Slezak v. Matherly

958 N.W.2d 609 (Table)

Mary Elizabeth SLEZAK, Plaintiff-Appellee,

v.Carl W. MATHERLY, Defendant-Appellant.

No. 20-0352

Court of Appeals of Iowa.

Filed March 17, 2021

Shaun Thompson of Newman Thompson & Gray PC, Forest City, for appellant.

Joseph G. Gamble and Tara J. Higgins of Duncan Green, P.C., Des Moines, for appellee.

Heard by Bower, C.J., and Doyle and Mullins, JJ. Gamble, S.J., takes no part.

MULLINS, Judge.

Carl Matherly appeals, and Mary Slezak (MaryBeth) cross-appeals, the district court's rulings following a bench trial. The parties raise several issues on appeal.

I. Background Facts and Proceedings

This case arose as a part of a bitter family dispute. MaryBeth is the beneficiary of a trust she established in 1977, naming Carl as her trustee. Carl's wife of sixty years and the mother of MaryBeth and her two older siblings, Maribel Matherly, filed for dissolution of marriage in 2016.¹ Over the course of dissolution proceedings, Maribel discovered an "MEM" trust naming her the trustee and listed it among her property for the purposes of distribution. Shortly thereafter, Carl informed MaryBeth that it was actually her trust, the same one established in 1977. When Maribel was alerted to the status of the MEM trust, she immediately removed it from lists of her assets to be distributed in the dissolution proceedings. Carl continued to insist the MEM trust was marital property. MaryBeth intervened in her parents’ dissolution proceeding, asking the court to find the MEM trust was not marital property subject to distribution. The dissolution court concluded that the MEM trust was the property of MaryBeth, and that finding was affirmed by this court on appeal. See In re Marriage of Matherly , No. 18-0625, 2019 WL 3334355, at *6–7 (Iowa Ct. App. July 24, 2019).

Following her intervention in the dissolution proceeding, MaryBeth filed the petition underlying this appeal. Litigation has been complicated. MaryBeth successfully moved for summary judgment, asking the district court to find certain issues considered in the Matherly dissolution matter preclusive in the instant case. The district court granted the motion in part, recognizing the factual findings of the dissolution court. The claims were tried before the court sitting in equity in November 2019. The district court found the claims should be heard pursuant to the Iowa Trust Code, Carl was the trustee of the MEM trust, and Carl breached the fiduciary duties he owed to the trust. The court dismissed a number of other claims. Carl appeals and MaryBeth cross-appeals.

II. Discussion

A. Nature of the Proceedings and Preclusion

MaryBeth's petition raised claims for offensive issue preclusion; breach of fiduciary duty; recovery of trust assets and income; accounting; constructive trust; wrongful taking, concealing, and disposition of trust property; conversion; unjust enrichment; breach of contract; injunctive relief; and attachment. She invoked the Iowa Trust Code, Iowa Code chapter 633A (2017), and made a jury demand for all issues. Carl raised defenses pursuant to chapter 633A; consent, release, or affirmation of Carl's conduct; statute of limitations; laches; and res judicata. Carl argued, as he does on appeal, that the statutes contained in Iowa Code chapter 633A were not applicable because the trust code does not apply to a resulting trust, which was the remedial term used by the dissolution court to find the MEM trust belonged to MaryBeth. See Iowa Code § 633A.1102(18)(l ).² Carl's answer also contained a jury demand. A jury trial was initially scheduled for November 4, 2019.

Both parties moved for summary judgment, and a hearing was held on September 27, 2019. During the hearing, MaryBeth withdrew her jury demand and Carl reiterated his. On October 21, MaryBeth filed for dismissal of her claims for conversion and breach of contract. Her dismissal also argued that the remaining issues were solely equitable and arose due to breach of trust, requiring that her claims be tried to the court. The district court ruled on the motions for summary judgment later that same day, denying Carl's motion and granting MaryBeth's only to the extent that it recognized the factual findings of the dissolution court. Both parties submitted arguments in writing regarding the jury demand and issue preclusion.

The district court ordered on October 25 that all issues would be tried to the bench. It found chapter 633A was applicable to all remaining claims,³ which sounded in equity and were statutorily required to be tried "in a court of equity." Iowa Code § 633A.4501(2). It made no further finding regarding offensive issue preclusion at that time. Trial was held in November 2019, and an order followed in February 2020. The district court discussed the dissolution court's factual findings, and it agreed with the summary judgment court "that certain relevant factual findings by the Dissolution court in the Intervention Judgment as specifically identified within this Order and Judgment Entry are preclusive here." The district court decided the remaining claims pursuant to the Iowa Trust Code.

1. Iowa Trust Code

Carl argues this case is not subject to the Iowa Trust Code because it revolves around a resulting trust that is specifically excluded from the statutory definition of "trust." Id. §§ 633A.1102(18)(l ), .1107. Carl's argument focuses on his conduct in 1993, transferring an investment account naming him the trustee to a Maribel Matherly account naming Maribel the trustee. Carl argues that when the dissolution court termed the account a resulting trust created following the trust's failure it left the scope of the Trust Code and that the 1993 failure leaves the resulting trust outside the temporal scope of the Trust Code.

In its order, the district court noted that the investment account that was transferred in 1993 was only one part of the trust corpus. The resulting trust following the failure "is to operate within the confines of the express trust," which continued to exist. "Neither the law nor the evidence presented supports a determination that the Dissolution court's declaration in the Intervention Judgment of a resulting trust over the wrongfully transferred investment Account simultaneously destroyed the trust." The district court also noted the dissolution court's use of the word failure "was not a finding that the MEM Trust itself had disappeared, was terminated, or was otherwise defunct" but "was simply a recognition that Carl's action(s) violating the terms of the MEM Trust cause the MEM Trust to lose one of its assets: the (i)nvestment account." The dissolution court's finding the Trust Account failed was merely remedial, and it indicated that the purpose of growth for the benefit of MaryBeth had failed but was necessary to allow MaryBeth to reclaim the asset. Furthermore, there was no evidence the trust "was terminated, became obsolete or otherwise disappeared" following Carl's account transfer in 1993. Rather than taking affirmative action to terminate the trust, Carl's conduct confirmed its continued existence. Carl continued to buy and sell trust assets of stock and real property in the name of the MEM Trust, instigated litigation on behalf of the trust, and participated in multiple legal proceedings related to the trust's ownership of the Bonnes Farm. The district court ultimately ordered Carl to return the investment account to the MEM Trust.

Our review of the record reveals that the investment account that gave rise to MaryBeth's intervention in the dissolution was only one asset making up the corpus of the MEM Trust. Following the transfer of the investment account in 1993, the other trust assets remained in the corpus of the trust. Furthermore, after Carl transferred the investment account, the record shows he continued to exercise control over trust assets through affirmative action, including buying and selling stock and enforcing legal rights to financial and property assets. Moreover, MaryBeth filed her petition in this action to enforce her rights as a beneficiary to the larger MEM Trust. Her breach claims related to the assets in the corpus of the trust that were not in any way related to the asset recovered during the dissolution. On our review of the record, we find MaryBeth's claims are for enforcement of her rights as a beneficiary to an express trust created in 1977. The MEM Trust existed at the time of the enactment of the Trust Code and is, therefore, subject to it. See Iowa Code § 633A.1106.

2. Jury Demand

"Whether a party is entitled to a jury trial is a legal question. Therefore, our review is for correction of errors at law." Homeland Energy Sols., LLC v. Retterath , 938 N.W.2d 664, 683 (Iowa 2020) (citations omitted). " ‘Generally, there is no right to a jury trial for cases brought in equity.’ In determining whether a case is one in equity or at law, we look at the pleadings, relief sought, and essential nature of the cause of action." Id. at 684 (quoting Hedlund v. State , 930 N.W.2d 707, 718 (Iowa 2019) ). The initial classification of claims in equity or law does not outweigh the nature of the claims. Id. "The legal or equitable nature of the proceeding is to be determined by the pleadings, the relief sought, and the nature of the case." Carstens v. Cent. Nat'l Bank & Tr. Co. , 461 N.W.2d 331, 333 (Iowa 1990).

On the first day of trial, the district court heard oral arguments related to the jury demand. MaryBeth argued that the only claims raised at trial related to breach of trust, which were statutorily required to be tried to the bench sitting in equity. See Iowa Code § 633A.4501(2) ("The remedies of a beneficiary for breach of trust are exclusively equitable and any action shall be brought in a court of equity."). Carl reiterated his argument that the Trust Code does not apply to resulting trusts. See id. § 633A.1102(18)(l ) (excluding resulting trusts from the definition of "trusts"). He insisted that the express trust created in 1977 failed...