McClatchy v. Pruitt CA1/5

Filed 5/24/21 McClatchy v. Pruitt CA1/5

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

A160367
CARLOS MCCLATCHY,
(San Francisco City and County
Petitioner and Appellant, Super. Ct. No. PTR-11-294985)
v. ORDER DENYING PETITION
GARY PRUITT, et al., FOR REHEARING AND
REQUEST FOR PUBLICATION;
Defendants and Respondents.
MODIFYING OPINION
[NO CHANGE IN JUDGMENT]

THE COURT:

Appellant’s petition for rehearing and his request for publication
are DENIED. It is further ordered that the opinion filed on May 4,
2021, shall be MODIFIED as follows:
1. On page 7, in the first sentence of the first full paragraph,
add the word “The” at the beginning of the sentence so that
it reads “The Trustees answered . . . .”

2. On page 7, at the end of the first paragraph under section E,
remove the extra space before the period so that the
sentence ends “. . . purported breach caused damage.”

3. On page 14, in the first sentence of subsection B.4. of the
Discussion, delete “remaindermen” and replace with
“remainder beneficiaries.

4. On page 15, in the first sentence of the final paragraph of
subsection B.4. of the Discussion, delete “remaindermen”
and replace with “remainder beneficiaries.”

1
 5. On page 19, in the second sentence of the second paragraph
on the page, delete “remainderman” and replace with
“remainder beneficiaries.”

The modification effects no change in the judgment.

Date: May 24, 2021 SIMONS, J. Acting
P.J.

2
Filed 5/4/21 McClatchy v. Pruitt CA1/5 (unmodified opinion)

NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

CARLOS MCCLATCHY,
Plaintiff and Appellant, A160367
v.
(San Francisco City and County
GARY PRUITT et al., as Trustees,
Super. Ct. No. PTR-11-294985)
etc.,
Defendants and Respondents.

Carlos McClatchy, an income beneficiary of an irrevocable trust
holding stock of the McClatchy Company, filed a petition asserting,
among other things, that certain current and former trustees breached
their fiduciary duties by failing to diversify the trust’s assets. After a
21-day bench trial, the probate court entered judgment in favor of
respondents.1 Carlos appeals from the judgment and a postjudgment
costs award entered in Trustees’ favor. We affirm.

1
Respondents (collectively, Trustees) in this appeal are Gary
Pruitt, William Briggs McClatchy, Leroy Barnes, Theodore Mitchell,
Kevin McClatchy, and Phillip Shatz as executor of the estate of William
Ellery McClatchy. For clarity, we will refer to the members of the

1
 BACKGROUND
A.
In 1857, James McClatchy bought the paper that would become
the Sacramento Bee, which led to the formation of a privately held and
family-owned California corporation, McClatchy Newspapers. James
declared the McClatchy Newspapers’ mission to operate independent
newspapers and uphold high journalistic standards. Leadership of
McClatchy Newspapers eventually passed to his granddaughter,
Eleanor McClatchy. During her long tenure, McClatchy Newspapers
acquired several additional California newspapers, as well as television
and radio stations.
In 1974, Eleanor created five irrevocable trusts, including the one
at issue in this case: the Trust for the Primary Benefit of James B.
McClatchy (the Trust). The Trust was funded with Eleanor’s
McClatchy Newspapers stock, some of which was gifted by Eleanor to
the Trust and some of which was purchased by the Trust, pursuant to a
loan from Bank of America.
Under the Trust’s terms, the trustees were required to direct
income, during the first few years, to paying off the loan. When no debt
remained outstanding, the trustees were directed to “pay the entire net
income of the trust estate” at least quarterly to Carlos’s father (James
B. McClatchy) or, if James was not then living, to Carlos and his
brother William (in equal shares). The remainder was to eventually
pass to the next generation of the McClatchy family, including

McClatchy family by their first names or, in William Ellery
McClatchy’s case, by Ellery.

2
William’s children, on the final death of Eleanor’s relatives then living
(in 1974).
The Trust, among other things, confers on individual trustees the
express power to sell Trust property, to “invest and reinvest . . . in
every kind of property,” to borrow money, to defend litigation (at Trust
expense), to vote any shares held by the Trust, to employ advisers to
assist in trust administration, and to pay the Trust’s expenses from
income.
The Trust also contains special provisions, included at Eleanor’s
direction, that give the trustees unusually broad authority. Trustees
have the power “[t]o continue to hold any securities . . . and to operate
at the risk of the trust estate any business . . . as long as trustees, in
their absolute discretion, may deem advisable, without any obligation to
diversify trust investments or eliminate any conflict between the
personal interests of any trustee and the interests of the trust
beneficiaries.” (Italics added.)
The Trust instrument states that on Eleanor’s death, her nephew
Charles K. McClatchy (known as C.K.)—who was employed by
McClatchy Newspapers and would ultimately succeed her as its chief
executive officer—was to serve as sole trustee. The Trust also
provided, “It is trustor’s wish that said trustee . . . , where practicable,
appoint as such additional or successor trustees issue of [Eleanor]’s
father . . . who has shown interest and ability in the field of
communications and who said nephew believes will manage the trust
estate in such manner as to continue the McClatchy tradition of
leadership in this field.” (Italics added.)

3
 B.
After Eleanor’s death in 1980, McClatchy Newspapers grew and
excelled financially, using a strategy of acquiring underperforming
journalism assets in growing markets. Between 1974 and 2007,
dividends increased 50-fold.
In 1988, McClatchy Newspapers, Inc. became a publicly traded
company and, at the same time, created a two-tier stock system to
ensure continued family control. The shares held by the Trust were
exchanged for Class B stock, which could only be owned by McClatchy
family members and trusts for their benefit. Class B stock carried the
right to elect 75 percent of the board of directors and had 10-to-1 voting
superiority over the Class A shares, which were offered to the public.
At the time of the initial public offering, McClatchy family
shareholders and the Trusts executed a stockholders’ agreement, which
imposed barriers on the sale of Class B stock—furthering the goal of
preserving family control.
A year after the public offering, Eleanor’s nephew, C.K., died. He
was succeeded in his role as trustee by five directors of McClatchy
Newspapers, including Carlos’s father, James, and Ellery. At the time,
James was the income beneficiary of the Trust and Ellery was an
income beneficiary of another of the five trusts Eleanor created.
In 1998, McClatchy Newspapers, Inc. merged with the Cowles
Media Company, which operated the Minneapolis Star Tribune. The
Trust’s Class B stock in McClatchy Newspapers was converted into
newly issued Class B stock in the surviving entity, The McClatchy
Company (Company). The Class B stock retained the same

4
supermajority voting rights and the right to elect three-quarters of the
Company’s Board.
In 2006, the Company acquired media giant Knight Ridder. The
acquisition increased the Company’s debt. The four trustees at the
time, Pruitt, James, Ellery, and attorney William Coblentz, voted the
Trust shares in favor of the acquisition. At the time, Pruitt was both a
trustee and the Company’s chief executive officer. Both James, who
remained the Trust’s sole income beneficiary and had been privy to all
the due diligence, and Ellery supported the deal. James died a few
months later.
C.
Shortly after the Knight Ridder acquisition, the country entered
a recession. The newspaper industry was hit particularly hard, as
advertising migrated online. The Company’s stock lost much of its
value, as did other newspaper stocks across the country.
In 2008, as the recession continued to hurt the newspaper
industry and the broader economy, the Company halved and then, in
2009, suspended its stock dividend payments as a debt restructuring
concession to lenders.
The trustees at the time, Pruitt, Mitchell, William (who was
himself an income beneficiary), and Barnes, considered, but rejected,
the idea of selling Company stock to create income for the Trust.
Between 2008 and 2011, the trustees also held annual meetings with
non-director family members, including Carlos—who, along with
William, was now an income beneficiary of the Trust. Neither Carlos
nor any other McClatchy family member advocated selling any of the
Company stock held by Eleanor’s trusts.

5
 At the time of trial, the Company’s shares had lost much of their
value, but it had survived, and it remained controlled by the McClatchy
family.
D.
In 2012, Carlos filed a “Petition for Relief from Breach of Trust,”
under Probate Code section 17200, subdivision (a),2 seeking damages
for alleged mismanagement of the Trust’s assets. Carlos later filed an
amended petition and complaint, which is the operative pleading. It
names the Company and certain current and former trustees, including
Pruitt, William, Barnes, Mitchell, and Kevin, as defendants.
Carlos alleges he and the Trust have been damaged by the
Trustees’ and Company’s wrongdoing. He alleges that the Trust’s sole
asset (Company stock) lost 90 percent of its value between March 2005
and June 2014 and that he has received no income since April 2009,
when dividends were suspended. He asserts the Trustees, who were
also Company directors, served the Company’s interests rather than
the beneficiaries’ and breached multiple fiduciary duties, including the
duty of prudent investment (§§ 16045, 16047, subd. (a)); the duty to
treat beneficiaries impartially (§ 16003); the duty to keep beneficiaries
reasonably informed (§ 16060); and the duty to investigate (§ 16403).
Carlos also alleges that the Company aided and abetted the
Trustees’ breaches of duty and (along with Barnes, Mitchell, Pruitt,
and Coblentz’s law firm) committed fraud by making
misrepresentations regarding the 1987 stockholders’ agreement and by
concealing indemnification agreements extended by the Company to

2 Undesignated statutory references are to the Probate Code.

6
the Trustees in 2005.3 In addition to surcharges and compensatory
damages, Carlos seeks declaratory relief regarding the legal effect of
the 1987 stockholders’ agreement, disgorgement of profits, and punitive
damages.
Trustees answered and later filed a petition to construe the
Trust, which sought confirmation that it was Eleanor’s intent to retain
the stock held by the Trust. The probate court bifurcated trial, with an
initial bench trial on the equitable claims and a jury trial to follow on
Carlos’s legal claims (for fraud).
E.
In its statement of decision resolving the equitable claims after
trial, the probate court determined that the “paramount” purpose of the
Trust was to retain, to the extent possible, Eleanor’s stock and to
ensure continuing family control of the journalism enterprise. The goal
of income generation was “secondary at best.” The court also explicitly
found, in relevant part, that the interests of the Company and the
Trusts were aligned, that the Trustees had been faithful to the settlor’s
intent, acted in good faith, and had not breached their fiduciary duties.
Further, even assuming Carlos had proved a breach of duty, the
probate court found that the Trustees were relieved of any liability for
not selling the stock because they acted in good faith and that Carlos
failed to prove that any purported breach caused damage .
After Carlos filed a premature appeal, the court granted the
Company’s and the Trustees’ motions for judgment on his remaining

3 Carlos settled his claims against Coblentz and his firm.

7
fraud claim. The probate court entered judgment against Carlos and
ordered him to pay the Trustees’ and Company’s costs.
We consolidated Carlos’s appeals from the judgment (A158527)
and the costs order (A158810). When the Company later filed a chapter
11 bankruptcy petition, the consolidated appeals were stayed. (See 11
U.S.C. § 362.) We then severed Carlos’s appeal against the non-debtor
Trustees and allowed that appeal to go forward under a separate
appellate case number (A160367) while the original consolidated
appeals remained stayed against the Company.4

4 Carlos filed a combined motion to augment the record and
request for judicial notice, on which we initially deferred ruling. Carlos
asks us to augment the record to include, or alternatively take judicial
notice of, an annual report and a proxy statement that the Company
filed with the Securities and Exchange Commission after trial. We
deny the motion and request for judicial notice. The annual report and
proxy statement in question were not before the probate court and,
accordingly, are not part of the record. (See Deyoung v. Del Mar
Thoroughbred Club (1984) 159 Cal.App.3d 858, 863 [reviewing court
cannot augment record to include documents not filed or lodged below].)
We will not take judicial notice of the existence of these documents
because Carlos does not show that they are relevant to any issue on
appeal. (See Ketchum v. Moses (2001) 24 Cal.4th 1122, 1135, fn. 1;
Reserve Insurance Company v. Pisciotta (1982) 30 Cal.3d 800, 813
[“when reviewing the correctness of a trial court’s judgment, an
appellate court will consider only matters which were part of the record
at the time the judgment was entered”].)
In his second request for judicial notice, Carlos asks us to take
judicial notice of postjudgment filings in the Company’s bankruptcy
proceedings. He asserts that it is now indisputable that “the
[Company] Class B common stock that . . . [Trustees] held as the
Trust’s only investment has become worthless and, in fact, no longer
exists.” The request is granted to the extent Carlos concedes his
declaratory relief claim is now moot but is otherwise denied. Carlos
fails to demonstrate how the postjudgment proceedings are relevant to
any other issue on appeal. (See Ketchum v. Moses, supra, 24 Cal.4th at

8
 DISCUSSION
A.
Seeking to invoke our independent review, Carlos claims to
present only questions of law on appeal. Primarily, he contends the
probate court erred in its construction of the trust instrument, which
caused it to erroneously ignore certain fiduciary duties and to
erroneously find no breach.
“ ‘The elements of a cause of action for breach of fiduciary duty
are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty;
and (3) damage proximately caused by the breach.’ ” (Williamson v.
Brooks (2017) 7 Cal.App.5th 1294, 1300.) “[T]he absence of any one of
these elements is fatal to the cause of action.” (LaMonte v. Sanwa
Bank California (1996) 45 Cal.App.4th 509, 517.)
Carlos is correct that the interpretation of written instruments
and the determination of existing duties generally present questions of
law subject to de novo review. (Burch v. George (1994) 7 Cal.4th 246,
254; Amtower v. Photon Dynamics, Inc. (2008) 158 Cal.App.4th 1582,
1599, 1606.) However, we review the probate court’s findings on
factual questions—including whether a trustee breached any applicable
fiduciary duty and whether any breach caused damage—for substantial
evidence. (Orange Catholic Foundation v. Arvizu (2018) 28 Cal.App.5th
283, 292; Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981
(Thompson); Penny v. Wilson (2004) 123 Cal.App.4th 596, 603.)
Under the substantial evidence standard of review, “findings of
fact are liberally construed to support the judgment and we consider

p. 1135, fn. 1; Reserve Insurance Company v. Pisciotta, supra, 30 Cal.3d
at p. 813.)

9
the evidence in the light most favorable to the prevailing party,
drawing all reasonable inferences in support of the findings.”
(Thompson, supra, 6 Cal.App.5th at p. 981.) As the appellant, Carlos
has the burden of demonstrating the absence of substantial evidence to
support the probate court’s findings. (Nichols v. Mitchell (1948) 32
Cal.2d 598, 600.)
B.
Carlos devotes a substantial portion of his 146-page brief to his
argument that the probate court erred in concluding the Trustees did
not breach their fiduciary duties by failing to diversify trust assets at
various points before or after the Knight Ridder acquisition.
Specifically, he contends the court erred by concluding the Trustees had
an absolute duty to retain Company stock even if it meant losing
almost the entire value of the Trust’s assets. He misunderstands the
probate court’s decision.
1.
Unless the trust instrument provides otherwise (§ 16000), a
trustee’s fiduciary duties include the duty to manage trust assets
prudently (§§ 16045, 16047, subd. (a)), the duty to diversify
investments (§ 16048), the duty to preserve trust property (§ 16006),
the duty to deal impartially with all beneficiaries (§ 16003; Hearst v.
Ganzi (2005) 145 Cal.App.4th 1195, 1200, 1208), and the duty of loyalty
(§ 16002, subd. (a)); Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 905).
A trust instrument may relieve a trustee of fiduciary duties otherwise
imposed by statute, but to do so the language must be “clear and
unequivocal.” (Estate of Thompson (1958) 50 Cal.2d 613, 615.)

10
 Thus, the primary issue is not establishing the default rules but
determining Eleanor’s expressed intent and whether she intended to
waive the default rules. (See Estate of Bixby (1961) 55 Cal.2d 819, 824;
Copley v. Copley (1981) 126 Cal.App.3d 248, 270.) “ ‘What [s]he
intended is to be gathered from a consideration of the whole instrument
creating the trust, the nature and object of the trust and all other
circumstances which have a bearing on the question.’ ” (Morgan v.
Superior Court (2018) 23 Cal.App.5th 1026, 1039; accord, Estate of
Russell (1968) 69 Cal.2d 200, 210 [“a court cannot determine whether
the terms of the will are clear and definite in the first place until it
considers the circumstances under which the will was made so that the
judge may be placed in the position of the testator whose language he is
interpreting”].)
2.
The probate court admitted uncontradicted extrinsic evidence—
from both the attorney who provided tax analysis (James Canty) and
the attorney who drafted the Trust (Donald McCubbin)—to determine
if the Trust was ambiguous or reasonably susceptible to the parties’
competing interpretations. (See Estate of Duke (2015) 61 Cal.4th 871,
879; Oakland-Alameda County Coliseum Authority v. Golden State
Warriors, LLC (2020) 53 Cal.App.5th 807, 811.)
McCubbin testified he was specifically directed to include the
special provisions waiving trustee conflicts and granting trustees
absolute discretion to hold stock at the risk of the trust estate with no
obligation to diversify. According to McCubbin, these provisions were
designed to fulfill Eleanor’s intent that the trusts retain her stock and
continue family control of its newspapers. The unique successor

11
trustee and conflict elimination provisions were included because
Eleanor knew, and desired, that her successor trustees would be
running the business.
Canty recalled Eleanor demanding a change to the trust
instrument before she would sign. She had noticed that, in the draft
successor trustee provisions, Bank of America could become sole trustee
on her death, in the event she outlived her nominated successors, and
thus could theoretically have the right to sell the Trust’s stock. She
disliked the idea so much that she insisted her trusts be revised to
eliminate the possibility. Although Eleanor reluctantly accepted the
legal requirement that someone have the power to sell, Canty explained
that selling the stock “was an anathema to her. She did not want the
Bank of America having any right to sell the stock whatsoever.”
Canty’s memorandum memorializing the meeting during which
Eleanor amended and then signed the Trust states that “Miss
McClatchy was somewhat taken aback when the power to sell the
McClatchy stock was mentioned, indicating that she hoped that the
trusts would not sell the stock and that the stock would remain in the
McClatchy family.” Canty’s memorandum concludes: “At the end of the
day [Eleanor] indicated that she was now greatly relieved that
something had been done to the end of assuring that the newspaper
remained in family control in the future.” The probate court expressly
found Canty and McCubbin’s testimony to be “unbiased, highly credible
and decisive.”
Because there is no conflict in the extrinsic evidence presented to
the probate court, we construe the Trust independently. (Burch v.
George, supra, 7 Cal.4th at p. 254 [interpretation of trust presents a

12
question of law subject to independent review “unless interpretation
turns on the credibility of extrinsic evidence or a conflict therein”];
Oakland-Alameda County Coliseum Authority v. Golden State
Warriors, supra, 53 Cal.App.5th at pp. 819, 821.) However, extrinsic
evidence is not admissible to interpret a written instrument in a
manner to which it is not reasonably susceptible. (Estate of Russell,
supra, 69 Cal.2d at pp. 211-212.)
3.
Carlos’s reliance on default rules provided by the Restatement
Third of Trusts does not convince us that the probate court erred in its
construction of the Trust. We agree with the probate court that
Eleanor’s “paramount intent was that the trusts retain her stock to the
sixth McClatchy generation, thus perpetuating McClatchy family
control of its newspapers. Income beneficiaries were a secondary
consideration at best.” Both the terms of the Trust itself, and the
surrounding circumstances, make this interpretation plain.
Carlos relies on authority suggesting a trustee has a duty to sell
(or file a petition seeking modification of a trust to provide authority for
such a sale) when a trust’s assets become unproductive or when
securities subject to a retention clause have changed significantly due
to a merger. (See, e.g., Adams v. Cook (1940) 15 Cal.2d 352, 358-360;
Stanton v. Wells Fargo Bank & Union Trust Co. (1957) 150 Cal.App.2d
763, 770.) He insists the probate court erred by concluding the
Trustees had no discretion to sell the Company stock.
We do not read the statement of decision as concluding the
Trustees had no power to sell any Company stock, no matter the
circumstances. Rather, the probate court explicitly recognized that the

13
Trustees did have authority to sell Trust assets. Nor did the probate
court misconstrue the duties of prudent investment and preservation of
trust property.
The problem for Carlos is that the Trust includes specially
drafted provisions that grant the trustees the absolute discretion to
hold stock, at the risk of the trust estate and with no obligation to
diversify. This language is wholly inconsistent with Carlos’s position
that the Trustees, by retaining Company stock, breached their duties to
diversify and to avoid Trust losses as a matter of law. Carlos’s position
also conflicts with McCubbin’s undisputed testimony that these
provisions were designed to fulfill Eleanor’s intent that the trusts
retain her stock and preserve family control of its newspapers.
The probate court correctly concluded Eleanor gave the trustees
absolute discretion to retain “any securities”, even if it meant a loss to
the trust estate, with no duty to diversify. (Italics added.) (Estate of
Nicholas (1986) 177 Cal.App.3d 1071, 1085.) As explained in further
detail ante, a grant of absolute discretion does not mean a trustee can
do as they please, “but rather that the grantor has waived the
requirement that the conduct of the trustee at all times satisfy the
standard of judgment and care exercised by a reasonable, prudent
man.” (Coberly v. Superior Court of Los Angeles County (1965) 231
Cal.App.2d 685, 689.)
4.
The probate court also correctly concluded that the Trust
adjusted the duty of impartiality to favor the remaindermen.
In addition to the permissive retention clause, which authorizes a
trustee to make long-term investment decisions that may benefit

14
remainder beneficiaries at the expense of income beneficiaries, there is
no provision authorizing a trustee to invade principal to provide for an
income beneficiary’s support. And the Trust provides that all Trust
expenses shall be paid exclusively from income. (Cf. §§ 16370-16371.)
These provisions, read together, effectively mean that, at any time
during the Trust’s lengthy administration, the trustees could borrow
and, even if the Company was paying dividends, deprive income
beneficiaries of income. Indeed, the Trust explicitly provided that the
initial income beneficiary (James) could be entirely deprived of income
during the first 10 years of the Trust’s existence, while the Bank of
America loan was being repaid.
Favoring the remaindermen in this fashion furthered Eleanor’s
goal of retaining family control of the McClatchy business for as long as
possible. The probate court’s conclusion that this goal was primary is
supported both by the terms of the Trust instrument itself and by
Canty’s testimony—he explained that McClatchy Newspapers was “the
most important thing in [Eleanor’s] life,” that “keeping the company
independent and in family control was what she was all about,” that
the company was “more important [to her] than people,” and that
Eleanor never mentioned the beneficiaries. The court did not err in
concluding that Eleanor’s intent to benefit the income beneficiaries was
“secondary” and that the Trustees’ exercise of discretion may only be
reviewed for bad faith or other improper motives. (See Hearst v. Ganzi,
supra, 145 Cal.App.4th at p. 1211.)
5.
Finally, Carlos has not shown that the probate court erred by
concluding Eleanor relaxed the Trustees’ duty of loyalty.

15
 “The duty of loyalty, requiring a trustee to administer the trust
solely in the interest of the beneficiaries (§ 16002, subd. (a)), is the most
fundamental duty of a trustee.” (Uzyel v. Kadisha, supra, 188
Cal.App.4th at p. 905.) This duty is intended to protect against
conflicts between a trustee’s fiduciary duties and their personal
interests, as well as to prevent a trustee from acting to benefit any
third party. (O’Neal v. Stanislaus County Employees’ Retirement Assn.
(2017) 8 Cal.App.5th 1184, 1209.) However, the terms of the trust itself
may permit what would otherwise be a violation of the duty of loyalty.
(Uzyel v. Kadisha, supra, at p. 905; Copley v. Copley, supra, 126
Cal.App.3d at pp. 278-279.)
The Trust explicitly allows the Trustees “[t]o hold any
securities . . . and to operate at the risk of the trust estate any business
. . . as long as trustees, in their absolute discretion, may deem
advisable, without any obligation to diversify trust investments or
eliminate any conflict between the personal interests of any trustee and
the interests of the trust beneficiaries.” (Italics added.) Eleanor also
stated her desire that C.K. succeed her as sole trustee on her death and
specified that any successor trustees appointed in the future be people
with “interest and ability in the field of communications” who “will
manage the trust estate in such manner as to continue the McClatchy
tradition of leadership in this field.” (107AA 37807; 82AA 33007-33008
[Art. IV.A., IV.D]) McCubbin testified these provisions were included
because Eleanor knew, and desired, that her successor trustees would
be running the McClatchy business.
It is impossible to square Carlos’s interpretation of the Trust—
that the Trustees breached their duties of loyalty by acting in dual

16
roles—even if there was never an actual conflict between the interests
of the Company and those of its controlling shareholders —with these
provisions clearly indicating that Eleanor understood and intended
continued family control, that successor trustees would be involved in
running the business, and that the Trustees had no obligation to
eliminate conflicts.
Contrary to Carlos’s position, the probate court’s statement of
decision “ ‘fairly disclose[d] the court’s determination as to the ultimate
facts and material issues. ’ ” (See Thompson, supra, 6 Cal.App.5th at p.
983.) The probate court delineated the key Trust provisions and made
explicit findings—that there was no breach and no actual conflict
between the Company and the McClatchy family. The Trustees cannot
have committed a breach of the duty of loyalty by following Eleanor’s
explicit directions. (Copley v. Copley, supra, 126 Cal.App.3d at p. 279.)
Carlos has not demonstrated the probate court erred in its
construction of the Trust.
C.
Carlos has not met his burden to show the probate court’s
findings—that the Trustees acted in good faith to further the purposes
of the Trust—are unsupported by substantial evidence.
1.
If exercised in good faith by a trustee, absolute discretion “cannot
be controlled by a court on considerations going to the soundness of the
discretion so exercised.” (Estate of Ferrall (1953) 41 Cal.2d 166, 173;
accord, § 16081, subd. (a) [“if a trust instrument confers ‘absolute,’
‘sole,’ or ‘uncontrolled’ discretion on a trustee, the trustee shall act in
accordance with fiduciary principles and shall not act in bad faith or in

17
disregard of the purposes of the trust”]; Morgan v. Superior Court,
supra, 23 Cal.App.5th at p. 1035.) In fact, the trustee is entitled to a
presumption that they acted in good faith; the burden is on the
beneficiary to show absolute discretion was exercised in bad faith.
(Estate of Nicholas, supra, 177 Cal.App.3d at p. 1087; accord, Estate of
Ferrall, supra, at p. 177.) A similar standard governs Carlos’s claims
regarding breach of the duties of loyalty and impartiality. (See Hearst
v. Ganzi, supra, 145 Cal.App.4th at pp. 1208-1209, 1211; Copley v.
Copley, supra, 126 Cal.App.3d at pp. 279-280; Rest.3d Trusts, § 78.)
2.
Again, we find no support for Carlos’s argument that the probate
court failed to fairly disclose its determination as to the ultimate facts.
(Thompson, supra, 6 Cal.App.5th at p. 983.) It is Carlos who fails to
address the key issue—whether substantial evidence supports the
probate court’s explicit findings that, at the time it was made, the
Trustees’ decision to hold Company stock was made in good faith, was
faithful to the Trust’s purposes, and did not breach their fiduciary
duties. (See §§ 16081, subd. (a), 16040, subd. (b) [“The settlor may
expand or restrict the standard [of care] . . . by express provisions in
the trust instrument. A trustee is not liable to a beneficiary for the
trustee’s good faith reliance on these express provisions.”].)
An appellant seeking substantial evidence review on appeal must
set forth all material evidence, with citations to the record, not merely
the evidence favorable to his position. (Foreman & Clark Corp. v.
Fallon (1971) 3 Cal.3d 875, 881-882; Schmidlin v. City of Palo Alto
(2007) 157 Cal.App.4th 728, 738.) Carlos has failed to meet this
burden.

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 In any event, Pruitt, Mitchell, Kevin, and Barnes provided
testimony supporting the court’s findings that they acted in good faith
and consistent with the Trust’s purposes. They testified that they
considered converting and selling Trust stock but believed, despite the
lower share price for class A stock, that selling irreplaceable B shares
was not advisable. They relied on Eleanor’s explicit statement in the
Trust that they could hold stock and operate “at the risk of the Trust
estate” and with no duty to diversify, which demonstrated her
recognition “that there was inherent risk in concentration, and that it
could be operated at risk of that.”
They also relied on the general economic conditions; the fact that,
before the instant litigation, no McClatchy family member (including
Carlos) advocated selling; that the stock price had previously bounced
back; and their belief that selling at a market low would be imprudent,
especially if the Company would return to paying dividends. They also
recognized the intrinsic value of the B shares (in maintaining family
control of the Company) and of delivering those shares (and
corresponding control) to the remainderman. Mitchell testified that,
although the threat to family control would vary depending on the
number of Class B shares converted and sold, “at almost any level [of
shares sold],” increasing the number of Class A shares would increase
the threat to family control and independence.
These were appropriate considerations. (See § 16047, subd. (c)
[listing appropriate factors to be considered in managing trust assets,
including “[g]eneral economic conditions” and “[a]n asset’s special
relationship or special value . . . to the purpose of the trust or to one or
more of the beneficiaries”]; Estate of Bixby, supra, 55 Cal.2d at p. 825

19
[trustee reasonably exercised discretion by deciding to retain
underperforming stock of closely held family corporation because
settlor authorized retention and “the testator may well have intended
that the Bixby Ranch Company stock be held for the benefit of the
remaindermen”].)
The probate court found the Trustees “honest and capable people,
not malefactors,” and that they exercised their discretion in good faith.
It is not our role to second guess its factual findings. Substantial
evidence supports the probate court’s good faith finding and its finding
that the Trustees’ decision to hold the stock did not contravene the
Trust’s purpose.
We need not address Carlos’s additional contentions on breach of
fiduciary duty. Even if we assume (for the sake of argument) he is
correct that the Trustees breached existing duties to investigate or
keep beneficiaries informed, he forfeits any substantial evidence
challenge to the probate court’s alternative finding that he failed to
prove causation of damage. (Schmidlin v. City of Palo Alto, supra, 157
Cal.App.4th at p. 738 [“ ‘party who challenges the sufficiency of the
evidence to support a particular finding must summarize the evidence
on that point, favorable and unfavorable, and show how and why it is
insufficient’ ”].) By failing to challenge the sufficiency of the evidence
supporting these findings, Carlos forfeited his appellate challenge. (See
People v. JTH Tax, Inc. (2013) 212 Cal.App.4th 1219, 1237 [“ ‘one good
reason is sufficient to sustain the order from which the appeal was
taken’ ”].)

20
 D.
Carlos maintains the probate court erred by granting Trustees’
judgment on his fraud claim. We disagree.
1.
The elements of fraud are: (1) a misrepresentation—false
representation, concealment, or nondisclosure; (2) knowledge of falsity;
(3) intent to defraud—to induce reliance; (4) justifiable reliance; and (5)
resulting damage. (Engalla v. Permanente Medical Group, Inc. (1997)
15 Cal.4th 951, 974.)
Carlos’s fraud claims rely on statements made by Mitchell and
Barnes regarding the stockholders’ agreement, as well as Barnes’s,
Pruitt’s, and Mitchell’s alleged failure to disclose that the
indemnification agreements extended to them in their role as trustees.
Carlos alleges that, at meetings in December 2008 and March 2010,
Mitchell and Barnes falsely represented that the 1987 stockholders’
agreement prevented them from selling Company stock.
After the bench trial, the Company and Trustees filed separate
motions for judgment or summary adjudication on Carlos’s remaining
fraud claim. Pruitt, Mitchell, and Barnes contended that Carlos could
not prove any misrepresentation or concealment occurred and, further,
the probate court’s causation findings applied to Carlos’s legal claims
and thereby precluded his recovery.
The court granted the motion for judgment, agreeing that Carlos
could not establish any concealment regarding the indemnification
agreements because they were publicly announced, and Carlos had the
opportunity to read the indemnification agreements in the Company’s
public filings. The court also found that Carlos could not prevail on his

21
fraud claims because his claim that Trustees breached the duty to keep
beneficiaries informed (§ 16060) relied on the same facts, and the
court’s causation findings were fatal to both. (See Raedeke v. Gibraltar
Savings & Loan Ass’n. (1974) 10 Cal.3d 665, 671 [“in a case involving
both legal and equitable issues, the trial court may proceed to try the
equitable issues first, without a jury . . . and that if the court’s
determination of those issues is also dispositive of the legal issues,
nothing further remains to be tried by a jury”].)
2.
Carlos again forfeits any substantial evidence challenge to the
probate court’s causation findings. (See Schmidlin v. City of Palo Alto,
supra, 157 Cal.App.4th at p. 738.)
Furthermore, substantial evidence supports the probate court’s
finding that the alleged fraud regarding the scope of the
indemnification or stockholders’ agreements was inconsequential.
Carlos’s theory is that if he had he known the “true facts,” then he
would have been able to pursue his rights against the Trustees sooner
and “require” them to comply with their duties. There was no conflict
between the Company’s and Trust’s interests. And Carlos could not
require the Trustees to do anything other than act in good faith and in
compliance with Eleanor’s intent (as they did). Furthermore, Mitchell,
Barnes, Kevin, and William testified the stockholders’ agreement
played no role in the decisions not to sell the Trust’s Company stock.
Substantial evidence supports the probate court’s finding that
any assumed concealment or misrepresentation did not cause harm to
Carlos or the Trust. (See Williamson v. Brooks, supra, 7 Cal.App.5th at
p. 1301.)

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 Although he does not challenge the court’s findings that any
misrepresentation or concealment did not cause actual damage, Carlos
insists we must reverse because he is entitled to punitive damages or
investigative costs he incurred with respect to his (failed) fraud claim.
We are unpersuaded. (See Civ. Code § 3294; Mother Cobb’s Chicken
Turnovers v. Fox (1937) 10 Cal.2d 203, 206 [punitive damages not
recoverable unless actual injury suffered].)
E.
Finally, Carlos insists the probate court erred in ordering him to
pay Trustees’ costs rather than charging them against the Trust. He is
wrong.
Carlos’s personal liability for costs arises from section 1002.
Section 1002 states, “Unless it is otherwise provided by this code or by
rules adopted by the Judicial Council, either the superior court or the
court on appeal may, in its discretion, order costs to be paid by any
party to the proceedings, or out of the assets of the estate, as justice may
require.” (Italics added.) Thus, the probate court has discretion “to
decide not only whether costs should be paid, but also, if they are
awarded, who will pay and who recover them.” (Hollaway v. Edwards
(1998) 68 Cal.App.4th 94, 99, italics omitted.)
Probate courts also have equitable powers “to charge attorney
fees and costs against a beneficiary’s share of the trust if that
beneficiary, in bad faith, brings an unfounded proceeding against the
trust.” (Pizarro v. Reynoso (2017) 10 Cal.App.5th 172, 183, italics
added; accord, Rudnick v. Rudnick (2009) 179 Cal.App.4th 1328, 1335.)
However, such equitable powers do not support an award of fees and
costs against a beneficiary personally. (Pizarro, supra, at pp. 187-189.)

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 Here, the probate court did not order Carlos to pay attorney fees
or costs under its equitable powers. Section 1002 does not require a
finding of bad faith to assess costs. The authority Carlos cites does not
consider section 1002. (Pizarro v. Reynoso, supra, 10 Cal.App.5th 172;
Rudnick v. Rudnick, supra, 179 Cal.App.4th 1328.) Carlos does not
demonstrate the probate court abused its discretion.
DISPOSITION
The judgment and postjudgment costs order are affirmed. The
Trustees shall recover their costs on appeal. (Cal. Rules of Court, rule
8.278(a)(1), (2).)

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 _______________________
BURNS, J.

We concur:

____________________________
SIMONS, ACTING P.J.

____________________________
NEEDHAM, J.

A160367

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