Assignment: Client Letter
Course: Advanced Legal Writing
Year: 2011
Student # 36227 (Leslie Fischman)
Law Offices of Jennifer A. Daskevich
9201 Oakdale Avenue, Suite 201
Chatsworth, CA 91311
March 28, 2011
Mr. Gregory Kent
8161 Hollywood Blvd.
Los Angeles, CA 90069
Re: Gregory Kent
File No. 10-162
Dear Mr. Kent:
The purpose of this letter is to inform you of what your options are and to request for additional information and documents pertaining to your case. After careful analysis of the information acquired during our last meeting, we have prepared this letter to provide you with a summary of the relevant facts and issues presented. In addition, we have pinpointed your best argument and identified any remaining issues. Attached you will find a list of documents requested and questions presented, following the "Discussion" portion of this letter.
The remaining issues and information requested, are related to the various transactions made during the course and scope of your relationship to Daniel. We hope to provide you with a comprehensive sketch of what your available options are. However, at this point, determining exactly what you will be able to recover is still premature, and I cannot promise you full recovery. In order to make a more accurate determination of exactly what you may be able to recover, we need your help.
As a successful realtor, with years of experience in the field we anticipate that many of the terms and legal terminology we address may be familiar to you. In order to outline the legal issues pertaining to your case and give our best professional opinion, being as clear as possible is necessary to avoid any confusion and ensure we are doing our part. Provided that, we do not intend to undermine your understanding of those legal issues. It is our duty to inform you, and our intention is to keep your best interest in mind, by making sure you are fully informed. The information you provide is essential to clarify some of the remaining issues, and may be used to calculate and better assess your property interest.
Please respond to these questions and obtain the necessary documents requested. Some of the documents you may already have in your personal files, other documents may need to be retrieved from either the County Recorder's Office, Financial Institutions, etc. If for any reason you are unable to retrieve any of the documents requested, please let us know whether you need any assistance, we are here to help you throughout this process.
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our intention is to keep your best interest in mind, by making sure you are fully informed. The information you provide is essential to clarify some of the remaining issues, and may be used to calculate and better assess your property interest.
Please respond to these questions and obtain the necessary documents requested. Some of the documents you may already have in your personal files, other documents may need to be retrieved from either the County Recorder's Office, Financial Institutions, etc. If for any reason you are unable to retrieve any of the documents requested, please let us know whether you need any assistance, we are here to help you throughout this process.
SUMMARY OF RELEVANT FACTS
Mr. Kent is a successful realtor, diagnosed with HIV, and is in the process of separating from his former companion, Daniel. The two men met in 1992 and began living together in 1997. During that time they purchased 10 properties in the West Hollywood and Hollywood area, all taking title in Daniel’s name alone, while Mr. Kent provided “most” of the down payment for seven of the ten properties. Problems arose when Mr. Kent found out that Daniel borrowed above and beyond the amounts of the loans he had refinanced, and deposited “new” money into his “individual” account. Mr. Kent confronted Daniel and later recorded a prior unrecorded deed signed by Daniel to put title to all the properties in Mr. Kent’s name. Daniel is now suing Mr. Kent to cancel recordation of the deeds and quiet title in Daniel’s name.
DISCUSSION
I. Under California law, can Mr. Kent establish, that because of all the money he provided for the down payments for the various properties, he had an equitable interest in the properties long before the grant deeds and, thus, that the recordation can be seen as a validation of beneficial title which he already held? If so, what will Mr. Kent need to prove?
The one who claims a resulting trust in property has the burden of proving facts establishing his beneficial interest by “clear and convincing” evidence. A presumption of a resulting trust ordinarily arising where property is purchased with funds of one person and title in the name of another. However, “whenever legal title to property is obtained through means or under circumstances which render it unconscientious for the holder of the legal title to retain and enjoy beneficial interest, equity impresses a constructive trust on the property thus acquired in favor of the one [Mr. Kent] who is truly and equitably entitled to the same.” Thus, in order to determine the validity of the deeds it is vitally important that we have a clear understanding of the context in which they were signed. Please provide us with any information you may have, no detail is too small.
a. Preliminary Steps Towards Establishing Your Beneficial Interest
First we must establish a "resulting trust," the purpose of that trust, and prove Daniel had a fiduciary obligation. Second, we must establish "wrongdoing" on his part, "in violation of the trust." How? By tracing. Tracing is an equitable remedy that allows persons to track their assets after they have been taken by fraud, misappropriation, or mistake. Once we find evidence of a breach of that fiduciary obligation, (i.e. whether it be fraud, embezzlement, misrepresentation, or conversion) then we can decide whether any other claims would be worth pursuing. Our efforts to estimate your chances of recovery will be facilitated, based upon whether or not the funds withdrawn and deposited into the account and into individual accounts is traceable. We need to know exactly how much you contributed to each property, from funds withdrawn from your individual accounts (including business and business commissions) to determine whether we have a viable claim and the percentage of recovery you are entitled to.
b. How to Establish a Valid Trust
There are five requisite elements for a valid trust: (1) a trustor, (2) trust property, (3) a valid trust purpose, (4) a trustee, and (5) a beneficiary. In our case we are dealing with real estate, a "transferable property" interest, which must also be "income-producing" to be valid.
Our primary concern, in arguing the validity of a "resulting trust" is to validate the recording of the first deed of trust, prior to asserting a claim for breach of a fiduciary obligation. In order for a trust to be valid, the purpose of the trust: (1) must be lawful, and (2) must have a clear stated purpose. Absence of either one of those two requirements, would invalidate the trust.
Under California law, the extent of the interest in the beneficiary depends upon the intention of the trustor, you. To your benefit, the law also states that "trusts may be created for any lawful purpose" and must be created by means of a written instrument. Based on the information you have provided to us, it would be very important for us to address the central purpose of the trust, which was initially created to protect your interest in property, and finances during, what I imagine to be a very difficult period in time.
We understand that due to your physical condition (at that time) of the trust's creation, you may have been overwhelmed emotionally while undergoing treatment and keeping up with you finances between stays in the hospital. By providing evidence of the circumstances at the time you were receiving treatment will aid the court in its determination of your intent at the time of the trust's creation (to be the holder of beneficial interest). By specifying the purpose of creating a trust (e.g. to secure finances and avoid burdening loved ones with the debt incurred while suffering from this illness) may help strengthen your claim. However, ultimately it your decision whether to disclose personal facts surrounding your diagnosis and treatment.
Please note that all documents filed with the court are a matter of public record and information contained within those documents are accessible to the public for review. Providing this information is not to discourage you from asserting your strongest defenses to beneficial interest, but to alert you, as is my duty, to inform you of what your options are, to protect what is in your best interests, and to protect you from any additional harm caused throughout the process.
c. Did Mr. Kent have an equitable interest long before the grant deeds?
California Code of Civil Procedure states that: “If land is purchased in the name of one person, and consideration is paid by another, a trust rises, and the person in whose name the conveyance takes hold as a trustee for the one furnishing the money.” In the absence of evidence of a gift or other countervailing circumstances, where property is acquired in the name of one person, for a consideration furnished by another, the grantee holds the title on a resulting trust for the one who furnished the consideration. In this case, you paid “most” of the down payment for 7 of the 10 properties, furnishing consideration for Daniel taking title as a trustee in a resulting trust.
d. When can we argue a "resulting trust" was established?
A trust was established when Daniel took title in 1999 to their West Hollywood home. This was the first property purchased during the course of their relationship, Mr. Kent putting down "most" of the down payment, as "valuable" consideration for Daniel taking title. A written instrument is presumptive evidence of the "valuable" consideration. Thus, if you can provide us with a copy of the contract created and signed by you upon making this purchase, as well as any evidence of Daniel being given title, in exchange, that would be appreciated.
e. What will Mr. Kent need to prove to assert his beneficial interest in a trust?
Upon your approval, we may decide to claim a resulting trust, however if we choose to we carry the burden of proving facts establishing your beneficial interest. The standard of proof required is clear and convincing evidence, in other words, a high probability. The evidence must be so clear as to leave no substantial doubt, or sufficiently strong to command the unhesitating assent of every reasonable mind. Therefore, we need to know: What was your intent at the time the trust was created? Did you intend to create a trust? If your sole concern was to "protect your assets" as previously discussed, did you at any point intend for Daniel to be given an interest other than being the mere holder of title? Was Daniel aware at the time of your concern to protect your assets? Was he aware of your need to protect your assets, and considering your worsening condition, realize that he was given title to serve your interest? Was there any intention or recognition by either of you that a trust was created? Other than take title, did Daniel contribute in any other way to the maintenance or management of the properties or accounts to which payments were made from? Which accounts if any, other than his individual account, did he have access to?
f. Keeping Track of Your Finances and Questions Regarding: Deposits, Withdrawals, Shared Finances, Joint Accounts, and Individual Accounts. Who was in charge of what? Where did all the money come from and where was it deposited? And who withdrew?
Although you were primarily the one who routinely dealt with tenants of the rentals as their landlord, why was money to those rentals deposited in Daniel's individual account and not the joint account? Were these funds intentionally separated from the joint account? To which account were the funds (intended to be held) in trust deposited? Which account were your "shared finances" deposited and withdrawn from? Did the finances supporting your "shared finances" come soley from the joint account? Was any of the "rental money" stored in Daniel's individual account transferred to the joint account, at any point in time and later withdrawn? Did you ever give Daniel permission to make any withdrawal of any amount, at any point in time? We know, based on the information you have provided, that you also did business regularly with one of the escrow companies, that you are a successful realtor, can we assume that you are also familiar with the process of obtaining a loan or the process of refinancing a home? Who was in charge of depositing monies into the joint account and was Daniel primarily the one designated to negotiate with loan brokers or to refinance any of the properties? Were you? Why did you arrange for Daniel to deal with a loan broker (Susan)? Were you ill at the time, or as title holder did Daniel automatically assume this responsibility?
g. To which properties to we have the best claim to if a "resulting trust" is established?
Considering the burden of proof, asserting your beneficial interest in a resulting trust, would be worth arguing for at least 7 of the 10 properties, specifically the ones you provided "most" of the downpayment for. However, since the other three properties have been linked to an initial down payment provided by Daniel, further analysis is required to determine your interest, if any. Specifically for the: (1) 2001 purchase of the "rental property" in West Hollywood, (2) 2002-2003 "rental property" in Los Feliz, and (3) the October 2003 purchase of your 20th century "dream home" in the Hollywood Hills. In regards to (2) the "rental property" in Los Feliz, (a) Do you remember the exact date this purchase was made, or how much money has been generated from this rental? (b) Do you know whether any of the rental money was deposited into the joint account or deposited solely in Daniel's account? (c) Where any of the proceeds from the refinance of the WeHo property (purchased in 2001) deposited into the joint account and later withdrawn? (d) Do you remember the value of the "rental property" in Los Feliz at the time it was purchased and how much Daniel paid for it? Which property was sold in 2001, was it the West Hollywood home?
h. Can we establish that both parties intended for the properties to be held in trust?
Since Daniel took title to all the properties in his name alone, we cannot assume, without more information from you, that either of you intended for all of the properties to which Daniel held title, to be held in trust. When you set up the joint account, did you intend for it to be held in trust between you two? What was the purpose for creating a joint account? To what extent was Daniel dependent on you financially? Did Daniel generate enough income on his own, via his "very occasional" editing work to support himself without you? Did you intend for him to hold any beneficial interest to any of the properties? Do you believe, or were any of the properties not held in trust and considered separate from the trust? And why?
However, the fact that you both eventually (a) came to a verbal agreement, (b) supported by a written document (the second deed of trust), (c) signed by Daniel evidencing your agreement, (d) is sufficient to have put both parties on notice, therefore we have no notice issues. Was the reason you felt financially betrayed, because you intended for the monies held in the joint account to be held in trust? Was the reason you confronted him, to secure the finances held in that trust? When he made that promise to you, and signed a document evidencing that promise to you, did either of you agree on what the consequences would be if that promise was broken? Did either of you agree, orally, or in writing, or any other communication, including e-mails, agree that title would be put in your name if he broke that promise? Was there a "clause" stating his promise to you included in the final draft signed by him, or was this simply a promise between you two as partners and not included in writing? This is relevant to establishing that Daniel knew why the second deed of trust was drafted, and thus became informed of the difference between right and wrong (i.e. with permission and without permission). This is essential to our claim, to establish that Daniel "wrongfully" withdrew that $150,000.
i. Establishing Your Beneficial Interest
To assert your beneficial interest in trust, we have to establish facts evidencing the existence of a trust. If we cannot prove that there was a resulting trust for either the (1) "rental property" in WeHo, (2) the "rental property" in Los Feliz, or (3) the 20th century "dream home" in the Hollywood Hills, then we can argue for the establishment of a constructive trust. We will do our best to consider all of your options for recovery. Our goal is to maximize your potential for recovering any losses you may have experienced and are entitled to by law. It is our job to advocate for what is in your best interests.
j. Considering the Alternative: A "Constructive Trust"
Under California law, Mr. Kent may argue that he was a “constructive trustee,” to recover title to those properties he provided “most” of the down payment for, except the three previously mentioned. California law states that, a one-half interest in property will be awarded in instances, where the party claiming the one-half interest has met their burden of establishing that they contributed to one-half the purchase price. Therefore, you may be entitled to at least 50% of the interest in property, to those properties you provided "most" of the down payment for. However, first we must establish exactly "how much" you contributed as a down payment to all of these properties, to better estimate the percentage you may be entitled to recover.
II. Conversely, under California law, what must Daniel prove in order to invalidate the grant deeds which Mr. Kent recorded? Specifically, what must Daniel establish in order to overcome the presumption, set forth in California Evidence Code 662, that the owner of legal title is also the owner of beneficial title?
If a written instrument (second deed of trust) is presumptive evidence of a consideration, then Daniel bears the burden of proof to invalidate sufficient consideration provided by Mr. Kent, when the second deed of trust was recorded.
Under California law, the presumption can only be overcome by evidence of an "agreement or understanding" between the parties that the title reflected in the deed is not what the parties intended. More importantly, "the presumption cannot be overcome soley by tracing the funds used to purchase the property, nor by testimony of an intention not to disclose to the grantee at the time of the execution of the conveyance."
a. When can consideration be invalidated?
According to California case law, an equitable remedy such as a constructive trust, will be employed depending upon the conduct of the parties, which may or may not demonstrate “an implied contract, agreement of partnership or joint venture, or some other tacit understanding between the parties.” A contract will be enforced between non-marital partners unless expressly and inseparably based upon an illicit consideration. In this case no facts indicate that there was any illicit consideration that would invalidate the trust.
b. What does Daniel have to do to invalidate the grant deeds recorded by Mr. Kent?
Although Daniel signed the second deed of trust, he did not agree to the recording of it. Prior to signing the second deed of trust, both parties agreed (orally and in writing) that the deed would not be recorded unless both agreed or unless Daniel died. This allows us to draw an inference that neither party understood the deed to be valid unless recorded. Thus, Daniel will argue that the recording of the second deed by Mr. Kent should be invalidated since neither of the conditions precedent occurred prior to its recordation.
Under California law, a presumption of delivery arises from recordation, and if either party intended for the deed not be recorded until a happening of an event, then the deed will be entirely inoperative. To rebut the notice presumption, and invalidate the recording of the second deed, Daniel must specifiy whether either party mistakenly believed the deed to have no legal effect until recorded (Please reference question #28 under "Questions Presented" to respond to this issue).
Although the facts do not state the beliefs of each party at the time of transaction, the fact that the deed was signed, notarized, stored in a safe deposit box and recorded at a later time, speaks to Mr. Kent’s belief that recordation of the second deed was necessary to transferring title to his name. As a result, Daniel will argue that their “mistaken belief” (that unrecorded deed had no legal effect prior to recordation) invalidates the second deed of trust, under Civil Code § 1217.
c. Mr. Kent’s argument for the validity of the unrecorded second deed of trust.
Harris Trust and Savings Bank v. Barney, (A civil action for equitable relief authorizing suit against non-fiduciary party for engaging in prohibited transactions) states, “when all parties have knowledge of all of the facts, the date of creation establishes the priority of their interest.” Similarly, under California Civil Code § 1217, “an unrecorded instrument is valid as between parties and those who have notice of it,” and “against all the world except those given priority under the recording laws.” Therefore, technically the recording of the second deed was not necessary to its enforceability, nor was authorization by Daniel required to validate the second deed of trust.
d. What must Daniel do to overcome the presumption under Evidence Code § 662?
Evidence code § 662 states that, “the owner of legal title to property is presumed to be the owner of the full beneficial title.” This rule applies only when valid “legal title is undisputed and the controversy involves only beneficial title.” This presumption may be rebutted only by clear and convincing proof.
According to California case law, equity will protect Daniel’s interest in property, if he can prove the existence of an agreement between him and Mr. Kent, “to pool their earnings and share equally in their joint accumulations.” The fact that they established a joint bank account, sometime in 2001, sharing finances as a “married couple would” would be sufficient to impose a constructive trust “upon one half of the property acquired during the course of the relationship.”
By employing a constructive trust, “the courts will inquire into the conduct of the parties to determine whether . . . an implied agreement of partnership or joint venture” existed. Therefore, to establish this joint venture, Daniel may provide evidence other than their living arrangement such as: handling the books for the rental properties and collecting rent and depositing them into his individual account, to establish his beneficial interest in title.
e. What must Mr. Kent prove?
Under California Code of Civil Procedure, applying an equitable doctrine, states that a constructive trust may be established when there is a “wrongful acquisition or detention of property to which another is entitled.” As a general rule, constructive trusts and resulting trusts are both involuntary trusts implied by law and exempt from the statute of frauds. According to California Code of Civil Procedure, statute of frauds does not prevent “any trust from arising or being extinguished by implication or by operation of law.” If a constructive trust is found, failure to produce a writing evidencing their “implied” agreement, would not invalidate the trust all together.
f. What must Mr. Kent do to assert his legal/beneficial interest and prevent unjust enrichment?
In order for Mr. Kent to rebut any claims made by Daniel, under Evidence Code § 662, Mr. Kent may argue that Daniel was an “involuntary trustee.” Under California law one who gains a thing by . . . violation of a trust or other wrongful act, is, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.” If we can prove that Daniel wrongfully acquired legal title as a trustee under an involuntary or constructive trust, by tracing Daniel’s deposit of moneys generated from their comingled account to his personal account, this may authorize the imposition of a lien to secure trust in your favor.
III. Can Mr. Kent sue Daniel and/or lenders to invalidate either the $200,000 second deed of trust securing Daniel’s secret borrowing against their Hollywood Hills home, or the deeds of trust securing the refinances (arranged through Susan) which yielded the $150,000 in secret loan proceeds paid directly to Daniel? If so, under what theories?
In Brand v. Lipton, plaintiffs sought to impose a constructive trust, requiring equity to intervene and scrutinize the transaction. Regardless whether there was any formal or express agreement between the two parties, if a constructive trust is established, Mr. Kent will have to prove that a “confidential relationship” existed “so pregnant with opportunity for abuse and unfairness’ as to require equity to intervene and scrutinize the transaction.” However, California case law states that "the mere facts that a confidential relationship existed between the parties is not sufficient to overcome the presumption of consideration for a written instrument, but it must also be made to appear that the relationship was used to obtain an unfair advantage, or that the confidence was violated.
Therefore, we must also consider the circumstances surrounding the various transactions, (e.g. being on a break from your relationship, after signing the unrecorded deed of trust withdrawing funds, post-break up arrangements with Susan, moving to Santa Monica etc.) would be relevant to support our argument that by withdrawing those fund, he breached his fiduciary duty owed to you, in violation of the trust. Which is why we need to know the basis of the financial arrangement made with Susan. What were the amounts typically refinanced? How far above and beyond previous refinances, was the amount withdrawn by Daniel? How were you financially impacted from the results of this arrangement with Susan?
a. How will Mr. Kent invalidate Daniel’s “secret borrowing”?
Mr. Kent will have to prove that the $200,000 line of credit secured by a second deed of trust on their Hollywood Hills home (taken out by Daniel in Summer 2005 and unaccounted for) was in violation of the trust. To avoid unjust enrichment, Mr. Kent must overcome the presumption “that moneys, drawn by trustee from fund in which he mingled his personal funds, were his [Daniel’s] own.” The burden on Mr. Kent to trace their co-mingled funds, will be relaxed if he can demonstrate “the unfaithfulness of the trustee [Daniel].” Such as, facts evidencing Daniel’s post break-up arrangement with Susan (less than a year after their initial confrontation) borrowed another $150,000, after promising Mr. Kent he would not borrow again without Mr. Kent’s permission. Under the theory of constructive trust (to avoid unjust enrichment) the statute of limitations running on Mr. Kent’s cause of action for equitable relief will not begin until he has actual knowledge of repudiation or breach of trust.
b. How can we invalidate Daniel's transfer of funds from the co-mingled account to his personal account?
Under California law, a conveyance is voidable at the instance of the beneficiary if the transferee takes with notice that it was made in breach of trust. If Daniel argues that he was a bona fide purchaser (A bona fide purchaser is defined as one who has purchased property for value without notice of any defects in the title, or who acts without knowledge or notice of competing liens on the subject property).
In order for Daniel to prove that he was a bona fide purchase, he must provide evidence that he made payment of value, in good faith, and without actual or constructive notice of another's rights. To protect your interests, we can argue that the fact he signed a document which, in writing, authorized the transfer of title to Mr. Kent's name, is sufficient to put him on constructive notice of another's right to the property, and invalidate his interest in property as a "bona fide" purchaser.
As a general rule a three-year statute of limitations under the Probate Code is applicable to all claims for breach of trust. However, under the Code of Civil Procedure, a 4-year statute of limitation exists if we assert a claim for a "breach of a fiduciary duty." Note: This limitation will be found inapplicable only in instances where the beneficiary contests the trustee's account without reasonable cause and in bad faith.
c. How can we clean Mr. Kent's hands?
Providing evidence that, your intent to record the second deed of trust was to protect his interest, and considering the circumstances that you did so only after speaking to Susan would be sufficient to justify that the recording was done in good faith and for the purposes of preserving the trust (also known as cleaning one's hands of any wrongdoing).
d. Establishing Daniel Breached a Fiduciary Duty Owed to Mr. Kent
In order to establish that a fiduciary duty existed, and assert a breach of one, we must first establish that existence of a trust (which is a fiduciary relationship in which property is transferred from the trustor, the creator of the trust, to one or more persons, known as trustees). In addition we must also address that although the second deed of trust was not recorded, it was sufficient to put either of the parties on notice of a transfer of title (whether this satisfies the requirements for a lis pendens, additional research required, and will not be addressed further at this time). The fact the second deed of trust was drafted, written, and signed by Daniel is sufficient to have put him on notice of his obligations as title holder and trustee.
e. How can we invalidate Daniel's property claim? Was there a breach of a fiduciary duty? Was a fraud committed in violation of the trust?
Under California law, A trustee acting in his or her own interest cannot impeach a deed in which he or she joined as trustee, or assert, for his or her own gain, that he or she betrayed his or her trust in making it.[1] Nor can one who has no lien, title, or estate in the corpus, either legal or equitable, set up the claim that a trustee's sale was void.[2] Providing evidence of a breach of a fiduciary duty (obligations owed by him to Mr. Kent as trustee), as well as the fraudulent transfer of funds to his personal account, would be sufficient to contest his attempt to invalidate the second deed of trust. To further establish that a fraud was committed upon the transferring of funds, if those funds were taken from the joint account and co-mingled with trust funds, then Mr. Kent has a beneficial interest supported by Dougherty v. California Kettleman Oil Royalties[3], which held that for a trustee to transfer trust property to another [account] in violation of the beneficiary's rights, is a fraud on the beneficiary.[4] [emphasis added]
To prevent Daniel from recovering any the proceeds of those purchases (because doing so would result in unjust enrichment, because of his prior wrongful acts), we must establish proof beyond the mere fact the transfer was made in violation of the trustee's duty to the beneficiary.
By law, Daniel as the "holder of legal title," has been designated trustee, incurring the obligation to "preserve, protect, and defend the corpus of the trust, which is the primary attribute to holding legal title." Therefore, if any of those funds taken were from the trust and not otherwise invested for the trust, then there is a breach of his fiduciary obligation. Your strongest argument to is proving that Daniel breached his fiduciary duty when he made arrangements with Susan, after your initial confrontation, after he withdrew $200,000 on a line of credit he was unable to account for, after he promised you he would not take out any money without your permission, after he signed the second deed of trust, and after you two broke up.
f. Our Best Argument is to Establish a Constructive Trust and Prove Daniel Breach A Fiduciary Duty in Violation of the Second Deed of Trust When He Made Arrangements With Susan to Take Out $150,000 of "New " Money and Deposit Those Funds Into His Individual Account
We can prove Daniel had knowledge of your beneficial interest, by providing evidence that he signed the deed of trust to transfer title to all the properties in your name. We can accomplish this by detailing the circumstances under which that deed was signed, absent any proof of wrongdoing on your behalf, argue that the unrecorded deed was sufficient to put Daniel on notice, that this was understood by both you and Daniel, and that Daniel should be held accountable for the acts he committed, prior to receiving notice, and in violation of the second unrecorded deed of trust.
As a general rule, a person is precluded from placing his property in trust so that his creditors cannot attach his assets. If he only invested in the property for his personal benefit, and deposited his monies for his individual benefit that there was a clear violation of the purpose for the trust and proof of fraudulent behavior. For example, if at any time Daniel deposited his personal money into the trust, for his individual use, and not for the benefit of the beneficiary, to serve his individual interests that would not only violate the trust, but provide proof that he "wrongfully" used the trust to defraud creditors.
g. Insufficient Facts to Prove Lenders Had “Knowledge” of Second Deed of Trust’s Contents
The inquiry required by Susan, is only a reasonable inquiry, it is not an exhaustive one, and a bank may be charged with the knowledge acquired by its officers. Despite Daniel and Mr. Kent being friends with Susan (loan broker), more facts are necessary to infer whether she knew of their financial arrangement, such that “her” knowledge may be imputed to the bank.
h. Additional Proof is Required to Establish Lenders had Notice of Mr. Kent's Beneficial Interest and Determine Whether the Unrecorded Second Deed of Trust was Sufficient to Put them on Constructive Notice of the Transfer of Title to Mr. Kent's Name
To enforce a lis pendens on the lenders, we would have to establish they were put on constructive notice of the transfer of title when the second deed of trust was recorded, and that this notice is imparted to them by law. However, lenders are not subject to failure to recognize transfers in title until they are recorded in the County Recorder's Office. Thus since both violations of the trust, made by Daniel, occurred prior to the recordation of the second deed of trust, the lenders may argue that they were not put on constructive notice and should not be liable for entertaining Daniel's fraudulent transactions.
Unless the bank had notice that the trust was insolvent, a prudent person would ascertain whether any liens were recorded. Under California case law, a lender may be charged with constructive notice of a lien recorded by a creditor, to take notice of another's rights (Mr. Kent's). It will be our burden to establish the absence of good faith on the lenders behalf or their failure to make a reasonable inquiry and properly identify who held beneficial interest.
Once we have received the information requested, we will need to schedule another appointment to meet you, so that you may review, verify, and sign documentation necessary to move forward with litigation. By law we are required to respond to Mr. Daniel's complaint within XXX days of receipt. Therefore your responses are due no later than Monday, April 4, 2011. We apologize ahead of time for any inconvenience this deadline may cause.
If you have any questions please do not hesitate to contact me, either by phone (310) 622-2800 or by e-mail j_daskevich@yahoo.com. Thank you for your courtesy and cooperation regarding this matter. We look forward to hearing from you.
Sincerely yours,
Jennifer A. Daskevich
Enclosed (2)
INSTRUCTIONS AND CLOSING REMARKS
Once we have received the information requested, we will need to schedule another appointment to meet you, so that you may review, verify, and sign documentation necessary to move forward with litigation. By law we are required to respond to Mr. Daniel's complaint within a certain number of days. Therefore your responses are due no later than Monday, April 4, 2011.
We apologize ahead of time for any inconvenience this deadline may cause. If you have any questions please do not hesitate to contact me, either by phone (310) 622-2800 or by e-mail j_daskevich@yahoo.com.
Thank you for your courtesy and cooperation regarding this matter. We look forward to hearing from you.
Sincerely yours,
Jennifer A. Daskevich
Enclosed (2)
PLEASE NOTE:
Any information and/or documents provided to us in response to following questions are protected by the attorney-client privilege and work-product doctrine, and considered confidential. By law we are not allowed to disclose any information provided to us, by you, without your express permission or authorization. In the essence of time, we have provided you with a summary of the questions we believe are most pertinent to establishing a trust, your beneficial interest, and maximizing your recovery. The questions initially presented in the Memorandum have been included to inform and prepare you moving forward, for the kinds of questions, you may be required to respond to at some point during the discovery process. However, only respond to: the summary of questions attached under the heading "Questions Presented" and "Documents Requested"
DOCUMENTS REQUESTED
In addition to providing us with your responses to questions, located in the next section, please provide us with any supporting documentation, such as contracts, mortgage payments, loan agreements, wills drafted, pay stubs, and tax returns filed, as well as any additional information and/or supporting documentation you find relevant, in addition to the following:
QUESTIONS PRESENTED
Issue #1: Establishing Your Beneficial Interest
Year/#
Description/Location
Who financed?
Title in whose name?
1999
“the perfect house”
Location: unknown
[Facts later tell us, this was their “West Hollywood home” they later rented out when they moved into their “dream home” in the Hollywood Hills.]
Mr. Kent put up “most” of the down payment
Recorded in Daniel’s name only.
Circumstances at the time:
*Mr. Kent was comfortable having title to property soley in D’s name.
*Mr. Kent assumed that he might not live at all that much longer and wanted D to enjoy the house even if death separated them.
2001
Started investing in “other” properties in the West Hollywood area. Purchasing two rental properties.
2001
“rental property” (1-2)
Location: Silver Lake
Mr. Kent’s earnings
2001
“rental property” (2-2)
Location: WeHo
Daniel’s Lloyds Bank money.
Late 2002 & early 2003
They bought three (3) more rental properties. (see below)
2002-2003
Rental property 1-3
“most” of the payment money came from Mr. Kent’s earnings.
Daniel’s (facts tell us under the same arrangements as before) for 1-1, 2-3, and 3-3.
2002-2003
Rental property 2-3
“most” of the payment money came from Mr. Kent’s earnings.
See supra 1-3.
2002-2003
Rental property 3-3
Location: Los Feliz
From proceeds from a refinance of the WeHo property they had bought in 2001 provided the down payment on the third.
See supra 1-3.
Oct. 2003
They purchased their early 20th century “dream home”
Location: Hollywood Hills.
Using as a down payment both proceeds from a refinance of the Los Feliz property and some of Mr. Kent’s commission earnings.
Title was taken in Daniel’s name alone.
2004-2005
Both men bought three (3) more properties
Down payments came primarily from earnings from Mr. Kent’s business.
Title (always) taken in Daniel’s name alone*
[1] Widney v. Southern Pac. Co., 120 Cal App. 291, 7 P.2d 1046 (3d Dist. 1932).
[2] Smith v. Bank of America Nat. Trust & Savings Ass’n, 14 Cal. App2d 78, 57 P.2d 1363 (2d Dist. 1936).
[3] Dougherty v. California Kettleman Oil Royalties, 13 Cal. 2d 174, 88 P.2d 690 (1939).
[4] Id.
Mr. Gregory Kent
8161 Hollywood Blvd.
Los Angeles, CA 90069
Re: Gregory Kent
File No. 10-162
Dear Mr. Kent:
The purpose of this letter is to inform you of what your options are and to request for additional information and documents pertaining to your case. After careful analysis of the information acquired during our last meeting, we have prepared this letter to provide you with a summary of the relevant facts and issues presented. In addition, we have pinpointed your best argument and identified any remaining issues. Attached you will find a list of documents requested and questions presented, following the "Discussion" portion of this letter.
The remaining issues and information requested, are related to the various transactions made during the course and scope of your relationship to Daniel. We hope to provide you with a comprehensive sketch of what your available options are. However, at this point, determining exactly what you will be able to recover is still premature, and I cannot promise you full recovery. In order to make a more accurate determination of exactly what you may be able to recover, we need your help.
As a successful realtor, with years of experience in the field we anticipate that many of the terms and legal terminology we address may be familiar to you. In order to outline the legal issues pertaining to your case and give our best professional opinion, being as clear as possible is necessary to avoid any confusion and ensure we are doing our part. Provided that, we do not intend to undermine your understanding of those legal issues. It is our duty to inform you, and our intention is to keep your best interest in mind, by making sure you are fully informed. The information you provide is essential to clarify some of the remaining issues, and may be used to calculate and better assess your property interest.
Please respond to these questions and obtain the necessary documents requested. Some of the documents you may already have in your personal files, other documents may need to be retrieved from either the County Recorder's Office, Financial Institutions, etc. If for any reason you are unable to retrieve any of the documents requested, please let us know whether you need any assistance, we are here to help you throughout this process.
X PAGE ONE
our intention is to keep your best interest in mind, by making sure you are fully informed. The information you provide is essential to clarify some of the remaining issues, and may be used to calculate and better assess your property interest.
Please respond to these questions and obtain the necessary documents requested. Some of the documents you may already have in your personal files, other documents may need to be retrieved from either the County Recorder's Office, Financial Institutions, etc. If for any reason you are unable to retrieve any of the documents requested, please let us know whether you need any assistance, we are here to help you throughout this process.
SUMMARY OF RELEVANT FACTS
Mr. Kent is a successful realtor, diagnosed with HIV, and is in the process of separating from his former companion, Daniel. The two men met in 1992 and began living together in 1997. During that time they purchased 10 properties in the West Hollywood and Hollywood area, all taking title in Daniel’s name alone, while Mr. Kent provided “most” of the down payment for seven of the ten properties. Problems arose when Mr. Kent found out that Daniel borrowed above and beyond the amounts of the loans he had refinanced, and deposited “new” money into his “individual” account. Mr. Kent confronted Daniel and later recorded a prior unrecorded deed signed by Daniel to put title to all the properties in Mr. Kent’s name. Daniel is now suing Mr. Kent to cancel recordation of the deeds and quiet title in Daniel’s name.
DISCUSSION
I. Under California law, can Mr. Kent establish, that because of all the money he provided for the down payments for the various properties, he had an equitable interest in the properties long before the grant deeds and, thus, that the recordation can be seen as a validation of beneficial title which he already held? If so, what will Mr. Kent need to prove?
The one who claims a resulting trust in property has the burden of proving facts establishing his beneficial interest by “clear and convincing” evidence. A presumption of a resulting trust ordinarily arising where property is purchased with funds of one person and title in the name of another. However, “whenever legal title to property is obtained through means or under circumstances which render it unconscientious for the holder of the legal title to retain and enjoy beneficial interest, equity impresses a constructive trust on the property thus acquired in favor of the one [Mr. Kent] who is truly and equitably entitled to the same.” Thus, in order to determine the validity of the deeds it is vitally important that we have a clear understanding of the context in which they were signed. Please provide us with any information you may have, no detail is too small.
a. Preliminary Steps Towards Establishing Your Beneficial Interest
First we must establish a "resulting trust," the purpose of that trust, and prove Daniel had a fiduciary obligation. Second, we must establish "wrongdoing" on his part, "in violation of the trust." How? By tracing. Tracing is an equitable remedy that allows persons to track their assets after they have been taken by fraud, misappropriation, or mistake. Once we find evidence of a breach of that fiduciary obligation, (i.e. whether it be fraud, embezzlement, misrepresentation, or conversion) then we can decide whether any other claims would be worth pursuing. Our efforts to estimate your chances of recovery will be facilitated, based upon whether or not the funds withdrawn and deposited into the account and into individual accounts is traceable. We need to know exactly how much you contributed to each property, from funds withdrawn from your individual accounts (including business and business commissions) to determine whether we have a viable claim and the percentage of recovery you are entitled to.
b. How to Establish a Valid Trust
There are five requisite elements for a valid trust: (1) a trustor, (2) trust property, (3) a valid trust purpose, (4) a trustee, and (5) a beneficiary. In our case we are dealing with real estate, a "transferable property" interest, which must also be "income-producing" to be valid.
Our primary concern, in arguing the validity of a "resulting trust" is to validate the recording of the first deed of trust, prior to asserting a claim for breach of a fiduciary obligation. In order for a trust to be valid, the purpose of the trust: (1) must be lawful, and (2) must have a clear stated purpose. Absence of either one of those two requirements, would invalidate the trust.
Under California law, the extent of the interest in the beneficiary depends upon the intention of the trustor, you. To your benefit, the law also states that "trusts may be created for any lawful purpose" and must be created by means of a written instrument. Based on the information you have provided to us, it would be very important for us to address the central purpose of the trust, which was initially created to protect your interest in property, and finances during, what I imagine to be a very difficult period in time.
We understand that due to your physical condition (at that time) of the trust's creation, you may have been overwhelmed emotionally while undergoing treatment and keeping up with you finances between stays in the hospital. By providing evidence of the circumstances at the time you were receiving treatment will aid the court in its determination of your intent at the time of the trust's creation (to be the holder of beneficial interest). By specifying the purpose of creating a trust (e.g. to secure finances and avoid burdening loved ones with the debt incurred while suffering from this illness) may help strengthen your claim. However, ultimately it your decision whether to disclose personal facts surrounding your diagnosis and treatment.
Please note that all documents filed with the court are a matter of public record and information contained within those documents are accessible to the public for review. Providing this information is not to discourage you from asserting your strongest defenses to beneficial interest, but to alert you, as is my duty, to inform you of what your options are, to protect what is in your best interests, and to protect you from any additional harm caused throughout the process.
c. Did Mr. Kent have an equitable interest long before the grant deeds?
California Code of Civil Procedure states that: “If land is purchased in the name of one person, and consideration is paid by another, a trust rises, and the person in whose name the conveyance takes hold as a trustee for the one furnishing the money.” In the absence of evidence of a gift or other countervailing circumstances, where property is acquired in the name of one person, for a consideration furnished by another, the grantee holds the title on a resulting trust for the one who furnished the consideration. In this case, you paid “most” of the down payment for 7 of the 10 properties, furnishing consideration for Daniel taking title as a trustee in a resulting trust.
d. When can we argue a "resulting trust" was established?
A trust was established when Daniel took title in 1999 to their West Hollywood home. This was the first property purchased during the course of their relationship, Mr. Kent putting down "most" of the down payment, as "valuable" consideration for Daniel taking title. A written instrument is presumptive evidence of the "valuable" consideration. Thus, if you can provide us with a copy of the contract created and signed by you upon making this purchase, as well as any evidence of Daniel being given title, in exchange, that would be appreciated.
e. What will Mr. Kent need to prove to assert his beneficial interest in a trust?
Upon your approval, we may decide to claim a resulting trust, however if we choose to we carry the burden of proving facts establishing your beneficial interest. The standard of proof required is clear and convincing evidence, in other words, a high probability. The evidence must be so clear as to leave no substantial doubt, or sufficiently strong to command the unhesitating assent of every reasonable mind. Therefore, we need to know: What was your intent at the time the trust was created? Did you intend to create a trust? If your sole concern was to "protect your assets" as previously discussed, did you at any point intend for Daniel to be given an interest other than being the mere holder of title? Was Daniel aware at the time of your concern to protect your assets? Was he aware of your need to protect your assets, and considering your worsening condition, realize that he was given title to serve your interest? Was there any intention or recognition by either of you that a trust was created? Other than take title, did Daniel contribute in any other way to the maintenance or management of the properties or accounts to which payments were made from? Which accounts if any, other than his individual account, did he have access to?
f. Keeping Track of Your Finances and Questions Regarding: Deposits, Withdrawals, Shared Finances, Joint Accounts, and Individual Accounts. Who was in charge of what? Where did all the money come from and where was it deposited? And who withdrew?
Although you were primarily the one who routinely dealt with tenants of the rentals as their landlord, why was money to those rentals deposited in Daniel's individual account and not the joint account? Were these funds intentionally separated from the joint account? To which account were the funds (intended to be held) in trust deposited? Which account were your "shared finances" deposited and withdrawn from? Did the finances supporting your "shared finances" come soley from the joint account? Was any of the "rental money" stored in Daniel's individual account transferred to the joint account, at any point in time and later withdrawn? Did you ever give Daniel permission to make any withdrawal of any amount, at any point in time? We know, based on the information you have provided, that you also did business regularly with one of the escrow companies, that you are a successful realtor, can we assume that you are also familiar with the process of obtaining a loan or the process of refinancing a home? Who was in charge of depositing monies into the joint account and was Daniel primarily the one designated to negotiate with loan brokers or to refinance any of the properties? Were you? Why did you arrange for Daniel to deal with a loan broker (Susan)? Were you ill at the time, or as title holder did Daniel automatically assume this responsibility?
g. To which properties to we have the best claim to if a "resulting trust" is established?
Considering the burden of proof, asserting your beneficial interest in a resulting trust, would be worth arguing for at least 7 of the 10 properties, specifically the ones you provided "most" of the downpayment for. However, since the other three properties have been linked to an initial down payment provided by Daniel, further analysis is required to determine your interest, if any. Specifically for the: (1) 2001 purchase of the "rental property" in West Hollywood, (2) 2002-2003 "rental property" in Los Feliz, and (3) the October 2003 purchase of your 20th century "dream home" in the Hollywood Hills. In regards to (2) the "rental property" in Los Feliz, (a) Do you remember the exact date this purchase was made, or how much money has been generated from this rental? (b) Do you know whether any of the rental money was deposited into the joint account or deposited solely in Daniel's account? (c) Where any of the proceeds from the refinance of the WeHo property (purchased in 2001) deposited into the joint account and later withdrawn? (d) Do you remember the value of the "rental property" in Los Feliz at the time it was purchased and how much Daniel paid for it? Which property was sold in 2001, was it the West Hollywood home?
h. Can we establish that both parties intended for the properties to be held in trust?
Since Daniel took title to all the properties in his name alone, we cannot assume, without more information from you, that either of you intended for all of the properties to which Daniel held title, to be held in trust. When you set up the joint account, did you intend for it to be held in trust between you two? What was the purpose for creating a joint account? To what extent was Daniel dependent on you financially? Did Daniel generate enough income on his own, via his "very occasional" editing work to support himself without you? Did you intend for him to hold any beneficial interest to any of the properties? Do you believe, or were any of the properties not held in trust and considered separate from the trust? And why?
However, the fact that you both eventually (a) came to a verbal agreement, (b) supported by a written document (the second deed of trust), (c) signed by Daniel evidencing your agreement, (d) is sufficient to have put both parties on notice, therefore we have no notice issues. Was the reason you felt financially betrayed, because you intended for the monies held in the joint account to be held in trust? Was the reason you confronted him, to secure the finances held in that trust? When he made that promise to you, and signed a document evidencing that promise to you, did either of you agree on what the consequences would be if that promise was broken? Did either of you agree, orally, or in writing, or any other communication, including e-mails, agree that title would be put in your name if he broke that promise? Was there a "clause" stating his promise to you included in the final draft signed by him, or was this simply a promise between you two as partners and not included in writing? This is relevant to establishing that Daniel knew why the second deed of trust was drafted, and thus became informed of the difference between right and wrong (i.e. with permission and without permission). This is essential to our claim, to establish that Daniel "wrongfully" withdrew that $150,000.
i. Establishing Your Beneficial Interest
To assert your beneficial interest in trust, we have to establish facts evidencing the existence of a trust. If we cannot prove that there was a resulting trust for either the (1) "rental property" in WeHo, (2) the "rental property" in Los Feliz, or (3) the 20th century "dream home" in the Hollywood Hills, then we can argue for the establishment of a constructive trust. We will do our best to consider all of your options for recovery. Our goal is to maximize your potential for recovering any losses you may have experienced and are entitled to by law. It is our job to advocate for what is in your best interests.
j. Considering the Alternative: A "Constructive Trust"
Under California law, Mr. Kent may argue that he was a “constructive trustee,” to recover title to those properties he provided “most” of the down payment for, except the three previously mentioned. California law states that, a one-half interest in property will be awarded in instances, where the party claiming the one-half interest has met their burden of establishing that they contributed to one-half the purchase price. Therefore, you may be entitled to at least 50% of the interest in property, to those properties you provided "most" of the down payment for. However, first we must establish exactly "how much" you contributed as a down payment to all of these properties, to better estimate the percentage you may be entitled to recover.
II. Conversely, under California law, what must Daniel prove in order to invalidate the grant deeds which Mr. Kent recorded? Specifically, what must Daniel establish in order to overcome the presumption, set forth in California Evidence Code 662, that the owner of legal title is also the owner of beneficial title?
If a written instrument (second deed of trust) is presumptive evidence of a consideration, then Daniel bears the burden of proof to invalidate sufficient consideration provided by Mr. Kent, when the second deed of trust was recorded.
Under California law, the presumption can only be overcome by evidence of an "agreement or understanding" between the parties that the title reflected in the deed is not what the parties intended. More importantly, "the presumption cannot be overcome soley by tracing the funds used to purchase the property, nor by testimony of an intention not to disclose to the grantee at the time of the execution of the conveyance."
a. When can consideration be invalidated?
According to California case law, an equitable remedy such as a constructive trust, will be employed depending upon the conduct of the parties, which may or may not demonstrate “an implied contract, agreement of partnership or joint venture, or some other tacit understanding between the parties.” A contract will be enforced between non-marital partners unless expressly and inseparably based upon an illicit consideration. In this case no facts indicate that there was any illicit consideration that would invalidate the trust.
b. What does Daniel have to do to invalidate the grant deeds recorded by Mr. Kent?
Although Daniel signed the second deed of trust, he did not agree to the recording of it. Prior to signing the second deed of trust, both parties agreed (orally and in writing) that the deed would not be recorded unless both agreed or unless Daniel died. This allows us to draw an inference that neither party understood the deed to be valid unless recorded. Thus, Daniel will argue that the recording of the second deed by Mr. Kent should be invalidated since neither of the conditions precedent occurred prior to its recordation.
Under California law, a presumption of delivery arises from recordation, and if either party intended for the deed not be recorded until a happening of an event, then the deed will be entirely inoperative. To rebut the notice presumption, and invalidate the recording of the second deed, Daniel must specifiy whether either party mistakenly believed the deed to have no legal effect until recorded (Please reference question #28 under "Questions Presented" to respond to this issue).
Although the facts do not state the beliefs of each party at the time of transaction, the fact that the deed was signed, notarized, stored in a safe deposit box and recorded at a later time, speaks to Mr. Kent’s belief that recordation of the second deed was necessary to transferring title to his name. As a result, Daniel will argue that their “mistaken belief” (that unrecorded deed had no legal effect prior to recordation) invalidates the second deed of trust, under Civil Code § 1217.
c. Mr. Kent’s argument for the validity of the unrecorded second deed of trust.
Harris Trust and Savings Bank v. Barney, (A civil action for equitable relief authorizing suit against non-fiduciary party for engaging in prohibited transactions) states, “when all parties have knowledge of all of the facts, the date of creation establishes the priority of their interest.” Similarly, under California Civil Code § 1217, “an unrecorded instrument is valid as between parties and those who have notice of it,” and “against all the world except those given priority under the recording laws.” Therefore, technically the recording of the second deed was not necessary to its enforceability, nor was authorization by Daniel required to validate the second deed of trust.
d. What must Daniel do to overcome the presumption under Evidence Code § 662?
Evidence code § 662 states that, “the owner of legal title to property is presumed to be the owner of the full beneficial title.” This rule applies only when valid “legal title is undisputed and the controversy involves only beneficial title.” This presumption may be rebutted only by clear and convincing proof.
According to California case law, equity will protect Daniel’s interest in property, if he can prove the existence of an agreement between him and Mr. Kent, “to pool their earnings and share equally in their joint accumulations.” The fact that they established a joint bank account, sometime in 2001, sharing finances as a “married couple would” would be sufficient to impose a constructive trust “upon one half of the property acquired during the course of the relationship.”
By employing a constructive trust, “the courts will inquire into the conduct of the parties to determine whether . . . an implied agreement of partnership or joint venture” existed. Therefore, to establish this joint venture, Daniel may provide evidence other than their living arrangement such as: handling the books for the rental properties and collecting rent and depositing them into his individual account, to establish his beneficial interest in title.
e. What must Mr. Kent prove?
Under California Code of Civil Procedure, applying an equitable doctrine, states that a constructive trust may be established when there is a “wrongful acquisition or detention of property to which another is entitled.” As a general rule, constructive trusts and resulting trusts are both involuntary trusts implied by law and exempt from the statute of frauds. According to California Code of Civil Procedure, statute of frauds does not prevent “any trust from arising or being extinguished by implication or by operation of law.” If a constructive trust is found, failure to produce a writing evidencing their “implied” agreement, would not invalidate the trust all together.
f. What must Mr. Kent do to assert his legal/beneficial interest and prevent unjust enrichment?
In order for Mr. Kent to rebut any claims made by Daniel, under Evidence Code § 662, Mr. Kent may argue that Daniel was an “involuntary trustee.” Under California law one who gains a thing by . . . violation of a trust or other wrongful act, is, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.” If we can prove that Daniel wrongfully acquired legal title as a trustee under an involuntary or constructive trust, by tracing Daniel’s deposit of moneys generated from their comingled account to his personal account, this may authorize the imposition of a lien to secure trust in your favor.
III. Can Mr. Kent sue Daniel and/or lenders to invalidate either the $200,000 second deed of trust securing Daniel’s secret borrowing against their Hollywood Hills home, or the deeds of trust securing the refinances (arranged through Susan) which yielded the $150,000 in secret loan proceeds paid directly to Daniel? If so, under what theories?
In Brand v. Lipton, plaintiffs sought to impose a constructive trust, requiring equity to intervene and scrutinize the transaction. Regardless whether there was any formal or express agreement between the two parties, if a constructive trust is established, Mr. Kent will have to prove that a “confidential relationship” existed “so pregnant with opportunity for abuse and unfairness’ as to require equity to intervene and scrutinize the transaction.” However, California case law states that "the mere facts that a confidential relationship existed between the parties is not sufficient to overcome the presumption of consideration for a written instrument, but it must also be made to appear that the relationship was used to obtain an unfair advantage, or that the confidence was violated.
Therefore, we must also consider the circumstances surrounding the various transactions, (e.g. being on a break from your relationship, after signing the unrecorded deed of trust withdrawing funds, post-break up arrangements with Susan, moving to Santa Monica etc.) would be relevant to support our argument that by withdrawing those fund, he breached his fiduciary duty owed to you, in violation of the trust. Which is why we need to know the basis of the financial arrangement made with Susan. What were the amounts typically refinanced? How far above and beyond previous refinances, was the amount withdrawn by Daniel? How were you financially impacted from the results of this arrangement with Susan?
a. How will Mr. Kent invalidate Daniel’s “secret borrowing”?
Mr. Kent will have to prove that the $200,000 line of credit secured by a second deed of trust on their Hollywood Hills home (taken out by Daniel in Summer 2005 and unaccounted for) was in violation of the trust. To avoid unjust enrichment, Mr. Kent must overcome the presumption “that moneys, drawn by trustee from fund in which he mingled his personal funds, were his [Daniel’s] own.” The burden on Mr. Kent to trace their co-mingled funds, will be relaxed if he can demonstrate “the unfaithfulness of the trustee [Daniel].” Such as, facts evidencing Daniel’s post break-up arrangement with Susan (less than a year after their initial confrontation) borrowed another $150,000, after promising Mr. Kent he would not borrow again without Mr. Kent’s permission. Under the theory of constructive trust (to avoid unjust enrichment) the statute of limitations running on Mr. Kent’s cause of action for equitable relief will not begin until he has actual knowledge of repudiation or breach of trust.
b. How can we invalidate Daniel's transfer of funds from the co-mingled account to his personal account?
Under California law, a conveyance is voidable at the instance of the beneficiary if the transferee takes with notice that it was made in breach of trust. If Daniel argues that he was a bona fide purchaser (A bona fide purchaser is defined as one who has purchased property for value without notice of any defects in the title, or who acts without knowledge or notice of competing liens on the subject property).
In order for Daniel to prove that he was a bona fide purchase, he must provide evidence that he made payment of value, in good faith, and without actual or constructive notice of another's rights. To protect your interests, we can argue that the fact he signed a document which, in writing, authorized the transfer of title to Mr. Kent's name, is sufficient to put him on constructive notice of another's right to the property, and invalidate his interest in property as a "bona fide" purchaser.
As a general rule a three-year statute of limitations under the Probate Code is applicable to all claims for breach of trust. However, under the Code of Civil Procedure, a 4-year statute of limitation exists if we assert a claim for a "breach of a fiduciary duty." Note: This limitation will be found inapplicable only in instances where the beneficiary contests the trustee's account without reasonable cause and in bad faith.
c. How can we clean Mr. Kent's hands?
Providing evidence that, your intent to record the second deed of trust was to protect his interest, and considering the circumstances that you did so only after speaking to Susan would be sufficient to justify that the recording was done in good faith and for the purposes of preserving the trust (also known as cleaning one's hands of any wrongdoing).
d. Establishing Daniel Breached a Fiduciary Duty Owed to Mr. Kent
In order to establish that a fiduciary duty existed, and assert a breach of one, we must first establish that existence of a trust (which is a fiduciary relationship in which property is transferred from the trustor, the creator of the trust, to one or more persons, known as trustees). In addition we must also address that although the second deed of trust was not recorded, it was sufficient to put either of the parties on notice of a transfer of title (whether this satisfies the requirements for a lis pendens, additional research required, and will not be addressed further at this time). The fact the second deed of trust was drafted, written, and signed by Daniel is sufficient to have put him on notice of his obligations as title holder and trustee.
e. How can we invalidate Daniel's property claim? Was there a breach of a fiduciary duty? Was a fraud committed in violation of the trust?
Under California law, A trustee acting in his or her own interest cannot impeach a deed in which he or she joined as trustee, or assert, for his or her own gain, that he or she betrayed his or her trust in making it.[1] Nor can one who has no lien, title, or estate in the corpus, either legal or equitable, set up the claim that a trustee's sale was void.[2] Providing evidence of a breach of a fiduciary duty (obligations owed by him to Mr. Kent as trustee), as well as the fraudulent transfer of funds to his personal account, would be sufficient to contest his attempt to invalidate the second deed of trust. To further establish that a fraud was committed upon the transferring of funds, if those funds were taken from the joint account and co-mingled with trust funds, then Mr. Kent has a beneficial interest supported by Dougherty v. California Kettleman Oil Royalties[3], which held that for a trustee to transfer trust property to another [account] in violation of the beneficiary's rights, is a fraud on the beneficiary.[4] [emphasis added]
To prevent Daniel from recovering any the proceeds of those purchases (because doing so would result in unjust enrichment, because of his prior wrongful acts), we must establish proof beyond the mere fact the transfer was made in violation of the trustee's duty to the beneficiary.
By law, Daniel as the "holder of legal title," has been designated trustee, incurring the obligation to "preserve, protect, and defend the corpus of the trust, which is the primary attribute to holding legal title." Therefore, if any of those funds taken were from the trust and not otherwise invested for the trust, then there is a breach of his fiduciary obligation. Your strongest argument to is proving that Daniel breached his fiduciary duty when he made arrangements with Susan, after your initial confrontation, after he withdrew $200,000 on a line of credit he was unable to account for, after he promised you he would not take out any money without your permission, after he signed the second deed of trust, and after you two broke up.
f. Our Best Argument is to Establish a Constructive Trust and Prove Daniel Breach A Fiduciary Duty in Violation of the Second Deed of Trust When He Made Arrangements With Susan to Take Out $150,000 of "New " Money and Deposit Those Funds Into His Individual Account
We can prove Daniel had knowledge of your beneficial interest, by providing evidence that he signed the deed of trust to transfer title to all the properties in your name. We can accomplish this by detailing the circumstances under which that deed was signed, absent any proof of wrongdoing on your behalf, argue that the unrecorded deed was sufficient to put Daniel on notice, that this was understood by both you and Daniel, and that Daniel should be held accountable for the acts he committed, prior to receiving notice, and in violation of the second unrecorded deed of trust.
As a general rule, a person is precluded from placing his property in trust so that his creditors cannot attach his assets. If he only invested in the property for his personal benefit, and deposited his monies for his individual benefit that there was a clear violation of the purpose for the trust and proof of fraudulent behavior. For example, if at any time Daniel deposited his personal money into the trust, for his individual use, and not for the benefit of the beneficiary, to serve his individual interests that would not only violate the trust, but provide proof that he "wrongfully" used the trust to defraud creditors.
g. Insufficient Facts to Prove Lenders Had “Knowledge” of Second Deed of Trust’s Contents
The inquiry required by Susan, is only a reasonable inquiry, it is not an exhaustive one, and a bank may be charged with the knowledge acquired by its officers. Despite Daniel and Mr. Kent being friends with Susan (loan broker), more facts are necessary to infer whether she knew of their financial arrangement, such that “her” knowledge may be imputed to the bank.
h. Additional Proof is Required to Establish Lenders had Notice of Mr. Kent's Beneficial Interest and Determine Whether the Unrecorded Second Deed of Trust was Sufficient to Put them on Constructive Notice of the Transfer of Title to Mr. Kent's Name
To enforce a lis pendens on the lenders, we would have to establish they were put on constructive notice of the transfer of title when the second deed of trust was recorded, and that this notice is imparted to them by law. However, lenders are not subject to failure to recognize transfers in title until they are recorded in the County Recorder's Office. Thus since both violations of the trust, made by Daniel, occurred prior to the recordation of the second deed of trust, the lenders may argue that they were not put on constructive notice and should not be liable for entertaining Daniel's fraudulent transactions.
Unless the bank had notice that the trust was insolvent, a prudent person would ascertain whether any liens were recorded. Under California case law, a lender may be charged with constructive notice of a lien recorded by a creditor, to take notice of another's rights (Mr. Kent's). It will be our burden to establish the absence of good faith on the lenders behalf or their failure to make a reasonable inquiry and properly identify who held beneficial interest.
Once we have received the information requested, we will need to schedule another appointment to meet you, so that you may review, verify, and sign documentation necessary to move forward with litigation. By law we are required to respond to Mr. Daniel's complaint within XXX days of receipt. Therefore your responses are due no later than Monday, April 4, 2011. We apologize ahead of time for any inconvenience this deadline may cause.
If you have any questions please do not hesitate to contact me, either by phone (310) 622-2800 or by e-mail j_daskevich@yahoo.com. Thank you for your courtesy and cooperation regarding this matter. We look forward to hearing from you.
Sincerely yours,
Jennifer A. Daskevich
Enclosed (2)
INSTRUCTIONS AND CLOSING REMARKS
Once we have received the information requested, we will need to schedule another appointment to meet you, so that you may review, verify, and sign documentation necessary to move forward with litigation. By law we are required to respond to Mr. Daniel's complaint within a certain number of days. Therefore your responses are due no later than Monday, April 4, 2011.
We apologize ahead of time for any inconvenience this deadline may cause. If you have any questions please do not hesitate to contact me, either by phone (310) 622-2800 or by e-mail j_daskevich@yahoo.com.
Thank you for your courtesy and cooperation regarding this matter. We look forward to hearing from you.
Sincerely yours,
Jennifer A. Daskevich
Enclosed (2)
PLEASE NOTE:
Any information and/or documents provided to us in response to following questions are protected by the attorney-client privilege and work-product doctrine, and considered confidential. By law we are not allowed to disclose any information provided to us, by you, without your express permission or authorization. In the essence of time, we have provided you with a summary of the questions we believe are most pertinent to establishing a trust, your beneficial interest, and maximizing your recovery. The questions initially presented in the Memorandum have been included to inform and prepare you moving forward, for the kinds of questions, you may be required to respond to at some point during the discovery process. However, only respond to: the summary of questions attached under the heading "Questions Presented" and "Documents Requested"
DOCUMENTS REQUESTED
In addition to providing us with your responses to questions, located in the next section, please provide us with any supporting documentation, such as contracts, mortgage payments, loan agreements, wills drafted, pay stubs, and tax returns filed, as well as any additional information and/or supporting documentation you find relevant, in addition to the following:
- ___We will need ALL bank statements from ALL accounts you have access to, including the joint account, or any other account Mr. Daniel had access to.
- ___Please provide us with a list of expenses paid and monies deposited into that joint account.
- ___Please provide us with a list of everything included in your "shared expenses."
- ___If you do not recall when Daniel deposited his Lloyd's Bank money into the joint account, please provide us with bank statements from the joint account for the entire year of 2001.
- ___Please provide with all documents of any written communication between you and Daniel.
- ___Please provide us with a list of all the individuals you interacted it with, or engaged in business regularly with, other than Susan?
QUESTIONS PRESENTED
Issue #1: Establishing Your Beneficial Interest
- ___Did you ever intend for Daniel to have a beneficial interest in title to any of the properties?
- ___When Daniel took title to the first property purchased, the West Hollywood home, did you intend to create a trust? What was your intention at the time?
- ___Where was the "perfect house," purchased in 1999, located? West Hollywood?
- ___The fact state that you provided "most" of the down payment for the "the perfect house." Exactly how much did you contribute?
- ___How much of your commission earnings contributed to the down payment of the "dream home" in Hollywood Hills?
- ___Out of three "rental properties" purchased sometime between 2002 and 2003, exactly how much did you contribute from your earnings to the first two purchased? By "most" exactly how much do you mean? Do you mean more than half?
- ___To which account were proceeds from the refinance of the WeHo property deposited and withdrawn from?
- ___In order to establish the amount of proceeds taken from the WeHo property refinance and provided as down-payment for the purchase of the third rental (in 2002-2003) in Los Feliz, please specify, to your knowledge, when Daniel deposited his Lloyd's Bank money in 2001, into the Well Fargo joint account, did he make this deposit prior or subsequent to purchasing the rental property in 2001?
- ___When you purchased three more properties between 2004 and 2005: What was the status of your relationship with Daniel? Exactly how much of the payment made came primarily from your "business"? If you do not recall, please provide us with bank statements from your individual accounts, including the one in which you deposited your "business" monies, between the years 2004 and 2005.
- ___Where any provisions included in the second deed of trust other than to transfer title to all the properties in your name? Was Daniel's oral promise to you not to withdraw monies without your permission, or else title would transfer to you, included in the final draft of the second deed of trust signed by him?
- ___What were the circumstances at the time the second deed of trust was drafted and signed?
- ___What were the circumstances at the time the second deed of trust was recorded?
- ___What prompted you to record the second deed of trust? Feelings of betrayal, such as emotions or feelings of abandonment? Or Financial betrayal, for the purpose of protecting your interest?
- ___Who was in charge of keeping track of your "shared finances"?
- ___Did Daniel take on any responsibilities, other than collecting rent, to assist in the management of the properties and accounts to which those proceeds were deposited?
- ___What financial contributions if any, did Daniel make towards the "shared finances"?
- ___Did you ever agree to pool your earnings with Daniel in a Joint Venture?
- ___By sharing your finances, do you mean "pooling together" your earnings?
- ___Although Daniel took title to all 10 properties initially, did you feel as though you both shared an interest in these properties, or believe these properties were purchased to protect your interest alone?
- ___What was the status of your relationship with Daniel at the time the second deed of trust was recorded? Did you talk to Daniel prior to recording?
- ___Under what circumstances was the second deed of trust recorded? Were any threats made? What was the environment in the home like? Were you living together or separate? Did you notice any changes in Daniel's behavior or the relationship that prompted you to again question him?
- ___Did you believe recording the second deed of trust was necessary to transferring title to your name?
- ___Was any portion of your oral agreement with Daniel, such as his promise not to withdraw again without your permission, included in the final draft of the second deed of trust?
- ___Were there any agreements, either express (in writing) or implied (by conduct), or conversations written (by e-mail, text-message, sticky-note, letter) or oral (via telephone, computer video-chat) evidencing any type of agreement or understanding that property was to be held in trust or jointly so long as you two remained together, co-habitating, and in a relationship? If not, do you believe that this was an "implied" agreement? At any time, did you discuss what would become of each other's interest upon separation?
- ___Did anyone (including Susan or the Lenders) have knowledge of your beneficial interest?
- ___Were there any witnesses to your initial confrontation with Daniel regarding the $200,000 line of credit taken out on the second deed of trust on the Hollywood Hills home? Were there any witnesses to him promising you that he would not withdraw again without your permission?
- ___Although the line of credit was drawn down immediately following Daniel's withdrawal of the $200,000 in Summer of 2005, why did only come to your attention in August 2009?
- ___Who or what informed you, that Daniel had taken out a $200,000 line of credit in Summer of 2005?
- ___Was any information provided to the lending institutions regarding your financial arrangements with Daniel?
- ___Between you and Daniel, which one of you primarily dealt with the lending institutions?
- ___Was Susan or anyone you engaged in business regularly with aware that you had been diagnosed with HIV?
Year/#
Description/Location
Who financed?
Title in whose name?
1999
“the perfect house”
Location: unknown
[Facts later tell us, this was their “West Hollywood home” they later rented out when they moved into their “dream home” in the Hollywood Hills.]
Mr. Kent put up “most” of the down payment
Recorded in Daniel’s name only.
Circumstances at the time:
*Mr. Kent was comfortable having title to property soley in D’s name.
*Mr. Kent assumed that he might not live at all that much longer and wanted D to enjoy the house even if death separated them.
2001
Started investing in “other” properties in the West Hollywood area. Purchasing two rental properties.
2001
“rental property” (1-2)
Location: Silver Lake
Mr. Kent’s earnings
2001
“rental property” (2-2)
Location: WeHo
Daniel’s Lloyds Bank money.
Late 2002 & early 2003
They bought three (3) more rental properties. (see below)
2002-2003
Rental property 1-3
“most” of the payment money came from Mr. Kent’s earnings.
Daniel’s (facts tell us under the same arrangements as before) for 1-1, 2-3, and 3-3.
2002-2003
Rental property 2-3
“most” of the payment money came from Mr. Kent’s earnings.
See supra 1-3.
2002-2003
Rental property 3-3
Location: Los Feliz
From proceeds from a refinance of the WeHo property they had bought in 2001 provided the down payment on the third.
See supra 1-3.
Oct. 2003
They purchased their early 20th century “dream home”
Location: Hollywood Hills.
Using as a down payment both proceeds from a refinance of the Los Feliz property and some of Mr. Kent’s commission earnings.
Title was taken in Daniel’s name alone.
2004-2005
Both men bought three (3) more properties
Down payments came primarily from earnings from Mr. Kent’s business.
Title (always) taken in Daniel’s name alone*
[1] Widney v. Southern Pac. Co., 120 Cal App. 291, 7 P.2d 1046 (3d Dist. 1932).
[2] Smith v. Bank of America Nat. Trust & Savings Ass’n, 14 Cal. App2d 78, 57 P.2d 1363 (2d Dist. 1936).
[3] Dougherty v. California Kettleman Oil Royalties, 13 Cal. 2d 174, 88 P.2d 690 (1939).
[4] Id.
