Hunter v. Hunter

838 S.E.2d 721

Charles M. HUNTER, Jr.

v.Eleanor A. HUNTER, in her Capacity AS TRUSTEE OF the THIRD AMENDED AND RESTATED THERESA E. HUNTER REVOCABLE LIVING TRUST Agreement, et al.

Record No. 190260

Supreme Court of Virginia.

MARCH 12, 2020

William W. Sleeth III (Brett C. Herbert ; Gordon Rees Scully Mansukhani, on briefs), Williamsburg, for appellant.

Daniel R. Quarles (Otey, Smith & Quarles, on brief), Williamsburg, for appellees.

PRESENT: All the Justices

OPINION BY JUSTICE D. ARTHUR KELSEY

A beneficiary of a living trust filed a declaratory judgment action seeking a judicial interpretation of two provisions of the trust. In response, the trustee filed a counterclaim seeking a declaratory judgment that the beneficiary’s action had violated the no-contest provision of the trust and that, as a result, the circuit court should revoke the beneficiary’s interest in the trust. Following a hearing on the trustee’s motion for summary judgment on the counterclaim, the circuit court ruled in favor of the trustee and dismissed the beneficiary’s action with prejudice. On appeal, the beneficiary argues that the court erred. We agree, reverse the summary judgment, and remand the case for further proceedings.

I.

Charles and Theresa Hunter married in 1953 and had two children, Charles ("Chip") and Eleanor, and one granddaughter. Charles and Theresa created separate revocable living trusts in 2010 and 2011, respectively. Charles’s trust named Theresa as the primary beneficiary, and Theresa’s trust (the "Theresa Trust") named Charles as the primary beneficiary. Both trusts named Chip, Eleanor, and the trustee of the granddaughter’s trust as equal contingent beneficiaries. When Charles died in 2013, all assets in his trust passed outright to Theresa free of any trust. The Theresa Trust provided that upon the death of both Charles and Theresa, Chip would receive one-third of the trust assets minus the value of certain loans previously extended to him and that Eleanor and the trustee of the granddaughter’s trust would also each receive one-third of the trust assets. The Theresa Trust named Theresa and Eleanor as initial co-trustees, and if Theresa ever became unable or unwilling to serve as trustee, Eleanor would be the sole trustee. See J.A. at 252. Chip alleged that "[o]n or after the time that Eleanor began serving as trustee of the Theresa Trust," Theresa became incapacitated and "lacked the capacity to revoke the Theresa Trust." Id. at 5.

After Theresa died in 2015, Chip received a brokerage account statement from his sister that allegedly showed a decline in the value of trust assets from $4.25 million to $1.77 million over the course of less than 6 years, which was during a period in which stock values had steadily risen across most market sectors. Chip requested additional information from his sister, including a full financial report of trust property that detailed receipts, disbursements, liabilities, trustee compensation, and asset valuations. According to Chip, Eleanor’s counsel refused to provide the additional information in reliance on a trust provision stating that the settlor "waive[d] the Trustee’s formal requirements to inform and report set forth under Section 55-548.13 of the Code of Virginia," id. at 256.¹

Chip filed this declaratory judgment action, seeking a favorable interpretation of the trust that would require Eleanor to provide Chip with information and documents related to the trust.² Aware of the no-contest provision in the Theresa Trust, Chip divided his declaratory judgment complaint into two carefully worded counts. Count II acknowledged the ultimate goal of the litigation by asserting that Chip sought the "determination of the rights of Chip and Eleanor" under the terms of the Theresa Trust to require the trustee to inform and report under Code § 64.2-775, other various provisions of the Virginia Uniform Trust Code, or stand-alone principles of common law and equity jurisprudence. The rationale behind Count II, as Chip explained to the circuit court in a subsequent brief, was that he interpreted the language of the inform-and-report waiver provision to only apply to the duty to inform and report under former Code § 55-548.13 and to have no effect on what he interpreted as freestanding inform-and-report duties arising under other sources of law. See R. at 177-85. Based upon prior communications with Eleanor’s counsel, Chip understood Eleanor’s position to be that the waiver provision relieved her of any and all inform-and-report duties.

The complaint expressly sought to create a firewall protecting Count I from any uninvited, premature consideration of Count II. Prior to the complaint’s allusion to the competing interpretations of the inform-and-report waiver provision, Count I requested that the circuit court "initially determine" whether determining Chip’s and Eleanor’s rights and duties under the trust "would constitute a ‘contest’ " under the no-contest provision, thereby triggering the forfeiture of Chip’s beneficial interest in the trust. J.A. at 3. Count I stated that the court should consider the request in Count II "if, and only if," the court interpreted the no-contest provision to be inapplicable. Id. Relying on our decision in Virginia Foundation of Independent Colleges v. Goodrich , 246 Va. 435, 436 S.E.2d 418 (1993), the complaint insisted that it sought "no further relief than that which has been held by the Virginia Supreme Court ... to permit a beneficiary to file a declaratory judgment action seeking an interpretation ... without such conduct being held to fall within the scope of a no contest clause and/or actuating a no contest clause." J.A. at 3. In Count I, Chip contended that he "merely [sought] an interpretation of the language of the Trusts with respect to the rights and duties of Chip and Eleanor," and thus, Count II did not trigger the application of the no-contest clause. Id. at 11.

Eleanor responded by filing a counterclaim seeking a declaratory judgment that Chip’s complaint, when read as a whole, constituted a contest of the Theresa Trust — thereby triggering the self-executing forfeiture of Chip’s entire beneficial interest in the trust. As Eleanor read the complaint, Chip was not truly requesting an interpretation but rather was attempting to avoid the effect of the inform-and-report waiver provision, and thus, Chip was contesting a material term of the trust.

When Eleanor filed a motion for summary judgment on her counterclaim, Chip added an alternative argument in his brief in opposition. Assuming that the court determined (incorrectly, Chip contended) that no independent duties compelled the trustee to inform and report to beneficiaries outside of the statutory duty expressly waived by the trust, then both the inform-and-report waiver provision and the no-contest provision were either "not valid under law" or "void [as] against public policy." See R. at 181-86.³

Granting summary judgment to Eleanor on her counterclaim, the circuit court agreed with her characterization of Chip’s complaint, declared that Chip’s beneficial interest in the trust was revoked, and directed Chip to pay Eleanor’s attorney fees. Chip’s declaratory judgment complaint, the court ordered, was "dismissed with prejudice in its entirety." J.A. at 147. The court did not mention or address the alternative argument raised solely in Chip’s brief in opposition. Given the circuit court’s ruling that Chip’s complaint contested the trust, it did not address Chip’s arguments on the proper interpretation of the inform-and-report waiver provision.

II.

On appeal, Chip asserts seven assignments of error challenging the circuit court’s final order. We hold that one of his arguments — challenging the court’s application of the no-contest clause to his complaint — is dispositive for purposes of this appeal. On this limited ground, we reverse the circuit court’s summary judgment and remand the case for further proceedings.

A. IN TERROREM PROVISIONS

Over the centuries, individuals contemplating death have said various things in their wills to strike terror into the hearts of anyone seeking to undermine their testamentary intent. In ancient times, the terror was quite real, as the contester could be cast out of the family and lose its protection. A Mesopotamian will from the thirteenth century B.C. declared that the disgruntled beneficiary must "set his cloak upon the doorbolt" and then "depart into the street" as his more respectful brother acquired the entire inheritance. Gerry W. Beyer et al., The Fine Art of Intimidating Disgruntled Beneficiaries with In Terrorem Clauses , 51 SMU L. Rev. 225, 231 (1998) (quoting 2 The Ancient Near East: A New Anthology of Text and Pictures 80 (James B. Pritchard ed., 1975)).

English common law brought many changes to the law of inheritances but did not preclude the use of in terrorem provisions, though most in terrorem provisions contained mere admonitions of doom rather than outright forfeiture penalties. Id. at 232 (discussing tenth-century and eleventh-century wills warning the contester of the "torment of hell" and the "Day of Judgment"). Following the English tradition, American courts have enforced in terrorem provisions that seek to disinherit a beneficiary who contests a will or trust.⁴ The leading early precedent, Smithsonian Institution v. Meech , relied on the concept of equitable "election" that required a beneficiary to elect between taking under an allegedly flawed will or seeking an abrogation of the will and thus taking nothing. 169 U.S. 398, 414-15, 18 S.Ct. 396, 42 L.Ed. 793 (1898). The underlying presumption was that the testator had wanted to "guard against vexatious litigation" while not punishing a beneficiary who merely sought "to ascertain doubtful rights" through a judicial proceeding. Id. at 413, 18 S.Ct. 396. Many courts have struggled with the boundaries of this concept because it at once seeks to protect the right of a testator "to dispose of his...