Filed 5/29/20 Gaddini v. Kauffman CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Yolo)

—-

ERNEST W. GADDINI,

Plaintiff and Appellant,

v.

CAROL LYNN KAUFFMAN,

Defendant and Respondent.

C084303

(Super. Ct. No. CV 13-001166)

For over a decade, Ernest Gaddini and his sister Carol Lynn Kauffman have been litigating disputes between them concerning property their parents and uncle left them in three trusts. Among other things, the trial court ultimately determined that Gaddini breached his fiduciary duty to Kauffman, but that Kauffman and Gaddini both owed money to each other. The trial court issued a judgment directing Gaddini to pay Kauffman the balance of $111,182.12.

Gaddini now contends the trial court (1) should have reduced by half the amount charged to Gaddini as successor trustee of the 1988 Ethel Jean Spain Revocable Trust (Spain Trust) because he was a 50-percent beneficiary of that trust; (2) inadvertently failed to include a $55,000 credit when calculating the amount Gaddini owed Kauffman; (3) erred in stating in the statement of decision that the amount Kauffman owed him was $124,435.92; and (4) abused its discretion in finding that only $12,423.38 of the attorney’s fees paid by the Spain Trust was properly charged to that trust.

We conclude (1) the trial court did not abuse its discretion in selecting the measure of damages for Gaddini’s breach of fiduciary duty; (2) the trial court should have included a $55,000 credit to Gaddini when it calculated the amount of damages; (3) although the trial court incorrectly indicated in the statement of decision that Kauffman owed Gaddini $124,435.92, the judgment nevertheless correctly states that Kauffman owed Gaddini $128,435.92; and (4) the trial court did not abuse its discretion in charging Gaddini with most of the attorney’s fees paid by the Spain Trust. In addition, we have identified a clerical error in the trial court’s calculation of the amount of unallowed attorney’s fees.

We will modify the judgment to state that Gaddini owed Kauffman $233,276.48, and the net amount Gaddini must pay directly to Kauffman is $104,840.56.

BACKGROUND

Gaddini is the successor trustee of the Spain Trust, a trust created by Gaddini and Kauffman’s mother. Gaddini and Kauffman are the beneficiaries of that trust.

Gaddini and Kaufman are successor co-trustees of the Norman Gaddini 1991 Trust (Norman Gaddini Trust), which was created by their uncle. Gaddini and Kauffman are beneficiaries of the Norman Gaddini Trust.

Gaddini filed a complaint for conversion, breach of fiduciary duty and injunctive relief against Kauffman, individually and as successor co-trustee of the Norman Gaddini Trust. He alleged that Kauffman took $128,435.92 from a Norman Gaddini Trust bank account in 2013, and that money belonged to him personally.

Kauffman filed a cross-complaint against Gaddini, individually and as successor co-trustee of the Norman Gaddini Trust. She alleged that Gaddini took $46,818.30 from the Norman Gaddini Trust in 2012 without her permission and those funds belonged to Gaddini and Kauffman. Kauffman also accused Gaddini of unauthorized transactions in relation to the Spain Trust and their mother’s accounts.

Gaddini and Kauffman amended their pleadings to add a financial elder abuse cause of action against each other.

In 2015, the parties agreed to hire a joint forensic accountant. The forensic accountant, Tracy Dunne, identified unexplained withdrawals from accounts of the Spain Trust and requested further explanation of certain withdrawals. She ultimately determined that a total of $249,053.80 in withdrawals could not be verified as related to the Spain Trust.

The parties agreed to a court trial by declaration and written briefs, followed by oral argument on a proposed statement of decision and the issuance of a final statement of decision. They stipulated that the trial would focus on whether the withdrawals identified in Dunne’s report were proper expenses of the Spain Trust, that the $128,435.92 Kauffman withdrew from a Norman Gaddini Trust account should be returned to Gaddini, and that Dunne’s report would be admitted into evidence.

Gaddini and Kauffman filed written responses to Dunne’s report and responses to the trial court’s proposed statement of decision. After hearing oral argument, the trial court issued its final statement of decision, concluding that Kauffman must repay Gaddini $124,435.92, acknowledging that Gaddini did not dispute he must repay $70,906 of the withdrawals outlined in the Dunne report, making findings with regard to disputed withdrawals, and ruling that Gaddini owed Kauffman $290,618.04. After deducting the amount Kauffman owed Gaddini, the trial court determined Gaddini must pay Kauffman $111,182.12.

STANDARD OF REVIEW

We review the trial court’s determination of disputed factual issues under the substantial evidence standard. (Penny v. Wilson (2004) 123 Cal.App.4th 596, 603; Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632.) Under that standard, “the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the [trial court’s] determination . . . .” (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874, italics omitted.) Substantial evidence is evidence “ ‘of ponderable legal significance, . . . reasonable in nature, credible, and of solid value.’ ” (Id. at p. 873, italics omitted.) We review the trial court’s selection of the appropriate measure of liability, and the decision to allow the payment of attorney’s fees from trust assets, for abuse of discretion. (Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 911 (Uzyel); Donahue v. Donahue (2010) 182 Cal.App.4th 259, 268 (Donahue); Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221, 1230 (Whittlesey).)

DISCUSSION

I

Gaddini contends the trial court should have reduced by half the amount charged to him as successor trustee of the Spain Trust because he was a 50-percent beneficiary of that trust.

As trustee of the Spain Trust, Gaddini owed certain duties to Kauffman, a beneficiary of the trust. He owed her a fiduciary duty and had to act with good faith for her benefit. (Prob. Code, § 16202; Hearst v. Ganzi (2006) 145 Cal.App.4th 1195, 1208.) He had to administer the trust solely in the interest of the beneficiaries. (Prob. Code, § 16002, subd. (a).) A beneficiary may bring an action for payment of money and for any other appropriate remedy for a breach of trust. (Prob. Code, § 16420.) In that case, “the trustee is chargeable with any of the following that is appropriate under the circumstances: [¶] (1) Any loss or depreciation in value of the trust estate resulting from the breach of trust, with interest. [¶] (2) Any profit made by the trustee through the breach of trust, with interest. [¶] (3) Any profit that would have accrued to the trust estate if the loss of profit is the result of the breach of trust.” (Prob. Code, § 16440, subd. (a).)

Among other things, the trial court found that Gaddini had committed malfeasance resulting in “the waste of trust assets and an accounting record that will never be complete.” (See Prob. Code, 859; Welf. & Inst. Code, § 15610.30, subd. (a).) Gaddini admitted using money belonging to the Spain Trust for personal obligations and also admitted that he could not account for certain deposits and withdrawals. He did not dispute in the trial court that $70,906.04 in withdrawals from Spain Trust accounts were not authorized or could not be verified as proper expenditures and thus were appropriately charged against him personally. Those withdrawals were as follows:

(1) $1,600 in principal payments made in 2014 which belonged to the Spain Trust but which Gaddini used for personal obligations;

(2) $2,510.44 in payments made in 2014 pursuant to an annuity which Gaddini purchased with trust monies but placed in his name only;

(3) $814 in withdrawals from a trust account for utility payments for which Gaddini provided no accounting;

(4) $183 in withdrawals from a trust account for insurance payments for which Gaddini provided no accounting;

(5) a $1,000 withdrawal in 2013 from a trust account for “research” for which Gaddini provided no accounting;

(6) a $51,600 withdrawal from a trust account in 2014;

(7) a $115 withdrawal from a trust account for an “unknown utility” payment;

(8) $2,341.60 for litigation expenses paid out of a trust account;

(9) a total of $447 in “unknown miscellaneous withdrawals”; and

(10) $10,295 for rental income for which Gaddini could not account.

The trial court also found that an additional $76,533.42 in withdrawals were unauthorized or that Gaddini failed to show they were valid trust expenditures:

(1) $1,255.22 for a missing payment from an annuity;

(2) $21,123.20 for early termination fees charged when John Gunter executed a writ of attachment on an annuity account to satisfy a judgment in favor of Gunter and against Gaddini, as trustee of the Spain Trust;

(3) $54,000 for a 2012 payment to “Gaddini By Products,” an entity apparently controlled by Gaddini;

(4) $155 for a miscellaneous withdrawal from a trust account for which Gaddini could not account; and

(5) $140,837.02 for additional attorney’s fees unrelated to trust purposes.

On appeal, Gaddini does not challenge the trial court’s finding that he breached his fiduciary duties; rather, he objects to the measure of damages. The trial court rejected Gaddini’s claim that because he was a 50-percent beneficiary of the Spain Trust, any award against him must be divided by half. On this record, the trial court did not abuse its discretion.

“The remedy for a breach of trust should be adapted ‘to fit the nature and gravity of the breach and the consequences to the beneficiaries and trustee.’ [Citation.] The goals of the remedy are not only to compensate the beneficiaries for their loss, but also to deter the trustee in question and other trustees from committing similar acts. [Citation.] Particularly with respect to the duty of loyalty, ‘the principal object of the administration of the rule is preventative, to make the disobedience of the trustee to the rule so prejudicial to him that he and all other trustees will be induced to avoid disloyal transactions in the future.’ ” (Uzyel, supra, 188 Cal.App.4th at p. 907; see also Rest.3d Trusts, § 100, coms. a, b(2) & d, pp. 62, 65-67 [primary objectives of successful breach of trust suit against a trustee are to make the trust and its beneficiaries whole, including an award of attorney’s fees and cost at the court’s discretion and punitive damages in some jurisdictions, and to ensure that the trustee does not personally benefit from the breach].) The remedy adopted by the trial court was consistent with the law and the trial court’s discretion.

II

Gaddini next contends the trial court inadvertently failed to include a $55,000 credit when calculating the amount he owed Kauffman. We agree.

A clerical error is an error made inadvertently and which does not reflect the trial court’s express intent. (Conservatorship of Tobias (1989) 208 Cal.App.3d 1031, 1035-1036; Hennefer v. Butcher (1986) 182 Cal.App.3d 492, 506-507 [correcting mathematical error in the judgment]; Bowden v. Green (1982) 128 Cal.App.3d 65, 71-72 [whether an error is clerical or judicial depends on the judge’s intent].) An appellate court may correct a judgment containing a clerical error by modifying the judgment. (Hennefer, at pp. 506-507.)

The proposed statement of decision shows the trial court intended to credit Gaddini for a $55,000 deposit he made to a trust account. The final statement of decision shows the same intent. But in tallying the “disputed transactions to be determined by the court” and arriving at the total amount owed by Gaddini as $290,618.04, the trial court did not give Gaddini credit for the $55,000 deposit.

In examining the final statement of decision and adding the withdrawals the trial court charged to Gaddini, we discovered another mathematical error. Dunne found $155,602 in unknown attorney’s fee withdrawals, and Gaddini initially conceded that $2,341.60 of the amount was chargeable to him personally. The trial court determined that only $12,423.38 of the $155,602 was for reasonable expenses incurred for the benefit of the trust. The final statement of decision said Gaddini owed $143,178.62 ($155,602 – $12,423.38), but in calculating the total amount Gaddini owed for unallowed attorney’s fees, the trial court failed to consider that $2,341.60 of the $155,602 was already included in the “total transactions undisputed by Gaddini as chargeable to him” on page 4 of the final statement of decision.

Page 11, line 24 of the final statement of decision should have said that “Attorney withdrawals” were $140,837.02. And page 10, line 20 and page 12, line 1 of the final statement of decision should have indicated that Gaddini owed Kauffman $233,276.44. We arrive at this amount as follows:

Met Life account 1,600.00

Nationwide account 2,510.44

First Northern account

utilities 814.00

insurance 183.00

research 1,000.00

Gaddini withdrawal 51,600.00

unknown utility 115.00

attorney’s fees 2,341.60

unknown miscellaneous 447.00

Uncollected rent 10,295.00

70,906.04 Total undisputed transactions

Nationwide account 1,255.22

Early termination fees 21,123.20

Deposit by Gaddini <-55,000.00>

Gaddini By Products withdrawal 54,000.00

Additional unallowed attorney’s fees 140,837.02

Repair 155.00

162,370.44 Total disputed transactions

233,276.48 total chargeable to Gaddini

Pages 10 through 12 of the final statement of decision should have indicated that Kauffman owed Gaddini $128,435.92, Gaddini owed Kauffman $233,276.48, leaving a net amount payable from Gaddini to Kauffman of $104,840.56. We will modify the judgment to correct the clerical errors.

III

Gaddini further claims the trial court erred in stating in the statement of decision that the amount Kauffman owed him was $124,435.92. Kauffman agrees this was error.

The parties stipulated that Kauffman must repay Gaddini $128,435.92. The trial court indicated the correct amount on page 3 of the final statement of decision, said the amount was $124,435.92 on pages 10 and 11 of that document, but then identified the correct amount in the judgment. Because the judgment includes the correct amount, we need not modify the judgment in this regard.

IV

In addition, Gaddini argues the trial court abused its discretion in finding that only $12,423.38 of the attorney’s fees paid by the Spain Trust was properly charged to that trust, and that Gaddini should reimburse the Spain Trust for the balance.

A

A total of $155,602 in “unknown attorney withdrawals” was made from the Spain Trust accounts. Gaddini argued that most of those withdrawals were related to the administration of the Spain or Norman Gaddini Trust or litigation concerning the Spain Trust. He produced over 200 pages of billing statements from six law firms which described the services rendered and invoices relating to court reporting services. In response to the proposed statement of decision, Gaddini conceded that $30,027 of the $155,602 in attorney’s fees was chargeable against him personally. He highlighted those portions of the invoices which he asserted were related to the administration of the J. Weaver Gaddini Trust, the Spain Trust, and the Norman Gaddini Trust, including litigation relating to John Gunter. He said he hired four different law firms to defend and prosecute the Gunter action and was charged close to $99,000. He offered an explanation for why $125,575 of the attorney’s fees was properly paid out of the Spain Trust accounts. Kauffman countered that the attorney’s fees did not benefit the Spain Trust.

The trial court credited Gaddini for certain attorney’s fees, but it concluded the fees and costs related to the Gunter action were not for the benefit of the Spain Trust and were not reasonable. It said most of the attorney’s fees paid by the Spain Trust were for litigation pursued beyond the limits of any prudent fiduciary standard.

B

“ ‘Attorneys hired by a trustee to aid in administering the trust are entitled to reasonable fees paid from trust assets.’ ” (Donahue, supra, 182 Cal.App.4th at p. 267; see also Prob. Code, §§ 275, 15684, 16243.) However, the fees must be for services that are a benefit to the trust. (Donahue, at pp. 263, 269-270.) “ ‘If litigation is necessary for the preservation of the trust, the trustee is entitled to reimbursement for his or her expenditures from the trust; however, if the litigation is specifically for the benefit of the trustee, the trustee must bear his or her own costs incurred, and is not entitled to reimbursement from the trust.’ ” (Id. at p. 270.)

“ ‘Where a trustee by reason of his own greed or indifference has breached his duty to the trust and has thereby brought on litigation against it his expense must be borne out of his own property.’ ” (Estate of Baird (1955) 135 Cal.App.2d 343, 347, disapproved on another ground in Estate of Schloss (1961) 56 Cal.2d 248, 256.) Defending against litigation properly seeking to remove or surcharge a trustee for a breach of fiduciary duty is also not chargeable to the trust. (Whittlesey, supra, 104 Cal.App.4th at pp. 1224, 1227; Rest.3d Trusts, § 88, com. d, p. 258 [indemnification applies even when the trustee is unsuccessful in an action as long as the trustee’s conduct was not imprudent or otherwise in violation of a fiduciary duty]; see Estate of Cassity (1980) 106 Cal.App.3d 569, 572; Estate of Miller (1968) 259 Cal.App.2d 536, 546-548; cf. Estate of Trynin (1989) 49 Cal.3d 868, 874 [“Services that do not directly benefit the estate . . . are nonetheless compensable if the estate’s attorneys or representatives in performing the services were ‘acting in consonance with the fiduciary duties imposed upon them’ ”]; Copley v. Copley (1981) 126 Cal.App.3d 248, 295 [litigation expenses erroneously disallowed where the trustees did not violate a fiduciary duty and acted in good faith and with probable cause].)

Fees must be reasonable in amount and reasonably necessary to the conduct of the litigation. (Donahue, supra, 182 Cal.App.4th at pp. 263, 268, 271.) This is because the trustee must be cost-conscious and act prudently with the beneficiaries’ money. (Id. at pp. 273-274; Rest.3d Trusts, § 88, com. a, p. 256.)

“It is the [trial] court’s province on the basis of the records and facts before it to determine what fees are proper. In making this determination the court may consider what were necessary expenses, the value thereof to the estate, and the value, amount and kind of assets in the estate. [Citations.] Unless otherwise shown, it will be presumed that the probate court considered and fairly weighed all of the relevant factors. [Citations.]” (Estate of Turino (1970) 8 Cal.App.3d 642, 649.)

We can discern no abuse of discretion in the trial court’s decision regarding unallowed attorney’s fees, and substantial evidence supports the trial court’s finding that the attorney’s fees for the Gunter action were not for the benefit of the Spain Trust. The Gunter action involved a complaint by Gunter against Gaddini, individually and as trustee of the Spain Trust and the Spain Trust for, among other things, breach of a lease agreement and a cross-complaint by Gaddini, as trustee of the Spain Trust, against Gunter. The same judge who tried the Gunter action decided the case between Gaddini and Kauffman. That judge found that Gunter had a valid lease with the Spain Trust but that after Gaddini took over the Spain Trust, Gaddini breached the lease. The trial court found that Gaddini exhibited “a patent and persistent dislike of Gunter” and was determined “to deny Gunter the second year allowed under the lease without regard for the Gunter Lease terms.” As a result of Gaddini’s actions, the trust’s property lay fallow in 2013 and the Spain Trust lost substantial rental income. Additionally, the Gunter action resulted in a judgment against the Spain Trust in the amount of $90,000, plus attorney’s fees, costs and prejudgment interest. The trial court concluded that Gaddini terminated the Gunter lease and pursued the Gunter action because of personal animosity and the attorney’s fees he incurred were not for the benefit of the Spain Trust or its beneficiaries but for his “personal war.”

Gaddini complains the trial court did not explain why any attorney’s fee charge was disapproved and why his defense or prosecution of the Gunter action did not comport with the prudent fiduciary standard. But a “ ‘statement of decision is sufficient if it fairly discloses the trial court’s determination as to the ultimate facts and material issues in the case.’ ” (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 983.) When a statement of decision is ambiguous or omits material factual findings, we infer any factual findings necessary to support the judgment. (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 494.) In order to avoid the implied findings doctrine and to preserve a claim for review on appeal, an appellant must bring any omission or ambiguity in the statement of decision to the attention of the trial court either prior to entry of judgment or in conjunction with a new trial motion (Code Civ. Proc., § 657) or a motion to vacate the judgment (Code Civ. Proc., § 663), thus allowing the court to respond to objections before the taking of an appeal. (Thompson, at p. 982; Ermoian, at p. 494.) Objections to a statement of decision must be specific. (Ermoian, at p. 498.) When a party fails to object, objections to the adequacy of or defects in a statement of decision are forfeited. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134; Thompson, at p. 983.) Gaddini did not object to the statement of decision in the trial court on the ground he now raises. Accordingly, his claim is forfeited.

DISPOSITION

The judgment is modified to provide that the amount chargeable against Ernest W. Gaddini is $233,276.48, and the net amount to be paid by Gaddini directly to Kauffman is $104,840.56. The judgment is affirmed as modified. Each party shall bear his or her own costs.

/S/

MAURO, J.

We concur:

/S/

BLEASE, Acting P. J.

/S/

MURRAY, J.