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Bjorn-Roli v. Mulligan

Supreme Court of Alaska

February 15, 2019


          Appeal from the Superior Court No. 3AN-14-04427 CI of the State of Alaska, Third Judicial District, Anchorage, Eric A. Aarseth, Judge.

          Brett von Gemmingen, Law Offices of Brett von Gemmingen, LLC, Anchorage, for Appellants.

          James M. Gorski, Hughes White Colbo Wilcox & Tervooren, LLC, Anchorage, for Appellee.

          Before: Bolger, Chief Justice, Winfree, Stowers, Maassen, and Carney, Justices.




         Two sisters were beneficiaries of their late parents' trusts. One sister was trustee of the trusts and president of the family corporation. The other sister, a shareholder of the family corporation, disputed proposed trust distributions and various aspects of the family corporation; she and her children sued the trustee for breach of fiduciary duty in both trustee and corporate capacities. The litigation resulted in two appeals, which we consolidated for oral argument and decision.

         We largely affirm the superior court's decisions because they were discretionary and, under the applicable standard of review, we cannot say they were unreasonable given the court's factual findings; but we remand for reconsideration of certain trust property valuations, which may require minor distribution adjustments.


         A. Background

         1. The Rude family and estate plan

         Kenneth O. (known as Olin) and Edna L. Rude had two daughters, Gayle Bjorn-Roli and Patricia Mulligan. Gayle has three children: Per Erik Bjorn-Roli, Maiken Erickson, and Kjersti Walker. Patricia has two children: Patrick Mulligan and Erin Barber.

         Olin and Edna executed declarations of trust in 2000 (the KOR and ELR trusts). The trusts were nearly identical, providing that upon the first spouse's death, that spouse's assets would be split into new trusts: a marital trust for the lifetime benefit of the surviving spouse and a family trust. Upon the second spouse's death, the trusts' assets would be reduced by specific gifts and the remaining assets distributed evenly between individual trusts for Gayle and Patricia.

         The KOR and ELR trusts designated Olin and Edna as successor trustees for the other's trust, and Gayle and Patricia as successor trustees if the trustee predeceased the grantor-spouse or became incapacitated. Gayle and Patricia were to be successor trustees "for only as long as it takes to liquidate trust assets and divide and distribute the trust estate"; Gayle and Patricia each would be sole trustee of their individual trusts after distribution of the family trusts. The KOR and ELR trusts also instructed that "all non-liquid trust assets be sold as soon as reasonably possible after Grantor's death" and that "there be no common ownership of assets between the trusts created for" Gayle and Patricia.

         Olin and Edna amended their trusts a few days later. The amendments added property near Lake Louise as a specific gift to Patricia and allowed her to elect to take property at Bootlegger's Cove as part of her trust share. The amendments also made Patricia sole successor trustee of the KOR and ELR trusts upon the surviving spouse's death. The amendments further removed Gayle as trustee of her individual trust and substituted a bank. The amendments lastly made a trustee removable "only ... in accordance with the provisions of the laws of the State of Alaska."

         Olin amended the KOR trust a final time in 2007, a few months after Edna's death. The amendment made Patricia co-trustee of the KOR trust with Olin during his lifetime. The amendment also removed the provision instructing that all assets be liquidated, instead granting Patricia "full and sole authority and power to determine what assets of the trust are to be retained and what assets are to be sold."

         2. Rumac, Inc.

         Olin and Edna were among Rumac, Inc.' s original shareholders. Rumac's principal asset is an ownership interest in land beneath an Anchorage hotel. The hotel leases the land and makes monthly payments to Rumac. Patricia was secretary and treasurer before Olin died; she then became president and Gayle became secretary.

         After Olin's death some Rumac shares were distributed evenly between Patricia's and Gayle's families. Patricia also held some shares in trust for her and Gayle in the KOR and ELR trusts. Section 9.03 of the KOR and ELR trusts gave Patricia sole voting power over Rumac stock held in any trust created by Olin or Edna. This provision apparently was intended to prevent a voting deadlock between Gayle's and Patricia's families; a conflict between this provision and the KOR and ELR trusts' appointments of the bank as the sole trustee of Gayle's individual trust would become apparent later.

         B. Facts

         1. Patricia's first proposed distribution

         After Edna's and Olin's deaths, Patricia became sole trustee of the KOR and ELR trusts in 2010, responsible for distributing the remaining trust assets into two new trusts for her and Gayle. In March 2011 Patricia proposed distributing the trust assets - cash, investments, real property, notes receivable, and equal shares of Rumac stock. Each individual trust would receive nearly $1.7 million in addition to the money already distributed. Gayle would receive an investment property at Stuckagain Heights, half-owned by the Rudes, with her share valued at $250, 000. Patricia would receive the Bootlegger's Cove property, to which she was given election rights in the KOR and ELR trusts, valued at $625, 000. Patricia also would be assigned two creditor claims against her daughter Erin arising from loans Olin had made: the "Barber Note," a deed of trust note with a balance of about $170, 000, and the "Barber car loan," a vehicle loan with a balance of $2, 400.

         Gayle objected to this proposed distribution. She contested the real estate valuations and suggested appraising the properties. Patricia responded that Gayle could obtain appraisals at her own expense but that Patricia preferred using real estate broker opinions of value because of appraisers' poor performance during the latest real estate bubble. Patricia refused to consider any appraisals not supported by historical sales figures from the previous two years. Patricia later rejected Gayle's suggestion that they sell the Stuckagain Heights property and split the proceeds, noting that keeping the trusts active until sale would incur unnecessary expense and be contrary to the Rudes' estate plan.

         In June an appraiser Patricia hired said that an interested buyer would pay $95, 000 for the remaining value of the Barber Note. Gayle obtained appraisals on the real property, valuing the Bootlegger's Cove property at $675, 000 and the Stuckagain Heights property at $ 170, 000. Patricia reiterated that appraisals were unreliable and that relying on them instead of real estate brokers would be a breach of her fiduciary duty. She kept the Bootlegger's Cove property at $625, 000 and reduced the value of the Stuckagain Heights property to $225, 000.

         In December Gayle provided notice that she wanted Patricia to liquidate the Stuckagain Heights property and distribute the remaining assets immediately. Gayle stated that she thought distributing the property without a liquidation cost adjustment and at a value above its appraised value would be a breach of Patricia's fiduciary duties. Gayle did not want a distribution until the disagreement was settled.

         Patricia accepted Gayle's terms "strictly for purposes of resolving this dispute" and to "bring this unhappy situation to an end and hopefully salvage some type of relationship with Gayle" and Gayle's children. Patricia explained that she would liquidate the non-liquid ELR trust assets, add liquidation costs to the properties, and adopt Gayle's appraisal values, changing the value of the Stuckagain Heights property from $225, 000 to $170, 000 and the Bootlegger's Cove property from $625, 000 to $675, 000.

         2. Patricia's second proposed distribution and stock redemption

         In January 2012 Patricia sent Gayle a second proposed distribution. Patricia interpreted Gayle's demand to liquidate the Stuckagain Heights property as a demand to liquidate all illiquid ELR trust assets, including the Rumac stock Gayle would receive. Patricia's proposed distribution included: redeeming the Rumac stock in Gayle's ELR trust for cash; adding to Gayle's trust a $35, 000 promissory note from Gayle's daughter Maiken to Olin called the "Erickson Note"; combining the Barber Note and Barber car loan values totaling $96, 900; changing the Bootlegger's Cove and Stuckagain Heights property values to their appraised values; adding the properties' liquidation costs; and moving both properties into Patricia's trust. The changes would leave Gayle's trust with no relevant illiquid assets except for the Rumac stock from the KOR trust and the Erickson Note. Patricia's equalization payment to Gayle would increase from over $82, 000 to over $ 141, 000. Patricia also claimed about $70, 000 from the trusts as trustee fees.

         A few days later Patricia, as Rumac president, signed a "Memorandum of Action" announcing that she was redeeming half of the ELR trust's Rumac stock for $275 per share, a price based on a 2007 stock redemption agreement between Rumac shareholders. The Memorandum did not acknowledge a 2011 stock redemption agreement valuing Rumac stock at $3 50 per share. Patricia then canceled the ELR trust's stock certificate for the total shares and prepared a new certificate for the remaining half. Patricia deleted Gayle's name and signature line from the certificate and signed only Patricia's own.

         Four days after Patricia redeemed Gayle's ELR trust stock, Gayle objected to Patricia redeeming any Rumac stock. The parties began protracted negotiations.

         3. Patricia's third proposed distribution

         Patricia rescinded the stock redemption in January 2014. Gayle and her children filed suit against Patricia that same day, but Patricia was not made aware of the suit until October. Meanwhile Patricia sent Gayle a third proposed distribution in February. The new proposed distribution reflected a rescission of the stock redemption so the sisters would have equal Rumac shares. It also included the Erickson and Barber Notes, retained liquidation costs for the real estate, and restyled previous distributions as "cash advances." Patricia subtracted Gayle's "cash advance" from the new equalization payment, reducing the equalization payment by almost $100, 000.

         C. Proceedings

         1. Gayle's first amended complaint; Patricia's counterclaim

         Gayle and her children filed their amended and operative complaint in October. Gayle alleged that Patricia breached her fiduciary duties as trustee and as a director and officer of Rumac, that she committed fraud, and that she could not validly exercise voting rights over Gayle's stock. Gayle sought the following relief: (1) removing Patricia as a director and officer of Rumac; (2) removing Patricia as trustee of the KOR and ELR trusts; (3) removing Patricia's voting power over Gayle's Rumac stock; and (4) compensatory and punitive damages.

         Patricia denied all claims. She counterclaimed for judicial approval of her trust administration and proposed final distribution. Patricia's proposed final distribution retained the existing valuations for the Erickson and Barber Notes but no longer included liquidation costs for the real estate. The final distribution thus would result in Gayle receiving cash, an equalization payment, and the Erickson Note. Patricia would receive both real properties, the Barber Note, and the Barber car loan. The sisters would retain equal shares of Rumac stock. In total each would receive over $1.5 million, including the stock value.

         2. Gayle's motion for summary judgment; the superior court's reformation of the Rude trusts

         Before trial Gayle and Patricia cross-moved for summary judgment on the dispute over Gayle's stock-voting rights. Gayle argued that Section 9.03 of the KOR and ELR trusts - giving Patricia voting rights in any Rumac stock in Gayle's trust - was illegal. Patricia argued that the section's language and intent were clear and unambiguous and that there were a number of ways the trusts could be reformed to correspond to the Rudes' intent.

         The superior court denied Gayle's motion and granted Patricia's in part. The court found that Section 9.03 of the KOR and ELR trusts established that the Rudes intended Patricia to have voting power over Rumac stock in Gayle's trust during Patricia's lifetime. But because Patricia was not a trustee of Gayle's trust, she lacked power to vote Gayle's Rumac stock. And Patricia could not create a separate trust solely for the Rumac stock without violating the Rumac stock redemption agreement. The court therefore reformed the trusts under AS 13.36.350(a)[1] to make Patricia co-trustee of Gayle's resulting trust, with the sole duty of voting any Rumac stock held in that trust. All other duties remained with the bank.

         The case proceeded to a bench trial on Gayle's three remaining claims.

         3. Bench trial; the superior court's rejection ...

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