McCalla v. Nord

• Court: District Court, N.D. California
• Decided: August 4, 2023
• Docket: 4:22-cv-00675
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 RICHARD A MCCALLA, Case No. 22-cv-00675-KAW

8 Plaintiff, ORDER DENYING DEFENDANT'S 9 v. MOTION FOR SUMMARY JUDGMENT 10 JAMES NORD, Re: Dkt. No. 39 11 Defendant.

12 13 On February 1, 2022, Plaintiff Richard A. McCalla, as successor trustee of the McCalla 14 Family Living Trust, filed the instant case against Defendant James Nord, alleging breach of 15 fiduciary duty and professional negligence and seeking an accounting for Defendant’s time as 16 trustee. Pending before the Court is Defendant’s motion for summary judgment. 17 Having considered the parties’ filings, the relevant legal authority, and the arguments made 18 at the July 20, 2023 hearing, the Court DENIES Defendant’s motion for summary judgment. 19 I. BACKGROUND 20 Thomas R. McCalla1 and Shirly H. McCalla were the settlors and initial co-trustees of the 21 McCalla Family Living Trust (“Trust”), a revokable trust formed in 1994. (Decl. of Anthony D. 22 Phillips, “Phillips Decl.,” Dkt. No. 39-1, Ex. A.) The beneficiaries of the Trust were the 23 McCallas’ four children: Bonnie, Richard, Erin, and Stacy. Id. The Trust included an 24 exculpation provision, which provided:

25 To the fullest extent permitted by law, the Trustee shall not be liable for breach of trust resulting from any act or omission of the Trustee. 26 No successor Trustee hereunder shall have any duty or responsibility 27 to audit or review the actions or accounting of its predecessor 1 Trustees, each successor Trustee hereunder being expressly relieved from any and all liability or responsibility for the actions or failure of 2 any such predecessor. 3 Id. The Trust also provides that “[i]t is Settlors’ intent to transfer to this Trust all of their right, 4 title, and interest in and to all property of every kind and nature, real and personal, tangible and 5 intangible, whether now owned or hereafter acquired by them or either of them.” Id. 6 Following Shirley’s death on July 31, 2016, Thomas became the sole trustee. (Phillips 7 Decl., Ex. B.) All assets remained in the Trust, which became known as the McCalla Family 8 Survivor’s Trust. Id. One of the Trust’s assets, a property in Napa (“Napa Property”), included 9 Thomas’s residence and a second rental unit. 10 On June 10, 2019, based on growing concern about her father’s ability to care for himself 11 and concern that he was giving large sums of money to Betty Osborn, Bonnie filed a petition in 12 the Napa County Superior Court requesting that she and Richard be appointed as conservators of 13 Thomas’s person and estate. (Phillips Decl., Ex. C; Ex. G.) On September 18, 2019, the Superior 14 Court appointed the Napa County Public Guardian as conservator of Thomas’s person and 15 continued the issue of conservatorship of the estate to a future date. (Phillips Decl., Ex. E.) 16 To resolve the conservatorship proceedings, Thomas and Bonnie entered a settlement 17 agreement, approved by Defendant, under which Thomas agreed to resign as trustee of the Trust 18 and appoint Defendant as trustee, and Bonnie agreed to withdraw the petition for a conservator of 19 the estate in exchange for a release of Thomas’s interest in Bonnie’s residence in Oregon 20 (“Oregon Property”). (Phillips Decl., Ex. G.) The settlement agreement provided that Thomas 21 would not remove Defendant as trustee “unless he appoints another professional trustee as the 22 successor.” Id. Thomas resigned as trustee of the Trust and nominated Defendant to serve as 23 successor trustee on August 30, 2019. (Phillips Decl., Ex. B.) Defendant accepted the office of 24 successor trustee of the Trust on September 12, 2019. Id. On January 21, 2020, Erin’s counsel 25 informed the Superior Court that she was withdrawing the petition for conservatorship of the 26 estate. (Phillips Decl., Ex. F.) 27 During Defendant’s time as trustee, Thomas continued to have access to the Trust 1 handle the Napa Property. (Phillips Decl., Ex. O (“Thomas Depo.”) at 15.) Thomas never 2 understood that anyone other than himself was responsible for the Trust assets or managing his 3 financial accounts. (Thomas Depo. at 15-16.) 4 Richard came to visit Thomas at the Napa Property in December 2020 and was concerned 5 about the condition of the Napa Property. Richard asked Defendant to cooperate in refinancing 6 the Napa Property to obtain funds to replace the roof and Defendant declined to refinance the 7 Napa Property or reroof the house. (Phillips Decl., Ex. I (“Richard Depo.”) at 41-42.) Richard 8 also alerted Defendant that the Trust’s tax returns for 2018 and 2019 had not been filed as of 9 January 2021. Defendant then contacted Thomas’s accountant to attempt to get the returns filed. 10 (Pl.’s Exs. 24, 25, 26.) 11 Thomas relocated to Oklahoma in March 2021 and subsequently communicated a desire to 12 replace Defendant as trustee. On July 2, 2021, Thomas amended the Trust to remove Defendant 13 as trustee and appoint Richard as co-trustee. (Phillips Decl., Ex. N.) Because the terms of the 14 previous settlement agreement only allowed Defendant to be replaced with a professional trustee, 15 Thomas, Bonnie, and Defendant revised their agreement, effective October 1, 2021, to allow 16 Richard to replace Defendant as trustee. (Phillips Decl., Ex. H.) Defendant did not provide an 17 accounting after his resignation. (Nord Depo. at 252.) 18 On February 1, 2022, Plaintiff filed this action against Defendant, asserting claims for 19 breach of fiduciary duty, professional negligence, and accounting. (Compl., Dkt. No. 1 at 8-12.) 20 On May 8, 2023, Defendant moved for summary judgment. (Def.’s Mot., Dkt. No. 39.) On May 21 22, 2023, Plaintiff filed an opposition. (Pl.’s Opp’n, Dkt. No. 40.) On May 30, 2023, Defendant 22 filed a reply. (Def.’s Reply, Dkt. No. 43.) 23 II. LEGAL STANDARD 24 A party may move for summary judgment on a “claim or defense” or “part of... a claim or 25 defense.” Fed. R. Civ. P. 56(a). Summary judgment is appropriate when, after adequate 26 discovery, there is no genuine issue as to material facts and the moving party is entitled to 27 judgment as a matter of law. Id.; see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). 1 477 U.S. 242, 248 (1986). A dispute as to a material fact is “genuine” if there is sufficient 2 evidence for a reasonable jury to return a verdict for the nonmoving party. Id. 3 A party seeking summary judgment bears the initial burden of informing the court of the 4 basis for its motion, and of identifying those portions of the pleadings and discovery responses 5 that demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. Where 6 the moving party will have the burden of proof at trial, it must affirmatively demonstrate that no 7 reasonable trier of fact could find other than for the moving party. Southern Calif. Gas. Co. v. City 8 of Santa Ana, 336 F.3d 885, 888 (9th Cir. 2003). 9 On an issue where the nonmoving party will bear the burden of proof at trial, it may 10 discharge its burden of production by either (1) by “produc[ing] evidence negating an essential 11 element of the nonmoving party's case” or (2) after suitable discovery “show[ing] that the 12 nonmoving party does not have enough evidence of an essential element of its claim or defense to 13 discharge its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co., Ltd., v. Fritz 14 Cos., Inc., 210 F.3d 1099, 1103 (9th Cir. 2000); see also Celotex, 477 U.S. 324-25. 15 Once the moving party meets its initial burden, the opposing party must then set forth 16 specific facts showing that there is some genuine issue for trial to defeat the motion. See Fed. R. 17 Civ. P. 56(e); Anderson, 477 U.S. at 250. “A party opposing summary judgment may not simply 18 question the credibility of the movant to foreclose summary judgment. Anderson, 477 U.S. at 254. 19 “Instead, the non-moving party must go beyond the pleadings and by its own evidence set forth 20 specific facts showing that there is a genuine issue for trial.” Far Out Prods., Inc. v. Oskar, 247 21 F.3d 986, 997 (9th Cir. 2001) (citations and quotations omitted). The non-moving party must 22 produce “specific evidence, through affidavits or admissible discovery material, to show that the 23 dispute exists.” Bhan v. NMS Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991). Conclusory or 24 speculative testimony in affidavits and moving papers is insufficient to raise a genuine issue of 25 material fact to defeat summary judgment. Thornhill Publ’g Co., Inc. v. Gen. Tel. & Electronics 26 Corp., 594 F.2d 730, 738 (9th Cir. 1979). 27 In deciding a motion for summary judgment, a court must view the evidence in the light 1 477 U.S. at 255; Hunt v. City of Los Angeles, 638 F.3d 703, 709 (9th Cir. 2011). 2 III. ANALYSIS 3 Defendant argues summary judgment is warranted because Plaintiff’s claims are barred by 4 the Trust’s exculpation provision; Plaintiff cannot establish that Defendant breached a duty to the 5 Trust; and Defendant acted in good faith. 6 A. Exculpation Provision 7 Defendant argues the Trust’s exculpation provision is broad enough to bar Plaintiff’s 8 breach of fiduciary duty and professional negligence claims and there is no evidence showing any 9 alleged breach was intentional or the result of gross negligence, bad faith, or reckless indifference, 10 or that Defendant received any profit from his position. (Def.’s Mot. at 11.) Plaintiff responds 11 that a settlor cannot relieve a trustee of all accountabilities and a professional trustee cannot use an 12 exculpatory provision as a shield for neglecting his fiduciary duty or abdicating his judgment. 13 (Pl.’s Opp’n at 23.) Additionally, Plaintiff argues that whether Defendant acted with gross 14 negligence or reckless indifference is a fact question that must be left to the jury. (Pl.’s Opp’n at 15 23.) Defendant responds that Plaintiff “recites five perceived breaches duplicative of plaintiff’s 16 theories on ordinary negligence and conjectures that perhaps a jury would go further and find they 17 arose to the level of gross negligence” and this is insufficient to survive summary judgment. 18 (Def.’s Reply at 3.) 19 California Probate Code § 16461 provides that a trustee can be relieved of liability for 20 breach of trust by provisions in the trust instrument, except that such a provision “is not effective 21 to relieve the trustee of liability (1) for breach of trust committed intentionally, with gross 22 negligence, in bad faith, or with reckless indifference to the interest of the beneficiary, or (2) for 23 any profit that the trustee derives from a breach of trust.” Cal. Prob. Code § 16461 (a)-(b). The 24 parties do not dispute that the Trust contains a valid exculpation clause. Accordingly, Defendant 25 cannot be held liable unless he committed a breach with gross negligence or with reckless 26 indifference.2 Thus, if there is a question of fact as to whether Defendant committed a breach of 27 1 his duties with the requisite gross negligence, summary judgment is not warranted. Accordingly, 2 the Court proceeds to address the parties’ additional arguments. 3 B. Duty and Breach 4 “The elements of a cause of action for professional negligence are: (1) the duty of the 5 professional to use such skill, prudence, and diligence as other members of the profession 6 commonly possess and exercise; (2) breach of that duty; (3) a causal connection between the 7 negligent conduct and the resulting injury; and (4) actual loss or damage resulting from the 8 professional negligence.” Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 9 1128 (2014). “The elements of a cause of action for breach of fiduciary duty are the existence of a 10 fiduciary relationship, breach of the fiduciary duty, and damages.” Id. 11 The California Probate Code sets forth specific duties owed by a trustee and the applicable 12 standard of care. Probate Code § 16000 provides that “[o]n acceptance of the trust, the trustee has 13 a duty to administer the trust according to the trust instrument and, except to the extent the trust 14 instrument provides otherwise, according to this division.” Cal. Prob. Code § 16000. The Probate 15 Code imposes a duty “to take reasonable steps under the circumstances to take and keep control of 16 and to preserve the trust property” and to “make the trust property productive under the 17 circumstances and in furtherance of the purposes of the trust.” Cal. Prob. Code § 16006, 160007. 18 “The trustee shall administer the trust with reasonable care, skill, and caution under the 19 circumstances then prevailing that a prudent person acting in a like capacity would use in the 20 conduct of an enterprise of like character and with like aims to accomplish the purposes of the 21 trust as determined from the trust instrument.” Cal. Prob. Code § 16040(a). 22 Defendant initially only attacked the breach element, arguing that because the Trust was 23 revocable, Defendant “cannot be held liable for breach for any act or omission in accord with the 24 settlor’s wishes” and there is no “evidence of some action or inaction by [Defendant] contrary to 25 the wishes of Thomas.” (Def.’s Mot. at 12.) In response to the Court’s question at the hearing as 26 to why the lack of a specific directive from Thomas relieved Defendant of his statutory duties, 27 Defendant argued that because the Trust was revocable, his duties had not yet arisen, and Thomas 1 indicate that the duties apply only to an irrevocable trust but rather the duties applied upon 2 Defendant’s acceptance of the trustee position. 3 The Court agrees with Plaintiff. Nothing in the Probate Code implies that the statutory 4 duties it sets forth are limited to an irrevocable trust. Rather, as Plaintiff argued, the language of 5 the Probate Code explicitly states that the duty arises “[o]n acceptance of the trust” without any 6 further qualification. Cal. Prob. Code § 16000. While the Probate Code imposes additional duties 7 on the trustee of a revocable trust, there is simply no support for the proposition that the other 8 statutory duties do not apply to a revocable trust. See Cal. Prob. Code § 16001 (imposing duty to 9 comply with written directions on trustee of revocable trust). 10 The Supreme Court of California decision Defendant cites also fails to support the 11 proposition that a trustee does not owe the statutory duties while the trust is revocable. In Estate 12 of Giraldin, 55 Cal. 4th 1058, 1062 (2012), the court addressed whether, following the settlor’s 13 death, “the beneficiaries have standing to sue the trustee for breach of the fiduciary duty 14 committed while the settlor was alive and the trust was still revocable.” Specifically, the 15 beneficiaries sought to hold the trustee liable for investments made during the settlor’s lifetime. 16 Giraldin, 55 Cal 4th at 1064. The court concluded that “[b]ecause a trustee’s breach of the 17 fiduciary duty owed to the settlor can substantially harm the beneficiaries by reducing the trust’s 18 value against the settlor’s wishes, … the beneficiaries do have standing to sue for a breach of that 19 duty after the settlor has died.” Giraldin, Id. at 1062. Giraldin explicitly states that “[w]hen the 20 trustee of a revocable trust is someone other than the settlor, that trustee owes a fiduciary duty to 21 the settlor … as long as the settlor is alive” and nothing in the case suggests that the fiduciary duty 22 mentioned only contemplates following the explicit instructions of the settlor. Id. If anything, the 23 Court of Appeal’s subsequent decision following remand negates Defendant’s argument. The 24 Court of Appeal concluded that the trustee’s arguments that he could not be held liable because the 25 settlor told him he would not be trustee until the settlor’s death and that the settlor made the 26 decision regarding the investment before the trust was formed were “heavily factual” such that 27 remand to the trial court was appropriate. Estate of Giraldin, No. G041811, 2013 WL 1633283, at 1 Thus, in the absence of law to the contrary, the Court concludes Defendant, at a minimum, 2 owed Thomas the statutory duties and the lack of an ignored specific directive is simply a fact to 3 be considered in determining whether Defendant’s actions were reasonable given the 4 circumstances. 5 Plaintiff argues that Defendant breached his duties by relinquishing the Oregon property to 6 Bonnie and failing to: take control of, preserve, or create a budget for the Trust and Trust property; 7 file 2018 and 2019 tax returns timely; maintain the Trust’s residential property; ensure the Trust’s 8 bills were paid; marshal rental income due to the Trust or lease the rental property after the tenant 9 moved out; ensure code violations concerning a cottage were corrected; timely resign as trustee at 10 Thomas’s request; and provide an accounting upon the change of trustee. (Pl.’s Opp’n at 10-22.) 11 Defendant replies that “none of plaintiff’s gross negligence theories in the Opposition were 12 advanced at any time before the Opposition was filed” such that they are not a valid basis for 13 denying summary judgment. (Def.’s Reply at 5.) 14 Although the complaint does not specifically mention the Oregon Property or the cottage’s 15 code violations, it does reference the failure to file taxes, take control of the Trust’s bank account, 16 and maintain the Trust’s residential and rental properties in a productive manner. (Compl. at ¶ 17 35.) Because the cottage sits on the Napa Property and because the Oregon Property was titled to 18 Bonnie, Thomas, and Shirly after the Trust was created such that Thomas and Shirly’s interest 19 could be considered a Trust asset, see Pl.’s Ex. 17, facts surrounding the Oregon Property and the 20 cottage may be considered in determining whether Defendant failed to “maintain, control, preserve 21 and protect Trust assets.” (Compl. at ¶ 34.) 22 While the Defendant argues summary judgment is proper because the complaint did not 23 allege gross negligence, the Court disagrees because Plaintiff did not bring a claim asserting gross 24 negligence but rather argues that gross negligence exists to defeat the exculpation provision. 25 “[W]hen the plaintiff fails to allege in his or her pleading facts sufficient to support a theory of 26 gross negligence, the defendant satisfies its burden by asserting a release as a complete defense, 27 and the burden shifts to the plaintiff to produce evidence that there is a triable issue of fact 1 App. 5th 814, 828 (2022). “[G]ross negligence long has been defined as either a want of even 2 scant care or an extreme departure from the ordinary standard of care” and is “a matter generally 3 for the trier of fact.” Id. at 827-28. 4 Here, Plaintiff points to evidence that Defendant knew of Thomas’s questionable past 5 financial decisions and that he knew the conservatorship proceedings regarding the estate were 6 dismissed based on the agreement that he would serve as trustee. Defendant testified in his 7 deposition that he would typically take steps to open new accounts or get on the title to trust 8 accounts after being appointed trustee and would pay bills for his clients. (Nord Depo. at 21, 27.) 9 He further testified that with him as trustee, Thomas “wouldn’t have access to that account” to 10 send money to a former acquaintance. (Nord Depo. at 71-72.) However, Defendant also testified 11 that Thomas continued to have access to the account after Defendant’s appointment; he did not 12 know who received the rental income while he was trustee; he did not know whether Thomas’s 13 bills were paid while Defendant was trustee; and he generally would not wait a year and a half 14 after his appointment before putting himself on a trust’s bank account. (Nord Depo. at 54, 71-72, 15 97, 110). Based on this evidence, the Court concludes there is a question of fact as to whether 16 Defendant acted with reasonable care, skill, and caution under the circumstances and whether any 17 breach was an extreme departure from the ordinary standard of care.3 Accordingly, summary 18 judgment is not proper. 19 C. Good Faith 20 Defendant argues “the record is devoid of evidence of bad faith,” such that the Court 21 should “enter summary judgment in [his] favor; hold that his actions as trustee were taken in good 22 faith; and, set further briefing to allow [him] to recover his expenses in defending this action.” 23

24 3 Additionally, Plaintiff’s expert, Varee Wycoff, indicated that after appointment, a professional fiduciary would typically complete an inventory of trust assets to obtain a beginning value, 25 determine the needs of the beneficiary and the availability of assets to pay for those needs, ensure that income tax returns are properly filed, and provide an accounting following his resignation. 26 (Declaration of Varee Wycoff, Dkt. Np. 40-1.) Defendant argues the Court should strike Wycoff’s declaration because she “simply states a series of legal conclusions without any elaboration on 27 what specific evidence she has considered and how she formed her conclusions from them.” 1 (Def.’s Mot. at 13-14.) Given the Court’s ruling that there is a fact question as to whether 2 || Defendant’s actions amount to a breach committed with gross negligence, there is also a fact 3 || question as to whether he acted with good faith. See Cal. Prob. Code § 16440(b) (“Tf the trustee 4 || has acted reasonably and in good faith under the circumstances as known to the trustee, the court, 5 || □□ □□□ discretion, may excuse the trustee in whole or in part from liability [for breach of trust] if it 6 || would be equitable to do so.”). Thus, summary judgment is not warranted. 7 IV. CONCLUSION 8 For the reasons set forth above, the Court DENIES Defendant’s motion for summary 9 || judgment. 10 IT IS SO ORDERED. 11 Dated: August 4, 2023 '

Rue A. WESTMORE 13 United States Magistrate Judge

15 16

it

4 18 19 20 21 22 23 24 25 26 27 28