SLOUGH, J.
This appeal boils down to the question whether the parties' settlement agreement released the appellants Robert Thomas' and Richard Branca's claims that respondents David Kellenberger, Garret Kellenberger, and Christopher Hofer (beneficiaries) must reimburse the Adonis Trust for (i) estate taxes paid in response to an audit that occurred after the settlement and (ii) estate taxes owed on shares the trustees distributed to the beneficiaries as part of the settlement.
Like the trial court, we conclude the settlement released the claims. We therefore affirm the trial court order enforcing the settlement agreement in favor of the beneficiaries. (Code Civ. Proc., § 664.6.) Our decision entails the trial court's other orders—denying the trustees' motion to prorate the tax liability and awarding the beneficiaries attorney fees and costs as prevailing parties—were also correctly decided. We affirm those orders as well.
James G. George (George) was the settlor and original trustee of the Adonis Trust (trust). Appellants Robert Thomas and Richard Branca (trustees) succeeded George as co-trustees when George died on August 29, 2011.
The trust assets included ownership of all 1,000 shares of common stock in two corporations—Nail Cartel, Inc. (NCI) and International Abrasive Manufacturing, Inc. (IAM). It also included 99 percent membership interest in Cartel Properties, LLC (Cartel), which held title to the commercial property in Anaheim, California where NCI operated.
Upon George's death, paragraphs 5.2 (a) and (b) of the trust directed the trustees to distribute 26 percent of NCI and IAM common stock to each beneficiary. The same provisions gave George's long-time employee, Michael Jaramillo, an option to purchase the remaining 22 percent of NCI and IAM common stock. Under paragraphs 5.2 (a)(4)(f) and (b)(4)(f), if Jaramillo declined the purchase option, the beneficiaries would divide those shares equally.
Paragraph 5.2 (c) directs the trustees to distribute 20 percent of the interest in Cartel to beneficiaries and to hold the remaining 40 percent in trust for George's two daughters and granddaughter.
Paragraph 5.3 (b) obligated the trustees to pay federal estate taxes, interest, and penalties imposed "on any portion of the Trust Estate in the gross taxable estate." It also provided such "taxes shall be prorated and apportioned among or recovered from the Trust Estate or the persons entitled to the benefits under the Trust as provided in Division 10 of the California Probate Code." Probate Code section 20111—which is within Division 10—provides proration "shall be made in the proportion that the value of the property received by each person interested in the estate bears to the total value of all property received by all persons interested in the estate."
The trustees hired accountants to value the trust assets and prepare federal estate tax returns. For purposes of the filing, the accountants valued the estate at $8,393,944. Around May 29, 2012, they requested an extension for filing the return and paid the Internal Revenue Service (IRS) $275,000 in estate taxes. Around December 3, 2012, they filed the return and paid the IRS another $523,592 in estate taxes. The beneficiaries paid $141,790 each when the trust filed the estate's tax return, which appears to be the share of the estate tax the trustees had calculated was attributable to their respective shares under the trustees' valuation of the estate.
The trustees and beneficiaries had a series of disputes over the distribution and use of trust assets before this lawsuit. First, the trustees refused to distribute the shares of NCI and IAM or the membership interests of Cartel and told the beneficiaries they would put the trust assets through probate.
Second, the beneficiaries accused the trustees of breaching their fiduciary duty by retaining the shares during that period. According to the beneficiaries, retaining the shares allowed the trustees to receive $483,011 in distributions. They said the trustees used those funds for the benefit of themselves and beneficiaries of the trust other than respondents when the businesses should have retained the funds.
Third, the trustees refused to distribute assets Michael Jaramillo declined to purchase. Around May 29, 2013, Jaramillo declined his option to purchase 22 percent of the common shares of NCI and IAM. By operation of subparagraphs 5.2 (a)(4)(f) and (b)(4)(f), the beneficiaries became entitled to equal shares of that interest in both companies. The trustees valued those shares at $737,000, but withheld them because of yet another dispute with the beneficiaries over their use of corporate funds.
In that dispute (their fourth), the trustees accused the beneficiaries of misallocating NCI corporate income. On June 14, 2013, the trustees filed a petition for instructions in the trial court seeking an order that the trust receive a portion of NCI's undistributed ordinary taxable income. The trustees alleged the trust had distributed 78 percent of the NCI shares to the beneficiaries and the trust had retained the 22 percent of the NCI shares Jaramillo had an option to buy. They said Jaramillo disclaimed his option around May 29, 2013, and the beneficiaries demanded transfer of the shares. However, the trustees said the trust had not received a substantial portion of the 22 percent of NCI's ordinary taxable income it was entitled to as the holder of those shares, and the beneficiaries had improperly retained those funds in the corporation for their own benefit. The trustees said it would be a breach of fiduciary duty to release the Jaramillo shares before obtaining distribution of the funds the beneficiaries had wrongly retained and sought guidance from the court to that effect.
The parties met to discuss a settlement in August 2013. All parties were represented by counsel and the trustees were represented by an accountant. On August 18, 2013, the parties executed a written settlement agreement.
The settlement named as parties the beneficiaries, NCI, IAM, and their agents, affiliates, partners, and representatives on one side and the trustees and their agents, affiliates, partners, and representatives on the other.
The recital says the trustees contended the beneficiaries were "liable to the Adonis Trust (Trust) for unpaid Retained Earnings of the corporations and/or reimbursement of sums alleged due from the corporations to the Trust," and the beneficiaries contended the "Trustees and the Trust owe [them] reimbursement for payments made to or on behalf of the Trust which were not due to the Trust." It says, "A genuine dispute has arisen between the parties wherein each has or may have claims against the other which both parties are now desirous of extinguishing by way of this Agreement. The parties enter into this Agreement to resolve any and all disputes between themselves, the corporations and/or the beneficiaries of the Trust."
To resolve the dispute, the parties agreed the trustees would deliver to the beneficiaries the NCI and IAM stock Michael Jaramillo had declined and the beneficiaries would pay $135,000 to the trust, care of the trustees.
Paragraph 6 says the parties released each other "from all past, present and future claims, and will cease and further release each [other] from any further obligation whatsoever to the other regarding the issuance of NC & IAM stock to the Trust, any amount due to the Trust by NC & IAM or due to NC & IAM by the Trust or regarding exercise or cancellation of the Michael Jaramillo Option in the Trust."
The settlement agreement contains two additional paragraphs concerning the release of claims. Paragraph 8, entitled "Release of All Claims," says: "NC & IAM and Trustees release and forever discharge each other from any and all demands, rights, claims, actions, causes of action, damages, losses, costs, attorney's fees, loss of profits/benefits, expense and compensation (contractual and extra-contractual) of any kind which NC & IAM and Trustee now have or which they may have in the future, of whatever character, nature or kind, known or unknown, fixed or contingent, that arise from, or directly or indirectly relate to, or are connected with, any act or omission on the part of NC & IAM and Trustees, or any of the respective related persons, occurring prior to the date of the execution of this Agreement, including, but not limited to, any and all alleged claims, causes of action, costs or demand[s] which are embodied and may arise out of, or are in any way connected with, any fact, matter or issue pertaining to the actions described in paragraph 3 of this Agreement."
Paragraph 9, entitled "Mutual Release," says: "The parties expressly assume all risks of any and all claims for damages of which they are unaware, whether through ignorance, oversight, error, negligence or otherwise and which, if known, would materially affect the decision to enter into this Agreement, and further assume the risks that they may suffer damages in the future which they do not now anticipate or suspect may occur, and therefore waive all rights under section 1542 of the California Civil Code, which states: [¶] A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release which, if known by him, must have materially affected his settlement with the debtor. [¶] The parties hereto, and each of them, warrant and represent that the effect and import of the provisions of section 1542 of the California Civil Code have been fully explained to them by their respective attorneys."
The parties also agreed the prevailing party in any dispute would be entitled to recover reasonable attorney fees, costs, and expenses.
In April 2014, the IRS conducted an audit of the estate and determined it owed an additional $207,290 in federal estate taxes and interest. The trust paid the IRS that amount on December 2, 2014.
On April 6, 2015, the trustees demanded the beneficiaries reimburse the trust $78,205 each—a total of $234,615—as their additional share of estate taxes and interest. The demand included the additional taxes the IRS imposed after their audit and estate taxes attributable to the Jaramillo shares.
On May 7, 2015, the beneficiaries declined to pay, saying the claims were covered by the settlement agreement. Regarding the claim for the additional taxes owed after the IRS audit, the beneficiaries contended the claim was released because the underpayment was the result of the trustees undervaluing the estate business in calculating the amount due in the first place. Quoting paragraph 8 of the settlement agreement, they asserted the mistaken valuation was an "act or omission . . . occurring prior to the date of the execution of this Agreement."
This lawsuit ensued. On May 29, 2015, the trustees filed a petition to have the court prorate among the beneficiaries the additional estate taxes and interest paid after the settlement agreement. (Prob. Code, §§ 21110, 21111.) The petition also sought reimbursement for the taxes the trust paid on the value of the 22 percent of NCI and IAM shares that passed to the beneficiaries when Michael Jaramillo declined his option to purchase them. The beneficiaries filed a demurrer and a motion to enforce the settlement agreement (Code Civ. Proc., § 664.6).
The trial court heard argument on September 10, 2015. It granted the beneficiaries' motion to enforce the settlement, denied the trustees' petition for proration, and deemed the demurrer moot. The court held the release in paragraph 6 controls because it "specifically provides that NC & IAM (meaning the 3 Respondent beneficiaries, NC, IAM and agents) and the Trustees `. . . release the other from all past, present and future claims, and will cease and further release each from any further obligation whatsoever to the other regarding . . . any amount due to the Trust by NC & IAM.'" The court held the release provision in paragraph 8 did not override that language because it is a "general expression only of releases," and "[p]articular expressions" like those in paragraph 6, "qualify those which are general." The court concluded the settlement agreement bars the trustees from seeking further payment of estate taxes from the beneficiaries. It reached that conclusion based on the terms of the settlement agreement, and without referring to extrinsic evidence.
The beneficiaries moved to recover their attorney fees and costs as prevailing parties under the fee-shifting provision of the settlement agreement. The trustees did not oppose that motion, and the court granted it, awarding them $31,802.50 in attorney fees and $362.40 in costs.
The trustees timely appealed both orders and the order denying their petition to prorate the estate taxes.
This appeal requires us to decide who is liable for approximately $234,615 in federal estate taxes—a trust or its beneficiaries. Most of that amount represents funds the trust paid to the IRS after an audit conducted in 2014 (audit taxes). A smaller portion represents funds the trust paid to the IRS on the portion of the value of the estate that Michael Jaramillo declined to purchase in 2013 (Jaramillo taxes). The parties agree that under the trust documents the beneficiaries would be liable for both classes of taxes. However, the trustees and beneficiaries had resolved disputes in a settlement agreement containing a broad release of claims. The trial court determined the settlement agreement released the trustees' claims against the beneficiaries, and we must now review that decision.
We exercise independent review of the trial court's interpretation of contract terms, unless the contract is ambiguous and its interpretation turns on the resolution of factual disputes. (Arntz Builders v. City of Berkeley (2008) 166 Cal.App.4th 276, 284.) Whether contractual language is ambiguous is a question of law we review de novo. (Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 912.)
We interpret a contractual release under the same rules of construction that apply to contracts generally. (Civ. Code, § 1635; Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524 (Hess).) We interpret a contract to give effect to the mutual intention of the parties at the time they formed the contract. (Civ. Code, § 1636; Hess, at p. 524.) We discern the parties' intention based on the written contract alone, if possible, but may also consider the circumstances under which the contract was made and its subject matter. (Civ. Code, §§ 1639, 1647; Hess, at p. 524.) We consider the contract as a whole, and interpret contested provisions in their context, not in isolation, with the aim of giving effect to all provisions, if reasonably possible. (Civ. Code, § 1641; People v. Doolin (2009) 45 Cal.4th 390, 413, fn. 17.) We give the words in a contract their ordinary and popular meaning, unless the parties or usage have given the words a different technical or special meaning. (Civ. Code, § 1644; Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 752.) No matter how broad the terms of a contract, it extends only to those things concerning which it appears the parties intended to contract. (Civ. Code, § 1648; Victoria v. Superior Court (1985) 40 Cal.3d 734, 739.)
The parties repeatedly declared their intention to enter a broad release—one affecting all claims, whether known or unknown, suspected or unsuspected. First, the recital states "The parties enter into this Agreement to resolve any and all disputes between themselves, the corporations and/or the beneficiaries of the Trust." (Italics added.) Second, the description of the settlement recounts the disputes and says the parties "will release the other from all past, present and future claims, and will cease and further release each from any further obligation whatsoever to the other regarding the issuance of NC & IAM stock to the Trust, any amount due to the Trust by NC & IAM or due to NC & IAM by the Trust or regarding exercise or cancellation of the Michael Jaramillo Option in the Trust." (Italics added.) Third, the release provision says the parties "release and forever discharge each other from any and all demands, rights, claims, actions, [and] causes of action . . . of any kind which NC & IAM and Trustees now have or which they may have in the future, of whatever character, nature or kind, known or unknown, fixed or contingent, . . . including, but not limited to, any and all alleged claims, causes of action, costs or demand which are embodied and may arise out of, or are in any way connected with, any fact, matter or issue pertaining to the actions described in" the trustees' June 14, 2013 petition for instructions.
On top of those broad release provisions, the parties explicitly waived the protections afforded by section 1542 of the California Civil Code, which provides "[a] general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release which, if known by him, must have materially affected his settlement with the debtor." Paragraph 9 says the parties "expressly assume all risks of any and all claims for damages of which they are unaware, whether through ignorance, oversight, error, negligence or otherwise and which, if known, would materially affect the decision to enter into this Agreement, and further assume the risks that they may suffer damages in the future which they do not know anticipate or suspect may occur, and therefore waive all rights under section 1542." The provision also says the parties were represented by counsel who explained the import of waiving the section 1542 protections.
Unlike the trial court,
We conclude these terms of the settlement agreement, taken together, plainly set out the parties' intention to release each other of all claims, whether known or unknown at the time of the settlement agreement. The Fourth District, Division One has concluded similar contract terms stated a broad general release. (Winet v. Price (1992) 4 Cal.App.4th 1159 (Winet).) There, the parties repeatedly "declared their intention to release each other from all claims, known or unknown, suspected or unsuspected, arising from either the facts described in the collection lawsuit . . . or any act or omission in connection with the legal services . . . [and then] reiterated that (1) there was a risk they might suffer losses unknown or unanticipated at the time of the release; (2) they were represented by counsel, who advised them of the rights conferred by section 1542; and (3) with knowledge of the risks, and upon advice of counsel, the parties assumed the risks of unknown or unanticipated claims." (Id. at pp. 1166-1167.) The Winet court interpreted these provisions as plainly indicating the parties' intention to enter a broad general release, affecting unknown and nonmatured claims. (Ibid.) We reach the same conclusion in this case.
Broad general releases are enforceable where, as here, the parties had relatively equal bargaining power and were represented by counsel who explained the nature and importance of the release. As the Winet court acknowledged "[g]eneral releases which purport to extinguish unknown and nonmatured claims can no doubt be subject to abusive use . . . [and] when the parties are in unequal bargaining positions or other factors make the release doubtful as to whether its terms were actually understood, or its enforcement otherwise inequitable for some reason, judges will seek grounds to avoid literal enforcement." (Winet, supra, 4 Cal.App.4th at p. 1172.) However, the Court of Appeal explained it is wrong to conclude a general release cannot effectively "extinguish all future claims regardless of their then status in terms of either maturity or knowledge . . . [because] [t]hose engaged in contract law and litigation are in great need of the availability of iron-clad and enforceable general releases"; upholding them "is in harmony . . . with a beneficial principle of contract law: that general releases can be so constructed as to be completely enforceable." (Winet, at pp. 1172-1173.) This is one such case. As in Winet," [w]e deal . . . with a release that is about as complete, explicit and unambiguous as a general release can be," and one where all parties were sophisticated and represented by counsel. (Ibid.) We therefore conclude the parties' release of future, unknown, and nonmatured claims is enforceable.
Our conclusion does not end the analysis, however, because the release extends only to claims "that arise from, or directly or indirectly relate to, or are connected with, any act or omission" by a party that occurred "prior to the date of the execution of this Agreement." The release in Winet had a similar limitation, but it was uncontested there that the new claim arose from acts that occurred before the parties had entered their settlement agreement. Here, appellants contend, important acts and omissions occurred only after the parties had executed their agreement. The trustees contend their claim for reimbursement of the audit taxes arose from events in 2014 and 2015. The IRS demanded additional taxes after an audit that occurred in 2014, and the trustees paid those taxes in December 2014. The trustees demanded reimbursement from the beneficiaries in April 2015, and the beneficiaries refused to pay in May 2015. The trustees make a similar argument regarding their claim for reimbursement for the Jaramillo taxes. The trustees did not disburse the Jaramillo shares until the settlement agreement was executed and did not demand reimbursement of those taxes until their April 2015 demand letter. The beneficiaries refused to pay by letter in May 2015. The trustees contend both their claims arose from the beneficiaries' refusal to reimburse them in May 2015—after the parties executed the settlement agreement.
We must therefore determine whether the trustees claims for reimbursement for the audit taxes and the Jaramillo taxes arose from, are directly or indirectly related to, or are connected with acts or omissions that occurred prior to August 18, 2013. We consider the effect of this language on each claim separately below.
The trustees contend their claim for reimbursement of the audit taxes does not fall within the scope of the settlement release because the claim arose from the beneficiaries' refusal to pay them after the settlement. In effect, they contend a claim was not released unless it had matured or accrued before the settlement agreement. We believe this reads the release language too narrowly.
As we have discussed, the release expresses the parties' intention to release even unknown claims that may mature after they had executed the settlement. Reading the "arise from" clause to exclude any claims that had not accrued before the settlement would undo that express intent. In any event, the plain language of the limitation does not support the trustees' position. The release is limited to claims that "arise from, or directly or indirectly relate to, or are connected with" the acts of the parties that occurred prior to the execution of the settlement agreement. That language is quite broad. In this case, we conclude the claim for reimbursement relates to (and is connected with) the trustees' and their agents' mistaken valuation of the estate.
The trustees retained an accountant to value the assets of the trust for purposes of filing and paying, among other obligations, federal estate taxes. The accountant valued the estate at $8,393,994, and the trust paid $798,592 to the IRS in two installments. The trustees asked the beneficiaries to pay their portion of the taxes based on its valuation and the percentage they were entitled to before Jaramillo declined his option to purchase 22 percent of the NCI and IAM shares. Though the appellate record is unclear on this point, it appears the beneficiaries paid the required amount prior to the settlement agreement. However, after the parties entered the settlement, the IRS audited the trust's filing and found the trustees had underpaid by $207,290. It is that amount, plus subsequent adjustments the trustees seek to recover under paragraph 5.3 (b) of the trust documents.
The plain language of the settlement agreement releases this claim. The settlement agreement releases disputes arising out of, related to, or connected with any mistakes by the trustees' accountant in determining the amount of federal estate tax the estate owed. Though the trustees did not know of this claim at the time they entered the settlement, it does relate to acts that occurred prior to the settlement, and the plain terms of the settlement agreement, which releases future claims, therefore releases the claim. (See 13 Corbin on Contracts (2003) § 67.9(1)(d), p. 84.) ["The fact that a right created by an existing transaction is contingent upon some fact or event as yet uncertain in character does not prevent a present release from discharging it, if the release contains apt words for the purpose"].)
We reach the same conclusion about the trustees' claim for reimbursement of the Jaramillo taxes.
The settlement agreement explicitly resolves disputes related to the corporate shares Michael Jaramillo released by declining his option to purchase. The parties' prior dispute was explicitly about the Jaramillo shares. Jaramillo declined his option to purchase the shares on May 29, 2013, months before the settlement meeting. The trustees refused to release those shares to the beneficiaries, as the trust document instructs. The trustees raised those shares explicitly when they filed their petition for instructions, and the settlement agreement resolves that dispute explicitly; the release language in the settlement agreement specifically identifies the Jaramillo shares as a subject the settlement agreement resolves. The parties agreed the trustees would deliver the NCI and IAM stock Michael Jaramillo had declined to purchase and the beneficiaries would pay $135,000 to the trust.
We conclude the trustees' claim to be reimbursed for the portion of estate taxes attributable to the Jaramillo shares is a claim that relates to or is connected with acts or omissions of the parties that occurred prior to the settlement agreement. The claim relates to the trustees' refusal to release the shares to the beneficiaries and the beneficiaries' demand that the trustees distribute the shares—acts that not only occurred prior to the settlement agreement but that, in part, constituted the prior dispute.
Even if we were to give preference to the release language in paragraph 6 of the settlement agreement, we would reach the same conclusion. That provision says the parties release each other "from all past, present and future claims, and will cease and further release each [other] from any further obligation whatsoever to the other . . . regarding exercise or cancellation of the Michael Jaramillo Option in the Trust." (Italics added.) The claim for reimbursement of taxes on the Jaramillo shares is a claim respecting a further obligation related to the exercise or cancellation of the Jaramillo option. Thus, while it is uncontested the trustees had a claim to be reimbursed for the Jaramillo taxes under the terms of the trust documents, the plain language of the settlement releases that claim.
Accordingly, we affirm the trial court's order enforcing the settlement agreement against the trustees.
The trustees concede their appeal challenging the attorney fee award and the order denying their motion for proration rise or fall with our resolution of their challenge of the order enforcing the settlement. Accordingly, we affirm the trial court's other two orders.
The beneficiaries request that this court order the trustees to pay them "reasonable attorneys' fees, costs and expenses, incurred in responding to this appeal," as required by paragraph 21 of the settlement agreement, "with the appropriate amounts to be paid to be determined by the court below." It is well settled that where a contract provides for the recovery of reasonable attorney fees incurred in its enforcement, the prevailing party may recover an award of legal services rendered on appeal as well as in the trial court. (Harbour Landing-Dolfann, Ltd. v. Anderson (1996) 48 Cal.App.4th 260, 264.) We direct the trial court, after remittitur, to hear an application for attorney fees for services rendered on appeal.
We affirm the trial court's postjudgment orders. Respondents shall recover their costs and attorney fees on appeal. The trial court shall determine the amount of such attorney fees on remand.
