In re Clement Trust

• Decision Date: 07 April 2004
• Docket Number: No. 01-2035.,01-2035.
• Citation: 679 N.W.2d 31
• Parties: In the Matter of the Albert B. CLEMENT and Vera V. Clement TRUST (Clement Charitable Trust). Mitchellville Community Center, Inc., Appellant, v. Paul E. Vos and Estellean Baldwin, Co-Trustees of the Clement Charitable Trust, Appellees.
• Court: Iowa Supreme Court

679 N.W.2d 31

In the Matter of the Albert B. CLEMENT and Vera V. Clement TRUST (Clement Charitable Trust).

Mitchellville Community Center, Inc., Appellant, v. Paul E. Vos and Estellean Baldwin, Co-Trustees of the Clement Charitable Trust, Appellees.

No. 01-2035.

Supreme Court of Iowa.

April 7, 2004.

Robert C. Oberbillig, Des Moines, for appellant.

Frank Murray Smith of Frank M. Smith Law Office, Des Moines, for appellees.

TERNUS, Justice.

This appeal arises from the decision of the trustees of a charitable trust to deny funding for the construction of a community center in Mitchellville, Iowa. The non-profit corporation building the community center claimed in this proceeding that the trustees acted unreasonably in revoking its offer of funding and in proceeding with efforts to construct a competing senior citizen center in Mitchellville. The district court ruled the trustees acted reasonably in refusing to contribute trust funds to the community center, but concluded the trustees' action in using trust monies for construction of a senior citizen center in the same community was neither reasonable nor prudent. Both parties appeal. We affirm in part and vacate in part.

I. Background Facts and Proceedings.

Upon the death of Albert Clement in 1982, and pursuant to his will, the Albert B. Clement and Vera V. Clement Trust was created for the following purpose:

To sponsor programs and activities, that will be able to serve the Senior Citizens of the Northeastern portion of Polk County, and the Northwestern portion of Jasper County, and including but not limited to, the towns of Maxwell, Farrar, Santiago, Valeria, Ira, Mingo, Colfax, and Mitchellville.

According to the terms of the will, this trust was to be "managed and controlled" by the appellees, Paul E. Vos (Clement's attorney) and Estellean Baldwin (Clement's niece by marriage), as co-trustees.

During the first ten years of the trust, the trustees were required to manage the real estate and other property in the trust, using any excess income for the designated charitable purpose. Thereafter, they were allowed to "sell and convert into cash" the trust assets. Ten years after Clement's death, the trustees were also "authorized and directed" to form a non-profit corporation that would be managed by the trustees and a three to five member advisory board to be appointed by the trustees.

In 1993, the trustees filed an application with the court asking whether the trust's farm ground should be sold, whether a corporation should be formed to manage the trust's affairs, and whether an advisory council should be appointed. The district court determined the farm was a good investment with a favorable rate of return and declined to order its sale. The court also found no reason to establish a corporation that would simply continue to operate the trust on the same basis as it had been managed the past ten years. The district court did not specifically address the trustees' request concerning an advisory board.

In addition to managing the trust assets, the trustees sought to implement the testator's charitable intent. Lacking express guidance in the will as to what programs and activities would serve the senior citizens in the identified geographical area, the trustees decided to contribute to community centers that housed a senior citizen center. In addition to funding the ongoing operation of the senior citizen centers, the trust contributed to the construction of buildings for such centers. They developed five basic requirements to guide their decisions. These were: (1) the plans for the senior citizen center must be approved by the trustees and the site adapted to assure maximum use for senior citizens; (2) the senior space must be named after Albert and Vera Clement; (3) the community must raise matching funds in an amount to be determined by the trustees; (4) the center must be available to senior citizens at no cost; and (5) the building must be owned by the community involved or by a tax-exempt organization so as not to jeopardize the trust's non-profit, tax-exempt status. Between 1985 and 1991, the trust contributed to the construction of three community centers, one in Mingo, one in Bondurant, and one in Maxwell.

In 1994, a community group from Mitchellville submitted a proposal to the trustees, requesting funding for a new community building that would include a senior citizen center. Vos informed Mitchellville's city manager of the requirements of the trustees for approval of the request, including that the trust "would need to be heavily involved in the planning of the building." Vos later reviewed a proposed plan for the center and thereafter informed the community group that the trust would not commit any funds until certain specified changes were made.

In April 1995 a group of Mitchellville citizens incorporated the appellant, Mitchellville Community Center, Inc. (MCCI). According to its articles of incorporation, MCCI was organized to raise funds for a new community center, to own the land and building housing the center, and to manage the center. In May, Vos provided MCCI's building committee with revised drawings prepared by the community group's architect in collaboration with the trustees, together with explanations for the proposed changes. The committee agreed to most of the trustees' suggestions except their desire to move the entrances to the building so as to more conveniently accommodate senior citizens.

On June 16, 1995, the trust notified MCCI of its terms for contributing to the community center. After noting the trustees' objection to the location of the entrances and a few other minor details, the trust offered to contribute $50,000, provided the community raised $100,000 by August 31, 1995. The matching contributions were to come from private individuals and not from any taxing authority. In addition, the offer was contingent on (1) the building being owned by the city or a non-profit corporation, and (2) the building being available to senior citizens throughout the day at no charge.

On August 21, 1995, the MCCI board of directors voted to proceed with the original building plan, but did not communicate this decision to the trustees. The trustees continued to operate under the belief that the community center was to be built with the changes approved by the building committee.

Meanwhile, on September 6, 1995, the trust revoked its offer to contribute to the building project because MCCI had failed to raise the required contributions and had not received IRS approval of its non-profit status by the end of August 1995. MCCI was told, however, that it could reapply for financial assistance. Notwithstanding this funding problem, MCCI proceeded with construction of the community center. Periodically MCCI wrote to the trustees, stating that it had now met the conditions imposed by the trustees and asking the trust to make the promised $50,000 contribution. Vos responded to the first such letter, stating again that the offer had been withdrawn when the conditions were not met by the deadline. The trustees did not reply to the other requests until March 13, 1997, when Vos notified MCCI that the trust planned to construct its own senior citizen center in Mitchellville. Vos also expressed the trustees' dissatisfaction with MCCI's decision to reject their suggested changes to the building plans, which he had discovered in a construction site visit, stating the trust's contribution had always been contingent on those changes being implemented. In November 1997 the trust purchased a former grocery store in Mitchellville and announced to the general public its plans to remodel the building into a senior citizen center.

After an unsuccessful attempt to have the attorney general challenge the trust's actions, MCCI filed a petition against the trustees, alleging they had unreasonably exercised their discretionary powers. MCCI specifically complained about Vos's attempts to micro-manage the plans for the community center "well beyond the reasonable activities of a trustee," and the trust's subsequent refusal to contribute funds when MCCI did not make "all the minute changes requested by Vos." In addition, MCCI criticized the trustees for making plans to build a senior citizen center in the same block as the community center, which was already serving the town's elderly population. MCCI asked the court (1) to enjoin further trust expenditures absent court order; (2) to determine the trustees acted unreasonably and contrary to the terms of the trust; (3) to rule that the trust should have provided funding for the community center; (4) to require formation of the non-profit corporation as provided in the will; and (5) to consider removing Vos as a trustee.

After the trustees' motion to dismiss based on MCCI's alleged lack of standing was denied, the matter proceeded to trial. The court held the trustees had not strayed from the requirements of the will and the conditions imposed on MCCI's funding request were not unreasonable. The court did, however, conclude the trustees abused their discretion when they expended monies to construct a separate senior citizen center in Mitchellville. Determining there was no showing that two centers were needed, the court directed the trustees to sell the Mitchellville property and apply the proceeds to existing senior citizen centers in the geographical area, or to the creation of new centers in the specified area.

With respect to Vos's continuation as a trustee, the court acknowledged that he may have been over-zealous in carrying out the purposes of the trust, but decided his removal was not warranted. Finally, the court determined the will did not require the trust to sell its real estate and form a non-profit corporation. Nonetheless, the court concluded an advisory committee should be created.

II. Issues on Appeal.

MCCI raises four issues in its appeal: (1) the trial court erred in finding ...