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In re The Trust FBO samuel Frances Dupont Under Trust Agreement Dated August 4

Court of Chancery of Delaware

September 25, 2018

IN RE: THE TRUST FBO SAMUEL FRANCES duPONT UNDER TRUST AGREEMENT DATED AUGUST 4, 1936 (POWER OF APPOINTMENT TRUST)

          Date Submitted: July 31, 2018

          William E. Manning, Scott W. Perkins, and Selena E. Molina, SAUL EWING ARNSTEIN & LEHR, LLP, Wilmington, Delaware, Attorneys for Petitioner Martin A. Heckscher

          Todd A. Flubacher and Matthew R. Clark, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware, Attorneys for Respondents Pierre S. DuPont, John E.B. DuPont and Catherine DuPont Varacchi

          Jeffrey S. Goddess, ROSENTHAL, MONHAIT & GODDESS, P.A., Wilmington, Delaware, Guardian Ad Litem for Sean Osborne and Cara Osborne, and Attorney for Amber (Thomas) Ellis

          Gregory J. Weinig, Ryan P. Newell, Scott E. Swenson, and Daniel R. Stanek, CONNOLLY GALLAGHER LLP, Wilmington, Delaware, Attorneys for Respondent Jennifer Beck

          MASTER'S REPORT

          GRIFFIN JUDGE.

         Pending before me is a petition filed by trustees seeking instructions from the Court as to the proper distribution of the principal and income of the trust, which granted the donee a limited testamentary power of appointment. The issue is whether a divorce decree incorporating a settlement agreement in which the donee agreed to exercise his power of appointment to benefit the children of his first marriage, bound the donee and the trust, or whether the donee's last will and testament, which subsequently exercised the donee's power of appointment to benefit his granddaughter from his second marriage, controls. Beneficiaries of the conflicting appointments filed motions for summary judgment in this case asking the Court to determine which exercise of the donee's power of appointment dictates. In the alternative, the children of the donee's first marriage seek a Court finding that the settlement agreement caused a partial release of the donee's power of appointment so that the trust property passed to them as the takers in default at the time of the divorce, or that the inequitable conduct by the donee and the trustee warrants the imposition of a constructive trust over the trust property.

         Based upon the reasons set forth below, I find that the settlement agreement incorporated in a Nevada divorce decree does not bind the trust, nor does it represent a partial release of the donee's power of appointment. I also conclude that imposing a constructive trust over the trust property is not appropriate in these circumstances. I recommend that the Court grant the granddaughter's motion for summary judgment and order the trustee to distribute the trust principal and income consistent with the exercise of the donee's power of appointment in his last will and testament. And, that the Court deny the cross-motion for summary judgment filed by the children of the donee's first marriage. This is a final report.

         I. Factual background

         This matter stems from a trust agreement (the "Trust") entered into on August 4, 1936 between Ernest duPont ("Ernest"), the donor, and A. Felix duPont, Walter Blackson and Delaware Trust Company, a corporation of the State of Delaware, the initial trustees. Ernest created a testamentary power of appointment trust for the initial benefit of his son, Samuel F. duPont ("Sam"), the donee.[1] The Trust directed the trustees to accumulate the net income of the Trust and to invest such accumulations and add them to the Trust during Ernest's life. After Ernest's death in 1944, the trustees were directed to pay over the net income of the Trust as they deemed reasonable and necessary for Sam's support, maintenance and education until he reached 21 years of age.[2] Thereafter the trustees were to pay the net income of the Trust to Sam during his life and, upon his death, to pay over and/or administer the Trust fund and income to benefit such persons as are appointed by Sam, through his limited power of appointment ("LPOA"), by his last will and testament. The Trust Agreement detailed the LPOA as follows:

Upon the death of the said Samuel Francis duPont, the Trustees shall pay over, deliver, dispose of and/or administer the said trust fund, together with all accumulated income thereof if any, unto, and/or for the benefit of, such persons, and/or upon such trusts, as may be limited and appointed by the said Samuel Francis duPont, in and by his last will and testament, from among the following individuals and classes of persons, to wit, - his descendants, his widow, his half-sister Alberta duP. Thompson, his half-brother Ernest duPont, Jr., any brothers or sisters or any other half-brothers or half-sisters he may have who are children hereafter born of the said Trustor, the descendants of his said half-sister or his said half-brother or of any such other brothers or sisters, or half-brothers or half-sisters, respectively, and Anne T. duPont, wife of the Trustor.[3]

         If Sam failed to exercise the LPOA, then the Trust would be distributed to Sam's lawful issue in "equal shares per stirpes."[4] The Trust also contained a spendthrift clause:

The interest of any beneficiary hereunder, either as to income or principal of the trust fund, shall not be anticipated, alienated, or in any other manner assigned or transferred by such beneficiary, nor shall the same be subject to any legal process, bankruptcy proceeding or the interference or control of creditors or others.[5]

         The Trust will terminate twenty-one years after Sam's death with final distributions to be made to the persons entitled to receive the net income of the Trust at that time - persons either receiving the income through Sam's exercise of the testamentary LPOA or his legal issue if he failed to exercise the LPOA.[6]

         Sam was married twice during his lifetime.[7] First, to Helen Hawley Barbey duPont ("Helen") in 1951, with whom he had three children: Pierre S. duPont, Catharine duPont Varacchi, and John E.B. duPont; all three are Respondents in the case (the "duPonts").[8] On June 29, 1962, Sam commenced a divorce action against Helen, claiming extreme cruelty, in the Second Judicial District Court of the State of Nevada in the County of Washoe (the "Nevada Court").[9] Helen responded to the complaint and denied the grounds for the divorce.[10] The Nevada Court had jurisdiction because Sam lived in Nevada for six weeks prior to filing the complaint, making him a bona fide resident of Nevada for purposes of obtaining a divorce.[11]There was no evidence that the Trust or its trustees participated in the divorce proceedings.

         The Nevada Court granted the divorce and "approved, adopted, and confirmed" the written agreement between Sam and Helen (the "Settlement Agreement"), stating that the Settlement Agreement settles and adjusts "all rights of property of the parties."[12] Sam and Helen were divorced by decree on July 19, 1962.[13] In paragraph five of the Settlement Agreement, Sam agreed to irrevocably exercise the LPOA in the Trust in favor of the duPonts:

5. EXERCISE OF POWER OF APPOINTMENT IN FAVOR OF ISSUE OF THIS MARRIAGE: Under a certain deed of trust entered into between Ernest duPont on the one hand, and Walter Blackson and Delaware Trust Company on the other hand, on August 4, 1936, said instrument creating what is commonly known as a "spendthrift trust", (Exhibit A), Husband is given the limited power to appoint by will to certain individuals and classes of persons entitled to receive the corpus of said trust upon his death; and the said children born of the marriage between Husband and Wife are of said class of persons entitled to receive the entire corpus of said trust fund. Husband hereby irrevocably and without condition covenants and agrees, except as hereinafter stated, to exercise the power of appointment conferred upon him in said deed of trust and to make an appropriate testamentary instrument implementing this Agreement, appointing Pierre S. duPont, Catharine Ann duPont and John E. B. duPont, his children born of this marriage, as the persons to whom Trustees shall pay over and deliver absolutely upon Husband's death the entire trust fund, free of any trust, in equal shares. .[14]

         The Settlement Agreement further stated that its provisions shall be governed by Delaware law.[15] On July 16, 1962, Sam executed a will that exercised the limited power of appointment in favor of the duPonts, which was included as an attachment to the Settlement Agreement.[16]

         On July 19, 1962, the same day as the divorce, Sam married Joanne Smith Jeffries ("Jan") and, on May 9, 1963, he adopted her two children from a prior marriage, now known as Diane duPont Beck ("Diane") and Richard DuPont ("Richard").[17] The family lived at the family farm, Hexton, in Georgetown, Maryland. Of Sam and Jan's legal issue, Diane's daughter Jennifer D. Beck ("Beck") is the only one to enter an appearance in this proceeding. Sam and Jan remained married until Jan's death on June 29, 2010.

         Sam executed a number of wills following the 1962 divorce and before his death in 2015.[18] Sometime after the 1962 divorce, Sam determined that he wished to exercise his LPOA differently than as agreed-upon in the Settlement Agreement.[19]Around 1995, Sam and Jan approached Heckscher about preparing new wills for them and Heckscher began serving as their personal attorney for estate planning.[20]Unsure as to the effect of paragraph five of the Settlement Agreement, Heckscher recommended that Sam obtain advice from a Delaware lawyer to determine if Sam was bound by paragraph five of the Settlement Agreement.[21] Sam obtained a legal opinion from Henry Herndon (the "Herndon Opinion") which concluded that paragraph five of the Settlement Agreement was invalid and not enforceable against the Trust, although it noted that there was no controlling Delaware precedent.[22]Additionally, the Herndon Opinion noted that Helen or the duPonts may be able to recover against Sam's estate if he did not adhere to the Settlement Agreement by exercising his LPOA in favor of the duPonts.[23]

         On March 13, 2015, Sam executed his Last Will and Testament ("Last Will").[24]In article five of his Last Will, Sam exercised his LPOA in favor of Beck, left $250, 000 outright to Ernest E. Beck III (Diane's son), and instructed the trustees to hold the remaining principal in trust and distribute Trust income to Beck, with the discretion to distribute principal for the maintenance and upkeep of Hexton Farm and to Beck for certain purposes, and to terminate the Trust and distribute the remaining principal to Beck or, if she is not living, to her then-living descendants, upon the 21stanniversary of his death.[25] The duPonts were only listed as remote contingent beneficiaries.[26] Sam died on August 3, 2015.[27]

         II. Procedural background

         Petitioners Martin Heckscher ("Heckscher") and Edward D.E. Rollins, III, successor personal trustees for the Trust, filed a petition for declaration of rights and instructions, on November 15, 2016, seeking guidance from this Court whether the Trust should be distributed according to Sam's exercise of the LPOA in the Settlement Agreement or according to his Last Will.[28] On January 6, 2017, Beck filed an answer and claim for relief, arguing that this Court should distribute the Trust according to Sam's Last Will.[29] The duPonts filed a response and counterclaim on January 6, 2107, and an amended counterclaim on January 10, 2018, seeking distribution of the Trust property to them because of the Settlement Agreement.[30] All three parties asked the Court to allow payment of their attorneys' fees and costs from the Trust.

         On October 2, 2017, Heckscher filed a motion for judgment on the pleadings, but that motion was withdrawn without prejudice on January 8, 2018.[31] Both Beck and the duPonts filed motions for summary judgment on April 24, 2018.[32]

         The duPonts argue, in their motion for summary judgment, that the Trust property should be distributed in accordance with the Settlement Agreement, since its validity was determined by the Nevada court's divorce decree, and is entitled to full faith and credit in Delaware.[33] They contend relitigating that issue is barred by res judicata, and also that Heckscher or Beck are barred by unclean hands and laches from collaterally attacking the divorce decree.[34] Alternatively, the duPonts assert the Settlement Agreement acted as a partial release of the LPOA in their favor, or that Sam's and Heckscher's inequitable conduct, including Heckscher's breach of his duties of impartiality and disclosure, warrants the imposition of a constructive trust over the Trust assets.[35]

         In her motion for summary judgment, Beck argues the Trust property should be distributed in accordance with Sam's exercise of the LPOA in his Last Will, consistent with Ernest's intent that the property pass by testamentary appointment. She asserts that, under longstanding Delaware law, the Trust property is not within the donee's control, thus contracts to exercise powers of appointment, such as paragraph five of the Settlement Agreement's provision, are void. In addition, she refutes the duPonts' claims regarding full faith and credit, collateral attack, and unclean hands and laches, and argues the Trust's spendthrift clause nullifies Sam's agreement to exercise the LPOA in the Settlement Agreement.[36] Further, Beck disputes the duPonts' arguments that the Settlement Agreement was a partial release of the LPOA, or that a constructive trust should be imposed.

         In his June 5, 2018 answering brief to the duPonts' motion, Heckscher reiterates Beck's arguments that the divorce decree is not binding on the Trust or its trustees, and full faith and credit, res judicata and collateral estoppel do not apply in this case; this is not a collateral attack; the Trust's spendthrift clause prevents the duPonts from reaching Trust property to satisfy their claims; the Settlement Agreement was not a release; and the duPonts are not entitled to a constructive trust.[37]In addition, Heckscher contends the duPonts' affirmative defenses of laches or unclean hands are precluded because they were not plead and, in turn, that the duPonts' claims are barred by laches and claim preclusion.[38]

         Following completion of briefing by the parties on July 20, 2018, I heard oral arguments on this case on July 31, 2018 and reserved my decision.

         III. Standard of Review

         Under Court of Chancery Rule 56, the court grants a motion for summary judgment when "the moving party demonstrates the absence of issues of material fact and that it is entitled to a judgment as a matter of law."[39] The moving party bears the burden of demonstrating that no material issues of fact are in dispute and that it is entitled to judgment as a matter of law.[40] Once the moving party has satisfied that burden, it falls on the non-moving party to show that there are factual disputes. Evidence must be viewed "in the light most favorable to the non-moving party."[41]

         When the court is presented with cross-motions for summary judgment, "neither party's motion will be granted unless no genuine issue of material fact exists and one of the parties is entitled to judgment as a matter of law."[42] In evaluating cross-motions for summary judgment, the court examines each motion independently and only grants a motion for summary judgment to one of the parties when there is no disputed issue of material fact and that party is entitled to judgment as a matter of law.[43]

          IV. Analysis

         A. Sam's exercise of the LPOA in the 1962 Settlement Agreement did not bind the Trust

         The central issue is whether Sam's exercise of the LPOA in favor of the duPonts in the Settlement Agreement, or in his Last Will, in which he appointed Beck as primary beneficiary of the Trust upon his death, controls. If the Settlement Agreement irrevocably bound Sam and the Trust, then any subsequent actions by Sam to exercise the LPOA, including his Last Will, are irrelevant. If it did not, under the facts of this case, Sam's exercise of his testamentary LPOA in his Last Will is determinative.

         The Trust and the Settlement Agreement are both governed by Delaware law, and a contract to exercise a testamentary power of appointment[44] is not valid in Delaware. The seminal case addressing this issue is Estate of Tigani.[45] After indicating that the question of whether a contract to exercise a testamentary power of appointment is valid appears to be an issue of first impression, then Master LeGrow in Tigani concluded that such contracts are not valid, with limited exceptions. She noted that it is presumed that a donor who creates a testamentary power of appointment, or any power that is not presently exercisable, intends that "the selection of the appointees and the determination of the interests they are to receive is to be made in light of the circumstances that exist on the date the power becomes exercisable."[46] Or, that the "donor essentially requires the donee to 'wait and see' and take into account later developing facts before exercising the power."[47]Therefore, contracting away that power defeats the donor's intent by eliminating the donee's ability to change the appointment at any time prior to his death. And, in Delaware, the donor's intent controls.[48] Further, a contract to exercise a testamentary power of appointment involves a property interest "to which the donee has no claim and . . . cannot dispose of during [his] lifetime."[49]

         In this case, Ernest clearly evidences his intent that Sam could not exercise the power of appointment until his death - or through his last will and testament. The duPonts argue that Tigani is irrelevant and factually distinguishable because Tigani issued in 2016 - 54 years after the Settlement Agreement was incorporated into, and validated, by a court order entitled to full faith and credit.[50] I disagree. The Court's holding in Tigani may have addressed an issue of first impression but it followed long-standing legal principles that were identified in the Herndon Opinion. Those principles emanated from caselaw cited in the Herndon Opinion, much of which predated the 1962 Settlement Agreement.[51] And, since the Trust property remained the donor's - or Ernest's, Sam had no property interest that he could bargain away during his lifetime. The duPonts failed to show any change in the law or reason why these legal principles, which focus on the primacy of the donor's intent and were so eloquently explained in Tigani, would not also have applied in 1962.

         Although the factual circumstances in Tigani may differ, I find the longstanding legal principles that serve as the underpinning for the Tigani holding - that the donor's intent governs the Trust and if the donor provided for a testamentary LPOA, contracts entered into by the donee concerning the exercise of his LPOA are usually unenforceable because the donee has no rights in trust property to bargain away - control in this case.[52] Sam's exercise of the LPOA in the Settlement Agreement was legally ineffective because the property he was trying to bind was not his to encumber and the contract to appoint in the Settlement Agreement was not valid and binding on the Trust. But, Sam, in exercising the LPOA contrary to the Settlement Agreement's provisions through his Last Will, breached that Agreement, even if he had his reasons for doing so.[53] The duPonts, as third-party beneficiaries under the Settlement Agreement, could seek restitution from Sam (and Sam's property) for that breach. Accordingly, I conclude that, consistent with the donor's intent, Sam's exercise of the testamentary LPOA in his Last Will in favor of Beck controls the distribution of the Trust property.

         B. Full faith and credit, res judicata and collateral estoppel do not apply to preclude Sam's exercise of the LPOA in his Last Will

         The duPonts assert that the Tigani holding does not apply here because Tigani did not involve a contract that was incorporated into a final order of court, which entitled it to full faith and credit in Delaware. Therefore, the duPonts claim that any subsequent actions concerning its validity are barred by res judicata and relitigating "substantive issues, if precluded by Nevada law, is reversible error."[54] Beck responds that the full faith and credit claim fails, because the Nevada court did not have personal or in rem jurisdiction over the Trust, its trustees or Sam's unborn beneficiaries, did not apply Delaware law concerning the validity of the LPOA exercise in the Settlement Agreement, and the Agreement was "merely blessed" by the Nevada Court and not vetted in "fully and fairly litigated adversarial proceedings."[55] Further, Heckscher asserts that full faith and credit, res judicata and collateral estoppel do not apply in this case because, by its terms, the divorce decree binds only Sam and Helen; neither the Trust nor any trustee was made a party to the Nevada action; and the enforceability of paragraph five of the Settlement Agreement was never considered by the Nevada court.[56]

         Under the United States Constitution and the Full Faith and Credit Act ("FFCA"), every state is expressly required to treat a judgment of another state with the same respect that it would receive in a court of the rendering state.[57] The FFCA has "long been understood to encompass the doctrines of res judicata, or 'claim preclusion' and collateral estoppel, or 'issue preclusion.'"[58] Res judicata, or claim preclusion, bars all claims that were litigated or could have been litigated in the earlier action.[59] For res judicata to bar a subsequent action under Delaware law, five factors must apply: (1) the court making the prior adjudication had jurisdiction; (2) the parties in the current action are either the same parties or in privity with the parties in the prior action; (3) the prior adjudication was final; (4) the causes of action and the issues decided were the same in both cases; and (5) the issues were decided adversely to the petitioners' contentions in the current case.[60] The doctrine of res judicata is based upon the public policy against claim splitting - that a subsequent claim is barred if a plaintiff could have presented it, in its entirety, in the prior forum.[61]

         Res judicata applies if the same parties are involved in both lawsuits and, under Delaware law, it applies regarding others in the later suit who are in privity with the original parties. The key factor in determining privity is "whether the interests of a party to the first suit and the party in question in the second suit are aligned."[62] And, the test of "privity is whether there is a 'close or significant relationship between successive defendants' (emphasis included)."[63] If all of the res judicata factors are met, a settlement approved by a court "has the same res judicata effect as a final judgment on the merits."[64] For collateral estoppel, a judgment in a prior suit operates to preclude relitigation of a factual issue which was litigated and decided in a prior suit between the same parties or their privies, in a subsequent suit on a different cause of action.[65]

         However, when applying the preclusion analysis to a judgment from another state, the foreign judgment should be given the same effect "that it has in the state of rendition with respect to the persons, the subject matter of the action and the issues involved."[66] So, in this case, we must look to Nevada law - the state which rendered the divorce decree - to determine whether that state would conclude that res judicata or collateral estoppel bars this subsequent litigation. Nevada law is relatively similar to Delaware law - Nevada courts apply a three-part test for determining whether claim preclusion, or res judicata, bars subsequent litigation, if the defendant in the subsequent action demonstrates that "(1) there has been a valid, final judgment in a previous action; (2) the subsequent action is based on the same claims or any part of them that were or could have been brought in the first action; and (3) the parties or their privies are the same in the instant lawsuit as they were in the previous lawsuit, or the defendant can demonstrate that he or she should have been included as a defendant in the earlier suit and the plaintiff fails to provide a 'good reason' for not having done so."[67] In Nevada, issue preclusion applies to issues that were actually and necessarily litigated in prior litigation and on which there was a final decision on the merits.[68] The difference between claim and issue preclusion was explained by the Nevada Supreme Court as follows: claim preclusion applies to preclude completely a second suit based on the same set of facts and circumstances as the first suit, while issue preclusion prevents relitigation of a "specific issue that was decided in a previous suit between the parties, even if the second suit is based on different causes of action and different circumstances."[69]

         The mandate of full faith and judgment for judgments imposed in other states is limited to those judgments for which res judicata or collateral estoppel would be given effect in the rendering state. I do not find that, under either Nevada or Delaware law, res judicata or collateral estoppel bar this Court's consideration of whether Sam's exercise of the LPOA in the Settlement Agreement, which was incorporated into the 1962 divorce decree, is enforceable against the Trust.

         Here, the duPonts argue the doctrine of res judicata bars this litigation, but they have not demonstrated that the petitioner in this action, the trustee, or the Trust, were parties or in privity to a party in the earlier action, or that the principles of nonmutual claim preclusion, as adopted by Nevada, have been met.[70] Sam and Helen were the parties in the 1962 divorce proceedings and the only persons whom the divorce decree states were bound by the decree. There is no evidence the Trust was brought into the divorce action or that the Nevada court had jurisdiction over the Trust, its trustees, or its contingent beneficiaries. The Settlement Agreement, by its terms, pertained to the parties' property rights and Sam had no claim to - or property interest in - the LPOA. And, the duPonts have not shown that the Trust was in privity with Sam (under Nevada law, that its interests arose, after the 1962 divorce decree, through "inheritance, succession, or purchase" from Sam), nor have they shown that the principles of nonmutual claim preclusion apply in this case. Further, at the time of the 1962 divorce decree, Sam's interests were not aligned with the Trust's concerns - Sam wanted to come to an agreement with Helen to enable him to end his first marriage so that he could enter into his second marriage, while the Trust's focus was on carrying out the donor's intentions and protecting the interests of current or future beneficiaries. Ernest intended that Sam exercise the testamentary LPOA at the end of his life, which is in direct conflict with the Settlement Agreement. Therefore, based upon the failure to show that the privity requirement for res judicata has been met, the Nevada divorce decree incorporating the Settlement Agreement is not entitled to full faith and credit in Delaware.[71] Similarly, any claim that the Nevada court's judgment is entitled to full faith and credit in this case based upon collateral estoppel fails. Again, the privity requirement is lacking under both Nevada and Delaware law, which is required for res judicata and collateral estoppel.[72]

         C. This action is not a collateral attack, and the doctrines of unclean hands and laches do not apply

         I also find that this action is not a collateral attack on the Nevada divorce decree. A collateral attack is an attempt to "avoid, defeat, evade, or deny the force and effect of a final . . . judgment in an incidental proceeding other than by appeal, writ of error, certiorari, or motion for new trial."[73] This action is not an attack on the divorce itself, or on Sam's actions related to the Settlement Agreement; instead, the Trust is seeking to determine the effect of Sam's agreement to exercise the LPOA on the Trust.[74] I concur with Heckscher's argument that it would not result in good public policy if trusts are deemed to have mounted a collateral attack, and precluded from challenging foreign court actions affecting them, where they had no knowledge of, or involvement in, the earlier court proceedings.[75]

         The duPonts also argue that Heckscher and Sam are barred by the doctrines of unclean hands and laches from collaterally attacking the decree related to Trust assets because the Trust failed to challenge Sam's exercise of the LPOA in the Settlement Agreement for the more than fifty years (even after learning about the Herndon Opinion's advice that the Settlement Agreement was unenforceable as to the LPOA), and that Heckscher's inaction has had consequences. Beck claims unclean hands or laches are irrelevant because nothing Sam or Heckscher did could affect the primacy of Ernest's intent; Sam could not bargain away what was Ernest's property, pursuant to longstanding Delaware law. Heckscher responds that the collateral attack claim is a red herring contrived as a platform to assert laches and unclean hands, and that those affirmative defenses were not plead and are waived.

         Under the unclean hands doctrine, equitable relief is denied "where the litigant's own acts offend the very sense of equity to which the litigant appeals," if that inequitable conduct relates directly to the underlying litigation.[76] The unclean hands doctrine is invoked when a litigant's acts "threaten to tarnish the Court's good name," and not as a "means to aid a party who faces an unscrupulous opponent."[77]The Court of Chancery has broad discretion in deciding whether to grant relief under the unclean hands doctrine.[78] "Defendants bear the burden of pleading and proving 'unclean hands' as an affirmative defense."[79] Laches is an affirmative defense barring an action if the plaintiff unreasonably delayed in bringing a claim that he had knowledge of, which resulted in prejudice to the defendant.[80]

         Heckscher argues the duPonts failed to assert the defenses of unclean hands or laches in their responsive pleadings and those defenses are waived.[81] Generally, affirmative defenses that are not plead are waived.[82] However, there is a recognized exception to the general rule when "evidence of an unpled affirmative defense is admitted without objection."[83] Here, the duPonts did not assert the defenses of unclean hands or laches in their responsive pleadings and brought those defenses up for the first time in the opening brief for their motion for summary judgment, as justification to bar Heckscher from collaterally attacking the divorce decree. The duPonts have not sought to amend their pleadings to include those defenses, nor were those issues admitted without objection. Therefore, I conclude that these defenses are waived. Assuming arguendo that they are not waived, the doctrines of unclean hands and laches would not prevent the Trust and Heckscher from pursuing this action since there is no evidence that Heckscher, as trustee, unreasonably delayed in bringing a claim that he had knowledge of, to the prejudice of the duPonts. The petition seeks clarification concerning whether the LPOA exercise through Sam's Last Will or through the Settlement Agreement controls. It would have been premature for Heckscher to file this petition prior to Sam's death since the testamentary LPOA did not take effect until that time. And, it is not clear how Heckscher's actions - or inaction - as trustee specifically prejudiced the duPonts' claim regarding Sam's agreement to exercise the LPOA in their favor in the Settlement Agreement.

         D. The Settlement Agreement did not release Sam's power to appoint

         The duPonts assert that the Settlement Agreement acted as a partial release of Sam's LPOA. Beck responds that the Settlement Agreement was not a partial release, but rather, was a contract to affirmatively exercise Sam's LPOA. Heckscher contends that the Settlement Agreement was not, and was not intended to be, a release or partial release.

         Under Delaware law, a power of appointment is usually releasable, with or without consideration, if the release is made in a signed writing and delivered as provided by law.[84] A release of a power of appointment "limits or eliminates the donee's power to appoint."[85] The Tigani opinion explains the distinction between a release and a contract to exercise a power of appointment: "A release operates negatively, by limiting or altogether eliminating a donee's power of appointment. A contract to appoint, on the other hand, operates affirmatively as a purported exercise of the power."[86]

         The Settlement Agreement, in paragraph five entitled "EXERCISE OF POWER OF APPOINTMENT IN FAVOR OF ISSUE OF THIS MARRIAGE," clearly shows that Sam and Helen intended that Sam "exercise the power of appointment" and "make an appropriate testamentary instrument implementing this Agreement, appointing [the duPonts] as the persons to whom Trustee shall pay over and deliver absolutely upon [Sam's] death the entire trust fund."[87]

         The duPonts argue that the Trust explicitly permits Sam to release the LPOA and a court "should be liberal as to the form of the release."[88] Flexibility aside, the plain meaning of the language in paragraph five of the Settlement Agreement makes it impossible to view that language as a release. Further, Sam's actions showed what paragraph five intended - he exercised the power of appointment in a will that was included as an attachment to the Settlement Agreement.

         The duPonts cited the statement in Tigani that the donee's exercise of her power of appointment in a codicil to her will could, "[a]rguably . . . be read as a partial release or as a contract to release."[89] In Tigani, the donee's codicil provided that no property subject to the LPOA that she was exercising "shall be distributed to [her] son [or his issue]." [90] Then Master LeGrow indicated that language might be read as a release, because it acted negatively to limit the donee's power of appointment by reducing the class of permissible appointees of the power.[91] In contrast, the Settlement Agreement, and the 1962 will, represented an affirmative exercise of the LPOA in favor of certain appointees.

         The duPonts also assert that the Settlement Agreement, operating as a partial release, is consistent with Ernest's intent since, if the LPOA was not exercised, the Trust property was to be distributed to Sam's lawful issue and the duPonts were the only takers in default at that time. I do not find that argument persuasive. The Trust Agreement indicates that Ernest intended Sam to exercise the LPOA in his last will and testament and, if he failed to do so, his lawful issue per stirpes would be the beneficiaries. "Issue" means "all of the person's lineal descendants of all generations," and per stirpes provides that property is divided proportionately by share.[92] Contrary to the duPonts' interpretation, the Trust language indicates that, if Sam did not exercise the LPOA, then Ernest intended for all of Sam's issue at the time of his death - not just those from his ...


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