Allan Gage Olson et al., etc., v. SOC Properties, LLC, et al

Case Number

22CV05041

Case Type

Hearing Date / Time

Wed, 04/03/2024 - 10:00

Nature of Proceedings

Motion of Defendants for Summary Adjudication

Tentative Ruling

For Plaintiffs Allan Gage Olson and Daniel A. Olson, co-trustees of the Olson Family Trust: Charles L. McCutchan, Law Office of Robert M. Baskin                                   

For Defendants SOC Properties, LLC, Marcia Louise Stewart and Ronald J. Stewart, co-trustees of the Stewart Family Trust, and Linda G. Clough, trustee of the Linda G. Clough Trust: Timothy J. Trager, Reicker, Pfau, Pyle & McRoy LLP

RULING

For the reasons set forth herein, the motion of Defendants for summary adjudication is denied.

Background

(1)       Allegations of the Complaint

As alleged in the complaint of Plaintiffs Allan Gage Olson and Daniel A. Olson (the Olsons), co-trustees of the Olson Family Trust dated September 25, 2007, as amended and restated (the Olson Trust) (collectively, Plaintiffs):

Defendant SOC Properties LLC (SOC), a California limited liability company, was formed on October 1, 2007, by three family trusts. (Complaint, ¶¶ 4, 12, 13; see also Plaintiffs’ Response Separate Statement [PSS], undisputed fact 1.) Those trusts were Defendants Marcia Louise Stewart and Ronald J. Stewart (the Stewarts), co-trustees of the Stewart Family Trust dated April 27, 2000 (the Stewart Trust), Frederick W. Clough and Defendant Linda G. Clough (the Cloughs), co-trustees of the Clough Family Trust dated October 31, 2005 (the Clough Trust), and Georgann S. Olson and Allan G. Olson Jr., co-trustees of the Olson Trust. (Complaint, ¶ 13; see also PSS, undisputed fact 2.) The trustees of the three family trusts, were either siblings, or the spouses of the siblings. (Ibid.; see also PSS, undisputed fact 3.) The purpose of the LLC was the ownership and operation of a trailer park. (Ibid.)

After the LLC was organized, Georgann S. Olson and Allan G. Olson Jr. (the original trustees) died, but the Olson Trust continued to exist. (Complaint, ¶ 14; see also PSS, undisputed fact 11.)

The trustees of the Stewart Trust, the trustee of the Clough Trust, and SOC (collectively, Defendants) contend that upon the death of the original trustees of the Olson Trust, the membership interest in SOC of the Olson Trust was extinguished. (Complaint, ¶ 14.) On July 9, 2022, Defendants amended and restated the operating agreement of SOC without the consent of the Olson Trust. (Complaint, ¶ 15.)

(2) Procedural History

On December 22, 2022, Plaintiffs filed their complaint in this action asserting three causes of action: (1) declaratory relief; (2) injunctive relief; and (3) accounting. The first cause of action seeks declarations that the Olson Trust is and remains the owner of a one-third interest in SOC, including voting rights, and that the amended and revised operating agreement of SOC is void and unenforceable. (Complaint, ¶¶ 19, 20.)

On February 7, 2023, Defendants filed their answer to the complaint, admitting and denying allegations thereof, and asserting seven affirmative defenses.

On January 17, 2024, Defendants filed this motion for summary adjudication of Plaintiffs’ first cause of action for declaratory relief. The motion is opposed by Plaintiffs.

Analysis

“The motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. In determining if the papers show that there is no triable issue as to any material fact, the Court shall consider all of the evidence set forth in the papers, except the evidence to which objections have been made and sustained by the Court, and all inferences reasonably deducible from the evidence, except summary judgment shall not be granted by the Court based on inferences reasonably deducible from the evidence if contradicted by other inferences or evidence that raise a triable issue as to any material fact.” (Code Civ. Proc., § 437c, subd. (c).)

“A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if the party contends that the cause of action has no merit, that there is no affirmative defense to the cause of action, that there is no merit to an affirmative defense as to any cause of action, that there is no merit to a claim for damages, as specified in Section 3294 of the Civil Code, or that one or more Defendants either owed or did not owe a duty to the Plaintiff or Plaintiffs. A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Code Civ. Proc., § 437c, subd. (f)(1).)

“A Defendant or cross-Defendant has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to the cause of action. Once the Defendant or cross-Defendant has met that burden, the burden shifts to the Plaintiff or cross-complainant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto. The Plaintiff or cross-complainant shall not rely upon the allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to the cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subd. (p)(2).)

“But other principles guide us as well, including that ‘[w]e accept as true the facts … in the evidence of the party opposing summary judgment and the reasonable inferences that can be drawn from them.’ [Citation.] And we must ‘ “view the evidence in the light most favorable to Plaintiff[] …’ and “liberally construe Plaintiff[’s] evidentiary submissions and strictly scrutinize Defendant[’s] own evidence, in order to resolve any evidentiary doubts or ambiguities in Plaintiff[’s] favor.” ’ [Citation.]” (Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 254.)

Defendants move for summary adjudication of Plaintiffs’ first cause of action for declaratory relief.

“Summary judgment procedure includes declaratory relief actions ‘ “ ‘in a proper case.” ’ [Citation.] ‘ “ ‘[T]he propriety of the application of [summary judgment to] declaratory relief lies in the trial Court’s function to render such a judgment when only legal issues are presented for its determination.’ ” [Citations.]’ [Citation.] When summary judgment is appropriate, the Court should decree only that Plaintiffs are not entitled to the declarations in their favor. [Citation.] Thus, in a declaratory relief action, the Defendant’s burden is to establish the Plaintiff is not entitled to a declaration in its favor. It may do this by establishing (1) the sought-after declaration is legally incorrect; (2) undisputed facts do not support the premise for the sought-after declaration; or (3) the issue is otherwise not one that is appropriate for declaratory relief.” (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1401–1402.)

Defendants seek summary judgment on five grounds: (1) Plaintiffs request the Court to declare their rights and obligations under a trust but Code of Civil Procedure section 1060, the statute authorizing a Court to grant declaratory relief, explicitly excludes from its scope relief relating to a trust; (2) the undisputed facts establish that Plaintiffs are not members of SOC; (3) Plaintiffs cannot become members of SOC absent Defendants’ written consent, which has not been given; (4) SOC’s first amended operating agreement is not void because Plaintiffs were not members of SOC when the agreement was amended, thus their consent to the amendment was not required; and (5) the Olson Trust became irrevocable upon the death of Georgann Olson and the Plaintiffs did not petition the Court to modify the irrevocable nature of the trust. (Notice, at p. 2.)

(1) Availability of Declaratory Relief

Defendants’ first ground for summary adjudication is that the issues for which declaratory relief is sought are not properly subjects for declaratory relief.

“Any person interested under a written instrument, excluding a will or a trust, or under a contract, or who desires a declaration of his or her rights or duties with respect to another … may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior Court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract.” (Code Civ. Proc., § 1060, italics added.)

Defendants argue that the two adjudications sought by Plaintiffs—namely, that the Olson Trust is and remains the owner of a one-third interest in SOC, and that the amended and revised operating agreement of SOC is void and unenforceable—both require the Court to construe the Olson Trust. Plaintiffs respond by arguing that the issue presented does not require an interpretation of the Olson Trust but only an interpretation of the original operating agreement.

The limitation of section 1060 so as to exclude declaratory relief regarding rights under a trust does not preclude the declaratory relief sought here. The issue presented is whether the trust is now, or was at the time of the amendment of the operating agreement, a member of SOC under applicable limited liability company law. This is a proper subject for declaratory relief. For example, in Presta v. Tepper (2009) 179 Cal.App.4th 909 (Presta), discussed more fully below, a similar issue was presented by a claim for declaratory relief as to whether a trust remained as a member of a partnership after the death of the settlor/partner. (Id. at p. 912.) The trial Court issued declaratory relief finding that the trust was not a partner, which was affirmed on appeal. (Id. at pp. 912, 919.)

The Court finds that the first asserted ground for adjudication is not a proper basis for summary adjudication.

(2) Membership in SOC

The core issue presented both in the first cause of action and in this motion is whether the Olson Trust holds a membership interest in SOC.

The initial operating agreement of SOC (the 2007 Operating Agreement) provides (Defendants’ Evidence, exhibit 1; Olson decl., exhibit 1 [bolding omitted, capitalization altered]):

“This Operating Agreement (the ‘Agreement’) is made effective as of 10/1/07, by and among and those Persons (the ‘Members’) identified in Exhibit A.”

“Section 2.1 Initial Members. The initial Members of the Company are the Members

who are identified in Exhibit A.”

“Section 2.2 Percentage Ownership and Voting Interests. A Member’s Ownership

Percentage and Voting Interest is that identified in Exhibit A, together with all of the rights, as a Member of the Company, that arise from such interests. The Percentage Ownership Interests of the Members shall be, at all times, equal to 100% when added together. [¶] The Members shall have the initial Ownership, Percentage Ownership and Percentage Voting Interests in the Company that are identified in Exhibit A, immediately following the making of the capital contributions set forth therein.”

“Section 2.3 Voting. Except as otherwise provided or permitted by this Agreement, Members shall in all cases, in their capacity as Members of the Company, act collectively, based on a majority vote of the Members.”

“4.1 Managing Member. Allan G. Olson, Jr, is hereby designated as the Managing Member of the Company. Except as otherwise provided in this Agreement, the Managing Member shall be responsible for ·the operation of the Company’s business in the ordinary course of business, and shall have the authority to do all things, without the consent of the Members, that he determines, in his sole discretion, to be in furtherance of the purpose of the Company. The Managing Member is vested with the management of the Company and shall have all the rights, powers, and privileges available to a ‘managing member’ under the Act. The Managing Member shall have the right to enter into and execute all contracts, documents and shall thereby fully bind the Company. The Managing Member may be removed by a vote of the Members holding at least a majority of the ownership interests in the Company.”

“6.2 Restrictions on Transfer. Except upon the unanimous consent of all of the other Members, no Member shall sell, hypothecate, pledge, assign or otherwise transfer, with or without consideration, any part or all of his Ownership Interest in the Company to any other person or entity, without first offering that portion of his or her Ownership Interest in the Company first to the Company, and secondly, to the other Members, at an offered purchase price. If the Company or the other Members fail to accept the Offer or, if the Offer is accepted by the Company or the other Members and the Company or the other Members fail to purchase all of the Offered Interest at the Transfer Purchase Price within the time and in the manner specified, then the Offering Member shall be free, for a period (hereinafter referred to as the ‘Free Transfer Period’) of sixty (60) days from the occurrence of such failure, to transfer the Offered Interest to a Transferee; provided, however, that if all of the other Members other than the Offering Member do not approve of the proposed transfer by unanimous written consent, the Transferee of the Offered Interest shall have no right to become a Member or to participate in the management of the business and affairs of the Company as a Member or Manager, and shall only have the rights of an Assignee and be entitled to receive the share of profits and the return of capital to which the Offering Member would otherwise have been entitled.”

“6.3 Involuntary Transfer of a Membership Interest. A creditor’s charging order or

lien on a Member’s Membership Interest, bankruptcy of a Member, or other involuntary transfer of Member’s Membership Interest, shall constitute a material breach of this Agreement by such Member. The creditor, transferee or other claimant, shall only have the rights of an Assignee, and shall have no right to become a Member, or to participate in the management of the business and affairs of the Company as a Member or Manager under any circumstances, and shall be entitled only to receive the share of profits and losses, and the return of capital, to

which the Member would otherwise have been entitled.”

“10.1 Authority. This Agreement constitutes a legal, valid and binding agreement of

the Member, enforceable against the Member in accordance with its terms. The Member is empowered and duly authorized to enter into this Agreement (including the power of attorney herein) under every applicable governing document, partnership agreement, trust instrument, pension plan, charter, certificate of incorporation, bylaw provision or the like.”

“11.2 Amendments. All amendments to this Agreement shall be in writing and signed by all of the Members to the agreement at the time of the amendment.”

“Exhibit A

“LLC Members and Percent of Ownership

“Marcia Louise Stewart and Ronald J. Stewart,

“Trustees of The Ronald and Marcia Stewart

“Family Trust Dated April 27, 2000                              33.3333%”

“Frederick W. Clough and Linda G. Clough,

“Trustees of The Clough Family Trust

“Dated October 31, 2005                                                   33.3333%”

“Georgann S. Olson and Allan G. Olson Jr

“Trustees of The Olson Family Trust

“Dated September 25, 2007                                              33.3334%”

The text of the 2007 Operating Agreement is ambiguous as to whether the membership is personal to the specific trustees identified in Exhibit A to the 2007 Operating Agreement or is held by the trust when, as here, there are successor trustees. This ambiguity is highlighted by the conflicting evidence presented by the parties. Defendants present evidence by the declaration of Linda G. Clough that the intent was for the membership to be personal to the six named trustees. (Clough decl., ¶¶ 3-8.) Plaintiffs present evidence by the declaration of Allan G. Olson that the Olson Trust is the member, apart from its trustee, including particularly both the K-1 tax form and the cover letter from SOC. (Olson decl., ¶ 3 & exhibit 2.)

A similar issue was raised in Presta, supra, 179 Cal.App.4th 909, and Han v. Hallberg (2019) 35 Cal.App.5th 621, 624 (Han). Both of these cases involved partnerships in which a partner was designated as an individual as trustee of his revocable trust and that individual died. (Presta, supra, 179 Cal.App.4th at pp. 912-913; Han, supra, 35 Cal.App.5th at p. 624.) After a successor trustee took office, the remaining partner or partners took the position that the decedent’s death caused a transfer of the partnership interests held in trust, giving the remaining partners rights against the decedent’s partnership interest. (Presta, supra, 179 Cal.App.4th at p. 912; Han, supra, 35 Cal.App.5th at p. 624.) In both cases, the issue was whether the trust or the original trustee was the partner under the provisions of the Uniform Partnership Act (UPA).

In Presta, the Court determined that the original trustee was the partner and not the trust: “The fundamental flaw in [the successor trustee’s] argument is that it assumes a trust is an entity, like a corporation, which is capable of entering into a business relationship such as a partnership. It is not. It has long been established under California law that an express trust of the type created by Presta and Tepper is merely a relationship by which one person or entity holds property for the benefit of some other person or entity: ‘A trust is any arrangement which exists whereby property is transferred with an intention that it be held and administered by the transferee (trustee) for the benefit of another....’ [Citation.]” (Presta, supra, Cal.App.4th at pp. 913–914.) The Presta Court rejected the successor trustee’s argument that a trust could be a partner because the UPA’s definition of “person” includes a trust: “The problem with [the successor trustee’s] contention is that she fails to acknowledge that (1) there are different types of ‘trusts’ which can exist under California law ...; and (2) the statute’s inclusion of the phrase ‘or any other legal or commercial entity’ at the end of its list of potential ‘persons’ implies that it covers those listed only to the extent they are, in fact, ‘legal or commercial entities.’ Thus what the statute actually provides is that to the extent a ‘trust’ qualifies as a ‘legal or commercial entity,’ it could also qualify as a ‘person’ capable of forming a partnership.” (Id. at p. 915.)

The Han Court reached the opposite conclusion, finding that the plain language of the definition of “person” in the UPA is consistent with California trust law. (Han, supra, 35 Cal.App.5th at p. 625.) Han disagreed with Presta:

“In the end, Presta distinguishes between a partner that is ‘the trust itself’ and a partner that is ‘ “acting as a partner by virtue of being a trustee of a trust.” ’ [Citation.] Presta treats the former as a category available only to ‘entities’ like trust companies and real estate investment trusts, and treats the latter (in our view, erroneously) as if they were individual partners rather than trustees. [Citation.] Presta asserts that section 16601 of the UPA recognizes the distinction [citation], because it contains the language referring to a partner ‘that is a trust or is acting as a partner by virtue of being a trustee of a trust.’ [Citation.]” (Han, supra, 35 Cal.App.5th at p. 635.)

“But Presta, quoting the applicable language only in part, completely ignores the whole point of Corporations Code section 16601, which is to identify events that dissociate the partner from the partnership. Whether the partner is ‘a trust’ or ‘is acting as a partner by virtue of being a trustee of a trust,’ makes no discernable difference; in both cases, the partner is not dissociated from the partnership by the death of the trustee. On the contrary, that partner, whether trust or trustee, is dissociated only by ‘distribution of the trust’s entire transferable interest in the partnership,’ and not by ‘the substitution of a successor trustee.’ (Corp. Code, § 16601, subd. (8).)” (Han, supra, 35 Cal.App.5th at p. 635.)

Interestingly, the California Supreme Court granted review in Han to determine the question: “Can a trust be a partner in a partnership? Does the death of a partner who has transferred his partnership interest into a trust trigger the buyout-on-death term in the partnership agreement?” (Han v. Hallberg, review granted Aug. 21, 2019, S256659 [250 Cal.Rptr.3d 720].) However, the Supreme Court dismissed review “[i]n light of appellants’ concession that ‘[a]n ordinary express trust can be a general partner.’ ” (Han v. Hallberg, review dism., Aug. 31, 2020, S256659 [271 Cal.Rptr.3d 648].) The conflict between Presta and Han thus remains unresolved.

Presta and Han are significant because the California Revised Uniform Limited Liability Company Act (the Revised Act, Corp. Code, § 17701.01 et seq.) contains provisions substantially identical to the UPA. Just as with the UPA, the Revised Act contains a definition of “person” that includes a trust: “ ‘Person’ means an individual, partnership, limited partnership, trust, a trustee of a trust, including, but not limited to, a trust described under Division 9 (commencing with Section 15000) of the Probate Code, estate, association, corporation, limited liability company, or other entity, whether domestic or foreign.” (Corp. Code, § 17701.02, subd. (v).) Just as with the UPA, the Revised Act provides that “In the case of a person that is a trust or is acting as a member by virtue of being a trustee of a trust, the trust’s entire transferable interest in the limited liability company is distributed but not solely by reason of a substitution of a successor trustee.” (Corp. Code, § 17706.02, subd. (h).)

In view of the conflict of authority, the Court finds the analysis of Han to be more persuasive and, to the extent applicable, will follow Han. (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456.) Applying Han, and regardless of whether Defendants have met their initial burden on summary adjudication, the Court finds that there is a triable issue of material fact as to whether the Olson Trust is the holder of the membership interest in SOC following the death of the last original trustee.

(3) Olson Trust Issues

Determining that there is a triable issue of material fact as to whether the Olson Trust is the holder of the membership interest in SOC and so that the membership interest is not personal to the original trustees of the Olson Trust does not end the analysis. The remainder of Defendants’ arguments are based upon the premise that even if the Olson Trust at one time held the membership interest in SOC, because the Olson Trust has become irrevocable, distribution to the beneficiaries of the Olson Trust was required, and therefore the Olson Trust should be treated as having distributed its membership interests, in turn causing an event of disassociation.

Under the Revised Act:

“ ‘Transfer’ includes an assignment, conveyance, deed, bill of sale, lease, mortgage, security interest, encumbrance, gift, and transfer by operation of law.” (Corp. Code, § 17701.02, subd. (z).)

“ ‘Transferable interest’ means the right, as originally associated with a person’s capacity as a member, to receive distributions from a limited liability company in accordance with the operating agreement, whether or not the person remains a member or continues to own any part of the right.” (Corp. Code, § 17701.02, subd. (aa).)

“ ‘Transferee’ means a person to which all or part of a transferable interest has been transferred, whether or not the transferor is a member.” (Corp. Code, § 17701.02, subd. (ab).)

“With respect to a transfer, in whole or in part, of a transferable interest, all of the following apply:

            “(1)      A transfer is permissible.

            “(2)      A transfer does not by itself cause a member’s dissociation or a dissolution and winding up of the activities of a limited liability company.

            “(3)      Subject to Section 17705.04, a transfer does not entitle the transferee to do any of the following:

                        “(A)     Vote or otherwise participate in the management or conduct of the activities of a limited liability company.

                        “(B)     Except as otherwise provided in subdivision (c) and Section 17704.10, have access to records or other information concerning the activities of a limited liability company.” (Corp. Code, § 17705.02, subd. (a).)

Plaintiffs present evidence that the Olson Trust has not distributed to its beneficiaries the membership interest in SOC. (Olson decl., ¶ 3; see also Clough decl., ¶ 16.) Defendants’ argument thus requires the Court to deem acts pursuant to the Olson Trust that have not actually occurred to have happened. This argument fails for two reasons. First, going back to Defendants’ own initial argument, the Court may not provide declaratory relief as to the rights of the parties to a trust. To the extent that this argument requires the Court to construe the Olson Trust and to make a declaration as to obligations of the trustee to have distributed the Olson Trust membership interest, Code of Civil Procedure section 1060 precludes the Court from making such a declaration. Trust matters must be addressed in the Probate Court.

Second, under the plain meaning of the Revised Act, a transfer must have actually occurred, either voluntarily or as a matter of law, before there are consequences of a transfer. This is specifically the holding of Han. Under Corporations Code section 17706.02, subdivision (h), quoted above, disassociation by transfer does occur until distribution of the membership interest from a trust and not by reason of a substitution of a successor trustee. Because there is evidence that no such transfer has actually occurred and there is a triable issue as to whether the Olson Trust is the member as a trust, there is a triable issue as to whether Olson Trust had voting rights at the time of the adoption of the July 9, 2022, amended and restated the operating agreement of SOC, which occurred without the consent of the Olson Trust. There is thus a triable issue as to whether the 2022 amended and restated operating agreement was validly adopted.

Consequently, there are triable issues which preclude summary adjudication of the first cause of action. The motion for summary adjudication will therefore be denied.

(4) Requests for Judicial Notice and Evidentiary Matters

In support of the motion, Defendants request that the Court take judicial notice of: (item A, Defendants’ Evidence, exhibit 3) the ex parte order in In re the Matter of the Olson Family Trust, dated September 23, 2021, Ventura County Superior Court case number 58-2021-00556153-PR-TR-OXN, filed on July 23, 2021; (item B, exhibit 4) the judgment in that matter filed on June 6, 2022; (item C) the complaint in this action; and (item D) Code of Civil Procedure section 1060.

With respect to items (A), (B), and (C), the Court grants the unopposed request. (See Evid. Code, § 452, subd. (d)(1).) However, judicial notice does not extend to the truth of facts stated in Court records. (Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 120.) With respect to item (D), “A request for judicial notice of published material is unnecessary. Citation to the material is sufficient. [Citation.] We therefore consider the request for judicial notice as a citation to those materials that are published.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 46, fn. 9.)

In view of the Court’s ruling as discussed above, it is unnecessary for the Court to address Defendants’ evidentiary objections. (See Code Civ. Proc., § 437c, subd. (q).)