Paulley v. Murphy
| Decision Date | 21 June 2019 |
| Docket Number | NO. 2018-CA-001004-MR,2018-CA-001004-MR |
| Parties | BEULAH PAULLEY; STEVEN SNOW; PHYLLIS UNDERHILL; AND BELINDA ROY APPELLANTS v. SHELBY L. MURPHY; JOSEPH B. MURPHY; THE MURPHY FAMILY FARM TRUST; PATRICIA SNOW, DECEASED; BRADLEY SANDERS; KECIA SANDERS; TROY MURPHY; BRITTANY MCALLISTER; JIMMY TROUTMAN; MIKE FERGUSON; JODI ANDERSON; AND DANA BYRLEY APPELLEES |
| Court | Kentucky Court of Appeals |
NOT TO BE PUBLISHED
APPEAL FROM JEFFERSON CIRCUIT COURT
The parties to this appeal represent the living descendants of Edna R. Murphy: Beulah Paulley, Shelby L. Murphy, and Joseph B. Murphy are Edna's children; the remaining parties are Edna's grandchildren. Prior to her death, Edna owned approximately 180 acres of land located in Larue County, Kentucky (the "Farm"). On June 29, 2000, Edna's children executed a revocable trust agreement (the "Agreement") creating the Murphy Family Farm Trust (the "Trust"). That same day, title of the Farm was transferred to the Trust.1 The Agreement required that there be three trustees of the Trust at all times, and instructed how trustees should be selected: priority was given to Edna's children, then—if no children remained or were able to serve as a trustee—to Edna's grandchildren. At the time of the commencement of the underlying litigation, Beulah, Shelby, and Joseph served as trustees of the Trust.
In the summer of 2015, Joseph and Shelby began discussing the possibility of selling the Farm. Under Section 4.3 of the Agreement, the Farmcould not be sold unless the sale was first approved by the Advisory Committee. While Section 3.1 of the Agreement contemplated that the Advisory Committee would be formed shortly after creation of the Trust, this had not happened and there had never been an Advisory Committee. Section 3.1 dictated that Advisory Committee members were to be selected from among Edna's interested children and grandchildren by a majority vote of the trustees. Accordingly, "ballots" were sent to each of Edna's living children and grandchildren to gauge interest in serving on the Advisory Committee. Those ballots were returned, with twelve individuals indicating that they wished to serve on the Advisory Committee. A trustees meeting was held on December 16, 2015, for the purpose of selecting the Advisory Committee. At that meeting, Beulah, Shelby, and Joseph agreed that they would each serve on the Advisory Committee. The Agreement, however, requires that a minimum of four individuals serve on the Advisory Committee. Beulah nominated her daughter, Phyliss Underhill, as the fourth member, and Joseph nominated Shelby's daughter, Jodi Anderson. Jodi's nomination to the Advisory Committee was approved by a 2-1 vote.
In July of 2016, Beulah, Phyllis, Steven Snow, and Belinda Roy (hereinafter, collectively referred to as the "Appellants") filed an action in Jefferson District Court to remove Joseph and Shelby as trustees and as members of the Advisory Committee. Shortly thereafter, the district court entered an agreedorder prohibiting Shelby and Joseph from taking any action related to selling the Farm. On July 25, 2016, Joseph, Shelby, and the Trust (hereinafter, collectively referred to as the "Appellees"2) filed a petition for a declaration of rights in the Jefferson Circuit Court. In their petition, Appellees requested the circuit court to determine whether a majority vote of the Advisory Committee could authorize the sale of the Farm or a unanimous vote was needed; whether the time, place, and occurrence of trustee and/or Advisory Committee meetings could be designated by a majority vote; and whether a majority of the trustees and/or Advisory Committee could limit attendance at meetings. Additionally, Appellees denied that they had violated terms of the Agreement and contended that their removal as trustees and as members of the Advisory Committee was unwarranted.
Appellants filed an answer and counterclaim on August 12, 2016. In their counterclaim, Appellants alleged that: Shelby had converted Trust property; Appellees had failed to provide accountings or other information to the beneficiaries of the Trust; Appellees had engaged in a self-dealing transaction and breached their duty of loyalty by appointing themselves and Jodi to the Advisory Committee; and the Advisory Committee was illegal, invalid, and void.Appellants additionally alleged that Appellees had been scheduling meetings of the Advisory Committee in a manner that created a hostile environment and had been excluding beneficiaries of the Trust from those meetings. Appellants requested that the circuit court issue a declaratory judgment on all their counterclaims.3
On August 26, 2016, Appellants filed a motion to compel Appellees to join all interested parties, as Appellees' petition for a declaration of rights had failed to name a number of Edna's grandchildren, who were beneficiaries of the Trust, as parties. Appellees responded, contending that the remaining grandchildren were not necessary parties to the action. Appellees contended that the Agreement clearly stated that the purpose of the Trust was to keep the Farm under the control of Edna's children. Further, Section 4.3 of the Trust explicitlystated that a decision to sell the Farm was to be made by the members of the Advisory Committee. Because Edna's remaining grandchildren—with the exception of Jodi—were not members of the Advisory Committee, Appellees contended that there was no need for them to participate in the declaration of rights action. Appellants filed a reply to Appellees' response on September 16, 2016. In their response, Appellants argued that selling the Farm required a unanimous vote of the Advisory Committee. Appellants' belief was based on Section 3.2 of the Agreement, which states in pertinent part as follows:
(Emphasis in original).
Additionally, because Appellants believed that Appellees had violated their fiduciary duties when they selected the members of the Advisory Committee, Appellants contended that the remaining grandchildren needed to be made parties to the action in order to protect their interests as beneficiaries of the Trust.Appellants argued that there was no dispute that Edna's grandchildren were beneficiaries of the Trust, as Section 4.1 of the Agreement explicitly stated that "[t]he beneficiaries of this trust include the children and grandchildren of Edna Murphy." (emphasis added). In October of 2016, the circuit court entered an opinion and order concluding that Edna's remaining grandchildren were indispensable parties to the action and granting Appellants' motion to compel Appellees to join those grandchildren as parties. Appellees filed an amended petition for declaration of rights, naming all the remaining grandchildren as parties, on October 19, 2016.
On May 31, 2017, Appellees filed a motion to submit as to the declaration of rights. Appellees first addressed Appellants' contention that meetings of the trustees and/or the Advisory Committee must be open to any beneficiary of the Trust. Appellees noted that they had previously attempted to hold meetings with any interested beneficiary being permitted to attend; those meetings had been unproductive due to conflict amongst the beneficiaries. Appellees contended that as nothing in the Agreement gave beneficiaries the right to attend trustee or Advisory Committee meetings, they were under no requirement to permit them to attend. Next, Appellees contended that, despite Appellants' assertions, the Agreement clearly reflected that the decision to sell the Farm would be made by a majority vote of the Advisory Committee. Appellees acknowledgedthat Section 3.2 of the Agreement, on which Appellants relied for the position that sale of the Farm required a unanimous vote of the Advisory Committee, required a unanimous vote to sell a "Trust investment." They contended, however, that the Farm was not a Trust investment. Appellees noted that "investment" was not defined in the Agreement, and that Black's Law Dictionary defined "investment" as "the placing of capital or laying out of money in a way intended to secure income or profit from its employment." The Farm was the initiating asset of the Trust and had not been acquired by the trustees for the purpose of profit; therefore, Appellees contended that it could not be considered an investment. Further, Appellees noted that Section 4.3 of the Agreement dealt specifically with sale of the Farm and did not require that the Advisory Committee reach a unanimous decision before approving a sale.
Appellants responded to Appellees' motion to submit on July 3, 2017. Therein, Appellants noted that no discovery had occurred yet, and argued that it was necessary that Appellees be deposed so that Appellants could ascertain the manner in which the Advisory Committee was selected. Additionally, Appellants contended that Appellees' motion to submit failed to consider A...
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