of the legal malpractice claims to the Trust was contrary to the non-assignability rule.... As long as Roberts was alive, he still was able to control the pursuit of the claim for his own benefit. This retention of control and benefit would suggest that the policy reasons that advocate against assignability would not apply as long as the claims are in a revocable trust." The arbitrator stated that "when the Trust distributed the assets (including the malpractice claim) to Pope as the sole beneficiary of the Trust assets, that assignment was ineffective as contrary to law as it is not materially different from a prohibited assignment by the original claimant to a stranger to the litigation." Thus, "[a]ny recovery on these claims by Pope would confer no benefit on Roberts' estate and would inure solely to her benefit," as opposed to a personal representative continuing a claim, in which "the litigation is controlled by a person charged with guarding the best interests of the estate. Ownership of the claim in those circumstances has never been transferred to a third party." The arbitrator therefore held that Pope did not have standing to assert Roberts's claims.
The arbitrator also granted summary judgment as to Majoken's claims. In appellants' opening brief, they do not challenge this ruling. In their reply brief, appellants assert that the ruling regarding Majoken was erroneous, but points raised for the first time in a reply brief are forfeited. (See Tellez v. Rich Voss Trucking, Inc. (2015) 240 Cal.App.4th 1052, 1066.)
The arbitrator issued a written final award, which restated the findings on the motion for summary judgment and awarded respondents attorney fees, arbitration fees, and costs in the amount of $65,787.99.
D. Petition to confirm arbitration award
Respondents filed a petition in the superior court to confirm the arbitration award and request that judgment be entered accordingly. Appellants filed a response, stating that the arbitrator refused to hear material evidence and exceeded her powers. They noted that the arbitration agreement stated that errors of law are subject to judicial review. Appellants asserted that the arbitrator "committed an error of law, exceeded her powers, acted without jurisdiction, violated well-defined public policies and statutory rights and selected a remedy not authorized by law."
Appellants filed an opposition and request to vacate the arbitration award. They argued that the bar against assigning legal malpractice cases did not apply to Roberts's transfer of his rights into his trust, because "[a]n assignment from oneself to oneself as trustee hardly removes the 'personal' nature of the malpractice claim, nor does it constitute assignment of a claim to a stranger to the attorney-client relationship." Appellants also asserted that the claim could be assigned to Pope after Roberts's death, citing cases in which similar assignments occurred. (See Parsons v. Tickner (1995) 31 Cal.App.4th 1513, 1521 (Parsons) [deceased musician's daughter had standing to pursue claims relating to music catalog discovered after probate closed; a supplemental administration by the estate was not required]; Exarhos v. Exarhos (2008) 159 Cal.App.4th 898, 905 (Exarhos) [grandchild who inherited rights to a deceased grandparent's bank accounts as beneficiary of a revocable living trust could be deemed successor-in-interest for claims against the bank].) Pope and Majoken asked that the court order that Pope was the successor in interest for Roberts's claims.
The trial court granted the petition to confirm the arbitration award in a written ruling. The court stated that appellants "do not argue that the Arbitrator made mathematical or clerical errors in the calculation of the award, or engaged in egregious misconduct." The court found that appellants' contentions were "legal and factual arguments that challenge the underlying merits of the Arbitrator's decision, not mere mathematical or clerical errors that are capable of simple correction or which evince 'error that is so egregious as to constitute misconduct or so profound as to render the process unfair.' (Heimlich v. Shivji (2019) 7 Cal.5th 350, 368.) The Court finds this conduct alleged by [appellants] does not show that the Arbitrator 'exceeded [her] powers' as that phrase is used in Code of Civil Procedure section 1286.2, subdivision (a)(4), or that any of the other circumstances for vacating an award under section 1286.2 apply."
The trial court entered judgment on August 18, 2020, and ordered respondents to give notice to appellants. No notice of entry of judgment is included in the record; appellants' civil case information statement states that no notice was given. Appellants' notice of appeal was timely filed on February 11, 2021. (Cal. Rules of Court, rule 8.104(a)(1)(C).)
DISCUSSION
A. Standard of review
When a petition to confirm an arbitration award is filed, the superior court must either confirm the award, correct and confirm it, vacate it, or dismiss the petition. (§ 1286.) We review de novo the trial court's order confirming the arbitration award. (Gravillis v. Coldwell Banker Residential Brokerage Co. (2010) 182 Cal.App.4th 503, 511.)
"Generally, courts cannot review arbitration awards for errors of fact or law, even when those errors appear on the face of the award or cause substantial injustice to the parties." (Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 916.) However, when parties who agree to arbitration "make plain their intention that the award is reviewable for legal error, the general rule of limited review has been displaced by the parties' agreement. Their expectation is not that the result of the arbitration will be final and conclusive, but rather that it will be reviewed on the merits at the request of either party." (Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1355. (Cable Connection).)
Here, the arbitration agreement stated that the arbitration award was reviewable for legal error. Thus, we review the legal conclusions in the arbitration award de novo. (Harshad &Nasir Corp. v. Global Sign Systems, Inc. (2017) 14 Cal.App.5th 523, 536 (Harshad &Nasir); Cable Connection, supra, 44 Cal.4th at p.1361.) The facts relating to Pope's standing, the basis for the appeal, are generally undisputed.
The arbitration agreement stated, "Absent any errors of law by the arbitrator, which the parties agree are subject to judicial review, any arbitration awards will be final, binding and conclusive ...."
Appellants assert that the trial court applied the incorrect standard, because it relied on the standard of review for correcting an arbitration award in section 1286.6. Because we review de novo and reverse with directions to vacate the award, we need not address this contention.
Appellants contend the arbitrator erred by (1) holding that Roberts's transfer of his malpractice action into his trust violated the nonassignability rule for malpractice claims, and (2) holding that the malpractice action must be continued by Roberts's estate and personal representative, rather than by Pope as successor in interest. We consider these issues in turn.
B. Transfer of the malpractice action to the trust
1. Legal background
California courts have long held that causes of action for legal malpractice may not be assigned to a "stranger to the litigation." The seminal case for this prospect is Goodley, supra, 62 Cal.App.3d 389, in which the plaintiff purported to be the owner of a legal malpractice claim assigned by a former client of the defendants. The malpractice claim arose during the client's marriage dissolution proceeding; she asserted that the firm's faulty advice resulted in damages of $147,000. (Goodley, 62 Cal.App.3d at pp. 391-392.) The defendants moved for summary judgment, asserting that the assignee, Goodley, did not have standing to assert the client's claims. The trial court granted the motion. (Id. at p. 392.)
Division One of this district affirmed. It noted that in California, "[t]he construction and application of the broad rule of assignability have developed a complex pattern of case law underlying which is the basic public policy that '"(a)ssignability of things in action is now the rule; nonassignability, the exception.'"" (Goodley, supra, 62 Cal.App.3d at p. 393.) The court stated that "causes of action for personal injuries arising out of a tort are not assignable[ ] nor are those founded upon wrongs of a purely personal nature such as to the reputation or the feelings of the one injured." (Id. at pp. 393-394.) The court found that "a chose in action for legal malpractice is not assignable" based on "the uniquely personal nature of legal services and the contract out of which a highly personal and confidential attorney-client relationship arises, and public policy considerations based thereon." (Id. at p. 395.)
Further explaining its reasoning, the Goodley court stated, "Because of the inherent character of the attorney-client relationship, it has been jealously guarded and restricted to only the parties involved." (Goodley, supra, 62 Cal.App.3d at p. 396.) The court stated that the defendants' duty ran only to the client and no one else. (Ibid.) The court continued, "It is the unique quality of legal services, the personal nature of the attorney's duty to the client and the confidentiality of the attorney-client relationship that invoke public policy considerations in our conclusion that malpractice claims should not be subject to assignment. The assignment of such claims could relegate the legal malpractice action to the market place and convert it to a commodity to be exploited and transferred to economic bidders who have never had a professional relationship with the attorney and to whom the attorney has never owed a legal duty, and who have never had any prior connection with the assignor or his rights. The commercial aspect of assignability of choses in action arising out of legal malpractice is rife with probabilities that could only debase the legal profession." (Id. at p. 397.) The court concluded that the threat of such market-based assignments by dissatisfied clients "would most surely result in a selective process for carefully choosing clients thereby rendering a disservice to the public and the profession." (Id. at p. 398.)
California cases have generally followed Goodley in holding that legal malpractice cases are not assignable. In Jackson v. Rogers &Wells (1989) 210 Cal.App.3d 336 (Jackson), for example, the plaintiff sued two insurance companies and a law firm. The insurance companies settled with the plaintiff, and as part of the settlement agreement, they purported to assign to the plaintiff their rights to a legal malpractice claim against the law firm defendant. The court held that these claims were not assignable, and discussed additional public policy reasons why such claims should not be assignable to a former adversary: "[T]he need to preserve the element of trust between attorney and client . . . could be impaired if the attorney perceives a future threat of the client's assignment to a stranger or adversary of a legal malpractice claim. Similarly, counsel might be discouraged from pursuing vigorous advocacy on behalf of his or her client if that advocacy might alienate the adversary, who might someday be motivated to sue the attorney for legal malpractice under an assignment of rights. An attorney might also seek to please an employer-insurer at the expense of the insured's best interest, if the attorney fears the employer might someday turn over its malpractice cause of action to a third party. Finally, if malpractice claims could be bought and sold, the inevitable result would be raised malpractice insurance premiums." (Id. at pp. 347-348.)
The Jackson court further noted, "The carriers never filed suit against the attorneys, and it is unknown whether they would have done so on their own behalf or whether they evaluate these claims as meritorious or simply saleable. [ ] Such facts provide obvious warning signs that even unmeritorious claims might be assigned by an insurer merely as bargaining chips to dissuade a third party claimant from further pursuit of the insurer on currently allowable bad faith theories. [ ] Particularly in cases with a history of animosity between the adversaries in the underlying lawsuit, revenge or other impermissible considerations might become factors." (Jackson, supra, 210 Cal.App.3d at p. 348.)
Kracht v. Perrin, Gartland &Doyle (1990) 219 Cal.App.3d 1019 (Kracht), relied on the reasoning of Goodley and Jackson in barring the involuntary assignment of a malpractice claim to a former adversary. In that case, the alleged malpractice occurred after plaintiff Kracht sued Hogue, and Hogue's attorneys were negligent in handling the defense. Kracht won the case against Hogue, and a court ordered Hogue, now a judgment debtor, to assign his malpractice action against the attorneys to Kracht. (Id. at pp. 1021-1022.) In finding that the malpractice claims could not be assigned, the Court of Appeal noted additional public policy reasons why assignment was barred in such a situation: "First, a suit could be filed, even though the former client (to whom the duty was owed) was entirely satisfied with the services and opposed the filing of a malpractice lawsuit.[ ] Second, a suit brought on a claim acquired by involuntary assignment, and against the client's wishes, places the attorney in an untenable position. He must preserve the attorney-client privilege (the client having done nothing to waive the privilege) while trying to show that his representation of the client was not negligent.[ ] Finally, a malpractice suit filed by the former adversary is 'fraught with illogic' [citation] and unseemly arguments: In the former lawsuit Kracht judicially averred and proved she was entitled to recover against Hogue; but in the malpractice lawsuit Kracht must judicially aver that, but for attorney's negligence, she was not entitled to have recovered against Hogue." (Id. at pp. 1024-1025.)
Exceptions to the non-assignability of legal malpractice claims do exist, however. In Office of Statewide Health Planning and Development v. Musick, Peeler &Garrett (1999) 76 Cal.App.4th 830 (OSHPD), this division held that the special representative of a Chapter 11 bankruptcy estate had standing to bring an action for legal malpractice on behalf of the bankruptcy debtor. The court reasoned, "Although under California law a chose in action for legal malpractice is not assignable, under federal law it is retained in a Chapter 11 bankruptcy estate and may be prosecuted by a special representative. Because no assignment has occurred, the special representative is not precluded by state law from bringing the legal malpractice claim." (Id. at p. 832.) And in White Mountains Reinsurance Co. of America v. Borton Petrini, LLP (2013) 221 Cal.App.4th 890, 892, the court held that a cause of action for legal malpractice is assignable when it occurs only as a small, incidental part of a larger commercial transfer between companies.
2. Analysis
Appellants assert that Roberts's transfer of the claim to his own trust did not violate the nonassignability rule for malpractice claims. Appellant notes that Roberts's assignment does not invoke any of the public policy concerns that led the courts in Goodley, Jackson, Kracht, and other cases to hold that legal malpractice claims may not be assigned. To address this contention, we first consider the nature of a living or "inter vivos" revocable trust.
"A revocable trust is a trust that the person who creates it, generally called the settlor,[ ] can revoke during the person's lifetime.... When the settlor dies, the trust becomes irrevocable, and the beneficiaries' interest in the trust vests." (Estate of Giraldin (2012) 55 Cal.4th 1058, 1062.) While the settlor is alive, the trustee owes a fiduciary duty to the settlor, not to the beneficiaries. (Ibid.; see also Prob. Code, § 15800, subd. (b).) "Property transferred to, or held in, a revocable inter vivos trust is . . . deemed the property of the settlor" during the settlor's lifetime. (Zanelli v. McGrath (2008) 166 Cal.App.4th 615, 633; see also Prob. Code, § 18200.) "Any interest that beneficiaries of a revocable trust have in trust property is 'merely potential' and can 'evaporate in a moment at the whim of the [settlor].'" (Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298, 1319.)
Importantly, a trust is not an entity separate from its trustee; rather, it is "'a fiduciary relationship with respect to property.'" (Presta v. Tepper (2009) 179 Cal.App.4th 909, 914.) "A trust is not an entity; it cannot sue or be sued, or hold title to property." (Portico Management Group, LLC v. Harrison (2011) 202 Cal.App.4th 464, 473.) "As a general rule, the trustee is the real party in interest with standing to sue and defend on the trust's behalf." (Estate of Bowles (2008) 169 Cal.App.4th 684, 691.) "[W]hen the sole settlor, trustee, and beneficiary are the same person, a trustee litigating to defend the trust corpus represents his or her own interests, not someone else's." (Aulisio v. Bancroft (2014) 230 Cal.App.4th 1516, 1525.)
Thus, Roberts's transfer of his malpractice claim to his revocable trust with himself as trustee did not effect a change in legal ownership of the claim. Respondents are incorrect when they state that even though Roberts controlled the trust, "the Trust was nonetheless a separate legal entity that had never retained ALG," and "[e]ven if the Trust had taken over the prosecution of this action, it would arguably have no standing to do so." (See, e.g., Arluk Medical Center Industrial Group, Inc. v. Dobler (2004) 116 Cal.App.4th 1324, 1331-1332 ["a settlor with the power to revoke a living trust effectively retains full ownership and control over any property transferred to that trust"].) Here, Roberts's transfer of the claim to his trust with himself as trustee did not effect an assignment of the claim to another person or entity.
The arbitrator correctly recognized that Roberts, as both settlor and trustee, maintained complete control over the malpractice claim during his lifetime. The arbitrator noted in her written decision that Roberts "retained control over the assets in the Trust while he was alive, because it was a revocable Trust. Given [Roberts's] retention of control over the Trust assets, it is arguable whether the assignment of the legal malpractice claims to the Trust was contrary to the nonassignability rule. [Citation.] As long as Roberts was alive, he still was able to control the pursuit of the claim for his own benefit. The retention of control and benefit would suggest that the policy reasons that advocate against assignability would not apply as long as the claims are in a revocable trust."
Indeed, the circumstances here stand in sharp contrast to the assignments in Goodley and the cases that follow its reasoning. Goodley was informed by "the unique quality of legal services, the personal nature of the attorney's duty to the client and the confidentiality of the attorney-client relationship." (Goodley, supra, 62 Cal.App.3d at p. 397.) However, Roberts maintained control over both the trust and the litigation during his lifetime, presenting no compromise to the attorney-client relationship or client confidentiality. Because Roberts was both the settlor and the trustee, no "stranger to the litigation" was introduced by the transfer. Goodley also expressed concern that such a claim could become a "commodity to be exploited and transferred to economic bidders who have never had a professional relationship with the attorney" (ibid.)-another concern not implicated by Roberts's transfer to a revocable trust that he alone controlled. Roberts's transfer did not commodify the claim, and he had no duties to any future beneficiaries that might compromise his pursuit of the action. The additional concerns expressed in Jackson and Kracht regarding malpractice claims asserted by former adversaries were also not implicated by Roberts's transfer of his claim to his trust, because the trust was never an adversary.
Thus, Roberts's transfer of the malpractice claim did not alter the ownership of the claim, commodify the claim, or undermine the attorney-client relationship. We therefore find that in the narrow circumstances of this case, Roberts's transfer of his cause of action for malpractice against respondents to his revocable living trust, with himself as sole trustee from the time of the transfer until his death, did not violate the nonassignability rule articulated in Goodley. We therefore turn to whether the distribution of the cause of action as a trust asset to Pope following Roberts's death violated the nonassignability rule.
C. Distribution of the malpractice action to Pope
In 1992, the Legislature enacted a series of changes to the Code of Civil Procedure, enumerated in sections 377.10 et seq., to address "litigation involving decedents." The new statutory scheme was intended to align with changes to the Probate Code made several years earlier. (Litigation Involving Decedents, 22 Cal. L. Revision Comm'n Reports 895, 899 (1992).) For example, section 377.20 states, "Except as otherwise provided by statute, a cause of action for or against a person is not lost by reason of the person's death ...." Section 377.30 provides, "A cause of action that survives the death of the person entitled to commence an action or proceeding passes to the decedent's successor in interest ....
The arbitrator cited this statutory scheme in support of her conclusion that "Pope's claimed right to assert this malpractice claim does not fall within any of the grounds allowed by statute." She relied primarily on section 377.10, subdivision (a), which defines a "beneficiary of the decedent's estate" when a decedent dies leaving a will as "the sole beneficiary or all of the beneficiaries who succeed to a cause of action, or to a particular item of property that is the subject of a cause of action, under the decedent's will." The arbitrator noted that Pope "does not prosecute the claim here as a beneficiary under the will because the cause of action had been assigned to the Trust."
The arbitrator was correct that Pope was not proceeding as a beneficiary under section 377.10. However, the arbitrator erred in finding that Pope also could not proceed as a "successor in interest" under section 377.11, which the arbitrator cited but did not discuss in depth. That section defines a successor in interest as "the beneficiary of the decedent's estate or other successor in interest who succeeds to a cause of action or to a particular item of the property that is the subject of a cause of action." (§ 377.11, emphasis added.) Here, Pope was the "successor in interest who succeed[ed] to a cause of action" by way of the trust.
Allowing a successor in interest-not only a personal representative or a beneficiary-to succeed to a cause of action was designed to address nonprobate transfers, among other things. The 1992 revisions to the Code of Civil Procedure were meant to "modernize" the law "concerning survival and continuation of actions after the death of parties." (Litigation Involving Decedents, 22 Cal. L. Revision Comm'n Reports 895, 897.) The Law Revision Commission noted that former provisions of the Code of Civil Procedure regarding litigation involving decedents "were developed before the increasing importance of nonprobate transfers was recognized." (Id. at p. 899.) Thus, where there is "no administration of the decedent's estate either because of its size or because all the substantial assets pass to successors by means of nonprobate transfers," the 1992 statutory scheme "authorizes the successors in interest" to bring or maintain a decedent's action. (Id. at p. 900.) Pope is one such successor in interest.
The arbitrator stated that Pope did not have standing, in part, because "Pope could pursue [the malpractice claim] without regard to the interests of the decedent's estate," and "[a]ny recovery on [the claim] by Pope would confer no benefit on Roberts' estate." This conclusion was misguided, because the malpractice claim was not part of Roberts's estate and Pope was not required to pursue it on behalf of the estate. "'When a person creates, and transfers property to, an inter vivos trust and the trust estate does not revert to the settlor's estate on his death, the trust property is not subject to probate administration in the settlor's estate. Estate of Heigho (1960) 186 Cal.App.2d 360, 9 Cal.Rptr. 196. The property is not subject to probate administration even if the decedent-settlor was a life beneficiary of the trust or retained the unexercised power to revoke....'" (Estate of Parrette (1985) 165 Cal.App.3d 157, 164; see also Ross &Cohen, Cal. Practice Guide: Probate (The Rutter Group 2021) ¶ 2:109 ["Property held in an inter vivos trust is not subject to probate administration"].) Thus, "[u]nder California law, a revocable inter vivos trust is recognized as simply 'a probate avoidance device.'" (Zanelli v. McGrath, supra, 166 Cal.App.4th at p. 633; see also Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1349.) As appellants point out, "The purpose of a living trust is to avoid the time, expense, and legal fees inherent in a probate action," but the "Arbitrator's theory subverts the purpose of living trusts."
Property held in a trust at the time of the settlor's death may be subject to creditors' claims if the probate estate is insufficient to satisfy those claims. (See, e.g., Prob. Code, § 19001.) However, creditors' claims are not at issue here.
The arbitrator relied on OSHPD, supra, 76 Cal.App.4th 830, in which the court found that under a Chapter 11 bankruptcy, the trustee of the bankruptcy estate may pursue a malpractice claim on the estate's behalf, rather than as an assignee. OSHPD is not on point, however. In that case, this court held that the malpractice cause of action could be pursued by the trustee because "[u]nder federal law, all legal and equitable interests of the debtor become part of the bankruptcy estate," and therefore "even claims that are not assignable under state law transfer to the bankruptcy estate." (OSHPD, supra, 76 Cal.App.4th at p. 834.) By contrast, however, property in a revocable living trust generally does not become part of the decedent's estate upon the decedent's death. Thus, the reasoning of OSHPD does not apply here.
The arbitrator's conclusion also conflicts with sections 377.10 and 377.11, which specifically state that the decedent's cause of action may be brought or maintained by a beneficiary or other successor in interest; the statutes do not require that such claims be maintained only by the estate or personal representative. The arbitrator further concluded that transfer of the claim to Pope after Roberts's death would violate the nonassignability rule. Notably, however, despite the decisions in Goodley (decided in 1976), Jackson (decided in 1989), and Kracht (decided in 1990), the Legislature did not include an exception for malpractice claims when it amended the relevant sections of the Code of Civil Procedure in 1992. To hold that a beneficiary or successor in interest may bring some decedents' claims, but not a decedent's malpractice claim, would require us to read a legal malpractice exception into sections 377.10 and 377.11. We find no legal basis for finding such an exception to these statutes.
Moreover, several cases demonstrate that a decedent's cause of action may be asserted by a successor in interest rather than the decedent's estate. A situation similar to the one here was addressed in Osuna v. Albertson (1982) 134 Cal.App.3d 71 (Osuna). There, "on August 22, 1980, Evelyn Zyara assigned to her trustee appellant, under an inter vivos trust, all of her right, title and interest in the promissory notes and deeds of trust. On September 30 she assigned all of her right, title and interest in the causes of action for fraud and negligent misrepresentation.
On October 23 this action was filed, and on November 5 Evelyn Zyara died at the age of 88." (Id. at pp. 83-84.) The Court of Appeal noted that "California cases have refused to permit assignment of a cause of action for fraud under some circumstances." (Id. at p. 81.) The court held that because Zyara's claim was linked with a property claim, it was assignable under Civil Code section 954. (Ibid.) The court also held that it was unnecessary to have a personal representative, rather than a successor in interest, continue Zyara's claims:
"A thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner." (Civ. Code, § 954.)
"If Evelyn had not made the assignments on August 22 and September 30, 1980, her personal representative, whether executor or administrator, could have filed the instant action for all 22 causes of action including the 21st and 22d based on fraud and negligent misrepresentation respectively .... [Former] Probate Code section 573 [predecessor to sections 377.20 and 377.30] clearly gives the personal representative such right to sue as to these survivable causes of action. Should it make any difference that appellant is now suing in the capacity of trustee of an inter vivos trust rather than as Evelyn's executor or administrator? We believe it should not make a difference under the facts pleaded here. Would it cure the defect of assignability if appellant were to seek letters of administration and then reassign the 21st and 22d causes of action back to himself as administrator of the estate of Evelyn Zyara? We believe that such a procedure is unnecessary."
(Osuna, supra, 134 Cal.App.3d at p. 84.)
Appellants rely on Parsons, supra, 31 Cal.App.4th 1513, in which a musician died intestate. The decedent's former managers represented to the two heirs, the decedent's wife and daughter, that the managers were entitled to publish the musician's catalog of music, subject only to an obligation to distribute limited royalty payments to the estate and heirs. (Id. at p. 1520.) Probate was opened, and decedent's heirs reached a settlement dividing the decedent's estate, including royalty rights for the catalog of music. The settlement stipulated that the daughter, Polly Parsons, was entitled to any after-discovered assets. (Id. at p. 1519.) After probate closed, Parsons discovered that the managers did not have any rights to the decedent's catalog of music, and she sued them. (Id. at p. 1520.) The managers demurred on the grounds that Parsons lacked standing to sue, because such a claim could only be asserted on behalf of the decedent's estate. (Id. at p. 1521.)
The Court of Appeal held that Parsons had standing to pursue the claim as the decedent's successor in interest under sections 377.10, subdivision (b) and 377.11. (Parsons, supra, 31 Cal.App.4th at p. 1523.) Rejecting the defendants' contention that the "successors in interest" provision of section 377.11 applied only to small estates and nonprobate transfers such as trusts, the court held that the provision also applied when probate had been completed: "Here, the probate was closed, and it would make no sense to open a subsequent probate for the sole purpose of asserting decedent's cause of action when it has passed to his successor in interest." (Id. at p. 1524.)
Section 377.10, subdivision (b) defines a "beneficiary of the decedent's estate" when the decedent died intestate.
Appellants also cite Exarhos, supra, 159 Cal.App.4th 898, in which a grandson, Nicholas, sued a bank where his deceased grandmother, Eleni, had a savings account. Nicholas alleged he was Eleni's successor in interest through a trust; a probate proceeding was also pending regarding Eleni's estate. The trial court sustained the bank's demurrer and awarded the bank attorney fees based on the deposit agreement between Eleni and the bank. (Id. at p. 902.) Nicholas appealed the fee award ruling.
The Court of Appeal, considering the mutuality of remedy for attorney fee claims in Civil Code section 1717, considered whether Nicholas would have been entitled to attorney fees had he prevailed against the bank. (Exarhos, supra, 159 Cal.App.4th at pp. 903-904, 906.) Based on Nicholas's pleadings, the court held that he could be deemed a successor in interest under section 377.11. (Id. at p. 907.) The court rejected Nicholas's contention that Eleni's estate should be liable for the attorney fees, stating, "Section 377.11 provides that a successor in interest is a person who succeeds to a particular 'cause of action....' Section 377.30 provides that where a 'cause of action . . . passes to the decedent's successor in interest,' under certain circumstances, the successor in interest may commence the cause of action. Thus, a 'successor in interest' has the authority to act with respect to the particular cause or causes of action to which he succeeds, rather than the entirety of the decedent's estate." (Id. at pp. 908-909.)
Here, as in Osuna, Parsons, and Exarhos, Pope succeeded to the cause of action specifically. There was no basis to have Roberts's personal representative, rather than his successor in interest, pursue the claim.
The arbitrator also found that "when the Trust distributed the assets (including the malpractice claim) to Pope as the sole beneficiary of the Trust assets, that assignment was ineffective as contrary to law as it is not materially different from a prohibited assignment by the original claimant to a stranger to the litigation. All of the policy reasons supporting nonassignability were at play at this point," including that Pope "could pursue these claims without regard to the interests of the decedent's estate."
We disagree. Continuation of a malpractice claim after the plaintiff's death inevitably introduces a third party into lawsuit. However, there is no practical difference between having the third party be the personal representative of the estate in general, versus a beneficiary or a successor in interest specifically-especially here, where Pope played both roles. This is also consistent with OSHPD, supra, in which the bankruptcy trustee had standing to maintain the malpractice claim, even as a stranger to the litigation. An as noted above, sections 377.10 and 377.11 do not suggest that a malpractice claim should be treated differently from any other claim that passes to a beneficiary or successor in interest, even though a third party assumes the role of the decedent.
Goodley expressed concern that the assignment of malpractice claims "could relegate the legal malpractice action to the market place and convert it to a commodity to be exploited and transferred to economic bidders who have never had a professional relationship with the attorney" (Goodley, supra, 62 Cal.App.3d at p. 397), but no such commodification occurred here.
Hypothetically, some of the concerns articulated in Jackson and Kracht could come into play if a decedent assigned rights to a malpractice claim to a former adversary. But no such concerns are at issue here, where Pope was not an adversary in the litigation, and was also the beneficiary of the royalty rights and the Goldstein action, which were closely related to the malpractice action. In short, the public policy concerns that motivated the nonassignability rule articulated in Goodley were not implicated by Pope becoming the successor in interest to Roberts's malpractice cause of action upon his death.
We find that the arbitrator erred in holding that Pope did not have standing to continue Roberts's malpractice action against respondents. We therefore reverse the judgment, and remand with directions to the trial court to vacate the order confirming the arbitrator's final award.
DISPOSITION
The judgment is reversed. The cause is remanded to the superior court with instructions to vacate its order confirming the arbitration award, and enter a new order vacating the award. Appellants are entitled to costs on appeal.
We concur: WILLHITE, ACTING P.J. CURREY, J.