• Taubman v. Taubman, 2008 Ca. App. Unpub. LEXIS 4938 (June 18, 2008)
  • August 11, 2008 | Authors: Dana G. Fitzsimons; Ronald D. Aucutt; Dennis I. Belcher; W. Birch Douglass; Charles D. "Skip" Fox; William Michael Long; Michele A. W. McKinnon; Victoria S. Windell
  • Law Firms: McGuireWoods LLP - Richmond Office ; McGuireWoods LLP - McLean Office ; McGuireWoods LLP - Richmond Office ; McGuireWoods LLP - Charlottesville Office ; McGuireWoods LLP - Chicago Office ; McGuireWoods LLP - Richmond Office ; McGuireWoods LLP - Charlotte Office
  • This case is a follow up to Taubman v. U.S. Bank, 2007 Cal. App. Unpub. LEXIS 8594 (October 24, 2007), which was reported in our Fiduciary Advisory Services release titled “Recent Fiduciary Cases” dated March 18, 2008. In that case, the California Court of Appeals affirmed a $7.2 million surcharge against Anne Taubman as special trustee for self dealing with respect to interests in Seaport Village (a shopping center and tourist attraction in San Diego) held in a separate trust for Anne’s benefit, and with Anne’s brother, Richard, as contingent beneficiary, created under their mother’s trust agreement. The present case concerns the no-contest clause under the trust agreement.

    After prevailing on the surcharge claim against Anne, Richard sued to enforce the no-contest clause, alleging that Anne’s self-dealing as special trustee, and claims she made in her unsuccessful defense against Richard’s surcharge claims about ownership of trust assets, violated the no-clause.

    The probate court concluded that none of Anne’s conduct in administering the trust or unsuccessfully defending against the surcharge claims amounted to a “contest” under the trust agreement, and denied Richard’s petition to enforce the no-contest clause.

    On appeal, the California Court of Appeals affirmed, holding that (1) while the terms of the no-contest clause were broad, neither the trust terms nor the Probate Code provide that a trustee’s mismanagement of the trust amounts to a contest, (2) absent some legal proceeding challenging, directly or indirectly, the validity or intent of the trust instrument, there can be no contest, (3) while Anne’s status as special trustee made her liable for breach of fiduciary duty, the remedy for her misconduct as special trustee was removal and surcharge, not forfeiture of her inheritance.

    The Court of Appeals also held that Anne’s unsuccessful defenses to the surcharge claims, although based on a claim of personal ownership of trust assets, did not amount to a contest, on the basis that if Richard’s nonfrivolous petition to remove and surcharge Anne did not violate the no-contest clause, likewise Anne’s non-frivolous defenses could not violate the clause. The Court of Appeals did not rule out the possibility that a defensive pleading in a removal action could amount to contest, but ruled that the defenses did not reach that level in this case.