Regions Bank v. Jean W. Reed

• Decision Date: 30 September 2010
• Docket Number: 1081619 and 1081712.
• Citation: 60 So.3d 868
• Parties: REGIONS BANKv.Jean W. REED, individually and as cotrustee of the Clement S. Walter Trust; Mary W. Haynes, individually and as cotrustee of the Clement S. Walter Trust; and Susan W. Stockham, individually and as trustee and cotrustee of various family trusts.Ex parte Regions Bank.(In re Jean W. Reed, individually and as cotrustee of the Clement S. Walter Trust; Mary W. Haynes, individually and as cotrustee of the Clement S. Walter Trust; and Susan W. Stockham, individually and as trustee and cotrustee of various family trustsv.Regions Bank et al.).
• Court: Alabama Supreme Court

60 So.3d 868

REGIONS BANK

v.Jean W. REED, individually and as cotrustee of the Clement S. Walter Trust; Mary W. Haynes, individually and as cotrustee of the Clement S. Walter Trust; and Susan W. Stockham, individually and as trustee and cotrustee of various family trusts.Ex parte Regions Bank.(In re Jean W. Reed, individually and as cotrustee of the Clement S. Walter Trust; Mary W. Haynes, individually and as cotrustee of the Clement S. Walter Trust; and Susan W. Stockham, individually and as trustee and cotrustee of various family trusts

v.Regions Bank et al.).

1081619 and 1081712.

Supreme Court of Alabama.

Sept. 30, 2010.

Daniel H. Markstein III, Kirby Sevier, Luther M. “Rusty” Dorr, Jr., and Cynthia G. Lamar of Maynard, Cooper & Gale, P.C., Birmingham, for appellant/petitioner Regions Bank.John M. Fraley, Thomas L. Krebs, J. Michael Rediker, and Michael C. Skotnicki of Haskell Slaughter Young & Rediker, LLC, Birmingham, for respondents Jean W. Reed, Mary W. Haynes, and Susan W. Stockham.Judge Michael G. Graffeo, Birmingham, as respondent.MURDOCK, Justice.

This consolidated appeal and petition for a writ of mandamus concerns two rulings by the Jefferson Circuit Court (“the circuit court”). First, Regions Bank (“Regions”) appeals a writ of mandamus issued by the circuit court ordering the Jefferson Probate Court (“the probate court”) to dismiss a petition for final settlement filed by Regions concerning its administration of certain trusts (case no. 1081619). Second, Regions petitions this Court for a writ of mandamus directing the circuit court to dismiss or stay an action filed in the circuit court by Jean W. Reed, Mary W. Haynes, and Susan W. Stockham, individually and as trustees of various family trusts (hereinafter referred to collectively as “the sisters”). With respect to the appeal, we reverse the circuit court's issuance of the writ of mandamus to the probate court. We grant in part and deny in part Regions' petition to this Court for a writ of mandamus directed to the circuit court.

I. Facts and Procedural History

The sisters are the daughters of Clement and Elizabeth Walter. In December 1974, Clement Walter established the “Clement S. Walter Trust” (“the Father Trust”). The original trustees of the Father Trust were Elizabeth Walter and First National Bank of Birmingham. An amendment to the trust changed the corporate trustee to First Alabama Bank, which, through a succession of corporate transactions, is now Regions. Upon Elizabeth Walter's death, the trust instrument designated that the sisters were to benefit from the Father Trust in equal shares for the duration of their lives and that the sisters were to be cotrustees with Regions of the Father Trust.

In 1982, Elizabeth Walter created three separate irrevocable trusts (“the Mother Trusts”), one to benefit each of the sisters. The Mother Trusts were established to provide income to each of the sisters for her life. Stockham is designated as the sole trustee of the Mother Trusts created for the benefit of Reed and Haynes. Stockham and Regions are designated as cotrustees of the Mother Trust created for the benefit of Stockham.

In 1983, Regions entered into “custody agreements” with regard to the Mother Trusts created for the benefit of Reed and Haynes under which Regions agreed to act as the custodian of the assets of those trusts. In 1994, Regions entered into separate (but identical) “Investment Agency Agreements” with the Mother Trusts created for the benefit of Reed and Haynes. In those agreements, Regions undertook the responsibility to manage the investments for those trusts.

On May 4, 2004, Stockham established a revocable trust (“the Stockham Trust”) under which she is the sole beneficiary for the duration of her life. The trust designated Regions as the sole trustee. On the same date, Haynes established a revocable trust (“the Haynes Trust”) under which she is the sole beneficiary for the duration of her life. The trust designated Regions as the sole trustee.

The sisters allege in the circuit court action that they are “of a mature age” and that they “rely heavily upon the income from these various trusts to support themselves. Accordingly, they desired that the assets in these trusts should be invested in “stable, conservative, low-risk holdings that produced a secure stream of income.” They allege that Regions was aware of and had a duty to follow these instructions.

The sisters allege that Regions actually invested the assets of these trusts in certain funds that were established and operated by companies closely affiliated with Regions, and that those funds “were, in reality, very high risk and lacking in diversification.” According to the sisters, those funds also were “plagued with extremely severe problems” that caused them to be unstable and unsuccessful. The sisters claim that Regions invested in those funds at least in part on the advice of Morgan Asset Management, Inc. (“MAM”), the investment-advisory arm of Regions Financial Corporation, the parent corporation of Regions. The sisters allege that both Regions and MAM knew that the funds were high-risk investments and that they were plagued with problems, yet MAM advised Regions to invest the assets of the various trusts in them, and Regions did so despite knowing the desired goals of the sisters for the trust assets.

According to the sisters, in 2008 several class action lawsuits were filed in Tennessee federal district courts against Regions (and others) as the trustee of certain trusts for alleged violations of securities laws relating to investments made by Regions in the funds described above. In response to the Tennessee class actions, Regions filed in the probate court a “Petition for Instructions and Declaratory Judgment” relating to Alabama trusts for which Regions served as a trustee. Regions requested that the probate court appoint a trustee ad litem to participate in the class-action litigation and to represent the interests of the trust accounts. The probate court granted Regions's request. Upon receiving notice of the appointment of the trustee ad litem, the sisters (and others) filed motions to intervene in the probate court proceeding to protect their own interests. The probate court denied the motions to intervene, but it allowed beneficiaries of the subject trusts to opt out of representation by the trustee ad litem. The sisters subsequently exercised their right to opt out.

On November 14, 2008, the sisters sent Regions a letter informing it that they were removing Regions as trustee or cotrustee of the Father Trust, the Mother Trust created for the benefit of Stockham, the Stockham Trust, and the Haynes Trust. The letter also stated that the sisters were terminating Regions as custodian and agent of the Mother Trusts created for the benefit of Reed and Haynes. The letter added that the sisters “specifically reserve the rights to pursue any claims against Regions or its affiliates for mismanagement or misappropriation of these trusts or their assets.”

On November 19, 2008, Regions filed a “Petition for Final Settlement” in the probate court (“the final-settlement action”) pursuant to § 19–3B–205, Ala.Code 1975,¹ concerning the trusts for which it served as trustee or cotrustee: the Father Trust, the Mother Trust created for the benefit of Stockham, the Stockham Trust, and the Haynes Trust.² The petition sought a final accounting for these trusts for the period for which Regions served as trustee or cotrustee, and it requested that, following the final accounting and any required payments, “the Court will order that Regions Bank be fully relieved and discharged with respect to all its acts and doings as Trustee or Co–Trustee, as the case may be, of any and all of the Trusts.”

On November 20, 2008, the sisters filed the above-referenced action in the circuit court (“the circuit court action”). The sisters' complaint named as defendants Regions, MAM, and fictitiously named parties and alleged breach of fiduciary duty, negligence, wantonness, breach of contract, fraud, negligent indemnity, violation of the Alabama Securities Act, conspiracy, and aiding and abetting breaches of duty and law. The claims encompassed both the trusts for which Regions served as trustee or cotrustee as well as the two trusts for which it served as agent and custodian, i.e., the Mother Trusts created for the benefit of Reed and Haynes. The gravamen of the complaint is that Regions knowingly invested the assets of the trusts in—and MAM advised Regions to invest the assets trusts in—unstable, high-risk funds affiliated with Regions that were experiencing severe financial problems. The complaint requests damages of at least $400,000 and makes a demand for a jury trial.

On November 24, 2008, Stockham filed in the probate court a motion to dismiss or to transfer to the circuit court the final-settlement action on the ground that the probate court lacked jurisdiction to hear the sisters' claims against Regions. In its response to the motion to dismiss, Regions argued that, pursuant to § 19–3B–203(b), Ala.Code 1975,³ the probate court had jurisdiction to hear in the final-settlement action any claims brought by the sisters against Regions alleging maladministration of the assets of the trusts for which it served as trustee or cotrustee, as well any claims against Regions alleging mismanagement of the assets of the trusts for which it served as agent and custodian.

On January 8, 2009, Regions filed an answer in the circuit court to the circuit court action. In that answer, Regions did not plead the affirmative defense of abatement. On February 11, 2009, however, Regions filed an amended answer in which it specifically pleaded the affirmative defense of abatement based on § 6–5–440, Ala.Code 1975.⁴ On the same date, Regions filed a motion to dismiss or to stay the circuit court action pursuant to § 6–5–440. In that motion, Regions again noted that it believed the...