Hudson v. Foster
| Citation | 68 Cal.App.5th 640,283 Cal.Rptr.3d 822 |
| Decision Date | 07 September 2021 |
| Docket Number | B300017 |
| Parties | Nigel HUDSON, Plaintiff and Appellant, v. Lucas FOSTER, Defendant and Respondent. |
| Court | California Court of Appeals |
Law Offices of Martin L. Horwitz and Martin L. Horwitz, Beverly Hills; Klapach & Klapach and Joseph S. Klapach, Beverly Hills, for Petitioner and Appellant.
Garrett & Tully, Ryan C. Squire, Pasadena, Adjoa M. Anim-Appriah, for Respondent.
A conservatee filed a motion asking the probate court to exercise its inherent equitable authority to set aside an order approving his former conservator's final account due to misrepresentations of material fact in the account. The probate court denied the motion after finding that the conservatee failed to show he was unaware of the defects in the account at the time it was approved, or failed to act with reasonable diligence to set aside the order in light of information that he should have known. On appeal, the conservatee contends the order denying the motion to vacate is appealable, because it is based on the probate court's equitable power to set aside an order obtained through extrinsic fraud. The conservatee further contends that the order approving the account was not preclusive under Probate Code section 2103,1 because it was based on misrepresentations of material fact, and as a result, the trial court abused its discretion by refusing to set aside the order.
We agree that the order denying the motion to vacate for extrinsic fraud is appealable in this case. Misrepresentations of material fact in a conservator's account are treated as extrinsic fraud. We hold that a conservatee has no duty to investigate representations of fact in the conservator's account, unless the conservatee becomes aware of facts from which a reasonably prudent person would suspect wrongdoing. Therefore, to set aside an order approving the conservator's account on the ground of extrinsic fraud, a conservatee is not required to establish that the misrepresentations of material fact in the account could not have been discovered prior to entry of the order approving the account. The probate court's ruling relied on legal authority that we find unpersuasive because it placed a higher burden to investigate on the conservatee. The matter must be reversed and remanded for the probate court to exercise its discretion based on an accurate understanding of the applicable law.
In January 2007, petitioner and appellant Nigel Hudson was severely injured in a car accident. An attorney was appointed guardian ad litem for Hudson. A personal injury lawsuit filed on Hudson's behalf resulted in a settlement of $13,863,000. In October 2011, the court in the personal injury case established a qualified settlement fund to receive the settlement proceeds.
The guardian ad litem filed a petition for a voluntary conservatorship of the estate on Hudson's behalf, resulting in the appointment of Hudson's friend, respondent Lucas Foster, as the general conservator of Hudson's estate on April 6, 2012.2 Foster is a film producer; he owns Warp Films, Warp Media Development, Inc., Warp LLC, and various single purpose entities. Hudson retained testamentary capacity and the ability to make medical decisions, so he did not require a conservator of the person. Hudson and Foster agreed that Foster would advance the funds necessary to pay for goods and services for Hudson's benefit, and Foster would be reimbursed after the settlement proceeds were received. Hudson was able to view the records of the conservatorship bank account that were online.
In January 2013, the court in the personal injury case issued an order approving the disposition of the settlement proceeds. $5,090,974.25 was paid directly to the guardian ad litem for attorney fees, and $799,563.96 was paid directly to certain medical providers. In addition, the civil court order directed Foster to pay a total of $1,945,412.43 to creditors listed in attachments to the order. The attachments listed hundreds of creditors, including Miracle Mile and LA Litigation Copy Service. The attachments showed Miracle Mile's total bill was $11,250 and the negotiated balance was $10,125. The attachments listed the total amount owing to LA Litigation as $39,913.25.
On December 28, 2013, Foster filed a first and final account in the probate case and a petition for approval of the account, allowance of attorney fees and costs, an order terminating conservatorship of the estate, and discharge of the conservator. Foster stated that he received property as conservator totaling $9,489,265.16, and disbursed $4,314,887.38. The disbursement schedule attached to the final account listed more than one thousand disbursements made to various entities during the accounting period from March 2, 2012, through October 31, 2013. The property on hand at the close of the final account was $5,168,725.63, including cash of $2,730,932.03.
In the petition, Foster carefully explained that 17 checks were paid to him directly or to his film production company which were reimbursements for funds that he advanced to Hudson prior to receipt of the settlement funds. Each amount that Foster described in the petition as a reimbursement corresponded to an entry on the disbursement schedule. The disbursement schedule listed the payee for these transactions as Foster, Warp Film, Inc., or Warp Development, Inc., with a notation that the payment was a reimbursement for a specific expense. In addition to the 17 entries that Foster expressly brought to the court's attention in the petition, there were a few additional entries in the disbursement schedule listing amounts paid directly to Foster or one of his companies and stating the payments were in reimbursement for a specific expenditure made on Hudson's behalf. Foster waived payment of any conservator's commissions.
Foster also explained in the petition that the civil court order had directed him to pay specific creditors of the lawsuit. In some circumstances, a creditor accepted a reduced payment. Foster obtained receipts for all of the direct payments made to creditors. Debts totaling approximately $300,000 remained outstanding, however, because Foster was either unable to contact the creditor or the creditor had been unwilling to execute a receipt. Foster added,
Among hundreds of individual disbursements listed in the account was a payment on July 9, 2013, to "Miracle Mile Surgical Center – per Court Order" in the amount of $10,000, paid with check number 2294. In addition, Foster made a payment on April 2, 2013, to "LA Litigation Copy Service – litigation expenses" in the amount of $31,089.25 with check number 2258. Foster made a payment on November 28, 2012, to "Dr. Sam Markzar, DDS – dental" in the amount of $9,839.10 with check number 2227.
Foster did not disclose in the petition that 28 checks shown as paid to third parties, including the checks to Miracle Mile, LA Litigation, and Markzar, were in fact paid to Foster or one of his companies. Miracle Mile and Markzar had not received any payment toward Hudson's debt. In other words, the checks listed as paid to Miracle Mile and Markzar were not paid to them, and the amounts received by Foster through these checks were not reimbursement for funds advanced to these creditors. LA Litigation received a payment from Foster toward Hudson's debt, but the amount was far less than was listed in the final account. The check numbers and payment amounts listed in the final account matched the information shown in the bank statements for the conservatorship, but the bank statements did not contain the names of the payees on the checks. Only the face of the checks revealed the payee information. The total amount of the 28 checks disbursed to Foster's own accounts, rather than to the payees listed in the final account, was $558,169.47.
Hudson and the guardian ad litem each signed a consent to the final account. On March 28, 2014, the probate court entered an order approving the final account.
A week after the final account was approved, on April 4, 2014, a representative from Miracle Mile emailed an associate of Foster asking about the status of payment for the services that Miracle Mile provided to Hudson on two dates. Miracle Mile sent a second email on April 7, 2014, explaining that the company agreed in June 2011, to accept an offer of $10,125. The associate forwarded the messages to Foster with a note saying the amount needed to be paid and asking Foster to send a release to Miracle Mile. Foster forwarded the messages to Hudson with a note that said, "Let's discuss."
In a declaration filed later, Hudson described meeting with Foster at a coffee shop to discuss the messages from Miracle Mile. Calm and reassuring, Foster confirmed that Miracle Mile's bill was part of the outstanding $300,000 in medical expenses that Foster had been unable to negotiate and remained unpaid. Foster said he would have Miracle Mile sign a release and then the bill would be paid. Hudson never saw a release from Miracle Mile, and Foster never provided a supplement to the final account listing the bills that remained unpaid under the court order.
On October 18, 2014, more than 18 months after the payment date stated in the final account and six months after approval of the final account, LA Litigation signed a document which was provided to Foster, acknowledging receipt of $23,500 in release of all claims against Hudson.
Foster told Hudson that he could settle Hudson's outstanding bill with UCLA for $60,000, so Hudson provided $60,000 to pay the bill. Hudson later learned that Foster negotiated a...
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