Archive for September, 2010

19
Sep

It’s remarkable how persons come out of the woodwork after a relative’s death, claiming that they should get a share of the decedent’s estate.  Especially when the decedent left money to someone not related by blood who helped care for the person in his or her declining years.  In this case, the wicked step-daughter.

The recent situation in Estate of Austin involved this all-too-familiar pattern.  The court set the facts as follows.  “Prior to Donald Austin’s death, Donald’s mother passed away and his brother, Wesley Austin became successor trustee of the mother’s trust.”

“In April or May 2007, Wesley and his wife, Janice, learned Donald would receive funds from the mother’s trust.  Wesley and Janice went to see Donald at the nursing home and asked what he wanted to do with the funds.”

This did not sit well with Donald.  “On their third visit in three weeks, Donald had decided he wanted Debra to have the money.  [Debra was the daughter of Donald’s ex-wife.]”

“Wesley and Janice called Debra and asked her to come to the nursing home. Wesley handed the first check to Donald, who signed it, handed it to Debra, and said, ‘Here, this is yours.’  Wesley received the second check from the life insurance company; he took it to Donald, who signed it over to Debra and told Wesley to take it to her. Wesley delivered it to Debra personally. The remaining four checks were written by Donald to Debra. The six checks were dated between April 5 and July 10, 2007, and totaled approximately $185,000.”

Notre Dame Cathedral, Paris

The testimony at trial indicated that, at the time the checks were given to Debra, Donald was 72 years old and a resident of a nursing home.  He had been placed in the nursing home because his health had declined and he was unable to care for himself after suffering a broken hip and undergoing triple bypass surgery.  The parties did not dispute that he was a “dependent adult” within the meaning of California law.

Donald’s daughter, Dawn, was outraged after his father’s death that she [Dawn] did not get the money.  So she did what any reasonable person would do.  She sued Debra.  The court would have none of it.

Dawn’s theory was that Debra was a “care custodian” under California law and therefore ineligible to take from Donald.  Specifically, “Dawn contends Debra was a ‘care custodian of a dependent adult. as that term is used in Probate Code section 21350, and is therefore a person disqualified from receiving a transfer of property from that dependent adult.”

The trial court found that Dawn did not meet her initial burden of proving Debra was a disqualified transferee under section 21350, subdivision (a). It concluded Dawn failed to prove Debra met the definition of a care custodian.  This finding was affirmed on appeal.

Explained the court, “The definition [of care custodian] is not limited to paid professional care givers; it includes a person who provides health services or social services to a dependent adult as a result of a preexisting personal friendship with the dependent adult.”

However, Debra did not fit the definition.  According to the court, “Donald made the gifts to Debra while he was residing in a nursing home.  There was no evidence Debra was providing any health or social services to him at that time. The evidence showed that Donald had been able to take care of himself, and Debra did not provide assistance to him, until he broke his hip in October 2006 and had triple bypass surgery three weeks later.”

Furthermore, “There was no evidence Debra was ever a paid live-in caregiver for Donald . . . Debra’s services were much more limited, consisting only of driving Donald to the doctor, preparing some of his meals, and unspecified helping out. ¶ Substantial evidence supports the trial court’s conclusion that Debra did not become Donald’s care custodian as a result of the limited services she performed for him while he was not in a nursing home.  Dawn failed to carry her burden of proving Debra was a disqualified transferee.”

It seems like the court reached a fair and reasonable decision.  Donald favored the person who was closer to him, and the court respected his wishes.

Estate of Austin (Sept. 15, 2010) — Cal.Rptr.3d —-, 2010 WL 3565739

Category : Case law | Trusts and estates | Blog
13
Sep

California provides a one-year statute of limitations for claims against a deceased person.  If a claim exists against a person as of the time of that person’s death, an action based on such claim must be filed within one year after death or forever be barred.

Caveat – This rule assumes that the claim existed on the date of death.  If, for example, the claim is based on a promissory note which does not come due and payable until a later date, then the one-year statute of limitations is not controlling.

The court in Estate of Ziegler did not like the facts with which it was presented.  Here is the opening from the recent opinion.

“The statute of limitations serves noble public policies.  It promotes justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.  Its operation in particular cases, however, can be sadly inequitable.”

“This is just such a case.  The equities in favor of claimant Richard H. LaQue could hardly be more compelling.  LaQue and his wife provided food, care, and companionship to their neighbor, Paul Ziegler, when Ziegler was sick and alone.”

“At first, they did so out of the goodness of their hearts.  Eventually, however, a grateful Ziegler insisted on entering into a written agreement – the validity of which is unquestioned – that in consideration of continued care, LaQue would receive Ziegler’s home upon Ziegler’s death.”

On the other hand, the equities in favor of appellant W.C. Cox and Company (Cox) are slim to none.  Cox is a soulless corporation in the business of locating missing heirs.  It is acting as the attorney in fact for nine residents of Germany who claim to be Ziegler’s heirs.”

“After Ziegler died without a will, LaQue simply moved into Ziegler’s former home, unopposed. He did not see the need to file any claim in connection with Ziegler’s estate until about a year and three weeks after Ziegler’s death.”

“Alas for LaQue, Code of Civil Procedure section 366.3, subdivision (a) provides: ‘If a person has a claim that arises from a promise or agreement with a decedent to distribution from an estate or trust or under another instrument . . . an action to enforce the claim to distribution may be commenced within one year after the date of death, and the limitations period that would have been applicable does not apply.’”

Havana, Cuba

The contract provided as follows:

“November 10, 2005

“2:15 p.m.

“I Paul Daniel Ziegler home owner of 820 E. G St in Colton, California 92324, am signing over my home and property to Richard H. LaQue Sr.”

“This written agreement between myself and Richard is for the exchange of my care and daily meals. This written note will be immediately active if and when I no longer can reside in my home due to death.”

Ruling for Mr. LaQue, “the trial court reasoned that the applicable statute of limitations would run from breach of the contract and that the contract had not been breached.”  This finding was reversed on appeal, because “LaQue’s claim here is indistinguishable from a claim on a contract to make a will.  The agreement was a promise to transfer property upon death. It could be performed only after death, by the decedent’s personal representative, by conveying property that otherwise belonged to the estate.”

Here’s where Mr. LaQue loses the case.  If there had been a will in his favor, such will would have controlled.  Instead, there was a contract providing for distribution at death, which contract was subject to the one-year statute of limitations.

Yet, there is a question is whether the document was a contract, or a will substitute.  If the written document could have been a construed as a will – a disposition of property not effective until death – then Mr. LaQue stood a chance.

But the court of appeal did not reach this issue, stating that, “Even though the agreement was worded in the present tense, it required some further action by the Administrator (representing Ziegler) to make the transfer happen.  The notion that the title was instantly transferred, although appealing, is a legal fiction; actually, the estate continued to hold the title.”  (Which suggests that the agreement might have been a will substitute.)

Estate of Ziegler (Aug. 31, 2010) — Cal.Rptr.3d —-, 2010 WL 3398883

Category : Case law | Trusts and estates | Blog
7
Sep

A recent article by attorney Thomas M. Madden compares the fiduciary obligations applicable to limited liability companies under the laws of five different states – Delaware, Massachusetts, New York, California, and Illinois.

Mr. Madden concludes that, “A look at the five major states’ codes will quickly dispel any presumption that all states treat limited liability companies alike.  Each state has a distinct approach to fiduciary duties – ignoring them entirely, recognizing them in some fashion, setting them out extensively in black letter, or some variation on the foregoing.”

The author provides further analysis.  “While the express, statutory duties of members and managers of limited liability companies range from the practically nonexistent in Delaware to the substantial and detailed in Illinois, well established statutory and common law duties between majority stockholders of close corporations and minority holders exist in the five major states.”

San Giuseppe Church on Piazza PolaOf course, the question is, To what extent will a court draw from a different body of law?  The author finds strong links.  “The range, or continuum, from the lacking to the pronounced, holds consistently in both corporate and limited liability company law from least strict in establishing and enforcing fiduciary duties in Delaware to most strict in Illinois . . .

“This body of statutory and common law on fiduciary duties tied to limited liability companies, though not as developed into enduring doctrines as with the corporate common law, is growing, and indicates a strong link to the predecessor parallel law on close corporations.”

The author does not hesitate in his analysis.  “While we can draw the obvious and tiresome conclusion that fiduciary duties in corporations – specifically close corporations – are more pronounced and more enforceable in the five major states generally than fiduciary duties in limited liability companies, I believe the cited case law, if not the statutory law of the five major states as well, supports a real connection between the treatment of fiduciary duties associated with close corporations and the treatment of fiduciary duties associated with limited liability companies – a connection that is increasing with the age and growth of the body of law on LLCs.”

“The real question, then, is the normative one: should duties like those owed by majority shareholders of close corporations to minority shareholders exist regarding limited liability company members and managers, strengthened by statute and/or enforced at common law, and be treated increasingly similarly?”

“Our look at the five major states gives us no consensus answer to the normative question.  On the treatment of duties in limited liability companies becoming increasingly similar to those in close corporations, there is a clear consensus from the five major states as a group that this is occurring (whether or not it ought} – albeit in a manner and to a degree inconsistent among those five major states.”

There are substantial differences between the various states, “from the Delaware pro-contractarian model to which Massachusetts statutory law, if not common law, seems to be following (each allowing the near elimination of all fiduciary duties in the name of freedom of contract particularly applied to operating agreements) to the Illinois codified duties of loyalty and due care.”

Paris Hotel de VilleHere then is the question: “Should the [expansive] sort of duty enforced in Van Gorkom apply to members and managers of private limited liability companies?  Rather, should those duties be stripped to the near bare version of UCC-like good faith and fair dealing in contract?  The best solution is probably something in between.

According to Mr. Madden, “Putting aside the economic based arguments of the contractarians, it would seem that [ ] a majority with no duties to a minority would wield power so great as to enable the facile pursuit of pure self-interest over the interest of the entity and/or its minority owners.”

I fully endorse this position.  The notion that the parties, at the inception, could agree to bargain away remedies for wrongs as yet uncommitted seems a folly.  Even more, “it is simply hard to believe that any parties with some equality of bargaining power would rationally contract away some fiduciary duty of the majority to the minority and the entity itself.  This would be tantamount to investment without recourse.  Doesn’t any investor – public or private – have some bottom line expectation of fair treatment?  Shouldn’t the law recognize and enforce that expectation?”

“Would it not make more sense to keep in place some level of fiduciary duty beyond the basic UCC contractual obligation of good faith and fair dealing while making goals and rights explicit in operating agreements?  For instance, provide a call right upon certain major decision triggers where a minority member’s interests might diverge from the majority.  Adept drafting of an operating agreement at the formation of the venture would go a long way toward preventing situations where minority members were likely to assert different interests from the majority, while allowing the existence of fiduciary obligations of the majority to the entity and to the minority to maintain the adequate protection of them from the pure self-interest of those in control.”

Agreed.  The needs to help limit unbridled self-interest.  From my view, the duties established in the corporate model are much to be commended, and should generally be made part of an operating agreement for a limited liability company.

Thomas M. Madden, Do Fiduciary Duties of Managers and Members of Limited Liability Companies Exist as with Majority Shareholders of Closely Held Corporations?, in 12 Dusquesne Bus. Law Rev. 211 (Summer 2010)

Category : Corporations | Law Reviews | Blog