Jarvis v. Nat'l City

• Decision Date: 26 September 2013
• Docket Number: No. 2011–SC–000135–DG.,2011–SC–000135–DG.
• Citation: 410 S.W.3d 148
• Parties: Katherine Combs JARVIS and Hugh J. Caperton, Appellants v. NATIONAL CITY and PNC Bank National Association, Appellees.
• Court: United States State Supreme Court — District of Kentucky

410 S.W.3d 148

Katherine Combs JARVIS and Hugh J. Caperton, Appellants

v.NATIONAL CITY and PNC Bank National Association, Appellees.

No. 2011–SC–000135–DG.

Supreme Court of Kentucky.

Sept. 26, 2013.

Homer Parrent, III, Parrent & Oyler, Counsel for Appellants.

Virginia Hamilton Snell, Turney Powers Berry, Wyatt, Tarrant & Combs, LLP, Counsel for Appellees.

Opinion of the Court by Chief Justice MINTON.

Katherine Combs Jarvis and Hugh J. Caperton are the beneficiaries of testamentary trusts managed by trustees National City and PNC Bank.¹ Throughout the life of these trusts, Kentucky Revised Statutes (KRS) 386.180 mandated that testamentary trustees make a choice of compensation between either an annual fee or a fee at the termination of the trust. And these trusts present each of those statutory fee options. The Caperton Trust, managed by PNC Bank, operates under a termination-fee compensation option; and the Jarvis Trusts, managed by National City, apparently operate under an annual-fee option.

The General Assembly repealed KRS 386.180 in 2008, eliminating the rigid statutory structure for testamentary trustee compensation. So the Trustees immediately brought a declaratory judgment action in the trial court seeking a judicial determination of whether the repeal of the statute affects trustee compensation for trusts like the Caperton Trust and the Jarvis Trusts that were in existence for many years before the repeal of the statute.

The trial court ruled that the Trustees were not bound by the constraints of the former statute. The Beneficiaries appealed and the Court of Appeals summarily upheld the trial court, adopting the trial court's opinion as its own.

We granted discretionary review. Because we conclude that the repeal of KRS 386.180 was complete and unlimited, we affirm the Court of Appeals. Trustees of testamentary trusts may collect reasonable fees on trusts that predate the repeal of KRS 386.180.

I. FACTUAL AND PROCEDURAL BACKGROUND.

The facts of this case are undisputed. At issue are three distinct testamentary trusts, the Katherine Lovern Craf Trust, the John Riley Craf Trust, and the Hugh J. Caperton Trust.

A. The Jarvis Trusts.

Katherine Combs Jarvis is the beneficiary of two of the testamentary trusts at issue.² The Katherine Lovern Craf Trust was created in Craf's will, executed in 1998. The terms of the trust direct the trustee to remit the net income of the trust to Jarvis or apply the net income for her benefit for the duration of her life. At Jarvis's death, the trust is to terminate; and any remainder is to be distributed to Jarvis's daughter, Katherine Christina Jarvis. The trust lists National City as the trustee but has no term or language relating to compensation for any services rendered in fulfilling that role.

Jarvis is also the beneficiary of the John Riley Craf Trust created in John Riley Craf's will, executed in 1992. Again, the trust is to be managed by National City; but the trust is silent with regard to how National City is to be compensated. The John Riley Craf trust mirrors the Katherine Lovern Craf trust because it also directs the trustee to distribute the net income of the trust to Jarvis for the duration of her life. At Jarvis's death, the remainder is to be distributed to Jarvis's daughter.

National City accepted the appointment of trustee in November of 1999, following the acquisition of First Kentucky Trust Company, the actual listed trustee in each of the Jarvis trusts. Apparently, from statements of counsel at oral argument, National City has opted for an annual fee against the principal of the trust as its compensation for the management of the Jarvis trusts.

B. The Caperton Trust.

Hugh J. Caperton is the beneficiary of a testamentary trust created by the will of his father, who died in 1944.³ The terms of the trust direct the trustee to distribute the whole net income to Caperton for the duration of his life. The trust is to terminate upon Caperton's death; and the principal is to be distributed, per stirpes, to Caperton's then living descendants, if any. If Caperton dies without living descendants, the remaining principal is to be distributed, per stirpes, to the remaining living descendants of Caperton's father. There is no mention of trustee compensation anywhere in the terms of the trust.

The Caperton trust designates Fidelity and Columbia Trust Company, a predecessorof PNC, as the trustee. Again, the record is somewhat unclear on this point; but PNC's Senior Vice President and Trust Director stated in an affidavit that PNC has never assessed an annual charge on principal, instead opting to charge a termination fee of up to six percent on the value of the trust at the termination of the trust upon Caperton's death.

C. Statutory Context and Procedural History.

Historically, the Kentucky General Assembly has placed a statutory cap on the allowable compensation for trustees of testamentary trusts. This ceiling was expressed in KRS 386.180, which was repealed in 2008. The statute mandated that trustees, when assessing fees from the principal of the trust, elect either annual-fee or termination-fee compensation mode and, further, only allowed fees to equal a certain maximum amount of the trust value. Fees assessed from the income of the trust were limited to no more than six percent of the income collected by the trustee. Further, the fees actually assessed by a trustee were subject to a determination of reasonableness by a court.

Following the repeal of KRS 386.180, in December 2008, the Trustees initiated this action in the trial court. The Trustees sought a declaratory judgment, under KRS 418.040, regarding their right to charge reasonable fees for their services rather than being limited to the rigid structure previously mandated by the statute. The Beneficiaries argued that the Trustees were bound by the compensation mode they elected under the former statutory regime. The Trustees filed a motion for summary judgment, asserting that the repeal of KRS 386.180 eliminated any and all restrictions on the calculation of trustee fees. The Beneficiaries claimed that the repeal should only apply to trusts created after 2008 when the repeal went into effect. The trial court granted the Trustees' motion for summary judgment.

The Beneficiaries appealed the decision to the Court of Appeals. Again, the Trustees prevailed because the Court of Appeals adopted the decision of the trial court. We granted the Beneficiaries' request for discretionary review because the effect of the statutory repeal in question has widespread impact on the law of testamentary trusts across the Commonwealth.

II. ANALYSIS.

On appeal, the Beneficiaries challenge two main aspects of the trial court's ruling and, in turn the decision of the Court of Appeals. First, the Beneficiaries claim that despite the repeal of KRS 386.180, the Trustees are bound to the respective compensation mode they elected. Furthermore, the Beneficiaries claim that the repeal should not operate retroactively and apply to trusts created before the date of the repeal because to do so would interfere with substantive, vested rights. Finally, the Beneficiaries claim that the Trustees have failed to include all of the necessary parties in the action, namely, the remaindermen.

The standard of review on appeal of a summary judgment is whether the trial court correctly found that there were no genuine issues of material fact. Here, the facts are undisputed. Accordingly, there is no mandate that this Court defer to the trial court.⁴ As a result, we engage in de novo review of the issues presented.

A. This Case Presents an Actual Controversy that is Justiciable.

Before dealing with the main arguments presented by the Beneficiaries, we must resolve an issue discussed in the lower courts. That issue is whether this case presents a justiciable controversy, whether it is appropriately susceptible of a judicial determination. Admittedly, both parties, in wanting the case resolved and their rights declared, prefer the same result on this issue. Furthermore, it appears that the Beneficiaries, having raised the issue to the trial court, have now abandoned it because they make no mention of the issue in the briefs submitted to this Court. Nonetheless, we feel the existence of an actual controversy is a preliminary hurdle that deserves our attention before proceeding further. We find this case does present a justiciable issue.

Of course, this Court does' not render advisory opinions. ⁵ This case arose as a declaratory judgment action under KRS 418.040, which provides that a court can make a binding declaration of rights but only if a justiciable issue is present.⁶ We “will not decide speculative rights or duties which may or may not arise in the future, but only rights and duties about which there is a present actual controversy presented by adversary parties.” ⁷ But we “may declare the rights of litigants in advance of action when [we] conclude[ ] that a justiciable controversy is presented, the advance determination of which would eliminate or minimize the risk of wrong action by any of the parties.” ⁸ Indeed, this is the very purpose of declaratory judgment actions.⁹

This case presents two adversarial parties and the potential for wrong action by one of the parties. The record shows that the Trustees have not yet sought reasonable fees outside of the former statute's required maximums, but that does not preclude this case from being resolved by this Court. The Beneficiaries must compensate the Trustees for their services, and the parties disagree on how that is to be done. The declaratory judgment action allows the parties to have their rights and obligations declared without being forced to act improperly and initiate litigation after an injury has occurred. We believe there is a “justiciable controversy over present rights, duties or liabilities”; and a decision in this case “is not only expedient but is just, and is...