Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. A225267 Robert J. Moss, Judge.
Law Offices of Marjorie G. Fuller, Marjorie G. Fuller and Vicki Marolt Buchanan for Defendant and Appellant.
Loeb & Loeb, David C. Nelson and Adam F. Streisand for Plaintiff and Respondent.
OPINION
ARONSON, J.
A trust beneficiary challenges the former trustee’s administration of a family trust whose assets were concentrated in two privately-held real estate investment trusts (REIT’s.) The beneficiary claims the trust lost about $20 million in virtually certain stock appreciation by selling about 40 percent of the trust’s interest in one of the REIT’s, and that the former trustee had a disqualifying conflict of interest because he bought for his own purposes additional shares of the same REIT, in which he was an officer and shareholder.
A REIT, or real estate investment trust, is an acronym that, like a SLAPP suit (strategic lawsuit against public participation) or the ARB (California Air Resources Board), appears to have jumped out of the “alphabet soup of acronyms” into regular parlance. (See Sherwin-Williams Co. v. South Coast Air Quality Management Dist. (2001) 86 Cal.App.4th 1258, 1262.)
We hold that the trial court properly interpreted the trust agreement and approved the former trustee’s accounting. Substantial evidence supports the trial court’s determination that the trustee acted reasonably and prudently in selling assets to diversify the trust’s investment portfolio, reduce its debt, and provide income to the trust beneficiaries. Accordingly, we affirm the judgment.
I
Factual and Procedural Background
To the extent that appellant Michelle Donahue (Michelle) challenges the evidentiary basis for the statement of decision, we resolve all evidentiary conflicts and indulge all legitimate and reasonable inferences in favor of respondent Patrick Donahue (Patrick), who prevailed below. This is true even if the evidence is conflicting, if there is more than one inference that we could reasonably draw from the facts, or if we ourselves would resolve the evidence in a different way. (See Estate of Hicks (1970) 3 Cal.App.3d 312, 316; TME Enterprises, Inc. v. Norwest Corp. (2004) 124 Cal.App.4th 1021, 1030.)
Like the litigants, we use first names to refer to the various persons who bear the same “Donahue” surname for ease of reference, not out of disrespect.
Our review has been hampered by Patrick’s wholesale incorporation of the trial court’s statement of decision as his statement of the facts in his respondent’s brief. (See Cal. Rules of Court, rule 8.204(a)(1)(c) [appellate briefs must “[s]upport any reference to a matter in the record by a citation to the volume and page number of the record where the matter appears”].) While the statement of decision is a part of the court record, it does not allow us to readily verify which facts support the statement of decision. “[O]n appeal it is manifestly ‘the duty of a party to support the arguments in its briefs by appropriate reference to the record, which includes providing exact page citations.’ [Citations.]” (Nazari v. Ayrapetyan (2009) 171 Cal.App.4th 690, 694, fn. 1, original italics; see also Doppes v. Bentley Motors, Inc. (2009) 174 Cal.App.4th 967, 990.) As Michelle aptly points out, “Patrick’s recitation of facts provides no coherent way for this court to determine whether the evidence supports the findings and conclusions of the trial court.”
A. The Daniel Donahue Trust and Its Relationship to the Donahue Schriber Realty Group
Michelle is the widow of shopping center entrepreneur Daniel Donahue (decedent), who died in December 2002, leaving her with three young daughters. Upon the decedent’s death, an inter vivos trust, last amended in 1992, became irrevocable. The trust provided for Michelle to reside in the family home and receive the trust income for life, when the balance of the estate would be distributed to the children. Pursuant to the trust agreement, Patrick, the decedent’s youngest brother, was named to act as successor trustee.
By 2002, the trust held over $45 million in mostly nonmarketable assets. About 50 percent of the trust’s assets were in Donahue Schriber Realty Group, an umbrella partnership REIT, which is in the shopping center business.
The REIT had its origins in a company named Donahue Schriber, which decedent formed in 1976 with Thomas Schriber. Patrick joined the company two years later in 1978. He quickly became the company’s “go-to person, kind of their number 3 man,” and was known as its “problem-solver.”
In 1997, Donahue Schriber was reorganized as a REIT to secure additional capital. Three institutional investors, including a pension fund and a union, held 90 percent of the shares. This restructuring did not affect the company’s institutional management; the decedent, Thomas Schriber, and Patrick Donahue remained the three critical decisionmakers.
REIT’s are a common tax planning device in commercial real estate through which individuals or partnerships transfer appreciated property to the newly formed umbrella partnership without having to pay capital gains taxes on their contributions. (See discussion in Liberty Property Trust v. Republic Properties Corp. (D.C. Cir. 2009) 577 F.3d 335, 337.)
Patrick became Donahue Schriber’s president and chief operating officer when decedent died, and he became chief executive officer when Thomas Schriber retired.
B. Patrick Donahue’s Decision, as Trustee, to Redeem 40 Percent of the Trust’s Shares in Donahue Schriber
With the loss of the decedent’s earning capacity upon his death, Patrick, as trustee, grew concerned about the trust’s ability to generate sufficient income to meet the living expenses and income needs of Michelle and her children. The trust’s pretax expenses were nearly $600,000 greater than its income. The trust also carried substantial debt, including two negatively amortizing loans to Donahue Schriber, which were “eating up $800,000 a year in dividend income.” There were serious concerns about the family’s financial security, based upon the insufficiency of the existing assets to support the family and service the debt.
Patrick also worried that trust investments carried too much exposure to commercial real estate. “[S]o I had a trust that was highly leveraged and highly concentrated.” The decedent, as well, had told his estate planning attorney in 1997 “that he wanted Pat to act as trustee in part because Pat was the best person situated to manage extricating Michelle and the girls’ financial affairs from the REIT.” The decedent did not include any mandate in the trust agreement to maintain the trust’s stock in Donahue Schriber.
In February 2004, Patrick proposed a one-time accommodation to the Donahue Schriber board to “create some liquidity” by selling some of the trust’s shares and stock options in the REIT at full net asset value. According to Patrick, “[t]his plan gave [the trust] the ability to get rid of all of our debt and provide Michelle and the girls with a debt-free estate that they could, in my opinion, have financial security for the rest of their life.” While Patrick understood that the trust would lose the opportunity for future appreciation on the shares and options that had been redeemed, “projections are projections. I have no guarantee where the stock is going to go. I needed to create income for Michelle and the girls, and so subsequently the best idea to get to income, I really had no choice.”
The Donahue Schriber shares were not publicly traded, and there was no ready public market. In June 2003, the board adopted a liquidity agreement to determine share prices based on the net asset value per share through an annual appraisal by a third-party appraiser on an asset-by-asset basis. Such a calculation was “widely used within the [REIT] industry.”
The board approved a cashless share redemption in May 2004, and set a price at $19.62 per share, based on an independent arms-length appraisal by outside auditor PricewaterhouseCoopers. Patrick did not participate in the decision or the appraisal of the full net asset value.
The sale, representing some 40 percent of the trust’s interest in Donahue Schriber, was completed in June 2004, and retired the trust’s debt to Donahue Schriber. “We used the exact amount of shares and options to retire that number.” Following the sale, the trust continued to retain 60 percent of its interest in Donahue Schriber, a company then worth close to $2 billion.
To further diversify the trust’s investment portfolio, Patrick also sold the trust’s substantial interest in General Growth Properties, another multi-billion dollar shopping center REIT, for $12.8 million in cash. Patrick used these sale proceeds to fund subtrusts for the children, to retire the mortgage debt on the family home and to make other, more diversified, investments outside the commercial real estate area.
In October 2004, Patrick resigned as trustee and was succeeded by another brother, Terence Donahue, along with a cotrustee, Northern Trust Bank of California.
The record contains varying spellings for Terence. Patrick’s brief in this appeal adopts “Terrence,” (as does the statement of decision which he prepared for the trial court), but his first and final account, for example, called him “Terrance.” Patrick’s brief in the last-filed appeal in G041503 uses “Terence,” as does Michelle’s. We somewhat arbitrarily adopt the latter usage (Terence) simply because it is the most recent.
C. The Trust Accounting Litigation
In April 2005, Patrick initiated the instant litigation under Probate Code section 17200 to secure court confirmation and approval of his final accounting. Patrick sought trustee’s compensation through the date of his resignation. Michelle objected to the petition, based on Patrick’s conflicting interests as trustee.
All further unspecified statutory references are to the Probate Code.
A court trial began in September 2007 and lasted 14 days. Michelle argued at trial that Patrick prematurely sold the stock and options for too low a price, resulting in lost appreciation in stock value of some $20 million to Michelle and her daughters. Her experts argued that Patrick should have used different strategies, such as a bank refinancing, to achieve the same objectives. In rebuttal, Patrick introduced the PricewaterhouseCoopers appraisal into evidence, and produced testimony he acted prudently in relying on the appraisal’s established methodology to determine net asset value.
The court issued a 44-page statement of decision approving Patrick’s final account and overruling Michelle’s objections. The court determined that Patrick’s sale of the Donahue Schriber shares to pay off the loans was reasonable and prudent, and that the shares were properly valued. “In 2004, with the information available at the time, the Court is convinced Patrick’s plan was a reasonable one with reasonable goals. Michelle is a stay-at-home mother with three minor children and essentially no income of her own. If Patrick had failed to pay off this debt and [Donahue Schriber’s] projections had proven to be wrong, a widow with her three minor children could have been placed in a precarious position.” The court concluded with the following observation: “With the value of hindsight, the Trust may have been better off financially if it had refinanced the [Donahue Schriber] loan with Wells Fargo, borrowed even more money to exercise the options, and then paid off the debt with the redemption of shares in 2006. However, pursuant to the prudent investor rule, Patrick’s actions are evaluated not by hindsight, but in light of the facts and circumstances existing at the time of his decisions (Probate Code § 16051).”
D. Consolidation Orders
This appeal concerns Michelle’s appeal from the judgment arising from the trust accounting litigation. Shortly thereafter, Michelle filed a second notice of appeal (G040628) from a postjudgment fee order allowing Patrick to recover more than $5 million in attorney fees while defending the litigation. We initially consolidated the two appeals, which were briefed together and are based on a single record.
Michelle subsequently filed a third notice of appeal (G041503) from another posttrial order involving a claim for additional attorney fees. For good cause, we deem it more appropriate to decide the two appeals relating to attorney fees together because they involve common issues of law and fact. Accordingly, we sever the instant appeal (G040259) from the two appeals on attorney fees (G040628 and G041503).
II
Discussion
A. Paragraph C-2 of the Trust Agreement Authorized Patrick’s Conflicting Roles as Trustee and Officer Even After Donahue Schriber’s Reorganization as a REIT
Michelle argues that Patrick’s “irreconcilable conflict” as trustee of the Donahue trust and as officer/shareholder of Donahue Schriber automatically barred him from entering into any transactions for the trust with Donahue Schriber unless he secured Michelle’s clear consent and the probate court’s prior approval. Patrick having done neither, Michelle contends he should be surcharged for the lost appreciation on the Donahue Schriber stock which he sold.
Michelle relies on section 16004, subdivision (a), which provides, “The trustee has a duty not to use or deal with trust property for the trustee’s own profit or for any other purpose unconnected with the trust, nor to take part in any transaction in which the trustee has an interest adverse to the beneficiary.” Michelle also cites Estate of Martin (1999) 72 Cal.App.4th 1438, 1443 (Martin), for the proposition that Patrick must both act as a prudent investor in dealing with Donahue Schriber stock and “obtain the approval of either the court or the beneficiary after full disclosure.”
In her reply brief, Michelle decries the “‘straw man’ logical fallacy” argument that her proposed standard amounts to “‘strict liability’”; she apologizes for using a misleading heading in her appellant’s opening brief. But even Michelle recognizes that her argument amounts to strict liability according to “the common meaning of the term.”
Martin is factually and legally distinguishable. There the appellate court addressed self-dealing by court-supervised executors of wills, not self-dealing in trust proceedings. Indeed, in Martin, the will specifically prohibited the executor from selling any probate assets without court confirmation, as required by section § 9880. (Martin, supra, 72 Cal.App.4th at p. 1445.) Martin expressly contrasted such a situation with a trust proceeding in Copley v. Copley (1981) 126 Cal.App.3d 248, 278-280 (Copley), where the trust instrument expressly gave the trustee of an inter vivos trust unconditional authority to sell some of the trust’s shares in a family corporation (involving the Copley newspaper chain) back to the corporation. (See Martin, at p. 1445.)
Here, unlike Martin, no such prohibition appears in the Donahue trust instrument. To the contrary, paragraph C-2 of the trust instrument expressly exculpated the trustee from automatic liability in a conflict of interest situation, requiring instead that the beneficiary who questioned the trustee’s act in the face of conflicting interests “to prove a lack of good faith or reasonable business judgment.”
Conflict waivers like paragraph C-2 are permissible under California trust law. Section 16000 requires trustees to administer trusts according to the statutory provisions in Division 9 “except to the extent the trust instrument provides otherwise....” Similarly, section 16461, subdivision (a), states that “the trustee can be relieved of liability for breach of trust by provisions in the trust instrument.” There are exceptions for intentional or reckless misconduct, gross negligence, and bad faith, but none applies here.
Courts are sensitive to the “perplexing dilemma” facing trustees of an inter vivos trust involving a closely-run family enterprise whose broad powers must be exercised “in an atmosphere heavily laden with conflicting interests.” (Copley, supra, 126 Cal.App.3d at p. 255.) In Copley, a newspaper magnate’s widow, on his death, became chief executive officer of the media corporation and trustee of a trust in which her stepchildren were the beneficiaries. The stepchildren sued to remove the widow for breaching her fiduciary duties by acting in the face of known conflicting interests. The Court of Appeal reversed the trial court’s removal of the trustee precisely because the conflicts “were created by the trustor and intended by him to serve the interests of all the beneficiaries.” (Id. at p. 256.) Copley stressed that effectuating the trustor’s intent as expressed in the trust agreement was “the touchstone to any court’s resolution of this case....” (Id. at p. 270.) To effectuate the trustor’s intent to allow the trustee to act in a dual capacity, “the prohibitions against self-dealing by a trustee... must give way to directions contained in the governing trust instrument.” (Id. at p. 279.)
In construing the conflicts waiver in paragraph C-2, we ascertain and give effect to the decedent’s intent as expressed in the language of the trust instrument. (§ 21102, subd. (a) [“The intention of the transferor as expressed in the instrument controls the legal effect of the dispositions made in the instrument”].) Extrinsic evidence is admissible to prove a meaning to which the trust instrument is reasonably susceptible. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955 (Founding Members).) We examine the instrument as a whole and the circumstances at the time of its execution. (Ike v. Doolittle (1998) 61 Cal.App.4th 51, 73-74.)
Paragraph C-2 shows the decedent intended for his brothers, beginning with Patrick, to retain the legal capacity to serve in dual capacities as trustees of the trust and as managers of his businesses. The decedent articulated his belief that “the continued operation of the closely-held companies or their successors as going businesses will serve the interests of the beneficiaries of this Trust.” The decedent further expressed his confidence in the “integrity and the skill” of the persons he designated as trustees and his wish that they not be held strictly liable because of conflicts. “The Trustee shall be held to a standard of good faith and reasonable business judgment, considering the interests of both the beneficiaries and of the others interested in the closely-held businesses.” (Italics added.)
Paragraph C-2 provides, in pertinent part: “I am currently a partner or principal stockholder in a number of closely-held businesses. I hereby authorize (but do not require) the Trustee to retain these partnership interests or stock and to use the ownership thereof to acquire or maintain the position of partner, director or officer of each such entity. It is my belief that the continued operation of the closely-held companies or their successors as going businesses will serve the interests of the beneficiaries of this Trust. Although it is my intention that the Trustee should protect such beneficiaries’ interest, I also desire that insofar as possible the Trustee shall manage the trust estate and the closely-held businesses (to the extent my Trustee is involved in the management of the closely-held businesses) so as to benefit the interests of not only such beneficiaries, but also those other persons who may be interested in the closely-held businesses. [¶] I have great confidence in the integrity and the skill of each of those persons nominated to act as a Trustee and those nominated to select Trustees. I am aware that if one or more of the Trustees acts as a partner, director or officer of a closely-held business, I may have placed that person in a position in which a court may find the person to be acting with conflicting interests and that as a result, the person may be held liable without further inquiry for acting in such a situation regardless of any fault or wrongful conduct on the person’s part. I hereby express my intent and my wish that such principles of law as would impose strict liability upon the Trustee on the basis of such potentially conflicting interests should not be applied, and that the Trustee should be exculpated from any and all strict liability as a result thereof. [¶] I direct that the Trustee be held to the following standard with respect to the activities of Trustee and the management of any closely-held business: [¶] The Trustee shall be held to a standard of good faith and reasonable business judgment, considering the interests of both the beneficiaries and of the others interested in the closely-held businesses. In such regard, any person who questions the act of a Trustee shall have the burden to prove a lack of good faith or reasonable business judgment.”
Michelle challenges the application of paragraph C-2 to Patrick’s dual roles as chief executive officer of Donahue Schriber and as trustee of the Donahue trust. According to Michelle, paragraph C-2 lost its efficacy after 1997 when Donahue Schriber was reorganized as a REIT: “The provisions of paragraph C-2 are clear and unambiguous: the exculpation from liability applies to trustees who are associated with [the decedent’s] closely-held companies only. There is no reasonable interpretation that ‘closely-held’ business means any business of any structure. There is no reasonable argument to be made that DSRG, Inc. is a closely-held company.”
We disagree. We note that paragraph C-2 used the more generic term “closely-held business” and “closely held companies or their successors as going businesses” (italics added) rather than the precise statutory definition of “close corporation,” upon which Michelle relies. (See Corp. Code, § 158.) Had the decedent desired to restrict paragraph C-2 to “close corporations,” he would have used that statutory term of art. Viewing paragraph C-2 in the context of what the decedent said in light of all the relevant circumstances, we believe the trial court correctly construed the language “to apply to the businesses [the decedent] co-founded, irrespective of their corporate structure.”
The extrinsic evidence buttresses this legal conclusion. As Michelle points out, Patrick was part of the “three-man management team” (along with the decedent and Thomas Schriber) when the decedent executed the trust instrument, as last amended in 1992. But the same “three-man management team” remained in effect when Donahue Schriber was reorganized as a REIT in 1997; indeed, it remained in virtually the same form until the decedent died in 2002.
This belies Michelle’s analogy to the transformation of John Nordstrom’s Seattle shoe store into the behemoth that today is the publicly-traded Nordstrom, Inc. REIT or not, the close-knit three-person management structure of Donahue Schriber did not change.
The trial court correctly interpreted paragraph C-2 in its statement of decision to apply to Patrick’s conflicting roles as trustee and as chief executive officer of Donahue Schriber, even after the company was reorganized as a REIT. Far from rewriting the trust instrument, the trial court did nothing more than give effect to paragraph C-2’s direct reference to the decedent’s “closely held companies or their successors as going businesses.” Substantial evidence supports the trial court’s reasonable construction of paragraph C-2. (Founding Members, supra,109 Cal.App.4th at pp. 955-956; see also Estate of Kaila (2001) 94 Cal.App.4th 1122, 1132-1133 (Kaila).)
B. Substantial Evidence Supports the Trial Court’s Findings that Patrick Acted Properly Under the Prudent Investor Rule
There being no presumptive liability because of the conflict waiver in paragraph C-2, the validity of Patrick’s decision to sell part of the trust’s shares in Donahue Schriber is measured by the so-called prudent investor standard under the Uniform Prudent Investor Act (Act) (§ 16045 et seq.).
The Act, adopted in 1995, applies to trust decisions made after January 1, 1996. (§ 16046, subd. (a).) It is modeled on the prudent investor rule, as described in the Restatement (Third) of Trusts.
Under the Act, trustees have the duty to “invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.” (§ 16047, subd. (a).) We evaluate the trustee’s investment decisions “in the context of the entire trust portfolio as a whole and as part of an overall investment strategy, having risk and return objectives reasonably suited to the trust.” (§ 16047, subd. (b), italics added.)
The Act specifically recognizes the utility of a diversified and balanced portfolio to protect the value of a trust’s assets from market fluctuations. Section 16048 provides, “In making and implementing investment decisions, the trustee has a duty to diversify the investments of the trust unless, under the circumstances, it is prudent not to do so.” As the Restatement explains, “In the absence of contrary statute or trust provision, the requirement of caution ordinarily imposes a duty to use reasonable care and skill in an effort to minimize or at least reduce diversifiable risks. Often called nonmarket risk, or somewhat less precisely ‘specific’ or ‘unique’ risk, these are risks that can be reduced through proper diversification of a portfolio.” (Rest.3d Trusts, § 90, com. e(1), p. 303.)
A trustee’s investment decisions are evaluated in the light of circumstances that existed at the time, not in the harsh glare of hindsight. Trustees are only called upon to act as prudent investors, not infallible ones. Michelle agrees no one “can predict with certainty anything that will occur in the future, much less the value of stock.”
On appeal, we review the issue of Patrick’s breach of the prudent investor rule under the highly deferential substantial evidence standard, “even though we ourselves might have formed a different opinion on the degree of prudence exercised.” (Estate of Gilliland (1977) 73 Cal.App.3d 515, 527; 2 Cal. Trust and Probate Litigation (Cont.Ed.Bar 2009) Appeals, § 23.34 [appellate court defers to trial court’s factual determinations where supported by any substantial evidence, contradicted or not].)
Michelle argues that Patrick violated the prudent investor rule as a matter of law because “the material facts are not in dispute....” (Italics added.) According to Michelle, the undisputed evidence shows that Patrick knew that the Donahue Schriber shares he sold would substantially rise in value in the immediate future, as they actually did between 2005 and 2007. She claims that “Patrick came as close as humanly possible to having a ‘crystal ball.’ Patrick was an insider in [Donahue Schriber], a two billion corporation. He knew [its] strategic plan projected increases in the value of the shares and dividends for subsequent years.”
We cannot agree with Michelle that it was a virtual certainty as a matter of law that Donahue Schriber’s stock would appreciate in 2005 and 2006. As we now know from the rueful wisdom of hindsight, such optimistic projections “were made before the global financial crisis, when analysts donned rose-colored glasses to make their forecasts. Events following the collapse of Lehman Brothers and the bursting of the United States housing bubble have shown the unreliability of long-term projections. The economic crisis demonstrates that financial predictions of future performance can be wildly flawed.” (Pipefitters Local No. 636 Defined Benefit Plan v. Oakley, Inc. (Jan. 13, 2010, G040727) ___ Cal.App.4th ___.)
We note that General Growth Properties, the other multi-billion dollar shopping center REIT whose shares Patrick sold in 2004, itself sought bankruptcy relief as a result of the economic meltdown. (In re General Growth Properties, Inc. (Bankr. S.D.N.Y. 2009) 409 B.R. 43.) The bankruptcy court noted the company encountered serious liquidity problems as “the crisis in the credit markets spread to commercial real estate finance,” adversely affecting its ability to refinance its (mostly short-term) debt, or to sell off any of its assets to generate the cash necessary to pay down debt. (Id. at p. 53.) “[F]aced with approximately $18.4 billion in outstanding debt that matured or would be maturing by the end of 2012, the Company believed its capital structure had become unmanageable due to the collapse of the credit markets.” (Id. at p. 55.)
Had the financial crisis occurred in 2006 rather than 2008, Michelle just as readily could have sued Patrick for failing to redeem more shares in Donahue Schriber, rather than the 40 percent interest he sold. We conclude there was no mandatory duty for Patrick to retain 100 percent of the Donahue Schriber stock. Under Michelle’s rigid formulation, in 2004 Patrick could not have sold any of the trust’s shares in Donahue Schriber.
Adopting Michelle’s analytical framework would require courts to peer over the investment shoulder of trustees who seek to diversify risks in the trust. But reasonable investment decisions are for trustees, not courts, to make. Neither the trust instrument nor the prudent investor rule requires Patrick to put all of the trust’s eggs in one proverbial basket by ignoring the recognized benefits of a diversified portfolio. Indeed, by retaining 60 percent of the trust’s interest in Donahue Schriber, the trust still “retained and enjoyed” a very substantial appreciation, as the trial court recognized in its statement of decision. “In 2004, with the information available at the time, the Court is convinced Patrick’s strategic plan was a reasonable one with reasonable goals.”
Michelle emphasizes that Patrick borrowed $1.5 million to purchase for himself additional shares in Donahue Schriber within months after he sold the trust’s shares. To Michelle, this establishes that “Patrick knew he was giving up at least $5 million in appreciation in the trust.” (Italics added.)
This may be a permissible inference from the evidence, but it certainly is not the only one. To the contrary, the evidence also supports the equally reasonable inference that Patrick may have entertained different investment strategies for himself, where he could tolerate the risks of a single-asset portfolio, than when acting as a fiduciary for Michelle and her three small children, with their expressed needs for stable and steady income to meet their living expenses. “The rationale of the trust law’s requirement of diversification is more than conservatism or a duty of caution, which admonishes trustees not to take excessive risks — that is, not to take risks higher than suitable to a trust’s purposes, return requirements, and other circumstances. The general duty to diversify further expresses a warning to trustees... against taking bad risks — ones in which there is unwarranted danger of loss, or volatility that is not compensated by commensurate opportunities for gain.” (Rest.3d Trusts, § 90, com. g, p. 311.)
Michelle also contends Patrick failed to obtain an “independent” appraisal of the Donahue Schriber’s real estate assets before determining the full net asset value of its stock and options. She criticizes Patrick’s reliance on an appraisal by the outside accounting firm of PricewaterhouseCoopers, which was retained by the company’s board of directors to value Donahue Schriber’s real estate assets on a property-by-property basis.
We do not find the contention persuasive. The trial court cited evidence that PricewaterhouseCoopers conducted an objective evaluation to ascertain net asset value by using the same methodology employed for other appraisals, including calculations of lines of credit from a 13-bank lending syndicate, share redemptions from Banc Boston, and dealings with the JP Morgan Strategic Fund, the Internal Revenue Service, and the Franchise Tax Board. Even Michelle’s expert, while criticizing the approach, conceded that Price water house Cooper’s method was a “traditional style appraisal of the assets.”
Indeed, the PricewaterhouseCoopers appraisal contained a signed certification regarding its independence: “Our engagement in this assignment was not contingent upon developing or reporting predetermined results. [¶] Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client.... [¶] Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute and in conformity with the Uniform Standards of Professional Appraisal Practice.” Substantial evidence therefore supports the trial court’s determination that “the Trust received fair value for the options and shares.”
Michelle complains that the record does not contain corroborating evidence to verify the accuracy of some of the calculations for net asset value, such as Donahue Schriber’s net operating income. She asserts that, “Based on the evidence admitted at trial, it is impossible to verify whether the board’s value calculation was correct.” Michelle, however, has the burden of proof at trial to establish that the trustee acted improperly. (Van de Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 854 [“Plaintiffs failed to meet their initial burden of proof to show defendant’s challenged practices were wrongful”].)
C. The Trial Court Did Not Abuse Its Discretion in Excluding Expert Testimony from a Retired Probate Judge
Michelle contends the trial court abused its discretion by excluding expert testimony from a retired probate judge, who offered to express an opinion on a trustee’s standard of care based on the retired judge’s bench experience. She sought to qualify James A. Jackman, who served as a superior court judge from 1980 until his retirement in 2000. Jackman served as a probate judge during a three-year period in the early 1990’s. He based his expertise about custom and practice from his judicial activities in supervising trusts and trustees: “In some ways I got to know what they were doing from discussions, hearing their testimony on the stand, so it — there’s a lot of different ways I learned what they were doing.”
The trial court disqualified Jackman’s testimony as interfering with the court’s own judicial function: “You can argue the law to me. I don’t need nor do I want the opinion of another former judicial officer as to the conduct of that trustee, whether it was in conformance with the standard that I have to apply.” “I think it interferes with the province of this court to make the decisions that I’m duty-bound to make and completely competent to make, so for that reason I’m not going to take up time to hear someone else’s opinion on those issues.”
A trial court exercises “‘“‘considerable latitude’”’” when ruling on the admissibility of expert testimony, and we reverse only upon a showing of a “‘“‘manifest’”’” abuse of discretion resulting in a miscarriage of justice. (Westrec Marina Management, Inc. v. Jardine Ins. Brokers Orange County, Inc. (2000) 85 Cal.App.4th 1042, 1051.)
Evidence Code section 801 provides, “If a witness is testifying as an expert, his testimony in the form of an opinion is limited to such an opinion as is: [¶] (a) Related to a subject that is sufficiently beyond common experience that the opinion of an expert would assist the trier of fact; and [¶] (b) Based on matter (including his special knowledge, skill, experience, training, and education) perceived by or personally known to the witness or made known to him at or before the hearing, whether or not admissible, that is of a type that reasonably may be relied upon by an expert in forming an opinion upon the subject to which his testimony relates, unless an expert is precluded by law from using such matter as a basis for his opinion.”
We find no abuse of discretion. The trial court precluded Jackman from offering expert opinions on legal issues, which were matters on which there was one expert — the sitting judge. (Summers v. A.L. Gilbert Co. (1999) 69 Cal.App.4th 1155, 1178.) As to ultimate issues of fact, Jackman’s judicial experience in presiding over trials involving trustees no more qualified him to as an expert on their professional standard of care than would his judicial experience in presiding over insurance bad faith or construction cases qualify him to testify as an expert concerning claims handling or building defects.
III
Costs
Ordinarily, Patrick, as the prevailing party is entitled to recover costs on appeal. However, we have discretion to depart from the general “prevailing party” rule and make a different cost award, including a cost award to the losing appellant, in the “interests of justice.” (Cal. Rules of Court, rule 8.278(a)(5); see also Mann v. Quality Old Time Service, Inc. (2006) 139 Cal.App.4th 328, 341.)
We decline to award costs on appeal to Patrick for two reasons. First, as stated above, our review of the record has been impaired by the dearth of record references to the evidence in the respondent’s brief. Patrick’s respondent’s brief circularly cited to the trial court’s statement of decision, a singularly unhelpful gambit confounding our task to determine whether the record supported the assertions in the statement of decision. The respondent’s brief fails to cite to the reporters’ transcripts or to any of the documents in the lengthy court record. In marked contrast, Michelle’s briefs cited not only to her own evidence in the record, but to respondent’s evidence as well. While we decline Michelle’s suggestion that we ignore Patrick’s contentions, we believe these deficiencies are appropriately addressed in the cost award.
Second, this appeal initially was consolidated with one of Michelle’s two appeals on attorney fees (Donahue v. Donahue (G040628 , app. pending, argued Jan. 27, 2010).) A single record on appeal was prepared for the consolidated appeals and the parties briefed them together. Following oral argument, we severed the appeal in G040628 and consolidated it with Michelle’s second appeal on a subsequent order on attorney fees (Donahue v. Donahue (G041503 , app. pending, argued Jan. 27, 2010).) As a result, we defer the determination of costs to the appeals in G040628 and G041503.
IV
Disposition
The judgment is affirmed. No costs on appeal are awarded in this proceeding, but they may be assessed in accordance with our decision in Donahue v. Donahue (G040628 , app. pending, argued Jan. 27, 2010).)
WE CONCUR: RYLAARSDAM, ACTING P. J., IKOLA, J.