IN THE MATTER OF THE TRUST AGREEMENT DATED JUNE 6, 1974, AS AMENDED
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-15-0000409, CAAP-15-0000414, CAAP-15-0000576,
CAAP-15-0000598, CAAP-15-0000632; TRUST NOS. 14-1-0019 and
Victor Dubin and Frederick J. Arensmeyer for petitioners
Vincent A. Piekarski, Raymond K. Okada, Judy Y. Lee,
Johnathan C. Bolton and Dierdre Marie-Iha for respondent Bank
Bruce Graham, Jr., James K. Mee and H. Shan Wirt for
respondent Susan Sheetz and Patricia Sheetz
W. Bushnell for respondents Julie G. Henderson, Trustee of
the Julie G. Henderson Irrevocable Trust, the Jean K. Gowans
Irrevocable Trust and the Louis L. Gowans, Jr. Irrevocable
Trust; and Richard L. Gowans, Trustee of the Richard L.
Gowans Irrevocable Trust
Douglas C. Smith and Christopher J.I. Leong for respondent
Kevin I. Yokoyama, as Trustee of the Kevin I. Yokoyama Trust
and the Irvine K. Yokoyama, Jr. Trust
NAKAYAMA, ACTING C.J., POLLACK, AND WILSON, JJ., CIRCUIT
JUDGE ASHFORD IN PLACE OF RECKTENWALD, C.J., RECUSED, AND
CIRCUIT JUDGE TO'OTO'O, IN PLACE OF McKENNA, J.,
appeal arises from a 2014 petition by
Respondent/Petitioner-Appellee Bank of Hawai'i (BOH) to
resign as trustee for a trust comprised of several parcels of
land underlying the Discovery Bay condominium complex in
Waiklkl (Trust). Petitioners/Respondents-Appellants Michael
David Bruser and Lynn Bruser (collectively, "the
Brusers"), who hold the leasehold commercial unit in the
condominium, and several Trust beneficiaries objected to
BOH's petition to resign as trustee.
subsequent litigation in the Probate Court of the First
Circuit (probate court), the probate court entered several
orders that determined that a monthly trustee's fee of
$9, 850 was reasonable, permitted BOH to reform the trust
agreement, and awarded attorneys' fees and costs to BOH.
The probate court, however, specifically declined to
determine whether the Brusers were liable to pay the
trustee's fees. Thereafter, the Brusers filed two appeals
in the Intermediate Court of Appeals (ICA) challenging these
their appeals were consolidated with the appeals of other
beneficiaries, the Brusers filed an opening brief alleging
that the probate court erred when it determined that the $9,
850 trustee's fee was reasonable and when it awarded an
unreasonable amount of attorneys' fees and costs to BOH.
The Brusers also stated that the probate court erred in
exercising jurisdiction over the Brusers, who are not parties
to the Trust Agreement, and holding them responsible for the
increased trustee's fee.
determined that under the language of the Trust Agreement and
the condominium conveyance document for the commercial unit,
the Brusers were responsible for paying the trustee's
fees. The ICA also concluded that the $9, 850 monthly
trustee's fee was reasonable. Accordingly, it affirmed
the probate court's orders denying the Brusers'
motion for reconsideration and granting in part the petition
for resignation. Additionally, the ICA rejected the
Brusers' specific objections to the probate court's
attorneys' fees and costs order, but vacated and remanded
the order on other grounds.
certiorari, the Brusers contend that the ICA erred when it
concluded that they are liable for the trustee's fees
even when the probate court made no such determination, and
when the probate court did not allow the Brusers discovery to
determine the reasonableness of the trustee's fee. They
also challenge the ICA's failure to address their
specific objections to the probate court's attorneys'
fees and costs order, even if the ICA vacated and remanded
the order on other grounds.
review of the record and the orders entered by the probate
court in this case, we first agree with the Brusers to the
extent that the probate court did not make any determination
regarding their liability for the trustee's fees.
Therefore, the ICA erred in concluding, in the first
instance, that the Brusers are liable for the trustee's
fees when the probate court did not address the issue. We
vacate the ICA's judgment on appeal to the extent that it
holds the Brusers liable for the trustee's fees.
for the reasons set forth herein, we affirm the ICA's
judgment on appeal that affirmed the probate court's
conclusion that a $9, 850 monthly trustee's fee is
reasonable. We also affirm the ICA's judgment on appeal
vacating and remanding the probate court's attorneys'
fees and costs order.
The Formation of the Trust
6, 1974, various parties who owned thirteen adjacent parcels
of land under what is now the Discovery Bay condominium
complex (Discovery Bay) at 1778 Ala Moana Boulevard in
Waikiki entered into a trust agreement with Mainline-MEPC
Properties (Hawai'i), Inc. (MEPC Properties), a
construction company that wished to build a condominium at
the site, and Hawaiian Trust Company, Limited (Hawaiian Trust
Company), as trustee, to construct a condominium on the
purposes of the Trust, as described in the Trust Agreement,
were to (1) construct a condominium on the property; (2)
provide efficient and uniform administration of the
Settlors' interests; (3) determine the value of the
leases created by condominium conveyance documents (CCD); (4)
distribute rental income under the CCDs to the Settlors; and
(5) administer the property on the termination of the leases
created under the CCDs.
defined by paragraph 2 of the Trust Agreement, the
trustee's powers were limited to the powers expressly
granted by the Trust Agreement. The Trust Agreement provided
other provisions with respect to trustee's fees and the
resignation of the trustee:
11. Trustee's Fees. The Trustee shall be
entitled to such reasonable fees as from time to time may be
mutually agreed upon. In addition to said reasonable fees,
the Trustee shall have the right to incur such expenses and
to be reimbursed by the Lessee as provided for by the leases;
and to incur such expenses and be reimbursed for
extraordinary services. The Lessee or its assigns will pay
the Trustee's fee and expenses until December 31, 2039 or
the earlier termination of this trust.
17. Resignation, Removal and Substitution of
(a) Resignation of Trustee. The Trustee may resign
its duties hereunder by filing with each person designated as
a representative its written resignation. No such resignation
shall take effect until sixty (60) days from the date thereof
unless prior thereto a successor Trustee shall have been
(c) Appointment of Successor Trustee. A successor
Trustee hereunder may be appointed hereunder upon the
majority vote of representatives of Settlors having an
interest in the majority in square footage in the jointly
developed parcel and shall take effect upon the delivery to
the resigning or removed Trustee, as the case may be, of (i)
an instrument in writing appointing such successor Trustee,
and (ii) an acceptance in writing of the successor Trustee
hereunder executed by the successor so appointed.
Any successor Trustee hereunder shall be a corporation
authorized and empowered to exercise trust powers within the
State of Hawaii. . . .
to an agreement with MEPC Properties in 1974, Hawaiian Trust
Company, the original trustee, received an annual
trustee's fee of $800.00.
The Brusers and the Commercial Unit
Bay consists of 665 leasehold residential units and one
leasehold commercial unit (Commercial Unit). Title to the
leasehold interests is held by an "Apartment Owner"
under the terms and conditions of a CCD for that unit.
December 1, 197 6, the Commercial Unit CCD was executed
between Hawaiian Trust Company, as trustee and lessor, and
MEPC Properties, as the "Apartment Owner." Therein,
Hawaiian Trust Company conveyed the Commercial Unit to MEPC
Properties for a term "commencing on the 1st day of
December 197 6, and terminating at midnight on the 31st day
of December, 2039." The Commercial Unit CCD contains a
provision stating that "[t]he Apartment Owner shall also
pay to the Lessor all fees and expenses charged or incurred
by the Lessor as Trustee under the terms of the said Trust
about December 14, 1984, the Brusers acquired the Commercial
Unit from MEPC Properties by a deed (Apartment Deed).
Pursuant to the Apartment Deed, the Brusers stated that for
ten years, they "paid all monthly rents, costs,
expenses, assessments, and charges required and demanded of
them in a timely manner, and continue to do so."
February 1994, BOH, which had previously acquired Hawaiian
Trust Company (and thus had become the trustee of the Trust),
requested a monthly trustee's fee of $500 for its efforts
on behalf of the trust beneficiaries. While the Brusers
questioned the validity and reasonableness of the
trustee's fee, they nevertheless agreed to pay the $500
2001, after being notified that BOH intended to increase the
monthly trustee's fee from $500 to $2, 586, the Brusers
filed a complaint for declaratory judgment in the United
States District Court for the District of Hawai'i (U.S.
District Court) requesting that the U.S. District Court find
that they were not liable for any alleged
trustee's fees. The Brusers later settled with BOH and
agreed to pay a monthly trustee's fee of $1, 100 until
December 31, 2002.
Brusers appear to have continued to pay the monthly
trustee's fee of $1, 100 until BOH filed its petition to
resign as trustee in January 2014.
Probate Court Proceedings
January 28, 2014, BOH filed a "Petition for Resignation
of Trustee, Appointment of Successor Trustee, Reformation of
Trust and Approval of Trustee's Accounts Covering the
Period from January 1, 2008 through December 31, 2013"
(Petition for Resignation) in the probate
court. While BOH did not explain why it wished to
resign, it informed the probate court that the beneficiaries
had not yet selected a successor trustee, that Central
Pacific Bank and First Hawaiian Bank were the only
corporations authorized to exercise trust powers in the
state, and that pursuant to paragraph 17 (c) of the Trust
Agreement, they were the only entities that could become a
"successor trustee." BOH also stated that Central
Pacific Bank and First Hawaiian Bank had declined to serve as
the successor trustee, and therefore BOH requested that the
probate court approve a reformation of paragraph 17(c) that
struck language requiring a corporation to be a successor
Association of Apartment Owners of Discovery Bay (AOAO), the
majority owner of the beneficial interests in the Trust,
objected to BOH's Petition for Resignation. It claimed
that BOH's resignation would be "highly detrimental
to the Trust assets and the Beneficiaries' interest in
the Trust." Several of the non-AOAO beneficiaries also
filed objections to BOH's Petition for Resignation and
requested that the probate court deny its
interested party, the Brusers also filed a position statement
wherein they stated that they paid a monthly trustee's
fee of $1, 100 to BOH, and requested that any approval of the
Petition for Resignation should be accompanied by an order
that the successor trustee be bound to a $1, 100 monthly
trustee's fee pursuant to the provisions of the
Commercial Unit CCD.
preparation for a hearing in the probate court, BOH filed a
Supplement to Petition for Resignation of Trustee. Therein,
BOH informed the probate court that it had met with the
beneficiaries and had proposed several reformations to the
Trust Agreement. BOH further stated that because the
beneficiaries had rejected its proposed trust reformations,
it had informed the beneficiaries that it would seek
compensation as provided by HRS § 607-18. BOH argued that
under the statute, a corporate trustee is entitled to fees as
set forth in its fee schedule. BOH's standard fee
schedule for "[i]ncome producing properties [m]anaged
with [a] third-party property manager" called for an
annual fee of 6% of the gross rental income collected.
Applying BOH's standard 6% fee to the annual rent of $3,
378, 840.00, BOH concluded that it was entitled to an annual
trustee's fee of $202, 730.40, or $16, 894.20 per month.
AOAO opposed the request for a trustee's fee of $16, 800
as unreasonable. The Brusers joined the AOAO's position
regarding BOH's request to resign as trustee.
Additionally, regarding BOH's request to reform the
trust, the Brusers explained that they
support[ed] any reformation of the Trust that is in
accordance with the amendments that are agreed to by [BOH]
and the beneficiaries, except for any attempt to
have it as the Commercial Owner of the Commercial Unit (or as
the "CU Lessee") continue to pay the amount
[previously agreed to in the Settlement] if the Bruser Trust
is also going to have to pay for some portion (its percentage
of common interest) of the Trustee's fees as a member of
the AOAO. It is not equitable for the Bruser Trust to pay for
both amounts if that is what the Petitioner and the
beneficiaries are attempting to structure. (emphasis in
the probate court entered an order on BOH's Petition for
Resignation, on August 28, 2014, the Brusers initiated
proceedings for declaratory relief in the U.S. District Court
requesting that the U.S. District Court order the Brusers not
liable to pay trustee's fees. See infra Section
September 8, 2014, BOH reported that it had arranged a
compromise agreement with the non-AOAO beneficiaries
regarding the amount of the trustee's fee. This Outline
Agreement proposed a trustee's fee of 3.5% of the rental
income, or $9, 850 per month.
September 11, 2014 hearing before the probate court, BOH
argued that the Outline Agreement as reached by BOH and the
non-AOAO beneficiaries should be adopted. In response, the
AOAO argued that the trustee's fee was "high"
and unreasonable. It also contended that the Brusers were
required to pay the trustee's fees under the provisions
of the Trust. The Brusers stated that they could not be
liable for paying the trustee's fees, but did not take
any position with respect to the reasonableness of the amount
of the trustee's fee:
We're not taking a position today as to what the fees
should be because that's between - that's under the
trust. And this court has jurisdiction under the trust. And
we can't take a position because we're not one of the
beneficiaries. We're just simply here to protect the
Brusers' rights and to ask this court to not overstep its
jurisdiction as we've laid out.
conclusion of the hearing, the circuit court stated it would
preliminarily approve a monthly sum of $9, 850 as a
reasonable trustee's fee, and approve the withholding of
the monthly fee from the distributions to the beneficiaries
for the five-year period as stated in the Outline Agreement.
November 6, 2014, the Brusers filed an Ex Parte Motion for
Leave to Take Depositions in the probate court. In their ex
parte motion, the Brusers appeared to take a contrary
position from the position they held at the September 11,
2014 hearing, and argued that the $9, 850 monthly fee was
"excessive and cannot be justified[.]" In support
of their motion, the Brusers noted that they had already
conducted an investigation into the work performed by BOH,
"and their findings confirm that, contrary to BoH's
title as Trustee on behalf of Discovery Bay, BoH has few, if
any, substantive responsibilities with respect to the
management of the subject trust." The probate court
denied the Brusers' motion.
probate court entered an "Interim Order Relating to
Petition for Resignation of Trustee" (Interim Order) on
December 24, ...