Orange Catholic Found. v. Arvizu

• Decision Date: 17 October 2018
• Docket Number: G055189
• Citation: 28 Cal.App.5th 283,239 Cal.Rptr.3d 60
• Court: California Court of Appeals Court of Appeals
• Parties: ORANGE CATHOLIC FOUNDATION et al., Plaintiffs and Appellants, v. Rosie Mary ARVIZU, as Trustee, etc., Defendant and Respondent.

28 Cal.App.5th 283

239 Cal.Rptr.3d 60

ORANGE CATHOLIC FOUNDATION et al., Plaintiffs and Appellants,

v.Rosie Mary ARVIZU, as Trustee, etc., Defendant and Respondent.

G055189

Court of Appeal, Fourth District, Division 3, California.

Filed October 17, 2018

Baker & Baker, William E. Baker, Jr., and Brook John Changala, Santa Ana, for Plaintiffs and Appellants.

Buffington Law Firm, Roger J. Buffington, Kaden J. Kennedy, and Brooke A. Buchanan, Fountain Valley, for Defendant and Respondent.

OPINION

MOORE, J.

Probate Code section 16440, subdivision (b) (16440(b) ) provides that if a "trustee has acted reasonably and in good faith under the circumstances as known to the trustee," a court has discretion to excuse him or her from liability for a breach of trust if it would be equitable to do so.¹ (Italics added.) Acting under this express authority, the trial court denied a petition brought by Orange Catholic Foundation² and Kevin W. Vann, the Roman Catholic Bishop of Orange (collectively, the Church) to remove Rosie Mary Arvizu from her position as trustee of the Josephine Kennedy Trust (Trust) and for damages. Finding no abuse of discretion, we affirm the judgment.

The Trust gave a life estate in Kennedy’s house (the Residence) to Paul Senez, her very dear family friend of over 60 years, provided that he pay for certain expenses related to the Residence. The Trust further provided that upon Senez’s death, the Residence was to be sold and the proceeds were to be given to the Church for the benefit of the needy elderly and abused children. The Church alleged that Arvizu (Kennedy’s niece and the successor trustee) breached her duties as trustee by: (1) improperly using Trust funds to pay expenses that should have been borne by Senez (who was elderly, destitute, suffering from dementia, and unable to cover the expenses himself); (2) failing to evict Senez when he could not pay those expenses; and (3) not promptly renting out or selling the Residence after Senez’s death (a delay which occurred in part due to Arvizu’s cancer treatment and other health issues, and which fortuitously benefited the Church because the Residence appreciated by $136,000 during the period of Arvizu’s inaction).

The trial court denied the Church’s petition, invoking its equitable power under section 16440(b) to excuse Arvizu from liability. The court observed that the Church’s argument that Senez should have been evicted, while perhaps technically correct, is "both unrealistic and not particularly charitable." The court went on: "How could Arvizu in good conscience boot out a man who essentially was a member of her family, had lived in the house for 40 years, was suffering from dementia and had minimal financial assets? ... Under the circumstances, it is hard to imagine that anyone would take that step." As detailed below, we conclude that substantial evidence supported the trial court’s finding that Arvizu acted reasonably and in good faith, and we find no abuse of discretion in the trial court’s exercise of its equitable powers under section 16440(b).

IFACTS AND PROCEDURAL HISTORY

A. The Parties and the Trust

Senez was a longtime friend of the Kennedy family. Although not related to the Kennedys by blood, he was considered a member of the family, spent holidays with them, and was affectionately known as "Uncle." He lived with the Kennedy family for 60 years, including 40 years spent at the Residence. When Kennedy’s husband was alive, Senez worked as a driver for his extermination business. After Kennedy’s husband passed away, Senez continued to live with Kennedy at the Residence and took care of her in her old age. Kennedy treated Senez like a son.

Kennedy established the Trust in 1997, naming herself as Trustee. Article II-B(2) and (3) of the Trust provided that upon her death, "[¶] ... [¶] (2) The Trustee shall retain, IN TRUST, all of the Trustor’s interest in the [Residence]..., for the use and benefit of PAUL A. SENEZ for the remainder of his life; provided, however, that during the period that PAUL A. SENEZ is residing in said residence, he shall be responsible for payment of all expenses incurred in the upkeep of said residence, including but not limited to mortgage payments, taxes, utilities, insurance, and any other expenses which may be incurred. Upon the death of PAUL A. SENEZ, or in the event he shall choose not to reside in said residence, the property shall be sold and distributed as set forth in paragraph (3) below. [¶] (3) The Trustee shall distribute the rest, residue and remainder of the Trust Estate to the ORANGE COUNTY CATHOLIC DIOCESE, to be used for the benefit of abused and needy children and the needy elderly, as said Diocese shall determine."

In 2003, Kennedy executed a Second Amended Declaration of Trust. That Amendment repeated most of the above language, with the exception of the sentence in Article II-B(2) stating what financial responsibilities Senez would have while living in the Residence. The revised language removed any obligation to pay mortgage payments and required Senez to pay only for "ordinary maintenance expenses" (as opposed to "any other expenses which may be incurred").

The Trust named Kennedy’s niece, Arvizu, as the successor trustee. Kennedy and Arvizu were very close, and Arvizu regarded Kennedy as a mother and confidant. Over the years, Arvizu and Kennedy had many discussions about Kennedy’s intentionsand desires concerning the Trust, and in light of those conversations, Arvizu believed that Kennedy expected her to look after Senez and pay for certain expenses if he was unable to pay for them himself. According to Arvizu, Kennedy repeatedly told her to take care of Senez, to help him keep the property up, and to pay for Senez’s cremation and funeral using Trust assets. Based on their conversations, Arvizu also believed that her aunt wanted her to ensure that Senez (a Korean War veteran) was buried in a veterans’ cemetery.

B. Senez’s Last Few Years in the Residence

Kennedy died in 2007 at the age of 100. Arvizu, who was in her 70s by then and neither legally nor financially sophisticated,³ became trustee. She retained the same attorney who had prepared the Trust to advise her in administering the Trust, and the attorney gave her instructions regarding her duties as trustee.

Senez was living in the Residence when Kennedy died (as he had been for decades), and unfortunately, he was not in a position to live by himself. He was elderly; he was also in failing health and displaying signs of dementia. Arvizu offered Senez a room in her house, but he became irate and replied that he would stay in the house where he had lived for 40 years until he died.

At some point, Arvizu’s estranged daughter, Mary Ann, who was very close with Senez, moved into the Residence to help take care of him. She did so without permission from or even telling Arvizu, although Arvizu eventually learned that Mary Ann was living at the Residence. Mary Ann bathed and fed Senez, helped him with his medications, ran errands for him, monitored his medication, cleaned the house, and paid his bills. His dementia progressed to the point that if he was not monitored, he would wander off by himself, so Mary Ann prevented him from doing so.

Senez could not afford the expenses associated with living in the Residence. Thus, even though the Trust expressly required Senez to pay for certain expenses associated with the Residence, and even though Arvizu understood that the Trust required Senez to pay for those expenses, Arvizu paid Senez’s bills using Trust assets. Arvizu testified that she "thought [she] was doing the right thing," that she "did what [her] aunt wanted [her] to do," and that in her mind, these payments were justified by the multiple statements Kennedy had made before her death that Arvizu should take care of Senez.

According to the Church, Arvizu spent $44,416 of Trust assets to pay expenses that should have been borne by Senez. The trial court found that these expenses fell into two main categories: (1) expenses that clearly benefited the Residence, and (2) expenses that were personal to Senez. The first category of expenses, which totaled $40,208, included items such as property taxes and homeowners association dues; the trial court found that Arvizu credibly testified that she paid those expenses to avoid foreclosure.⁴ The second category of expenses, which totaled $4,208, included items such as Senez’s car payments, auto insurance, utilities, and (after his death) his funeral expenses, all of which the trial court found should not have been paid by the Trust.

C. Arvizu’s Delay in Selling the Residence

Senez died in October 2012. On the day of his wake, Arvizu told Mary Ann that she needed to move out of the Residence. Mary Ann replied that she would do so but that she needed some time, and Arvizu believed her.

As it turned out, Mary Ann remained in the Residence for nearly two years after Senez’s death, despite her mother’s repeated requests that she move out. According to Mary Ann, it took her awhile to find a place to live. Arvizu did not act more decisively in evicting her daughter, in part because Arvizu was in and out of the hospital due to her own health problems (including breast cancer treatment and a knee surgery). Arvizu was also caring for her ill husband, who had a tumor.

During that two-year period, Arvizu did not collect rent from Mary Ann. According to the Church, the reasonable rental value of the Residence was about $2,900 per month (assuming the Residence was in average condition, which does not appear to have been the case). Thus, claimed the Church, the Trust lost about $70,000 in lost rent during that period.

Arvizu eventually involved her attorney, who wrote a letter to Mary Ann in July 2014 threatening her with legal action if she did not move out of the Residence. Mary Ann vacated the Residence the following month. By October, a realtor prepared a listing agreement for the Residence, which by then was in extremely poor...