Opinion
Nos. 26312-6-III; 26362-2-III.
November 4, 2008.
Appeals from a judgment of the Superior Court for Franklin County, Nos. 04-2-50505-7 and 4-3691, Craig J. Matheson, J., entered June 14, 2007.
Affirmed by unpublished opinion per Korsmo, J., concurred in by Sweeney and Brown, JJ.
UNPUBLISHED OPINION.
These cases involve a family farm held in trust, a widow, and her four daughters. The widow, as both beneficiary and trustee, sold the trust's interest in the farm to one of the daughters. When the mother unexpectedly died in an automobile accident, two daughters succeeded to their mother's role as trustee, and one began efforts to set aside the sale. Significant litigation then ensnarled the sisters. The effort to set aside the sale eventually was denied by the trial court. The trial court also ordered the estate to pay at least some attorney fees to all of the parties. An appeal over the farm sale ruling was followed by cross appeals concerning the attorney fee awards. Concluding that the trustee was permitted to act as she did and that the trial court did not abuse its discretion in the fee awards, we affirm.
John and Patricia Johnson purchased a farm near Pasco in 1972. He died from cancer in 1977 at age 44. John Johnson had executed a will in California in 1966 which left all of his personal property to his wife, Patricia, and the remainder of his estate, including his half interest in the farm, was placed in trust. The will granted the trustee broad powers to manage or sell the property as the owner could, and indicated that the trustee's discretionary actions "shall be absolute." Patricia Johnson was named income beneficiary for life and the couple's four daughters were designated as equal remainder beneficiaries. Patricia Johnson was also named as trustee (along with People's National Bank, which later declined the appointment) and given the power to manage and sell the property to the full extent an owner could. Patricia was also named as personal representative of her late husband's estate. The will was admitted to probate in 1977, but Patricia failed to close the estate until 1998. In order to close the estate, Patricia and her four daughters entered into a global settlement that waived claims concerning the handling of the estate to that time.
The will was described at oral argument as creating a classic tax avoidance trust.
Patricia operated the farm as personal representative after her husband's death. The farm went through a bankruptcy proceeding in 1986 that included selling off some acreage to pay the mortgage. The land was leased to neighboring farmers through 1993; the farm fell into disrepair. Three years later Patricia leased the farm for 20 years to daughter Susie Peterson and her husband Steven Peterson. By 1998, the Petersons had moved onto the property and made significant repairs.
Patricia entered into an agreement on April 1, 2001, to sell her half interest in the farm to the Petersons for $400,000 at 6.5 percent interest payable over 24 years. The agreement also included an option, exercisable within one year, to sell the trust's portion of the farm on the same terms. The agreement was entered into without notice to the other three sisters and without an appraisal of the farm.
The Petersons exercised the option the following February, but the parties waited until January 2003, to close the sale in order to benefit Patricia's tax considerations. The terms of the sale differed from those specified in the option. The sale price was still $400,000, but the Petersons paid $20,000 down and were to pay the remainder over a 31 year contract period at 3.25 percent interest.
Patricia died in an automobile accident in December 2003. Ms. Peterson and her sister, Lori Anne Stigge, were appointed successor co-trustees of Mr. Johnson's trust. Ms. Stigge obtained an ex parte order re-opening Mr. Johnson's estate for purposes of filing a TEDRA action. She then filed a petition, as co-trustee, for authority to bring an action against her sister to set aside the sale. She alleged that the property was worth $739,000 and that Patricia had violated her fiduciary duties by selling it for only $400,000. The trial court granted the authority on June 7, 2004, and required all of the sisters to be served. Three weeks later the Petersons refinanced the property and paid off the contract balance owing to the estate. The money was placed in a trust bank account. The next week Ms. Stigge filed a complaint against the Petersons to set aside the real estate contract.
Trust and Estate Dispute Resolution Act, chapter 11.96A RCW.
Cindy Johnson, another of the sisters, has taken part in this litigation. The other sister, Janice Weinrich, has not.
On October 1, 2004, the trial court consolidated the TEDRA action with the estate file. The court also denied the Petersons' motion for reconsideration of the June 7 authorization and ordered the estate to pay the attorney fees and costs to Ms. Stigge to that point, but ruled there would be no further expenditures except those related to mediation. That same month, the four sisters executed a release agreeing not to make any claims against Patricia Johnson's estate, including any claim against her as trustee of Mr. Johnson's estate. The sisters received an early partial distribution in exchange for the release.
The Petersons attempted to appeal the June 7 order authorizing the action and the October 1 rulings. Our Commissioner found they were not appealable or subject to discretionary review. The Supreme Court denied review of that ruling.
Meanwhile, in May 2004, the Petersons asked certified general appraiser Robert Greeno for an appraisal of the entire farm property as of the April 1, 2001 sale date. While Mr. Greeno's analysis was pending, Bruce Stigge, husband of Lori Anne Stigge, supplied an affidavit in the TEDRA action on August 13, 2004. Mr. Stigge, a farm owner and licensed real estate agent, stated that the Petersons had bought the trust farm land for $1,855.47 per acre while comparable farm land in 2002-2004 sold for $2,982 to $6,581 per acre.
Mr. Greeno returned his appraisal by a report dated November 8, 2004.
Considering the capital improvements made by the Petersons, which he valued at $111,847, and the long-term lease they held, he valued the entire property at $825,000. This was the only formal appraisal used during mediation. The mediation efforts were not successful.
The trial court, upon the agreement of the parties, directed that Mr. Greeno prepare an appraisal valuing the property as of January 29, 2003 (the date the sale closed), without considering the lease and option to purchase. Counsel for Ms. Stigge expressly requested that Mr. Greeno do the evaluation because of his expertise. Mr. Greeno ultimately determined that the land was worth $900,000 at that time without those considerations. Not satisfied, Ms. Stigge obtained an appraisal from certified general appraiser Michael Kallstrom. He valued the property at $1,225,000 as of January 29, 2003.
With the failure of the mediation, Ms. Peterson filed for summary judgment as co-trustee to dismiss Ms. Stigge's action. The Peterson marital community later filed a similar motion. They contended the record established that Patricia Johnson acted within her discretion in selling the farm. Ms. Stigge filed a cross motion for summary judgment, contending that the appraisals showed a breach of fiduciary duty in selling the property below its value.
The trial court ultimately granted the summary judgment motions filed by the Peterson community and by Ms. Peterson as co-trustee, while denying Ms. Stigge's motion. The trial court subsequently ordered the estate to pay attorney fees and costs as follows: Lori Anne Stigge received a total of $17,170.34 for fees and expenses through August 24, 2004; Susie Peterson received $28,437.78 in her role as co-trustee; the Peterson marital community received a total of $17,505.50; Cindy Johnson received $9,316.59.
Ms. Stigge appealed to this court contending that the trial court erred in granting summary judgment, awarding her less than full attorney fees, and awarding her sisters any attorney fees. Ms. Peterson as co-trustee and her marital community cross appeal the award of attorney fees to Ms. Stigge, and the refusal of the trial court to offset all attorney fees from Ms. Stigge's share of the trust. Cindy Johnson likewise cross appeals the award of any fees to Ms. Stigge.
ANALYSIS
Summary Judgment. The decision to grant a summary judgment is reviewed de novo. This court stands in the same position as the trial court. Hubbard v. Spokane County, 146 Wn.2d 699, 706-707, 50 P.3d 602 (2002). Summary judgment is proper when, after viewing the evidence in a light most favorable to the opposing party, there are no issues of material fact and the moving party is entitled to judgment as a matter of law. Trimble v. Wash. State Univ., 140 Wn.2d 88, 93, 993 P.2d 259 (2000).
The trust document is the source of a trustee's authority. Monroe v. Winn, 16 Wn.2d 497, 508, 133 P.2d 952 (1943). The trust document typically controls in case of a conflict between the document and statutory obligations. RCW 11.97.010. A trustee is a fiduciary who owes an obligation to act in good faith with care, loyalty, and integrity on behalf of the beneficiaries. Allard v. Pac. Nat'l Bank, 99 Wn.2d 394, 403, 663 P.2d 104 (1983). Nonetheless, a trustee's sale of trust property will only be set aside upon an abuse of the trustee's discretion. Occidental Life Ins. Co. v. Blume, 65 Wn.2d 643, 648, 399 P.2d 76 (1965); Monroe, 16 Wn.2d at 508. Typically, an abuse of discretion in such circumstances will be found when there is a showing the trustee acted arbitrarily, in bad faith, or maliciously or fraudulently. Id.
The Trust and Estate Dispute Resolution Act is a broad grant of power to the trial courts to act to resolve disputes in the administration of trusts and estates. See generally ch. 11.96A RCW. Actions brought under TEDRA include, inter alia, any "matter" involving "the direction of a personal representative or trustee to do or to abstain from doing any act in a fiduciary capacity." RCW 11.96A.030(1)(b).
Although couched in a couple of different ways, this case is essentially a TEDRA action to resolve a dispute concerning the original trustee's management of the major trust asset. Appellant cites to the common law trust pursuit doctrine in her analysis. Given the trial court's broad equitable powers under TEDRA, we will not separately address that theory since there is no dispute that the trial court could have granted the relief sought. Ms. Stigge contends her mother breached her fiduciary obligations by favoring her sister Susie Peterson by granting an advantageous lease and selling the trust interest in the farm on terms that favored Ms. Peterson to the detriment of the other sisters. She also argues that her mother failed to have the property appraised and give notice prior to entering into the sale agreement. Having eschewed any actions against her mother or her mother's estate by the earlier settlement agreements, Ms. Stigge asked the trial court to exercise its equitable powers under TEDRA to set aside the sale. Ms. Peterson, in turn, argues that her mother acted within her discretion as trustee. The trial court ultimately concluded that Ms. Peterson's assessment was correct.
As noted previously, the trust document gave the trustee very broad powers to manage or even sell the property as she saw fit. Like the trial court, we believe the trustee acted within her discretionary powers. As to the lease, it is questionable whether it can be challenged in this action. The lease was entered into two years before the trust was actually funded and appellant has foregone her opportunity to challenge her mother's actions as personal representative of the estate. The fact that the Petersons subsequently bought the property also largely rendered the question moot. Regardless, there is no showing of arbitrary action. As the beneficiary of the lease income, Patricia could rationally decide that a long-term lease was to her benefit by providing a reliable income flow. This also had the additional benefit of encouraging improvements to the property and keeping the farm in the family. The trial court properly concluded there could be no abuse of discretion under these circumstances and that summary judgment was proper.
For similar reasons, we agree with the trial court on the sale of the property. Initially, though, we note appellant's argument that RCW 11.100.140(1) required Ms. Johnson to provide notice and obtain an appraisal before selling the farm. Notice under that section is required, however, only for beneficiaries who are currently receiving income from the trust or for whom current income is being accumulated. RCW 11.100.140(4). Ms. Stigge conceded in the trial court that this provision did not require notice to her or her sisters when their mother entered into the sales agreement. That position is equally sound in this court because the four sisters were not income beneficiaries entitled to notice.
In addition to giving notice, the statute also requires a trustee to either seek an appraisal or conduct an open market sale of real estate when it constitutes more that 25 percent of the trust res. RCW 11.100.140(1), (2)(a). As noted, the notice provision does not apply to this case. We question, too, whether the four sisters had the ability to enforce the appraisal provision where they were not even entitled to notice of the sale or appraisal. There also are serious questions about the applicability of the statute to this case. The trust was created in California in 1966; the statute was enacted in Washington in 1984. This is significant because of the trustee's "absolute discretion" under the trust grant to manage and sell the property. The grantor placed no requirements on the trustee to obtain an appraisal or sell on the open market. Indeed, there was no obligation imposed to even preserve the assets for the remainder beneficiaries. Finally, we note that under RCW 11.100.140(5), Patricia Johnson, as beneficiary, was able to waive the requirement that the trustee (herself) obtain an appraisal. In light of all of these considerations, we conclude that Patricia Johnson did not abuse her discretion by selling the property without an appraisal or putting it on the open market.
See Laws of 1984, ch. 149, § 114.
Patricia Johnson's obligation as trustee was to herself as beneficiary. It would be in her own self-interest to obtain the best deal she could once she decided to sell. If she decided that a steady income stream from selling the land on contract was in the best interest of herself as beneficiary, she had the right to make that decision. While the fact that the sale of the trust land was on terms more favorable to the Petersons than the sale of Ms. Johnson's own half, that point was rendered moot when the Petersons paid off the sale contract right away.
Counsel, at oral argument, suggested the disparate treatment of the two contract terms and conditions arose because the parties realized the sale would not be completed within the contract period on the stated terms. While there is no evidence in the record on this point, it does suggest a possible reason for the change in terms. It was also understandable that Patricia would seek to sell the property to the same people who held a long-term lease on the land and had made significant improvements — the property would be worth less to others who would have to buy subject to the lease. It also may have been desirable to attempt to keep the land in the family. While she did not have the benefit of the appraisals — which were made after her death — the first appraisal from Mr. Greeno showed that the sale price was not that far out of line. If she acted negligently in selling the land too cheaply, Patricia was primarily hurting herself. The evidence is far short of that necessary to make a showing of some sort of fraudulent transfer designed to benefit Ms. Peterson to the detriment of the other sisters. Accordingly, we conclude that even when the evidence is viewed in a light most favorable to Ms. Stigge, there is no genuine issue of material fact that Patricia acted within her discretion as trustee in selling the land as she did. Thus the trial court properly granted summary judgment in favor of Ms. Peterson and her marital community.
We are not unmindful that the true facts of this case are intertwined with longstanding family dynamics which judges, as outside observers, cannot truly comprehend. It may well be that Patricia intended to favor Ms. Peterson. It may be that she did not. There simply is no evidence in the record on that point. All we can say is that the evidence does not allow us to conclude that Patricia abused the great discretion given her in the will.
Attorney Fees. All parties challenge the attorney fee awards, contending that they did not receive enough and that the opposing side should not have received any. The bulk of the fees were awarded under the TEDRA statute, which provides the trial court discretion in granting attorney fees it considers equitable. The trial court also can consider any factors it deems relevant, including whether or not the litigation benefitted the trust. RCW 11.96A.150(1). A trial court abuses its discretion when it exercises discretion on untenable grounds or for untenable reasons. State ex rel. Carroll v. Junker, 79 Wn.2d 12, 26, 482 P.2d 775 (1971).
The court awarded Ms. Stigge her fees for efforts up to the point of mediation. The court explained that based on the initial offer of proof, it appeared that there was a good faith claim that the property was sold too cheaply and that the trust might benefit from further investigation. The court closed out Ms. Stigge's fees once the mediation failed, reasoning that the trust was no longer benefitted by continued litigation. These are certainly tenable reasons for granting Ms. Stigge some attorney fees. To a point, her efforts might have benefitted the trust. After that point, they did not. Since the court had a tenable basis for the fees awarded, as well as for the fees it declined to award, there could be no abuse of discretion here. We therefore reject Ms. Stigge's appeal and the cross appeal claims of Ms. Peterson and Cindy Johnson.
Ms. Peterson as co-trustee received some attorney fees, but less than she sought. The court reduced Ms. Peterson's trustee-related attorney fees in half to account for the times when her efforts as co-trustee were aligned with those of her marital community. Ms. Peterson challenges that decision.
The award to Ms. Peterson as co-trustee was under TEDRA, which gives the trial court great discretion. As with Ms. Stigge, the court was concerned that litigation extended far beyond what was needed to benefit the trust estate and that some of Ms. Peterson's efforts were duplicative of what her community was already doing. These, too, are certainly tenable bases for the court's exercise of its discretion with respect to Ms. Peterson as co-trustee.
The court awarded the Peterson marital community its entire fees. The marital community was not awarded fees under TEDRA; rather, the community received its fees under the warranty deed. The grantee of a warranty deed is entitled to its attorney fees expended in defending its title. Mellor v. Chamberlin, 100 Wn.2d 643, 650, 673 P.2d 610 (1983) (Rosellini, J., concurring); Mastro v. Kumakichi Corp., 90 Wn. App. 157, 163, 951 P.2d 817, review denied, 136 Wn.2d 1015 (1998). As required, the Peterson community tendered its defense to the co-trustees, who declined to accept the tender. Mastro, 90 Wn. App. at 164-165. Having complied with its obligation to tender defense, the community was therefore entitled to its attorney fees expended in defending the title it received from the trust. Id. at 163. The trial court correctly awarded the community its entire fees spent in the defense of the title it received from the trust.
Cindy Johnson was awarded her entire fees under TEDRA. Ms. Stigge contends that was error. But, as a beneficiary under the trust, Cindy was properly considered a "party" under RCW 11.96A.030(4). The trial court directed that she be served; she subsequently took part in the litigation in order to protect her interest in the trust estate. The court had discretion to award her fees under RCW 11.96A.150(1). It did not abuse that discretion by awarding fees for her successful defense of her own interests. There was no error.
The trial court correctly determined that there was no evidence to overcome the trustee's discretionary decision to sell the property to one of the trust remainder beneficiaries. The decision to grant summary judgment is therefore affirmed. The trial court did not abuse its discretion in making the carefully considered attorney fee awards; these awards are also affirmed. Since all parties have lost either their appeal or cross appeal, no party shall be awarded costs on appeal. We also decline to award any party attorney fees on appeal, as an exercise of our discretion under RCW 11.96A.150(1).
Affirmed.
A majority of the panel has determined this opinion will not be printed in the Washington Appellate Reports, but it will be filed for public record pursuant to RCW 2.06.040.
SWEENEY, J., BROWN, J., concur.