Alerus Financial v. Western State Bank

• Citation: 750 N.W.2d 412,2008 ND 104
• Decision Date: 05 June 2008
• Docket Number: No. 20070066.,20070066.
• Court: United States State Supreme Court of North Dakota
• Parties: ALERUS FINANCIAL, N.A., and S. Luther Simonson, as Trustees of the Robert F. Fritz Living Trust, Plaintiffs and Appellants v. WESTERN STATE BANK and A.G. Edwards & Sons, Inc., corporations, Defendants and Appellees.

750 N.W.2d 412

2008 ND 104

ALERUS FINANCIAL, N.A., and S. Luther Simonson, as Trustees of the Robert F. Fritz Living Trust, Plaintiffs and Appellants v. WESTERN STATE BANK and A.G. Edwards & Sons, Inc., corporations, Defendants and Appellees.

No. 20070066.

Supreme Court of North Dakota.

June 5, 2008.

Stephen F. Rufer, Pemberton, Sorlie, Rufer and Kershner, P.L.L.P., Fergus Falls, MN, for plaintiffs and appellants.

Roger James Minch, Fargo, N.D., for defendant and appellee Western State Bank.

Ronald H. McLean (argued) and Jane L. Dynes (on brief), Fargo, N.D. for defendant and appellee A.G. Edwards & Sons, Inc.

CROTHERS, Justice.

[¶ 1] Alerus Financial, N.A., and S. Luther Simonson, the current successor trustees of the Robert F. Fritz Living Trust ("Trustees"), appeal from a summary judgment granted to Western State Bank and A.G. Edwards & Sons, Inc. We conclude the district court did not err in granting A.G. Edwards summary judgment because the Trustees failed to raise a genuine issue of material fact that former trustee Dale Gifford was not authorized to withdraw trust assets from the trust's accounts with A.G. Edwards under a general power of attorney and a trust agreement. We conclude, however, the court erred in granting Western State Bank summary judgment because genuine issues of material fact exist about liability in connection with Gifford's transactions with Western State Bank. We affirm in part, reverse in part, and remand for further proceedings.

I.

[¶ 2] This case arises out of the Trustees' attempts to recover damages from Western State Bank and from A.G. Edwards for trust funds used for personal benefit by Gifford, a former co-trustee and also attorney-in-fact under a power of attorney executed by Robert F. Fritz.

[¶ 3] In 1992, Fritz, as grantor, established a revocable living trust, appointing himself as sole trustee and naming Lyall Engebretson and Simonson as successor trustees. Fritz initially acted as trustee and reserved the right to revoke or amend the trust. The bulk of the trust's investments were held in an investment account with A.G. Edwards, and sometime after the trust was created, A.G. Edwards' legal counsel reviewed the trust documents.

[¶ 4] Fritz first amended the trust in March 1996, again reserving his grantor's right to revoke or amend the trust. The first amended trust did not change the designated successor trustees, Engebretson and Simonson. The first amended trust authorized the successor trustees to act jointly in the event of Fritz's death, or his physical or mental incapacity, and if either successor trustee failed or ceased to act as trustee for any reason, the remaining successor trustee was authorized to act alone as successor trustee.

[¶ 5] The trust agreement included "safe harbor" language in "Article Twelfth" addressing third-party liability in dealing with any trustee:

"No person who deals with any Trustee hereunder shall be bound to see to the application of any asset delivered to such Trustee or to inquire into the authority for, or propriety of, any action taken or not taken by such Trustee."

"Article Thirteenth" of the trust agreement was entitled "Third Parties Not Responsible For Administration" and stated:

"This trust is created with the express understanding that each bank at which an account is maintained shall have no responsibility as a depository of funds to see to the proper administration of this trust. Upon the transfer of the right, title and interest in and to any account by any Trustee hereunder, the bank shall conclusively treat the transferee as the sole owner of such right, title and interest. Until the bank shall receive from some person interested in this trust written notice of any death or other event upon which a right to receive income or principal may depend, the bank shall incur no liability for payment made in good faith to persons whose interests shall have been affected by such event. The bank shall be protected in acting upon any notice or other instrument or document believed by it to be genuine and to have been signed or presented by the proper party or parties.

"This trust is created with the express understanding that each issuer, transfer agent or custodian of any securities held hereunder shall have no responsibility or liability to see to the proper administration of this trust. Upon the transfer of the right, title and interest in and to such securities by any trustee hereunder, said issuer, transfer agent or custodian shall conclusively treat the transferee as the sole owner of such securities. Until the issuer, transfer agent or custodian shall receive from some person interested in this trust written notice of any death or other event upon which a right to receive income or principal may depend, the issuer, transfer agent or custodian shall incur no liability for payment made in good faith to persons whose interests shall have been affected by such event. The issuer, transfer agent or custodian shall be protected in acting upon any notice or other instrument or document believed by it to be genuine and to have been signed or presented by the proper party or parties."

(Emphasis added.)

[¶ 6] In September 1996, Fritz executed a general power of attorney that appointed Simonson and Gifford, or either of them, as Fritz's attorneys-in-fact to act "separately in [Fritz's] name, place and stead in any way which [Fritz] could do, if [he] were personally present, to the extent that [he is] permitted by law to act through an agent...." During that time frame, Fritz also named Simonson and Gifford as personal representatives under his will and as health care agents in his living will. Under the power of attorney, either Simonson or Gifford, as Fritz's attorneys-in-fact, were granted a number of broad powers, including: "(b) to make, execute, indorse, accept and deliver in my name or in the name of my attorneys-in-fact all checks, notes, drafts, warrants, securities, stock certificates, certificates of deposit, bonds, acknowledgments, and any other agreements, certificates or instruments of any nature, as my attorneys-in-fact may deem necessary or appropriate;

....

"(d) to deposit and withdraw any sums to or from any bank, savings or similar account maintained by me; ... and to conduct such other banking transactions as my attorneys-in-fact may deem necessary or appropriate;

....

"(g) to create, amend or terminate one or more trusts, ... or any other form of ownership or entity for the purpose of dealing with any property or property interest of any nature that I may have or hereafter acquire, under such terms and with such provisions as my attorneys-in-fact may deem necessary or appropriate; and to transfer any or all property in which I have an interest into any trusts, ... or other entities, whether created by me or my attorneys-in-fact or otherwise (and, in this regard, that my attorneys-in-fact may be a remainderman, partner, shareholder, co-tenant or beneficiary of any such entity shall not affect the validity of any action hereunder, and shall not, by itself, constitute a breach of fiduciary duty); and to remove property from any such entity; and to give to any such entity, or to any person acting as agent or trustee under any instrument executed by me or on my behalf, such instructions or authorizations as I may have the right to give;

....

"(n) to do, execute, perform and finish for me and in my name all things which my attorneys-in-fact shall deem necessary or appropriate, in and about or concerning my property or any part thereof.

....

"In addition, I specifically authorize my attorneys-in-fact to transfer any property or funds to the trustees of the following trust: Robert F. Fritz Living Trust, dated October 27, 1992."

The power of attorney also included a clause protecting third parties who acted after receiving and relying on a copy of the power of attorney:

"To induce any third party to act hereunder, I hereby agree that any third party receiving a duly executed copy or facsimile of this power of attorney may act hereunder, and that revocation or termination hereof shall be ineffective as to such third party unless and until actual notice or knowledge of such revocation or termination shall have been received by such third party. I, for myself and my heirs, executors, legal representatives and assigns, hereby agree to indemnify and hold harmless any such third party from and against any and all claims that may arise against such third party by reason of reliance upon the provisions of this power of attorney."

[¶ 7] In December 1998, Fritz personally executed a second amendment to the trust, again designating himself as sole trustee, but naming Gifford and Simonson as successor trustees with the power to act jointly in the event of Fritz's death or physical or mental incapacity, and if either Simonson or Gifford failed or ceased to act as trustee, the other was authorized to act alone as successor trustee.

[¶ 8] In either late 1999 or early 2000, Gifford and Simonson, along with trust attorney Bruce Johnson, met with the A.G. Edwards account manager informing him that Gifford and Simonson had taken over as successor trustees for the trust because Fritz had become incapacitated. Sometime thereafter, A.G. Edwards' legal counsel again reviewed the trust documents. The account manager testified in a deposition that A.G. Edwards had previously received a copy of Fritz's power of attorney.

[¶ 9] In 1999, Western State Bank began lending money to Gifford for his personal business, Nationwide Communications, doing business as Diversified Communications. In 2000, Gifford experienced difficulties with his loan at Western State Bank. In August 2001, Gifford purchased a $30,000 certificate of deposit from Western State Bank, using trust funds drawn from the trust's checking account at Alerus. The record reflects the certificate of deposit was placed in the name of the trust. Gifford...