Estate of Draper v. Bank of America, N.A.

• Decision Date: 27 July 2007
• Docket Number: No. 96,060.,96,060.
• Citation: 164 P.3d 827
• Parties: ESTATE of Ethel F. DRAPER, deceased, Appellee, v. BANK OF AMERICA, N.A., as Trustee of the Ethel F. Draper Irrevocable Voluntary Trust Agreement Dated April 8, 1982, Appellee/cross-appellee, First Christian Church of Olathe, Kansas, Appellant, Janis M. Waleski Murphy and Mary H. Moeller, Appellees/Cross-appellants, UMB Bank, N.A., American Cancer Society Heartland Div., Olathe Medical Ctr., Appellees.
• Court: Kansas Court of Appeals

164 P.3d 827

ESTATE of Ethel F. DRAPER, deceased, Appellee, v. BANK OF AMERICA, N.A., as Trustee of the Ethel F. Draper Irrevocable Voluntary Trust Agreement Dated April 8, 1982, Appellee/cross-appellee, First Christian Church of Olathe, Kansas, Appellant, Janis M. Waleski Murphy and Mary H. Moeller, Appellees/Cross-appellants, UMB Bank, N.A., American Cancer Society Heartland Div., Olathe Medical Ctr., Appellees.

No. 96,060.

Court of Appeals of Kansas.

July 27, 2007.

Kurt S. Brack, of Holbrook & Osborn, P.A., of Overland Park, for appellant First Christian Church of Olathe, Kansas.

Michael R. Ong and Michelle M. Krambeck Burge, of Law Office of Michael Ong, P.A., of Leawood, for appellees/cross-appellants Janis M. Waleski Murphy and Mary Helen Moeller.

Barry D. Martin, of Speer & Holliday, LLP, of Olathe, for appellee Estate of Ethel F. Draper.

Before MALONE, P.J., GREEN and MARQUARDT, JJ.

MARQUARDT, J.

First Christian Church of Olathe, Kansas (First Christian), Janis M. Waleski Murphy, and Mary Helen Moeller appeal the trial court's grant of summary judgment to the Estate of Ethel F. Draper (Estate). We reverse.

In April 1967, Clark Draper and Ethel Catlin executed an antenuptial agreement in contemplation of their marriage. Clark had three children from an earlier marriage; Ethel had no children. The antenuptial agreement stated that both Clark and Ethel had "substantial property and property rights" and if Ethel survived Clark, Ethel was required to maintain a valid will devising to each of Clark's sons not less than one-fourth of her estate. Clark executed a will leaving a substantial portion of his estate to Ethel should she survive him.

Clark died testate in January 1977 and Ethel received her share of his estate. In September 1977, Ethel executed an irrevocable trust whose successor trustee is UMB Bank, N.A. (UMB). This trust allowed Ethel to receive the income and corpus during her lifetime. Upon her death, the trust income and corpus were to be distributed to, among others: First Christian, The Kansas City Chapter of the American Cancer Society (American Cancer Society), Olathe Medical Center, Mary Helen Moeller, and Janis Waleski Murphy.

In April 1982, Ethel executed a will which divided her estate equally between Clark's three sons. That same day, Ethel created another irrevocable trust whose successor trustee is Bank of America. The remainder beneficiaries of this trust are identical to those listed in the 1977 UMB trust.

Ethel died in October 2002 leaving an estate of less than $10,000. The total assets in the two irrevocable trusts exceeded $1 million. Ethel's will was admitted to probate in January 2003.

In December 2003, Clark's son, Gerald, executor of Ethel's estate, filed a petition on behalf of the Estate against Bank of America and UMB claiming that Ethel exceeded the authority given her in the antenuptial agreement when she transferred the bulk of her assets to irrevocable trusts. The petition contends that the trust beneficiaries have a duty to transfer three-quarters of the trust assets back into the Estate. The petition claimed intentional fraud, implied fraud, breach of contract, and breach of fiduciary duty. In May 2004, the petition was amended to add the trust beneficiaries as defendants.

The American Cancer Society's answer to the petition claimed that the Estate's action was barred by the statutes of limitation and repose in K.S.A. 60-515, K.S.A. 60-511, and K.S.A. 60-513. The American Cancer Society filed a motion to dismiss based on these statutes. Eventually the other named defendants joined in this motion.

The Estate's response to the motion to dismiss was that none of the statutes cited could apply to the Estate, which exists as a separate entity from Ethel herself. The trial court agreed with the Estate and denied the motion to dismiss.

The Estate, First Christian, Waleski Murphy, and Moeller all filed motions for summary judgment. After considering arguments from counsel, the trial court concluded that the antenuptial agreement contained an implied duty which prevented Ethel from divesting Clark's sons of their share of the trust assets. The trial court determined that the antenuptial agreement created a life estate for Ethel in the marital property.

The trial court ruled that Ethel's transfers to the irrevocable trusts were void because the transfers of property out of her life estate exceeded her authority. The trial court granted the Estate's summary judgment motion and ordered that the trust property be placed in a constructive trust for Clark's sons. The other motions for summary judgment were denied. The American Cancer Society and Olathe Medical Center settled their claims and are not parties to this appeal. UMB and Bank of America are parties only to the extent that they administer the trusts. First Christian, Waleski Murphy, and Moeller appeal the trial court's decision.

On appeal, First Christian contends (1) that the trial court erred in ordering a constructive trust in favor of the Estate on the assets of the irrevocable trusts because it did not make a finding of fraud; (2) that K.S.A. 60-515 bars the action since it was commenced more than 1 year after Ethel's death; and (3) that Clark's sons knew of Ethel's trusts as early as 1985, which would bar the Estate's claims pursuant to the statute of repose. Waleski Murphy and Moeller argue that the cause of action accrued in 1977 when Ethel first transferred assets into an irrevocable trust.

All of the Estate's claims involve interpretation of the antenuptial agreement and Ethel's action.

When a motion to dismiss raises an issue concerning the legal sufficiency of a claim, the question must be decided from the facts pled in the petition. Disputed issues of fact cannot be resolved or determined on a motion to dismiss for failure of the petition to state a claim upon which relief can be granted. The question is whether, in the light most favorable to plaintiff, and with every doubt resolved in plaintiff's favor, the petition states a valid claim for relief. Dismissal is justified only when the allegations of the petition clearly demonstrate plaintiff does not have a claim. Halley v. Barnabe, 271 Kan. 652, 656, 24 P.3d 140 (2001).

First Christian argues that the trial court erred by imposing a constructive trust on the irrevocable trust assets because the Estate cannot prove that Ethel committed constructive fraud. It claims she breached no legal duty.

Constructive fraud requires two elements beyond that of actual fraud. First, there must be a confidential relationship and second, that confidence must have been betrayed or a duty imposed by the relationship breached. Kiley v. Petsmart, Inc., 32 Kan. App.2d 228, 235, 80 P.3d 1179 (2003), rev. denied 277 Kan. 924 (2004). A "confidential relationship" refers to any relationship of blood, business, friendship, or association in which one of the parties reposes special trust and confidence in the other who is in a position to have and exercise influence over the first party. Heck v. Archer, 23 Kan. App.2d 57, 63, 927 P.2d 495 (1996). The mere relationship between parent and child does not raise a presumption of a confidential and fiduciary relationship. Curtis v. Freden, 224 Kan. 646, 651, 585 P.2d 993 (1978). For purposes of imposing a constructive trust, a confidential relationship can be based on an agreement between the owner of property and another who will distribute the owner's property in a specified manner upon the owner's death. Heck, 23 Kan.App.2d at 67, 927 P.2d 495.

The existence or nonexistence of a confidential or fiduciary relationship is an evidentiary question or finding of fact which must be determined from the facts in each case; and, therefore, the scope of appellate review is to ascertain only whether there is substantial competent evidence to support the finding of the trial court. In re Estate of Relihan, 4 Kan.App.2d 277, 279, 604 P.2d 1219, rev. denied 227 Kan. 927 (1980). A confidential relationship is not presumed, and the burden of proving such a relationship existed rests upon the party asserting its existence. Kampschroeder v. Kampschroeder, 20 Kan.App.2d 361, 365, 887 P.2d 1152, rev. denied 257 Kan. 1092 (1995).

The Estate never claimed there was a confidential relationship, and the trial court made no such finding. There was no proof of a confidential relationship between any of the parties. Where a confidential relationship has not been proved or even asserted, there can be no constructive trust.

In its decision, the trial court stated that it was required to read the four corners of the antenuptial agreement in order to ascertain the intent of the parties. To that end, the trial court was willing to "imply a duty" to Ethel to "refrain from divesting Clark's sons of their share of her estate," thereby "frustrating Clark's obvious intent" in signing the antenuptial agreement. Therefore, the trial court ruled that "the antenuptial must be interpreted as creating in Ethel a life estate in the marital property," and a life estate prevented Ethel from designating the residual beneficiaries in her irrevocable trusts.

On appeal, First Christian argues that the antenuptial agreement required Ethel to leave three-quarters of her estate to...