Deborah Dereede Living Trust dated December 18, 2013 v. Karp
| Decision Date | 10 April 2019 |
| Docket Number | Opinion No. 5639,Appellate Case No. 2016-001921 |
| Citation | 427 S.C. 336,831 S.E.2d 435 |
| Parties | In re: DEBORAH DEREEDE LIVING TRUST DATED DECEMBER 18, 2013, Hugh Dereede and Tyre Dealer Network Consultants, Inc., Respondents, v. Courtney Feeley KARP, Individually and as Trustee of the Deborah Dereede Living Trust dated December 18, 2013 and Michael Fehily, as a qualified beneficiary of the Deborah Dereede Living Trust dated December 18, 2013, Defendants, Of whom Courtney Feeley Karp, Individually and as Trustee of the Deborah Dereede Living Trust dated December 18, 2013, is the Appellant. |
| Court | South Carolina Court of Appeals |
Desa Ballard and Harvey M. Watson, III, both of Ballard & Watson, Attorneys at Law, of West Columbia; and Peter John Nosal and Thomas Carroll Jeter, III, both of Nosal & Jeter, LLP, of Fort Mill, all for Appellant.
John P. Gettys, Jr. and Daniel Joseph Ballou, both of Morton & Gettys, LLC, of Rock Hill, for Respondents.
After a bench trial, the trial court ruled that Courtney Feeley Karp breached her fiduciary duty as Trustee of a trust created by her late mother by not timely distributing certain trust proceeds to Hugh Dereede (Hugh), Karp's stepfather, and to Tyre Dealer Network Consultants, Inc. (Tyre), Hugh's company. The trial court also awarded Hugh attorney's fees and held Karp personally liable for the verdict. Karp appeals these rulings, which we now affirm.
Some eight months before her death, Deborah Dereede (Deborah), Karp's mother, executed a revocable trust. She named herself trustee and designated Karp as successor trustee. The only asset in the trust was a home located in Lake Wylie, South Carolina, which Deborah put on the market for sale a few months later. Several months after Deborah's death, Karp sold the house, netting $356,242.86.
This appeal turns on the following trust provision:
As soon as practicable following my death, my Trustee shall sell the house and lot located at 131 WHISPERING PINES DR., LAKE WYLIE, SC 29710. The sales proceeds shall be used first to pay off any mortgage against the property, and second to pay off that certain promissory note given by me to TYRE DEALER NETWORK CONSULTANTS, INC. Said promissory note, at the time of the execution of my Trust, is in the amount of $250,000.00, but in no event shall the amount due exceed one-half of the sales price of the property. After payoff of said mortgage and said note, my Trustee shall then distribute one-half of the remaining net sales proceeds to HUGH DEREEDE, outright and free of trust. The other one-half of the remaining net sales proceeds shall be distributed in accordance with the Articles that follow.
After the sale of the house closed, Hugh demanded immediate payment of his and Tyre's share of the proceeds. Karp, who was also the personal representative of Deborah's estate, believed she could not distribute the proceeds until she was certain of the net assets of the trust and the estate, and the time for creditor's claims had expired. Hugh would not be delayed, however, and filed this action in the probate court seeking a declaratory judgment for immediate payment. After procedural sparring, Karp removed the case to circuit court. She continued to refuse Hugh's distribution request but now also claimed that, by suing her, Hugh and Tyre had triggered the trust's no-contest clause thereby forfeiting their right to the proceeds. In the event of such a forfeiture, the disputed monies would go to Karp and her siblings as remainder beneficiaries.
Ten months into the litigation, Karp appointed, with Hugh's consent, Catherine H. Kennedy as trust protector as contemplated by the trust. Kennedy filed a report concluding Karp was justified in waiting on any creditor's claims to clear before making any trust distributions and that the issues of whether Karp exercised good faith in invoking the no contest clause and whether probable cause supported Hugh and Tyre's claims should be decided by the court.
Karp and Hugh testified at the bench trial. Karp called Kennedy as a witness, while Hugh presented S. Alan Medlin as his expert. The trial court ruled (1) Karp breached her fiduciary duty by not timely distributing the house sale proceeds to Tyre and Hugh; (2) Hugh had probable cause to bring this action, and therefore the no contest clause did not apply; (3) because Tyre was a creditor, the no contest clause was inapplicable to it; and (4) Tyre and Hugh were entitled to attorney's fees and costs from Karp.
Because a breach of fiduciary duty claim can be legal or equitable, see Verenes v. Alvanos , 387 S.C. 11, 17, 690 S.E.2d 771, 773 (2010) (), we look to the main purpose of the action to define our scope of review. Id . at 16, 690 S.E.2d at 773 . Here, the main purpose is to enforce an alleged unconditional duty to pay a beneficiary. Actions involving trusts are almost always equitable, but there is an exception that applies here: an action against a trustee under an alleged immediate and unconditional obligation to pay money to a beneficiary is a legal action. 4 Scott & Ascher on Trusts § 24.2.1 at 1660 (5th ed. 2007); Restatement (Second) of Trusts § 198(1) (Am. Law Inst. 1959) ; see also S.C. Code Ann. § 62-7-1001 cmt. (Supp. 2018) ( only traditional remedy at law for breach of trust was limited to suits to enforce obligations to pay money and deliver chattels, otherwise, remedies for breach of trust were "exclusively equitable"). We must affirm the verdict in a legal action tried by a judge alone if any evidence reasonably supports it. See Townes Assocs., Ltd. v. City of Greenville , 266 S.C. 81, 86, 221 S.E.2d 773, 775 (1976), abrogated on other grounds by In re Estate of Kay , 423 S.C. 476, 816 S.E.2d 542 (2018).
Although Verenes involved the right to a jury trial rather than standards of review, its holding rested on a conclusion that the main purpose of the damages action against the trustee there was equitable, as it sought the classic equitable remedies of restitution and disgorgement. 387 S.C. at 17, 690 S.E.2d at 773–74. Based on the complaint here, and the historical classification of suits seeking enforcement of a trustee's obligation to pay money as legal actions—as recognized in the comment to section 62-7-1001 quoted above—we hold that this is an action at law rather than equity. We acknowledge it is possible that after Verenes this action's main purpose could be classified as the equitable remedy of specific performance. If so, our scope of review would expand to de novo, and we may find the facts based on our view of the evidence. See S.C. Const. art. V, § 5 ; see also Doe v. Clark , 318 S.C. 274, 276, 457 S.E.2d 336, 337 (1995).
The South Carolina Trust Code describes the duties of trustees and mandates that a trustee "shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries ...." S.C. Code Ann. § 62-7-801 (Supp. 2018). The Code also imposes a duty of loyalty on the Trustee. S.C. Code Ann. § 62-7-802(a) (Supp. 2018) (). Where, as here, a trust has two or more beneficiaries, the duty of loyalty includes a duty to "act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries' respective interests." S.C. Code Ann. § 62-7-803 (Supp. 2018). The Code also incorporates the common law of trusts and principles of equity to the extent they supplement its provisions. S.C. Code Ann. § 62-7-106 (Supp. 2018).
A breach of trust is simply a "violation by a trustee of a duty the trustee owes to a beneficiary ...." S.C. Code Ann. § 62-7-1001(a) (Supp. 2018); see also Restatement (Second) of Trusts § 201 (Am. Law Inst. 1959) ; Restatement (Third) of Trusts § 93 (Am. Law Inst. 2012) ; 4 Scott & Ascher on Trusts, § 24.5. The trust instrument has been likened to a map on which the settlor has set the course the trustee must faithfully follow, and from which the trustee departs at his peril. Rodgers v. Herron , 226 S.C. 317, 330, 85 S.E.2d 104, 110 (1954) ; Womack v. Austin , 1 S.C. 421, 438 (1870) ; see Restatement (Third) of Trusts § 73, cmt. (c) (Am. Law Inst. 2007) .
As the trial court noted, Karp's duty to execute Deborah's intent expressed in Article 6, Section 4 in distributing the proceeds was absolute, not discretionary. See Cartee v. Lesley , 290 S.C. 333, 336, 350 S.E.2d 388, 389 (1986) ( ).
We agree with the trial court that the trust's directive that Karp sell the house "as soon as practicable" and distribute the proceeds to Tyre and Hugh did not permit Karp to wait until she could ascertain the liquidity of the estate and the extent of any creditors' claims. Such a delay is common and often required in the probate of a person's estate, but as Medlin testified, the unique trust provision here required expedited distribution to Tyre and Hugh. Medlin acknowledged Karp's position was understandable and not one of bad faith, for § 62-3-505(a)(3) makes revocable trust assets subject to probate claims if the probate estate is...
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...Planning (May 2016). [5] S.C. Code Ann. § 62-7-103(27). [6] S.C. Code Ann. § 62-7-818. [7] In Re: Deborah Dereede Living Trust v. Karp, 427 S.C. 336, 831 S.E.2d 435 (Ct. App. 2019). [8] Id. at 339, 831 S.E.2d at 437. [9] Id. [10] Id. [11] Id. at 340, S.E.2d at 437. [12] Id. at 347, 831 S.E.......