• Taubman v. U.S. Bank, 2007 Cal. App. Unpub. LEXIS 8594 (October 24, 2007)
  • April 3, 2008
  • Law Firm: McGuireWoods LLP - Richmond Office
  • Janice Taubman (“Mrs. Taubman”) created a revocable trust in 1990 with herself as trustee. When she died in 1999, the corporate predecessor to U.S. Bank, N.A. became trustee (there was also an individual successor co-trustee that died before the actions at issue in the lawsuit). Under the trust agreement, Mrs. Taubman’s interests in various legal entities that owned a shopping center and tourist attraction in San Diego called Seaport Village were held in a sub-trust for her daughter Anne (Anne’s Trust). Anne individually owned one of the many corporate entities involved in the operational structure of Seaport Village. Mrs. Taubman’s interest in other businesses unrelated to Seaport Village were held in a sub-trust for her son Richard.

    Under the trust agreement, Mrs. Taubman named Richard and his son Wyatt as contingent beneficiaries of Anne’s Trust in the event that Anne failed to survive Mrs. Taubman by 10 years. Anne was named as special trustee of Anne’s Trust.

    In 2002, Anne sued to remove and surcharge the Bank as trustee of Anne’s Trust alleging that the Bank favored Richard in the administration. In 2003, the Bank sued to suspend Anne’s powers as special trustee of Anne’s Trust alleging that Anne had concealed from the Bank and Richard a significant transaction that depleted Anne’s Trust and provided Anne with personal gain. Shortly thereafter, the Bank sued to permanently remove Anne as special trustee and to compel an accounting. Richard also sued Anne raising the same claims as the Bank.

    The trial court granted the Bank’s first request and suspended Anne’s powers as special trustee. Following an eight-day trial, in September of 2003 the trial court denied Anne’s claims against the Bank and granted the Bank’s and Richard’s claims, and permanently removed Anne as special trustee for breach of fiduciary duty. The basis for the trial court’s finding of breach of fiduciary duty justifying Anne’s removal as special trustee was (1) Anne’s purchase of a debt obligation owed by one the Seaport Village entities at a 40 percent discount, (2) charging the obligor-entity interest on the full face value of the note, (3) selling a third party corporation a 50 percent interest in the note by transferring to the corporation a controlling interest in the obligor-entity as well as interests in various other Seaport Village entities, (4) arranging for the third party corporation to pay the $7.2 million purchase price to a non-trust company controlled by Anne, and (5) actively concealing the transaction from the Bank and Richard. The trial court found that this series of transactions entered into by Anne as special trustee was in breach of her fiduciary and for her personal benefit.

    The trial court rejected Anne’s defense that she was the sole beneficiary of the trust because of the provision of the trust that provided Richard with an interest in the event that Anne did not survive 10 years from Mrs. Taubman’s death (which had not expired at the time of the transaction). The trial court rejected Anne’s defenses that the transaction were at the corporate level and did not concern the trust, and that the Bank’s only recourse was to file a derivative action rather than a fiduciary action, and ordered that Anne provide an accounting of her actions as special trustee including the payment of $7.2 million to Anne’s corporation.

    Anne appealed her removal as special trustee and the denying of her claims to remove the Bank as trustee. In 2004, the Court of Appeals rejected Anne’s arguments and affirmed the trial court. While this first appeal was pending, Anne submitted the accounting, and the Bank and Richard objected to the accounting and sought to surcharge Anne for more than $11 million for breaches of fiduciary duty as special trustee.

    Following a second eight-day trial, the trial court found Anne liable to the trust for $8.8 million, but rejected the bank’s and Richard’s request for a double surcharge for bad faith. Anne appealed, and the Bank and Richard cross-appealed on the refusal to impose the double surcharge. While the appeals were pending, the Bank and Richard filed post judgment motions to charge Anne with their attorneys’ fees and costs. The trial court awarded the Bank and Richard that part of their attorneys’ fees and costs related to remedying problems with the trust administration caused by Anne’s actions, but not for the costs of the litigation.

    On appeal, the Court of Appeals affirmed the surcharge against Anne on the basis that her appeal was untimely. The Court of Appeals noted that the trial court’s factual findings concerning Anne’s breach of fiduciary duty were part of the trial court’s decision removing her as special trustee. Because Anne did not contest those findings during her appeal of that earlier decision, the Court of Appeals held that she could not appeal them in her second appeal on the surcharge award.
    The Court of Appeals affirmed the trial court’s refusal to impose a double surcharge because the trial court’s finding that Anne did not act in bad faith was supported by evidence in the record. On technical grounds, the Court of Appeals affirmed most of the trial court’s surcharge against Anne for a portion of the Bank’s and Richard’s attorneys’ fees, other than charging Anne with certain expert witness fees which the Court of Appeals reversed.