California Appeals Court Offers Textbook Example Of How a Fiduciary Should Not Proceed

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In Friend v. Farrant, an August 2, 2021 opinion from the California Second Appellate District, the appellate court issued a cautionary opinion about how a fiduciary should not proceed when acting as a fiduciary and conducting themselves in probate court.

The Facts Of Friend v. Farrant

Norma Farrant executed a durable power of attorney granting Duane Farrant, her son, as her attorney-in-fact, granting him broad powers to manage her property.  The power of attorney would become effective upon a determination that Norma was “‘incapacitated.’”  In June 2015 a physician opined that Norma was incapacitated.

In September 2015, Duane was ordered by the California probate court to account for all transactions conducted by him on behalf of Norma for the prior year.  He did not account.

In January 2017 Angelique Friend, respondent, was appointed conservator of Norma’s person and estate.

In November 2017 Diana Farrant, Norma’s daughter, filed a petition in the Ventura County Superior Court to compel appellant “to account for his actions on behalf of Norma Farrant for the period September 21, 2014, to date . . . .”

After hearing, the California probate court ordered Duane to formally account from September 1, 2014 to January 31, 2018, for any rental monies received on behalf of Norma and any pension checks received.   The accounting was due on or before March 30, 2018.  Duane did not comply with the California probate court’s order, and was then ordered to show cause for failure to file his fiduciary account.

Duane did not appear at the show cause hearing.  The California probate court issued orders to show cause why sanctions should not be imposed against Duane for failing to appear and for failing to file an accounting.  It ordered him to file the accounting on or before December 14, 2018.

Duane again did not provide an accounting.  On January 29, 2019 another hearing was held by the California probate court.  Duane’s counsel blamed the lack of an accounting on voluminous records and a flood.  Friend (Norma’s conservator) objected.  The California probate court imposed sanctions against Duane of $1,000 a day until the accounting was filed.

Duane finally filed an accounting.  The accounting:

[S]howed that he had received two payments of rental income for October and November 2014. Each payment was $2,575. For the period from September 16, 2014 through November 10, 2017, appellant listed disbursements totaling $44,322.05 for expenses he had incurred in maintaining the Newbury Park property. The accounting mentioned nothing about Norma’s pension income. The accounting included bank statements on which most of the information had been redacted.

Duane then got new counsel, and was granted the right to file an amended accounting, which he apparently failed to do.

After hearing on the objection to Duane’s initial accounting, the California probate court found that:

(1) appellant “was in control of [Norma’s] pension income in the amount of $35,656.76, and failed to report said income in his account, and breached his fiduciary duty by comingling funds and self-dealing by using them for his own purposes”;

(2) for the Newbury Park property, appellant received rental income of $101,150, one-half of which ($50,575) belonged to Norma since she owned a half-interest in the property; and

(3) expenses for the Newbury Park property totaled $45,565.72, one-half of which ($22,782.86) was allocable to Norma’s half-interest in the property. Therefore, the amount owed by appellant to Norma was $63,448.90 ($35,656.76 + $50,575 – $22,782.86 = $63,448.90).

The California probate court ordered Duane to pay the money to “the Conservatorship Estate of Norma Farrant.” The court also ordered that his “share of the [proceeds from the] sale of the [Newbury Park] property . . . is hereby surcharged . . . $63,448.90.”

Finally, the court ordered Duane to pay sanctions totaling $121,000 for the 121-day period from January 29, 2019, to May 31, 2019, when he finally filed his accounting. The court directed: “This sanctioned amount shall be immediately paid by [appellant] to Angelique Friend, Conservator of the Estate of Norma Farrant, and shall be a judgement against [appellant], until paid in full.”

Duane appealed.

When Can the California Probate Court Order an Accounting?

Duane argued that the California probate court abused its discretion when it ordered him to do an accounting because he did not owe a fiduciary duty to conservatee’s estate.  Duane was wrong.  The Court stated:

First, “a fiduciary relationship between the parties is not required to state a cause of action for accounting. All that is required is that some relationship exists that requires an accounting. [Citation.] The right to an accounting can arise from the possession by the defendant of money or property which, because of the defendant’s relationship with the plaintiff, the defendant is obliged to surrender.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179-180.)

Here, Duane admitted that he had control over Norma’s pension checks and her share of the rental income from the Newbury Park Property.  He was required to surrender these payments to Norma’s conservatorship estate.  Thus, there was a special relationship between appellant and Norma that warranted the order compelling him to account for Norma’s pension checks and rental income.

When Is Someone Acting As a Fiduciary Under California Law?

California Probate Code section 39 provides: “‘Fiduciary’ means . . . attorney-in-fact under a power of attorney . . . .”  Duane accepted his appointment as power of attorney (a fiduciary role as defined under California law), and his attorney told the probate court that he signed a deed using that power of attorney, but did not know what else Duane did with it.

It was reasonable for the California probate court to draw the inference that, in exercising control over Norma’s pension checks and half-share of the rental income, appellant was purporting to act as her attorney-in-fact (a fiduciary) under the durable power of attorney.

Can Affidavits and Declarations Be Used as Evidence In California Probate Court?

Duane also urged that the California probate court “abused its discretion and committed reversible error in . . . basing its decision on affidavits and declaration against appellant’s objection.”

“It has long been the rule that in probate matters ‘affidavits may not be used in evidence unless permitted by statute. . . .’” (Estate of Bennett (2008) 163 Cal.App.4th 1303, 1308-1309.) “[T]he Probate Code limits the use of affidavits to ‘uncontested proceeding[s].’” (Id. at p. 1309.) “Consequently, ‘when challenged in a lower court, affidavits and verified petitions may not be considered as evidence at a contested probate hearing. . . .’” (Ibid; see also Prob. Code § 1022.)

The probate proceeding here was contested. But Duane did not object to the probate court’s consideration of affidavits and declarations. By failing to object, Duane forfeited the issue, and the probate court properly considered the affidavits and declarations.

The Court upheld the sanctions award and affirmed the orders on appeal.  This conflict stemmed from Duane’s utter failure to follow the California probate court’s orders to account (at least four times).  Ignoring a court order is usually a very bad idea.  In this case, Duane’s status as fiduciary, his complete disregard for the California probate court’s orders, and failure to behave appropriately as Norma’s power of attorney led to the award of sanctions against him.  The lesson – behave yourself as a fiduciary and follow orders from the California probate court.   Read about another case involving a California fiduciary behaving badly here.

 

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