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California ‘Breslin’ Probate Decision Allows Trial Courts to Compel Trust Beneficiary Mediation

April 12, 2021, 8:00 AM

California courts hearing trust disputes traditionally enjoyed wide-ranging powers. As courts of equity, case law and statutes afforded them broad discretion to reach just results. But prior case law tempered this discretion within reason.

A recent published decision from the California Court of Appeal—Breslin v. Breslin, No. B301382 (Cal. Ct. App., April 5, 2021)—greatly expanded the authority of the trial courts in trust proceedings. The opinion, resulting from a 2-1 vote, holds for the first time that trial courts in trust proceedings may require parties to attend mediation or risk “forfeiting” their interests in a trust, and may alter the general pre-trial procedure of trust proceedings in the trial court’s discretion. In addition, the implications of the broad interpretation of a trial court’s authority under California Probate Code Section 17206 afford courts hearing trust proceedings nearly unlimited power to issue any order in their discretion.

Beneficiaries of trusts—even those that are not a party to the lawsuit—must now vigilantly monitor proceedings because otherwise their inaction could result in forfeiture of their interests in the trust. They should no longer take for granted that mediation is voluntary—it is not.

The Breslin Opinion

The court summarized the case in a few short sentences:

“The trustee of a decedent’s trust petitioned the probate court to determine [who were] the trust beneficiaries. The potential beneficiaries received notice of the petition. The probate court ordered the matter to mediation. The same potential beneficiaries received notice of the mediation, but some did not participate. The participating parties reached a settlement that excluded the nonparticipating parties as beneficiaries. The probate court approved the settlement. The nonparticipating parties . . . appeal. We affirm. A party receiving notice under the circumstances here, who fails to participate in court-ordered mediation, is bound by the result.”

The trustee filed its petition to determine the trust’s beneficiaries and served it on 24 charities identified in documents left by the decedent as potential beneficiaries of his trust. Of those 24 charities, only three objected to the trustee’s petition.

The trial court ordered mediation among interested parties, including both intestate heirs and the 24 charities. One of the charities sent a notice to everyone with an interest in the trust, including the other charities. The notice warned that “[n]on-participating persons or parties who receive notice . . . may be bound by the terms of any agreement reached at mediation . . ..”

Only five of the 24 charities participated in the mediation. Those who did participate reached a settlement awarding specific amounts to various parties, and excluding some non-attending charities. The trustee petitioned the trial court to confirm the settlement, and the non-appearing charities objected to that petition. The trial court overruled their objections because “they neither filed a response to [the trustee’s] petition to determine the beneficiaries nor appeared at the mediation.”

The Court of Appeal affirmed, holding that by failing to participate in the mediation the charities’ waived any right they might otherwise have had to object to the settlement, thereby forfeiting any interest in the trust.

The Breslin Opinion Broadly Expands the Trial Court’s Authority to Compel Mediation, Alter Pretrial Civil Procedure, and Make Any Other Orders in its Discretion

In reaching its remarkable conclusion, the Breslin court relied on a vague and general statute concerning the court’s power when hearing a trust matter: “The court in its discretion may make any orders and take any other action necessary or proper to dispose of the matters presented by the petition, including appointment of a temporary trustee to administer the trust in whole or in part.” Probate Code Section 17206 (“The probate court has the power to order the parties into mediation.”). Although this statute says nothing about mediation, the court nevertheless concluded that it authorized the trial court to rule that the objecting charities’ failure to participate in the court-ordered mediation precluded them from receiving anything from the trust.

In addition, the court held that Probate Code Section 17206 allows probate courts to alter the procedure by which a trust action proceeds: “The . . . parties complain they were denied an evidentiary hearing [i.e., trial]. But the probate court has the power to establish the procedure. (§ 17206.) It made participation in mediation a prerequisite to an evidentiary hearing… By failing to participate in the mediation, the . . . parties waived their right to an evidentiary hearing. It follows that the . . . parties were not entitled to a determination of factual issues . . . and cannot raise such issues for the first time on appeal.”

Traditionally, mediation offers parties in trust and estate disputes a vehicle by which they can craft creative resolutions to complex disputes beyond the confines of a court’s limited toolbox. One of the keys to the success of this process is its voluntariness. “Critical to [mediation] is the concept of self-determination, leaving the parties in control of resolving their own dispute. . . . A mediator must conduct the mediation in a manner that supports the principles of voluntary participation and self-determination by the parties.” Travelers Casualty and Surety Co. v. Sup. Ct. (Clergy Cases I). Under Breslin, mediation is no longer “alternative” or “voluntary” in trust matters. Rather, a court considering a trust petition may require that everyone claiming a right to a distribution from a trust must participate in mediation at the risk of “forfeiting” their rights as a beneficiary.

Breslin not only disregards extensive prior case law emphasizing the voluntary nature of mediation, it ignores precedent severely restricting the forfeiture of a beneficiary’s interest in a trust. See, e.g., Tunstall v. Wells (“The traditional public policy disfavoring forfeitures also concerns testamentary no contest clauses.”); see also Probate Code Section 21311 (providing a limited definition of actions that can constitute direct contests in violation of a no contest clause).

In forcing beneficiaries to mediate on threat of forfeiting their interest in a trust, the Breslin case eviscerates the effectiveness of mediation. As the Travelers court observed, the voluntary nature of mediation drives its success: mediation affords parties an opportunity to meaningfully engage in creative settlement negotiations on their own terms. Forcing beneficiaries to engage in mediation will inevitably result in wasted time and unnecessary expenses for litigants who must compensate both their counsel and the mediator. Indeed, a court should never learn if a party meaningfully participated in mediation or simply attended as a pro forma act to comply with the court’s order, as all discussions at mediation are confidential. Evidence Code Section 1119; see, e.g., Campagnone v. Enjoyable Pools & Spas Service & Repairs, Inc. (A party, but not a mediator, may report a failure to attend mediation. “However, reporting anything more may violate the confidentiality rules.”).

Beyond the specific ruling authorizing trial courts to compel mediation on the penalty of forfeiting the right to a trial and any gift from the trust if a party does not mediate, the Breslin court’s broad interpretation of Probate Code Section 17206 sets a dangerous precedent. The Breslin court’s reliance on Probate Code Section 17206 as essentially authorizing any order in the trial court’s discretion raises a concerning question: are there any limits on the probate court’s discretion “to dispose of the matters presented by the petition” in a trust case? May a probate court determine that drafting attorneys cannot assert the attorney work product with respect to notes in their estate planning file, as discovery would assist in resolution of the petition? Could a court disqualify counsel of a trustee’s choice for litigating too aggressively? Could a court shift the burden of proof to the party seeking to uphold a trust in a trust contest because that would result in a more efficient trial? Before the opinion in Breslin, all of these possibilities seemed extreme. In its wake, probate courts may and will draw on Breslin’s interpretation of Probate Code Section 17206 to exercise nearly limitless authority.

Beneficiaries Must Take Heed of Breslin and Attend a Court-Ordered Mediation or Potentially Lose Their Interest

Many attorneys disagree with Breslin, but they and their clients must nevertheless heed its ruling, which is binding on all California trial courts. Auto Equity Sales, Inc. v. Sup. Ct. (Hesenflow) (“Under the doctrine of stare decisis, all tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction.”). The message is clear: beneficiaries who receive notice of a court-ordered mediation in a trust case must appear. Otherwise, they will risk losing any right they claim to a distribution. Objecting to a settlement agreement cutting them out may be no use because, as in the Breslin case, the court may not even consider the objections.

In Breslin, the charities that did not appear at mediation had small individual gifts. In the aggregate, however, their gifts were substantial. Had the charities banded together around their common, substantial interest, retained a firm to advance their shared interests, and share the costs on a proportionate basis, they could have avoided forfeiting their gifts. There is strength in numbers. In the wake of Breslin, beneficiaries—even of small gifts—should look for ways to leverage their collective interest in a trust to protect their individual gifts.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Andrew R. Verriere is a shareholder with Hartog Baer & Hand APC in Orinda, Calif. His practice focuses on trust and estate litigation, conservatorship litigation, financial elder abuse, related litigation, and appeals. He may be reached at averriere@hbh.law.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.

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