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In re Potter

Court of Appeals of Missouri, Eastern District, Fourth Division

November 5, 2019


          Appeal from the Circuit Court of the City of St. Louis Cause No. 1422-PR00688 Honorable Michael K. Mullen

          Gary M. Gaertner, Jr., Judge.


         This case involves the interpretation of an irrevocable trust created to be a tax-exempt generation-skipping transfer from Emily Magnus Potter (Grantor) to her descendants. David Oetting (Oetting), a co-trustee of the trust, appeals the judgment of the probate court interpreting the language of the trust to allow income distributions under the circumstances here to Grantor's grandson, Respondent John M. Potter (Potter); finding no breach of fiduciary duty by the corporate trustee, Respondent U.S. Bank; removing Oetting as co-trustee of the trust; and granting attorney's fees and expenses in favor of Potter and U.S. Bank. Because we find the probate court improperly interpreted the trust as it relates to the trustees' ability to request Potter's financial information before authorizing an income distribution from the trust, we reverse the judgment in part and remand the probate court's order regarding attorney's fees and expenses. However, we find substantial evidence to support the probate court's conclusion that U.S. Bank is not liable for breach of trust under the circumstances here, and we agree Oetting's removal as co-trustee was appropriate, thus we affirm the judgment in part.[1]


         In 1988, Grantor funded the trust at issue here pursuant to the tax laws applicable at the time, which allowed such trusts to transfer up to one million dollars across generations without incurring generation-skipping tax consequences. When Grantor originally executed the trust, the trust estate was divided into two equal portions, held in two separate trusts-the T.R. Potter, Jr. Exempt Trust (TRP Trust) and the Edward M. Potter Exempt Trust-for each of her sons and their descendants. Each trust had a corporate trustee and an individual trustee. Grantor's sons, T.R. Potter, Jr. (Randy Potter), and Edward Potter, acted as individual trustees for their respective trusts, along with Mercantile Bank as the corporate trustee for each trust.

         Randy Potter had two sons, Respondent Potter and T.R. Potter, III (Tom Potter). Randy Potter died in 2008. By its terms, the TRP Trust and its assets then divided into two equal shares, one each for the benefit of Potter and his brother Tom Potter, and their respective descendants. After Randy Potter's death, Oetting became the individual co-trustee of each share of the trust under the terms of the TRP Trust. Shortly thereafter, Potter asked Oetting to resign as co-trustee of Potter's share of the TRP Trust, but Oetting declined. U.S. Bank is currently the corporate co-trustee of the TRP Trust as the successor to Mercantile Bank. Potter is the sole beneficiary of his share of the TRP Trust during his lifetime. Potter currently has one child, John M. Potter, Jr. (Jack Potter), born in 2014, who is a contingent remainder beneficiary of Potter's share of the TRP Trust. Tom Potter is also a contingent remainder beneficiary of Potter's share of the trust, taking Potter's share of the trust only if Potter has no descendants at his death.

         From 2008 to 2013, Oetting and Potter did not communicate about the trust. In June of 2012, Potter contacted Ann Wells (Wells), the trust officer at U.S. Bank at the time, to request a distribution of income from his share of the trust in order to provide cash flow for his real estate business. Wells believed the terms of the trust authorized income distributions to Potter under the circumstances, and she made arrangements to disperse income from the trust into Potter's personal revocable trust account held at U.S. Bank. Though the terms of the trust required both trustees to consent to income distributions, Oetting testified no one from U.S. Bank consulted him as co-trustee about such distributions. In November of 2012, Wells suffered a stroke and does not remember the details regarding the distribution of income. She testified that U.S. Bank regularly consulted Oetting regarding other matters for the trust, so if she failed to consult him regarding the income distributions to Potter, it was an oversight. U.S. Bank continued to send semi-annual statements to Oetting reflecting the Potter income distributions. From July 1, 2012 through March 31, 2014, U.S. Bank made monthly distributions of the net income of the trust to Potter totaling $211, 030.15.

         In January of 2014, Mark Sandvos became the trust officer for Potter's share of the TRP Trust following Wells' retirement. In reviewing the trust file, Sandvos learned Oetting was the co-trustee, but he could not determine from the file whether Oetting had been consulted regarding those income distributions to Potter. Sandvos' supervisors contacted Oetting, [2] who objected to the income distributions. Potter continued to request income distributions, but Oetting requested Potter's personal financial information before responding to Potter's requests. Potter and U.S. Bank withheld Potter's financial information, maintaining that Oetting did not have authority under the trust to require Potter to provide such information. Oetting asserted that it was necessary under the terms of the trust to consider Potter's financial state before income could be distributed. In light of this dispute, U.S. Bank ceased distributions to Potter in April of 2014.

         Faced with Potter's continued requests for income distributions, in October of 2014, U.S. Bank filed a petition for instructions in the probate court, asking the probate court to interpret the terms of the trust regarding the circumstances under which income from the trust may be distributed to Potter as the current sole beneficiary. Oetting filed a counterclaim alleging breach of fiduciary duty against U.S. Bank for unilaterally making income distributions (Count I), requesting declaratory judgment that Oetting was not liable for any breach of trust (Count II), and seeking compensation for extraordinary trustee services, attorney's fees, and expenses (Count III). Potter filed a cross-claim asserting breach of fiduciary duty against Oetting (Count I), seeking reformation of the trust's provision for requesting that a trustee resign (Count II), requesting removal of Oetting as the individual trustee (Count III), and seeking to modify the trust terms to allow the corporate trustee sole authority to make income distributions from the trust (Count IV).

         During the pendency of the suit, Potter's wife, Emily Potter, filed a ratification on behalf of their minor son, Jack Potter, consenting to U.S. Bank's distribution of income from the trust to Potter. Tom Potter also filed a ratification as a contingent remainder beneficiary. U.S. Bank filed a motion for summary judgment on its petition for instructions, which the probate court granted. The probate court concluded the trust agreement authorized income distributions to Potter without consideration of his financial circumstances.

         The probate court conducted a bench trial on the counterclaims and cross-claims, after which it entered judgment first affirming its prior summary judgment, finding nothing offered at trial changed its former interpretation of the trust agreement. The probate court also entered judgment for U.S. Bank on Oetting's Counts I (breach of fiduciary duty) and III (request for extraordinary trustee fees). Finding no breach of fiduciary duty by any party, the probate court granted Oetting's request for declaratory judgment in Count II of his petition. Regarding Potter's cross-claims, the probate court found in favor of Oetting on Potter's breach of fiduciary duty claim in Count I, granted Potter's request to remove Oetting in Count III, and dismissed the remaining cross-claims as moot. Oetting appeals.[3]


         As an initial matter, U.S. Bank argues that Oetting lacks standing to pursue the present appeal because trustees have no interest in the corpus of the trust and therefore are not aggrieved parties. U.S. Bank relies on In re Knichel, 347 S.W.3d 127 (Mo. App. E.D. 2011), in which this Court held that an appointment as a special trustee for a decedent's estate did not create a personal right, nor any pecuniary interest in the subject matter of the will contest, that would have entitled the special trustee to challenge his removal on appeal. Id. at 130-32. However, a number of circumstances distinguish the present case, and we find that Oetting does have standing to assert his claims on appeal.

         First, as this Court noted in Knichel, the statutes governing trusts in chapter 456 contain no provision regarding appellate standing, thus we look to the general appeals statute, Section 512.020.[4] Knickel, 347 S.W.3d at 130. This section grants a right of appeal to "[a]ny party to a suit aggrieved by any judgment of any trial court in any civil cause," except where prohibited by the Missouri Constitution or limited by statute. Section 512.020. The appellant in Knichel asserted only personal claims of removal as trustee, loss of trustee fees, and damage to his reputation, which did not constitute a pecuniary interest adversely affected by the judgment. 347 S.W.3d at 131. Unlike the appellant in Knichel, Oetting is an aggrieved party in that he currently is subject to a money judgment for attorney's fees and expenses. Further, while Oetting does not have a personal interest in the trust, trustees are permitted as fiduciaries to pursue claims on behalf of beneficiaries who are aggrieved by a judgment of a lower court. Knichel, 347 S.W.3d at 130 (applying definition of "interested persons" in Section 456.1-103 of Missouri Uniform Trust Code). Oetting here argues that Potter's son and any future children, as contingent remainder beneficiaries of the trust assets, are aggrieved by the probate court's interpretation of the trust. See Betty G. Weldon Revocable Trust ex rel. Vivion v. Weldon ex rel. Weldon, 231 S.W.3d 158, 168 (Mo. App. W.D. 2007) (finding contingent remainder beneficiaries have standing to appeal interpretation of trust and removal of trustees). Thus, we find Oetting has standing to bring the present appeal.

         Oetting raises four points. In Point I, he argues that the probate court erred in granting summary judgment in favor of U.S. Bank on its petition for instructions because the language of the trust permits trustees to consider the financial resources of the beneficiary in determining whether to make a discretionary distribution of income. In Point II, Oetting argues the probate court erred in its judgment on Oetting's counterclaim for breach of fiduciary duty, specifically the court's finding that U.S. Bank's unilateral distribution of income did not result in harm to the beneficiaries because the remainder beneficiaries ratified U.S. Bank's actions. In Point III, Oetting argues the probate court erred in removing Oetting as the individual co-trustee because the court's interpretation of the trust language led to an erroneous conclusion that Oetting made improper demands for Potter's financial information. Finally, in Point IV, Oetting argues the probate court abused its discretion in awarding attorney's fees and costs to U.S. Bank and Potter. We discuss each in turn.

         Point I

         Oetting argues the probate court erred in concluding that the language of the trust does not allow a trustee to examine a beneficiary's financial information before permitting a discretionary distribution of trust income. We agree.

         Our review of summary judgment is essentially de novo. ITT Commercial. Fin. Corp. v. Mid-Am. Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993). We view the record in the light most favorable to the non-moving party. Id. The moving party must show there is no genuine dispute as to material facts and that the movant has an undisputed right to judgment as a matter of law. See id. at 380. Here, while we find there is no genuine factual dispute, we disagree with the probate court's interpretation of the trust language as a matter of law.

         "The paramount rule of construction in determining the meaning of trust provisions is that the grantor's intent is controlling." Feinberg v. Adolph K. Feinberg Hotel Trust, 922 S.W.2d 21, 25 (Mo. App. E.D. 1996). Because language and circumstances can vary greatly, we must examine the specific language as well as the surrounding circumstances, and Grantor's intention must govern. See Winkel v. Streicher, 295 S.W.2d 56, 61 (Mo. banc 1956). "We ascertain the intent of [Grantor] from consideration of the trust instrument as a whole." Hertel ex rel. Hertel v. Nationsbank N.A., 37 S.W.3d 408, 410 (Mo. App. E.D. 2001).

         Article Second of the trust contains the relevant provisions regarding distribution of income. Before Randy Potter's death, the TRP Trust limited distributions of income as follows:

The Trustees shall use and apply so much of the net income of this trust as they may deem necessary or advisable primarily for the proper health, education, maintenance, and support of Grantor's son, RANDY, of the children of Grantor's son, RANDY, and of the descendants of the children of Grantor's son, RANDY, with no requirement of equality among such beneficiaries. Unused income shall be accumulated and added to principal annually.

         Once the trust divided after Randy Potter's death, the current share for Potter's benefit no longer has a stated purpose for health, education, maintenance, or support. Rather, the trust provides the following for Potter's share:

The Trustees shall use and apply so much of the net income of each descendant's share (separate trust) as they may deem necessary or advisable to or for ...

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