Deitch v. WIZARD GAMING, INC.
v.
WIZARD GAMING, INC., Defendant and Appellant.
Court of Appeals of California, Second District, Division Eight.
Isaacman, Kaufman & Painter, Alan L. Isaacman and Steven H. Blackman for Defendants and Appellant.
Law Offices of Henry N. Jannol, Henry N. Jannol and Tracey P. Hom for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
FLIER, J.
This is one of multiple lawsuits in an ongoing dispute between rival factions over control of a casino located in Kern County.
In the present case, George Deitch, as trustee of Zephyr Inter Vivos Trust (Zephyr or the trust), filed a petition in the Los Angeles Superior Court[1] seeking interim orders to protect trust funds (shareholder distributions) being withheld from Zephyr by appellant Wizard Gaming, Inc. (Wizard). In his petition as supplemented, Deitch ultimately sought a judgment requiring Wizard to transfer Wizard stock, together with concomitant shareholder rights, to Deitch in his capacity as trustee. The probate court issued an ex parte order directing Wizard to transfer the funds into an interest bearing trust account and that federal and state taxes, interest and penalties be paid by Deitch from those funds.
Wizard appealed from the court's ex parte transfer order and subsequent clarifying order. We hold the probate court's orders are nonappealable and dismiss the appeal.
FACTS
Wizard operates "Diamond Jim's Casino" in Kern County. The casino is subject to regulation by the California Gambling Control Commission (Commission) and the Kern County Sheriff's Department. Six shareholders, including Deitch in his individual right, own shares in Wizard. Wizard's largest shareholder is Zephyr, which owns approximately 42 percent of Wizard's stock. George Hardie, Jr. (Hardie, Jr.), is the settlor and sole beneficiary of Zephyr.
In July 2008, Hardie, Jr., was convicted and incarcerated in Mexico for attempted murder, a development that jeopardized his ability to be licensed as a beneficial owner of Wizard stock. Hardie, Jr., appealed the conviction, and that appeal was pending during the proceedings at issue here.[2]
Emily Cuicchi (Cuicchi), the president of Wizard, served as Zephyr's trustee from 2005 until removed by Hardie, Jr., in January 2008. Hardie, Jr., appointed Deitch as successor trustee in Cuicchi's place. Deitch was an existing shareholder of Wizard who personally held 14.5 percent of Wizard's shares. Deitch was licensed by the Commission to hold Wizard stock in his personal capacity.
Between January 2008 and October 2008, Wizard distributed profits of the casino to all the shareholders of Wizard but Zephyr. Wizard contended it could not distribute any profit to Zephyr because under gaming regulations Deitch was not licensed by either the Commission or by the Kern County Sheriff in his capacity as Zephyr's trustee.[3]
However, Wizard issued a Schedule K-1 tax form crediting Zephyr with a purported share of 2008 shareholder distributions. Both the California Franchise Tax Board and Internal Revenue Service (IRS) demanded payment of taxes, interest and penalties based on the profits Wizard allocated to Zephyr in the Schedule K-1 form.
PROCEDURAL HISTORY
In November 2008, Deitch filed this action against Wizard and Cuicchi. In effect, Deitch sought orders (1) directing Cuicchi to return excess compensation she received from Zephyr as trustee; (2) determining Cuicchi's obligations as a removed trustee to deliver to Deitch as successor trustee shareholder distributions owed by Wizard to the trust; and (3) directing Wizard to pay withheld funds, allegedly more than $900,000, to the trust.
In April 2008, Wizard filed a demurrer to the petition on grounds of another action pending. Wizard asserted the same subject matters were already at issue in two Kern County lawsuits. Wizard also claimed it was legally prohibited from transferring the stock to Deitch as trustee without the consent of both state and county regulators, and the Kern County Sheriff had refused to approve the transfer of stock to Deitch as a trustee.[4]
The probate court continued the hearing of the demurrer multiple times upon counsel's assurances that determinations of Deitch's appeal of the Kern County Sheriff's denial of a license and Hardie, Jr.'s appeal of his conviction in Mexico were imminent.
At a hearing on September 3, 2009, the probate court first raised concerns about "practical issues" including "how we get the tax return[s] prepared, filed, and taxes paid." Wizard took the position the trust might not be entitled to any money if a trustee was not licensed to receive it.
In early November 2009, Deitch orally informed the court that Wizard was holding approximately $950,000 in a segregated account entitled "Wizard II Gaming." He asked that the money be placed in a trust account so it would not be subject to Wizard's creditors. The court noted the continued delay in proceedings was causing damage to the trust, and it voiced an increasing discomfort with allowing Wizard to continue "holding money that doesn't belong to it anymore."[5] The trust's continuing inability to file tax returns and consequent accumulation of tax penalties and interest was of major concern to the court.
When an objection was raised upon procedural grounds, the court indicated it would entertain an ex parte application for an order to transfer the funds into a blocked account so that no one would have the ability to distribute funds without further court order.
Deitch thereafter applied ex parte for an order to transfer the shareholder distributions held by Wizard for Zephyr's benefit to a blocked interest bearing trust account. He requested in particular that the funds Wizard allocated on its 2008 Schedule K-1 income tax form to Zephyr's "Shareholder's Share of Income, Deductions, etc." be placed in the trust account. Additionally, Deitch asked that payment of the federal and state income taxes for those sums be ordered paid by him from that account.
Deitch gave oral and written notice on November 9 of an intention to make the ex parte application to the court on November 10, 2009. Wizard filed a written opposition to the ex parte application on November 12, 2009.
In addition to arguments already raised, Wizard asserted that Deitch had not produced any evidence that taxes were actually owed and the court should not issue an ex parte order without knowing that taxes were owed. Wizard also claimed no exigent circumstances justified an ex parte order without "discovery and full briefing" because it had set aside the money in a segregated account and had done nothing over a period of two years to jeopardize it.
Wizard further argued that because a trial was set to commence in Kern County the following week on the very issues presented, the probate court should not "jump ahead" of that earlier filed case. Deitch, Wizard asserted, should be required to file a noticed motion and set a hearing well in advance so as not to "needlessly conflict" with that trial schedule. Despite interposing six grounds for denying the ex parte application, nowhere in the lengthy opposition did Wizard claim it lacked adequate notice of the relief requested. To the contrary, Wizard argued in the event the court granted the application, the order should be stayed to allow Wizard to seek appropriate appellate relief on the merits by way of a writ of mandate or appeal.
On November 12, 2009, the court granted Deitch's application for an ex parte order. It issued an order entitled, "Ex Parte Order to Transfer Funds to Inter[e]st Bearing Account."[6]
Wizard responded by applying for an ex parte order setting a bond and clarifying the court's prior ex parte order. Opposing the application, Deitch noted the transfer order did not direct the conveyance of property nor the payment of a claim, but it merely concerned "a demand to pay income taxes which is undisputable." Moreover, Deitch argued, as trustee he was charged with the duty of marshalling trust assets, paying its bills and protecting the trust, and as such existing statutes gave him the power to deposit trust funds at a reasonable interest rate in an insured account at a financial institution or, to the extent the account is collateralized, in a bank, insured savings and loan association or insured credit union. (See Prob. Code, § 16225, subd. (a)(1) & (2).) Further, he indicated, the trustee of a trust has the power to pay taxes of the trust (see Prob. Code, § 16243) and, if taxes are due and owed, interest and penalties would continue to accrue on a daily basis to the detriment of the trust and its beneficiary.
Deitch's counsel declared that the Commission had met and determined that Hardie, Jr., or Zephyr is entitled to distribution of funds due and payable from Wizard or the casino sufficient to satisfy taxes, assessments or other due and payable obligations, and a condition to that effect had been placed on the casino's gambling license at the recommendation of the commission staff.
In an order of November 19, 2009, the court granted Wizard's application in part by clarifying that "the reference to funds allocated as shareholder distributions shall refer to the sums listed on the [Schedule] K-1 [tax form] plus any other distributions being held by Wizard for the [trust]." Significantly, the court struck out Wizard's proposed language stating the court's prior ex parte order "requires transfer of property and therefore the Notice of Appeal shall automatically stay the Ex Parte Order," as well as additional language stating that upon Wizard's posting a bond for approximately $950,000 "the posting of the bond shall effect a stay of the Ex Parte Order." The court also struck further proposed language that the reference to "`trust account'" in its prior order "shall refer to a bank account designated by [Deitch], in the name of [Deitch] as Trustee of the [trust]." (Italics added.)
Wizard timely appealed both the transfer order and the clarifying order.
After filing a notice of appeal, Wizard filed a petition for writ of supersedeas and then a petition for writ of mandate with this court. We issued a temporary stay of the transfer order and clarifying order pending further order of this court. Thereafter, we vacated the temporary stay and denied both petitions for writ of supersedeas and mandate.[7]
DISCUSSION
1. No Appealable Order
An appeal may be taken from "an order made appealable by the provisions of the Probate Code." (Code Civ. Proc., § 904.1, subd. (a)(10).) However, there is no right of appeal from any orders in probate except those specified in the Probate Code. (Estate of Stoddart (2004) 115 Cal.App.4th 1118, 1126.) With only rare exceptions, the Probate Code provisions regarding appealability are exclusive, and no appeal lies other than from such specified orders. (Stoddart, at pp. 1125-1126; see Eisenberg, et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2010) ¶ 2:191, p. 2107 (rev. # 1 2010).)
In proceedings involving a trust, with certain inapplicable exceptions, the Probate Code authorizes an appeal from "[a]ny final order" falling within Probate Code section 17200. (Prob. Code, § 1304, subd. (a).) A "final order" is generally defined as one that ends the litigation on the merits and leaves the court nothing to do but execute the judgment. (Northern Trust Bank v. Pineda (1997) 58 Cal.App.4th 603, 607-608 [appeal dismissed because no final order entered]; see also Estate of Miramontes-Najera (2004) 118 Cal.App.4th 750, 755-756 (Miramontes) ["[n]othing remains for judicial consideration"].)
In the present case, the transfer and clarifying orders are clearly interlocutory and not final. The effect of the orders is that the funds in issue are to be conserved in an interest bearing account pending resolution of the controversy. In practical effect, the orders simply authorize the trustee to pay taxes that may be due and payable on shareholder distributions held on the trust's behalf, an administrative act well within the statutory powers and duties of the trustee.[8] (Prob. Code, § 16243.)
The clarifying order makes clear that the funds to be deposited include only those shareholder distributions Wizard has allocated for the trust. The transfer order expressly mandates that, aside from taxes, funds are to be disbursed only upon further order of the court. Even as to payment of taxes, the trustee would be subject to an accounting before the court. (See Prob. Code, §§ 17200, subd. (b)(5), 17209.) Thus, by their own terms the transfer and clarifying orders are not in the nature of a final order that leaves the court nothing to do but execute the judgment.
The right to appeal under the Probate Code is determined by the effect of the order. (Miramontes, supra, 118 Cal.App.4th at p. 755.) Even if an order directs the payment of money or the performance of an act, it is not appealable if further judicial action is contemplated. (Steen v. Fremont Cemetery Corp. (1992) 9 Cal.App.4th 1221, 1228-1229.) Because the orders under appeal do not constitute the probate court's "final orders" regarding the ownership and disposition of the funds at issue, the orders are not appealable and there is therefore no appellate jurisdiction. (See Griset v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 696 [reviewing court has jurisdiction in direct appeal only from appealable orders or judgments]; Jennings v. Marralle (1994) 8 Cal.4th 121, 126 [appealable order or judgment is jurisdictional prerequisite to appeal].)
Wizard asserts that the transfer order requires the transfer of money by Wizard to a trust account under the control of Deitch. Thus, it argues, the order is appealable under Probate Code section 1300, subdivision (a) as constituting an order "[d]irecting the conveyance of property." We disagree. The order on its face does not require the "conveyance" of the fund as the account is under the direct supervision of the court. Deitch as trustee is ordered not to disburse funds except by order of the court. A mere transfer of funds into an interest bearing account does not constitute a conveyance of title to the account. The rightful owner of the fund still remains to be determined by the court.
Wizard alternatively asserts that the transfer order is one "[d]irecting or allowing payment of a debt, claim, or cost" within the meaning of Probate Code section 1300, subdivision (d).
This case is analogous to Estate of Stokley (1980) 108 Cal.App.3d 461, in which the probate court issued an order authorizing an executor to employ special counsel of the executor's choice in a codicil contest and reserved to the court the allocation of costs of defense and allowable counsel fees. (Id. at p. 466.) The appellate court held the order could not qualify as an order "directing or allowing payment" of an attorney's fee. (Id. at p. 472.) The court noted that when the order issued the executor had yet to retain special counsel, and, "since legal services had not yet been performed at the time of the . . . order, it would be impossible for the court to issue such an order . . . ." (Ibid.)
Also instructive is Estate of Elftman (1958) 160 Cal.App.2d 10, in which the court made an order that the executrix of an estate was "`authorized'" to disburse a reasonable sum for attorney fees and costs incurred in a quiet title action. (Id. at p. 11.) The court held the order was not an appealable order and thus had no res judicata effect upon a subsequent order in which the executrix was "authorized and directed" to disburse from the estate a certain sum for attorney fees. (Id. at pp. 14-15; see also Estate of Briggs (1964) 230 Cal.App.2d 592, 594-595 [order authorizing executor to make partial payment of attorney fees did not place mandatory requirement on executor but rather made payment discretionary and thus was not res judicata to later order].)
In the present case, although the transfer order directed that the "current" federal and state income taxes, together with interest and penalties, were "ordered to be paid," it was not clear whether taxes in fact were due from the trust, nor was the amount to be paid ascertained. Wizard contended it was not clear that taxes even were due. The transfer order thus merely "authorized" and deputed Deitch to pay any federal and state taxes due and payable, but patently contemplated further action by the court to approve any disbursement by the trustee of such expenses.
We therefore hold the transfer and clarifying orders here to be nonappealable.
2. No Denial of Due Process
Wizard complains that the ex parte procedure employed in this case deprived it of procedural due process. We disagree.[9]
The federal and state Constitutions prohibit the government from depriving persons of property without due process. (U.S. Const., 5th Amend; Cal Const., art. I, § 7, subd. (a).) Due process requires reasonable notice and an opportunity to be heard before any governmental deprivation of a significant property interest. (Horn v. County of Ventura (1979) 24 Cal.3d 605, 612; see Calvert v. County of Yuba (2006) 145 Cal.App.4th 613, 622; see also Logan v. Zimmerman Brush Co. (1982) 455 U.S. 422, 428-430.) "The fundamental requirement of due process is the opportunity to be heard `at a meaningful time and in a meaningful manner.'" (Mathews v. Eldridge (1976) 424 U.S. 319, 333.) The adequacy of notice must be determined on a case-by-case basis to satisfy basic due process requirements. (California School Employees Assn. v. Livingston Union School Dist. (2007) 149 Cal.App.4th 391, 397; In re Emily R. (2000) 80 Cal.App.4th 1344, 1351-1352.) We conclude Wizard received reasonable notice to satisfy the requirements of due process.
The probate court has jurisdiction to make remedial orders under its general power and duty to supervise the administration of trusts. (Schwartz v. Labow (2008) 164 Cal.App.4th 417, 427.) The court, moreover, "has the `inherent power to decide all incidental issues necessary to carry out its express powers to supervise the administration of [a] trust.'" (Ibid.)
In the present case, Deitch filed a probate petition seeking, among other things, directions with respect to effectuating the transfer of Zephyr's shares to Deitch and a determination of the rights of Deitch as successor trustee to the assets of Zephyr being held by Wizard, including the distributions at issue in the ex parte orders. Although in a separate account, Wizard purportedly did not keep the Zephyr funds in any interest bearing segregated trust account, and those funds were vulnerable to claims of Wizard's creditors. Pending resolution of the petition, the probate court had authority to require the transfer of the funds held by Wizard into an interest bearing blocked trust account. (See Prob. Code, § 16225, subd. (a)(1) & (2) [trustee's power to deposit trust funds at reasonable rate of interest].)
The probate court has wide powers to take action to protect a trust from possible injury or loss, including jurisdiction to decide the merits of a third party's challenge to the inclusion of property in the trust. (Estate of Heggstad (1993) 16 Cal.App.4th 943, 951-952.) The probate court, as with other courts of general jurisdiction, has authority to make orders to prevent harm to a trust and to secure assets that belong to the trust. (Ibid.) In pursuit of these objectives, the probate court has authority to issue ex parte orders, limited by considerations of due process. (Prob. Code, § 1220, subd. (c) [court for good cause may dispense with notice otherwise required]; see People v. Hernandez (2009) 172 Cal.App.4th 715, 721-722.)
Here, Wizard obtained reasonable notice of the relief requested by Deitch and an opportunity to be heard before issuance of the ex parte orders. The probate court first raised concerns about issues concerning filing of tax returns for the trust and payment of taxes in September 2009. The court again expressed concern about Zephyr's inability to file tax returns and its growing liability for penalties and interest on November 6, 2009. At that time, the court indicated a willingness to hear the matter on ex parte application. Deitch gave notice on November 9, 2009, and then made his ex parte application on November 10, 2009. Wizard filed a written opposition on November 12, 2009. The court issued the ex parte transfer order on November 12, 2009. Wizard raised a half dozen reasons why the court should not grant the requested order, none of them including a claimed lack of sufficient notice. In fact, Wizard raised the subject of a noticed hearing only so that the probate action would not precede a Kern County action set for trial. In this context, Wizard was not denied due process by the ex parte orders.
DISPOSITION
The appeal is dismissed. Deitch is to recover costs on appeal.
We concur:
RUBIN, Acting P. J.
GRIMES, J.
[1] The trust's principle place of business is located in Los Angeles County.
[2] Just after entry of the orders in this case, in November 2009, Hardie, Jr.'s conviction for attempted murder was reversed.
[3] The owner of a gambling enterprise must obtain a state gambling license. (Bus. & Prof. Code, § 19851; all further statutory references are to the Business and Professions Code unless indicated otherwise.) If the owner is a corporation, then all shareholders must be licensed. (§ 19852.) A gambling license is a prerequisite both to ownership of shares and receipt of any portion of profits from the gambling enterprise. (§ 19850.)
Kern County is one of the localities that allows and regulates gambling. However, chapter 5.20 of the Kern County Code of Ordinances requires the county sheriff to investigate and approve all persons financially interested in a gambling business. (See Kern County Code Ord. §§ 5.20.010 et seq.) Section 5.20.100 of the ordinance provides: "No cardroom license or any interest whatsoever of any person financially interested in a cardroom shall be assignable, delegable, or transferable without full compliance with the initial licensing provisions of this chapter . . . ."
[4] Deitch was denied a license by the Kern County Sheriff in August 2009. Eventually, an appeal by Deitch was successful, and he received a conditional license in his capacity of Zephyr trustee from the sheriff in June 2010. Early on, Wizard's counsel orally conceded to the court that if Deitch received such a license, "that's pretty much the end of this [dispute]." (Italics added.)
[5] The court stated: "I would like a separate trust account opened up and the money transferred into that account and it will be blocked and no one will have the ability to distribute any funds out of that without further court order."
[6] The order directed that: (1) "all funds currently held by Wizard . . . which have been allocated as shareholder distributions to the [trust] for the 2008 tax year but not yet paid to the Trustee of the [trust] be placed in an interest bearing trust account"; (2) "withdrawals from said trust account by [Deitch], trustee of the [trust,] be subject to court order"; (3) "current Federal income taxes, interest and penalties for 2008 as set forth in the attached Memo from the IRS be ordered to be paid from the funds transferred by [Deitch]"; (4) "the current California State income taxes, interest and penalties in the attached Notice to Pay Tax be ordered to be paid from the transferred funds by [Deitch]"; and (5) "[t]hese orders are stayed until 11/23/09."
[7] In its opening brief, Wizard states it subsequently complied with the trial court's orders and transferred to Deitch as trustee a sum over $700,000, which constituted the amount of shareholder distributions for 2008 allocable to the trust's ownership interests.
[8] That Wizard disputes the trustee's ability to receive such funds is irrelevant, as it lays no claim to ownership of the funds and it is undisputed taxes must be paid on shareholder distributions.
[9] We address this issue insofar as it might affect the probate court's jurisdiction to act in this matter.
