Opinion ID: 1640458
Heading Depth: 2
Heading Rank: 1

Heading: Trust Administration

Text: The Banks assert that the PSC, as trustee, was required to represent their interest as a receipt holder because the PSC has the statutory duty to represent all receipt holders in an insolvency proceeding. Neither the general principles of the law of trusts nor our statutory scheme require that the PSC, as trustee, blindly advocate the asserted interests of a claimant to the trust fund without regard to its belief as to the validity of the claim. Although a trustee is under a duty to deal impartially with the beneficiaries of a trust [ see Wehe v. Wehe, 63 N.D. 176, 247 N.W. 54 (1932); Restatement (Second) of Trusts § 183 (1959)], the trustee is also under a duty to protect and preserve the trust assets and to defend actions which may result in loss to the trust, unless under all of the circumstances it is reasonable not to make such defense. See Brisnehan v. The Central Bank and Trust Company, 134 Colo. 47, 299 P.2d 113 (1956); In re Lunt's Trust, 236 Iowa 28, 17 N.W.2d 803 (1945); State ex rel. Strykowski v. Wilkie, 81 Wis.2d 491, 261 N.W.2d 434 (1978); Restatement (Second) of Trusts § 178 (1959); 2 A. Scott, The Law of Trusts § 178 (3d ed. 1967); G. Bogert, The Law of Trusts and Trustees § 581 (2d ed. rev. 1980). We conclude that if the PSC, acting in the capacity of trustee under the provisions of Chapter 60-04, N.D.C.C., has a good faith reasonable belief that a claimant is not a valid receipt holder and that the claim is therefore adverse to the trust, it is under no duty to advocate the asserted interests of that claimant. Rather, the failure of the PSC to protect the integrity of the trust would constitute a violation of its fiduciary duty to valid receipt holders. Brisnehan, supra ; G. Bogert, supra. The PSC did not violate its trust responsibilities in this case.
The Banks contend that the PSC's opposition to their claim has denied them a remedy at law for the losses it has sustained. They rely on § 60-04-05, N.D.C.C., which provides in pertinent part that [n]o receipt holder shall have a separate cause of action upon the warehouseman's bond, nor for insurance, nor against any person converting said stored grain, nor against any other receipt holder, except through such trustee, ... This assertion is without merit. The Banks filed their claim with the PSC pursuant to the provisions of § 60-04-04, N.D.C.C. The PSC, in its report to the district court, recommended that the Banks' claim be denied. The district court provided the Banks and the other claimants the opportunity to object to the trustee's report. The Banks objected, and following two hearings on the matter, the district court concluded that the Banks had no valid interest in the trust fund. Thus, the Banks were provided a forum and an opportunity to present and defend their claim. The Banks also challenge the procedure used in this case. The Banks appear to argue that the PSC should have marshaled the trust fund including the entire penal sum of the warehouseman's bonds before a determination was made as to who was entitled to the trust fund proceeds. Instead, the district court consolidated the insolvency proceeding with the PSC's action against Millers. Chapter 60-04, N.D.C.C., does not clearly set forth a specific procedure to be used in administering the trust. However, the Banks' responsibility to prove its claim was the same in the consolidated procedure as it would have been if the PSC had filed its report after full recovery of the bond. Thus, the procedure used in this case did not violate any of the Banks' rights.