*1 66,072 No. Polly Gillespie Gillespie Townsend, Brown
Warren v. Dorothea Plaintiffs/Appellees/Cross-Appellants, Wofford Brown-Gillespie of the as Co-Trustee Trust Es- Seymour, and Grant-Thorn- Burdge; Bassett; tate; Robert W. Ruth Defendants, accounting partnership, an Dorothea ton, individually; Seymour, ; Seymour, Paul Paul A. Wofford Jr. Big Springs III; Inc., Petroleum, Seymour, Arrowhead Defendants/Appellants/Cross-Appellees, Inc., Drilling, as Co-Trustee Seymour, Brown Wofford Dorothea and Dorothea Estate; Wofford Trust v. Plaintiffs, Individually, Defendants/Third-party Paul James the Estate of Executor of Gillespie, Pauline Brown Gil- lespie, Deceased, Third-party/Defendant. the Estate of
In the Matter of Gillespie, Pauline Brown Deceased. P.2d 782)
(823 *2 Opinion 17, 1991. filed December Clark, P.A., McCausland, Bogle, Young, Bogle, & of Jerry D. Wells of cause, Young, Jr., and Patrick Wichita, D. C. Blan- and Glenn argued chard, firm, appellees/cross- him on briefs for were with of the same appellants. Swartz, Wichita, Martin, Martin, Oliver, Pringle, & of Robert .Wallace Mann, firm, Terry cause, L. was with him on argued same appellants/cross-appellees. the briefs for Fleeson, Kitch, Wichita, Gooing, Coulson & Campbell, Ron Odorizzi, Parzen, Stanley Mayer, George and Michele Bogert, T. Brown J. Illinois, Platt, amid curiae Chicago, the brief Grant- & were on Burdge. W. and Robert Thomton *3 delivered by of the court was opinion by This an action beneficiaries of a trust is McFarland, J.: gas by investments made damages for oil recovery for Trust. in a trial and us was determined bench involves
The case before as witnessed the trial court’s factual situation very complex A summarized statement findings highly of fact. entry of over wealthy Brown was a Wichita of the facts is as follows. Warren inter Mr. Brown created two revocable businessman. In children, Dorothy Wofford and Pau- two Brown vivos trusts. His the co-trustees of each trust. In Gillespie, Brown were line instruments, full legal the trustees were vested with trust language the effect of such to the trust equitable property; title issue Broad standing opinion. of this will be discussed as the investment of trust to the trustees powers granted were to-wit: property, reinvest, invest, keep may invested trust estate “(g) The Trustees same, remaining comprising property time to time in and
and all from personal, tangible or any every property, whether real or or kind situated, in their discretion intangible, Trustees and wheresoever advisable, regard investments are au- to whether such deem without rule, statute, law, pertaining regulation, by any or custom thorized Trustees, hereby intending empower trust funds investment solely to be guided by what in their discretion deemed Trustees of the trust estate.” for the best interests stocks, substantially bonds, two trusts held equal assets of
and bank stock. Warren Brown died shortly after the creation of the trusts. The assets of each trust were initially valued at $392,015. The Internal Revenue Service later reappraised the $1,647,687.66, assets at resulting in additional estate taxes being $700,000. each paid by trust of
Each of co-trustee daughters was in her 60’s when the trusts were created. One of the trusts was benefit of and her (Wofford Wofford four children Trust), and the other was for the benefit of and her Gillespie two children (Gillespie Trust). With the approval (or of Wofford trustee), successor Gillespie her could withdraw any or all income as well as the corpus of the Trust. Gillespie Wofford had rights like in the Wofford Trust. Brown, After the death of Warren was the Gillespie dominant figure in the investment of trust assets held each trust.
In terminated, Wofford died and the Wofford Trust the trust assets being distributed among Wofford’sfour children. time, At that each $3,000,000. trust had a value of approximately Trust, Pursuant to the terms Dorothea Wofford Seymour (Wofford’sdaughter) succeeded as co-trustee of the Gil- lespie Trust.
We turn now gas to how oil and investments became involved. Gillespie had been making personal investments in oil and gas interests at dating least from the early 1950’s. In the late 1950’s Dorothea Wofford Seymour (Dorothea) husband, and her Paul (Seymour), created a corporation, Arrowhead Pe- Jr. troleum, Inc. (Arrowhead). Dorothea owned 49 percent of the *4 stock and Seymour owned the remaining percent. Seymour the managed company. Shortly Arrowhead, after the creation of Gillespie commenced making personal her gas oil and investments exclusively with Arrowhead. Gillespie was concerned over the amount of income tax each trust was paying on its investment 1965, profits. $67,000. In each trust’s tax liability was over Gil- lespie the kept records on each trust with the assistance of ac- countants and made the final decision on investments for the trusts, although approval therefor was required by her co-trustee and, later, (Wofford Dorothea). The co-trustee deferred to Gil- lespie’s judgment in these matters. 1965, liability, trust in- began reduce income tax each
In were through All such investments gas and interests. vesting oil each trust with Arrowhead were The investments of Arrowhead. the $34,626.29 manage- did not participate in 1965. Dorothea made Oil investments were on the gas of Arrowhead. and ment Gillespie Sey- between and negotiations basis of discussions (the involvement certain accountants nature mour with some be in any involvement will not discussed detail and extent of such subject yet aspect the same is the of a be determined as later in All trust litigation, opinion). this as will set forth the both Between 1965 and required signature checks trustees. 1973, exactly same paid each trust Arrowhead amounts on same leases. the same dates and received the interests same 1968, that in order achieve maximum Gillespie In determined trusts, gas tax from the oil and investments for two benefits make it would be best to block investments with Arrowhead of early in each calendar All in- year. amounts determined block trust An and an attorney vestments were from income. accountant saw Under problem procedure. were consulted who no with this at remaining block excess the end program, any investment than year applied was to be to wells drilled rather returned respective to its trust. stated,
As died in 1973 and Dorothea suc- previously Wofford time as Gillespie (here- ceeded her at that after, co-trustee Trust continuing The Wofford Trust was terminated. The Trust). investments with Arrowhead between 1974 and Trust made block $300,000. $110,000 1987 of amounts from yearly ranging 1987, herein, In the Warren Brown winter Gillespie Polly Gillespie (children Gillespie) Townsend seeking an ac- brought an action Dorothea co-trustee February On Trust’s investments with Arrowhead. counting of the death, died at 92. At time of her age $11,000,000. in excess On contained assets Gillespie Trust June 27, 1988, amended, seeking compensatory petition was co-trustee, Dorothea, and as individually from punitive III, Arrowhead, Drilling, Big Springs Seymour, Paul Bassett, W. Drilling), Burdge, Ruth Robert (Big Springs Inc. alleged from accounting arising (an partnership)
Grant-Thornton
Trust funds invested in Arrowhead.
mismanagement of
*5
The trial
against
court dismissed the claims
defendants Burdge
judgment
and Grant-Thornton and certified the
final pur-
to be
suant to K.S.A. 1990
Supp. 60-254(b).
plaintiffs appealed
therefrom. The Court of
affirmed in
Appeals
part, reversed in
part, and remanded
case for further proceedings. Specifically,
the Court of
held that a cause of
Appeals
action had been stated
for “breach of trust
accountants for conspiracy to
the trust
overcharge
participation
account and
in overcharging
563, 572,
Seymour,
the account.”
v.
App. 2d
The trial court herein held that virtue of assorted wrong- defendants, doings by the Trust had been damaged in the $2,476,422. this, amount of To court trial added tax allowances $843,607 $3,320,029 for a total judgment of through December 31, 1987. Between said date and the date of judgment (December 14, 1990) interest was allowed on the judgment in amounts rang- ing percent from 9.5 to 11 percent. aggregate judgment was $4,000,000. Dorothea, in excess of Seymour, and Arrowhead were jointly held to be and severally liable on the entire amount. Paul III, Seymour, was held jointly severally liable for 87.92 per- cent of the damages. total Additionally, punitive period prior July follows;
1987, were assessed as $2,000,000
Dorothea: $2,000,000.. Seymour: 25,000. Seymour, Paul III: $ 1, 1987, the period July For after punitive damages were awarded as follows:
Dorothea and Seymour, 89,250
jointly severally: $ Additionally, there were some involving allowances some bill- estate, ings among Gillespie’s Big Springs Drilling, Arrow- head which are comparatively small in amount and are not at issue herein. The judgment was certified judgment final Dorothea, pursuant to K.S.A. 1990 Supp. 60-254(b). Defendants III, Arrowhead, Seymour, Paul and Big Springs Drill- *6 a have filed cross- judgment. from the ing appealed appeal. facts, although lengthy, provides statement of foregoing these background giving appeals. rise to
just the framework as necessary factual details will be set forth Additional issues. particular discussion of issues, applicable scope of review proceeding
Before
stated. As we held in Williams Telecommunications
needs to be
676,
675,
(1990).
ESTOPPEL the trial appeal, their first issue on defendants contend For that the claims were concluding plaintiffs’ court erred in not the doctrine of estoppel. barred voluntary is the effect of the conduct of estoppel
Equitable
law
from
whereby
equity,
it is
both at
party
precluded,
on such conduct.
rights against
person relying
another
asserting
that the
seeking
equitable estoppel
A
invoke
müst show
party
acts,
admissions,
party
or silence of another
representations,
(when
duty
speak)
party
it had a
induced the first
to believe
party
the first
showing
certain facts existed. There must also be
and acted
and would
rightfully
upon
relied
such belief
now
the existence
deny
if the other
were
prejudiced
party
permitted
n if
essential
equitable estoppel
of such facts. There can be no
lacking
satisfactorily proved. Estoppel
element
thereof is
or
not
facts which are ambiguous'
be deemed to arise from
will not
Ram
subject
to more than one construction.
Co. v. Estate of
751,
4, 5,
Kobbeman,
¶¶
Syl.
(1985).
236 Kan.
The defendants’
on
issue is stated in their brief
as follows:
*7
Gillespie,
beneficiary,
a
Pauline
who was both
trustee
and a'
“[B]ecause
investments,
actually
approved
made and
each of the Arrowhead
and waived
receivable,
estoppel
plaintiffs’
the accounts
the doctrine of
bars
claims.
beneficiary
general
that a
a
“The
rule is
of
trust who consents
to or
act, omission,
by
approves
precludéd
of an
or transaction
the trustee is
from
act, omission,
objecting
impropriety/
subsequently
the
to
of such
or trans-
action,
any
resulting
and cannot hold the trustee
liable for
loss
from the
omission,
though
may
even
the
the
act or
conduct of
trustee
constitute
a
(Second)
duty
Restatement
in
trust.
breach of
the administration
of the
(‘[A] beneficiary
§ 216
Trusts
cannot hold the
trustee
liable for an act or
beneficiary prior
omission of the trustee
as a breach of trust
if the
at
to or
Accord G.
it.’).
Bogert,
the time of the act or omission consented
to
Law
Trusts and Trustees
(1986) (equity
permit
§
will not
the ben-
trustee,
eficiary
by
beneficiary
to claim breach of trust
the
if the
consented
trust,
participated
breach).
applies
the
in
to
breach of
or
the
This rule
See Scullin v.
even
beneficiaries
are
more force to
who
also co-trustees.
Clark,
1951)
(Mo.
(co-trustee
beneficiary approved
Arrowhead was made
her
direction.
Pauline
estopped
holding
was
from
Dorothea
liable for those investments.
plaintiffs
through
Because
receive
their
interest
in the remainder
Pauline
Gillespie,
precluded
by
estoppel.
their claims are also
the doctrine of
Estate,
is In
squarely
point
Re Perkins’ Trust
“A
decision
on
314 Pa.
case,
beneficiary
Gillespie corpus income or all or of the of the part could have received beneficiary, Throughout but she did not. entire Trust as Trust, no Trust assets or income 31-year existence were beneficiary. dealings as a In all of her transferred to her investments, assets, income, and she was as a acting Trust co- trustee. Trust, like were Gillespie’s,
Plaintiffs’ interests estab- Rrown, interests, Warren the settlor. Plaintiffs’ accord- lished a power appointment granted do not arise from to ingly, arise from or flow Gillespie through Gillespie. and hence do not have assuming Gillespie might estopped bring Even been an Dorothea, co-trustee, plain- action her this cannot affect bring plaintiffs tiffs’ this action. herein did not rights induce the co-trustees to invest in Arrowhead. The trial court plaintiffs found that neither of the knew such investments were until when Warren being August Gillespie made Rrown a Trust bank statement checks had been showing saw written to Arrowhead. trial
Additionally, court found that was unaware Seymour overcharging drilling expenses was the Trust for Trust, fact, after the worthless interests in allocating dry holes. application
There is no basis for of the doctrine of estoppel herein. Defendants have not shown that Gillespie or induced the Trust overcharge drilling expenses wrongful caused the allocation of Trust interests in alleged or oil gas leases. merit. This issue is without OF AND
STATUTE LIMITATIONS OF LACHES DOCTRINE and received for acts plaintiffs sought occurring through from 1974 1987. Defendants contend that K.S.A. 60-513 occurring years bars claims from acts more than two arising the action herein. The trial court held that prior filing *9 (cid:127) accrued 1987 when plaintiffs’ August the cause of action
133 Here, in Arrowhead. investing Trust was learned the plaintiffs with attempt equate plaintiffs’ rights the defendants again, rights to the cause plaintiffs’ that Gillespie specifically, those — and that accrual Gillespie’s herein are identical of action time frame in which are determined the barring questions action. maintained the could have Gillespie Bank, (1919), Pac. 1 the original v. In Hart trust trust assets under testamentary disposed of a trustee was The successor trustee circumstances. highly questionable against took action the trustee or the situation and no aware of (defendant bank). When the minor receiver of the assets age years trust attained the of 25 and were beneficiaries of the assets, they wrong- discovered alleged entitled to trust This an action the bank. court held doing brought trustee knew of the breach of trust that because the successor run, limitations the beneficiaries were and let statute of gravamen at 440. The claims before us barred. Kan. the Trust’s investments over- misapplied is that the defendants drilling expenses improperly allocating charging Trust for it. The trial court found had no gas Gillespie oil and interests to knowledge “finagling” of what it characterized as of Trust investments. knowledge had no
The trial court’s determination that supported by competent is substantial Seymour’s “finagling” So, and, accordingly, upon appeal. cannot be disturbed evidence Gillespie’s knowledge triggered if have the running even could statute are bound she thereby, of the of limitations have knowledge. did not such findings, finagling only
Under trial court’s the concealed investigation 1987 and 1988 light plaintiffs’ came to upon At that wrongful Arrowhead investments. time the acts and injury were ascertained. resultant rights have argument plaintiffs’
An could be made that could as, time, death only accrued after Pauline’s to that the entire prior Trust estate could have been Gillespie. transferred Had occurred, plaintiffs, obviously, justiciable would have had no in- terest in how Trust assets had been invested or sustained because the Trust injury mismanagement thereof. This so under which Trust assets no means or circumstances provided *10 134
could have been distributed plaintiffs during to Gillespie’s life- interest was only time. Their in the Trust assets remaining at herein, the Trust Gillespie’s death when terminated. Their claim however, predicated on the diminution in value of the assets prior finagling. received them in 1988 as a result of the by However, determined, this issue need not be as the prior holding resolves the statute of limitations question.
Defendants argue plaintiffs’ by also claim is barred the doctrine of laches.
The doctrine of laches is an equitable principle designed to
Commr's,
bar stale claims. Dutoit v. Board
County
of Johnson
995, 1001,
233 Kan.
STANDING issue, next For their defendants contend the trial court erred in concluding have standing bring this action. They base this issue on language Trust instrument which states: “(d) legal complete equitable The Trustees are vested with full and property hereby
title to all of the
and estate
transferred and entrusted to
property
them until
the termination of such trust and until such trust
shall
over,
actually paid
person
persons
be
transferred and delivered to the
or
designated
person
beneficiary
as beneficiaries hereunder. No
entitled as
property
upon
body
corpus
said
the ter-
or
hereunder —either
income,
or
or increments
thereof
increase
of said trust or
mination
individually
during
take or have
thereof —shall
the continuance
therefrom
income,
body
corpus
increase
or
such
or
any
or interest
or
title to
possession
any
actually received in
shall be
until
the same
increments
charge
by way
antic-
beneficiary.
disposition,
encumbrance
or
such
No
income,
increase
property
estate
or
ipation
such trust
or
Or otherwise
estate,
therefrom,
by any person
any part
who
of the trust
or
or increments
hereunder,
beneficiary
designated
shall be
may
as or become
Trustees,
effect,
anywise regarded
nor
validity
legal
said
or be
or
*11
by
individually
possession
any
(until actually
such benefi-
and
received in
way
subject
ány
any
beneficiary
in
liable for or
ciary)
the interest óf
shall
any
person
such
any
or
other
to whom
or lien
creditor
of
claim
of
be,
be,
obligated
any way
beneficiary may
or liable.”
or claimed
in
legal
that as under the Trust instrument both
argue
Defendants
trustees,
had
vested
the
no
title were
in
equitable
and
were
in Arrow-
when the investments
made
ownership
of
claim
which
.upon
have no
they
ownership
claim
Accordingly,
head.
this action.
to base
Blackwell,
1,¶
In Blackwell said, holding estate a implies this court “A trust in real (1913), the of another who holds title one for benefit legal (Second) is the Restatement supported by title.” This equitable § 2 what a trust is: (1957) Trusts which defines trust, Subject, of this when as the is used in the Restatement “A term ‘charitable,’ ‘constructive,’ ‘resulting’ or is a fi- qualified the word not subjecting relationship respect person whom duciary property, the with property property equitable deal is held to duties to the title to the person, as a result of a manifestation which arises for the benefit another it.” an intention to create provides: section (f) this Comment subject separation matter of the there a of interests in “In a trust is having
trust,
having
equitable
and
beneficiary
an
interest
the trustee
normally
legal
which
interest.”
an interest
§
(1957) provides:
Trusts
(Second) of
Restatement
(2),
legal
property
“(1) Except as
title to the trust
stated in Subsection
if the
person
one
who is not
united in
the entire beneficial
interest become
and
incapacity,
trust
terminates.”
under
an
applies.
merger
the doctrine of
suggest
Appellants
McCormick, 170 Kan.
Fry
was
v.
Merger
discussed
person
in which this
held
the same
(1951),
Throughout trust the term “beneficiaries” is Yet, terms, used “beneficiary.” rather than by its only Gillespie can receive trust or (with assets income the approval of the co- trustee). Plaintiffs herein receive only trust assets remaining after the Trust upon Yet, Gillespie. terminates death of the mod- ification of the Trust instrument executed shortly after the exe- cution of the Trust states: “WHEREAS, 20, 1956, April date of under Warren E. Brown as Settlor Brown, Gillespie Warren E. Pauline Brown and Dorothea Brown Wof-
ford as Trustees entered into a certain primarily Trust Indenture provided Pauline paragraph children Brown benefit of (c), (Emphasis added.) Item Three . . . .” thereof as, operated as,
The Trust herein and was treated during trust *12 the 30-plus years of its existence. It rather a appears late for claim to be it made that never a truly was trust because legal and equitable title was vested in the trustees. Despite the odd the language concerning vesting legal of and equitable title in trustee, the we with the agree trial court that it was a valid trust and that plaintiffs have sufficient interest beneficiaries and/or bring remaindermen this action.
EFFECT OF PRIOR COURT OF APPEALS DECISION
The defendants
that
contend
the
Court
prior
of
de-
Appeals
herein,
cision
plaintiffs’
relative to
against
claims
the defendant
accountants,
some
decided
issues in their favor. The prior de-
cision,
Gillespie Seymour,
v.
2d
App.
The trial court Dorothea, Seymour Seymour III . . and Paul . “54. selected wells for Seymour among percentages. who decided himself and selected employees Big Springs . . . and shareholders would receive Arrowhead and well, it. III but made no written record of a carried interest on Big joined he losses Trust until Arrowhead is not liable for 1979. Springs. summer of This occurred *13 a Seymour majority Big Springs in and received a interest “88. owned Although Sey- Paul salary Seymour president was from 1978-1984. from it. mour, through it was under the overall president from 1985 III was Seymour. dominance of Seymour percentages “100. and Paul III made the entries of of well money ownership spreadsheet. ‘proportionate’ the 1984 in excess of on billings by Seymour, Burdge. was Paul III and allocated of, in, Seymour participated justify “212. III was aware and continued funds, times, adjustment spreading billings the interests and at all over effect, including during anything the trial of the He case. testified in ‘that goes contrary position in the oil business.’ This to the statement the witness, expert Remshberg, conducting prudent operating practices ‘of ” procedures, fiduciary maintaining responsibilities.’ as as well was in Big Springs Drilling organized 1977. compensatory damages
As to the entered against Seymour III the trial held: court therefore, Court, Seymour, “The finds that Dorothea Wofford Paul A. Petroleum, Seymour Seymour, Jr., culpable Paul and Arrowhead III Inc. are conspirators jointly severally damages as and are liable for assessed Court; however, III, Seymour, provided, herein the that Paul shall be liability any year prior finding having assessed no the Court his Petroleum, employment Big commenced with Springs Arrowhead Inc. and Drilling, purposes Inc. in the determining summer of 1979. For the III,
liability percent of Paul Court finds that 12.08 of the plaintiffs’ damages computation under during Court’s had accrued that, years therefore, through joint from -1974 1978 and his and several liability is limited 87.92% of the total assessed the Court.” issue of sufficiency entry evidence supporting of the judgment for compensatory damages against Seymour III ais close Over and one. over in trial findings court’s we have the picture Seymour being orchestrator of the wrongdoing. He is in finagler the allocation of the Trust’s investments oil and gas interests. He is the individual who determined the overcharging expenses Trust. The defendants char- acterize Ill’s role as clerical one. He was simply father, court, following the instructions of Seymour. his The trial however, found he was a participant wrongdoing and fellow conspirator Seymour. With regard due for the limited role an court appellate plays reversing a trial court’s findings fact, we conclude no error has been demonstrated in this issue.
EXPERT WITNESS issue, In this defendants argue follows:
139 Gibbs, expert report accounting Gary his to expert, submitted “Plaintiffs’ 1989, scheduling order of in accordance with the in October of defendants Kubik, accounting expert, Fred evaluated trial court. Defendants’ J. identifying conceptual mistakes and report and assisted defendants in that 21, 22, 23, just days February deposed and points dispute. Gibbs was on time, 6, began At he did not amend or March 1990. before trial on report. 17 add to his October trial, 4, Sunday, just days March two before in the afternoon “Late expert report plaintiffs Gibbs’ new to counsel hand delivered counsel for extremely damaging report conclusions new contained defendants. for trial, misinformation, but, impending defendants were because of adequately. Although digesting, evaluating, responding precluded from report, strenuously objected the admission of the new defendants admitted it into evidence.” trial court in the revised report. then out an error point Defendants object report defendants did not to the Plaintiffs contend that only objected yearly summary at trial and (Exhibit 77) itself and the (Exhibit 78). objection ruling gleaned therefrom were as follows: thereon opinions and observations that are in addition
“It is sort of a written series of (sic) over-emphasize adds and the tends it and to what he testified to new material. Well, it what it is worth.” “THE COURT: I will receive brief, they object defendants admit did not reply In their 77, 78 was the admission of Exhibit Exhibit but contend erroneous. within the dis- testimony lies sound expert
The admission of Patrick, Inc. v. Holly Energy, the trial court. cretion of ¶ Syl. 722 P.2d particulars alleged. We find no abuse of discretion DAMAGE AWARD COMPENSATORY determining compen- the trial court in The method used cross- challenged appeal is both satory damages appeal. complaints con- parties’ particular to the proceeding
Before utilized, a discussion of computation the method of cerning complicated computation this case which problems present the trial court to accom- and the method selected terms, its Reduced to barest appropriate. the same is plish which less than that for the estate received claim is that plaintiffs’ By being overcharged expenses it virtue of on bargained. in the allocation of the Trust’s interest in Seymour’s finangling leases, than it have for its the Trust received less should in- Ordinarily, damages would be calculated awarding vestment. That bargain. concept fraught the benefit of *15 Many in the case herein. records are available as problems invested, expenses what the Trust what it was charged, But at heart what interests it received. of the claims herein is the between what the Trust disparity paid expenses for compared the interests received as with what other investors paid expenses they and the interests received. herein, 14-year period many Over the different wells and many different investors combinations of investors were involved. are, these other part, Records on investors substantial una- Further, vailable as were not maintained they by Arrowhead. risky nature of oil and inherently gas investments makes com- There a parisons difficult. is substantial chance factor. Because investments, way Seymour of the handled the Trust’s block such a interest allocating dry leasehold to the Trust a hole after drilled, Trust, had been the deck was stacked negating investors, the chancé But including Seymour factor. some other family, and members of his had their risk reduced by this same a finagling. Figuring damages transaction-by-transaction on basis be, in comparison to other Arrowhead investors would under the circumstances, probably a formidable and task vir- impossible tue of the lack and the risk of records or luck factor.
The trial court’s findings many include instances in specific which the Trust’s block investments were improperly charged by Seymour. It found that working Arrowhead billed its interest disproportionately holders 95 of the percent time. Illustrative of disparity assignment interests is the fact that the Trust producers had two in 130 wells while Seymour producers had wells, in 103 producers Dorothea had 10 in 40 wells. Finding situation, 93 is illustrative reproduced No. as follows: part striking “Most is the 28-well Dean Miller venture in which Trust and Pauline cumulatively dry single producer, were in all of the 19 holes but a not while producing only dry was in each of the nine wells but one hole. notwithstanding Seymour’s testimony This is true that each well was dis- drilling.” cussed before stated: the trial court damages, award of In its always problem. Classically, and tradi- Computation is “1. damages. figure tionally, not into a determination tax considerations do ravaged by the so-called block investment the fashion in which Trust was determines this administration was plan The Court was administered. are treated as void that all of the investments to be bad and so blatant so investments, they had not made block were made. If Trust at the time subject tax at the have been maximum combined rate those funds would available for investment. The Court of tax which leaves an amount deduction business, Seymour not in the oil trust funds would have finds that had been average year investments had an as other trust funds. Such been invested Gibbs, return, year. according of 13.948% for each The Court determines year available for one-half for investment. that such funds would have been year principal for investment after the first there was amount available Then addition, expected year return of 13.948%. In there was the entire with the year. a new available for investment for one-half amount stopped compounding of return is with the end of 1987. “2. This time, February, 1988. At this the total of the block investment’s died in $2,477,422 (all figures being according computed rounded return is dollar). recovery subject to tax the amount of ‘block Since the nearest taxes must be increased an amount which will return investments’ after *16 since, already computation purposes, tax for has that amount recognizable by damage the IRS in the paid but there is no basis been figured by following recovery. formula: This amount is - = $1,098,848. X .4343 X rate, which, subjected to the combined tax stated “X is an amount when decimal, give of block investments after
as a .4343 will the total amount Therefore, $843,607 following computations is be added to the of taxes. damages repro- damages. computation is as follows: chart [*The opinion.] appendix this duced as an Therefore, $2,476,422 damages plus tax are the total of allowances on “3. $843,607 damages past taxes for total funds discounted $3,320,029.00. statutory computed rate is to be at from Interest January after 1988.” essence, the Trust’s Arrowhead the trial court voided all In made savings after took off the tax investments from and investments, what the Trust computed as a result of year each the Trust’s part the after-tax investments of have made in would income tax on the and allowed for portfolio, stock and bond concluded, This, the Trust would make the trial court judgment. it had sustained. damage whole for the was im- the measure of that complain
Defendants First, the trial they argue that respects. in number proper imposing prudent court was man rule on a trust that its investments, granted unlimited discretion in the express language The trial did court not void investments because were they in but rather on the basis gas, oil of misuse of the block essence, investments. In it held the Trust was systematically way cheated in the and Seymour applied Arrowhead the invest- finding ment funds. There is no the Trust lacked authority to make investments. gas oil
Next, challenged the award is on the basis it is pure speculation Arrowhead, that had oil and investments gas not been made with then the after-tax dollars would have been invested in stocks and had, bonds. The Trust essentially, three types of investments bonds; in during period question: (1) stocks and (2) bank stock; (3) gas through oil and Arrowhead. After-tax profits (1) (2) (1) from and were reinvested in and We do not believe it is too to assume if speculative investments in Arrowhead had ceased, profits all after-tax would have been treated the same. The rate of return on such investments anwas established average of 13.948 percent. defendants characterize this as an award interest prejudgment they say which was inappropriate as the claim was mot liquidated. As shown the trial court’s findings, percent compounded 13.948 computation was not an allow- award, ance of prejudgment damage interest on a but rather an element computing the damage sustained. The trial court al- lowed it to make the injured party whole.
Next, the defendants that complain the trial court erred in $572,069 them refusing give credit for the gross oil and gas produced by income the Trust’s wells. The here is difficulty Trust; this income did go not it was shown to have been utilized for expenses incurred in the oil and gas investments. In words, other the Trust was not enriched such sum. It was reinvested by Arrowhead and/or eaten inup expenses. other This *17 is an reflected accountant’s report showing investments were less than the tax income deductions claimed year. each The gross profits figure remained in the pot. Arrowhead
Plaintiffs, hand, on the other the trial argue court erred in figuring damages based upon after-tax amount available for (column investment 5 of appendix) opposed as to the amount of (column investment 2 thereof). We find no merit in argument. this
143 make the Trust attempting The trial court was whole. Had in oil and investing gas, the Trust not been taxes shown in have been and the Trust rendered paid poorer column four would damages suggested by such sums. To compute plaintiffs gigantic would result in a windfall to them. Their measure of in value the trust damages they is the diminution assets re- four taxes did not diminish the Trust. ceived. column argue Plaintiffs further that the allowance for taxes on the re- covery figured average should have been on the basis of tax rates (58.42 1974 1987 rather than the years through percent) (43.43 percent). argument 1987 tax rate We find this to be without stated, is taxes recovery. merit. As this allowance for on the What the tax rate have is might prior years consequence. been of no
In
it is within the
of the trial
assessing
discretion
court
standards in order that
apply equitable
plaintiff may
Co.,
made whole. Seaman U.S.D. No. 345 v. Casson Constr.
3
289,
2,
Syl.
(1979).
¶
Kan.
2d
PUNITIVE (1) that: award of dam- punitive Defendants next contend case; (2) punitive unwarranted in this the awards of ages was contrary requirements excessive and damages were 1990 60-3701. Supp. K.S.A. awards were as follows: punitive damage prior July 1, period
For the $2,000,000 Dorothea: $2,000,000 Seymour: 25,000 $ III: July period after For the
144 and
Dorothea 89,250. severally: and jointly $ Kansas, punish wrong are awarded to damages punitive In vindictive, malicious, and wanton invasion or willful his doer for restrain being ultimate purpose with the rights, of another’s Folks wrongs. of similar from the commission and deter others Co., ¶ P.2d Syl. 755 & Light Kansas Power v. 1319 evidence and determine we must examine the
At this point, an award of supports punitive whether the evidence an in- must be on Such determination the defendants. dividual basis.
DOROTHEA a owner of Arrow- percent and was co-trustee Dorothea was on knowledgeable that Dorothea head. The trial court found with her on Trust conferred Gillespie market and that the stock the final on market. had word Gillespie in the stock investments co-trusteeship, period of Dorothea’s During all investments. No fault or significantly. rose portfolio the value of the stock investments. relative to stock against Dorothea alleged blame is actively did not further found The trial court Dorothea on Gillespie and did not confer with in Arrowhead participate conferred with Gillespie investments in Arrowhead. the Trust’s what Gillespie investments. determined Seymour gas on oil year, made with Arrowhead each block investments would out, them, sent same to Do- signed had the checks made neither, signed nor signature. for her Dorothea saw rothea their preparation tax returns nor participated Trust’s income the final Trust (Dorothea signed of Gillespie until after the death by Gillespie. were Dorothea’s kept tax All trust records return). trustee, Wofford, de- Dorothy Brown predecessor mother decisions, investments including all Trust ferred to on policy. continued that in Arrowhead. Dorothea finagling of trust profit and Dorothea did from the Arrowhead fact, trial From this court by Seymour. orchestrated interests was a co-conspirator that Dorothea concluded We find the evidence against het. punitive damages awarded that Dorothea was finding the trial court’s support insufficient with the trial court’s other find- and inconsistent co-conspirator relative purely passive role was to the oil ings that Dorothea’s *19 investments. gas co-trustee, duty had a to be informed on all As a Dorothea and to act in the best interests of the Trust. She Trust business Arrowhead, company was in in which investing knew the Trust a substantial interest. She should have exercised she owned in whether such investments diligence ascertaining heightened perform were in the Trust’s best interests. She failed to her duties when left the investment matters gas as a co-trustee she oil this she has for Gillespie. liability compensatory damages. to For There was no evidence that Dorothea’s actions or inactions were malicious, vindictive, willful, or wanton. The awards of punitive Dorothea are held to be and are damages against improper reversed. SEYMOUR, III
PAUL III, portrays young The evidence herein Paul as a gas through parents’ man who entered the oil and business his figure therein. The father is the dominant clearly interests father’s without Seymour business. III followed his directions and, disproportionate billings obviously, as to the ac- question ethics, by his father’s code of business which was shown cepted significant deficient in a number of the evidence herein to be trial made that Ill’s respects. finding The court no vindictive, malicious, were or a willful or actions or inactions evidentiary We find basis rights. wanton invasion of another’s no III, and the punitive damages against Seymour for an award of reversed. same must be
SEYMOUR Ar- Seymour’s relative to the Trust’s conduct investments extensively opinion has discussed elsewhere in this rowhead been its herein. It is sufficient gained by repetition and little would be the trial court is egregious by that his conduct as found say to award. legally adequate support punitive damage to dam- punitive to examination the amount of brings up This Seymour. entered age awards pertinent part: 60-3701 Supp. provides,
K.S.A. 1990 exemplary by (i), or no award of “(e) Except provided subsection as the lesser of: damages pursuant this section shall exceed to punitive defendant, by gross as determined (1) income earned annual highest gross income earned annual upon the defendant’s based the court immediately the act for which such years before any the five one of for awarded; damages or are (2) $5 million. (e), finds provided subsection if court “(f) limitation In lieu of the expected misconduct exceeds or profitability of the defendant’s (e), the limitation on amount of of subsection exceed the limitation may award shall be an punitive which the court exemplary or gained profit which the defendant the amount of equal times amount IV2 expected gain a result of the defendant’s misconduct. or is governed action “(g) provisions this section shall not apply exemplary establishing limiting or or the amount statute another damages, damages, procedures the award of such prescribing punitive or action. in such defined in K.S.A. 60-3401 and “(h) this section the terms As used in *20 meaning provided that statute. have the thereto shall amendments only upon apply in an action based “(i) provisions section shall of this 1, July July accruing 1987 and before 1988.” on or after a cause of action action herein ac- cause of plaintiffs’ The trial court found therefor, stating any legal Without basis August in 1987. crued by en- of the statute operation trial court circumvented effective awards based on the damage tering separate punitive two damages 1987). punitive The award for (July date the statute 1, 1987, was made occurring prior July based on conduct statute, 1 award was post-July application without statute, we although cannot in with compliance presumably $89,250 calculation. the basis for the see from the record damage award punitive the determination of We hold that dam- punitive award of Only was erroneous. one against entered, and it must be made in accordance be ages may pu- The awards of Supp. K.S.A. 1990 60-3701. the mandates of must be reversed against Seymour entered nitive award deter- entry damage a punitive remanded for the case 60-3701. Supp. to K.S.A. pursuant mined ESTATE BY GILLESPIE INDEMNIFICATION Estate of Pau- against the third-party petition filed a Dorothea amount she seeking indemnification Gillespie, line Brown might be found liable for herein. This was denied by the trial court, and Dorothea contends this was error. This was based on the trial court’s conclusion of law that both trustees were “[s]ince fault, at the court determines that fault, Dorothea was more at therefore, there is no recovery over Gillespie’s estate. Restatement, Trusts paragraph 258.”
Dorothea contends that this determination is not only not sup- evidence, ported by the but it is contrary to the trial court’s own findings of fact. We agree. The trial court found Dorothea’s role in the Trust’s investments in Arrowhead to passive and that she did not participate the actual running of Arrowhead. A central thread runs throughout the trial court’s findings of fact— namely Gillespie was the dominant trustee and had the final all say on trust investments. Gillespie worked with the account- ants; Trust; Gillespie had the records of the Gillespie signed the returns; tax Gillespie determined how much would be invested in Arrowhead each year; and Gillespie directed that plaintiffs not be informed of Trust business. It was Gillespie who conferred with Seymour, offices, visited the Arrowhead studied oil and gas development reports, and visited drilling sites. The trial court found Gillespie had knowledge no that Seymour was stacking the deck against the Trust in its block investments through his fi- nagling, but also found had done some finagling of her Namely, own. she caused valuable oil interests belonging to the Trust to be transferred to her own account in exchange for less valuable interests she owned individually. From the information her, she had available to Gillespie had to have been aware the Trust’s investments in Arrowhead were the equivalent of pouring money into a ground. hole She could have stopped in- *21 time, vesting in at any Arrowhead but continued to do so until very the end of her life. She commenced in investing Arrowhead to reduce tax liability. That it did accomplish.
The Restatement (Second) § of Trusts (1957) 258 provides: Indemnity Contribution or from Co-trustee “(1) (cid:127) (cid:127) (cid:127) beneficiary two trustees [W]here are liable to the for a breach trust, other, of each of them is entitled except to contribution from the that (a) other, substantially if one of them is more at fault than the he is not entitled to contribution indemnity from the other but the other is entitled to from him-.. ...” trial of findings Gillespie’s all the court’s against Weighed investments, the findings the we have in Trust’s dominance plus role of deferment to improperly Gillespie passive Dorothea’s in being company investments were made Dorothea’s the fact the she should have exercised on such diligence heightened the consideration, wé conclude that the After careful investments. fault and has to right were at Dorothea no equally co-trustees However, is from she entitled to contribution indemnification. any portion judgment estate of of the one-half in- judgment which term include pays her she —the judgment terest and costs. on OF CREDIT
LETTER plaintiffs’ cross-appeal A issue from the remains to be final After the court entered its award for compen- determined. trial herein, satory the defendants filed notice of appeal of credit filed approved The trial court a letter therefrom. stayed judgment. Shortly execution of the there- defendants after, dismissed the inter- Appeals appeal being the Court the hearing been taken on locutory, appeal having prior After damages. appeal, the dismissal punitive award of then the letter credit. Defendants then the trial released court granted stay and were bankruptcy pleadings filed Chapter the bankruptcy of execution from court. changed wholly position pre- have their on the position Plaintiffs took before the Court of appeal.
mature premature was as no final Appeals appeal judgment that initial Appeals appeal had entered. The Court of dismissed the been Now, essence, in on seek validate grounds. plaintiffs, that in order take credit advantage earlier appeal letter.of in appeal. which was filed connection abuse trial court’s release of No error or of discretion the. credit has shown. find issue to be letter of been We merit. without part; and the part is affirmed in and reversed judgment with this proceedings
case remanded for further consistent'' ' ' ‘ n ' opinion. *22 J., concurring and I dissenting: concur the ma- Lockett, co-trustee, Dorothea, as to its that jority except holding (1) the III, and Paul should not be punitive assessed damages, the trial (2) court did not abuse its discretion in releasing defendant’s letter of credit. majority acknowledges
The that Dorothea owned 49% of the stock in profited Arrowhead and she that corporation. from The majority reasons since Dorothea did actively not participate in Arrowhead and did not confer with her Gillespie or husband Arrowhead, about the Trust investments in she was not respon- Dorothea, sible their acts. majority for The asserts that although acts, she was aware she was from profiting Gillespie’s merely signed the checks generated which the profits for Arrowhead. *23 appor- an or authorizes trust instrument declaration
unless the however, may, perform A co-trustee single powers. tionment of the Am. the administration of trust. 76 act in purely a ministerial 2d, § 299. Trusts Jur. care, diligence, duty and skill with a to exercise due “A is under trustee guarding against their watching and the trust estate respect his cotrustees to so, trust, he all if he to do is liable for and fails defaults and breaches care, diligence, such and ensuing trust The standard of to the estate. losses cases, ordinarily prudent in the required, is that of an man as in other skill private his affairs. conduct of respect he fact his in this where hears of “A fails in duties trustee mismanagement misapplication tending of trust to the or call his attention to safeguard by any steps take to the trust and fails to
funds
his cotrustee
2d,
332, p.
§
Trusts
548.
estate.” 76 Am. Jur.
a trust and
exercise the discretion
The
to administer
duty
a
delegated by
trustee and
vested
it rests on the
cannot
in
Murdock,
182,
2,¶
Syl.
v.
220 Kan.
Jennings
trustee to others.
faith
presumes good
part
law
on the
(1976).
As to Paul acknowledges Seymour father. It who was dominated his when dis- question his father’s directions without III followed that the billing majority the Trust. The asserts proportionately ethics was deficient his father’s code of business accepted son fails to significant respects. majority note in a number of, Seymour participated III was aware judge that the trial found funds, in, justify spreading adjustments and continued times, interest, at all overbillings including during “that anything goes the case. III testified Seymour trial of The trial court observed that Ill’s ethical oil business.” witness, the statement contrary expert conduct was conducting prudent operating practices pro- “of Remshberg, cedures, maintaining fiduciary responsibilities” as well as oil business. the award of Paul affirming punitive Sey-
In mour, majority say states: “It is sufficient to that his Jr., trial legally adequate conduct as found court is egregious *24 award.” The punitive damage majority ignores support was unable to control the assets Seymour, Jr., fact that Paul majority gives weight himself. The no to the fact the Trust Seymour, Jr., that his Paul needed the accomplish goal, willing and his and active assistance of Dorothea son. The trial court it was the actions of the three individuals working found that the Trust. The dis- damage majority that caused the together finding conspiracy, the trial court’s that there was a then regards the evidence and determines that reweighs punitive reviews and coconspirators, should be assessed one of only III, though coconspirators, even the other Dorothea injured duties willfully parties profited breached owed I would affirm the award of punitive their willful breach. III. Paul damages against the letter of credit is not before concerning properly
The issue fact are raised Many questions may require this court. trial take evidence. I would not consider that issue court to at this time. J., joins
Abbott, foregoing concurring dissenting joins majority in the result in the remainder of opinion, opinion.
7) 6,583 Year Col. 13,520 69,82388,933 55,402 22,37832,41743,128 110,921143,573183,884284,649 230,790 Earnings for $ (On at 96,934 47,201 Year 160,445 637,607795,249 309,207397,209500,596 232,414 1,029,351 1,318,357 1,654,646 2,040,788 Beginning
InvestableAmount Í 5) Year Col. 8,0319,4819,9359,8029,843 3,2332,8932,8323,1534,3794,479 2,8132,613 $3,077 Return
V2 (On
$2,476,49.9. 8) 4) minus 1 & 62,80064,230 37,37846,35841,48342,04244,832 44,12440,337 140,550141,142 115,150135,952142,470 Col. Amount $ Investment (Col. Available APPENDIX on 88,51797,958 85,770 75,87669,66372,62283,642 157,048159,450108,358 115,168137,200134,850157,530 Deposit Tax $
Amount Columns
% 1987 Rate 53.15 66.0264.3468.0969.9771.9868.6057.1853.9453.6052.51 43.43 63.2363.33 Effective Maximum Tax (Total 200,000 Deposit 110,000110,000 249,500 130.000130.000140.000160.000150.000 300.000 250.000293.000300.000 $120,000 Amount Damages 1987 1980198119821983198419851986 Year
Amount
notes
majority
Dorothea also failed to check the Trust’s in-
records,
come tax
participate in their preparation, and review
any Trust records until after the death of co-trustee Gillespie.
co-trustee,
After the death of that
Dorothea continued
policy
Trust
investing
income in her corporation.
majority
acknowledges:
co-trustee,
duty
“As a
Dorothea had a
to be informed on all Trust business
and to act in the best
interests
investing
of the Trust. She knew the Trust was
Arrowhead,
company
in which she owned a substantial
interest.
She
heightened
diligence
should have
ascertaining
exercised
whether
such
perform
investments were in the Trust’s best
interests.
She failed to
her
gas
as a
duties
co-trustee when she left
the oil and
investment matters
Gillespie.
liability
compensatory
damages.”
For this she has
for
The majority asserts there was no evidence that Dorothea’s actions
malicious, vindictive, willful, wanton,
or inactions were
or
determined the award
punitive damages
Dorothea
improper.
Punitive
are allowed
any special
not because of
merit
case,
injured party’s
but are imposed
punish
wrong-
malicious, vindictive,
doer for
or willful and wanton invasion of
injured party’s rights.
The purpose
punitive damages
is to
restrain and deter
wrongs.
others from the commission of like
Bell,
¶
Gould v. Taco