Forbes v. Forbes, 341 P.3d 1041 (Wyo. 2015) (holding: i) water rights are real property that parties must disclose during discovery proceedings; and ii) trustees cannot transfer water rights to individual trust members because it is not in the best interest of all beneficiaries).
Six members of the Forbes family formed the Beckton Ranch Trust (“BRT”) in 1920. The trust holds certain parcels of land with water and ditch rights in Sheridan County, Wyoming. Presently, the BRT has nineteen beneficiaries, and William “Cam” Forbes (“Cam”) is the acting trustee. Some time in 2009 or 2010, the Wyoming Board of Control (“WBC”) asked Cam to correct discrepancies between permitted water rights and actual water usage on BRT land. Acting as trustee, Cam filed four petitions for changes in place of use. In 2012, the WBC granted the petitions transferring the water rights onto Cam and his sister’s, Julia Forbes (“Julia”), land. Cam did not notify any of the other trust beneficiaries of the transfer. Citing other issues with his siblings’ management of the BRT, Cam’s brother, Waldo E. “Spike” Forbes (“Spike”) resigned as trustee and sued to remove the remaining trustees, alleging that they breached their duty of loyalty to the trust. Spike sought removal of his siblings as trustees of BRT. During discovery, Cam did not disclose the water rights transfers. Spike learned of them from another source during pretrial proceedings.
After the Sheridan County District Court removed Cam and Julia as trustees, the siblings appealed to the Wyoming Supreme Court (“Court”). Cam and Julia argued that the trial court erred in removing them as trustees and finding that they profited from the transfer.
The Court held in favor of Cam and Julia because Spike did not include the water rights transfers in his original complaint for breach of loyalty, and he failed to amend his complaint to include the specific water rights claim. He thus did not give fair notice that the water rights were at issue. Because the trial court used the water rights exhibits as part of its decision to remove Cam and Julia as trustees, the Court found that the trustees did not have sufficient notice. The Court noted that the parties could have resolved the issue by asking for a continuance on the basis of the surprise evidence. Even though the defendant trustees did not ask for a continuance, they made numerous objections to the inclusion of the water rights transfers in evidence. The Court found this argument against their removal as trustees persuasive.
The Court did find that Spike should have disclosed the water rights transfers during discovery. The interrogatory that called for “details of all transactions of real property” included information regarding water rights of the BRT. The Court did not find that there was enough specificity in the pleading regarding the water rights to properly sanction Cam and Julia under the Wyoming Rules of Civil Procedure 37(c). Therefore, it declined to remove them as trustees of the BRT.
Next, the Court considered whether Cam’s transfer of water rights on behalf of himself and sister breached his duty of loyalty to the BRT beneficiaries. Because of the trust’s specific language, and Cam’s failure to distinguish between his own property and property held by the BRT, he did not manage the trust in the sole interest of the beneficiaries. The Court concluded that that self-dealing alone constituted a breach of the duty of loyalty. However, the Court noted that Cam’s breach of duty of loyalty did not warrant his removal as a trustee of the BRT.
Accordingly, the Court reversed the district court’s order removing Cam and Julia as trustees of the BRT.