Judge: Mark H. Epstein, Case: 22SMCV01586, Date: 2023-01-09 Tentative Ruling

Case Number: 22SMCV01586    Hearing Date: January 9, 2023    Dept: R

The demurrer is OVERRULED.

Plaintiffs are Deborah Perlman Deem as “Trustee of the Deborah Perlman Deem Trust” and Jonathan Perlman as “Trustee of the Jonathan Perlman Trust.”  According to the operative complaint, Deborah (the court uses the individual’s first name to differentiate her as an individual from her as a trustee; no disrespect is intended) and defendant’s manager Matthew (the court uses the individual’s first name to differentiate him from Deborah, who also has Perlman in her name, and Jonathan Perlman; no disrespect is intended) are siblings (Jonathan is the third sibling; again, the court uses his first name but no disrespect is intended).  (All of the factual assertions in this paragraph come from the operative complaint.  The court is not making any independent findings nor is it suggesting that the facts alleged are true.  Rather, the court uses the complaint because, on demurrer, all factual allegations are presumed true.)  Their parents owned property and created three trusts to pass title of the property in thirds to each child.  Arnold Perlman—the father—made Deborah the trustee of each of the three trusts because she was an attorney and lived closest to him.  Plaintiffs here allege that when the trusts matured, the property was passed down to the three siblings as tenants-in-common, each with a one-third interest.  Deborah then created an entity known as 1736 Mandeville Lane, LLC (allegedly at her father’s request) and contributed each of the sibling’s respective interests to it.  As such, the LLC owned 100% of the property and the siblings were the LLC’s members.  While Deborah was the LLC’s manager, important decisions were made by unanimous consent.  Matthew did not like Deborah’s selection as the trustee.  He also opposed her request for monetary fees relating to work done concerning the LLC.  As a result, there was an agreement that Matthew could redeem his interest from the LLC and hold it in his own name.  That occurred in 2014 and his interest was distributed through a quitclaim deed to Brentwood 90049, LLC, the defendant in this case.  (The joint LLC will be known as the Mandeville LLC and the defendant will be known as the Brentwood LLC.  Plaintiffs here will be referred to as the Deem Trust and the Jonathan Trust.)  Deborah prepared the redemption agreement for Matthew to sign, but he refused to sign it.  The County Assessor has reassessed (upward) the property’s value.  In Fall 2018, Deborah and Jonathan transferred their interest from Mandeville LLC to their respective trusts via quitclaim deeds.  The trusts, of course, cannot be plaintiffs in a lawsuit as a trust entity, but plaintiffs here are suing in their capacity as trustees of the trusts that now hold the two-thirds (collectively) ownership interest in the property.  After learning that the taxes had been reassessed, plaintiffs tried to deal with the problem.  They later proposed that the parties hire an attorney, who then proposed another Redemption Agreement and Matthew signed that one.  Plaintiffs state that they proposed that the reassessed taxes and fees be split equally, but Matthew allegedly refused.  The upshot was that the Assessor declared the tax to be defaulted from the 2020-2021 year forward.  Plaintiffs now sue Brentwood LLC.  They seek partition (to which no demurrer has been filed) and compensatory adjustment, which is the subject of today’s motion.

According to defendant, Deborah is seeking the compensatory adjustment in her individual capacity, but she is not suing in that capacity—only as trustee of the Deem Trust.  Specifically, Deborah seeks payment for services that she rendered for the property.  However, as defendant notes, the Deem Trust had not been created at the time that the cost at issue was incurred.  The Deem Trust and the Jonathan Trust were created in 2018 and 2019, but the work regarding the Mandeville LLC was done earlier.  Thus, defendant argues, the trust is not entitled to any adjustment for Deborah’s services.  Plaintiffs also seek adjustments for defendant’s unpaid share of repairs and improvements to enhance the property’s value, as well as for taxes, payments of principal and interest on the mortgage, and other expenses incurred for the property’s benefit but for which Brentwood LLC did not contribute.  There are other expenses and theories as well.  (The arguments as to Deborah apply with equal force to the Jonathan Trust.)

Defendant contends that Deborah personally is a necessary party to bring the action.  The court is not sure why that is.  Deborah’s interest in the property is held by the Deem Trust.  The court agrees that although she is a beneficiary of that trust, that alone does not give her individual standing to assert a right held in trust—only the trustee can do that, which is why suit is brought in that capacity.  But the point is that the complaint is based on the notion that Brentwood LLC has not paid its fair share of reasonable expenses and the like and therefore an adjustment is appropriate.  The Deem Trust essentially serves as the successor-in-interest to the Mandeville LLC in part; specifically as to the Mandeville LLC’s rights in that portion of the property that was given over to the Deem Trust (and, again, the same would be true of the Jonathan Trust).  And the Mandeville LLC essentially serves as the successor-in-interest of the original trusts.  If, by way of example, an expense was paid that benefitted the property as a whole but the cost was borne completely by Mandeville LLC and disproportionately carried through to the Deem Trust, it is not clear to the court that the Deem Trust—through its trustee—does not have standing to assert the claim.  If the theory is that the cost was borne by Deborah individually (for example, she personally paid the attorney’s bill or she personally paid the property taxes), defendant seems to contend that Deborah needs to sue for it individually rather than as Trustee of the Deem Trust.  It is not clear to the court that Deborah can sue personally for it because the money was paid for the property’s benefit and she might not have a direct cause of action against Brentwood LLC, Mandeville LLC, or Matthew.  (She might have such a cause of action, but it is not clear to the court—it would depend on the surrounding facts and circumstances.)  It is also not clear whether the monies expended were expended by an individual personally or by the trust she or he controlled.  The bottom line is that it depends on the facts and circumstances, and demurrer is a poor way to get at that problem. 

And even if Deborah is a necessary or indispensable party for some aspects of the claim, it is far from clear to the court that she is indispensable to the entire claim.  This is a general demurrer.  It must be sufficient to resolve an entire cause of action, not just a part of a cause of action.  (Fire Ins. Exchange v. Superior Court (2004) 116 Cal.App.4th 446.)

Finally, the compensatory adjustment doctrine is an equitable one.  It is far from clear to the court that equity lacks the flexibility to deal with this problem.

The upshot is that the demurrer is OVERRULED.  Defendant has 10 days to answer.  Plaintiffs might want to consider amending the complaint to add Deborah (or Deborah and Jonathan) individually to the action to deal with any problems that might come up down the road.  After all, this is only a demurrer.  What is unclear to the court at present could become clearer in the context of a motion for summary judgment or adjudication or at trial.