ESTATE OF MARTIN, 72 Cal.App.4th 1438 (1999) 86 Cal.Rptr.2d 37

PATRICK M. MARTIN, Petitioner and Appellant, v. ALICE M. KARLEBACH, as

Executor, etc., Estate of ROSE GENNETT MARTIN, Deceased.

No. B124420

Court of Appeals of California, Second District Division Four

Filed June 21, 1999

Appeal from the Superior Court of Los Angeles County, No. BP034062,
Gary Klausner, Judge.
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Michael L. Taylor for Petitioner and Appellant.

McKenna & Cuneo, R. Wicks Stephens II and Thomas Curtiss,
Jr., for Objector and Respondent.

CURRY, J.

Appellant Patrick M. Martin (hereafter "Martin") challenges
the probate court's denial of his petition to vacate a sale of
estate property by respondent Alice M. Karlebach (hereafter
"Karlebach"), executor of the estate of Rose Gennett Martin. We
reverse.

FACTUAL AND PROCEDURAL BACKGROUND

Rose Gennett Martin (hereafter "Rose"), who was Karlebach's
mother and Martin's grandmother, died on March 5, 1995. At the
time of her death, Rose owned 35 of the 80 outstanding shares in
Refrigeration Supplies Distributors, Inc. (hereafter "RSD"), a
family business that had then existed approximately 90 years.
Karlebach, who is Martin's aunt, is an officer, director, and
shareholder in RSD.

Rose's will made Martin a beneficiary of one-sixth of her
residuary estate. The will also nominated Karlebach to be
executor should Henry Gennett Martin, Rose's son, fail to qualify
as executor.[fn1] By court order, Karlebach was appointed
executor of Rose's estate on May 3, 1995.

To pay estate taxes, Karlebach decided to sell a portion of
the estate's RSD shares to RSD. RSD and Karlebach hired Cronkite
& Roda, an independent professional appraiser, to place a value on
the shares. In September 1995, Cronkite & Roda told Karlebach and
RSD that the 35 RSD shares were worth $9.7 million, or
approximately $277,142.86 per share, on the date of Rose's death.
Following a vote of RSD's board of directors, RSD redeemed 22.5
shares for $6.235 million in November 1995, and the estate made a
timely payment of the pending estate taxes.
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In late 1996 or early 1997, the federal Internal Revenue
Service (hereafter "IRS") began an audit of the estate. On March
19, 1997, Martin filed his objections to the executor's second
current account, alleging, inter alia, that Karlebach had secured
the probate court's approval of the first current account and
report without informing the court that she had a conflict of
interest with respect to the sale of the shares. At some point
before April 17, 1997, the date of the hearing on Martin's
objections, the IRS told Karlebach that it disputed the redemption
value of the shares. Pursuant to a stipulation between Martin and
Karlebach, the probate court filed an order on May 30, 1997,
approving the second current account and report but vacating the
portion of the first current account and report approving the sale
of the shares. The May 30 order reserved the probate court's
rulings on Martin's objections for a later date.

On December 10, 1997, Martin filed a petition to vacate the
sale of the shares. The petition contended that the sale was
voidable at his request because Karlebach, as executor, had
breached her duty under Probate Code section 9880 Prob.[fn2] et seq.,
not to purchase estate property indirectly without his consent.

On May 29, 1998, the probate court filed an order denying
Martin's request to void the sale of the shares. The order
states: "[T]he Executor breached her duty under . . . Section
9880 Prob.; based on the facts presented, the court is not finding the
executrix [sic] engaged in any prohibited self-dealing; the
failure of the Executor to comply with . . . Section 9880 Prob. did not
cause the transaction with respect to the redemption of [RSD]
stock to be voidable at the election of Petitioner as an
interested party; the redemption of the RSD stock should not be
voided; the proper remedy in this matter for the Executor's
failure to comply with . . . Section 9880 Prob. is to surcharge the
Executor for any damages that the estate did or will incur as a
result of the redemption, according to proof which may be
considered on noticed petition at a later date; and good cause
appearing therefor. . . ."

This appeal followed.

DISCUSSION

Martin contends that the probate court erred in denying his
request to void the sale of the shares. We agree.

A. Appealability

The threshold question is whether we have jurisdiction to
hear these appeals. Generally, rulings in probate proceedings are
not appealable unless
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expressly made appealable by statute. (Varney v. Superior Court
(1992) 10 Cal.App.4th 1092, 1098; 9 Witkin, Cal. Procedure (4th ed.
1997) Appeal, § 156, p. 221.) Subdivision (a) of section 1300
provides that "an appeal may be taken from the making of, or the
refusal to make" any order "[d]irecting, authorizing, approving, or
confirming the sale, lease, encumbrance, grant of an option, purchase,
conveyance, or exchange of property." Karlebach contends that the
probate court's order denying Martin's request to void the sale of
the shares is not appealable under section 1300, subdivision (a).

Although we are unaware of any case that addresses the
appealability of an order denying a request to void a sale of
property after the probate court initially approved the sale and
then vacated that order, the issue presented falls within the
scope of established principles. Generally, an order that merely
declines to vacate a prior order confirming a sale is not
appealable. (Estate of McCarty (1915) 169 Cal. 708, 708-710;
Estate of Ryker (1949) 92 Cal.App.2d 162, 162; Estate of Depew
(1944) 65 Cal.App.2d 81, 82, 88.) This rule suggests (although we
do not so decide) that an order that merely declines to vacate a
nonconfirmed sale is also not appealable.

However, as our Supreme Court explained in Estate of West
(1912) 162 Cal. 352, the appealability of an order of the probate
court is determined not from its form, but from its legal effect.
In West, the court addressed whether an order vacating an order
confirming a sale was appealable under subdivision 3 of former
Code of Civil Procedure section 963 Civ. Proc., a predecessor of section
1300, subdivision (a).[fn3] (Estate of West, supra, at pp.
353-354.) The West court concluded that although the statutory
language did not expressly identify such an order as appealable,
the order had the effect of directing the executor not to make the
sale, and as such, fell within the statutorily defined class of
appealable orders.

Here, the order from which Martin appeals goes beyond denying
his request to void the sale to determine that the sale "should
not be voided," and it limits the remedy for any impropriety
concerning the sale to a surcharge on Karlebach. Accordingly, the
legal effect of the order is to authorize or approve the
underlying sale itself, while withholding a determination on some
of its terms, especially, the value placed on the shares. In our
view, the order is one "[d]irecting, authorizing, approving, or
confirming the
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sale" of the shares within the meaning of section 1300, subdivision
(a), and is therefore appealable.

B. Section 9880

In the present case, the material facts are not in dispute,
and the key issue is whether the probate court properly denied
Martin's request to void the sale of shares after it found that
Karlebach had violated her duties under section 9880 Prob. This ruling
poses an issue of law that we review de novo. (Ghirardo v.
Antonioli (1994) 8 Cal.4th 791, 799.)

"An executor `"is an officer of the court and occupies a
fiduciary relation toward all parties having an interest in the
estate."' [Citations.] `"Executors occupy trust relations toward
the legatees, and are bound to the utmost good faith in their
transactions with the beneficiary. . . ."' [Citations.] An
executor also bears a `duty to disclose all the facts . . . and to
refrain from taking an unfair advantage of [the legatees].'
[Citation.]" (Estate of Sanders (1985) 40 Cal.3d 607, 616.)

Section 9880 Prob. et seq., establish the duties of executors and
other personal representatives with respect to purchases of estate
property. (12 Witkin, Summary of Cal. Law (9th ed. 1990) Wills
and Probate, § 389, pp. 412-414; id. § 477, pp. 495-496.) Section
9880 Prob. provides that "[e]xcept as provided in this chapter," an
executor may neither "(a) Purchase any property of the estate . . .,
directly or indirectly," nor "(b) Be interested in any such
purchase." This statute is a codification of the principle that
executors may not deal with themselves, or place themselves in a
position antagonistic to the estate's beneficiaries. (Strudthoff
v. Yates (1946) 28 Cal.2d 602, 613.) Transactions in violation of
section 9880 Prob. "are not void — only voidable. [Citations.] They
are `"voidable only at the instance of those interested in the
estate."' [Citation.]" (U.S. Fid. & Guar. Co. v. Postel (1944)
64 Cal.App.2d 567, 574, quoting Santos v. Santos (1939)
32 Cal.App.2d 62, 65.)

However, section 9883 permits an executor to petition the probate
court for an order allowing the executor to purchase estate property
in two sets of circumstances, which are stated in sections 9881 and
9882. The probate court may approve such a sale when (1) the executor
files written consents from all known heirs and devisees, and shows
that the sale is to the estate's advantage (§ 9881), or (2) the
decedent's will authorizes the sale (§ 9882). Finally, sections
9884 and 9885 provide that, subject to conditions not
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relevant here, an executor may buy estate property pursuant to a written
contract executed while the decedent was alive (§ 9884) or pursuant
to an option given in the decedent's will (§ 9885).

Here, the record amply supports the probate court's
determination that Karlebach violated her duties under section
9880 Prob. Karlebach is an officer and director of RSD, and she
personally owns as many as 5 RSD shares, which, when conjoined
with the 35 shares in Rose's estate, gave Karlebach control of up
to 50 percent of the outstanding shares in RSD prior to the
redemption. She played an important role in determining the
redemption price of the shares, and independent of any question
about the price of these shares, the redemption of 22.5
outstanding shares would have significantly enhanced the relative
amount of control that she exercised in virtue of her own shares.
The record thus discloses that Karlebach exercised positions of
control over the estate and RSD, that she played a key role in
arranging the sale of the RSD shares, and that the redemption
personally benefited her through her holdings in RSD.

The key issue, therefore, is whether the probate court erred
in denying Martin's request to void the sale of the shares. We
find dispositive guidance on this issue in O'Connor v. Flynn
(1881) 57 Cal. 293. In O'Connor, the executor of an estate
determined that it was necessary to sell some estate property, and
obtained a probate court order approving the sale. (Id. at p.
294.) Although the executor wanted to buy the property, he took
no action until after Wade, a third party, bought the property at
a public auction. (Ibid.) Before the probate court confirmed the
sale, the executor approached Wade, who agreed to sell the
executor the property. (Id. at p. 295.) This agreement was not
disclosed to the probate court, which confirmed the sale of the
property to Wade. (Ibid.) Wade then transferred the property to
the executor. (Ibid.)

The beneficiaries of the estate challenged this transfer,
citing former Code of Civil Procedure section 1576 Civ. Proc. (O'Connor v.
Flynn, supra, 57 Cal. at p. 294), which then provided that "[n]o
executor . . . must, directly or indirectly, purchase any property
of the estate he represents, nor must he be interested in any
sale" (enacted March 11, 1872, and repealed by Stats. 1931, ch.
281, § 1700, p. 687, effective Aug. 14, 1931). The probate court
granted judgment in favor of the executor, finding that the
executor had acted "in perfect good faith. . . ." (O'Connor v.
Flynn, supra, 57 Cal. at p. 295.) The court in O'Connor
reversed, reasoning that even if the probate court's finding was
correct, the executor had breached his duties by improperly
placing himself at odds with the estate's beneficiaries. (Id. at
pp. 295-296.) The O'Connor court thus concluded that the executor
held the property in
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trust for the beneficiaries, and directed that the property be conveyed
to the beneficiaries or sold at a public auction. (Id. at pp.
296-297.)

Here, as in O'Connor, the probate court apparently found that
Karlebach's intentions or good faith did not warrant voiding the
underlying sale. Nonetheless, Karlebach arranged for a
self-interested purchase of estate property without Martin's
consent, and thus, under O'Connor, he was entitled to have the
sale of shares voided at his request.[fn4]

Citing primarily Copley v. Copley (1981) 126 Cal.App.3d 248,
Karlebach contends that Rose's will authorized her conduct, and
thus her conduct falls under section 9882. However, Copley is
factually distinguishable. In Copley, the executor of an estate
and trustee of an inter vivos trust sold some of the trust's
shares in a family corporation to the corporation in order to pay
estate taxes. (126 Cal.App.3d at pp. 254-255, 258-267.) The
court in Copley concluded that the executor and trustee had not
breached her fiduciary duties because the trust instrument
expressly gave her unconditional authority to make such sales.
(Id. at pp. 278-280.) By contrast, Rose's will authorizes
Karlebach to sell estate property "subject to such confirmation as
may be required by law," and thus it falls outside the scope of
section 9882.

Karlebach also contends that the probate court was authorized
to approve the sale of shares because she did not purchase the
shares within the meaning of section 9880 Prob., subdivision (a), and
she merely had an interest in the sale of the shares within the
meaning of section 9880 Prob., subdivision (b). She argues that
sections 9881, 9882, and 9883 apply only to purchases of estate
property by an executor, and that sales of estate property in
which an executor merely has an interest are governed by section
9611, which permits the probate court to authorize an executor's
acts when "no other procedure is provided by statute. . . ." We
are not persuaded, for two reasons.
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First, California courts have repeatedly indicated that sales
of estate property in which an executor purchases the property or
has an interest in the sale are voidable at the request of the
beneficiaries. (U.S. Fid. & Guar. Co. v. Postel, supra,
64 Cal.App.2d at p. 574; Santos v. Santos, supra, 32 Cal.App.2d at p.
65.)

Second, in view of Karlebach's role as director, officer, and
shareholder in RSD, she is properly viewed as having indirectly
purchased the shares, within the meaning of section 9880 Prob.,
subdivision (a). The language of this subdivision is traceable to
former section 193 of the Probate Act (enacted 1851), which barred
an executor from "directly or indirectly, purchas[ing] any
property of the estate he represents," but which lacked any
provision resembling subdivision (b) of section 9880 Prob. In Boyd v.
Blankman (1865) 29 Cal. 19, our Supreme Court explained the broad
reach of the language in section 193 of the Probate Act
prohibiting direct and indirect purchases of property.

In Boyd, the administrator of an estate arranged for third
parties to foreclose on a mortgage secured by estate property and
to buy the property in their name but for his benefit. (29 Cal.
at pp. 21-22.) The property was then eventually conveyed to the
administrator. (Id. at p. 23.) The court in Boyd held that the
sales of the property to the third parties were voidable at the
request of the estate's beneficiary, reasoning that this rule
facilitated the intent of Probate Act section 193, which it
described as follows: "[I]t is apparent that the object was not
to declare who might or might not become a purchaser of the
property of the estate; but it was to prevent the property from
being sold at a price less than its true value, which might be the
case if the administrator, either directly or indirectly,
prevented competition among the bidders, by entering into the
market, either personally or by his agents, or if, with a view of
purchasing, he was tempted to undervalue the property in his
proceedings respecting the sale." (Id. at p. 36.)

Under Boyd, Karlebach's conduct in arranging to have RSD
redeem the shares fell under the proscription against indirect
inhibition of competition found in section 9880 Prob., subdivision (a),
and she otherwise failed to show that her conduct met the
statutory exceptions to this proscription located in section 9880 Prob.
et seq. We therefore conclude that the trial court erred in
denying Martin's request to void the sale of the shares.

DISPOSITION

The probate court's order denying appellant's petition to
vacate the sale of the RSD shares to RSD is reversed, and the
matter is remanded to the
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probate court for further proceedings in accordance with this opinion.
Costs are awarded to appellant.

Epstein, Acting P.J., and Hastings, J., concurred.

Respondent's petition for review by the Supreme Court was denied
September 29, 1999.

[fn1] Henry Gannett Martin, who was Martin's father and
Karlebach's brother, died in 1994.

[fn2] All further statutory citations are to the Probate Code
unless otherwise noted.

[fn3] Former Code of Civil Procedure section 963 Civ. Proc., subdivision
3, provided that an appeal could be take from an order "against or
in favor of directing the partition, sale, or conveyance of real
property." (Code Civ. Proc., § 963 Civ. Proc., subd. (3), added by Stats.
1889, ch. 213, p. 324, and amended by Stats. 1931, ch. 922, § 1,
p. 1929, eff. Aug. 14, 1931.)

[fn4] O'Connor also resolves another contention raised by
Karlebach, namely, that Martin's appeal is premature because the
probate court has not yet found that the sale of the shares
injured the estate. However, without requiring a determination of
injury to the beneficiary, the court in O'Connor held that the
sale should be voided at the beneficiary's request. (57 Cal. at
pp. 296-297.)

That such a determination is unnecessary finds further
support in Jones v. Hanna (1889) 81 Cal. 507. In Jones, the
executor of an estate, together with another person, arranged to
buy estate property through some third parties, and issued a
promissory note to them, but the executor and her partner failed
to pay the third parties in full after they made the transaction.
(Id. at pp. 507-509.) When the third parties sued the executor
and her partner on the promissory note, the trial court entered
judgment in favor of the third parties, finding that the estate
had realized the largest possible profit from the sale. (Id. at
pp. 508-509.) Our Supreme Court held that the trial court erred,
reasoning that the contract at issue was void as a matter of
public policy because the underlying acts by the executor were
illegal, and that the benefit to the estate was immaterial to the
illegality of the agreement. (Id. at pp. 509-510.)
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REVIEW GRANTED[fn*]

[fn*] Reprinted without change in the Review Granted Opinions Pamphlet
to permit tracking pending review and disposition by the Supreme
Court.