Wing v. Goldman Sachs Trust Co., N.A.

382 N.C. 288

876 S.E.2d 390

Mary Cooper Falls WING, et al.

v.GOLDMAN SACHS TRUST COMPANY, N.A., et al.

Ralph L. Falls III, et al.

v.Goldman Sachs Trust Company, N.A., et al.

No. 488PA20

Supreme Court of North Carolina.

Filed August 19, 2022

Womble Bond Dickinson (US) LLP, by Johnny M. Loper, Elizabeth K. Arias, Raleigh, and Jesse A. Schaefer, Raleigh, for plaintiff-appellee Mary Cooper Falls Wing; and James, McElroy & Diehl, P.A., Charlotte, by Fred B. Monroe, for plaintiff-appellees Ralph L. Falls III ; M.E.F., by her next friend and parent, Ralph L. Falls III ; L.C.F., by her next friend and parent, Ralph L. Falls III ; and J.B.F., by his next friend and parent, Ralph L. Falls III.

J. Mitchell Armbruster, Raleigh, James K. Dorsett III, and Eva Gullick Frongello, Raleigh, for defendant-appellant Goldman Sachs Trust Company, N.A.

Alan W. Duncan, Allison O. Mullins, Greensboro, and Hillary M. Kies, Greensboro, for defendant-appellant Dianne C. Sellers; and Leslie C. Packer, Raleigh, Alex J. Hagan, Raleigh, and Michelle A. Liguori, Raleigh, for defendant-appellants Louise Falls Cone, Toby Cone, Gillian Falls Cone, and Katherine Lenox Cone.

John V. Orth, pro se, amicus curiae.

BARRINGER, Justice.

¶ 1 In this matter, we address the extent of a trustee's duties and powers concerning litigation challenging trust amendments. We ultimately hold that the trustee in this case had the power to defend the litigation. We need not and cannot resolve the separate issue of whether the trustee also had a duty to defend the litigation in this matter. A trustee's duty to defend is more limited than its powers. It is confined to actions which may result in a loss to the trust estate. We also hold that the Court of Appeals erred by applying N.C.G.S. § 31-36, a statute applicable to will caveats, to this trust proceeding. Although both wills and trusts may be used to dispose of property at death, a trust is not a will. The law applicable to each is often different. Given our holding on these issues and others, we vacate in part and reverse in part the Court of Appeals’ decision.

I. Background

¶ 2 In May 2018, Mary Cooper Falls Wing (Wing) and Ralph L. Falls III (Falls) (collectively, plaintiffs) commenced litigation to set aside certain amendments to the Ralph Falls Revocable Declaration of Trust (Trust) created by their father Ralph L. Falls Jr. (decedent). Through the challenged amendments, decedent removed Wing and Falls as beneficiaries of the Trust. In his last amendment to the Trust (Fifth Amendment), decedent named as the Trust's beneficiaries Dianne C. Sellers (Sellers), Louise Falls Cone, Toby Cone, Gillian Falls Cone, and Katharine Lenox Cone¹ (collectively, defendant beneficiaries). Decedent married Sellers in 2014, and Louise Falls Cone is decedent's daughter. Louise is married to Toby, and Gillian and Katharine are Louise and Toby's children.

¶ 3 In their complaints, Wing and Falls both allege that decedent lacked the capacity to amend the Trust and that Sellers, Louise Falls Cone, and others unduly influenced decedent. They also both seek relief, whether injunctive or by judgment, against the trustee, Goldman Sachs Trust Co., N.A. (Goldman Sachs), for distributions to defendant beneficiaries, which they claim were invalid given that there were pending judicial proceedings challenging the Trust amendments’ validity. Wing and Falls named defendant beneficiaries and Goldman Sachs as defendants in their respective actions.

¶ 4 After commencing this litigation, Wing filed a "Motion to Freeze Administration of Revocable Trust Until Beneficiaries Are Determined." In each of the proceedings, defendant beneficiaries then filed a "Joint Motion to Pay Defense Costs," seeking an "order directing Goldman Sachs, as trustee, to pay [defendant beneficiaries] the costs of defending the trust in this case." Defendant beneficiaries stated in their motions that:

13. Goldman Sachs prefers that [defendant beneficiaries]—the beneficiaries of the revocable trust—be the parties that defend the trust, rather than Goldman Sachs. Thus, [defendant] beneficiaries are and have been in the role of defending the trust. In light of Ms. Wing's motion to freeze, it would be appropriate for the [trial c]ourt to enter an order denying that request and to also enter an order allowing Goldman Sachs to make distributions from the trust for the costs of defending the trust so the trust can be defended.

14. To ensure that the duties of the trustee are discharged, [defendant beneficiaries] seek distributions from the trust administered by Goldman Sachs sufficient to cover the costs and expenses of defending the trust in this litigation.

WHEREFORE, [defendant beneficiaries] respectfully request that the [trial c]ourt enter an order directing Goldman Sachs as trustee to make regular reimbursements to [defendant beneficiaries] for the life of this lawsuit sufficient to cover the costs and expenses of defending the trust.

¶ 5 Wing then filed an "Amended Motion to Freeze Administration of Revocable Trust Until Beneficiaries Are Determined or in the Alternative, to Pay Defense Costs for All Purported Beneficiaries."

¶ 6 Goldman Sachs, as trustee, filed a brief supporting defendant beneficiaries’ motions to pay and opposing Wing's motion to freeze. In its brief, Goldman Sachs argued that because Goldman Sachs, as trustee, had "a duty to defend the trust, the [trial c]ourt should allow [Goldman Sachs] to pay the legal expenses of [defendant b]eneficiaries which [Goldman Sachs] deems are being incurred to defend the Trust." Goldman Sachs "request[ed] the [trial c]ourt's instructions and guidance as to the future payment of legal fees to [defendant b]eneficiaries’ counsel so that their counsel can continue to appropriately carry out its duty to defend the Trust."

¶ 7 After a hearing on 20 March 2019 and the tendering of competing draft orders, the trial court, using one of defendant beneficiaries’ proposed orders, granted the motions to pay and ordered that:

Defendant Goldman Sachs, as Trustee of the Revocable Trust ... shall, in the proper exercise of its business judgment, make distributions to [defendant beneficiaries] for payment for legal fees incurred by them in the above-captioned cases with respect to their defense of this matter. This Order is without prejudice to any party's other remaining claims and defenses in these matters.

¶ 8 Plaintiffs appealed the trial court's order granting the motions to pay (Pay Order).

¶ 9 On appeal, the Court of Appeals concluded that plaintiffs had shown that the appealed interlocutory order, the Pay Order, affected "substantial rights." Wing v. Goldman Sachs Tr. Co. , 274 N.C. App. 144, 153, 851 S.E.2d 398 (2020). Thus, the Court of Appeals allowed appellate review pursuant to N.C.G.S. § 1-277(a). Id. at 147, 153, 851 S.E.2d 398.

¶ 10 The Court of Appeals next decided that a subsection of a statute addressing will caveats, N.C.G.S. § 31-36(a)(1), "provide[d] the framework for the case." Id. at 153, 851 S.E.2d 398. Then, after concluding that "the trustee's duty of and liability for distribution to disputed beneficiaries during pending litigation [was] an issue of first impression in North Carolina," the Court of Appeals analyzed two decisions from the California Courts of Appeal. Id. at 154–55, 851 S.E.2d 398. Finding these decisions persuasive, the Court of Appeals held that:

The Trust does not need defending in the case before us because there is no contest to the validity of the Trust. This dispute is between the rightful beneficiaries, and the Trust is not in peril. Goldman Sachs has breached their duty of neutrality by deciding who the rightful beneficiaries are before pending litigation has resolved that issue.

....

... The trustee is not required to pay attorney fees or legal costs unless the res of the Trust is in peril.

Id. at 155–56, 851 S.E.2d 398.

¶ 11 The Court of Appeals concluded that "[t]he trial court erred by not freezing and by ordering distributions from the Trust to some putative beneficiaries but not others during pending litigation[,]" and it reversed the Pay Order and remanded to the trial court for entry of an order allowing the motion to freeze. Id. at 156, 851 S.E.2d 398.

¶ 12 Defendant beneficiaries and Goldman Sachs petitioned this Court for discretionary review pursuant to N.C.G.S. § 7A-31. This Court allowed both petitions.

II. Standard of Review

¶ 13 "Review by th[is] ... Court after a determination by the Court of Appeals, whether by appeal of right or by discretionary review, is to determine whether there is error of law in the decision of the Court of Appeals." N.C. R. App. P. 16(a) ; see, e.g. , State v. Melton , 371 N.C. 750, 756, 821 S.E.2d 424 (2018).

III. Appellate Jurisdiction

¶ 14 As defendant beneficiaries challenge the Court of Appeals’ exercise of jurisdiction over plaintiffs’ interlocutory appeal, we address that issue first.

¶ 15 Unless the General Statutes of North Carolina provide an exception, "there is no right of immediate appeal from interlocutory orders." Goldston v. Am. Motors Corp. , 326 N.C. 723, 725, 392 S.E.2d 735 (1990). Subsection 1-277(a) states as follows:

An appeal may be taken from every judicial order or determination of a judge of a superior or district court, upon or involving a matter of law or legal inference, whether made in or out of session, which affects a substantial right claimed in any action or proceeding; or which in effect determines the action, and prevents a judgment from which an appeal might be taken; or discontinues the action, or grants or refuses a new trial.

N.C.G.S. § 1-277(a) (2021) ; see also N.C.G.S. § 7A-27(b)(3)(a) (2021).

¶ 16 "The ‘substantial right’ test for appealability of interlocutory orders is that the right itself must be substantial and the deprivation of that right must potentially work injury if not corrected before appeal from final judgment." Frost v. Mazda Motor of Am., Inc. , 353 N.C. 188, 192, 540 S.E.2d 324 (2000) (cleaned up). "If appellant...