Wednesday, February 1, 2017
C.A. Rejects Beneficiary’s Claim for ‘Opportunities Lost’
Trustee Cannot Be Liable for Not Distributing Assets, Panel Says
By KENNETH OFGANG, Staff Writer
A trust beneficiary cannot sue a trustee for refusing or neglecting to distribute trust assets, the Court of Appeal for this district ruled yesterday.
Distinguishing such a claim from a true claim for breach of fiduciary duties, Div. Six affirmed a Santa Barbara Superior Court judgment in favor of attorney Barton E. Clemens Jr. and accountant Thomas Brooks.
Clemens and Brooks are the former trustees of an irrevocable family trust created in 2008 by William Morgan, founder of Kirby Morgan Dive Systems Inc., a successful business which designs and manufactures commercial-grade diving helmets. Morgan owned nearly 80 percent of the closely held company’s stock before creating the trust, while daughter Connie Morgan owned the rest.
The trust included five subtrusts, one for each of Morgan’s adult children, including Beverly Morgan, who was on the company’s payroll at the time. In 2010, however, William Morgan fired her from the company and exercised a trust provision allowing him to substitute other assets—specifically a promissory note for the value of the subtrust’s nine percent of company stock—for her shares.
The loss of her employment, however, left Beverly Morgan unable to afford the $2,800 monthly payments on her Santa Maria home, which her father and sister had helped her buy and that was about $100,000 underwater. Her sister, who had never lived at the property but was half-owner, offered to accept a quitclaim deed and rent the property back to her for $1,000 a month, or to lend her half the amount of the mortgage payment each month, or to quitclaim the property so that Beverly Morgan could do whatever she wanted with it, according to subsequent testimony.
Beverly Morgan then quitclaimed the property to her sister, but instead of paying rent, moved out and took up residence at a guesthouse in the exclusive coastal development of Hollister Ranch. She later testified that she had long dreamt of living there.
Connie Morgan continued to make the payments on the house for a time, then sold it for about $48,000 less than the mortgage balance. William Morgan covered the difference and the closing costs.
Clemens and Brooks later resigned as trustees. A substitute trustee then sued them, for Beverly Morgan’s benefit, saying she had been kept in the dark about the subtrust and “lost opportunities” as a result, including the opportunity to save her home.
But Santa Barbara Superior Court Judge Thomas Anderle, after a four-day trial, said there was no breach of fiduciary duty, and that even if there was, it didn’t cause any damages. Justice Steven Perren, writing for the Court of Appeal, said the judge’s factual findings were supported by substantial evidence and his legal conclusions were correct.
Addressing damages, Perren said Morgan was not injured by any violation of the “duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration.” He cited Anderle’s finding that she “intentionally elected to sell the house” because “[s]he believed the house was toxic” and declined all of the options offered by her sister that would have enabled her to keep the house, because “she wanted to live at Hollister Ranch.”
He also pointed out that the subtrust suffered no losses as a result of the alleged breach, and in fact did quite well while Brooks and Clemens were in charge.
The justice also noted that trustees who breach fiduciary duties are only liable for damages suffered by the trust, not those suffered by beneficiaries.
Even if damages were recoverable, Perren said, there was no breach of fiduciary duty. The evidence, he said, showed that Beverly Morgan was informed by her father of the trust’s existence, and of the identities of the trustees. There is, Perren added, “no California authority suggesting that a trustee may be held liable for breach of trust or fiduciary duties under the factual scenario presented here.”
The case is Williamson v. Brooks, 17 S.O.S. 497.
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