December 2021
In the Matter of the Real Estate of Alvin David Smith, Jr., C.A. No. 2019-1038-SEM (JRS) (December 3, 2021)
On December 27, 2019, a Petition for Permission to Sell Real Estate to Pay Debts of Decedent (the “Petition”) was filed by James Furlow, as Personal Representative of the Estate of Alvin David Smith, Jr. (the “Estate”). The Master issued an Order on March 19, 2021 generally granting the Petition (the “Master’s Order”). On April 14, 2021, Carla Cowan (“Ms. Cowan”), an heir to the Estate, filed a Notice of Appeal with the Supreme Court of Delaware. On June 4, 2021, the Supreme Court issued an Order dismissing the appeal for lack of jurisdiction. On June 17, 2021, Ms. Cowan e-filed a Request for Review of Final Order, which the Vice Chancellor treated as Ms. Cowan’s Notice of Exceptions to the Master’s Order (the “Exceptions”).
The Vice Chancellor reviewed the record de novo. In so doing, he noted that the “Exceptions do not turn on dispositive credibility determinations that would require the Court to view the witnesses.” The court, as a threshold matter, found that the Exceptions were not timely filed as they were not filed within eleven days of the Master’s report. That alone, the court noted, would be grounds to overrule the Exceptions. The Vice Chancellor then went on to review the substantive bases of the Exceptions nonetheless. He found that Ms. Cowan was not denied due process. And he also rejected Ms. Cowan’s contention that the Master’s Order was somehow invalid because the Estate was purportedly opened in the wrong name. Further, the Vice Chancellor notably found that “the suggestion that the personal representative, his counsel (and the Master) engaged in criminal misconduct by presenting (and accepting) false information related to the Petition is frivolous.”
The personal representative had earlier moved for fee shifting. Notwithstanding that he found “several” of Ms. Cowan’s Exceptions to be “frivolous”, the Vice Chancellor—taking into account Ms. Cowan’s pro se status—denied the personal representative’s request to shift fees under the bad faith exception to the American Rule, but the court did caution Ms. Cowan “that continued unfounded allegations of misconduct, including judicial misconduct, or frivolous and wasteful litigation tactics, will likely subject her to sanctions including, but not limited to, fee shifting.” Thus, this ruling appears to be largely consistent with the practice to allow somewhat more latitude to pro se litigants. That said, the Vice Chancellor appears to have concluded that that wider latitude has now been exhausted for this particular pro se litigant.
In the Matter of The Jeremy Paradise Dynasty Trust and The Andrew Paradise Dynasty Trust, C.A. No. 2021-0354-KSJM (November 29, 2021)
In this case, Chancellor McCormick denied Respondents’ motion to dismiss the reformation claims (Counts I and II), but granted the motion as to the remaining claims.
In Count I, the Petitioner sought reformation based on a unilateral mistake. The Petitioner alleged that the Jeremy Trust was a donative trust, formed without consideration, and asked the Court to reform the agreement based on a unilateral mistaken belief that Jeremy would control the identity of the Trust Protector. A unilateral mistake by the settlor is a sufficient ground for reforming a trust that was created without any consideration. The Chancellor found Petitioner’s arguments persuasive for three reasons. First, the Jeremy Trust is a donative trust and the Trust Agreement’s language made it reasonably conceivable that the Petitioner received no consideration upon the formation of the trust. Second, even if the Petitioner received consideration as part of a larger arrangement surrounding formation, the court cannot make such factual findings at the motion to dismiss stage. Third, the Petitioner adequately pled allegations to support a claim of mistaken belief. Thus, Respondents’ motion to dismiss Count I was denied.
In Count II, the Petitioner, as an alternative to his theory of unilateral mistake in the context of a donative trust, sought reformation of the Jeremy Trust under the theory that the Petitioner was misled into believing he would have control over the Jeremy Trust. Outside of the donative trust context, when a party seeks reformation of the trust agreement based on a unilateral mistake, reformation is only appropriate when the contract does not represent the parties’ intent because of fraud, mutual mistake or, in exceptional cases, a unilateral mistake coupled with the other parties’ knowing silence. Claims of reformation predicated on “knowing silence” must be pled with particularity. The Petitioner alleged that Respondents and Respondents’ counsel chose to exclude the Petitioner and his counsel from emails discussing the change to the preference order and knew the Petitioner was unaware of this change. The Chancellor found the Petitioners’ allegations sufficient, if taken as true, to establish knowing silence and fraudulent acts. As such, the court denied Respondents’ motion to dismiss Count II.
The Chancellor, however, granted the Respondents’ motion to dismiss Count III upon finding that count moot. The count sought a declaration that the appointments of Chafkin and Edelman were invalid. But because Chafkin and Edelman had already resigned from their roles as Investment Direction Advisors of the Jeremy Trust and Trust Protectors and Distribution Advisors of the Andrew Trust effective May 19, 2021, the Petitioner’s requested relief had already been effectuated.
The court likewise dismissed Count IV for failing to state a claim. Petitioner sought to remove John Pomerance (“Pomerance”) from all fiduciary positions for both trusts. Respondents argued that the applicable standard of conduct under the Trust Code is willful misconduct. Willful misconduct is defined as intentional wrongdoing; something more than negligence, gross negligence, or recklessness. The Petitioner alleged willful misconduct based on a prior stock sale, purportedly invalid appointments, and a level of hostility existing between the Petitioner and the fiduciaries. The Chancellor was not persuaded by this argument since the Petitioner failed to explain how these allegations met the standard of willful misconduct. The Petitioner attempted to further argue that willful misconduct was the wrong standard to apply. The Chancellor was again unpersuaded by this argument since the Trust Agreement provided contractual mechanisms for removing fiduciaries, as allowed by the Delaware Code, and when considering principles of freedom of disposition. Moreover, removal is an extreme form of equitable relief and only exercised sparingly. Because the Petitioner did not explain how the purported activities of the fiduciary met this high standard, the Chancellor granted Respondents’ motion to dismiss Count IV.
Lastly, the court also dismissed Count V due to failure to state a claim for accounting. The Petitioner sought an order directing the Trustee to immediately produce an accounting for the Trusts. Section 3522 of the Delaware Code requires the Petitioner show cause to obtain an accounting. This necessitates more than the denial of repeated requests for an accounting. The Petitioner requested, and was given, an accounting but felt that it was not a full accounting. Having pled no facts indicating that the Petitioner requested further information or that information was wrongly withheld, the Chancellor granted Respondents motion to dismiss this Count.
