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 D. 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 REPLY TO PLAINTIFF’S COMBINED OPPOSITION TO MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM FOR WHICH RELIEF CAN BE GRANTED [FRCP 12(B)(6)] Date: November 17, 2017 Time: 9:30 a.m. Ctrm.: 8C, 8th Floor Judge: Hon. Dolly M. Gee I. INTRODUCTION In its quest to extract the maximum amount of funds possible1 from the MacDonald Living Trust Dated August 17, 1987 (“the Trust”), plaintiff Wine Education Council (“WEC”) cites to multiple cases acknowledging the most fundamental principle of trust law, while ignoring that very principle: the written 1 WEC received $1,037,000 from the Trust on or about October 26, 2017, and an additional $5,633,752.54 on or about November 3, 2017. Case 2:17-cv-05879-DMG-JC Document 37 Filed 11/03/17 Page 1 of 10 Page ID #:781 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 terms of the trust instrument controls. The purpose of a trust is to effect the testamentary intent and will of the trustor. A trust may be extremely personal in nature, reflecting an individual’s unique desires for his or her estate at death. Yet in its Opposition to defendant and Grantmaking Trustee Peter Hilf’s Motion to Dismiss, WEC pointedly ignores the written terms of the Trust as well the subsequent Settlement Agreement. This is analogous to ignoring the terms of a contract, and instead substituting in general principles of contract law. Or ignoring the terms of a will, and instead using general estate planning law. The whole point of reducing the Trust into a written document was to effect the intent of the Trustors. WEC ignores the written terms of the Trust and Settlement Agreement and in so doing, fails to demonstrate a fiduciary relationship and corresponding duty between Mr. Hilf and WEC, and fails to show that it has standing. II. LACK OF FIDUCIARY RELATIONSHIP AND DUTY BETWEEN MR. HILF AND WEC. Not once in its Opposition does WEC address the written terms of the Trust regarding the duties of the two subclasses of trustees. WEC does, however, cite cases discussing the importance of effecting the trustor or donor’s intent. San Diego Cnty. Council, Boy Scouts of Am. v. City of Escondido,14 Cal. App. 3d 189, 196(1971), quoting Holt v. Coll. of Osteopathic Physicians & Surgeons, 61 Cal. 2d 750, 755 (1964) (en banc) (“In addition to the general public interest, however, there is the interest of donors who have directed that their contributions be used for certain charitable purposes… charitable contributions must be used only for the purposes for which they were received in trust.”). WEC similarly does not address the cases cited in Mr. Hilf’s Motion to Dismiss regarding the fact that 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); see I.E. Associates v. Safeco Title Ins. Co., 39 Cal.3d 281 (1985) (under trust Case 2:17-cv-05879-DMG-JC Document 37 Filed 11/03/17 Page 2 of 10 Page ID #:782 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 agreement, defendant trustee had no duty to trustor other than duties expressed in trust instrument.). As clearly laid out in the Trust, parents Gordon and Virginia MacDonald stated that upon their deaths, the MacDonald Family Foundation (“the Foundation”) - a sub-trust within the Trust - would be administered in a specific fashion. The MacDonalds split the trustee duties of the Foundation such that the Investment Trustee - currently defendant San Pasqual Fiduciary Trust Company (“San Pasqual”) - had 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...” The Investment Trustee shoulders the burden of actually managing and administering the Foundation’s assets, and is compensated accordingly. Strikingly, the Investment Trustee function has never been held by any Grantmaking Trustee. By contrast, the MacDonalds initially appointed their three daughters2 as Grantmaking Trustees with the “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 MacDonald daughters were not compensated for this role, wherein they simply selected beneficiaries and amounts to give the beneficiaries. By the unambiguous terms of the Trust, the MacDonalds did not want their un-compensated daughters involved in the management of assets or the administration of the Foundation, giving them “no authority” in that regard. The role of Grantmaking Trustee was meant, as set forth in the Trust by the Trustors, to 2 Mr. Hilf became a Grantmaking Trustee following the death of his wife, Linda M. Hilf. ECF No. 1, ¶ 18(b). Case 2:17-cv-05879-DMG-JC Document 37 Filed 11/03/17 Page 3 of 10 Page ID #:783 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 give their daughters and successor Grantmaking Trustees the means to make charitable contributions. To be clear, we are not arguing that Mr. Hilf has no fiduciary duties as a Grantmaking Trustee. Rather, his fiduciary duties arise out of the Grantmaking Trustees’ “sole authority to determine the amounts and identities of the charitable beneficiaries of the Foundation…” ECF No. 1-1, p. 37, Article II(C)(3); ECF No. 1, ¶ 18(b) (emphasis added.). For example, the selection by a Grantmaking Trustee of a non-qualified entity as a recipient of trust funds, if not rectified, might constitute negligence in the performance of fiduciary duties. Similarly, we are not arguing that a Grantmaking Trustee owes no duty to supervise a co-Grantmaking Trustee with respect to the qualifications of proposed charitable recipients. If a Grantmaking Trustee were to identify an inappropriate entity, the other Grantmaking Trustee would have a duty to take reasonable steps to ensure that the distribution is not made. Relative to the Grantmaking Trustees, however, the Complaint does not involve the selection of a beneficiary. Here, no duty is owed to WEC. WEC was designated as a ‘Proposed Approved Distributee’ pursuant to the terms of the Settlement Agreement. Again, looking to the black letter language of the Settlement Agreement, Mr. Hilf has no duties with respect to WEC. This was by intentional design of the parties to that agreement. Former Grantmaking Trustee Grant Winthrop no longer wanted Mr. Hilf and Ms. Rodgers to be involved in his selection of a charitable distributee. Accordingly, a new process was created which excluded Mr. Hilf and Ms. Rodgers, providing for selection of the distributee to Mr. Winthrop and the approval to San Pasqual. ECF No. 1-2, pp. 15-16, ¶ 6(d); ECF No. 1, ¶ 3. 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 Case 2:17-cv-05879-DMG-JC Document 37 Filed 11/03/17 Page 4 of 10 Page ID #:784 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 as ‘Approved Distributees’.” ECF No. 1-2, p. 16-17, ¶ 6(f)&(g) (emphasis added). Mr. Hilf has no duty to petition the Court regarding Mr. Winthrop’s Proposed Approved Distributee. Thus, the Settlement Agreement conferred no fiduciary duty on Mr. Hilf. Summarily ignoring the terms of the Trust and Settlement Agreement, the thrust of WEC’s argument stems from California Probate Code section 16013(b), which states, in full: “If a trust has more than one trustee, each trustee has a duty to do the following: (a) To participate in the administration of the trust; (b) To take reasonable steps to prevent a cotrustee from committing a breach of trust or to compel a cotrustee to redress a breach of trust.” WEC assumes that section 16013(b) is something which cannot be altered by the trust instrument. WEC assumes the express terms of the Trust - stating that the Investment Trustee has the “sole authority” to do A, and “without authority” to do B, and that the Grantmaking Trustee has a reverse role of “no authority” to do A, and “sole authority” to do B - are overridden by section 16013(b). Yet WEC does not argue that section 16013(a) renders the Trust terms void. In other words, the Trust provides that the Investment Trustee -San Pasqual - has “sole authority regarding the selection and management of trust assets and all routine administrative matters regarding the Foundation...” and that the Grantmaking Trustees have “no authority regarding the selection and management of assets or the routine administrative matters regarding the Foundation…” ECF No. 1-1, p. 36, Article II(C)(2)&(3); ECF No. 1, ¶ 18(a). Yet section 16013(a) provides that each trustee has the duty to participate in administration of the trust. WEC does not argue that the express terms of the Trust are trumped by section 16013(a), nor can it make such an argument. Similarly, there is no basis for arguing that section 16013(b) overrides the express terms of the Trust, but that is exactly what WEC claims. The cases cited by WEC when arguing that the Grantmaking Trustees had a duty to supervise Investment Trustee San Pasqual are inapplicable. Estate of Case 2:17-cv-05879-DMG-JC Document 37 Filed 11/03/17 Page 5 of 10 Page ID #:785 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 Hensel, 144 Cal. App. 2d 429, 438 (1956) (Opposition, ECF No. 34, p. 17:16-17) involved trustees with identical duties under the trust instrument. It is undisputed that Grantmaking and Investment Trustees have separate, non-overlapping duties under the Trust. As discussed above, it would be indefensible for WEC to argue that the Grantmaking Trustees are actually, contrary to the Trust, required to perform the same duties as the Investment Trustee. Blackmon v. Hale, 1 Cal. 3d 548, 559 (1970) (Opposition, ECF No. 34, p. 17:18-19) involved the duties of law partners with respect to their joint client trust account. Again, the Grantmaking and Investment Trustees do not have joint duties and thus there is no duty to supervise each other’s conduct. Similarly, WEC’s citation to the Restatement (Third) of Trusts § 81 (Opposition, ECF No. 34, pp. 17:23-18:3) cherry-picks portions of that section. While California courts consider the Restatement of Trusts when interpreting California law, it is by no means binding. Babbitt v. Superior Court of Los Angeles Cty., 246 Cal. App. 4th 1135, 1145 (2016). In any event, the Restatement provides that “[w]hen a trust has multiple trustees, the fiduciary duties of the trustees stated in this Chapter, except as modified by the terms of the trust, apply to each of the trustees.” Restatement (Third) of Trusts § 81, General Comment (a), (2007) (emphasis added). The Restatement further provides that the trustees’ duties can be reduced, modified, or allocated by the terms of the trust. Id. at General Comment (b). Such modifications abrogate the rule that each trustee “ordinarily” has a duty to exercise reasonable care to prevent a co-trustee from committing a breach of trust. Id. at General Comment (d). Finally, the provision cited by WEC is inapplicable because here, it is not that the Grantmaking Trustees have merely been relieved of responsibility with respect to the management of the Trust’s assets; rather, the Grantmaking Trustees explicitly have “no authority” in that realm. WEC has not and cannot cite any case in which a trustee is required to assume a duty in a matter in which the trustee has “no authority” under the terms of the trust Case 2:17-cv-05879-DMG-JC Document 37 Filed 11/03/17 Page 6 of 10 Page ID #:786 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 instrument. In any event, WEC has not adequately pled that the Grantmaking Trustees knew San Pasqual was committing or attempting to commit a breach of trust. As Grantmaking Trustees, they had no duty to monitor or supervise San Pasqual. Thus, facts must be alleged for each alleged breach of San Pasqual and how the Grantmaking Trustees were aware of such breach. This has not, and cannot, be done. Finally, Bermingham v. Wilcox, 120 Cal. 467, 472-73 (1898), cited by WEC (Opposition, ECF No. 34, pp. 8:8-19:10) contained an entirely different set of facts relating to delegation of duties by the trustees, among the trustees, rather than by the trustor. There the author of the trust worked with trustees Bermingham and Spence while the author was alive. During that time, Bermingham managed one set of assets in San Francisco, and Spence a separate set of assets in Los Angeles. The author died, leaving Bermingham and Spence as his trustees. Unlike the MacDonald Trust in this matter, the trust in Bermingham did not distinguish between the duties assigned to Bermingham and Spence; they each had the same duties. Somewhat logically, Bermingham and Spence delegated the duties amongst each other, to continue in the same vein as when the trustor was alive. There is a completely separate body of law regarding delegation of duties by trustees, be it among trustees or third parties. Such laws, and thus Bermingham, are inapplicable to this matter where the trustors assigned separate duties to separate trustees. III. LACK OF STANDING UNDER TRUST AND SETTLEMENT AGREEMENT. WEC continues to ignore the terms of the Trust and Settlement Agreement when analyzing the issue of standing. WEC’s sole cause of action against Mr. Hilf is for breach of fiduciary duty. WEC’s Opposition does not rebut the fact that WEC is not a beneficiary selected through the Trust process. Motion to Dismiss, ECF No. 26, pp. 17:22-18:4. If anything, WEC would be an approved distributee selected through the Settlement Agreement. The Settlement Agreement, however, Case 2:17-cv-05879-DMG-JC Document 37 Filed 11/03/17 Page 7 of 10 Page ID #:787 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 is a mere contract, with no fiduciary duties arising therefrom. Accordingly, WEC lacks standing to bring a breach of fiduciary cause of action under the Trust. WEC similarly fails to address the fact that under the terms of the Settlement Agreement, it is not a beneficiary. Motion to Dismiss, ECF No. 26, pp. 18:5-20:19. The Settlement Agreement states 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’s sole cause of action against Mr. Hilf is for breach of fiduciary duty, not breach of contract. Again, the Settlement Agreement is a contract and does not confer a fiduciary duty. WEC does not, and cannot 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. In claiming that it has standing, WEC string-cites (Opposition, ECF No. 34, p. 12:19-22) a parade of inapplicable cases which, in fact, demonstrate that WEC lacks standing. The first case cited is Holt v. Coll. of Osteopathic Physicians & Surgeons, 61 Cal. 2d 750, 755 (1964) (en banc), which held that trustees have standing to sue co-trustees, but also noted that “[b]eneficiaries of a charitable trust, unlike beneficiaries of a private trust, are ordinarily indefinite and therefore unable to enforce the trust on their own behalf.” It is undisputed that the Trust is a charitable trust, and that WEC is not a named beneficiary of the Trust. Thus, by WEC’s own case law, it cannot bring suit. The next case - Patton v. Sherwood, 152 Cal. App. 4th 339, 347 (2007) - held that where the trust instrument included an express provision allowing the settlor to object to an accounting, he/she had standing to do so. This reinforces Mr. Hilf’s argument at Section II above: the terms of the trust instrument control and must be honored. Patton did not involve an unnamed distributee such as WEC. The remaining two cases cited by WEC are similarly inapplicable. L.B. Research & Educ. Found. v. UCLA Found., 130 Cal. App. 4th 171, 180 (2005) Case 2:17-cv-05879-DMG-JC Document 37 Filed 11/03/17 Page 8 of 10 Page ID #:788 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 noted that donors have standing to enforce the terms of a charitable trust, with no mention of the power of an unnamed distributee such as WEC. In San Diego Cnty. Council, Boy Scouts of Am. v. City of Escondido,14 Cal. App. 3d 189, 192-193 (1971), the beneficiaries were clearly enumerated in the original trust as the Boy Scouts of Palomar District in San Diego County, and the Girl Scouts of Escondido. Trustee tried to re-purpose the charitable funds for park purposes and youth activities. The court found that as named beneficiaries, Boy Scouts had standing to sue the trustee based on the trustee’s alleged wrongful conduct. WEC’s reliance on non-California trust law is similarly misplaced. WEC claims that “The Individual Trustees’ arguments against WEC’s standing are particularly inappropriate given that, in their view, WEC’s status as a beneficiary depends upon the discretion of the trustee.’” Opposition, ECF No. 34, pp. 13:24- 14:3, citing Price v. Akaka, 928 F.2d 824, 827 (9th Cir. 1990), as amended (Mar. 21, 1991) (citing Restatement (Second) of Trusts § 214(1), cmt. a (1953); id. § 391); see also Hooker v. Edes Home, 579 A.2d 608, 614 (D.C. 1990). It is as though WEC did not read Mr. Hilf’s Motion. At no point has Mr. Hilf claimed that in his view, WEC’s standing as a beneficiary depends on Mr. Hilf’s discretion. Mr. Hilf has nothing to do with whether WEC is a beneficiary of the Trust. In any event, Price and Hooker are from the District of Columbia and contradict California Supreme Court caselaw, cited favorably elsewhere by WEC, Holt v. Coll. of Osteopathic Physicians & Surgeons, 61 Cal. 2d 750, 755 (1964) (en banc), stating that “[b]eneficiaries of a charitable trust, unlike beneficiaries of a private trust, are ordinarily indefinite and therefore unable to enforce the trust on their own behalf.” Having provided no case law demonstrating standing, and having ignored the terms of the Trust and Settlement Agreement, WEC has failed to demonstrate standing to pursue a breach of fiduciary relationship claim against Mr. Hilf. Case 2:17-cv-05879-DMG-JC Document 37 Filed 11/03/17 Page 9 of 10 Page ID #:789 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 IV. CONCLUSION. WEC seeks a remedy against San Pasqual, and San Pasqual has answered the Complaint. But it is inappropriate that WEC pursues remedies also against Mr. Hilf in ways not possibly imagined or allowed by the Trust or Settlement Agreement. Although the Grantmaking Trustees receive no compensation for their time and efforts, WEC seeks to impose financial responsibility on them in a manner not contemplated by the Trustors, nor remotely suggested by the Trust, the Settlement Agreement, or any cited case. This case boils down to whether the written terms of the Trust and Settlement Agreement, versus the laws that apply in the absence of express written terms to the contrary, control. The facts alleged by WEC through its incorporation of the Trust and Settlement Agreement clearly state that the Trust and Settlement Agreement do not impose a duty on Mr. Hilf to monitor or supervise San Pasqual’s actions and that if such a duty were to exist, WEC would still lack standing under the Trust and Settlement Agreement. We ask that the Court apply the written terms of the Trust, and thus the intent of the original donors, and grant this Motion to Dismiss. Dated: November 3, 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 37 Filed 11/03/17 Page 10 of 10 Page ID #:790
