SHAW, Justice.
Callan Associates, Inc. ("Callan"), petitions this Court for a writ of mandamus directing the Montgomery Circuit Court to dismiss the underlying action filed by Carol M. Perdue, "as next friend and legal guardian of Anna K. Perdue, as designated beneficiary of and on behalf of the Prepaid Affordable College Tuition Trust Fund a/k/a The Wallace-Folsom Prepaid College Trust Fund." For the reasons stated below, we grant the petition and issue the writ.
In 1990, the Alabama Legislature established the Alabama Prepaid Affordable College Tuition ("PACT") program as part of the Wallace-Folsom College Savings Investment Plan, see §§ 16-33C-1 to -8, Ala. Code 1975. As explained by the Court of Civil Appeals in Johnson v. Taylor, 770 So.2d 1103 (Ala.Civ.App.1999), the purpose of the PACT program is
770 So.2d at 1104.
Pursuant to the statutory scheme, the PACT program is overseen by a "PACT board," which serves as both "[t]he board of directors and trustees of the PACT Trust Fund." § 16-33C-3(14), Ala.Code
In 2002, Carol M. Perdue ("Carol") entered into a PACT contract for the benefit of her daughter, Anna K. Perdue ("Anna"), pursuant to which Carol agreed to make 60 monthly payments of $240 in exchange for benefits consisting of the future payment for Anna of qualified in-state tuition and mandatory fees from the PACT Trust Fund into which all such payments from all purchasers of PACT contracts are pooled and then invested. It is undisputed both that Anna is the "designated beneficiary" of the PACT contract purchased by Carol and that Carol has paid all the amounts due under that contract. See § 16-33C-3(10) (defining "designated beneficiary" as "[t]he person designated at the time the PACT contract is entered into... as the person who benefits from payments of qualified higher education costs at eligible educational institutions, or that person's replacement"). It is also undisputed that Anna has not made a demand for tuition benefits under the PACT contract of which she is the designated beneficiary.
In 2003, the PACT board entered into an "Investment Consultant Agreement" with Callan, pursuant to which Callan was to provide "professional investment consulting services to ... the PACT Board." See § 16-33C-5(7), Ala.Code 1975 (expressly granting the PACT board the authority "[t]o contract for necessary goods and services, to employ necessary personnel, and to engage the services of qualified persons and entities for administrative and technical assistance in carrying out the responsibilities of the plan"). That contract was renewed in 2006.
On February 27, 2009, Kay Ivey, then state treasurer and, by virtue of that office, chairman of the PACT board, issued a letter to the purchasers (holders) of PACT contracts informing them that a downturn in the stock market had negatively impacted the assets of the PACT Trust Fund but indicating that the PACT board remained
Callan moved to dismiss Carol's claims, arguing, among other things, that a purported beneficiary of a trust could not maintain an action against a third party on behalf of the trust without first demanding that the trustee act or show a sufficient reason for the failure to make such a demand.
Callan subsequently filed the present petition seeking a writ of mandamus directing the trial court to dismiss Carol's action against it, and this Court ordered answers and briefs.
Ex parte Carson, 945 So.2d 448, 449 (Ala. 2006).
In its petition, Callan contends, among other things, that it is entitled to a writ of mandamus because, it says, the trial court erred in concluding that Carol has "standing" to pursue her stated claims on behalf of the PACT Trust Fund. More specifically, Callan maintains that Carol lacks "standing" to sue because she failed, before filing the underlying complaint, to first demand that the PACT board sue Callan. Because we agree with Callan that Carol's failure to first demand that the PACT board file an action deprived her of the ability to initiate the underlying action, we issue the writ on that ground and pretermit discussion of Callan's remaining claims.
Callan cites authority indicating, which authority Carol does not dispute, that any cause of action initiated on behalf of a trust for conduct damaging the assets of the trust belongs to the trustee of that trust and that before a beneficiary may proceed with filing a derivative claim on behalf of the trust, the beneficiary "must first move the trustee to act, or show some sufficient reason for the failure to do so." Blackburn v. Fitzgerald, 130 Ala. 584, 588, 30 So. 568, 568 (1901) (citing Bailey v. Selden, 112 Ala. 593, 605, 20 So. 854, 857 (1896) ("[C]omplainants had no right to institute proceedings in equity to enforce their equitable rights ... without first having moved the trustee to act, resulting in failure to procure action by her."); and Arnett v. Bailey, 60 Ala. 435, 438 (1877) ("Neither can the bill be maintained to recover possession of the lands, without averment, not found in this record, that Word, who holds the legal title in trust, refuses to bring an action for its recovery.")). Cf. James v. James, 768 So.2d 356, 360 (Ala.2000) ("Before a shareholder can be awarded damages on a derivative claim, the shareholder must make a presuit demand on the board of directors of the corporation to correct the wrongs alleged...." (citations omitted)), and Tillery v. Tillery, 155 Ala. 495, 498, 46 So. 582, 582-83 (1908) ("The administrator having the legal title to the personal assets of the estate, holding them in trust for purposes of administration, ... the heir could not institute any proceeding for the enforcement of any claim which the estate held against others ... without showing either that the administrator refused to do so, or was in collusion with such [others], or occupied a position antagonistic to his duties as administrator.").
This principle is explored more fully in the following decision of the North Carolina Court of Appeals:
Slaughter v. Swicegood, 162 N.C. App. 457, 464-65, 591 S.E.2d 577, 582-83 (2004) (emphasis added). See also International Ass'n of Fire Fighters, Local 2665 v. City of Clayton, 320 F.3d 849, 851 (8th Cir. 2003) ("`As a general rule, a beneficiary may not bring an action at law on behalf of a trust against a third party.... The right to bring such an action belongs to the trustee.").
In her response in opposition to Callan's motion to dismiss, and again in her response to Callan's petition in this Court, Carol argues that, despite "the law in Alabama ... that a lawsuit against a third party on behalf of a trust is ordinarily properly brought by the trustee, and not the beneficiary," she has demonstrated circumstances
In James, supra, this Court concluded that "if the demand on the [trustees] would be futile, then the demand requirement is excused." 768 So.2d at 360. James established the test for demonstrating the futility of the requisite initial demand as follows: "`[T]he shareholder ... must demonstrate such a degree of antagonism between the directors and the corporate interest that the directors would be incapable of performing their duty.'" Id. (quoting Elgin v. Alfa Corp., 598 So.2d 807, 815 (Ala.1992)).
None of the foregoing exceptions discussed in Slaughter, Tillery, or James appear to apply to excuse a presuit demand in the present case. Although it appears to defy logic to require that Carol should have first demanded that the PACT board sue itself for alleged mismanagement of the funds in the trust, see Elgin, 598 So.2d at 814 (noting that "this Court [has] held that if the directors themselves are the alleged wrongdoers, then director demand may be futile"), it has not been demonstrated that a demand on the PACT board that it pursue claims against Callan would have been so futile as to bring this case within that exception. Certainly, Carol's unsupported assertion that a conflict of interest exists, without more, fails to demonstrate that a demand would be futile as to the claims against Callan, a third party with whom, from all appearances, the PACT board has nothing but an arm's length contractual relationship.
There is nothing in the materials before us indicating, and Carol does not allege, that she requested that the PACT board sue Callan or even that she ever approached or notified the PACT board regarding her intentions before filing her complaint, despite indications of this Court's willingness to view any such efforts with leniency. Compare James, 768 So.2d at 360 (finding that letters from minority shareholder and his attorney, even if not sufficient to constitute demands for suit, supported the conclusion "that any further demand would be futile"). Further, the materials before us reflect that Carol's complaint was filed only a little over two months after the issuance of the letter placing PACT contract holders on notice of the diminished assets of the Trust Fund and indicating that the PACT board was both "working hard and considering options to maintain the viability of [the] PACT" program and "meeting with the distinguished leaders of [Alabama's public universities and colleges] to form a partnership to allow PACT benefits to be consistently paid." We thus hold that there was no demonstration of either an improper refusal by the PACT board to pursue Callan in an effort to protect the trust assets or that sufficient time lapsed for Carol to have concluded that the PACT board had neglected to do so. Cf. Stallworth v. AmSouth Bank of Alabama, 709 So.2d 458, 464, 465 n. 2 (Ala. 1997) (concluding both that, despite the plaintiff's claim "that a majority of the board had committed wrongs against the corporation," the plaintiff "failed to demonstrate that a demand upon the directors would have been futile" and that, even assuming the plaintiff made the required demand, "premature filing of a complaint or claim after a demand has been made is equivalent to a failure to make a demand, and that premature filing warrants dismissal"). Therefore, even assuming, as Carol argues, that Anna is a beneficiary of the PACT Trust Fund, Carol has demonstrated no circumstance excusing her from the demand requirement, and, in the absence of such a demand or a demonstration of the futility thereof, Carol's derivative suit was premature. See Riley v. Bradley, 252 Ala. 282, 288, 41 So.2d 641, 645 (1948) ("[I]n case a trustee refuses to perform his duty to protect the trust, the beneficiaries may sue in equity to protect their rights, in the right of the trustee, but only when that may be necessary to protect their interests."). In consideration of the foregoing, Callan's motion to dismiss in the trial court was well founded; therefore, we grant Callan's petition and issue the requested writ directing the trial court to dismiss Carol's claims against Callan.
PETITION GRANTED; WRIT ISSUED.
MALONE, C.J., and WOODALL, J., and LYONS, Special Justice,
STUART, BOLIN, MAIN, and WISE, JJ., recuse themselves.
MURDOCK, Justice (dissenting).
As a preliminary matter, I wish to note that the issue of "standing" referenced in the main opinion is an issue that goes to the cognizability under Alabama law of a claim when a trust beneficiary has not first made the requisite demand upon the trustee to pursue a claim against a third party based on actions allegedly detrimental to the trust and to the beneficiary, not whether the beneficiary has experienced an actual, concrete injury of the nature intended when courts speak of "standing" in the sense of what is necessary for a constitutionally sufficient "case or controversy" and, in turn, subject-matter jurisdiction. See generally Lujan v. Defenders of Wildlife, 504 U.S. 555, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992).
That said, I turn now to the merits of the issue whether the claims against Callan Associates, Inc., in this case should have been dismissed because of the failure of the plaintiff to have made a presuit demand upon the PACT board (sometimes referred to herein as "the board") to file an action against Callan.
The fundamental premise upon which the complaint in the present case is based is that the investments made by the board were not prudent investments. By statute, the responsibility for investing the trust fund falls with the PACT board, the trustees of the fund. It is the board that is empowered by law to invest the money as it deems appropriate and to retain such consultants and administrative assistance to assist in this endeavor as it deems appropriate.
The board entered into a contractual relationship with Callan pursuant to which Callan was to advise it and to help administer the trust fund. Even in the context of this contractual relationship, of course, ultimate responsibility remained with the board.
In addition to the foregoing, before this action was filed, the trustees already had been sued in one or more other actions in which, according to the complaint, they had been accused of "negligence, breach of contract and other misfeasance in connection with the administration, delegation and performance of their duties in connection with the trust." According to the complaint, the fact that the trustees already faced liability based on such allegations created a "conflict of interest" insofar as expecting them to file an action against Callan alleging that the investments they made based upon Callan's advice had been imprudent.
In Tillery v. Tillery, 155 Ala. 495, 498, 46 So. 582, 582 (1908), the Court noted the general rule of trust and estate law that the right and obligation to pursue a legal claim on behalf of an estate (whether a trust estate or a decedent's estate) belongs to the person who holds legal title to the estate and who has the legal obligation to preserve and administer the estate, i.e., the trustee of a trust or the personal representative of a decedent's estate. The Tillery Court then spoke of three exceptions to the general rule that a beneficiary cannot "institute any proceeding for the enforcement of any claim which [a trust] held against others": the beneficiary can show (1) that the trustee has refused to institute a proceeding for enforcement of the claim, (2) that the trustee is "in collusion" with the person against whom the claim would be asserted, or (3) that the trustee "occupied a position [such that asserting the claim would be] antagonistic to his duties as [trustee]," i.e., the trustee has a conflict of interest. 155 Ala. at 498, 46 So. at 582-83. As the main opinion notes by relying on the extended quotation from Slaughter v. Swicegood, 162 N.C. App. 457, 464-65, 591 S.E.2d 577, 582-83 (2004) (emphasis added), which in turn quotes George G. Bogert & George T. Bogert, The Law of Trusts and Trustees § 869 at 112-13, 115-17 (rev.2d ed.1995), a well respected treatise on trust law, "`"[i]n the absence of special circumstances, the beneficiary is not eligible to bring or enforce... causes of action which run to his trustee."'" 87 So.3d at 1166. But "`[i]f a conflict of interest arises between the trustee and a beneficiary, or between two beneficiaries,'" "`the beneficiary may file a cause of action to protect his own interests. See Bogert, § 869 at 118-21.'" 87 So.3d at 1166 (quoting Slaughter, 162 N.C.App. at 465, 591 S.E.2d at 583) (emphasis added).
Respectfully, therefore, I must dissent.
PARKER, J., and SHORES, Special Justice, concur.
SHORES, Special Justice (dissenting).
I join Justice Murdock's dissent. I also point out that the petition for the writ of mandamus should be denied for the following additional reason. The plaintiff is suing on behalf of the PACT Trust. Although she does not allege that she made a formal demand on the trustees to bring the action against Callan Associates, Inc., the trustees are parties to the lawsuit. If the facts as developed through discovery or otherwise indicate that the trustees' interests are aligned with those of the plaintiff, the trial court can realign the parties to reflect that. It seems to me a
Even accepting for the sake of argument the applicability of the so-called "futility" standard developed for shareholder-derivative actions, however, I note that this standard is deemed satisfied when the shareholder demonstrates sufficient "`antagonism between the directors and the corporate interest[] that the directors would be incapable of performing their duty.'" James, 768 So.2d at 360 (quoting Elgin v. Alfa Corp., 598 So.2d 807, 815 (Ala. 1992)). Even more specifically in this regard, we have recognized that, "if the directors themselves are the alleged wrongdoers, the demand may be futile." Elgin, 598 So.2d at 814.
