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In re Peierls Family Inter Vivos Trusts

Supreme Court of Delaware

October 4, 2013

In the Matter of PEIERLS FAMILY INTER VIVOS TRUSTS.

Submitted: July 10, 2013.

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Court Below: Court of Chancery of the State of Delaware, Case No. 16812.

Upon appeal from the Court of Chancery.

Peter S. Gordon (argued), Gordon, Fournaris & Mammarella PA, Wilmington, Delaware, for appellant.

Collins J. Seitz (argued), Seitz Ross Aronstam & Moritz LLP, Wilmington, Delaware, for appellee.

Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS, and RIDGELY, Justices, constituting the Court en Banc.

STEELE, Chief Justice:

This Opinion is one of a trilogy of opinions, issued concurrently, addressing issues arising out of Petitions, filed by members of the Peierls family, requesting the Court of Chancery to accept jurisdiction over, and then modify, thirteen (13) trusts created during the period 1953 through 2005. None of these trusts were created or settled under Delaware law, and none were ever administered in Delaware. The Petitioners sought relief under recently-adopted Court of Chancery Rules 100-103, inclusive, which were designed to create an orderly procedure for entertaining petitions to modify a trust. No respondent was named in the Petitions, which the Court of Chancery denied on various grounds, including lack of jurisdiction. The Petitioners appealed to this Court, which appointed Collins J. Seitz, as amicus curiae to brief and argue in opposition to the Petitions.[1]

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This Opinion, in No. 13, 2013, addresses the issues arising out of the five (5) Peierls inter vivos trusts. Our opinions in the companion cases, Nos. 11 and 12, 2013, respectively, address the seven (7) Peierls family testamentary trusts and the charitable trust created by Ethel F. Peierls in 1994. For the reasons next discussed, we affirm the judgment of the Court of Chancery.

I. FACTUAL AND PROCEDURAL HISTORY

Appellants, Brian E. Peierls and E. Jeffrey Peierls are the current beneficiaries of five inter vivos trusts that have been classified into three groups. The Vice Chancellor described in ample detail the facts of this case, much of which we summarize below.

A. The Five Inter Vivos Trusts

On January 14, 1953, Brian and Jeffrey's grandmother, Jennie Peierls, settled two trusts. One trust instrument creates and governs each trust (collectively, the " 1953 Trust Instruments" ). Brian and Jeffrey are each currently the sole beneficiary of their respective trust in the pair.[2] Importantly, the 1953 Trust Instruments explicitly state that " all questions pertaining to [their] validity, construction, and administration shall be determined in accordance with the laws of the State of New York." [3] The Trust Instruments also grant each trustee the exclusive right to appoint a successor [4] without any geographic limitation.[5] The trustees' commissions are determined under the laws of New York in accordance with the Trust Instruments.[6] For each trust, two individuals and one corporate institution served as initial trustees in accordance with the requirement that there always be three trustees (two individuals and one institution).[7] Consistent with the description used by the Vice Chancellor, we refer to this pair of trusts as the " 1953 Trusts."

Ethel F. Peierls settled a third trust on May 24, 1957, and designated two individuals and one corporate institution as the initial trustees.[8] One trust instrument creates and governs the trust (the " 1957 Trust Instrument" ). Brian and Jeffrey are currently the sole beneficiaries of that trust. Although the 1957 Trust Instrument declares that its " validity and effect [are] determined by the laws of the State of New Jersey," [9] the trust's situs and administration have been governed by New York law ever since the Superior

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Court of New Jersey exercised jurisdiction over the trust in 2001 and appointed a New York trustee.[10] Consistent with the Vice Chancellor's opinion below, this trust will be referred to as the " 1957 Trust."

Edgar S. Peierls settled a final pair of trusts on August 14, 1975, again with two individuals and one corporate institution serving as the initial trustees. One trust instrument creates and governs both trusts (the " 1975 Trust Instrument" ). Echoing the 1953 Trusts, these trusts are also " governed by, and [their] validity, effect and interpretation determined by the laws of the State of New York." [11] These Trusts similarly reserve to the trustees the right to appoint their successors without any geographic limitation.[12] The 1975 Trust Instrument also looks to the laws of the State of New York to determine the commissions payable to the trustees. [13] Presently, Brian and Jeffrey are each the sole beneficiary of their respective trust. As did the Vice Chancellor, we refer to this pair of trusts as the " 1975 Trusts."

Jeffrey and Malcolm A. Moore serve as the individual trustees of each of the 1953 Trusts, the 1957 Trust, and the 1975 Trusts (collectively the " Trusts" ). Bank of America, N.A. serves as the corporate trustee of those Trusts, as the successor of United States Trust Company.

B. The Trust Petitions

The Petitions regarding the inter vivos Trusts all request that the Court of Chancery: (1) approve the resignation of the current trustees; (2) confirm the appointment of Northern Trust Company as the sole trustee; (3) determine that Delaware law governs the administration of each Trust; (4) confirm Delaware as the situs for each Trust; (5) reform the trusts' administrative scheme; and (6) accept jurisdiction over the Trusts. The Peierls' Petitions stem from their general frustration with Bank of America's lack of communication and responsiveness regarding the handling of Trust assets. Their decision to swap corporate trustees and retitle Trust assets in the name of Northern Trust is largely motivated by their desire to " change the situs of the trust[s] to Delaware and establish that Delaware law governs the administration of the trusts." [14] Accompanying the Petitions are the resignations of the Trusts' current trustees, all expressly conditioned upon approval by the Court of Chancery. The appointment of Northern Trust as the new corporate trustee is also expressly conditioned upon approval by the Court of Chancery.

Among the changes to the administrative scheme that the Peierls propose, is to extinguish the current three-trustee scheme in favor of one that involves a single institutional trustee acting under the direction of an Investment Direction Adviser and a Trust Protector, both of whom would be individuals. As proposed, Jeffrey would serve as the inaugural Investment Direction Adviser and " [would] hold and exercise the full power to manage the investments of the Trust." [15] Moore would occupy the Trust Protector role, in which he could remove and appoint both the trustees and the Investment Direction Adviser. The creation of these two positions would largely eviscerate the authority and responsibilities of the trustees by

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delegating traditional trustee powers to the Investment Decision Advisor and Trust Protector.[16]

II. STANDARD OF REVIEW

The Court of Chancery adopted Rules 100 through 103, effective May 1, 2012, in an effort to clarify the procedures to which a party must adhere when filing a consent petition to reform a trust. The Court of Chancery thereby provided a new avenue for petitioners to utilize that court's equitable powers to reform a trust instrument.[17] We review cases involving the Court of Chancery's exercise of its equitable powers for abuse of discretion.[18] However, in doing so, we review the Court of Chancery's legal conclusions de novo. [19]

III. ANALYSIS

The Vice Chancellor correctly found that whether the Court of Chancery could exercise jurisdiction and grant the requested relief depended upon whether Delaware law applied to the Trusts.[20] For this reason we first address the law governing the administration of the Trusts and thereafter evaluate the Vice Chancellor's conclusions on the remaining issues.

A. Which State's Law Governs the 1953 and 1975 Trusts?

The Appellants' Petitions assume that once a Delaware trustee is appointed and takes custody of Trust assets, Delaware law will govern administration of the Trusts. The Vice Chancellor found, however, that Delaware law could never govern the administration of the inter vivos Trusts because that result would be " contrary to the choice of law provisions in the trust agreements." [21] For the reasons outlined below, we find that the Trust Instruments do not necessarily preclude the future application of Delaware law to the Trusts' administration.

1. Choice of Law Principles

When confronted with a choice-of-law issue, Delaware courts adhere to the Restatement (Second) of Conflict of Laws. [22] The Restatement directs that initially " [a] court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law." [23] In the absence of a statutory directive, the Restatement

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outlines several factors to consider when deciding the ...


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