William C. Forbes and Julia Forbes, Trustees of the Beckton Ranch Trust U/A/D April 1, 1920 , 341 P.3d 1041 ( 2015 )

IN THE SUPREME COURT, STATE OF WYOMING
2015 WY 13
OCTOBER TERM, A.D. 2014
January 23, 2015
WILLIAM C. FORBES and JULIA FORBES,
Trustees of the Beckton Ranch Trust U/A/D
April 1, 1920,
Appellants
(Defendants),
S-14-0122
v.
WALDO E. FORBES,
Appellee
(Plaintiff).
WALDO E. FORBES,
Appellant
(Plaintiff),
v. S-14-0123
WILLIAM C. FORBES, JULIA FORBES,
EDITH L. FORBES, and SARAH FORBES,
Trustees of the Beckton Ranch Trust U/A/D
April 1, 1920,
Appellees
(Defendants).
Appeal from the District Court of Sheridan County
The Honorable William J. Edelman, Judge
Representing William C. Forbes and Julia Forbes in Case No. S-14-0122:
Patrick J. Murphy and Keith J. Dodson, Williams, Porter, Day & Neville, P.C.,
Casper, Wyoming. Argument by Mr. Murphy.
Representing William C. Forbes, Julia Forbes, Edith L. Forbes, and Sarah Forbes in
Case No. S-14-0123:
Patrick J. Murphy and Keith J. Dodson, Williams, Porter, Day & Neville, P.C.,
Casper, Wyoming. Argument by Mr. Murphy.
Representing Waldo E. Forbes:
Debra J. Wendtland, Wendtland & Wendtland, LLP, Sheridan, Wyoming.
Before BURKE, C.J., and HILL, KITE, DAVIS, and FOX, JJ.
NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third.
Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building,
Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be
made before final publication in the permanent volume.
FOX, Justice.
[¶1] The Beckton Ranch Trust (BRT) was formed in 1920 by six members of the
Forbes family to hold certain parcels of land and their appurtenant water and ditch rights
in Sheridan County, Wyoming, for the benefit of their descendants. The number of
beneficiaries grew over time to 19, but the Forbes family managed the Trust’s interests
without significant strife. That changed in 2007, when Waldo E. Forbes (Spike) resigned
as trustee following a dispute with his siblings. Later that year, the remaining
trustees―Spike’s brother, William Forbes (Cam) and his sisters, Julia Forbes, Sarah
Forbes, and Edith Forbes―began a series of land and water transactions that form the
basis for the breach of the duty of loyalty alleged in the complaint Spike filed against
them.
[¶2] After a bench trial, the district court found that two of the four trustees, Cam and
Julia, had breached their duty of loyalty and should be removed. The district court made
no finding regarding Sarah and Edith, and did not remove them as trustees. Both sides
appeal. We reverse the district court’s order removing Cam and Julia, and affirm the
decision not to remove Sarah and Edith.
ISSUES
[¶3] Cam Forbes and Julia Forbes, Trustees of the BRT, raise the following issues on
appeal:
1. Was the district court’s decision to remove Cam and Julia as trustees because
of the exchange of water rights reversible error because it was based on an unpled claim
and because it made clearly erroneous findings regarding the exchange of water rights?
2. Was the district court’s finding that Julia profited from the transactions that
were undertaken to place a conservation easement on the BRT property clearly
erroneous?
3. Did the district court err when it found that Cam and Julia improperly issued
new shares in the BRT?
4. Did the district court commit reversible error when it allowed undesignated
expert testimony, concluded property deeded to Cam was not suitable for development in
spite of Spike’s expert’s testimony otherwise, and based its finding on difference in value
by comparing a 2007 value of one property to a 2013 value of another?
5. Did the district court commit reversible error when it failed to address the
BRT Trustees’ affirmative defenses?
1
[¶4] Spike raises only one issue in his cross appeal:
1. Did the district court err as a matter of law when it failed to remove Edith and
Sarah as trustees of the BRT?
FACTS
[¶5] The BRT is a Massachusetts Business Trust created by members of the Forbes
family in 1920 to manage and hold real property in Sheridan County, Wyoming, for the
benefit of the Forbes family and their descendants. The BRT holds approximately 6,000
acres of land worth roughly $20,000,000. Spike was a trustee of the BRT for
approximately 44 years, from 1963 until 2007. Cam became a trustee in 1983, Edith in
1986, and Julia and Sarah in 2007. There are 19 beneficiaries of the BRT, including
Spike, Cam, Edith, and Julia.1 Spike is the only beneficiary to challenge the trustees’
exercise of their duties. The BRT will terminate 20 years after the death of Amelia
Forbes, who was born in 1915, and was alive at the time of the hearing.2
[¶6] Other Forbes family entities that enter the picture are the Hillside Street Trust
(HST), which owns land in the same area as the BRT; the Sarah P. Forbes Revocable
Trust (SPFRT), which held the family home sometimes referred to as the “Cave Creek
property;” Beckton Stock Farms, Inc., which operates a cattle business on BRT and HST
land; and Beckton Livestock, LLC, which owns the livestock that is operated by Beckton
Stock Farms. Each of these entities has overlapping, but not identical, beneficiaries,
trustees, officers, and members.
[¶7] The stage for the current dispute was set with the aging and estate tax concerns of
the generation now managing the BRT; the death of their mother, Sal Forbes; the
retirement of Spike as ranch manager and BRT trustee; and the looming termination of
the Trust. Spike, who had become disgruntled after a difference of opinion with his
siblings over remodeling and construction expenses for the Cave Creek house he lived in
with Sal, and who had concluded that “my own estate planning imperatives required
some ownership separation,” made it clear that he would be taking any steps necessary to
separate his interests from the Trust. In a May 6, 2011, email to Edith, he said: “That can
happen in a way which is mutually beneficial to many shared common interests, or it can
happen with a fight every step of the way.” He went on to say: “The choice on ‘how’ it
happens is in your camp: cooperatively or with fight after fight.” On July 11, 2011,
Spike filed the complaint that began this lawsuit.
1
Sarah Forbes is not a BRT beneficiary.
2
The Trust may also be terminated earlier at the discretion of three or more trustees.
2
A. The 2007 “Cam transaction”
[¶8] While Spike was still a BRT trustee, in January 2007, he proposed that:
It is appropriate that Cam own the land upon which his house
sits, currently owned by the Beckton Trust. I propose that
such land be sold to him by the Beckton Trust at the current
fair market value established by the County which is
approximately $25,000 for the home-site plus a small amount
for the adjacent agricultural land.
[¶9] In August 2007, after Spike had resigned as trustee, the BRT exchanged the
property on which Cam had built his house for a 31 percent interest in 80 acres of
property Cam owned near Sheridan, the “Jeffries 80.” A 2007 appraisal of the property
Cam acquired from the BRT valued it at $320,000. A 2007 appraisal of a 35-acre
“hypothetical piece of property”3 owned by Cam valued it at $454,000. The Jeffries 80
that was ultimately exchanged to the BRT was near, but “not exactly contiguous” to the
land appraised in the 2007 appraisal. A 2013 appraisal, obtained by Spike for this
litigation, valued the Jeffries 80 at $205,000 (31 percent of that value is $63,550).
[¶10] Trustee Sarah Forbes explained that the trustees concluded this land exchange was
in the BRT’s interest because the Jeffries 80 seemed to be “premiere land” for
development, and because it would be beneficial for the trust to have land that could be
sold without impacting the ranch operations. They also believed that the 31% interest
would be beneficial because they could “ride on Cam’s coattails” when he developed the
property. Spike’s expert James Urbatchka, who performed both Jeffries 80 appraisals,
testified that “I think there was enough relatively flat land that you could put four houses
there.”
[¶11] Cam recused himself from the August 27, 2007 Resolution of the BRT trustees
that adopted the Jeffries 80 exchange. However, he was fully involved in the discussions
and planning leading up to that point, retaining Mr. Urbatchka to do the appraisals for
both properties, and making several trips over the Jeffries 80 with other BRT trustees and
beneficiaries.
B. The Cave Creek Transaction
[¶12] In 2010, when the matriarch Sal Forbes was ill, the trustees determined that the
BRT should acquire her house and property, known as “Cave Creek,” in an attempt to
keep that property in the family after her death. To accomplish this, the BRT acquired
3
The hypothetical aspect of the appraisal was that it was to value 35 acres out of 1,500 acres that Cam
owned, without identifying which 35 acres.
3
the house and 72 acres, valued at $1,233,000, in exchange for 70 newly-issued shares in
the BRT. Neither the Cave Creek transaction nor the issuance of 70 new BRT shares for
that transaction were relied upon by the district court in its Findings of Fact, Conclusions
of Law and Judgement [sic].
C. The Conservation Easement Exchange
[¶13] Spike testified that “[w]e started talking about a conservation easement and
encouraging it in 2005 while I was a trustee.” Many BRT beneficiaries had indicated a
desire to preserve BRT land with such an easement. In 2010, the BRT trustees reached
an agreement with the Nature Conservancy to place a conservation easement on 1,020
acres of BRT land, in exchange for $1,353,200 (net after taxes and costs) and a small
piece of property called the “Polo Field.” Spike was in favor of this transaction;
however, he objected to a series of transactions between trustee Julia Forbes and the BRT
which led up to the conservation easement transaction.
[¶14] Late in the negotiations on the conservation easement, which were to be resolved
by the end of 2010 due to funding restrictions, the trustees learned that the Natural
Resources Conservation Service (NRCS) would require all 19 BRT beneficiaries to be
assessed for financial eligibility pursuant to 7 C.F.R. § 1491 et seq. prior to approving the
easement. In order to avoid the cumbersome eligibility assessment and expedite the
process, the trustees determined to convey the property to one person, trustee Julia
Forbes.
[¶15] The idea that Julia would hold the 1,020 acres subject to the conservation
easement for purposes of the transaction was fairly straightforward; however, Julia did
not own sufficient shares in the BRT necessary to exchange for that amount of acreage.
In order to acquire sufficient shares, Julia first exchanged 61 shares she had in the HST
for 320 acres of HST land. Then, in order to acquire more BRT shares, Julia exchanged
the 320 former HST acres to the BRT for 60 newly-issued BRT shares. Julia then
relinquished her 210 BRT shares in exchange for 1,020 acres of BRT land. She
completed the conservation easement deal as the sole owner of the 1,020 acres, and then
transferred that land back to the BRT in exchange for 172 BRT shares. She also
conveyed to the BRT the $1,353,200 (net after taxes and costs) that she had received for
the easement. Julia still retains the Polo Field property which was also part of the
easement consideration, pending resolution of this lawsuit.
[¶16] The trustees did not obtain any current appraisal of the specific pieces of property
exchanged in this series of transactions (other than the appraisal of the 1,020 acres for the
conservation easement), instead relying on older appraisals, appraisals of other property
in the area, and a 2004 market analysis.
4
D. The Petitions for Change of Place of Use of BRT Water Rights
[¶17] In 2009 or 2010, the Wyoming Board of Control approached Cam and asked him
to correct the discrepancies between water rights as permitted and the water as it was
actually being put to beneficial use on HST and BRT lands. Significant areas of land
were being irrigated where there were no water rights, and other areas for which there
were water rights had not had water applied to them for many years. Prestfeldt Surveying
was retained to research the water rights, means of conveyance and reliability of supply,
and ultimately produced a series of maps to accompany four Petitions for Change of
Place of Use. Cam testified with regard to the rearrangement of the water rights: “So
really every trust benefited from this. Basically you’re taking unused water and putting it
where it can be used.”
[¶18] The petitions were signed by Cam as trustee of the BRT4 and as trustee of the
HST. Although each petition stated that the petitioners (BRT and HST) were the owners
of the lands at issue, in fact the petitions covered 36 acres owned by Cam individually,
and 160 acres owned by Cam, Julia, and three other family members (the “Tracy
property”). Some BRT water rights were moved to the Tracy property, in exchange for
which the Tracy property rights were moved to BRT property. Some Tracy water rights
were also moved to Cam’s property, which had no water rights prior to the changes in
place of use.
[¶19] The petitions were filed in July 2011, and granted by the Wyoming Board of
Control in February 2012. These water rights changes in place of use were not reported
to the beneficiaries, Cam testified, because “it was not on the radar.”
[¶20] No information regarding the water rights petitions was provided to Spike in
discovery. Spike learned of them from another source, and shortly thereafter, his counsel
listed the four Petitions for Change of Place of Use as exhibits. The BRT trustees
objected promptly and repeatedly to any discussion of the petitions, arguing that the
water rights issue was an unpled claim, and that the exhibits were not identified until long
after the applicable deadlines.
[¶21] Although his initial complaint sought various forms of relief, by the time of trial
Spike sought only the removal of the trustees. The district court found that Cam and
Julia had breached their duty of loyalty and should be removed as BRT trustees. They
appealed that decision. The district court made no finding as to trustees Sarah and Edith,
so they continue as BRT trustees. Spike appealed that portion of the decision.
4
The other trustees had given Cam permission to sign on behalf of the Trust.
5
STANDARD OF REVIEW
[¶22] Following a bench trial, this Court reviews a
district court’s findings and conclusions using a clearly
erroneous standard for the factual findings and a de
novo standard for the conclusions of law. Piroschak v.
Whelan, 2005 WY 26, ¶ 7, 106 P.3d 887, 890 (Wyo.
2005)[.]
The factual findings of a judge are not
entitled to the limited review afforded a jury
verdict. While the findings are presumptively
correct, the appellate court may examine all of
the properly admissible evidence in the record.
Due regard is given to the opportunity of the
trial judge to assess the credibility of the
witnesses, and our review does not entail re-
weighing disputed evidence. Findings of fact
will not be set aside unless they are clearly
erroneous. A finding is clearly erroneous when,
although there is evidence to support it, the
reviewing court on the entire evidence is left
with the definite and firm conviction that a
mistake has been committed.
Piroschak, ¶ 7, 106 P.3d at 890. Findings may not be set
aside because we would have reached a different result.
Harber v. Jensen, 2004 WY 104, ¶ 7, 97 P.3d 57, 60 (Wyo.
2004). Further,
we assume that the evidence of the prevailing
party below is true and give that party every
reasonable inference that can fairly and
reasonably be drawn from it. We do not
substitute ourselves for the trial court as a finder
of facts; instead, we defer to those findings
unless they are unsupported by the record or
erroneous as a matter of law.
Id. (quotation marks omitted) (some citations omitted).
Pennant Serv. Co. v. True Oil Co., LLC, 2011 WY 40,
¶ 7, 249 P.3d 698, 702–03 (Wyo. 2011).
6
BJ Hough, LLC v. City of Cheyenne, 2012 WY 140, ¶ 8,
287 P.3d 761, 764-65 (Wyo. 2012) (some citations omitted).
Statutory interpretation presents a question of law which we
review de novo. Sinclair v. City of Gillette, 2012 WY 19, ¶ 8,
270 P.3d 644, 646 (Wyo. 2012). An incorrect application of
law can lead to errors in findings of ultimate fact. See,
e.g., Brown v. Arp and Hammond Hardware Co., 2006 WY
107, ¶ 40, 141 P.3d 673, 685-86 (Wyo. 2006); Jackson Hole
Mountain Resort Corp. v. Alpenhof Lodge Assocs., 2005 WY
46, ¶ 17, 109 P.3d 555, 561 (Wyo. 2005).
Barlow Ranch, Ltd. Partnership v. Greencore Pipeline Co. LLC, 2013 WY 34, ¶ 14, 301
P.3d 75, 82 (Wyo. 2013).
DISCUSSION
[¶23] We begin by determining the standard for measuring the performance of the
trustees, a question of law which we review de novo. Id. A “trustee of a business trust,
like a director and officer of a corporation, owes the trust and its investors fiduciary
duties of care and loyalty[.]” Bergeron v. Ridgewood Sec. Corp., 610 F. Supp. 2d 113, 135
(D. Mass. 2009). The interpretation of unambiguous trust agreements is a matter of law
for the court. Evans v. Moyer, 2012 WY 111, ¶ 21, 282 P.3d 1203, 1210 (Wyo. 2012).
The BRT trust agreement provides that “No trustee hereunder shall be held personally
liable for any act or omission whatever which he performs, commits, or suffers in good
faith.” In Kerper v. Kerper, 780 P.2d 923, 929-30 (Wyo. 1989), we considered similar
language in a trust and held that such a provision “is a limitation on liability,” although it
is “strictly construed.” There, we reversed the district court’s determination that the
trustee had breached her fiduciary duty, because “it did not give effect to the settlors’
intent to limit the trustee’s liability for the administration of the trust,” and instead
“incorrectly used the reasonably prudent man standard[.]” Id. at 931. See also Dallas
Dome Wyo. Oil Fields Co. v. Brooder, 97 P.2d 311, 318 (Wyo. 1939) (“[T]he liability
which devolves on a trustee by reason of his accepting the trust may be limited by the
terms of the trust instrument, and where the liability of the trustee is (so) limited . . . the
general rules of law are not applicable. (Citation omitted.)”).
[¶24] In its Findings of Fact, Conclusions of Law and Judgement [sic], the district court
recognized the good-faith provision in the BRT, yet it went on to apply a higher standard
to the trustees’ actions in this case. For example, in reaching the conclusion that Julia
breached her fiduciary duty in her handling of the Nature Conservancy transaction, the
district court said: “a trustee owes a higher duty than the ordinary standard of good faith,
and such conduct which may seem permissible to an ordinary person, is prohibited to a
person in a fiduciary position, as he or she is held to ‘something stricter than the morals
7
of the market place.’” (Citations omitted.) Spike urges us to adopt this “good faith-plus”
standard, citing, among other things, to our decision in Wells Fargo Bank Wyoming, N.A.
v. Hodder, 2006 WY 128, ¶ 33 n.7, 144 P.3d 401, 413 n.7 (Wyo. 2006), where we said:
The common law duty of loyalty is the fundamental duty
from which each more specific trustee’s duty is derived. A
trustee is under a duty to the beneficiary in administering the
trust to exercise such care and skill as a man of ordinary
prudence would exercise in dealing with his own property.
[¶25] Spike overlooks the next paragraph, where we stated “the common law duty owed
by a trustee goes beyond mere ‘good faith’ unless otherwise provided by the express
terms of the trust.” Id. Here, the express terms of the trust provide that the BRT trustees’
duty does not go beyond good faith.
[¶26] We have defined “good faith” as “faithfulness to an agreed common purpose and
consistency with the justified expectations of the other party; it excludes a variety of
types of conduct characterized as involving ‘bad faith’ because they violate community
standards of decency, fairness or reasonableness.” Hodder, 2006 WY 128, ¶ 33, 144 P.3d
at 413 (quoting Scherer Const., LLC v. Hedquist Const., Inc., 2001 WY 23, ¶ 18, 18 P.3d
645, 653 (Wyo. 2001)). The district court erred as a matter of law to the extent that it
relied upon a duty higher than that.
[¶27] We held in Kerper that a good faith standard does not exclude application of
fiduciary obligations imposed by Wyoming statutory provisions. Kerper, 780 P.2d at
930. The district court ruled that the provisions of the previous Uniform Trustees’
Powers Act, Wyo. Stat. Ann. §§ 4-8-101 through 4-8-112 (repealed 2003), and the
Uniform Prudent Investor Act, Wyo. Stat. Ann. §§ 4-9-101 through 4-9-113 (repealed
2003), are applicable to the BRT,5 and we hold that application of the fiduciary standards
contained in those statutes is consistent with a good-faith standard. Thus, the BRT
trustees must conduct themselves in compliance with the statutory duty of loyalty, which
requires that “[a] trustee shall invest and manage the trust assets solely in the interest of
the beneficiaries.” Wyo. Stat. Ann. § 4-9-105 (repealed 2003, replaced by Wyo. Stat.
Ann. § 4-10-905, which has identical language).
[¶28] Restatement (Second) of Trusts § 170 (1959) similarly provides:
5
The district court held that the Wyoming Uniform Trust Code, enacted in 2003, “does not apply to this
case.”
8
Duty of Loyalty.
(1) The trustee is under a duty to the beneficiary to
administer the trust solely in the interest of the beneficiary.
(2) The trustee in dealing with the beneficiary on the
trustee’s own account is under a duty to the beneficiary to
deal fairly with him and to communicate to him all material
facts in connection with the transaction which the trustee
knows or should know.
[¶29] Because the only remedy Spike has sought is removal of the BRT trustees, and the
district court ordered removal of trustees Julia and Cam, we next turn to the standard for
removal of trustees. The trustees urge us to apply the standard set forth in In re Hartt
Estate, 295 P.2d 985, 1011 (Wyo. 1956):
As we have seen the removal of an executor or trustee is
harsh and severe; it is serious; it is a drastic action; it should
not be done unless clearly necessary; if the court can adjust
the disputed matters, the removal should not be made; an
executor or trustee should not be removed except for gross
and willful misconduct.
[¶30] Spike correctly points out that the trustees at issue in Hartt, unlike the BRT
trustees, had been chosen by the settlor, and “[c]ourts are more reluctant to remove a
trustee who has been chosen by the settlor than one who is court-appointed.” Bogert, The
Law of Trusts and Trustees § 527, at 51-52 (2d ed. 1978); see also Restatement (Third) of
Trusts § 37, cmt. f (2003). Although the BRT trustees were not individually selected by
the settlors, neither were they appointed by the court. They are not strangers to the Trust
as a court-appointed trustee would be; they are all Forbes family members, selected
pursuant to the terms of the Trust by existing trustees. The BRT settlors contemplated
the inherent conflict that exists when trustees are also beneficiaries.
A settlor has a great deal of discretion in designating a
trustee. Copley v. Copley, 126 Cal. App. 3d 248, 178 Cal. Rptr.
842, 847 (1981) (positions with obvious conflict of interests
created and intended by trustor preserved as trustee intended).
The law is settled that a trustee may be an interested party,
such as a beneficiary or remainderman. Lovett v. Peavy, 253
Ga. 79, 316 S.E.2d 754, 757 (1984) (where antagonistic
interests of trustee as remainderman known to settlor, error to
remove trustee solely based on status as remainderman); In re
Luhrs Trust, 443 N.W.2d 646 (S.D. 1989); see also
9
Restatement (Second) of Trusts, § 99 cmt. a (1959).
Generally, the court will not remove a testamentary trustee
absent a demonstrated abuse of power. Copley, 178 Cal. Rptr.
at 866; Culver v. Culver, 112 Ohio App. 100, 169 N.E.2d 486
(1960) (so long as trustee executes trust in good faith and
sound discretion, court has no right to interfere).
In re Estate of Klarner, 113 P.3d 150, 157 (Colo. 2005).
[¶31] We conclude as a matter of law that the In re Hartt standard for removal of
trustees is applicable to this case.
[¶32] Trustees may be removed for a variety of grounds, ranging from habitual
drunkenness to tax evasion, to disobedience of directions in the trust instrument. Bogert,
supra, § 527. “Mismanagement of the estate arising from a misconception or
misunderstanding of the trustee’s duties may be a ground for removal, but not if no
serious harm has been done and no dishonesty or want of capacity is indicated.
Similarly, a mere error in judgment is insufficient.” Id. at 67-69.
[¶33] The district court’s power to remove a trustee is “rooted in equity,” Kerper, 780
P.2d at 938 (citing Wyo. Stat. Ann. § 2-3-210), and the court has “sound discretion” to
make the determination whether to remove a trustee, which we will not disturb absent an
abuse of discretion. Id.
[¶34] We turn then to the specific allegations of error by the district court.
I. Was the district court’s decision to remove Cam and Julia as trustees because of
the exchange of water rights reversible error because it was based on an unpled
claim and because it made clearly erroneous findings regarding the exchange of
water rights?
[¶35] Spike’s Amended Complaint asserts claims for 1) breach of duty of loyalty, 2)
breach of duty with regard to taxation, and 3) breach of duty to provide accounting. The
district court based its decision to remove Cam and Julia as trustees only on its finding
that they breached their duty of loyalty. Spike’s Amended Complaint alleges three
specific grounds for his breach of the duty of loyalty claim: the trustees’ failure to file as
a Wyoming statutory trust, the issuance of shares, and various land transactions.6 There
6
The land transactions are specifically identified in the Amended Complaint as follows:
The trustees have failed to conduct themselves in an arms-length,
fiduciary manner specific to the 2007 land transaction with William C.
Forbes, in his individual capacity; the 2010 land transactions with the
10
is no mention of water rights transfers anywhere in the Amended Complaint. After the
expert witness designation deadline, the close of discovery, and the deadline for filing
final pretrial memos, Spike added water rights petitions as exhibits, to which the trustees
objected, arguing the water rights are issues never before asserted, and that the exhibits
should be stricken. The trustees made the same argument during the final pretrial
conference. Spike’s counsel responded that he had only recently discovered the water
rights petitions, which should have been produced in discovery.
[¶36] Although the record does not reflect the basis for the district court’s ruling at trial,
it allowed the admission of the water rights petitions into evidence, over the trustees’
renewed objection. During direct examination of Cam, when he was asked about water
rights transfers, defense counsel stated:
Your Honor, I’m going to go ahead and object to the
questioning in regards to water. There is a motion before the
court that has never been decided in regards to the addition of
the water issues to this lawsuit. That motion was filed before
the final pretrial conference specifically in regards to the new
exhibits that plaintiff had filed in regards to various water
petitions. And also that motion pertained to the new causes,
quote, I guess causes of action that the plaintiffs have or are
trying to snowball this case into without amending their
complaint.
So we did object to any continuation on that front in regards
to these issues.
The Court: Overruled. I think it’s a legitimate subject of
inquiry given the wording of the report.
There was considerable testimony on the matter, and the water rights transfers formed a
basis for the court’s conclusion that Cam should be removed as trustee.
[¶37] Our analysis of this issue is complicated by the fact that it involves matters of both
pleading and discovery, and our review is hampered by the absence of any explanation in
the record for the district court’s ruling. “[W]e must affirm on appeal if there exists any
legally valid ground which appears in the record supporting the judgment. However, our
job becomes complicated when we are presented with a judgment which fails to articulate
Sarah P. Forbes Revocable Trust; and the 2011 land exchange with Julia
Forbes, in her individual capacity.
11
clearly the reasoning behind it.” Agar v. Kysar, 628 P.2d 1350, 1352 (Wyo. 1981)
(internal citation omitted).
A. The Unpled Claim
1. Is the claim “unpled?”
[¶38] The parties first dispute whether the claim is “unpled.” Spike argues he did plead
a claim for breach of the duty of loyalty, and the water rights self-dealing is included
within that claim. He contends the complaint is sufficient if it provides the opposing
parties with notice of the claims against them, and that pleadings must be “liberally
construed to ensure substantial justice.” Krenning v. Heart Mountain Irrigation Dist.
2009 WY 11, ¶ 30, 200 P.3d 774, 783 (Wyo. 2009). The trustees cite the same case for
the proposition that “[a] plaintiff has a ‘fundamental obligation’ to apprise his adversaries
of the nature of the claim against them.” Id.
[¶39] W.R.C.P. 8 provides, “A pleading which sets forth a claim for relief . . . shall
contain . . . (2) a short and plain statement of the claim showing that the pleader is
entitled to relief . . . .” W.R.C.P. 8(a). The rule further provides, “Each averment of a
pleading shall be simple, concise, and direct. No technical forms of pleading or motions
are required.” W.R.C.P. 8(e)(1). All pleadings are to be construed liberally so as to do
substantial justice. W.R.C.P. 8(f). Whether the specificity requirement of the rule has
been satisfied rests upon whether fair notice has been provided to the opposing party.
Harris v. Grizzle, 599 P.2d 580, 583 (Wyo. 1979).
[¶40] Our precedent on this issue depends somewhat upon the type of claim that is
alleged. For example, when reviewing a negligence claim, we have found that “[n]o
specification of the facts upon which the conclusion of negligence is based [need be]
included.” Guggenmos v. Tom Searl-Frank McCue, Inc., 481 P.2d 48, 51 (Wyo. 1979);
W.R.C.P. Form 9; Harris, 599 P.2d at 583-84; see also BB v. RSR, 2007 WY 4, ¶¶ 12-13,
149 P.3d 727, 732-33 (Wyo. 2007) (finding that a complaint for custody modification
alleging that a material change in circumstances had occurred was sufficient). In such
cases, a legal conclusion need not be supported by factual allegations to comply with
Rule 8. However, in other cases, such as wrongful death claims, we have held, “[T]he
pleadings should set out with reasonable certainty the acts on which the liability is based
and all facts essential to constitute a legal cause of action for wrongful death.” Harris,
599 P.2d at 583. We have recognized that discovery often serves to apprise the parties of
the precise claims made despite vague pleadings. In re U.S. Currency Totaling
$7,209.00, 2012 WY 75, ¶ 24, 278 P.3d 234, 240 (Wyo. 2012); BB, 2007 WY 4, ¶ 13,
149 P.3d at 732-33; Watts v. Holmes, 386 P.2d 718, 719 (Wyo. 1963).
[¶41] We recently addressed the issue of a defective pleading in the context of piercing
the corporate veil. Ridgerunner, LLC v. Meisinger, 2013 WY 31, 297 P.3d 110 (Wyo.
12
2013). In that case, the plaintiffs sued a corporation for breach of contract, and also
named one of its officers as a defendant. All of the allegations in the complaint were
directed toward the corporation (the contract was between the plaintiffs and the
corporation, not the individual officers). Id. at ¶ 13, 297 P.3d at 114-15. The allegations
against the officer stated only that the officer was acting as an agent of the corporation.
Id. at ¶ 13, 297 P.3d at 115. In affirming the district court’s dismissal of the officer from
the complaint, we stated, “While piercing the corporate veil is a ‘doctrine wherein
liability for an underlying [cause of action] may be imposed upon a particular individual,’
and not a separate cause of action, the complaint must still ‘contain sufficient information
to indicate a desire to proceed under the doctrine of piercing the corporate veil.’” Id. at
¶ 15, 297 P.3d at 116 (internal citations omitted).
[¶42] Spike cites Lynch v. Patterson, 701 P.2d 1126 (Wyo. 1985), to support his
conclusion that his pleading of the broad claim of breach of the duty of loyalty is
sufficient under W.R.C.P. 8. In Lynch, we stated:
A complaint which gives fair notice to the opposing
party of the claims against him satisfies the specificity
standard of notice pleading under our rules of civil procedure.
Allegations of particular acts or omissions of the defendant
are unnecessary where the duty owed by the defendants
appears to exist and to have been breached. This rule holds
especially where the facts lie more properly in the knowledge
of the adverse party and details of the breach are available
through discovery.
Id. at 1134 (internal citations omitted). In Lynch, a minority stockholder brought a
stockholder derivative action seeking to recover damages allegedly resulting from actions
taken by three corporate directors in violation of their fiduciary duties. Id. at 1128. In his
complaint the minority stockholder alleged that the defendants illegally removed assets
from the corporation to the detriment of the corporation and the benefit of the defendant
directors. Id. at 1134. The district court found that the defendants had breached their
fiduciary duties when they unilaterally increased their salaries while refusing to declare a
dividend. Id. at 1133. The directors appealed, asserting that the issue of increased
salaries had not been pled by the plaintiff. Id. We found that, “Although the complaint
does not specify excessive salaries, the allegations . . . were sufficient to give notice to
the defendants that the plaintiff contested the removal of assets from the corporation,
whether in the form of salary increases or otherwise.” Id. at 1134. We went on to state:
[The plaintiff] complained that the directors had breached
their fiduciary obligations by diverting funds from the
corporation to its detriment. This allegation sufficed to
inform the defendants that an issue existed as to the
13
reasonableness of the executive salaries and we will not
overturn the award for excessive compensation on the ground
of a defective complaint.
Id.
[¶43] Lynch is distinguishable from the facts of this case. There, diversion of assets
could reasonably include excessive salaries, sufficient to provide the defendants with
adequate notice of that issue. In this case, Spike identified three specific ways in which
he contended the trustees had breached their duties of loyalty, none of which gave fair
notice that water rights were at issue. We agree with Cam and Julia that the breach of
duty of loyalty arising from the water rights was a claim of which they did not have fair
notice.
[¶44] Here, Spike identified land transactions that he alleged constituted a breach of the
duty of loyalty, but he did not identify any water transactions as a basis for that claim.
The BRT trustees took a great many actions during the period that Spike now challenges.
If we found as Spike urges that the breach of duty of loyalty claim encompasses any and
all of those acts, the defendants would potentially be required to prepare to litigate any of
the actions they took as trustees. That interpretation stretches the concept of notice
pleading too far.
2. Amendment of the pleadings
[¶45] Normally, our rules of civil procedure would provide an orderly avenue for
conforming the pleadings to the evidence. W.R.C.P. 15(b) states:
When issues not raised by the pleadings are tried by express
or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause
them to conform to the evidence and to raise these issues may
be made upon motion of any party at any time, even after
judgment; but failure so to amend does not affect the result of
the trial of these issues. If evidence is objected to at the trial
on the ground that it is not within the issues made by the
pleadings, the court may allow the pleadings to be amended
and shall do so freely when the presentation of the merits of
the action will be subserved thereby and the objecting party
fails to satisfy the court that the admission of such evidence
would prejudice the party in maintaining the party’s action or
defense upon the merits. The court may grant a continuance
to enable the objecting party to meet such evidence.
14
[¶46] Here, however, Spike did not file a motion to amend the pleadings, the trustees did
not consent, and the district court made no determination on that issue.
[¶47] We have recognized in other cases that a district court had de facto ordered the
pleadings amended even if it had made no such explicit ruling. Strahan v. Strahan, 400
P.2d 542, 543 (Wyo. 1965); Willard Given & Assocs. v. First Wyoming Bank-East
Cheyenne, 706 P.2d 247, 249 (Wyo. 1985); Lore v. Town of Douglas, 355 P.2d 367, 368-
70 (Wyo. 1960). In Strahan, the mother filed a contempt petition against father for
failing to pay child support. 400 P.2d at 543. Both parties presented evidence at the
hearing concerning the changed circumstances of the parties. Id. The district court then
advised the parties that it was going to treat the issue of modification as if it had been
presented to the court for a determination, and modified the visitation schedule. Id. at
545. The district court did not declare that it was amending the pleadings pursuant to
W.R.C.P. 15(b); however, upon review, we determined that the district court had
essentially performed that function. Id. at 544. “The record before us reveals that the
trial judge in this instance considered the issue of modification as having been tried, at
least by implied consent; he treated the issue as if it had been raised in the pleadings; and
he let the parties know he would decide the matter on that basis.” Id. at 545 (emphasis
added). In contrast, in this case, the district court never ruled on the trustees’ pretrial
objections, and simply, over objection, allowed the exhibits in at trial without letting the
parties know how it would decide the matter.
[¶48] The court and the parties might have solved their dilemma by resorting to the last
sentence of Rule 15(b): “The court may grant a continuance to enable the objecting party
to meet such evidence.” Neither party moved for a continuance, and the district court did
not suggest it. We found in White v. Board of Trustees of Western Wyoming Community
College District, 648 P.2d 528, 537 (Wyo. 1982), that a party’s failure to request a
continuance can foreclose appeal on the issue of an unpled claim. There, we affirmed the
district court when it allowed evidence at a termination hearing concerning underage
drinking and marijuana use by students while under a professor’s supervision. The
professor claimed on appeal that he was surprised by the allegations, and expected to
defend himself on an entirely different allegation pursuant to the notice that he was given.
Id. at 537. However, the matter was raised by the school district in opening statements,
and was then addressed by several witnesses. White’s counsel “made a half-hearted
objection to the subject matter. He referred to [the charge] as ‘euphemistic,’ but never
complained that the charge would not include the conduct on band trips reflected by the
evidence.” Id. at 534. The professor then proceeded to put on his case. We held that he
had received sufficient notice of the claims against him when he was provided the school
regulations on drugs and alcohol and “was advised that names of witnesses would be
furnished upon request” (which he had not requested). Id. at 537. We went on to find
that, “Even if the appellant genuinely felt that he was surprised by the evidence and it
was not reflected in the charges, failure to request a continuance on the ground of surprise
15
precludes him from now contending that he was prejudiced.” Id. Here, however, there
was no notice to the trustees that the claim would be allowed, they made numerous clear
objections on the record, and, under these circumstances, we do not find their failure to
request a continuance is fatal to their claim.
[¶49] We turn then to the question of whether the trustees’ failure to produce the water
rights information in discovery might nevertheless justify consideration of the issue.
3. Should the water petitions have been produced in discovery?
[¶50] Generally, this Court reviews a district court’s decision concerning the admission
of evidence for an abuse of discretion. Cardenas v. State, 2014 WY 92, ¶ 7, 330 P.3d
808, 810 (Wyo. 2014).
[¶51] Spike served an interrogatory on the trustees which asked them to “describe with
particularity the details of all transactions of real property . . . .” While this does not
expressly identify water rights information, “[a] water right is a ‘property right of high
order,’ with ‘none of the characteristics of personal property,’ and it is real property.”
King v. White, 499 P.2d 585, 588 (Wyo. 1972) (citation omitted). “[T]he rules of
discovery must be liberally construed in such a way as to favor disclosure of facts by both
sides.” Paul v. Paul, 616 P.2d 707, 717 (Wyo. 1980) (McClintock, J., dissenting). The
trustees violated the rules of discovery when they failed to provide information on the
water rights petitions in response to Spike’s interrogatory.
[¶52] We do not know if this is the conclusion the district court reached when it allowed
the introduction of the water rights petitions, or when it did not require Spike to amend
his complaint. W.R.C.P. 37(c) allows the district court, “on motion and after affording
an opportunity to be heard,” (emphasis added), to impose sanctions when a party,
without substantial justification, fails to comply with discovery rules. In this case, the
district court could have imposed the sanction of allowing the evidence to be introduced
despite its late disclosure because of the trustees’ failure to fully respond to the
interrogatory. However, such an action would have required a motion and hearing, which
did not occur here.
[¶53] Compliance with the Rule 37 requirement would likely have yielded the additional
benefit of providing this court with a decision to review. Without such a decision, we
cannot provide the deference to the district court that we would normally apply. The rule
that “the district court’s judgment will be affirmed on appeal if sustainable on any legal
ground appearing in the record,” Comm. to Restore Mayor-Council Form of Gov’t v. City
of Rawlins, 692 P.2d 944, 946-47 (Wyo. 1984), cannot be stretched so far as to permit us
to find that the district court allowed the water rights issue to be raised at trial as a Rule
37 sanction for discovery violations, particularly when the parties below had no notice or
opportunity to address any such ruling.
16
[¶54] The water rights issue was not pled with enough specificity to comply with
W.R.C.P. 8 and provide fair notice, and the pleadings should have been amended
pursuant to W.R.C.P. 15. The trustees violated discovery rules when they failed to
inform Spike of the water rights petitions, and “[t]rial courts have broad discretion to
impose [Rule 37 sanctions], including dismissal of an action or portion thereof.” In re
Guardianship of Bratton, 2014 WY 87, ¶ 22, 330 P.3d 248, 253 (Wyo. 2014). But, with
no Rule 37 hearing and no articulated decision by the district court, we cannot affirm the
admission of those petitions on that ground. The district court, therefore, abused its
discretion in admitting the water rights evidence.
[¶55] We will nevertheless go on to address the facts regarding the water rights because
our conclusion will reveal that the evidentiary ruling error is not prejudicial to the
trustees.
B. The Water Rights Transactions
[¶56] The district court found that, as a result of the water rights petitions executed by
Cam:
19. . . . Trustee Defendants Cam Forbes and Julia Forbes
each received 70 acres of BRT water, with 1881 and 1884
priority dates. BRT did not receive any payment, or other
assets, in exchange for these water rights being transferred to
Defendants Cam and Julia Forbes, in their individual
capacities, respectively.
20. Trustees Cam Forbes and Julia Forbes additionally
received 20 acres of supplemental water supply, with an 1881
priority date, from the BRT without any consideration given.
21. Trustee Cam Forbes received an additional 36 acres of
surplus water from the BRT, with a priority date of 1891,
without giving the BRT any consideration in return.
All parties concede that these findings by the district court were in error. In fact, 70 acres
of 1891 water rights from Big Goose Creek (the Strang Appropriation) were transferred
from the Tracy7 property to BRT lands, in exchange for 70 acres of 1881 and 1884 BRT
water rights out of Park Creek, and 20 acres of 1884 supplemental supply rights out of
Big Goose Creek. The approximately 36 acres of water rights that ended up on lands
owned by Cam came from the Tracy property.
7
The Tracy property is owned by Julia, Cam, and three other family members.
17
[¶57] Cam testified extensively about the reason for the water rights petitions. The
Board of Control had contacted him to request that permits be corrected to reflect the
actual use of water on the BRT lands. The decisions on changes in place of use had a
logical basis―to put water in places where it could best be used, either under existing
pivots, or in locations best suited to the means of conveyance. And Cam testified that,
when he worked with Prestfeldt Surveying to achieve the best allocation of the water
resource, it was for the benefit of the entire family, without consideration for “any
boundary of who owned what acres on the map.” This attitude is reflected in the fact that
the Petitions for Change of Place of Use filed with the Board of Control on behalf of the
BRT and the HST, and signed by Cam as trustee of both Trusts, include property that is
owned privately by Cam as well as Cam and Julia in partnership with other family
members.
[¶58] The result of treating all family property without consideration for different
ownership is that, when the dust settled, Cam’s private property, which had never had
water rights, now has 36 acres of 1891 water rights.8 While Cam may have acted with
the best interest of the trust in mind; his error was in failing to distinguish between
property held by the BRT and property held by individual Forbes family members,
including himself. That failure inevitably results in a breach of the duty of loyalty, which
requires that “[a] trustee shall invest and manage the trust assets solely in the interest of
the beneficiaries.” Wyo. Stat. Ann. § 4-9-105 (repealed 2003, replaced by Wyo. Stat.
Ann. § 4-10-905, which has identical language)).
Under principles of equity, a trustee bears an unwavering
duty of complete loyalty to the beneficiary of the trust, to the
exclusion of the interests of all other parties. To deter the
trustee from all temptation and to prevent any possible injury
to the beneficiary, the rule against a trustee dividing his
loyalties must be enforced with ‘uncompromising rigidity.’
Concrete Pipe & Products of California, Inc. v. Constr. Laborers Pension Trust for
Southern California, 508 U.S. 602, 616, 113 S. Ct. 2264, 2276, 124 L. Ed. 2d 539 (1993)
(quoting NLRB v. Amax Coal Co., 453 U.S. 322, 329-32, 101 S. Ct. 2789, 2794-95, 69
L. Ed. 2d 672 (1981)).
[¶59] The duty of loyalty prohibits self-dealing by trustees, because “[i]t is not possible
for any person to act fairly in the same transaction on behalf of himself and in the interest
8
Because the district court misunderstood the exchange of water from BRT property to the Tracy
property, it made no finding as to the relative value of those water rights, and we find insufficient
evidence in the record to make any such finding on review. Seniority alone is insufficient to establish
relative value of water rights. Other important factors include the priority of the water rights, the
reliability of the source of supply, and the ability to deliver the water to its desired place of use.
18
of the trust beneficiary.” Bogert, supra, § 543, at 227. Any transaction involving trust
property and an entity in which the trustee has an interest raises conflict of interest
concerns. “Self-dealing by a trustee or any fiduciary is always suspect, and it is a
universal rule of equity that a trustee shall not deal with trust property to his own
advantage without the knowledge or consent of the cestui que trust.” Hosey v. Burgess,
890 S.W.2d 262, 265 (Ark. 1995). The trustee’s duty of loyalty “prohibits both self-
dealing and conflicts of interest. Thus, the trustee must neither 1) deal with trust property
for the benefit of himself or third parties, nor 2) place himself in a position inconsistent
with the interests of the trust.” In re Paxson Trust, 893 A.2d 99, 121 (Pa. Super. Ct.
2006) (quoting Estate of McCredy, 470 A.2d. 585, 597 (Pa. Super. Ct. 1983) (internal
citations omitted)).9 This court held in 1927 that:
“A trustee is bound to act with good faith. He is not to use
the trust property in his own private business, nor is he to
make any incidental profits for himself in its management,
nor is he to acquire pecuniary gains from his fiduciary
position. An important duty of good faith prohibits the
trustee from mixing the trust property and his own property
together in one amount, the depositing of trust moneys in his
own personal account with his own moneys in bank, and all
similar modes of combining or failing to distinguish between
the two funds. This rule is designed to protect the trustee
from temptation, from the hazard of loss, and of being a
possible defaulter, as well as to protect the trust fund.”
In re Reed’s Estate, 259 P. 815, 817 (Wyo. 1927) (quoting In re Hodges’ Estate, 28 A.
663, 663-64 (Vt. 1894)).
[¶60] We hold that, in entering into a transaction on behalf of himself and as a trustee,
Cam breached his duty of loyalty to the BRT’s beneficiaries.
[¶61] The trial court abused its discretion in allowing evidence relating to an unpled
claim and exhibits that were not timely identified. We must also ask “if the error was
prejudicial.” Gonzalez-Ochoa v. State, 2014 WY 14, ¶ 11, 317 P.3d 599, 603 (Wyo.
2014). An error is prejudicial if:
[T]he error affected [the appellant’s] substantial rights[.] . . . .
The error is [prejudicial] if there is a reasonable possibility
9
Restatement (Second) of Trusts § 170, cmt. b explains: “A trustee with power to sell trust property is
under a duty not to sell to himself either by private sale or at auction, whether the property has a market
price or not, and whether or not the trustee makes a profit thereby.”
19
that the verdict might have been more favorable to [the
appellant] if the error had never occurred. To demonstrate
[prejudicial] error, [the appellant] must prove prejudice under
circumstances which manifest inherent unfairness and
injustice, or conduct which offends the public sense of fair
play.
Singer v. Lajaunie, 2014 WY 159, ¶ 31, 339 P.3d 277, 286 (Wyo. 2014) (quoting Proffit
v. State, 2008 WY 103, ¶ 12, 191 P.3d 974, 977-78 (Wyo. 2008) (internal citations
omitted)).
[¶62] Although we have concluded that Cam breached the duty of loyalty in the water
rights transactions by the mere fact that the changes in place of use included some self-
dealing on his part, that finding is only prejudicial if we also conclude that the breach is a
sufficient basis for his removal as trustee. As discussed further below, we do not
conclude that removal is warranted. See infra ¶ 97.
II. Was the district court’s finding that Julia profited from the transactions that were
undertaken to place a conservation easement on the BRT property clearly
erroneous?
[¶63] Spike did not challenge the trustees’ decision to place a conservation easement on
1,020 acres of the BRT property, nor does he challenge the amount of compensation
obtained by the BRT for the easement. Instead, he objects to the transactions which the
BRT entered into with Julia so that she could obtain enough BRT shares to convert them
into 1,020 acres outright. This in turn allowed the NRCS review to proceed in a timely
fashion, because only Julia’s eligibility pursuant to 7 C.F.R. §1491 et seq. had to be
reviewed, instead of the eligibility of all 19 beneficiaries.
[¶64] The district court found that, after the complicated series of land and BRT share
transactions that culminated in placing the conservation easement on BRT lands, “Julia
Forbes, in her individual capacity, gained an additional 22 shares in the transaction, at a
total value of $376,222.00.” It went on to hold that Julia’s profit from the conservation
easement transaction “falls within the framework of self-dealing,” and that such conduct
warranted her removal as a trustee.
[¶65] In arriving at its conclusion that Julia profited from the conservation easement
transaction, the district court apparently overlooked the fact that, in return for the 22
additional shares in the BRT, Julia had contributed 320 acres of real property to the BRT.
That property, according to the trustees’ calculations, was valued at $1,120,000. The
20
trustees satisfied themselves at the time that the transaction was fair. They contend on
appeal that in fact, Julia had lost $428,000 as a result of the transaction.10
[¶66] While it seems clear that the district court’s conclusion that Julia profited to the
tune of 22 shares or $376,222 is in error, the record does not allow us to make a
determination whether she profited at all, or, as the trustees now contend, lost money,
because there is no complete and timely appraisal done of the property at issue. Sarah,
who is an attorney, advised her co-trustees in a 2006 email that:
Because the IRS applies very strict scrutiny to
transactions between “related parties” (especially family
members), and because of the values involved, any gifting of
CC [Cave Creek, where their mother’s home was] or any part
of it would have to have a gift tax return filed; and to satisfy
the IRS would have to be appraised by an independent
certified appraiser[.]
[¶67] Yet when the time came to issue new BRT shares and to add and subtract real
property from the BRT, the trustees relied on a number of appraisals done on different
and overlapping parcels of land at different times, a market analysis, and Cam’s
discussions with appraisers. We decline to attempt the exercise in extrapolation that the
parties urge upon us to conclude that Julia either profited or did not profit from the
transaction. We simply find there is no support in the record to conclude that Julia either
intended to, or did, achieve personal gain from it.
[¶68] However, as discussed, see supra ¶ 59, self-dealing alone constitutes a breach of
the duty of loyalty. In addition, the trustees not only failed to obtain an accurate appraisal
of the specific lands at issue, they did not retain separate counsel to advise the BRT, they
made no effort to obtain court approval for the transactions, and they did not obtain prior
approval of these specific transactions from the beneficiaries. 11
[¶69] Whether or not Julia profited from the transaction, she engaged in land and money
exchanges with the BRT, which were compounded by the absence of objective advice or
third-party review, thus breaching her duty of loyalty. However, a finding that there was
10
Cam testified that “the number of shares that Julia received back was less than what she surrendered.
The difference in value was she effectively paid capital gains tax out of her pocket.” In addition to the 22
BRT shares, Julia had also retained the “Polo Field,” which the trustees valued at $316,000. The
testimony at trial was that she was retaining that property only until this lawsuit was resolved. We expect
the Polo Field will be promptly conveyed to the BRT or a BRT entity.
11
The BRT does not require beneficiary approval; however, under the circumstances, it might have been
one approach to lifting the clouds over these transactions.
21
a breach of the duty of loyalty does not necessarily lead to the conclusion that the trustees
should be removed, an issue which we will discuss further below. See infra ¶¶ 94-97.
III. Did the district court err in when it found that Cam and Julia improperly issued
new shares in the BRT?
[¶70] The district court held that the “Trust Instrument does not give the trustees broad
discretion to create new shares.” It went on to conclude that, “in creating additional
shares and distributing such shares to” Julia, the trustees breached their duty and Julia
should be removed as trustee. Julia and Cam contend on appeal that they had a good-
faith basis for believing that they could issue new shares in the BRT.
[¶71] The parties no longer dispute that the BRT is a Massachusetts Business Trust.
The ‘Massachusetts Trust’ is a form of business organization,
common in that State, consisting essentially of an
arrangement whereby property is conveyed to trustees, in
accordance with the terms of an instrument of trust, to be held
and managed for the benefit of such persons as may from
time to time be the holders of transferable certificates issued
by the trustees showing the shares into which the beneficial
interest in the property is divided. These certificates, which
resemble certificates for shares of stock in a corporation and
are issued and transferred in like manner, entitle the holders
to share ratably in the income of the property, and, upon
termination of the trust, in the proceeds.
Navarro Savings Ass’n v. Lee, 446 U.S. 458, 468, 100 S. Ct. 1779, 1785, 64 L. Ed. 2d 425
(1980). The Massachusetts Business Trust was used as a form of business organization,
“to secure corporate advantages without incorporation.” Bogert, supra, § 247, at 182,
189.
[¶72] We look to the language of the trust instrument to determine whether it authorizes
the issuance of new shares.
Interpretation of an unambiguous trust agreement is a
matter of law for the court. Rock Springs Land and Timber,
Inc. v. Lore, 2003 WY 100, ¶ 12, 75 P.3d 614, 619 (Wyo.
2003). The meaning of a trust is determined by the same
rules that govern the interpretation of contracts. In
interpreting a trust, our primary purpose is to determine the
intent of the settlor. Wells Fargo Bank Wyoming, N.A. v.
Hodder, 2006 WY 128, ¶ 21, 144 P.3d 401, 409 (Wyo. 2006);
22
First Nat’l Bank & Trust Co. v. Brimmer, 504 P.2d 1367,
1369 (Wyo. 1973). We construe the trust instrument as a
whole, attempting to avoid a construction which renders a
provision meaningless. Id. “We strive to reconcile by
reasonable interpretation any provisions which apparently
conflict before adopting a construction which would nullify
any provision.” Wells Fargo, ¶ 21, 144 P.3d at 409. See also,
Purcella v. Purcella, 2011 WY 124, ¶ 14, 258 P.3d 730, 734-
35 (Wyo. 2011).
Evans, 2012 WY 111, ¶ 21, 282 P.3d at 1210.
[¶73] The Trust provides:
EIGHTH – The trustees for the time being hereunder shall
have full power to sell, lease, mortgage, pledge, lend or
exchange free and clear of the trust any and all portion or
portions of the trust estate at such time, for such
considerations, and upon such terms and conditions as they
deem advisable. This power shall extend to everything which
shall hereafter be added to the trust estate or received in
exchange for the premises hereby conveyed.
(Emphasis added.)
[¶74] This language clearly contemplates that property could be added to the trust estate,
and that the trustees may make exchanges in order to acquire additional property. Read
in conjunction with the broad general grant of power to the trustees,12 the provision
authorizes the BRT trustees to acquire additional lands in exchange for shares, and it
necessarily gives them the power to create new shares. (Spike expressed the same
opinion in an e-mail of March 12, 2011, in which he stated, “The trustees of the BRT
have broad enough powers that there probably is no legal jeopardy . . .” and only
expressed a concern about the possible tax consequences of a share-for-asset exchange.)13
This conclusion is consistent with the purpose of a business trust, which functions like a
12
Any two trustees shall have power to do any such things and execute
any such instruments and take any such action as they deem wise in
relation to the granted premises and the trust estate for the time being to
the same effect and to the same extent as if they held the same free of
any trust whatsoever.
13
Spike’s position, in addition to advice that Cam received from his counsel that the BRT had the
authority to issue shares, would establish that even if the trustees were mistaken, they acted in the good-
faith belief that they were authorized to issue shares in the BRT.
23
corporation, and issues certificates “which resemble certificates for shares of stock in a
corporation and are issued and transferred in a like manner[.]” Navarro Sav. Ass’n, 446
U.S. at 468, 100 S.Ct. at 1785.
[¶75] The district court erred as a matter of law when it found that the trustees did not
have the discretion to create new shares in the BRT.
IV. Did the district court commit reversible error when it allowed undesignated expert
testimony, concluded property deeded to Cam was not suitable for development in
spite of Spike’s expert’s testimony otherwise, and based its finding on difference
in value by comparing a 2007 value of one property to a 2013 value of another?
[¶76] Cam exchanged an undivided 31 percent interest in an 80-acre tract of land (the
Jeffries 80) for 36.88 acres of BRT property upon which he had built his house.14 The
district court found that:
13. The trial testimony established that the property was not
physically inspected and driven over as large parts of the
property is impossible to drive over due to its steep terrain.
Testimony further established that the property deeded by
Cam Forbes to BRT is not suitable for development due [to]
the steep character of the land.
14. The 36.88 acres of property deeded in fee simple to Cam
Forbes in 2007 was valued at $320,000.00. The property the
BRT received as tenants-in-common was a 31% interest in 80
acres valued at $205,000.00 in 2013.
15. The value of the 31% interest in the 80 acres the BRT
received as tenants-in-common translates to approximately 25
acres and is valued at approximately $63,550.00. The
difference in value between the fee simple property
Defendant Cam Forbes received in the transaction and the
tenants-in-common property he provided in the exchange was
approximately $256,450.00.
[¶77] The district court held that the transaction “benefited [] Cam Forbes at the expense
of all other beneficiaries,” that the “trustees misrepresented facts to the beneficiaries,”
and that the trustees “breached their duty of loyalty and their duty to act in good faith to
the beneficiaries by approving the land exchange.”
14
The Trust authorizes beneficiaries to build homes on BRT property.
24
[¶78] Julia and Cam challenge the factual basis for these findings, asserting that the
undesignated expert witness should not have been allowed to testify regarding the value
of the exchanged land; that it was error to compare a 2007 appraisal of one property to a
2013 appraisal of the exchanged property; and that the conclusion the property exchanged
by Cam was unsuitable for development was contrary to the testimony of Spike’s own
(undesignated) expert. We address each of these in turn.
A. The Undesignated Expert
[¶79] The district court ordered Spike to designate expert witnesses by March 8, 2013.
Although James Urbatchka had completed his appraisal of the Jeffries 80 in January
2013, he was not designated as an expert.15 After Spike listed Mr. Urbatchka’s 2013
appraisal as an exhibit in his final pretrial memo, the Sarah P. Forbes Revocable Trust
(which was a defendant at the time but would be dismissed from the case prior to trial)
filed a motion in limine to bar Mr. Urbatchka from testifying to any opinion set forth in
his January 2013 appraisal.16 The BRT trustees raised their objection to Mr. Urbatchka’s
testimony regarding the 2013 appraisal in their Response to Plaintiff’s Pretrial
Memorandum, filed May 28, 2013. The district court denied the motions in an August
13, 201317 ruling, stating:
The Court finds that any testimony by Mr. Urbachka’s
[sic] regarding appraisals he did on behalf of Plaintiff is
proper regardless of Mr. Urbachka’s [sic] designation or not
as an expert. The Court notes that Mr. Urbachka [sic]
provided both parties with appraisals in his professional
capacity, and his testimony would therefore appear to be
relevant to both parties.
[¶80] The parties do not dispute that, as to the 2013 appraisal, Mr. Urbatchka was
testifying as an expert who was subject to the expert designation requirements and
deadlines. Mr. Urbatchka’s testimony regarding his 2013 appraisal formed the basis for
the district court’s finding that the BRT trade for a 31 percent interest in Cam’s property
was not fair. Julia and Cam argue that this testimony should not have been admitted,
because it violated both the district court’s scheduling order and W.R.C.P. 26(a)(2).
They contend that W.R.C.P. 37(c)(1) requires that “A party that without substantial
justification fails to disclose information as required by Rule 26(a) or 26(e)(1) or to
amend a prior response to discovery as required by Rule 26(e)(2) is not, unless the error
is harmless, permitted to use as evidence at trial, at a hearing, or on a motion any witness
15
Mr. Urbatchka had been listed as a “may call” fact witness by Spike, and earlier appraisals he had done
(not for purpose of trial) had been identified by the trustees as exhibits.
16
The BRT trustees filed a joinder to this motion in limine on May 28, 2013.
17
Trial began August 19, 2013.
25
or information not so disclosed.” Spike contends there was no surprise or prejudice to the
trustees because they planned to have Urbatchka testify about other appraisals anyway.
[¶81] “A ruling on the admission or exclusion of expert witness testimony based on a
violation of a pre-trial order is within the trial court’s discretion, and we will not overturn
the decision absent a showing of an abuse of that discretion.” Smith v. Paiz, 2004 WY
14, ¶ 15, 84 P.3d 1272, 1277 (Wyo. 2004) (citing Winterholler v. Zolessi, 989 P.2d 621,
624-25 (Wyo. 1999)). We are not informed why the district court ruled as it did, and we
can discern no reasonable basis for doing so.
[¶82] We have held that when a party claims an error in the admission of evidence on
the basis of unfair surprise and prejudice, we will not consider the alleged error unless the
party sought a continuance upon learning of the alleged surprise. Miller v. Beyer, 2014
WY 84, ¶ 56 329 P.3d 956, 972 (Wyo. 2014); Parrish v. Groathouse Constr., Inc., 2006
WY 33, ¶ 15 n.4, 130 P.3d 502, 507 n.4 (Wyo. 2006); Meyer v. Rodabaugh, 982 P.2d
1242, 1245 (Wyo. 1999). However, in each of these cases, the district court had offered a
continuance which the objecting party declined. In Betts v. Crawford, 965 P.2d 680, 685
(Wyo. 1998), the case in which we first applied the rule to expert witness designation, we
found that the plaintiff’s case was not harmed by the expert testimony. In Morris v. State
ex rel. Wyo. Workers’ Safety & Comp. Div., 2012 WY 71, ¶ 30, 276 P.3d 399, 407 (Wyo.
2012), we backed away from a strict requirement that the party must request a
continuance in order to preserve the issue for appeal, holding that where a party clearly
identifies its objection to the evidence, moves for its exclusion, and the objection is
preserved in the record, we will consider the claim of error under our Winterholler
analysis. Id. While it would always be prudent to request a continuance, both to allow
the district court the opportunity to cure the surprise and to preserve the issue on appeal,
here, as in Morris, the trustees made reasonable efforts to preserve the issue.18 They filed
a motion in limine immediately upon receiving notice that Spike intended to use Mr.
Urbatchka’s 2013 appraisal, and objected again in their Response to Plaintiff’s Pretrial
Memorandum. The district court did not rule on those motions until six days before trial.
We hold that, under these circumstances, the failure to request a continuance is not an
absolute bar to the trustees’ appeal of the issue, and we will instead analyze it by
applying the Winterholler factors.
[¶83] In Winterholler, we adopted the following factors for evaluating whether the
district court abused its discretion in admitting or excluding a party’s supplementation of
its disclosures after the conclusion of expert discovery:
(1) whether allowing the evidence would incurably surprise
or prejudice the opposing party;
18
Contrast In re MC, 2013 WY 43, ¶ 48, 299 P.3d 75, 85 (Wyo. 2013) (in which objecting party took no
steps to attempt to correct or preserve the issue of claimed undesignated witnesses).
26
(2) whether excluding the evidence would incurably
prejudice the party seeking to introduce it;
(3) whether the party seeking to introduce the testimony
failed to comply with the evidentiary rules inadvertently or
willfully;
(4) the impact of allowing the proposed testimony on the
orderliness and efficiency of the trial; and
(5) the impact of excluding the proposed testimony on the
completeness of the information before the court or jury.
Winterholler v. Zolesssi, 989 P.2d 621, 628 (Wyo. 1999) (quoting Dada v. Children’s
Nat’l Med. Ctr., 715 A.2d 904, 909 (D.C. 1998); see also Morris, 2012 WY 71, ¶ 31, 276
P.3d at 407.
[¶84] First, allowing the evidence of Mr. Urbatchka’s 2013 appraisal six days before
trial provided no opportunity for the trustees to find or designate an expert to counter his
testimony. There is no question that the testimony was prejudicial to the trustees, since it
formed the basis for the district court’s conclusion that the land exchange was unfair to
the BRT beneficiaries.
[¶85] Second, excluding the evidence would not have incurably prejudiced the party
seeking to introduce the 2013 appraisal. The evidence of the Jeffries 80’s value in 2013
is of questionable relevance or reliability, and should not have been admitted in any case.
The district court compared a 2007 appraised value of the land Cam acquired from BRT
($320,000.00) to a 2013 appraised value of the interest in land Cam traded to the BRT
($63,550.00). Julia and Cam contend that it is improper to compare property values with
such a lapse of time, particularly when there was a “major stock market crash and decline
in real estate values, and the extended recession” in the interim. We agree that an
appraisal of the property’s value as of 2013 is a poor indicator of its value in 2007, and
should not have been relied upon by the district court.19 See Anderson v. Bauer, 681 P.2d
1316, 1325 (Wyo. 1984) (error for the plaintiffs to use a 1983 appraisal for claim of
diminished value arising from a 1978 injury).
[¶86] Third, the record does not indicate whether Spike failed to designate Mr.
Urbatchka as an expert with respect to the 2013 appraisal inadvertently or willfully. We
only know that the appraisal was completed in January of 2013, and the expert witness
19
A retrospective appraisal, valuing the property as of 2007, would have been the appropriate measure
and is an accepted method employed by professional appraisers. Day v. Stascavage, 251 P.3d 1225,
1230-31 (Co. App. 2010).
27
designation deadline was March 8, 2013. Spike has presented no explanation for the
failure to designate, and this factor weighs against him.
[¶87] Fourth, allowing Mr. Urbatchka’s testimony had minimal impact on the
orderliness and efficiency of trial, as he was likely going to be called in any case as a fact
witness.
[¶88] Finally, in this case, excluding the evidence would have resulted in a great deal
more accurate information for the district court’s consideration, in view of the fact the
2013 appraisal has very little relevance to the 2007 property values.
[¶89] Applying the Winterholler factors to these facts, we must conclude that the district
court abused its discretion in admitting and relying on the expert testimony concerning
the 2013 value of the Jeffries 80.
B. Suitability for Development
[¶90] The district court found that the Jeffries 80 property exchanged by Cam to the
BRT “is not suitable for development due to the steep character of the land.” It further
concluded the parcel “is steep, inhospitable and most certainly not fit for any other
purpose than what it is being used for now, which as far as this Court can tell, is
nothing.”
[¶91] The record does not support this conclusion. In fact, Mr. Urbatchka testified “I
think there was enough relatively flat land that you could put four houses there, sure.”
The district court’s findings of fact as to the Jeffries 80 suitability for development are
clearly erroneous.
[¶92] Our conclusions regarding the district court’s errors in evaluating the 2007 land
transaction between Cam and the BRT do not, however, exonerate the trustees. The fact
remains that Cam as trustee entered into a transaction with the BRT, which alone raises
questions regarding his duty of loyalty. Although the trustees insist that Cam recused
himself as a BRT trustee prior to the decision being made, his recusal at the last leg of the
negotiation does not satisfy his duty of loyalty. “Where there are several trustees, one of
them cannot properly purchase trust property for himself, although his co-trustees are not
personally interested in the purchase and consent to the sale.” Restatement (Second) of
Trusts § 170, cmt. b.
[¶93] We conclude once again, that the BRT trustees were careless in allowing the
individual trustees to enter into deals with the Trust, especially with no safeguards in
place to ensure the fairness of the transactions. While we recognize that this may have
been the acceptable way of doing business for the BRT trustees for many years, such
conduct does not meet the duty of loyalty. As a practical matter, as soon as a single
28
beneficiary becomes adverse, as Spike apparently did after 2007, anything short of strict
adherence to the duties imposed by the Trust and the law will result, at the very least, in
the type of litigation we see here.
C. Was Removal Warranted?
[¶94] The ultimate question is whether the district court correctly removed Cam and
Julia as BRT trustees. We find that the district court based that decision on a number of
clearly erroneous findings of fact. The water rights that were moved to Cam’s property
did not come from BRT lands. Julia did not gain $376,226 from the Nature Conservancy
transaction. The Jeffries 80 property could have four houses built on it. The value of the
Jeffries 80 in 2013 is not a reliable measure of its value in 2007. The district court also
applied an incorrect legal standard to the trustees’ duty, and allowed evidence and
testimony without explanation or a discernible basis.
[¶95] Remand would serve no purpose under these circumstances, where the facts are
sufficient for a final determination. As discussed above, we find that trustees Cam and
Julia did engage in self-dealing in the 2007 Cam land exchange, the conservation
easement transactions, and the water rights changes in place of use. Removal of a trustee,
however, “usually will not be grounded on a mere error of judgment or conduct even
though there is a technical breach of the trust, if the trust estate does not suffer.”
Schildberg v. Schildberg, 461 N.W.2d 186, 191 (Iowa 1990) (citing 76 Am. Jur. 2d
Trusts § 130, at 370 (1975)). “Generally, the court will not remove a testamentary trustee
absent a demonstrated abuse of power.” In re Estate of Klarner, 113 P.3d at 157 (citing
Copley v. Copley, 178 Cal. Rptr. 842, 866 (1981); Culver v. Culver, 169 N.E.2d 486, 489
(1960) (so long as trustee executes trust in good faith and sound discretion, court has no
right to interfere)). Although Cam and Julia engaged in self-dealing, there is no evidence
the trust estate suffered, nor is there a demonstrated abuse of power.
[¶96] Spike suggests that hostility alone is a basis for removal of the trustees. But, while
it is apparent that Spike feels hostile toward the trustees (for example, referring to their
actions as “[a]bsolute idiocy,” “where selfish pursuit of getting the personal max they can
out of every situation is the modus operandum” in an e-mail to Edith), there is no
evidence that hostility is reciprocated.
Hostility may naturally exist in trust relationships since trusts
are usually created to withhold control of the trust principal
from the beneficiaries. Hostility between the trustee and the
beneficiaries of the trust alone is insufficient to require the
removal of the trustee. To be sufficient to require removal,
the hostility must interfere with the proper administration of
the trust.
29
In re Trust Created by Hill for Benefit of Schroll, 499 N.W.2d 475, 485 (Minn. Ct. App.
1993) (citations omitted). We held in Kerper, that:
Generally, social or familial hostility, between the trustee and
one or more beneficiaries of a trust is insufficient in and of
itself to warrant removal of a trustee. The real question in
these situations is whether or not the hostility, in combination
with existing circumstances, materially interferes with the
administration of the trust or is likely to cause that result.
Kerper, 780 P.2d at 938. See also Schildberg, 461 N.W.2d at 192 (“[H]ostility . . . which
results from the acts or conduct of the beneficiary, has been held not to be sufficient
ground for removal.”); Symmons v. O’Keeffe, 644 N.E.2d 631, 637 (Mass. 1995) (if mere
fact of friction between the trustee and beneficiaries were basis for removal, “an
obstreperous malintentioned beneficiary could cause the removal of a competent trustee
through no fault on the latter’s part”).
[¶97] We do not find there exists hostility between the trustees and Spike such that it
interferes with the proper administration of the BRT, and we conclude that Cam and
Julia’s self-dealing caused no serious harm, and did not establish dishonesty or want of
capacity.
[¶98] It is unnecessary to address the trustees’ remaining issue regarding the district
court’s failure to address their affirmative defenses. We also do not address Spike’s issue
on his cross appeal, because his argument for removal of Sarah and Edith is based on a
finding that Cam and Julia should be removed, which we now reverse.
CONCLUSION
[¶99] Cam Forbes and Julia Forbes did breach their duty of loyalty to the extent that
they engaged in self-dealing with the Beckton Ranch Trust. However, the district court’s
finding that they benefitted from those transactions is, for the most part, clearly
erroneous. Because the evidence does not demonstrate that they acted dishonestly or
with want of capacity, nor that any serious harm has been done, we conclude that the
breaches do not warrant their removal as trustees. We therefore reverse the district
court’s order removing William “Cam” Forbes and Julia Forbes as trustees of the
Beckton Ranch Trust. We affirm the district court’s decision not to remove Sarah Forbes
and Edith Forbes.
30