Laubner v. JP Morgan Chase Bank, N. A.

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State: Illinois

Court: 4th District Appellate

Docket No: 4-08-0151 Rel

Case Date: 11/21/2008

Preview:NO. 4-08-0151 IN THE APPELLATE COURT OF ILLINOIS FOURTH DISTRICT

Filed 11/21/08

PATRICIA A. LAUBNER and PAMELA A. ) Appeal from LARSON, ) Circuit Court of Plaintiffs-Appellants, ) Sangamon County v. ) No. 07CH571 JP MORGAN CHASE BANK, N.A., Trustee; ) DEBORAH B. ALLEY, Trustee; and SARAH ) A. MANGES, SUSAN A. MERTZ, KELSEY L. ) DENNIS, COURTNEY L. LARSON, KRISTIN ) A. LARSON, WILLIAM CURVIN LARSON, ) LAWSON M. MERTZ, EMILY MANGES, HALEY ) M. MANGES, and All Future Descendants ) Honorable of WILLIAM J. ALLEY, Deceased, ) Robert J. Eggers, Defendants-Appellees. ) Judge Presiding. _________________________________________________________________ JUSTICE COOK delivered the opinion of the court: On October 31, 2007, plaintiffs Patricia A. Laubner and Pamela A. Larson filed an amended petition to remove codefendant Deborah B. Alley as trustee and to modify the distributions being made from the trusts. On November 30, 2007, defendants, co-

trustees Deborah B. Alley and JP Morgan Chase Bank, N.A., filed a motion to dismiss. Following a hearing on January 25, 2008, the Plaintiffs

trial court granted defendants' motion to dismiss. appealed. We affirm. I. BACKGROUND

William J. Alley, deceased, had four daughters: Patricia A. Laubner (plaintiff), Pamela A. Larson (plaintiff), Sarah A. Manges, and Susan A. Mertz. Patricia has one child, Kelsey L.

Dennis.

Pamela has three children: Courtney L. Larson, Kristin Sarah has two children:

A. Larson, and William Curvin Larson. Emily Manges and Haley M. Manges. Mertz.

Susan has one child, Lawson M.

Sometime before his death, William married Deborah B.

Alley, who would become plaintiffs' stepmother. On March 23, 1994, William executed a trust entitled "Irrevocable Split-Dollar Insurance Trust Agreement" (original trust). The trust was between William (grantor) and Deborah (coBank One,

trustee) and Bank One, Springfield (cotrustee).

Springfield has since become JP Morgan Chase Bank, N.A. (JP Morgan). The original trust provided that should either Deborah

or JP Morgan cease to be a trustee, Deborah could appoint another trustee or, if she did not appoint one, the continuing trustee could appoint a successor. When William passed away in 1996, the

principal of the original trust was divided into four separate trusts, one for each of the four daughters. By the direction of cotrustees Deborah and JP Morgan, plaintiffs' trusts were further divided as follows. Patricia's

trust was divided into three trusts: (1) the Patricia Laubner Generation Skipping Tax (GST) Exempt Trust #1, (2) the Patricia Laubner GST Exempt Trust #2, and (3) the Patricia Laubner GST Nonexempt Trust (Patricia's trusts). Likewise, Pamela's trust

was divided into three trusts: (1) the Pamela Larson GST Exempt Trust #1, (2) the Pamela Larson GST Exempt Trust #2, and (3) the - 2 -

Pamela Larson GST Nonexempt Trust (Pamela's trusts).

The record

does not indicate how Deborah and JP Morgan administered and/or divided the trusts of Sarah and Susan, although we have no reason to guess that those trusts were handled differently. As of December 31, 2006, the value of Patricia's trust was as follows: Name of Trust The Patricia Laubner GST Exempt Trust #1 The Patricia Laubner GST Exempt Trust #2 The Patricia Laubner Nonexempt Trust Total Value of Patricia's Trusts Value of Trust $1,505,291.76 $500,798.87 $2,870,407.52 ______________ $4,876,498.15

As of December 31, 2006, the value of Pamela's trust was as follows: Name of Trust The Pamela Larson GST Exempt Trust #1 The Pamela Larson GST Exempt Trust #2 The Pamela Larson Nonexempt Trust Total Value of Pamela's Trusts Value of Trust $1,517,285.77 $508,726.91 $2,994.306.39 ______________ $5,020,319.07

Patricia's trusts and Pamela's trusts were subject to the same distribution standard set forth in the original trust - 3 -

agreement, namely: "During the Trust Period, the trustees shall hold, invest, and reinvest each share so provided as the principal of a separate trust hereunder, collect the income therefrom and, after deducting from said income all proper charges and expenses, in each year pay at least quarterly to or apply for the use of such daughter and such daughter's issue, so much of the net income as the trustees shall deem advisable for the proper care, support, maintenance or education of such daughter of the grantor and such daughter's issue and shall add to the principal from time to time any balance of net income not so applied. The trustees shall be authorized also to pay to or apply to the use of such daughter and her issue, at any time and from time to time, so much of the principal of such trust (even to the extent of wholly terminating the trust) as the trustees may deem advisable for the proper care, support, maintenance or education of such daughter or her issue or for any other purpose after giving such consideration - 4 -

as the trustees may deem feasible and appropriate to other financial resources available for the purpose to which such payment or application is proposed to be made. In exer-

cising their discretion with respect to the payment or application of income or principal pursuant to the provisions of this paragraph, the grantor directs his trustees to bear in mind that his primary concern is the comfortable maintenance and support of his daughters during their lifetime." (Emphases added.)

Under this rather discretionary distribution standard, Deborah and JP Morgan adopted a distribution schedule of $11,500 per month to both Patricia and Pamela. This amounts to an annual

distribution of 3.5% of the fair market value of the trusts. It appears some exceptions to the steady distribution of funds existed. For example, in 2004, the trustees distributed

$54,893 in lump sum to Patricia to pay off her credit card debt and balance owing on her vehicle. During this time, it seems

that monthly distributions to Patricia were as high as $12,500 because she purportedly fell on financial hard times due to the loss of her husband's income. It also seems, based on an admis-

sion made in plaintiffs' complaint, that Patricia and Pamela are reimbursed, or the trustees directly pay, for tuition, fees, and - 5 -

living expenses for plaintiffs' children, up through and including graduate school. The complaint mentioned one instance where

the cotrustees hesitated to pay a "medical bill" for one of the grandchildren, but it appears, based on an admission in the complaint, that this bill was ultimately paid with the use of trust funds. On March 26, 2007, Patricia and Pamela's attorney, Sarah Delano Pavlik, wrote JP Morgan to propose a change in the established distribution plan. Attorney Pavlik noted that the The

monthly distributions came solely from the nonexempt trusts.

nonexempt trusts were subject to the GST tax, which, as of March 2007, was set at a rate of 45%. To avoid imposition of the GST

tax upon plaintiffs' deaths, Pavlik proposed that the distributions from the nonexempt trusts be calculated to liquidate the nonexempt trusts over plaintiffs' life expectancies, resulting in a monthly distribution of $17,769 for Patricia and $18,536 for Pamela over approximately the next 30 years. Pavlik noted that

liquidating the nonexempt trusts of Patricia and Pamela would not put them at risk because, in the event they should need additional funds, the assets in their exempt trusts would still be able to provide for them. The cotrustees declined to accommodate

plaintiffs' requests as set forth in the letter. On July 25, 2007, plaintiffs filed a petition requesting to convert the distribution standard of the trusts and to - 6 -

modify the trust agreement such that the funds be distributed at a rate of 5% of the total fair market value of all of the plaintiffs' trusts but that the funds only be distributed from the nonexempt trusts. Plaintiffs also requested that, in the event

of Deborah's death or incapacitation, each respective plaintiff would become cotrustee of her own trusts and have the discretion to appoint a new corporate cotrustee if she so desired. On August 27, 2007, defendants filed a motion to dismiss. On October 30, 2007, the trial court entered an order

cancelling a hearing on the matter; allowing leave to amend the petition; and appointing a guardian ad litem (GAL) for the minor remainder beneficiaries, i.e., Emily and Haley Manges, and future descendants of grantor William Alley. On October 31, 2007, plaintiffs filed the amended petition at issue in this appeal, alleging that Deborah in particular acted with an improper motive due to her personal animosity toward plaintiffs. Therefore, plaintiffs requested

that the trial court remove Deborah as a trustee and appoint each plaintiff cotrustee of her respective trusts. Plaintiffs further

alleged that both trustees breached their fiduciary duty by (1) showing a preference for the remainder beneficiaries by preserving the principal rather than focusing on plaintiffs' comfortable maintenance, (2) adopting arbitrary distribution standards, and (3) wasting the assets of the trusts by unnecessarily subjecting - 7 -

plaintiffs' descendants to generation- skipping taxes.

Plain-

tiffs requested that the trustees distribute income so as to deplete the nonexempt trusts over plaintiffs' lifetimes and that plaintiffs' attorney fees from the instant case be paid from the nonexempt trust. On November 30, 2007, defendants filed a motion to dismiss, arguing that the amended complaint did not allege a factual basis for removal of Deborah as cotrustee or for reformation of the trust. See 735 ILCS 5/2-615 (West 2007). On January

24, 2008, the GAL for the minor remainder beneficiaries joined in defendants' motion to dismiss plaintiffs' amended complaint. Some of the adult remainder beneficiaries of plaintiffs' trusts, who also happen to be plaintiffs' children, Kelsey L. Dennis, Courtney L. Larson, Kristin A. Larson, William Curvin Larson, entered an answer in the circuit court asking that plaintiffs' relief be granted. No adult remainder beneficiary entered a

request that the court deny plaintiffs' relief. On January 25, 2008, the trial court held a hearing on defendants' motion to dismiss and granted said motion. The court

endorsed the argument of cotrustees' counsel, that plaintiffs simply failed to allege a basis for removing Deborah as trustee or for modifying the distribution scheme. The court told plain-

tiffs they could amend their complaint, but plaintiffs did not do so. This appeal followed. - 8 -

II. ANALYSIS On appeal, plaintiffs appeal the dismissal under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2006)) of their petition, which began as follows: "[Plaintiffs] petition the Court (a) [to] remove Deborah B. Alley as Trustee of the Trusts (as defined below), (b) to appoint Pamela A. Larson as Co-Trustee of the Pamela Trusts (as defined below), (c) to appoint Patricia A. Laubner as Co-Trustee of the Patricia Trusts (as defined below), and (d) to modify the distributions being made from the Trusts as set forth below." We will first address whether plaintiffs properly stated a claim for reformation of the trust, especially as this pertains to modifying the distribution scheme. We will then address whether

plaintiffs properly stated a claim for removing Deborah as a trustee and appointing plaintiffs as successor trustees. A dismissal motion under section 2-615 attacks the legal sufficiency of the complaint. Canel v. Topinka, 212 Ill.

2d 311, 317, 818 N.E.2d 311, 317 (2004), citing Illinois Graphics Co. v. Nickum, 159 Ill. 2d 469, 484, 639 N.E.2d 1282, 1289 (1994). A section 2-615 motion does not raise affirmative

factual defenses but alleges only defects appearing on the face - 9 -

of the complaint.

Canel, 212 Ill. 2d at 317, 818 N.E.2d at 317.

In evaluating a section 2-615 dismissal, the question is whether the allegations of the complaint, when viewed in a light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted. 317, 818 N.E.2d at 317. Canel, 212 Ill. 2d at

The trial court should dismiss the cause

of action only if it is clearly apparent that no set of facts can be proven which will entitle the plaintiff to recovery. 212 Ill. 2d at 318, 818 N.E.2d at 317. under section 2-615 de novo. N.E.2d at 317. However, the general policy favoring a liberal construction of the pleadings as described in Canel cannot cure a plaintiff's failure to set forth well-pleaded facts. See Teter Canel,

We review dismissals

Canel, 212 Ill. 2d at 318, 818

v. Clemens, 112 Ill. 2d 252, 256-57, 492 N.E.2d 1340, 1342 (1986). Illinois is a fact-pleading state, meaning that a

plaintiff must allege facts that are sufficient to bring his claim within the scope of a legally recognized cause of action. Teter, 112 Ill. 2d at 256, 492 N.E.2d at 1342. Conclusions of

law and conclusory factual allegations unsupported by specific facts are not deemed admitted. Time Savers, Inc. V. LaSalle

Bank, 371 Ill. App. 3d 759, 767, 863 N.E.2d 1156, 1163-64 (2007). It is often difficult to distinguish the difference between a conclusion and an ultimate fact, and the amount of detail neces- 10 -

sary to adequately plead a cause of action may depend upon the circumstances of a given case. 3 R. Michael, Illinois Practice

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