Massey v. St. Joseph Bank and Trust Co.

• Decision Date: 30 October 1980
• Docket Number: No. 3-580A128,3-580A128
• Citation: 411 N.E.2d 751
• Parties: Thomas MASSEY, Robert Massey, Peter Massey and John Massey, Appellants-Plaintiffs, v. ST. JOSEPH BANK AND TRUST CO., Appellee-Defendant.
• Court: Indiana Appellate Court

Page 751

411 N.E.2d 751

Thomas MASSEY, Robert Massey, Peter Massey and John Massey Appellants-Plaintiffs, v. ST. JOSEPH BANK AND TRUST CO., Appellee-Defendant.

No. 3-580A128.

Court of Appeals of Indiana, Third District.

Oct. 30, 1980.

Timothy W. Woods, South Bend, for appellants-plaintiffs.

Charles M. Boynton and Gerald A. Kamm, Doran, Manion, Boynton, Kamm & Esmont, South Bend, for appellee-defendant.

STATON, Judge.

Thomas Massey, Robert Massey, Peter Massey and John Massey are beneficiaries of a trust. They filed a petition in probate court to have the trustee of their trust removed. After a trial, the probate court denied their petition to remove the St. Joseph Bank and Trust Co. as the trustee. They present these issues on appeal for our review:

(1) Whether it was contrary to the evidence and the law for the probate court to decide that the trustee had not breached its duty of loyalty to the beneficiaries; and,

(2) Whether it was contrary to the evidence and the law for the probate court to determine hostility did not exist between the beneficiaries and the trustee.

We affirm.

The facts pertinent to the resolution of the issues here raised are as follows. On February 9, 1977, the marriage of James L. and Kathryn K. Massey was dissolved. As part of the property settlement under the divorce decree, the "James Massey 1977 Irrevocable Trust" was established for the sole purpose of funding the post-high school education of the Masseys' four children, Thomas, Robert, Peter and John. The trust instrument designated the St. Joseph Bank and Trust Co. as trustee of the trust. The divorce decree gave Kathryn K. Massey the custody of her four sons, Thomas, Robert, Peter and John.

On February 9, 1977, the date of the divorce decree, the Trust was funded by James Massey with 2200 shares of Codex stock. The following day, February 10, 1977, the Bank sold 1000 shares of the Codex stock for the purpose of diversification. However, more than a year elapsed before Kathryn Massey and her sons learned of the Bank's determination of the federal tax consequences with respect to this sale. The Bank, through the use of an independent certified public accountant, computed and paid federal taxes amounting to $15,393. This tax amounted to approximately 15% of the Trust corpus.

Kathryn Massey's accountant advised her to consult an attorney because, in his opinion, the Trust should not have paid the taxes. Kathryn Massey's accountant and attorney met with the Bank's accountant. They requested that the Bank file an amended return. The amended return would show no federal taxes owing and would seek a total refund of the $15,393 which had been paid when the original return was filed. Although the Bank's accountant agreed to this procedure, the Bank petitioned the probate court on September 26, 1978, for instruction. As acknowledged by the Bank, the instruction was not required for the Bank to have authority to file an amended return. ¹ Despite this fact, the Bank petition requested the probate court to instruct the Bank to file an amended return.

On February 15, 1979, Kathryn Massey and her sons requested the Bank to consent to a voluntary change of trustee. The Bank failed to respond, and Kathryn Massey's attorney gave the Bank "notice" to respond within seven days or her sons, the Beneficiaries of the Trust, would file suit. The Bank still failed to respond and the Beneficiaries filed a complaint on March 15, 1979 petitioning the probate court to remove the Bank as trustee for alleged breach of loyalty and existing hostility. On April 2, 1979, the Bank wrote a letter to Kathryn Massey's attorney informing him that the Bank would not voluntarily remove itself as trustee of the Trust.

Thereafter, on May 11, 1979, probate court-in response to the Bank's petition for instruction-ordered the Bank to file an amended return for the purpose of seeking the tax refund. The Bank filed the amended return on July 18, 1979. ² On August 13, 1979, there was a hearing upon whether the Bank should be removed as trustee. Finally, on December 7, 1979, the probate court denied the Beneficiaries petition finding no breach of loyalty and that hostility did not exist.

I. Duty of Loyalty

The Beneficiaries first raise the issue of whether it was contrary to the evidence and law for the probate court to decide the Bank had not breached its duty of loyalty to the Beneficiaries of the Trust. The essence of the Beneficiaries argument, however, is a request for this Court to reweigh the evidence. This we decline to do. ³

In the resolution of this issue, there are two particularly pertinent rules of appellate review which we must follow. First, the Beneficiaries are appealing a negative judgment. Therefore, they must establish that the evidence is without conflict and leads but to one conclusion which was not reached by the probate court. Indiana Consolidated Insurance Co. v. Mathew (1980), Ind.App., 402 N.E.2d 1000; Umbreit v. Chester B. Stem, Inc. (1978), Ind.App., 373 N.E.2d 1116. Upon the review of a negative judgment, this Court will not reweigh the evidence nor resolve issues of credibility, but will scrutinize the evidence in the record most favorable to the judgment. Indiana Consolidated Insurance Co., supra; Link v. Sun Oil Co. (1974), 160 Ind.App. 310, 312 N.E.2d 126. This same standard of review applies even where the case lies in equity. Lawyers Title Insurance Corp. v. Capp (1977), Ind.App., 369 N.E.2d 672; Harris v. Second National Bank of Hamilton Ohio (1970), 146 Ind.App. 468, 256 N.E.2d 594.

Secondly, the removal of a trustee is within the sound discretion of the probate court. IC 30-4-3-29, -30 (Burns Code Ed.); In re Bixby's Estate (1961), 55 Cal.2d 819, 13 Cal.Rptr. 411, 362 P.2d 43, 55 Cal.2d 819; Phillips v. Moeller (1961), 148 Conn. 361, 170 A.2d 897; In re Wright's Petition (1956), 35 Del.Ch. 476, 121 A.2d 911; Chicago Title & Trust Co. v. Chief Wash Co. (1938), 368 Ill. 146, 13 N.E.2d 153; Jennings v. Murdock (1976), 220 Kan. 182, 553 P.2d 846; Holmes v. Sharretts (1962), 228 Md. 358, 180 A.2d 302; Shelton v. McHaney (1938), 343 Mo. 119, 119 S.W.2d 951; In re Fraiman's Estate (1962), 408 Pa. 442, 184 A.2d 494. Cf. Tait v. Anderson Banking Co. (S.D.Ind.1959), 171 F.Supp. 3 (interpreting Indiana law); Ex parte Kilgore (1889), 120 Ind. 94, 22 N.E. 104; Wilson v. Edmonds (1922), 78 Ind.App. 501, 136 N.E. 48. This Court will not reverse the lower court except upon a finding of a clear abuse of its discretion. Loeb v. Loeb (1969), 252 Ind. 96, 245 N.E.2d 831; State v. Hayes (1978), Ind.App., 378 N.E.2d 924; Freeman v. Freeman (1973), 159 Ind.App. 98, 304 N.E.2d 865; Guraly v. Tenta (1956), 126 Ind.App. 527, 132 N.E.2d 725. As previously stated by this Court:

"An abuse of discretion is an erroneous conclusion and judgment, one clearly against the logic and effect of the facts and circumstances before the court or the reasonable, probable and actual deductions to be drawn therefrom. The exercise of a lower court's discretion is not reviewable, rather it is only the alleged abuse of the power which is reviewable on appeal...."

Dunbar v. Dunbar (1969), 145 Ind.App. 479, 483, 251 N.E.2d 468, 471.

Within the strictures of these appellate rules of review, we must uphold the probate court's denial of the petition to remove the Bank as trustee. In so doing, however, we must emphasize that we are not approving of the Bank's performance of its duties as trustee. Nor do we approve the Bank's apparent lack of initiative in pursuing the best interests of the Trust and its beneficiaries.

James L. Massey-even though technically the grantor or settlor of this Trust-has no interest in this irrevocable trust and, therefore, should not be consulted in any capacity other than that as father of the Beneficiaries. ⁴ That is, the financial interests of James L. Massey are completely irrelevant to, and should not be confused with, the financial interests of the Trust. ⁵

We adopt with approval the following statement by Bogert:

"One of the most fundamental duties of the trustee is that he must display throughout the administration of the trust complete loyalty to the interests of the beneficiary, and must exclude all selfish interest and all consideration of the interests of third persons."

Bogert, Trusts & Trustees § 543, p. 197-98 (2d ed. 1978). Logically following from Bogert's statement, and from the very meaning of loyalty, ⁶ the concern of this Court is with an apparent divided loyalty demonstrated by the trustee. We emphasize that in the present case there is a paucity of evidence in the record demonstrating the divided loyalty so heartily urged by the Beneficiaries upon this Court. This paucity of evidence may lead this Court to infer certain questionable motives upon the part of a Bank for its actions, but such paucity does not mandate a reversal of the probate court's determination. Two arguments are advanced by Beneficiaries for a reversal.

First, the Beneficiaries argue the Bank's loyalty was divided between the Trust and James L. Massey. They support this argument by citing: the Bank's petition for instructions with respect to the amendment of the tax return; the Bank's "Answer" to the Beneficiaries' complaint for removal of the Bank as trustee; and, the general involvement of James Massey and his attorney in the issue of whether an amended return should be filed.

As noted above, James Massey has no interest in the Trust other than as father of the Beneficiaries. We cannot say, however, that the probate court clearly abused its discretion in not finding the Bank to have divided loyalty. The petition states in pertinent part:

"6. The said Trustee has met with the representatives of Kathryn K. Massey, the mother of the said beneficiaries, who, for and on behalf of the said beneficiaries of the said Trust, has explained that when James L. Massey transferred the Codex Corporation stock to the Irrevocable Trust, Mr. Massey was...