Opinion
Nos. 2008 CA 0450, 2008 CA 0451.
October 31, 2008.
APPEALED FROM THE TWENTY-FIRST JUDICIAL DISTRICT COURT IN AND FOR THE PARISH OF TANGIPAHOA, LOUISIANA, TRIAL COURT NUMBER 2001-003363 C/W PROBATE NUMBER 71,685 HONORABLE ERNEST G. DRAKE, JR., JUDGE.
Walter Antin, Jr., Hammond, LA, Attorney for Appellant Timothy R. Mashburn.
L. Kevin Coleman, Mandeville, LA, Attorney for Appellees Joseph Patton "Pat" Mashburn and Richard Anthony Mashburn, in their Capacity as Co-Trustees of the Mashburn Family Trust.
BEFORE: PARRO, McDONALD, AND WELCH, JJ.
Timothy R. ("Tim") Mashburn, one of the nine income and principal beneficiaries of the Mashburn Family Trust ("family trust"), appeals a judgment denying his motion to compel the distribution of income from the family trust. Joseph Patton ("Pat") Mashburn and Richard A. Mashburn, in their capacity as the co-trustees of the family trust, have answered the appeal, seeking to reverse the denial of their motion for sanctions against counsel for Tim Mashburn and to have him cast for damages, costs, and attorney fees incurred by the co-trustees in these proceedings. Finding no error in the judgment of the trial court, we affirm.
Pat Mashburn and Richard Mashburn are also income and principal beneficiaries of the family trust.
I. FACTUAL AND PROCEDURAL HISTORY
John S. ("Jack") and Sarah ("Sadie") Pugh Mashburn had nine children — Helen Mashburn Penton, John S. Mashburn, Jr., Pat Mashburn, Don Mashburn, Michael F. Mashburn, Rita A. Mashburn, Tim Mashburn, William T. Mashburn, and Richard Mashburn. By an authentic act executed on December 18, 1975, Jack and Sadie Mashburn created the family trust, with their nine children designated as both the income and principal beneficiaries of the trust. On August 19, 1997, Pat Mashburn and Richard Mashburn were appointed by the court as the co-trustees of the family trust.
By an authentic act executed on June 8, 1984, Jack and Sadie Mashburn also created the Jack and Sadie Pugh Mashburn Marital Trust ("marital trust"). There are no issues pertaining to the marital trust in this appeal.
For additional background information, see In Re Mashburn Marital Trust, 2004-1678 (La.App. 1st Cir. 12/29/05), 924 So.2d 242, writ denied, 2006-1034 (La. 9/22/06), 937 So.2d 384 (" Mashburn Marital Trust (I)"); In Re Mashburn Marital Trusts, 2006-0741, 2006-0742, 2005-0887 (La.App. 1st Cir. 12/28/06), 951 So.2d 1136, writs denied, 2007-0403, 2007-0446 (La. 4/20/07), 954 So.2d 164, 167 ("Mashburn Marital Trust (II)"); and In Re Mashburn Marital Trust, 2006-1753, 2006-1754 (La.App. 1st Cir. 12/28/06), 947 So.2d 852 ( unpublished opinion), writ denied, 2007-0403 (La. 4/20/07), 954 So.2d 164 ("Mashburn Marital Trust (III)").
Paragraph 1.3 of the family trust instrument provides that: "The property delivered to the Trustee under this Trust, shall be divided into equal shares, one share for the benefit of each of the Settlors' children, as beneficiaries of both principal and income. Each share shall be held as and shall constitute a separate Trust." Additionally, Paragraph 1.4 of the family trust instrument provides that: "All of the income of each Trust shall be paid to the beneficiary of that Trust annually, or such more frequent intervals as the Trustee may see fit."
On April 16, 2007, Tim Mashburn filed a motion to compel the distribution of trust income, alleging that the co-trustees of the family trust had failed to distribute the income of his family trust as required by the family trust instrument; therefore, he sought to compel the co-trustees to distribute that income. The co-trustees responded by filing a motion for sanctions against counsel for Tim Mashburn, alleging that Tim Mashburn had received full payment of his share of the trust income for the year 2006 just five days before he filed the motion, and therefore, they contended that Tim Mashburn's counsel violated La.C.C.P. art. 863(B) and should be cast for all damages, costs, and attorney fees pursuant to La.C.C.P. art. 863(D).
After a hearing on May 29, 2007, the trial court denied both the motion to compel distribution of trust income and the motion for sanctions. Upon request of counsel for Tim Mashburn, the trial court issued written reasons for judgment, finding that Tim Mashburn failed to prove that the co-trustees of the family trust did not comply with the provisions of the trust instrument with respect to the distribution of income; therefore, the trial court denied the relief that he sought. The trial court's written reasons were silent with respect to its reasons for denying the motion for sanctions. A written judgment in conformity with the trial court's reasons was signed on June 4, 2007. From this judgment, Tim Mashburn has appealed, and the co-trustees have answered the appeal.
II. MOTION TO COMPEL DISTRIBUTION OF TRUST INCOME
On appeal, Tim Mashburn contends that the trial court erred in determining that he failed to prove that the co-trustees had not complied with the terms of the family trust, because the evidence established that the co-trustees retained and failed to distribute income to him from his share of the family trust in the amount of $61,806.87.
According to the testimony of Pat Mashburn, a co-trustee of the family trust, an annual family meeting to discuss the affairs of the family trust and the marital trust was held on April 11, 2007. At the meeting, the financial statement for the family trust for the calendar year 2006, which was prepared by Michael F. Smith, C.P.A., was distributed to the beneficiaries of the family trust who attended the meeting, including Tim Mashburn. According to the 2006 financial statement, the net income for the family trust was $92,412.37. Each beneficiary of the family trust, including Tim Mashburn, was given a check in the amount of $10,135.00, which according to Pat Mashburn, represented each beneficiary's share of the net earnings of the assets of the family trust. According to Pat Mashburn, Tim Mashburn's check in the amount of $10,135.00 "cleared the bank" on April 13, 2007.
We note that $92,412.37 divided by nine equals $10,268.04. The record does not reveal the reason for this $133.04 discrepancy between the $10,135.00 distribution to Tim Mashburn, purportedly representing his one-ninth interest in the net income of the family trust, and the $10,268.04 that, according to the 2006 financial statement, appears to be his one-ninth interest in the net income of the family trust. However, on appeal, Tim Mashburn does not assign error to the trial court's failure to order the co-trustees to distribute this $133.04, but rather, he maintains that the trial court erred in not ordering the co-trustees to distribute to him the sum of $61,806.87, representing his one-ninth interest in the "retained earnings" of the family trust, as reflected on the 2006 financial statement of the family trust. Accordingly, our discussion in this appeal is limited to determining whether the trial court erred in determining that Tim Mashburn did not prove that the co-trustees had retained and failed to distribute income in the amount of $61,806.87 from Tim Mashburn's share of the family trust.
After reviewing the 2006 financial statement for the family trust, Dennis James, C.P.A., testified that in the equity section of the statement, there was an entry or "account" entitled "retained earnings" that had a balance of $556,261.90. In his opinion, a "retained earnings" account is an account maintained on a company's balance sheet in the equity section that reflects the accumulation of earnings in prior periods that have not been distributed to the company's owners and have been retained by the company. Mr. James further explained that the "retained earnings" account initially starts at zero, that it is increased by accounting profits, and that it is decreased by accounting losses and distributions to its owners. Therefore, "retained earnings" are, by definition, accumulations of the earnings of a company from its inception to a particular point in time. Mr. James further explained that "retained earnings" are not necessarily in the form of cash, but can also be reinvested in the expansion of the business's fixed assets or in the reduction of the business's debt. According to Mr. James, Tim Mashburn's one-ninth interest in the "retained earnings" of the family trust, as of the end of 2006, would be $61,806.87.
However, on cross-examination, Mr. James testified that he did not know whether the "retained earnings" reflected on the 2006 financial statement of the family trust were retained in the form of cash, reinvested in the family trust, used to make repairs or capital improvements, or used to reduce the debt of the trust. He stated that in order to make that determination he would need to talk to Mr. Smith, the accountant who prepared the financial statement.
After considering this evidence, the trial court rendered judgment denying Tim Mashburn's motion to compel distribution of trust income. In reasons for judgment, the trial court stated:
The main question [before the court] concerned the definition of "retained earnings", which Mr. James explained. In response to a question by the [c]ourt, Mr. James indicated that the "retained earnings" can consist of various non-cash items. In response to the question on cross examination, Mr. James admitted that the C.P.A. who prepared the statement would be in a better position to explain exactly what constituted the "retained earnings" on the prior identified exhibits [ i.e., the 2006 financial statement for the family trust].
The [c]ourt considering the testimony of the witnesses, and the law, the [c]ourt is of the opinion that the plaintiff failed to prove that the [co-]trustees of the family trust have not complied with the instructions as contained in the trust instrument, i.e., failed to distribute the income annually and in accordance with the said instrument. For these reasons, the relief sought was denied.
The appellate court's review of factual findings is governed by the manifest error-clearly wrong standard. The two-part test for the appellate review of a factual finding is: (1)whether there is a reasonable factual basis in the record for the finding of the trial court; and (2)whether the record further establishes that the finding is not manifestly erroneous. Mart v. Hill, 505 So.2d 1120, 1127 (La. 1987). The issue to be resolved by the reviewing court is not whether the trier of fact was right or wrong, but whether the fact finder's conclusion was a reasonable one. Stobart v. State, DOTD, 617 So.2d 880, 882 (La. 1993). If the factual findings are reasonable in light of the record reviewed in its entirety, a reviewing court may not reverse, even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Stobart, 617 So.2d at 882-883. Where there are two permissible views of the evidence, the fact finder's choice between them cannot be manifestly erroneous or clearly wrong. Stobart, 617 So.2d at 883.
Implicit in the trial court's ruling was a factual determination that the co-trustees of the family trust had distributed the income from the family trust on an annual basis in accordance with the terms of the trust instrument. The trial court's conclusion in this regard was supported by the testimony of co-trustee Pat Mashburn and was not clearly wrong. Although the opinion testimony of Mr. James suggests that at some point since the inception of the family trust in December 1975, some earnings or income had been retained, Mr. James could provide no specific information as to whether those earnings were retained in the form of cash or whether those earnings were reinvested into the trust in the form of fixed assets or were used to reduce debt owed by the trust. Absent such necessary information, we cannot say that the trial court manifestly erred in determining that the co-trustees of the family trust had distributed the income of the trust on an annual basis in accordance with the terms of the trust instrument. Accordingly, we find no error in the trial court's denial of Tim Mashburn's motion to compel distribution of trust income, and the judgment of the trial court in this regard is hereby affirmed.
III. MOTION FOR SANCTIONS
In the co-trustees' answer to the appeal, they contend that the trial court erred in denying their motion for sanctions against counsel for Tim Mashburn, because the motion to compel the distribution of trust income filed by him on behalf of Tim Mashburn was in "flagrant disregard for the clear facts" and was an attempt to deceive the trial court. Therefore, the co-trustees submit that pursuant to La.C.C.P. art. 863, the trial court should have imposed sanctions.
Counsel for Tim Mashburn contends that the co-trustees abandoned their motion for sanctions before the trial court, because they presented no argument or evidence on the motion at the hearing. Nevertheless, counsel for Tim Mashburn contends that he did not violate La.C.C.P. art. 863 when he filed the motion to compel distribution of trust income, because the motion was well grounded in fact, warranted by existing law, and not interposed for any improper purpose. Specifically, he contends that the motion was prepared and filed after he consulted and discussed the 2006 financial statement for the family trust with Mr. James and that the motion was based on Mr. James' expert opinion on the matter.
To impose sanctions, a trial court must find that one of the affirmative duties imposed by La.C.C.P. art. 863 has been violated. Stroscher v. Stroscher, 2001-2769, p. 8 (La.App. 1st Cir. 2/14/03), 845 So.2d 518, 526. Louisiana Code of Civil Procedure article 863 provides, in pertinent part, as follows:
B. Pleadings need not be verified or accompanied by affidavit or certificate, except as otherwise provided by law, but the signature of an attorney or party shall constitute a certification by him that he has read the pleading; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact; that it is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.
* * *
D. If, upon motion of any party or upon its own motion, the court determines that a certification has been made in violation of the provisions of this Article, the court shall impose upon the person who made the certification or the represented party, or both, an appropriate sanction which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, including a reasonable attorney's fee.
Louisiana Code of Civil Procedure article 863 imposes an obligation on litigants and their attorneys to make an objectively reasonable inquiry into the facts and law; subjective good faith will not satisfy this duty of reasonable inquiry. Stroscher, 2001-2769 at p. 8, 845 So.2d at 526. The article does not empower a trial court to impose sanctions simply because a particular argument or ground for relief is subsequently found to be unjustified; failure to prevail does not trigger an award of sanctions. Id. Louisiana Code of Civil Procedure article 863 is intended to be used only in exceptional circumstances; where there is even the slightest justification for the assertion of a legal right, sanctions are not warranted. Id. A trial court's determination regarding the imposition of sanctions is subject to the manifest error or clearly wrong standard of review. Id.
In this case, the trial court did not give any reasons for denying the co-trustees' motion for sanctions. Apparently, the trial court must have concluded that counsel for Tim Mashburn did not violate La.C.C.P. art. 863, because he made an objective, reasonable inquiry into the facts; because the motion he filed was well grounded in fact and warranted by existing law or was a good faith argument for the extension, modification, or reversal of existing law; and because the motion was not interposed for any improper purpose.
After a thorough review of the record, we cannot say that the trial court was clearly wrong in concluding that imposition of sanctions pursuant to La.C.C.P. art. 863 was not warranted in this matter. The motion brought by counsel for Tim Mashburn alleged that the co-trustees had not paid the income from the trust on an annual basis as required by the terms of the family trust instrument. At the hearing on the motion, these allegations were supported by the expert opinion testimony of Mr. James. While Tim Mashburn's counsel was not ultimately successful in the trial court or in this court in proving that the co-trustees failed to comply with the terms of the trust instrument in that regard, we cannot say that his motion was without the slightest justification. Furthermore, while the acrimonious relationship between Tim Mashburn and the co-trustees of the family trust is evident, as is the frustration of the co-trustees over what they perceive to be a continuous onslaught of litigation brought by Tim Mashburn, we cannot say that counsel for Tim Mashburn brought the motion to compel distribution of trust income for any improper purpose, such as to harass the co-trustees or to cause any needless increase in their cost of litigation.
Accordingly, the judgment of the trial court denying the co-trustees' motion for sanctions is affirmed.
IV. CONCLUSION
For all of the above and foregoing reasons, the June 4, 2007 judgment of the trial court denying Tim Mashburn's motion to compel distribution of trust income and denying the motion for sanctions filed by Pat Mashburn and Richard Mashburn, in their capacity as the co-trustees of the family trust, is hereby affirmed.
All costs of this appeal are assessed to the appellant, Timothy R. Mashburn.