Boss, Matter of

• Decision Date: 06 August 1981
• Citation: 487 N.W.2d 256
• Parties: In the Matter of the Trust Created by Harlan D. BOSS by Agreement dated
• Court: Minnesota Court of Appeals

Page 256

487 N.W.2d 256

In the Matter of the Trust Created by Harlan D. BOSS by Agreement dated August 6, 1981.

Nos. C3-92-94, C3-91-2269 and C9-91-2468.

Court of Appeals of Minnesota.

June 23, 1992.

Review Denied Aug. 11, 1992.

Syllabus by the Court

1. Where a trustee commits a breach of trust, a trial court has jurisdiction under Minn.Stat. Sec. 501B.16 (1990) to remove the trustee.

2. Evidence that an attorney, acting as trustee, concealed the existence and effect of an amendment making a trust irrevocable and that the attorney drafted the amendment, from which he stood to gain as a potential beneficiary, supports a finding of fraud.

3. Where a trustee has committed a breach of trust, a court may reduce the trustee's compensation and order the trustee to repay excessive and unreasonable fees charged to the trust.

4. Expert witness fees incurred for preparation of the witness outside the courtroom may be allowed where the preparation is necessary for testimony.

Joe A. Walters, Anne Meredith-Will, O'Connor & Hannan, Minneapolis, for appellant.

Jeffrey F. Shaw, Cole Oehler, Briggs and Morgan, St. Paul, for respondent.

Considered and decided by NORTON, P.J., and LANSING and DAVIES, JJ.

OPINION

DAVIES, Judge.

Appellant John P. Vitko challenges (1) the trial court's jurisdiction over a trust; (2) the admission into evidence of a disciplinary action against Vitko; (3) the finding of fraud by Vitko; (4) the finding that fees Vitko charged to the trust were excessive and unreasonable; (5) the trial court's denial of Vitko's attorney fees; and (6) the trial court's award of fees to an expert witness for preparation outside the courtroom before testimony. We affirm.

FACTS

Harlan Boss, an interior designer, owned and operated Boss Interiors with his lifetime partner, Gene Dawley, who was also Boss's attorney-in-fact. After Dawley's death in 1980, Boss asked John P. Vitko, who had been his personal attorney since 1968, to be his attorney-in-fact.

Between 1970 and 1980, Vitko prepared two wills and a codicil for Boss. Because Boss feared that friends and relatives might pressure him into making gifts or including them in his will, Vitko recommended that Boss place all of his assets in a trust, naming Boss as lifetime beneficiary, and providing a charitable remainder. On August 6, 1981, when Boss was 73 years old, unmarried, and without children, Boss executed just such a revocable trust agreement, prepared by Vitko. The agreement named Vitko as trustee and Vitko's wife as the successor trustee. All of Boss's assets were transferred to the trust, including his 33-room house, tangible personal property estimated at $750,000, 20 percent of the stock of a manufacturing business owned by the Boss family, and his own interior design business.

In the fall of 1990, Boss confided to a cousin and niece that he had lost confidence in Vitko. Boss was unable to tell them what the disposition of his property was, however, and he had no copies of his trust agreement or will. In November 1990, Boss obtained new counsel and revoked his living trust and Vitko's power of attorney.

At a November 10, 1990, meeting, Vitko was told of the revocation of the 1981 trust agreement but, instead of accepting the revocation, Vitko presented Boss with a document entitled "First Amendment to Trust Agreement of Harlan D. Boss" dated May 27, 1982, which Vitko had drafted and which purported to make Boss's trust irrevocable. Section 6.01 of the trust originally provided:

6.01 Appointment of Trustees. While I am living and legally competent, I reserve the power to appoint additional trustees at any time or to remove any trustee then acting hereunder, in my sole discretion. * * * If John P. Vitko shall fail to qualify or cease to serve, Mary Ann Vitko shall become a cotrustee hereunder, replacing him.

In addition to making the trust irrevocable, the amendment deleted the first sentence of paragraph 6.01 and substituted the following:

While I am living and legally competent, my Trustee may appoint additional trustees at any time or remove any trustee then acting hereunder, in his sole discretion.

Vitko admitted that he never suggested that Boss seek outside legal counsel regarding amendment of the trust, nor did he recommend a less drastic alternative to an irrevocable trust.

In supervising preparation of federal and state income tax returns, Vitko did not include fiduciary returns, which the Internal Revenue Code requires for an irrevocable trust, nor did he tell accountants that the trust was now irrevocable. No gift tax return was filed in 1982, as required if the trust was irrevocable, and Vitko never provided federal and state auditors with documentation that the trust had been made irrevocable. Further, when taking out a second mortgage on Boss's home in 1988, Vitko filed the revocable trust agreement with the county recorder's office, but did not include the amendment making it irrevocable.

From 1981 to 1985, prior to his termination from the Dorsey & Whitney law firm in March of 1985, Vitko charged the During his years as trustee, Vitko never provided Boss with a formal written accounting. Rather, he would make informal oral accountings to Boss, often over lunch and cocktails at a restaurant. At these weekly meetings, Vitko would have Boss sign approvals for Vitko's fee statements, agency authorizations, oral accountings, and other items.

Harlan Boss Trust fees which averaged $30,000 per year. Since April of 1985, Vitko, now a solo practitioner, has charged the Harlan Boss Trust an average of $90,000 in fees per year. Since its inception, Vitko has charged the trust $541,000 in fees, the trust's single largest expense.

In January 1991, Boss petitioned the court under Minn.Stat. Sec. 501B.16 (1990) for an accounting, construction of the trust agreement, and a declaration that the amendment to the trust was void. After an initial hearing on February 14, 1991, the court assumed jurisdiction and directed Vitko to file a verified accounting.

After a hearing on the accountings, the court ruled that the irrevocable amendment was void ab initio and that Boss's subsequent revocation of the trust was effective, based on a finding that Vitko committed fraud by concealing from Boss the existence and effect of the irrevocable amendment. The trial court also ordered Vitko to pay any attorney fees incurred in defending the trust, to repay $360,000 in excessive and unreasonable trustee fees, and granted respondent's motion for $8,546 in expert witness fees to be paid by Vitko as costs and disbursements. This appeal followed.

ISSUES

I. Did the trial court err in finding that appellant committed fraud by concealing the existence and effect of the first amendment to the trust?

II. Did the trial court have jurisdiction under Minn.Stat. Sec. 501B.16 (1990) to declare void the first amendment, making the living trust irrevocable, and to validate revocation of the trust?

III. Did the trial court abuse its discretion in admitting into evidence a prior disciplinary action against appellant?

IV. Did the trial court abuse its discretion in finding excessive the fees appellant charged to the trust and in ordering appellant to reimburse $360,000?

V. Did the trial court abuse its discretion by refusing to allow appellant to pay out of the trust the attorney fees he incurred in defending the trust?

VI. Did the trial court abuse its discretion in awarding expert witness fees to respondent in the amount of $8,546?

ANALYSIS

I.

Vitko alleges that there was no evidence to support the trial court's finding of fraud. In reviewing the findings of the trial court, where the action was tried without a jury, this court is bound by the standards set forth in Minn.R.Civ.P. 52.01:

Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses.

Nondisclosure may constitute fraud where there is a duty, either legal or equitable, to disclose a certain fact. Richfield Bank and Trust Co. v. Sjogren, 309 Minn. 362, 365, 244 N.W.2d 648, 650 (1976). In Klein v. First Edina Nat'l Bank, 293 Minn. 418, 196 N.W.2d 619 (1972), the court summarized circumstances where the duty to disclose material facts to another may arise; one is relevant to this case:

(c) One who stands in a confidential or fiduciary relation to the other party to a transaction must disclose material facts. See e.g., Wells-Dickey Trust Co. v. Lien, 164 Minn. 307, 204 N.W. 950 (1925).

Id. at 421, 196 N.W.2d at 622.

As attorney, trustee, and friend of Boss, Vitko stood in a fiduciary and confidential capacity of the highest trust and confidence. See Colstad v. Levine, 243 Minn. 279, 286-87, 67 N.W.2d 648, 654 the burden of proving that he has been absolutely frank and fair with his client and has taken no advantage of the [confidential relationship].

(1954). Where an attorney engages in a transaction with a client in which his private interest conflicts with his client's interest, the attorney has

Id. at 287, 67 N.W.2d at 654; see also In re Lee's Estate, 214 Minn. 448, 457-59, 9 N.W.2d 245, 250 (1943) (places similar burden on a trustee whose interest conflicts with the trust).

Vitko contends that there is no evidence to support a finding that he falsely represented a past or existing material fact because Boss could not remember any of the transactions and no other witness testified to any representations by Vitko.

While this is true, the circumstantial evidence that Vitko concealed the existence and effect of the irrevocable amendment weighs heavily against respondent's self-serving testimony that Boss was aware of the irrevocable amendment and its effect. See, e.g., Picha v. Central Metro. Bank, 161 Minn. 211, 216-17, 201 N.W. 315, 317 (1924).

Fraud, like any other fact, is not always susceptible of direct proof and often can be...