Schumacher v. Austin

• Decision Date: 25 June 2013
• Docket Number: No. WD 74901.,WD 74901.
• Citation: 400 S.W.3d 364
• Parties: James Price SCHUMACHER, et al., Appellants, v. Louis Edward Schumacher AUSTIN, Respondent.
• Court: Missouri Court of Appeals

400 S.W.3d 364

James Price SCHUMACHER, et al., Appellants,

v.Louis Edward Schumacher AUSTIN, Respondent.

No. WD 74901.

Missouri Court of Appeals,

Western District.

March 12, 2013.

As Modified April 30, 2013.

Motion for Rehearing and/or Transfer to Supreme Court Denied April 30, 2013.

Application for Transfer Denied June 25, 2013.

George E. Kapke, Lee's Summit MO, for Appellants.

Danny L. Curtis, Kansas City, MO, for Respondent.

Before Division Three: MARK D. PFEIFFER, Presiding Judge, VICTOR C. HOWARD, Judge and ALOK AHUJA, Judge.

VICTOR C. HOWARD, Judge.

James P. Schumacher and Cindy Sue Schumacher (collectively Beneficiaries) appeal the trial court's orders showing satisfaction of judgment in favor of Louis Edward Schumacher Austin and Sara Schumacher (collectively Trustees).¹ They contend that the court's orders improperly modified the judgment sought to be satisfied. The orders are reversed, and the case is remanded to the trial court with directions.

In the underlying litigation, Beneficiaries filed a petition for declaratory judgment after a dispute arose regarding Trustees' management of trust assets, specifically the transfer of trust assets to a partnership and limited liability company created by the Trustees. Beneficiaries are two of four children of Louis E. Schumacher, Sr. (Grantor) and Sara Schumacher (a/k/a Topper).² Grantor and Topper had two other children—Austin and Johnny Griffin Schumacher. Beneficiaries took the position that there were no disputed facts relevant to their action for declaratory judgment, waived trial, and asked the court to decide only legal issues. Accordingly, the trial court considered factual assertions and exhibits set forth by Beneficiaries and not contested by Trustees. The trial court found the following undisputed facts, which are taken from the declaratory judgment and from this court's opinion in Schumacher v. Schumacher, 303 S.W.3d 170 (Mo.App. W.D.2010), without citation.

In 1976, Grantor created an irrevocable trust (Trust) and designated Topper and Austin as the trustees. Under the terms of the trust, income was to be paid in equal shares to each of the four children during Grantor's lifetime and for a period of five years thereafter. The Trust was to terminatefive years after Grantor's death, and the principal was to be distributed to Grantor's then living descendants. In 1984, Grantor formed a limited corporation named The Schumacher Group, Ltd. (Corporation), and the Corporation constructed the Austin Hills West office building. The irrevocable trust was its sole shareholder. In 1986, Grantor and Topper created a second trust, a revocable trust, and named themselves as trustees.

Prior to Grantor's death in May 1998, the Trust held income producing assets in addition to owning 100% of the stock in Corporation. At the time of Grantor's death, the Trust held three assets: cash or cash equivalents, land, and stock in the Corporation. Upon Grantor's death, the revocable trust split into three separate trusts: a qualified terminable interest property trust (QTIP trust), a marital trust, and a family trust. Topper was the sole trustee of the three trusts.

In January 2001, the Trust, Corporation, and the family, QTIP, and marital trusts formed two entities: the Topper Schumacher Family Ltd. Partnership (Partnership) and the Lou Schumacher, Sr., LLC (LLC). Topper and Austin signed on behalf of the Trust; Topper, as President of the Corporation and as sole trustee of the family, QTIP, and marital trusts, signed on behalf of those parties. The LLC is the general partner of the Partnership. The Partnership agreement provided that the Partnership will continue until 2051 unless all partners agree to an earlier termination and that no partner shall have the right to partition any real property of the Partnership during its term.

Shortly after forming the Partnership and LLC, Trustees conveyed all cash and land of the Trust into the Partnership and LLC in exchange for a .5% interest in the Partnership valued at $7000 and a .37% interest in the LLC valued at $55. Beneficiaries learned of the conveyance after it occurred. In February 2001, Topper also conveyed all of the assets in the family, QTIP, and marital trusts to the Partnership and LLC. Seventeen months later, Topper as the sole director and president of the Corporation, transferred the Austin Hills West building to the Partnership and $1770 to the LLC. By December 2001, Topper held a 59.37% controlling interest in the LLC, the general partner of the Partnership.

Prior to May 2003 when the Trust terminated (five years after Grantor's death), Trustees exchanged the Trust's interests in the Partnership and LLC for an unspecified number of shares of the Corporation. The trial court noted in the declaratory judgment that the number of shares received by the Trust was irrelevant because receipt of the additional shares did not increase the value of the Trust's 100% interest in the Corporation. When the Trust terminated in May 2003, Trustees distributed its only asset, shares of the Corporation, to Jim, Cindy, Johnny, and Austin.

Based on these undisputed facts, the trial court made the following factual conclusions in its declaratory judgment:

The overall effect of the Defendant Trustees' creation of the LLC and Partnership, and subsequent conveyance of all Trust assets to those entities, was to delay the Trust beneficiaries' enjoyment of the Trust. Absent such acts, upon the May 12, 2003 termination of the Trust each beneficiary would have received a one-quarter interest in a Corporation which owned the Austin Hills West building, land and liquid assets. Instead, as the result of the Defendant Trustees' actions, they each received 25% of the outstanding stock in a Corporation whose sole asset is a 15.9% interest in a limited partnership and an 11.76% interest in the limited liability company which acts as its general partner. Under the terms of the agreement by which it was created, the Partnership will continue until 2051. Absent agreement of all partners, the shareholders of the Corporation (the former Trust beneficiaries) have no ability to gain access to Partnership assets. The partners whose agreement is required for early termination of the Partnership are the Family trust, QTIP trust, and Martial trust, each of which is administered by Topper as trustee. Thus, notwithstanding the Trust beneficiaries' naked legal title to the Corporation stock, it is still Topper who enjoys the dominion and control normally associated with stock ownership.

The effect of Topper's exchange of QTIP and Family trust assets for LLC and Partnership interests is likewise a potential delay in the beneficiaries' enjoyment of these trusts. Grantor's children, who are to receive the principle of the QTIP and Family trusts upon Topper's death, will receive LLC and Partnership interests rather than liquid or marketable assets. Although the beneficiaries will then control the Partnership and LLC, there is no guaranty that Defendant Austin (who participated in the creation of the Partnership and LLC and the exchange of Trust assets for interests therein) will agree to the immediate termination of these entities.

The trial court ultimately concluded that Trustees acted outside their authority when they converted assets of the trusts and Corporation into Partnership and LLC interests because they had violated their duties to Beneficiaries to adhere to the purpose of the trusts, to be loyal, and to prudently administer the trust. As a result, the transfers of assets of the trusts and Corporation to the Partnership and LLC were voidable transfers and Beneficiaries were entitled to have the transfers set aside. Accordingly, the trial court declared the Partnership and LLC entities and the transactions by which they were funded void ab initio. Trustees were directed “to take all steps necessary to transfer legal title to all property acquired by the Corporation, Partnership and LLC from, or traceable to, the Trust and the QTIP and Family trusts back to the trust estate from which the property was transferred or is traceable.” Trustees were also directed to provide the beneficiaries of the trusts a revised accounting accurately reporting the transactions of the trusts without reference to the void conveyances of assets of the respective trusts to the Corporation, Partnership, and LLC and to immediately distribute the assets of the Trust to its beneficiaries in accordance with the terms of the Trust.

Trustees appealed the declaratory judgment contending that the trial court erred in entering a judgment finding that they had breached their fiduciary duties because the issue was outside of the pleadings and had not been tried by consent and the court failed to hear evidence and consider facts that would have supported their investment decisions. Schumacher, 303 S.W.3d at 172. This court affirmed the judgment in part and reversed it in part, and the case was remanded to the trial court to hear and consider evidence on Trustees' affirmative defenses. Id. at 177. After further proceedings, the trial court entered a judgment regarding Trustees' affirmative defenses, and Trustees appealed. The appeal was ultimately dismissed.

Thereafter, Trustees filed a motion for entry of satisfaction of judgment arguing that they had complied with the declaratory judgment. In support of their motion, Trustees filed two exhibits, a Compliance Action Plan and Summary and the Final Accounting Compilation, which they asserted definitely established that they unwound the void transactions, distributed the assets consistent with the distribution that would have existed from the Trust had the Partnership and LLC transactions never taken place, and provided a full and complete accounting to all beneficiaries of the steps they took and the assets in the three remaining trusts.

In response to Trustees' motion, Beneficiaries filed a motion to enforce the judgment...