Wine Education Council, Inc. v. San Pasqual Fiduciary Trust Company et al

NOTICE OF MOTION AND MOTION to Dismiss defendant Peter Hilf and Memorandum of Points and Authorities in Support

C.D. Cal.September 22, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 1 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA TODD A. AMSPOKER, State Bar No. 111245 taa@ppplaw.com SHANNON DeNATALE BOYD, State Bar No. 273574 sboyd@ppplaw.com DOUGLAS D. ROSSI, State Bar No. 90054 ddr@ppplaw.com PRICE, POSTEL & PARMA LLP 200 East Carrillo Street, Fourth Floor Santa Barbara, California 93101 Telephone: (805) 962-0011 Facsimile: (805) 965-3978 Attorneys for Defendant PETER HILF, an individual UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WINE EDUCATION COUNCIL, INC., Plaintiffs, v. SAN PASQUAL FIDUCIARY TRUST COMPANY, a California corporation; PETER HILF, an individual; and JANE RODGERS, an individual, Defendants. Case No. 2:17-CV-05879-DMG-JC DEFENDANT PETER HILF’S NOTICE OF MOTION AND MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM FOR WHICH RELIEF CAN BE GRANTED [FRCP 12(B)(6)]; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT; [PROPOSED] ORDER Date: October 20, 2017 Time: 9:30 a.m. Ctrm.: 8C, 8th Floor Judge: Hon. Dolly M. Gee PLEASE TAKE NOTICE that, on October 20, 2017, at 9:30 a.m., or as soon thereafter as this motion and counsel may be heard at the United States Courthouse located at 350 West 1st Street, Courtroom 8C, 8th Floor, Los Angeles, California 90012, Defendant Peter Hilf (hereinafter “Mr. Hilf”) will, under Rule 12(b)(6) of Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 1 of 22 Page ID #:649 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 2 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA the Federal Rules of Civil Procedure, and hereby does move this Court for an Order dismissing Mr. Hilf from this matter on the following grounds: 1. As a matter of law, plaintiff Wine Education Counsel (“WEC”) fails to demonstrate any fiduciary relationship and corresponding duty between Mr. Hilf and WEC; and 2. As a matter of law, WEC lacks standing to bring the instant claim for relief for breach of fiduciary duty against Mr. Hilf. This Motion is based upon this Notice of Motion, the attached Memorandum of Points and Authorities, the [Proposed] Order lodge concurrently herewith, the Court’s file on this matter, and upon such other and further evidence and argument as may be presented prior to or at the hearing on this Motion. This Motion is made following the conferring of counsel on September 15, 2017, pursuant to Local Rule 7-3. Respectfully submitted, Dated: September 22, 2017 PRICE, POSTEL & PARMA LLP By: /s/ Todd A. Amspoker TODD A. AMSPOKER SHANNON DeNATALE BOYD DOUGLAS D. ROSSI Attorneys for Defendant Peter Hilf, an individual Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 2 of 22 Page ID #:650 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 3 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA TABLE OF CONTENTS PAGE I. INTRODUCTION ......................................................................................... 6 II. FACTUAL AND PROCEDURAL BACKGROUND ................................... 8 A. The Composition Of The Trust. ........................................................ 8 B. The Settlement Agreement. ............................................................ 10 III. STANDARD FOR RULE 12(B)(6) MOTIONS ......................................... 12 IV. LEGAL ANALYSIS ....................................................................................... 13 A. As A Matter Of Law, WEC Fails To Demonstrate Any Fiduciary Relationship And Corresponding Duty Between Mr. Hilf And WEC. ............................................................................................ 13 B. As A Matter Of Law, WEC Lacks Standing To Bring The Instant Claim For Relief For Breach Of Fiduciary Duty Against Mr. Hilf. ..... 17 1. WEC is not a beneficiary of the Foundation under th Trust. .... 17 2. The procedure in the Settlement Agreement for selection of a Proposed Approved Distributee does not qualify as a “donative transfer.” ................................................................ 18 3. WEC lacks standing under the terms of the Settlement Agreement. ............................................................................ 19 C. The Defects Underlying WEC’s Claims Against Mr. Hilf Cannot Be Cured By Amendment. .................................................................... 21 V. CONCLUSION ...................................................................................... 22 Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 3 of 22 Page ID #:651 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 4 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA TABLE OF AUTHORITIES (PAGES) Federal Cases Lopez v. Smith 203 F.3d 1122 (9th Cir. 2000)..................................................................... 21 Pareto v. F.D.I.C. 139 F.3d 696 (9th Cir. 1998) ....................................................................... 12 Schreiber Distrib. Co. v. Serv-Well Furniture Co. 806 F.2d 1393 (9th Cir. 1986)..................................................................... 21 Sprewell v. Golden State Warriors 266 F.3d 979 (9th Cir. 2001) ....................................................................... 13 Walker Distributing Co. v. Lucky Lager Brewing Co. 323 F.2d 1 (9th Cir. 1963) cert. denied, 385 U.S. 976 (1964) ............................... 12 State Cases Boys & Girls Club of Petaluma v. Walsh 169 Cal.App.4th 1049 (2008) ...................................................................... 20, 21 City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. 68 Cal.App.4th 445 (1999) ......................................................................... 13 Crocker-Citizens Nat’l Bank v. Younger 4 Cal.3d 202 (1971)..................................................................................... 14 Gbur v. Cohen 93 Cal. App. 3d 296 (1979) ......................................................................... 16 I.E. Associates v. Safeco Title Ins. Co. 39 Cal.3d 281 (1985)................................................................................... 16 Patrick v. Alacer Corp. 167 Cal.App.4th 995 (2008) ....................................................................... 18 Union Bank & Trust Co. v. McColgan 84 Cal. App. 2d 208 (1948) ......................................................................... 14 Van de Kamp v. Bank of America 204 Cal. App. 3d 819 (1988) ....................................................................... 13 Federal Statutes Federal Rules of Civil Procedure Rule 12(b)(6) ............................................................................................... 12, 21 Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 4 of 22 Page ID #:652 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 5 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA State Statutes California Probate Code § 24 .............................................................................................................. 17, 18 § 24(c) ......................................................................................................... 18, 21 § 15620 ........................................................................................................ 14 § 16000 ........................................................................................ 8, 13, 14, 15 § 16040(b) ......................................................................................................... 14 § 16400 ........................................................................................................ 13 § 16420(a) ................................................................................................... 17 § 17200(a), (b)(12) ...................................................................................... 17 Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 5 of 22 Page ID #:653 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 6 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Plaintiff Wine Education Council (“WEC”) brings this action for breach of fiduciary duty against defendant Peter Hilf, as well as Mr. Hilf’s co-Grantmaking Trustee Jane Rodgers and Investment Trustee San Pasqual Fiduciary Trust Company (“San Pasqual”). Unfortunately, these parties are not strangers in litigation. Former Grantmaking Trustee Grant Winthrop, along with his father John Winthrop, previously brought years of protracted litigation1 against these defendants as well as others, culminating in a Settlement Agreement allowing Grant Winthrop to select a distributee of the MacDonald Family Foundation’s assets. Mr. Winthrop’s selection of WEC, and the litigation whic has now ensued, is all too familiar. Mr. Winthrop’s selection of WEC, however, was through a process over which Mr. Hilf has no ability or duty, let alone a fiduciary duty, to control or manage. WEC’s sole cause of action against Mr. Hilf is for breach of fiduciary duty, but WEC does not clear the first, most elementary hurdle: pleading a prima facie case for breach of fiduciary duty. WEC has not and cannot demonstrate any fiduciary relationship and corresponding duty between Grantmaking Trustee Mr. Hilf and WEC. The core of WEC’s allegations against Mr. Hilf is that he failed to supervise San Pasqual in the administration of its du ies. WEC claims that such a duty arises out of the MacDonald Living Trust Dated August 17, 1987 (“the Trust”) and the Settlement Agreement that resolved litigation regarding the Trust brought by former Grantmaking Trustee Grant Winthrop. Yet under the Trust and the Settlement Agreement, Mr. Hilf lacks the ability and duty to supervise or direct San Pasqual’s actions. 1 The Complaint expends a substantial amount of energy re-hashing past accusations that were resolved as part of a settlement agreement. ECF No. 1, ¶¶ 20- 45. Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 6 of 22 Page ID #:654 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 7 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA The Trust created two categories of trustees: an Investment Trustee and Grantmaking Trustees. As Investment Trustee, San Psqual has the “sole authority regarding the selection and management of trust assets and all routine administrative matters regarding the Foundation, but without authority to determine the amounts and identities of the charitable beneficiaries of the Foundation...” By contrast, Grantmaking Trustees Mr. Hilf and Ms. Rodgers have “sole authority to determine the amounts and identities of the charitable beneficiaries of the Foundation and no authority regarding the selection and management of assets or the routine administrative matters regarding the Foundation…” The Settlement Agreement carved out a portion of the Trust assets for Mr. Winthrop’s selection of distributes, totally removing Mr. Hilf from any responsibilities. The duties of Mr. Hilf and San Pasqual not only fail to overlap, but explicitly cover entirely different areas to the exclusion of the other trustee. Mr. Hilf has no authority to monitor or supervise San Pasqual per the specific language of the Trust and the Settlement Agreement, and has no duties to WEC. Furthermore, the Settlement Agreement stripped Grantm king Trustees Mr. Hilf and Ms. Rodgers of their ability to “determine the amounts and identities of charitable beneficiaries” with respect to the portion of the Trust assets that was carved out for Grant Winthrop to select the recipients thereof. So with respect to WEC’s asserted rights under the Settlement Agreement, Mr. Hilf has no authority or duty to select the recipients or to manage how the distribution of assets will take place. Similarly, WEC cannot meet the rudimentary basic of demonstrating that it has standing to bring a breach of fiduciary action against Mr. Hilf. WEC claims that it has standing as a beneficiary under the Trust (ECF No. 1, ¶90), but WEC is not even a named beneficiary of the Trust nor was WEC selected through the procedure set forth in the Trust. Rather, WEC was selected by Mr. Winthrop to receive certain assets designated in the Settlement Agreement. But, as with the Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 7 of 22 Page ID #:655 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 8 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA original Trust, WEC cannot pass the standing hurdle because Mr. Winthrop’s selection of WEC under the Settlement Agreement to receive assets does not constitute a “donative transfer,” an essential elemnt of a “beneficiary” under California Probate Code section 24. Mr. Winthrop entered into the Settlement Agreement after bargaining for the right to name a qu lified distributee for certain assets within the Trust. WEC’s assigned right under th Settlement Agreement is not a “donation,” but rather derives from a contractu l agreement supported by consideration. Finally, WEC lacks standing under the explicit terms of the Settlement Agreement because (1) as pled, WEC is not an “Approved Distributee,” and (2) the Settlement Agreement grants standing for breach of contract to enforce distribution rights only and even then, only against San Pasqual. These defects – inability to allege the requisite a relationship and corresponding duty and lack of standing – are so fundamental that they cannot be cured by amendment. Accordingly, Mr. Hilf respectfully requests that this Motion be granted in its entirety. II. FACTUAL AND PROCEDURAL BACKGROUND A. The Composition Of The Trust. This litigation stems from the MacDonald Living Trust Dated August 17, 1987 (“the Trust”), created by Gordon and Virginia M cDonald. ECF No. 1, ¶ 14. The Trust became irrevocable when Virginia passed away in 1991, and split into several sub-trusts. ECF No. 1, ¶¶ 15, 16; ECF No. 1-1, Section A, Article V, VII, IX, XI. For purposes of this Motion, the MacDonald Family Foundation (“the Foundation”) is the sole relevant sub-trust relating o Mr. Hilf. “The Foundation, a private foundation under I.R.C. § 509 and a tax exempt organization under I.R.C. § 501(c)(3), was intended to operate in perpetuity exclusively for charitable, religious, educational, scientific, and literary pur oses by making grants to appropriate charitable, religious, educational, scientific, and literary organizations Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 8 of 22 Page ID #:656 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 9 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA that are qualified charities.” ECF No. 1, ¶ 17; ECF No. 1-1, Section A, Article X, ¶¶ A, D. “Following the MacDonalds’ deaths, trusteeship of the Foundation was divided between trustees who were managing the Foundation’s assets (the ‘Investment Trustees’) and trustees who were to ident fy charitable beneficiaries and determine the size of the charitable distribution (the ‘Grantmaking Trustees’).” ECF No. 1, ¶ 18; ECF No. 1-1, Section B, Article II, ¶ C(2) (emphasis added). The key here is that the duties of trustee were divided between two classifications of trustees, meaning that there was no overlap or oversight between the Investment and Grantmaking Trustees’ duties and powers. This div ion of duties is critical to understanding why Mr. Hilf, a Grantmaking Trustee, is not a proper party to this lawsuit. The Trust divides the authority and responsibility of each type of Foundation trustee as follows: 1. The Investment Trustee – now San Pasqual – has “sole authority regarding the selection and management of trust assets and all routine administrative matters regarding the Foundation, but wi hout authority to determine the amounts and identities of the charitable beneficiaries of the Foundation...” ECF No. 1-1, p. 36, Article II(C)(2); ECF No. 1, ¶ 18(a) (emphasis added.). 2. The Grantmaking Trustees – now Mr. Hilf and Ms. Rodgers – have “sole authority to determine the amounts and identities of the charitable beneficiaries of the Foundation and o authority regarding the selection and management of assets or the routine administrative matters regarding the Foundation…” ECF No. 1-1, p. 37, Article II(C)(3); ECF No. 1, ¶ 18(b) (emphasis added.). The original Grantmaking Trustees were the three MacDonald daughters. ECF No. 1, ¶ 18(b). Ms. Rodgers is the sole remaining daughter. Mr. Hilf became a Grantmaking Trustee following the death of his wife, Linda M. Hilf, and Mr. Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 9 of 22 Page ID #:657 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 10 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA Winthrop became a contested Grantmaking Trustee following the death of his mother Marilyn MacDonald. ECF No. 1, ¶ 18(b). Whereas the Grantmaking Trustees are required to act unanimously or by majority to select as recipients of the Foundation’s assets, the Grantmaking Trustees have no involvement in the decisions made by the Investment Trustee. ECF No. 1-1, Section B, Article II, ¶ B. The Trust does not include any provisions for oversight of the Investment Trustee by the Grantmaking Trustees, nor are there any provisions whereby the Grantmaking Trustees can remove the Investment Trustee. In their capacity as beneficiaries, the MacDonalds’ “then living children” have the power but not the duty to remove the Investm nt Trustee, but the Grantmaking Trustees have no such power. ECF No. 1-1, Section B, Article II(E)(2). Mr. Hilf is not a MacDonald child, thus he lacks even the power of one of the living children to remove an Investment Trustee such as San Pasqual. Unlike an Investment Trustee, Grantmaking Trustees are not entitled to receive reasonable compensation for services as trustee. ECF No. 1-1, p. 40, Article II(H)(1). B. The Settlement Agreement. From 2009 through 2014, there was a complete and utter breakdown in relationships between the Grantmaking Trustees – specifically, between Mr. Winthrop on the one hand, and Mr. Hilf and Ms. Rodgers on the other – as well as between Mr. Winthrop and San Pasqual. ECF No. 1, ¶¶ 20-45. Following a five day mediation, the parties reached a global settlement (“Settlement Agreement”). (ECF No. 1, ¶ 46.) Mr. Winthrop agreed to step down from his role as a Grantmaking Trustee in exchange for the ability to pr pose distributee(s) who, if approved by San Pasqual, would receive a set amount ( ne-third of the net assets) from the Foundation. ECF No. 1-2, pp. 15-16, ¶ 6(d). The Settlement Agreement confirms that under the Trust, the sole involvement of the Grantmaking Trustees is in the Foundation, wherein the Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 10 of 22 Page ID #:658 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 11 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA Grantmaking Trustees are “responsible for choosing the charitable beneficiaries and the amounts of the grants.” (ECF No. 1-2, p. 6, C(1).) Through the Settlement Agreement, however, Mr. Hilf and Ms. Rodgers are removed from the selection process with respect to the distributees selected by Mr. Winthrop. A review and approval process for Grant Winthrop’s selected distributees was vested exclusively in the Investment Trustee, San Pasqual. Mr. Hilf and Ms. Rodgers are conspicuously absent from the process set forth in the Settlement Agreement. WEC acknowledges that “[u]nder the terms of the settlement agreement, San Pasqual Fiduciary Trust Company (‘San Pasqual’), the trustee charged with managing the assets of the Foundation, could disapprove of Grant’s chosen distributees in only a limited number of situations…” (ECF No. 1, ¶ 3 (emphasis added.) WEC makes no mention of the Grantmaking Trustees’ abilities, or lack thereof, with respect to the approval of a proposed distributee under the Settlement Agreement. The Grantmaking Trustees have no duties or powers in connection with evaluating Mr. Winthrop’s proposed distributees. First, Mr. Winthrop is to “identify to San Pasqual in writing the ‘Proposed Approved Distributees’, to which Grant [Mr. Winthrop] proposes receive the transfer of the GGW Charitable Amount.” ECF No. 1-2, p. 16, ¶ 6(e). Mr. Winthrop was not even required to notify Mr. Hilf and Ms. Rodgers of his Proposed Approved Distributees. Next, San Pasqual is either to approve the Proposed Approved Distributees, or advise Mr. Winthrop, Ms. Rodgers, and Mr. Hilf of the reason why San Pasqual does not approve. ECF No. 1-2, p. 16-17, ¶ 6(f). The Settlement Agreement further provided that “San Pasqual may disapprove in its sole, absolute and unreviewable discretion…” but “Grant [Mr. Winthrop], Jane [Ms. Rodgers], Peter F. [Mr. Hilf] or San Pasqual may petition the Court for approval of the charitable organization(s) such party proposes as ‘Approved Distributees’.” ECF No. 1-2, p. 16-17, Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 11 of 22 Page ID #:659 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 12 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA ¶ 6(f)&(g) (emphasis added). Mr. Hilf has no duty to petition the Court regarding Mr. Winthrop’s Proposed Approved Distributee. Mr. Hilf and Ms. Rodgers are entirely removed from the process for payment to distributees selected by Mr. Winthrop. The Settlement Agreement provides that “the Investment Trustee shall distribute, substantially on a pro rata basis, to the ‘Approved Distributees,’ one-third (1/3) of the Net Assets of the Existing Foundation (the “GGW Charitable Amount”).” ECF No. 1-2, p. 15-16, ¶ 6(d). The Settlement Agreement took further care to define third party beneficiaries, and to limit the duties owed to such beneficiaries. The Settlement Agreement makes clear that “[t]here are no intended thir party beneficiaries of this Agreement, except as expressly provided below.” ECF No. 1-2, p. 11, (P). The Settlement Agreement later explains that “all Approved Distributees shall be third party beneficiaries of this Agreement for the limited purpose of enforcing the rights to receive the aforesaid distributions described this Agreement, including in Paragraph 6.’” ECF No. 1-2, pp. 23-24, ¶ 9.) WEC has pled that it is not an Approved Distributee, stating that “San Pasqual has yet to approve WEC or to make any distributions.” ECF No. 1, ¶ 66. III. STANDARD FOR RULE 12(B)(6) MOTIONS Rule 12(b)(6) of the Federal Rules of Civil Procedure provides a mechanism for disposing of legally insufficient claims. Walker Distributing Co. v. Lucky Lager Brewing Co. 323 F.2d 1 (9th Cir. 1963), cert. denied, 385 U.S. 976 (1964). A Rule 12(b)(6) motion asks whether, assuming the well-pleaded allegations in the complaint are true, the plaintiff has stated a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all material allegations in the complaint, as well as all reasonable inferences to be drawn from them. Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). However, a court need not accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 12 of 22 Page ID #:660 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 13 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA allegations. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). IV. LEGAL ANALYSIS WEC’s sole cause of action against Mr. Hilf is for breach of fiduciary duty. ECF No. 1, ¶¶ 89-92. A breach of trust is a violatn by the trustee of any duty that the trustee owes a beneficiary. Probate Code § 16400. The elements of a breach of fiduciary duty claim for relief are: (1) the existence of a fiduciary relationship between the plaintiff and defendant; (2) a breach of the defendant’s fiduciary duties; and (3) damages proximately caused by the breach. See e.g., City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal.App.4th 445, 483 (1999). When a beneficiary seeks relief for a breach of trust, the beneficiary has the burden of proving the existence of a fiduciary duty and the trustee’s failure to perform it. Van de Kamp v. Bank of America, 204 Cal. App. 3d 819, 853 (1988). WEC failed to and cannot plead a relevant fiduciary duty as to Mr. Hilf, thus Mr. Hilf’s motion to dismiss must be granted. A. As A Matter Of Law, WEC Fails To Demonstrate Any Fiduciary Relationship And Corresponding Duty Between Mr. Hilf And WEC. The sole allegations against Mr. Hilf are that “[a]s San Pasqual’s cotrustees, Hilf and Rodgers have fiduciary duties that include th duty to take reasonable steps to prevent San Pasqual from committing breaches of duty and to work to address San Pasqual’s ongoing breaches of duty.” ECF No. 1, ¶ 90. In essence, WEC alleges that Hilf failed to exercise reasonable supervision over alleged cotrustee San Pasqual. ECF No. 1, ¶ 91. This amounts to an alleged failure to supervise a cotrustee under Probate Code section 16013. In so alleging, WEC mistakenly seeks to impose on Mr. Hilf the duties of a trustee under general California law. But the prime rule on a trustee’s duties in California lies in Probate Code section 16000, which provides: “On acceptance of the trust, the trustee has a duty to administer the trust according to the trust Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 13 of 22 Page ID #:661 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 14 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA instrument and, except to the extent the trust instrument provides otherwise, according to this division.” Emphasis added; see also Probate Code § 16040(b).) Stated differently, the extent of the trustee’s duties and powers is determined by the trust instrument. Crocker-Citizens Nat’l Bank v. Younger, 4 Cal.3d 202, 211 (1971). The terms of the trust instrument trump the statutory laws; thus, a trustee’s duty to supervise a cotrustee can be eliminated by the trust instrument, as was done here. Prob. Code § 16000; Union Bank & Trust Co. v. McColgan, 84 Cal. App. 2d 208 (1948). Neither the Trust, California trust law, nor common sense would impose the duty that WEC seeks to impose on Mr. Hilf. As the rustors are permitted to do by California Probate Code section 15620, the Trust narrowly circumscribes Mr. Hilf’s duty as a Grantmaking Trustee. The Trust carefully bifurcated trustee duties between the “Investment Trustee” and the “Grantmaking Trustees.” Their respective rights, duties, and obligations under th Trust do not overlap in any respect. Rather, the duties were divided between th two trustee categories: 1. The Investment Trustee –San Pasqual – has “soleauthority regarding the selection and management of trust assets and all routine administrative matters regarding the Foundation, but without authority to determine the amounts and identities of the charitable beneficiaries of the Foundation...” ECF No. 1-1, p. 36, Article II(C)(2); ECF No. 1, ¶ 18(a). 2. The Grantmaking Trustees –Mr. Hilf and Ms. Rodgers – have “sole authority to determine the amounts and identities of the charitable beneficiaries of the Foundation and o authority regarding the selection and management of assets or the routine administrative matters regarding the Foundation…” ECF No. 1-1, p. 37, Article II(C)(3); ECF No. 1, ¶ 18(b). The Settlement Agreement confirms that under the Trust, the sole involvement of the Grantmaking Trustees is in the Foundation, wherein the Grantmaking Trustees Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 14 of 22 Page ID #:662 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 15 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA are “responsible for choosing the charitable beneficiaries and the amounts of the grants.” ECF No. 1-2, p. 6, C(1). In sum, the Trust specifically states that Investment Trustees have sole authority to engage in selection and management of trust assets and routine administrative matters, and that Grantmaking Trustees have no authority in those realms. It is entirely contrary to the terms of the Trust for WEC to attempt to impose on Mr. Hilf, a Grantmaking Trustee, the duty to administer the Foundation or to monitor San Pasqual’s administration of the Foundation. San Pasqual is the sole authority in that realm. Conversely, while San Pasqual, as the Investment Trustee, possesses all of the powers granted by the Trust and generally conferred on a trustee under California Trust law (see California Probate Code section 16000, supra), it has no authority whatsoever to determine grant ecipients or amounts thereof. The “Investment Trustee” and “Grantmaking Trustee” are two different trustee-worlds under the Trust, and their respectiv duties must be interpreted in that light and context. WEC acknowledges, as it must, that Mr. Hilf has no duties with respect to the approval of a Proposed Approved Distributee under the Settlement Agreement. WEC alleges that “[u]nder the terms of the settlement agreement, San Pasqual Fiduciary Trust Company (‘San Pasqual’), the trustee charged with managing the assets of the Foundation, could disapprove of Grant’s chosen distributees in only a limited number of situations…” ECF No. 1, ¶ 3. San Pasqual has literally no authority over Hilf/Rodgers actions, and similarly Hilf/Rodgers have no authority or ability to control San Pasqual’s actions. They operate entirely independent of each other, per the specific terms of the Trust. If San Pasqual ceased to act as Investment Trustee, Mr. Hilf could not take over those duties nor could Mr. Hilf choose San Pasqual’s successor. Similarly, if Mr. Hilf ceased to act as Grantmaking Trustee, San Pasqual could not take over those duties nor could it select Mr. Hilf’s successor. Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 15 of 22 Page ID #:663 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 16 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA The Settlement Agreement added further limitations to the Grantmaking Trustees’ duties and abilities. WEC alleges that “San Pasqual failed to approve WEC in a timely fashion or to inform Grant, Rodgers, and Hilf of any reason that San Pasqual did not approve WEC…” (ECF No. 1, ¶ 60.) This ignores the fact that the Settlement Agreement removed the Grantmaking Trustees’ duties when it came to one specific event: the selection of a Proposed Distributee by former Grantmaking Trustee Grant Winthrop. In the Trust, the Grantmaking Trustees’ ole duties were to (1) select charitable beneficiaries, and (2) select donation amounts. This first duty – selection of beneficiaries – was removed from the Grantmaking Trustees with respect to the distributees selected by Mr. Winthrop under the Settlement Agreement. The second duty – selection of donation amounts – was also removed from the remaining Grantmaking Trustees with respect to the distributees selected by Mr. Winthrop per the Settlement Agreement. These two duties were the only duties owed by Mr. Hilf in the Trust. They were further the only duties Mr. Hilf had the ability to perform under the Trust. When these were taken away from the Grantmaking Trustees vis a vis the distributees selected by Mr. Winthrop under the Settlement Agreement, so too were any potential fiduciary duties related to the selection of said beneficiaries and amounts. WEC cannot state a claim against Mr. Hilf. See I.E. Associates v. Safeco Title Ins. Co., 39 Cal.3d 281 (1985) (under trust agreement, defendant trustee had no duty to trustor other than duties expressed in trust instrument.). In sum, the Settlement Agreement provides that “San Pasqual may disapprove [of Mr. Winthrop’s Proposed Approved Distributees] in its sole, absolute and unreviewable discretion.” ECF No. 1-2, p. 16-17, ¶ 6(f). If San Pasqual does not approve or fails to provide a timely response, Mr. Winthrop, Ms. Rodgers, and Mr. Hilf “may” petition the Court for approval. ECF No. 1-2, pp. 16- 17, ¶ 6(g).) The Settlement Agreement does not require Mr. Hilf to petition the Court nor to otherwise compel San Pasqual to action. Curiously, Mr. Winthrop had Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 16 of 22 Page ID #:664 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 17 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA this same ability under the Settlement Agreement, and yet he is not involved in this lawsuit. Should this matter be pursued, Mr. Winthrop will be added to this lawsuit. See Gbur v. Cohen, 93 Cal. App. 3d 296, 300 (1979) (When the trustee is liable, the trustee can sue the cotrustee for contribution.). B. As A Matter Of Law, WEC Lacks Standing To Bring The Instant Claim For Relief For Breach Of Fiduciary Duty Against Mr. Hilf. WEC’s sole cause of action against Mr. Hilf is for breach of fiduciary duty. Beneficiaries of a trust have standing to bring a proceeding against the trustee to redress a breach of trust by any available remedy. Prob. Code §§ 16420(a), 17200(a), (b)(12). Claiming it is a beneficiary, WEC brings this breach of fiduciary duty cause of action against Hilf. WEC is not, however, a “beneficiary” under the Trust. WEC’s rights, if any, stem from the Settlement Agreement. Even if WEC’s rights do stem from the Trust, WEC does not qualify to bring a cause of action for breach of fiduciary duty. California Probate Code s ction 24 states that a “‘beneficiary’ means a person to whom a donative transfer of property is made or that person’s successor in interest, and … (c) As it relates to a trust, mean a person who has any present or future interest, vested or contingent.” Emphasis added. WEC does not qualify as a beneficiary because (1) WEC is not a beneficiary of the Foundation under the Trust, (2) no “donative transfer” exists under the Settlement Agreement, and (3) WEC is not a beneficiary of the Foundation under the Settlement Agreement. WEC is not a beneficiary of the Foundation under the Trust. 1. WEC is not a beneficiary under the original Trust, which gave the three Grantmaking Trustees “sole authority to determine the amounts and identities of the charitable beneficiaries of the Foundation…” ECF No. 1-1, p. 37, Section 2, Article II(C)(3). WEC does not allege that it was selected through the process set forth in the Trust. Rather, WEC alleges that it is a Proposed Approved Distributee under the Settlement Agreement. This should be the nd of the inquiry. WEC was Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 17 of 22 Page ID #:665 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 18 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA not named as a beneficiary in or by the Grantmaking Trustees pursuant to the procedure set forth in the Trust. Mr. Hilf’s sole duties relate to his status as a Grantmaking Trustee. Accordingly, WEC is not a beneficiary of the Foundation and no fiduciary duties are owed to WEC. The procedure in the Settlement Agreement for selection of a 2. Proposed Approved Distributee does not qualify as a“donative transfer.” The Settlement Agreement through which WEC claims to be a beneficiary is just that: a settlement agreement. It is not a “trust,” and thus WEC cannot be a “beneficiary” under California Probate Code section 24. The Settlement Agreement is a contract, whereby the parties bargained for, and exchanged consideration for, an additional procedure for distributing the Foundation’s assets. Accordingly, there was no requisite “donative transfer” made to WEC under the Settlement Agreement. In fact, WEC acknowledges that its only potential cl im to standing is as a contractual beneficiary: “By this action, WEC, a public charity, seeks to obtain charitable distributions that have long been due to it under a settlement agreement…” ECF No. 1, ¶ 1 (Emphasis added). Yet, in a complete pivot from which all of its right arise (the Settlement Agreement) WEC brought its Fifth Cause of Action against Mr. Hilf as a claim for breach of fiduciary duty. Patrick v. Alacer Corp., 167 Cal.App.4th 995 (2008) demonstrates that such a laim is not tenable when the obligation arises from something other than a donative transfer. Patrick held that the wife of a trust settlor was not a “trus beneficiary,” even though the trust directed the trustees to distribute no more than 46% of the corporation’s shares to the wife to satisfy any community property interest in the stock, because the wife’s alleged community property interest was not a “donative transfer of property” under Probate Code section 24(c). Similarly, by contract, rather than by the Trust itself, WEC claims a right to receive funds from the Foundation. This Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 18 of 22 Page ID #:666 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 19 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA alleged contractual right is distinguishable from the rights arising under a trust. WEC does not and cannot point to any fiduciary duty imposed by the Settlement Agreement on the Grantmaking Trustees; thus, WEC’s claim against Mr. Hilf cannot stand. WEC lacks standing under the terms of the Settlement 3. Agreement. WEC lacks standing to claim a breach of fiduciary duty, as well as a breach of contract, against Mr. Hilf under the Settlement Agreement. The Settlement Agreement makes clear that “[t]here are no intended thir party beneficiaries of this Agreement, except as expressly provided below.” (ECF No. 1-2, p. 11, (P).) The Settlement Agreement later explains that “ll Approved Distributees shall be third party beneficiaries of this Agreement for the limited purpose of enforcing the rights to receive the aforesaid distributions described this Agreement, including in Paragraph 6.’” (ECF No. 1-2, p. 23-24, ¶ 9.) WEC cannot avail itself of this contractual provision for the following reasons. First, this provision grants standing as a third party beneficiary solely to “Approved Distributees.” ECF No. 1-2, p. 23-24, ¶ 9 (emphasis dded). WEC has pled that it is not an Approved Distributee, stating that “San Pasqual has yet to approve WEC or to make any distributions.” ECF No.1 ¶ 66. Under the terms of the Settlement Agreement, WEC is not a “third party beneficiary” because it has not been approved by the Investment Trustee. Thus, under Probate Code section 24(c), WEC is not a “beneficiary” because it does not have a vested or contingent future interest in the Trust. Second, even if WEC were an “Approved Distributee,” such entities are only “third party beneficiaries of this Agreement...,” and not of the Trust. ECF No. 1-2, p. 23-24, ¶ 9 (emphasis added). WEC’s sole cause of acti n against Mr. Hilf is for breach of fiduciary duty, not breach of contract. Even if WEC were an Approved Distributee, which as pled it is not, WEC’s sole cause of action would be for a Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 19 of 22 Page ID #:667 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 20 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA breach of contract, meaning a breach of the Settlement Agreement.2 The Settlement Agreement does not, by its terms, bestow a fiduciary duty on Mr. Hilf with respect to Approved, let alone Proposed, Distribu ees. Accordingly, a breach of fiduciary duty cause of action by WEC cannot stand. Third, even if WEC were an “Approved Distributee,” such entities only have standing “for the limited purpose of enforcing the rights to receive the aforesaid distributions described this Agreement, including in Paragraph 6...” (ECF No. 1-2, p. 23-24, ¶ 9 (emphasis added).) Paragraph 6 sets forth the method and procedure for determining the “Approved Distributees” and the appropriate amount to be distributed to them. All that WEC complains of, and the resolution of its rights, if any, lie within Paragraph 6. But WEC does not, andcannot point to any provision in Paragraph 6, or any other provision of the Settlement Agreement, that imposes a duty of due care on Mr. Hilf. If WEC were an Approved Distributee under the Settlement Agreement, then Mr. Hilf would not begrudge WEC any right to have the distribution amount properly computed and distribu ed to it. But these contractual rights do not give rise to a tortious or even contractual cause of action against Mr. Hilf, who has no contractual duties to an Approved Distributee under the Settlement Agreement. An Approved Distributee is not given any right to claim a breach of trust or fiduciary duty. Finally, Boys & Girls Club of Petaluma v. Walsh, 169 Cal.App.4th 1049, 1058 (2008) (“Walsh”) cited by WEC in its Complaint is inapplicable on its face. ECF No. 1, ¶ 69. There the charitable trust named five specific beneficiaries, and gave the trustees the discretion to appoint additional qualifying charitable organizations and to determine the relative amounts to be given to the beneficiaries 2 Even if WEC were to bring a breach of contract action against Mr. Hilf, that action would fail because (1) WEC is not an “Approved Distributee” thus it lacks standing under the terms of the Settlement Agreement, as discussed above, and (2) as discussed below, even if it were an “Approved Distributee,” Mr. Hilf has no contractual duties under the Settlement Agreement to Approved Distributees. Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 20 of 22 Page ID #:668 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 21 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA “including the power to make distribution to one or more of them to the exclusion of others.” Walsh, 169 Cal.App.4th at p. 1053. The court concluded that e five named beneficiaries qualified as beneficiaries under Probate Code section 24(c) because they had a “present or future interest, vesed or contingent.” Id. at 1058. “These five entities do not lack the status of beneficiaries merely because [trustees] have not exercised their powers to select the five,or other charitable organizations” as recipients of the distributions. Ibid. By sharp contrast, WEC was neither named in the Trust nor the Settlement Agreement as a beneficiary. Further, the named beneficiaries in Walsh did not have to be approved by a trustee, whereas WEC has to be approved by the Investment Trustee. C. The Defects Underlying WEC’S Claims Against Mr. Hilf Cannot Be Cured By Amendment. As required in a Rule 12(b)(6) Motion to Dismiss, this Motion has been confined to the allegations in the Complaint, along with the Trust and Settlement Agreement attached thereto. Tempting though it was for Mr. Hilf bring in outside facts to illuminate the Court on the tortured history f Mr. Winthrop’s actions against Mr. Hilf and the Trust, resorting to such means is inappropriate because the terms of the Trust and the Settlement Agreement clearly eradicate any basis for arguing that WEC has or could have standing as a beneficiary, or that Mr. Hilf owes or could owe any fiduciary duty to WEC. Where the defects cannot be cured by amendment, it is appropriate for the court to grant the motion to dismiss without leave to amend. Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986) (denial of leav to amend appropriate when “the court determines that te allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency”); see Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). WEC cannot change the terms of the Trust, the terms of the Settlement Agreement, or the letter of the law, thus its Complaint against Mr. Hilf must be dismissed without leave to amend. Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 21 of 22 Page ID #:669 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879-DMG-JC 22 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA V. CONCLUSION To summarize, Mr. Hilf is an unpaid Grantmaking Trustee whose sole duty is to determine the amount and identity of eligible charities to receive funds from the Foundation. The original trustor of the Foundation made a conscious effort to limit the Grantmaking Trustees’ role solely to the selection of the charities to receive Foundation funds. As a result of litigation, Mr. Winthrop bargained for, and received, the exclusive right through a Settlement Agreement, to nominate charities to receive 1/3 of the Foundation’s assets. The Settlement Agreement also finally resolved all complaints Mr. Winthrop had about the prior management of the Foundation as well as the Trust. Mr. Hilf is totally removed from all responsibilities connected with Mr. Winthrop’s distribution of 1/3 of the Foundation assets. Mr. Winthrop’s proposed designee, WEC, seeks to include Mr. Hilf in this case for no apparent reason other than to harass him and rehash Mr. Winthrop’s prior complaints about the Foundation’s management. Mr. Hilf has utterly no duty to Mr. Winthrop or to WEC to manage any part of the process by which WEC may be approved and paid the Foundation’s assets. For the foregoing reasons, Mr. Hilf respectfully requ sts that the Court grant this Motion to Dismiss in its entirely, without leave to amend. Dated: September 22, 2017 Respectfully submitted, PRICE, POSTEL & PARMA LLP By: /s/ Todd A. Amspoker TODD A. AMSPOKER SHANNON DENATALE BOYD DOUGLAS D. ROSSI Attorneys for Defendant Peter Hilf, an individual Case 2:17-cv-05879-DMG-JC Document 26 Filed 09/22/17 Page 22 of 22 Page ID #:670