In re Anna Aagard Trust ( 2014 )

2014 UT App 269_________________________________________________________
THE UTAH COURT OF APPEALS
IN THE MATTER OF THE ANNA BLACKHAM AAGARD TRUST, ET AL.
W. KIM AAGARD,
Petitioner and Appellant,
v.
DIANE A. JORGENSEN,
Respondent and Appellee.
Opinion
No. 20120789-CA
Filed November 14, 2014
Sixth District Court, Manti Department
The Honorable Marvin D. Bagley
No. 113600013
Thomas A. Mecham, Alexander Dushku, and
Christopher S. Hill, Attorneys for Appellant
Clark R. Nielsen and Kathryn J. Steffey, Attorneys
for Appellee
JUDGE J. FREDERIC VOROS JR. authored this Opinion, in which
JUDGE MICHELE M. CHRISTIANSEN and SENIOR JUDGE PAMELA T.
GREENWOOD concurred.1
VOROS, Judge:
¶1 This case involves a dispute among family members over
control of ranch land in Northern Utah. Diane A. Jorgensen
1. The Honorable Pamela T. Greenwood, Senior Judge, sat by
special assignment as authorized by law. See generally Utah R.
Jud. Admin. 11-201(6).
In the matter of the Anna Blackham Aagard Trust
raises sheep on the land. Her brother, W. Kim Aagard, is the sole
manager of the Aagard family company and the sole trustee of
more than a dozen Aagard family trusts. Kim sought court
approval of a modification to the Company’s operating
agreement that would strip Diane of her power to veto any sale
of land. The district court ruled that the modification would
create a conflict of interest. Kim appeals. We reverse.
BACKGROUND
The Ranch, the Trusts, and the Company
¶2 The Aagard ranch covers nearly nine thousand acres of
land spanning the border of northeast Utah and southwest
Wyoming. To manage and transfer ownership of the ranch land,
Welby and Opal Aagard created an LLC (Company) and a set
of family trusts. Welby and Opal created trusts for themselves
and for many family members, including their children (Kim
and Diane), their children’s spouses, and each of their
grandchildren.2 Welby and Opal originally served as co-trustees
of the two trusts created for their own benefit. Kim served as
sole trustee of the remaining trusts. When Welby and Opal died,
Kim succeeded them as trustee of the Welby and Opal trusts.
¶3 The dispute between Kim and Diane hinges on the
relationship between the Aagard trusts and the Company. The
Company owns the Aagard ranch land. Kim owns an undivided
interest in the Company as trustee of the Aagard trusts; he holds
the balance of the interest in his personal capacity. Kim thus
controls and manages the Company.
2. Because individuals discussed here have the same last name,
and the trusts and Company all use that last name, we refer to
these individuals and the parties by their first names for clarity.
20120789-CA 2 2014 UT App 269In the matter of the Anna Blackham Aagard Trust
The Veto Provisions
¶4 As originally drafted, both the Company’s operating
agreement (Operating Agreement) and the Aagard trust
documents granted Kim and Diane veto power over property
sales. The trusts’ veto provision barred the trustee (now Kim)
from selling or exchanging ranch-related property unless both
Kim and Diane ‚consent*ed+ in writing.‛ In a similar provision,
the Operating Agreement barred any sale of ranch-related
property without the written consent of both Kim and Diane.3
¶5 Before their deaths, Welby and Opal modified the veto
provision in the Aagard trust documents by deleting the
provision granting Diane veto power. But Welby and Opal never
modified the Operating Agreement’s veto provision.
Modification of that provision requires consent of ninety percent
of the capital interests of the Company; counting interests Kim
owns personally and interests he owns as trustee of the Aagard
trusts, Kim owns 100 percent of the capital interests of the
Company.
Kim’s Modification Petition
¶6 After Welby and Opal died, Kim and Diane could not
agree on how best to manage the Aagard ranch. Though he had
not begun negotiating a sale, Kim considered selling the ranch
and distributing the proceeds. Kim believed that he could
negotiate a better sale if he first modified the Operating
3. The Operating Agreement also allows the manager to sell
ranch property if the Company ‚has insufficient liquid assets to
manage the ranch‛ or if the sale is intended to balance the
interest held by Diane’s and Kim’s families. But only the veto
provision is at issue here.
20120789-CA 3 2014 UT App 269In the matter of the Anna Blackham Aagard Trust
Agreement to remove the requirement that Diane consent. As
trustee and individual owner of the Company, Kim could
unilaterally modify the Operating Agreement. But Kim
nevertheless sought the district court’s approval before making
the modification that would strip Diane of her veto power. Kim’s
modification petition acknowledged the possibility of a conflict
of interest and asked the court to preapprove the modification.
¶7 The district court denied Kim’s request, concluding that
Kim’s ‚individual ownership‛ of the Company ‚creates a
presumption of being affected by a conflict of interest.‛ The
district court also concluded that Kim failed to prove ‚that he
[would] not improperly derive some benefit as an individual
from a sale‛ and ‚that the beneficiaries of the Trusts [would] be
benefitted‛ by the proposed modification.
ISSUE ON APPEAL
¶8 Kim contends that the district court erred in concluding
that the proposed modification is subject to a conflict of interest.
First, Kim argues that section 75-7-802(3) of Utah’s Uniform
Trust Code does not apply to his proposed modification. Second,
Kim argues that because the proposed modification does not sell
any trust property or create a conflict of interest, section 75-7-
802(2) of the Trust Code does not apply.
ANALYSIS
¶9 Kim maintains that his individual interest and the
interests of the trust beneficiaries coincide rather than conflict.
He argues that Diane’s veto power granted in the Operating
Agreement thus serves no purpose and creates ‚an impediment
to the sale‛ of Company property. In Kim’s view, because the
modification benefits the Company and its member trusts, Kim’s
individual interests and the interests of the trusts ‚are
20120789-CA 4 2014 UT App 269In the matter of the Anna Blackham Aagard Trust
compatible.‛ Further, Kim argues that neither section 75-7-802(3)
nor section 75-7-802(2) applies to his proposed modification.
¶ 10 Diane responds that the proposed modification creates a
conflict of interest and thus the Utah Uniform Trust Code
renders the modification voidable under section 75-7-802(2). And
even if the proposed modification is not voidable under section
75-7-802(2), Diane argues that Kim invited the district court to
presume a conflict of interest under section 75-7-802(3).
¶ 11 The district court’s denial of Kim’s modification petition
included both factual findings and legal conclusions. We will
reverse a district court’s factual findings only if they are clearly
erroneous. Swallow v. Jessop (In re United Effort Plan Trust), 2013
UT 5, ¶ 17, 296 P.3d 742. By contrast, we afford no deference to
the lower court’s analysis of ‚abstract legal questions.‛ Id. ¶ 18
(citation and internal quotation marks omitted). We thus review
the district court’s legal conclusions, including its interpretation
of statutes, for correctness. Id.
¶ 12 The Trust Code requires a trustee to ‚administer the trust
solely in the interests of the beneficiaries.‛ Utah Code Ann. § 75-
7-802(1) (LexisNexis Supp. 2011). ‚‘[T]he term ‚interests of the
beneficiaries‛ means the beneficial interests as provided in the
terms of the trust, not as defined by the beneficiaries.’‛ Rapela v.
Green (In Re Estate of Kampros), 2012 UT 57, ¶ 22, 289 P.3d 428(emphasis omitted) (quoting Uniform Trust Code § 706 cmt.).
¶ 13 The parties agree that Kim must administer the trusts
solely in the interests of the beneficiaries as required by section
802(1) of the Trust Code. The dispute arises from the next two
subsections. We first consider section 802(3).
¶ 14 Section 802(3) presumes a conflict of interest if the trustee
enters into a ‚sale, encumbrance, or other transaction‛ involving
trust property with any one of four enumerated categories of
third parties, including ‚a corporation or other person or
20120789-CA 5 2014 UT App 269In the matter of the Anna Blackham Aagard Trust
enterprise, in which the trustee, or a person that owns a
significant interest in the trustee, has an interest that might affect
the trustee’s best judgment.‛ Utah Code Ann. § 75-7-802(3)(d).
Based at least in part on this section, the district court concluded
that Kim’s proposed modification created a conflict of interest.
But on appeal, the parties agree that this section does not apply
to the proposed modification.
¶ 15 Kim argues that section 802(3)(d) does not apply, because
the proposed modification ‚is an agreement among the
[Company]’s owners—the trustee of the Trusts and Kim
individually—and not with the [Company] itself.‛ Diane agrees:
on appeal, she acknowledges that ‚Kim is correct . . . that the
rebuttable presumption of section 75-7-802(3) does not apply.‛
Because the parties agree that section 802(3) does not govern, we
address it no further.4
4. Diane does argue that even if the district court erred in
applying section 802(3), Kim ‚is precluded from challenging the
district court’s application . . . under the invited error doctrine.‛
The invited-error doctrine ‚prevents a party from taking
advantage of an error committed at trial when that party led the
trial court into committing the error.‛ Tschaggeny v. Milbank Ins.
Co., 2007 UT 37, ¶ 12, 163 P.3d 615 (citation and internal
quotation marks omitted). Kim did not lead the district court
into its erroneous interpretation of section 802(3). Though Kim
agreed that Diane ‚could . . . argue*+‛ that the modification
created a conflict of interest, he insisted in the same breath that
his ‚individual *post-modification] interests . . . appear to be
perfectly aligned with those of the beneficiaries of the Trusts.‛
Kim did not concede that his dual roles may affect his best
judgment. He conceded only that Diane may raise that
argument. That concession did not lead the district court into
erroneously applying section 802(3), and the invited-error
(continued...)
20120789-CA 6 2014 UT App 269In the matter of the Anna Blackham Aagard Trust
¶ 16 Accordingly, the principal issue on appeal concerns
section 802(2). Subject to enumerated exceptions, that section
makes ‚voidable‛ a sale, encumbrance, or other transaction
affected by a conflict between the trustee’s fiduciary and
personal interests:
Subject to the rights of persons dealing with or
assisting the trustee as provided in Section 75-7-
1012, a sale, encumbrance, or other transaction
involving the investment or management of trust
property entered into by the trustee for the
trustee’s own personal account or which is
otherwise affected by a conflict between the
trustee’s fiduciary and personal interests is
voidable by a beneficiary affected by the
transaction unless:
(a) the transaction was authorized by the
terms of the trust;
(b) the transaction was approved by the
court;
....
Utah Code Ann. § 75-7-802(2) (LexisNexis Supp. 2011). The
district court concluded that this provision applied to the
modification of the Operating Agreement as ‚a sale of trust
property.‛
¶ 17 Kim contends that, for several reasons, section 802(2) does
not prohibit the proposed modification to the Operating
Agreement. First, he asserts that the modification of the
doctrine thus does not prevent Kim from arguing that error now
on appeal.
20120789-CA 7 2014 UT App 269In the matter of the Anna Blackham Aagard Trust
Operating Agreement does not fit the statutory category of ‚a
sale, encumbrance, or other transaction involving the investment
or management of trust property.‛ See id. He also asserts that the
modification is not affected by a conflict between his fiduciary
and personal interests.
¶ 18 Diane responds that ‚entering into an agreement, both
individually and as trustee of the Trust to amend the
[Company’s+ Operating Agreement to allow for an unrestricted
sale of the Trust property qualifies as a ‘transaction involving the
investment or management of trust property.’‛ See id. She
further maintains that ‚because the proposed amendment of the
[Company’s] Operating Agreement requires Kim to act in both
his individual and fiduciary capacities, the amendment creates
an irrebuttable presumption of a conflict of interest.‛
¶ 19 First, we agree with Kim that the modification of the
Operating Agreement does not fit within the statutory category
of a ‚sale, encumbrance, or other transaction involving the
investment or management of trust property‛ and, thus, section
802(2) does not apply. See id. A ‚sale‛ involves the exchange of
property or services for a price. Merriam-Webster Online,
http://www.merriamwebster.com/dictionary/sale (last visited
Oct. 8, 2014) (first definition: ‚the transfer of ownership of and
title to property from one person to another for a price‛); Black’s
Law Dictionary 1454 (9th ed. 2009) (‚The transfer of property or
title for a price.‛). Here, Kim seeks to modify the Operating
Agreement, not transfer the trust property for a price. Thus, the
proposed modification does not constitute a ‚sale.‛ See Utah
Code Ann. § 75-7-802(2).
¶ 20 Nor does the proposed modification of the Operating
Agreement qualify as an ‚encumbrance.‛ Our supreme court has
defined an ‚encumbrance‛ as ‚any interest in a third person
consistent with a title in fee in the grantee, if such outstanding
interest injuriously affects the value of the property or
constitutes a burden or limitation upon the rights of the fee title
20120789-CA 8 2014 UT App 269In the matter of the Anna Blackham Aagard Trust
holder.‛ Holmes Dev., LLC v. Cook, 2002 UT 38, ¶ 44, 48 P.3d 895(citations and internal quotation marks omitted). Because
modifying the Operating Agreement would not create a
property interest in a third person that injuriously affects the
value of the property or burdens the Company’s title, Kim’s
proposed modification does not constitute an ‚encumbrance.‛
¶ 21 Nor does the modification qualify as an ‚other transaction
involving the investment or management of trust property.‛
Utah Code Ann. § 75-7-802(2) (LexisNexis Supp. 2011).
A ‚transaction‛ is defined as ‚a business deal: an occurrence
in which goods, services, or money are passed from one
person, account, etc., to another.‛ Merriam-Webster Online,
http://www.merriam-webster.com/dictionary/transaction (last
visited Oct. 8, 2014); see also Macmillan Dictionary,
http://www.macmillandictionary.com/us/dictionary/american/tr
ansaction (last visited Oct. 8, 2014) (first definition: ‚the action or
process of buying or selling something‛). Furthermore, where, as
here, ‚a nonexhaustive enumeration of specific items is followed
by a general term that suggests a class,‛ the interpretive canon of
ejusdem generis applies. Turner v. Staker & Parson Cos., 2012 UT
30, ¶ 14, 284 P.3d 600. ‚Under the ejusdem generis canon,
catchall elements of statutory lists may be understood as
restricted to include things of the same kind, class, character, or
nature as those specifically enumerated, unless there is
something to show a contrary intent.‛ State v. Bagnes, 2014 UT 4,
¶ 19, 322 P.3d 719 (emphasis, citation, and internal quotation
marks omitted). Thus, to fit within the catchall category, the
modification would have to qualify as a business deal similar to
a sale or encumbrance. But the proposed modification to the
Operating Agreement accomplishes nothing akin to transferring
an interest in property or burdening the title to property; nor
does it involve an exchange of property for a price. Therefore,
Kim’s proposed modification does not constitute a ‚transaction‛
within the meaning of the statute. And because the modification
does not qualify as a ‚transaction,‛ the Trust Code does not
20120789-CA 9 2014 UT App 269In the matter of the Anna Blackham Aagard Trust
prohibit the modification. On this ground alone, the judgment of
the district court must be reversed.
¶ 22 However, we also note that the proposed modification is
not ‚otherwise affected‛ by a conflict of interest. Utah Code
Ann. § 75-7-802(2). Section 75-7-802(8), defining a trustee’s duty
of loyalty, does not prohibit the trustee from ‚acquiring an
undivided interest in a trust asset in which the trustee, in any
trust capacity, holds an undivided interest.‛ Id. § 75-7-802(8)(g).
Our supreme court has held that, under the Trust Code, a trustee
‚did not violate his duty of loyalty to the Trust’s beneficiaries,
even though he and the Trust both own interests in [certain]
LLCs.‛ Rapela v. Green (In re Estate of Kampros), 2012 UT 57, ¶ 28,
289 P.3d 428. Thus, the Utah Trust Code ‚expressly permits *a
trustee] to retain the Trust’s LLC interests until, in his judgment,
they should be disposed of, even though he owns a personal
interest in them.‛ Id. (citing Utah Code Ann. § 75-7-802(8)(f)).
¶ 23 A conflict of interest exists when the interests in question
are ‚inconsistent‛ or ‚incompatible.‛ Angel Investors, LLC v.
Garrity, 2009 UT 40, ¶ 30, 216 P.3d 944; In re S.A., 2001 UT App
308, ¶ 25, 37 P.3d 1172. Diane hypothesizes several scenarios in
which Kim’s interest as trustee and his personal interest might
be inconsistent. For example, ‚if Kim were in personal financial
distress and in need of cash quickly,‛ she argues, ‚he could
direct the sale of the Ranch Land at a time when its value is
suppressed.‛ Or Kim could sell ranch property ‚only to generate
cash to pay Kim’s manager salary, a salary set and determined
solely by Kim.‛ But these scenarios are hypothetical; nothing in
the record suggests that Kim in fact contemplates selling the
ranch land at fire-sale prices. Such hypothetical conflicts are
always conceivable when a trustee holds undivided interests in
an LLC both as trustee and on his own account, yet holding such
undivided interests does not breach a trustee’s duty of loyalty.
See Utah Code Ann. § 75-7-802(8)(g); Rapela, 2012 UT 57, ¶ 28.
20120789-CA 10 2014 UT App 269In the matter of the Anna Blackham Aagard Trust
¶ 24 Furthermore, if a hypothetical conflict were to materialize,
Kim’s statutory duty of loyalty would protect the beneficiaries.
As Kim acknowledges, even after the modification he will ‚still
need to conduct his affairs according to the fiduciary duties that
he owes to Diane and all of the Trusts’ beneficiaries.‛ See Utah
Code Ann. § 75-7-801. Under the Trust Code, Kim owes a
fiduciary duty to the beneficiaries, and he acknowledges that the
Trust Code grants the beneficiaries ‚an avenue to seek redress‛
if they object ‚to the manner or terms of a sale of the Ranch
Land.‛ But because Diane is not a trustee, the Trust Code offers
the beneficiaries no similar protection against Diane’s veto. The
Trust Code would not, for example, prevent her from exercising
that veto to block a sale favored by all the other beneficiaries.
Consequently, Kim’s proposed removal of Diane’s veto power
from the Operating Agreement likely grants the remaining
beneficiaries greater, not less, protection.
CONCLUSION
¶ 25 In sum, we conclude that Kim’s proposed modification to
the Operating Agreement does not qualify as a sale,
encumbrance, or similar transaction and, in any event, creates no
inconsistency or incompatibility between his personal and
fiduciary interests. Accordingly, the district court’s order is
reversed and the case remanded for further proceedings
consistent with this opinion.5
____________
5. Because we conclude that the proposed modification does not
run afoul of the Trust Code, we do not reach the parties’ second
set of arguments concerning Welby’s and Opal’s reasons for
declining to modify the Operating Agreement and their intent to
have Kim modify the agreement after their deaths.
20120789-CA 11 2014 UT App 269