Morrison v. Watkins

• Decision Date: 27 January 1995
• Docket Number: No. 70580,70580
• Citation: 20 Kan.App.2d 411,889 P.2d 140
• Parties: Dorothy M. MORRISON, Plaintiff/Appellant, v. L. Earl WATKINS, Jr.; Watkins, Calcara, Rondeau & Friedman, P.A., a Kansas professional corporation; James F. Adams; and Adams, Brown, Beran & Ball, Chartered, a Kansas professional corporation; Defendants/Third-party Plaintiffs/Appellees, v. Dorothy M. MORRISON, in her capacity as trustee, Third-party Defendant/Appellant, and Clayton S. Morrison and Sally M. Scheideman, now deceased, Intervenors.
• Court: Kansas Court of Appeals

Page 140

889 P.2d 140

20 Kan.App.2d 411

Dorothy M. MORRISON, Plaintiff/Appellant, v. L. Earl WATKINS, Jr.; Watkins, Calcara, Rondeau & Friedman,

P.A., a Kansas professional corporation; James F. Adams;

and Adams, Brown, Beran & Ball, Chartered, a Kansas

professional corporation; Defendants/Third-party Plaintiffs/Appellees, v. Dorothy M. MORRISON, in her capacity as trustee, Third-party

Defendant/Appellant,

and

Clayton S. Morrison and Sally M. Scheideman, now deceased,

Intervenors.

No. 70580.

Court of Appeals of Kansas.

Jan. 27, 1995.

Review Denied March 21, 1995.

Syllabus by the Court

1. Summary judgment is proper when the pleadings, answers to interrogatories, admissions on file, and affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law. When a summary judgment is challenged on appeal, an appellate court must read the record in the light most favorable to the party defending against the motion.

2. In order to defeat a properly supported motion for summary judgment, the nonmoving party must come forward with specific facts showing a genuine issue for trial.

3. The continuous representation rule applies to fix the time when the accrual of a cause of action occurs and the statute of limitations begins to run and is generally applied to attorney malpractice. Under the continuous representation rule, the client's cause of action does not accrue until the attorney-client relationship is terminated.

4. When a client hires another attorney and assumes an adversarial stance to the first attorney, the continuous representation terminates for purposes of the rule even if the client does not formally dismiss the first attorney.

5. The continuous representation rule applies not only to an attorney-client relationship but also to those situations in which a professional owes a fiduciary duty to a client.

6. There are two types of fiduciary relationships, those created by contract and those implied by law from the surrounding facts and the relationship of the parties. Some indicia of a fiduciary relationship include the acting of one party for another, the exercising of influence by one party over another, the reposing of confidence by one party in another, the inequality of the parties, and the dependence of one party on another.

7. K.S.A.1993 Supp. 60-513(b) is a statute of repose rather than a statute of limitations.

8. Statutes of repose are substantive and abolish a cause of action after a specific time period even if the cause of action may not have accrued yet.

9. The continuous representation rule does not toll the running of the statute of repose found in K.S.A.1993 Supp. 60-513(b).

10. Waiver is inapplicable to cases involving the continuous representation rule.

11. K.S.A. 59-1717 provides that a trustee may recover necessary expenses incurred in the execution of a trust. This includes expenses incurred successfully defending actions taken while a trustee, although the trustee may no longer be a trustee when the expenses are incurred.

12. The award of costs found in K.S.A. 59-1717 is mandatory, conditioned upon the good faith of the trustee.

13. A negative finding indicates that the party upon whom the burden of proof was cast did not sustain that burden. A negative finding will not be disturbed absent arbitrary disregard of undisputed evidence or some extrinsic consideration such as bias, passion, or prejudice.

14. Both laches and estoppel conflict with the policy of the continuous representation rule. Neither are applicable in cases where the continuous representation rule applies.

John Terry Moore, of Hinkle, Eberhart & Elkouri, L.L.C., Wichita, for appellant.

Clarence L. King, Jr., and John A. O'Leary, of Hampton, Royce, Engleman & Nelson, L.C., Salina, for appellees L. Earl Watkins, Jr., et al.

Robert G. Martin and Susan G. Saidian, of McDonald, Tinker, Skaer, Quinn & Herrington, P.A., Wichita, for appellees James F. Adams, et al.

Before BRAZIL, P.J., GERNON, J., and C. FRED LORENTZ, District Judge, Assigned.

BRAZIL, Presiding Judge:

Dorothy Morrison appeals from the district court's award of summary judgment in favor of L. Earl Watkins, Jr.; Watkins, Calcara, Rondeau & Friedman, P.A.; James F. Adams; and Adams, Brown, Beran & Ball, Chartered, former trustees of the Morrison Trust. Morrison argues that the district court erred in finding that the statute of limitations had run on her claims.

L. Earl Watkins, Jr., et al., cross-appeal, arguing that the district court erred in not awarding them attorney fees from the trust corpus.

We affirm in part, reverse in part, and remand for further proceedings.

The Dorothy M. Morrison Revocable Trust No. 1 (Trust) was established in December 1979. At the time of creation, Dorothy M. Morrison was the grantor, a beneficiary, and a co-trustee of the Trust, and James Adams and L. Earl Watkins, Jr., were named co-trustees. Watkins was a partner in the law firm that drew up the Trust, and Adams was a C.P.A. who had done accounting work for the Morrison family in the past. At the time the Trust was created, Morrison was 67 years old and had a net worth in excess of $4 million.

Watkins advised Morrison that one advantage of the Trust was that she would not have to participate in the day-to-day management of her assets. On May 30, 1980, the Trust was amended to authorize any two of the three trustees to exercise all the powers of the Trust without the signature of the third trustee.

The main controversy in this case centers around several investments made by the Trust between 1979 and 1986. Soon after the formation of the Trust, the Trust entered into an agreement with Flexweight Corporation. Flexweight already owned an oil drilling equipment manufacturing facility and an office building on land which it leased from the Trust. This land came into the Trust through inheritance.

Under the agreement, the Trust participated with the City of Great Bend in an industrial revenue bond issue. The bonds were purchased by a local bank, and the Trust used the bond proceeds to build a new manufacturing facility on the property which the Trust then leased to Flexweight. Unfortunately, Flexweight later filed for bankruptcy, and the Trust was forced to make debt service payments while the building stood empty.

On October 18, 1979, before the creation of the Trust, a lot on South McKinley Street in Great Bend was purchased for Morrison. This lot was subsequently included in the Trust.

From 1979 to 1986, the Trust invested in oil and gas working interests. These working interests were not profitable, and in 1983, oil prices declined. Nevertheless, the Trust continued to invest in working interests, investing $246,729 in 1984 and $164,399 in 1985.

In 1983, the Trust invested in the newly formed Grady Bolding Oil Corporation in order to "spread the risk" from on-site investments to corporate investments.

Also in 1983, the Trust purchased a 5% interest in Mohawk Drilling Company for $120,000. Mohawk took bankruptcy in 1988.

The Trust also invested in Crossroads, a general partnership which owned two apartment buildings in Great Bend. The other five general partners in Crossroads included Watkins and Watkins' brother-in-law, as well as Morrison's son, Clayton. All of the partners were clients of appellee Adams' accounting firm.

Finally, the Trust purchased Parsons Roofing Company, intending to sell the company back over time to one of the company's employees, Brian Harris. Harris had been unable to obtain conventional bank financing and so discussed his idea for buying the company with Clayton Morrison. Clayton presented the idea to Adams and Watkins.

The total price of Parsons Roofing Company was $300,000. The Trust invested $200,000, and Harris invested $50,000. The Trust also loaned Harris and Bob Simmons, another employee, $50,000 so that they could also purchase part of the company. Unfortunately, Harris and Simmons were unable to repay the loan, and the Trust bought them out, taking their shares in Parsons as repayment and further paying Harris $34,931 for the shares he had purchased with his own money. In order to purchase Parsons, the Trust was forced to borrow $259,000, which it later repaid with approximately $50,000 in interest.

There is a question as to how much Morrison knew about her financial state of affairs. According to Watkins and Adams, Morrison was provided with financial statements every six months, and she would review them. Watkins and Adams assert that Morrison was aware of all the investments, except the Crossroads investment, either before or soon after they were made.

Morrison, on the other hand, claims that while she received financial statements twice yearly, they were hard to understand and Watkins and Adams did not review them with her. Furthermore, Morrison stated that she did not learn of the complained of investments until after the fact.

In 1986, Morrison entered into a lawyer-client relationship with Henry McFadyen, a lawyer in Dallas. On February 24, 1987, Morrison and McFadyen had a meeting in which the Trust was discussed. Morrison and McFadyen discussed the possibility of replacing Adams and Watkins as trustees and discussed the possibility of adopting a new investment philosophy for the Trust.

McFadyen requested a meeting with Morrison, Watkins, and Adams in which he planned to discuss, among other things, the trust investments. Following the meeting, McFadyen recommended to Morrison that Watkins and Adams be discharged as trustees. On April 11, 1987, Morrison told him that she did not want to replace Watkins and Adams as trustees because she depended on them for help in many ways and would miss their good will. McFadyen continued to investigate the possibility of obtaining a corporate trustee for the Trust.

In the fall of 1987, Morrison discharged Adams as trustee and replaced him with her son, Clayton. She also...