2010 Ore. App. Lexis 1183 (January 8, 2010)

In July of 1995, Woodrow Wilson created a revocable living trust, the assets of which included a four-unit apartment building in Portland, Oregon. Under the trust terms, the tenants of the apartment building were beneficiaries of the trust, and the trust provided that the beneficiaries had the right to continue to live in the apartments for their natural lives.  

The trust provided that the trustee could ask the court for instructions or other determinations concerning the trust. At Woodrow’s death, one-third of the net trust assets were to be held in a “family trust” for the benefit of the tenants. The family trust was to terminate upon the death the last remaining tenant, or upon the tenants’ ceasing to reside in the apartment building. Upon termination, the trust assets were to be distributed to the Woodrow and Hazel Wilson Foundation.  

After Woodrow’s death, the trustee required one of the tenants to sign a rental agreement providing that the lease would terminate at the earlier of the tenant’s vacating the premises or the tenant’s death. The rental agreement also provided that the apartment could not be occupied by any other person.

In 2004, the tenant accepted a job in Denver, Colorado, and the tenant’s mother lived in the apartment. The trustee notified the tenant that she had breached the rental agreement by vacating the apartment and allowing her mother to occupy it, gave her 30 days’ notice of termination, and thereafter filed a statutory wrongful detainer action with the Multnomah County Circuit Court (FED court) to recover possession of the apartment. The tenant maintained that her departure was temporary and that she had the right to remain in the apartment. The FED court found that the tenant failed to put on adequate evidence explaining long absences, and that she had vacated and lost her right to live in the apartment, and ordered eviction of the tenant. The tenant appealed the order, and the Oregon court of appeals affirmed the FED court.

Thereafter, the tenant sued the trustee for breach of trust and fiduciary duties, and alleged that other trust beneficiaries, namely the Masonic Lodge and the foundation, had participated and acquiesced in receiving the benefits of the trustee’s misconduct. The trustee then filed a motion for summary judgment on the basis of the preclusive effect of the findings of the FED court that the tenant was no longer a beneficiary of the trust. The trustee further asserted that the other allegations of misconduct were barred by the statute of limitations, laches, and absence of a triable question of fact.  

The trial court granted the trustee’s motion for summary judgment, finding that: (1) the FED court’s determination that the tenant had chosen not to live on the premises terminated her interest in the trust; (2) the trustee fulfilled his obligation to the trust by seeking a determination of the tenant’s residential status in the FED proceedings; and (3) in light of the FED court determination, the tenant was not entitled to be compensated on claims. The tenant appealed, asserting that her rights under the rental agreement were separate and that her rights as a trust beneficiary had not been fully litigated in the FED proceedings.

On appeal, the Oregon Court of Appeals affirmed the trial court on the grounds that: (1) while a FED proceeding is limited in scope to the rights of possession, the tenant’s interest in the trust was in the nature of a tenancy rendering the FED proceedings preclusive in subsequent litigation; (2) the FED court’s findings that the tenant vacating the apartment terminated any right of possession she once had under the trust were entitled to preclusive effect; (3) because the tenant’s interest under the trust was in the nature of a tenancy, the FED court had jurisdiction and authority to interpret the provisions of the trust for determining the right of possession; (4) the scope of the preclusive effect of the FED court’s finding extended to the tenant’s claim to the trust, because the effect of the FED court ruling was to terminate the tenant’s interest in the trust; and (5) the FED court’s determination that the tenant chose to no longer occupy the premises was dispositive of her claim for breach of fiduciary duty and breach of trust.