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Townsend v. Townsend

February 23, 2009

CYNTHIA E. TOWNSEND, PLAINTIFF AND APPELLANT,
v.
JAMES TOWNSEND II, AS TRUSTEE, ETC., DEFENDANT AND RESPONDENT.



APPEAL from an order of the Superior Court of San Diego County, Richard G. Cline, Judge. Reversed. (Super. Ct. No. 37-2007-00100056- PR-TR-NC).

The opinion of the court was delivered by: Aaron, J.

CERTIFIED FOR PUBLICATION

I. INTRODUCTION

A no contest clause is statutorily defined as "a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary if the beneficiary files a contest with the court." (Prob. Code, § 21300, subd. (d).)*fn1 Pursuant to section 21305, subdivision (a)(3), "A challenge to the validity of an instrument . . . other than the instrument containing the no contest clause," does "not constitute a contest unless expressly identified in the no contest clause as a violation of the clause . . . ." (§ 21305, subd. (a).)

In re Estate of Rossi (2006) 138 Cal.App.4th 1325, 1329 (Rossi), the Court of Appeal concluded that pursuant to section 21305, subdivision (a), a no contest clause contained in a trust that, by its terms, applied to any action that sought to "void, nullify or set aside this trust or any of its provisions," would not be triggered by an action that sought to invalidate an amendment to the trust. In Perrin v. Lee (2008) 164 Cal.App.4th 1239, 1242 (Perrin), the Court of Appeal extended Rossi in concluding that a similarly worded no contest clause contained in a trust would not apply to amendments to the trust even where the amendments expressly confirmed and ratified the provisions of the trust. In this appeal, we follow Rossi and Perrin and hold the trial court erred in concluding that a beneficiary's proposed challenge to an amendment to a trust would violate the trust's no contest clause.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The Relevant Documents and Parties

In September 2006, James E. Townsend (James) and his wife, Patricia Townsend (Patricia), jointly as trustors, executed a document entitled "EIGHTH AMENDMENT TO DECLARATION OF TRUST (A Complete Restatement)" (the Trust). The Trust states that James and Patricia have three children, Cynthia E. Townsend (Cynthia), Mark J. Townsend, and James E. Townsend II (James II).

The Trust provides generally that, upon the death of either trustor, the trustee shall allocate the assets of the Trust estate into two subtrusts, a Survivor's Trust and an Exempt Trust.The Trust also provides that the surviving trustor may amend or revoke the Survivor's Trust and may appoint the assets of the Exempt Trust among the trustor's descendents. The Trust further provides that upon the surviving trustor's death, the trustee is to divide the assets of the Exempt Trust and Survivor's Trust "into as many equal shares as may be necessary to allocate one such equal share to each child of the Trustors who survives the Surviving Trustor and one such equal share to each group composed of the descendants of a deceased child of the Trustors who survive the Surviving Trustor." The Trust identifies James II as the successor trustee of the Trust.

Article 12 of the Trust is entitled "Trust Administration." Section F of article 12 is a no contest clause that provides:

"No contest: In the event any person shall, singly or in conjunction with any other person or person, contest in any court the validity of the Will of either Trustor or the trusts established under this instrument or shall seek to obtain an adjudication in any proceeding in any court that this trust or any of its provisions, or that such will or any of its provisions, is void, or seek in any manner to void, nullify, or set aside this trust or any of its provisions, then the right of that person to serve as Trustee or to take any interest given to him or her or any descendant of his or hers by this trust shall be determined as it would have been determined had the person failed to survive either Trustor and left no living descendants. The Trustee is hereby authorized to defend, at the expense of the trust estate, any contest or other attack of any nature on any of its provisions. Prior to making any distribution of trust property to or for the benefit of the beneficiary of any trust under this instrument, the Trustee may obtain from such beneficiary a written release, in a form satisfactory to the Trustee, of any action set forth in the preceding provision of this Section."

Patricia died on November 25, 2006, making James the surviving trustor.

On December 28, 2006, James, as surviving trustor, executed a document entitled "FIRST AMENDMENT TO THE SURVIVOR'S TRUST UNDER THE JAMES E. TOWNSEND TRUST" (First Amendment). The First Amendment provides that upon the death of the surviving trustor, the trustee is to distribute to Cynthia $500,000 in five annual installments, and is to divide the balance of the Survivor's Trust "into as many equal shares as may be necessary to allocate one such equal share to each son of the Trustors, namely, MARK J. TOWSEND and JAMES E. TOWNSEND II, who survives the Surviving Trustor, and one such equal share to each group composed of the descendants of a deceased son of the Trustors who survive the Surviving Trustor." The First Amendment also provides, "In all other respects, the Surviving Trustor hereby ratifies all of the terms and conditions of the Survivor's Trust."

That same day, James, as surviving trustor, executed a document entitled "EXERCISE OF SPECIAL POWER OF APPOINTMENT BY JAMES E. TOWNSEND UNDER THE EXEMPT TRUST OF THE JAMES E. TOWNSEND TRUST" (Power of Appointment). Through the Power of Appointment, James provided that upon his death, the trustee was to divide the balance of the Exempt Trust "into as many equal shares as may be necessary to allocate one such equal share to each son of the Trustors, namely, MARK J. TOWSEND and JAMES E. TOWNSEND II, who survives the Surviving Trustor, and one such equal share to each group composed of the descendants of a deceased son of the Trustors who survive the Surviving Trustor."

James died three days later, on December 31, 2006.

B. Cynthia's Section 21320, Subdivision (a) Petition

In June 2007, Cynthia filed a petition pursuant to section 21320, subdivision (a)*fn2 to determine whether a proposed petition that she intended to file would violate the Trust's no contest clause. In her section 21320, subdivision (a) petition, Cynthia stated that the proposed petition would raise challenges to the validity of the First Amendment and to the Power of Appointment, among other claims:

"The [p]roposed [p]etition, if filed, would seek an order of this court (a) determining that the [First Amendment and the Power of Appointment] are invalid and/or rescinded due to James' incapacity, the undue influence and fraud of James II and Mark, and James' mistake; (b) determining that by reason of their undue influence and fraud James II and Mark have violated the [Trust's] no contest clause and have forfeited their rights to serve as trustee of the trust and their rights and rights of their descendants to take any beneficial interest under the trust; (c) determining that James II holds title to all trust assets, as well as all income therefrom, as constructive trustee for the benefit of Cynthia; (d) awarding Cynthia punitive damages for the conduct of James II and Mark, who have been guilty of oppression, fraud and malice; and (e) granting Cynthia attorney's fees and costs." Cynthia claimed that the First Amendment and the Power of Appointment substantially reduced her share of the Trust estate. Cynthia attached copies of her proposed petition, the Trust, the First Amendment, and the Power of Appointment as exhibits to her section 21320, subdivision (a) petition.

In her section 21320, subdivision (a) petition, Cynthia argued that a no contest clause may not be interpreted "beyond what was plainly the testator's intent." (Citing § 21304.) Cynthia also argued that section 21305, subdivision (a)(3) applied to the no contest clause in the Trust because James and Patricia executed the Trust after January 1, 2001. Cynthia noted that section 21305, subdivision (a) provides in relevant part:

"(a) For instruments executed on or after January 1, 2001, the following actions do not constitute a contest unless expressly identified in the no contest clause as a violation of the clause: [¶] . . . [¶]

"(3) A challenge to the validity of an instrument, contract, agreement, beneficiary designation, or other document, other than the instrument containing the no contest clause."

Cynthia claimed that pursuant to section 21305, subdivision (a)(3) and Rossi, supra, 138 Cal.App.4th 1325, her proposed challenges to the First Amendment and to the Power of Appointment did not violate the Trust's no contest clause, arguing:

"The application of the no contest clause does not extend to other instruments or documents affecting disposition of the trust estate.

More specifically, the no contest clause makes no reference to any amendment to the trust, or to the exercise of a power of appointment over the trust estate. Therefore, a challenge to the [First Amendment and the Power of Appointment] is not an action that violates the no contest clause of the [Trust]."

James II, as trustee of the Trust, filed a response to Cynthia's section 21320, subdivision (a) petition. In his response, James II argued that there was "no question as to the Trustor's*fn3 intent in adding the no contest clause to the [Trust], and Cynthia does not allege any uncertainty: the Trustor intended that a contest by any one of the beneficiaries of . . . either the Survivor's Trust or the Exempt Trust would trigger forfeiture of the testamentary gifts to each of them." James II claimed that Cynthia's challenge to the validity of either the First Amendment or the Power of Appointment would violate the Trust's no contest clause. James II also argued that Cynthia's proposed petition would violate the no contest clause of the Trust to the extent that the petition sought to eliminate the right of James II or Mark to receive any portion of the Trust's assets on the ground that they had contested the validity of the Trust.

James II also cited section 82, subdivision (a)(1), which defines a "trust" as including, "An express trust, private or charitable, with additions thereto, wherever and however created." (Italics added.) James II argued that pursuant to the italicized phrase in section 82, subdivision (a)(1), "the statute includes amendments to the Trust document as part of the trust."

In addressing Cynthia's claim that pursuant to section 21305, subdivision (a)(3) and Rossi, supra, 138 Cal.App.4th 1325, the no contest clause in the Trust did not apply to her proposed challenges to the First Amendment and to the Power of Appointment, James II noted that section 21305, subdivision (c) provides, "[Subdivision] (a) does not apply to a codicil or amendment to an instrument that was executed on or after January 1, 2001, unless the codicil or amendment adds a no contest clause or amends a no contest clause contained in an instrument executed before January 1, 2001." James II claimed that pursuant to section 21305, subdivision (c), neither the First Amendment nor the Power of Appointment were subject to section 21305, subdivision (a). In addition, with respect to the First Amendment, James II claimed that Rossi, supra, 138 Cal.App.4th 1325 was distinguishable. James II argued that, unlike in Rossi, the First Amendment "incorporate[d] by reference the terms and conditions of [the Trust]," and thereby incorporated the no contest clause of the Trust into the First Amendment.

Cynthia filed a reply in which she argued that the Rossi court had rejected an identical argument regarding the applicability of section 21305, subdivision (c) to a trust that had been executed after January 1, 2001. Cynthia also argued that James II's attempt to distinguish Rossi on the ground that the First Amendment incorporated the no contest clause of the Trust was unavailing because the First Amendment merely ratified the Trust's provisions, and did not in fact incorporate the Trust's provisions.

The trial court issued a tentative ruling granting Cynthia's section 21320, subdivision (a) petition in part, and denying it in part. The court ruled, "[T]he proposed petition is denied safe harbor to the extent it challenges the First Amendment to the Trust. It is granted safe harbor to the extent it contests the validity of the Power of Appointment." The trial court rejected James II's argument that section 21305, subdivision (c) rendered section 21305, subdivision (a) inapplicable to Cynthia's petition. Further, the trial court reasoned that the holding in Rossi applied to Cynthia's proposed petition to the extent that the petition sought to invalidate the Power of Appointment. However, the trial court ruled that Rossi was distinguishable with respect to Cynthia's proposed challenge to the First Amendment to the Trust, reasoning that, unlike in Rossi, the amendment at issue in this case "specifically ratified the terms of the trust," including the Trust's no contest clause.*fn4

Cynthia subsequently filed a supplemental brief in which she argued that the trial court erred in failing to apply Rossi to her ...


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