Trusteeship Created by City of Sheridan, In re

• Decision Date: 05 May 1999
• Docket Number: C9-98-1702 and C4-98-1722,Nos. C6-98-1673,s. C6-98-1673
• Citation: 593 N.W.2d 702
• Parties: In the Matter of the TRUSTEESHIP CREATED BY the CITY OF SHERIDAN, COLORADO.
• Court: Minnesota Court of Appeals

Page 702

593 N.W.2d 702

In the Matter of the TRUSTEESHIP CREATED BY the CITY OF SHERIDAN, COLORADO.

Nos. C6-98-1673, C9-98-1702 and C4-98-1722.

Court of Appeals of Minnesota.

May 5, 1999.

Syllabus by the Court

A Minnesota district court has jurisdiction over a trust administered in Minnesota even if a majority of the trust's assets and beneficiaries are located outside Minnesota if sufficient other factors indicate that the exercise of jurisdiction is appropriate.

William F. Mohrman, Mohrman & Co., P.A., Minneapolis, for appellants Colorado Farm Bureau Mutual Insurance Company, Sarco & Company, Isaak Bond Investments and Exempt Enterprises, Curt Kaiser, First National Bank of Flagler, Colorado, North Bank, Arline Doblin, State Bank of Wiley Patrick J. McLaughlin, Virginia Anne Housum, Dorsey & Whitney L.L.P., Minneapolis, for respondent U.S. Bank Trust National Association.

Leon and Emily Selig, Farmers National Bank of Geneseo n/k/a Norwest Bank of Illinois, and Douglas Walliser.

Considered and decided by Lansing, Presiding Judge, Willis, Judge, and Shumaker, Judge.

OPINION

WILLIS, Judge.

In an appeal from the district court's order in response to the trustee's supplemental petition, trust beneficiaries challenge the court's determinations that (1) it had jurisdiction over the trust, (2) the trust instrument gave the trustee the authority to sell a trust asset, and (3) the trustee did not breach its fiduciary duties. The beneficiaries also appeal from the district court's approval of the trustee's fees. We affirm the court's determination that it had jurisdiction and that the trustee acted in accordance with the trust and did not breach its fiduciary duties. We reverse and remand for determination of the reasonableness of the trustee's claimed fees.

FACTS

Appellants are Certificate of Participation holders under a trust indenture created in 1986 to finance the construction of a municipal facility for the City of Sheridan, Colorado. Under the terms of the trust indenture, the city sold certificates totaling $3,525,000 in value. After the facility was built, the city deeded the property and the facility to the trust, and the trust leased the facility back to the city and distributed the income from lease payments to the certificate holders (the trust beneficiaries). In 1988, the city issued new certificates to the certificate holders so that the city could take advantage of lower interest rates. When the new certificates were issued, the predecessor of U.S. Bank Trust National Association became the trustee.

In 1994, the city exercised its right to terminate the lease. It claimed it could not make the rental payments and proposed a short-term lease. In November 1994, the trustee petitioned Ramsey County District Court for instruction regarding whether to accept the short-term lease. In December 1994, the court assumed jurisdiction over the administration of the trust and instructed the trustee to enter into a short-term lease with the city.

In 1995, the trustee filed a supplemental petition requesting the court to confirm that the trustee had not violated the trust by petitioning the court for instruction on the short-term lease. In response to the petition, one of the certificate holders submitted a statement to the court that indicated he would challenge the court's jurisdiction if the trustee sought to extend the short-term lease or if the court approved an extension of the short-term lease. The court found that the trustee had not violated the trust and that expenses incurred in securing the instruction were proper, and the court continued its jurisdiction over the trust.

In February 1996, the city commenced eminent domain proceedings against the facility. The city offered to pay $642,000 for the facility based on an appraisal, although the outstanding principal amount of the certificates at that time was $3,250,000. The city's offer was also less than the amount that the trust instrument required the city to pay if it chose to purchase the facility during the lease term. The trustee contested the valuation, and the city eventually raised its offer to $1,800,000.

In November 1996, the trustee sought instruction regarding whether it should accept the city's offer to buy the facility by filing a second supplemental petition with the district court. The trustee also held a meeting of the certificate holders, who voted to oppose the offer. After the meeting, opposing certificate holders contested the district court's jurisdiction to consider the petition and opposed the offer. In April 1997, the court found it had jurisdiction and ordered the trustee to reject the offer, to contest the right of the city to use the condemnation proceeding to acquire the facility, and to dispute the city's valuation of the facility in proceedings in Colorado.

In October 1997, the city leased another location and vacated the facility. The trustee attempted to lease the facility but was unable to find another lessee because of the use-specific nature of the facility, a deed restriction limiting the facility's use to governmental purposes, and zoning problems. Then, in April 1998, the city made an offer to settle all pending litigation and to purchase the facility for slightly more than $2,000,000. The trustee polled the certificate holders by mail, and they voted to oppose the new offer. The trustee then filed a third supplemental petition with the court, seeking instruction on the offer. The trustee also sought to be discharged and sought final approval of its fees and expenses.

The court ordered the trustee to accept the offer, discharged the trustee, and approved its fees and expenses. The trustee has since accepted the offer and sold the facility to the city. The opposing certificate holders appeal, asserting that the court erred in finding it had jurisdiction, in finding that the trust instrument gave the trustee authority to sell the facility to the city, and in approving the trustee's fees and expenses. The opposing certificate holders also allege that the district court erred in finding that the sale of the facility was not a breach of the trustee's fiduciary duties.

ISSUES

I. Did the district court err in determining that it had jurisdiction over the trust?

II. Did the district court err in concluding that the trust instrument gave the trustee authority to sell the facility to the city?

III. Did the district court abuse its discretion in determining the trustee did not breach its fiduciary duties in selling the facility?

IV. Did the district court abuse its discretion in approving the trustee's fees and expenses?

ANALYSIS

I. Jurisdiction

A. Subject-Matter Jurisdiction

Subject-matter jurisdiction is a "court's power to hear and determine cases of the general class or category to which proceedings in question belong." Black's Law Dictionary 1425 (6th ed.1990); see Kansas City S. Ry. v. Great Lakes Carbon Corp., 624 F.2d 822, 825-26 (8th Cir.1980) (distinguishing a "total want of jurisdiction" from "an error in the exercise of jurisdiction"). A court's lack of subject-matter jurisdiction may be raised at any time. Mangos v. Mangos, 264 Minn. 198, 202, 117 N.W.2d 916, 918 (1962). The opposing certificate holders challenge the district court's subject-matter jurisdiction over the trust. But their challenge blurs the distinction between subject-matter jurisdiction and in rem jurisdiction, and their arguments address the court's in rem jurisdiction. Under Minn.Stat. § 501B.16 (1998), district courts have subject-matter jurisdiction over issues involving trusts. We therefore examine the opposing certificate holders' jurisdictional challenge by application of principles of in personam and in rem jurisdiction.

B. In Personam and In Rem Jurisdiction

Jurisdiction over a trust involves both in personam and in rem jurisdiction. A court's jurisdiction over property, its in rem jurisdiction, is its power "over a thing so that its judgment is valid as against the rights of every person in the thing." Black's Law Dictionary 854 (6th ed.1990). But a trust consists not only of property, but also of the trust instrument, the trust's beneficiaries and trustees, and the trust administrator. Recognizing this, courts have analyzed a number of factors in determining whether they have jurisdiction over a trust, including (1) the location of the trust property (the situs of the trust assets), (2) the domicile of the trust beneficiaries, (3) the domicile of the trustees, (4) the location of the trust administrator, (5) the extent to which the litigation has been resolved, (6) the applicable law, and (7) an analysis of forum non conveniens principles. In re Trust of Florance, 360 N.W.2d 626, 630-31 (Minn.1985); In re Trust of Cary, 313 N.W.2d 625, 628 (Minn.1981); Doerr v. Warner, 247 Minn. 98, 107, 76 N.W.2d 505, 513 (1956); see George Gleason Bogert & George Taylor Bogert, The Law of Trusts and Trustees § 291, at 222-32 (rev.2d ed.1992) (discussing problems and general principles regarding multi-state trusts).

Here, two factors disfavor a Minnesota court's assertion of jurisdiction over the trust: The facility, which represented the majority of the trust's assets, is located in Colorado, and Colorado is also the domicile of most of the beneficiaries. See Restatement (Second) of Conflict of Laws § 276 (1971) (providing that administration of trust property consisting of interest in land is generally supervised by courts of situs of trust property).

But other factors favor a Minnesota court's exercise of jurisdiction. The trustee is located in Minnesota, and the trust is administered here. In addition, the remaining three factors, which were not analyzed by the district court, favor jurisdiction in Minnesota. First, the issues raised regarding the administration of this trust have, for the most part, been resolved. The district court interpreted the trust instrument, ordered the trustee to dispose of the property,...