Thursday, August 20, 2009
C.A.: Disclosure Request Did Not Violate No-Contest Clause
By STEVEN M. ELLIS, Staff Writer
A petition seeking only to enforce a trustee’s nonwaivable fiduciary duty to provide reasonable information regarding administration of the trust did not violate a no-contest clause, the First District Court of Appeal has ruled.
In a decision ordered published yesterday, Div. Three held that two beneficiaries’ proposed request for information regarding their stepfather’s conduct as trustee did not run afoul of such a clause because the petition did not actually challenge the validity of the trust or its terms.
Carin Salter and Jennifer Segal sought a determination that their petition would not violate the terms of a trust created by their mother, Elsa Lerner, and stepfather, San Francisco attorney Glenn Lerner, after the latter became sole trustee upon his wife’s death in 2006 and allegedly refused to provide his stepdaughters any information about the trust.
The trust agreement provided that the trust was to be divided into three subtrusts with Glenn Lerner receiving their income and holding broad discretion to invade their principal. The agreement named Salter and Segal as contingent remainder beneficiaries who on Lerner’s death would receive most of the remaining trust assets.
The agreement also provided that “any reports or accounts otherwise required by the California Probate Code are hereby waived to the fullest extent of the law,” and prohibited distribution to “anyone who contests or joins in…a contest of any provision hereof.”
Salter and Segal filed a petition in 2007 under Probate Code Sec. 213203 for a determination whether a further petition they proposed to file pursuant to Sec. 16060—seeking information regarding the trust’s administration—would violate the no-contest clause.
Sec. 16060 provides that a trustee “has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration.”
The pair claimed that Lerner, since becoming trustee, had spent over $800,000 to remodel a country house, paid deposits on a Ferrari and a Bentley, and taken expensive vacations at the trust’s expense.
Salter and Segal alleged Lerner refused to indicate whether the expenditures came from the trust’s income or principal, or even whether the trust had been divided into subtrusts, and that Lerner had declined to do so on the ground that the waiver provision gave him the absolute right to administer the trust and subtrusts as he saw fit.
Requesting “complete, accurate and sufficient information” regarding Lerner’s acts as trustee, the two asserted that they were entitled to sufficient information to determine whether Lerner was faithfully discharging his fiduciary duties.
San Francisco Superior Court Judge John Dearman agreed, concluding that the petition did not implicate the no-contest clause “because none of the relief requested constitutes an attack on the trust.”
On Lerner’s appeal, Justice Stuart R. Pollak wrote that Dearman was correct because the proposed petition sought “only information that is reasonably necessary to enable Salter and Segal to enforce their rights under the trust.”
Commenting that Sec. 21300 defines a “contest” as “a pleading in a proceeding in any court alleging the invalidity of an instrument or one or more of its terms,” Pollak said that “[a] petition to enforce a trustee’s duty under Sec. 16060 is not a direct or indirect challenge to the validity of the trust or its terms.”
The justice further opined that interpreting the no-contest clause in a manner that would prevent Segal and Salter from filing the proposed petition would violate public policy under Sec. 21305(b), which lists 12 categories of pleadings that may not be considered “contests.”
Noting that two of the categories include pleadings challenging the exercise of a fiduciary power and petitions to compel an accounting or report of a fiduciary if not waived, Pollak wrote that Salter and Segal’s petition fell within the statute’s scope of protection, even if “not precisely enumerated.”
Justices Peter J. Siggins and Martin J. Jenkins joined Pollak in his opinion.
The case is Salter v. Lerner, A121525.
Copyright 2009, Metropolitan News Company