IMO the Thomas Lawrence Reeves Irrevocable Trust Under Agreement Dated February 26, 1997 ( 2015 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN THE MATTER OF THE THOMAS )
LAWRENCE REEVES IRREVOCABLE )
TRUST UNDER AGREEMENT DATED ) C.A. No. 8071-ML
FEBRUARY 26, 1997 )
MASTER‟S REPORT
(Motion for Summary Judgment)
Date Submitted: February 19, 2015
Final Report: April 29, 2015
Matthew P. D‟Emilio, Esquire, Jeremy D. Eicher, Esquire, Thomas A. Uebler, Esquire,
and Mark M. Dalle Pazze, Esquire, of COOCH & TAYLOR, P.A., Wilmington,
Delaware; Attorneys for Petitioner.
Gregory J. Weinig, Esquire, Scott E. Swenson, Esquire, and Mary I. Akhimien, Esquire
of CONNOLLY GALLAGHER, LLP, Wilmington, Delaware; OF COUNSEL: Jack
Guernsey, Esquire and Lorie Dakessian, Esquire of CONRAD O‟BREIN, P.C.,
Philadelphia, Pennsylvania; Attorneys for Respondents.
LEGROW, Master
The beneficiaries of an irrevocable trust, who also are individual co-trustees of the
trust, contend the corporate co-trustee mismanaged the trust over a period of fifteen or
more years by unilaterally making investments without the authorization of the individual
trustees, failing to implement any investment strategy for the trust, and charging
excessive fees. The corporate trustee seeks to resign from the trust, but first seeks a court
order to the effect that all of the individual trustees‟ claims are barred by laches or the
statute of limitations.
The individual trustees frequently complained to the corporate trustee about the
issues they now contend support their claims. In emails and letters dating back to 2004,
the individual trustees complained that the corporate trustee invested without
authorization, failed to consult the individual trustees or develop investment objectives or
an investment strategy, and charged excessive fees. Despite consulting counsel, other
trust companies, and the corporate trustee about these issues, the individual trustees took
no action until they filed their counterclaims in 2013. Because the individual trustees
delayed unreasonably, their claims are time barred. This is my final report.
I. BACKGROUND
Except as noted, the material background facts are not in dispute. Although the
parties disagree as to the truth of the factual allegations underlying the individual
trustees‟ claims, the issue presented does not turn on a resolution of those disputed facts,
but rather on the individual trustees‟ failure to pursue their claims in a timely manner.
The petitioner has shown that it is entitled to summary judgment based on the undisputed
facts in the record.
1
A. The Parties
Thomas L. Reeves (“Tom”)1 was born on June 19, 1928.2 Because of certain
disabilities, Tom was unable to manage his property and on June 10, 1953, the Court of
Common Pleas of Chester County, Pennsylvania (the “Pennsylvania Court”) appointed
Girard Trust Corn Exchange Bank as Guardian for the care and management of Tom‟s
estate.3 BNY Mellon Trust (“BNY Mellon”) became the successor in interest to Girard
Trust Corn Exchange Bank in 1983.4 BNY Mellon is a state chartered bank with its
principal place of business in Greenville, Delaware.5
William H. Reeves, IV (“Bill”) and Grafton D. Reeves (“Grafton” and together
with Bill, the “Respondents”) are Tom‟s nephews.6 Bill is a retired Senior Vice President
and Senior Portfolio Manager of Putnam Industries who resides in Providence, Rhode
Island. Grafton is a physician specializing in pediatric endocrinology who resides in
Wilmington, Delaware.
B. The Creation of the Trusts
During the mid-1990s, BNY Mellon – with the approval of the Pennsylvania
Court – engaged in estate planning for Tom by creating two trust accounts: (1) a
1
I use the parties‟ first names for the sake of clarity. No disrespect is intended.
2
Exceptions of Co-Trustees and Beneficiaries William Reeves, IV and Grafton Reeves to the
November 1, 2010 to October 31, 2012 Statement of Account of BNY Mellon, N.A., Co-Trustee
for the Trust Established Under Deed of Thomas L. Reeves Dated March 10, 1997 (hereinafter
“Exceptions”) ¶ 6.
3
Id. ¶ 4; Deposition of William Reeves (Feb. 26, 1997) (hereinafter “Bill Dep.”) at 490-91.
4
Stephen A. Rhoades, Bank Mergers and Banking Structure in the United States, 1980-98,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM at 9 (August 2000), available at
http://www.federalreserve.gov/pubs/staffstudies/2000-present/ss174.pdf.
5
Pet‟r.‟s Mot. for Summ. J. (hereinafter “Mot. for Summ. J.”) at 5.
6
Id.
2
revocable trust designed to meet Tom‟s continuing needs, and (2) an irrevocable trust
primarily designed for growth to benefit later generations of Tom‟s family.7 The
irrevocable trust (the “Trust”) was created under the laws of Delaware and is the only
trust at issue in this action.8 Respondents are the current beneficiaries as well as two of
the three co-trustees of the Trust, with BNY Mellon serving as the third co-trustee.9 In
1997, the Pennsylvania Court approved a petition supporting the estate plan BNY Mellon
designed.10 As a result of this agreement, BNY Mellon‟s fees increased from about
$5,000 to about $30,000.11 The petition did not explicitly state that BNY Mellon‟s fees
would increase by a factor of six, but instead stated that its fees would be in accordance
with the bank‟s “standard fee schedule.”12 Respondents received a copy of BNY
Mellon‟s fee schedule no later than 2004.13
The agreement governing the Trust (the “Trust Agreement”) precluded
distributions to any beneficiary during Tom‟s lifetime.14 Instead, the Trust accumulated
income during that time.15 Using Tom‟s available exemption for federal generation-
7
Ans. Br. of Resp‟ts. in Opp. to Pet‟r.‟s Mot. for Summ. J. (hereinafter “Ans. Br.”) at 4-5.
8
BNY Mellon filed a petition for Adjudication with respect to the Revocable Trust in the
Pennsylvania Court. That action remains pending. Ans., Affirm. Defenses, and Countercl. of
William Reeves, IV and Grafton Reeves to BNY Mellon‟s Ver. Pet. for Decl. Relief and
Confirmation of Accounting (hereinafter “Ans. & Countercl.”) ¶17.
9
Id.
10
Mot. for Summ. J., Ex. 6 (“1997 Decree”).
11
Exceptions ¶¶ 31-32.
12
Id.
13
Mot. for Summ. J., Ex. 16.
14
Id., Ex. 15 (“Trust Agreement”) at 1-5. The beneficiaries of the Trust are Tom‟s brother and
sister, William H. Reeves III and Elizabeth S. Reeves. Upon Tom‟s death, the income was to be
distributed to them in equal proportions or, upon their death, to their descendants in proportions
determined by the trustees. Id.
15
Id.
3
skipping transfer tax, the parties designed the Trust to confer some benefit on the
beneficiaries, but not enough to cause the Trust to be part of their estates for federal
estate tax purposes.16
Although there is some dispute as to whether the law firm that drafted the Trust
Agreement and the petition supporting the estate plan actually represented Respondents,
the record establishes that Respondents were at least involved with the Trust‟s creation.
During the drafting of the Trust Agreement, Respondents requested that at least one of
them be named co-trustee of the Trust.17 BNY Mellon initially refused, but ultimately
acceded to that request, permitting both to be named co-trustees.18
Respondents were provided drafts of the Trust Agreement and had the ability to
review those drafts with counsel before the petition was filed with the Pennsylvania
Court.19 Additionally, in 1997, Respondents received executed copies of the Trust
Agreement.20 Nonetheless, Bill testified that he could not recall ever receiving the Trust
16
Id.
17
Id., Ex. 10 (October 31, 1996 letter from Matthews expressing the family‟s desire to have at
least one of Respondents named co-trustee).
18
See id., Ex. 9 (letter from Mellon Bank counsel dated March 4, 1996, stating Mellon Bank‟s
preference was to remain the sole trustee as it already was the sole guardian).
19
See, e.g., id., Ex. 7 (fax from Guy Matthews, Esq. of Eckell Sparks to Bill stating, “[a]ttached
please find copies of the Trusts to be discussed during our conference call this afternoon”);
Deposition of Guy F. Matthews (Feb. 26, 1997) (hereinafter “Matthews Dep.”) at 40-41, 61
(Matthews stating that he reviewed drafts of the Trust Agreement with Respondents); Mot. for
Summ. J., Ex. 8 (letter to Respondents enclosing a copy of Trust Agreement prior to presenting it
to the court).
20
Mot. for Summ. J., Ex. 12.
4
Agreement nor had he read it as of his deposition on July 22, 2014.21 Grafton conceded
that he had received the agreement at some point.22
C. The Administration of the Trust
The Trust Agreement provides that the co-trustees shall administer the trust
collectively. If, however, a dispute arises between the co-trustees regarding investment
decisions, the individual trustees have the power to direct the corporate trustee:
Disagreement: If my Trustees should disagree as to the sale, purchase,
management or retention of an investment, my individual Trustees‟
decisions shall control and my corporate Trustee shall not review the
investment at any time nor be subject to liability for acting in accordance
with those directions.23
Respondents argue that the Trust Agreement prohibited the corporate trustee from acting
unilaterally regarding any investment decisions for the Trust.24
BNY Mellon began administering the Trust almost immediately. On March 4,
1997, Senior Trust Counsel for BNY Mellon sent a letter to the Reeves stating it would
make the decision to transfer money from the revocable trust to the irrevocable trust and
that an investment officer would be in touch with them shortly to discuss what
investments to make.25 Approximately one month later, on April 30, 1997, BNY Mellon
sold certain assets and placed $680,000 from the sale proceeds into the Trust account.
21
Bill Dep. at 124, 181.
22
Deposition of Grafton Reeves (Feb. 26, 1997) (hereinafter “Grafton Dep.”) at 88.
23
Trust Agreement XIX(e).
24
Ans. Br. at 9-11, 22.
25
Exceptions ¶ 20; Response to Exceptions of William Reeves, IV and Grafton Reeves to the
November 1, 2010 to October 31, 2012 Statement of Account of BNY Mellon, N.A., Co-Trustee
for the Trust Established Under Deed of Thomas L. Reeves Dated March 10, 1997 (hereinafter “
Response to Exceptions”) ¶ 20.
5
BNY Mellon informed the Reeves of this fact six weeks later.26 From the period of April
1998 to December 2003, BNY Mellon transferred an additional $520,000 into the Trust
account.27 Respondents expressed concern about these investments, but did not direct
BNY Mellon to implement any other investment strategy.28
From 1998-2001, BNY Mellon did not make any investments and instead retained
a large cash balance in the Trust account, of which Respondents were aware by at least
2001.29 The correspondence shows that BNY Mellon proposed its investment strategy in
1997, recommending the cash in the Trust be invested. Respondents, however, did not
commit to the investment program BNY Mellon recommended, nor did they recommend
their own investment strategy.30 To the contrary, at various points the individual trustees
directed BNY Mellon to retain the cash in the Trust. 31
The record also shows BNY Mellon sought several meetings over the years with
Respondents. BNY Mellon met with Respondents in Rhode Island in January 200432 and
attempted to meet with them in February 2004, June 2005, December 2005, and May
2007, but Respondents declined.33 Despite these efforts, Respondents allege that BNY
Mellon was obligated to “force” a meeting between the co-trustees to determine a proper
26
Exceptions ¶¶ 21-22.
27
Id. ¶ 22.
28
Response to Exceptions ¶¶ 25-28.
29
Exceptions ¶ 23; Grafton Dep. at 162; Bill Dep. at 169-70, 386.
30
Mot. for Summ. J., Ex. 37.
31
See, e.g., id., Ex. 38 (July 2001 email from Bill directing BNY Mellon not to invest in the
Trust); Ex. 45 (April 2008 email from Grafton, “I discussed the situation with Bill. We‟ve
decided to keep everything the same for now”); Ex. 47 (“[T]here should be no buying or selling
of investments w/o the trustees authorization”); Bill Dep. at 410-11 (admitting he directed BNY
Mellon not to invest the cash).
32
Mot. for Summ. J., Ex. 31, 32.
33
Id., Ex. 33-35.
6
course of investment since it had no power to act on its own. Tom passed away on
October 3, 2008, and Respondents then became income beneficiaries in addition to co-
trustees, but contend BNY Mellon still did not ascertain their preferences regarding
investment objectives or risk allocation.34 Respondents have not identified any other
specific investment decisions or practices after 2008 as deficient, other than their
contention that BNY Mellon continued to neglect its obligation to “force” the individual
trustees to meet and agree upon an investment strategy.
Although Respondents now profess a lack of knowledge about the Trust
Agreement and their ability to control investment decisions, the record shows that BNY
Mellon advised Respondents many times of their power to control the investment strategy
and complied with many of their requests. For example, in January 2004, Bill suggested
that BNY Mellon liquidate all stocks and bonds in the Trust, which BNY Mellon agreed
to do subject to the execution of signed authorizations from Respondents.35 Respondents,
however, did not execute the requested authorizations.36 Other examples of BNY
Mellon‟s reminders to the individual co-trustees include: (1) a November 2006 e-mail
from BNY Mellon stating that “[Respondents] outvote [BNY Mellon], so [BNY Mellon]
will certainly comply with [Respondents‟] wishes,”37 (2) an April 2007 e-mail from BNY
Mellon reminding Respondents to “please keep in mind that [they] have the power to
34
Ans. & Countercl. ¶¶ 10, 48. Exceptions ¶ 28.
35
Mot. for Summ. J. at 9.
36
Id., Ex. 17.
37
Id., Ex. 18.
7
overrule Mellon regarding investment decisions,”38 and (3) a May 2008 e-mail again
stating that Respondents outvote BNY Mellon.39 Respondents, however, never overruled
any of BNY Mellon‟s investment decisions or directed it to make an investment over
BNY Mellon‟s objection.
Over the years, Respondents demanded many times that BNY Mellon inform them
as to how the Trust was governed, but contend they never received a sufficient reply. For
example, Bill requested information about BNY Mellon‟s investment authority some
time before September 9, 1997, the date when a BNY Mellon employee responded to the
Reeves by providing Bill with a copy of the Pennsylvania Estates & Fiduciary Code. 40
On other occasions, Respondents requested information about investment decisions and
who retained investment authority. In response, BNY Mellon sent copies of the Trust
Agreement for Respondents to review.41 This was insufficient to Respondents; they
contend the corporate trustee was obliged to analyze the agreement and explain to the
individual trustees why it was able to make decisions regarding investment practices.42
The record, however, including several e-mails from Bill, reflects the individual
trustees‟ knowledge of the trust and the trustees‟ rights and obligations vis-à-vis each
other. For example, in January 2004 Bill wrote to BNY Mellon that “it is Graftons [sic]
38
Id., Ex. 19.
39
Id., Ex. 20.
40
Ans. Br., Ex. 5 (letter dated September 9, 1997).
41
Ans. Br. at 12-16.
42
Id.
8
and my understanding that any investments made in/for these trusts must have our
approval as trustees ….”43 Similarly, in an e-mail later that month, Bill stated
Also re setting up acct investment management instructions, legally/as
fiduciary, as trustees we do need to come up [with] a formal trustee
investment policy and document (see my last email) for this/GST and the
TLR trust acct…until that is done, its [sic] my understanding that any
activity away from cash/cash equivalents is unauthorized and
improper…we need to get this acct compliant with fiduciary standards.44
D. The Accounting
Respondents argue that BNY Mellon further breached its fiduciary duties by
failing to surrender certain accounting statements. Particularly, they allege that BNY
Mellon has not submitted a full and complete accounting from the inception of the Trust
through the present.45
Bill admits he received at least some trust account statements, but argues they
were not sent regularly until approximately 2002 or 2003.46 BNY Mellon, however,
argues Respondents have received quarterly statements detailing every asset, transaction,
and fee of the Trust since 1997.47 BNY Mellon further contends that, in addition to the
43
Mot. for Summ. J., Ex. 16.
44
Id., Ex. 17. See also id., Ex. 35 (2007 email from Bill explaining his interpretation of BNY
Mellon‟s authority as co-trustee), Ex. 56 (2010 email from Suzanne Reeves to Grafton
interpreting the parties‟ fiduciary responsibilities).
45
Ans. & Countercl. ¶¶ 41, 59.
46
Bill Dep. at 164-65.
47
See Mot. for Summ. J., Ex. 21 (Affidavit of David Rowe); Mot. for Summ. J., Ex. 22 (internal
BNY Mellon email confirming Respondent‟s receipt of quarterly statements since 1997).
Respondents attached a copy of this accounting to their answer. Ans. & Countercl., Ex. 3.
9
statements, it provided Respondents with regular reports and updates of investment
activity and investment proposals.48
On February 19, 2010, BNY Mellon provided Respondents with a complete
accounting from the inception of the Trust until December 31, 2009 (the “2010
Accounting”).49 The documents disclosed all “receipts, gains, losses, disbursements, and
distributions of the Irrevocable Trust.”50 To Respondents, however, this was insufficient.
Respondents believe that BNY Mellon had the duty to advise the co-trustees on how the
Trust is governed and to “expl[ain] that a meeting of the co-trustees to discuss and vote
on investment policy was required.”51 Other than this continuing complaint, Respondents
have not identified how the 2010 Accounting is incomplete.
E. The Relationship Deteriorates
The parties‟ relationship grew more and more contentious over the years.
Respondents continued to raise questions about BNY Mellon‟s management practices
and investment authority, and in several emails exchanged beginning in 2004,
Respondents threatened litigation if BNY Mellon‟s alleged mismanagement continued.
Some examples include (1) a 2004 email from Bill to BNY Mellon stating “we need to
48
See, e.g., Mot. for Summ. J., Ex. 24 (June 6, 2001 letter enclosing expense breakdown and
stating “[w]ith your approval, we have started the process to invest the assets in the irrevocable
trust”); Mot. for Summ. J., Ex. 27 (February 2002 letter from BNY Mellon to Bill stating “[w]e
continue to maintain a large cash balance in this trust at your request”); Mot. for Summ. J., Ex.
26 (January 2004 memorandum documenting a meeting with Bill discussing the trusts); Mot. for
Summ. J., Ex. 25 (March 1, 2005 letter seeking approval of enclosed investment
recommendations).
49
Mot. for Summ. J. at 11.
50
See id., Ex. 77.
51
See, e.g., id. at 22.
10
get this [account] compliant [with] fiduciary standards”52; (2) a 2004 BNY Mellon
internal memorandum created after the parties‟ Rhode Island meeting, expressing
Respondents‟ concern with BNY Mellon making investments without their prior
approval;53 (3) a 2006 email from Grafton and Bill jointly explaining why they wanted to
move the Trust to a different bank, citing [i]nvestment [management]/fiduciary
[i]rregularities, [i]mproprieties[,] and possible [i]llegalities”54; (4) a 2007 email from Bill
to BNY Mellon stating he and Grafton would be meeting with an attorney to discuss legal
remedies for the alleged violations,55 and (5) a 2010 email between Suzanne and Grafton
Reeves discussing BNY Mellon‟s alleged fiduciary violations.56 Respondents never
followed through on the litigation threat, however, until BNY Mellon filed this action.
In late 2006, Respondents asked BNY Mellon to resign as co-trustee so they could
move the Trust to Wilmington Trust. In an email dated May 8, 2007, Bill stated:
Re meeting w [you] and Jeb, there is really no need to do so…our issues
[are with] the bank as guardian/fiduciary and investment mgr: the
investment vehicle, no investment policy, unauthorized investing/trading,
abnormally large cap gains taken and taxed [sic] paid. This acct was run
for the benefit of the bank not the customer…the issues here [are] going to
be looked at by Grafton and [I] and an atty and we will determine if we
think there is suffient [sic] grounds for seeking damages or possibly use an
industry/business expose on trust acct mgmt, esp where the bank acts as
fiduciary and invest mgr.57
52
Id., Ex. 17.
53
Id., Ex. 26.
54
Id., Ex. 18.
55
Id., Ex. 35.
56
Id., Ex. 56.
57
Id., Ex. 35.
11
In August 2007, BNY Mellon stated that it could not be removed during Tom‟s lifetime
since it served as Tom‟s guardian.58 It would agree to resign, however, on the condition
that the Pennsylvania Court approved a 5% termination fee59 and Respondents and the
remainder beneficiaries of the Trust executed a release of claims agreement for any
mismanagement that may have occurred.60 Respondents did not agree to the stipulations
nor did they remove BNY Mellon after Tom‟s death in 2008.61
BNY Mellon filed its Verified Petition in this action on November 29, 2012,
alleging that because of Respondents‟ lack of cooperation, it had not been able to invest
the Trust‟s assets in a manner consistent with its recommendations. BNY Mellon sought
an order permitting it to resign as co-trustee, approving an accounting from November 1,
2010 until October 31, 2012 (the “2012 Accounting”), and declaring that any and all
claims before November 1, 2010, are time barred.62
Respondents filed their answer and exceptions on March 5, 2013, asserting that the
2012 Accounting was procedurally improper and incomplete and that BNY Mellon
breached its fiduciary duties by making unauthorized investments, failing to make other
investments, and charging excessive fees. Respondents essentially contend BNY Mellon
had heightened fiduciary duties as the sole professional trustee and should have been
more forthcoming in its communications. Particularly, Respondents allege that the
accounting is incomplete because it does not clarify the parties‟ respective roles in
58
Ans. Br., Ex. 1.
59
Id.
60
Grafton Dep. at 111.
61
See Ans. Br. at 25.
62
Ver. Pet. for Decl. Relief and Confirmation of Accounting ¶¶ 35-42.
12
governing the Trust. Furthermore, Respondents allege BNY Mellon should have stated
the exact increase in BNY Mellon‟s fees in the 1997 petition to the Pennsylvania Court,
instead of misleading that court and the individual trustees by stating that the bank‟s fees
would be in accordance with its “standard fee schedule.” For those reasons, Respondents
contend their claims against BNY Mellon should not be barred as untimely and the 2012
Accounting should not be approved.
After completing discovery, BNY Mellon filed a motion for summary judgment
on December 12, 2014. I heard oral argument on February 19, 2015. The Pennsylvania
action, which involves similar claims as to the Revocable Trust, remains pending.
II. ANALYSIS
Summary judgment should be granted if there is no genuine issue as to any
material fact and the moving party is entitled to judgment as a matter of law.63 The Court
views the evidence presented, and all reasonable inferences to be drawn therefrom, in the
light most favorable to the non-moving party.64 The moving party has the burden to
show no material facts exist.65 Once the initial evidentiary burden is met, the nonmoving
party must submit “specific facts showing that there is a genuine issue for trial to survive
the motion for summary judgment.”66
63
Ct. Ch. R. 56.
64
Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 241 (Del. 2009).
65
Johnson v. Shapiro, 2002 WL 31438477, at *3 (Del. Ch. Oct. 18, 2002).
66
In re Novell, Inc. S’holder Litig., 2014 WL 6686785, at *6 (Del. Ch. Nov. 25, 2014) (quoting
Goodwin Live Entm’t, Inc., 1999 WL 642565, at *5 (Del. Ch. Jan. 25, 1999), aff’d, 741 A.2d 16
(Del. 1999)).
13
BNY Mellon argues that judgment should be entered in its favor because
Respondents had actual knowledge of the administration of the Trust when they received
the 2010 accounting, if not before, and that Respondents‟ claims therefore are barred by
laches or the statute of limitations. In response, Bill and Grafton contend that there are
too many material facts in dispute and that further development of the background and
context is needed given the complex history and unique circumstances of the case.
A. Respondents’ Claims are Time-Barred
As a court of equity, the Court of Chancery generally is not strictly bound by a
statute of limitations.67 Instead, this Court applies the doctrine of laches to determine
whether an action is filed timely.68 The doctrine serves as an equitable defense against a
plaintiff who unreasonably delays pursuing a claim after learning that his or her rights
were infringed upon.69
Although most statutory limitations periods do not automatically bar an action in
equity, those statutes provide the presumptive period of what constitutes an unreasonable
delay in bringing a claim.70 Absent unusual or mitigating circumstances such as a tolling
of the limitations period,71 when the analogous limitations period at law has run, “a
plaintiff is barred from bringing suit without the necessity of the court engaging in a
67
Reid v. Spazio, 970 A.2d 176, 183 (Del. 2009).
68
TrustCo Bank v. Matthews, 2015 WL 295373, at *5 (Del. Ch. Jan. 22, 2015).
69
Levey v. Brownstone Asset Mgmt, LP, 76 A.3d 764, 769 (Del. 2013).
70
U.S. Cellular Inv. Co. of Allentown v. Bell Atl. Mobile Sys., Inc., 677 A.2d 497, 502 (Del.
1996). There are occasions when a statute of limitations may apply directly to a claim filed in
this Court. See, e.g., Shearin v. E.F. Hutton Group, Inc., 652 A.2d 578, 583-84 (Del. Ch. 1994).
71
Whittington, 991 A.2d at 9. Tolling can be established by (1) fraudulent concealment; (2) an
inherently unknowable injury, or (3) equitable tolling. Krahmer v. Christie’s Inc., 903 A.2d 773,
778 (Del. Ch. 2006), aff’d, 906 A.2d 806 (Del. 2006).
14
traditional laches analysis.”72 In this case, Respondents had actual and constructive
knowledge of the alleged wrongdoing many years before bringing their claims and have
put forth no plausible reason why they waited so long to seek redress. I therefore find
that their claims are barred by laches.
There are two applicable statutes of limitations in this case: (1) 12 Del. C. § 8106,
which bars personal tort claims arising three years after the date of the action, and (2) 12
Del. C. § 3585, which precludes a claim for breach of trust that occurs:
(1) two years after the date the beneficiary was sent a report that adequately
disclosed the facts constituting a claim; …. [] A report adequately discloses
the facts constituting a claim if it provides sufficient information so that the
beneficiary knows of the claim or reasonably should have inquired into its
existence.73
Respondents asserted claims against BNY Mellon for the first time on March 5, 2013.
Accordingly, a report to Respondents before March 5, 2011, which adequately disclosed
facts constituting a claim, would bar those claims. Similarly, absent tolling, any claims
that arose before March 5, 2010, are barred under Section 8106.
The undisputed facts of record show Respondents‟ claims are barred under both
statutes. First, the 2010 Accounting adequately disclosed the facts underlying
Respondents‟ claims, namely (1) investments BNY Mellon made that Respondents
contend were unauthorized, (2) the cash position maintained during the accounting
72
Albert v. Alex Brown Mgmt. Servs., Inc., 2005 WL 1594085, at *12 (Del. Ch. June 29, 2005).
73
The argument reasonably could be made that the legislature intended Section 3585 to apply
directly to claims filed in Chancery and falling under the statute. See Kahn v. Seaboard Corp.,
625 A.2d 269, 271-72 (Del. Ch. 1993) (“statutes of limitation could apply directly to causes in
Chancery of every sort. It is within the constitutional power of our legislature to do so. Indeed,
in England, whence our own law on the subject originates, actions against trustees are now (since
at least 1980) subject to a comprehensive statute of limitations.)”). The parties, however, have
not squarely addressed this issue, nor does its resolution affect the outcome of the case.
15
period, and (3) the fees BNY Mellon charged during the period. Putting aside what else
Respondents knew based on other interactions with the corporate trustee, the 2010
Accounting disclosed all the information to place Respondents on notice of their claims.
Because the 2010 Accounting was sent to Respondents more than two years before the
counterclaims and exceptions were filed, claims arising from the facts disclosed in that
accounting are time-barred.
In addition, the record also conclusively demonstrates that Respondents had actual
notice of the facts constituting their claims, and in fact repeatedly threatened to litigate
those claims, many years before they finally filed their counterclaims and exceptions.
Bill‟s emails show he had been complaining since at least 2004 about BNY Mellon‟s
fees, its unilateral investment decisions, and its failure to meet with the individual
trustees to develop investment objectives and strategy or obtain the individual trustees‟
authorization to implement an investment strategy.74 The record also shows Respondents
were aware of the cash held in the Trust and alternated between complaining about that
and instructing BNY Mellon to continue to hold the cash.75 Finally, Bill testified he was
aware that there was a problem since the late 1990s to early 2000s.76 Respondents offer
no coherent explanation of their delay in bringing these claims, and that unreasonable
delay of at least nine years bars the claims under Section 8106.
74
See, e.g., Mot. for Summ. J., Exs. 17, 18, 26, 34, 35, 56.
75
Exceptions ¶ 23; Grafton Dep. at 162; Bill Dep. at 169-70, 386, 410-411; Mot. for Summ. J.,
Exs. 38, 45, 47.
76
Bill Dep. at 455-57.
16
Respondents argue, however, that the “governance failures” committed by BNY
Mellon never were adequately disclose and that, in any event, Delaware law does not
permit a fiduciary to “blame the victim” for his failure to ferret out faithless conduct and
bring suit. As to the first argument, as set forth above, the facts of record compel the
conclusion that what Respondents characterize as “governance failures,” i.e., BNY
Mellon‟s failure to “force” the individual trustees to meet and decide upon an investment
strategy, were well known to Respondents and formed the basis of many of Respondents‟
complaints over the last decade. Although the individual trustees now profess ignorance
regarding their fiduciary obligations and the trustees‟ respective powers and obligations,
the communications Respondents had with BNY Mellon (and others) show the individual
trustees characterized the unauthorized investments and lack of agreed-upon investment
strategy as failures of fiduciary management and oversight.77
As to the argument that BNY Mellon cannot avoid liability by “blaming the
victim,” Respondents cite McNeil v. Bennett78 and In re the Volftsun/Landy Trust Litig.79
In McNeil, a corporate trustee and its individual co-trustees misinformed one of the
trust‟s beneficiaries as to his status as a beneficiary.80 This Court held that a corporate
trustee had an affirmative obligation to inform trust beneficiaries of their rights.81 The
Delaware Supreme Court affirmed this part of the decision and declined to remove an
77
Mot. for Summ. J., Exs. 17, 34, 56.
78
792 A.2d 190 (Del. Ch. 2001), aff’d in part, rev’d in part sub nom. McNeil v. McNeil, 798
A.2d 503 (Del. 2002).
79
C.A. No. 4653-VCL (Del. Ch. Oct. 24, 2012) (TRANSCRIPT).
80
792 A.2d at 207-208.
81
Id. at 211-12.
17
individual trustee from his position as such, even though he had served at the time the
beneficiary was misled, because the individual trustee did not join in the deception and
“was a layperson who relied upon the institutional trustees and [another individual co-
trustee], who was a lawyer.”82 In Volftsun/Landy, trust beneficiaries sued a professional
trustee for its failure to implement any reasoned investment strategy.83 The court denied
the professional trustee‟s time-barring defenses, holding that the beneficiaries had no
reason to believe the professional trustee was acting in bad faith and in breach of its
fiduciary duties.84
Respondents misread McNeil and misapply Voltsun/Landy. The McNeil court did
not, as Respondents argue, created a two-tiered system of liability under which
professional trustees bear heightened responsibilities or under which lay trustees may
avoid their own obligations by shifting blame to a professional trustee. The holding in
McNeil was based on the Court‟s finding that the lay trustee acted in good faith and
trusted the professional trustee to address certain issues. Similarly, in Volftsun/Landy, the
Court concluded the limitations period was tolled by the beneficiary/co-trustees‟ justified
reliance on the corporate trustee. Here, the record shows the individual trustees did not
repose any trust in the corporate trustee and repeatedly complained about the corporate
trustee‟s actions, but nonetheless took no action to pursue their claims. It is unclear what
else, short of self-flagellation, BNY Mellon could have done to put Respondents on
notice of their claims. Neither case serves as a basis for Respondents to overcome a
82
McNeil, 798 A.2d at 514.
83
Volftsun/Landy, Tr. At 711.
84
Id. at 723-24.
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laches defense when they plainly had knowledge of what they contend was
mismanagement by the corporate trustee.
At oral argument, although not in their brief, Respondents alluded to the idea that
BNY Mellon‟s laches defense should be rejected because BNY Mellon was engaged in a
“continuing wrong.” Respondents alleged that the wrong-doing began from the inception
of the Trust and because it has not yet been corrected to date, it qualifies as a continuing
wrong. The continuing wrong doctrine is a legal theory that applies when a series of
related wrongful acts are “so inexorably intertwined that there is ... one continuing
wrong.”85 It is settled, however, that “the failure to remedy a wrong does not mean that
the wrong is continuing.”86 Under Respondents‟ theory of the continuing wrong doctrine,
so long as a wrong continues to go uncorrected, it is a continuing wrong. Although
uncorrected wrongs remain wrongful until remedied, they do not fit within the narrow
category of acts which are considered continuing wrongs.87 To accept this interpretation
of the doctrine would frustrate the purpose behind requiring parties to bring timely claims
and bring nearly every claim within the category of a continuing wrong.88
Finally, although Respondents contend that the dispute should be resolved in a
more nuanced setting of trial given the “complex” and “developing nature” of this area of
the law, this Court is fully capable of deciding this issue as a matter of law. The parties
85
Desimone v. Barrows, 924 A.2d 908, 925 (Del. Ch. 2007).
86
Id.
87
See id., quoting Newkirk v. W.J. Rainey, Inc., 76 A.2d 121, 123 (Del. Ch. 1950) (“Of course, in
one sense every wrongful transaction constitutes a continuing wrong to the corporation until
remedied. But if the rule embodied in [§ 327] is to be meaningful, then clearly „continuing
wrong‟ cannot be construed in such as sense because it would substantially defeat the statutory
[purpose]”).
88
See id.
19
have compiled and submitted nearly one hundred exhibits that, in combination with the
parties‟ briefs and argument, show there is no genuine question of any material fact. This
case is no more nuanced than any other fiduciary case before the Court, nor does it
implicate developing areas of the law.
B. Remaining Claims and Defenses
The parties‟ remaining claims and defenses are moot. Because it is clear that
Respondents‟ claims are barred for timeliness, it is not necessary to reach the question of
acquiescence or ratification. Additionally, as they conceded at oral argument,
Respondents waived any procedural challenges to the 2012 Accounting by failing to
address that claim in their answering brief.
CONCLUSION
For the foregoing reasons, I recommend that the Court grant BNY Mellon‟s
Motion for Summary Judgment. This is my final report and exceptions may be taken in
accordance with Rule 144.
Respectfully submitted,
/s/ Abigail M. LeGrow
Master in Chancery
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