Monday, December 7, 2009
Court of Appeal Upholds Fee Award Against Disgruntled Beneficiaries
By STEVEN M. ELLIS, Staff Writer
A probate court had authority to charge approximately $226,000 in attorney fees generated defending a trustee’s proposed sale of an asset solely against the shares of the minority of beneficiaries who brought the challenge in bad faith, the Fifth District Court of Appeal has ruled.
Reasoning that a Kern County judge had the equitable power to make the award, the court on Thursday upheld an order reducing the shares of three beneficiaries who sought to keep the trustee from closing the $48 million sale of a ranch on time.
Kern Superior Court Judge Robert S. Tafoya made the award against Philip Rudnick, Robert Rudnick and Milton Rudnick after concluding it was unfair to burden the majority of beneficiaries who approved the sale by a vote of 60 percent.
The three beneficiaries claimed that the Rudnick Estates Trust’s principal asset—the 68,000-acre Onyx Ranch, located in the Sierra Nevada Mountains just outside of Bakersfield—was worth substantially more than $48 million, that the trustee violated his fiduciary duty and that the transaction violated the terms of the RET.
But Tafoya determined that their opposition was primarily for the purpose of causing unnecessary delay and in bad faith.
The minority beneficiaries brought their challenge when trustee Oscar Rudnick petitioned the probate court for instructions on consummating the sale to real estate investor CIM Acquisition Group and a proposed distribution after a majority of RET beneficiaries gave their approval.
The RET was created in 1965 by the beneficiaries of 11 separate trusts, which each owned an undivided interest in various real property and business entities and were managed as an integrated enterprise. Its purpose was to liquidate the trusts’ assets and distribute proceeds to beneficiaries, and any sale or disposition negotiated by the trustee was subject to approval by a majority of beneficiaries.
The trust was intended to expire in 1974, but the Court of Appeal ruled in 1999 that it would continue to exist for a reasonable time until either the assets were sold or a majority of beneficiaries elected to terminate it.
Tafoya, concluding that the minority beneficiaries’ opposition was unfounded, awarded approximately $226,000 in attorney fees and costs to the trustee and ordered the fees charged against the minority beneficiaries’ future trust distributions.
The beneficiaries appealed, but Justice Bert Levy said that Tafoya had authority for the award under the broad equitable powers that a probate court maintains over the trusts within its jurisdiction.
“[W]hen a trust beneficiary instigates an unfounded proceeding against the trust in bad faith, a probate court has the equitable power to charge the reasonable and necessary fees incurred by the trustee in opposing the proceeding against that beneficiary’s share of the trust estate,” he wrote.
In an unpublished portion of the opinion, Levy also concluded that Tafoya did not abuse his discretion in making the attorney fees award.
“[T]he court determined that appellants had demonstrated their ‘intent to derail any sale approved by the majority,’ ” he said. “In the court’s opinion, appellants had made their position clear, ‘namely that they oppose any sale of the Onyx Ranch unless it involves wind energy development’ and hoped to disrupt the sale by preventing respondent from closing by the due date….
“On this record, it cannot be said that there was no reasonable basis for the probate court’s ruling.”
Levy also wrote that the probate court did not abuse its discretion in awarding costs.
Justices Stephen Kane and Charles S. Poochigian joined Levy in his opinion.
The case is Rudnick v. Rudnick, 09 S.O.S. 6928.
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