In re Pederson Trust

• Decision Date: 21 November 2008
• Docket Number: No. 20080076.,20080076.
• Citation: 757 N.W.2d 740,2008 ND 210
• Parties: In the Matter of the Oliver PEDERSON TRUST. Kenneth Pederson, Beneficiary, Petitioner and Appellant v. Wells Fargo Bank, Trustee, and Darlene Bernsdorf, Co-Trustee, of the Trust created by Oliver Pederson, Respondents and Appellees.
• Court: North Dakota Supreme Court

757 N.W.2d 740

2008 ND 210

In the Matter of the Oliver PEDERSON TRUST Kenneth Pederson, Beneficiary, Petitioner and Appellant v. Wells Fargo Bank, Trustee, and Darlene Bernsdorf, Co-Trustee, of the Trust created by Oliver Pederson, Respondents and Appellees.

No. 20080076.

Supreme Court of North Dakota.

November 21, 2008.

Peter K. Halbach, Haugland, Halbach and Halbach, Devils Lake, ND, for petitioner and appellant.

Clark J. Bormann, Bormann & Myerchin, LLP, Bismarck, ND, for respondent and appellee Wells Fargo Bank.

Michael Ward, Eaton, Van de Streek & Ward, Minot, ND, for respondent and appellee Darlene Bernsdorf.

KAPSNER, Justice.

[¶ 1] Kenneth Pederson appeals an order denying his petition for supervision of the trust and termination of the trust, and he appeals a separate order awarding attorney fees to Wells Fargo Bank of Minot, North Dakota ("Wells Fargo") and Darlene Bernsdorf. We affirm.

I.

[¶ 2] Oliver Pederson executed an irrevocable living trust agreement on December 13, 2002. The primary asset of the trust is an undivided one-half interest in real estate located in Bottineau County. Oliver Pederson's child, Kenneth Pederson, owns the other undivided one-half interest in the real estate. Oliver Pederson named Wells Fargo trustee, with Darlene Bernsdorf as co-trustee. The income of the trust was to be paid to or used for the benefit of Oliver Pederson, and at his death, it was to be paid to Darlene Bernsdorf. Upon the death of Darlene Bernsdorf, the income and principal of the trust was to be distributed to Oliver Pederson's "child per stirpes," less certain personal items. Oliver Pederson died on July 5, 2003; thus, Darlene Bernsdorf is presently an income beneficiary, and Kenneth Pederson is the sole remainder beneficiary.

[¶ 3] In March 2007, Kenneth Pederson petitioned the district court, seeking supervision of the trust, termination of the trust, or, alternatively, appointment of a successor trustee. He alleged: The trustee had not exercised full power and responsibility to manage the trust estate; the trustee failed to pay property taxes on the primary asset of the trust for more than three years; the trustee failed to provide maintenance and care for the property; and the trust failed to serve any trust purpose or to be any benefit to Kenneth Pederson. Wells Fargo responded. It denied all allegations by Kenneth Pederson which suggested Wells Fargo failed to fulfill its duties under the terms of the trust agreement, and it asserted it has prudently managed the assets of the estate conveyed to the trust.

[¶ 4] The district court held a hearing on April 23, 2007, and it filed an order on July 9, 2007. First, the district court addressed whether the trust should be supervised. While the district court found the trustee had not paid its one-half of the property taxes, it determined this was due to lack of trust funds, as a result of legal fees incurred by the trust. The present case was the third brought by Kenneth Pederson; in the first, he challenged Oliver Pederson's competency, and in the second, he sought to dissolve the trust. Additionally, the district court determined since Kenneth Pederson owns one-half of the property, only one-half of the waste can be attributable to the trust. At the hearing, when asked if Darlene Bernsdorf had done anything wrong as trustee, Kenneth Peterson testified: "She hasn't done nothing so how could she do anything wrong?" When asked if Wells Fargo had done anything wrong as trustee, Kenneth Peterson testified: "I think they tried their best. I will give them credit." The district court determined Kenneth Pederson had not established any justification for supervision of the trust.

[¶ 5] Second, the district court discussed whether the trust should be terminated. It found one of the purposes of the trust was to provide Darlene Bernsdorf income, and even though the distribution to Darlene Bernsdorf would be modest, this purpose could still be fulfilled. The district court determined the goals of the trust were achievable; therefore, it denied Kenneth Pederson's petition for termination of the trust.

[¶ 6] Third, regarding the appointment of a successor trustee, the district court found Kenneth Pederson believed Wells Fargo was doing a good job as trustee. It also found Kenneth Pederson conceded Darlene Bernsdorf had done nothing wrong which would constitute grounds for her removal. Therefore, the district court did not remove either trustee and did not name a successor trustee.

[¶ 7] Finally, the district court addressed costs and attorney fees. The trustees had requested Kenneth Pederson be required to pay the fees of the trust pertaining to the present legal action. The district court noted this is the third lawsuit initiated by Kenneth Pederson, with the first two being unsuccessful. It stated the previous lawsuits caused the trust to incur legal fees, which depleted the income of the trust and created the situation of "impossibility" that, in the present lawsuit, Kenneth Pederson cites as support to terminate the trust.

[¶ 8] The district court determined Kenneth Pederson violated N.D.R.Civ.P. 11(b)(1), because the present lawsuit was brought for an improper purpose. Kenneth Pederson's purpose was to "merely defeat the express purpose of this trust in providing income for Darlene [Bernsdorf]." In addition, the district court found Kenneth Pederson violated N.D.R.Civ.P. 11(b)(3). It held, "while there may be some factual or evidentiary support for the contention that the trust's purpose has failed, or is impossible to achieve, there is also ample evidentiary support that it was Kenneth [Pederson] who created this situation." Therefore, the district court entered an order to show cause why Kenneth Pederson, his attorney, Peter Halbach, and Haugland, Halbach & Halbach Law Firm, or all of the above, should not be liable for N.D.R.Civ.P. 11 sanctions.

[¶ 9] On August 10, 2007, the district court held a hearing regarding attorney fees, and on January 22, 2008, it filed an order. The district court held the amount due and owing to Wells Fargo was $2,497.61, and the amount owing to Darlene Bernsdorf was $2,362.50. It deemed the costs and attorney fees be assessed jointly and severally against Kenneth Pederson and his attorney, Peter Halbach.

[¶ 10] Kenneth Pederson filed a notice of appeal, arguing the district court improperly denied the petition for supervision of the trust, improperly denied the petition to terminate the trust, and improperly awarded attorney fees to the trustees.

II.

[¶ 11] On appeal, Kenneth Pederson asserts the district court improperly denied court supervision of the trust. Section 59-04-02, N.D.C.C., provided: "Any trustee, beneficiary, or person interested in a trust may file a petition with the clerk of the district court praying that the administration of the trust be supervised." Chapter 59-04, N.D.C.C., was repealed by 2007 N.D. Sess. Laws ch. 549, § 27, effective August 1, 2007. However, at the time of the district court's order filed on July 9, 2007, N.D.C.C. ch. 59-04 governed the administration of trusts; therefore, it governs this issue.

[¶12] While N.D.C.C. § 59-04-02 was in effect, this Court did not address the standard of review for a district court's decision on a petition for supervision of the trust. Section 59-04-02, N.D.C.C., in part, provided: "The court, upon hearing, may enter its order that all further proceedings in the supervision of the administration of the trust must be had in that court." The plain language of the statute did not require a district court to supervise a trust simply because an interested party requests supervision. Id.; see N.D.C.C. § 1-02-02. Rather, the statute provided a district court had discretion whether to grant a petition for supervision of a trust. N.D.C.C. § 59-04-02. "When a district court may do something, it is generally a matter of discretion." Waldie v. Waldie, 2008 ND 97, ¶ 11, 748 N.W.2d 683 (quoting Ackerman v. Ackerman, 1999 ND 135, ¶ 19, 596 N.W.2d 332). Therefore, the proper standard of review for this issue is abuse of discretion. "A district court abuses its discretion when it acts arbitrarily, capriciously, or unreasonably, or if it misinterprets or misapplies the law." Id. (citing Bertsch v. Bertsch, 2007 ND 168, ¶ 10, 740 N.W.2d 388).

[¶13] Kenneth Pederson asserts the district court should have ordered court supervision of the trust. At the hearing, while being cross-examined regarding supervision of the trust by counsel for Wells Fargo, Kenneth Pederson testified:

Q Can you tell me why you want this Court to institute supervised administration of this trust?

A I just think I should be the supervisor, I guess.

....

Q Are you suggesting that you and not the Court supervise? Is that what you are asking of the Court?

A The Court can if it wants to. I wouldn't have any objection if this Court would.

Q You recognize that would increase the cost to the trust because they are required then to submit annual statements and have hearings and so forth, do you understand that?

A No.

Q Would you agree if the Court were to require supervised administration the cost for that should be paid out of the corpus of the trust instead of the income since there isn't enough income?

A No.

Q You wouldn't want that, would you?

A No.

[¶ 14] In addition, Kenneth Pederson contends if the property is not properly managed, waste will continue. He states: "Wells Fargo's policy of visiting property only every 15 months is not adequate to prevent deterioration of the property." He further asserts: "Wells Fargo shows little interest in taking care of the property which was entrusted to Wells Fargo by Oliver Pederson." However, while being cross-examined by counsel for Darlene Bernsdorf, Kenneth Pederson testified:

Q I noticed quite a few questions about the house indicating I gather you think that the trustee should be running out to check on the house?

A No.

Q You...