In re Estate of Calvin, 072821 SDSC, 29461-a-SRJ

CourtSupreme Court of South Dakota
JudgeKERN, SALTER, DEVANEY, and MYREN, Justices, concur.
Writing for the CourtJENSEN, CHIEF JUSTICE.
PartiesIn the Matter of the Estate of JOHN C. CALVIN, Deceased.
Docket Number29461-a-SRJ

2021 S.D. 45

In the Matter of the Estate of JOHN C. CALVIN, Deceased.

No. 29461-a-SRJ

Supreme Court of South Dakota

July 28, 2021

CONSIDERED ON BRIEFS APRIL 26, 2021

APPEAL FROM THE CIRCUIT COURT OF THE THIRD JUDICIAL CIRCUIT CODINGTON COUNTY, SOUTH DAKOTA THE HONORABLE CARMEN MEANS Judge.

DANIEL R. FRITZ TIMOTHY R. RAHN JOSHUA R. BROWN of Ballard Spahr, LLP Sioux Falls, South Dakota Attorneys for petitioners and appellants Mark E. Calvin, John C. Calvin, Jr. and Ruth Calvin Scharf.

VINCE M. ROCHE of Davenport, Evans, Hurwitz & Smith, LLP Sioux Falls, South Dakota Attorneys for Great Western Bank as Personal Representative of the Estate of John C. Calvin and appellee.

JAMES C. ROBY of Green, Roby, Oviatt, LLP Watertown, South Dakota Attorneys for appellee Prudence K. Calvin.

OPINION

JENSEN, CHIEF JUSTICE.

[¶1.] John Calvin (Calvin) was the lifetime beneficiary of the Ben W. Calvin Trust (Trust), and his children, Ruth Calvin Scharf, John C. Calvin, Jr., and Mark E. Calvin (Appellants), were the remainder beneficiaries. After Calvin passed away, Appellants brought a creditor claim against Calvin's estate, alleging that Calvin had received over $700, 000 in disbursements of principal from the Trust in violation of the Trust terms. The Personal Representative filed a motion to dismiss the claim, alleging Appellants were not the real parties in interest, the Trust was not breached, and a portion of the claim was time barred. The circuit court granted the motion, holding the Trust disbursements to Calvin were proper under the terms of the Trust. We affirm the circuit court's decision to dismiss the Appellants' creditor claim.

Facts and Procedural History

[¶2.] Calvin was born on September 17, 1934. Calvin's father, Ben Calvin, established the Trust on December 29, 1955 in Michigan. A Michigan bank served as the Trustee. Section I of the Trust granted the Trustee general administrative powers for the investment, sale, and mortgage of assets; the payment of debts; and discretion to disburse Trust income and principal. It stated: The Trustees shall have the power to manage the trust estate as in their judgment and discretion may seem most advantageous to said trust estate and the beneficiaries thereof; . . . to allocate between income and principal all receipts and disbursements in such manner as to the Trustees shall seem just and equitable, and in accordance with generally accepted trust accounting principles; to make payments of income or principal payable to or applicable for the use and benefit of any beneficiary hereunder by making such payments either directly to such beneficiary or applying the same for the use and benefit of such beneficiary . . . .

(Emphasis added.)

[¶3.] Section II of the Trust ordered the Trustee:

(A) To pay the entire net income from the trust estate to JOHN C. CALVIN, son of the Settlor, at convenient intervals, but at least annually, so long as he shall live.

(B)(1) On the death of the said JOHN C. CALVIN to divide the principal of the trust into as many equal separate shares as he shall leave children then surviving and children then deceased leaving issue then surviving, taking by right of representation.

[¶4.] Calvin was domiciled in Watertown, South Dakota, when he passed away on December 18, 2019. The co-personal representatives of Calvin's estate (the Estate), Great Western Bank (Personal Representative), John Calvin Jr., and Mark Calvin, filed an application for informal probate of the Estate on January 2, 2020. Shortly thereafter, John Jr. and Mark resigned as co-personal representatives and filed a creditor claim against the Estate pursuant to SDCL 29A-3-804, which their sister Ruth Calvin Scharf joined. The primary beneficiary of the Estate is Calvin's second wife, Prudence Calvin (Stepmother).

[¶5.] Appellants claimed that Calvin was not entitled to receive disbursements of principal from the Trust and that he fraudulently induced the Trustee to send him payments from the Trust principal between 2009 and 2019. In support, Appellants offered financial records that disclosed Calvin had between $5, 000, 000 and $6, 000, 000 in liquid and marketable assets between 2009 and 2019. During that time, Calvin donated $202, 972 to charity, made $97, 379 in political contributions, and paid $58, 830 in memberships dues. Despite Calvin's considerable assets, beginning in 2010, he began to correspond with the Trustee requesting disbursements from the Trust principal. Calvin requested the disbursements for the payment of medical bills and other living expenses. [¶6.] Appellants alleged the Trustee paid Calvin between $50, 000 and $92, 000 annually from the Trust principal between 2010 and 2019. Calvin also received income disbursements from the Trust during this period, which varied between approximately $8, 000 and $23, 000 annually. Appellants sought $870, 044 in damages against the Estate arising from the depletion of Trust principal and lost earnings on the principal.

[¶7.] The Personal Representative disallowed the claim. Appellants filed a petition on May 26, 2020, asking the circuit court to allow the claim. Appellants filed an amended petition on June 26, 2020, which did not substantively modify the creditor claim. The Personal Representative made a motion to dismiss, arguing that Appellants lacked standing, the Trustee's disbursement of Trust principal to Calvin was "not improper based on the language of the Trust," and the claims concerning principal disbursements made prior to April 14, 2014 were barred by the statute of limitations. Stepmother joined the Personal Representative's motion.

[¶8.] Appellants resisted the motion and filed a motion to stay the proceedings until pending probate proceedings in Michigan concerning the Estate were resolved. The motion recited that Appellants were in the process of litigating the propriety of the Trust disbursements in the Michigan probate action, and they had filed claims against the Trustee directly in those proceedings. In their brief to this Court, Appellants confirmed that the Michigan proceedings were still pending, and the "[i]ssues regarding the Trustee's breaches of fiduciary duty are being resolved in that litigation."1

[¶9.] The circuit court held a hearing on the motion to dismiss on September 22, 2020. The Personal Representative argued that Appellants did not have standing because they alleged a claim against a third party on behalf of the Trust for which the Trustee was the real party in interest. Additionally, the Personal Representative argued the Trust was obviously intended for Calvin's benefit. The Personal Representative further claimed that the Section I language, stating "[the] Trustees shall have the power . . . to make payments of income or principal payable to or applicable for the use and benefit of any beneficiary hereunder," granted the Trustee discretion to make principal payments to Calvin. (Emphasis added.) The Personal Representative also argued that the Trust did not require the Trustee to ensure that Calvin was financially insolvent before it made any principal disbursements.

[¶10.] Appellants contested the Personal Representative's claim that the Trustee was the real party in interest, asserting that they had sustained injury in fact because of the alleged improper distributions of principal. Appellants also argued that the instruction in Section II, requiring the Trustee to pay "the entire net income" of the Trust to Calvin and to "divide the principal of the trust" upon his death, showed the Settlor's intent to...

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