Friday, May 4, 2012

McLean V. Ponder, Cause No 36V010500665-01, Circuit Court of Butler County, Missouri, is a case that has been followed closely by practitioners across the country as the first case involving a claim filed by a trust beneficiary against the trust’s “trust protector.” After the plaintiff, Robert McLean, the trust beneficiary, had fully presented all of his evidence against Michael Ponder, the trust protector, during the jury trial last October, the trial court granted Ponder’s motion for directed verdict, taking the case away from the jury. Apparently, McLean had failed to prove the allegations in his petition that had previously garnered so much press as “bad facts” that had previously enabled the beneficiary to win a reversal of the summary judgment in favor of the trust protector and a remand to the trial court for trial.

This case involved a (d)(4)(a) type special needs trust created for Robert McLean with the settlement proceeds from his personal injury case, to protect those funds from having to be used to repay Medicaid for his medical benefits obtained after an accident rendered him a quadriplegic. Merrill Lynch Trust Company and David Potashnick were appointed to serve as the initial trustees, but both resigned within a month or so after the creation of the trust. Michael Ponder, who had been appointed as the “trust protector” for the trust with the authority to remove and replace the trustees, appointed Patrick Davis as successor trustee. Davis had represented McLean in the past and had referred McLean to Ponder to handle the personal injury case. Within 2 years after being appointed, Davis and Ponder resigned and a new trustee and trust protector were appointed. That newly appointed successor trustee, having served for less than a year, resigned and McLean’s mother was appointed to serve as successor trustee.

McLean then filed suit against all the prior trustees and the trust protectors. Here’s what then happened procedurally in this case. After McLean filed suit, Ponder, who was the initial trust protector, moved for and was granted a dismissal on his motion to dismiss and his motion for summary judgment. (After Ponder’s dismissal, the remaining defendants apparently settled leaving Ponder as the lone defendant pending the appeal of the dismissal.)

In reviewing the trial court’s dismissal of Ponder, the standard on appeal was that the appellate court reviewed the record in the light most favorable to the appellant, resolving all factual disputes in favor of McLean such that the allegations were deemed true. The record on appeal consisted of the allegations in the petition, together with the scant materials provided to the trial court in support of and in opposition to the motions (a copy of the trust, a very brief statement of uncontroverted facts, and a couple of affidavits).

This appeal (McLean v. Davis, et al., 2009 WL 162481 (Mo. App. S.D.)) was before a three-judge panel, and each of the 3 judges wrote a separate opinion, with the concurring opinions concurring only in the result that the summary judgment was not appropriate – the allegations in the petition, which were disputed by Ponder, created an issue of fact and if McLean were able to prove the facts alleged, there may be liability. The Court then reversed the summary judgment and remanded to the trial court for trial.

The issue before the appellate court was whether there was an adequately pled breach of fiduciary duty claim before the court; that is, whether Ponder had presented, in his statement of uncontroverted facts and affidavits, any uncontroverted facts that would negate any one of the 4 elements of such a claim presented in McLean’s petition. Ponder argued that he had negated 2 of the 4 elements of such a claim, (i) whether Ponder had a duty to monitor or supervise the trustees, and (i) causation. The court acknowledged that the trust agreement appointed Ponder to serve “in a fiduciary capacity” and provided limited immunity from liability for “actions taken in bad faith.” The court ruled that there were “significant and contested issue[s] of material fact” regarding (i) for whom the trust protector was to act in a fiduciary capacity – the trust, the settlor, or the beneficiary, and (ii) what was the intent of the settlor, which was not clearly set out in the trust. The court specifically stated that they were not deciding that there was a duty of care and loyalty that was breached, rather that there were material issues of fact as to the elements of a claim for breach of fiduciary duty, and that McLean should have the opportunity to prove the elements of breach of fiduciary duty alleged in his petition.

Each of the concurring opinions state that concurrence was reluctant, but each concurred for different reasons. Unfortunately, Judge Parrish then went off on a rail against trusts, and stated that trusts were unsupervised so that new concepts involving trusts, such as the use of a trust protector, should not be encouraged. However, Judge Parrish based his concurrence on the fact that the petition contained allegations of bad faith for which there was insufficient factual evidence before the trial court on which the trial court could make a determination, so that summary judgment was not appropriate.

Judge Rahmeyer limited her concurrence further by clarifying that any duty the trust protector may have was a matter of contract involving the terms of the trust and the settlor’s intention, and that there is no duty imposed on a trust protector as a matter of law. She further stated that the “right to remove trustees” did not equate with a duty to do so. She concurred because, in reviewing the summary judgment ruling, she found that “the record is absolutely void of any indication whatsoever what the contract meant by the appointment of a trust protector in this very specific type of trust, a special needs trust.”

The case then went back to the trial court, and the parties conducted extensive discovery and filed extensive motions. Just prior to trial, in the process of ruling on cross motions in limine to limit expert testimony, the trial court issued an opinion as to the law applicable to the case.  (See the copy of the trial court’s Order.) In the order, the trial court quoted from the prior appellate court opinion that “the question of whether a duty exists is a question of law and, therefore, a question for the court alone.” The court then stated that the role of a trust protector is separate and distinct from the role of a trustee. After reviewing the trust provisions concerning the trust protector and also concerning the trustee for the McLean Trust, the trial court ruled that while the trust protector had the authority to remove a trustee, the trustee was not required to submit any accountings to the trust protector, such that the trustee was independent of “the control or supervision of the Trust Protector” and that “the Trust Protector has no veto power over conduct of the Trustee.” The court then ruled that the trust protector had no obligation to monitor the activities of the trustee, but that the trust protector could not

“ignore conduct of a Trustee which threatened the purposes of the trust. To the extent that any conduct took place, and to the extent that the Trust Protector was made aware of any such conduct, a duty may have arisen by the Trust Protector in his fiduciary capacity to remove a trustee.”

The court then indicated to counsel in granting the motions in limine before him, that he would not permit expert testimony as to what the law should be applicable to trust protectors. The case proceeded to trial, and McLean was given ample opportunity for 3 days to prove his case. When McLean completed his evidence, the trial court granted Ponder’s motion for a directed verdict. The trial court did not issue a separate opinion or a findings of fact and conclusions of law, but merely stated in his order

“Jury trial having commenced on October 26, 2011 and having continued through this date, plaintiff rests and defendant files motion for directed verdict at close of plaintiff’s case. Motion sustained. Court enters judgment in favor of defendant. So Ordered.”

Presumably, the trial court entered the directed verdict because McLean did not introduce credible evidence that would support his allegations that the Trustee had engaged in conduct that threatened the purposes of the trust, or that Ponder was made aware of any such bad conduct, or both. McLean filed his notice of appeal of this directed verdict on 12/22/2011.

For other posts on trust litigation, check out some of our other recent posts:

Trustee of Revocable Trust has Duty Only to Settlor

Plaintiffs Could Not Challenge Validity of Trust Without Also Contesting Will

Diversification and the Prudent Investor Rule

Or check out our sister blog bryancavefiduciarylitigation.com

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