Matter of Michael J. Tharaldson Trust , 2023 ND 2 ( 2023 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
JANUARY 5, 2023
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2023 ND 2In the Matter of the Michael J. Tharaldson Irrevocable Trust II
dated October 3, 2011
Bell Bank, Trustee, Petitioner and Appellee
v.
Matthew D. Tharaldson, Respondent and Appellee
and
Michelle Tharaldson LeMaster, Respondent
and
E.M., through his guardian,
Mark McAllister, Interested Party and Appellant
No. 20220182
Appeal from the District Court of Cass County, East Central Judicial District,
the Honorable Tristan J. Van de Streek, Judge.
AFFIRMED.
Opinion of the Court by Tufte, Justice.
Berly D. Nelson (argued) and Timothy G. Richard (on brief), Fargo, N.D., for
petitioner and appellee.
Beverley L. Adams (argued) and Fred J. Williams (on brief), Fargo, N.D., for
respondent and appellee.
Jonathan T. Garaas, Fargo, N.D., for interested party and appellant.
Matter of Michael J. Tharaldson Trust
No. 20220182
Tufte, Justice.
[¶1] E.M. appeals from an order concluding Matthew Tharaldson is the sole
beneficiary of the Michael J. Tharaldson Irrevocable Trust Agreement II
(“Trust II”) and is entitled to the trust assets. E.M. argues he is a beneficiary
under the Michael J. Tharaldson Irrevocable Trust Agreement (“Trust I”),
Trust I was unlawfully merged with Trust II, the trustee engaged in illegal
trust decanting, and he is entitled to attorney’s fees. We affirm, concluding
Matthew Tharaldson is the sole beneficiary under the plain language of either
trust, and E.M. is not entitled to an award of attorney’s fees.
I
[¶2] Michael Tharaldson executed Trust I on February 14, 2007, and Trust II
on October 3, 2011. Both trusts named State Bank & Trust, now known as Bell
Bank, as trustee. On October 3, 2011, Bell Bank merged Trust I into Trust II.
[¶3] In 2017, Michael Tharaldson died and a probate action was opened to
administer his estate. Tharaldson was unmarried and had three children,
including E.M. The district court found he died intestate. In 2019, Bell Bank
filed this action petitioning for a determination of trust beneficiaries and
approval of asset distribution. Bell Bank claimed the sole beneficiary was
Michael Tharaldson’s brother, Matthew Tharaldson. E.M. objected to the
petition.
[¶4] After E.M.’s demand for a change of judge was denied, the district court
granted the petition and found Matthew Tharaldson was the sole beneficiary
of the trust, entitling him to a distribution of all trust assets. In Matter of
Michael J. Tharaldson Irrevocable Trust II dated October 3, 2011, 2021 ND
203, ¶ 22, 966 N.W.2d 564, we reversed the order denying E.M.’s demand for a
change of judge, vacated the order granting the petition, and remanded for the
assignment of a new judge and for proceedings anew on the merits of the
petition.
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[¶5] On remand, a new judge was assigned and the district court held an
evidentiary hearing on the petition. After the hearing, the court granted the
petition and found Matthew Tharaldson was the sole beneficiary of the trust,
entitling him to a distribution of all trust assets.
II
[¶6] E.M. argues that he and Michael Tharaldson’s other two children were
beneficiaries under Trust I and that Trust I is the operative document because
the merger with Trust II was unlawful. Our primary objective in construing a
trust instrument is to ascertain the settlor’s intent. Langer v. Pender, 2009 ND
51, ¶ 13, 764 N.W.2d 159. “When a trust instrument is unambiguous, the
settlor’s intent is ascertained from the language of the trust document itself.”
Id. “Whether or not a trust is ambiguous is a question of law, fully reviewable
on appeal.” Id. As we explained in Langer, we apply general rules of
construction of written documents to construe trust instruments:
General rules of construction of written documents apply to
the construction of trust instruments. See Alerus [Fin., N.A. v.
Western State Bank], 2008 ND 104, ¶¶ 18-19, 750 N.W.2d 412. In
North Dakota, the interpretation of a contract is governed by
N.D.C.C. ch. 9-07. Under N.D.C.C. § 9-07-02, the contract language
governs its interpretation “if the language is clear and explicit and
does not involve an absurdity.” Contracts are construed to give
effect to the parties’ mutual intention at the time of contracting “so
far as the same is ascertainable and lawful.” N.D.C.C. § 9-07-03.
The rules provided in N.D.C.C. ch. 9-07 are applied “[f]or the
purpose of ascertaining the intention of the parties to a contract, if
otherwise doubtful . . . .” N.D.C.C. § 9-07-03. “When a contract is
reduced to writing, the intention of the parties is to be ascertained
from the writing alone if possible, subject, however, to the other
provisions of [N.D.C.C. ch. 9-07].” N.D.C.C. § 9-07-04. “The whole
of a contract is to be taken together so as to give effect to every part
if reasonably practicable. Each clause is to help interpret the
others.” N.D.C.C. § 9-07-06.
“A contract must receive such an interpretation as will make
it lawful, operative, definite, reasonable, and capable of being
carried into effect, if it can be done without violating the intention
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of the parties.” N.D.C.C. § 9-07-08. “Particular clauses of a contract
are subordinate to its general intent.” N.D.C.C. § 9-07-15.
“Repugnancy in a contract must be reconciled, if possible, by such
an interpretation as will give some effect to the repugnant clause
subordinate to the general intent and purposes of the whole
contract.” N.D.C.C. § 9-07-17. “Words in a contract which are
inconsistent with its nature or with the main intention of the
parties are to be rejected.” N.D.C.C. § 9-07-18.
2009 ND 51, ¶¶ 14-15 (cleaned up).
[¶7] Article 4(2) in Trust I provides:
2. Upon My Death. Upon my death, the remaining balance of the
Trust estate shall be handled as follows:
a. To or for the benefit of my descendants and my wife as I may
appoint in a valid testamentary instrument that
expressly refers to this special power of appointment.
b. To the extent that I do not exercise this special power of
appointment, then the share of the Trust estate not so
appointed shall be handled as follows:
(1) If my brother, Matthew D. Tharaldson, is then living,
then outright to him.
....
Trust II has nearly identical language, except for Article 4(2)(a), which
provides, “To or for the benefit of my descendants and my wife, if I am then
married, as I may appoint in a valid testamentary instrument that expressly
refers to this special power of appointment.” (Emphasis added.) It is
undisputed that no party presented a valid testamentary instrument to the
district court.
[¶8] E.M. concedes that he and Michael Tharaldson’s other children are not
beneficiaries under Trust II. He contends, however, that under Trust I, Article
4(2)(a), he and Michael Tharaldson’s other two children, as Michael
Tharaldson’s descendants, are entitled to the remaining assets even though
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Michael Tharaldson never exercised a special power of appointment in a
testamentary instrument. E.M. argues that the special power of appointment
is required only in relation to Michael Tharaldson’s potential wife, not his
descendants, and that the descendants take the remaining balance upon
Michael Tharaldson’s death. Bell Bank and Matthew Tharaldson argue the
district court correctly concluded the special power of appointment in a
testamentary instrument applies to both Michael Tharaldson’s descendants
and any potential wife.
[¶9] E.M. asserts the last antecedent rule applies and compels his
construction. The last antecedent rule is a “rule in aid of the construction of
statutes,” requiring “that a limiting phrase or clause is to be restrained to the
last antecedent unless the subject matter or context indicates a different
legislative intent.” Kohler v. Stephens, 24 N.W.2d 64, 72 (N.D. 1946). “The rule
reflects the basic intuition that when a modifier appears at the end of a list, it
is easier to apply that modifier only to the item directly before it. That is
particularly true where it takes more than a little mental energy to process the
individual entries in the list, making it a heavy lift to carry the modifier across
them all.” Lockhart v. United States, 577 U.S. 347, 351 (2016). However, the
rule “is not an absolute and can assuredly be overcome by other indicia of
meaning.” Id. at 352. The United States Supreme Court has declined to apply
the rule “where ‘[n]o reason appears why’ a modifying clause is not ‘applicable
as much to the first and other words as to the last’ and where ‘special reasons
exist for so construing the clause in question.’” Id. at 355 (quoting Porto Rico
Ry., Light & Power Co. v. Mor, 253 U.S. 345, 348 (1920)).
[¶10] Bell Bank and Matthew Tharaldson contend that the language and
context of the trust make it clear that the last antecedent rule should not be
applied here and, furthermore, the series qualifier rule also requires their
construction. The United States Supreme Court recently applied the series
qualifier rule in interpreting a statute, stating, “Under conventional rules of
grammar, ‘[w]hen there is a straightforward, parallel construction that
involves all nouns or verbs in a series,’ a modifier at the end of the list ‘normally
applies to the entire series.’” Facebook, Inc. v. Duguid, 141 S. Ct. 1163, 1169
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(2021) (quoting Antonin Scalia & Bryan A. Garner, Reading Law: The
Interpretation of Legal Texts 147 (2012)). Of course, neither the last antecedent
nor the series qualifier is a “rule” in the strict sense of the word—both are
“presumptions about what an intelligently produced text conveys.” Facebook,
141 S. Ct. at 1173-74 (Alito, J., concurring) (quoting Scalia & Garner, at 51).
Neither interpretive canon should be applied rigidly or divorced from context.
[¶11] We conclude that the special power of appointment in Article 4(2)(a)
applies to both Michael Tharaldson’s potential wife and his descendants.
Article 4(2)(a) is clear when read in context with Article 4(2)(b), which provides,
“To the extent that I do not exercise this special power of appointment, then
the share of the Trust estate not so appointed shall [go to] . . . Matthew D.
Tharaldson.” This language provides that Matthew Tharaldson is the sole
remainder beneficiary if Michael Tharaldson chose not to exercise the special
power of appointment in a testamentary instrument.
[¶12] If E.M.’s interpretation were correct, the descendants would always take
the remaining balance regardless of whether a testamentary instrument was
made, and Matthew Tharaldson would never take the balance, rendering
Article 4(2)(b) mere surplusage. Under such an interpretation, the descendants
would share the remaining balance with any potential wife of Michael
Tharaldson’s if he exercised the special power of appointment in her favor.
However, if no special power of appointment was exercised, such as here, the
descendants under E.M.’s interpretation would simply take the remaining
balance. Thus, E.M.’s interpretation assumes Michael Tharaldson never
intended Article 4(2)(b) to come to fruition, but included it nonetheless.
Accordingly, we conclude that Michael Tharaldson’s intent is clear based on the
unambiguous language of either trust: upon his death, his descendants and
wife receive the remaining balance if so appointed; otherwise, if such
appointment is not made, Matthew Tharaldson receives the remaining
balance. Because Michael Tharaldson did not exercise his special power of
appointment, Matthew Tharaldson is the sole beneficiary.
[¶13] Last, E.M. argues that Article 7(2)(d) supports his argument that the
descendants are the beneficiaries under Trust I. Article 7(2)(d) provides,
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“Provision for Issue. I have intentionally limited gifts under this Agreement to
my issue as defined in this Agreement.” E.M. asserts this provision means that
only Michael Tharaldson’s issue—his three children who are specifically
identified by name in the trust—may benefit under the trust. We disagree.
Article 7(2)(d) states that Michael Tharaldson has purposefully restricted his
gifts to his issue, who are specifically identified in the trust, to those gifts which
are specifically provided for in the trust. This provision does not mean that his
issue are the only beneficiaries under the trust. E.M.’s interpretation would
render all other provisions providing for distributions meaningless, including
distributions to Michael Tharaldson during his lifetime under Article 4(1), and
disposition of the remainder of the trust estate upon Michael Tharaldson’s
death under Article 4(2). Thus, we reject E.M.’s interpretation and conclude
that under either Trust I or Trust II, Matthew Tharaldson is the sole
beneficiary of the trust assets and he is entitled to a distribution of those
assets.1
III
[¶14] E.M. asserts he is entitled to attorney’s fees under Article 7(4)(c) of the
trust. That provision under both Trust I and Trust II provides, “I do not desire
that the guardian of any minor beneficiary should incur personal expense in
the support and maintenance of such beneficiary.” Because we conclude that
E.M. is not a beneficiary under the trust, this provision does not apply to him
or his guardian. Accordingly, E.M. is not entitled to attorney’s fees.
IV
[¶15] We have considered the parties’ remaining issues and arguments and
conclude they are either without merit or unnecessary to our decision. We
affirm the order concluding Matthew Tharaldson is the sole beneficiary of the
1Because E.M. has failed to show that the court erred in concluding Matthew Tharaldson is the sole
beneficiary under Trust I or Trust II, we do not reach the issues concerning merger and decanting.
6
Michael J. Tharaldson Irrevocable Trust Agreement II and approving
distribution of the trust assets.
[¶16] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Jerod E. Tufte
Allan L. Schmalenberger, S.J.
[¶17] The Honorable Allan L. Schmalenberger, Surrogate Judge, sitting in
place of McEvers, J., disqualified.
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