Opinion
NO. 2018-CA-001004-MR
06-21-2019
BEULAH PAULLEY; STEVEN SNOW; PHYLLIS UNDERHILL; AND BELINDA ROY APPELLANTS v. SHELBY L. MURPHY; JOSEPH B. MURPHY; THE MURPHY FAMILY FARM TRUST; PATRICIA SNOW, DECEASED; BRADLEY SANDERS; KECIA SANDERS; TROY MURPHY; BRITTANY MCALLISTER; JIMMY TROUTMAN; MIKE FERGUSON; JODI ANDERSON; AND DANA BYRLEY APPELLEES
BRIEFS FOR APPELLANTS: Homer Parrent, III Edward H. Bartenstein Louisville, Kentucky BRIEF FOR APPELLEES SHELBY L. MURPHY, JOSEPH B. MURPHY, JODI ANDERSON, AND THE MURPHY FAMILY FARM TRUST : Patrick A. Ross Horse Cave, Kentucky NO BRIEF FILED FOR APPELLEES PATRICIA SNOW, DECEASED; BRADLEY SANDERS; KECIA SANDERS; TROY MURPHY; BRITTANY MCALLISTER; JIMMY TROUTMAN; MIKE FERGUSON; AND DANA BYRLEY
NOT TO BE PUBLISHED APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE DARRYL S. LAVERY, JUDGE
ACTION NO. 16-CI-003505 OPINION
AFFIRMING
** ** ** ** **
BEFORE: DIXON, JONES, AND LAMBERT, JUDGES. JONES, JUDGE: Appellants bring this appeal from an opinion and judgment of the Jefferson Circuit Court, which declared the rights of the parties under a trust agreement and denied Appellants' motion for partial summary judgment. Following a review of the record and applicable law, we AFFIRM.
I. BACKGROUND
The parties to this appeal represent the living descendants of Edna R. Murphy: Beulah Paulley, Shelby L. Murphy, and Joseph B. Murphy are Edna's children; the remaining parties are Edna's grandchildren. Prior to her death, Edna owned approximately 180 acres of land located in Larue County, Kentucky (the "Farm"). On June 29, 2000, Edna's children executed a revocable trust agreement (the "Agreement") creating the Murphy Family Farm Trust (the "Trust"). That same day, title of the Farm was transferred to the Trust. The Agreement required that there be three trustees of the Trust at all times, and instructed how trustees should be selected: priority was given to Edna's children, then—if no children remained or were able to serve as a trustee—to Edna's grandchildren. At the time of the commencement of the underlying litigation, Beulah, Shelby, and Joseph served as trustees of the Trust.
Edna was still alive at the time the Trust was created, but is not a settlor of the Trust. The settlors are five of Edna's then-living children: Beulah, Joseph, Shelby, Ella M. Schmitler, and Frances E. Armstrong. The only assets of the Trust are the Farm, a few hundred dollars, a pole saw, a tractor, and a woodstove.
In the summer of 2015, Joseph and Shelby began discussing the possibility of selling the Farm. Under Section 4.3 of the Agreement, the Farm could not be sold unless the sale was first approved by the Advisory Committee. While Section 3.1 of the Agreement contemplated that the Advisory Committee would be formed shortly after creation of the Trust, this had not happened and there had never been an Advisory Committee. Section 3.1 dictated that Advisory Committee members were to be selected from among Edna's interested children and grandchildren by a majority vote of the trustees. Accordingly, "ballots" were sent to each of Edna's living children and grandchildren to gauge interest in serving on the Advisory Committee. Those ballots were returned, with twelve individuals indicating that they wished to serve on the Advisory Committee. A trustees meeting was held on December 16, 2015, for the purpose of selecting the Advisory Committee. At that meeting, Beulah, Shelby, and Joseph agreed that they would each serve on the Advisory Committee. The Agreement, however, requires that a minimum of four individuals serve on the Advisory Committee. Beulah nominated her daughter, Phyliss Underhill, as the fourth member, and Joseph nominated Shelby's daughter, Jodi Anderson. Jodi's nomination to the Advisory Committee was approved by a 2-1 vote.
In July of 2016, Beulah, Phyllis, Steven Snow, and Belinda Roy (hereinafter, collectively referred to as the "Appellants") filed an action in Jefferson District Court to remove Joseph and Shelby as trustees and as members of the Advisory Committee. Shortly thereafter, the district court entered an agreed order prohibiting Shelby and Joseph from taking any action related to selling the Farm. On July 25, 2016, Joseph, Shelby, and the Trust (hereinafter, collectively referred to as the "Appellees") filed a petition for a declaration of rights in the Jefferson Circuit Court. In their petition, Appellees requested the circuit court to determine whether a majority vote of the Advisory Committee could authorize the sale of the Farm or a unanimous vote was needed; whether the time, place, and occurrence of trustee and/or Advisory Committee meetings could be designated by a majority vote; and whether a majority of the trustees and/or Advisory Committee could limit attendance at meetings. Additionally, Appellees denied that they had violated terms of the Agreement and contended that their removal as trustees and as members of the Advisory Committee was unwarranted.
As evinced in the caption, Joseph, Shelby, and the Trust are not the only appellees in this appeal. The remaining appellees are Edna's grandchildren, who were made parties to the underlying action in order to protect their interests as beneficiaries of the Trust. None of the other appellees participated in the underlying action. Jodi did not participate in the underlying litigation, but has joined in Appellees' brief in this appeal.
Appellants filed an answer and counterclaim on August 12, 2016. In their counterclaim, Appellants alleged that: Shelby had converted Trust property; Appellees had failed to provide accountings or other information to the beneficiaries of the Trust; Appellees had engaged in a self-dealing transaction and breached their duty of loyalty by appointing themselves and Jodi to the Advisory Committee; and the Advisory Committee was illegal, invalid, and void. Appellants additionally alleged that Appellees had been scheduling meetings of the Advisory Committee in a manner that created a hostile environment and had been excluding beneficiaries of the Trust from those meetings. Appellants requested that the circuit court issue a declaratory judgment on all their counterclaims.
Kentucky Revised Statutes (KRS) 418.045 provides an extensive list of claims for which declaratory relief is available. "Any person interested under a[n] . . . instrument of writing, provided always that an actual controversy exists with respect thereto, may apply for and secure a declaration of his or her duties . . . ." KRS 418.045. Accordingly, some of Appellants' counterclaims—such as the claims concerning the meetings and validity of the Advisory Committee—are appropriate for declaratory relief. However, "[d]eclaratory judgment does not fit every occasion and does not replace the existing system of remedies and actions." Mammoth Med., Inc. v. Bunnell, 265 S.W.3d 205, 210 (Ky. 2008). Appellants' claims that Shelby had converted a tractor and that Shelby and Joseph had breached the duty of loyalty were not seeking to have any of Appellants' rights under the Agreement determined. Those claims, based on Appellees' past contact, exceed the scope of a declaratory judgment action. "A true declaratory judgment proceeding . . . is to determine legal rights before one person has wronged another." Bowles v. Stilley's Ex'r, 254 S.W.2d 504, 505 (Ky. 1953). However, while the declaratory judgment statute "does not provide for a counterclaim or cross-petition, it does not preclude the defendant from setting up his side of the controversy and securing coercive relief." Id. A review of Appellants' counterclaim indicates that they properly pleaded their claim that Joseph and Shelby had breached the duty of loyalty. See Baptist Phys. Lexington, Inc. v. New Clinic, P.S.C., 436 S.W.3d 189, 193 (Ky. 2013) (Stating that the basic elements of a common-law breach of fiduciary duty action are: "(1) the existence of a fiduciary duty; (2) the breach of that duty; (3) injury; and (4) causation."
On August 26, 2016, Appellants filed a motion to compel Appellees to join all interested parties, as Appellees' petition for a declaration of rights had failed to name a number of Edna's grandchildren, who were beneficiaries of the Trust, as parties. Appellees responded, contending that the remaining grandchildren were not necessary parties to the action. Appellees contended that the Agreement clearly stated that the purpose of the Trust was to keep the Farm under the control of Edna's children. Further, Section 4.3 of the Trust explicitly stated that a decision to sell the Farm was to be made by the members of the Advisory Committee. Because Edna's remaining grandchildren—with the exception of Jodi—were not members of the Advisory Committee, Appellees contended that there was no need for them to participate in the declaration of rights action. Appellants filed a reply to Appellees' response on September 16, 2016. In their response, Appellants argued that selling the Farm required a unanimous vote of the Advisory Committee. Appellants' belief was based on Section 3.2 of the Agreement, which states in pertinent part as follows:
3.2. Duties and Powers of Advisory Committee(Emphasis in original).
The Advisory Committee shall consult with and direct the Trustee [sic] regarding all important matters affecting the disposition, purchase, and sale of Trust investments. Such direction must be made by unanimous decision of all the advisors then acting. The Advisory Committee shall also consult with and advise the Trustee [sic] regarding all discretionary income and principal distributions. The Advisory Committee may also remove the trustee [sic] or any successor trustee and appoint successor and substitute trustees as provided herein. All actions by the Advisory Committee shall be by majority vote unless stated otherwise.
Additionally, because Appellants believed that Appellees had violated their fiduciary duties when they selected the members of the Advisory Committee, Appellants contended that the remaining grandchildren needed to be made parties to the action in order to protect their interests as beneficiaries of the Trust. Appellants argued that there was no dispute that Edna's grandchildren were beneficiaries of the Trust, as Section 4.1 of the Agreement explicitly stated that "[t]he beneficiaries of this trust include the children and grandchildren of Edna Murphy." (emphasis added). In October of 2016, the circuit court entered an opinion and order concluding that Edna's remaining grandchildren were indispensable parties to the action and granting Appellants' motion to compel Appellees to join those grandchildren as parties. Appellees filed an amended petition for declaration of rights, naming all the remaining grandchildren as parties, on October 19, 2016.
On May 31, 2017, Appellees filed a motion to submit as to the declaration of rights. Appellees first addressed Appellants' contention that meetings of the trustees and/or the Advisory Committee must be open to any beneficiary of the Trust. Appellees noted that they had previously attempted to hold meetings with any interested beneficiary being permitted to attend; those meetings had been unproductive due to conflict amongst the beneficiaries. Appellees contended that as nothing in the Agreement gave beneficiaries the right to attend trustee or Advisory Committee meetings, they were under no requirement to permit them to attend. Next, Appellees contended that, despite Appellants' assertions, the Agreement clearly reflected that the decision to sell the Farm would be made by a majority vote of the Advisory Committee. Appellees acknowledged that Section 3.2 of the Agreement, on which Appellants relied for the position that sale of the Farm required a unanimous vote of the Advisory Committee, required a unanimous vote to sell a "Trust investment." They contended, however, that the Farm was not a Trust investment. Appellees noted that "investment" was not defined in the Agreement, and that Black's Law Dictionary defined "investment" as "the placing of capital or laying out of money in a way intended to secure income or profit from its employment." The Farm was the initiating asset of the Trust and had not been acquired by the trustees for the purpose of profit; therefore, Appellees contended that it could not be considered an investment. Further, Appellees noted that Section 4.3 of the Agreement dealt specifically with sale of the Farm and did not require that the Advisory Committee reach a unanimous decision before approving a sale.
Appellants responded to Appellees' motion to submit on July 3, 2017. Therein, Appellants noted that no discovery had occurred yet, and argued that it was necessary that Appellees be deposed so that Appellants could ascertain the manner in which the Advisory Committee was selected. Additionally, Appellants contended that Appellees' motion to submit failed to consider Appellants' counterclaims, which could have the effect of disqualifying the members of the Advisory Committee. Appellants requested that the circuit court assign the matter for a pretrial conference rather than take the matter under submission. In September of 2017, Appellees renewed their motion to submit twice, and Appellants filed a response. On December 27, 2017, the circuit court entered an order setting a briefing schedule and ordering that all discovery be completed by March 2, 2018.
On March 16, 2018, Appellants moved for partial summary judgment. In the memorandum accompanying their motion, Appellants reiterated that Section 3.2 of the Agreement required a unanimous vote of the Advisory Committee before the Trust's investments could be sold. Appellants contended that the Agreement provided an express definition for the term "investment" in Section 11.3, which states as follows:
Appellants' motion indicated that they were moving for summary judgment on counts three and four of their counterclaim: that Appellees had engaged in self-dealing and breached the duty of loyalty and that the Advisory Committee was invalid. In the accompanying memorandum, however, Appellants stated that the two claims at issue were Appellees' breach of the duty of loyalty and whether the Agreement required a unanimous vote of the Advisory Committee to sell the Farm. In the conclusion of their memorandum, Appellants requested that the circuit court grant their motion by "declaring" that sale of the Farm could only occur with unanimous consent of the Advisory Committee and that the present Advisory Committee lacked legitimacy.
11.3. Investments
My Trustee may invest and reinvest in any kind of property or undivided interest in property, wherever located. This power includes but is not limited to bonds, debentures, mutual funds, notes (secured or unsecured), stocks of corporations regardless of class, interests in limited partnerships, real estate or an interest in real estate (whether or not productive at the time of investment), interests in trusts, investment trusts (whether of the open or closed fund types), and participation in the common, collective, or pooled trust funds of my Trustee,
insurance contracts on the life of any beneficiary or annuity contracts for any beneficiary. My Trustee shall not be limited by any statute or rule of law concerning investments by fiduciaries, and shall act without the necessity of a court order.
Further, Appellants contended that acceptance of Appellees' position that a simple majority vote of the Advisory Committee was all that was required to sell the Farm would create inherent contradictions within the Agreement. Appellants noted that Section 4.3 of the Agreement stated that the Trust would terminate upon the Advisory Committee's approving a sale of the Farm. Section 3.4 of the Agreement, however, stated that "[t]he Advisory Committee may by unanimous action . . . terminate this trust at any time." (Emphasis added). Because terminating the Trust under Section 3.4 of the Agreement required a unanimous vote, and a sale of the Farm worked to terminate the Trust under Section 4.3, Appellants contended that the only logical interpretation of the Agreement was that selling the Farm required a unanimous vote of the Advisory Committee.
Appellants next contended that it was clear that Appellees had violated the duty of loyalty by putting their own interests ahead of the interests of the beneficiaries of the Trust. In support of this contention, Appellants pointed to a portion of Joseph's deposition testimony, in which he had acknowledged that one reason he wanted to sell the Farm was because he needed the money. Appellants contended that the way in which the Advisory Committee had been set up was further evidence of Appellees' breach of their fiduciary duties. Appellants noted that while the Agreement stated that the Advisory Committee must have a minimum of four members, it did not set a maximum number of members. Accordingly, Appellants contended that the proper procedure would have been for Appellees to first move to set the number of members to serve on the Advisory Committee. They had not done so. Further, Appellants noted that, despite the fact that twelve individuals had expressed interest in serving on the Advisory Committee, Appellees had not collected résumés from or interviewed any of those individuals. Rather, Appellees had selected themselves and Jodi, who was likely to vote in Appellees' interests, as members of the committee.
On March 30, 2018, Appellants filed a response to the two motions to submit Appellees had filed in September of 2017, addressing specifically Appellants' contention that they were not required to allow any beneficiary to attend trustee or Advisory Committee meetings. In their response, Appellants contended that because a trustee was required to keep qualified beneficiaries of a trust reasonably informed about the administration of the trust under KRS 386B.8-130(1), all beneficiaries were entitled to attend meetings to observe how the trustees carried out their fiduciary duties.
Appellees filed a response to Appellants' motion for summary judgment on April 4, 2018. Appellees first reiterated that, according to the Agreement, the primary purpose of the Trust was to keep the Farm in Edna's children's control, not Edna's grandchildren's control. Appellees next noted that Section 2.5 of the Agreement indicated that decisions should be made by majority rule unless it was explicitly stated that a decision needed to be unanimous. Because Section 4.3 did not state that a decision to sell the Farm must be approved unanimously by the Advisory Committee, but rather stated simply that it required approval of the Advisory Committee, Appellees contended that majority rule controlled pursuant to Section 2.5 of the Agreement. Appellees disputed Appellants' contention that the fact that real estate was a permissible investment of the Trust meant that the Farm was considered an investment.
Appellees contended that the way in which they had selected members of the Advisory Committee had not violated any fiduciary duties they had as trustees. Under Section 3.1 of the Agreement, trustees were permitted to be members of the Advisory Committee. Further, Section 3.1 specifically directed that the Advisory Committee's actions "shall be taken for the benefit of all of the Children of Enda Murphy." Therefore, Appellees contended that they had the right to serve on the Advisory Committee and had the right, as a majority of the trustees, to select an individual whom they believed would act in their—as the children of Edna Murphy—best interests to serve with them on the Advisory Committee. In contrast, nothing in the Agreement supported the conclusion that a minority of Edna's grandchildren could control the disposition of the Farm in contravention of the wishes of the majority of Edna's children. Appellees noted that Edna's only remaining children were Joseph, Shelby, and Beulah. As they were all in advanced age, none of them had the ability to use and enjoy the Farm as they once did. Joseph was in financial need. Beulah had testified that she thought she might have been to the Farm a year ago, but that she could not remember being on the Farm previously. Accordingly, Appellees argued that it would benefit all of Edna's children if the Farm was sold.
Appellants filed a reply to Appellees' response to their motion for summary judgment on April 10, 2018. Appellants contended that because Section 4.1 of the Agreement included Edna's grandchildren as beneficiaries of the Trust, the grandchildren's wishes regarding the Farm had to be considered by the Advisory Committee. Appellants maintained their position that the Farm was a Trust investment, contending that any real estate held by the Trust should be considered an investment. Finally, Appellants noted that while Appellees were correct that Section 3.1 of the Agreement stated that the Advisory Committee was to take actions for the benefit of all of Edna's children, there was no question that Beulah opposed selling the Farm. As such, Appellants contended that selling the Farm could not be for Beulah's benefit.
The circuit court heard arguments on Appellants' motion for summary judgment on April 16, 2018. On April 25, 2018, the circuit court entered an opinion and order addressing both Appellants' motion for summary judgment and Appellees' petition for a declaration of rights. By that order, the circuit court denied Appellants' motion for summary judgment; concluded that a majority of the trustees and Advisory Committee could set the time, place, and attendance of the meetings they conduct; and concluded that a majority of the trustees and Advisory Committee could decide to sell the Farm. In reaching its decision, the circuit court made the following findings and conclusions:
1. Paragraph 1 of the [Agreement] states that its purpose is to keep the [F]arm under the control of the children of Edna Murphy for the benefit of all of the children. Paragraph 3[,] which calls for the establishment of an Advisory Committee[,] states that the committee is to act for the benefit of the children of Edna Murphy. This paragraph also states that the children and the Trustees can serve as members of the Advisory Committee. The [Agreement], when read as a whole, provides that [the Trust] is primarily intended to serve the best interests of the children of Edna Murphy.
2. The reference to the grandchildren being beneficiaries in Paragraph 4.1 concerns the use of the [F]arm from an administrative standpoint and does not recognize the grandchildren as having rights to control or decide when a sale of the [F]arm would be appropriate, since the [T]rust is for the primary benefit of the children of Edna Murphy.
3. Paragraph 2.5 provides that a majority vote controls unless a unanimous vote is specifically required.
Paragraph 4.3 is the section concerning the sale of the [Farm] and it does not require a unanimous vote to sell the [F]arm. Paragraph 3.2, which requires a unanimous vote for the purchase and sale "of investments," and Paragraph 3.4, which calls for a unanimous vote to amend or terminate the trust, do not mandate a unanimous vote to sell the [Farm], because neither of these sections refer to a sale of the [Farm], and Section 4.3, which does specifically refer to the sale of the [Farm], does not require a unanimous vote.R. 351-52.
4. The Advisory Committee was not improperly constituted. The [Agreement] does not give specific directions as to the procedure for forming the Advisory Committee or at selecting the number of members of the Advisory Committee other than by saying there cannot be less than four members. A majority vote of the Trustees selected four members and that is sufficient given the absence of any provision in the [Agreement] to the contrary.
5. Shelby Murphy and Joseph Murphy do not violate any fiduciary duties by determining to sell the [Farm]. They are children of Edna Murphy, which the [T]rust is intended to benefit.
6. A majority of the Trustees and the Advisory Committee can control the time, place, and attendance at meetings so long as each Trustee and member of the Advisory Committee receives sufficient notice. A majority vote of the Trustees or members of the Advisory Committee can exclude attendance at any meeting of any person not a Trustee or member of the Advisory Committee.
On May 3, 2018, Appellants filed a combined CR 59.05 and CR 59.02 motion. Appellants requested the circuit court amended its order to adjudge that sale of the Farm required the unanimous consent of the Advisory Committee, that Appellees had engaged in self-dealing, and that Appellees had failed to act loyally and impartially towards the right of all beneficiaries. Additionally, Appellants requested that the circuit court make findings of fact concerning whether the Farm was a "trust investment" within the meaning of Section 3.2 of the Agreement; whether Edna Murphy's grandchildren were beneficiaries of the Trust entitled to the same fiduciary duties as Edna's children; and whether Appellees had engaged in self-dealing. On June 18, 2018, the circuit court entered an amended judgment, which made the specific finding that the Farm was not an "investment" as the term is used in Section 3.2 of the Agreement. The circuit court denied Appellants' motion in all other respects.
Kentucky Rules of Civil Procedure. --------
This appeal follows.
II. STANDARD OF REVIEW
"In a declaratory action, findings of fact are reviewed under a clearly erroneous standard, and conclusions of law are reviewed de novo." Big Sandy Co., L.P. v. EQT Gathering, LLC, 545 S.W.3d 842, 844 (Ky. App. 2018) (citing Baze v. Rees, 217 S.W.3d 207, 210 (Ky. 2006)).
III. ANALYSIS
Appellants contend that the circuit court erred in interpreting the Agreement as requiring only a majority vote of the Advisory Committee to authorize the sale of the Farm; erroneously concluded that Appellees had not breached their fiduciary duties when they selected the members of the Advisory Committee; and erred in effectively concluding that the grandchildren of Edna Murphy were second-class beneficiaries of the Trust.
Before addressing the merits of the argument, we pause briefly to address jurisdictional issues. "While the parties did not raise the issue of appellate jurisdiction in their briefs, we are the guardians of our jurisdiction and thus are obligated to raise a jurisdictional issue sua sponte if the underlying order appears to lack finality." Padgett v. Steinbrecher, 355 S.W.3d 457, 459-60 (Ky. App. 2011) (citing Kentucky High School Athletic Ass'n v. Edwards, 256 S.W.3d 1, 4 (Ky. 2008); Hook v. Hook, 563 S.W.2d 716, 717 (Ky. 1978))
The order from which Appellants bring this appeal was both a declaration of rights and a denial of Appellants' motion for summary judgment. While the order noted that it was denying Appellants' motion, the circuit court did not conduct a separate analysis on it. Rather, the circuit court's order addresses both the petition for declaration of rights and the motion for summary judgment together. The issues raised by Appellants herein concern both issues raised in Appellees' petition for a declaration of rights—what vote is required to sell the Farm—and allegations first pled in Appellants' counterclaim and later argued in their motion for summary judgment—whether Joseph and Shelby breached their fiduciary duties when selecting members of the Advisory Committee.
A final order in a declaratory action is reviewable by this Court. However, "a trial court's order denying summary judgment is not immediately reviewable on appeal since such an order is considered interlocutory." Ervin Cable Constr., LLC v. Lay, 461 S.W.3d 422, 423 (Ky. App. 2015). "[A]n exception to this rule that applies where: '(1) the facts are not in dispute, (2) the only basis of the ruling is a matter of law, (3) there is a denial of the motion, and (4) there is an entry of a final judgment with an appeal therefrom.'" Hazard Coal Corp. v. Knight, 325 S.W.3d 290, 298 (Ky. 2010) (quoting Transp. Cabinet, Bureau of Highways, Commonwealth of Kentucky v. Leneave, 751 S.W.2d 36, 37 (Ky. App., 1988)). In this instance, there are no factual disputes and the circuit court based its conclusions on its interpretation of the Agreement, which is a matter of law. Additionally, there was a final judgment from which an appeal was brought. A final judgment is a "written order of a court adjudicating a claim or claims in an action or proceeding." CR 54.01. "When more than one claim for relief is presented in an action . . . the court may grant a final judgment upon one or more but less than all of the claims . . . upon a determination that there is no just reason for delay." CR 54.02. In that situation, the "judgment shall recite such determination and recite that the judgment is final." Id. The order appealed from in this instance adjudicated all of the claims brought by Appellees and contains the requisite language of CR 54.02.
A. A Majority of the Advisory Committee can Decide to Sell the Farm
"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'l Bank v. Damien Elder & Sons, 836 S.W.2d 893, 895 (Ky. 1992) (citing Equitable Life Assurance Soc'y of the United States v. Wells, 101 F.2d 608 (6th Cir. 1939)). The rules applicable to the construction of wills apply to the construction of trust agreements. KRS 386B.1-100. Accordingly, the settlors' intent "must be the 'polar star' toward which all interpretive efforts are guided, and this intent will be controlling, absent some illegality." Benjamin v. JP Morgan Chase Bank, 305 S.W.3d 446, 451 (Ky. App. 2010) (citing Graham v. Fulkerson, 187 S.W.3d 324, 328 (Ky. App. 2005)). "As in any case where a court is called upon to interpret a document, the first and most important guide is the plain language of the instrument." Id. (citing Graham, 187 S.W.3d at 328). "If the language used is a reasonably clear expression of intent, then the inquiry need go no further." Clarke v. Kirk, 795 S.W.2d 936, 938 (Ky. 1990) (citing Gatewood v. Pickett, 314 Ky. 125, 234 S.W.2d 489 (1950)). We do not examine each provision of the Agreement in isolation, but rather construe the settlor's intent from a consideration of the entire document. Benjamin, 305 S.W.3d at 452 (citing Slattery v. Kelsch, 734 S.W.2d 813, 814 (Ky. App. 1987)).
As below, Appellants' argument that selling the Farm requires unanimous approval of the Advisory Committee is based primarily on their contention that the Farm is an "investment" as that term is used in Section 3.2 of the Agreement. Appellants first argue that the Farm must be considered an investment because investments are defined to include real estate in Section 11.3 of the Agreement. We find no merit in this argument. Section 11.3, set out in its entirety supra p. 9, does not define the term "investment." It merely permits the trustees to invest in "any kind of property" and includes real estate as a permissible type of property in which the trustees can invest. A reading of Section 11.3 cannot reasonably lead one to believe that, by stating that the trustee has the authority to invest in real estate, the intent was to define "investment" as any real estate.
As "investment" is not defined anywhere in the Agreement, we must ascertain the settlor's intent based on the plain meaning of the term. Univ. of Louisville v. Liberty Nat'l Bank & Trust Co., 499 S.W.2d 288, 290 (Ky. 1973). As noted by Appellees, Black's Law Dictionary defines an investment as: "[a]n expenditure to acquire property or assets to produce revenue; a capital outlay." Investment, BLACK'S LAW DICTIONARY (10th ed. 2014). Likewise, Merriam- Webster defines "investment" as "the outlay of money usually for income or profit: capital outlay." Investment, MERIAM-WEBSTER, https://www.merriam-webster.com/dictionary/investment. The Farm does not meet this definition. It was not acquired by the Trust to gain profit; the Farm was owned by the Murphy family prior to the creation of the Trust and the Trust was created to protect Edna's children's interest in it. Accordingly, if a unanimous vote of the Advisory Committee is required before selling the Farm, it cannot be because the Farm is considered an "investment" under the Agreement.
Appellants have additionally argued that the conclusion that a majority vote of the Advisory Committee is sufficient to sell the Farm creates inherent inconsistencies within the Agreement. In support of this contention, Appellants direct our attention to Sections 3.4 and 4.3 of the Agreement. Section 3.4 of the Agreement states as follows:
3.4 Amendment of Trust AgreementSection 4.3, however, states that the Trust will automatically terminate upon the Advisory Committee's approving a sale of the Farm. As noted, Section 4.3 does not specify that that Advisory Committee's approval must be unanimous. Appellants contend that interpreting Section 4.3 as requiring only a majority vote of the Advisory Committee to sell the Farm, thereby terminating the Trust, is in contradiction to the unanimity requirement in Section 3.4. If provisions of the Agreement "are apparently conflicting or repugnant, the intention of the [settlor] will be arrived at by giving effect to every part of [the Agreement] in order to harmonize the inconsistent words, phrases, or clauses." Hall's Adm'r v. Compton, 281 S.W.2d 906, 909 (Ky. 1955).
This document is fully revocable. The Advisory Committee may by unanimous action amend the terms of this trust or terminate this trust at any time. The rights in this Section 3 must be exercised by the advisors personally; they cannot be exercised by an attorney-in-fact or agent.
We cannot agree with Appellants that Section 3.4 and Section 4.3 contradict each other. Section 3.4 contemplates situations where the Advisory Committee seeks to terminate the Trust on its own volition. Under that section, the Advisory Committee can terminate the Trust for any reason, or for no reason at all. Accordingly, the heightened requirement that the Advisory Committee make that decision unanimously seems appropriate. The Agreement clearly states that the purpose of the Trust is "to keep the [Farm] intact and under the control of the children of Edna R. Murphy." Thus, if the Farm is no longer owned by the Trust, the Trust no longer has a purpose. The fact that the Agreement has different requirements for terminating the Trust based on different scenarios does not make it contradictory.
Further, we note that Section 3.2 of the Agreement clearly states that "[a]ll actions by the Advisory Committee shall be by majority vote unless stated otherwise." Section 4.3 contains no requirement of a unanimous vote. Likewise, Section 3.3, which states that the Advisory Committee's direction to sell the Farm must be in writing, contains no unanimity requirement. Based on the Agreement in its entirety, we cannot conclude that the settlors' intent was to require a unanimous decision of the Advisory Committee in order to sell the Farm. As such, a majority vote is sufficient pursuant to Section 3.2.
B. Breach of Fiduciary Duties
Appellants next contend that Appellees, as trustees of the Trust, breached their fiduciary duties when they selected as members of the Advisory Committee individuals that they believed would vote in their personal interests. We consider this argument in tandem with Appellants' contention that the circuit court erroneously concluded that Edna's grandchildren were "second class beneficiaries" under the terms of the Agreement. We note that, on appeal, Appellants have argued generally that Appellees breached their fiduciary duties. In their counterclaim, however, they argued only that Appellees had breached the duty of loyalty. Accordingly, we confine our analysis to whether Appellees breached the duty of loyalty. As stated in Bryan v. Security Trust Co.,
One of the most fundamental duties of the trustee is that he must display throughout the administration of the trust complete loyalty to the interests of the cestui que trust. He must exclude all selfish interest and also all consideration of the welfare of third persons. This duty grows out of the fact that the trustee is a representative
and out of the well-known inability of human beings to serve to masters at once or to act satisfactorily when faced with conflicting interests.296 Ky. 95, 176 S.W.2d 104, 107 (1943) (quoting GEORGE GLEASON BOGERT, ET AL., THE LAW OF TRUSTS AND TRUSTEES § 543, Westlaw (database updated Mar. 2019). The duty of loyalty is codified in KRS 386B.8-020(1), which states that "[a] trustee shall administer the trust solely in the interests of the beneficiaries." However, a trustee may be exempt from this provision if the terms of the trust agreement so provide. See KRS 386B.8-020(2)(a); KRS 386B.1-030(2) To ascertain whether Appellees breached the duty of loyalty, we must first determine who qualifies as a beneficiary of the Trust.
Appellants point to Section 4.1 of the Agreement to support their position that Edna's grandchildren are beneficiaries of the Trust and that, accordingly, their interests must be considered by the Advisory Committee. Section 4.1 states as follows:
4.1 Use of the Farm by Beneficiaries
One of the main reasons to maintain the [Farm] is for the enjoyment and hunting rights of the children and grandchildren of Edna Murphy. The beneficiaries of this trust include the children and grandchildren of Edna Murphy. Any beneficiary desiring to use the property shall first seek approval from the Trustees. Priority shall be given to the children of Edna Murphy over the request by the grandchildren of Edna Murphy.
Additionally, Section 4.3 of the Agreement states that once the Farm is sold, proceeds from the sale are to be divided equally among Edna's children, per stirpes. Accordingly, there is no question that Edna's grandchildren are beneficiaries of the Trust. However, the Agreement further indicates that the grandchildren of Edna Murphy are not on equal standing with the children of Edna Murphy.
Section 1 of the Agreement states that the purpose of the Trust "is to keep the [Farm] intact and under the control of the children of Edna R. Murphy." That section additionally states that the Trust "is for the mutual benefit of all of Edna Murphy's children." Section 2 gives priority to Edna's children over her grandchildren when addressing whom may serve as a trustee of the Trust. Section 3.1 indicates that Actions of the Advisory Committee "shall be taken for the benefit of all of the Children of Edna Murphy." Therefore, it does indeed appear that Edna's grandchildren are "second class" beneficiaries. While the grandchildren are entitled to enjoy the Farm, and may possibly receive a portion of the proceeds if the Farm is sold, the Trust is clearly intended to benefit Edna's children.
By the terms of the Agreement, Edna's children are not only permitted to serve as trustees, they are the preferred trustees. Under Section 3.1, trustees are explicitly permitted to serve on the Advisory Committee. There is no requirement that members of the Advisory Committee have any sort of qualifications apart from being either a child or grandchild of Edna Murphy. Section 11.17 of the Agreement gives the trustees permission to engage in self-dealing. And, as previously noted, Section 3.1 mandates that the Advisory Committee take actions for the benefit of Edna's children. Accordingly, we cannot find that Joseph and Shelby breached any duty when they elected Jodi to be the fourth member of the Advisory Committee. Joseph and Shelby likely believed that Jodi would vote in their interests; however, this is permissible as the purpose of the Advisory Committee is to act in the best interests of Edna's children, which includes Joseph and Shelby. While Appellants contend that Joseph and Shelby's selection of Jodi as a member of the Advisory Committee amounts to self-dealing, the terms of the Agreement permit them to do so.
IV. CONCLUSION
In light of the foregoing, we AFFIRM the opinion and judgment of the Jefferson Circuit Court.
ALL CONCUR. BRIEFS FOR APPELLANTS: Homer Parrent, III
Edward H. Bartenstein
Louisville, Kentucky BRIEF FOR APPELLEES SHELBY
L. MURPHY, JOSEPH B. MURPHY,
JODI ANDERSON, AND THE
MURPHY FAMILY FARM TRUST : Patrick A. Ross
Horse Cave, Kentucky NO BRIEF FILED FOR APPELLEES
PATRICIA SNOW, DECEASED;
BRADLEY SANDERS; KECIA
SANDERS; TROY MURPHY;
BRITTANY MCALLISTER; JIMMY
TROUTMAN; MIKE FERGUSON;
AND DANA BYRLEY