Tentative Ruling

Judge Thomas Anderle
Department 3 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION
Christopher S. Vincent, et al. v. Joi K. Stephens
Case No: 19CV04223
Hearing Date: Tue Dec 17, 2019 9:30

Nature of Proceedings: Demurrer/Motion Strike Punitive Damages Claims

(1) Demurrer of Defendant to Complaint

(2) Motion of Defendant to Strike Portions of Complaint

ATTORNEYS:

For Plaintiffs Christopher S. Vincent and Shelby G. Vincent: Jana S. Johnston, Lisa Faye Petak, Daniella R. Scioscia-Regencia, Mullen & Henzell LLP

For Defendant Joi K. Stephens: W. Todd Stevenson, Hanna G. Elisha, Jessica C. Cook, Stevenson Law Office; Robert Adler

RULING:

(1) For the reasons set forth herein, the demurrer of defendant Joi K. Stephens to the third cause of action (conversion) of plaintiffs’ complaint is sustained with leave to amend. Plaintiffs Christopher S. Vincent and Shelby G. Vincent shall file and serve their first amended complaint, if they choose to do so, on or before January 2, 2020.

(2) For the reasons set forth herein, the motion of defendant Joi K. Stephens to strike portions of plaintiffs’ complaint is ordered off calendar as moot.

NOTE to Counsel: The CMC set for 8:30 am on this case will be called at 9:30 am; no appearances are expected for the 8:30 calendar call.

Background

This action arises out of transactions involving the Stephens Family Trust dated November 13, 1987 (the Trust). (Complaint, ¶ 1.)

John A. Stephens was one of the settlors and initial co-trustees of the Trust. (Complaint, ¶ 6.) John A. Stephens had one child, Beatrice Vincent, who predeceased him. (Complaint, ¶ 7.) Beatrice Vincent had two children, plaintiffs Christopher S. Vincent and Shelby G. Vincent. (Complaint, ¶ 8.)

John A. Stephens married Betty J. Stephens (not the mother of Beatrice Vincent) in 1969. (Complaint, ¶ 9.)

On November 13, 1987, John A. Stephens and Betty J. Stephens executed the Trust, naming both as co-trustees. (Complaint, ¶ 10.)

John A. Stephens died on January 29, 1996. (Complaint, ¶ 11.) Betty J. Stephens remained as trustee of the Trust until her resignation on April 15, 2016. (Complaint, ¶ 2.) Betty J. Stephens died on August 18, 2018. (Ibid.)

Pursuant to the terms of the Trust, following John A. Stephens’ death, Betty J. Stephens, as sole trustee, divided the trust estate into three sub-trusts: Trust A (sometimes, the Surviving Spouse’s Trust), Trust B (the Exemption Trust), and Trust C (the Marital Trust). (Complaint, ¶ 12.) Plaintiffs are beneficiaries of the Exemption Trust and the Marital Trust. (Complaint, ¶ 13.) From the time of John A. Stephens’s death, Betty J. Stephens was the sole trustee of the Exemption Trust and the Marital Trust (collectively, the Sub-Trusts). (Complaint, ¶ 14.) (Note: The claims at issue in this action do not involve the Surviving Spouse’s Trust.) Betty J. Stephens was also the sole present beneficiary under each of the Sub-Trusts during her lifetime; however, the conditions triggering her right to principal never existed during her lifetime. (Complaint, ¶ 15.) Betty J. Stephens resigned as trustee of the Sub-Trusts pursuant to a stipulation and order entered in In the Matter of Stephens Family Trust, case number 15PR00482 (Sub-Trust Action), a case brought by plaintiffs for the purpose of removing Betty J. Stephens as trustee, appointing a successor trustee, and compelling an accounting. (Complaint, ¶¶ 14, 17.) City National Bank was appointed trustee of the Sub-Trusts by that stipulation and order and has been acting in that capacity since then. (Complaint, ¶ 16.)

The stipulation in the Sub-Trust Action also required Betty J. Stephens to prepare accountings through the date of her resignation. (Complaint, ¶ 20.) Informal accountings were transmitted from Betty J. Stephens’s counsel to plaintiffs’ counsel for the period from 2012 through 2016 (informal accountings). (Complaint, ¶¶ 21-23.)

The informal accountings show that Betty J. Stephens made improper distributions out of principal rather than income in tax payments amounting to $53,092 for 2012, $390,176 for 2013, and $270,527 for 2014-2016. (Complaint, ¶ 27.) There were also certain other improper distributions and charges to principal in the total amount of $1,447,506.61 for 2012 through 2016. (Complaint, ¶ 28.)

Defendant Joi K. Stephens was named as successor trustee to Betty J. Stephens’s survivor trust (Trust A, above), and has served as trustee of Trust A since Betty J. Stephens’s death. (Complaint, ¶ 36.) Trust A is responsible for Betty J. Stephens’ posthumous debts and liabilities. (Complaint, ¶ 38.)

On August 9, 2019, plaintiffs filed this action against defendant as trustee of Trust A asserting five causes of action: (1) breach of trust; (2) breach of fiduciary duty; (3) conversion; (4) negligence; and, (5) an accounting.

Defendant now demurs to the conversion cause of action of the complaint on the grounds that the plaintiffs have not pleaded a sufficient interest in the property, that plaintiffs have not pleaded property subject to conversion, and that the cause of action is uncertain. Defendant also moves to strike the prayer for punitive damages.

Plaintiffs oppose both the demurrer and the motion to strike.

Analysis

(1) Demurrer

“ ‘The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also ‘give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.’ ” (Zhang v. Superior Court (2013) 57 Cal.4th 364, 370, internal quotation marks and citations omitted.)

“ ‘ “ ‘Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages….’ ” ’ [Citation.]” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.)

Defendant argues that plaintiffs allege that the property subject to the conversion was property that was held in trust and therefore plaintiffs did not have sufficient ownership or right to possession in order to maintain an action for conversion. Plaintiffs argue that they have alleged they were beneficiaries of the Sub-Trusts and that relationship is sufficient, citing Heaps v. Heaps (2004) 124 Cal.App.4th 286 (Heaps).

In Heaps, a husband and first wife executed a revocable living trust with both spouses acting as their own trustees. (Heaps, supra, 124 Cal.App.4th at p. 288.) The trust became irrevocable with the death of one of the original trustors. (Ibid.) Upon that death, the trust was to be split into two trusts, a family trust (which would pass to the estate of the trustor) and a marital trust for the remainder. (Ibid.) Title to the couple’s residence was transferred to the trust by quitclaim deed at the time the trust agreement was made, but the deed was never recorded. (Ibid.) The residence was later sold with the couple taking back a note and deed of trust as joint tenants. (Id. at p. 289.) The first wife subsequently died and the husband married his second wife. (Ibid.) The husband and second wife then created a second trust and transferred by quitclaim deed any interest in the residence or in the trust deed to the second trust. (Ibid.) The husband later died and the second wife transferred all of the assets of the second trust into her own (third) trust. (Ibid.) The issue presented was whether the proceeds from the sale of the residence remained in the first trust at the time of the first wife’s death. (Ibid.)

The Heaps court concluded based upon the particular terms of the trust agreement for the first trust that the proceeds from the sale of the residence remained in that trust. (Heaps, supra, 124 Cal.App.4th at pp. 290-291.) The court then stated: “Having determined that the placement of assets within the trust became irrevocable with [the first wife’s death], it follows that the [the husband and second wife’s] attempt to place those assets in another trust …, and [the second wife’s] subsequent attempt to further place those assets in yet a third trust …, constituted conversion of the assets of the original trust. Conversion exists if there is substantial interference or ‘an exertion of wrongful dominion over the personal property of another in denial of or inconsistent with his rights therein.’ [Citation.]” (Id. at pp. 291-292.)

The Heaps court does not discuss the rule that is applicable here relating to the plaintiff’s interest in the property converted. That rule was recently stated by the California Supreme Court: “Equally important, the ‘specific thing’ at issue [citation] must be a thing to which the plaintiff has a right of ownership or possession—a right with which the defendant has interfered by virtue of its own disposition of the property. This means that ‘[a] cause of action for conversion of money can be stated only where a defendant interferes with the plaintiff’s possessory interest in a specific, identifiable sum’; ‘the simple failure to pay money owed does not constitute conversion.’ [Citation.] Were it otherwise, the tort of conversion would swallow the significant category of contract claims that are based on the failure to satisfy ‘ “mere contractual right[s] of payment.” ’ [Citations.] Contractual provisions may, of course, determine whether the plaintiff has a possessory right to certain funds in the defendant’s hands. [Citation.] But to put the matter simply, a ‘plaintiff has no claim for conversion merely because the defendant has a bank account and owes the plaintiff money.’’ [Citation.]” (Voris v. Lampert (2019) 7 Cal.5th 1141, 1151-1152, emphasis in original.)

Unfortunately, the Heaps decision also does not provide much background as to the trial court litigation, so some analysis is required to understand the particular posture in which the Heaps case arose. In the discussion of the issue of laches, the court identifies that the two respondents on appeal, i.e., the parties asserting the trust’s rights vis-à-vis conversion, were William Russell Heaps (W. Heaps) and Frank Ciotti, the son and son-in-law, respectively, of the husband and first wife. (Heaps, supra, 124 Cal.App.4th at p. 293.) Heaps also explains that, under the terms of that first trust, W. Heaps and Ciotti would join the husband as co-trustees of the family trust upon the death of the first wife, although they were not informed of such at the time. (Ibid.) Thus, at the time the husband transferred the interest in the proceeds of the residence to the second trust, W. Heaps and Ciotti were affected co-trustees. This is consistent with Ciotti not being identified as among the beneficiaries of the first trust (who were identified as the “first wife’s children”) but appearing in the action only as a trustee and son-in-law. (See id. at p. 288.) As co-trustees, W. Heaps and Ciotti had legal title to the trust property. (See Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 522.)

The facts as alleged in the complaint here are different than in Heaps. As alleged in the complaint, Betty J. Stephens was the sole present beneficiary of each of the Sub-Trusts during her lifetime and had a conditional right to principal, although the conditions never occurred during her lifetime. (Complaint, ¶ 15.) Throughout this time, the plaintiffs allege no present ownership interest or right to possession in any of the trust property, whose interests are alleged as remainder beneficiaries. (Ibid.) Plaintiffs’ are not alleged to be or have been trustees of any affected trust. (See Complaint, ¶ 16.)

“ ‘To establish a conversion, plaintiff must establish an actual interference with his ownership or right of possession…. Where plaintiff neither has title to the property alleged to have been converted, nor possession thereof, he cannot maintain an action for conversion.’ [Citations.]” (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 136, fn. omitted.) “A party need only allege it is ‘entitled to immediate possession at the time of conversion. [Citations.]’ [Citation.]” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 452, italics in original.) As noted more recently in Voris v. Lampert, supra, it is the present possessory interest that is protected from interference by the cause of action for conversion. Conversion occurred, if at all, when the trust property was improperly distributed. (Oakdale Village Group v. Fong (1996) 43 Cal.App.4th 539, 544 [“It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.”].) Unlike the trustees in Heaps who had a present right to possess and control the trust property (see Prob. Code, § 16220), plaintiffs here allege no entitlement to possession at that time and hence do not state a cause of action for conversion. Accordingly, the demurrer to the third cause of action will be sustained on this ground.

To the extent that plaintiffs could truthfully allege a present possessory interest in the trust property, defendants also argue that money cannot be the subject of an action for conversion and that such money claims are uncertain. The Court will not sustain the demurrer on this ground. Consistent with the understanding of the scope of conversion as stated in Voris v. Lampert, above, “cases recognizing claims for the conversion of money ‘typically involve those who have misappropriated, commingled, or misapplied specific funds held for the benefit of others.’ [Citation.] For instance, one California court has held that a real estate agent may be liable for conversion where he had accepted commissions on behalf of himself and a business partner, but refused to give the partner his share. [Citation.] Another has held that a sales agent may be liable for the conversion of proceeds from a consignment sale where the agent did not remit any portion of the proceeds to the principal seller. [Citation.] And another has held that a client may be liable to an attorney for conversion of attorney fees received as part of a settlement, where a lien established the attorney’s ownership of the fees in question.” (Voris v. Lampert, supra, 7 Cal.5th at p. 1152.) Plaintiffs have alleged some specific funds held for the benefit of others and hence have stated a claim as against the demurrer on this ground. (See Complaint, ¶ 27; see also Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047 [“[A] demurrer cannot rightfully be sustained to part of a cause of action or to a particular type of damage or remedy.”].)

Having particularized sufficient alleged misappropriations to address the issue of money as property subject to conversion, it is unnecessary to plead further misappropriations. “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, plaintiffs sufficiently allege that they are unable to plead more particularly at this time because of the absence of formal accountings. (See Complaint, ¶ 31.) The Court will not sustain the demurrer for uncertainty on this ground.

It is unclear that plaintiffs can truthfully amend to state a cause of action for conversion given the Court’s ruling above, but the Court will grant leave to amend for plaintiffs to state their best case if plaintiffs so choose.

(2) Motion to Strike

Defendant also moves to strike the prayer for punitive damages, which prayer appears only in connection with the third cause of action for conversion. As discussed above, the court will sustain the demurrer to the third cause of action for conversion. Accordingly, the motion to strike is moot.

(3) Reply Issues

In connection with defendant’s reply, counsel for defendant, attorney Robert Adler, presents his declaration that he did not receive the opposition until Monday, December 9, although the proof of service of the opposition shows service by mail on December 4. (Adler decl., ¶ 5.) According to Adler, mail between Santa Barbara and his office in Calabasas is not likely to be received by the end of the next business day. (Adler decl., ¶ 7.) The delay in receiving the opposition is the reason why the reply was filed and served one day late. (Reply, pp. 7-8.)

“Notwithstanding any other provision of this section, all papers opposing a motion and all reply papers shall be served by personal delivery, facsimile transmission, express mail, or other means consistent with Sections 1010, 1011, 1012, and 1013, and reasonably calculated to ensure delivery to the other party or parties not later than the close of the next business day after the time the opposing papers or reply papers, as applicable, are filed.” (Code Civ. Proc., § 1005, subd. (c).)

While the Court is not at this juncture going to make a general pronouncement about whether service by mail is “reasonably calculated to ensure delivery to the other party or parties not later than the close of the next business day” when sent between Santa Barbara and Calabasas, this is an instance in which delay in mail delivery makes a difference and all parties (defendant in having short time to prepare a reply, and plaintiffs and the Court in having a short time to consider the reply in advance of the hearing) are adversely affected by that delay. The Court strongly urges the parties mutually to consent to electronic service either as itself an effective means of service (see, e.g., Judicial Council form EFS-005-CV) or as a courtesy copy to ensure timely delivery of opposition and reply documents. To the extent this problem persists, the Court may be required to make orders as to the manner of service.