Bailey v. Delta Trust & Bank, 04-411.
| Decision Date | 18 November 2004 |
| Docket Number | No. 04-411.,04-411. |
| Citation | 198 S.W.3d 506 |
| Parties | Frank A. BAILEY, Jr. and Christy Anne B. Chilcott, Appellants, v. DELTA TRUST & BANK, Successor Trustee to Union National Bank n/k/a Bank of America, N.A., as Trustee of the Frank A. Bailey Irrevocable Trust; and Doris H. Bailey, Appellees. |
| Court | Arkansas Supreme Court |
John C. Lessel, for appellants/cross appellees Frank A. Bailey, Jr. And Christy Anne B. Chilcott.
Bailey, Trimble, Lowe, Sellars & Thomas, by: Rick Sellars, for appellee/cross appellant Doris H. Bailey.
This appeal involves the interpretation of a trust agreement. This court assumed jurisdiction of the appeal because it also requires us to consider the proper manner for determining the amount of a supersedeas bond pursuant to Ark. R. Civ. P. 62(d). Our jurisdiction is therefore proper under Ark. Sup.Ct. R. 1-2(b)(6).
On August 9, 1989, Frank A. Bailey, Sr. ("Bailey") executed a revocable trust ("the Bailey Trust"), which became irrevocable on the date of his death, December 12, 2001. The Bank of America (formerly Union National Bank) was named as trustee ("the Bank" or "the Trustee"). Bailey had married Doris Bailey (known as "Dottie") in 1978. At the time of his death, Bailey was survived by Dottie and by two adult children from a prior marriage, Frank A. Bailey, Jr. ("Frank") and Christy Anne B. Chilcott ("Christy"). Dottie also had a son, Robert C. Rogers, from a former marriage. Dottie was the sole lifetime beneficiary under the Bailey Trust. Frank and Christy were named as remainder beneficiaries, who would receive all remaining trust assets after the termination of the Trust upon Dottie's death. Paragraph 3, the dispositive provisions of the Bailey Trust, which are at issue in this appeal, provided in relevant part as follows:
(b) In the event SETTLOR is survived by DORIS H. BAILEY, then for her lifetime, the TRUSTEE shall pay to DORIS H. BAILEY or deposit in her personal checking account, or pay for her use and benefit such sums from the net income and/or principal of the Trust as the TRUSTEE shall deem proper or necessary to provide for her care, comfort, support, maintenance, and medical care.
(c) At the request of SETTLOR, or at the request of DORIS H. BAILEY after SETTLOR'S death, or upon the declaration of incompetency of SETTLOR, or upon the declaration of incompetency of DORIS H. BAILEY after SETTLOR'S death, the TRUSTEE shall pay on behalf of the SETTLOR and/or DORIS H. BAILEY all valid debts or obligations incurred by them which are brought to the attention of the TRUSTEE by its receipt of a statement for services rendered to or goods purchased by or for the SETTLOR and/or DORIS H. BAILEY.
After Bailey's death, Dottie demanded reimbursement from the Bailey Trust for one hundred percent of her expenses from the date of Bailey's death, on December 12, 2001, through August 31, 2003. In September of 2003, the Bank, as Trustee, filed a petition for instruction with the Pulaski County Circuit Court. In its petition, the Bank noted that disputes had arisen concerning Bailey's intent with respect to the terms of the Trust. Particularly, the Bank stated, Frank and Christy argued that the only "valid debts and obligations" that the Trust should pay from Trust assets were those that the Trustee deemed proper or necessary to provide for Dottie's care, comfort, support, maintenance, and medical care; Dottie, on the other hand, asserted that all debts or obligations she incurred for services rendered or goods purchased should be paid from Trust assets upon presentment of all legitimate bills for payment. Therefore, the Bank sought a clarification of the Trust language and terms regarding the beneficiaries' rights and the Trustee's duties.
Frank and Christy filed a response in which they agreed with the Bank that the Trust was ambiguous. In addition, Frank and Christy argued that the dispositive provisions should be read "as a whole," so that the "valid debts or obligations" for which the Trust are obligated under paragraph 3(c) are those which meet the standard of paragraph 3(b), as being "proper or necessary to provide for Doris H. Bailey's care, comfort, support, maintenance, and medical care." Dottie also filed a response and counterclaim to the Bank's petition for instruction, denying that the terms of the Trust were unclear and asserting that she had the right to invade the corpus of the Trust.
The trial court held an initial hearing on the Bank's petition on January 8, 2003. At that time, the parties and the court agreed that the first issue to be decided was whether the terms of the Trust were ambiguous or unambiguous. After that hearing, the trial court sent out a letter opinion, subsequently incorporated into an order, in which the court found that the Trust was unambiguous. In addition, the court interpreted the relevant terms of the Trust to mean that the language of subsection 3(b), directing the Trustee to pay such sums from the income and/or principal as "the Trustee shall deem proper or necessary to provide for her care, comfort, support, maintenance, and medical care," imposed upon the Trustee an affirmative, mandatory obligation to make those payments. The court also concluded that the language gave the Trustee the authority to utilize its discretion in determining what sums are "proper and necessary" for Dottie's "care, comfort, support, maintenance, and medical care." The court determined that this affirmative obligation of the Trustee under subsection 3(b) existed even if the Trustee never receives a "receipt of a statement for services rendered to or goods purchased by" Dottie as referenced in subsection 3(c). However, the court wrote, it might be that the Trustee, upon the receipt and payment of such statements, in its discretion could determine that such payments satisfy all or a part of the monies necessary to fulfill its obligation pursuant to 3(b).
With respect to subsection 3(c), the court found that the terms of that paragraph imposed "a separate affirmative duty" on the Trustee to "pay on behalf of Doris H. Bailey all valid debts or obligations incurred by Doris H. Bailey which are brought to the attention of the Trustee by its receipt of a statement for services rendered to or goods purchased by Doris H. Bailey."
After receiving the letter opinion from the court, the Bank and Frank and Christy asked the court to reconsider its opinion and accept briefs from the parties concerning how the Trust ought to be interpreted. The court denied those parties' requests, informing the parties that they could file motions for reconsideration once an order had been entered. On January 27, 2003, the Bank wrote to the court, again asking the court to reconsider its letter opinion, and seeking further instruction as to how the Trust terms should be interpreted. The trial court, however, entered an "Order of Instruction" on January 31, 2003, reincorporating its rulings from the earlier letter opinion, as set out above. The court also directed the Bank to ask for additional instruction in the form of an Amended Petition for Instruction, in order to give the other parties a chance to respond.
The Bank and Frank and Christy filed timely motions to amend the findings, for new trial, or for reconsideration. Both parties alleged that the court had erred by rendering judgment on the interpretation of the Trust terms without giving the parties a full opportunity to be heard and present evidence on the issues. They further argued that the court erred by concluding that the Trust was unambiguous, and that, even assuming the Trust was unambiguous, the court had nonetheless erred in its construction of the Trust's terms. In addition, the Bank argued that the court's interpretation effectively made the Bank a guardian of Dottie's person, in violation of Arkansas law.
Dottie filed a response on February 27, 2003, in which she noted that, contemporaneously with the trial court's order, she had presented to the Bank bills she had paid and for which she sought reimbursement. Dottie further claimed that the Bank had not yet paid her bills, and that the court should therefore hold the Bank in contempt.
The trial court denied the Bank's and Frank and Christy's motions for reconsideration by order entered March 5, 2003. On March 25, 2003, the Bank filed its second amended petition for instruction, petition to withdraw as Trustee, and petition to modify Trust.
After seeing Dottie's requests for reimbursement, Frank and Christy answered the Bank's petition for instruction and, in the same pleading, filed a cross-claim against Dottie for waste, bad faith, and breach of duty. In support of their waste claim, Frank and Christy noted that, as of December 31, 2002, the total value of the assets of the Trust was $695,537.85, of which $224,600 was comprised of the value of the real estate owned by the Trust and in which Dottie was living. In addition, Frank and Christy alleged that Dottie's requests for reimbursement amounted to $130,450.03 and $69,766.78; assuming that the Trust paid those amounts, the Trust would be depleted by $200,216.81, or over 42.5% of the Trust's assets. At that rate, they claimed, the assets of the Trust would be depleted within three years.
After the trial court denied the Bank's motion to withdraw as Trustee and Dottie's motion to dismiss Frank and Christy's cross-claims, the case proceeded to trial on September 23, 2003. On September 30, 2003, the trial court entered an order denying the motions for reconsideration filed by the Bank and by Frank and Christy. In addition, the court reaffirmed its conclusion that the Bank, as Trustee, had an affirmative obligation to exercise its discretion to determine what sums it deemed necessary for Dottie's "care, comfort, support,...
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