David Tate, Esq. (San Francisco)

https://californiaestatetrust.wordpress.com

http://davidtate.us

Re: Recovery of Attorneys’ Fees after Statutory 998 Settlement Offer

Martinez v. Los Angeles County Metropolitan Transportation Authority (California Court of Appeal, Second Appellate District, B221234, May 23, 2011)

I don’t see statutory Cal. Code Civ. Proc. §998 settlement offers very often in trust, estate and probate court proceedings, but they are very common in civil litigation and should be considered more often in trust, estate and probate court proceedings.  A 998 offer is a binding limited offer to settle the case on the terms provided in the offer.  If the offer is not accepted within the time allowed, the offer can operate to shift the recovery or payment of costs, including attorneys’ fees.  I have copied and pasted below the primary relevant wording from section 998 regarding the shifting of costs.

Care needs to be exercised in wording the section 998 offer, considering all aspects of settlement if the offer is accepted, and cost shifting in terms of likely trial results if the offer is not accepted.  In Martinez v. Los Angeles County Metropolitan Transportation Authority (“MTA”) a monetary 998 offer was made by Defendant MTA which in relevant part stated that each side was to “bear their own costs.”  Plaintiff accepted the offer settling the case.  Claiming it was the prevailing party based on the settlement terms, Plaintiff then filed a motion for recovery of attorneys’ fees under the federal and California disabilities statutes.  The Appellate Court affirmed the trial court’s ruling that where a §998 offer is silent as to both costs and attorney fees, the prevailing party was entitled to both, but as in this case, where the offer specifically excludes costs but does not mention attorney fees, unless the offer expressly states otherwise, an offer of a monetary compromise under §998 that excludes “costs” also excludes attorney fees.

The primary relevant wording from Cal. Code Civ. Proc. §998 relating to the shifting of costs:

(c)(1) If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant’s costs from the time of the offer. In addition, in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the plaintiff to pay a reasonable sum to cover costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the defendant.

(d) If an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or award in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the defendant to pay a reasonable sum to cover postoffer costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the plaintiff, in addition to plaintiff’s costs.

Nonprofit Board Standard of Care, Risk Management and Audit Committee Responsibilities paper updated May 19, 2011,

http://davidtate.us/files/Nonprofit_Board_Standard_of_Care_Risk_Management_and_Audit_Committee_Responsibilities_David_Tate_Esq_05192011.pdf

You might be interested, the following is a link to a discussion by Dr. Leckart about the evaluation of dysthymic disorders in litigation. 

http://socal.medlegalfirst.com/newsletter/270-wetc-vol1-no28

The following is a link to the Fremont Bank Wealth Management Estate Attorneys E-Newsletter for May 2011.  A tremendous amount of useful information about new developments and cases.  Fremont Bank Estate Attorneys E-Newsletter May 2011

Diaz v. Bukey (California Court of Appeal, Second District, 5/10/2011, B225548)

Arbitration clause provision in a trust not enforceable against a non-settlor beneficiary who objects to the clause.

Daniel and Marie Diaz established the Diaz Family Trust. On November 1, 2004, appellant Marie L. Bukey was appointed successor trustee of the Trust. Bukey and respondent Paulette D. Diaz are sisters and beneficiaries of the Trust. The Trust became irrevocable upon the death of the surviving settlor, Marie Diaz, on November 6, 2006.

On May 8, 2009, Diaz’s attorney made a written request that Bukey provide an accounting of the financial activities of the Trust during her tenure as trustee. The accounting Bukey provided was not satisfactory to Diaz. On November 5, 2009, Diaz filed a petition for order removing trustee, appointing successor trustee, and compelling trustee to account and reimburse Trust pursuant to Probate Code section 17200. The petition alleged that Bukey breached her fiduciary duties by failing to provide a proper accounting, failing to distribute the assets of the Trust, and using Trust assets for her personal benefit.

In response, Bukey filed a demurrer and a petition for order compelling arbitration and stay of proceedings. The petition asserted that an arbitration provision contained in the Trust required that Diaz’s claims be settled by binding arbitration.

The arbitration provision states: “Any dispute arising in connection with this Trust, including disputes between Trustee and any beneficiary or among Co-Trustees, shall be settled by the negotiation, mediation and arbitration provisions of that certain LawForms Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes) entered into by the parties prior to, concurrently with or subsequent to the execution of this Trust. In the event that the parties have not entered into a LawForms Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes), then disputes in connection with this Trust shall be settled by arbitration in accordance with the rules of the American Arbitration Association. Any decision rendered either in accordance with the LawForms Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes) or the rules of the American Arbitration Association shall be binding upon the parties as if the decision had been rendered by a court having proper jurisdiction.”

Diaz opposed the demurrer and petition to arbitrate. The trial court issued its order overruling the demurrer and denying the petition to compel arbitration.  Bukey appealed.

On appeal, the Court affirmed that although Diaz was a beneficiary of the trust, Bukey could not enforce the trust’s arbitration clause against Diaz because Diaz objected to arbitration and Diaz was not a signatory to the arbitration clause.

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David Tate, Esq., San Francisco, http://davidtate.us.

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The following is a link to a discussion about the requirements of corporate voting by trustees, look for the April 27, 2011 article,

http://www.calcorporatelaw.com/

The following is a link to a short, worthwhile discussion by Norman Marks about the difference between risk appetite and risk tolerance:

http://normanmarks.wordpress.com/2011/04/14/just-what-is-risk-appetite-and-how-does-it-differ-from-risk-tolerance/

The following is Norman’s post–I thought it could be of interest to trustees and trust investment advisors:

Just what is risk appetite and how does it differ from risk tolerance?

New case-time to file malpractice action for alleged negligently drafted partnership agreement

David Tate, Esq., http://davidtate.us

Callahan v. Gibson, Dunn & Crutcher LLP (California Court of Appeals, Second District, B221338)

This case may cause attorneys who draft business and estate planning documents to pause for thought.

Law firm Gibson, Dunn & Crutcher drafted a partnership agreement for two brothers Oliver Inge and Robert Inge in 1988.  Each brother was a general partner with a 2% interest in the partnership.  The Oliver E. Inge Trust and the Robert E. Inge Trust were each 48% limited partners.  Oliver died in 2003.  Bank of the West became the executor of his estate.  In 2004 the Bank discovered that the remaining brother Robert was disabled and unable to run the business.

In pertinent part, the partnership agreement provided:

Paragraph 1.6, “The term of this Partnership shall commence on the Effective Date of this Agreement, and, unless extended by agreement of all of the Partners or terminated earlier pursuant to this Agreement, shall continue until December 31, 2038.”

Paragraph 9.5, “Anything in this Agreement to the contrary notwithstanding, the General Partners shall have no authority, without the unanimous vote of the Limited Partners, to: [¶]… [¶] (f) After the death, retirement or insanity of a General Partner, to continue the business of the Partnership with Partnership property, except as is provided in this Agreement.”

Paragraph 13.1, “The Partnership shall be dissolved upon the happening of any of the following events: [¶] (a) The death, disability, insanity, incompetency, dissolution, bankruptcy, retirement, resignation or expulsion of all of the General Partners[.]”

Paragraph 13.3, “Notwithstanding anything to the contrary provided in this Agreement, upon the death of any of the General Partners, the following provisions shall control: [¶] (a) If either Oliver V. Inge (‘Oliver’) or Robert E. Inge (‘Robert’) predeceases the other (such predeceasing Partner being referred to as the ‘deceased brother’), the deceased brother’s interest as a General Partner shall be converted to an interest as a Limited Partner…. [¶] (b) Upon the death of the survivor of Robert and Oliver, each of the Limited Partners hereby agrees that, if so requested by either of Robert’s or Oliver’s respective surviving wives, they shall vote to continue the Partnership on the same terms and conditions as are contained in this Agreement and elect such requesting wife or wives as the sole successor General Partner(s) of the Partnership. Either such surviving wife may make such a request by delivering to each of the Partners a written notice stating the same within thirty (30) days after the death of the survivor of Robert and Oliver.”

The partnership agreement provided that the partnership was to be dissolved in the event of the death, disability, insanity, incompetency . . . of all of the general partners.  Robert’s wife was prepared to run the business but the agreement did not allow for a family member to take over the business so long as either of the brothers was alive.

Bank of the West initiated a probate action, a petition for instructions that sought, among other things, dissolution of the partnership. The parties ultimately settled the action a year and a half later.  In 2007 Robert’s family members sued Gibson, Dunn for malpractice based on its faulty drafting of the partnership agreement.

The trial court granted summary judgment for the law firm finding that the case was time barred by the statute of limitations, finding that the statute of limitations expired in 1992, four years after the partnership agreement was drafted and the law firm’s fees were paid.

The court of appeal reversed, holding that Robert’s family members did not suffer actual injury until 2004 as the law firm’s allegedly negligent drafting of the partnership agreement caused only speculative or contingent harm (or a threat of future harm) until time Oliver died and Robert became disabled.  Had Robert survived Oliver’s death and then died himself while fully engaged in managing the business as its sole general partner, the limited partnership agreement would have provided for the election of Robert’s surviving spouse as the successor general partner. In that event, the partnership would have continued on the same terms and conditions as before, and law firm’s alleged negligence in failing to provide a succession plan in the event of the retirement or incapacity of the surviving general partner would have never ripened into actual injury. But when Robert became incapacitated the partnership agreement required dissolution whereas the provision authorizing the surviving partner’s spouse to succeed him as the general partner, and permitting the partnership to continue, could not come into play while Robert as the surviving partner was still alive.  Thus, Robert’s family members first suffered actual injury when Robert became incapacitated but did not die.

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David Tate, Esq., San Francisco

-Trial, arbitration, mediation and appellate practice.

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Variable fee arrangements: hourly, contingency, co-counsel, referral, split fee, contract, fixed fee and other arrangements.  See http://davidtate.us.

McMackin v. Ehrheart (California Court of Appeals Second District)

David Tate, Esq (San Francisco), http://davidtate.us

McMackin and McGinness lived together unmarried in McGinness’s home for 17 years until McGinness died in 2004.  According to several witnesses, McGinness repeatedly stated her intent that McMackin remain in her house after she died in consideration for his years of love, affection, care and companionship.  McMackin continued to reside in the home after McGinness’s death, paying for the expenses of maintaining the home, including the mortgage.  In February 2008 McGinness’s daughters started a probate of McGinness estate, and in 2009 they demanded that McMackin enter into a lease or leave the premises.  In November 2009 McGinness’s daughters served McMackin with a 60-day notice to vacate the premises. In January 2010 McMackin filed a complaint against McGinness’s daughters alleging causes of action for declaratory and injunctive relief, arguing that he had a life estate and was entitled to stay in the house.

The trial court granted McMackin’s request for injunctive relief as the court found that McMackin’s agreement was an oral non-marital Marvin agreement. The court determined that under the principle of equitable estoppel the bar of the statute of frauds, holding that the interest in the real property must be in writing, did not apply to the oral Marvin agreement. The court also found that the one-year limitation period of Code Civ. Proc. §366.3 relating to claims being made against an estate did not apply because McMackin was not making a claim as defined by Prob. Code §9000(a).

The Court of Appeal held that the trial court erred in finding that §366.3 did not apply.  Section 366.3 requires that an action to enforce a claim arising from an agreement with a decedent for distribution from an estate must be filed within one year after the decedent’s death.  McMackin’s claim for a life estate arose from the decedent’s promise of a distribution from her estate; accordingly, the claim was for a distribution within the meaning of §366.3.  McMackin did not assert his claim to the life estate in the home until he filed his complaint on January 2010, more than six years after McGinness’s death. His claim to the life estate in the home was thus barred by the one-year limitations period of §366.3.

However, the court also found that there was no indication that the legislature intended to override or negate the principle of equitable estoppel which provides relief to someone who has been induced by another party to forbear filing suit. The court found that the legislature sought only to establish a statute of limitation for the filing of a claim for distribution from an estate by either a written instrument or by an oral agreement or promise, but not to abrogate the possible application of equitable estoppel.

Ultimate the court found that both sides delayed. The estate was opened more than three years after the decedent’s death and McMackin did not file suit until almost two years later. The court found that the trial court would have to determine the facts and whether equitable estoppel precluded application of the one-year limitation period in the circumstances of this case. Interestingly, on appeal the daughters challenged whether the principle of equitable estoppels applied as a matter of law, but not whether it applied based on the facts of this case.

Trustee Investment Responsibilities Statutory Overview (California)

David Tate, Esq., http://davidtate.us

The following are the primary California Probate Code sections relating to trustee investment duties.  Every trustee should be familiar with these provisions.  As a general matter, a trustee is not mandated to retain an investment advisor, unless the trust expressly so requires; however, retaining an investment advisor may be beneficial or appropriate depending on the trust and the pertinent factual, asset and investment situation.

Cal. Probate Code §16046 

A trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule.

However, the settlor may expand or restrict the prudent investor rule by the express provisions in the trust instrument. A trustee is not liable to a beneficiary for the trustee’s good faith reliance on these express provisions.

Cal. Probate Code §16047 

(A)  A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.

(B)  A trustee’s investment and management decisions respecting individual assets and courses of action must be evaluated not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.

(C)  Among circumstances that are appropriate to consider in investing and managing trust assets are the following, to the extent relevant to the trust or its beneficiaries:

(1) General economic conditions.

(2) The possible effect of inflation or deflation.

(3) The expected tax consequences of investment decisions or strategies.

(4) The role that each investment or course of action plays within the overall trust portfolio.

(5) The expected total return from income and the appreciation of capital.

(6) Other resources of the beneficiaries known to the trustee as determined from information provided by the beneficiaries.

(7) Needs for liquidity, regularity of income, and preservation or appreciation of capital.

(8) An asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries. 

(D)  A trustee shall make a reasonable effort to ascertain facts relevant to the investment and management of trust assets.

(E)  A trustee may invest in any kind of property or type of investment or engage in any course of action or investment strategy consistent with the standards of this chapter.

Cal. Probate Code §16048 

In making and implementing investment decisions, the trustee has a duty to diversify the investments of the trust unless, under the circumstances, it is prudent not to do so.

Cal. Probate Code §16049 

Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of the trust, and with the requirements of this chapter.

Cal. Probate Code §16050  

In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, overall investment strategy, purposes, and other circumstances of the trust.

Cal. Probate Code §16051 

Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee’s decision or action and not by hindsight.

Cal. Probate Code §16052 

(A)  A trustee may delegate investment and management functions as prudent under the circumstances. The trustee shall exercise prudence in the following:

(1) Selecting an agent.

(2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust.

(3) Periodically reviewing the agent’s overall performance and compliance with the terms of the delegation. 

(B)  In performing a delegated function, an agent has a duty to exercise reasonable care to comply with the terms of the delegation.

(C)  Except as otherwise provided in Section 16401, a trustee who complies with the requirements of subdivision (a) is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.

(D)  By accepting the delegation of a trust function from the trustee of a trust that is subject to the law of this state, an agent submits to the jurisdiction of the courts of this state.

Cal. Probate Code §16401 

(A) Except as provided in subdivision (b), the trustee is not liable to the beneficiary for the acts or omissions of an agent.

(B) Under any of the circumstances described in this subdivision, the trustee is liable to the beneficiary for an act or omission of an agent employed by the trustee in the administration of the trust that would be a breach of the trust if committed by the trustee:

(1) Where the trustee directs the act of the agent.

(2) Where the trustee delegates to the agent the authority to perform an act that the trustee is under a duty not to delegate.

(3) Where the trustee does not use reasonable prudence in the selection of the agent or the retention of the agent selected by the trustee.

(4) Where the trustee does not periodically review the agent’s overall performance and compliance with the terms of the delegation.

(5) Where the trustee conceals the act of the agent.

(6) Where the trustee neglects to take reasonable steps to compel the agent to redress the wrong in a case where the trustee knows of the agent’s acts or omissions.

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