Court of Appeal Deepens California Split Over Damages in Trusts and Estates Disputes

Signing a contract

Earlier this month, the California Court of Appeal for the Fifth District issued an opinion expressly rejecting a 2019 holding of the California Court of Appeal for the Fourth District that limited the amount of damages recoverable in a variety of trusts and estates disputes.

California Probate Code sections 850et seq. govern probate litigation over adverse claims to property of a trust or estate. 1  Pursuant to Probate Code section 850, a personal representative, trustee, or any “interested person” may file a petition in probate court to adjudicate competing claims to real property or personal property owned or claimed by the trustee or estate. 

Virtually any claim that involves trust or estate property may be brought pursuant to Section 850.  For instance, a trustee may bring a Section 850 petition against a third-party where the third-party is in possession of property that the trustee claims belongs in the trust.  The personal representative of an estate may bring a Section 850 petition against a third-party who defrauded or stole from the decedent prior to the decedent’s death.   A third-party may bring a Section 850 petition against an estate or trust where the third-party claims the estate or trust holds property belonging to the third-party.  

Section 850 is a broad and powerful tool for litigants involved in trust and estate disputes because it allows a probate court to adjudicate a host of trust-related and estate-related matters without many of the delays and costs associated with a general civil proceeding.  A petition brought under Section 850 “may include claims, causes of action, or matters that are normally raised in a civil action to the extent that the matters are related factually to the subject matter of a petition…”2  

Under California Probate Code section 856, a probate court has broad authority to order a trustee, personal representative, or third-party to convey or transfer property and to grant “other appropriate relief” pursuant to a Section 850 petition. 3   Section 850 petitions are decided by a probate judges and the litigants have no right to a jury trial. 4

Importantly, probate courts deciding Section 850 petitions may also impose harsh penalties against those who wrongfully take, conceal, and/or dispose of trust and estate property.  Under California Probate Code section 859, “a person shall be liable for twice the value of the property recovered by an action under” Section 850 where the court finds that the person “has in bad faith wrongfully taken, concealed, or disposed of property belonging to…an elder, a dependent adult, a trust, or the estate of a decedent…” 5   Section 859 also provides that “[t]he remedies provided in this section shall be in addition to any other remedies available in law…” 6    

In its decision in Estate of Ashlock, issued earlier this month, the California Court of Appeal for the Fifth District deepened a divide among the California Courts of Appeal regarding the amount of damages recoverable under Section 859. 7  

In Ashlock, a decedent’s son filed a Section 850 petition alleging a number of claims against the decedent’s real estate broker to recover property purportedly transferred by the decedent to “sham” partnerships with the broker and to challenge the validity of a multiple trust instruments that the broker drafted and executed on behalf of the decedent pursuant to a power of attorney.  Among other relief, the Section 850 petition requested that the trial court order the broker to return 18 parcels of real property to the decedent’s estate.  After a 53-day bench trial conducted over a year-and-a-half, the probate court entered judgment against the broker for (1) transfer of the 18 parcels back to the decedent’s estate and (2) twice the value of the 18 parcels.

On appeal, the broker argued that the trial court erred by allowing the recovery of both (1) the value of the property recovered and (2) twice the value of the property recovered under Section 859.  In other words, the broker argued that a Section 850 petitioner cannot recover misappropriated property under Section 856 and be awarded twice the value of the recovered property under Section 859.  The broker argued that this impermissibly amounted to recovery of triple damages where only double damages are authorized under Section 859.

In support of her argument, the broker principally relied on the California Court of Appeal for the Fourth District’s 2019 decision in Conservatorship of Ribal8   In that case, the Fourth District Court of Appeal reversed the trial court’s judgment in favor of a Section 850 petitioner because the trial court granted the petitioner both (1) the actual value of the recovered property under Section 856 and (2) twice the value of the recovered property under Section 859.  The Court of Appeal held that allowing petitioners to recover under both Section 856 and Section 859 would result in them recovering treble damages, which the Court of Appeal held was not the Legislature’s intention in enacting Section 859.

In Ashlock, the Fifth District Court of Appeal expressly rejected Ribal, holding that “Ribal‘s analysis does not follow the plain meaning rule…” and described Ribal’s holding as “deviat[ing] from the plain language of section 859.”  Accordingly, in Ashlock, the Court of Appeal held that the probate court properly awarded the estate both the property recovered and twice the value of the property recovered.  

For its part, the California Court of Appeal for the Second District appears to agree that a Section 850 petitioner may recover the actual property plus twice the value of the recovered property.  In Estate of Kraus, cited in Ashlock, the brother of the decedent used an invalid power of attorney to take $197,402 out of the decedent’s bank accounts the day before she died and put it in his own name.  Estate of Kraus (2010) 184 Cal.App.4th 103, 115.  On appeal, the Second District Court of Appeal found that the probate court properly ordered the brother to return the $197,402 to the personal representative of the decedent’s estate and to pay statutory double damages of $394,804 pursuant to Section 859.

Ashlock, decided approximately one year after Ribal, highlights a clear split among the California Courts of Appeal regarding the interpretation of Section 859 and the amount of damages available under that section.  However, regardless of which interpretation applies, Section 850 and Section 859 remain indispensable tools for efficiently adjudicating adverse claims to trust and estate property and punishing those who wrongfully take, conceal, or dispose of property belonging trusts or estates.

If you would like to discuss how these new developments may affect your trusts or estates, please reach out to me at brian@eanetpc.com or (310) 997-4185.

Brian Lauter is a Shareholder at Eanet, PC.  Brian’s practice focuses on business litigation, real estate litigation, and trust and estate litigation. 

Endnotes

1Prob. Code §§ 850, et seq.
2Prob. Code § 855; see Estate of Myers (2006) 139 Cal.App.4th 434, 443.
3Prob. Code § 856.
4Prob. Code § 825.
5Prob. Code § 859 (emphasis added). 
6Id.
7Estate of Ashlock (Cal. Ct. App., Mar. 3, 2020, No. F078083) 2020 WL 1041066, at *2.
8See Conservatorship of Ribal (2019) 31 Cal.App.5th 519, 524, reh’g denied (Jan. 31, 2019), review denied (Apr. 10, 2019).

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