Dae v. Traver

• Decision Date: 27 September 2021
• Docket Number: B305834
• Citation: 284 Cal.Rptr.3d 495,69 Cal.App.5th 447
• Parties: Ian C. DAE, Plaintiff and Appellant, v. Robert TRAVER, as Trustee, etc., Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

69 Cal.App.5th 447

284 Cal.Rptr.3d 495

Ian C. DAE, Plaintiff and Appellant,

v.Robert TRAVER, as Trustee, etc., Defendant and Respondent.

B305834

Court of Appeal, Second District, Division 2, California.

Filed September 27, 2021

Murtaugh Treglia Stern & Deily, John P. Deily, Laguna Hills, and Devin Murtaugh, Irvine, for Plaintiff and Appellant.

Jeffer Mangels Butler and Mitchell, Susan Allison and Neil C. Erickson, Los Angeles, for Defendant and Respondent.

LUI, P. J.

Ian C. Dae (Dae) appeals from an order denying his motion to strike a probate court petition under the anti-SLAPP statute. ( Code Civ. Proc., § 425.16.)¹ Respondent Robert Traver (Robert) filed the petition in his capacity as trustee of a family trust.² Robert's petition alleged that Dae violated a "no contest" clause in the trust by filing a previous petition challenging Robert's actions as trustee.

The parties agree that Robert's petition (the No Contest Petition) arose from protected petitioning activity under Code of Civil Procedure section 425.16, subdivision (e)(1). Thus, under subdivision (b)(1) of that statute, to defeat Dae's motion Robert was required to show a probability that he would prevail on his No Contest Petition.

The trial court found that Robert made such a showing. We agree.

Dae's petition broadly challenged Robert's conduct in setting up a financial structure that Robert claimed was designed to avoid estate taxes. If Robert's claim is true, Dae's petition would implicate the no contest provision by seeking to "impair" provisions in the trust giving Robert the authority to manage trust assets.

Dae also challenged his own removal as a beneficiary. Whether that more specific challenge amounts to a "contest" for purposes of the trust's no contest clause depends upon the trustors’ intent. Robert provided sufficient evidence of the trustors’ intent to allow a change of beneficiary to make a prima facie showing of probability of prevailing on Robert's contention that Dae's claims are a "contest." Our conclusion is limited to the context in which it arises—an anti-SLAPP motion. We express no opinion on how the probate court should ultimately rule on Robert's petition.

BACKGROUND³

1. The Family Trust

Erin and Jean Walsh (the Trustors), a married couple, established a family trust in 1994 (Family Trust). Jean had three children from a prior marriage—Joan, William, and Robert. Erin had no children.

Joan had one child—Dae. William had no children. Robert has three children.

The Family Trust provided that, when one of the Trustors died, the assets of the Family Trust would be divided into a Survivor's Trust, a Residuary Trust, and a generation skipping trust for the grandchildren. The Survivor's Trust was to be funded with the community property interest of the surviving trustor and was revocable during the surviving trustor's lifetime.

Aside from some specific bequests and the funding of the generation skipping trust (which is not at issue here), the remainder of the deceased trustor's community property interest was to fund the Residuary Trust. The Residuary Trust was irrevocable.

The Family Trust designated the surviving trustor and Robert as the trustees of the Residuary Trust. Those trustees were given the "same powers and duties" as the original Trustors of the Family Trust, which included the authority to "grant, sell, assign, convey, exchange, convert, manage, ... invest, reinvest, loan, or reloan" trust property and to "borrow money for any trust purpose upon such terms and conditions as may be determined by the trustees, and to obligate the trust property for the repayment of money so borrowed." The trustees were also generally given "all powers that are necessary or convenient to make fully effective the purposes of the trust."

During his or her lifetime, the surviving trustor was entitled to the "entire net income" of the Residuary Trust as well as those sums from principal that the trustees "may deem necessary for the reasonable support, care, and maintenance of the surviving trustor." Upon the death of the surviving trustor, the assets of the Residuary Trust were to be divided equally among Jean's three children, if then living. If any child was not then alive, that child's share was to be distributed to the child's issue "by right of representation." If no issue of that child was then living, the child's share was to be divided between the other children's shares.

2. The No Contest Clause

The Family Trust included a no contest provision (No Contest Clause). Among other things, the No Contest Clause provided that any beneficiary who attacked "any of the provisions of this declaration of trust" or sought to "impair any of the provisions of ... this declaration of trust" would take nothing "from either of the trustors’ estates or any trust created by this declaration of trust."

3. Subsequent Estate Planning

Erin died in 1995. Under the terms of the Family Trust, upon his death the Residuary Trust was funded and became irrevocable.

William died in 2006 without any issue. William's share of the Residuary Trust therefore was to be split between Joan's and Robert's share.

After Erin's death, Jean and Robert became the trustees of the Residuary Trust, which was initially funded with about $16 million in assets. Jean and Robert established a complex financial structure using the assets of the Residuary Trust that Robert claims was for the purpose of avoiding estate taxes and Dae claims was designed to disinherit him. Only the broad outlines of this structure are necessary to decide the issues on appeal, and we therefore summarize it only generally.

In 2011, Jean and Robert set up two trusts, reflecting the two remaining children's interests in the Residuary Trust—the 2011 Gibb Trust (Gibb was Joan's last name) and the 2011 Traver Trust (collectively, the 2011 Trusts). Using a loan from the Royal Bank of Canada secured by the Residuary Trust's assets, Robert and Jean purchased life insurance on the lives of Joan and Robert by paying a premium of $7.5 million for each policy. The policies initially provided death benefits of $16.2 million for Joan and $15.2 million for Robert. The 2011 Gibb Trust owned the policy on Joan's life, and the 2011 Traver Trust owned the policy on Robert's life.

In what Robert calls a "split dollar" arrangement, a series of agreements gave the Residuary Trust an interest in the life insurance policies in return for the Residuary Trust's financing of the premiums for those policies.⁴ The Residuary Trust's interest (the Receivables) was equal to the greater of: (1) the amount of the premiums, or (2) the cash value of the policies at the time of the insured's death.

Jean and Robert later established two other trusts—the 2014 Gibb Trust and the 2014 Traver Trust (collectively, the 2014 Trusts). Those two trusts purchased the Receivables from the Residuary Trust for the sums of $674,900 (by the 2014 Gibb Trust) and $626,400 (by the 2014 Traver Trust). With the approval of a "trust protector" for the 2011 trusts, the 2014 Gibb Trust and the 2014 Traver Trust also acquired the assets of the 2011 Gibb Trust and the 2011 Traver Trust, respectively. The net effect of these transactions was to provide the 2014 Trusts with the bulk of the assets of the Residuary Trust.

Under the original terms of the 2014 Gibb Trust, Joan was the lifetime beneficiary and her issue (i.e., Dae) was the remainder beneficiary. However, the terms of the trust gave Joan a power of appointment to designate the remainder beneficiaries. On August 5, 2015, Joan exercised that power, directing the assets of the 2014 Gibb Trust to various charities and to Robert and his children rather than to Dae.

Robert testified that the purpose of the Split Dollar Trust Arrangement was to minimize estate taxes and that it accomplished that goal. He also testified that he and Jean set up the arrangement with the advice and counsel of financial and legal advisors.

Joan died on July 12, 2016. Jean died three months later, on October 15, 2106.

4. Probate Court Proceedings

In October 2018, Dae filed a verified petition to "settle the accounts," to "confirm trust assets and trust debts," and to "compel redress of a breach of trust and to compel the trustee to provide information regarding the trust administration." Dae filed a supplemental verified petition in March 2019. (We refer to both petitions collectively as Dae's Petition.)

Dae's Petition (described in more detail below) alleged that Robert breached his fiduciary duties to the Family Trust by engaging in the transactions underlying the Split Dollar Trust Arrangement and by using Residuary Trust assets to benefit himself and his family while depriving Dae of his interest in the trust.

Robert filed responses and objections to Dae's initial petition and to the supplemental petition. On June 10, 2019, Robert also filed his own petition "for order and instructions regarding [Dae's] violations of no contest clauses" (No Contest Petition).

The No Contest Petition sought a declaration that Dae's Petition constituted a "contest" in violation of the Family Trust's No Contest Clause, and requested a ruling deeming all of Dae's interest in the Family Trust to be forfeited.

Dae responded to that petition with his anti-SLAPP motion, which sought an order striking the entire No Contest Petition. The motion alleged that the No Contest Petition sought to impose liability on Dae as a result of Dae's protected petitioning activity. The motion also alleged that Robert "cannot meet his resulting burden of demonstrating a likelihood of success on the merits of his [No Contest] Petition because ... Dae's Petition only challenges certain acts of borrowing and trust administration by [Robert], which had the effect of changing the beneficiaries of the irrevocable Residuary Trust, enriching [Robert] at the expense of ... Dae." Robert filed an opposition, which included his own declaration.

The probate court denied the motion. The court observed that, even...