McGinley v. Bank of America, NA, No. 92,230.

• Decision Date: 22 April 2005
• Docket Number: No. 92,230.
• Citation: 109 P.3d 1146,279 Kan. 426
• Parties: MARIE M. McGINLEY, Appellant, v. BANK OF AMERICA, N.A., Appellee.
• Court: Kansas Supreme Court

279 Kan. 426

109 P.3d 1146

MARIE M. McGINLEY, Appellant, v. BANK OF AMERICA, N.A., Appellee.

No. 92,230.

Supreme Court of Kansas.

Opinion filed April 22, 2005.

Phillip L. Turner, of Turner & Turner, of Topeka, argued the cause, and Dan E. Turner, of the same firm, and Don Hoffman and Jason Hoffman, of Hoffman & Hoffman, of Topeka, were with him on the brief for appellant.

Steven E. Mauer, of Bryan Cave, LLP, of Kansas City, Missouri, argued the cause, and Rebecca S. Jelinek, Robert J. Hoffman, and Jennifer A. Donnelli, of the same firm, were with him on the brief for appellee.

The opinion of the court was delivered by

NUSS, J:

This case requires us to review a revocable trust instrument and a subsequent letter from the grantor to the trustee. Seven months after Marie McGinley established her trust with Bank of America, N.A., (Bank) as trustee, she signed a letter directing the Bank to retain Enron stock held in the trust. The letter also stated that McGinley agreed to exonerate the Bank from any loss it sustained for continuing to retain the stock and that she relieved the Bank from any responsibility for analyzing and monitoring that stock. Years later when the value of the Enron stock decreased significantly, McGinley sued the Bank for the amount of lost value. She alleged nine counts including, among others, breach of fiduciary duty, negligent failure to supervise employees, breach of loyalty, tortious conduct of Bank employees, violations of the Kansas Consumer Protection Act, and fraud and misrepresentation by silence.

The district court granted the Bank's motion for summary judgment. McGinley timely appealed, and we transferred from the Court of Appeals on our own motion pursuant to K.S.A. 20-3018(c).

McGinley raises the following arguments in her brief:

1. The letter and its exculpatory provision were invalid because the Bank failed to adequately communicate and explain them to McGinley. Specifically, the letter is ineffective as a trust amendment, i.e., there is no clear and convincing evidence that McGinley intended so because it was written by the Bank on its own initiative and because of the Bank's other conduct.

2. The exculpatory provision is invalid because of the Bank's failure to adequately communicate its contents and effect to McGinley.

3. Even if the exculpatory provision is valid, the Bank's failure to recommend portfolio diversification lacked good faith and was indifferent to McGinley's best interest which places its conduct beyond the provision's reach. Specifically, when the Bank failed to disclose to McGinley its evaluation of her trust being overconcentrated and failed to recommend diversification, the Bank was reckless and indifferent to McGinley's best interest. Additionally, McGinley specifically asked the Bank for its professional advice as to which stocks to sell and keep in 2000, and the Bank failed to disclose that in its professional opinion the Enron investment should be lowered to less than 15% of the value of the trust.

Despite these specific arguments, the core issue is whether the language in McGinley's trust instrument and subsequent letter shield the trustee Bank from liability. We hold the Bank is shielded and affirm the district court.

FACTS

The material facts, including those expressly determined by the district court as its findings of fact, are undisputed. On November 9, 1990, 79-year-old Marie McGinley established the Marie McGinley Revocable Trust (the trust), with Bank of America, N.A., serving as trustee. McGinley signed the instrument as grantor, the Bank signed as trustee, and her husband Francis signed expressing his consent to its provisions. The trust instrument, as well as a revocable trust instrument for Francis, were drafted by the McGinleys' legal counsel.

The trust was revocable at Marie McGinley's sole discretion. Article III, Revocability, states in relevant part:

"During the lifetime of Grantor this trust shall be and remain revocable, with Grantor hereby reserving the right and power, at Grantor's discretion, to revoke, alter, amend, modify or change this trust indenture, in whole or in part, at any time and from time to time, without the consent of the Trustee, any beneficiary or any other person or persons by written notification to Trustee." (Emphasis added.)

The trust was for McGinley's benefit, with funds to be provided to her at her request. Article V, Trust for Benefit of Grantor, states in relevant part:

"During the lifetime of the Grantor, the Trustee shall pay to the Grantor as much of the net income of the trust as may be requested by the Grantor. Such payments thereof, in the absence of the agreement otherwise by the Grantor and the trustee, to be made monthly.

"Should the Grantor at any time request the Trustee, or should the Grantor become mentally or physically incapacitated, the Trustee hereunder is hereby authorized and empowered to use and expend from either principal or income, directly in and about for her maintenance and support, without the intervention of a Conservator or Committee, and said Trustee shall be liberal in determining the needs of the Grantor." (Emphasis added.)

The trust provided the Bank, as trustee, with certain discretionary powers. Article VIII, Powers of the Trustee, states in relevant part:

"In addition to the powers conferred by common law, by statute, and by other provisions hereof, the Trustee and all Successor Trustees of all the trusts created hereunder, without application to or approval by any Court, shall have the following discretionary powers and authority.

"A. To manage, care for and protect the entire trust estate in accordance with its best judgment and discretion and to collect the income and profits therefrom, and to hold and retain any of the property coming into its hands hereunder in the same form of investment as that in which it is received by it, although it may not be of the character of investments otherwise permitted by law to Trustees. It shall also have full power and authority to insure against loss, improve, sell, lease, mortgage or exchange the whole or any part of such property, whether real or personal, on such terms and conditions as to it deems advisable, and to invest and reinvest any of the trust corpus held hereunder, in such amounts as it sees fit, in such property, real or personal, as it deems advisable although the same may not be of the character permitted for Trustees' investment by the ordinary rules of law." (Emphasis added.)

These trustee discretionary powers contained some restrictions, however, as Article VIII. A went on to reserve to McGinley the exclusive power to control all purchases and sales of trust assets. It states that:

"provided, however, that during the lifetime of Grantor, [s]he shall be consulted by the Trustee as to any purchase or sale, and the Trustee shall abide by the Grantor's decision unless, in the sole opinion of the Trustee, the Grantor is incapable of managing [her] affairs, in which event the decision of the Trustee as to all investment matters shall be final and conclusive." (Emphasis added.)

Later, shares of Enron stock previously purchased by McGinley were transferred into the trust with other assets. Approximately 7 months after the trust instrument was signed, a form letter bearing the signature "Marie M. McGinley" and dated June 21, 1991, was apparently delivered to the Bank by her husband. Titled "Direction by Powerholder to Retain Securities," the letter was addressed to the Bank. The district court made a finding of fact, which McGinley does not dispute on appeal, that the letter was issued in accordance with Article VIII of the trust. In language the parties characterize as "directive" the letter stated:

"I hereby direct you to continue to retain the following securities as assets of the above referenced account:

"Shares or Par Value Security Name "1,541 shares Enron Corp."

In language McGinley characterizes as "exculpatory" the letter went on to state:

"I understand that you do not monitor these securities, and I hereby agree to exonerate, indemnify and hold the Bank harmless from any and all loss, damage and expense sustained or incurred by the Bank for continuing to retain these securities as assets of this account. I also relieve the Bank from any responsibility for analyzing or monitoring these securities in any way. I hereby bind all beneficiaries of the designated account, my heirs, my executors, and my assigns to the terms of this letter. This release and indemnification will remain in force and effect until my death, my disability (as determined in accordance with the trust agreement) or my written revocation of this letter." (Emphasis added.)

McGinley amended her trust in February 1996 via an instrument drafted by her legal counsel but essentially reaffirmed the provisions of Articles III, V, and VIII. The amendment made no reference to the June 21, 1991, letter.

The value of the Enron stock substantially increased from 1991 through 2000. All increases in the number of Enron shares were the result of stock splits, as the Bank never purchased Enron stock for the trust. At the apparent height in value, December 29, 2000, the trust contained 9,500 shares of Enron stock valued at $789,687.50 and representing approximately 77% of the total market value of the trust.

Because of declines in Enron stock value, by March 30, 2001, the shares amounted to approximately 66% of the total market value of the trust; by June 29, 2001, approximately 64%; by September 28, 2001, approximately 50%; and by December 31, 2001, approximately 2%. By the latter date, the trust contained 8,000 shares of Enron stock valued at only $4,800.

McGinley never revoked the June 21 letter, nor did she ever advise the Bank to continue to hold the Enron stock in her trust. At all relevant times, she was capable of managing her own affairs. The Bank continues to act as trustee of her trust and as trustee of Francis'...