A A A 

Tentative Ruling
Judge Colleen Sterne
Department 5 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

TRUST

Matter of Courtland D Gross Irrevocable Trust

Case No: 1380113
Hearing Date: Thu Jan 09, 2020 9:00

Nature of Proceedings: (1) Motion for Sanctions (2) Motion for Summary Judgment (3) Petition to Determine Courtland D Gross is a Trustee De Son Tort (4) Petition for Rescission or Reformation of Trust Agreement

 

 

# 1380113       Matter of Courtlandt D. Gross Irrevocable Trust

 

                        Hearing Date:           1/9/20                                                

 

HEARINGS

(1)    Motion by Courtlandt S.D. Gross and Robert Ducommun for Summary Judgment on the Petition for Rescission or Reformation of Trust Agreement or Alternative Relief filed by Courtlandt D. Gross

 (2)    Motion by Courtlandt Sherrington Devereux Gross and Robert Ducommun for sanctions pursuant to Code of Civil Procedure section 128.7

          

ATTORNEYS:          

Stuart P. Tobisman / Rodney C. Lee / Alexandra A. Letzel of Loeb &

 Loeb LLP for Courtlandt Sherrington Devereux Gross

 Barton E. DeBolt of DeBolt Law APC for Trustee Robert Ducommun

  David J. Tappeiner of Fell, Marking, Abkin, Montgomery, Granet & Raney, LLP for Courtlandt D. Gross

                       

TENTATIVE RULINGS:    Both motions are denied.

 

 

Background: There are currently pending two separate and competing petitions filed in this action, which relate to an Irrevocable Life Insurance Trust (Trust) established by Courtlandt D. Gross in 2001, in which Courtlandt Sherrington Devereux Gross is the sole beneficiary. Courtlandt D. Gross is the father of Courtlandt Sherrington Devereux Gross. For ease of reference given the similar names, the Court will refer to Trustee Robert Ducommun and Beneficiary Courtlandt Sherrington Devereux Gross collectively as “Respondents”, and to Courtlandt D. Gross as “Courtlandt Sr.”, the latter because it is the manner in which he chose to refer to himself in the papers filed with respect to these motions.

 

The first petition was filed on August 31, 2018 by Trustee Robert Ducommun and beneficiary Courtlandt Sherrington Devereux Gross. The petition is based upon allegations that Courtlandt Sr. never relinquished control over the Trust assets and intermeddled with and assumed management of them, without authority, to the detriment of Courtlandt Sherrington Devereux Gross. As a result, Respondents alleged that Courtlandt Sr. is a trustee de son tort, and owes Courtlandt Sherrington Devereux Gross fiduciary duties. The petition further seeks an accounting, seeks to surcharge Courtlandt Sr. for any loss or depreciation in the value of the trust estate resulting from his breaches of trust (plus interest), seeks an order to provide the Trustee with access to institutions where Trust assets are held, seeks an order authorizing the Trustee to take possession of any Trust assets and other assets which should be held in the Trust, and seeks an order the Courtlandt Sr. pay the Trust twice the value of the property recovered (Prob. Code, § 859), plus attorneys’ fees and costs.

 

The second petition was filed by Courtlandt Sr. on May 28, 2019, for rescission or reformation of the Trust Agreement or for alternative relief (Rescission Petition). The Rescission Petition alleges that while the 2001 Trust was structured as a typical irrevocable trust to hold a life insurance policy on the life of the settlor, Courtlandt Sr. never intended to surrender control over the 2001 Policy or the Replacement Policy to anyone so long as he was alive, and understood that Mr. Ducommun would serve as Trustee only once the Trust became funded with the life insurance death benefits proceeds after Courtlandt Sr.’s death. He alleges that he always believed he would own the policy during his lifetime, could change the policy amount, could change the beneficiary, and could cancel the policy if he desired. Consistent with these beliefs, he told Trustee Ducommun that there be nothing for him to do as Trustee while Courtlandt Sr. was alive. Since the life insurance policy was never transferred or forwarded to Mr. Ducommun as Trustee, he further contends that the Trust was never funded, and is therefore invalid. Courtlandt Sr. alleges that his financial advisors at AXA Financial (AXA) confirmed to him on several occasions that he could make any changes to the policies that he desired, during his lifetime. He alleges that, had he been advised or understood that he would not have the ability to change the policy during his life, or that the Trustee would have control over the policies, he would not have established the Trust. He therefore seeks to rescind the Trust, based upon his mistakes. If rescission is not available, he seeks to modify the Trust to give effect to his intent, which was to have full control over the life insurance policy, and for the Trust to become operative upon the payment into it of the policy proceeds upon his death. He further alleges that his misunderstanding of the Trust terms, and the gratuitous nature of the trust, justify rescission or reformation. Alternatively, if the Court does not grant rescission or reformation, Courtlandt Sr. seeks court authority to obtain a life insurance policy in the amount of $2,500,000 which, along with the currently effective $1,500,000 policy, will restore the coverage to $4,000,000.

 

Currently before the Court are two motions which both relate solely to the Rescission Petition.

In the first motion, Respondents seek summary judgment on the Rescission Petition on the sole ground that it is barred by the 3-year statute of limitations set forth in Code of Civil Procedure section 338(d).

 

In the second motion, Respondents seek sanctions against Courtlandt Sr., pursuant to Code of Civil Procedure section 128.7, contending that (1) the Rescission Petition was filed for the improper purpose of punishing them for filing their petition for a determination that Courtlandt Sr. is a Trustee De Son Tort, (2) the claims set forth in the Rescission Petition are not warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law, (3) the Rescission Petition contains sworn allegations and other factual contentions that do not have evidentiary support and are not reasonably likely to have evidentiary support, and (4) the Rescission Petition contains denials of factual contentions that are not warranted on the evidence. The motion was served upon Courtlandt Sr.’s counsel on October 1, 2019, and was filed and set for hearing when the Rescission Petition was not withdrawn.

 

Because the resolution of the sanction motion is impacted by the resolution of the summary judgment motion, the Court will address the summary judgment motion first.

 

Summary Judgment

 

  1. Moving papers

 

Respondents have moved for summary judgment on the petition, contending that it is barred by the 3-year statute of limitations of Code of Civil Procedure section 338(d). Most of the facts set forth in the moving separate statement are not disputed by CDG for purposes of the motion, although he does dispute the effect of some of the facts, and submits additional facts for the court’s consideration. The facts upon which the motion is based include:

 

Courtlandt Sr. graduated from Harvard University and worked as Trust Officer at Wells Fargo Bank from 1974-1986. On October 25, 2001, attorney Doron Tisser wrote to Courtlandt Sr., noting that Courtlandt Sr. had asked him to prepare an irrevocable life insurance trust for the life insurance policy he was obtaining. In fact, Courtlandt Sr. established the Declaration of Trust and Trust Agreement of Courtlandt D. Gross Irrevocable Trust No. 1 (Trust) on December 4, 2001. Article 7, Paragraph 7.1 of the Trust names Mr. Ducommun as Trustee of the Trust. Paragraph 7.3 of the trust provides that “the Settlor may not serve as Trustee or Co-Trustee of this Trust or any trust created hereunder.” Article 9, Paragraph 9.15 states: “the Settlor shall not have any powers or discretion that shall cause any part of the trust estate to be includable in his estate for federal estate tax purposes, and the provisions of this trust shall be interpreted accordingly.”

 

On December 6, 2001, Courtlandt Sr. signed the application for Life Insurance. Section 3 of the Application provides: “3. POLICYOWNER a. The Owner is: . . . (3) . . . (d) Trust Dated 12 04 2001 . . . (f) Courtlandt D. Gross ILIT.”

 

On January 30, 2002, Robert Ducommun and Courtlandt Sr. signed an “Amendment to Application” for Policy No. 151 229 795, which provides that “The application is hereby amended by the undersigned in the following particulars: BENEFICIARY: THE COURTLANDT GROSS IRREVOCAB. OWNER: THE COURTLANDT GROSS IRREVOCAB." Mr. Ducommun signed as “Purchaser if other than Applicant” and Courtlandt Sr. signed as “Applicant.”

 

The statements that were generated in connection with Policy Number 151 229 795 name the "CD GROSS ILIT DTD 12 4 01" as the owner. The 2002-2014 statement generated in connection with the life insurance policy were mailed to: "CD GROSS ILIT DTD 12 4 01, 800 Rockbridge, Santa Barbara, CA 93108." From December 2001 until the mudslides in January 2018, Courtlandt Sr.'s permanent residence was located at 800 Rockbridge Rd., Santa Barbara, CA 93108.

 

Courtlandt Sr. filed his Petition by Settlor for Modification of Irrevocable Trust (Modification Petition) on March 29, 2011, in Case No. 1380113. In the Modification Petition, Courtlandt Sr. verified, under penalty of perjury, that "[t]he current trustee of the Trust is Robert Ducommun" and that "[t]he Trust is irrevocable and holds a life insurance policy on Settlor's Life."

 

In 2015, Courtlandt Sr. elected to reduce the [life insurance] policy to $1,500,000. On July 7, 2015, he signed the New Life Application for the $1,500,000 life insurance policy. Section C of the New Life Application dated July 7, 2015 provides that the "Owner Type" is "Trust," lists the "Owner's name" as "Courtlandt D Gross ILIT 12-01," and states that the "Relationship to Proposed Insured" is "TRUST." The portion of Section C of the New Life Application dated July 7, 2015 entitled "Complete if Trust Owned" is completed.

 

Courtlandt Sr. filed his Petition for Rescission or Reformation of Trust Agreement or Alternative Relief on May 28, 2019, in Case No. 1380113.

 

Based upon these facts, Respondents contend that the Rescission Petition is barred by the 3-year statute of limitations set forth in Code of Civil Procedure section 338(d), citing Getty v. Getty (1986) 187 Cal.App.3d 1159, 1168-1169, for the proposition that the applicable period of limitations in a suit based on fraud or mistake or for reformation for constructive trust is three years from the time when the fraud or mistake was or should have been discovered. . . .”

 

Respondents assert that Courtlandt Sr. knew and is charged with the knowledge that, as of 2001, the Trust was funded during his lifetime, since he signed the life insurance application on December 6, 2001, naming the Trust as the owner of the 2001 policy. Alternatively, Respondents contend that Courtlandt Sr. should be charged with knowledge as of March 29, 2011, that the Trust was funded during his lifetime, when he filed the Modification Petition and verified that the current trustee was Ducommun, that “[t]he Trust is irrevocable and holds a life insurance policy on Settlor’s Life,” and that he was “currently allocating his GSTT exemption to the annual gifts he makes to the Trust,” which includes cash necessary to pay the premiums on the insurance policy on his life. [The Court notes that the provision about the GSTT is not set forth in the separate statement accompanying the motion.] Finally, Respondents contend that Courtlandt Sr. necessarily knew and should be charged with knowledge as of July 7, 2015, when he signed a new life insurance policy application for the 2015 Policy, which again listed the Trust as the policy owner. Because each of these trigger dates is more than 3 years prior to the filing of the Rescission Petition on May 28, 2019, Respondents contend that the Rescission Petition is barred by the statute of limitations set forth in Code of Civil Procedure section 338(d).

 

  1. Opposition papers.

 

In opposition the motion, Courtlandt Sr. has disputed Respondents’ separate statement facts only with respect to the issue of whether a valid trust was created because no assets were ever transferred to the Trustee, and has disputed that he signed the January 30, 2002 “Amendment to Application” for the 2001 policy, given that he does not recall doing so, and does not recognize the signature on that amendment as his signature. He further submitted the following additional facts in opposition to the motion:

 

Pursuant to Section 13.8 (on page 53) of the Trust Agreement of the Courtlandt D. Gross Irrevocable Trust No. 1 dated December 4, 2001, all matters pertaining to the validity, construction and effect of the trust are governed by California law. There are no assets identified in the Trust other than in Section 1.2 of ARTICLE 1 of the Trust, which provides that the Settlor has transferred and delivered to the Trustee to hold in trust, without consideration passing to the Settlor, the sum of Ten Dollars ($10). The $10.00 was never transferred by Courtlandt Sr. to Mr. Ducommun or ever received by Mr. Ducommun.

 

The life insurance policy purchased by Courtlandt Sr. in 2001 through AXA from the Equitable Life Assurance Society of the United States, a Flexible Premium Variable Life Insurance Policy in the amount of $4,000,000, Policy No. 565 307 016 (the "2001 Policy") was not in existence when the Trust was signed on December 4, 2001 and was issued on December 28, 2001 and delivered to Courtlandt Sr. and not to the Trustee. The 2001 Policy was never transferred to Mr. Ducommun as the named Trustee of the Trust. All statements in connection with the 2001 Policy were designated to be sent to Courtlandt Sr.’s primary residence in Santa Barbara, CA, and no statements were ever sent to or received by Mr. Ducommun. All insurance premium payments for the 2001 Policy were made, directly or indirectly, by Courtlandt Sr. No assets were ever transferred or intended to be transferred to Mr. Ducommun or received by Mr. Ducommun as the named Trustee of the Trust.

 

In 2015, Courtlandt Sr. cancelled the 2001 Policy and obtained a new policy for $1,500,000, a Flexible Premium UL with Index-Linked Interest Options BrightLife Grow, Series 155, Policy No. 565 307 016, designating Courtlandt Sr. as the "trustee" and/or person otherwise with authority to control the policy (the "2015 Policy"). The 2015 Policy was never transferred to or received by Mr. Ducommun as the named Trustee of the Trust.

 

Until this proceeding was commenced by Respondents, Courtlandt Sr. did not know that the Trust was invalid because no assets were ever transferred or intended to be transferred to Mr. Ducommun as the named Trustee of the Trust. Courtlandt Sr. did not know that his ownership and/or control of the life insurance policies during his life would defeat the potential tax advantages normally associated with an ILIT until after this proceeding was commenced by Respondents in 2018. The agent at AXA who sold Courtlandt Sr. the 2001 Policy assured Courtlandt Sr. that he would have complete control over the policy during his life and Courtlandt Sr. believed he would have, and intended to have, full control over the policy during his life.

 

Based on these facts, Courtlandt Sr. first argues that there is no valid trust at all, since the property was never transferred to the Trustee, and because he never intended to transfer any assets to the Trustee during his lifetime. He relies upon Probate Code section 15200(b), under which a trust is created by the transfer of property by the owner during the owner’s lifetime to another person as trustee, and the California Supreme Court’s statement in Bainbridge v. Stoner (1940) 16 Cal.2d 423, 427, that the creation of an express trust requires an explicit declaration of trust, followed by an actual conveyance or transfer of property to the trustee. While there was an express declaration of trust, none of the property was ever transferred to the trustee, and Courtlandt Sr. at all times believed that the trust and trustee would have no involvement until the policy proceeds were paid into the trust after his death. Further, he asserts that under Section 15202, a trust is created only if there is trust property which is in existence when the trust is created. The policy was obtained after the trust was signed, and was never transferred to the trustee.

 

Further, even if the Trust is valid, it can be rescinded based upon his mistake in believing, based upon advice of the sales agent, that he would have full control over the policy during his life, and that at his death, the proceeds would be paid to the Trustee free from federal estate taxes. He always intended to retain full control over the policy, and was mistaken in his belief that he would be able to realize the tax advantages without giving up such control during his lifetime. Had he been advised he would have to surrender control over the policy, he would not have purchased the policy, and would not have signed the Trust.

 

Most importantly, he did not learn that the Trust was not valid, or that he could not control the policy during his lifetime and still retain the tax benefits, until Respondents filed their own petition in 2018. He was not aware until that time that his control over the policy would cause the proceeds to be included in his gross taxable estate. Consequently, his petition for rescission or reformation of the Trust is not barred by the 3-year statute of limitations set forth in Code of Civil Procedure section 338(d), which is not deemed to have accrued until his discovery of the facts constituting the fraud or mistake. He asserts that Respondents have not placed evidence before the Court that establishes that he was aware of his mistake prior to 2018.

 

  1. Reply

 

Respondents contend that Courtlandt Sr.’s prior admissions prevent him from asserting that the Trust was never created, and that the filing of a rescission petition necessarily assumes the existence of a trust. They further contend that the failure-to-fund argument fails, because it misunderstands what is required to transfer property to a Trust, and no physical delivery is required. They assert that the trust instrument itself constituted a donative transfer document, and that Courtlandt Sr. completed the usual formalities associated with transferring ownership of the life insurance policy. The trust document, combined with the amendment to the application, constituted a donative transfer document. Respondents contend that extrinsic evidence of Courtlandt Sr.’s intent to create the trust would not alter the result, given that the Trust language is “unambiguous.” Finally, Respondents contend that the only mistake alleged related to the funding of the Trust, and because Courtlandt Sr. was or should have been aware at the time the Trust was created in 2001 that it was legally funded (or when he signed the amendment to the application in 2002, or when he filed his modification petition in 2011 verifying that the Trust held a life insurance policy on his life), his petition is barred by the 3-year statute of limitation.

 

Motion for sanctions

 

  1. Moving papers

 

Respondents motion for sanctions pursuant to Code of Civil Procedure section 128.7, seeks sanctions in the amount of $91,975.29 (increased in the reply to $163,445.29), and an order dismissing the Rescission Petition, based upon their contentions that (1) it was filed for the improper purpose of punishing them for filing their petition (Code Civ. Proc., § 128.7, subd. (b)(1)); (2) the claims set forth in the rescission/reformation petition are not warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law (Code Civ. Proc., § 128.7, subd. (b)(2)); (3) the rescission/reformation petition contains sworn allegations and other factual contentions that do not have evidentiary support and are not reasonably likely to have evidentiary support (Code Civ. Proc., § 128.7, subd. (b)(3)); and (4) the rescission/reformation petition contains denials of factual contentions that are not warranted on the evidence (Code Civ. Proc., § 128.7, subd. (b)(4)).

 

With respect to their claim that the Rescission Petition contains allegations and contentions that lack evidentiary support (§ 128.7(b)(3)) and that its denials of factual contentions are not warranted on the evidence (§ 128.7(b)(4)), Respondents contend that there has never been any evidence or any good faith basis for asserting mistake, since his actions over two decades show he had every intention of creating an irrevocable life insurance trust and funding it with a life insurance policy, in order to reduce his taxable estate at death. They point to his attendance at Harvard, and work as a trust officer at Wells Fargo from 1974-1986. In 2001, he expressed that minimization of estate taxes was of great importance; an Estate Tax Analysis was prepared detailing how an irrevocable life insurance trust worked; a Financial Fitness Profile was prepared explaining how a Charitable Remainder Trust worked in conjunction with an irrevocable life insurance trust; he asked the estate planning attorney to prepare an irrevocable life insurance trust; he signed the trust that precluded him from acting as a Trustee or having any control of the Trust’s assets; and he signed the application for life insurance which listed the trust as owner of the policy. In 2011, his modification petition stated the Trust was irrevocable, Ducommun was Trustee, and the Trust held a life insurance policy on his life. In 2015, he signed a new life insurance policy application listing the trust as owner. In 2018, he verified that he incurred the expense of establishing the trust to hold the policy so it would not be taxable in his estate and that the Trust owned the properties, and scoffed at Respondents’ ignorance about how life insurance trusts operation. Also, his advisor at AXA declared that Courtlandt Sr. had elected to purchase the $4 million policy and have it held in an irrevocable trust so it would not be included in his taxable estate at his death and that the trust owned the policies. Finally, from 2002 to the present, he received annual statements in connection with the policies, which named the trust as owner of the policies.

 

Based on this, Respondents conclude there is no evidentiary support for Courtlandt Sr.’s allegations, and no reasonable basis to believe he could obtain any evidence in discovery to support his contention that he never intended to fund the Trust during his lifetime. They contend the Rescission Petition’s inconsistencies with Courtlandt Sr.’s prior statements conclusively establish that it has no evidentiary support. They further conclude that the petition’s inconsistent denials of factual contentions are not warranted on the evidence and could not be reasonably based on a lack of information and belief.

 

With respect to their claim that the claims made by the Rescission Petition are not warranted by existing law (§ 128.7(b)(2)), Respondents first contend that the petition is not warranted by existing law because it is time-barred. Respondents then contend that the petition is not warranted by existing law because Courtlandt Sr. has not alleged any basis to rescind or reform the trust. In support of that claim, they assert the sole purpose of reformation is to correct a written instrument to effectuate a common intention of the parties which was incorrectly reduced to writing, but Courtlandt Sr. does not contend that his testamentary intent was incorrectly reduced to writing, or that there was an ambiguity or error. Rather, the mistake he relied upon in his petition is that the policies should not be trust assets, and the trust was never supposed to be funded during his lifetime, which Respondents contend has nothing to do with the trust language. Respondents contend that rescission or reformation would defeat or substantially impair Courtlandt Sr.’s stated intent—to minimize estate taxes, which Courtlandt Sr. and his counsel knew when they filed the Petition, along with the fact that rescission would render the trust moot. Further, if, as he claims, the trust was never funded, there was no mistake and no basis to rescind or reform the trust. He admits the trust is not ambiguous, and that he intended to create an irrevocable life insurance trust and fund it with a life insurance policy on his life. They conclude that the petition is therefore meritless.

 

With respect to their claim that the Rescission Petition was filed for an improper purpose (§ 128.7(b)(1)), Respondents contend that the petition was filed to punish them for filing their Trustee de son tort petition, and to needlessly increase litigation expenses. They assert that Courtlandt Sr.’s position changed after two decades of consistency, after their petition was filed. He was extremely angry that they had the audacity to file that petition, threatening to remove Ducommun as trustee (although he lacked that power), threatening to cease making any further premium payments on the policy, and disinheriting his son from the “generational wealth” Courtlandt Sr. inherited from his parents. Rather than allowing respondents’ petition to run its course, he instead filed “a frivolous and unnecessary petition, made demonstrably false statements and took unreasonable positions therein to needlessly increase the cost of litigation in the hopes of browbeating Respondents into dismissing their Trustee De Son Tort Petition for settling for next to nothing.”

 

Finally, Respondents contend that the court is authorized to impose both monetary and non-monetary sanctions, and contends both are appropriate here. They seek dismissal of the Rescission Petition, with prejudice, and reimbursement of Respondents’ expenses and costs in preparing objections to the petition, Supplemental objections, the motion for summary judgment, and this motion, totaling $91,975.29.

 

  1. Opposition

 

Courtlandt Sr. has opposed the motion, asserting both that the trust is invalid, and that he is additionally entitled to seek rescission based upon his mistake that he could be in control of the policies during his lifetime and still have the policy proceeds excluded from his gross estate for estate tax purposes—something he did not know until Respondents filed their petition in 2018.

 

Courtlandt Sr.’s contention that the Trust is invalid is based upon the fact that the $10 in consideration recited in the Trust was never given to the Trustee; the Trust does not designate the policy (obtained 24 days after the trust was signed) as a trust asset; while the policy shows the Trust as owner, Courtlandt Sr. was designated in it as the person with authority over the policy, and he has always had such control; the policy was never transferred or intended to be transferred to the Trustee; the Trustee admitted the policy was never transferred to him; and Courtlandt Sr. cancelled the 2001 trust and purchased a new policy in 2015, which also designated him as the person with authority over the policy. Further, from 2001 to 2018, the Trustee took no meaningful action with respect to the Trust, other than signing a consent to its modification in 2011, and the Trustee admits he has never taken any meaningful acts with respect to the Trust.

 

The Trustee’s first inquiry about the Trust occurred in 2018, when the beneficiary sought to have money distributed to him from the Trust. In email exchanges, Mr. Tappeiner disclosed that Courtlandt Sr.’s financial advisor with AXA, Phil Smith, had advised him that the Trust had no assets, and was funded only with $10, since the Trust was simply designated to receive the policy proceeds when he died. After Respondents’ petition was filed, Mr. Tappeiner again contacted Phil Smith, who then led him to believe that the Trust had been set up as a typical irrevocable life insurance trust, such that the Trust owned the 2015 Policy which Courtlandt Sr. purchased when he cancelled the 2001 policy. The representations were different, but consistent with the documents listing the Trust as the owner, since in Mr. Tappeiner’s experience it is customary to have ILIT policies titled in the name of the Trustee, not the Trust. Mr. Smith provided additional documents showing the Trust as owner. There was still confusion, as Courtlandt Sr. did not believe the Trustee had any authority over the policies, because it had always been his intent to retain such control, which he in fact exercised. Mr. Smith confirmed that Courtlandt Sr. was allowed to unilaterally cancel the policy in 2015, which would not make sense if the policy was held by Ducommun as Trustee. As documents began to be produced by AXA, it became clear that AXA had designated the Trust as owner of the policy, but that it had never been transferred to Ducommun, and that AXA had designated Courtlandt Sr. as the person with authority to make changes to the policy.

 

Background statements in the 2011 modification petition were based upon the information available to attorney Tappeiner at that time, which had been provided by AXA, and which designated the Trust as the owner of the policy. The objective of that petition was simply to obtain court approval to modify Trust beneficiary provisions to apply to any grandchildren born after Courtlandt Sr.’s death. Courtlandt Sr. believed the Trust was designated as owner of the policy, simply so that its proceeds would be paid to the Trustee upon Courtlandt Sr.’s death.

 

Rather than instituting the Rescission Petition in bad faith, Courtlandt Sr. contends it is Respondents who commenced their petition in bad faith, in retaliation for a falling out that occurred between Courtlandt Sr. and his son (the beneficiary) in early 2018, related to the trust left by Courtlandt Sr.’s father, all of the income from which Courtlandt Sr. is entitled each year. Courtlandt Sr. is co-trustee of that trust along with BNY Mellon. MNY Mellon may use the Trust’s principal for Courtland Sr. and Courtland Jr. for their support and education, or to meet the expense of any accident, illness, or emergency befalling them, and Courtlandt Sr. has a power of appointment over trust assets and may appoint those assets to anyone other than his creditors, his estate, or the creditors of his estate. In 2017, Courtlandt Sr. consented to Courtlandt Jr.’s request for a distribution of $1,850,000 to help him purchase a home, even though that reduction in principal would reduce the income available to Courtlandt Sr. Shortly thereafter, Courtlandt Sr.’s residence (owned 5/6 by his father’s trust) was destroyed in the 2018 debris flow. He requested that BNY Mellon advance trust funds to him to secure a replacement residence, since the trust would receive the insurance funds from the home. BNY Mellon sought Courtlandt Jr.’s consent before advancing the funds, but Courtlandt Jr. refused to consent. Those events led to a complete deterioration of the relationship between Courtlandt Sr. and Courtlandt Jr., and Courtlandt Sr. has ceased providing his son with continued financial support, and has made changes to his estate plan. Respondents’ petition was filed in retaliation therefor.

 

Based on all of these facts, Courtlandt Sr. contends that Respondents have not shown, and cannot show, that his rescission petition was factually frivolous, legally frivolous, or interposed for an improper purpose. He was mistaken in his belief that he could control the policy, and still have the proceeds be estate-tax free—something he did not realize was not true, until after Respondents commenced their petition in 2018, alleging that he had improperly exercised control over the trust assets. They have not shown that his allegations are objectively unreasonable. Sanctions may only be imposed where grossly egregious facts exist, which is not the case here. Finally, he asserts the petition was necessary because Respondents assert that the Trust is valid, in spite of his contention that it is not valid because no assets were ever transferred to the Trust. Should the court find the Trust to be valid, he seeks to rescind it based upon his mistaken belief regarding control of the policy. Further, there is no evidence to show his petition is time barred, since he did not understand his mistake until 2018.

 

  1. Reply

 

Respondents first contend that Courtlandt Sr.’s opposition claim that his mistake was that he could control the life insurance policies and still have the proceeds be estate tax free was not the mistake alleged in his petition, and there are no allegations referencing any mistake as to estate taxes. Respondents contend Courtlandt Sr.’s and Mr. Tappeiner’s declarations are inadmissible because they are self-serving, and also are conclusory and lack explanation for the mistake or how Courtlandt Sr. came to learn of it, stunningly stating: “This is because there is no mistake, and neither CDG’s revisionist history nor Mr. Tappeiner’s ignorance can be used to support one now.”

 

Respondents then reiterate their list of evidence from the moving papers, and contend Courtlandt Sr. has not disputed any of it, concluding that based on that evidence, any reasonable attorney would agree that the allegations supporting Courtlandt Sr.’s mistake claim are “totally and completely without merit,” and that there is “not a scintilla of evidentiary support” for his claim.

 

Respondents then contend that Courtlandt Sr.’s contention that his petition is warranted by existing law is “specious,” because he “should have known” at the time he created it that he could not control its assets, and the statute runs from the time the mistake was or should have been discovered. Respondents cite Getty v. Getty (1986) 187 Cal.App.3d 1159, 1168-1169, for the proposition that the 3-year statute on an action to reform a trust for mistake runs from the earliest date that the individual can be charged with facts constituting the mistake. Respondents contend Courtlandt Sr. is charged with knowledge as of June 2001 that he could not control life insurance policies held in an irrevocable life insurance trust and still have the proceeds be estate-tax free when he received the Estate Tax Analysis prepared for him, and/or should be charged with such knowledge when he received the Financial Fitness Profile prepared in August 2001, and/or should be charged as of October 2001 when he instructed his estate planning attorney to prepare an irrevocable life insurance trust, and/or in December 2001 when he signed the trust, and/or in March 2011 when he filed his modification petition.

 

Respondents’ reply then contends that Courtlandt Sr. has conceded a number of points: (1) that he did not have any basis to rescind or reform the Trust, since he did not respond to their motion argument that the petition is not warranted by existing law; (2) that the Rescission petition was unnecessary, since he asserts that the Trust is invalid, and that invalidity was not put in issue by Respondents’ own petition, as he contends, which Respondents contend that this shows the petition was filed solely to needlessly increase the costs of litigation; and (3) that the validity of the trust is irrelevant for purposes of the motion, because if the Trust is not valid, there is nothing to rescind.

 

Finally, Respondents contend that Courtlandt Sr. has not disputed their request for monetary sanctions, which they increase from $91,975.29 to $163,445.29 (an increase of $71,470) in their reply papers, based upon additional work in replying to the MSJ and this motion. Their conclusion seeks imposition of those monetary sanctions and dismissal of the Rescission Petition, with prejudice.

 

ANALYSIS: The motions are both denied.

 

Both motions appear to be based upon an unduly restrictive construction of the Rescission Petition’s allegations and basis. The motion for summary judgment is therefore denied both based upon its failure to meet its initial burden, and based upon the existence of triable issues of material fact. The motion for sanctions pursuant to Code of Civil Procedure section 128.7 also therefore necessarily fails to establish the statutory bases for the Court’s discretionary imposition of sanctions pursuant to Section 128.7, requiring that it also be denied.

 

  1. Motion For Summary Judgment

 

  1. Summary judgment standards

 

A defendant’s motion for summary judgment asks the court to determine that the entire action has no merit, and to terminate the action without the necessity of a trial. (Code Civ. Proc., § 437c(a).) The procedure enables the court to look behind the pleadings to determine whether the party against whom the motion is directed has evidence to back up the claims. The court must determine from the evidence presented that there is no triable issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c(c).)

 

The pleadings play a key role in a summary judgment motion. (Hutton v. Fidelity National Title Co. (2013) 213 Cal.App.4th 486, 493.) It is the allegations of the complaint to which the summary judgment must respond (Todd v. Dow (1993) 19 Cal.App.4th 253, 258), and the pleadings serve as the measure of materiality for the motion. (Laabs v. City of Victorville (2008) 163 Cal.App.4th 1242, 1258.) The moving party’s evidence must therefore be directed to the claims or defenses raised in the pleadings. (Keniston v. American National Insurance Co.(1973) 31 Cal.App.3d 803, 812.) The moving party bears the burden of persuasion that that there is no triable issue of material fact, and that it is entitled to judgment as a matter of law. (Aguilar v. Atlantic Richfield Co. (2001) 235 Cal.4th 826, 850.) Consequently, a defendant moving for summary judgment bears the burden of persuasion that one or more elements of the cause of action in question cannot be established, or that there is a complete defense thereto. (Ibid.) The motion must be supported by evidentiary facts, not merely the ultimate facts. Further, conclusions of fact or law are not sufficient to support a motion for summary judgment. (Snider v. Snider (1962) 200 Cal.App.2d 741, 751.)

 

Once a moving defendant (or respondent) meets its initial burden, the burden shifts to the plaintiff (or petitioner) to produce evidence to prove the existence of a triable issue of fact regarding that element of its cause of action or the defense at issue in the motion, and if plaintiff is unable to do so, defendant will be entitled to judgment as a matter of law. (Saelzler v. Advanced Group 400 (2001) 35 Cal.4th 763, 780-781.) However, the moving party’s burden of making a prima facie showing that there are no triable issues of material fact (Aguilar v. Atlantic Richfield Co., supra), is not affected by the opposing party’s failure to oppose the motion or controvert the facts set forth in the motion, since there is no obligation by the opposing party to establish anything unless and until the moving party has by affidavit stated facts establishing every element necessary to sustain a judgment in his favor. (Consumer Cause, Inc. v. SmileCare (2001) 91 Cal.App.4th 454, 468.)

 

In ruling on a motion for summary judgment, the trial court must consider all of the evidence and all of the inferences reasonably drawn therefrom (Code Civ. Proc., § 437c, subd. (c)), and must view the evidence and inferences in the light most favorable to the opposing party. (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at 843.) In examining the sufficiency of the affidavits filed in connection with a summary judgment motion, those filed by the moving party are strictly construed, and those of the opposing party are liberally construed. (D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 20-21.)

 

In resolving the motion, the court may not weigh the evidence. (Binder v. Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832, 840.) Rather, the role of the trial court in resolving a summary judgment motion is to determine whether issues of fact exist, not to decide the merits of the issues. (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107; see also Weil & Brown, Civil Procedure Before Trial (The Rutter Group) § 10:270.) Any doubts as to the propriety of granting the motion should be resolved in favor of the party opposing the motion. (Molko v. Holy Spirit Assn., supra.)

 

All facts that could make a difference in the disposition of the motion must be set forth in the separate statement of material facts which is required to accompany the motion. (Cal. Rules of Court, rule 3.1350(c)(2) and (d)(1)(B) and (C).) “Material facts” are facts that relate to the cause of action, claim for damages, issue of duty, or affirmative defense that is the subject of the motion and that could make a difference in the disposition of the motion. (Cal. Rules of Court, rule 3.1350(a)(2).)

 

  1. The motion does not establish, as a matter of law on undisputed facts, that Courtlandt Sr. was aware or should have been aware of the mistakes set forth in his Rescission Petition prior to 2018, requiring that the motion based upon the 3-year statute of limitations be denied.

 

Based upon the facts, evidence, and argument presented by the parties, the Court will deny the motion for summary judgment.

 

The motion is based solely upon the issue of the statute of limitations. Code of Civil Procedure section 338(d), upon which the motion relies, applies the 3-year statute of limitations to “An action for relief on the ground of fraud or mistake. The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.”

 

In asserting that Courtlandt Sr.’s petition for rescission or reformation of the trust is barred by the 3-year statute of limitations, the motion focuses on the funding of the Trust, in terms of the 2001 policy’s recitation of the Trust as the owner, Courtlandt Sr.’s acknowledgment in his 2011 petition (to modify the trust to include grandchildren who might be born after his death) that the trust held a life insurance policy on his life, and his signature in 2015 on an application for a replacement policy, which again listed the Trust as the owner of the policy. Respondents contend that Courtlandt Sr.’s cause of action for reformation arose in 2001 or, if not then, at least by 2011 or, if not then, at the latest by 2015, when each of these events occurred. They therefore conclude that the petition, filed in 2019, is barred by the 3-year statute of limitations.

 

The problem with this is that the Rescission Petition alleged more than the funding issue, in its allegations in support of rescission or reformation of the Trust based upon mistake, which necessarily requires that the motion for summary judgment be denied based upon its failure to meet its initial burden. Indeed, the Rescission Petition expressly alleged that while the Trust was structured as a typical ILIT so that the death benefit proceeds would not be included in the settlor’s taxable estate, Courtlandt Sr. at all times believed and understood that he could retain control over the life insurance policy during his lifetime. He alleged that he was told by his financial advisors that he could make any changes to the policy that he desired. He alleged that he told Mr. Ducommun that there would be nothing for Ducommun to do as Trustee until after Courtlandt Sr. had died and the life insurance proceeds were paid into the Trust. He alleged that, had he known or understood that he would not be able to have control over the policy during his lifetime, he would never have established the trust in the first place. (See, e.g., Rescission Petition at p. 7, lines 23-24; p. 8, lines 4-15; p. 9, lines 3-12 and 16-28; p. 10, lines 1-6; p. 11, lines 8-13; p. 12, lines 2-9 and 22-23.) In opposition to the motion for summary judgment, he stated that he was not aware that his understanding of the manner in which the Trust operated was mistaken, until Respondents filed their Petition for a determination that he was a Trustee De Son Tort with respect to the Trust (based upon his allegedly unauthorized intermeddling with and management of Trust assets) seeking surcharge and asserting that he had breached the fiduciary duties of a trustee, on August 31, 2018. As a result, there is also a triable issue of material fact with respect to the date upon which Courtlandt Sr. would have discovered the mistakes which are alleged in support of his Rescission Petition.

 

Certainly, the Trust and related documents support that that it was Courtlandt Sr.’s intention in 2001 was to create a trust containing a life insurance policy, and that he was doing so in order to obtain tax benefits. However, the motion for summary judgment assumes, without establishing, that Courtlandt Sr. at all times fully understood the manner in which an irrevocable life insurance trust operated, i.e., that his estate would not realize the tax advantages if he retained and/or exercised any control over the policy that was the subject of the trust. The motion assumes, without establishing, that Courtlandt Sr. not only knew that he was prohibited from exercising “incidents of ownership” of the policy, in order to retain the estate tax advantages, but also what that term specifically meant. Article 9, Paragraph 9.15 of the Trust states: “the Settlor shall not have any powers or discretion that shall cause any part of the trust estate to be includable in his estate for federal estate tax purposes, and the provisions of this trust shall be interpreted accordingly.” However, there is no evidence before the Court to establish that Courtlandt Sr. had particular knowledge of federal estate taxes, or any specific understanding of what actions would cause the policy to be included in his estate for federal estate tax purposes.

 

Indeed, Courtlandt Sr.’s conduct was consistent with his lack of relevant knowledge and understanding regarding prohibited conduct. Although he wanted to create the trust in order to obtain estate tax benefits, he advised Mr. Ducommun that there would be nothing for Mr. Ducommun to do, as Trustee, until after Courtlandt Sr.’s death when the life insurance policy proceeds were paid to the Trust. In fact, Mr. Ducommun took no actions as Trustee over the years, until he filed the 2018 de son tort petition. In 2015, Courtlandt Sr. canceled the original $4 million policy, on which he had paid substantial premiums over the hears, and replaced it with a $1.5 million policy. It would be nonsensical for him to have done so had he understood that exercising that sort of control over his policy would have negated the estate tax advantages he created the Trust in order to obtain.

 

Additionally, regardless of the existence of estate tax benefits, and his decision to create the Trust in the first place in order to obtain such benefits, the allegations of the Rescission Petition are sufficient to support that Courtlandt Sr. felt so strongly about the ability to control his life insurance policy, that he would not have entered into the Trust had he known he would not have such control, even if it meant not obtaining the estate tax benefits that an ILIT would provide. In fact, Courtlandt Sr. contends he was advised he could control the policy during his lifetime, and that he never would have established any trust over the policy had he understood that he could not do so. This evidence further establishes a triable issue of material fact with respect to whether mistake sufficient to support the rescission or reformation of the 2001 Trust exists.

 

Respondents present evidence that Courtlandt Sr. attended Harvard College, and acted as a Trust Officer for Wells Fargo Bank from 1974-1986, such position ending 15 years prior to execution of the 2001 Trust. While this might tend to establish a certain level of intelligence attributable to Courtlandt Sr., it is woefully inadequate to attribute to him any level of expertise in estate planning, federal estate taxes, or the finer points of how an Irrevocable Life Insurance Trust must operate and be handled in order to obtain estate tax advantages. Indeed, without having any information before the Court on Courtlandt Sr.’s duties with Wells Fargo Bank, or his prior experience with or knowledge of Irrevocable Life Insurance Trusts, that information adds little of relevance to the discussion.

 

The Court finds the information about when Courtlandt Sr. learned that he could not both control the policy during his lifetime and obtain the estate tax advantages, as critical to the date of accrual of the petition. He has expressly declared that he did not have that understanding until 2018, when Respondents filed their petition alleging that he had improperly exercised control over the trust assets, and that had he understood earlier, he never would have established the trust. His declaration of his knowledge and intent is both relevant and, in the court’s opinion, competently given, particularly since the evidence provided with Respondents’ motion does not address all of the issues raised by the Petition, in asserting its untimely presentation. Consequently, the Court will deny the motion for summary judgment.

 

The motion is based solely upon the statute of limitations applicable to the claims for rescission and reformation of the Trust, and the motion fails even if the Court assumes the validity of the Trust. Consequently, it is unnecessary for the Court to address Courtlandt Sr.’s contention that no valid Trust was ever established, in order to resolve the pending motion for summary judgment.

 

            c.         Evidentiary objections

 

The California Supreme Court has directed attorneys to limit their evidentiary objections to those items of evidence that are legitimately in dispute and pertinent to the disposition of the summary judgment motion, i.e., those that really count, and involve items of evidence that may be outcome-determinative. (See Reid v. Google, Inc. (2010) 50 Cal.4th 512, 532.) Contrary to that direction, Respondents filed written objections to the evidence submitted in opposition to the Motion for Summary Judgment, including a considerable number of objections to declaration statements that were clearly provided for purposes of background and context, and involved matters that were not material to the resolution of the motion. Many are better characterized as arguments with the evidence or with its legal effect, rather than good faith objections to the evidence.

 

The objections to the declaration of David Tappeiner are all overruled, except: No. 4 is sustained only as to the legal conclusion of what is a typical irrevocable life insurance trust. While Nos. 13-16 relate solely to the identification of documents in the Compendium of Evidence which are authenticated by other verifications, declarations, or the request for judicial notice, the Court will sustain the objections to the extent the declaration could possibly be interpreted as establishing any other facts related to the documents.

 

The objections to the declaration of Courtlandt D. Gross are overruled, except: No. 25 is sustained with respect to final clause of the sentence, beginning with the word “because”; and No. 31 is sustained only with respect to the legal conclusion regarding validity of the Trust.

 

Respondents further objected to Courtlandt Sr.’s Request for Judicial Notice of (1) his amended opposition to their petition, (2) his amended and supplemental declaration in support of his opposition to their petition, and (3) the supplement to the petition for rescission or reformation of the trust agreement, filed on July 11, 2019. The objection acknowledges that the Court can take judicial notice of the existence of the documents, but objects to judicial notice their contents on various bases, including that the statements are self-serving, are irrelevant, or are hearsay. The Court will take judicial notice of the documents to the extent allowed by law, but cannot make any further ruling given the objections’ failure to specify the statements to which they are directed.

 

  1. Sanction motion

 

            A.        Legal standards.

 

Code of Civil Procedure section 128.7 provides, in relevant parts:

 

(b) By presenting to the court, whether by signing, filing, submitting, or later advocating, a pleading, petition, written notice of motion, or other similar paper, an attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, all of the following conditions are met:

(1) It is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. 

(2) The claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law. 

(3) The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery. 

(4) The denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.

(c) If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation. In determining what sanctions, if any, should be ordered, the court shall consider whether a party seeking sanctions has exercised due diligence.

* * *

(d) A sanction imposed for violation of subdivision (b) shall be limited to what is sufficient to deter repetition of this conduct or comparable conduct by others similarly situated. Subject to the limitations in paragraphs (1) and (2), the sanction may consist of, or include, directives of a nonmonetary nature, an order to pay a penalty into court, or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of some or all of the reasonable attorney’s fees and other expenses incurred as a direct result of the violation.

(1) Monetary sanctions may not be awarded against a represented party for a violation of paragraph (2) of subdivision (b).

 

The certification requirement of Section 128.7(b) was designed to create an affirmative duty of investigation as to both law and fact, and thus deter frivolous actions and costly meritless maneuvers. (See Business Guides, Inc. v. Chromatic Communications Enterprises, Inc. (1991) 498 U.S. 533, 550 [interpreting Rule 11 of the Federal Rules of Civil Procedure, upon which Section 128.7 is based].) Section 128.7 is not a fee shifting provision, and any sanction imposed for violation of Section 128.7(b) must be limited to what is sufficient to deter repetition of the conduct or comparable conduct by others similarly situated. (Code Civ. Proc., § 128.7, subd. (d); Trans-Action Commercial Investors, Ltd. v. Jelinek (1997) 60 Cal.App.4th 352, 368.) If warranted, the court may award the prevailing party its reasonable expenses and attorney fees incurred in presenting or opposing the sanction motion. (Code Civ. Proc., § 128.7, subd. (c)(1).)

 

Whether the certification has been violated is tested against an objective standard. (Peake v. Underwood (2014) 227 Cal.App.4th 428, 440.) Imposition of sanctions under Section 128.7 is discretionary, and the court is not required to impose a monetary sanction or any sanction at all. (Code Civ. Proc., § 128.7, subd. (c); Kojababian v. Genuine Home Loans, Inc. (2009) 174 Cal.App.4th 408, 421-422.) Cases decided under comparable Federal Rule 11 have adopted a policy of restraint in imposing sanctions, resolving doubts in favor of the party against whom sanctions are sought, and treating such sanctions as an extreme remedy that is reserved for the rare and exceptional case where the action is clearly frivolous. (Operating Engineers Pension Trust v. A-C Co. (9th Cir. 1988) 359 F.2d 1336, 1344.)  

 

            B.         Evidentiary support for allegations, contentions, and denials of contentions.

                       

As noted above, the certification of counsel in presenting to the court a pleading, petition, or paper, includes both that (1) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery (Code Civ. Proc., § 128.7, subd. (b)(3)); and (2) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief (Code Civ. Proc., § 128.7, subd. (b)(4)).

 

Respondents characterize the “mistake” upon which the Rescission Petition is based as Courtlandt Sr.’s allegation that it was his intent to have the Trust sit idle until his death so that he could retain complete control over the life insurance policies while he was alive, and that had he been advised he would not have the ability to change either the policies or the Trustee’s control over the policies, he would not have established the Trust. Further, that Courtlandt Sr. alleges that the Trust is not the owner of the policies, and that the Trust has never been funded.

 

To succeed in their sanction request made on this basis, Respondents must show that there was no evidentiary support for either of these contentions.

 

With respect to the issue of whether the Trust was ever funded, Respondents contend that the Rescission Petition’s allegations had no evidentiary support because Courtlandt Sr. signed the 2001 and 2015 life insurance policy applications which listed the Trust as owner of the policy, his 2011 Modification Petition stated that the Trust held a life insurance policy on his life, his financial advisor stated that Courtlandt Sr.’s Trust owned the policies, and the annual life insurance policy statements reflected the Trust as the owner of the policy.

 

With respect to the issue of whether Courtlandt Sr. intended to keep control over the life insurance policies, and did not understand that he could do so while still retaining the estate tax benefits of the irrevocable life insurance trust, Respondents first point to the fact that Courtlandt Sr. graduated from Harvard, and worked as a Trust Officer at Wells Fargo Bank for 12 years, leaving that position some 15 years prior to the creation of the irrevocable trust. Further, Courtlandt Sr. had stated in 2001 that the minimization of estate taxes was of great importance to him.

 

As this Court discussed in the summary judgment analysis, while Courtlandt Sr.’s graduation from Harvard might tend to attribute to him a certain level of intelligence, it has no bearing on whether he understood that he could not control the life insurance policies and still retain the estate tax benefits of an irrevocable life insurance trust. Further, without any evidence of what Courtlandt Sr.’s duties were as Trust Officer, and whether they ever included any involvement with or understanding of an irrevocable life insurance trust, his service in that position does not establish that he knew that he, as the settlor of the Trust, could not retain control over the policies and still retain the estate tax benefits. Additionally, that he had stated that the minimization of estate taxes was of great importance does not in any way refute his contention that he believed that he could retain control over the policies and still retain the estate tax benefits, i.e., the “mistake” which forms the basis for his petition, nor does it establish that the minimization of estate taxes would necessarily triumph over retention of control over the policies, if he actually understood that he could not have both.

 

Respondents further contend that Courtlandt Sr. knew or should have known how the irrevocable life insurance trust worked, pointing to an Estate Tax Analysis purportedly prepared for Courtlandt Sr. by his financial advisors in June 2001, which they contend detailed how an irrevocable life insurance trust worked, and a Financial Fitness Profile (which Respondents’ motion states was prepared “by him,” but which clearly was also prepared by his financial advisors) in August 2001, which explained how a Charitable Remainder Trust worked in conjunction with an irrevocable life insurance trust. They further point to Courtlandt Sr.’s instructions to the estate planning attorney in October 2001, to prepare an irrevocable life insurance trust for life insurance being obtained on his life.

 

The Court notes that the Financial Fitness Profile provision (located at Exhibit 7 to the Lee declaration) relied upon by Respondents is found on page 13 of the 20 page document, in a section entitled “UNITRUST AND INSURANCE TRUST,” under the heading “A. Flow Chart.” It is buried on the page, located in the sixth of seven paragraphs, with nothing to flag or call attention to the specific information. It states “Since the donor desires to replace the principal transferred to the trust, which will eventually go to charity, an irrevocable insurance trust is established for family members. This trust is created with a person other than donor as trustee. It is permitted by law for the trust to own insurance and, since the donor retains no incidents of ownership such as the rights to name the beneficiaries to the policy, to cash in the policy or to borrow against the policy, the trust is not included in the donor’s estate.”

 

The Estate Tax Analysis provision (located at Exhibit 6 to the Lee declaration) relied upon by Respondents to show that Courtlandt Sr. necessarily understood how an irrevocable life insurance trust worked, and knew he could not retain control over the policies, is located on page 38 of the 96 page document. The page is entitled “Life Insurance in Trust.” In the second paragraph, it states: “The value of any policies owned by an individual at death are subject to estate taxes. If an individual possesses certain rights (known as incidents of ownership) over a policy insuring his or her own life, the proceeds of the policy are generally included in the individual’s gross estate for estate tax purposes at the individual’s death.” It does not articulate or explain what the “incidents of ownership” are that could defeat the estate tax benefits. Lower on the page, under “Pitfalls of Life Insurance in a Trust,” the document states “The grantor cannot terminate or change the terms of an irrevocable life insurance trust once it is established and he does not have access to the funds in it.” Of course, this relates to the Trust itself, and not to the policies. Further, under Courtlandt Sr.’s claimed understanding of the Trust, it would have no “funds” in it until the policy proceeds were paid to it after his death. Consequently, these provisions do not establish that Courtlandt Sr.’s petition had no evidentiary basis.

 

More importantly, according to the declaration of counsel accompanying the motion, the Estate Tax Analysis and Financial Fitness Profile were produced by AXA, Courtlandt Sr.’s financial advisors, in discovery. Beyond this, no information is provide with respect to whether Courtlandt Sr. was ever provided with the documents, ever read the documents, or at any time understood all of the information in the documents, to establish that he necessarily knew and understood that he could not exercise control over the policies and still retain the estate tax benefits of the trust, at the time the Trust was established in 2001. The only information this Court has is that the documents were prepared by AXA, and produced to Respondents in discovery. The documents have therefore not been established as having any relevance to Courtlandt Sr.’s purported lack of evidentiary basis for his claims.

 

Respondents point further to the fact that Courtlandt Sr. signed the Trust on December 4, 2001, contending that it “included provisions that explicitly prohibited him from acting as a Trustee or having any control of the Trust’s assets.” Certainly, the Trust, at ¶ 7.3, stated that “Notwithstanding anything in this document to the contrary, the Settlor may not serve as Trustee or Co-Trustee of this Trust or any trust created hereunder.” Respondents do not explain or provide evidence to show that Courtlandt Sr. necessarily understood that his actions in replacing the life insurance policy were actions that only a Trustee of the Trust should have been able to take, given his claimed belief that the Trust would only be involved with the policy after his death when the policy proceeds were paid into the Trust. If he believed the Trustee’s functions only arose after his death, he may not have understood that there was anything he could have done which constituted acting as a Trustee of the Trust.

 

Further, the provision which respondents claim “explicitly prohibited him” from “having any control of the Trust’s assets,” is far from explicit. ¶ 9.4, entitled “Powers of Settlor,” provides that “[n]otwithstanding anything to the contrary, the Settlor shall not have any powers or discretion that shall cause any part of the trust estate to be includable in his estate for federal estate tax purposes, and the provisions of this trust shall be interpreted accordingly.” It never explains or articulates what actions taken by the Settlor would cause any part of the trust estate to be included in his estate for federal estate tax purposes. The presence of that language in the Trust document therefore does not contradict the Rescission Petition’s allegations that Courtlandt Sr.’s contention that he believed he could retain control over the policies, and would not have created the Trust had he known he could not.

 

Respondents then point to Courtlandt Sr.’s verification, in October 2018, that he incurred the expense of establishing the Trust "to hold the Policy so that it would not be taxable in his

estate" and that the Trust owned the policies. This information is not conclusive in refuting the existence of an evidentiary basis for the Petition. They further point to the October 2018 declaration by Courtlandt Sr.’s financial advisor that Courtlandt Sr. had “elected to purchase life insurance with a death benefit of $4,000,000 and to have that life insurance held in an irrevocable trust so that it would not be included in his taxable estate at his death,” and that the Trust owned the policies. This hearsay evidence likewise does not undermine the “mistake” which forms the basis for the petition.

 

In their reply, Respondents contend that the Rescission Petition does not allege, as one of the “mistakes” which formed its basis, that Courtlandt Sr. believed he could control the life insurance policies and still have the proceeds be estate tax-free, since the Petition contains no allegations of mistake as to estate taxes. The Court disagrees, and finds the Petition sufficiently susceptible to that interpretation. The Court necessarily looks to the Petition as a whole, including its allegations that the Trust was structured so that any assets it had would not be includible in Courtlandt Sr.’s taxable estate because of his lack of control over such assets (p. 9, lines 9-13; p. 10, lines 7-13), that Courtlandt Sr. believed he would be the owner of the policy during his lifetime and could change or cancel the policy if he so desired p. 9, lines 25-27), it was of paramount importance to Courtlandt Sr. that he retain control over the policy during his lifetime (p. 10, lines 16-20), and he would not have created the Trust had he understood that he would not have control over the policies (p. 11, lines 8-11). Further, what is truly important to the existence of a “mistake” forming the basis for the Rescission Petition, is Courtlandt Sr.’s belief that the terms of the Trust allowed him to retain control over the policy that was to be a Trust asset, and that he would not have created the Trust had he understood that the Trust did not permit him to do so. In any event, the allegations of the Rescission Petition are sufficient to support the “mistake” as it is characterized in Courtlandt Sr.’s opposition papers.

 

In the absence of direct evidence of Courtlandt Sr.’s knowledge—sufficient to refute his allegations of mistake—of the manner in which an Irrevocable Life Insurance Trust necessarily operated, and that he as Settlor could not retain any control over the policies and still retain the estate tax benefits for which such a Trust is normally created, Respondents have attributed to him a level of knowledge and sophistication with respect to irrevocable life insurance trusts which is not definitively established by the items of circumstantial evidence they provide. Certainly, at trial, it is entirely possible that the trier of fact may consider all of this evidence and find in Respondents’ favor. However, the evidence provided by the motion is insufficient to establish that Courtlandt Sr.’s Rescission Petition is unsupported by any evidence. Consequently, the Court finds no basis upon which to award sanctions under Section 128.7(b)(3) and (4).

 

            C.        Legal support for claims and contentions

 

Pursuant to Code of Civil Procedure section 128.7(b)(2), in presenting the Rescission Petition, Mr. Tappeiner was certifying that, to the best of his knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, the claims, defenses, and other legal contentions in the petition are warranted by existing law, or by a nonfrivolous argument for the extension, modification, ore reversal of existing law or the establishment of new law. If a pleading or motion is otherwise meritorious, the fact that one of the supporting arguments is frivolous does not justify sanctions. (Golden Eagle Distributing Corp. v. Burroughs Corp. (9th Cir. 1986) 801 F.2d 1531, 1540-1541 [interpreting FRCP 11].)

 

Respondents first contend that there is no legal support for the Petition, because it is barred by the statute of limitations. Because the Court has found that the motion for summary judgment based upon the statute of limitations defense must be denied for failure to meet its burden of proof and because of the existence of triable issues of material fact, this contention cannot provide support for the imposition of sanctions pursuant to Code of Civil Procedure section 128.7(b)(2).

 

Respondents’ moving papers then contend that the Rescission Petition is not warranted by existing law, because Courtlandt Sr. has not alleged any basis to rescind or reform the trust. They argue that reformation is unavailable, because it is only appropriate to correct a written instrument to effectuate a common intention of the parties which was incorrectly reduced to writing, and Courtlandt Sr. does not contend that there was an ambiguity or scrivener’s error.

 

Respondents then assert that either rescission or reformation are not available, because they would defeat or substantially impair the accomplishment of Courtlandt Sr.’s previously stated intent and a material purpose of the Trust—to minimize estate taxes. However, even if the minimization of estate taxes had been of great importance to Courtlandt Sr. in 2001, as Respondents contend, that does not necessarily establish that the right and ability to control his insurance policies was not of even greater importance to him at that time, and that he would never have created the Trust had he known he would not be able to both exercise control over the insurance policies and still maintain the estate tax benefits of an ILIT.

 

Respondents’ contention does not definitively establish that the Rescission Petition is not warranted by existing law, nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law, within the meaning of Code of Civil Procedure section 128.7(b)(2). Consequently, the motion for sanctions based on this subsection must be denied.

 

Because, as noted above, the existence of frivolous supporting arguments does not warrant sanctions if the pleading or motion is otherwise meritorious, the Court need not address the remaining bases for the Petition, in assessing whether it is warranted by law.

 

            D.        Presentation primarily for an improper purpose.

 

Pursuant to Code of Civil Procedure section 128.7(b)(1), in filing a pleading, petition, or motion, an attorney is certifying that, to the best of his or her knowledge, information and belief, formed after an inquiry reasonable under the circumstances, it is not be presented primarily for an improper purposes, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. The necessary emphasis in the subdivision is on the word “primarily”; there is no violation of the certification unless the “primary” purpose is to harass or cause needless delay or expense. Although the “proper purpose” and “nonfrivolous claims” certifications are separate and distinct, they often overlap, because frivolousness is evidence of an improper purpose. (Townsend v. Holman Consulting Corp. (9th Cir. 1990) 929 F.2d 1358, 1362.) Conversely, of course, if a claim is nonfrivolous, then as a matter of law it is not presented for an improper purpose. (Ponce v. Wells Fargo Bank (2018) 21 Cal.App.5th 253, 265.) The subjective intent of the attorney or party to harass the other party is not, under those circumstances, sufficient to warrant imposition of sanctions.

 

Respondents’ motion curiously omits all reference to the “primary” purpose requirement, simply stating that the petition is subject to imposition sanctions because it was filed for the improper purpose of punishing Respondents for filing their Trustee De Son Tort Petition and to needlessly increase litigation expenses. As noted above, the existence of one improper purpose for filing the petition does not give rise to sanctions if there is any non-frivolous, non-improper purpose. Further, the fact that the Petition might have been filed “in response to” Respondents’ Trustee De Son Tort petition does not require the conclusion that it was filed to punish Respondents for filing that petition. Rather, it could reasonably be assumed that Courtlandt Sr. filed the Rescission Petition because the allegations set forth in Respondents’ Trustee De Son Tort petition, and the remedies they sought therein, may have alerted him to the fact that the Trust he actually created was not the Trust he thought he had intended to create.

 

The Court cannot find that the evidence before it requires the conclusion that the Rescission Petition was necessarily filed primarily for an improper purpose, such that the imposition of sanctions pursuant to Code of Civil Procedure section 128.7(b)(1) would be appropriate. Consequently, the motion for sanctions based upon this subsection will be denied.

 

  1. Conduct of counsel.

 

The Court feels compelled to comment about the tone of the papers filed by Respondents, which skirted the line between zealous advocacy and unprofessional conduct,   including expressly castigating opposing counsel for his “ignorance.” (See reply to opposition to motion for sanctions at p. 4, lines 2-3.)

 

The Court directs counsel to Appendix 5 of the Santa Barbara Superior Court Local Rules, entitled “Guidelines for Attorneys Practicing Before the Santa Barbara County Superior Court.” Specifically, Principles A.3. [“Counsel should all times be civil and courteous in communicating with adversaries, whether in writing or orally. A lawyer should not behave offensively, derogatorily or discourteously even when his or her client so desires. If necessary, a lawyer should advise a client that he or she will not engage in such conduct, even if directed.”]; C.1. [providing, in relevant part: “Lawyers should treat judges, counsel, parties, witnesses, and court personnel in a civil and courteous manner, not only in court but in depositions, conferences, and all other written and oral communications.”]; and C.2. [“A lawyer shall avoid personal attacks on other counsel. Even if the zealous representation of a client may necessitate allegations of wrongdoing on the part of an adverse party or opposing counsel, a lawyer must review such allegations to ensure that they are justified.”].

The Court will  admonishes all counsel to at all times conduct themselves with the civility and respect.

 

 
© Superior Court of the County of Santa Barbara
Locations & Contact Info | Court Security | Human Resources | Privacy Policy | ADA