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Delaware Acceptance Corp v. Estate of Metzner

Court of Chancery of Delaware

May 22, 2017

Delaware Acceptance Corporation, CACV of Colorado, LLC and 202 Investments, Inc., Plaintiffs,
v.
Estate of Frank C. Metzner, Sr. Lona C. Metzner, Executrix and Frank C. Metzner, Jr., The Metzner Family, LLC Defendants.

          Submitted Date: May 8, 2017

          Patrick Scanlon, Esquire, of LAW OFFICES OF PATRICK SCANLON, P.A., Milford, Delaware; Attorney for Plaintiff

          Dean A. Campbell, Esquire, of the LAW OFFICES OF DEAN A CAMPBELL, Georgetown, Delaware; Attorney for Defendant

          MASTER'S REPORT

          Kim E. Ayvazian Master in Chancery.

         A creditor is seeking to remove the executrix of an estate for cause after she rejected the creditor's claim against the estate in the amount of $41, 002.59. The only asset of the estate is the decedent's 49% interest in a limited liability company. The creditor's claim is the basis of a Charging Order attaching any distributions from the company to its members. Under the terms of the limited liability company agreement, the company is dissolved upon the withdrawal of a member unless, within 90 days of such event all remaining members consent in writing to the continuance of the company. The death of a member is an event constituting a withdrawal. The creditor believes that the remaining members did not consent in writing to the company's continuance in a timely fashion. Therefore, the creditor argues that the company should have been dissolved, its assets liquidated, and there would have been sufficient funds in the estate to pay the creditor's claim. The executrix has denied the creditor's allegations, and contends that the remaining members of the limited liability company did consent in writing to its continuance and, as proof, has attached a document purportedly signed within 90 days of the decedent's death by the two remaining members. A one-day trial was held, and I now recommend that the Court remove the executrix for breaching her fiduciary duty to a creditor of the estate, and appoint a neutral party to administer the decedent's estate.

          Factual Background

         In September 2002, Mr. Frank C. Metzner, Sr. and his wife, Lona C. Metzner, deeded their home in Lewes, Delaware to the Metzner Family Limited Liability Company ("the LLC"), [1] sold their household goods to their son Frank, Jr., [2] and stopped paying on their credit cards, whose outstanding balances then totaled approximately $55, 000.[3] Delaware Acceptance Corporation, CACV of Colorado, LLC and 202 Investments ("the Creditor") were judgment creditors of the couple, and they filed a complaint in this Court which resulted in a Charging Order being issued in December 2010.[4] The Sheriff of Sussex County was directed to serve the Charging Order by serving Frank, Sr. or Lona to attach any distributions owing to either of them from the LLC to satisfy the debts owed.[5] Pursuant to 6 Del. C. § 18-703, the couple were to remit their distributions to the Creditor until all the amounts owed were paid.[6]However, the only asset of the LLC was the home in which the couple continued to reside, and no distributions were ever made to either of them.

         Frank and Lona were the original members of the LLC, each owning a 50 percent interest, [7] but they subsequently made Frank, Jr. a third member by giving him a two percent membership interest in the LLC. Frank, Sr. died on October 26, 2012.[8] Lona was appointed Executrix of the Estate of Frank C. Metzner, Sr., and the Decedent's Last Will and Testament was filed on December 5, 2012, in the Register of Wills Office in Sussex County.[9] The Creditor filed its claim against the Estate on April 15, 2013.[10]The Estate's attorney, Harold W. T. Purnell, II, denied the claim by letter dated June 3, 2013, stating that (a) the Estate was devoid of assets other than the LLC interest, (b) it was understood the Charging Order was not dissolved by Frank, Sr.'s death, and (c) Frank, Sr.'s interest transferred under his Will was transferred subject to the Charging Order.[11] Under the Will, Decedent's 49 percent interest in the "Estate Planning LLC" was bequeathed to Frank, Jr.[12] Lona continues to reside in the Lewes home since Frank, Jr. has never considered selling it.

         On September 3, 2013, the Creditor filed this complaint seeking the removal of Executrix.[13] The Creditor alleged on information and belief that, following the death of Frank, Sr., the remaining members of the LLC did not consent in writing to the continuance of the LLC within the 90-day period required under the LLC Agreement; accordingly, the LLC was dissolved, but no distributions had been made to the Creditor. After unsuccessfully trying to dismiss the complaint, [14] Defendants Estate of Frank Metzner, Sr. and Executrix filed their answer on April 21, 2014.[15] Defendants denied that the remaining members had not consented in writing to the continuance of the LLC prior to January 25, 2013, and attached as an exhibit a one-page typewritten document entitled "Metzner Family LLC" "Election of Remaining to Continue LLC" (hereinafter "the Election").[16] As typed, the Election states:

         The undersigned acknowledge the death of Frank C. Metzner on October 26, 2012.

Pursuant to Article I, Section 1.5(b) of the Operating Agreement the undersigned constituting all of the remaining Members of the Metzner Family LLC hereby elect to continue the LLC.
In Witness Whereof the surviving Members have executed this election this ___ day of ___, 20___.[17]

         Underneath the body of this document were parallel sets of signatures lines, one set for "Lona C. Metzner Member" and "Frank C. Metzner, Jr. Member" and the other set for "Witness, " i.e., whoever was to witness Lona's and Frank, Jr.'s signatures. The only signatures on the executed Election were those of Lona and Frank, Jr. According to her trial testimony, Executrix handwrote the date, i.e., the "30th", the month, i.e., "November", and the year, i.e., "12" in the blank spaces provided on this typewritten document.

         During this litigation, the parties have contested numerous issues, including the validity of the Charging Order and the scope of electronic discovery. Most recently, the Creditor filed a motion to produce directed to a third-party, i.e., the Estate's attorney, seeking a Court order directing the attorney to make available the computers in his office and his laptop computer for examination by the Creditor's expert.[18] The motion was opposed by Defendants who argued that confidential communications might be disclosed and there was no plan to compensate the attorney or his staff for their lost work time.[19] I issued a draft report on December 15, 2016, [20] directing Defendants to request the metadata relevant to the Election from the attorney's computers and/or from his former law firm's network server, and to produce the metadata to the Creditor within 60 days. If Defendants failed to produce the metadata within 60 days, I indicated that I would draw the adverse inference that the Election had been created after the 90-day period following Frank, Sr.'s death and had been backdated to appear as if it was timely. I also stayed the period for taking exception to my draft report until completion of the trial proceedings mandated by Vice Chancellor Montgomery-Reeves' September 12, 2016 Order denying Defendants' motion for summary judgment.[21]

         No metadata was ever delivered to the Creditor by the Defendants. On May 8, 2017, I presided over a one-day trial.[22] During the trial, Defendants introduced into evidence another document, one that previously had not been produced during this litigation. According to Lona's testimony, she had written this letter to Purnell on her desktop computer on November 10, 2012 ("the November 10th letter"). The letter states:

I have the very sad task of writing to you today because my husband passed aware on October, 26, 2012, and I need you to handle his Estate.
My son and I need to continue the Metzner Family LLC. The Metzner Family LLC Agreement requires us to submit in writing within 90 days of his death, our intention to continue the Estate Planning LLC. What is involved with that?
I will get my son to sign this letter also - so you can have it for the file.
Please let me know if more is needed. Before my husband's death there were three members; - can it go forward ...

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