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No. 95-2426

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Jonathan D. Brown; Deborah B. *

Billow; Nancy B. Brown; *

Gretchen A. Brown, *

* Appeal from the United States

Appellants, * District Court for the

* Western District of Missouri.

v. *

*

United Missouri Bank, N.A.; *

Thomas Brown, *

*

Appellees. *

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 Submitted: January 11, 1996

 Filed: March 12, 1996

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Before WOLLMAN, ROSS, and MURPHY, Circuit Judges.

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WOLLMAN, Circuit Judge.

This is an appeal from the district court's grant of summary judgment

to defendants on two claims and judgment as a matter of law (JAML) on the

remaining claims following opening statements, in this diversity action.

We reverse and remand for trial.

I.

Prior to his death, Maurice Brown (Maurice) created two trusts from

his estate. Maurice's third wife, Virginia, was the income beneficiary of

the first trust, referred to as the QTIP trust, and the appellants,

Maurice's children (the Brown children), were the remaindermen. The Brown

children were also the beneficiaries of the second trust, referred to as

the residual trust. Maurice and United Missouri Bank (UMB) were cotrustees during Maurice's life, although Maurice could conduct any business

on his own as long as
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he was competent, and UMB became the sole trustee after Maurice's death.

One of the trust assets was the Maurice L. Brown Company, which Maurice

sold to Petroleum Resources Management, Inc. (Petroleum Resources) in 1983.

The Maurice L. Brown Company was renamed Petroleum Production Management,

Inc. (Petroleum Production). As part of the sale proceeds, Maurice

received a promissory note with a face value of $2.5 million, secured by

junior mortgages on properties owned by Petroleum Production. Petroleum

Resources later issued an additional promissory note for $750,000. These

notes were allocated to the residual trust.

After the sale of his company, Maurice was diagnosed with brain

cancer, and his health deteriorated significantly in 1988. By November

1988, he had lost his eyesight, and on December 3, 1988 he began taking

Roxanol, a liquid morphine. At a meeting held December 13, 1988, Maurice

released his security interest in the Petroleum Production properties so

they could be sold to another company. Thomas C. Brown (Thomas), Maurice's

stepson and Virginia's son, represented Petroleum Resources in the matter.

Maurice died on January 11, 1989. The Brown children did not learn of the

release until after Maurice's death.

After Maurice's death, UMB determined that Virginia should receive

$570,000 per year to maintain her lifestyle. Due to the mix of assets in

the trust, however, the trust generated income in the first three years

after Maurice's death of $900,000, $800,000, and $700,000, which was paid

to Virginia. UMB also sold the notes in the trust account to a subsidiary

of Petroleum Resources for $450,000.

Maurice's children brought this action in the district court,

alleging that: UMB breached a fiduciary duty by failing to follow

reasonable practices to preserve the value of the Petroleum Resources notes

(Count I); UMB breached a fiduciary duty in administering the trusts (Count

II); Thomas Brown committed fraud
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by inducing Maurice Brown to release the trust assets (Count III); and

Thomas Brown knowingly participated in a breach of fiduciary duty by

forcing UMB to sell the promissory notes for an unreasonably low price

(Count IV).

The district court struck the Brown children's jury demand on Counts

I, II, and IV, finding that claims against a trustee for breach of

fiduciary duty are equitable and therefore not triable to a jury, and that

Count IV against Thomas was dependent on the equitable claims against UMB.

The district court then granted summary judgment to UMB and Thomas on

Counts I and III, finding that both counts were dependent upon Maurice's

competency at the time he signed the release and that the Brown children

had not raised a genuine issue of material fact on the issue. The court

also excluded from evidence the transcript of taped telephone conversations

between one of the Brown children and UMB employees.

Finally, the district court granted JAML to UMB and Thomas on the

remaining claims following the parties' opening statements. The court

found that the Brown children did not demonstrate that they would be able

to show that UMB abused its discretion or acted in anything other than a

prudent manner with respect to the sale of the Petroleum Resources notes

or to the debt/equity mix of the trust. The court then found that because

the Brown children could not show that UMB breached its fiduciary duty,

there was no basis for finding that Thomas participated in the breach. In

the alternative, the court found that the Brown children did not "offer

even a scintilla of proof that such a breach was improperly prompted by

Thomas Brown."

II.

We will first address the counts of the complaint dependent upon

Maurice's competency. The district court granted summary judgment on

Counts I and III because it found that Maurice was
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competent to sign the release and that thus the claims based on the release

must fail. We review the district court's grant of summary judgment de

novo, and we will affirm if the evidence, viewed in the light most

favorable to the non-moving party, shows that no dispute of material fact

exists and that the moving party is entitled to judgment as a matter of

law. Michalski v. Bank of America Ariz., 66 F.3d 993, 995 (8th Cir. 1995).

Because this is a diversity case, we also review de novo the district

court's interpretation of state law. Id. (citing Salve Regina College v.

Russell, 499 U.S. 225, 231 (1991)).

Under Missouri law, a person is incompetent to contract if he does

not have "sufficient mental capacity to understand the nature and effect

of the particular transaction." McElroy v. Mathews, 263 S.W.2d 1, 10 (Mo.

1953). Because two cases are rarely even substantially the same, each case

must be decided on its own facts. Peterein v. Peterein, 408 S.W.2d 809,

814 (Mo. 1966). Evidence of the person's mental condition before and after

execution can be sufficient if it provides a reasonable inference of

incompetency at the time of execution. Estate of Brown v. Brown, 722

S.W.2d 345, 347 (Mo. Ct. App. 1987).

UMB and Thomas submitted the affidavits of four witnesses to the

effect that Maurice was alert and aware and that he appeared to understand

what was going on at the December 13 meeting when he released the

collateral for the promissory notes. UMB and Thomas also submitted the

affidavit of the nurse who cared for Maurice, who attested that he was

clear and alert both before and after the meeting. The Brown children

challenge the impartiality and/or credibility of the witnesses, noting

specifically that: Thomas benefitted from the deal, as he had an interest

in Petroleum Resources; Connie Rolan, as Thomas's legal assistant, was an

interested party; Christopher Glenn, as Thomas's brother-in-law, was an

interested party; and Judith Wimmer, Maurice's secretary, "was very close

with Virginia" and was previously employed by
 The district court did not consider the affidavit of Dr.

1

Stephen Williamson, who reviewed Maurice Brown's records and stated

that he had serious questions about Maurice's competence to make

important business decisions on December 13. The court stated that

because Dr. Williamson did not examine or treat Maurice Brown, his

affidavit was speculative.

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Glenn's company, and thus was an interested party. Mary Lou Pullen,

Maurice's nurse, attested only that she was instructed to withhold Roxanol

when Maurice needed to conduct business--not that she actually withheld the

medication. Pullen's daily notes confirm that she gave Maurice Roxanol at

9:50 a.m., 12:50 p.m., and 3:45 p.m. on the day of the meeting, and her

notes also confirm that on that same day Maurice suffered from

hallucinations, believing that his friends were tied up in the garage.

The Brown children also point out that Maurice did not have legal

representation at the meeting, that he did not follow his usual practice

of informing his family members of the transaction he was contemplating,

that he could have been confused into thinking that Thomas and Glenn were

on his side, and that he signed the document with an unrecognizable

scrawl. The district court did not hear live witness testimony on the

1

competency issue, but instead granted summary judgment to UMB and Thomas

on the basis of the affidavits.

We conclude that the Brown children submitted sufficient evidence to

raise a factual question as to whether Maurice was competent to release the

collateral. Thus, summary judgment should not have been granted on the two

counts dependent upon Maurice's incompetence.

III.

We next address the breach of fiduciary duty claims. The district

court granted JAML on Counts II and IV, finding that UMB
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did not breach its fiduciary duty and that thus neither UMB nor Thomas

could be held liable. The Brown children argue that UMB breached its

fiduciary duty in several ways, including: by overpaying Virginia about

$700,000 in three years, which reduced the value of the QTIP trust assets

to their detriment; by selling the Petroleum Resources notes for an

unreasonably low price under pressure from Virginia, Thomas, and Petroleum

Resources and by not obtaining substitute collateral for the notes; by

failing to dispose of real estate in a prudent manner; and by charging

improper attorney's fees to the trust.

We review a district court's grant of JAML de novo, resolving all

doubts in favor of the nonmoving party and giving him the benefit of all

reasonable inferences. Harvey v. Wal-Mart Stores, Inc., 33 F.3d 969, 970

(8th Cir. 1994). A district court should grant JAML following opening

statements only in rare circumstances, exercising great restraint if there

is any doubt as to the propriety of such a judgment. See Morfeld v. Kehm,

803 F.2d 1452, 1454 (8th Cir. 1986). The Brown children were not required

to set forth all of their evidence in the opening statement; the purpose

of their opening statement was simply to provide a general summary of what

the case was about. See id. at 1455 n.3.

Because there was a standard by which the reasonableness of UMB's

actions could be tested, the court needed to determine whether UMB

exercised reasonable judgment in choosing the debt/equity mix of the trust

account. See In re Heisserer, 797 S.W.2d 864, 870-71 (Mo. Ct. App. 1990).

Based on the evidence that the Brown children proposed to admit, we believe

a jury could reasonably find that UMB manipulated the investment mix to

overpay Virginia at the expense of the remaindermen and that UMB's actions

in allowing the overpayment were unreasonable.

Factual issues also remained as to whether UMB acted unreasonably in

selling for $450,000 promissory notes on which
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principal and interest due exceeded $4.5 million. Although the sale price

was within the range of the most recent appraisal, previous appraisals were

higher, and UMB did not retain a broker or market the notes before selling

them back to a subsidiary of Petroleum Resources. The district court

impermissibly relied on factual assertions by UMB and Thomas that were not

admitted by the Brown children in finding that the price for the notes was

reasonable. The Brown children should also be allowed to put forth their

evidence that UMB failed to dispose of real estate in a prudent manner and

charged the trust for improper attorney's fees.

The district court found that because UMB did not breach its

fiduciary duty, Thomas could not be liable for conspiring to breach the

fiduciary duty. Alternatively, the court found that the Brown children did

not offer proof that Thomas induced the breach. Because we have found that

UMB may be liable for a breach of fiduciary duty, the claim against Thomas

Brown cannot be dismissed on the first ground. In addition, the Brown

children stated that they would offer evidence that Thomas used the threat

of a lawsuit to induce UMB to sell the promissory notes for what he knew

was an unreasonably low price to a company in which Thomas himself had an

interest. We believe such allegations could state a claim under Missouri

law for inducement to breach a fiduciary duty. See Massie v. Barth, 634

S.W.2d 208, 211 (Mo. Ct. App. 1982) (third party liable for loss if on

notice of and participates in trustee's breach of trust). (We deny

Thomas's motion to strike portions of the Brown children's reply brief

addressing this claim, or in the alternative to file a sur-reply brief, as

the Brown children sufficiently argued their claims against Brown in their

opening brief and responded to Thomas's arguments in their reply brief.)

IV.

Whether a party is entitled to a jury trial is a legal question that

we review de novo. Pandazides v. Virginia Bd. of
-8-

Educ., 13 F.3d 823, 827 (4th Cir. 1994). Courts of equity generally have

exclusive jurisdiction over actions against a trustee for breach of trust,

as they are equitable actions. See Mertens v. Hewitt Assocs., 113 S. Ct.

2063, 2068 (1993). Such actions are legal and not equitable, however, if

the beneficiaries are entitled to recover money arising out of a breach of

trust directly upon obtaining a judgment against the trustee. See

Restatement (Second) of Trusts § 198(1) (1959); Snook v. Trust Co. of

Georgia Bank of Savannah, N.A., 909 F.2d 480, 486-87 (11th Cir. 1990). An

action for damages for a breach of trust, as distinguished from an

indebtedness arising out of a breach of trust, remains an equitable action.

See Restatement (Second) of Trusts § 198(1) cmt. e (1959).

The Brown children contend that because they are entitled to

immediate payment of the trust proceeds upon a finding that UMB breached

its fiduciary duty, their action is triable to a jury. Because the Brown

children are not immediately entitled to any proceeds from the QTIP trust,

their claims regarding that trust are equitable and are thus not triable

to a jury. As to the residual trust, the Brown children's claims regarding

UMB's mishandling of the promissory notes and real estate are also

equitable claims, as those claims are for damages, rather than for an

indebtedness arising out of a breach of trust. The only legal claim the

Brown children have stated against UMB is that UMB charged the residual

trust for inappropriate attorney's fees. This claim against UMB is triable

to a jury.

The Brown children's claim against Thomas for inducing Maurice to

release the trust assets is a legal claim triable to a jury. The claim

that Thomas participated in a breach of fiduciary duty is also a legal

claim triable to a jury. Although the court's determination of whether a

breach occurred may determine the outcome of the issue, it is for the jury

to determine whether Thomas induced the breach if it did occur.
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V.

A district court's decision regarding the admission of evidence is

committed to its sound discretion and will not be disturbed absent an abuse

of discretion. McGautha v. Jackson County, Mo. Collections Dep't, 36 F.3d

53, 57 (8th Cir. 1994), cert. denied, 115 S. Ct. 2561 (1995). Without

belaboring the particulars of the circumstances under which they were

recorded, we conclude that the district court did not abuse its discretion

in ruling inadmissible transcripts of telephone conversations between

Jonathan Brown and certain of UMB's employees and agents.

We deny the Brown children's motion to remand the case to a different

judge. We will take such an action only where the district court has

exercised "`such a high degree of favoritism or antagonism as to make fair

judgment impossible.'" Hunter v. Delo, 62 F.3d 271, 276 (8th Cir. 1995)

(quoting Liteky v. United States, 114 S. Ct. 1147, 1157 (1994)). Although

there were exchanges between the district court and counsel for the Brown

children that manifested the district court's impatience with counsel and

its skepticism about the bona fides of the action, we do not believe that

they manifest the degree of favoritism or antagonism that would make fair

judgment impossible in the context in which this case will proceed on

remand.

The judgment is reversed and the case is remanded to the district

court for trial.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.