Court Opinion

ID: 5115511
Source: CourtListenerOpinion
Date Created: 2021-10-02 19:50:31.632067+00
Date Added: 2024-06-11T08:21:50.664958
License: Public Domain

BRANDON J. HARRISON, Judge, dissenting. I respectfully dissent from the majority’s opinion. I primarily disagree with its decision to read four material rulings into the circuit court’s final order: (1) that Ruth and Woody Rose became de facto trustees before Woody’s death and while the trust was still revocable; (2) that Thomas Stone ceased being a trustee (at some unstated point in time); (3) that Ruth was some sort of trustee when the house was sold; and (4) that Ruth did not breach any fiduciary duty — and even if the circuit court had found that she did, then it would have reimbursed her just as it did in the final order. I also disagree with the majority’s conclusion that the Rose children did not preserve an attorney’s-fee denial for review. We should be reversing the circuit court’s order and remanding this case for further proceedings. 1. The Trustee/Trust Modification Issue. As the Rose children argued in their timely postjudgment motion that was deemed denied and expressly named in their notice of appeal, the circuit court’s order does not expressly find that Rose was the sole trustee or a co-trustee. Instead, the order only refers to Ruth individually, as a beneficiary, as the sole beneficiary, a co-beneficiary, and a co-grantor. The majority therefore infers, based on the reimbursements given to Ruth, that the court found that Ruth was at least a co-trustee. The circuit court’s (and majority’s) arguable decision to treat Ruth as some sort of trustee raises the related question of how this is done if, as the circuit court also expressly | iafound, the trust’s original terms were never modified. “The evidence of attempted amendments or revisions to Trust before the death of Mr. Rose was insufficient to alter the terms of the Trust.” Contrary to the majority’s narrow reading, the circuit court’s sweeping statement that the trust was never amended or revised is not limited to a house-downsizing issue. If the circuit court found that Ruth was a trustee, as the majority believes happened, then the court necessarily modified the trust. The children’s complaint expressly alleged that Ruth was not a trustee and it asked the circuit court to declare • that the trustee of the Trust is Thomas S. Stone; • that Defendant Mary Shellnut Rose AKA Mary Ruth Rose is not the trustee of the Trust. Under direct examination of Ruth’s attorney, the children’s attorney objected to the notion that Woody and Ruth Rose modified the trust Counsel for Rose: And I would ask you, is this a trust that you and Woody had Tom Stone draft for you? Mrs. Rose: That’s correct. COUNSEL for Rose: And are there some markings made on this trust, some revisions made to this trust? MRS. Rose: Yes. Counsel for Rose: [I] ’d move to introduce Defendant’s Exhibit 1 [the trust document with markings]. Counsel for the children: [W]e do object to that because those contain extraneous markings. There’s no explanation of what those are, how they got there. It is apparent that those markings are insufficient to [ ^amount to any modification or amendment to the trust. They’re inconsistent with the terms of the trust itself as to how modifications would be made. Counsel for Rose: We’re about to explain the modifications and how they were made. The circuit court overruled the objection and admitted a marked-up copy of the trust. Then came these exchanges on the “Rose was trustee” issue during trial Counsel for Rose: Was there a time when you and Woody decided that you would be co-trustees and that Tom Stone would no longer be trustee? Mrs. Rose: That’s correct. Counsel for Rose: Tell us about that. Counsel for the Children: Your Honor, I -object to that. That document speaks for itself, and there’s been no indication of any modification of the document. Counsel for Rose: [S]o I wanted to ask you, was there a time when you and Woody decided that you would serve as co-trustees and not Tom Stone? Counsel for the children: Your Honor, once again, we’d object. There’s been no showing of a modification to the trust. There’s been no showing of any ambiguity in the trust. Before they start getting into modifications and changes, it’s required that there be an ambiguity in order to get to their intent. Counsel for Rose: [A]nd if Tom Stone, as trustee, before that time was monitoring the property and in control of the properly as a trustee, would these written documents filed of public record regarding the property have been written notice | Mto him. Counsel for the children: Your Honor, I object to that. That calls for a legal conclusion. The Court: I’ll sustain the objection. A harmonious reading of the final order and the testimony establishes that the circuit court’s finding that no revisions or amendments were made to the trust is not as narrow as the majority says. Next, in their motion asking the circuit court to alter or amend its final order, the Rose children continued to argue their pleading-based and trial-based point that Ruth could not have served as a trustee— unless the trust had been modified, and it wasn’t modified; the court so found. “If the Court is recognizing [Ruth Rose] as the trustee, it is making an amendment to the trust. To that end, based on the undisputed facts including her own testimony at trial, [Ruth Rose] unquestionably breached nearly every fiduciary duty owed by a trustee by conveying the house to herself.” The parties persistently argued over whether Ruth became a trustee and whether doing so would have required a trust modification. The unambiguous words of the written order state that the trust was not amended. This means that the two trustee-related provisions in the trust were never changed • “The Trustee of this trust shall be Thomas S. Stone.” Section 1.1(a) • “Upon the death or resignation of Thomas S. Stone as Trustee, Patrick E. Hollingsworth shall serve as successor Trustee.” Section 1.1(b) In its opinion, the majority holds that a person may become an acting co-trustee or 11ssole trustee if she simply acts as one— although the trust itself expressly names a different acting trustee, names a different successor trustee, and has never been modified or amended in any legally effective way. In fact, the circuit court never found whether Ruth became a trustee before or after her husband’s death. The majority has found as fact, in the first instance, that Ruth and Woody Rose became co-trustees before Woody died. The majority finds this fact too: “It is also undisputed that Thomas Stone knew that he was not the trustee and failed to act as such for several years.” Not only did the circuit court never find such a thing, the record does not support the statement that Stone “undisputed[ly]” knew that he was not the trustee. Here is some of Stone’s testimony on the trustee issue Counsel for the Children: And you were the trustee of that trust? Stone: Yes. Counsel for the Children: And did you accept the trustee of that trust? Stone: Yes, I did. Counsel for the Children: [D]id you ever prepare any amendments to that trust? Stone: No, sir. Counsel for the Children: Did you ever resign as trustee of that trust? Stone: No, sir. Counsel for the Children: Did you ever receive any written notification that you had been removed as trustee? 11fiStone: No, sir. Counsel for the Children: Did you ever receive any written notification of an amendment to the trust? Stone: No, sir. The circuit court never made any express credibility determination that discounted Stone’s testimony; nor did it specifically find that Stone had effectively resigned or been removed as the sole trustee. The majority cites an Arkansas statute, and cases from the Seventh Circuit and other jurisdictions outside Arkansas, to support its holding that the circuit court implicitly found that Ruth was a de facto trustee. I grant that an Arkansas statute allows a settlor to amend a revocable trust in accord with the statute and upon clear- and-eonvincing evidence. But we have no finding from the circuit court (based on clear-and-convincing evidence or any other standard) that an amendment to a revocable trust occurred. We do have the opposite situation, which is an express ruling by the circuit court that the trust was not “amend[ed] or revis[ed]” before or after Woody’s death. Further, a plain reading of the trust’s section 2.2 suggests that Ruth could not have modified the trust once it became irrevocable upon Woody Rose’s death. We should remand the case to the circuit court and ask it to explain in some detail whether it in fact found that Ruth was some sort of trustee. If the answer is yes, then it should also state when she became a trustee and whether she was a co-trustee or the sole trustee (or some combination of the two over time). Finally, if the circuit court was to expressly find that Ruth was some sort of trustee, then it should explain how, given the facts |17and Arkansas law, she could do so without having to modify the trust in some manner, which the court expressly found never happened. 2. The Fiduciary Claim. If Ruth was a trustee, and the circuit court ruled that there was no breach of any fiduciary duty, then it clearly erred. Here is Ruth Rose, on direct examination by her lawyer, providing a textbook example of a breach of one or more fiduciary duties Counsel for rose: [W]hat did you do with that cash [the house-sale proceeds] when you received it? Mrs. Rose: Put it in the account. Counsel for Rose: What account is that? Mrs. Rose: Just my account. Counsel for Rose: Your personal account? Mrs. Rose: Yes. Counsel for Rose: Did you notify anybody else who was a beneficiary of the trust of your intent to sell the property? Mrs. Rose: No. Counsel for Rose: Did you notify Tom Stone? Mrs. Rose: No. Counsel for Rose: You didn’t intend to distribute any money to them [Woody’s children], did you? Mrs. Rose: Not till death. | ^Counsel for Rose: Not till death, but the house was in your name, correct— I mean, the funds were in your individual name? Mrs. Rose: Right. Counsel for Rose: [W]hat was your understanding of what you could do with the principal of the trust at that time? Mrs. Rose: That I could — because the house was the only thing that was in the trust, so that I could then sell it, deed it to me, and then sell it. Counsel for Rose: You thought you could distribute it out of the trust? Mrs. Rose: Distribute it out. That’s the word I was trying to— Counsel for Rose: To you individually? Mrs. Rose: Right. Counsel for Rose: And then do what you wanted with it individually? Mrs. Rose: Yes. Counsel for Rose: And then under 2.2,1 guess the other option, what did you think you could do with the property? Let me ask the question again. You said under 2.1, you thought you could distribute it out to yourself— Mrs. Rose: Distribute it out to me. Counsel for Rose: — individually. Or under 2.2, did you — were there any other options you could— | 13Mrs. Rose: That I could amend, modify it. Counsel for Rose: Well, what I’m asking about is the phrase that says you could ask the trustee to sell it for not less than fair market value? Mrs. Rose: Yes_And I — since I am the — I was the trustee. Ruth’s testimony about her breach was consistent under cross-examination by the children’s lawyer Counsel for the children: After you sold the residence, you had just deposited those funds in your personal checking account, correct? Mrs. Rose: That’s correct. Counsel for the children: You did not establish a separate account to hold those? Mrs. Rose: Not as soon as it happened, no. Ruth’s testimony establishes a breach of section 2.2, a core part of the irrevocable trust, which states After the death of either of the Grantors, the surviving Grantor may not amend, modify, or revoke this trust, except that upon prior notice to the Trustee, such surviving Grantor may direct the Trustee to sell the trust assets for not less than the fair market value and pay one-fifth of the proceeds to each of the deceased party’s children identified in paragraph 1.2 hereof and pay the remainder to the surviving Grantor. Ruth could not self-deal and otherwise act directly contrary to the trust’s plain terms and her co-beneficiaries’ interest. Hosey v. Burgess, 319 Ark. 183, 191-92, 890 S.W.2d 262, 266-67 (1995); Hardy v. Hardy, 222 Ark. 932, 940, 263 S.W.2d 690, 694 (1954) (a breach of trust may exist even where the trustee acted in good faith). Given Arkansas law and this 12nrecord, I would reverse the circuit court’s order and direct it to make specific findings of fact regarding the trustee issue. If she was a trustee, then the court should make findings of fact on which fiduciary duty or duties Ruth breached and then craft an appropriate remedy. 3. The Reimbursement Issue. The majority’s finding that Ruth was a trustee is important because without it she would have not been entitled to reimbursement. The majority’s contention that the children’s argument about reimbursement amounts is not preserved is mistaken. Reimbursement was an issue during the trial, and it was consistently tethered to the trustee/trust modification point. Contrary to the majority’s specific assertion about Exhibit 8, the Rose children objected to Ruth’s attempt to introduce Exhibit 8 into evidence. Counsel FOR Rose: [W]e’d move to admit Defendant’s Exhibit 8. Counsel FOR the Children: Your Honor, I object to Defendant’s 8. There’s improper foundation for it. There’s no showing the time when these particular expenses were made or particularly where the funds came from, whether they were before or after the death. There’s no showing what those items were expended for in terms of how they benefited the trust, whether they were an additional contribution to the trust, or whether they increased the value of the property, if any. They’re just living expenses. After the exhibit was admitted over the children’s objection, their lawyer cross-examined Ruth on its contents, including costs that she incurred while living in the home. And when it appeared to the children’s attorney as the trial wound up that the court was seriously considering a ruling that Ruth had acted as some sort of trustee, counsel argued again that |2iRuth could not be reimbursed because she “very blatantly” disregarded her fiduciary duties and violated the trust’s material terms. The children’s counsel also argued that Ruth was not entitled to reimbursement of living expenses even if she was deemed a co-trustee. The Rose children clearly raised and properly preserved their argument that the court had improperly awarded Ruth more than $72,000 in reimbursements in trustee-related expenses. If Ruth was some sort of trustee, then the majority stopped short of addressing the reimbursement issue given her breach of one or more fiduciary duties: “Moreover, if the circuit court had found that [Ruth Rose] had breached her fiduciary duties, the [circuit court] would nevertheless have the discretion to allow reimbursement to [Ruth Rose],” says the majority. My point here is that I will not presume, as the majority has done, that the circuit court would have allowed any reimbursement (much less the precise combination of items) had it found that Ruth breached one or more fiduciary duties. It is not our place to presume what would have happened had the circuit court made a wholly different decision on a party’s substantive claim. I do not seek to dictate a remedy as the majority has essentially done. That is why I would reverse the order and remand the case to the circuit court. 4. The Attorney’s Fee claim. Regarding the majority’s holding that the Rose children failed to properly appeal the circuit court’s denial of their November 2011 request for an attorney’s fee, I see things differently. I believe the attorney’s fee issue was, on the record as a whole, bound up enough with this case’s merits so that an appeal of the final order should bring up the court’s denial of the Rose children’s fee request. Though attorneys’ feejj^awards are usually collateral to a case’s substantive merits, see, e.g., First Tennessee Bank Nat’l Ass’n v. Mortensen, 2013 Ark. App. 45, at 2, 2013 WL 361079, this case strikes me as an acceptable, narrow exception to the general rule. Not only do I see attorney’s fees being a potential remedy in the case given Ruth’s breach of one or more fiduciary duties, but the children filed a timely postorder motion that challenged the final order in multiple ways and asked for fees and costs again. That motion was deemed denied and expressly mentioned in the notice of appeal. I would reverse the circuit court’s March 2012 order and remand for further proceedings consistent with this dissent.