Estate of Pitzer

• Decision Date: 16 May 1984
• Citation: 155 Cal.App.3d 979,202 Cal.Rptr. 855
• Parties: ESTATE OF Clifford B. PITZER, Deceased. Neil T. BURTON, as Executor, etc., et al., Plaintiffs and Respondents, v. SECURITY PACIFIC NATIONAL BANK, Defendant and Appellant. Civ. 69713.
• Court: California Court of Appeals Court of Appeals

Page 855

202 Cal.Rptr. 855

155 Cal.App.3d 979

ESTATE OF Clifford B. PITZER, Deceased.

Neil T. BURTON, as Executor, etc., et al., Plaintiffs and Respondents, v. SECURITY PACIFIC NATIONAL BANK, Defendant and Appellant.

Civ. 69713.

Court of Appeal, Second District, Division 5, California.

May 16, 1984.

Gibson, Dunn & Crutcher, Robert S. Warren and Marsha McLean-Utley, Los Angeles, and Newman, Chrisman & Faith and J. Randall Faith, Covina, for defendant and appellant.

William M. Shernoff, Claremont, and Leonard Sacks, Inc., Northridge, for plaintiffs and respondents.

STEPHENS, Acting Presiding Justice.

This action represents the second of two appeals ¹ initiated by Security Pacific Bank (hereinafter Security Pacific) concerning the summary judgment and surcharges rendered against it by the probate court as a result of objections filed by the beneficiaries of a testamentary trust to Security Pacific's trust account. Specifically, the probate court determined that Security Pacific, in making a loan of $115,000 to Park Lane Development Company (hereinafter Park Lane), the ultimate purchaser of certain trust property, breached its trust as a matter of law. The court also adjudged that a well located on trust property sold had a value separate and independent of the value of the land, and that Security Pacific had neither requested nor received any consideration for this well. As a consequence, a surcharge was imposed against Security Pacific.

Security Pacific contends that the summary adjudication ruling as to the $115,000 loan is unsupported by legal precedent, is contrary to established principles governing fiduciary conduct and is thus in error. It is also alleged that there is no substantial evidence to support the probate court's surcharge for the value of the water well separate and independent of the land, or the surcharge for Security Pacific's failure to obtain interest on the purchase price of the land during escrow. We conclude that the granting of summary judgment as well as the surcharges were proper and affirm the judgment accordingly.

FACTS

On November 15, 1974, Security Pacific was named trustee under a testamentary trust created by the will of Clifford B. Pitzer. Named as trust beneficiaries therein were plaintiffs and respondents, Fern Taylor Pitzer (Pitzer's surviving wife), ² and his children, John L. Pitzer and Patricia P. Lautmann.

In his will, Clifford Pitzer appointed respondent, Fern Taylor Pitzer, to act as executrix of his estate. Certain specific bequests of real and personal property, as well as a bequest of the residue of his estate, were then conveyed to Security Pacific, in trust. Security Pacific was granted full, complete and absolute discretionary powers regarding trust management and maintained the right to sell trust assets. ³ The principal assets of the trust estate consisted of securities, sundries and 20 acres of lemon groves. Security Pacific was requested to manage the trust property for the benefit of respondents until such property was sold.

Security Pacific took possession of the real estate and other property on July 19, 1974. When the bank assumed its duties as trustee, the 20 acres of lemon groves were being maintained for the production of commercial crops. The 20 acres consisted of 3 parcels, one of 10 acres and two contiguous parcels of 5.5 and 4.5 acres, respectively. Various sundries included a well with a pump, a pumphouse used to irrigate the groves, an oil pump, a truck and three wind machines. Also included as part of the trust fund was a revolving fund consisting of moneys obtained by certain packing house cooperatives engaged in the marketing of the produce of the groves. The originally reported value of the property, water rights and sundries was $382,000. ⁴

As administration of the trust proceeded, Security Pacific's operation of the lemon groves resulted in a net loss. Consequently, to produce income for the trust beneficiaries, Security Pacific offered for sale and sold the parcels ⁵ to Edward Bell, a land developer (hereinafter Bell). Included in the sale was the transfer of ownership in the well, the various sundry items and the revolving funds.

Prior to the close of escrow, and nearly one year into the escrow, another branch of Security Pacific loaned $115,000 to the ultimate purchaser ⁶ of the south tract of the property. As security for that loan, Security Pacific took back a deed of trust covering the trust property. At the close of escrow, Security Pacific then transferred to Park Lane the title to this property. At this same time, however, respondents, as beneficiaries, voiced their concern and displeasure with the sale and the overall administration of the trust. Security Pacific then tendered and the probate court accepted its resignation as trustee. Three months later, Security Pacific made a $1,915,200 construction loan to Park Lane.

On December 9, 1976, a complaint for breach of trust, breach of statutory duties and constructive fraud was filed on behalf of respondents, naming Security Pacific and various individuals as defendants. Respondents alleged that Security Pacific breached its trust by selling trust property at substantially less than its fair market value; by failing to seek or obtain legal advice; by charging excessive trustee's fees; by transferring trust property without consideration; by transferring the well owned by the trust, thereby compromising the water rights then held by respondent John Pitzer; by making gifts of trust property (the sundries), and by failing to pay the trust income to respondent Fern Pitzer, the life beneficiary of the trust. Respondents sought recovery for emotional distress and punitive damages for oppressive, fraudulent or malicious management of the trust.

On January 13, 1977, Security Pacific filed its proposed second and final account and petitioned for approval of the same acts and transactions of which the beneficiaries complained in the civil complaint. On February 18, 1977, Security Pacific filed a demurrer to the complaint in the civil action and argued, inter alia, that the order of the court in the probate action was res judicata as to the claims of respondents in the civil matter. The demurrer was sustained with leave granted therein to amend and to file a cause of action for intentional infliction of emotional disturbance. The court further noted that, but for the heretofore mentioned cause of action for intentional infliction of emotional disturbance, all matters raised in the complaint were within the jurisdiction of the probate court. Respondents thereafter filed a first amended complaint and Security Pacific's subsequent demurrer thereto was overruled.

On March 29, 1977, ⁷ respondents filed proposed objections to Security Pacific's accounting which incorporated by reference those objections as set forth in their civil action complaint. On July 26, 1977, respondents filed a notice of motion to consolidate the civil action and their objections to the accounting. That motion was argued and denied without prejudice.

A few years later, on May 21, 1980, Security Pacific filed a motion for judgment on the pleadings which was denied. At that same time, respondents reinitiated a motion to consolidate the probate and civil actions. That motion was granted.

In June of 1981, pursuant to the provisions of Code of Civil Procedure section 437c, Security Pacific moved for a summary judgment claiming that it did not breach its trustee duties under Civil Code sections 2228 and 2229 by lending Park Lane the respective sums of $115,000 and $1,915,200. Respondents filed their own motion for summary judgment seeking an adjudication that the two loans did violate the trustee's duties. Security Pacific's motion was denied as was respondents' motion concerning the $1,915,200 loan. The court, however, granted respondents' motion for summary judgment as to the $115,000 loan.

On November 30, 1981, the consolidated matter came on for trial. Security Pacific's motion to bifurcate the probate and civil proceedings and to proceed initially with the probate accounting and objections was denied. A jury was thereafter impaneled for the purpose of adjudicating the civil matter.

The court decided that it would hear and determine the probate trust accounting matter concurrently with the jury trial of the civil action. It thereafter denied Security Pacific's motion to dismiss the civil action complaint for failure to state a cause of action. Respondents were then permitted to amend their complaint to state a cause of action on behalf of John Pitzer, individually, for alleged tortious interference with his water rights.

On December 31, 1981, the trial court announced its partial tentative decision with respect to the probate issues. The court's findings, revealed outside of the presence of the jury, concluded that Security Pacific had breached its trust by the manner in which it handled the sale of the property, by its transferring the sundries without consideration, and by its dealing with the trust property as security for a loan made by it.

On February 8, 1982, the trial court rendered its judgment with respect to the objections to Security Pacific's accounting. In the probate trust accounting proceedings, the trial court found that certain, but not all, of Security Pacific's conduct complained of constituted a breach of trust. As a result, a total surcharge of $25,020.05 was assessed. Security Pacific thereafter filed this appeal.

I

Security Pacific initially contends that the summary adjudication ruling as to the $115,000 loan is unsupported by legal precedent and is contrary to established principles governing fiduciary conduct. It argues that there exists no authority supporting the proposition that a loan by a trustee of its own funds to a third party which was used by that third party to acquire trust property constituted an impermissible self-dealing. ⁸ Respondents, on the other...