Feinberg v. Adolf K. Feinberg Hotel Trust

• Court: Missouri Court of Appeals
• Writing for the Court: AHRENS
• Citation: Feinberg v. Adolf K. Feinberg Hotel Trust, 922 S.W.2d 21 (Mo. App. 1996)
• Decision Date: 09 April 1996
• Docket Number: No. 66786,66786
• Parties: Virginia B. FEINBERG, et al., Respondents, v. ADOLPH K. FEINBERG HOTEL TRUST, et al., Appellants.

Page 21

922 S.W.2d 21

Virginia B. FEINBERG, et al., Respondents, v. ADOLPH K. FEINBERG HOTEL TRUST, et al., Appellants.

No. 66786.

Missouri Court of Appeals,

Eastern District,

Division Four.

April 9, 1996.

Motion for Rehearing and/or Transfer to

Supreme Court Denied May 15, 1996.

Appeal from the Missouri Circuit Court of St. Louis County; Hon. Robert Lee Campbell, Judge.

Mark D. Hirschfeld, Clayton, for appellants.

Gary M. Siegel, Wittner, Poger, Rosenblum & Spewak, Clayton, for respondents.

AHRENS, Presiding Judge.

In this court-tried action concerning a breach of a trust agreement, respondents, Dan and John Feinberg, appeal the trial court's judgment that they violated their fiduciary duties as co-trustees of the Adolph K. Feinberg Hotel Trust (Trust) and the court's order surcharging them for expenditures from the Trust and removing them as trustees. They also appeal the trial court's judgment ordering the Trust to pay $25,000 directly to respondent Virginia Feinberg's attorneys for counsel fees accrued by Virginia during the course of this litigation and ordering trustees to reimburse the Trust for these attorney fees. We affirm.

On August 29, 1974, Adolph Feinberg (grantor) executed a trust agreement (agreement) in which he created the Trust. According to the agreement, Adolph named his two sons, Dan and John (trustees), as co-trustees and established the Trust's corpus with fourteen Units of Participation in Queensway Development Partners. The agreement named grantor the sole income beneficiary during his lifetime and thereafter named his wife, Virginia Feinberg, the sole income beneficiary during her lifetime. Dan and John were named as remaindermen.

In 1986, the hotel which constituted the primary asset of Queensway Development Partners was sold, thus converting the Trust's corpus into $650,000 cash. During the next eight years, trustees utilized much of the Trust assets to finance several investments thereby reducing the amount of cash contained in the corpus to $4,000 at the time of trial. Grantor died in January, 1990 at which time Virginia became the Trust's sole income beneficiary. Since then, trustees have disbursed income to Virginia totalling approximately $14,000.

After her husband's death, Virginia requested an accounting of the Trust corpus. Trustees failed to comply and, on November 7, 1991, Virginia initiated the instant action alleging a breach of the trust agreement. The trial court ruled in her favor and permanently enjoined trustees from "dealing with the assets of the Trust", removed Dan and John from their position as co-trustees, and appointed their sister, Judy Feinberg-Brilliant, as successor trustee. The trial court also ordered Dan and John to repay a combined total of $332,342.21 in Trust principal improvidently removed plus interest and to pay $25,000 in attorney fees. Trustees timely filed this appeal.

In their first point on appeal, trustees assert the trial court erroneously ruled testimony inadmissible. Trustees argue in their brief that testimony concerning discussions between grantor and trustees about grantor's knowledge and intent regarding the Trust was "most relevant in determining the appropriateness of the trustees' administration of the Trust." Therefore, such testimony should have been admitted. We disagree.

Trustees' argument goes to the weight of the evidence not the admissibility. Because the grantor is presumed to know the legal effect of the language used in the trust instrument, extrinsic evidence, including the grantor's own statements, regarding grantor's intentions are normally not admissible. First National Bank of Kansas City v. Hyde, 363 S.W.2d 647, 652-53 (Mo. banc 1962). However, when an ambiguity exists, extrinsic evidence is admissible solely for the purpose of giving explicit meaning to the ambiguous language and thus clarifying the grantor's intentions. Breckner v. Prestwood, 600 S.W.2d 52, 55 (Mo.App.1980). Whether an ambiguity exists is a question of law. Boatmen's Trust Co. v. Sugden, 827 S.W.2d 249, 254 (Mo.App.1992). Therefore, we review the trial court's evidentiary ruling de novo. Id.

Trustees contend the agreement contains two ambiguities which warrant the admission of extrinsic evidence. The first alleged ambiguity is the definition of the term "beneficiary". Trustees contend the trust agreement makes it unclear whether this term includes them. If it does, they argue, then the secured and unsecured loans from the Trust to the trustees were authorized under the agreement ¹.

We find this argument to be moot. The trial court did not find that trustees violated their fiduciary duties simply because they loaned money to themselves, but found that such loans, along with other Trust estate disbursements, were violative because they were made adversely to the interests of Adolph and Virginia as income beneficiaries. Because the court was not determining to whom these loans were made, but for whose benefit they were made, the court did not need to construe the allegedly ambiguous language regarding the status of loan recipients.

The second alleged ambiguity regards the interplay of trustees' powers and duties. Trustees insist that the fiduciary duty owed to the Trust's income beneficiary is ambiguous when read in conjunction with the agreement's provisions giving trustees the power to make non-liquid type investments. Trustees argue in their reply brief that extrinsic evidence of Adolph's intentions are needed to explain how the trust agreement can require trustees "to maximize current income" while simultaneously authorizing trustees to "invest in real estate, limited partnerships and ventures".

Trustees misconstrue the fiduciary duties owed to current beneficiaries. The trust agreement does not mandate that investment be made for the sole benefit of the income beneficiaries. It merely requires, in Article V, Section 1, that trustees exercise their discretionary powers "primarily to benefit each current [income] beneficiary rather than the remaindermen...." ² Therefore, it clearly permits some use of trustees' powers for the benefit of the remaindermen. These limited powers can be used to make non-liquid type investments without violating trustees' fiduciary duties.

In addition, we refuse to find, as trustees urge, that, as a matter of law, no investment in real estate, limited partnerships, or ventures can be made which would benefit the income beneficiary. Thus, no contradiction or ambiguity exists regarding the interplay of trustees' powers and duties. The trial court did not err in refusing to admit extrinsic evidence of grantor's intent. Point denied.

In their third point on appeal ³, trustees contend the trial court erred in surcharging trustees and removing them as trustees. They argue that the court's finding that they violated their fiduciary duties was not supported by substantial evidence. We disagree.

The primary issue before the trial court was the propriety of trustees' execution of the powers, rights and duties delegated to them by the agreement. Deciding this issue requires a two-fold inquiry, one a question of law and one a question of fact. First, the trial court must determine the scope of the powers, rights and duties delegated to trustees. Second, it must determine whether trustees' actions exceeded this scope.

In reviewing a court-tried case, we are governed by the principles established in Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). We must affirm the trial court's order unless there is no substantial evidence to support it, unless it is against the weight of the evidence, or unless it erroneously declares or applies the law. Id. We view the facts and the concomitant reasonable inferences in the light most favorable to the court's order. In the Interest of J.M., 847 S.W.2d 911, 913 (Mo.App.1993).

When evaluating the reasonableness of a trustee's exercise of power, a court must apply any objective standards which were expressed in the trust instrument. In the Matter of Heisserer, 797 S.W.2d 864, 870 (Mo.App.1990). Here, trustees imply that the agreement failed to supply an objective standard to guide the court. Therefore, trustees argue, they are only liable if Virginia proves they willfully abused their discretion, acted arbitrarily, fraudulently, dishonestly, or with an improper motive. See Heisserer, 797 S.W.2d at 864.

In the above argument, Trustees again fixate on their broad investment powers under the agreement and ignore their fiduciary duties to the income beneficiary. The paramount rule of construction in determining the meaning of trust provisions is that the grantor's intent is controlling. Marvin F. Hall Trust v. Hall, 810 S.W.2d 710, 714-15 (Mo.App.1991). The intent of the grantor must be ascertained primarily from the trust instrument as a whole. Hyde, 363 S.W.2d at 652. As previously discussed, grantor expressed a desire that trustees exercise their conferred powers primarily for the benefit of the income beneficiary. Even though it deviated slightly from the language of the agreement when expressing trustees' fiduciary duties, the trial court properly recognized this desire as an objective standard which must be utilized when determining the reasonableness of the trustees' investments.

The evidence, when viewed in the light most favorable to the court's order, showed that John, with Dan's knowledge and consent, used $100,000 from the Trust to purchase a Harbor Bank CD. He then pledged the CD as collateral for a personal loan which he used to invest in a condominium project. In late 1992, he removed his own name from the loan and substituted the Trust's name as the borrower. The interest earned on the CD was used as partial payment for the personal loan. To offset this personal use of Trust income, he executed several promissory notes totalling approximately $6,000 naming the Trust as payee. Similarly, John offset the Trust's cash disbursement to buy the CD by...