Trusteeship of Williams, In re

• Decision Date: 27 April 1999
• Docket Number: Nos. C5-98-1471,C5-98-1504,s. C5-98-1471
• Citation: 591 N.W.2d 743
• Court: Minnesota Court of Appeals
• Parties: In the Matter of the TRUSTEESHIP OF the Trust Created under the Last Will and Testament and Codicil thereto of James T. WILLIAMS, Deceased.

Page 743

591 N.W.2d 743

In the Matter of the TRUSTEESHIP OF the Trust Created under the Last Will and Testament and Codicil thereto of James T. WILLIAMS, Deceased.

Nos. C5-98-1471, C5-98-1504.

Court of Appeals of Minnesota.

April 27, 1999.

Syllabus by the Court

So long as there is no disparity of bargaining power between the trust creator and a corporate trustee at the time of a trust's creation, and the trust was created for a purely private purpose, a corporate trustee may, without violating public policy, use an exculpatory clause in the trust instrument as a shield to liability for breach of trust.

Alan I. Silver, Richard A. Wilhoit, Norman M. Abramson, Doherty, Rumble & Butler, P.A., Minneapolis, MN (for Robert H. Williams and Robert K. Williams, appellants in C5-98-1471 and respondents in C5-98-1504)

Bonnie M. Fleming, John F. Beukema, Brendan W. Randall, Eunice P. de Carvalho, Faegre & Benson L.L.P., Minneapolis, MN (for Norwest Bank Minnesota, respondent in C5-98-1471 and appellant in C5-98-1504)

Eric J. Magnuson, Richard J. Nygaard, Larry R. Henneman, Rider, Bennett, Egan & Arundel, L.L.P., Minneapolis, MN (for Margaret W. Linstroth, respondent in C5-98-1471 and C5-98-1504)

Considered and decided by TOUSSAINT, Chief Judge, LANSING, Judge, and HUSPENI, Judge.

OPINION

HUSPENI, Judge. ^*

In this consolidated appeal, appellants Robert H. Williams and Robert K. Williams challenge the dismissal of their surcharge action against respondent-trustee Norwest Bank Minnesota, National Association (Norwest), contending the district court erred in concluding that (1) a corporate trustee may rely upon an exculpatory clause in a trust instrument; and (2) the language of the particular exculpatory clause at issue here protects Norwest. Norwest also appeals, ¹ contending the district court abused its discretion by denying payment of attorney fees from the corpus of the trust and erred in releasing Norwest's co-trustees, Robert H. Williams and Margaret Linstroth, from liability. We affirm in part, reverse in part, and remand.

FACTS

In his last will and testament, dated August 22, 1949, and codicil thereto, dated August 29, 1950, James T. Williams created a trust. The original corporate trustee was Northwestern National Bank of Minneapolis. Northwestern changed its name, first to Norwest Bank Minneapolis, National Association, and then to Norwest Bank Minnesota, National Association. From 1979 until 1997, the trustees were appellant Robert H. Williams, Margaret Linstroth, and respondent Norwest.

Under Minn.Stat. § 501B.23 (1998), the Williams trust is subject to the continuing supervision of the district court. The trustees' accounts of the trusteeship from the trust's inception through December 31, 1989 have been filed with the district court and were duly settled and allowed by prior orders of the court.

James T. Williams, the trust's creator, was the founder of the Creamette Company, and Creamette stock originally accounted for 98% of the trust's value. In 1979, Creamette was acquired by Borden, Inc. As part of the Borden acquisition, the trust's Creamette stock was exchanged for Borden common stock. As of January 1, 1980, nearly 100% of the total market value of the trust was in Borden stock. The trust owned 630,948 shares of Borden stock at that time.

Beginning in 1980, the trustees began selling shares of Borden stock because of a perceived need to diversify trust assets. As of December 31, 1989, the last date through which trusteeship accounts have been settled and allowed by the district court, the trust owned 600,000 shares of Borden common stock at a value of $36.375 per share, and that stock accounted for 39.3% of the total market value of the trust.

From 1990 through 1994, the trustees generally voted to defer further divestment of Borden stock. The Williams trust's board of trustees makes decisions by majority vote, so although Robert Williams moved to sell Borden stock, Norwest and Linstroth were able to defeat the motions. Norwest and Linstroth apparently felt that it would be prudent to hold Borden stock until the price of the stock rose in value. Borden stock ultimately lost value. The trustees disposed of most of the trust's Borden stock by exchanging it for RJR Nabisco stock. For purposes of this stock exchange, Borden common stock was valued at $14.25 per share. Because Borden stock was previously valued at $36.375 per share, this exchange represented a significant loss in the value of the trust.

By petition dated June 6, 1996, trustees Linstroth and Norwest sought approval of the trustees' annual accounts for the trusteeship from 1990 to 1995. Appellant Robert H. Williams filed objections to the petition, claiming that Norwest, as corporate trustee, was responsible for the trust's loss in value from 1990 to 1995 and should be surcharged for the trust's losses.

Norwest eventually asserted that article VIII, section 12 of the trust instrument protects it from liability. That clause states:

No Trustee shall be liable for the default or doing of any other Trustee, whether the act be one of misfeasance or nonfeasance, nor shall he be held liable for any loss by reason of any mistake or errors of judgment made by him in good faith in the execution of the trust.

The district court dismissed the action against Norwest on the basis of this clause because the court found that Norwest did not act with malfeasance and therefore was not liable.

ISSUES

I. May Norwest, as corporate trustee, use the exculpatory clause in the trust instrument as a shield to liability for breach of trust without violating public policy?

II. Does the exculpatory clause at issue shield Norwest from liability?

III. Did the district court abuse its discretion in refusing to award attorney fees from the corpus of the trust?

IV. Did the district court err by ruling that Linstroth and Williams would be released from liability for their administration of the trust?

ANALYSIS

I. Public policy

Where the critical evidence in interpreting a trust instrument is documentary, this court engages in de novo review. In Re Trust of Ward, 360 N.W.2d 650, 652 (Minn.App.1985), review denied (Minn. March 29, 1985). Here, the exculpatory clause in question is part of the trust instrument, and thus our review of the meaning and significance of that clause is de novo.

Appellant contends that allowing corporate trustees to use exculpatory clauses as a shield to liability for breach of trust violates public policy. We disagree. In Schlobohm v. Spa Petite, Inc., 326 N.W.2d 920 (Minn.1982), and Walton v. Fujita Tourist Enterprises Co., 380 N.W.2d 198 (Minn.App.1986), review denied (Minn. March 21, 1986), Minnesota courts examined exculpatory clauses generally and held that such clauses are valid so long as two conditions are met. Before enforcing an exculpatory clause, Minnesota courts look to see

(1) whether there was a disparity of bargaining power between the parties (in terms of a compulsion to sign a contract containing an unacceptable provision and the lack of ability to negotiate elimination of the unacceptable provision) and (2) the types of services being offered or provided (taking into consideration whether it is a public or essential service).

Schlobohm, 326 N.W.2d at 923 (citations omitted).

Here, there is no evidence suggesting either that there was a disparity of bargaining power between Norwest and the trust's creator, James T. Williams, or that Norwest somehow compelled Williams to add the exculpatory clause. Moreover, numerous organizations are able to act as corporate trustees, and this particular trust was designed to benefit only private individuals. Thus, service as a corporate trustee for the Williams trust does not appear to be the type of public or essential service discussed in Schlobohm. We conclude that Norwest may raise the exculpatory clause in this case without violating Minnesota's public policy.

II. Application of the exculpatory clause to Norwest

A. The first portion of the clause

In administering a trust, the court's role is limited to fulfilling the donor's intent, and that intent is "to be gathered from the whole instrument and all reasonable inferences that may be drawn from it." Ward, 360 N.W.2d at 652. Generally, exculpatory clauses are not favored by the law and are strictly construed against the benefited party. Schlobohm, 326 N.W.2d at 923. If an exculpatory clause is either ambiguous in scope or attempts to release the benefited party from liability for intentional, willful, or wanton acts, the clause will not be enforced. Id.

Here, the district court found that under the Williams trust instrument, "trustees cannot be held liable for any act of misfeasance or nonfeasance but only for acts of malfeasance." However, the "misfeasance or nonfeasance" portion of the clause states that "[n]o trustee shall be liable for the default or doing of any other trustee," thereby preventing a trustee from incurring liability only for the acts of other trustees. The clause does not protect a trustee from his or her own act of misfeasance or nonfeasance; the clause only relieves a trustee of liability for his or her own acts when loss is suffered "by reason of any mistake or error of judgment made by [the trustee] in good faith in the execution of his trust." Thus, while there may be situations in which the exculpatory clause will eliminate a trustee's liability, the "misfeasance or nonfeasance" portion of the clause does not define those situations.

B. The second portion of the clause

Norwest contends that even if the district court incorrectly interpreted the clause, that portion relieving a trustee of liability for mistakes or errors of judgment made in good faith applies to Norwest's benefit. See Myers v. Price, 463 N.W.2d 773, 775 (Minn.App.1990) (appellate court will affirm the judgment if it can be sustained on any grounds), review denied (Minn. Feb. 4, 1991). Appellant argues that this language...