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Covenant Presbytery v. First Baptist Church

Supreme Court of Arkansas

March 31, 2016

COVENANT PRESBYTERY, APPELLANT CROSS-APPELLEE
v.
FIRST BAPTIST CHURCH, OSCEOLA, ARKANSAS, APPELLEE CROSS-APPELLANT, SUN TRUST BANK, AS TRUSTEE UNDER THE WILL OF STANLEY D. CARPENTER, APPELLEE CROSS-APPELLEE

          APPEAL FROM THE MISSISSIPPI COUNTY CIRCUIT COURT, OSCEOLA DISTRICT. NO. CV 2011-101. HONORABLE RANDY F. PHILHOURS, JUDGE.

         JOSHUA SANFORD.

         ROBERT F THOMPSON.

         WILLIAM CLAY AYRES.

         CRAIG S LAIR.

         KAREN ELIZABETH TURNER-FRY.

         RHONDA K. WOOD, Associate Justice. DANIELSON and GOODSON, JJ., dissent.

          OPINION

          RHONDA K. WOOD, Associate Justice

         Covenant Presbytery appeals from a Mississippi County Circuit Court's order which applied the doctrine of cy pres to reform a trust. On direct appeal, Covenant Presbytery argues first that the circuit court erred in applying the cy pres doctrine because there was no charitable trust and because the gift to First Presbyterian vested upon the settlor's death. Second, it argues that, if the circuit court was correct to apply cy pres, then the court's application of the doctrine does not comport with the settlor's intent. In its cross-appeal, First Baptist contends that the circuit court erred in denying its claim that the trustee, SunTrust, breached its fiduciary duty. We granted First Baptist's petition for review of the court of appeals' decision. When we grant a petition for review, we consider the appeal as though it had been originally filed in this court. See, e.g., In re Matter of Hamilton Living Trust, 2015 Ark. 367, 471 S.W.3d 203. We vacate the court of appeals' opinion, reverse on the direct appeal, and dismiss the cross-appeal.

         I. Factual and Procedural Background

         In June of 1965, Stanley D. Carpenter executed a document entitled " Last Will and Testament" (" will" ).[1] The document named National Bank of Commerce trustee and executor,

I nominate, constitute and appoint the National Bank of Commerce in Memphis, Tennessee, as executor and trustee of my estate, granting to them full power and authority to take possession of, hold, manage, invest and in every way to control and supervise all of my property in accordance with the terms of this Last Will and Testament and under the laws of the State of Arkansas; . . .

         Carpenter owned 237.87 acres of farmland in Mississippi County, and the will further provided that Carpenter's four relatives each would receive a one-fourth interest in the " net farm rents" for " life." Additionally, two Osceola churches, First Presbyterian and First Baptist, were to receive " [a]ll the rest, residue and remainder" of the estate in equal shares. The will directed the trustee " to sell all real estate in their discretion as soon as the law permit[s], taking into consideration the existence of the life estates hereinbefore created, and distribution of the proceeds therefrom in accordance with this bequest."

         Carpenter died in 1967. When Carpenter's will was probated, his farmland was transferred, pursuant to court order, to National Bank of Commerce, as trustee. National Bank leased the farmland and disbursed the income to the four life-estate beneficiaries. As a life-estate beneficiary died, National Bank would divide and remit the deceased beneficiary's income equally to First Presbyterian and First Baptist.

         In 2004, First Presbyterian voted to dissolve its congregation. In an " Overture of Dissolution" all assets of the church that had not previously been sold or distributed were transferred to Covenant Presbytery. First Presbyterian notified National Bank that First Presbyterian had dissolved and requested that all future payments from Carpenter's estate be made to Covenant Presbytery. Thereafter, National Bank distributed the income share to Covenant Presbytery.

         In 2005, SunTrust acquired National Bank and succeeded as trustee for the trust. SunTrust continued to distribute payments to beneficiaries, including First Baptist and Covenant Presbytery. In 2011, a First Baptist board member contacted the trust advisor assigned to the trust and expressed his belief that the trust payments to Covenant Presbytery were improper. Thereafter, SunTrust filed a " Petition and Request for Instructions and Declaration of Rights" against First Baptist and Covenant Presbytery requesting that the circuit court determine the rights and interests of these parties in the farmland and its income. First Baptist counterclaimed against SunTrust for breach of fiduciary duty.

         Following a bench trial in December 2012, the circuit court concluded that the will created a testamentary trust for the benefit of two churches in Osceola--First Presbyterian and First Baptist. Finding that Carpenter's intention was to benefit churches in his community and that First Presbyterian no longer had a church in Osceola, the circuit court applied the cy pres doctrine and reformed the trust to provide that First Presbyterian's distributions from the summer of 2011 forward should be transferred to First Baptist. The circuit court also held that SunTrust did not breach its fiduciary duty because it did not obtain actual knowledge of a potential dispute over payments with Covenant Presbytery until the summer of 2011. We granted First Baptist's petition for review of the court of appeals' decision to reverse and remand.

         III.App ...


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