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Narcotics Anonymous established a revocable trust to manage its literature and other intellectual property assets for the benefit of its many members.  A “regional delegate group” filed a petition in Los Angeles probate court claiming that the trustee was breaching its fiduciary duties.

The California Court of Appeal, in Autonomous Region of Narcotics Anonymous v. Narcotics Anonymous World Services, Inc. (2022) 77 Cal.App.5th 950, explored the question of who has standing to bring claims against the trustee of a revocable charitable trust.  Because the settlor, i.e., creator, of a revocable trust may oversee and take action against an errant trustee, the court declined to extend the “special interest” standing doctrine to other interested parties.

The Fellowship Creates a Trust

Created in 1953 by recovering drug addicts, the Fellowship of Narcotics Anonymous has only one requirement for membership: a desire to stop using.  The Fellowship uses a variation of the 12-step program most closely associated with Alcoholics Anonymous.

Members of the Fellowship meet in local groups.  In the United States, these cluster in about 70 geographic regions.  Every two years, each region sends a delegate to a gathering known as the World Service Conference.

At the conference in 1993, the Fellowship, through its regional delegates, established a trust called “The NA Fellowship Intellectual Property Trust” to manage its intellectual property assets consisting primarily of books and pamphlets to aid in recovery from substance abuse disorders.

The beneficiary of the trust is the Fellowship as a whole.  The trustee of the trust is Narcotics Anonymous World Services, Inc.  Importantly, the settlor of the trust is defined as “The Fellowship of Narcotics Anonymous, as given voice by its groups through their regional delegates at the World Service Conference.”

Autonomous Region Claims Breach of Trust

Autonomous Region of Narcotics Anonymous described itself as “a regional delegate group of the Fellowship with a voice at the World Service Conference.”  It sought the right to distribute trust literature and to review payments to the trustee, and sought to remove the trustee and to obtain the disgorgement of its profits.

The trustee, on the other hand, asserted that Autonomous Region was the project of “certain dissident individuals” who did not form a recognized region and who had never been a part of the World Service Conference.

Essentially, the trustee asserted that Autonomous Region had no right to assert claims against it regarding the trust, setting up the threshold issue of standing.

Autonomous Region claimed standing to challenge the trustee’s conduct (1) as a settlor of the trust, and/or (2) under the theory of special interest standing.

The Los Angeles County Superior Court found that Autonomous Region lacked standing and the Court of Appeal agreed.

Who Is the Settlor?

A “settlor” is a person who creates a trust.  If a trust is revocable, the trustee owes fiduciary duties to the settlor as stated in Probate Code section 15800.

Autonomous Region argued that, because the terms of the trust allow for amendment or revocation upon a two-thirds vote of delegates at the World Service Conference, and it was a voting member of that class, it therefore held the power to revoke the trust and should be deemed a “settlor.”

The court denounced this argument, finding that the trust instrument defined the settlor in the singular as “the Fellowship of Narcotics Anonymous.”  The court observed that a “trust instrument itself is paramount” with respect to its interpretation.

Being one member of a group who could revoke the trust was not the same as being the person who could revoke the trust.  In the court’s words, “one student is part of the class but is not ‘the class.’  Autonomous Region claims to be a component of the settlor’s voice but, when acting alone, it is not the settlor.”

Did Autonomous Region Have Special Interest Standing?

In order to reduce the risk of unwarranted litigation, only certain parties may bring suit against a trustee.  Under Probate Code section 17200, standing is conferred upon “a trustee or beneficiary of a trust.”

With respect to private trusts, such as a garden variety family trust, limiting standing to beneficiaries generally works well because benefits from the trust and information about it are concentrated in a way that promotes effective oversight: the beneficiaries have an incentive to notice and investigate irregularities.

On the other hand, beneficiaries of a charitable trust are often indefinite, may not know the trust exists, and are not well situated to enforce its terms.  While the California Attorney General has oversight authority over charitable trusts, the office may be unaware of wrongful conduct by a trustee or lack the resources to take action.

Given the danger of ineffective oversight of charitable trusts, the California Supreme Court in Holt v. College of Osteopathic Physicians and Surgeons (1964) 61 Cal.2d 750, allowed a co-trustee to sue another co-trustee over alleged breaches of trust obligations.

Although Holt created a special interest standing rule, the Supreme Court acknowledged that broadening standing ran the risk of inviting vexatious litigation that would diminish funds to serve the charitable mission.

The novel question in Narcotics Anonymous was whether enlarged standing under the “special interest” doctrine should apply in the context of a revocable trust.

The Court of Appeal answered this question in the negative.  While an irrevocable charitable trust deserves the extra protection afforded by a broader approach to standing, a revocable trust by definition has a functioning settlor who can oversee the management of the trust.  In the court’s words, “the problem of lapsed supervision and attendant mismanagement does not exist when the trust is revocable.”

While Autonomous Region expressed concern about combating the opioid epidemic, the “public interest in encouraging charity of every kind is better served by leaving revocable trusts in the hands of the active and on-the-scene settlor that had the resources, desire, and vision to create the charitable trust in the first place.”

Lesson Learned

Revocability matters when it comes to charitable trusts.  If such a trust is revocable, an interested party such as Anonymous Region may be unable to bring an action against the trustee.  Unless such a party can persuade the settlor or the Attorney General to act, there may be nobody authorized to rein in an errant trustee.

It’s a policy tradeoff.  While limiting standing protects charitable trusts from officious intermeddlers, the limitation may leave them more exposed to abuse.