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dismissing a similar suit, purportedly seeking to attack a pour-over trust, rather than the will, finding "this action is a collateral attack on the Will under the guise of a challenge to the Trust. In these circumstances, such a collateral attack is impermissible, and will not be allowed"
Summary of this case from Rambo v. FischerOpinion
Civil Action No. 17060
Date Submitted: March 21, 2001
Date Decided: July 9, 2001
Thomas Stephen Neuberger, and Edward M. Luria, Esquires, of THOMAS S. NEUBERGER, P.A., Wilmington, Delaware; Attorneys for Plaintiff Peter S. Gordon and Jane T. Monahan, Esquires, of GORDON, FOURNARIS MAMMARELL, P.A., Wilmington, Delaware; Attorneys for Defendant Samuel J. DiFerdinando
P. Clarkson Collins, Jr. and Michael A. Weidinger, Esquires, of MORRIS, JAMES, HITCHENS WILLIAMS, LLP, Wilmington, Delaware; Attorneys for Defendant Gary Farrar
Joseph W. Benson and Andrew G. Ahern, III, Esquires, of JOSEPH W. BENSON, P.A., Wilmington, Delaware; Attorneys for In rem Respondent Kelli DiSabatino
David A. Jenkins, Esquire, of SMITH, KATZENSTEIN FURLOW, Wilmington, Delaware; Guardian ad Litem for In Rem Respondents Denarra Reddick and Mikala Reddick
Rose DiSabatino, Jennie DiSabatino, and Margaret DiSabatino, Pro Se
MEMORANDUM OPINION
This lawsuit was brought to challenge the testamentary plan of Michael J. DiSabatino (the "decedent") by the decedent's brother, Paul DiSabatino ("Paul" or the "plaintiff"), on the ground of undue influence. The defendants are Gary Farrar ("Farrar"), the Executor of the decedent's estate, and Samuel DiFerdinando ("DiFerdinando"), the recipient of a challenged bequest under the decedent's will. The complaint has two counts: undue influence and intentional interference with inheritance. The defendants have separately moved to dismiss the lawsuit on the ground that the plaintiff's claims are time-barred. This is the Opinion of the Court on the defendants' dismissal motions.
I. FACTUAL BACKGROUND
The facts recited herein are derived from the well-pled allegations of the complaint and the documents (the Will and the Trust) that are incorporated therein by reference.
The decedent executed his self-proved will on September 2, 1993 (the "Will"). At the same time, and as part of his estate plan, the decedent executed a revocable trust agreement, also dated September 2, 1993 (the "Trust Agreement"). The decedent died on October 8, 1997 and the Will was accepted for probate by the Register of Wills. Letters Testamentary were granted to Farrar on October 16, 1997.
The Will and Trust Agreement together create a detailed testamentary plan that provided for gifts to the decedent's immediate family, including four of his siblings. The Will further goes on to provide that the "residue of my estate not previously disposed of effectively by my Will, of whatever kind and wherever located at the time of my death . . . [will pass to] the Trustee under my Revocable Trust Agreement . . . to be held, administered, and ultimately distributed in accordance with the provisions of that Trust Agreement."
Will, at Art. 2.
The Trust Agreement also contains a detailed plan for the disposition of the trust assets upon the decedent's death. The subject of this lawsuit is a bequest to DiFerdinando, which arises out of the decedent's direction in the Trust Agreement that the Trustee pay over to DiFerdinando, 49% of the decedent's stock in Di's, Inc., a corporation that was the principal asset of the decedent's estate. The Trust instrument further provides that the remainder of the assets shall then be distributed into two separate sub-trusts:
DiFerdinando was employed by Wilmington Trust Company ("WTC") as a vice-president and commercial mortgage officer. He generally admits that until 1991 he was the commercial mortgage officer for the decedent's various business enterprises and that the decedent did business with WTC. The plaintiffs undue influence claim centers on the allegation that DiFerdinando led the decedent to believe that his WTC loans would not be approved unless the decedent acted to benefit DiFerdinando. Accordingly, it is claimed that as a result of DiFerdinando's wrongful action, the decedent included him in his 1993 Trust and made a multi-million dollar bequest to him because of his assistance to the decedent while employed at WTC.
one for the benefit of Kelli DiSabatino, the decedent's daughter ("Kelli"), and the other for the benefit of the decedent's brother, Paul. Paul has a life interest in his trust, and upon his death (or the death of his wife, if she survives Paul), the residue of Paul's trust passes to Kelli's trust. Upon Kelli's death, the remainder of her trust passes to her living issue, per stirpes.
The Trust Agreement provides that "any other property held in the trust fund not otherwise allocated herein, [shall be transferred] into . . . [Kelli's trust]." Trust Agreement, at § I.B.3A. The defendants contend that this is a valid residuary clause and shows that if the bequest to DiFerdinando is void, Kelli's trust is entitled to receive it. The plaintiff responds that the quoted language is ambiguous and it would therefore be premature to decide the issue at this stage. Because I find that this action is time-barred, I do not reach this issue.
The Di's, Inc. shares are to be paid in the following manner: 49% to DiFerdinando, 41% to Paul's trust, and the remainder to Kelli's trust.
On July 20, 2000, the Court appointed David A. Jenkins, Esquire, guardian ad litem for the minor, incompetent, unborn and unknown issue of Kelli DiSabatino.
Both defendants have moved to dismiss the complaint on the basis that it is time-barred. The guardian ad litem for Kelli's children joins in the motion that the complaint be dismissed. I conclude, for the reasons next discussed, that those motions must be granted.
II. THE PARTIES' CONTENTIONS AND THE APPLICABLE LAW
The crux of the pending dismissal motions is that this action was filed after the expiration of the six month statute of limitations in 12 Del. C. § 1309, which governs legal challenges to a will. The claim being asserted here is that the bequest to DiFerdinando was the product of undue influence. The basis for the claim is that at the time of the bequest, the decedent was a susceptible person who was totally dependent upon DiFerdinando and WTC for his financial success, and who believed that WTC's actions towards his loans depended entirely on DiFerdinando. The plaintiff argues that because his challenge is to a trust and not to a will, it is not subject to the six month statute of limitations mandated by 12 Del. C. § 1309.
The defendants contend that § 1309 bars this action because even though that statute on its face applies only to wills, Delaware case law precedent and public policy require that § 1309 also govern cases such as this, where the Trust Agreement is an integral part of the decedent's will.
On a motion to dismiss under Court of Chancery Rule 12(b)(6), the factual allegations of the complaint are accepted as true and all reasonable inferences are drawn in the plaintiff's favor.
In re USA Cafes, L.P. Litig., Del. Ch., 600 A.2d 43, 47 (1991).
III. ANALYSIS
The legal issue presented is whether an action challenging a revocable trust that is referenced in a pour-over will, and that is executed contemporaneously with that will, is time-barred where the action is filed more than six months after the admission of the will to probate. To state the question more precisely, does the six month statute of limitations applicable to challenges to wills in 12 Del. C. § 1309 also apply to challenges to trusts that are incorporated by reference into, and are an inextricable part of, a will? For the reasons that follow, I conclude that this question must be answered in the affirmative.12 Del. C. § 1309 pertinently provides that:
[a]ny person interested who shall not voluntarily appear at the time of taking the proof of a will . . . shall, at any time within 6 months after such proof or after delivery to the Register of Wills of self-proved will, have a right of review which shall on the person's petition be ordered by the Court of Chancery.
Section 1309 has been interpreted as a statute of limitations that is strictly applied to challenges to wills, to effectuate the public policy favoring the prompt and orderly settlement of estates. Whether the statute also applies to challenges to trusts incorporated by reference into a will is less clear. Two Delaware cases have addressed the issue, but according to the parties, the cases are in conflict.
Criscoe v. Derooy, Del. Ch., 384 A.2d 627, 629 (1978); Shuttleworth v. Abramo, Del. Ch., C.A. No. 11650, Allen, C., Mem. Op. at 7 (Aug. 15, 1991). Admission of a self proved will to probate triggers the running of the statute. See In re Estate of Nelson, Del.Ch., 447 A.2d 438, 445 (1982).
In Estate of Arcaro, Chancellor Marvel found that the time bar of § 1309 applied equally to trusts incorporated by reference in a pour-over will. In Arcaro, the decedent executed his will and testamentary trust simultaneously, leaving all of his tangible assets to his son and the residue to the revocable trust. The son accepted his bequest under the will, but challenged the deed of trust on a claim of undue influence. The Court found that "the decisive issue . . . is whether or not the deed of trust . . . having been incorporated into the will, is so inextricably a part of such will as to estop a legatee from contesting its validity." The Court answered that question in the affirmative, holding that "[a]lthough the deed of trust was formally executed and thus might have been given legal significance independent of the will, once it was incorporated by reference the deed of trust became an inseparable provision of the will. . . ." On that basis, the Court found that "any challenge to the validity of such trust constitutes an impermissible collateral attack on the will."
Del. Ch., C.A. No. 4725, Marvel, C., Mem. Op. (Jan. 10, 1978).
Id., at 3
Id.
Id. ( citing, Anthony v. Harris, Del. Ch., 100 A.2d 229 (1953); Delaware Trust Co. v. McCune, Del. Ch., 80 A.2d 507 (1950)).
The plaintiff argues that Arcaro should not govern this case, on the basis that § 1309 does not apply to trusts. The plaintiff relies on Preston v. Preston, where the beneficiaries of a trust challenged its validity on the basis of a mistake made by the trustor. It was admitted that the original trustee had misstated the value of the assets in the trust. The trustor was told that the value of the trust assets was $1,515,974.39, when in fact the asset value was $1,026,653.84. That mistake, the plaintiffs claimed, caused the trustor to make a much larger gift to a charity than he would have had the information he was given been correct.
Del. Ch., C.A. No. 6049, Hartnett, V.C., Letter Op. (April 16, 1981).
The parties contend that Preston and Arcaro are in conflict and that this Court must resolve that conflict in this case. I need not do so, however, because I find that the two cases do not conflict as far as Arcaro's basic principle is concerned.
In Preston, then-Vice Chancellor Hartnett adopted the principle announced in Arcaro, but found on the facts of the case that the trust at issue there was not "inseparable" from or "inextricably tied" to the will. Any arguable conflict between Arcaro and Preston arises only with respect to whether Vice Chancellor Hartnett applied the Arcaro principle correctly in Preston. I need not reach that question here, because the facts of this case are more akin to those in Arcaro than in Preston.
The Delaware General Assembly has recently adopted 12 Del. C. § 3546. Section 3546 validated the Arcaro analysis by making the six month statute of limitations that is normally applicable to wills, applicable to revocable trusts as well. The new statute provides that:
Although § 3546 does not apply to this particular case, because it became effective after this action was filed, the statute supports the analysis employed here because it codifies the analysis employed by the Arcaro decision.
(a) Upon the death of the trustor of a trust that was revocable at the time of the trustor's death, a judicial proceeding to contest the validity of the trust may not be initiated later than the first to occur of:
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(3) If the trust was specifically referred to in the trustor's last will, the time in which a petition for review of the will could be filed.
Here, the Trust was an integral term of the Will and was specifically made an integral part of the decedent's testamentary scheme. At his death, the Trust, together with the Will, became the vehicle that governed the distribution of the testator's assets. The inextricable linkage of the will and the trust were the key to the Arcaro decision, and here the Will and the Trust also share that inextricable link. By parity of reasoning, therefore, the result reached in Arcaro should prevail here. What Paul is attempting by this action is a collateral attack on the Will under the guise of a challenge to the Trust. In these circumstances, such a collateral attack is impermissible, and will not be allowed.
See Shuttleworth v. Abramo, Del. Ch., C.A. No. 11650, Allen, C., Mem. Op. at 8-9 (Aug. 15, 1991).
Because I find that this action is barred by the statute of limitations in § 1309, I do not address the merits of the plaintiffs claims or the defendants' arguments in favor of their dismissal.