Opinion
C. A. PC-2021-00953
02-06-2024
MALCOLM CHACE IV, MALCOLM CHACE V, JOHN CHACE, RYAN CHACE, BARBARA CHACE, MICHAEL PELTON, MATTHEW PELTON, BROOKE ULEHLA, ELIZABETH CHACE SUNDELL, JONATHAN GOULD, ANNABEL GOULD, RUBY SUNDELL, Plaintiffs, v. ARNOLD B. CHACE JR., individually and as Trustee of M2K Trust, WILLIAM SALTONSTALL, individually and as Trustee of M2K Trust, and ELIZABETH ZOPFI CHACE Defendants.
For Plaintiff: Michael Marino, Esq., Robert Corrente, Esq. For Defendant: Matthew T. Oliverio, Esq., Katie L. Howayeck, Esq., Gina Lemay, Esq.
For Plaintiff: Michael Marino, Esq., Robert Corrente, Esq.
For Defendant: Matthew T. Oliverio, Esq., Katie L. Howayeck, Esq., Gina Lemay, Esq.
DECISION
STERN, J.
Before the Court is Defendants, Arnold B. Chace, Jr. (Buff), individually and as Trustee of the M2K Trust, William Saltonstall (Bill), individually and as Trustee of M2K Trust, and Elizabeth Zopfi Chace's (Liz) (collectively, Defendants) Motion for Summary Judgment to dismiss all counts of Plaintiffs Malcolm Chace IV (Malcolm IV), Malcolm Chace V, John Chace, Ryan Chace, Barbara Chace, Michael Pelton, Matthew Pelton, Brooke Ulehla, Elizabeth Chace Sundell, Jonathan Gould, Annabel Gould, and Ruby Sundell's (collectively, Plaintiffs) Amended Verified Complaint. Jurisdiction is pursuant to Rule 56 of the Rhode Island Rules of Civil Procedure.
Because multiple parties in this case have the last name Chace, the Court will address them by their first names for clarity. The Court means no disrespect.
I
Facts and Travel
The present action stems from a legal dispute between members of the Chace family and the alleged mismanagement of the M2K Trust, which Malcolm Chace III (Kim) left to his wife and issues. The M2K Trust originated in a trust created by Malcolm G. Chace (Malcolm) as settlor on January 14, 1937 (1937 Trust). (Defs.' Mem. in Supp. of Mot. for Summ. J. (Defs.' Mem.) 2.) The 1937 Trust held certain assets of Malcolm's while providing lifetime income for Malcolm G. Chace, Jr. (Malcolm Jr.). It also granted Malcolm Jr. a general power of appointment, allowing him to transfer trust principal through his will. Id. Malcolm appointed Malcolm Jr. and Arnold B. Chace, III as trustees. Id. The original trust was amended fourteen times, with the most pertinent amendment relative to this matter occurring on September 26, 1946. Id. In that amendment, the general power of appointment in favor of Malcolm Jr. was limited to
"a class which does not include any others than: (a) my wife, (b) my descendants, (c) spouses of my descendants, (d) descendants of my father (other than myself and my descendants), except [insofar] as hereinafter otherwise expressly provided, (e) spouses of such other descendants of my father, except as hereinafter otherwise expressly provided; and (f) donees, if any, who are described in the present provisions of Section 812(d) of the Internal Revenue Code[.]"(Defs.' Mem. Ex. A.)
Upon Malcolm Jr.'s passing, his June 9, 1993 Will (1993 Will) exercised this limited power of appointment over the 1937 Trust assets to create three equal trusts: Funds One, Two, and Three. Malcolm Jr. appointed his son, Kim, and nephew, Buff, as trustees of Fund One, which called for distributions to Kim, his spouse, his descendants, and the spouses of Kim's descendants during the trust term. (Defs.' Mem. Ex. B.) Malcolm Jr.'s 1993 Will also gave Kim a limited power of appointment over Malcolm Jr.'s trust to create Kim's own testamentary trust. After a prolific life, Kim passed away in 2011 and left a will (Kim's Will) executed on October 1, 2007. Kim's Will exercised the limited power of appointment featured in Malcolm Jr.'s 1993 Will to create the M2K Trust, which has its ties to the assets in both Malcolm Jr.'s trusts and the 1937 Trust. Kim's Will appointed Buff and Bill as trustees (Trustees).
The days and circumstances surrounding Kim's death and a codicil executed shortly before his passing are the subject of a companion matter, heard on the same day as this motion. See PC-2023-03302. Hereinafter, that case will be referred to in this Decision as the "companion case."
The M2K Trust initially provided Liz, Kim's wife, with lifetime, guaranteed income totaling $400,000 per year. However, Kim-as challenged in the companion case-increased this amount to $800,000 per year in a Second Codicil executed on June 14, 2011. Kim's children and grandchildren, Plaintiffs in this lawsuit, are beneficiaries of M2K as identified in § 5.3 of the M2K Trust.
In their Amended Verified Complaint filed on September 24, 2021, Plaintiffs alleged five Counts:
1. Defendants breached their duty of loyalty because they engaged in multiple divided loyalty transactions where they used Trust assets to acquire property in enterprises in which Trustees had interest. (Am. Verified Compl. ¶¶ 32-53.)
2. Failure to account because Trustees did not provide meaningful accounting regarding those transactions. Id. ¶¶ 54-63.
3. Breach of the duty of impartiality because Liz was allegedly favored by Trustees over other beneficiaries. Id. ¶¶ 64-66.
4. Breach of the duty to invest prudently because Trustees failed to create an investment policy, neglected to communicate it to the beneficiaries, and did not communicate written instructions to M2K Trust investment advisors. Id. ¶¶ 67-72.
5. Removal of Trustees due to the animus between Trustees and beneficiaries. Id. ¶¶ 73-81. As one of their remedies, Plaintiffs also sought removal of Trustees and appointment of Malcolm G. Chace IV and Helder Medeiros, CPA as successor trustees. Id. ¶ i.
On July 14, 2023, Defendants filed their Motion for Summary Judgment. See generally Defs.' Mot. They claimed that the lawsuit was meritless and arose out of "entitlement, animus and greed." (Defs.' Mem. 1.) Defendants allege that their actions were not in breach of any of their fiduciary duties and were supported by Kim's wishes and intentions as well as by the broad discretionary authority given to Trustees by the language of the M2K Trust. Id. at 1, 5-8. They assert that because the Trustees were given the broadest discretionary powers under the terms of the M2K Trust and considering the intent of the settlor, there are no genuine issues of material fact remaining. Id. at 10. Thus, they argue, the Amended Verified Complaint should be summarily dismissed on all Counts. Id. at 11.
Defendant, Liz, joined in Defendants' Motion for Summary Judgment. (Def. Elizabeth Zopfi Chace's Notice of Joinder in Supp. of Defs.' Mot. for Summ. J. (Def.'s Joinder).) She claimed that the Amended Verified Complaint should be dismissed as there are no genuine issues of material fact that remain because the claim is based only on personal animus against Liz and Trustee Defendants. Id. at 1. Additionally, she argued that the grant of summary judgment is warranted because Kim approved investments into downtown Providence real estate transactions during his life. Id. at 2.
On November 2, 2023, the Court heard oral arguments on the motion. After careful consideration, the Court now issues its Decision.
II
Standard of Review
'"Summary judgment is a drastic remedy, and a motion for summary judgment should be dealt with cautiously."' Cruz v. DaimlerChrysler Motors Corp., 66 A.3d 446, 451 (R.I. 2013) (quoting DeMaio v. Ciccone, 59 A.3d 125, 129 (R.I. 2013)). In fact, it should only be granted when '"the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as [a] matter of law."' Plunkett v. State, 869 A.2d 1185, 1187 (R.I. 2005) (quoting Wright v. Zielinski, 824 A.2d 494, 497 (R.I. 2003)).
"'[A] party who opposes a motion for summary judgment carries the burden of proving by competent evidence the existence of a disputed material issue of fact and cannot rest on allegations or denials in the pleadings or on conclusions or legal opinions.'" National Refrigeration, Inc. v. Standen Contracting Co., 942 A.2d 968, 971 (R.I. 2008) (quoting Accent Store Design, Inc. v. Marathon House, Inc., 674 A.2d 1223, 1225 (R.I. 1996)). Subsequently, summary judgment is appropriate if the nonmoving party "'fails to make a showing sufficient to establish the existence of an element essential to that party's case . . . ." Beauregard v. Gouin, 66 A.3d 489, 493-94 (R.I. 2013) (quoting Lavoie v. North East Knitting, Inc., 918 A.2d 225, 228 (R.I. 2007)). The presence of a factual dispute alone will not defeat summary judgment, "'the requirement is that there be no genuine issue of material fact.'" Bucci v. Hurd Buick Pontiac GMC Truck, LLC, 85 A.3d 1160, 1169 (R.I. 2014) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). Finally, summary judgment is only appropriate when the court '"conclude[s], after viewing the evidence in the light most favorable to the nonmoving party, that there is no genuine issue of material fact to be decided and that the moving party is entitled to judgment as a matter of law[.]"' DeMaio, 59 A.3d at 129 (R.I. 2013) (quoting Pereira v. Fitzgerald, 21 A.3d 369, 372 (R.I. 2011)) (internal quotation marks omitted).
III
Analysis
A
Count I - Breach of Duty of Loyalty - Conflicting Transactions
"Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the 'disintegrating erosion' of particular exceptions. . . . Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd."
Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928) (emphasis added).
In their motion, Defendants argue that the language of the M2K Trust gives Trustees the broadest powers to invest in real estate ventures "including (i) low-yield or non-productive securities or other property" (Defs.' Mem. Ex. D, § 6.3.1), to pay reasonable expenses for the services of various agents, and also "[t]o pay all expenses of acquisition, maintenance, and storage of and insurance on any assets held by the trustee." Id. at § 6.3.12. Section 6.3.19 of the M2K Trust allows a corporate trustee
"[t]o participate in joint ventures, partnerships, limited partnerships, limited liability companies and any other forms of participation of ownership and to act as a general or limited partner of any partnership, regardless of the fact that the corporate trustee or any
corporation owning stock of the corporate trustee may own a participation interest in or be an underwriter thereof." (Defs.' Mem. Ex. D, § 6.3.19.)
Defendants agree that Buff and Bill are not corporate trustees. (Defs.' Mem. 17; Hr'g Tr. 36:7-9, Nov. 2, 2023.) Nevertheless, they assert that they were allowed to invest M2K Trust assets and their own assets into the ventures because Kim consented to similar investment arrangements during his life. (Defs.' Mem. 17.) Defendants assert that Plaintiffs' preferences not to invest in real estate ventures located in downtown Providence are not controlling under the terms of the M2K Trust. (Defs.' Mem. 11.) They aver that despite Plaintiffs' allegations regarding marketability of certain real estate efforts, Malcolm IV did not consult any experts on the questions and, thus, his suspicions and "lay opinion is nothing more than unsubstantiated conjecture." Id. at 12. They argue that they cannot be found in breach of their fiduciary duties because they simply continued settlor's efforts to rehabilitate Providence in "further[ance] [of] Kim's longstanding vision." Id. at 15-16. Thus, Defendants allege that Count I of the Amended Verified Complaint should be dismissed. Id. at 19.
The duty of loyalty to the beneficiaries is one of the most fundamental duties of a trustee and requires that "[a] trustee shall invest and manage the trust assets solely in the interest of the beneficiaries." G.L. 1956 § 18-15-5 (emphasis added). In Sinclair v. Industrial National Bank of Providence, 89 R.I. 461, 153 A.2d 547 (1959), the Rhode Island Supreme Court explained that
"'[b]roadly speaking it is clearly established that a trustee must give undivided loyalty to the trust confided to his care and to its beneficiaries. . . . He must at all times exercise a high standard of honor and avoid all situations and transactions that tend to call his good faith into question and to create in himself rights possibly conflicting with those of the beneficiaries.'" Sinclair, 89 R.I. at 469, 153 A.2d at 552 (quoting Dodge v. Stone, 76 R.I. 318, 323, 69 A.2d 632, 634 (1949)).
Self-dealing transactions are generally prohibited and "it is a breach of trust for the trustee personally to buy property held in the trust, or to sell the trustee's own property to the trust; nor may the trustee personally borrow money from, lend funds to, or exchange property with the trust." Restatement (Third) Trusts § 78 cmt. d (2007).
Although the Rhode Island Supreme Court has yet to formally adopt § 78, our courts have either adopted or approvingly referenced other sections of Restatement (Third) Trusts. See Glassie v. Doucette, 157 A.3d 1092, 1099 (R.I. 2017) (adopted Restatement (Third) Trusts § 107(1)); Dauray v. Mee, Nos. PB 10-1195, PB 11-2640, PB 11-2757, 2012 WL 4043292, at *19 (R.I. Super. Sept. 7, 2012) (applying a higher standard to trustee hired for its special skill under Restatement (Third) Trusts § 77).
"'A trustee violates his duty to the beneficiaries, not only where he purchases the property for himself but where he has a personal interest in the transaction of a substantial nature. The trustee must not place himself in temptation.' These principles of law have been recognized and applied in substance by this court in passing upon the propriety of acts and conduct of fiduciaries of different types." Dodge, 76 R.I. at 324, 69 A.2d at 635.
"Self-dealing occurs also when the trustee personally has a financial interest in the transaction of such a nature that it might affect the trustee's judgment." Restatement (Third) Trusts § 78 (2007). A conflict may exist "if the trustee enters into a transaction with a business in which the trustee has a controlling or substantial interest, or with an agent, employee, or family member such as a spouse, descendant, parent, or sibling." G. Bogert & G. Bogert, The Law of Trusts & Trustees § 543, 358-60 (3d ed. 2019). Furthermore, a conflict may exist when a trustee holds stock in the same corporation as the trust or becomes a director or officer of that corporation, because his undivided loyalty may be tainted. Id. at 550.
Generally, it may be challenging for beneficiaries to prove the fairness of the transactions of a self-dealing trustee. Id. at 363-65. Trust law accounts for this with the no-further-inquiry rule which allows a beneficiary to void a transaction "without the need to establish the trustee's bad faith or unfaithfulness." Id. at 363-64. Instead, courts look to the status of the trustee and whether that status "create[s] circumstances in which the trustee could not reasonably give his undivided loyalty to the trust and all its beneficiaries." Montaquila v. Montaquila, 85 R.I. 447, 453, 133 A.2d 119, 122 (1957). In Montaquila, where a trustee was employed as a broker and received a percentage from each sale, our Supreme Court stated that although nothing suggested any wrongdoings or dishonesty on the part of a trustee, the transaction was inappropriate. Id. at 450-51, 133 A.2d at 120-21. Our Supreme Court reasoned that "[t]he controlling consideration in these situations, however, is whether there is an inherent incompatibility between the status of the trustee as such and his status as an employee of the trustees" which could tempt the trustee "in any way by conduct or circumstances to act otherwise than with complete loyalty to the trust and its interests." Id. at 452-53, 133 A.2d at 122.
Similarly, courts have found that a trustee violates their duty of undivided loyalty when they act as both an executor of an estate and collect a broker's fee when selling realty forming a portion of the estate, even if the sale benefited the estate. In re Roese's Will, 237 N.Y.S.2d 367 (N.Y. Surr. Ct. 1962). Thus, under this principle, a beneficiary can void a disloyal transaction without having to prove that the act was harmful, regardless of any benefits to the trustee, the trust, or the beneficiary. G. Bogert & G. Bogert, The Law of Trusts & Trustees § 543, 365-66 (3d ed. 2019). A leading treatise on trusts explains that:
"Whether the trustee acted in good faith and with honest intentions is not relevant, nor is it important that the transaction attacked was fair and for an adequate consideration so that the beneficiary has suffered no loss as a result of the disloyal act. It is not material that the trustee himself made no profit from the disloyal act, although in most cases he has benefitted." George T. Bogert, Trusts § 95 (Hornbook, 6th ed. 1987).
However, Rhode Island law provides an exception to the general principle that a trustee should remove himself when a conflict of interest arises. "'The most commonly recognized exception to application of the rule is that where the settlor has expressly or impliedly approved of the self-dealing transaction or conflict of interest position.'" Cuzzone v. Plourde, No. 03-0524, 2005 WL 2716749, at *2 (R.I. Super. Oct. 17, 2005) (quoting G. Bogert & G. Bogert, The Law of Trusts and Trustees § 543 (rev. 2d ed. 1993)).
1
Express Approval
The express language of a trust instrument can allow the trustee to engage in particular self-dealing. See generally Renz v. Beeman, 589 F.2d 735, 744 (2nd Cir. 1978); see also Rosencrans v. Fry, 95 A.2d 905 (N.J. 1953) (trustee was not penalized for purchasing stock at $25, a much lower price than the book value, because the testator expressly authorized it in his will). Regardless of how broad an express authority for self-dealing is, a trustee will still be liable for bad-faith dealings. See generally Renz, 589 F.2d at 735. "Only the most explicit language can protect a fiduciary from liability in a conflict of interest with his Cestuis." Renz, 589 F.2d at 745 (citing Matter of Hubbell, 97 N.E.2d 888 (N.Y. 1951)). For example, in French v. Wachovia Bank, N.A, 722 F.3d 1079 (7th Cir. 2013), beneficiaries of a trust alleged that the trustee breached its fiduciary duties by exchanging two whole life insurance policies for two "no lapse" insurance policies, disregarding "that exchange would result in large commission for its affiliate." French, 722 F.3d at 1079. The court stated that "[g]eneral language granting broad powers to the trustee is not sufficient to waive the prohibition [on self-dealing]; to be effective, the authorization to self- deal must be express and clear." Id. at 1085. After considering the trust language at issue, the Seventh Circuit found that it was clear that self-dealing was allowed. Id. at 1086. The instrument expressly provided that
Black's Law Dictionary defines "cestui" as "[a] beneficiary." Black's Law Dictionary (11th ed. 2019).
"[w]ithout limiting powers incidental to the purposes of the trust or otherwise existing by law, the trustee and all successors shall have, without approval of any court, the power: . . . to continue as trustee and to deal with any trust hereunder without regard to conflicts of interest[.]" Id. Based on that clear and express language, the court found that the trustee in French did not violate its duty by replacing the insurance policies. Id. at 1079.
Even when a trust document contains exculpatory language "[c]ourts may not read [it] broadly, lest they unwittingly permit erosion of the fiduciary duty itself." Renz, 589 F.2d at 745 (citing Wendt v. Fischer, 154 N.E. 303, 304 (N.Y. 1926)). As long as there is no ambiguity, the court should effectuate the plain language of the trust instrument. 90 C.J.S. Trusts § 209. When the provisions are ambiguous, a court may look to evidence of circumstances surrounding the formation of the trust document. Id. Among the circumstances to be considered are the condition of the grantor's estate, the grantor's relations to his or her family and beneficiaries, the relation of the parties to each other and to the property, and other matters that might have influenced the grantor's mind. Id.
Here, Defendants argue that Plaintiffs cannot overcome numerous provisions of the M2K Trust, which grant Trustees the "broadest discretionary powers of investment, reinvestment and management" decisions over the Trust. (Defs.' Mem. Ex. D § 6.3.) Defendants also reference this Court's earlier summary judgment decision where the Court stated that "the trustees clearly received the maximum possible authority in the ability to administer the M2K Trust." (Malcolm Chace IV, et al. v. Arnold B. Chace Jr., et al., No. PC-2021-00953, Feb. 28, 2022, Stern, J.)
In its Motion for Partial Summary Judgment, Plaintiffs sought a declaration that Rhode Island law applies to this case. The Court found in their favor.
Plaintiffs in turn argue that the M2K Trust language granting Trustees the "broadest discretionary powers" does not clearly and expressly allow for individual trustees to self-deal, but instead only relieves corporate trustees of the duty of loyalty.
The Court will first turn to the language of the M2K Trust. Section 6.3.19 states that a trustee may
"participate in joint ventures, partnerships, limited partnerships, limited liability companies and any other forms of participation of ownership and to act as a general or limited partner of any partnership, regardless of the fact that the corporate trustee or any corporation owning stock of the corporate trustee may own a participation interest in or be an underwriter thereof." (Defs.' Mem. Ex. D, at 12-13) (emphasis added).
Courts in other jurisdictions "recognized the 'uniqueness' of corporate trustees in terms of the sophisticated trust administration services they provide, when compared with individual trustees[.]" In re Estate of Prankard, 723 N.Y.S.2d 315, 324 (N.Y. 2000). Corporate trustees are distinct from individual trustees because "the existence of the corporate trustee is in part a 'brake' upon the inherent conflict of interest created by the settlor with respect to the individual trustee." Huntington National Bank v. Wolfe, 651 N.E.2d 458, 466 (Ohio 1994).
Here, Trustees are urging the Court to read the M2K Trust language broadly and allow Buff and Bill to enjoy the same privileges as a corporate trustee, even though they agree that Bill and Buff serve as individual trustees. (Defs.' Mem. 17.) They argue that Trustees should be allowed to invest M2K Trust assets as well as their own assets, especially in light of Kim's similar investment arrangements during his life. Id.
The Court must note that nothing within the plain language of M2K Trust § 6.3.19 suggests that the settlor intended for the Trustees in question to have the same powers as a corporate trustee would have. Unlike the trust language used in the trust document in French, which allowed a trustee "to continue as trustee and to deal with any trust hereunder without regard to conflicts of interest[,]" § 6.3.19 only specifically allows self-dealing by a corporate trustee. (Defs.' Mem. Ex. D, at 12-13.) The M2K Trust does not authorize individual trustees, including Buff and Bill, to act in their own interest. Similarly, the Court cannot interpret that other numerous provisions of the M2K Trust read together show the settlor's intent to waive the duty of loyalty for Buff and Bill and to allow them to self-deal. There is no doubt that Trustees received very broad discretionary powers under the terms of the M2K Trust. Nevertheless, nothing in the broad language of the M2K Trust expressly states that Trustees are not bound by one of the most central duties-the duty of loyalty-and that self-dealing is allowed. Thus, the Court finds as a matter of law that the settlor did not expressly waive Trustees' duty of loyalty to allow Buff and Bill to self-deal by engaging in transactions that benefited them personally.
Even when settlors describe the powers given to trustees as "absolute," "uncontrolled," "complete," or use any other words with similar meaning, it does not mean that there are no limitations on the trustee. G. Bogert & G. Bogert, The Law of Trusts & Trustees § 560, p. 209-10 (1980). No matter how broad the powers are, they cannot "be used in an 'extravagantly unreasonable' or 'arbitrary' manner, or 'in bad faith' or for a purpose other than a trust purpose[.]" Id. at 213-14.
For example, the M2K Trust allows the Trustees to, inter alia, invest in low-yield or nonproductive property (§ 6.3.1), to borrow money from any lender (§ 6.3.4), to employ professionals to manage trust assets (§ 6.3.11), and to lend money or property to any person, corporation, etc. "upon such terms and for such security (or without security) as the independent trustee may determine" (§ 6.3.18).
Under Rule 56(d) of the Superior Court Rules of Civil Procedure, the Court "shall if practicable ascertain what material facts are actually and in good faith controverted."
2
Implied Approval
It may be presumed that the settlor intended to waive the duty of loyalty where the settlor knew the trustee would have a substantial interest in the trust property but chose him anyway. See Finkelstein v. Finkelstein, 502 A.2d 350, 354 (R.I. 1985); see also In re Farrell's Will, 91 N.Y.S.2d 89 (N.Y. 1949) (the court found no breach of duty of loyalty where a decedent executed a bond and mortgage with a Trust Company, and then named the same Trust Company as trustee, because "[i]t was the testator who, by his will, had placed the trustee in the position" of divided loyalty). Thus, courts look at whether the settlor "knew, at the time he created the trust[], that [trustee] held and would hold these [conflicting] positions." Shear v. Gabovitch, 685 N.E.2d 1168, 1190 (Mass. 1997).
In their motion, Defendants also argue that investments made by Buff supported Kim's wishes to rehabilitate downtown Providence. (Defs.' Mem. 15; Defs.' Mem. Ex. J, at 41:4-8, 42:4-22, June 8, 2022.) In his deposition taken on June 8, 2022, Bill stated that the investments were "a piece of the puzzle in a . . . consistent list of investing in real estate in Providence" going as far back as investments made by Kim's mother. (Defs.' Mem. Ex. J, at 104:17-21, 105:3-10, June 8, 2022.) Liz also testified in her deposition taken on May 26, 2022 that the investments of M2K funds into downtown Providence rehabilitation were "the fulfillment of [Kim's] intention." (Defs.' Mem. Ex. F, at 62:2-18, May 26, 2022.) Defendants argue that even Malcolm IV acknowledged that the investments Trustees made were consistent with those his father made during his lifetime. (Defs.' Mem. Ex. H, at 142:5-8, June 13, 2022.)
With the present record before it, the Court does not have enough information to determine whether the grounds, generally requiring removal, existed at the time of Trustees' appointment. The Court at this stage cannot determine as a matter of law that the settlor placed Trustees in a position of divided loyalty while fully aware of their conflicts as trustees and owners or managers of various entities. Thus, the question of whether the settlor could have contemplated that Trustees would have substantial interest in the M2K Trust property is a question of fact to be determined at trial.
3
Conflicting Transactions
At the heart of the present dispute are transactions allegedly made between several Rhode Island entities in which Plaintiffs claim that the M2K Trust has an interest and entities owned or controlled by Buff personally. The entities in question are: (1) Downcity Phase II (DC II), (2) Gardner CA Member, LLC (Gardner CA), (3) Aborn 2018, LLC (Aborn), (4) Clemence 91, LLC (Clemence), (5) Lapham 290, LLC (Lapham), (6) RWB Associates, LLC (RWB), (7) Orchard Garage (Orchard), and (8) Gardner Building.
Within their Opposition Memorandum, Plaintiffs detail various transactions which they claim provide evidence of self-dealing by Buff dating back to 2013. Plaintiffs' allegations point to instances where they claim that Buff served as a co-investor alongside M2K Trust monies, that Buff served as manager of M2K Trust-owned assets, and where Buff used M2K Trust funds to support properties that Buff owned individually. (Pls.' Opp'n Mem. Exs. B, at 19; C, D, F, G, H, Y, AF, AG.) Additionally, Plaintiffs claim that Buff executed operating agreements for DC II that purported to grant back-dated authority for his actions. (Pls.' Opp'n Mem. Exs. C, D, AA.)
In their Reply Memorandum, Defendants argue that such actions do not establish any evidence of wrongdoing. They cite to Colello v. Colello, 9 A.D.3d 855 (N.Y.App.Div. 2004), which states that "[i]t is fundamental that where parties to an agreement expressly provide that a written contract be entered into 'as of' an earlier date than that on which it was executed, the agreement is effective retroactively 'as of' the earlier date and the parties are bound thereby accordingly." Colello, 9 A.D.3d at 857 (internal quotation omitted). Plaintiffs imply that such transaction setup was wrong but provide no legal support for their allegations. The parties failed to adequately develop their arguments regarding this issue. Thus, the Court will not address it any further at this time. Additionally, the issue of "backdating" certain agreements can be addressed in a Motion in Limine before the trial.
Plaintiffs allege that the Trustees invested in the Clemence entity (Pls.' Opp'n Mem. Ex. S, at 13) and then through a "reimbursement," granted a 33.3 percent interest in Clemence to the A2 Trust (of which Buff is also a trustee and beneficiary) (Pls.' Opp'n Mem. Ex. S, at 14). Plaintiffs allege that, at a later point, Buff appointed himself as manager of Clemence. (Pls.' Opp'n Mem. Ex. Y.) Over a five-year period, Plaintiffs contend that over $1.1 million was invested by the Trustees into Clemence (Pls.' Opp'n Mem. 10) and that Buff secured an additional $1.1 million in loans against the entity (Pls.' Opp'n Mem. Exs. Y, V). Plaintiffs further claim that the loan proceeds were in part used by Buff to purchase the Aborn property (Pls.' Opp'n Mem. Ex. AB) and that the M2K Trust did not receive its prorated share of loan proceeds or an interest in Aborn (Pls.' Opp'n Mem. Exs. D, V, at 195:9-11). Plaintiffs also claim that DC II began funding the Aborn entity "before Buff contributed a single dollar to DCII and before DCII held an interest in Aborn[.]" (Pls. Opp'n Mem. Ex. F; Pls.' Opp'n Mem. 12.)
Plaintiffs' allegations also state that funds from the M2K Trust were deposited into DC II, and that "Buff used M2K monies to renovate the Lapham and RWB properties that he owned." (Pls.' Opp'n Mem. 6-7.) Plaintiffs claim that those M2K funds deposited into DC II were transferred directly to Lapham and RWB to help those entities meet loan-to-value ratios to secure expanded credit. (Pls.' Opp'n Mem. 7-8; Pls.' Opp'n Mem. Exs. B, at 40-42, J, K.) Additionally, with those transfers and the extended credit, Plaintiffs claim that Buff paid off preexisting mortgages for Lapham, in the amount of $2,500,603.36, and RWB, in the amount of $721,964.33. (Pls.' Opp'n Mem. 7-8; Pls.' Opp'n Mem. Ex. O, P.)
Plaintiffs also claim that Buff served as manager and owner of Gardner CA and participated in the management of Gardner CA subsidiaries while M2K was also part owner of Gardner CA. (Pls.' Opp'n Mem. Ex. AF; Pls.' Opp'n Mem. 12-13.) In their papers, Plaintiffs outline how the Orchard entity was created by Kim and Buff together in 2010 (Pls.' Opp'n Mem. Ex. AH) and that Kim personally guaranteed a loan against Orchard (Pls.' Opp'n Mem. Exs. AI, AJ). Plaintiffs note that after Kim's death, the M2K Trust took over the Orchard personal loan guarantees (Pls.' Opp'n Mem. Exs. AI, AK) and that the loan proceeds were ultimately used to purchase a building for the Gardner Building entity (Pls.' Opp'n Mem. Ex. AL).
i
Analysis of the Conflicting Transactions
On one hand, Defendants argue that there is no evidence that Trustees acted to their personal advantage or disadvantaged the beneficiaries. (Defs.' Reply Mem. 10.) To the contrary, Defendants assert that M2K Trust assets were enhanced, thus, benefiting Plaintiffs. Id. Furthermore, they argue that Buff did not obtain any improper personal benefit at the expense of beneficiaries because he assigned his sole ownership of Aborn, Lapham, and RWB to DC II. Id. at 11. Similarly, they posit that the refinancing of Orchard to purchase Gardner Building property was not a self-dealing transaction because M2K received a 50 percent interest in that property. Id. at 11-12.
Although this may be true, the law does not require the transaction to be unfair or for beneficiaries to suffer a loss for a breach of the duty of loyalty to exist. See George T. Bogert, Trusts § 95 (Hornbook, 6th ed. 1987). Buff's dual status as owner of Lapham, RWB (Pls.' Opp'n Mem. Ex. B, at 19) and Aborn (Pls.' Opp'n Mem. Ex. AA), manager of Clemence (Pls.' Opp'n Mem. Ex. Y) and Gardner CA (Pls.' Opp'n Mem. Ex. AE), as well as Trustee of M2K creates a genuine issue of material fact as to whether his actions "could create circumstances in which the trustee could not reasonably give his undivided loyalty to the trust and all its beneficiaries." Montaquila, 85 R.I. at 453, 133 A.2d at 122.
M2K eventually acquired an interest in the property-owning entities. Nevertheless, issues of material fact that remain in dispute include the use of M2K Trust assets to pay off mortgages for Lapham (Pls.' Opp'n Mem. Ex. O) and RWB (Pls.' Opp'n Mem. Ex. P), the use of the money from the Orchard refinance to obtain property for Gardner Building (Pls.' Opp'n Mem. Ex. AL), in which Gardner CA holds a 50 percent interest, the use of DC II money to perform renovations and improvements to Lapham and RWB's real estate (Pls.' Opp'n Mem. Ex. B) and whether those transactions were appropriate. Regardless of the backdating of certain Operating Agreements at issue, at this stage the Court is not prepared to say that there is no genuine issue of material fact as to the appropriateness of these transactions. Buff had a substantial personal interest in all of the entities and used M2K Trust assets to help him achieve certain goals. Although the Court agrees that the M2K Trust eventually obtained ownership interest in all of the entities at issue, possibly benefited from certain tax subsidies, and that the beneficiaries did not point to any substantive harm to themselves or the M2K Trust, the no-further-inquiry rule only requires a transaction to be disloyal to be avoided. It is not clear that the Trustees were able to remove their personal interests from these transactions and acted solely in the interest of the beneficiaries. Without more information, the Court cannot conclude as a matter of law that all of the transactions with the real estate ventures at issue do not constitute a breach of the duty of loyalty. Thus, it is premature for the Court to dismiss Count I of the Amended Verified Complaint.
B
Count II - Breach of Trust - Failure to Account/Furnish Information
Next, Defendants argue that Rhode Island law does not have a statutory requirement to provide accounting to the beneficiaries. (Defs.' Mem. 19-20.) Thus, Defendants allege Count II of the Amended Verified Complaint should be dismissed. Id.
Under Rhode Island law, there is no requirement to file an accounting in the court with jurisdiction over the trust. See David T. Riedel, Wills, Trusts, and Gifts § 685 (Vol. 3 1990). Nevertheless, after a reasonable request from the beneficiaries, a trustee is obligated to provide "complete and accurate information as to the nature and amount of the trust property, and to permit him or a person duly authorized by him to inspect the subject matter of the trust and the accounts and vouchers and other documents relating to the trust." Restatement (Second) Trusts § 173; see also Barbour v. Cummings, 26 R.I. 201, 58 A. 660 (1904).
Additionally, § 172 of Restatement (Second) Trusts states: "The trustee is under a duty to the beneficiary to keep and render clear and accurate accounts with respect to the administration of the trust." Restatement (Second) Trusts § 172 (1952). This Court has previously cited to Restatement (Second) Trusts and found the same meaningful, persuasive authority. See Bank of America, N.A. v. Neronha, No. PM-2022-0446, 2023 WL 6535268, at *1, 14-17, 20, 23 (R.I. Super. Oct. 2, 2023). Comment a of § 172 reads "[t]he trustee is under a duty to keep accounts showing in detail the nature and amount of the trust property and the administration thereof." Restatement (Second) Trusts § 172 cmt. a.
Likewise, while our Supreme Court has yet to formally adopt § 83 of Restatement (Third) Trusts, it has cited approvingly to other portions of Restatement Third. See Glassie v. Doucette, 157 A.3d 1092, 1099 (R.I. 2017) (adopting Restatement (Third) Trusts § 107(1) (2012)); see also Barrett v. Barrett, 894 A.2d 891, 900-01 (R.I. 2006) (Robinson, J. dissenting) (stating § 25 cmt. d. is consistent with the dissenting justice's view)). Section 83 of Restatement (Third) Trusts provides: "A trustee has a duty to maintain clear, complete, and accurate books and records regarding the trust property and the administration of the trust, and, at reasonable intervals on request, to provide beneficiaries with reports or accountings." Comment a of the same states "[i]mplicit in the duty to provide information to beneficiaries (§ 82) is the duty stated in this Section requiring a trustee to maintain an adequate set of books and records." Id. cmt. a.
The Court views Comments a and a(1) in the Restatement § 83 about Wood v. Honeyman, 169 P.2d 131, 162 (Or. 1946) as instructive. In Wood, the court stated:
"It must be apparent that when one becomes a trustee . . ., he must maintain records of his transactions so complete and accurate that he can show by them his faithfulness to his trust. It is not enough for him to know that he is honestly performing his duty. Since, generally, the burden of proof rests upon him to prove his fidelity, he must be able to sustain his position by honest records. Bogert on Trusts and Trustees, § 962, says: 'It is the duty of the trustee to keep full, accurate, and orderly records of the status of the trust administration and of all acts thereunder . . . The general rule of law applicable to a trustee burdens him with the duty of showing that the account which he renders and the expenditures which he claims to have made were correct, just and necessary. . . . He is bound to keep clear and accurate accounts, and if he does not the presumptions are all against him, obscurities and doubts being resolved adversely to him . . . .'" Id.
Plaintiffs' Amended Verified Complaint seeks annual "meaningful accounting to each beneficiary of the M2K Trust[.]" (Am. Verified Compl. ¶ 55.) Plaintiffs concede that annual accounting to each Plaintiff is unnecessary but aver that Defendants failed to provide Plaintiffs with accurate accounting of M2K Trust transactions. (Pls.' Opp'n Mem. 34-35.) Plaintiffs also contend that the accounts provided by the Trustees do not meet their demand for meaningful accounts because the data fails to adequately encapsulate Buff's self-dealing. Id. at 35.
The Court agrees with Defendants that Rhode Island law does not require annual accounting to beneficiaries. Nevertheless, it remains to be seen whether Defendants provided "complete and accurate information" when requested. See Restatement (Second) Trusts § 173 (emphasis added). Plaintiffs have presented evidence that Defendants' accounting was "riddled with inaccurate and self-serving entries intended to cover up the extent of trustee self-dealing and maladministration." (Pls.' Opp'n Mem. 34-35; Pls.' Opp'n Mem. Exs. E, AM.) Defendants respond to these claims by stating that "[t]here are . . . no claims of maladministration asserted in the Amended Verified Complaint, and Plaintiffs proffer no expert testimony in support of thereof." (Defs.' Reply Mem. 17.) However, the Court views Plaintiffs as having presented competent evidence-particularly, Plaintiffs' offering that M2K Trust statements show no record of a $500,000 capital call to Gardner CA in 2018-showing that the accounts may have contained inaccuracies. See Pls.' Opp'n Mem. Exs. E and AM.
Specifically, Plaintiffs' Opposition Memorandum alleges that part of M2K Trust monies for DC II were deposited into the operating accounts of some of Buff's entities and that the M2K Trust's bank statements do not have a record of a purported $500,000 capital call to Gardner CA. (Pls.' Opp'n Mem. 35.)
These opposing views between Plaintiffs and Defendants are antithetical of a scenario ripe for summary judgment. Because the Court finds that Defendants owed Plaintiffs a duty to provide accurate accounting of M2K Trust investments, the Court determines that an issue of fact exists as to whether Defendants met that duty and denies Defendants' motion as to this Count.
C
Count III - Breach of Duty of Impartiality With Beneficiaries
Defendants argue that they did not breach their duty of impartiality to beneficiaries because the M2K Trust language gives them discretion as to the distributions to "Section 5.3 Beneficiaries." (Defs.' Mem. 20.) Also, Defendants argue that there is no evidence that Liz received any special treatment or received any additional distributions beyond the amount mandated by the M2K Trust. Id. at 21. Thus, they state Plaintiffs failed to show that Trustees were partial and Count III of the Amended Verified Complaint should be dismissed. Id. at 22.
Section 18-15-6 provides that "[i]f a trust has two (2) or more beneficiaries, the trustee shall act impartially in investing and managing the trust assets, taking into account any differing interests of the beneficiaries." Section 18-15-6. "The duty of impartiality is an extension of the duty of loyalty to beneficiaries but involves, in typical trust situations, unavoidably and thus permissibly conflicting duties to various beneficiaries with their competing economic interests." Restatement (Third) Trusts § 79 cmt. b (2005). Impartiality does not mean treating each beneficiary's interests the same. Id. Nevertheless, a trustee cannot "be influenced by the trustee's personal favoritism or animosity toward individual beneficiaries, even if the latter results from antagonism that sometimes arises in the course of administration." Id. It is required that a trustee must comply with the terms and purpose of the trust in the treatment of beneficiaries. Id. Thus, "it is the trustee's duty, reasonably and without personal bias, to seek to ascertain and to give effect to the rights and priorities of the various beneficiaries or purposes as expressed or implied by the terms of the trust." Id.
Here, Defendants argue that beneficiaries' claims that the Trustees favored Liz and treated beneficiaries unfairly are meritless. (Defs.' Mem. 19.) They further state that although a close relationship exists between Liz and Trustees, this alone does not give rise to the breach of duty of impartiality. Id. at 21.
On the other hand, Plaintiffs allege that there has been confusion regarding the M2K Trust administration from the very beginning. (Pls.' Opp'n Mem. 36.) Plaintiffs argue that they were erroneously referred to as residuary beneficiaries and that Liz is the primary beneficiary with interests superior to those of Plaintiffs. Id. They state that lack of discretion regarding distributions to Liz "per se" harms beneficiaries, especially in light of the fact that the M2K Trust failed to generate income in excess of mandatory distributions to Liz. Id. at 37. Additionally, Plaintiffs argue Liz has been the only person who was consulted regarding DC II and Gardner CA transactions. Id.
Plaintiffs allege that they were mislabeled as vested income and principal beneficiaries. (Pls.' Opp'n Mem. 36.)
First, the Court must look to the language of the M2K Trust. Section 5.1 states:
"During my wife's lifetime if she survives me, the trustee shall pay to my wife [Liz] from the net income of such trust the sum of Four Hundred Thousand Dollars ($400,000) annually, provided, however, that (i) to the extent such income is insufficient to make such payment, the trustee shall use principal for such purpose, and (ii) such amount shall be prorated in the year of my death." (Defs.' Mem. Ex. D, at 6.)
The Second Codicil increased the amount from $400,000 to $800,000. The parties are disputing the validity of this change in a companion case.
Section 5.1 clearly and expressly provides that Liz is to receive required distributions. Plaintiffs failed to present any evidence that Liz received additional funds from the M2K Trust beyond the mandatory distributions. Absent a showing of favoritism or conflicting economic duties, there is no outstanding genuine issue of material fact to resolve.
Next, the Court looks to § 5.3 of the M2K Trust, governing distributions to Plaintiffs. It provides:
"Subject to the provisions of the foregoing paragraphs 5.1 and 5.2, until the time of termination as hereinafter defined, the trustee shall pay or apply so much or all of the net income and any part or all of the principal of such trust to or for the benefit of any one or more of the members of a class composed of my children and my more remote issue as the independent trustee in his discretion determines. Unused income shall periodically be accumulated as principal." (Defs.' Mem. Ex. D, at 6.)
Section 5.3 does not require any mandatory distributions be made to Kim's children or descendants. (Defs.' Mem. Ex. D, § 5.3.) Again, Plaintiffs have failed to present evidence to support their claim that Defendants do not have discretion whether to distribute income from the M2K Trust to § 5.3 beneficiaries. While Plaintiffs argue that animosity clouds Trustees' judgment, they present no evidence that the Trustees managed trust assets in a way that favored Liz at the expense of other beneficiaries. Thus, Count III is summarily dismissed.
D
Count IV - Breach of Duty to Invest Prudently
Defendants assert that M2K Trust assets were invested in a prudent manner. (Defs.' Mem. 22.) Accordingly, Defendants argue, Count IV of the Amended Verified Complaint should be dismissed. Id. at 31.
Section 18-15-1 provides that "a trustee who invests and manages trust assets owes a duty to the beneficiaries . . . to comply with the prudent investor rule set forth in this chapter. . . . The prudent investor rule, a default rule, may be expanded, restricted, eliminated, or otherwise altered by the provisions of a trust. A trustee is not liable to a beneficiary to the extent that the trustee acted in reasonable reliance on the provisions of the trust." The Prudent Investor Rule requires a trustee to "act with undivided loyalty and solely in the interests of the beneficiaries." Restatement (Third) Trusts § 90 cmt. c (2007).
Additionally, under the Rhode Island Uniform Prudent Investor Act, "[a] trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. The trustee shall exercise reasonable care, skill, and caution in:
"(1) Selecting an agent;
"(2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and
"(3) Periodically reviewing the agent's actions in order to monitor the agent's performance and compliance with the terms of the delegation.
"(b) In performing a delegated function, an agent owes a duty to the trust to exercise reasonable care to comply with the terms of the delegation.
"(c) A trustee who complies with the requirements of subsection (a) of this section is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.
"(d) By accepting the delegation of a trust function from the trustee of a trust that is subject to the law of this state, an agent submits to the jurisdiction of the courts of this state." Section 18-15-9.
In their Amended Verified Complaint, Plaintiffs claim that Defendants breached their duty by failing to exercise "prudent conduct in delegation of investment decisions including exercising reasonable care, skill and caution in (1) selecting agents; (2) establishing the scope and terms of the delegation of investment decisions consistent with the purpose of the M2K Trust; and (3) periodically reviewing the agents' actions in order to monitor the agents' performance and compliance with the terms of the delegation of investment decisions." (Am. Verified Compl. ¶ 69.) Plaintiffs also claim that Trustees failed to create an investment policy and strategy or to communicate the M2K Trust investment policy to beneficiaries or the M2K Trust investment advisors. Id. ¶¶ 70-72.
Defendants argue that they acted prudently in relation to the M2K Trust assets by utilizing an investment manager (Avalon) to assist with M2K Trust management and reviewing Avalon's statements on a regular basis. (Defs.' Mem. 23-24.) Defendants also argue that they relied on bookkeepers, accountants, and attorneys when making strategic, well-reasoned investments and state that they acted prudently to carry out Kim's intentions. Id. at 24-27. Furthermore, Malcolm IV received quarterly statements from Avalon and was aware of the majority of the M2K Trust's assets. Id. at 28.
Plaintiffs failed to provide any competent evidence to the contrary. In their Opposition Memorandum, Plaintiffs referenced an investigation regarding Buff's "purportedly illegal tax breaks" to question the prudence of Trustees' investments. These allegations are irrelevant. Additionally, the language of the M2K Trust allows for investments that may be considered imprudent, "including (i) low-yield or non-productive securities or other property." (Defs.' Mem. Ex. D, § 6.3.1.) Because § 18-15-1-the Prudent Investor Rule-is just a default and can be modified by the language of the trust, the Court is not willing to conclude that a genuine issue of material fact exists on this question.
Next, Plaintiffs assert that the Court should consider the fact that "[a] trustee shall invest and manage the trust assets solely in the interest of the beneficiaries" (§ 18-15-5) and "shall act impartially in investing and managing the trust assets[]" (§ 18-15-6). The Court has already determined earlier that it does not have enough facts to rule on the issue of whether Defendants acted solely in the interests of beneficiaries, as the Prudent Investor Rule requires. Thus, a genuine issue of material fact remains, and dismissal of Court IV on a summary judgment would be premature.
E
Count V - Removal of Trustees - Ongoing and Willful Nature of Breach(es) of Duty of Loyalty by ABC, Jr. and Saltonstall
Finally, Defendants argue that Plaintiffs' request to remove Trustees should be denied because Plaintiffs failed to prove that Trustees breached their fiduciary duties. (Defs.' Mem. 31.) Defendants assert that the only basis for Count V is Plaintiffs' personal animosity toward Trustees and Liz. Id. at 32-33. Thus, they state Plaintiffs failed to prove they are entitled to this extreme form of relief and Count V of their Complaint should be dismissed. Id. at 33-34.
One of the equitable remedies available to a beneficiary for a trustee's breach of trust is a court-authorized removal of a trustee. Loring & Rounds, A Trustee's Handbook 734-36 (2023). Also, "[w]hen friction between the trustee and beneficiary . . . impairs the proper administration of the trust or if future cooperation between the trustees is improbable or if the trustees' continuing to act as such would be detrimental to the interest of the beneficiary, the trustee may be removed." Petition of Statter, 108 R.I. 326, 335, 275 A.2d 272, 276 (1971) (citing In re Estate of Gilmaker, 371 P.2d 321 (Cal. 1962); Smith v. Biggs Boiler Works Co., 91 A.2d 193 (Del. 1952); Gordon v. Gordon, 124 N.E.2d 236 (Mass. 1955); Vest v. Bialson, 293 S.W.2d 369 (Mo. 1956); In re Lipsit, 269 N.Y.S.2d 989 (N.Y. 1966); In re Corr's Estate, 58 A.2d 347 (Pa. 1948); Restatement (Second) Trusts § 107 cmts. a and c; 2 Scott, Trusts (3d ed.) § 107). Generally, hostility or friction between the trustee and the beneficiary are not a sufficient ground for removal of a trustee. Loring & Rounds, A Trustee's Handbook 789 (2023 ed.).
Historically, courts removed or considered removing trustees for serious actions like "insanity, habitual drunkenness, criminality involving moral turpitude, . . . abuse of discretion, . . . unauthorized commingling, failure to account, a personal interest adverse to the trust, . . . favoring interests of some beneficiaries over the interests of others[.]" Loring & Rounds, A Trustee's Handbook 789 (2023 ed.).
"In deciding such cases the court's paramount duty is to see that the trust is properly executed and that the beneficiaries are protected." Petition of Statter, 108 R.I. at 335, 275 A.2d at 276 (citing Bogert, The Law of Trusts and Trustees (2d ed.) § 527 at 378-79). Even when no abuse of power by a trustee has been shown, "[w]hen the ill feeling has reached the point that it interferes with the administration of the trust, the trustee may be removed even though the charges of his misconduct are either not made out or greatly exaggerated." Petition of Statter, 108 R.I. at 335, 275 A.2d at 276 (citing May v. May, 167 U.S. 310 (1897)). "Trustees exist for the benefit of those to whom the creator of the trust has given the trust estate." Petition of Statter, 108 R.I. At 335-36, 275 A.2d at 276 (citing Lister v. Weeks, 46 A. 558 (N.J. Ch. 1900)). Thus, when beneficiaries lose all confidence in the trustee and their relationship is broken beyond repair, the trustee should be removed. Lister, 46 A. at 563.
"In general, Rhode Island courts have been more reluctant to remove trustees who have been named by the settlor, as opposed to those trustees named by the court or third-persons." Cuzzone, 2005 WL 2716749, at *2 (citing Petition of Statter, 108 R.I. at 338, 275 A.2d at 277). Our Supreme Court "has yet to articulate the precise quantum of proof necessary for the Court to remove trustees[.]" Cuzzone, 2005 WL 2716749, at *3. In Cuzzone, this court looked to the Delaware Court of Chancery and the Delaware Supreme Court to assist its inquiry into whether a trustee should be removed. Id. "Both [courts] note that because the removal of a trustee is such an extreme form of relief, [c]ourts should exercise their authority sparingly and only upon a showing that the trustee has failed to perform his duties through more than mere negligence." Id. (citing Capaldi v. Richards, 870 A.2d 493, 496 (Del. 2005) (stating "a Vice Chancellor may only remove a trustee 'who fails to perform his duties through more than mere negligence'") (internal quotation omitted).
In Cuzzone, this court denied a motion to remove the trustees, some of whom were also the beneficiaries and employees of the companies that the trusts controlled. Cuzzone, 2005 WL 2716749, at *1. Plaintiff sought removal of the trustees based on "friction and animosity" between the plaintiff and trustees arguing the friction was "detrimental to the beneficiaries' interests." Id. The Court rejected plaintiff's removal petition, explaining that the settlor appointed the trustees knowing that a conflict may exist. Id. at *3. Also, the purported friction had not affected the administration of the trusts and the record lacked evidence of "more than mere negligence." Id. at *4.
This Court is not prepared to say as a matter of law that Plaintiffs' claim to remove Trustees should fail. Although, at this time, the record lacks evidence that the alleged "friction and animosity" were so severe as to interfere with the administration of the M2K Trust, transactions with approval or acquiesce from Bill, including using M2K Trust assets to pay off mortgages for Lapham (Pls.' Opp'n Mem. Ex. O) and RWB (Pls.' Opp'n Mem. Ex. P), renovating and improving Lapham and RWB's real estate (Pls.' Opp'n Mem. Ex. B), or using the money from the Orchard refinance to obtain property for Gardner Building (Pls.' Opp'n Mem. Ex. AL) create a genuine issue of material fact as to whether the transactions were appropriate. Buff's dual roles as owner of Lapham, RWB (Pls.' Opp'n Mem. Ex. B, at 19) and Aborn (Pls.' Opp'n Mem. Ex. AA), manager of Clemence (Pls.' Opp'n Mem. Ex. Y) and Gardner CA (Pls.' Opp'n Mem. Ex. AF) as well as Trustee of the M2K Trust create a genuine issue of material fact as to whether he was able to disregard his own interests and act solely in the interests of the beneficiaries. Furthermore, Plaintiffs have offered evidence sufficient to show a genuine issue of material fact as to whether Defendants provided Plaintiffs with accurate accounting of M2K Trust transactions, considering statements showing no record of a $500,000 capital call to Gardner CA in 2018. (Pls.' Opp'n Mem. Exs. E, AM.) These allegations, if true, may rise to more than "mere negligence" and presently preclude summary judgment in Defendants' favor.
F
Expert Testimony
The Rhode Island Supreme Court has "previously held that 'expert testimony is required to establish any matter that is not obvious to a lay person and thus lies beyond the common knowledge . . . .'" Donnelly Real Estate, LLC v. John Crane Inc., 291 A.3d 987, 994 (R.I. 2023) (quoting Jessup & Conroy, P.C. v. Seguin, 46 A.3d 835, 839 (R.I. 2012)). In their Reply Memorandum and during oral arguments, Defendants argued that expert testimony was necessary for Plaintiffs' claims to survive summary judgment on all Counts. (Defs.' Reply Mem. 15-16.) Defendants contend that such issues as the propriety of investments, fact of damages, causal connection between the alleged wrongdoing and the harm, alleged maladministration by Trustees, as well as marketability or benefits from the real estate investments all lie beyond common knowledge and require expert testimony. Id. at 16-18. Plaintiffs counter that expert testimony is not required and that on the circumstances of this case, the trier of fact can determine whether divided loyalty transactions exist. (Hr'g Tr. 70:16-22; 71:3-9, Nov. 2, 2023.)
During oral arguments, defense counsel stated that there is probably no expert testimony needed for Count III. (Hr'g Tr. 52:6-8, Nov. 2, 2023.)
Our Supreme Court commonly finds that expert testimony is required to prove instances of professional malpractice. Rhode Island Resource Recovery Corp. v. Restivo Monacelli LLP, 189 A.3d 539, 547 (R.I. 2018). In Rhode Island Resource Recovery Corp., our Supreme Court noted that "[i]n cases dealing with medical malpractice and legal malpractice or with issues which require[] particularized knowledge of the medical or legal fields," expert testimony is required to determine "issues of standard of care, breach of the standard of care, and proximate causation" when those issues are "beyond the common knowledge of a lay person[.]" Id. at 547. The Rhode Island Resource Recovery Corp. decision adds accounting malpractice to the list of professions where our Supreme Court requires expert testimony to establish the professional standard of care. Id. at 548. Like the legal or medical professions, the Court noted that "accounting is a comparably specialized field, requiring specific training and skills." Id. Our Supreme Court distinguished those professions from others where lay persons have more experience or exposure, noting that expert testimony was not required from an architect to show that a stairway was poorly designed, that testimony from an engineer was not required to show a roadway was "safe and convenient for travelers," and that expert evidence was not required to show that a landlord was at fault for not repairing a defective porch. Id. at 549 (see also Barenbaum v. Richardson, 114 R.I. 87, 90, 328 A.2d 731, 733 (1974); Fontaine v. Follett, 51 R.I. 413, 155 A. 363, 364 (1931); Giron v. Bailey, 985 A.2d 1003, 1010 (R.I. 2009)). In each of these circumstances, the Court reasoned that a jury could use common knowledge to determine fault. Rhode Island Resource Recovery Corp., 189 A.3d at 548.
"[W]hen a jury is capable of accurately comprehending facts and circumstances that have been described to them by a non-expert, 'there is no necessity for the expert testimony' on that subject." Chapdelaine v. State, 32 A.3d 937, 948 (R.I. 2011) (quoting Barenbaum, 114 R.I. at 90, 328 A.2d at 733). Unlike instances of professional malpractice, expert testimony is not required when there are disputes about business transactions. See Donnelly Real Estate, 291 A.3d at 994. In Donnelly, the defendant first sold a commercial property to the plaintiff and later leased back a portion of the building. Id. Our Supreme Court determined that expert testimony was not required to determine whether there was a breach of the lease contract or the damages suffered. Id.
Unlike the specialized fields that require expert testimony to show the standard of care in professional malpractice claims, any ordinary person with the capacity to do so can serve as a trustee. See Restatement (Second) Trusts § 89 cmt. e. The Court determines that as a matter of law, expert testimony is not required to establish a trustee's duty of loyalty. A layperson, particularly in light of the "no-further-inquiry" rule, is well qualified to determine by common knowledge whether a trustee has a personal financial interest in a transaction that could impact the trustee's judgment. See Dodge, 76 R.I. at 324, 69 A.2d at 635; G. Bogert & G. Bogert, The Law of Trusts & Trustees § 543, 363 (3d ed. 2019). Likewise, the Court finds that expert testimony is not required for Plaintiffs to establish that a trustee has failed to provide an adequate accounting. The information sought through reports or accountings is necessarily intended for the beneficiaries of a trust, who often may be laypeople without specialized or professional knowledge. Therefore, it falls within the common knowledge of a layperson to determine the sufficiency of trust accountings. Similarly, Plaintiffs are not required to provide expert testimony to support their argument that the Trustees did not satisfy their duty to prudently invest trust assets. The Prudent Investor Rule requires that "[a] trustee shall invest and manage trust assets as a prudent investor would[.]" Section 18-15-2(a). Again, the law holds out no specific requirement to assess the standard of a prudent investor. See Wachovia Bank v. Hershberger, 911 A.2d 278, 279 (R.I. 2006); In re: Janet S. Bagdis Living Trust Agreement, 136 A.3d 1122, 1128-29 (R.I. 2016) (both cases assessing trust investment decisions under the Prudent Investor Rule without expert testimony).
Thus, the Court concludes that expert testimony is not required for Plaintiffs' remaining Counts to survive the present Motion for Summary Judgment.
IV Conclusion
Based on the facts presented above, the Court GRANTS IN PART Defendants' motion as to Count III and DENIES IN PART the motion on all other Counts. Counsel shall prepare the appropriate order.