Graham v. Lenzi

• Decision Date: 31 July 1995
• Docket Number: No. D021359,D021359
• Court: California Court of Appeals Court of Appeals
• Parties: , 95 Cal. Daily Op. Serv. 6036, 95 Daily Journal D.A.R. 10,284 Gloria Ann GRAHAM, Plaintiff and Appellant, v. Robert F. LENZI, Defendant and Appellant.

Page 407

43 Cal.Rptr.2d 407

37 Cal.App.4th 248, 95 Cal. Daily Op. Serv. 6036,

95 Daily Journal D.A.R. 10,284

Gloria Ann GRAHAM, Plaintiff and Appellant, v. Robert F. LENZI, Defendant and Appellant.

No. D021359

Court of Appeal, Fourth District, Division 1, California.

July 31, 1995.

Sullivan, Cummins, Wertz, McDade & Wallace and Leo Sullivan, San Diego, for plaintiff and appellant.

Alexander B. McDonald, San Diego, for defendant and appellant.

HALLER, Associate Justice.

Gloria Ann Graham is a beneficiary of an inter vivos trust created by her parents, who are now deceased. Graham filed an application seeking a determination under Probate Code section 21320 ¹ of whether any of the claims asserted in her proposed petition to determine the validity of certain trust provisions would be a contest within the meaning of the trust's no contest clause.

The proposed petition, which challenges Robert F. Lenzi's right to take one-half of the trust residue pursuant to an amendment

to the trust, contains four separate claims for relief. Lenzi appeals from the court's determination that part of the petition's first claim and the entire third claim are not contests within the meaning of the trust's no contest clause. Graham cross-appeals from the court's determination that part of the first claim and the entire fourth claim are contests.

FACTS AND PROCEDURAL BACKGROUND

In May 1989 Howard Wagner and his wife, Ethel Mae Wagner, established the Wagner Family Trust (Trust) by a written trust agreement. Howard and Ethel were the sole beneficiaries of the Trust during their joint and individual lifetimes, and Howard was the designated trustee. The Trust named Graham, Howard and Ethel's only child, as the sole remainder beneficiary to receive the entire Trust estate upon the death of the surviving trustor.

The Trust provided it could be revoked in whole or in part with respect to community property by both trustors acting together, and with respect to separate property by the trustor who contributed that separate property to the Trust. The Trust also provided it could be amended "during the lifetime of both Trustors by an instrument in writing signed by both Trustors and delivered to the Trustee during their joint lifetimes." The Trust contained a "no contest" clause providing that any beneficiary contesting the validity of the Trust or challenging any amendment to the Trust would forfeit the right to any interest given to him or her by the Trust. ²

Ethel died in July 1989. Howard met Lenzi shortly thereafter. At Howard's request, Lenzi, a stockbroker, reviewed and recommended changes to the investment portfolio of the Trust. On January 5, 1993, Howard Wagner executed an amendment to the Trust which changed the distribution of the Trust residue upon death of the surviving trustor. The amendment provides that one-half of the residue is to be distributed to Gloria Graham, and the other half to "the Trustor's friend, ROBERT LENZI...." The amendment also made Lenzi a successor co-trustee for asset management. Howard Wagner died in October 1993.

In November 1993, Graham filed an "Application ... for Declaratory Relief Regarding Applicability of No Contest Clause." The application was accompanied by a proposed petition asserting four claims challenging Lenzi's right to take half of the Trust residue. The first claim alleges the gift to Lenzi is invalid under section 21350, subdivision (a)(1). ³ The second claim alleges the gift to Lenzi is invalid because it was procured through his undue influence. The third claim requests declaratory relief as to whether the Trust could be amended by Howard Wagner after the death of his wife. The fourth claim seeks declaratory relief as to whether Graham would be entitled to take the entire Trust estate as an heir of the trustors even if she were deemed to have forfeited her interest in the Trust as a beneficiary under the no contest clause. Pursuant to section 21320, Graham sought a judicial determination of whether any of these proposed claims would violate the no contest clause in the Trust.

The court concluded the first claim under section 21350 "is not a contest within the terms of the no contest clause to the extent of the allegations that Robert F. Lenzi caused the amendment to be 'drafted,' but would be a contest to the extent of the

                allegations that he caused the amendment to be 'transcribed.' "   The court decided the second claim alleging undue influence is not a contest within the meaning of the no contest clause, and that the third claim "which seeks declaratory relief regarding whether the trust could be amended, is not a contest within the terms of the no contest clause because [37 Cal.App.4th 254] of the holding of Estate of Wernicke, 16 Cal.App.4th 1069, 1075-76 [20 Cal.Rptr.2d 481.]"  Finally, the court ruled the fourth claim "which seeks declaratory relief regarding whether the no contest clause would apply to a contest by an heir of the trustor even if it applied to a contest by the same person as a beneficiary of the trust, would be a contest within the terms of the no contest clause...."
                

DISCUSSION

I. Lenzi's Standing to Appeal as Trustee

Lenzi is identified in the caption of his opening brief and in his papers filed in superior court as "Robert F. Lenzi, trustee." Graham argues Lenzi cannot appeal as trustee under Smith v. Esslinger (1994) 26 Cal.App.4th 579, 31 Cal.Rptr.2d 673.

While Smith supports the proposition that a trustee lacks standing to appeal an order under section 21320 determining whether a proposed action is a contest of the trust, an appellate court has discretion to disregard an appellant's designation as trustee when the appellant also has standing to sue in his or her individual capacity as a beneficiary. The appellate court may consider the representative designation as merely descriptive and treat the appeal as having been taken in the appellant's individual capacity. (See Estate of Hawkins (1987) 194 Cal.App.3d 102, 105, 239 Cal.Rptr. 464.)

In the present case, Lenzi has standing to appeal in his individual capacity as a beneficiary named in the amendment to the trust. In the interest of justice, we therefore treat his appeal as having been taken in his individual capacity.

II. Construction of No Contest Clauses

At issue in this appeal is whether the court erred in determining the applicability of the no contest clause in the Trust to claims asserted in Graham's proposed petition. We do not address the merits of the proposed petition itself. ⁴

The rules pertaining to construction of no contest clauses are well settled. " 'The interpretation of a written instrument, including a ... declaration of trust, presents a question of law unless interpretation turns on the competence or credibility of extrinsic evidence or a conflict therein. Accordingly, a reviewing court is not bound by the lower court's interpretation but must independently construe the instrument at issue....' [Citations.] ... [p] In construing a trust instrument, the intent of the trustor prevails and it must be ascertained from the whole of the trust instrument, not just separate parts of it. [Citation.]" Scharlin v. Superior Court, supra, 9 Cal.App.4th at p. 168, 11 Cal.Rptr.2d 448.)

"A contest is defined as 'an attack in a proceeding on an instrument or on a provision in an instrument.' (§ 21300, subd. (a).) A no contest clause is enforceable but will be strictly construed. (§§ 21303, 21304.) ... [N]o contest clauses ... are not to be extended 'beyond what was plainly the [trustor's] intent.' [Citation.] ... Only where an act comes strictly within the express terms of the forfeiture clause may a breach thereof be declared....' [Citation.]" (Id. at pp. 168-169, 11 Cal.Rptr.2d 448; see also Burch v. George (1994) 7 Cal.4th 246, 254-255, 27 Cal.Rptr.2d 165, 866 P.2d 92.)

III. First Claim Under Probate Code Section 21350

The first claim for relief in Graham's proposed petition asserts that the provision of the Trust amendment leaving half of the Trust estate to Lenzi is invalid under section 21350, subdivision (a)(1). (See fn. 3, ante.)

Section 21350 invalidates donative transfers to certain "disqualified persons," including one who caused the donative instrument to be drafted or transcribed. Section 21351, subdivision (d) provides that section 21350 We disagree with Lenzi's assertion that Graham's act of invoking the protection of section 21350 constitutes a "contest." A section 21350 claim is not an "attack ... on an instrument or ... a provision in an instrument." (§ 21300, subd. (a).) Rather, it is a means of enforcing a specific statutory mandate. Viewed from such perspective, Graham's section 21350 claim is not a "contest" within the meaning of the Trust's no contest clause.

does not apply if "[t]he court determines, upon clear and convincing evidence, ... that (1) the transfer was not the product of fraud, menace, duress, or undue influence ⁵ and (2) ... the court finds that it is fair, just, and equitable to all interested persons to allow the transfer." Section 21350 implicitly requires a person whose interest in a trust is threatened by a transfer to a disqualified person to affirmatively invoke the protection of the statute by seeking a court order establishing the invalidity of the transfer. The burden then shifts to the transferee to justify the transfer under section 21351.

The public policy underlying section 21350 makes clear the Legislature did not intend to permit a transferee to invoke a no contest clause to prevent or deter enforcement of section 21350. In enacting sections 21350 and 21351, the Legislature was aware that certain individuals are uniquely positioned to procure gifts from elderly persons through fraud, menace, duress or undue influence. (See Sen. Rules Com., Office of Sen. Floor Analyses, Analysis of Assem. Bill No. 21 (1993-1994 Reg.Sess.) as amended June 30, 1993, Background par. 1.) To prevent such individuals from taking...