In Bruno v. Hopkins (2022) ___ Cal.App.5th ___, the California Court of Appeal broke new ground by finding that a beneficiary who in bad faith seeks to remove a trustee may be held personally liable for hefty defense fees and costs. The liability is not limited to the value of the beneficiary’s share of the trust.
Unlike the mysterious character in the movie Encanto, we should talk about Bruno, yes, yes, yes.
Meet the Francis Family
Mildred and James Francis were married for 67 years. They had four daughters: Gail, Lynne, Jane and Gwen.
James was a lawyer. In 1989-1991, he created a marital trust consisting of 31 pages. He and Mildred signed it.
Years passed. James died in 2006. Mildred was supposed to notify all daughters regarding the terms of the trust after James’ passing per California Probate Code section 16061.7. Mildred, however, deferred sending out the notice until early 2015.
Lynne then filed a petition to compel Mildred to release the whole trust document. After Lynne received it, she consulted with document examiner David Moore who found discrepancies between the first and last pages of the instrument and middle pages 2-30.
Lynne amended her petition to allege that the trust instrument was a forgery and to seek the removal of Mildred as trustee.
While the trust instrument provided for a $200,000 specific gift to Lynne upon Mildred’s passing, Lynne contended that she had a close relationship with her father. Hence, according to Lynne, the relatively small share allocated to her showed that the instrument was not genuine.
Battle of the Document Examiners
Over a 13-day period, a judge in Santa Clara County Superior Court heard evidence on Lynne’s forgery allegations.
Mildred testified that the trust instrument was genuine. She explained that when the trust was created, she and James wanted to leave a fixed amount to Gail and Lynne, which at the time totaled about half the value of the trust assets. As time passed, however, the value of the trust assets grew substantially.
While Jane and Gwen lived locally in California and had a close relationship with their parents, Gail and Lynne lived in Pennsylvania. Mildred testified that Lynne’s visits were often unpleasant.
Lynne presented expert testimony from three document examiners: David Moore, Lloyd Cunningham and William Flynn.
The experts noted various discrepancies between the first and last pages of the trust instrument and the middle pages that contained the trust’s substantive terms. For example, pages 2-30 were written on different paper, had different typography characteristics, had inconsistent numbers of staple holes, and had more disturbed paper fibers.
Cunningham and Moore also opined that someone had sought to artificially age pages 2-30 by applying an unidentified stain or solution.
Mildred offered testimony from Albert Lyter, a forensic chemist. He found that the two types of toner used to produce the pages of the trust instrument were commonly used when the document was created. He acknowledged that the 31 pages were not all printed on the same paper stock, but found that the paper was all at least 20 years old and had not been stained.
Trial Court Finds Document Genuine
The trial judge rejected Lynne’s forgery claim, finding instead that the trust instrument was genuine. With respect to the family member witnesses, the judge found Mildred’s testimony credible and Lynne’s testimony not credible.
The judge was unpersuaded by the testimony of Lynne’s experts, noting that none of them could identify with certainty the type of alleged staining agent that was used or how it was applied to the paper. Mildred, on the other hand, offered testimony that explained the anomalies in the trust instrument, including that James used different typists to assist in preparing the documents.
The lawyers for Mildred, Jane and Gwen filed a motion to require Lynne to pay over $900,000 in legal fees and costs. This amount far exceeded the $200,000 that Lynne was to receive from the trust. The trial judge granted the motion.
Court of Appeal Affirms
Lynne challenged the fee/cost award on appeal. She claimed that the judge did not have authority to require her to pay more than the value of her beneficial interest in the trust. She also argued that she acted in good faith in filing her amended petition even if she ultimately did not persuade the judge that the trust instrument was forged.
The Court of Appeal found her wrong on both counts.
The court created new law by broadly interpreting Probate Code section 15642(d). This subdivision permits a probate judge to require a party who unsuccessfully seeks to remove a trustee to pay the costs of the proceeding if (1) the petition was filed in bad faith and (2) the proposed removal would be contrary to the settlor’s intent.
Lynne argued that the statutory framework was limiting as to a beneficiary’s liability for a bad faith removal petition.
The Court of Appeal looked at the legislative history of section 15642.
In 1995, the Legislature considered the bill that would add subdivision (d) to the trustee removal statute. The Senate Judicial Committee’s rationale for the legislation was that bad faith trustee removal petitions can damage the trust estate and be used to force a settlement payment to the complaining petitioner who has not put “anything of his or her own at risk.”
Hence, the Court of Appeal found that the policy rationale of section 15642(e) called for personal liability to deter bad faith litigants.
Even though Lynne offered expert evidence to support her position, the appellate court found substantial evidence that she had acted in subjective bad faith.
From the circumstantial evidence, it could “be reasonably inferred that Lynne knew the terms of the Trust instruments, and that her frustration over the proposed distribution of the estate caused her to fabricate the existence of an alternate estate planning document.”
While Lynne had supporting expert opinions, they were “fatally undermined” by her own imputed knowledge that she had not viewed an alternate version of the trust instrument.
Everybody Will Be Talking About Bruno
Bruno provides a new feature in California’s trust litigation landscape.
Petitions to remove trustees are relatively common. Usually, the petitioner claims that the trustee is not administering the trust properly and/or has conflicts of interest.
Now, before filing a trustee removal petition, the interested party should pause to consider the possibility of being held liable for the legal expenses of those opposing the removal. Even supporting expert testimony may not insulate the petitioner from being found to have acted in bad faith.
Lawyers representing clients who want to remove trustees should evaluate the supporting evidence and advise clients of their downside risks. Taking a trustee removal claim to trial can become devastatingly expensive.