Smith v. Baptist Foundation of Oklahoma

• Decision Date: 25 June 2002
• Docket Number: No. 97,110.,97,110.
• Citation: 50 P.3d 1132,2002 OK 57
• Parties: Verbon SMITH and Hazel Smith, individuals, Plaintiffs/Petitioners, v. The BAPTIST FOUNDATION OF OKLAHOMA, an Oklahoma corporation, The Baptist General Convention of the State of Oklahoma, an Oklahoma corporation, Defendants/Respondents.
• Court: Oklahoma Supreme Court

50 P.3d 1132

2002 OK 57

Verbon SMITH and Hazel Smith, individuals, Plaintiffs/Petitioners, v. The BAPTIST FOUNDATION OF OKLAHOMA, an Oklahoma corporation, The Baptist General Convention of the State of Oklahoma, an Oklahoma corporation, Defendants/Respondents.

No. 97,110.

Supreme Court of Oklahoma.

June 25, 2002.

Patrick O'Hara, Jr., Blake C. Parrott, Oklahoma City, OK, for Plaintiffs/Petitioners, Verbon Smith and Hazel Smith.

Jack S. Dawson, James A. Scimeca, Andrew D. Schwartz, Oklahoma City, OK, for Defendant/Respondent, The Baptist Foundation of Oklahoma.

Stephen D. Beam, Weatherford, OK, for Defendant/Respondent, The Baptist General Convention of the State of Oklahoma.

KAUGER, J.

¶ 1 The issues presented are: 1) whether all the plaintiffs/petitioners', Verbon and Hazel Smith (collectively, Smiths), claims predating January 1, 1995, against the defendants/respondents, Baptist Foundation of Oklahoma (Foundation/trustee) and Baptist General Convention of the State of Oklahoma (Convention), are time barred; and 2) if timely filed, whether lost insurance premiums may be recovered as consequential damages. Although we determine that claims relating to investment strategies predating January 1, 1995, are barred by the settlor's acquiescence in the trustee's actions, the existence of material questions of fact in relation to the settlor's notice on the issue of the trustee's handling of losses associated with the sale of mineral interests precludes the entrance of summary judgment on the claim. Further, the record presented will not support an award for lost insurance premiums as consequential damages.¹

FACTS

¶ 2 The Foundation is an agency of the Convention. It receives, invests and manages endowment gifts distributing the income from those gifts to Baptist causes and other designated beneficiaries.² In 1984, the Foundation contacted Verbon Smith (Verbon) about creating a charitable trust. Verbon conveyed real estate valued at $494,154.00 and mineral interests sold for $94,132.00 to the Foundation, forming the Verbon Smith Charitable Remainder Unitrust (trust) on June 19, 1984. The trust provided that Verbon receive up to eight percent of the trust's income during his lifetime. At Verbon's death, his wife, Hazel Smith (Hazel), was entitled to five percent of the income.³ Upon both the Smiths' deaths, the remainder was to be distributed to the Convention.

¶ 3 Verbon became incompetent in 1994 after suffering a stroke. Hazel filed suit on his behalf in February of 1997, seeking to have the trust declared void ab initio. In addition, Hazel asserted claims for breach of fiduciary duty, negligence, removal of the trustee and an accounting. Hazel sought no damages on her own behalf — seeking to recover only in Verbon's name. Sometime subsequent to the suit's filing, Hazel became incompetent and her granddaughter, Cheryl Kerr, was appointed as guardian ad litem. Finding that the Foundation lacked the authority to serve as a trustee when the trust was established, the trial court sustained summary judgment in favor of Verbon and ordered the trustee to return approximately $500,000.00 to the Smiths as the trust corpus. The Court of Civil Appeals reversed and remanded in Smith v. Baptist Foundation of Oklahoma (Smith I), 2000 OK CIV APP 119, 17 P.3d 466, holding that: 1) the action "arose", for venue purposes, in the county in which Verbon entered into the trust agreement; and 2) a nonprofit corporation did not lack statutory authority in 1984, when the trust was created, to serve as trustee for an inter vivos charitable trust. The Court of Civil Appeals did not address Verbon's other theories of recovery.

¶ 4 The trustee and the Convention filed motions for summary judgment on April 2, 2001, alleging that Verbon's claims were barred statutorily and by the equitable doctrine of laches. The trial court heard the matter on April 26, 2001. On November 5, 2001, it entered an order sustaining the motion as to all damages occurring before January 1, 1995. Essentially, the trial court determined that until that date, Verbon had acquiesced in the trustee's management of the trust estate. Further, the trial court found that no grounds were established for the recovery of premiums paid on certain life insurance policies purchased in conjunction with the establishment of the trust. Recognizing that barring these claims affected a substantial portion of the suit, the trial court certified the cause for immediate interlocutory appeal pursuant to 12 O.S.2001 § 952(b)(3).⁴

¶ 5 On January 14, 2002, we granted certiorari and ordered the preparation of the record and submission of briefs. The briefing cycle was completed with the filing of Verbon's reply brief on March 13, 2002.⁵ Although the notice of completion was filed on January 29, 2002, the record was not received from the trial court until March 29, 2002.

I.

¶ 6 VERBON'S KNOWLEDGE THAT POOLED INVESTMENTS WERE BEING UTILIZED BY THE TRUSTEE COUPLED WITH INFORMATION PROVIDED INDICATING THE RETURNS ON THE INVESTMENTS PRECLUDES VERBON FROM PURSUING CLAIMS DURING THE PERIOD IN WHICH VERBON, THROUGH SILENCE, ACQUIESCED IN THE INVESTMENT PROCEDURES UTILIZED.

a. Defenses to allegations of fraud or breach of trust — statute of limitations, laches and acquiescence.

¶ 7 Relying on general statements in early case law,⁶ Verbon's guardian asserts that Verbon's claims — arising from a fiduciary relationship — can never be affected by the expiration of a limitations period because the trust has not been terminated and there has been no repudiation.⁷ Similar arguments were considered and rejected in Mud Trans, Inc. v. Foster-Dickenson & Co., Inc., 1993 OK 94, 856 P.2d 282, which makes it clear that the statute of limitations begins to run on a trust beneficiary's claim when it learns it has suffered damage that might be the trustee's fault.⁸

¶ 8 At the time this cause was filed, actions grounded in allegations of fraud or breach of trust were governed by the two-year statute of limitations found in 12 O.S. Supp.1996 § 95(3).⁹ The discovery rule allows the limitation period in certain tort cases to be tolled until the fraud is discovered or until the date the defrauded party, by the exercise of ordinary diligence, might have recognized the deception.¹⁰ Even where the defendant has the responsibility of a trustee towards the plaintiff, the statute starts to run when the beneficiary learns it has suffered damage that might be the trustee's fault.¹¹ The question of when fraud is discovered or should have been unearthed with the exercise of ordinary diligence is one of fact dependent on the surrounding circumstances, the relationship of the parties, and all other elements peculiar to the cause.¹²

¶ 9 Laches is an equitable defense to stale claims.¹³ There is no arbitrary rule for when a claim becomes stale or what delay is excusable.¹⁴ Application of the doctrine is discretionary depending on the facts and circumstances of each case as justice requires.¹⁵ As an affirmative defense, the party claiming the doctrine's benefit has the burden of proof.¹⁶ The party invoking the laches defense must show unreasonable delay coupled with knowledge of the relevant facts resulting in prejudice.¹⁷ Delay is deemed excusable if it is induced or contributed to by the adverse party.¹⁸ Furthermore, laches is not a defense to one lacking notice of a right to proceed or a cause of action¹⁹ — the elements of laches are simply not met when there is an absence of knowledge and affirmative acts to mislead.²⁰

¶ 10 Acquiescence involves a quiet submission or compliance with acts from which assent can reasonably be inferred.²¹ A person may, through long acquiescence in a practice or recognition of a right, be precluded from denying the legality of the actions taken.²² Equity will not deprive a party of a remedy unless it appears the party had knowledge — one cannot acquiesce in performance of an act of which the party is ignorant.²³ Nevertheless, a beneficiary of a trust estate may be estopped from asserting a claim as against a trustee if the beneficiary accedes to the trustee's actions for an extended period of time.²⁴ Under appropriate circumstances, acquiescence will support the equitable plea of laches.²⁵

b. Application of the defenses to facts surrounding the utilization of pooled investments.

¶ 11 Verbon's guardian contends that throughout the management of the trust, the trustee breached its fiduciary duties and negligently mismanaged the trust by engaging in self-dealing transactions, charging and collecting excessive fees, ignoring and/or neglecting the Smiths' individualized circumstances when making investment decisions and engaging in an impermissible conflict of interest between the Smiths and the Convention. Specifically, Verbon's guardian asserts that, only when suit was filed, did the Foundation provide her with information that would have alerted Verbon to the trustee's actions forming the basis of his claims. Verbon's guardian argues that material issues of fact exist as to whether Verbon had information sufficient to put him on notice that the trust monies had been invested in generic pooled investment funds²⁶ and that the Foundation's losses on the sale of mineral interests had been charged back to the estate.

¶ 12 The trustee insists that claims regarding its investment strategies, i.e. the utilization of pooled investments, are barred by the settlor's long acquiescence in the investment procedures. We agree with this proposition. Nevertheless, we are convinced that a material fact issue exists concerning when Verbon was presented with documents which may have advised him that losses associated with the trustee's sale of mineral interests were charged back to the trust.²⁷

¶ 13 The trust was established in 1984. The record demonstrates that as early as October 27th, 1987, Verbon was receiving quarterly activity reports from the trustee clearly denominating income as arising...