Neil T. BURTON, as Executor, etc., et al., Plaintiffs and Respondents, v. SECURITY PACIFIC NATIONAL BANK, a California corporation, Defendant and Appellant.
Defendant-appellant, Security Pacific National Bank (hereinafter Security Pacific), appeals from a judgment entered on a jury verdict and an order denying its motion for a new trial and judgment notwithstanding the verdict. Of primary concern on this, the first of two appeals by Security Pacific 1 , is whether or not the trial court's consolidation of two separate but related actions, one probate (equitable) in nature, one civil, for a determination before a jury was error that resulted in an inconsistent adjudication; whether the trial court properly heard alleged jury and nonjury issues simultaneously; whether any separate legal claims for relief were pleaded or could be pleaded below; and whether respondents' recovery for emotional distress and of punitive damages was proper and supported by the evidence. We conclude that consolidation was proper. However, it was improper for the jury to award compensatory and punitive damages based upon the breach of trust cause of action. Accordingly, the award of punitive damages is reversed, and the award of compensatory damages is modified to reflect the amount awarded for interference with certain water rights.
On November 15, 1974, Security Pacific was named trustee under a testamentary trust created under the will of Clifford B. Pitzer. Named as trust beneficiaries were plaintiffs and respondents, Fern Taylor Pitzer (Pitzer's surviving wife),2 and his children, John L. Pitzer and Patricia P. Lautmann.
The will of Clifford Pitzer appointed respondent, Fern Taylor Pitzer, executrix of his estate. Certain specific bequests of real and personal property, as well as a total bequest of the residue of his estate, were then conveyed to Security Pacific in trust. Security Pacific was granted full, complete and absolute discretionary powers regarding trust management and maintained the right to sell trust assets.3 The principal assets of the trust estate were securities, sundries, and 20 acres of lemon groves. Security Pacific was instructed to manage the trust property for the benefit of respondents until it sold the property.
Security Pacific took possession of the real estate and other property on July 19, 1974. When the bank assumed its duties as trustee, the 20 acres of lemon groves were being maintained for the production of commercial crops. The 20 acres consisted of 3 parcels, one of 10 acres and two contiguous parcels of 5.5 and 4.5 acres, respectively. Various sundries included a well with a pump, a pumphouse used to irrigate the groves, an oil pump, a truck and three wind machines. Also included as part of the trust fund was a revolving fund consisting of moneys obtained by certain packing house cooperatives engaged in the marketing of the produce of the groves. The originally reported value of the property, water rights and sundries was $382,000.4
As administration of the trust proceeded, Security Pacific's operation of the lemon groves resulted in a net loss. Consequently, to produce income for the trust beneficiaries, Security Pacific sold the acreage 5 to Edward Bell, a land developer. Included in the sale was the transfer of ownership in the well, the various sundry items and the revolving funds.
Prior to the close of escrow, another branch of Security Pacific loaned an initial $115,000 to the ultimate purchaser 6 of the south tract of the property. At this time, however, respondents, as beneficiaries, voiced their concern and displeasure with the sale and the overall administration of the trust. Thereafter, Security Pacific tendered its resignation as trustee. Security Pacific's resignation was thereafter accepted by the probate court. Three months later, Security Pacific made a $1,915,200 construction loan to Park Lane Development Company.
On December 9, 1976, a complaint for breach of trust, breach of statutory duties and constructive fraud was filed on behalf of respondents, naming Security Pacific and various individuals as defendants. Respondents alleged that Security Pacific breached its trust by selling trust property at substantially less than its fair market value; by failing to seek or obtain legal advice; by charging excessive trustee's fees; by transferring trust property without consideration; by transferring the well owned by the trust, thereby compromising the water rights then held by respondent John Pitzer; by making gifts of trust property (the sundries), and by failing to pay the trust income to respondent Fern Pitzer, the life beneficiary of the trust. Respondents sought recovery for emotional distress and punitive damages for oppressive, fraudulent or malicious management of the trust.
On January 13, 1977, Security Pacific filed its proposed second and final account and petitioned for approval of the same acts and transactions of which the beneficiaries complained in the civil complaint. On February 18, 1977, Security Pacific filed a demurrer to the complaint in the civil action and argued, inter alia, that the order of the court in the probate action was res judicata as to the claims of respondents in the civil matter. The demurrer was sustained with leave granted therein to amend and to file a cause of action for intentional infliction of emotional disturbance. The court further noted that but for the heretofore mentioned cause of action for intentional infliction of emotional disturbance, all matters raised in the complaint were within the jurisdiction of the probate court. Respondents thereafter filed a first amended complaint and Security Pacific's demurrer was overruled.
On March 29, 1977,7 respondents filed proposed objections to Security Pacific's accounting which incorporated by reference those objections as set forth in their civil action complaint. On July 26, 1977, respondents filed a notice of motion to consolidate the civil action and their objections to the accounting. That motion was argued and denied without prejudice.
A few years later, on May 21, 1980, Security Pacific filed a motion for judgment on the pleadings which was denied. At that same time, respondents reinitiated a motion to consolidate the probate and civil actions. That motion was granted.
In June of 1981, Security Pacific moved for a summary judgment pursuant to Code of Civil Procedure section 437c seeking an adjudication that neither the making of the $115,000 loan nor the making of the $1,915,200 loan to Park Lane Development Company constituted a breach of its trustee duties under Civil Code sections 2228 and 2229. Respondents filed their own motion for summary judgment seeking an adjudication that the two loans did violate the trustee's duties. Security Pacific's motion was denied as was respondents' motion concerning the $1,915,200 loan. The court, however, granted respondents' motion for summary judgment as to the $115,000 loan.
On November 30, 1981, the consolidated matter came on for trial. Security Pacific's motion to bifurcate the probate and civil proceedings and to proceed initially with the probate accounting and objections was denied. A jury was thereafter empaneled for the purpose of adjudicating the civil matter.
The court decided that it would hear and determine the probate trust accounting matter concurrently with the jury trial of the civil action, and the court thereafter denied Security Pacific's motion to dismiss the civil action complaint for failure to state a cause of action. Respondents were then permitted to amend their complaint to state a cause of action on behalf of John Pitzer individually for alleged tortious interference with his water rights.
On December 31, 1981, the trial court announced its partial tentative decision with respect to the probate issues. The court's findings, revealed outside of the presence of the jury, concluded that Security Pacific had breached its trust by the manner in which it handled the sale of the property, by its transferring the sundries without consideration, and by its dealing with the trust property as security for a loan made by it.
At the conclusion of a five-week consolidated trial, the jury was instructed on two theories of liability: (1) breach of fiduciary duty; and (2) unlawful termination of John Pitzer's water rights license. The trial court refused to instruct the jury as to its tentative decisions concerning the alleged breaches of trust. Instead, it instructed the jury on the statutory provisions governing breach of fiduciary duty as set forth in Civil Code sections 2228, 2229, 2234 and 2238 and the prudent man standard as set forth in Civil Code section 2261.
On January 8, 1982, the jury returned its verdict and its answers to special interrogatories. On February 8, 1982, the trial court rendered its judgment with respect to the objections to Security Pacific's accounting. In the probate trust accounting proceedings, the trial court found that certain, but not all, of Security Pacific's conduct complained of constituted a breach of trust. As a result, a total surcharge of $25,020.05 was assessed. In the civil suit, the jury found Security Pacific to have breached its trust and assessed $27,500 in compensatory damages 8 and $3,000,000 in punitive damages.
Security Pacific's motion for a new trial and judgment notwithstanding the verdict and severing of the two cases for all subsequent proceedings was denied and Security Pacific proceeded with this appeal from the judgment entered on the jury verdict.
Security Pacific argues that the judgment must be reversed since all of the matters with respect to the alleged breaches of trust were triable exclusively by the court in its probate or equity capacity and that none was properly triable by jury. It insists that such an intermingling deprived it of a fair hearing since the jury heard a one-sided presentation of evidence regarding the value of the property sold while its own expert appraisal evidence was limited to a hearing by the trial court alone. Additionally, the jury never knew that the trial court ultimately determined that, but for the transfer of the well, the property was sold at a price in excess of its fair market value.
Respondents counter by insisting that the damage issues concerning respondents' emotional distress and punitive damages were properly triable by a jury and in any event Security Pacific waived its right, if any, to a nonjury trial and invited any error that may have resulted.
Before discussing the propriety or impropriety of the court's denial of Security Pacific's judgment notwithstanding the verdict/new trial motion, we must consider the scope of the probate court's authority, the right to empanel a jury for the purpose of adjudicating arguably equitable issues, and the right of that jury, once empaneled, to award damages based upon those allegedly equitable issues.
Probate courts are courts of limited jurisdiction. They may only exercise those powers expressly conferred upon them or incidental thereto. (Estate of Schloss (1961) 56 Cal.2d 248, 253, 14 Cal.Rptr. 643, 363 P.2d 875.) To the extent pertinent to the issues of the instant case, the statutory conferment of jurisdiction to the probate court is covered by Probate Code section 1120, subdivision (b), which in relevant part provides as follows:
“When a trust created by a will continues after distribution, and the testator [so] provides ․, the superior court shall retain jurisdiction for the purpose of determining to whom the property shall pass ․, of settling the accounts and passing upon the acts of the trustee, of authorizing the trustee to accept conditions to the trust ․, and for the other purposes hereinafter set forth.” 9 (See Estate of Mabury (1976) 54 Cal.App.3d 969, 981, 127 Cal.Rptr. 233.) A proceeding under section 1120 extends to issues arising between testamentary trustees and beneficiaries. (Estate of Howard (1976) 58 Cal.App.3d 250, 261, 129 Cal.Rptr. 836. See also Estate of Bissinger (1964) 60 Cal.2d 756, 765, 36 Cal.Rptr. 450, 388 P.2d 682.)
Thus, although the probate court has no general equity jurisdiction, it does have the power to apply equitable principles to aid its function as a probate court. (Copley v. Copley (1978) 80 Cal.App.3d 97, 108, 145 Cal.Rptr. 437.) In illuminating the statutory limitations on probate court jurisdiction, the Supreme Court has reaffirmed the broadening parameters of the probate court's jurisdiction.
In Estate of Baglione (1966) 65 Cal.2d 192, 53 Cal.Rptr. 139, 417 P.2d 683, the Supreme Court noted that “In the exercise of its legal and equitable powers [citations], the superior court sitting in probate that has jurisdiction over one aspect of a claim to certain property can determine all aspects of the claim. A claimant is not required to sever and litigate a multifaceted claim in separate proceedings once all of the necessary parties are before the court.” (Id., at p. 197, 53 Cal.Rptr. 139, 417 P.2d 683.) Previously, that court recognized the trend to extend the jurisdiction of the probate court over such matters as are essentially involved in the probate and settlement of estates, especially where the subject matter has been contested in said court by all parties in interest. (Estate of Clary (1928) 203 Cal. 335, 345, 264 P. 242; see also Copley v. Copley, supra, 80 Cal.App.3d at p. 107, 145 Cal.Rptr. 437.)
Thus, in exercising jurisdiction over most controversies arising between the trustee and the beneficiaries of a testamentary trust, section 1120 allows the probate court to bring to its aid the full legal and equitable powers with which as a superior court it is invested. (Estate of Charters (1956) 46 Cal.2d 227, 236, 293 P.2d 778.)
In the instant matter, Security Pacific, acting in its capacity as testamentary trustee, properly sought the authority of the probate court for the purpose of concluding and authorizing a final accounting of the trust. (Estate of Tierney (1945) 68 Cal.App.2d 621, 157 P.2d 411.) Likewise, objections to the trust accounting raised by the beneficiaries were properly set for adjudication in that same forum. (Ibid.)
The concurrent “civil action” filed by respondents included identical causes of action based upon breach of trust as those brought in the original probate proceeding. The only distinguishing and material feature between the two causes of action is that respondents sought damages in the “civil action.” Damages notwithstanding, the “civil” cause of action for breach of trust presented matters for adjudication in the probate court, not the superior court sitting outside of its probate jurisdiction. Contrary to respondents' contentions, a separate and distinct legal cause of action did not arise nor exist 10 as a result of the alleged breach of trust by a trustee administering a testamentary trust. An action based upon breach of a testamentary trust by a testamentary trustee is for the exclusive adjudication of the superior court presiding in probate. (Cf. Marsh v. Edelstein (1970) 9 Cal.App.3d 132, 142, 88 Cal.Rptr. 26; Stevens v. Torregano (1961) 192 Cal.App.2d 105, 113, 13 Cal.Rptr. 604.)
In any event, consolidation of those matters, since merely duplicitous of the matters already being litigated in probate, is inconsequential and nonprejudicial.11
Furthermore, in this matter, respondents did proffer a separate and distinct legal claim. The matter of respondent John Pitzer's alleged cause of action for unlawful interference with his purported irrevocable license to use the water well was entitled to a civil jury trial.12 Although that cause of action is distinct and separate from the proffered breach of trust cause of action, it is related. Accordingly, in the probate court's broadening jurisdictional authority (Estate of Baglione, supra, 65 Cal.2d at p. 197, 53 Cal.Rptr. 139, 417 P.2d 683), as well as the sound policy to litigate multifaceted claims at one time when all the necessary parties are before the court, it was proper for the court to consolidate the breach of trust (equitable/probate) issues and the legal water rights claim. (Cf. Thomson v. Thomson (1936) 7 Cal.2d 671, 682, 62 P.2d 358.)
Since consolidation of both equitable and legal claims was proper, the next question was whether respondents were entitled to empanel a jury to hear the combined actions or portions thereof.
It is clear that there is no right to a jury in a probate proceeding absent that right conferred by statute. (Estate of Beach (1975) 15 Cal.3d 623, 642, 125 Cal.Rptr. 570, 542 P.2d 994, Hutchinson v. Gertsch (1979) 97 Cal.App.3d 605, 613, 159 Cal.Rptr. 40.)
While the question of under what circumstances a jury trial can be held in a probate proceeding is an unsettled matter (Estate of Muller (1969) 2 Cal.App.3d 259, 266, fn. 8, 82 Cal.Rptr. 531), objections to an account which also raise issues of fact do not entitle one to a jury trial. (Estate of Joslin (1958) 165 Cal.App.2d 330, 347, 332 P.2d 151; Estate of Howard, supra, 58 Cal.App.3d at p. 259, 129 Cal.Rptr. 836, Estate of Beach, supra, 15 Cal.3d at p. 643, 125 Cal.Rptr. 570, 542 P.2d 994.)
As the accounting objections raised were identical to the “civil” claims erroneously raised, respondents were not entitled to any jury trial or determination based upon the breach of trust issues inclusive of the issue of damages. The matter of awarding a surcharge, the only “damages” available in this instance, is within the power of the court, not a jury. A surcharge, while analogous to compensatory damages, would be respondents' sole remedy in this instance. Therefore, it was improper for the jury to have been empaneled for purposes of awarding any damages based upon this breach of trust. For these reasons, it is clear that the award of punitive and compensatory damages based upon emotional distress resulting from the breach of trust must be reversed. This is not to conclude, however, that the entire award of compensatory damages must be reversed.
As noted earlier, respondents have instituted a proper cause of action based upon the unlawful interference with John Pitzer's license to use the water located in a well which existed on the trust property which was sold. Since this cause of action properly could be heard by a jury, the jury's specific award of $3,000 based upon the destruction of the license was proper.
Thus, the award of punitive damages is reversed. The award of compensatory damages is modified to reflect the $3,000 award of damages based upon unlawful interference with John Pitzer's irrevocable license. The orders denying appellant's new trial motion and judgment notwithstanding the verdict are affirmed. Each party to bear its own costs.
1. See Estate of Clifford B. Pitzer, 155 Cal.App.3d 979, 202 Cal.Rptr. 855.
2. Subsequent to the entry of judgment, Fern Taylor Pitzer died and the executor of her estate, Neil Burton, was substituted as a party.
3. Respondents, as beneficiaries, were not provided any consultation rights.
4. Security Pacific's own internal document suggested a list price of the property of $410,000 without the sundries and water rights.
5. Prior to sale of the two parcels, respondent Fern Pitzer purchased and Security Pacific conveyed a 6,000 square foot portion of the property for $3,500.
6. Prior to close of escrow, Mr. Bell transferred his interest in the south ten-acre parcel to Park Lane Development Company.
7. No opposition was presented until March 29, 1977, as a result of Security Pacific's filing of its proposed accounting without notice. By reason of this failure, the court's previous order approving the final accounting was vacated to permit respondents to file objections.
8. The award of $27,500 reflects damages for emotional distress except for $3,000 awarded to respondent John Pitzer for damages suffered as a consequence of Security Pacific's selling certain trust property in derogation of his license to use water from a well located on that property.
9. Section 1120 was amended in 1976 and again in 1982, thereby removing the continuing jurisdiction absent a specific provision by the testator. In this instance, section 1120, as amended, is not applicable to the present testamentary trust. (See 1 Marshall, Cal.Prob.Procedure, 4th ed. 1982, Trust, § 2312, p. 23–615.) The present testamentary trust was executed in 1970 prior to the section's pertinent amendment. No evidence exists that section 1120, as amended, was intended to apply retroactively.
10. This is not to confuse the fact that it is possible for the probate court to find that the breach of trust allegation includes both legal and probate/equitable issues.
11. Since the matter at bench for adjudication is exclusively within the jurisdiction of the probate court, respondents' inclusion of a claim for damages erroneously sought to expand those remedies presently available for breach of a testamentary trust. The remedies which were sought, those being an award of compensatory and punitive damages, are beyond the jurisdiction of the probate court to award.
12. Security Pacific's earlier demurrer to the complaint was sustained with leave granted to respondents to amend their complaint to state a cause of action for intentional infliction of emotional disturbance. Had respondents chosen to make such an amendment, that cause of action too would have entitled them to a civil jury trial on that claim. In this case, however, respondents chose not to execute such an amendment.
STEPHENS, Acting Presiding Justice.
ASHBY and STANTON,* JJ., concur.Hearing granted; KAUS, J., did not participate.