Appeal from the Circuit Court of Cook County. No. 99 CH 17008 Honorable Patrick E. McGann, Judge Presiding.
The opinion of the court was delivered by: Presiding Justice Theis
Plaintiffs, Charles Foster Brown III, Heidi Hall Jones, and Ned Ochiltree, Jr., in their capacity as trustees of the Meyer Family Foundation (the Trustees), sought a declaratory judgment that the plain language of the Meyer Trust Agreement (the Trust Agreement) permitted them to terminate the Meyer Family Foundation (the Trust) and distribute the corpus of the Trust to the Oakleaf Foundation, under which the Trustees would serve as some of its fiduciaries. Defendant, the Attorney General of the State of Illinois, on behalf of the beneficiaries of the Meyer Family Foundation (the Attorney General), filed a two-count counterclaim. He alleged that the proposed distribution violated the terms of the Trust Agreement, was a breach of the Trustees' fiduciary duty, and that the Trustees had unclean hands.
After a bench trial, the trial court granted judgment in favor of the Trustees on their declaratory judgment action provided that certain modifications were made to the articles of incorporation and the bylaws of the newly established Oakleaf Foundation. Additionally, the trial court entered judgment against the Attorney General on his counterclaim, finding that the Trustees had not acted contrary to the Trust Agreement.
On appeal, the Attorney General contends that (1) the distribution to the Oakleaf Foundation violates the unambiguous terms of the Trust Agreement; (2) where the trust beneficiaries affirmatively requested that the Trust terminate, the Trustees must follow that directive and terminate their relationship with the Trust corpus; (3) the Oakleaf Foundation causes indeterminate and unnecessary administrative costs that would be avoided by a direct distribution to charity; and (4) the Trustees cannot be permitted to extend their control over the Trust corpus through the Oakleaf Foundation because they have unclean hands. For the following reasons, we affirm the judgment of the circuit court.
On December 23, 1946, C. Louis Meyer (the Grantor) established the Meyer-Ceco Foundation, also known as the Meyer Family Foundation, by a written Trust Agreement between himself, and his wife, Mary Luman Meyer, his daughter, Mary Elaine Meyer Moseman, and an employee of his company, J. Edmond Grogan, as trustees. The Agreement was executed in Nebraska. The Meyer Family Foundation is now an Illinois charitable trust pursuant to the Charitable Trust Act (the Act) (760 ILCS 55/1 et seq. (West 2000)). Since 1969, the Foundation has also been administered as a private foundation within the meaning of section 509(a) of the Internal Revenue Code of 1986 (the Revenue Code) (IRC §509(a) (2003)), and is a tax-exempt organization as provided by section 501(c)(3) of the Revenue Code (IRC §501(c)(3)(2003)). The Trust was originally funded with $1,000 and the assets have grown to over $12 million.
The powers and duties of the Trustees are provided for in the Trust Agreement. This case involves the interpretation and construction of those provisions relating to the responsibilities of the Trustees in terminating and distributing the assets of the Meyer Trust. Specifically, Article VII of the Trust Agreement provides that the Trust "shall be entirely distributed and the Trust terminated not later than [December 23, 1996], and if at said time any property shall then remain in the hands of the Trustees, the same shall be distributed for such purposes as mentioned in Article V hereof."
Article V of the Trust Agreement provides as follows:
"Subject to the terms of any specific gift, devise or bequest, the Trustees shall pay and disburse the net income and such portions of the principal of the Trust Estate as may, from time to time, be available for distribution at such times and in such amounts as the Trustees in their absolute discretion shall direct for such religious, charitable, scientific, literary or educational purposes as, in the opinion of the Trustees, will be for the best interests of the Trust and the beneficiaries thereof. Such disbursements may be made directly for the relief of the poor, for the care of children, the sick, the aged and the helpless and for the promotion of ascience [sic], art, education, religion and health without regard to race, sex, color, or creed; or indirectly by gifts to or grants in aid of corporations, trusts, community chests, funds, or foundations created or organized in the United States or in any possession thereof or under the laws of the United States or of any State or territory or any possession of the United States organized and operated exclusively for carrying on religious, charitable, scientific, literary or educational activities, no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no part of whose activities is the carrying on of propaganda, or otherwise attempting, to influence legislation.
In no event and under no circumstances shall any part of the Trust Estate, whether principal, income or accumulations, be distributed to or inured [sic] to the benefit of
1. The Grantor, his heirs or personal representatives;
1. Any of the Trustees or their successors in trust;
2. Any corporation, association or trust unless it be organized and operated exclusively for religious, charitable, scientific, literary and educational purposes or for one or more of such purposes, and unless no part of the net earnings thereof inures to the benefit of any shareholder, member, director, trustee, officer or other person engaged in management of its affairs."
The Grantor also limited the Trustees' liability in handling the affairs of the Trust. In Article IX of the Agreement, the Grantor provided that "the Trustees shall be responsible only for their own willful and corrupt breach of trust and not one for another." In addition, Article XI states in pertinent part that the Trustees "shall not be liable for any mistake in judgment or decrease in value of the Trust Estate, or for any acts or omissions done or permitted to be done by them in good faith."
At the time the trust was to terminate on December 23, 1996, the Trustees were unaware of the termination provision in the Trust Agreement and continued to serve in their capacities as Trustees of the Meyer Family Foundation. They first became aware of the termination provision in 1999. At that time, the Trustees had determined that the asset value of the Foundation had reached a point where it would be prudent to amend the Trust Agreement to increase the size of the board of trustees. After reviewing the Trust Agreement to determine how to add additional trustees, legal counsel discovered and advised the Trustees that they were to have terminated the Trust and distributed the corpus in December 1996.
Charles Brown testified that shortly after discovering the termination provision, the Trustees, along with Louis Brown and Howard Jessen, created the Oakleaf Foundation in June 1999, to receive the assets of the Meyer Family Foundation. They also contacted the Attorney General regarding their proposed termination and distribution to the Oakleaf Foundation. The Oakleaf Foundation is an Illinois not- for-profit corporation, and a private foundation within the meaning of section 509(a) of the Revenue Code (IRC §509(a)(2003)). It is a tax-exempt charitable organization as described in section 501(c)(3) of the Revenue Code (IRC §501(c)(3)(2003)). In addition to the Trustees, Louis Brown and Howard Jessen also agreed to serve as directors of the newly established Oakleaf Foundation. The Foundation will operate exclusively to carry on religious, charitable, scientific, literary or educational activities and has no termination date.
Ultimately, the Trustees filed the instant declaratory judgment action, seeking court approval to distribute the corpus of the Meyer Family Foundation to the Oakleaf Foundation. The Attorney General filed a counterclaim seeking to terminate the trust relationship with the Trustees and distribute the assets directly to "end-user" charities. The Attorney General alleged that the Trustees breached their fiduciary duties to the Meyer Family Foundation by failing to adhere to the terms of the Trust Agreement and by seeking to retain control of the trust corpus through distribution to the Oakleaf Foundation. He further alleged that the Trustees had engaged in self-dealing at the expense of the Meyer Family Foundation and came to court with unclean hands. The circuit court denied cross-motions for summary judgment, finding that there were genuine issues of material fact remaining regarding a breach of fiduciary duty and self-dealing.
After a one-day bench trial, the circuit court found that there was no evidence that the Trustees acted other than in a manner that the Grantor desired them to act, and that considering all of the facts and circumstances, the Trustees acted with "deliberacy" in winding up the affairs of the Trust. The trial court further found that from a complete and total reading of the Trust Agreement it was clear that the Grantor intended that distributions could be made to a foundation whose fiduciaries included the Trustees of the Meyer Family Foundation.
Accordingly, the circuit court (1) granted the Trustees' petition to distribute the corpus of the Meyer Family Foundation to the Oakleaf Foundation, and (2) denied the counterpetition of the Attorney General to terminate the trust ...