Laub v. Dudley, H031723 (Cal. App. 11/7/2008)
| Decision Date | 07 November 2008 |
| Docket Number | H031723 |
| Court | California Court of Appeals Court of Appeals |
| Parties | PAUL LAUB, as TRUSTEE etc., et al., Plaintiffs and Respondents, v. CONSTANCE ANNE DUDLEY, Defendant and Appellant. |
Appeal from the Monterey County, Super. Ct. No. MP18285.
This is an appeal from a probate order entered in April 2007, which concerns an irrevocable trust that was established following a marital dissolution. The appellant is Constance Anne Dudley, who is one of the settlors of the trust, a former co-trustee, and a trust beneficiary. The respondents on appeal are the three current co-trustees of the trust: Paul Laub, Dudley's ex-husband; Breck Tostevin, an accountant; and Andrew Swartz, an attorney.
Dudley challenges several aspects of the April 2007 order. First, she takes issue with the trial court's determination that she relinquished the power to control trust assets when she resigned as a co-trustee. She maintains that she enjoyed that power in her capacity as a trust beneficiary. Next, Dudley challenges the order's directive to turn over trust property, including rents. In her view, that directive contravenes her life estate in the property. Finally, Dudley asserts that the trial court erred in allowing respondents to borrow against the trust's real property.
In connection with her bid for reversal of the April 2007 order, Dudley also asks this court to nullify two subsequent orders: a May 2007 order expunging certain documents that she recorded, and a June 2007 order finding her in contempt of court for refusing to turn over trust property.
Respondents defend the April 2007 order. They assert that Dudley relinquished her special power to control assets when she resigned as a co-trustee in 2005, while she was in bankruptcy. Moreover, respondents argue, Dudley is estopped from claiming a life estate in the trust property, as distinct from her interest as an income beneficiary for life. Respondents also defend the challenged provisions of the April 2007 order that authorize them to borrow against the trust property.
Concerning the subsequent orders, respondents assert that Dudley is not entitled to challenge either of them here. As for the May 2007 expungement order, respondents argue that finality prevents review: it was separately appealable but no timely appeal was brought. Regarding the June 2007 contempt order, respondents contend that it is not appealable and may be challenged only by writ.
For reasons explained below, we consider only the April 2007 order here, which we affirm.
At issue in this appeal is an irrevocable trust, called the Lincoln Trust, which was created following dissolution of the marriage of Laub and Dudley. In November 1996, Laub and Dudley entered into a written marital settlement agreement. The marital settlement agreement was merged into the dissolution judgment. In February 1997, the Lincoln Trust was created. The trust was simultaneously amended to incorporate an intervening family court order, which restricts borrowing against the trust property.
Article One of the Lincoln Trust relates to its creation. The parties to the trust are (1) the settlors, Laub and Dudley, and (2) the three original trustees, Tostevin, Swartz, and Dudley (then known as Constance Anne Laub). Under the heading "Trust Purpose," the instrument recites that the settlors have two sons: Avram Laub, born in 1983, and Barak Laub, born in 1986. It further recites that the "trust is established pursuant to" the marital settlement agreement, by which "the settlors agreed, among other things, to place certain improved real property in Carmel, California into an irrevocable trust for the benefit of Avram and Barak, under which Constance Laub (`Constance') shall be the sole income beneficiary for her lifetime, with Paul Laub (`Paul') succeeding to such income interest for his lifetime, if he survives her."
The improved real property of the trust is a commercial building in Carmel, located on the corner of Ocean and Lincoln, which is known as the Lincoln Building or "Linoc." The building generates income from tenants. According to her appellate brief, Dudley maintains both a business and a residence there, though the pre-hearing evidentiary record is silent as to those facts.
In Article Three, the trust provides for payments and distributions. As relevant here, it directs the distribution of income as follows: "The trustees shall distribute to or apply for the benefit of Constance, so long as Constance lives, the entire net income of the trust ...."
Article Four of the Lincoln Trust is entitled "Trustee." That article begins with section 4.1, a provision for successor trustees, which sets forth one rule to apply during Dudley's lifetime and another to govern upon her death. Section 4.2 defines trustees. Next among the article's provisions is section 4.3, entitled "Number of Trustees Required to Act." As with section 4.1, that provision establishes one rule that governs during Dudley's lifetime and another that applies following her death.
One of the central disputes in this proceeding is the proper construction of the first part of section 4.3, which reads: "Prior to the death of Constance, all decisions and actions by the trustees shall be made and taken by the affirmative vote of Constance and at least one (1) other trustee." The parties' disagreement centers on whether the decision-making power granted to Dudley in section 4.3 arises from her status as beneficiary, as she claims, or from her status as a trustee, as respondents assert.
Article Five is entitled "Concluding Provisions." According to section 5.2: "The captions appearing in this instrument are for convenience of reference only, and shall be disregarded in determining the meaning and effect of the provisions of this instrument."
The trust document concludes with Article Six, captioned "Signatures and Execution." The document was signed by the settlors and the trustees on February 25, 1997.
On the date that the trust instrument was signed, the parties also executed a first amendment to the trust. The amendment incorporates verbatim a portion of a family court order, entered February 19, 1997, authorizing an encumbrance of $115,000 against the Lincoln Building but curtailing further secured borrowing.
In April 2003, Dudley filed a voluntary bankruptcy petition under Chapter 11.
In January 2005, with the bankruptcy proceedings still pending, Dudley resigned as trustee of the Lincoln Trust. Laub was appointed as successor trustee. Laub and his co-trustees, Tostevin and Swartz, are the respondents in this appeal.
In June 2005, the Chapter 11 bankruptcy trustee filed a motion for summary judgment, asserting a right to Dudley's income stream from the trust. Dudley filed a cross-motion for summary judgment, on the ground that the income was exempt or excluded from the bankruptcy estate. Being non-parties to the bankruptcy, respondents lacked "standing with respect to the summary judgment motions" but they nevertheless "asserted [their] rights" by requesting relief from the automatic bankruptcy stay.
In July 2005, at the hearing on the motions, Judge Weissbrodt directed the parties to engage in mediation. The mediation, held September 1, 2005, included Dudley, respondents, and the Chapter 11 bankruptcy trustee. A settlement was reached. In December 2005, the parties executed a written agreement and mutual release, reflecting their settlement. The Chapter 11 trustee filed a motion for compromise, seeking bankruptcy court approval for the settlement.
At a hearing held in January 2006, Judge Weissbrodt orally approved the parties' compromise, over the objection of a creditor, Charles Clapp. A written order reflecting the judge's approval was filed the following month. Clapp appealed.
In September 2006, Judge Ware rejected Clapp's appeal and affirmed Judge Weissbrodt's approval of the settlement agreement. At the same time, Judge Ware also lifted the stay order that had been in place since April 2006, thereby granting respondents' earlier request for that relief. At that point, respondents were able to proceed in state court. They did so promptly.
On September 12, 2006, respondents brought two petitions for instructions in superior court, under Probate Code section 17200.1 One (the "construction petition") sought interpretation of the trust, together with an order for the return of trust property. The other (the "expenditure petition") requested approval of the bankruptcy settlement, plus an order permitting respondents to borrow funds, secured by the trust property, to pay trust expenses.
On October 13, 2006, the date set for the hearing on the petitions, the court granted a continuance, as requested by counsel specially appearing for Dudley. The court also established a schedule for submitting papers. Among other things, the court requested briefing concerning the settlors' intent concerning the trust. The parties responded by filing more than 500 pages of additional documentation.
The continued hearing was held on January 18, 2007. At the hearing, the trial court announced its tentative decision to grant both of respondents' petitions. It then gave the parties the opportunity to further argue their respective positions orally and to address specific questions by the court. The court then took the matter under submission.
On April 13, 2007, the court filed a formal order granting both of respondents' petitions. In doing so, the court made several determinations that are relevant to this appeal.
Evidentiary Objections: At the outset, the trial court ruled on respondents' written objections to expert opinion evidence proffered by Dudley. The challenged evidence consisted of opinions by two attorneys concerning the proper interpretation of section 4.3 of the Lincoln Trust. The trial court sustained responde...
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