Court Opinion

ID: 9538568
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:37:50.339699+00
Date Added: 2024-06-11T14:57:59.112465
License: Public Domain

*149Lockett, J.,
concurring and dissenting: I concur with the majority except as to its holding that (1) the co-trustee, Dorothea, and Paul Seymour, III, should not be assessed punitive damages, and (2) the trial court did not abuse its discretion in releasing defendant’s letter of credit.
The majority acknowledges that Dorothea owned 49% of the stock in Arrowhead and she profited from that corporation. The majority reasons that since Dorothea did not actively participate in Arrowhead and did not confer with Gillespie or her husband about the Trust investments in Arrowhead, she was not responsible for their acts. The majority asserts that Dorothea, although she was aware she was profiting from Gillespie’s acts, merely signed the checks which generated the profits for Arrowhead. The majority notes Dorothea also failed to check the Trust’s income tax records, participate in their preparation, and review any Trust records until after the death of co-trustee Gillespie. After the death of that co-trustee, Dorothea continued the policy of investing Trust income in her corporation. The majority acknowledges:
“As a co-trustee, Dorothea had a duty to be informed on all Trust business and to act in the best interests of the Trust. She knew the Trust was investing in Arrowhead, a company in which she owned a substantial interest. She should have exercised heightened diligence in ascertaining whether such investments were in the Trust’s best interests. She failed to perform her duties as a co-trustee when she left the oil and gas investment matters to Gillespie. For this she has liability for compensatory damages.”
The majority asserts there was no evidence that Dorothea’s actions or inactions were malicious, vindictive, willful, or wanton, and determined the award of punitive damages against Dorothea to be improper.
Punitive damages are allowed not because of any special merit in the injured party’s case, but are imposed to punish the wrongdoer for malicious, vindictive, or willful and wanton invasion of the injured party’s rights. The purpose of punitive damages is to restrain and deter others from the commission of like wrongs. Gould v. Taco Bell, 239 Kan. 564, Syl. ¶ 8, 722 P.2d 511 (1986).
When the administration of a trust is vested in co-trustees, they all form but one collective trustee, and they must exercise jointly all those powers that call for their discretion and judgment, *150unless the trust instrument or declaration authorizes an apportionment of powers. A single co-trustee may, however, perform a purely ministerial act in the administration of the trust. 76 Am. Jur. 2d, Trusts § 299.
“A trustee is under a duty to exercise due care, diligence, and skill with respect to watching his cotrustees and guarding the trust estate against their defaults and breaches of trust, and if he fails to do so, he is liable for all ensuing losses to the trust estate. The standard of such care, diligence, and skill required, as in other cases, is that of an ordinarily prudent man in the conduct of his private affairs.
“A trustee fails in his duties in this respect where he hears of any fact tending to call his attention to the mismanagement or misapplication of trust funds by his cotrustee and fails to take any steps to safeguard the trust estate.” 76 Am. Jur. 2d, Trusts § 332, p. 548.
The duty to administer a trust and to exercise the discretion vested in it rests on the trustee and cannot be delegated by a trustee to others. Jennings v. Murdock, 220 Kan. 182, Syl. ¶ 2, 553 P.2d 846 (1976). The law presumes good faith on the part of the trustee and careful exercise of judgment and discretion in the performance of his or her duties. Prager v. Hart, 106 Kan. 14, Syl. ¶ 4, 186 Pac. 1015 (1920). A trustee is bound to the utmost good faith, may acquire no interest adverse to the trust, and must exercise such care and diligence, in respect to the discharge of the trust, as, under all the circumstances, having regard to the magnitude of the trust and the interests involved, would be reasonable. Morrow v. County of Saline, 21 Kan. *484, Syl. ¶ 5 (1879).
Here, Dorothea’s investments in Arrowhead were gaining her a producing oil and gas lease with taxable income 25% of the time. That is one out of four, whereas the trust gained a producing lease with taxable income one out of each 65 well investments. She also knew of the disparate billings and did nothing, in addition to the other acts or failure to act mentioned in the majority opinion. I would affirm the award of punitive damages against Dorothea.
As to Paul Seymour, III, the majority portrays him as a son who was dominated by his father. It acknowledges that Seymour III followed his father’s directions without question when disproportionately billing the Trust. The majority asserts that the son accepted his father’s code of business ethics and was deficient *151in a number of significant respects. The majority fails to note that the trial judge found Seymour III was aware of, participated in, and continued to justify the spreading of funds, adjustments of interest, and overbillings at all times, including during the trial of the case. Seymour III testified “that anything goes in the oil business.” The trial court observed that Seymour Ill’s ethical conduct was contrary to the statement by the expert witness, Remshberg, “of conducting prudent operating practices and procedures, as well as maintaining fiduciary responsibilities” in the oil business.
In affirming the award of punitive damages against Paul Seymour, Jr., the majority states: “It is sufficient to say that his egregious conduct as found by the trial court is legally adequate to support a punitive damage award.” The majority ignores the fact that Paul Seymour, Jr., was unable to control the assets of the Trust by himself. The majority gives no weight to the fact that to accomplish his goal, Paul Seymour, Jr., needed the willing and active assistance of Dorothea and his son. The trial court found that it was the actions of the three individuals working together that caused the damage to the Trust. The majority disregards the trial court’s finding that there was a conspiracy, then reviews and reweighs the evidence and determines that punitive damages should be assessed against only one of the coconspirators, even though the other coconspirators, Dorothea and Seymour III, willfully breached duties owed to the injured parties and profited by their willful breach. I would affirm the award of punitive damages against Paul Seymour, III.
The issue concerning the letter of credit is not properly before this court. Many questions of fact are raised that may require the trial court to take evidence. I would not consider that issue at this time.
Abbott, J., joins in the foregoing concurring and dissenting opinion, and joins in the result in the remainder of the majority opinion.
*152APPENDIX
Earnings for Year (On Col. 7) Investable Amount at Beginning of Year V2 Year Return (On Col. 5) Amount Available for Investment (Col. 1 minus Col. 4) Amount of Tax on Deposit Maximum Effective Tax Rate % Amount of Deposit Year
$3,077 $ 44,124 $ 75,876 63.23 $120,000 1974
6,583 $ Í 47,201 2,813 40,337 69,663 63.33 110,000 1975
13,520 96,934 2,613 37,378 72,622 66.02 110,000 1976
22,378 160,445 3,233 46,358 83,642 64.34 130.000 1977
32,417 232,414 2,893 41,483 88,517 68.09 130.000 1978
43,128 309,207 2,832 42,042 97,958 69.97 140.000 1979
55,402 397,209 3,153 44,832 115,168 71.98 160.000 1980
69,823 500,596 4,379 62,800 137,200 68.60 200,000 1981
88,933 637,607 4,479 64,230 85,770 57.18 150.000 1982
110,921 795,249 8,031 115,150 134,850 53.94 250.000 1983
143,573 1,029,351 9,481 135,952 157,048 53.60 293.000 1984
183,884 1,318,357 9,935 142,470 157,530 52.51 300.000 1985
230,790 1,654,646 9,802 140,550 159,450 53.15 300.000 1986
284,649 2,040,788 9,843 141,142 108,358 43.43 249,500 1987
Amount of Damages (Total for 1987 of Columns 5, 6, 7 & 8) $2,476,49.9.