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Williamson v. Brooks

California Court of Appeals, Second District, Sixth Division

January 31, 2017

JOANNE WILLIAMSON, as Trustee, etc., Plaintiff and Appellant,
v.
THOMAS BROOKS et al., Defendants and Respondents

         As modified Feb. 28, 2017.

          Superior Court of Santa Barbara County, No. 1457582, Thomas Pearce Anderle, Judge.

Page 1295

[Copyrighted Material Omitted]

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          COUNSEL

          Snyder Law, Barry Clifford Snyder and Joseph R. Billings for Plaintiff and Appellant.

         Seed Mackall, Peter A. Umoff and Alan D. Condren for Defendants and Respondents Barton E. Clemens, Jr., William Morgan and Connie Morgan.

         Mullen & Henzell and Jana S. Johnston for Defendant and Respondent Thomas Brooks.

         Perren, J., with Gilbert, P. J., and Yegan, J., concurring.

          OPINION

          [213 Cal.Rptr.3d 389] PERREN, J.

          The beneficiary of a trust asserts the trustees neglected to distribute trust assets to her. She claims as damages her inability to use those assets to prevent the loss of her home. We conclude the beneficiary suffered no compensable loss as a result of the trustees' alleged neglect.

         William Morgan (William) created an irrevocable subtrust for the benefit of his [213 Cal.Rptr.3d 390] daughter, Beverly Morgan (Beverly).[1] At its creation, the subtrust had an equity value of $67,500. Over the next four years, the cotrustees, Barton E. Clemens, Jr., and Thomas Brooks, increased the subtrust's equity value to over $725,000. Claiming that she did not receive timely notice of the subtrust, Beverly caused the successor trustee, Joanne Williamson, to sue Clemens, Brooks, Connie Morgan (Connie) and William (collectively respondents) for damages. Williamson alleges that if Beverly had been made aware of the subtrust, she would have used its assets to prevent the loss of her home.

         Following a four-day trial, the trial court entered judgment in favor of respondents. It found that Clemens and Brooks did not breach their fiduciary duties and that neither the subtrust nor Beverly suffered any harm as a result of respondents' actions. We affirm.

         FACTS AND PROCEDURAL BACKGROUND

         William founded Kirby Morgan Dive Systems, Inc. (KMDSI), a successful business which designs and manufactures commercial-grade diving helmets.

Page 1297

KMDSI is a closely held company with 200 shares of stock. Before creating his estate plan, William owned 155 shares. His daughter Connie owned the remaining 45 shares.

         In December 2008, William established the Morgan 2008 Irrevocable Trust (Trust), which contains five separate subtrusts benefiting five of his adult children, including Beverly. William selected Brooks, his accountant, and Clemens, his attorney, to serve as cotrustees. The purpose of Beverly's subtrust was to allow William to transfer 18 shares of KMDSI stock to Beverly in a tax-advantaged manner. William accomplished this by funding her subtrust with a gift of $67,500. The cotrustees then purchased the 18 shares of KMDSI stock for $675,000 by using the $67,500 cash as a downpayment and issuing a promissory note to William for the remaining $607,500 of the purchase price. The cotrustees secured their obligations under the note by pledging the 18 shares of stock. Monetary distributions authorized by KMDSI's board were used to pay the income taxes due on the stock and also to pay down the promissory note, thereby increasing the equity value of the subtrust. The subtrust allowed Beverly to withdraw certain portions of the principal at 40, 50 and 60 years of age.

         After the Trust was created, William, Brooks and Clemens discussed the need to inform William's children about the Trust. William said he wanted to tell them himself and it was agreed he would do so. William wished " to caution [the children] that it was not for purchases [for which] it wasn't intended." William informed Beverly about her subtrust on at least two occasions. The first was in an e-mail dated March 22, 2009, in which William responded to an inquiry from Beverly regarding whether Brooks should file her 2008 taxes. William advised: " Tom Brooks and Bart Clemens set up Trusts that do not require you to change any of your tax stuff. File with anyone you like and the Trust Income has no effect on your taxes since each Trust is a separate entity and is taxed on its own. I pay the tax on the Trust. I need to sit with you sometime this year to explain it all." The second occasion ...


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