In the Matter of The Trust of Harrison Eiteljorg v. Harrison Eiteljorg Ii

• Citation: 951 N.E.2d 565
• Decision Date: 27 June 2011
• Docket Number: No. 49A02–1005–TR–485.,49A02–1005–TR–485.
• Parties: In the Matter of the Trust of Harrison EITELJORG,Roger Eiteljorg and John Lienhart, Appellants–Defendants,v.Harrison Eiteljorg II and Jack M. Eiteljorg, Appellees–Plaintiffs.
• Court: Court of Appeals of Indiana

951 N.E.2d 565

In the Matter of the Trust of Harrison EITELJORG,Roger Eiteljorg and John Lienhart, Appellants–Defendants,
v.
Harrison Eiteljorg II and Jack M. Eiteljorg, Appellees–Plaintiffs.

No. 49A02–1005–TR–485.

Court of Appeals of Indiana.

June 27, 2011.

[951 N.E.2d 567]

Richard A. Smikle, Brian J. Paul, Ice Miller LLP, Indianapolis, IN, Attorneys for Appellants.Vicki L. Anderson, Mark S. Alderfer, Joseph M. Hendel, Hackman Hulett & Cracraft, LLP, Indianapolis, IN, Attorneys for Appellees.

OPINION VAIDIK, Judge.Case Summary

This is a probate dispute between trustees and beneficiaries. The beneficiaries initiated suit against the trustees alleging a breach of duty to administer the subject trust according to its terms, specifically for failing to distribute a portion of the trust corpus in a timely manner. The probate court found the trustees liable and awarded damages and attorney's fees to the beneficiaries. The trustees appeal, claiming that the probate court erred in finding a breach of duty and erred in assessing damages and attorney's fees. We find sufficient evidence to sustain the probate court's finding on liability, as the trustees knew there was property available in the trust for distribution yet declined to timely distribute it to the beneficiaries. However, we find that the probate court's assessment of damages and attorney's fees is erroneous. We remand for a reevaluation of compensatory damages and a reduction in attorney's fees.

Facts and Procedural History

Harrison Eiteljorg established a testamentary trust effective upon his death in 1997. His second wife Sonja was designated sole beneficiary. Sons Harrison Eiteljorg II (“Nick”) and Jack M. Eiteljorg were the remainder beneficiaries. The trust ultimately had three cotrustees: Nick, Harrison's stepson Roger, and accountant John Lienhart. Article I of the trust agreement provided:

Clause 2. The Trust Property (and any accumulated income therefrom) remaining at the death of ... Settlor's Spouse, ... shall be divided into equal shares, one (1) share for each of Settlor's sons....

Clause 3. Upon (or promptly after) the allocation specified in Clause 2 hereof, the Trustee shall distribute, convey, transfer and deliver, as applicable, to the then-living sons of Settlor ... absolutely and free of all trusts, the shares (or portions of a share) of the Trust Property (and any income accumulated therefrom ...) allocated to such sons or issue under such Clause 2, subject to the Trustee's retaining an appropriate amount from each share (or portion of a share) to pay such share's (or portion's) part of any taxes....

Appellants' App. p. 351–52. Article III further obligated trustees to “act with reasonable care and prudence” in the trust's administration. Id. at 353.

Sonja died in July 2003. The trust property represented part of her estate and was therefore subject to federal estate tax. The trust remitted $6.2 million in taxes by September 2004. But because filing estate tax is a long and complex process, the trust's total tax liability remained unsettled and would not be cleared by the Internal Revenue Service until 2006.

Nick, Roger, John, and Jack met in October 2004 to discuss distribution of the trust property. At that time the trust consisted of about $6.5 million, including $3.2 million in liquid assets. Nick requested a distribution of $2 million total for him and Jack. John thought dispensing that much would be imprudent. By his accounting the trust might still owe upwards of $2 million in additional taxes. Roger

[951 N.E.2d 568]

also opposed the distribution, as he was executor of Sonja's estate and would be responsible if the trust were left with insufficient liquidity. Roger and John suggested distributing a total of $1 million. Nick pressed for a greater distribution, but John told Nick that “nothing will satisfy me on that score.” Nick stormed out of the room. Nick indicated that he and Jack would seek counsel. No trust property was distributed.

Further attempts at negotiation proved unfruitful. Nick tried contacting John to no avail. Nick and Jack's attorney sent a letter requesting that John and Roger resign as trustees. John and Roger's attorney wrote back proposing a distribution of $1 million cash plus other non-liquid assets. Additional correspondence ensued, but no resolutions were reached.

In January 2005, Nick and Jack petitioned the probate court to remove John and Roger as trustees due to their failure to distribute the trust property. John and Roger sought and retained new counsel and, the following April, filed a petition for instructions asking the court to determine an appropriate trust distribution and tax holdback. Then in July, Nick and Jack filed notice raising thirteen claims of breach of trust. Nick and Jack alleged that John and Roger breached their duties as trustees:

1) to administer the trust according to its terms, Ind.Code § 30–4–3–6(a).

2) to seek court authority to deviate from the trust terms, Ind.Code § 30–4–3–26.

3) to avoid self-dealing, Ind.Code §§ 30–4–3–6(b)(5), –4–3–7.

4) to use special skills or expertise to benefit trust beneficiaries, Ind.Code § 30–4–3.5–2(f).

5) to incur only appropriate and reasonable costs to the trust, Ind.Code § 30–4–3.5–7.

6) to seek court authority to act where conflicts of interest exist, Ind.Code § 30–4–3–5.

7) to comply with the prudent investor rule, Ind.Code §§ 30–4–3.5–1, –2.

8) to diversify the investments of the trust, Ind.Code § 30–4–3.5–3.

9) to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of the trust, Ind.Code § 30–4–3.5–4.

10) to invest and manage the trust assets solely in the interest of the beneficiaries, Ind.Code § 30–4–3.5–5.

11) to act impartially in investing and managing trust assets, Ind.Code § 30–4–3.5–6.

12) to make the trust productive for both income and remainder beneficiaries, Ind.Code § 30–4–3–6(b)(4).

13) to include Nick as a cotrustee, Ind.Code § 30–4–3–8.

Original probate judge Charles Dieter issued a preliminary order denying removal of John and Roger as trustees but requiring an immediate distribution of $1.5 million to Nick and Jack. John and Roger complied, distributing $1.2 million in cash along with other non-liquid assets by the end of July 2005.

Judge Dieter next held hearings on Nick and Jack's breach of trust claims and, in June 2007, issued an order concluding that John and Roger breached their duty to administer the trust according to its terms for failing to timely distribute Nick and Jack's shares of the trust corpus. In particular, the trust required John and Roger to distribute the corpus of the trust less outstanding obligations promptly after the death of the settlor's spouse. Judge Dieter found that John and Roger breached

[951 N.E.2d 569]

their duty by failing to promptly distribute assets to Nick and Jack above and beyond any outstanding obligations of the trust. Judge Dieter also determined that John and Roger should have sought court authority to deviate from the trust terms when they chose to retain the trust property in violation of the explicit term of the trust requiring distribution of the property promptly upon the death of the settlor's spouse. However, Judge Dieter found John and Roger not liable on Nick and Jack's eleven remaining breach of trust claims.

Judge Dieter proceeded to hear evidence on damages. Each side called its own expert. Nick and Jack's expert testified that the trustees should have distributed $1.8 million in October 2004. John and Roger's expert claimed that a distribution of $1,045,000 would have been reasonable. Nick offered evidence that, had his share been timely distributed, he would have invested the funds in his income-rich Vanguard and GE accounts. Jack offered evidence that he would have used his share to close a lucrative real estate deal in Texas. Nick and Jack's attorneys submitted affidavits indicating their fees in pursuing this claim totaled $403,612.81.

Judge Dieter died before ruling on damages, and the matter was reassigned to Judge Tanya Walton Pratt. Judge Pratt listened to recordings and reviewed the transcripts of all prior proceedings.

In assessing damages, Judge Pratt first concluded that a trust distribution of $1.2 million would have been reasonable in October 2004. She further found that Nick and Jack's relevant damages period lasted from October 2004 until October 2007 when the trust was wrapped up. Judge Pratt also credited Nick and Jack's evidence with regard to their foregone investment opportunities. Accordingly, Judge Pratt (a) awarded Nick $156,701 representing lost Vanguard and GE earnings from October 2004 to October 2007, (b) awarded Jack $112,046.77 in lost profits from his missed real estate deal, and (c) awarded Nick and Jack a slightly discounted total of $353,612.81 in attorney's fees.

John and Roger now appeal.¹

Discussion and Decision

John and Roger argue (I) that Judge Dieter erred in finding that they breached their duty to administer the trust according to its terms and (II) that Judge Pratt erred in her assessment of damages and attorney's fees.

I. Liability for Breach of Trust

John and Roger first argue that Judge Dieter erred in finding that they breached their duty to administer the trust according to its terms.

Where a probate court enters findings of fact and conclusions of law, we apply a two-tiered standard of review. In re Estate of Owen, 855 N.E.2d 603, 608 (Ind.Ct.App.2006). First, we consider whether the evidence supports the findings, and second, whether the findings support the judgment. Hardy v. Hardy, 910 N.E.2d 851, 855 (Ind.Ct.App.2009). We neither reweigh the evidence nor assess witness credibility, and we consider only the evidence most favorable to the judgment. Id. We will set aside the trial court's findings and conclusions only if they are clearly erroneous; that is, if the record contains no facts or inferences supporting them. Id. We apply a...