BRIAN WILLIAM CORMAN ET AL VS ROGER WILLIAM CORMAN ET AL

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

INTRODUCTION

By this motion, Roger W. Corman and Julie Corman (“the Parents”) seek to enforce a settlement agreement to thereby overrule supplemental objections filed by Roger M. Corman and Brian Corman (“the Sons”) in response to the Parents’ Petition to modify the above-referenced qualified property residence trusts (“QPRTS”) (which petition was contemplated in the same settlement agreement.)[1] The Court finds that the basis of the supplemental objections are factually undisputed issues as to interpretation of the settlement agreement and that, for the reasons discussed below, the Court will enforce the agreement and overrule both objections.

STATEMENT OF FACTS

On February 7, 2020, the parties executed the Preliminary Deal Point Memorandum (referred to herein as “PDPM” or the “settlement agreement”); resolving long standing litigation in this case and all the related cases and providing for separation of family members’ interests in various assets and distribution of those assets.

The PDPM provides in part relevant to this motion:

1. QPRTS shall be modified as needed, bearing in mind that retaining the property tax basis is a material term.”

2. Notwithstanding anything else in the agreement, Roger W. and Julie shall each have the right to remain in the La Mesa property for the rest of their respective lives…”

3. “All of the transactions above are to be completed in tax-sensitive manner to all parties, including with regard to gift taxes and estate taxes, and allowing for the preservation of property tax rates (if possible). The facilitation of a 1031 exchange, to the extent reasonably practical, is a material term of this agreement. Maintaining the tax basis of all real property to the extent reasonably practical is a material term of this agreement. All tax-related transactions shall be concluded concurrently with the close of escrow.”

On November 16, 2020, the Parents filed a petition for an order modifying the QPRTS, as provided for by the PDPM. In this way, the various interests in the La Mesa property that was the asset that was owned by the QPRTS, and or pursuant thereto, might be divided and each family member’s interest was not tied up with other family members, consistent with the settlement agreement.

On November 20, 2020, the Sons filed Objections to the petition.

On December 2, 2020, the Parents filed a supplement to their petition.

On December 8, 2020, the Sons filed supplemental objections to the petition – seeking to require that the parties allow for a 1031tax free exchange.

On December 11, 2020, the Court held a hearing on the above-referenced petition and related settlement issues. The Court continued the hearing on the petition given Parents’ stated intent on filing on this motion. At the same time, the Court also scheduled a mandatory settlement conference (“MSC”) to give the parties time and an opportunity to attempt to work out tax savings for all parties based on the multiple transactions provided for by the PDPM.

On December 23, 2020, the Parents filed this motion to enforce the PDPM.

On January 6, 2021, the Sons filed Objections to this motion, arguing in summary that the motion would result in the approval of transactions that are the subject of the petition proceeding without the required consideration of tax considerations beforehand.

On January 12, 2021, the Parents filed a Reply in further support of the motion.

On January 13, 2021, the Court held a remote MSC that was attended by the Parties, as well as litigation and tax counsel for each of the parties, which at the conclusion was continued for further discussion between the parties and counsel and for a further session of the MSC.

On January 29, 2021, the Court held a further session of the MSC attended by all the same persons. Separate tax counsel for each of the Parents, the Sons and the Daughters worked hard to find practical and mutually financially advantageous tax sensitive solutions to the distribution of assets consistent with their respective clients’ instructions and concerns. The parties were ultimately unable to reach agreement related to working out a mutually beneficial tax arrangement and the MSC concluded. Even if counsel could have found a means to accomplish the parties’ financial objectives, it would have required numerous steps that would have depended on trust that did not exist. It was apparent that ongoing friction between the family members made it not possible for them to then reach further agreements consistent with the intent of the parties in the settlement agreement that each wished to then separate their respective interests from one another without further delay.

DISCUSSION

The Parents contend that retaining their property tax basis on La Mesa and the Sons being able to accomplish a 1031 exchange are incompatible. Parents point to Sons’ counsel themselves acknowledging this point in paragraph 7 of their Supplemental Objections. The Court does not need to reach this determination because the issue under the PDPM is merely whether a 1031 exchange is “reasonably practical.”[2]

Even assuming a 1031 exchange and retaining the Parents’ tax basis were both possible (for which proposition the Sons in fact offer no legal support), the Court can nonetheless conclude safely that doing both is not now “reasonably practical” for this family. After two sessions of the MSC and numerous hearings, as well as taking note of the long difficult history of the litigation, of which the undersigned has been involved the last few years to try to bring to an end, it is apparent that a 1031 exchange would require very substantial cooperation and complex legal work requiring numerous intermediate steps, that hinge on cooperation between family members that in turn depends on a level of trust among family members that unfortunately is not now present.

Even with the PDPM in place, there remain significant concerns about how any potential exchange would or could be executed, as well as remaining issues precluding the parties having executed the long form agreement contemplated by the PDPM, including negotiation of “Phase 2” issues related to the management of the film library that the parties are still a long way from resolving. The Court finds that the level of cooperation that would be needed for a 1031 exchange, even if legally possible, which would at the same time maintain the Parents’ same level of tax basis in the La Mesa property, does not now exist.

The Court attempted to fashion a “tax sensitive” approach to effectuating the transactions contemplated by the settlement agreement, including with respect to the La Mesa property that is controlled by the subject QPRTS, by means of continuing this petition in order to allow for two sessions of a MSC, as well as imposing deadlines between the two sessions of the MSC for counsel to exchange financial proposals. It cannot reasonably be disputed that the parties have been unable - after time and effort - to reach further agreement related to implementing these transactions in a “tax sensitive manner.” As the Court previously advised the parties, the Court is itself unable to implement tax strategies for them absent their agreement. The Court cannot “create” terms of an agreement for the parties. The PDPM does not guarantee that the Sons will be able to receive the consideration they are receiving from the QPRTS by way of a 1031 exchange. Therefore, there is no reason not to now enforce the PDPM by way of overruling the objections.[3] As a result, the Court can also grant the petition and thereby allow the distribution set forth therein to proceed.

CONCLUSION

For these reasons, the motion is granted. Pursuant to this order, the Parents’ petition is also granted – as with the other modification petitions contemplated by the PDPM that the Court granted recently, effective as of the Close of Escrow.