• JP Morgan Chase Bank v. Longmeyer, 2005 SC 000313 DG (Kentucky Supreme Court 2009)
  • May 7, 2009 | Authors: Ronald D. Aucutt; Dennis I. Belcher; W. Birch Douglass; Dana G. Fitzsimons; Charles D. "Skip" Fox; William Michael Long; Michele A. W. McKinnon
  • Law Firms: McGuireWoods LLP - McLean Office ; McGuireWoods LLP - Richmond Office ; McGuireWoods LLP - Charlottesville Office ; McGuireWoods LLP - Chicago Office ; McGuireWoods LLP - Richmond Office
  • In 1984, Ms. Ollie Skonberg hired an attorney to prepare a will and revocable trust, and engaged the same attorney 3 years later to revise her estate plan to establish a large trust for several charities and name Bank One, a corporate predecessor to JP Morgan Chase Bank as trustee. She paid the attorney $100 for preparing this multi-million dollar estate plan.

    Ten years later when Ms. Skonberg was 93, bedridden, and needing full-time home care, Ms. Skonberg’s caretaker, Vicki Smothers, contacted a different attorney, John Longmeyer, to revise the estate plan. Longmeyer met with Ms. Skonberg and the caretaker, and prepared a drastically different new estate plan for Ms. Skonberg based on a handwritten outline provided by the caretaker. The new estate plan removed all of the charitable beneficiaries, increased the bequest to the caretaker from $20,000 to $500,000, removed Bank One as trustee, and installed Longmeyer as trustee. As trustee, Longmeyer received annual compensation of $100,000. For drafting the new estate plan, the caretaker paid Longmeyer $25,000 even though he delegated the actual drafting to his son-in-law who was an out-of-state attorney not licensed to practice law in Kentucky. During the time of the drafting of the new estate plan, the only doctor to see Ms. Skonberg was Longmeyer’s brother-in-law. The witnesses to the signing of the new estate plan were Longmeyer, his wife, and his secretary.

    Upon being informed of its removal as trustee, Bank One entered into an investment agency agreement with Longmeyer as successor trustee by which Longmeyer delegated the investment management of the trust to Bank One. Ms. Skonberg died 6 weeks later, and Longmeyer terminated the agency agreement one month later.

    Shortly thereafter, Bank One, on the advice of outside counsel, informed the charities that were beneficiaries under Ms. Skonberg’s prior revocable trust that they had been removed as beneficiaries (unknown to Bank One, one of the charities had already learned of this). The charities brought a contest to the new estate plan against Longmeyer as executor, which Longmeyer settled on the even of trial, paying $1.875 million to the charities.

    Longmeyer then sued Bank One to recover the $1.875 the estate paid in the settlement on the basis that Bank One breached its duty by disclosing information to the former beneficiaries. The circuit court granted summary judgment in favor of Bank One, the Court of Appeals reversed and remanded, and the Kentucky Supreme Court granted a discretionary appeal.

    On appeal, the Kentucky Supreme Court (with one dissent) held that the Kentucky trust statutes impose a duty to keep beneficiaries reasonably informed of the material facts affecting their interests, and do not limit those duties only to irrevocable trusts. The court noted that its statutes may be inconsistent with modern trust law in other jurisdictions with respect to only owing duties to the settler of a revocable trust, but stated that it was not the task of the Court to rewrite the statutes. The Supreme Court rejected Longmeyer’s argument that Bank One’s delay in giving notice was bad faith where notice was given only after Longmeyer removed the assets from the bank (which the Supreme Court called mere “sour grapes”). Ultimately, the Court concluded that Bank One was obligated to give the charities the information. In a lengthy footnote, the Court brushed aside the common law of trust principle that while a settler is competent and has the power to revoke, the trustee y owes its duties solelyto the settler.

    The Supreme Court reversed the Court of Appeals, rejecting its position that because Bank One accepted its removal and surrendered the trust assets, it had forfeited the right to challenge the revocation or inform the beneficiaries. The Court also rejected Longmeyer’s argument that Bank One owed duties under the agency agreement. The Court reinstated the final judgment of the trial court in favor of Bank One.