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Chouest v. Chouest

Court of Appeals of Louisiana, First Circuit

December 19, 2019

JONATHAN SCOTT CHOUEST
v.
KIRT CHOUEST AND KELLIE CHOUEST DUET

          On Appeal from the Seventeenth Judicial District Court In and for the Parish of Lafourche State of Louisiana Docket No. 126902 Honorable Christopher J. Boudreaux, Judge Presiding

          W. Patrick Klotz New Orleans, Louisiana Counsel for Plaintiff/Appellant Jonathan S. Chouest

          Jerald P. Block Kendall J. Krielow Sarah M. Lambert Thibodaux, Louisiana Counsel for Defendants/ Appellees Kirt Chouest and Kellie Chouest Duet

          BEFORE: WHIPPLE, C. J., McCLENDON, AND HIGGINBOTHAM, JJ.

          MCCLENDON, J.

         Plaintiff, sole beneficiary of the Jonathan Chouest Trust, filed this suit against Defendants, former co-trustees of the Jonathan Chouest Trust, for breach of fiduciary duty. Plaintiff now appeals the judgment wherein the trial court ordered Defendants to pay damages to Plaintiff for certain breaches, but failed to order Defendants to pay damages to Plaintiff for all alleged breaches. Defendants answered the appeal, arguing that the trial court committed legal error by awarding legal interest on the awarded damages prior to the date of judicial demand. For the reasons that follow, we affirm the trial court's judgment awarding damages and legal interest, amend the judgment to make additional awards in favor of Plaintiff, affirm as amended, and deny the answer to appeal.

         FACTUAL AND PROCEDURAL HISTORY

         The Jonathan Chouest Trust ("Trust") was formed by an Act of Trust executed on December 4, 1995. The settlors of the Trust were Dolores G. Chouest and Edison S. Chouest, Sr. ("Settlors"). Settlors named their then nine-year-old grandson, Jonathan Chouest, the sole beneficiary. Settlors named Jonathan's older half-siblings, Kirt Chouest and Kellie Chouest Duet, as Trustees (sometimes collectively, "Defendants"). Kirt Chouest and Kellie Chouest executed the Act of Trust as Trustees.[1]

         Jonathan's parents, Edison "Eddie" Chouest, Jr. and Margaret "Margo" Chouest, had separated prior to the formation of the Trust and subsequently divorced. In connection with their divorce, Eddie and Margo executed a consent judgment that required that Eddie pay Jonathan's school expenses and maintain certain New York Life Insurance policies for Jonathan's benefit. In January of 1996, Kirt and Kellie each purchased one-half of Eddie's shares in Edison Chouest Offshore.[2]

         The Trust's initial asset was $78, 854.48, comprised of funds Settlors had previously gifted to Jonathan as Christmas gifts for the years 1988-1994. Settlors had originally gifted the funds as certificates of deposit, but transferred the funds into a checking account held by the Trust upon creation of the Trust. In the years 2002, 2003, 2004, and 2005, Settlors gave Jonathan Christmas gifts in the amount of $2, 000.00 each year. These Christmas gifts were also deposited into the Trust checking account. Additionally, each Settlor bequeathed $100, 000.00 to Jonathan in their testament. Following Edison Chouest, Sr.'s death on October 1, 2008, $100, 000.00 was deposited into the Trust from his succession. Following Dolores's death on April 30, 2014, only $32, 950.50 was deposited into the Trust from her succession.

         In January of 2014, Kirt consulted with Leon Rittenberg, an attorney at the law firm Kirt believed had originally drafted the Trust, regarding a possible early dissolution of the Trust and distribution of assets. Mr. Rittenberg informed Kirt that the terms of the Trust directed that Jonathan receive one-third of the Trust's funds on his twenty-fifth birthday, which was March 29, 2011, but Kirt and Kellie had failed to make the payment. At Kirt's request, Mr. Rittenberg then contacted Jonathan regarding the delinquent payment. On January 23, 2014, Jonathan received $35, 137.07, which was one-third of the Trust's funds at that time. Following and incited by this belated payment, Jonathan requested an accounting of the Trust on July 24, 2014, through his counsel. However, the "accounting" provided did not contain any tax returns prior to the year 2004 and did not contain any bank statements prior to the year 2009. Mr. Rittenberg advised Jonathan's counsel by letter dated August 18, 2014, that "[r]ecords pertaining to older years no longer exist."

         On December 3, 2014, Jonathan contacted Kirt by email to ask whether Kirt and Kellie would agree to Jonathan receiving additional Trust funds to use as a down payment on a home. Kirt replied that he and Kellie would be happy to help and asked for documentation. Jonathan replied with financing information. In response, Kirt requested more details regarding the financing. He also wrote:

Also, we will need a release, signed by you, protecting Kellie and me from any liability since we will be releasing funds early from the trust, rather than in accordance with the schedule written into the trust.

         Kirt ultimately refused to accept the release Jonathan proposed, which would have been limited to the transaction in question. In a December 16, 2014 email, Kirt wrote that "the language in your email is much too narrow and limited... In order for us to proceed, we need a more comprehensive release." Jonathan refused to sign the indemnity agreement proposed by Kirt.

         Jonathan subsequently filed suit against Kirt and Kellie on February 27, 2015, alleging numerous breaches of the Trust. The alleged breaches of the Trust included: failure to keep and provide a clear and accurate annual accounting of the Trust; failure to deal fairly and communicate all material facts; loaning of Trust funds to trustees and/or family members; sale of Trust property to trustees, personally; failure to allow Jonathan as beneficiary to inspect the Trust property; failure to prudently administer and invest the Trust funds, despite having specialized knowledge in accounting and finance; failure to control and preserve the Trust property for Jonathan's benefit as beneficiary; and, failure to separate Trust property. Kirt and Kellie answered Jonathan's petition, denying that any act or omission on their part caused damage or loss to Jonathan. Kirt and Kellie also asserted that Jonathan was responsible for and failed to mitigate any damages or loss he may have suffered.

         By the end of 2015, the Trust was terminated with the consent of Kirt, Kellie, and Jonathan. Jonathan received the $99, 705.45 balance of the Trust. Litigation continued for several more years.

         A three-day bench trial was held on March 7, March 8, and March 26, 2018. At trial, Jonathan argued that Kirt and Kellie had failed to keep Trust records, including but not limited to bank account statements, loan documents, and receipts; that Kirt and Kellie had instead withheld, discarded, or destroyed Trust information; and, that Kirt and Kellie had failed to prudently invest and administer Trust funds, instead causing the Trust to lose value by maintaining the funds in a low-interest checking account that charged more in monthly fees than the Trust funds earned in interest, despite being sophisticated with respect to financial investments. Jonathan further argued that Kirt and Kellie had disbursed Trust funds for improper purposes, including payment of expenses that his father, rather than the Trust, was required to pay pursuant to the child support provisions of the consent judgment Eddie and Margo executed in connection with their divorce. Among the expenses that Jonathan alleged should have been paid by Eddie were Jonathan's educational expenses and the costs of maintaining a New York Life Insurance policy naming Eddie as the insured and Jonathan as the beneficiary ("New York Life policy"). Jonathan additionally alleged that Kirt and Kellie had made and repaid loans to themselves and Eddie with funds from the Trust, including payment of loans and interest on loans taken against the New York Life policy, and had failed to document these loans. Jonathan also sought to prove that Settlors had continued to make annual Christmas gifts that Kirt and Kellie had failed to deposit into the Trust account, and that Kirt and Kellie improperly withheld a portion of the $100, 000.00 bequest to Jonathan set forth in Dolores's testament.

         The trial court found that Kirt and Kellie had breached the Trust by failing to properly account. The trial court additionally found that payments made on loans taken against the New York Life policy, payments of interest on loans taken against the New York Life policy, and a payment labeled "ECO/pay back dad" were improper. Thus, the trial court ordered Kirt and Kellie to reimburse Jonathan for these disbursements, and to pay the legal interest rate in effect from the date of each improper disbursement to the date suit was filed, plus judicial interest from the date of judicial demand until paid. The trial court declined to find that Kirt and Kellie had breached the Trust by maintaining the Trust funds in a low-interest checking account, by disbursing Trust funds to pay Jonathan's educational expenses, or by disbursing Trust funds to pay premiums for the New York Life policy. With respect to Jonathan's allegations that Kirt and Kellie had failed to deposit Christmas gifts and the full $100, 000.00 bequest from Dolores, the trial court determined that Jonathan had failed to prove that additional Christmas gifts were made or that the amount withheld from the $100, 000.00 was not properly owed as estate taxes as Kirt and Kellie contended. Kirt and Kellie were cast with court costs.

         Kirt and Kellie filed a Motion for New Trial on April 13, 2018. The trial court denied the Motion for New Trial in an order dated July 5, 2018. Jonathan appealed, asserting the following assignments of error:

1. The trial court erred in finding that Appellees' only breach of the Trust was their failure to account.
2. The trial court erred in failing to properly award damages in accordance with LSA-R.S. 9:2201.

         Kirt and Kellie answered the appeal, arguing that the award of legal interest was not allowed by law, and that the award improperly expanded Jonathan's pleadings because Jonathan had not prayed for legal interest. Kirt and Kellie prayed that this Court revise the trial court's judgment to include only the amount of actual damages, exclusive of legal interest prior to the date of judicial demand, and affirm the judgment as amended.

         LAW AND ARGUMENTS

         A trust is the relationship resulting from the transfer of title to property to a person to be administered by him as a fiduciary for the benefit of another. LSA-R.S. 9:1731.[3] Several provisions in the Trust Code indicate the high standard to which a trustee is held. Succession of Dunham, 408 So.2d 888, 900 (La. 1981). Louisiana Revised Statute 9:2082 mandates that a trustee administer the trust solely in the interest of the beneficiary, and 1964 Comment (c) to LSA-R.S. 9:2082 provides that the fundamental duty that a trustee owes a beneficiary is the duty of loyalty. Louisiana Revised Statute 9:2090 provides that a trustee shall administer the trust as a prudent person would administer it, exercising reasonable care and skill, and considering the purposes, terms, distribution requirements, and other circumstances of the trust. Louisiana Revised Statute 9:2091 imposes upon a trustee the duty to a beneficiary to take reasonable steps to take, keep control of, and preserve trust property. These provisions of the Trust Code evince the intention by the Legislature to place the very highest possible fiduciary responsibility on the trustee towards the beneficiaries. Dunham, 408 So.2d at 901. The Louisiana Supreme Court in Dunham wrote:

... the statutory provisions relative to the responsibilities of a trustee are very rigid and hold the trustee to an even higher fiduciary responsibility to his beneficiary than that owed by a succession representative to heirs. The very word "trustee" implies the strongest obligation on the part of the trustee to be chaste in all dealings with the beneficiary.

408 So.2d at 900.

         A violation by a trustee of a duty he owes to a beneficiary as trustee is a breach of trust. LSA-R.S. 9:2081. If a trustee commits a breach of trust he shall be chargeable with a loss or depreciation in value of the trust estate resulting from a breach of trust, or a profit made by him through breach of trust, or a profit that would have accrued to the trust estate if there had been no breach of trust. LSA-R.S. 9:2201. Determining whether a trustee has complied with these obligations requires a review of the trustee's actions in the performance of the duties incumbent on him or her as trustee. In re Harrier Tr., 2018-0324 (La.App. 3 Cir. 1/30/19), 264 So.3d 526, 535, writ denied, 2019-0582 (La. 6/3/19), 272 So.3d 544.

         Jonathan's first assignment of error is that the trial court erroneously concluded that Kirt and Kellie's only breach of the Trust was their failure to account. Jonathan contends that the trial court arrived at this conclusion after applying the wrong legal standard when determining whether Kirt and Kellie breached the Trust. Jonathan focuses on the following statement from the trial court's oral reasons for judgment:

The next question is do I find that in this case there was a breach by the defendants? In other words, do I find that they acted dishonestly and unreasonably?

         Jonathan emphasizes that LSA-R.S. 9:2081 defines "breach" as "[a] violation by a trustee of a duty he owes to a beneficiary," and does not reference the trustee's reasonableness or honesty. Thus, Jonathan contends that the trial court improperly equated its assessment of Kirt and Kellie's reasonableness and honesty with its assessment of whether they breached the Trust, and in doing so committed legal error warranting this Court's de novo review.

         In response, Kirt and Kellie argue that LSA-R.S. 9:2090 necessitates an evaluation of the reasonableness of a trustee's actions. Louisiana Revised Statute 9:2090 provides in full:

A. A trustee shall administer the trust as a prudent person would administer it. In satisfying this standard, the trustee shall exercise reasonable care and skill, considering the purposes, terms, distribution requirements, and other circumstances of the trust.
B.A trustee who has special skills or expertise, or has held himself out as having special skills or expertise, has a duty to use those special skills or expertise.

         Kirt and Kellie also argue that the full text and application of the quoted section of the trial court's judgment is necessary to properly appreciate that the trial court fully analyzed the issues before it. Kirt and Kellie therefore cite the following portion of the trial court's oral reasons for judgment:

The next question is do I find that in this case there was a breach by the defendants? In other words, do I find that they acted dishonestly and unreasonably? Well, I first note that I find absolutely no factual conclusion that they were dishonest. The Court does not believe that Kirt or Kellie acted dishonestly or with any ulterior motives or malintentions in the handling of this trust. However, whether or not they acted reasonably is not the same determination or the same test that I have to apply.
While they may have acted reasonably in handling a personal account that they might have set up, it was not reasonable to take on the duty imposed in the trust without at least advising themselves of the basic legal obligations of trustees under the Trust Code and by the basic obligations, I refer clearly to the accounting. It clearly requires that trustees shall annually account to the beneficiaries. The failure to maintain the records for the early years of the trust - and when I say maintain the records, they obviously maintained the records during the early years, but they allowed the records to be destroyed. So the failure to account prior to destroying those records, clearly constitutes a breach of the duty. The Court does not find that the records were destroyed to hide any wrongdoing. It was just a poor decision made by the defendants to save space.

         Kirt and Kellie claim that the trial court's references to reasonableness and honesty were merely "additional information," and the statements were made "likely for appellate purposes in order to identify factual issues pertaining to the credibility of the witnesses."

         Legal error exists upon the application of incorrect principles of law that deprives a party of substantial rights. Evans v. Lungrin, 97-0541, (La. 2/6/98), 708 So.2d 731, 735. When legal error has restricted or interdicted the fact-finding process, the law carves out an exception to the appellate "manifest error" or "clearly wrong" standard of review of a trial court or jury's finding of fact. Id.

         Having thoroughly reviewed the trial court's reasons for judgment and the entirety of the record before us, we find that the trial court committed legal error in its analysis of whether Kirt and Kellie breached the Trust. As we have previously noted, "Breach" is defined as "[a] violation by a trustee of a duty he owes to a beneficiary." LSA-R.S. 9:2081. Determining whether a trustee has complied with his obligations requires a review of the trustee's actions in the performance of the duties incumbent on him as trustee. In re Harrier Tr., 264 So.3d 526 at 535. However, in the quote cited above, the trial court's inquiry was whether Kirt and Kellie "acted dishonestly and unreasonably." Further, in later portions of the transcript, the trial court stated that it was "petitioner's burden of proof to prove this ulterior motive or this dishonesty and the petitioner has not done so," and, "the Court is not convinced there's any dishonesty involved ..."[4]

         The Trust Code does not define breach of a trustee's duty in terms of dishonesty, ulterior motives, and malintentions. Rather, the statutory provisions of the Trust Code set forth numerous duties imposing "the very highest possible fiduciary responsibility on the trustee towards the beneficiaries," requiring the trustee to be "chaste in all dealings with the beneficiary," and imposing upon the trustee a "fundamental duty of... loyalty," and then very simply defines "breach" as "[a] violation... of a duty." See LSA-R.S. 9:2081; 1964 Comment (c) to LSA-R.S. 9:2082; Dunham, 408 So.2d at 900-901. Thus, in assessing the trustees' actions by considering whether the beneficiary had proven the trustees' dishonesty, ulterior motives, and malintentions, rather than determining whether the trustees' fulfilled their fiduciary duties to the beneficiary, the trial court subjected the trustees to a drastically lower standard than that imposed upon the trustee by law and jurisprudence. This application of an improper legal standard constitutes clear legal error.

         In circumstances involving the existence of prejudicial legal errors at the trial level, if an otherwise intact record exists, the appellate court is required to review the record de novo and determine the essential facts pursuant to the correct law by a preponderance of the evidence. Panyanouvong v. T & H Convenience Store, Inc., 97-2727 (La.App. 1 Or. 12/28/98), 734 So.2d 9, 12, writ denied, 99-1839 (La. 10/15/99), 748 So.2d 1148. We shall therefore proceed to conduct a de novo review the merits of the case before us.[5]

         REVIEW OF THE TRUSTEES' ACTIONS

         Trustees are, by the very definition of their titles, entrusted to administer the Trust solely in the interest of the beneficiary. In re Harrier Tr., 264 So.3d at 535. Determining whether a trustee has complied with his obligations requires a review of the trustee's actions in the performance of the duties incumbent on him or her as trustee. Id. Accordingly, we are tasked with reviewing Kirt and Kellie's actions as the trustees of the Trust.

         Unfortunately, review of Kirt and Kellie's actions as trustees has been severely obstructed by Kirt and Kellie's decision to destroy and discard the majority of the Trust records in 2013. Kellie testified that she was advised by a CPA that she only needed to keep five to seven years of Trust records. She further stated that she needed to "make room" in her home office and discarded Trust records to do so. Kirt testified that he was aware Kellie was throwing away the bank records, and that he did not object. The records Kellie destroyed with Kirt's approval included bank statements and tax returns for the years 1995-2003. The handwritten check register they produced when Jonathan requested an accounting lacked the full date of many entries and obviously lacked other entries entirely as there were no interest entries after 2005. The check registry also skipped from check number eighteen to check number thirty-seven, with no explanation or documentation regarding the missing checks, other than an order for new checks due to a change of address for the Trust.

         Nevertheless, the record before us plainly reflects as follows:

         On December 4, 1995, Kirt and Kellie executed the Act of Trust assuming their appointment as Trustees, in the presence of the Settlors, a notary and two witnesses. At trial, both Kirt and Kellie testified that they believed they read the Act of Trust when it was executed, though neither had read it since. Kirt, who testified that he has a bachelor's degree in finance, initially handled the Trust. In 2002, Kellie began to handle the Trust. Kirt and Kellie each admitted that they have two financial advisors they consult when managing their personal assets. However, Kirt testified that he did not speak to either of his financial advisors regarding the Trust.

         Certain practices remained constant throughout the duration of Kirt and Kellie's service as trustees. Specifically, neither Kirt nor Kellie ever provided an accounting to Jonathan, or to his parents when he was a minor. Kirt and Kellie maintained the entirety of the Trust funds in a checking account. The account charges often exceeded the interest owed, causing the Trust to lose value month after month. Both Kirt and Kellie testified that they were aware of this. Kellie testified that this was done in order to keep the Trust funds liquid and available for Jonathan's benefit.

         During Kirt and Kellie's tenure as trustees, the Trust routinely paid Jonathan's school tuition, school uniforms, and other educational expenses. The Trust check registry documents the following: August 22, 1996 checks for $2, 016.85 and $79.00 written to Calvary Baptist School for tuition and uniforms, respectively; a June 2, 1998 check for $2, 300.00 written to St. Anthony School; a July 25, 2000 check for $2, 370.00 written to Redeeming Lord of Life; a July 23, 2001 check for $5, 200.00 written to Christian Life Academy; and, a April 17, 2002 check for $4, 888.00 written to Christian Life Academy.[6] Checks were also written to O'Neil Music Life and Sylvan Learning in the amounts of $780.00 and $2, 880.00, respectively.

         Four additional checks were written directly to Margo or Jonathan. A June 21, 2002 check for $440.00 written to Margo corresponded with a receipt for Christian Life Academy Summer School in the same amount. An August 1, 2002, check for $15, 000.00 was written to "Margo or Jonathan" with a notation reading "truck." Margo testified that she received $15, 000 from Eddie for a truck for Jonathan in 2002, though she denied having seen the check that was written from the Trust account for $15, 000.00. An August 1, 2002, check for $1, 000.00 was written to "Margo or Jonathan" for school uniforms. A ...


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