Corman v. Corman

• Decision Date: 29 August 2016
• Docket Number: B251513
• Parties: ROGER M. CORMAN, et al., Plaintiffs and Appellants, v. ROGER W. CORMAN, et al., as Trustees, etc., Defendants and Respondents.
• Court: California Court of Appeals Court of Appeals

ROGER M. CORMAN, et al., Plaintiffs and Appellants, v. ROGER W. CORMAN, et al., as Trustees, etc., Defendants and Respondents.

B251513

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

August 29, 2016

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. SP007923)

APPEAL from a judgment of the Superior Court of Los Angeles County, Reva Goetz, Judge. Affirmed in part, reversed in part, and remanded.

Greines, Martin, Stein & Richland, Irving H. Greines, Robin Meadow and Marc J. Poster for Plaintiffs and Appellants.

Klapach & Klapach and Joseph S. Klapach for Defendants and Respondents Roger W. Corman and Julie Corman.

Carico Johnson Toomey, David Carico, Christopher D. Carico and Golnaz Yazdchi for Defendant and Respondent Guardian ad Litem.

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INTRODUCTION

For the benefit of their four children, Roger W. and Julie Corman set up three irrevocable trusts: the Pacific Trust, the Tessa Trust, and the MG Trust. The children are now adults, and the trusts' assets are purportedly worth more than $100 million. In 2009 two of the Cormans' children, Roger M. and Brian, filed petitions in the probate court seeking, among other things, accountings for the trusts, distributions Roger M. and Brian claimed were due, removal of Roger W. and Julie as trustees, and disgorgement of allegedly misappropriated trust assets.

Four years later, after the conclusion of a trial on the petitions and on Roger M.'s and Brian's objections to the trust accountings, the probate court found that Roger W. and Julie had proved the accuracy of their accountings, Roger M. and Brian had failed to prove any malfeasance or improper accounting, and Roger M. and Brian had contested the accountings without reasonable cause and in bad faith. The court also found that distribution provisions in the MG Trust were ambiguous and should be reformed to reflect the original intent of Roger W. and Julie, which, the court found, was that those distributions occur only after the death of both Roger W. and Julie. The court therefore denied Roger M. and Brian any recovery on the petitions, reformed the terms of the MG Trust, and ordered Roger M. and Brian to pay from their shares of the Pacific Trust almost $3 million in attorneys' fees and costs the trustees had incurred to defend against Roger M. and Brian's petitions and objections.

Roger M. and Brian argue that the probate court made five prejudicial errors: (1) finding Roger W. and Julie did not breach their fiduciary duties as trustees, (2) recognizing and giving preclusive effect to a judgment from a court in the British Virgin Islands (BVI) declaring that Roger W. was the sole beneficial owner of certain foreign assets Roger M. and Brian contended belong to the Pacific Trust and the Tessa Trust, (3) reforming the MG Trust, (4) limiting the scope of the proceedings to the years 2004 through 2010, and (5) awarding attorneys' fees against Roger M.'s and Brian's shares in the Pacific Trust. We conclude that the probate court erred in finding thatRoger W. did not breach his fiduciary duty as trustee of the Pacific Trust, and we remand for a determination on whether his liability for the breach should be excused under Probate Code section 16440, subdivision (b).¹ We also conclude that the probate court erred in reforming the MG Trust and in awarding attorneys' fees against Roger M.'s and Brian's shares of the Pacific Trust. In all other respects, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Trusts

Roger W. and Julie Corman have four children: Catherine (born 1975), Roger M. (born 1976), Brian (born 1977), and Mary (born 1984). They created three irrevocable trusts for their children: The Pacific Trust created in 1978, the Tessa Trust created in December 1987,² and the MG Trust created in 1993. This protracted probate litigation involved all three trusts.

1. The Pacific Trust

The Pacific Trust designates Roger W. as trustee, and the Corman children and their issue as beneficiaries. The trust provides for the distribution of each child's share of the principal and accumulated income after the death of both Roger W. and Julie as follows: one-third 25 years after the inception of the trust, one-half the remaining balance 30 years after the inception of the trust, and the remaining balance 35 years after the inception of the trust. The trust gives Julie and Bank of America, as "special trustees," the discretionary power to make distributions from principal and accumulated income during the lifetimes of Roger W. and Julie for the necessities of life and for luxuries "appropriate to the [children's] station in life."

As trustee, Roger W. has the power to manage, control, and invest trust assets. The trust provides: "The enumeration of certain powers of the Trustee shall not limit its general powers, the Trustee subject always to discharge of its fiduciary obligations, being vested with and having all rights, powers and privileges which an absolute owner of the same property would have; provided, however, that the Trustor [i.e., Roger W.] shall not have the power to purchase, exchange or otherwise deal with or dispose of the principal or the income of the trust estate for less than a full and adequate consideration." The trust also provides that "[n]o liability of any nature whatsoever shall accrue to [the Trustee], for his actions as Trustee, except for fraud or dishonesty on his part, and each beneficiary . . . by accepting benefits received shall be deemed to have agreed to indemnify and hold the said Trustee harmless from claims or liability for matters arising by reason of his actions as such Trustee, except for fraud or dishonesty on his part."

The Pacific Trust began with $600,000 of Roger W.'s separate property and increased in value to as much as $80 million. This increase resulted, in significant part, from Roger W.'s and Julie's success in the film industry. They produced 168 films for the Pacific Trust, many (if not all) of which they distributed through their company Concorde-New Horizons.³

2. The Tessa Trust

The Tessa Trust names Julie as trustee, Roger W. as special trustee, and the Corman children and their descendants as beneficiaries. The trust directs the trustee to add the income of each child's share of the trust to the principal until the child reaches the age of 21, and thereafter to pay the income to the child, except as the special trustee in his discretion may direct the trustee to withhold. The trust gives the special trustee sole discretionary power to direct the trustee to make other distributions necessary for thechildren's support and maintenance in the manner of living to which they have become accustomed. After the death of both Roger W. and Julie, the successor trustee is to distribute to each child his or her share of the principal and accumulated income in fractions as each child reaches the ages of 25, 30, 35, 45, and 55.

The Tessa Trust gives Julie, as trustee, the power to manage, control, and invest trust assets, and provides that "the Trustors [i.e., Roger W. and Julie] shall not have the power to purchase, exchange or otherwise deal with or dispose of the principal or the income of the trust estate for less than an adequate and full consideration in money or money's worth." The trust exculpates the trustee from any liability for her actions as trustee, except for fraud or dishonesty, through a provision identical to the one in the Pacific Trust.

The Tessa Trust began with a cash transfer from Roger W. and Julie of $59,723. Roger M. and Brian claim that the Tessa Trust assets have grown to more than $8 million. As with the Pacific Trust, this growth resulted in large part from Roger W.'s and Julie's work in the film industry, including from films they produced for the Tessa Trust and distributed through Concorde-New Horizons.

3. The MG Trust

The co-trustees of the MG Trust are Roger W. and Julie, and their children are the beneficiaries. Section 2.1.1 of the trust provides that all trust income will be added to the principal during the lifetime of the survivor of Roger W. and Julie, that upon the death of that survivor the trustee may distribute to any child as much of the income and principal of that child's share as the trustee in his or her discretion may deem necessary, and that any trust income not so distributed will be added to the principal. Section 2.1.2 provides that the trustees are to distribute fractional amounts of the principal of a child's share as the child reaches the ages of 30, 35, 40, and 50, and that, if at any time after a child reaches the age of 25 the undistributed balance of his share of the trust is less than $10,000, the trustees are to distribute that balance to him or her. Section 2.1.2 is silentregarding whether the distributions it describes may occur while either Roger W. or Julie is living, or whether they may only occur after both have died.

The principal asset of the MG Trust is a 99 percent limited partnership interest in the Corman Family Investment Partnership, of which Roger W. and Julie own a 1 percent general partnership interest. The partnership owns an office building, part of which it leases to Concorde-New Horizons.

B. The Petitions and the Mistrial

In 2009 Roger M. and Brian filed petitions concerning each of the three trusts. The petitions sought, among other things, accountings of the trusts, removal or suspension of Roger W. and Julie as trustees, immediate distribution of the MG Trust's assets in accordance with section 2.1.2 of that trust, and a surcharge against the trustees for, and disgorgement of, misappropriated trust assets. The petitions alleged that...