Allard v. Pacific Nat. Bank

• Citation: 663 P.2d 104,99 Wn.2d 394
• Decision Date: 28 April 1983
• Docket Number: No. 48215-2,48215-2
• Parties: Freeman ALLARD and Evelyn Orkney, as beneficiaries of the trusts of J.T. Stone and Georgiana Stone; Marie Georgiana Covington, Leon Thomas Allard, and Betty Jean Coleman, as beneficiaries of the same trusts; and Kimberly W. Osenbaugh, as guardian ad litem for minors Holland Allard Covington, Carter Wade Covington, Jennifer Jean Coleman, Alicia Dawn Coleman and any beneficiaries yet unborn, Appellants, v. PACIFIC NATIONAL BANK, as trustee of the trusts of J.T. Stone and Georgiana Stone, Respondent, City of Seattle Credit Union and Seattle-First National Bank, Defendants.
• Court: Washington Supreme Court

Page 394

99 Wn.2d 394

663 P.2d 104

Freeman ALLARD and Evelyn Orkney, as beneficiaries of the trusts of J.T. Stone and Georgiana Stone; Marie Georgiana Covington, Leon Thomas Allard, and Betty Jean Coleman, as beneficiaries of the same trusts; and Kimberly W Osenbaugh, as guardian ad litem for minors Holland Allard Covington, Carter Wade Covington, Jennifer Jean Coleman Alicia Dawn Coleman and any beneficiaries yet unborn, Appellants, v. PACIFIC NATIONAL BANK, as trustee of the trusts of J.T Stone and Georgiana Stone, Respondent City of Seattle Credit Union and Seattle-First National Bank, Defendants.

No. 48215-2.

Supreme Court of Washington,

En Banc.

April 28, 1983.

As Changed July 21, 1983.

Oles, Morrison, Rinker, Stanislaw & Ashbaugh, Arthur D. McGarry, Stuart G. Oles, David H. Karlen, Seattle, for appellants.

Short & Cressman, John O. Burgess, Steven R. Hake, Seattle, for respondent.

Ken Eikenberry, Atty. Gen., Mary M. Tennyson, Asst. Atty. Gen., Olympia, amici curiae.

DOLLIVER, Justice.

Plaintiffs Freeman Allard and Evelyn Orkney are beneficiaries of trusts established by their parents, J.T. and Georgiana Stone. Defendant Pacific National Bank (Pacific Bank) is the trustee of the Stone trusts. Plaintiffs appeal a King County Superior Court decision dismissing their action against Pacific Bank for breach of its fiduciary duties as trustee of the Stone trusts. Plaintiffs also appeal the decision of the court denying their demand for a jury trial, refusing to allow their expert testimony regarding ordinary standards of trust administration, and awarding attorney fees and costs to Pacific Bank.

We agree with the Superior Court that plaintiffs' claims are primarily equitable in nature and we affirm its decision that plaintiffs have no right to jury trial. We conclude, however, that Pacific Bank breached its fiduciary duties regarding management of the Stone trusts. We also find the Superior Court incorrectly awarded attorney fees and costs to Pacific Bank. We need not and do not reach the issue of whether the trial court improperly excluded plaintiffs' expert witnesses on the issue of generally accepted trust practices.

J.T. and Georgiana Stone, both deceased, established trusts in their wills conveying their property upon their deaths to Pacific Bank to be held for their children and the issue of their children. The Stones' children, Evelyn Orkney and Freeman Allard, are life income beneficiaries of the Stone trusts. Upon the death of either life income beneficiary, the trustee is to pay the income from the trust to the issue of the deceased beneficiary. When all the children of the deceased beneficiary reach the age of 21 years, the trusts direct the trustee to distribute the trust corpus equally among the issue of that beneficiary.

In 1978 the sole asset of the Stone trusts was a fee interest in a quarter block located on the northwest corner of Third Avenue and Columbia Street in downtown Seattle. The trust provisions of the wills gave Pacific Bank "full power to ... manage, improve, sell, lease, mortgage, pledge, encumber, and exchange the whole or any part of the assets of [the] trust estate" and required Pacific Bank to

exercise the judgment and care under the circumstances then prevailing, which prudent men exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital.

The Third and Columbia property was subject to a 99-year lease, entered into by the Stones in 1952 with Seattle-First National Bank (Seafirst Bank). The lease contained no rental escalation provision and the rental rate was to remain the same for the entire 99-year term of the lease. The right of first refusal to purchase the lessor's interest in the property was given to the lessee. The lease also contained several restrictive provisions. One paragraph required any repair, reconstruction, or replacement of buildings on the property by the lessee to be completed within 8 months from the date the original building was damaged or destroyed "from any cause whatsoever". Another paragraph provided that, upon termination of lease, the lessee had the option either to surrender possession of all improvements or to remove the improvements. The lease prohibited, without the lessor's consent, any encumbrance which would have priority over the lessor in case of the lessee's insolvency.

In June 1977 Seafirst Bank assigned its leasehold interest in the Third and Columbia property to the City Credit Union of Seattle (Credit Union). Eight months later, on February 14, 1978, Credit Union offered to purchase the property from Pacific Bank for $139,900. On April 25, 1978, Pacific Bank informed Credit Union it was interested in selling the property, but demanded at least $200,000. In early June 1978, Credit Union offered $200,000 for the Third and Columbia property. Pacific Bank accepted Credit Union's offer, and deeded the property to Credit Union on August 17, 1978. On September 26, 1978, Pacific Bank informed Freeman Allard and Evelyn Orkney of the sale to Credit Union.

On May 1, 1979, plaintiffs commenced the present action against Pacific Bank for breach of its fiduciary duties regarding management of the Stone trusts, against Credit Union and Seafirst Bank for participation in the alleged breach, and against Credit Union for conversion. Plaintiffs' complaint requested money damages from Pacific Bank, Credit Union, and Seafirst Bank. The complaint also requested the imposition of a constructive trust on the Third and Columbia property and the removal of Pacific Bank as trustee. On March 18, 1980, plaintiffs filed their demand for a trial by jury under Const. art. 1, § 21.

Based on its determination plaintiffs' cause of action was primarily equitable in nature, the trial court struck their demand for trial by jury. The trial court also granted motions by Credit Union and Seafirst Bank for a partial summary judgment dismissing them from the case. Plaintiffs did not appeal the summary judgments dismissing Credit Union and Seafirst Bank.

At trial, the primary dispute was over the degree of care owed by Pacific Bank to the Stone trusts and to the Stone trust beneficiaries. Plaintiffs attempted to call expert witnesses to testify Pacific Bank failed to comply with the ordinary standards of trust administration when it sold the Third and Columbia property. Plaintiffs' first expert witness, Edmond R. Davis, was former manager of the trust department legal division of Security First National Bank, now Security Pacific National Bank, in California. Plaintiffs presented an offer of proof Edmond Davis would testify Pacific Bank failed to comply with ordinary standards of trust practice in making its decision to sell the Third and Columbia property and in the steps it took to sell the property. Plaintiffs' other excluded expert witness, McLain Davis, was former manager of the trust department probate division of the National Bank of Commerce, now Rainier Bank. Plaintiffs' offers of proof regarding the testimony of McLain Davis indicated the witness would testify a bank trustee, acting in accordance with ordinary standards of trust practice, would not be excused from obtaining an appraisal by lack of funds in the trust account. Furthermore, according to plaintiffs, McLain Davis would have testified a trustee would not be acting in accordance with ordinary trust practices if the trustee dispensed with obtaining an outside appraisal or other prospective purchasers where its own internal appraisal indicated the sale was for an amount in excess of the property's fair market value.

At trial it was unquestioned that both witnesses were qualified as experts in trust administration. Rather, the trial court sustained defendant's objections to the testimony of plaintiffs' expert witnesses on the grounds the witnesses would testify as to legal opinions, inadmissible under ER 702, 704. The exclusion of plaintiffs' proffered expert witnesses left plaintiffs with no direct testimony regarding ordinary standards of trust administration.

At the culmination of the trial, the court entered judgment dismissing plaintiffs' action against Pacific Bank. It determined Pacific Bank acted in good faith and in conformance with its duties under the Stone trust instruments. The court concluded Pacific Bank neither had a duty to inform the trust beneficiaries prior to sale of the Third and Columbia property nor a duty to obtain an independent appraisal of the property or to place the property on the open market. Finally, the trial court awarded Pacific Bank $51,507.07 attorney fees and costs from the income and principal of the Stone trusts. From this judgment plaintiffs bring appeal.

I

At the outset, we consider plaintiffs' argument they were entitled to a jury trial under Const. art. 1, § 21. The Washington State Constitution, article 1, section 21 provides "[t]he right of trial by jury shall remain inviolate". This has been consistently interpreted as guaranteeing the right to trial by jury as it existed in the territory at the time of the adoption of the constitution. E.g., Brown v. Safeway Stores, Inc., 94 Wash.2d 359, 365, 617 P.2d 704 (1980). In a civil action, a right to a jury trial exists where the action is purely legal in nature. Brown, 94 Wash.2d at 365, 617 P.2d 704; Peters v. Dulien Steel Prods., Inc., 39 Wash.2d 889, 891, 239 P.2d 1055 (1952). Where the action is purely equitable in nature, however, there is no right to a trial by jury. Brown, 94 Wash.2d at 365, 617 P.2d 704. See Dexter Horton Bldg. Co. v. King Cy., 10 Wash.2d 186, 116 P.2d 507 (1941).

The overall nature of a civil action is determined by considering all the issues raised by all the pleadings. Brown, 94 Wash.2d at 365, 617 P.2d 704; Seattle v. Pacific States Lumber Co., 166 Wash. 517, 530, 7 P.2d 967 (1932). See generally Trau...