Opinion
G057170
06-23-2020
THOMAS A. SWANNER, Plaintiff and Appellant, v. CAROL J. CHAMBERLAIN, as Special Administrator, etc., et al., Defendants and Respondents.
Bohm Wildish & Matsen, James G. Bohm and Nicholas P. Carrigan for Plaintiff and Appellant. Prenovost, Normandin, Bergh & Dawe and Tom R. Normandin for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2017-00954327) OPINION Appeal from a judgment of the Superior Court of Orange County, Edward W. Hall, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed. Request for judicial notice. Granted in part and denied in part. Bohm Wildish & Matsen, James G. Bohm and Nicholas P. Carrigan for Plaintiff and Appellant. Prenovost, Normandin, Bergh & Dawe and Tom R. Normandin for Defendants and Respondents.
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INTRODUCTION
While a trust settlor is alive and serving as trustee, the trust's beneficiaries lack standing to challenge the trustee's actions or sue on behalf of the trust. Further, a trustee of a revocable trust has no duty to render an accounting to a beneficiary except upon the death of the settlor or a change of trustee, unless the trust document provides otherwise.
In this case, a beneficiary of a revocable trust, during the lifetime of the settlor/trustee, sought to compel the trustee to render an accounting, and further sought, on behalf of the trust, to compel the return of property transferred by the trustee out of the trust. The trial court correctly concluded that the beneficiary lacked standing to pursue these claims. The settlor/trustee's death after judgment was entered does not justify remand to the trial court for further proceedings in this case. We therefore affirm the judgment.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
Claudia M. Runnells created the Claudia M. Runnells Revocable Trust in November 1996 (the Trust). Runnells was the settlor and the trustee of the Trust. Thomas A. Swanner was named as the successor trustee. The Trust initially provided that, after Runnells's death, the Trust estate would be divided equally between her three adult children—Swanner, Carol J. Chamberlain, and Raeleen M. Woods. The Trust was amended in September 1998 and March 2001.
The Trust was fully amended and restated in June 2003. Swanner and Chamberlain were named as co-successor trustees. Following Runnells's death, the Trust assets were to be divided equally between Swanner and Chamberlain. The Trust provided that the trustee was not required to render accountings other than as required by law at the termination of the trust or the change of trustee. (See Prob. Code, §§ 16062, 16064, 16069.) The Trust, as amended and restated, was again amended in June 2012. This amendment changed the provisions of the Trust regarding the distribution of the Trust estate following Runnells's death, by directing that two pieces of real property owned by the Trust should be distributed outright to Swanner, with the remaining Trust estate divided equally between Swanner and Chamberlain.
Woods was not named as a beneficiary under the Trust as amended and restated, as she was provided for outside the Trust. She is not a party to the probate matter or to this appeal.
All further statutory references are to the Probate Code, unless otherwise indicated.
In October 2012, Runnells signed a handwritten amendment to the Trust providing that her home should not be sold if she were in a convalescent home, rest home, or rehabilitation facility. The amendment provides that after her death, Swanner should be permitted to buy Chamberlain's share of the home. The amendment does not specify which property is Runnells's "home."
In May 2014, Runnells, as trustee, transferred a piece of real property on Fanwood Avenue in Long Beach, California (the Fanwood property) to Chamberlain.
In February 2016, Swanner filed a petition for appointment of a conservator over Runnells. After a trial, the probate court ruled that Swanner had failed to meet his burden of proof and denied the petition.
In May 2018, Swanner filed a second amended trust petition asserting causes of action (1) for an accounting from Runnells and/or Chamberlain and (2) to determine that the Fanwood property was an asset of the Trust and order Chamberlain to transfer it back to the Trust. Runnells demurred to the second amended petition. Chamberlain joined the demurrer.
In November 2017, Swanner filed a trust petition to either remove Chamberlain as trustee or appoint Swanner as cotrustee; compel redress of breach of trust; and determine title to and order transfer of the Fanwood property. In February 2018, Swanner filed a first amended trust petition asking the court to (1) order Chamberlain, as successor trustee, to account, (2) confirm Swanner as co-successor trustee, and (3) determine title to and order transfer of the Fanwood property. Swanner's first amended petition alleged that Chamberlain had become the de facto successor trustee. (See § 15600, subd. (a)(2).) Runnells demurred to the first amended petition, and Chamberlain joined Runnells's demurrer. The trial court sustained the demurrer with leave to amend. The court ruled that Swanner had failed to establish standing to assert the first two causes of action and failed to allege facts to state a claim on the third cause of action.
The trial court found that Swanner had failed to state a claim for relief on either cause of action and sustained the demurrer. As to the first cause of action, the court found that Swanner could not state a claim for an accounting because (1) the terms of the Trust did not require Runnells to account to Swanner and (2) Chamberlain was not a co-trustee due to her undertaking certain management duties on Runnells's behalf. As to the second cause of action, the trial court ruled that Swanner's interest in the Trust before Runnells's death was "'merely potential' and could 'evaporate in a moment at [Runnells's] whim.' (Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298-1319 [quoting Johnson v. Kotyck (1999) 76 Cal.App.4th 83, 88].)" The court therefore found that Swanner lacked standing to challenge Runnells's transfer of the Fanwood property out of the Trust, and that Swanner's allegations of undue influence by Chamberlain were insufficient to confer standing.
The court denied Swanner leave to amend because he had "suggested no way in which he might further amend his petition to remedy the defects identified above, or otherwise state a claim for relief."
Judgment of dismissal was entered in October 2018. Swanner timely filed a notice of appeal. Runnells died June 24, 2019. This court granted a motion to substitute Chamberlain, as special administrator, for defendant and respondent Runnells.
Chamberlain filed a request that this court take judicial notice of three documents: (1) the judgment on Swanner's petition for appointment of a conservator over Runnells (exhibit A to the request); (2) Swanner's petition to determine beneficiaries and to determine title to the Fanwood property, in a new action filed after Runnells's death (exhibit B to the request); and (3) the order appointing Chamberlain as special administrator for the Runnells's estate to file a respondents' brief and represent Runnells's estate in the present appeal (exhibit C to the request) We grant the request as to exhibit C. (Evid. Code, §§ 452, subd. (d), 459, subds. (a)-(c).). We deny the request as to exhibit A because that document is already in the appellate record. We deny the request as to exhibit B because that document, created after judgment was entered in this case and part of a separate legal proceeding, is not relevant to the issues herein.
DISCUSSION
In reviewing the trial court's order sustaining Runnells's demurrer, we examine the second amended petition de novo to determine whether it alleges facts to state a claim for relief under any theory. (Mathews v. Becerra (2019) 8 Cal.5th 756, 768.) We treat as true all properly pleaded material facts; the same is not true of contentions, deductions or conclusions of fact or law. We also consider any matters that may be judicially noticed. We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (Ibid.)
I.
SWANNER LACKS STANDING TO SEEK RELIEF BEFORE THE DEATH OF RUNNELLS,
THE SETTLOR/TRUSTEE.
In the first cause of action in the second amended petition, Swanner requested that Runnells and/or Chamberlain be ordered to prepare a trust accounting. Runnells and Chamberlain demurred to this cause of action on the ground that, as a beneficiary of a revocable trust, Swanner lacked standing to demand an accounting.
California law provides that during the period when a trust is revocable, the trustee owes a duty to the settlor of the trust and not the beneficiary: "Except to the extent that the trust instrument otherwise provides . . . during the time that a trust is revocable and the person holding the power to revoke the trust is competent: [¶] (a) The person holding the power to revoke, and not the beneficiary, has the rights afforded beneficiaries under this division. [¶] (b) The duties of the trustee are owed to the person holding the power to revoke." (§ 15800.) The statute specifically provides that the beneficiary has no right to an accounting for the period in which the trust is revocable. "The trustee is not required to account to the beneficiary, provide the terms of the trust to a beneficiary, or provide requested information to the beneficiary . . . : [¶] (a) In the case of a beneficiary of a revocable trust, as provided in Section 15800, for the period when the trust may be revoked." (§ 16069; see Babbitt v. Superior Court (2016) 246 Cal.App.4th 1135, 1144 (Babbitt) ["before a settlor's death (and in the absence of a showing of incompetence), a contingent beneficiary lacks standing to petition the probate court to compel a trustee to account or provide information relating to the revocable trust"].)
Swanner contends that, notwithstanding the foregoing authorities, a beneficiary has the right to compel an accounting before the settlor/trustee's death when there are allegations of the settlor/trustee's incompetence or the use of undue influence on the settlor/trustee. He cites Babbitt, supra, 246 Cal.App.4th 1135 in support of that contention. In Babbitt the court held that a beneficiary does not have standing to demand an accounting after the settlor/trustee's death where "there is no claim that the deceased settlor was incapacitated or subject to undue influence during the period of revocability." (Id. at p. 1139.) Swanner presumes this means that a beneficiary does have standing when the trust is revocable and there is a claim that the settlor/trustee was incapacitated or subject to undue influence.
Both in the trial court and on appeal, Swanner concedes that he does not assert standing based on Runnells's incompetence. Swanner's opposition to the demurrer reads, in part: "For purposes of the pending demurrer and indeed the instant petition itself, that conservatorship proceeding, in which the issue was [Runnells]'s mental competency, is not relevant to the issues now raised at bar." In his opening appellate brief, Swanner criticizes the trial court for basing its ruling on the lack of allegations of incompetence rather than undue influence. Based on this concession, we proceed with the understanding that Swanner does not contend the Trust became irrevocable during Runnells's lifetime due to her alleged incapacity or incompetence.
The problem with Swanner's argument is that Babbitt and all other cases that have addressed this issue were not dealing with a beneficiary's standing to assert such a claim while the settlor/trustee is alive. They were dealing with the beneficiary's right to assert a claim after the settlor/trustee's death, seeking to redress actions taken during the period of revocability while the settlor/trustee was alive.
In Babbitt, Mary Lynne Babbitt and Leland Babbitt established a trust naming themselves as cotrustees. (Babbitt, supra, 246 Cal.App.4th at p. 1139.) When Leland died, the trust was divided into an A and B trust; the A trust became irrevocable, while the B trust remained revocable by Mary Lynne. (Ibid.) Leland's daughter from a previous marriage, Carol McCormack, filed a petition under section 17200 to compel Mary Lynne to provide an accounting. (Id. at pp. 1139-1140.) The trial court granted the petition, and Mary Lynne provided an accounting only for the period after Leland's death. (Id. at pp. 1140-1141.) Mary Lynne then filed a petition for a writ of mandate. (Id. at p. 1141.)
The appellate court began its analysis by confirming that a beneficiary of an irrevocable trust may file a petition under section 17200 for an accounting. (Babbitt, supra, 246 Cal.App.4th at p. 1142.) With respect to revocable trusts, however, under section 15800, the duty to account to the trust's beneficiaries is "postponed." (Babbitt, supra, 246 Cal.App.4th at p. 1142.) The appellate court held that McCormack had standing to request an accounting of the now irrevocable Trust A, but that she could not seek an accounting for the period before Leland's death. (Id. at p. 1143.) As the court explained: "Whether a beneficiary has standing to file a petition for an accounting of an inter vivos trust under section 17200 depends on whether the trust is revocable at the time the petition is filed. Until the trust becomes irrevocable, section 15800 limits the rights of beneficiaries to petition for an accounting. '[S]ection 15800 is consistent with the principle that "[p]roperty transferred into a revocable inter vivos trust is considered the property of the settlor for the settlor's lifetime," and thus, "the beneficiaries' interest in that property is '"merely potential" and can "evaporate in a moment at the whim of the [settlor]."'"' [Citations.] Therefore, before a settlor's death (and in the absence of a showing of incompetence), a contingent beneficiary lacks standing to petition the probate court to compel a trustee to account or provide information relating to the revocable trust." (Id. at pp. 1143-1144, italics added.) The holding of Babbitt can therefore be summarized thus: After a trust becomes irrevocable, its beneficiaries may seek an accounting; the accounting will be limited to the period of irrevocability unless there are allegations of the settlor/trustee's incompetence during the period of revocability.
This holding is consistent with other authorities. In Estate of Giraldin (2012) 55 Cal.4th 1058, 1062, the California Supreme Court held that a trust's beneficiaries have standing to sue after the settlor dies for breach of fiduciary duty by the trustee committed during the settlor's lifetime. The court explained: "One well-known treatise on trust law does address this question directly. 'Consistent with the rule that the duties of a trustee of a revocable trust are owed exclusively to the settlor, at least while the settlor has capacity, the rights of non-settlor beneficiaries of a revocable trust generally are subject to the control of the settlor. Thus, as a general rule, the trustee cannot be held to account by other beneficiaries for its administration of a revocable trust during the settlor's lifetime. After the settlor's death, of course, the trustee is accountable to the trust's other beneficiaries for its administration of the trust after the settlor's death. Further, many courts have allowed other beneficiaries to pursue breach of duty claims after the settlor's death, related to the administration of the trust during the settlor's lifetime, when, for example, there are allegations that the trustee breached its duty during the settlor's lifetime and that the settlor had lost capacity, was under undue influence, or did not approve or ratify the trustee's conduct.' (Bogert, The Law of Trusts and Trustees (3d ed. 2010) § 964, pp. 103-105, fns. omitted, italics added . . . .)" (Id. at p. 1073.)
Similarly, in Barefoot v. Jennings (2020) 8 Cal.5th 822, 827, the court held that the Probate Code gives standing to an excluded beneficiary to challenge the merits of trust amendments based on incompetence, undue influence, or fraud, but only after the settlor's death.
Swanner also contends that Chamberlain became the successor trustee of the Trust, which triggered the right to an accounting under the terms of the Trust. While providing that the trustee has no general duty to render an accounting, the Trust requires the trustee to "render accounts at the termination of a trust and on a change of trustees, to the persons and in the manner required by law." If Chamberlain became the successor trustee of the Trust, the duty to render an accounting of the Trust would be triggered. The second amended petition, however, does not allege facts that would show Chamberlain has taken on the role of successor trustee, such as by taking title to the Trust assets in her name or publicly presenting herself as the trustee of the Trust, or that Runnells gave written notice of resignation as trustee, as required by the terms of the Trust.
As to the contention that Chamberlain has become a cotrustee of the Trust with Runnells, the second amended petition alleges: "Under CA Probate Code Section 15600(a)(2) and other applicable California laws and case precedence, [Chamberlain] has accepted by her actions the co-trusteeship with [Runnells], of the captioned Trust. [Chamberlain]'s actions include, but are not limited to, controlling [Runnells's] finances; controlling trust assets; controlling when and how trust assets are distributed; unduly convincing [Runnells] to undertake such actions which are detrimental to the beneficiaries of the Trust; unduly controlling [Runnells] into deeding her formerly owned three real properties to the beneficiaries when such actions were not in the best interests of the beneficiaries or of [Runnells] herself; and other actions not yet known until the court orders an accounting. Again, the undue influencing of [Runnells] by [Chamberlain] caused [Runnells] to sell her fourth property on Eldridge in Long Beach after [Runnells]'s formal Legal Separation Action from her spouse, Harold Runnels [sic]. As the involved realtor, [Chamberlain] received a 'commission' from that sale, which sale was noticeably under market, and arising from which [Runnells] told [Swanner] she paid [Chamberlain] $6,000.00." (Swanner alleged additional facts supporting these allegations in the second amended petition, and in exhibit 1, attached to the petition. The allegations quoted above summarize the additional facts contained elsewhere in the petition.)
While Swanner's allegations reflect that Chamberlain has taken on significant duties on behalf of Runnells, Swanner does not allege facts that would show Chamberlain had become the cotrustee or successor trustee of the Trust at the time the petition was filed. The Trust authorizes the settlor/trustee to delegate her duties to others by giving the trustee the power to: "Employ and discharge agents and employees, including but not limited to attorneys, accountants, investment and other advisers, custodians of assets, property managers, real estate agents and brokers, and appraisers, to advise and assist the trustee in the management of any trusts created under this trust instrument, and compensate them from the trust property." Swanner's allegations regarding Chamberlain's control of Trust assets do not allege Chamberlain had become the trustee.
Swanner did not have standing to assert the first cause of action in the second amended petition, and the trial court did not err in sustaining the demurrer as to that claim.
II.
RUNNELLS'S DEATH FOLLOWING THE ENTRY OF JUDGMENT DOES NOT REQUIRE REMAND TO
THE TRIAL COURT.
Runnells died June 24, 2019. Upon her death, the Trust became irrevocable. Swanner argues that the matter should be remanded to the trial court so that he may request an accounting from the successor trustee, Chamberlain.
"When reviewing the correctness of a trial court's judgment, we only consider matters that were part of the record at the time the court entered the judgment." (In re Marriage of Brewster & Clevenger (2020) 45 Cal.App.5th 481, 498.) At the time the court entered judgment herein, Runnells was alive and acting as the settlor/trustee. Her death cannot create standing in Swanner where it previously did not exist. We express no opinion as to the merits of any petition filed by Swanner after Runnells's death.
III.
SWANNER LACKS STANDING TO CHALLENGE THE TRANSFER OF THE FANWOOD PROPERTY.
Swanner's second cause of action was asserted under section 850, subdivision (a)(3)(B), which permits an "interested person" to file a trust petition "[w]here the trustee has a claim to real or personal property, title to or possession of which is held by another." Runnells and Chamberlain challenged Swanner's standing to assert this claim.
In the second amended petition, Swanner alleged that his standing to bring the claim was based solely on his status as a beneficiary of the Trust: "Petitioner is one of two equal beneficiaries and therefore has standing to bring this Petition." At the time Swanner filed the petition, however, his status as a beneficiary was contingent only.
As relevant to this matter, interested person under section 850 means: "An heir, devisee, child, spouse, creditor, beneficiary, and any other person having a property right in or claim against a trust estate or the estate of a decedent which may be affected by the proceeding." (§ 48, subd. (a)(1).) Despite section 48's seemingly expansive definition, Swanner does not fall within it for purposes of the present appeal. "'Trust estate' means a decedent's property, real and personal, that is titled in the name of the trustee of the deceased settlor's trust or confirmed by order of the court to the trustee of the deceased settlor's trust." (§ 19000, subd. (h).) At the time Swanner's petition was filed, there was no decedent.
A beneficiary does not have standing to sue a third party on behalf of the trust absent special circumstances, such as the trustee cannot or will not enforce a cause of action. (Olson v. Toy (1996) 46 Cal.App.4th 818, 823-824 [plaintiff was heir at law of decedent]; Triplett v. Williams (1969) 269 Cal.App.2d 135, 138 [plaintiffs were remainder beneficiaries of testamentary trust].) To withstand a challenge to his or her standing, the beneficiary must plead that the trustee's failure to bring suit was negligent, wrongful, or improper. (Wolf v. Mitchell, Silberberg & Knupp (1999) 6 Cal.App.4th 1030, 1037; Pillsbury v. Karmgard (1994) 22 Cal.App.4th 743, 756; see Rest.2d Trusts, § 282, subd. (2) & com. e, p. 46.) All of these cases, however, involve a beneficiary pursuing relief after the death of the trustor. None of them grants standing to a contingent beneficiary seeking relief during the lifetime of the settlor/trustee. Swanner lacked standing to assert a claim under section 850, and the trial court properly sustained the demurrer to the second cause of action.
IV.
THE TRIAL COURT DID NOT ERR IN DENYING LEAVE TO AMEND.
Whether to grant leave to amend is a matter for the trial court's discretion; the trial court abuses that discretion if the petitioner shows a reasonable possibility that the defects in the petition can be cured by amendment. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 810.)
Swanner did not request leave to amend in his opposition to the demurrer and does not on appeal identify how he could amend his second amended petition to avoid demurrer. As explained ante, Swanner did not have standing to assert either cause of action because the settlor/trustee was alive at the time the petition was filed. There is no reasonable possibility that this defect could be cured by further amendment. The trial court did not err in denying leave to amend.
DISPOSITION
The judgment is affirmed. Respondents to recover costs on appeal.
FYBEL, J. WE CONCUR: BEDSWORTH, ACTING P. J. MOORE, J.