Wilkins v. Lasater

Rule of Law:

A trustee leasing trust property to themselves is ordinarily a per se breach of the duty of loyalty, unless explicitly authorized by the trust instrument, approved by the court, or ratified by the beneficiaries with full knowledge. Even if not a per se breach, a trustee engaging in such self-dealing bears a high burden of proving they did not profit and maintained proper, detailed accountings for all transactions.

Facts:

• Fred and Nell Lasater died in the 1940s and 1950s, creating testamentary trusts funded from their community property, which required management by majority rule of three trustees.
• Patsy Wilkins, Elfreda Nunn, and Gary Lasater became the trustees and were also beneficiaries of these trusts, which included farmland, stocks, and bonds.
• Gary Lasater began farming the trust land, along with his own adjacent land, in 1968 after his father's death.
• In 1972, Gary Lasater entered into a 10-year lease with the trustees to farm the trust land, which was unanimously approved by all trustees, including Patsy Wilkins.
• In 1982, after the 10-year lease expired, Gary Lasater and Elfreda Nunn voted to extend his lease for 1 year over Patsy Wilkins' objections.
• In early 1984, Patsy Wilkins, whose sole income was from the trusts, was in dire financial need and asked the other trustees for an advance from the trusts, which they initially refused.
• On March 7, 1984, the three trustees met, and Patsy Wilkins, upon her attorney's advice, agreed to extend Gary Lasater's lease through the 1987 crop year in exchange for the requested advance, payment of her other debts, and attorney fees, which was formalized in a written 'stipulation.'
• Gary Lasater, as lessee, failed to independently calculate how much fertilizer he used on the trusts' land versus his own, never presented the underlying fertilizer bills to the trusts, and was unable to state whether he was making a profit from his lease transactions with the trusts.

Procedural Posture:

• Patsy Wilkins commenced an action in state trial court, seeking an accounting of the trusts' assets, damages, and dissolution.
• Patsy Wilkins sought a preliminary injunction to enjoin Gary Lasater from leasing the trust land while also participating as trustee; the trial court orally granted the injunction, but this ruling was not reduced to writing or subsequently entered.
• In early 1984, the trusts and Gary Lasater, individually, petitioned the trial court for approval of a lease extension for Gary Lasater; the court orally denied the extension, but this ruling was neither reduced to writing nor signed by the judge.
• Patsy Wilkins moved for an order forcing the other trustees to grant her an advance from the trusts; the trial court issued a letter ruling finding an abuse of discretion and ordered the trustees to reconsider her request.
• Patsy Wilkins again sought an order forcing the other trustees to grant her an advance, submitting an affidavit claiming the other trustees refused unless she consented to Gary Lasater's lease.
• Prior to trial, Patsy Wilkins requested court approval of her husband's attendance at trustee meetings, but the trial court ordered his exclusion.
• The trial court concluded that the March 7, 1984 stipulation extending Gary Lasater's lease was binding and valid, that Gary Lasater had acted properly and breached no fiduciary duties, that the trusts' law firm was properly retained, and that Mr. Wilkins was properly excluded from attending trustee meetings.
• Patsy Wilkins moved for reconsideration of the trial court's judgment, which was denied.
• Patsy Wilkins appealed the trial court's judgment to the Court of Appeals of Washington, Division 3.