Opinion
A149796
03-27-2018
In re the matter of THE MILDRED M. VAIL LIVING TRUST. MICHAEL M. VAIL, Plaintiff and Respondent, v. STEVEN VAIL, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Sonoma County Super. Ct. No. SPR-84072)
Following a bench trial, the superior court entered a judgment requiring appellant Steven Vail to reimburse his deceased mother's trust for amounts he withdrew from trust accounts while acting as the trustee during her lifetime. He contends the judgment must be reversed because the evidence showed he acted with his mother's permission at all times and because a claim for some of the amounts at issue is barred by the statute of limitations. We affirm.
I. BACKGROUND
Mildred Vail was a successful real estate broker who ran her own business and purchased various properties in the Healdsburg area over the years. She had four children—Steven, Michael, Jonatha and Patricia—each of whom was an adult at the times relevant to this case.
Because most of the parties share a last name, we refer to them by their first names to avoid confusion.
On December 29, 2003, Mildred executed the Mildred M. Vail Living Trust (Trust), naming her four children as equal beneficiaries. The Trust instrument named Mildred as the "Trustmanager" and provided that her four children would become joint successor "Co-Trustmanagers" in the event of her death, incapacity or resignation. It also gave Mildred the absolute power to revoke or amend the Trust during her lifetime and to add or remove property from the Trust at any time. Mildred placed several properties in the Trust, including 3976 West Sausal Lane (where Mildred lived), 3968 West Sausal Lane, 801 Healdsburg Avenue, 791 Healdsburg Avenue, 515 Tucker Street, and 340 Alexander Valley Road.
Michael lived with Mildred and was was given a monthly salary plus board for caretaking her property, which included a vineyard. Patricia lived on the property located at 3968 West Sausal Lane (next door to her mother's home) and was placed on title to that property, so that both she and the Trust owned a 50 percent interest.
Steven was himself a real estate broker and was very active in assisting his mother with her investments. Among other things, Steven had been instrumental in locating a Rite Aid in Mississippi, which was purchased by a limited liability company formed for that purpose, and which generated a monthly income for the Trust. Steven would sometimes pay Mildred's household bills, but their system for handling these payments was "a little haphazard."
On October 12, 2004, in anticipation of undergoing heart surgery, Mildred gave Steven her general durable power of attorney and a separate durable power of attorney "for banking and other financial institution transactions." On March 3, 2007, Mildred executed a notarized "First Revision to the Mildred Vail Living Trust," in which she resigned as Trustee and named Steven as the "new Trust Manager." Patricia was named as the "Successor Trust Manager" and Michael and Jonatha were named as the "subsequent Successor Trust Managers." Steven also signed this document.
In the years that followed, Mildred continued to act as Trustmanager on certain occasions, signing deeds and closing statements for real estate transactions on behalf of the Trust. Steven acted as Trustmanager on other occasions, and signed many documents on behalf of the Trust.
In approximately 2006, Steven spearheaded an effort to purchase and develop a property in Geyserville on behalf of the Trust, with the intent of securing the United States Post Office as the anchor tenant. A family meeting was held to discuss the transaction. To obtain the money necessary to purchase the property, two Trust rental properties located at 791 Healdsburg Avenue and 801 Healdsburg Avenue were sold in a 1031 exchange, netting $466,000. The property at 801 Healdsburg was sold to a Darlene Hessler, who was also moving money forward in a 1031 exchange, and Mildred signed the grant deed to Hessler. The Tucker Street property was used as security for a $650,000 construction loan on the Geyserville development.
"Through a 1031 exchange, a taxpayer can defer taxes on gains from the sale of a property by using those gains to purchase a second property. (26 U.S.C. § 1031.)" (CADC/RADC Venture 2011- LLC v. Bradley (2015) 235 Cal.App.4th 775, 780.)
Steven signed an amendment or addendum regarding the terms of the sale of 801 Healdsburg to Hessler, under which the Trust would continue to pay the costs of carrying the property and would continue to collect the rents on the property. Steven also paid Hessler $5,000 for her participation in the transaction. In April 2007, Steven facilitated the sale of the property from Hessler to Jonatha's son (Mildred's grandson and Steven's nephew) John Gilfillan, using $47,000 of Trust money as a down payment.
In connection with the development of the Geyserville property, Steven set up an account at Exchange Bank using Trust funds and made himself trustee of the account. Work on the project continued, and a notice of completion was issued on October 27, 2008. Steven started building out one of the office suites for himself. Ultimately, the project was lost in foreclosure in 2010 due to the economic downturn.
Mildred died on July 9, 2011, at the age of 94. At that time, the four siblings, including Steven, behaved as though they had become successor co-Trustmanagers. Steven later testified at his deposition in this case that at the time of his mother's death he had not remembered her resignation as Trustmanager, but he later found the document making him the substitute Trustmanager.
On October 24, 2011, Michael filed a petition to remove Steven as a co-Trustmanager, which alleged Steven was taking action without the consent of the other co-Trustmanagers and refused to provide an accounting of his activities. On April 9, 2012, the court relieved all four siblings as co-Trustmanagers and appointed Shelly Ocana as the interim Trustmanager.
On August 28, 2012, Michael provided Ocana with a letter signed by Mildred that was dated April 12, 2011. The letter, which was witnessed in writing by Michael, Jonatha and John Gilfillan, states that Steven has been engaged in "rogue [activities]" and "secretive dealings" and was not authorized to act under her power of attorney. The letter expresses concern about past real estate transactions and impending foreclosures on the Sausal Road properties. Ocana investigated Michael's claims against Steven and retained an attorney who identified certain amounts to be clarified by Steven. Ocana filed an accounting in 2013 and sold the property at 3976 West Sausal Lane for $3.6 million in 2014.
The properties were not ultimately lost in foreclosure.
On March 11, 2015, the four siblings entered into a settlement agreement providing for the distribution of Trust assets as follows: (1) $985,000 to be paid to Jonatha; (2) $715,000 to be paid to Michael; (3) transfer of the Rite Aid property in equal shares to Steven and Patricia; (4) transfer of the real property at 3968 West Sausal Lane to Patricia. Additionally, $270,000 was to be maintained as part of a litigation fund on Michael's behalf, and $270,000 was to be maintained as a litigation fund on Steven's behalf. Trustee and attorney fees were to be paid and the remaining balance (approximately $350,000) would be retained for the payment of taxes with the balance to be transferred to the litigation fund and then divided equally among the beneficiaries to the extent it was not used for litigation. Steven and Michael reserved their rights to pursue claims against each other arising out of acts and omissions against the Trust.
On April 24, 2015, Michael filed an "Issue Statement" accusing Steven of "numerous acts of injury to his mother and her trust involving elder abuse, conversion, breach of fiduciary duty, theft of trust assets, fraudulent transfer of assets, forgery, co-mingling trust assets, impersonating as trustee of the trust for personal gain, undue influence, conflict of interest, breach of trust, constructive trust for wrongfully retaining, secreting and/or appropriating trust assets, perjury." The Statement alleged that Steven had orchestrated a "devastating" investment in Geyserville, which had been financed by selling off Trust assets. "801 Healdsburg Avenue was 'sold' to Darlene Hessler so that the Geyserville project could be financed. It was a fraudulent sale in which she 'owned' the property for nine months wherein STEVEN VAIL used Trust assets to pay all obligations on the property during that nine month period plus pay Ms. Hessler $5,000.00 up front. The Trust got nothing from the deal. . . . STEVEN VAIL secretly gave his nephew $50,000.00 of Trust money to 'buy' the property back from Ms. Hessler." According to the Issue Statement, Steven had taken substantial amounts of money from the Trust for his own purposes, had set up accounts with Trust assets that he kept hidden from Mildred and his siblings, had kept rents paid on Trust properties for his own purposes, and had commingled Trust assets with his personal accounts.
Steven filed a trial brief in which he acknowledged commingling money from the Trust with his own, but argued he was entitled to a setoff because he had used his personal funds to pay the expenses of Mildred, the Trust and other family members. Steven complained that Michael had been living rent-free in their mother's home at 3976 West Sausal Lane, had collected rents due to their mother, had written checks on their mother's checking account despite not having authorization to do so, and had run up charges on their mother's credit card.
On July 2016, a court trial commenced on Steven and Michael's claims.
The court's judgment requires Michael to reimburse the Trust for $103,277.44, consisting of: (1) the fair rental value for the period when he resided rent-free in his mother's home after her death; (2) rents received from his mother's tenant, which he misappropriated; (3) checks written against his mother's account without her authorization; (4) charges against his mother's credit card without her authorization; and (5) prejudgment interest. Because Michael has not appealed, we do not recite the facts supporting this aspect of the judgment.
Michael testified that he had been unaware his mother resigned as Trustmanager in 2007 or that Steven had been acting as Trustmanager while she was alive. He knew about the Geyserville project in general, but did not know about the sale of 801 Healdsburg to Darlene Hessler and did not know Steven had opened a bank account for the Geyserville project using Trust funds. Michael was concerned about the money lost in the Geyserville project as well as the transactions that led to the financing of that project, including the sale of the Trust rental property at 801 Healdsburg Avenue to Hessler and later to Gilfillan. The letter signed by Mildred on April 12, 2011, had been generated at a family meeting attended by Mildred, Michael, Jonatha and John Gilfillan on April 10, 2011.
John Gilfillan testified that he purchased the property at 801 Healdsburg because Steven asked him to do so as a favor and promised to help him financially. Gilfillan did not want to buy the property, but Steven pressured him to do so, telling him he needed to get out of a bad deal with Hessler that was hurting the family. Gilfillan put $15,000 from his individual retirement account toward the down payment and Steven paid $37,000; Steven also gave him a $10,000 check. Gilfillan did not understand any portion of the down payment to be a gift from Mildred, but he did understand that $37,000 came from the Trust. Steven prepared a document for Gilfillan showing his income to be $8,500 a month rather than the $4,500 he actually earned so that Gilfillan could qualify for a loan, but Gilfillan could not afford the property taxes on top of the mortgage and ultimately lost the property in a short sale, despite a loan modification. Gilfillan recalled that at the April 2011 family meeting, he typed up the notes of the meeting in the form of a letter from Mildred, which was signed by Mildred and witnessed by the others.
Barry Ben-Zion, an economist called to testify as an expert on Michael's behalf, prepared a summary of various withdrawals Steven had made from four bank accounts held by the Trust, as well as rents accepted by Steven from Trust properties. Steven stipulated that he received the funds in question, though his position at trial was that these amounts were offset because he spent his own money for Trust purposes and performed work for the Trust without compensation. His own economic expert, Jerald Udinsky, testified that Steven spent $108,000 more on the Trust than he took from it.
In regards to the transactions undertaken to finance Geyserville, Steven explained that his mother understood and consented to the sale of the Healdsburg Avenue properties to finance the purchase of the land in Geyserville, noting that she signed the grant deed to Darlene Hessler. Steven testified that he paid $5,000 to Hessler when she purchased the property and the Trust paid the mortgage and property taxes on the property after she took title. Steven took the money for the down payment by Gilfillan from a Trust account and then wrote a check on his own account to cover the down payment. According to Steven, the money provided to Gilfillan for the down payment was a gift from Mildred out of the Trust, and Gilfillan was aware that Mildred was the source of the money. Steven spent money setting up an office in the Geyserville development so he could market that property on behalf of the Trust.
The trial court issued a statement of decision concluding: (1) the applicable statute of limitation for Michael's claims against Steven was the three-year period for fraud, misrepresentation and breach of fiduciary duty under Code of Civil Procedure section 338, subdivision (d); (2) Barry Ben-Zion's testimony established that Steven had deposited $361,493.17 of Trust money into his personal accounts; (3) Steven had produced credible evidence that he had spent $71,132.40 of this amount for legitimate Trust purposes and he was entitled to an offset in this amount; (4) Steven was not entitled to an offset for money spent on his office in Geyserville, which was not necessary to conduct Trust business, or for money he paid to Darlene Hessler and John Gilfillan in connection with the sale of 801 Healdsburg, because those expenditures would not have been necessary if he had "simply sold the property to a bona fide purchaser rather than first involving Ms. Hessler and his nephew in a convoluted scheme to generate funds for the Geyserville project before a proper purchaser for 801 Healdsburg Avenue could be found;" and (5) the loss that resulted from the investment in the Geyserville project was the result of the economic downturn between 2007 and 2012 and not Steven's financial dealings. The court ordered Steven to reimburse the Trust $508,131.34, reflecting the $361,493.17 of Trust monies received by Steven, less $71,132.40 in offsets, plus prejudgment interest of $217,770.57.
II. DISCUSSION
A. Steven Has Not Established that the Court Applied the Wrong Legal Standard When Determining Whether He Violated His Duties as Trustee
Steven contends the trial court erroneously framed the issue of his liability as whether the Trust monies taken by him were used to benefit the Trust. He argues that because the alleged acts of misfeasance occurred when Mildred was still alive, he owed a fiduciary duty only to her, and not to his siblings who were beneficiaries of the Trust. Steven argues that regardless of whether his actions benefitted the Trust, there was no evidence suggesting he breached a duty to Mildred because the "unimpeached, undisputed evidence" shows that all of his actions were undertaken with her permission and according to her instructions. We are not persuaded.
Preliminarily, we agree with Steven that it was Mildred to whom he owed a fiduciary duty at the times relevant to this appeal. "A revocable trust is a trust that the person who creates it, generally called the settlor, can revoke during the person's lifetime. The beneficiaries' interest in the trust is contingent only, and the settlor can eliminate that interest at any time. When the trustee of a revocable trust is someone other than the settlor, that trustee owes a fiduciary duty to the settlor, not to the beneficiaries, as long as the settlor is alive. During that time, the trustee needs to account to the settlor only and not also to the beneficiaries." (Estate of Giraldin (2012) 55 Cal.4th 1058, 1062 (Giraldin); see Prob. Code, § 15800, subd. (b).)
The lack of a direct fiduciary duty to trust beneficiaries during the life of the settlor does not mean that a trustee is immune from reproach for his or her actions during this period. "[A]fter the settlor's death, the beneficiaries have standing to assert a breach of the fiduciary duty the trustee owed to the settlor to the extent that breach harmed the beneficiaries." (Giraldin, supra, 55 Cal.4th at p. 1076.) "The trustee's conduct can be attacked for fraud or bad faith and an accounting compelled for improper acts which had been hidden from the ultimate beneficiaries. [Citation.]" (Evangelho v. Presoto (1998) 67 Cal.App.4th 615, 624-625.) Michael had standing to bring claims against Steven for Steven's alleged breach of his duty to Mildred while she was alive.
Nothing in the statement of decision demonstrates the trial court failed to apply these principles or erroneously granted relief based instead on a direct duty owed to the siblings as beneficiaries of the Trust. (See Giraldin, supra, 55 Cal.4th at p. 1066.) While the court did not expressly state that Steven breached a fiduciary duty to Mildred or made the disputed transactions without her full knowledge or permission, the issue of Mildred's knowledge of and consent to the transactions was presented at trial. Absent an express indication to the contrary, "it is presumed that the court followed the law. . . . ' "A judgment . . . of the lower court is presumed correct. All intendments and presumptions are indulged in to support it on matters as to which the record is silent, and error must be affirmatively shown." ' " (Wilson v. Sunshine Meat & Liquor Co. (1983) 34 Cal.3d 554, 563.)
Though Steven filed objections to the court's tentative statement of decision, he did not seek a clarification that the court's finding of liability was based on a breach of duty to Mildred. A party who does not timely object to a statement of decision on a particular ground forfeits the right to challenge on appeal any omissions or ambiguities in the statement on that basis. (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 983; see Code Civ. Proc., § 634.) Absent an attempt to bring an omission or ambiguity to the trial court's attention, we are "required to infer any factual findings necessary to support the judgment. [Citations.] This rule 'is a natural and logical corollary to three fundamental principles of appellate review: (1) a judgment is presumed correct; (2) all intendments and presumptions are indulged in favor of correctness; and (3) the appellant bears the burden of providing an adequate record affirmatively proving error.' " (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 494.)
We therefore infer the court found Steven liable based on a breach of his duties to his mother as settlor of the Trust, a finding supported by substantial evidence. While the court heard testimony that Mildred remained involved in her own financial affairs while she was alive, it could have reasonably determined she did not approve of Steven placing Trust funds in his own accounts without repaying them. "A fiduciary must disclose all material facts to his principal concerning the subject of the agency. [Citations] 'It almost goes without saying that the general fiduciary duty owed by the agent to his principal includes the duty to make a full and complete disclosure to him of all material facts which the agent knows and which might influence the principal with respect to the transaction and to his willingness to enter into it.' [Citation.]" (Ziswasser v. Cole & Cowan, Inc. (1985) 164 Cal.App.3d 417, 421, italics omitted.)
The court specifically found that Steven was not credible when he testified about expenditures for which he was claiming an offset, which included payments made on 801 Healdsburg after it was sold to Hessler, the down payment given to Gilfillan to enable him to purchase the same property, and the cost of building out Steven's own office in Geyserville. We infer the court similarly rejected his testimony that his mother knew and approved of his personal use of Trust funds. "We may not reweigh the evidence and are bound by the trial court's credibility determinations." (In re Estate of Young (2008) 160 Cal.App.4th 62, 76.) "It is within the province of the trier of facts to disbelieve and ignore the uncontradicted testimony of a witness, where such testimony is so surrounded by elements of uncertainty, improbability and fraud as to justify the disbelief." (Tretheway v. Tretheway (1940) 16 Cal.2d 133, 138 (Tretheway).)
Steven argues the trial court incorrectly placed the burden of proof on him to show that the funds transferred into his accounts were used for "legitimate trust purposes." He argues the court erred in relying on Chrysler Credit Corp. v. Superior Court (1993) 17 Cal.App.4th 1303 (Chrysler), under which a party who breaches a duty by commingling funds has the burden of tracing those funds: " 'It is well settled that in the interest of fairness the burden of proof ordinarily resting upon one party as to a disputed issue may shift to his adversary when the true facts relating to the disputed issue lie peculiarly within the knowledge of the latter.' " (Id. at p. 1311.) Steven argues the Chrysler decision had no bearing on his situation because it involved a shifting of the burden to trace commingled funds in a case where a breach of fiduciary duty had already been established, rather than a shifting of the burden to establish a breach of duty in the first place.
We disagree. Steven does not dispute that he received the Trust monies that are at issue, but instead argues his mother authorized him to take the money and/or make the transactions. That is a fact "peculiarly within" his knowledge. (Chrysler, supra, 17 Cal.App.4th at p, 1311.) In Tretheway, supra, 16 Cal.2d at pp. 139-140, the court concluded that a son who had commingled the funds of a family trust with his own while his mother was still living had the burden of proving he had not appropriated them for his own purposes. "Upon the uncontradicted showing that he had access to certain of her funds, and that they passed through his hands, and that his property and hers were commingled, and that no accurate or complete accounts were kept, the burden was upon him to prove that he acted in the utmost good faith in handling such funds, and that he did not appropriate them for his own purposes." (Id. at p. 140.)
Turning again to the sufficiency of the evidence supporting the trial court's judgment, Steven argues he could not be required to repay the Trust because the Trust instrument provides that a successor trustee is liable only for "wil[l]ful misconduct or gross negligence" and he was only doing what his mother asked him to do. But the evidence did not compel a finding that Steven acted at all times with his mother's permission, and taking Trust money for his own use without her consent could be reasonably found by the court to amount to willful misconduct.
B. Statute of Limitations
The trial court determined the statute of limitations for Michael's claims for fraud, misrepresentation and breach of fiduciary duty was Code of Civil Procedure section 338, subdivision (d), which establishes a three-year period for "[a]n action for relief on the ground of fraud or mistake. The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." The court found that Michael's causes of action against Steven were timely, because they did not accrue until early 2013, after the original petition was filed in this case. The court reasoned that the statute of limitations "begins to run when a person has notice of information or circumstances that would put a reasonable person on inquiry, or has knowledge from sources open to his investigation."
Steven argues the applicable statute of limitations in this case is not Code of Civil Procedure section 338, subdivision (d), but Probate Code section 16460, which establishes a three-year limitations period that is triggered by the trustee's accounting duty. "A beneficiary of a trust who receives an accounting that would put him or her on notice of a claim against the trustee has three years from the date of receipt of the accounting to file an action; if no accounting is provided, any action must be filed within three years of the discovery of the claim." (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1123.) Steven does not explain how the application of Probate Code section 16460 would assist him, given that its three-year limitations period "is identical to that of the three-year statute of limitations of Code of Civil Procedure section 338, subdivision (d), and there is a similar, if not identical, delayed discovery rule. The difference is that discovery is triggered under Probate Code section 16460 by the receipt of an accounting, or if no accounting is supplied, by facts sufficient to put the plaintiff on notice of any wrongdoing." (Prakashpalan, supra, 223 Cal.App.4th at p. 1126; see Noggle v. Bank of America (1999) 70 Cal.App.4th 853, 859.)
Probate Code section 16460 provides, in relevant part, "(a) Unless a claim is previously barred by adjudication, consent, limitation, or otherwise: [¶] (1) If a beneficiary has received an interim or final account in writing, or other written report, that adequately discloses the existence of a claim against the trustee for breach of trust, the claim is barred as to that beneficiary unless a proceeding to assert the claim is commenced within three years after receipt of the account or report. An account or report adequately discloses existence of a claim if it provides sufficient information so that the beneficiary knows of the claim or reasonably should have inquired into the existence of the claim. [¶] (2) If an interim or final account in writing or other written report does not adequately disclose the existence of a claim against the trustee for breach of trust or if a beneficiary does not receive any written account or report, the claim is barred as to that beneficiary unless a proceeding to assert the claim is commenced within three years after the beneficiary discovered, or reasonably should have discovered, the subject of the claim." --------
Because the parties agree Michael's claims were subject to a three-year statute of limitations with a delayed discovery rule, we need not resolve whether Code of Civil Procedure section 338, subdivision (d), or Probate Code section 16460 was the applicable statute. Under either, the claims were timely.
The trial court's judgment was based on withdrawals Steven made from the Trust accounts between December 2006 and September 2011. Steven argues that because Michael filed his petition on October 24, 2011, the three-year statute of limitations had run on any amounts withdrawn or spent by Steven before October 24, 2008. But this is only true if the claims had accrued as of October 24, 2008, which would require their discovery as of that date. The trial court could reasonably conclude that it was not until much later that Michael had a reason to suspect any wrongdoing by his brother. (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110-1111 (Jolly); Gutierrez v. Mofid (1985) 39 Cal.3d 892, 896-897.)
Steven argues the letter drafted at the family meeting in April 2011 shows that Michael had by that time obtained sufficient information to put him on notice to inquire about the suspected breaches of duty. Assuming this to be true, this does not demonstrate that the claims accrued on or before October 24, 2008, as Steven now contends, or on any date before April 2011. Michael's petition was filed six months after the April 2011 meeting, and substantial evidence supports the trial court's conclusion that his claims were not barred by the three-year statute of limitations. (See Jolly, at p. 1112.)
III. DISPOSITION
The judgment is affirmed. Costs to respondent.
/s/_________
NEEDHAM, J. We concur. /s/_________
JONES, P.J. /s/_________
BRUINIERS, J.