Rudnick v. Rudnick, 2009 SOS 6928 (Cal. App. 5th Dist.)
In this case, a California Appeals Court considered whether fees incurred by a trust in defending against certain trust beneficiaries’ bad faith claim to block the sale of trust property were properly chargeable against the entire trust or just the shares of the beneficiaries who brought the bad faith claim.
Under a trust agreement, any sale or disposition of certain trust property, once negotiated by the trustee, had to be approved by a majority of the trust beneficiaries for it to become effective. The trustee proposed the sale of a ranch, which was the trust’s primary asset. The sale was approved by a 60% majority of the beneficiaries, but the beneficiaries in the 40% minority continued to file pleadings to enjoin the sale of the ranch. Accordingly, the trustee filed a petition in the Probate Court to obtain instructions to complete the sale and to approve a distribution of the proceeds to the beneficiaries. The court approved the sale and distribution plan. Thereafter, the trustee filed a motion to recover the attorney’s fees and costs incurred in connection with the petition for instructions, and to charge that amount against the minority beneficiaries’ shares of the sales proceeds.
The Probate Court found that the minority beneficiaries’ opposition to the petition for instructions was not made in good faith; that their primary motivation was to disrupt the sale by preventing the trustee from closing by the due date that had been arranged with the buyer. Thus, the Probate Court held that, under the circumstances, it was not fair to burden all of the beneficiaries, including the majority beneficiaries, with the payment of the fees. Therefore, it ordered that the fees be paid only from the minority beneficiaries’ shares of the sales proceeds. The Court of Appeals found that the Probate Court did not abuse its discretion, in that the court did have the equitable power to order that the attorney’s fees be paid from the minority beneficiaries’ shares only.