J.P. MORGAN TRUST COMPANY OF DELAWARE, TRUSTEE OF THE FISHER 2006 TRUST F/B/O HADLEY FISHER U/A DTD 2/16/2006, Petitioner,
HADLEY FISHER and MICHAEL FISHER, Respondents.
Submitted: November 19, 2019
Richard L. Renck, Oderah C. Nwaeze, Jocelyn M. Borowsky,
DUANE MORRIS LLP, Wilmington, Delaware; Counsel for
Jeffrey S. Goddess, ROSENTHAL, MONHAIT & GODDESS, P.A.,
Wilmington, Delaware; Michael H. Friedman, KURZMAN EISENBERG
CORBIN & LEVER, LLP, White Plains, New York; Counsel for
Christopher P. Simon, Kevin S. Mann, CROSS & SIMON LLC,
Guardian Ad Litem for Michael Fisher and the interests of
other minor and unborn issue of Hadley Fisher.
trustee sued the trust's beneficiaries seeking a broad
declaration that the trustee had acted properly in all
respects. During discovery, the trustee invoked the
attorney-client privilege for otherwise relevant and
responsive documents. The beneficiaries moved to compel
production, relying on Riggs National Bank of Washington,
D.C. v. Zimmer, 355 A.2d 709 (Del. Ch. 1976).
beneficiaries have made the showing necessary under
Riggs to obtain production. Contrary to the
trustee's position, Riggs remains good law and
has not been abrogated by statute. The motion to compel is
facts are drawn from the parties' submissions in
connection with the motion to compel. Given the procedural
posture, this decision does not make findings of fact. It
rather describes how matters appear at this stage of the case
for purposes of this ruling.
The Creation Of The Trust
February 2006, with his health deteriorating, Richard Fisher
entered into an option agreement with a newly formed Delaware
limited liability company named RLF Assets, LLC (the
"Company"). Upon Richard's death, the option
would give the Company the right to purchase Richard's
ownership interest in Fisher Brothers, a real estate business
valued in the hundreds of millions of dollars (the
"Fisher Brothers Option").
members of the Company were Richard's three children:
Winston, Hadley, and Alexandra. Richard gave Winston a full
member interest that carried both voting and economic rights.
The LLC agreement designated Winston as the Managing Member
of the Company with sole authority to conduct its business
and affairs. Richard created trusts for Hadley and Alexandra.
Each trust received a special member interest that did not
carry any voting rights and initially did not have any
economic rights. As special members, the trusts did not have
any authority over the Company's business or affairs.
Winston caused the Company to exercise the Fisher Brothers
Option, then the Company would begin making distributions to
the special members. During each of the first ten years after
the exercise of the Fisher Brothers Option, the Company would
distribute at least $600, 000 to each special member and, if
sufficient net cash flow was available, up to $1, 200, 000.
Beginning in the eleventh year after exercise, the minimum
distribution would increase to $700, 000 and the maximum to
$1, 400, 000. Any remaining net cash flow would go to
exercise of the Fisher Brothers Option would also give the
Company the right to acquire the special member interests
after ten years (the "Special Member Buyout"). The
LLC agreement set the purchase price for each special member
interest at $10 million.
after executing these documents, Richard died. Shortly
thereafter, Winston exercised the Fisher Brothers Option.
J.P. Morgan Becomes Successor Trustee.
Richard's death, disputes arose among his widow, his
children, and the administrators of his estate. In March
2010, the parties settled. As part of the settlement, the
original trustees for Hadley's trust resigned. Petitioner
J.P. Morgan Trust Company of Delaware took over as the
the outset of its service as trustee, J.P. Morgan hoped to
recast Hadley's trust as a directed trust in which Hadley
would act as the investment advisor and J.P. Morgan's
duties would be limited to following his directives and
performing administrative functions. Hadley never agreed to
the amendments. As a result, J.P. Morgan has all of the
duties of a traditional common law trustee, except to the
extent modified by the terms of the trust agreement and
Delaware statutory law.
The Special Member Buyout
2016, Winston initiated the process for the Special Member
Buyout. On behalf of Hadley's trust, J.P. Morgan engaged
in discussions with Winston. An attorney from Duane Morris
LLP represented the trust and conducted the discussions.
October 2016, Winston offered two alternatives to the
contractual mechanism: either a cash purchase of the
trust's special member interest for $11.5 million or an
exchange of the special member interest for a pool of
securities that Winston would select. Both would generate a
significant tax burden for the trust. Hadley asked J.P.
Morgan to propose a third alternative: a tax-advantaged
distribution of real estate that would be held through a
special purpose entity. In an internal email, J.P. Morgan
described that alternative as "not something that is
acceptable to us" and declined to pursue it. Dkt. 80 Ex.
I at '375.
November 1, 2016, Hadley threatened to sue J.P. Morgan if it
accepted either of Winston's proposals. See id.
Ex. J ("He essentially said he will sue if we take one
of the deals on the table. He wants us to arbitrate [against
Winston]."). Later that month, J.P. Morgan accepted the
November 4, 2016, three days after accepting Winston's
proposal, J.P. Morgan filed this action against Hadley and
his minor son, Michael Fisher, who is a contingent
beneficiary of Hadley's trust. J.P. Morgan's petition
seeks an expansive declaratory judgment that it complied with
its legal and equitable duties in all respects:
Petitioner [J.P. Morgan] therefore seeks a declaration from
this Court that the Petitioner did not abuse its discretion
or otherwise breach its duty with respect to any of the
conduct described in this Petition, including, but not
limited to, its acts or omissions with respect to the Buyout,
or with respect to its decision not to pursue a claim against
Winston or any of the Co-Trustees for their acts or omissions
related to the Estate Settlement, RLF Agreement or
ratification of the Operating Agreement including the Buyout
Dkt. 10 ¶ 64.
contends that J.P. Morgan should have disputed Winston's
ability to trigger the Special Member Buyout. Hadley
maintains that Winston faced a conflict of interest because
he was both a partner in Fisher Brothers and the sole manager
of the Company. Hadley argues that in his latter capacity,
Winston owed fiduciary duties to the Company and all of its
members, including Hadley's trust. Hadley believes that a
loyal trustee would have raised Winston's conflict,
disputed whether the Special Member Buyout complied with the
Company's LLC agreement, and potentially commenced an
arbitration against Winston under the LLC agreement.
believes that J.P. Morgan gave in to Winston and accepted the
cash alternative because of its own conflicts of interest.
First, J.P. Morgan had financial incentives to cooperate with
Winston, because he and Fisher Brothers provide the bank with
substantial revenue. Second, J.P. Morgan had long wanted to
exit from its role as a common law trustee responsible for a
non-diversified interest in a closely held business, and the
cash alternative would achieve that goal. Third, the cash
alternative would generate a pool of investable funds that
J.P. Morgan could manage, creating a stream of future revenue
for the bank.
In discovery, Hadley has developed some evidence to support
• In a memorandum from April 2010 addressing whether
J.P. Morgan should accept the role of trustee, J.P. Morgan
noted that although the fee for Hadley's trust was only
$7, 500 annually, "[t]he Executive Wealth Group expects
to earn around $1, 000, 000 from the Fisher family
relationship in 2010." Dkt. 80 Ex. A at '124.
• In an October 2012 email exchange in which J.P. Morgan
considered withdrawing from its role as trustee, a J.P.
Morgan representative noted, "The critical decision is
if [the relationship manager] thinks JPM resignation will
jeopardize his ...