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Teresa A. Blankenship v. Washington Trust Bank

July 2, 2012

TERESA A. BLANKENSHIP, PETITIONER,
v.
WASHINGTON TRUST BANK, RESPONDENT-RESPONDENT ON APPEAL. WILLIAM MICHAEL BOWMAN, AND ERIC BOWMAN, INTERVENORS-APPELLANTS.



Appeal from the District Court of the First Judicial District of the State of Idaho, Bonner County. Hon. John T. Mitchell, District Judge.

The opinion of the court was delivered by: Horton, Justice.

2012 Opinion No. 106

Stephen Kenyon, Clerk

Washington Trust Bank (WTB) was the trustee of the trust created by Althea Bowman's last will and testament. Althea's four surviving children are the trust beneficiaries. Three of these beneficiaries argued to the district court that the Trustee exceeded its authority by securing, with a deed of trust encumbering a commercial property held by the trust, funds advanced to the fourth beneficiary. In this transaction, separate divisions of WTB acted as trustee (Trustee) and as the beneficiary of the deed of trust (Lender).*fn1 The district court granted summary judgment in favor of the Trustee. Two of the beneficiaries appeal. We affirm the district court's order of dismissal.

I. FACTUAL AND PROCEDURAL BACKGROUND

Teresa Blankenship (Teresa), Ryan Bowman (Ryan), Eric Bowman (Eric), and William Bowman (William) are the beneficiaries of a trust established by the last will and testament of their mother, Althea Lorraine Bowman. The trust instrument provides that "The trust estate shall be divided into equal shares, one share for each of my surviving children and one share for each deceased child of mine with surviving descendants." It also provides that:

Each share for a surviving child of mine shall be managed and distributed in trust for the child as follows:

1. During the term of this Trust, the Trustee shall pay to the child all of the current net income of the child's trust.

2. Whenever the Trustee determines that the income of any child of mine from all sources known to the Trustee is not sufficient for his or her support, health, maintenance, and education, the Trustee shall pay to the child or use for his or her benefit so much of the principal of the child's trust as the Trustee determines to be reasonable for those purposes.

3. When any child of mine reaches the age of sixty (60) years, the Trustee shall distribute to the child the balance of his or her trust.

The trust instrument expressly recognizes that the Trustee possesses the duties, powers, and rights imposed and granted by law, as well as additional powers, including the power to make distributions to any beneficiary, and the power to loan trust funds to any beneficiary if the beneficiary encountered a financial emergency that he or she could not meet from his or her own resources.

The Trustee made several advances to Ryan totaling $147,559.24. In January 2007, the Trustee notified all of the beneficiaries that it intended to sell one or two of the trust's commercial properties in order to obtain funds for their support. In April 2007, Teresa petitioned to remove the Trustee, asserting that it had committed waste by "lending other beneficiaries outside of what is permitted" and managing trust properties such that profits were not maximized. Teresa also moved for an injunction prohibiting WTB from selling trust property.

On August 6, 2007, Trustee vice president Susan Kuzma (Kuzma) executed a promissory note providing that "Althea Bowman T/U/W*fn2 FBO Ryan Bowman ('Borrower') promises to pay to WASHINGTON TRUST BANK ('Lender') . . . $147,559.24." On that date, Kuzma also acted on behalf of the Ryan Bowman trust and secured the promissory note by executing, for Lender's benefit, a deed of trust. The deed of trust was for a parcel of real property owned by the trust and located in Bonner County.

On August 27, 2008, Teresa filed an amended petition that added a complaint for damages, alleging that the Trustee had negligently operated the trust and breached its duty of loyalty to Teresa. On September 10, 2008, the court granted the Trustee's motion for leave to resign as trustee, and on October 23, 2008, the court entered an order appointing a third party as trustee.*fn3 On November 12, 2008, the court granted William's motion to intervene. On January 29, 2009, the Trustee moved for summary judgment, asserting that its resignation mooted both Teresa's request for its removal and her request for an injunction preventing the Trustee from selling the trust's real property. It also argued that Teresa lacked standing to object to the advances to Ryan Bowman's trust and the encumbrance upon it, that the Trustee had lawfully exercised its powers in managing the trust, and that the Trustee was not negligent in operating the trust. Finally, the Trustee argued that William should be dismissed from the action for failure to file a particularized pleading.

Before the March 2, 2009, hearing on the summary judgment motion, William filed a complaint alleging the Trustee had breached its fiduciary duties by "executing a self-serving promissory note on behalf of RYAN BOWMAN . . . and secur[ing] said promissory note by executing a self-serving deed of trust against" trust property, and also by "plac[ing] a lien on trust assets for the benefit of a single beneficiary without the express written consent and approval of all other beneficiaries." William's complaint sought a preliminary injunction preventing sale of the real property, an order quieting title to the real property encumbered by the deed of trust, damages for the Trustee's alleged breach of fiduciary duties and negligent operation of the trust, and attorney fees and costs.

The court ruled from the bench at the summary judgment hearing and requested that counsel to the Trustee draft the order. That order was entered on March 9, 2009, ...


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