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S097456DOC - Lawyer, Lawyers, Attorney, Attorneys, Law, Legal

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S097456DOC - Lawyer, Lawyers, Attorney, Attorneys, Law, Legal ...

    Filed 6/10/02

IN THE SUPREME COURT OF CALIFORNIA

OWEN S. RICE, )

     )

     Plaintiff and Appellant, )

     ) S097456

     v. )

     ) Ct.App. 2/6 B139189

    RICHARD L. CLARK et al., )

     ) Santa Barbara County

     Defendants and Respondents. ) Super. Ct. No. SM106129

     ____________________________________)

    Probate Code section 21350 presumptively disqualifies, as the recipient of a

    donative transfer by instrument, a person who drafts the instrument (id., subd.

    (a)(1)) or who, having a fiduciary relationship with the transferor, ―transcribes the

    instrument or causes it to be transcribed‖ (id., subd. (a)(4)).

    1 The issue presented

    in this case is whether the class of persons disqualified because they cause an

    instrument to be transcribed is broad enough to include a person who provides

    information needed in the instrument‘s preparation and who encourages the donor

    to execute it, but who does not direct or otherwise participate in the instrument‘s

    transcription to final written form. Like the trial and appellate courts below, we

    conclude the category of persons disqualified under section 21350, subdivision

    (a)(4) is not so broad.

    1 All further unspecified statutory references are to the Probate Code.

    1

    ACTUAL AND PROCEDURAL BACKGROUND

    Petitioner Owen S. Rice seeks to invalidate gifts decedent Cecilia M. Clare

    Fmade by will, trust and other instruments that left Clare‘s entire estate to

    respondent Richard L. Clark (Clark) and his wife, respondent Janet A. Clark.

    Because the trust instrument names Rice as the contingent beneficiary if the Clarks

    predecease Clare, and because a person disqualified under section 21350 is treated

    as having predeceased the transferor (? 21353), Rice would take under the trust if

    the Clarks were disqualified.

    Clare, 76 years old when her husband died in 1988, owned several pieces of income-producing real property, as well as her Santa Maria home. She had no

    children or other close relatives. Clark, 42 years old in 1988, was working as a

    building inspector for the City of Santa Maria and as a handyman, and was

    managing his own investment properties.

    Clark first met Clare in 1988, after her husband‘s death, when he repaired

    the garage door at her home. Over the next few months, he performed numerous

    repairs on her properties, receiving $200 per day in pay. In the summer of 1988,

    Clark quit his job with the City of Santa Maria, began attending a local college,

    and continued doing maintenance and small repair work for Clare. In 1989,

    having finished his course work, he worked increased hours on the Clare

    properties, taking on more extensive projects. From 1989 through 1993, Clare

    paid Clark $1,200 per week to take care of her properties.

    Toward the end of 1994, Clark‘s weekly compensation was raised to $1,400 and he took on additional duties. He began helping Clare with her bill

    paying, bookkeeping, and tax information, and sometimes spoke with tenants on

    Clare‘s behalf. He began accompanying Clare to the grocery store and to the bank, which she visited several times each week. Clare also gave Clark a key to her

    2

safety deposit box. Beginning in December 1994, Clare wrote checks to cash and

    gave Clark cash gifts of about $250 to $350 per day.

    In 1992, Clare executed a will prepared by Maurice Twitchell, an attorney

    who had previously done real estate work for her. That instrument bequeathed a

    farm property and personal property from Clare‘s home to Richard and Janet Clark,

    but gave the residue of the estate to Allan Hancock College in Santa Maria, to

    establish and endow a school of music.

    In January 1995, at a meeting between Clark, Clare and Twitchell, Clark

    said, and Clare appeared to agree, that Clare wished to change her will so as to

    leave everything to the Clarks with the exception of one ranch, which she wanted

    to give to Rice, the longtime tenant. However, Clare, acting through Clark, fired

    Twitchell in March 1995 without executing a new will; Clark told Twitchell that

    Clare found him too ―pushy.‖

    Clare and Clark met with a new attorney, Michael Hardy, on May 4, 1995.

    Clark had made the appointment at the request of Clare, who had known Hardy‘s

    former partner. Hardy had heard of Clare‘s late husband, but did not know Clare

    or Clark before the meeting. Clark told Hardy that Clare wanted him to prepare a

    new will or a trust. During or after the meeting, Clark also gave Hardy lists of

    Clare‘s assets, including real property holdings, stocks and bank accounts.

    Hardy asked Clare how she wished to leave her estate. She said she wanted

    to leave her entire estate to Richard and Janet Clark, or to the survivor of them if

    one of them died before her. If both Clarks predeceased Clare, she wanted the

    next contingent beneficiary to be Owen Rice. Clare, having decided she wanted a

    living trust, stated in answer to Hardy‘s question that she wanted Richard Clark to

    succeed her as trustee, with Janet Clark as her second choice if Richard were

    unable to serve. Hardy did not ask Clare about her prior estate plan or why she

    wanted to change it. Clark was present throughout the meeting. According to

    3

Hardy, Clare appeared mentally competent and expressed her testamentary wishes

    clearly.

    Sometime after the May 4 meeting, Clark telephoned Hardy‘s office and asked the secretary to ask Hardy to prepare the necessary documents promptly.

    Hardy and his secretary prepared the necessary documents for a will and trust and,

    through Clark, scheduled a signing appointment for Clare for June 14, 1995. That

    morning, Clare told Clark she did not like Hardy and did not want to see him.

    Clark phoned Hardy about an hour before the appointment and said, ―I don‘t think

    that I can get her in,‖ but Clark and Clare arrived at the appointed time. Hardy

    went through the documents he had prepared one by one. Clare did not ask any

    questions and seemed impatient, but appeared to understand Hardy‘s presentation.

    But when Hardy asked if she was ready to sign, she said she was not ready and left

    abruptly. Clark followed Clare, telling Hardy he would talk to her.

    Clark and Clare picked up breakfast at a fast-food restaurant and ate it in

    the park, as was their custom. Clare seemed unhappy. Clark told her that any

    other attorney she hired would prepare the same type of documents and she would

    simply end up paying additional legal fees. Clare then agreed to return to Hardy‘s

    office and sign the documents. About an hour after they had left, Clark and Clare

    returned to Hardy‘s office, where Hardy briefly reviewed the documents again and Clare signed them.

    The documents signed June 14, 1995, were an individual living trust

    instrument, a pour-over will, grant deeds transferring two of Clare‘s real properties into the trust, and durable powers of attorney for Clark to handle Clare‘s health care and financial affairs if she became incapacitated. Other deeds remained to be

    prepared in order to fully fund the trust. The trust instrument named Richard

    Clark as successor trustee. On Clare‘s death, the trust estate was to be distributed

    4

to Richard and Janet Clark in equal shares, to the survivor if either predeceased

    Clare, or to Owen Rice if both Clarks predeceased Clare.

    Clare did not return to Hardy for further work in funding the trust, instead retaining attorneys Mark Henbury and, after Henbury‘s sudden death, Karen Mehl

    to prepare the necessary documents. Mehl prepared several grant deeds conveying

    property into the trust, which Clare signed in October 1995. Mehl believed Clare

    was fully competent when she executed the deeds.

    Through Henbury, Clare and Clark had been referred to a stockbroker. Clark told the broker that Clare wanted to give all her stocks to him and his wife,

    and that the documentation should be done in such a way that Clare, who suffered

    from a muscular palsy in her hand, would not have to sign numerous documents.

    In August 1995, with the broker‘s assistance, Clark used his power of attorney to

    transfer the 68 stock certificates into the Clare trust, after which Clare signed a

    transfer moving them into a separate trust established by and for the benefit of the

    Clarks.

    In late December 1995 and early 1996, Clare‘s physical and mental health deteriorated sharply. Clark contacted adult protective services for help, and, in

    March 1996, Clare entered a nursing home. On February 28, 1996, a physician

    examined Clare and found her unable to manage her personal, medical or financial

    affairs, a conclusion with which Clark agreed. Earlier that day, however, Clark

    had taken Clare to the stockbroker‘s office, where she signed a transfer into her trust of stock that had been missed in the earlier transactions. Also in February

    1996, Clare cashed several large checks Clark had prepared and gave Clark much

    of the cash.

    On March 28, 1996, Clark, represented by Michael Hardy, filed a petition to act as conservator of Clare‘s person and estate. Clare died on May 10, 1996,

    5

before the court acted on the conservatorship petition. The real property in her

    estate was valued at more than $4.5 million.

    In an earlier proceeding, Allan Hancock College, the residuary beneficiary under Clare‘s 1992 will, sought to invalidate the 1995 will and trust, claiming that

    these instruments had been procured by Clark‘s undue influence. (? 6104.) In

    August 1997, the superior court gave judgment for the Clarks, finding that Richard

    Clark had not unduly benefited from the 1995 will and trust. In light of Clare‘s

    lack of close family or other friends, the court found, Richard Clark, as Clare‘s

    ―longtime employee and friend,‖ was a natural recipient of her bounty. Rice, who

    was not a beneficiary of the 1992 will, was not a party to this earlier action.

    In December 1997, Rice brought the present action, petitioning for a declaration that the donative transfers to the Clarks were invalid under section

    21350, and to remove Richard Clark as trustee of the Clare trust, to impose a

    constructive trust on stocks and cash transferred to the Clarks, and for other relief.

    With agreement of both parties, the trial was bifurcated: the question of whether

    the Clarks were presumptively disqualified under section 21350 would be tried

    first; if the court found they were, it would then hear evidence to overcome that

    presumption under section 21351, subdivision (d), which allows the presumptively

    disqualified transferee to prove by clear and convincing evidence that the transfer

    was not the product of fraud, menace, duress or undue influence.

    After the first phase of trial, the superior court found that Rice had not proven the Clarks were disqualified persons under section 21350.

    2 The court

    2 If Richard Clark were disqualified under subdivision (a)(4) of section

    21350, Janet would be disqualified under subdivision (a)(5), which disqualifies a

    ―person who is related by blood or marriage to . . . a person who is described in

    paragraph (4).‖

    6

found that Richard Clark was in a fiduciary relationship with Clare at all material

    times and, ―because he was helpful to her and he was the closest human being in

    her life,‖ had exercised considerable influence over Clare. But Clark did not meet

    the other criteria of section 21350. To cause an instrument to be transcribed

    within the meaning of section 21350, subdivision (a)(4), the trial court concluded,

    is to take an action ―that leads directly, substantially, and uninterruptedly to the writing down or causing to be printed the words of another.‖ While Clark had

    taken part in ―arranging for preparation‖ of the challenged instruments, he did not

    draft the instruments, transcribe them, or cause them to be transcribed because ―he did none of the thinking or writing himself nor did he order or request any other

    person to do so.‖ The court therefore entered judgment for the Clarks without

    making any finding on undue influence.

    The Court of Appeal affirmed, rejecting Rice‘s contention that the trial

    court‘s definition of ―causes it to be transcribed‖ was too narrow. The court

    observed that Hardy drafted the will and trust, and Hardy‘s secretary transcribed

    them at his direction. Although ―[i]n the largest sense, anyone who encourages another to have a will or trust drafted can be said to be a cause of its ultimate

    transcription,‖ the Legislature did not, the appellate court concluded, intend such a

    broad definition. ―The statute was never intended to apply to every circumstance in which a fiduciary may have improperly induced an elderly person to name him

    beneficiary of her estate,‖ though in such cases a common law presumption of

    undue influence, not raised in this case, may arise.

    We granted Rice‘s petition for review.

    7

    ISCUSSION

    I. Legal Background

    DThe principle that a will is invalid if procured by the undue influence of

    another predates the 1931 adoption of the Probate Code (see, e.g., Estate of Ricks (1911) 160 Cal. 467, 480), but is now codified in section 6104.3 Undue influence is pressure brought to bear directly on the testamentary act, sufficient to overcome

    the testator‘s free will, amounting in effect to coercion destroying the testator‘s

    free agency. (Estate of Fritschi (1963) 60 Cal.2d 367, 373-374; Estate of Sarabia (1990) 221 Cal.App.3d 599, 604-605; see also Hagen v. Hickenbottom (1995) 41 Cal.App.4th 168, 182 [principles of undue influence applicable to estate plan

    formalized by simultaneously executed inter vivos trust and will].)

    Although a person challenging the testamentary instrument ordinarily bears

    the burden of proving undue influence (? 8252), this court and the Courts of

    Appeal have held that a presumption of undue influence, shifting the burden of

    proof, arises upon the challenger‘s showing that (1) the person alleged to have

    exerted undue influence had a confidential relationship with the testator; (2) the

    person actively participated in procuring the instrument‘s preparation or execution;

    and (3) the person would benefit unduly by the testamentary instrument. (Estate of Fritschi, supra, 60 Cal.2d at p. 376; Estate of Sarabia, supra, 221 Cal.App.3d at p. 605; Estate of Auen (1994) 30 Cal.App.4th 300, 309; see also id. at p. 310 [where person alleged to have exerted influence was testator‘s attorney, any

    benefit other than compensation for legal services may be considered ―undue‖].)

    3 Section 6104 provides: ―The execution or revocation of a will or a part of a

    will is ineffective to the extent the execution or revocation was procured by duress,

    menace, fraud, or undue influence.‖

    8

    Supplementing the foregoing, the Legislature in 1993 added the statutory

    scheme at issue in this case, part 3.5 of division 11 of the Probate Code (hereafter

    part 3.5), comprising sections 21350 to 21356, and substantially amended it in

    1995. (Stats. 1993, ch. 293, ? 8, p. 2021; Stats. 1995, ch. 730, ?? 12-17.) The

    1993 legislation was introduced in response to reports that an Orange County

    attorney who represented a large number of Leisure World residents had drafted

    numerous wills and trusts under which he was a major or exclusive beneficiary,

    and had abused his position as trustee or conservator in many cases to benefit

    himself or his law partners. (Assem. Com. on Judiciary, Analysis of Assem. Bill

    No. 21 (1993-1994 Reg. Sess.) as amended Feb. 4, 1993, p. 1.)

    4 is valid to make a donative transfer to the person Section 21350 currently provides that, except as provided in section 21351,

    who drafted the instrument (? 21350, subd. (a)(1)), to any person having a no provision of an ―instrument‖

    fiduciary relationship with the transferor ―who transcribes the instrument or causes

    it to be transcribed‖ (id., subd. (a)(4)), or to the relative, cohabitant, law partner or employee of such drafter and transcriber (id., subd. (a)(2), (3) & (5)).

    Section 21351 states exceptions and conditions to section 21350‘s

    applicability. Subdivisions (a), (b) and (c) of section 21351 except from invalidity,

    respectively, transfers to relatives and cohabitants of the transferor, transfer

    instruments reviewed by an independent attorney who counsels the transferor and

    executes a specified certificate, and transfers approved by the court on petition of a

    conservator. Subdivision (d) of section 21351 permits a transferee other than the

    instrument‘s drafter (see id., subd. (e)(B)) to rebut section 21350‘s presumption of

4 ―Instrument‖ is broadly defined in section 45 as ―a will, trust, deed, or other

    writing that designates a beneficiary or makes a donative transfer of property.‖

    9

disqualification by showing, ―upon clear and convincing evidence, excluding the

    testimony of any person described in subdivision (a) of Section 21350, that the

    transfer was not the product of fraud, menace, duress, or undue influence.‖

    Section 21353 provides that a person disqualified under section 21350 is

    treated as having predeceased the transferor, but may still receive the amount of

    his or her intestate interest, if any, in the transferor‘s estate. Other provisions limit

    liability for transfers pursuant to an invalidated instrument (? 21352), provide that

    part 3.5 applies notwithstanding contrary provisions in the instrument and applies

    to instruments becoming irrevocable on or after September 1, 1993 (?? 21354,

    21355), and establish a statute of limitations for actions under part 3.5 (? 21356).

    The scheme set out in part 3.5 differs from the preexisting decisional law

    relating to undue influence (and section 6104) in several respects. Section 21350

    applies to all donative transfers by instrument, not only to wills and other

    testamentary transfers, but it invalidates only gifts to drafters and to fiduciaries

    (and to persons close to them) who transcribe the instrument or cause it to be

    transcribed. Unlike the common law, section 21350 does not require, as the

    predicate for a presumption of invalidity, that the transferee would receive an

    ―undue‖ benefit. The transferee, under part 3.5, bears an elevated proof burden in

    rebutting the presumption: he or she must show the absence of undue influence,

    fraud or duress by clear and convincing evidence, and without reliance on the

    testimony of any presumptively disqualified person. (? 21351, subd. (d).) Section

    21351, moreover, makes the presumption of disqualification conclusive as to a

    drafter-transferee. (Id., subd. (e)(B).) Thus, for example, if an attorney drafted a

    client‘s will so as to benefit himself, he would (assuming no other exception in section 21351 applied) be conclusively disqualified; if he drafted the will so as to

    benefit his relative or law partner, the presumption would be rebuttable, but only

    10

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