Betty Goff C. Cartwright v. Jackson Capital Partners, Limited Partnership

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
March 11, 2015 Session
BETTY GOFF C. CARTWRIGHT, ET AL. v. JACKSON CAPITAL
PARTNERS, LIMITED PARTNERSHIP, ET AL.
Direct Appeal from the Chancery Court for Shelby County
No. CH-04-1266-2 Arnold B. Goldin, Chancellor
No. W2013-01865-COA-R3-CV – Filed May 21, 2015
This appeal involves claims asserted by a beneficiary of various trusts against numerous
defendants, including the beneficiary‟s sister and her husband, who serve as the trustee
and co-trustee of some of the trusts. Among other things, the beneficiary alleged that the
defendant-trustees breached their fiduciary duties by failing to pay the beneficiary all
distributions to which he was entitled. The defendants moved for partial summary
judgment, claiming that they had followed the terms of the trusts and paid the beneficiary
all distributions to which he was entitled pursuant to the trust documents. In response to
the motion for partial summary judgment, the beneficiary asserted that the trust
documents were void because he executed them due to undue influence. In a previous
appeal, this Court reversed the entry of partial summary judgment on the issue of undue
influence, concluding that genuine issues of material fact existed. The parties engaged in
additional discovery on remand, and after lengthy proceedings and numerous evidentiary
and other rulings, the trial court granted summary judgment to the defendant-trustees and
denied a motion for partial summary judgment filed by the beneficiary. The trial court
also awarded attorney‟s fees and discretionary costs to the defendants. The beneficiary
appeals. We affirm and remand for further proceedings.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
and Remanded
BRANDON O. GIBSON, J., delivered the opinion of the court, in which J. STEVEN
STAFFORD, P.J., W.S., and KENNY ARMSTRONG, J., joined.
Jerry E. Mitchell, John H. Dotson and Justin Edward Mitchell, Memphis, Tennessee, for
the appellant, Alan C. Cartwright.
David Clark Wade and Andrew Roger Jeffrey Gardella, Memphis, Tennessee, for the
appellees, Jackson Capital Partners, Limited, Jackson Capital Management, LLC, Alan L.
Garner and Alice Cartwright Garner.
OPINION
I. FACTS & PROCEDURAL HISTORY
This is the second time this case has been before this Court. The relevant facts
and procedural history are set forth in this Court‟s previous opinion as follows:
In the early 1950‟s, James and Betty Cartwright adopted two
children, Alan and Alice. James Cartwright was an attorney, and over the
years, he placed the wealth that he and his wife accumulated into numerous
trusts for the benefit of his family members and others. James Cartwright
died in 1994. In 2004, Betty Cartwright remarried and initiated this case by
filing a complaint in the chancery court of Shelby County, naming as
defendants her children Alan and Alice, Alice‟s husband, eighteen trusts,
and two entities involved with the family limited partnership. Alice served
as trustee of several trusts of which Betty was a beneficiary, and the
complaint alleged that Alice had breached fiduciary duties, engaged in self
dealing, and created impermissible conflicts of interest. Accordingly, the
complaint sought to have Alice removed as trustee. The complaint also
alleged that Alice and her husband had breached their fiduciary duties as
general partners of the family limited partnership, and it sought to have the
family limited partnership dissolved. Betty‟s complaint further alleged
fraud, breach of contract, and breach of the duty of good faith and fair
dealing. The complaint listed Betty‟s son Alan and the eighteen trusts
simply as “Declaratory Defendants.”
Alan Cartwright subsequently filed an answer and cross-claim
against the other defendants, which stated, “To the extent that the
allegations in the Complaint are found to be true, they are equally
applicable to Alan Cartwright, and therefore, they are adopted and
incorporated herein by reference as completely and fully as if restated
herein verbatim[.]” Alan alleged that he had also been deprived of assets as
a trust beneficiary, and he sought removal of Alice as trustee, in addition to
access to the trust corpus to the extent that the court deemed appropriate.
Betty Cartwright died in May 2005, and thereafter, an order was
entered dismissing with prejudice all of the claims set forth in her
2
complaint against the original defendants. However, the cross-claim filed
by Alan remained pending.
....
Alice and her husband, who served as co-trustee of some of the
trusts, filed a motion for partial summary judgment with respect to Alan‟s
claim for breach of fiduciary duty, asserting that they had fully complied
with the terms of the trust documents and that Alan had received all
distributions to which he was entitled. According to the defendants, the
benefits and payments which Alan sought were contrary to the terms of the
trust documents. The defendants argued that, as a matter of law, the
trustees could not be found to have breached their fiduciary duties when the
undisputed facts demonstrated that they had followed the directions of the
trusts. They cited several provisions of the Tennessee Uniform Trust Code,
including Tennessee Code Annotated section 35-15-801, which directs a
trustee to follow the terms and purposes of the trust, and section 35-15-
1006, which states, “A trustee who acts in reasonable reliance on the terms
of the trust as expressed in the trust instrument is not liable to a beneficiary
for a breach of trust to the extent the breach resulted from the reliance.” In
sum, the defendants argued that Alan could not prove that they had violated
the terms of the trust documents or failed to pay him what he was due under
the trust documents, and therefore, there was no basis for removing them
from their position as trustees.
In support of their motion for partial summary judgment, the
defendants submitted numerous trust documents, interrogatory responses,
and testimony by affidavit and deposition. This evidence showed that on
June 30, 1978, James Cartwright and Alan Cartwright executed the “Alan
Cook Cartwright Grantor Trust Agreement,” which created what the parties
commonly refer to as the ACC Grantor Trust. The Trust Agreement
provided that the ACC Grantor Trust would “provide for [Alan‟s] personal
financial security by preserving his property against his own spend thrift
actions,” as Alan was “not experienced in financial matters.” According to
the Trust Agreement, Alan was limited to drawing 75% of the net income
of the ACC Grantor Trust for his use or benefit. The Trust Agreement
provided that the ACC Grantor Trust was irrevocable, and that the Trust
Agreement could only be amended or terminated upon written agreement of
the trustee and Alan. James Cartwright was named as the trustee, and Betty
was named as the successor trustee. Pursuant to a later amendment, Alan‟s
sister Alice was named as an alternate successor trustee, who would serve
3
in the event that Betty became unwilling or unable to act as trustee.
James Cartwright died on September 11, 1994. “Amendment
Number One” to the ACC Grantor Trust was executed by Alan, who was
about 43 years old at the time, and his mother Betty, who had assumed the
position of trustee, on or about September 7, 1995. The Amendment stated,
in relevant part:
During [Alan‟s] lifetime, the Trustee shall pay (i) the lesser of
$84,000 per year or one hundred percent (100%) of the net
annual income of the trust in convenient installments, or
otherwise, to or for the benefit of [Alan], plus (ii) such
additional amount as the Trustee determines is necessary to
pay the federal and state income tax of [Alan.] In computing
the annual net income of the trust, any distributions of income
from the trusts identified on Exhibit A which are added to this
trust shall be considered income. . . .
[Alan] directs the trustees of the trusts listed in Exhibit “A”
hereto to pay all amounts distributed to [Alan] under such
trusts to the Trustee hereunder, such amounts to be added to
the corpus of the Trust and distributed in accordance with its
terms, and the Trustee hereby consents to such additions.
The referenced “Exhibit A” to the Amendment listed 15 other trusts
of which Alan was a beneficiary. Therefore, pursuant to the terms of the
Amendment, all amounts to be distributed to Alan from the 15 trusts would
instead be added to the corpus of the ACC Grantor Trust, and therefore,
subject to distribution under its terms. According to Alice‟s testimony, her
mother directed the family attorney to prepare this Amendment, requiring
all distributions to Alan to be made through the ACC Grantor Trust, in
order to carry out the desire of Alan‟s recently deceased father to protect
the assets from Alan‟s spendthrift tendencies, but also to ensure that there
would be enough assets available to pay Alan his increased “allowance” of
$7000 per month pursuant to the Amendment.
According to Alice‟s affidavit testimony, her mother later learned
that Alan had acquired several vehicles, and she became upset about his
high-interest car notes and speeding tickets. Betty then informed Alan that
he would have to sell some of the vehicles and reimburse the Trust for the
excessive expenses associated with them, such as auto insurance, which the
4
Trust was paying on Alan‟s behalf. The Trust would also pay off the car
notes. Consequently, Betty and Alan executed another amendment to the
ACC Grantor Trust on April 29, 1996, which reduced his monthly
distribution to $5000. The second amendment was inadvertently also titled
“Amendment Number One,” and it contained the same language quoted
above, regarding the monthly allowance, and the addition of any
distributions from the trusts in Exhibit A to the ACC Grantor Trust.
However, it substituted $60,000 for the $84,000 figure in the first
Amendment.
In December 1999, another amendment was executed by Alan and
Betty, naming Alice as co-trustee of the ACC Grantor Trust, effective
January 1, 2000. After Alice was named co-trustee, she and her mother
increased Alan‟s monthly distribution to $7000 again, but the parties never
executed another amendment to reflect this change.
According to Alice‟s testimony, her practice over the years, as
trustee of the ACC Grantor Trust, was to treat the specific dollar amounts
listed in the Amendments as the amount that Alan would receive, even
though the language of the Amendments provided that he would receive the
lesser of 100% of the trust income or $84,000 per year. She explained that
even when there was a substantial market downturn, or little to no income
for distribution, she paid Alan a direct distribution of the amount referred to
in the trust documents. As a result, she explained, Alan had received direct
distributions of either $5000 or $7000 per month since 1995. Alice
testified that over the years, the ACC Grantor Trust had also paid for Alan‟s
major expenses, including all taxes, insurance (home, health, and
automobile), medical costs, and home maintenance costs, and the ACC
Grantor Trust also acquired and owned the home where Alan lived. She
produced a spreadsheet indicating that Alan had received distributions of
$592,477 in the past five years, and also, $696,437 in expenses were paid
on his behalf during that time. In sum, Alice testified that all required
distributions had been made to Alan through the ACC Grantor Trust, in
accordance with the controlling trust documents.
Alan filed a response to the defendants‟ motion for partial summary
judgment with the following [] argument [relevant to this appeal]:
....
3. The [defendants], both directly and indirectly by
5
employing duress and undue influence by others, knowingly
and maliciously defrauded the beneficiary of these trusts,
Alan Cartwright, by trickery and by deception in failing to
present alleged “Exhibit A” for review and in failing to
explain the practical operation and consequences of the First
Amendment(s) to the Amended and Restated Alan Cook
Cartwright Grantor Trust at the time Cartwright was urged to
sign the amendments to his Grantor Trust while under
economic duress and/or by creating a false “Exhibit A” at a
later time, all in contravention of the fiduciary duties owed to
him at those times and all subsequent times thereto. As a
result, the existence and operation of the so called “Exhibit
A” is void and the First Amendment(s) are void as being
made by the Grantor being led into a clear mistake of law and
fact as to the meaning and consequences of executing the
signature page that day.
In response to the defendants‟ statement of undisputed facts, Alan disputed
one statement regarding “Exhibit A” to the Amendments, which listed the
15 trusts to be added to the ACC Grantor Trust. Alan contended that
“reasonable minds could very well conclude that no such document existed
until sometime later and that it is a fake.” . . . .
Alan also submitted several excerpts from his depositions,
apparently in an effort to demonstrate undue influence. Alan testified that
when he signed the first Amendment Number One to the ACC Grantor
Trust, he did not understand that he would be limited to the lessor of
$84,000 per year or the income from the trust because no one told him.
When asked whether he asked his mother what he was signing, Alan
replied, “I didn‟t ask her anything. You don‟t ask questions in my family.
You just do what they tell you to do.” Alan conceded that he received
$7000 per month in distributions from the ACC Grantor Trust until the
issue arose about his ownership of numerous vehicles. Alan recalled his
mother telling him that he was going to receive less money each month
until the trust was reimbursed for the cost of his additional vehicles.
However, Alan testified that he did not remember if he was with his mother
when he signed the second Amendment Number One, and he also said, “I
don‟t remember anybody telling me about 60,000 a year.” Alan testified
that he did not remember reading the document or having anyone explain it
to him. He said,
6
I didn‟t read this, but then again if I -- I don‟t even remember
-- I don‟t know what this is. I never have seen this. I mean, I
might have signed it, but maybe the rest of it wasn't there or
something like this. I didn‟t -- I don‟t know -- I don‟t
remember Mom signing it. When she signed it, she didn‟t tell
me what it was. I don‟t know what--what else do I say here.
I don‟t know how else to explain it.
Despite these protestations, Alan submitted a statement of
undisputed facts in which he admitted that Betty, Alice, and the family
attorney were present in the room with him when the second amendment to
the ACC Grantor Trust was signed.
In reply to Alan‟s response, the defendants contended that there was
no genuine issue of material fact regarding the validity or authenticity of
Exhibit A. . . .
The defendants also argued that, despite Alan‟s conclusory
assertions, the undisputed facts did not establish undue influence. They
submitted Alice‟s deposition testimony wherein she suggested that the first
Amendment may have been sent to Alan at his home in Hendersonville,
because his signature was notarized in Sumner County, Tennessee, while
Betty‟s signature was notarized five days earlier in Shelby County,
Tennessee. With regard to the second Amendment, Alice testified that she
specifically recalled the meeting at which Alan and her mother signed the
Amendment. She testified that the meeting took place in Memphis, and
that she was present, along with Alan, Betty, and the family attorney,
Shellie McCain. Alice recalled that her mother got “really mad” because
after she had increased Alan‟s monthly distribution, she found out that he
had acquired three trucks and was paying notes on a couple of them. Alice
recalled her mother telling Alan that he had to sell one of the trucks and
that she was going to reduce his monthly distribution in order for him to
repay the trust for paying off the balance on one of the notes. Alice
testified that she did not recall a situation in which her mother instructed
Alan to “just sign it.” She said that Mr. McCain was there “to go over
things with [Alan],” and that Mr. McCain “told Alan what we were doing.”
She also testified that Exhibit A was discussed at the meeting.
The defendants submitted testimony from the deposition of the
former family attorney, Shellie McCain, as well. At Mr. McCain‟s
deposition in 2009, he testified that, to the best of his recollection, he was
7
present for at least one meeting when Alan signed amendments to the ACC
Grantor Trust. Mr. McCain could not recall how many of such meetings he
attended. However, he stated that his “most vivid memory” was “sort of a
family sit down presided over by Mrs. [Betty] Cartwright” to discuss
Alan‟s spending, and particularly his acquisition of a number of
automobiles and the cost of keeping those automobiles insured. He recalled
that “Alan arrived in a somewhat non-communicative mood with anyone in
the office,” but when Betty arrived, “Alan was suddenly communicative
and yes ma‟am, no, ma‟am and very much acknowledging his mother‟s
concerns.” Mr. McCain testified that Alan essentially wanted to know how
many cars he could keep. He explained, “Mrs. [Betty] Cartwright was a
very nice lady, but when she wanted to exercise her authority, she was
fairly formidable.” Mr. McCain said he did not remember the specifics of
what he discussed with Alan during the meeting “other than if he signed
documents in my presence, I‟m certain that, you know, any questions he
had I would have answered about those documents.” Mr. McCain went on
to say,
It is my recollection hazy as though it may be, that the
purpose of inviting me to the office when Alan was there was
to give Alan the opportunity to ask me questions. I don‟t
remember if I gave preliminary overview to Alan about what,
you know, at any point was being done in connection with the
family‟s overall estate planning. I just don‟t remember.
What I do remember is generally when I was in Alan‟s
presence or when Alan was in my presence, he was generally
and frankly somewhat indifferent to what was going on in the
family business, if you will.
Mr. McCain testified that when he sat down with someone to present a
document for his or her signature, it was his normal practice to explain
what it was he or she was signing. He said he could not remember the
specifics of what he discussed with Alan, but, he said, “if I was present
when a document was signed, then if Alan Cartwright wanted to, I‟m
assuming that I probably explained what the document was he was signing
and if he had questions, answered it.”
During Alan‟s deposition, he testified that he did recall attending a
meeting with Mr. McCain, Betty, Alice, and Alice‟s husband. He said, “I
think they just told me $84,000 a year and sign it.” When asked whether he
agreed for the trust to pay him that amount, he replied, “Yeah, I -- I agreed,
8
and I did sign this,” but, he said he did not think that was all of the money
that he would receive. He conceded that he did not ask whether he would
receive any more money, stating, “like again they might have told me -- or
this, but the main thing they just told me was to sign the paper. Here, sign
the paper.” Alan initially testified that no one told him, beforehand, that his
annual distribution was going to be reduced to $60,000, and that he called
Betty for an explanation when he received his first “light” check. However,
Alan later testified that when he had the conversation with Betty about the
trust paying off his car notes, he was in Memphis, and “[Alice and her
husband] . . . they were all in there.” As noted above, his own statement of
undisputed facts admitted that Betty, Alice, and the family attorney were
present in the room with him when he signed the second amendment to the
ACC Grantor Trust.
The trial court ultimately entered an order granting the defendants‟
motion for summary judgment. The court found that the trust documents
expressed the intention of Alan and his parents to provide for him but also
to limit his access to unlimited funds. The court noted that Alan admittedly
signed the original and all Amendments to the ACC Grantor Trust
Agreement. The court noted that the Amendments set specific limitations
on Alan‟s distributions and required that distributions from other trusts be
added to the ACC Grantor Trust. The court found that the trustees were
entitled to rely upon the terms of the trust documents, and that they had
“done what they were entrusted to do.” The court found “no dispute that
the Trustees paid out to [Alan] the amounts to which he was entitled under
the documents as written.” The court found it undisputed that the trustees
had relied upon the terms of the trust, and it found that they were entitled to
do so pursuant to Tennessee Code Annotated section 35-15-1006.
Regarding the allegations of undue influence, the trial court noted that
many years had passed since Alan and his parents signed the trust
documents, and that his parents were no longer living. The court stated, “In
light of the language of the documents and the passage of time, the Court
cannot give weight to [Alan‟s] allegations of undue influence against his
parents.” Therefore, the court entered partial summary judgment in favor
of the defendants on the issues surrounding the terms of the family limited
partnership documents and the trust documents; whether Alan received the
distributions to be made to him under the trust documents; and whether the
defendants breached their fiduciary duties in conducting their
responsibilities as trustees.
All remaining claims asserted by Alan, not resolved by the motion
9
for partial summary judgment, were voluntarily dismissed without
prejudice. Alan timely filed a notice of appeal of the order granting partial
summary judgment to defendants.
Cartwright v. Jackson Capital (“Cartwright I”), No. W2011-00570-COA-R3-CV, 2012
WL 1997803, at *1-8 (Tenn. Ct. App. Jun. 5, 2012) (footnotes omitted).
In Cartwright I, this Court reviewed the trial court‟s order granting partial
summary judgment to the defendants. We noted at the outset that “this case revolves
around allegations that Alan had not received sufficient distributions of assets from the
trusts.” Id. at *9. The basis for the defendants‟ motion for partial summary judgment
was that Alan could not prove that they failed to pay the amounts required by the trust
documents. According to the defendants, the undisputed facts demonstrated that they
followed the trust terms, and they could not have breached their fiduciary duties by
paying the amounts required by the trust documents. Id. Tennessee Code Annotated
section 35-15-801 directs a trustee to follow the terms and purposes of the trust, and
section 35-15-1006 states, “A trustee who acts in reasonable reliance on the terms of the
trust as expressed in the trust instrument is not liable to a beneficiary for a breach of trust
to the extent the breach resulted from the reliance.” In support of their motion for partial
summary judgment, the defendants submitted evidence regarding the execution and terms
of the Amendments to the ACC Grantor Trust. Id. at *10. They also submitted evidence
demonstrating that since the execution of the Amendments, Alan had received either
$5000 or $7000 per month, meeting or exceeding the amounts required by the trust
documents, in addition to the payment of his major expenses. Based on this evidence,
this Court concluded that the defendants‟ motion for partial summary judgment was
properly supported, and the burden of production shifted to Alan to demonstrate that a
genuine issue of material fact existed. Id.
In response to the motion for partial summary judgment, Alan had argued that
Exhibit A was void either because it was a fabrication or because he signed the
Amendments due to undue influence. Id. We found no genuine issue of material fact
regarding the authenticity of Exhibit A and affirmed the trial court‟s grant of summary
judgment to the defendants on that issue. Id. at *11. However, applying the summary
judgment standard set forth in Hannan v. Alltel Publ’g Co., 270 S.W.3d 1 (Tenn. 2008),
we concluded that genuine issues of material fact existed with regard to the issue of
undue influence. A trust can be set aside, in whole or in part, or reformed, on the same
grounds as those which apply to a transfer of property not in trust. Id. (citing Official
Comment to Tenn. Code Ann. § 35-15-406). As such, a trust is void to the extent its
creation was induced by fraud, duress, or undue influence. Id. (citing Tenn. Code Ann. §
35-15-406). We acknowledged the numerous inconsistencies in Alan‟s testimony
regarding the extent of his knowledge about the Amendments and the circumstances
10
surrounding their execution. However, we also recognized Alan‟s argument that
“„Tennessee cases have consistently held that the existence of a confidential or fiduciary
relationship, together with a transaction by which the dominant party obtains a benefit
from the other party, gives rise to a presumption of undue influence that may be
rebutted.‟” Id. at *13 (quoting Matlock v. Simpson, 902 S.W.2d 384, 385 (Tenn. 1995));
see also Richmond v. Christian, 555 S.W.2d 105, 107 (Tenn. 1977) (“when two parties
enter into a confidential or fiduciary relationship and the dominant party receives a gift or
other benefit from the other party a presumption arises that some improper advantage was
taken”). At the time when the first and second Amendments to the ACC Grantor Trust
were executed, Alice held the position of trustee of some of the trusts listed on Exhibit A
of which Alan was a beneficiary. Therefore, we explained, a confidential fiduciary
relationship existed between Alice and Alan at the time of the signing of the
Amendments. Id. Alice was also a contingent beneficiary of the ACC Grantor Trust -- if
Alan died without a surviving spouse or descendent, the trustee was directed to distribute
the remaining corpus of the trust to Alice. (Alan is unmarried and has no children.) Still,
based on the record before us, we were unable to determine whether the execution of the
Amendments constituted “a transaction by which the dominant party [Alice] obtain[ed] a
benefit from the other party [Alan],” which would give rise to a presumption of undue
influence that could only be rebutted by clear and convincing evidence of fairness. Id.
We explained,
[t]he effect of the Amendments was to increase Alan‟s distributions from
75% to 100% of the income of the trust, but subject to the annual “cap.”
There is no evidence in the record regarding the amount of trust income
generated in any given year, other than Alice‟s undisputed testimony that
during the years when the trust had little to no income, Alan received the
“lump sum” figure stated in the Amendments. In other years, however, it is
not clear how much money Alan would have received if the “cap” had not
been imposed on his annual distributions. It is reasonable to infer, for
purposes of summary judgment, that because of the cap on Alan‟s annual
distributions, there is the potential for more money to remain in the corpus
of the ACC Grantor Trust for potential future distribution to Alice as a
contingent beneficiary. At the very least, we conclude that a genuine issue
of material fact exists with respect to this issue.
In sum, we find that a genuine issue of fact exists regarding the
ultimate issue of whether undue influence was used to accomplish these
transactions. “The determination of whether the dominant party exerted
undue influence is a question of fact.” In re Estate of Copas, No. E2010-
00877-COA-R3-CV, 2012 WL 171966, at *10 (Tenn. Ct. App. Jan. 20,
2012) (citing Waller v. Evans, No. M2008-00312-COA-R3-CV, 2009 WL
11
 723519, at *9 (Tenn. Ct. App. Mar. 17, 2009)). If the presumption of
undue influence arises, then the dominant party bears the burden to prove
by clear and convincing evidence that the transaction was the result of the
other party‟s free will and not a result of his or her influence. Id. at *11 . . .
. In this case, however, viewing the evidence in the light most favorable to
Alan, and allowing all reasonable inferences in his favor, as we are required
to do at this stage of the proceedings, we find that “reasonable minds”
could draw more than one conclusion as to whether these transactions were
the product of Alan‟s free will or the product of undue influence.
Id. at *13-14. Accordingly, we reversed the trial court‟s grant of summary judgment on
the issue of undue influence and remanded for further proceedings.
On remand, the parties engaged in further discovery regarding the financial impact
of the execution of the Amendments. The trial court entered a scheduling order
containing deadlines for discovery, expert witness disclosures, dispositive motions, etc.
Throughout the proceedings on remand, the parties vigorously disputed whether Alan
received more or less money due to his execution of the Amendments, when compared to
what he would have received under the previous terms of the ACC Grantor Trust. In
addition to disputing whether the Amendments‟ pour-over provision and “cap”
financially benefitted Alan, or worked to his detriment, Alan also sought to discover facts
on remand regarding the creation and funding of two additional trusts – the Alan Cook
Cartwright 1996-1 Irrevocable Trust and the Alan Cook Cartwright 1996-2 Irrevocable
Trust. Although not specifically mentioned in Cartwright I, the second Amendment to
the ACC Grantor Trust, which was executed in 1996, also contained a provision stating:
The Settlor [Alan] may request, from time to time, that the Trustee [at the
time, Betty] make additional distributions of principal from the trust to
enable the Settlor to make gifts to the issue of his sister, ALICE
CARTWRIGHT GARNER, in such amounts as he desires. The Trustee
may, in her sole discretion, grant such requests in whole or in part.
The Amendment itself did not make any gifts. However, on the same day that the second
Amendment was executed, Alan executed other documents creating and funding the Alan
Cook Cartwright 1996-1 Irrevocable Trust and the Alan Cook Cartwright 1996-2
Irrevocable Trust. On remand, Alan contended that the creation and funding of these
other trusts conferred a benefit on Alice that would give rise to a presumption of undue
influence. The defendants filed a motion for a protective order prohibiting discovery of
evidence regarding these transfers, along with a motion in limine to exclude such
evidence on remand. They argued that Alan was attempting to impermissibly expand the
scope of the issues on remand beyond those that were at issue in Cartwright I. The
12
defendants noted that Alan nonsuited all of the claims that were not resolved by the
motion for partial summary judgment prior to the appeal in Cartwright I. Accordingly,
they claimed that evidence regarding the 1996-1 and 1996-2 trusts was not relevant to the
limited issues on remand -- whether the Amendments to the ACC Grantor Trust were
procured by undue influence, and more specifically, whether the pour-over provision and
cap on Alan‟s distributions resulted in a benefit to Alan or to Alice.
The trial court entered an order denying the defendants‟ motion for protective
order and motion in limine but nevertheless narrowly defining the issues on remand. The
trial court summarized the procedural history of the litigation, noting that the defendants‟
original motion for partial summary judgment addressed whether they had complied with
the terms of the trusts. In response to that motion for summary judgment, Alan had
advanced two basic theories: (1) Exhibit A was a fabrication; and (2) Alan signed the
amendments to the ACC Grantor Trust as a result of undue influence. The court of
appeals in Cartwright I reversed only with regard to the second issue. Therefore, the trial
court concluded that, on remand, it must explore whether undue influence accompanied
Plaintiff‟s signing of the first and second Amendments to the ACC Grantor Trust, and
specifically, whether the Amendments‟ pour-over provision and cap created the potential
for “more money to remain in the corpus of the ACC Grantor Trust for potential future
distribution to Alice as a contingent beneficiary.” Cartwright, 2012 WL 1997803, at *13.
The trial court concluded that even though the court of appeals affirmed summary
judgment on the issue of “whether Alan received the distributions to be made to him
under the trust documents as written,” id. at *11, the Amendments to the ACC Grantor
Trust affecting his distributions could be voided upon a finding that they were the product
of undue influence. The trial court decided to allow discovery regarding the
circumstances surrounding the execution of the documents creating the 1996-2 trust,1
concluding that such facts “may very well be relevant” to the ultimate issue of whether
the second Amendment to the ACC Grantor Trust was executed as a result of undue
influence, given that the documents were executed on the same date. The court
concluded that the “temporal proximity” and “factual nexus” connecting the transactions
warranted further inquiry and discovery. With that said, however, the trial court
determined that Alan could not secure any relief on remand related to the other trusts.
The trial court reiterated that the focus of the prior motion for partial summary judgment,
and this Court‟s opinion in Cartwright I, was on whether the Amendments to the ACC
Grantor Trust were procured by undue influence. Thus, the trial court narrowly defined
the scope of remand as follows:
If [Alan] proves undue influence accompanied the signing of the
amendments to the ACC Grantor Trust, then those amendments may be
1
Although the trial court‟s order only specifically mentioned the 1996-2 Trust, the parties agree that the
trial court‟s reasoning was applicable to the 1996-1 Trust as well, by logical extension.
13
voided and [Alan] can establish his right to the distributive share he would
have received prior to his execution of the amendments. Yet, even if those
amendments are voided, including the “gift provision” in the second
amendment, this does not mean that the gifts made by way of the 1996-2
Trust should be reversed. After the hearing on Defendants‟ motion for
partial summary judgment, [Alan] voluntarily dismissed all matters not
covered in this Court‟s order granting summary judgment. Specifically,
this Court ordered that “the remaining causes of action, claims, demands,
issues and matters raised in this cause by [Alan] are dismissed.” . . . Given
this non-suit by [Alan], there is no legal claim or demand properly before
the Court by which the gifts made by [Alan] could potentially be reversed.
Again, as already discussed, the only issue which was considered on appeal
related to [Alan‟s] relief was whether he had received specified
distributions under the trust documents.
(Footnote omitted.) A few months later, during the course of discovery, the trial court
entered another order reconfirming the narrow issues on remand and prohibiting Alan‟s
counsel from inquiring during depositions about matters not relevant to the potential
relief on remand. Specifically, the trial court explained, “there is no need for inquiry into
matters relating to the current value of assets held in trust.”
In accordance with the trial court‟s scheduling order, Alan disclosed Z.
Christopher Mercer as his expert to testify on the subject matter of damages suffered by
Alan. Also in accordance with the scheduling order, the defendants disclosed Albert W.
Secor and N. Gordon Thompson as their experts. The defendants filed a motion to strike
the expert report submitted by Alan‟s expert, Mr. Mercer, and also sought to exclude him
as a witness at trial. They claimed that Mercer, who was a business valuation expert, had
issued an asset valuation report that had “nothing to do with the narrow issue on remand.”
Rather than tracing the distributable net income that was generated by the ACC Grantor
Trust and pour-over trusts, the Mercer report, according to the defendants, compared the
“„net appreciation‟ of a hypothetical portfolio” against what Mercer estimated to be the
actual “net appreciation” of the family limited partnership since 1995 and calculated
Alan‟s damages as a percentage of the theoretical “net appreciation.” Using that
methodology, Mercer concluded that Alan was due trust income of $12.8 million. The
defendants claimed that Mercer‟s methodology was not supported by Tennessee law,
trust accounting principles, or the previous rulings of the trial court and the court of
appeals regarding the method of calculating damages on remand. Consequently, the
defendants argued that Mercer‟s report would not “substantially assist the trier of fact to
understand the evidence or to determine a fact in issue,” see Tenn. R. Evid. 702, as the
report failed to address whether the Amendments‟ cap and pour-over provision benefitted
Alice or resulted in damage to Alan.
14
Thereafter, Alan filed a “supplemental” report of Mr. Mercer. This report was
filed two months after the deadline for the submission of Alan‟s expert disclosures and
reports. The supplemental Mercer report concluded that Alan was owed $3.6 million.
Alan filed a motion for partial summary judgment on the limited issue of whether
the defendants obtained benefits associated with the formation and funding of the Alan
Cook Cartwright 1996-1 Irrevocable Trust. He also filed a motion to “amend and
supplement” his original pleading, which was filed in 2004, in order to add
“supplemental causes of action” alleging, among other things, that the defendants used
undue influence to obtain his signatures on the documents creating the 1996-1 and 1996-
2 trusts.
The defendants filed a motion for summary judgment “regarding the narrow issue
on remand from the Tennessee Court of Appeals,” which they described as whether the
Amendments to the ACC Grantor Trust, “and only those documents[,] were procured by
undue influence with a benefit conferred on Alice Garner, directly or indirectly, because
of the effect of the pour-over clause and the annual „cap‟ on distributions.” They claimed
that Alan‟s damages, if any, should be calculated by determining the amount of net
income that would have been distributed to Alan in the absence of the Amendments and
comparing that figure to his actual distributions. Defendants asserted that the pour-over
provision and cap did not create “more money. . . remain[ing] in the corpus of the ACC
Grantor Trust for potential future distribution to Alice [Garner] as a contingent
beneficiary.” Cartwright I, 2012 WL 1997803, at * 13. Instead, according to the reports
of the defendants‟ experts, Alan received $1,336,483 more in distributions between 1995
and 2011 than he would have received without the Amendments. Specifically,
defendants claimed that Alan had received 100% of the net income of the trusts in
addition to over a million dollars in principal distributions. Thus, the defendants argued
that they had affirmatively negated essential elements of Alan‟s claim by showing that
Alice did not receive a benefit from the execution of the Amendments, and Alan suffered
no damages.2 In support of their motion for summary judgment, the defendants
submitted the report of their expert, Thompson, who is a certified public accountant,
certified financial planner, and certified valuation analyst. They also submitted a written
opinion from another expert, Secor, who, according to the defendants, is an attorney with
experience and expertise in matters of trusts and trust administration. The defendants
also submitted a statement of undisputed facts and numerous deposition transcripts and
2
Alternatively, the defendants argued that Alice would not receive a legally cognizable benefit as a
remote contingent beneficiary of the ACC Grantor Trust, in any event, reasoning that Alice‟s interest may
never vest in her favor because Alan may have a wife or child at the time of his death. They also argued,
alternatively, that even if the presumption of undue influence did arise, they rebutted the presumption by
showing the fairness of the transaction.
15
affidavits.
In response to the defendants‟ motion for summary judgment, Alan continued to
argue that Alice received a benefit by the creation and funding of the 1996-1 and 1996-2
trusts. Alan also pointed out that the report submitted by the defendants‟ expert,
Thompson, showed three years during which the annual cap on his distributions from the
trust did have the effect of reducing the amount of income that he would have received
that year. In addition, Alan claimed that the Thompson report erred in its consideration
of the amount paid by the ACC Grantor Trust for Alan‟s income taxes. Alan also
claimed that a “factual dispute” existed regarding the definition of “net annual income”
as that phrase was used in the various trusts.
Along with Alan‟s response to the defendants‟ motion for summary judgment, he
submitted an affidavit from a certified public accountant, Mark T. Heath, who had
reviewed Thompson‟s report and evaluated the financial implications of the 1996-2 trust,
including the damage allegedly suffered by Alan due to its creation. The defendants filed
a motion to strike Heath‟s affidavit and to exclude him as a witness at trial, due to Alan‟s
failure to comply with the deadline contained in the scheduling order for disclosing
expert witnesses and submitting expert reports. Alternatively, the defendants argued that
Heath‟s affidavit regarding the 1996-2 trust was irrelevant given the narrow issues on
remand.
The parties filed numerous additional responses and replies to the various pending
motions. On June 17, 2013, the trial court denied Alan‟s motion to amend and
supplement his original claims, finding the proposed amendment untimely, prejudicial,
and futile in light of the narrow issues on remand, “namely, whether undue influence
accompanied the signing of the Amendments to the ACC Grantor Trust.”
On June 18, 2013, the trial court entered an order granting the defendants‟ motion
to strike Mercer‟s expert report and to exclude him as a witness at trial. The court
concluded that Mercer‟s original report employed a methodology for measuring damages
that was inconsistent with the scope of the case on remand, and therefore his original
report was not relevant to the measure of damages available on remand and would not
substantially assist the trier of fact. The trial court concluded that this case did not
necessitate the type of financial valuation analysis Mercer performed, as he conducted a
hypothetical valuation of the assets held in trust, rather than tracing the distributable net
income generated by the trusts. The court also found that Mercer lacked the
“foundational expertise” to render the opinions regarding trust administration that were
contained in his “supplemental” report. While acknowledging that Mercer was “a
nationally recognized expert in the area of business/asset appraisal and valuation,” the
court explained that “asset appraisal and valuation” were simply “not at issue in the case
16
on remand.” The court also found that Mercer‟s supplemental report used a definition of
“net income” that was inconsistent with the applicable trust documents. The trial court
rejected the notion that the term “net income” created a latent ambiguity which required
the consideration of extrinsic evidence. Finally, the court concluded that Mercer should
also be excluded as a witness at trial given the exclusion of his expert reports.
The trial court held a hearing on the summary judgment motions on June 19, 2013.
During the hearing, in addition to arguing the issues raised in the parties‟ motions, Alan
argued that Thompson‟s affidavit and report were technically deficient in that his
affidavit included only a statement under oath that Thompson‟s firm was the source of
the attached report, and it did not contain an oath that the report was correct or
represented his opinion that he would give at trial. The defendants argued that the
affidavit and report were sufficient, but nevertheless, they filed a supplemental affidavit
the day after the hearing to correct any perceived deficiency. Alan filed a motion to
strike the affidavit as untimely and argued that the motion for summary judgment should
be denied because there was no sworn testimony authenticating the Thompson report at
the time of the summary judgment hearing.
On July 22, 2013, the trial court entered an order denying Alan‟s motion for partial
summary judgment regarding the 1996-1 trust and granting the defendants‟ motion for
summary judgment. Considering the narrow issue before the court on remand, the trial
court concluded that Alan was not entitled to partial summary judgment on the issue of
whether he benefitted from the creation of the 1996-1 trust. “Even assuming that benefits
were conferred in the sense argued by [Alan],” the court concluded that his request for
relief could not be entertained because “[t]he issue of whether undue influence
accompanied the formation of the 1996-1 Trust is simply outside the scope of remand.”
Next, the court considered the defendants‟ motion for summary judgment regarding
whether Alice received a benefit from the execution of the Amendments to the ACC
Grantor Trust. The court found that Thompson‟s report provided “a detailed financial
accounting of the impact created by the amendments to the ACC Grantor Trust.” The
court found that Thompson‟s report specifically determined the annual income to be
distributed to Alan for the years 1995 through 2011 under the Trust agreements without
the Amendments and compared that sum to the reported distributions paid directly to
Alan or on his behalf. The court concluded that “Thompson‟s accounting shows that
[Alan] was not harmed by the impact of the amendments to the ACC Grantor Trust.” “In
fact,” the court found, “Thompson‟s calculations indicate[d] that [Alan] received
$1,336,483.00 in excess of the distributable net income for the period.” While
acknowledging that Alan‟s response to the motion for summary judgment “set forth many
theories on how he was harmed by his execution of the amendments to the ACC Grantor
Trust,” the trial court nevertheless concluded that Alan had “not tendered any admissible
evidence or opinion which contest the findings outlined by Thompson‟s report.” The
17
court found that “no genuine dispute exists as to Thompson‟s basic findings, and no
appropriate legal theory has been adduced to contest his ultimate conclusions.” The court
noted that it had previously struck the expert report and supplemental report prepared by
Mercer. It also found it appropriate to strike the Heath affidavit that was submitted by
Alan in response to the defendants‟ motion for summary judgment. The court found that
the Heath affidavit addressing the financial impact of the 1996-2 trust was “simply not
relevant” to the relief available on remand. The court noted that any claims Alan had
regarding the 1996-1 and 1996-2 trusts were nonsuited, and “whether undue influence
accompanied the signing of the 1996-1 Trust or 1996-2 Trust is not before the Court.” In
addition, the court concluded that Heath‟s affidavit should be stricken because his
opinion was “clearly one of a proposed expert” and “amount[ed] to a belated expert
disclosure,” filed months after the deadline for disclosure of experts. However, the court
found it appropriate to consider the supplemental Thompson affidavit filed one day after
the summary judgment hearing because it only corrected a technical deficiency in his
previous affidavit, which was easily cured, and there was “no surprise” created by the
supplemental affidavit.
In conclusion, the trial court concluded that the defendants successfully negated
essential elements of Alan‟s claim by showing, through the Thompson report, that Alan
“received over a million dollars more than he would have received absent the signing of
the amendments.” Because Alan “produced no relevant evidence which creates a
genuine issue as to the findings in Thompson‟s report,” the trial court granted the
defendants‟ motion for summary judgment.
Thereafter, the trial court granted in part the defendants‟ motion for discretionary
costs, and it also granted the defendants‟ motion for an award of attorney‟s fees incurred
on remand. Alan timely filed a notice of appeal.
II. ISSUES PRESENTED
Alan‟s brief lists the following issues for review on appeal:
1. Whether the trial court erred in granting Defendants‟ Motion for
Summary Judgment and related evidentiary rulings.
2. Whether the trial court erred in denying [Alan‟s] Motion for Partial
Summary Judgment.
3. Whether the trial court erred in granting Defendants‟ Motions for
Attorneys‟ Fees, Expenses, and Discretionary Costs.
18
For the following reasons, we affirm the decision of the chancery court and remand for
further proceedings.
III. DISCUSSION
At the outset, it is necessary to identify the issues properly presented for our
review in order to define the scope of our review on appeal. “„Scope of review‟ defines
the issues that may be reviewed by an appellate court when an order or judgment has
been properly appealed.” Hodge v. Craig, 382 S.W.3d 325, 333 n.2 (Tenn. 2012). The
scope of our review depends largely on whether issues have been properly raised on
appeal and presented in the manner prescribed by Tennessee Rule of Appellate Procedure
27. Id. at 333-34. Appellants must include in their brief “a statement of the issues they
desire to present to the court and an argument with respect to each of the issues
presented.” Id. at 334-35 (footnote omitted); see Tenn. R. App. P. 27(a)(4) (providing
that briefs must contain a “statement of the issues presented for review”). “The
requirement of a statement of the issues raised on appeal is no mere technicality.” Owen
v. Long Tire, LLC, No. W2011-01227-COA-R3-CV, 2011 WL 6777014, at *4 (Tenn. Ct.
App. Dec. 22, 2011). In Hodge, the Tennessee Supreme Court emphasized the
importance of properly presenting issues for review and indicated that “a properly framed
issue may be the most important part of an appellate brief.” Id. at 334 (citing Antonin
Scalia & Bryan A. Garner, Making Your Case: The Art of Persuading Judges 83 (2008);
David E. Sorkin, Make Issue Statements Work for You, 83 Ill. B.J. 39, 39 (Jan. 1995)).
“Rather than searching for hidden questions, appellate courts prefer to know immediately
what questions they are supposed to answer.” Id. (citing Bryan A. Garner, Garner on
Language & Writing 115 (2009); Robert L. Stern, Appellate Practice in the United States
§ 10.9, at 263 (2d ed. 1989)). “The issues should be framed as specifically as the nature
of the error will permit in order to avoid any potential risk of waiver.” Id. at 335 (citing
Fahey v. Eldridge, 46 S.W.3d 138, 143-44 (Tenn. 2001); State v. Williams, 914 S.W.2d
940, 948 (Tenn. Crim. App. 1995)). “Parties should refrain from incorporating several
separate and distinct errors into a single issue.” Williams, 914 S.W.2d at 948-49 (finding
an issue waived because it was “too broad in scope” and “vague and conclusory in
nature”). Instead, “[a] separate issue should be presented for each error raised in the
appellate court.” Id. at 948 (citing Leeson v. Chernau, 734 S.W.2d 634, 637 (Tenn. Ct.
App. 1987)). The Rules of Appellate Procedure “„do[] not contemplate that an appellant
may submit one blanket issue as to the correctness of the judgment and thereby open the
door to argument upon various issues which might affect the correctness of the
judgment.‟” Id. at 948 n.5 (quoting Leeson, 734 S.W.2d at 637).
“[P]roperly drafted issues will assist the writer of the appellant‟s brief, the writer
of the appellee‟s brief, the panel of appellate judges who are assigned the responsibility
19
of addressing the issues in an opinion, and the staff of each appellate judge.” Williams,
914 S.W.2d at 948. If an issue is not properly drafted, “[t]he attorney preparing the
appellee‟s brief will entertain doubt as to the precise issue that is to be addressed[.]” Id.
The appellee is entitled to fair notice of the appellate issues so as to prepare his or her
response, and, more importantly, “this Court is not charged with the responsibility of
scouring the appellate record for any reversible error the trial court may have
committed.” Owen, 2011 WL 6777014, at *4. “It is not the role of the courts, trial or
appellate, to research or construct a litigant‟s case or arguments for him or her, and where
a party fails to develop an argument in support of his or her contention or merely
constructs a skeletal argument, the issue is waived.” Sneed v. Bd. of Prof'l Responsibility
of Sup.Ct., 301 S.W.3d 603, 615 (Tenn. 2010). “The adversarial system of justice is
premised on the idea that „appellate courts do not sit as self-directed boards of legal
inquiry and research, but essentially as arbiters of legal questions presented and argued
by the parties before them.‟” Malmquist v. Malmquist, No. W2007-02373-COA-R3-CV,
2011 WL 1087206, at *11 n.21 (Tenn. Ct. App. Mar. 25, 2011) (quoting State v.
Northern, 262 S.W.3d 741, 767 (Tenn. 2008) (Holder, J., concurring in part and
dissenting in part)). Thus, “appellate courts may properly decline to consider issues that
have not been raised and briefed in accordance with the applicable rules.” Waters v.
Farr, 291 S.W.3d 873, 919 (Tenn. 2009).
The first issue listed in Alan‟s brief on appeal is “[w]hether the trial court erred in
granting Defendants‟ Motion for Summary Judgment and related evidentiary rulings.”
(Emphasis added.) Alan does not specify which “evidentiary rulings” he challenges on
appeal. His brief does not include a standard of review section analyzing how this Court
would consider the so-called “related evidentiary rulings,” nor does it mention any
evidentiary rulings in its outline in the table of contents or in its summary of argument
section. The trial court issued numerous rulings on remand that were, in whole or in part,
adverse to Alan‟s position. The court entered an order denying a motion for protective
order and motion in limine (but narrowly defining the scope of remand), an order on a
motion for protective order for depositions (limiting questioning due to the narrow issues
on remand), an order denying Alan‟s motion to amend and supplement his cross-claims,
an order striking Mercer‟s expert report and supplemental expert report and excluding
Mercer as a witness at trial, and an order striking the supplemental affidavit of Heath but
permitting the filing of the supplemental Thompson affidavit to correct the perceived
technical deficiency. It is not clear from Alan‟s brief which of these rulings he would
deem “evidentiary” and also “related” to the motion for summary judgment.
“„Courts have consistently held that issues must be included in the Statement of
Issues Presented for Review required by Tennessee Rules of Appellate Procedure
27(a)(4). An issue not included is not properly before the Court of Appeals.‟” Bunch v.
Bunch, 281 S.W.3d 406, 410 (Tenn. Ct. App. 2008) (quoting Hawkins v. Hart, 86 S.W.3d
20
522, 531 (Tenn. Ct. App. 2001)). This Court has, on occasion, exercised its discretion to
consider issues not properly designated as such in a brief. See, e.g., Ramirez v.
Bridgestone/Firestone, Inc., 414 S.W.3d 707, 716 (Tenn. Ct. App. 2013) (considering the
appellants‟ “single narrow issue” that was “apparent from a reading of their brief” even
though they did not include a separate section expressly listing the issue); Irvin v. Irvin,
No. M2011-02424-COA-R3-CV, 2012 WL 5993756, at *24 n.20 (Tenn. Ct. App. Nov.
30, 2012) (finding a statement of issues “inadequate” where it vaguely alleged that there
were “two errors in [the] division of the marital estate” but exercising our discretion to
consider the issues because the argument section specifically identified the two alleged
errors). We decline to do so in this case, which involves complex issues, reports, and
rulings in the context of a 6,500-page technical record. It is not apparent from a review
of Alan‟s 81-page brief on appeal which “related evidentiary rulings” he intends to
challenge. The argument section of his brief analyzing the issue of summary judgment
contains a few scattered references to evidentiary matters but no cogent argument to
support reversal of the trial court‟s additional orders. Counsel for the defendants was
apparently uncertain as to the precise issues raised on appeal as well. The defendants‟
brief noted Alan‟s vague issue regarding “evidentiary rulings” and the fact that he did not
analyze the standard of review applicable to such orders, in violation of Rule 27. In an
apparent abundance of caution, the defendants analyzed every ruling by the trial court
that could arguably be deemed “evidentiary” and/or “related” to the motion for summary
judgment. As a result, the defendants‟ brief spans 140 pages.
We will not engage in the same sort of analysis. It is not the role of this Court to
analyze every ruling by the trial court on remand just in case the appellant intended to
challenge it on appeal. “[J]udges are not like pigs, hunting for truffles” that may be
buried in the record, Flowers v. Bd. of Professional Responsibility, 314 S.W.3d 882, 899
n.35 (Tenn. 2010) (citation omitted), or, for that matter, in the parties‟ briefs on appeal.
Coleman v. Coleman, No. W2011-00585-COA-R3-CV, 2015 WL 479830, at *9 (Tenn.
Ct. App. Feb. 4, 2015). Our supreme court has clearly stated that “an issue may be
deemed waived when it is argued in the brief but is not designated as an issue in
accordance with Tenn. R. App. P. 27(a)(4).” Hodge, 382 S.W.3d at 335 (citing ABN
AMRO Mortg. Grp., Inc. v. S. Sec. Fed. Credit Union, 372 S.W.3d 121, 132 (Tenn. Ct.
App. 2011); Childress v. Union Realty Co., 97 S.W.3d 573, 578 (Tenn. Ct. App. 2002)).
Based on our review of the issues presented in Alan‟s brief, it is clear that he intended to
appeal the trial court‟s order granting summary judgment to the defendants and denying
his motion for partial summary judgment, as well as the orders granting the defendants‟
motions for discretionary costs and attorney‟s fees. Alan waived any issues regarding
“related evidentiary rulings” by failing to clearly and adequately designate them as issues
for review on appeal in accordance with Rule 27(a)(7)(A).
21
A. Denial of Alan’s Motion for Partial Summary Judgment
We now turn to Alan‟s contention that the trial court erred in denying his motion
for partial summary judgment. The motion was entitled, “Cross-Plaintiff‟s Motion and
Memorandum for Partial Summary Judgment as to Benefits Conferred on Defendants
related to the Alan Cook Cartwright 1996-1 Irrevocable Trust.” Therein, Alan asked the
court to “enter an order reflecting that, as a matter of law, Defendants obtained benefits
associated with the formation and funding of the Alan Cook Cartwright 1996-1
Irrevocable Trust.” Alan claimed that these “benefits” were sufficient to give rise to the
presumption of undue influence. In response, the defendants asked the trial court to deny
Alan‟s motion on the basis that there was no claim or demand before the trial court
regarding the 1996-1 trust.
Following a hearing, the trial court entered an order denying Alan‟s motion for
partial summary judgment. The court‟s order contains the following analysis with regard
to this issue:
This case is being litigated subject to the remand of the Tennessee
Court of Appeals, and as the Court has already reiterated on a number of
occasions, the issue to be addressed is a narrow one. As described in this
Court‟s December 19, 2012 Order Denying Motion for Protective Order
and Motion in limine:
The clear implication from the Court of Appeals‟ opinion is
that this Court must explore whether undue influence
accompanied Plaintiff‟s signing of the first and second
amendments to the ACC Grantor Trust. Because those
amendments operated to impose a cap on Plaintiff‟s annual
distributions from the trust, “the potential [existed] for more
money to remain in the corpus of the ACC Grantor Trust for
potential future distribution to Alice as a contingent
beneficiary. Cartwright, 2012 WL 1997803, at * 13. Thus,
despite the fact that the Court of Appeals affirmed this
Court‟s decision to grant partial summary judgment on the
issue of “whether [Plaintiff] had received the distributions to
be made to him under the trust documents as written,” id. at
*15, the amendments affecting his distributions could be
voided upon a finding that they were a product of undue
influence. Such is the understanding with which the Court of
Appeals remanded the case.
22
The Court has been consistent in its articulation of the scope of remand, and
the present Order is no different. The relief potentially available on remand
is as follows: “If Plaintiff proves undue influence accompanied the signing
of the amendments to the ACC Grantor Trust, then those amendments may
be voided and Plaintiff can establish his right to the distributive share he
would have received prior to his execution of the amendments.” Id. at 5.
The case before this Court is no more, no less.
....
Cross-Plaintiff‟s motion for partial summary judgment focuses on
the creation of the Alan Cook Cartwright 1996-1 Irrevocable Trust.
Specifically, Cross-Plaintiff requests that the Court enter an order
“reflecting that . . . [the] Defendants obtained benefits associated with the
formation and funding of the Alan Cook Cartwright 1996-1 Irrevocable
Trust.” According to Cross-Plaintiff, by establishing the receipt of such
benefits, a presumption of undue influence attaches, thereby shifting the
burden of proof to Defendants to prove that the transactions forming the
1996-1 Trust were not “the impermissible exercise of undue influence.”
Having reflected on Cross-Plaintiff‟s arguments, the Court does not
find it appropriate to grant his motion. Even assuming that benefits were
conferred in the sense argued by Cross-Plaintiff, his request for relief
cannot be entertained. The issue of whether undue influence accompanied
the formation of the 1996-1 Trust is simply outside the scope of remand. As
is clear from the opinion of the Court of Appeals and this Court‟s prior
orders, the focus on remand is whether undue influence accompanied the
signing of the first and second amendments to the ACC Grantor Trust. As
Defendants have stated, “there is no legal claim or demand properly before
the Court regarding the ACC 1996-1 Trust.”
. . . . By asking this Court to make a ruling with respect to the 1996-
1 Trust, Cross-Plaintiff has asked this Court to adjudicate matters outside of
the scope of the case on remand. The opinion of the Court of Appeals only
discusses the issue of undue influence in relation to the amendments to the
ACC Grantor Trust, and its analysis of that topic makes it clear that the
Court of Appeals was only concerned about potential monetary benefits
received by Alice Garner as a result of the cap on Cross-Plaintiff's
distributions. See generally Cartwright, 2012 WL 1997803, at *13. The
suggestion that this Court is to explore whether undue influence
accompanied the formation of the 1996-1 Trust misinterprets the direction
23
provided by the Court of Appeals and the prior orders of this Court. Cross-
Plaintiff‟s perception of the scope of remand is simply not accurate.
(Footnote and record citations omitted.) In sum, the trial court concluded that “The issue
on remand is whether undue influence accompanied the signing of the amendments to the
ACC Grantor Trust; whether undue influence accompanied the signing of the 1996-1
Trust or 1996-2 Trust is simply not before the Court.”
On appeal, Alan argues that “[t]he presumption of invalidity arising from a
confidential relationship extends to all dealings between persons in fiduciary and
confidential relations, and includes gifts, contracts and other transactions in which the
dominant party obtains a benefit from the other party.” Malek v. Gunter, No. M2009-
00059-COA-R3-CV, 2009 WL 4878613, at *7 (Tenn. Ct. App. Dec. 16, 2009) (emphasis
added). We acknowledge this principle of law. However, the particular claims that
remain at issue in this lawsuit do not encompass “all dealings” between Alan and the
defendants. It is important to recognize the procedural history of this case. The original
cross-claims filed by Alan against the defendants were very broad and encompassed a
wide range of allegedly impermissible conduct and transactions, including various
breaches of fiduciary duty, conflicts of interest, and self-dealing. However, Alan
nonsuited all claims that were not resolved by the defendants‟ motion for partial
summary judgment that was at issue in Cartwright I. The trial court‟s order of voluntary
dismissal without prejudice stated that it dismissed the “causes of action, claims,
demands, issues and matters raised in the cause” by Alan “except for the issues covered
in the order granting partial summary judgment to Cross-Defendants[.]” The motion for
partial summary judgment pertained to Alan‟s claim for breach of fiduciary duty for
allegedly failing to pay him the amounts required by the trust documents.3 Specifically,
the defendants claimed that they fully complied with the terms of the trust documents and
that Alan received all distributions to which he was entitled. They argued that Alan could
not prove that they violated the terms of the trusts or failed to pay him what he was due
under the trust documents. The defendants noted the relevant language from the
Amendments to the ACC Grantor Trust agreement and submitted interrogatory responses
and testimony by affidavit and deposition, which established that all required
distributions had been made to Alan through the ACC Grantor Trust in accordance with
the controlling trust documents. Notably, none of the documents creating the 1996-1 and
1996-2 trusts were submitted in support of the defendants‟ motion for partial summary
judgment.
3
The defendants‟ motion for partial summary judgment addressed other issues as well, such as whether
the defendants breached their fiduciary duties by investing trust assets in the family limited partnership,
whether Alan received the distributions to be made to him under the trust documents, and other issues
surrounding the terms of the family limited partnership documents and the trust documents. These
rulings were either affirmed in Cartwright I or not challenged on appeal.
24
In response to the motion for partial summary judgment, Alan submitted a three-
paragraph response, which included the following argument:
The [defendants], both directly and indirectly by employing duress and
undue influence by others, knowingly and maliciously defrauded the
beneficiary of these trusts, Alan Cartwright, by trickery and by deception in
failing to present alleged “Exhibit A” for review and in failing to explain
the practical operation and consequences of the First Amendment(s) to the
Amended and Restated Alan Cook Cartwright Grantor Trust at the time
Cartwright was urged to sign the amendments to his Grantor Trust while
under economic duress and/or by creating a false “Exhibit A” at a later
time, all in contravention of the fiduciary duties owed to him at those times
and all subsequent times thereto. As a result, the existence and operation of
the so called “Exhibit A” is void and the First Amendment(s) are void as
being made by the Grantor being led into a clear mistake of law and fact as
to the meaning and consequences of executing the signature page that day.
(Emphasis added.) In his response, Alan did not argue that any other documents creating
other trusts, such as the 1996-1 and 1996-2 trusts, were void. At the hearing on the
motion for partial summary judgment, Alan‟s attorney did briefly refer to the alleged gift
created by the 1996-2 trust, and the trial judge asked for clarification, stating, “I don‟t
recall seeing anything about it in all of this paper that I‟ve read.” Counsel for the
defendants added, “this is the first time I‟ve heard this argument.” Alan‟s attorney then
explained that “this is background” and clarified that he was “not asking Your Honor to
rule on this today.” He said, “I just hit that point. I want to move on. That‟s not why I‟m
here today, but that‟s what it says; and that‟s going to be a part of this case as we go
down . . . to the trier.” He went on to say that the partial summary judgment motion
before the court “all rests on the validity of Exhibit A” to the Amendments. The trial
court‟s order granting partial summary judgment to the defendants did not mention the
1996-1 and 1996-2 trusts, nor were they mentioned in this Court‟s opinion in Cartwright
I.4
Reviewing the procedural posture of this case, it is clear that the order granting
partial summary judgment to the defendants did not encompass any claim or issue
regarding the 1996-1 and 1996-2 trusts. The order of voluntary dismissal dismissed all
claims “except for the issues covered in the order granting partial summary judgment[.]”
Accordingly, we agree with the trial court‟s conclusion that the issue before it on remand
4
Alan did attempt to supplement the record in Cartwright I with documents pertaining to the 1996-1 and
1996-2 trusts. However, the trial court and this Court denied Alan‟s request because the documents were
not presented to the trial court during the partial summary judgment proceedings.
25
was “whether undue influence accompanied the signing of the amendments to the ACC
Grantor Trust,” and “whether undue influence accompanied the signing of the 1996-1
Trust or 1996-2 Trust [was] simply not before the Court.” We affirm the trial court‟s
order denying Alan‟s motion for partial summary judgment with regard to the 1996-1
trust.
B. Summary Judgment in favor of the Defendants
The next issue properly presented for review is whether the trial court erred in
granting summary judgment to the defendants. A motion for summary judgment should
be granted only “if the pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law.”
Tenn. R. Civ. P. 56.04.
When ascertaining whether a genuine dispute of material fact exists in a
particular case, the courts must focus on (1) whether the evidence
establishing the facts is admissible, (2) whether a factual dispute actually
exists, and, if a factual dispute exists, (3) whether the factual dispute is
material to the grounds of the summary judgment.
Green v. Green, 293 S.W.3d 493, 513 (Tenn. 2009).
“The party seeking the summary judgment has the burden of demonstrating that no
genuine disputes of material fact exist and that it is entitled to a judgment as a matter of
law.” Green, 293 S.W.3d at 513 (citing Martin v. Norfolk S. Ry., 271 S.W.3d 76, 83
(Tenn. 2008); Amos v. Metro. Gov’t of Nashville & Davidson County, 259 S.W.3d 705,
710 (Tenn. 2008)). “The moving party may make the required showing and therefore
shift the burden of production to the nonmoving party by either: (1) affirmatively
negating an essential element of the nonmoving party‟s claim; or (2) showing that the
nonmoving party cannot prove an essential element of the claim at trial.” Martin, 271
S.W.3d at 83 (citing Hannan v. Alltel Publ’g Co., 270 S.W.3d 1, 5 (Tenn. 2008)).5 In
order to negate an essential element of the claim, “the moving party must point to
evidence that tends to disprove an essential factual claim made by the nonmoving party.”
Id. at 84 (citing Blair v. W. Town Mall, 130 S.W.3d 761, 768 (Tenn. 2004)). “If the
moving party is unable to make the required showing, then its motion for summary
judgment will fail.” Id. (citing Byrd v. Hall, 847 S.W.2d 208, 215 (Tenn. 1993)). The
resolution of a motion for summary judgment is a matter of law, which we review de
novo with no presumption of correctness. Id. However, “we are required to review the
5
Hannan applies to this case because it was originally filed in 2004.
26
evidence in the light most favorable to the nonmoving party and to draw all reasonable
inferences favoring the nonmoving party.” Id. (citing Staples v. CBL Assocs., Inc., 15
S.W.3d 83, 89 (Tenn. 2000)).
The defendants moved for summary judgment on the issue of whether the
Amendments to the ACC Grantor Trust were procured by undue influence with a benefit
to Alice because of the effect of the pour-over clause and the annual cap on distributions.
“In Tennessee, a presumption of undue influence arises when there is a confidential
relationship followed by a transaction in which the dominant party receives a benefit
from the other party.” In re Estate of Price, 273 S.W.3d 113, 125 (Tenn. Ct. App. Mar.
24, 2008) (citing Matlock v. Simpson, 902 S.W.2d 384, 386 (Tenn. 1995)). The burden
of proof for each of these elements rests with the party who alleges the confidential
relationship. Id. (citing Smith v. Smith, 102 S.W.3d 648, 653 (Tenn. Ct. App. 2002)).
The operative terms of the ACC Grantor Trust and its Amendments bear
repeating. Prior to the Amendments, the ACC Grantor Trust Agreement directed the
trustee to distribute 75 percent of the “net income” of the ACC Grantor Trust to or for the
benefit of Alan. The first Amendment, executed in 1995, required all amounts that would
have been distributed to Alan from 15 other trusts to instead be added to the corpus of the
ACC Grantor Trust and distributed subject to its terms, by which the trustee would pay
Alan “(i) the lesser of $84,000 per year or one hundred percent (100%) of the net annual
income of the trust in convenient installments, or otherwise, to or for the benefit of
[Alan], plus (ii) such additional amount as the Trustee determines is necessary to pay the
federal and state income tax of [Alan].” The second Amendment, executed in 1996,
reduced the $84,000 figure to $60,000. After Alice was named co-trustee, effective
January 1, 2000, she and her mother increased Alan‟s monthly distribution to $7000
again, but the parties never executed another amendment to reflect this change.
In their motion for summary judgment, the defendants asserted that Alan‟s
allegation of undue influence failed as a matter of law because they affirmatively negated
essential elements of his claim. The defendants argued that Alan‟s damages, “if any,”
would be demonstrated by calculating the amount of net income that would have been
distributed to him in the absence of the Amendments, but was instead poured into the
ACC Grantor Trust because of the Amendments. According to the defendants, the
undisputed evidence showed that Alice did not benefit from the execution of the
Amendments, and Alan suffered no damages from their execution. This Court in
Cartwright I found it “reasonable to infer, for purposes of summary judgment, that
because of the cap on Alan‟s annual distributions, there [was] the potential for more
money to remain in the corpus of the ACC Grantor Trust for potential future distribution
to Alice as a contingent beneficiary.” Cartwright I, 2012 WL 1997803, at *13.
However, the defendants presented expert reports from Thompson and Secor in an effort
27
to demonstrate that the Amendments did not actually have that effect. According to the
Thompson report, the terms of the Amendments resulted in Alan receiving $1,336,483
more in distributions between 1995 and 2011 than he would have received without the
Amendments. According to the Thompson report, rather than receiving 75 percent of the
net income of the ACC Grantor Trust and his share of the net income from the other
trusts, Alan received an amount equal to all of the cumulative net income, in addition to
principal distributions in the amount of $1,014,375. Thus, the defendants claimed that
Alice received no benefit from the Amendments, and Alan did not sustain any damages. 6
In addition to the expert reports from Thompson and Secor, the defendants also submitted
trust documents and testimony in the form of affidavits and deposition transcripts.
Having carefully reviewed the motion for summary judgment and accompanying
documents, we conclude that the defendants‟ motion was properly supported, as it
affirmatively negated Alan‟s claim that he had sustained damages as a result of his
execution of the Amendments to the ACC Grantor Trust. As the trial court found,
Thompson‟s report provided “a detailed financial accounting of the impact created by the
amendments to the ACC Grantor Trust,” specifically comparing the annual income for
the years 1995 through 2011 that would have been distributed to Alan without the
amendments with the reported distributions actually paid directly to him or on his behalf
pursuant to the Amendments. As the trial court observed, Thompson‟s report showed
that Alan “was not harmed by the impact of the amendments to the ACC Grantor Trust.”
Alan must be able to prove that he was damaged, and “[t]he existence of damages cannot
be uncertain, speculative, or remote.” Hannan, 270 S.W.3d at 10. The defendants
“point[ed] to evidence that tend[ed] to disprove an essential factual claim made by the
nonmoving party,” Martin, 271 S.W.3d at 84, disproving the existence of damages. As a
result, the burden of production shifted to Alan to demonstrate that a genuine issue of
material fact existed.
When faced with a properly supported motion for summary judgment, “[t]he non-
moving party must then establish the existence of the essential elements of the claim.”
McCarley v. West Quality Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998).
The nonmoving party is required to produce evidence of specific facts
establishing that genuine issues of material fact exist. McCarley, 960
S.W.2d at 588; Byrd, 847 S.W.2d at 215). The nonmoving party may
satisfy its burden of production by:
(1) pointing to evidence establishing material factual disputes
that were over-looked or ignored by the moving party; (2)
6
The defendants also presented several alternative arguments, but due to our resolution of the first issue, it
is not necessary to address the alternative theories.
28
rehabilitating the evidence attacked by the moving party; (3)
producing additional evidence establishing the existence of a
genuine issue for trial; or (4) submitting an affidavit
explaining the necessity for further discovery pursuant to
Tenn. R. Civ. P., Rule 56.06.
McCarley, 960 S.W.2d at 588; accord Byrd, 847 S.W.2d at 215 n.6. The
nonmoving party‟s evidence must be accepted as true, and any doubts
concerning the existence of a genuine issue of material fact shall be
resolved in favor of the nonmoving party. McCarley, 960 S.W.2d at 588).
Martin, 271 S.W.3d at 84.
Alan raised several arguments in response to the defendants‟ motion for summary
judgment, which we address in turn.
1. The 1996 Trusts
First, Alan repeated his assertion that the defendants exerted undue influence and
caused him to suffer damages in connection with the creation and funding of the 1996-1
and 1996-2 trusts. Alan argued that the Thompson report failed to appropriately consider
the financial impact of the creation and funding of the 1996-1 and 1996-2 trusts in
determining whether he was damaged. Alan continues to argue on appeal that the
defendants received a benefit and he was damaged by the creation and funding of the
1996-1 and 1996-2 trusts. However, the trial court concluded that Alan‟s proposed
assessment of damages based on the 1996-1 and 1996-2 trusts was “not legally viable in
light of the limited issue before this Court.” The court explained that Alan‟s attempt to
base his damages on the creation of the 1996-1 and 1996-2 trusts sought relief “outside of
what is available on remand.” For the reasons already discussed, based on the procedural
history of this case, we agree with the trial court‟s conclusion that Alan could not claim
an entitlement to damages based on the effect of the 1996-1 and 1996-2 trusts. The only
claims that remain at issue in this lawsuit are those that were covered in the original order
granting partial summary judgment to the defendants, which were at issue in Cartwright
I. Any claims regarding the creation and funding of the 1996-1 and 1996-2 trusts were
voluntarily dismissed prior to the first appeal. Therefore, Alan did not create a genuine
issue of material fact regarding the existence of damages in this case by pointing to the
creation and funding of the 1996-1 and 1996-2 trusts.
2. Three Specific Years
Alan‟s next effort to demonstrate that he sustained damages was based on certain
29
calculations contained within the Thompson report. Alan pointed out that for the
seventeen-year period that Thompson reviewed, spanning from 1995 through 2011,
Thompson concluded that the Amendments to the ACC Grantor Trust did have the effect
of reducing Alan‟s annual income during three particular years – in 1995, 1997, and
2008. However, Alan does not explain how this demonstrates an entitlement to damages,
considering that he benefitted from the Amendments during the other fourteen years.
Over the entire period, Thompson concluded that Alan was paid a total of $1,336,483
more due to his execution of the Amendments. Accordingly, Alan did not establish the
existence of damages by pointing to the three isolated years in question.
3. Income Tax Payments
Next, Alan argued that the Thompson report incorrectly attributed the Trust‟s
payment of his personal income tax liability as a benefit to him that was accomplished by
the execution of the Amendments to the ACC Grantor Trust. The Trust paid
approximately $1.7 million toward Alan‟s personal income tax liability in the years
following the execution of the amendments. Alan claimed that Thompson erroneously
assumed that the ACC Grantor Trust would not have paid his income taxes but for the
Amendments. Prior to the Amendments, the trust terms did not require the trustees to
pay Alan‟s personal tax obligation. Pursuant to the language of the Amendments, the
trustee was required to pay Alan “(i) the lesser of $84,000 per year or one hundred
percent (100%) of the net annual income of the trust in convenient installments, or
otherwise, to or for the benefit of Settlor, plus (ii) such additional amount as the Trustee
determines is necessary to pay the federal and state income tax of the Settlor (which
amount may be remitted directly to such taxing authorities by the Trustee).” (Emphasis
added.) “If the drafter of [an irrevocable grantor] trust wants the trustee to have the
authority to distribute principal or income to the settlor to reimburse the settlor for taxes
paid on the trust‟s income or capital gains, such a provision should be placed in the terms
of the trust.” Tenn. Code Ann. § 35-6-506 Official Comment.
Despite the absence of such a requirement in the pre-Amendment trust agreement,
Alan suggested in his response to the motion for summary judgment that the trustees
would have paid his income taxes even without the execution of the Amendments. The
pre-Amendment terms of the trust authorized the trustee, “in its sole discretion,” to
invade the trust corpus for Alan‟s benefit in the event that the trustee concluded that the
amounts otherwise payable to Alan were insufficient to provide for his comfortable well-
being. Because of this authority, Alan contended that the trustee would have paid his
income tax liability even without execution of the Amendments, and the Thompson
report erroneously listed the tax payments as a benefit that he received due to the
execution of the Amendments. The defendants responded by claiming that the
mandatory duty to pay taxes was a direct benefit to Alan. They contended that Alan‟s
30
unsupported allegation regarding what the trustee would have done without the
Amendments was nothing more than speculation, with no evidentiary basis in the record.
The defendants argued that Alan‟s “idle speculation” was not sufficient to create a
genuine issue of material fact to defeat their properly supported motion for summary
judgment. We agree with the defendants on this issue. When faced with a properly
supported motion for summary judgment, the nonmoving party is required to produce
evidence of specific facts establishing that genuine issues of material fact exist. Martin,
271 S.W.3d at 84. As previously noted,
[t]he nonmoving party may satisfy its burden of production by:
(1) pointing to evidence establishing material factual disputes
that were over-looked or ignored by the moving party; (2)
rehabilitating the evidence attacked by the moving party; (3)
producing additional evidence establishing the existence of a
genuine issue for trial; or (4) submitting an affidavit
explaining the necessity for further discovery pursuant to
Tenn. R. Civ. P., Rule 56.06.”
Id. (quoting McCarley, 960 S.W.2d at 588; accord Byrd, 847 S.W.2d at 215 n.6). Alan
produced no evidence in support of his assertion that the trustees would have paid his
income taxes even without the duty imposed by the Amendments. He did not submit any
proof that his taxes were paid in the past or point to any evidence in the record to permit a
reasonable inference that the trustees would have paid his income taxes in the absence of
a duty to do so. Accordingly, Alan did not meet his burden of production with his
unsupported allegation that the trustee would have paid his income taxes with or without
execution of the Amendments.
4. Meaning of “Net Income”
Finally, in response to the defendants‟ motion for summary judgment, Alan cited
the language of the ACC Grantor Trust agreement providing that he was to receive 75
percent of the trust‟s “net annual income” and argued that a “factual dispute” existed
regarding “which legal definition of that term is applicable to the distributions.” In
calculating the annual “net income” of the trusts, the Thompson report subtracted capital
gains from the total income reported on the relevant tax returns in order to determine the
amount of net income that was actually distributable. Alan challenged this methodology
and argued that he was entitled to a share of the capital gains as well. Alan asserted that
“[t]here are two legitimate definitions” of “net income,” creating a latent ambiguity and
an issue of fact. As the Grantor, Alan argued that his intention as to the definition should
control. Alan submitted an affidavit stating that he believed that all of the trust
31
“earnings” or “profits” would be available for his own personal use and benefit,
regardless of the source. He considered “net income” to mean all the income of the trust.
Alan also claimed that Black’s Law Dictionary broadly defined net income as total
income from all sources minus deductions, exemptions, and other tax reductions. The
defendants, on the other hand, claimed that the meaning of the term “net income” was an
issue of law that must be resolved by resort to the Tennessee Uniform Principal and
Income Act, Tenn. Code Ann. § 35-6-101, et seq. We agree with the defendants.
It is commonplace for fiduciaries to encounter issues regarding the allocation of
receipts to principal or income.
Almost every trustee finds that the trust terms require him to pay or
apply “income” to or for a temporary beneficiary, and to distribute
“principal” to one or more beneficiaries prior to or upon termination of the
trust. The trustee is also required to keep records in which he credits
receipts to one or another type of trust account. He faces possible liabilities
if he makes an improper allocation. It thus becomes important for him to
learn what items have, by court decision or statute, been treated as trust
income or trust principal. He is not to be guided by definitions of
economists, accountants, or tax statutes. In a general way trust income will
be found to include the earnings, profits or product of the property in which
the trust assets are invested, while the receipts which indicate merely a
change in the form of the trust corpus are to be regarded as trust principal,
but the best criterion for making decisions is the practical treatment of the
topic by the courts or legislatures.
George Gleason Bogert, George Taylor Bogert, Amy Morris Hess, The Law Of Trusts &
Trustees § 816 (2014).7 The Tennessee Uniform Principal and Income Act, Tenn. Code
Ann. § 35-6-101, et seq., specifically addresses how a fiduciary, such as a trustee, is to
allocate receipts and disbursements to or between principal and income. Tennessee Code
Annotated section 35-6-103(a)(1) provides that “[i]n allocating receipts and
disbursements to or between principal and income,” a trustee “[s]hall administer a trust . .
. in accordance with the terms of the trust . . . even if there is a different provision in this
chapter.” However, “if the terms of the trust . . . do not contain a different provision or
do not give the fiduciary a discretionary power of administration,” then the trustee
“[s]hall administer a trust . . . in accordance with this chapter.” Tenn. Code Ann. § 35-6-
7
“In thirty-six states the rules applicable to the allocation of most types of receipts are laid down in either
the Uniform Principal and Income Act or in the Revised Uniform Principal and Income Act.” The Law
Of Trusts & Trustees at § 816.
32
103(a)(3).8 The Act provides the following pertinent definitions:
(4) “Income” means money or property that a fiduciary receives as current
return from a principal asset. The term includes a portion of receipts from a
sale, exchange, or liquidation of a principal asset, to the extent provided in
part 4 of this chapter.
....
(8) “Net income” means the total receipts allocated to income during an
accounting period minus the disbursements made from income during the
period, plus or minus transfers under this chapter to or from income during
the period.
Tenn. Code Ann. § 35-6-102 (emphasis added). Within Part Four of the Act, Tennessee
Code Annotated section 35-6-404 provides that “[a] trustee shall allocate to principal . . .
[m]oney or other property received from the sale, exchange, liquidation, or change in
form of a principal asset, including realized profit, subject to this chapter[.]”9 Thus, “[i]f
8
The Uniform Principal and Income Act was substantially amended and modified in 2000. The
Act, as amended, states that it applies “to every trust . . . existing on or after July 1, 2000, except
as otherwise expressly provided in the . . . terms of the trust or in this act.” Tenn. Code Ann. §
35-6-602. The original ACC Grantor Trust agreement was executed in 1978. The result in this
case would be the same under either version of the Act. Similar to the current version of section
35-6-103, the previous version provided that the Act governed the ascertainment of income and
principal and the apportionment of receipts and expenses. Tenn. Code Ann. § 35-6-103 (1999).
It further provided that “the person establishing the principal may personally direct the manner of
ascertainment of income and principal and the apportionment of receipts and expenses or grant
discretion to the trustee or other person to do so.” Id.
9
The previous version of the Act simply defined “income” as “the return derived from principal.”
Tenn. Code Ann. § 35-6-102(2) (1999).
On appeal, Alan claims that section 35-6-404 is inapplicable and only applies when
liquidating the assets of a trust. He cites no authority for this assertion. According to the
headings used in the Act, Part Four addresses the allocation of receipts during the administration
of a trust. The previous version of the Act similarly provided that “[a]ll receipts of money or
other property paid or delivered as the consideration for the sale or other transfer . . . of property
forming a part of the principal, . . . or otherwise as a refund or replacement or change in form of
principal, is deemed principal unless otherwise expressly provided in this chapter.” Tenn. Code
Ann. § 35-6-104 (1999). It provided that “[a]ny profit or loss resulting upon any change in form
of principal shall inure to or fall upon principal.” Id. In addition, “any distribution by a mutual
fund or investment company designated by it as a capital gain distribution [was] deemed
principal.” Tenn. Code Ann. § 35-6-106(a) (1999). Dividends or money received otherwise in
return for the use of principal was deemed income. Tenn. Code Ann. § 35-6-104 (1999).
33
a trustee sells normally productive trust property, other than corporate stock, he should
treat the net proceeds, including any capital gain, as trust principal because they are
merely a substitute for, or replacement of, the property sold. They are not in any part the
product or profit of that property.” The Law of Trusts & Trustees § 822. “If the trustee
owns and sells shares of stock in a corporation, one would expect that his duties with
regard to the proceeds would be the same . . . . There is a mere change in the form of the
trust principal, and the income beneficiary should not be entitled to any profit made on
such sale.” Id. at § 823.
Again, the terms of the trusts at issue in this case simply direct the trustee to
distribute to Alan a percentage of the “net income” of the trusts. The ACC Grantor Trust
did not contain a provision specifically addressing capital gains. However, the ACC
Grantor Trust did provide that “[t]his instrument and all dispositions hereunder shall be
governed by and interpreted in accordance with the laws of the State of Tennessee.” The
other trust agreements contained similar provisions providing that they were to be
construed and enforced in accordance with Tennessee law. Pursuant to Tennessee Code
Annotated section 35-6-404, a trustee must allocate to principal the money received
“from the sale, exchange, liquidation, or change in form of a principal asset, including
realized profit.” This rule would apply to capital gains. 10 The trustee is bound to follow
this rule “if the terms of the trust . . . do not contain a different provision.” Tenn. Code
Ann. § 35-6-103(a)(3). Because the terms of the trusts at issue in this case “do not
contain a different provision,” id., the default rule in the Act applies, and the trustee must
allocate capital gains to principal. As such, Alan‟s entitlement to a percentage of the
trusts‟ “net annual income” did not entitle him to a share of the trusts‟ capital gains.
Alan‟s subjective belief to the contrary is not a material fact for purposes of
summary judgment. We recognize that the Act defines the phrase “terms of a trust”
broadly, as “the manifestation of the intent of a settlor or decedent with respect to the
trust, expressed in a manner that admits of its proof in a judicial proceeding, whether by
written or spoken words or by conduct.” Tenn. Code Ann. § 35-6-102(12). However,
this does not mean that Alan‟s affidavit regarding his subjective intention can be used to
alter or vary the written terms of the trust. The official comment to section 35-6-102
explains that this broad definition of “terms of a trust” is meant to clarify “that the Act
applies to oral trusts as well as those whose terms are expressed in written documents.”
According to the official comments, the statutory definition is based on the Restatement
(Second) of Trusts § 4 (1959) and the Restatement (Third) of Trusts § 4 (Tent. Draft No.
10
Attorney Secor explained in his expert report that a capital gain is the income tax term for the
excess on the value of a principal asset over its cost basis when the asset is sold. He explained
that if capital gains were allowed to be treated as income from a trust accounting standard, a trust
would very quickly be depleted because the principal or basis of the trust would be subject to
distribution.
34
1, 1996). The official comments to those sections of the Restatement make clear that the
definition of “terms of a trust” includes “the manifestation of intention of the settlor at
the time of the creation of the trust, whether expressed by written or spoken words or by
conduct, to the extent that it is expressed in a manner which admits of its proof in judicial
proceedings.” Restatement (Second) of Trusts § 4 cmt. (1959) (emphasis added). “The
manifestation of intention of the settlor is the external expression of his intention as
distinguished from his undisclosed intention.” Id. If a manifestation of intention is
inadmissible because of the parol evidence rule or some rule of the law of evidence, it is
not a term of the trust. Id.
Trust instruments are interpreted in a manner similar to contracts, deeds, or wills.
In re Estate of Marks, 187 S.W.3d 21, 28 (Tenn. Ct. App. 2005). Determining the
settlor‟s intent “may be easily done by looking to the four corners of the trust
instrument.” Id. (citing Marks v. S. Trust Co., 310 S.W.2d 435, 437-38 (Tenn. 1958)).
“Where words or terms having a definite legal meaning and effect are knowingly used in
a written instrument, the parties will be presumed to have intended such words or terms
to have their proper legal meaning and effect, in the absence of any contrary intention
appearing in the instrument.” Horadam v. Stewart, No. M2007-00046-COA-R3-CV,
2008 WL 4491744, at *7 (Tenn. Ct. App. Oct. 6, 2008) (citing 12 Am. Jur. Contracts §
238). Because the written trust terms in this case used the term “net income” and
provided that the instrument and all dispositions should be governed by and interpreted
according to Tennessee law, it is clear that the term “net income” must be interpreted in
accordance with the Tennessee Uniform Principal and Income Act. Alan‟s subjective
belief regarding the meaning of the term “net income” is not controlling, nor is the
definition of “net income” for purposes of income taxation.
We also note that regardless of whether the trustees were required to allocate
capital gains to principal pursuant to the express terms of the trust and/or the Uniform
Principal and Income Act, the ACC Grantor Trust agreement authorized the trustees “[t]o
allocate receipts and disbursements between income and principal of the trust, in such
manner as the Trustee in its sole discretion determines, even though one or more
particular allocations may be made in a manner inconsistent with what would otherwise
be applicable state or other applicable jurisdictional law.” Pursuant to the terms of other
trusts listed on Exhibit A, the trustees were similarly authorized
[t]o determine in their sole discretion what is income or corpus of the trust
funds and to apportion and allocate all receipts, credits, disbursements,
expenses and charges to income or corpus as they shall deem proper;
provided that any amounts received in cash or in kind from any „regulated
investment company,‟ as defined in the Internal Revenue Code, which are
designated in any way as capital gain dividends or as a return of capital by
35
such company shall be added to the corpus of the trust.
The Uniform Principal and Income Act authorizes such a grant of discretionary authority
to a trustee, as it states that “[i]n allocating receipts and disbursements to or between
principal and income,” a trustee “[m]ay administer a trust . . . by the exercise of a
discretionary power of administration given to the fiduciary by the terms of the trust . . .
even if the exercise of the power produces a result different from a result required or
permitted by this chapter[.]” Tenn. Code Ann. § 35-6-103(a)(2); see also The Law of
Trusts & Trustees § 816 (recognizing that “[s]ometimes the settlor gives to the trustee the
power to decide which receipts shall be credited to income and which to principal of the
trust”).11
Alan also argues on appeal that a jury should have been allowed to weigh the
evidence in this case and determine the damages flowing from the alleged undue
influence. Alan argues that the existence of damages was not in question and that the
only issue was the extent of damages. We respectfully disagree. The Thompson report
clearly indicates that Alan was not harmed by the execution of the Amendments, as he
received a greater financial benefit between 1995 and 2011 than he would have under the
prior language of the ACC Grantor Trust. In response to the defendants‟ motion for
summary judgment disproving the existence of damages, Alan failed to demonstrate that
damages existed. We agree with the trial court‟s observation that Alan “set forth many
theories on how he was harmed by his execution of the amendments to the ACC Grantor
Trust” but ultimately failed to tender “any admissible evidence or opinion which contest
the findings outlined by Thompson‟s report.” The court found that “no genuine dispute
exists as to Thompson‟s basic findings, and no appropriate legal theory has been adduced
to contest his ultimate conclusions.” We agree with these findings and affirm the trial
court‟s entry of summary judgment in favor of the defendants.
C. Award of Attorney’s Fees and Discretionary Costs
11
Alan also raises an argument based on Tennessee Code Annotated section 35-6-505, which directs a
trustee regarding how it should pay taxes required to be paid by the trustee. However, this section does
not somehow entitle Alan to receive a share of capital gains.
Alan‟s brief on appeal also suggests that any “money received from a partnership” should have
been allocated to income pursuant to Tennessee Code Annotated section 35-6-401. However, he failed to
raise this argument in his response to the defendants‟ motion for summary judgment, and his brief does
not cite any location in the record where this argument was presented to the trial court. Therefore, we
have not considered it further on appeal. In considering whether the trial court erred in granting summary
judgment, we look to the evidence that the parties presented to the trial court at each stage of the summary
judgment proceedings in order to decide whether the parties met their burden of production and whether a
genuine issue of fact existed. See Cartwright I, 2012 WL 1997803, at *11 n.9 (citing Martin, 271 S.W.3d
at 84).
36
The only argument raised by Alan regarding the trial court‟s award of attorney‟s
fees and discretionary costs is that the awards were “premature” and “should be set aside,
pending final judgment.” Having affirmed the trial court‟s entry of summary judgment in
favor of the defendants and its order denying Alan‟s motion for partial summary
judgment, the awards of attorney‟s fees and discretionary costs are hereby affirmed.
Although not specifically designated as an issue, the defendants have requested an
award of attorney‟s fees on appeal. In the conclusion section of their brief, they cite the
frivolous appeal statute, Tenn. Code Ann. § 27-1-122, in addition to statutory authority
for an award of attorney‟s fees in cases involving trust administration. See Tenn. Code
Ann. §35-15-1004. Under either statute, the determination of whether such an award is
warranted on appeal is within the sound discretion of this Court. See In re Nathaniel
C.T., 447 S.W.3d 244, 248 (Tenn. Ct. App. 2014) (regarding frivolous appeals); In re
Estate of Goza, No. W2013-00678-COA-R3-CV, 2014 WL 7235166, at *6 (Tenn. Ct.
App. Dec. 19, 2014) (discussing the statute regarding trust administration). Exercising
our discretion, we respectfully deny the defendants‟ request for attorney‟s fees on appeal.
IV. CONCLUSION
For the aforementioned reasons, the decision of the chancery court is hereby
affirmed and remanded for further proceedings. Costs of this appeal are taxed to the
appellant, Alan Cartwright, and his surety, for which execution may issue if necessary.
_________________________________
BRANDON O. GIBSON, JUDGE
37