Wills of Jacobs, Matter of

• Decision Date: 16 August 1988
• Docket Number: No. 8826SC72,8826SC72
• Court: North Carolina Court of Appeals
• Parties: In re the Matter of the Trust Created Under Item Three of the WILLS OF Herbert JACOBS and Bella Lewan Jacobs. James F. FREER, As Guardian Ad Litem of Christina Kathleen Pafero, a minor v. Milton WEINSTEIN, in his capacity as Trustee for the Trust Established under Item Three of the Wills of Herbert Jacobs and Bella Lewan Jacobs, Alan Marshall Jacobs, Sonia Jacobs Linder, Eric Stewart Linder, Nicole Jacobs, a minor, Daniel Jacobs, a minor, the Unborn Issue of All Persons Set Forth Above, the Unknown Heirs of Herbert Jacobs and Bella Lewan Jacobs, All Other Interested Persons Whether Known or Unknown, Born or Unborn, Who Have or May Have Any Rights to or Interest in the Assets of the Trust created under Item Three of the Wills of Herbert Jacobs and Bella Lewan Jacobs.

Page 860

370 S.E.2d 860

91 N.C.App. 138

In re the Matter of the Trust Created Under Item Three of

the WILLS OF Herbert JACOBS and Bella Lewan Jacobs.

James F. FREER, As Guardian Ad Litem of Christina Kathleen

Pafero, a minor v. Milton WEINSTEIN, in his capacity as Trustee for the Trust

Established under Item Three of the Wills of Herbert Jacobs

and Bella Lewan Jacobs, Alan Marshall Jacobs, Sonia Jacobs

Linder, Eric Stewart Linder, Nicole Jacobs, a minor, Daniel

Jacobs, a minor, the Unborn Issue of All Persons Set Forth

Above, the Unknown Heirs of Herbert Jacobs and Bella Lewan

Jacobs, All Other Interested Persons Whether Known or

Unknown, Born or Unborn, Who Have or May Have Any Rights to

or Interest in the Assets of the Trust created under Item

Three of the Wills of Herbert Jacobs and Bella Lewan Jacobs.

No. 8826SC72.

Court of Appeals of North Carolina.

Aug. 16, 1988.

Smith, Helms, Mulliss & Moore by Robert B. Cordle, William R. Purcell, II, and Neill G. McBryde, Charlotte, for petitioner-appellee.

Collie and Wood by George C. Collie, Charles M. Welling, Charlotte, for defendant-appellant.

Petree Stockton & Robinson by Ray S. Farris, Guardian Ad Litem, Charlotte, for the unborn issue and unknown heirs, defendant-appellees.

Perry, Patrick, Farmer & Michaux by Bailey Patrick, Jr., Guardian Ad Litem, Charlotte, for Nicole Jacobs and Daniel Jacobs, minors.

EAGLES, Judge.

Defendant Weinstein presents five assignments of error for review. He first argues that the clerk of superior court has exclusive original jurisdiction to remove a trustee and, therefore, the trial court lacked subject matter jurisdiction to hear the case. Next, he contends that the trial court erred in denying his motion for directed verdict at the close of petitioner's evidence and at the conclusion of all the evidence. He further claims that the trial court failed to make separate findings of fact and conclusions of law as required by Rule 52 of the North Carolina Rules of Civil Procedure. Defendant Weinstein assigns as error that portion of the trial court's order requiring that he reimburse all commissions paid him and that he personally pay court costs. Finally, he argues that the trial court lacked jurisdiction to find him in contempt. We agree that the trial court lacked jurisdiction to find Weinstein in contempt. Accordingly we vacate the contempt order, but otherwise, we affirm the trial court's judgment.

I

Initially we note that there is a statutory distinction in the required procedures for removing a trustee and those for removing a personal representative or collector. Compare G.S. 36A-35 (removal of trustee is pursuant to procedures outlined in G.S. 36A-24 to G.S. 36A-32) with G.S. 36A-22(b) (removal of personal representatives and collectors governed by Chapter 28A). Here the petitioner seeks to remove Weinstein as trustee of the Jacobs' trusts but does not seek his removal from his position as the Jacobs' personal representative.

Removal of the trustee here must be accomplished in accordance with G.S. 36A-35 which provides, in part, that

[a]ny beneficiary, cotrustee or other person interested in the trust estate may file a petition in the office of the clerk of superior court of the county having jurisdiction over the administration of the trust for the removal of a trustee or cotrustee who fails to comply with the requirements of this Chapter or a court order, or who is otherwise unsuitable to continue in office. Upon the filing of the petition, the clerk shall docket the cause as a special proceeding, with the petitioner as plaintiff.

Freer filed these petitions with the Mecklenburg County Clerk of Superior Court. Shortly thereafter Weinstein answered maintaining, inter alia, defenses of laches, estoppel, and unclean hands. Upon Weinstein's motion the clerk of court transferred the action to the civil issue docket. G.S. 1-399; see Little v. Duncan, 149 N.C. 84, 62 S.E. 770 (1908) (clerk of court must transfer case when equitable defenses raised). Defendant now argues that the clerk of court has exclusive and original jurisdiction of all probate matters and, therefore, transfer of the case to the civil issue docket was improper. We disagree.

As noted in Ingle v. Allen, 69 N.C.App. 192, 196, 317 S.E.2d 1, 3 (1984), our courts distinguish cases which "arise from" the administration of an estate from those which are "a part of" the administration and settlement of an estate. Those cases which are "a part of" the administration of an estate are considered probate matters in which the clerk of superior court has exclusive original jurisdiction. In re Estate of Adamee, 291 N.C. 386, 230 S.E.2d 541 (1976). These two testamentary trusts will exist for ten years; at that time the corpus must be distributed to the remaindermen. In all likelihood the administration of the individual decedents' estates will be closed prior to the dissolution of the trusts. Without regard for when the estates are closed, the administration of these testamentary trusts will continue for the prescribed period. Petitioner here alleges breach of fiduciary duties. Our court has held that this issue is a civil matter which is not "a part of" the administration of these estates, but rather "arises from" their administration. Ingle at 195, 317 S.E.2d at 3. Furthermore, when a special proceeding begun before the clerk is transferred to the superior court, the judge may "determine all matters in controversy." G.S. 1-276; Plemmons v. Cutshall, 230 N.C. 595, 55 S.E.2d 74 (1949). Accordingly, we hold that transfer of the case was proper and that the trial court had jurisdiction to hear the case.

II

Defendant Weinstein next assigns as error the trial court's denial of his motions for a directed verdict at the close of petitioner's evidence and at the conclusion of all the evidence. He argues that petitioner's evidence was insufficient to show that he abused his discretion in making income distributions to Tina. By his introduction of evidence defendant waived his motion for directed verdict at the close of petitioner's evidence, Rice v. Wood, 82 N.C.App. 318, 346 S.E.2d 205, disc. rev. denied, 318 N.C. 417, 349 S.E.2d 599 (1986), and, therefore, we consider only his motion for directed verdict at the conclusion of all the evidence.

Though appellant defendant frames his arguments in the context of abuse of discretion by a trustee of a discretionary trust, the dispositive question here is whether petitioner presented sufficient evidence for a jury to find that Weinstein "fail[ed] to comply with the requirements of ... Chapter [36A] or a court order, or ... [was] otherwise unsuitable to continue in office." G.S. 36A-35. We hold that petitioner presented sufficient evidence for his case to go to the jury. Accordingly, we overrule this assignment of error.

Trust beneficiaries may expect and demand the trustee's complete loyalty in the administration of any trust. Should there be any self-interest on the trustee's part in the administration of the trust which would interfere with this duty of complete loyalty, a beneficiary may seek the trustee's removal. See Trust Co. v. Johnson, 269 N.C. 701, 153 S.E.2d 449 (1967). If a conflict of interest arises, the trustee must either remove the personal interest or resign his position as trustee. Bogert, The Law of Trusts and Trustees, section 543 (rev. 2d ed. 1978). In support of this rule of complete loyalty our Supreme Court has quoted Chief Justice Cardozo.

"A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the 'disintegrating erosion' of particular exceptions, ... Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court."

Trust Co. v. Johnson, 269 N.C. 701, 711, 153 S.E.2d 449, 457 (1967) (quoting Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928)).

In the light most favorable to petitioner, his evidence showed the following. Petitioner is the guardian ad litem for Christina Kathleen Pafero (Tina), a minor child who is an income and remainder beneficiary of two separate testamentary trusts established by her grandparents. Tina's mother is currently incarcerated serving a life sentence in Florida and her father is incarcerated on Florida's death row for the murder of two Florida highway patrol officers. Upon her parents' convictions Tina went to live with her maternal grandparents, Herbert Jacobs and Bella Lewan Jacobs. Her grandparents reared her until their deaths when Tina was eight years old. Each of her grandparents' wills named Tina as an income and remainder beneficiary of their respective trusts and named Weinstein as trustee of each trust. The trust language required that defendant Weinstein make discretionary income payments on Tina's behalf.

As trustee of both trusts, Weinstein petitioned the clerk of court for payment of commissions due him. The clerk of court authorized all fee requests submitted by Weinstein. Payment of over $66,000 in commissions was made to Weinstein. Expert testimony revealed that this was significantly in excess of the maximum commissions allowed by statute. Thereafter the clerk notified Weinstein that he had been overpaid and vacated the orders which had authorized payment of the commissions. The clerk's order stated, however, that Weinstein could reapply for the appropriate commissions. Rather than repay the improper commissions and reapply for the commissions properly due him, Weinstein appealed from the clerk's order. By appealing the clerk's order defendant Weinstein placed his personal self-interest ahead of the...