F I L E D
                                                                  United States Court of Appeals
                                                                          Tenth Circuit
                      UNITED STATES COURT OF APPEALS
                                                                         MAR 19 1999
                                  TENTH CIRCUIT
                                                                     PATRICK FISHER
                                                                              Clerk

 PATRICK O. TAYS, SR., Trustee,
 Beneficiary,

           Plaintiff-Counter-Defendant-                 No. 97-2317
           Appellant,                         (D.C. No. CIV 95-0860 SC/DJS)
                                                         (D.N.M.)
 vs.

 DAVE METLER; CRAIG TAYS,
 Alternate Trustee; CRAIG TAYS, as
 Personal Representative for the Estate
 of Melvin E. Tays, Sr., Trustee,

           Defendants-Counter-Claimants-
           Appellees.


                             ORDER AND JUDGMENT *


Before PORFILIO, KELLY, and LUCERO, Circuit Judges.


       This appeal involves a family dispute over a trustee’s management of trust

property. Plaintiff-Appellant Patrick Tays, Sr., a beneficiary of a testamentary

trust created by his mother, appeals from a judgment in favor of (1) his now-

deceased father, Defendant Melvin Tays, Sr., both the trustee and a beneficiary;


       *
        This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
(2) the trustee’s financial advisor, Defendant-Appellee David Metler, and (3) his

brother, Defendant-Appellee Craig Tays, also a beneficiary. After a bench trial,

the district court made findings and conclusions that: (1) the trustee’s act of self-

dealing did not violate New Mexico law because the trust document authorized a

conflict of interest and the trustee acted in good faith; (2) even if the trustee’s

conduct violated New Mexico law, the district court had discretion to excuse him

from liability; (3) the trustee did not breach his duty to act prudently in managing

the trust. Plaintiff challenges these findings and conclusions.

      He also moves for certification of two questions to the New Mexico

Supreme Court: (1) whether a trustee may be allowed to engage in self-dealing

when he has neither informed the beneficiaries of his intended actions nor

obtained an appraisal of the property that he plans to sell to the trust; and (2)

whether a trustee breaches his fiduciary duty by not attempting to make trust

assets produce income.

        Our jurisdiction arises under 28 U.S.C. § 1291, and we affirm, given the

facts of the trust arrangement in question – a trust designed for wealth

preservation and arising out of the marital relationship. Plaintiff’s motion to

certify issues is denied.

                                      Background

      Helen D. Tays (“Helen” or “Settlor”) created the Helen D. Tays


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Testamentary Trust (“Trust”) in her last will and testament. She named her

husband, Defendant Melvin Tays, Sr. (“Melvin Sr.” or “Trustee”) as trustee, and

Melvin Sr. and her three sons – Plaintiff Patrick Tays, Sr. (“Patrick”), Melvin

Tays, Jr., and Defendant Craig Tays – as beneficiaries. She died on January 10,

1987. Melvin Sr. died after the trial in this matter.

      Helen’s will created an exemption equivalent trust, sometimes called a

unified credit bypass trust or bypass trust. The amount of Helen’s bequest to the

Trust equaled $600,000, the exemption amount corresponding to the unified credit

amount applicable in 1987. Helen left the balance of her estate to her husband,

Melvin Sr. One-third of the net income from the Trust was to be paid to Melvin

Sr.; the remaining two-thirds was to be paid to Helen’s sons living at the time of

her death. See Aplt. App. at 184.

      Helen’s will broadly defined the Trustee’s powers, including the power to

“invest and reinvest any funds in [the Trust] in any . . . real or personal property

of any kind or nature without being limited or restricted to investments prescribed

by the laws of New Mexico, or any other state, it being my intention to give my . .

. Trustee the same power of investment and reinvestment which I might myself

possess in the management of my property.” 

It also exempted the

Trustee from “obtaining the consent or permission of any [interested] person . . .

or the consent or approval of any court” before exercising his powers and from


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accounting for any diminution in the value of Trust investments. 

      Melvin Sr. was appointed personal representative of Helen’s estate. On or

about January 26, 1988, the district court hearing the probate matter acted upon a

petition for distribution of the assets. The court ordered Melvin Sr. to distribute

$600,000 of Helen’s property to the Trust, including $324,876 in cash, and

securities and real estate with an appraised value of $275,174. The $324,876

represented all of the available liquid assets of the estate. Melvin Sr. was

discharged of his duties as personal representative on January 26, 1988, and the

probate closed.

      In February 1991, Melvin Sr. removed about $324,824 in cash and bonds

from the Trust and deposited them in his own bank account. He

contemporaneously transferred real property that he owned to the Trust. Melvin

Sr. did not seek or obtain the approval of the other beneficiaries before taking

these actions.

      Evidence introduced at trial indicated that real estate transferred to the

Trust in 1991 had an appraised value of approximately $442,000. See Tr. at 470-

74. Melvin Sr. stated that, in his long experience as a land developer, the sales

price of real estate in the area often greatly exceeded the assessed value

determined by Otero County for property tax purposes – here, $80,275. See 

Aplt. App. at 208. Despite the high appraisal value of the lot in question, he


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exchanged it for the “gentleman’s price” of $324,824 because “the market was

down on the bottom.” Tr. at 474. The trial court found that Patrick failed to

prove that the real estate was only worth about $80,000 at the time of transfer.

See Aplt. App. at 161.

      The parties stipulated that exchanging Melvin Sr.’s real property for the

liquid assets of the Trust constituted self-dealing. See 

However,

Melvin Sr. testified that he believed he had authority to engage in such conduct

without consent of the other beneficiaries. See Tr. at 465-66. The trial court

concluded that Helen intended Melvin Sr. to have conflicting interests in

administering the Trust because he was both the Trustee and a beneficiary. See

Aplt. App. at 166. It also noted that the will conferred broad discretionary

powers on the Trustee. See 

relied upon the fact that, prior to the

Trust’s reformation, 1 the Trustee had authority to invade the principal of the

Trust, subject to an ascertainable standard. See 

174. Under these

circumstances, the trial court concluded, self-dealing did not violate the Uniform

Trusts Act, N.M. Stat. Ann. §§ 46-2-1 to 46-2-19 (Michie Repl. Pamp. 1989). It

also held that, even if Melvin Sr. violated the statute, the court had the power

under N.M. Stat. Ann. § 46-2-16 to excuse him from liability. See Aplt. App. at



      1
         The Trust was reformed to require the concurrence of a majority of the
children regarding Melvin Sr.’s invasion of principal. See Aplt. App. at 174.

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166.

                                      Discussion

                        A. Denial of Motion for Certification

       Plaintiff Patrick chose to bring his case in federal court and only sought

certification of two questions to the New Mexico Supreme Court after receiving

an adverse ruling. Under these circumstances, certification is inappropriate. See

Harvey E. Yates Co. v. Powell, 

, 1229 n.6 (10th Cir. 1996) (party

who chooses to litigate in federal court generally must accept federal court’s

reasonable interpretation of state law, rather than seeking certification) (citing

Croteau v. Olin Corp., 

, 46 (1st Cir. 1989)). Consequently, we will

address the merits of the appeal.

                                    B. Self-Dealing

       According to Patrick, N.M. Stat. Ann. § 46-2-5 creates an absolute bar to

self-dealing because it provides that “[n]o trustee shall directly or indirectly buy

or sell any property for the trust from or to itself.” Furthermore, “no act of the

settlor shall relieve a trustee from the duties, restrictions, and liabilities imposed

upon him by . . . Section 46-2-5.” N.M. Stat. Ann. § 46-2-14. Thus, Patrick

contends, the district court erred in finding a good-faith exception to the rule

against self-dealing.

       We review the legal conclusions of the district court de novo and its factual


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findings for clear error. See Valley Improvement Ass’n, Inc. v. United States

Fidelity & Guar. Corp., 

, 1115 (10th Cir. 1997). Neither New

Mexico nor Tenth Circuit opinions offer direct guidance on the existence of a

good-faith exception. However, given case law from other jurisdictions, the

district court did not err in finding that such an exception exists where the settlor

intended a conflict of interest and gave the trustee broad authority to invest trust

funds. See Gregory v. Moose, 

, 670 (Ark. Ct. App. 1979) (no

breach of trust where settlor created conflict of interest and gave trustee

unqualified power to sell trust property, even though trustee benefitted from sale);

In re Estate of Halas, 

, 178 (Ill. App. Ct. 1991) (“Where a conflict

of interest is approved or created by the testator, the fiduciary will not be held

liable for his conduct unless the fiduciary has acted dishonestly or in bad faith, or

has abused his discretion.”); Bracken v. Block, 

, 1274-75 (Ill.

App. Ct. 1990) (applying good faith exception where settlor made sister both

trustee and primary beneficiary and gave her broad powers to invade principal)

(citing Childs v. National Bank of Austin, 

, 490 (7th Cir. 1981));

Bank of Nevada v. Speirs, 

, 1077 (Nev. 1979) (rule against self-

dealing modified in family arrangement in which trustee had broad authority and

settlor intended conflict of interest).

      The Speirs case is instructive for two reasons. First, because the Uniform


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Trusts Act must be interpreted consistently with its purpose to make the law

uniform, see N.M. Stat. Ann. § 46-2-18, we find cases from other adopting

jurisdictions particularly helpful. Like New Mexico, and unlike the other

jurisdictions that have found a good faith exception, Nevada has adopted the

Uniform Trusts Act, see Nev. Rev. Stat. §§ 163.010 to 163.210, although

Nevada’s amendments expressly authorize and require the district court to

approve self-dealing. See Nev. Rev. Stat. § 163.050. Second, Speirs also

involved a family arrangement in which the settlor gave the trustee – her husband

– broad discretion to invest the trust corpus and operate under a conflict of

interest. See 

. The Nevada Supreme Court noted:

“This broad grant of authority, this testamentary exoneration of the trustee for

mistakes, if any, must be accorded respect by the court. This would seem

especially true in a family setting . . . .” 

Under these circumstances,

“the trustee will not be penalized when he has acted in good faith and in a manner

he believes was for the best interest of the trust.” 

      Patrick chiefly relies upon Bogle v. Bogle, 

(N.M. 1947), in

which the New Mexico Supreme Court held that a nephew acting as an attorney-

in-fact for his uncle engaged in improper self-dealing when he borrowed funds

from the sale of his uncle’s ranch to satisfy personal debts. Such a loan

constituted improper self-dealing, regardless of the trustee’s financial ability to


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repay principal and interest. Bogle does not mandate reversal in the instant case,

however, because it may be distinguished on three grounds. First, the New

Mexico Supreme Court decided Bogle before the adoption of the Uniform Trusts

Act in 1951. Second, the trust arrangement in Bogle differed significantly from

the one in this case, as it did not arise from a testamentary trust with expansive

and detailed provisions governing the conduct of the trustee. Third, the nephew

in Bogle was not both the trustee and a primary beneficiary; therefore, Bogle does

not raise the issue of a permissible conflict of interest.

      Helen’s will expressly sanctioned the conflict of interest in the Trust

arrangement by making Melvin Sr. both the Trustee and a beneficiary. See

(settlor creates permissible conflict of interest by

making same individual trustee and beneficiary); see also 

. Helen also gave Melvin Sr. wide latitude to invest the trust funds as he

believed prudent – including investment in real estate – without obtaining

permission from the other beneficiaries. There is no evidence that Melvin Sr.

acted in bad faith in carrying out the transfer.

      We recognize that the Trust’s lack of diversification and Melvin Sr.’s

exchange of liquid, income-producing assets for land could adversely affect the

other income beneficiaries, at least in the short term. However, we must view the

operation of this bypass trust in the context of its purpose – family wealth


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preservation. Helen’s clear intent, as expressed in the Trust provisions, was to

empower her husband of over forty years with broad discretion not only to

exchange assets, but also to use them without close supervision. Had she

intended a different result, the Trust provisions could have been drafted in a far

more restrictive fashion. Thus, we conclude that the district court properly

applied the common law exception to the statutory rule against self-dealing. See

.

                            C. Trial Court’s Discretion

      The trial court held that, even if Melvin Sr. violated the prohibition against

self-dealing under the Uniform Trusts Act, N.M. Stat. Ann. § 46-2-5, the court

possessed the equitable power under N.M. Stat. Ann. § 46-2-16 to relieve him of

liability. See Aplt. App. at 166. Defendants raised the § 46-2-16 defense in their

First Amended Proposed Conclusions of Law, see Aplt. App. at 98, and Patrick

responded in his Post Trial Summation of Facts and Law. See Aplt. App. at 104.

Thus, both Patrick’s claim that § 46-2-16 was not timely raised and Defendants’

contention that Patrick waived the issue by failing to object are without merit.

      Section 46-2-16 provides:

      A court of competent jurisdiction may, for cause shown and upon
      notice to the beneficiaries, relieve a trustee from any or all of the
      duties and restrictions which would otherwise be placed upon him by
      this act . . . , or wholly or partly excuse a trustee who has acted
      honestly and reasonably from liability for violations of the provisions
      of this act.

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N.M. Stat. Ann. § 46-2-16.

      Citing Wachovia Bank & Trust Co., 

(N.C. 1967), a case

under the Uniform Trusts Act, Patrick contends that the court lacked discretion to

exonerate Defendants because the Trustee neither provided notice to the

beneficiaries nor materially furthered the beneficiaries’ interests. However, the

Wachovia factors do not govern the instant case because Wachovia did not

involve (1) a conflict of interest created by the settlor; (2) a transaction approved

by the express terms of the trust instrument; or (3) the family circumstances

present here.

      Because the will expressly authorized Melvin Sr. to invest the Trust funds

in real estate and to act without obtaining permission from the other beneficiaries,

it was within the trial court’s discretion to find that he acted “honestly” and

“reasonably.” See N.M. Stat. Ann. § 46-2-16. Furthermore, since § 46-2-16

applies to a trustee who “has acted” in an honest and reasonable manner, it plainly

empowers the court to retroactively excuse violations of the Uniform Trusts Act.

See 

to Manage Trust Prudently

      Finally, Patrick contends that Melvin Sr. breached his duty to produce

income for the Trust. Under New Mexico law:

      [A] trustee shall observe the standards in dealing with trust assets

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      that would be observed by a prudent man dealing with the property of
      another. If the trustee has special skills . . . , he is under a duty to
      use those skills.

N.M. Stat. Ann. § 45-7-302 (Michie Repl. Pamp. 1989).

      The determination of whether a trustee is guilty of negligence or violation

of its trust duty must be governed by the circumstances of the particular case. See

In re Trust of Rosati, 

, 32 (Mich. Ct. App. 1989) (interpreting a

similar statute). After reviewing the record, we hold that the district court’s

findings and conclusions that Patrick failed to prove the 1991 transaction harmed

the Trust, see Aplt. App. at 167, or that Melvin Sr. lied to him about the Trust’s

existence and terms, see Aplt. App. at 158, were not clearly erroneous. See

Valley Improvement Ass’n, Inc. v. United States Fidelity & Guar. Corp., 

, 1115 (10th Cir. 1997) (factual findings of district court reviewed for clear

error). According to the district court, Melvin Sr. had no intention of using the

Trust principal for his own benefit. See Aplt. App. at 163. Rather, he sought to

remove land – an asset likely to appreciate – from his estate and place it in the

Trust for the eventual benefit of the children. See 

findings and

Melvin Sr.’s expertise in real estate, we hold that he did not violate § 45-7-302 or

any section of the Uniform Prudent Investor Act, N.M. Stat. Ann. §§ 45-7-601 to

45-7-612 (Michie Repl. Pamp. 1989), nor did he exceed the powers granted to

him by N.M. Stat. Ann. § 45-7-401 (Michie Repl. Pamp. 1989) (“[A] trustee has


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the power to perform, without court authorization, every act which a prudent man

would perform for the purposes of the trust . . . [and to] invest and reinvest trust

assets in accordance with the provisions of the trust or as provided by law.”).

      For the foregoing reasons, the judgment of the district court is AFFIRMED.


                                        Entered for the Court


                                        Paul J. Kelly, Jr.
                                        Circuit Judge




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