Opinion
NO. 2013-CA-001457-MR
01-30-2015
LOWRY R. WATKINS, JR. APPELLANT v. PNC BANK, NATIONAL ASSOCIATION APPELLEE
BRIEF FOR APPELLANT: Jasper D. Ward, IV Louisville, Kentucky BRIEF FOR APPELLEE: Cornelius E. Coryell, II Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE OLU A. STEVENS, JUDGE
ACTION NO. 07-CI-003077
OPINION
AFFIRMING
BEFORE: ACREE, CHIEF JUDGE; CLAYTON AND DIXON, JUDGES. CLAYTON, JUDGE: This is an action for breach of fiduciary duty brought by the Appellant, Lowry R. Watkins, Jr., against PNC Bank, National Association (hereinafter "PNC"). The Jefferson Circuit Court granted summary judgment and Watkins appealed. Based upon the following, we affirm the decision of the trial court.
BACKGROUND INFORMATION
In September of 1961, Nora Iasigi Bullitt executed a will (hereinafter "Will") wherein the residue of her estate was to be divided into three separate trusts for the benefit of her children. Each trust was for equal value. One of the trusts is at issue in this action, specifically, the trust of Thomas W. Bullitt Fund 3, which was created for the benefit of Thomas W. Bullitt and his wife, Kay. Under the Trust, income was payable to Thomas during his lifetime, then to Kay after his death. Pursuant to Item IX(a) of the Will, upon Kay's death, the corpus of the Trust was to be divided among surviving issue. If there were no surviving issue, their Trust would be divided equally between the other two Trusts. Since Thomas and Kay had no issue, Trust Fund 3 was divided between the other two Trusts. Watkins was a beneficiary under the Trust of his mother, and therefore as a beneficiary of that trust, received a distribution from Fund 3.
Under the Will, Citizens Fidelity Bank and Trust Company ("CFB") was appointed the Trustee of each of the three trusts. The Will provided as follows:
All of the rest and residue of my estate, including my legacy which may lapse or become void or incapable of taking effect, I devise and bequeath to my Trustee to be by it divided into three estates of equal value; provided, however, to the extent my son, Thomas Walker Bullitt, so elects and shares owned by me at the time of my death are available therefore, the trust estate to be held for the benefit of my said son shall consist of shares of stock of Citizens Fidelity Bank and Trust Company.
Watkins brought an action against PNC arguing that PNC had violated its duties as Trustee of the Trusts. Specifically, he contended: (1) that it retained the Citizens Fidelity (PNC) stock in violation of the Prudent Investor Rule; (2) that it retained PNC stock in violation of its duty of loyalty; and (3) that it used Trust assets to purchase BlackRock mutual funds in violation of its duty of loyalty. Both parties moved for summary judgment before the trial court. Summary judgment was granted in favor of PNC and this appeal followed.
STANDARD OF REVIEW
In reviewing the granting of summary judgment by the trial court, an appellate court must determine 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." Kentucky Rules of Civil Procedure (CR) 56.03.
"[A] trial court must view the evidence in the light most favorable to the nonmoving party, and summary judgment should be granted only [when] it appears impossible that the nonmoving party will be able to produce evidence at trial warranting a judgment in his favor. [While] [t]he moving party bears the initial burden of [proving] that no genuine issue of material fact exists, . . . the burden shifts to the party opposing summary judgment to present 'at least some affirmative evidence showing that there is a genuine issue of material fact for trial.'" Community Trust Bancorp, Inc. v. Mussetter, 242 S.W.3d 690, 692 (Ky. App. 2007).
Since summary judgment deals only with legal questions as there are no genuine issues of material fact, we need not defer to the trial court's decision and must review the issue de novo. Lewis v. B&R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001). With this standard in mind, we will review the issues before us.
DISCUSSION
Kentucky Revised Statutes (KRS) 286.3-277 is the "Prudent Investor Rule." It provides as follows:
(1) Notwithstanding the provisions of any other law, a bank empowered to act as a fiduciary or trust company, when investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing property held in a fiduciary capacity, shall act as a prudent investor would, in light of the purposes, terms, distribution requirements, and other circumstances of the fiduciary account.
(2) The standard described in subsection (1) of this section requires the exercise of reasonable care, skill, and caution, and is to be applied to investments not in isolation but in the context of the account portfolio and as part of an overall investment strategy, which should incorporate risk and return objectives reasonably suitable to the account.
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(5) The duties of the bank or trust company under this section are subject to the rule that in investing the funds of the account, the bank or trust company;
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(b) Has the power expressly or impliedly granted by the terms of the account or applicable instrument and has a duty to the beneficiaries of the account to conform to the terms of the account directing or restricting investments by the bank or trust company.
In determining that the Appellee had not violated the Prudent Investor Rule, the trial court held as follows:
When Nora Bullitt established Thomas' [sic] Trust, she directed that to the extent Thomas Bullitt desired the Trust should consist of shares of stock of Citizens Fidelity Bank and Trust company. Citizens Fidelity also was named Trustee for the Trust. Thomas Bullitt also was a director of Citizens Fidelity. Nora Bullitt's Will gave Citizens Fidelity a number of powers, such as: the power to invest the funds in the Trust in any securities it deemed advisable; the power to sell, assign, transfer, convey, exchange or deliver any or all Trust property deemed advisable; and the power "to retain, so long as it in its sole discretion considers best, any real or personal property belonging to my estate at the time of my death, without regard to diversification."
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As noted in KRS 286.3-277(2), the standard is one of reasonableness and must not be applied in a vacuum. Further, subsection (5) specifically gives PNC any "power expressly or impliedly granted by the terms of... the applicable instrument." The Court finds that Watkins is not entitled to summary judgment on this issue.
Given the directive in the Will, we agree with the trial court that PNC did not violate the Prudent Investor Rule when it purchased the PNC stock.
Watkins also contends that PNC breached its duty of loyalty to the Trust when it retained PNC stock in the Trust. He relies on the holding in Hutchings v. Louisville Trust Co., 276 S.W. 2d 461 (Ky. 1955), as support for his contention. In Hutchings, the Court held that a corporate trustee "may not purchase trust property from an affiliated or subsidiary corporation in which it has controlling interest of such a nature that it would be a temptation to consider its own advantage and not to consider solely the advantages to the beneficiaries of the trust." Id. at 464. In this case, however, PNC, as the owner of CFB, had a directive from the original empowering instrument which gave it broad discretion in purchasing CFB stock, which was the predecessor of PNC. Thus, this case can be distinguished from Hutchings.
KRS 386.025 allows a bank to purchase its own stock as a fiduciary as long as the instrument creating the trust authorizes it. In this case, the creating instrument allowed the trustee to continue to purchase CFB stock. While the trial court also relied on KRS 386.810(3)(a) in its finding that PNC had the power to retain its own stock in the Trust, this statute has since been repealed.
Watkins's final argument is that PNC breached its fiduciary duty of loyalty by investing Trust assets in BlackRock Mutual Funds. He specifically asserts that, in purchasing BlackRock, PNC was self-dealing. PNC, however, asserts that KRS 286.3-272 allows it to do so. It provides as follows:
(1) Notwithstanding any other law, a bank empowered to act as a fiduciary or a trust company, to the extent that it exercises investment discretion as a fiduciary, custodian, managing agent, or otherwise with respect to the managing agent, or otherwise with respect to the investment and reinvestment of assets that it holds in a fiduciary capacity, may invest and reinvest the fiduciary assets in an investment company or investment trust established, owned, or controlling by the bank or trust company or an affiliate of the bank or trust company.
(2) The fact that the bank or trust company, or any affiliate of the bank or trust company, is providing
services to the investment company or trust as investment advisor, sponsor, distributor, custodian, transfer agent, registrar, or otherwise, and receiving reasonable remuneration for the services, does not preclude the bank or trust company from investing in the investment company or trust.This statute allows PNC to invest in BlackRock even if it has an interest in the stock. We do not address the appellant's arguments regarding jural rights since that argument was not raised directly to the trial court. Thus, based upon the above, we affirm the decision of the trial court.
ALL CONCUR. BRIEF FOR APPELLANT: Jasper D. Ward, IV
Louisville, Kentucky
BRIEF FOR APPELLEE: Cornelius E. Coryell, II
Louisville, Kentucky