Looks Like Decades Trust Disputes Are Drawing To An End.
Holt v. Denholm, Case Nos. G045496 and G046293 (4th Dist., Div. 3 Apr. 28, 2014) (unpublished)—both authored by Presiding Justice O’Leary--are two appeals involving cross-over probate and Civil Code section 1717 issues in a long-running battle between different sides of a family trust—pitting a former trustee/beneficiary (and related businesses and business partners) against other beneficiaries. On the whole, the two appeals resulted in a mixed bag of rulings all around (most of which were affirmed), not to mention a lot of attorney’s fees and other expenses.
Appeal #1 involved some beneficiaries (the Holts) filing suits challenging the conduct of trustee/beneficiary Denholm. However, the Holts sued one of Denholm’s businesses and one of his business partners (both of which were LLCs, and had operating agreements of which the Trust was an LLC member), with the Holts claiming that they were owed fiduciary duties based on Trust LLC membership duties. The LLCs were dismissed and awarded $479,164.25 in fees against the Holts based on the LLC operating agreement fee clauses. Although claiming that the breach of fiduciary claims were not “on the contract” under Civil Code section 1717, the appellate court’s examination of the LLC membership/operating duties as flushed out in the pleadings and litigation claims showed that they did arise from the contract so as to give rise to 1717 exposure. Fee award affirmed in appeal #1.
Appeal #2 involved several challenges: (a) Holts’ denial of obtaining fees against trustee Denholm under Probate Code section 17211(b), which does allow fee recovery if a trustee in bad faith contests challenges to an accounting; (b) a Denholm-related LLC (CALCO) obtaining a fee award under Civil Code section 1717 on the same grounds as the two LLCs retaining an award in Appeal #1, with the Holts complaining; and (c) CALCO’s argument that the $21,333 fee award was inadequate given its underpinning was a simple formula with no relation to proper lodestar analysis. Holts lost the argument that they should obtain fees against trustee Denholm, because he defeated 5 causes of action and his opposition to their suit was not frivolous as required under section 17211(b). (Uzyel v. Kadish, 188 Cal.App.4th 868, 928, 928 n. 48 (2010).) CALCO’s entitlement to a 1717 award tracked the same basis as the award on breach of fiduciary claims in Appeal #1. Holts argued that CALCO’s fee substantiation was inadequate, but the appellate court rejected the notion that bills and time sheets had to be provided in addition to submitted billing statements. However, CALCO’s award was reversed and remanded to use lodestar analysis rather than the lower court’s application of a 1/44 ratio grounded in the number of litigation players involved. The lower court was instructed to look at hours expended, prevailing hourly rates, equitable considerations, nature of the litigation, and skilled required, all the normal lodestar issues rather than resort to a formulaic approach.