Regions Bank v. Lowrey

• Decision Date: 10 August 2012
• Docket Number: 1101541,1110044
• Parties: Regions Bank, as trustee of the J.F.B. Lowrey Trust v. Sam G. Lowrey, Jr., individually and on behalf of the J.F.B. Lowrey Trust, and Shelby Lowrey Jones, individually and on behalf of the J.F.B. Lowrey Trust Sam G. Lowrey, Jr., individually and on behalf of the J.F.B. Lowrey Trust, and Shelby Lowrey Jones, individually and on behalf of the J.F.B. Lowrey Trust v. Regions Bank, as trustee of the J.F.B. Lowrey Trust
• Court: Alabama Supreme Court

Regions Bank, as trustee of the J.F.B. Lowrey Trust

v.Sam G. Lowrey, Jr., individually and on behalf of the J.F.B. Lowrey Trust,and Shelby Lowrey Jones, individually and on behalf of the J.F.B. Lowrey Trust

Sam G. Lowrey, Jr., individually and on behalf of the J.F.B. Lowrey Trust,

and Shelby Lowrey Jones, individually

and on behalf of the J.F.B. Lowrey Trust

v.Regions Bank, as trustee of the J.F.B. Lowrey Trust

1101541

1110044

SUPREME COURT OF ALABAMA

SPECIAL TERM, 2012

Dated: August 10, 2012

Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter.Readers are requested to notify the Reporter of Decisions,Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-0649), of any typographical or other errors, in order that corrections may be made before the opinion is printed in Southern Reporter.

Appeals from Monroe Circuit Court

(CV-07-900073)

MAIN, Justice.

Regions Bank ("Regions"), as sole trustee of the J.F.B. Lowrey Trust ("the Lowrey Trust"), appeals the Monroe Circuit Court's order denying Regions' motion to award it attorney fees and costs.¹Sam G. Lowrey, Jr., and Shelby Lowrey Jones, two of the current beneficiaries of the Lowrey Trust (Sam G. Lowrey, Jr., and Shelby Lowrey Jones are hereinafter referred to collectively as "the beneficiaries") cross-appeal from the trial court's judgment in favor of Regions on their breach-of-fiduciary-duty claim.

I.Facts and Procedural History

On December 11, 2007, the beneficiaries sued Regions, alleging breach of fiduciary duty.The beneficiaries claimed that Regions failed to protect and preserve the assets of the Lowrey Trust, which consisted primarily of approximately 20,000 acres of timberland located in Monroe and Conecuh Counties and which have been the subject of much intra-family litigation as the trial judge set out in its order and judgment as follows:"II.Prior Litigation and Court Order History

"There has been considerable intra-family litigation over the years pertaining to the Lowrey Trust, and this Court has issued several orders that have a direct bearing on the issues in this case.The first pertinent order was the Consent Decree (the '1990 Order') dated July 6, 1990, entered in 'H. Lowrey McNeil, et al., v. Samuel Graves Lowrey. et al.,'Case No. CV-88-114.SeeDefendant's Exhibit 66.The more significant provisions of this order are as follows:

"-AmSouth Bank was appointed as co-trustee along with Sam Lowrey, Sr.

"-The two trustees were required to select an independent, neutral professional forestry consultant whose primary task was to recommend a timber management plan to the trustees.

"-The timber management plan was to 'balance the interest of the successive income beneficiaries of the Trust and the remainder interest.'The plan was not to endanger 'the safety of the principal in order to produce a large income' or sacrifice 'income for the purpose of increasing the value of the principal.'

"-Distributable income from the Lowrey Trust was to be based on the annual growth of the forest, and the timber management plan was to provide for cutting 'at least 87% of the average annual growth of the forest during each five-year period, but not less than 75% of the annual growth in any single year.'

"-The timber management plan was to be periodically reviewed and updated.

"In response to this Order, Mr. Lowrey and AmSouth Bank selected Pomeroy & McGowin as the independent forestry consultant, and Pomeroy submitted a timber management plan.This plan was in effect for 10 years into 2000 and called for a thinning of mature natural pine stands rather than an aggressive clear-cutting plan.It is undisputed that the selection of Pomeroy & McGowin was appropriate.No one contends that the Pomeroy plan was inconsistent with the 1990 Order, and the [beneficiaries] stipulated during the trial that they had no complaint concerning this plan or the manner in which the Bank had implemented it.

"Further court proceedings occurred in 1993.These proceedings ultimately resulted in an Order and Judgment dated July 21, 1993(the '1993 Order').SeeDefendant's Exhibit 69.This Order made AmSouth Bank the sole trustee of the Lowrey Trust and vested the Bank with additional powers and authorities beyond those specified in the Will.Included among these additional powers and authorities were the following:

"c.To hold and retain without liability for loss or depreciation any real or personal property ... without regard to any statutory or constitutional limitations applicable to the investment of funds and though the retention might violate principles of investment diversification, so long as the trustee shall consider the retention for the best interests of the trust.

"d.To sell at public or private sale ... or otherwise dispose of all or any portion of the trust in such manner and upon such terms and conditions as the trustee may approve.

"1993 Order, paragraph 3.As acknowledged by the Bank's witnesses, this language from the 1993 Order did not require the Bank to retain the timberland; however, it authorized the Bank to either retain or sell the timberland as it thought best, without concern over specific investment rules or principles of diversification."

On September 16, 2004, Hurricane Ivan made landfall and moved over Monroe and Conecuh Counties, causing severe wind damage and destruction of much of the standing timber owned by the Lowrey Trust.In their complaint, the beneficiaries averred that Regions failed to discharge its duty to protect and preserve the assets of the Lowrey Trust and claimed losses amounting to approximately $13,000,000.Specifically, the beneficiaries asserted that Regions should have purchased casualty-loss insurance on the timber, should have sold most of the timberland before Hurricane Ivan in order to diversify the investments of the trust estate, should have cut the timber more rapidly, or should have pursued some combination of these tactics in order to preserve the corpus of the Lowrey Trust.

From June 28, 2010, through July 2, 2010, the trial court conducted a 5-day bench trial, at which ore tenus evidence was received and 12 witnesses testified.On August 2, 2010, astrustee of the Lowrey Trust, Regions filed a motion to award attorney fees and costs and requested an evidentiary hearing on its motion.Regions also moved for the joinder of AlaTrust, Inc., which was named the successor trustee of the Lowrey Trust on August 3, 2010.The trial court scheduled several evidentiary hearings, but continued those dates.On March 9, 2011, without conducting an evidentiary hearing on Regions' motion, the trial issued an order denying Regions's motion to award attorney fees and reserved ruling on an award of costs.

The following day, on March 10, 2011, the trial court entered a detailed order in favor of Regions, rejecting the beneficiaries' claims of mismanagement of the trust assets and taxing costs against the beneficiaries.The trial court, in its order and judgment, found as follows:

"The [beneficiaries] have the burden of proof in this matter, and that requires showing what [Regions] should have done, how [Regions] failed to do so, and how any such failure proximately caused damage to the Trust and in what amount.The [beneficiaries] have failed to meet this burden.

"The [beneficiaries'] theories of the case were maintained on display during trial on a large chart: 1). failure to diversify 2). failure to insure and/or 3). failure to aggressively cut the trees.

"A.Diversification

"It is undisputed that the Lowrey Trust assets were not diversified across investment classes.It is also undisputed that [Regions] inherited these assets from the former trustee.Thus, the [beneficiaries'] burden is to prove that [Regions'] decision not to sell the Lowrey Trust timberland prior to Hurricane Ivan constituted a breach of fiduciary standards in effect at that time based on what was known at that time.

"Substantive Law Concerning Diversification

"At all material times prior to Hurricane Ivan, the general standards governing investment decisions were provided by Ala. Code [1975,] § 19-3-120.2.

"[Regions'] witnesses were asked repeatedly about their reasons for not selling the Lowrey Trust timberland.One common response referred to the various Court orders noted above.The most obvious order in this regard is the 1993 Order.Paragraph 3(c) of that order specifically allowed [Regions] to retain all Trust assets even though 'the retention might violate principles of investment diversification.'SeeDefendant's Exhibit 69.Among other things, this order means that [Regions] was not required to diversify the Lowrey Trust assets by selling most of the timberland.See alsoAla. Code [1975,] § 19-3-120.2(d) and (e).

"The 1993 Order did add the phrase 'so long as the trustee shall consider the retention for the best interests of the trust.'Carroll Blow, head of [Regions'] trust administration department in Mobile at the time of [Hurricane] Ivan, testified that he considered retention of the timberland to be in the best interest of the Lowrey Trust both before Ivan and to this day.The other [Regions] witnesses repeatedly asserted their belief that retention ofthe timberland was proper.[Regions] presented documentary records showing that it annually considered whether to retain or sell the Lowrey Trust timberland and always determined to keep it.SeeDefendant's Exhibit 101.The evidence shows that the [beneficiaries] themselves considered retention of the timberland to be in their best interest prior to the filing of this lawsuit.Based on these facts, the Court concludes that [Regions] determined in good faith that the retention of the Lowrey Trust timberland was in the best interests of the Trust within the meaning of the 1993 Order.

"While the other Court orders do not specifically speak to the diversification issue, several of them reflect an express or implied understanding that timberland

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