Ryne W. Brown v. Catherine L. Brown, Trustee

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
November 17, 2010 Session
RYNE W. BROWN v. CATHERINE L. BROWN, Trustee, ET AL.
Direct Appeal from the Chancery Court for Shelby County
No. CH-06-1854, Walter L. Evans, Chancellor
No. W2009-02264-COA-R3-CV - Filed February 9, 2011
Appellant contends that he is a beneficiary of a trust created by his parents and thus entitled
to distributions of principal and income. In a declaratory judgment action, the trial court
determined that Appellant was not entitled to mandatory distributions of income or principal
until both of his parents were deceased. We affirm this portion of the trial court’s judgment.
The trial court also determined that no corporate trustee was required. We reverse this
portion of the trial court’s judgment and remand for the appointment of a corporate trustee.
Tenn. R. App. P. 3. Appeal as of Right; Judgment of the Chancery Court Affirmed
in part, Reversed in part, and Remanded.
J. S TEVEN S TAFFORD, J., delivered the opinion of the Court, in which A LAN E. H IGHERS, P.J.,
W.S., and D AVID R. F ARMER, J., joined.
Kevin A. Snider, Germantown, Tennessee, for the appellant, Ryne W. Brown.
Lynn W. Thompson and G. Patrick Arnoult, Memphis, Tennessee, for the appellees,
Catherine L. Brown, as Trustee and Individually, Cathleen Lucille Brown Sibley, Graham
W. Sibley, Hilary E. Sibley Murphy, Ashley Mills Sibley, and Alexander Mills Sibley.
MEMORANDUM OPINION 1
1
Rule 10 of the Rules of the Court of Appeals of Tennessee provides:
This Court, with the concurrence of all judges participating in the case, may affirm, reverse
or modify the actions of the trial court by memorandum opinion when a formal opinion
would have no precedential value. When a case is decided by memorandum opinion it shall
be designated “MEMORANDUM OPINION,” shall not be published, and shall not be cited
or relied on for any reason in any unrelated case.
I. Facts & Procedure
This case involves the interpretation of a trust. On September 25, 1992, Roland W.
and Catherine L. Brown executed and funded the “Roland and Catherine Brown Living
Trust” (also referred to hereinafter as the “trust” or “trust agreement”). The trust agreement
was amendable and revocable while both Roland and Catherine Brown were living, and the
two served as joint trustees of the trust. On February 13, 1999, Roland Brown died. Under
the terms of the trust, at the death of Roland Brown, the assets of the Roland and Catherine
Brown Living Trust were divided into two trusts: (1) the Brown Marital Trust; and (2) the
Brown Family Trust. The death of Roland Brown also activated the appointment of Union
Planters Bank (referred to hereinafter as its successor, “Regions Bank”) to serve with
Catherine Brown as trustees of both the Brown Marital Trust and the Brown Family Trust.2
On September 26, 2006, Appellant, Ryne Brown, who is the son of Roland and
Catherine Brown, filed a complaint for declaratory judgment in the Chancery Court of Shelby
County. This complaint identified the defendants as Catherine L. Brown, Trustee, Cecil
Smith, and Regions Bank. Mr. Smith, the attorney who drafted the trust, was later dismissed
as a defendant. Ryne Brown’s second amended complaint, filed May 16, 2008, identified
as defendants Catherine L. Brown, Trustee; Catherine L. Brown, individually; Cathleen
Lucille Brown Sibley; Graham W. Sibley; Hilary E. Sibley; Ashley Mills Sibley; and
Alexander Sibley (together, “Appellees”3 ); and Regions Bank. By stipulation of the parties,
discussed in more detail below, Regions Bank was later dismissed as a defendant. Mr.
Brown’s second amended complaint for declaratory judgment delineated twenty-four
“Disputed Issues to be Decided.” At trial and on appeal, Mr. Brown essentially contends that
he is a current beneficiary of the Brown Family Trust, and, consequently, entitled to income
and principal distributions. Mr. Brown’s sub-issues all stem from this contention and
generally relate to the management of the trust in contradiction to his alleged status as a
beneficiary.
A trial was held on September 8, 2009, and a final appealable order was obtained on
June 16, 2010. The trial court found that Ryne Brown did not have a “discernible interest”
in the Brown Family Trust “until such time that the surviving Trustmaker, Catherine L.
Brown, had died and only if there [we]re trust assets remaining at that time.” Mr. Brown
2
As discussed in more detail below, all parties stipulated to the fact that Regions Bank did not accept
its designation to serve as trustee of either trust.
3
Cathleen Lucille Brown Sibley, Graham W. Sibley, Hilary E. Sibley, Ashley Mills Sibley, and
Alexander Sibley are descendants, along with Ryne Brown, of Roland and Catherine Brown and are potential
beneficiaries under the trust agreement.
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raises the following issues on appeal, as stated in his second amended brief:
1. Whether the Trial Court erred in its interpretation of the
Brown Family Trust as to the degree of decision-making and
discretion of the surviving Trustmaker regarding the distribution
of income subject to the terms mentioned therein.
2. Whether the Trial Court erred in its interpretation of the
Brown Family Trust by not giving a reasonable meaning to all
of its provisions without neutralizing portions of it.
3. Whether the Trial Court erred with its holding as to rights
and obligations of the Trustees under the Brown Family Trust.
4. Whether the Trial Court properly determined the rights of the
current and contingent beneficiaries listed under the Brown
Family Trust.
II. Standard of Review
This case was tried before the court sitting without a jury; therefore, we review the
trial court’s findings of fact de novo with a presumption of correctness, unless the evidence
preponderates otherwise. Tenn. R. App. P. 13(d). A trust instrument is to be interpreted
similarly to contracts, deeds, or wills. In re Estate of Marks, 187 S.W.3d 21, 28 (Tenn. Ct.
App. 2005) (citing Marks v. S. Trust Co., 310 S.W.2d 435, 437-38 (Tenn. 1958)).
Consequently, the interpretation of a trust is a question of law for the court. Estate of
Burchfiel v. First United Methodist Church of Sevierville, 933 S.W.2d 481, 483 (Tenn. Ct.
App. 1996). No presumption of correctness attaches to the trial court’s conclusions of law
and our review is de novo. Bowden v. Ward, 27 S.W.3d 913, 916 (Tenn. 2000).
III. Analysis
A trust must be interpreted according to its plain terms as written. Graber v. Graber,
No. W2003-01180-COA-R3-CV, 2003 WL 23099689, at *3 (Tenn. Ct. App. Dec. 31, 2003)
(citing Warren v. Metro Gov’t of Nashville and Davidson Co., 955 S.W.2d 618, 622-23
(Tenn. Ct. App. 1997)). “The interpretation should be one that gives reasonable meaning to
all of the provisions of the agreement, without rendering portions of it neutralized or without
effect.” Graber, 2003 WL 23099689, at *3 (citing Davidson v. Davidson, 916 S.W.2d 918,
922-23 (Tenn. Ct. App. 1995)). The entire written agreement must be considered in order
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to ascertain the parties’ intent. Graber, 2003 WL 23099689, at *3 (citing D & E Constr. Co.
v. Robert J. Denley Co., 38 S.W.3d 513, 518-19 (Tenn. 2001)). The intent of the settlors
must be derived from the four corners of the agreement, giving effect to all parts of the
agreement. In Re Estate of Marks, 187 S.W.3d at 28 (citing Marks v. S. Trust Co., 310
S.W.2d at 438). The settlors’ intent is ascertained from the particular words used, from the
context, and from the general scope and purpose of the instrument. Holder v. First
Tennessee Bank N.A. Memphis, No. W1998-00890-COA-R3-CV, 2000 WL 349727, at *3
(Tenn. Ct. App. March 31, 2000) (citing Daugherty v. Daugherty, 784 S.W.2d 650, 653
(Tenn. 1990)). If the agreement is ambiguous, then the intent of the parties may be
ascertained by extrinsic evidence. Blue Diamond Coal v. Holland-Am. Ins. Co., 671
S.W.2d 829, 833 (Tenn. 1984). “A contract is considered ambiguous if, after considering its
plain terms as a whole, it is susceptible to more than one meaning.” Graber, 2003 WL
23099689, at *3 (quoting McGee v. Best, 106 S.W.3d 48, 62-63 (Tenn. Ct. App. 2002)).
To determine whether Mr. Brown is a beneficiary of the Brown Family Trust, we must
first determine which portions of the trust agreement are presently in effect. Appellees
contend that because a settlor of the trust, Mrs. Brown (indisputably referred to in the trust
agreement as the “surviving Trustmaker”), is still living, Article Ten is the active article
which should guide our inquiry. On the other hand, Mr. Brown contends that Article Twelve
is presently active and that it provides him a fifty percent interest in the assets of the Brown
Family Trust. The trial court determined that the trust agreement was not ambiguous, that
Article Ten was in effect until Mrs. Brown dies, that Article Twelve was not in effect until
that time, and that Mr. Brown had no “discernible interest” in the Brown Family Trust until
the death of Mrs. Brown and only then if any trust property remained.
We note at the outset that the trust agreement is not ambiguous; therefore, “evidence
of surrounding facts and circumstances that contradicts or varies the terms of the written
instrument may not be considered.” In Re Estate of Marks, 187 S.W.3d at 28 (citations
omitted). Thus, we will not consider the testimony of the parties as to their interpretation of
the agreement. The relevant portions of the trust agreement are set out below:
Article Ten–The Family Trust
Section 1. The Surviving Trustmaker’s Right to Income
If there is a surviving Trustmaker, our Trustee shall pay to, or
apply for the benefit of, the surviving Trustmaker, at least
monthly during the surviving Trustmaker’s lifetime, all of the
net income from the Family Trust.
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Section 2. The Surviving Trustmaker’s Right to Withdraw
Principal
The surviving Trustmaker shall have the noncumulative right to
withdraw from the principal of the Family Trust in any calendar
year amounts not to exceed $5000 in the aggregate.
In addition, on the last day of any calendar year, if the surviving
Trustmaker is then living, the surviving Trustmaker may
withdraw an amount by which 5 percent of the then market
value of the principal of the Family Trust exceeds the principal
amounts, if any, previously withdrawn in that year under this
Section.
Without in any way limiting the noncumulative right of the
surviving Trustmaker to withdraw principal pursuant to this
Section, we suggest that this right not be exercised until the
assets of the Marital Trust are exhausted.
....
Section 3. Principal Distributions in Our Trustee’s
Discretion
Our Trustee may also distribute to or for the benefit of the
surviving Trustmaker and our descendants as much of the
principal of the Family Trust as our Trustee, in its sole and
absolute discretion, shall consider necessary or advisable for
their education, health, maintenance, and support.
Our Trustee shall, at all times, give primary consideration to the
surviving Trustmaker’s education, health, maintenance, and
support, and only thereafter to our descendants.
....
Section 5. Limited Power of Appointment
The surviving Trustmaker shall have the limited
testamentary power to appoint to or for the benefit of our
descendants, either by a valid last will and testament or by a
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valid living trust agreement executed by the surviving
Trustmaker, all or any portion of the principal and any accrued
and undistributed net income of the Family Trust as it exists at
the surviving Trustmaker’s death.
The surviving Trustmaker may make distributions among our
descendants in equal or unequal amounts, and on such terms and
conditions, either outright or in trust, as the surviving
Trustmaker shall determine.
This power shall not be exercised in favor of the surviving
Trustmaker’s estate, the creditors of the surviving Trustmaker’s
estate, or in any manner which would result in any economic
benefit to the surviving Trustmaker.
Section 6. Termination of the Family Trust
The Family Trust shall terminate at the death of the surviving
Trustmaker. To the extent that the limited power of
appointment is not exercised by the surviving Trustmaker, the
remainder of the Family Trust, including any accrued and
undistributed net income, shall be administered as provided in
the Articles that follow.
Article Eleven–The Common Trust
It is not our desire to create a Common Trust for the benefit of
our children. Upon the death of the second Trustmaker to die,
all of the trust property which has not been distributed under
prior provisions of the agreement shall be divided, administered,
and distributed under the Articles that follow.
Article Twelve–Distribution of Our Trust Property
Section 1. Division into Separate Shares
All trust property not previously distributed under the terms of
our trust shall be divided as follows:
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Beneficiary Relationship Share
Cathleen Lucille Brown Sibley Daughter Equal
Ryne Wendel Brown Son Equal
....
Section 4. Retention of Distributions in Trust
Whenever a distribution is authorized or required to be made by
a provision of this Article to any beneficiary, then that
beneficiary may direct our Trustee in writing to retain such
distribution in trust as follows:
a. A Beneficiary’s Right to Income
Our Trustee, during the lifetime of the beneficiary, shall
pay to or apply for the benefit of the beneficiary from
time to time and at the beneficiary’s written direction all
of the net income from this trust.
b. A Beneficiary’s Right to Withdraw Principal
Our Trustee shall pay to or apply for the benefit of the
beneficiary such amounts from the principal as the
beneficiary may at any time request in writing.
No limitation shall be placed on the beneficiary as to
either the amount of or reason for such invasion of
principal.
....
Article Ten is entitled “The Family Trust.” Pursuant to Article Ten, Section One, the
surviving Trustmaker, Mrs. Brown, has the right to all of the net income of the Brown Family
Trust. Article Ten, Section Two gives Mrs. Brown the right to withdraw principal within
certain specific standards. Article Ten, Section Three provides that the Trustee may make
discretionary distributions of principal for the health, education, maintenance, and support
of Mrs. Brown and her descendants (including Ryne Brown), with a preference for
distributions to Mrs. Brown. Lastly, Article Ten, Section Five also gives Mrs. Brown a
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limited power of appointment by which she can distribute any remaining assets of the trust
among her descendants by testamentary instrument.
Under these provisions, Ryne Brown is not a mandatory beneficiary of either the
income or principal of the Brown Family Trust. Rather, his only present interest is at the
discretion of the Trustee (for distributions of principal for his health, education, maintenance,
and support) or the surviving Trustmaker (as a recipient of her limited power of
appointment). Article Ten, Section Six concludes that the Brown Family Trust terminates
at the death of Mrs. Brown. At that time, the agreement provides that any remaining trust
property “shall be administered as provided in the Articles that follow.” The following
article, Article Eleven, states that at the death of Mrs. Brown, all trust property not
“distributed under prior provisions of the agreement shall be divided, administered, and
distributed under the Articles that follow.” Thus, it is only upon the death of Mrs. Brown,
and only if any trust property remains in the Brown Family Trust at that time, that the
provisions of Article Twelve come into effect. Article Twelve, the article upon which Mr.
Brown makes his claim, begins by stating that “[a]ll trust property not previously distributed
under the terms of our trust shall be divided as follows.” However, as the trial court correctly
noted, “[i]t is conceivable . . . that Mrs. Catherine Lucille Mills Brown could, in satisfying
the requirements of Article Ten, expend and use up The Family Trust to the extent that there
would be nothing left to divide to Ryne Wendell Brown and Cathleen Lucille Brown Sibley
under Article Twelve.” While Mr. Brown is a beneficiary under Article Twelve, that article
only comes into effect at the death of Mrs. Brown as a way of distributing any remaining
trust property. Thus, Mr. Brown’s only present interest in the Brown Family Trust is as a
discretionary beneficiary of the principal. This is the interpretation that the trial court gave
the trust agreement, and we affirm the trial court’s judgment in this respect.
Mr. Brown next contends that the trust agreement required a corporate trustee to serve
alongside Mrs. Brown. The trial court determined that a corporate trustee was not
mandatory; however, we respectfully disagree. Article Fifteen, Section Three, Subsection
(f) provides that “if either Trustmaker has named [a] corporate Trustee to serve, such
corporate Trustee, if unable to serve for any reason, must be replaced with another corporate
Trustee.” The parties stipulated that the trust agreement named Regions Bank to act as
corporate trustee upon the death of Roland Wendel Brown and that Regions Bank did not
accept this appointment and, therefore, never served as corporate trustee. Likewise, it is
undisputed that, in 2008, Mrs. Brown named Cumberland Trust as corporate trustee and that
Cumberland Trust no longer serves in this capacity. Presently, there is not a corporate trustee
of the trust agreement, and Mrs. Brown is the sole trustee.
Thus, it is undisputed that Mrs. Brown named a corporate trustee, and that, for
whatever reason, such trustee was unable to serve. Under the plain terms of the trust
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agreement, then, a successor corporate trustee must be appointed. We do not agree with Mrs.
Brown’s contention that Article Fifteen, Section Three, Subsection (a) controls. That
subsection provides that if any other Trustee is “unable or unwilling to serve . . . we may or
may not fill the vacancy, as we both agree” (emphases added). Clearly, this subsection only
applied when both Roland and Catherine Brown were alive to agree on whether to fill the
vacancy. After the death of Roland Brown, this subsection has no further applicability.
While it is clear that the trust agreement mandates the appointment of a replacement
corporate trustee, it does not provide a procedure for doing so. Article Fifteen, Section
Three, subsection (g) provides procedures for filling an unfilled trusteeship; however, that
subsection only applies when “no named Trustees are available” (emphasis added). Because
Mrs. Brown is currently serving as trustee, a named trustee is available and subsection (g)
is inapplicable. The trust agreement is otherwise silent as to how a corporate trustee should
be appointed or who should have a role in deciding such matters. Nonetheless, because the
trust agreement clearly mandates that a corporate Trustee be named as a replacement, we
reverse this part of the trial court’s judgment and remand to the trial court for the limited
purpose of appointing a corporate trustee in a manner consistent with the terms of the trust.
Mr. Brown next raises a multitude of issues regarding alleged breaches of fiduciary
duty by Regions Bank and Mrs. Brown as trustees. Because the parties stipulated that
Regions Bank never accepted its appointment as trustee and never served in that capacity,
we summarily dismiss all issues pertaining to alleged breaches by Regions Bank. Because
Regions Bank never served as trustee, it could not breach a fiduciary duty arising out of that
role. Mr. Brown cannot contradict his factual stipulation by adopting a different position on
appeal. See Mast Adver. & Pub., Inc. v. Moyers, 865 S.W.2d 900, 903 (Tenn. 1993) (citing
Lewis & Sons v. Ill. Cent. R. Co., 150 Tenn. 94, 259 S.W. 903 (1924); Stearns v. Williams,
12 Tenn. App. 427 (1930)).
Mr. Brown also alleges that Mrs. Brown breached her fiduciary duties in her role as
trustee. These allegations relate to how the trust property was distributed, the extent of
notice, disclosures, and accountings, and the failure to maintain a corporate trustee. The trial
court determined that, pursuant to the terms of the trust agreement, Mr. Brown did not prove
that the trustee breached any duty that was owed to him. We agree with the trial court’s
assessment. We further note that, even if Mr. Brown had proven a technical violation of the
terms of the trust, because he was merely a discretionary beneficiary, he could not prove that
he suffered any loss as a result of the acts of the trustee. Thus, where Mr. Brown cannot
prove any loss, we will not hold the trustee liable for an alleged technical violation. See
Oram v. Fitzpatrick, No. 85-307-II, 1986 WL 6061, at *3 (Tenn. Ct. App. May 29, 1986).
This is particularly relevant because we remand for the appointment of a corporate trustee.
The trust agreement requires that a corporate trustee be appointed, and we cannot ignore this
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plain directive. However, the absence of a corporate trustee does not prove that Mrs. Brown
breached her fiduciary duty as trustee with regards to Mr. Brown. The trust provided that,
as a Trustmaker, whenever Mrs. Brown served jointly with another trustee, she was entitled
to act without the consent of the other trustee.4 Thus, any decisions that Mrs. Brown made
while serving as sole trustee were within the discretion granted to her by the trust agreement.
Furthermore, because Mr. Brown’s interest in the trust was discretionary only, and could be
divested at the sole discretion of Mrs. Brown, he cannot show that he suffered any loss as a
result of her actions as trustee. See id. Consequently, while we remand for the appointment
of a corporate trustee, we affirm the trial court’s judgment that no breach of fiduciary duty
occurred. All other issues are pretermitted.
For the foregoing reasons, the judgment of the trial court is affirmed in part, reversed
in part, and remanded for the limited purpose of appointing a corporate trustee. Costs of this
appeal are taxed to Appellant, Ryne W. Brown, and his surety.
_________________________________
J. STEVEN STAFFORD, JUDGE
4
Article One, Section One provides that “[n]otwithstanding anything in our trust to the contrary,
when we are serving as Trustees under our trust, either of us may act for and conduct business on behalf of
our trust as a Trustee without the consent of any other Trustee.” Further, Article One, Section Two provides
that:
When naming any joint trustees, including successor trustees, the terms
“and” and “or” may be used between their names. In all such cases, when
a Trustmaker is serving jointly with another trustee, the Trustmaker may
transfer assets or conduct any of the business on behalf of the trust, without
the consent of any other trustee, regardless of whether the term “and” or
“or” has been used to identify them as trustees of the trust.
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