Reynolds v. Saadi11/6/2003
Joseph I. Saadi (appellant), trustee of the trust of Mary Van Dyke, appeals from a judgment following a three-day bench trial of the beneficiaries' petition for relief from breach of trust and appellant's petition for approval of accounting. Finding in favor of the beneficiaries, Kathy W. Reynolds, Tina Ray, and Robert Weidmann (respondents), the court awarded them substantial damages, attorney fees and costs, ordered appellant to disgorge certain funds wrongfully withdrawn from the trust, and removed him from his position. Appellant challenges various components of the judgment, as detailed in the legal discussion, post. Finding no basis for reversal, we affirm.
FACTS
Appellant has practiced as an accounting professional for nearly 30 years. He holds an M.B.A. with an emphasis in accounting from the University of Texas at Austin. Although he is not a certified public accountant (CPA), he has passed the CPA exam in both Texas and California. Appellant is also an enrolled agent with the Internal Revenue Service (IRS), where he was a service agent for nearly five years. He thus has special education, experience, and expertise in accounting and tax matters. He also holds California licenses as a real estate broker and a general contractor.
Appellant was a close friend of Mary Van Dyke (Van Dyke) and her children from the early 1970's. Van Dyke, familiar with appellant's educational and professional background, named him to act as executor of her estate and successor trustee under a living trust she executed in September 1994. Van Dyke died on July 6, 1996. As the court stated, from that point on, "[appellant] wore two hats and was in full control of all of [Van Dyke's] assets."
The due date for filing federal and state estate tax returns and paying estate taxes was April 6, 1997, nine months from the date of Van Dyke's death. Appellant applied for an extension, utilizing an IRS form divided into separate parts regarding time to file and time to pay. In each section, appellant sought a six-month extension to October 6, 1997. The IRS granted the application, allowing appellant until October 6, 1997, to file the federal tax return, and cautioning by stamped caveat, "THE MAXIMUM EXTENSION ALLOWED FOR FILING IS 6 MONTHS." In approving the application for an extension of time to pay, however, the IRS interlineated in handwriting that appellant would have until April 6, 1998, i.e., an additional six months over and above what he had requested, to pay the taxes.
The October 6, 1997 extended due date for filing the federal return came and went. Appellant, who said he was confused by the IRS's extension approval, waited for nearly six months, until March 31, 1998, to sign, date, and file the federal and state tax returns and pay federal taxes of $294,373 and state taxes of $60,000.
On May 4, 1998, the IRS requested payment of $114,797.36 in interest and penalties on the estate taxes. When appellant sought reconsideration, the IRS abated the penalty for failure to timely pay, but left unchanged the penalty for failure to timely file. Eventually, the IRS and the state imposed penalties and interest, paid by appellant out of the trust funds - $102,639 to the IRS and $27,812 to the state, of which latter sum $3,115 represented a deficiency tax payment. Appellant did not disclose to the beneficiaries the nature of these payments.
In January 2002, pursuant to Probate Code section 17200, respondents filed a petition for relief from breach of trust. They alleged appellant violated his duties as trustee, failed to exercise reasonable skill, care and diligence in administering the trust, and engaged in specific self-dealing misconduct t
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