Alain Ellis Living Trust v. Harvey D. Ellis Living Trust
| Decision Date | 21 September 2018 |
| Docket Number | 113,097,113,282 |
| Citation | 427 P.3d 9 |
| Parties | The ALAIN ELLIS LIVING TRUST; Harvey D. Ellis, Jr. and Nadia M. Ellis, Individually and as Natural Parents, Guardians, and Next Friends of Minor, S.E.; and Roger K. Ellis, Appellants, v. The HARVEY D. ELLIS LIVING TRUST; the Estate of Harvey D. Ellis ; Emprise Bank, a Kansas Banking Corporation; and Cathleen A. Gulledge, Appellees, Kansas University Endowment Assn., et al., Intervenors/Appellees. |
| Court | Kansas Supreme Court |
Sarah E. Warner, of Thompson Warner, P.A., of Lawrence, argued the cause, and, Stephen R. McAllister, of the same firm, was with her on the briefs for appellants.
Lee Thompson, of Thompson Law Firm, LLC, of Wichita, argued the cause and was on the briefs for appellees The Harvey D. Ellis Living Trust and The Estate of Harvey D. Ellis.
Curtis L. Tideman and Emily R. Davis, of Lathrop & Gage LLP, of Overland Park, were on the briefs for intervenors/appellees Kansas University Endowment Association, et al.
In this case, a trust and its beneficiaries assert separate damage claims against a deceased trustee for (1) punitive and (2) double damages under K.S.A. 58a-1002 of the Kansas Uniform Trust Code (KUTC) and under the common law relating to a breach of trust and a breach of fiduciary duty. This appeal asks us to determine as a matter of first impression whether those damages may be recovered after the death of a trustee. The short answer is, "Yes."
K.S.A. 58a-1002, the punitive damages provisions in K.S.A. 60-3702 and 60-3703, and the Kansas survival statute, K.S.A. 60-1801, do not directly answer this question, leaving an ambiguity. But our statutory construction leads us to the conclusion that these statutes, when read together and in conjunction with Kansas common law, reveal a legislative intent to preserve the right to damages—even those that are penal in nature—after a tortfeasor's death. Thus, we conclude the death of a trustee does not prevent a trial court from allowing a trier of fact to determine whether the estate of a deceased trustee who committed a breach of fiduciary duty and knowingly committed a breach of trust should be liable for (1) punitive damages and (2) statutory damages equal to twice the amount of the property converted when those provide the greater recovery under K.S.A. 58a-1002(a).
Alain Ellis and her husband Dr. Harvey Ellis, Sr., both executed living trusts. After Alain's death, Harvey served as the trustee of her trust. Under the trust agreement, Harvey was entitled to all income from the trust during his life. Upon his death, the trust was to be divided equally between the Ellises' two sons, and each was to receive income from the principal. When either son died, the principal was to go to that son's children or, if he had no children, it was to be combined with the other son's trust. Neither Alain nor Harvey told their sons or their sole grandchild of the trust.
While acting as trustee, Harvey improperly converted a substantial amount from Alain's trust and placed the converted assets into his own trust. His trust beneficiaries were several charitable and educational organizations. After his death, the improper transfers were discovered and investigated, resulting in $1,431,143.45 being returned to Alain's trust.
Alain's trust and her trust's beneficiaries (cumulatively, Alain's Trust) sought additional damages by suing several parties, including The Harvey D. Ellis Living Trust, Harvey's estate, Cathleen Gulledge (an attorney who had advised Harvey and the successor trustee of Alain's trust), and Emprise Bank (a successor trustee for both Alain's and Harvey's trust). Some beneficiaries of The Harvey D. Ellis Living Trust—specifically, The Kansas University Endowment Association, Dallas Theological Seminary, and a Christian ministry group known as The Navigators—intervened to protect their interests as beneficiaries of Harvey's trust. (Harvey's trust, Harvey's estate, and the intervening beneficiaries of Harvey's trust will be cumulatively called Harvey's Estate.)
Before trial, the trial court made two rulings that are now at issue. One relates to a motion to amend the petition to add a claim for punitive damages and the second to a ruling on a motion for partial summary judgment.
In the first ruling, the trial court partially granted a motion to amend the petition by allowing Alain's Trust to make a claim for punitive damages against Gulledge and Emprise Bank. But it denied the request to seek punitive damages from Harvey's Estate. The trial court found that the facts established Harvey had engaged in willful and wanton misconduct, but it concluded Alain's Trust could not bring a punitive damages claim because he had passed away.
In the second ruling, the trial court granted partial summary judgment after concluding Alain's Trust was not entitled to recover double damages under K.S.A. 58a-1002 against the assets of Harvey's Estate. The trial court held the facts did not fit K.S.A. 58a-1002(a)(3) —the provision of the KUTC that allows double damages. Alternatively, the trial court reasoned the provision, even if factually applicable, was not legally applicable because it was penal and claims for penal damages, such as punitive damages, do not survive the death of a malfeasant trustee.
At trial, the trial court made some rulings as a matter of law. These resulted in the court instructing the jury that the court had ruled that Harvey's trust and estate were liable for any damages that resulted when Harvey "converted and embezzled principal in the amount of $1,541,827.59 from the Alain Ellis Living Trust and placed it in the Harvey D. Ellis Living Trust."
The jury entered a verdict partially in favor of Alain's Trust. It found Harvey committed a breach of trust and a breach of fiduciary duty and that Gulledge had committed a breach of fiduciary duty. But the jury found that Emprise Bank was free of wrongdoing. The jury also determined the damages to be $1,557,973.48 and also found all "of those damages are a direct result of a breach by: Harvey D. Ellis, Sr." Despite finding wrongdoing by Gulledge, the jury declined to find her liable for any damages. The jury further found the damages should be offset with a credit in the amount of $1,431,143.45 because of the assets returned to Alain's Trust.
On appeal to the Court of Appeals, Alain's Trust challenged the trial court's two rulings that prevented the jury from considering whether Alain's Trust should receive double or punitive damages against Harvey's Estate. One of the beneficiaries of Alain's trust also asserted the trial court erred in refusing to require Harvey's Estate to pay his attorney fees. The Court of Appeals affirmed the trial court's decision. Alain Ellis Living Trust v. Harvey D. Ellis Living Trust , 53 Kan. App. 2d 131, 385 P.3d 533 (2016).
Alain's Trust petitioned for review of only the two issues about double and punitive damages. We granted review. The Court of Appeals' decision about payment of attorney fees is not before us. Nor is its conclusion that Harvey converted the property to his own use. See Supreme Court Rule 8.03(h)(1) (2018 Kan. S. Ct. R. 56) ("[I]ssues before the Supreme Court include all issues properly before the Court of Appeals which the petition for review or cross-petition allege were decided erroneously by the Court of Appeals.").
We must decide: First, did the trial court err in ruling that Alain's trust could not seek punitive damages from a deceased settlor's revocable trust or estate even though the trustee has committed a breach of trust? Second, did the trial court err in ruling that the double damage penalty of K.S.A. 58a-1002(a)(3) does not survive the death of a malfeasant trustee? Both issues share the common question of whether Kansas law allows an injured party to recover all the various types of damages provided for in the KUTC or allowed at common law even if the trustee has died before judgment.
As the Court of Appeals noted: "There is no doubt in this case that [Harvey] acted toward [Alain's Trust] with willful conduct and fraud that would have supported a claim against him for punitive damages had he still been alive at the time of the litigation." Alain Ellis Living Trust , 53 Kan. App. 2d at 137, 385 P.3d 533. Similarly, in addressing the double damages provision, the Court of Appeals held that Harvey's "actions would have subjected him to the double damages of K.S.A. 58a-1002(a)(3) had he been alive during this litigation." 53 Kan. App. 2d at 143, 385 P.3d 533.
Nevertheless, the Court of Appeals determined Alain's Trust could not ask the jury to award the damages because: (1) K.S.A. 58a-1002 and other Kansas statutes do not specifically provide for recovery against an estate and there must be express statutory language that allows an injured party to seek to have punitive damages paid by anyone other than the actual wrongdoer, including the wrongdoer's estate; (2) as found by a majority of other courts, awarding punitive damages against an estate would not further the purposes of punitive damages, and (3) the double damage award, like the punitive damage provision, is penal and trust beneficiaries cannot seek double damages from the trustee's estate for the same reasons a court cannot award punitive damages against a deceased trustee's estate. 53 Kan. App. 2d at 141-45, 385 P.3d 533.
We first address whether a trust beneficiary can seek punitive damages—whether sought under K.S.A. 58a-1002(c) or under common law—from the estate of a deceased tortfeasor.
1. Does Kansas law allow a trust and its beneficiaries to seek punitive damages from a deceased trustee ?
During pretrial proceedings, the trial court denied a motion filed by Alain's Trust seeking to amend its petition to add a claim for punitive damages against Harvey's Estate. Both Alain's Trust and Harvey's Estate recognize this court has not decided whether a...
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