Schilling v. Herrera, — So.2d —-, 2007 WL 981627 (Fla. 3d DCA Apr 04, 2007)

Anna Nicole Smith’s U.S. Supreme Court case revolved around whether federal courts have jurisdiction to adjudicate state-law tortious interference claims.  Since she won (see here) the expectation has been that more tortious interference claims would be litigated in federal court (see here).  With this background in mind, this 3d DCA opinion is especially timely because it explains when probate proceedings will effectively bar such claims in Florida.

In DeWitt v. Duce, 408 So.2d 216 (Fla.1981), the Florida Supreme Court articulated the governing rule in Florida as follows: a claim for intentional interference with an expectancy of inheritance is barred by F.S. 733.103(2) if the plaintiff had an adequate remedy in probate with a fair opportunity to pursue it.  By implication, when the plaintiff did NOT have a fair opportunity to pursue his or her claim in probate, the claim is NOT precluded by the rule in DeWitt.

In the linked-to opinion the 3d DCA held that the plaintiff’s tortious interference claim was not precluded by DeWitt because the plaintiff was essentially prevented from pursuing his claims in probate.  In other words, the claim was not barred because there were two frauds committed in the case.  The first against the decedent, the second against the plaintiff.  Here’s how the 3d DCA articulated its reasoning:

We find that DeWitt is factually distinguishable, and therefore inapplicable. A review of the amended complaint reflects that Mr. Schilling has alleged two separate frauds. The first alleged fraud stems from Ms. Herrera’s undue influence over the deceased in procuring the will, whereas the second alleged fraud stems from Ms. Herrera’s actions in preventing Mr. Schilling from contesting the will in probate court. We acknowledge that pursuant to DeWitt, if only the first type of fraud was involved, Mr. Schilling’s collateral attack of the will would be barred. However, language contained in DeWitt clearly indicates that a subsequent action for intentional interference with an expectancy of inheritance may be permitted where “the circumstances surrounding the tortious conduct effectively preclude adequate relief in the probate court.” Id. at 219.

 Good lawyering pays off

When the client walks through the door, tells you the probate proceeding is complete, but asks what can you do for him, not many attorneys would have a good answer.  In this case, Fort Lauderdale probate litigator Brandan J. Pratt figured out a winning strategy and successfully pursued it through to appeal.  Very solid lawyering indeed.

Listen to this post

I’ve written recently about probate courts being reversed for failing to appoint the personal representative named in a decedent’s will (see here and here).  This opinion picks up on the themes outlined in those cases . . . but in the intestate context.

Case Study

Garcia v. Morrow, — So.2d —-, 2007 WL 983053 (Fla. 3d DCA Apr 04, 2007)

In this case the probate judge was reversed for refusing to appoint the statutorily preferred person as personal representative in the absence of evidence that he lacked “the necessary qualities and characteristics” to assume the position as personal representative.

The key word here is evidence.  In other words, it’s reversible error for a trial court to refuse to appoint as personal representative the person with preference under F.S. 733.301 in the absence of specific findings of fact – developed in the context of a formal evidentiary hearing – that the statutorily preferred person lacks the necessary qualities and characteristics to assume the position as personal representative.  Quoting the 5th DCA in DeVaughn v. DeVaughn, 840 So.2d 1128, 1132 (Fla. 5th DCA 2003), here’s how the 3d DCA articulated the rule:

[W]e know that the probate court has the inherent authority to consider a person’s character, ability, and experience to serve as personal representative. See Padgett v. Estate of Gilbert, 676 So.2d 440, 443 (Fla. 1st DCA 1996). However, if the statutorily preferred person is not appointed, the record must show that the person is not fit to be appointed. If the record supports the conclusion that the statutorily preferred person “lacks the necessary qualities and characteristics,” the court has discretion to refuse to make the appointment. Id.

Estate of Hester v. U.S., — F.Supp.2d —-, 2007 WL 703170 (W.D. Va. Mar 02, 2007)

The estate tax automatically makes the IRS the biggest creditor of most large estates.  Understanding this dynamic can translate into millions in savings for a client . . . or a colossal missed opportunity.

In the linked-to case the estate attempted to claim a $2.8 million estate tax refund based on the theory that the decedent had misappropriated millions in trust funds and thus the remainder beneficiaries of the subject trust would have claims against the estate that would result in corresponding estate tax deductions.  The estate’s theory collapsed in on itself because it didn’t claim the $2.8 million estate tax refund until after the statue of limitations period had run on possible claims against the decedent’s estate for misappropriating trust funds.  Here’s how the court articulated this point:

Allowing a deduction here, where a taxpayer is attempting to secure a refund for a theoretical liability that will never be paid and that is now barred by the statute of limitations, would essentially “exalt form over substance.” Estate of Hagmann, 60 T.C. at 468. Therefore, because the estate has neither an actual or expected claimant, or a cognizable claim, the misappropriated assets are not deductible under § 2053(a)(3).

Lesson Learned: Probate administration and estate tax reporting need to go hand-in-hand

In the linked-to case the estate failed to coordinate the probate proceeding with its anticipated estate tax positions.  The outcome would have likely been very different if – prior to expiration of the applicable statute of limitations – the estate had simply conceded a liability to the trust beneficiaries in the context of the probate proceedings – utilizing whatever mechanism is available under Virginia  law for doing so (in Florida, F.S. 733.703(2) authorizes a Personal Representative to file a proof of claim for all claims he or she has paid or intends to pay).

Failing to anticipate the estate-tax ramifications of actions taken – or not taken – in the probate proceeding likely cost this estate $2.8 million in avoidable estate taxes.

The will contest reported on in Surrogate Rejects Will Leaving $5 Million to Former Lawyer is interesting because it highlights the distinction between an ethics violation and a breach of law.  The former can give rise to sanctions against attorneys, the latter is the basis for seeking recourse in a court of law.  Sometimes the same conduct can be the basis for ethics sanctions and legal recourse, but not always.

In the linked-to news report, the focus is on lawyer misconduct that gave rise to grounds for legal recourse in the form of a probate-court order rejecting a will on the grounds of undue influence and fraud (classic grounds for rejecting a will under Florida law: F.S. §732.5165).  For the reasons I wrote about here, the same conduct would likely be grounds for ethics sanctions under Rule Reg. Fla. Bar 4-1.8(c), which prohibits an attorney from preparing an instrument giving the attorney or a person related to the attorney any “substantial gift” from a client, including a testamentary gift, unless the client is related to the proposed donee.

Here’s an excerpt from Surrogate Rejects Will Leaving $5 Million to Former Lawyer:

A New York probate court has thrown out a will that bequeathed almost $5 million to the lawyer who drafted it on behalf of her deceased "paramour."

Michele Okin, a disbarred estate lawyer, was named the chief beneficiary in the January 2004 will of Pasquale Coviello, a local real estate developer who died in May 2004. Okin, 46, had been the estate lawyer for Coviello and his wife before she began an affair with Coviello in December 2002.

In a decision issued Tuesday, Orange County, N.Y., Surrogate Elaine Slobod said Okin had used this relationship to dupe Coviello, who died unexpectedly at age 62 on May 5, 2004, into executing a new will on Jan. 13, 2004. The surrogate ordered the bequests to Okin to be expunged "lest she be permitted to profit by her fraud and undue influence, or take advantage of her own wrong."

Writing here back in November of 2006 I predicted that permanent reform of the estate tax was a very real possibility, and that such reform would likely mean a freeze on the estate tax at 2009 levels: $3.5 million exemption at a top rate of 45 percent.

As recently reported here by the North Carolina Estate Planning Blog, the U.S. Senate just approved an amendment to the Budget Resolution that would extend the 2009 estate tax rate (45%) and exemption ($3.5 million) through 2012.  Under current law the estate tax would be "repealed" in 2010, but would return in 2011 with an exemption of only $1 million.

This latest Senate vote may not be a permanent fix, but if passed into law, it will get us passed 2010.   In the same blog post cited above the North Carolina Estate Planning Blog also published an excellent analysis of the current state of affairs on the estate-tax front prepared by Marshall Jones of West Palm Beach, Florida.  Well worth reading.

Trenchard v. Gray, — So.2d —-, 2007 WL 837294 (Fla. 2d DCA Mar 21, 2007)

In Dempsey v. Dempsey (a 2005 opinion I wrote about here) the 2d DCA ruled on when elective share orders are subject to appeal.  Under Florida Probate Rule 5.360, determining the elective share is a two-step process:

  • First, the trial court must rule on the issue of entitlement (Rule 5.360(c)).
  • Second, if the trial court finds entitlement, then it must determine the amount of the elective share, the assets to be distributed to satisfy the elective share, and, if contribution is necessary, the amount of contribution for which each recipient is liable (Rule 5.360(d)). 

Step one is a non-final, non-appealable order.  Step two is an appealable order.

Based on the same rationale, the 2d DCA dismissed an appeal of a step-one elective share order in the linked-to opinion.  The following excerpt from Judge Silberman’s concurring opinion does a good job of explaining – again – the 2d DCA’s approach to elective-share-order appeals:

Appellant Vicki Trenchard raises an issue regarding whether certain real property to which she claims ownership is subject to Appellee Marcia Gray’s claim to an elective share. Ms. Trenchard and William Gray, the decedent, owned the property as joint tenants with the right of survivorship. The trial court’s order finds that the decedent’s interest in the real property is subject to the elective estate. The order is consistent with the statutory requirement that the value of the decedent’s interest in the property must be taken into account to determine the elective estate. See § 732.2035, Fla. Stat. (2005).

The trial court has not determined any questions as to ownership of the property or whether the property itself may be used to satisfy the elective share claim. The court also has not resolved questions as to the amount of the elective share, the identification of assets that will be used to satisfy the elective share, the amount of the unsatisfied balance of the elective share, or the apportionment of the unsatisfied balance among the direct recipients of the remaining elective estate. See §§ 732.2075, 732.2085. Thus, I concur in the decision to dismiss this appeal because the trial court’s order is nonfinal and nonappealable. See Dempsey, 899 So.2d 1272.

In re Estate of Coukos, 947 So.2d 1290, 32 Fla. L. Weekly D433 (Fla. 2d DCA Feb 09, 2007)

Sometimes the best defense is a good offense.  In the linked-to case, counsel for the personal representative deftly defended against a lawsuit by disinherited heirs by attacking their standing to bring the suit, vs. allowing his client to get dragged into a full-blown will contest.

Based on the following rationale, the 2d DCA held that the grandchildren and great-grandchildren of the testator lacked standing to petition to revoke his will, in which they were not beneficiaries, given that previous and presumptively valid wills were discovered that, similar to the current will, did not include the petitioners as beneficiaries of the estate. This is a one paragraph opinion, and although unstated, the key concept here is Florida’s “dependent relative revocation.”

Appellants, the grandchildren and great-grandchildren of Harry L. Coukos, challenge the trial court’s dismissal with prejudice of their petition for revocation of probate, in which they challenged Mr. Coukos’ 2004 will. Because Appellants lacked standing to challenge the will, we affirm. See Wehrheim v. Golden Pond Assisted Living Facility, 905 So.2d 1002, 1006 (Fla. 5th DCA 2005) (“[A] petitioner may not be an interested person in revocation and removal proceedings if previous and presumptively valid wills have been discovered that, similar to the current will, do not include the petitioner as a beneficiary of the estate.”). However, we do so without prejudice to any right Appellants may have to challenge the trust agreement.

When reading the linked-to story keep two Florida-law points in mind.

  • As I wrote about here, in Florida, adults can be adopted, and for the purpose of intestate succession by or from an adopted person, the adopted person is considered a lineal descendant of the adopting parent and is one of the natural kindred of all members of the adopting parent’s family. 63.042, 732.108.
  • I wrote here about a 2005 decision where the 4th DCA held that under Florida law the presumption is that a testator intendedd the term “heirs at law” to be construed under the statutes in existence at the time the Will was executed.

With these points in mind, now consider the following excerpts from Woman’s Search for Her Birth Mother Leads to Share of Jell-O Fortune:

‘ADOPTED OUT’ DAUGHTER

After the trustee told McNabb that she would not be entitled to a share, McNabb hired an attorney to represent her at the Surrogate Court’s settlement of the trusts.

She chose a lawyer randomly from the Genesee County Web site and called his office, hoping to find someone familiar with the Woodward family. Coincidentally, the first attorney she called, Paul S. Boylan, knew the family well.

"Not only do I know about the Woodwards," Boylan told McNabb, "but my father was your grandfather’s attorney."

In December 2005, Monroe County Surrogate Judge Edmund A. Cavalruso ruled that as an "adopted-out" daughter McNabb did not constitute a "descendant" or "child" of Piel and therefore was not a member of the trusts’ class of intended remaindermen or beneficiaries.

On Friday, the 4th Department reversed, effectively awarding McNabb a one-third share of the multimillion-dollar trusts.

The case turned on the dates the trusts were established.

The underlying Surrogate Court decision had relied on a 1985 decision, Matter of Best, 66 NY2d 151, which in turn rested on amendments to the Domestic Relations Law that became effective in 1964 and 1966. Under the amended law, adopted children could no longer inherit "from and through" both their biological and adoptive parents.

But the 4th Department disagreed, holding that Best did not apply as it and the amendments were not in effect when the trusts were established.

By the narrowest of margins — the second trust was executed in 1963, the year the first amendment was passed by the Legislature, but one year before its effective date — the original Domestic Relations Law controlled, the panel determined.

And under the original DRL §117 (as well as Decedent Estate Law §89), McNabb is her mother’s daughter, the panel concluded.

DEL §89 "recognized the status of a nonmarital child as the descendant of his or her mother, albeit through the provision that such child shall inherit only in the event that no ‘lawful issue’ existed," the panel ruled. "In addition, Domestic Relations Law former §117 specifically provided that adopted-out children may inherit from and through their biological as well as their adoptive parents."

In re Gosman, 2007 WL 707365 (Bankr.S.D.Fla. Mar 05, 2007)

One of the few cracks in the almost impenetrable fortress protecting Florida homestead property from creditors is the amorphous “equitable lien” doctrine.

There isn’t a lot of case law out there on equitable liens against Florida homestead, so this bankruptcy court order should be of interest to anyone whose practice involves homestead issues.

In this case the bankruptcy court said NO to a creditor seeking to impose an equitable lien on $22.5 million in net sales proceeds generated by the sale of former health care executive Abe Gosman’s Palm Beach mansion.  The court articulated the following two-part test for determining “the very narrow circumstances warranting the imposition of an equitable lien” on homestead property under Florida law:

  1. that the money was obtained fraudulently or through egregious conduct, and
  2. that the money obtained was utilized to invest in, purchase or improve the homestead. The Court finds that neither of the two prongs has been satisfied.

Here’s how the bankruptcy court summarized Florida’s equitable lien case law:

The Florida homestead exemption is construed liberally and the three exceptions to the Florida homestead exemption are construed narrowly and strictly. Havoco of America. Ltd. v. Hill, 790 So.2d 1018 (Fla.2001). A limited legal basis has been established for imposing an equitable lien on homestead. The first case from the Florida Supreme Court to impose an equitable lien determined that the imposition of a lien was proper due to the embezzlement of funds by an employee who, in turn, used the funds to make improvements to the home. Jones v. Carpenter, 106 So. 127 (Fla.1925). The Court in Jones elaborated that if the money had been obtained through a valid contract and then utilized to make home improvements, the imposition of an equitable lien would not be appropriate. Id. In Palm Beach Savings & Loan Association, F .S.A v. Fishbein, 619 So.2d 267 (Fla.1993), the Florida Supreme Court allowed an equitable lien against homestead property wherein monies were obtained fraudulently by use of a forged mortgage instrument and then utilized to satisfy a valid mortgage. In Chauncey v. Dzikowski, 454 F.3d 1292 (11 Cir.2006), the Eleventh Circuit Court of Appeals referenced the standard for imposing an equitable lien by stating that it may be necessary to reach beyond the literal language of the Florida homestead exemption to invoke an equitable lien against homestead property when funds were obtained through fraud or egregious conduct and utilized to invest in, purchase, or improve the homestead. Id. at 1294.

Unfortunately, the Florida trial judges involved in the Anna Nicole Smith proceedings in this state have not fared well under the glare of national media attention.  First Judge Seidlin was the focus of considerable criticism (see here), now it’s Judge Lawrence Korda’s turn under the microscope.

But for the Anna Nicole Smith case, Judge Korda’s recent run in with the law would never have hit the papers.  But, here we are.  In Judge Involved in Anna Nicole Smith Case Cited for Marijuana the Associated Press reported on the following sad news:

A judge who had a secondary role in recent Anna Nicole Smith proceedings was cited for smoking marijuana in a Hollywood, Fla., city park, police said Monday.

Lawrence Korda was smoking marijuana while sitting under a tree at Stanley Goldman Park on Sunday, police said. Three officers who were doing training there caught Korda and field-tested the joint, said Capt. Tony Rode, a police spokesman.

The judge was not arrested. He was given a misdemeanor citation to appear in court.

"Judge Korda was not given special treatment because of his status as a circuit court judge," Rode said. "He was provided with a notice to appear. That’s exactly what 99 percent of other offenders would have been given for this type of offense."