Judge David J. Cowan, Case 22STCV04742 2022-10-25 Tentative Ruling

Please notify Dept. 1’s courtroom staff by email (SMCDept1@lacourt.org) or by telephone (213-633-0601) no later than 8:30 a.m. the day of the hearing if you wish to submit on the tentative ruling rather than argue the motion. If you submit on the tentative, you must immediately notify the other side that you will not appear at the hearing. If you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the motion. Please keep in mind that appearing at the hearing and simply repeating the arguments set forth in the papers is not a good use of the court’s time or the parties’ time.

Responding Parties: Defendant/Cross-Complainant Albert Duerr; Plaintiffs/Cross-Defendants Ann Regan, Eugene Duerr, Catherine Duerr, Deanna Mandichak, Jennifer Haney, Elizabeth Eisenhauer, Alison Haney, and Brian M. Regan

Ruling: The parties are ordered to file probate petitions reasserting their claims relating to internal affairs of the Duerr Trust, including as to Albert’s mismanagement of the Trust and Jennifer’s distribution of settlement funds to beneficiaries of the Trust, and then dismiss the corresponding civil claims and cross-claims without prejudice. Albert is not ordered to refile the professional negligence claim in probate court.

The OSC is discharged. The Court sets a Status Conference Re: Filing of Probate Petitions for December 27, 2022 in Department 62 of the Stanley Mosk courthouse.

If the parties do not submit on the tentative, they are strongly encouraged to appear remotely by LA Court Connect.

On February 7, 2022, Ann Regan (“Ann”), Eugene Duerr (“Eugene”), Catherine Duerr (“Catherine”), Deanna Mandichak (“Deanna”), Jennifer Haney (“Jennifer”), Elizabeth Eisenhauer (“Elizabeth”), and Alison Haney (“Alison”) filed a Complaint against Albert Duerr (“Albert”) and Does 1-100 stating causes of action for breach of fiduciary duty, intentional misrepresentation, concealment, negligent misrepresentation, negligence, and elder abuse.[1]

The Complaint alleges Albert acted as “Executor and Trustee of the Herbert and Lydia Duerr estate and trust.” Herbert Duerr and Lydia Duerr passed away in 2005 and 2009, respectively. Albert allegedly sold real property belonging to the Estate and/or Trust for below market value in 2013. Albert sold other real property belonging to the Estate or Trust in 2018 in a transaction that funneled "over $500,000 in both a seller's agent and buyer's agent commission fees to a friend and accomplice.” Moreover, instead of distributing the proceeds of that sale, Albert invested and "lost approximately $8.5 million in a Ponzi scheme, the Gina Champion-Cain liquor license Ponzi scheme in San Diego California," and other "failed investments."

On March 14, 2022, Ann, Eugene, Catherine, Deanna, Jennifer, Elizabeth, and Alison filed a First Amended Complaint (FAC) against Albert and Does 1-100, stating an additional cause of action for declaratory relief regarding Albert's "entitle[ment] to proceeds from separate litigation” with Chicago Title Company (“CTC”) and Chicago Title Insurance Company (“CTIC”) or to any remaining assets of the Estate. The FAC alleges Albert voluntarily "waived any and all right or entitlement to receive such proceeds and assets" in writing in connection with settlement of the litigation with CTC and CTIC.

On March 21, 2022, Albert filed a Cross-Complaint against Brian M. Regan (“Brian”), Alison, Jennifer, Deanna, Elizabeth, Ann, Eugene, Catherine, and Roes 1-25 stating causes of action for conversion, breach of fiduciary duty, money had and received, financial elder abuse, professional negligence, negligent misrepresentation, indemnification, and declaratory relief. Consistent with the Complaint, the Cross-Complaint alleges Albert invested $8.5 million in Trust LLC funds into the Champion-Cain Ponzi scheme, and alleges Albert disclosed "losses in the Ponzi Scheme and other disappointing investments."

On August 15, 2022, Albert filed a Motion for Preliminary Injunction for Release of Funds requesting a preliminary injunction for the LLC Manager "to cease wrongfully withholding [his] funds in the amount of $1,288,856," his portion of a settlement with CTC, "and to remit those funds to [him] forthwith."

On September 14, 2022, Judge Michael L. Stern reassigned the case "to Department 1 for review and determination of reassignment to probate court."

On September 21, 2022, Department 1 issued an Order to Show Cause Re: Dismissal Without Prejudice and Initiation of Trust Petition, requesting responses by October 20, 2022.

On October 21, 2022, Albert filed a Response to the OSC. Brian, Alison, Jennifer, Deanna, Elizabeth, Ann, Eugene, and Catherine also filed a Response to the OSC.

On August 15, 2022, Albert filed a Motion for Preliminary Injunction for Release of Funds “seeking a court order that Cross-Defendants be ordered to release Albert’s personal settlement funds of $1,288,856,” which motion “was set for hearing on September 14, 2022.” (Albert Response, p. 3.) But “[a]t the outset of the hearing on September 14, 2022, the Court, on its own motion, stated it had concerns whether this action should be in Probate Court and was referring the matter to Department 1 for that determination,” and Department 1 subsequently issued this OSC Re: Dismissal Without Prejudice and Initiation of Trust Petition. (Albert Response, p. 4.)

Albert argues the case should remain assigned to Judge Stern in Department 62 as the Motion for Preliminary Injunction “did not involve funds in any trust or to be paid by a trust, or to be paid to a trust, or personally paid by any trustee or trust beneficiary.” (Albert Response, p. 2.) Albert argues the “disputes in this action relate to investments made by Duerr Properties LLC,” and whether Albert “is entitled to have his Chicago Title settlement funds released to him.” (Albert Response, p. 5.) Albert asserts the "parties are in agreement that the source of [the settlement funds] did not come from any trust . . . or estate plan" and that "none of the disputed funds . . . are a distribution, or proposed distribution, from any trust."[2] (Albert Response, p. 4.)

However, Albert’s Motion for Preliminary Injunction does involve trust distributions. The Motion appears to describe distributions of settlement funds (among other funds) from the Trust by Jennifer Haney as Trustee. (Motion, p. 11 (“Jennifer took the total settlement funds received from CTC for the Trust ($4,564,244), Albert’s personal settlement proceeds of $376,004, and the balance of Trust’s accounts, subtracted $100,000 to be left in the accounts for potential tax liability then divided that amount ($5,227,280.07) five ways representing the five 20% interests of the trust, and distributed four of those 20% shares to all Catherine, Ann, Eugene, and the heirs of Agnes.”))

Notably, Albert asserts Jennifer “was still holding the amount she had calculated as Albert’s one-fifth share, ($1,045,456), in the Trust’s Merrill Lynch account.” (Motion, p. 11; p. 12 (“Jennifer withheld Albert’s funds in the Merrill Lynch account of the Trust.”)) Albert describes a request for “remittance of his personal CTC settlement proceeds and his one-fifth share of the CTC settlement with Duerr LLC,” asserting Brian “den[ied] Albert’s request for remittance of his funds, stating Albert’s funds would reimburse the “family,” by which he meant the beneficiaries of the Trust other than Albert.” (Motion, p. 12.)

Moreover, Albert’s substantive arguments for a preliminary injunction revolve around Jennifer’s status and duties as Trustee. Albert argues Jennifer, “as Trustee and manager of Duerr LLC,” was required to distribute Albert’s funds when she made distributions (including CTC settlement funds) “to the beneficiaries” of the Trust. (Motion, p. 15; p. 16 (“Jennifer determined as Trustee . . . that $1,045,456 was distributable to each 1/5 interest in the Trust as evidenced by . . . the actual distributions that she made in these amounts to the other beneficiaries of the Trust. There is no dispute that Albert is a beneficiary of the Trust with a 1/5 interest in Duerr LLC.”))

Albert argues Jennifer, “a[s] a trustee, . . . has an obligation to deal impartially with all beneficiaries, including Albert, and to avoid conflicts of interests among them,” notably citing Probate Code sections 16003 and 16004. (Motion, p. 16.) Albert argues Jennifer could not “use her position to obtain an advantage for the other beneficiaries by withholding Albert’s funds from him without his permission.” (Motion, p. 16; p. 17 (“No rule of law permits Jennifer to unilaterally withhold Albert’s share of the trust funds as a beneficiary.”)) Albert argues Jennifer “must distribute the funds pursuant to the trust documents.” (Motion, p. 17.)

Though Albert’s Response asserts the case is exclusively about Duerr LLC and Jennifer’s role as LLC manager, the Motion focuses equally on Jennifer’s conduct as Trustee, including her decision to distribute settlement funds from the Trust to other beneficiaries while withholding Albert’s portion as a beneficiary. Albert’s Cross-Complaint describes an “interrelationship between Duerr LLC and the various Duerr trusts” as the “current members of Duerr LLC are separate trusts that were established . . . for the benefit of Albert, Ann, Catherine and Eugene and the heirs of Agnes (deceased).” (Cross-Complaint, para. 4-5.) “Due to this, the Duerr Trust beneficiaries commonly refer to Duerr LLC as the ‘Trust,’ even though it is an LLC,” and Albert himself refers to the Trust and LLC interchangeably. (Cross-Complaint, para. 5 (“throughout this Cross-Complaint, reference to the ‘Trust’ includes Duerr LLC and vice versa.”)) Hence, the dispute is not entirely about administration of the Duerr LLC, contrary to Albert’s response.

Thus, the Court cannot accept this argument for keeping the case assigned to Department 62. Albert offers two other arguments to support leaving the case in civil court: (1) that he will be prejudiced by further delay in ruling on the Motion and distributing his settlement funds, and (2) that he has a pending cross-claim against Brian for professional negligence. (Albert Response, p. 4-5.) relating to Brian’s legal advice and representations regarding the CTC settlement and Albert’s resignation as Trustee of the Family Trust and manager of Duerr LLC to avoid further litigation over his involvement in the Ponzi scheme.

As to the first argument, any further delay would be partially due to Albert pursuing relief in civil court rather than probate court, even though the Motion expressly seeks injunctive relief against Jennifer in her capacity “as Trustee” for failing to treat Trust beneficiaries evenly in making distributions. The Motion has been fully briefed and so can be reset in the probate court without needing to accommodate a briefing schedule.

As to the second argument, Albert does not explain why his professional negligence cross-claim “does not belong in the Probate Court.” (Albert Response, p. 5.) Regardless, as the Court observed in issuing this OSC, the negligence claim “is not a dispute over Trust assets or actions of the Trustee” even if it “is closely related to the other claims.” (9/21/22 Order, p. 4; Albert Response, p. 2 (Albert concedes that “Probate Court jurisdiction may exist for certain claims or issues.”)) Plaintiffs do not argue that the professional negligence claim should be determined in probate court, and professional negligence claims are often resolved separately from the cases in which the negligence allegedly occurred. The cross-claim is not necessarily within the exclusive jurisdiction of the probate court, unlike the claims directly relating to distribution of Trust assets.

Plaintiffs “agree with the Court’s inclination that the matter should proceed in probate court.” (Plaintiffs’ Response, p. 3.) Initially, Plaintiffs point out that Albert’s Cross-Complaint seeks relief against Jennifer for breaches of fiduciary duty as Trustee, including allegedly failing to distribute his settlement funds. (Plaintiffs Response, p. 2.) Similar assertions are found in the Motion for Preliminary Injunction, as discussed above. The Court agrees with Plaintiffs that Albert’s Cross-Complaint and Motion for Preliminary Injunction seek to “instruct[] the trustee” and “compel[] redress of a breach of the trust by any available remedy,” matters “concerning the internal affairs” of the Trust. (Prob. Code sec. 17000(a); Prob. Code sec. 17200(b)(6), (b)(12); see 9/21/22 Order, p. 4 (noting probate court’s concurrent jurisdiction over claims by creditors of trusts as possible basis for moving case to probate).) Moreover, Plaintiffs accurately note that this litigation arises from alleged misconduct by Albert as Trustee, including “mismanaging the estate and trust” by investing in a Ponzi scheme and concealing information about the Trust, and that the issues with the Duerr LLC are “inextricably intertwined with issues related to trusts.” (Plaintiffs’ Response, p. 1-2; Cross-Complaint, para. 5.)

However, Plaintiffs argue the matter should “be transferred to probate court pursuant to Code of Civil Procedure section 396,” though do not explain how that statute applies here. (Plaintiffs’ Response, p. 3.) CCP sec. 396(b) provides that, “[i]f the superior court lacks jurisdiction of an appeal or petition, and a court of appeal or the Supreme Court would have jurisdiction, the appeal or petition shall be transferred to the court having jurisdiction upon terms as to costs or otherwise as may be just, and proceeded with as if regularly filed in the court having jurisdiction.”

But by its terms, Section 396(b) does not apply here. This is not an issue of fundamental jurisdiction. The issue is whether the parties’ dispute belongs in the Civil Division or Probate Division of the Los Angeles Superior Court, which is a superior court with jurisdiction over the dispute. Moreover, there is no argument that “a court of appeal or the Supreme Court would have jurisdiction” over the FAC and Cross-Complaint, as required for transfer under CCP sec. 396(b). It is also unclear that these pleadings qualify as “petition[s]” for purposes of this section, and they clearly are not “appeal[s].” Finally, as a practical matter, the Court lacks a mechanism for transferring a case from the Civil Division to the Probate Division without an already-existing probate case (which could be the basis for a related case transfer under CRC 3.300). If the Court were able to simply transfer the civil case to the Probate Division, it would have proposed that rather than suggesting the civil case be dismissed and refiled in that Division—where it properly belongs for the reasons set forth above.

Here, the proper “course of proceeding [is] not specifically pointed out by this Code or the statute,” and “any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this Code.” (CCP sec. 187.) To place claims relating to the internal affairs of the Duerr Trust before the probate court, the parties must file appropriate probate petitions as to all claims concerning the internal affairs of Trusts (here, all claims other than the professional negligence cross-claim), and pay the required filing fees. After filing probate petitions, the parties must dismiss the corresponding civil claims and cross-claims without prejudice. The fees already paid for the civil complaint and cross-complaint do not apply to the new probate petitions. As these claims relating to the Trust are within the exclusive jurisdiction of the probate court and should not have been pursued in a civil action in the first place, the Court finds the parties are not unduly prejudiced by paying a second filing fee to pursue Trust claims in the proper forum. (See Prob. Code sec. 17000(a); Local Rule 2.3(a)(1).)

The parties are ordered to file probate petitions reasserting their claims relating to internal affairs of the Duerr Trust, including as to Albert’s mismanagement of the Trust and Jennifer’s distribution of settlement funds to beneficiaries of the Trust, and then dismiss the corresponding civil claims and cross-claims without prejudice. Albert is not ordered to refile the professional negligence claim in probate court.

The OSC is discharged. The Court sets a Status Conference Re: Filing of Probate Petitions for December 27, 2022 in Department 62 of the Stanley Mosk courthouse.

If the parties do not submit on the tentative, they are strongly encouraged to appear remotely by LA Court Connect.

[1] The Court uses the first names of parties herein for sake of clarity and per convention of the parties’ pleadings, without intending disrespect.

[2] To be clear, the parties are not in agreement here. (Plaintiffs' Response, p. 1 fn. 1 ("So there is no ambiguity, Plaintiffs . . . do not agree . . . that all of ‘the following facts and circumstances are undisputed’ . . . particularly including . . . Paragraphs 21 and 22 (Chicago Title settlement funds originally derived substantially if not exclusively from trust funds).”))