Judge: Monica Bachner, Case: 20STCV34158, Date: 2022-07-25 Tentative Ruling

Department 71: Attorneys who elect to submit on these published tentative rulings, without making an appearance at the hearing, may so notify the Court by communicating this to the Department's staff at (213) 830-0771 before the set hearing time.  See, e.g., CRC Rule 324(b).   All parties are otherwise encouraged to appear by Court Call for all matters.

Case Number: 20STCV34158    Hearing Date: July 25, 2022    Dept: 71

Superior Court of California

County of Los Angeles

DEPARTMENT 71

TENTATIVE RULING

The Court, on its own motion, reconsiders its December 20, 2021 Ruling on Submitted Matter as follows:

Defendant’s motion to strike irrelevant allegations in Paragraphs 16-66 of the first amended complaint is denied as to Paragraphs 25-64 and granted as to Paragraphs 16-24.  Defendant’s motion to strike Plaintiffs’ request for punitive damages is granted.  Plaintiff may amend as to Paragraphs 16-24 within 10 days.

Plaintiffs’ motion for leave to file a second amended complaint is moot. 

Plaintiffs Benjamin Chui (“Benjamin”) and Margaret Chui-Lee (“Margaret”) (collectively, the “Chuis”) as Co-Trustees of The King Wah Chui And Chi May Chui Declaration Of Trust Dated March 11, 1988, As Amended By Complete Amendment Of Declaration Of Trust Dated May 21, 1999, As Amended (the “Trust”) (collectively, “Plaintiffs”) move for leave to file a second amended complaint (“SAC”) to add allegations that Defendants were negligent in the preparation of the estate tax return of Chi May Chui (“Chui”), the mother of Margaret and grandmother of Benjamin.  (Motion, pg. 1; C.C.P. §437(a).)

Plaintiffs’ 5/18/22 request for judicial notice is denied. Plaintiffs are requesting the Court to take judicial notice of the absence of any records that a probate court has appointed an executor for the estate of Chi May Chui. (See P-RJN.) Although the Court may take judicial notice of court records (Evid. Code, § 452, subd. (d)), Plaintiffs have not “[f]urnish[] the court with sufficient information to enable it to take judicial notice of the matter.” (Evid. Code § 453(b).) Thus, without further information, Plaintiffs’ request is not necessarily “capable of immediate and accurate determination.” (Evid. Code § 452(h).)

Background

On September 8, 2020, Plaintiffs filed their initial complaint against Defendant Parker, Milliken, Clark, O’Hara, & Samuelian (“Defendant”) for legal malpractice in connection with its estate planning and legal services.  On July 29, 2021, Plaintiffs filed the operative first amended complaint (“FAC”).  In the FAC, Plaintiffs allege Defendant provided estate planning and legal services to King Wah Chui (“King Wah”) and his wife Chi May (collectively, “Trustors”) with respect to the formation of the Trust including handling various tax and estate planning matters in connection with the estates of King Wah and Chi May as provided in the Trust.  (FAC ¶11.)  Margaret is Trustors’ daughter and Benjamin is Trustors as the son of Robert Chui (“Robert”), Margaret’s brother and Trustors’ son.  Margaret and Benjamin are co-trustees of the Trust, and successor trustees to Trustors, the trustors and original trustees of the Trust.  (FAC ¶12.)  Trustors’ estate consisted of mostly income producing real estate located in Los Angeles County, which, per the trust, Trustors intended to transfer by specific gifts with 90% of assets to be distributed equally among their three children, Robert, Margaret, and Esther Chao (“Esther”), with the remaining 10% going to Benjamin, and that such transfers would be given without the accompanying liability for the estate tax based on the property.  (FAC ¶14.) 

In its ruling issued on December 20, 2021 (“December Ruling”), the Court granted Defendant’s motion to strike Plaintiffs’ claim for punitive damages (with leave to amend within 20 days) and Paragraphs 16-24 (without leave to amend) and overruled Defendant’s demurrer to FAC.  Specifically, the Court struck Paragraphs 16-24 [allegations that Defendant was negligent in preparing Chi May’s estate tax return] as irrelevant, false, or improper allegations in light of its ruling on the demurrer.  As such, the denial of leave to amend was based on the demurrer ruling with respect to these allegations, which were in support of Plaintiffs’ cause of action for legal malpractice.  The Court overruled the demurrer to the legal malpractice cause of action to the extent it was based on Defendant’s negligence in allowing King Wah to amend Trust A; however, the Court did not overrule the demurrer on the cause of action to the extent it was based on Defendant’s negligence in preparing Chi May’s estate tax return.  Specifically, the Court found Plaintiffs had not sufficiently alleged Defendant owed them, as successor trustees, a duty of care in connection with the tax return’s preparation. The Court noted Plaintiffs’ assertion as to the successor trustees’ standing to sue for Defendant’s alleged negligence in preparing the tax return, based on the trustees’ obligation to file the estate tax return, was not supported given Chi May’s estate executor was responsible for filing the estate tax return pursuant to 26 U.S.C.A. § 6012(b)(1).  The Court noted Plaintiffs did not allege Chi May did not have an estate executor or administrator such that any person in actual or constructive possession of Chi May’s property, i.e., the Trust’s trustees, would qualify as an “executor” for the purposes of filing estate tax returns.  Finally, the Court noted Plaintiffs did not allege the Trust, as opposed to the executor of Chi May’s estate, retained Defendant for the purposes of preparing the tax return so as to establish a duty in connection with the tax return’s preparation.

On January 21, 2022, the Court denied Plaintiffs’ January 19, 2022 ex parte application for: (1) clarification of the December Ruling; (2) in the alternative, shortening time on a motion for leave to amend; and (3) in alternative, for a stay pending writ review on the grounds there was no showing of irreparable harm, immediate danger, or any other basis for ex parte relief.  On February 18, 2022, Plaintiffs filed a petition for writ of mandate with the Court of Appeal seeking review of the Court’s December Ruling, which was denied on April 8, 2022.

Plaintiffs assert that on January 18, 2022, they reserved the first available hearing date, June 14, 2022, for a motion for leave to amend.  (Motion, pg. 2.)  However, Plaintiffs did not file the instant motion until May 18, 2022.  Prior to the June 14, 2022 hearing, Defendant filed an opposition and Plaintiffs, a reply.  The Court notes the instant motion seeks to add allegations of Defendant’s negligence in preparing Chi May’s estate tax return, allegations related to those stricken from the FAC in the December Ruling.  Namely, Plaintiffs seek to allege that the Trust, retained Defendant for the purposes of preparing the tax return so as to establish a duty in connection with the tax return’s preparation.

In their motion, Plaintiffs asserted that leave to amend should be granted because the Chuis and their predecessor trustees retained Defendant’s services in connection with its preparation of the Chi May estate tax return, which involved Trust property, and as such Plaintiffs seek leave to amend to allege that Defendant was retained on behalf of and paid by the Trust for purposes of preparing the estate tax return.  (Motion, pgs. 6-7.)  Plaintiffs also argue that Defendant’s assertion that Plaintiffs cannot cure the defects via amendment because Chi May’s estate had an executor improperly relies on extrinsic facts.  (Motion, pgs. 7-8.)  In opposition, Defendant primarily attacked the instant motion as a procedurally improper motion for reconsideration of the December Ruling. (Opposition, pgs. 6-8.)  Defendant also argued leave to amend would be prejudicial to Defendant given the approaching trial date, and that amendment would be futile.  (Opposition, pgs. 8-11.)  Specifically, Defendant argued Plaintiffs are judicially estopped from asserting King Wah was not the estate executor given they asserted he was the estate executor in connection with their efforts to obtain a private letter ruling (“PLR”) from the IRS to cure the alleged errors on Chi May’s estate tax return.  (Opposition, pg. 10.)  [The Court notes this argument relies on evidence that goes beyond the scope of the pleading.]  Plaintiffs’ reply disputed the contention that the instant motion amounted to a disguised motion for reconsideration and whether C.C.P. §1008 applies.

On June 14, 2022, the Court, on its own motion, ruled that it was considering reconsidering its December Ruling to strike Paragraphs 16-24 without leave to amend pursuant to Le Francois v. Goel (2005) 35 Cal.4th 1094, 1108.  At the hearing, the Court noted it was considering such reconsideration given that the Internal Revenue Code §2203 definition of “executor,” in instances where no executor appointed, includes any person in actual constructive possession of the decedent’s property, pursuant to California law.  (Hearing Transcript at 1:25-2:6.)  The Court continued the hearing on the motion to July 25, 2022, to allow Defendant to file an opening brief, Plaintiffs an opposition brief, and Defendant a reply brief thereto given the Court’s inclination to reconsider its ruling on the motion to strike originally brought by Defendant and to address the pending motion for leave to amend in light thereof.

Sua Sponte Reconsideration of December Ruling

“[S]tatutes dealing with reconsideration of rulings may constitutionally limit the parties’ ability to file repetitive motions, but not the trial court’s ability, on its own motion, to reconsider its prior interim orders so it may correct its own errors…” (Le Francois v. Goel, supra, 35 Cal.4th at 1094.)  “Unless the requirements of [C.C.P. §437c(f)(2) or C.C.P. §1008] are satisfied, any action to reconsider a prior interim order must formally begin with the court on its own motion. To be fair to the parties, if the court is seriously concerned that one of its prior interim rulings might have been erroneous, and thus that it might want to reconsider that ruling on its own motion… it should inform the parties of this concern, solicit briefing, and hold a hearing.” (Id. at 1108.)

In supplemental briefing, Defendant asserts leave to amend the allegations struck in the December Ruling would be futile since Plaintiffs, as successor trustees of the Trust, cannot allege the existence of a fiduciary duty owed to the Trust in connection Defendant’s preparation of Chi May’s estate tax return, given Defendant performed this service for King Wah in his individual capacity as executor of Chi May’s estate, and not as trustee of the Trust.  (Supp-Brief, pgs. 7-.)  Specifically, Defendant asserts the tax return itself demonstrates King Wah filed the Chi May estate tax return individually in the capacity of an executor of the estate of Chi May, and not in the capacity as a trustee of the Trust.  (Supp-Brief, pgs. 8-; Decl. of Smith, Exh. 5 [Estate Tax Return].)  Defendant asserts this contention is further supported by the following: (1) the tax return’s estate tax is calculated on the total value of the estate, not the value of the assets allocated to the Trust; and (2) Plaintiffs’ submissions to the IRS in connection with their request for a PLR refer to King Wah as the executor of Chi May’s estate and that King Wah had retained defendant in that capacity to prepare the estate tax return.  (Supp-Brief, pgs. 8-9.)  Second, Defendant argues that contrary to Plaintiffs’ assertions, 26 U.S.C. §2203 does not require an estate executor be appointed by the Court, and even if it did, Plaintiffs cannot allege facts suggesting King Wah filed the tax return as a trustee because the tax return addresses the entire estate not just Trust property.  (Supp-Brief, pgs. 9-11.) 

In response, Plaintiffs assert the use of the term “executor” in IRS documents does not conclusively establish King Wah was acting in any capacity other than as trustee of the Trust in filing those documents and, accordingly, does not preclude Plaintiffs from amending the pleading to so allege. (Supp-Response, pgs. 3-4.)  Plaintiffs contend the use of the term “executor” in the IRS filings can only be understood in the context of the Tax Code and does not support any assertion that King Wah qualified an “executor” under California law for purposes of precluding Plaintiffs from alleging he acted as trustee in filing the estate tax return. (Supp-Response, pg. 5.)  As to Defendant’s assertion that the Chi May tax return concerned property of the estate in its entirety as opposed to Trust property, Plaintiffs assert the fact $3,915.55 of personal effects did not go into the Trust does not affect who was obligated to prepare the estate tax return, and accordingly for whom Defendant prepared it, which Plaintiffs intend to allege was the Trust’s trustee and not the estate’s executor.  (Supp-Response, pg. 5.)  Plaintiffs also assert that notwithstanding the Tax Code’s lack of a requirement that an executor must be court-appointed, under California law an estate’s executor must be court-appointed and the fact a person is named an executor in a decedent’s will does not automatically give that person a right to act on the estate’s behalf in such capacity.  (Supp-Response, pg. 7.)  Finally, Plaintiffs argue that, in the alternative, the malpractice cause of action is an asset of the Trust given the Trust holds all assets of King Wah’s estate including any right to recovery against Defendant based on their alleged legal malpractice, and trustees have standing to pursue any claim pertaining to Trust assets.  (Supp-Response, pgs. 7-8.)

In their supplemental reply, Defendant argues that notwithstanding the IRC Code §2203 provision providing that a statutory executor can be anyone in possession of property of the estate, i.e., a trustee, Plaintiffs cannot meet their burden of actually alleging King Wah filed the estate tax return in his capacity as trustee of the Trust.  (Supp-Reply, pg. 4.)  The proposed SAC alleges the Trust retained and paid Defendant for purpose of preparing the tax return but does not allege that King Wah was acting as trustee of the Trust or that the Trust itself filed the tax return, facts Defendant argues Plaintiffs cannot allege.  (Supp-Reply, pgs. 4-5.)  Defendant disputes Plaintiffs’ assertion that the lack of a court order appointing King Wah executor of the estate meant that his filing of the estate tax return was done without the estate’s authority given he was appointed estate executor by Chi May’s will.  (Supp-Reply, pgs. 6-7.)  Finally, Defendant opposes Plaintiffs’ alternative argument that the right to assert a malpractice claim on behalf of Chi May’s estate became Trust property for which Plaintiffs have standing to sue given a legal malpractice claim cannot be assigned, and even if it could be, such assignment does not occur automatically, and Plaintiffs have not alleged that a court order transferred the right to sue for legal malpractice from the estate to the trust.  (Supp-Reply, pgs. 7-8.) 

Taking into consideration its own reasoning in issuing the December Ruling and the arguments submitted by the parties in their supplemental briefing, the Court finds reconsideration of the December Ruling is warranted.  Specifically, the Court reconsiders its order striking Paragraphs 16-24 without leave to amend and grants Plaintiffs leave to amend as to these paragraphs.  As noted above, in its December Ruling, the Court noted it was not overruling the demurrer to the malpractice cause of action based on Defendant’s negligent preparation of the estate tax return, noting Plaintiffs had not alleged the Trust, as opposed to the executor of Chi May’s estate, retained Defendant for the purposes of preparing the tax return so as to establish a duty in connection with the tax return’s preparation.  However, the Court did not address whether this defect could be cured via amendment.  The denial of leave to amend suggests the Court found this defect could not be cured via amendment; however, there is no discussion as to that finding or its basis. 

After considering the arguments in supplemental briefing, the Court finds leave to amend the pleading is warranted and accordingly reconsiders denying the same.  Defendant’s assertion that amendment of these allegations would be futile and Plaintiffs cannot state a claim thereon depends on the factual issue of whether Defendant prepared the estate tax return for King Wah in his capacity of trustee of the Trust or as the executor of the estate.  At the pleading stage the allegations are taken as true, and the proposed SAC demonstrates Plaintiffs seek to allege that the Trust retained Defendant to prepare the estate tax return and the estate tax return was filed on behalf of the trust.  Defendant concedes that it would be possible for a trustee of a Trust in possession of property to file an estate tax return as to that property.  As such, Plaintiffs have demonstrated they can allege facts suggesting Defendant owed the Trust a duty of care in connection with its preparation of that tax return so as to assert a legal malpractice cause of action against Defendant based on their role in preparing the return.  In addition, Plaintiffs assert

Based on the foregoing, the Court reconsiders its ruling and allows Plaintiffs leave to amend as to Paragraphs 16-24 within 20 days.

The Court recognizes granting Plaintiffs leave to amend at this stage may cause a continuance of the trial date and affect the pending motion for summary judgment, which does not address the legal malpractice theory supported by the allegations that were struck in the December Ruling.  In reconsidering the December Ruling, the issue of prejudice is not before the Court.  However, the Court notes Defendant has been on notice as to Plaintiffs’ intent to amend these allegations since January 2022, and Defendant’s assertion that it will be prejudiced by any leave to amend at this stage is based on being able to maintain its current summary judgment date and trial date.  There is no evidence suggesting a delay of trial will result in prejudice to Defendant. 

In light of the Court’s reconsideration of the December Ruling, Plaintiff’s motion for leave to file a SAC is moot.

Dated:  July _____, 2022

Hon. Monica Bachner

Judge of the Superior Court