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

NOTICE OF MOTION AND MOTION to Dismiss Defendant Peter Hilf re Plaintiff WEC's First Amended Complaint; Memorandum of Points and Authorities in Support

C.D. Cal.July 17, 2018

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 RYAN D. ZICK, State Bar No. 303649 rzick@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 PLAINTIFF’S FIRST AMENDED COMPLAINT 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 [Filed concurrently: Defendant Peter Hilf’s Request for Judicial Notice] Date: August 17, 2018 Time: 9:30 a.m. Ctrm.: 8C, 8th Floor Judge: Hon. Dolly M. Gee Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 1 of 28 Page ID #:1629 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 PLEASE TAKE NOTICE that, on August 17, 2018, 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 the Federal Rules of Civil Procedure, and hereby does move this Court for an Order dismissing Mr. Hilf, with prejudice, from this matter on the following grounds: 1. As a matter of law, plaintiff Wine Education Counsel (“WEC”) lacks standing to bring the instant breach of fiduciary duty claim against Mr. Hilf; and 2. As a matter of law, WEC fails to allege any breach of an alleged limited fiduciary duty by Mr. Hilf. This Motion is based upon this Notice of Motion, the attached Memorandum of Points and Authorities, the [Proposed] Order lodged concurrently herewith, the Request for Judicial Notice filed 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 July 5, 2018, pursuant to Local Rule 7-3. Respectfully submitted, Dated: July 17, 2018 PRICE, POSTEL & PARMA LLP By: /s/ Todd A. Amspoker TODD A. AMSPOKER SHANNON DeNATALE BOYD DOUGLAS D. ROSSI RYAN D. ZICK Attorneys for Defendant Peter Hilf, an individual Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 2 of 28 Page ID #:1630 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 C. Court’s Ruling on Mr. Hilf’s and Ms. Rodgers’ Motions to Dismiss the Complaint, and WEC’s Subsequent First Amended Complaint. ............................................................................................. 12 III. STANDARD FOR RULE 12(B)(6) MOTIONS ............................................. 13 IV. LEGAL ANALYSIS ....................................................................................... 13 A. As A Matter Of Law, WEC Is Not a Beneficiary and Therefore Lacks Standing To Bring The Instant Breach Of Fiduciary Duty Claim Against Mr. Hilf. ........................................................................ 14 WEC was not selected pursuant to the provisions of the 1. Trust, thus WEC is not a beneficiary of the Trust. ..................... 14 The procedure in the Settlement Agreement for selection of 2. a Proposed Approved Distributee does not qualify as a “donative transfer” from the Trust. ............................................. 19 WEC lacks a “special and definite interest” in the Trust, thus 3. it is not “entitled to enforce the trust.” ........................................ 20 B. As A Matter Of Law, WEC Fails To Allege Any Breach of an Alleged Limited Fiduciary Duty by Mr. Hilf and Ms. Rodgers. .......... 22 The Trust and Settlement Agreement Limit Mr. Hilf’s and 1. Ms. Rodgers’ Potential Liability for Breach of Fiduciary Duty, Thus WEC Must Plead that Mr. Hilf and Ms. Rodgers Committed an Intentional, Grossly Negligent, Bad Faith, or Reckless Breach of Fiduciary Duty. ........................................... 23 WEC Did Not and Cannot Plead that Mr. Hilf and Ms. 2. Rodgers Committed an Intentional, Grossly Negligent, Bad Faith, or Reckless Breach of Fiduciary Duty. ............................ 26 C. The Defects Underlying WEC’s Claims Against Mr. Hilf Cannot Be Cured By Amendment. .................................................................... 27 V. CONCLUSION ............................................................................................... 27 Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 3 of 28 Page ID #:1631 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) ................................................................................ 27 Pareto v. F.D.I.C. 139 F.3d 696 (9th Cir. 1998) .................................................................................. 13 Schreiber Distrib. Co. v. Serv-Well Furniture Co. 806 F.2d 1393 (9th Cir. 1986) ................................................................................ 27 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) ............................... 13 State Cases 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)................................................................................................ 22 Gbur v. Cohen 93 Cal. App. 3d 296 (1979) .................................................................................... 26 Hardman v. Feinstein 195 Cal.App.3d 157 (1987) .............................................................................. 20, 21 Holt v. Coll. of Osteopathic Physicians & Surgeons 61 Cal. 2d 750 (1964) (en banc) ............................................................................ 21 I.E. Associates v. Safeco Title Ins. Co. 39 Cal.3d 281 (1985) ............................................................................................. 25 L.B. Research & Educ. Found. v. UCLA Found 130 Cal. App. 4th 171 (2005) ................................................................................ 21 Morgan v. Superior Court 23 Cal. App. 5th 1026 (2018) ................................................................................ 24 Patrick v. Alacer Corp. 167 Cal.App.4th 995 (2008) .................................................................................. 20 Patton v. Sherwood 152 Cal. App. 4th 339 (2007) .......................................................................... 20, 21 San Diego Cnty. Council, Boy Scouts of Am. v. City of Escondido 14 Cal. App. 3d 189 (1971) .................................................................................... 21 Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 4 of 28 Page ID #:1632 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 Union Bank & Trust Co. v. McColgan 84 Cal. App. 2d 208 (1948) .................................................................................... 23 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) .......................................................................................................... 13 State Statutes Probate Code: § 24(c) .................................................................................................................... 20 § 24(d) .............................................................................................................. 20, 21 § 15620 ................................................................................................................... 23 § 16000 ............................................................................................................. 22, 23 § 16400 ................................................................................................................... 13 § 16420(a) .............................................................................................................. 14 § 16040(b) .............................................................................................................. 22 § 16461(a) .............................................................................................................. 23 § 16461(b) ........................................................................................................ 22, 23 § 17200(a), (b)(12) ................................................................................................. 14 Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 5 of 28 Page ID #:1633 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 Following the Court’s Order granting the Motions to Dismiss by defendants and co-Grantmaking Trustees Peter Hilf and Jane Rodgers, plaintiff Wine Education Council, Inc.’s (“WEC”) attempt to breathe life into its First Amended Complaint falls far short of pleading the requisite facts to support its action for breach of fiduciary duty arising out of the MacDonald Living Trust Dated August 17, 1987 (“the Trust”). Despite guidance from the Court, WEC has not – and indeed, cannot – meet the rudimentary basic of demonstrating that it has standing to bring a breach of fiduciary duty action against Mr. Hilf. In essence, WEC seeks to evade the import of the Court’s ruling by alleging that the Settlement Agreement constitutes an amendment to the Trust, and therefore that WEC’s claim is made pursuant to the Trust. ECF No. 59, ¶¶ 41, 42, 46, 47, 53-57. However, nothing about these new allegations changes the undeniable fact that WEC was not a named beneficiary of the Trust, nor was WEC selected by the Grantmaking Trustees – Mr. Hilf and Ms. Rodgers – through the procedure set forth in the Trust. Rather, WEC was selected as a “Proposed Approved Distributee” – not a “beneficiary” – by former Grantmaking Trustee Grant Winthrop to receive certain assets designated in the Settlement Agreement.1 The Settlement Agreement, in turn, grants “limited” standing for breach of contract to enforce distribution rights only and even then, only against San Pasqual Fiduciary Trust Company (“San Pasqual”). ECF No. 59- 2, pp. 23-24, ¶ 9. Similarly, the new allegations do not allege that WEC received a “donative 1 While the 2013 Settlement Agreement settled protracted litigation and allowed Mr. Winthrop to select a distributee of the MacDonald Family Foundation’s assets, WEC expends a substantial amount of energy re-hashing these irrelevant accusations that pre-date WEC’s involvement. ECF No. 59, ¶¶ 20-45. Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 6 of 28 Page ID #:1634 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 transfer” pursuant to the procedure set forth in the Trust. See Cal. Prob. Code § 24. Rather, WEC was selected by Mr. Winthrop pursuant to the Settlement Agreement, which as set forth above explicitly limits the standing of Approved Distributees as third party contractual beneficiaries under the Settlement Agreement. The new allegations also do nothing to change the fact that WEC lacks a “special and definite interest” in the Trust, thus it is not “entitled to enforce the trust” under California Probate Code section 24(d). Again, in its June 5, 2018 Order, the Court carefully analyzed case law setting forth the circumstances under which a party can bring an action against a trust. WEC has not pled and cannot plead facts sufficient to support status as an entity entitled to enforce the Trust. Despite WEC’s claims that the Settlement Agreement modified the Trust, it is undeniable that WEC’s rights as a distributee were carved out of the procedures that were defined and managed through the Settlement Agreement. The Settlement Agreement limited WEC’s rights to be a third party beneficiary only with respect to its distribution rights, which lie solely against San Pasqual. The new allegations also fail to allege any breach of fiduciary relationship which possibly could be characterized as grossly negligent or intentional. It is necessary to allege such conduct because the Trust modified the traditional fiduciary duties imposed on trustees by creating two categories of trustees: an Investment Trustee and Grantmaking Trustees. As Investment Trustee, San Pasqual 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, in turn, stripped Grantmaking Trustees Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 7 of 28 Page ID #:1635 1 2 3 4 5 6 7 hich ch had had d ontrol rol of of all all boy l boy oy scout ut troops ops in in the the e alomar mar Distr 28 CASE NO. 2:17-CV-05879-DMG-JC 8 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA 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. Thus 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. Because the Trust and Settlement Agreement modified and, indeed, removed Mr. Hilf’s and Ms. Rodgers’ duties with respect to Proposed Approved Distributees such as WEC, WEC was required to plead a “breach of trust [was] committed intentionally, with gross negligence, in bad faith, or with reckless indifference to the interest of the beneficiary…” Cal. Prob.Code § 16461(b). WEC has not and cannot meet this burden, as it merely alleges that Mr. Hilf and Ms. Rodgers negligently failed to supervise San Pasqual. The defects raised in the Court’s June 5, 2018 Order still exist in the First Amended Complaint. WEC has not and cannot cure these defects, and should not be given a third opportunity to do so. Accordingly, Mr. Hilf respectfully requests that this Motion be granted without leave to amend. 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 MacDonald. ECF No. 59, ¶ 14. The Trust became irrevocable when Virginia passed away in 1991, and split into several sub-trusts. ECF No. 59, ¶¶ 15, 16; ECF No. 59-1, 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 to 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 purposes by making grants to Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 8 of 28 Page ID #:1636 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 appropriate charitable, religious, educational, scientific, and literary organizations that are qualified charities.” ECF No. 59, ¶ 17; ECF No. 59-1, 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 identify charitable beneficiaries and determine the size of the charitable distribution (the ‘Grantmaking Trustees’).” ECF No. 59, ¶ 18; ECF No. 59-1, Section B, Article II, ¶ C(2)-(3) (emphasis added). The key here is that the duties of trustee were divided between two classifications of trustees. 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 without authority to determine the amounts and identities of the charitable beneficiaries of the Foundation...” ECF No. 59-1, p. 36, Section B, Article II(C)(2) (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 no authority regarding the selection and management of assets or the routine administrative matters regarding the Foundation…” ECF No. 59-1, p. 37, Section B, Article II(C)(3); ECF No. 59, ¶ 18(b) (emphasis added.). The original Grantmaking Trustees were the three MacDonald daughters. ECF No. 59, ¶ 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. Winthrop became a contested Grantmaking Trustee following the death of his mother Marilyn MacDonald. ECF No. 59, ¶ 18(b). Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 9 of 28 Page ID #:1637 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 The decisions by the three Grantmaking Trustees as to the charitable distributions must be made by majority vote, unless there are less than three Grantmaking Trustees serving at a given time, in which case the decisions are to be made unanimously. ECF No. 59, ¶ 19; ECF No. 59-1, Section B, Article II, ¶ D(2). The Grantmaking Trustees, however, have no involvement in the decisions made by the Investment Trustee. ECF No. 59-1, Section B, Article II, ¶ B. In their capacity as beneficiaries, the MacDonalds’ “then living children” have the power but not the duty to remove the Investment Trustee, but the Grantmaking Trustees have no such power. ECF No. 59-1, 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. 59-1, 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. 59, ¶¶ 20-45. Following a five day mediation, the parties reached a global settlement (“Settlement Agreement”). ECF No. 59, ¶ 46. Mr. Winthrop agreed to step down from his role as a Grantmaking Trustee in exchange for the ability to propose distributee(s) who, if approved by San Pasqual, would receive a set amount (one-third of the net assets) from the Foundation. ECF No. 59-2, pp. 15-16 & 20, ¶¶ 6(d), 7. The Settlement Agreement confirms that under the Trust, the sole involvement of the Grantmaking Trustees is in the Foundation, wherein the Grantmaking Trustees are “responsible for choosing the charitable beneficiaries and the amounts of the grants.” ECF No. 59-2, p. 6, C(1). Through the Settlement Agreement, however, Mr. Hilf and Ms. Rodgers are Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 10 of 28 Page ID #:1638 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 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 Winthrop’s chosen distributees in only a limited number of situations…” ECF No. 59, ¶ 3. 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. 59-2, 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. 59-2, pp. 16-17, ¶ 6(f). The Settlement Agreement further provides 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. 59-2, pp. 16-17, ¶ 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 similarly absent from the process for payment Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 11 of 28 Page ID #:1639 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 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. 59-2, pp. 15-16, ¶ 6(d). The Settlement Agreement took further care to limit the duties owed to third party beneficiaries. The Settlement Agreement makes clear that “[t]here are no intended third party beneficiaries of this Agreement, except as expressly provided below.” ECF No. 59-2, p. 11, (P) (emphasis added.). 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. 59-2, pp. 23-24, ¶ 9 (emphasis added.). C. Court’s Ruling on Mr. Hilf’s and Ms. Rodgers’ Motions to Dismiss the Complaint, and WEC’s Subsequent First Amended Complaint. In September 2017, Mr. Hilf and Ms. Rodgers filed independent motions to dismiss WEC’s fifth cause of action against them for breach of fiduciary duty. ECF Nos. 20, 26. On June 5, 2018, the Court granted Mr. Hilf’s and Ms. Rodgers’ respective motions with leave to amend. ECF No. 58, Request for Judicial Notice filed concurrently herewith. The Court found that WEC failed to allege facts sufficient to establish that WEC was a “beneficiary” under the Trust. Id. at pp. 6-8, Request for Judicial Notice filed concurrently herewith. The Court further set forth a road map, delineating the narrow circumstances under which WEC could allege facts sufficient to qualify as a beneficiary. Id. at p. 8. As set forth in the analysis below, WEC has not and cannot allege that under the Trust, it is a beneficiary with standing to bring this breach of fiduciary action against Grantmaking Trustees Hilf and Rodgers. Rather, WEC merely alleged that the Settlement Agreement constitutes an amendment to the Trust, and summarily concludes that WEC’s claim is made pursuant to the Trust. ECF No. 59, ¶¶ 41, 42, Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 12 of 28 Page ID #:1640 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 46, 47, 53-57. 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 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. 59, ¶¶ 98-101. A breach of trust is a violation by the trustee of any duty that the trustee owes a beneficiary. Cal. Prob.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’s amendments do not allege facts sufficient to support an argument that it is a “beneficiary” entitled to enforce the Trust, nor has WEC pled that Mr. Hilf breached any fiduciary duty allegedly owed to it. Mr. Hilf’s motion to dismiss Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 13 of 28 Page ID #:1641 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 must be granted without leave to amend. A. As A Matter Of Law, WEC Is Not a Beneficiary and Therefore Lacks Standing To Bring The Instant Breach Of Fiduciary Duty Claim 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. Cal. Prob.Code §§ 16420(a), 17200(a), (b)(12). Claiming it is a beneficiary, WEC brings this breach of fiduciary duty cause of action against Mr. Hilf. WEC is not, however, a “beneficiary” under the Trust. WEC’s rights, if any, stem from the Settlement Agreement, not from the Trust. Even if WEC’s rights did stem from the Trust, WEC does not qualify to bring a cause of action for breach of fiduciary duty. Under California law, a “‘beneficiary’ means a person to whom a donative transfer of property is made or that person’s successor in interest, and … (d) [a]s it relates to a charitable trust, [it] includes any person entitled to enforce the trust.” Cal. Prob.Code § 24(d). Despite having a second opportunity to plead its case, WEC does not qualify as a beneficiary because (1) WEC is not a “beneficiary” of the Trust under the Trust; (2) there was no “donative transfer” pursuant to the terms set forth in the Trust to WEC; and (3) WEC does not have a special and definite interest permitting it to enforce the trust. WEC was not selected pursuant to the provisions of the Trust, 1. thus WEC is not a beneficiary of the Trust. In its June 5, 2018 Order, the Court set forth the narrow circumstances under which WEC could plead that it is a beneficiary with standing to pursue a breach of fiduciary cause of action against Mr. Hilf and Ms. Rodgers. The Court stated that WEC must allege that: “… Plaintiff was selected as a beneficiary pursuant to the provisions of Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 14 of 28 Page ID #:1642 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 the Trust Composite. See Compl., Ex. A, at 382 (‘With respect to the Foundation, all decisions made by the Grantmaking Trustees regarding the amounts and identities of the charitable beneficiaries shall be made by unanimous vote of the Grantmaking Trustees if less than three Grantmaking Trustees are then acting; otherwise, such decisions shall be made by majority vote of the Grantmaking Trustees.’ [Doc. # 1-13]. Rodgers suggested that she and Hilf may have done so. See Def. Rodgers’s Mot. at 14 n. 10 (‘Ms. Rodgers and Mr. Hilf approved [Plaintiff] as a recipient, in the Opinion Letter attached as Exhibit D to the Complaint.’) fn. 10. Although it is not clear that Exhibit D to the Complaint establishes that these two Defendants formally selected Plaintiff as a beneficiary, see Compl., Ex. D at 2-9 [Doc. #1-4]4, this potential concession shows that affording Plaintiff an opportunity to replead this claim would not necessarily be futile.” ECF No. 58 at p 8, Request for Judicial Notice filed concurrently herewith. WEC has not and cannot allege that, as contemplated by the Court’s Order, Mr. Hilf and Ms. Rogers were part of a “unanimous vote of the Grantmaking Trustees” selecting WEC. In fact, WEC has not and cannot allege that Mr. Hilf had any role whatsoever in selecting WEC as a recipient of trust funds under the Settlement Agreement. It is abundantly clear that WEC is not a beneficiary under the Trust. The Trust gave the three Grantmaking Trustees and, following Mr. Winthrop’s resignation, Mr. Hilf and Ms. Rodgers “sole authority to determine the amounts and identities of the charitable beneficiaries of the Foundation…” ECF No. 59-1, p. 37, Section B, 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 an Approved Distributee under the Settlement Agreement. It was Grant Winthrop, and he alone, 2 With respect to the operative First Amended Complaint (“FAC”), this document is now ECF 59-1. 3 With respect to the FAC, this document is now ECF 59-1. 4 With respect to the FAC, this document is now ECF 59-4. Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 15 of 28 Page ID #:1643 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 who selected WEC to be the recipient. This should be the end of the inquiry. WEC was 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, because WEC is not a beneficiary of the Trust, and because Mr. Hilf had no role in its selection, Mr. Hilf can owe no fiduciary duty to WEC. WEC attempts to circumvent the guidelines set forth in the Court’s Order by claiming that the terms of the Settlement Agreement “modified” the Trust such that the alternative method by which Grant Winthrop resigned as a Grantmaking Trustee and obtained the ability to unilaterally propose Approved Distributees resulted in such entities becoming “beneficiaries” under the Trust. ECF No. 59, ¶¶ 46, 47, 52-57. WEC reaches this conclusion by selectively reading and applying irrelevant portions of the Settlement Agreement. For instance, WEC claims that it is a beneficiary of the Trust because the Settlement Agreement created new procedures for the designation of future Grantmaking Trustees of the Foundation and the selection of charitable recipients of distributions from the Foundation. ECF No. 59, ¶ 53. This has nothing to do with WEC’s rights as an Approved Distributee to the proceeds that were carved out of the Trust, to be handled exclusively pursuant to the Settlement Agreement. Grant Winthrop was removed as a Grantmaking Trustee pursuant to the Settlement Agreement, and had no role regarding the new procedures for Foundation Assets. ECF No. 59, ¶ 53. WEC also claims in paragraphs 54 and 55 of its amended complaint that certain other changes were made regarding apportionment of the Grantmaking Trustees for the Foundation assets that remained in the Trust. ECF No. 59. Again, this has nothing to do with the proceeds that were carved out of the Trust pursuant to the Settlement Agreement, and the changes in the selection of the Grantmaking Trustees have nothing to do with Grant Winthrop or WEC. Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 16 of 28 Page ID #:1644 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 WEC must do something more than baldly allege that because the Settlement Agreement modified certain unrelated provisions of the Trust, that WEC became a beneficiary of the Trust. ECF No. 59, ¶ 47. WEC cites to no provision in the Settlement Agreement which so provides. Instead, WEC ignores the inconvenient but highly significant fact that under the Settlement Agreement, the parties thereto specifically elected to refer to Mr. Winthrop’s selected charities as “Proposed Approved Distributees” rather than “Proposed Approved Beneficiaries.” The Settlement Agreement never confers the benefit of trust beneficiary status on such entities. Given the years of litigation, multitude of lawsuits, and five day mediation from which the Settlement Agreement arose [ECF 59, ¶¶ 37-46], it can be deduced that the parties intentionally bargained for and agreed not to refer to the Proposed Distributees as beneficiaries of the Trust. Indeed, the Settlement Agreement makes clear that “[t]here are no intended third party beneficiaries of this Agreement, except as expressly provided below.” ECF No. 59-2, 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. 59-2, pp. 23-24, ¶ 9 (emphasis added). This language chosen by the parties to the Settlement Agreement is dispositive. As stated therein, “Approved Distributees” are only “third party beneficiaries of this Agreement...,” and not of the Trust. ECF No. 59-2, p. 23-24, ¶ 9 (emphasis added). WEC’s sole cause of action against Mr. Hilf is for breach of fiduciary duty, not breach of contract.5 The Settlement Agreement does not, by its terms, bestow a fiduciary duty on Mr. Hilf with respect to Approved 5 Even if WEC were to bring a breach of contract action against Mr. Hilf, that action would fail because as discussed below, Mr. Hilf has no contractual duties under the Settlement Agreement to Approved Distributees. Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 17 of 28 Page ID #:1645 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 Distributees. The Settlement Agreement does everything it can to limit the rights and abilities of Approved Distributees, not even deigning to refer to them as “beneficiaries.” Accordingly, a breach of fiduciary duty cause of action by WEC against Mr. Hilf cannot stand. Furthermore, “Approved Distributees” have standing only “for the limited purpose of enforcing the rights to receive the aforesaid distributions described this Agreement, including in Paragraph 6...” ECF No. 59-2, 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, and cannot point to any provision in Paragraph 6, or any other provision of the Settlement Agreement, that grants WEC standing to bring a breach of fiduciary action against Mr. Hilf. 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. The rights of an Approved Distributee are set forth in the Settlement Agreement, and those rights do not include the ability to bring a breach of fiduciary duty action. Finally, the two alleged breaches of the Settlement Agreement do not arise out of any duties owed by Mr. Hilf to WEC. In its breach of contract cause of action against San Pasqual, WEC alleges that San Pasqual breached its contractual obligations under the Settlement Agreement by (1) failing to timely approve WEC as an Approved Distributee, and (2) failing to make timely distributions to WEC. ECF No. 59, ¶ 86. The Grantmaking Trustees have no duties or powers in connection with evaluating, let alone approving, Mr. Winthrop’s proposed distributees. Mr. Winthrop was required to “identify to San Pasqual in writing the ‘Proposed Approved Distributees’...” ECF No. 59-2, p. 16, ¶ 6(e) (emphasis added.). Mr. Winthrop was not even required to notify Mr. Hilf and Ms. Rodgers of his Proposed Approved Distributees. Next, San Pasqual was either to approve the Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 18 of 28 Page ID #:1646 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 Proposed Approved Distributees, or advise Mr. Winthrop, Ms. Rodgers, and Mr. Hilf of the reason why San Pasqual does not approve. ECF No. 59-2, pp. 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. 59-2, pp. 16-17, ¶ 6(f)&(g) (emphasis added.). Mr. Hilf has no duty to petition the Court regarding Mr. Winthrop’s Proposed Approved Distributee, and thus no duty to ensure the “timely” approval of the same. Regarding the alleged failure to make timely distributions to WEC, Mr. Hilf and Ms. Rodgers are entirely removed from the payment process. 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. 59-2, pp. 15-16, ¶ 6(d). Mr. Hilf and Ms. Rodgers play no role in this process. The procedure in the Settlement Agreement for selection of a 2. Proposed Approved Distributee does not qualify as a “donative transfer” from the Trust. Probate Code section 24 states that a “beneficiary” means “a person to whom a donative transfer of property is made or that person’s successor in interest...” 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, a separate procedure for distributing the Foundation’s assets. Accordingly, there was no requisite “donative transfer” made to WEC under the Trust, a distinct and separate instrument from the Settlement Agreement. In fact, in its amended complaint WEC continues to acknowledge that its Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 19 of 28 Page ID #:1647 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 only potential claim 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. 59, ¶ 1 (Emphasis added). Yet, in a complete pivot from which WEC’s alleged rights 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 claim 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 “trust 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 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 a “special and definite interest” in the Trust, 3. thus it is not “entitled to enforce the trust.” With respect to charitable trusts, the definition of a “beneficiary” under Probate Code section 24(d) includes “any person entitled to enforce the trust.” See also Patton v. Sherwood, 152 Cal. App. 4th 339, 345-347 (2007). Only limited persons are deemed entitled to enforce charitable trusts. In fact, “[b]ecause the beneficiaries of charitable trusts, unlike beneficiaries of private trusts, are ordinarily indefinite, the Attorney General has primary responsibility for the supervision of charitable trusts, and generally he is the proper party to enforce them.” Hardman v. Feinstein, 195 Cal.App.3d 157, 161 (1987). A person must have “special and definite interest in a charitable trust, such as a trustee, [to] have standing to institute Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 20 of 28 Page ID #:1648 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 legal action to enforce or protect the assets of the trust.” Id. at pp. 161-162. “This limitation on standing arises from the need to protect the trustee from vexatious litigation, possibly based on an inadequate investigation, by a large, changing, and uncertain class of the public to be benefited.” Id. at p. 162. Thus, a person must be “a trustee, or a cestui, or have some reversionary interest in the trust property” to enforce a charitable trust. Holt v. Coll. of Osteopathic Physicians & Surgeons, 61 Cal. 2d 750, 753 (1964) (en banc). WEC has no such “special and definite interest” in the Trust, thus it lacks standing as a beneficiary under Probate Code section 24(d). 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 qualified under Probate Code section 24(d) as a “person entitled to enforce the trust.” Similarly, L.B. Research & Educ. Found. v. UCLA Found., 130 Cal. App. 4th 171, 180 (2005) noted that a donor who retained a reversionary interest in the property it conveyed would have standing to enforce the terms of a charitable trust. Finally, 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. The trustee tried to re-purpose the charitable funds for general park purposes and youth activities. The court found that a non-profit corporation – San Diego County Council, Boy Scouts of America (which had control of all boy scout troops in the Palomar District) – had standing to bring suit on behalf of the persons identified as beneficiaries in the charitable trust (i.e., boy scouts in Palomar District). In sum, WEC is not a beneficiary for the reasons set forth in sections IV(A)(1)&(2) supra, and it is not a trustee, an entity with reversionary interest, or a person identified as a beneficiary in the charitable trust. Thus, WEC is not “entitled to enforce the Trust” under Probate Code section 24(d). Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 21 of 28 Page ID #:1649 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 B. As A Matter Of Law, WEC Fails To Allege Any Breach of an Alleged Limited Fiduciary Duty by Mr. Hilf and Ms. Rodgers. Even if WEC were somehow able to allege that it was a beneficiary, WEC has not and cannot allege a breach of a fiduciary duty by Mr. Hilf and Ms. Rodgers. In its June 5, 2018 Order, the Court made clear that where a trust limits the scope of a trustee’s liability for breach of fiduciary duty, the trustee will be liable only for “‘breach of trust committed intentionally, with gross negligence, in bad faith, or with reckless indifference to the interest of the beneficiary…’” ECF No. 58 at p 10, Request for Judicial Notice filed concurrently herewith (citing Cal. Prob.Code § 16461(b)). Despite being informed of this heightened pleading requirement, WEC’s amended complaint makes no attempt to plead facts beyond mere negligence. The sole allegations against Mr. Hilf are that “[a]s San Pasqual’s cotrustees, Hilf and Rodgers have fiduciary duties that include the 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. 59, ¶ 99. In essence, WEC alleges that Mr. Hilf failed to exercise reasonable supervision over San Pasqual. ECF No. 1, ¶ 100. 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 instrument and, except to the extent the trust instrument provides otherwise, according to this division.” Emphasis added; see also Cal. Prob.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 Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 22 of 28 Page ID #:1650 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 23 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA duty to supervise a cotrustee can be eliminated by the trust instrument, as was done here. Cal. Prob.Code § 16000; Union Bank & Trust Co. v. McColgan, 84 Cal. App. 2d 208 (1948). Probate Code section 16461(a) allows a trust instrument to limit the scope of a trustee’s liability for breach of fiduciary duty. Where the trust sets forth such limitations, the trustee will be liable only for a “breach of trust committed intentionally, with gross negligence, in bad faith, or with reckless indifference to the interest of the beneficiary…” Cal. Prob.Code § 16461(b). WEC alleges that Mr. Hilf and Ms. Rodgers merely failed “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. 59, ¶ 99. This sounds of common negligence rather than intentional, gross negligence, bad faith, or reckless indifference. The Trust and Settlement Agreement Limit Mr. Hilf’s and 1. Ms. Rodgers’ Potential Liability for Breach of Fiduciary Duty, Thus WEC Must Plead that Mr. Hilf and Ms. Rodgers Committed an Intentional, Grossly Negligent, Bad Faith, or Reckless Breach of Fiduciary Duty. Neither the Trust, the Settlement Agreement, California trust law, nor common sense would impose the duty that WEC seeks to impose on Mr. Hilf. As the trustors are permitted to do by California Probate Code section 15620, the Trust narrowly circumscribes Mr. Hilf’s duty as a Grantmaking Trustee. When interpreting a trust, the Court conducts the following analysis: “In short, it comes down to the question, what was the intent of the testator as to this matter? His intention, if in accordance with the law, is the all controlling factor. What he intended is to be gathered from a consideration of the whole instrument creating the trust, the nature and object of the trust and all other circumstances which have a bearing on the question.” In re Boutwell's Estate (1941) 112 Vt. 159, 22 A.2d 157, Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 23 of 28 Page ID #:1651 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 24 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA 159, italics added, citing Rest.2d Trusts, § 196.)” Morgan v. Superior Court, 23 Cal. App. 5th 1026, 1039 (2018). The Trust carefully bifurcated trustee duties between the “Investment Trustee” and the “Grantmaking Trustees.” Their respective rights, duties, and obligations were divided between the two trustee categories: 1. The Investment Trustee –San Pasqual – has “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...” ECF No. 59-1, p. 36, Article II(C)(2); ECF No. 59, ¶ 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 no authority regarding the selection and management of assets or the routine administrative matters regarding the Foundation…” ECF No. 59-1, p. 37, Article II(C)(3); ECF No. 59, ¶ 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 are “responsible for choosing the charitable beneficiaries and the amounts of the grants.” ECF No. 59-2, 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. This modification of Mr. Hilf’s duties as trustee is further acknowledged in the Settlement Agreement. 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 Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 24 of 28 Page ID #:1652 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 25 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA charged with managing the assets of the Foundation, could disapprove of Grant Winthrop’s chosen distributees in only a limited number of situations…” ECF No. 59, ¶ 3. 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 Winthrop, Rodgers, and Hilf of any reason that San Pasqual did not approve WEC…” ECF No. 59, ¶ 65. 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’ sole 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.). 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. 59-2, p. 16-17, ¶ 6(f). If San Pasqual does not approve or fails to provide a timely response, Mr. Winthrop, Ms. Rodgers, and Mr. Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 25 of 28 Page ID #:1653 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 26 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA Hilf “may” petition the Court for approval. ECF No. 59-2, 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 has 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.). In sum, the Trust limits the Grantmaking Trustees’ duties such that the breach alleged by WEC is outside the scope of the Grantmaking Trustees’ duties and, under Probate Code section 16461(b), WEC must allege something more than mere negligence, which it has not and cannot do. WEC Did Not and Cannot Plead that Mr. Hilf and Ms. 2. Rodgers Committed an Intentional, Grossly Negligent, Bad Faith, or Reckless Breach of Fiduciary Duty. WEC alleges that Mr. Hilf and Ms. Rodgers failed to exercise “reasonable supervision” over alleged cotrustee San Pasqual. ECF No. 59, ¶ 100. “Reasonableness” is the hallmark of negligence. More is required to plead an intentional act, gross negligence, bad faith, or reckless conduct as is required by Probate Code section 16461(b). WEC alleges that Mr. Hilf breached his fiduciary duty by “allowing San Pasqual to continue to serve as Investment Trustee ... despite San Pasqual’s ongoing stall tactics and ongoing breaches of its own fiduciary duty.” ECF No. 59, ¶100. This ignores the fact, however, that per the terms of the Trust, only the MacDonalds’ “living children” have the power, although not the duty, to remove the Investment Trustees. ECF No. 59-1, Section B, Article II(E)(2). Mr. Hilf is not a MacDonald child, thus he lacks the power to remove an Investment Trustee such as San Pasqual. Having pled a claim of breach of fiduciary duty that sounds of mere negligence and fails to rise to the level set by Probate Code section 16461(b), and Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 26 of 28 Page ID #:1654 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 27 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA having pled another claim of breach of a duty that Mr. Hilf did not have, WEC has failed to allege facts sufficient to support a breach of fiduciary action against Mr. Hilf. C. The Defects Underlying WEC’S Claims Against Mr. Hilf Cannot Be Cured By Amendment. Where the defects cannot be cured by amendment, it is appropriate for the court to grant a 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 leave to amend appropriate when “the court determines that the 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). The Court’s June 5, 2018 Order on Mr. Hilf’s motion to dismiss the original Complaint set forth a roadmap whereby WEC could cure the deficiencies in this cause of action for breach of fiduciary duty against Mr. Hilf. WEC failed to allege the facts required by the Court, because it simply cannot do so. WEC cannot change the terms of the Trust, the terms of the Settlement Agreement, or the letter of the law, thus its First Amended Complaint against Mr. Hilf must be dismissed without leave to amend. V. CONCLUSION The Court’s June 5, 2018 Order granting the Grantmaking Trustees’ motions to dismiss the Complaint delineated the narrow circumstances under which it would entertain an amended complaint. The Court cited to an ambiguous statement in Ms. Rodger’s Motion to Dismiss, implying that Mr. Hilf and Ms. Rodgers may have “formally selected Plaintiff [WEC] as a beneficiary.” ECF No. 58, p. 8, fn. 10. It was based on this narrow opening that the Court determined that “affording Plaintiff an opportunity to replead this claim would not necessarily be futile.” Ibid. WEC has not and cannot plead that Mr. Hilf and Ms. Rodgers selected WEC as a beneficiary under the provision set forth in the Trust. At this juncture, allowing an additional opportunity to amend its complaint would indeed be futile. Mr. Hilf Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 27 of 28 Page ID #:1655 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 28 PRICE, POSTEL & PARMA LLP SANTA BARBARA, CA respectfully requests that the Court grant this Motion to Dismiss the First Amended Complaint in its entirely, without leave to amend. Dated: July 17, 2018 Respectfully submitted, PRICE, POSTEL & PARMA LLP By: /s/ Todd A. Amspoker TODD A. AMSPOKER SHANNON DENATALE BOYD DOUGLAS D. ROSSI RYAN D. ZICK Attorneys for Defendant Peter Hilf, an individual Case 2:17-cv-05879-DMG-JC Document 61 Filed 07/17/18 Page 28 of 28 Page ID #:1656