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Du Pont v. Wilmington Trust Co.

Court of Chancery of Delaware

October 6, 2017

DOUGLAS W. DU PONT, Petitioner,
v.
WILMINGTON TRUST COMPANY, Respondent.

          Date Submitted: August 28, 2017

          Matthew P. D'Emilio, Esquire and Thomas A. Uebler, Esquire of Cooch and Taylor, P.A., Wilmington, Delaware, Attorneys for Petitioner.

          Robert S. Saunders, Esquire of Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware, Attorney for Respondent.

          MEMORANDUM OPINION

          SLIGHTS, VICE CHANCELLOR.

         This case concerns the trusteeship of five "total return" unitrust trusts (the "Trusts"). Petitioner, Douglas W. du Pont ("Mr. du Pont" or "Petitioner"), is the current beneficiary of the Trusts. Respondent, Wilmington Trust Company ("Wilmington Trust" or "Respondent"), is the trustee of the Trusts.

         In February 2016, Mr. du Pont requested that Wilmington Trust resign as trustee. Wilmington Trust refused. Mr. du Pont then filed a "Petition to Remove Wilmington Trust Company as Trustee and Appoint Charles Schwab Trust Company of Delaware as Trustee" ("Petition") with this Court. The Petition seeks an order removing Wilmington Trust as trustee pursuant to 12 Del. C. § 3327(3) and appointing a successor trustee-either Charles Schwab Trust Company of Delaware ("Charles Schwab") or a "suitable alternate successor trustee."[1]Wilmington Trust has filed a motion to dismiss the Petition pursuant to Court of Chancery Rule 12(b)(6).

         For the reasons that follow, Respondent's motion to dismiss is GRANTED, and the Petition is dismissed with prejudice.

         I. BACKGROUND

         The facts are drawn from allegations in the Petition, documents integral to the Petition and those matters of which the Court may take judicial notice. I have assumed as true all well-pled factual allegations in the Petition.

         A. The Parties

         Mr. du Pont is the current beneficiary of the Trusts. He is married to Sarah du Pont and has four children, all of whom are sui juris. Wilmington Trust is a Delaware non-depository trust company headquartered in Wilmington, Delaware, and is a wholly-owned subsidiary of M&T Bank Corporation ("M&T Bank"), a New York business corporation.

         B. The Trusts

         The Trusts were created pursuant to four trust agreements and one will (collectively, the "Trust Agreements"). The Trust Agreements appoint Wilmington Trust as lone trustee of the Trusts, and Wilmington Trust has served in that role since the Trusts were created in the 1940s and 1950s. The Trust Agreements are silent regarding removal of the trustee or appointment of a successor trustee.

         In 2013, Wilmington Trust agreed to petition the Court of Chancery to modify the Trust Agreements to insert provisions that authorize an "Investment Direction Advisor" to direct all investment decisions for the Trusts.[2] The modification was prompted in part because Mr. du Pont was dissatisfied with Wilmington Trust's administration of the Trusts. While Wilmington Trust did not agree with Mr. du Pont's criticisms, it agreed to petition for the modification, which this court granted.

         Under the modified Trust Agreements, Mr. du Pont is designated as the Investment Direction Advisor for the Trusts and Wilmington Trust is "relegated . . . to a purely administrative directed-trustee role."[3] In this reduced role, Wilmington Trust now "has no investment authority or discretion over the Trusts' assets."[4]

         C. Wilmington Trust's Alleged Misadministration of the Trusts

         Petitioner alleges that "[f]or years, Wilmington Trust has improperly administered the Trusts, to the detriment of the Trusts and their beneficiaries."[5] As particular examples, Petitioner alleges:

■ Wilmington Trust "miscalculated] the amount of Mr. du Pont's unitrust distribution";
■ There has been "minimal contact by trust advisers (few in-person meetings and infrequent contact)"; and
■ Wilmington Trust rejected Mr. du Pont's "reasonable request in 2015 for money to cover tax liabilities."[6]

         Petitioner further alleges, "Wilmington Trust's improper administration [of the Trusts] has resulted in a loss of confidence by the du Ponts in Wilmington Trust and, unfortunately, created hostility between [them]."[7]

         D. Wilmington Trust as Lender and Estate Planner

         Apart from its role as trustee, Wilmington Trust has also acted as lender and estate planner to Mr. du Pont. "As lender, Wilmington Trust . . . overextended credit to Mr. du Pont, collateralized his personal assets, including his revocable trust and cash account, and reduced his unitrust payout."[8] When Mr. du Pont struggled to repay the Wilmington Trust loan, Wilmington Trust "caused [him] to liquidate low-basis assets to pay down a portion of the loan, resulting in millions of dollars of otherwise-unnecessary capital-gains tax."[9]

         As estate planner, Wilmington Trust did not inform Mr. du Pont that the Trusts would bypass his wife upon his death. Based on Wilmington Trust's provision of incomplete or incorrect information, Mr. du Pont and his wife made "substantial irrevocable gifts . . . to trusts for their children naming Wilmington Trust as trustee[] . . . ."[10] Mr. du Pont would not have made such gifts had Wilmington Trust advised him that his wife would not benefit from the Trusts after his death.

         E. Changes at Wilmington Trust Since the Creation of the Trusts

         Petitioner alleges that "[t]he Wilmington Trust that is a party to this action is not the same Wilmington Trust that the du Ponts entrusted in the 1940s and 1950s to serve as trustee of the Trusts."[11] In the 1940s and 1950s, Wilmington Trust "was closely associated with the du Ponts."[12] And for many years thereafter, "Wilmington Trust [remained] an independent Delaware-based bank, managed, in part, by members of the du Pont family . . . ."[13]

         In the wake of the 2008 financial crisis, Wilmington Trust's "business nearly collapsed, which led to federal-government investigations, lawsuits, and indictments . . . ."[14] Following the near-collapse of its business, Wilmington Trust was acquired by a New York-based bank-M&T Bank. Today, Wilmington Trust is a wholly-owned M&T subsidiary and its "chairman and most of its other directors are longtime M&T officers and directors."[15] "Not a single member of the du Pont family remains on the [Wilmington Trust] board."[16] Thus, Petitioner alleges, "Wilmington Trust's governance, business, culture, and du Pont relationship would be unrecognizable to the trustors of the Trusts. The Wilmington Trust once trusted by Mr. du Pont's forebears is gone."[17]

         F. This Litigation

         In February 2016, Mr. du Pont requested that Wilmington Trust resign as trustee of the Trusts. Wilmington Trust refused. Mr. du Pont responded on October 19, 2016, by filing the Petition. In his Petition, Mr. du Pont asks the Court to remove Wilmington Trust as trustee of the Trusts pursuant to 12 Del. C. § 3327(3) ("Section 3327(3)") and to appoint a successor trustee-either Charles Schwab or a "suitable alternate successor trustee."[18] As grounds for removal, the Petition alleges that:

1. Since the creation of the Trusts and the appointment of Wilmington Trust as trustee, a substantial change in circumstances has occurred;
2. Wilmington Trust is unfit, unwilling, or unable to administer the Trusts properly; and
3. Hostility between Wilmington Trust and Mr. du Pont threatens the efficient administration of the Trusts.[19]

         Wilmington Trust filed a motion to dismiss the Petition pursuant to Court of Chancery Rule 12(b)(6) on December 2, 2016. The Court heard oral argument on that motion on August 28, 2017.

         II. ANALYSIS

         "The standards governing a motion to dismiss for failure to state a claim are 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 nonmoving 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."[20]

         As noted, I have accepted as true all well-pled factual allegations in Mr. du Pont's Petition and have drawn all reasonable inferences in his favor. Even so, for reasons I explain below, I cannot reasonably conceive how Section 3327(3) would warrant the removal of Wilmington Trust as trustee of the Trusts.

         A. Section 3327(3)

         Section 3327(3) sets forth certain bases for judicial removal of a trustee despite the absence of a breach of trust; i.e., judicial removal of a trustee even where the trustee has not violated a duty owed to the beneficiary.[21] Under Section 3327(3), the Court of Chancery may remove a trustee on the petition of a beneficiary if the court, "having due regard for the expressed intention of the trustor and the best interests of the beneficiaries, " determines that, despite the absence of a breach of trust-

(a) there has been "a substantial change in circumstances"; or
(b) the trustee is unfit, unwilling, or unable to administer the ...

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