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 1 KAMALA D. HARRIS
Attorney General of California
2 ELIZABETH. S. KUvl
Supervising Deputy Attorney General
3 CHRISTOPHER C. LAMERDIN
Deputy Attorney General
4 State BarNo. 162033
455 Golden Gate A venue; Suite 11000
5 San Franci;;co, CA 94102-7004
Telephone: (415) 703-550() ·
6 Fax: (415) 703-5480
E-mail: Christopher.Lamerdin@doj.ca.gov
7 Attorneysfor the People ofthe State ofCalifornia

8,
SUPERIOR COURT OF THESTATE OFCALIFORL~IA
9
10
COUNTY OF NAPA
ll
12

13 INRE; Case No .

14 PETITION FOR REMOVAL OF

.J.EAN .SCHR.O:ED.E:R.EDlJCATION.TR:UST;
TRUSTEES, APPOINTMENT OF
15 RECEIVER OR TEMPORARY
THE PEOPLE OF THE .STATE 0]' TRUSTEE, AN ACCOUNTING, AND TO
16 CALIFORNIA, . . VOID T}lE TRANS~FER OF TROST
PROPERTY TO TRUSTEE;
17 P¢titioher, DECLARATION OF CIDUSTOPHER C.
LAMERDJN WITH EXIIIBJTSIN .
18 v. SUPPORT THEREOF .

19 [Prob. Code,§§ 15002, 1500.4,1~202,

MATTHEW BISHOP, INDIVIDUALLY AND. AS 15403, 15642,15680, 16002, 16004, 16006, .
20 TRUSTEE OF THE JEAN SCHROEDER EDUCATION 16009, 16049,16102,,16400, 16420, 17000,
TRUST, GENEPRA'I\JNDlYlDUALLY AND AS 17005, 17200, 17203, 17210; Gov. Code,§§
21 TRUSTEJ?' OF THE .lEAN SCHROEDER EDUCATION 12591, 12598] .
TRUST,ANPlJOESJ-20, INCLl.TSIVE, . . .
22 [Request for JudiCial Notice and Lis
Pendens filed iu.supportj
23 Respondents.
Date: November 20; 2014
24 Time: 8.:30 a.m.
Dept:
25
26
27
28

PETITION FOR REMOVAL OF TRUSTEES

 1 Petitioner) the Attorney General ofthe State of California, seeks an order removing the

2 current trustees ofthe Jean Schroeder Education Trnst ("Education Tnist"), each of whom is

3 named as a respom~ent in this Petition, appointing a.receiver or temporary trustee to take over,

4 manage, and control the affairs of the Education Trust; fbr an accounting of all the Education

5 Trust~ssets; to void the transfer of trust property to Matthew Bishop, trustee; and to do all other

6 things authorized by the Court.

7 JURISDICTION AND VENUE

8 1. Petitioner is the duly elected Attom:ey General of California and in such capacity is

9 entitled to bring this Pet~tiort under G:ovenm1ell.t Code section 12591, Probate Code sections

10 15002, 15004~ 15642 at'ld 17210, and common taw; ,oh behalf of the People of the State ·of

11 California,.as the subject trust is.a·charitahle trust under the jurisdiction and supervision ·Of the

12 Attorney GeneraL.
.{

13 2. The Petition is properly brought before tlus Court because the Education Trust was

14 created, and is a~dmi11isteredin Na,paCmmty. (Prob. Code, § 17005, subd. (a)(2}.) The Probate

15 Code confers exclusivejurisdjction of}Jroceedings concetning the intemal affaits of trusts to the
16 superior court havingjurisdiction over the tmst. (ld at§ 17000, subd. {a).)

17 The fa,ctual allegatiom; 'below CJ,te made 11ncler it1fon11ation and belief:

18 PARTIES

19 3. Petitioner is the Attomey General of the State ofCalifornia and is charged with the

20 .general supervision ofall organizations andind1vic1ua1s who.obtain, hold or control propertyih

21 !Lust for charitable and eleemosynary pmposes. In any case involving a charitable trust, the

22 Attorney General.has authority to pe-tition under Probate Code section 17200 et seq. (Prob. Code,

23 § 1721 0.) Under Government Code section 12598, subdivision (a), the Attomey General has

24 primary responsibility for supervising charitable trusts in Califomia, for ensuring compliance

25 with trusts, and for protecting charitable assets. The. Attorney General has standing in

26 proceedings affecting the disposition of charitable assets andlms authority to aetas an advocate in

27 support ofthe chatitable pro·v:isjons set forth in wills ai1dfrusts. (Gov. Code, § 12591.) The

.28 Attorney General rep1:esents the public beneficiaNes ofthe charitable trust. (In re Veterans'
2
.PETITION FORREMOVAL OF TRUSTEES
 1 Industries.. Inc. v. Lynch (1970) 8 Cal.App.3d. 902 [the Attorney General has a duty to protectthe
2 beneficiaries' interestin a charitable trust}; Estate ofVentura (1963) 217 Cal.App.2d 50, 57 [the

3 Attorney General has the duty to pmticipate inproccedings to protect charitable gifts]; Estate of

4 Zahrz (1971) 16 Cal.App.3d 106; 114.) The Attomey Generalis authorized to enforce, in. the
5 name ofthe People of this State, the provisions of the Supervision of Trustees and Fundraisers for

6 Charitable Purpo;:;es Act (Gov. Code,§ 12580 et seq.), and. the Probate Code(§§ 15000 et seq.,

7 16000 etseq,, and 17000 etseq.}

8 4. Respondent Matthew Bishop ("Bishop~') has been a trustee of the. Education Ttust

9 since the d('!ath of trustor A.T. Anderson on December 3~ .2009. As a trustee of th.e Edu.cation

lO Trust~ Bishop owes a fiduciary duty to the charitable beneficiaries ofthis Trustl who are the
11 People of the State of Ca}iforqia. Bishop is also an attorney licensed. to practice in the State of

12 California and a.rcsidcnt ofNapaCotmty, Califomi[l..

.,.,
1:> 5. Respondent Gene Ptat('Ptat")has been, othas acted as, a tmstee of the Education

14 Trustfrom on ox about December 3, 2009 to the present. As atrus.tee oftbe Educati<.m Trust, Prat

15 owes a fiduciary duty to thc.oharitabl¢ beneficiaries ofthis Trust, who are the People of the. State.

16 ofCaliforn:ia.. Prat is a residentofMarin County, California.

11 6. Re~p011<;lent DOES 1-20 are the fictiti<rqs names of respondents who were trustees;

18 agents> or key employees of the Education Trust, and those who have. acted on behalfofot as

19 agent, servant or employee of one or JTlOre of the named respondents and DOES 1-20, or -vvho

20 have. directly or inditectly participated or acted in concert with them in the acts and omissions

21 described. in the Petition, but whose true names and capacities, whether individual, corporate or

22 otherwise, arepresentlyunknowt1tppetitioner. Petitioner v.~ll seek leaveto an1endthis Petition

23 when. their tme names are discovered.

'24 BACKGROUND FACTS IN SUPPORT OF THE PETITION

25. 7. A. T. Anderscm's Will and 2004 Revocable Trust. On July 2, 2004, A. T. Anderson
·26 created his Last Will and TestamenteWill"); and the. A. T. Anderson 2004 Revocable Trust

27 (''Revocable Trust''), Ai1derson placed his residence, located ~t-1211 Gre~n Valley Roacl., Napa,

28 Califori1ia, Assessor's Parcel Number 045-330-022-000,

,., ..C'Green Valley property'') into the
;J

PETITION FOR REMOVAL OF TRUSTEES

 1 .Revocable Trust as its only asset. A11derson's Will directed that upon his death, the remainder of

2 his property, both real and personal, is to become assets of the Revocable Trust, to be

3 administered under the terms ofthe Revocable Trust.

4 8. The Will nominated Matthew Bishop as executor ofthe estate.

5 9. The Revocable Trust stated that upon Anderson! s death, "all residue of the Trust

6 Estate shall pass to a not-for-protlt entity yet to be formed which will be knovvn as the JEAN

7 SCHROEDER EDUCATION FOUNDATION. In the event that on the Tntstor's death, no such

8 foundation is in existence; all residue ofthe Trust Estate shall be held in a charitable trust known

9 as JEAN SCI-IROEDER EDUCATION.TRUST; with the Trustee(s) namedhere)n servin~gas

10 Trustee(s) thereof." (Declaration: ofTiitst, section 4. 03.) A cqpy ofthe trust is attached to the

11 ;Declaration of Chri$topher C Lamerdin as Exhibit "A;"

12 10. AT.. Anders.on died on December 3, 2009 in Napa, California.

13 11. A Jean Schroeder Education Foundation Was not established prior to Anderson' S·

14 death; thus, the r~sidual assets of the Revocable Trust are to be held in the Education Trust.

· 15 12. Anderson's estate, undet the temJs ofhi s Will, was admimstered in Napa Cou11ty

1'6 Superior Comt.. Attached to the Declaration of Christopher C. Lamerdin as Exhibit "B',' is a copy

17 ofA1ider$on' s wilL ·

18 13. Oil December 22,2009, Bishop fiied·a Petition for Probate of Will and forLetters

19 Test~m1e~1taty (Napa County Superior Cas.e No. 26-50968). In that Petition, Bishop estimated the

20 value ofAnderson's probated estate to be $L3l5tllillion. The PetitionJorProbateofWill and

21 for Letters Testamentary are attached to the Req~1estfor Judicial Notice filed herewith as Exhibit

22 "1."

23 14. On.DecemberJ 7,2010; Bishop filed a Petition for ApprovalofFirst and Final Repo.ti

24 in this court. On page 3, lines 7-10 ofthatPetition, the only asset listed as Anderson's probated

25 estate was an account at MML Investoi's Services, I11c, Accotmt No. BMA-778826, valued at

26 $1,305,156,06. The Petition for Approval of First and Final Report is attached to the Request for

27 Judicial Notice as Exhibit ''2."

28 Ill
4
PETITION FOR REMOVAL OF TRUSTEES
 1 FACTS IN SUPPORT OF THE PETITION

2 15. Transfer of Trust ptope1ty to Bishop. In or about April2010, Bishop transferred

3 trustor Anderson's former home, the Green Valley property, from the Education Trust to himself.

4 The appraised m~rket value oftbe GreenVa11eyproperty on December 3, 2009, the date

5 Andetson died, was $1.25million.

6 16. .Prior to Bishop's transfer of the Green Valley property to himself, itwas listed on the

7 open inarket through the Multiple Listing Service(''MLS'') fon1o more ~han20 days. Dtu·ing.this

& time, two real estates agents viewed the property. The prope1ty' s listing agent was the son of the

9 Education Trust's accountant.

10 17. To complete the transfer ofthe Gre.en Valley property to Bishop, on April 26; 2010,
ll the trustees ofthe Education Trust, Bishop and Prat, recorded two grant deeds for the Green

12 Valley property. Th~ first grant deed trans±~tTecl the propetiy from "Matthew Bishop, theTrustee

13 of theA. T. A11detsbn 2004Revocable Trust Executed July 2, 2004" to ''Gene Prat, Trustee of the
14 Jea11 Schroeder Edupation Trust." The next grant deed, recorded on the same day, transfened the

.15 Green Valley property :fi~om ''Gene Prat, Trust.ee of the Jean Schroeder Education Trust," to

16 "Matthew Bishop, an umnarlied man.'' These grant deeds are attached to the Request for Judicial

17 Notice as·Exhibits "3'''and ''4,'' respectively.

18 18. ]h exchange for the Green Va11ey property, Bishop sl:gned a ''Straight Note." Under
19 its terms, the Education Trust wouldholda $1.25 million note owed by Bishop, which included

20 the follov,r.ing terms: 4.5% interest would be i111posed on the $L25 million loan; Bishqp would be

21 required to make interest~only payments of$4,687~50>permonth for: the first five years of the

22 note; anct ifthese moni;hly paynrents are.11ot rn,c;1de, the amount ofunpaid interest vvould thexeafler

23 bear intel'est at thesa1ne rate as the principal (4.5%). Iti addition, the Straight Note stated that if a

24 payment is not made witl1in 10 days of being due, a late charge ofthe greater of6% ofthe

25 payment oi' $5.00 would be assessed. According to the Straight Note, Bishop \:Vas not required to

26 make a down payment on the $1.25 111illio.i1 GreenValley prope1ty.

27 19. The tr~sfer of the Green Valley property to trustee Bishop was approved by tmstee

28 Prat.
5
PETITION FOR REMOVAL OF TRUSTEES
 1 20. Bishop 1 s Failure to Make Mortgage Pavments. Despite the straight note terms that

2 required Bishop to make interest. . on1y payments for the first five years, Bishop failed to make

3 numerous payments to the Education trust. ·

4 21. The Educatimi Trust's financial. records indicate that in 2010, Bishop failed to make

5 tlu·ee interest. . only mortgage payments to the Education Trust. In 2011, Bi$hop fl:!iled to 111ake 11

6 of his 12 mmtgage paynients to the Education Trust. In2012, Bishop failed to make his first six

7 paynlents of the year. Althoughrequested, the Education Trusthas notproduced its financial

8 records for20 i J.

9 22. Ofthe monthly payments Bishop did l'naketothe Edttcation Trust,_no11.e ofthei.n was

10 fot $4,687.50, the amount required by the Straight Not,e.

l1 23. As a.result ofthe partial~ and missed, interest paYJiients, the Education Trust has been

12 deprived of:r:evenue itis owed. According to the Education Trust's records produced, its lpst

.13 n::vemte-, including penalties, to date is approxiu1ately $:213,000,

14 24. Despite- Bishop' smissed ru1d incomplete payments, ttustees Bishop .and. Prat have 11ot

·15 attempted to collect the. payn1ents owed by Bishop, ancl.they have not moved to. foreclose on

16 Bishop.

17 25. .The Education Trust's ''Loans" toBishop. Despite the fact that Bishop owed the

18 .Education Tr:ust$~.25 million, plus unpaid interest .and penalties, the Education Trust made two

19 additional "loans'' to Bishop. These loans were. approved by Prat.

20 26. On December 31: 2011, the Education Trust gave Bishop an unsecured loan in the

21 mnount9f $25,000. Accor:ding to the loan agreemellt, Bishop is to pay the principal and all

22 accrued unpaid. interest on December 31, 2015. 111e-1oan agreement also rec.ruired Bishop to make

23 regular ammal payments of ~ccru.ed unpaid lirtere.sl on the anniversary ofthe loa,n. The loan

24 agreement states that Bishop is in default ifpayments are not made when due.

25 27; On June 30; 2012, the Education 'I'rust gave Bishop an additional unsecured loan in

26 the amotmt of$14,925 .. According to the loan agreement, Bishop is to pay the principal <md all

27 accrued unpaid interest on December 31, 2015. For this loan, the regular annual payments of

28
6
PETITION FOR REMOVAL OF TRUSTEES
 1 accrued unpaid interest were to begin on December 31, 2012. The loan agreement states Bishop

2 is in defaultifhe fails to make pay1uents when due.

3 .28. Despite the two "loans" made by the Education Trust to truste.e Bishop, the

4 Education Trust's Annual Registration Renewal Fee Report, :filed \V.ith the California Attorney

5 GeneraL's Registry of Chadtable Trusts, and. signed by Bishop under penalty of pe:tjury, states;

6 that in 2012 there were no contracts, loans, lease or other financial transactions betweel1 the

7 ~qucation Trust and its tn.~stees. A c-Qpy ofthe AnnualRegistration Renewal Fee Rep01t is

8 attached to the declamtion of Christopher C. Lamerdin as Exhibit "C,"

9 29. Payment Credits to Trustee Bishop for Horse Maintenance. At the time of

10 Anderso~1's death, two horses were living on the Green, Valley properj;y. The horses were not

Ll listed as Trust assets in the Trust document, .and they were notlisted as assets on the Petition for

12 First and Final Accountingfiled on behalf of Anderson's estate; Furthem1ore, the horses have

13 never be.en listed as J3ducation trust assets 011 any ofits fmancialrecords.

14 30. Forthe care ofthe horses, the Education Trust, through trustees Bishop and Pnit, gave

15 J3ishppa 'monthly credit, in the ammmt of$2,200, against the interest-only monthly payments
16 Bishop owed on the mortgage to theEducationTrust. Tbis $2,200 monthly credit was given to

17 allegedly cover the horses' housing; feeding and veterinary caret 1 The an1ount of the credit was

J8 allegedly detetmined by the Eciucation Trust's accom1tant .. There is no evicience the trustees

19 performed a due diligence irivesti.gationJo determine the appropriateness or accuracy of this

20 crecijtto Bishop.

21 31. Neither the Purchase Agreementnor the Straight Note, the documents establishing the

22 terms ofthe GTeen Valley property transfer to Bishop;has been amended to reflect the credit

23 given to Bishop fm; the care ofthe horses, Ft1rthermore, no documep:ts have bee.n produced by the

24 Education Trust to date showing the true cost to the Education Trtist ofmaintaining the two

25 horses. The $2,200 credit to Bishop is an ongoing benefit to Bishop.

26
27 l One ofthe horses died in September 2013. The Education Trust has yet to adjust the
creditgiven to Bishop to decrease the amount. ·
28
7
PETITION FOR REMOVAL OF TRUSTEES
 32. Trustee Fees. The Revocable Trust includes a tmstee fees provision. It states that

2 trustees are entitled to reasonable compensation that shall not exceed "l% of the gross estate for

3 the first year of administration and Q. 05% for each subsequent yeal'in which administration is

4 required." (Exhibit A to LamerdinDeclaration- Declaration of Trust, Article 5.09.) The

5 Revocable Trust does not include an extraordinary fees vrovision. There is no separate trustee fee

6 provision speci±kallyfor the Education Trust.

7 33. Bishop's tmsfee fees h~ve exceeded the a:mountal1owed in the Revocable Trust for

8 each year the,Ed.ucationTrust has been in existence.

9 34. In 2010, the Education Trust's balance sheetvatued its assets at$2,726,072.78.
10 According to its profit and loss st;:ttement, Bish9p was _paid $30,935 in trustee fees, a 1.135% of

11 the year-end total assets ofthe Education Trust. In20ll, the Education Trust's balance sheet

12 valued its assets at$2,755;250.96. According to its profit and loss statement, Bishop was paid

13 $38~291 in trustee fees, a l.39% ofyeru·~end totaL as-sets of the Education Trust hl"20 12~
14 according to the Education Trusfs iRS Forii1 990, Bishop was paid $47,733.75 in trustee fees,

15 whil~its asset~ were listed as $2,728,609, thus a l.75o/o ofthe EducationFund,'s assets were paid

16 as trustee fees to Bishop.

17 35. Through June 2013, Bishop received$29,875 in trustee fees. The Education Trust's

18 profit and lossstatement1isted thevaluy o[JheEd~tcation Trustin June20l3 as $2,737,703.

19 According to Bishop, the Education Trust's accotll1tant allegedly alltnved him a trustee fee of2%

20 ofthe Education Trust's assets in 2013.

21 36. Bishop's trustee fees exceeded the mnmint allowed by the Revocable Trust, with

22 interest, by approximately $170,000, The excessive trustee fees violate Probate Code sections

23 15680 and 16000.

24 37. Bishop's exc.essive trustee fees included the following questionable fees: $22,000 in

· 25 "prepaid trustee fees" credited on Dece1nber 15, 201 0; $12,000 in •'investment expense" credited

26 on March22, 2011; $7,100 jn '''administrative expense" credited on April29, 2011; and $6,000 in

27 "first mortgage loans" credited both on October 6, 2011 and. June 7, 2013.

28
8
PETITIONFORREMOVAL OF TRUSTEES
.1 38. Expenses versus donations. Although the Education Trust was established to provide

2 financial assistance to needy stu,dents, from its inception, the Education Tnlst's expenses have far

3 exceeded' its donations to needy students. The Education Trust's balance sheets for 2010 showed

4 that it incurred $97,134.31 .in expenses. Ofthis total ammmt ofthe expenses, only $5,000 were

5 attributable to charitahl~e contributions. In 20ll,.the Education Trust's expenses were

6 $117,064.11, of which $14,470 were for charitable contributions. According to the Education

7 Fund's 2012 IRS Fom1 99D, it,had $151,077 in expenses of which $19,500 were for charitable

8 contributions.

9 The Education Trust's claimed expenses included the following:

10 39. AssetProtedion and Maintenance Fees. TbeEdtication Ttust's anmmlpro:fit and loss

11 statements include an expense item titled, "Asset Protection and Maintenance." After the transfer

12 ofAp.derson's Oree11 VaHey property to Bishop, the only assets listed on the Educq.tionFund''s

13. balance she.ets wel'e Checking a11d Saving Accounts, aNote receivable, Prepaid Trustee Fees, and
14 First Mortg?:ge Loans. The Education Trust's balance sheets do not include any physical assets

15 , that v;rould reqt1ire protection or mainte11ru1ce. Therefore, the expenses related to the Green Valley

16 propeliy incurred after the saJe.are improper charitable eX'penses~ The improper Asset Protection

17 a~1d Mainte!lance. Fees total approximatyly $25,000 ..

18 40. Legal and Professi'onalFees: theEducation Trust also incurredsignilicant legal and

19 professional fees. These fees inchide payments to the Education Trust's accountant, Eric

20 Lehman. Accotding to the Education Tn1.st's half)nce sheets; from 2010 to 2011, it paid

21 $61,324.22 in legal and pl'ofessional fees. In 2012alone,thesefees totaled $76,464. Lelu11an

.22 chru·gE)d th~ EqucatiOI:J. Trust$350.00 an hour for his services. Examples ofitems included on the

23 LeJ:unan's invoices were ''September 1, 2012 _to Noven1ber3, 2012 re Attorney General, Esq.

24 requests and investment and status reporting to Trustees" (21.5 hours, 11/5/2012 invoice); and

25 "November s~rvices to develop documents responsive to audit requests from the Attorney

26 Generars Office" (26hours, 12/17/2012 iiivoice).

27

28
9
PETITION FOR REMOVAL OF TRUSTEES
 1 41. On June 19,2014, Bishop 'filed suit, individually, and as trustee of the Education

2 Trust, against Eric Lelumu1 for professional negligence. A copy ofthis complaint is attached to

3 the Requestfor Judicial Notice as Exhibit"5."

4 42. Administrative Expenses: The financial records of the Education Trus.t include

5 several expenses it classifies as admht.istratlve expenses. Among these expenses is a Match 31,

6 2011 invoice showing Bishop's law finn charging the EducaHon Trust $25.00 an hour for 35

7 hours a n1onth for secretarial and administrative services, from Decem.bet 2009 to March 2011,

8 totaling $14,000.

9 43. Board Meeting Expenses: From :October 2010 until June 2013, less than tlu·ee years,

10 the EdLfcation Ttust's trustees Bishop and Pra:t spent a total of$10,231.01 .in Board meeting

11 expenses. These expenses wereforresta:urant charges, for example: 2/22/2011 Cindy's

12 Ba,ckstreetKitcJJen for $20727.; 2/23/201 1 contained two journals entries, one for the Ruthert'qrd

13 Grill totaJi11g $111..87 ruid the other forRistorru1te La Strada for $77.00; and from March 2, 2012
14 to April 9, 2012, an approximately a five week period, there were five entries for Mustards Grill

15 totaling $836.00.

16 FIRST CAUSE OF ACTION

Breach of Fiduciary Duty and Removal of Trustees
17 (Probate Code §§ 15642, 16420, 17200)
Against Trustees Bishop and Prat
18

19 44. Petitioner hereby realleges and incm:porates by reference each and every allegation

20 co11tained in Paragr~phs 1 thrm.tgh 43 above,

21 45. Probate Code secfi:ons 1.6420 and 17200 m1thorize the removal. ofa trustee. as a

22 remedy for a breach oftrust duties. A beneficiary of a trust may bring a petition to remove a

23 trustee when thetrustee commits a brea.ch of trust (Prob.Code, § 15642(b)(1)) and/or when a

24 trustee is insolvent (Pro b. Code, § 15642(b)(2) and/or :fails or declines to act (Prob. Code, §

25 l5642(b)(4)) and/or the trustee's co111pensation is excessive under the circumstances (l">rob. Code,

26 § 15642(b)(5) and/or for other good cause. (Prob. Code,§ l5642(b)(9). 46. Probate Code

27 section 16000 et seq. set forth a trustee's fiduciary duties in the administration of a trust Trustees

28 Bishop and Prat have breached the follovving fi.dueiaiy dtities: the duty to aclinh1ister the trust
10
PETITION FOR REMOVAL OF TRUSTEES
 1 according to the tmst instrument; the duty to admjnister the tmst solely in the interest of the

2 beneficiaries; the dtity not to use or deal \-v'ith t:rust property for the trustee's own profit or for any

3 other purpose unconnected with the trust, nor to take part in any transaction in which thetrustee

4 has an interest adverse to the beneficiru.·r; the duty to take reasonable steps under the

5 drcmnstru.1ces to take and keep control ofa11d to preserve the trust property; the duty to 1nakethe

6 - trust property productive under the circumstances and in furtherance ofthe pmposes of tb.e trust;

7 the duty to take reasonc:tbl~ steps to enforce claims that are part ofthe trust property; the duty to

8 bririg the trust portfolio into coilfpliance with the purposes, ten:i1s, disttihution reqtliren:ients, and

9 other cin:umstal).ces ofthe trust; the duty to only inctrr costs that are appropriate and reasonable in

10 relation to the Msets, ov~rall investment strategy, purposes, and other circumstances oft}1etrust;

11 and the prohibition on self-dealing transactio11s~ (Prob. Code, §§ 16000, 16002, subd. (a), 16004,

12 subd. (a), 16006, }6007, 16010, 16049, 16050, and 16102.)

13 47. Trustee Bishop bteachedthe above-cited cluties by:

14 (a) Failingto learn his duties as trustee;

15 (l:J) Failing to conduct clue· diligence i:n the. manage1nen~ ofthe Education Trust's

16 charitable assets;

17 (c) Transferring the Green Valley property fromthe Education Trust to himself,
18 indiVidually, while s~rving as Jt t1i1stee ofthe Ec{ucFltion Trust ill violation ofPro]Jate Co~le

19 sections 16002, 16004, and Differding v. Ballagh (1932). 121 Cal.:f\pp. l;

20 (d) ·Violath1g the ter111s of the Purchase Agreement and the Straight Note by failing to

21 make the mortgage payments to the detriment of the Education TrusLand the charitable

22 beneficiaries;

23 (e) Failing to enforce the terms ofthe Purchase Agreen'leht and Straight Note,

24 including collecting the mortgage payments owed. and failing to enforce the penalties contained in

25 the Straight :Note agai!lst himself;

26 (f) Borrowing money fro1n the Education Trust for the amount of mortgage payments

27 owed;

28
11
PETITION FOR REMOVAL OF TRUSTEES
 1 (g) Receiving.a monthly credit of $2,200 for maintaining horses that are not

2 Education Tmst assets or assets in furtherance of the charitable p:utpose of the Education Trust;

3 (h) Failingto maintain records stlpJ~oliing, or justifying, tJ1e $2,200 per month credit

4 formaintaining the horses;

5 (i) Collecting ~xcessive trustee fe~$;

6 G) Failing to review Education Trust expenses to determine their a:pproptiatertess;

7 (k) Failing to adequately account for the Education Tmsfs expenses; and

8 (1) Allo\\ring the Education Trnst' s ex:penses~ including those expenses paid to the
9 Trustees or expenses benefitting the Trustees, to far exceed the runotmtpaid in scholarships~

.10 48. Pratb.reached his fiduciary quties.by:

11 (a) Failing to learn his duties as trustee;

12 (b} Failing to conduct due diligence on the management ofthe Tmst's charitable

13 assets;

J4 (c) Apptoving the transfer of the Education Trust's property to Bishop;

15 (d) Failingto enforce·the tenns ofthe Purchase Agreement.and Straight Note,

16 includ1i1g coilecting the mortgage payments owecl, and then failin.g to ei1force the penalties

17 contained in the .Straight Note;

18 (e) Approving loans between Bishop andtl)e Education Trust;

19 (f) Failingto condttct due diligence on Bishop's creditworthiness and financial

20 situation prior to approving the sale ofthe Education Trust property and subsequent loans to

21 Bishop;

22 (g} Failingto review the trustee fees paid, to Bishop;

23 (h) Failing. to ryview Educ.ation Trust expenses to determine their appropriateness;

24 and;

25 (i) Failing to detennine that Bishop was in breach oftrust.

26 49. As·a proxhnate.result of Bishop -and Prafs breach of trust, the Edtlcation Trust has

27 been damaged.

28 ///
12
PETITION FOR REMOVAL OF TRUSTEES
 SECOND CAUSE OF ACTION
.2 An Accounting
(Probate Code §§ 16420 and 17200)
Against Trustees Bishop and Prat
4 50. Petitioner he~·eby realleges and incorporates by reference each and every allegation
5
contained in Paragraphs l through 49 above.
'
6
51. Pro bate Code sections 16420 and 17200 provide :for an accounting oftrust assets as a
7
remedy for breach offiduciary duty.
8
52. The grouuds under which the Attorney General seeks an acco1..mtingi11Clude the
9
followjng:
10
(a) .Failure to adequately document thete:ttn:s ofthe transfer of the <Jreen Valley
1l
prope1ty to Bishop;
12
(l:i) Failure to ~.deqpately dqcurne11t Bishop's complimwe \Vith the terms of the
Straight Note;.
14
(c) Failure to adequately document loan payments made; or missed, byBishop to the
15
Education Trust;
16
(d) Failure to adequately docmncnt the $2,200 monthly horse credit;
17 (e} Failure to. adequately document the trustee fees paid to Bishop;
18
(i) Fallure to adequately document the Education Trust's expe~1S.es, including~ butnot
19 li1)1ited to, the Education Trtl?t's assets protection, administrative, and board meeting expenses;
20 (g) Fmlur.e to adequately document l<)ans nwde by the Edqcation Trust; and
21
(h) Failure to adequately document legal arid professional fees paid. by the Education
22
Trust.
23
53. Petitioner requests that this Court order an accounting to be perfom1ed by the te_ceiver
24
or temporary trustee, and filed with the Court. Petitioner further requests that this Court order
25 respondents Bishop and Prat to pen;o_nally pay the costs of such accounting. Any expenses that
26
cannot be support should be surcharged under Probate Code, section 16420, subd. (a)(8) and
27
(a)(9).
28
l3
PETITION FOR REMOVAL OF TRUSTEES I'
 1
THIRD CAUSE OF ACTION
2 . Removal of Trustees and Appointment of Receiver or Temporary Trustee
(Probate Code§§ 16420 and 17200)
3 Against Trustees Bisho}J and Prat
4 54. Petitioner hereby reallegcs and incorporates by reference each and every allegation

5 contained in Paragrapl1s 1 through 53 above.

6 55. Pr<ibate Code sections 15642 and 17200 pennit the removal of trustees as a remedy .

7 for :breach oftrust duties. Pending a decision on a petition for removal of a trustee, the court may

8 compel atn1stee to smTendertrust property to a i'eceiver or temporal)' ti'ltstee when, as here, trust

9 property or the interests of a beneficiary would continue to suffer loss or injury unless so ordered.

10 (Prob. Code; § 15642, subd. (e).)

11 56. The removal of Bishop andPratas trustees ofthe Education Trust, the.appointmentof

12 a receiver or temporary trustee, and. the trustees) surrender· of the trust property to a receiver are

13 11ecessmy to proteqt the charitable assets, to account for all Trust assets, m1d to m:ru1age the affairs

14 ofthe.Education Trl.lst.

15 57. The. A.ttorneyGeneial recomnwnds appointing (l receiver or ten1porary 'Q:JJstee .until

16 the accounting: is C:olllpleted and filed with the Court. After the Receive!' has traced and
17 completed the marshaling of all ofthe Education Trust's assets~ the· Attorney Genenil would file a

1.8 sep~rate petition for approval to l,lppoint a successor trustee ofthe Jean Schroeder Ed~1cation

19 Trust, or request other appro}'n;iate remedies ut1der the citcumstances.

20
FOURTH CAUSE OF ACTION
21 Void Transfer of Education Trust
· · ·property to. Bishop . .
22 (Probate Code~§§ 16420 arid 17200)
Against Trustee Bishop
23
58. Petitioner hereby realleges arid incorporates by reference each and every allegation
24
contained.in Paragraphs 1 through 57 above.
25
59. P:robate Code sections 16420 and 17200 pem1itvoiding the transfer of the Green
26
Valley property to Bishop. (Differding v. Ballagh (1932) 121 Cal.App. at p. 8.) \Vberi a trustee
27
attempts to transfer to himself, as an individual, property of the trust; t11etransaction is. void. (Id,
28
14
PETITION FOR REMOVAL OF TRUSTEES
 1 at p. 8.) The rule is absolute and does not depend upon any showing ofbad faith on the part of

2 the tri.1stee, or injury to the trustor or principal. (Ibid.)

3 60. The Attomey General requests that this transfer be void and the Gre.en Valley

4 property be transferred back to the Education Trust, and that trustee Bishop pay all outstanding

5 mortgage payments; loan payments, and penalties, together with interest, until the date the Green.

6 Valley property is returi1ed to the Education Ttust.

7· PRAYER FOR RELIEF

8 W'HEREFORE, petitioner prays for an Order:

9 l. Removing Matthew Bishop a~d Gene .Prat as trustees of the Jean Schroeder

10 Education Trust;

11 2. For tn~stees Matthew Bishop ~d Gene Pratte surrender all of the assets of the

12. Jean Sclu:oeder Education Trust to the receiver ortei:nporal'y trustee appointed by this couit;

13 3. Appointing a receiver or temporary trustee for the Jean Schroeqer Education

14 Ttustto :n1atshal, preserve a11d control the Trust assets, and to do any other tMngs authorized by

15 this Court;

16 4. For. a: full accou]J.ting ·of an· of the real properj;y •and personal property and all
17 additional assetsofthe Jean. Schroeder Edrica:tion Trust to be conducted by the Receiver and paid

18 for by Bis.hop and l?rat, personally;

19 5. CompellingBishop.and Prat torcdtesstheir breaches of fiduciary duty by

20 imposing appropriate remedies under P:robate Code section 16420, including repayment to the·

21 Jean Schroeder Education Trust ofaH funds and other assets wrongfully taken, with interest at the

22 legal rate, from the date oi each such taking, as well as traCing liustproperty that has been

23 w1:ongfully disposed ofand recovering the Education Trust prope1iy and the proceeds;

24 6. Voiding the transfer ofthe GrcehValley property to Matthew Bishop.

25 (Differding v; Ballagh (1932) 121 CaLApp. 1);

26 7. Imposing a constructive trust on all Education Trust property wrongfully

27 disposed of by the trustees;

28
15
PETITION FOR REMOVAL OF TRUSTEES

-·--·-----~-- -- - - - - - - - ---~-- ------~-------

 1 8. Awarding petitioner attorney's fees and costs, including actual costs incu:rred in

2 conducting this proceeding, pursuant to Government Code section 12598, subdivision (b); and

3 9. For any other legal and equitable relief that this Comt may deem just and

4 proper.

5
6
7

8 Dated: October 7, 2014 Respectfully Submitted,

9 KAMALA D. HARRIS
Attorney General of CaUfomia
10 ELIZABETI-I S. KIM
Supervising Deputy Attorney General
11

12

13
CH . ::.R . AMERDIN
14 puty Attorney General
Attorneys for the People for the State of
15 California
16

17

18

19

20.

21

22

23
24

25

26
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16
PETITION FOR REMOVAL OF TRUSTEES