Interpretation of Inter Vivos Trust

In California, as an estate planning device to have property pass to beneficiaries upon the death of the settlor, an inter vivos trust (i.e., "living trust") is preferable to a will, or nothing. A will has to be submitted to probate court, it becomes a public document, and the attorney's fees are a percentage of the gross value of the estate (e.g., 4% of the first $100,000, 3% of next $100,000, etc.).  

A trust does not have to be filed in probate court, but petitions can be filed to have the probate court decide issues that are created by the trust, or arise from disputes of trustees or beneficiaries.

In the recent case of Trolan v. Trolan, the Court of Appeal resolved certain issues of interpretation of the trust in a dispute between 6 siblings over the interpretation of the Trolan Family Trust ("Trust"). Upon the death of their mother in 2015, the siblings became co-trustees of the trust, with the power to act by majority vote. 

Five of the siblings, agreed to maintain the assets in trust, hoping they would increase in value for the next generation ("Five Siblings"). The sixth sibling asked for distribution of her share of the trust in cash, setting the stage for the dispute and eventual appeal. ("Sixth Sibling")

Upon a petition filed by the Five Siblings, the trial court interpreted the trust to require liquidation and distribution of the trust assets upon the death of the last surviving parent, based primarily on a provision requiring distribution to any beneficiary when he or she turned 30 years old. The court removed the siblings as trustees, and ordered the replacement trustee to liquidate and distribute the trust assets, as all of the parties were over 30. 

The Court of Appeal agreed with the trial court that the clear, unambiguous language of the trust required distribution of the trust assets and termination of the trust. However, it found the trial court erred when it ordered liquidation of the trust assets to accomplish that purpose, rather than deferring to the discretion of the co-trustees to distribute the trust. 

In 2003, Alice Trolan amended the trust to name all six of her children as successor co-trustees, with the power to act by majority vote. When Alice Trolan died in July 2015, the trust became irrevocable, and the six siblings became the co-trustees. 

The Fifth section of the trust entitled “Dispositive Provisions” provides that the estate shall be apportioned into equal shares for each of the Trolans’ “then living children.” The trust does not require the trustee to physically segregate or divide the trust shares, “except as segregation or division may be required by the termination of any of the trusts.” The trustees have the ability to “distribute the remaining principal and any accumulated income, or continue the trust for the benefit of the beneficiaries named in the trust, under the terms and conditions” set forth in the “Dispositive Provisions” section. 

Relevant to the instant dispute, the trust had a spendthrift provision: “Distributions of principal shall be made as follows: Whenever any beneficiary for whom a trust is then held shall have attained the age of twenty-five (25) years the Trustee shall distribute to such beneficiary one-half (1/2) of the principal of the trust held for him; upon having attained the age of thirty (30) years the Trustee shall distribute to such beneficiary the balance of his or her trust.”

The trust also set forth “Trustee’s Powers,” giving the trustee certain “powers and discretions” in addition to those “granted to or vested in the Trustee" by law or by the trust. The trustee can “continue to hold any property received in trust, including undivided interest in real property, and to operate any property or any business received in the trust as long as the Trustee, in the Trustee’s discretion may deem advisable.” 

The trustee also has the power, upon any division or distribution of the Trust Estate, to partition, allot and distribute the Trust Estate in undivided interests or in kind, or partly in money and partly in kind, at valuations determined by the Trustee, and to sell such property as the Trustee may deem necessary to make division or distribution.

The trust estate consisted primarily of Comerica Bank stock and several parcels of real property. Following Alice Trolan’s death, Sixth Sibling asked to receive her one-sixth share of the estate in cash. Five Siblings agreed they wanted to retain the real property in trust hoping the property would appreciate in value. 

Five Siblings filed a Petition Regarding the Internal Affairs of a Living Trust (the petition), asking the probate court to make findings regarding the value of the trust estate as a whole and Sixth Sibling's share of the estate, based on the lower appraisal the Five Siblings had obtained in response to the probate referee’s overvaluation of the real properties. 

After ruling the Age 30 Provision required liquidation and distribution of the trust, the probate court ordered the removal of all co-trustees and appointed a professional fiduciary to carry out the trust terms. It did so based on the court’s belief that the failure to distribute the trust assets was a breach of the fiduciary duties of loyalty and impartiality, and the fact that the parties could not reach a resolution even when they were aware of the Court’s tentative ruling, and based on the court's authority provided by Probate Code §15642(a). The court then ordered the new trustee to liquidate the trust assets, pay expenses and taxes, pay both parties’ attorney fees and costs from the trust, and distribute the balance equally between the parties. 

The Appellate Court held that in order to first ascertain, and then, if possible, give effect to the intent of the trustor, the court must consider the whole of the trust instrument, not just separate parts of it. If the language of the instrument clearly sets forth the intent, the court does not consider extrinsic evidence; it only looks to extrinsic evidence in the event of an ambiguity. 

Considering the trust as a whole, the Appellate Court concluded the trust is not ambiguous on its face; the provisions clearly require the distribution of assets and termination of the trust upon the death of the last surviving spouse if the beneficiaries have all reached age 30. In reviewing all provisions together, the Appellate Court found the Age 30 Provision to be specific and unambiguous, and consistent with the other provisions of the trust. 

Having found the trust clearly and unambiguously required distribution of the trust assets, the Appellate Court also concluded that the language of the trust clearly and unambiguously granted the co-trustees discretion regarding the method of distribution of the trust assets.  Therefore, the Five Siblings were not required to liquidate the assets to accomplish distribution of the trust under its terms; rather, liquidation is one of several possible options. 

The Appellate Court concluded the probate court exceeded its authority when it ordered immediate liquidation of the trust assets, and substituted its judgment regarding the method of distribution of the trust assets for that of the co-trustees. 

The Appellate Court noted that the trustees could accomplish the purpose of the trust—the distribution of equivalent shares of the trust assets to each of the beneficiaries—without liquidating the trust assets.  The trust did not require liquidation of the assets, but distribution of them. 

LESSONS:

1.         If the beneficiaries or trustees of a trust have disputes, they can file a petition to have the probate court resolve the disputes.

2.         In interpreting the terms of the trust, the court must consider the whole of the trust instrument, not just separate parts of it. 

3.         If the language of the instrument clearly sets forth the intent, the court does not consider extrinsic evidence; it only looks to extrinsic evidence in the event of an ambiguity.

4.         Although the Five Siblings lost on the issue of the timing of the distribution, they won on the issue of their authority to determine the method of distribution - illustrating how a party can lose a battle, but win the war.

Characterization of Marital Assets in California May Require Tracing

California is a community property state for division of marital assets during a divorce, and one spouse may have significant assets before marriage that are considered separate property.  Separate property remains the property of the owner spouse for purposes of a divorce judgment. Community property is deemed property owned by both spouses and is often divided 50-50 in the divorce judgment. Therefore, whether property is separate, community, or quasi-community is an important issue in a marriage dissolution action.

In the recent case of Marriage of Ciprari, the trial court characterized a majority of the cash and securities held in commingled accounts as Husband's separate property. On appeal, the wife attacked a detailed tracing analysis performed by Husband’s expert witness, upon which the trial court relied. The court of appeal concluded the tracing was valid and constitutes substantial evidence in support of the judgment. 

The parties stipulated that Husband entered the marriage with over $2 million of separate property. Of that amount, $874,00 was held in two Wells Fargo Bank accounts. The trial court found the money held in the bank accounts was “essentially ‘gifted’ to the community,” a finding neither party contested. In the absence of an agreement to the contrary, the use of separate property to meet community living expenses is a gift to the community.

On the date of the parties’ marriage, Husband held the balance of his separate property of over $1.1 million in a brokerage account at PaineWebber. In 1996, Husband received a $244,000 bonus from his employer. Because the parties had married during 1995, the bonus was partly separate property and partly community property. Nevertheless, Husband deposited the entire amount in his PaineWebber brokerage account. This was the first time that community and separate funds became commingled in the account. 

How much, if any, of that sum was Husband's separate property, and how much was community property, is known as a “characterization” issue. “Characterization" refers to the process of classifying property as separate, community, or quasi-community.

California Family Code, section 760,states the basic presumption that, except as otherwise provided by statute, all property acquired by a married person during marriage, while domiciled in California, is community property. Each spouse has a “present, existing and equal” interest in the community property. 

On the other hand, property acquired before marriage, or after separation, or at any time by gift, bequest, devise, or descent, is separate property. And the “rents, issues, and profits” of separate property are separate property, whether earned before, during, or after marriage. Except as otherwise provided by statute, neither spouse has any interest in the separate property of the other.

“Thus, there is a general presumption that property acquired during marriage by either spouse other than by gift or inheritance is community property, unless traceable to a separate property source. This is a rebuttable presumption affecting the burden of proof; hence it can be overcome by the party contesting community property status. 

Since this general community property presumption is not a title presumption, virtually any credible evidence may be used to overcome it, including tracing the asset to a separate property source, showing an agreement or clear understanding between the parties regarding ownership status, and presenting evidence the item was acquired as a gift.

Of course, mere commingling of separate property and community property funds does not alter the status of the respective property interests, provided that the components of the commingled mass can be adequately traced to their separate property and community property sources. But if the separate property and community property interests have been commingled in such a manner that the respective contributions cannot be traced and identified, the entire commingled funds will be deemed community property pursuant to the general community property presumption of section 760.  

The presumption that all property acquired by either spouse during the marriage is community property may be overcome. Whether or not the presumption is overcome is a question of fact for the trial court. 

Where funds are paid from a commingled account, the presumption is that the funds are community funds.  In order to overcome this presumption, a party must trace the funds expended to a separate property source. This issue presents a question of fact for the trial court and its finding will be upheld if supported by substantial evidence. 

There are the two primary methods of tracing under California law: direct tracing and exhaustion tracing.

 “Direct tracing” can be used to demonstrate a spouse’s separate property was used to purchase an asset, even though the purchase is made with funds from a commingled account containing both separate and community property. It requires (a) documentary proof that sufficient separate property funds were available in the account at the time of purchase; and (b) proof that the spouse making the purchase intended to use separate, rather than community, funds.

“Exhaustion tracing” is sometimes also called “Recapitulation,” “Family expense,” “Family living expense,” or “Family income exhaustion” tracing. Whatever the name, it attempts to trace a payment or purchase from a commingled mass to separate property funds by process of elimination; i.e., by showing that—because allcommunity property funds were exhausted at the time the purchase or payment at issue was made—separate property funds necessarily must have been used.  This approach presumes that available community property funds are used for family expenses before separate property funds are used for that purpose. 

California law does not preclude trial courts from relying on any tracing method other than the two just described. Trial courts have the flexibility to consider any credible evidence and to evaluate alternative tracing methods to determine whether the proponent of the tracing carries his or her burden of proof. The tracing method may vary depending on the facts. Thus, trial courts are free to consider and credit reasonable, well- supported, and non-speculative expert testimony, when determining whether the proponent has successfully traced commingled assets to a separate property source. 

Husband also invested in real estate, and a married person is free to invest his or her separate property.  The fact that the husband purchased the property with his separate funds, as the trial court found, is not evidence of taking undue advantage of the wife, nor is it a breach of a fiduciary relationship which would invoke a presumption of fraud or undue influence. Wife did not cite evidence that would support a conclusion that Husband mismanaged community funds. On the contrary, she concedes that Husband’s investments were quite successful. 

 An apportionment of profits may be required when one spouse invests separate funds in real estate or securities, but not when the spouse expended only minimal effort and the other spouse introduced no evidence attributing a value to the services. 

LESSONS:

1.      Assets owned before marriage and acquired during marriage should be characterized as separate, community, or quasi-community property when acquired, and then care given in how they are handled.

2.      To confirm the characterization of assets as separate, community, or quasi-community property, either a pre-nuptial agreement for assets owned before marriage, or a post-nuptial agreement for assets acquired during marriage should be used.

3.      All agreements between spouses concerning their property should be in writing and signed by the spouses, preferably before a notary to guard against claims of forged signatures.

Arbitration and the California Residential Purchase Agreement

Although an attempt to engage in mediation is required in the standard residential purchase agreement (CAR form RPA-CA) to recover attorney's fees, it is not required that the parties initial and thereby agree to the binding arbitration provision.  

Whether the parties agree to arbitration is one of the most important decisions that the parties must make in preparing and responding to the RPA-CA, and it can have significant consequences.  Agents are cautioned against giving legal advice to their clients regarding the arbitration provision, and this article can be provided for information purposes regarding this important provision.

The typical arguments in favor of the arbitration provision is that it is quicker, and less expensive than a legal action.  But the time required, after payment of a significant fee to the arbitration provider, can be delayed by the parties with disputes over the selection of the arbitrator, discovery, location of the hearing, and timing of the hearing. These disputes may require adjudication by the arbitrator who may be charging $500-$700 per hour.  After the arbitration decision, the parties may need to have the Court affirm and enforce the decision.

I recently filed a legal action in January 2018 and went to trial in late October, winning the court trial for over $300,000, without incurring the expense of a jury or court reporter, or any additional fee to the Court for the judge's considerable time in reaching a decision. So an arbitration is not necessarily quicker or less expensive than a Superior Court action.

There are many reasons not to initial the arbitration provision, including the arbitrator does not have to follow California law, discovery may be limited, the resolution of litigation disputes may be more expensive than Court hearings, the parties waive their right to appeal, and the parties can always agree to arbitration as an alternative to the Court action.

Many times a party to the sale transaction will need to preserve the status quo of the property's title by recording a notice of pendency of action (lis pendens), and thereby avoid a sale to a bona fide buyer or further encumbrance by a bona fide lender.

The RPA-CA provides a preservation of actions provision that allows the filing of a Court action to preserve a statute of limitations, or to enable the recording of a lis pendens or other provisional remedy, or the filing of a mechanic's lien.

These are important rights, but if the parties can file a Court action to obtain those remedies including recording a lis pendens, why agree to arbitration so that after a Court action is filed to obtain those remedies, the dispute must be arbitrated anyway with the loss of the benefits of a Court action and an increased cost?

In the recent decision of Zhang v. Jenevein, the California Court of Appeal added an additional reason to refuse an arbitration provision in a contract.  After an arbitration, Zhang filed a Court action for invasion of privacy and eavesdropping on or recording confidential communications in violation of Penal Code §§632 and 637.2. Defendant filed a special motion to strike and the trial court denied the motion, ruling that neither making the recordings nor using them as evidence in the arbitration was protected activity because the arbitration was not a judicial or official proceeding under the motion to strike statute. 

The Court of Appeal found that the trial court was correct, because recording the conversations and using the recordings in the arbitration were not in connection with a judicial or official proceeding authorized by law, and they were not protected activities subject to a special motion to strike. 

The arbitrators awarded over $65 million in damages, attorneys’ fees, and expenses, and a federal district court affirmed the arbitration award, with an appeal of that decision. Meanwhile, after the arbitrators issued their award, Zhang filed the Court action alleging a cause of action for eavesdropping on or recording confidential communications under the Penal Code.

A moving defendant’s initial burden in making a special motion to strike showing the plaintiff’s cause of action arises from protected activity.  The defendant argued the causes of action against him arose from protected activity because the recording of the conversations were to gather evidence in anticipation of, and use in, the arbitration, and an arbitration is a “judicial proceeding” or an “official proceeding authorized by law” within the meaning of that subdivision.

The Court of Appeal held that California law, however, is to the contrary. Private contractual arbitration is not a judicial proceeding under the motion to strike statute, an arbitrator is not a "judicial body", and an arbitration proceeding is not an "official proceeding". Demanding private arbitration is an “unprotected act”. 

Contractual arbitration is not a “judicial proceeding”; it is an alternative dispute resolution process that bypasses judicial proceedings.  Arbitration is alternative to, and independent of, the judicial forum. 

As a general rule, "private contractual arbitration" is not an “official proceeding authorized by law”.  For example, unlike hospital peer review, arbitration is not part of a comprehensive statutory licensing scheme and is not reviewable by administrative mandate. And unlike mandatory fee arbitration, private arbitration is not required by statute. 

Defendant cited the decision in Manhattan Loft, LLC v. Mercury Liquors, Inc., which held that a party to an arbitration involving real property could not record a lis pendens because “a lis pendens may only be filed when an action in a court of law is pending.”  The appellate court in Manhattan Loft reversed an order granting a special motion to strike a cause of action for slander of title against the parties that had improperly recorded the lis pendens because the court concluded the plaintiffs had shown a probability of prevailing. Before reaching that conclusion, however, the court in Manhattan Loft stated the filing of a notice of lis pendens falls squarely within the definition of protected activity.  But the filing of a lis pendens falls squarely within the statutory definition of protected activity only if it was filed in connection with a pending Court action because communications in connection with matters related to a lawsuit come within the scope of the litigation privilege and are acts arising from the protected activity. 

But this is not necessarily true for acts, like the filing of lis pendens, in connection with proceedings that are not legislative, executive, or judicial, or other official proceedings authorized by law, such as private arbitration.

Defendant argued that conduct in connection with arbitration involves the exercise of the right of petition because it is closely related to actual or potential litigation in the courts. Again, the Court of Appeal found that California law is to the contrary. That a party to an arbitration agreement may resort to the courts to compel arbitration or confirm or enforce an arbitration award does not convert the arbitration proceeding into a judicial or official proceeding within the meaning of the motion to strike statute.

Statements made in arbitration may be protected by the litigation privilege. But statements protected by the litigation privilege are not necessarily protected by the motion to strike statute. The litigation privilege and the motion to strike statute are substantively different statutes that serve quite different purposes.

Lessons:

1.         Agreeing to arbitration in the RPA-CA has important consequences, and careful consideration should be given to the loss of significant rights that exist in a Court action, before agreeing to arbitration.

2.         A Court action may be filed to recording of a lis pendens under the RPA-CA and it is considered protected activity, but an arbitration alone is not sufficient to have the recording of a lis pendens deemed a protected activity.

3.         If a Court action is necessary to record a lis pendens and have it deemed protected activity, agreeing to arbitration that will require both the Court action and arbitration may not be the best decision in many disputes.

4.         A party should not violate the Penal Code by an invasion of privacy and eavesdropping on or recording confidential communications, and if it is done, it should only be in connection with a Court action, as doing so in an arbitration proceeding will not allow the filing of a successful special motion to strike.

Rescission as a Remedy for Breach of Contract

One of the primary benefits of using written contracts in California is there are several remedies available in a breach of contract action that are easier to prove with a written contract, including rescission.  A claim for damages is not inconsistent with a claim for relief based upon rescission, and the plaintiff can be awarded complete relief, including restitution of benefits and consequential damages.

Under California's Civil Code §§ 1688 and 1689, a contract is extinguished by its rescission, and a contract may be rescinded if:

            a.         All the parties thereto consent;

            b.         The consent of the party rescinding was given by mistake, or obtained through duress, menace, fraud, or undue influence;

            c.         The consideration for the obligation of the rescinding party fails, through the fault of the other party;

            d.         The consideration for the obligation of the rescinding party becomes entirely void from any cause;

            e.         The consideration for the obligation of the rescinding party, before it is rendered, fails in a material respect from any cause;

            f.          The contract is unlawful for causes that do not appear in its terms or conditions;

            g.         The public interest will be prejudiced by permitting the contract to stand; or

            h.         Under circumstances provided in the Civil Code, Corporations Code and Insurance Code, or any other statute providing for rescission.

Failure of consideration is the failure to execute a promise, the performance of which has been exchanged for performance by the other party. Not every breach or failure to perform, however, will warrant the remedy of rescission, and the failure must be material, or go to the essence of the contract.

As discussed in the recent case of Guan v. Hu, plaintiff Guan and defendant Hu entered into a written contract under which Guan paid the purchase price for a Malibu residence (property) to be held by Hu as the “nominal owner.” Hu agreed to sell the property upon receiving instructions to do so, and to distribute the sale proceeds between the parties according to a mathematical formula in the contract. After receiving instructions to sell, Hu failed to sell the property. 

Guan sued Hu for causes of action arising from Hu's breach of the contract, and for fraud. Guan sought, among other relief, rescission of the contract, the return of the money Guan paid to purchase the property, a declaration that Hu is a constructive trustee of the property for Guan's benefit, and damages. 

The case was tried to the court, which rejected Guan's fraud claim, but found that Hu had breached the contract. The trial court denied Guan's request for rescission, but ordered that the property be sold and the proceeds apportioned between the parties in accordance with the contract. The trial court charged Hu's share with imputed rent and credited to Hu the payments she made for property-related expenses.

Hu contended that the court, after finding that Guan failed to prove fraud or the right to rescission, erred by granting Guan relief based on Hu's breach of the contract. The Court of Appeal disagreed.

Although fraudulent inducement is one ground for rescission, a party to a contract is also entitled to rescission when the other party's breach constitutes a material failure of consideration. 

The Appellate Court agreed with the position Hu took in the trial court proceedings that Guan's rescission cause of action was actually a claim for breach of contract. 

Generally, a cause of action is the right to obtain redress for a harm suffered, regardless of the specific remedy sought or the legal theory advanced. Thus, although a breach of contract may be redressed in various ways, such as by rescission, specific performance, declaratory relief, the payment of damages, or injunctive relief, the remedy is not the cause of action. When various remedies are sought for the same breach, there is a single cause of cause of action for breach of contract, and the seeking of different kinds of relief does not establish different causes of action.

Rescission is not a cause of action; it is a remedy. To determine the nature of a cause of action, the court looks at the facts alleged, not its label. It is an elementary principle of modern pleading that the nature and character of a pleading is to be determined from its allegations, regardless of what it may be called.   The subject matter of an action and issues involved are determined from the facts alleged rather than from the title of the pleadings or the character of the damage recovery suggested in connection with the prayer for relief.

The allegations in Guan's first cause of action for “rescission” established a cause of action for breach of contract, regardless of its label or the remedies he sought.Also, the court, having found that Guan was not entitled to the remedy of rescission, could nevertheless award damages based upon Hu's breach. 

Because the court found that Hu had breached the contract and thereby caused Guan harm, the court reasonably determined that although Guan was not entitled to rescission, he was entitled to relief in the form of money damages under the circumstances.

The Guan case illustrates how a trial court, and appellate court, can find a remedy for a cause of action, even if the title of the cause of action is not consistent with the requested remedy.  Courts often use their equity power to fashion a remedy for an aggrieved plaintiff, and it can be difficult to predict how that power will be used.  The existence of a written contract is often an important factor in the court's decision and the remedy awarded, and agreements should always be reduced to an executed written document.

Elder Abuse and Real Property

California's statute on elder abuse is set forth in its Welfare and Institutions Code, and it has great significance in the ownership of real property because the elderly, and many others for that matter, are easily deceived as to the true meaning of real estate transactions and documents and can easily become financial victims.  The area of real estate has its own vocabulary and specialized documents that require preparation specific to each transaction, and the detrimental effect of executing a fraudulent document can be catastrophic to the finance health of the elder abuse victim.

The California Legislature acted to protect elders by providing enhanced remedies to encourage private, civil enforcement of laws against elder abuse and neglect.An“elder” means any person residing in California who is 65 years of age or older. (§ 15610.27)  

Abuse of an elder or dependent adult includes financial abuse, and the financial abuse provisions are, in part, premised on the Legislature’s belief that in addition to being subject to the general rules of contract, financial agreements entered into by elders should be subject to special scrutiny.

Financial abuse occurs when a person or entity does any of the following:

            1. Takes, secretes, appropriates, obtains, or retains real property of the victim for a wrongful use or with intent to defraud, or both.

            2. Assists in taking, secreting, appropriating, obtaining, or retaining real property of the victim for a wrongful use or with intent to defraud, or both. 

            3. Takes, secretes, appropriates, obtains, or retains, or assists in taking, secreting, appropriating, obtaining, or retaining, real property of a victim by undue influence. (§ 15610.30)

“Undue influence” means excessive persuasion that causes another person to act or refrain from acting by overcoming that person’s free will and results in inequity, and it can take many forms. (§ 15610.70)

In determining whether a result was produced by undue influence, all of the following shall be considered:

            

            1. The vulnerability of the victim. Evidence of vulnerability may include, but is not limited to, incapacity, illness, disability, injury, age, education, impaired cognitive function, emotional distress, isolation, or dependency, and whether the influencer knew or should have known of the alleged victim’s vulnerability.

            2. The influencer’s apparent authority. Evidence of apparent authority may include, but is not limited to, status as a fiduciary, family member, care provider, health care professional, legal professional, spiritual adviser, expert, or other qualification.

            3. The actions or tactics used by the influencer. Evidence of actions or tactics used may include, but is not limited to, all of the following:

                        a.  Controlling necessaries of life, medication, the victim’s interactions with others, access to information, or sleep.

                        b.  Use of affection, intimidation, or coercion.

                        c.  Initiation of changes in personal or property rights, use of haste or secrecy in effecting those changes, effecting changes at inappropriate times and places, and claims of expertise in effecting changes.

            4.  The equity of the result. Evidence of the equity of the result may include, but is not limited to, the economic consequences to the victim, any divergence from the victim’s prior intent or course of conduct or dealing, the relationship of the value conveyed to the value of any services or consideration received, or the appropriateness of the change in light of the length and nature of the relationship. However, evidence of an inequitable result, without more, is not sufficient to prove undue influence.

The defendant is deemed to have taken, secreted, appropriated, obtained, or retained property for a wrongful use if, among other things, the defendant knew or should have known that this conduct was likely to be harmful to the victim.

The taking occurs when the victim is deprived of any property right, including by means of an agreement, will, or trust, regardless of whether the property is held directly or by a representative of the victim. A “representative" includes a conservator, trustee, or other representative of the estate of the victim, and an attorney-in-fact who acts within the authority of the power of attorney.

If it is proven by a preponderance of the evidence that a defendant is liable for financial abuse, in addition to compensatory damages and all other remedies otherwise provided by law, the court is required to award to the plaintiff reasonable attorney’s fees and costs, which include reasonable fees for the services of a conservator devoted to the litigation of an elder abuse claim. (§ 15657.5(a))

If it is proven by a preponderance of the evidence that a defendant is liable for financial abuse, and it is proven by clear and convincing evidencethat the defendant has been guilty of recklessness, oppression, fraud, or malice in the commission of the abuse, the limitations imposed on recovery after death do not apply. (§ 15657.5(b))

In addition to compensatory damages (e.g., loss of value of real property or interest therein), the plaintiff can request an award of punitive damages.

Any money judgment for elder abuse must include a statement that the damages are 

awarded based on a claim for financial abuse of an elder or dependent adult, and if only part of the judgment is based on that claim, the judgment shall specify what amount was awarded on that basis.

  

An action for financial abuse must be commenced within four (4) years after the plaintiff discovers or, through the exercise of reasonable diligence, should have discovered, the facts constituting the financial abuse.

Because of the heinous nature of committing financial elder abuse, such an action allows compensatory damages, punitive damages, damages that accrue after death, and attorney fees.  

Whether such a claim is appropriate in a specific case requires through consideration of many factors and issues that can be provided by an attorney experienced in the many forms of elder abuse regarding real estate transactions.

A Partition Action in California Can Include Recovery of Attorney Fees

Two or more parties contributing funds to purchase real property as an informal partnership or joint venture is common in California which has increasing home values, and prudent investors agree in a writing how the parties will support the home and pay the other costs associated with joint ownership.  Such written agreements are essential to clarify the rights and duties of the parties, and if they include an attorney fee provision, it needs to be carefully prepared to include recovery of attorney fees if a partition action is filed.

The recent decision in Orien v. Lutz clarified some of the issues involved in a partition action for the sale of jointly owned real property, and the right to recover attorney fees under the statute providing for partition, or under a contract between the owners.   

The trial court found that an attorney fee provision in an earlier settlement agreement between the owners applied to the partition action, and it awarded all fees to plaintiff under Civil Code § 1717 (contractual attorney fee provision), rather than apportioning the costs of partition under Code of Civil Procedure §§ 874.010 and 874.040 (statutory attorney fee provision).

However, the Court of Appeal in Orien ruled that the partition action did not fall within the terms of the agreement's attorney fee provision because it was limited to the purpose of enforcing or preventing the breach of any provision of the agreement, including but not limited to instituting an action for a declaration of such party's rights or obligations hereunder, or for any other judicial remedy.

Because the agreement provided that the owners may sell the property at any time they agree to do so, and it did not prevent any one or more of the parties from filing a partition action with respect to the property in the event the parties were unable to unanimously agree on whether or not the property should be sold, the Court of Appeal held the partition action did not fall with the agreement's attorney fee provision, and no attorney fees were allowed under the contract.

Code of Civil Procedure § 874.010(a) allows a court in a partition action to order payment of attorney fees prior to final judgment if the fees were incurred for the common benefit, and the court is required to apportion attorney fees among the parties under § 874.040.

The Court of Appeal's goal in interpreting a contract is to give effect to the mutual intention of the contracting parties at the time the contract was formed. (Civil Code § 1636.) It ascertains that intention solely from the written contract if possible, but also considers the circumstances under which the contract was made and the matter to which it relates.  The Court considers the contract as a whole and interprets its language in context so as to give effect to each provision, rather than interpret contractual language in isolation. (Civil Code § 1641.) It interprets words in accordance with their ordinary and popular sense, unless the words are used in a technical sense or a special meaning is given to them by usage. (Civil Code § 1644.) If contractual language is clear and explicit and does not involve an absurdity, the plain meaning governs.

Civil Code § 1717 states that in any action on a contract, where the contract specifically provides that attorney fees and costs that are incurred to enforce the contract shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney fees in addition to other costs.

In Orien, the defendants disputed that the right to partition is contractual. They argued that the parties had the right to partition independent of the agreement, and the agreement “neither enlarged nor restricted” that right.

As a matter of California law, the parties had the right to seek partition regardless of the agreement and a co-owner of property has an absolute right to partition unless barred by a valid waiver. Given the plain meaning of the language in the agreement, and considering the matter to which it relates, namely the waivable right to partition, the Court of Appeal concluded that the intent of the language concerning partition was to prevent an implied waiver of the parties' existing right to partition, not to bring that right within the terms of the agreement and its attorney fee clause. The right to partition therefore was not a “provision” within the contract that plaintiff enforced, as required to invoke the attorney fee clause.

Attorney fee provisions, if drafted broadly, can encompass noncontractual claims. Courts have found provisions sufficiently broad to reach noncontractual claims when they apply to actions “arising out of” or “relating to” a contract or its subject matter, or to “any dispute under” an agreement.

In contrast, when an attorney fee provision is limited to actions “to enforce the terms of the agreement or declare rights hereunder,” courts have found this language too narrow to encompass noncontractual claims. A tort claim is not an “action to enforce” an agreement such to bring it within attorney fee provision.

Attorney fees may be allowed for services rendered for the common benefit even in contested partition suits. The more just and equitable rule to be applied would require a proper division of the expenditures entailed in the maintenance of such actions for the common benefit among those who shall have been found to be entitled to their respective shares and interests in said property by the ultimate judgment of the court, regardless of whether or not controversies had arisen and been litigated.

Attorney fees incurred by a defendant to a partition action could be for the common benefit, and therefore allocable in part to the plaintiff, despite the fact that the defendant had resisted partition, with the claim that plaintiff had no interest in the subject property, that it belonged to defendant alone, and that plaintiff was a mere volunteer in paying the delinquent taxes. Again, the fact that the partition action is contested is no bar to the proportional allocation of attorney fees, as even fees incurred resolving contested issues can be for the common benefit.

As illustrated in Orien, prudent co-owners of real property should execute a written agreement regarding their respective rights and duties concerning the property, and should include a broad attorney fee provision that includes the right to recover attorney fees in any partition action to the prevailing party.  This will enable the prevailing party to recover all of its reasonable attorney fees under the contract, and will not limit the attorney fees to apportion the fees between the parties based on a finding of "common benefit".