Hudson v Foster

In January 2007, Nigel Hudson was severely injured in a car accident. His guardian ad litem filed a petition for a voluntary conservatorship of the estate on Hudson’s behalf, resulting in the appointment of Hudson’s friend, respondent Lucas Foster, as the general conservator of Hudson’s estate on April 6, 2012. Foster is a film producer; he owns Warp Films, Warp Media Development, Inc., Warp LLC, and various single purpose entities.

On December 28, 2013, Foster filed a first and final account in the probate case and a petition for approval of the account, allowance of attorney fees and costs, an order terminating conservatorship of the estate, and discharge of the conservator.
In the petition, Foster carefully explained that 17 checks were paid to him directly or to his film production company which were reimbursements for funds that he advanced to Hudson prior to receipt of the settlement funds. Each amount that Foster described in the petition as a reimbursement corresponded to an entry on the disbursement schedule. The disbursement schedule listed the payee for these transactions as Foster, Warp Film, Inc., or Warp Development, Inc., with a notation that the payment was a reimbursement for a specific expense. In addition to the 17 entries that Foster expressly brought to the court’s attention in the petition, there were a few additional entries in the disbursement schedule listing amounts paid directly to Foster or one of his companies and stating the payments were in reimbursement for a specific expenditure made on Hudson’s behalf.

Among hundreds of individual disbursements listed in the account was a payment on July 9, 2013, to “Miracle Mile Surgical Center – per Court Order” in the amount of $10,000, paid with check number 2294. In addition, Foster made a payment on April 2, 2013, to “LA Litigation Copy Service – litigation expenses” in the amount of $31,089.25 with check number 2258. Foster made a payment on November 28, 2012, to “Dr. Sam Markzar, DDS – dental” in the amount of $9,839.10 with check number 2227.

Foster did not disclose in the petition that 28 checks shown as paid to third parties, including the checks to Miracle Mile, LA Litigation, and Markzar, were in fact paid to Foster or one of his companies. Miracle Mile and Markzar had not received any payment toward Hudson’s debt. In other words, the checks listed as paid to Miracle Mile and Markzar were not paid to them, and the amounts received by Foster through these checks were not reimbursement for funds advanced to these creditors.

The check numbers and payment amounts listed in the final account matched the information shown in the bank statements for the conservatorship, but the bank statements did not contain the names of the payees on the checks. Only the face of the checks revealed the payee information. The total amount of the checks disbursed to Foster’s own accounts, rather than to the payees listed in the final account, was $558,169.47.

Foster told Hudson that he could settle Hudson’s outstanding bill with UCLA for $60,000, so Hudson provided $60,000 to pay the bill. Hudson later learned that Foster negotiated a final payment of $54,500 in full satisfaction of UCLA’s lien, but did not return the overpayment of $5,500 to Hudson.

In April 2018, Miracle Mile filed a motion in the personal injury case to enforce the settlement agreement. The motion was brought against Foster in his former role as conservator. Miracle Mile alleged that it had sent two letters to Foster without response. Miracle Mile had not received payment of its bill for $11,250 or any other sum required under the court ordered settlement.

On August 30, 2018, Hudson filed a motion in the probate court to vacate the order approving the conservator’s final account on the grounds of fraud and misrepresentation of material fact. Hudson stated that he was not aware of any fraud until Miracle Mile filed its motion seeking to enforce the settlement. After Miracle Mile insisted that it had not received any payment under the court order, Hudson ordered copies of his bank documents, including check images. Hudson saw that check number 2294, which Foster’s final account listed as paid to Miracle Mile, was in fact made payable to Warp Media Development, Inc. Hudson compared the check images that he received to the final account and discovered the 28 checks listed in the final account as paid to third parties that were actually made payable to Foster or one of his companies. In addition, Hudson discovered Foster had written four checks totaling more than $60,000 to himself or his company after the final account had been approved, which were not listed in the account. Hudson argued these discrepancies were misrepresentations of material fact that provided grounds to vacate the order approving the final account. Under Probate Code section 2103, the conservator is not released from claims of the conservatee if the order is obtained by fraud or misrepresentation in the petition, account, or order as to any material fact.

The Court of Appeal found that Hudson’s claim that the conservator’s account contained misrepresentations of material fact which amounted to extrinsic fraud was both the basis of his case as well as his excuse for failing to object within the original proceeding.

Thereafter, the Court clarified that Hudson was entitled to rely on the disclosures made by Foster as his conservator and confidant, including after approval of the final account. Hudson’s mere access to information did not trigger an obligation to comb through the records to verify the truth of Foster’s representations. The Court held that the correct inquiry into whether Hudson acted diligently would require the court first to determine when Hudson actually discovered formerly unknown information sufficient to put a reasonable person on notice of fraud. The case was remanded to provide the probate court an opportunity to determine whether Hudson has met the requirements for relief, and if so, whether to exercise its discretion to set aside the final account based on a correct statement of the existing law with respect to fiduciaries.