IMO The Estate of Paulina duPont Dean ( 2014 )

COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: September 8, 2014
Date Decided: September 17, 2014
Sharon Oras Morgan, Esquire James S. Green, Sr., Esquire
Carl D. Neff, Esquire Jared T. Green, Esquire
Fox Rothschild LLP Seitz, Van Ogtrop & Green, P.A.
Citizens Bank Center 222 Delaware Avenue, Suite 1500
919 North Market Street, Suite 300 P.O. Box 68
P.O. Box 2323 Wilmington, DE 19899
Wilmington, DE 19899-2323
Re: IMO The Estate of Paulina duPont Dean
Civil Action No. 7430-ML
Dear Counsel:
This action originated as a Petition for Instructions by William Kemble
Ketcham (“Kem”),1 the attorney-in-fact for his elderly, incompetent mother,
Paulina du Pont Dean (“Paulina”). The matter was referred to the Master, and the
reader is referred to the Master’s Report for a full statement of the facts;2 I will
refer only to those facts necessary to my decision.
The Petition for Instructions was Kem’s attempt to have this Court bless his
denial of a request by his brother, J.S. Dean Ketcham (“Dean”), to be reimbursed
1
I refer to the parties by their preferred first names to prevent confusion. No disrespect is
intended.
2
IMO The Estate of Paulina duPont Dean, C.A. No. 7430-ML (Del. Ch. June 30, 2014) (the
“Master’s Report”).
from Paulina’s funds for the educational expenses of Dean’s children. Under a
written power of attorney applicable here, Kem has the power to make gifts on
Paulina’s behalf “in a manner consistent with [Paulina’s] past pattern of giving, in
[Kem’s] sole and absolute discretion.”3 In response to the Petition for Instructions,
Dean contended that the reimbursement he sought was consistent with Paulina’s
past pattern of giving in paying for her grandchildren’s educational expenses.
Dean also counterclaimed, alleging that Kem had improperly transferred Paulina’s
funds for Kem’s and Kem’s family’s benefit and committed other breaches of
fiduciary duty.4 Dean sought a forensic accounting.
The Master found that (1) Kem must account for his tenure as a fiduciary
from the date the power of attorney was executed, and (2) payment for Dean’s
children’s educational expenses that were billed directly by an educational
institution comported with Paulina’s past pattern of giving and thus should be paid
from Paulina’s estate. Kem has taken exceptions to both of these decisions of the
Master.
A. Standard of Review
Pursuant to our Supreme Court’s directive in DiGiacobbe v. Sestak, masters’
reports must be reviewed de novo by this Court.5 Because the Master’s
3
Pet. for Instructions Ex. A at 3, ¶ 27.
4
Countercl. ¶¶ 14–17.
5
743 A.2d 180, 184 (Del. 1999).
2
determination did not turn on credibility of the witnesses’ testimony, I may resolve
the exceptions by reference to the record created before the Master.6
B. Discussion
1. Forensic Accounting
Kem does not contend that he can escape accounting for his use of Paulina’s
funds as her fiduciary.7 He contends that the Master erred, however, in finding that
the written power of attorney that Paulina entered became effective shortly after it
was executed. The facts are these. In the late 1990s, Paulina opened two accounts
on which Kem was added as a signatory as a convenience to her.8 Kem concedes
that he used his access to those accounts for Paulina’s benefit9—and thus acted as
her common-law fiduciary—at that time, and had in fact been a signatory on her
previous accounts dating back to 1979.10
On October 26, 2004, Paulina executed a durable power of attorney. The
durable power of attorney was not a springing power; it purported to be effective
upon execution and specifically provided that Paulina’s disability would not affect
6
See id. (“It is possible . . . to conduct a review de novo on the record. . . . Only where
exceptions raise a bona fide issue as to dispositive credibility determinations will a new hearing
be inevitable.”).
7
See, e.g., McMahon v. New Castle Assocs., 532 A.2d 601, 605 (Del. Ch. 1987) (“Fiduciaries,
because they hold property or exercise power for another, are required to account in chancery for
their stewardship.”).
8
Trial Tr. at 61–62.
9
Sept. 8, 2014 Oral Arg. Tr. at 6–10; Trial Tr. at 6, 61–63.
10
Trial Tr. at 6.
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operation of the power granted to Kem.11 It is under this written power of attorney
that Dean sought an accounting in the counterclaim. Kem contends that he did not
accept the charge as a fiduciary under the written power of attorney until July
2009, when his mother was declared incompetent, and thus is not subject to an
accounting for the period between the execution of the power of attorney in 2004
and Kem’s purported acceptance in 2009.
A power of attorney becomes effective when accepted by the attorney-in-
fact, explicitly or implicitly; it is sufficient evidence of acceptance that the
attorney-in-fact exercises the power granted by the power of attorney.12 In arguing
that he did not accept the power of attorney in 2004 because he had already been a
signatory on Paulina’s accounts, Kem is relying on the fact that he began acting as
a fiduciary for Paulina when she put his name on her bank accounts beginning in
the late-1990s, if not earlier. Kem argues that after the power of attorney was
executed, he continued to act as a fiduciary using his status as a signatory on the
11
Pet. for Instructions Ex. A at 4.
12
See 12 Del. C. § 49A-113 (“[A] person accepts appointment as an agent under a personal
power of attorney by signing the agent’s certification (pursuant to § 49A-105(c) of this title) or
by exercising authority or performing duties as an agent or by any other assertion of conduct
indicating acceptance.”). I note, as the Master did, that Paulina’s durable power of attorney was
executed prior to the adoption of the Durable Personal Powers of Attorney Act, and thus, Kem
would not have signed an agent’s certification under § 49A-105(c). Kem conceded, however,
that, references to an agent’s certification notwithstanding, this is the correct standard for
determining whether an appointment has been accepted. See Pet’r Opening Br. in Supp. of His
Exceptions to the Master’s Final Report Dated June 30, 2014 (hereinafter “Pet’r Opening Br.”) at
43, n.23.
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accounts, and not by use of the power granted in the written power of attorney.13
He contends that he did not begin using the fiduciary authority granted by the
written power of attorney until Paulina was declared incompetent in 2009, and thus
need not account for his tenure as attorney-in-fact before that time.
This argument is lawyerly, but unavailing in this court of equity. Regardless
of the source of the fiduciary authority Kem was employing, he is still required as
a fiduciary to use his principal’s property for her benefit only and to act
scrupulously in her regard. Kem does not argue that he is altogether immune from
an accounting, suggesting instead that the appropriate start date is July 2009, when
he purportedly accepted the power of attorney. For the reasons stated above, I
affirm the decision of the Master that a forensic accounting must take place
commencing with October 26, 2004, the date of the execution of the power of
attorney, to review Kem’s use of Paulina’s funds.14
2. Dean’s Request for Reimbursement of the Costs of his Children’s
Education
Dean asked Kem to be reimbursed approximately $650,000 for the education
of his children between the years of 2001 through 2011.15 The power of attorney
13
See, e.g., Pet’r Opening Br. at 45.
14
Because I resolve the case in this manner, I need not reach the issue of whether late-filed
evidence on behalf of Kem purportedly demonstrating his proper use of Paulina’s funds can be
considered here. Of course, Kem is free to point out to the forensic auditor any information he
feels is useful for purposes of production of an accurate forensic accounting.
15
Pet. for Instructions ¶ 9; Answer ¶ 9; Pet. for Instructions Ex. B. Exhibit B to the Petition lists
the amount sought as $651.459.72. Dean offered other, lower sums that were calculated based
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directs Kem to make gifts on Paulina’s behalf “to one or more of [her] issue of
whatever degree, including gifts to [Kem], in a manner consistent with [Paulina’s]
past pattern of giving, in [Kem’s] sole and absolute discretion.”16 It is undisputed
that it was Paulina’s practice to pay the cost of her children’s and grandchildren’s
education. The parties dispute whether, by long delay, Dean waived his right to
receive reimbursement, and, if not, what expenses sought are properly paid. The
Master, in a well-reasoned report, carefully reviewed Paulina’s pattern of giving in
resolving this question in favor of Dean.17
I am concerned, however, by the rather odd posture of this case. Paulina has
a large estate, which Kem and Dean will share equally under her estate plan upon
her death. Dean has advocated strongly that Paulina, if competent, would have
wished to continue her pattern of giving and reimbursed him the cost of his
children’s education. Kem disputes vigorously that this is the case, in light of
Dean’s choice to eschew timely requests for reimbursement; Kem argues that Dean
has waived his ability to accept the offer of gift. My concern is that both sides in
this litigation, including the fiduciary who is supposedly acting in the interests of
Paulina consistent with the terms of the power of attorney, are conflicted. Because
of their status as equal beneficiaries under Paulina’s will, every dollar paid for the
on different definitions of Paulina’s past pattern of giving, for example, (1) all expenses
designated by Dean as educational, (2) tuition, room and board, or (3) payments directly to
educational institutions. See Master’s Report at 8; Trial Tr. at 154–56.
16
Pet. for Instructions Ex. A at 3, ¶ 27.
17
See Master’s Report at 18–22.
6
education of Dean’s children is an effective 50 cent payment from Kem’s pocket.
Dean, who is advocating theoretically for the vindication of his mother’s wishes, is
similarly conflicted.
In this case, and in light of the conceded incapacity of the principal here and
the very substantial sum requested, it seems desirable that Paulina’s interests be
represented by independent counsel ad litem. For this reason, that portion of the
Master’s Report directing payment and reimbursement of Dean’s children’s
expenses is remanded for the appointment of an attorney ad litem to investigate
and advocate on behalf of Paulina. I leave to the Master’s discretion, informed by
any requests by the attorney ad litem, the determination of to what extent the
proceedings need to be reopened for a decision.
C. Conclusion
Kem’s exception regarding the forensic accounting is denied. With respect
to the portion of the Master’s Report directing reimbursement to Dean of his
children’s educational expenses, the matter is remanded for further proceedings.
To the extent the foregoing requires an Order to take effect, IT IS SO ORDERED.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
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