Florida Probate Litigation, Will Contest Lawyer & Attorney : Juan C. Antúnez : Serving Miami, Jacksonville, Tampa Saint Petersburg, Orlando, Fort Lauderdale

Texas probate litigator J. Michael Young reported here in his Texas Probate Litigation Blog on a high profile case involving two Texas trusts worth upwards of $4 billion entitled: Hunt vs. Hunt: The Fight Inside Dallas' Wealthiest Families. The family drama swirling around this litigation makes for interesting reading, but it also distracts from what is conceptually a pretty simple conflict-of-interests case.

Al III is accusing Uncle Tom of conflicts of interest because of his roles as chairman of the board of Hunt Petroleum and as trustee for both of the trusts that own the company. . . .

Two Hunt Petroleum executives serving on the advisory panel of Hassie’s trust were concerned enough about the changes in Texas law that they asked the trust’s beneficiaries in January 2007 to release them from liability. Their request, according to a review of the document, cited potential conflicts relating to the need to diversify trust holdings, to avoid self-dealing, to “invest and manage the trust assets solely in the interest of the beneficiaries,” and to keep a beneficiary reasonably informed of trust activities. In other words, all of the things that Al III and his attorney, Bill Brewer, are complaining about.

Misconduct + No Damages = Empty Victory

As an outside observer I think the trust-beneficiary/plaintiff's toughest challenge will be to demonstrate that the malfeasance he's accusing his trustee of, even if true, has actually harmed the trust in some way. Here's how one observer quoted in the article put it:

Wes Holmes, a Dallas lawyer specializing in trust and estate disputes, is quite possibly the last lawyer left in Dallas who has not worked for the Hunt family. Trust law is quite malleable, unlike tax law, he says. Even self-dealing isn’t always illegal, if the end result was fair and benefited the beneficiary, included full disclosure and didn’t line the pockets of the trustee. “But as a general proposition, you don’t get to come in and rewrite the trust,” he says.

Proving damages will likely require a team of forensic accounts to comb though truck loads of files and untangle of maze of interrelated, closely held entities whose business operations span the globe. No easy task. An alternative strategy would have been to examine the trust books first and sue for malfeasance later . . . only after you've uncovered your smoking gun evidence. The "ask questions first, sue later" approach is possible in trust litigation because trust beneficiaries are legally entitled to this disclosure at any time, they don't have to sue their trustee for malfeasance to get at the trust books. This is a big difference between trust litigation and general commercial litigation that is often overlooked.

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Ohio trusts-and-estates attorney Michael D. Bonasera reported here in his The Ohio Trust & Estate Blog on a NY Times article he spotted entitled: Breaking Up Is Hard to Do. According to the NY Times, trust beneficiaries are growing increasingly dissatisfied with their corporate trustees:

Dissatisfaction with trustees — particularly corporate trustees rather than individuals — has been growing over the last five years, those experts say. Most complaints center on investment performance, mostly because beneficiaries have become more financially sophisticated and more types of investments are now available.

Poor service — including high turnover among trust officials and phone calls that are not returned — is another common complaint. “The longer a trust lasts, the more you’re going to have a change in trustee personnel,” said Richard Kahn, a partner in the law firm Day Pitney in Florham Park, N.J., who specializes in trusts and estate planning.

This is not the first time I've seen an article reporting on the drift away from traditional corporate trustees [see Trust in your bank?].

In my opinion if a trust is large enough to warrant professional management, appointing a corporate trustee is usually a good idea. However, the benefits of having a corporate trustee can be had without wedding your trust beneficiaries to a particular bank or trust company in perpetuity. The ability to fire a current corporate trustee and appoint another corporate trustee of their choosing would seem to address all of the trust-beneficiary grievances reported on in the NY Times piece. As pointed out in the article, the easiest and best way to address this issue is through proper trust-agreement drafting.

In the absence of a well-drafted trust agreement, trust beneficiaries traditionally could sue for the removal of their trustee only upon a showing of malfeasance. This type of litigation is fraught with uncertainty and usually very expensive for trust beneficiaries to pursue. The appeal of these cases drops even further when trust beneficiaries realize that although they have to pay their legal fees out of their own pockets, the trustee can use trust funds to pay its attorneys.

Fortunately for Florida trust beneficiaries, Florida's new Trust Code provides an alternative. If all of the trust beneficiaries agree, they can obtain an order compelling a trustee to resign under the following statute, without having to prove the trustee was negligent in any way.

736.0706 Removal of trustee.  .  .  .

(2) The court may remove a trustee if:

(d) .  .  . removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available. 

Although this statute is a vast improvement over traditional trust law with respect to the forced removal of unwanted trustees, it does impose one very significant requirement: a unanimous vote by all of the trust's qualified beneficiaries. As reported in the NY Times article, this may not be an insubstantial hurdle:

Mr. Dinzeo of Accredited Investors has been working for the last five years with a family where the younger generation is unhappy with the big international bank that has been handling its trust, worth more than $100 million. Trust officers were rotating every 12 to 18 months, these beneficiaries complained. “They wanted to switch down to a smaller trust company, a local player that would have less of an institutional feel,” Mr. Dinzeo said.

“The other side of the family agreed that the service level wasn’t par,” he added, but they wanted to stay with the big bank. “They felt that this large institution would be there. There would be continuity from generation to generation.”

The result? The beneficiaries talk periodically with bank officials, and conditions improve for a while, but then matters slide again, Mr. Dinzeo said. “It’s a constant recurring discussion that just sucks out the family’s resources and time.”

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American United Life Ins. Co. v. Barber, Slip Copy, 2008 WL 1766916 (M.D.Fla. Apr 15, 2008)

Justin Barber was convicted in 2006 of murdering his 27 year old wife to collect on a $2.3 million life insurance policy. In an opinion I first wrote about last year [click here], the 1st DCA upheld a trial court order applying F.S. 732.802, Florida's "slayer statute," to disinherit Mr. Barber - even though his murder conviction was being appealed. In this interpleader action the federal district court for the Middle District of Florida came to the same conclusion by adopting, verbatim, the 1st DCA's analysis of the governing Florida law. The following excerpts from the district court's opinion frame the issue nicely:

Parrish argues that summary judgment should be granted in her favor. She argues that under Florida's slayer statute the judgment in Barber's criminal case is conclusive evidence of his responsibility for April's death, thereby rendering him ineligible for any distribution of life insurance benefits. In opposition, Barber argues that his appeal must be decided before his criminal judgment is “final” under the statute.

.  .  .

The First District Court of Appeal rejected this same argument raised by Barber in a case involving the same parties under one of the other life insurance policies held by April.

On appeal, Appellant argues that the trial court erred in granting summary judgment because his conviction cannot be considered final before he has exhausted his appellate rights. This argument has previously been rejected. In Prudential insurance Company of America, Inc. v. Baitinger, 452 So.2d 140, 141 (Fla. 3d DCA 1984), the insured's husband, who was the primary beneficiary of a life insurance policy, was found guilty of the insured's murder. The probate court entered an order directing the insurance company to pay the policy proceeds to the personal representatives of the insured's estate. Id. The insurance company appealed the order arguing that the husband's conviction could not be considered final due to a pending appeal. Id. at 142. The Third District Court of Appeal examined the legislative intent behind section 732.802 and determined that amendments to the statute demonstrated the Legislature's intent to make it more difficult for a killer to receive a financial benefit for his wrongdoing. Id. at 142-43. It concluded that the term “final judgment of conviction” meant an adjudication of guilt by the trial court, and it affirmed the trial court's order directing the insurance company to pay the proceeds to the personal representatives. Id. at 143. See also Cohen v. Cohen, 567 So.2d 1015, 1016 (Fla. 3d DCA 1990) (holding that irreparable harm would not occur to a primary beneficiary, even if her conviction was reversed on appeal, if the estate was distributed to the remaining beneficiaries because she would be able to seek money damages from those beneficiaries).

We agree with the reasoning of the Third District in its finding that the Legislature intended a trial court's adjudication of guilt to be final for purposes of section 732.802, even if appellate remedies have not been exhausted. We therefore conclude that the trial court properly granted summary judgment in favor of Appellee and accordingly affirm the judgment.

Barber v. Parrish, 963 So.2d 892, 893 (Fla.Dist.Ct.App.2007).

The Court is persuaded by this analysis by the state appellate court on this point of Florida law. While the Florida Supreme Court has not addressed this precise issue, the Court has not found any decision by the Florida courts that would call into question the conclusions reached by the First and Third District Courts of Appeal in Barber and Prudential. Thus, with Barber ineligible, Parrish, as contingent beneficiary, is entitled to the insurance proceeds.

Lesson learned:

As I've written before [click here], and as made clear by the federal court's decision in this case and the 1st DCA's prior opinion addressing the same set of facts, Florida's slayer statute does NOT require a final murder conviction to apply.

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Cleare v. EA Management Services, Inc., Slip Copy, 2008 WL 1711533 (S.D.Fla. Apr 10, 2008)

The linked-to case does a nice job of explaining the pleading requirements for establishing diversity jurisdiction in a case involving a personal representative. The point to keep in mind is that you have to focus on the domicile of the decedent, NOT the personal representative.  Here's how the court explained the rule:

Section 1332(c) specifically prescribes the allegations sufficient to establish jurisdiction in federal court. The district courts “have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000” and is between “citizens of different states.” 28 U.S.C. § 1332(a)(1) (2006). Residency is not the equivalent of citizenship for diversity purposes. See 13B Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d § 3611 (1984).

Moreover, it is not Plaintiff's citizenship that controls whether diversity between the Parties exists. For purposes of establishing diversity pursuant to § 1332, “the legal representative of the estate of a decedent shall be deemed to be a citizen only of the same State as the decedent.” 28 U.S.C. § 1332(c)(2) (2006). Defendants have failed to include any allegation of the deceased Stephen Fenner's citizenship. The only allegation in the record to this effect is found in the state court Amended Complaint: “2. At all times material, Plaintiff's decedent, Stephen Fenner (“Mr.Fenner”), was a resident of Georgia.” DE 1, Ex. 4, p. 2. However, as stated above, this allegation is insufficient to establish citizenship. 13B Wright & Miller, supra.

If you're wondering why simply alleging that the decedent was a resident of Georgia doesn't cut it for purposes of pleading diversity jurisdiction, the following excerpt from 13B Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d § 3611 (1984), which is cited in the quoted text above, explains why:

The diversity jurisdiction of the federal courts is defined in terms of the citizenship of the parties to the action. According to Section 1332 of Title 28 of the United States Code, diversity jurisdiction exists if the action is between citizens of different states of the United States or between citizens of states of the United States and citizens or subjects of foreign nations.[FN1] However, neither the Constitution nor the Judicial Code describes the degree of identification with a state or a foreign country contemplated by the term “citizen.” The definition of citizenship in this context has been left to judicial development. The result has been the evolution by the courts of the following tests for determining the citizenship of natural persons: (1) a person is considered a citizen of a state if that person is domiciled within that state[FN2] and is a citizen of the United States;[FN3] (2) a person is considered a citizen or subject of a foreign nation if he or she is accorded that status by the laws or government of that country.[FN4]

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1. S.D.FLA: Cleare v. EA Management Services, Inc., Slip Copy, 2008 WL 1711533 (S.D.Fla. Apr 10, 2008) (Federal Diversity Jurisdiction for Estates)
2. 2d DCA: In re Guardianship of Shell, --- So.2d ----, 2008 WL 1757211 (Fla. 2d DCA Apr 18, 2008) (Compensation of Guardian Dispute)
3. M.D.FLA: American United Life Ins. Co. v. Barber, Slip Copy, 2008 WL 1766916 (M.D.Fla. Apr 15, 2008) (Insurance Policies; Florida's Slayer Statute)

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Fleck v. Fleck, --- So.2d ----, 2008 WL 818814 (Fla. 2d DCA Mar 28, 2008)

The linked-to opinion is the second time the trial court's been reversed on appeal in this case (ouch!!).

The first time around the trust beneficiary won on appeal when the 2d DCA reversed the trial court for improperly construing a trust instrument [click here for my blog post on that appeal].

This time around the trustee was the winning side on appeal when the 2d DCA reversed the trial court for making the trustee pay the trust beneficiary interest on improperly retained trust funds . . . in spite of the fact that the trustee had paid the beneficiary all of the over $200,000 of income generated on the retained trust assets. Here's how the 2d DCA explained where the court went wrong and why:

The [trustee]  . . . argues that the trial court erred in ordering that he return to Sondra's guardian ad litem “all of the funds and assets which were turned over to [the appellant] ... plus interest on those funds at the legal rate.” The appellant contends that he “has distributed to Sondra, as beneficiary, all of the income from the assets of the Trust since the assets were ordered returned by Sondra to the Trust, approximately $236,564.48.” The appellant further asserts that in awarding interest on “the entire corpus” to Sondra, the final judgment “fails to give [him] any credit for these payments.” According to the appellant, “[i]t is the current assets of the Trust that should be ordered released to Sondra.”

*     *     *     *     *

The trial court erred in treating the earlier erroneous judgment, which required that the distributed assets be returned to the trust, as though it were a money judgment which had been satisfied and then overturned. The funds that were returned to the trust were not turned over to the appellant to deal with as he pleased but were required to be administered by the appellant in accordance with his duties as a cotrustee. The ongoing administration of the trust necessarily involved circumstances that the trial court's order on review in effect ignores.

Here, the restoration of the status quo ante simply requires that “all remaining trust assets” be distributed by the appellant, in his capacity as trustee, as Sondra had directed pursuant to the provisions of the trust agreement. . . .

We therefore reverse the portion of the final judgment ordering the return of “all the funds and assets which were turned over” to the appellant pursuant to the overturned judgment, “plus interest on those funds at the legal rate.” On remand, the judgment shall be amended consistent with this opinion.

Lesson learned:

Remedies that may make sense in a standard commercial dispute simply don't apply in trust litigation.  The new Florida Trust Code should help future litigants - and courts - avoid making this mistake by listing the remedies for a breach of trust in one place (F.S. 736.1001) and how the resulting damages, if any, should be computed (F.S. 736.1002 and F.S. 736.1003).

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Daniel Wise of the New York Law Journal reports in Disbarred Lawyer Sentenced After Admitting to Stealing From Grandparents on yet another case involving the theft of estate funds by the person who was supposed to be the estate's primary protector.  Here's the linked-to report in its entirety:

A disbarred Westchester County, N.Y., lawyer has admitted in court that he stole $310,000 from his grandparents.

Chase Caro of White Plains pleaded guilty Monday to grand larceny and has been sentenced to 2 1/2 to 7 1/2 years in prison by County Court Judge Susan Cacace.

A spokesman for Westchester District Attorney Janet DiFiore said Caro, 49, admitted stealing money meant for his grandparents' trust fund. He already had pleaded guilty to another theft of more than $470,000 from another elderly client. He was sentenced to 2 to 6 years on that count.

Caro agreed to pay restitution of $1.1 million, which also includes funds from a third theft. His sentences will run at the same time.

Caro, who was disbarred in November, is the son of Robert Caro, the Pulitzer Prize-winning biographer of Robert Moses and Lyndon Johnson.

Two points came to mind when I read this report. First, no matter who the fiduciary is or how trustworthy that person may appear, systemic, structural safeguards against malfeasance are ALWAYS needed. I've written about this point before and given specific examples of the types of safeguards I'm referring to [click here and here].  Second, if someone is accusing the fiduciary of taking money that didn't belong to him or her, that claim may morph into a criminal prosecution against the fiduciary. Which means that if you're representing the fiduciary you need to be thinking about whether or not your client should refuse to answer deposition questions or file an accounting based on his or her Fifth Amendment constitutional right against self-incrimination [click here for recent example of this point].

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In re Estate of Woodward, --- So.2d ----, 2008 WL 942044 (Fla. 2d DCA Apr 09, 2008)

A basic rule under Florida's probate code is that specifically-devised property is inherited subject to any existing mortgages or other encumbrances unless the decedent's will specifically directs otherwise. Here's the governing rule:

733.803 Encumbered property; liability for payment.--The specific devisee of any encumbered property shall be entitled to have the encumbrance on devised property paid at the expense of the residue of the estate only when the will shows that intent. A general direction in the will to pay debts does not show that intent.

In the linked-to case the personal representative (PR) was managing several farms that were part of a single probate estate.  The estate-administration process stretched out for several years.  During that time the PR sold one of the farms and used the sales proceeds to pay off some debt, thererby satisfying a $241,805.81 mortgage on farm property that had been specifically devised to one of the heirs.  The decedent's will did NOT state that the specifically-devised property was to be distributed debt-free.  Oops!

One of the residuary beneficiaries cried foul, arguing that under F.S. 733.803 the PR should have set aside the sales proceeds for the residuary beneficiaries of the estate, rather than paying off debt on the specifically devised property.  The PR said this rule only applied if the debt was in place at the time of distribution, but didn't stop her from paying off debt encumbering specifically devised property during the course of the probate proceeding.  Wrong answer!

No matter how long the estate-administration process takes, you can't re-write the testator's will.  Which is effectively what the PR did in this case when she paid off the debt on the specifically devised property at the expense of the residuary estate. Here's how the 2d DCA explained the rule:

The trial court's rejection of Brian's objection to the satisfaction of the encumbrance is inconsistent with the governing provision of the Florida Probate Code. Section 733.803, Florida Statutes (2002), provides that “[t]he specific devisee of any encumbered property shall be entitled to have the encumbrance on devised property paid at the expense of the residue of the estate only when the will shows that intent ” and that “[a] general direction in the will to pay debts does not show that intent.” (Emphasis added.) This statute makes clear that Jay was to inherit his father's interests in the three encumbered farms free of debt only if the will or codicil specifically expressed the decedent's intent that Jay would inherit the interests free of debt. Neither the will nor the codicil shows the intent required by the statute. Cf. In re Estate of Sterner, 450 So.2d 1256, 1257 (Fla. 4th DCA 1984) (holding that section 773.803 required residue of estate to pay encumbrances on property where codicil leaving life tenancy in property to specific devisee specifically stated that life tenancy was to be “free of rent and of any encumbrance of any nature whatsoever, such as taxes, liens, pledges, etc., except utilities and telephone”). Although the will states that all the decedent's legal debts should be paid, the statute plainly provides that such a general direction for the payment of debts does not evidence an intent that encumbrances on devised properties be paid at the expense of the residuary estate.

We reject the personal representative's argument that section 733 .803 only applies to encumbrances that remain unsatisfied at the time of distribution and that she had unfettered discretion to pay debts of the estate during the period of administration. Such an interpretation is inconsistent with the design of section 733.803 to carry out the testator's intent with respect to the devise of encumbered property.

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• 2d DCA: Fleck v. Fleck, --- So.2d ----, 2008 WL 818814 (Fla. 2d DCA Mar 28, 2008) (Remedies in Trust Litigation)
  
• 2d DCA: In re Estate of Woodward, --- So.2d ----, 2008 WL 942044 (Fla. 2d DCA Apr 09, 2008) (Mortgaged Property)
  

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Bud Newman of the Daily Business Review reported in Attorney Unlicensed in Florida Still Awarded $1 Million in Fees in Messy Probate Case on a case I first wrote about last year [click here].  Here's an excerpt:

A Palm Beach Circuit judge has awarded a North Carolina attorney $1 million in fees for representing a wealthy Palm Beach, Fla., widow in a messy probate case even though the attorney was not licensed to practice law in Florida.

Judge Jeffrey Winikoff ruled Winston-Salem, N.C., solo practitioner William West was entitled to the fee for his work protecting and improving the financial interests of Palm Beach resident Carla Morrison in a complex probate case in 2004 and 2005.

Morrison is the widow of Pedro Morrison, who died of a heart attack in 2003 at 49 shortly after filing for a divorce, leaving an estimated $100 million estate, according to court documents. His three beneficiaries were his widow, his brother Carlos Morrison and Carlos' son Tommy.

*     *     *     *     *

Winikoff also ruled West should get his fee despite the fact the paperwork he submitted to practice law in Florida had not yet been approved. The judge said West's failure to get his paperwork certified on time made him an unlicensed practitioner on the date the financial settlement was signed.

Even though West "engaged in the unlicensed practice of law" throughout his representation of Morrison, "the public policy of the state of Florida would not be compromised by allowing West recovery" of his fee, the judge wrote.

Four months after the probate settlement was approved in 2005, Winikoff noted the Florida Supreme Court changed the rules on appearances by out-of-state lawyers in disputes in Florida. The Florida Bar had already recommended the change, and "the American Bar Association had authorized conduct similar to West's since 2002," the judge wrote.

For those reasons, the judge ruled "there was no public policy violation that would justify" denying the fee to West.

The complicated case has another potentially bizarre twist that could have two big-name law firms battling each other over who should pay West.

West Palm Beach attorney Gerald Richman of Richman Greer Weil Brumbaugh Mirabito & Christensen, who represented West, said the total award with interest would be about $1.15 million after deducting the $41,000 he has already received. However, Richman said he may sue the Edwards Angell firm to collect some or all of West's $1 million award.

Morrison authorized $1 million to be set aside for West and held in an Edwards Angell trust account until the fee dispute with West was resolved, Richman said. Instead, he claimed the law firm returned the money to Morrison before the dispute was resolved and she spent at least $250,000 of it on a diamond bracelet and may have spent all of it.

Palm Beach Circuit Judge Karen Martin, who presided over the probate settlement, ordered Morrison in 2006 to return the money to the Edwards Angell trust account. Richman said she has not yet done so. Richman said he will first try to get West's money from Morrison, but if her assets -- including a $90,000 monthly payment from her late husband's estate -- are legally protected from being attached, "obviously we're going to look at the Edwards Angell firm" to try and collect the money.

"They made a mistake here," Richman said of Edwards Angell.

Lesson learned?

There are two sets of lawyers sweating bullets in this case. 

First, I was surprised to learn that an otherwise very astute out-of-state attorney (he apparently was instrumental in crafting a settlement agreement involving a complex $100 million estate) put his own $1 million fee at risk by apparently failing to file a timely pro hac vice motion.  Although these motions "should" be perfunctory in nature, as another out-of-state attorney recently learned, even something as simple as a pro hac vice motion can trip you up when you least expect it [click here].

I think everyone involved in this case probably assumes the fee-order reported on above will be appealed, so Mr. West's $1 million pay day remains uncertain.  This poor guy is probably kicking himself for not getting that darn pro hac vice motion filed when he first stepped into the case.

Second, the Edwards Angell attorneys are probably wishing someone in accounting had stood up and said "are you kidding me??!!" before they released the $1 million in estate funds they were supposed to retain in their escrow account pending final resolution of the fee dispute.  You can just imagine how upset the trial-court judge must have been when he learned these funds had been released to the client and she in turn testified that she blew $250,000 of those funds on a diamond bracelet and "may have spent all of it."  Oops!!

Stay tooned for more . . .

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