Judge David J. Cowan, Case Number: BP063500, Date: 2023-08-07 Tentative Ruling

In the Matter of the Mark Hughes Family Trust, dated September 3, 1987, as amended

TENTATIVE RULINGS ON MOTIONS IN LIMINE OF BENEFICIARY AND OF FORMER TRUSTEES IN RE: ATTORNEY’S FEES PHASE OF TRIAL ON BENEFICIARY’S CLAIMS OF SURCHARGE RE: TOWER GROVE

By this motion, Beneficiary seeks to exclude any evidence related to whether the 2013 Settlement Agreement by and between, among other parties, Former Trustees and entities then under the control of Charles Dickens, including the debtor Tower Park Properties (“TPP”), in connection with the pending bankruptcy proceeding of that entity, was a “good deal.”

Former Trustees contend that because the Settlement Agreement was a “good deal,” they could not have reasonably anticipated that Beneficiary and FTI would have objected to the Bankruptcy Court approving that agreement, and that therefore the objections to the Settlement Agreement were a “superseding cause” for all further attorneys’ fees, thereby cutting off any liability they might have had for those. Beneficiary argues that the Court does not need to determine whether the Agreement was or was not a good deal (part of which agreement the 9^th Circuit Court of Appeals in any event found to be void) because the objections to the Settlement Agreement were reasonably foreseeable when Former Trustees sold Tower Grove to TPP when they knew Dickens did not have the ability to repay what amounts the entity had borrowed from Former Trustees to purchase the property or the financial means or experience to develop it.

In their Opposition to the Motion, Former Trustees assert four principal arguments:

First, the motion is improper because it is effectively a motion for reconsideration of the order denying Beneficiary’s motion for summary adjudication on the same issue; that FTI’s Objections to the Settlement Agreement were reasonably foreseeable (thereby defeating Former Trustees’ “intervening acts’ defense.) This Court ruled already on the summary adjudication motion that whether the Settlement Agreement was or was not a bad deal is a factual question and that it could not hold there was “no room for a reasonable difference of opinion” that FTI would necessarily object to approval of that agreement.

Second, as indicated above, whether the Objections to the Settlement Agreement were reasonably foreseeable is a question of fact, not of law. A motion in limine may not be used as a substitute for a dispositive statutory motion. (McMillin Cos. V. American Safety Indemnity Co. (2105) 233 Cal.App.4^th 518, 541)

Third, substantively, whether the Settlement Agreement was a “good deal” is relevant to whether it was reasonably foreseeable that FTI would object to approval of the Agreement. “The determination of whether the intervening act is foreseeable is a question of fact unless under the undisputed facts there is no room for a reasonable difference of opinion.” (Schrimscher v. Bryson (1976) 58 Cal.App.3d 660, 664)

- FTI was appointed as trustee ad litem to promote or forestall approval of the Agreement. See Brewer v. Teano (1995) 40 Cal.App.4^th 1024, 1037 (act of independent public officer breaks chain of causation)

- The Bankruptcy Court both approved the Agreement, as well as found FTI had breached the provision of the Agreement that it cooperate with approval of the Agreement by its objecting to approval.

- Further, Beneficiary through his Guardian had earlier consented to sale of Tower Grove for $23.75 million in cash and therefore it would have been reasonable to conclude that FTI would have agreed to a sale of Tower Grove for $62.5 million in cash – as provided for by the Agreement. Beneficiary’s reliance on the e-mail from former counsel for Former Trustees is irrelevant because foreseeability is determined as of the earlier sale date and moreover can be read in different ways.

- The damages Beneficiary seeks are for wrongful actions by FTI, not Former Trustees. Former Trustees appealed from the approval order because it did not believe the Agreement was in the best interests of the Trust.

Finally, even if whether the Agreement was a good deal is irrelevant to breaking the chain of causation for damages, this subject is still relevant to other defense of Former Trustees; specifically, failure of duty to mitigate, unclean hands and comparative negligence.

In his Reply, Beneficiary argues that the foreseeability of objections to approval of the Settlement Agreement can be determined without also hearing evidence as to the merits of the Agreement. He argues also that this requested ruling would not go to the merits of Former Trustees’ defense.

After review of these competing arguments, the Court initially rejects Former Trustees’ argument that this motion in limine is an improper motion for reconsideration of the order denying Beneficiary’s motion for summary adjudication. While there are overlapping issues, the relief sought here is slightly different and the governing statutes also differ.

On the other hand, the Court agrees with Forner Trustees that foreseeability is primarily a factual question and that this Court already rejected the possibility that it could be decided as a matter of law in concluding that a trier of fact may have found that there was room for a difference of opinion concerning whether to enter into the Settlement Agreement. As such, the Court cannot prior to trial simply exclude all evidence as to any merits to that agreement as irrelevant.

The Court rejects Beneficiary’s argument that the Court can decide foreseeability without hearing evidence as to the merits of the Agreement: While from the evidence the Court has already heard it may have been inevitable that TPP would seek a modification of the loan, and or file bankruptcy, the Court cannot now conclude without hearing evidence from what occurred when the Settlement Agreement was entered into whether any agreement that was reached would not have been in the Trust’s best interests. The Court will need to hear the pros and cons concerning the Trust’s options at that time -in the context of a bankruptcy reorganization controlled by a different set of rules than under state law.

In addition, the Court needs to assess if the Agreement reached merely protected Former Trustees’ own individual interests, as Beneficiary is claiming, or also sought to mitigate the loss the Trust incurred by Forner Trustees having entered into an agreement with Dickens in the first place. The Court cannot rule - without first hearing both sides’ evidence - that all possible agreements Former Trustees could reach with Dickens or TPP concerning future control of the Property would not be in the Trust’s best interests. For example, the Court does not know if investors other than Dickens were then involved or what equity they might have added that would have altered Dickens’ own inability to fund development of the property and repay what was owed.

Further, the Court needs to hear what FTI, as the Court appointed trustee ad litem, considered to be the best way to move forward. The Court has not heard that evidence to date, except for certain deposition testimony that did not provide the Court a clear picture of its position. Granting this motion would effectively prevent Former Trustees from presenting seemingly a principal part of its defense.

By this motion, Beneficiary seeks to exclude testimony of Former Trustees’ designated expert, Grant Steifel, as to the excessive amount allegedly charged by attorneys for “internal conferencing,” research and strategy where according to Beneficiary he (1) has no opinion on the amount of time they should have spent, the value or quality of the work performed or regarding the rates charged and (2) does not know about the substance and history of this litigation beyond a broad outline. His opinion was derived from putting fees into categories of work and comparing those with other (non-trust) matters he has worked on to determine if they were excessive. Beneficiary’s objection is that because the opinion is without foundation, it would not “assist the Court.”

In their Opposition, Former Trustees assert that Steifel elected not to give an opinion as to the amount of time that should have been spent precisely because Beneficiary’s expert, Andree Jardini, has been criticized by other trial courts for having given an opinion as to what the fees should be (as opposed to opining why the fees claimed are unreasonable or excessive.) In turn, they argue that Beneficiary cannot argue that Steifel may not give an opinion as to the excessiveness of certain fees where this was exactly what Jardini does when hired by a party challenging a fee request. Steifel does not need to have an opinion about the quality of the work or the rates because his opinions do not concern those matters. In turn, they argue that he is not required to have “intimate knowledge” of the underlying matter to be able to give opinions about the amount of time spent by different lawyers or as to the tasks billed, citing Naples Restaurant v. Coberly Ford (1968) 259 Cal.App.2d 881, 884, as well as multiple unpublished trial court decisions, for the proposition that an overly specific objection to the basis for expert testimony is not a basis to exclude expert testimony which can be sufficiently tested by cross-examination.

Former Trustees also seek to rebut the claims that Steifel’s opinions are without foundation and would not “assist the Court” to meet the requirements of Evidence Code sec. 801: Steifel has allegedly personally reviewed the 12,000 plus billing entries representing almost 24,000 hours of billable time. In that review, he has “unblocked” block billing representing multiple tasks and analyzed the levels of “transient timekeepers,” as well as internal lawyer conferencing, research or for clerical or overhead matters. In addition, he has assembled schedules and a proposed model to determine the reasonableness of the fees – consistent with his specialty in fee audits as to which he has provided expert testimony in more than 130 cases previously.

In his Reply, Beneficiary contends that Steifel’s fee model was not disclosed until submitting his direct testimony declaration and well after his deposition when he testified that he had no such opinion, citing Kennemur v. State of Calif. (1982) 133 Cal.App.3d 907, 920. They also cite to CCP sec. 2034.300 requiring that an unproduced report be excluded. Similarly, they contend that when his deposition was taken, he did not know about the details of the case and hence cannot now give opinions based on this newly acquired information. Finally, he argues that the references to Jardini are inaccurate. Ultimately, he contends Steifel’s opinions in the abstract stated at his deposition lack the necessary foundation, including as required under Cal. Rules of Prof. Conduct, Rule 1.5(b), concerning the reasonableness of fees.

After review of these arguments, the Court finds that the motion essentially points to reasons why the Court should not give any weight to Steifel’s claims. It appears that Steifel is qualified to give opinions concerning the reasonableness of the fees – an important issue at this trial – and that the way he assembled his opinions or the level of his understanding of the underlying litigation does not provide a sufficient basis to exclude them altogether. That said, the Court is concerned with the late production of a report with different opinions than stated at his deposition – that was raised for the first time in the Reply (and which the Court understands could not have been raised earlier) - and will hear from both parties on this issue when hearing objections to the declaration testimony at time of trial – which issue the Court is not now deciding.

By this motion, Former Trustees seek to exclude or limit Beneficiary’s rebuttal expert Jardini testifying as to the reasonableness of Beneficiary’s attorney’s fees on several grounds:

First, Jardini’s opinion lacks foundation because he allegedly did not review the individual entries on the invoices and instead relied on a summary his staff assembled, referred to as the “Outline of Services. (“Outline”)” The Outline does not include the number of hours for services. In support of this claim, Former Trustees point to decisions of other courts that rejected Jardini’s expert opinions on reasonableness of fees as lacking in foundation, as well as for other reasons, including lack of methodology.

Second, Jardini’s opinion as to Former Trustees’ fees exceeds what he is permitted to testify to as a rebuttal witness, under CCP sec. 2034.280(a), where Former Trustees’ fee expert, Steifel, did not give any opinion as to Former Trustees’ fees. Moreover, relatedly, comparison of one firm with another firm even in the same case may not be fair given differing roles and other factors. In turn, comparing how one firm defended Former Trustees in this case with what the firms representing FTI did in the post-removal litigation and bankruptcy proceedings with TPP is not valid. The context of these cases is wholly different.

Third, Jardini’s opinion as to reasonableness of fees incurred by FTI and Beneficiary with Winston & Strawn, Greenberg Traurig and the firms at which Richard Cleary practiced again exceeds what he is permitted to testify to as a rebuttal witness, where Steifel is not testifying to the reasonableness of their fees, instead only testifying to the excessiveness of certain categories of fees (such as attorney conferences and research) and the inefficiencies created by use of “transient timekeepers.”

First, Jardini used the Outline, but also reviewed all the underlying billing entries. The Outline merely assisted him in preparation of his opinion. Use of staff allowed him to provide a more reasonably priced audit than Steifel. Unlike Steifel, Jardini did familiarize himself with the details of the underlying litigation. The cases where Jardini was criticized were ones where he was challenging fees, not as here giving an opinion of reasonableness. Moreover, such concerns go to the weight to be given to his opinion, not to its admissibility as is the focus of a motion in limine, citing IRMO Winternitz (2015) 235 Cal.App.4^th 644, 653, Bermudez v. Ciolek (2015) 237 Cal.App.4^th 1311, 1340, n. 11.

Second and Third, Former Trustees cannot consistently contend that Jardini can only testify as a rebuttal witness where in the earlier valuation phase of trial they argued that their rebuttal expert, Robert Gutzman, should be able to testify in support of their case in chief. In any event, Jardini’s opinions are offered to rebut Steifel on matters he failed to consider, including the reasonableness of the fees under State Bar Rule 1.5. Reasonableness of fees is a rebuttal issue that goes to the credibility of the opinion, not an issue outside the scope of the opinions Steifel offered.

In their Reply, Former Trustees again rely on their argument that Jardini relied on a summary, not the entries themselves. In turn, they contend Beneficiary through its witness list designation is trying to go beyond the scope of a rebuttal opinion. Beneficiary should not be able to give a reasonableness opinion when Steifel did not do so.

Consistent with its ruling on Beneficiary’s motion in limine to exclude Steifel’s testimony, the Court also concludes that Former Trustees’ arguments about Jardini’s opinions likewise go to their weight; however much they try to argue that the Court should conclude they are without foundation and should be wholly excluded. Whether it was sufficient for Jardini to rely on his staff’s compilation will depend on what his staff did exactly and their office procedures. The Court still must hear that foundation testimony.

Pech v. Morgan (2021) 61 Cal.App.5^th 841, 849 & 856 is instructive in this regard: In Pech, the Court found that “factually, Jardini’s opinion about the reasonableness of fees is further undermined because he admitted that he did not have ‘the opportunity to perform a complete and thorough analysis of each invoice presented.’” (Emphasis added) Hence, while there may be question as to what weight the Court should give his opinion, the Peck court still upheld the trial court’s having considered his opinion and that she gave it some weight even if she did not find it persuasive.

Where, however, Steifel gave no opinion as to Former Trustees’ fees, Jardini should not be able to give an opinion as to those. There is nothing to rebut. By contrast, as to the reasonableness of Beneficiary and FTI’s fees, initially the Court recognizes that Jardini states such opinions are separate from his rebuttal opinion. Nonetheless, the Court finds that Former Trustees’ having elected to ask Steifel to give only an opinion as to certain issues as to the fees, rather than as to the fees overall, not preclude Beneficiary from countering those opinions by opining that the fees are still reasonable as w whole. This is within the scope of rebuttal. Former Trustees cannot limit the examination of fees solely on the issues they believe show the fees were too high. Beneficiary can still argue why they are nonetheless reasonable.

By this motion, Former Trustees seek to exclude any claim for attorney fee damages for which Beneficiary failed to produce any supporting documents in discovery, as he had agreed to do.

They contend that Beneficiary had previously identified in a report to the Court that he was seeking for this Tower Grove trial total fees of $17,042.302.46, comprised of twelve of fifteen separate matters the Winston & Strawn (“W&S”) law firm handled. However, Beneficiary has produced W&S invoices that total $14,376,897, several million dollars less. Former Trustees therefore seek to exclude any claim for W&S fees that exceed $14,376,89. Relatedly, Beneficiary contends it is now withdrawing its claim of fees for W&S to $15,020,296.49. Former Trustees contend that Beneficiary has not submitted any invoices for matters 8, 10 or 12. Finally, they contend that any claims based on invoices they received on September 21, 2023 (for matters 13, 14 and 15 should be excluded.)

In his Opposition, Beneficiary contends Former Trustees received 96% of the invoices over two years ago in May 2021 and that the balance of the invoices was for ones after the May 2021 response date of the subpoena. As to those, Former Trustees failed to make any supplemental demand. In any event, they were identified on the joint exhibit list (invoices from May through September 2021) and have now been produced. There was no prejudice to Former Trustees. Former Trustees have all invoices for all fees sought in this trial. Those fees are $15,020,296.49 representing fees of $14,376,897.15 for invoices produced previously plus $643,399.34 for invoices after May 2021. The $17,042,302.46 figure has been corrected. Unlike in the cases relied on by Former Trustees, Beneficiary has not failed to respond to discovery or withheld or concealed evidence. To the contrary, the production (by Beneficiary) of evidence parties (Former Trustees) have known about is detrimental to the merits of a case is not equivalent to prejudice, citing Gonzales v. Brennan (1965) 238 Cal.App.2d 69, 75-76.

In their Reply, Former Trustees indicate they made a supplemental request for documents “in late 2021,” shortly before the close of discovery. In turn, they indicate prejudice because Steifel has not had an opportunity to review those invoices they received on September 21, 2023. They therefore contend that these invoices which total $643,399 should be excluded.

After review of these briefs, the Court finds that Beneficiary should have produced the May through September 2021 invoices when they were requested in late 2021 – if they had them. Beneficiary misstates what occurred in stating that these documents were not requested previously. However, what the motion leaves unclear is whether Beneficiary did have them or if the issue was that W&S (or FTI) had not provided them to Beneficiary. It is not clear whether these invoices were in Beneficiary’s possession at that time. Absent evidence Beneficiary was withholding those invoices, imposing what would be effectively a significant sanction by excluding their use at trial would not seem warranted. Moreover, there is no evidence Steifel cannot now or before he testifies review those invoices and supplement his report. The Court will allow him to testify at the end of trial to have some time to do so. Hence, Former Trustees should suffer no material prejudice by this late production.

By this motion, Former Trustees seek to exclude the claim for attorneys’ fees incurred by Greenberg Traurig on behalf of Beneficiary in the sum of $1,835,357.65. The motion is made on two grounds:

First, under the so-called American rule, attorneys’ fees are not recoverable as either damages or costs and must be borne by the respective parties unless there is an agreement or statute providing otherwise. (CCP sec. 1021) They rely on in the trust context for this proposition, Leader v. Cords (2010) 182 Cal.App.4^th 1588, 1595 and Estate of Gump (1982) 128 Cal.App.3d 111, 118.

Second, the fees incurred by Greenberg Traurig were not paid by Beneficiary, but by FTI. They contend that this was discretionary on the part of FTI, for which they have no responsibility where the Trust instrument does not require trustees to pay legal fees incurred by a beneficiary. This cost to the Trust was the result of FTI’s action, not any action by Former Trustees.

First, the American Rule is not applicable here. FTI - as admittedly payor of Beneficiary’s fees - was not a party to the removal petition (brought by Beneficiary) and hence the American Rule applicable to parties is not controlling. This trial is in any event not about Beneficiary seeking recovery of his own fees as an item of costs of a prevailing party but for recovery by the Trust of fees as damages based on breach of fiduciary duty by Former Trustees under Civil Code sec. 3333, citing Oasis West Realty v. Goldman (2011) 51 Cal.App.4^th 811, 826 (fees can be recoverable as damages in tort). Further, Beneficiary points to comments of Judge Beckloff on p. 30 of the removal order as to the damages that would likely be recoverable resulting from Former Trustees’ actions, as well as p. 14 of an order of February 6, 2012, on a petition for instructions that FTI was to provide funding to Beneficiary for attorney’s fees. Hence, payment of fees to Beneficiary by FTI was not discretionary on its part.

Second, even if the American Rule was applicable, there is an applicable statute providing for fees: Probate Code sec. 15645. Beneficiary argues that where Former Trustees refused his request to resign and in the subsequent proceeding under Probate Code sec. 17200 they are removed, the Court may in its discretion award reasonable fees.[1]

First, the Trust had no legal obligation to pay Beneficiary’s fees. Specifically, they contend Beneficiary has not presented any order requiring trustees to pay Beneficiary’s fees.

Second, Beneficiary cannot avoid the American Rule by using a third person to recover those same fees that would not otherwise be recoverable by the prevailing party.[2]

Third, Probate Code sec. 15645 is not applicable here. They argue that Beneficiary has not met any of its three requirements; first, that a request was made prior to filing of a petition for removal that Former Trustees resign, second, that fees may only be sought under that section in the removal proceeding itself, and third, that any such request is untimely under Calif. Rules of Court, Rule 3.1702 – which provides that in civil cases a motion for statutory fees must be brought within the time for filing a notice of appeal.

Initially, merely because Probate Code sec. 17211 does not provide a basis for fees does not mean Beneficiary cannot recover fees. Former Trustees’ reliance on Leader, supra, is misplaced: In Leader, the Court determined whether Probate Code sec. 17211 applied in a limited way to contests based on the way a trustee accounted for the trust’s assets and liabilities or also more broadly to whether the trustee met his fiduciary duties in managing the trust. The Court reversed the trial court for not permitting fees to a beneficiary challenging an account on the latter basis; remanding to determine whether the opposition to the contest was “unreasonable and in bad faith,” as required for recovery under sec. 17211.

Leader is not on point: Here, to the extent these fees were incurred in seeking the removal of Former Trustees (as how the fees were incurred is not discussed in the motion), those were therefore not incurred in challenging an accounting. Even though the removal was indisputably based on breach of fiduciary duty, it was not in connection with the contest of an accounting.[3] Hence, recovery would not be permissible at least under sec. 17211. Beneficiary does not argue otherwise. Indeed, he argues Leader is not applicable here because it concerns a beneficiary seeking recovery of his own fees, not as here to make the Trust whole.

Gump, supra, also does not assist Former Trustees: In Gump, the Court reversed an order of surcharge -- disallowing trustee fees as to assets for which there was no evidence it mismanaged (even if there was evidence to justify a surcharge as to one asset of the trust the trustee did mismanage.) The Court also affirmed the denial of the beneficiary’s claim for attorneys’ fees based on the damage the trustee had caused, as well as under a common benefit theory. The Court applied CCP sec. 1021 in reaching its decision on the first point, noting the general rule that ordinarily each side bears its own fees in a negligence case – as was true there. In addition, significant here, the Court of Appeal found the trial court properly exercised its discretion in denying recovery under a common benefit theory where the beneficiaries challenging the trustee actions represented five out of the six beneficiaries and the sixth beneficiary’s interest had at most an 11% interest in the increased recovery. Here, where Beneficiary is the sole beneficiary, similarly a common benefit theory would not be available.

That said, Gump addresses neither that the fees sought here as damages and in turn that they are sought not per se for Beneficiary but for the Trust (even if here Beneficiary happens to be the sole beneficiary.) The Court therefore now addresses those points:

On the first point, Former Trustees have not shown why the Court should bar Beneficiary from presenting his case on entitlement to damages for the Trust’s losses. Their argument premised on the American Rule misses the point. beneficiary is making a claim for damages, not fees as the prevailing party.[4]

On the second point, however, whether trustees were required to pay Beneficiary’s fees (such that Former Trustees might have an obligation to pay damages) is not an issue that the Court can now decide on a motion in limine. This is an issue of substantive law (that has not been fully briefed), not a matter of exclusion of irrelevant evidence: On the one hand, Former Trustees have not shown why a trustee would have no such obligation given the role of a trustee to protect a beneficiary’s interests. On the other hand, Beneficiary has not pointed to any relevant provision in the Trust that would require them to pay Beneficiary’s fees. Though Beneficiary points to an order of February 6, 2012, it is not clear that this concerns the issue here. Former Trustees contend it does not.

In short, Beneficiary’s claim for fees as damages will have to be decided at trial.

[1] Apparently, Former Trustees contend this section is not applicable because Beneficiary did not seek the appointment of a “successor trust company,” as specified in sec. 15645. Beneficiary points to the prayer of his petition - that the Court appoint a designated successor trustee or other qualified, independent, professional fiduciary and designate and appoint an institutional trustee as the third new co-trustee as interim trustee – as meeting the terms of the statute, or if not, as “liberally construed” as a remedial statute – as is at play here on a petition to surcharge.

[2] Former Trustees also take on why Probate Code sec. 17211 would not be an exception to the American Rule, i.e., as a statute permitting fees. However, this is a non-issue because Beneficiary is not relying on sec. 17211. Accordingly, the Court also does not need to reach the further issue as to whether the trustees opposed the contest “without reasonable cause and in bad faith.”

[3] Whether fees incurred by Greenberg Traurig in bringing this claim for surcharge as part of his objections to Former Trustees’ accounting is a different issue. Whether such fees are recoverable is not part of this trial. Those are reserved for later proceedings, as stipulated to by prior trial management order filed.

[4] If Beneficiary’s claim were one for recovery as a prevailing party, it remains to be seen if Probate Code sec. 15645 would provide a statutory basis for fees.

- Sec. 15645 was enacted in 1990 – after this Trust was formed in 1987. The parties do not address whether it would need to apply retroactively to be effective – if that is even possible.

- Beneficiary has not shown this Trust was nonrevocable or it is deemed one in view of the passing of the trustor. In turn, where this case is a Probate case, not a Civil case, it is not clear the deadline in the Rules of Court that Former Trustees rely on is controlling.

- Nonetheless, whether fees had to be sought in the removal proceeding itself or could still be brought in this same case, no explanation is offered why these fees were not sought from Judge Beckloff – when he was still assigned to this case - in view of his having heard the lengthy removal trial. He would have been in the best position to determine the appropriateness of fees.

- In addition, whether Beneficiary sought a corporate trustee or the designated individuals as successor trustees has not been fully addressed. There was considerable litigation herein over who would be the successor trustees.

- Finally, the papers supporting the motion do not show Beneficiary made a request Former Trustees resign before filing the removal petition.