In re Estate of Tully

Minnesota Court of AppealsJan 14, 2003
No. C4-02-513. (Minn. Ct. App. Jan. 14, 2003)

No. C4-02-513.

Filed January 14, 2003.

Appeal from the District Court, Hennepin County, File No. P2000349.

Steven E. Antolak, Metropolitan Law Center, Ltd., (for appellants)

Anne M. Radolinski, Laurie J. Miller, Fredrikson Byron, P.A., (for respondent)

Considered and decided by Schumacher, Presiding Judge, Hudson, Judge, and Huspeni, Judge.

Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).



In this probate dispute between respondent, decedent's personal representative (decedent's widow), and appellants (decedent's adult children from a prior marriage), appellants argue that the district court abused its discretion by not removing respondent as personal representative because respondent (a) is unauthorized to continue operating the business of decedent; (b) improperly determined that a $150,000 debt owed by decedent's company was not an asset of the estate, and (c) wrongfully suspended appellant Mark Tully's employment with the company. Because respondent acted within the authority granted to her by the will, the probate court did not abuse its discretion by denying appellant's motion to remove respondent as personal representative. We affirm.


John W. Tully (decedent) died testate on January 21, 2000. In an order filed March 22, 2000, the district court probated decedent's January 11, 2000, last will and testament (will). The district court probated the estate in a formal, supervised administration pursuant to Minn. Stat. § 524.3 501-505 (2002). At decedent's direction, the district court appointed his spouse Lila J. Tully (respondent) as personal representative of decedent's estate. Appellants are decedent's adult children from a prior marriage: Mary Lynn Krohn, John William Tully, Jr., Laura Ann Tully, and Mark Allen Tully. The estate's primary asset is decedent's 100% ownership of the Rubble Stone Company (company), a wholesale and retail ceramic tile distribution business. In the will, decedent directed that all of his shares of stock in the company should be placed in trust, with all income to be paid to respondent during her lifetime.

The will named respondent as both personal representative and trustee and empowered her in both capacities "[tor advisable." The will specifically conferred upon respondent "all the powers, authority, and discretion with respect to the business of Rubble Stone Company and its assets as [decedent] might have if living." The will also authorized respondent "[t]o take possession of the business of Rubble Stone Company and to exercise complete control and management of the business * * * ."

During decedent's lifetime, the company experienced a need for additional operating funds. Shortly before the couple's June, 1998 marriage, respondent and decedent obtained a $150,000 second mortgage on the homestead they owned in joint tenancy. Together, decedent and respondent executed a home equity line of credit agreement from the second mortgage and the $150,000 proceeds were deposited directly into the company's checking account. During decedent's lifetime, the company made all monthly payments on the mortgage directly to the bank on behalf of respondent and decedent. The company subsequently repaid respondent for the loan.

Prior to decedent's death, the company employed respondent part-time. After decedent's death, respondent began to take a more active role in the company. The company also employed appellant Mark Tully. Respondent's and Mark Tully's working relationship became increasingly strained and respondent consequently suspended Mark Tully with pay pending resolution of this petition.

On June 28, 2001, respondent petitioned the district court for an interim order confirming her status as personal representative. Appellants objected to the petition and filed a responsive petition for removal of respondent as personal representative. The district court denied appellants' petition and confirmed respondent as personal representative. This appeal followed.


Appellants argue that Minnesota law does not grant respondent the authority, as personal representative, to continue the operation of decedent's business, and therefore, respondent is in breach of her fiduciary duty as personal representative. We disagree.

The district court has discretion to determine suitability of a personal representative, and that determination will not be reversed absent an abuse of discretion. In re Estate of Crosby, 218 Minn. 149, 157, 15 N.W.2d 501, 506 (1944). A district court's determination of factual questions will not be set aside unless clearly erroneous. Minn.R.Civ.P. 52.01; In re Conservatorships of T.L.R., C.A.R., D.M.R., Conservatees, 375 N.W.2d 54, 58 (Minn.App. 1985).

A personal representative is a fiduciary who should observe a reasonable standard of care when dealing with the estate assets of another. Minn. Stat. § 524.3-703(a) (2002). Additionally, a personal representative has a duty to settle and distribute the estate in compliance with the terms of applicable law and any probated, effective will "as expeditiously and efficiently as is consistent with the best interests of the estate." Id. In performing such duties, the personal representative shall exercise its authority in "the best interests of successors to the estate." Id. Where a personal representative exercises his or her power over the estate improperly, the representative may be held liable for any loss or damage that results from a breach of fiduciary duty. Minn. Stat. § 524.3-712 (2002). A personal representative may be removed (1) for intentionally misrepresenting material facts in the proceedings leading to his or her appointment; (2) for disregarding an order of the court; (3) if he or she becomes incapable of discharging his or her duties; or (4) for failure to perform any duty of the office. Minn. Stat. § 524.3-611(b) (2002).

Appellants argue that respondent has no authority to continue the operation of decedent's business, but concede that Minnesota law does not prohibit a personal representative from doing so. Appellants look to foreign cases for the proposition that a personal representative breaches its trust by continuing operation of a decedent's business. But these cases are inapposite because in each instance the court found a breach of trust only where a personal representative continued the operation of a decedent's business in the absence of testamentary direction.

See, e.g., In re Estate of Kurkowski, 487 Pa. 295, 409 A.2d 357 (1979) (holding personal representative breaches trust by continuing operation of trade or business on behalf of estate in the absence of testamentary direction); In re Blaszkiewicz' Estate, 33 Misc.2d 884, 227 N.Y.S.2d 785 (1962) (noting required authority to continue operation of decedent's business might be found in decedent's will); Graybar Elec. Co. v. McClave, 91 Ariz. 223, 371 P.2d 350, 351 (1962) (holding breach of trust to carry on trade or business on behalf of an estate where not authorized by will or order of probate court).

Appellants contend that, with respect to the operation of a business, Minn. Stat. § 524.3-715, subd. 12 (2002), merely grants the personal representative the limited power to vote the common stock or other securities decedent owned on the date of decedent's death. But appellants ignore the introductory language of the statute which states: "Except as restricted or otherwise provided by the will * * * ." Id. (emphasis added). This language modifies the remainder of the statute, including subdivision 12. Therefore, the probate statute acknowledges that the will may provide authority for the personal representative to perform a variety of functions, including all acts necessary to continue the operation of decedent's business.

Minn. Stat. § 524.3-715 governs permissible transactions for a personal representative, and subdivision 12 provides

Except as otherwise restricted by the will or an order in an informal proceeding * * * , a personal representative, acting reasonably for the benefit of interested persons, may properly * * * vote stocks or other securities in person or by general or limited proxy * * * .

Here, article V, (d)(1) of decedent's will states that, "[i]t is my intention that my Personal Representative and Trustee shall have all the powers, authority, and discretion with respect to the business of Rubble Stone Company and its assets as [decedent] might have if living." The district court found that this language empowered respondent to act as absolute owner of decedent's business. We agree. This language grants respondent the authority to continue the operation of decedent's business if, in her discretion, she chooses to do so. "[T]he terms of a will govern in the absence of conflicting statutory policy * * * ." Kirsch v. Kahn, 276 Minn. 294, 300, 149 N.W.2d 676, 681 (1967). In the absence of conflicting statutory policy, the district court's finding that respondent is authorized to continue operating decedent's business was not clearly erroneous.

Appellants alternatively argue that the district court erred when it found that respondent could ignore corporate formalities and operate the business in the same informal manner as had decedent. We disagree.

Again, appellants look outside the language of the will and turn to the probate statute to bolster their contention that respondent must adhere to corporate formalities when operating the business. Relying on Minn. Stat. § 524.3-711 (2002) appellants contend that, although a personal representative has "the same power over the title to property * * * that an absolute owner would have * * * ," the personal representative does not have the power to operate a business in the same manner as an absolute owner. Appellants claim that respondent must adhere to corporate formalities such as preparing corporate minutes, holding shareholders' and board of directors' meetings, when managing the company.

Minn. Stat. § 524.3-711 (2002) provides, in relevant part:

Until termination of the appointment, a personal representative has the same power over the title to property of the estate that an absolute owner would have, in trust however, for the benefit of the creditors and others interested in the estate.

Appellants cite Victoria Elevator v. Meriden Brian Co., 283 N.W.2d 509 (Minn. 1979) for the proposition that corporations must comply with corporate formalities, but this case deals with the concept of piercing the corporate veil.

Appellant's position ignores the broad statutory grant of authority given to a personal representative. But even if we agreed with appellants' interpretation of Minn. Stat. § 524.3-711, the provisions of decedent's will properly guided the district court. The will expressly grants respondent, as personal representative, the "power, authority, and discretion" to operate the business as decedent "might have if living." As such, respondent's authority to operate the business is as extensive as, and subject to the same limitations as, decedent's previous ability to operate the business. There is no evidence in the record that the decedent, or any other officer of the company, kept meticulous corporate records, or held formal shareholder or board of director meetings to transact business. The district court's finding that respondent was authorized under the will to conduct the company's business informally — as decedent had done — is not clearly erroneous.

Appellants argue that respondent cannot operate the business as a sole proprietorship as decedent did because respondent holds title to the shares only for the purpose of administration. Appellants contend that Minn. Stat. § 302A.201, subd. 2 (2002), prohibits respondent's informal management style. We disagree for two reasons. First, appellate review of a probate proceeding is not the proper forum to bring this claim. Second, appellants incorrectly conclude that the district court relied on this statute to support its findings. But the findings of fact and conclusions of law do not reference this statute, nor does the record suggest that the district court even considered it. Rather, the district court turned to decedent's will to support its findings. Moreover, appellants acknowledge that the company continues to thrive under respondent's management; thus the basis for appellant's claim that respondent's management style is a breach of her fiduciary duty to them is not readily apparent. In any event, we conclude that, because decedent's will authorized respondent as personal representative to operate the business in the same manner as decedent would if he were alive, respondent did not breach her fiduciary duty by operating the company informally. The district court's findings are supported in the record and are not clearly erroneous.

This provision is part of the Minnesota Business Corporation Act and deals with shareholder management.

Appellants make a passing argument in this section that respondent has failed to settle and distribute the estate in an expeditious and efficient manner. Appellants argue that respondent has kept the estate open for the sole purpose of enhancing her economic well-being. However, this issue was not argued to the district court. This court will generally not consider matters not argued and considered in the district court. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988). Therefore, we decline to consider this issue.


Appellants argue that the record does not support the district court's finding that respondent had a joint interest with decedent in the $150,000 loan made to the company. We disagree.

Appellants argue that the $150,000 loan was made by decedent to the company before he married respondent, and therefore it was an asset of the estate. Appellants further claim that since respondent had no interest in the debt, she breached her fiduciary duties when she had the company pay the debt off to satisfy the second mortgage on her home. "Joint tenancy may exist in personal property and it may be established by parol * * * evidence." Peterson v. Lake City Bank Trust Co., 181 Minn. 128, 131, 231 N.W. 794, 795 (1930). The record reflects that both decedent and respondent executed the second mortgage and line of credit. Fidelity Bank statements indicate that the mortgage proceeds were deposited directly in the company's checking account. Further, the company paid mortgage payments on behalf of decedent and respondent during decedent's lifetime. The district court noted that, while the parties could not produce a writing to commemorate that decedent and respondent jointly made the $150,000 loan to the company, the mortgage payments suggest that the company was indebted to both decedent and respondent. Furthermore, nothing in the record suggests that decedent or respondent intended to sever the joint tenancy in their homestead when they obtained the second mortgage loan.

Nevertheless, appellants argue that there is evidence in the record to refute respondent's claim of joint ownership. Specifically, appellants note that Schedule E of Form 706 of respondent's Federal Estate Tax Return does not list the loan as jointly owned property. Similarly, Schedule C of the same return bears the notation "Decedent borrowed $150,000 by placing a second mortgage on the homestead, and in turn loaned the entire $150,000 mortgage proceeds to Rubble Stone, Inc." Appellants also point to a company balance sheet showing the note as a liability payable to "officer." But this evidence was presented to and rejected by the district court; and as fact finder, it was entitled to credit respondent's testimony and rule in her favor. We must defer to the district court's findings of fact unless clearly erroneous. Minn.R.Civ.P. 52.01.

Furthermore, as a practical matter, even if decedent and respondent did not jointly own the $150,000 loan, and the loan is an estate asset, the entire amount would still pass to respondent under the will as the sole residual beneficiary. Article VII of the will specifically provides that "All of the rest, residue and remainder of my estate * * * I give devise and bequeath to my spouse LILA JEAN TULLY, to have and to hold the same absolutely." In any event, we conclude on this record that the district court's finding that respondent and decedent jointly owned the $150,000 loaned to the company is not clearly erroneous.

Appellants also contend that respondent, by accepting the $150,000 loan payment from the company, violated Minn. Stat. § 524.3-504 (2002), which bars a personal representative from making any distribution of the estate without prior court order. We disagree. As stated above, the district court found that the $150,000 loan was an asset owned jointly by respondent and decedent, and that the company properly paid the joint mortgage obligation incurred by decedent and respondent to satisfy its joint debt to them. Therefore, the district court correctly found that respondent did not make an unauthorized distribution from the estate because the $150,000 loan was not an asset of the estate.


Appellants next argue that the district court should have recognized that respondent breached her fiduciary duty to Mark Tully and consequently should have removed respondent as personal representative. We disagree for two reasons. First, this probate appeal is not the proper forum for an employment law claim. Second, the will conferred upon respondent the discretion to act in the best interests of the business. Article V (d)(3) of decedent's will provides:

Appellants argue in their reply brief that respondent owed Mark Tully not only a fiduciary duty but also lifetime employment. Because appellants did not raise this issue in their initial brief, the issue is not properly before this court. McIntire v. State, 458 N.W.2d 714, 717, n. 2 (Minn.App. 1990) (stating issues first raised in reply brief not properly before court), review denied (Minn. Sept. 28, 1990); Minn.R.Civ.App.P. 128.02, subd 3 (reply brief is confined to new issues raised in respondent's brief).

As my son Mark Tully is presently employed by Rubble Stone Company, I expressly request my Personal Representative and Trustee in the exercise of their powers and control of the trust corpus, taking into consideration all due reasonableness and business considerations, to employ Mark Allen Tully and retain him as a corporate officer in the ongoing business operations of Rubble Stone Company.

(Emphasis added). This language expresses the decedent's desire that the company continue to employ Mark Tully. But it also instructs the personal representative to exercise reasonableness and consider the welfare of the business with respect to continuing Mark Tully's employment. In other words, the personal representative is to consider the best interest of the company in retaining Mark Tully as a corporate officer.The record demonstrates that Tully disapproved of respondent's management of the company and that Tully believed respondent was not well informed about the company's day-to-day operations. Their relationship continued to deteriorate, and the record indicates that, acting on advice of counsel, respondent placed Mark Tully on "furlough," with pay, following his refusal to accept the authority of a prospective board of directors to be appointed by respondent. Respondent and Mark Tully also had conflicts regarding expense reimbursement procedures. Tully himself testified that he would not work with the respondent in the operation or management of the company. Given respondent's authority under the will to employ Mark Tully, taking into account business considerations, and given Mark Tully's refusal to cooperate with respondent in the management of the company, we cannot say respondent breached her fiduciary duties or otherwise acted improperly by placing Mark Tully on "furlough" pending resolution of these management issues.

Appellants claim the district court abused its discretion in finding that Mark Tully's actions constituted insubordination. But the issue before us on appeal is whether respondent acted within her authority as personal representative when she placed Mark Tully on furlough, and whether Tully's actions were properly characterized as insubordination is simply irrelevant. For our purposes, it is enough to say that based on the express language of the will with respect to running the company, respondent had the authority to furlough Tully. The record provides ample support for this finding and it is not clearly erroneous.

Again, this is not the proper forum for what is essentially an employment law claim. Without expressing an opinion on the merits of such a claim, we note that the conduct in question is more appropriately the focus of a wrongful discharge proceeding should respondent subsequently fire Mark Tully.


Finally, respondent contends that appellants' appeal is frivolous, and this court should award her attorney fees and costs pursuant to Minn.R.Civ.App.P. 138. But respondent did not file a motion for an award of attorney fees, so the issue is not properly before this court. Minn.R.Civ.App.P. 139.06 (requiring submission of motion for attorney fees on appeal); Koes v. Advanced Design, 636 N.W.2d 352, 363 (Minn.App. 2001) (denying request for attorney fees in absence of proper motion), review denied (Minn. Feb. 9, 2002).

In any event, respondent's claim fails on the merits. Only where appellant's act of bringing an appeal "appears to have been taken merely for delay," may this court award damages and costs to the respondent. Minn.R.Civ.App.P. 138 (emphasis added). Respondent contends that, like in the appeal of In re Estate of Michaelson, "[t]his appeal is frivolous, completely without merit, and has served only to further delay the administration of this estate." In re Estate of Michaelson, 383 N.W.2d 353, 356 (Minn.App. 1986). Here, while some of appellants' claims lack merit, there is no evidence that the appeal was taken merely to delay closing of the estate. Respondent's request for attorney fees is denied.

Because appellants have not established cause for removal of respondent as personal representative, we hold that the district court acted within its discretion when it denied appellants' petition.