January 26, 2016 Practice Points

OH Court of Appeals Provides Guidance on UTC Exculpatory Clauses and Statute of Limitations

The guidance comes in Newcomer v. National City Bank

by Janelle L. Peiczarka

In Newcomer v. National City Bank, (2014-Ohio-3619, 19 N.E.3d 492), the Ohio Court of Appeals provided guidance regarding exculpatory clauses and the application of the statutes of limitations provisions of the Ohio Uniform Trust Code (UTC) to acts preceding its adoption. The court held that there is a minimum standard of liability, despite exculpatory clauses, and that courts cannot accumulate a series of negligent acts to find bad faith, willful default, or reckless indifference. The court further held that the Ohio UTC’s statute of limitations does not extend time limitations that were originally barred when the Ohio UTC was enacted in 2007. Due to the similarity between Ohio UTC and the Model UTC provisions, practitioners from other jurisdictions may find this opinion instructive.

Ruth E. Markey established a revocable inter vivos trust in 1957 and named National City Bank as trustee. The trust was irrevocable upon Ruth Markey’s death in 1960. In 2006, National City Bank was removed as trustee of the Ruth Markey trust, and two trustees were named as successor trustees. In 2007, the successor trustees and beneficiaries filed a complaint alleging multiple breaches of fiduciary duties by National City Bank. The claims of misconduct included failure to maintain and keep accurate records, overcharging trust fees, failure to file and pay taxes, missing funds, failure to liquidate the trust, inadequate performance reports, failure to provide a copy of the trust to a beneficiary and inform him of his rights and duties as an Advisory Committee member, failure to act only upon written direction of the Advisory Committee, failure to develop a written investment objective, failure to evaluate the competency of a beneficiary who was also an Advisory Committee member, and failure to protect the remaindermen’s interests. The trial court held in favor of National City Bank on all claims. The successor trustee and beneficiaries appealed. The Ohio Court of Appeals affirmed the lower court decision. 

The Ohio Court of Appeals first held that claims, which were barred before the effective date of the Ohio UTC, would remain barred after the Ohio UTC went into effect and were not revived, even though it extended the statute of limitations from two years to four years. Since the Ohio UTC was based on the Model UTC, the court found the Official Comments to Section 1106 of the Model UTC “instructive;” the Model Comments noted that barred claims were not revived by UTC enactment.

The trust contained an exculpatory clause, which limited trustee liability to liability based on bad faith or willful default. The court noted that the Ohio UTC has a minimum standard of liability, holding trustees liable for breaches of trusts that are made in bad faith or with reckless indifference to the trust’s purpose or beneficiaries’ interests. The court held that the minimum standard will be enforced regardless of the provisions of a trust’s exculpatory clause. Section 1008 of the Model UTC provides a similar minimum standard of liability for breaches of trust “committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries,” regardless of the trust’s exculpatory language.

The court further held that various and numerous negligent acts by National City Bank could not be considered collectively to establish willful default or reckless indifference. The court looked to Ohio case law and noted that bad faith, willful default, and reckless indifference involve breaches of different degrees of care, and that, for conduct to rise to these levels, it must be “substantially more culpable than mere negligent or erroneous conduct.”

Lastly, the Ohio Court of Appeals considered whether the standard of proof for breach of fiduciary duty claims was clear and convincing evidence or preponderance of the evidence. Looking to precedent, the court upheld the trial court’s decision that clear and convincing evidence is the burden of proof for breach of fiduciary duty claims under Ohio law.

Janelle L. Peiczarka, Boston College Law School, Newton, MA

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