Jack Nelson Jones Professional Association
March 25-31, 2019
In the Matter of the GNB III Trust Jerita Wylie and Doug Bobo v. Cheryl Shaw, 2019 Ark. App. 171 (March 13, 2019)
This matter comes on appeal from the Hempstead County Circuit Court, Probate Division, Honorable Duncan Culpepper presiding. It involved the authority of trustees to dispose of property with less than a unanimous vote.
Jerita Wylie and Doug Bobo, and Cheryl Shaw are siblings. They served as cotrustees of the GNB III Trust (the Trust), which was created by their parents, Guy and Nellie. When a disagreement between the cotrustees arose concerning trust administration, Wylie and Bobo filed suit for a declaratione that a majority of cotrustees could act on behalf of the Trust and approve the sale of certain trust property to Bobo. The circuit court denied their request, and Wylie and Bobo appealed. The Court of Appeals reversed in part and affirmed in part.
Guy and Nellie created the GNB III Trust in August 2004. They partially funded the Trust with real estate, including their marital home and acreage. Guy and Nellie were the grantors of the Trust, the primary beneficiaries, and the initial trustees of the Trust. The Trust provided that if either of them were unable to serve as a trustee, the other would assume the full duties of trustee. Their children were designated as contingent beneficiaries, and, in the event that both Guy and Nellie were unable to serve as trustees, then Wylie, Bobo, and Shaw were to serve as successor cotrustees.
In 2011, Guy was declared incapacitated, Nellie was appointed as guardian of his person and of his estate. Guy was placed in a nursing home. Nellie passed away in 2015, and the siblings assumed their roles as successor cotrustees of the entire Trust. Within a year, discord developed. Bobo desired, individually and not as cotrustee or beneficiary, to purchase real estate owned by the Trust. Wylie agreed with Bobo’s purchase, but because Bobo was a trustee and was purchasing trust asset, court approval was sought.
Shaw responded and filed a counterpetition claiming Wylie and Bobo had committed serious breaches of their duties to the Trust and seeking to remove them as cotrustees and coguardians. She alleged that Bob had entered into a pasture-lease agreement with the Trust which she did not approve; that the rental rate was far below the fair value for comparable property; that he had already taken possession of the premises and cut and baled hay on the property; and that she was willing to pay more for the property and for pasture rental but had not been given an opportunity to do so.
Before the lower court could act on either petition, Wylie and Bobo filed for a temporary order requesting the court find that a majority of the cotrustees could conduct business for the Trust, arguing that Shaw opposed everything they did and that banks were refusing to allow them to conduct business without consent of all cotrustees. The court conducted a final hearing and afterward, entered an order denying the petition to approve the sale and the lease of lands and stopped any further real estate transactions without unaniminity of trustees.
The court took no action on the request for a temporary order but did conduct a final hearing on the petition and counterpetition. After the hearing, the circuit court entered an order denying the petition to approve the sale and lease of trust lands to Bobo and provided that no further real estate transactions could occur without the unanimous agreement of the trustees or prior court approval. The order also denied Shaw’s request to have a third party appointed as trustee.
Wylie and Bobo filed a motion for new trial and, as one argument, cited Arkansas Code §28-73-703(a), which provides that “[c]otrustees who are unable to reach a unanimous decision may act by majority decision.” They claimed that this statute clearly and unambiguously authorized a majority of trustees to make decisions on behalf of the Trust and that the circuit court erred in concluding that any sale of real estate must be by unanimous agreement of the trustees or by court approval. Shaw responded to the motion, denying that Bobo and Wylie were entitled to a new trial on the issues. The circuit court denied the motion resulting in an appeal to the Court of Appeals.
In considering the appeal, the Court first considered the statutory construction of Ark. Code §28-73-703(a) and observed this must be reviewed de novo. It noted that under common law, trustees of private trusts were required to act in unanimity, although charitable trusts could act by majority vote. This continued in Arkansas until 1999, when that was reversed, and in 2005, the Arkansas Uniform Trust Code (UTC) set forth that where co-trustees could not reach a unanimous decision, they could act by majority vote. It determined the lower court ruling was in direct contravention of the statute and reversed the circuit court on that issue.
Wylie and Bobo next challenged the court’s refusal to approve the sale of the property to Bobo, claiming the lower court’s decision was not supported by substantial evidence. The Court of Appeals disagreed with this contention and affirmed the lower court’s decision here. Bobo had sought to purchase and lease property owned by the Trust while he was a trustee. The Court noted he had certain duties to the Trust including a general duty to administer the Trust solely in the best interests of the beneficiaries. That duty required all trustees to act exclusively and solely in the interest of the estate or the beneficiaries of the Trust and not to act in his or her own interest by taking part in any transaction concerning the Trust when a trustee had an interest adverse to that of the beneficiary.
The Court determined that, because Bobo’s transactions involved a trustee purchasing trust property, a higher level of scrutiny was involved, and his purchase was voidable by a beneficiary affected by the transaction (Shaw), unless the transaction was approved by the court. Accordingly, it found that Trustee Bobo’s transactions required court approval and not just approval by a majority of the trustees. The Court noted that reviewing the lower court’s decision to deny a new trial on this issue, it must affirm the circuit court’s decision if it was supported by substantial evidence. The Court then considered the evidence presented to the lower court.
Bobo sought to purchase the marital home of Guy and Nellie and the seventy-four appurtenant acres. When Nellie died in 2015, the home became vacant. Bobo remembered that his parents had expressed that they wanted to keep the property in the family, but they did not put that desire in the Trust. At that time, Wylie, Bobo, and Shaw had the home appraised by three independent real estate appraisers, two of whom were chosen by Shaw. Two of the appraisals had come in at $345,000 and one at $362,000. Wylie and Bobo claimed that the property had decreased in value since 2015 due to inoccupancy (but they hadn’t had it reappraised in reaching that determination). Despite this devaluation, Bobo agreed to purchase the property for $345,000. Both Wylie and Bobo testified that this offer was fair as it was the median price of the appraisals. They also testified that the sale was beneficial to the Trust and its beneficiaries by generating additional liquidity in the trust estate, by reducing expenses incurred by the property (taxes, insurance, maintenance, etc.) and by keeping the property in the family.
Wylie and Bobo pointed to the above evidence to support their claim of trial error. However, the Court found that the standard of review required affirmation if a trial court’s denial of a motion for new trial was supported by substantial evidence. The Court noted that the circuit court had access to additional evidence presented by Shaw.
Shaw presented evidence that she was purposely not asked to attend any of the meetings of the trustees where any action was taken regarding the sale or lease of any of the trust property. She disagreed that the purchase price of the property was the median price; instead, she contended it was the lowest appraised price. She testified that the proposed purchase price was not fair; it was $12,000 lower than a previous offer made by Bobo; and Bobo’s $345,000 offer was inclusive of contents, which was not a part of the original appraisal. There was a corral and a squeeze chute worth $4,000 not included in the original appraisals, and, intriguingly, there was family lore that $35,000 in cash was hidden somewhere within the home. Shaw also noted that she was prepared to pay the price previously offered by Bobo. In summary, Shaw argued that any action or vote taken to sell the trust property to Bobo was self-serving and not in the best interest of the primary beneficiary.
The Court found no error in the lower court’s denial of the motion for new trial. No one presented current evidence on the value of the house, and the evidence presented concerning the increased or decreased value was conflicting. The circuit court was presented with evidence that both Bobo and Shaw were interested in purchasing the property and that Shaw was willing to pay more for the property than Bobo. There was evidence that the 2015 appraisals did not in fact include contents, yet Bobo’s offer included those furnishings and all other contents.
The Court noted that it is the role and duty of the trier of fact to determine the credibility of witnesses and the weight to be accorded to their testimony. Thus, due deference had to be given to the circuit court’s superior position in this regard. The Court found, that because there were facts presented from which the circuit court could find that the transaction was not fair and that the sale should not be approved, there was no error and this part of the circuit court’s decision was affirmed.