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Shriners Hospitals for Children v. First Northern Bank of Wyoming

Supreme Court of Wyoming

May 18, 2016

SHRINERS HOSPITALS FOR CHILDREN, In its capacity as beneficiary of the Alfred J. and Pegge A. Cooksley Trust, Appellant (Plaintiff),
v.
FIRST NORTHERN BANK OF WYOMING, In its capacity as trustee of the Alfred J. and Pegge A. Cooksley Trust, Appellee (Defendant). SHRINERS HOSPITALS FOR CHILDREN, In its capacity as beneficiary of the Alfred J. and Pegge A. Cooksley Trust, Appellant (Plaintiff),
v.
FIRST NORTHERN BANK OF WYOMING, In its capacity as trustee of the Alfred J. and Pegge A. Cooksley Trust, Appellee (Defendant).

         Appeal from the District Court of Johnson County The Honorable William J. Edelman, Judge

          Representing Appellant: Christopher C. Voigt and Timothy M. Stubson of Crowley Fleck, PLLP, Casper, WY. Argument by Mr. Voigt.

          Representing Appellee: Tom C. Toner of Yonkee & Toner, Sheridan, WY; and Keith Dodson of Williams, Porter, Day & Neville, Casper, WY. Argument by Mr. Toner.

          Before BURKE, C.J., and HILL, DAVIS, FOX, and KAUTZ, JJ.

          HILL, Justice

         [¶1] Alfred "Jack" Cooksley and Pegge Cooksley placed their ranch and other property in a revocable charitable trust entitled the Alfred J. and Pegge A. Cooksley Trust (Trust). The Trust named Shriners Hospitals for Children (Shriners) and the Kalif Children's Travel Fund (Kalif) as beneficiaries, and First Northern Bank of Wyoming as the successor trustee. The Trust specified the year 2100 as its termination date, and it directed First Northern Bank to hold the ranch and other property in the Trust until that date. Upon termination of the Trust, First Northern Bank was to distribute the Trust assets to the beneficiaries, and, until then, the Bank was to distribute to the beneficiaries any Trust income not otherwise required to maintain and operate the ranch.

         [¶2] Pegge Cooksley died in 2007, and Jack Cooksley died in 2011. After Jack Cooksley's death, Shriners filed a petition seeking termination of the Trust and an immediate distribution of the Trust assets. In a separate action, Shriners filed a complaint against First Northern Bank alleging it had breached its fiduciary duty to the Trust beneficiaries and seeking the Bank's removal as trustee, an award of damages, and a disgorgement of any fees paid to the Bank. Shriners' actions were consolidated, and following a bench trial the district court ruled against Shriners and issued a judgment denying all of its claims. The court thereafter entered an order directing Shriners to pay First Northern Bank its attorney fees and costs in the amount of $48, 343.74. Shriners appeals both the judgment denying its claims and the order awarding fees and costs. We affirm both.

         ISSUES

         [¶3] Shriners presents eight issues on appeal, which we reorder and condense into the following:

1. Whether the district court erred in concluding that the Trust did not violate the rule against perpetuities.
2. Whether the district court erred in concluding there were no grounds to terminate the Trust.
3. Whether the district court erred in concluding First Northern Bank did not breach its fiduciary duties to the beneficiaries.
4. Whether the district court erred in concluding there were no grounds to remove First Northern Bank as trustee.
5. Whether the district court erred in finding that First Northern Bank's attorney acted reasonably in response to Shriners' initial challenge to the Trust.
6. Whether the district court abused its discretion in ordering Shriners to pay First Northern Bank's attorney fees and costs.

         [¶4] First Northern Bank identifies the issues on appeal similarly and adds the additional question of whether Shriners should be required to pay First Northern Bank's attorney fees associated with this appeal.

         FACTS

         A. Creation of Trust

         [¶5] On October 24, 2006, Jack and Pegge Cooksley jointly executed a Declaration of Trust, which created the Alfred J. and Pegge A. Cooksley Trust (Trust). The Trust was a revocable trust and reserved in both Jack and Pegge Cooksley the power to revoke or amend the Trust, add or remove a trustee, or add or remove any asset. The Declaration of Trust designated Jack Cooksley as the initial trustee, and upon his death, First National Bank of Buffalo (now First Northern Bank) was to serve as the successor trustee.[1] The Cooksleys placed all of their property, both real and personal, in the Trust when they created the Trust in October 2006.

         [¶6] The principal asset of the Trust is an approximately 1, 620-acre ranch that the Cooksleys purchased in 1951. The ranch is located in Sheridan County, Wyoming, about twenty-five miles southeast of Sheridan and four miles west of Ucross and is accessible by U.S. Highway 14. The ranch appraised at a value of $2, 000, 000.00 in 2011 and, with over a mile of frontage on Piney Creek, was described in that property appraisal as being located in "a highly sought after area situated along the year-round flowing Piney Creek." The property appraiser observed: "The meadows/creek bottom land, located along Piney Creek, are not only highly productive (providing a good hay base for the ranching operation) but also esthetically pleasing and valued for their recreational amenities."

         [¶7] The Trust provided that while both Jack and Pegge Cooksley were living, the trustee was to pay the net income and principal (up to the entire amount) of the Trust to or for their benefit, in such amounts and at such times as either might direct. Upon the death of either Jack or Pegge Cooksley, the Trust directed the following disposition:

The Trustee shall collect the income from the trust, and after deducting any charges and expenses properly chargeable to income in the administration of the trust, shall pay all of the net income, at least quarter-annually, to or for the benefit of the surviving Settlor, for life. In the event any such payment of income is insufficient, in the sole opinion of the survivor of us, to provide for the health, education, maintenance and support of the survivor, the Trustee shall use from time to time so much of the principal of this Trust as the survivor of us shall direct be withdrawn and used, paid or applied for those purposes.

         [¶8] Upon the death of the surviving Cooksley spouse, the Trust directed the following disposition of the Trust property:

2.2 Disposition After Death of Both Settlors. Upon the death of the survivor of us, the Trustee shall administer, dispose of and distribute the then remainder of this trust, including income accruing after the date of death of the survivor of us, as follows:
A. [distribution of personal property per any separate writing]
B. [distribution of rocks, minerals, and historical artifacts to Jim Gatchell Museum]
C. The Trustee may make distribution or disposition of any other tangible personal property as the Trustee, in its sole discretion, shall deem appropriate, including but not limited to private sale, auction and charitable donation. We intend that the trust continue for some years, and direct the Trustee to dispose of tangible personal property so that it is not a burden on the trust.
Notwithstanding the foregoing, the Trustee is authorized to retain such tangible personal property as it deems appropriate or necessary to the management of the ranch land, buildings and residence.
D. The Trustee shall thereafter hold, manage, invest, reinvest and distribute the remaining trust estate for the benefit of the SHRINERS HOSPITAL FOR CRIPPLED CHILDREN – INTERMOUNTAIN, or its successor, ("SHRINERS HOSPITAL") as follows:
(i) The Trustee shall distribute to or apply for the benefit of the SHRINERS HOSPITAL, at least semi-annually, all of the net income of the trust. We specifically direct that any and all accumulation of funds, whether from depletion, depreciation, and/or any other non-distributable source, be managed by the Trustee and used to the extent that the Trustee deems appropriate or necessary, to maintain the real property. In the event that there are insufficient funds to pay such expenses, then the Trustee is authorized to withhold so much of the net income otherwise distributable as is necessary or advisable, in the Trustee's sole discretion, to provide for such expenses.
(ii) As soon as practical after the year 2100, the Trustee shall distribute outright to the SHRINERS HOSPITAL all of the then-remaining principal together with any undistributed income, free and clear from the restrictions of these Trust provisions, and when all funds have been distributed, the Trust shall terminate.
(iii) If SHRINERS HOSPITAL shall cease to exist, without a successor qualified as an IRC Section 501(c)(3), as amended, then the Trustee shall designate one or more qualified IRC Section 501(c)(3) recipient(s), upon application to and approval of a court of competent jurisdiction, such qualified recipient(s) to be chosen according to the criteria of assisting and promoting the medical diagnosis, care and treatment of children in Wyoming and the greater intermountain region.

         B. First Amendment to Trust

         [¶9] On January 15, 2007, the Cooksleys executed the first amendment to the Trust. The first amendment revised Paragraph 2.2.D(ii) to provide for distribution of the Trust assets to Shriners as soon as practical after the year 2050 and to provide for the Trust's termination after that 2050 distribution. The first amendment also added Paragraph 2.2.E to the Trust, which provided:

E. The major asset that we have contributed to this Trust is our ranch, consisting of land, improvements and minerals. It is our intention that the Trustee continue to hold the ranch for the term of this trust, with the land remaining open and its use devoted to agriculture and/or preservation. We realize, however, that circumstances may occur that would make the continued ownership of this asset by the trust impractical or imprudent. By way of example, and by way of limitation, we list the following circumstances that would affect and possibly prohibit the continued ownership of the ranch:
(i). The need for liquidity to pay for the extended nursing or home care for either or both of us; or
(ii). The inability of the trust assets to provide sufficient income from all sources (interest, dividends, surface lease, surface damages, easements, rights-of-way, mineral royalties, mineral lease bonuses and other revenue sources) to pay the costs of maintaining the ranch, administering the trust and providing for the care of one or both of us.
In making its determination as to whether to sell the ranch land, we instruct the Trustee to evaluate the expected duration of the specific circumstances, the likelihood of a change in the circumstances, and the opportunities for a partial disposition of the ranch land to meet the financial needs. If all, or substantially all, of the ranch surface has been sold, the Trustee shall distribute the assets, after paying reasonable expenses and obligations, as described in Subsection D above, and this Trust shall terminate.

         [¶10] Just over a month after the first amendment to the Trust was executed, on February 21, 2007, Pegge Cooksley died.

         C. Second Amendment to the Trust

         [¶11] On November 13, 2007, Jack Cooksley executed a second amendment to the Trust. The second amendment replaced section 2.2 in its entirety, but section 2.2.A through C, governing the disposition of personal property, remained unchanged. Likewise, section 2.2.E., defining the types of circumstances under which the trustee was authorized to sell the ranch or a portion of the ranch, was not substantively changed by the second amendment to the Trust, though the language was revised to reflect Jack Cooksley's status as the surviving settlor. The changes were to section 2.2.D and they included: 1) the addition of Kalif Children's Travel Fund (Kalif) as an additional beneficiary; and 2) an extension of the Trust's termination date back to the year 2100. The revised section 2.2.D provided:

D. The Trustee shall thereafter divide, manage, invest, reinvest and distribute the remaining trust estate in two funds, 85% for the benefit of the SHRINERS HOSPITAL FOR CRIPPLED CHILDREN - INTERMOUNTAIN, or its successor, ("SHRINERS HOSPITAL"), and 15% for the benefit of the KALIF CHILDREN'S TRAVEL FUND of the Kalif Shrine in Sheridan, Wyoming, or its successor, ("KALIF TRAVEL FUND")
(i). The Trustee shall distribute to or apply for the benefit of the SHRINERS HOSPITAL, at least semiannually, 85% of the net income of the trust, and shall distribute to or apply for the benefit of the KALIF TRAVEL FUND, at least semi-annually, 15% of the net income of the trust. I specifically direct that any and all accumulation of funds, whether from depletion, depreciation, and/or any other non-distributable source, be managed by the Trustee and used to the extent that the Trustee deems appropriate or necessary, to maintain the real property. In the event that there are insufficient funds to pay such expenses, then the Trustee is authorized to withhold so much of the net income otherwise distributable as is necessary or advisable, in the Trustee's sole discretion, to provide for such expenses.
(ii). As soon as practical after the year 2100, the Trustee shall distribute outright to the SHRINERS HOSPITAL 85% and to the KALIF TRAVEL FUND 15% of the then-remaining principal together with any undistributed income, free and clear from the restrictions of these Trust provisions, and when all funds have been distributed, this Trust shall terminate.
(iii). If the SHRINERS HOSPITAL or the KALIF TRAVEL FUND shall cease to exist, without a successor qualified as an IRC Section 501(c)(3), as amended, then the Trustee shall designate one or more qualified IRC Section 501(c)(3) recipient(s), upon application to and approval of a court of competent jurisdiction, such qualified recipient(s) to be chosen by the extent to which it/they perform or enable assistance similar in nature and function to that of the organization being replaced. For example, a designee to replace the SHRINERS HOSPITAL should assist and promote the medical diagnosis, care and treatment of children in Wyoming and the greater intermountain region; a designee to replace the KALIF TRAVEL FUND should assist children and their families in the Sheridan area with travel expenses related to or arising from a child's illness.

         [¶12] When First Northern Bank received a copy of the second amendment to the Trust, it requested confirmation that Mr. Cooksley did in fact intend to extend the Trust's termination date from the Year 2050 to the Year 2100. Mr. Cooksley's attorney, Darlene Reiter, responded in a letter dated January 17, 2008:

I discussed the term of the Cooksley Trust with Jack when we met earlier this week. Jack confirmed that the Trust is intended to continue to the year 2100, unless earlier terminated by exercise of the very limited provision for sale of the surface.

         D. Third Amendment to the Trust

         [¶13] On January 26, 2009, Jack Cooksley executed a third amendment to the Trust. The third amendment revised only the provisions of the Trust affecting the disposition of Mr. Cooksley's personal property. The Trust, as revised by the third amendment, directed the trustee, upon Mr. Cooksley's death, to convey possession of all of Mr. Cooksley's tangible personal property to his friend John Piesik and his attorney Darlene Reiter. The amendment gave Mr. Piesik and Ms. Reiter sole discretion over the disposition of the personal property, including by private sale, auction, gift, charitable donation, or other disposition. The amendment further stated: "I intend that the trust continue for some years, and direct Piesik and Reiter to dispose of tangible personal property so that it is not a burden on the trust." Proceeds realized from the sale of any personal property were to be submitted to First Northern Bank as trustee.

         E. Shriners' Challenge to Trust following Jack Cooksley's Death

         [¶14] Jack Cooksley died on March 17, 2011. On April 28, 2011, Wendy Martin, a trust officer at First Northern Bank, sent a letter to Patricia Dockery in Shriners' legal department informing her of Mr. Cooksley's death and providing copies of the Trust and the three amendments to the Trust. On May 20, 2011, Ms. Dockery notified Ms. Martin of concerns Shriners had with the Trust and its amendments. Ms. Dockery cited three concerns: first, she suggested the Trust's year 2100 termination date would appear to violate Wyoming's statutory rule against perpetuities; second, she expressed a concern that Mr. Cooksley's attorney, Darlene Reiter, had violated the Rules of Professional Conduct by accepting a substantial gift from Mr. Cooksley when she prepared the third amendment to the Trust giving her a great deal of latitude in disposing of Mr. Cooksley's personal property; and third, she indicated that she had received information that Mr. Cooksley renegotiated an agricultural lease on the ranch, prior to the lease's expiration, resulting in terms less favorable to the Trust and she expressed concerns regarding Mr. Cooksely's motivation and his mental and physical status when the lease was renegotiated.[2]

         [¶15] On September 1, 2011, Patricia Dockery sent another letter to First Northern Bank again raising her concern that the Trust violated the statutory rule against perpetuities. Ms. Dockery wrote:

Shriners Hospitals for Children would be interested in the early termination of the trust and outright distribution of the trust assets. If court action is necessary to terminate the trust, we would suggest that perhaps Mr. Cooksley's attorney, Darlene Reiter, should absorb those costs as the effective date of W.S. § 34-1-139 is some three years prior to the execution of the Cooksley's trust and Ms. Reiter had a duty to be familiar with the statutes of the state in which she practices.

         [¶16] On October 6, 2011, First Northern Bank acted on Shriners' concerns regarding the rule against perpetuities by filing a Petition to Amend Trust in the Fourth Judicial District Court, Johnson County. The petition alleged that the Trust violated the rule against perpetuities and asked that the court enter an order amending the Trust to provide a termination date of not later than twenty-one years after the last to die of Jack and Pegge Cooksley. The next day, October 7, 2011, counsel for First Northern Bank, Tonia Hanson, sent a letter to Patricia Dockery informing her of the Bank's filing of the petition. Ms. Hanson wrote:

The Trustee carefully considered your request that the Court Petition include a request to terminate the Trust. However, after considering the matter fully and taking into consideration the intent of the Settlors, Alfred J. Cooksley and Pegge A. Cooksley, and in consulting with their close friends, it was determined that the intent of Mr. and Mrs. Cooksley was that the ranch lands be maintained for a long period of time with the beneficiaries enjoying the income from the property. Terminating the Trust would not accomplish this intent.

         [¶17] On May 14, 2012, Shriners filed an objection to the First Northern Bank's petition to amend the trust along with its own petition requesting an order terminating the Trust. Shriners alleged that the Trust could not be modified without consent of the beneficiaries and because Shriners objected to any modification, the Bank's petition to amend should be denied. Shriners further alleged that continuation of the Trust was not economical or necessary to achieve a material purpose of the Trust and its termination was therefore proper.

         [¶18] On June 18, 2012, the district court held a hearing on First Northern Bank's petition to amend the Trust and Shriners' petition to terminate the Trust. Following that hearing, First Northern Bank moved to amend its petition, arguing:

3. [First Northern Bank's] original Petition inadvertently alleged that the Trust violated the [rule against perpetuities]. Evidence was presented at the hearing alleging the Trust is a charitable trust in which case there is no violation of the Rule Against Perpetuities. Justice requires allowing [First Northern Bank] to amend the Petition in order to conform the pleadings to the evidence presented at the hearing in this matter.
4. Based upon the evidence presented, it is in the best interest of justice that [First Northern Bank] be allowed to amend its petition to allege that the Trust be amended or reformed only in the event the court finds the Trust is not a charitable trust as defined in W.S. § 4-10-103(a)(iii). [Underline in original.]

         [¶19] On August 20, 2012, Shriners filed a new and separate action against First Northern Bank. Shriners filed its new complaint again in the Fourth Judicial District Court, Johnson County, this time alleging that First Northern Bank breached its fiduciary duty to the Trust beneficiaries by failing to diversify the Trust's investments and failing to prudently invest and manage the Trust's assets, and that First Northern Bank breached its duty of loyalty to the beneficiaries, its duty of prudent administration, its duty of good faith, and its duty to minimize the costs of administering the Trust. For its relief, Shriners sought removal of First Northern Bank as trustee, an order compelling diversification and sale of the Cooksley ranch, and an order denying any further compensation to the Bank, imposing a surcharge against the Bank, and a disgorgement of any and all fees the Bank had received from the Trust.

         [¶20] On that same date, August 20, 2012, the district court issued a decision letter addressing First Northern Bank's petition to amend the Trust and Shriners' petition to terminate the Trust. The court ruled, citations omitted:

After giving consideration to the arguments of counsel and materials of record in this matter, the Court finds that the trust is a charitable trust such that the rule of perpetuities does not apply. * * * Accordingly, Trustee's Petition to Amend Trust on the basis that the trust violates the rule against perpetuities is denied. Similarly, Trustee's Motion for Leave of Court to Amend Petition appears to be an alternative pleading which is made moot by this Court's decision that the trust is a charitable trust. Therefore, this motion is also denied.
The beneficiaries' petition to terminate the trust on the basis that continuing the trust is no longer practicable or economic raises questions of fact which will necessitate an evidentiary hearing. Therefore, the Court does not grant or deny the beneficiaries' motion. Rather, a hearing will need to be set to hear evidence to determine whether or not such efforts have merit.

         [¶21] On August 31, 2012, Shriners filed a motion asking the district court to reconsider its ruling on the application of the rule against perpetuities. In seeking reconsideration, Shriners did not disagree that the Trust is a charitable trust, rather it argued that Wyoming's rule against perpetuities applies regardless of whether a trust is charitable or not. Shriners stated:

3. The Court, in the Decision Letter, found that the Trust is a charitable trust. Shriners does not dispute this finding. However, the Court also found that the Trust "is a charitable trust such that the rule of perpetuities does not apply." It is this finding, that charitable trusts are not subject to Wyoming's rule against perpetuities, which Shriners is requesting the Court reconsider.

         [¶22] On September 14, 2012, the district court issued an order denying the motion for reconsideration. Shriners' petition to terminate the Trust and its complaint against First Northern Bank then moved forward, and on November 5, 2012, the district court, with the agreement of both parties, entered an order consolidating the two actions.

         [¶23] A two-day bench trial was held on the two actions on March 17-18, 2015. Both parties submitted proposed findings and orders, and on June 23, 2015, the district court issued its Findings of Fact, Conclusions of Law and Judgment. Relevant to Shriners' claims, the court found:

[T]he Trust has two valid material charitable purposes: (1) to keep the Ranch open and used for agricultural purposes or preservation until 2100, and (2) to benefit Shriners and Kalif. This Court further holds that, according to the Trust terms, the material charitable purpose of keep[ing] the Ranch open takes precedence.

         [¶24] The district court concluded that termination of the Trust would defeat the Trust's dominant material purpose of retaining the ranch until the year 2100 and that First Northern Bank did not breach any of its fiduciary obligations. Based on these conclusions, the court denied Shriners' requested relief in its entirety. The court further ordered that "Shriners shall be responsible for its own attorney's fees, and FNB shall submit the appropriate affidavits and other evidence so the court may consider an award of its attorney fees."

         [¶25] On July 10, 2015, First Northern Bank filed its motion for attorney fees seeking $48, 343.74 in fees and costs for the Bank's trial counsel, Tom Toner, and $89, 067.09 paid by the Bank's insurance company for expert witness fees and counsel the insurance company retained to defend the Bank. On September 10, 2015, the district court issued its Order Awarding Attorney's Fees. The court found Shriners filed its litigation in bad faith and would therefore be responsible for payment of the Bank's fees and costs. The court limited Shriners' responsibility, however, to payment of Mr. Toner's fees and costs in the requested amount of $48, 343.74.

         [¶26] Shriners filed timely notices of appeal from the district court's Findings of Fact, Conclusions of Law and Judgment and its Order Awarding Attorney's Fees.

         STANDARD OF REVIEW

         [¶27] We have stated our standard of review following a bench trial as follows:

When reviewing a bench trial, this Court reviews the trial court's findings of fact for clear error and its conclusions of law de novo. Moore v. Wolititch, 2015 WY 11, ¶ 9, 341 P.3d 421, 423 (Wyo.2015). Additionally,
[t]he factual findings of a judge are not entitled to the limited review afforded a jury verdict. While the findings are presumptively correct, the appellate court may examine all of the properly admissible evidence in the record. Due regard is given to the opportunity of the trial judge to assess the credibility of the witnesses, and our review does not entail reweighing disputed evidence. Findings of fact will not be set aside unless they are clearly erroneous. A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.
Id. (quoting Miner v. Jesse & Grace, LLC, 2014 WY 17, ¶ 17, 317 P.3d 1124, 1131 (Wyo.2014)). "'We assume that the evidence of the prevailing party below is true and give that party every reasonable inference that can fairly and reasonably be drawn from it.'" Id., ¶ 10, 341 P.3d at 423 (quoting Miner, ¶ 17, 317 P.3d at 1131).

Wimer v. Cook, 2016 WY 29, ¶ 9, P.3d, (Wyo. 2016).

         [¶28] To the extent the district court's rulings require use of an additional or different standard of review, we will set ...


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