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Dominic J. Campisi (SBN 63326)
DCampisi@ele-law.com
Andrew Zak ronsky, (SBN 115339) ELECTRONICALLY
|ZabYons! c-law.com
EVANS, PATIAM & CAMPISI sopekr IL ED.
gue Fost Street, Suite 600 County of San Francisco
an Francisco,
Telephone: (415) 421-0288 AUG 08 2014
Facsimile: (415) 421-0464 BY: ELIVABETH FONG
Attorneys for Miles Jeffrey Qvale Deputy Clerk
Individually and as Trustee
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
) Case No. PTR-13-297016
In the Matter of the
Kathryn C. Qvale Exempt Marital
BRIEF REGARDING SUSPENSION OF
Trust, dated January 31, 2006
CO-TRUSTEES
Miles Jeffrey Qvale, individually and as trustee,
Date: August 27, 2014
Time: 2:00 p.m,
Dept.: Probate, Room 204
VS.
Bruce H. Qvaie, Laura Hiura, and Does 1-10
Miles Jeffrey Qvale, individually and as trustee,
Vs.
Bruce H. Qvale, Qvale Automotive Group, a
California corporation, and Does 1-10
Ne
Miles Jeffrey Qvale (“Jeff”) individually and as co-trustee of the Kjell H. Qvale Survivor’s
Trust (“Survivor's Trust”), the Kathryn C, Qvale Exempt Marital Trust (“Exempt Trust”), the
Kathryn C. Qvale Nonexempt Marital Trust (“Nonexempt Trust”) and the Kathryn C. Qvale GST
Trusts (“GST Trusts”) and has filed Petitions herein seeking, inter alia, to suspend the powers of
Co-trustees Bruce H. Qvale (“Bruce”) and Laura Hiura (“Hiura”) and to appoint Ronald Hayes
Brief Regarding Suspension of Co-Trustees Case No. PTR-13-297016
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Malone and Bette B. Epstein as Special Trustees in their place pursuant to Probate Code §§ 8500(b)
and 15642(e) in the respective trusts.
The Respondents filed a Preliminary Opposition to the Petition to Remove, Suspend, and
Instruct Co-Trustee, along with declarations of the Respondents Bruce and Hiura and of Jordan
Rose, Esq. in the Survivors, Exempt and Nonexempt proceedings,
At the hearing held herein on August 4, 2014, the Court requested briefing on the authority
of the Probate Court to suspend trustees prior to an evidentiary hearing and the desirability of such
a result.
The Respondents have now filed Demurrers and Motions to Strike Jeff's First Amended
Petition’s to Determine Validity in the Survivor’s, Exempt and Nonexempt Trust proceedings as
well as an Answer to Jeffs First Amended Petition for Conveyance of Property Belonging to Trust
in the Exempt Trust matter.
A. This Court Has Broad Discretion to Suspend the Fiduciaries’ Powers Pending an
Evidentiary Hearing on Removal
The ability of a probate court to suspend trustees and appoint special trustees to take
possession of trust assets and to administer the trust pending an evidentiary hearing on permanent
removal is a fundamental power of the probate court, incidental to its “’duty imposed by law to
inquire into the prudence of the ‘Trustee’s administration.’ (Lazzarone v. Bank of America (1986)
181 Cal. App. 3d 581, 594, & fn10, citing McLellan (1941) 17 Cal. 2d 552...& Carr v. Bank of
America etc. Assn. (1938) 11 Cal. 2d 366....’” Schwartz v. Labow (2008) 164 Cal.App.4th 417,
427.
The Court of Appeals in Labow affirmed the decision of the probate court to suspend a
trustee pending resolution of objections to the trustee’s accounting and removal requests by
beneficiaries, despite the lack of an evidentiary hearing. This power is codified in Probate Code
§15642(e) which provides:
“If it appears to the court that trust property or the interests of a beneficiary may
suffer Toss or injury pending a decision on a petition for removal of a trustee and
any appellate review, the court may, on its own motion or on petition of a
cotrustee or beneficiary, compel the trustee whose removal is sought to surrender
trust property to a cotrustee or to a receiver or temporary trustee. The court may
also suspend the powers of the trustee to the extent the court deems necessary.”
Brief Regarding Suspension of Co-Trustees Case No. PTR-13-297016Cm RB DHA BR WH YH
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The Court of Appeals heid that the probate court properly suspended the trustee, even though there
was no evidentiary hearing and the probate court acted sua sponte:
To preserve the trust and to respond to perceived breaches of trust, the probate
court has wide, express powers to ‘make any orders and take any other action
necessary or proper to dispose of the matters presented’ by the section 17200
petition. (§17206.) Among the remedies in the probate court’s arsenal is the
express power to remove a trustee on its own motion, without a petition (§15642,
subd, (a); see 3 Cal. Civil Practice: Probate & Trust Proceedings (2d ed. 2005)
Remedies, $8 24:96, pp. 24-102 to 24-105 & 24:47, p. 24-60), along with the
express authority to suspend a trustee pending a hearing on a petition for the
trustee’s removal. (§ 15642, subd. (e).)” Schwartz v. Labow (2008) 164
Cal.App.4th at 427,
Further, as the Court held in Labow,
“More important, the probate court has the ‘inherent power to decide all incidental
issues necessary to carry out its express owers to supervise the administration of
the trust,’ (Estate of Hegestad (1993) 16 Cal App.4th 943, 951, 20 Cal. Rptr.2d
433, italics added.) This inherent equitable power of the probate court has long
been recognized to encompass the authority to take remedial action. ‘Under
California trust law, a court can intervene fo prevent or rectify abuses of'a trustee’s
powers. [Citations.]’ (Kdwards v. Edwards (1998) 61 Cal.App.4th 599, 604, 71
Cal. Rptr.2d 653.) And, where a probate court has the express authority to remove a
trustee sua sponte (§ 15642, subd. (a)), it necessarily has the inherent equitable
power to employ the less extreme remedy of suspending most of the trustce’s
powers and appointing an interim trustee pending a hearing. (Getty v. Getty (1988)
205 Cal. App.3d 134, 142, 252 Cal.Rptr. 342 [where probate court has authority in
exercise of its general jurisdiction to remove a trustee, it may also, in exercise of
inherent equity jurisdiction, take the ancillary step of removing only some of the
trustee’s powers and appointing a trustee ad litem].” Ibid at 427-428.
Where a fiduciary has a conflict because of disputes with beneficiaries, the fiduciary should
be removed. Estate of Hammer (1993) 19 Cal. App.4" 1621, 1638 (executor removed and a neutral
fiduciary appointed due to disputes over title to property of his deceased wife outside of the
probate.) In Hammer, the executor was in litigation with a beneficiary in another forum. The
Court held that the probate court had erred in refusing to suspend the executor and appoint a special
fiduciary to take over administration:
Under these conditions, we question the ability of the beneficiary and the court to
maintain any confidence that the executor properly will protect the interests of the
estate and the beneficiary, even though the conflict exists as to a matter not directly
related to the probate action. As pointed out in Jeffry v. Pounds, ‘Professional
responsibility rules seek the objective of public confidence, as well as internal
integrity. A lay client is likely to doubt the loyalty of a lawyer who undertakes to
oppose him in an unrelated matter. Hence the decisions condemn acceptance of
employment adverse to a client even though the employment is unrelated to the
existing representation. Basis of the condemnation is the client’s loss of
confidence, not the attorney’s inner conflicts.’ (67 Cal.App.3d at pp. 10-11, 136
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Cal.Rptr. 373; fs. omitted.)
‘There is nothing in the statutory law which expressly or by implication attempts to
deprive the court of its inherent power to remove an executor or administrator
whose self-interest is so opposed to the interests of the beneficiaries under a will as
to render him unfit to act as such. The court is not compelled to retain as its own.
officer one whom it would be required to remove from any other type of
trusteeship.’ (Estate of Guzzetta, supra, er Cal.App.2d at p. 173, 217 P.2d 460)”
Estate of Hammer (1993) 19 Cal.App.4” at 1641-42,
In Getty, the trustee had been indemnified by the purchaser of the principal assct of the
trust, and hence had a conflicting interest in litigation involving the sale. The Court suspended the
trustee and appointed a special trustee. Following the case, the legislature codified the holding by
adopting Prob, C. §15642(e). The Law Revision Commission commentary to the section states:
“Evidence of actual wrongdoing is not required in order to remove a trustee, since
the purpose is to preserve trust assets. The power to remove a trustee includes
partial removal by appointing a trustee ad litem when a trustee was sued. There
was a conflict of interest because both the claimants and the trustee had an interest
in showing that the trustee had acted properly so the claimants could reach the trust
assets in satisfaction of their claim, and that interest was inimical to the
beneficiaries. Getty v. Getty, 205 Cal. App.3d 134...”
B. Conflicts Over Exempt Trust Assets
Here Bruce and Hiura have admitted their conflicts with their beneficiaries, Jeff and Kjell’s
seven grandchildren. Both Bruce and Hiura admit that they are trustees of the existing GST Trusts
of which six of the grandchildren are beneficiaries. Declaration of Bruce Qvale in Support of
Preliminary Opposition to Petition for Removal (“Bruce Decl”) at 2:16-18. Bruce also admits being
a co-trustee of the Exempt Trust, where the terms of the trust name the grandchildren as
remaindermen. Similarly, Bruce and Hiura are co-trustees of the Survivor’s Trust, which names the
seven grandchildren as remaindermen of Kjell’s Generation Skipping Trust assets, Bruce Decl, at
2:23-25. Jeff is a beneficiary of all three trusts under the January 30, 2013 estate plan.
Bruce has admitted that he took part in the redemption of the QAG shares held in the
Exempt Trust, “As the CEO of QAG and voting member of QE, I signed papers that effectuated
those transactions” (Bruce Decl. at 4:24-25) and that such shares were acquired at a discounted
value (Bruce Decl at 3:19-25).
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Bruce, Hiura, and QAG have now responded to the Prob. C. §850 Petition in the Exempt
Trust proceeding, opposing the relief sought to recover 5,636 shares of QAG for the grandchildren
(Answer to First Amended Petition for Conveyance of Property Belonging to Trust dated August 7,
2014). Hence there is no dispute that both co-trustees are in a position of conflict with the
grandchildren, and with Jeff, who has brought the First Amended Petition for Conveyance of
Property to recover the 5,636 QAG shares and damages for the grandchildren.
As the Court held in Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 905-906:
“A trustee also is strictly prohibited from engaging in transactions in which the
trustee's personal interests may conflict with those of the beneficiaries without the
express authorization of either the trust instrument, the court, or the beneficiaries.
(Bogert, supra, §§ 543 & 543(U), pp. 218-219, 422-440; Rest.3d Trusts, § 78(2)
& com. b, pp. 95-96.) It is no defense that the trustee acted in good faith, that the
terms of the transaction were fair, or that the trust suffered no loss or the trustec
received no profit. This is known as the no further inquiry rule, (Bogert, supra, §
543, pp. 247-248; Rest.3d Trusts, § 78, coms. b & d, pp. 95-96, 103-104.) Such a
transaction is voidable at the election of the beneficiaries, and other remedies ma
be available, including an award of profits that the trust would have made if not for
the breach of trust. (Bogert, supra, §§ 543 & 543(V), pp. 247, 441-452; Rest.3d
Trusts: Prudent Investor Rule, §-206, com. a, p. 229.) This rule is prophylactic and
is justified in part by its deterrent effect. (Bogert, supra, § 543, pp. 246-247;
Rest.3d Trusts, § 78, com. b, p. 96.)”
The Court held in Wolf’, Superior Court (2003), 107 Cal.App.4th 25, 30:
“Inherent in each of these relationships [trustee/beneficiary] is the duty of
undivided loyalty the fiduciary owes to its beneficiary, imposing on the fiduciary
obligations far more stringent than those required of ordinary contractors. As
Justice Cardozo observed, ‘Many forms of conduct permissible in a workaday
world for those acting at arm's length, are forbidden to those bound by fiduciary
ties. A trustee is held to something stricter than the morals of the market place, Not
honesty alone, but the punctilio of an honor the most sensitive is then the standard
of behavior.’ (Meinhard y. Salmon (1928) 249 N.Y, 458, 464 [164 N.E. 545, 546,
62 ALR. 1],)”
In the face of such stark conflicts, neither the Court nor the beneficiaries could “maintain,
any confidence that the executor properly will protect the interests of the estate and the
beneficiary,” as stated by the Court in Hammer, 19 Cal. App. 4" at 1641-42. Bruce and Hiura
have conflicts of interest with the grandchildren who are their beneficiaries in the GST Trusts and
also beneficiaries of the Survivor’s Trust. They must be suspended.
Based on their own admissions and pleadings, the two co-trustees are in a position of
conflict with their beneficiaries, opposing efforts to recover assets for their beneficiaries. This is a
zero-sum dispute with their beneficiaries and they have demonstrated that they will continue to act
Brief Regarding Suspension of Co-Trustees Case No. PTR-13-297016oo ND WA Bb ww
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with enormous vigor, filing motions to quash, motions to strike, demurrers and imposing huge
expense on their beneficiaries through the aggressive tactics of Manatt and Keker & Van Nest.
Bruce and Hiura’s counsel have produced approximately 1,000 documents with redactions and
blacked out pages, including crucial documents needed to determine the GST allocations which
were improperly calculated in 2006 by counsel,
In their August 7, 2014 Answer to Jeffs First Amended Petition for Conveyance of
Property, Hiura, Bruce and QAG admit that “no interest income was transferred to Kjell in
connection with the notes” payable to the Exempt Trust, paragraph 35, at 6:13-15. The Exempt
Trust was a QTIP trust requiring that all income be distributed to Kjell. Instead, Manatt supervised
multiple fiduciary tax returns listing the Exempt trust as a “complex” trust, and disclosing no
income distributions to Kjell.
Successor trustees have a duty to enforce claims held by the predecessor trustees and by
current trustees, Cal. Prob. C.§16010, including claims for negligence or malpractice by attorneys
involved in providing tax services, Borissoff'v. Taylor & Faust (2004) 33 Cal. App. 4" 523, 535.
Bruce and Hiura, represented by Manatt (Rose Decl. 1:18-19), are unwilling and unable to seek
redress from Manatt for tax and estate planning errors, and hence must be suspended and
independent trustees appointed to defend the trust and properly to prepare the estate tax return and
any modifications of earlier tax returns required.
C, Conflicts Regarding the Proposed Merger of Bruce’s Company with QAG
Bruce admits that he attempted to merge his company, ARBM, with QAG, bringing a
Petition for Instructions in September 2013 to allow him to consummate the merger and, with
respect to the QAG shares he and Hiura held for the grandchildren in the GST Trusts, “to buy them
out.” Bruce Decl. at 8:6-9. The Petition on its face was not served on the grandchildren. Bruce had
numerous conflicts with respect to this proposed transaction. The matter was taken off calendar,
but the Petition was not dismissed. As part of this process, Bruce and Hiura admitted that they
caused Qvale Enterprises, LLC (“QE”) to distribute QAG shares to various trusts for the benefit of
the grandchildren, including trusts for the grandchildren of which Bruce was a trustee (Jeff was
trustee of the trusts of his children which received such QAG shares in October of 2013). Bruce
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Decl. 6:25-7:4, and Exhibit A thereto. In the Petition for Instructions Bruce threatened to acquire
the QAG shares of any shareholders who objected to the Subchapter S election “as part of a “short-
form merger procedure under California Corporations Code $1110,” according to his verified
petition.
The Petition for Instructions disclosed conflicts of interest between Bruce’s personal
interests and those of his beneficiaries, requiring the suspension of Bruce and Hiura.
D. Breaches of Fiduciary Duty by Bruce and Hiura
A trustee has a duty of loyalty which is breached when the trustee threatens or brings
pressure on the beneficiary in order to obtain a benefit for the trustee. The Court of Appeals in
Estate of Gump (1992) 1 Cal.App.4th 582, 596, held that “by threatening objecting beneficiaries
that the substantial expense of an audit would be charged solely to their income shares in an
attempt to pressure the beneficiaries into dropping their contests and objections to the eighth
account, Wells Fargo committed a knowing breach of trust, as well as a breach of its duty of
loyalty. (§16002, subd. (a); former Civ. Code, § 2228; Rest.2d Trusts, supra, § 170(1).).”
Here Bruce filed a petition seeking to force the approval of the beneficiaries and their
trustee, Jeff, by threatening a merger with ARBM and a corporate squeeze out of their QAG shares.
There is no dispute about the existence of this threat, since it is contained in the filed Petition.
Similarly, there is no dispute that Bruce phoned his beneficiary Chris Qvale and left a
threatening message, threatening “World War II between me, you and your dad.” The verified
Preliminary Opposition at 21:13-19 admits that Bruce left the voicemail for Chris Qvale on
September 21,2012. In the voicemail Bruce does not disclose that he was in the process of
redeeming 21% of the QAG shares from the Exempt Trust of which Chris was a named
beneficiary. The voicemail discloses Bruce’s demand that Chris not talk to his grandfather about
being given an interest in a QAG dealership. He stated that his recent actions which gave Chris “a
bigger percentage of British Motors and of the entire company,” disclosing that Bruce in fact was
fully involved and aware of Kjell’s current estate planning documents (Rose Decl, 4:10-18). What
he failed to disclose was that Chris would have been entitled to 3% of QAG if the proposed
changes to the plan and redemption did not take place, and that Bruce was involved in the
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transaction to the detriment of Chris and his siblings.!
As trustee Bruce and Hiura have a duty to provide information to their beneficiaries, The
Supreme Court in Wells Fargo y. Superior Court (2000) 22 Cal. 4" 201, 207-discussed the general
duty of a trustee to account to the beneficiaries:
...[w]e acknowledged the trustee's common law duty to report to
beneficiaries, a duty later codified in Probate Code sections 16060 and
16061." More specifically, we held that “[a] trustee has the duty to the
beneficiaries to give them upon their request at reasonable times complete
and accurate information relative to the administration of the trust”
(Strauss v. Superior Court, supra, at p. 401, 224 P.2d 726) and that “the
trustee's records as to the administration of the trust are deemed a part of
the trust estate, and the right of the beneficiaries to an inspection of them
stems from their common interest in the property along with the trustee”
Ga. at p. 402, 224 P.2d 726). Our earlier decision in Union Trust Co. v.
uperior Court, supra, 11 Cal.2d at pages 460-462, 81 P.2d 150, is to the
same effect...
Sec the California Law Revision Commission's comment to Probate Code
section 16060: “The section is drawn from the first sentence of Section 7
303 of the Uniform Probate Code (1987) and is consistent with the duty
stated in prior California case law to give beneficiaries complete and
accurate information relative to the administration of a trust when
requested at reasonable times. See Strauss v. Superior Court....” (Cal.
Law Revision Com. com, 54A West's Ann. Prob.Code (1991 ed.) foll. §
16060, p. 51.) Wells Fargo v. Superior Court (2000) 22 Cal. 4201, 207
fn.1.
(See also, Restatement (Third) of Trusts §82; Restatement (Second) of Trusts §173 comment c
[“Although the terms of the trust may regulate the amount of information which the trustee must
give and the frequency with which it must be given, the beneficiary is always entitled to such
information as is reasonably necessary to enable him to enforce his rights under the trust or to
prevent or redress a breach of trust”’].)
' Jordan Rose admitted that after Bruce took control of QAG, Rose dealt with Hiura as
Kjell’s proxy (Rose Decl 2:18-22), Bruce became President of QAG in July of 2011 (Bruce Decl
2:2-3,) In addition to Bruce’s direct involvement in the planning, Hiura’s role as proxy (when she
was an employee of Bruce), triggered a presumption of undue influence, Estate of Clegg (1978) 87
Cal. App. 3d 594 (attorney affiliated with beneficiary prepares estate plan); Estate of Auen (1994)
30 Cal. App. 4""300 at 307 (attorney who drafted trust was not an “independent attorney”; cites
Clegg re effect of conflicts). Additionally Manatt represented Bruce in estate planning in 2012 and
thereafter without providing a disclosure and obtaining informed consent from Kjell about such
conflicts. No disclosure and waiver of such estate planning conflicts has been produced.
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The duty to disclose cannot be eliminated by a settlor. The First Appellate District held in
Salter v, Lerner (2009) 176 Cal App 4" 1184, 1188, that the trust instrument cannot waive the duty
to produce material information needed by the beneficiary to protect their interest or to prevent or
redress a breach of trust:
“Under section 16064, ‘[t]he trustee is not required to report information
or account to a beneficiary ... (t a) [t]o the extent the trust instrument
waives the report or account....” The parties agree that unlike sections
16061 and 16062, the duty imposed under section 16060 is not subject to
waiver under section 16064, Likewise, ‘[t]he availability of information
on request under [sections 16061 and 16062] does not negate the
affirmative duty of the trustee to provide information under Section
16060.’ iyi aw Revision Com. com., 54A West's Ann. Prob,Code
(1990 ed.) foll. § Lo0GT. P. 52; see also Campisi & Latham (Cont,Ed.Bar
2007) Cal. Trust and Probate Litigation, § 13.1 [The duty to provide
information under section 16060 ‘is independent of, and potentially even
broader than the duty to report under ... section 16061 or to account under
« Section 16062’].)”
The Law Revision Commission Comments to Prob. C. §16060 state that “if the trustee is
dealing with the beneficiary on the trustee’s own account, the trustee has a duty to communicate
material facts in connection with the transaction that the trustee knows or should know. The trustee
also has a duty to communicate material facts affecting the beneficiary’s interest that the trustee
knows the beneficiary does not know and that the beneficiary needs to know for protection in
dealing with a third person.” Here Brace knew Chris was talking to Kjell at a time when the
transfer of the Exempt Trust’s interest to Bruce and the redemption of the QAG shares by Bruce’s
company QAG were being discussed with Kjell.
Hence there is no dispute that Bruce failed to disclose the material facts of the situation to
Chris at a time when Chris and his grandfather were discussing Kjell’s estate plan. Given the
conflict involved in the redemption, this was a serious breach of trust.
A beneficiary needs to be able to rely on his or her trustee to make full disclosure of
material facts, particularly when the trustee is obtaining a benefit at the expense of the beneficiary. «
Suspension of Bruce and Hiura is required, since they cannot be trusted to disclose material
facts to their beneficiaries in light of their admitted misconduct in misrepresenting material facts
and failing to disclose material facts to their beneficiaries,
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E, Desirability of Suspension
These trusts do not operate British Motors or Qvale Automotive Group. Since 2011 Bruce
and Hiura have run the automotive business after he obtained voting control from various gifts and
redemptions. What is involved here is simply the administration of three trusts whose assets are
being liquidated, including approximately $47 million paid last week to the IRS. The records of
the Marital Trusts have been transferred to Ronald Hayes Malone and are being managed by an
accounting firm hired by the trustees. The Survivor’s Trust records, however, are held in San
Francisco by Bruce and Hiura and access to the full documents has been restricted.
The estate tax return will be due in six months. Ronald Hayes Malone has hired
experienced tax counsel to advise him. Bette B. Epstein similarly is capable of dealing with such
an estate tax return and the expected audit.
Bruce and Hiura have admitted that they are using the Manatt firm to prepare the draft
estate tax retun. This use of Manatt has been over the objections of Jeff, who alleged in the
Removal Petition, paragraph 42, at 14:20-24, that Manatt has conflicts of interest and that an
independent tax preparer should be engaged for all four trustees.
A large number of problems have been discovered since May 9, 2014, when Bruce and
Hiura finally provided a copy of Kathryn Qvale’s 2006 706 Estate Tax Return to Malone and Jeff.
Neutral and expert trustees will be needed to deal with all of these issues, rather than having Bruce
and Hiura and Manatt litigating vociferously over the problems created by their accounting and
estate planning missteps. For so long as Bruce and Hiura are in a position to control the documents
and draft estate tax return through Manatt, they will employ “a spare-no-expense,” “leave no field
unfurrowed” and “act without regard to cost [strategy] in protecting [their] own personal interests.”
(Donahue v. Donahue (2010) 182 Cal. App. 4th 259, 273.)
Hiura and Bruce and Manatt have redacted and blacked out portions of at least 1,000
documents necessary to assess the intent of the settlors, to evaluate the problems caused by
directing estate taxes to be paid from the tiny residue of the Exempt Trust, from the mistaken
calculation of the allocation of assets to the GST trusts, and multiple other issues which must be
resolved to prepare the estate tax return and deal with its audit. All of these records belong to the
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successor trustees during administration, and are part of the residue of the Trusts, which pass to Jeff
under the current estate plan, pursuant to Probate Code §§7000 and 7001.
Independent trustees with experience in such matters should be in control of Kjell’s
documents and able to utilize them for the benefit of the Trusts.
CONCLUSION
For the foregoing reasons, the Court should exercise its authority to suspend the powers of
the Bruce Qvale and Laura Hiura and appoint Bette B. Epstein and Ronald Hayes Malone as co-
trustees in their place to protect the trusts and the beneficiaries from suffering further loss or injury
pending a trial on their removal and the inevitable appellate review, Cal. Prob.Code §15642(2).
Respectfully submitted,
Dated: August 8, 2014 EVANS, LATHAM & CAMPISI
Attorneys fg OF Miles Jeffrey Qvale
Brief Regarding Suspension of Co-Trustees : Case No, PFR-13-297016NY RH A Bw WY
PROOF OF SERVICE
1am employed in the City and County of San Francisco, California, I am over the age of 18
and am not a party to the within action. My business address is One Post Street, Suite 600, San
Francisco, California 94104. On August 8, 2014, I served the documents described as:
BRIEF REGARDING SUSPENSION OF CO-TRUSTEES
on the interested parties to this action by placing a true and correct copy thereof enclosed in a sealed
envelope addressed as follows:
SEE ATTACHED SERVICE LIST
XX___ (BY U.S. AIR MAIL) In accordance with the regular mail collection and processing practices of
Evans, Latham & Campisi, with which I am familiar, by means of which mail is deposited postage
paid with the U.S. Postal Service at San Francisco, California that same day in the ordinary course of
business, I deposited such sealed envelope for mailing on this same date following ordinary business
practices.
XX_ (BY EMAIL) BY ELECTRONIC TRANSMISSION PURSUANT TO AGREEMENT OF
COUNSEL: By electronically mailing a true copy thereof to each of the electronic addresses shown on
the attached service list. No error in transmission was reported.
I declare under penalty of perjury under the laws of the State of California that the above
is true and correct. Executed on August 8, 2014 at San Francisco, California, fo
f » fie
Pup al /
Bernadette T, Daly /)
€
-1e
PROOF OF SERVICEPROOF OF SERVICE
SERVICE LIST August 8, 2014
Barry Lee, Esq.
Veronica Cerutti
Manatt, Phelps & Phillips, LLP
One Embarcadero Center, 30" Floor
San Francisco, CA 94111
BWLee@manaitt.com
VCerruti@manatt.com
Edward Koplowitz, Esq.
MacInnis, Donner & Koplowitz
465 California Street, Suite 222
San Francisco, CA 94104
Eakatt@aol.com
Ronald Hayes Malone
909 Mustang Court
Petaluma, CA 94954
ron@circleoakequine.com
George Montgomery, Esq.
FRIEDMAN, MCCUBBIN, SPALDING,
BILTER ROOSEVELT & MONTGOMERY
425 California Street, 25" Floor
San Francisco, CA 94104
george@fomlaw,com
Monica Dell’Osso, Esq.
Burnham Brown
1901 Harrison Street, 14th Floor
Oakland, CA 94612-3501
mdell'osso@burnhambrown.com
Peter L. Muhs, Esq.
Cooper, White & Cooper, LLP
201 California Street, 17" Floor
San Francisco, CA 94111-5002
pmuhs@cwclaw.com
John W. Keker, Esq.
Ben Berkowitz, Esq.
Warren Braunig, Esq.
Abhishek Bajoria, Esq.
Keker & Van Nest LLP
633 Battery Street
San Francisco, CA 94111
jkeker@kvn.com
WBraunig@kvn.com
BBerkowitz@kvn.com
abajoria@kvn.com
Peter S, Meyers, Esq.
Meyers Urbatsch
625 Market Street, 4th Floor
San Francisco, California 94105
psmvers@myersurbatsch.com
PROOF OF SERVICE,In the Matter of the Kathryn C. Qvale Exempt Marital Trust, dated January 31, 2006
San Francisco County Superior Court Case No. (Case No. PTR-13-297016)
SERVICE LIST ~ VIA U.S, MAIL ONLY
Nancy Bong
23 Kingston Place
Walnut Creek, CA 94596
Roger Hansen
868 East 2830 South
Hagerman, ID 83332
Shirley Hansen
868 East 2830 South
Hagerman, ID 83332
Don Endo
21000 Glenwood Drive
Castro Valley, CA 94552
Raymonde Gely
3532 Sacramento Street, #2
San Francisco, CA 94118
Hubert Gely
3532 Sacramento Street, #2
San Francisco, CA 94118
Rita Jelinic
25385 Palomares Road
Castro Valley, CA 94552
Norma Hepworth
P.O. Box 871
Hailey, 1D 83333
Lillian Fredriksson
1318 Hale Drive
Concord, CA 94518
Karen Duarteau
2600 Nicasio Valley Road
Nicasio, CA 94946
August 8, 2014
Kendel Hailey Qvale
3500 Scott Street
San Francisco, CA 94123
Connor Hammond Qvale
98 Via Poinciana Lane
Boca Raton, FL 33487
Blake Henry Qvale
336 E. 18" St, Apt. E-2
New York, NY 10003
Christopher Kjell Qvale
2945 Pacific Ave., Unit 6
San Francisco, CA 94115
Caroline Paige Qvale
461 2nd St. #C227
San Francisco, CA 94107
Bruce H, Qvale
13260 Sabel Chase
West Palm Beach, FL 33418
Laura Hiura
901 Van Ness Avenue
San Francisco, CA 94109
Miles Colin Qvale
147 Lagunitas Road.
Ross, CA 94957
(Minor beneficiary)
Miles Jeffrey Qvale
147 Lagunitas Road
Ross, CA 94957
(Parent of minor beneficiary,
Miles Colin Qvale)
Max Keaton Qvale
147 Lagunitas Road
Ross, CA 94957
Miles Jeffrey Qvale
147 Lagunitas Road
Ross, CA. 94957
(parent of minor beneficiary,
Max Keaton Qvale)
Monica Dell’ Osso, Esq.
1901 Harrison Street, 14th Fl.
Oakland, CA 94612-3501
(Guardian Ad Litem for
Minors Miles Colin Qvale and
Max Keaton Qvale)
Preview
oO OB IN DW BR WHY Ee bh oNR YP YP RNY RW = = ee eraaoes SSXSSGERBEWVTR AE CHE x S Dominic J. Campisi (SBN 63326) DCampisi@ele-law.com Andrew Zak ronsky, (SBN 115339) ELECTRONICALLY |ZabYons! c-law.com EVANS, PATIAM & CAMPISI sopekr IL ED. gue Fost Street, Suite 600 County of San Francisco an Francisco, Telephone: (415) 421-0288 AUG 08 2014 Facsimile: (415) 421-0464 BY: ELIVABETH FONG Attorneys for Miles Jeffrey Qvale Deputy Clerk Individually and as Trustee IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO ) Case No. PTR-13-297016 In the Matter of the Kathryn C. Qvale Exempt Marital BRIEF REGARDING SUSPENSION OF Trust, dated January 31, 2006 CO-TRUSTEES Miles Jeffrey Qvale, individually and as trustee, Date: August 27, 2014 Time: 2:00 p.m, Dept.: Probate, Room 204 VS. Bruce H. Qvaie, Laura Hiura, and Does 1-10 Miles Jeffrey Qvale, individually and as trustee, Vs. Bruce H. Qvale, Qvale Automotive Group, a California corporation, and Does 1-10 Ne Miles Jeffrey Qvale (“Jeff”) individually and as co-trustee of the Kjell H. Qvale Survivor’s Trust (“Survivor's Trust”), the Kathryn C, Qvale Exempt Marital Trust (“Exempt Trust”), the Kathryn C. Qvale Nonexempt Marital Trust (“Nonexempt Trust”) and the Kathryn C. Qvale GST Trusts (“GST Trusts”) and has filed Petitions herein seeking, inter alia, to suspend the powers of Co-trustees Bruce H. Qvale (“Bruce”) and Laura Hiura (“Hiura”) and to appoint Ronald Hayes Brief Regarding Suspension of Co-Trustees Case No. PTR-13-297016 -l-oC OP YN DR A BR Ww De YN N YP PN RNY YE oe eo XY Aa ESOS FT SF CRRA ESRAS Malone and Bette B. Epstein as Special Trustees in their place pursuant to Probate Code §§ 8500(b) and 15642(e) in the respective trusts. The Respondents filed a Preliminary Opposition to the Petition to Remove, Suspend, and Instruct Co-Trustee, along with declarations of the Respondents Bruce and Hiura and of Jordan Rose, Esq. in the Survivors, Exempt and Nonexempt proceedings, At the hearing held herein on August 4, 2014, the Court requested briefing on the authority of the Probate Court to suspend trustees prior to an evidentiary hearing and the desirability of such a result. The Respondents have now filed Demurrers and Motions to Strike Jeff's First Amended Petition’s to Determine Validity in the Survivor’s, Exempt and Nonexempt Trust proceedings as well as an Answer to Jeffs First Amended Petition for Conveyance of Property Belonging to Trust in the Exempt Trust matter. A. This Court Has Broad Discretion to Suspend the Fiduciaries’ Powers Pending an Evidentiary Hearing on Removal The ability of a probate court to suspend trustees and appoint special trustees to take possession of trust assets and to administer the trust pending an evidentiary hearing on permanent removal is a fundamental power of the probate court, incidental to its “’duty imposed by law to inquire into the prudence of the ‘Trustee’s administration.’ (Lazzarone v. Bank of America (1986) 181 Cal. App. 3d 581, 594, & fn10, citing McLellan (1941) 17 Cal. 2d 552...& Carr v. Bank of America etc. Assn. (1938) 11 Cal. 2d 366....’” Schwartz v. Labow (2008) 164 Cal.App.4th 417, 427. The Court of Appeals in Labow affirmed the decision of the probate court to suspend a trustee pending resolution of objections to the trustee’s accounting and removal requests by beneficiaries, despite the lack of an evidentiary hearing. This power is codified in Probate Code §15642(e) which provides: “If it appears to the court that trust property or the interests of a beneficiary may suffer Toss or injury pending a decision on a petition for removal of a trustee and any appellate review, the court may, on its own motion or on petition of a cotrustee or beneficiary, compel the trustee whose removal is sought to surrender trust property to a cotrustee or to a receiver or temporary trustee. The court may also suspend the powers of the trustee to the extent the court deems necessary.” Brief Regarding Suspension of Co-Trustees Case No. PTR-13-297016Cm RB DHA BR WH YH yN YY YN = BX FERRERS SERDARARDESDHAS The Court of Appeals heid that the probate court properly suspended the trustee, even though there was no evidentiary hearing and the probate court acted sua sponte: To preserve the trust and to respond to perceived breaches of trust, the probate court has wide, express powers to ‘make any orders and take any other action necessary or proper to dispose of the matters presented’ by the section 17200 petition. (§17206.) Among the remedies in the probate court’s arsenal is the express power to remove a trustee on its own motion, without a petition (§15642, subd, (a); see 3 Cal. Civil Practice: Probate & Trust Proceedings (2d ed. 2005) Remedies, $8 24:96, pp. 24-102 to 24-105 & 24:47, p. 24-60), along with the express authority to suspend a trustee pending a hearing on a petition for the trustee’s removal. (§ 15642, subd. (e).)” Schwartz v. Labow (2008) 164 Cal.App.4th at 427, Further, as the Court held in Labow, “More important, the probate court has the ‘inherent power to decide all incidental issues necessary to carry out its express owers to supervise the administration of the trust,’ (Estate of Hegestad (1993) 16 Cal App.4th 943, 951, 20 Cal. Rptr.2d 433, italics added.) This inherent equitable power of the probate court has long been recognized to encompass the authority to take remedial action. ‘Under California trust law, a court can intervene fo prevent or rectify abuses of'a trustee’s powers. [Citations.]’ (Kdwards v. Edwards (1998) 61 Cal.App.4th 599, 604, 71 Cal. Rptr.2d 653.) And, where a probate court has the express authority to remove a trustee sua sponte (§ 15642, subd. (a)), it necessarily has the inherent equitable power to employ the less extreme remedy of suspending most of the trustce’s powers and appointing an interim trustee pending a hearing. (Getty v. Getty (1988) 205 Cal. App.3d 134, 142, 252 Cal.Rptr. 342 [where probate court has authority in exercise of its general jurisdiction to remove a trustee, it may also, in exercise of inherent equity jurisdiction, take the ancillary step of removing only some of the trustee’s powers and appointing a trustee ad litem].” Ibid at 427-428. Where a fiduciary has a conflict because of disputes with beneficiaries, the fiduciary should be removed. Estate of Hammer (1993) 19 Cal. App.4" 1621, 1638 (executor removed and a neutral fiduciary appointed due to disputes over title to property of his deceased wife outside of the probate.) In Hammer, the executor was in litigation with a beneficiary in another forum. The Court held that the probate court had erred in refusing to suspend the executor and appoint a special fiduciary to take over administration: Under these conditions, we question the ability of the beneficiary and the court to maintain any confidence that the executor properly will protect the interests of the estate and the beneficiary, even though the conflict exists as to a matter not directly related to the probate action. As pointed out in Jeffry v. Pounds, ‘Professional responsibility rules seek the objective of public confidence, as well as internal integrity. A lay client is likely to doubt the loyalty of a lawyer who undertakes to oppose him in an unrelated matter. Hence the decisions condemn acceptance of employment adverse to a client even though the employment is unrelated to the existing representation. Basis of the condemnation is the client’s loss of confidence, not the attorney’s inner conflicts.’ (67 Cal.App.3d at pp. 10-11, 136 Brief Regarding Suspension of Co-Trustees Case No. PTR-13-2970160 DN DA BR WN Ny NM NY RY YY NY MY YY — er ack ON fF FS FSeERWARBEBAES Cal.Rptr. 373; fs. omitted.) ‘There is nothing in the statutory law which expressly or by implication attempts to deprive the court of its inherent power to remove an executor or administrator whose self-interest is so opposed to the interests of the beneficiaries under a will as to render him unfit to act as such. The court is not compelled to retain as its own. officer one whom it would be required to remove from any other type of trusteeship.’ (Estate of Guzzetta, supra, er Cal.App.2d at p. 173, 217 P.2d 460)” Estate of Hammer (1993) 19 Cal.App.4” at 1641-42, In Getty, the trustee had been indemnified by the purchaser of the principal assct of the trust, and hence had a conflicting interest in litigation involving the sale. The Court suspended the trustee and appointed a special trustee. Following the case, the legislature codified the holding by adopting Prob, C. §15642(e). The Law Revision Commission commentary to the section states: “Evidence of actual wrongdoing is not required in order to remove a trustee, since the purpose is to preserve trust assets. The power to remove a trustee includes partial removal by appointing a trustee ad litem when a trustee was sued. There was a conflict of interest because both the claimants and the trustee had an interest in showing that the trustee had acted properly so the claimants could reach the trust assets in satisfaction of their claim, and that interest was inimical to the beneficiaries. Getty v. Getty, 205 Cal. App.3d 134...” B. Conflicts Over Exempt Trust Assets Here Bruce and Hiura have admitted their conflicts with their beneficiaries, Jeff and Kjell’s seven grandchildren. Both Bruce and Hiura admit that they are trustees of the existing GST Trusts of which six of the grandchildren are beneficiaries. Declaration of Bruce Qvale in Support of Preliminary Opposition to Petition for Removal (“Bruce Decl”) at 2:16-18. Bruce also admits being a co-trustee of the Exempt Trust, where the terms of the trust name the grandchildren as remaindermen. Similarly, Bruce and Hiura are co-trustees of the Survivor’s Trust, which names the seven grandchildren as remaindermen of Kjell’s Generation Skipping Trust assets, Bruce Decl, at 2:23-25. Jeff is a beneficiary of all three trusts under the January 30, 2013 estate plan. Bruce has admitted that he took part in the redemption of the QAG shares held in the Exempt Trust, “As the CEO of QAG and voting member of QE, I signed papers that effectuated those transactions” (Bruce Decl. at 4:24-25) and that such shares were acquired at a discounted value (Bruce Decl at 3:19-25). Brief Regarding Suspension of Co-Trustees Case No, PTR-13-297016Se NDA RF wD BH bN YY NY YN NYY Ye He me me erNtank OSS SF SEAR GAGE BH AS Bruce, Hiura, and QAG have now responded to the Prob. C. §850 Petition in the Exempt Trust proceeding, opposing the relief sought to recover 5,636 shares of QAG for the grandchildren (Answer to First Amended Petition for Conveyance of Property Belonging to Trust dated August 7, 2014). Hence there is no dispute that both co-trustees are in a position of conflict with the grandchildren, and with Jeff, who has brought the First Amended Petition for Conveyance of Property to recover the 5,636 QAG shares and damages for the grandchildren. As the Court held in Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 905-906: “A trustee also is strictly prohibited from engaging in transactions in which the trustee's personal interests may conflict with those of the beneficiaries without the express authorization of either the trust instrument, the court, or the beneficiaries. (Bogert, supra, §§ 543 & 543(U), pp. 218-219, 422-440; Rest.3d Trusts, § 78(2) & com. b, pp. 95-96.) It is no defense that the trustee acted in good faith, that the terms of the transaction were fair, or that the trust suffered no loss or the trustec received no profit. This is known as the no further inquiry rule, (Bogert, supra, § 543, pp. 247-248; Rest.3d Trusts, § 78, coms. b & d, pp. 95-96, 103-104.) Such a transaction is voidable at the election of the beneficiaries, and other remedies ma be available, including an award of profits that the trust would have made if not for the breach of trust. (Bogert, supra, §§ 543 & 543(V), pp. 247, 441-452; Rest.3d Trusts: Prudent Investor Rule, §-206, com. a, p. 229.) This rule is prophylactic and is justified in part by its deterrent effect. (Bogert, supra, § 543, pp. 246-247; Rest.3d Trusts, § 78, com. b, p. 96.)” The Court held in Wolf’, Superior Court (2003), 107 Cal.App.4th 25, 30: “Inherent in each of these relationships [trustee/beneficiary] is the duty of undivided loyalty the fiduciary owes to its beneficiary, imposing on the fiduciary obligations far more stringent than those required of ordinary contractors. As Justice Cardozo observed, ‘Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place, Not honesty alone, but the punctilio of an honor the most sensitive is then the standard of behavior.’ (Meinhard y. Salmon (1928) 249 N.Y, 458, 464 [164 N.E. 545, 546, 62 ALR. 1],)” In the face of such stark conflicts, neither the Court nor the beneficiaries could “maintain, any confidence that the executor properly will protect the interests of the estate and the beneficiary,” as stated by the Court in Hammer, 19 Cal. App. 4" at 1641-42. Bruce and Hiura have conflicts of interest with the grandchildren who are their beneficiaries in the GST Trusts and also beneficiaries of the Survivor’s Trust. They must be suspended. Based on their own admissions and pleadings, the two co-trustees are in a position of conflict with their beneficiaries, opposing efforts to recover assets for their beneficiaries. This is a zero-sum dispute with their beneficiaries and they have demonstrated that they will continue to act Brief Regarding Suspension of Co-Trustees Case No. PTR-13-297016oo ND WA Bb ww 10 with enormous vigor, filing motions to quash, motions to strike, demurrers and imposing huge expense on their beneficiaries through the aggressive tactics of Manatt and Keker & Van Nest. Bruce and Hiura’s counsel have produced approximately 1,000 documents with redactions and blacked out pages, including crucial documents needed to determine the GST allocations which were improperly calculated in 2006 by counsel, In their August 7, 2014 Answer to Jeffs First Amended Petition for Conveyance of Property, Hiura, Bruce and QAG admit that “no interest income was transferred to Kjell in connection with the notes” payable to the Exempt Trust, paragraph 35, at 6:13-15. The Exempt Trust was a QTIP trust requiring that all income be distributed to Kjell. Instead, Manatt supervised multiple fiduciary tax returns listing the Exempt trust as a “complex” trust, and disclosing no income distributions to Kjell. Successor trustees have a duty to enforce claims held by the predecessor trustees and by current trustees, Cal. Prob. C.§16010, including claims for negligence or malpractice by attorneys involved in providing tax services, Borissoff'v. Taylor & Faust (2004) 33 Cal. App. 4" 523, 535. Bruce and Hiura, represented by Manatt (Rose Decl. 1:18-19), are unwilling and unable to seek redress from Manatt for tax and estate planning errors, and hence must be suspended and independent trustees appointed to defend the trust and properly to prepare the estate tax return and any modifications of earlier tax returns required. C, Conflicts Regarding the Proposed Merger of Bruce’s Company with QAG Bruce admits that he attempted to merge his company, ARBM, with QAG, bringing a Petition for Instructions in September 2013 to allow him to consummate the merger and, with respect to the QAG shares he and Hiura held for the grandchildren in the GST Trusts, “to buy them out.” Bruce Decl. at 8:6-9. The Petition on its face was not served on the grandchildren. Bruce had numerous conflicts with respect to this proposed transaction. The matter was taken off calendar, but the Petition was not dismissed. As part of this process, Bruce and Hiura admitted that they caused Qvale Enterprises, LLC (“QE”) to distribute QAG shares to various trusts for the benefit of the grandchildren, including trusts for the grandchildren of which Bruce was a trustee (Jeff was trustee of the trusts of his children which received such QAG shares in October of 2013). Bruce Brief Regarding Suspension of Co-Trustees Case No. PTR-13-297016 ~6-So ON DR BW NL wR RP RY RN — = ®AUF FEBBRBRYBSESEWR DESERTS Decl. 6:25-7:4, and Exhibit A thereto. In the Petition for Instructions Bruce threatened to acquire the QAG shares of any shareholders who objected to the Subchapter S election “as part of a “short- form merger procedure under California Corporations Code $1110,” according to his verified petition. The Petition for Instructions disclosed conflicts of interest between Bruce’s personal interests and those of his beneficiaries, requiring the suspension of Bruce and Hiura. D. Breaches of Fiduciary Duty by Bruce and Hiura A trustee has a duty of loyalty which is breached when the trustee threatens or brings pressure on the beneficiary in order to obtain a benefit for the trustee. The Court of Appeals in Estate of Gump (1992) 1 Cal.App.4th 582, 596, held that “by threatening objecting beneficiaries that the substantial expense of an audit would be charged solely to their income shares in an attempt to pressure the beneficiaries into dropping their contests and objections to the eighth account, Wells Fargo committed a knowing breach of trust, as well as a breach of its duty of loyalty. (§16002, subd. (a); former Civ. Code, § 2228; Rest.2d Trusts, supra, § 170(1).).” Here Bruce filed a petition seeking to force the approval of the beneficiaries and their trustee, Jeff, by threatening a merger with ARBM and a corporate squeeze out of their QAG shares. There is no dispute about the existence of this threat, since it is contained in the filed Petition. Similarly, there is no dispute that Bruce phoned his beneficiary Chris Qvale and left a threatening message, threatening “World War II between me, you and your dad.” The verified Preliminary Opposition at 21:13-19 admits that Bruce left the voicemail for Chris Qvale on September 21,2012. In the voicemail Bruce does not disclose that he was in the process of redeeming 21% of the QAG shares from the Exempt Trust of which Chris was a named beneficiary. The voicemail discloses Bruce’s demand that Chris not talk to his grandfather about being given an interest in a QAG dealership. He stated that his recent actions which gave Chris “a bigger percentage of British Motors and of the entire company,” disclosing that Bruce in fact was fully involved and aware of Kjell’s current estate planning documents (Rose Decl, 4:10-18). What he failed to disclose was that Chris would have been entitled to 3% of QAG if the proposed changes to the plan and redemption did not take place, and that Bruce was involved in the Brief Regarding Suspension of Co-Trustees Case No, PTR-13-297016co Oe UDA HW HR YW Ne PRP YY NRK DYE — - eu FGF AREEOKRAS SeERWRDAE BOHR AS transaction to the detriment of Chris and his siblings.! As trustee Bruce and Hiura have a duty to provide information to their beneficiaries, The Supreme Court in Wells Fargo y. Superior Court (2000) 22 Cal. 4" 201, 207-discussed the general duty of a trustee to account to the beneficiaries: ...[w]e acknowledged the trustee's common law duty to report to beneficiaries, a duty later codified in Probate Code sections 16060 and 16061." More specifically, we held that “[a] trustee has the duty to the beneficiaries to give them upon their request at reasonable times complete and accurate information relative to the administration of the trust” (Strauss v. Superior Court, supra, at p. 401, 224 P.2d 726) and that “the trustee's records as to the administration of the trust are deemed a part of the trust estate, and the right of the beneficiaries to an inspection of them stems from their common interest in the property along with the trustee” Ga. at p. 402, 224 P.2d 726). Our earlier decision in Union Trust Co. v. uperior Court, supra, 11 Cal.2d at pages 460-462, 81 P.2d 150, is to the same effect... Sec the California Law Revision Commission's comment to Probate Code section 16060: “The section is drawn from the first sentence of Section 7 303 of the Uniform Probate Code (1987) and is consistent with the duty stated in prior California case law to give beneficiaries complete and accurate information relative to the administration of a trust when requested at reasonable times. See Strauss v. Superior Court....” (Cal. Law Revision Com. com, 54A West's Ann. Prob.Code (1991 ed.) foll. § 16060, p. 51.) Wells Fargo v. Superior Court (2000) 22 Cal. 4201, 207 fn.1. (See also, Restatement (Third) of Trusts §82; Restatement (Second) of Trusts §173 comment c [“Although the terms of the trust may regulate the amount of information which the trustee must give and the frequency with which it must be given, the beneficiary is always entitled to such information as is reasonably necessary to enable him to enforce his rights under the trust or to prevent or redress a breach of trust”’].) ' Jordan Rose admitted that after Bruce took control of QAG, Rose dealt with Hiura as Kjell’s proxy (Rose Decl 2:18-22), Bruce became President of QAG in July of 2011 (Bruce Decl 2:2-3,) In addition to Bruce’s direct involvement in the planning, Hiura’s role as proxy (when she was an employee of Bruce), triggered a presumption of undue influence, Estate of Clegg (1978) 87 Cal. App. 3d 594 (attorney affiliated with beneficiary prepares estate plan); Estate of Auen (1994) 30 Cal. App. 4""300 at 307 (attorney who drafted trust was not an “independent attorney”; cites Clegg re effect of conflicts). Additionally Manatt represented Bruce in estate planning in 2012 and thereafter without providing a disclosure and obtaining informed consent from Kjell about such conflicts. No disclosure and waiver of such estate planning conflicts has been produced. Brief Regarding Suspension of Co-Trustees Case No. PTR-13-297016 8.Ce YN DAW BR Ww Ye Pe YP YY Ye YY YY WY — ee er Ae FES fF FS Se AREER OR IS The duty to disclose cannot be eliminated by a settlor. The First Appellate District held in Salter v, Lerner (2009) 176 Cal App 4" 1184, 1188, that the trust instrument cannot waive the duty to produce material information needed by the beneficiary to protect their interest or to prevent or redress a breach of trust: “Under section 16064, ‘[t]he trustee is not required to report information or account to a beneficiary ... (t a) [t]o the extent the trust instrument waives the report or account....” The parties agree that unlike sections 16061 and 16062, the duty imposed under section 16060 is not subject to waiver under section 16064, Likewise, ‘[t]he availability of information on request under [sections 16061 and 16062] does not negate the affirmative duty of the trustee to provide information under Section 16060.’ iyi aw Revision Com. com., 54A West's Ann. Prob,Code (1990 ed.) foll. § Lo0GT. P. 52; see also Campisi & Latham (Cont,Ed.Bar 2007) Cal. Trust and Probate Litigation, § 13.1 [The duty to provide information under section 16060 ‘is independent of, and potentially even broader than the duty to report under ... section 16061 or to account under « Section 16062’].)” The Law Revision Commission Comments to Prob. C. §16060 state that “if the trustee is dealing with the beneficiary on the trustee’s own account, the trustee has a duty to communicate material facts in connection with the transaction that the trustee knows or should know. The trustee also has a duty to communicate material facts affecting the beneficiary’s interest that the trustee knows the beneficiary does not know and that the beneficiary needs to know for protection in dealing with a third person.” Here Brace knew Chris was talking to Kjell at a time when the transfer of the Exempt Trust’s interest to Bruce and the redemption of the QAG shares by Bruce’s company QAG were being discussed with Kjell. Hence there is no dispute that Bruce failed to disclose the material facts of the situation to Chris at a time when Chris and his grandfather were discussing Kjell’s estate plan. Given the conflict involved in the redemption, this was a serious breach of trust. A beneficiary needs to be able to rely on his or her trustee to make full disclosure of material facts, particularly when the trustee is obtaining a benefit at the expense of the beneficiary. « Suspension of Bruce and Hiura is required, since they cannot be trusted to disclose material facts to their beneficiaries in light of their admitted misconduct in misrepresenting material facts and failing to disclose material facts to their beneficiaries, Brief Regarding Suspension of Co-Trusiees Case No. PTR-13-297016CO ONY DA BF WN HY NN YBN YY NY NY KY EF ee " _ eI AA EE ON FSF SF Ce DBABAaRSBHR xs E, Desirability of Suspension These trusts do not operate British Motors or Qvale Automotive Group. Since 2011 Bruce and Hiura have run the automotive business after he obtained voting control from various gifts and redemptions. What is involved here is simply the administration of three trusts whose assets are being liquidated, including approximately $47 million paid last week to the IRS. The records of the Marital Trusts have been transferred to Ronald Hayes Malone and are being managed by an accounting firm hired by the trustees. The Survivor’s Trust records, however, are held in San Francisco by Bruce and Hiura and access to the full documents has been restricted. The estate tax return will be due in six months. Ronald Hayes Malone has hired experienced tax counsel to advise him. Bette B. Epstein similarly is capable of dealing with such an estate tax return and the expected audit. Bruce and Hiura have admitted that they are using the Manatt firm to prepare the draft estate tax retun. This use of Manatt has been over the objections of Jeff, who alleged in the Removal Petition, paragraph 42, at 14:20-24, that Manatt has conflicts of interest and that an independent tax preparer should be engaged for all four trustees. A large number of problems have been discovered since May 9, 2014, when Bruce and Hiura finally provided a copy of Kathryn Qvale’s 2006 706 Estate Tax Return to Malone and Jeff. Neutral and expert trustees will be needed to deal with all of these issues, rather than having Bruce and Hiura and Manatt litigating vociferously over the problems created by their accounting and estate planning missteps. For so long as Bruce and Hiura are in a position to control the documents and draft estate tax return through Manatt, they will employ “a spare-no-expense,” “leave no field unfurrowed” and “act without regard to cost [strategy] in protecting [their] own personal interests.” (Donahue v. Donahue (2010) 182 Cal. App. 4th 259, 273.) Hiura and Bruce and Manatt have redacted and blacked out portions of at least 1,000 documents necessary to assess the intent of the settlors, to evaluate the problems caused by directing estate taxes to be paid from the tiny residue of the Exempt Trust, from the mistaken calculation of the allocation of assets to the GST trusts, and multiple other issues which must be resolved to prepare the estate tax return and deal with its audit. All of these records belong to the Brief Regarding Suspension of Co-Trustees Case No. PTR-13-297016Ce IY DAW PR YW ww PR YY YN RK YE Bw _ — eI AAR EH HF SF Ce RIAUE BSS successor trustees during administration, and are part of the residue of the Trusts, which pass to Jeff under the current estate plan, pursuant to Probate Code §§7000 and 7001. Independent trustees with experience in such matters should be in control of Kjell’s documents and able to utilize them for the benefit of the Trusts. CONCLUSION For the foregoing reasons, the Court should exercise its authority to suspend the powers of the Bruce Qvale and Laura Hiura and appoint Bette B. Epstein and Ronald Hayes Malone as co- trustees in their place to protect the trusts and the beneficiaries from suffering further loss or injury pending a trial on their removal and the inevitable appellate review, Cal. Prob.Code §15642(2). Respectfully submitted, Dated: August 8, 2014 EVANS, LATHAM & CAMPISI Attorneys fg OF Miles Jeffrey Qvale Brief Regarding Suspension of Co-Trustees : Case No, PFR-13-297016NY RH A Bw WY PROOF OF SERVICE 1am employed in the City and County of San Francisco, California, I am over the age of 18 and am not a party to the within action. My business address is One Post Street, Suite 600, San Francisco, California 94104. On August 8, 2014, I served the documents described as: BRIEF REGARDING SUSPENSION OF CO-TRUSTEES on the interested parties to this action by placing a true and correct copy thereof enclosed in a sealed envelope addressed as follows: SEE ATTACHED SERVICE LIST XX___ (BY U.S. AIR MAIL) In accordance with the regular mail collection and processing practices of Evans, Latham & Campisi, with which I am familiar, by means of which mail is deposited postage paid with the U.S. Postal Service at San Francisco, California that same day in the ordinary course of business, I deposited such sealed envelope for mailing on this same date following ordinary business practices. XX_ (BY EMAIL) BY ELECTRONIC TRANSMISSION PURSUANT TO AGREEMENT OF COUNSEL: By electronically mailing a true copy thereof to each of the electronic addresses shown on the attached service list. No error in transmission was reported. I declare under penalty of perjury under the laws of the State of California that the above is true and correct. Executed on August 8, 2014 at San Francisco, California, fo f » fie Pup al / Bernadette T, Daly /) € -1e PROOF OF SERVICEPROOF OF SERVICE SERVICE LIST August 8, 2014 Barry Lee, Esq. Veronica Cerutti Manatt, Phelps & Phillips, LLP One Embarcadero Center, 30" Floor San Francisco, CA 94111 BWLee@manaitt.com VCerruti@manatt.com Edward Koplowitz, Esq. MacInnis, Donner & Koplowitz 465 California Street, Suite 222 San Francisco, CA 94104 Eakatt@aol.com Ronald Hayes Malone 909 Mustang Court Petaluma, CA 94954 ron@circleoakequine.com George Montgomery, Esq. FRIEDMAN, MCCUBBIN, SPALDING, BILTER ROOSEVELT & MONTGOMERY 425 California Street, 25" Floor San Francisco, CA 94104 george@fomlaw,com Monica Dell’Osso, Esq. Burnham Brown 1901 Harrison Street, 14th Floor Oakland, CA 94612-3501 mdell'osso@burnhambrown.com Peter L. Muhs, Esq. Cooper, White & Cooper, LLP 201 California Street, 17" Floor San Francisco, CA 94111-5002 pmuhs@cwclaw.com John W. Keker, Esq. Ben Berkowitz, Esq. Warren Braunig, Esq. Abhishek Bajoria, Esq. Keker & Van Nest LLP 633 Battery Street San Francisco, CA 94111 jkeker@kvn.com WBraunig@kvn.com BBerkowitz@kvn.com abajoria@kvn.com Peter S, Meyers, Esq. Meyers Urbatsch 625 Market Street, 4th Floor San Francisco, California 94105 psmvers@myersurbatsch.com PROOF OF SERVICE,In the Matter of the Kathryn C. Qvale Exempt Marital Trust, dated January 31, 2006 San Francisco County Superior Court Case No. (Case No. PTR-13-297016) SERVICE LIST ~ VIA U.S, MAIL ONLY Nancy Bong 23 Kingston Place Walnut Creek, CA 94596 Roger Hansen 868 East 2830 South Hagerman, ID 83332 Shirley Hansen 868 East 2830 South Hagerman, ID 83332 Don Endo 21000 Glenwood Drive Castro Valley, CA 94552 Raymonde Gely 3532 Sacramento Street, #2 San Francisco, CA 94118 Hubert Gely 3532 Sacramento Street, #2 San Francisco, CA 94118 Rita Jelinic 25385 Palomares Road Castro Valley, CA 94552 Norma Hepworth P.O. Box 871 Hailey, 1D 83333 Lillian Fredriksson 1318 Hale Drive Concord, CA 94518 Karen Duarteau 2600 Nicasio Valley Road Nicasio, CA 94946 August 8, 2014 Kendel Hailey Qvale 3500 Scott Street San Francisco, CA 94123 Connor Hammond Qvale 98 Via Poinciana Lane Boca Raton, FL 33487 Blake Henry Qvale 336 E. 18" St, Apt. E-2 New York, NY 10003 Christopher Kjell Qvale 2945 Pacific Ave., Unit 6 San Francisco, CA 94115 Caroline Paige Qvale 461 2nd St. #C227 San Francisco, CA 94107 Bruce H, Qvale 13260 Sabel Chase West Palm Beach, FL 33418 Laura Hiura 901 Van Ness Avenue San Francisco, CA 94109 Miles Colin Qvale 147 Lagunitas Road. Ross, CA 94957 (Minor beneficiary) Miles Jeffrey Qvale 147 Lagunitas Road Ross, CA 94957 (Parent of minor beneficiary, Miles Colin Qvale) Max Keaton Qvale 147 Lagunitas Road Ross, CA 94957 Miles Jeffrey Qvale 147 Lagunitas Road Ross, CA. 94957 (parent of minor beneficiary, Max Keaton Qvale) Monica Dell’ Osso, Esq. 1901 Harrison Street, 14th Fl. Oakland, CA 94612-3501 (Guardian Ad Litem for Minors Miles Colin Qvale and Max Keaton Qvale)