Hodges v. Johnson

173 N.H. 595

244 A.3d 245

David A. HODGES, Jr. & a.

v.Alan JOHNSON & a.

No. 2019-0319

Supreme Court of New Hampshire.

Argued: May 13, 2020

Opinion Issued: September 23, 2020

Hage Hodes, Professional Association, of Manchester (Jamie N. Hage and Katherine E. Hedges on the brief, and Mr. Hage orally), for Judith L. Bomster and J. Daniel Marr, Co-Trustees of the 2004 David A. Hodges, Sr. Irrevocable GST Exempt Trust and the 2004 David A. Hodges, Sr. Irrevocable GST Non-Exempt Trust.

Barradale, O'Connell, Newkirk & Dwyer, P.A., of Bedford (Pamela J. Newkirk on the brief and orally), and The Stein Law Firm, PLLC, of Concord (Robert A. Stein on the brief), for defendants Alan Johnson and William S. Saturley.

Flood Sheehan & Tobin, PLLC, of Concord, filed no brief, for Joanne M. Hodges.

HICKS, J.

Defendants Alan Johnson and William S. Saturley are the former co-trustees of the 2004 David A. Hodges, Sr. Irrevocable GST Exempt Trust and the 2004 David A. Hodges, Sr. Irrevocable GST Non-Exempt Trust (collectively, the 2004 Trusts). For ease of reference, we refer to Johnson and Saturley as the Former Co-Trustees. In 2017, we upheld a circuit court decision, following a bench trial, that set aside "decantings" from the 2004 Trusts and removed the Former Co-Trustees. See Hodges v. Johnson, 170 N.H. 470, 473, 488, 177 A.3d 86 (2017). As explained in Hodges, "[d]ecanting is the term generally used to describe the distribution of trust property to another trust pursuant to the trustee's discretionary authority to make distributions to, or for the benefit of, one or more beneficiaries." Id. at 473, 177 A.3d 86 (quotation omitted). We specifically left "for another day the issue of whether [the Former Co-Trustees] are entitled to indemnification for the fees and expenses incurred in this proceeding" because, at that time, the trial court had not ruled upon the issue. Id. at 488, 177 A.3d 86.

In this appeal, the Former Co-Trustees challenge the determination, recommended by a Judicial Referee (Cassavechia, R.), and approved by the Circuit Court (Alfano, J.), that, except for attorney's fees and costs incurred for certain administrative tasks: (1) they are not entitled to be reimbursed from the 2004 Trusts for the post-trial fees and costs they personally incurred to defend the decantings; and (2) they must reimburse the 2004 Trusts for the fees and costs the trusts incurred to defend the decantings at trial. We affirm.

I. Facts

We repeat the facts set forth in Hodges as necessary to decide the instant appeal and supplement those facts with facts drawn from the content of documents submitted in the record on appeal. The settlor of the 2004 Trusts, David A. Hodges, Sr., died in 2015. Id. at 473, 177 A.3d 86. When the settlor created the trusts in 2004, Johnson was the sole trustee; Saturley was later appointed to be his co-trustee. Id. at 474, 177 A.3d 86. The beneficiaries of the trusts are: (1) the settlor's ex-wife, Joanne M. Hodges; (2) his three biological children, plaintiff David A. Hodges, Jr. (David Jr.), Nancy Hodges-Friese, and Janice Hodges (now Coville); (3) his two step-children, plaintiffs Barry R. Sanborn and Patricia Sanborn Hodges; and (4) descendants, as defined by the trust instruments.¹ Id. at 473-75, 177 A.3d 86. The 2004 Trusts are irrevocable, and both trust instruments contain a provision in which the settlor specifically acknowledged that he had "no right or power, whether alone or in conjunction with others, in whatever capacity, to alter, amend, modify or revoke the trust instrument or to designate the persons who shall possess or enjoy the trust property or its income." Id. at 475, 177 A.3d 86 (quotations omitted). The 2004 Trusts were created to take advantage of certain tax benefits related to the family's closely-held business. See id.

Each trust instrument provides that, during the settlor's lifetime, the trust beneficiaries had a right to withdraw from the trust whenever property was contributed to it. Id. Another provision states that Joanne "during her life should be deemed the primary beneficiary of the trust." Id. at 476, 177 A.3d 86 (quotation omitted). The instruments also specify that, upon the settlor's and Joanne's deaths, provided that all five of the settlor's children and step-children are then living, the trust corpus is to be divided into five separate trusts for each of the settlor's children and step-children and their respective descendants. Id. at 475-76, 177 A.3d 86.

The trust instruments also provide for discretionary distributions during the settlor's lifetime to the beneficiaries and to so-called "distributee trusts," which are subject to the beneficiaries’ rights of withdrawal. Id. at 475, 177 A.3d 86 (quotation omitted). The provision in each trust document regarding such discretionary distributions allows the trustee(s) to "distribute all or any portion of the net income and principal of the trust to any one or more of the group consisting of [Joanne], [the settlor's] descendants, and distributee trusts, in such amounts and at such times as the Trustee, in the Trustee's discretion, may determine." Id. (quotation omitted).

The 2004 Trusts also establish a "Committee of Business Advisors," who, by majority vote, have the exclusive authority, upon the settlor's death or incapacity, or upon such earlier date as he may designate, to make all business decisions for the family's business interests.

Id. at 476, 177 A.3d 86 (quotation omitted). The trust instruments empower the settlor, while living and competent, to amend the provisions related to "the appointment, resignation, removal, and number" of the members of the Committee of Business Advisors, as well as "their powers, duties and liability." Id. at 477, 177 A.3d 86 (quotations omitted).

In 2009, the settlor retained an attorney, Joseph McDonald, to assist him in his estate plans.² Id. at 473, 477, 177 A.3d 86. According to McDonald, at that time, the settlor "was reconsidering his prior generosity toward" his step-children (Sanborn and Sanborn Hodges). Id. at 477, 177 A.3d 86. McDonald advised the settlor that, although the 2004 Trusts are irrevocable, the Former Co-Trustees could decant the trust assets into distributee trusts that could be created for the benefit of some, but not necessarily all, of the beneficiaries of the 2004 Trusts. Id. McDonald testified that he informed the Former Co-Trustees that he would be willing to prepare new trusts for the settlor "that would reduce the beneficial interests" of Sanborn and Sanborn Hodges. Id. at 477-78, 177 A.3d 86. He also testified that he told the Former Co-Trustees that they had the discretion to decant the assets of the 2004 Trusts into those new trusts and that he would be willing to serve as the decanting trustee. Id. at 478, 177 A.3d 86.

The decanting documents were executed in 2010, 2012, and 2013. Id. As a result of the 2010 decanting, Sanborn and Sanborn Hodges were specifically excluded from the definition of "descendants" under the trust documents. Id. (quotation omitted). As a result of the 2012 decanting, which superseded and replaced the 2010 decanting, all three plaintiffs (Sanborn, Sanborn Hodges, and David Jr.) were specifically excluded from the definition of "descendants" in the trust documents. Id. (quotation omitted). The 2013 decanting, which superseded and replaced the 2012 decanting, removed Joanne's beneficial interests as well as the plaintiffs’ future such interests. Id. at 478, 177 A.3d 86. Each decanting was accomplished by Johnson resigning as co-trustee, McDonald replacing Johnson as co-trustee, Saturley delegating his decanting power to McDonald, McDonald executing the decanting documents and resigning as co-trustee, and Johnson being reappointed as co-trustee. Id. at 478, 177 A.3d 86.

In April 2014, the plaintiffs filed a petition asking the trial court to declare the decantings void ab initio and to remove the Former Co-Trustees. Id. at 479, 177 A.3d 86. Following a three-day bench trial, the trial court granted both requests. Id.

As to the decantings, the trial court found that the evidence suggested "that [they] were undertaken and completed at the request, with the blessing, and at the direction of" the settlor. Id. (quotation omitted). Indeed, the trial court stated that, based upon the totality of the evidence before it, it was "inclined ... to conclude that [the settlor's] personal desire to disinherit: (1) a daughter with whom he was estranged; (2) sons with whom he was fighting; and (3) a soon-to-be ex-wife who had sided with the sons, took precedence over any concern that the [plaintiffs] and Joanne were a threat to the continuation of [the family business]." Accordingly, the court "deduce[d] that the driving force behind the decision to decant was to honor and carry out the express wishes of [the settlor] to disinherit family members with whom he was unhappy." The trial court did not find "particularly convincing" the evidence offered by the Former Co-Trustees to support their contention that they operated independently of the settlor's "direct influence or direction," observing that there was "no evidence that [the Former Co-Trustees] ... ever consulted independent counsel specializing in trusts and estates."

Additionally, the trial court stated that the "substantial beneficial interest" held by one of the Former Co-Trustees in a separate revocable trust controlled by the settlor and that Former Co-Trustee's appointment as president of the family business and his "long-term status" as the business's chief financial officer, "along with [the other Former Co-Trustee's] position as corporate counsel and member of the Committee of Business Advisors, and the fact that ... McDonald was hired by, and billed, [the settlor] for the specific purpose and in the course of investigating removal of disfavored family members from his irrevocable trusts, leastwise leave a taint that is not removed by the very fact a law exists requiring trustees to...