Filed 11/20/14 Gaynor v. Buhlen CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
DOROTHY W. GAYNOR et al., D064872 Plaintiffs and Respondents,
v. (Super. Ct. No. PN16579) E.H. BULEN et al., Defendants and Appellants.
APPEAL from an order of the Superior Court of San Diego County, Richard G.
Cline, Judge. Affirmed.
Law Office of A. Daniel Bacalski, A. Daniel Bacalski, Jr.; Dube Law Office,
Douglas A. Dube; Karcher Harmes and Kathryn E. Karcher for Defendants and
Appellants.
Jay-Allen Eisen Law Corporation, Jay-Allen Eisen, Aaron S. McKinney; Witham
Mahoney & Abbott, Daniel W. Abbott, Matthew M. Mahoney and Charles B. Witham for
Plaintiffs and Respondents. INTRODUCTION
E.H. Bulen and Christopher Bulen (collectively the Bulens), the former cotrustees
of a family trust, appeal an order awarding attorney fees to their cousins, Dorothy
Gaynor, James Wilmot, Michelle Gaynor and Max Gaynor (collectively the Gaynors)
who prevailed in a probate action regarding interpretation and administration of the Bulen
Trust (Trust). The court determined the terms of the Trust required appointment of a
neutral corporate successor trustee to administer the Trust rather than a committee of
family members serving as cotrustees, which is what had occurred for decades. The court
then appointed a corporate trustee that assured the court it will follow the express terms
of the Trust and make income distributions sprinkling among the generations of
beneficiaries, as opposed to the long-standing practice of the former cotrustees to only
distribute income to the most senior generation of beneficiaries. The trial court awarded
the Gaynors attorney fees after it concluded their efforts resulted in obtaining access to
Trust fund income for younger generations, which previously was unavailable. We
affirm, concluding the trial court properly exercised its equitable discretion to award fees
under the common fund doctrine.
2 FACTUAL AND PROCEDURAL BACKGROUND
Background of the Trust
The Trust was established in 1968 by Edwin Bulen,1 the ancestor of the appellants
and respondents. The Trust holds several parcels of real estate comprising a 44-acre
commercial shopping complex in Escondido, California. Tenants include Home Depot,
Wal-Mart, CT Storage, AutoZone, Wells Fargo and Chase Bank. At the time of trial, the
Trust's real estate holdings were valued at approximately $13 million, with a net value of
approximately $7.5 million. The Trust produces about $1.2 million in annual gross
income, of which approximately $360,000 is distributed annually.
Edwin was the initial trustee and he amended the Trust six times before his death
in 1983. Edwin's heirs included his three children: William H. Bulen (Bill), James A.
Bulen (Jim), and Mary C. Wilmot (aka Mary C. Bulen).
According to the terms of the Trust, it is divided equally between Edwin's three
children, with sub-shares set apart for each of their issue. The Trust is divided into
subparts as each beneficiary dies leaving issue until 21 years after the death of the last
child or grandchild living at the time of Edwin's death. At that time, the Trust terminates
and the principal is distributed. The last member of the family born before Edwin's death
was born in 1980. The family estimates the Trust will continue to operate another 70 to
80 years.
1 Where necessary for clarity, we refer to Edwin and his descendants by first names. We intend no disrespect.
3 Paragraph 2.8 of the second amendment to the Trust declaration directs
distribution of the net income of the Trust: "Trustee shall from time to time pay all of the
net income, in such amounts and proportions (whether equal or unequal) as the Trustee
may, in the Trustee's discretion determine, to such one or more members of a class
consisting of such beneficiary and such beneficiary's issue, of whatever degree and
whenever born, living from time to time during the lifetime of such beneficiary."
Edwin's sons, Bill and Jim, disclaimed their beneficial interests in the Trust, so
their shares were divided between their children. Mary retained her beneficial interest.
The sixth amendment modified paragraph 4.1 of the Trust regarding the trustee
succession. After Edwin, Bill was to serve as successor trustee, followed by Edwin's
accountant, William Stevenson, and finally by San Diego Trust & Savings Bank (San
Diego Trust). Paragraph 4.4 of the second amendment, which was not amended,
provided any subsequent successor trustee after San Diego Trust "must be a corporation
authorized under the laws of the United States or of the State of California or any other
state to administer trusts and have total capital, surplus and undivided profits of not less
than $20 million."
Family Agreement Regarding Successor Cotrustees
When Bill resigned as trustee in 1990, he asked Edwin's accountant and San Diego
Trust, to decline to serve as successor cotrustees. The family agreed to a proposal
whereby a committee of three family members, one each from each branch of the family,
would act jointly as successor cotrustees. Each branch's representative trustee had
4 exclusive control over distributions within his or her branch; no trustee could distribute
his or her branch's share to family members who were not in the same branch.
Bill filed an unopposed petition, which the court granted, appointing the first three
cotrustees to serve "together, but not alone . . . ." Initially, the three cotrustees were Bill's
son, Neal B. Bulen; Jim's daughter, Ann E. Dechairo; and Mary's daughter, Dorothy W.
Gaynorone trustee from each branch of the family.
Over the next 20 years, when one of the cotrustees resigned or died, the remaining
cotrustees filed unopposed petitions with the court to appoint a replacement cotrustee,
maintaining representation from each branch of the family. With only one or two
exceptions, the cotrustees distributed the annual Trust income to the senior class, or
generation, of beneficiaries.
Litigation Regarding Trust Administration
In 2011, the cotrustees were Jim's son, Edwin H. Bulen (E.H.), Bill's grandson,
Christopher Bulen (Chris) and Mary. E.H., Chris, and Mary, filed a petition to modify
the Trust under Probate Code section 15409. They asked the court to: (1) eliminate
paragraph 4.4, which requires appointment of a corporate trustee; (2) modify the process
by which cotrustee vacancies are filled to permit a majority of the senior generation to
appoint a person to fill the vacancy rather than require court approval; (3) add a new
paragraph to require three family members to serve as cotrustees; and (4) clarify no bond
is required for family cotrustees.
Mary's daughter, Dorothy, opposed the petition to modify the Trust contending the
petition did not meet the requirements for modification, the proposal did not comply with 5 the original agreement among the family members, and the proposal would
disenfranchise contingent beneficiaries of the Trust. Mary resigned as cotrustee and
withdrew her participation in the petition for modification.2
Dorothy's brother, James Wilmot, along with Dorothy's son, Max Gaynor, and
daughter, Michelle Gaynor, joined Dorothy's objection and amended opposition
contending the conditions for modification under Probate Code section 15409 did not
exist and the petition for modification was filed based on the personal motives of the
cotrustees and did not benefit the trust.
After a bench trial, the trial court granted a motion for judgment in favor of the
Gaynors on the petition to modify the trust, thereby denying the petition to modify. The
court stated, "Article 4 of the trust governs appointment of successor trustees. [¶]
Paragraph 4.4 requires appointment of a successor corporate trustee. That provision
applies to the present circumstance. This paragraph has never been modified; it has been
artfully avoided. [¶] While adherence to what we call 'a family agreement' may have
been beneficial, the court makes no findings as to its merits or its deficiencies. [¶] For
about 20 years the family has appointed individual successor trustees pursuant to an
informal agreement that is contrary to the plain terms of the trust. [¶] The procedures
followed and the orders issued did not permanently repeal, modify, or render ineffectual
the provisions of paragraph 4.4. To hold otherwise would, among other things, be a
violation of the rights of unborn and unrepresented beneficiaries."
2 Mary, apparently, was in ill health.
6 The court found the Bulens did not establish they are entitled to modify paragraph
4.4 to eliminate the requirement of a corporate trustee under Probate Code section 15409.
The court observed the change in circumstance is "a direct result of the deviation from
the provisions of the trust by the family. [¶] The use of a provision contrary to the terms
of the trust has now resulted in dissension within the family. The trust contains specific
provisions designed to avoid dissension of the type present here; that is, over the
selection of a successor trustee. [¶] The present controversy, while unfortunate and not
necessarily anticipated by the family, was specifically contemplated by the trustor. What
the trustor did not anticipate was the failure to follow the trust terms." The court
concluded there was insufficient evidence the selection controversy substantially
impaired the operation of the Trust and the circumstances were not the type contemplated
by Probate Code section 15409 for modification of the Trust.
Prior to trial, the Gaynors filed a petition to remove the Bulens as cotrustees and to
appoint a corporate trustee in accordance with the Trust language. The Gaynors provided
documents from two financial institutions consenting to act as a successor trustee, First
American Trust, FSB (First American), and First Foundation Bank (First Foundation).
Both indicated they would open eligibility for annual Trust distributions to beneficiaries
of all generations rather than limiting distributions to the senior generation. The petition
for appointment of corporate trustee prayed for attorney fees and costs.
The Bulens objected to court appointment of a corporate trustee arguing the Trust
allowed a "majority of the income beneficiaries of the trust . . . to change the corporate
trustee." The Bulens stated they would resign once the beneficiaries voted to appoint a
7 corporate trustee. The Bulens sent a letter to the beneficiaries providing options for
corporate trustees and asking the beneficiaries to vote.
The Gaynors objected to the Bulens' proposal. They contended the terms of the
Trust required the court to appoint the first corporate trustee and the language relied upon
by the Bulens applies to subsequent changes. The Gaynors also objected to the corporate
trustee proposed by the Bulens as unqualified to serve under the terms of the Trust. The
Gaynors argued the Bulens should be surcharged to pay the attorney fees and costs
incurred by the Trust and the Gaynors.
After months of hearings and several rounds of briefing, including consideration
of a report by a guardian ad litem for the minor and unborn beneficiaries of the Trust, the
court issued an order indicating the terms of the Trust required the court to appoint the
first successor corporate trustee. The court also determined distribution of income by the
trustee is to be made in the trustee's discretion. The court appointed First American as
the initial successor corporate trustee with First Foundation appointed as the alternative
initial successor corporate trustee. Because First American declined to act, First
Foundation accepted the appointment and consented to act upon the resignation of the
Bulens as cotrustees.
Gaynors' Motions for Attorney Fees
Shortly after the court granted the Gaynors' motion for judgment, but before the
court appointed the corporate trustee, the Gaynors filed a motion for attorney fees arguing
their efforts created a common fund or benefit for the other beneficiaries of the Trust by
ending the "senior generation only" distribution, making Trust funds available to junior
8 generations and installing a neutral and professional trustee to protect and preserve Trust
assets. Dorothy's brother, James, submitted a declaration stating he was unaware he
could receive distributions from the Trust even though he had medical conditions which
caused him to have financial hardships. Dorothy submitted a declaration and evidence
showing nine or 10 individuals received distributions of approximately $4.7 million since
1995 whereas the beneficiaries from the younger generations received nothing. And in
1999 more than half of the distributions went to the cotrustees themselves. According to
Dorothy's analysis, an appointment of a corporate trustee and ending the "senior-
generation-only" distribution policy could make available about $1 million more per
branch to younger generations than would have been available under the prior policy.
The Bulens opposed the motion arguing the Gaynors are not entitled to fees under
the common fund theory because the availability of funds to other generations is
speculative. The Bulens submitted form declarations from various beneficiaries,
primarily from Jim's branch, indicating they were comfortable with how the family
cotrustees administered the Trust in the past, including distributing Trust income to the
senior generation, and did not believe the Gaynors should recover fees.
The court denied the motion for fees as premature. The court noted it had not yet
appointed the corporate trustee. The court found there is a fund consisting of assets of
the Trust and all beneficiaries of the Trust are affected by the judgment. However, the
court stated it was unable "at this point in time to determine which beneficiaries will
benefit from the appointment of a corporate trustee" and, therefore, the "effect of the
judgment upon the [T]rust assets, entitlement to distribution, or distribution is at this time
9 speculative and collateral to the judgment." The court concluded the common fund
doctrine did not currently apply, but indicated it was possible the motion for fees should
be granted at a later date if it determined the petition resulted in preserving, creating or
increasing the common fund.
Once the court appointed the corporate trustee, the Gaynors again filed a motion
for attorney fees. The Gaynors argued entitlement to fees based on both the court's
equitable powers and the common fund doctrine on the basis they had created a benefit to
the Trust by (1) ending the "senior generation only" income distribution policy, (2)
removing the opportunity for self-dealing by individual trustees, and (3) securing
professional oversight and management of the Trust assets. Dorothy again submitted a
declaration with analysis showing an end to the "senior generation only" policy could
make more than $1 million in Trust funds available to the second through sixth
generations of Bulen descendants who were not previously eligible to receive these funds
under the prior family policy.
The Bulens opposed the motion contending attorney fees are not available under
the common fund theory because it is speculative whether a common fund will ever be
created or preserved. They also disputed the reasonableness of the fees requested.
Court's Order Awarding Fees
After consideration of the motion and the evidence, the trial court awarded the
Gaynors $260,948.34 in attorney fees. The court found the Gaynors were the prevailing
parties. It noted the Gaynors successfully opposed the Bulens' attempt to modify the
Trust and obtained an order appointing a corporate trustee, as required by the Trust.
10 They also obtained appointment of one of their nominees as corporate trustee. "In short,
they obtained the favorable results that they sought."
The court found "the necessary effect of the relief granted was to preserve or
create a fund not previously available to certain trust beneficiaries." The court noted the
Trust beneficiaries had for more than 20 years followed a practice of appointing only
senior generation beneficiaries to act as successor cotrustees in conflict with the language
of the Trust. These cotrustees engaged in a distribution practice that benefited almost
exclusively the senior generation beneficiaries. While not specifically interpreting the
distribution provisions of the Trust, the court found the practice was contrary to a clear
reading of the Trust and the cotrustees "should not have excluded younger beneficiaries
and beneficiaries having financial needs."
As a result of the Gaynors' efforts, the court appointed the first corporate trustee,
as required by the terms of the Trust. The new trustee stated it would not follow the past
practice of distributing income to only senior generation beneficiaries. Rather, all
beneficiaries are now eligible for a distribution. The court stated, "[t]hese facts convince
the court that, as a result of the success of [the Gaynors] in obtaining the current
appointment, younger beneficiaries and needy beneficiaries now have a probability of
benefitting from the [T]rust. That is, there will be funds available that were not
previously available that the current corporate trustee can distribute to them." Although
the court noted the specific amount of the distributions and identities of the beneficiaries
11 are unknown, "the fact is that there are funds available for distribution that were
otherwise not available."3
The court observed more than $3 million had been distributed to the senior
generation over the past 20 years while none of the younger generation had been offered
or received anything and some, including "one having severe financial needs had no
knowledge of their rights under the [T]rust."
The court concluded its order stating, "[t]his is one of those most meritorious of
cases justifying an award of attorneys' fees" under both equitable principles and the
common fund theory stating it would be "unfair if [the Gaynors] had to shoulder the
entire burden of the fees incurred for the benefit of about [40] other beneficiaries."
The court denied the Gaynors' request for more than $30,000 in fees the court
determined were not incurred for the purpose of protecting, preserving or increasing a
common fund, such as fees incurred when Dorothy advocated for "adhering to the so-
called 'family arrangement' for selection of an individual trustee" and before the Gaynors
raised the issue of the need for a corporate trustee.
3 At oral argument on the fee motion, counsel for the newly appointed corporate trustee, First Foundation, assured the court First Foundation, as trustee, "will distribute income sprinkling among the generations. The Trust clearly calls for that. There's no support in the Trust . . . for an older generation only policy of distributions." The court found this important to "solidify the finding that there's a common fund." "[A]s I have concluded . . . the [Gaynors] have brought about a benefit to a whole class of people that were previously deprived of the possibility of that benefit by individual trustees who had an interest in the situation and on a prima facie basis may have had a conflict of interest." 12 DISCUSSION
I
The Bulens challenge the trial court's award of attorney fees based on the common
fund doctrine, or its outgrowth, the substantial benefit doctrine. These are nonstatutory
equitable exceptions to the American rule requiring parties bear their own fees.
(Pipefitters Local No. 636 Defined Benefit Plan v. Oakley, Inc. (2010) 180 Cal.App.4th
1542, 1547 (Pipefitters).) Both theories are based upon the "inherent equitable powers of
the court." (Serrano v. Priest (1977) 20 Cal.3d 25, 34 (Serrano III).)
The common fund doctrine "is grounded in 'the historic power of equity to
permit . . . a party preserving or recovering a fund for the benefit of others in addition to
[himself or herself], to recover [his or her] costs, including [his or her] attorneys' fees,
from the fund of property itself or directly from the other parties enjoying the benefit.' "
(Serrano III, supra, 20 Cal.3d at p. 35.) Similarly, the principal purpose of the
substantial benefit theory "is to avoid enriching one party whose legal action has
substantially benefitted the other. Exercising its equitable discretion, the trial court
determines whether the interests of justice require those who received a benefit to
contribute to the legal expenses of those who secured the benefit."
(Pipefitters, supra, 180 Cal.App.4th at p. 1547.)
"We independently review any legal issue regarding the appropriate criteria for a
fee award. But once those criteria are identified, we defer to the trial court's discretion in
determining how they are to be exercised. [Citation.] In fashioning an equitable remedy,
the trial court is in the best position to determine whether the criteria for a fee award have
13 been met. We will not disturb its judgment on this issue unless we are convinced the
court abused its discretion. [Citation.] A trial court abuses its discretion only where its
action is clearly wrong and without reasonable basis." (Pipefitters, supra, 180
Cal.App.4th at pp. 1547-1548.)
II
The Bulens contend the common fund theory does not apply in this case because
there was no actual pecuniary benefit from the litigation in terms of an increase or
preservation of Trust assets as a whole. We do not agree.
Under the common fund theory, "when a number of persons are entitled in
common to a specific fund, and an action [by a party] for the benefit of all results in the
creation or preservation of that fund, such [party] may be awarded attorney's fees out of
the fund." (Serrano III, supra, 20 Cal.3d at p. 34.) "By this means all of the
beneficiaries of the fund pay their share of the expenses necessary to make it available to
them." (Winslow v. Harold G. Ferguson Corp. (1944) 25 Cal.2d 274, 277 (Winslow).) A
review of authorities applying the common fund doctrine in estate matters is helpful.
In Winslow, when the corporate entity responsible for administering the trust
became insolvent, beneficiaries of a trust commenced judicial action to protect the trust
assets and to bring them within judicial administration. The Supreme Court upheld an
award of attorney fees stating, "[w]here a lawyer has rendered such valuable service as to
make available a fund for a class, even though he appeared for only one claimant, it is
equitable that his compensation and expenses should come from the entire fund saved for
all classes concerned before it is distributed." (Winslow, supra, 25 Cal.2d at p. 284.)
14 In Estate of Reade (1948) 31 Cal.2d 669, 672, the Supreme Court affirmed the
trial court's exercise of discretion in awarding attorney fees to an heir who challenged the
administratrix of an estate for failing to list a death benefit she collected as an asset of the
estate. The court stated, "a [party] who has succeeded in protecting, preserving or
increasing a fund for the benefit of [himself or herself] and others may be awarded
compensation from the fund for the services of [his or her] attorney. This is to compel
those for whose benefit the action or proceeding was taken to bear their share of the
expenses of the litigation; and this rule is equitable and just." (Id. at pp. 671-672.) The
successful challenge resulted in charging the administratrix for the benefit she collected,
which then became available for distribution to the remaining heirs. Since a fund was
created or preserved for the benefit of all of the heirs, the court concluded "equitable
principles would seem to require that the other heirs bear their proportionate share of the
expense of the litigation." (Id. at p. 672.)
In Estate of Lundell (1951) 107 Cal.App.2d 463, a minor beneficiary of a will
objected to the probate court's award of attorney fees for the executors of the will and
obtained a reversal of the fee award. The court concluded the minor beneficiary was
entitled to her fees based on the common fund doctrine. The court rejected the contention
she should not be entitled to fees under the common fund doctrine because the litigation
did not increase the fund available to the heirs. The court stated "[t]he important feature
is that in both Estate of Reade, supra, [31 Cal.2d 669] and the present case the fund was
preserved whereby each beneficiary received more than he would otherwise have
15 received because of the services rendered by the attorneys for [the minor]." (Id. at
p. 465.)
In this case, although the overall Trust fund was not increased or preserved
through this litigation, the Gaynors made the fund available to a class of beneficiaries
who otherwise would not have had access to the fund under the "senior generation only"
policy applied by the individual trustees. As a result of bringing administration of the
Trust into conformity with the express terms of the Trust and obtaining appointment of a
neutral corporate trustee, which will follow the instructions of the Trust for distributions,
the court concluded the Gaynors "have brought about a benefit to a whole class of people
that were previously deprived of the possibility of that benefit by individual trustees who
had an interest in the situation and on a prima facie basis may have had a conflict of
interest." For the first time in decades, "younger beneficiaries and needy beneficiaries
now have a probability of benefitting from the trust. That is, there will be funds available
that were not previously available that the current corporate trustee can distribute to
them."
We conclude the court's finding is entirely consistent with the holdings in
Winslow, supra, 25 Cal.2d 274, Estate of Read, supra, 31 Cal.2d 669, and Estate of
Lundell, supra, 107 Cal.App.2d 463 applying the common fund theory. It is also
consistent with authorities holding the probate court "enjoys broad equitable powers over
the trusts within its jurisdiction." When litigation benefits the trust, the probate court has
discretion to award attorney fees. (Hollaway v. Edwards (1998) 68 Cal.App.4th 94, 99
[attorney fees awarded to trustee for successfully defending against removal petition and
16 clarifying her role]; see Rudnick v. Rudnick (2009) 179 Cal.App.4th 1328, 1334, fn. 2
["based on the probate court's equitable powers alone, it has been held that beneficiaries
who have incurred attorney fees, either to vindicate their position as beneficiaries
[citation] or for the benefit of the trust [citation], are entitled to have those fees paid by
the trust"].)
Under the circumstances of this case, the trial court acted well within its equitable
discretion to award fees from the Trust. Given our conclusion, we need not reach the
issue of whether or not fees are also appropriate under the substantial benefit doctrine.
17 DISPOSITION
The order awarding attorney fees is affirmed. Respondents are awarded their costs
on appeal.
MCCONNELL, P. J.
WE CONCUR:
O'ROURKE, J.
AARON, J.