IN RE CVR 1997 IRREVOCABLE TRUST

• Decision Date: 19 March 2002
• Docket Number: No. 1 CA-CV 01-0283.,1 CA-CV 01-0283.
• Citation: 202 Ariz. 174,42 P.3d 605
• Parties: In the Matter of: CVR 1997 IRREVOCABLE TRUST. Carl Retter, beneficiary of the CVR 1997 Irrevocable Trust, Appellant, v. Valerie Retter, as Trustee and beneficiary of the CVR 1997 Irrevocable Trust, Appellee.
• Court: Arizona Court of Appeals

42 P.3d 605

202 Ariz. 174

In the Matter of: CVR 1997 IRREVOCABLE TRUST.

Carl Retter, beneficiary of the CVR 1997 Irrevocable Trust, Appellant, v. Valerie Retter, as Trustee and beneficiary of the CVR 1997 Irrevocable Trust, Appellee.

No. -0283.

Court of Appeals of Arizona, Division 1, Department A.

March 19, 2002.

Thomas K. Baird, Phoenix, for Appellant.

Gray & Fassold, P.C., By James A. Fassold, Alisa J. Gray, Phoenix, for Appellee.

OPINION

LANKFORD, Judge.

¶ 1 Carl Retter ("Beneficiary") appeals from an order in a proceeding to terminate a trust that released the trustee from any and all liability arising out of her trust responsibilities. Beneficiary also challenges the court's approval of the trust's payment of fees to its attorneys. ¶ 2 The important facts are as follows. In 1997, Beneficiary and Trustee Valerie Retter executed the CVR 1997 Irrevocable Trust (the "CVR Trust"). They were the sole trustors and beneficiaries, and Trustee was the sole trustee. The corpus of the CVR Trust consisted of funds they had received from their aunt, Florence Lieberman. The terms of the CVR Trust provided that the corpus was to be fully distributed "[a]s soon as possible following the death of Florence Lieberman...."

¶ 3 In November 1999, Trustee and her brother Dale Retter, as Co-Trustees of the Gertrude L. Retter Family Trust (the "Retter Trust") and the Florence Lieberman Trust (the "Lieberman Trust") filed a civil complaint against Beneficiary for alleged financial exploitation of their mother, Gertrude Retter, and of Lieberman. Among other things, the action sought an order forfeiting Beneficiary's inheritance from both his mother and his aunt. Co-Trustees were represented in this action by the Murphy Law Firm. Beneficiary denied the allegations in the complaint.

¶ 4 Lieberman died in March 2000. Trustee petitioned the probate court for instructions on whether she was obligated to distribute funds from the CVR Trust or to sequester them pending resolution of the civil action. Trustee was concerned that if she were to distribute the CVR Trust proceeds, Beneficiary would immediately deplete the funds and nothing would remain to satisfy any judgment obtained in the civil action. She perceived a potential conflict between her duty as Trustee of the CVR Trust—to distribute the assets—and her duty as Co-Trustee of the Retter and Lieberman Trusts—to recover for those trusts any funds misappropriated by Beneficiary. The Murphy Law Firm represented Trustee in this probate action.

¶ 5 The probate court directed Trustee to distribute the trust funds unless she obtained a provisional remedy in the civil action allowing her to hold the funds until resolution of that matter. Co-Trustees' motion for a provisional remedy in the civil action was denied. Shortly thereafter, the law firm of Gray & Fassold, P.C., substituted for the Murphy Law Firm as counsel for both Trustee of the CVR Trust in the probate action and Co-Trustees in the civil action.

¶ 6 Trustee proceeded to distribute all of the CVR Trust assets, holding back the funds in one account for payment of final trust expenses. She then filed a Petition for Approval of Proposed Distribution, for Termination of Trust, and for Release of Trustee ("Petition for Approval"). The Petition for Approval included the most recent statements for all trust accounts, a list of proposed final expenditures, and copies of invoices for services rendered to the CVR Trust by attorneys and accountants. Beneficiary objected to the Petition for Approval on the bases that (1) the services provided by the attorneys did not benefit the trust and instead constituted a conflict of interest; and (2) the Petition for Approval impermissibly sought the full release of Trustee from any and all liabilities arising from her stewardship.

¶ 7 The probate court held an evidentiary hearing on the Petition for Approval. The court determined that the attorneys' fees were appropriately incurred and granted the Petition for Approval. The court entered a corresponding order that also terminated the CVR Trust and released Trustee from any liabilities arising out of her trusteeship. Beneficiary timely appealed. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") sections 12-2101(B) and (J) (1994).

¶ 8 Beneficiary first contests the part of the trial court order that reads: "Upon final distribution and termination of the Trust, the Trustee shall be released from any liabilities arising out of her Trusteeship." Beneficiary asserts that this provision contravenes his statutory right to bring an action against the trustee six months from the date of the final accounting.¹ Whether the trial court erred in considering Trustee's Petition for Release is a legal question that we review de novo. See Enter. Leasing Co. v. Ehmke, 197 Ariz. 144, 148, ¶ 11, 3 P.3d 1064, 1068 (App.1999).

¶ 9 Beneficiary argues that by considering Trustee's Petition for Release, the trial court violated his right to sue Trustee for her personal liability. He relies on A.R.S. § 14-7306(B) (1995), which states:

A trustee is personally liable for obligations arising from ownership or control of property of the trust estate or for torts committed in the course of administration of the trust estate only if he is personally at fault.

He further relies on A.R.S. § 14-7307 (1995), which provides a six-month limitations period for breach of trust claims against a trustee:

Unless previously barred by adjudication, consent or limitation, any claim against a trustee for breach of trust is barred as to any beneficiary who has received a final account or other statement fully disclosing the matter and showing termination of the trust relationship between the trustee and the beneficiary unless a proceeding to assert the claim is commenced within six months after receipt of the final account or statement.

¶ 10 Nothing in these statutes restricts a court's ability to release a trustee.² To the contrary, the statute of limitations expressly provides that it is inapplicable if claims against the trustee for breach of trust were "previously barred by adjudication, consent or limitation ...." A.R.S. § 14-7307 (emphasis added). This recognizes that "the equitable principles of estoppel and laches, as well as general statutes of limitation, will apply in many cases to terminate trust liabilities." Unif. Probate Code § 7-302 cmt. (1998).

¶ 11 Far from depriving Beneficiary of the right to litigate Trustee's liability, the court's release of Trustee merely reflects that Trustee's conduct already has been the subject of a judicial proceeding. The evidentiary hearing on Trustee's petition for approval was Beneficiary's opportunity to litigate the issues decided in that proceeding. The court's approval effectively exonerated Trustee, and the court's order releasing Trustee merely restated that fact.³

¶ 12 The court's approval of an accounting generally bars any later action against the trustee on the approved matters.⁴ "The settlement of a trustee's account in a court having jurisdiction to settle his accounts renders res judicata matters which were open to dispute, whether or not actually disputed." Restatement (Second) of Trusts § 220, cmt. a. There is no doubt of the probate court's jurisdiction in this case. See A.R.S. § 14-7201(A)(3); see also Estrada v. Ariz. Bank, 152 Ariz. 386, 389, 732 P.2d 1124, 1127 (App.1987) (court's jurisdiction to settle interim accounts).

¶ 13 We applied this rule to bar an action against a trustee for alleged mismanagement in Estrada v. Arizona Bank, 152 Ariz. at 389, 732 P.2d at 1127. In that case, we held that "a judicial settlement of a trustee's interim accounts as to persons who receive notice and are subject to the court's jurisdiction bars subsequent litigation seeking to raise defaults or defects with respect to the matters shown or disclosed." (Id.)

¶ 14 Beneficiary had an opportunity to litigate Trustee's conduct at the hearing. Beneficiary chose not to do so. His own election is not an unconstitutional deprivation of his right to sue.⁵

¶ 15 We also note that Beneficiary concedes that a trustee's liability may be determined in a "proceeding for accounting ... or other appropriate proceeding." We disagree with Beneficiary that a proceeding to approve the trust accounts, to terminate the trust and to discharge the trustee from liability was somehow an inappropriate context for such an adjudication.

¶ 16 Beneficiary also challenges the trial court's approval of the CVR Trust's payment of fees to its attorneys. We review this award only for abuse of discretion. In re Estate of Shano, 177 Ariz. 550, 558-59, 869 P.2d 1203, 1211-12 (App.1993). Because there are no findings of fact or conclusions of law, we presume that the trial court found every fact necessary to sustain its ruling and will affirm if any reasonable construction of the evidence supports its decision. Berryhill v. Moore, 180 Ariz. 77, 82, 881 P.2d 1182, 1187 (App.1994).

¶ 17 Beneficiary argues that the trial court should have denied fees to the attorneys for the CVR Trust because they had two separate conflicts of interest: a conflict between their duties to their trust client and their duties to him as a beneficiary and a conflict between their duties to the CVR Trust and their duties to the Retter and Lieberman Trusts.

¶ 18 The cases relied upon by Beneficiary to demonstrate the conflict of interest counsel had to the trust and to him as a beneficiary are inapposite. These cases involve attorney disqualifications because of actual or perceived conflicts of interest between clients. See, e.g., In re Breen, 171 Ariz. 250, 252, 830 P.2d 462, 464 (1992) (attorney disciplined for failing to disclose to his clients his conflicting interests as their attorney, as shareholder and treasurer of their corporation, and as attorney for another corporation); In re Ireland, 146 Ariz. 340, 344-45, 706 P.2d 352, 356-57 (1985) (attorney...