Malachowski v. Bank One, Indianapolis, N.A.
| Decision Date | 27 June 1996 |
| Docket Number | No. 49A04-9407-CV-260,49A04-9407-CV-260 |
| Citation | 667 N.E.2d 780 |
| Parties | Louise Noel MALACHOWSKI, Nancy Noel Kosene, H. Jerome Noel, Jr., Irma Noel Rand, William H. Noel, Carol Noel Fleming, William H. Failey, Jr., and John Noel Failey, Appellants (Plaintiffs Below), v. BANK ONE, INDIANAPOLIS, N.A., Formerly American Fletcher National Bank and Trust Company, Appellee (Defendant Below). |
| Court | Indiana Appellate Court |
Louise Noel Malachowski, Nancy Noel Kosene, H. Jerome Noel, Jr., Irma Noel Rand, Carol Noel Fleming, William H. Failey, Jr. and John Noel Failey (the Beneficiaries) appeal from the trial court's judgment in their breach of trust and fraud action against Bank One, Indianapolis, N.A. We affirm.
1. Whether reversal is required because the trial court's findings are in irreconcilable conflict.
2. Whether the trial court's conclusion that Bank One's diversification action was proper is erroneous when the court also found that Bank One misrepresented the existence of a mandate to diversify.
3. Whether the trial court's analysis of the prudence of the diversification action was proper.
4. Whether the trial court erred by finding Bank One did not act improperly in failing to obtain court approval for diversification.
5. Whether the trial court erred in failing to find for the Beneficiaries on their fraud claim.
6. Whether the trial court erred in failing to award punitive damages to the Beneficiaries.
7. Whether the trial court erred in failing to award attorney fees to the Beneficiaries.
In 1935, Harry S. Noel, as settlor, established an irrevocable inter vivos trust ("the Trust") and named Bank One's predecessor as trustee. Our supreme court has already noted the following details about the parties and this particular trust in the initial action:
Income from the Trust was to be paid to the settlor's wife during her lifetime. Upon her death, income was to be paid in equal shares to the settlor's three children, Harry J. Noel, Barbara L. (Noel) Seawell, and Carol A. (Noel) Failey, or to their surviving issue. The Trust is to terminate on the death of the survivor of these three children with the corpus to be distributed to the surviving issue of those children. Two of the settlor's children have died. Harry J. Noel died in 1986, leaving six children, H. Jerome Noel, Jr., Nancy (Noel) Kosene, William H. Noel, Carol (Noel) Madrick, Louise (Noel) Malachowski, and Irma (Noel) Rand, all of whom are plaintiffs in this action. Carol A. (Noel) Failey died in 1961, leaving two children John Noel Failey and William H. Failey, Jr., both of whom are plaintiffs here. Barbara L. (Noel) Seawell is still living, and has two children. Neither Mrs. Seawell nor her children are parties to this action.
When the Trust was created, its only asset was life insurance policies payable on the death of the settlor. The Trustee was authorized to purchase property from the settlor's estate and was totally indemnified from any liability for those transactions. The settlor also had established a testamentary trust in his Will and named Bank One as trustee. At the settlor's death, the testamentary trust was funded with Lilly stock.
The settlor died in 1943. Proceeds from the life insurance policies held by the Trust were lent to the estate. That loan was repaid in 1947 with 1,564 shares of Lilly stock valued at $35,000. From that time until 1972, the corpus of the Trust consisted entirely of Lilly stock. In 1972, Bank One began selling Lilly stock to diversify the Trust holdings apparently over the objections of some of the settlor's children. At the time diversification began, the value of the Lilly stock and Trust corpus held by the Trust was $2,400,000. Sales of the stock continued intermittently for eight years until December 1985. The Beneficiaries assert that the value of the corpus in 1985, if no Lilly stock had been sold, would have been approximately $360,000 greater.
In February 1988, this action was filed against Bank One. The Beneficiaries sought various forms of relief, including the restoration of Lilly stock sold by Bank One to the Trust, removal of Bank One as Trustee, and division of the Trust corpus into three shares. Bank One moved for summary judgment. The trial court found that the sale of Lilly stock and Bank One's refusal to divide the Trust into separate portions did not violate the terms of the Trust or constitute any breach of trust. The trial court did not decide whether the Beneficiaries' claim was barred by the statute of limitations.
The Beneficiaries appealed. The Court of Appeals held that the action was barred by the statute of limitations and did not address the substance of the claims presented to the trial court.
Malachowski v. Bank One, 590 N.E.2d 559, 561-62 (Ind.1992). Our supreme court granted transfer, vacated the opinion of the Court of Appeals, and reversed the trial court's entry of summary judgment, holding that questions of fact existed with respect to whether 1) "the Beneficiaries' claim is barred by the statute of limitations;" 2) "the trustee committed a breach of trust;" and 3) "Bank One should be removed as Trustee." Id. at 561.
Specifically, the supreme court considered the Beneficiaries' presentation of "several circumstances that raise questions concerning the propriety of diversification" on the "Beneficiaries' claim for breach of trust[,] ... premised on the argument that Bank One wrongfully sold the Lilly stock," and found the Beneficiaries to have established "genuine issues of material fact precluding summary judgment for Bank One." Id. at 564, 565. These questions about the propriety of diversification concerned 1) claims of self-serving motives on the part of Bank One for selling the Lilly stock; 2) an indemnity agreement written by Bank One which Bank One insisted all Beneficiaries sign before Bank One would consider not undertaking diversification; 3) the sizeable capital gains taxes levied on the Trust corpus; and 4) the Beneficiaries' assertion that Bank One misrepresented the existence of a mandate from the national Bank Board Audit staff requiring diversification.
On the matter of whether Bank One should be removed as Trustee, "at least in part on account of the alleged misrepresentation of the mandate from the National Bank Examiners Audit staff to diversify the Trust holdings," id. at 566, the supreme court agreed with the court of appeals' dissenting statement that a trier of fact may be "permitted to determine from the evidence that in making misrepresentations to the Beneficiaries as to federal examiners' orders to diversify, the Bank had so jeopardized its trust relationship as to require removal." Id. at 567.
Before further action after the remand, the Beneficiaries filed in the trial court an additional complaint against Bank One for fraud, alleging that a letter from a Bank One trust officer "misrepresented the existence of a mandate from the National Bank Examiners requiring" either diversification of the 100% Lilly stock corpus or indemnification of the bank by all beneficiaries. (R. 156). The letter stated that Bank One had "been mandated by the National Bank Examiners audit staff and by our own Internal Trust Committee to either diversify this concentration of Lilly stock or seek indemnity from all interested parties against any loss due to its retention." (R. 1986).
Both the breach of trust action and the fraud action were tried to the court over six days in July 1993. On January 13, 1994, the trial court issued its thirty-eight page findings of fact, conclusions of law and judgment. The court found that the diversification action undertaken by Bank One did not constitute a breach of trust. However, the court also held that the "misrepresentations to the beneficiaries as to Federal Bank Examiners' order to diversify" had "so jeopardized its trust relationship as to require removal." (R. 1167). The judgment denied the Beneficiaries' claims for damages and attorney fees. 2
The trial court entered special findings of fact and conclusions of law as provided by Ind. Trial Rule 52(A), pursuant to the request of the beneficiaries. As recently summarized by our supreme court, appellate review of a judgment upon special findings of fact by the trial court proceeds as follows:
First, it must determine whether the evidence supports the trial court's findings of fact; second it must determine whether those findings of fact support the trial court's conclusions of law. An appellate court "shall not set aside the findings or judgment unless clearly erroneous," Ind. Trial Rule 52(A); and it shall not reweigh the evidence or determine the credibility of witnesses. Findings are clearly erroneous only when the record contains no facts to support them either directly or by inference. A judgment is clearly erroneous when it is unsupported by the findings of fact and the conclusions relying on those findings.
Estate of Reasor v. Putnam County, 635 N.E.2d 153, 158 (Ind.1994) (citations omitted).
As already noted, the court's findings of fact, conclusions of law and judgment consume thirty-eight pages. The court's initial fourteen findings detail the trust and its beneficiaries. The next thirty-two findings of fact are labeled "findings of fact as to prudence of diversification." Then the court wrote six "findings of fact as to trustee fees." The concluding twenty-two findings of fact are designated "as to misrepresentations." Upon these findings, the court made thirty-four conclusions of law.
The Beneficiaries first claim reversal is required because the trial court's findings are in irreconcilable conflict. The Beneficiaries direct us to Conclusion of Law 12, stating,
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Malachowski v. Bank One, Indianapolis, N.A.
...65 (Ind.Ct.App.1991), vacated in Malachowski v. Bank One, Indianapolis, 590 N.E.2d 559 (Ind.1992), and Malachowski v. Bank One, Indianapolis, 667 N.E.2d 780 (Ind.Ct.App.1996). Accordingly, we will recite only the facts necessary to dispose of the issues before The trust at issue was created......