Judge David J. Cowan, Case Number: 16STPB00645, Date: 2023-08-29 Tentative Ruling

TENTATIVE RULING ON MOTION OF BERNICE CHENG FOR PROTECTIVE ORDER RE: DEPOSITION OF ROBERT SCHACHTER

In re: the Matter of the Katherine W. Cheng Revocable Family Trust dated February 15, 2006, Case No. 16STPB00645 (related to Matter of Cheng Family Trust dated June 6, 1990, Case No. 20STPB07063)

This motion concerns whether it is crucial for Moving Parties, Caroline Cheng and Diana Cheng, to take the deposition of opposing counsel, Robert Schachter, related to phone calls he and his client, Bernice Cheng, had with TD Ameritrade (“TD”) in May 2020 concerning whether TD could permissibly distribute the funds it held to co-trustees of Family Trust Sub-Trust B, sisters Diana, Caroline, Arlene and Bernice, each of whom is also a 25% beneficiary.[1] Moving Parties contend Schachter wrongfully interfered with TD distributing the funds in the account by falsely asserting that the sisters had stipulated to arbitration of their disputes and that there was a pending arbitration.

On June 6, 1990, Luke Cheng and Katherine Cheng, husband and wife, created a Trust (“the Family Trust”). (The Family Trust is the subject of Case No. 20STPB07063)

On November 4, 1998, Luke Chen died. Pursuant to the terms of the Family Trust, it sub-divided into sub-trust A and sub-trust B. Katherine was the trustee of sub-Trust B.

On February 15, 2006, Katherine created a trust (“the Katherine Trust”). (The Katherine Trust is the subject of Case No. 20STPB00645)

In April 2007, Katherine purchased residential real property at 125 Siena Drive, Long Beach, CA 90803 (“the Property”), which was an asset of sub-trust B (of the Family Trust).

On October 4, 2012, Katherine died. Their four daughters became successor co-trustees of sub-Trust B.

On September 25, 2018, in Case No. 16STPB00645, the Court filed a judgment. The Court issued a total surcharge against Caroline and Diana of over $1,800,000, as well as ordered an accounting.

On June 25, 2019, Bernice filed a petition in Case No. 16STPB00645 to freeze the TD account by way of enforcing the above-referenced judgment.

On June 28, 2019, after the conclusion of a partition action concerning the Property, the sale of the Property closed and the net proceeds of $878,824.27 were deposited into the TD account.

In February 2020, some of the parties signed a stipulation in Case No. 20STPB00645 concerning the Katherine Trust to submit remaining disputes to arbitration. Bernice did not sign the stipulation.

On March 29, 2020, counsel for Carolina and Diana advised Bernice that they revoked their consents to the stipulation.

In April 2020, a majority of the co-trustees of Sub-trust B voted in favor of TD distributing the TD account. (The Court was not provided the evidence to show that decision was in writing though it is not disputed that was the vote.)

On April 30, 2020, TD started the process of disbursing the funds in the account.

On May 1, 2020, Bernice contacted TD about freezing the TD account and stopping the distribution. Schachter was a part of that conversation. Movants contend Bernice threatened to sue TD unless it stopped the distribution based on a purportedly pending arbitration. Bernice denies making any threat.

On May 5, 2020, Schachter sent the purported stipulation to TD, noting Carolina and Diana had signed it and that it governed this Sub-Trust B.

On May 20, 2020, Schachter sent a letter to TD allegedly attaching a letter to counsel dated May 19 and a demand for arbitration with AAA, dated May 18, that he indicated had been submitted to AAA. (Movants dispute Schachter sent counsel the attached May 19 letter as well as that the demand had been submitted.)

On August 27, 2020, Caroline and Diana filed in Case No. 20STPB07063 a petition to remove Bernice as co-trustee, as well for conversion and or recovery of the funds in the TD account. TD had in the interim frozen the account until there was a court order providing it instructions.

On September 29, 2020, the Court of Appeal filed its remittitur. The Court of Appeal affirmed the judgment in Case No. 16STPB00645 in favor of Bernice.

In March 2023, the parties’ counsel met and conferred and reached an agreement for Caroline and Diana seeking information from Schachter in lieu of a deposition, including his submitting a declaration by April 19, 2023 and follow up interrogatories if necessary.

On April 23, 2023, Caroline and Diana, through their counsel, not having received a declaration from Schachter, served a deposition subpoena on him in Case No. 20STPB07063.

On June 21, 2023, the parties filed a stipulation concerning issues to be decided at trial, including the petition to remove Bernice in Case No. 20STPB07063.

On July 24, 2023, Schachter executed a declaration in support of his objections to his deposition.

On July 26, 2023, Bernice filed the motion for protective order in this case. Bernice contends that a deposition of opposing counsel, as here, is presumptively improper, severely restricted and that “extremely good cause” is needed, citing Carehourse Convalescent Hospital v. Superior Court (2006) 143 Cal.App.4^th 1558.

On August 17, 2023, Caroline and Diana filed opposition to the motion. They contend initially that the motion should have been filed in Case No. 20STPB07063 as the subpoena was issued in that case. On the merits, they contend that a deposition of Schachter is crucial because what he stated to TD will be a critical issue at trial, as discussed below. They also indicate the declaration Schachter belatedly submitted was incomplete, evasive and false in various respects. Where they also indicate Bernice stated at her deposition that questions related to what was stated to TD about distribution of funds should be directed at Schachter, they contend his not providing complete information is prejudicial. They rely on Fireman’s Fund Ins. Co. v. Sup. Court (1977) 72 Cal.App.3d 786 (protective order reversed where attorney who acted as the sole or principal negotiator, bad faith was alleged concerning those negotiations, and the inquiry did not fall under a privilege). Finally, they request monetary sanctions.

On August 22, 2023, Bernice filed a Reply. The attached terms of the Family Trust provide in paragraph 8(B) i.: “The majority decision, in writing, of the Successor Co-Trustees shall be binding and final as to any matter concerning the Trust,” as well as ii. “If any dispute should arise between the Successor Co-Trustees about any aspect of the Trust, and if it cannot be solved privately, then such dispute shall be submitted to binding arbitration pursuant to the rules of the American Arbitration Association.”

Initially, there is an issue as to which case is the proper case for this motion. The subpoena for Schacter to appear was issued in Case No. 20STPB07063 concerning Sub-Trust B of the Family Trust. The proceeds in the TD account are property of Sub-Trust B of the Family Trust and the petition for distribution of that money is in Case No. 20STPB07063. Therefore, the protective order sought would properly be from that subpoena. Hence, the order here will also be issued in Case No. 20STPB07063, notwithstanding that the motion was filed in Case No. 16STPB00645. Where Bernice no longer has a petition to enforce the judgment pending in 16STPB00645, it is not clear why a protective order is needed in that case or if the motion was filed in that case by mistake.

Carehourse Convalescent, supra, 143 Cal.App.4^th at 1563, sets out a three-part test to determine when depositions of opposing counsel might be appropriate:

Yes. Schachter agreed previously that Caroline and Diana could follow up with interrogatories with any question left open by the declaration. Proponents have not pursued that approach and thereby avoid this issue. While Schachter may have delayed providing a declaration until the last moment and after several continuances, that does not mean that follow up interrogatories would not still be useful or obtainable. The Court can order interrogatory responses be provided by a date certain if necessary. That proponents may not wish to continue to proceed in this manner does not mean it is no longer practicable. If interrogatory responses are not responsive (as proponents argue the declaration was) this can also be addressed by a motion to compel further responses and for sanctions. On the other hand, Schachter indicates that he does not recall any more than he has stated already. If so, then he will not be able to testify otherwise at trial. Similarly, if what Schachter stated is not true, then presumably proponents can establish that through other testimony at trial. In this regard, communications with TD and or AAA can also be secured by obtaining information from those sources without taking Schachter’s deposition – if they have not been already.

It is apparent that Schachter will be a critical witness at trial. A central issue will be whether he properly persuaded TD from holding off on distributing the proceeds in the TD account:

On the one hand, Caroline and Diana argue there was no fully executed stipulation, even if the stipulation had been fully executed it did not strictly concern the petition that had not yet been filed (even if it did concern the underlying TD account), no arbitration could proceed without an agreement to do so and in any event no arbitration was commenced. Indeed, significantly, once TD agreed to hold off distributing the funds in the account, Bernice elected not to proceed with the demand for arbitration.

On the other hand, Bernice argues there were disputes between the parties concerning ownership of the amounts in the account, including her rights to satisfy the judgment from the funds in that account (even if her petition for a charging order is no longer pending), as well as relating to the accounting that was ordered. In addition, she contends that the provision of the Sub-Trust allowing for distribution on a majority decision of the Successor co-trustees in writing to do so is not controlling given the further language for disputes between the parties “about any aspect of the Trust” to be submitted to arbitration. Finally, Bernice contends that the terms of Sub-Trust B already provide for arbitration of disputes between the parties, even if one was not then pending.

The Court does not now decide any of these issues. Understanding the issues at trial informs whether Schachter’s deposition is “crucial.”

As is evident by the foregoing summary of issues, much if not all of what will likely be involved at trial is known already; thereby reducing need for a deposition. In particular, the parties’ contemporaneous correspondence, submissions and agreements likely provide much of the crucial evidence. A deposition of Schachter will be focused only on filling in any gaps left open by the documents and Bernice’s deposition testimony. Schachter has stated he does not recall anything further. Even if what he says is not true, or he is being evasive, as Caroline and Diana contend, this can be tested by cross-examination at trial. They are not materially prejudiced in not having taken his deposition beforehand. Whether an arbitration was required to have been pending or if a demand for arbitration had been made already is unlikely to hinge on Schachter’s testimony. Similarly, whether a majority decision in writing of successor co-trustees should have been sufficient for TD to have released the funds is probably a matter of interpreting the Trust, not what Schacter did or did not say.

Taking the foregoing considerations into account is consistent with what is required under Spectra-Physics v. Superior Court (1988) 198 Cal.App.3d 1487 (writ issued overruling court having allowed deposition of opposing counsel to determine whether attorney for a non-settling defendant improperly interfered with settlement process.)

Schachter contends some of what Caroline and Diana seeks would broach on privileged attorney-client communications; specifically, why Bernice sought arbitration but ultimately elected not to do so. Proponents contend they would not inquire into these areas. The Court finds that a deposition inevitably is likely to still explore these areas where proponents have already raised an issue as to whether it was Schacter or Bernice who was responsible for TD’s decision not to distribute funds and put the account on hold.[2] Creating issues as between client and attorney is precisely why courts have disfavored depositions of counsel, thereby making the litigation process only more time consuming, difficult and expensive. Undoubtedly, if the Court were to deny this motion, Bernice would then need to find additional counsel. Otherwise, she would not be represented when Schacter was testifying at a deposition. These long-standing cases need to be finally concluded without further delay.

In summary, each of these factors weigh to a lesser or greater degree in not allowing a deposition of opposing counsel. For these reasons, therefore, the Court grants the motion. The Court denies Caroline and Diana’s request for sanctions where the motion was filed “with substantial justification.”

[1] For ease of reference, and without intending any disrespect, the Court refers to the sisters by their first names.

[2] Caroline and Diana do not explain why it would in any event matter whether it was Schachter or Bernice herself who persuaded TD not to release the funds. Schacter would have been acting as her agent. As noted on p. 16 of the Court of Appeal opinion in Case No. 16STPB00645, “[a]dvice of counsel is a defense typically reserved for malicious prosecution and insurance bad faith actions.”