Schwan v. Permann

• Citation: 239 Cal.Rptr.3d 427,28 Cal.App.5th 678
• Decision Date: 25 October 2018
• Docket Number: A151073,A151070
• Court: California Court of Appeals
• Parties: Donna SCHWAN et al., Plaintiffs and Appellants, v. Verla D. PERMANN, as Trustee, etc., et al., Defendants; Louise K. Morris, Defendant and Appellant. Donna Schwan et al., Plaintiffs and Appellants, v. Verla D. Permann, as Trustee, etc., et al., Defendants; Walter C. Youngman, Defendant and Appellant.

28 Cal.App.5th 678

239 Cal.Rptr.3d 427

Donna SCHWAN et al., Plaintiffs and Appellants,

v.Verla D. PERMANN, as Trustee, etc., et al., Defendants;

Louise K. Morris, Defendant and Appellant.

Donna Schwan et al., Plaintiffs and Appellants,

v.Verla D. Permann, as Trustee, etc., et al., Defendants;

Walter C. Youngman, Defendant and Appellant.

A151070

A151073

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

Filed October 25, 2018

Hanson Bridgett LLP, Gary A. Watt, Michael B. McNaughton and Josephine K. Mason, San Francisco, for Defendants and Appellants Louise K. Morris and Walter C. Youngman, Jr.

James K. Perry, Danville, for Plaintiffs and Appellants Donna Schwan, Alexis Johnson and Eileen Ostrosky.

Margulies, Acting P.J.

This is the second appeal arising out of a dispute between various beneficiaries of The Walter C. Permann Separate Property Trust (Trust). Pursuant to the express terms of the Trust, Donna Schwan, Eileen Ostrosky, and Alexis Johnson (collectively, plaintiffs) are entitled to certain proceeds from the Trust if they are employed by Control Master Products, Inc. (Control Master Products or company) at the death of Walter C. Permann, the owner, and his spouse, Verla D. Permann.¹

Following a bench trial, the probate court excused Schwan’s and Johnson’s noncompliance with the employment condition because the assets of the company were sold in 2008, rendering satisfaction of the condition impossible. However, the court did not excuse Ostrosky’s noncompliance because she retired prior to the sale of the company. The court also held the bequests to Walter C. Youngman, Jr., Walter’s longtime friend and tax attorney, and his family were void. Three appeals were subsequently filed.² First, Louise K. Morris, another Trust beneficiary, appealed from the court’s ruling upholding the bequests to Schwan and Johnson. Second, Ostrosky appealed from the adverse determination regarding her bequest. And, third, Youngman appealed from the adverse determination regarding his bequest. Schwan and Johnson subsequently filed a cross-appeal regarding an alleged ambiguity in the statement of decision regarding the survivorship provision. We reverse and remand for the probate court to make further findings and to clarify its statement of decision as herein directed. We otherwise affirm the court’s order.

I. BACKGROUND

Walter owned and operated Control Master Products, a successful wire and cable distributing business. Walter’s first wife was actively involved in the operations of Control Master Products until her death. Verla, Walter’s second wife, was not involved in the operations of Control Master Products.

Prior to 1999, Walter had a will that bequeathed gifts to Ostrosky and Schwan, as well as Nancy Olinger, who had been Walter’s personal secretary. Those gifts were conditioned on Ostrosky, Schwan, and Olinger being "an employee and/or director of CONTROL MASTER PRODUCTS, INC., at [Walter’s] death." At the time the will was drafted, Walter had no intention of selling Control Master Products and wanted to reward certain employees who remained with the company until his death.

In 1999, Walter established the Trust, which was drafted by Youngman. The Trust replaced Walter’s prior will. The Trust provided for various distributions "Upon the death [of] Trustor’s spouse, or upon ... Trustor’s death if the Trustor’s spouse does not survive him." These distributions included ones to Schwan, Ostrosky, and Johnson if each "is employed by Control Master Products, Inc. at the death of Trustor and his spouse and if not, this gift shall lapse and augment the share of the remaining beneficiaries under this paragraph." Prior to the Trust’s formation, Olinger retired from Control Master Products and she was not a named beneficiary in the Trust. The Trust named Schwan as a special trustee with some authority in running Control Master Products.

The Trust also included a bequest to Youngman. Because of this bequest, R. Kent Brewer, a now-retired family law attorney who practiced in the same building as Youngman, reviewed the Trust with Walter before it was executed. Brewer concluded Youngman had not coerced or otherwise pressured Walter into the bequest, and executed a certificate of independent review (certificate of review).

While drafting the Trust, Walter stated he wanted a financial incentive to keep Schwan, Ostrosky, and Johnson employed at Control Master Products following his death because he was concerned Verla could not run the company. The bequests also were designed to thank individuals who "materially assisted him in his business life and to the level of success he now enjoys." The Trust, as with his prior will, was created with the expectation that Walter would own Control Master Products at the time of his death.

The Trust beneficiaries—including Schwan, Ostrosky, and Johnson—were individuals with whom Walter, Verla, or Walter’s first wife, had a significant relationship. Walter hired Schwan in 1978, and she eventually became general manager of Control Master Products. Walter served as Schwan’s mentor during her time with the company, and Schwan felt he treated her like a daughter. During her time at the company, Schwan joined Walter for cruises, dinners, picnics, the theater, and birthday and anniversary celebrations.

Ostrosky began working for Control Master Products in 1962 and retired from the company in 2007. She retired because she was no longer able to handle the physical aspects of her employment. Ostrosky often socialized with Walter, including going on cruises and trips and having dinner together. They continued to socialize after Walter sold the company, including trips and going to dinner, and frequently communicated.

Johnson was hired as a secretary for Control Master Products in 1997, but her duties increased over time. During her employment with the company, Johnson socialized with Walter, such as going out to lunch and dinner. Walter also brought her and her children gifts from his travels.

Walter attributed much of his success to his employees, and highly valued their loyalty. He repeatedly informed Schwan, Ostrosky, and Johnson they were beneficiaries in the Trust and would be "taken care of."

In 2008, Walter sold the assets of Control Master Products to Industrial Electric Wire & Cable, Inc. (IEWC). The sale was negotiated over a four-year period, but none of the plaintiffs were aware of Walter’s intentions to sell the company until shortly before the deal closed. As part of the purchase agreement, IEWC acquired "all rights in and to the name ‘Control Master Products, Inc.’ and any and all derivations thereof," and imposed on Walter a covenant not to compete. IEWC required the noncompete agreement to prevent Walter from inducing former Control Master Products employees to leave IEWC. The purchase agreement also obligated Control Master Products to terminate all of its employees. Schwan and Johnson were then hired by IEWC the day after the sale closed, and Schwan continues to work at IEWC.

Following the asset sale, Walter changed the name of his company to Custom Model Products and sold model trains. Ostrosky performed some limited work for Custom Model Products, for which she was paid in cash. Walter also continued to make statements suggesting Schwan, Ostrosky, and Johnson were beneficiaries in the Trust. For example, when Johnson expressed concern regarding her employment following the sale, Walter informed her that she was "taken care of" in the Trust. Similarly, shortly before his death, Walter informed Schwan that she would receive more than his close relative, Scott Heiser.

Plaintiffs jointly filed a petition to determine their status as beneficiaries and to challenge Youngman’s right to inherit (petition). The petition sought to have the employment condition "stricken and excused as a matter of law" on various grounds, including " ‘impossibility.’ " Plaintiffs further argued the bequest to Youngman was disqualified under Probate Code section 21380 because Youngman drafted the Trust.

The petition was contested by beneficiaries Louise Morris and Youngman. Verla and Scott Heiser, as cotrustees, took "no position with regard to the relief sought by the petitioners ...." The probate court issued an order concluding the dispute was not ripe because one of the conditions precedent—Verla’s death—had not yet occurred. On appeal, this court reversed the probate court’s ruling. (Schwan v. Heiser (Jun. 30, 2015, A143400) [nonpub. opn.].)³ In doing so, however, we expressly noted the substantive legal issues remained "for the trial court to decide."

On remand, the probate court conducted a multiday bench trial. Following trial, the court issued a tentative decision and proposed statement of decision. The court found Youngman and his family were "disqualified from any gift under the trust," Ostrosky’s gift "lapsed due to failure to comply with the terms of the trust before the sale of the company," and Schwan’s and Johnson’s gifts "remain valid and enforceable, but only after Verla[’s] death, and only if Ms. Schwan and Ms. Johnson survive [Verla]." All parties raised various objections to the tentative decision and proposed statement of decision. The court subsequently issued its final statement of decision, which reached the same conclusions. The parties timely appealed.⁴

II. DISCUSSION

A. Interpretation of the Trust

"The basic rule in the interpretation and construction of any will is that the intention of the testator must be carried out as nearly as possible. [Citations.] In ascertaining the testator’s intent, courts employ an objective test: the intention to be determined is that which is actually expressed in the language of the will. [Citations.] ‘ "The intention which an interpretation of a will seeks to ascertain is the testator’s intention as expressed in the words of the will, not some undeclared intention which may have been in his [or her] mind." [Citation.]’ [Citation.] [¶] Another fundamental rule of the...