In re Bradley Trust ( 2021 )

No. 122,482
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
In the Matter of the
O.E. BRADLEY AND E.L. BRADLEY TRUST.
SYLLABUS BY THE COURT
1.
The decision to remove a trustee for a breach of the trust under K.S.A. 58a-706(b)
lies within the sound discretion of the district court. When considering whether a district
court abused its discretion, we do not look to see whether another decision would have
also been reasonable. We merely ask whether a reasonable person could agree with the
decision that the district court made.
2.
Among the statutory duties of a trustee are the duties to take reasonable steps to
take control of and protect the trust property; to keep adequate records for the
administration of the trust; to keep the trust property separate from the trustee's own
property; and to keep the beneficiaries reasonably informed about the administration of
the trust and of material facts necessary for them to protect their interest in the trust.
3.
A decision to remove a trustee is designed to protect the trust rather than punish
the trustee.
4.
K.S.A. 58a-1002(a)(3) authorizes double damages for a breach of trust if the
trustee embezzles or knowingly converts personal property of the trust "to the trustee's
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own use." This provision is similar in nature and purpose to punitive damages which are
based on the premise that the defendant deserves punishment for malicious, vindictive, or
willfully and wantonly invasive conduct.
5.
When the terms of a trust do not specify the trustee's compensation, a trustee is
entitled to compensation reasonable under the circumstances. K.S.A. 58a-708(a).
Regardless of the terms of a trust, the district court has the power to adjust unreasonably
high or low trustee fees. K.S.A. 58a-105(b)(7).
6.
In trust adjudication, a district court may award attorney fees to any party and has
wide discretion to determine the amount and recipient of attorney fees.
7.
In trust adjudication, an award of attorney fees and expenses is reasonable if the
litigation proved beneficial to the trust estate. As a general rule, legal proceedings benefit
a trust estate if questions are resolved so the estate can be properly administered.
Appeal from Sedgwick District Court; ROBB W. RUMSEY, judge. Opinion filed May 7, 2021.
Affirmed.
Mark G. Ayesh and David M. Hahn, of Ayesh Law Offices, of Wichita, for appellant Casey
Galloway.
Patrick A. Edwards and John A. Vetter, of Stinson LLP, of Wichita, for appellee O.E. Bradley
and E.L. Bradley Trust.
Before HILL, P.J., GARDNER, J., and BURGESS, S.J.
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GARDNER, J.: Casey Galloway, a beneficiary of the O.E. Bradley and E.L.
Bradley Trust, appeals the district court's denial of his requests to remove Mike and
Wilbur Bradley (co-trustees) as trustees and to assess double damages against them for
loss caused by a loan the Trust made to a third party (Dan Holladay) that was not repaid.
Galloway also asserts that the district court erred by allowing the co-trustees to take
$24,000 a year in trustee fees and to have the Trust pay their attorney fees in this case.
And although the district court also awarded Galloway some attorney fees to be paid by
the Trust, Galloway contends that the district court erred by limiting his award to the
costs he incurred before the case went to trial. Having reviewed the record, we find no
error and affirm.
Basic Overview of the Trust
Several decades ago, brothers Orval Bradley (O.E.) and Everett L. Bradley (E.L.)
were involved in the oil and gas industry and bought mineral interests in various
properties. In 1968, they assigned those interests to an irrevocable trust and designated
two of their children as beneficiaries. The agreement granted exclusive control over the
Trust and its management to the designated co-trustees—Wilbur and David Bradley—
O.E. and E.L.'s sons. Wilbur continues to serve as a trustee. David did so until his death,
then Richard Bradley served as a trustee until he resigned in 1993. After that, Wilbur's
son—Mike Bradley—served as a trustee for around 25 years. Mike was serving as a co-
trustee when this case began but his death in June 2020 left Wilbur as the only remaining
trustee. Still, we collectively refer to Wilbur and Mike as "co-trustees."
The Trust has 14 beneficiaries, each holding varying interests. The Trust assets
include 108 producing and non-producing mineral interests, stocks, bonds, and other
money.
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Initiation of This Case
On the day that O.E. died in 1982, Casey Galloway—O.E.'s grandson and Wilbur's
nephew—asked Wilbur's secretary to give him copies of the Trust's financial records.
Wilbur did not believe that Galloway was entitled to the information because he was not
a beneficiary to the Trust, so Wilbur refused to give Galloway the requested information.
After his mother died in 2012, Galloway became a beneficiary of the Trust. At that
time, Wilbur wrote Galloway a letter notifying him of his interest in the Trust, but he did
not enclose a copy of the trust agreement. Wilbur's letter told Galloway that the Trust was
"set up so that only the income for each year [was] to be distributed to the beneficiaries[;]
[t]he trust corpus [could not] be distributed at any time." Galloway requested no other
information about the Trust for the next several years, instead accepting his annual trust
payments without objection. Galloway also received an annual K-1 tax form which
accounted for Galloway's individual interest in the amount of the income the Trust earned
during that year. But he received no other financial information from the co-trustees that
could account for the Trust's assets or liabilities until 2018.
In 2018, Galloway demanded that the co-trustees produce a copy of the Trust and
a record of its accounting. The co-trustees complied. By reviewing the documents,
Galloway learned that the co-trustees had provided none of the beneficiaries with any
financial information other than their respective K-1 forms. Based on information
gleaned from the financial records, Galloway sued to remove the co-trustees and to
require them to repay any funds improperly loaned from the Trust.
Galloway alleged the co-trustees failed to give beneficiaries adequate accounting,
breaching the Trust agreement's requirement that they send the beneficiaries a yearly
statement showing how they invested trust funds and listing the transactions the Trust
made the year before.
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Galloway also argued that the co-trustees had authorized the Trust to make several
self-serving and unsecured loans to themselves and their closely held companies:
• $89,000 in October 2011 to Mike as a personal mortgage on his residence;
• $40,000 in September 2015 to White Pine Petroleum Corporation (White
Pine), a company in which Wilbur was president and Mike was treasurer;
• $30,000 in November 2015 to White Pine;
• $20,000 in February 2017 to White Pine;
• $20,000 in February 2017 to Bradley Farms—an entity then owned by
Wilbur and Mike; and
• $20,000 in May 2017 to White Pine.
Although he did not provide a specific date, Galloway also alleged that the co-
trustees had authorized a loan to Dan Holladay—Mike's former schoolmate—that
Holladay never repaid, causing a $47,253.70 loss to the Trust.
Galloway also argued that the $24,000 annual trustee fees that co-trustees had
withdrawn from the Trust from 2012 to 2018 were unreasonable in amount, lacked
judicial approval, and violated the terms of the trust agreement and Kansas law. The trust
agreement provides that the co-trustees should receive reasonable compensation for
performing their duties as trustees, as a court determines:
"Trustees are to act without Bond and to receive reasonable compensation for their
services, based upon the nature of the trust, the extent of the responsibility and the usual
work performed, the reasonableness of such compensation to be determined by
a Judge of a Court of proper jurisdiction."
Galloway also argued that although the Trust gave the co-trustees discretion to pay
beneficiaries from the trust corpus, the co-trustees had not done so, choosing instead to
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distribute only minimal amounts from the trust income. He relied on the trust agreement
provision stating:
"The Trustees are hereby authorized, in their sole discretion to at such time or times as
they shall determine to be to the benefit of the beneficiaries, pay and distribute the
income and/or corpus of this trust estate or any part thereof, share and share alike to the
beneficiaries herein named, in equal share and share alike."
In response, the co-trustees denied any wrongdoing.
Galloway later moved for summary judgment, asking the court to find as a matter
of law that the co-trustees breached their fiduciary duties, violated the Uniform Trust
Code (UTC), and engaged in self-dealing in violation of their responsibilities. Besides
removing Wilbur and Mike as co-trustees, Galloway asked the court to order them to pay
the Trust for any loss caused by their inappropriate loans, unreasonable fees, and other
misconduct.
In response to Galloway's motion, the co-trustees conceded that they had made
several loans, including those to Mike, White Pine, and Bradley Farms, but the loans
were investments and each could be repaid in full "within a day's notice." As for the two
loans to Holladay, Holladay had paid the first loan back in full plus 7% interest, but
Holladay filed for bankruptcy in 2009 and did not repay his second loan. And although
the co-trustees had recouped around $23,000 by contesting the bankruptcy claim, the
Trust still suffered a loss.
Noting that none of the 13 other beneficiaries joined Galloway's suit, the co-
trustees asserted that Galloway's reason for suing the Trust was merely an attempt to
"bully and manipulate his family members in order to increase his own bank account." To
support this claim, the co-trustees provided affidavits from beneficiaries to show that all
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beneficiaries but Galloway agreed that the co-trustees had provided sufficient financial
information, had made proper loans and investments, had collected reasonable
compensation, and had not otherwise engaged in self-dealing or breached their financial
duties.
Summary Judgment Decision
The district court held a hearing on the summary judgment motion. As for loans
the co-trustees had made from trust funds, the co-trustees stated that they had repaid the
Trust the day before the hearing for the Trust's loans to Mike, White Pine, and Bradley
Farms. Still, the district court found that the co-trustees had made those loans without
adequate security—although the promissory notes related to the White Pine and Bradley
Farms loans showed that the loans were collateralized, neither loan included an
"assignment, pledge, mortgage, UCC financing statements or other documents that would
secure and perfect the interest for the trust." Similarly, Mike's mortgage had never been
recorded because no one was willing to pay the recording fee. So the court held that "as a
matter of law the co-trustees . . . caused loans to be made to themselves and their closely
held corporations without adequate security." But because the co-trustees showed that
they had repaid the loans, the district court found those issues moot.
As for Galloway's claim that the co-trustees had lost around $47,000 by
improperly loaning trust funds to Holladay, the court found contested issues of fact.
As for trustees' fees, the district court found that it could not rule as a matter of law
on the reasonableness of the amount of annual trustees' fees. So the district court ordered
the co-trustees to return the fees they had paid themselves without court approval from
2012 to 2018, pending resolution of this claim at trial.
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As for Galloway's claims of inadequate accounting, the district court found that
the co-trustees had failed to provide the beneficiaries with appropriate accounting of the
Trust and had thus violated the Uniform Trust Code and the Trust's accounting mandates.
As a result, the district court ordered the co-trustees to get an independent audit before
trial.
Finally, the district court denied the motion for summary judgment as to the issue
regarding self-dealing. Because the Trust required only that trustees act in "good faith"
and according to their "honest judgment," it found questions of fact for trial.
On October 29, 2019, before trial, the co-trustees offered to settle for
$47,245.98—the amount of attorney fees and court costs Galloway had incurred to that
point. Galloway denied that offer.
Trial Proceedings
At trial, Galloway testified on his own behalf. He also presented testimony from a
Certified Public Accountant who discussed the Trust accounting and the loans made. And
a Commerce Bank employee testified that Commerce Bank could manage the Trust for
an estimated $15,000 per year, rather than the $24,000 annual fee the co-trustees had
consistently taken. Galloway asked the district court to remove the co-trustees and
replace them with Commerce Bank, to order the co-trustees to pay double damages for
the loss incurred by the Holladay loan, and to award him attorney fees and costs.
Galloway also argued that the co-trustees should repay the Trust for money they had
spent on costs such as trustee and attorney fees.
Both co-trustees testified, giving a history of their extensive involvement in the oil
and gas industry and in administering the Trust. They also presented testimony from
other beneficiaries, including evidence that before her death, Galloway's mother had
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intentionally removed Galloway as a named beneficiary to another trust started by O.E.
for that side of his family. The co-trustees asked the district court to retain them as
trustees and award them trustee fees and attorney fees incurred in defending Galloway's
suit against the Trust.
After the parties made their closing arguments, the district court gave an oral
ruling, questioning the loans the co-trustees had made to themselves but finding they had
repaid most loans. Although Holladay never repaid his second loan, the co-trustees did
not have to repay the Trust for that lost money and Holladay was not a close friend; thus,
the loan to him did not breach the Trust. The testimony persuaded the district court that
the co-trustees would not engage in similar self-interested actions in the future. And
although Commerce Bank could manage the Trust for an estimated $15,000 per year, the
$24,000 annual trustee fee was nonetheless reasonable. The court thus approved the co-
trustees' $2,000 monthly compensation. So even though some of the co-trustees' actions
were improper and potentially legally flawed, they did not merit removing Mike or
Wilbur as trustees.
As for attorney fees, the district court split them, awarding some to the co-trustees
and some to Galloway, all to be paid by the Trust. The district court limited Galloway's
fees to the amount incurred before October 29, 2019—the date the co-trustees offered to
settle. This was because it found no benefit to the beneficiaries from the trial. The court
then reduced Galloway's attorney fees by the amount of the Trust's attorney fees incurred
after October 29, 2019.
The district court's written order clarified that the co-trustees were to receive as
compensation the amounts they had taken from 2012 to 2018. It granted the same
$24,000 amount for 2019. But the district court ordered the co-trustees to obtain annual
approval of any future trustee fees.
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Galloway timely appeals.
I. DOES GALLOWAY HAVE STANDING TO SUE?
Before we address the issues the parties raise, we address the standing issue.
Parties in a judicial action must have standing as part of the Kansas case-or-controversy
requirement imposed by the judicial power clause of Article 3, § 1 of the Kansas
Constitution. See State ex rel. Morrison v. Sebelius, 285 Kan. 875, 895-96, 179 P.3d 366(2008) ("Article 3 of the Kansas Constitution . . . does not include the 'case' or
'controversy' language found in Article III, § 2 of the United States Constitution.
Nevertheless, Kansas courts have repeatedly recognized that the 'judicial power' is the
'power to hear, consider and determine controversies between rival litigants.' State, ex rel.
Brewster v. Mohler, 98 Kan. 465, 471, 158 P. 408 [1916], aff'd 248 U.S. 112, 39 S. Ct.
32, 63 L. Ed. 153 [1918]."). Standing is a jurisdictional question which determines
whether a litigant has a right to have a court determine the merits of the issues presented.
See Cochran v. Kansas Dept. of Agriculture, 291 Kan. 898, 903, 249 P.3d 434 (2011).
"[I]f a person does not have standing to challenge an action or to request a particular type
of relief, then 'there is no justifiable case or controversy' and the suit must be dismissed."
Board of Sumner County Commissioners v. Bremby, 286 Kan. 745, 750, 189 P.3d 494(2008) (quoting Kansas Bar Ass'n v. Judges of the Third Judicial Dist., 270 Kan. 489,
490, 14 P.3d 1154 [2000]).
The Kansas Uniform Trust Code (KUTC) speaks to this issue, limiting the
individuals who may seek the removal of a trustee to the settlor, a co-trustee, a "qualified
beneficiary," or the court. K.S.A. 58a-706(a), (b). A qualified beneficiary is a beneficiary
who is eligible to receive mandatory or discretionary distributions of trust income or
principal. K.S.A. 2020 Supp. 58a-103(12). A beneficiary is defined to include a person
who "[h]as a present or future beneficial interest in a trust, vested or contingent." K.S.A.
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2020 Supp. 58a-103(2). Applying these definitions, we find that Galloway is both a
beneficiary and qualified beneficiary for the purposes of standing.
II. DID THE DISTRICT COURT ABUSE ITS DISCRETION BY DENYING GALLOWAY'S
REQUEST TO REMOVE WILBUR AND MIKE AS TRUSTEES?
Galloway asserts that we should apply a de novo standard of review in deciding
every issue raised in this appeal. We disagree. Although our review of the nature,
construction, and effect of the Trust is unlimited, Godley v. Valley View State Bank, 277
Kan. 736, 741, 89 P.3d 595 (2004), we review the district court's decision about
removing trustees for an abuse of discretion.
K.S.A. 58a-706(b) states that a "court may remove a trustee" in some cases.
(Emphasis added.) The statute does not, however, require removal. See K.S.A. 58a-
706(b). Consistent with this statutory language, our court has consistently recognized that
the decision to remove a trustee lies within the sound discretion of the district court.
Jennings v. Murdock, 220 Kan. 182, 211, 553 P.2d 846 (1976); Rodriguez-Tocker v.
Estate of Tocker, 35 Kan. App. 2d 15, 34-35, 129 P.3d 586 (2006). A district court abuses
its discretion if its action stems from an error or law or fact or is otherwise arbitrary or
unreasonable. Biglow v. Eidenberg, 308 Kan. 873, 893, 424 P.3d 515 (2018). As the party
asserting error, Galloway bears the burden of showing the district court abused its
discretion. See Gannon v. State, 305 Kan. 850, 868, 390 P.3d 461 (2017). We review the
district court's findings of fact for substantial competent evidence. See In re Hjersted
Revocable Trust, 35 Kan. App. 2d 799, 804, 135 P.3d 192 (2006).
Galloway does not argue that the district court based its decision on an error of
law or fact. Instead, he simply argues that the district court's decision not to remove the
co-trustees was unreasonable. So he must convince us that no reasonable person would
agree with the district court's decision. See Gannon, 305 Kan. at 868 (party asserting
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abuse carries burden of proof); see also State v. Ward, 292 Kan. 541, 550, 256 P.3d 801(2011) (defining decisions made arbitrarily or unreasonably as those which no reasonable
person could agree). But Galloway does not meet this burden. After carefully reviewing
the district court's decision and the mitigating and aggravating facts presented by the
parties, we find no abuse of discretion.
Basic Legal Principles
We begin by noting our decisional law that the removal of a trustee is a drastic
action taken only when necessary to save trust property:
"'[A] court will not "at the instance of interested parties, interfere with the
performance of his duties by the trustee and the exercise of the discretionary powers
conferred upon him, unless there is shown bad faith on his part, or a gross and arbitrary
abuse of discretion."'"
"The removal of a trustee is a drastic action which should only be taken when the
estate is actually endangered and intervention is necessary to save trust property."
"Where the instrument creating a trust gives the trustee discretion as to its
execution, a court may not control its exercise merely upon a difference of opinion as to
matters of policy, and is authorized to interfere only where the trustee acts in bad faith or
its conduct is so arbitrary and unreasonable as to amount to practically the same thing."
Murdock, 220 Kan. 182, Syl. ¶¶ 1, 12, 201.
See Simpson v. Kansas Dept. of SRS, 21 Kan. App. 2d 680, 688, 906 P.2d 174 (1995);
Restatement (Third) of Trusts § 37, comment e (2003) ("[n]ot every breach of trust
warrants removal of the trustee . . . , but serious or repeated misconduct . . . may justify
removal").
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The issues raised in this appeal are now controlled by the KUTC, K.S.A. 58a-101
et seq. The KUTC "is a substantial adoption of the Uniform Trust Code (UTC)." In re
Harris Testamentary Trust, 275 Kan. 946, 950, 69 P.3d 1109 (2003). The primary intent
of both the KUTC and the UTC "is to carry out the settlor's intent." Godley, 277 Kan. at741 (citing English, The Kansas Uniform Trust Code, 51 U. Kan. L. Rev. 311, 328
[2003]).
The KUTC states the circumstances under which a district court may remove a
trustee:
"(1) The trustee has committed a breach of trust;
"(2) lack of cooperation among co-trustees substantially impairs the
administration of the trust;
"(3) because of unfitness, unwillingness, or persistent failure of the trustee to
administer the trust effectively, the court determines that removal of the trustee best
serves the interests of the beneficiaries and is consistent with the terms of the trust; or
"(4) there has been a substantial change of circumstances and the court finds that
removal of the trustee best serves the interests of all of the beneficiaries, is consistent
with the terms of the trust, is not inconsistent with a material purpose of the trust, and a
suitable cotrustee or successor trustee is available." K.S.A. 58a-706(b).
Rather than citing one of these provisions, Galloway cites the entire statute,
arguing that it allows removal when "the trustee has committed a breach of trust,
impaired the administration of the trust and/or the court finds that removal of the trustee
best serves the interest of all of the beneficiaries consistent with the terms of the trust."
Galloway does not allege a substantial change of circumstances, triggering subsection
(4). Yet his argument somewhat mirrors the language of subsections (1), (2), and (3)
above. But the latter two subsections do not apply here.
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K.S.A. 58a-706(b)(2) does not apply because "[s]ubsection (b)(2) deals only with
lack of cooperation among cotrustees, not with friction between the trustee and
beneficiaries." K.S.A. 58a-706, UTC Comments. The record does not show—nor does
Galloway argue—that Mike and Wilbur did not cooperate with each other. And K.S.A.
58a-706(b)(3) does not apply because Galloway did not present evidence suggesting the
co-trustees were unfit, unwilling, or otherwise persistently failed to administer the Trust
effectively, as is necessary under this subsection. We thus limit our consideration of
Galloway's claim to K.S.A. 58a-706(b)(1)—whether the co-trustees should have been
removed because they breached the Trust.
K.S.A. 58a-706(b)(1): Breach of Trust
Galloway argues that the co-trustees breached the terms of the Trust by:
• making inappropriate loans that amounted to self-dealing;
• failing to provide the beneficiaries with an annual accounting, and
• charging the Trust for unreasonable and unapproved trustee fees.
"A violation by a trustee of a duty the trustee owes to a beneficiary is a breach of trust."
K.S.A. 58a-1001(a). If a breach occurs, a court may remedy the breach by, among other
things, removing the trustee as provided in K.S.A. 58a-706. K.S.A. 58a-1001(b)(7).
The co-trustees' duties under our statutes and under the Trust agreement are clear.
K.S.A. 58a-809 requires a trustee to take "reasonable steps to take control of and protect
the trust property." K.S.A. 58a-810(a)-(b) requires that the trustee keep adequate records
for the administration of the trust and keep the trust property separate from the trustee's
own property. K.S.A. 58a-813(a) requires the trustee to keep the beneficiaries reasonably
informed about the administration of the Trust and of material facts necessary for them to
protect their interest in the Trust. The trust agreement also requires the co-trustees to keep
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an account of the Trust, to give beneficiaries an annual accounting of the Trust
transactions and income, and to get court approval before taking annual trustee fees. The
record shows that the district court considered these requirements and the facts presented
at trial before making its final decision.
The district court found that although the co-trustees may have breached their
duties, it was unnecessary to remove them as trustees:
"[W]ere there mistakes done by the trustees? Sure. There's things that they didn't
do. [They] didn't come to the court and get court approval for the attorneys' fees. [They]
didn't complete the security on the loans, which is something that is concerning. But does
it warrant the removal of the trustees in this case? And my belief, considering the
testimony . . . including the fact that this is a family trust and Mr. Wilbur Bradley has
been the trustee for 51 years . . . I am not removing the trustees in this case."
Similarly, the district court's written order emphasized that this is a family trust,
that Wilbur served as trustee for over 51 years, and that Mike served for 26 years. And
"based on the authority and discretion provided" to it under the KUTC, the district court
held that "the Trustees' conduct [did] not warrant their removal or replacement." Its
conclusion reflects that courts may be less likely to remove a settlor-named trustee, such
as Wilbur:
"It has traditionally been more difficult to remove a trustee named by the settlor
than a trustee named by the court, particularly if the settlor at the time of the appointment
was aware of the trustee's failings. See Restatement (Third) of Trusts Section 37 cmt. f
(Tentative Draft No. 2, approved 1999); Restatement (Second) of Trusts Section 107 cmt.
f-g (1959). Because of the discretion normally granted to a trustee, the settlor's
confidence in the judgment of the particular person whom the settlor selected to act as
trustee is entitled to considerable weight." K.S.A. 58a-706, UTC Comment.
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In considering Galloway's petition to remove the co-trustees, the court agreed that
the co-trustees made loans to themselves, to their closely held companies, and to
Holladay. But the district court stopped short of finding that the co-trustees had breached
the Trust or had engaged in self-dealing. Instead, the district court recognized that the
Trust provided the co-trustees with the discretion to make loans as investments to the
Trust as long as they were "the best loan[s] to make," meaning they would "'yield the
highest income consistent with safety.'" And the trust agreement permitted Wilbur and
David, the original co-trustees, to make investments using "'their best judgment.'"
Although David was no longer acting as a trustee when Wilbur authorized the loans at
issue, the district court reasonably interpreted the Trust as nevertheless giving Wilbur
wide discretion to make almost any investment decision, as long as he used his best
judgment.
In contrast, the district court found that the co-trustees breached their duties by
failing to adequately secure the loans, which may have avoided any loss. But because the
co-trustees had repaid the money the Trust had loaned to Mike and to the trustee's
companies before trial, those loans did not damage the Trust. As to the loan to Holladay
that did cause a loss, the district court found that the loan was
"a legitimate investment of Trust funds with a third party—not a breach of trust by the
Trustees as alleged by Petitioner—and that Mike Bradley took reasonable steps to
minimize the loss the Trust incurred by contesting Mr. Holladay's bankruptcy estate and
clawing back over $23,000 for the trust."
The district court also considered the reasonableness of the trustee fees. Before
trial, the district court had required the co-trustees to return the funds to the Trust pending
its final decision because the co-trustees had never sought court approval of their fees.
After trial, the court found the fees reasonable, returned the prior fees to them, and
ordered them to get court approval before taking any future fees.
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And finally, the district court considered the co-trustees' failure to provide the
beneficiaries sufficient accounting information. The UTC stresses the duty to keep
beneficiaries informed:
"A particularly appropriate circumstance justifying removal of the trustee is a serious
breach of the trustee's duty to keep the beneficiaries reasonably informed of the
administration of the trust or to comply with a beneficiary's request for information as
required by Section 813. Failure to comply with this duty may make it impossible for the
beneficiaries to protect their interests. It may also mask more serious violations by the
trustee." K.S.A. 58a-706, UTC Comment.
The district court's summary judgment ruling found that the co-trustees breached these
fiduciary duties and the UTC. So the district court ordered the parties to complete an
audit of the Trust accounting records before trial. But Galloway does not contend that the
audit was not done or that it showed other irregularities or self-dealing.
The facts of record did not compel the district court to remove the co-trustees.
Wilbur believed he did not have to give beneficiaries any accounting other than the
information provided in the K-1 forms, or any information they had not specifically
requested. He based that belief on the fact that his father, the settlor of the Trust, knew
that Wilbur and David had given beneficiaries only the K-1 form for several years, yet he
did not object. Once Galloway sued, the co-trustees began giving all beneficiaries a more
detailed accounting of the Trust. And, when asked, the co-trustees provided Galloway
with all the accounting information he requested.
This evidence fails to show that any breach of the Trust or other failing was done
maliciously or in bad faith. Nor does the record show that the co-trustees' inadequate
accounting was done to mask impropriety. See, e.g., Roenne v. Miller, 58 Kan. App. 2d
836, 840, 475 P.3d 708 (2020) (appellate record disclosed "clear pattern" of improperly
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converting trust property which effectively emptied the trust assets). A decision to
remove a trustee is "designed to protect the [Trust] rather than punish the [trustee]."
Rodriguez-Tocker, 35 Kan. App. 2d at 35. Based on the evidence, a reasonable person
could agree that removal of the co-trustees was unnecessary to protect the Trust.
As a final note, Galloway briefly argues that the co-trustees should have been
removed because they failed to make distributions to the beneficiaries from the trust
corpus. But Galloway raises this point only incidentally and does not support it with
pertinent authority, so we consider it waived or abandoned. See In re Adoption of
T.M.M.H., 307 Kan. 902, 912, 416 P.3d 999 (2018). Moreover, the trust agreement gave
the co-trustees discretion to distribute the trust corpus as they deemed fit. As a panel of
this court has held, a trustee of a discretionary trust cannot be removed for "actions
designed to preserve the trust corpus for the other beneficiaries." Simpson, 21 Kan. App.
2d at 689-90. So even if it is not waived, that argument fails.
As another panel of this court recently explained, "[w]hen considering whether a
district court decision is an abuse of discretion, we do not look to see whether any other
decision would have been reasonable too. Our task is merely to ask whether
a reasonable person could agree with the decision that the district court made." State v.
Tidwell, No. 120,230, 2019 WL 3210427, at *2 (Kan. App. 2019) (unpublished
opinion), rev. denied 312 Kan. 901 (2020). Because Galloway does not allege legal or
factual error and a reasonable person could agree with the decision the district court
made, we find no abuse of discretion in the decision not to remove the co-trustees.
III. DID THE DISTRICT COURT ERR IN REFUSING TO ORDER DOUBLE DAMAGES?
Galloway next argues that the district court erred by refusing to assess double
damages against the co-trustees under K.S.A. 58a-1002(a)(3) for the loss caused by the
Trust's unrepaid loan to Holladay.
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Galloway seemingly challenges the district court for not finding that Holladay
enjoyed a close relationship with the co-trustees and the Bradley family. But Galloway
did not object to the district court's factual findings in this regard.
"[A] litigant must object to inadequate findings of fact and conclusions of law in
order to give the trial court an opportunity to correct them. In the absence of an objection,
omissions in findings will not be considered on appeal. Where there has been no such
objection, the trial court is presumed to have found all facts necessary to support the
judgment." Hill v. Farm Bur. Mut. Ins. Co., 263 Kan. 703, 706, 952 P.2d 1286 (1998).
We apply that presumption here.
Standard of Review
When, as here, an appellant raises a claim for double damages under K.S.A. 58a-
1002(a)(3), we review such claims de novo. See Alain Ellis Living Trust v. Harvey D.
Ellis Living Trust, 308 Kan. 1040, 1045, 427 P.3d 9 (2018). Likewise, "determining the
nature, construction, and legal effect of a trust is a question of law over which [this court
has] unlimited review." Godley, 277 Kan. at 741. And to the extent that this issue requires
statutory interpretation, our review is also unlimited. Neighbor v. Westar Energy, Inc.,
301 Kan. 916, 918, 349 P.3d 469 (2015).
Analysis
K.S.A. 58a-1002(a)(3) authorizes double damages for a breach of trust if a trustee
embezzles or knowingly converts personal property of the Trust "to the trustee's own
use." "'When one applies money or property left in his custody to a use which he desires
to make of it, it is applied to his own use.'" Bolton v. Souter, 19 Kan. App. 2d 384, 387,
872 P.2d 758 (1993); see State v. Pratt, 114 Kan. 660, 666, 220 P. 505 (1923).
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The double damages provision under K.S.A. 58a-1002(a)(3) is similar in nature
and purpose to punitive damages. See Alain Ellis Living Trust, 308 Kan. at 1062. Punitive
damages are not based on a theory that the plaintiff has a right to recover them but on the
premise that the defendant deserves punishment for malicious, vindictive, or willfully and
wantonly invasive conduct. The purpose of punitive damages is to restrain and deter
others from committing similar conduct. Adamson v. Bicknell, 295 Kan. 879, 888, 287
P.3d 274 (2012).
The district court found that the loan to Holladay did not breach the Trust, so it did
not order the co-trustees to pay for the loss caused by that loan. "Absent a breach of trust,
a trustee is not liable to a beneficiary for a loss or depreciation in the value of trust
property or for not having made a profit." K.S.A. 58a-1003(b).
Still, Galloway argues that Holladay was Mike's high school friend and a friend of
the Bradley family, so the loan amounted to conversion of trust property for the co-
trustees' own use. But Galloway did not present evidence to support that allegation.
Instead, Mike and Wilbur testified that Holladay attended the same school as Mike and
his sister but Holladay was not a friend and was given the loan in a legitimate business
transaction. Contrary to Galloway's testimony that Holladay was Mike's "buddy," the
district court found that Holladay was an "acquaintance" and nothing more. We cannot
reweigh this evidence or make credibility determinations.
Nor does Galloway provide legal authority to support his claim that a loan made
by the co-trustees to a friend would be an embezzlement or an improper conversion of
trust funds as a matter of law. The Trust gave the co-trustees significant discretion over
trust investments, and the Trust benefitted from their earlier loan to Holladay, which
Holladay had repaid in full at seven percent interest. Galloway thus fails to show that the
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district court erred in finding that the co-trustees' acts related to the Holladay loan did not
warrant double damages under K.S.A. 58a-1002(a)(3).
IV. DID THE DISTRICT COURT ABUSE ITS DISCRETION IN APPROVING THE CO-
TRUSTEES' $24,000 ANNUAL FEES?
Galloway next argues that the district court erred in failing to forfeit the co-
trustees' annual fees because of their mishandling of trust funds and their failure to keep
the beneficiaries reasonably informed.
We review the district court's order approving $24,000 per year in co-trustees' fees
for an abuse of discretion:
"Whether or not a trustee should receive reduced compensation or should forfeit
his or her entire compensation for breach of trust lies within the sound discretion of the
trial court and the action of the trial court will not be set aside unless it is arbitrary,
capricious or unsupported by substantial evidence." Burch v. Dodge, 4 Kan. App. 2d 503,
Syl. ¶ 7, 608 P.2d 1032 (1980).
The trust agreement does not set an amount of trustee fees. It requires only that the
trustee fees be "reasonable . . . based upon the nature of the trust, the extent of the
responsibility and the usual work performed." When, as here, the terms of a trust do not
specify the trustee's compensation, a trustee is entitled to compensation reasonable under
the circumstances. K.S.A. 58a-708(a). The trust agreement does require court approval of
trustee fees. This tracks K.S.A. 58a-105(b)(7), which provides that the terms of a trust do
not prevail over a court's power to adjust unreasonably high or low trustee fees.
The district court found that $24,000 dollars a year—$1,000 per trustee per
month—was reasonable compensation. We review the record to see whether this finding
is supported by substantial competent evidence. The co-trustees testified that they
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provided some expertise in handling of the Trust. Wilbur grew up in the oil and gas
industry and later earned a bachelor's and master's degree in geological engineering. After
college, Wilbur worked with Chevron and then became a consulting geologist. At one
point, Wilbur worked for Union National Bank—which became Commerce Bank—as a
consultant for their trust department. He later worked with his father and uncle, O.E. and
E.L., until their deaths. He started White Pine and became a member of several oil and
gas industry organizations. By the time of trial, in addition to his extensive background in
this field, Wilbur had almost 52 years' experience managing the Trust.
Mike was raised in the oil and gas industry and began working with Wilbur in
1985 doing mainly field and land title work for the Trust. He managed the Trust for
around 25 years. Both Mike and Wilbur provided significant assistance to attorneys who
represented the Trust in a New Mexico case, which went to the United States Supreme
Court. Wilbur estimated that both he and Mike worked an extra 15-20 hours per week on
that case for at least three-and-a-half years without extra compensation. Had the Trust
lost that case, it could have caused a $1 million loss to the Trust.
Although Galloway argued at trial that Commerce Bank would provide the same
services as the co-trustees for less money, the trial court correctly noted that the test is not
whether someone else could manage the Trust for less money but whether the $24,000
fees were reasonable. As support for the district court's reasonableness finding, Wilbur
testified that based on his extensive work with Commerce Bank, he did not believe it
could manage the Trust as effectively as he and Mike. He explained that the Bank
consistently required assistance from outside consultants, implying that he and Mike
managed the Trust on their own. And although Wilbur conceded that several of the trust
interests were royalty interests—not working interests—and thus potentially required less
labor to manage, he and Mike engaged in several trustee duties other than depositing
royalty checks. Examples included working with the Oklahoma Corporation
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Commission, considering and investing in various properties, and negotiating and
entering into new oil and gas royalty interests.
Given this evidence, we find no abuse of discretion in the district court's decision
finding the annual compensation of $12,000 a year per trustee reasonable.
V. DID THE DISTRICT COURT ABUSE ITS DISCRETION BY ITS ATTORNEY FEES
AWARD?
Finally, Galloway contends that the district court committed reversible error by
limiting his attorney fees and by permitting the co-trustees to pay their attorney fees from
the Trust.
The district court's attorney fees order was creative. It ordered the Trust to pay
Galloway's attorney fees incurred before a date certain, minus the Trust and co-trustees'
attorney fees incurred after that date:
"With regard to Petitioner's request that the Trust and/or the Trustees be ordered
to pay Petitioner's attorney's fees and costs in this action and that the Trustees be ordered
to reimburse the Trust for any attorney's fees and costs incurred by it in this action, as
well as the Trust's request that Petitioner be ordered to pay its attorney's fees and costs in
this action, the Court finds that this action did not have to proceed to trial, as the Trust's
three alternative settlement offers to Petitioner on October 29, 2019 would have made
Petitioner whole (offering to pay his attorney's fees through that date) after the Trustees
had remedied any and all issues related to Petitioner's concerns about accounting and
financial documentation provided to beneficiaries and loans made from Trust assets.
"Accordingly, pursuant to the authority and discretion provided to the Court
under K.S.A. § 58a-1004, the Court orders that the Trust must pay Petitioner's reasonable
attorney's fees and costs incurred in this action through the end of October 29, 2019,
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minus the amount of reasonable attorney's fees and costs incurred by the Trust and the
Trustees in this action from October 30, 2019 to the present."
Standard of Review
In trust adjudication, a district court may award attorney fees to any party. See
K.S.A. 58a-1004. When, as here, the district court is vested with the authority to grant
attorney fees, we review the district court's decision under an abuse of discretion
standard. Wiles v. American Family Life Assurance Co., 302 Kan. 66, 81, 350 P.3d 1071(2015). The district court has wide discretion to determine the amount and recipient of
attorney fees. Westar Energy, Inc. v. Wittig, 44 Kan. App. 2d 182, 203, 235 P.3d 515(2010). "In the context of the abuse of discretion challenge mounted here, we assess
whether no reasonable person would adopt the position taken by the district court."
Cresto v. Cresto, 302 Kan. 820, 848, 358 P.3d 831 (2015) (citing In re Estate of Somers,
277 Kan. 761, 773, 89 P.3d 898 [2004]).
Analysis
"In a judicial proceeding involving the administration of a trust, the court, as
justice and equity may require, may award costs and expenses, including reasonable
attorney fees, to any party, to be paid by another party or from the trust that is the subject
of the controversy." K.S.A. 58a-1004. The district court did so here.
In trust adjudication, an award of attorney fees and expenses is considered to be
reasonable if the litigation proved beneficial to the trust estate. See Moore v. Adkins, 2
Kan. App. 2d 139, 151, 576 P.2d 245 (1978). As a general rule, legal proceedings benefit
a trust estate if questions are resolved so the estate can be properly administered. In re
Trusteeship of the Will of Daniels, 247 Kan. 349, 357, 799 P.2d 479 (1990). When
beneficiaries of a trust incur costs in an action that benefits the trust, beneficiaries can be
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reimbursed for such costs out of trust funds. See Murdock, 220 Kan. at 215; Moore, 2
Kan. App. 2d at 151.
The district court followed that general rule, limiting Galloway's fees to the
attorney fees he incurred before the co-trustees offered to settle. By cutting off
Galloway's fees after that settlement offer, the district court's decision reflects its
assessment that the litigation after the settlement offer did not benefit the trust estate.
The district court determined that Galloway's suit provided some benefit to the
Trust and thus ordered the Trust to pay some of Galloway's attorney fees. Galloway's suit
motivated the co-trustees to:
• swiftly repay the loans they had made from the Trust to Mike and the co-
trustees' companies;
• give the beneficiaries an accounting of trust transactions and assets; and
• return their unapproved annual fees to the court, pending the court's
determination of reasonableness.
So Galloway's suit incentivized the co-trustees to remedy past acts and to comply with
the terms of the trust agreement going forward, benefitting all beneficiaries. It resolved
important questions so the estate could be properly administered.
But Galloway did not succeed at trial on several substantial issues. The court
refused to:
• order the co-trustees to pay double damages for the loss incurred by their
second loan to Holladay;
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• make the co-trustees repay the Trust for money they had spent on costs
such as trustee and attorney fees; and
• remove the co-trustees from their positions.
Although the court could have ordered the Trust to pay all of Galloway's attorney fees, it
reasonably found that Galloway's decision to reject the co-trustees' settlement and go to
trial added no benefit to the Trust. We find no abuse of discretion in the district court's
limiting the amount of Galloway's attorney fees to those he incurred before the co-
trustees offered to settle.
Similarly, we find no abuse of discretion by the district court's reducing
Galloway's fees by the amount the co-trustees incurred after the date they offered to
settle. They were acting on behalf of the Trust, and they successfully defended the case at
trial. The district court's attorney fee award reflected the degree of benefit the Trust
received and was properly paid from the Trust. Its award essentially made Galloway pay
the costs incurred after the offer was made because the judgment he finally got was not
more favorable than the unaccepted offer, much like an offer to settle under Federal Rule
of Civil Procedure 68(d). This kind of allocation encourages a petitioner to carefully
consider the substance of the settlement offer before he accepts or rejects it, making the
petitioner, whose inflated view of the value of his case is not shared by the finder of fact
at trial, pay his own attorney fees. We cannot say that no reasonable person would adopt
the position taken by the district court.
Affirmed.
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