CLAUDE ARNALL v. Defendant and Appellant. (2011)

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

INTRODUCTION

Dawn Arnall (Dawn), as Trustee of the Roland and Dawn Arnall Living Trust, appeals from the order of the probate court upon a finding that respondent and beneficiary Claude Arnall (Claude) would not violate the no contest clause of the Trust by pursuing a petition to compel Dawn to make a distribution as required by the terms of the Trust.   We affirm the order.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Trust

We summarize the facts from the earlier appeals in this case.   Dawn's husband Roland Arnall (Roland) passed away on March 17, 2008.   Claude is Roland's brother.   Dawn is the surviving Trustee of the Trust, dated August 8, 2001, as amended February 27, 2006.

Under the terms of the Trust, upon the death of the grantor, an Administrative Trust is created to pay all taxes and specified expenses related to administration.  (Art. 12.6(a) -(g).)  The Trust directs the Trustee to distribute the balance of the Trust Estate into subtrusts in a fixed order of priority.  (Arts. 4.1 et seq.)   First, a Survivor's Trust, is created, comprised of Dawn's share of Roland's and her community property, and her own separate property.  (Art. 4.4.)   The interest of the Survivor's Trust vests immediately upon Roland's death.  (Art. 4.7.)   If, at Roland's death, the assets allocable to the Survivor's Trust are less than $100 million, then the Trustee must allocate sufficient assets from Roland's share of the Trust Estate to make up the difference between the value of the Survivor's Trust and $100 million.  (Art. 4.2(a)(1).)

After making this adjustment, the Trust requires the Trustee to allocate $25 million for the benefit of each of Roland's two children (art. 4.2(a)(3)).

Only after those gifts are made, does the Trustee allocate $10 million in a subtrust for the benefit of Claude and his wife, Etty Arnall.  (Art. 4.2(a)(4)).   The Trust establishes two further gifts, not relevant here.   When Claude's subtrust is funded, Philip Holthouse and Lewis Greenblatt will become its Trustees.

The Trustee has a maximum of six months from the date of Roland's death, i.e., September 17, 2008, to fund the various subtrusts, including the subtrust for the benefit of Claude.  (Art. 4.7) ¹ Dawn admits none of the subtrusts has been funded.

The Trust designates the manner of administration and distribution of Claude and Etty's subtrust.   In relevant part, article 9.1(a) provides, “one year following the death of ROLAND EDMOND ARNALL, the Trustee shall distribute to the beneficiary Five Hundred Thousand Dollars ($500,000) and on each subsequent anniversary of the death of ROLAND EDMOND ARNALL, the Trustee shall distribute to the beneficiary the lesser of Five Hundred Thousand Dollars ($500,000) or the balance of the Trust property.”  (Italics added.)

As noted in our earlier opinion, the Trust contains two no contest clauses in articles 15.3 and 15.4.

2. The procedural history

As none of the expenses under article 12.6 has been paid, Dawn has not funded any of the subtrusts.   On December 5, 2008, and on May 1, 2009, Claude demanded an accounting.

Claude then decided to file a petition to compel Dawn to make a distribution and an accounting.   Toward that end, he filed a safe harbor application (former Prob.Code, § 21320) ² seeking a determination whether his proposed petition would violate the Trust's no contest clauses.   Dawn opposed the safe harbor application with respect to the distribution issue only.   Dawn did not contend that Claude's request for an accounting constitutes a contest.

The probate court ruled that Claude's proposed petition for accounting and distribution would not violate the no contest clauses.   Dawn's timely appeal followed.

DISCUSSION

“ ‘Section 21320 provides “a safe harbor for beneficiaries who seek a judicial determination whether a proposed legal challenge would be a contest, and that is the only issue to be decided when such an application is made.   [Citation.]”  ‘ “ (Meyer v. Meyer (2008) 162 Cal.App.4th 983, 991.) ³  The determination whether a proposed petition violates the no contest clause is a question of law unless it turns on the credibility of extrinsic evidence.   (Burch v. George, supra, 7 Cal.4th at p. 254.)

Dawn contends that Claude's proposed petition to compel her to make a distribution violates the no contest clause.   The Trust disinherits a beneficiary “who shall contest, attack or seek to impair or invalidate in any court any provision of the following:  [¶] (a) the Trust (or any Trusts created hereunder) ․ and any amendments to any of the foregoing Trusts․”  (Italics added.)   She reasons that the petition is a contest because it seeks to alter the Trust's express funding priority by receiving his distribution before the expenses are paid and the other subtrusts have been funded.   We disagree.

Reading Claude's proposed petition to compel, it seeks only to force Dawn to make the distribution exactly “as specified in the Trust” (see arts. 4.7 and 9.1(a)).   Claude does not ask that his distribution be made before Dawn or Roland's children, all of whom have priority over him.   Indeed, Claude repeatedly denies that his petition to compel seeks to alter the funding priority designated in the Trust.   Rather, Claude's petition seeks only to require Dawn to make the distribution as required by the express terms of the Trust.   Therefore, because Claude's petition does not aim to reorder the priority of distribution, it does not “attack or seek to impair or invalidate in any court any provision of ” the Trust, and so it does not violate the no contest clause.⁴

Also, according to the applicable version section 21305, a pleading challenging the exercise of a fiduciary power does not violate a no contest clause as a matter of public policy.  (Former § 21305, subd. (b)(6).) ⁵  “[I]t was the intent of the Legislature to restrict the reach of no contest clauses for which the Legislature opined the courts were guilty of making overly broad applications.   For that reason subdivision (b)(6) was added to section 21305 to make it clear that ‘[a] pleading challenging the exercise of a fiduciary power’ was excluded.”  (Bradley v. Gilbert (2009) 172 Cal.App.4th 1058, 1070.)   Former section 21305, subdivision (b)(6) “protects the ability of beneficiaries to challenge the actions of a fiduciary without subjecting themselves to the no contest clause.  [Citations.]”  (Bradley v. Gilbert, supra, at p. 1071.)   Insofar as Claude's petition seeks to compel Dawn to exercise her fiduciary power to make a distribution according to the terms of the Trust, his petition challenges her alleged inaction as a fiduciary up to this point, with the result it is not a contest as a matter of public policy.

Dawn argued in her opposition to Claude's safe harbor application that the reason she has not funded the subtrusts is that she has yet to ascertain the extent of contingent liabilities.   However, the existence or nonexistence of contingent liabilities affecting Dawn's ability to fund the subtrusts is relevant as a defense to Claude's petition to compel her to make a distribution.   It is not relevant to whether Claude's petition constitutes a contest.   A ruling on whether the beneficiary's proposed action would constitute a contest may not involve determination of the merits of the action itself.  (Meyer v. Meyer, supra, 162 Cal.App.4th at p. 991.)   While Dawn might be able to raise the contingent liabilities in her opposition to the motion to compel as justification for her failure to fund the subtrusts up to now, those liabilities are not relevant to the safe harbor analysis.   (Ibid.)

DISPOSITION

The order is affirmed.   Respondent to recover costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

We concur:

FOOTNOTES

FN1. Article 4.7 reads in relevant part, “When the Trustee is directed to make a distribution of Trust assets or a division of Trust assets to separate Trusts or shares on the death of a Grantor, the Trustee may, in the sole and absolute discretion of the Trustee, defer that distribution or division until six (6) months after that Grantor's death.  ․” (Italics added.).  FN1. Article 4.7 reads in relevant part, “When the Trustee is directed to make a distribution of Trust assets or a division of Trust assets to separate Trusts or shares on the death of a Grantor, the Trustee may, in the sole and absolute discretion of the Trustee, defer that distribution or division until six (6) months after that Grantor's death.  ․” (Italics added.)

FN2. All statutory references are to the Probate Code, unless otherwise noted..  FN2. All statutory references are to the Probate Code, unless otherwise noted.

FN3. The Legislature enacted a series of statutes in 1989 designed to codify the law governing enforcement of no contest clauses.  (Stats.1989, ch. 44, § 19.)   These statutes were repealed and reenacted in 1990 (Stats.1990, ch. 79, § 14, operative July 1, 1991), and again repealed and reenacted effective January 1, 2010 (Stats.2008, ch. 174, § 1).  (See Burch v. George (1994) 7 Cal.4th 246, 254, fn. 6.) As a preliminary matter, the parties agree that the version of section 21320, in effect until January 1, 2010, applies to this case..  FN3. The Legislature enacted a series of statutes in 1989 designed to codify the law governing enforcement of no contest clauses.  (Stats.1989, ch. 44, § 19.)   These statutes were repealed and reenacted in 1990 (Stats.1990, ch. 79, § 14, operative July 1, 1991), and again repealed and reenacted effective January 1, 2010 (Stats.2008, ch. 174, § 1).  (See Burch v. George (1994) 7 Cal.4th 246, 254, fn. 6.) As a preliminary matter, the parties agree that the version of section 21320, in effect until January 1, 2010, applies to this case.

FN4. Dawn's reliance on Burch v. George, supra, 7 Cal.4th 246, is unavailing.   The Supreme Court there held that the surviving spouse's proposed lawsuits to litigate her community property rights in the trust estate and her rights under the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1001 et seq.) would constitute a contest.  (Burch v. George, supra, at pp. 251, 263.)   The reason was that it was clear from the trust terms that the trustor intended to put his surviving spouse to an election between taking under the trust or renouncing that distribution and taking pursuant to her independent legal rights.  (Id. at p. 257.)   By contrast, here, there is no indication in the Trust, nor does Dawn identify any, that Roland intended to force Claude to make any similar election.   Nor is Claude challenging any bequest of specific property or challenging the characterization of property.  Burch is thus irrelevant, except for its recitation of the legal principles in analyzing no contest clauses..  FN4. Dawn's reliance on Burch v. George, supra, 7 Cal.4th 246, is unavailing.   The Supreme Court there held that the surviving spouse's proposed lawsuits to litigate her community property rights in the trust estate and her rights under the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1001 et seq.) would constitute a contest.  (Burch v. George, supra, at pp. 251, 263.)   The reason was that it was clear from the trust terms that the trustor intended to put his surviving spouse to an election between taking under the trust or renouncing that distribution and taking pursuant to her independent legal rights.  (Id. at p. 257.)   By contrast, here, there is no indication in the Trust, nor does Dawn identify any, that Roland intended to force Claude to make any similar election.   Nor is Claude challenging any bequest of specific property or challenging the characterization of property.  Burch is thus irrelevant, except for its recitation of the legal principles in analyzing no contest clauses.

FN5. Section 21305, which was also repealed effective January 1, 2010 (S tats.2008, ch. 174, § 1) but applicable to this case, provided in relevant part that “(b) ․ notwithstanding anything to the contrary in an instrument, the following proceedings do not violate a no contest clause as a matter of public policy:  [¶] ․ [¶] (6) A pleading challenging the exercise of a fiduciary power.  ․” (Former § 21305, subd. (b)(6), italics added.)   This provision applied only to instruments of decedents dying on or after January 1, 2001, and to documents that become irrevocable on or after January 1, 2001.  (Former § 21305, subd. (d).)  Provided however, that “[t]he provisions of paragraph[ ] (6) ․ do not apply if the court finds that the filing of the pleading is a direct contest of an instrument or any of its terms, as defined in Section 21300.”  (Former § 21305, subd. (e).).  FN5. Section 21305, which was also repealed effective January 1, 2010 (S tats.2008, ch. 174, § 1) but applicable to this case, provided in relevant part that “(b) ․ notwithstanding anything to the contrary in an instrument, the following proceedings do not violate a no contest clause as a matter of public policy:  [¶] ․ [¶] (6) A pleading challenging the exercise of a fiduciary power.  ․” (Former § 21305, subd. (b)(6), italics added.)   This provision applied only to instruments of decedents dying on or after January 1, 2001, and to documents that become irrevocable on or after January 1, 2001.  (Former § 21305, subd. (d).)  Provided however, that “[t]he provisions of paragraph[ ] (6) ․ do not apply if the court finds that the filing of the pleading is a direct contest of an instrument or any of its terms, as defined in Section 21300.”  (Former § 21305, subd. (e).)

KLEIN, P. J. CROSKEY, J.