Fred Hutchinson Cancer Research Center v. Holman
| Decision Date | 19 February 1987 |
| Docket Number | No. 52556-1,52556-1 |
| Citation | 732 P.2d 974,107 Wn.2d 693 |
| Parties | FRED HUTCHINSON CANCER RESEARCH CENTER, a nonprofit Washington corporation; Ryther Child Center, a nonprofit Washington corporation; the Salvation Army, a nonprofit California corporation; Seattle Art Museum, a nonprofit Washington corporation; Seattle Children's Home, Inc., a nonprofit Washington corporation; Historical Society of Seattle and King County, a/k/a Seattle Historical Society, a nonprofit Washington corporation; Seattle Opera Association, Inc., a nonprofit Washington corporation; Seattle Symphony Orchestra, Inc., a nonprofit Washington corporation; the University of Washington, an agency of the State of Washington; the Children's Home Society of Washington, a nonprofit Washington corporation, named in the Last Will and Testament of DeEtte McAuslan Stuart as the Washington Children's Home; American Heart Association of Washington, Inc., a/k/a Washington State Heart Association, a nonprofit Washington corporation; and the Attorney General of the State of Washington, Respondents, v. William M. HOLMAN and Emily Holman, his wife, Appellants, Seattle-First National Bank, a Washington corporation, Defendant. |
| Court | Washington Supreme Court |
Seligmann, Dreiling & Beckerman, Eugene D. Seligmann, Seattle, for appellants.
Shidler, McBroom, Gates & Lucas, William H. Gates, Martin F. Smith, Heather L. Coughlan, Seattle, for respondents Charitable Beneficiaries.
Kenneth Eikenberry, Atty. Gen., Marjorie R. Schaer, Asst. Atty. Gen., Olympia, for respondent Attorney General.
Graham & Dunn, W.H. Jaynes, Jr., Michael E. Kipling, Gerald Koblentz, Seattle, for Seattle-First Nat. Bank.
Cotrustee William M. Holman has challenged trial court findings and conclusions that his fees were excessive and must be repaid and that he must be removed as trustee. Several procedural matters concerning this appeal are also before the court. For reasons outlined below, we affirm the trial court. We also hold for the plaintiffs on all disputed motions.
The record in this case is voluminous. The Report of Proceedings is over 1,600 pages; there are at least 160 exhibits; over 300 pages of briefs and supplemental memoranda; and 38 pages of findings and conclusions. Appellants Holman (Holman) raise 41 issues.
On April 21, 1983, Charitable Beneficiaries (Beneficiaries) of the Stuart trusts initiated this suit against the trusts' co-trustees, William M. Holman and Seattle-First National Bank (Seattle-First). On July 6, 1984, the plaintiffs settled their differences with the bank, which subsequently testified on plaintiffs' behalf. The court held a bifurcated trial. The first part, regarding Holman's excessive fees (Fee Hearing), began July 23, 1984. The second part, regarding Holman's removal (Removal Hearing), began December 10, 1984. After considering much testimony, Holman's personal memoranda and other exhibits, as well as transcripts of taped conversations between Holman and others involved with these trusts, the trial court found the following facts.
The trusts at issue arose out of the late DeEtte McAuslan Stuart's will, supplemented by two codicils. All three of these instruments were prepared for Mrs. Stuart by William M. Holman, her attorney at the time, and the defendant in this action. Mrs. Stuart did not receive independent legal counsel as to the provisions in these instruments affecting or involving Mr. Holman.
Mrs. Stuart created the following trusts: the "Office Trust," 23 Charitable Remainder Annuity Trusts ("CRATs"), and the Charles Edward Stuart Charitable Trust ("Charitable Trust"). The Office Trust was established to pay the expenses and costs of assuming the lease and continuing Mrs. Stuart's office. The 23 CRATs, now numbering 20 due to the deaths of three beneficiaries, provide for a regular annuity payment for the lifetime of the individual beneficiaries named in each such trust. Upon the death of an individual annuitant/beneficiary, the remaining principal of the individual's CRAT transfers to the Charitable Trust. The Charitable Trust was established as a permanent memorial to Mrs. Stuart and her late husband Charles Edward Stuart. By the terms of article 13, the Charitable Trust is perpetual, there can be no invasion of its principal, and its income is to be paid in various proportions to the beneficiaries quarterly.
The will of DeEtte McAuslan Stuart also established the following relevant trust: article 9 established the DeEtte McAuslan Stuart Scholarship Trust pursuant to which $1 million was given in trust to the Board of Regents of the University of Washington to be held in trust for scholarships. A committee on scholarships consisting of William M. Holman, Robert D. Keith and William McGregor selected the scholarship recipients. The will provides that the committee members shall serve without pay.
Besides the appointment of Holman and the bank as executors of her estate and cotrustees of the trusts, the key provisions of the last will and testament of DeEtte McAuslan Stuart, as modified by the first and second codicils, are as follows:
My trustees shall be each paid normal compensation for acting as trustees under the applicable trust established in this will and shall be paid on a quarterly basis.
Article 19, exhibit 2.
My trustees shall be fully protected in relying upon the advice of legal counsel and shall not be liable for any loss or damage caused by any agent or attorney selected by it if it shall have exercised reasonable care in selecting and retaining such agent or attorney.
Article 14, section 3(a), exhibit 2.
Any and every action taken in good faith by my trustees in the exercise of any power, authority, judgment or discretion conferred upon it hereunder, shall be conclusive and binding upon all persons interested in the assets of any trust.
Article 14, section 3(b), exhibit 2.
The governing bodies of any charitable beneficiary shall have the power to enforce the trust and to compel an accounting under state law.
Finding of fact 3.2.1(h), exhibit 3.
DeEtte McAuslan Stuart died on September 17, 1979. Her last will and testament, first codicil and second codicil thereto, were admitted to probate on September 25, 1979. Some time during the month of November 1979, assets were transferred from Mrs. Stuart's estate into the CRATs in order to fully fund these trusts. Additional assets were transferred to the Charitable Trust and, by March 31, 1980, the trust was funded in the amount of $11,063,522. After this initial funding, the Charitable Trust received additional funds from the CRATs that terminated and additional transfers from the estate between June 7, 1980 and May 7, 1984 to make the total contributions to the Charitable Trust as of May 7, 1984, $13,857,847.56.
Custody of all trust assets was placed, and has remained to this date, with Seattle-First. Seattle-First performs all management and custodial services including bookkeeping, tax returns, quarterly reports and payments. The Office Trust and the Charitable Trust were each placed in separate accounts over which both trustees had management authority. The CRATs, however, were placed in Seattle-First's "D" fund, investment of which was under the sole management of Seattle-First. The CRATs remained in the "D" fund until August 15, 1983 when they were placed in a separate account over which both trustees have control. Pursuant to the terms of article 14, section 1(c) of Mrs. Stuart's will (exhibit 2), the assets of each trust can only be invested in obligations of the United States of America, municipal securities, high grade stocks, bonds and other securities and obligations of any state in the union with the exception of Washington, California and New York. Investment in real estate, directly or indirectly, is prohibited.
After the partial or complete funding of the Office Trust, the CRATs, and the Charitable Trust, both defendant Holman and Seattle-First began to charge fees to these trusts for their services as trustees. Seattle-First charged its fees in accordance with its published fee schedules.
In February 1980, defendant Holman began charging the trusts for his services as trustee. Initially, Holman billed the trusts on a monthly basis, based upon the hours he reportedly incurred in working as trustee. Defendant Holman's monthly billings on an hourly basis continued from February 1980 through April 1981. At this point in time, Holman devised a percentage fee whereby he would be paid a flat rate of .85 percent of the market value of each trust. Defendant Holman derived his percentage charge after considering the following factors: (a) the average charge by investment counselors in the Seattle area (0.5 percent) and nationwide (0.6 percent) (from a Wall Street Journal article); and (b) the statement in In re Powell, 68 Wash.2d 38, 43, 411 P.2d 162 (1966) that the most that the court could determine was a reasonable fee for one individual trustee was 1.5 to 1.6 times the fee that a bank trust department would charge. Holman multiplied the Seattle average of 0.5 percent times 1.5 and obtained 0.75 percent. He multiplied the nationwide average of 0.6 times 1.6 and obtained 0.96 percent. He then averaged 0.75 percent and 0.96 percent to 0.855 percent which he rounded to 0.85 percent. Defendant Holman's percentage fee took effect for the quarter beginning May 16, 1981 and has continued since that date. Holman has, however, kept additional time records since May 15, 1981. Defendant Holman's fee is taken 80 percent from principal and 20 percent from income.
The cotrustees informed Beneficiaries of both Holman's fee and Seattle-First's fee in a letter to Beneficiaries dated July 23, 1981. Within approximately 4 months of receiving the cotrustees' letter regarding fees, various Beneficiaries questioned the...
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