OLSEN v. SUPERIOR COURT IN AND FOR CITY AND COUNTY OF SAN FRANCISCO

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District Court of Appeal, First District, Division 2, California.

A. R. OLSEN, Petitioner, v. The SUPERIOR COURT of the State of California, IN AND FOR the CITY AND COUNTY OF SAN FRANCISCO, and The Honorable H. A. Van Der Zee, one of the Judges thereof, Respondents.

Henry Miller BOWLES, George McNear Bowles and Amy Bowles Lawrence, Petitioners, v. The SUPERIOR COURT of the State of California, IN AND FOR the CITY AND COUNTY OF SAN FRANCISCO, and The Honorable H. A. Van Der Zee, as one of the Judges thereof, Respondents.

George W. NICKEL and Beatrice Nickel Morse, Petitioners, v. The SUPERIOR COURT of the State of California, IN AND FOR the CITY AND COUNTY OF SAN FRANCISCO, and The Honorable H. A. Van Der Zee, as one of the Judges thereof, Respondents.

Civ. 16396, 16401, 16402.

Decided: November 18, 1954

James D. Adams, Burnham Enersen, McCutcheon, Thomas, Matthew, Griffiths & Greene, San Francisco, for petitioner Olsen. John Francis Neylan, Palo Alto, John F. Duff, San Francisco, for petitioners Bowles et al. Reginald L. Vaughan, Varnum Paul, Vaughan, Paul & Lyons, San Francisco, for petitioners Nickel et al. C. Ray Robinson, Merced, T. Keister Greer, San Francisco, William B. Boone, Merced, for real parties in interest John Beverly Nickel, George W. Nickel, Jr., and Mary Nickel Lombardi. Morse Erskine, San Francisco, for respondents and new trustees.

Two applications for writs of prohibition and a petition for a writ of mandate were filed with this court, alternative writs were thereafter granted by this court and the facts material are as follows:

An action was brought in respondent court by three certain contingent beneficiaries called the Nickel remaindermen of the Henry Miller trust against three trustees of that trust. The complaint asks for removal of the trustees, an accounting of the trusteeship, appointment of a receiver and new trustees, and the prosecution of claims for the benefit of the trust estate. Under the terms of the trust all income is payable in equal shares to three life tenants, namely, J. Leroy Nickel, Jr., George W. Nickel and Beatrice Nickel Morse. Upon the death of these life tenants one-half of the corpus of the trust will go to the four children of the life tenant George W. Nickel, hereinafter referred to as the Nickel remaindermen or their issue, and the other half will go to the three children of the life tenant Beatrice Nickel Morse, or their issue, known and hereafter referred to as the Bowles remaindermen.

It thus appears that two of the life tenants George W. Nickel and Beatrice Nickel Morse and one Nickel remainderman, Sally Nickel Mein, together with the Bowles remaindermen, six in number, are not parties to the suit in question. Likewise the issue of the Nickel and Bowles remaindermen are not parties to said suit.

On June 13, 1954, respondent court ex parte appointed a receiver of the trust with authority to prepare and file a claim on behalf of the trust against the Estate of C. E. Houchin, deceased, and issued an order to show cause against the trustees to appear and show cause why they should not be removed and new trustees appointed; thereafter the trustees J. Leroy Nickel, Jr. and A. R. Olsen resigned as trustees and respondent court accepted their resignations, the other trustee was removed as trustee by the court. Thereafter the receiver was appointed as single trustee for the trust by the court. On June 30, 1954, a hearing was held by respondent court on an order to show cause why new trustees should not be appointed by the court for the trust. No legal notice of this hearing nor of prior proceedings were given the life tenants George W. Nickel and Beatrice Nickel Morse or to the Bowles remaindermen, some five in number. However, the Bowles remaindermen and the two life tenants attempted to appear by presenting their complaints in intervention. Respondent court refused to grant motions to intervene and denied said motions to file the complaints in intervention. Thereafter respondent court appointed three new trustees and authorized them to report on the trust, hire accountants, hire attorneys, elect themselves as directors of Miller & Lux, Inc., and said court appointed trustees approved a contract with C. Ray Robinson, an attorney who is also attorney for the plaintiffs Nickel remaindermen to conduct litigation. This contract calls for payment of a $25,000 retainer fee and payment of 20% on recoveries up to $10,000,000 and 15% of all recoveries over that amount; payment of investigation costs; also the attorney can apply to the court under this contract for additional fees in the suit pending before respondent court. The Bowles remaindermen again sought permission to intervene or to appear as necessary and indispensable parties on the ground that the court had no jurisdiction without them and their requests and motions in this connection were denied by the court. In addition the defendant trustee Olsen, one of the petitioners herein, opposed the hearings by motion on the ground the respondent court was without jurisdiction to proceed until all indispensable parties were made parties to the action. This motion and opposition was denied by the court.

It thus appears that respondent court has taken action that adversely affects the rights of parties not before the court and without giving said parties legal notice of said proceedings and bringing them before the court as indispensable parties.

The question before us is one of jurisdiction—Did the trial court have the power to proceed as it did? The answer to this question of jurisdiction depends on whether the life tenants and remaindermen not before the court were and are indispensable parties to the action.

In the case of Bank of California, Nat. Ass'n v. Superior Court, 16 Cal.2d 516, at page 521, 106 P.2d 879, the court defined as indispensable parties persons who have undetermined interests in the same property, or in a particular trust fund, and one of them seks in an action to recover the whole, to fix his share, or to recover a portion claimed by him. In that case an application for the writ of prohibition was denied because it appeared that the interests of the persons not ordered to be brought in were not involved and would not be affected by any decree which the trial court would or could render on the issue presented for determination. In Ambassador Petroleum Co. v. Superior Court, 208 Cal. 667, 284 P. 445, it was pointed out that a mandatory duty to order other parties brought in is shown only when the trial court finds or the record indisputably discloses that such parties are indispensable to a complete determination of the controversy. See also Morrow v. Superior Court, 9 Cal.App.2d 16, at pages 26, 27, 48 P.2d 188, 50 P.2d 66, opinion of the supreme court on denial of petition for hearing; De Olazabal v. Mix, 24 Cal.App.2d 258, 74 P.2d 787. See Green v. Brophy, 71 App.D.C. 299, 110 F.2d 539, 9 A.L.R.2d 1, defining indispensable parties.

It was also held in First Nat. Trust & Savings Bank v. Superior Court, 19 Cal.2d 409, at p. 415, 121 P.2d 729, that if the income due to the beneficiaries will be diminished or lessened all the beneficiaries must be before the court.

Here the action and steps taken by respondent court will affect the income of the life tenants not before the court. It will involve an accounting by trustees, possible surcharging of trustees and appointment of new trustees. It will affect the future interests of the remaindermen not before the court. It will involve the trust in costly litigation for many years. True this litigation may be desirable or justified but all persons holding property rights in the trust estate should be before the court as parties with the right to have their day in court. It will change the administration and management of the trust and its assets without permitting the life tenants and remaindermen not before the court to have their say. See O'Connor v. Irvine, 74 Cal. 435, 16 P. 236; Mitau v. Roddan, 149 Cal. 1, 84 P. 145, 6 L.R.A., N.S., 275.

In Baird v. People's Bank & Trust Co., 3 Cir., 1941, 120 F.2d 1001 at page 1003, 136 A.L.R. 693, the court, in an action brought by life tenants against the trustees of a trust for an accounting and for the purpose of surcharging the trustees for sums allegedly improperly invested, in holding that the remaindermen were indispensable parties to the litigation, stated:

‘For an absent party to be in the third class, that is, indispensable, he must of course have a direct interest in the litigation. If this interest is such that it cannot be separated from that of the parties to the suit; if the court cannot render justice between the parties in his absence, if the decree will have an injurious effect upon his interest; or if the final determination of the controversy in his absence will be inconsistent with equity and good conscience, he is an indispensable party. State of Washington v. United States, 9 Cir., 87 F.2d 421. In our opinion the interest of the remaindermen is direct, distinct and nonseverable.’

Likewise in Talbutt v. Security Trust Co., D.C., 22 F.Supp. 241, contingent remaindermen were held indispensable parties to an action by a life tenant against the trustee of a trust for the restoration of the corpus of the trust fund which it was alleged the trustee had lost or dissipated. The court stated at page 242 of 22 F.Supp.: ‘* * * a decree in this case, either absolving the trustee from responsibility or requiring restoration of the corpus of the estate, would have such a direct effect upon the remainder interests as that such an adjudication in their absence would be inconsistent with equity and good conscience, and hence the remaindermen, or such of them as are in being, are indispensable parties.’ At page 241 of 22 F.Supp.: ‘The plaintiff, as life tenant, does not completely own the right here sought to be adjudicated. The claim which she asserts is one which affects all interests inherent in the corpus of the estate. The interests of the life tenant and the remaindermen in respect to the corpus of the trust estate are so united and bound together that they seem clearly inseverable, and an adjudication of questions affecting the right of the trustee to be absolved from responsibility for the restoration of the corpus of the estate would necessarily have a direct effect on the interests of both, and can only be had in a proceeding to which both the life tenant and the remaindermen or such of the contingent remaindermen as are in being, are parties. Shields v. Barrow, 17 How. [129] 130, 15 L.Ed. 158; Gregory v. Stetson, 133 U.S. 579, 10 S.Ct. 422, 33 L.Ed. 792; Commonwealth Trust Co. v. Smith, 266 U.S. 152, 45 S.Ct. 26, 69 L.Ed. 219; Franz v. Buder, 8 Cir., 11 F.2d 854.’

It was the duty of respondent court on its own motion to bring in indispensable parties as parties to the action. Ambassador Petroleum Co. v. Superior Court, 208 Cal. 667, 284 P. 445; Section 389 Code of Civ.Proc.; Morrow v. Superior Court, 9 Cal.App.2d 16, 48 P.2d 188, 50 P.2d 66.

It is our view that the record before us shows that a complete determination of the rights of the parties cannot be had without the life tenants and remaindermen in question being brought in as parties to the action. They are indispensable parties; their property rights have been affected and will be affected by the orders and decrees of respondent court. First Nat. Trust & Savings Bank v. Superior Court, 19 Cal.2d 409, at page 414, 121 P.2d 729.

Respondent urges that this is a class suit and hence the life tenants and remaindermen in question are not indispensable.

It is only the exceptional case in which a class representative suit is justified in place of the compulsory joinder of indispensable parties. Code of Civil Procedure of the State of California, § 382; Heffernan v. Bennett & Armour, 110 Cal.App.2d 564, 243 P.2d 846; Mabry v. Scott, 51 Cal.App.2d 245, 252, 124 P.2d 659; Moore v. Bowes, 8 Cal.2d 162, 166, 64 P.2d 423.

Section 382 of the Code of Civil Procedure provides in part: ‘* * * when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.’

As stated in Heffernan v. Bennett & Armour, 110 Cal.App.2d 564, 590, 243 P.2d 846, 862, the above quoted portion of Section 382: “* * * is based upon the doctrine of virtual representation, which, as an exception to the general rule of compulsory joinder of all interested parties, ‘rests upon considerations of necessity and paramount convenience, and was adopted to prevent a failure of justice.’ Bernhard v. Wall, 184 Cal. 612, 629, 194 P. 1040, 1048; 20 Cal.Jur., sec. 7, p. 483.”

In the instant case, as pointed out above, the proceeding involves conflicting rights between the beneficiaries themselves as well as between the beneficiaries and the trustee. Further, the parties are not numerous since only five living beneficiaries are involved: two life tenants and three Bowles remaindermen. The remaining living beneficiaries (the other life tenant and the Nickel remaindermen) are already parties to the action. Neither necessity nor paramount convenience operate to exclude these beneficiaries.

Certainly, it is not impracticable to bring these five other living beneficiaries before the court. In fact, all have sought and are seeking to become parties, but are being thwarted in their attempts. The two life tenants endeavored to intervene but were denied leave by respondent court. Respondent court also denied motions by the Bowles remaindermen to intervene or to appear and participate as necessary and indispensable parties to the action.

In the instant proceeding, it would be a denial of due process for respondent court to deprive the Bowles remaindermen of their day in court on the theory that they were virtually represented by the plaintiff. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865; Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22; Horton v. Citizens National Trust & Savings Bank, 86 Cal.App.2d 680, 195 P.2d 494.

Finally, the Nickel remaindermen have in no way been authorized, expressly or impliedly, to represent the Bowles remaindermen in the action.

Respondent also contends that this can be a class suit because there are 21 great grandchildren who some day may have an interest in the trust estate. Under the trust the great grandchildren if and when they do succeed to an interest in the trust estate succeed only to the interest of their respective parents and so in the present action they would be represented by the Nickel remaindermen and the Bowles remaindermen. See Curran v. Pecho Ranch & Stock Co., 95 Cal.App. 555, 561, 273 P. 126. The great grandchildren are not indispensable parties for two reasons: First, they are before the court in effect when their parents are made parties and, second, they are at this time merely contingent remaindermen having no vested interest in the trust estate; entitled to none of the income and have only a contingent remainder interest. But their parents have a present interest in determining what is income and what is principal; whether or not a trustee's account should be settled; whether or not litigation should be undertaken on behalf of the trust and fees paid to counsel out of the trust; who should manage the trust and administer the same—and of course it is clear that the life tenants not before the court are indispensable parties as their property rights are affected. Mere number of parties affected standing alone does not give the right to bring a class suit. It must be further alleged and proven that it is necessary and convenient. Here all the vested owners of the trust estate can easily and conveniently be brought before the court as parties. Also a representative suit may be sustained only where all the parties to be affected thereby are united in interest and have a common interest, and where the controversy may be determined without prejudice to the rights of those not parties to the action. Horton v. Citizens National Trust & Savings Bank, 86 Cal.App.2d 680, 195 P.2d 494. Here the owners of the trust are not necessarily united in interest; the interests of the life tenants are different from the remaindermen and the controversy cannot be determined without affecting the property rights of those life tenants and remaindermen not before the court.

We conclude that under the facts disclosed by the record that there can be no class suit and that it would be a denial of due process to omit to bring in the life tenants and remaindermen as parties. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865; Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22; Horton v. Citizens National Trust & Savings Bank, 86 Cal.App.2d 680, 195 P.2d 494.

The question also arises as to the validity of the ex parte order of June 13, 1954, appointing a receiver. At the time of the ex parte appointment of the receiver the verified complaint confronting the court showed that an emergency existed and that there was an imperative necessity of appointing a receiver to file claims against the Estate of C. E. Houchin, deceased.

Jurisdiction of the Superior Court to make an ex parte appointment of a receiver flows primarily from allegations in a complaint or affidavits showing an emergency and an imperative necessity for making the appointment. See, Lent v. H. C. Morris Co., 25 Cal.App.2d 305, 77 P.2d 301 and also Misita v. Distillers Corp. Ltd., 54 Cal.App.2d 244, at page 250, 128 P.2d 888.

We hold therefore that the Superior Court had jurisdiction to make the appointment of the receiver for the limited purpose of filing the claims against the Estate of C. E. Houchin, deceased.

A writ of prohibition is appropriate to prevent further proceedings in excess of jurisdiction and to correct past proceedings in excess of jurisdiction. Havemeyer v. Superior Court, 84 Cal. 327, 24 P. 121, 10 L.R.A. 627; Evans v. Superior Court, 14 Cal.2d 563, 96 P.2d 107.

We deem it unnecessary to issue the writ of mandate in view of our holding in connection with the writ of prohibition. Justice and adequate relief will be given all parties by our order herein.

We conclude that the issuance of a writ of prohibition prohibiting future action on the part of respondent court is proper until all indispensable parties have been made parties to the action and annulling all acts of respondent court as in excess of jurisdiction commencing with the hearing of June 15, 1954 and all orders and decrees made on said date and thereafter to the date of the issuance of this writ.

Writ of prohibition granted.

Writ of mandate denied.

KAUFMAN, Justice.

NOURSE, P. J., concurs.