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Morgan v. Superior Court (Nancy Morgan Shurtleff)

California Court of Appeals, Fourth District, Third Division

May 29, 2018

THOMAS E. MORGAN, as Trustee, etc., Petitioner,
v.
THE SUPERIOR COURT OF ORANGE COUNTY, Respondent NANCY MORGAN SHURTLEFF et al., Real Parties in Interest.

          Original proceedings; petition for a writ of mandate to challenge orders of the Superior Court of Orange County No. 30-2014-00726771, Kim R. Hubbard, Judge. Petition denied.

          Law Offices of Richard Pech, Richard Pech; Greenberg Taurig and Scott D. Bertzyk for Petitioner.

          No appearance for Respondent.

          Garvey Schubert Barer, Bruce A. McDermott and Daniel J. Vecchio for Real Parties in Interest Nancy Morgan Shurtleff, John Morgan, Jessica Shurtleff, and Kathleen Shurtleff.

          Roehl & Glowacki, Cynthia V. Roehl, John P. Glowacki; Carico Macdonald Kil & Benz, Christopher D. Carico and William G. Benz for Real Parties in Interest Bruce Hitchman and Lee Ann Hitchman.

          OPINION

          FYBEL, J.

         Introduction

         The Probate Code provides that a trust's provisions may not absolve a trustee from liability due to intentional misconduct, gross negligence, or reckless indifference. The trust instrument here purports to allow the former trustee to withhold from a successor trustee all of his or her communications with legal counsel. Consistent with statute and case law, we hold a trust may not allow a former trustee to withhold from a successor trustee all communications between that former trustee and the trust's legal counsel. The attorney-client privilege vests in the office of the trustee, not in any particular person. A provision permitting a trustee to withhold documents from a successor trustee violates public policy and is unenforceable. Allowing a former trustee to withhold from a successor trustee communications with the trust's former legal counsel would permit a trustee to intentionally (or with gross negligence or reckless indifference) violate duties with no check on his or her conduct.

         The trial court ordered the former trustee to turn over specified communications with the trust's former legal counsel to the successor trustees and their current legal counsel. The former trustee seeks a writ of mandate to reverse the trial court's order. We deny the petition.

         Statement of Facts and Procedural History

         A. The Trust

         Beverly C. Morgan (Beverly)[1] amended and completely restated the Beverly C. Morgan Family Trust on November 6, 2013 (the Trust). Beverly had three adult children: Thomas Edward Morgan III (Thomas), Nancy Morgan Shurtleff (Nancy), and John Evans Morgan (John). Nancy, John, and Nancy's daughters Kathleen Shurtleff and Jessica Shurtleff are referred to collectively as the Shurtleffs. Beverly was the initial trustee of the Trust. Thomas was named as the successor trustee.

         B. Beverly Dies; Thomas Becomes Trustee.

         Beverly died in January 2014, and Thomas succeeded her as trustee. Litigation began almost immediately thereafter. In May 2014, Nancy filed a petition to construe the Trust's terms, asking that the Trust be reformed or invalidated on grounds of lack of capacity, undue influence, and fraudulent misrepresentations. Nancy filed another petition in September 2014 asking that the Trust be reformed or invalidated, that Thomas be deemed to have predeceased Beverly, and that Thomas be removed as trustee, among other things. In November 2014, Nancy filed a petition to remove Thomas, suspend his powers as trustee, and direct Thomas to turn over the Trust's assets and records to Nancy or to a temporary trustee.

         Two years later, Nancy filed a new motion to suspend Thomas as trustee based on his alleged misuse of his powers to further his own litigation goals and strategies to the detriment of the Trust's other beneficiaries. Nancy alleged that Thomas spent Trust funds on his personal attorneys, engaged in self-dealing as trustee by using Trust funds for his personal benefit, and caused businesses owned by the Trust to engage in undocumented, inter-company, interest-free “loans” totaling millions of dollars.

         The trial court denied the motion to suspend Thomas, conditioned on the following: (1) Thomas would not use Trust funds to pay for his personal defense in the litigation with the Shurtleffs; (2) Thomas would not in any way impair the Trust assets and would not cause the Trust to borrow money; and (3) Thomas would file an accounting of all Trust assets used to pay his personal litigation expenses and of all loans made by or to the Trust. After Thomas filed the accounting, the court, sua sponte, issued an order finding the accounting was “so inadequate that its filing appears to be for the sole purpose of paying lip service to the Court's Order.”

         C. The Trial Court Suspends Thomas as Trustee; the Hitchmans are Named Interim Co-trustees.

         On April 4, 2017, the court suspended Thomas as trustee and appointed Bruce Hitchman and Lee Ann Hitchman of Hitchman Fiduciaries (the Hitchmans) as interim co-trustees. The court ordered Thomas to cooperate with the Hitchmans, and specifically ordered Thomas to “transfer and deliver to the Interim Co-Trustees all communications, including, but not limited to, letters, e mails, facsimile transmissions, and text messages between Thomas Morgan and any person or entity on behalf of the Trust; [¶]... [¶] deliver to the Interim Co-Trustees any and all current and historical account statements, cancelled checks, documents and records concerning the Beverly C. Morgan Family Trust, its transactions and its assets.”

         Between April and June, the Hitchmans filed three status reports in which they informed the court: “Counsel for the Suspended Trustee has indicated that he does not intend to turn over attorney-client communications or billing invoices.” Thomas and his counsel refused to turn over the requested documents based on language in paragraph 10.11 of the Trust, and statutory and case law.

         D. The Trial Court Orders Thomas to Give Documents to the Hitchmans and the Hitchmans' Counsel.

         The trial court held a trial setting conference and review hearing in June 2017. After discussing Thomas's refusal to provide the Hitchmans with communications between Thomas and the Trust's counsel while Thomas was trustee, the court stated: “[T]here is to be a turnover of invoices, billing statements, and fee agreements.... [¶] Those will be produced to the Hitchmans only, not for review by other counsel. I don't want to see redactions, but once the issue of whether or not these fees were paid personally-and by the way, counsel, I think you are incorrect. As the trustee, he has a duty to know what's going on. As the trustee, he has a duty to not pay his own fees, whether he's the sole beneficiary or not, until the matter has been wound up. And it has not been wound up here and we don't know how this is going to fall out. [¶]... [¶]... He, as a fiduciary, [cannot] use trust assets to pay his own trust expense, I don't care if he was a sole beneficiary or not, it would have been inappropriate.” The minute order following that hearing reads, in relevant part: “All invoices, billings, fee agreements, copies of checks and wire transfers used to pay any of the [sic] mentioned herein are to be turned over to the Hitchmans and their attorney only.”

         When the hearing reconvened two days later, the issue of the billing statements and invoices came up again.

         “Mr. Garrett [counsel for John, Jessica Shurtleff, and Kathleen Shurtleff]: It's extremely important on the preserve and protect aspect that those billing records be turned over. They will fight tooth and nail about that and that was the reason for the ex parte today. [¶]... [¶]

         “The Court: How soon can you provide the records?

         “Mr. Pech [Thomas's counsel]: ...


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