Matter of William Lloyd Davis Trust

Case Number

23PR00396

Case Type

Hearing Date / Time

Thu, 06/06/2024 - 09:00

Nature of Proceedings

Demurrer to 3rd, 5th, 6th, 7th, and 8th Causes of Action in Petitioner Alexander Davis' Petition fot Breach of Fiduciary Duty; Motion: Strike Portions of Petitioner Alexander Davis' Petition

Tentative Ruling

TENTATIVE RULINGS:

1. Respondents’ demurrer to the petition is overruled in its entirety.

2. Respondents’ motion to strike portions of the petition is denied in its entirety.

3. Respondents shall file and serve their response to the petition no later than June 27, 2024.

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Background:

This action was commenced on August 8, 2023, by the filing of the petition by Alexander Davis (“Alexander”) against respondents Teran Davis (“Teran”), individually and as trustee, and Garret Davis (“Garret”). (Note: Due to common surnames the parties will be referred to by their first names for clarity. No disrespect is intended.)

The petition seeks: (1) Breach of Fiduciary Duty by Trustee; (2) To Redress Breaches of Trust by Any Available Remedy; (3) For Order Appointing Expert Witness to Advise and Report to the Court; (4) To Remove Trustee and Appoint a Successor Trustee; (5) Compelling Successor Trustee to Distribute Trust Assets; (6) For an Accounting; (7) Denying Trustee Compensation; (8) Imposing a Constructive Trust on Trust Property; (8) [Note: The petition designates two separate causes of action as “8”.] For Return of Trust Property Under Probate Code Section 850 & 859; (9) Violation of Penal Code Section 496; (10) Embezzlement/Conversion; (11) Unjust Enrichment; (12) Aiding and Abetting Breach of Fiduciary Duty; and (13) For Payment of Prejudgment Interest, Appreciation Damages and Treble Damages, and Attorney’s Fees and Costs.

The body of the petition sets forth the following causes of action: (1) Breach of Fiduciary Duty - against Teran; (2) For an Accounting - against Teran; (3) Deny Use of Trust Funds to Defend this Action - against Teran; (4) Return of Trust Property - against Teran and Garret; (5) Violation of Penal Code section 496 - against Teran and Garret; (6) Conversion - against Teran and Garret; (7) Embezzlement - against Teran and Garret; (8) Unjust Enrichment - against Teran and Garret; and (9) Aiding and Abetting Breach of Fiduciary Duty - against Garret.

To summarize the general allegations contained in the petition:  Alexander is a beneficiary of the Trust for Issue of William Lloyd Davis (“ the Trust”). (Petition, ¶ 1.) The Trust has been irrevocable since its inception. (Id., at ¶ 5.) The Trust was established on December 31, 1976, and was executed by Alexander’s paternal grandmother, Elizabeth Lloyd Davis, as trustor, and Alexander’s father, William, as trustee. (Id., at ¶ 6.)

“Pursuant to the terms of the Issue Trust, the assets of the Issue Trust were initially administered as one trust for the benefit of the issue of Petitioner’s father, William Lloyd Davis, until the first living primary beneficiary of the trust reached 30 years of age. When the first living primary beneficiary of the Issue Trust reached age 30, the trust terms required the trust estate to be divided into equal and separate shares: one share for each living child of William Lloyd Davis, and one share for each group composed of the then living issue of a deceased child of William Lloyd Davis.” (Petition, ¶ 8.)

The first primary beneficiary of the Trust to reach age 30 was Thomas Davis (“Tommy”). (Petition, ¶ 9) At that time, William had no deceased children and three other living children: Alexander, Garret, and Allegra Davis (“Allegra”) (Ibid.) The Trust was divided into four equal shares, each to be administered in trust for the exclusive benefit of each of the children beneficiaries. (Id., at ¶ 10.)

During the time that each of the respective beneficiaries was under the age of 30, the Trust directed the trustee to distribute to such respective beneficiary all of the net income of his or her separate share at least annually and may distribute as much principal as is necessary for the respective beneficiary’s support, health, maintenance, and education. (Petition, ¶ 11.) When a beneficiary reached the age of 30, the trustee is required to distribute the entire balance of such beneficiary’s separate share to the beneficiary. (Id., at ¶ 12.)

As of the filing of the petition, Alexander was 37 years old, Garret was 31 years old, and Allegra was 25 years old. (Petition, ¶ 14.) William served as the trustee of the Trust until his death on March 1, 2015. (Id., at ¶ 15.) Teran, Alexander’s mother, was the first named successor trustee of the Trust. (Id., at ¶ 16.) Teran remains the acting trustee. (Id., at ¶ 17.) At the time Teran assumed the role of trustee, three of the four separate shares created under the Trust remained in trust. (Id., at ¶ 18.)

Since assuming the role of trustee of the Trust, Teran has never provided Alexander with an accounting or asset summary of the Trust or Alexander’s separate trust. (Petition, ¶ 22.) Based on the asset and liability values reported on income tax returns and third-party appraisals, Alexander believes that the non-discounted net fair market value of each separate trust, as of March 1, 2015, was approximately $7,000,000.00. (Ibid.)

The separate trusts were not included in William’s taxable estate. (Petition, ¶ 23.) The taxable estate, comprised mostly of William’s separate property, was  held in the William Lloyd Davis Family Trust (“WLD Trust”), under which nine sub-trusts were created. (Ibid.)

After Williams death, Teran, Garret, and Tommy were the named successor co-trustees of the WLD Trust, and each remains a trustee. (Petition, ¶ 24.)

As of March 1, 2015, Alexander’s separate trust co-owned real property in several partnerships with the WLD Trust. (Petition, ¶ 25.) Alexander’s separate trust also co-owned real property with the other separate trusts. (Id., at ¶ 26.)

The remainder of the Petition primarily contains allegations regarding assets of the various trusts, mismanagement of the trusts, breaches of the trusts, and damages. Specific additional allegations are discussed below as relevant and appropriate.

On February 16, 2024, while both Teran and Garret were represented by the same attorney, they filed the present demurrer to the third, fifth, sixth, seventh, and eighth causes of action in the petition. Teran and Garret also jointly filed the present motion to strike portions of the petition.

On February 22, 2024, Teran substituted in new counsel individually. On February 29, 2024, Garret substituted in new counsel individually. Teran and Garret are now each separately represented.

On May 23, 2024, Alexander filed oppositions to the demurrer and to the motion to strike.

On May 30, 2024, Teran and Garret, while represented by current counsel, each filed a single reply to both the opposition to demurrer and the opposition to the motion to strike.

Analysis:

New Issues Raised in Replies

“‘The general rule of motion practice . . . is that new evidence is not permitted with reply papers.’ ” [Citation.] Strictly speaking, Attorneys’ reply presented new argument rather than new evidence. But the principle explained in Jay [v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537] -which is based upon the unfairness to the opponent of not being able to address the new matter raised in a reply [citation] - applies here, particularly where the circumstances giving rise to the argument (i.e., an asserted pleading defect) were known to Attorneys when their . . . motion was filed. (See Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2022) ¶ 9:106.1 [“ ‘[i]t is a serious mistake to leave key arguments for the reply brief . . . [because] [t]he court is likely to refuse to consider new evidence or arguments first raised in reply papers’ ”].)” (Maleti v. Wickers (2022) 82 Cal.App.5th 181, 227-228.) Here, both Teran and Garret raise new issues, such as standing, in their reply briefs, that were not raised in the moving papers. The new arguments will not be considered.

Demurrer

“The party against whom a complaint or cross-complaint has been filed may object, by demurrer or answer as provided in Section 430.30, to the pleading on any one or more of the following grounds:

“(a) The court has no jurisdiction of the subject of the cause of action alleged in the pleading.

“(b) The person who filed the pleading does not have the legal capacity to sue.

“(c) There is another action pending between the same parties on the same cause of action.

“(d) There is a defect or misjoinder of parties.

“(e) The pleading does not state facts sufficient to constitute a cause of action.

“(f) The pleading is uncertain. As used in this subdivision, “uncertain” includes ambiguous and unintelligible.

“(g) In an action founded upon a contract, it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct.

“(h) No certificate was filed as required by Section 411.35.” (Code Civ. Proc., § 430.10.)

“When any ground for objection to a complaint, cross-complaint, or answer appears on the face thereof, or from any matter of which the court is required to or may take judicial notice, the objection on that ground may be taken by a demurrer to the pleading.” (Code Civ. Proc., § 430.30, subd. (a).) “Our consideration of the facts alleged includes ‘those evidentiary facts found in recitals of exhibits attached to [the] complaint.’ [Citation.]” (Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1250.)

“[A] court must treat a demurrer as admitting all material facts properly pleaded, it does not, however, assume the truth of contentions, deductions or conclusions of law.” (Travelers Indem. Co. of Connecticut v. Navigators Specialty Ins. Co. (2021) 70 Cal.App.5th 341, 358, citing Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

“If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer. “ ‘[W]e are not limited to plaintiffs’ theory of recovery in testing the sufficiency of their complaint against a demurrer, but instead must determine if the factual allegations of the complaint are adequate to state a cause of action under any legal theory. The courts of this state have . . . long since departed from holding a plaintiff strictly  to the ‘form of action’ he has pleaded and instead have adopted the more flexible approach of examining the facts alleged to determine if a demurrer should be sustained.’ ” [Citations.]” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38-39.)

Third Cause of Action to Deny Use of Trust Funds to Defend Action

Teran demurs to the third cause of action to deny use of trust funds to defend this action on the grounds that the petition fails to state facts constituting a legal cause of action and the cause of action is uncertain.

Teran argues that there is no cognizable cause of action to deny use of trust funds to defend an action, nor does Alexander identify any supporting authorities to support the cause of action. Teran further argues that the allegations are inconsistent on their face because in paragraph 94 of the petition, Alexander alleges: “In the event trustee prevails, she has the statutory right to seek reimbursement from the Issue Trust pursuant to Probate Code section 15684.” This allegation is not inconsistent as Teran argues.

In opposition, Alexander fails to directly address Teran’s arguments. Instead, Alexander argues the merits of his claims that Teran should be precluded from using trust funds to defend the action. Alexander does not set forth any authority to support “deny use of trust funds to defend the action” as a valid cause of action. Facially, it does not appear to be a cause of action at all, but rather a remedy being sought by Alexander.

However, even though it is alleged as a “cause of action,” in appropriate circumstances the court could order that a party be precluded from using trust funds to defend an action. Sustaining the demurrer to the third cause of action would simply result in Alexander reasserting the request as a prayer for relief and would have no substantive effect on the action.

“The court must, in every stage of an action, disregard any defect in the pleadings which does not affect the substantial rights of the parties.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

“All that is necessary as against a general demurrer is to plead facts entitling the plaintiff to some relief. In determining whether the complaint is sufficient as against the demurrer on the ground that it does not state facts sufficient to constitute a cause of action, the rule is that if one consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated, or may be intermingled with a statement of other facts irrelevant to the cause of action shown, or although the plaintiff may demand relief to which he is not entitled under the facts alleged. In passing upon the sufficiency of a pleading, its allegations must be liberally construed with a view to substantial justice between the parties. While orderly procedure demands a reasonable enforcement of the rules of pleading, the basic principle of the code system in this state is that the administration of justice shall not be embarrassed by technicalities, strict rules of construction, or useless forms.” (Ibid.)

Any defect in the third cause of action does not affect the substantial rights of the parties. As such, the demurrer to the third cause of action will be overruled.

Fifth Cause of Action for Violation of Penal Code section 496

Both Teran and Garret demur to the fifth cause of action for violation of penal code section 496 on the grounds that the petition fails to state facts sufficient to constitute a cause of action because there is no authority to support the applicability of Penal Code section 496 in probate proceedings and the remedies set forth therein are inappropriate under the Probate Code.

In opposition, Alexander argues that a party can recover civil remedies under Penal Code section 496. In support, Alexander cites to Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 350, fn. 11, which holds that a private right of action does exist for violation of Penal Code section 496, which definition encompasses embezzlement.

Penal Code section 496, subdivision (a) provides in pertinent part:

“Every person who buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained, shall be punished by imprisonment in a county jail for not more than one year, or imprisonment pursuant to subdivision (h) of Section 1170. However, if the value of the property does not exceed nine hundred fifty dollars ($950), the offense shall be a misdemeanor, punishable only by imprisonment in a county jail not exceeding one year, if such person has no prior convictions for an offense specified in clause (iv) of subparagraph (C) of paragraph (2) of subdivision (e) of Section 667 or for an offense requiring registration pursuant to subdivision (c) of Section 290.”

Penal Code section 496, subdivision (c) provides:

“Any person who has been injured by a violation of subdivision (a) or (b) may bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney’s fees.”

Probate Code section 16420 provides:

“(a) If a trustee commits a breach of trust, or threatens to commit a breach of trust, a beneficiary or cotrustee of the trust may commence a proceeding for any of the following purposes that is appropriate:

“(1) To compel the trustee to perform the trustee’s duties.

“(2) To enjoin the trustee from committing a breach of trust.

“(3) To compel the trustee to redress a breach of trust by payment of money or otherwise.

"(4) To appoint a receiver or temporary trustee to take possession of the trust property and administer the trust.

“(5) To remove the trustee.

“(6) Subject to Section 18100, to set aside acts of the trustee.

“(7) To reduce or deny compensation of the trustee.

“(8) Subject to Section 18100, to impose an equitable lien or a constructive trust on trust property.

“(9) Subject to Section 18100, to trace trust property that has been wrongfully disposed of and recover the property or its proceeds.

“(b) The provision of remedies for breach of trust in subdivision (a) does not prevent resort to any other appropriate remedy provided by statute or the common law.”

“(a) If the trustee commits a breach of trust, the trustee is chargeable with any of the following that is appropriate under the circumstances:

“(1) Any loss or depreciation in value of the trust estate resulting from the breach of trust, with interest.

“(2) Any profit made by the trustee through the breach of trust, with interest.

“(3) Any profit that would have accrued to the trust estate if the loss of profit is the result of the breach of trust.

“(b) If the trustee has acted reasonably and in good faith under the circumstances as known to the trustee, the court, in its discretion, may excuse the trustee in whole or in part from liability under subdivision (a) if it would be equitable to do so.” (Prob. Code, § 16440.)

“The provisions in this article for liability of a trustee for breach of trust do not prevent resort to any other remedy available under the statutory or common law.” (Prob. Code, § 16442.)

“Section 16420, subdivision (a) describes “ ‘in general terms’ ” the basic remedies for a breach of trust. [Citations.] Section 16420 does not limit the availability of any particular remedy or explain its application in particular circumstances. The availability of a particular remedy and its application in particular circumstances are governed by the common law. [Citations.] The basic remedies include monetary relief (§ 16420, subd. (a)(3)), an equitable lien or constructive trust (§ 16420, subd. (a)(8)), and recovery of a specific asset through tracing (§ 16420, subd. (a)(9)), among other remedies. A petitioner can seek the disgorgement of the trustee’s profits (§ 16440, subd. (a)(2)) through a money judgment against the trustee (§ 16420, subd. (a)(3)) or seek to establish an equitable interest in specific assets through a judgment in rem (§ 16420, subd. (a)(8), (9)).18 These are separate remedies; one remedy does not limit the other.” (Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 892-893.)

Teran and Garret’s arguments that Alexander’s remedies are limited to equitable remedies is simply incorrect. It is also not required, at the pleading stage, that Alexander factually establish his entitlement to particular remedies that are not specifically mentioned as some of the remedies available under section 16420.

Alexander alleges: “Respondents, jointly or individually, have obtained possession of money belonging to the Issue Trust not less than $10,000,000.00. The property was acquired by Respondents acts constituting theft, fraud and embezzlement by Teran in violation of her fiduciary duties owed to the Issue Trust and its beneficiaries.” (Petition, ¶ 103.) “Respondents have each withheld, concealed, secreted and refused to return the property to the Issue Trust, despite knowledge of its stolen character. By way of this complaint, each Respondent is on notice of the stolen character of the property identified herein and of the demand by Petitioner for it to be returned to the Issue Trust.” (Id., at ¶ 104.) “Each Respondent was on notice of the stolen characteristics of the property as they were involved in the fraudulent acts leading to the theft and participated in the acts of drafting and negotiating the checks, making the bank transfers, accepting payments when no funds were owed to them by the Issue Trust and making withdrawals, creating the subsequent phony and forged records to cover up the theft and taking actions to financially harm petitioner so that he would stop inquiring about the stolen property.” (Id., at ¶ 105.)

At the pleading stage, Alexander has pled sufficient facts to overcome demurrer to the fifth cause of action, and the demurrer will be overruled.

Sixth Cause of Action for Conversion

Teran and Garret demur to the sixth cause of action for conversion on the grounds that the petition fails to state facts sufficient to constitute a cause of action because Alexander has not established his ownership or right of possession of any property, or that the property Alexander claims was converted is subject to a claim for conversion.

“ ‘Conversion is generally described as the wrongful exercise of dominion over the personal property of another. [Citation.] The basic elements of the tort are (1) the plaintiff’s ownership or right to possession of personal property; (2) the defendant’s disposition of the property in a manner that is inconsistent with the plaintiff’s property rights; and (3) resulting damages. [Citation.]’ ” [Citation.] “ ‘Conversion is a strict liability tort. The foundation of the action rests neither in the knowledge nor the intent of the defendant. Instead, the tort consists in the breach of an absolute duty; the act of conversion itself is tortious. Therefore, questions of the defendant’s good faith, lack of knowledge, and motive are ordinarily immaterial.’ ” [Citation.]” (Regent Alliance Ltd. v. Rabizadeh (2014) 231 Cal.App.4th 1177, 1181.)

The basic allegations in the petition set forth all of the essential elements of conversion. Teran and Garett’s arguments that Alexander is solely making a claim for conversion of real property (see e.g.: Garett’s Reply, p. 4, ll. 15-7) is incorrect. There are numerous items mentioned in the petition that Alexander alleges Teran and Garret converted, resulting in damages to Alexander. For example, paragraphs 25 and 26 include interests in business ventures, cash deposits, liquid assets, and various receivables. There are many other examples throughout the petition.

As with the third cause of action, any defect in the sixth cause of action does not affect the substantial rights of the parties and Alexander is not required to prove his case at the pleading stage. The demurrer to the sixth cause of action will be overruled.

Seventh Cause of Action for Embezzlement

Teran and Garret demur to the seventh cause of action for embezzlement on the grounds that the petition fails to state facts sufficient to constitute a cause of action in that Alexander is not entitled to a private right of action for violation of Penal Code section 503.

In support of their argument, Teran and Garret present essentially the same argument that they presented relative to the fifth cause of action. The demurrer will be overruled for the same reasons that the demurrer to the fifth cause of action was overruled. Any perceived defect does not affect the substantive rights of the parties.

Eighth Cause of Action for Unjust Enrichment

Teran and Garret demur to the eighth cause of action for unjust enrichment on the grounds that the petition fails to state facts to constitute a cause of action because California does not recognize a cause of action for unjust enrichment.

“[U]njust enrichment is not a cause of action. [Citation.] Rather, it is a general principle underlying various doctrines and remedies, including quasi-contract.” (Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 911.) Alexander cites no authority to the contrary.

“ ‘The elements for a claim of unjust enrichment are ‘ “receipt of a benefit and unjust retention of the benefit at the expense of another.” ’ [Citation.] ‘ “The theory of unjust enrichment requires one who acquires a benefit which may not justly be retained, to return either the thing or its equivalent to the aggrieved party so as not to be unjustly enriched.” ’ [Citation.]’ ” [Citation.]” (Lyles v. Sangadeo-Patel (2014) 225 Cal.App.4th 759, 769.)

At paragraphs 120 through 125, Alexander alleges the elements for a claim of unjust enrichment. Although unjust enrichment is not a recognized cause of action, the demurrer to the eighth cause of action will be overruled. Even if somewhat duplicative of other allegations contained in the petition, the allegations contained in paragraphs 120 through 125 pertain to the alleged actions of Teran and Garret and, as with the other demurred to causes of action, the eighth cause of action does not contain any defect that affects the substantial rights of the parties.

The lengthy petition, which consists of 308 pages, including exhibits, puts respondents on notice of the exact allegations against them.

Motion to Strike

“The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc., § 436.) “Irrelevant matter” includes a “demand for judgment requesting relief not supported by the allegations of the complaint.” (Code Civ. Proc., § 431.10, subds. (b)(3), (c).) “The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.” (Code Civ. Proc., § 437, subd. (a).)

“[J]udges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth.” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.)

Teran and Garret move to strike the entirety of the third, fifth, sixth, seventh, and eighth causes of action.

“[I]t is improper for a court to strike a whole cause of action of a pleading under Code of Civil Procedure section 436.” (Quiroz v. Seventh Ave. Center (2006) 140 Cal.App.4th 1256, 1281.) “Where a whole cause of action is the proper subject of a pleading challenge, the court should sustain a demurrer to the cause of action rather than grant a motion to strike.” (Ibid.) As such, the motion to strike the entirety of the third, fifth, sixth, seventh, and eighth causes of action is improper and will be denied.

While the notice of motion to strike lists additional paragraphs, wording, and requests for relief, the body of the motion to strike sets forth no additional authority for doing so. The motion to strike is, in essence, simply a second, and nearly identical, demurrer. As such, it will be denied in its entirety.