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Jurisdiction Over A Trust Dispute – The Kentucky Supreme Court Decides

The Kentucky Uniform Trust Code grants concurrent jurisdiction of trust disputes to the District Court and the Circuit Court, but limits where a subsequent proceeding can be filed relating to the substance of the trust matter initially filed.  In the April 30, 2020 opinion of Hauber v. Hauber, the Kentucky Supreme Court interpreted the language of the Kentucky Uniform Trust Code to determine that a subsequent proceeding was appropriately brought in Circuit Court, despite an earlier proceeding having been brought in the District Court.

Concurrent Jurisdiction of The Kentucky District And Circuit Courts Concerning Trust Matters

KRS 386B.2-030 guided the Kentucky Supreme Court’s decision in this case and states:

Except with regard to matters otherwise provided for by statute:

(1) The District Court and Circuit Court shall have concurrent jurisdiction of any proceedings in this Commonwealth brought by a trustee or beneficiary concerning any trust matter; and

(2) If a proceeding is initially brought in District Court concerning any trust matter, the jurisdiction of the District Court shall become exclusive with respect to such matter unless, within twenty (20) days of receipt of notice of such proceeding, a party files an action in Circuit Court relating to the same trust matter, in which event the District Court shall be divested of jurisdiction and the Circuit Court shall have exclusive jurisdiction over such action.

The Facts of Hauber v. Hauber

The Hauber siblings were divided as to the administration of trusts created by their parents, Harry and Betty Hauber.  In 2011, Harry and Betty Hauber created an inter vivos trust which became irrevocable on Harry’s death in early 2015.  Betty died shortly after Harry, and two of their four children, John and Cheri, became co-trustees of each of four trusts, one for each child: Bill, Becky, Cheri and John.

The First Trust Action Filed In District Court

Tensions rose between the siblings concerning the trust.  In August 2015, Bill and Becky filed a Notice-Order-Motion to Remove Trustees in the Jefferson District Court, where it was required to be filed pursuant to statute.  The basis for removal was displeasure at distribution of certain personal items from their parents’ Florida home and accompanying notes, and also allegations of breach of fiduciary duty.

After a hearing, the Jefferson District Court denied the requested relief, stating that while it found the Co-Trustees’ “choices . . . regarding the distribution of certain personal property very distasteful,” those actions did not constitute breach of the trust under KRS 386B.7-060(2)(a).  Finality language was included in the Order.  Bill and Becky appealed, and lost.

The Second Trust Action Is Filed In Circuit Court

While the district court appeal was pending in the Jefferson Circuit Court, they filed a second proceeding in the Jefferson Circuit Court.  Their verified complaint in the second proceeding alleged that John and Cheri induced their mother to execute powers of attorney in their favor to cause certain assets to be paid to the trust, and changed beneficiary designations to benefit the trust, instead of to be paid directly to the four children.  Bill and Becky alleged numerous breaches of fiduciary duty, including, but not limited to:

  • Paying themselves, and proposing to pay themselves in the future unreasonable, excessive and unauthorized compensation.
  • Improperly paying excessive and unreasonable amounts of compensation to attorneys to defend them from the consequences of their breaches of fiduciary duty.
  • By failing to take prompt, efficient and prudent steps to marshal, liquidate, convert unproductive trust assets, primarily because the [*6] Defendants desire to obtain those assets for themselves.
  • By using their position as Co-Trustee to coerce or compel the Plaintiffs to agree to transactions which would otherwise be invalid as self-dealing transactions.
  • By improperly allocating expenses of the trust solely to income.
  • By failing to properly evaluate the principal value of certain annuity assets, thereby reducing the required annual principal distributions to the Plaintiffs.
  • By preparing and distributing a purported accounting for calendar year 2015 which fails to disclose all material matters.
  • By failing to prudently manage, invest and collect trust property.
  • By failing to fund Plaintiffs’ individual trusts, as required by the terms of the trust.

Bill and Becky sought damages in excess of the minimum jurisdiction of the circuit court, punitive damages, attorney fees and costs, injunctive relief to stop John and Cheri from spending trust assets or incurring expenses, and a full and complete accounting.

Trustees John and Cheri filed a motion to dismiss.  They argued that the Kentucky Uniform Trust Code, KRS 386B.2-030, vested the district court with exclusive jurisdiction over a trust dispute arising from the same trust which had been before it.  The circuit court entered an order remanding the matter to the district court, finding that the trust matter at issue was the same trust matter as previously brought in district court.

The circuit court’s decision was based on its interpretation of KRS 386B.2-030(2) to the effect that district court retained exclusive jurisdiction over a matter filed in that court if an action was not filed in circuit court within twenty days. The circuit court found that the trust matter at issue in the second case was the same trust matter as previously brought in district court.  Since the trust dispute had not been filed in circuit court within twenty days of the notice of such proceeding in August 2015, the Kentucky district court had exclusive jurisdiction.

How Does Kentucky Law Define “Trust Matter” For Purposes of Jurisdiction?

The Kentucky Supreme Court focused the statutory language and the legislative history to determine that the “trust matter” focuses on discrete events, not anything having to do with a certain trust.   The Kentucky Supreme Court stated:

For any given trust, some issue may arise, be resolved in a court proceeding, and then some time later, another issue may arise requiring another resolution. Had the legislature intended its focus to be on the trust in question, subsection 2, would have been written differently, deleting the word “matter” and emphasizing “trust,” perhaps the following:

If a proceeding is initially brought in District Court concerning any trust matter, the jurisdiction of the District Court shall become exclusive with respect to such trust matter unless, within twenty (20) days of receipt of notice of such proceeding, a party files an action in Circuit Court relating to the same trust matter, in which event the District Court shall be divested of jurisdiction and the Circuit Court shall have exclusive jurisdiction over such trust action.

Therefore, the question in this case was whether the matters addressed in the second case were the same as the first case, thus triggering KRS 386B.2-030 and requiring the second case to be filed in the district court.

Certainly, the siblings are the same, the trust and trust instrument are the same, and perhaps the underlying animosities are the same.  But the underlying matter and claims are different.  The Kentucky Supreme Court held that the circuit court had jurisdiction over the trust dispute, stating:

The initial district court action arose from inappropriate messaging and distributions. One set of siblings asserted that it was meant in good fun; the other set took it a different way. That dispute, seeking an adjudication of breach of the trust and removal of the trustees, was resolved and the district court attached finality language to its order. The current dispute involves more than inappropriate messaging and distributions. Bill and Becky have claimed undue influence as to the transfer of certain non-trust assets, excessive fiduciary compensation, improper use of trust funds, failure to liquidate unproductive trust assets, self-dealing, improper allocation of trust expenses, failure to disclose all material trust matters, failure to prudently manage, invest and collect trust property, and failure to fund individual trusts. Granted, many of these matters also involve breach of trust generally, but they go far and beyond inappropriate messaging and distributions. Bill and Becky’s filing in circuit court was appropriate under the circumstances.

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