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In re IMO Ronald J. Mount 2012 Irrevocable Dynasty Trust

Court of Chancery of Delaware

September 7, 2017

IMO Ronald J. Mount 2012 Irrevocable Dynasty Trust U/A/D December 5, 2012

          Date Submitted: July 10, 2017

          Kevin G. Abrams, Esquire, J. Peter Shindel, Jr., Esquire, Matthew L. Miller, Esquire and April M. Ferraro, Esquire of Abrams & Bayliss LLP, Wilmington, Delaware and Joel M. Silverstein, Esquire and John E. Travers, Esquire of Stern & Kilcullen LLC, Florham Park, New Jersey, Attorneys for Petitioner Trust Protector Kevin M. Kilcullen, Esquire.

          Thad J. Bracegirdle, Esquire of Wilks, Lukoff & Bracegirdle, LLC, Wilmington, Delaware, Attorney for Respondent Heather Mount.

          Christopher P. Simon, Esquire and David G. Holmes, Esquire of Cross & Simon, LLC, Wilmington, Delaware, Attorneys for Respondent Ian J. Mount.

          MEMORANDUM OPINION

          SLIGHTS, VICE CHANCELLOR

         Ronald J. Mount died on April 23, 2015. Prior to his death, Ronald's children, Ian and Heather, and his widow, Rene, were embroiled in a dispute in the Florida courts over the proper control and direction of his medical care and the management of his assets.[1] After his death, these same parties turned their focus to litigating over the distribution of Ronald's rather substantial estate. In total, the parties initiated nine separate actions in three different states including Delaware.

         To their credit, the parties sought to end their seemingly interminable litigation last summer by negotiating a global resolution of all disputes. This effort resulted in a binding Settlement Agreement, effective July 5, 2016. The Settlement Agreement details, inter alia, the consideration each party will receive, the representations and warranties each party would give to the others and the means by which Ronald's estate and trusts would be administered. A Florida Probate Court approved the Settlement Agreement on July 13, 2016. This Court approved the Settlement Agreement and modifications to the trust instrument for the Ronald J. Mount 2012 Irrevocable Dynasty Trust (the "Dynasty Trust") on August 11, 2016.

         After the settlement closed, the parties quickly disagreed over the steps necessary to consummate the Settlement Agreement, particularly how to divide the Dynasty Trust. Following a breakdown in the parties' discussions, the Trust Protector, Kevin Kilcullen, Esquire, filed a petition in this Court on November 10, 2016, seeking instructions on how to divide the Dynasty Trust under the Settlement Agreement. The Trust Protector claims that, as part of the Settlement Agreement, Ian committed to pay off a $4.2 million note owed to the Dynasty Trust but has now refused to do so. According to the Trust Protector, the plain language of the Settlement Agreement requires that Ian make this payment as a first step before the Trust Protector can make payments out of the Dynasty Trust as required by the Settlement Agreement.

         Ian responds that the Ronald J. Mount Revocable Trust (the "Revocable Trust"), of which he is a beneficiary, is owed $6.9 million by the Dynasty Trust for expenses the parties paid out of the Revocable Trust. Accordingly, Ian believes that, rather than requiring him to pay $4.2 million on behalf of the Revocable Trust to the Dynasty Trust, the Settlement Agreement actually requires the Dynasty Trust to pay the Revocable Trust approximately $1.4 million. He maintains that this transfer can be accomplished by a simple offsetting accounting entry and a payment to the Revocable Trust.

         On January 27, 2017, Ian filed his Response to the Petition and his Verified Counterclaim and Claim for Indemnification Against Beneficiary Heather Mount (the "Counterclaims"). The Counterclaims set forth seven counts.[2] On March 13, 2017, the Trust Protector and Heather filed separate motions to dismiss the Counterclaims under Court of Chancery Rule 12(b)(6) for failure to state a claim. Heather also requested indemnification from Ian for having to defend herself in this action.[3] After carefully considering the parties' arguments, I have concluded that both motions to dismiss must be GRANTED, and Heather's request for judgment on her indemnification claim must also be GRANTED.

         I. FACTUAL BACKGROUND

         The facts are drawn from the admissions in Ian's Response to the Petition, allegations in the Counterclaims, documents integral to the Counterclaims and matters of which the Court may take judicial notice.[4] As it must at this stage of the proceedings, the Court assumes that all well-pled facts in the Counterclaims are true.[5]

         A. The Parties

         Ian Mount is Ronald Mount's son and youngest child. He is a current beneficiary of the Dynasty Trust and Revocable Trust. He resides in Short Hills, New Jersey.

         Heather Mount is Ronald Mount's daughter and oldest child. She is a current beneficiary of the Dynasty trust and resides in Brooklyn, New York.

         Kevin Kilcullen, Esquire is the Trust Protector of the Dynasty Trust. He has served in this capacity since before Ronald's death.

         B. The Settlement Agreement

         Towards the end of Ronald's life and after his death, nine separate actions were initiated in three different states related to Ronald's probate estate and the various trusts he had established during his lifetime. After active prosecution and defense of these actions, including here in Delaware, the parties ultimately reached a global settlement of all pending litigation. The Settlement Agreement, dated July 5, 2016, is by and among Ian Mount, Rene Mount (Ronald's wife), Heather Mount, Kevin Kilcullen (the Trust Protector), Stern & Kilcullen, LLC and Joseph D. Stewart (curator of the Estate of Ronald J. Mount). It sets forth various obligations of the parties in administering Ronald Mount's estate, distributing various assets and modifying certain of the trust instruments.

         Relevant to this dispute, the Settlement Agreement details how the parties are to administer two trusts, the Revocable Trust (a Florida trust) and the Dynasty Trust (a Delaware trust). A central part of the scheme devised by the parties is to divide the Dynasty Trust into two separate trusts for the benefit of Ian and Heather. Heather's newly divided trust is to be funded by a payment of $10 million less one-half of certain expenses and Heather's share of the remaining taxes. Ian's trust is to be funded with the balance remaining after the required distributions are made to Heather.

         The Settlement Agreement was approved by the Florida Probate Court on July 13, 2016. Because the Dynasty Trust is a Delaware trust, this Court's approval of the Settlement Agreement was also required in order to make certain modifications to the Dynasty Trust Instrument. This Court approved the Settlement Agreement and modifications to the Dynasty Trust Instrument on August 11, 2016.

         Following the execution of the Settlement Agreement, the parties began to disagree over the sequence of steps that must be taken before the Dynasty Trust can be split between Ian and Heather. The Trust Protector maintained that the agreement requires Ian to repay a $4.2 million note owed by the Revocable Trust to the Dynasty Trust before any split of the Dynasty Trust. While acknowledging that a debt was due from the Revocable Trust to the Dynasty Trust, Ian took the position that the Dynasty Trust owes the Revocable Trust $6.9 million in satisfaction of expenses that the parties had agreed to pay out of the Revocable Trust. Therefore, netting out the difference between the debts, Ian maintained that the Dynasty Trust owes the Revocable Trust $1.4 million and that this payment should be made without delay.

         Unable to resolve their disagreements over the net flow of funds between the two trusts, the sequence of steps prescribed by the Settlement Agreement and the related obligations of the Trust Protector, the parties reverted to old behavior and began several weeks of unproductive, contentious correspondence. When that exercise inevitably proved to be pointless, the Trust Protector filed a Petition for Instructions in this Court.

         C. Procedural History

         The Trust Protector filed his Petition for Instructions on November 10, 2016. On January 27, 2017, Ian filed his Response to the Petition and Counterclaims. The Trust Protector and Heather filed separate motions to dismiss the Counterclaims under Rule 12(b)(6) on March 13, 2017. Heather also asserted a claim for indemnification against Ian.

         II. ANALYSIS

         I begin by addressing the Trust Protector's motion to dismiss Ian's Counterclaims. I then turn to Ian and Heather's dueling claims for indemnification.

         A. Motion to Dismiss Standard

         In considering this motion to dismiss for failure to state a claim under Rule 12(b)(6), the standard is well settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are 'well-pleaded' if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and (iv) dismissal is inappropriate unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.[6]

         The court can answer questions involving contract interpretation as a matter of law on a motion to dismiss "[w]hen the language of a contract is plain and unambiguous."[7] Dismissal of a contract dispute under Rule 12(b)(6) is proper, however, "only if the defendants' interpretation is the only reasonable construction as a matter of law."[8] If the plaintiff has offered a reasonable construction of the contract, and that construction supports the claims asserted in the complaint, then the Court must deny the motion to dismiss even if the defendant's construction is also reasonable.[9]

         B. Breach of the Settlement Agreement

         Both parties acknowledge that the Settlement Agreement is clear and unambiguous. After carefully reviewing the operative provisions, I agree. Accordingly, my task is to construe the contract according to the plain meaning of its terms, remaining mindful that my construction of each term must make sense when considering the contract as a whole.[10]

         Ian brings four separate claims based on alleged breaches of the Settlement Agreement: Count I for breach of the Settlement Agreement; Count II for bad faith breach of the Settlement Agreement; Count III for breach of the covenant of good faith and fair dealing; and Count IV for breach of Paragraph 19 of the Settlement Agreement.[11] I address Count I, Count II and Count IV together as all three claims contain overlapping allegations that the Trust Protector has breached the clear and unambiguous terms of the Settlement Agreement. Ian's implied covenant claim does not overlap with his breach of contract claims, at least in theory, so I address that count separately.

         1. Breach of Contract Claims

         Ian mixes two flavors of alleged breaches together in Count I. First, he alleges that the Trust Protector breached Paragraphs 13 and 14(c) of the Settlement Agreement by noting in proposed distribution calculations that the Dynasty Trust is to pay an "estimated" $150, 000 to his firm and his attorneys.[12] Next, he alleges that the Trust Protector breached unidentified provisions of the agreement by not doing a variety of things described in detail below.

         Ian's claim regarding the Trust Protector's alleged breach of Paragraphs 13 and 14(c) must be dismissed because (i) he raised no argument in support of this claim in his answering brief and (ii) in any event, the Trust Protector has not violated any provision of the Settlement Agreement by earmarking funds in his proposed calculations.

         The Trust Protector addressed Count I in his opening brief in support of his motion to dismiss, [13] and Ian failed to respond in any way to the Trust Protector's arguments in support of dismissal either in his answering brief or at oral argument. Thus, Ian has waived this claim.[14] Moreover, despite Paragraph 13's prohibition on the Trust Protector receiving any further "fiduciary compensation, "[15] and Paragraph 14(c)'s prohibition on him receiving further "professional fees, "[16] the Settlement Agreement provides under Paragraph 23 that the Trust Protector, or any other party for that matter, may receive additional funds if he prevails in any litigation related to implementing or enforcing the agreement.[17] In keeping with this provision, the Trust Protector claims that he earmarked certain funds from the Dynasty Trust due to the specter of litigation, which is now underway, under the assumption that he would prevail.[18] Nothing in the Settlement Agreement expressly prohibits the Trust Protector from engaging in such planning. Moreover, Ian does not allege in his Counterclaims nor does he argue in his answering brief that the Trust Protector or his lawyers have actually received the contested funds to date. For that reason alone, the Trust Protector has not breached the Settlement Agreement because he has not received any prohibited "fiduciary compensation" or "professional fees."

         The balance of the dispute as to Count I centers on Paragraph 8 of the Settlement Agreement. Paragraph 8, entitled Administration of the Dynasty Trust, lists several steps related to the Dynasty Trust that were to occur at or following the closing of the Settlement Agreement. Most relevant to the current dispute is Paragraph 8(a), which states:

Ian, as Personal Representative of the Estate and/or the successor trustee of the Revocable Trust, shall repay the $4.2 million note from the Revocable Trust to the Dynasty Trust. It is not anticipated by the Parties that the $4.2 million note, originally reflecting the debt owed by Ronald J. Mount to the Dynast Trust, be forgiven or cancelled without repayment thereof.

         This is the first of several steps listed in the section governing ...


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