Case Number: LP016003 Hearing Date: March 09, 2018 Dept: 32

In re the

HALLEGRAEFF TRUST DATED JUDE 28, 1993

MARION WEINREB, etc., et al,

Petitioners,

v.

ELLEN GRACE MUSCHENHEIN, etc.,

Respondent.

)

)

)

)))

)

)))))))))))

Case No.: LP 016003

[Tentative]

ORDER RE RESPONDENT’S MOTION FOR NEW TRIAL

))

Ellen breached her fiduciary duties, The Second and Third Amendment to the trust were the result of Undue Influence exerted by Ellen, and Ellen acted in bad faith.

The court addressed Ellen’s undue influence bad faith conduct in the court’s statement of decision phase 1.

A Trustee has a duty to comply with the trust terms. (Crocker-Citizens Nat’l Bank v. Younger (1971) 4 Cal.3d 202, 211.) A trustee has a duty to act in the best interest of the trust (Toedter v. Bradshaw (1958) 164 Cal.App.2d 200, 208.), and it is a breach of loyalty for a trustee to place his interest above a beneficiary. (Estate of Gump (1991) 1 Cal.App.4th 582, 586.) A trustee has duty to avoid conflicts of interest (California Probate Code, Section 16004.) A trustee has a duty to keep trust assets separate and identified. (California Probate Code, Section 16009.) Ellen breached her fiduciary duty to Doris, her mother and beneficiary of the trust, by self-dealing, when in 2006, she had Doris remove the Marsala property from the trust to finance improvements to her property. Ellen breached her fiduciary duty to Doris, her mother and beneficiary of the trust, when in 2008 she had Doris sign over the Marsala property to a trust controlled by her instead of having the property returned to the trust. Ellen had a duty to act in the best interest of the trust and in the best interest of the beneficiary Doris. Ellen breach this duty and acted in her own self-interest to the detriment of the trust and Doris. This breach of trust is evidence of Ellen’s exertion of undue influence over Doris and her bad faith.

A presumption of undue influence arises when there is a concurrence of the following elements: (1) the existence of a confidential or fiduciary relationship between the testator and the person alleged to have exerted undue influence; (2) active participation by such person in the preparation or execution of the will; and (3) an undue benefit to such person or another person under the will thus procured. (Estate of Gelonese 36 Cal.App.3d 854, 861-862 (1974); Estate of Peters 9 Cal.App.3d 916, 922 (1970); Estate of Morgan 148 Cal.App.2d 811, 814 (1957).)

At the time of these amendments, Doris was eighty-six years old, and she was in poor health with limited mobility and pain from arthritis that required her to take darvocit, a strong sedative, to alleviate her pain. The evidence establishes the existence of the first element, in that Ellen took care of all of Doris’ living arrangements and financial matters, and Ellen was co-trustee of the trust wherein Doris was the sole beneficiary. As such, Ellen exerted care, custody and control over all aspects of Doris’s life, and Ellen stood in a position of trust with Doris. Confidential and fiduciary relations are, in law, synonymous, and may be said to exist whenever trust and confidence is reposed by one person in the integrity and fidelity of another.” (Estate of Cover 188 Cal. 133, 143 (1922).) It is also undisputed that Ellen profited under the August 15, 2007 and November 30, 2007 amendments to the trust. With the August 15, 2007 Amendment, Ellen received $95,000 from Doris’ trust. In the November 30, 2007 amendment, Ellen was to receive the entire trust estate.

As will be set forth more fully below, the evidence establishes the existence of the second element, in that Ellen participated in the preparation and execution of the August 15, 2007 and November 30, 2007 amendments to the trust. Activity on the part of Ellen in procuring execution of the will may be established by inference, that is, by circumstantial evidence. (Estate of Garibaldi 57 Cal.2d 108, 113 (1961); Estate of Jamison 41 Cal.2d 1, 8 (1953).) While it is true that there must be proof that the influence was used directly to procure the will, such proof exists where the evidence is of such a nature as to warrant the inference that the will was the direct result of the influence exerted for the purpose of procuring it, and was not the natural result of the uncontrolled will of the testatrix.” ( Estate of Snowball 157 Cal. 301, 307 (1910): see also Estate of Leahy 5 Cal.2d 301(1936); and Estate of Sproston 4 Cal.2d 717, 722 (1935).) In determining whether undue influence was exerted by Ellen upon Doris in the execution of the August 15, 2007 and November 30, 2007 amendments to the trust, the court is not limited to the actual time the will was executed, but may consider facts bearing upon undue influence both before and after execution so long as they tend to show such influence when the will was executed. (See Estate of Larendon 216 Cal.App.2d 14, 19 (1963).) In addition, Ellen did not have to be present at the time of the execution of the August 15, 2007 and November 30, 2007 amendments to the trust, if the influence is present to constrain Doris from exercising her free will. As stated previously, the evidence of the use of undue influence need not be direct but may be circumstantial. (Estate of Greuner 31 Cal.App.2d 161, 162 (1939) and David v. Hermann 120 Cal.App.4th 672 (2005).) That the alleged wrongdoer had power or ability to control the testamentary act may be established by a variety of circumstances, — such as control over the decedent’s business affairs, dependency of the decedent upon the beneficiary for care and attention, or domination on the part of the beneficiary and subservience on the part of the deceased. (Estate of Washington 116 Cal.App.2d 139 (1953).)

When the Second amendment and Third amendment was prepared in 2007, Doris could no longer handle her own affairs and needed assistance to walk, food preparation, and other actions of daily life. Ellen handled Doris’ financial matters. Since late 2005, Doris stayed at Ellen’s residence seven days a week, and Doris was dependent on Ellen for all of her daily needs during this time period.

In 1993, Doris prepared a trust which provided that upon her death, her assets should be divided equally between her four children, Marion, Maureen, Barbara and Ellen. The proposed distribution to Doris’ four children remained in place for over fourteen years. (See, Exhibit 1.)

From 2005 until Doris’ death, Maureen was very involved in Doris’ life. Maureen cutback on her hours as a waitress so that she could be a paid caretaker for her mother from 2005 until Doris’ death. Maureen would take Doris to her doctor’s appointments, administer medication and assist Doris in her daily activities. Maureen cared for Doris four to five days a week. Doris constantly expressed concern about Maureen. Ellen and Michael both testified that Doris repeatedly expressed concern about Maureen because Maureen had limited finances and had health issues. Eric Olson, attorney for Ellen and Michael, testified that Doris “appreciated the time and energy that her daughter, Maureen, has devoted to her care.” (See, Exhibit 110.) Attorney Carol Peters testified that Doris mentioned that Maureen was “poor” and had “cancer.” (See, Exhibit 20.) Clearly, Doris was concerned for Maureen and had a very close and loving relationship with Maureen. Respondent provides no explanation why Maureen was disinherited in 2007.

In amending the trust, attorney Michael Mills prepared the amendments for Doris and Ellen’s signature. Attorney Mills was Michael and Ellen’s long time attorney. The court did not find Michael and Ellen credible when they testified that they never discussed the trust amendments with Doris, especially since Ellen, as a co-trustee, signed all the amendments (See, Exhibits 2, 3, and 4), and the court did not find Michael and Ellen credible when they testified that Doris arranged the appointments with attorney Mills. The evidence established that Ellen and Michael were the individuals that arranged and coordinated Doris’ visits with the various attorneys, including attorney Mills and Carol Peters. For example, Ellen was the individual who paid attorney Peters. (See, Exhibit 27.)

The court finds that Ellen and Michael manipulated Doris to disinherit all her children except Ellen. Apparently, Ellen could not wait for Doris to pass away to gain control over the Doris’ trust assets. In August, 2008, Ellen had Doris sign over all interest in the real property located at 26455 Marsala Drive Valencia, California 91355 (hereinafter the “Marsala property”). Attorney Mills represented Doris and Ellen and Michael in this transaction. (See, Exhibit 11, 21 and 116.)

Attorney Mills prepared documents wherein Doris deeded the Marsala property to a trust controlled by Ellen and Michael, and Doris allegedly retained a life estate in the Marsala property. (See, Exhibit 11, 21 and 116.) During her lifetime, Doris was to “have exclusive authority to control, manage, and operate the [Marsala] property for her exclusive benefit.” (See, Exhibit 116, page 2.) Ellen and Michael failed to comply with the terms of this agreement, and in November, 2010, Ellen and Michael unilaterally sold the Marsala property and kept the proceeds for their own use and benefit.

In July, 2006, Ellen and Michael had Doris remove the Marsala property from the trust so that Doris could refinance the Marsala property which at the time had no encumbrances. The Marsala property was refinanced for $201,158.96 at 7.570% for thirty years, and this money was used by Ellen and Michael to upgrade real property owned by them.

Doris changed her trust to disinherit all of her children except Ellen. Doris never explained to anyone, not even her attorneys, why she decided to make this extreme change in her estate planning. It appears that attorney Mills, Olson or Peters never even asked this question to Doris.

The secrecy and lack of transparency is circumstantial evidence that Ellen participated in the preparation and execution of the Second amendment and Third amendments to the trust. As stated previously, Maureen had a close relationship with Doris. Even though Maureen took Doris to her various medical appointments, Ellen and Michael arranged for the visits with attorneys Mills, Olson and Peter when Maureen was not present.

In a case similar to the present, David v. Hermann 129 Calapp.4th 672 (2005), the court inferred that settlor’s sudden negative shift in attitude toward older daughter was caused by younger daughter falsely poisoning settlor’s mind because the court could find no other rational explanation.

In the present case, Doris’ sudden shift in attitude towards the distribution of her trust was caused by Ellen’s exertion of undue influence. The court could find no other rational explanation, especially concerning Maureen. As to Barbara and Marion, it appears that at some point in time, Ellen and Michael falsely claimed that Marion and Barbara wanted to put Doris in a convalescent home. When they made this false assertion, Ellen and Michael were aware that Doris was petrified about being placed in a convalescent home.

In the present case, Doris was overly dependent on Ellen. A testator who has full testamentary capacity may nevertheless have been the victim of undue influence because her weakened physical or mental condition left her susceptible to undue influence. (See, Estate of Yale 214 Cal. 115(1931).) In the present case, Doris had significant medical issues and was dependent on Ellen for all her daily needs. Due to her poor health, Doris was susceptible to the outside pressure of Ellen. As set forth above, the pressure of Ellen overcame Doris’ free will.

A testator’s disposition of property to the exclusion of his closest relatives is not itself evidence of incapacity or undue influence. However, an unnatural or eccentric disposition may support an inference that the testator is suffering from a mental disorder or undue influence at the time of execution of the will. (Estate of Nolan 25 Cal.App.2d 738, 741-43 (1938).) Doris amending the trust to give Ellen everything, is an eccentric disposition that supports a finding of undue influence. Doris had her estate plan in place for over fourteen years, and Doris never provided any reason, even to her attorneys, for her reason for changing the distribution of her estate.

The court found that the petitioners established a presumption of undue influence in that there existed a confidential relationship with Doris and Ellen, Ellen actively participated in the preparation of the amendments, and Ellen benefit from these amendments. Ellen has failed to rebut the presumption of undue influence.

Assuming for argument sake that the presumption has not been met, the court found that petitioners established that the Second amendment and Third amendment to the trust were still the result of undue influence and that Ellen acted in bad faith.

Ellen correctly points out that there is no evidence that she “transcribed” the trusts. (See, Rice v. Clark (2002) 28 Cal.4th 89.) However, the court finds the second prong of the presumption for undue influence, active participation by such person in the preparation or execution of the will, was met. Attorney Michael Mills prepared the amendments for Doris and Ellen’s signature. Attorney Mills was Michael and Ellen’s long time attorney. The court did not find Michael and Ellen credible when they testified that they never discussed the trust amendments with Doris, especially since Ellen, as a co-trustee, signed all the amendments (See, Exhibits 2, 3, and 4), and the court did not find Michael and Ellen credible when they testified that Doris arranged the appointments with attorney Mills. The evidence established that Ellen and Michael were the individuals that arranged and coordinated Doris’ visits with the various attorneys, including attorney Mills and Carol Peters. For example, Ellen was the individual who paid attorney Peters. However, even without the presumption, the evidence clearly establishes that Ellen is guilty of undue influence and that she acted in bad faith. (See, David v. Hermann 129 Calapp.4th 672 (2005).)

The damage award was not excessive.

The court found that the cash benefit from the sale of the Marsala property was $355,967 and that Ellen was entitled to an offset for the $27,000 she paid in capital gains. As such, as a result of the sale of the Marsala property, Ellen shall reimburse the trust $328,967.

The court found that Ellen acted in bad faith when she wrongfully took the Marsala property belonging to the trust. As such, Ellen is liable for twice the value of the Marsala property that she took in bad faith from the trust. As such, Ellen is required to reimburse the trust an additional $328,967.

The beginning balance in the trust was $53,537.62, and Bruce Ross, Ellen’s expert, testified, Ellen owes the trust $6,000 for roof repairs and carpets that were paid by the trust for the benefit of Ellen. As such, Ellen was to reimburse the trust $717,471.62

The Demurrer to the “Second Petition” did not deprive the court of jurisdiction over this petition.

Ellen’s assertion that the Marsala property was not an issue in the petition filed on May 20, 2011, is without merit. Paragraph 29 and 30 of the petition specifically reference the Marsala property. Paragraph 34 of the petition seeks a constructive trust of the trust assets held by Ellen. Paragraph 35 of the petition set forth California Probate Code, Sections 850 and 859. Finally, in the prayer of the petition, the petitioners ask in pertinent part for an Order: “5. Declaring that Respondent holds the assets of the Trust in trust for the persons entitled to distribution of the estate of Settlor [and] 6. Finding that Respondent has in bad faith and wrongfully taken property belonging to the estate of Settlor and is therefore liable for twice the value of the property recovered by this action.” (See, Petition filed May 20, 2011.)

Ellen is also misstating Judge House’s ruling on the Demurrer to the second petition. In sustaining the demurrer with leave to amend, Judge House ruled that no amendment should be filed until there was a final order on the May 20, 2011 petition.

The Demurrer to the “Second Petition” did not deprive the court of jurisdiction over this petition.

Contrary to Ellen’s assertions, Doris was taking Darvocet prior to the trust amendments.

Ellen testified that Darvocet was not take by Doris until 2008. The court did not find this testimony credible, and this testimony is not supported by Doris’ medical records (See, Exhibit 14) or the testimony of Dr. Stephen Read. (See, Exhibit 15, Dr. Read’s declaration.) Clearly, Doris was taking Darvocet as early as 2006.

///

///

///

The court properly rejected Ellen’s CCP Section 170.6 motion as untimely.

By agreement of the parties, this case was bifurcated. The first phase concerned the issue of undue influence. The second phase concerned damages. Judge Murphy heard the first phase and issued a statement of decision on September 10, 2015. In the first phase the court found that Ellen exerted undue influence on Doris. In the second phase the court imposed damages on Ellen for her undue influence and bad faith. As set forth in European Beverage v. Superior Court (1996) 43 Cal. App. 4th 1211, the parties are entitled to have the same judge hear the second trial phase. While this trial was in two phases, it was still one trial, and this matter had been referred to Judge Murphy for all purposes prior to phase 1 of this trial.

As set forth in California Code of Civil Procedure, Section 170.6(a)(2), when a judge has been assigned a case for all purposes, a peremptory challenge must be filed within 15 days after the appearance. In no event shall a judge entertain a peremptory challenge after the swearing in the first witness or the giving of any evidence or after trial of the cause has otherwise commenced.

///

///

///

///

///

///

///

In the present case, the peremptory challenge was untimely.

It should be noted that this court has no prejudice or bias against or in favor of any party to this proceeding or their counsel, and this court knows of no facts or circumstances which would require the court’s disqualification or recusal in this case.