American Home Assur. Co. v. Junger, — So.2d —-, 2008 WL 1958615 (Fla. 3d DCA May 07, 2008)

It’s not unusual for probate lawyers to have to figure out what to do when a lost deed or contract needs to be reestablished for some reason. The linked-to opinion is a great resource because it tells us what burden of proof to expect. Although not directly cited by the 3d DCA, I’m assuming the plaintiff filed her claim under Florida’s general-purpose “lost instruments” statute: F.S. 71.011.

Evidence of Lost Insurance Policy:

The decedent’s spouse, Mrs. Junger, won at trial and the court entered a judgment in her favor reestablishing her late husband’s life insurance policy and awarding her $302,888 in death benefits and prejudgment interest. From a practitioner’s viewpoint it’s useful to know what evidence she used at trial to reestablish the life insurance policy. Here’s how the 3d DCA summarized the winning evidence:

Following a bench trial, the court determined that Mrs. Junger was entitled to the death benefits described in the MAC Agreement. While neither party could produce a copy of the insurance policy, Mrs. Junger introduced the MAC Agreement into evidence as well as the correspondence among her late husband, Eastern Air Lines, and AHA. These documents confirmed that AHA issued a check to Captain Junger for $50,000 in disability benefits under “policy number 9902046” for an illness incurred while he was working for the MAC Operation. Captain Junger’s cardiologist tied Captain Junger’s later death to that covered illness.

The trial court concluded that the MAC Agreement evidenced the primary terms of coverage-terms confirmed by AHA’s payment of the disability claim-and awarded Mrs. Junger the death benefits plus interest.

Standard of Proof for Lost Insurance Policies:

On appeal the key issue was what burden of proof should the trial court have applied: the “preponderance of the evidence” standard or the more stringent “clear and convincing evidence” standard. The 3d DCA agreed with the trial court’s application of the lower standard based on the following analysis:

In support of its lost instrument argument, AHA cites a number of Florida cases that hold a clear and convincing standard of proof applies when a party has the burden of proving the contents of a lost instrument. None of these cases, however, deals with a lost insurance policy. See Fries v. Griffin, 17 So. 66, 68 (Fla.1895) (lost deed); Am. Sav. & Loan Ass’n of Fla. v. Atl. Inv. Corp., 436 So.2d 442, 443 (Fla. 4th DCA 1983) (lost lease agreement); Weinsier v. Soffer, 358 So.2d 61 (Fla. 3d DCA 1978) (lost loan agreement); Locke v. Pyle, 349 So.2d 813 (Fla. 1st DCA 1977) (lost deed).FN3 AHA submits that no Florida case applies this standard of proof to a lost insurance policy, and we have found none.

We find the lost instruments in the cases cited by AHA warrant a heightened evidentiary standard because deeds, wills, oral contracts and the like are susceptible to fraud. See 9 John Henry Wigmore, Wigmore on Evidence § 2498(3) (James H. Chadbourn rev.1981). Insurance policies identified by number and known to have been issued by the insurer, on the other hand, are not as vulnerable to fraud as these other instruments. This is so because “[t]he evidence used to establish the existence and contents of [insurance] policies is usually comprised of business records and standard forms made by and found in the possession of the party against whom they are being offered.” Remington Arms Co. v. Liberty Mut. Ins. Co., 810 F.Supp. 1420, 1425-26 (D.Del.1992).

Similarly, the Law Revision Council Note to section 90.803(6), Florida Statutes (1976), provides that the reliability of business records justifies an exception to the hearsay rule.FN4 This exception underscores the likelihood that an insurance policy, presumably in the records of the insurer which issued it, is not vulnerable to fraudulent assertions by an insured seeking to prove the policy’s contents and coverage.FN5 Accordingly, we find that an insured seeking to prove coverage under a lost insurance policy (a policy identifiable and shown to have been issued or acknowledged by the insurer) need only do so by the usual and less-stringent preponderance of the evidence standard.

Lesson learned?

If you’re trying to reestablish a lost or destroyed document that could result in someone else having to pay your client money, expect resistance. This opinion let’s you plan accordingly. If the goal is to reestablish a lost insurance policy, at least in the 3d DCA you now know you’ll be subject to the less-stringent preponderance of the evidence standard. By contrast, if the goal is to reestablish a lost or destroyed deed, lease agreement or loan agreement you’ll have to be ready to satisfy the much tougher clear and convincing evidence standard.

John W. Porter and Stephanie Loomis-Price of Baker Botts LLP in Texas and Charles E. Hodges II of Chamberlain, Hrdlicka, White, Williams & Martin in Georgia published a useful article entitled: Anticipating the Audit Call: Thinking About Controversy at the Planning Stage, Prob. & Prop., Jan./Feb. 2008, at 20.

The article does a good job of explaining why every email, letter, memo and draft document you prepare as an estate planner should be written under the assumption that one day the IRS (or opposing counsel in a will contest) will read the document and construe it in worst light possible for your client.  The following excerpt sums up this point:

 [T]he production of carefully drafted estate planning correspondence or similar documents in response to . . . an IRS request can actually help the taxpayer state his or her case with the examiner or in litigation. With that goal in mind, while a planner works on a client’s estate plan, he or she must assume that every document prepared by the estate planning lawyer, the client, the accountant, or any other person involved in the estate planning process may be reviewed by an IRS agent, appeals officer, IRS counsel, or the finder of fact in tax litigation (perhaps a judge or even a jury). Of course, certain documents may be withheld from production based on one or more applicable privileges. Thus, every estate planner should have a solid understanding of the relevant privileges.

The authors then go on to provide a solid summary of the evidentiary privileges most likely to come up in an estate tax audit or any other type of estate litigation. This article is worth holding on to. The following excerpts sum up the evidentiary-privileges aspect of the article:

Understand and Preserve All Privileges

All planners should have a general understanding of five types of privileges when representing their clients: (1) the attorney-client privilege, (2) the attorney work-product doctrine, (3) privileges extending to third parties who assist attorneys in rendering legal advice to their clients, (4) the tax practitioner’s privilege, and (5) the doctor-patient privilege.   .     .

Work-Product Doctrine

The work product of an attorney or his or her staff in anticipation of litigation is protected from disclosure. In fact, the attorney work-product doctrine is not a privilege, although some courts (and many practitioners) refer to it as one. The purpose of the work-product doctrine is to encourage lawyers to thoroughly prepare for litigation (whether pending or not) through investigation of the good and the bad, without fear of being forced to disclose their thoughts and analysis.

Listen to this post

Jointly titled bank accounts are often the source of much confusion … and litigation … once one of the title holders dies. A classic example of this type of litigation is when an elderly parent puts a child’s name on an account for convenience purposes and then that child does something unexpected … like looting the account.

Case study: Julia v. Russo, — So.2d —-, 2008 WL 1883905 (Fla. 4th DCA Apr 30, 2008):

In the linked-to case the facts are a bit more dramatic than usual. In this case boyfriend put his girlfriend’s name on an investment account and a bank account as “joint tenants with right of survivorship.” The accounts were funded 100% by boyfriend. Girlfriend shot and killed boyfriend. Boyfriend’s estate makes the following two-step argument against girlfriend getting any of the assets in these accounts.

Step 1: Slayer Statute = Joint Tenant’s Survivorship Rights Extinguished

Boyfriend’s estate argued that girlfriends rights of survivorship were extinguished under Florida’s Slayer Statute, F.S. 732.802(2). Here’s how the 4th DCA stated the argument:

If the Slayer Statute is applied, appellant’s right of survivorship is extinguished and the accounts became tenancies in common at the time the decedent died. See Capoccia v. Capoccia, 505 So.2d 624 (Fla. 3d DCA 1987).

Unfortunately for boyfriend’s estate, the trial court’s order did not contain findings necessary to sustain a slayer-statute ruling, so the 4th DCA reversed this part of the trial court’s order.

[T]he trial court erred in granting the Estate access to the account. For purposes of ruling on appellant’s motion, the Slayer Statute was assumed to apply. There has yet to be an evidentiary hearing or any fact finding determination that appellant unlawfully and intentionally killed John Russo. Should there be such a factual determination, then and only then, would these assets pass to the Estate.

Step 2: Rebut presumption that accounts held by tenants in common are owned 50/50

In order to obtain 100% of the account funds for boyfriend’s estate, not only must girlfriend’s survivorship rights be extinguished, but the presumption that tenants in common own accounts 50/50 also had to be overcome. Boyfriend’s estate won on this point.

“In absence of evidence to the contrary, co-tenants are presumed to owe [sic] equal undivided interests.” Levy v. Docktor, 185 B.R. 378, 381 (S.D.Fla.1995). “[U]pon the death of a cotenant, the deceased cotenant’s interest in the property subject to the tenancy in common passes to his or her heirs, and not to the surviving cotenant.” 12 Fla. Jur.2d Cotenancy and Partition § 4 (1998). See, e.g., Reinhardt v. Diedricks, 439 So.2d 936, 937 (Fla. 3d DCA 1983).

The “equal share presumption” applied to tenancies in common may be rebutted by proof of unequal contribution and the absence of intent to confer a gift. See Estate of Dern Family Trust, 279 Mont. 138, 928 P.2d 123, 131-32 (Mont.1996).

As found by the trial court, appellant did not contribute any of her own funds to the accounts at issue and the decedent trusted her not to steal from him. Appellant accessed the accounts only at the behest of the decedent. The trial court specifically concluded that the decedent did not intend to make a gift to appellant of any of the money in either account.

This evidence clearly rebuts the presumption of equal contribution and the trial court correctly concluded that appellant was not entitled to any portion of the two accounts assuming the application of the Slayer Statute.

Lesson learned?

The trial court was partially reversed in this case for failing to support its slayer-statute ruling on the necessary findings of intentional and unlawful killing by girlfriend. I would assume that girlfriend is at the very least the subject of a criminal investigation in connection shooting and killing boyfriend. Until that criminal investigation gets resolved in some way, I don’t see how the probate court can proceed with the civil action before it.

So why didn’t the parties simply freeze the accounts until state prosecutors finished doing their job? Criminal prosecution first, slayer-statute ruling second, is the way it’s usually done. Also, staying civil proceedings that overlap with criminal proceedings is common. Acting hastily with respect to a slayer-statute ruling may just end up getting you reversed on appeal . . . as the parties in this case learned.

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.

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.”

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.

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]

  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)

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).