First District, Division 4 Clarifies Legal/Equitable Issue Interplay in a Mixed Action.
Trustee was sued for misrepresentation, breach of fiduciary duty, and breach of trust in an action alleging that the trustee favored one beneficiary over the others in trust assets distributions. Certain legal issues were bifurcated for the jury, and certain equitable claims were left to the trial court. A jury found in favor of trustee on the misrepresentation and fiduciary breach claims. However, the trial judge disregarded the verdict and found breaches of trust, also denying trustee’s requests for fees incurred in defending himself successfully in the jury trial.
On appeal, the judgment on the trust breach claim was reversed and the matter remanded so the trustee could recover fees incurred in successfully defendant against beneficiaries’ causes of action and in obtaining reversal on appeal. This occurred in Arnold v. Breza, Case Nos. A121138, A121351 (1st Dist., Div. 4 Oct. 9, 2009) (unpublished).
Based upon Hoopes v. Dolan, 168 Cal.App.4th 146, 155-156, 161 (2008), the appellate panel determined that the jury’s prior factual determination on common issues of fact—the trust breach claims—bound the judge in any bifurcated trial, even on the equitable claims. The breach of fiduciary duty and breach of trust causes of action did present common issues of fact, so it was erroneous for the trial judge to rule otherwise—even though it did not have the benefit of Hoopes when ruling otherwise.
Given the reversal on this issue, the denial of fees to the trustee was also erroneous. A trustee is entitled to reimbursement of attorney’s fees incurred to successfully defending against charges of trust misconduct, fees that are chargeable against the trust estate. (Prob. Code, secs. 15684(a), 16247; Wells Fargo Bank v. Superior Court, 22 Cal.4th 201, 213 (2000); Estate of Cassity, 106 Cal.App.3d 569, 574 (1980).) So, the cause was remanded to the trial court for determination of reasonable fees to be reimbursed to the trustee for his successful defense of the beneficiaries’ claims and for prevailing on appeal.
Trustee also argued that the beneficiaries’ lawsuit violated the “no contest” clause of the trust. However, this one was firmly rejected by the appellate court. A trust beneficiary’s allegations of trustee misconduct and breach of fiduciary duty does not qualify as “a contest”; otherwise, a contrary rule would immunize miscreant trustees. (Betts v. City National Bank, 156 Cal.App.4th 222, 233-236 (2007); Hearst v. Ganzi, 145 Cal.App.4th 1195, 1210-1211 (2006).)