Copley v. Copley

• Decision Date: 30 November 1981
• Citation: 178 Cal.Rptr. 842,126 Cal.App.3d 248
• Court: California Court of Appeals Court of Appeals
• Parties: Helen K. COPLEY, et al., Appellants and Cross-Respondents, v. Michael COPLEY, et al., Respondents and Cross-Appellants. David C. COPLEY, et al., Appellants and Cross-Respondents, v. Michael COPLEY, et al., Respondents and Cross-Appellants. Civ. 18761, Civ. 22214.

Page 842

178 Cal.Rptr. 842

126 Cal.App.3d 248

Helen K. COPLEY, et al., Appellants and Cross-Respondents, v. Michael COPLEY, et al., Respondents and Cross-Appellants.

David C. COPLEY, et al., Appellants and Cross-Respondents, v. Michael COPLEY, et al., Respondents and Cross-Appellants.

Civ. 18761, Civ. 22214.

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

Nov. 30, 1981.

McInnis, Fitzgerald, Rees & Sharkey, William T. Fitzgerald and Lawrence Pillsbury, and Harrigan, Ruff & Osborne and Leslie E. Osborne, Jr., San Diego, Cal., for appellants and cross-respondents.

Hervey, Mitchell, Ashworth & Keeney and James E. Hervey, San Diego, and Parker, Milliken, Clark & O'Hara and Jeffrey L. Glassman, Los Angeles, for respondents and cross-appellants.

Higgs, Fletcher & Mack and Vincent E. Whelan, San Diego, for Bank of America Nat. Trust & Sav. Ass'n, an interested party.

THE SYLLABUS

COLOGNE, Associate Justice.

Here is the perplexing dilemma facing the trustees of an inter vivos trust when they are given broad powers but must exercise them in an atmosphere heavily laden with conflicting interests. The trustees are given voting control of substantially all the stock of Copley Press, Inc., a large newspaper which had been operated by the trustor as a one-man business. Helen Copley, widow of the trustor and co-trustee, is given broad powers of discretion and by the lead of her husband and counsel elected to continue the business as a family enterprise. The inter vivos trust, with the usual marital and nonmarital trust features, burdened the nonmarital trust with the obligation to pay all death taxes and administration expenses. It was required to sell certain of the stock to raise these funds. Opting for a stock redemption plan under the provisions of Internal Revenue Code section 303, 19 months after the trustor's death, the trustees were able to achieve a tax-free sale to the Copley Press of enough stock to pay the death taxes on an installment plan. About a year and a half later, the redemption Underlying all these transactions is the trustees' effort to keep death taxes low and avoid heavy income tax burdens on the trust. The trial court found the trustees committed no fraud; under Helen Copley's management, Copley Press prospered and the value of the stock improved markedly; the accounting of the trustees was correct in every detail except the stock value and litigation fees. It found the stock redemption price was in fact low and should have been effected at $58 per share rather than the $35 figure. The trial court adjusted the stock holdings and dividends to reflect what the respective holdings of the marital and nonmarital trust would have been had the sale been effected at the proper figure. We approve this part of the superior court's order.

price was set at $35, which was the same value the Internal Revenue Service determined after extensive negotiations was the value at the date of death. Since that sales price would be the basis of the stock for income taxes, there would be no income tax assessed on the sale. After the stock sale but before the valuation was set, the trustees petitioned the court for approval of their acts. The children of the trustor by his first wife, two of the four beneficiaries under the nonmarital trust, complain the trustees should have sold the stock at a higher price per share and, if they had tried to sell to third persons, they would have known that the basis used for the redemption agreement was grossly below fair market value.

The court also held, however, while Helen Copley committed no fraud nor violated the provisions of the trust agreement, the trustees performed their functions facing known conflicting interests and were guilty of a breach of their fiduciary duty to the beneficiaries of the nonmarital trust and should be replaced by a corporate trustee. We hold this portion of the judgment unsupported. The positions with obvious conflicting interests were created by the trustor and intended by him to serve the interests of all the beneficiaries. Helen Copley's actions as administratrix with the will annexed, trustee, beneficiary and Copley Press' principal officer were directed toward the best interests of the beneficiaries and in accordance with the the intent of the trustor. The beneficiaries have not been prejudiced. The trustees' acts were reasonable in light of the duties imposed under the terms of the trust and did not justify their discharge. We reverse that portion of the order removing them as trustees.

We adjust the trial court's award of attorneys' fees to conform to the result of this opinion.

PROCEDURAL BACKGROUND

Helen K. Copley and Joseph P. Kinney, individually and as co-trustees of two trusts (designated the marital trust and the nonmarital trust) created by the late James S. Copley, ¹ brought the original action (Super.Ct. No. 381314) in declaratory relief to determine the propriety of their action as trustees in selling certain of the nonmarital trust's shares of stock of The Copley Press, Inc. to the corporation. ² They also sought substantially the same relief in a separate proceeding under Probate Code section 1138.1 (Super.Ct. No. 111584 consolidated with 115984). Michael Copley and Janice Copley, beneficiaries under the nonmarital trust, moved to dismiss the probate petition. The motion was denied, and on appeal to this court we reversed the order with directions to consolidate the Probate Code section 1138.1 proceeding with the declaratory relief action and cross-actions and to try the latter action first (Copley v. Copley, 80 Cal.App.3d 97, 109-110, 145 Cal.Rptr. 437).

Michael Copley and Janice Copley (objectors) filed objections to the petitions and cross-complained asserting, among other contentions, the stock was sold for a price Among other things, the trial court found the trustees were guilty of no actual fraud, but committed a constructive fraud on the beneficiaries of the nonmarital trust. It ordered the trustees to transfer certain stock and pay certain sums from the marital trust as a means of restoring the parties to the position they would have held had the sale been properly consummated. The court also ordered the removal of Helen K. Copley and Joseph P. Kinney as trustees of the nonmarital trust and appointed Bank of America National Trust and Savings Association as trustee of the nonmarital trust, ordering all assets delivered to the bank with a proper accounting. The court ordered the nonmarital trust to pay the attorneys for the objectors for services rendered in prosecuting this case together with sums for extraordinary costs. It ordered the accountings approved as rendered except in certain respects which were detailed in the judgment and, among other things, disallowed attorneys' fees and other compensation from the nonmarital trust for the co-trustees in pursuing this action. It also ordered the assets be redefined as amended by this judgment. Finally, in order to protect the rights of all beneficiaries of the nonmarital trust, the court ordered the new trustee to notify all beneficiaries of any intention to sell the shares of the corporation held in the nonmarital trust.

below the market value 19 months after James Copley's death and this was a breach of the trustees' fiduciary [126 Cal.App.3d 257] duties. They sought a recission of this sales agreement ³ or, in the alternative, payment of the higher price to the nonmarital trust, as well as an accounting and surcharge against the trustees, imposition of a constructive trust, removal of the trustees, receivership, injunctive relief, attorneys' fees and general and punitive damages.

Following the rendition of judgment in this matter, David C. Copley and John L. Satterlee, potential beneficiaries of the remainder under the trusts, filed a notice of motion to vacate judgment pursuant to Code of Civil Procedure sections 473 and 663. They also filed an objection to the hearing of this matter by Judge Todd pursuant to Code of Civil Procedure section 170.6. Judge Todd refused to disqualify himself and found the court was without jurisdiction to rule on the motion to vacate the judgment. David Copley and John Satterlee appeal these orders of the court.

The matters were consolidated for purposes of this appeal.

The trustees contend the stock redemption agreement was fully proper, representing the exercise of sound judgment accorded them under the authority of the trust instrument and serving the best interests of the nonmarital trust. The trustees contend further the trial court substituted its judgment for the terms of the trust instrument which committed trust property transfer decisions to the sole discretion of the trustees and thus the court ignored James Copley's intent. They also contend the trial court erred in refusing to consider evidence of James Copley's intent, denying the trustees' request for findings on specific issues, failing to require the joinder of indispensable parties and granting remedies, all providing additional grounds for reversal of the judgment.

THE PERSONS INVOLVED

Helen Copley is the surviving spouse of James Copley who died October 6, 1973, and after that date she was a named cotrustee of the inter vivos trust executed by James Copley in 1959 and amended from time to time. She was appointed administratrix with-the-will-annexed of James Copley's probate estate on the resignation of Thomas C. Ackerman, Jr., who briefly served as the executor named in James Copley's will.

Following the death of James Copley, she became the chief executive officer and chairperson of the board of directors of the corporation. Helen Copley is the sole income beneficiary of the marital trust over the corpus of which she has a general power of appointment, and is one of the four permissible distributees of the income of the nonmarital trust.

Joseph P. Kinney is the brother of Helen Copley and has no beneficial interest in either trust....