Court Opinion

ID: 9574797
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:08:27.678934+00
Date Added: 2024-06-11T12:45:14.119710
License: Public Domain

LANSING, Judge
(concurring specially in part and dissenting in part)
I agree that the liability limitation in the trust instrument does not exonerate the professional trustee from legal responsibility for its decisions on diversification, but I would base that holding on different grounds. I do not see the distinction, drawn by the majority, between “negligence” and “mistake or error of judgment.” Although some mere errors of judgment may hot be negligence, I do not read the case law to relegate mistakes and errors in judgment to a category of action not included in the tort of negligence. Such a categorization would afford nonprofessional trustees a very limited protection in standard exculpatory clauses. The effects of the artificial construction are demonstrated in this case by the potential liability of the settlor’s son and daughter.
The dispositive issue, as I see it, is whether a professional trustee obtains exoneration from its professional standard of care through a trust provision that exonerates all trustees under a general standard of care. For the following reasons, I think the answer to that question is “no,”
I
Public policy allows parties to a contract to negotiate the inclusion of an exculpatory provision, but exculpatory provisions for professional trustees are not favored. Dunkley v. Peoples Bank & Trust Co., 728 F.Supp. 547, 560 (W.D.Ark.1989); Dill v. Boston Safe Deposit & Trust Co., 343 Mass. 97, 175 N.E.2d 911, 913 (1961) (“Exculpatory provisions, especially as to professional trustees, are not looked upon with special favor by the law.”); see Schlobohm v. Spa Petite, Inc., 326 N.W.2d 920, 923 (Minn.1982) (exculpatory clauses are “not favored in the law”); see also Tuttle v. Gilmore, 36 N.J.Eq. 617 (1883) (holding exculpatory clause not per se against public policy, but noting some support for position “that no effective limitation can * * * be imposed on the liability of a *751trustee”). This accords with the higher standard of care professional trustees are held to by law. Minn.Stat. § 501B.151, subd. 2(e) (1998) (“A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee’s representation that the trustee has special skills or expertise, has a duty to use those special skills or expertise.”). This standard, which is part of the Minnesota Prudent Investor Act, reflects a trend in the law of protecting beneficiaries by regulating professional trustees’ conduct. See Minn.Stat. § 501B.151; see also 1996 Minn. Laws ch. 314, § 9 (Minnesota Prudent Investor Act effective Jan. 1, 1997). Due to the strict construction given exculpatory clauses and the higher standard of care required of professional trustees, the law now requires strong evidence or explicit language that the grantor intended the clause to exculpate a professional trustee.
II
Under Minnesota law, a trustee has a duty to diversify a trust’s assets. Minn.Stat. § 501B.151, subd. 3 (1998). Before it enacted the Prudent Investor Act, Minnesota did not require trustees to diversify a trust’s assets. See Minn.Stat. § 501B.81, subd. 1 (1998); In re the Trusts Created by Hormel, 504 N.W.2d 505, 511-12 (Minn.App.1993), review denied (Minn. Oct. 19, 1993). But see Restatement (Second) of Trusts § 228 (1959) (“Except as otherwise provided by the terms of the trust, the trustee is under a duty to the beneficiary to distribute the risk of loss by a reasonable diversification of investments, unless under the circumstances it is prudent not to do so.”). A trust instrument may empower the trustee to maintain an undiversified trust, but it must do so with explicit language, such as incorporating the language of Minn.Stat. § 501B.81, subd. 1, by “a clear expression in a written instrument of the intention of the grantor.” Minn.Stat. § 501B.80 (1998).
III
The court’s ultimate purpose in interpreting a trust is to effectuate the intent of the grantor. In re Trust of Tufford, 275 Minn. 66, 71, 145 N.W.2d 59, 64 (1966). In determining the grantor’s intent, the trust should be construed as a whole. In re Trusteeship under Agreement with Mayo, 259 Minn. 91, 95, 105 N.W.2d 900, 903 (1960) (“One of the court’s highest duties is to give effect to the donor’s dominant intention as gathered from the instrument as a whole.”). Although the trust allowed the trustees to retain the original undiversified investment in Creamette stock, Art. VIII, § 4, the trust does not empower the trustees to hold as an undiver-sified asset the stock exchanged for the Creamette stock. The trust states: “It is, of course, desirable that any sale of said stock be for cash, if possible, but the Trustees may, in their discretion, accept payment of the purchase price partly in cash and partly in notes or in corporate stock of the purchasing company * * * .” Art. VIII, § 4. It also states:
To invest and reinvest any and all funds which may become available for investment in, or exchange trust assets for, any securities or properties as would be purchased by diligent and prudent individuals of discretion and intelligence in the management of their own affairs, and they shall not be restricted to investments which are prescribed by statute or other law or general custom or practice for the investment of trust funds. * * * It is my wish and desire that the Trustees in making any and all investments and reinvest-ments hereunder be conservative and cautious and regard more the character, value, safety and security of the investments than the rate of interest and the amount of income and profits to be derived therefrom.
Art. IX. The preference for cash and desire for conservative, cautious investment suggest a preference for diversified, rather than undi-versified, assets. At minimum, these facts create a triable issue on whether Norwest, as the professional trustee, had a duty to vote in favor of diversification of the assets.
IV
Relying on the preceding principles, I respectfully dissent from the majority’s holding on Linstroth’s and Williams’ potential liability. The exculpatory clause provides: “No Trustee shall be liable for the default or *752doing of any other Trustee * * * . Thus, under the language of the exculpatory clause, even if Norwest is found to have breached a fiduciary duty, neither Linstroth nor Williams could be held liable for Norwest’s breach.
No facts suggest a basis on which Williams could be liable for a breach of fiduciary duty for the trust’s retention of the Borden stock. Williams consistently attempted to have the trust sell its Borden stock. If the claim of breach is directed to some other fiduciary duty, he would still not be liable in this proceeding because any damages would be distinct from the damages incurred by retaining the Borden stock. See City of Willmar v. Short-Elliott-Hendrickson, Inc., 512 N.W.2d 872, 874 (Minn.1994) (“Common liability exists when both parties are liable to the plaintiff for the same damages, even though their liability may depend on different legal theories.”) (citation omitted).
As for Linstroth, the second part of the exculpatory clause exculpates trustees “for any loss by reason of any mistake or errors of judgment made by him in good faith execution of the trust.” The settlor’s apparent intent in this provision was to exculpate trustees for the exercise of their general fiduciary duty of care. Although the exculpation does not extend to the higher standard of care the professional trustee owes to the trust, that circumstance does not strip Linstroth of protection from liability. The exculpatory clause relieves Linstroth of liability in exercising a general duty of care and prudence in directing the investment of the trust’s assets.
Furthermore Norwest, until very recently, asserted Linstroth had fulfilled her fiduciary duties. In its June 4,1998, petition, Norwest requested the district court discharge Lin-stroth as a trustee and release her “from any and all liability for her administration of the trust.” And in an October 6, 1997, report, Norwest’s expert asserted that all the trustees, including Linstroth, acted prudently in fulfilling their fiduciary duties. Neither Nor-west nor Williams has asserted that Lin-stroth’s actions to retain Borden stock were negligent or in bad faith. Based on the exculpatory clause and the absence of an allegation that Linstroth in bad faith breached a fiduciary duty, there is no reason to hold Linstroth liable for her actions.
The trust exonerates Linstroth and Williams from liability for Norwest’s actions. No petition or claim in the district court alleges that either of them breached a fiduciary duty. Based on the record as a whole, the district court did not err in relieving Williams and Linstroth of their liability to the trust.