In re Trust Agreement Dated June 6, 1974

• Citation: 452 P.3d 297
• Decision Date: 24 October 2019
• Docket Number: SCWC-15-0000632
• Parties: In the MATTER OF the TRUST AGREEMENT DATED JUNE 6, 1974, as Amended
• Court: Hawaii Supreme Court

452 P.3d 297

In the MATTER OF the TRUST AGREEMENT DATED JUNE 6, 1974, as Amended

SCWC-15-0000632

Supreme Court of Hawai‘i.

OCTOBER 24, 2019

MOTION FOR RECONSIDERATION DENIED NOVEMBER 14, 2019

Gary Victor Dubin and Frederick J. Arensmeyer, Honolulu, for petitioners

Vincent A. Piekarski, Raymond K. Okada, Judy Y. Lee, Johnathan C. Bolton and Deirdre Marie-Iha, Honolulu, for respondent Bank of Hawaii

Robert Bruce Graham, Jr., James K. Mee, Honolulu, and H. Shan Wirt for respondent Susan Sheetz and Patricia Sheetz

Blake W. Bushnell, Honolulu, for respondents Julie G. Henderson, Trustee of the Julie G. Henderson Irrevocable Trust, the Jean K. Gowans Irrevocable Trust and the Louis L. Gowans, Jr. Irrevocable Trust; and Richard L. Gowans, Trustee of the Richard L. Gowans Irrevocable Trust

Douglas C. Smith and Christopher J.I. Leong for respondent Kevin I. Yokoyama, as Trustee of the Kevin I. Yokoyama Trust and the Irvine K. Yokoyama, Jr. Trust

NAKAYAMA, ACTING C.J., POLLACK, AND WILSON, JJ., CIRCUIT JUDGE ASHFORD IN PLACE OF RECKTENWALD, C.J., RECUSED, AND CIRCUIT JUDGE TO‘OTO‘O, IN PLACE OF McKENNA, J., RECUSED

OPINION OF THE COURT BY NAKAYAMA, J.

This appeal arises from a 2014 petition by Respondent/Petitioner-Appellee Bank of Hawai‘i (BOH) to resign as trustee for a trust comprised of several parcels of land underlying the Discovery Bay condominium complex in Waikiki (Trust). Petitioners/Respondents-Appellants Michael David Bruser and Lynn Bruser (collectively, "the Brusers"), who hold the leasehold commercial unit in the condominium, and several Trust beneficiaries objected to BOH’s petition to resign as trustee.

In the subsequent litigation in the Probate Court of the First Circuit (probate court), the probate court entered several orders that determined that a monthly trustee’s fee of $9,850 was reasonable, permitted BOH to reform the trust agreement, and awarded attorneys’ fees and costs to BOH. The probate court, however, specifically declined to determine whether the Brusers were liable to pay the trustee’s fees. Thereafter, the Brusers filed two appeals in the Intermediate Court of Appeals (ICA) challenging these orders.

After their appeals were consolidated with the appeals of other beneficiaries, the Brusers filed an opening brief alleging that the probate court erred when it determined that the $9,850 trustee’s fee was reasonable and when it awarded an unreasonable amount of attorneys’ fees and costs to BOH. The Brusers also stated that the probate court erred in exercising jurisdiction over the Brusers, who are not parties to the Trust Agreement, and holding them responsible for the increased trustee’s fee.

The ICA determined that under the language of the Trust Agreement and the condominium conveyance document for the commercial unit, the Brusers were responsible for paying the trustee’s fees. The ICA also concluded that the $9,850 monthly trustee’s fee was reasonable. Accordingly, it affirmed the probate court’s orders denying the Brusers’ motion for reconsideration and granting in part the petition for resignation. Additionally, the ICA rejected the Brusers’ specific objections to the probate court’s attorneys’ fees and costs order, but vacated and remanded the order on other grounds.

On certiorari, the Brusers contend that the ICA erred when it concluded that they are liable for the trustee’s fees even when the probate court made no such determination, and when the probate court did not allow the Brusers discovery to determine the reasonableness of the trustee’s fee. They also challenge the ICA’s failure to address their specific objections to the probate court’s attorneys’ fees and costs order, even if the ICA vacated and remanded the order on other grounds.

On review of the record and the orders entered by the probate court in this case, we first agree with the Brusers to the extent that the probate court did not make any determination regarding their liability for the trustee’s fees. Therefore, the ICA erred in concluding, in the first instance, that the Brusers are liable for the trustee’s fees when the probate court did not address the issue. We vacate the ICA’s judgment on appeal to the extent that it holds the Brusers liable for the trustee’s fees.

However, for the reasons set forth herein, we affirm the ICA’s judgment on appeal that affirmed the probate court’s conclusion that a $9,850 monthly trustee’s fee is reasonable. We also affirm the ICA’s judgment on appeal vacating and remanding the probate court’s attorneys’ fees and costs order.

I. BACKGROUND

A. The Formation of the Trust

On June 6, 1974, various parties who owned thirteen adjacent parcels of land under what is now the Discovery Bay condominium complex (Discovery Bay) at 1778 Ala Moana Boulevard in Waikiki entered into a trust agreement with Mainline-MEPC Properties (Hawai‘i), Inc. (MEPC Properties), a construction company that wished to build a condominium at the site, and Hawaiian Trust Company, Limited (Hawaiian Trust Company), as trustee, to construct a condominium on the property.

The purposes of the Trust, as described in the Trust Agreement, were to (1) construct a condominium on the property; (2) provide efficient and uniform administration of the Settlors’ interests; (3) determine the value of the leases created by condominium conveyance documents (CCD); (4) distribute rental income under the CCDs to the Settlors; and (5) administer the property on the termination of the leases created under the CCDs.

As defined by paragraph 2 of the Trust Agreement, the trustee’s powers were limited to the powers expressly granted by the Trust Agreement.¹ The Trust Agreement provided other provisions with respect to trustee’s fees and the resignation of the trustee:

11. Trustee’s Fees. The Trustee shall be entitled to such reasonable fees as from time to time may be mutually agreed upon. In addition to said reasonable fees, the Trustee shall have the right to incur such expenses and to be reimbursed by the Lessee as provided for by the leases; and to incur such expenses and be reimbursed for extraordinary services. The Lessee or its assigns will pay the Trustee’s fee and expenses until December 31, 2039 or the earlier termination of this trust.^[2]

....

17. Resignation, Removal and Substitution of Trustee.

(a) Resignation of Trustee. The Trustee may resign its duties hereunder by filing with each person designated as a representative its written resignation. No such resignation shall take effect until sixty (60) days from the date thereof unless prior thereto a successor Trustee shall have been appointed.

....

(c) Appointment of Successor Trustee. A successor Trustee hereunder may be appointed hereunder upon the majority vote of representatives of Settlors having an interest in the majority in square footage in the jointly developed parcel and shall take effect upon the delivery to the resigning or removed Trustee, as the case may be, of (i) an instrument in writing appointing such successor Trustee, and (ii) an acceptance in writing of the successor Trustee hereunder executed by the successor so appointed.

Any successor Trustee hereunder shall be a corporation authorized and empowered to exercise trust powers within the State of Hawaii. ...

Pursuant to an agreement with MEPC Properties in 1974, Hawaiian Trust Company, the original trustee, received an annual trustee’s fee of $800.00.

B. The Brusers and the Commercial Unit

Discovery Bay consists of 665 leasehold residential units and one leasehold commercial unit (Commercial Unit). Title to the leasehold interests is held by an "Apartment Owner" under the terms and conditions of a CCD for that unit.

On December 1, 1976, the Commercial Unit CCD was executed between Hawaiian Trust Company, as trustee and lessor, and MEPC Properties, as the "Apartment Owner." Therein, Hawaiian Trust Company conveyed the Commercial Unit to MEPC Properties for a term "commencing on the 1st day of December 1976, and terminating at midnight on the 31st day of December, 2039." The Commercial Unit CCD contains a provision stating that "[t]he Apartment Owner shall also pay to the Lessor all fees and expenses charged or incurred by the Lessor as Trustee under the terms of the said Trust Agreement[.]"

On or about December 14, 1984, the Brusers acquired the Commercial Unit from MEPC Properties by a deed (Apartment Deed). Pursuant to the Apartment Deed, the Brusers stated that for ten years, they "paid all monthly rents, costs, expenses, assessments, and charges required and demanded of them in a timely manner, and continue to do so."

In February 1994, BOH, which had previously acquired Hawaiian Trust Company (and thus had become the trustee of the Trust), requested a monthly trustee’s fee of $500 for its efforts on behalf of the trust beneficiaries. While the Brusers questioned the validity and reasonableness of the trustee’s fee, they nevertheless agreed to pay the $500 monthly fee.

In 2001, after being notified that BOH intended to increase the monthly trustee’s fee from $500 to $2,586, the Brusers filed a complaint for declaratory judgment in the United States District Court for the District of Hawai‘i (U.S. District Court) requesting that the U.S. District Court find that they were not liable for any alleged trustee’s fees. The Brusers later settled with BOH and agreed to pay a monthly trustee’s fee of $1,100 until December 31, 2002.

The Brusers appear to have continued to pay the monthly trustee’s fee of $1,100 until BOH filed its petition to resign as trustee in January 2014.

C. Probate Court Proceedings

On January 28, 2014, BOH filed a "Petition for Resignation of Trustee, Appointment of Successor Trustee, Reformation of Trust and Approval of Trustee’s Accounts Covering the Period from January 1, 2008 through December 31, 2013" (Petition for Resignation) in the probate court.³ While BOH did not explain why it wished to resign, it informed the probate court that the beneficiaries had not yet selected a successor trustee, that Central...