Opinion
DOCKET NO. A-5524-14T3
02-09-2017
COLIN ANDREWS, SEAN ANDREWS, CASEY ANDREWS, by CLIFFORD S. ANDREWS, III, GUARDIAN AD LITEM, Plaintiffs-Respondents, v. JOHN A. FRANK, Defendant-Respondent, and TERRY ANDREWS, Defendant/Third-Party Plaintiff-Respondent, v. CLIFFORD S. ANDREWS, III, Third-Party Defendant/Fourth-Party Plaintiff-Appellant, v. JOHN A. FRANK and STEVEN P. FORD, Fourth-Party Defendants-Respondents.
Steven K. Warner argued the cause for appellant Clifford S. Andrews, III (Ventura, Miesowitz, Keough & Warner, P.C. attorneys; Mr. Warner, of counsel and on the briefs; Amanda C. Wolfe, on the briefs). Robert D. Borteck argued the cause for respondent John A. Frank (Mr. Borteck, of counsel and on the brief; Christine Socha Czapek, on the brief). Gregory D. R. Behringer argued the cause for respondent Terry Andrews (Laufer, Dalena, Cadicina, Jensen & Boyd, L.L.C., attorneys; Mr. Behringer, on the brief). Bartholomew A. Sheehan, Jr. argued the cause for respondent Steven Ford (Dempsey, Dempsey & Sheehan, attorneys; James G. Webber, of counsel and on the briefs; Joseph G. Kenny and Mr. Sheehan, on the briefs). Raymond S. Londa appeared as Guardian Ad Litem for respondent Casey Andrews (Londa & Londa, attorneys; Mr. Londa on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R.1:36-3. Before Judges Messano, Guadagno and Suter. On appeal from the Superior Court of New Jersey, Chancery Division, Union County, Docket No. C-0006-14. Steven K. Warner argued the cause for appellant Clifford S. Andrews, III (Ventura, Miesowitz, Keough & Warner, P.C. attorneys; Mr. Warner, of counsel and on the briefs; Amanda C. Wolfe, on the briefs). Robert D. Borteck argued the cause for respondent John A. Frank (Mr. Borteck, of counsel and on the brief; Christine Socha Czapek, on the brief). Gregory D. R. Behringer argued the cause for respondent Terry Andrews (Laufer, Dalena, Cadicina, Jensen & Boyd, L.L.C., attorneys; Mr. Behringer, on the brief). Bartholomew A. Sheehan, Jr. argued the cause for respondent Steven Ford (Dempsey, Dempsey & Sheehan, attorneys; James G. Webber, of counsel and on the briefs; Joseph G. Kenny and Mr. Sheehan, on the briefs). Raymond S. Londa appeared as Guardian Ad Litem for respondent Casey Andrews (Londa & Londa, attorneys; Mr. Londa on the brief). PER CURIAM
Clifford Andrews (Clifford) appeals the order of April 27, 2015, which dismissed his claims against defendants John Frank (Frank) and Terry Andrews (Terry), and the order of June 30, 2015, which dismissed his claims against fourth-party defendant Steven Ford (Ford), for lack of standing. We affirm in part, reverse in part, and remand.
To avoid confusion, we refer to the parties who have the same surname by using their first names.
I.
In 1999 while Clifford and Terry were married, they created the Andrews Family Legacy Trust (trust), an irrevocable trust, which consisted only of a "second-to-die" life insurance policy with a face value of $10 million. The policy was purchased with contributions by each party of $17,500. Thereafter, Clifford paid the annual $33,185 premium until 2007. The policy was to be fully paid up in fifteen years. Frank, who was Terry's brother-in-law, was named as the Trustee. Ford was the financial planner and insurance advisor for Clifford and Terry.
A life insurance policy for two people (generally married), which provides benefits to the heirs only after the last surviving spouse dies. Drelles v. Mfrs. Life Ins. Co., 881 A.2d 822, 827 n.2 (Pa Super. Ct. 2005).
The primary beneficiaries of the trust were the couple's four children, who had rights to make certain withdrawals from the Trust. The trustee could make distributions of income or principal during the grantors' lifetimes for the children's "general happiness, health, education, maintenance and support." After the death of both grantors, the trustee was to collect and distribute the proceeds of any life insurance policy, and then terminate the trust.
Clifford and Terry, as grantors, "relinquish[ed] all powers to alter, amend, or revoke any terms, conditions or provisions" of the trust. They retained "no right or power to exercise any incidents of ownership in any asset transferred" to the Trust. However, they did retain the power "acting together (or the survivor of them acting alone)" to remove the trustee "for any reason and appoint an individual or corporate trustee who is not related or subordinate to the Grantors . . . to serve as Trustee . . . in their place." The trust provided that if the trustee resigned, was "unable or unwilling" to serve or "cease[d]" to serve, that a specified individual would be successor trustee. It further provided for two subsequent successor trustees.
The trust made reference to Revenue Ruling 95-58, which addressed whether a "grantor's reservation of an unqualified power to remove a trustee and to appoint a new trustee was tantamount to a reservation by the grantor of a trustee's discretionary powers of distribution," but that Revenue Ruling concluded that the power to remove was not such a reservation. Rev. Rul. 95-58, 1995-2 C.B. 191. See Estate of Vak v. Comm'r, 973 F.2d 1409, 1414 (8th Cir. 1992) (holding that for tax purposes the decedent did not retain control over assets transferred to a trust by reason of his power to remove and replace the trustee).
The trustee had the "discretion to permit any and all such life insurance policies to lapse, or to surrender for cash any or all of those policies." Further, the trustee was "under no obligation to pay the premiums . . . which may become due and payable with respect to any life insurance policies," and he had the discretion to "apply any cash values attributable to such policies to the purchase of paid-up insurance or of extended term insurance," or do other acts in his discretion that "will serve to carry out the intent of this instrument." The trustee had the "power, authorities and discretion granted by common law, statute and under any rule of court."
Upon the death of "either or both of the grantors," the trustee was to collect the proceeds of the insurance policy and administer the trust "in accordance with the terms of the instrument." The trustee was authorized to "hold and retain any assets" until the trustee determined to dispose of an asset "while exercising reasonable and prudent care." He could sell assets "upon such terms and conditions as may be considered reasonable and proper [under] . . . the Uniform Prudent Investor Act."
Terry filed a complaint for divorce in 2006. The parties executed a Support and Property Settlement Agreement (PSA) on May 23, 2007, which was incorporated into the parties' Dual Final Judgment of Divorce (FJOD) entered the same day. See Andrews v. Andrews, No. A-5761-09 (App. Div. July 15, 2011) (slip op. at 3). Under the PSA, Terry retained sole legal and physical custody of the four children. Clifford was responsible under Section 8 of the PSA to pay the children's unreimbursed medical and future educational expenses. The parties agreed there was "no necessity" for Clifford to make a direct payment to Terry for child support because she had "received funds and other assets" in equitable distribution under the PSA and agreed that those funds "will be dedicated . . . to the support of the parties' children to the extent required."
We cite to this unpublished opinion only because it involves the same parties who are presently before us.
Clifford agreed in the PSA to "renounce all interest he ha[d] in the . . . Trust . . . and execute hereafter documents to that effect so that this Trust shall be security to [Terry] for his obligations" to pay the unreimbursed medical and future educational expenses. The PSA did not specify who would pay the premium for the life insurance policy.
The parties have not advised whether any such documentation was executed by Clifford.
The PSA was the subject of enforcement motions between the parties in the Family Division. Clifford claimed he learned for the first time in May 2013 during an enforcement proceeding that in July 2007, shortly after the PSA was executed, Frank surrendered the trust's life insurance policy for its cash surrender value of $302,752.96. These monies then were deposited by check, into an account at Pershing LLC held by Terry, that was issued to Pershing "FBO Clifford or Terry Andrews." The Family Division judge ordered Terry to pay Clifford $151,376.48, which was half of the cash surrender value.
Since then, the full cash value of the policy has been deposited in an account of a guardian ad litem (GAL) for the children.
In January 2014, Clifford filed an order to show cause and verified complaint on behalf of the then minor children, which named Frank and Terry as defendants. The complaint alleged that Frank breached his fiduciary duty as a trustee by surrendering the policy and distributing its cash value to Terry. The relief sought included restitution, removal of the trustee and appointment of a substitute trustee, imposition of a constructive trust over the proceeds, an accounting, and compensatory and punitive damages. The complaint alleged that Terry breached an oral agreement to pay the insurance premium and converted trust funds. Clifford sought to be appointed as GAL for the minor children, but an independent GAL was appointed by the court, following Terry's opposition to Clifford's application.
One child was an adult at the outset of this litigation and was not named by Clifford as a plaintiff. Two of the children reached the age of majority while this litigation was pending. The GAL represented the remaining minor and took the position that the proceeds from the policy should go to the children and not Terry.
Terry filed a third-party complaint against Clifford where she denied any oral agreement to pay the insurance premium, sought contribution against him as a joint tortfeasor and the imposition of a constructive trust on the monies she had been ordered to pay to Clifford if those monies were determined to be trust funds.
Clifford filed an answer to the third-party complaint in May 2014, which did not include cross-claims or counterclaims. He filed a second answer in November 2014, which included counterclaims against Terry for breach of an oral agreement to pay premiums, conversion, civil conspiracy, unjust enrichment, breach of the covenant of good faith and fair dealing, and legal and equitable fraud. Clifford's answer included a fourth-party complaint against Frank and Ford for the same causes of action, and for breach of their fiduciary duty to Clifford and his children. The relief requested was to impose a constructive trust and for damages, because Clifford alleged the trust asset was intended to secure his obligations under the PSA and to pay estate taxes and other liabilities of his estate.
The record does not show how or why a second answer was filed.
Terry and Frank moved to dismiss the claims against them. In an oral decision on February 9, 2015, followed by order of April 27, 2015, the trial court dismissed with prejudice Clifford's counterclaims against Terry and the fourth-party complaint against Frank on grounds that Clifford lacked standing to assert these claims against Frank or Terry. Both Clifford and Terry were ordered to turn over the policy's cash surrender value to the GAL. Then, noting that Clifford and Terry had agreed to allow the trust to be used as security in their PSA, the trial court held "they had no right to do so and that agreement [was] not legally binding." The court noted that the fact the PSA was incorporated into the FJOD did not make all of its provisions binding. The court found Clifford was not a third-party beneficiary of the policy even if the money from the policy might have been used in the future to pay his estate taxes. Although noting that the "case raises troublesome issues as to the decisions made by the trustee and the mother," the trial court found that those claims were the children's claims and not Clifford's. The court dismissed all of Clifford's claims against Terry and Frank for lack of standing by Clifford to assert them.
In May 2015, the trial court heard oral argument on Ford's motion to dismiss the fourth-party complaint against him, and granted that motion in a written decision on June 29, 2015. The trial court found that Clifford had no standing to assert the claims against Ford because the children were the beneficiaries of the trust, not Clifford, he had no right to the policy or its proceeds, Ford owed no fiduciary duty to Clifford because that duty was owed to the children, and Clifford did not maintain an interest in the trust assets. The court rejected Clifford's argument that he was a third-party beneficiary of the insurance contract that had been abrogated because he was never to be a recipient of the funds.
Clifford appeals the April 15 and June 30, 2015 orders, contending he has standing "based upon both his financial interest in the outcome of the litigation and his status as a third-party beneficiary to the Trust Agreement[.]" Also, Clifford asserts he has standing "both because he has an economic interest in the policy by virtue of the PSA and his obligations thereunder (implied economic interest) and because the defendants' actions violated and frustrated his reasonable expectations in creating the trust in the first place." As such, he contends the trial court erred in dismissing his fiduciary duty and non-fiduciary causes of action against Terry, Frank and Ford.
During oral argument on the appeal, Terry's counsel acknowledged that Clifford had retained the ability under the trust to seek removal of the trustee and could file a claim for breach of fiduciary duty. Counsel for Frank contended that because the reserved power was to remove the trustee, and was not financial in nature, it was not sufficient to provide Clifford with standing. We conclude that the grantors' reservation of the ability to remove and appoint a trustee provided Clifford with standing as a grantor. Therefore, we reverse the orders, which dismissed Clifford's claims as grantor based on lack of standing. We affirm the dismissal of Clifford's individual claims. We remand the case to the trial court, although we render no decision on the merits of the underlying causes of action or even whether they will survive summary judgment.
II.
We review de novo the orders that dismissed this litigation under Rule 4:6-2(e) for lack of standing. NL Indus., Inc. v. State, 442 N.J. Super. 403, 405 (App. Div. 2015) (internal citations omitted). We are to "accept as true the facts alleged in the complaint, and credit all reasonable inferences of fact therefrom, to ascertain whether there is a claim upon which relief can be granted." Malik v. Ruttenberg, 398 N.J. Super. 489, 494 (App. Div. 2008) (internal citations omitted). See also Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989).
The trial court found that Clifford's claims were not justiciable because he lacked standing to bring them. Our courts have adopted a "broad and liberal approach" on the issue of standing by a party to maintain an action before the court. Garden State Equal. v. Dow, 434 N.J. Super. 163, 197 (App. Div. 2013) (citing N.J. Citizen Action v. Riviera Motel Corp., 296 N.J. Super. 402, 409 (App. Div.), certif. granted, 152 N.J. 13 (1997), appeal dismissed, 152 N.J. 361 (1998)). Generally, "a plaintiff must have a 'sufficient stake in the outcome of the litigation, a real adverseness with respect to the subject matter, and there must be a substantial likelihood that the plaintiff will suffer harm in the event of an unfavorable decision.'" Ibid. (quoting N.J. Citizen Action, supra, 296 N.J. Super. at 409-10 (other citations omitted). "A party need only show a 'substantial likelihood' that he or she will experience 'some harm' in the event of an unfavorable decision." Strulowitz v. Provident Life & Cas. Ins. Co., 357 N.J. Super. 454, 459 (App. Div.) (citing In re the Adoption of Baby T, 160 N.J. 332, 340 (1999)), certif. denied, 177 N.J. 220 (2003). "[A] litigant usually has no standing to assert the rights of a third party." Bondi v. Citigroup, Inc., 423 N.J. Super. 377, 436 (App. Div. 2011) (internal citations omitted), certif. denied, 210 N.J. 478 (2012).
The trial court concluded that Clifford had no standing to sue the trustee or others for cashing in the trust's insurance policy or distributing the proceeds to Terry. In general, a suit against a trustee of a private trust to enjoin the trustee may only be maintained by a "beneficiary or by a co-trustee, successor trustee, or other person acting on behalf of one or more beneficiaries." Restatement (Third) of Trusts § 94 (2012). The reason is that "[a]fter a settlor has completed the creation of a trust he is not . . . , except as expressly provided otherwise by the trust instrument or by statute, in any legal relationship with the beneficiaries or the trustee, and has no rights, liabilities or powers with regard to the trust administration." George G. Bogert & George T. Bogert, Trusts and Trustees § 42 at 431-32 (rev. 2d ed. 1984). Therefore, unless the grantor of a trust reserves certain enforcement powers in the trust or confers those on others at the outset, he generally does not have standing to raise claims on behalf of the trust beneficiaries. See ibid. The trial judge relied on these concepts in ordering the dismissal of all of Clifford's claims.
Although our Supreme Court has not yet specifically adopted § 94 of the Restatement (Third) of Trusts, it has adopted other provisions thereof. See Bhagat v. Bhagat, 217 N.J. 22, 42 (2014); In re Estate of Folcher, 224 N.J. 496, 513 (2016).
However, it also is the case that standing by a grantor may be obtained "based on a retained beneficial power or interest . . . , based on serving as trustee . . . , or based on a retained fiduciary role or power." Restatement (Third) of Trusts § 94 comment d(2) (2012). We need not list all the ways a grantor of a trust may retain authority to enforce a trust. See generally John T. Gatbatz, Grantor Enforcement of Trusts: Standing in One Private Law Setting, 62 N.C.L Rev. 905 (June 1984) (discussing cases of grantors' enforcement).
Here, Clifford and Terry, as grantors of the trust, expressly reserved the ability to remove and replace the Trustee "for any reason," and in doing so, retained enforcement authority over the trust and trustee. Under our liberal rules of standing, this reservation of authority should have been determinative on the issue of Clifford's standing to bring claims as a grantor against the trustee or others. Surely, the grantors' enforcement ability to remove and replace a trustee for any reason was broad enough to permit a "for cause" action for removal or replacement against a trustee who is alleged to have abrogated the trust or frustrated the grantors' expectation in establishing the trust, or an action by an individual grantor against a co-grantor or others who were alleged to have participated in the breach of fiduciary duty. We are hard pressed to say why a grantor with the ability to remove and replace a trustee would not have standing to press claims to remove the fiduciary, for breach of fiduciary duties or for an accounting. Thus, this reservation of power to the grantors provided Clifford with a sufficient stake in the outcome of the litigation, real adverseness, and possible harm where the claims stemmed from a breach of fiduciary duty to the trust.
See N.J.S.A. 3B:14-21 and N.J.S.A. 3B:11-5, which address the statutory grounds for removal of a fiduciary.
In finding standing by Clifford under the grantors' reserved power, however, we reject Clifford's two contentions that he had a financial stake in the trust because it had become "security" for Clifford's support obligations or that the proceeds were to be used to reduce his estate taxes. Thus, we agree that the trial court properly dismissed his individual claims. Neither Clifford nor Terry reserved to themselves, as grantors, the ability to modify or revoke the trust. See Bogert, supra, § 42 at 433 ("Where the power has not been reserved the settlor cannot modify or revoke the trust."). Without the express ability to modify or revoke the trust, the parties could not validly agree that the insurance policy would become security for Clifford's obligations under the PSA. Further, there could be no expectation that the trust proceeds would be used for Clifford's estate planning purposes because, as a second-to-die policy, there was no certainty he would die second.
Also, because the trustee was not a party to the PSA, Clifford did not waive his claims as a grantor in the PSA. The trust set forth the manner of "renouncing the power of removal and appointment." There is no indication Clifford complied with this section. --------
We also agree with the trial court in rejecting Clifford's claim he was a third-party beneficiary of the insurance policy. There was no indication that Clifford was intended to be the beneficiary of the second-to-die insurance policy because it required the death of both grantors before paying the benefit. See Rieder Comtys., Inc. v. N. Brunswick Twp., 227 N.J. Super. 214, 222 (App. Div.) (internal citations omitted), certif. denied, 113 N.J. 638 (1988) (explaining that the test used to determine third-party beneficiary status was "whether the contracting parties intended that a third-party should receive a benefit which might be enforced in the courts."). In this regard, Clifford's reliance on Strulowitz, supra, is misplaced, because unlike the appellant there, Clifford was not the ultimate recipient of the trust.
In ruling as we do on the issue of standing, we expressly do not decide the merits of any of the fiduciary or non-fiduciary causes of action brought by Clifford as grantor against any of the parties or even whether those causes of action will survive summary judgment. Rather, we conclude Clifford had standing as a grantor of the trust, having retained the ability to remove or appoint the trustee, to seek the removal and replacement of the trustee, and to seek an accounting for the alleged breach of fiduciary duty to the trust by the trustee and by the alleged participation of other parties.
Affirmed in part, reversed in part and remanded. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION