Van de Kamp v. Bank of America

Citation204 Cal.App.3d 819,251 Cal.Rptr. 530
Decision Date19 September 1988
Docket NumberNo. B015445,B015445
CourtCalifornia Court of Appeals
PartiesTed E. VAN de KAMP, et al., Plaintiffs and Appellants, v. BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, Defendant and Appellant.
Simon & Sheridan, Kevin O'Connell, Joan I. Samuelson, Los Angeles, McDonough, Holland & Allen, Richard E. Brandt, Sacramento, Milo V. Olson, Los Angeles, Herbert Manasse, Haberfeld & Perlberger and Stephen E. Haberfeld, Malibu, for plaintiffs and appellants

O'Melveny & Myers, Charles G. Bakaly, Jr., Ralph W. Dau, Karen R. Growdon, Tom A. Jerman, Richard Buckner, Mark A. Samuels, and Office of the Gen. Counsel, Los Angeles, for Bank of America Nat. Trust & Sav. Assn.

SPENCER, Presiding Justice.

INTRODUCTION

Plaintiffs are Ted E. Van de Kamp, Jo Ann Williams, Susan Holsonbake, Joan Birdt, the Damon Runyon-Walter Winchell Cancer Fund and the class of similarly situated persons within Los Angeles County. They appeal from a judgment in favor of defendant Bank of America National Trust & Savings Association. Defendant cross-appeals from an order that the entire class of plaintiffs should bear the costs of the trial.

STATEMENT OF FACTS

In essence, plaintiffs challenge three of defendant's banking practices as those practices relate to trust and agency accounts. These practices are self-pooling and self-depositing, use of fail float, and use of disbursing float.

In self-pooling and self-depositing, defendant pooled cash balances in the accounts and invested them on a short-term basis. Defendant retained the profits from these investments.

Fail float arises in the context of buying and selling securities. The trust accounts are debited or credited five business days after the date the security is traded, whether or not defendant receives the security purchased or funds for the security sold. If the security fails to be delivered by the fifth day, defendant has the use of the purchase money until the security is received. Defendant did not return to the trust accounts any profits made on the use of fail float.

When a check is issued to pay trust obligations, the trust account is debited when the check is issued. The funds to cover the check are pooled and available to defendant for use until the check clears. Defendant did not return to the accounts any profits made on the use of this disbursing float.

Defendant did not disclose to the beneficiaries of its trust accounts or the principals of its agency accounts that it engaged in the foregoing practices. Further relevant facts are contained in the discussion portion of this opinion where appropriate.

PROCEDURAL BACKGROUND

Plaintiffs filed this suit on April 23, 1979, seeking damages and an injunction, setting forth ten causes of action for breach of fiduciary duty, fraud, unjust enrichment, unfair competition, unfair and deceptive practices, and negligence. The cause of action for unfair and deceptive practices was dropped in the second amended complaint.

Following demurrers, the trial court ruled the class of plaintiffs must be limited to those whose trusts were properly administered by the Superior Court of Los Angeles County. The case was then certified as a class action.

The case originally was set for a jury trial. Defendant moved to vacate the setting for jury trial on the ground the action was equitable. The trial court agreed and vacated the setting for jury trial.

Defendant moved for summary adjudication of the issues regarding custodial agency accounts; the motion was granted. The case then went to trial on the issues relating to other types of accounts. Judgment Following entry of judgment, defendant filed a cost bill. Plaintiffs filed a motion to tax costs, also claiming costs should be allocable against the entire class. The trial court denied the motion but ruled costs should be borne by the entire class.

in favor of defendant was entered on May 28, 1985.

CONTENTIONS

On Appeal

I

Plaintiffs contend the trial court erred in finding the self-deposit statutes excused defendant from its duty of loyalty and its duty to abide by the statutory rules against self-dealing by a trustee.

II

Plaintiffs also contend the trial court erred in finding no fraud, unjust enrichment or unfair competition.

III

Plaintiffs assert summary judgment erroneously was granted as to custodial agency accounts.

IV

Plaintiffs further assert the trial court erred in concluding none of the challenged practices was unlawful with respect to "no-power" agency and trust accounts.

V

Plaintiffs aver the trial court committed reversible error per se by depriving them of their constitutional entitlement to a jury trial.

VI

Finally, plaintiffs aver the trial court erred in limiting the class to beneficiaries and principals of accounts subject to the jurisdiction of the Los Angeles County Superior Court.

On Cross-Appeal
VII

Defendant contends the trial court erred in ruling costs should be borne by the entire class of plaintiffs on a pro rata basis.

DISCUSSION

On Appeal

I

Plaintiffs contend the trial court erred in finding the self-deposit statutes excused defendant from its duty of loyalty and its duty to abide by the statutory rules against self-dealing by a trustee. We disagree.

A. Duty of Loyalty

A trustee's duty of loyalty is codified in Probate Code section 16002 (added by Stats. 1986, ch. 820, § 40; formerly Civ. Code, § 2228, repealed by Stats. 1986, ch. 820, § 7; the new statutes, effective July 1, 1987, apply to trusts created and all proceedings commenced before their effective dates (Prob. Code, § 15001)). Section 16002, subdivision (a), provides: "The trustee has a duty to administer the trust solely in the interest of the beneficiaries." In accordance with this duty, Probate Code section 16004, subdivision (a) (added by Stats. 1986, ch. 820, § 40; formerly Civ. Code, § 2229, repealed by Stats. 1986, ch. 820, § 7) provides in pertinent part: "The trustee has a duty not to use or deal with trust property for the trustee's own profit...."

A trustee is duty bound to administer its trust solely in the interests of the beneficiary. (Estate of Feraud (1979) 92 Cal.App.3d 717, 723, 154 Cal.Rptr. 889; Rest.2d Trusts, § 170, subd. (1), p. 364.) The trustee may not wield its power for its own "aggrandizement, preference, or advantage" to the exclusion or detriment of the beneficiary. (Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 109, 81 Cal.Rptr. 592, 460 P.2d 464; Remillard Brick Co. v. Remillard-Dandini (1952) 109 Cal.App.2d 405, 421, 241 P.2d 66.) Neither may the trustee place itself in a position where it would be to the trustee's benefit to violate its duty of loyalty to the beneficiary. (2 Scott, The Law of Trusts (3d ed. 1967) § 170, p. 1298.)

All benefits derived from the trust belong to the beneficiary. As stated in Savage v. Mayer (1949) 33 Cal.2d 548, 551, 203 P.2d 9, dealing with the similar fiduciary relationship of agent and principal: "An agent ... is not permitted to make any secret profit out of the subject of his agency. [Citations.] All benefits and advantages acquired by the agent as an outgrowth of the agency, exclusive of the agent's agreed compensation, are deemed to have been acquired for the benefit of the principal, and the principal is entitled to recover such benefits in an appropriate action. [Citation.]"

There can be no secret profits allowed to the trustee, inasmuch as it owes to the beneficiary the duty of fullest disclosure of all material facts. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 782, 157 Cal.Rptr. 392, 598 P.2d 45; Ford v. Cournale (1973) 36 Cal.App.3d 172, 180, 111 Cal.Rptr. 334; see Prob. Code, § 16060.) The trustee may not receive any personal advantage without full disclosure to the beneficiary. (See Remillard Brick Co. v. Remillard-Dandini, supra, 109 Cal.App.2d at p. 419, 241 P.2d 66.)

It does not matter that a trustee may have acted in good faith; self-dealing in violation of the duty of loyalty cannot be justified by the good faith of the trustee. (Sims v. Petaluma Gas Light Co. (1901) 131 Cal. 656, 659, 63 P. 1011; Estate of Pitzer (1984) 155 Cal.App.3d 979, 992, 202 Cal.Rptr. 855.) Neither can the duty of loyalty be overcome by evidence of custom and usage in the banking industry. Custom cannot overcome positive provisions of statutes. (Kohn v. Sacramento Electric, Gas & Ry. Co. (1914) 168 Cal. 1, 7, 141 P. 626; accord, Crocker Nat. Bk. v. Byrne & McDonnell (1918) 178 Cal. 329, 334, 173 P. 752; Hayward Tamkin & Co. v. Carpenteria Inv. Co. (1968) 265 Cal.App.2d 617, 624, 71 Cal.Rptr. 462.)

B. Right to Self-Deposit

The self-deposit statutes at issue here are statutes which allow a trustee to deposit trust funds with itself. Absent such statutes, it would be a clear violation of the duty of loyalty to make such self-deposits, placing the trustee in a position where it would benefit by violating the duty of loyalty, obtaining an advantage from the use of self-deposited funds to the detriment or exclusion of the beneficiary.

Probate Code section 16225, subdivisions (a) and (b) (added by Stats. 1986, ch. 820, § 40; formerly Civ. Code, § 2261, subds. (a) and (c), repealed by Stats. 1986, ch. 820, § 7), provides a trustee may deposit trust funds in an account in a bank operated by the trustee. Subdivision (e) of section 16225 (formerly Civ. Code, § 2261, subd. (d)) provides: "Nothing in this section prevents the trustee from holding an amount of trust property reasonably necessary for the orderly administration of the trust in the form of cash or in a checking account without interest." Probate Code section 920.5 (repealed by Stats. 1987, ch. 923, § 46, reenacted as § 9705 by Stats. 1987, ch. 923, § 93) provides: "When a trust company [including a commercial bank (Fin. Code, § 107) ] is an executor, administrator, special administrator, or administrator with the will annexed, and in the exercise of...

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