Claim that Trustee Breached Fiduciary Duty Backfires

When someone accepts the position of trustee, he (or she or it) must act for the benefit of the trust and its beneficiaries. In Bates v. Howell (Ga. App. 2019), Emily Howell decided that the trustee of her aunt’s trust breached his duties. She then went to court without giving anyone else notice (an ex parte proceeding) and secured a temporary restraining order that prevented the trustee from taking any action or making any trust distributions while the matter was being resolved. As subsequent events showed, Ms. Howell set herself up for a damages claim because her actions were unsupported and essentially frivolous.

The trust was originally established by Anne S. Florance. In 2013, she executed a Will, a revocable living trust and an assignment. Ms. Florance used the assignment to transfer substantially all of her property into the trust and she served as the initial trustee until her death or incapacity. Her attorney, Philip A. Bates, was designated as the successor trustee. Very little was left in her as a result of the assignment, but Mr. Bates was named as executor of her Will, which poured remaining assets into the trust.

The trust provided for certain distributions to named beneficiaries. Once those distributions were made, the trust remainder was to be distributed among three charities. From the Court’s decision, Ms. Howell’s distribution appeared to be $25,000.

Ms. Florance died in May, 2013, three months after executing her estate planning documents. The only assets in her probate estate were the ones acquired after the assignment though the date of her death.

In January 2016, three and a half years after Bates had begun serving as trustee, Howell filed a Petition in probate court alleging Ms. Florance’s Will was invalid. “Specifically, Howell asserted that the decedent’s estate may have claims against Bates for, inter alia, legal malpractice, breach of trust, conversion, fraud, and undue influence, based on alleged conduct by Bates toward the decedent prior to her death. However, Howell’s caveat did not assert any claims against the Trust or Bates in his capacity as trustee. The probate court proceeding was still pending in August 2016”

In August, 2016, after trying for three and a half years, Bates found a buyer for Ms. Florance’s home. Howell secured her exparte restraining order to prevent the closing from taking place. Even through her petition in probate court remained pending, Howell alleged that in her “capacity as the “Proposed Administrator of the Estate of [the decedent],” she had “a property right or at least a protectable right” in the proceeds of Bates’s imminent sale of the Atlanta residence. According to the petition, Howell “belie[ved]” that Bates intended to “immediately transfer [the sale proceeds] to the beneficiaries under the terms of the Trust,” which would place the estate “at great financial risk, liability and damage and which would further irreparably damage the [e]state’s ability to pay the [estate’s] remaining beneficiaries.” Howell’s actions stalled the sale of Ms. Florance’s home. The home sale was rescheduled and, later, as revised TRO was entered, allowing the sale to move forward but the proceeds were to be paid into the court’s registry pending a decision.

In November 2016, Bates filed a Petition for Declaratory Judgment, on which he ultimately prevailed. The court ruled “that the Trust was valid and in full force and effect, that the statute of limitation period for challenging the validity of the Trust had expired in May 2015, and that Howell had forfeited her distribution from the Trust by violating the Trust’s “no contest” clause.” Howell appealed, but the Court of Appeals affirmed the decision in favor of Bates. The only issue remaining was whether Howell was liable for damages resulting from improperly securing the TRO.

The parties filed cross motions for summary judgment on the issue of Howell’s potential liability for wrongfully restraining the trustee’s action. The trial court granted Howell’s motion and Bates appealed. The Court of Appeals reversed the decision below, finding that Howell’s action was improper and remanded the case for a determination of damages.

In ruling for Bates, the Court of Appeals noted that Howell waited three years before complaining about Bates’ actions. “Howell never asserted a challenge to Bates’s actions as trustee, sought to remove him, or asserted any claim against the Trust assets. Although Howell eventually challenged the validity of the Trust in her answer to Bates’s November 2016 declaratory judgment action, the trial court ruled that the time period for Howell to challenge the validity of the Trust had expired and that the Trust was valid and in full force and effect, and this Court affirmed those rulings. It necessarily follows that the TROs wrongfully restrained Bates from performing acts that he was legally permitted (even required) to do.”

The court also noted that even if there had been a basis for seeking a TRO, the one sought went to far, including language that “completely prohibiting Bates from making any disbursements from the Trust for any reason, including to pay the Trust’s usual and necessary expenses.”

Howell also had no claim on any trust assets because she forfeited her right by violating the no contest clause. She lacked authority as a “Proposed Administrator” because none had been appointed and Bates was specifically nominated as executor in Ms. Florance’s Will. Moreover, even if the Will was found to be invalid, Howell could not assert claims against the trust. By necessity she would be required to assert them against Bates personally because if he acted improperly, his improper acts “were committed before the decedent died, when Bates was neither the trustee (because the decedent remained the trustee until her death), nor the executor of the Will (because the estate did not yet exist, given that the decedent was still alive). And, even if Howell prevailed on those claims, the Will expressly prohibits her from collecting on any such judgment from the estate, and Howell has cited to no provision in either the Will or the Trust by which she would be entitled to collect such judgment from the Trust’s assets.”

Finally, the Court of Appeals noted that even if Howell had somehow prevailed in the probate court, that would not render the trust invalid. The trust was funded by the assignment Ms. Florance executed prior to her death. “Accordingly, … Howell lacked the authority to obtain the TROs in this case and that the TROs wrongfully restrained him from fulfilling his mandatory and/or discretionary duties as trustee of the Trust.”

Howell’s final argument was that Bates waived any claim against her by agreeing to a stipulated TRO while the original case was pending. The court rejected that argument because waiver is disfavored under the law and “the evidence relied upon to prove a waiver must be so clearly indicative of an intent to relinquish a then known particular right or benefit as to exclude any other reasonable explanation.” There was no clear evidence that Bates waived the wrongful restraint claim.