Court of Chancery Finds Settlement Agreement Clear on Key Terms and Rules Accordingly
IMO Ronald J. Mount 2012 Irrevocable Dynasty Trust U/A/D December 5, 2012, C.A. No. 12892-VCS
The parties in this case reached a binding Settlement Agreement, effective July 5, 2016. The Settlement Agreement details, inter alia, the consideration each party will receive, the representations and warranties each party would give and the means by which the decedent Ronald Mount’s estate and trusts would be administered. A Florida Probate Court approved the Settlement Agreement on July 13, 2016. The Delaware Court of Chancery approved the Settlement Agreement and modifications to the trust instrument for the Ronald J. Mount 2012 Irrevocable Dynasty Trust (the “Dynasty Trust”) on August 11, 2016.
After the settlement closed, the parties quickly disagreed over the steps necessary to consummate the Settlement Agreement, particularly how to divide the Dynasty Trust. Following a breakdown in the parties’ discussions the Trust Protector filed a petition in the Court of Chancery on November 10, 2016, seeking instructions on how to divide the Dynasty Trust under the Settlement Agreement. The Trust Protector claims that, as part of the Settlement Agreement, Ian Mount (“Ian”)—a beneficiary and party to the Settlement Agreement—committed to pay off a $4.2 million note owed to the Dynasty Trust but has now refused to do so. According to the Trust Protector, the plain language of the Settlement Agreement requires that Ian make this payment as a first step before the Trust Protector can make payments out of the Dynasty Trust as required by the Settlement Agreement. Ian instead maintains that this transfer can be accomplished by a simple offsetting accounting entry and a payment to a separate revocable trust.
The key language in the Settlement Agreement reads:
Ian, as Personal Representative of the Estate and/or the successor trustee of the Revocable Trust, shall repay the $4.2 million note from the Revocable Trust to the Dynasty Trust. It is not anticipated by the Parties that the $4.2 million note, originally reflecting the debt owed by Ronald J. Mount to the Dynast Trust, be forgiven or cancelled without repayment thereof.
The Court found that “[t]his is the first of several steps listed in the section governing administration of the Dynasty Trust. The placement of the provision relating to Ian’s payment obligation into the Dynasty Trust is important because it reveals the parties’ intent that this payment is to be the first in a sequence of events listed in Paragraph 8. Each of the subsequent events involve payments out of the Dynasty Trust or a division of the Dynasty Trust once the trust is fully funded. Despite the clear mandatory language in Paragraph 8(a), and its clear direction as to timing, Ian argues that this step is optional because the parties should perform the agreement according to a more convenient course of conduct—his proposed accounting offset. I reject this construction of Paragraph 8(a) as it ignores the plain meaning of the provision’s unambiguous terms and, if adopted, would violate the rule against surplusage.” (citations omitted).
The court noted that while Ian’s now-proposed option certainly had been one possible course, “Ian and the other parties, all represented by counsel, entered into a binding contract that spelled out a different route—one that specifically requires Ian to ‘repay the $4.2 million note from the Revocable Trust to the Dynasty Trust.’” (citation omitted).
The court also found that Ian had to indemnify the other beneficiary for her fees and costs incurred in this action, but that Ian himself was not entitled to indemnification.
Note: This firm represents the corporate trustee of the Dynasty Trust in this matter.
