IN THE SUPREME COURT OF OHIO

MICHAEL K. CUNDALL, et al . On Appeal from the Hamilton

County Court of Appeals, First
Plaintiffs . Appellate District

v. . Supreme Court Case No. o8-0314

U.S. BANK, TRUSTEE, et al.

Defendants.

MERIT BRIEF OF PLAINTIFF-APPELLEES

MICHAEL K. CUNDALL, INDIVIDUALLY
AND AS SUCCESSOR TRUSTEE

Richard G. Ward (0037613)

Drew & Ward Co. LPA
240o Fourth & Vine Tower
One West Fourth Street
Cincinnati, OH 45202
Phone: 513-621-8210
Fax: 513-6i9-i646
Email: nward(&drewlaw.com

COUNSEL FOR PLAINTIFF-APPELLEES

MICHAEL K. CUNDALL, INDIVIDUALLY AND
MICHAEL K. CUNDALL, SUCCESSOR TRUSTEE
William H. Blessing (ooo6848)
Law Offices of William H. Blessing
119 East Court Street, Suite 500
Cincinnati, OH 45202
Ph 513-621-9191
Fax 5i3-621-7986
Email bi11b1essingC&cinci.rr.com

COUNSEL FOR CROSSCLAIIVIANTS/THIRD PARTY PLAINTIFFS-

APPELLEES MICHAEL K. CUNDALL, JR., COURTNEY FLETCHER
CUNDALL AND HILLARY CUNDALL
James B. Helmer, Jr. (0002878) (COUNSEL OF RECORD)
Julie W. Popham (0059371)
Robert M. Rice (oo618o3)
Erin M. Campbell (0079083)
Helmer, Martins, Rice & Popham, Co. LPA
6oo Vine Street, Suite 2704
Cincinnati, OH 45202
Phone 513-421-2400
Fax 513-421-7902
Email jhelmer(&fcalawfirm.com

COUNSEL FOR DEFENDANTS-APPELLANTS RICHARD W. CAUDILL,

TRUSTEE, KEVEN SHELL, TRUSTEE, WILLIAM P. MARTIN, TRUSTEE, G.
JACK DONSON, TRUSTEE, MICHAEL S. CAUDILL, TRUSTEE, D. SCOTT
ELLIOT, TRUSTEE

Peter L. Cassady (0005562)

Beckman Weil Shepardson LLC
300 Pike Street, Suite 400
Cincinnati, OH 45202
Phone 513-621-2100
Fax 513-62i-oio6
Email petercassadyC&beckman-weil.com

COUNSEL FOR DEFENDANTS-APPELLANTS DEBORAH KOONS GARCIA,

CHRISTINA N KOONS, JOHN F. KOONS, JAMES B. KOONS, CAROLINE M.
KOONS, KATHLEEN M. KOONS, MAURA L. KOONS, JEREMY B. KOONS
AND MORGAN N. KOONS

Donald J. Mooney, Jr. (0014202) (COUNSEL OF RECORD)

Pamela A. Ginsburg (0071805)
Ulmer & Berne LLP
60o Vine Street, Suite 2800
Cincinnati, OH 45202
Phone 513-698-5000
Fax 513-698-5ooi
Email dmooneyCa?ulmer.com

COUNSEL FOR DEFENDANTS- APPELLANTS

NICHOLAS KOONS BAKER AND CARSON NYE KOONS BAKER
 TABLE OF CONTENTS

Page

STATEMENT OF THE CASE AND FACTS : ................................... i

II. ARGUMENT IN SUPPORT OF PROPOSITIONS OF I.AW :............ 8

Proposition of Law No. i: Tender Not NecessarX

Unauthorized self-dealing by a trustee is presumptively

fraudulent and therefore the "tender rule" is no bar to a
challenge by the trust beneficiaries . .......................................... 8

Prouosition of Law No. 2: Burden of Proof

A self-dealing trustee of an express trust always bears the

burden of proving beyond all reasonable doubt the perfect
fairness and honesty of the transaction . .................................... 25
Proposition of Law No. ,3: Constructive Trust

A constructive trust is an equitable remedy not a cause of

action. .. ...................................................................................... 30

Proposition of Law No. 4: Personal Jurisdiction

Out-of-State beneficiaries of an Ohio Trust are subject to

personal jurisdiction in Ohio ...................................................... 35
III. CONCLUSION ............................................................................. 41

IV. CERTIFICATE OF SERVICE ........................................................

................................................................................................... 42

i
 TABLE OF AUTHORITIES

Page

Cases

AuItman Hosp. Assn, v. Community Mut. Ins. Co. (1989), 46 Ohio St.3d
51, 55, 544 N.E.2d 920, 924 ............................................................................................32

Armstrong v. Huston (1838), 8 Ohio St. 552,1858 WL 44 ...........................................24

Atwater v. Jones (1902), 24 Ohio C.C. (N.S.) 328, 34 Ohio C.D. 605 ..........................4,16,25

Bacon v. Donnet, gth Dist. No. 21201, 2003-Ohio-1301 ...............................................4,11

Bank One, Youngstown, N.A. v. Helzel (1991), 76 Ohio App.3d 524, 530,
6o2 N.E.2d 412, 415 ........................................................................................................21

Bebout v. Bodle (1882), 38 Ohio St. 500,1882 WL 110 ................................................. 12,13

Biddulph v. Delorenzo, 8th Dist. No. 83o8, 2004-Ohio-4502, 2004 WL 1902725 ....... 16.25

Brown v. Moss, gth Dist. No. CA 19422,1999 WL 1037758 ........................................... 20

Caldwell v. Caldwell (1888), 45 Ohio St., 523 15 N.E. 297, 302 ................................... 24

Carnahan v. Johnson (1998), 127 Ohio App.3d 195, 711 N.E.2d 1093 .......................... 20

Cassner v. Bank One Trust Company, NA., loth Dist. No. 03AP-1114,
2004-Ohio-3484, 2004 WL 147o8o6 ................................................................:...........8,34

Central National Bank of Cleveland, Trustee v. Brewer, et al. (1966), 8

Ohio Misc. 409, 22o N.E.2d 846 ....................................................................................16,23

Cent. Trust Co. ofN. Ohio, N.A. v. Smith (1990), 50 Ohio St.3d 133, 138,
553 N.E.2d 265, 272 ........................................................................................................21

Chaplain Kieffer Post io8t v. Wayne Cty. Veterans Assn. (Sept 21,1988),
Wayne App. No. 2358, 1988 WL 99188 ......................................................................... 32

Cleveland Tr. Co., Trustee v. Shuman (1974), 39 Ohio Misc. 136, 317
N.E:2d 256 .......................................................................:.......:...................................... 37

Collins v. First National Bank (1g69), 2o Ohio App.2d 1, 251 N.E.2d 61o ...................2.0

Cundall v. US Bank, 174 Ohio App.3d 421, 2007-Ohio-7o67, 882 N.E.2d 481............4,5,6,7,9,10
11,25,29,34>
39,40

11
Devoue v. Fanning (1816), 2 John's Ch. 252 ................................................................. i

Dolce v. Lawrence (Sep. 30, i999), ilth Dist. No. 98-L-o8o, i999 Ohio
App. LEXIS 465o ............................................................................................................ 37

Domo v. McCarthy (1993), 66 Ohio St.3d 312, 314, 612 N.E.2d 7o6, 708 .................... 17

Estate of Cowling v. Estate of Cowling, io9 Ohio St.3d 276, 2oo6-Ohio-24188,

47 N.E.2d 405 .................................................................................................................31

Ferguson v. Owens (1984), 9 Ohio St.3d 223, 459 N.E.2d 1293 ................................... 31

Haller v. Borror Corporation (1990), 50 Ohio St.3d 10, 552 N.E.2d 207 ....................8

Hambleton v. R.G. Barry Corp. (i984), 12 Ohio St.3d 179,465 N.E.2d 1298 ..............

Hoppel v. Hoppel, 7th Dist. No. 88-C-59, i99o Ohio App. LEXIS 2246 ...................... 11

Hosterman v. First Natl. Bank & Trust Co. (1946), 79 Ohio App. 37,38, 34
0.0. 328, 68 N.E.2d 325 .................................................................................................34

Huntington National Bank v. Wolfe (1994), 99 Ohio ApP.3d 585, 651

N.E.2d 458 ............................................................................:......................................... 16,29

In re Estate of Binder (i94o), i37 Ohio St.26, 27 N.E.2d 939.••••.•••••••••••••••••••.•••••••••••••29

In re Gray's Estate (1954),162 Ohio St. 384,123 N.E.2d 408 ...................................... 11,12

In re Guardianship ofMarshall (May 26, i998) , 12th Dist. Nos. CA96-11-239

4and CA96-i1-244 ..........................................................................................................4

In re Harris Testamentary Trust, 275 Kan. 946, 2003-KS-ooooi36, 69

P.3d iio9 ......................................................................................................................... 40

In re Testamentary Trust of Hasch (1999), 131 Ohio App.3d 143, 721 N.E.2d 1111 ..... 20

In re Trust Created by Inman (2005), 269 Neb. 376, 693 N.W.2d 514••••••••••••••••••••••••39

In re Trust of Bernard, Ohio App. 9th Dist., 2oo8 WL 3918058 ................................... 30

In the Matter of the Complaint to Terminate Trust of Howard T. Grant,

5th Dist. No: CA-6122, i98q Ohio App ............................................................................ 20

In the Matter of the Trust Created by item IV of the Codicil of the Will of
William H. Spindler, 4th Dist. CA No.1327, 1987Ohio App. LEXIS 6044 ................... 20

Joffe v. Cable Tech. Inc., 163 Ohio App.3d 479, 2005-Ohio-4930 ................................ 35,38

iii
Kentucky Oaks Mall Co. v. Mitchell's Formal Wear, Inc. (1990), 53 Ohio
St.3d 73, 559 N.E.3d 444 ................................................................................................ 39

Kime v. Addlesperger (1903), 2 Ohio C.C. (N.S.) 270, 277,14 Ohio C.D. 397 .............. 25

Kley v. Healy (i8gi), i27 N.Y. 555, 28 N.E. 593 ............................................................ 12,13

Lewis v. Mathes, i6i Ohio App.3d 1, 2005-Ohio-i975, 829 N.E.2d 318 ....................... g

Magee v. Troutwine (1957), i66 Ohio St. 466,143 N.E.2d 581 ..................................... 12,16,24

Manhattan Life Ins. Co. v. Burke (1903), 69 Ohio St. 294, 7o N.E. 74 .........................12,i3,i5

Michoud v. Girod (1846), 45 U.S. 503, ii L.Ed 1076, 4 How• 503 .............................. 25

Miller v. Woods (1871), 21 Ohio St. 485, 1871 WL 81 .................................................... 13

Morgan v. FirstNational Bank of Cincinnati (1948), 84 Ohio App. 345,

84 N.E.2d 612 .................................................................................................................. 20

Mumma v. Huntington National Bank of Columbus, Trustee (1967), g Ohio

App.2d 166, 223 N.E.2d 621 ...........................................................................................20

National City Bank v. Beyer (2000), 89 Ohio St.3d 152,156, 729 N.E.2d
711, 7i5 .............................................................................................................................17

Nimey v. Nimey (1935), 182 Wash 194,45 P.2d 949 ....................................................14

Norton.:v. Bridges, (7th Cir. 1983), 712 F.2d 1156 ...........................................................37,38

Palm Beach Co. v. Dun & Bradstreet, Inc. (1995), io6 Ohio App.3d 167,
665 N.E.2d 718 ................................................................................................................ 31,32

Parshall v. PAID, Inc., ioth Dist. No. 07AP-1019, 2oo8-Ohio-3171, 2008

WL2553o98 .................................................................................................................... 35

Peterson v. Mitchener (1947), 79 Ohio App. 125,133, 71 N.E.2d 510 ........................... 25

Peterson v. Teodosio (i973), 34 Ohio St.2d 161, 297 N.E.2d 113••••••••.•.••••.••••-••••••••••••••5

Piatt v. Longworth's Devisees (1875), 27 Ohio St. 159, 1875 WL 159 ........................... 24,25

Picklesimer v. Baltimore & Ohio RR. Co. (1949),151 Ohio St. 1, 84 N.E.2d 214 ......... 15

............................ i4
Reggio v. Warren (1911), 207 Mass 525,93 N.E. 805 .......................

Reniediation Services, Inc. v. Georgia-Pacific Corp. (1993), 209 Ga. App.

427,433 S.E.2d 631 ......................................................................................................... 12
Robbins v. Smith (1905), 72 Ohio St. 1, 73 N.E. io5i ....................................................2o,2i

iv
Rudloff v. Efstathiadis Fletcher, llth Dist. No. 2oo2-T-o119, 2003-Ohio-6686 ......... il

Schoch v. Bloom (1965), 5 Ohio Misc. 155, 158, 212 N.E.2d 428•••••••••••••••••.•••••••••••••••••4,24

Schultz v. Sullivan (1993), 92 Ohio ApP.3d 205, 634 N.E.2d 68o ................................ 12

State ex re1. Lien v. House (1944),144 Ohio St.238, 247, 29 0.0. 399, 58
N.E.2d 675 ...............:....................................................................................................... 31>34

Strong v. Strong (1886), 102 N.Y. 69,5 N.E. 799 ..........................................................14

Townsend's Executors v. Townsend (1874), 25 Ohio St. 477, 1874 WL 1o1 .................16

Trust of Broh-Kahn v. Broh-Kahn, 8th Dist. No. 536o6, 1988 Ohio App.
LEXIS io88 .................................................. ................................................................... 11

Ullmann v. May (1947), 147 Ohio St. 468,34 O.O• 384, 72 N.E.2d 63 .........................32

United States Sprint Communications Co. Partnership v. K's Foods (1994),

68 Ohio St.3d 181, 185, 624 N.E.2d 1048 ..........................:............................................39

Weisman v. Blaushild, 8th Dist. No. 88815, 20o8-Ohio-219, 2008 WL 192139..........9

White v. Hewitt (191o), 86 S.C. 576, 68 S.E. 82o ..........................................................14

Yost v. Wood, 5th Dist. No. 7357, 1988 Ohio App. LEXIS 2791 ..................................... 11

Statutes

R.C. §21^.01.24 (B)(i)(b) ........:..........................................................................................28

R.C. § 2109.44 .................................................................................:................................15

R.C. §2305.07 .................................................................................................................. 33

R.C. §2305.09 .......... ....................................................................................................... 28

R.C. §58oi.o5 .................................................................................................................. 28

R.C. §5802.03 ............. .................................................................................................... 28

R.C. §5808.02 (B)(2) ......................................................................................................15

Other Authorities

RESTATEMENT (SECOND) CONFLICTS OF LAW §267 ............................................................3'7

RESTATEMENT (SECOND) TRUSTS §§216-218 .....................................................................22

RESTATEMENT (SECOND) TRUSTS §337-340 (1959) ................................:.........................19i20

RESTATEMENT (THIRD) TRUSTS §6 5 (2003) ..................................................................... 15019,23

3 Scott on Trusts (5 Ed.2007) 1078, Section 17.2 .......................................................... 4

Robert Joseph Pothier, Tr. du Contrat de vente, part. 1, n. 13 ...................................... 25

I. STATEMENT OF THE CASE AND FACTS

Preliminary Statement

Stories aren't told, and cases don't unfold, in a factual vacuum. So even this

review of a 12(b)(6) motion involves a case that is peculiarly unique in its own special

setting.

A self-dealing trustee is typically clever compared to his beneficiaries. That's to be

expected. He has the money and position to be so. But when he is brought to task by a

successor, it is not ordinarily his former attorney who has blown the whistle on him.

That's because ordinarily his former attorney is not his successor trustee or is confused

about his fiduciary obligations or under some other constraint.

In this case, Dick Ward had a long attorney-client relationship with Bud Koons

whose parents named Bud as the initial trustee of their 1976 trust. However, Bud's

parents also named Dick to succeed Bud as trustee, and when he did he observed that

Bud had not treated the Cundall part of the trust impartially and with the high fidelity

and most scrupulous loyalty required of a trustee. Accordingly, Dick Ward had an

ethical and fiduciary duty to disclose his predecessor trustee's breach of trust.

Unfortunately, the predecessor trustee happened to be a former client.

While this may have some unsavory aspects to it, it is important to remember

that the wrong that needed to be corrected started when Bud Koons violated his parents'

trust by cheating his dead sister's kids out of their family stock, when he was supposed

to be looking out for them with the utmost care. And he didn't just cheat them and let

them go. After he fraudulently obtained their stock, he kept them under his thumb

while he continued as their trustee for the rest of his life. So the wrong continued and it

waxed prolific in the $400 million sale in 2005.

 Though Dick Ward only served as successor trustee for about 6 weeks, he

faithfully executed his duties as trustee and this enabled his ultimate successor, Michael

Koons Cundall, to get a handle on what needed to be done.

Since Dick Ward and his firm never represented Bud Koons adversely versus the

Cundalls, there was no "side-switching" or "changing jerseys in the middle of the game"

as some of the appellants contend. Moreover, Dick Ward didn't view his fiduciary duty

as a contest. Nor did he view his fiduciary duty to the Cundalls as something that must

be subordinated to the loyalty an attorney owes a former client. What he understood

was he had an unqualified duty to disclose, and if possible correct, a breach by his

predecessor that became apparent to him when he learned of a huge disparity in the two

funds of the 1976 trust that were supposed to be divided equally for accounting and

distribution purposes.l

When the duties of successor trustees who are attorneys can be stymied or

trumped due to a prior attorney-client relationship between the successor-trustee-

attorney and predecessor-trustee-client, all predecessor-trustee-clients will simply hire

their nominated successors as their attorneys and then know they are safe to embark on

whatever course of conduct they choose.

While this issue has become somewhat of a sideshow in this self-dealing trustee

case, it is one that needs to be addressed because defendants-appellants have raised it.

To thwart the efforts of Michael Koons Cundall in this action, the trustees and personal

1 See bar chart attached as "Exhibit M" to Plaintiffs Memorandum In Opposition to

Defendants' Motion to Disqualify the Law Firm of Drew & Ward and Attorney Nick
Ward. T.d: 131; Supp. Vol. I-r. See also Grandparents Trust, pg. 4, ARTICLE II(a).
Supp. Vol. I-49.
representatives first filed a motion to disqualify Nick Ward and Drew & Ward. That was

never heard. Later, a malpractice action was filed. The malpractice action continues

toward trial while this matter is on appeal. It seems the cart is before the horse and this

court should be aware that the defendants-appellants in this action are using all the

litigation strategies that money can buy to prevent the Cundall case from being heard on

the merits.

This self-dealing case was brought by Michael Koons Cundall. He is Bud Koons'

nephew and the trust grantors' grandson. The case involves some unique factual

situations and fiduciary relationships. But most notably, it involves a recurrent human

tendency that courts of equity have dealt with for centuries uncounted and tried to

curtail. The recurrent human "tendency" arises when, during a fiduciary relationship,

the trustee steps beyond the confines of allowable fiduciary conduct to advance his own

interests. It's called "self-dealing." The trust maxim that's been formulated to prevent

the human inclination to self-deal states as follows: An agent for a seller can't buy

for himself.

All facts aside, however interesting and special they may be, this case cannot turn

on. uncross-examined affidavits and innuendo. The procedural posture requires the

matter be addressed as a matter of law and the primary matter at hand is the "tender

rule." A secondary consideration is the "burden of proof." Both of these issues are

generally controlled by the context of the case: a self-dealing trustee of an express

trust. The third issue for review involves the equitable remedy of a "constructive trust"

and whether such a remedy is subject to a statute of limitations. Fourth and final is the

issue of "personal jurisdiction" over out-of-state trust beneficiaries.

Before addressing the four issues for review, a brief procedural posture, opinion
summary and statement of facts follows.

Procedural Posture

Defendants-appellants -Successor Trustees, personal representatives and

individual Koons beneficiaries-obtained a 12(b)(6) dismissal of Michael Koons

Cundall's breach of fiduciary duty and unjust enrichment claims in the trial court. The

First District reversed. Defendants-appellants now challenge that reversal.

U.S. Bank was dismissed by the trial court based on the statute of limitations.

That dismissal was upheld by the First District and is not here challenged.

The First District's Decision

The First District properly reasoned that a self-dealing trustee cannot hide

behind a release obtained from his beneficiaries and allow him to require a tender of the

"consideration" because the whole transaction is "highly suspect" if not presumptively

fraudulent and void. The First District further held that when trustees self-deal, it is

their burden to conclusively prove that they acted with the utmost good faith and

exercised the most scrupulous honesty toward the beneficiaries, placed the beneficiaries'

interests before their own, did not use the advantage of their trustee positions to gain

any benefit at the beneficiaries' expense, and did not place themselves in a position in

which their interests might have conflicted with their fiduciary obligations.2 It held that

2 Cundall v US Bank, 174 Ohio APP.3d 421, 2007-Ohio-7o67, 882 N.E.2d 481 at ¶38,
citing Atwater v. Jones (1902), 24 Ohio C.C. (N.S.) 328, 34 Ohio C.D. 605; Bacon V.
Donnet, 9th Dist. No. 21201, 2003-Ohio-13oi, at ¶¶29-30; Schoch v. Bloom (1965)> 5
Ohio Misc. 155, 158, 212 N.E.2d 428; In re Guardianship of Marshall (May 26, i998),
12th Dist. Nos. CA96-11-239 and CA96-11-244, 3 Scott, Trusts (5 Ed.2007) 1078, Section
17.2.
a constructive trust is an equitable remedy, not a cause of action3 and that the out-of-

state Koons beneficiaries are subject to jurisdiction in Ohio under both the Ohio Trust

Code and pre-existing law.

Statement of Facts

In 1976 John F. Koons, Sr. and Ethel Bolan Koons set up a trust (the

"Grandparents Trust") for the benefit of their two children, John F. Koons III ("Bud")

and Betty Lou Cundall.4 They deposited 6,209 shares5 of their closely-held business,

Central Investment Corporation ("CIC"), into the Grandparents Trust and .directed that

one-half of those shares should be held in Fund A for the benefit of Bud's children and

grandchildren (the Koons Beneficiaries who are the beneficiaries of the trusts held by

the Koons Trustees), and the other half should be held in Fund B for the benefit of Betty

Lou Cundall and her children and grandchildren (the "Cundall Beneficiaries").6 Bud

was trustee of the Grandparents Trust from its inception in 1976 until his death on

3 Cundall at ¶84, citing Peterson v. Teodosio (i973), 34 Ohio St.2d i6i, 297 N.E.2d 113.

4 T.d. 156, Exhibit B; Supp. Vol. I-46-75.

5 Typo in Cundall brief below created wrong number of 6,309 shares which was adopted
by the Court of Appeals. Correct number is 6,209. See Grandparents Trust, Exhibit B,
Schedule A at T.d. 156; Supp. Vol. I-62.

6 See Family Chart attached as Exhibit L to Plaintiffs Memorandum In Opposition to

Defendant's Motion to Disqualify the Law Firm of Drew & Ward and Nick Ward, T.D.
131; Supp. Vo1. 1-2.
March 3, 2005.7

In 1983, only months after he had purchased Lloyd Miller's shares for

$328/share, Bud tried to get the Cundalls to sell their shares for $155/share.$ This was

not a friendly offer. It was an "all or nothing, now or never" offer.9

In 1984, when he was CEO and majority shareholder of CIC as well as the trustee

of the Grandparents Trust, Bud sold all of the Fund B CIC shares back to CIC for

$21o/share and also forced other Cundall family members to sell all of their individual

holdings of CIC shares back to CIC for the same price.10 U. S. Bank, as Trustee of the

Betty Lou Cundall Trust dated August io, 1977, for the benefit of the Cundall

Beneficiaries (the "1977 Cundall Trust"), also sold CIC shares held by the 1977 Cundall

Trust back to CIC for this price." No court approval of these sales was sought or

obtained; the price paid was for less than the fair value of the stock; Bud used fraud,

duress and undue influence to obtain the Cundall family's consent to the sale; the sale

violated a material purpose of the Grandparents Trust which was to hold the CIC shares

for the benefit of Betty Lou Cundall's family until the death of the last to die of Betty Lou

7 T.d. 124, at ¶6. In its opinion, the Court of Appeals stated that Michael had alleged that
Bud had approached him and his siblings and "told them that he would stop distributing
dividends and that the CIC shares would be worth nothing if they did not sell" and "Bud
had the unfettered power to distribute income or principal as he saw fit." The court
noted also that this $210 purchase price was $i18 less per share than what another
shareholder, Lloyd Miller, had previously received for his shares. Cundall at 16.

8 See Affidavit of Richard H. Ward and attachments collectively "Exhibit F" to the
Plaintiffs Memorandum In Opposition to Defendants' Motion to Disqualify the Law
Firm of Drew & Ward & Attorney Nick Ward. T.d. 131 and 133; Supp. Vol II-i-28.

9 T.d. 156 ¶29.

lo T.d. 124, at ¶7.

ll Id.

6
and her brother Bud; and Bud and the other Koons family members, including the

Koons Beneficiaries, were unjustly enriched by the sale by reason of the corresponding

unfair increase in the value, increased dividends and continued ownership of their CIC

shares.12

As individual owners of CIC, as well as beneficiaries of Fund A and other Ohio

trusts subsequently established for their benefit, the Koons Beneficiaries have had

substantial contacts with the State of Ohio. They have received disbursements from

these trusts and dividends from CIC; engaged Ohio accountants, filed Ohio tax returns,

and engaged in business transactions with financial institutions within the State of

Ohio.13

Cross-Claimants are Cundall Beneficiariesl4 who were minors at the time of the

sale.15 They did not have guardians ad litem appointed for them and were otherwise

unrepresented.16 Peter Cundall's children-Peter Cundall, Jr. and Katie Mikula-as well

as Richard Cundall, III's children-Richard IV and Clare-were also unrepresented

minors. Sara (Cundall) Kersting's three children-Kyle, Alex and Jeffrey-were not yet

born in 1984 and there was no court-appointed trustee for them or the class of the

12 T.d.124, at ¶7.
13 T.d. 156, at ¶i-xi (Plaintiffs Second Amended Complaint). Michael filed a Motion for
Leave to file a Second Amended Complaint, which was denied by the trial court. The
trial court's denial was reversed by the Court of Appeals, which held that on remand the
trial court should allow the Second Amended Complaint. Cundall at ¶64.

14 See Family Chart attached as Exhibit L to Plaintiffs Memorandum In Opposition to

Defendant's Motion to Disqualify the Law Firm of Drew & Ward and Nick Ward, T.D.
131; Supp. Vol 1-2.

15 T.d. 124, at Preamble.

16 Id.
unborn. In January, 2005, all of the outstanding shares of CIC stock, including the

shares held in Fund A, were sold to PepsiAmericas, Inc. 17

The 1976 Grandparents Trust provided for the initial trustee (Bud Koons) to be

succeeded by three individual co-trustees or, failing that, U.S. Bank. Due to

disagreements over what their fiduciary duty required them to do18 and purportedly due

to perceived conflicts, all three personal co-trustees and the bank resigned or declined

following Bud's death on March 3, 2005. Upon these failures, Michael Koons Cundall

sought appointment as Successor Trustee in September of 2005 and was appointed in

case #A05o7295 on November 23, 2005. He commenced the underlying trial court

action of this matter on March 3, 2oo6.

1. ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW:

Proposition of Law No. 1: Tender Not Necessarv

Unauthorized self-dealing by a trustee is presumptively

fraudulent and therefore the "tender rule" is no bar to a
challenge by the trust beneficiaries.

In Haller v. Borror Corporafion,19 the court held that if a release obtained in the

course of the settlement of an intentional tort claim against a former employer is

procured by fraud in the factum, the release is void and tender is not required.

However, if it is procured by fraud in the inducement, the release is voidable and the

17 T.d. 124, at ¶8. As the Court of Appeals recognized in.its Opinion, PepsiAmericas
bought CIC for approximately $340 million.

i$ See Affidavit of Richard H. Ward and attachments collectively "Exhibit F" to the
Plaintiffs Memorandum In Opposition to Defendants' Motion to Disqualify the Law
Firm of Drew & Ward & Attorney Nick Ward. T.d. 131 and 133; Supp.Vol II-1-28.

19 Haller v. Borror Corporation (1990), 50 Ohio 8t.3d io, b52 N.E.2d 207.
party is required to tender any consideration received in return for the release before

filing suit.

In Cundall, the Court of Appeals held that the differentiation of types of fraud in

Haller did not apply because Haller was a personal injury case involving an arms-length

transaction where there was no fiduciary relationship between the parties.20 The court

declined to create a tender requirement "when a fiduciary has allegedly breached its

duty by self-dealing."21

The Koons Estate/Trustees and Koons beneficiaries argue that the Court of

Appeal's ruling is inconsistent with Haller and with rulings from the Eighth and Fourth

Districts applying the tender rule to cases involving suits by minority shareholders who

had entered into settlement agreements with majority shareholders.22 They also cite

cases from other jurisdictions involving law partners and joint venturers.23 These cases

are all distinguishable on their facts.

For example, the Weisman case does not involve a conflict that arises out of a

fiduciary duty. The term "fiduciary duty" does not appear anywhere in the case. It is a

contract case. The relationship between the parties was created by a negotiated contract

Z() Cundall at ¶21- ¶22.

21 Cundall at ¶25.
22 Weisman v. Blaushild, 8th Dist. No. 88815, 20o8-Ohio-219, 2008 WL 192139; Lewis
v. Mathes 161 Ohio App.3d 1, 2005-Ohio-1975, 829 N.E.2d 318.

23 Defendants-Appellants' assumption that the court's narrow holding may be applied to

all fiduciary relationships is analogous to the assumption made by the trial court in
Cassner 2004-Ohio-3484, at ¶43, where the trial court applied the cause-of-action
accrual date applicable to ordinary non-trust-related breaches of fiduciary duty to a
breach of fiduciary claim against a trustee. In reversing the trial court, the Court of
Appeals recognized that causes of action against trustees are unique.
that arose out of an employment arrangement where there was a meeting of the minds

at arms-length. In this contract setting, the Eight District properly applied the tender

requirement.

Lewis, Like Weisman, was also a contract-related employment case. However,

Lewis was also a shareholder case where Lewis was a 1/3 owner. He wanted to be

bought out by the other two shareholders and created a mechanism to achieve that by

obtaining an appraisal and entering into a contract and signing a release. Both cases

involved relationships that were entered into at arms-length by relative equals.

Unlike both Weisman and Lewis, the conduct called into question in Cundall

arises in the context of an express trust where a fiduciary duty exists between the trustee

and beneficiaries. The relationship is not defined by the parties at arms-length. It is

created by the grantors' trust and governed by statutory and common law.24

The Court of Appeals based its decision on its views regarding the unique duty

owed<'<by a trustee to the beneficiaries of a trust: "Self-dealing - when trustees use the

trust property for their own personal benefit - is considered `particularly egregious

behavior.' And any direct dealings between a trustee and a beneficiary are `viewed with

suspicion."'25 The court reasoned that a trustee has a duty of loyalty arising from the

trustee-beneficiary relationship, and that the duty of loyalty requires a trustee who has a

personal stake in a transaction to adhere to a particularly high standard of behavior."26

24 Cundall at ¶29.
zs Cundall at ¶32 (citations omitted).
26 Cundall at ¶26.

10
The court noted that "when a fiduciary - or an entity connected with a fiduciary - ends

up with property originally in the trust, bells ring and sirens wail."27

Given the narrow basis for the court's decision, it does not conflict with Weisman

and Lewis and should not be extended to "joint venturers, majority and controlling

shareholders, directors, agents, partners, attorneys, and all other fiduciaries."28 The

Court of Appeals decision is also consistent with the rule under Ohio law that if there is

no question that at least the amount originally paid upon the execution of a release is

owed, there is no reason to require repayment of the original amount when the release is

challenged and an additional amount is sought.29

Some decisions have alternatively looked at the broad powers inherent in a court

for fashioning equitable remedies. They hold the restoration concept behind the tender

27CundaIl at ¶31.
28 In a-related argument, the Koons Estate/Trustees argue that the Court of Appeals
erred in stating that a presumption of fraud applied to the trustee's self-dealing.
However, the Court of Appeals decision is consistent with Ohio law, which provides that
self-dealing transactions by a fiduciary are presumed to be invalid. Rudloff v.
Efstathiadis FTetcher, iith Dist. No. 2002-T-o119, 2003-Ohio-6686, at ¶1o; Bacon u.
Donnet, 9th Dist: No. 21201, 2003-Ohio-13oi, at ¶30; Trust of Broh-Kahn u. Broh-
Kahn, 8th Dist. No. 536o6, 1988 Ohio App. LEXIS 1o88; See Yost v. Wood, 5th Dist. No.
7357, 1988 Ohio App. LEXIS 2791, *8 ("Constructive fraud often exists where the parties
to a contract have a special confidential or fiduciary relation which gives one the
opportunity to take undue advantage of or exercise undue influence over another.")

29In Re Gray's Estate (1954), 162 Ohio St. 384, 123 N.E.2d 408, (holding that successor
fiduciary was not required to tender back the amount received from surety before
pursuing its remedies because there was no dispute that at least the amount previously
paid was due); Hoppel v. Hoppel, 7th Dist. No. 88-C-59, 199o Ohio App. LEXIS 2246,
*4-*5 (holding that where the plaintiff had previously obtained a payment and was
entitled to'it irrespective of the validity of the settlement, there was no reason why the
plaintiff should be compelled to repay the payment to the defendant when requesting
rescission of the settlement.)

11
rule can be addressed by adjusting the equities through giving a credit or set-off against

the amount the wrongdoer is ordered to pay.30

There can be no question that the Cundalls are owed at least the amount they

received from the stock sale in 1984. The Koons are not arguing that the CIC stock was

worth less than the amount the Cundalls were paid. Ohio law does not compel the

Cundalls to repay this amount before challenging the release and seeking an additional

amount.

The tender rule was addressed by the Ohio Supreme Court in In re Gray's

Estate.31 It was also discussed in Bebout v. Bodle32 and Manhattan Life Ins. Co. v.

Burke.33 All three cases acknowledge that "tender" is "unnecessary" under

circumstances where there is an amount due equal to the amount paid. As set forth in

Bebout: "We reply, why should Mrs. Bodle return this money to William A. Bebout,

30 Magee v. Troutwine (1957), 166 Ohio St. 466, 143 N.E.2d 581 (holding that in a
chancery action a trial court has plenary jurisdiction to render a decree in conformity
with the equities of the matter); Schultz v. Sullivan (1993), 92 Ohio App.3d 205, 634
N:E:2d 68o (holding that courts applying equity are not bound by formula or restrained
by any limitation that tends to interfere with or limit their just exercise of discretion.
"Rather, we seek only to protect the equitable interests of all parties to this litigation.");
Kley v. Healy (1891), 127 N.Y. 555, 28 N.E. 593 (holding that where plaintiff had only
"that which, without dispute, belonged to her, restoration or the offer thereof was not
necessary prior tothe commencement of the action, for such conditions as might be
essential to the protection of the defendant could be inserted in the judgment ultimately
rendered."); Remediation Services, Inc. v. Georgia-Pacific Corp. (1993), 2o9 Ga. App.
427, 433 S.E.2d 631 (holding that tender not necessary where unreasonable, where
defendant made it impossible or where plaintiff is entitled to keep what he has -
reasoning that the restoration rule is flexible and pragmatic and requires that neither
party may retain an unfair advantage.)

31 In re Gray's Estate (1954), 162 Ohio St. 384,123 N.E.2d 4o8.

32 Bebout v. Bodle (1882), 38 Ohio St. 500, 1882 WL llo.

33 Manhattan Life Ins. Co. v. Burke (1903), 69 Ohio St. 294, 7o N.E. 74.

12
when there is no dispute that there was due from him to her many times the amount so

paid? He was entitled to credit for the amount, but not for a return of the money.34

Similarly, in Manhattan Life Ins. Co. v. Burke,35 the rule stated in Bebout was

reiterated: "[R]estoration is not necessary where the money received by the party was

due him in any event and if returned could be recovered back.36

A comprehensive analysis of the cases where restoration has been considered is

set forth in A.M. Srarthout, Annotation, Return or tender of consideration for release

or compromise as condition of action for rescission or cancellation, action upon

original claim, or action for damages sustained by the fraud inducing the release or

compromise, 134 A.L.R.6 (1941). Many of these cases identify various equitable

situations where the "tender" rule is just not applicable.

None of the Ohio cases cited in this annotation, however, involved facts

pertaining to a trustee of an express trust, though several cases involving claims against

34 Bebout v. Bodle (i882), 38 Ohio St. 500, 1882 WL iio.

35 Manhattan Life Ins. Co. v. Burke (i9o3), 69 Ohio St. 294, 7o N.E. 74.

36 Id. citing Bebout, supra and Kley v. Healy (1891), 127 N.Y. 555, 28 N.E. 593, and
noting that: "The law does not require an idle ceremony;" See also, Miller v. Woods
(1871), 21 Ohio St: 485, 1871 WL 81 (holding partial payment of cash and new
promissory note does not require tender before suing on old note.)
decedents' estates dispensed with the tender requirement on the basis that no return

was necessary for what the plaintiff was undoubtedly entitled to keep.37

Another reason why the tender rule is inappropriate is because the concept

doesn't contemplate that over time, tender may become impossible for the

releasor/beneficiary due to circumstances beyond his or her control. For example, it

may become impossible due to the ongoing tyranny or negligence of the trustee who,

through additional exercises of his power and discretion, has diminished the corpus.

In the Cundall situation, Bud Koons placed the Cundall Trust B funds in an

agency account and delegated his trustee duties to U.S. Bank while focusing his

attention on increasing his own family's income and wealth. The trust languished and

actually shrank in value for some time. Bud also improvidently loaned money from the

trust to one of the beneficiaries when there was inadequate collateral security. Under

these circumstances, it is not practical to expect such beneficiaries to be able to tender.

The passage of time and the spending-down of their trust makes it impossible.

37 Reggio v. Warren (1911), 207 Mass 525, 93 N.E. 805 (holding "He need not go
through the vain ceremony of repaying or offering to repay these sums, when it at once
would become the duty of the trustees to return to him the amount of these payments
with a much larger additional sum."); White v. Hewitt (i9io) 86 S.C. 576, 68 S.E. 820
(holding "As plaintiffs received only what belonged to them without the settlement, they
were not bound to tender it back."); Strong u. Strong (i886), 102 N.Y. 69, 5 N.E. 799,
(holding, "[P]laintiff could either (i) restore what she had received on the settlement
and claim restoration to the position occupied by her prior thereto, or (2) keep whatshe
had received an,d prosecute the defendant for damages sustained by her on account of
the traud.); Nimey v. Nirney (1935), 182 Wash 194,45 p•2d 949 (holding "[O]neinjured
by fraudulent compromise may, instead of restoring the benefit received, retain what he
has received and sue for whatever damages he has sustained as the result of the deceit
by which the compromise was obtained; or, if he rescinds the transaction on the ground
of fraud, he is not required to restore that which in any event he would be entitled to
retain.")
 Another reason why tender is not appropriate in this case is because it would not

place the parties in the status quo ante. This is the stated goal and rationale of cases like

Picklesimer38 and Manhattan Life39. In both of these cases, all the plaintiffs ever had

was a claim and the defendants asserted nothing was due them. As the court stated in

Picklesimer, the consideration must be returned because: "Otherwise, if a trial should

result in a finding of no liability on the part of the defendant, the plaintiff would still

have money belonging to the defendant."4o

Unlike the cases relied on by defendants-appellants, in the status quo ante, the

Cundalls still owned all their stock. Now, after years of depriving the Cundalls of the

benefits of dividend income and appreciation, the Koons CIC stock has been sold and

the defendants-appellants hold the proceeds. They can't return the stock. It's

impossible. Requiring a tender in this situation would keep all the benefits already in

the hands of the defendants-appellants on their side of the equation, plus give them

Whatever the Cundalls have left. That's not the status quo ante.

Generally, in the "high duty" setting of a trustee of an express trust, "tender" is an

uncommon issue, because the ordinary scrutiny over any "interested" transaction is so

high that questionable ones don't happen. They get stopped! Court supervision is

required,41 or sought.42 In this case, Bud Koons did not seek court authority, probably

3$ Picklesimer v. Baltimore & Ohio RR. Co. (1949),151 Ohio St. 1, 84 N.E.2d 2i4.

39 Manhattan v. Life Ins. Co. v. Burke (19o3), 69 Ohio St. 294, 7o N.E. 74.

40Picklesirner at 6, 84 N.E.2d at 217.

41 R.C. § 2io9.44; R.C. §5808.02 (B)(2) ; RESTATEMENT (THIRD) TRUSTS §65 (2003).
because he figured the transaction wouldn't be authorized, especially if all the minor and

unborn beneficiaries became represented. Instead, Bud proceeded with this interested

transaction and through an abuse of power or human frailty-or both-took advantage

of it. This theme of "human frailty" is a recurring one throughout the decisions and is

cited as the basis of the rules.43

Court Approval Required

Certain matters that a trustee undertakes involve conduct that requires court

approval. This is true regardless of whether the trust is testamentary or intervivos.

Such court approval is not required because of the type of trust involved, but because of

the type of conduct involved. One such type of conduct is the modification or

termination of a trust. This is particularly true in the present Cundall matter because

the Grandparents Trust did not provide authority to the trustee or the beneficiaries for

modification or early termination of the trust.

Defendants-Appellants argue unpersuasively that Bud Koons had authority to

effectively modify his parents trust through the power of sale provision. A closer look

reveals language that dispels that notion.

The cardinal rule in trust construction is to ascertain the intent of the settlor. The

four factor analysis used in Townsend's Executors v. Townsend44 still prevails:45

4 2 Central National Bank of Cleveland, Trustee v. Brewer, et al. (1966), 8 Ohio Misc.
409, 22o N.E.2d 846; Biddulph v. Delorenzo, 8th Dist. No. 83o8, 2004-Ohio-4502,
2004 WL 1902725; Huntington National Bank v. Wolfe (1994), 99 Ohio App.3d 585,
651 N.E.2d 458.

43 Atwater, Magee, supra.

44 Townsend's Executors v. Townsend (1874), 25 Ohio St. 477, 1874 WL ioi

 "i. In the construction of a will, the sole purpose of the court
should be to ascertain and carry out the intention of the
testator.

2. Such intention must be ascertained from the words

contained in the will.
3. The words contained in the will, if technical, must be
taken in their technical sense, and if not technical, in
their ordinary sense, unless it appears from the context
that they were used by the testator in some secondary
sense. "

4. All the parts of the will must be considered together, and

effect, if possible, given to every word contained in it."

Most of the trust, including the power of sale which is cited by defendants-

appellees, is boilerplate. The "custom" language employed in the trust includes the

following which has been paraphrased unless otherwise noted:

• The trustee shall divide the initial assets into two equal shares.46

. Bud had complete discretion to distribute, or not distribute, income and

principal (from their respective shares) to any of the Koons beneficiaries or Cundall

beneficiaries; just not to himself or his spouse.47

. The trust was to continue until the last to die of Bud Koons and his sister,

Betty Lou Cundall. Each of them had a limited power of appointment to appoint among

the Grantors' descendants, or failing that, the respective shares would pass to their then-

4s National City Bank v. Beyer (200o), 89 Ohio St.3d 152, 156, 729 N.E.2d 711, 715
citing Domo v. McCarthy (1993), 66 Ohio St.3d 312, 314,612 N.E.2d 7o6, 7o8.

46 Grandparents Trust, pg. 4, ARTICLE II(a). Supp. Vol. 1-49.

47 Grandparents Trust, pg. 4, ARTICLE II(b). Supp. Vol. 1-49-50.

living descendants per stirpes or if none to the other's then-living descendants per

stirpes.48

The trustee could loan money so that no CIC Stock would have to be sold to pay

estate taxes.49 The specific language stated:

(b) The Trustee may loan, out of any cash or cash equivalent
held in the trust, such amounts as may be necessary to pay
any state, death or inheritance taxes which the Executor or
Executrix of the estate of either of the Grantors or one of the
Primary Beneficiaries may owe. The purpose of such loans
shall be to enable said taxes to be paid without the necessity
for the Executor or Executrix to sell or otherwise liquidate
any stock, securities or other interest they may own in
Central Investment Corporation. Such loans shall be on the
terms and conditions agreed between the Trustee and the
Executor or Executrix of the estate of either Grantor or the
estate of any Primary Beneficiary. (emphasis added)

. The trust gave the Trustee voting power over the CIC stock to transfer it

into a holding company for the benefit of the Grantors' family and so that it would be

voted consistently with.the shares held by John F. Koons, III (Bud).$O

. Bud was not entitled to compensation for his services as trustee.51

. The trust was deemed an Ohio trust to be governed by the law of Ohio.52

. The trust was irrevocables3 and binding on the heirs, executors,

administrators, successors and assigns of the Grantors and trustee.54

48 Grandparents Trust, pg. 4-5, ARTICLE II(c)(i) & (2). Supp. Vol. I-50-51.

49 Grandparents'frust, pg. 8, ARTICLE III(b). Supp. Vol. 1-53.

s° Grandparents Trust, pg. io, ARTICLE IV(7). Supp. Vol. 1-55.

51 Grandparents Trust, pg. 13, ARTICLE VI. Supp. Vol. I-58.

52 Grandparents Trust, pg. 14, ARTICLE VII. Supp. Vol. 1 -59•

 Based on the foregoing, the Cundalls believe that a material purpose of the trust

was to hold the family stock (CIC) and pass it down to the respective Koons and Cundall

family members upon the last to die of Bud and Betty Lou. Thus, even if all the proper

parties were before a court seeking to modify the Grandparents Trust by selling the CIC

stock, the first hurdle would have been to determine whether selling it would defeat a

material purpose of the trust or whether the reason for wanting to sell it outweighed the

material purpose.55

According to Ohio case law and the common law of trusts, when a trustee seeks to

modify or terminate a trust with the consent of the beneficiaries, he requests approval

from a court which must determine, among other things, whether all proper parties are

before it and whether there is still a material purpose of the trust that remains

unfulfilled. This was never done by Bud Koons and it is the Cundalls' position that had

court authority been sought, some or all of the 1984 transaction would have been

prohibited.

Modification or Termination

The reason court authority is required to modify or terminate a trust is because

without court oversight, a grantor's intention may be thwarted. In the case at hand, a

quick look at the controlling trust law of the day immediately reveals that important

interests went unprotected in the 1984 transaction.

The RESTATEMENT OF TxuSTs has long been recognized by Ohio courts as

53 Grandparents Trust, pg. 14, ARTICLE VIII. Supp. Vol. I-59•

54 Grandparents Trust, pg. 14, ARTICLE IX. Supp. Vol. 1-59.

55 RESTATEMENT (SECOND) TRUSTS §3$7; RESTATEMENT (THIRD) TRUSTS §65.

authoritative and the version in effect in 1984 was the RESTATEMENT (SECOND) TRUSTS

(1959). The sections that address termination or modification of trusts are §§337-340•56

In general, irrevocable trusts cannot be modified or terminated if there is still a material

purpose of the trust to be achieved.57 This is true even where the grantor is the sole

living beneficiary but there are potential unborn beneficiaries 58 "[F]or the class of

remaindermen is subject to remain open as long as appellant lives."59

[A] court of equity may decree [a trust] terminated if the paramount purposes [of
the trust] have all been accomplished and all the parties who are or may be interested in
the trust property are in existence, and sui juris, and consent to the termination of the
trust ***. But where the paramount purposes have not all been subserved, or in
provisions by will where there are cross-remainders or contingent interests which
cannot be determined and adjusted until the happening of certain events, the trust
cannot be terminated, nor can it be determined by consent while it is still uncertain who
will take under the bequest relating to final distribution.

Here, appellant's children are parts of a still open class of persons who may take a
possessory interest in the realty only after appellant's life estate expires. For instance,
even after Eva's death, should the prospective members of this class be appellant's now
living children, their vested interest remains open, subject to addition of later-born
children of appellant.***A class remains open until any class member can first demand
distribution of the principal.***Because no class member here can demand distribution

56 RESTATEMENT (SECOND) TRUSTS §337-340 (1959).

57 Brown v. Moss, gth Dist. No. CA 19422, 1999 WL 1037758; Carnahan v. Johnson
(1998), 127 Ohio App.3d 195, 711 N.E.2d 1093; Robbins v. Smith (1905), 72 Ohio St. 1,
73 N.E. 1051; Morgan v. First National Bank of Cincinnati (1948), 84 Ohio App. 345,
84. N.E.2d 612; In the Matter of the Complaint to Terminate Trust of Howard T. Grant,
5ih Dist. No. CA-6122, 1984 Ohio App.; In the Matter of the Trust Created by item IV of
the Codicil of the Will of William H. Spindler, 4th Dist. CA No 1327, 1987 Ohio App.
LEXIS 6044 (testamentary trust terminated with court approval but minor's interest
protected); Collins v. First National Bank (1969),20 Ohio App.2d 1, 251 N.E.2d 61o.

5$ Mumma v. Huntington National Bank of Columbus, Trustee (1967), 9 Ohio App;2d

166,223 N.E.2d 621.

59 In re Testamentary Trust of Hasch (1999)> 131 Ohio App.3d 143, 721 N.E.2d 1111.

20
of the real estate until appellant's death, this class will remain open until appellant's
death.6o

In the Koons/Cundall family, the Grandparents Trust provides a strikingly

similar situation. It provides that the closely-held family stock be held in trust until the

last to die of Bud Koons and his sister, Betty Lou Cundall. Then the trust was to be

distributed pursuant to their respective limited powers of appointment among Grantors'

descendants. If no power of appointment was exercised, the shares were to pass per

stirpes to the then-living descendants of each. The trust created cross-remainders so

that if the Koons side of the family was wiped out, the A share would cross over to the

Cundall or B share side. And vice versa.61

Betty Lou Cundall died in 1977 without exercising her power of appointment so

the B share was then fixed in a limited way. It would pass to her descendants per stirpes

who were living at the time Bud Koons (the second to die) passed.

What wasn't known at that time (1977), or in 1984 when Bud Koons forced them

to sell, was who would be alive-still alive or subsequently born. As it happened, there

were 7 unborn persons who would ultimately join this class of "open remaindermen"

and 5 of them were Cundalls and 2 were Koons. None of the 5 Cundalls who were

unborn at the time of the 1984 transaction62 were able to consent, and they and the 7

6o Id. citing Robbins v. Smith (1905), 72 Ohio St. 1, 73 N.E. 1051; Cent. Trust Co. of N.
Ohio, N.A. v. Smith (1990), 50 Ohio St.3d 133, 138, 553 N.E.2d 265, 272; Bank One,
Youngstown, N.A. v. Helzel (1991), 76 Ohio App.3d 524> 53o, 602 N.E.2d 412, 415.

61 Grandparents Trust, pg. 4-5, ARTICLE II(c)(i) & (2). Supp. Vol. I-5o-5i.

62See Family Chart, Supp. Vol. 1-2. The five unborn Cundalls were Kyle Kersting, Alex
Kersting, Jeffrey Kersting, Justin Cundall and Jackson Cundall.

21
other Cundall minors63 were unrepresented at the time. They were all contingent

remaindermen at the time and it's hard to believe that any court would have let their

interests be sold or modified so substantially that the intent of the Grantors was not

honored.

Interestingly, one of the "presumptive" Cundall beneficiaries, Richard R. Cundall,

III, did not survive the contingency - i.e. he predeceased Bud Koons. The anomalous

result is that his 2 children, Richard IV and Clare, stepped into his shoes (per stirpes)

only to be entitled to a different asset. Their father had presumably "consented" to sell

something he never owned - they owned it - and they had never been represented or

given their consent (they were minors).64

Defendant-appellants suggest that the Cundall remaindermen were "virtually"

represented by their parents but there is nothing to indicate that. It appears that

without any court oversight, the Cundalls were coerced into selling something that they

didn't own, even though they thought they did. It sounds a bit like fraud in the factum

doesn't it?

Virtual representation has been recognized as an expedient concept to facilitate

modification or termination when there is at least one member of a "class" who is

represented.65 All OTC provisions contain this caveat: "to the extent there is no conflict

63 See Family Chart Supp. Vol. 1-2. The 7 unrepresented minors were Michael Cundall,
Jr., Courtney Fletcher Cundall, Hillary Cundall, Peter Cundall, Jr., Katie Mikula, Clare
Cundall and Richard Cundall, IV.

64 As to "consent" by a beneficiary. See generally RESTATEMENT (SECOND) TRUSTS §§216-

218

6e OTC §5803.04 ; RESTATEMENT (THIRD) TRUSTS §65 , Reporter's Notes, Comments b and
c> pg• 4$5•

22
of interest." The theory holds that the representation of one should suffice to represent

all others who are similarly situated. While this theory remains open to question, it still

requires court approval and the fact remains that Bud Koons didn't seek court approval

so the Cundall minors and unborn had no representative in 1984. Accordingly, there

was no compliance with, or court scrutiny over, any "virtual representation" as claimed

by the defendants-appellants.

The modification or termination of the Cundall beneficiaries' rights in the family

stock placed in trust for them by their grandparents required court approval and none

was sought. This reason alone should justify tossing the tender rule in this case.

Self-deaiing

Another type of "conduct" trustees sometimes engage in that requires court

approval is "self-dealing." As recognized in Central National Bank of Cleveland,66 the

only way for a trustee to purchase safely at his own sale is to seek court approval. "In

that way the court will devest him of his character of trustee, and prevent all the

consequences of his acting both for himself and for the cestui que trust." The old cases

are still good law today and are replete with age-old wisdom and eloquent narrative:

"The policy of the rule is to shut the door against temptation in cases where this
relationship exists; it is of itself deemed sufficient to create the disqualification. The sale
will be set aside, not because there is fraud, but because there may be fraud. `However
innocent the purchaser in the case, it is poisonous in its consequences.'

There may be fraud, and the party not able to prove it. It is to guard against the
uncertainty and hazard of abuse, and to remove the trustee from temptation, that the
rule permits the cestui que trust to come at his option and without showing actual
injury, and insist on the experiment of having another sale. This is a remedy which goes
deep and touches the root ofthe evil.

66 Central National Bank of Cleveland, Trustee v. Brewer, et al. (1966), 8 Ohio Misc.
409, 22o N.E.2d 846.
 These principles are too well settled to be disturbed. They rest upon a foundation
that cannot be shaken.

They are adopted in the courts in every civilized land, and deserve to be
maintained with unswerving fidelity. "67

"The temptation to abuse power for selfish purpose is so great that nothing less
than that incapacity is effectual, and thus a disqualification is wrought by the mere
necessity of the case."68

"There are considerations of public policy requiring the utmost fidelity, and a
rigid compliance with all his fiduciary obligations, which forbid this court prosecuting a
diligent search for grounds of estoppel, acquiescence, waiver, or excuse, for the purpose
of relieving such a trustee from the uncompromising charge of his trust.69

"The rules of law relating to loyalty of a fiduciary to the beneficiary, while hard
and severe, are for the most part, constant and immutable, because they are grounded
on the principles of honesty and integrity which are changeless and eternal. "The
elasticity of these rules of loyalty extends their applicability to all of the devices invented
by unfaithful fiduciaries to evade their obligations or to defeat the imperative demands
of business integrity and sound public policy.70

The self-dealing transaction engaged in by Bud Koons required court approval

which he didn't get. Because self-dealing transactions by a trustee are so fraught with

fraud, or the potential for fraud, Ohio law has prohibited this conduct or required court

approval for it. for this reason as well, the tender rule should not be available to the

defendants-appellants.

67 Piatt v. Longworth's Devisees (1875), 27 Ohio St. i59> i875 WL 159•

68 Magee v. Troutwine (1957), i66 Ohio St. 466,143 N.E.2d 581.

69 Caldwell v. Caldwell (1888), 45 Ohio St., 523 15 N.E. 297, 302 citing Armstrong v.
Huston (1838), 8 Ohio St. 552> 1858 WL 44.

7o Schoch v. Bloom (1965), 5 Ohio Misc. 155, 212 N.E.2d 428, Supra citing 23 Ohio
Jurisprudence (2d), Fiduciaries, Section 20, p. 559.

24
 For the foregoing reasons, tender is not applicable in the present case other than

possibly as an equitable consideration at trial and the opinion of the First District is in

keeping with existing Ohio law.

Pronosition of Law No. 2: Burden of Proof

A self-dealing trustee of an express trust always bears the

burden of proving beyond all reasonable doubt the perfect
fairness and honesty of the transaction.

The prohibition against self-dealing has been recognized throughout time. Its

roots are nicely recapitulated in Michoud v. Girod.7l Michoud identified the prohibition

against self-dealing as an immutable rule of both Roman 'civil' and English 'common'

law. "In New York there has been no relaxation of it, since the decision in the case of

Devoue v. Fanning, 2 John's Ch. 252." The principle was further traced to France,72

Holland and Spain and the Michoud court concluded: "We have thus shown, that those

purchases are fraudulent and void, from having been made per interpositam personam,

and if they were not so on that account, that they are void by the rule in equity in the

courts of England, and as it prevails in the courts of equity in the United States."73

It is the prohibition against self-dealing by a trustee of an express trust that not

only renders the "tender" rule inapplicable, but also puts the burden of proof to uphold a

completed transaction on the trustee. "[T]he burden of proof lies upon the party filling

the position of active confidence or possessing the power or influence, as the case may

71 Michoud v. Girod (1846), 45 U.S. 503, 11 L.Ed 1076, 4 How. 503.

72 Id. quoting Robert Joseph Pothier, the noted French jurist (1699-1772) and citing Tr.
Du Contrat de vente, part, 1, n. 13.

73 Michoud at 56o.
be, to establish, beyond all reasonable doubt the perfect fairness and honesty of the

transaction."74

The reason that a high burden of proof has always been imposed upon a trustee

of an express trust is because he is always in a position to be in total control of - and

take advantage of-his beneficiaries. Just like Bud Koons was. "Having special facilities

for committing fraud upon the party whose interests have been entrusted to him, the

law, looking to the frailty of human nature, requires the party in the superior situation

to show that his action has been honest and honorable."75

Keeping the burden of proof on the self-dealing trustee comports with the special

integrity demanded of this type of fiduciary and is appropriate "because of the danger of

imposition and the presumption of fraud, inaccessible to the eye of the court. "76

Defendants-appellants want to water down the burden of proof instead of

carrying it. They want to shift it back to the beneficiaries and make it their case to

prove. +However, Ohio has always put the onus on the person in the position of power

and the authorities cited by the Koons trustees/personal representatives and Koons

beneficiaries are not to the contrary.

Biddulph v. Delorenzo77 is not supportive of defendants-appellants case even

though they try to rely on it. In relying on Biddulph, defendants insist on distinguishing

74 Cundall at ¶26 citing Atwater v. Jones (i9o2), 24 Ohio C.C. (N.S.) 328, 34 Ohio C.D.
605; Kime v. Addlesperger (1903), 2 Ohio C.C. (N.S.) 270, 277, 14 Ohio C.D. 397;
Peterson v. Mitchener (1947),79 Ohio App. 125, i33, 7i N.E.ad 5io.

75Atwater, supra.

76 Piatt, supra.

77 Biddulph v. Delorenzo, 8th Dist. No. 83o8, 2004-Ohio-4502, 2004 WL 1902725

inter vivos and testamentary trusts, contending the rules of equity and common law are

somehow different under these two types of trusts. Their argument appears to be that

inter vivos trusts have different or no rules, whereas testamentary trusts have lots of

rules, including, apparently, a presumption-of-fraud rule that would only render the

Cundall releases void if the trusts in question were testamentary. Since the trusts

instead are inter vivos, defendants reason there is no presumption-of-fraud. This theory

does not hold water.

In Biddulph v. Delorenzo, brother (Biddulph) and sister (Delorenzo) were equal

beneficiaries of their father's inter vivos trust. Delorenzo was trustee. As trustee, she

sold some real estate that was trust property to an LLC controlled by her husband.

Upon a claim of self-dealing by Biddulph, Delorenzo prevailed.

In analyzing the facts of the case, the Eighth District Court of Appeals noted first

that the trust instrument allowed the sale without prior court authority and that "[t]he

trust instrument also allowed her to buy assets from the estate in her individual

capacity."7$ The fact-finding magistrate had taken considerable evidence of the

transaction and noted: multiple appraisals of the real property, the fact that the LLC

offer was higher than all of the appraisals, and the failure of Biddulph to submit any

evidence that the property was worth more than the $200,00o purchase price. Still, the

biggest factor was that the trust authorized the trustee's self-dealing and her conduct

was "not otherwise limited by statutory or common law."79

Unlike Biddulph v. Delorenzo, the Cundall case involves a trust with no authority

78 Id. at ¶i8.
79 Id. at ¶31.
for self-dealing by Bud Koons. In fact, he was not authorized to distribute any income

or principal to himself or his wife nor was he even entitled to take a trustee fee. Thus,

one need look no further than the trust to determine he wasn't authorized to engage in

self-dealing. And he was still a trustee subject to the common law rules for fiduciaries

even if he was not specifically subject to probate court pre-approval. Even with the

adoption of the Ohio Trust Code, the common law of trusts and principles of equity

continue to apply.8o

Defendants argue that somehow the lack of probate court supervision over the

Grandparents Trust exempts the trustee from the terms of the trust and the common

law of trusts. It does not. There's no magical difference between a testamentary and

inter vivos trust that lends itself to the result defendants desire. The result is

determined by the facts-the language of the trust, and the law-the common law of

trusts. Bud Koons could have sought court approval of the self-dealing transaction but

he chose not to. Michael Cundall could have sought his relief from the probate court or

the regular division of the court of common pleas 81 Because there is some question

about the authority of a probate court to award punitive damages, Michael chose to

proceed in the regular division.

The First District's ruling in the instant matter is not in conflict with Biddulph v.

Delorenzo. They are factually distinct but legally simpatico. Accordingly, that case

offers no support for defendants-appellant's argument that there isn't a presumption of

fraud.

8o R.C. 58oi.05.

$1 R.C. 2101.24 (B)(1)(b); 5802.03.

28
 The Koons trustees and personal representatives also make much of the

Huntington National Bank v. Wolfe82 case but it, too, is distinguishable on its facts. In

that case, there was a perceived self-dealing conflict by one of the two co-trustees (John

Walton Wolfe and Huntington National Bank were the co-trustees) so they sought

court authority for the proposed transaction by commencing a declaratory judgment

action in probate court. Because the probate court found that the trust required

distribution of a "specific amount of money" instead of a "specific asset" it found that the

proposed distribution was within the discretionary powers of the trustees. Accordingly,

the request of the complaining beneficiary to receive stock in kind instead of cash for her

distribution was denied. The Court of Appeals affirmed noting that the fact there were

two co-trustees, one of which did not have a conflict, helped assuage any concerns about

unfairness. It also took solice in the fact there were two nationally recognized

independent appraisers.

What immediately stands out in this Wolfe case is that (i) the language of the

trust contemplates a distribution of cash not stock and (2) the co-trustees sought court

approval. This does not support defendants-appellants' argument that Bud could

modify the trust and self-deal because of broad language in the power of sale clause.

"[A] trustee may not "take advantage of liberal provisions of a trust instrument to relieve

him[self] from the legal responsibility of a fiduciary under the law."83

$2 Huntington National Bank v. Wolfe, 99 Ohio App.3d 585, 651 N.E. 2d 458.

83 Cundall at ¶29 citing In re Estate of Binder (1940), 137 Ohio St.26, 27 N.E.2d 939.

29
 Moreover, the Huntington v. Wolfe case was recently distinguished by In re 7rust

of Bernard84 which found the "inherent conflict" ever present when there is only one

trustee who is the sole decision maker. The Bernard court further reasoned that

regardless of any language that may contemplate some conflict, it would not anticipate

that the trustee would "disregard" her fiduciary duties.85

The bottom line on this "contemplated conflict" is that the defendants-appellants

can point to no language in the trust that gets them under the reasoning of Huntington

v. Wolfe. Therefore, it cannot serve to lessen their burden of proof on self-dealing.

This court should not dilute the high burden of a self-dealing trustee of an

express trust to prove beyond all reasonable doubt the perfect fairness and honesty of

the transaction.

Proposition of Law No. n: Constructive Trust

A constructive trust is an equitable remedy not a cause of

action.

A constructive trust is an equitable remedy. It is a"`trust by operation of law

which arises contrary to intention and in invitum, against one who, by fraud, actual or

constructive, by duress or abuse of confidence, by commission of wrong, or by any form

of unconscionable conduct, artifice, concealment, or questionable means, or who in any

way against equity and good conscience, either has obtained or holds the legal right to

property which he ought not, in equity and good conscience, hold and enjoy. It is raised

84 In re Trust of Bernard, Ohio App. 9th Dist., 2oo8 WL 3918058.

$e In re Trust of Bernard, Ohio App. 9lh Dist., 2oo8 WL 3918058.

30
by equity to satisfy the demands of justice."'86

As a remedy, a constructive trust has no bearing on a statute of limitations. "The

ground of the action and the nature of the demand determine which statute of limitation

is applicable."87

To counter this authority, defendants-appellants have transplanted a 6 year

statute of limitations argument from a line of contract cases and attempt to splice it onto

the instant trust case because a common thread between them is an unjust enrichment

claim. By reformulating the "gist of the complaint" [self-dealing with an express trust]

into a bare claim for unjust enrichment that seeks to impose a constructive trust, the

defendants improperly borrow from contract cases that have found a 6 year statute of

limitation applies.

For example, the defendants-appellants errantly rely on Palm Beach Co. v. Dun &

Bradstreet, Inc. (1995)> io6 Ohio App.3d 167, 665 N.E.2d 718 where the First District

noted that "In determining the proper statute of limitations to apply we take it as well

settled that courts are obliged to look to the underlying nature of the cause rather than

to rely simply on its form in the complaint.88 The First District then reasoned that there

were two claims at issue, the first of which was a contract claim and the second of which

sought extracontractual relief. Construing the "gist" of the contract claim as really being

an alleged breach of an implied covenant of good faith, and therefore a fraud claim in a

86 Estate of Cowling v. Estate of Cowling, io9 Ohio St.3d 276, 20o6-Ohio-24i8, 847
N.E.2d 405 citing Ferguson v. Owens (1984), 9 Ohio St.3d 323, 459 N.E.2d 1293•

87 State ex rel Lien v. House (i944 ),144 Ohio St.238, 247, 29 O.O• 399, 58 N.E.2d 675.

88 PaIm Beach at 173-174, 665 N.E.2d at 722.

31
different guise, the First District held it subject to a 4 year statute of limitations and

agreed with the trial court that it was time-barred.

With respect to the second "extracontractual" claim, the First District cited to

Aultman Hosp. Assn. v. Community Mut. Ins. Co.89 and Ullmann v. May9o for the

proposition that what the plaintiff was seeking was an extracontractual claim whereby

Dun & Bradstreet (defendant) had been unjustly enriched by overcharging Palm Beach

Co. (plaintiff) through a pattern of activity that included "pricing scheme, billing and

accounting practices" which perhaps had not occurred in "an absence of fraud or bad

faith."

The FSrst District then relied on Chaplain Kieffer Post 1081 v. Wayne Cty.

Veterans Assn.9, as articulating the traditional rule in Ohio that "[A] cause of action for

unjust enrichment accrues on the date that money is retained under circumstances

where it would be unjust to do so.*#* Although in certain cases the unlawfulness of the

retention may not arise until there is a request for a return of the money, in the instant

case, if Palm Beach's allegations are true, it was the receipt of the money that was

unlawful, and therefore the cause of action accrued at the latest, as the trial court

determined, in 1982 when the last of the alleged overcharges, or false billings or

accountings, occurred."92 Finding that the last of the alleged overcharges, false billings

89 Aultman Hosp. Assn, v. Community Mut. Ins. Co. (1989), 46 Ohio St.3d 51, 55, 544
N.E.2d 920, 924•

9o Ullmann v. May (i947), 147 Ohio St. 468,34 O.O. 384, 72 N.E.2d 63.

91 Chaplain Kieffer Post so8z v. Wayne Cty. Veterans Assn. (Sept 21,1988), Wayne App.
No. 2358, 1988 WL 99188.

92 Pa1m Beach at 175, 665 N.E.2d at 722.

and accountings had occurred in 1982, the Court of Appeals found that the 6 year

statute of limitations had expired by the time the action was commenced in 1993.

The Palm Beach case relied on Hambleton v. R.G. Barry Corp. (1984), 12 Ohio

St.3d 179, 465 N.E.2d 1298, where the Ohio Supreme Court examined a case that

involved the alleged wrongful expropriation of the plaintiffs' novel ideas and concepts

(Mushroom Project) to produce footwear from urethane foam. The plaintiffs had sought

to recover against defendants on the basis of conversion of their personal property

(ideas and concepts) and in quasi-contract. The action was filed in 1979 but was based

upon conduct that the court felt should have been discovered by 1974. It upheld the

lower court's dismissal based on the 4 year statute of limitations under R.C. §2305.09

for the wrongful taking of personal property (conversion), but found that the plaintiffs

had articulated an action in quasi-contract which was timely under the 6 year statute of

limitations under §2305.07.

The only piece of relevant information from the Hambleton case is that there is a

6 year -statute of limitations for a claim that sounds in quasi-contract. The fact the

plaintiffs in Hambleton were seeking restitution as a remedy for the amount by which

the defendants had been unjustly enriched, does not mean that the remedy they sought

somehow took on the statute of limitations for quasi-contract.

Unlike Hambleton and Palm Beach, the C'undall action arises out of a breach of

fiduciary duty claim that involves self-dealing by Bud Koons whose trusteeship

terminated upon his death on March 3, 2oo5. He had until the end of his trusteeship to

33
correct any prior wrongs he committed93 but he did not correct them. Instead, shortly

before his death, he succeeded in selling his "family business" for about $400 million.

The proceeds from the sale have been transferred to his children and

grandchildren either directly, or in trust, and those activities occurred in early 2005, or

later. Though those same Koons transferees may have been receiving other benefits and

dividend income for a longer period of time, the last of the alleged wrongdoing by Bud

Koons was the failure to correct his earlier self-dealing. That is when the four year

statute for breach of fiduciary duty started running (March 3, 2005) and the trial court

action was commenced one year later on March 3, 20o6.94

To the extent that a 6 year statute of limitation for unjust enrichment is

applicable to the plaintiffs claims, it would not have started running until sometime in

2005 at the earliest and therefore is not effective to bar the action commenced on March

3, 2oo6.

For the reasons previously articulated by the First District in Cundal195 the

statute of limitations for tortious breach of trust began to run on the death of Bud Koons

(March 3, 2005) when his trusteeship terminated. The fact that the relief sought

includes the imposition of a constructive trust does not change the cause of action to

93 State ex rel. Lien v. House (1944),144 Ohio St.238, 247, 29 O.O• 399, 58 N.E.2d 675;
Cassner v. Bank One Trust Company, N.A., ioth Dist. No. 03AP-i114, 2004-Ohio-3484,
2004 WL 14708o6.

94 Defendants-appellants have contended, without explaining the reason or significance,

that the suit was commenced one year and a day after Bud Koons died.
95 Cundall at ¶52, 6o citing R.C. 2305.09; State ex rel Lien (1944), 144 Ohio St.238, 247,
29 O.O• 399, 58 N.E.2d 675; Cassner v. Bank One Trust Company, NA., loth Dist. No.
03AP-1114, 2oo4-Ohio-3484, 2004 WL 147o8o6 at ¶2g; Hosterman u. FirstNatl. Bank
& Trust Co. (1946), 79 Ohio App. 37> 38> 34 O.O. 328, 68 N.E.2d 325.

34
quasi-contract or alter the 4 year statute under R.C. §2305.09.

Proposition of Law No. 4: Personal Jurisdiction

Out-of-State beneficiaries of an Ohio Trust are subject to

personal jurisdiction in Ohio.

The various Koons beneficiaries contend that an Ohio court cannot have

jurisdiction over them because they haven't had "minimum contacts" with the State of

Ohio. First of all, it should be noted multiple contacts with the State of Ohio were

alleged in plaintiffs second amended complaint96, which the First District ruled should

be filed. Upon its filing, based on the allegations, plaintiff would at least be entitled to

an evidentiary hearing on personal jurisdiction before a motion to dismiss would be

granted.97 However, assuming arguendo, that this court wishes to alternatively address

the question: If the only contacts by the Koons beneficiaries with the State of Ohio are

through the receipt of trust disbursements, are such receipts alone sufficient to invoke

personal jurisdiction? The answer is yes for a number of reasons.

Initially, it must noted that the grandparents' trust and all trusts in question are

Ohio trusts. They were created by Ohio grantors and attorneys. They used Ohio

accountants and financial institutions. They primarily received dividend income from

an Ohio corporation, Central Investment Corporation, which business arose in part out

of two Pepsi Cola bottling plants in Ohio and before that the Burger Brewing Company.

Burger was also an Ohio corporation located in Cincinnati. The trustees of almost all

96 T.d. 156. Supp. Vol. 1-3-76.

97 Parshall v. PAID, Inc. (ioTh Dist. No. o7AP-1o19), 20o8-Ohio-3171, 2oo8 WL

2553o98 at ¶9 citing Joffe v. Cable Tech. Inc., 163 Ohio APP.3d 479, 2oo5-Ohio-4930>
¶lo.

35
these trusts are Ohio residents and some are, or were, Ohio attorneys.

Based upon all these connections to the State of Ohio, it is clear that Ohio is the

situs of the trust and that Ohio therefore has jurisdiction of the trust itself.98 Having

jurisdiction over the trust, it only makes sense that Ohio would also have jurisdiction

over all interests in the trust including the interests of the trust beneficiaries. Moreover,

since the situs of the trusts is Ohio and the trustees accepted their trusteeships over

them, jurisdiction is proper over the trustees regardless of their specific contacts.

If an Ohio court doesn't haven't have personal jurisdiction over out-of-state trust

beneficiaries, who does? If the plaintiff were to pursue the out-of-state Koons

beneficiaries in their own respective states, would he not immediately face the argument

that the courts of those states don't have subject matter jurisdiction over an Ohio trust?

Of course he would!

The grandparents' trust was formed in 1976 and was scheduled to terminate upon

the lastto die of Bud Koons and Betty Lou Cundall. Betty Lou died in 1977. Bud Koons

died on March 3, 2005. Thus, for just under 30 years, the Koons beneficiaries enjoyed

the benefits of that Ohio trust, and others, and enjoyed the benefits of Ohio laws and the

services provided by numerous professionals associated with the administration of the

trusts. At least some, if not all, of the Koons beneficiaries were also Ohio residents

during some portion of this 30 year timeframe.

There is no question that the trial court has in rem jurisdiction over the trust as it

98 Norton v. Bridges, (7th Cir. 1983), 712 F.2d 1156.

36
is an Ohio trust.99 Ohio law provides that where a trust is created, executed and carried

out in Ohio, the situs of the trust is Ohio - and the validity of the trust shall be

determined by Ohio law.10o The court, having in rem jurisdiction over the trust, has

jurisdiction over the parties to the trust.101 "[IJn rem jurisdiction over a trust permits a

determination of the rights and liabilities of all interested parties."102

Defendants cite to the case Dolce v. Lawrence'03 in support of their argument

that the court does not have jurisdiction. However, Dolce involved a situation where a

party was trying to enforce a constructive trust on money which was already in the

possession of an out of state resident who was a nonparty. The Ohio court ruled that it

could not force an individual over which it did not have personal jurisdiction to return

money already in his possession because he was not a party.

While Norton v. Bridges, supra was a case about jurisdiction over a trustee, not

beneficiaries, some discussion from that case is very appropriate to this matter:

When the named trustee is an individual, however, it is less

certain that his or her domicile at any particular time reflects
the intent of the settlor to fix that forum as the place of
administration. This follows from the greater likelihood that
an individual trustee will change his or her domicile over the

99 "The Trust hereby created shall be deemed an Ohio trust and shall in all respects be
governed by the laws of the State of Ohio." (Second Amended Complaint Exhibit B pg.
14, ARTICLE VII, LAW GOVERNING TRUST) Supp. Vol. I-59•

1O0 See The Cleveland Trust Co., Trustee v. Shuman (1974), 39 Ohio Misc. 136, 317
N.E.2d 256.

101 See generally, Id; Norton v. Bridges, (7th Cir. 1983), 712 F.2d 1156.
102 Norton, (71h Cir. 1983), 712 F.2d 1156 ; RESTATEMENT (Second) CONFLICTS OF LAW §
267 comment d.

103 Dolce v. Lawrence (Sep. 30, 1999), lith Dist. No. 98-L-o8o, 1999 Ohio App. LEXIS
4650.

37
 period of the trust's existence. If the trustee's domicile
determined the place of administration, and if the trustee
were a peripatetic one, the place of administration - and
therefore the law applicable to the trust as well as the forum
empowered to assert jurisdiction over trust questions -
would change frequently. It is unlikely that a settlor would
choose to make a trust, which by its nature represents a long-
term plan of the settlor's, subject to such uncertainty.104

In the case at hand, if the beneficiaries' domicile determines where personal

jurisdiction lies, and if the beneficiaries are peripatetic ones, the places where they could

be sued would change frequently and in all likelihood would not be empowered to assert

subject matter jurisdiction over a trust whose situs was elsewhere - in Ohio. Thus, for

practical matters, it makes the most sense to have the state where the situs of the trust

is, in this case Ohio, to also have personal jurisdiction over the beneficiaries so that all

matters related to the trust can be litigated in one forum.

Plaintiff-appellee submits that the receipt of trust distributions from an Ohio

trust over a 29+ year period of time sufficiently creates personal jurisdiction over out-of-

state trust beneficiaries. Even if this court holds that the mere receipt of trust

disbursements as such does not satisfy minimum contacts, there are sufficient

allegations in the second amended complaint to survive a motion to dismiss and to

entitle the plaintiff-appellee upon remand to an evidentiary hearing on the issue.1O5

The First District Court of Appeals reviewed the preexisting law, before the Ohio

Trust Code (OTC), and nicely recapitulated the requirements under the Ohio long-arm

ioa Norton at ii6i.

105 Joffe, supra.

38
statute and Civil Rule.lo6 It looked to the leading Ohio casesl07 and then traced the

development of federal due-process requirements through Mulane, International Shoe,

Burger King, World-Wide Volkswagen, and Asahi.108 That reasoning and discussion

need not be restated here. Accordingly, without regard to the applicability of the Ohio

Trust Code or whether it was applied retroactively, the plaintiff below sufficiently

alleged facts in his second amended complaint that are sufficient to survive the motion

to dismiss as to personal jurisdiction.

Retroactive Application of OTCNot Unconstitutional

The First District noted that none of the states who have adopted the Uniform

Trust Code has found its retroactive application or any other provision

unconstitutional.109 In In re Trust Created by Harold Inman,llo the Nebraska Supreme

Court considered the retroactive application of the Nebraska Uniform Trust Code

(NUTC) and noted that it would be required to apply those provisions "except in those

instances where we determined that such application would `substantially interfere with

the effective conduct of the judicial proceedings or prejudice the rights of the parties,' in

which instance, we must apply prior law." Because the Nebraska Supreme Court found

that the prior law did not differ significantly, it applied the NUTC because "we perceive

1o6 ¶17o-8o.
107 Kentucky Oaks Mall Co. v. Mitchell's Formal Wear, Inc. (1990), 53 Ohio St.3d 73,
559 N.E.2d 477; and United States Sprint Communications Co. Partnership v. K's
Foods (i994), 68 Ohio St.3d i8i, 185,624 N.E.2d 1048.

Ios Id. (citations omitted)

109 Cundall at ¶81.
lla In re Trust Created by Inman (2005), 269 Neb. 376, 693 N.W.2d 514.

39
no prejudice to any party in analyzing this issue under the NUTC...".

Similarly, in In re Harris Testamentary Trust,lll the Kansas Supreme Court

found that upon an unlimited de novo review, application of the KUTC "would not

substantially interfere with the effective conduct of judicial proceedings before this court

or prejudice the rights of the parties." The Kansas Supreme Court further found "the

questions involving reformation and modification of the Trust under the KUTC are ones

of first impression. As indicated by English in his Kansas Law Review article, "[t]he

primary source of trust law in Kansas and in most other states is the Restatement of

Trusts and the multivolume treatises by Scott and Bogert, sources that fail to address

numerous practical issues and which on others sometimes provide insufficient

guidance."112

Just like the provisions in the NUTC and KUTC, the OTC provides for protection

against unfair retroactive application but there is no prejudice to the Koons

beneficiaries. As stated by the First District, "Because Ohio's exercise of jurisdiction

over the out-of-state defendants comports with the state's long-arm statute as well as

due-process requirements, the retroactive application of R.C. 5802.02 does not

prejudice the parties. Even without the statute, jurisdiction is proper in Ohio."113

111 In re Harris Testamentary Trust, (June, o6, 2003), 275 Kan. 946, 2003-KS-000136,
69 P.3d uo9.

112 Id. citing 51 Kan.L.Rev. at 312.

113 Cundall at ¶82.

40
H. CONCLUSION

1. Tender is not applicable.

2. The burden of proof is on the self-dealing trustee.

3. A constructive trust is an equitable remedy not a cause of action.

4. Personal jurisdiction is appropriate where out-of-state trust beneficiaries

have received trust disbursements.

The decision of the Court of Appeals should be affirmed in full.

Respectfully Submitted,

Richar6 G. Ward (0037613)

Drew & Ward Co., LPA
24oo Fourth & Vine Tower
One West Fourth Street
Cincinnati, OH 45202
Phone: 513-621-8210
Fax: 513-6i9-1646
Email: nwardCa?drewlaw.com
Attorneyfor Plainttff-Appellees'
Michael K. Cundall, Individually and
Michael K. Cundall, Successor Trustee

41
 CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Merit Brief of Plaintiff-Appellees'

Michael K. Cundall, Individually and As Successor Trustee was served this,07c-Lri day of
September, 2oo8 via ordinary mail upon the following:

Peter L. Cassady (0005562) James B. Helmer, Jr. (0002878)

Beckman, Weil, Shepardson, LLC
The American Book Building
300 Pike Street, Suite 400
Cincinnati, OH 45202
Phone 513-621-2100
Fax 513-621-oio6
Email petercassady@beckman-weil.com
Attorney for Defendants-Appellants
Deborah Koons Garcia, Christina N
Koons, John F. Koons, James B. Koons,
Caroline M. Koons, Kathleen M. Koons,
Maura L. Koons, Jeremy B. Koons and
Morgan N. Koons
Helmer, Martins, Rice & Popham
6oo Vine Street, Suite 2704
Cincinnati, OH 45202
Phone 513-421-2400
Fax 513-421-7902
Email jhelmer@fcalawfirm.com
Attorney for Defendants- Appellants
Richard W. Caudill, Trustee, Keven
Shell, Trustee, William P. Martin,
Trustee, G. Jack Donson, Trustee,
Michael S. Caudill, Trustee, D. Scott
Elliot, Trustee

Donald"J. Mooney, Jr. (0014202) William H. Blessing (ooo6848)

Ulmer &Berne, LLP Law Offices of William H. Blessing
6oo Vine Street i19 E. Court Street, Suite 500
Suite 28oo Cincinnati, OH 45202
Cincinnati, OH 45202 Ph 513-621-9191
Phone 533-698-5000 Fax 513-621-7086
Fax 513-698-5001 Email billblessing^a cinci.rr.com
Email dmooneyCQ2ulmer.com Attorney for Crossclaimants/Third
Attorney for Defendants- Appellants Party Plaintiffs Appellees Michael K.
Nichoias Koons Baker and Carson Nye Cundall, Jr., Courtney Fletcher Cundall
Koons Baker and Hillary Cundall

Richard G. Ward (0037613)

42