Judge: David J. Cowan, Case: BP063500, Date: 2025-02-28 Tentative Ruling


Case Number: BP063500    Hearing Date: February 28, 2025    Dept: 200

LOS ANGELES SUPERIOR COURT

WEST DISTRICT - BEVERLY HILLS COURTHOUSE

DEPT. 200

 

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

Case No. BP063500

 

TENTATIVE RULINGS ON MOTIONS OF FORMER TRUSTEES TO COMPEL FIDUCIARY TRUST INTERNATIONAL TO PRODUCE FURTHER DOCUMENTS, TO COMPEL BENEFICIARY TO RESPOND FURTHER TO CERTAIN DISCOVERY AND TO CONTINUE TRIAL RE: SURCHARGE FOR PHANTOM INCOME TAXES RE: TOWER GROVE

Date: February 28, 2025, 8:30 a.m.

 

         The Court has reviewed the motions, oppositions and reply papers.

 

Motion to Compel as to FTI

 

          Beneficiary, in seeking damages for the Trust, based on paying more in taxes that it should have to do so, has waived any claim of privilege to withhold its tax returns during the time-period when these taxes were paid or used to offset income. (Schabel v. Superior Court (1993) 5 Cal.4th 704, 719-720)

           Moreover, the lesser privacy concerns of these entities as opposed to of an individual (see SCC Acquisitions v. Superior Court (2015) 243 Cal.App.4th 741, 755-756)) are outweighed here by the need for review of these returns, as discussed below. In addition, there is already a protective order in place here to avoid any unnecessary disclosure.

          Former Trustees have shown “good cause” to obtain the specific documents requested, for the reasons set forth in the Declaration of Harry Cendrowski, Former Trustees’ expert on the tax rules at issue here – consistent with Wilson v. Superior Court (1976) 63 Cal.App.3d 825. The relevance of these documents (including K-1’s) arises from the tax disputes explained in the Court’s December 5, 2024 ruling denying the cross-motions for summary adjudication. These documents include the returns not only of the two LLCs with an interest in Tower Grove (that the Trust wholly owned) (HIP and MH2H) but also of the Trust. As the Court understands it, taxes are paid at the Trust level, not at the LLC level, but the basis for that tax would be derived from the LLC returns. Though the LLCs are apparently “pass-through” entities for tax purposes, there is still a need to review what they are “passing through” to determine what the Trust should be paying. It is also not a valid argument that this is overly burdensome for FTI to produce these returns where Beneficiary is seeking surcharge against former Trustees for all these years. The amount sought in surcharge on this basis (some $32 million) justifies Former Trustees’ interest in testing the competing claim of Beneficiary why payment of these taxes was necessary.  

          The Court rejects the argument that Former Trustees have delayed seeking these records. The Court finds that these requests were timely given the short window for discovery in view of Beneficiary seeking this additional item of damages that it had not previously sought. Similarly, the Court does not find this inquiry is an attempt to delay trial or that this discovery is not necessary. 

GRANTED

 

Motion to Compel as to Beneficiary

          The foregoing conclusions are equally applicable here, including but not limited to the documents that Former Trustees sought from Deloitte by subpoenas. The Court reaches the same conclusions in terms of the interrogatories.

          In addition, that there is a common-interest privilege as between Beneficiary and FTI does not excuse production of the tax documents themselves.

          Further, production of Beneficiary’s own returns for the same time-period is required.

          Production of these documents and further responses to interrogatories is also relevant to Former Trustees’ statute of limitations defense in showing whether Beneficiary and or his agents knew that they were paying these taxes. The Court rejects Beneficiary’s claim that he should not have to respond further or produce documents merely because he had other people or entities handle his taxes for him.

          Also, the Court has not yet decided, and or the parties have not yet entered a stipulation, that the Court should use the date of valuation applied in an earlier phase of trial as the sale date (July 14, 2022) for purposes of determining what taxes would be due and calculation of basis. Beneficiary’s assumption that this would be the date used is erroneous. If this date is used, the parties need to exchange their respective claims and supporting documents on that assumption, including of their experts.

           Responses to both the document requests and interrogatories (as well as verifications) need to be provided without objection in order that Former Trustees know what documents Beneficiary may have. If Beneficiary does not have specific documents, he should state so explicitly. That documents may have been produced already is insufficient – unless agreement as to what those are precisely can be obtained.

          Beneficiary’s request for monetary sanctions is denied. Former Trustees are the prevailing parties on this motion.

 

GRANTED

Motion to Continue Trial

 

          As discussed below, the Court does not find this motion is an improper attempt to delay trial. This is Former Trustees’ first such request. The three months extension sought is not unreasonable under the circumstances.

          Former Trustees do not yet have all the necessary information to be able to defend the case, including having taken the deposition of Provident Financial (Beneficiary’s tax preparers) and would be unduly prejudiced were trial to now proceed on the scheduled March 10, 2025 trial date. Further, according to Former Trustees, Beneficiary has yet to comply with the Court’s rulings at a January 21, 2025 IDC. In addition, neither party is ready to proceed where there has not been an exchange of expert information concerning the consequences of any agreed upon effective sale date. Trial will be significantly shortened once the parties have completed that exchange of information and can determine what is and is not agreed upon. The parties should be prepared to discuss suggested trial dates they are available, taking account also of scheduling a FSC -- before which all trial documents and any motions in limine would need to be filed. It may be there are certain rulings that can be made concerning tax law that could be made in advance of trial. Counsel should meet and confer before the hearing to discuss what makes most sense in view of the foregoing.

GRANTED