Schumacher v. Schumacher

• Decision Date: 23 February 2010
• Docket Number: No. WD 70465.,WD 70465.
• Citation: 303 S.W.3d 170
• Parties: James Price SCHUMACHER, Individually and as natural guardian for James Price Schumacher, II and Charles Beckwith Schumacher, Minors, et al., Respondents, v. Louis Edward SCHUMACHER, Austin, Individually and as Trustee of the Louis E. Schumacher, Sr. Irrevocable Trust Agreement dated December 30, 1976, et al., Appellants.
• Court: Missouri Court of Appeals

303 S.W.3d 170 James Price SCHUMACHER, Individually and as natural guardian for James Price Schumacher, II and Charles Beckwith Schumacher, Minors, et al., Respondents,
v.
Louis Edward SCHUMACHER, Austin, Individually and as Trustee of the Louis E. Schumacher, Sr. Irrevocable Trust Agreement dated December 30, 1976, et al., Appellants. No. WD 70465. Missouri Court of Appeals, Western District. February 23, 2010.

[303 S.W.3d 171]

Patrick N. Fanning, for Appellants.

Charles T. Schimmel, for Respondents.

Before Division Two: JOSEPH M. ELLIS, Presiding Judge, VICTOR C. HOWARD, Judge and JAMES EDWARD WELSH, Judge.

VICTOR C. HOWARD, Judge.

Louis Edward Schumacher Austin and Sara Schumacher ("Trustees")¹ appeal the

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judgment of the trial court in favor of James Price Schumacher and Cindy Sue Davis ("Beneficiaries") on their petition for declaratory judgment. On appeal, Trustees contend that the trial court erred in entering a judgment finding that Trustees had breached their fiduciary duties because: (1) the issue was outside of the pleadings and had not been tried by consent; and (2) the court failed to hear evidence and consider facts that would have supported Trustees' investment decisions. The judgment is reversed and remanded in part and affirmed in part.

Factual and Procedural Background

Beneficiaries filed a petition for declaratory judgment after a dispute arose regarding Trustees' management of trust assets. Beneficiaries are two of four children of Louis E. Schumacher, Sr. ("Grantor") and Topper. Grantor and Topper had two other children—Austin, and Johnny Griffin Schumacher.²

In 1976, Grantor created an irrevocable 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 terminate five years after Grantor's death, and the principal was to be distributed to Grantor's then living descendants.

In 1984, Trustees formed a limited corporation named The Schumacher Group, Ltd. ("the Corporation"), and the irrevocable trust was its sole shareholder. In 1986, Grantor and Topper created a second trust, a revocable trust, and named themselves as trustees. Upon Grantor's death in May of 1998, the revocable trust split into three separate trusts: a qualified terminable interest property trust ("QTIP trust"), a marital trust, and a family trust. Topper is the sole trustee of the three trusts. At the time of Grantor's death, the irrevocable trust held three assets: cash or cash equivalents, land, and stock in the Corporation.

In January 2001, Trustees entered into agreements forming the Topper Schumacher Family Limited Partnership ("the Partnership") and the Lou Schumacher, Sr., LLC ("the LLC").³ The Partnership Agreement provides 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 the LLC, Trustees conveyed all assets of the irrevocable trust into the Partnership and LLC in exchange for a .37 percent interest in the LLC valued at $55 and a .5 percent interest in the Partnership valued at $7,000. Beneficiaries learned of the conveyance after it occurred. In February 2001, Topper also conveyed all of the assets in the family and QTIP trusts, and a portion of her marital trust assets, into the Partnership in exchange for substantial general and limited partnership interests. Additionally, the Corporation transferred an office building it owned to the Partnership and $1,770 to the LLC. Topper, as trustee of the QTIP and family trusts and as president of the Corporation, held a

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59.57 percent controlling interest in the LLC.

Prior to May 2003, Trustees exchanged the irrevocable trust's interests in the Partnership and the LLC for additional shares of the Corporation. As a result of all these conversions, most of the meaningful assets in the trusts were transferred to the Partnership controlled by Topper. When the irrevocable trust terminated in May 2003, five years after Grantor's death, shares of the Corporation were the only asset held by the irrevocable trust. The shares were distributed to Grantor's four children.

On November 18, 2005, Beneficiaries filed their petition for declaratory judgment. Beneficiaries subsequently filed their first amended petition for declaratory judgment, which contained ten counts. Beneficiaries later dismissed six of the counts and proceeded on Counts I and VII.⁴ In Count I, Beneficiaries alleged that Trustees had no power under the terms of the irrevocable trust to convert trust assets into assets of the Partnership; that Trustees' fiduciary obligations continued after the formation of the Partnership; and that the distribution of Corporation stock to Beneficiaries was an improper distribution of the trust corpus and did not discharge Trustees of their fiduciary obligations. In Count VII, Beneficiaries alleged that Topper had no power under the terms of the family and QTIP trusts to convert assets of the trusts into Partnership assets and that Topper's fiduciary obligations continued after the formation of the Partnership.

Although a bench trial had been set to begin on February 13, 2007, Beneficiaries took the position that there were no disputed facts relevant to their action for declaratory judgment. Beneficiaries chose to waive trial and asked the court to decide the case solely upon the legal issues. Beneficiaries then filed a trial brief setting forth a statement of uncontested facts. In their response, Trustees specifically disputed several of Beneficiaries' factual assertions and made hearsay objections to a number of Beneficiaries' exhibits. Because Beneficiaries did not respond to Trustees' objections to the exhibits, the court sustained Trustees' objections. Additionally, the court stated that, as a basis for deciding the legal issues, it would consider only those factual assertions and exhibits in Beneficiaries' trial brief which were uncontested by Trustees' response, and the affirmative defenses argued in Trustees' brief that were based upon uncontested fact.

In its judgment, the trial court described the primary legal issue as whether Trustees acted outside their authority in converting trust assets into assets of the Partnership. Initially, the court acknowledged that the terms of both the irrevocable and the revocable trusts authorized Trustees to exchange trust assets for corporate or partnership interests. However, the court noted that such a finding did not resolve the issues raised by Beneficiaries because Trustees' authority was still subject to the fiduciary duties prescribed by the Missouri Uniform Trust Code ("MUTC"). The court observed that, therefore, the question of whether Trustees exceeded their authority had to be judged with those limitations in mind.

Based upon the undisputed facts, the court found that the overall effect of Trustees' actions was to delay Beneficiaries' enjoyment of the irrevocable trust in that

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they were given stock in the Corporation, whose sole asset was an interest in the Partnership, and were given an interest...