(Editor’s Note: This post has been updated following the Court of Appeal’s opinion after rehearing.)
Trust and estate litigators, and mediators, are buzzing over a recent decision from the California Court of Appeal that validates mandatory mediation of trust disputes.
In Breslin v. Breslin (2021) ___ Cal.App.5th ___, the appellate court by a 2-1 majority held that a California probate judge may order the private mediation of trust disputes and then disallow the objections of any nonparticipating parties to a settlement agreement reached in mediation.
The upshot of the case, assuming the opinion becomes final, is that probate judges may be more inclined to require pre-trial mediation and parties will need to participate to avoid waiving their beneficial interests.
Don Kirchner Creates a Trust with Unclear Beneficial Provisions
When Don Kirchner died in 2018, he had no spouse or children and left $3-4 million in assets.
He held his assets in a revocable trust, which he created in July 2017 and restated in November 2017. Unfortunately, a complete copy of the restated trust instrument could not be located. The instrument included four specific gifts of $10,000 each, with the remainder to be distributed to the persons and charitable organizations listed in “Exhibit A” in the percentages set forth there. Yet the all-important Exhibit A was missing.
The successor trustee, David Breslin, found in the binder containing the restated trust instrument a document entitled “Estates Charities (6/30/2017)” that listed 24 charities with handwritten notations appearing to be percentages. Breslin later found the original trust instrument and it had an “Exhibit A” that listed the same charities.
Court Orders Mediation and Approves Settlement Agreement
Breslin filed a petition in Ventura County Superior Court to determine the trust’s beneficiaries in the absence of an attached Exhibit A. He served all of the listed charities and three of them filed formal responses.
The probate judge ordered mediation among the interested parties, including the listed charities and Kirchner’s intestate heirs. One charity, the Thomas More Law Center, sent a notice of mediation to all interested parties.
In the notice, which is quoted in the opinion, the Center stated that mediation may result in an agreement to distribute Kirchner’s assets and that non-participating parties “may be bound by the terms of any agreement reached without further action by the Court or further hearing,” specifically warning that non-participating parties may lose their rights if they fail to participate.
At the mediation, Breslin’s intestate heirs (his nieces and nephews) participated, as did five of the charities. They reached a settlement agreement allocating specific amounts to the charities and other parties, with the residue to the intestate heirs.
Breslin then filed a petition to confirm the settlement agreement. Nine of the charities that did not participate in mediation, led by Pacific Legal Foundation, objected to the petition. The court overruled the objection on the ground that the “Pacific parties” had neither filed a response to Breslin’s initial petition to determine the beneficiaries nor appeared at the mediation.
Appellate Court Embraces Mandatory Mediation
Relying on Probate Code section 17206, a generally-worded statute that allows a judge to enter orders “necessary or proper to dispose of the matters” presented in a petition, the Court of Appeal ruled that a probate court in a trust dispute “has the power to order the parties into mediation.” Note, however, that section 17206 does not mention mediation.
The appellate court rejected the Pacific parties’ argument that they were entitled to an evidentiary hearing as to their beneficial interests because the court had “made participation in mediation a prerequisite to an evidentiary hearing.” By not participating in mediation, the Pacific parties had “waived their rights to an evidentiary hearing.” Going one step further, the appellate court found that the Pacific parties had “forfeited their interest when they failed to participate in mediation as ordered by the court.”
The Pacific parties contended that Breslin had breached his duty of impartiality as trustee by “approving large gifts to Kirchner family members, including himself, who stood to gain little or nothing under the trust.” The appellate court was unmoved, noting that “all parties who participated in the mediation approved the settlement, not just the trustee.”
The Pacific parties also asserted that the trustee should have kept them informed about the mediation and his intent to execute the settlement agreement, but the court found no such obligation because the Pacific parties had a chance to participate in mediation and thus learn of the settlement agreement being negotiated.
Where to From Here?
On April 5, 2021, the Court of Appeal issued a revised opinion following rehearing. Two justices voted to follow the court’s initial ruling. Justice Martin J. Tangeman, in dissent, stated in part: “the probate court exalted principles of forfeiture over Kirchner’s express wishes, concluding that the Pacific parties forfeited their rights to the gifts Kirchner wanted them to have because they did not satisfy a requirement Kirchner did not impose: participation in mediation at their expense. In effect, the court imposed a terminating sanction against the nonappearing beneficiaries. The majority countenances this result. I would not.”
Dissents are relatively unusual in Court of Appeal opinions and increase the potential for review or depublication by the California Supreme Court. Thus, stay tuned over the next several months for further developments.
Stepping back, the big question here is whether California courts, in trust disputes and more broadly in civil cases, can compel private mediation as a prerequisite to conducting a trial. While courts can and often do order “mandatory settlement conferences” with a judicial officer in advance of trial, many practitioners take the view that courts generally cannot (and should not) force parties to go to private mediation with a paid mediator.
Mediation is commonly and often successfully used to resolve California trust disputes without the uncertainty and expense of trial, but mediation inherently is a voluntary process. If parties can’t be forced to settle in mediation, can they be compelled to attend and participate?
Under Breslin v. Breslin, the current answer in California trust disputes is “yes.” Any litigant who receives notice of a court-ordered mediation and declines to participate runs the risk of losing whatever interest he, she or it may have under the trust. The participating parties, as occurred here, can cut the nonparticipating parties out of the asset allocation they negotiate.
The other, narrower, takeaway from the case is the importance of keeping all parts of a trust instrument together as an integrated document. The fight erupted here because of a missing “Exhibit A,” leading to a multi-million dollar scramble involving Kirchner’s nieces, nephews, and designated charities. It is common for trust instruments to have attached schedules or exhibits, but they all too often get separated from the body of the instrument, leaving all interested parties to puzzle over what assets are held in the trust and/or who is entitled to what.
Jeffrey Galvin is an attorney with Downey Brand LLP, based in Sacramento. He litigates trust and estate cases in Northern California, including disputes involving trust and probate administration, contests of trusts and wills, and financial elder abuse claims.