Brock v. Blackwood

• Citation: 143 S.W.3d 47
• Decision Date: 15 June 2004
• Docket Number: No. WD 62828.,WD 62828.
• Parties: John A. BROCK, et al., Respondents, v. George D. BLACKWOOD, Jr., Appellant.
• Court: Court of Appeal of Missouri (US)

143 S.W.3d 47

John A. BROCK, et al., Respondents, v. George D. BLACKWOOD, Jr., Appellant.

No. WD 62828.

Missouri Court of Appeals, Western District.

June 15, 2004.

Motion for Rehearing and/or Transfer to Supreme Court Denied July 27, 2004.

Application for Transfer Denied September 28, 2004.

Appeal from the Circuit Court, Probate Division, Jackson County, John A. Borron, Jr., J Heywood H. Davis, Kansas City, MO, for Respondents.

John C. Dods, Roger C. Geary, Todd W. Ruskamp, Christopher V. Cotton, and Bernard F. Weinand, Kansas City, MO, for Appellant.

Before EDWIN H. SMITH, P.J., and HOLLIGER and NEWTON, JJ.

EDWIN H. SMITH, Presiding Judge.

On April 19, 2000, John A. Brock and Donnie V. Brock, the respondents, filed, in the Probate Division of the Circuit Court of Jackson County, a one-count petition seeking to terminate, pursuant to § 456.590.2,¹ eleven inter vivos irrevocable "Giftrusts," established with American Century Mutual Funds, Inc. (American Century),² for the benefit of their eleven grandchildren. In their petition, they alleged that the Giftrusts were created by investing funds from the inter vivos irrevocable trusts that they had established in Oklahoma for the benefit of their grandchildren, of which they were co-trustees (Brock Family Trusts). On November 30, 2001, the respondents filed an amended three-count petition, in Count I of which they continued to seek the termination of the Giftrusts, pursuant to § 456.590.2. In Counts II and III, they asserted claims for damages against the trustee of the Giftrusts, George Blackwood, the appellant, for breach of a fiduciary duty and negligence, both of which were based on his alleged failure to timely terminate the Giftrusts and remit the proceeds to the respondents, as co-trustees of the Brock Family Trusts. The appellant asserted several counterclaims against the respondents. The appellant and the respondents both sought summary judgment on the respondents' amended petition. In addition, the appellant sought summary judgment on his counterclaims. The probate court granted summary judgment for the respondents on all three counts of their amended petition, while denying the appellant's motion as to the respondent's amended petition and the appellant's counterclaims.

The appellant raises three points on appeal. In Point I, he claims that the probate court erred in granting summary judgment to the respondents on Count I of their amended petition, finding that the Giftrusts were a "nullity from the beginning," because such a cause of action was not pled by the respondents in their petition. In Point II, he claims that the probate court erred in entering summary judgment, on April 11, 2003, for the respondents, as the co-trustees of the Brock Family Trusts, on Counts II and III of their amended petition, awarding them damages for breach of a fiduciary duty and negligence by the appellant, based upon the court's purported "judgment" of January 3, 2001, finding that the Giftrusts were a "nullity from the beginning," because, in actuality, it was not a judgment finally determining that issue. In Point III, he claims that the probate court erred in denying his various counterclaims because the court's finding in support thereof, that the Giftrusts were a "nullity" from the beginning, was not supported by the summary judgment record.

Dismissed in part, and reversed and remanded in part.

Facts

Between 1986 and 1995, the respondents established the Brock Family Trusts, one for each of their eleven grandchildren. The respondents were named as the co-trustees of those trusts. At the time, the respondents were residents of Oklahoma, and each of the trusts contained a provision stating that the trust was to be construed and administered in accordance with Oklahoma law.

Between 1993 and 1995, Mr. Brock created the Giftrusts by investing in a mutual-fund trust account with American Century. In creating the Giftrusts for his grandchildren, Mr. Brock signed an "Adoption Agreement" for each trust, agreeing to the terms of the Giftrust. Each agreement provided for the naming of a primary and alternate beneficiary, and included language that the grantor understood that "this Giftrust is irrevocable and I cannot get my money back." The total amount of money invested in the eleven Giftrusts was $612,604.39. Pursuant to the terms of the Giftrusts, a trustee for the trusts was to be selected by American Century. The appellant was selected as the trustee for all eleven Giftrusts.

By 2001, the aggregate value of the Giftrusts had grown to $1.8 million. However, beginning in 1998, the performance of the Giftrusts dropped sharply compared to previous years. As a result, on April 19, 2000, the respondents filed a one-count petition in the Circuit Court of Jackson County, Probate Division, to terminate the Giftrusts, pursuant to § 456.590.2, which authorizes early termination of a trust with the consent of the adult beneficiaries. The petition alleged that, in recent years, the Giftrusts were yielding a poor investment return, and, as a result, requested the probate court to

enter its order (a) terminating the Giftrusts herein named and (b) directing that the remaining assets of each Giftrust, both principal and accrued and undistributed income, be transferred to the Trustees of the corresponding Irrevocable Trusts [i.e., the Brock Family Trusts] from which the Giftrust assets were originally transferred, to be held and administered in accordance with the Deed of Trust for the Irrevocable Trust for each beneficiary."

On August 22, 2000, the appellant filed an answer to the petition, along with a motion asking the probate court to add, as parties, any unknown and unborn contingent remainder beneficiaries of the Giftrusts, and to appoint an independent guardian ad litem to represent those additional parties, as well as the existing minor beneficiaries.

On January 3, 2001, the probate court denied Blackwood's motion to add parties and appoint a guardian ad litem. However, in its order, the probate court went beyond the issue raised in Blackwood's motion, finding that "[t]he attempt by John A. Brock, as an individual trustee, to create the eleven giftrusts involved herein is a nullity." The court's determination that the Giftrusts were a nullity was based upon its finding that Mr. Brock had acted without Mrs. Brock in creating the Giftrusts, using funds from the Brock Family Trusts. The trial court concluded that this was improper, because the respondents were co-trustees of the Brock Family Trusts, the purported grantors of the Giftrusts, and thus, both Mr. Brock and Mrs. Brock had to have acted in creating the Giftrusts.

On February 7, 2001, at a time when the aggregate value of the Giftrusts was approximately $1.2 million, the respondents sent the appellant a letter requesting that, in light of the trial court's January 3, 2001, "judgment," declaring the Giftrusts to be a nullity, the appellant "immediately divest all of the Brock accounts of their interests in American Century Giftrusts shares and wire the proceeds to the respective trustees of the trust from which the original transfers were made."

On March 30, 2001, the appellant filed a "Motion for Supplemental Judgment." In his motion, the appellant, in recognition of the probate court's determination of January 3, 2001, that the Giftrusts were a nullity from the beginning, sought an "order and judgment" of the court: (1) declaring that he was "an innocent transferee" of the funds invested in the Giftrusts; (2) authorizing his being credited for administrative and investment expenses, and income taxes paid; (3) allowing him attorney's fees; and, (4) directing him as to whom he was to pay the proceeds of the Giftrusts, once liquidated.

Between March 20, 2001, and April 12, 2001, the appellant, without court order liquidated all the shares of the eleven Giftrusts. In a letter dated May 4, 2001, the appellant's counsel informed the respondents' counsel that the proceeds from the sale, which totaled $875,603.12, had been placed in eleven American Century money market accounts. This was apparently done to remove the funds from the volatility of the market while the appellant awaited a ruling on his pending motion asking the probate court to issue an order indicating to whom he was to pay the proceeds from the liquidation of the Giftrusts. Out of this amount, the appellant paid $64,675.74 in federal taxes, and $19,438.38 in state taxes, leaving a total of $801,292.12 in proceeds from the liquidation of the Giftrusts.

On May 18, 2001, the probate court entered an order overruling the appellant's motion for a "supplemental judgment." In doing so, the court stated that the respondents, in responding to the appellant's motion:

assume[d] that the court [had] ruled that no giftrusts were created and that that ruling was a final disposition of the question of the existence of the trusts. [Respondents] are incorrect in that assumption. The only issue before the court was ruled upon January 3, 2001 was whether or not unborn and unascertained parties should be made parties to the action. The judgment of January 3, 2001 `invited' [respondents] to file a motion for summary judgment to declare that no trusts were established. [Respondents] have not filed such a motion.

On July 16, 2001, upon stipulation of the parties, the probate court entered an order directing the respondents to pay the appellant $5,000 in attorney's fees and directing the appellant, upon receipt of said attorney's fees, to remit to the respondents "the sum of $770,000 out of at least $801,292.1 accessible to [the appellant] from the sale of the American Century Giftrusts involved herein on March 20 and April 12, 2001." The order further provided:

3. That the remainder of such sale proceeds and the money market interest being earned thereon be held subject to the further order [sic] the Court; and

4. That [respondents] have until August 27, 2001...