David v. Hermann

• Decision Date: 18 May 2005
• Docket Number: Nos. A101681, A104110, A104111, A104693.,s. A101681, A104110, A104111, A104693.
• Citation: 28 Cal.Rptr.3d 622,129 Cal.App.4th 672
• Court: California Court of Appeals Court of Appeals
• Parties: Susan DAVID, Plaintiff and Respondent, v. Wendy Alter HERMANN, Individually and as Successor Trustee, etc., Defendant and Appellant.

28 Cal.Rptr.3d 622

129 Cal.App.4th 672

Susan DAVID, Plaintiff and Respondent, v. Wendy Alter HERMANN, Individually and as Successor Trustee, etc., Defendant and Appellant.

Nos. A101681, A104110, A104111, A104693.

Court of Appeal, First District, Division One.

May 18, 2005.

Rehearing Denied June 17, 2005.

Review Denied September 7, 2005.

John A. Hartog, John A. Hartog, Inc., Jewell J. Hargleroad, McInerney & Dillon,

P.C., Oakland, CA, for Defendant and Appellant.

Catherine Duggan, Law Offices of Catherine Duggan, Oakland, CA, Robert E. White, Susan C. Rushakoff, Law Offices of Robert E. White, San Francisco, CA, for Plaintiff and Respondent.

SWAGER, J.

This is an appeal from a judgment adjudicating a trust to be invalid on the ground of undue influence and fraud and from post-judgment orders concerning attorney fees. We reverse the portions of the judgment and the orders relating to attorney fees and otherwise affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The litigation arises from a history of disputes between the daughters of Zal and Jane Alter, both now deceased. The petitioner, Susan David (hereafter Susan), is the older daughter; the defendant, Wendy Alter Herman (hereafter Wendy), is the younger. The property at issue consists primarily of the family business, the 300 Company, which owns and manages a commercial building at 300 Brannan and an apartment building at Hayes and Divisidero, both in San Francisco. In recounting the factual background, we will rely on the trial court's lengthy and detailed statement of decision.

On January 31, 1989, Zal and Jane Alter created a revocable living trust, called the Alter Family Trust, as part of an estate plan recommended by their attorney. The complex trust provisions effectively called for equal distribution of the trust assets between their daughters on their death. Zal Alter was the sole trustee, but he was then experiencing declining health and mental ability. Sometime in 1989, Susan began to assist Zal in writing checks, paying taxes, balancing accounts, and managing the 300 Company. Later in 1990, she began to sign checks with her father's approval and to assume control of the trust estate. On September 17, 1990, Zal suffered a fall and became entirely incapacitated.

The year 1990 brought changes in the lives of other members of the family. Recently divorced, Wendy moved from Fresno to Marin County where she still resides. Jane separated from Zal after 50 years of marriage and began to live alone in a condominium in San Francisco. While undertaking this difficult transition, Jane was experiencing declining health and failing eyesight. Wendy began to see her mother frequently and assisted her in the tasks of daily living.

In August 1990, the strained relations between the two daughters experienced a serious rift. As advised earlier by his estate planning attorney, Zal decided to make a series of gifts to his family in the amount of the gift tax exemption. Susan wrote the checks on his behalf. Zal gave $20,000 to each of his daughters and $10,000 to each of his four grandchildren and, in addition, gave $10,000 to Susan's husband. The effect was a $10,000 imbalance in favor of Susan's side of the family. Wendy complained to Jane and contacted her parents' attorneys. She scheduled a meeting with the firm on October 4, 1990, a day before Susan was scheduled to leave for a three-week vacation in Europe. When Susan returned from the vacation, she learned from her father's business partner that Wendy was accusing her of dereliction in the management of the family's financial affairs.

On March 5, 1991, Jane revoked her interest in the Alter Family Trust. The same day, she executed a will by which she disposed of her separate property and her share of the community property, "including all [her] former trust property," which she held with her husband. She gave half the residue of her estate in equal shares to Wendy and the other half to the "then-living issue" of Susan. The will explicitly omitted to provide directly for Susan and appointed Wendy as executor of her estate.

In April 1991, Wendy and Jane filed a petition in San Francisco Superior Court for an accounting and for removal of the trustee of the Alter Family Trust and appointment of a successor trustee. The petition alleged that Zal suffered from senile dementia and that the trust instrument provided that Jane, Susan, and Wendy would serve as cotrustees in the event of his incapacity. It alleged that Susan had unilaterally taken control of trust affairs, made unauthorized gifts of trust assets, improperly paid herself compensation for her duties as trustee, and failed to pay for Zal's necessary expenses.

Concurrently with filing the petition, the parties stipulated to appointment of a trust company as the successor trustee. When the trust company declined the appointment, the parties stipulated to the appointment of an independent fiduciary, Debra J. Dolch, as successor trustee by an order filed July 17, 1991. The order provided for the equalization of gifts by an additional $10,000 gift to Wendy.

In further probate proceedings on the same petition, Susan filed two accounts and reports covering the period of September 17, 1990, to September 11, 1991. By a stipulation and order filed August 11, 1992, the court approved the accounting "as filed and all of her actions in connection with [the Alter Family Trust] as reported therein, ... are confirmed and approved."

In an order filed January 4, 1993, the court approved the first account and report as amended of the successor trustee, Debra Dolch, and directed her to petition for the establishment of a conservatorship for Zal and to seek instructions as to the transmutation of Zal and Jane's shares in the Alter Family Trust into their separate property. Dolch petitioned for instructions as directed and the matter came up for a hearing on April 27, 1993, in which Zal, Jane, and the trustee were separately represented by counsel. With the agreement of the attorneys present, the court adopted an order filed June 17, 1993, that went well beyond the objective of the original petition and directed inter alia that Zal's share of the trust assets would remain in the existing trust and Jane's equal share would be transferred to a new trust designated the Jane Alter Living Trust.

The Jane Alter Living Trust, which was executed on June 8, 1993, named Wendy as trustee. It provided that if Zal predeceased Jane, the trust assets would be distributed one-half to Wendy and one-half in equal shares to her four grandchildren. The effect was to restrict the distribution to Susan's children to one-fourth of the estate. In the event Zal was still living on Jane's death, the trust provided that half of the assets would be held in a terminable interest trust (Q-TIP trust) for the benefit of Zal during his life.

Concurrently with creation of the Jane Alter Living Trust, Jane made a will disposing of all property that might not have been transferred to the trust and seeking to exercise a power of appointment in the Alter Family Trust, conditional upon a determination that the power of appointment was still effective. On November 20, 1996, she executed a first codicil to her will that again sought to exercise the power of appointment in the Alter Family Trust.

Zal died on June 9, 1995. Since separating from Zal, Jane had also suffered a progressive decline in her physical and mental condition. She walked with difficulty and was slowly going deaf and blind. The trial court found that she began to suffer from a degree of cognitive impairment that impeded her ability to review records, reason abstractly, or make sound judgments. With her declining physical and mental capacities, Jane became increasingly dependent on Wendy. The trial court found, "for example, that Wendy drove Jane to attorneys' offices, banks and medical appointments, among other things.... Wendy was trustee of the Jane Alter Trust and, as such, had control of all her assets, handled all her financial affairs and, at least at some point between 1990 and 1995, started paying all of her bills as well." Jane's dependence on Wendy was accompanied by the growth of an intense and irrational anger toward Susan. As the trial court found, "[s]he had it in her mind that Susan had stolen money from the Alter Family Trust, and she would not let this notion go."

In early November 1995, Wendy took Jane to her attorney, Sterling Ross, to have an amendment prepared for the Jane Alter Living Trust. Ross referred her to independent counsel, Marila Marshall, who drafted the document. In the trial court's words, she was then "blind, hard of hearing, in a wheelchair and had been weakened mentally by a series of strokes. Her cognitive abilities were diminished." On November 2, 1995, she executed a second amendment (Second Amendment) to the Jane Alter Living Trust, which largely excluded Susan and her family from receiving trust assets. The amended trust gave each of the four grandchildren the sum of $10,000 and provided that, if Wendy were living at the time of her death, the remaining trust estate would be distributed to her. If Wendy were not living, 75 percent of the estate would go to Wendy's family and 25 percent to Susan's family.

Jane died on October 23, 1997. On December 4, 1997, Wendy filed a petition for probate of Jane's will in San Francisco Superior Court. In response, Susan filed a petition for declaratory relief seeking a determination that a contest to the admission of Jane's will into probate would not constitute a challenge to Zal's will or the Alter Family Trust and succeeded in obtaining a declaratory judgment to that effect. About two months later, Susan filed a contest to probate of Jane's will. Wendy filed an answer to the contest, but the record discloses no further proceedings on the petition for probate or the will contest.

On February 22, 2000, Susan filed a petition in the Marin County Superior...