## Facts

- After the death of Dafna Uzyel’s husband, she relied on Neil Kadisha for financial guidance and established two trusts for her and her children (Izzet and Joelle), naming Kadisha as trustee.
- The beneficiaries filed probate petitions alleging Kadisha breached fiduciary duties through self-dealing and misuse of trust assets, and the trusts were terminated.
- One trust held a concentrated position in Qualcomm stock; Kadisha sold substantial shares.
- The trial court found Kadisha sold the stock to raise cash for himself and transferred funds to himself through a purported loan the court found fictitious.
- Qualcomm’s stock later appreciated significantly; the trial court treated the foregone appreciation as lost profits caused by Kadisha’s breach.
- The trial court awarded over $59 million in compensatory damages and disgorgement of profits, $5 million in punitive damages, and over $13 million in attorney fees.
- Both sides appealed various aspects of liability, damages, punitive damages, prejudgment interest, fees, and costs.

## Issues

1. Whether beneficiaries seeking disgorgement of a trustee’s profits under Probate Code § 16440(a)(2) must trace misused trust property into specific assets.
2. Whether conduct consistent with prudent investing (including diversification) can defeat liability for breach of the duty of loyalty, including lost-profits (appreciation) damages under § 16440(a)(3).
3. What standard of review applies to a trial court’s selection among the statutory measures of liability under § 16440(a).
4. How to determine whether investment losses “resulted from” a breach of trust and how to measure such losses.
5. Whether punitive damages and the attorney-fee award were supported and properly calculated given mixed success on claims.

## Decision

- The court affirmed in part and reversed in part with directions, modifying aspects of the monetary judgment.
- The court held tracing is not required to obtain disgorgement of profits made by a trustee through a breach of trust under § 16440(a)(2).
- The court held that prudence-based justifications (including diversification) do not excuse a trustee’s breach of the duty of loyalty; appreciation damages may be awarded as lost profits under § 16440(a)(3) when caused by disloyal conduct.
- The court held the choice among § 16440(a) measures of liability is reviewed for abuse of discretion.
- The court required careful causation analysis for investment-loss awards, including comparison to an appropriate alternative investment, and reversed or remanded certain calculations not properly tied to a breach or benchmarked correctly.
- The attorney-fee award was reversed and remanded for reconsideration.
- The costs award was affirmed; punitive damages were supported by findings of egregious conduct, but required reconsideration in light of modifications to compensatory damages.

## Legal Principles

- Probate Code § 16440(a)(2) authorizes disgorgement of profits made by a trustee through breach of trust as a personal remedy against the trustee; beneficiaries need not trace trust property into particular assets to obtain that recovery.
- A trustee’s duty of loyalty is strict; a transaction that may be prudent in isolation can still be disloyal if undertaken to advance the trustee’s personal interests, and liability may include lost profits from foregone appreciation under § 16440(a)(3).
- The trial court has discretion to select among statutory measures of liability under § 16440(a) (including restoration of trust value and disgorgement), subject to abuse-of-discretion review and limits against double recovery.
- An investment loss is recoverable only to the extent it resulted from the breach; measurement generally requires a counterfactual comparison to an appropriate alternative investment or compliant course of administration.
- Punitive damages may be awarded for breach-of-trust conduct amounting to oppression, fraud, or malice; fee awards must account for results obtained and the allocation between successful and unsuccessful claims.

## Conclusion

The court held that disgorgement of a breaching trustee’s profits does not require tracing, and that prudence-based arguments do not shield self-interested conduct from loyalty-based liability, while directing recalculation of certain loss measures and reconsideration of attorney fees and punitive damages consistent with adjusted compensatory awards.


Uzyel v. Kadisha, 188 Cal. App. 4th 866 (Cal. Ct. App. 2010)