Summary 2006 WY 128

Summary of Decision issued October 13, 2006

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Case Name: Wells Fargo Bank Wyoming, N.A. v. Hodder; Puls; Ellis; Krueger; Krueger; Krueger; and McKinney, Beneficiaries of the Lierd-Miracle Trust

Citation: 2006 WY 128

Docket Number: 05-256 & 05-257

Appeal from the District Court of Natrona County, the Honorable David Park, Judge

Representing Appellant (Defendant): Gary R. Scott of Hirst & Applegate, PC, Cheyenne, Wyoming.

Representing Appellees (Plaintiffs): Frank R. Chapman of Chapman Valdez, Casper, Wyoming.

Issue: Case No. 05-256: Whether the trial court erred in failing to enforce the good faith provision of the original trust agreement. Whether the trial court erred in its finding that the sale of the five lots to Quality Stores was not a market value sale. Whether the trial court erred when it failed to find that Wells Fargo was an Innocent owner and when it made Wells Fargo guarantor for remediation of the Mini-Mart property, and did the trial court have subject matter jurisdiction over that contamination issue. Whether the trial court erred in its finding that Wells Fargo improperly paid $10,000 to beneficiary Tim Miracle for his participation in Wells Fargo’s sale of trust real estate. Whether the trial court erred in its finding that Wells Fargo Bank improperly withheld $120,000 from its final distribution to cover closing expenses and contingent liabilities of the trust. Whether the trial court erred in ordering Wells Fargo to mitigate the drainage problem at its expense.
Case No. 05-257: Whether the trial court erred by not awarding attorney’s fees to the plaintiffs. Whether the trial court erred by not awarding prejudgment interest to the plaintiff.
Beneficiaries Cross-appeal: Whether the district court erred by not awarding attorneys’ fees to the beneficiaries after they prevailed on claims for multiple breaches of fiduciary duties by the trustee. Whether the district court erred by not granting an award of prejudgment interest on the amount which the court found trust property had been undersold by the trustee.

Holding: The beneficiaries of a trust filed a complaint against their trustee, Wells Fargo claiming it breached its fiduciary duties. After a bench trial, the district court held generally for the beneficiaries. Wells Fargo appealed and the beneficiaries filed a cross-appeal.
The original trust, written in 1968 was amended twice in the succeeding years. The 1976 amendment changed the trust to an irrevocable trust and gave the trustee the authority to act on behalf of and make decisions for the trust on a variety of matters without direction from the grantors or beneficiaries; named two beneficiaries as special trustees to assist with income distribution and real estate management decisions. Neither amendment specifically referenced the original trust provision exempting the trustee from liability for actions taken or omitted in good faith. In 2005, a bench trial was held on the beneficiaries’ claims. The district court issued a decision letter finding that the second amendment superseded the original trust agreement and did not contain a good faith exemption from liability clause, so Wells Fargo was not exempt form liability for actions taken in good faith. The trial court held that Wells Fargo owed the beneficiaries a fundamental fiduciary duty of loyalty and applying that duty, the court concluded Wells Fargo breached by failing to obtain the best price for the five lots sold to Quality Stores, to ensure the fuel spill on the property leased to Mini-Mart was remedied and to correct the drainage problem affecting trust property. The trial court also found that Wells Fargo breached by paying beneficiary Tim Miracle more for services than they were worth and retaining $120,000 in trust funds for legal fees and expenses.
Standard of Review: The intent of the settler is determined, if possible, from the trust document itself. The determination of whether the agreement is ambiguous on its face the Court reviews de novo. Interpretation of an ambiguous instrument is a mixed question of law and fact, and reversed only if it is clearly erroneous or contrary to the weight of evidence. The appellate court can examine all of the properly admissible evidence in the record and findings of fact will not be set aside unless clearly erroneous. The Court assumes that the evidence of the prevailing party is true and gives that party every reasonable inference that can fairly and reasonably be drawn from it.
Well’s Fargo’s Appeal
The Good Faith Provision: The language of the original trust reflected the grantors’ intent that the trustee be free from liability fro actions taken in accordance with their instructions and otherwise so long as it acted in good faith. The clear intent of the 1974 amendment was to amend the original trust but did not expressly or impliedly change the exemption from liability provisions contained in the original trust. The 1976 amendment referenced the original trust as well as the 1974 amendment. Like the first amendment, the second one did not specifically refer to the exemption from liability provisions in the original trust. The 1976 provision exempted the trustee from liability for acts of the special trustees. The earlier provisions exempted the trustee from liability for acts taken at the direction of the grantors and for acts otherwise taken or omitted in good faith. The Court did not find language to suggest the grantors expressly or impliedly intended the later provision of the amendment in general to supersede the earlier provisions and the later provision is not in conflict with the earlier provisions such that they cannot stand together. The Court held that the original trust provision exempting the trustee from liability for acts taken or omitted in good faith remained intact. The Court made note that the trial court did not address in its decision letter whether the trust documents were ambiguous and yet the trial court referred to expert testimony and a letter written by a trust officer of Wells Fargo in interpreting an unambiguous contract. Only when the document is ambiguous does the Court look to parol evidence to understand the parties’ intent.
Breach of Duty of Good Faith: Based on the conclusion that the good faith provision remained in effect after the amendments required the application of that standard, rather than the reasonably prudent person standard the trial court applied. The Court stated it was possible for them to review without reweighing disputed evidence because the trial court’s decision letter set forth detailed findings of fact, including its assessment of witness credibility. In the context of the duty of good faith and fair dealing recognized in contracts, the Court has defined “good faith” in accord with Restatement (Second) of Contracts, § 205, comment 1, (1981). They concluded the Restatement definition is applicable in the context of trust agreements. In light of the broad language of the provision, the Court concluded the grantors intended to modify liability in administering the trust generally and did not intend the good faith standard to apply only to investment decisions.
Failure to Obtain the Best Price for Trust Real Estate: The Court held the findings of fact were sufficient to demonstrate Wells Fargo did not act in good faith in carrying out the sale. Wells Fargo did not act faithfully to the agreed purpose of the trust when they failed to obtain a current appraisal, market or promote the property, obtain approval of the sale from the trust oversight committee or employ real estate experts to assist with the sale. Wells Fargo discussed Allard and Rock Springs Land and Timber but the Court stated that in light of their holding in the instant case that the good faith provision governed Wells Fargo’s conduct, neither case was directly on point. The Court reviewed the evidence concerning the value of the property and concluded there was nothing clearly erroneous about the trial court’s findings.
Failure to Ensure a Fuel Spill on Trust Property was Remedied: Wells Fargo claimed the trial court did not have subject matter jurisdiction over the contamination issue. They cited Wyo. Stat. Ann. § 35-11-1428(b) but it did not apply because this was a suit initiated by the beneficiaries of a trust against the trustee for breach of its duties under the trust, including the duty to act in good faith with respect to trust property as opposed to a suit against an owner or operator of an underground storage tank for third party property damage or personal injury. Wells Fargo also cited Wyo. Stat. Ann. § 35-11-1802 protected it from liability for failing to remedy the fuel spill. The Court stated that the statutory immunity provision had no bearing on the agreement entered into between the grantors of the trust and the trustee.
Failure to Correct the Drainage Problem: The Court reviewed the trial court’s factual findings and stated they were not clearly erroneous and were sufficient to support the conclusion that Wells Fargo breached the duty of good faith by failing to take any action at all to fix the drainage problem on trust property. The Court stated that neither of the parties nor the Court’s own research identified any basis upon which the trustee could be held liable for the cost of correcting the drainage problem. The Court found no error in requiring Wells Fargo to correct the problem, assuming the costs would be borne by the trust.
Overpayments to Beneficiary Tim Miracle: The Court reviewed the factual findings and did not find they were clearly erroneous. The Court stated it was reasonable to assume that the beneficiaries would be justified in expecting the trust would not expend funds without obtaining a corresponding benefit.
Retention of $120,000 in Trust Funds:
The trial court’s decision letter shows their understanding that Wells Fargo retained funds to cover legal fees and costs incurred in defending the claims alleged in the instant lawsuit. The bank failed to cite to the record to support their claim that the funds were held for the purpose of remediation of the fuel spill and the drainage problem. Absent that, the Court affirmed the trial court’s ruling to the extent it held Wells Fargo was not entitled to withhold trust funds to cover costs associated with this litigation. The trial court’s order made Wells Fargo the “guarantor” for remediation of the fuel spill and the drainage problem that occurred during the life of the trust. The Court reversed, stating that Wells Fargo was entitled to retain trust funds to cover expenses incurred in remedying the fuel spill and drainage problem.
The Beneficiaries’ Cross-Appeal
Attorney Fees: The beneficiaries acknowledged Wyoming generally follows the American rule for recovery of attorney fees. They cited Rock Springs Land and Lumber, Alexander and Olds but the Court stated that although it was a compelling argument, they did not choose to move beyond precedent and order payment of attorney fees when punitive damages were not awarded and no contract or statute provided for such fees.
Prejudgment Interest: Prejudgment interest is an appropriate element of damages in some cases. In the instant case, the amount sought to be recovered was not a sum certain of which Wells Fargo had notice prior to the trial court’s decision. This was not an appropriate case for prejudgment interest because the amount to be recovered was determined only after a lengthy, complex trial involving extensive and conflicting evidence.

The trial court’s finding that Wells Fargo’s breach of its duty of good faith caused damages to the beneficiaries was supported by the record and was affirmed. The trial court’s order holding the trustee responsible for remedying the fuel contamination and drainage problems was affirmed. The costs for the remedy should be borne by the trust and paid for by the funds retained by the bank unless the delay in correcting the problems caused additional costs to be incurred. To the extent the delay caused additional costs, the bank must bear those costs. The trial court’s order denying interest and attorney fees was affirmed.

J. Kite delivered the order for the court.

Link to the case: http://tinyurl.com/yddrfr .