In re Baldwin Trust

733 N.W.2d 419

274 Mich. App. 387

In re Duane V. BALDWIN TRUST.

Thomas M. Shoaff, Petitioner-Appellant, v. Thomas E. Woods, Trustee, Respondent-Appellee, and Thomas E. Woods, Individually, and Gary Baldwin, Appellees.

In re Estate of Duane V. Baldwin, Deceased.

Thomas M. Shoaff, Petitioner-Appellant, v. Thomas E. Woods, Personal Representative, Respondent-Appellee, and Thomas E. Woods, Individually, and Gary Baldwin, Appellees.

Docket No. 261642.

Docket No. 261643.

Court of Appeals of Michigan.

Submitted October 5, 2006, at Lansing.

Decided February 27, 2007, at 9:10 a.m.

Released for Publication June 7, 2007.

Murphy, Brenton & Spagnuolo, P.C. (by Gary L. Bender and Samuel J. Frederick), and Foster Zack Little Pasteur & Manning, P.C. (by Everett R. Zack), East Lansing, Okemos, for Thomas M. Shoaff.

Cummins Woods (by Thomas E. Woods) and Allan Falk, P.C. (by Allan Falk), Lansing, Okemos, for the Duane V. Baldwin Trust and the estate of Duane V. Baldwin.

Collins, Einhorn, Farrell & Ulanoff, P.C. (by Deborah A. Hebert and Noreen L. Slank), Southfield, for Thomas E. Woods.

Before: SAWYER, P.J., and WILDER and SERVITTO, JJ.

PER CURIAM.

In these consolidated appeals, petitioner Thomas M. Shoaff appeals as of right the order in Ingham County Probate Court Case No. 00-2046-TI (the trust action) and the order in Ingham County Probate Court Case No. 00-1858-DE (the estate action) granting summary disposition of his respective petitions to remove and surcharge respondent Thomas E. Woods as trustee of the Duane V. Baldwin Trust (the trust) and as personal representative of Duane V. Baldwin's estate. We affirm.

This case arises out of alleged improper actions taken by Thomas Woods in his representative capacity in an underlying action brought by Shoaff in which the circuit court found that certain assets conveyed by Duane V. Baldwin (the decedent) before his death to partnerships and corporations of decedent's beneficiaries were fraudulent conveyances under the Uniform Fraudulent Conveyance Act (UFCA), former MCL 566.11 et seq.¹ Shoaff v. Baldwin, unpublished opinion per curiam of the Court of Appeals, issued February 3, 2005, 2005 WL 267796 (Docket Nos. 248606, 248609, and 255460), slip op. at 6. In the estate action, Shoaff also alleged that Woods had improperly administered the estate and failed to liquidate the fraudulently conveyed assets to pay decedent's creditors after the underlying judgment was issued.

I. FACTS AND PROCEDURAL HISTORY

The facts are based principally on those found in the Court's prior opinion in Shoaff. In 1991, decedent transferred real estate, mutual funds, bonds, insurance policies, and certificates of deposit into five newly created partnerships in which his children were given ownership interests, but in which decedent retained the largest percentage of interest. Shoaff, supra, slip op at 5. In February 1996, Shoaff, decedent, and Mark Baldwin entered into a business agreement to form and become shareholders in a corporation (Baldwin Farms, Inc.). Shoaff guaranteed a loan, and, in return, decedent agreed to indemnify Shoaff and hold him harmless if the business failed. Id. at 4. As security for the indemnity obligation, decedent pledged 2,000 shares of American Paytel Corporation, which he represented to be worth $400,000. Id. at 4-5.

Later in 1996, the indemnity agreement was amended twice. Mark Baldwin was added as an indemnitor, and the parties agreed that additional assets would provide collateral for the indemnity obligation should the Paytel stock prove insufficient.

According to [Shoaff], Duane Baldwin claimed he had more than enough assets, in the form of real estate holdings and securities, to cover the [indemnification] obligation. However, unbeknownst to [Shoaff], in October 1991, five years before the [indemnity] agreement . . . , Duane Baldwin had transferred [most of his assets] into five newly-created limited partnerships. . . . [Id. at 5.]

Baldwin Farms failed and never made loan payments. "At the same time, the value of American Paytel stock plummeted. [Additionally, i]n February 1998, Baldwin Farms was unable to meet its payments . . . coming due to the bank." Id.

"In July 1998, [decedent] conveyed the remainder of his assets to the Duane V. Baldwin Trust, a revocable living trust." Id. According to decedent's will dated July 28, 1998, the trust was also created on July 28, 1998. Decedent, while alive, was trustee. The trust named his son, Gary Baldwin, and daughter, Mary Jo Baldwin, as successor cotrustees. On September 14, 1998, Duane Baldwin died at the age of 72.

In June 1999, before an estate was opened, Shoaff filed his circuit court action. On June 11, 1999, Gary Baldwin (nominated personal representative in the will and nominated trustee of the trust) filed in the probate court a petition for assignment for an estate not exceeding $15,000. The petition listed three assets: a 24 1/2-percent interest in a "Family Limited Partnership," valued at $4,728.50; a Merrill Lynch account valued at $6,560.22; and a "real estate interest" valued at $3,430.51. The total value of decedent's property, after payment of funeral and burial expenses, was $14,719.23.

In September 1999, pursuant to his loan guarantee, Shoaff paid off the loans from the bank. Subsequently, the Revised Probate Code was repealed and was superseded by the Estates and Protected Individuals Code (EPIC), MCL 700.1101 et seq.²

Having paid the bank loans, and once an estate was opened and a personal representative appointed, Shoaff in May 2000 filed in the circuit court his first amended complaint against both the personal representative of the estate and the trustee of the trust. The first amended complaint added a fraudulent conveyances claim. Shoaff, supra, slip op at 5 n. 4, and at 7. Woods, as personal representative and as trustee, defended against Shoaff's action. Eventually, Shoaff added as defendants several business entities, including the partnerships, claiming that the transfers to the partnerships had left decedent insolvent. Id. at 5 nn. 2 and 4.

On November 14, 2000, Shoaff filed in the probate court a petition for "probate and/or appointment of personal representative." Shoaff nominated Woods as personal representative. This was the estate action.

On December 5, 2000, Shoaff filed in the probate court a petition for removal of the cotrustees and appointment of a neutral trustee. This was the trust action. On February 20, 2001, in the trust action, the probate court appointed Woods as successor trustee. On March 30, 2001, in the estate action, the probate court appointed Woods successor personal representative.

In March 2001, Shoaff filed a second amended complaint in the circuit court. Shoaff asserted counts for breach of contract tortious conversion, fraudulent conveyances (the 1991 and 1998 transfers), recovery or property from the estate, accounting of assets held by defendants, violation of the Michigan securities act, and injunctive relief. Id. at 5-6. Shoaff sought indemnification, pursuant to the indemnity agreement, for payments in excess of $729,000. Id. at 6.

In April 2001, Woods, as personal representative and trustee, agreed in the circuit court action to a consent judgment in Shoaff's favor in the amount of $701,462.76, plus statutory interest. Woods, as personal representative and trustee, admitted liability to Shoaff under the indemnification agreements. In September 2001, the circuit court granted summary disposition on the securities violation claim. Three other counts "were subsequently dismissed . . . by stipulation of the parties." Id.

On August 26, 2002, in the estate action, Shoaff filed a petition to remove Woods as personal representative and for the appointment of Steven D. Lowe as his successor. This petition stated that Woods should be removed as personal representative because he "has failed to act in the best interests of . . . Shoaff, a creditor whose claim has been allowed as called for by MCLA 700.3703(1), and he has taken steps contrary to . . . Shoaff's interests causing injury and damages to him."

Also on August 26, 2002, Shoaff filed in the trust action a petition to remove Woods as trustee and for appointment of Lowe as successor trustee, stating that

Woods should be removed as Trustee . . . because he has failed to act in the best interests of . . . Shoaff, a creditor whose claim has been allowed as called for by Part 5 of Article VII of the Estates and Protected Individuals Code, MCLA 700.7501 et seq, and he has taken steps contrary to . . . Shoaff's interests causing injury and damages to him.

In the circuit court, a bench trial was held on the equitable claims remaining. Shoaff prevailed, and the circuit court set aside the transfers of property to the defendants that were entities, finding that the entity defendants were sham entities, were alter egos of decedent, and were intended to defraud creditors. Id. "A final judgment in the amount of $1,352,936.82 was entered on December 17, 2002." Id.

On November 6, 2003, in both the estate and trust actions, Judge R. George Economy held a hearing on the requests in the petitions to enjoin further payments by Woods until further order of the court. Judge Economy ruled that Woods should not make any further disbursements in excess of $2,500 without court approval, but denied the requests to remove Woods as fiduciary.

On March 10, 2004, in the estate action, Shoaff filed his third amended petition to remove Woods as successor personal representative. Shoaff alleged that Woods "failed to take control over and marshal assets of the Estate and Trust as required by MCL 700.3703, 3709 and 3710" and "[f]ailed to seize assets that were fraudulently conveyed by Woods' decedent . . . and failed to take steps to pierce the organizational structure of the entity defendants which were established for unlawful purposes[.]" Shoaff further alleged that

Woods has a fiduciary duty to creditors . ....