Judge: Stephen I. Goorvitch, Case: 24STCP01673, Date: 2025-03-05 Tentative Ruling
Case Number: 24STCP01673 Hearing Date: March 5, 2025 Dept: 82
Mark Anderson v.
State Bar of California Client Security Fund
Case No. 24STCP01673
THE COURT WILL NOT
CALL THIS MATTER UNTIL 10:30 A.M.
[Tentative] Order Denying Petition for Writ of Mandate
INTRODUCTION
Petitioners were beneficiaries to a trust that invested in a life insurance policy. An attorney became the successor trustee to the trust and sold the insurance policy before both insured parties died without Petitioners’ consent. Eventually, Petitioners obtained judgments against the attorney and sought reimbursement from the California State Bar’s Client Security Fund. The Client Security Fund Commission denied Petitioners’ applications for reimbursement. Now, Petitioners seek a writ of mandate directing the State Bar of California Client Security Fund (“Respondent” or “CSF” or “Client Security Fund”) to set aside its final decision. The court denies the petition because Petitioners filed their opening brief late and Petitioners do not cite to the administrative record in the opening brief. The court also denies the petition on the merits because Petitioners did not own the policy at issue; the trial court did not find that the losses were the product of fraud or attorney misconduct; and substantial evidence supports the Client Security Fund’s decision to deny Petitioners’ applications.
BACKGROUND
A. The Client Security Fund Rules
The State Bar of California has a Client Security Fund that may reimburse individuals who have suffered a loss of money or property because of the dishonest conduct of an attorney. (Rule 3.420(A).)[1] Applications for reimbursement are decided by the five-member Client Security Fund Commission (the “Commission”). (Rule 3.421(A).) Whether to reimburse clients’ losses “are solely within the discretion of the State Bar. (Rule 3.420(B).) Rule 3.430 sets forth the general requirements for reimbursement:
To qualify for reimbursement, an applicant must establish a loss of money or property that was received by an active attorney who was acting as an attorney or in a fiduciary capacity customary to the practice of law, for instance as an administrator, executor,
trustee of an express trust, guardian, or conservator. . . . The loss must have been caused by dishonest conduct as defined in these rules.
(Rule 3.430(A) & (B).) “Dishonest conduct” is defined to include: “(A) Theft or embezzlement of money, the wrongful taking or conversion of money or property, or a comparable act” and “(E) An act of intentional dishonesty or deceit that proximately leads to the loss of money or property.” Further, “[t]o qualify for reimbursement, the application must establish that the attorney whose dishonest conduct is alleged has … been disbarred [or] disciplined” by the State Bar. (CSF Rule 3.432(A)(1).) However, as relevant in this case, the CSF cannot reimburse for “interest or a consequential loss,” “a loss from a loan or investment” (unless it meets the requirements of Rule 3.436), or a civil judgment (unless the judgment meets the requirements of Rule 3.434(B)(5)). (Rule 3.434(B)(1), (4), (5).)
B. The Commission Denies Reimbursement on Petitioners’ Applications
Petitioners were trust beneficiaries who invested between $8,000 and $250,000 in a life insurance policy on the lives of Gwen and James Duffy (“Duffy Policy”). (AR 916, 925-26.) The Duffy Policy was owned by Oxford Financial Group, Inc. Trust (“OFG Trust”). (AR 220, 916.) Petitioners were to receive a proportional share of a $3 million death benefit after the death of the last insured party. (AR 220, 916.)
David L. Kagel (“Kagel”), an attorney, became the successor trustee of the OFG Trust on or about July 20, 2011. (AR 917, 1033.) On or about February 3, 2012, Kagel sold the Duffy Policy for $340,000 before both insured parties died. (AR 917, 1032-34.) In the administrative proceedings, Petitioners asserted that they did not consent to the sale and were unaware of the sale until after it was completed. (AR 917 fn. 4, 1033.) Out of the $340,000 deposited into the OFG Trust as proceeds for the sale, $242,223.37 were distributed “to [Kagel] and to Erwin Legal PC for fees, to Applicant Melody Pfingsten in repayment for the insurance premium loan, and for bank fees.” (AR 917.) In a letter dated April 20, 2012, Kagel informed Petitioners that $97,776.63 was retained in the OFG Trust and would be “distributed to the investors.” (Ibid.) According to Petitioners, the $97,776.63 that remained in the OFG Trust was never distributed to them. (Ibid.) Within the next year, the Duffy Policy was resold for $2.142 million. (AR 1034.)
Some, but not all, of the Petitioners retained the Murrin Law firm to file a civil lawsuit against Kagel. (AR 916 fn. 2, 918.) On December 6, 2012, the plaintiffs filed a complaint entitled D. Mark Anderson, et al. v. David L. Kagel, Case No. BC496876 (hereafter the “civil action” or “civil lawsuit”), which alleged 10 causes of action, including breach of fiduciary duty, negligence, and constructive fraud. (AR 918.) On February 17, 2016, after a three-day bench trial, the court found Kagel liable for breach of fiduciary duty, negligence, and constructive fraud. (AR 919.) The court entered 18 separate judgments in favor of the plaintiffs, totaling $1,317,653.25. (Ibid.) The plaintiffs in the civil lawsuit recovered $250,000 from Kagel and filed Acknowledgements of Partial Satisfaction of Judgment in that amount in the civil lawsuit. (AR 920.)
On February 1, 2020, the last surviving insured party for the Duffy Policy died. (AR 920.) Petitioners were to receive a proportional share of the death benefit after the death of the last insured party. (AR 220, 916.) Accordingly, Petitioners’ investment in the Duffy Policy did not mature until February 1, 2020. On March 22, 2023, the California Supreme Court ordered Kagel to be disbarred effective April 21, 2023. (Ibid.)
Petitioners had filed applications for reimbursement to the Client Security Fund related to Kagel’s sale of the Duffy Policy. (AR 5-197.) On September 27, 2023, the Commission issued a tentative decision denying the applications. (AR 916-23.) On February 22, 2024, after considering objections, the Commission issued its final decision denying the applications. (AR 1067–73.) In summary, the Commission found:
The record has established, and the Commission is persuaded, that the individual Applicants did not own the Duffy policy. The Applicants were instead beneficiaries of the OFG Trust which owned the Duffy policy. Applicants were entitled to their fractional interest of the trust only upon maturity of the policy following the last to die as between James and Gwen Duffy. The Commission therefore concludes that since Respondent sold the policy during the life of the Duffys, any asserted loss resulting from the sale of the policy was incurred by the policy’s owner, the OFG Trust, and not by the Applicants.
(AR 1070.)
STANDARD OF REVIEW
Under Code of Civil Procedure section 1094.5(b), the pertinent issues are whether the respondent has proceeded without jurisdiction, whether there was a fair trial, and whether there was a prejudicial abuse of discretion. An abuse of discretion is established if the agency has not proceeded in the manner required by law, the decision is not supported by the findings, or the findings are not supported by the evidence. (Code Civ. Proc. § 1094.5(b).)
Because reimbursement from the Client Security Fund is discretionary, and because Petitioners have no vested or fundamental interest in the Client Security Fund, the court applies the substantial evidence standard of review. (Johnson v. State Bar (1993) 12 Cal.App.4th 1561, 1566-67.) Substantial evidence is relevant evidence that a reasonable mind might accept as adequate to support a conclusion (California Youth Authority v. State Personnel Board (2002) 104 Cal. App. 4th 575, 584-85), or evidence of ponderable legal significance which is reasonable in nature, credible and of solid value. (Mohilef v. Janovici (1996) 51 Cal. App. 4th 267, 305 n. 28.) Under this standard of review, “[c]ourts may reverse an [administrative] decision only if, based on the evidence …, a reasonable person could not reach the conclusion reached by the agency.” (Sierra Club v. California Coastal Com. (1993) 12 Cal.App.4th 602, 610.)
Petitioners bear the burden of proof and must demonstrate, by citation to the administrative record, that the evidence does not support the administrative findings. (Strumsky v. San Diego County Employees Retirement Assn. (1974) 11 Cal.3d 28, 32; Shenouda v. Veterinary Medical Bd. (2018) 27 Cal.App.5th 500, 513.) “[A] trial court must afford a strong presumption of correctness concerning the administrative findings.” (Fukuda v. City of Angels (1999) 20 Cal. 4th 805, 817.)
The court exercises its own independent judgment on questions of law arising in mandate proceedings. (Christensen v. Lightbourne (2017) 15 Cal.App.5th 1239, 1251.) Interpretation of a statute or regulation is a question of law subject to independent review. (Ibid.)
DISCUSSION
A. Petitioner’s Opening Brief Was Untimely
As an initial matter, Petitioner’s opening brief is untimely, and Respondent’s counsel argues that the court should deny the petition on this basis alone. The original trial setting conference was set for August 30, 2024, but Petitioner’s counsel had not serve the petition by August 23, 2024. Therefore, the court continued the trial setting conference and issued an order to show cause why sanctions should not be imposed. (See Court’s Minute Order, dated August 23, 2024.) The court held the trial setting conference on October 4, 2024. (See Court’s Minute Order, dated October 4, 2024.) The court set trial for March 5, 2025, and ordered the opening brief to be filed and served at least 60 days in advance of trial, which was Monday, January 5, 2025. (See ibid.) Petitioner’s counsel filed the opening brief on January 15, 2025, which was untimely. Petitioner’s counsel did not file a stipulation or an ex parte application seeking an extension of the deadline.
Petitioner’s counsel previously filed a declaration alleging that she filed the opening brief late because Respondent did not file its answer until November 8, 2024, and did not produce the administrative record until December 6, 2024. (See Robson Decl. ¶ 2.) The court finds that Respondent timely produced the administrative record to Petitioners on October 9, 2024, and timely filed its answer on November 8, 2024. (King Decl. ¶¶ 19-20; Code Civ. Proc. § 1089.5.) Indeed, Respondent’s counsel provides an email—dated October 9, 2024—with a link to download the administrative record. (King Decl. Exh. 15.) Even if Petitioner’s counsel received the administrative record on December 6, 2024, she still had 30 days to prepare the opening brief and could have filed an ex parte application requesting an extension if necessary. Accordingly, the petition for writ of mandate is denied on this basis.
B. Petitioners Did Not Cite to the Administrative Record
In the alternative, the petition for writ of mandate is denied because Petitioners did not cite to the administrative record. In this administrative writ proceeding, Petitioner bears the burden of proof to demonstrate, by citation to the administrative record, that substantial evidence does not support the administrative findings. (Strumsky v. San Diego County Employees Retirement Assn. (1974) 11 Cal.3d 28, 32; Steele v. Los Angeles County Civil Service Commission (1958) 166 Cal. App. 2d 129, 137.) Significantly, Petitioner “must identify (with citations to the record) the factual findings made by the board that he or she is challenging and demonstrate (with citations to the record) why those factual findings were against … the evidence.” (Shenouda v. Veterinary Medical Bd. (2018) 27 Cal.App.5th 500, 513.) A reviewing court “will not act as counsel for either party to an appeal and will not assume the task of initiating and prosecuting a search of the record for any purpose of discovering errors not pointed out in the briefs.” (Fox v. Erickson (1950) 99 Cal.App.2d 740, 742.) “Judges are not like pigs, hunting for truffles buried in the [record].” (United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991.) “When an appellant fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority, we treat the point as waived.” (Nelson v. Avondale HOA (2009) 172 Cal.App.4th 857, 862-863.)
Petitioners’ opening brief does not include any citations to the record. Accordingly, Petitioners have not met their burden of proof to establish a prejudicial abuse of discretion in the administrative decision. The court denies the petition for writ of mandate on this basis.
C. Petitioners Did Not Own the Duffy Policy
In the alternative, the petition for writ of mandate is denied because Petitioners “did not own the Duffy policy.” (AR 1070.) Instead, the Commission found, Petitioners were “beneficiaries of the OFG Trust which owned the Duffy policy” and “any asserted loss resulting from the sale of the policy was incurred by the policy’s owner, the OFG Trust, and not by” Petitioners. (AR 1070.) Petitioners fail to address this finding in their opening brief and, therefore, forfeit any challenge. (See Shenouda, supra, 27 Cal.App.5th at 513; Fox, supra, 99 Cal.App.2d at 742; Nelson, supra, 172 Cal.App.4th at 862-863.) Furthermore, even if considered, Petitioners do not show a prejudicial abuse of discretion in this finding. “To qualify for reimbursement, an applicant must establish a loss of money or property that was received by an active attorney who was acting as an attorney or in a fiduciary capacity customary to the practice of law.” (CSF Rule 3.430(A).) Substantial evidence shows that, at the time of the loss, the funds were owned by the OFG Trust, not the Petitioners, as their investments had not matured. (AR 922, 1069, 220, 227, AR 5-197.) Because it is uncontested that the OFG Trust owned the Duffy Policy at the time of sale, a reasonable person could find that reimbursement should be denied because Petitioners did not establish a loss of their own money or property as required by the CSF Rules. Therefore, the petition for writ of mandate is denied on this basis.
D. The Trial Court Did Not Find Fraud or Attorney Misconduct
Petitioners contend that they suffered a reimbursable loss under the CSF Rules, because the trial court “determined that Kagel’s actions constituted dishonest conduct resulting in the loss of property.” (Opening Brief (“OB”) 4:1-2.) The trial court did not find fraud or attorney misconduct. Instead, the trial court found that Kagel “either outright stole the proceeds of the OFG Trust or, alternatively, his stewardship of the OFG Trust’s assets was so lamentably bad that he negligently allowed the OFG Trust to dissipate.” (AR 1043 [emphasis added].) The court found that Kagel’s conduct “was either negligent or fraud.” (Ibid. [emphasis added].) Thus, the trial court did not necessarily find that Kagel engaged in “dishonest conduct” within the meaning of CSF Rule 3.431.
As the Commission stated, the Client Security Fund “does not reimburse for all violations of law, does not pay judgments, sanctions or restitution orders, and does not provide reimbursement for damages, lost interest, lost or anticipated profits, negligence, malpractice, or other consequential losses.” (AR 921, 1068; CSF Rules 3.434, 3.436.) Petitioners may have viable civil claims, but “such claims and any corresponding entitlement to recovery are separate and distinct from Applicants’ qualifications for reimbursement under the [CSF] rules and the Fund’s policies.” (AR 922, fn. 11.) Exercising its independent judgment on the questions of law, the court concludes that the Commission correctly interpreted the CSF Rules in these statements. Petitioners have not developed a persuasive argument to the contrary.
Finally, the Commission did not opine on Kagel’s misconduct. Rather, the Commission denied reimbursement because Petitioners did not establish a “loss” under the CSF Rules. (AR 1070.) Petitioners do not show a prejudicial abuse of discretion in that finding.
E. Substantial Evidence Supports the Commission’s Decision
Finally, substantial evidence supports the Commission’s finding that Petitioners were not entitled to reimbursement for the $97,776.93 in undistributed sale proceeds, which were apparently retained by the OFG Trust after the sale of the Duffy Policy. The Commission reasoned that “while [Kagel’s] failure to distribute those funds might fall within the scope of rule 3.431(A), [Kagel’s] $250,000.00 partial satisfaction of judgment then reduced that asserted loss to zero.” (AR 1070.) Petitioners do not squarely challenge this finding. (OB 3-4.) The plaintiffs in the civil lawsuit recovered $250,000 from Kagel and filed Acknowledgements of Partial Satisfaction of Judgment in that amount. (AR 920.) Thus, substantial evidence supports the Commission’s finding that the alleged $97,776.93 was reduced to zero.
Petitioners argue: “The State Bar’s denial of reimbursement based on the $97,776.63 figure is legally and factually incorrect. This amount represents only a fraction of the true losses. The proper valuation of the plaintiffs’ loss is $2.142 million, the fair market value of the Duffy policy at the time of Kagel’s fraudulent sale. Alternatively, the original investment amount of $1,142,178 serves as a minimum loss valuation.” (OB 3:23-27.) This argument is unpersuasive because Petitioners assume that the trial court’s findings in the civil action are binding on the Client Security Fund. They are not. The Client Security Fund is governed by distinct rules that were not at issue in the civil action. Furthermore, as discussed, the Commission denied reimbursement because Petitioners did not establish a “loss” under the CSF Rules. (AR 1070.) Petitioners do not show a prejudicial abuse of discretion in that finding.
CONCLUSION AND ORDER
Based upon the foregoing, the court orders as follows:
1. The petition for writ of mandate is denied.
2. The parties shall meet-and-confer and lodge a proposed judgment.
3. The court’s clerk shall provide notice.
IT IS SO ORDERED
Dated: March 5, 2025 ______________________
Stephen I. Goorvitch
Superior Court Judge