Opinion
C.A. No. 18366.
Submitted: April 23, 2004.
Decided: June 30, 2004.
Robert A. Penza, Esquire, and Peter S. Gordon, Esquire, GORDON, FOURNARIS MAMMARELLA, Wilmington, Delaware, Attorneys for Plaintiffs.
David J. Ferry, Jr., Esquire, and Rick S. Miller, Esquire, FERRY JOSEPH PEARCE, P.A., Wilmington, Delaware, Attorneys for Defendant PNC Bank, Delaware.
Thomas Herlihy, III, Esquire, HERLIHY HARKER KAVANAUGH, Wilmington, Delaware, Attorney for Defendant Harlan Miller.
MEMORANDUM OPINION
I.
For the third time, the court is called upon to resolve issues involving the interpretation and administration of the Florence Chavin Trust (the "Florence Trust"). In this post-hearing opinion, the court considers and rejects the plaintiffs' motion to surcharge PNC Bank, Delaware in connection with its actions taken as trustee of that trust and as executor of the estate of Florence Chavin and administrator with the will annexed of the estate of Leslie Chavin (the "Florence Estate" and the "Leslie Estate"). The court reaches this conclusion because it is satisfied from the testimony and other evidence adduced at the hearing that PNC's actions were all duly authorized and were uniformly taken for the purpose of protecting and preserving the assets of the Florence Trust and the Florence Estate.
See Chavin v. PNC Bank, Delaware, 202 WL 385543 (Del.Ch. Mar. 4, 2002), rev'd 816 A.2d 781 (Del. 2003); Chavin PNC Bank, Delaware, 830 Del. Ch. 1220 (Del.Ch. 2003).
Accordingly, the court will also allow PNC's January 10, 2004 application for payment of counsel fees.
The court will also allow PNC its legal fees incurred in connection with its defense of this action since the date of the Supreme Court's decision as necessarily and appropriately incurred in successfully defending its actions.
II.
Florence Chavin died May 7, 1999, and was survived by her son, Leslie, and by two grandsons, Kenneth D. Chavin and Jeffrey M. Chavin, the children of her son Favel, who predeceased her (together the "Chavins"). PNC Bank, Delaware, acting as the sole trustee of the Florence Trust, correctly understood the residuary clause of the deed of trust to provide for the distribution of the entire balance of the trust to Leslie. PNC also properly recognized Leslie as the sole beneficiary under the residuary clause of Florence's will, which it also administered.
The actual language of the trust instrument is, as follows:
. . . [U]pon the death of Settlor, Trustee shall pay over, transfer and convey whatever remains of the trust estate, discharged of the trust, to Settlor's son, LESLIE S. CHAVIN if he shall then be living. If Settlor's son shall then be deceased, to Settlor's then living issue, per stirpes.
Item XIII, Section 4.
Some months later, Leslie died. Leslie had never married and had no children. Leslie resided in Brazil at the time of his death and his last will was drafted in Portuguese and subject to interpretation under Brazilian law. If Leslie's will were valid under the Brazilian code, his entire estate would pass to his cousin, Harlan Miller, who was named as the sole beneficiary under that instrument. If instead, the will were invalid, Leslie's next of kin were his two nephews, the Chavins. The Chavins retained Delaware counsel, Peter S. Gordon, Esquire of Gordon, Fournaris Mammarella, in December 1999.
As part of its duties as both executor of the Florence Estate and Trustee of the Florence Trust, PNC realized the necessity and desirability of creating an ancillary administration in Delaware for Leslie's estate. This was needed to facilitate the transfer of assets from both the Florence Estate and the Florence Trust to Leslie, without incurring the risk to those assets of sending them to Brazil for administration. PNC encountered difficulty in being appointed as ancillary administrator in Delaware because Leslie's will nominated a Brazilian national as executor. PNC had to obtain the Brazilian national's renunciation before it could be appointed and that required the establishment of a domiciliary administration in Brazil. In connection with these matters, PNC hired the Delaware law firm of Cooch Taylor and Brazilian attorney Leila Zacharias. Cooch Taylor, in keeping with normal practice, billed PNC on an hourly basis. PNC agreed to a flat fee of $30,000 to compensate the Zacharias firm, of which $15,000 has been paid to date.
On April 6, 2000, PNC was appointed as the administrator of the Leslie Estate that it opened in Delaware. PNC then transferred $50,000, on April 11, 2000, from the Florence Trust to a PNC account for the Leslie Estate. On April 14, 2000, PNC transferred an additional $670,000 from the Florence Trust to the same account. PNC made these transfers in keeping with its customary practice. At this time, PNC understood, in accordance with its usual practice, that Leslie's right to receive the assets of the trust vested upon his mother's death and passed to his estate when he later died.
On September 29, 2000, the Chavins filed this action seeking a declaration that they, not Leslie's Estate, were the sole beneficiaries under the Florence Trust. The theory of this action is that the survivorship condition in the Florence Trust, quoted at footnote 3, above, should be construed to require that Leslie both survive his mother and remain living until such time as PNC distributed the trust assets to him in the course of its administration of the Florence Estate. PNC has been represented in this action by the Delaware firm of Ferry, Joseph Pearce, P.A.
On October 6, 2000, the Chavins filed a caveat action in this court, challenging Leslie's will that was admitted to probate in April 2000. Cooch Taylor represented PNC in that matter. In June 2001, the Chavins obtained an opinion from Brazilian counsel concluding that the will was valid under Brazilian law. Thereafter, the Chavins dismissed the caveat action.
Under the terms of Florence's will, about which there was no contest, Florence left her home, located in Delaware, to Leslie. That home was sold without objection and the closing occurred in November 2000. Due to the pendency of the caveat action, the proceeds of that sale were placed in escrow. After the Chavins dismissed the caveat action, those proceeds were distributed to Thomas Herlihy, Esquire, Harlan Miller's attorney, for further distribution to his client. The Chavins' counsel was given notice of this distribution and raised no objection.
This court awarded summary judgment in favor of PNC Bank, Delaware, and Harlan Miller on March 4, 2002. The Chavins appealed that decision and the Delaware Supreme Court reversed, concluding that the Chavins "take under" the residuary clause of the Florence Trust. The appellees moved for reargument on numerous grounds, contending that the Supreme Court's decision was at odds with long established precedent governing the construction of wills and trust but lost that motion. Shortly thereafter, new laws were enacted having the effect of reinstating the prior rule of construction.
Chavin v. PNC Bank, Delaware, 816 A.2d 781, 783 (2003).
74 Del. Laws c. 82, sections 5 and 6, codified at 12 Del. C. §§ 3330-31. Section 3331 is titled "Preference for Early Vesting" and states, as follows:
In the construction or interpretation of any will or trust instrument, if a determination is to be made whether the beneficiaries entitled to receive a distribution from an estate or trust are to be determined at an earlier or later time, such beneficiaries are to be determined at the earlier time unless the will or trust instrument expressly provides that the determination shall be made at the later time.
This standard is entirely consistent with In re Will of Dixon, 280 A.2d 735, 737 (Del.Ch. 1971), where this court noted that the law generally prefers constructions of instruments that result in early vesting of estates, explaining that "[e]ven where the [instrument] uses words of survivorship it is presumed that they relate to the death of the testator if fairly capable of that construction."
By the time the mandate issued from the Delaware Supreme Court, PNC had paid fees and expenses that related to the administration of the Leslie Estate in excess of $76,000, all of which were paid using assets of the Florence Trust that PNC transferred to the Leslie Estate or income earned thereon. In addition, there are unpaid fees owed to Cooch Taylor and Leila Zacharias totaling $21,942.
III.
In this motion, the Chavins seek to surcharge PNC in the amount of the fees and expenses paid and the other fees that remain owing. They also seek an order directing PNC to distribute to them the residual funds of the Florence Trust. In addition, the Chavins oppose PNC's motion for allowance of counsel fees and costs to Cooch Taylor in the amount of $60,177.69 (including $6,942 in outstanding invoices) and to Zacharias Pena da Veiga Advogados in the amount of $30,000 (including $15,000 in outstanding invoices). They also oppose PNC's interim and supplemental motions for approval of counsel fees and costs to Ferry, Joseph Pearce, for fees and expenses incurred in this action since the Supreme Court's initial opinion issued.
Conversely, PNC seeks court approval of the amounts it has already paid to Cooch Taylor and the Zacharias firm, as well as court authorization to pay the balances due to those firms out of trust assets. In addition, PNC seeks an award of fees to its counsel, Ferry, Joseph Pearce for work it performed in connection with the motion for reargument presented to the Supreme Court and for its work in connection with the Chavins' motion to surcharge.
IV.
The Chavins' position on these motions is simple. It is, as they say, well settled under Delaware law that a trustee who mistakenly distributes trust assets to one other than a beneficiary entitled to them is liable to the beneficiary. For this proposition, they cite this court's remand decision in this case, in which the court required PNC, as administrator of the Leslie Estate, to return the balance of the funds in that estate to the Florence Trust. That opinion, in turn, relied on Professor Fletcher's treatise. The Chavins quote from the following portion of the court's opinion:
Chavin v. PNC Bank, Delaware, 830 A.2d 1220 (Del.Ch. 2003).
3 William F. Fletcher, Scott on Trusts, § 226, at 419 (4th ed. 1988).
The core holding of the Supreme Court's decision is that the grandsons became the residuary beneficiaries of the trust at the time their uncle, Leslie, died. Thereafter, it is clear that PNC Bank had no right to regard anyone other than the grandsons as the rightful takers under Florence's trust. In particular, according to the Supreme Court's decision, PNC Bank had no right to distribute trust assets to Leslie's estate, even though the grandsons had not yet asserted their claim.
Relying on this passage, the Chavins argue that "it is the law of the case" that the Florence Trust funds, including the part of such funds that was expended, must be returned to the Florence Trust.
The Chavins' "law of the case" argument overstates the holding of this court's remand opinion. Indeed, in a note to the portion of the opinion cited by the Chavins, the court stated, as follows: "The court is aware that some of the money that came from the trust has been consumed paying PNC's fees and commissions. The court does not intend to address, at this time, any issues that may exist between the parties relating to those funds." The funds and expenditures referred to at that point in the opinion are exactly the same as are now at issue. Because the court specifically limited its consideration in that opinion to the status of the funds then remaining in the Leslie Estate, the conclusion reached in that opinion does not apply, as the law of the case, to the determination of the issues presented on the present motions. It is true, moreover, that the reasoning of the court's earlier opinion does not apply with equal force here. In the earlier opinion, the question was simply whether or not the decision of the Supreme Court mandated that the trust funds remaining in the Leslie Estate should be returned to the Florence Trust. The question on this motion is whether funds that can be traced back to the Florence Trust were appropriately spent by PNC in the proper exercise of its fiduciary duties to either the Florence Estate or the Florence Trust. Neither this court's remand opinion nor the opinion of the Supreme Court answers that question.
Id. at 1113, n. 9.
The court is satisfied from the evidence and testimony at the hearing that PNC's decision to hire Cooch Taylor and the Zacharias firm and its commitment to pay other fees related to the Brazilian administration of the Leslie Estate, were all undertaken within the scope of its duties as executor of the Florence Estate and sole trustee of the Florence Trust. Whether the ultimate beneficiary was Harlan Miller, as Leslie's sole heir, or the Chavins, as takers by default under the Florence Trust, PNC understood the necessity of taking steps to protect the Florence Trust assets from claims arising out of Leslie's death in Brazil. Because PNC believed that, properly construed, the Florence Trust passed to Leslie, PNC acted on the assumption that the Leslie Estate was entitled to receive the trust assets, and it is for that reason that the expenses were actually paid out of or incurred on behalf of the Leslie Estate. Nevertheless, had PNC somehow foreseen the unexpected outcome in the Supreme Court and treated the Chavins as the presumptive beneficiaries, it is reasonable to infer that the same dispute would have arisen, with either Leslie's Brazilian executor or Harlan Miller acting the part of plaintiff, and the same or similar fees would have been paid out of the Florence Trust in defending its assets. Moreover, the administration of the Leslie Estate was necessary to the orderly administration of the Florence Estate since Leslie was named as a beneficiary of his mother's estate.
For these reasons, the court concludes that PNC acted appropriately in retaining Cooch Taylor and the Zacharias firm to represent its interests in connection with the Florence Estate and the Florence Trust and also in agreeing to pay miscellaneous other fees and expenses in connection with the administration of the Leslie Estate in Brazil and Delaware. In this regard, it is inconsequential that funds from the Florence Trust were first transferred to the Leslie Estate before being used to pay these expenses. The funds in the Leslie Estate all came from the Florence Trust and, for the purposes of this opinion, are treated as though they had remained in that trust. For all the foregoing reasons, the motion to surcharge PNC will be denied.
Florence Chavin's Will and Trust are complementary. The administrative provisions of both empowered PNC to pay all proper expenses incurred in the administration of the Florence Estate and to use trust assets to fund those expenses.
Because the court has found that PNC acted appropriately throughout the course of this litigation and has successfully defended against the Chavins' motion for a surcharge, the court concludes that PNC's interim and supplemental motions for approval of counsel fees and costs to Ferry, Joseph Pearce should be allowed as reasonable and necessary expenses incurred in relation to its administration of the Florence Trust. The court has considered and rejects the Chavins' argument that the supplemental motion seeks "fees for fees." On the contrary, the fees sought relate entirely to the proper administration of the trust and the successful defense of the motion for surcharge, which was premised on an alleged breach of trust. In the circumstances, it is reasonable and fair that the trust should bear these fees.
V.
For all the foregoing reasons, the motion to surcharge is denied and PNC's interim and supplemental motions for allowance of fees are granted. Counsel for PNC are directed to submit an appropriate form of final order within 10 days, either by stipulation or on notice to counsel for the Chavins. The court specifically does not rule, at this time, on the motion of defendant Harlan Miller for attorneys' fees, filed June 24, 2004. If the parties are unable to agree upon a resolution of that matter, the court will decide it in due course.