Genger v. Delsol

• Decision Date: 11 August 1997
• Docket Number: No. A074457,A074457
• Citation: 66 Cal.Rptr.2d 527,56 Cal.App.4th 1410
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 6407 Sachiko GENGER, Petitioner and Appellant, v. Robert DELSOL et al., Objectors and Respondents.

Page 527

66 Cal.Rptr.2d 527

56 Cal.App.4th 1410, 97 Cal. Daily Op. Serv. 6407

Sachiko GENGER, Petitioner and Appellant, v. Robert DELSOL et al., Objectors and Respondents.

No. A074457.

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

Aug. 11, 1997.

As Modified on Denial of Rehearing Sept. 10, 1997.

Review Denied Nov. 19, 1997.

Phillip R. Samrick and Patrick O'Donnell, Levy, Samrick, Verby & O'Donnell, for Petitioner and Appellant.

Richard D. Maltzman Richard J. Collier Titchell, Maltzman, Mark, Bass, Ohleyer & Mishel, San Francisco, and Thomas Bruen, Walnut Creek, for Defendant and Objectors.

DOSSEE, Associate Justice.

This appeal requires us to determine whether a no contest clause contained in the decedent's trust applies to the decedent's widow. We affirm the trial court's ruling that it does.

FACTS

The decedent, Richard Genger, died on February 5, 1994, survived by his only child, Elizabeth, and his second wife, Sachiko, whom he had married in 1982. Elizabeth, the decedent's daughter from his first marriage, was married to Robert Delsol.

Richard Genger and his brother Robert spent their working lives at Pacific Steel Casting Co., Inc., a foundry in Berkeley that had been started by their father. In 1973, Robert Delsol, Richard Genger's son-in-law, went to work for Pacific Steel. Thereafter, Delsol and the Genger brothers enjoyed a close working and personal relationship.

In 1979 the Genger brothers formed Tri-Pacific, Inc., as a holding company for the Gengers' shares in Pacific Steel and for their real estate and other business interests. Richard Genger was chairman of the board of Tri-Pacific from the time of the company's formation until his death. He was also senior vice-president of Pacific Steel until his semi-retirement in 1989.

In the corporate reorganization Richard and Robert Genger each received 36,000 shares of preferred stock of Tri-Pacific. The common stock was owned by Robert Delsol (with Elizabeth having a community property interest in the shares).

Robert Genger, the decedent's brother, suffered a debilitating stroke in 1979. He died in 1992. Soon after his death, his widow, Joan, initiated a lawsuit challenging the 1979 corporate reorganization. ¹ That litigation was pending when the decedent executed the estate planning documents at issue in this appeal.

In late November 1993, Richard Genger told his son-in-law, Robert Delsol, that his health was failing and that he wanted to formalize the estate plan he and Delsol had been discussing for over a year. Genger's first priority was to ensure that his wife, Sachiko, was well provided for. He had already made her beneficiary of his individual retirement account (IRA) funds (valued at $900,000) and of his pension benefits (providing income of $52,668 per year). He also wanted her to have the house in Alameda in which the couple lived. That house had been built in 1988 or 1989 with Tri-Pacific funds and was owned by Tri-Pacific. Genger wanted Sachiko to have the house free of any liens or encumbrances, namely for Genger's indebtedness to the corporation of approximately $650,000.

Genger also wanted his Tri-Pacific stock to be returned to the corporation. He wanted the corporation to go forward, but he wanted to keep his stock in the family, unavailable to "outside shareholders." He did not want his family business to be at risk of being liquidated because of litigation such as the lawsuit as brought by Joan Genger.

Genger was fully aware of the financial position of Tri-Pacific. However, Genger never expressed concern about the value of the stock. The stock had been appraised at $360,000 for purposes of Robert Genger's estate. Delsol was concerned that the stock might be worth less than the $1.7 million consideration (the house and the debt) such that there could be tax consequences if the Internal Revenue Service construed the exchange as a corporate dividend to the trust. Nevertheless, he believed it was a fair exchange.

Delsol passed on Genger's instructions to Calvin Wong, Tri-Pacific's vice president of finance. Wong knew of Genger's estate plan from frequent prior conversations with Delsol. He never discussed the estate plan with Genger directly. Wong retained a law firm to prepare the necessary estate documents, and he transmitted the basic structure of Genger's estate plan: Genger's Tri-Pacific stock to be exchanged for the house and forgiveness of the debt. The attorneys understood that Genger had no intent to give the stock to Sachiko.

Attorney Kristin Pace was the actual drafter of the documents, which were reviewed and edited by James Soper. Implementation of Genger's estate plan was left to the drafting attorneys, who concluded that the plan could best be accomplished through a revocable trust coupled with a pour-over will and a Corporate Stock Redemption Agreement that would bind Tri-Pacific as well as the trust.

In drafting the declaration of trust, attorney Pace decided on her own initiative to include a no contest clause. First she noted that Genger's prior will had contained a no contest clause. Further, she believed it was good practice to include one in cases involving a second marriage. She received no explicit instruction about the no contest clause from Calvin Wong, from Robert Delsol, or from Richard Genger. In fact, attorney Pace had no contact with Genger until the day the documents were signed. All her communication was with Calvin Wong.

Pace learned from Wong that the stock was worth between $360,000 and $1 million. She was concerned that the stock might be worth less than the house; hence, forgiveness of the debt was added to the consideration. Wong's directive to the attorneys stated that the stock had a liquidation value of $3.6 million. But Pace considered the liquidation value irrelevant as there was no thought being given to liquidating the corporation.

The attorneys submitted a rough draft of the estate documents to Calvin Wong, who in turn passed them to Robert Delsol. Delsol reviewed the drafts with Genger, showing him a list of the assets totaling over $3 million that would be conveyed to Sachiko: the house, the IRA, the pension plan, the forgiveness of the debt. Genger was pleased that he could provide so much for his wife. Genger was ready to sign the documents as drafted, but Delsol insisted that he wait for a meeting with the attorneys.

On December 8, 1993, the drafting attorneys met with Richard Genger for the first time. (Actually attorney James Soper had known Genger since their high school days, but he had not seen him for 12 years.) Sachiko Genger was also present at this meeting. Soper went over each of the documents with Genger, paragraph by paragraph, summarizing most portions and reading others verbatim. As Soper went over the documents, Genger indicated his approval of the provisions, usually saying "Fine" or "That's good." Pace, Soper, Wong and Delsol had no doubt that Genger understood and assented to the contents of all the documents, including the no contest clause.

Genger then executed the three estate documents. Robert Delsol executed the Corporate Stock Redemption Agreement on behalf of Tri-Pacific. Upon execution of the declaration of trust, Genger's shares of Tri-Pacific were transferred to the trust.

After executing the estate documents, Genger became worried that Sachiko did not seem to understand exactly what she would be receiving upon his death. Genger told his wife to retain her own attorney, preferably one who spoke Japanese, to explain the estate plan to her. Sachiko did so; she retained the services of Martin Nakahara, who met with Genger and concluded he was competent to make the testamentary dispositions. Nakahara also confirmed that Genger intended to make the dispositions and agreements set forth in the estate documents. Nakahara then explained the documents and the dispositions to Sachiko.

The Estate Documents

The decedent's estate plan consisted of three documents: a declaration of trust, a pour-over will, and the Corporate Stock Redemption Agreement. The core provision which integrates that plan calls for Tri-Pacific to redeem the decedent's stock in exchange for transferring the Alameda house to Sachiko and relieving the decedent's estate from the debt the decedent owed to Tri-Pacific.

The Corporate Stock Redemption Agreement provides that upon the death of Richard Genger, the corporation shall redeem and the estate of Richard Genger shall surrender for redemption all of Richard Genger's stock in Tri-Pacific. In consideration therefor, the corporation shall cancel Richard Genger's indebtedness to the corporation and shall distribute the Alameda house to Richard Genger's estate. The agreement further provides that Richard Genger and Tri-Pacific "agree that [Richard Genger's] shares have a value that is equal to the value of the real property located at 9 Tullamore, Alameda, California, plus the amount of the indebtedness owing by [Richard Genger] to the Corporation as of the date of this agreement."

The pour-over will leaves all of the decedent's estate to the trustee of the trust, to be distributed in accordance with the declaration of trust. The will directs the executor to facilitate the redemption of the Tri-Pacific stock pursuant to the Corporate Stock Redemption Agreement.

The declaration of trust leaves, upon the trustor's death, two partnership interests to Robert Delsol and the balance of the trust assets to Sachiko, "provided that, it is the settlor's desire that the successor trustee and the settlor's wife take all such action as is necessary or appropriate to facilitate that certain Corporate Stock Redemption Agreement so that all of the shares of Class C preferred stock in Tri-Pacific, Inc., a California corporation, which are to be distributed to the settlor's wife, may be redeemed by such corporation in consideration for the transfer to settlor's wife of the real property located at 9 Tullamore, Alameda,...