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

Townsend v. Morton, --- So.3d ----, 2010 WL 2218327 (Fla. 5th DCA Jun 04, 2010)

Deeds are common will-substitutes, so no surprise they come up with some frequency in inheritance disputes . . .  and this blog [click here, here, here]. This case is about when a court will let you unwind a deed that was "procured by fraud, deceit, trickery, or artifice." All common accusations in inheritance disputes.

The property at the center of this family drama was a 46.3 acre cattle farm mom had inherited from her father. In exchange for son paying over $137,000 of mom's debts, she executed a deed conveying a remainder interest in the cattle farm to son, retaining a life estate for herself. Some time later son figures out that the guy who's been living with mom is actually married to her. According to the 5th DCA, mom had repeatedly "lied to him about her marital status." Although unstated in the opinion, mom's marital status is significant. Why? Because § 4(c) of Article X of Florida's Constitution requires both spouses to sign any deed conveying an interest in homestead property. Oops! I'm guessing son - a licensed real estate broker for 16 years - spotted this homestead issue, so he got mom and her husband to both sign a new deed. So far so good. 

Here's the problem: The third deed conveyed full title to son, no life estate for mom; he now owned the farm all by himself. Mom cried foul, saying she had no idea she'd just signed over the family farm.

As a lawyer for mom, if you heard this story you'd know there's a lawsuit in here somewhere. The tough part is figuring out how to fit these facts into a cause of action your client can successfully pursue in court. Well, look no further. Think "Rescission". And here's your road map courtesy of the 5th DCA:

Rescission is an equitable remedy adopted long ago by the courts, and the continued vitality of cases of ancient vintage that have applied this remedy is a testament to its age. See, e.g., Smith v. Richards, 38 U.S. (13 Pet.) 26, 36, 10 L.Ed. 42 (1839); Columbus Hotel Corp. v. Hotel Mgmt. Co., 116 Fla. 464, 156 So. 893, 897 (1934). Over the many years that the courts have utilized the equitable remedy of rescission, some principles have been firmly established regarding its applicability.

The courts have established that rescission is a proper remedy to relieve a party from obligations and provisions of an instrument procured by fraud, deceit, trickery, or artifice. Smith; Columbus Hotel. As the court explained in Columbus Hotel:

Equity will grant to a complaining party rescission of an agreement procured through fraud, deceit, artifice, or trickery practiced upon him by the opposite party, even after it had been partially executed, in cases where it is made to appear that the complaining party would not have entered into such agreement, nor changed his position thereby, if it had not been for the influence of such fraud, deceit, artifice, or trickery so practiced upon him.

156 So. at 897; see Smith, 38 U.S. (13 Pet.) at 36 (“In 1 Maddock's Chancery, 208, it is thus stated. If, indeed, a man, upon a treaty for any contract, make a false representation, whether knowingly or not, by means of which he puts the party bargaining under a mistake upon the terms of bargain, it is a fraud, and relievable in equity.”); see also Webb v. Kirkland, 899 So.2d 344, 346-47 (Fla. 2d DCA 2005) (holding that rescission of a warranty deed procured by fraud is appropriate); Bass v. Farish, 616 So.2d 1146, 1147 (Fla. 4th DCA 1993). The courts also have established that in order to grant rescission of an instrument, the other party must be restored to the position it occupied prior to its execution. See Webb; Bass; Lang v. Horne, 156 Fla. 605, 23 So.2d 848, 853 (1945).

Townsend claims that the third deed was obtained by fraud and should be rescinded. The elements that must be established to prove a claim of fraud are: “(1) a false statement concerning a material fact; (2) the representor's knowledge that the representation is false; (3) an intention that the representation induce another to act on it; and, (4) consequent injury by the party acting in reliance on the representation.” Johnson v. Davis, 480 So.2d 625, 627 (Fla.1985); see also Webb, 899 So.2d at 346; Taylor Woodrow Homes Fla., Inc. v. 4/46-A Corp., 850 So.2d 536, 542 (Fla. 5th DCA 2003); Lopez-Infante v. Union Cent. Life Ins. Co., 809 So.2d 13, 15 (Fla. 3d DCA 2002).

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Bessard v. Bessard, --- So.3d ----, 2010 WL 1875627 (Fla. 3d DCA May 12, 2010)

Durable powers of attorney (POAs) are an integral part of modern estate planning. The prevalence of POAs means they come up with some frequency in estate-related litigation [click here]. That's what happened in the linked-to case. What's interesting about this case is it's focus on F.S. 709.08(11), a little-known subclause of Florida's durable POA statute entitling the prevailing party in POA litigation to attorney's fees and costs. Here's what the statute says:

(11) DAMAGES AND COSTS.-- In any judicial action under this section, including, but not limited to, the unreasonable refusal of a third party to allow an attorney in fact to act pursuant to the power, and challenges to the proper exercise of authority by the attorney in fact, the prevailing party is entitled to damages and costs, including reasonable attorney's fees.

In this case a father signed a durable POA granting his son ("Joseph") authority over his property while he underwent treatment for leukemia, tuberculosis "and other medical infirmities." The POA was challenged in court by Joseph's mother and two sisters. Before the court could rule on the merits of the case, Joseph's father died. At that point Joseph sought to have the case dismissed as moot. Joseph also filed a "renunciation" of his powers under the POA.

The trial court granted Joseph's motion to dismiss, but also granted a motion for attorney's fees and costs filed by his mother and sisters as the prevailing parties. On appeal the 3d DCA affirmed the trial court's attorney's fee order as follows:

As to the attorney's fees and costs awarded to the appellees as the prevailing parties, we also affirm. Section 709.08(11), Florida Statutes (2007), provides that the prevailing party in power of attorney litigation is entitled to attorney's fees and costs. The determination of the prevailing party for the purpose of awarding attorney's fees and costs is based on whether the party seeking fees succeeded on any significant issue(s) in the litigation. See Moritz v. Hoyt Enters., Inc., 604 So.2d 807, 810 (Fla.1992) (holding “that the party prevailing on the significant issues in the litigation is the party that should be considered the prevailing party for attorney's fees”); Boxer Max Corp. v. Cane A. Sucre, Inc., 905 So.2d 916, 918 (Fla. 3d DCA 2005) (“The ‘prevailing party,’ for purposes of attorney's fees, is a party which the trial court determines prevailed on significant issues in the litigation.”).

Joseph contends that because the trial court never determined whether the signature on the power of attorney was executed by Mr. Bessard, and if executed whether it was done so knowingly and voluntarily, the trial court erred in granting the appellees attorney's fees and costs as the prevailing parties. We disagree. The appellees sought to have the power of attorney declared void, contending that the document was a fraud. When Joseph renunciated the powers granted to him under the power of attorney, agreed that the document be declared null and void, and destroyed the original and all copies, his actions necessarily mooted the complaint and was the functional equivalent of a judgment or verdict in favor of the appellees. See Augustin v. Health Options of S. Fla., Inc., 580 So.2d 314, 315 (Fla. 3d DCA 1991) (finding that when the defendant changed its position in the matter and made full payment as prayed for in the plaintiff's complaint, it necessarily mooted the complaint and was the functional equivalent of a judgment or verdict in favor of the plaintiff entitling the plaintiff to an award of attorney's fees as the prevailing party); see also Smith v. Adler, 596 So.2d 696, 697 (Fla. 4th DCA 1992) (holding that “it is [the] results, not [the] procedure, which govern the determination” of which party prevailed for purposes of awarding attorney's fees).

Lesson learned?

Litigation can be very expensive. Any time your client has a shot at getting the losing side to pay his or her attorney's fees, it's a BIG deal. Just as importantly, the downside risk of F.S. 709.08(11) needs to be understood by all at the outset. This disclosure should be prominent in your retainer agreements.

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Timmons v. Ingraham, --- So.3d ----, 2010 WL 2217637 (Fla. 5th DCA Jun 04, 2010)

As reported here by the WSJ, "When it comes to blended families, estate planning can be a special kind of hell." A corollary to that observation: blended families are always at risk for probate litigation. Yes, I said always! This case is an example of the type of probate litigation blended families can find themselves in and why these cases need to be treated like ticking time bombs both at the estate-planning phase and in the probate context.

Blended Family Red Flag: Stepmother as Beneficiary of Dad's Marital Trust = Estate Planning Trouble:

In 1999 "Frank Sr." died married to "Myrtle". Frank Sr. had two adopted children from a prior marriage, and Myrtle had four children of her own, whom Frank Sr. had never adopted. Frank Sr's will provided that at his death all assets would go in trust for Myrtle for life, and at her death everything would go to the couple's six children in equal shares. Frank Sr's will also gave Myrtle a "power of appointment" that could be exercised only in favor of his "descendants." Simple plan; the sort of thing traditional families put in place every day and no one ever contests. But this was a blended family, which means things are never simple.

Fast forward to 2007: Stepmother Myrtle is now attempting to use her power of appointment to disinherit her stepchildren (Frank Sr's two adopted children) in favor of her own four children. Think about these facts: we're not talking about Myrtle's personal assets here, this case is about Myrtle's attempt to give 100% of her former husband's estate to her children and 0% to Frank Sr's children. Yeah, not exactly a pretty picture.

Legal Definition: Stepchildren ≠ Descendants

The technical issue at play in this case was whether the term "descendants" should be interpreted or "construed" to include Frank Jr's stepchildren, thus allowing Myrtle to disinherit Frank Sr's children. Myrtle won at the trial court level, but lost on appeal. Here's how the 5th DCA explained its ruling:

In determining the intent of the settlor, a technical term used in a trust instrument should be accorded its legal definition, unless obviously used by the settlor in a different sense. Knauer v. Barnett, 360 So.2d 399, 406 (Fla.1978). “Lineal descendant” or “descendant” is defined to mean “a person in any generational level down the applicable individual's descending line.” It includes children, grandchildren, or more remote descendants but excludes collateral heirs. § 731.201(9), Fla. Stat. (2007). Adopted children come within the definition of lineal descendants. Lewis v. Green, 389 So.2d 235, 241 (Fla. 5th DCA 1980).

The co-trustees acknowledge that step-children do not ordinarily fall within the definition of “lineal descendants,” but contend that by expressly expanding the definition of “children” to include his step-children for purposes of his will, Frank Sr. similarly intended to expand the definition of “lineal descendants” to include his step-children and their descendants.” We reject this argument.

While Frank Sr.'s will expressly provided for a different definition of the term “children” than its common or legal definition, no similar attempt was made to modify the common or legal definition of the term “lineal descendants.” The lack of an attempt to redefine “lineal descendant” reflects an intent to have the term interpreted in accordance with its legal definition. Furthermore, Frank Sr. used the term “lineal descendants” on only two other occasions in his will. In one paragraph, Frank Sr. bequested his personal property, in the event Myrtle predeceased him, “to my children who survive me, or if none of my children survive me, then to their lineal descendants, per stirpes.” In a different paragraph, Frank Sr. bequested certain shares of stock “to my son Frank Timmons, Jr., or his lineal descendants per stirpes.” Thus, in both of these instances, the term “lineal descendants” was used in a manner consistent with its legal definition. Finally, there is no language elsewhere in the will reflecting an intent on the part of Frank Sr. to grant Myrtle the power to disinherit his children in favor of her own children.

As previously observed, a technical term used in a trust instrument should be accorded its legal definition unless obviously used by the settlor in a different sense. Knauer. Here, we believe that Frank Sr.'s testamentary document did not reflect an intent (and certainly not an “obvious” one) to expand the definition of lineal descendants to include step-children. Therefore, Myrtle's purported exercise of the limited power of appointment in favor of her natural children was invalid.

Lessons learned?

There's an obvious practice pointer here for estate planners: terms such as "children" and "descendants" are so crucial, they need to be defined in every will or trust. And if you're working with a blended family, it's imperative that you do so. Below is the standard form of "family" definitional clause used at my firm. This is the very first clause of every will and trust we draft.

I am married to MARY DOE, who is referred to as "my wife" in this Will. My wife and I are both citizens of the United States. My wife has been previously married and has two children from that marriage, CHILD 1 and CHILD 2, whom I have not adopted. References to "my wife's children" mean only her children named above. I have been previously married and have two children from that marriage, ADULT CHILD #1 and ADULT CHILD #2. References to "my children" mean only my children named above, as well as any other children of mine born or adopted after the execution of this Will; references to "my descendants" mean my children and their descendants.

If Frank Sr's will had had this kind of clause, tailored to reflect his exact wishes, this litigation could have probably been avoided.

Will and trust construction disputes are one of the most common forms of estate litigation, and - not surprisingly - a recurring theme on this blog. If you unpack the 5th DCA's opinion, you get a good example of how to argue a will-construction case. It's a convincing mix of law and logic, and certainly worth holding on to for the next time you find yourself litigating a similar case.

[1] 5th DCA: When in doubt, technical terms must be used in accordance with their legal definitions.

In this case, Frank Sr's will did NOT redefine the word "descendants". Ergo: you have to apply the statutory definition (which includes adoptees, but excludes step-children).

[2] 5th DCA: When in doubt, terms should be used consistently within the same document.

In this case the word "descendants" was used 3 times in Frank Sr's will. Once in the clause being litigated, then an additional 2 times in unrelated clauses. In the 2 uncontested clauses, the word descendants was used in accordance with its legal definition. Ergo: the legal definition of descendants should also apply to the contested clause as well.

[3] 5th DCA: Documents should be read in their entirety. When in doubt, terms should be used in a way that conforms with the rest of the estate plan.

In this case the 5th DCA noted: "[T]here is no language elsewhere in the will reflecting an intent on the part of Frank Sr. to grant Myrtle the power to disinherit his children in favor of her own children." Ergo: the word descendants should NOT be construed in a way that disinherits Frank Sr's children.

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Olmstead v. F.T.C., --- So.3d ----, 2010 WL 2518106 (Fla. Jun 24, 2010)

Limited liability companies or "LLCs" have long been touted as the ultimate entity for investors and business owners alike: combining the best asset protection qualities and tax benefits of corporations and partnerships into a single hybrid entity. One of the big asset-protection selling points for LLCs is that they're entitled to the same "charging order" creditor protection partnerships are entitled to.

This Florida Supreme Court case involved a $10 million judgment obtained by the FTC against the debtors for having "operated an advance-fee credit card scam." Assets of these debtors were frozen and placed in receivership. Among the assets placed in receivership were several single-member LLCs. To partially satisfy its judgment the FTC obtained an order compelling the debtors to endorse and surrender to the receiver 100% of their right, title, and interest in their LLCs.

The debtors cried foul, arguing that the most the FTC was entitled to under Florida's LLC Act was a charging order against their single-member LLCs. The case was appealed to the Eleventh Circuit, which in turn asked the Florida Supreme Court to rule on the charging-order issue. In what is sure to be a controversial opinion, the Florida Supreme Court ruled charging-order protection does NOT apply to single-member LLCs. Here's a key excerpt explaining the court's thinking:

Since the charging order remedy clearly does not authorize the transfer to a judgment creditor of all an LLC member's “right, title and interest” in an LLC, while section 56.061 clearly does authorize such a transfer, the answer to the question at issue in this case turns on whether the charging order provision in section 608.433(4) always displaces the remedy available under section 56.061. Specifically, we must decide whether section 608.433(4) establishes the exclusive judgment creditor's remedy-and thus displaces section 56.061-with respect to a judgment debtor's ownership interest in a single-member LLC.

As a preliminary matter, we recognize the uncontested point that the sole member in a single-member LLC may freely transfer the owner's entire interest in the LLC. This is accomplished through a simple assignment of the sole member's membership interest to the transferee. Since such an interest is freely and fully alienable by its owner, section 56.061 authorizes a judgment creditor with a judgment for an amount equaling or exceeding the value of the membership interest to levy on that interest and to obtain full title to it, including all the rights of membership-that is, unless the operation of section 56.061 has been limited by section 608.433(4).

Section 608.433 deals with the right of assignees or transferees to become members of an LLC. Section 608.433(1) states the basic rule that absent a contrary provision in the articles or operating agreement, “an assignee of a limited liability company interest may become a member only if all members other than the member assigning the interest consent.” See also § 608.432(1)(a), Fla. Stat (2008). The provision in section 608.433(4) with respect to charging orders must be understood in the context of this basic rule.

The limitation on assignee rights in section 608.433(1) has no application to the transfer of rights in a single-member LLC. In such an entity, the set of “all members other than the member assigning the interest” is empty. Accordingly, an assignee of the membership interest of the sole member in a single-member LLC becomes a member-and takes the full right, title, and interest of the transferor-without the consent of anyone other than the transferor.

Section 608.433(4) recognizes the application of the rule regarding assignee rights stated in section 608.433(1) in the context of creditor rights. It provides a special means-i.e., a charging order-for a creditor to seek satisfaction when a debtor's membership interest is not freely transferable but is subject to the right of other LLC members to object to a transferee becoming a member and exercising the management rights attendant to membership status. See § 608.432(1), Fla. Stat. (2008) (setting forth general rule that an assignee “shall have no right to participate in the management of the business affairs of [an LLC]”).

Section 608.433(4)'s provision that a “judgment creditor has only the rights of an assignee of [an LLC] interest” simply acknowledges that a judgment creditor cannot defeat the rights of nondebtor members of an LLC to withhold consent to the transfer of management rights. The provision does not, however, support an interpretation which gives a judgment creditor of the sole owner of an LLC less extensive rights than the rights that are freely assignable by the judgment debtor. See In re Albright, 291 B.R. 538, 540 (D.Colo.2003) (rejecting argument that bankruptcy trustee was only entitled to a charging order with respect to debtor's ownership interest in single-member LLC and holding that “[b]ecause there are no other members in the LLC, the entire membership interest passed to the bankruptcy estate”); In re Modanlo, 412 B.R. 715, 727-31 (D.Md.2006) (following reasoning of Albright).

Our understanding of section 608.433(4) flows from the language of the subsection which limits the rights of a judgment creditor to the rights of an assignee but which does not expressly establish the charging order remedy as an exclusive remedy. The relevant question is not whether the purpose of the charging order provision-i.e., to authorize a special remedy designed to reach no further than the rights of the nondebtor members of the LLC will permit-provides a basis for implying an exception from the operation of that provision for single-member LLCs. Instead, the question is whether it is justified to infer that the LLC charging order mechanism is an exclusive remedy.

On its face, the charging order provision establishes a nonexclusive remedial mechanism. There is no express provision in the statutory text providing that the charging order remedy is the only remedy that can be utilized with respect to a judgment debtor's membership interest in an LLC. The operative language of section 608.433(4)-”the court may charge the [LLC] membership interest of the member with payment of the unsatisfied amount of the judgment with interest”-does not in any way suggest that the charging order is an exclusive remedy.

Did the Florida Supreme Court get this one right?

According to the dissent's lengthy opinion, they didn't. The dissent focused on a strict construction of Florida's LLC Act. However, if you step back and think about why partnerships are entitled to charging order protection in the first place, you have to admit the rationale doesn't seem to apply to single-member LLCs. Although this policy argument isn't explicitly stated in the Florida Supreme Court's majority opinion, I think it goes a long way towards explaining why they ruled the way they did.

For those of you interested in understanding the charging-order policy issue I think is lurking in the background of the Florida Supreme Court's ruling, STARTrightLLC.com is an excellent starting point. Below is an excerpt from that website explaining why charging-order protection makes sense in a multi-member LLC scenario, and why it doesn't make sense for single-member LLCs.

The charging order protects the company and the member’s investment if one of the members is sued in his or her personal life. . . . The original charging order philosophy protected guys A, B from having to accept D as an unwanted partner if C, the person they originally went into business with gets sued. They don’t want to have to deal with D. To prevent this unwanted member . . . the charging order is all D can get out of C’s membership . . . The charging order limits D. He must wait for A and B to decide to distribute money. No distributions = no money.

The Single Member Hitch: When a the member of a single member LLC is sued, there is no other member to protect from D. Two bankruptcy courts have used this flaw in the LLC protection to allow creditors of a business owner to completely take over his LLC and liquidate it for cash. The first case was in Colorado and the nation held its breath to see what would happen next. The next case was in Idaho and actually used the Colorado case to base its decision on. This means the trend is starting to move in the direction of denying charging order protection to single member LLCs.

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