August v. U.S. Bancorp

• Decision Date: 07 August 2008
• Docket Number: No. 26003-8-III.,26003-8-III.
• Citation: 146 Wn. App. 328,190 P.3d 86
• Parties: Nick J. AUGUST, beneficiary and remainderman of Norma L. August Irrevocable Living Trust, Joseph M. August Family Trust, Joseph M. August Disclaimer Trust, Estate of Norma L. August, and Estate of Joseph M. August, Appellant, v. U.S. BANCORP, a Delaware corporation, personal representative of the Estates of Joseph M. August and Norma L. August, and its wholly-owned subsidiary, U.S. Bank National Association, trustee of the Norma L. August Irrevocable Living Trust, Joseph M. August Family Trust, and Joseph M. August Disclaimer Trust, and its wholly-owned subsidiary, U.S. Bancorp Asset Management, Inc., a Delaware corporation, Respondents.
• Court: Washington Court of Appeals

190 P.3d 86

146 Wn. App. 328

Nick J. AUGUST, beneficiary and remainderman of Norma L. August Irrevocable Living Trust, Joseph M. August Family Trust, Joseph M. August Disclaimer Trust, Estate of Norma L. August, and Estate of Joseph M. August, Appellant, v. U.S. BANCORP, a Delaware corporation, personal representative of the Estates of Joseph M. August and Norma L. August, and its wholly-owned subsidiary, U.S. Bank National Association, trustee of the Norma L. August Irrevocable Living Trust, Joseph M. August Family Trust, and Joseph M. August Disclaimer Trust, and its wholly-owned subsidiary, U.S. Bancorp Asset Management, Inc., a Delaware corporation, Respondents.

No. 26003-8-III.

Court of Appeals of Washington, Division 3.

August 7, 2008.

Lloyd Allen Herman, Attorney at Law, Spokane, Christopher James Herman, Lloyd A. Herman & Associates, Spokane Valley, WA, for Appellant.

David Laurence Broom, Paine Hamblen LLP, Spokane, WA, for Respondents.

KULIK, A.C.J.

¶ 1 U.S. Bancorp, U.S. Bank National Association, and U.S. Bancorp Asset Management, Inc. (Bank) served as the trustee of the Joseph M. August Family Trust, the Joseph M. August Disclaimer Trust, and the Norma L. August Irrevocable Living Trust. The Bank was also the personal representative for Joseph and Norma August's estates. In 2002, the Augusts' son, Nick August, filed a petition challenging the personal representative's fees and a declaration explaining the basis for his petition. The court granted the Bank's fees. In 2004, Nick¹ discovered three boxes of his parents' financial papers. He then filed this action against the Bank alleging breach of fiduciary duty.

¶ 2 The trial court granted summary judgment in favor of the Bank based on the statute of limitations. On appeal, Nick contends his action is not time-barred because he discovered the elements of his action against the Bank in 2004. He also asserts that he was unable to discover the elements of his claim because of the Bank's fraudulent concealment. Because there are material issues of fact concerning whether and when Nick knew of the elements of his cause of action against the Bank, we reverse the summary judgment and the denial of the motion for reconsideration. We also reverse the trial court's denial of Nick's request to amend his complaint to include fraudulent concealment.

FACTS

¶ 3 Nick's father, Joseph August, died on November 23, 1996. Joseph August's will created two testamentary trusts, known as the Joseph M. August Family Trust (Joseph Trust) and the Joseph M. August Disclaimer Trust (Disclaimer Trust). Two years later, the Bank was named as the successor trustee of both trusts. At the same time, Nick and his sister, Joanne Halvorson, created the Norma L. August Irrevocable Living Trust (Norma Trust). The Bank was also the trustee of the Norma Trust.

¶ 4 In 2000, the Joseph August estate initiated a lawsuit against Ms. Halvorson. The Bank was substituted as plaintiff after it was appointed as personal representative. The court dismissed the lawsuit on the stipulation of the Bank and Ms. Halvorson.

¶ 5 Norma August died on October 6, 2002. The Bank acted as personal representative of the estate of Norma August. Nick is a remainderman of the Joseph Trust and the Norma Trust. He is a beneficiary of the Disclaimer Trust and the estates of both Joseph and Norma August.

¶ 6 The Bank filed a motion to obtain court approval for payment of fees and to discharge itself as the personal representative of the Joseph August estate. The Bank also filed a declaration of completion of the estate. Nick filed a petition to require a hearing on the reasonableness of fees and to extend the date to grant a discharge of the personal representative. He also filed his declaration.

¶ 7 Nick's declaration of September 11, 2002, reads, in part:

5. This Paragraph was inserted in said Trust because I believe that approximately $500,000.00 of community funds of the above named decedent still remains unaccounted for. It is also my belief that U.S. Bank has never properly completed the examination called for under said paragraph nor has the bank provided me or the then Estate's attorney James J. Workland, with Bank records, brokerage statements, or any documents or records explaining where community funds, which should be property of the Estate, have gone. Unless Subpoenas and Requests for Production arising out of these proceedings are issued to various banks and brokerage houses, the disposition of these funds will never be known.

6. The Bank continued a suit against my sister, Joanne Halvorson and it is believed that the Bank negligently conducted its investigation into the facts and circumstances leading up to said lawsuit and improperly entered into a Joint Stipulation with my Sister, Joanne Halverson [sic], dismissing the suit.

7. I also believe that the Bank mismanaged the investment portfolios turned over to the Bank to manage. I believe that the Bank was negligent in converting equities and bonds into mutual funds owned and managed by the Bank. I am advised and believe that the Bank lost approximately $400,000.00 in investment value for my Mother's Trust during the year 2001.

8. I also am under the belief that the Bank which charges a fee based on the value of assets managed, changed [sic] a fee of approximately $15,000.00 for managing a rental property. The same rental property at the time it was delivered to the Bank in trust was subject to an option to purchase. When the transaction closed, an additional fee of 1% of the selling price or $15,000.00 was charged the Trust by the Bank to deposit funds into the Trust. The Bank did not negotiate the sale of the property as the option was self executing. Therefore I believe the Bank received a double payment.

. . . .

¶ 10. I do not have sufficient funds to proceed with litigation unless the Bank advances me funds as a distributee or under a disclaimer trust created under the decedent's last Will.

Clerk's Papers (CP) at 550-51 (emphasis added).

¶ 8 Nick believed that the Bank had negligently conducted its investigation into the facts leading up to the lawsuit filed against his sister, and that the Bank had improperly entered into a stipulation dismissing her suit. Hannelore Wright, a Bank representative, submitted a declaration stating that $400,000 had been transferred to Joanne Halvorson and her family. According to Ms. Wright, a thorough investigation was conducted, and the decision was made to voluntarily dismiss the lawsuit against Ms. Halvorson. Ms. Wright stated that the losses in the trusts were due to the stock market. The court approved the Bank's motion for discharge as personal representative and its fees.

¶ 9 On September 25, 2002, Nick requested a distribution of $10,000 from the Disclaimer Trust so that he could commence litigation against the Bank. The Bank denied the request. In June 2003, Nick signed releases in favor of the Bank in connection with the distribution on the Joseph Trust and the Disclaimer Trust.

¶ 10 After Norma August's death in 2002, Nick hired Elaine Myers to help him with the accounting of the estate. Ms. Myers told Nick that when she was working for the accounting firm of LeMaster & Daniels, she boxed up his parents' financial records and placed them in storage. Ms. Myers also stated that the Bank knew about these records because the attorney who represented the Norma Trust had called and asked about them.

¶ 11 Nick obtained this box in December 2004. In the box, Nick found documents showing that his sister had borrowed $60,000 from his parents that she had not repaid. In late 2004, Nick also found a box of checks and check stubs in his mother's former home. He discovered that $20,000 had been paid to Ms. Halvorson's husband and $30,000 to her daughter. In 1995, $80,000 was paid to Ms. Halvorson and her family as gifts.

¶ 12 In 2004, Nick also obtained a third box from the building formerly occupied by Joey August Distributors, Inc. This box contained brokerage statements from Merrill Lynch regarding the purchase of silver, gold, and platinum coins that had been purchased in 1983 for the price of $69,754.44. However, no gold coins or other investments were found in the safety deposit boxes.

¶ 13 After these discoveries, Nick asked Greer G. Bacon and James H. Garbrick, who had financial backgrounds, to examine the papers. They told Nick the Bank's handling of his mother's assets was improper. Mr. Garbrick states in his declaration that the Bank was grossly negligent in its allocation of Norma August's assets. Mr. Bacon found many other deficiencies, including a failure by the Bank to perform reviews which are the "foundation of the prudent investment process." CP at 726.

¶ 14 On July 2, 2004, the Bank filed a petition for approval of final report and accounting and decree of distribution of the Norma L. August estate. Nick filed an objection, contesting only the accounting and the allocations to the beneficiaries. He also filed a declaration.

¶ 15 In his declaration, Nick complained that the accounting did not provide any information with regard to the Norma Trust before the death of Norma August on October 6, 2002. He also stated that the accounting failed to explain the $1 million drop in value from the time the Norma Trust was set up until the distribution of the estate.

¶ 16 The court found that "[t]hroughout the time it served as Trustee of the Trust Estate, U.S. BANK prepared and beneficiaries received monthly financial statements in the ordinary course of business." CP at 521. The court discharged the Bank as personal representative.

¶ 17 2005 Complaint. Nick commenced this lawsuit on December 9, 2005, alleging that the Bank had failed to discharge its fiduciary duties to him by abusing its discretion under the trusts, and carelessly and negligently handling trust assets.

¶ 18 The complaint alleges that the Bank: (1) failed to perform the examinations required under paragraph V...