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Chase v. Chase

Court of Chancery of Delaware

December 13, 2019

Michael D. Chase
v.
Martha L. Chase and Clare L. Chase

          Date Submitted: November 14, 2019

          Stephen A. Spence, Esquire, Baird Mandalas Brockstedt, LLC.

          Stephen P. Ellis, Esquire, Stephen P. Ellis Law Firm, LLC.

         Dear Counsel:

         Pending before me is a motion to dismiss the count in a counterclaim that seeks a declaratory judgment requiring the immediate distribution of trust property to the trust's residuary beneficiaries. Counterclaim-defendants argue that the property cannot be distributed until trust obligations are paid and administration of the trust is completed, and that the Court should not involve itself in claims regarding the Tennessee trust. Counterclaim-plaintiffs respond that this Court can resolve these claims and the trust requires immediate distribution of trust property to the beneficiaries. I recommend the Court find that Delaware courts can hear the trust claims but grant the motion to dismiss because it is not reasonably conceivable that the trust could be interpreted to require immediate distribution of the trust's property under the circumstances. This is a final report.

         I. Background

         On August 8, 2001, spouses Louise Chase ("Louise") and Nicholas Chase ("Nicholas") deeded to themselves undivided 50% interests as tenants in common of property located on Columbia Avenue, Rehoboth Beach, Delaware ("Property").[1] On January 22, 2004, Nicholas established the Irrevocable Trust of Nicholas J. Chase ("Trust") in Tennessee, naming his sons, Michael Chase ("Michael") and Stephen Chase ("Stephen"), as co-trustees of the Trust (together, "Co-Trustees").[2] That same day, Nicholas transferred his interest in the Property to the Trust.[3] The Trust provided that, during Nicholas' lifetime, Co-Trustees shall pay income or principal from the Trust for Nicholas' "care, support, health, and comfort" and, upon his death, "the rest residue and remainder of the trust estate shall be distributed to [Nicholas'] then living issue, per stirpes," if Louise predeceased him.[4]

         Louise's 50% interest in the Property devised to Louise and Nicholas' five children, Michael, Stephen, Mary Ann Chase Gaston ("Mary Ann"), Martha Chase ("Martha") and Clare Chase ("Clare") upon Louise's death on December 31, 2008, with each owning a 10% interest in the Property.[5] On July 22, 2015, Co-Trustees executed a mortgage ("Mortgage") on the Trust's share of the Property securing a revolving line of credit of up to $500, 000.00.[6] The line of credit currently has a principal balance of $298, 509.65.[7] Co-Trustees contend the line of credit was needed because Nicholas' liquid assets were insufficient to pay for the level of skilled care he required until his death at 103 years of age on November 4, 2016.[8]Martha and Clare (together, "Respondents") argue that Nicholas' liquid assets were sufficient to pay for his health, support and maintenance needs until he was 107 years of age, and that Co-Trustees' mismanagement of Nicholas' assets caused the "purported need to seek a line of credit."[9]

         On May 29, 2019, Michael and Stephen, individually and as co-trustees, and Mary Ann, petitioned the Court to partition the Property and order a partition sale of the Property, asserting a partition in kind would be detrimental to the interests of the co-owners.[10] Respondents' August 7, 2019 answer denied that a partition in kind would be detrimental to the co-owners' interests since the Property is equivalent to two and one-half typical Rehoboth Beach lots and can be equitably divided among the co-owners, resulting in an increase of value to each co-owner.[11]In their August 7, 2019 counterclaim ("Counterclaim"), Respondents seek damages from Co-Trustees for unlawful ouster by not allowing them to access or use the Property, and for waste of the Property caused by the Co-Trustees' failure to properly care for the Property or to rent the Property to produce revenue.[12]Respondents also seek a declaratory judgment that Co-Trustees have failed to comply with the terms of the Trust and are required to immediately distribute the Property to Nicholas' five children.[13]

         In their response to the Counterclaim, Co-Trustees deny that they have ousted Respondents, and argue that Respondents have had full access to the Property and have been the primary occupiers of the Property, so any rent due would be owed by Respondents.[14] They also claim Respondents have failed to notify Co-Trustees of needed repairs or to maintain the Property that they are using, and have refused to consider third-party rental of the Property because it would interfere with their use.[15] Co-Trustees allege their inability to distribute Trust assets has resulted from Respondents' actions, and Trust assets will be distributed once all Trustee expenses, including the Mortgage, are paid.[16]

         On September 11, 2019, Co-Trustees filed a motion to dismiss Count III of the Counterclaim ("Motion") because, they argue, there are no disputed material facts; Count III seeks a distribution of Trust assets prior to paying Trust expenses, contrary to the Trust and the law; and the Court of Chancery should not review claims of Trust mismanagement, since Tennessee law controls the interpretation and enforcement of the Trust.[17] They also seek attorneys' fees. Respondents oppose the Motion, asserting that there are disputed material facts about the "Co-Trustees' management of the Trust and the meaning and application of the Trust's terms," and the Court of Chancery is capable of reviewing and interpreting Tennessee law.[18]

         II. Analysis

         Under Court of Chancery Rule 12(b)(6), the Court may dismiss a party's claims for failure to state a claim. The facts for purposes of the motion to dismiss under Rule 12(b)(6) are drawn from the counterclaim and all well-pled allegations in the counterclaim are assumed to be true, with the counterclaim-plaintiffs receiving the benefit of all reasonable inferences.[19] Vague allegations are considered "well-pleaded" if they provide the opposing party with notice of the claim.[20] But, conclusions in the counterclaim are not accepted as true without allegations of facts to support them.[21] A broad brush is used in determining sufficiency of claims - whether the counterclaim-plaintiffs may recover under any reasonably conceivable set of circumstances susceptible of proof.[22] If recovery on a particular claim is not reasonably conceivable, then the Court grants the motion and dismisses that claim under Rule 12(b)(6); if it is, the motion to dismiss is denied.

         Here, the Motion seeks dismissal of Count III of the Counterclaim, which asks the Court to declare that the Trust requires the immediate distribution of the Trust's share of the Property to Nicholas' five children. The main issues are (1) whether the Court of Chancery should apply Tennessee law regarding Co-Trustees' management of the Trust, and (2) whether it is reasonably conceivable that the Trust could be interpreted to require immediate distribution of the Trust's property.[23]

         Considering the first issue, Co-Trustees ask the Court to decline to review the Trust claims because they should be addressed by Tennessee Courts.[24] It is not uncommon for Delaware courts to apply other states' law related to matters of controversy before them, just as other states "have been called upon to apply Delaware law."[25] And, although it is not clear if the Motion is asking the Court to dismiss the Trust claims because they should be litigated in another forum on the grounds of forum non conveniens, I consider the Motion on those grounds.[26]

         "The standards that govern a motion to dismiss on grounds of forum non conveniens are well-established under Delaware Law."[27] A plaintiff's choice of Delaware as its forum is presumed to be proper and the defendant "bears a heavy burden" to obtain dismissal on the grounds of forum non conveniens.[28] It is well- settled that "defendants moving to dismiss a first-filed suit on the grounds of forum non conveniens must establish with particularity that they will be subjected to overwhelming hardship and inconvenience if required to litigate in Delaware."[29]In cases where the plaintiff has chosen Delaware as its first forum, the Court considers the factors set forth by the Delaware Supreme Court in General Foods Corp. v. Cryo-Maid, Inc. and subsequent decisions: "(1) the relative ease of access to proof; (2) the availability of compulsory process for witnesses; (3) the possibility of the view of the premises; (4) whether the controversy is dependent upon the application of Delaware law which Delaware courts more properly should decide than those of another jurisdiction; (5) the pendency or nonpendency of a similar action or actions in another jurisdiction; and (6) all other practical problems that would make the trial of the case easy, expeditious and inexpensive."[30]

         In this case, there is no evidence of a previously filed action in another jurisdiction, so the forum non conveniens analysis is guided by the Cryo-Maid factors. Co-Trustees focus on the fourth factor in their argument - the Trust is construed and enforced under Tennessee laws and Delaware law is not applicable, and Respondents have not sought a review of the Trust administration in Tennessee in the three years since Nicholas' death.[31] Even though it may be more convenient for Tennessee courts to apply Tennessee law to the Trust claims, I consider that the partition is the first-filed action; Delaware courts are capable of applying Tennessee law; and there is no evidence that litigating Count III in Delaware would affect the ease of access to evidence or cause practical problems making litigation of the claims more difficult, expensive, or slower. I find that, considering dismissal on the grounds of forum non conveniens, Co-Trustees have not established, with particularity, that they will suffer overwhelming hardship and inconvenience if the Trust claims are litigated in Delaware. Accordingly, I recommend against dismissal of Count III on that basis.

         Next, I consider whether it is reasonably conceivable that the Trust could be interpreted to require immediate distribution of the Trust's property. If it is not reasonably conceivable, then Count III of the counterclaim should be dismissed. Respondents claim that there are factual disputes about the "meaning and application about the Trust's terms," and about Co-Trustees' failure to comply with the terms of the Trust by mismanaging Trust assets and by not distributing Trust assets to the beneficiaries upon Nicholas' death.[32] Co-Trustees deny there are disputed material facts and seek dismissal because Count III is premature - it would be contrary to the terms of the Trust and law for Trust assets to be distributed prior to paying Trust expenses, including the Mortgage.[33]

         In this case, I consider whether the Trust requires the immediate distribution of Trust assets upon Nicholas' death. First, the Trust provides that it "shall be construed and enforced in accordance with the laws of the State of Tennessee."[34]Accordingly, I apply Tennessee law in interpreting the Trust.[35] Under Tennessee law, "[t]he interpretation of a trust instrument is a question of law for the court."[36]Trust instruments are construed "in much the same way [courts] interpret contracts or wills," and the "important thing in the construction of the trust instrument is to determine the intention of the settlor as evidenced by all the provisions of the instrument."[37]

         Article 4(b) of the Trust provides that, following Nicholas' death, if his wife does not survive him, "the rest residue and remainder of the trust estate shall be distributed to [Nicholas'] then living issue, per stirpes."[38] However, the question is how that Article interrelates with other trustee powers and duties, and are the Co-Trustees obligated to address outstanding Trust obligations before the distribution occurs?

         Article 11 of the Trust grants Co-Trustees "the powers applicable to trustees set forth in Tennessee Code Annotated Section 35-50-110, which powers are incorporated herein by reference, except such of those powers inconsistent with the express provisions of this trust agreement."[39] Section 35-50-110, detailing a fiduciary's powers, provides that a fiduciary is authorized, "in behalf of the estate, to borrow money," and to secure those loans by "mortgages . . . imposing liens upon real property," and to "repay those loans, including principal and interest due thereon."[40] The fiduciary has the power to settle "claims or demands against the estate, or held in behalf of the estate."[41] Section 35-15-816 of the Tennessee Code details trustees' specific powers, which that statute provides are also included by reference when a trust incorporates by reference the powers in section 35-50-110.[42]Section 35-15-816 authorizes a trustee to "[b]orrow money, with or without security, and mortgage or pledge trust property for a period within or extending beyond the duration of the trust."[43]

         Respondents argue that Co-Trustees did not need to mortgage the Property because there were sufficient Trust assets to satisfy Nicholas' needs. Any dispute regarding Co-Trustees' management of Trust funds is not central to determining whether immediate distribution of Trust property is required under the Trust.[44]Under the Trust and Tennessee law, Co-Trustees had the authority to borrow money on behalf of the Trust and mortgage the Trust's interest in the Property to secure the loan. It was Nicholas' intent, as grantor, that Co-Trustees use Trust assets, including income and principal, for his health and support during his lifetime and, following his death (if Louise predeceased him), to distribute the "rest residue and remainder of the trust estate" to Nicholas' surviving issue, per stirpes.[45] He also tasked Co-Trustees with acting as fiduciaries, "after forming a judgment based upon all the circumstances of any particular situation as to the wisest and best course to pursue in the interest of the [T]rust and the beneficiaries."[46]

         There is no dispute as to the facts material to Count III: beginning in July of 2015 (before Nicholas' death) through today, there is a valid lien in the form of a recorded mortgage on the Trust's share of the Property.[47] The Trust's share of the Property is a part of the trust estate, but it is subject to the mortgage lien, which constitutes a debt against the Trust. It is not the Trust's share of the Property that is required by the Trust to be distributed upon Nicholas' death, but the residue of the Trust estate - what is remaining once Trust administration is completed. There is no specific provision in the Trust related to its termination. The distribution of all of the Trust assets under Article 4(b) would serve to, effectively, terminate the Trust and Co-Trustees have authority to wind up the Trust administration.[48] "In the absence of specific provisions for termination, a trust will continue as long as may be necessary to accomplish the purpose for which it was created."[49]Completion of the Trust's administration, including payment of obligations incurred by the Trust, is necessary to accomplish the Trust's purpose. There is no evidence that Co-Trustees' actions have caused unreasonable delay in the completion of the Trust administration and distribution of the Trust estate. By filing this action, they seek to partition the Property in furtherance of that process. I find it is not reasonably conceivable that the Trust could be interpreted to require immediate distribution of the Trust's assets without first addressing Trust obligations. Count III of the counterclaim is premature. I recommend that the Court grant the motion to dismiss Count III of the counterclaim.

         Finally, Co-Trustees request attorneys' fees in their motion to dismiss. Under Delaware law, the standard for awarding attorney's fees in litigation by the Court of Chancery is well-established.[50] Typically, litigants pay their own attorneys' fees and expenses under the American Rule.[51] But, courts have deviated from the American Rule under the bad faith exception, which has been found where parties have unnecessarily prolonged or delayed litigation, falsified records or ...


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