IN THE MATTER OF THE THOMAS LAWRENCE REEVES IRREVOCABLE TRUST UNDER AGREEMENT DATED FEBRUARY 26, 1997
Submitted: February 19, 2015
MASTER'S REPORT (Motion for Summary Judgment)
Matthew P. D'Emilio, Esquire, Jeremy D. Eicher, Esquire, Thomas A. Uebler, Esquire, and Mark M. Dalle Pazze, Esquire, of COOCH & TAYLOR, P.A., Wilmington, Delaware; Attorneys for Petitioner.
Gregory J. Weinig, Esquire, Scott E. Swenson, Esquire, and Mary I. Akhimien, Esquire of CONNOLLY GALLAGHER, LLP, Wilmington, Delaware; OF COUNSEL: Jack Guernsey, Esquire and Lorie Dakessian, Esquire of CONRAD O'BREIN, P.C, Philadelphia, Pennsylvania; Attorneys for Respondents.
Abigail M. LeGrow Master in Chancery
The beneficiaries of an irrevocable trust, who also are individual co-trustees of the trust, contend the corporate co-trustee mismanaged the trust over a period of fifteen or more years by unilaterally making investments without the authorization of the individual trustees, failing to implement any investment strategy for the trust, and charging excessive fees. The corporate trustee seeks to resign from the trust, but first seeks a court order to the effect that all of the individual trustees' claims are barred by laches or the statute of limitations.
The individual trustees frequently complained to the corporate trustee about the issues they now contend support their claims. In emails and letters dating back to 2004, the individual trustees complained that the corporate trustee invested without authorization, failed to consult the individual trustees or develop investment objectives or an investment strategy, and charged excessive fees. Despite consulting counsel, other trust companies, and the corporate trustee about these issues, the individual trustees took no action until they filed their counterclaims in 2013. Because the individual trustees delayed unreasonably, their claims are time barred. This is my final report.
Except as noted, the material background facts are not in dispute. Although the parties disagree as to the truth of the factual allegations underlying the individual trustees' claims, the issue presented does not turn on a resolution of those disputed facts, but rather on the individual trustees' failure to pursue their claims in a timely manner. The petitioner has shown that it is entitled to summary judgment based on the undisputed facts in the record.
A. The Parties
Thomas L. Reeves ("Tom") was born on June 19, 1928. Because of certain disabilities, Tom was unable to manage his property and on June 10, 1953, the Court of Common Pleas of Chester County, Pennsylvania (the "Pennsylvania Court") appointed Girard Trust Corn Exchange Bank as Guardian for the care and management of Tom's estate. BNY Mellon Trust ("BNY Mellon") became the successor in interest to Girard Trust Corn Exchange Bank in 1983. BNY Mellon is a state chartered bank with its principal place of business in Greenville, Delaware.
William H. Reeves, IV ("Bill") and Grafton D. Reeves ("Grafton" and together with Bill, the "Respondents") are Tom's nephews. Bill is a retired Senior Vice President and Senior Portfolio Manager of Putnam Industries who resides in Providence, Rhode Island. Grafton is a physician specializing in pediatric endocrinology who resides in Wilmington, Delaware.
B. The Creation of the Trusts
During the mid-1990s, BNY Mellon – with the approval of the Pennsylvania Court – engaged in estate planning for Tom by creating two trust accounts: (1) a revocable trust designed to meet Tom's continuing needs, and (2) an irrevocable trust primarily designed for growth to benefit later generations of Tom's family. The irrevocable trust (the "Trust") was created under the laws of Delaware and is the only trust at issue in this action. Respondents are the current beneficiaries as well as two of the three co-trustees of the Trust, with BNY Mellon serving as the third co-trustee. In 1997, the Pennsylvania Court approved a petition supporting the estate plan BNY Mellon designed. As a result of this agreement, BNY Mellon's fees increased from about $5, 000 to about $30, 000. The petition did not explicitly state that BNY Mellon's fees would increase by a factor of six, but instead stated that its fees would be in accordance with the bank's "standard fee schedule." Respondents received a copy of BNY Mellon's fee schedule no later than 2004.
The agreement governing the Trust (the "Trust Agreement") precluded distributions to any beneficiary during Tom's lifetime. Instead, the Trust accumulated income during that time. Using Tom's available exemption for federal generation- skipping transfer tax, the parties designed the Trust to confer some benefit on the beneficiaries, but not enough to cause the Trust to be part of their estates for federal estate tax purposes.
Although there is some dispute as to whether the law firm that drafted the Trust Agreement and the petition supporting the estate plan actually represented Respondents, the record establishes that Respondents were at least involved with the Trust's creation. During the drafting of the Trust Agreement, Respondents requested that at least one of them be named co-trustee of the Trust. BNY Mellon initially refused, but ultimately acceded to that request, permitting both to be named co-trustees.
Respondents were provided drafts of the Trust Agreement and had the ability to review those drafts with counsel before the petition was filed with the Pennsylvania Court. Additionally, in 1997, Respondents received executed copies of the Trust Agreement. Nonetheless, Bill testified that he could not recall ever receiving the Trust Agreement nor had he read it as of his ...