Opinion
NO. 2014-CA-000672-MR
06-19-2015
KEVIN KINCAID, INDIVIDUALLY AND AS NEXT FRIEND OF HIS MINOR UNMARRIED CHILDREN; CIERRA KINCAID; AND BRETT KINCAID APPELLANTS v. CENTRAL BANK & TRUST CO., AS TRUSTEE UNDER THE TRUST AGREEMENT, AND ALL AMENDMENTS THERETO, OF GARVICE D. KINCAID, DECEASED; JOAN D. KINCAID, INDIVIDUALLY AND AS A PERSON ELIGIBLE TO RECEIVE DISTRIBUTIONS FROM TRUST FUND C UNDER THE TRUST AGREEMENT, AND ALL AMENDMENTS THERETO, OF GARVICE D. KINCAID, DECEASED; AND MICHAEL D. FOLEY, BARTON D. ROGERS AND LISA GRANT, EACH INDIVIDUALLY AND AS A MEMBER OF THE ADVISORY COMMITTEE CREATED UNDER THE LAST WILL AND TESTAMENT OF GARVICE D. KINCAID, DECEASED, AND UNDER THE TRUST AGREEMENT AND ALL AMENDMENTS THERETO OF GARVICE D. KINCAID, DECEASED APPELLEES
BRIEF FOR APPELLANTS: John S. Talbott Philip E. Wilson Lexington, KY 40507 BRIEF FOR APPELLEES: Barry D. Hunter C. Timothy Cone Lexington, KY 40507
NOT TO BE PUBLISHED APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE PAMELA R. GOODWINE, JUDGE
ACTION NO. 12-CI-02094
OPINION
AFFIRMING
BEFORE: ACREE, CHIEF JUDGE; D. LAMBERT AND MAZE, JUDGES. D. LAMBERT, JUDGE: This is an appeal from a summary judgment of the Fayette Circuit Court dismissing three trust beneficiaries' motion to terminate a trust advisory committee. After review, we affirm.
Garvice D. Kincaid ("Mr. Kincaid") died testate on November 21, 1975. He was survived by his wife, Nelle Kincaid ("Mrs. Kincaid"), two daughters ("Jane" and "Joan" or collectively "the daughters"), and Jane's two sons ("Brett" and "Kevin" or collectively "the grandsons"). Mr. Kincaid's testamentary documents included a will (the "Will") and a trust agreement (the "Trust"). These documents named Central Bank the executor of the Will and trustee of the Trust, and Central Bank has continued to serve in this capacity.
Under the Will, Mr. Kincaid's residuary estate transferred to the Trust. The residuary estate included a controlling interest in Kentucky Central Life Insurance Company ("KCL") and an effective controlling interest in Central Bank. The Trust consisted of three separate funds: Fund A, Fund B and Fund C. Funds A and B held a marital share along with the majority of the voting shares of KCL. Fund C held a nonmarital share as well as a 49.991 percent stake in all of Central Bank's capital stock. The Trust also created a trust advisory committee ("Advisory Committee") to direct Central Bank in its position as the trustee. The Trust required the Advisory Committee to have at least two members.
Mrs. Kincaid died in 1984, and following her death, Jane and Joan became the sole beneficiaries of Funds A and B. Brett, Kevin and Kevin's children (the "Appellants") remained beneficiaries of Fund C. As the co-executrixes of Mrs. Kincaid's estate, Jane and Joan sued Central Bank and the then-existing Advisory Committee, seeking a reallocation of the Trust's assets among Funds A, B and C. Jane and Joan also sued the Advisory Committee alleging its mismanagement of KCL.
Contemporaneous with the regulatory takeover of KCL by the Kentucky Department of Insurance in 1993, the parties settled the litigation with respect to the Advisory Committee. Under the settlement, Jane, Joan and Michael D. Foley ("Mr. Foley") replaced the former Advisory Committee members; however, the parties did not reach a deal to reallocate the Trust's assets.
Four years later, Brett and Kevin, as beneficiaries of Fund C, initiated the first of a series of legal proceedings against their mother and aunt. In those proceedings the grandsons challenged the daughters' persistent efforts to reallocate the Trust's assets. Brett and Kevin also opposed Jane and Joan's positions on the Advisory Committee and their attempt to seek compensation for their role on the Advisory Committee.
One of the issues underlying these disputes was an alleged conflict of interest. The overall value of the Trust's assets exceeded $220 million in 2007, and at that time, Fund C comprised roughly $195 million of that amount. A 1997 order of the Fayette Circuit Court found that Jane and Joan did not violate any fiduciary obligation by serving on the Advisory Committee. Further, a decision by another panel of this Court permitted the daughters to seek compensation for the work they performed as Advisory Committee members.
Roughly 88.5% of the Trust's value was in Fund C.
The parties finally settled their asset-reallocation dispute in 2007. As a result, the parties agreed to transfer more than $113 million in assets from Fund C to Funds A and B. Fund C also lost its controlling interest in Central Bank following the restructure.
Jane later died on July 5, 2010, and she effectively disinherited Brett and Kevin. In November 2011, Joan and Mr. Foley appointed Barton Rogers ("Mr. Rogers") to replace Jane as a third member of the Advisory Committee. Joan and Mr. Foley made this appointment pursuant to a section of the Trust the Appellants termed the "A/C Vacancy Standard." The A/C Vacancy Standard reads as follows:
A vacancy in the membership of the Advisory Committee shall occur: (1) on the refusal of any appointee to serve; (2) on the attainment of seventy (70) years of age by, or the death of, any member; (3) on the resignation of any member; (4) on the legal incompetency of any member; (5) on the inability of any member to serve because of physical and/or mental illness; (6) on any member failing to be or remain a member of or associated with the law firm known as Kincaid, Wilson & Trimble, or any successor thereof, or to be retained as general counsel for, or to be employed
by, or performing services on a regular basis for, any corporation or corporations in which (a) the Grantor's estate, (b) any trust created by this Trust Agreement, (c) any trust created by the Grantor, (d) the Grantor's wife, (e) the estate of the Grantor's wife, (f) any trust created by the Grantor's wife, (g) Joan D. Kincaid, (h) any trust created by Joan D. Kincaid, (i) Jane K. Nickell, and/or (j) any trust created by Jane K. Nickell, owns in excess of five per cent (5%) of the voting stock thereof.
* * * *
Should the Advisory Committee cease to exist for any reason whatsoever, or be temporarily unable to function because of having less than two (2) members, the duties and responsibilities of the Advisory Committee as hereinabove provided shall be assumed by and become the duties and responsibilities of the Trustee until the Advisory Committee is able to function in accordance with the provision of the Trust Agreement.
Mr. Rogers is an attorney and member of the law firm that serves as Central Bank's general counsel, Frost Brown Todd ("FBT"). It is undisputed Mr. Rogers has provided legal services on Central Bank's behalf since 1993; however, the parties dispute the extent of the work he has performed since 2008.
On December 10, 2011, shortly after Mr. Rogers's appointment, Joan turned 70. Under the A/C Vacancy Standard, Mr. Foley and Mr. Rogers determined Joan could not continue serving on the Advisory Committee and appointed Lisa Grant ("Ms. Grant") to replace her.
On May 3, 2012, the Appellants sued to terminate the Advisory Committee. First, they claimed Mr. Rogers's appointment was void and caused the Advisory Committee to have less than two members the day Joan turned 70. They also claimed the Advisory Committee outlasted its utility and the court should apply Kentucky Revised Statutes (KRS) 386.820(1) to equitably deviate from the terms of the Trust.
As to the first claim, the Appellees asserted Mr. Rogers's appointment to the Advisory Committee was and remained proper. The Appellees also defended that the Advisory Committee approved and the Appellants accepted more than $1 million in discretionary distributions since December 2011, and the Appellants therefore waived any challenge to Advisory Committee's membership. Regarding the Appellants' equitable deviation claim, the Appellees argued the Advisory Committee's termination would contradict Mr. Kincaid's intent in creating the Trust.
The precise amount of distributions authorized by the Advisory Committee is $644,247.94 and $714,247.94 to Brett and Kevin respectively.
The trial court considered these arguments and found as a matter of law that the Advisory Committee properly appointed Mr. Rogers and that he remained fit to serve under the A/C Vacancy Standard. The trial court also found Mr. Kincaid intended to keep the Advisory Committee intact. The trial court then granted summary judgment in favor of the Appellees. This appeal followed.
"The standard of review on appeal of a summary judgment is whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996). An appellate court must view the record in a light most favorable to the party opposing the motion for summary judgment and resolve all doubts in his favor. Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991). Furthermore, since "summary judgment involves only legal questions and the existence of any disputed material issues of fact, an appellate court need not defer to the trial court's decision and will review the issue de novo." Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001).
The first issue on appeal asks whether Mr. Rogers's appointment to the Advisory Committee was appropriate. The Appellants assumed, arguendo, Mr. Rogers initially qualified to serve on the Advisory Committee and stated the Trust does not provide a standard for an initial appointment. Without specifying an exact standard, the trial court concluded that Mr. Rogers was duly appointed. The trial court found another provision of the Trust afforded a level of deference to the Advisory Committee's decision to appoint a new member and deferred to Mr. Foley and Joan's decision to appoint Mr. Rogers. We agree with the trial court.
Under Kentucky law, "the construction as well as the meaning and legal effect of a written instrument, however compiled, is a matter of law for the court." Morganfield Nat. Bank v. Damien Elder & Sons, 836 S.W.2d 893, 895 (Ky. 1992). When construing a trust agreement, the duty of the court is to examine the language employed and ascertain the intent of the settlor based on that language. Citizens Fid. Bank & Trust Co. v. McNeal, 279 S.W.2d 751, 754 (Ky. 1955). Moreover, because the rules applicable to the construction of wills apply to the construction of trust agreements (see Dep't of Revenue v. Kentucky Trust Co., 313 S.W.2d 401, 404 (Ky. 1958)), "if the language used is a reasonably clear expression of intent, then the inquiry need go no further." Gatewood v. Pickett, 314 Ky. 125, 234 S.W.2d 489 (Ky. 1950). However, "if [the language used] is not such a clear expression, then it is necessary to construe [it] according to appropriate rules of construction." Clarke v. Kirk, 795 S.W.2d 936, 938 (Ky. 1990).
Here, the Trust stipulated, "[e]ach succeeding vacancy [on the Advisory Committee] ... shall be filled by the remaining members of the Advisory Committee designating ... a successor member." Moreover, the Trust also stated that the "interpretations placed upon this instrument by the Advisory Committee in good faith ... shall be final, binding and conclusive upon all persons whomsoever." As such, the Trust authorized Joan and Mr. Foley, as the remaining members of the Advisory Committee, to appoint Joan's successor subject to their good faith interpretation of the Trust language.
The Trust also clearly expressed Mr. Kincaid's intent with respect to Advisory Committee members' qualifications in the following paragraph:
It is [Mr. Kincaid's] express desire to have as members of this Advisory Committee, persons who are employed by, represent, have financial interests in, or receive compensation from, corporations in which the trusts created by this Trust Agreement have, or are likely to have, financial interests; therefore, any such employment, representation, or financial interests shall not disqualify a person from being, becoming or remaining a member of the Advisory Committee.
As an attorney who provided legal counsel to Central Bank's trust department for more than twenty years, Mr. Rogers both represented and received compensation from one of the corporations in which the Trust had a financial interest. Thus, Mr. Rogers is exactly the kind of person Mr. Kincaid intended to serve on the Advisory Committee and Joan and Mr. Foley properly appointed him.
Having determined Mr. Rogers was duly appointed, the issue becomes whether he remained qualified to serve on the Advisory Committee. The following provision of the A/C Vacancy Standard provides the pertinent Trust language for this issue:
A vacancy in the membership of the Advisory Committee shall occur ... on any member failing to be retained as general counsel for, or to be employed by, or performing services on a regular basis for, any corporation or corporations in which ... any trust created by this Trust Agreement ... owns in excess of five per cent (5%) of the voting stock thereof.
Here, the Trust language demonstrates that Mr. Kincaid intended the Advisory Committee members to maintain a relationship that aligned with the business interests of at least one corporation in which the Trust or one of his heirs held a 5% ownership interest. The Trust provided general guidance as to the nature of that relationship but did not delineate a precise scope. However, even in its strictest sense, the Trust provided enough guidance to determine Mr. Rogers maintained a sufficient relationship to remain an Advisory Committee member.
The Trust minimally requires a duly appointed Advisory Committee member to continue to fall into one of three categories: (1) be a specific attorney for a Kincaid corporation, (2) be any employee for a Kincaid corporation or (3) be any person who performs any kind of service for a Kincaid Corporation on a regular basis. Mr. Rogers is not an employee of any Kincaid-affiliated corporation. Furthermore, the parties have made it clear that FBT is the general counsel of Central Bank and Mr. Rogers is merely a member of FBT who performs specific legal work on behalf of Central Bank's trust department. Accordingly, Mr. Rogers must qualify under the third category in order to serve on the Advisory Committee.
Because he has continued to perform professional services as an attorney for Central Bank on an as-needed basis since 1993, Mr. Roberts maintained a sufficient relationship to remain an Advisory Committee member. Specifically, he provided both direct and supervisory legal representation on behalf of Central Bank's trust department in the interim between his appointment to the Advisory Committee in 2011 and Ms. Grant's subsequent appointment. Accordingly, his appointment was proper, and an analysis of any waiver issue is unnecessary.
The final issue on appeal is whether the trial court properly refused to terminate the Advisory Committee under the former KRS 386.820 and the doctrine of equitable deviation. The Appellants argued that Mr. Kincaid intended for the Advisory Committee to continue as long as Fund C had a controlling interest in Central Bank. Furthermore, the Appellants asserted that because Fund C no longer has a controlling interest in Central Bank, for reasons Mr. Kincaid did not anticipate, the trial court must terminate the Advisory Committee as a matter of equity. The Appellees disagreed and countered that the Advisory Committee had as much of a responsibility to authorize distributions from Fund C as "necessary and proper for the comfortable support, care, education and welfare" of the beneficiaries as it did to manage the Trust's business interests. The trial court found Mr. Kincaid intended for the Advisory Committee to remain in place and ultimately declined to exercise any equitable power to deviate from the terms of the Trust.
We note that Kentucky adopted the Uniform Trust Code subsequent to the filing of this litigation. The legislature eliminated the language of KRS 386.820(1), the subsection in dispute, effective July 15, 2014. However, pursuant to the prohibition against retroactively construing statutes provided by KRS 446.080(3), we will proceed with our analysis. --------
KRS 386.820, titled "Power of court to permit deviation and to approve transactions involving conflict of interest," provided in pertinent part as follows:
(1)KRS 386.805 to 386.840 do not affect the power of the court of competent jurisdiction for cause shown and upon petition of the trustee or affected beneficiary and upon appropriate notice to the affected parties to relieve a trustee from any restrictions on his power that would otherwise be placed upon him by the trust or by this chapter.There are no Kentucky decisions that discuss this subsection; however, the customary rules of statutory construction require Kentucky courts "to ascertain and give effect to the intent of the General Assembly." Virgin Mobile U.S.A., L.P v. Com. ex rel. Commercial Mobile Radio Serv. Telecommunications Bd., 448 S.W.3d 241, 246 (Ky. 2014). Furthermore, the statute's literal interpretation controls. Commonwealth v. Plowman, 86 S.W.3d 47, 49 (Ky. 2002).
A literal interpretation of the statutory language contemplates a scenario in which a court may relieve a trustee from certain administrative restrictions placed on him by a trust. Moreover, the only procedural hurdles a trustee or an affected beneficiary must clear to enable the court to exercise this power is to show cause and appropriately notify all affected parties. This comports with the traditional notion that courts of equity have extensive power to preserve trust estates to the advantage of beneficiaries. See Breetz v. Hill, 293 Ky. 526, 169 S.W.2d 632, 634 (Ky. 1943).
Here, there is no question the beneficiaries have shown cause and appropriately notified the affected parties. The Appellants presented a credible argument detailing an unforeseeable change in circumstances that questioned the continued purpose of the Advisory Committee. Furthermore, they joined all interested parties under the Trust to this lawsuit. Thus, the trial court had the ability to apply its equitable powers to deviate from the terms of the Trust under KRS 386.820(1).
When a party offers an argument based on equitable grounds, the trial court's decision is entitled to deference and will not be disturbed absent an abuse of discretion. See Nucor Corp. v. General Elec. Co., 812 S.W.2d 136, 143-45 (Ky. 1991). Such a standard implies there was "an arbitrary action or capricious disposition under the circumstances." Allen v. Devine, 178 S.W.3d 517, 524 (Ky. App. 2005).
Here, although the Appellants' argument was credible, the trial court reviewed the record and found Mr. Kincaid intended for the Advisory Committee to continue. The record shows the Trust directed the Advisory Committee to oversee the distributions from the separate Trust funds to the beneficiaries as well as manage the Trust's assets. As such, the trial court properly supported its decision, and we AFFIRM the decision of the trial court.
ALL CONCUR. BRIEF FOR APPELLANTS: John S. Talbott
Philip E. Wilson
Lexington, KY 40507
BRIEF FOR APPELLEES: Barry D. Hunter
C. Timothy Cone
Lexington, KY 40507