Spurlock v. Wyo. Tr. Co.

542 P.3d 1071

2024 WY 19

David SPURLOCK, Appellant (Counterclaim Defendant),

v.WYOMING TRUST COMPANY, Appellee (Counterclaim Plaintiff).

S-23-0126

Supreme Court of Wyoming.

February 8, 2024

Appeal from the District Court of Fremont County, The Honorable Jason M. Conder, Judge

Representing Appellant: William P. Schwartz and Leah C. Schwartz of Ranck & Schwartz, LLC, Jackson, Wyoming. Argument by Ms. Schwartz.

Representing Appellee: Anthony T. Wendtland, Debra J. Wendtland, and Noah S. Grovenstein of Wendtland & Wendtland, LLP, Sheridan, Wyoming. Argument by Mr. Wendtland.

Before FOX, C.J., and KAUTZ, BOOMGAARDEN, GRAY, and FENN, JJ.

FENN, Justice.

[¶1] David Spurlock¹ appeals from the district court’s order granting summary judgment on Wyoming Trust Company’s (the Trustee) counterclaim. The district court found David’s lawsuit to remove the Trustee triggered a no-contest clause resulting in his disinheritance from the C.E. Spurlock Revocable Trust (the Trust). We reverse and remand.

ISSUE

[¶2] Did the district court err when it found David Spurlock’s lawsuit to remove the Trustee triggered the Trust’s no-contest clause?²

FACTS

[¶3] David and his three siblings are the beneficiaries of the Trust, which was created by their father, C.E. Spurlock, on March 5, 1997, and subsequently amended on November 2, 2007. The Trust gave David the right to purchase certain real property belonging to the Trust at a discounted price upon C.E.’s death. In July 2016, C.E. was admitted to a care facility in Lander, Wyoming. In September 2016, the Trustee notified David he had until October 12, 2016, to exercise his option to purchase the property.³ David and his wife, Andrea, exercised this option and closed on the property in December 2016. When they subsequently entered the property, they discovered cracked and ruptured pipes, which resulted in flooding that caused over $80,000 in damages.

[¶4] David and Andrea initially filed a lawsuit against David’s brother, Charlie, who they believed to be responsible for the damage to the property. They alleged Charlie willfully turned off the heat causing the pipes to freeze. Through discovery in that case, Charlie alleged it was the Trustee who was responsible for maintaining the property at all relevant times. David and Andrea voluntarily dismissed the lawsuit against Charlie.

[¶5] David and Andrea then filed a lawsuit against the Trustee and its officers asserting causes of action for fraud, negligence, and intentional infliction of emotional distress. They also sought to remove the Trustee in part due to the real estate transaction, but also because the Trustee allegedly had not provided accountings or complied with the Trust’s instructions for dividing assets. The complaint specifically stated the lawsuit should not be construed as a challenge to the Trust.

[¶6] The Trustee filed a motion to dismiss on the grounds of improper venue. The Trustee also asserted David did not plead the fraud claim with the requisite particularity, and the claim of intentional infliction of emotional distress failed to allege the Trustee’s conduct was extreme or outrageous. The Trustee also filed an answer, which contained what it claimed was a "compulsory counterclaim." The counterclaim alleged Paragraph 7.2 of the Trust "specifie[d] the only manner for removal of a trustee." That provision states in relevant part:

7.2. Removal or Resignation of TRUSTEE. Any TRUSTEE, other than SETTLOR, may be removed upon not less than thirty (30) days written notice by the following persons during the following periods:

1. By the SETTLOR during SETTLOR’S lifetime and continued capacity.

2. After the death or incapacity of SETTLOR by a majority of all the then living children of the SETTLOR who are under no legal disability.

The Trustee asked the district court to declare David’s action in filing the lawsuit "necessarily terminated his interest in the Trust" under Paragraph 10.6 of the Trust, which states:

10.6 Noncontest and Litigation Provision. The SETTLOR desires that this trust, the trust estate and the trust administrators and beneficiaries shall not be involved in time consuming and costly litigation concerning the function of this trust and disbursement of the assets. Furthermore, the SETTLOR has taken great care to designate through the provisions of this trust how he wants the trust estate distributed. Therefore, if a beneficiary or representative of a beneficiary or if anyone claiming a beneficial interest in the trust estate or any part thereof should legally challenge or should in any way attempt to impair the function and operation of this trust, its provisions or asset distributions, then all asset distributions to said challenging beneficiary or to the beneficiary upon whose benefit said challenge is raised shall be retained in trust and distributed to the remaining beneficiaries named herein as if said challenging beneficiary or the beneficiary to be benefitted by said challenge and his or her issue had predeceased the distribution of the trust estate. The defense of such litigation, including costs incurred by the representatives of the SETTLOR’S estate, the TRUSTEE of this trust and their agents, attorneys, accountants and representatives shall be paid for by the trust.

The Trustee asked the district court to find David was no longer a beneficiary of the Trust, and he had no standing to remove the Trustee.

[¶7] David did not file an answer to the counterclaim, and the Trustee moved for entry of default. After the Clerk entered default against David, the Trustee moved for default judgment on its counterclaim. David filed a pro se letter explaining his attorney had not informed him about the counterclaim or the default and asked for time to find competent replacement counsel.

[¶8] David’s original attorney subsequently filed a motion to dismiss the counterclaim, arguing the district court did not have jurisdiction over the Trust, and the lawsuit was to protect the assets of the Trust, not to impair the function or operation of the Trust. Shortly thereafter, David’s new counsel filed a motion to set aside the default, a motion to amend the complaint, and a response to the motion to dismiss.

[¶9] The district court denied David’s motion to amend the complaint, granted the Trustee’s motion to dismiss the fraud, negligence, and removal of trustee claims without prejudice on the grounds of improper venue, and dismissed the intentional infliction of emotional distress claim with prejudice for failure to state a claim under Rule 12(b)(6) of the Wyoming Rules of Civil Procedure (W.R.C.P.). The district court also granted David’s motion to set aside the entry of default on the counterclaim.

[¶10] The Trustee moved for summary judgment on its counterclaim. The Trustee again alleged David’s lawsuit "from its commencement through dismissal" violated the no-contest clause found in Paragraph 10.6. The Trustee alleged the removal provisions in Paragraph 7.2 were "mandatory and spe- cific" and prohibited court involvement. The Trustee asserted it was "undisputed" David’s motion to remove the Trustee "in direct contradiction to Paragraph 7.2 of the Trust is a violation of the No[-]Contest paragraph of the Trust." As such, David had to be disinherited and his share distributed to the remaining beneficiaries. The Trustee also asserted David’s lawsuit impaired the function and operation of the trust because it delayed asset distribution and caused the Trust to incur litigation costs.

[¶11] David filed a cross-motion for summary judgment. He asserted the no-contest clause did not prohibit all litigation. Instead, it only applied to a beneficiary who "legally challenge[d]" the trust or in any way attempted "to impair the function and operations of [the] [T]rust, its provisions or asset distributions." He again asserted the lawsuit was not an attempt to impair the Trust but was instead intended to uphold and enforce the terms of the Trust. He noted he sued the Trustee in its fiduciary capacity, and any damages would have been awarded against the Trustee, not the Trust. Therefore, his lawsuit did not fall within the language of the no-contest provision.

[¶12] The district court granted the Trustee’s summary judgment motion and denied David’s cross-motion for summary judgment. It found:

Here, there is no dispute – this is a valid trust, and this is a valid no-contest clause. Overall, the language and intent of this provision is clear. It was the Settlor’s intent to avoid costly litigation, and to prevent a beneficiary from, among other things, to "in anyway [sic] attempt to impair the function or operations of this trust." As such, the court expressly finds that Mr. David Spurlock’s December 7, 2020, Complaint, by attempting to forcibly remove the trustee through litigation, in contravention of the express trust provisions, triggered paragraph 10.06 [sic] of the Trust.

In his Complaint (¶45-¶49) Mr. Spurlock expressly sought through litigation to remove the trustee. This is in contravention of not only the plain language and purpose of the trust’s no contest provision, but it directly contradicts the trust’s provisions regarding the manner and method of removing the trustee. While Mr. Spurlock attempts to avoid triggering the no-contest provision by asserting that the lawsuit is against the [Trustee] and not the trust, simply saying it so does not make it so. His actions and the specific requests set forth in the Complaint expressly trigger the no-contest provision.

By seeking to forcibly remove the trustee by court order, Mr. Spurlock has not only generated costly and protracted litigation he has attempted to impair the function and/or operation of the trust and its provisions. In particular, paragraph 7.2(2) of the trust, which provides the express manner and method by which a trustee may be removed …. Additionally, paragraph 7.3 of the trust provides there is no need to obtain court involvement. Thus, by filing a lawsuit and

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