Plaintiff contends that when a beneficiary sues a trustee for a breach of trust, the beneficiary is entitled to her choice of the available remedies. See Restatement (Second) of Trusts, comments to section 205 (1959); III William F. Fratcher, Scott on Trusts, § 205, at. 237-43 (4th Ed. 1988). Plaintiff appears to advocate this right of choice as a rule of law. But the experts on both sides ultimately agreed that the decision as to what remedy is appropriate under Section 16440 is one for this court, and is not simply a matter of a plaintiff's choice. While plaintiff can initially assert her position that she prefers a remedy other than the one that the trustee provided, in California that does little more than place the issue in the hands of the court. Section 16440(a) expressly states that the choice of remedies must be the one "that is appropriate under the circumstances." This is a judicial determination, and not simply a matter of a plaintiff's option. A remedy sought by a plaintiff might be inappropriate because it is not the right remedy defined by law or equity. Or it may be inappropriate if it is not a remedy which can or should be applied in a given setting, as determined by the evidence. Probate Code section 16421 also states that the remedies of a beneficiary against a trustee are "exclusively in equity."
The parties also argue over the procedural question of who has the burden of proof. But that issue was of little consequence in the context of this trial. Both sides put on extensive testimony and produced extensive exhibits. There is no failure of proof on either side. The findings of fact and conclusions which the court reaches in this opinion and order are found by a preponderance of the evidence, and are in part based upon California law, regardless of which side is assigned the burden of proof.
Both sides now also agree that the decision on the appropriate remedy is an objective decision. That is, it does not depend upon the intent, the good faith, or the bad faith of the bank. Indeed, any inquiry into the trustee's reasonableness and good faith is a consideration separate from appropriateness, and is defined in subsection (b) of Section 16440.
In this context, it is relevant to comment on plaintiff's numerous demands, both before and during trial, for the production of documents as to which the bank asserted the attorney-client privilege. Plaintiff contends that the beneficiaries-plaintiffs are the clients, and hence that the attorney-client privilege is not applicable when they request information about communications between the bank's attorneys and the bank. The issue of when the attorney-client privilege does or does not protect communications between a trustee and its attorney on the subject of the trust is complex under California law. See e.g. Wells Fargo Bank v. Superior Court, 49 Cal. App. 4th 1320, 57 Cal. Rptr. 2d 335 (1996), cert. granted, 60 Cal. Rptr. 2d 606, 930 P.2d 399 (1997), and U. S. v. Evans, 796 F.2d 264, 265-66 (9th Cir. 1986). That is, is the attorney giving advice to the trustee for its own benefit, or for the benefit of the beneficiaries? This court has not resolved that privilege question here, and does not believe that it is necessary to do so. As stated, the inquiry on appropriateness is an objective one, so the subjective intent of the bank is not relevant at this stage of the inquiry. There was very substantial evidence during the trial on what was done, the alternatives that were considered, and the information (except for legal advice) that the bank had before it in making the decision to use the (a)(1) remedy. Even if this court were to assume that the documents which plaintiff seeks would show some lack of good faith on the part of the bank, that evidence would not be relevant to the objective inquiry of the appropriate remedy. And such evidence is not necessary in view of the substantial objective evidence presented on what was done and why.
Even if the (a)(1) remedy is not required as a matter of law, the authorities discussed above in section VI. are strong authority for the proposition that a refund with interest is the appropriate remedy. It is difficult to ignore such substantial bodies of law and practice which have approved that remedy. On the other side of the legal ledger, plaintiff is unable to cite any California authority holding that (a)(2), or (a)(3) is the appropriate remedy in a case of an overcharge of fees.
Instead, plaintiff attempts to expand the inquiry in order to apply more general trust principles. Plaintiff's first attempt in that regard is somewhat semantic. That is, plaintiff calls the wrong done here a "breach of trust" and a "breach of the duty of loyalty." She does so in order to apply remedies which have been awarded in other settings under that terminology.
Indeed, what the bank did here was a breach of trust, and it is arguable that any breach of a trust which results in a gain to the trustee is a breach of the duty of loyalty. But those arguments place words over substance. What is the act that breached the trust here? It was not secretly embezzling the trusts' money, or investing the trusts' money in a related business, or making investments not in the trusts' best interests. Here the wrongful act was taking more fees than the trust agreements allowed.
The same response applies to plaintiff's argument that the bank "commingled" the trusts' funds by accepting the higher fees and adding them to the bank's revenues. It places words over substance. There was no commingling of the trusts' own investments or income. And whenever a trustee receives a fee and puts it in its general revenues there is always "commingling" to that extent. The wrong was still the taking of excess fees.
At least under California law, fee issues between the trustee and the trust are governed by certain different, even if not wholly exclusionary, principles. The California legislature recognized in Probate Code Section 16004(c) that fee issues, while certainly posing a conflict between the trustee and the beneficiary, are not breaches of fiduciary duties:
(c) ... This subdivision does not apply to the provisions of an agreement between a trustee and a beneficiary relating to the hiring or compensation of the trustee.
Cal. Prob. Code § 16004(c).
The California cases cited above have developed a body of law for dealing with fee overcharges. And the local probate courts, as reflected in their local rules, have in practice applied specific remedies in fee overcharge cases.
Plaintiff also attempts to apply broader common law authorities, from California common law and from cases nationally. However, this court must apply California law to this dispute. And where the California legislature has spoken on an issue, that takes precedent over even the common law of this state.
Similarly, plaintiff attempts to apply alleged principles of more "modern" law, as expressed in the Restatement (Third) of Trusts. But the authorities are clear that the California statutory pattern at issue in this case was based upon the Restatement (Second) of Trusts and not upon the Restatement (Third). Specifically, Section 16440 was expressly based by the legislature on Restatement (Second). 18 Cal. Law Rev. Comm. Reports. 556-559 (1986). And where the legislature has spoken or where California case law is specific, that must control over the Restatement (Third).
The legislature last amended the Probate Code in 1995, in some ways following the so-called "modern" concept of Restatement (Third). But the California legislature did not include any of the remedial modifications recommended by the Restatement (Third). The 1995 revisions did include adoption of the Uniform Prudent Investor Act ("UPIA"), which was in turn based in part on Restatement (Third). But the drafters' notes of the UPIA expressly state that it does not change the law of remedies in trust matters:
This Act does not undertake to address issues of remedy law or the computation of damages in trust matters. Remedies are the subject of a reasonably distinct body of doctrine. See generally Restatement (Second) of Trusts ....