Successor Trustee Did Not Breach Terms Of Settlement Agreement

The trial court in this probate action correctly held that the terms of a trust settlement agreement were unambiguous and were not breached by the sole successor trustee, the Michigan Court of Appeals has ruled. 

The case of In re Raymond T. Conley Trust (Docket No. 366180) involved the enforcement of a trust settlement agreement. The plaintiffs, Wallace Conley and Kathleen Meyers, are the siblings of the defendant-successor trustee, Maureen Conley. The plaintiffs appealed the probate court’s order denying their motion to disclose and enforce the confidential settlement agreement. The plaintiffs argued the probate court wrongly held that the settlement agreement terms were unambiguous and not breached by the defendant. 

The Court of Appeals affirmed the probate court’s decision. 

The settlement agreement’s language was “clear and unambiguous” and the probate court construed the language “according to its plain sense and meaning,” the Court of Appeals said. Therefore, the probate court “did not err by determining that the terms of the settlement agreement were unambiguous.” 

As for the defendant’s alleged breach of the settlement agreement – a claim that involved the conveyance of a home from the trust to the defendant – the Court of Appeals noted the home’s conveyance resulted in a capital gains tax. “The probate court properly held the capital gains tax was a natural result of implementing the settlement agreement, and the parties were responsible for their respective obligations associated with the settlement under ⁋ 11. As a result, [the defendant] did not breach the settlement agreement.” 

Judge Kathleen Jansen, Judge James Robert Redford and Judge David H. Sawyer, sitting by assignment, were on the panel that issued the published opinion.

Background 

Raymond T. Conley was the grantor of the “Raymond T. Conley Trust.” He and his wife, Lois M. Conley, were the initial co-trustees. An amendment to the trust appointed Raymond’s daughter, defendant Maureen Conley, as co-trustee if Raymond or Lois were unable to serve in their respective roles. When Lois died in June 2007, the defendant became co-trustee. The defendant then became sole successor trustee when Raymond subsequently died.  

The plaintiffs filed an action in the Emmet County Probate Court, asserting the defendant breached her duties as trustee. After lengthy litigation, the parties entered a confidential settlement agreement. In 2022, the plaintiffs received “multiple fiduciary K-1 forms” from the Internal Revenue Service relating to the trust, regarding capital gains, attorney fees and accountant fees. The plaintiffs filed a motion asking the probate court to enter an order disclosing and enforcing the settlement agreement. 

The probate court initially held that the plaintiffs’ receipt of the K-1 forms was the result of the defendant’s breach of the settlement agreement. The probate court entered an order enforcing the settlement agreement and setting the matter for a hearing to determine a remedy. 

The defendant then filed a motion for reconsideration, which the probate court granted. The probate court set aside its order enforcing the settlement agreement, treated the plaintiffs’ motion as a petition to reopen trust administration and granted the petition.  

After additional hearings were held, the probate court denied the plaintiffs’ requested relief. According to the probate court, based on the unambiguous terms of ¶ 11 of the settlement agreement, the issuance of the K-1 forms was a “natural” consequence of the implementation of the settlement agreement. Therefore, the probate court ruled, each sibling was responsible for his/her respective tax consequences arising from the agreement’s implementation.  

The plaintiffs appealed.

‘Complementary’ Provisions 

On appeal, the plaintiffs argued the probate court erroneously held that the terms of the settlement agreement were unambiguous.  

“We disagree,” the Court of Appeals said, noting the issue was unpreserved because the plaintiffs did not argue this claim before the probate court. However, “[w]e elect to … consider the issue because the issue involves a question of law and the facts necessary for its resolution have been presented.” 

The Court of Appeals then explained that 1) a settlement agreement is a binding contract, 2) an unambiguous contract term must be enforced as written unless contrary to public policy and 3) a trial court’s findings are reviewed for clear error.  

Here, the plaintiffs asserted that ¶¶ 10 and 11 of the settlement agreement “irreconcilably conflict[ed]” and this conflict created an ambiguity within the agreement’s provisions. “We disagree,” the Court of Appeals said, noting the paragraphs at issue stated:  

“10. The further administration of any of the activities of either trust, or the administration of any estate of either LOIS M. CONLEY or RAYMOND T. CONLEY will not involve Wallace or Kathleen. In other words, they will have no claims of interest, nor will they have any responsibility.” 

“11. All parties will be responsible for their own attorney fees, costs or other obligations associated with the administration of the Trusts or the settlement of all matters.” 

According to the Court of Appeals, the word “further” in ¶ 10 was a “temporal adverb” that indicated administration of the trust after the settlement agreement’s execution. “In other words, administration of the trust after the settlement is complete would not involve [the plaintiffs]. However, all parties were responsible for their obligations associated with effectuating the settlement agreement under ¶ 11. These two provisions are complementary, rather than ambiguous.” 

Because the language of the contract was “clear and unambiguous,” it was to be construed “according to its plain sense and meaning,” the Court of Appeals stated. “As a result, the probate court did not err by determining that the terms of the settlement agreement were unambiguous.”

No Breach

Next, the plaintiffs argued the probate court erred in finding that the defendant did not breach the settlement agreement.  

“We disagree,” the Court of Appeals said, explaining that a breach of contract claim has three elements: 1) a contract existed, 2) the contract was breached and 3) the party asserting breach of contract suffered damages. 

In this case, the existence of the settlement agreement was “undisputed” and its terms were “unambiguous,” the Court of Appeals said. Therefore, the issue was whether the defendant breached the contract. “We concur she did not.” 

The Court of Appeals examined the settlement agreement, pointing out that: 

• paragraph 2 stated: “The Sum of $73,500 will be paid to Wallace and Kathleen, for a total of $147,000 within two (2) business days after the complete execution of this document.”  

• paragraph 4 stated: “On or before October 31, 2021, Wallace and Kathleen will also each receive $110,000, for a total of $220,000” and, in exchange, “Maureen will receive the house … free and clear of all claims by Wallace and Kathleen.”

The plaintiffs “effectuated the transfer of the house” to the defendant by a quitclaim deed, the Court of Appeals observed. The probate court found the conveyance of the home was necessary “in order to complete the agreement between the parties,” the appeals court explained, noting this was the defendant’s “distributed share of the trust assets as a beneficiary,” while the plaintiffs “received a [monetary] distribution from the trust.”

According to the Court of Appeals, it was “insufficient” for the plaintiffs to “sign a quitclaim deed and then the settlement agreement was completed. The conveyance of the house ‘then triggered the issuance of the K-1s that went to not the trust, but to the qualified trust beneficiaries for capital gains.’ The probate court reasoned, ‘the issuance of the K-1 is an obligation that is a natural result of the implementing of this settlement agreement.’ This interpretation was in keeping with ¶ 11.” 

The plaintiffs apparently believed they should receive monetary distributions from the trust, but “any responsibility” resulting from the defendant’s distribution – that is, the house – “should be borne entirely” by the defendant, the Court of Appeals said. “Such an outcome is patently inequitable. The conveyance of the house is a result of the settlement agreement, which funded the monetary distributions conveyed to [the plaintiffs]. [The plaintiffs] fail to comprehend, or recognize, conveyance of the home … was integral and necessary for them to receive monetary distributions from the trust, which they recognized as getting ‘what [they] wanted.’” 

Moreover, the conveyance of the home resulted in a capital gains tax, the Court of Appeals said. The probate court correctly found that this capital gains tax was a “natural result of implementing the settlement agreement” and that the parties were each responsible for their “obligations associated with the settlement under ¶ 11.”  

As a result, the defendant “did not breach the settlement agreement,” the Court of Appeals concluded.