Saks v. Damon Raike & Co.
| Decision Date | 15 June 1992 |
| Docket Number | No. A052630,A052630 |
| Citation | 7 Cal.App.4th 419,8 Cal.Rptr.2d 869 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Lila J. SAKS et al., Plaintiffs and Appellants, v. DAMON RAIKE AND COMPANY et al., Defendants and Respondents. |
Bancroft, Avery & McAlister, Sandra J. Shapiro, Ellen J. Biberfeld, San Francisco, Cal., for plaintiffs and appellants.
Levy, Samrick & Bernard, Inc., Evelio M. Grillo, San Francisco, Cal., H. Paul Breslin, Eugene C. Blackard, Jr., Archer, McComas & Lageson, Walnut Creek, Cal., for defendants and respondents.
Lila J. Saks and Marian King, beneficiaries of a testamentary trust (the Trust), appeal from a judgment entered on an order sustaining, without leave to amend, two separate demurrers to their second amended complaint. They sought over $2 million in damages, alleging negligence, breach of contract, and breach of fiduciary duty by both the attorney and real estate broker employed by the trustee. They claim the assets of the Trust were depleted through imprudent transactions. We conclude that Saks and King cannot maintain this action because the trustee is not a party and they did not pursue it in the department of the superior court exercising probate jurisdiction (probate department). Therefore, we affirm.
On appeal after demurrers are sustained without leave to amend, we must treat the demurrers as admitting all material facts properly pleaded and all reasonable inferences which can be drawn therefrom. (Bloomberg v. Interinsurance Exchange (1984) 162 Cal.App.3d 571, 574-575, 207 Cal.Rptr. 853.) We therefore assume as true the following facts alleged in the second amended complaint.
Saks and King are two of the three income beneficiaries of the Trust, which was created pursuant to the wills of Joseph and Anna Blankstein, both deceased. Under the terms of the Trust, the three beneficiaries are entitled to regular distribution of all net income of the Trust, and their children are the remainder beneficiaries. Saks, King, and Marvin Blankstein, the third beneficiary, are also designated as trustees of the Trust, along with Crocker National Bank. 1 The Trust instrument requires that the corporate trustee concur in all decisions relating to the sale or acquisition of real property assets of the Trust.
In May 1985, Sumitomo Bank (Sumitomo) succeeded Crocker National Bank as corporate trustee. The trustees retained respondent Gary Shapiro as attorney for the Trust. At that time, the assets of the Trust included an undivided one-half interest in an income-producing parcel of commercial real property in Oakland, known as the King Building. Sometime thereafter, the trustees decided to sell the King Building and acquire replacement property. 2
After selling the King Building, Shapiro reviewed potential investment properties for the Trust. Among the parcels he considered was one located in Folsom, California (the Folsom Property). The owner of the Folsom Property was Lake Forrest Investment Co., Ltd. (Lake Forrest), the tenant was DataTech Magnetics Corporation (DataTech), and the guarantor of DataTech's lease agreement was Shape Inc. (Shape). Shapiro informed the trustees that the Folsom Property constituted a prudent and appropriate investment for the Trust, that it was reasonably priced based on comparable properties in the area, that both DataTech and Shape were in good financial condition, and that DataTech's rent was the market rent for comparable commercial properties.
In May 1988, Sumitomo retained respondent Damon Raike and Company (Raike), a licensed real estate broker, to assist in the purchase of the Folsom Property. In connection with the purchase, Raike agreed to represent the best interests of the Trust and to disclose all material facts. On August 8, 1988, the Trust purchased the Folsom Property from Lake Forrest for $2,680,000.
The second amended complaint alleged that Shapiro and Raike breached their respective agreements with the Trust, as well as their fiduciary duties and duties of care, by failing to disclose the following information, of which they had full knowledge: the proposed purchase price of the Folsom Property was in excess of the reasonable market value for comparable commercial properties in the area; the property was built and improved for single-tenant use; the purchase price was predicated on the existing lease with DataTech and on Shape's guaranty of the lease; DataTech and Shape were not in good financial condition and could not reasonably be expected to meet the obligations of the DataTech lease as they came due; the research and development park where the Folsom Property was located was overdeveloped at the time of sale and had a very high vacancy rate; DataTech's rent was above the market rate; and the Folsom Property had a risk of toxic waste contamination.
The second amended complaint further alleged that Shapiro had breached his duties to the Trust by failing "to adequately and prudently investigate the retention of the King Building as an asset of the Trust; failing to provide adequate advice and recommendations with regard to the retention of the King Building as an asset of the Trust; failing to prudently or reasonably investigate or analyze the Folsom Property as an acquisition by the Trust; [and] failing to determine that the Folsom Property was not a reasonable, prudent, or economic investment for [the] Trust or for the maintenance and preservation of the interests of either the income or the remainder beneficiaries of the Trust...." Saks and King alleged that had Shapiro and Raike fully disclosed the above information, the Trust would not have purchased the Folsom Property.
At approximately the same time that the Trust purchased the Folsom Property, Shapiro advised Saks and King that they should resign as trustees and permit Sumitomo to act as sole trustee, so that the Trust could be "administered in a more economical and efficient manner...." In reliance on Shapiro's recommendation, Saks and King resigned as co-trustees on September 8, 1988, and Sumitomo became the sole trustee. The second amended complaint alleged that this advice constituted a further breach of Shapiro's duties to Saks and King.
One year later, on September 8, 1989, DataTech, the sole tenant of the Folsom Property, declared bankruptcy; shortly thereafter, the guarantor, Shape, did the same. Since then, the Folsom Property has not produced income for the Trust. In addition, quantities of toxic waste were discovered on the property. It became apparent that the fair market value of the property was substantially less than the price that the Trust had paid for it. The assets of the Trust were substantially impaired, and the income stream to the beneficiaries, including Saks and King, was depleted. Saks and King alleged that their resignation as trustees, based upon Shapiro's advice, resulted in damage by preventing their exercise of control over Sumitomo's administration of the Trust. Saks and King prayed for damages of no less than $2 million.
In January 1990, Saks and King filed this action against Raike and Shapiro, as well as Sumitomo, in the Alameda County Superior Court. After transfer to San Francisco Superior Court, Sumitomo moved to strike Saks and King's claims on the grounds that, under Probate Code section 17000, the probate department of the superior court had exclusive subject matter jurisdiction of all claims regarding the internal affairs of testamentary trusts, and that Saks and King had failed to file a verified petition under Probate Code section 17201. Shapiro and Raike demurred. In July 1990, the superior court granted Sumitomo's motion to strike, granted leave to Saks and King to file a verified petition in the probate department, and sustained Shapiro's demurrer with leave to amend. 3 Saks and King filed a first amended complaint, to which Shapiro and Raike again filed demurrers, which the court sustained.
At about the same time, Saks and King filed a petition for relief against Sumitomo in the probate department, pursuant to Probate Code sections 16400, 16420, 17200, and 18005. The petition alleged breach of trust, breach of fiduciary duty, and negligence; it sought damages and the removal of Sumitomo as trustee.
Saks and King filed their second amended complaint in the instant action on September 17, 1990. Shapiro and Raike again demurred on the grounds that Saks and King lacked standing to sue because they were not the real parties in interest; that Sumitomo, as trustee, was an indispensable party to the action; and that Saks and King had failed to state claims as third party beneficiaries. In November 1990, the trial court sustained the demurrers without leave to amend. Thereafter it entered judgment for Shapiro and Raike. This appeal followed.
Meanwhile, in December 1990, Saks and King filed an amended petition in the probate department, incorporating the same claims against Shapiro and Raike that the trial court had dismissed on demurrer. Raike filed objections to the amended petition, contending that it should be abated pending Saks and King's appeal of the superior court judgment; that the trustee was the real party in interest with standing to sue agents of the Trust; that Saks and King were not real parties in interest and had no standing to sue Raike; and that Saks and King's remedy was to petition the probate department to compel the trustee to proceed against its agents or to hold the trustee liable and accountable for the acts and omissions of those agents.
In March 1991, the probate department issued an order pursuant to Probate Code section 17202 dismissing all claims against Shapiro and Raike from Saks and King's amended petition as "not reasonably necessary for the protection of the interests of the beneficiaries" of the Trust. In its order, the probate department stated: "If [Saks and King's] claims against the Trustee ... will not...
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