California Trust Case: Rudnick v. Rudnick, 179 Cal. App. 4th 1328 (December 2, 2009)

February 5, 2010

The Rudnick Estates Trust was created in 1965 by the beneficiaries of 11 different trusts for the purpose of liquidating the trusts’ assets and distributing the proceeds to the beneficiaries. While the trustee could negotiate a sale, any disposition had to be approved by a majority of the beneficiaries to be effective.

In 1999, the trust’s major asset, a 68,000-acre ranch, remained. The trustee began the process of selling the ranch by obtaining various offers. The trustee presented an offer for $48 million to the beneficiaries for approval.

The appellants, as beneficiaries, filed for the ex parte appointment of a temporary trustee, an injunction against the sale of the ranch, and the removal of the trustee. Meanwhile, all of the beneficiaries met and a majority voted to accept the offer, over the objection of the appellants. The appellants withdrew their filing after the vote.

The trustee filed a petition to obtain instructions for consummating the sale of the ranch and for approval of the distribution of proceeds. The sale agreement provided that it would terminate if not approved by the court by May 4, 2008. The probate court set a hearing for April 3, 2008.

Appellants filed an ex parte application to vacate the April 3 hearing date and objections to the trustee’s petition. The hearing started on April 21 and lasted eight days. On May 2, the probate court approved the sale and instructed the trustee to proceed.

The trustee then filed a motion to recover attorneys’ fees and costs incurred with the petition for instructions and to charge that amount against the appellants’ shares of the trust. The court found that the appellants’ opposition to the trustee’s petition was not made in good faith and granted the motion.

Appellants argued that the probate court could not award fees absent statutory or contractual authority, but the appellate court ruled that the award was made under the equitable powers that the probate court holds over the administration of trusts in its jurisdiction. The court concluded that it would be unfair for the majority of the beneficiaries to be charged the fees and costs because of appellants’ unfounded opposition and attempts to delay the sale.

The court confirmed that a trustee may hire attorneys to aid the trust, and may pay reasonable fees out of the trust assets. The issue here was whether it was appropriate to shift the burden of paying those fees entirely to the appellants’ shares, and the court determined that it was, based on appellants’ bad faith.

Kelly L. Hellmuth is the principal author of this release.