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Lynch v. Barba

Court of Chancery of Delaware

April 3, 2018

Ray Wayne Lynch, Plaintiff,
v.
Frank Barba, Defendant.

          Date Submitted: February 5, 2018

          Draft Report: November 3 2017

          Ray Wayne Lynch, Pro Se

          J. Jackson Shrum, Esquire, of Jack Shrum, P.A., Wilmington, Delaware: Attorney (Withdrawn) for Plaintiff

          David J. Ferry, Jr., Esquire; Timothy Ferry, Esquire; Thomas R. Riggs, Esquire, of FERRY JOSEPH, P.A., Wilmington, Delaware; Attorneys for Defendant

          MASTER'S REPORT

          GRIFFIN, Patricia

          The plaintiff, Ray Wayne Lynch ("Lynch"), filed this action claiming that the defendant, Francis Barba ("Barba"), breached his fiduciary duty as the executor of the estate of Ethel M. Lynch ("Estate") and as the successor trustee of the Ethel M. Lynch's Revocable Trust ("Revocable Trust") and of the Special Needs Trust ("SNT"). Lynch asks this Court to remove Barba as the trustee of both trusts and terminate the SNT, among other claims for relief. Barba filed a motion for summary judgment on Lynch's claims, requesting a determination that he has met his fiduciary obligations and that the SNT be terminated and the remaining assets be paid to Lynch. Because there are no material issues of fact in dispute, I recommend that the Court grant Barba's motion. This is a final report.

         BACKGROUND

         On August 16, 2007, Ethel M. Lynch ("Ethel") executed a will ("Will") and established two trusts, a Revocable Trust and a Special Needs Trust.[1] The Will provided that Ethel's tangible personal property was bequeathed to her children who survived her in equal shares, and the residue of her estate, including real and personal property, would go into the Revocable Trust.[2] The Revocable Trust provided that, after Ethel's death, 50% of the principal in the Revocable Trust would be transferred to the SNT established to benefit her son, Lynch, with the balance remaining in the

          Revocable Trust to benefit her daughter, Rhonda Barba ("Rhonda").[3] Upon Rhonda's death, the Revocable Trust provided that the trust principal would be distributed as Rhonda detailed in her will or other document, or to her surviving issue per stirpes if Rhonda had not otherwise provided for this distribution.[4]

         Ethel died on August 10, 2010 and, since Rhonda had predeceased Ethel, Barba was named successor executor of the Estate and successor trustee of the trusts. Problems in the relationship between Barba and Lynch, beneficiary of the Estate and the SNT, are longstanding. Shortly before Ethel's death, Lynch sent a letter to Ethel's estate planning attorney indicating that Lynch and Barba did not have the "best working relationship" and that Lynch was in an "uncomfortable" situation because he felt Barba was acting "in the capacity of a son."[5] From August 2010 through the present, Lynch has sent numerous letters included in the appendix to the complaint to Barba and to Barba's attorneys expressing concerns about the administration of the Estate and the SNT.

         This litigation, similarly, has an extensive history. Lynch filed his 78 count complaint on March 7, 2016, and Barba submitted his answer on April 25, 2016. The complaint alleges that Barba has not acted in good faith as executor of the Estate or as trustee of the SNT and of the Revocable Trust. Lynch claims Barba has not acted in Lynch's best interests; Barba sold real property assets for less than they were worth and not in arms-length transactions; Barba refused to remove "Special Needs Trust" from the title on the checks from the trust provided to Lynch; Barba denied Lynch the ability to carry on the family business after Ethel's death by turning off the business phone, and did not give Lynch the business assets (Ethel's laptop and cell phone); Barba moved the tangible personal assets in the Estate from the family home and stored them without Lynch's approval, causing damage to those assets; Barba created a "non-communicating" situation with Lynch, making it "[d]ifficult if not impossible to discuss mutual needs and circumstances concerning the trust", subjecting Lynch to "five years of abuse, torment and disrespect";[6] he has not made quarterly payments to Lynch from the SNT, and has denied payments for Lynch's special needs; Barba has "no incentive to give [Lynch] anything from [his] trust" since Barba's sons are contingent beneficiaries of SNT funds remaining at Lynch's death;[7] Barba has "misappropriated or totally omitted estate/trust assets" including a Pilgrim Life Insurance policy, has engaged "high dollar attorneys, " and the cost of the accounting services used by Barba is "highly suspect";[8] he has not provided Lynch with a complete and understandable accounting of the trust or other information he requested, and did not provide tax returns to Lynch until beginning in 2012; and Barba hired an attorney with trust funds to be "used against" Lynch.[9] Lynch demands that Barba be removed as trustee and the SNT be terminated, and that Barba provide a full and complete accounting of the trusts and pay all fees and damages caused by his breach, including Lynch's legal fees and expenses.

         The parties engaged in heavy motion practice in this case. Prior to May 2017, Lynch filed two motions to compel, a motion to seek relief related to a discovery matter, a motion for a temporary restraining order to prevent sale of trust property, and two motions to extend the discovery deadlines. All of these motions were denied, except the discovery deadlines were extended. Barba filed a motion to compel Lynch to appear for the second half of his deposition and for attorney's fees, as well as a motion to amend his answer to revise the relief requested. Barba's motions were granted, and the Court ordered Lynch to pay $1, 200 in attorney's fees related to the motion to compel.

         Barba filed a motion for summary judgment in May 2017 asking the Court to dismiss Lynch's complaint because there are no disputed material facts, determine that Barba has met his fiduciary obligations as trustee and should not be removed as trustee, find Lynch's claims regarding personal property from the estate are time-barred by 12 Del. C. § 2102 and laches, and authorize Barba to terminate the SNT and distribute remaining assets, after payment of final counsel fees and costs, trustee commissions and other expenses to Lynch in satisfaction of Lynch's claims against Barba and the SNT. The parties briefed the motion and responded to my request for additional information. My draft report on the motion was filed on November 3, 2017, and Lynch took exceptions to the draft version of this report. I have either modified the body of this report to address the exceptions taken, or consider them adequately addressed in this final report.

         Subsequent to the filing of the draft report, Lynch filed motions on a number of matters, which were addressed in a telephonic hearing on December 4, 2017, and in a final report issued on January 9, 2018 denying Lynch's request for emergency funds from the Trust.[10]

         STANDARD OF REVIEW

         The standard for reviewing a motion for summary judgment under Court of Chancery Rule 56 is well-known. Under Rule 56(c), summary judgment is granted "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The summary judgment standard places the initial burden on the moving party to demonstrate that are no genuine issues of material facts. Once the moving party has satisfied that burden, it falls on the non-moving party to show that there are factual disputes. It may not rest upon the mere allegations or denials contained in its pleading, but must present specific facts showing that there is a genuine issue for trial.[11] If a material fact exists, or the Court desires to inquire "more thoroughly into the facts to clarify" how to apply the law to the circumstances in the case, then summary judgment will not be granted.[12] Evidence must be viewed "in the light most favorable to the non-moving party."[13]

         ANALYSIS

         1. Barba has met his fiduciary duties as trustee of the Special Needs Trust

         In summary, I recommend that the Court grant Barba's motion for summary judgment, finding that Barba has not violated his fiduciary duties as trustee.

         A. The trustee's powers and duties under the Will and the Special Needs Trust

         The Will and the SNT gave the executor and trustee broad fiduciary powers, in addition to those granted by law, such as the right to invest in and purchase all forms of property, and to sell or otherwise dispose of property. The Will and the SNT each contained a specific provision recognizing that the Estate's property includes real estate and/or closely-held businesses, and stated that it was Ethel's intention that the fiduciary

may continue to hold such interests and to act with respect to such interest as [Ethel] would have acted. [Ethel does] not direct [her] fiduciary to refrain from disposing of such interests, but [she] direct[s] that [the] fiduciary only make such decision after thorough consideration of all the ramifications of disposal of such interests.[14]

         The SNT also specifically provided that the fiduciary has the power to employ and compensate accountants, attorneys-at-law and other assistants and advisors they deem "necessary for the proper administration of the trust."[15]

         With regard to distributions, the Will and the SNT authorized the executor and trustee to make distributions in any manner that they think is in the best interest of a beneficiary, and that all payments of "income which are currently distributable shall be made in convenient installments, not less frequently than quarterly."[16] The SNT included additional provisions stating that, during Lynch's lifetime, the "trustee may pay to, or apply for the benefit of [Lynch] such amounts of principal or income, up to the whole thereof, as the trustee, in the trustee's sole and uncontrolled discretion, may from time to time deem necessary or advisable for the satisfaction of [Lynch's] special needs. . . ."[17] And, the SNT defined "special needs" as "the requisites for maintaining the beneficiary in good health, safety and welfare when, in the discretion of the trustee, such requisites are not being provided by any county, state, federal or other governmental agency which has a legal responsibility to serve persons with disabilities which are the same or similar to the impairments of [Lynch]."[18] The SNT gave any beneficiary the right to request and receive a "complete written accounting of such matters pertaining to the administration of the trust as are pertinent to that beneficiary" from the trustee, with the caveat that the trustee has the discretion to provide copies of the trust's income tax returns to satisfy such requests.[19]

         B. A trustee's fiduciary obligations generally under Delaware law

         Trustees are held to a "prudent investor standard in the management and investment of a trust's assets or property."[20] In managing trust property, "trustees must act with skill, care, diligence and prudence in light of the circumstances. A non-professional trustee's duty to the beneficiaries in administering a trust is to exercise the skill and care that a man of ordinary prudence would exercise in dealing with his own property in light of the situation existing at the time."[21] Except that, with regard to trust assets, they are not permitted to endanger the trust estate by taking risks with the trust property which they might take when dealing with their own property.[22] In addition to the "prudent person" standard, the fiduciary duties a trustee traditionally owes at common law include the duty of loyalty and the rule against self-dealing.[23]Under Delaware law, a trustee's powers are subject to fiduciary duties unless modified by the terms of the trust.[24]

         C. Barba has not violated his fiduciary duties as trustee of the Ethel M. Lynch Special Needs Trust

         Lynch alleges a number of instances in which he believes that Barba has violated his fiduciary duties as executor and trustee of SNT. The first set of these allegations focuses on Barba's handling of the trust assets, including his sale of Estate/trust property and his expenditure of trust funds. The remaining allegations focus on Barba's communications with the beneficiary, Lynch, and whether Barba acted deferentially towards his sons, the contingent beneficiaries of the SNT. I will address the allegations in turn.

         First, Lynch alleges that Barba sold real property assets for less than they were worth and not in arms-length transactions. When a trustee sells trust assets, his main goal is to obtain the maximum price considering the assets' value. He is responsible for acting "as other reasonable businessman would have acted under the same circumstances."[25] Barba had authority under the Will and the SNT to sell real property so long as he thoroughly considered the effect of disposing of the property.[26]From the evidence presented, it appears that the real property in the Estate included seven pieces of property, including the property specifically identified by Lynch in his complaint - 25 acres of land in Milroy, Pennsylvania.[27] Lynch identified two additional trust properties - 2000 Eden Road, Wilmington, Delaware, and 101 East 32nd Street, Wilmington, Delaware - in his answer to the motion for summary judgment to support his claim that Barba sold trust properties at below market rates in violation of his fiduciary duty. There is no indication that Barba's decisions to sell the property were not well-thought out or were not handled in a reasonably businesslike manner. Specifically, the Milroy, Pennsylvania hunting property was sold for its appraised value, and there was no documentation provided showing that the land was undervalued as appraised.[28] Lynch has not provided factual support for his allegation that the properties were sold for less than they were worth.[29]

         Lynch claims that Barba denied Lynch the ability to carry on the family business after Ethel Lynch's death by turning off the business phone but Lynch failed to present any evidence that Barba's actions with regard to the family business had a detrimental effect on the business as it existed at that time.[30] Barba explained that Ethel's laptop contains business information and he used the laptop for Estate and trust purposes.[31] Lynch also claims that Barba has not accounted for a "Pilgrim Life Insurance policy" that Ethel Lynch had, but Barba indicated that proof of such life insurance was never provided, and during his deposition Lynch stated that he did not personally know whether his parents had a life insurance policy and had not researched whether one existed.[32]

         Second, Lynch claims that Barba has misspent and/or misappropriated estate or trust funds, but failed to show any specific actions of the trustee that would support his claim. His claims appear to focus on his concern that Barba has engaged "high dollar" attorneys and that the cost of the accounting services used by Barba is "highly suspect." Barba continued to use the same accounting firm for preparing estate and trust accountings and tax returns that Ethel Lynch had used prior to her death. The SNT clearly authorized the trustee to hire accountants and attorneys, as needed, to administer the trust.[33] Lynch has presented no evidence that the work of the accountant employed by Barba exceeded that authority. The issue concerning attorneys' fees will be addressed later in this report.

         Third, Lynch alleges that Barba has failed to properly distribute SNT funds to him to meet his special needs, including for dental work and other similar needs, on a quarterly basis, as the SNT requires. The record shows that Barba distributed some funds: the letters from Lynch to Barba or to Barba's attorneys referring to specific checks and payments Lynch received from the trust, payments made in response to invoices submitted in March 2017, and indicating that Lynch's monthly allowance had been cut off because of inadequate trust income.[34] Lynch's complaint that he did not want to continue to receive checks that had "Special Needs Trust" in the account title (because the notation was a violation of his privacy) also indicated he was at least receiving some checks.[35] The issue is not whether payments from the trust were made at the time and in the amount requested by Lynch, but whether Barba distributed trust funds to Lynch consistent with the authority provided by the SNT and with Delaware law generally.

         The SNT authorizes the trustee to make distributions in "any manner which [he deems] to be in the best interest of a beneficiary" and that all payments of "income which are currently distributable shall be made in convenient installments, not less frequently than quarterly."[36] Another provision in the SNT specifically authorizes the trustee, in his "sole and uncontrolled discretion" to pay out both the principal and income in the trust as he deems "necessary or advisable" to meet Lynch's special needs.[37] The record shows that the current value of the trust - and, as a consequence, its income - is limited. Barba indicated the value of the trust accounts at the end of September 2017 was $73, 487.[38] Therefore, the ability to make quarterly payments from income would be affected. Although Lynch has complained repeatedly about Barba's failure to pay for his funding requests within the time frames that Lynch would like, the SNT gave Barba broad discretion to make payments from principal when he deemed them "necessary or advisable." As a fiduciary, Barba is responsible for acting with skill, care, diligence and prudence in light of the circumstances. Lynch has failed to present evidence that Barba violated his fiduciary duty with regard to trust distributions to the SNT beneficiary.

         Fourth, Lynch claims that Barba, as trustee, failed to properly complete the trust accountings and tax returns in violation of his fiduciary duty. A trustee has an independent duty to maintain records for the trust.[39] Barba presents an uncontroverted expert opinion from the certified accountant at Bumpers & Company, who prepared the accounting and tax returns for the SNT. His letter stated that:

All required accountings and tax returns for the Revocable Trust and the SNT have been filed, and all such accountings and returns were accurate. From my review of all of the records and information provided to me, Frank Barba met his fiduciary obligations to account for all assets in the Revocable Trust and the SNT. All of my opinions in this matter have been given to a reasonable degree of professional certainty.[40]

         Lynch has failed to present evidence that Barba violated his fiduciary duty concerning the maintenance of trust records.

         In conclusion, Lynch has failed to provide any evidence to support a finding that Barba did not meet his fiduciary obligations regarding his handling of the financial aspects of the SNT.

         Further, Barba, as trustee, has a duty to communicate with Lynch, the beneficiary, and to provide the proper information, including accountings, to Lynch. A trustee has a duty to furnish information about essential facts, including basic trust terms, to the beneficiaries, upon reasonable request or even without a request.[41] It is undisputed that the relationship between Lynch and Barba was difficult from the beginning. Lynch stated that he and Barba did "not have the best working relationship" even prior to Ethel Lynch's death. Despite that, Lynch has failed to show that Barba did not provide him with basic information about the terms of the trust or that Barba did not respond to his requests for accountings. Lynch was aware of the terms of the SNT and he communicated regularly with Barba and Barba's attorney about various aspects of the SNT.[42] The SNT specifically stated that the trustee had the discretion to provide income tax returns to satisfy requests for accountings.[43] Barba provided Lynch with SNT tax returns covering 2011 - 2016, as well as SNT monthly account statements for most of that time period, and other financial documents.[44] Lynch's allegations that Barba failed to provide him with the required financial information are unsupported.

         Fifth, Lynch claims that Barba has a conflict of interest because his sons are contingent beneficiaries of the SNT and that Barba acted in a way that unfairly benefitted his sons. The SNT provides that "[u]pon the death of [Lynch], trustee shall pay funeral expenses incurred on behalf of [Lynch], and shall distribute the balance of the trust to my then living issue, on a per stirpes basis."[45] Currently, Ethel's living issue are Lynch and the sons of Barba and Rhonda, Matthew and Eric Barba. A trustee should not show preference between current and remainder beneficiaries and should act in a way that a fair result is reached in the interest of both current and future beneficiaries.[46] Lynch has presented no evidence that Barba has administered the trust in a way that unfairly favored his sons, the contingent beneficiaries of the SNT. Indeed, Barba has requested that the SNT be terminated and the funds distributed to Lynch free of the trust, which would eliminate his sons' interests in the trust.

         2. Lynch's claims regarding Barba's administration of the estate are barred by laches

          Lynch claims that Barba, as executor, improperly administered the Estate. His allegations include that Barba moved the Estate's tangible personal assets from the family home and stored them without Lynch's approval causing damage to those assets, and that Estate property is missing. Ethel died on August 10, 2010; her estate was opened in the New Castle County Register of Wills on August 13, 2010 and closed on December 21, 2011. Barba asserts that Lynch's claim against the estate are time-barred because Lynch failed to bring the claim within six months after it arose under 12 Del. C. § 2102, and under the doctrine of laches, because Lynch was aware of his claim and unreasonably delayed bringing it forward.

         Lynch's claims concerning Barba's alleged negligence arose during the administration of the Estate. In letters from Lynch to the Estate's attorney on September 16, 2011 and September 29, 2011, Lynch expressed his concerns in writing about alleged damage to the Estate's personal property when the property was moved from the family home.[47] The record also indicates that Lynch alleged that other Estate property was missing around that same time. I take judicial notice that the inventory for Ethel's Estate was filed on March 10, 2011 and referenced Ethel's tangible personal property on the schedule of the Estate's miscellaneous property.[48]

          Register of Wills records show that the Estate account was filed on September 20, 2011 and the notice of the filing of the final account for the Estate was sent to Lynch at that time. No exceptions were filed to the final account, and the Estate closed on December 21, 2011. Lynch filed the action setting forth his claim in March 2016 - more than four years and one-half years after the claim arose.

         The purpose of 12 Del. C. § 2102, a non-claim statute, is to facilitate the prompt distribution of estate assets by requiring that creditors of estates bring their claims against the estate within a limited period of time, "so that decedent's estates can be settled within a reasonable time."[49] Section 2012(b) requires that claims arising after the decedent's death be filed with the estate within six months after they arise. However, § 2102(d) excludes claims for legacies or shares of an estate of a decedent from the time restrictions in earlier subsections of § 2102, including § 2102(b).[50] It is unnecessary for me to determine whether Lynch's claim is barred by § 2102 because Lynch's claims do not survive under the doctrine of laches.

         Laches is an equitable doctrine "rooted in the maxim that equity aids the vigilant, not those who slumber on their rights."[51] A finding of laches generally requires proof of three factors: the claimant's knowledge of the claim, unreasonable delay in bringing the claim, and resulting prejudice to the defendant.[52] Knowledge and unreasonable delay are essential elements of laches, but what constitutes unreasonable delay is based upon the particular factual circumstances in that case.[53]And, although not controlling, an analogous statute of limitations period will be "given great ...


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