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Beardmore v. JPMorgan Chase Bank, N.A.

Court of Appeals of Kentucky

March 31, 2017



          BRIEF FOR APPELLANT: Robert P. Stith Lexington, Kentucky

          REPLY BRIEF FOR APPELLANT: Anthony P. Locricchio Kailua, Hawaii

          BRIEF FOR APPELLEE: Steven B. Loy D. Randall Gibson Shannon B. Arvin Sarah Sloan Reeves Lexington, Kentucky



          LAMBERT, J., JUDGE

         LAMBERT, J., JUDGE: James Beardmore has appealed from an order and a separate judgment entered by the Fayette Circuit Court converting two trusts into a directed trust system and transferring the place of administration of these trusts to Delaware. Beardmore contends that the circuit court did not have subject matter jurisdiction to decide the matter based upon the application of the recently enacted Uniform Trust Code (UTC), Kentucky Revised Statutes (KRS) 386B.1-010 et seq. Finding no error, we affirm.

         JPMorgan Chase Bank, N.A. (JPMorgan) is the successor trustee under a deed of trust between donor John G. Stoll and Security Trust Company, originally dated August 3, 1932, and as amended on March 8, 1934, and December 11, 1953 (the Insurance Trust), and under the last will and testament of John G. Stoll dated December 8, 1953, as amended by several codicils, the last one dated April 9, 1958 (the Testamentary Trust). We shall collectively refer to these as the Stoll Trusts. Mr. Stoll passed away on August 26, 1959. The Stoll Trusts had identical distribution terms following the death of his wife on January 11, 1986. At that time, the net income from the principal of the trusts was to be divided equally among Mr. Stoll's children and issue by representation, and the issue of a deceased child was to take equally between them the deceased child's share of the income. The income was to be distributed in this manner until 21 years after the death of Mr. Stoll's children and issue who were living at the time of Mr. Stoll's death. At the end of the 21-year period, the trustee was to divide the principal of the Stoll Trusts among the individuals entitled to income in the same proportion as the income they had been receiving as distributions and pay each individual that amount. When this action was filed in 2014, there were 28 income beneficiaries under the Stoll Trusts and 133 contingent beneficiaries, 54 of which were under the age of 18. Based upon the life expectancies of the youngest issue when Mr. Stoll passed away, it was expected that the Stoll Trusts would continue for another 50 years.

         The Stoll Trusts provided the trustee with broad powers, including the selection of investments and third-party investment consultants. In the mid-1970s, the beneficiaries formed an informal family committee to discuss the investment portfolio, and this Family Trust Committee requested the trustee to invest some of the trust assets in nonstandard investments to maximize the value and returns of the trusts. Bank One, the trustee at that time, hired an independent investment consultant to recommend third-party investments to comply with the committee's request.

         In 2013, JPMorgan determined that the Stoll Trusts should be reformed to formalize the Family Trust Committee and define the role played by it and the committee by creating a directed trust system under Kentucky Revised Statutes (KRS) 286.3-275, and that the Stoll Trusts should be relocated to Delaware for favorable income tax laws. To do so, JPMorgan filed motions in the probate division of Fayette District Court to appoint a representative, to reform the Stoll Trusts to directed trusts, and to release the registration of the trusts and transfer the place of administration to Delaware. This was contingent upon receiving a private letter ruling from the Internal Revenue Service confirming that this would not adversely affect the generation skipping tax-exempt status of the trusts. Of the at that time 151 income and contingent beneficiaries, 143 returned executed consents to JPMorgan. Seven beneficiaries apparently did not respond.

         Only one person objected; namely, contingent beneficiary James Beardmore. The district court held the matters in abeyance based upon Beardmore's objection and the fact that the IRS had not yet issued a private letter ruling. The IRS issued a private letter ruling in January 2014 confirming that the reformation and relocation would not affect the generation skipping tax-exempt status. Beardmore's continued objection created an actual controversy between the parties, and the probate action was later dismissed without prejudice.

         Due to the existence of an actual controversy, in April 2014, JPMorgan filed a verified petition for declaration of rights in Fayette Circuit Court setting forth the above facts and background. The circuit court appointed a guardian ad litem (GAL) to represent the interests of 54 unmarried infant defendants and the unborn issue of Mr. Stoll's children. The GAL filed an answer requesting that the court enter a judgment in favor of JPMorgan. JPMorgan filed entries of appearance and consent to judgment forms from 97 parties.

         In June 2014, JPMorgan filed a motion for a judgment on the pleadings or for summary judgment seeking the relief it requested in its petition for declaratory relief. It noted that of the 165 current income and contingent-remainder beneficiaries, including unborn issue, JPMorgan had received consent forms from 155 of those beneficiaries. Beardmore had not yet entered an appearance, but he had not consented to the relief sought. But because Beardmore had not appeared or responded, JPMorgan sought a judgment because the allegations in its petition remained undisputed. In July, JPMorgan filed additional entries of appearance and consents to judgment from six more parties, bringing the total to 161 of the 165 income and contingent-remainder beneficiaries. A hearing was also scheduled for that month.

         Prior to the hearing, Beardmore filed a memorandum in support of his opposition to JPMorgan's motion. In reply, JPMorgan noted that Beardmore had not filed an answer to the petition and that his counsel, who filed the memorandum in opposition, was not admitted to practice in Kentucky and had not been admitted pro hac vice. JPMorgan stated that the memorandum should be stricken from the record because it was filed in violation of Kentucky Supreme Court Rule (SCR) 3.030, and that it contained "bizarre and unfounded accusations against every party involved in this action[.]"

         The circuit court heard arguments from counsel and Beardmore on July 14, 2014. At that time, the court ordered Beardmore's counsel to comply with SCR 3.030[1] and rescheduled the hearing for July 17, 2014. It also ordered JPMorgan to file a notice and tender an ...

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