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GILLESPIE v. SEYMOUR

May 4, 1990.

WARREN BROWN GILLESPIE and POLLY GILLESPIE TOWNSEND, Plaintiffs/Appellants,
v.
DOROTHEA WOFFORD SEYMOUR, as Co-trustee of the Brown-Gillespie Trust Estate, et al., Defendants, and ROBERT W. BURDGE and GRANT-THORNTON, An Accounting Partnership, Defendants/Appellees.



*fn1 REPORTER'S NOTE: Previously filed as an unpublished opinion, the Supreme Court granted a motion to publish by an order dated July 12, 1990, pursuant to Rule 7.04 (1989 Kan. Ct. R. Annot. 34).

Warren Brown Gillespie and Polly Gillespie Townsend (Beneficiaries) appeal from a district court order granting Robert W. Burdge's and Grant-Thornton's (Accountants) motion to dismiss pursuant to K.S.A. 60-212(b)(6). The court concluded K.S.A. 1989 Supp. 1-402 and the common law embodied in the Kansas cases requires dismissal of the Beneficiaries' claims against the Accountants. We affirm the district court in dismissing all stated causes of action against the Accountants; but we find that the allegations, if taken as true for purposes of the motion to

[14 Kan. App. 2d 564]

      dismiss, and drawing all inferences favorably to Beneficiaries, support a cause of action for breach of trust. We affirm in part, reverse in part, and remand.

This case arises out of a trust formed April 20, 1956, by Warren E. Brown in which he and his two daughters, Dorothea Brown Wofford and Pauline Brown Gillespie, were the original trustees. The trust indenture provided that, upon the death of Warren E. Brown, the two remaining trustees would continue as the sole trustees; and, upon the death of Dorothea Brown Wofford, her daughter, Dorothea Wofford Seymour, would become a co-trustee with Pauline Brown Gillespie. The trust became irrevocable upon Warren Brown's death in 1956. The trust was to terminate upon the deaths of Warren E. Brown and Pauline Brown Gillespie, with the entire trust to be distributed to the children of Pauline Brown Gillespie.

  After the death of Dorothea Brown Wofford in 1974, Dorothea Wofford Seymour and Pauline Brown Gillespie served as trustees. In 1988, Pauline Brown Gillespie died and was survived by her two children, the Beneficiaries, who received the trust assets.

  The Beneficiaries filed suit against Dorothea Wofford Seymour and numerous other defendants, including Robert Burdge and Grant-Thornton, the accountant and accounting firm which did tax and accounting work for the trust. The Beneficiaries alleged that, after Dorothea Wofford Seymour became a trustee, trust assets were invested in exploration, development, and drilling of oil and gas ventures headed by Arrowhead Petroleum, Inc., and Big Springs Drilling, Inc. Both companies are controlled by Dorothea Wofford Seymour, her husband, and her son. The Beneficiaries generally alleged that the trust was being charged amounts in excess of the services performed by Arrowhead Petroleum, Big Springs Drilling, and the Accountants, while at the same time the trust suffered losses. The Beneficiaries specifically alleged four causes of action against the Accountants: (1) negligence, malpractice, and breach of fiduciary duty, (2) breach of contract, (3) conversion and conspiracy, and (4) fraud and conspiracy.

  The Accountants filed a motion to dismiss pursuant to K.S.A. 60-212(b)(6). The trial court granted the motion, finding that pursuant to K.S.A. 1989 Supp. 1-402 and Kansas case law the claims

[14 Kan. App. 2d 565]

      for relief against the Accountants should be dismissed. The trial court then ruled pursuant to K.S.A. 1989 Supp. 60-254(b) that the ruling adjudicates fewer than all the claims or the liability of fewer than all the parties and there was no just reason to delay entry of judgment for the Accountants on all counts. The Beneficiaries appealed.

  In ruling on a motion to dismiss for failure to state a claim upon which relief can be granted, a plaintiff's allegations should be taken as true and all inferences should be drawn favorably to the plaintiff. Ling v. Jan's Liquors, 237 Kan. 629, 630, 703 P.2d 731 (1985).

  The facts stated in the Beneficiaries' petition, which are relevant to the claims against the Accountants, are as follows: Since 1974, the trust corpus has been investing in various oil and gas ventures promoted and developed by Arrowhead Petroleum, Inc., and Big Springs Drilling, Inc. Both are companies in which one of the trustees or a member of the trustee's immediate family has an interest. Grant-Thornton has performed accounting and tax services for the trust, Arrowhead Petroleum, and Big Springs Drilling. Burdge performed accounting and tax services for the trust and for the two companies until 1985, when he became an employee of Big Springs Drilling and a consultant of Arrowhead Petroleum. Since 1974, the trust has lost in excess of $10,000. We must determine whether these facts, when viewed in the light most favorable to the Beneficiaries, state any valid claim for relief.

  In dismissing the action against the Accountants, the trial court relied in part on K.S.A. 1989 Supp. 1-402, which provides:
"No person, proprietorship, partnership, professional corporation or association authorized to practice as a certified public accountant pursuant to article 3 of chapter 1 of the Kansas Statutes Annotated, or any employee, agent, partner, officer, shareholder or member thereof, shall be liable to any person or entity for civil damages resulting from acts, omissions, decisions or other conduct amounting to negligence in the rendition of professional accounting services unless:
"(a) The plaintiff directly engaged such person, proprietorship, partnership, corporation or association to perform the professional accounting services; or
  "(b)(1) the defendant knew at the time of the engagement or the defendant and the client mutually agreed after the time of the engagement that the

[14 Kan. App. 2d 566]

      professional accounting services rendered the client would be made available to the plaintiff, who was identified in writing to the defendant; and (2) the defendant knew that the plaintiff intended to rely upon the professional accounting services rendered the client in connection with specified transactions described in writing."

 K.S.A. 1989 Supp. 1-403 instructs that the act is not intended to modify existing common-law rules of liability except as stated in the statute.

  The Beneficiaries, in their pleadings, fail to allege that they directly engaged the Accountants, that the Accountants knew at the time they performed their services the accounting would be made available to the Beneficiaries, or that they later agreed that the accounting would be given to the Beneficiaries. Further, the pleadings do not allege that the Beneficiaries were identified in writing, that the Accountants knew that the Beneficiaries intended to rely on the accountings, or even that the Beneficiaries did in fact see and rely on the accountings.

  Considering the Beneficiaries' allegations as true and drawing all inferences favorably to the Beneficiaries, they are insufficient under K.S.A. 1989 Supp. 1-402 to state a claim of relief based on negligence of the Accountants.

  The Beneficiaries argue that the Accountants are liable for breach of fiduciary duty. In Paul v. Smith, 191 Kan. 163, 169-70, 380 P.2d 421 (1963), the court discussed the establishment of a fiduciary relationship as follows:
"It has been recognized that a fiduciary relationship between parties does not depend upon some technical relation created by, or defined in, law. It exists in cases where there has been a special confidence reposed in one who, in equity and good conscience, is bound to act in good faith and with due regard for the interests of the one reposing the confidence. [Citations omitted.]
"Fiduciary relationships recognized and enforceable in equity do not depend upon nomenclature; nor are they necessarily the product of any particular legal relationship. [Citations omitted.] They may arise out of conduct of the parties evidencing an agreement to engage in a joint enterprise for the mutual benefit of the parties. [Citations omitted.] But they necessarily spring from an attitude of trust and confidence and are based upon some form of agreement, either expressed ...

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