Opinion
Civil Action 17-2799 BLS 1
05-17-2018
Jan R. FLANAGAN, in her capacities as Personal Representative of the Estate of Robert W. Cerretani, and Co-Trustee of the Robert Cerretani Trust, and Brandon Flanagan, in his capacity as Co-Trustee of the Robert Cerretani Trust v. Joseph S. CERRETANI, Sr., individually and in this capacity as Trustee of the Cerretani Realty Trust, Joseph Cerretani, Jr., Jan R. Flanagan, Ingrid Merowitz and Sharon Piccirilli
MEMORANDUM OF DECISION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT ON THE COMPLAINT
Mitchell H. Kaplan, Justice of the Superior Court
INTRODUCTION
Robert W. Cerratani (Robert) and Joseph S. Cerratani, Sr. (Joe Sr.) were brothers and partners in a general partnership that they called Cerretani Realty Associates (the Partnership). There was no written partnership agreement defining the terms of their Partnership. The Partnership was the successor to a grocery business founded by Robert’s and Joe Sr.’s father and uncles. During the period relevant to the matters at issue in this litigation, the Partnership was in the business of owning and managing real estate. The real estate was held in the name of nominee trust which the partners called Cerretani Realty Trust (the Realty Trust). Joe Sr. was and is its Trustee; the Partnership was its sole beneficiary. The Partnership held title to a few assets outside of the Realty Trust: some cars and a modest bank account.
There exist two parcels of real estate that the partners referred to as the Myrtle Street Properties that were held by Robert and Joe Sr. as tenants in common at the time of Robert’s death. The parties dispute whether these parcels are also partnership assets. For simplicity, that dispute is addressed in a separate Memorandum of Decision and Order.
Robert died on June 28, 2016; his death spawned a number of law suits among his relatives concerning who would succeed to his interests in the Realty Trust and the Partnership. The principal antagonists are Joe Sr. and his lineal decedents, on the one hand, and Robert’s sister, plaintiff Jan R. Flanagan (Jan), and her issue, on the other. In this action, Jan, as personal representative of Robert’s estate, and she and her son Brandon Flanagan (Brandon), as trustees of a so-called "pour over", inter vivos trust established as part of Robert’s estate plan (the Robert Trust) request that the court "instruct" them concerning whether to demand liquidation of the Realty Trust and the Partnership and how the cash generated from the liquidation is to be distributed under the terms of the Robert Trust. This "request for instructions" is, in effect, a euphemism for a request that the court declare that the Realty Trust and Partnership be liquidated and cash equivalent to Robert’s interest pass to the residual beneficiaries of the Robert Trust, Jan being one of them. The defendants, Joe Sr. and his son, defendant Joseph S. Cerretani, Jr. (Joe Jr.), contend that the court should order that Robert’s interests in the Trust and the Partnership be distributed in kind to Joe Jr under the express terms of the Robert Trust.
The case is now before the court on cross-motions for summary judgment on the complaint.
ADDITIONAL FACTS
The following material facts are not in dispute.
Robert never married. He was survived by his siblings, Joe Sr., Jan, and another brother Gary Cerratani (Gary), and several nieces and nephews.
Robert retained the law firm Lynch, Brewer, Hoffman & Fink to represent him in estate planning matters. Christine Whitman, a member of that firm, drafted the most recent version of his Last Will and Testament (the Will) as well as the last amendment to the Robert Trust. Robert signed these instruments on November 17, 2015. The Will named Jan as his Personal Representative and the Trust amendment named Jan and Brandon as co-trustees of the Robert Trust.
Article Fourth of the Robert Trust contained a number of specific bequests of cash and real estate to relatives and charities to be made upon his death and further provided that: "the entire remaining balance of the trust estate, after satisfying the cash gifts described above ... shall be distributed outright and free of all trust, in equal shares, to such of [Robert’s] sister, Jan Flanagan, [Robert’s] niece Ingrid Merowitz and [Robert’s] cousin, Sharon Piccirilli, as are then living ...."
Jan and Brandon name Merowitz and Piccirilli as additional nominal defendants to this action. They join in Jan and Brandon’s motion. Like Jan, they will receive substantial cash distributions if the Realty Trust and Partnership are liquidated and the cash generated is distributed to the residual beneficiaries.
With respect to Robert’s interest in the Realty Trust and the Partnership, in section B of the Robert Trust, which is labeled "Real Estate Gifts," Article Fourth states as follows:
4. Cerratani Realty Trust . The Trustees shall distribute all of the Settlor’s rights, title and interest in and to the Cerratani Realty Trust, d/b/a Cerratani Realty Associates partnership or any successor in interest thereto, to the Settlor’s nephew Joseph Stephen Cerretani , if he is then living, and if he is not then living, the same shall be distributed to his descendants then living, per stirpes. (emphasis in the original)
Joe Jr. worked continuously for the Partnership since August, 2014.
Also on November 17, 2015, Robert transferred title to certain parcels of real estate that were not held in the name of the Trust or used in the Partnership’s business to the Robert Trust. The disposition of these parcels was specifically addressed in Article Fourth. Some weeks later, Attorney Whitman sent Robert two instruments entitled Cerranti Realty Associates, Assignment of Beneficial Interests and Cerratani Realty Trust, Amended Schedule of Beneficiaries. These instruments would have substituted the Robert Trust for Robert as the owner of his interests in the Partnership and the Trust, but he never signed the documents.
While a partner cannot by assignment make the assignee a partner in a partnership, he can assign his interests in the partnership, i.e., his rights to receive partnership profits and surplus. See G.L. c. 108A, § 27 .
Upon Robert’s death, Jan successfully petitioned for appointment as the Personal Representative of Robert’s Estate. She then demanded that the Partnership be wound up and an accounting of the Partnership’s assets provided. Jan contends that the Partnership may only be wound up by means of a sale of the properties held by the Realty Trust and distribution of Robert’s share of the proceeds of the liquidation in cash to the Estate. She also demanded that Robert’s share of the cash generated by the Partnership from the time of Robert’s death up to the date of liquidation be paid to the Estate. Jan has asserted that the cash generated by the operation of the Partnership after Robert’s death and the sale of the real estate in the Realty Trust will pass to her, Ingrid Merowitz and Sharon Piccirilli as the residual beneficiaries under the terms of the Robert Trust. Joe Sr. maintains that Robert’s interest in the Realty Trust and the Partnership passed to Joe Jr., under the express terms of the Robert Trust and nothing is due the Estate, other than cash sufficient to pay the estate taxes on the value of the interests that have passed to Joe Jr. Joe Sr. has distributed cash sufficient to pay the taxes, but intends to pay nothing further to the Estate in respect of Robert’s interests in the Realty Trust or the Partnership.
DISCUSSION
Jan’s contention that she and the other residual beneficiaries of the Robert Trust are entitled to Robert’s share of the cash generated by the liquidation of the Partnership (as well as his share of the operating profits up to the time of liquidation) requires two questions of law to be decided in her favor. First, whether Jan, as Personal Representative of Robert’s Estate, is entitled to demand that the Partnership be liquidated. Second, if so, whether, under the terms of the Robert Trust, the cash so generated is, in effect, disassociated from its source, the Partnership and the Realty Trust, and therefore due the residual beneficiaries of the Robert Trust rather than Joe Jr., the designated distributee of all of Robert’s interests in Realty Trust and the Partnership. Because the court answers the first question in the negative, it need not address the second question.
As Robert and Joe Sr. did not have a written partnership agreement and neither party to this litigation contends that they orally agreed to special partnership terms, the terms of the Partnership are those provided by the Uniform Partnership Act, G.L.c. 108A, §§ 1 et seq (the UPA). Under § 31 (4) of the UPA, a general partnership is dissolved by the death of a partner. At that point, the partnership of which he was a member ceased, "so far as he is concerned." Wolbach v. Commissioner of Corp. & Taxation, 268 Mass. 365, 368-369 (1929). The deceased’s "right in specific partnership property vests in the surviving partner ..., [who] has no right to possess the partnership property for any but a partnership purpose." UPA, § 25(d). Neither party disputes these basic tenets of partnership law.
However, dissolution and winding up of the Partnership and liquidation of its assets are not necessarily synonymous. The question raised by this litigation is whether the personal representative of a deceased partner can demand that a dissolved partnership be liquidated and surplus distributed as cash. While no Massachusetts case has addressed this issue, the Supreme Court of Maryland confronted this precise question in Creel v. Lilly, 729 A.2d 385 (Md. 1999), and after careful consideration of relevant authority concluded that when circumstances suggest that an alternative manner of winding up the affairs of a partnership would be more just, alternatives to a fire sale of the partnership assets may be ordered. This court finds Creel persuasive.
In Creel, the Maryland Supreme Court was confronted with a situation in which the decedent and two partners operated a retail business. They had a written partnership agreement that was drafted without the assistance of counsel and did not adequately address what would happen on the death of a partner; therefore, the UPA governed. The decedent’s spouse was appointed personal representative of his estate and demanded that the partnership be liquidated while the remaining partners wished to carry on the business. As in the case now before this court, litigation between the personal representative and the surviving partners ensued. The Court was called-upon to decide whether, under the UPA, the personal representative had the right to force liquidation-a question of the first impression in Maryland, as it is now in Massachusetts.
The Creel Court began by explaining that, "[h]istorically, under many courts and commentators’ interpretation of UPA, when a partner died and the partnership automatically dissolved because there was no consent by the estate to continue the business nor was there a written agreement allowing for continuation, the estate had the right to compel liquidation of the partnership assets.... [However, ] [o]ver time, the UPA rule requiring automatic dissolution of the partnership upon the death of a partner, in the absence of consent by the estate to continue the business or an agreement providing for continuation, with the possible result of a forced sale of all partnership assets, was viewed as outmoded by many jurisdictions." Id. at 392.
The Court then pointed out that, under the UPA: "A dissolution is a dissolution and a winding-up process is a winding-up process, no matter what the underlying reason for its occurrence. The reason for the dissolution is relevant when liabilities are being apportioned among partners, such as in a wrongful dissolution, but such is not the concern in the instant case." Id. at 394. It began its analysis by looking at cases from other jurisdictions in which courts had, under similar circumstances, ordered in-kind distributions and buy outs of a departing partner’s interests, as well as scholarly articles. E.g. Alan R. Bromberg, Partnership Dissolution-Causes, Consequences, and Cures, 43 Tex. L.Rev. 631, 647-648 (1965). The Creel Court held: "We find it is sound public policy to permit a partnership to continue either under the same name or as a successor partnership without all of the assets being liquidated. Liquidation can be a harmful and destructive measure, especially to a small business ... and is often unnecessary to determining the true value of the partnership." Id. at 400.
Jan rejects the Creel holding and relies on UPA, § 38(1) to argue that Creel was wrongly decided and the personal representative of a deceased partner may insist on liquidation. § 38(1) states in relevant part: "When dissolution is caused [by the death of a partner] ... each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners." In this case, no party argues that liquidation is necessary to pay off creditors who might otherwise assert claims against Robert’s Estate. The question then is whether the personal representative has the same right as a "partner" to insist that she be paid "cash" for her interest in the Partnership.
In Adams v. U.S., 218 F.3d 383 (5th Cir. 2000), a case involving the value of a deceased partner’s interest in a partnership for estate tax purposes, the Fifth Circuit Court of Appeals was called upon to decide whether § 38(1) granted the personal representative of a deceased partner the right to demand liquidation under Texas law. It concluded that it did not: "When the drafters [of the UPA] wanted to grant the liquidation rights to a departing partner, they did so expressly: § 38(1) grants a partner, after dissolution, the right to be paid his share of the partnership’s surplus." Id. at 390. According to the Fifth Circuit, if the drafters wanted to give the same right to the representative of a deceased partner’s estate, that would be expressly stated in the UPA as well. Indeed, this court notes that that § 38(1) actually makes specific reference to "persons claiming" a right to partnership assets through the interests of other partners, but does not give such persons a partner’s right to demand cash distributions from surplus. This court concludes, like the Courts in Creel and Adams, that the personal representative of a deceased partner does not, in all circumstances, have the right to insist that a partnership be liquidated, if there are other more equitable means to insure that the rights of partnership creditors are not impaired and the estate is able to receive the fair value of the deceased’s partner’s interests.
Jan cites Cauble v. Handler, 503 S.W.2d 362 (1973) to argue that Adams misinterpreted Texas law. It is true that in Cauble the court commented that § 38(1) "gave the representative of the estate of the deceased partner the right to elect, if she so desired, to have the partnership assets liquidated, the debts paid, and the share of each partner in the surplus paid to him in cash." Id. at 365. However, that statement in Cauble is actually dicta. But more significantly, in Adams, the Court of Appeals specifically addressed Cauble: "As explained above, § 38(1) applies, by its express terms, to partners, not to assignees. Quite simply, this statement in Cauble is based on a misapprehension of the applicable law. See Alan R. Bromberg, Partnership Dissolution-Causes, Consequences, and Cures 43 Tex. L. Rev. 631, 648 (1965). See also King v. Evans, 791 S.W.2d 531 (Tex.App. 1990) (analyzing the rights of a withdrawing partner, not the rights of an assignee)." Adams 218 F.3d at 390 n.27. Notably, the law review article cited by the Court of Appeals is the same article cited approvingly by the Maryland Supreme Court in Creel.
Turning to the facts of his case, Robert unequivocally expressed his intention of devising all of his interests in the Partnership and the Realty Trust to his nephew Joe Jr., who worked with his brother running the Partnership, by providing in the Robert Trust that: "The Trustees shall distribute all of the Settlor’s rights, title and interest in and to the Cerratani Realty Trust, d/b/a Cerratani Realty Associates partnership or any successor in interest thereto, to the Settlor’s nephew Joseph Stephen Cerretani...." The most equitable and efficient means of carrying out this bequest is to have Robert’s interest in the Realty Trust and Partnership transferred in kind to Robert’s Estate, which can then distribute that in-kind interest to Joe Jr. This eliminates any controversy that might arise from efforts to value that interest. It also eliminates the potential for controversies concerning an accounting. Joe Sr. and Joe Jr. have already paid to the Estate the amount that they believe may be due in Federal and Massachusetts estate taxes attributable to the value of Robert’s interest in the Partnership, and the Estate has paid this amount to the taxing authorities. Joe Jr. will be responsible for any estate tax shortfall in this regard or entitled to any refund, if there was an overpayment.
For the ten years prior to his death, Robert had not been actively involved in the day-to-day operations of the Partnership.
A nominee trust is distinct from a traditional trust because it is "created for the purpose of holding legal title to property with the trustees having only perfunctory duties." Morrison v. Lennett, 415 Mass. 857, 860 (1993); (quoting Johnston v. Holiday Inns, Inc., 595 F.2d 890, 893 (1st Cir. 1979). Unlike a traditional trust, the trustees of a nominee trust lack any power to act unless directed by the beneficiaries. Roberts v. Roberts, 419 Mass. 685, 688 (1995). Because the trustees of a nominee trust are subject to the beneficiaries’ control, the trustees are commonly treated as "agents for the principals’ convenience rather than as trustees in the familiar fiduciary sense." Apahouser Lock & Sec. Corp. v. Carvelli, 26 Mass.App.Ct. 385, 388 (1988). In consequence, while title to the Partnership’s real estate was held in the name of the Realty Trust, because the sole beneficiary of the Realty Trust was the Partnership, the properties were always held for the benefit and subject to the control of Robert and Joe Sr.
Robert’s Will provides that all estate taxes are to be "apportioned to the person owning or receiving such property." In consequence, Joe Jr. is liable for all such taxes relating to the in kind distribution of Robert’s interests in the Realty Trust and the Partnership.
The court will respond briefly to Jan’s argument that Robert’s failure to execute the Cerranti Realty Associates, Assignment of Beneficial Interests and Cerratani Realty Trust, Amended Schedule of Beneficiaries prior to his death nullifies the bequest of his interests in the Realty Trust and Partnership to Joe Jr. "The interpretation of a written trust is a matter of law to be resolved by the court.... The rules of construction of a contract apply similarly to trusts; where the language of a trust is clear, we look only to that plain language." Ferri v. Powell-Ferri, 476 Mass. 651, 654 (2017) (Ferri) (Internal citations and quotations omitted). It is only when the language of the instrument is ambiguous that a court may consider "evidence concerning the drafting history or the intention of the parties.... Language is ambiguous [only if] ... the phraseology can support a reasonable difference of opinion as to the meaning of the words employed and the obligations undertaken." Id. Additionally, the ambiguity must be apparent on the face of the instrument or as applied to the subject matter. "Extrinsic evidence cannot be used to contradict or change the written terms, but only to remove or to explain the existing uncertainty or ambiguity." Id. See also Museum of Fine Arts v. Beland, 432 Mass. 540, 543 (2000) ("An effort to determine [the settlor’s] intent by extrinsic evidence is unnecessary because the provisions of the bequest are not ambiguous.").
In this case, Jan seemingly argues both that the terms of the bequest to Joe Jr. in the Robert Trust are unambiguous and also that Robert’s failure to sign the Assignment of Beneficial Interests and Amended Schedule of Beneficiaries suggests that Robert changed his mind and did not intend to bequeath his interests in the Realty Trust and Partnership to Joe Jr. However, if the Robert Trust is unambiguous, then Robert’s failure to sign these other documents, which were not sent to him until some weeks after he executed the Will and trust amendment, is extrinsic evidence that is unnecessary to explain Robert’s intent and also cannot be used to create an ambiguity not apparent from the language of the Robert Trust itself. The court finds that, in respect of the bequest to Joe Jr., there is nothing ambiguous in the Robert Trust. It is perfectly clear that Robert’s intention was that his nephew, who was working for the Partnership at the time of Robert’s death, succeed to his interests so that the business of the Partnership, reconstituted as a new enterprise owned by Joe Sr. and Joe Jr., could continue.
If, as a matter of law, the Partnership had to be liquidated upon Robert’s death and the cash surplus distributed to the Estate (and from the Estate to Robert’s Trust) there might be some ambiguity in the instrument concerning what should happen to the cash: would Robert have intended that the cash generated by the liquidation of the Partnership pass to Joe Jr. or Jan and the other residual beneficiaries? In that case, extrinsic evidence might be needed "to give effect to the intention of [Robert] as ascertained from the language of the whole instrument considered in the light of circumstances known to [Robert] as the time of execution." Ferri, 476 Mass. at 654. Fortunately, the law does not require liquidation, and Robert’s clear expression of his intention that Joe Jr. receive all of his interests in the Realty Trust and Partnership may be effectuated by making an in kind distribution of his interests to the Estate.
Finally, the court’s decision to employ its equitable authority to order an in kind distribution of these interests avoids another difficult issue. Counsel for Joe Sr. and Joe Jr. informed the court at oral argument that they had moved in the Middlesex Probate and Family Court that Jan be removed as Personal Representative of Robert’s Estate. The court does not have those motion papers before it, but Jan’s conflict of interest as Personal Representative of the Estate, a Trustee of the Robert Trust, and a residual beneficiary of the Robert Trust is apparent. As Trustee of the Robert Trust she owes a fiduciary duty to Joe Jr., to whom Robert expressly bequeathed his interests in the Realty Trust and the Partnership. Even Jan acknowledges that the personal representative of a deceased partner is not legally obligated to demand that a partnership be liquidated. But, in this case, she has made that demand. If this court had honored it, that would have created a further dispute concerning whether the cash generated by the liquidation pass, in part, to her as a residual beneficiary or to Joe Jr. It would appear that Jan’s liquidation demand favored her own interests over Joe Jr., her cestui que trust. The in kind distribution both achieves the specific bequest unequivocally made to Joe Jr. in the Robert Trust and avoids the consequences of this conflict of interest.
ORDER
For the foregoing reasons, the court denies the plaintiff’s request for instructions and declares that all of Robert Cerratani’s rights, title and interest in and to the Cerratani Realty Trust, d/b/a Cerratani Realty Associates partnership or any successor in interest thereto, be distributed in kind to Robert Cerratani’s Estate in order that the Robert Cerratani Trust can distribute said rights, title and interest to Robert’s nephew Joseph Stephen Cerretani, Jr., as called for by the express terms of the Robert Cerratani Trust. As these interests are being distributed in kind to the ultimate recipient, Joseph Stephen Cerretani, Jr., and Joseph Cerratani, Jr. does not contest the previous accountings of Partnership affairs, no further accounting is necessary.
Final judgment, however, cannot enter in this case, as the defendants’ counterclaim remains unresolved.
The Complaint also requests the following relief in prayer E: "permit the reasonable costs and expenses of this proceeding, including reasonable counsel fees, be paid from the Estate and/or Robert’s Trust before the distributions set forth above." The court declines to rule on that request. Joe Sr. and Joe Jr. allege in this action that Jan has not properly administered Robert’s Estate. The court has no view on the validity of those allegations and finds that they are not material to any issue that this court needed to address to resolve the issues before it. It is this court’s understanding that Robert’s Estate is being probated in the Middlesex Probate and Family Court. The judge presiding over the administration of the Estate will be far better positioned and more qualified to determine if the expenses of this litigation should be borne by the Estate, the Trust or the individual parties.