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Estate of Imelda N. Fernandez v. San Diego Financial Services

December 7, 2010


Appeal from orders of the Superior Court of Orange County, Marjorie Laird Carter, Judge. (Super. Ct. No. A223500)

The opinion of the court was delivered by: O'leary, Acting P. J.

Estate of Fernandez



California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.



Imelda Norman Fernandez died intestate on November 28, 2003. Soon thereafter, Kenneth Cummins was appointed special administrator of the estate. For several years there was an abundance of litigation in this probate case (the trial court's register of actions is 146 pages long). Simply stated, the decedent's three adult children were each entitled to a one-third interest in the estate, but the estate had many creditors and tax problems that had to be sorted out before the estate could be distributed. To avoid the sale of assets, one of the heirs, Linda Grant, loaned the estate $500,000, and assigned a partial interest in her portion of the estate to her lender as security. In October 2008, the court entered a final order distributing the estate to the three heirs. The court specified Grant's share of the estate was "subject to" the rights of her creditors, and it reserved jurisdiction over allocation of Grant's share among those creditors.

This appeal was filed by San Diego Financial Services, Inc. (SDFS), one of Grant's creditors, who had been assigned a partial interest in Grant's share of the estate. It raises several complaints about the court's orders: (1) the court should have distributed Grant's share outright to SDFS; (2) the court erroneously deducted administrative expenses from the balance due on Grant's loan to the estate; (3) the court improperly failed to equally allocate costs between the heirs; (4) Cummins and his special counsel should not have been awarded extraordinary fees. Finding none of SDFS's contentions have merit, we affirm the court's orders.


The following facts are undisputed: In 2003, Fernandez died intestate. She was survived by three adult children, Lee Trianae Richardson (Lee), Harry Fernandez (Harry), and Grant. At the time of her death, Fernandez possessed: (1) a 31-unit apartment complex in Santa Ana, called the Garden Terrace Apartments; and

(2) real property in Palm Springs at 1552 Ridge Road (the Ridge Road property). However, there were no liquid assets and several liabilities. Specifically, there were numerous third party creditors, claiming they were owed approximately $400,000. Fernandez had not filed income tax returns for several years preceding her death.

Before she died, Fernandez had three lawsuits pending, which added to the work that needed to be done in the case. For example, the estate had a claim in Grant's bankruptcy. However, the bankruptcy trustee claimed ownership of the trust deeds encumbering the Garden Terrace Apartments and ownership of two limited liability companies (in which Fernandez owned an interest) and the Ridge Road property. The bankruptcy trustee had filed an adversary proceeding against decedent in the bankruptcy court, and a creditor's claim in the probate case (seeking between $2,525,000 and $5,525,000). The estate also had a claim against Lee and her daughter Trianae Richardson (Trianae), for recovery of the Garden Terrace Apartments. These apartments were in severe disrepair, but the heirs adamantly opposed sale of the property.

In February 2004, Cummins was appointed special administrator of decedent's estate. Thereafter, he qualified as administrator and he was issued letters of administration giving him limited authority to act under the Independent Administration of Estates Act. (Prob. Code, § 10400 et seq.) Cummins hired probate attorney John Duncan to handle matters relating to administration of the estate, such as taxes, creditor claims, and litigation. He hired another attorney, Howard Bidna, to serve as special counsel to litigate matters involving Grant's bankruptcy and the claims made by the bankruptcy trustee.

In July 2004, the parties executed a settlement agreement that resolved all litigation and claims between the estate and Grant's bankruptcy. As one of the settlement terms, the probate court received title to the Ridge Road property. Another term provided Grant "shall make monthly payments of $3,500 to the Administrator to enable the Administrator to keep current the mortgage against the Ridge Road Property (Subject to a claim by the [d]ebtors to a credit in the Fernandez Probate Estate for such sums.)" The agreement stated Grant reserved her right to make "a claim for credit for monthly payments made by the [d]ebtors to the Administrator with respect to the Ridge Road Property pursuant to section 3.02."

The following year, in June 2005, Grant loaned the estate $500,000 under the following terms: (1) no interest; (2) the money was loaned in lieu of selling the Ridge Road property; (3) the money was to be used for estate administration; and (4) the money had to be accounted for in the course of administration.

Grant borrowed the money from Talman & Talman, Inc., dba Bankers Hill Capital (Talman) and she assigned to it a partial interest in her inheritance from the estate. The assignment provided, "For valuable consideration . . . Grant does hereby assign and transfer to Talman . . . all her rights, title and beneficial interest in and to the above referenced [e]state and authorizes and directs that any distributions otherwise due her shall be distributed instead to said Talman . . . . It is provided, however, that if at the time of distribution, those certain Open Lines of Credit Agreements dated July 18, 2005 in the amount of $1,261,000 and $600,000 respectively are paid in full, then this assignment shall be of no further force and effect."

Talman later assigned and transferred a portion of this interest in the estate to SDFS. This second document provided Talman assigned to SDFS its interest in the estate "up to the amount of $600,000, plus any unpaid interest, late charges and advances due . . . . pursuant to that Open Line of Credit Agreement and Deed of Trust signed by . . . Grant . . . . It is provided, however, that if at the time of any such distribution from said [e]state, said $600,000 Open Line of Credit Agreement has been paid in full, then this assignment shall be of no further force and effect." Both assignments were filed the same day with the probate court.

Grant failed to make the $3,500 monthly mortgage payments as agreed upon in the settlement of her bankruptcy. Cummins petitioned the court for instructions. In September 2006, Grant stipulated, and the probate court ordered, the balance of Grant's $500,000 loan to the estate could be reduced at the rate of $3,500 per month for costs and expenses relating to the Ridge Road Property.

During the pendency of the probate case, two creditors served notices of levy against Grant's interest in the estate. SDFS obtained a judgment against Grant and her husband in superior court in the amount of $746,117.09. SDFS served Cummins with a notice of levy issued pursuant a writ of execution on the money judgment. The notice of levy was against Grant's interest both as a "beneficiary or a creditor of the estate." Leonard and Julian Eastwood (the Eastwoods) also obtained a judgment against Grant and her husband in superior court in the amount of $640,615. The Eastwoods served a notice of levy and described the property being levied on as "any and all amounts due or to become due either as a beneficiary or a creditor of the" Fernandez estate.

After nearly five years of court proceedings, all the estate's creditor claims were resolved, the estate taxes were paid, and Fernandez's income tax issues were solved. In addition, the bankruptcy claims were satisfied. The estate had assets valued at nearly $5 million dollars. In the court's final order, the heirs received in kind preliminary distributions of the Garden Terrace Apartments, the Ridge Road property, and some cash, after the estate paid administrative bills to professionals and repaid Grant's loan. The court reserved jurisdiction to adjudicate the respective rights of the competing interests (between SDFS and the Eastwoods) with respect to Grant's share of the estate.


In this appeal, SDFS alleges the probate court erred: (1) in failing to distribute Grant's interest in the estate directly to SDFS pursuant to the assignment; (2) in deducting administrative expenses of the estate from the balance due on the loan from Grant to the estate; (3) in failing to equally allocate the carrying costs of the Ridge Road property between the three heirs; and (4) in awarding the administrator, his special counsel, and his probate counsel extraordinary fees. We will address these claims in turn.

A. Was the court required to directly distribute Grant's portion of the estate to an assignee?

SDFS asserts the court's final October 1, 2008 order is contrary to well settled law regarding assignments in probate estates. In distributing the property and assets of the estate, the final order directs Grant's undivided one third interests in the estate property and assets to be distributed directly to Grant, "subject to" any interests of SDFS and the Eastwoods. ...

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