Suing the suer is a common strategy in California civil litigation. A special motion to strike, known as an anti-SLAPP motion, can be a powerful weapon against such retaliatory litigation. We have explained the use of such motions in trust and estate disputes. More specifically, we have explored the application of such motions to petitions to enforce no contest clauses on multiple occasions.
A recent decision by the California Court of Appeal delves into this issue once again. Dae v. Traver (2021) 69 Cal.App.5th 447 illustrates just how difficult it can be to prevail on an anti-SLAPP motion, no matter how weak the no contest petition may seem to be. Lawyers should look before they leap into an anti-SLAPP motion that may be doomed to fail.
Erin and Jean Create a Family Trust
Erin and Jean Walsh established a family trust designed to provide for both themselves and Jean’s three children from a prior marriage: Joan, William, and Robert. Upon Erin’s death in 1995, the trust was split into three subtrusts: a Survivor’s Trust, a Residuary Trust, and a generation skipping trust to provide for the grandchildren.
Jean was entitled to income from the Residuary Trust during her lifetime. Following her death, the Residuary Trust would be divided equally among her three children. If a child died before Jean, the child’s share of the assets would be distributed to the child’s issue.
Though the Residuary Trust was irrevocable following Erin’s death, its trustees – Jean and Robert – were empowered by the terms of the trust with the same “powers and duties” originally held by Erin and Jean, which broadly included “all powers that are necessary or convenient to make fully effective the purposes of the trust,” including the power to “grant, sell, assign, convey, exchange, convert, [and] manage” trust assets.
Trustees Divert Trust Assets from Residuary Trust
Jean and Robert set up a scheme by which the bulk of the Residuary Trust’s $16 million in assets was diverted to two new trusts: one to benefit Joan and the other to benefit Robert. (William had since died without issue, and his interest in the Residuary Trust was split between Joan and Robert.)
Jean and Robert contended that they adopted this scheme to minimize estate taxes. The scheme yielded at least one additional result, however: the effective disinheritance of Joan’s son Ian from the Residuary Trust. Though Ian was initially the remainder beneficiary of Joan’s new trust, Joan exercised her power of appointment to direct that any remaining assets be left instead to Robert and his children, as well as various charities.
None of this would have been a problem if Joan had outlived Jean. But Joan died in July 2016 and Jean died three months later. Because Joan predeceased Jean, without Jean and Robert’s diversion of assets, Joan’s share of the Residuary Trust would have gone to Ian. Instead, he got almost nothing.
Disgruntled Grandchild Files Suit
Ian filed a petition in Los Angeles County Superior Court alleging that Robert had breached his fiduciary duties by diverting Residuary Trust assets in a way that benefited himself and disinherited Ian.
Robert responded with a petition invoking the Family Trust’s no contest clause, alleging that Ian had forfeited all interest in the Family Trust and its subtrusts (including the Residuary Trust and the generation skipping trust) by filing his petition.
Ian volleyed back with an anti-SLAPP motion, under Code of Civil Procedure section 425.16, seeking to strike Robert’s no-contest petition, alleging that the no-contest petition sought to impose liability on him as a result of his protected petitioning activity.
The trial court denied Ian’s anti-SLAPP motion without ruling on Robert’s no-contest petition. Ian appealed.
The Court of Appeal Rules
The Court of Appeal considered the two steps of California’s anti-SLAPP analysis: (1) whether the challenged conduct arose from protected activity; and (2) whether the claim challenging the protected conduct is “legally sufficient and factually substantiated.”
The parties agreed that Ian’s initial petition arose from protected litigation conduct. Accordingly, the only remaining issue before the Court of Appeal was whether Robert’s no contest petition had the “minimal merit” necessary to avoid being stricken as a Strategic Lawsuit Against Public Participation.
In making its ruling, the Court was careful to note that it was not making any final ruling on either the merits of the no contest petition or the legal validity of Ian’s initial petition: such findings would “depend upon the individual circumstances of the case and the language of the particular instrument.” Under the “minimal merit” standard, Robert need only “provide evidence that, if credited,” would be “sufficient to show” that he could prevail on his no-contest petition.
The Court, by a two to one majority, held that Robert had met this low standard and affirmed the denial of Ian’s anti-SLAPP motion. Despite the seeming impropriety of the trustees’ actions, the Court of Appeal found that Robert could prevail on the no contest provision, because (1) a court could find that trustors’ original intent was to benefit only Joan and Robert, and thus the trustees’ actions could have been in line with that intent; and (2) a court could find that Ian’s claims were, rather than well-founded and justifiable complaints about the trustees’ efforts to disinherit him, in fact completely frivolous.
Note: We do not delve into the standards used by the Dae court to determine the potential merit of the no contest petition because the Residuary Trust became irrevocable when Erin died in 1995. Under Probate Code section 21315, California’s current no contest clause statutes applies only to instruments that became effective after 2000.
Should Petitions to Enforce No Contest Clauses Be Subject to Anti-SLAPP?
Dae v. Traver teaches that a litigant should think long and hard before spending money on an anti-SLAPP motion. It is a tall order to ask a court to find that there is not even “minimal merit” in any but the most egregious litigation actions. The risk may not be worth the reward.
Although anti-SLAPP motions targeting no contest clause enforcement are hard to win, they are sufficiently common to draw an attempt at legislative reform. The Executive Committee of the Trusts and Estates Section of the California Lawyers Association sponsored Senate Bill 329, arguing that the anti-SLAPP statute was not intended to apply to no contest clause enforcement and offered minimal upside while opening the door to needless litigation and cost. SB 329 passed in the Senate but did not advance to an Assembly vote during 2021 in the face of opposition from defenders of the anti-SLAPP statute.