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Kerns v. Beam

United States District Court, W.D. Kentucky, Louisville Division

May 31, 2018

RICHARD KERNS, et al., Plaintiffs,
v.
WANDA BEAM, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          David J. Hale, Judge

         Plaintiffs are the remainder beneficiaries of a trust created by the late Thomas Kerns. Plaintiffs bring this action against Wanda Beam, attorney-in-fact for Lila Kerns, who is the life beneficiary of the trust; and Town & Country Bank and Trust Company, the trustee, alleging misuse of trust funds. (Docket No. 16) They assert claims for conversion and unjust enrichment against Beam and seek to impose a constructive trust on certain funds in her possession.[1] (Id.) They claim that Town & Country breached its fiduciary duty, and they seek remedies including disgorgement, accounting, and trustee removal. (Id.) Beam requests summary judgment on all of Plaintiffs' claims. (D.N. 49) Town & Country requests summary judgment on all of Plaintiffs' claims, except the claim for accounting. (D.N. 51) Plaintiffs seek summary judgment on all of their claims against Defendants.[2] (D.N. 50) The Court heard oral argument on October 27, 2017. (D.N. 67) For the reasons discussed below, Beam's motion will be granted; Town & Country's motion will be granted; and Plaintiffs' motion will be denied.

         I. BACKGROUND

         A. Relevant Facts

         In 1987, Thomas Kerns created the Trust at issue in this case. (See D.N. 51-2) When Thomas Kerns died in 1988, the Trust was divided into three separate trusts: Trust A-1, Trust A-2, and Trust B. (See id., PageID # 663-66) Thomas Kerns was married to Lila Kerns when he created the Trust. (Id., PageID # 661) The Trust provided that Lila Kerns was to receive the income of Trusts A and B during her lifetime. (Id., PageID # 665) The Trust further provided that “[t]he trustee may in its discretion pay to my wife, or use for her benefit, so much or all of the principal of Trust A or Trust B as the trustee from time to time determines to be required or desirable for her support, welfare[, ] and best interests.” (Id.) Finally, the Trust provided that “[t]he trustee need not consider the interests of any other beneficiary in making distributions to my wife or for her benefit.” (Id.) Plaintiffs, the children and grandchildren of Thomas Kerns, are the only remainder beneficiaries of Trusts A-2 and B. (D.N. 50-2, PageID # 408-09; D.N. 57-1, PageID # 1161-62) They stand to take equal shares of what is left of those trusts at the time of Lila Kerns's death. (Id.) Lila Kerns now suffers from severe amnesia disorder and dementia. (D.N. 51-7, PageID # 734-35) She has required caregiver services around the clock since January 2013. (Id., PageID # 726)

         Thomas Kerns declared himself trustee of the Trust. (D.N. 50-2, PageID # 403) Upon Thomas Kerns's death, Patricia Blanchard became trustee. (Id., PageID # 416) Merrill Lynch then took over as trustee in 2010. (See D.N. 51-3, PageID # 682) During Merrill Lynch's tenure as trustee, it paid trust income to Lila Kerns and made other disbursements for her benefit from trust principal. (D.N. 51-7, PageID # 718, 723; D.N. 51-8, PageID # 747) Generally, Merrill Lynch allocated one-third of these other disbursements to Trust A-1 and two-thirds to Trust A-2. (See D.N. 51-9, PageID # 756; D.N. 51-7, PageID # 723)

         Wanda Beam, Lila Kerns's niece and attorney-in-fact (D.N. 51-7, PageID # 714, 736), met with Town & Country in November 2012 to discuss the possibility of the bank becoming trustee. (D.N. 50-8, PageID # 472) During this meeting, Town & Country considered setting up a conference call with Plaintiffs to discuss removing Merrill Lynch as trustee. (See id., PageID # 472-73) That conference call never took place, however. (See id., PageID # 473) Town & Country also contemplated trying to get all of the beneficiaries to agree to move the Trust but determined that the terms of the Trust might not require agreement. (See D.N. 50-30, PageID # 608)

         The Trust gave Lila Kerns the right to withdraw the principal of Trust A-1 at any time. (D.N. 51-2, PageID # 666) An employee of Town & Country suggested that it would be in Lila Kerns's best interest to make Trust A-1 an investment management account (IMA) in accordance with the terms of the Trust. (D.N. 50-8, PageID # 474) Lila Kerns exercised her right to withdraw the principal of Trust A-1 in a signed letter dated July 25, 2013. (D.N. 51-7, PageID # 737) Upon transfer of the trust funds from Merrill Lynch to Town & Country, the assets previously held in Trust A-1 were placed into an IMA for Lila Kerns. (D.N. 51-4, PageID # 691) At that point, Trust A-1 effectively ceased to exist. (See D.N. 51-8, PageID # 742)

         By the time Town & Country took over as trustee in October 2013 (D.N. 51-4, PageID # 691, 695), bank officers suspected that Merrill Lynch had favored the remainder beneficiaries (Plaintiffs) over Lila Kerns in its administration of the Trust. (D.N. 50-8, PageID # 472, 474) One plaintiff, Richard Kerns, stated in his deposition that he learned that the Trust was being moved to Town & Country from someone at Merrill Lynch. (D.N. 50-9, PageID # 479) Town & Country began sending account statements to Plaintiffs upon becoming trustee. (D.N. 56-3, PageID # 1088; see D.N. 56-8, PageID # 1112) Richard Kerns admitted in his deposition that he started receiving monthly statements from Town & Country either as soon as, or within a month or two of, the bank taking over as trustee. (D.N. 50-9, PageID # 479) As trustee, Town & Country was responsible for managing Trusts A-2 and B. (See D.N. 51-8, PageID # 742, 748)

         In December 2013, Beam emailed Town & Country to confirm that bills she sent for Lila Kerns were not being paid out of the funds formerly in Trust A-1 (D.N. 57-14, PageID # 1303), which were then contained in Lila Kerns's IMA (D.N. 51-4, PageID # 691). Town & Country responded that in fact one-third of caregiver expenses were paid out of the IMA, with the remaining two-thirds paid out of Trust A-2. (D.N. 57-14, PageID # 1302; D.N. 50-15, PageID # 535) In January 2014, Town & Country started paying all of Lila Kerns's caregiver expenses from Trusts A-2 and B. (D.N. 51-8, PageID # 748; D.N. 51-4, PageID # 691) Town & Country changed the disbursement arrangement so that all of Lila Kerns's caregiver expenses would be paid with trust funds as opposed to the funds in the IMA.[3] (See D.N. 51-8, PageID # 747-48; D.N. 51-4, PageID # 691) Merrill Lynch had also paid all of Lila Kerns's caregiver expenses with trust funds. (See D.N. 51-8, PageID # 748)

         Town & Country withdrew $7, 929 from Trust A-2 to pay the mortgage on Lila Kerns's house in Bardstown. (D.N. 49-3, PageID # 252) Beam lived in the house from May 2014 to April 2015 without paying rent. (See D.N. 51-7, PageID # 731-33; see also D.N. 57-23, PageID # 1335) During that time, Beam cleaned the house and prepared it for sale. (D.N. 51-7, PageID # 732; see D.N. 57-23, PageID # 1335) Later, Beam took $45, 000 from Lila Kerns's IMA, which contained the proceeds from the sale of the Bardstown house, claiming it was payment for services she provided to Lila Kerns. (See D.N. 50-25, PageID # 572; D.N. 51-1, PageID # 635; D.N. 57, PageID # 1149-50) On July 28, 2014, Town & Country sent Beam and Lila Kerns a letter purportedly confirming an agreement that Beam would repay Trust A-2 for the mortgage payments it funded while she lived in the house rent-free. (D.N. 57-23, PageID # 1335-36) However, Beam never signed the agreement that was attached to that letter or any other agreement to reimburse the Trust. (See D.N. 57-12, PageID # 1286-89)

         In November 2013, Town & Country paid Tracy Humphrey $8, 000 from Trust A-2. (D.N. 51-8, PageID # 745, 751) The payment covered back pay for caregiver services Humphrey provided to Lila Kerns. (Id.) Prior to making this disbursement, Town & Country reviewed time sheets signed by Beam and Humphrey, communicated with RMS[4] to confirm that RMS had not already paid Humphrey, and reviewed statements from Merrill Lynch to ensure that Merrill Lynch had not already paid caregivers for the relevant hours. (Id., PageID # 745) Humphrey had been arrested in August 2013. (D.N. 57-16, PageID # 1307-09) When Town & Country learned of this, it reviewed the time sheet for that period but was unable to conclude that Humphrey had been paid for time that she did not spend working. (See D.N. 51-8, PageID # 745-46) Town & Country discussed the matter further with Beam, who explained that Humphrey initially received payment for the hours following her arrest but that whichever caregiver covered her shift during that time received the money in the end. (See id., PageID # 746; D.N. 51-7, PageID # 729)

         Neola Greenwell, Lila Kerns's sister and Beam's mother, was also paid trust funds for caregiver services rendered to Lila Kerns. (D.N. 51-8, PageID # 746) According to Beam, however, Greenwell was “not doing well medically” and “in really bad health.” (D.N. 57-4, PageID # 1196; D.N. 57-17, PageID # 1312) Town & Country later explained that Greenwell was “a pass through for work actually performed by someone else.” (D.N. 57-18, PageID # 1315) Laddie Joseph Tackett, Town & Country's assistant trust officer, clarified in his deposition that the money was paid to Paychex, a third-party paycheck provider, and that Greenwell was added to the payroll by Beam after she informed the bank that she needed to hire another caregiver until she found a new assisted-living home for Lila Kerns. (D.N. 51-8, PageID # 741, 746) Tackett testified that he told Beam to contact Paychex if she was going to add another caregiver and that he did not know at the time that the person she planned to add was Greenwell. (Id., PageID # 746)

         As of September 2016, Plaintiffs' remainder interest in Trusts A-2 and B has decreased from $1, 609, 716 to $1, 532, 808 since Town & Country took over as trustee.[5] (See D.N. 51-4, PageID # 692-93)

         B. Procedural Posture

         Plaintiffs' claims arise out of Defendants' alleged misuse of trust funds. Plaintiffs assert claims for conversion, unjust enrichment, and constructive trust against Beam. (D.N. 16; D.N. 57, PageID # 1151) Beam seeks summary judgment on these claims. (D.N. 49) Plaintiffs separately assert claims for breach of fiduciary duty, disgorgement, accounting, and removal of trustee against Town & Country. (D.N. 16) Town & Country seeks summary judgment on all of these claims except the claim for accounting. (D.N. 51) Plaintiffs seek summary judgment on all claims. (D.N. 50) In total, the plaintiffs seek $72, 826.94 in damages, which includes one-third of the distributions made to Lila Kerns's caregivers from January to July 2014 and mortgage payments that were made on Lila Kerns's Bardstown house from May 2014 to April 2015. (D.N. 50-31, PageID # 612-13)

         II. STANDARD

         Summary judgment is required when the moving party shows, using evidence in the record, “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see 56(c)(1). For purposes of summary judgment, the Court must view the evidence in the light most favorable to the nonmoving party. Loyd v. Saint Joseph Mercy Oakland, 766 F.3d 580, 588 (6th Cir. 2014) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). However, the Court “need consider only the cited materials.” Fed.R.Civ.P. 56(c)(3); see Shreve v. Franklin Cty., Ohio, 743 F.3d 126, 136 (6th Cir. 2014). If the nonmoving party “fails to properly support an assertion of fact or fails to properly address another party's assertion of fact as required by Rule 56(c), ” the fact may be treated as undisputed. Fed.R.Civ.P. 56(e). To survive a motion for summary judgment, the nonmoving party must establish a genuine issue of material fact with respect to each element of each of his claims. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986) (noting that “a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial”).

         III. DISCUSSION

         A. Claims Against Beam

         Plaintiffs assert claims for conversion, unjust enrichment, and constructive trust against Beam. (D.N. 16)

         1. Conversion

         Under Kentucky law,

[a] successful claim of conversion requires a showing that (1) the plaintiff had legal title to the converted property; (2) the plaintiff had possession of the property or the right to possess it at the time of the conversion; (3) the defendant exercised dominion over the property in a manner which denied the plaintiff's rights to use and enjoy the property and which was to the defendant's own use and beneficial enjoyment; (4) the defendant intended to interfere with the plaintiff's possession; (5) the plaintiff made some demand for the property's return which the defendant refused; (6) the defendant's act was the legal cause of the plaintiff's loss of the property; and (7) the plaintiff suffered damage by the loss of the property.

Madison Capital Co. v. S & S Salvage, LLC, 765 F.Supp.2d 923, 931-32 (W.D. Ky. 2011). “It is elementary, of course, that when property is held in trust the trustee holds the legal title and the beneficiary or beneficiaries are considered to be owners of the equitable title.” Hatcher v. S. Baptist Theological Seminary, 632 S.W.2d 251, 252 (Ky. 1982).

         Beam argues that she cannot be held liable for conversion because she has not received any trust funds that would eventually pass to Plaintiffs. (D.N. 49-1, PageID # 243) Instead, she claims, all disbursements Plaintiffs complain of were made for Lila Kerns's benefit. (Id.) But Plaintiffs maintain that Beam received considerable benefits from the Trust to which she was not entitled, including the amount of money from Trust A-2 that was used to pay the mortgage on Lila Kerns's Bardstown house while Beam lived there rent-free. (D.N. 57, PageID # 1150)

         The undisputed facts show that $7, 929 was withdrawn from Trust A-2 to pay the mortgage on Lila Kerns's Bardstown home from May 2014 to April 2015. (D.N. 49-3, PageID # 252) It is likewise undisputed that Beam lived in the house during that time without paying rent. (See D.N. 51-7, PageID # 731-33; see also D.N. 57-23, PageID # 1335) Finally, it is undisputed that Plaintiffs are remainder beneficiaries of Trusts A-2 and B. (See D.N. 50-2, PageID # 408-09) Plaintiffs argue that Beam unlawfully converted trust funds by living in the house without paying rent. (See D.N. 57, PageID # 1150; D.N. 50-1, PageID # 399)

         Lila Kerns was still living at the time of the alleged conversion. Therefore, Plaintiffs are remainder beneficiaries who do not hold legal title to any trust assets. See Hatcher, 632 S.W.2d at 252. Even assuming Beam wrongfully kept $7, 929 in trust property for her own benefit, Plaintiffs cannot succeed on a conversion claim against her because they do not have legal title to the $7, 929 in trust property that was allegedly converted. See Madison Capital Co., 765 F.Supp.2d at 931-32. The Court will therefore grant summary judgment to Beam on Plaintiffs' conversion claim.

         2. Unjust Enrichment

         “For an unjust enrichment claim to be viable, the plaintiff must show the following elements: (1) ‘a benefit conferred upon the defendant at the plaintiff's expense;' (2) a resulting appreciation of the benefit by the defendant; and (3) an inequitable retention of the benefit without payment for its value.” United States v. Stevens, 605 F.Supp.2d 863, 869-70 (W.D. Ky. 2008) (citing Guarantee Elec. Co. v. Big Rivers Elec. Corp., 669 F.Supp. 1371, 1380-81 (W.D. Ky. 1987)). “Kentucky courts have consistently found that the first element not only requires [that] a benefit be conferred upon the defendant, but also that the plaintiff be the party conferring that benefit.” Pixler v. Huff, No. 3:11-CV-00207-JHM, 2011 WL 5597327, at *11 (W.D. Ky. Nov. 17, 2011) (citations omitted).

         Beam argues that she did not receive a benefit at Plaintiffs' expense and that she received no inequitable benefit from the assets of Trusts A-2 and B. (D.N. 58, PageID # 1386; D.N. 49-1, PageID # 243) Plaintiffs argue that Beam had no right to money that could be traced to the Trust and that as beneficiaries of Trust A-2, they are entitled to recover assets from that trust that were taken by Beam. (D.N. 57, PageID # 1151; D.N. 50-1, PageID # 399-400) It appears from the plaintiffs' briefs and their counsel's representations at oral argument that the subject of their claim is again the funds that were taken from Trust A-2 to pay the mortgage on Lila Kerns's Bardstown house, where Beam lived for a period of time without paying rent. (See D.N. 57, PageID # 1149-50; D.N. 50-1, PageID # 398-400)

         The facts relevant to Plaintiffs' unjust-enrichment claim mirror those discussed in the context of their conversion claim. Town & Country withdrew $7, 929 from Trust A-2 to pay the mortgage on Lila Kerns's Bardstown home. (D.N. 49-3, PageID # 252) Beam lived in the house without paying rent for approximately one year. (See D.N. 51-7, PageID # 731-33; see also D.N. 57-23, PageID # 1335) During that time, Beam cleaned the house and prepared it for sale. (D.N. 51-7, PageID # 732) Beam later took $45, 000 from Lila Kerns's IMA, [6] which contained the proceeds from the sale of the Bardstown house, claiming it was payment for services she provided to Kerns. (See D.N. 50-25, PageID # 572; D.N. 51-1, PageID # 635; D.N. 57, PageID # 1149-50)

         Again, the undisputed facts fail to support Plaintiffs' claim. The law requires a showing that Plaintiffs conferred a benefit on Beam. See Pixler, 2011 WL 5597327, at *11. “The word ‘confer' means ‘to bestow from or as if from a position of superiority' or ‘to give.'” Dixie Fuel Co. v. Straight Creek, LLC, No. 08-326-GFVT, 2011 WL 845828, at *5 (E.D. Ky. Mar. 8, 2011) (quoting MPW Indus. Servs., Inc. v. Pollution Control Servs., Inc., No. 2:02-CV-955, 2006 WL 640438, at *9 (S.D. Ohio Mar. 9, 2006)). Plaintiffs claim that Beam was unjustly enriched by living in Lila Kerns's Bardstown house for free, but they have not shown that they acquiesced in Beam living there rent-free. The Court will therefore grant summary judgment to Beam on Plaintiffs' unjust-enrichment claim.

         3. Constructive Trust

         Courts impose a constructive trust “where property ‘has been acquired by fraud, or where, though acquired originally without fraud, it is against equity that it should be retained by him who holds it.'” Hurley v. Byassee, No. 5:08-CV-28, 2009 WL 3806795, at *7 (W.D. Ky. Nov. 12, 2009) (quoting Kaplon v. Chase, 690 S.W.2d 761, 763 (Ky. Ct. App. 1985)). “A constructive trust may arise where it is demonstrated that ‘the holder of the legal title obtained it through fraud, misrepresentation, concealments, undue influence, duress, or some other wrongful act whereby another is deprived of the title to his property.'” Id. (quoting Lowe v. Lowe, 229 S.W.2d 442, 443 (Ky. 1950)). The plaintiff “need not demonstrate actual fraud, ” id.; rather, “[t]he fraud may occur in any form of unconscionable conduct; taking advantage of one's weaknesses or necessities, or in any way violating equity in good conscience.” Kaplon, 690 S.W.2d at 763 (citing St. Louis & S. F. R. Co. v. Spiller, 274 U.S. 304 (1927)). “The decision to impose a constructive trust lies within the Court's discretion under its equitable powers.” Madison Capital Co., 765 F.Supp.2d at 935.

         Kentucky law requires “the party seeking the imposition of a trust to establish a ‘confidential relationship' with the party upon whom the trust is to be imposed.” Keeney v. Keeney, 223 S.W.3d 843, 849 (Ky. Ct. App. 2007). The existence of such a relationship is to be determined by the facts shown. Id. at 849-50. “The tendency of the courts is to construe the term ‘confidence' or ‘confidential relationship' liberally in favor of the confider and against the confidant, for the purpose of ...


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