D054532 Leach v. Kleveland
Cause called on merits.
Boris Siegel, Esq. argued for
appellant.
Gregory S. Day, Esq. argued
for respondent. Mr. Siegel
replied. Cause submitted.
Cause called on merits.
Boris Siegel, Esq. argued for
appellant.
Gregory S. Day, Esq. argued
for respondent. Mr. Siegel
replied. Cause submitted.
Quigley v. Toler
Filed 3/2/10 Quigley v. Toler CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
COURT OF APPEAL, FOURTH APPELLATE DISTRICT, DIVISION ONE
STATE OF CALIFORNIA
LAWRENCE C. QUIGLEY et al.,
Plaintiffs and Respondents,
v.
CLARICE DOLLY TOLER,
Defendant and Appellant.
D054564
(Super. Ct. No. PN28574)
APPEAL from a judgment of the Superior Court of San Diego County,
Richard G. Cline, Judge. Reversed.
Robert and Helene Quigley established a family trust providing that upon the
surviving spouse's death, the trust assets would be distributed equally to their
three adult children, Lawrence Quigley, Phillip Quigley and Clarice Dolly Toler
(Dolly).[1] Several years after both parents died, the Brothers, who were the
successor cotrustees, obtained a judgment that Dolly violated the trust's no
contest clause and forfeited her one-third interest in the trust based on her
answer to the Brothers' unlawful detainer complaint.
Dolly appeals. We reverse. The language of the no contest clause does not
reflect an intent to disinherit a beneficiary based on the filing of this defensive
pleading under the particular circumstances of this case.
FACTUAL AND PROCEDURAL BACKGROUND
In 1992, Mother and Father created a trust (Family Trust), the principal asset of
which was a residence in Encinitas (the Encinitas home). Under the trust
provisions, the trust was irrevocable upon the death of the first spouse. Mother
and Father designated the Brothers as successor cotrustees, and their three
adult children as equal remainder beneficiaries. Specifically, the Family Trust
stated that "[o]n the death of the surviving Trustor, the Trust shall terminate and
the Trustee shall, as soon as reasonably possible, divide the net income and
principal remaining in the Trust into three (3) equal shares and distribute them
to the [three children]." Section 8.04 of the Trust gave the cotrustees "absolute
discretion" in determining the appropriate manner in which to equally divide the
assets.[2]
The Family Trust also contained a no contest clause, which provided that a
beneficiary "absolutely forfeit[s]" any benefits under the trust if the beneficiary
"asserts any claim (except a legally enforceable debt), statutory election, or
other right or interest against or in Trustor's estate . . . , other than pursuant to
the express terms
[of the Trust]. . . , or directly or indirectly contests, disputes, or calls into
question, before any court, the validity of any provisions of this instrument . . .
."[3]
Father died in 1999. In December 2000, the Brothers and Dolly agreed that
Dolly would move into the Encinitas home and serve as the primary caretaker for
Mother, who was in declining health. For the next five years, Dolly cared for
Mother until her death in April 2005.
Shortly after Mother's death, Dolly told the Brothers she would like to purchase
the home and to continue living there. Although initially receptive to this idea, the
Brothers soon stated a preference for selling the house to a third party and then
dividing the assets of the sale. They told Dolly to immediately move out of the
property and to contact them only through their attorney.
About six weeks after Mother's death, Dolly's counsel (Susan
Stricklin Wilson) and the Brothers' counsel (Boris
Siegel) had a lengthy discussion about Dolly's desire to purchase the home
and discussed terms of a potential sale. Several days later, a second law firm
retained by the Brothers (Kimball, Tirey & St. John) served Dolly with a 60-day
notice to terminate her tenancy in the home. In response, Wilson wrote to Siegel
stating that "given the positive tenor of our telephone discussion last week, I was
surprised" to learn about the notice.
In a responsive letter, Siegel said he had been unaware the notice was going to
be served, but stated that the Brothers intended to institute unlawful detainer
proceedings if the siblings did not reach a prompt sales agreement and the
Brothers did not intend to abate the eviction process during the negotiations.
Siegel also said he agreed with Dolly's attorney "that the probate court is the
court of proper jurisdiction" for an unlawful detainer action, and that he "would
be willing to enter into a stipulation with you to have any unlawful detainer
proceeding heard [in the probate court] . . . ." Siegel also said that time was of
the essence with respect to the sale, and the Brothers did not want to list the
house for sale until Dolly moved out of the home.
The next day, on June 17, 2005, Dolly's attorney sent Siegel an offer to
purchase the house. During the next several weeks, the parties (through their
counsel) engaged in written negotiations over the price and terms of the
purchase offer. In mid-July, Siegel suggested the parties engage in a mediation
before retired Superior Court Judge David Moon as "part of a global settlement
of all claims between the parties," including the disposition of the Encinitas
property. Dolly's counsel agreed that Judge Moon would be an "excellent
mediator" to "expedite resolution of this matter."
For reasons not apparent in the record, the communication between the parties
stopped at this point, and on August 15, 2005, the Brothers filed an unlawful
detainer complaint against Dolly in superior court. The complaint was a form
pleading filed by the Brothers' second law firm (Kimball, Tirey & St. John), and
provided no indication of the nature of the dispute between the Brothers and
Dolly, or the reason that Dolly was living in the home at the time. Under
applicable statutes, a party must file a response to an unlawful detainer
complaint within five days. (Code Civ. Proc., 1167, 1167.3.)
Four days later, on August 19, Dolly filed a safe harbor petition in the probate
court requesting a ruling on whether a proposed petition seeking to partition the
property and compel the Brothers to sell her the Encinitas home constituted a
"contest" under the Family Trust. (Prob. Code, 21320.) In the proposed petition,
Dolly sought an order "[a]uthorizing and directing her brothers . . . to sell her
[the Encinitas home] at fair market value. . . ." Specifically, Dolly alleged that the
Brothers "want to evict her from her home and sell it out from under her out of
spite, and in direct and flagrant breach of their fiduciary duty as co-trustees to
treat all trust beneficiaries fairly and impartially. [Dolly] seeks a purchase at fair
market value an asset of which she is, as a practical matter, an owner of an
undivided one-third interest, subject to the administration of the . . . Family
Trust."[4]
On that same date, Dolly filed an answer (Answer) to the Brothers' unlawful
detainer complaint in the civil court. In the Answer, Dolly asked the court for an
order denying the unlawful detainer action "and finding that probate court, in
San Diego Superior Court Case No. PN 28574, is the proper forum for this
dispute between the three heirs of the Quigley Family Trust as to the disposition
of trust real property." (Italics added.) Dolly then set forth the background of the
dispute, and used some of the same language in her proposed petition for
partition, including that she is seeking "a purchase at fair market value an asset
of which she is, as a practical matter, an owner of an undivided one-third
interest, subject to the administration of the Quigley Family Trust." Dolly also
alleged that the Brothers were acting "out of spite" in seeking to evict her from
the property and refusing to sell her the property, and therefore they violated
their fiduciary duties to her as a beneficiary. Dolly concluded by stating that she
intends to seek a stay of the unlawful detainer proceedings in the probate court.
On September 12, Dolly filed an application in the probate court to stay the
unlawful detainer proceedings pending the hearing on the safe harbor petition in
the probate court. Dolly asserted that "the outcome of the declaratory relief
petitions and the outcome of the underlying petitions will determine the right to
the possession of the . . . real property that is the subject of the unlawful
detainer proceedings." In a supporting declaration, Dolly's counsel stated:
"Since this court had jurisdiction over the Trust when [the Brothers] filed the
unlawful detainer proceedings, and because the unlawful detainer proceedings
involve the internal affairs of the Trust, this Court has exclusive jurisdiction over
Trust matters and should stay the unlawful detainer proceedings."
Four days later, Dolly's counsel wrote to Siegel again confirming Dolly's interest
in purchasing the Encinitas home, and stated that Dolly would agree to stipulate
to the entry of judgment in the unlawful detainer proceeding and to vacate the
property no later than January 1, 2006, allowing time for the parties to agree on
the terms of a sales agreement. The Brothers' counsel responded that the
Brothers were not interested in selling the property to Dolly because of her "self
serving and dishonest behavior in the past," but they would be willing to
entertain an offer if it complies with the terms set forth in counsel's previous
letter. The Brothers also opposed a stay of the unlawful detainer action.
On October 5, the Brothers filed an opposition to Dolly's safe harbor petition on
the proposed partition action, arguing that the proposed action was a contest
because it was an attempt to "circumvent both the authority and discretion of the
co-trustees to administer the Trust pursuant to its terms. . . ."
Two days later, the court issued a tentative ruling finding Dolly's proposed
partition action would constitute a "contest" under the Family Trust's no contest
clause. The court stated it agreed with the Brothers that Section 8.04 of the
Trust gave the trustees "total discretion" with respect to distribution of assets,
and Dolly was seeking to "bypass or eliminate that discretion by substituting it
with a court order." (Italics added.) The court also denied Dolly's application to
stay the unlawful detainer proceeding.
Less than two weeks later, on November 3, the parties entered into a Stipulation
for Judgment in the unlawful detainer proceeding, in which the parties agreed
judgment would be entered in the Brothers' favor. In the stipulated judgment, the
parties agreed: (1) Dolly would return possession of the premises to the
Brothers; (2) the parties would attend a mediation on November 7 with retired
Judge Moon in an "attempt to reach an agreement by which [Dolly] may
purchase" the Encinitas home from the Family Trust; (3) the parties' failure to
reach an agreement in the mediation would not be a basis for Dolly to set aside
the stipulated judgment; and (4) any issues of back rent would be decided by
the probate court.
Four days later, the parties attended the mediation with Judge Moon, after which
Dolly was to provide the Brothers with certain documentation of her financial
ability to purchase the home. Two weeks later, on November 21, the probate
court entered a final order finding that Dolly's proposed partition action would
constitute a contest under the Family Trust's no contest clause.
During the next month, the parties continued to discuss Dolly's possible
purchase of the home. Although another mediation was scheduled, the Brothers
declined to attend, and thereafter refused to sell the home to Dolly. On or about
December 31, 2005, eight months after her mother died, Dolly moved out of the
property.
More than two years later, in February 2008, the Brothers petitioned for
instructions seeking to enforce the no contest clause in the Family Trust based
solely on Dolly's Answer in the unlawful detainer action.[5] The Brothers
acknowledged that Dolly's safe harbor petition protected her actions in the
probate court, but argued that by filing the defensive pleading in the unlawful
detainer proceedings, Dolly sought to interfere with the Brothers' discretion
pertaining to the Encinitas home. Specifically, the Brothers argued that "[b]y
alleging in her answer that [she] was an owner of 'an undivided one-third
interest' in the Property," Dolly made a claim that was contrary to the Family
Trust's express terms, under which the "Trustees were . . . the only owners of
the Property."
The probate court held an evidentiary hearing on the Brothers' petition. At the
hearing, the Brothers did not call any witnesses, and instead relied primarily on
the terms of the Family Trust and Dolly's Answer in the unlawful detainer action
to argue that Dolly forfeited her one-third interest in the trust assets. In
opposition, Dolly presented the evidence summarized above, including the
correspondence between counsel during the negotiations over Dolly's desire to
purchase the property. Dolly also presented her counsel's testimony that the
purpose of filing the Answer was to inform the court that the probate court was
the proper forum for the dispute and to preserve the status quo while Dolly
obtained a determination on her safe harbor petition with respect to the partition
claim. Counsel explained that because of the five-day deadline to file an answer
in an unlawful detainer proceeding, she believed it necessary to file a
responsive pleading to preserve Dolly's rights while the probate court was
addressing the safe harbor petition and other issues pertaining to the ownership
of the home. Dolly alternatively argued the Brothers could not enforce the no
contest clause because they acted in bad faith and contrary to Mother's intent,
who had expressed her strong desire that Dolly remain living in the property.
After the hearing, the probate court ruled that Dolly's Answer constituted a
contest of the Family Trust. The court stated that the Answer "assert[ed]
ownership of, and rights to, the Subject Property" and "ask[ed] the [civil] court to
recognize [her] rights and to act accordingly." The court found that these claims
were "inconsistent with the plain language of the [Family] Trust, which indicates
that the Trustees are the owners of the. . . property," and were "directly contrary
to the desires and efforts of the Trustees to exercise their discretion with regard
to the disposition of trust property." The court thus found that Dolly's Answer
was a contest because it "sought to bypass or eliminate the trustees' discretion
by substituting it with a court order."
The probate court also rejected Dolly's alternative contention that the Brothers
acted in bad faith and with an improper motive in administering the trust and in
engaging in negotiations with her. The court found the evidence did not support
these claims, and the Brothers were not legally required to consider Dolly's
"claim of a special relationship" to the Encinitas home in distributing the trust
assets. The court also agreed with the Brothers' argument that Mother's
expressed intent about the disposition of the house was not relevant because
the trust became irrevocable at Father's death.
The court thus entered a judgment finding that Dolly forfeited her one-third
interest in the assets of the Family Trust. Dolly appeals.
DISCUSSION
I. Governing Legal Principles
A no contest clause " 'essentially acts as a disinheritance device, i.e., if a
beneficiary contests or seeks to impair or invalidate the trust instrument or its
provisions, the beneficiary will be disinherited and thus may not take the gift or
devise provided under the instrument.' [Citation.] 'The purpose of no contest
clauses "is to discourage will contests by imposing a penalty of forfeiture against
beneficiaries who challenge the will." ' " (Betts v. City National Bank (2007) 156
Cal.App.4th 222, 231 (Betts).) The primary factor determining whether a
particular action constitutes a "contest" is the intent of the drafter as expressed
in the instrument. (Id. at p. 232; Crook v. Contreras (2002) 95 Cal.App.4th 1194,
1206.)
Two conflicting policies underlie the interpretation of no contest clauses. On the
one hand, no contest clauses are favored because they discourage litigation
and give effect to the testator's intent. (Betts, supra, 156 Cal.App.4th at p. 232.)
On the other hand, no contest clauses are disfavored by the policy against
forfeitures. (Ibid.) In balancing these concerns, the Legislature gave greater
weight to the policy against forfeitures, mandating that courts apply a rule of
strict construction in interpreting a no contest clause. (Prob. Code, 21304.)[6]
As the California Supreme Court has stated, " '[b]ecause a no contest clause
results in a forfeiture . . . , a court is required to strictly construe it and may not
extend it beyond what was plainly the testator's intent." (Burch v. George (1994)
7 Cal.4th 246, 254.)
In applying the rule of strict construction, the determination whether a particular
action constitutes a contest within the meaning of the no contest clause depends
on the specific facts and circumstances of each case. (See Betts, supra, 156
Cal.App.4th at
p. 233; McKenzie v. Vanderpoel (2007) 151 Cal.App.4th 1450; Estate of Davies
(2005) 127 Cal.App.4th 1164, 1173.) " '[T]he answer cannot be sought in a
vacuum, but must be gleaned from a consideration of all the circumstances, and
the purposes that the [testator] sought to attain by the provisions of [his] will.'
[Citation.]." (Burch v. George, supra,7 Cal.4th at p. 255.) " 'Each case depends
upon its own peculiar facts and thus case precedents have little value when
interpreting a [no contest clause].' " (Betts, supra, at
p. 233.)
Where, as here, the trial court's determination did not depend on a resolution of
disputed facts, we review the court's ruling de novo.[7] (Balian v. Balian (2009)
179 Cal.App.4th 1505, 1511; Bradley v. Gilbert (2009) 172 Cal.App.4th 1058,
1068.)
II. Analysis
The Family Trust defines a "contest" to include a claim that "directly or indirectly
contests, disputes, or calls into question, before any court, the validity of any
provisions of this instrument or of said [Trust]. . . ." In concluding that Dolly's
Answer fell within this definition, the court relied on particular language in which
Dolly appeared to claim an ownership interest in the property, and a right to
compel the Brothers to sell her the property. However, the probate court did not
examine this language within the context of the entire pleading and the parallel
probate proceedings. As explained below, the court's ruling was erroneous
because it was based on too narrow a reading of the pleading and was
inconsistent with the rule that a court must strictly interpret a no contest clause
to encompass only those actions the testator would have plainly intended to
reach. (See Perrin v. Lee (2008) 164 Cal.App.4th 1239, 1248-1249.)
In her Answer, Dolly discussed her relationship to the Encinitas property and the
scope of the Brother's discretionary authority to distribute the trust assets, but
she did not request the court to rule in a particular way on those issues. Instead,
she specifically asked that the court not rule on the issues and that the court
allow those claims to be heard in the probate court, pending the outcome of her
safe harbor petition on the proposed partition action. In the very first paragraph
of the Answer, Dolly made clear that she was asking the court to deny the
unlawful detainer complaint "andfind[ ] that [the] probate court . . . is the proper
forum for this dispute . . . . " (Italics added.) The next several paragraphs
describe the nature of the dispute and Dolly's relationship to the property.
These facts were necessary because the Brothers had not provided any
background information in their form complaint. In the final substantive
paragraph of the Answer, Dolly stated that she had filed a petition for
declaratory relief in probate court pertaining to the property, and that she
"intends to seek an order of the probate court staying these unlawful detainer
proceedings until such time as the probate court has entered its ruling on the
pending petitions for declaratory relief and for partition of the subject real
property by sale." Dolly stated that she believed the probate court would issue a
stay "[a]s there are already actions pending in the probate court addressing the
issue of" her entitlement to occupy the Encinitas home.
Viewing the entire pleading, Dolly was not asking the unlawful detainer court to
rule that she had an ownership or possessory interest in the house or that the
Brothers' discretion was limited. Instead, Dolly asked that the unlawful detainer
court defer such findings to the probate court where such matters were pending.
Because Dolly's ability to remain in legal possession of the property was
dependent on the probate court's ruling on the safe harbor petition and that
ruling was pending in the probate court, Dolly filed the Answer seeking to
maintain the status quo until she obtained the ruling. Dolly was essentially
seeking a continuance to allow the issues to work their way through the probate
court. It is well settled a request for a continuance does not itself trigger a no
contest clause. (Prob. Code, 1043, subd. (c).)
Dolly thereafter took no steps in the unlawful detainer action to assert that she
had a right to purchase the property or had an ownership or possessory interest
in the property. Instead, Dolly's subsequent actions were fully consistent with the
limited purpose of her Answer. First, she requested the probate court to stay the
unlawful detainer action pending the probate court's determination of her safe
harbor petition. Second, shortly after the court issued a tentative ruling that her
partition petition would constitute a contest, Dolly entered into a stipulated
judgment agreeing to vacate the property, and she did in fact leave the property
by December 31. These actions support that Dolly was not seeking to challenge
the Brother's discretionary authority in the unlawful detainer proceedings, and
instead was seeking to continue the matter to allow the court to rule on the safe
harbor petition. Although Dolly did not expressly include within her safe harbor
petition the issue whether her Answer in the unlawful detainer proceedings
would constitute a contest, under the circumstances Dolly's petition for
declaratory relief can be fairly read to encompass such pleading. As soon as
Dolly learned of the court's ruling that her partition petition would constitute a
contest, she stipulated to judgment in the unlawful detainer action.[8]
Moreover, the fact that Dolly filed the Answer without specifically requesting a
"continuance" in the unlawful detainer court, does not undermine our conclusion
that the Answer did not constitute a contest. In determining whether a particular
action falls within the scope of a no contest clause, our focus must be on the
substance of the action, rather than the form. (Giammarrusco v. Simon (2009)
171 Cal.App.4th 1586, 1608.) As a practical matter, it was reasonable for Dolly's
counsel to seek a stay of the unlawful detainer proceeding in the probate court,
rather than the civil court, particularly because the Brothers' counsel had
previously agreed that this would be the proper forum to litigate any eviction
issues.
The Brothers argue that the Answer constituted a "contest" because Dolly
specifically alleged that she is a part owner of the Encinitas home, an allegation
that is inconsistent with the Family Trust terms appointing the Brothers as the
successor cotrustees (and thus the legal owners of the property). Specifically, in
the introductory paragraph of the Answer, Dolly stated that she was "in fact an
owner of an undivided one-third interest in the subject property, subject to the
administration of the trust, as are the two plaintiffs, who are the defendant's
brothers and the named trustees of the [Family] Trust." However, viewed in
context of the entire paragraph, Dolly's statement as to a one-third ownership
interest was not a "claim" of a current ownership right; instead it was an
explanation of the allegations being asserted in the probate court, and the fact
that these ownership issues were subject to trust administration and were before
the probate court. As we have noted, Dolly was not asking the court to recognize
any such ownership right, and instead was seeking a ruling that these issues be
addressed in the probate court. In determining whether an action constitutes a
contest "the effect of the . . . action" is controlling. (Giammarrusco v. Simon,
supra, 171 Cal.App.4th at p. 1608.)
The Brothers' reliance on Paragraph 9 of the Answer is similarly misplaced. In
Paragraph 9, Dolly alleged that the Brothers were acting in breach of their
fiduciary duties because the Brothers were acting out of spite in refusing to
permit her to "purchase at fair market value an asset of which she is, as a
practical matter, an owner of an undivided one-third interest, subject to the
administration of the . . . Family Trust." This assertion was made in the context of
her allegation that the Brothers had breached their fiduciary duties, a claim that
as a matter of public policy cannot constitute a contest. (Bradley v. Gilbert,
supra, 172 Cal.App.4th at pp. 1069-1071.)
We are also unpersuaded by the Brothers' reliance on the probate court's denial
of Dolly's safe harbor petition to support the court's subsequent ruling that the
Answer constituted a contest. The Brothers argue that Dolly's use of similar
language in her proposed partition petition and in the Answer filed in the
unlawful detainer proceedings means the result should be the sameboth actions
constitute a contest under the Family Trust's no contest clause. In asserting this
argument, the Brothers ignore that the pleadings were filed for different
purposes and each sought a different result. In the safe harbor proceedings,
Dolly attached her proposed petition which specifically sought an order
compelling the Brothers to sell the property to her based on claimed rights in the
property. The court ruled that these allegations sought to substitute a court
order for the Trustees' absolute discretion, and thus would constitute a contest.
But in the Answer, Dolly sought to preclude the unlawful detainer court from
making any rulings on any potential possessory rights until the probate court
had ruled on the safe harbor petition. Given the different circumstances under
which the pleadings were filed, the court's earlier ruling on the safe harbor
petition did not support a similar ruling on the issue of whether the Answer
constituted a contest.
In reaching our conclusions, we recognize that Dolly's counsel could have
drafted the Answer with more precision to make absolutely clear that Dolly was
not seeking a ruling on the merits of the Brothers' claims. However, we are
required to examine the challenged conduct in a practical manner in view of all
the circumstances and construe the trust narrowly so as not to cause a forfeiture
unless such forfeiture was clearly intended. (See Perrin v. Lee, supra, 164
Cal.App.4th at p. 1249; Betts, supra, 156 Cal.App.4th at pp. 232-233.) As this
court has stated, " '[o]nly where an act comes strictly within the express terms of
the forfeiture clause may a breach thereof be declared.' " (Graham v. Lenzi
(1995) 37 Cal.App.4th 248, 255.)
The key consideration in determining whether a beneficiary has violated a no
contest provision is the drafter's intent as expressed in the controlling
instrument. (Betts, supra, 156 Cal.App.4th at p. 232.) In this case, Dolly's acts
do not come within the express terms of the forfeiture clause. The Trust
instrument reflects the intent of Mother and Father that each of their three
children would share equally in the trust assets. They also appointed the two
eldest siblings to serve as trustees, and included a no contest clause. There is
nothing in the language of the clause that would fairly suggest that merely by
filing an answer in the unlawful detainer proceedings in which Dolly sought to
maintain the status quo until the probate court could rule on the issues and until
the parties could resolve their negotiations, the parents would have intended
their daughter to forever lose entitlement to any inheritance. The Brothers'
proposed interpretation is simply not a fair or reasonable way of reading the
trust, and the court's order was not consistent with the parents' intent as it was
expressed in the trust instrument.
DISPOSITION
Judgment reversed. The court shall vacate its judgment ruling that Clarice Dolly
Toller has forfeited her interest in the Quigley Family Trust, and enter a
judgment denying Brothers' petition for instructions to enforce the no contest
clause. Respondents to bear appellant's costs on appeal.
HALLER, J.
WE CONCUR:
BENKE, Acting P. J.
O'ROURKE, J.
Publication courtesy of California pro bono legal advice.
Analysis and review provided by La Mesa Property line attorney.
San Diego Case Information provided by www.fearnotlaw.com
[1] To avoid confusion, we shall refer to the Quigley children by their commonly
used first names, and to their parents as Mother and Father. We shall refer
collectively to Lawrence and Phillip as the Brothers.
[2] Section 8.04 states: "On any division of the assets of the Trust Estate into
shares or partial shares and on any final or partial distribution of the assets of
the Trust estate or any trust provided for in this Declaration, the Trustee, in its
absolutely discretion, may divide and distribute such assets in kind, may divide
or distribute undivided interests of such assets, or may sell all or any part of
such assets and make division or distribution in cash or partly in cash and partly
in kind. The decision of the Trustee, either prior to or on any division or
distribution of such assets, as to what constitutes a proper division of such
assets of the Trust Estate or other trust provided for in this Declaration shall be
binding on all persons in any manner interested in any trust provided for in this
Declaration."
[3] The no contest clause states: "The beneficial provisions of this instrument . .
. are intended to be in lieu of any other rights, claims, or interest of whatsoever
nature, whether statutory or otherwise, except bona fide pre-death debts, which
any beneficiary hereunder may have against or in Trustor's estate or the
properties in trust hereunder. Accordingly, if any beneficiary hereunder asserts
any claim (except a legally enforceable debt), statutory election, or other right or
interest against or in Trustor's estate, Trustor's Will, or any properties of this
Trust, other than pursuant to the express terms hereof or of said Will, or directly
or indirectly contests, disputes, or calls into question, before any court, the
validity of any provisions of this instrument or of said Will, then: [] a) Such
beneficiary shall thereby absolutely forfeit any and all beneficiary interests of
whatsoever kind and nature which such beneficiary might otherwise have under
this instrument and the interests of the other beneficiaries shall be
proportionately increased and/or advanced; [] b) All of the provisions of this
instrument, to the extent that they confer any benefits, powers, or right
whatsoever upon such claiming, electing, or contesting beneficiary, shall
thereupon become absolutely void and revoked; and [] c) Such claiming,
electing, or contesting beneficiary, if then acting as a Trustee hereunder, shall
automatically cease to be a Trustee and shall thereafter be ineligible either to
select, remove or become a Trustee hereunder. [] The foregoing shall not be
construed, however, to limit the appearance of any beneficiary as a witness in
any proceeding involving this instrument or said Will nor to limit any beneficiary's
appearance in any capacity in any proceeding solely for the construction of
either of said documents."
[4] In addition to this safe harbor petition on the proposed partition action, Dolly
previously brought two other safe harbor petitions seeking a determination
whether a creditor's claim against the Family Trust would constitute a contest.
Because the nature of these petitions is not relevant to the issues here, we will
not detail the facts underlying the petitions or the court's rulings on the petitions.
[5] Before seeking this relief, the Brothers filed a safe harbor petition to
determine whether filing a petition for instructions would itself constitute a
contest. The probate court concluded it would not, and this court affirmed that
ruling. (Toler v. Quigley
(Dec. 4, 2007, D049382) [nonpub. opn.].)
[6] Effective January 1, 2010, the Legislature repealed Probate Code section
21304, and enacted a major revision of the statutory scheme governing no
contest clauses. The new statute limits the enforceability of no contest clauses
to only three types of claims: (1) direct contests brought without probable cause;
(2) challenges to the transferor's ownership of property at the time of the
transfer if expressly included in the no contest clause; and (3) creditor's claims
and actions based on them, if expressly included in the no contest clause.
(Stats. 2008, ch. 174, 2, p. 483; see Johnson v. Greenelsh (2009) 47 Cal.4th
598, 601, fn. 2.) This new law does not apply to the order before us. (See Prob.
Code, 3, subd. (e).) All statutory references are to the statutes in effect at the
time of the no contest hearing in October 2008.
[7] Although the court made factual determinations on issues related to Dolly's
claims the Brothers acted in bad faith and with improper motives, we do not
reach these claims because we agree with Dolly's initial contention that her
Answer did not constitute a "contest" within the meaning of the Family Trust.
[8] Further as a practical matter, there was no time to obtain a ruling on a safe
harbor petition with respect to the Answer, because the Answer needed to be
filed within five days, or the Brothers would have a right to a default.
Filed 3/2/10 Quigley v. Toler CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
COURT OF APPEAL, FOURTH APPELLATE DISTRICT, DIVISION ONE
STATE OF CALIFORNIA
LAWRENCE C. QUIGLEY et al.,
Plaintiffs and Respondents,
v.
CLARICE DOLLY TOLER,
Defendant and Appellant.
D054564
(Super. Ct. No. PN28574)
APPEAL from a judgment of the Superior Court of San Diego County,
Richard G. Cline, Judge. Reversed.
Robert and Helene Quigley established a family trust providing that upon the
surviving spouse's death, the trust assets would be distributed equally to their
three adult children, Lawrence Quigley, Phillip Quigley and Clarice Dolly Toler
(Dolly).[1] Several years after both parents died, the Brothers, who were the
successor cotrustees, obtained a judgment that Dolly violated the trust's no
contest clause and forfeited her one-third interest in the trust based on her
answer to the Brothers' unlawful detainer complaint.
Dolly appeals. We reverse. The language of the no contest clause does not
reflect an intent to disinherit a beneficiary based on the filing of this defensive
pleading under the particular circumstances of this case.
FACTUAL AND PROCEDURAL BACKGROUND
In 1992, Mother and Father created a trust (Family Trust), the principal asset of
which was a residence in Encinitas (the Encinitas home). Under the trust
provisions, the trust was irrevocable upon the death of the first spouse. Mother
and Father designated the Brothers as successor cotrustees, and their three
adult children as equal remainder beneficiaries. Specifically, the Family Trust
stated that "[o]n the death of the surviving Trustor, the Trust shall terminate and
the Trustee shall, as soon as reasonably possible, divide the net income and
principal remaining in the Trust into three (3) equal shares and distribute them
to the [three children]." Section 8.04 of the Trust gave the cotrustees "absolute
discretion" in determining the appropriate manner in which to equally divide the
assets.[2]
The Family Trust also contained a no contest clause, which provided that a
beneficiary "absolutely forfeit[s]" any benefits under the trust if the beneficiary
"asserts any claim (except a legally enforceable debt), statutory election, or
other right or interest against or in Trustor's estate . . . , other than pursuant to
the express terms
[of the Trust]. . . , or directly or indirectly contests, disputes, or calls into
question, before any court, the validity of any provisions of this instrument . . .
."[3]
Father died in 1999. In December 2000, the Brothers and Dolly agreed that
Dolly would move into the Encinitas home and serve as the primary caretaker for
Mother, who was in declining health. For the next five years, Dolly cared for
Mother until her death in April 2005.
Shortly after Mother's death, Dolly told the Brothers she would like to purchase
the home and to continue living there. Although initially receptive to this idea, the
Brothers soon stated a preference for selling the house to a third party and then
dividing the assets of the sale. They told Dolly to immediately move out of the
property and to contact them only through their attorney.
About six weeks after Mother's death, Dolly's counsel (Susan
Stricklin Wilson) and the Brothers' counsel (Boris
Siegel) had a lengthy discussion about Dolly's desire to purchase the home
and discussed terms of a potential sale. Several days later, a second law firm
retained by the Brothers (Kimball, Tirey & St. John) served Dolly with a 60-day
notice to terminate her tenancy in the home. In response, Wilson wrote to Siegel
stating that "given the positive tenor of our telephone discussion last week, I was
surprised" to learn about the notice.
In a responsive letter, Siegel said he had been unaware the notice was going to
be served, but stated that the Brothers intended to institute unlawful detainer
proceedings if the siblings did not reach a prompt sales agreement and the
Brothers did not intend to abate the eviction process during the negotiations.
Siegel also said he agreed with Dolly's attorney "that the probate court is the
court of proper jurisdiction" for an unlawful detainer action, and that he "would
be willing to enter into a stipulation with you to have any unlawful detainer
proceeding heard [in the probate court] . . . ." Siegel also said that time was of
the essence with respect to the sale, and the Brothers did not want to list the
house for sale until Dolly moved out of the home.
The next day, on June 17, 2005, Dolly's attorney sent Siegel an offer to
purchase the house. During the next several weeks, the parties (through their
counsel) engaged in written negotiations over the price and terms of the
purchase offer. In mid-July, Siegel suggested the parties engage in a mediation
before retired Superior Court Judge David Moon as "part of a global settlement
of all claims between the parties," including the disposition of the Encinitas
property. Dolly's counsel agreed that Judge Moon would be an "excellent
mediator" to "expedite resolution of this matter."
For reasons not apparent in the record, the communication between the parties
stopped at this point, and on August 15, 2005, the Brothers filed an unlawful
detainer complaint against Dolly in superior court. The complaint was a form
pleading filed by the Brothers' second law firm (Kimball, Tirey & St. John), and
provided no indication of the nature of the dispute between the Brothers and
Dolly, or the reason that Dolly was living in the home at the time. Under
applicable statutes, a party must file a response to an unlawful detainer
complaint within five days. (Code Civ. Proc., 1167, 1167.3.)
Four days later, on August 19, Dolly filed a safe harbor petition in the probate
court requesting a ruling on whether a proposed petition seeking to partition the
property and compel the Brothers to sell her the Encinitas home constituted a
"contest" under the Family Trust. (Prob. Code, 21320.) In the proposed petition,
Dolly sought an order "[a]uthorizing and directing her brothers . . . to sell her
[the Encinitas home] at fair market value. . . ." Specifically, Dolly alleged that the
Brothers "want to evict her from her home and sell it out from under her out of
spite, and in direct and flagrant breach of their fiduciary duty as co-trustees to
treat all trust beneficiaries fairly and impartially. [Dolly] seeks a purchase at fair
market value an asset of which she is, as a practical matter, an owner of an
undivided one-third interest, subject to the administration of the . . . Family
Trust."[4]
On that same date, Dolly filed an answer (Answer) to the Brothers' unlawful
detainer complaint in the civil court. In the Answer, Dolly asked the court for an
order denying the unlawful detainer action "and finding that probate court, in
San Diego Superior Court Case No. PN 28574, is the proper forum for this
dispute between the three heirs of the Quigley Family Trust as to the disposition
of trust real property." (Italics added.) Dolly then set forth the background of the
dispute, and used some of the same language in her proposed petition for
partition, including that she is seeking "a purchase at fair market value an asset
of which she is, as a practical matter, an owner of an undivided one-third
interest, subject to the administration of the Quigley Family Trust." Dolly also
alleged that the Brothers were acting "out of spite" in seeking to evict her from
the property and refusing to sell her the property, and therefore they violated
their fiduciary duties to her as a beneficiary. Dolly concluded by stating that she
intends to seek a stay of the unlawful detainer proceedings in the probate court.
On September 12, Dolly filed an application in the probate court to stay the
unlawful detainer proceedings pending the hearing on the safe harbor petition in
the probate court. Dolly asserted that "the outcome of the declaratory relief
petitions and the outcome of the underlying petitions will determine the right to
the possession of the . . . real property that is the subject of the unlawful
detainer proceedings." In a supporting declaration, Dolly's counsel stated:
"Since this court had jurisdiction over the Trust when [the Brothers] filed the
unlawful detainer proceedings, and because the unlawful detainer proceedings
involve the internal affairs of the Trust, this Court has exclusive jurisdiction over
Trust matters and should stay the unlawful detainer proceedings."
Four days later, Dolly's counsel wrote to Siegel again confirming Dolly's interest
in purchasing the Encinitas home, and stated that Dolly would agree to stipulate
to the entry of judgment in the unlawful detainer proceeding and to vacate the
property no later than January 1, 2006, allowing time for the parties to agree on
the terms of a sales agreement. The Brothers' counsel responded that the
Brothers were not interested in selling the property to Dolly because of her "self
serving and dishonest behavior in the past," but they would be willing to
entertain an offer if it complies with the terms set forth in counsel's previous
letter. The Brothers also opposed a stay of the unlawful detainer action.
On October 5, the Brothers filed an opposition to Dolly's safe harbor petition on
the proposed partition action, arguing that the proposed action was a contest
because it was an attempt to "circumvent both the authority and discretion of the
co-trustees to administer the Trust pursuant to its terms. . . ."
Two days later, the court issued a tentative ruling finding Dolly's proposed
partition action would constitute a "contest" under the Family Trust's no contest
clause. The court stated it agreed with the Brothers that Section 8.04 of the
Trust gave the trustees "total discretion" with respect to distribution of assets,
and Dolly was seeking to "bypass or eliminate that discretion by substituting it
with a court order." (Italics added.) The court also denied Dolly's application to
stay the unlawful detainer proceeding.
Less than two weeks later, on November 3, the parties entered into a Stipulation
for Judgment in the unlawful detainer proceeding, in which the parties agreed
judgment would be entered in the Brothers' favor. In the stipulated judgment, the
parties agreed: (1) Dolly would return possession of the premises to the
Brothers; (2) the parties would attend a mediation on November 7 with retired
Judge Moon in an "attempt to reach an agreement by which [Dolly] may
purchase" the Encinitas home from the Family Trust; (3) the parties' failure to
reach an agreement in the mediation would not be a basis for Dolly to set aside
the stipulated judgment; and (4) any issues of back rent would be decided by
the probate court.
Four days later, the parties attended the mediation with Judge Moon, after which
Dolly was to provide the Brothers with certain documentation of her financial
ability to purchase the home. Two weeks later, on November 21, the probate
court entered a final order finding that Dolly's proposed partition action would
constitute a contest under the Family Trust's no contest clause.
During the next month, the parties continued to discuss Dolly's possible
purchase of the home. Although another mediation was scheduled, the Brothers
declined to attend, and thereafter refused to sell the home to Dolly. On or about
December 31, 2005, eight months after her mother died, Dolly moved out of the
property.
More than two years later, in February 2008, the Brothers petitioned for
instructions seeking to enforce the no contest clause in the Family Trust based
solely on Dolly's Answer in the unlawful detainer action.[5] The Brothers
acknowledged that Dolly's safe harbor petition protected her actions in the
probate court, but argued that by filing the defensive pleading in the unlawful
detainer proceedings, Dolly sought to interfere with the Brothers' discretion
pertaining to the Encinitas home. Specifically, the Brothers argued that "[b]y
alleging in her answer that [she] was an owner of 'an undivided one-third
interest' in the Property," Dolly made a claim that was contrary to the Family
Trust's express terms, under which the "Trustees were . . . the only owners of
the Property."
The probate court held an evidentiary hearing on the Brothers' petition. At the
hearing, the Brothers did not call any witnesses, and instead relied primarily on
the terms of the Family Trust and Dolly's Answer in the unlawful detainer action
to argue that Dolly forfeited her one-third interest in the trust assets. In
opposition, Dolly presented the evidence summarized above, including the
correspondence between counsel during the negotiations over Dolly's desire to
purchase the property. Dolly also presented her counsel's testimony that the
purpose of filing the Answer was to inform the court that the probate court was
the proper forum for the dispute and to preserve the status quo while Dolly
obtained a determination on her safe harbor petition with respect to the partition
claim. Counsel explained that because of the five-day deadline to file an answer
in an unlawful detainer proceeding, she believed it necessary to file a
responsive pleading to preserve Dolly's rights while the probate court was
addressing the safe harbor petition and other issues pertaining to the ownership
of the home. Dolly alternatively argued the Brothers could not enforce the no
contest clause because they acted in bad faith and contrary to Mother's intent,
who had expressed her strong desire that Dolly remain living in the property.
After the hearing, the probate court ruled that Dolly's Answer constituted a
contest of the Family Trust. The court stated that the Answer "assert[ed]
ownership of, and rights to, the Subject Property" and "ask[ed] the [civil] court to
recognize [her] rights and to act accordingly." The court found that these claims
were "inconsistent with the plain language of the [Family] Trust, which indicates
that the Trustees are the owners of the. . . property," and were "directly contrary
to the desires and efforts of the Trustees to exercise their discretion with regard
to the disposition of trust property." The court thus found that Dolly's Answer
was a contest because it "sought to bypass or eliminate the trustees' discretion
by substituting it with a court order."
The probate court also rejected Dolly's alternative contention that the Brothers
acted in bad faith and with an improper motive in administering the trust and in
engaging in negotiations with her. The court found the evidence did not support
these claims, and the Brothers were not legally required to consider Dolly's
"claim of a special relationship" to the Encinitas home in distributing the trust
assets. The court also agreed with the Brothers' argument that Mother's
expressed intent about the disposition of the house was not relevant because
the trust became irrevocable at Father's death.
The court thus entered a judgment finding that Dolly forfeited her one-third
interest in the assets of the Family Trust. Dolly appeals.
DISCUSSION
I. Governing Legal Principles
A no contest clause " 'essentially acts as a disinheritance device, i.e., if a
beneficiary contests or seeks to impair or invalidate the trust instrument or its
provisions, the beneficiary will be disinherited and thus may not take the gift or
devise provided under the instrument.' [Citation.] 'The purpose of no contest
clauses "is to discourage will contests by imposing a penalty of forfeiture against
beneficiaries who challenge the will." ' " (Betts v. City National Bank (2007) 156
Cal.App.4th 222, 231 (Betts).) The primary factor determining whether a
particular action constitutes a "contest" is the intent of the drafter as expressed
in the instrument. (Id. at p. 232; Crook v. Contreras (2002) 95 Cal.App.4th 1194,
1206.)
Two conflicting policies underlie the interpretation of no contest clauses. On the
one hand, no contest clauses are favored because they discourage litigation
and give effect to the testator's intent. (Betts, supra, 156 Cal.App.4th at p. 232.)
On the other hand, no contest clauses are disfavored by the policy against
forfeitures. (Ibid.) In balancing these concerns, the Legislature gave greater
weight to the policy against forfeitures, mandating that courts apply a rule of
strict construction in interpreting a no contest clause. (Prob. Code, 21304.)[6]
As the California Supreme Court has stated, " '[b]ecause a no contest clause
results in a forfeiture . . . , a court is required to strictly construe it and may not
extend it beyond what was plainly the testator's intent." (Burch v. George (1994)
7 Cal.4th 246, 254.)
In applying the rule of strict construction, the determination whether a particular
action constitutes a contest within the meaning of the no contest clause depends
on the specific facts and circumstances of each case. (See Betts, supra, 156
Cal.App.4th at
p. 233; McKenzie v. Vanderpoel (2007) 151 Cal.App.4th 1450; Estate of Davies
(2005) 127 Cal.App.4th 1164, 1173.) " '[T]he answer cannot be sought in a
vacuum, but must be gleaned from a consideration of all the circumstances, and
the purposes that the [testator] sought to attain by the provisions of [his] will.'
[Citation.]." (Burch v. George, supra,7 Cal.4th at p. 255.) " 'Each case depends
upon its own peculiar facts and thus case precedents have little value when
interpreting a [no contest clause].' " (Betts, supra, at
p. 233.)
Where, as here, the trial court's determination did not depend on a resolution of
disputed facts, we review the court's ruling de novo.[7] (Balian v. Balian (2009)
179 Cal.App.4th 1505, 1511; Bradley v. Gilbert (2009) 172 Cal.App.4th 1058,
1068.)
II. Analysis
The Family Trust defines a "contest" to include a claim that "directly or indirectly
contests, disputes, or calls into question, before any court, the validity of any
provisions of this instrument or of said [Trust]. . . ." In concluding that Dolly's
Answer fell within this definition, the court relied on particular language in which
Dolly appeared to claim an ownership interest in the property, and a right to
compel the Brothers to sell her the property. However, the probate court did not
examine this language within the context of the entire pleading and the parallel
probate proceedings. As explained below, the court's ruling was erroneous
because it was based on too narrow a reading of the pleading and was
inconsistent with the rule that a court must strictly interpret a no contest clause
to encompass only those actions the testator would have plainly intended to
reach. (See Perrin v. Lee (2008) 164 Cal.App.4th 1239, 1248-1249.)
In her Answer, Dolly discussed her relationship to the Encinitas property and the
scope of the Brother's discretionary authority to distribute the trust assets, but
she did not request the court to rule in a particular way on those issues. Instead,
she specifically asked that the court not rule on the issues and that the court
allow those claims to be heard in the probate court, pending the outcome of her
safe harbor petition on the proposed partition action. In the very first paragraph
of the Answer, Dolly made clear that she was asking the court to deny the
unlawful detainer complaint "andfind[ ] that [the] probate court . . . is the proper
forum for this dispute . . . . " (Italics added.) The next several paragraphs
describe the nature of the dispute and Dolly's relationship to the property.
These facts were necessary because the Brothers had not provided any
background information in their form complaint. In the final substantive
paragraph of the Answer, Dolly stated that she had filed a petition for
declaratory relief in probate court pertaining to the property, and that she
"intends to seek an order of the probate court staying these unlawful detainer
proceedings until such time as the probate court has entered its ruling on the
pending petitions for declaratory relief and for partition of the subject real
property by sale." Dolly stated that she believed the probate court would issue a
stay "[a]s there are already actions pending in the probate court addressing the
issue of" her entitlement to occupy the Encinitas home.
Viewing the entire pleading, Dolly was not asking the unlawful detainer court to
rule that she had an ownership or possessory interest in the house or that the
Brothers' discretion was limited. Instead, Dolly asked that the unlawful detainer
court defer such findings to the probate court where such matters were pending.
Because Dolly's ability to remain in legal possession of the property was
dependent on the probate court's ruling on the safe harbor petition and that
ruling was pending in the probate court, Dolly filed the Answer seeking to
maintain the status quo until she obtained the ruling. Dolly was essentially
seeking a continuance to allow the issues to work their way through the probate
court. It is well settled a request for a continuance does not itself trigger a no
contest clause. (Prob. Code, 1043, subd. (c).)
Dolly thereafter took no steps in the unlawful detainer action to assert that she
had a right to purchase the property or had an ownership or possessory interest
in the property. Instead, Dolly's subsequent actions were fully consistent with the
limited purpose of her Answer. First, she requested the probate court to stay the
unlawful detainer action pending the probate court's determination of her safe
harbor petition. Second, shortly after the court issued a tentative ruling that her
partition petition would constitute a contest, Dolly entered into a stipulated
judgment agreeing to vacate the property, and she did in fact leave the property
by December 31. These actions support that Dolly was not seeking to challenge
the Brother's discretionary authority in the unlawful detainer proceedings, and
instead was seeking to continue the matter to allow the court to rule on the safe
harbor petition. Although Dolly did not expressly include within her safe harbor
petition the issue whether her Answer in the unlawful detainer proceedings
would constitute a contest, under the circumstances Dolly's petition for
declaratory relief can be fairly read to encompass such pleading. As soon as
Dolly learned of the court's ruling that her partition petition would constitute a
contest, she stipulated to judgment in the unlawful detainer action.[8]
Moreover, the fact that Dolly filed the Answer without specifically requesting a
"continuance" in the unlawful detainer court, does not undermine our conclusion
that the Answer did not constitute a contest. In determining whether a particular
action falls within the scope of a no contest clause, our focus must be on the
substance of the action, rather than the form. (Giammarrusco v. Simon (2009)
171 Cal.App.4th 1586, 1608.) As a practical matter, it was reasonable for Dolly's
counsel to seek a stay of the unlawful detainer proceeding in the probate court,
rather than the civil court, particularly because the Brothers' counsel had
previously agreed that this would be the proper forum to litigate any eviction
issues.
The Brothers argue that the Answer constituted a "contest" because Dolly
specifically alleged that she is a part owner of the Encinitas home, an allegation
that is inconsistent with the Family Trust terms appointing the Brothers as the
successor cotrustees (and thus the legal owners of the property). Specifically, in
the introductory paragraph of the Answer, Dolly stated that she was "in fact an
owner of an undivided one-third interest in the subject property, subject to the
administration of the trust, as are the two plaintiffs, who are the defendant's
brothers and the named trustees of the [Family] Trust." However, viewed in
context of the entire paragraph, Dolly's statement as to a one-third ownership
interest was not a "claim" of a current ownership right; instead it was an
explanation of the allegations being asserted in the probate court, and the fact
that these ownership issues were subject to trust administration and were before
the probate court. As we have noted, Dolly was not asking the court to recognize
any such ownership right, and instead was seeking a ruling that these issues be
addressed in the probate court. In determining whether an action constitutes a
contest "the effect of the . . . action" is controlling. (Giammarrusco v. Simon,
supra, 171 Cal.App.4th at p. 1608.)
The Brothers' reliance on Paragraph 9 of the Answer is similarly misplaced. In
Paragraph 9, Dolly alleged that the Brothers were acting in breach of their
fiduciary duties because the Brothers were acting out of spite in refusing to
permit her to "purchase at fair market value an asset of which she is, as a
practical matter, an owner of an undivided one-third interest, subject to the
administration of the . . . Family Trust." This assertion was made in the context of
her allegation that the Brothers had breached their fiduciary duties, a claim that
as a matter of public policy cannot constitute a contest. (Bradley v. Gilbert,
supra, 172 Cal.App.4th at pp. 1069-1071.)
We are also unpersuaded by the Brothers' reliance on the probate court's denial
of Dolly's safe harbor petition to support the court's subsequent ruling that the
Answer constituted a contest. The Brothers argue that Dolly's use of similar
language in her proposed partition petition and in the Answer filed in the
unlawful detainer proceedings means the result should be the sameboth actions
constitute a contest under the Family Trust's no contest clause. In asserting this
argument, the Brothers ignore that the pleadings were filed for different
purposes and each sought a different result. In the safe harbor proceedings,
Dolly attached her proposed petition which specifically sought an order
compelling the Brothers to sell the property to her based on claimed rights in the
property. The court ruled that these allegations sought to substitute a court
order for the Trustees' absolute discretion, and thus would constitute a contest.
But in the Answer, Dolly sought to preclude the unlawful detainer court from
making any rulings on any potential possessory rights until the probate court
had ruled on the safe harbor petition. Given the different circumstances under
which the pleadings were filed, the court's earlier ruling on the safe harbor
petition did not support a similar ruling on the issue of whether the Answer
constituted a contest.
In reaching our conclusions, we recognize that Dolly's counsel could have
drafted the Answer with more precision to make absolutely clear that Dolly was
not seeking a ruling on the merits of the Brothers' claims. However, we are
required to examine the challenged conduct in a practical manner in view of all
the circumstances and construe the trust narrowly so as not to cause a forfeiture
unless such forfeiture was clearly intended. (See Perrin v. Lee, supra, 164
Cal.App.4th at p. 1249; Betts, supra, 156 Cal.App.4th at pp. 232-233.) As this
court has stated, " '[o]nly where an act comes strictly within the express terms of
the forfeiture clause may a breach thereof be declared.' " (Graham v. Lenzi
(1995) 37 Cal.App.4th 248, 255.)
The key consideration in determining whether a beneficiary has violated a no
contest provision is the drafter's intent as expressed in the controlling
instrument. (Betts, supra, 156 Cal.App.4th at p. 232.) In this case, Dolly's acts
do not come within the express terms of the forfeiture clause. The Trust
instrument reflects the intent of Mother and Father that each of their three
children would share equally in the trust assets. They also appointed the two
eldest siblings to serve as trustees, and included a no contest clause. There is
nothing in the language of the clause that would fairly suggest that merely by
filing an answer in the unlawful detainer proceedings in which Dolly sought to
maintain the status quo until the probate court could rule on the issues and until
the parties could resolve their negotiations, the parents would have intended
their daughter to forever lose entitlement to any inheritance. The Brothers'
proposed interpretation is simply not a fair or reasonable way of reading the
trust, and the court's order was not consistent with the parents' intent as it was
expressed in the trust instrument.
DISPOSITION
Judgment reversed. The court shall vacate its judgment ruling that Clarice Dolly
Toller has forfeited her interest in the Quigley Family Trust, and enter a
judgment denying Brothers' petition for instructions to enforce the no contest
clause. Respondents to bear appellant's costs on appeal.
HALLER, J.
WE CONCUR:
BENKE, Acting P. J.
O'ROURKE, J.
Publication courtesy of California pro bono legal advice.
Analysis and review provided by La Mesa Property line attorney.
San Diego Case Information provided by www.fearnotlaw.com
[1] To avoid confusion, we shall refer to the Quigley children by their commonly
used first names, and to their parents as Mother and Father. We shall refer
collectively to Lawrence and Phillip as the Brothers.
[2] Section 8.04 states: "On any division of the assets of the Trust Estate into
shares or partial shares and on any final or partial distribution of the assets of
the Trust estate or any trust provided for in this Declaration, the Trustee, in its
absolutely discretion, may divide and distribute such assets in kind, may divide
or distribute undivided interests of such assets, or may sell all or any part of
such assets and make division or distribution in cash or partly in cash and partly
in kind. The decision of the Trustee, either prior to or on any division or
distribution of such assets, as to what constitutes a proper division of such
assets of the Trust Estate or other trust provided for in this Declaration shall be
binding on all persons in any manner interested in any trust provided for in this
Declaration."
[3] The no contest clause states: "The beneficial provisions of this instrument . .
. are intended to be in lieu of any other rights, claims, or interest of whatsoever
nature, whether statutory or otherwise, except bona fide pre-death debts, which
any beneficiary hereunder may have against or in Trustor's estate or the
properties in trust hereunder. Accordingly, if any beneficiary hereunder asserts
any claim (except a legally enforceable debt), statutory election, or other right or
interest against or in Trustor's estate, Trustor's Will, or any properties of this
Trust, other than pursuant to the express terms hereof or of said Will, or directly
or indirectly contests, disputes, or calls into question, before any court, the
validity of any provisions of this instrument or of said Will, then: [] a) Such
beneficiary shall thereby absolutely forfeit any and all beneficiary interests of
whatsoever kind and nature which such beneficiary might otherwise have under
this instrument and the interests of the other beneficiaries shall be
proportionately increased and/or advanced; [] b) All of the provisions of this
instrument, to the extent that they confer any benefits, powers, or right
whatsoever upon such claiming, electing, or contesting beneficiary, shall
thereupon become absolutely void and revoked; and [] c) Such claiming,
electing, or contesting beneficiary, if then acting as a Trustee hereunder, shall
automatically cease to be a Trustee and shall thereafter be ineligible either to
select, remove or become a Trustee hereunder. [] The foregoing shall not be
construed, however, to limit the appearance of any beneficiary as a witness in
any proceeding involving this instrument or said Will nor to limit any beneficiary's
appearance in any capacity in any proceeding solely for the construction of
either of said documents."
[4] In addition to this safe harbor petition on the proposed partition action, Dolly
previously brought two other safe harbor petitions seeking a determination
whether a creditor's claim against the Family Trust would constitute a contest.
Because the nature of these petitions is not relevant to the issues here, we will
not detail the facts underlying the petitions or the court's rulings on the petitions.
[5] Before seeking this relief, the Brothers filed a safe harbor petition to
determine whether filing a petition for instructions would itself constitute a
contest. The probate court concluded it would not, and this court affirmed that
ruling. (Toler v. Quigley
(Dec. 4, 2007, D049382) [nonpub. opn.].)
[6] Effective January 1, 2010, the Legislature repealed Probate Code section
21304, and enacted a major revision of the statutory scheme governing no
contest clauses. The new statute limits the enforceability of no contest clauses
to only three types of claims: (1) direct contests brought without probable cause;
(2) challenges to the transferor's ownership of property at the time of the
transfer if expressly included in the no contest clause; and (3) creditor's claims
and actions based on them, if expressly included in the no contest clause.
(Stats. 2008, ch. 174, 2, p. 483; see Johnson v. Greenelsh (2009) 47 Cal.4th
598, 601, fn. 2.) This new law does not apply to the order before us. (See Prob.
Code, 3, subd. (e).) All statutory references are to the statutes in effect at the
time of the no contest hearing in October 2008.
[7] Although the court made factual determinations on issues related to Dolly's
claims the Brothers acted in bad faith and with improper motives, we do not
reach these claims because we agree with Dolly's initial contention that her
Answer did not constitute a "contest" within the meaning of the Family Trust.
[8] Further as a practical matter, there was no time to obtain a ruling on a safe
harbor petition with respect to the Answer, because the Answer needed to be
filed within five days, or the Brothers would have a right to a default.
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