Keybank Natl. Assn. v. Thalman

Citation: 2020 Ohio 660Docket: 108123

Court: Ohio Court of Appeals; February 26, 2020; Ohio; State Appellate Court

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KeyBank National Association serves as the trustee for the Couse Trust, established in 1935 by Howard Couse to benefit his grandchildren, Jeanne Clough and Howard Schlitt. Upon their deaths, their heirs, the Clough Heirs and the Schlitt Heirs, would inherit equal shares. Following the deaths of Clough and Schlitt, the Clough Heirs, including Heather Thalman and others, appealed a December 18, 2018 judgment from the Cuyahoga County Probate Division, raising several assignments of error regarding the trust's management and asset distribution. They argued that the trial court erred by not ordering KeyBank to distribute the current market value of the assets in the FBO JSC Trust, failing to impose prejudgment and postjudgment interest, not holding a hearing on their costs and attorney fees as the prevailing party, neglecting to award compensatory damages of $1,161,807 as determined by their expert, and not addressing their request for punitive damages. The appeals court affirmed the trial court's judgment after thorough review. The trust had faced management disagreements between Clough and Schlitt, especially regarding investment strategies, as Schlitt expressed dissatisfaction with the income generated by the trust in 2006.

KeyBank expressed uncertainty regarding its authority to divide the Couse Trust, contrasting it with the Margaret Schlitt Trust, which allowed for division. While KeyBank indicated it could divide the Margaret Schlitt Trust, it sought clarification from its Internal Trust counsel concerning the Couse Trust's division to protect the beneficiaries' interests. KeyBank did not act on dividing the Couse Trust until after Jeanne Clough's death in late 2008, when it established two investment accounts—one for Clough and another for Schlitt. Each beneficiary received statements only from their respective accounts, not the entire trust. KeyBank communicated that the Clough heirs would receive quarterly distributions from the Clough account until Schlitt's death, after which the account would terminate, and remaining funds would be distributed equally among the Clough heirs.

In March 2009, KeyBank informed the Clough heirs of the Couse Trust's continued existence and its market value, with each heir's share approximated at $163,401. In April 2008, Schlitt requested additional income due to health issues, leading KeyBank to exercise its discretion to provide him $12,000 monthly from the Schlitt account, without informing the Clough heirs of these payments or providing them statements for the Schlitt account. Upon Schlitt's death in 2011, the Clough heirs sought liquidation of the FBO JSC account. KeyBank confirmed that the trust share was set for equal benefit to the Clough heirs and indicated that the Couse Trust would need to be analyzed further, possibly requiring approval from the Clough heirs to combine and liquidate both trust accounts as the Schlitt heirs requested.

The Schlitt Heirs threatened legal action against KeyBank for failing to transfer trust assets to their account. KeyBank subsequently informed them that the Howard Couse Trusts would be distributed equally between the Schlitt Heirs and the Clough children. At that time, the FBO JSC account held $934,000, and after additional distributions to Howard Schlitt, $460,000 remained in the FBO HHS account, resulting in a $237,000 transfer from the FBO JSC account to the Schlitt Heirs. The Clough Heirs opposed the merging of two investment accounts, arguing it would impair their beneficiary rights, asserting that the trust corpus had been split into two separate trusts. KeyBank contended it only divided the trust into investment accounts, later recombining them.

On June 18, 2012, KeyBank filed a petition for declaratory judgment regarding the beneficiaries' rights and the proper distributions. The Clough Heirs counterclaimed, alleging KeyBank breached its fiduciary duty and statutory obligations by not keeping them informed about the trust's administration. They sought compensatory and punitive damages, along with attorney fees. The trial court ruled in favor of KeyBank, stating it could not have split the Couse Trust into separate trusts, granting summary judgment and ordering the Clough Heirs to pay KeyBank’s attorney fees.

On appeal, the court reversed the summary judgment, finding evidence that KeyBank had indeed split the Couse Trust into two distinct trusts—named the Clough Trust and the Schlitt Trust—supported by differing account numbers and statements sent to beneficiaries. The appellate court identified a material factual dispute regarding KeyBank's good faith in managing the trust. It rejected KeyBank’s claim that Ohio law mandated the combination of the investment accounts, concluding that the split did not substantially impair the rights of the beneficiaries.

The court determined that dividing the trust met the distinct investment objectives of Clough and Schlitt, with Schlitt's aggressive investment strategy effectively supporting his health and living expenses. However, recombining the trusts would negatively impact Clough's investment goals and raised factual questions about potential prejudice to the Clough Heirs from an equal distribution of the Couse Trust among both the Clough and Schlitt Heirs. The Thalman I panel evaluated whether the Clough Heirs had a valid breach of fiduciary duty claim, concluding they suffered no damages despite KeyBank's actions, which involved transferring $237,000 between accounts. At a subsequent bench trial in July 2017, KeyBank contended it had not split the Couse Trust, while the Clough Heirs argued otherwise, citing the prior ruling in Thalman I. The trial court ultimately found that the Couse Trust was intended for the lifetime benefit of both parties, functioning as a 'pot' trust where all beneficiaries shared from a common fund. The court ruled there was no trust provision permitting division and clarified that KeyBank had not split the trust but had established two sub-accounts for investment purposes. It concluded that KeyBank did not breach its fiduciary duty, citing its authority to manage the trust without needing beneficiary consent. The court dismissed claims by the Clough Heirs that communications from KeyBank indicated a permanent division of the trust.

KeyBank was found by the trial court to have acted within its discretion in distributing additional funds to Schlitt for his comfort, based on information from Schlitt’s companion, whom the Clough Heirs regarded as family. The court concluded that KeyBank's actions were reasonable and would not have differed with more verification of Schlitt’s medical expenses. Claims by the Clough Heirs that KeyBank breached its fiduciary duty due to misleading correspondence were rejected; while the letters lacked clarity, they were not deemed false or promising a change in the trust's distribution. The court noted that the trust officer’s communications suggested the trust remained intact but was divided into shares for investment purposes. The Clough Heirs were found to have assumed meanings from the letters without evidence of actual damage or detrimental reliance on those expectations. Consequently, the court ordered the Clough Heirs to pay KeyBank’s attorney fees incurred after a prior summary judgment in favor of the Schlitt Heirs, specifying that fees would be paid at customary hourly rates without determining the exact amount. 

In the related case of KeyBank Natl. Assn. v. Thalman II, the court reversed the trial court's judgment, affirming that KeyBank had split the Couse Trust into two separate trusts, as established in the earlier case Thalman I, which is binding on all parties. The court reiterated that KeyBank had communicated to the Clough Heirs that the trust had been divided into distinct trusts.

The panel determined that the Couse Trust had been divided into two separate trusts, resolving the declaratory judgment fully. KeyBank did not seek reconsideration or appeal this decision, making the panel's conclusions final and binding on the trial court. Consequently, only the Clough Heirs were entitled to funds in the FBO JSC Trust, while the Schlitt Heirs had rights only to the FBO HHS Trust. The trial court's finding that the Couse Trust was not divided contradicted the established law from the panel’s decision. 

The court ruled that the Clough Heirs' remaining counterclaims were "vitiated" as they relied on the assumption that the trust had not been split or had been recombined. The panel indicated that the counterclaims were derivative of the declaratory judgment and that a trial was unnecessary since the damages claimed mirrored those awarded in the declaratory judgment. The measure of damages for breach of trust and fiduciary duty was consistent with the Clough Heirs' requests, which sought to compel KeyBank to return improperly distributed funds. The procedural context of the previous appeal did not permit judgment on the counterclaims, but the resolution should have been straightforward given the binding nature of the initial ruling, affirming that the Couse Trust's division is the law of the case for all parties involved.

KeyBank is mandated to distribute funds from the FBO JSC Trust to the Clough Heirs and from the FBO HHS Trust to the Schlitt Heirs. The court reversed the attorney fees awarded to KeyBank, originally granted due to the Clough Heirs' refusal to accept the distribution terms of the Couse Trust. The ruling that the Couse Trust had been divided undermined the basis for the attorney fees award, leading to its revocation. Similarly, the award of attorney fees to the Schlitt Heirs was vacated, as the rationale for those fees—stemming from the Clough Heirs’ litigation—was no longer applicable. Consequently, all parties are to bear their own attorney fees.

Following this, the Clough Heirs filed a motion for judgment on remand, asserting that the trial court should reassess their counterclaims based on the appellate court's findings. They claimed entitlement to $605,656.85 for the FBO JSC account balance, interest, compensatory damages of $1,161,807, punitive damages, reimbursement of trustee fees since 2009, and reasonable attorney fees. KeyBank opposed this motion, arguing it misinterpreted the appellate court's ruling, which had determined that the split of the Couse Trust invalidated the Clough Heirs' counterclaims for breach of trust and fiduciary duty. On December 18, 2018, the trial court ordered the distribution of trust funds as previously directed and denied the Clough Heirs' motion for judgment and a hearing on punitive damages and fees.

The trial court concluded that the counterclaims from the Clough Heirs should have been resolved quickly, as the damages they sought mirrored those awarded in the declaratory judgment of Thalman I, specifically $237,000. The court determined that Thalman II clarified the damages for the Clough Heirs and indicated that no further hearings on damages were necessary. The Clough Heirs are appealing the trial court's judgment on several grounds: 

1. The trial court allegedly erred by not ordering KeyBank to pay the assets' fair market value that vested on July 4, 2011.
2. They argue the court failed to award prejudgment and postjudgment interest as stipulated in R.C. 1343.03(A).
3. The trial court is claimed to have erred by not awarding attorney fees and costs under R.C. 5810.04.
4. They assert there was an error in not requiring KeyBank to pay $1,161,087.00 for losses due to its breach of trust and fiduciary duty.
5. Lastly, the Clough Heirs contend that the trial court erred by not holding a hearing on their request for punitive damages.

These assignments of error are addressed collectively. The law-of-the-case doctrine establishes that a reviewing court's decision continues to govern subsequent proceedings on the same legal questions. This doctrine promotes consistency, prevents re-litigation of resolved issues, and maintains the hierarchical structure of Ohio's courts. The appellate mandate rule stipulates that a lower court must execute the appellate court's mandate and cannot revisit issues already settled by that mandate. The lower court is permitted to address only issues left unresolved by the mandate, but must execute it when nothing remains to be determined.

The trial court's judgment from December 18, 2018, was found to be in full compliance with the directives from the Thalman II mandate. The appellate court clarified that it did not instruct the trial court to rule in favor of the Clough Heirs on their counterclaims, which were deemed perfunctory. The Thalman II mandate required the trial court to: (1) recognize the Couse Trust as divided into two trusts, (2) direct KeyBank to disburse funds from the FBO JSC Trust to the Clough Heirs, (3) vacate the attorney fees awarded to KeyBank and the Schlitt Heirs, and (4) mandate that each party cover their own attorney fees. The trial court executed this mandate correctly, leading to the denial of the Clough Heirs' motion for additional judgment and a hearing on punitive damages, costs, and attorney fees.

The Clough Heirs previously sought damages related to KeyBank's alleged breach of fiduciary duty, including a specific sum from the Couse Trust and additional interests, which had been addressed in Thalman II. The appellate court reaffirmed that the damages were limited to the declaratory judgment ordered in Thalman I, which included specific distributions to the Clough Heirs. The counterclaims were rendered moot due to this ruling, and the appellate court held that the parties would bear their own attorney fees. 

Disagreement from the Clough Heirs does not warrant reconsideration, as no appeal was filed from Thalman II, and the appellate court declined to revisit its earlier decision. Consequently, the Clough Heirs’ assignments of error were overruled, the judgment was affirmed, and costs were assessed against them. A special mandate was issued to the trial court to execute this judgment, with the entry serving as the official mandate under the applicable appellate rules.