Learn From Others’ Mistakes, another Estate in Court…

Now here is a case recently filed on the 29^th of May 2018 in the Court of Appeals in the State of California.

The person who filed the appeal was Thomas E. Morgan, acting as the Trustee and bringing a lawsuit against Nancy Morgan Shurtleff and other interested parties.

This was not the first lawsuit, this was an appeal from the original proceedings; petition for a writ of mandate to challenge orders of the Superior Court of Orange County, Judge Kim R. Hubbard, presiding. Mr. Morgan and Nancy Morgan Shurleff and the other parties of interest were represented by twelve (12) attorneys! So, this dispute would have begun with a demand letter from the plaintiff to the defendant seeking a resolution of actions of the Trustee and/or money damages.

How did this dispute begin…it begins in all the usual ways in a Will and Trust dispute:

Beverly C. Morgan created a Trust, which means she was the Settlor of the Trust and the original Trustee of the Trust. Beverly had three adult children at the time she created the Trust:

1. Thomas Edward Morgan III (Thomas),
2. Nancy Morgan Shurtleff (Nancy), and
3. John Evans Morgan (John).

Note that Nancy has two daughter; Kathleen Shurtleff and Jessica Shurtleff.

Naturally, when you establish a Trust, you need to name a “Successor Trustee” to act after you pass away. Now many relatives seem very eager to be the Successor Trustee and they even want to be Co-Successor Trustees” which in my experience is almost always a formula for certain Trust litigation. So, Beverly names Thomas as the Successor Trustee.

Beverly Dies in January 2014 and Thomas becomes the Trustee and as in par for the course, litigation almost immediately commences. It seems that Beverly was able to control the children, but after the parent’s death, the real and raw emotions surface quickly. Just four (4) short months after their Mother’s death, Thomas is served with the Notice that he is being sued for the following charges:

1. Charged that their Mother lacked mental capacity to create a Trust;
2. The Mother was unduly influenced by Thomas in the creation of this Trust;
3. Thomas had made fraudulent misrepresentations.

[Now at this point, the Estate Attorney should be cautious, since this litigation will surely mushroom and in doing so the litigation dragnet will infer legal malpractice or worse on the part of the Attorney]

Then, (as in most emotional and family litigation) in September 2014, Nancy adds the following new claims:

1. The Trust be reformed or invalidated;
2. Thomas be deemed to have predeceased Beverly, and
3. Thomas be removed as trustee, among other things.

Now two (2) months have passed and Nancy files another Petition in November 2014 to demand:

1. The removal of Thomas as Trustee,
2. Suspend his powers as Trustee, and
3. Direct Thomas to turn over the Trust’s assets and records to Nancy or to a temporary Trustee.

In 2016, two (2) years later, Nancy filed a new motion to suspend Thomas as Trustee and alleges:

1. Misuse of his powers to further his own litigation goals and strategies to the detriment of the Trust’s other beneficiaries
2. Alleging that Thomas:
   1. Spent Trust funds on his personal attorneys,
   2. Engaged in self-dealing as trustee by using Trust funds for his personal benefit, and

• Caused businesses owned by the Trust to engage in undocumented, inter-company, interest-free “loans” totaling millions of dollars.

The Trial Court denied Nancy’s motion to suspend Thomas, conditioned on the following: (1) Thomas would not use Trust funds to pay for his personal defense in the litigation with the Shurtleffs; (2) Thomas would not in any way impair the Trust assets and would not cause the Trust to borrow money; and (3) Thomas would file an accounting of all Trust assets used to pay his personal litigation expenses and of all loans made by or to the Trust. However, after Thomas filed the accounting, the court, sua sponte, issued an order finding the accounting was “so inadequate that its filing appears to be for the sole purpose of paying lip service to the Court’s Order.”

Now over 3 years since Betty’s death, on April 4, 2017, the Trial Court suspended Thomas as trustee and appointed Bruce Hitchman and Lee Ann Hitchman of Hitchman Fiduciaries (the Hitchmans) as interim Co-Trustees. Thomas is ordered to cooperate with the Hitchmans, and specifically to

1. “transfer and deliver to the Interim Co-Trustees all communications, including, but not limited to, letters, e-mails, facsimile transmissions, and text messages between Thomas Morgan and any person or entity on behalf of the Trust as well as:
2. Deliver to the Interim Co-Trustees any and all current and historical account statements, cancelled checks, documents and records concerning the Beverly C. Morgan Family Trust, its transactions and its assets.”

Life is still not peaceful and between April and June, the Hitchmans filed three status reports in which they informed the court: “Counsel for the Suspended Trustee has indicated that he does not intend to turn over attorney-client communications or billing invoices.” Thomas and his counsel refused to turn over the requested documents based on language in the Trust, and statutory and case law. In response the Trial Court Orders Thomas to give the documents to the Hitchmans and the Hitchmans’ Counsel. The trial court held a trial setting conference and review hearing in June 2017.

I always find the Court’s minute order to be enlightening and this case is no different; the minute order following the hearing and reads, in relevant part:

“All invoices, billings, fee agreements, copies of checks and wire transfers used to pay any of the [sic] mentioned herein are to be turned over to the Hitchmans and their attorney only.” When the hearing reconvened two days later, the issue of the billing statements and invoices came up again. “Mr. Garrett [counsel for John, Jessica Shurtleff, and Kathleen Shurtleff]: It’s extremely important on the preserve and protect aspect that those billing records be turned over. They will fight tooth and nail about that and that was the reason for the ex parte today. [¶] . . . [¶] “The Court: How soon can you provide the records? “Mr. Pech [Thomas’s counsel]: Which records, your honor? “The Court: The ones I ordered Monday. 6 “Mr. Pech: The ones you ordered Monday? You mean my invoices, your Honor? “The Court: Yes. “Mr. Pech: That’s correct. So we’ll have a formal order today; correct? We’re going to have a formal order as to everything the court has ordered for Monday and today? “The Court: The minute order’s right here, counsel. We’ll be happy to give [you] a copy. [¶] [As read]: [¶] . . . [¶] [F]or your fees, counsel, all invoices, billing[s,] fee agreements, copies of checks and wire transfers used to pay any of the attorneys’ fees and costs mentioned herein. [¶] . . . [¶] “Mr. Pech: And also, your Honor, as part of that, when the court said on Monday, it only goes to Mr. Glowacki [Hitchmans’ counsel] here because obviously Mr. Garrett— “The Court: It’s in the order. “Mr. Pech: Well, but is that in the order— “The Court: Yes. “Mr. Pech: —it only go[es] to Mr. Glowacki? But obviously Mr. Garrett wants to see those because that’s what he just said. “The Court: I have ordered it only goes to Mr. Glowacki at this time. I will order that for Monday. “Mr. McDermott [Nancy’s counsel]: We do not want to see them at this time so I made clear that— “The Court: So when can you have those available? “Mr. Pech: When I get the order, your Honor. “The Court: We’re giving you the minute order today, counsel. “Mr. Pech: That’s fine. “The Court: When can you have that available? 7 “Mr. Pech: I would say that I can go ahead and organize things in terms of like maybe a week from July 4th, something of that sort, the week of—week of the 10th. “The Court: All right. Monday the 10th. “Mr. Pech: How about the 12th? “The Court: Two weeks from today, everything will be turned over. “Mr. McDermott: When you say ‘everything,’ you’re talking about the invoices, not the production of the entities’ documents? “The Court: I’m talking about everything in the minute order that I made on Monday. “Mr. McDermott: Okay. “The Court: That’s all the invoices from his office, yes. [¶] . . . [¶] “The Court: Mr. Pech— “Mr. Pech: Yes. “The Court: —we have ordered and you’ve agreed that all of your documents will be provided by July 12th— “Mr. Pech: That’s correct, your Honor.” Following the hearing, the trial court entered a minute order that reads, in relevant part: “The Court further orders attorney Richard Pech [Thomas’s attorney] to provide all documents indicated in the 6/26/2017 minute order of this court to attorney John Glowacki [the Hitchmans’ attorney] on or before 7/12/2017. The Court clarifies the 6/26/2017 minute order of the documents to be provided are invoices, billings, fee agreements, copies of checks and wire transfers used to pay any attorney fees and costs.” The Hitchmans’ counsel submitted a proposed formal order, which mirrored the trial court’s minute order. Thomas filed objections to the proposed order; as to the invoices, billing statements, fee agreements, and documents evidencing payment for attorney fees, Thomas objected on the grounds (1) the order was contrary to the law…,

The Trial Court found that to be consistent with public policy, Beverly drafted the Trust to protect the beneficiaries from malfeasance on the part of a trustee. Both in order to prevent such malfeasance and to maintain the effective and consistent operation of the Trust, the Trust document itself must be interpreted in a manner that does not permit Thomas to withhold from the Hitchmans—or any other interim or successor trustee—materials covered by the attorney-client privilege and which reflect Thomas’s communications with the Trust’s legal counsel while he was serving as trustee. The Trial Court also found that there is no contention in this case that Thomas, as trustee, distinguished his own interests from those of the beneficiaries or retained separate counsel for this purpose.  Therefore, the Trial Court ruled that Thomas’s writ to the Trial Court be denied, the case goes back down to the Superior Court and Nancy and the related parties to recover costs.

PLANNING AND CONCLUSION:

Over 3 years from Betty’s death and we are no further than the first month after January 2014. Also, Thomas and his legal counsel have a major defeat handed them by the Trial Court and certainly going back to the Superior Court will not be a welcoming experience for them. I would expect this estate to be completed by late 2020 in not longer with a significant amount of the value of the estate eaten away by all of the attorneys involved over all these years.

I know that being in a responsible position in a Will or Trust is very gratifying, but for those who have been through this it is froth with pearl and accusations, founded or not. At least consider using a law firm as the Successor Trustee that is familiar with estates from creation through its administration. The beneficiaries should also view this professional appointment as a wise decision to ensure fairness and an avenue of recourse with the attorney’s neutrality and knowledge. Also, this litigation probably could have been avoided by using a Private Foundation rather than the common Will and Trust method of administering an estate. If you have any questions, give us a call today and we will be happy to go over your estate and your concerns.

Michael B. Nelson, Esq.