Skelton v. Skelton

343 So.3d 23

Frederick Tildon SKELTON IV and Brian Rutledge Skelton

v.Evangela R. Taylor SKELTON, as the personal representative of the Estate of Brian L. Skelton, Sr., et al.

Frederick Tildon Skelton IV and Brian Rutledge Skelton

v.Evangela R. Taylor Skelton, as the personal representative of the Estate of Brian L. Skelton, Sr., et al.

1190700

1190917

Supreme Court of Alabama.

June 18, 2021

David M. Hunt and Sean C. Pierce of Harbuck Keith & Holmes LLC, Birmingham, for appellants.

Barry A. Ragsdale and Meghan S. Cole of Sirote & Permutt, P.C., Birmingham, for appellee.

SELLERS, Justice.

These consolidated appeals involve the Frederick Tildon Skelton, Jr., Family Trust ("the trust") and its primary asset, shares of stock in South Haven Corporation ("South Haven"). In appeal no. 1190700, Frederick Tildon Skelton IV and Brian Rutledge Skelton challenge the May 4, 2020, judgment of the Jefferson Probate Court, Bessemer Division ("the probate court"), terminating the trust. We affirm that judgment. In appeal no. 1190917, those same parties challenge the July 17, 2020, judgment of the Jefferson Circuit Court, Bessemer Division ("the circuit court"), dismissing their claims relating to the administration of the trust and their derivative claims asserted on behalf of South Haven. We reverse the judgment of the circuit court and remand the case for further proceedings consistent with this opinion.

I. Facts

Frederick Tildon Skelton, Jr. ("Frederick Jr."), died in June 1979. He was survived by his wife, Rheta S. Skelton ("Mrs. Skelton"), and their four children: Brian Lee Skelton, Sr. ("Brian Lee"), Frederick Tildon Skelton III ("Frederick III"), Loretta J. Skelton ("Loree"), and Cindy Marie Skelton Council ("Cindy"). During his lifetime, Frederick Jr. owned all the stock of South Haven, which operated the South Haven Nursing Home. Upon his death, the trust was to receive approximately 49% of the South Haven stock. The trust instrument named Mrs. Skelton as the original trustee of the trust and provided that she was to receive the net income of the trust during her lifetime. Upon her death, the trust was to terminate and its assets distributed to the Skeltons' children or to their children's issue, per stirpes.

Mrs. Skelton died in 2015; she was predeceased by Frederick III and Cindy. Frederick III had two children, Brian Rutledge Skelton and Frederick T. Skelton IV (referred to collectively as "the nephews"); Cindy had one child, Joshua M. Council ("Joshua"); Brian Lee had three children, Olivia Skelton, Taylor Skelton, and Brian Skelton, Jr.; and it is unknown whether Loree had any children.

After Mrs. Skelton died, Brian Lee, who was serving as South Haven's president at the time, became the successor trustee of the trust. However, Brian Lee died in July 2016, before fully discharging his duties as trustee by dividing the trust property and making a final distribution of the trust corpus to the remainder beneficiaries of the trust. Brian Lee's widow, Evangela R. Taylor Skelton ("Angel"), was appointed as the personal representative of Brian Lee's estate. After Brian Lee's death, there was no acting trustee, but it is undisputed that the remainder beneficiaries of the trust are: Brian Lee's estate, Joshua, the nephews, and Loree (referred to collectively as "the beneficiaries").

In July 2016, Angel, as personal representative of Brian Lee's estate, commenced an action in the probate court ("the probate-court action"), petitioning the probate court to appoint a successor trustee for the trust and, relevant to that action, to direct the trustee to exercise control over the South Haven stock, or any other ownership interest in South Haven, held by the trust.¹ The beneficiaries were parties to the probate-court action. The probate court thereafter entered an order appointing Sidney C. Summey, Jr., as successor trustee ("the trustee") and authorizing him to exercise control of all trust assets, including any stock in South Haven, to achieve a final settlement and/or to wind up the affairs of the trust by consent of the beneficiaries or by judicial means. The probate court retained jurisdiction over the trust through final settlement.

In September 2016, Loree, individually and on behalf of South Haven, commenced an action in the circuit court against Angel, individually and in her capacity as the personal representative of Brian Lee's estate ("the circuit-court action"). In that action, Loree alleged that Brian Lee, while an officer, director, and shareholder of South Haven, and Angel had misappropriated South Haven's assets for their personal benefit to the detriment of the other shareholders or putative shareholders of the corporation. Joshua and the trustee were added as parties to the circuit-court action.² The nephews filed a motion to intervene in the circuit-court action to assert claims on behalf of South Haven against Loree, as well as Angel, in her capacity as the personal representative of Brian Lee's estate; the nephews asserted that both Brian and Loree, while officers, directors, and shareholders of South Haven, had misappropriated South Haven's assets for their personal benefit to the detriment of the other shareholders or putative shareholders of the corporation. However, the circuit court denied that motion because the nephews had failed to assert that they were shareholders of South Haven at the time of the alleged transactions they challenged. See Rule 23.1, Ala. R. Civ. P. (requiring plaintiffs to allege their beneficial interests in the corporation subject to the derivative action). The parties to the circuit-court action thereafter participated in mediation from August 2017 until August 2018. Before that mediation ensued, the trustee informed all parties that, to fulfill his fiduciary obligations to all the beneficiaries, he would not agree to any settlement unless that settlement was approved by either (1) all the beneficiaries, including the nephews, or (2) both the probate court and the circuit court. Following mediation, Loree, Joshua, and Angel, individually and as personal representative of Brian Lee's estate, reached a proposed settlement. The nephews opposed that settlement, however; thus, it was never finalized.

In November 2017, the nephews, as beneficiaries of the trust, filed a petition in the probate-court action, asserting various claims and counterclaims and seeking affirmative relief relating to the administration of the trust³ (referred to collectively as "the trust claims"), including requesting that the probate court:

"A. Continue to assume exclusive jurisdiction over all matters involving the administration of the Trust;

"B. Issue instructions to the Successor Trustee for the Trust to undertake all actions necessary to the winding-up of the Trust, including taking all such actions as may be appropriate to administer the Trust pursuant to the terms of [Frederick Jr.'s] Will and prudent fiduciary practice, including, without limitation, exercising control over the Trust's assets, including the stock or other ownership interest in [South Haven];

"C. Enter a declaratory judgment regarding the assets of the Trust, including a judgment that the Trust retains ownership and voting rights for the stock of [South Haven];

"D. Enter a ... judgment [declaring] that[, during her lifetime, Mrs. Skelton] breached her fiduciary duties as Trustee of the Trust ...;

"E. Enter a judgment against [Mrs. Skelton's estate] for breach of fiduciary duty as Trustee of the Trust by invading the Trust and removing valuable principal assets of the Trust for her own personal benefit ...;

"F. Enter a ... judgment [declaring] that the transfer of substantially all of [Mrs. Skelton's assets] to [the Rheta J. Skelton Revocable Trust] was a fraudulent conveyance ...;

"G. Require [Mrs. Skelton's estate] and/or [the trustee] to provide a full and complete accounting of the Trust's assets ...;

"H. Enter a judgment in favor of [the nephews] and against [Loree, individually; Angel, in her capacity as personal representative of Brian Lee's estate]; and [Mrs. Skelton's estate], jointly and severally, [for damages] ...; "I. Enter a judgment in favor of the Trust ... such that the Trust distributions to the remainder beneficiaries are restored ...;

"J. Enter a ... judgment [declaring] that the [trustee] has a fiduciary duty to pursue and enforce the derivative claims [asserted in the circuit-court action] ...."

In October 2018, Angel, as the personal representative of Brian Lee's estate; Loree, individually; and Joshua petitioned the probate court to terminate the trust, to distribute its assets, and to discharge the trustee. The nephews opposed the termination of the trust on the basis that they would be prohibited from pursuing their trust claims. The nephews also objected to the trustee's being discharged because, they believed, he had a duty to pursue the trust claims, as well as derivative claims that could be asserted on behalf of South Haven in the circuit-court action.

In November 2018, the trustee filed a motion in the probate-court action seeking to resign as the trustee of the trust. In that motion, the trustee cited various compelling reasons, including:

"To date, the Trust has not been funded and its assets are illiquid. [The trustee's] only means of raising sufficient capital to fund the Trust necessarily involves a sale of Trust assets, which primarily include shares of South Haven Corporation. However ... the ownership of the shares of South Haven Corporation has been at issue in this case pending in [the probate court] as well as in the [circuit-court action]. In various pleadings, certain beneficiaries have taken the position that there are no shares of South Haven Corporation remaining in the Trust, while other beneficiaries, including [the nephews], have refused to certify in pleadings that they are, in fact, owners of the shares. Certain beneficiaries purport to have resolved the issues between and among them, while other

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