Stephanie Mueller v. Susan Krohn

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
July 17, 2019
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.

Appeal No. 2018AP25 Cir. Ct. Nos. 2016PR33
2016PR34

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT II

IN THE ESTATE OF VICTOR J. MUELLER IRREVOCABLE TRUST NUMBER ONE
AND NUMBER TWO:

STEPHANIE MUELLER,

PETITIONER-APPELLANT,

V.

SUSAN KROHN,

TRUSTEE-RESPONDENT,

UNIVERSITY OF WISCONSIN FOUNDATION,

BENEFICIARY-RESPONDENT.

APPEAL from orders of the circuit court for Fond du Lac County:
RICHARD J. NUSS, Judge. Affirmed.
No. 2018AP25

Before Neubauer, C.J., Gundrum and Hagedorn, JJ.

Per curiam opinions may not be cited in any court of this state as precedent

or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).

¶1 PER CURIAM. This matter arises from the administration of two
trusts established by decedent Victor Mueller. Stephanie Mueller, Victor’s
daughter and a beneficiary of both trusts, appeals from orders dismissing her
petition for judicial intervention and awarding attorneys’ fees to both the trustee,
Susan Krohn, and another beneficiary, the University of Wisconsin Foundation.
For the reasons that follow, we affirm.

BACKGROUND

¶2 Victor, a successful businessman, retained Attorney Louis Andrew
and established two separate but interrelated trusts: the Victor J. Mueller
Irrevocable Trust Number One (trust one), and the Victor J. Mueller Irrevocable
Trust Number Two (trust two). Victor placed two working farm properties into
trust one and designated Stephanie its sole income beneficiary. Upon Stephanie’s
death, the residue of trust one will go to the UW Foundation to fund scholarships
for students entering careers in wildlife management.

¶3 Trust two owns all of Victor’s other assets, including real estate,
personal property, a significant inventory of gemstones, and various investments.
Trust two provided specific bequests to certain individuals. Stephanie was
bequeathed $500,000 and Victor’s tangible personal property. After the bequests
in trust two are distributed and its gemstones liquidated, the remainder will pour
into trust one and be administered in accordance with trust one’s terms.

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¶4 Victor died in 2013 and, pursuant to his instructions, Krohn became
successor trustee for both trusts. Krohn was Victor’s longtime employee; at one
time they were engaged to be married. Victor knew the administration of his trust
would be complicated and provided a written acknowledgment of this in a “note to
all interested parties” contained in the trust documents. As a result, Victor wanted
Krohn to continue receiving her prior wage.

¶5 In administering trust one, Krohn continued Victor’s contracts with
the farm operators and hunters who had farmed and hunted the land for years. The
farms in trust one paid Stephanie between $58,000 and $69,700 in the years 2014
through 2016.

¶6 With regard to trust two, Krohn liquidated most of the assets and
distributed about fifty percent of the bequests. Stephanie has received $250,000—
half of her bequest. Because the estate tax return is under audit, Krohn has
deemed it necessary to reserve cash in trust two in case additional tax is owed.

¶7 Stephanie filed a petition for judicial intervention in the circuit court
alleging that Krohn owed damages and should be removed as trustee due to
various purported breaches of fiduciary duty. Krohn and the UW Foundation filed
motions for summary judgment seeking to dismiss Stephanie’s petition. After
extensive briefing and following a hearing, the circuit court dismissed all of
Stephanie’s claims on summary judgment. Pursuant to their motions, the circuit
court awarded attorneys’ fees to Krohn and the UW Foundation.

DISCUSSION

¶8 On appeal, Stephanie maintains that Krohn breached her fiduciary
duty in myriad ways and asserts that the circuit court improperly granted summary

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judgment in favor of Krohn and the UW Foundation. We review a circuit court’s
decision to grant summary judgment de novo, applying the same methodology as
the circuit court. Fifer v. Dix, 2000 WI App 66, ¶5, 234 Wis. 2d 117, 608 N.W.2d
740. Summary judgment is granted if there are no genuine issues of material fact
and the moving party is entitled to judgment as a matter of law. WIS. STAT.
§ 802.08(2) (2017-18).1

As a matter of law, Krohn’s decision to retain the farms in trust one is not a
breach of fiduciary duty.

¶9 Stephanie argues that Krohn’s administration of trust one, in
particular her decision not to sell all or part of the farm properties, constitutes a
breach of fiduciary duty. According to Stephanie, the farms are underproductive
and Krohn has a duty to sell or convert the unproductive portions under the
prudent investor rule which, when applicable, can require diversification in
investments.

¶10 Wisconsin recognizes a settlor’s right to create a trust where the
prudent investor rule does not apply. See WIS. STAT. § 881.01(2)(b) (“The prudent
investor rule, a default rule, may be expanded, restricted, eliminated or otherwise
altered by the provisions of a will, trust or court order.”). Krohn argues that the
language Victor chose to include in trust one expressly overrides the prudent
investor rule. We agree.

¶11 Trust one provides that the trustee has the power

1
All references to the Wisconsin Statutes are to the 2017-18 version unless otherwise
noted.

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to retain original investments indefinitely (without any duty
of diversification and without regard to risk of loss
resulting from lack of diversification) and to invest and
reinvest, as the trustee sees fit and irrespective of statutes or
rules of law governing the investment of trust funds,
including the right to invest in common trust funds.

This language is virtually identical to that in French v. Wachovia, NA, 722 F.3d
1079 (7th Cir. 2013), which was held to override the prudent investor rule. We
conclude that the language in trust one displaces the prudent investor rule and
requires Krohn to make investment decisions in good faith.

¶12 Stephanie argues that the circuit court erred when, in granting
summary judgment, it added: “The Trustee shall retain the farm properties in
Trust One during [Stephanie’s] lifetime.” The circuit court made this declaration
in the context of its findings concerning Stephanie’s litigiousness and Krohn’s
articulated desire not to sell the farm properties while Stephanie was alive and
receiving income from trust one. As such, we construe the court’s statement as an
affirmation of Krohn’s intent to retain the farm properties during Stephanie’s
lifetime.2

¶13 In sum, based on the language Victor chose to include in trust one,
the prudent investor rule does not apply, and Krohn is authorized to retain the
farms throughout Stephanie’s lifetime, subject only to the obligation of good faith.
Based on the undisputed evidence, there is no genuine issue of material fact that
would entitle Stephanie to a trial on whether Krohn’s decision to retain the farms
was made in bad faith.

2
We take no position on whether the circuit court’s order would actually preclude the
trustee from selling the farm properties during Stephanie’s lifetime.

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As a matter of law, Krohn’s postarbitration refusal to give Stephanie
additional items of Victor’s property is not a breach of fiduciary duty.

¶14 Stephanie was bequeathed Victor’s tangible personal property. The
appraisal of Victor’s property was 767 pages. Stephanie initially asked for and
received about 360 items. Thereafter, she requested additional property but the
UW Foundation objected on grounds that the items sought did not fall within the
trust’s definition of tangible personal property. Stephanie and the UW Foundation
agreed to submit their dispute to binding arbitration. The arbitration agreement
signed by both parties stated:

Stephanie represents that the list of Disputed Property … is
a complete and exhaustive list of all remaining tangible
personal property that she would like to receive under the
Trust. Stephanie represents that she will not request or
make a claim for any other tangible personal property in the
arbitration or otherwise.… As an inducement to the
Trustee to proceed with this arbitration proceeding,
Stephanie and UW Foundation represent and warrant to the
Trustee … that they will make no claim for or against any
tangible personal property except in the arbitration
proceeding.

Stephanie prevailed and received the disputed property.

¶15 Long after the arbitration, Stephanie asked Krohn to turn over
additional items of property never before requested. According to Stephanie, the
items were not on the list of “Disputed Property” because she did not know about
them at the time of arbitration. Krohn declined to give Stephanie the additional
property based on the terms of the arbitration agreement, including Stephanie’s
representation that she would not make further requests and that arbitration would
finally settle matters concerning the distribution of Victor’s personal property.

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¶16 As a matter of law, Krohn did not breach her fiduciary duty by
declining to fulfill Stephanie’s postarbitration request for extra property. Even
taking as true Stephanie’s assertion that the new items were not clearly listed on
the property appraisal, summary judgment was proper. Krohn owes a duty of
impartiality to both Stephanie and the UW Foundation. See WIS. STAT.
§ 701.0803. Giving Stephanie more property after the arbitration would have been
contrary to the UW Foundation’s interest as residual beneficiary. Thus, Krohn had
to decide whether to rely on the arbitration agreement, or to ignore it and subject
herself to a breach claim by the UW Foundation. Krohn’s reliance on the
arbitration agreement’s explicit language that Stephanie represented and warranted
she would not demand any other tangible personal property provides no evidence
of bad faith.

As a matter of law, Krohn’s decisions about distributing the specific
bequests and liquidating the gemstones in trust two comported with the language
of the trust documents and did not constitute a breach of fiduciary duty.

¶17 It is undisputed that Krohn has not paid out the full amount of
Victor’s specific bequests, including the remaining $250,000 bequeathed to
Stephanie, and that she has not liquidated all of the gemstones in trust two.
According to Stephanie, Krohn is in breach.

¶18 Except for the farms in trust one, trust two contains all of Victor’s
assets. The trust requires the payment of taxes before specific bequests:

A. The Trustee shall pay from the trust estate … all debts,
expenses of administration, and death taxes (estate,
inheritance, and like taxes, including interest and
penalties …) that are payable as a result of my death.

….

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J. The trust assets remaining after the foregoing payments
and distributions are hereinafter referred to in this
instrument as the net trust estate. The trustee shall
distribute the net trust estate as follows:

1. The following cash distributions shall be made
as soon as practical after my death taking into
consideration that tax, debt and other matters may
need to be paid first as the trust may be short of
cash at that time:

[specific bequests]

¶19 Stephanie argues that the trust’s language requires Krohn to pay the
specific bequests unless the trusts are short of cash and that because there is
sufficient cash, Krohn is in breach. We disagree. Until the final amount of
Victor’s estate tax liability is determined, the taxes cannot be paid in full; payment
of taxes is a prerequisite to payment of the specific bequests.

¶20 Stephanie next argues that Krohn breached her fiduciary duty by not
liquidating the remaining gemstones in a specific manner. We conclude that
Krohn’s attempts to liquidate the gemstone inventory are reasonable and Stephanie
has not shown any factual basis for a breach. The language of the trust gives the
trustee the power “to take any action with respect to conserving or realizing upon
the value of any trust property.” As such, the trustee has discretion as to the
method of liquidating the gemstones. Additionally, the trust specifically allows
the trustee “to retain all or any part of the original assets constituting the trust.”
While Krohn intends to liquidate the remaining gemstones for fair value,
Stephanie’s claim that Krohn is not acting quickly enough is contrary to the trust’s
plain language permitting indefinite retention of the gemstones. Krohn has acted
within the discretion afforded her by the trust.

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Krohn’s acceptance of the trustee fee is not a breach of fiduciary duty.

¶21 Stephanie complains that Krohn breached her fiduciary duty by
“awarding herself a trustee fee in a manner that did not adhere to the Trusts’
terms.” Both trusts provide:

The trustee shall be entitled to such reasonable
compensation as from time to time may be agreed upon in
advance and in writing with me or with the majority of the
then living adult beneficiaries … or if no such agreement
exists and cannot be reached, then in accordance with
reasonable and customary fees for any such trust as a bank
trust department might charge.

According to Stephanie, Krohn made “no effort whatsoever to reach an agreement
with Stephanie” concerning the trustee fee.

¶22 However, in March 2014, less than three months after Victor’s
death, Attorney Andrew sent Stephanie a “Notice Regarding Trust” that described
the trustee fee in detail. Stephanie’s lawyer responded with a letter
acknowledging the contents of the notice and not objecting to the fee:

In connection with item 11 of the Notice Regarding Trust,
please confirm my understanding to be correct that Susan
Krohn will be receiving trustee compensation in the amount
of $53,500.20 (subject to a 3% increase effective 1/1/2014)
for the period it takes to complete the “intense
administration” of the trusts/estate, which you estimate to
be approximately 2 years.

Andrew sent a responsive letter. Stephanie did not object to Krohn’s
compensation until she commenced the April 2016 petition underlying this appeal.

¶23 Stephanie’s objection to the trustee fee is barred by the statute of
limitations in WIS. STAT. § 701.1005, which provides that a claim must be brought
within one year of the date the beneficiary “was sent a report that adequately

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disclosed the existence of a potential claim for breach of trust.” “[A] report
adequately discloses the existence of a potential claim for breach of trust if it
provides sufficient information so that the beneficiary or representative knows of
the potential claim or should have inquired into its existence.” Sec. 701.1005(2).

¶24 We reject Stephanie’s contention that the notice is not a “report”
sufficient to trigger the statute of limitations because it does not include the
contents of an unrelated annual report under WIS. STAT. § 701.0813(3). Contrary
to Stephanie’s assertion, § 701.0813(3) does not contain an overriding definition
of “report” applicable to all provisions of the trust code. Pursuant to WIS. STAT.
§ 701.1005, a report triggers the one-year period if it “adequately disclosed the
existence of a potential claim for breach of trust.” We are not persuaded that a
report under § 701.1005 must contain the contents set forth in § 701.0813(3).

Krohn has not otherwise breached her fiduciary duty.

¶25 Stephanie complains that Krohn breached her fiduciary duty as a
matter of law by (1) continuing the farm contracts Victor previously negotiated
with Krohn’s brother and nephew, (2) employing her family members to help
clean and sell property, and (3) continuing the hunting leases Victor granted to
members of Krohn’s family. Stephanie claims that these practices are per se
breaches because they involve self-dealing and conflicts of interest.

¶26 With regard to the claims of breach predicated on the farming
contracts and Krohn’s having employed her daughter and granddaughter to help
clean and organize estate assets for sale, we conclude that they are time barred by
WIS. STAT. § 701.1005. The notice and letters provided by Andrew no later than
April 2014 explained the farm leases and disclosed the tenants to Stephanie’s
lawyer. An estate tax return provided to Stephanie on April 1, 2015, showed the

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amounts paid to Krohn’s daughter and granddaughter as compensation for helping
Krohn prepare the estate. As to both, Stephanie’s April 29, 2016 action was filed
more than one year after she “was sent a report that adequately disclosed the
existence of a potential claim for breach of trust.” Id.

¶27 As far as Stephanie’s claim concerning Krohn’s leasing of the land
for hunting purposes to her family, there is no breach. To the extent she alleges a
violation of WIS. STAT. § 701.0802(2), the transaction was authorized by the terms
of the trust, see § 701.0802(2)(a), and also involves a contract entered into by the
trustee before Krohn became trustee, see § 701.0802(2)(e). The undisputed facts
show that Victor entered into the hunting arrangement with Krohn and members of
her family before his death.3

The circuit court properly exercised its discretion in awarding attorneys’
fees.

¶28 WISCONSIN STAT. § 701.1004(1) specifically authorizes the circuit
court to award “costs and expenses, including reasonable attorney fees, to any
party, to be paid by another party or from the trust.” The amount of fees is left to
the circuit court’s discretion. Kolupar v. Wilde Pontiac Cadillac, Inc., 2004 WI
112, ¶22, 275 Wis. 2d 1, 683 N.W.2d 58.

¶29 Here, counsel for Krohn and the UW Foundation submitted requests
for the determination and award of reasonable attorneys’ fees and costs. Both

3
These preexisting arrangements provide an alternate reason for our conclusion that the
farming contracts did not constitute a fiduciary breach. It is undisputed that Victor negotiated the
farm contracts with Krohn’s brother and nephew more than twenty-five years ago. He knew the
farm operators were related to Krohn when he selected her as trustee.

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requests included the affidavits of counsel and specifically addressed the factors in
WIS. STAT. § 814.045, demonstrating how each statutory factor supported the
reasonableness of the requested fees. Stephanie objected, asserting that the rates
were unreasonable for attorneys in the area and that certain hours were
duplicative. Krohn and the UW Foundation each filed a response. Following a
review of the extensive filings and after a hearing, the circuit court awarded actual
attorneys’ fees and expenses of $324,469.64, and ordered the fees paid from the
income of trust one.

¶30 The circuit court’s determination was supported by “a logical
rationale based on the appropriate legal principles and facts of record.” Anderson
v. MSI Preferred Ins. Co., 2005 WI 62, ¶19, 281 Wis. 2d 66, 697 N.W.2d 73
(citation omitted). In addition to its on-the-record explanation, the court adopted
the analyses in counsel’s affidavits. In providing its rationale, the circuit court
was not required to read the affidavits into the record. Further, the record before
the circuit court amply supports its discretionary decision. See Miller v. Hanover
Ins. Co., 2010 WI 75, ¶¶30, 47, 326 Wis. 2d 640, 785 N.W.2d 493 (reviewing
court will search the record for facts supporting the circuit court’s discretionary
determination).

By the Court.—Orders affirmed.

This opinion will not be published. See WIS. STAT. RULE
809.23(1)(b)5.

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