Phillip C. Pepper and other members of the Pepper family (“the Peppers”), the beneficiaries of the Jerome B. Pepper trust, filed this action against Zions First National Bank as the executor of the Jerome B. Pepper estate and as the trustee of the Jerome B. Pepper inter vivos trust. The trust is the sole beneficiary of the estate, and Jerome B. Pepper’s wife and children, the appellants here, are the beneficiaries of
Zions filed a protective, or conditional, cross-appeal from a summary judgment dismissing Zions’ third-party indemnification claim against Fred M. Rosenthal, who had managed the Pepper family businesses for and on behalf of Zions as executor. The trial court dismissed the above claims and certified that there was no just reason for delay and entered a final order pursuant to Rule 54(b) of the Utah Rules of Civil Procedure.
I. FACTS
On April 15, 1975, Jerome B. Pepper executed the Jerome B. Pepper inter vivos trust, which named Zions as the trustee, for the benefit of his wife and children. After he died in 1976, Zions was appointed the executor of his estate, and in that capacity, Zions obtained the probate court’s approval to continue the ordinary operations of the Pepper family businesses. Zions also obtained court approval to appoint Fred M. Rosenthal to manage several businesses that Pepper had owned. Rosen-thal served as general manager of the Pepper businesses for the estate from February, 1976, to December, 1980.
In December, 1978, Pamco, one of the estate’s businesses, made application to Zions Bank to increase its line of credit with the bank to obtain additional working capital and to pay $250,000 in estate taxes. The net worth of the Jerome B. Pepper estate at about that time was represented to be $2,119,468. The net worth of the estate in December, 1979, increased to $2,555,248. In February, 1981, the line of credit with Zions reached a high of $930,-000. A few months later, Zions, as executor, filed a final accounting that showed a negative net worth for the estate.
In July, 1981, Zions filed a petition with the probate court for approval of its first and final accounting, the only formal accounting Zions filed. Zions also sought an order that approved Zions’ administration of the estate, closed the estate, and discharged Zions. In addition, the petition sought judicial approval of Zions’ transfer of the estate’s interest in the Lerner-Pepper joint venture, a Pepper estate asset, to the Pepper trust for sale to Hugh Neu Steel Products, Inc., for $1,000,000 and the subsequent use of a portion of those proceeds to purchase a debt from Kennecott Metals for $225,019.36, which was owned by Pamco, a Pepper business, and a debt from Teledyne National for $24,356.22. No mention was made in the petition to the probate court of using the proceeds of the sale to pay off the security interest that Zions, as a commercial bank, had securing its line of credit. The Peppers allege, inter alia, that defendant Zions, as trustee of the Jerome B. Pepper inter vivos trust, had represented to the plaintiffs that the sale of the interest in the Jerome B. Pepper joint venture was to benefit the beneficiaries, when in fact the sale was to protect the defendant’s commercial line of credit which the defendant had increased to approximately $930,000.
As executor, Zions mailed to the Pepper family members written notice of Zions’ petition for closure of the estate and for court approval of the sale of the Lerner-Pepper joint venture interest. The notice stated that the estate’s liabilities exceeded its assets. The Peppers did not appear at the hearing, and on October 8, 1981, the probate court entered a decree that approved the estate’s first and final accounting and closed the estate. The closing order approved the executor’s transfer of the assets to the trustee, the trustee’s sale of the Lerner-Pepper joint venture interest to Hugh Neu Steel Co., and Zions’ subsequent payment of the debts of Pepper’s Allied Metals. The final accounting showed that
On July 1, 1982, the Peppers filed a motion in the probate court to set aside the closing order under Rule 60(b)(7) of the Utah Rules of Civil Procedure on the ground that there was excusable neglect in failing to appear to oppose the closing order. Before the probate court ruled on that motion, the Peppers filed an amended complaint in the district court against Zions, alleging fraud and misrepresentation. Thereafter, the probate court denied the Peppers’ Rule 60(b)(7) motion to vacate the closing order on the ground that the motion was untimely. The Peppers appealed the denial of the motion, and this Court affirmed.
In re Estate of Pepper,
Again, the Peppers amended their complaint in the district court, this time alleging five claims for relief. The first claim for relief alleged fraud and misrepresentation against Zions as executor. The complaint alleges, inter alia:
The misrepresentations made by the Defendant were made with the intent that the Plaintiffs rely upon said misrepresentations for the purpose of inducing the Plaintiffs to acquiesce to the continuance of the operations of the various companies in the control of Defendant Zions while Personal Representative.
The misrepresentations made by the Defendant were made with the intent that the Plaintiffs rely upon such misrepresentations with the purpose of continuing non-profitable businesses in order to protect the commercial line of credit with Defendant Zions Sugarhouse Branch, which the Defendant had allowed to increase to as high as $930,000.
The second claim for relief alleged that Zions breached its fiduciary duty in failing to object to the entry of the order closing the estate. The third and fourth claims alleged negligence and breach of fiduciary duty by Zions as trustee of the Fannie N. Pepper inter vivos trust and the Jerome B. Pepper irrevocable trust. The fifth claim sought punitive damages for the misconduct alleged in the first four claims for relief.
Zions filed a third-party complaint against Fred M. Rosenthal and several other third-party defendants, alleging that if Zions were held liable to the Peppers, the third-party defendants were liable to indemnify Zions for any dissipation of assets caused by mismanagement of the businesses by Rosenthal and the other defendants. Zions also specifically alleged misrepresentation and breach of contract against Ro-senthal and the other third-party defendants. Zions stipulated that it had no claim against Rosenthal arising from the Peppers’ third, fourth, and fifth claims for relief, except to the extent that the fifth claim alleged punitive damages based on the Peppers’ first and second claims for relief.
Zions moved for summary judgment on the fraud claim against it as executor under the first claim for relief and on the claim against it as trustee for failure to object to the executor’s final accounting under the second claim for relief. Zions asserted that both claims were barred by res judicata. The trial court granted summary judgment on both claims. Rosenthal also moved for summary judgment against Zions on the ground that Zions’ claims against him derived from the Peppers’ first and second claims for relief. Zions argued that its claims against Rosenthal should be dismissed only if Zions’ motion for partial summary judgment against the Peppers were granted. The trial court granted summary judgment to Rosenthal independent of the court’s rulings against the Peppers and for Zions.
On this appeal, the Peppers argue that the trial court erred in ruling that the estate closing order was res judicata as to (1) the Peppers’ fraud claim against Zions as executor of the estate, and (2) their claim against Zions as trustee for failing to object to the entry of the closing order. On its cross-appeal, Zions contends that if its partial summary judgment against the Peppers is reversed, Zions is entitled to indemnification from Rosenthal and that the summary judgment in favor of Rosen-
II. FIRST CLAIM FOR RELIEF — FRAUD
Zions asserts, and the trial court held, that the estate closing order was res judica-ta and precluded the Peppers’ fraud claim against Zions in its capacity as executor.
A court order approving a final accounting and settlement of an estate is a decree that closes the estate and discharges the executor. Utah Code Ann. § 75-8-1001(1) (1978). The order binds all persons interested who are given proper notice of the final proceeding as to all matters properly the subject of the accounting.
In re Rice’s Estate,
Final judgments and decrees generally may be collaterally attacked, however, if obtained by fraud.
St. Pierre v. Edmonds,
But not every claim of fraud or misrepresentation provides a basis for a collateral attack against a judgment or decree. A number of older cases state the test to be whether the fraud was “extrinsic” or “intrinsic” and hold that if extrinsic, the fraud is actionable in a collateral attack, but if intrinsic, it is not actionable. The distinction between extrinsic and intrinsic fraud has often turned on a rather formal and artificial analysis dependent largely on the particular label that is attached to the fraud.
See St. Pierre v. Edmonds,
Our trust and estate cases have essentially employed that test, even before our ruling in
St. Pierre,
although they have sometimes couched the conclusion in the old intrinsic-extrinsic language. See, for example,
In re Rice’s Estate,
An executor's failure to disclose pertinent facts to those who take under a will may constitute the kind of fraud that is actionable in a collateral attack.
Hewitt v. Hewitt,
“But there is an admitted exception to this general rule in cases where, by reason of something done by the successful party to a suit, there was in fact no adversary trial or decision of the issue in the ease. Where the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception practiced on him by his opponent, as by keeping him away from court, a false promise of a compromise; or where the defendantnever had knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority assumes to represent a party and connives at his defeat; or where the attorney regularly employed corruptly sells out his client’s interest to the other side — these, and similar cases, which show that there has never been a real contest in the trial or hearing of the case, are reasons for which a new suit may be sustained to set aside and annul the former judgment or decree, and open the case for a new and a fair hearing.”
This case, we think, falls within the exception, and not within the general rule. Here the appellant was prevented from presenting a claim for his portion of the estate by the fraudulent conduct of the administratrix, and there has been no adversary trial or decision of any issue as between the parties to the present suit. The appellees frankly concede that, if the appellant had been prevented from making claim to the estate because of some fraudulent statement or misrepresentation on the part of the administra-trix, a court of equity would readily grant relief; but it is contended that mere silence on her part presents an entirely different question. But there can be no sound distinction between the giving of false information and the failure to give correct information, where the giving of the latter is a matter of legal duty.
The fraud the Peppers allege against Zions as executor is that Zions misrepresented the value of the Pepper estate “in the form of quarterly reports prepared by Defendants Zions and' forwarded to the Plaintiffs which showed misleading values of the Jerome B. Pepper estate and companies within the estate” and other information conveyed “directly to the plaintiff by written correspondence and conversations which gave misleading information as to the value of the estate.” The Peppers do not claim that Zions misrepresented the value of the estate in the final accounting; indeed, the Peppers’ complaint is based on the loss in the value of the estate, as reflected in the final accounting. A fair inference from the Peppers’ allegations is that Zions lulled the Peppers into a false sense of security as to the proper management and value of the estate, with the consequence that they did not act with sufficient promptness to object formally to the closing order.
See Goldberg v. Goldberg,
In effect, the Peppers allege that they were thus prevented from litigating the question whether Zions mismanaged several of the major assets of the estate, i.e., the Lerner-Pepper joint venture interest, the businesses of Pamco and Pasco (Pepper estate businesses), and managed in such a manner as to promote Zions’ self-interest as a commercial bank by insuring payment of Zions’ line of credit rather than making business decisions solely for the benefit of the estate. The second amended complaint specifically alleges that the Pepper businesses obtained working capital, at least in part, from the commercial line of credit obtained from Zions in the name of Pamco which reached approximately $350,000 at the time of Pepper’s death. The complaint further alleges, inter alia, that after Pepper’s death, Pasco and Pamco, through Ro-senthal, obtained from Zions an increase in the line of credit to $750,000 and that the line of credit did not benefit the Lerner-Pepper joint venture, even though it was secured by assignments of Lerner-Pepper accounts receivable and inventory.
Zions contends that the Peppers are barred as a matter of law from any remedy on the ground that a party who moves to vacate a final order pursuant to Rule 60(b) of the Utah Rules of Civil Procedure, as the Peppers did, may not thereafter attack that same order collaterally in an independent action. According to Zions, a party
As noted, the Peppers moved under Rule 60(b)(7) to set aside the closing order on the ground that because the notice given them was insufficient to allow them to appear and to effectively challenge the closing order, that order was invalid because it denied them due process. This Court’s opinion in
In re Estate of Pepper,
Zions misreads Rule 60(b) and our case law on res judicata. Rule 60(b) provides that a final judgment or decree may be set aside on seven grounds, some procedural and some substantive. 1 The rule expressly provides that a court also may entertain “an independent action to relieve a party from a judgment, order or proceeding or to set aside a judgment for fraud upon the court. The procedure for obtaining any relief from a judgment shall be by motion as prescribed in these rules or by an independent action.” Thus, despite the doctrine of res judicata, the rule expressly recognizes two different methods for attacking a judgment.
Rule 60(b) does not, however, specify what res judicata effect, if any, the denial of a Rule 60(b) motion has on a subsequent independent action collaterally attacking the same judgment.
Mendenhall v. Kingston,
Rule 60(b) sets forth several grounds for setting aside a judgment by motion that would not be an adequate ground for an independent collateral attack on a judgment. For example, the rule provides that a party may be relieved of a judgment for “excusable neglect” in failing to appear to
The Peppers’ Rule 60(b) motion sought to have the October 8 order vacated on the ground that the movants had insufficient time to respond to Zions’ petition at the final hearing. The denial of that motion established that the time allowed met constitutional requirements, but that ruling does not bar the Peppers’ claims for fraud and misrepresentation alleged in the present independent action against Zions.
In sum, the trial court erred in concluding as a matter of law that the Peppers’ claim based on fraud and misrepresentation against Zions as executor was necessarily barred by res judicata. On remand, the plaintiffs must first establish that they were in fact prevented by fraud or misrepresentation from litigating the allegations of mismanagement and self-dealing.
III. COUNT II — RES JUDICATA EFFECT OF THE CLOSING ORDER ON THE ACTION AGAINST THE TRUSTEE
The Peppers also allege that, as trustee, Zions violated a duty owed them as beneficiaries by failing to enforce the trust’s claims against the estate for the executor’s mismanagement of its assets prior to their transfer to the trust. The Peppers also allege that Zions had a conflict of interest because of its self-interest in protecting its loan to the Pepper estate businesses and its duty to administer the estate and the trust for the benefit of the Pepper family members as beneficiaries.
Executors and trustees are charged as fiduciaries with one of the highest duties of care and loyalty known in the law. Although Zions acted as both executor and trustee, the duties of each office remained separate and independent from the other and did not merge. Thus, Zions as trustee had a duty to act with the utmost fidelity to protect and preserve the beneficiaries’ interests, even though Zions had to challenge its own conduct as executor.
The law is settled that a “trustee owes a duty to the beneficiary on taking over property from the executor to examine the property tendered and see whether it is that which he ought to receive.” G. Bogert, Trusts and Trustees, § 583, at 358-59 (rev’d 2d ed. 1980) (citations omitted); A successor trustee “is liable for breach of trust if he neglects to take proper steps to compel his predecessor to deliver the trust property to him.” 3 A. Scott & W. Fratcher, The Law of Trusts § 223.2, at 398-99 (4th ed. 1988). A trustee has a duty to enforce claims against an executor as a prior fiduciary upon the transfer of the assets of the estate to the trustee. Restatement (Second) of Trusts § 177, comment a (1959) states:
The trustee is under a duty to the beneficiary to take reasonable steps to enforce any claim which he holds as a trustee against predecessor trustees ... or in the case of a testamentary trust against the executors of the estate, to compel them to transfer to him as trustee property which they are under a duty to transfer, or to redress any breach of duty committed by them.
See also In re First Nat’l Bank of Mansfield,
Zions asserts that because the estate’s transfer of the Lerner-Pepper partnership assets to the trust and the subsequent sale of those assets as trustee was approved in the October 8 closing order, the doctrine of res judicata now bars the Peppers from attacking that order. That argument, however, fails to meet the thrust of the Peppers’ argument. They do not complain of the sale as such; rather, they contend that the executor mismanaged the estate, that the trustee had a duty to charge the executor with the estate’s loss of value occasioned by the executor’s mismanagement, and that as beneficiaries of the trust they have a claim against the trustee for its failure to enforce the claim against the executor.
A beneficiary’s claim for relief against a trustee for failure to enforce a trust’s claim against a predecessor fiduciary is not barred by res judicata doctrines of collateral estoppel and issue preclusion based on an estate closing order. A claim against a trustee for defaulting on its duty to protect the trust does not constitute a collateral attack on an estate closing order. The Minnesota Supreme Court stated in
In re Irrevocable Inter Vivos Trust Established by R.R. Kemske,
Zions argues, however, that the estate closing order creates a preclusive bar against the beneficiaries’ claim against Zions as trustee because that order adjudicated the lawfulness of the transfer of all the estate’s assets to the trustee at closing. In short, Zions contends that the closing order precludes a claim against a trustee for failing to receive the proper assets from the executor when the trustee and the executor are the same person.
There is some authority to support Zions’ contention that a probate decree is res judicata as to both the executor and a successor trustee.
Carr v. Bank of America Nat’l Trust & Savings Assoc.,
That proposition follows from the principle that an entity acting in one capacity is not the “same party” for res judicata purposes as the same entity acting in a different capacity. 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4449, at 414 (1981). The Restatement (Second) of Judgments § 36(2) (1982) states:
A party appearing in an action in one capacity, individual or representative, is not thereby bound by or entitled to the benefits of the rules of res judicata in asubsequent action in which he appears in another capacity.
On its face, that rule applies to an entity acting in the dual capacity of trustee and executor.
The principle is illustrated by In re Irrevocable Inter Vivos Trust Established by R.R. Kemske, 305 N.W.2d 755 (Minn.1981), in which a bank acted as both executor of Rudolph Kemske’s estate and the trustee of a trust which was the legatee of part of Kemske’s estate. The probate court approved a final decree of distribution more than two years before a suit was filed against the bank alleging mismanagement of the funds. The Minnesota Supreme Court rejected the argument that the probate court’s approval of the executor’s final accounting conclusively established that there was no basis for the trustee to have objected to that accounting:
This is not a collateral attack on a probate court order. It is a claim of breach of a trustee’s duty to its beneficiaries, not breach of an executor’s duty to its legatee.
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... The fact that a bank serves in a dual capacity, and as trustee may have to question its own conduct as executor, does not alter the trustee’s duty to its beneficiaries.
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... At the hearing on the final account, the trustee — acting for the trust beneficiaries — owed the beneficiaries a duty to use reasonable care and diligence in examining that accounting and objecting thereto if reasonable and prudent to do so.... [I]t was error not to have permitted appellants ... to introduce evidence of the executor’s performance as bearing on the trustee’s duty of care.
In re First National Bank of Mansfield,
Likewise, in
In re Estate of Winston,
As trustee, she had a duty to assure that any assets rightfully belonging to the trust became part of the trust.... As trustee, it was incumbent upon her to challenge the final account if she knew or should have known that [certain stock she retained] constituted part of the residue of [the] estate and thus part of the trust. [She] cannot now assert the binding effect of the order approving the final account obtained ... in her capacity as administratrix to escape accountability for ... breach of her fiduciary duty as trustee in failing to challenge the final account....
The policy that underlies the rule we adopt gives full effect to the trust principle that a “trustee owes a duty to the beneficiary on taking over the property from the
Furthermore, a straight forward application of res judicata principles under standard law compels the same conclusion. The grounds alleged in the complaint here were not actually litigated in the probate proceeding and therefore cannot collaterally estop the beneficiaries against the trustee.
See Penrod v. Nu Creation Creme, Inc.,
Zions also contends that Utah Code Ann. § 75-7-306(6) (1978) absolves it from liability as trustee on the ground that as executor, it was solely responsible for the loss of value. That section limits a trustee’s liability “for failure to take necessary steps to compel the redress of any breach of trust or fiduciary duty by any predecessor executor, trustee, or other fiduciary” to those acts of the predecessor of which the trustee has “actual knowledge or information which would cause a reasonable trustee to inquire further....”
Because Zions acted in a dual capacity as trustee, it clearly was aware of any breach of duty it may have committed as executor of Pepper’s estate. The knowledge that Zions had as executor, it also necessarily had as trustee. Section 75-7-306(6) does not absolve a trustee who has knowledge of the unlawful conduct of a predecessor executor. The statute avails Zions nothing.
The October 8, 1981 decree approving the trust transaction did not, therefore, have any res judicata effect upon plaintiffs’ claim against Zions as trustee. The issue of the trustee’s liability was not actually litigated in an adversarial proceeding, but was decided in a default proceeding. It follows that plaintiffs’ claim against Zions as trustee is not precluded.
The partial summary judgment against the Peppers on their claim against Zions as trustee is reversed.
IV. ZIONS’ CROSS-APPEAL OF THIRD-PARTY CLAIM
In light of the foregoing, we now consider the propriety of the trial court’s summary judgment in favor of Rosenthal on Zions’ third-party claims against him.
Zions’ first cause of action against Ro-senthal asserts that he made material representations which were imputed to Zions as acts of fraud and misrepresentation and that he should be held liable to Zions for those acts for which Zions might be found liable to the Peppers.
Zions’ second claim for relief alleges that Rosenthal was negligent in the performance of his duties in managing the various Pepper companies held by the estate. Zions’ final cause of action is based on breach of contract. It asserts that Rosen-thal’s breach was the proximate cause of the diminution of the estate of Jerome B. Pepper. Zions has stipulated that it has no claims against third parties arising from the Peppers’ third and fourth causes of action.
Zions seeks indemnification from Rosen-thal on the theory, apparently, that he was primarily liable for whatever injury was done to the estate, if any, and that Zions was only derivatively liable. The allegations in the Peppers’ complaint against Zions are far from rifle shot allegations. Conceivably, the Peppers might be able to prove several different theories, some of which might give Zions a third-party claim against Rosenthal and some of which might not. Under these circumstances, it is premature to rule that Zions has no claim. We, therefore, reverse the summary judgment against Zions. We observe, however, that Rosenthal may, when the case is more clearly outlined, seek an order of dismissal or summary judgment.
Reversed and remanded for further proceedings.
Notes
. Utah Rule of Civil Procedure 60(b)(1) through (7) provides:
(b) Mistakes; Inadvertence; excusable neglect; newly discovered evidence; fraud, etc. On motion and upon such terms as are just, the court may in the furtherance of justice relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation or other misconduct of an adverse party; (4) when, for any cause, the summons in an action has not been personally served upon the defendant as required by Rule 4(e) and the defendant has failed to appear in said action; (5) the judgment is void; (6) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (7) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time and for reasons (1), (2), (3), or (4), not more than 3 months after the judgment, order, or proceeding was entered or taken. A motion under this Subdivision (b) does not affect the finality of a judgment or suspend its operation. This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order or proceeding or to set aside a judgment for fraud upon the court. The procedure for obtaining any relief from a judgment shall be by motion as prescribed in these rules or by an independent action.