Whittlesey v. Aiello

• Decision Date: 27 December 2002
• Docket Number: No. C038739.,C038739.
• Court: California Court of Appeals Court of Appeals
• Parties: Joyce L. WHITTLESEY, Plaintiff and Respondent, v. Dorian M. AIELLO, as Trustee, etc., Defendant; Timothy H. Stearns, Movant and Appellant.

128 Cal.Rptr.2d 742

104 Cal.App.4th 1221

Joyce L. WHITTLESEY, Plaintiff and Respondent, v. Dorian M. AIELLO, as Trustee, etc., Defendant Timothy H. Stearns, Movant and Appellant.

No. C038739.

Court of Appeal, Third District.

December 27, 2002.

Review Denied April 9, 2003.

Timothy H. Stearns, Mount Shasta, for Movant and Appellant.

Richard L. Kimbell and Lauren E. Leisz, Yreka, for Plaintiff and Respondent.

HULL, J.

Timothy H. Stearns (Stearns) appeals from that portion of a final judgment denying his request for attorney fees and costs incurred in representing the trustee in litigation over the validity of a trust amendment. Stearns contends the court erroneously based its denial on his lack of success in the litigation. We conclude that, because this was a dispute between competing trust beneficiaries and not a challenge to the trust itself, the trial court properly denied litigation expenses. However, we reverse the denial of compensation in connection with earlier litigation in which the trustee prevailed.

FACTS AND PROCEDURAL HISTORY

This is the fourth time this matter has come before us. The underlying litigation began as a challenge to a restated and amended trust executed by decedent James Bertram McAdams shortly before his death in June 1996. In 1990, decedent and his then wife, Anna McAdams, created a revocable trust (the trust), which named their niece, petitioner Joyce Whittlesey, as the trustee and primary beneficiary. After Anna's death, decedent married Margaret McAdams, nee Thomson (Margaret) and amended the trust to confirm a gift to Margaret of $100,000 as provided in a prenuptial agreement. However, in the weeks leading up to his death, decedent amended the trust to make Margaret and her son, Thomas Thomson (Thomas), the primary beneficiaries.

After decedent's death, Dale E. Carlson, the successor trustee under of the trust, initiated a challenge to the amendment. The matter was eventually dismissed for lack of standing, and we affirmed the dismissal. (Carlson v. McAdams (Apr. 15, 1997) C024561 [nonpub. opn.] (case No. 24561).)

In January 1997, Whittlesey initiated her own challenge to the amendment. On April 1, 1997, Margaret died and Dorian M. Aiello became the successor trustee of the amended trust. The matter proceeded to a bench trial, after which the court entered judgment finding the amendment void as a product of undue influence by Margaret and Thomas. On May 25, 2000, we affirmed the judgment. (Estate of McAdams (May 25, 2000) C028847 [nonpub. opn.] (case No. C028847).)

Aiello thereafter prepared a complete accounting of the trust assets, and the trial court entered an order which, among other things, surcharged Aiello for potential tax liability and mismanagement of trust property in amounts to be determined later. The court also denied Aiello's request for attorney fees and costs in defending the trust contests. Both Aiello and Thomas appealed. We dismissed this appeal as premature. (Estate of McAdams (Oct. 26, 2000) C030809 [nonpub. opn.] (case No. 30809).)

Thereafter, the trial court, Aiello and Whittlesey entered into a settlement that resolved all claims among the parties except "any claims that Timothy H. Stearns, trustee's attorney, may have against The McAdams Trust for attorney services per-formed on behalf of AIELLO and/or any predecessor trustee of The McAdams [Trust] at the trial court and appellate court levels and/or for litigation costs advanced by Timothy H. Stearns...." On May 7, 2001, the court entered an order pursuant to the settlement.

Thereafter, the court entered final judgment, incorporating the settlement agreement and that portion of an August 13, 1998, ruling that read: "The fees requested by Mr. Timothy Stearns for legal services rendered in connection with the administration of the trust estate and the accounting total $5,350. The Court finds these fees are unreasonable due to the condition [of] the account prompting the surcharge order of Mr. Aiello, the court allows Mr. Stearns the sum of $2,500.00 for legal services rendered in connection with the administration of the trust estate and the accounting only...."

DISCUSSION

Stearns contends the trustee under the amended trust had a fiduciary duty to the beneficiaries to defend against the challenges by Carlson and Whittlesey and, therefore, has a right to reimbursement for expenses incurred in that defense, including reasonable attorney fees. Stearns further contends this duty and right of reimbursement is independent of his success in the litigation.

Whittlesey contends most of Stearns's claims are barred by res judicata. Whittlesey points out that in its judgment finding the amendment invalid, the trial court denied attorney fees, and we affirmed that judgment on appeal. (Case No. C028847.) Therefore, so the argument goes, Stearns is barred from recovering any attorney fees incurred prior to the judgment, which would include all fees connected with the trust litigation. We are not persuaded.

"The doctrine of res judicata precludes parties or their privies from relitigating an issue that has been finally determined by a court of competent jurisdiction. [Citation.] `Any issue necessarily decided in such litigation is conclusively determined as to the parties or their privies if it is involved in a subsequent lawsuit on a different cause of action.'" (Levy v. Cohen (1977) 19 Cal.3d 165, 137 Cal.Rptr. 162, 561 P.2d 252.) Three elements must be met: "(1) Was the issue decided in the prior adjudication identical with the one presented in the action in question? (2) Was there a final judgment on the merits? (3) Was the party against whom the plea is asserted a party to or in privity with a party to the prior adjudication?" (Ibid.) A sister doctrine of res judicata is collateral estoppel, under which a prior judgment between the same parties operates as an estoppel as to those issues actually and necessarily decided in the prior action. (Rohrbasser v. Lederer (1986) 179 Cal. App.3d 290, 296-297, 224 Cal.Rptr. 791.)

Neither res judicata nor collateral estoppel applies here. Besides the fact Whittlesey is attempting to preclude relitigation of a matter involved in this same litigation rather than a prior proceeding, the issue involved was not decided by this court in case No. C028847. In that appeal, Aiello alleged error in the denial of attorney fees. However, because the same issue was raised in case No. C030809, we deferred its determination until resolution of that matter. Later, we dismissed the appeal in case No. C030809 as premature. Hence, the issue was never decided on appeal, and Stearns is not barred from challenging the denial of attorney fees in this proceeding.

"A trustee is entitled to the repayment out of trust property for the following: [¶] (a) Expenditures that were properly incurred in the administration of the trust. [¶] (b) To the extent that they benefited the trust, expenditures that were not properly incurred in the administration of the trust." (Prob.Code, § 15684.) "[A]mong the ordinary powers and duties of a trustee of a private trust are those of doing all acts necessary and expedient to collect, conserve and protect the property of the trust, to maintain and defend the integrity of the trust for the benefit of the beneficiaries and to employ such assistants as may be necessary for said purposes." (Evans v. Superior Court (1939) 14 Cal.2d 563, 574, 96 P.2d 107.) "[W]here litigation is necessary for the preservation of the trust, it is both the right and duty of the trustee to employ counsel in the prosecution or defense thereof, and the trustee is entitled to reimbursement for his expenditures out of the trust fund." (Metzenbaum. v. Metzenbaum (1953) 115 Cal. App.2d 395, 399, 252 P.2d 966.) "If the trustee acts in good faith, he has the power to employ such assistants and to compensate such assistants out of the assets of the trust even though he may not ultimately succeed in establishing the position taken by him as such trustee." (Evans v. Superior Court, supra, 14 Cal.2d at p. 574, 96 P.2d 107.)

The foregoing rules, of course, presuppose that the litigation was for the benefit of the trust estate. (Metzenbaum v. Metzenbaum, supra, 115 Cal.App.2d at p. 399, 252 P.2d 966.) For example, the defense of a lawsuit that has the potential for depleting trust assets would be for the benefit of the trust, justifying the employment of counsel. However, litigation seeking to remove or surcharge a trustee for mismanagement of trust assets would not warrant the trustee to hire counsel at the expense of the trust. Such litigation would be for the benefit of the trustee, not the trust.

We have found no reported cases in this state where legal expenses were sought for the unsuccessful defense of a trust amendment that changed the allocation of trust benefits. However, a closely analogous situation may be seen in contests over the validity of a will. In Estate of Hite (1909) 155 Cal. 448, 101 P. 448, the state high court explained that where opposition to a will was sustained and the will was denied probate, counsel for the executor who resisted the will contest was not entitled to litigation expenses, even where the resistance was in good faith. (Id. at p. 455, 101 P. 448.) While recognizing the executor's right to present the will for probate, the court explained: "[T]here are many cases in which the executor named in the will would not be warranted in engaging in litigation at the expense of the estate for the purpose of establishing the paper offered by him for probate, even though he believed that it should be admitted and that a trial of the contest would so establish. Mr. Woerner says: `Whether the executor is entitled to credit for the expenses incurred in the litigation to establish a will depends on circumstances in several directions. In so far as he simply performs a duty, the expenses fairly incurred by him in a contest with the heirs at law are payable out...