Arianna A. George v. Tessa G. Dunn

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
August 9, 2016 Session
ARIANNA A. GEORGE ET AL. v. TESSA G. DUNN
Appeal from the Chancery Court for Knox County
No. 189422-1 John F. Weaver, Chancellor
No. E2015-02312-COA-R3-CV-FILED-NOVEMBER 2, 2016
This case involves a trustee‟s disbursement of funds from two trusts, without
authorization of the trusts‟ respective beneficiaries, in order to pay legal expenses
incurred in defending against a prior action filed against the trustee on behalf of the
beneficiaries. The trial court had dismissed the prior action with prejudice in an agreed
order entered on August 31, 2012, which further provided that the funds at issue would
be disbursed by the trustee for the benefit of the beneficiaries. On April 13, 2015, the
beneficiaries filed a complaint, alleging that the trustee had violated the terms of the
August 2012 order and her fiduciary duty by writing checks against the trust funds in an
amount totaling $30,563.16. The trustee filed an answer, asserting that pursuant to
Maryland law governing the establishment of the trust accounts, she was entitled to be
reimbursed from the trust accounts for legal fees incurred in defense of the prior lawsuit
filed on behalf of the beneficiaries and ultimately dismissed. The beneficiaries filed a
motion for summary judgment. Following a hearing, the trial court granted summary
judgment in favor of the beneficiaries, awarding each beneficiary, respectively,
$15,281.58 plus prejudgment interest and attorney‟s fees. The trustee appeals.
Discerning no reversible error, we affirm. Having determined that the trial court did not
abuse its discretion by awarding attorney‟s fees upon the finding that the trustee breached
her fiduciary duty, we further determine an award to the beneficiaries of attorney‟s fees
on appeal to be appropriate. We remand for the trial court to determine the amount of
reasonable attorney‟s fees incurred by the beneficiaries during the appellate process.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
THOMAS R. FRIERSON, II, J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and FRANK G. CLEMENT, JR., P.J., M.S., joined.
Theodore R. Kern, Knoxville, Tennessee, for the appellant, Tessa G. Dunn.
Dudley W. Taylor, Knoxville, Tennessee, for the appellees, Arianna A. George and
Alexa C. George.
OPINION
I. Factual and Procedural Background
The prior action filed on behalf of the beneficiaries also came before this Court on
appeal. See Taylor v. George, No. E2014-00608-COA-R3-CV, 2015 WL 1218658
(Tenn. Ct. App. Mar. 16, 2015), perm. app. denied (Tenn. June 11, 2015). The trusts at
issue were created through the Last Will and Testament of Gloria G. George
(“Decedent”), who died in 2007 as a resident of Maryland. In her will, which was
probated in Maryland, Decedent provided for the establishment of separate trusts for each
of her two granddaughters, the plaintiffs, Arianna A. George and Alexa C. George
(collectively, “Plaintiffs”), to be initially funded with $50,000.00 each. Decedent named
as trustee her daughter, the defendant, Tessa G. Dunn, who is Plaintiffs‟ aunt. Plaintiffs
are the children, now adults, of Decedent‟s son, James T. George, and his former wife,
Melissa L. Taylor. Decedent also established a trust for Mr. George in her will, for which
Ms. Dunn was the trustee. See Taylor, 2015 WL 1218658, at *2.
Decedent‟s will originally established Plaintiffs‟ trust funds with the following
provisions:
a. If my son is then living, and if he has an obligation to make any
payment to his former wife, Melissa L. George, pursuant to the Final
Order of Separate Maintenance and Support dated November 27,
2001 and the Property and Separation Agreement dated November
27, 2001, and if Melissa L. George shall execute a receipt and
release acknowledging satisfaction of said obligation in part (in the
case of my son‟s older living child) or in whole (in the case of my
son‟s younger living child), then:
(1) Upon such child attaining age eighteen (18), my Trustee shall
distribute Forty Thousand Dollars ($40,000) from such
child‟s trust to Melissa L. George for the express purpose of
providing for such child‟s college, professional, and/or post-
graduate education.
(2) With respect to the balance of such child‟s trust, my Trustee
may expend such amounts of the net income, and to the
extent the net income is insufficient then of the principal, of
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the trust as is necessary or appropriate, in my Trustee‟s sole
and absolute discretion, for the college, professional, and/or
post-graduate education of such child.
As part of the 2001 Final Order of Separate Maintenance and Support, entered by a South
Carolina court, Mr. George had agreed that he owed Ms. Taylor $80,000.00 in unpaid
spousal and child support. See Taylor, 2015 WL 1218658, at *1.
On June 30, 2009, Ms. Taylor, acting on her own behalf and as next friend of
Plaintiffs, filed an action against Mr. George and Ms. Dunn in the Knox County
Chancery Court (“trial court”). Ms. Taylor alleged, inter alia, that Mr. George and Ms.
Dunn had conspired to compel her to sign a release, as required by Decedent‟s will, in
return for a $70,000.00 settlement of the $80,000.00 divorce judgment while failing to
inform her that the $70,000.00 would be deducted from Plaintiffs‟ trust funds. Id. at *2.
Ms. Dunn had written a $35,000.00 check from each Plaintiff‟s respective trust fund, and
Mr. George had then delivered the $70,000.00 payment to Ms. Taylor‟s husband,
Plaintiffs‟ current counsel, Dudley W. Taylor. Id. Ms. Taylor sought declaratory
judgment regarding the parties‟ rights and liabilities, enforcement of the $80,000.00
divorce judgment, and a finding that Ms. Dunn had breached her fiduciary duties. Id.
Ms. Taylor deposited the $70,000.00 check she had received into the registry of the trial
court. Id.
On August 31, 2012, the trial court entered an agreed order dismissing with
prejudice the claims filed against Ms. Dunn on behalf of Plaintiffs. The agreed order
provided that the funds held by the court would be released to Ms. Dunn as trustee so that
she could restore the funds to Plaintiffs‟ trust accounts. Id. The order further provided
that the funds would be disbursed by Ms. Dunn “from the respective trusts for the benefit
of Alexa C. George and Arianna A. George pursuant to the terms of the trust
agreement[.]”
The remaining parties proceeded to trial on the claims brought in Ms. Taylor‟s
name against Mr. George and Ms. Dunn. The trial court ultimately dismissed the claims
against Ms. Dunn while upholding the divorce judgment against Mr. George and
assessing prejudgment and postjudgment interest. Taylor, 2015 WL 1218658, at *1. In
upholding the trial court‟s judgment, this Court concluded:
[T]he evidence supported the trial court‟s finding that Ms. Dunn and Mr.
George did act in concert and conspire to deplete Mr. George‟s trust assets
so that Ms. Taylor would be unable to collect her judgment against the
trust. As the trial court also properly found, however, there was no proof of
an underlying tortious or wrongful act that would support Ms. Taylor‟s
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conspiracy claim. The will provided Ms. Dunn, as trustee, discretion to
make disbursements of Mr. George‟s trust fund assets. Even though Ms.
Dunn was aware of Ms. Taylor‟s unpaid judgment, Ms. Dunn was not
violating a court order or lien or otherwise acting in a fraudulent or tortious
manner by disbursing trust fund assets to Mr. George. By transferring
funds to Mr. George, Ms. Dunn initiated actions that she was lawfully
entitled to take as trustee. The fact that Ms. Dunn‟s actions resulted in
depletion of the trust assets before Ms. Taylor could enforce her judgment
against the trust does not render Ms. Dunn‟s actions fraudulent or tortious.
See, e.g., Burton v. Hardwood Pallets, Inc., No. E2001-00547-COA-R3-
CV, 2001 WL 1589162 at *5 (Tenn. Ct. App. Apr. 29, 2002) (holding that
there was no fraudulent conduct where a defendant creditor‟s lawful actions
to collect a debt resulted in an unsecured creditor‟s debt going unsatisfied).
Therefore, without the demonstration of the commission of a tortious or
wrongful act by Ms. Dunn, there can be no cognizable claim of civil
conspiracy. We determine that the trial court properly dismissed Ms.
Taylor‟s claims against Ms. Dunn in this matter.
Id. at *7.
The instant action was commenced on April 13, 2015, when Plaintiffs filed a
complaint alleging that Ms. Dunn had violated the terms of the August 2012 agreed order
and her fiduciary duty to Plaintiffs by writing checks to herself and Mr. George against
Plaintiffs‟ trust funds. Ms. Dunn acknowledges that in September 2012, she wrote two
“reimbursement” checks on each trust account, ostensibly to reimburse her personal
funds and Mr. George for attorney‟s fees incurred in defense of the prior action brought
on behalf of Plaintiffs. On September 20, 2012, the trial court clerk disbursed to Ms.
Dunn $70,734.10, including the $70,000.00 provided by the agreed order plus interest
earned. On September 20, 2012, Ms. Dunn wrote two checks in the amount of
$12,500.00 to Mr. George, one drawn from each of the Plaintiff‟s trust funds. On
September 21, 2012, Ms. Dunn wrote two checks in the amount of $2,781.58 to herself,
also drawing one check from each of Plaintiff‟s trust funds. Ms. Dunn explained in an
affidavit presented to the trial court that although she initially had utilized monies from
Mr. George‟s trust, for which she was also the trustee, to pay legal expenses, she wrote
the corresponding “reimbursement” checks directly to Mr. George because his trust had
been dissolved by that time. The total amount that Ms. Dunn withdrew from Plaintiffs‟
combined trust funds was $30,563.16.
Although Plaintiffs had requested an award of attorney‟s fees “if applicable” in
their original complaint, Plaintiffs filed an amendment to their complaint on April 30,
2015, adding that they sought “their reasonable attorney fees for the intentional breach by
4
Defendant of her fiduciary duty . . . .” Ms. Dunn subsequently filed an answer,
documenting her legal expenses for defense of the prior action and asserting that pursuant
to Maryland law governing the establishment of the trust accounts, she was entitled to be
reimbursed from the trusts for her legal fees incurred in defense of the prior lawsuit.
Ms. Dunn maintains that the legal expenses for which she reimbursed herself
pertained to defense of the action pursued on Plaintiffs‟ behalf and not the action pursued
by Ms. Taylor individually. Ms. Dunn also maintains that she met with Plaintiffs in
September 2012, prior to writing the reimbursement checks, and explained to Plaintiffs
that she would be reimbursing herself from their trust funds for the substantial legal fees
she had incurred in defending against their prior lawsuit. Plaintiffs deny that such a
meeting took place and deny that Ms. Dunn provided them with advance notice that she
would be withdrawing funds from their trust accounts as reimbursement for her legal
fees.
On June 23, 2015, Plaintiffs filed a motion for summary judgment and a statement
of “Material Facts as to which there is No Genuine Issue for Trial.” Ms. Dunn filed a
response and statement of additional facts on July 27, 2015, inter alia, acknowledging
that she did not obtain consent from Plaintiffs for the trust withdrawals at issue but
asserting that she did provide them with prior notice of the withdrawals.
Following a hearing conducted on August 6, 2015, the trial court granted the
parties ten days for supplemental briefing on applicable Maryland law. Specifically, the
court directed in an order entered August 14, 2015:
After taking into account all documents filed in support of and against the
Motion, the Court elected to defer its ruling in order to give the parties,
through counsel, an opportunity to research the issue of whether Maryland
law offers any support for the proposition that a trustee of a trust is
protected against claims of the beneficiaries for making disbursements of
trust funds to persons who are not trust beneficiaries, by reason of giving
advance notice of such intended disbursements, whether or not the
beneficiaries consent.
On September 24, 2015, the trial court entered a Memorandum Opinion, granting
partial summary judgment in favor of Plaintiffs. Upon finding that Ms. Dunn had
violated the agreed order and breached her fiduciary duty to Plaintiffs, the court awarded
to each respective Plaintiff the amount of $15,281.58, plus prejudgment interest of five
percent per annum calculated from September 20, 2012, on each $12,500.00 check and
from September 21, 2012, on each $2,781.58 check. The court also awarded to Plaintiffs
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reasonable attorney‟s fees but reserved the amount for an evidentiary hearing. The court
entered an Order to this effect on November 6, 2015.
Ms. Dunn filed a notice of appeal on December 4, 2015. On January 8, 2016, the
trial court entered an order awarding to Plaintiffs attorney‟s fees in the amount of
$6,000.00 and costs in the amount of $244.33, contingent upon Plaintiffs‟ success on
appeal. Upon submission of the final judgment, this Court treated Ms. Dunn‟s premature
appeal as timely pursuant to Tennessee Rule of Appellate Procedure 4(d).
II. Issues Presented
Ms. Dunn presents three issues on appeal, two of which we determine to be
included in her overall issue of whether the trial court erred by granting partial summary
judgment in favor of Plaintiffs. We have restated Ms. Dunn‟s issues as follows:
1. Whether the trial court erred by granting partial summary judgment
in favor of Plaintiffs upon:
A. Declining to consider or address the effect of Maryland law
on Ms. Dunn‟s asserted right to reimburse herself for
attorney‟s fees incurred in defense of a prior lawsuit brought
against her on behalf of Plaintiffs.
B. Interpreting the August 31, 2012 agreed order as negating Ms.
Dunn‟s asserted right under Maryland law to claim
reimbursement from Plaintiffs‟ trust funds for legal fees
incurred in defense of the prior suit.
Plaintiffs present an additional issue, which we have restated as follows:
2. Whether Plaintiffs are entitled to attorney‟s fees on appeal, either
upon a determination that this appeal is frivolous, pursuant to
Tennessee Code Annotated § 27-1-122, or upon the trial court‟s
finding that Ms. Dunn breached her fiduciary duty to Plaintiffs.
III. Standard of Review
The grant or denial of a motion for summary judgment is a matter of law;
therefore, our standard of review is de novo with no presumption of correctness. See Rye
v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015); Dick
Broad. Co., Inc. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 671 (Tenn. 2013)
6
(citing Kinsler v. Berkline, LLC, 320 S.W.3d 796, 799 (Tenn. 2010)). As such, this Court
must “make a fresh determination of whether the requirements of Rule 56 of the
Tennessee Rules of Civil Procedure have been satisfied.” Rye, 477 S.W.3d at 250. As
our Supreme Court has explained concerning the requirements for a movant to prevail on
a motion for summary judgment pursuant to Tennessee Rule of Civil Procedure 56:
We reiterate that a moving party seeking summary judgment by attacking
the nonmoving party‟s evidence must do more than make a conclusory
assertion that summary judgment is appropriate on this basis. Rather,
Tennessee Rule 56.03 requires the moving party to support its motion with
“a separate concise statement of material facts as to which the moving party
contends there is no genuine issue for trial.” Tenn. R. Civ. P. 56.03. “Each
fact is to be set forth in a separate, numbered paragraph and supported by a
specific citation to the record.” Id. When such a motion is made, any party
opposing summary judgment must file a response to each fact set forth by
the movant in the manner provided in Tennessee Rule 56.03. “[W]hen a
motion for summary judgment is made [and] . . . supported as provided in
[Tennessee Rule 56],” to survive summary judgment, the nonmoving party
“may not rest upon the mere allegations or denials of [its] pleading,” but
must respond, and by affidavits or one of the other means provided in
Tennessee Rule 56, “set forth specific facts” at the summary judgment
stage “showing that there is a genuine issue for trial.” Tenn. R. Civ. P.
56.06. The nonmoving party “must do more than simply show that there is
some metaphysical doubt as to the material facts.” Matsushita Elec. Indus.
Co., 475 U.S. [574,] 586, 106 S. Ct. 1348 [(1986)]. The nonmoving party
must demonstrate the existence of specific facts in the record which could
lead a rational trier of fact to find in favor of the nonmoving party. If a
summary judgment motion is filed before adequate time for discovery has
been provided, the nonmoving party may seek a continuance to engage in
additional discovery as provided in Tennessee Rule 56.07. However, after
adequate time for discovery has been provided, summary judgment should
be granted if the nonmoving party‟s evidence at the summary judgment
stage is insufficient to establish the existence of a genuine issue of material
fact for trial. Tenn. R. Civ. P. 56.04, 56.06. The focus is on the evidence
the nonmoving party comes forward with at the summary judgment stage,
not on hypothetical evidence that theoretically could be adduced, despite
the passage of discovery deadlines, at a future trial.
Rye, 477 S.W.3d at 264-65 (emphasis in original). Pursuant to Tennessee Rule of Civil
Procedure 56.04, the trial court must “state the legal grounds upon which the court denies
or grants the motion” for summary judgment, and our Supreme Court has instructed that
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the trial court must state these grounds “before it invites or requests the prevailing party
to draft a proposed order.” See Smith v. UHS of Lakeside, Inc., 439 S.W.3d 303, 316
(Tenn. 2014).
IV. Effect of Maryland Law
Ms. Dunn contends that the trial court erred by declining to consider or address
whether, under Maryland law, she had a right to deduct funds from Plaintiffs‟ trust funds
as reimbursement for the legal expenses she incurred as a result of the prior action filed
on behalf of Plaintiffs. Plaintiffs do not dispute that because Decedent‟s will did not
designate a state jurisdiction, “the laws of the principal place of [the trusts‟]
administration determine the administration of the trust[s].” See Tenn. Code Ann. § 35-
15-107(c) (2015). Although the trial court allowed the parties ten days following the
summary judgment hearing to file supplemental memoranda concerning the effect of
Maryland law on this issue, the court did not directly address the application of Maryland
law in its memorandum opinion or order awarding partial summary judgment. The trial
court based its ruling upon the findings that Ms. Dunn had (1) violated the terms of the
agreed order by withdrawing funds from Plaintiffs‟ trust accounts with no resultant
benefit to Plaintiffs and (2) breached her fiduciary duty as trustee of Plaintiffs‟ trusts.
Upon our thorough review of the record and applicable authorities, we conclude that the
trial court did not err by declining to find that Maryland law provided Ms. Dunn with the
right to reimburse herself from Plaintiffs‟ trust accounts without prior authorization of the
trial court or consent of Plaintiffs.
The August 31, 2012 agreed order provided in relevant part:
This case is before the Court on the request of the parties to restore
funds currently held in escrow by the Clerk and Master to the trust funds of
Alexa C. George and Arianna A. George. The Court finds that Tessa G.
Dunn, as trustee of the trusts for Alexa C. George and Arianna A. George,
previously distributed $35,000.00 from each trust to Melissa L. Taylor, that
Melissa L. Taylor placed the money in escrow with the Clerk and Master,
and that the parties agree this money, plus any interest which may have
accrued, should be returned to the respective trusts. The Court further finds
the parties agree that return of the escrowed funds resolves all claims
brought against Tessa G. Dunn on behalf of Alexa C. George and Arianna
A. George, and that those claims should be dismissed.
***
Accordingly, it is hereby ORDERED:
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1. The Clerk and Master shall release all funds currently held in escrow
in this case to Tessa G. Dunn as trustee for the trusts established for
the benefit of Alexa C. George and Arianna A. George;
2. Tessa G. Dunn shall deposit one-half of the funds released by the
Clerk and Master in the trust established for Alexa C. George and
one-half in the trust established for Arianna A. George, and shall
disburse said funds from the respective trusts for the benefit of Alexa
C. George and Arianna A. George pursuant to the terms of the trust
agreement;
3. All claims brought against Tessa G. Dunn on behalf of Alexa C.
George and Arianna A. George are hereby dismissed, with
prejudice[.]
(Emphasis added.) In the instant action, the trial court found that because Ms. Dunn had
undisputedly used the funds withdrawn from Plaintiffs‟ trusts on September 20 and 21,
2012, for other than Plaintiffs‟ benefit, Ms. Dunn had violated the agreed order. Ms.
Dunn, however, focuses on the phrase, “pursuant to the terms of the trust agreement” to
argue that under Maryland law governing administration of Plaintiffs‟ trusts, she was
entitled to utilize trust monies to reimburse herself for legal expenses incurred in
defending herself against the portion of the prior lawsuit filed on behalf of Plaintiffs.
The trial court in its November 6, 2015 order summarized the pleadings and
authorities it had considered in reaching its ruling as follows:
This matter came before the Court on the Motion of Plaintiffs for
Summary Judgment. The matter was presented to the Court on oral
argument on August 6, 2015. The Court thereafter took the matter under
advice and further, offered the parties through counsel the opportunity to
file supplemental briefs on the issue of whether Maryland law protects a
trustee from the consequences of making an otherwise unauthorized
disbursement if the trustee has given prior notice to the beneficiary. The
Court thereafter issued its Memorandum Opinion on September 24, 2015
based upon the Motion, supporting affidavits, the response of Defendant,
opposing affidavits, briefs, and such other matters as the Court found to be
pertinent to the issues in the case.
Contrary to Plaintiffs‟ argument, the trial court thus considered the pleadings in which the
parties addressed Maryland case law, including Ms. Dunn‟s response to the motion for
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summary judgment and Plaintiffs‟ memorandum filed subsequent to the summary
judgment hearing. The trial court, however, was not persuaded that Maryland law
afforded Ms. Dunn the right to utilize trust fund monies to reimburse herself for legal fees
in this situation.
In granting partial summary judgment in favor of Plaintiffs, the trial court stated in
its memorandum opinion in pertinent part:
The pivotal issue for the motion is whether the defendant Tessa G. Dunn
disbursed funds of the trusts in violation of an agreed order. The Court
entered the agreed order upon the agreement of the defendant Dunn and the
other parties in a prior case in this court concerning the funds, case number
175472-1. The defendant Dunn was entrusted with the funds from this
Court‟s registry to be restored to the trusts and disbursed by her “from the
respective trusts for the benefit of Alexa [C]. George and Arianna A.
George [the plaintiffs] pursuant to the terms of the trust agreement[.”]
[emphasis added (by trial court)]. The defendant Dunn disbursed the funds,
in question, to herself and her brother, to reimburse monies spent by the
defendant Dunn from her own funds and the trust funds of her brother. No
benefit to the plaintiffs has been identified to the Court from the defendant
Dunn‟s disbursements of their trust funds.
***
[T]he funds of $70,734.10, including interest earned while on deposit with
the Clerk and Master, were returned in the amount of $35,367.05 to each of
the two trusts. Pursuant to the agreed order, the defendant Dunn was then
to “disburse said funds from the respective trusts for the benefit of Alexa C.
George and Arianna A. George [the plaintiffs] pursuant to the terms of the
trusts agreements.” Instead, the defendant Dunn disbursed the sum of
$2,781.58 from each trust to reimburse herself for legal fees paid by her in
the original suit against her. The defendant Dunn also disbursed the sum of
$12,500.00 from each trust to her brother and co-defendant in the original
case, in the amount of $12,500.00 to compensate him for monies used by
Dunn from his trust for her own legal fees in the original case. The record
shows no possible benefit to either of the plaintiffs as a result of the
defendant Dunn‟s disbursement of $2,781.58 and $12,500.00 from each
trust to herself and her brother, respectively. The defendant Dunn‟s
counsel could not identify any such benefit at the hearing on the motion for
summary judgment currently before this Court. Moreover, in his post
hearing memorandum entitled, “DEFENDANT‟S RESPONSE TO
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PLAINTIFF‟S MEMORANDUM IN SUPPORT OF MOTION FOR
SUMMARY JUDGMENT,” the defendant‟s counsel states that the
“[p]ayment of legal fees did not benefit the girls but was made necessary by
their action, and was permissible as an expense of administering the trusts.”
The agreed order, under which the monies were entrusted to the defendant
Tessa G. Dunn, specifically required that any such disbursements be made
for the benefit of the plaintiffs.
The defendant Dunn violated the agreed order. The parties to the
original case entered into the agreed order within the context of allegations
that the defendant Dunn manipulated trust transfers for the benefit of her
brother and to defeat the claim of child support for the plaintiffs, his
daughters. . . . There is no genuine issue of material fact but that neither of
the plaintiffs consented to nor authorized any of the disbursements in
question.
Additionally, there is no genuine issue of material fact or question of
law but that the defendant Dunn breached her fiduciary duty to each
plaintiff by her disbursements from each trust of $2,781.58 to herself and
$12,500.00 to her brother.
(Emphasis in original; citations omitted.)
We agree with the trial court. We find the Maryland appellate decisions relied
upon by Ms. Dunn to be highly factually distinguishable from the case at bar. Ms. Dunn
relies in part on a decision rendered by the Maryland Court of Special Appeals, Saulsbury
v. Denton Nat’l Bank, 335 A.2d 199, 204 (Md. Ct. Spec. App. 1975), perm. app. denied
(Md. July 3, 1975), in which the court held that “unless there has been a final
determination as to the alleged misconduct of the cotrustee, such alleged misconduct
cannot be interposed as a defense to a petition for attorney fees for the services rendered
in defending the trustee.” The Saulsbury court, however, was addressing a petition for
attorney‟s fees, which had been reviewed and granted by the trial court following a
hearing on the matter. Id. at 671.
Ms. Dunn also relies on the Maryland intermediate appellate court‟s decision in
Jacob v. Davis, 738 A.2d 904, 921 (Md. Ct. Spec. App. 1999), in which the court
explained that “[t]he general rule is that a trustee is entitled to attorneys‟ fees paid from
the trust if it successfully defends an action brought by the beneficiary.” The Jacob
court, however, was examining the issue of what portion of the attorney‟s fees could be
included in an award already granted to the trustee by the trial court. See id. at 921. In
this regard, the Jacob court was reviewing the trial court‟s prior award of attorney‟s fees
11
to the trustee, not a deduction for reimbursement made by the trustee on his own volition.
See id. at 904; see also Sokol v. Nattans, 337 A.2d 460, 473-75 (Md. Ct. Spec. App.
1975) (affirming the trial court‟s award of attorney‟s fees to the trustees upon the filing of
a petition for such fees).
In their supplemental memorandum to the trial court, Plaintiffs referenced a
decision rendered by Maryland‟s highest state court, the Maryland Court of Appeals,
Hastings v. PNC Bank, NA, 54 A.3d 714, 726 (Md. 2012), in which the court held that “a
trustee may engage in a self-interested course of action so long as the beneficiaries
provide valid, informed consent.” The Hastings court was addressing, in the context of
Plaintiffs‟ reference, the issue of whether the trustee had violated his duty of loyalty to
the beneficiaries by requiring the beneficiaries to execute a release and indemnity clause
prior to distribution of trust funds. Hastings, 54 A.3d at 725 (concluding that the trustee
had not violated this duty). The Hastings court did not address the issue of consent for
reimbursement of attorney‟s fees.
Ms. Dunn has provided no Maryland authority, and our research has not revealed
any, to support the proposition that a trustee may deduct funds from a trust account to pay
legal expenses incurred in defense of the trustee‟s role as trust administrator without a
court order awarding attorney‟s fees or the prior consent of the beneficiary. 1 Moreover,
although Plaintiffs‟ complaint against Ms. Dunn was dismissed with prejudice in the
prior suit, the dismissal was predicated on the return of the $70,000.00 Ms. Dunn had
withdrawn from Plaintiffs‟ collective trust accounts. See Taylor, 2015 WL 1218658, at
*3 (“[T]he [trial] court determined that Ms. Taylor‟s children had attained the age of
majority and were not pursuing claims to invalidate the settlement because the funds had
been restored to their trusts.”). Ms. Dunn cannot be said to have prevailed on the merits
in defending the prior action filed on behalf of Plaintiffs. See Jacob, 738 A.2d at 921
(remanding to the trial court for “allocat[ion] to the Trusts only that portion or percentage
of the fees it considers, in its discretion, to be fairly attributable to the successful aspects
of the defense.”). Ms. Dunn is not entitled to relief on this issue.
VI. Interpretation of Agreed Order
Ms. Dunn also contends that the trial court erred by interpreting the August 2012
agreed order as waiving Ms. Dunn‟s right to reimbursement for attorney‟s fees incurred
in defending against the prior action brought on behalf of Plaintiffs. As the trial court
found, the parameters of the parties‟ August 2012 agreed order, which was entered under
1
We note by analogy the general principle under Tennessee law that “the Estate should not be charged
with an executor‟s legal fees and costs when the „executor‟s conduct is at the root of the litigation.‟” See
Estate of Boote v. Shivers, No. M2003-02656-COA-R3-CV, 2005 WL 1277867, at *5 (Tenn. Ct. App.
May 27, 2005) (quoting In re Estate of Wallace, 829 S.W.2d 696, 704 (Tenn. Ct. App. 1992)).
12
the jurisdiction of a Tennessee court, included the provision that any disbursement of
trust account funds would be for the benefit of Plaintiffs. See City of Shelbyville v. State
ex rel. Bedford County, 415 S.W.2d 139, 144 (Tenn. 1967) (“A consent decree is a
contract made final and binding upon the parties by the approval of the court.”); see also
Kafozi v. Windward Cove, LLC, 184 S.W.3d 693, 698 (Tenn. Ct. App. 2005) (“The
parties‟ intent is presumed to be that specifically expressed in the body of the contract.”).
Moreover, having determined that the trial court did not err by declining to find that
Maryland law afforded Ms. Dunn the right to withdraw fees for her reimbursement absent
Plaintiffs‟ prior consent or a court order authorizing such reimbursement, we further
determine the issue of whether Ms. Dunn “waived” this purported right to be pretermitted
as moot.
VII. Attorney‟s Fees on Appeal
Plaintiffs request an award of attorney‟s fees on appeal, asserting as alternative
grounds that (1) the appeal is frivolous, thereby warranting an award of attorney‟s fees
pursuant to Tennessee Code Annotated § 27-1-122, and (2) Ms. Dunn breached her
fiduciary duty to Plaintiffs, thereby warranting an award of attorney‟s fees on appeal for
the same reason that the trial court awarded attorney‟s fees to Plaintiffs. Ms. Dunn
argues that this appeal is not frivolous and that an award of attorney‟s fees on appeal
based on the finding that she violated her fiduciary duty is not supported by controlling
authority. Upon our thorough review, we conclude that this appeal is not frivolous.
However, we further conclude that an award of attorney‟s fees on appeal is appropriate
based on Ms. Dunn‟s breach of her fiduciary duty as trustee of Plaintiffs‟ respective
trusts.
Tennessee Code Annotated § 27-1-122 (2000) provides:
When it appears to any reviewing court that the appeal from any court of
record was frivolous or taken solely for delay, the court may, either upon
motion of a party or of its own motion, award just damages against the
appellant, which may include but need not be limited to, costs, interest on
the judgment, and expenses incurred by the appellee as a result of the
appeal.
We determine that this appeal was not frivolous or taken solely for delay. See Young v.
Barrow, 130 S.W.3d 59, 67 (Tenn. Ct. App. 2003) (“A frivolous appeal is one that is
devoid of merit . . . or one that has no reasonable chance of succeeding.”).
13
Ms. Dunn does not dispute, however, the trial court‟s award of reasonable
attorney‟s fees to Plaintiffs based on the finding that Ms. Dunn breached her fiduciary
duty. The trial court stated in its memorandum opinion in pertinent part:
[T]here is no genuine issue of material fact or question of law but that the
defendant Dunn breached her fiduciary duty to each plaintiff by her
disbursements from each trust of $2,781.58 to herself and $12,500.00 to her
brother. The plaintiffs are entitled to a partial summary judgment as a
matter of law. The summary judgment constitutes a determination that the
defendant Dunn, while acting as trustee, is liable to the plaintiffs for
“breach of trust [f]or maladministration.[”] Marshall v. First Nat. Bank of
Lewisburg, 622 S.W.2d 558, 560 (Tenn. Ct. App. 1981). The plaintiffs did
not plead their attorney fees as an element of special damages in their
complaint, as amended, but did put the defendant Dunn on notice, by
praying for attorney‟s fees, of their claim for attorney‟s fees, in their
original complaint and amendment to complaint. See Marshall v. First Nat.
Bank of Lewisburg, 622 S.W.2d at 560-61.2
In its subsequent January 8, 2016 order, the trial court ratified the parties‟
agreement that this award would be comprised of $6,000.00 in attorney‟s fees and
$244.33 in costs, provided that Plaintiffs prevailed on appeal. Although Ms. Dunn has
not raised the trial court‟s award of attorney‟s fees as an issue on appeal, we have
reviewed the trial court‟s rationale as a potential rationale for this Court to award
attorney‟s fees on appeal. We determine that the trial court did not abuse its discretion by
awarding attorney‟s fees to Plaintiffs based on its finding that Ms. Dunn had breached her
fiduciary duty. See Wright ex rel. Wright v. Wright, 337 S.W.3d 166, 176 (Tenn. 2011)
(explaining that this Court reviews a trial court‟s award of attorney‟s fees according to an
abuse of discretion standard); see also In re Estate of Greenamyre, 219 S.W.3d 877, 886
(Tenn. Ct. App. 2005) (“[A] trial court will be found to have „abused its discretion‟ only
when it applies an incorrect legal standard, reaches a decision that is illogical, bases its
2
Ms. Dunn does not dispute that Plaintiffs gave adequate notice that they were seeking attorney‟s fees
through their initial prayer for attorney‟s fees in the complaint and specific prayer in their amendment to
the complaint for attorney‟s fees pursuant to Ms. Dunn‟s alleged violation of her fiduciary duty. See
Marshall v. First Nat’l Bank of Lewisburg, 622 S.W.2d 558, 561 (Tenn. Ct. App. 1981) (“In cases
involving trusts and large estates involving complex litigation, the attorneys‟ fees are apt to be substantial
and it seems only fair to require the plaintiff to put the trustee on notice as to any claim for attorneys‟
fees.”); but see Duke v. Simmons, No. M2008-01967-COA-R3-CV, 2009 WL 1175114, at *4 (Tenn. Ct.
App. Apr. 30, 2009) (noting that “[t]he holding in Marshall has been modified by the courts under certain
circumstances . . . .” involving situations in which “a statute specifically authorizes the recovery of
attorney‟s fees from another party.”) (citing In re Estate of Greenamyre, 219 S.W.3d 877, 885 n.22
(Tenn. Ct. App. 2005)).
14
decision on a clearly erroneous assessment of the evidence, or employs reasoning that
causes an injustice to the complaining party.”) (internal citations omitted).
As the trial court noted, this Court set forth the proposition in Marshall v. First
Nat’l Bank of Lewisburg, 622 S.W.2d 558, 560 (Tenn. Ct. App. 1981), perm. app. denied
(Tenn. Nov. 2, 1981), that “it is generally held that where an action is brought against a
trustee for breach of trust or for maladministration, attorneys‟ fees will be allowed . . . .”
while explaining also that “such fees should not be allowed where the trustee has been
faithful, diligent, and successful in his administration.” As this Court has explained
regarding the availability of attorney‟s fees upon a trustee‟s breach of fiduciary duty:
The appellant argues that there is no statutory or contractual basis for
the trial court‟s award of attorney fees. We believe, however, that there is a
basis in case law and in statute for both components of the trial court‟s
award. As the appellee notes, several cases of this court support the
proposition that attorney fees may be awarded against a trustee who
breaches her fiduciary duty. Brandt v. Bib Enterprises, 986 S.W.2d 586
(Tenn. Ct. App. 1998); Marshall v. First National Bank of Lewisburg, 622
S.W.2d 558 (Tenn. Ct. App. 1981).
Although attorney fees should not be imposed where there is merely
a technical fault on the part of the fiduciary, 622 S.W.2d at 560, the
imposition of such fees on fiduciaries who deliberately use their position of
trust to enrich themselves creates a disincentive to such behavior.
Martin v. Moore, 109 S.W.3d 305, 313 (Tenn. Ct. App. 2003), perm. app. denied (Tenn.
May 19, 2003).
In support of their argument, Plaintiffs cite this Court‟s decision in Brandt v. Bib
Enters., Ltd., 986 S.W.2d 586 (Tenn. Ct. App. 1998), perm. app. denied (Tenn. Mar. 8,
1999). In Brandt, this Court affirmed the trial court‟s denial of attorney‟s fees to the
appellees in an action brought under the version of the Uniform Limited Partnership Act
in effect at that time. Brandt, 986 S.W.2d at 595. Although Brandt did not involve a
trust, the Brandt Court explained as examples that “Tennessee cases have allowed
attorney‟s fee awards for breaches of a trustee‟s fiduciary duty.” Id. The Brandt Court
cited Marshall for this proposition, as well as Brown v. Conroy, 1990 WL 10574 (Tenn.
Ct. App. Feb. 12, 1990), perm. app. denied (Tenn. May 14, 1990). In Brown, this Court
affirmed the trial court‟s award of attorney‟s fees against a co-trustee, Carolyn Brown,
who had breached her fiduciary duty. Brown, 1990 WL 10574, at *6. Although Ms.
Brown “feign[ed] innocence” of the effect of her former counsel‟s actions in holding
insurance policy documents “contrary to the best interests of the trust and its
15
beneficiaries,” this Court found that “[a]ll actions on the part of counsel which are
inconsistent with the fiduciary duty owed to the trust [were] imputed to Carolyn Brown.”
Id. at *5-6. Based on the determination that an award of attorney‟s fees was warranted
when the co-trustee had breached her fiduciary duty contrary to the best interest of the
trust and its beneficiaries, this Court awarded attorney‟s fees against Ms. Brown on
appeal. Id. at *9 (“Having found that attorney fees were properly allowed below, we
believe they are also properly allowable to [the plaintiff beneficiary] on appeal.”).
In the case at bar, Ms. Dunn asserted in her affidavit:
Prior to writing any checks for legal fees from either of the girls‟
trust funds I consulted with counsel to determine whether I could pay legal
defense expenses from the trusts. I was advised that the terms of the trust
authorized me to pay legal expenses which I incurred as trustee from trust
fund assets.
Regarding notice to Plaintiffs of her decision to reimburse herself from their respective
trust funds, Ms. Dunn stated:
In September 2012 I met with Arianna and Alexa George and with
my brother. At that time I explained to Arianna and Alexa that I was
incurring legal expenses because of the suit filed by Melissa Taylor and that
I would be paying some of the legal expenses from their trust funds.
(Paragraph numbering omitted.)
In contrast, Plaintiffs in their respective affidavits presented to the trial court
denied that they had received such notice. Arianna George stated in pertinent part:
In May, 2014, I was informed by Aunt Tessa that no funds remained
in my Trust. I asked her for an accounting.
Aunt Tessa came to Knoxville and met with Alexa and me. Our
Father, James T. George, II . . . was also present at this meeting. Aunt
Tessa informed at this meeting that she had paid some of her attorney fees
incurred in the Prior Suit from my Trust. I had not authorized any such
disbursement and had no notice of it prior to this meeting in May, 2014.
(Paragraph numbering omitted.)
16
In her corresponding affidavit, Alexa George mirrored her sister‟s statement in this
regard.
Plaintiffs acknowledge that for purposes of summary judgment, this Court must
treat Ms. Dunn‟s statement that she gave notice as true unless it is to be a disputed issue
of material fact that would have to be determined at trial. We previously have concluded,
however, that even assuming, arguendo, that Ms. Dunn gave notice to Plaintiffs of her
intention to withdraw trust monies to pay legal expenses, such notice without Plaintiffs‟
authorization or a court order awarding such expenses to Ms. Dunn did not constitute
legal grounds under applicable law for Ms. Dunn to reimburse herself or her brother from
Plaintiffs‟ trust accounts. See, e.g, Hastings 54 A.3d at 726. As in Brown, see 1990 WL
10574, at *6, we are not persuaded that Ms. Dunn‟s purported consultation with counsel
prior to writing checks on the trust accounts to pay her legal expenses absolves her of
having breached her fiduciary duty to the beneficiaries in this case.3
Plaintiffs properly requested reasonable attorney‟s fees in their appellate
pleadings. See Killingsworth v. Ted Russell Ford, Inc., 205 S.W.3d 406, 411 (Tenn.
2006) (“An award of attorney‟s fees generated in pursuing the appeal is a form of relief;
the rule requires it to be stated.”) (citing Tenn. R. App. P. 27(a)). Having determined that
the trial court did not abuse its discretion by awarding to Plaintiffs reasonable attorney‟s
fees upon a finding that Ms. Dunn breached her fiduciary duty as trustee of Plaintiffs‟
respective trusts, we further determine that an award to Plaintiffs of reasonable attorney‟s
fees on appeal is appropriate for the same reason. We remand this matter to the trial
court for a determination of the proper amount of reasonable fees incurred by Plaintiffs
during the appellate process.
VIII. Conclusion
For the reasons stated above, we affirm the trial court‟s judgment. We grant
Plaintiffs‟ request for an award of reasonable attorney‟s fees on appeal. This case is
remanded to the trial court, pursuant to applicable law, for a determination of the amount
of reasonable attorney‟s fees incurred by Plaintiffs during the appellate process,
enforcement of the trial court‟s judgment, and collection of costs assessed below. The
costs on appeal are assessed against the appellant, Tessa G. Dunn.
_________________________________
THOMAS R. FRIERSON, II, JUDGE
3
We note that it is unclear from Ms. Dunn‟s affidavit or her appellate pleadings whether her current
counsel is whom she purportedly consulted prior to writing the checks at issue.
17