in the Matter of Soble Family Trust ( 2017 )

STATE OF MICHIGAN
COURT OF APPEALS
In re SOBLE FAMILY TRUST.
MELINDA SOBLE-GREENBERG, UNPUBLISHED
December 19, 2017
Petitioner-Appellee,
v No. 334411
Oakland Probate Court
JEFFREY S. SOBLE, LC No. 2013-353868-TV
Appellant,
and
RICHARD S. SOBLE,
Intervenor.
Before: JANSEN, P.J., and CAVANAGH and CAMERON, JJ.
PER CURIAM.
Jeffrey S. Soble appeals as of right the probate court’s July 21, 2016 order to enforce the
April 24, 2014 order pertaining to the termination and distribution of the Soble Family Trust.
We affirm.
Melinda Soble-Greenberg, along with her two brothers, Richard Soble and Jeffrey, are
the beneficiaries and co-trustees of the Soble Family Trust. Shelda Soble, the mother of
Melinda, Jeffrey and Richard, was the settlor of the trust, which was initiated on July 14, 1986.
Management of the trust proceeded relatively smoothly until recent years when the siblings
became embroiled in disagreements regarding the management of the trust and distributions from
the trust income. Melinda sought to have the trust terminated or decanted, asserting that Jeffrey
and Richard engaged in “self-interested decisions” and made decisions pertaining to the trust
without consulting Melinda. A majority, or two of the three trustees, is required to approve a
trust transaction. One of the assets of the trust is an equity interest in an Illinois-based medical
software company, Cyberpulse, LLC, which was started and managed by Jeffrey. In seeking to
terminate or decant the trust, Melinda asserted that Jeffrey and Richard were consistently voting
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together to effectively render Melinda impotent as a co-trustee in the making of decisions for the
trust and to her detriment as a beneficiary.
On appeal, Melinda contests the jurisdiction of this Court to consider Jeffrey’s appeal,
asserting he is precluded from appealing as of right because the most recent order is only a post-
judgment order of enforcement and not a final order. According to Melinda, the final order in
this case was entered on May 30, 2014, when the trial court ordered the termination of the trust
and distribution of the trust assets.
“The question of jurisdiction is always within the scope of this Court’s review.” Adams v
Adams (On Reconsideration), 276 Mich. App. 704, 709; 742 NW2d 399 (2007). “Whether a court
has subject-matter jurisdiction is a question of law reviewed de novo.” Hillsdale Co Senior
Servs, Inc v Hillsdale Co, 494 Mich. 46, 51; 832 NW2d 728 (2013).
This Court “has jurisdiction of an appeal of right filed by an aggrieved party from . . . [a]
judgment or order of a court or tribunal from which appeal of right to the Court of Appeals has
been established by law or court rule.” MCR 7.203(A)(2). In accordance with MCR 5.801(A),
“[a]n interested person aggrieved by an order of the probate court may appeal as provided by this
rule.” The current version1 of MCR 5.801(A) identifies orders “appealable of right to the Court
of Appeals.” A final order is defined, in relevant part, for civil cases in MCR 7.202(6)(a) as:
(i) the first judgment or order that disposes of all the claims and adjudicates the
rights and liabilities of all the parties, including such an order entered after
reversal of an earlier final judgment or order,
Because the order at issue relates to the distribution of a trust asset, it could be construed
as a final order under MCR 5.801(B)(2)(j), which governs final orders of the probate court
“assigning, selling, leasing, or encumbering any of the assets of an estate or trust[.]” The
problem with reliance on this subrule is that it fails to recognize that the order appealed from in
this matter is not the final order as defined by MCR 7.202(6)(a)(i). The final order in this case
was entered on May 30, 2014, because that is the order that terminated the original trust and
distributed the trust assets. The order appealed from was entered more than two years later as a
post-judgment order to clarify and effectuate the distribution of one of the trust assets addressed
in the 2014 order. The most recent probate court order did not modify, alter or amend its final
order. See Matter of Werney’s Estate, 112 Mich. App. 601, 603-604; 316 NW2d 253 (1982)
(“That provision of the order . . . which directed the estate to pay to appellee the amount
specified in the [prior] order . . . did not decide the appellee’s claim but rather held that the claim
was allowed by the [prior] order and directed compliance with that order. Therefore, the order
appealed from did not determine the substantive rights of the parties but enforced the previous
determination made by the probate court. Therefore, this provision of the order appealed from is
not a ‘final’ order appealable as a matter of right to this Court[.]”).
1
The court rule was amended in 2017. Changes in language deal primarily with the
identification and inclusion of citation of statutes and other court rules not referenced in the
earlier version of the court rule in effect at the time of the filing of this appeal.
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This discrepancy was of greater significance under the version of MCR 5.801 in effect at
the time this appeal was filed, which distinguished between orders appealable of right to this
Court and to the circuit court, MCR 5.801(B), (C), and by certification by the probate court,
MCR 5.801(F). These distinctions have been eliminated in the current version of MCR
5.801(B), which no longer includes appeals from the probate court to the circuit court and which
now specifically states: “All orders of the probate court not listed in subrule (A) are appealable to
the Court of Appeals by leave of that court.” This is confirmed in the “staff comment” section to
the 2017 amendment of MCR 5.801, which explains, in relevant part: “These amendments
conform to recent statutory changes that require all appeals from probate court to be heard in the
Court of Appeals, instead of the bifurcated system that previously required some probate appeals
to be heard in the Court of Appeals and some to be heard in the local circuit court.”
Ultimately, the discrepancy is irrelevant. The order being challenged in this appeal is
appealable to this Court either as of right or by leave granted. While we agree that Jeffrey
should have sought leave to appeal, this determination does not preclude the matter from going
forward. This Court “may, in our discretion, accept the pleadings as an application for leave to
appeal, grant the appeal, and resolve the appealed issue on the merits.” Waatti & Sons Electric
Co v Dehko, 230 Mich. App. 582, 585; 584 NW2d 372 (1998). As historically recognized in
Guzowski v Detroit Racing Ass’n, Inc, 130 Mich. App. 322; 343 NW2d 536 (1983):
The problem posed here does not go to this Court’s power or authority to render
judgment in a class of cases but, rather, concerns merely how this Court should
respond when a litigant seeks review of a . . . court order by one method when the
litigant should have sought review by another method and where it is undisputed
that this Court does, in fact, have the legal authority to resolve the underlying
merits of the action. [Id. at 325-326 (footnote omitted).]
As such, we exercise our discretion and proceed by treating this appeal as on leave granted. We
note that Jeffrey’s claim of appeal was timely filed in conformance with MCR 7.205(A)(2),
having been filed within the 21 day limitation required after entry of an order on a motion for
reconsideration.
Next, we address the substantive issue on appeal involving the distribution of assets upon
termination of the trust. Jeffrey contends that the probate court no longer retains jurisdiction
over the trust, which was terminated and distributed two years ago. He suggests that the current
order merely duplicates the 2014 order terminating the trust and distributing its assets and,
therefore, cannot be complied with because the distribution of assets ordered has already been
effectuated. Jeffrey further contends that the beneficiaries and co-trustees of the trust lack the
authority to transfer the voting interest in Cyberpulse premised on Illinois law, the operating
agreement of Cyberpulse and because only Jeffrey in his capacity as manager of Cyberpulse has
such authority. In addition, because Jeffrey was not sued by Melinda in his capacity as a
manager or agent of Cyberpulse, he contends that the probate court lacks the authority to order
Cyberpulse or Jeffrey to grant Melinda voting rights. Specifically, Jeffrey argues that the
distributional interest of the trust in Cyberpulse was properly granted to the beneficiaries in
accordance with the termination of the trust but that the membership interest in Cyberpulse
enjoyed by the trust is not similarly transferable and requires the approval of Jeffrey in his
capacity as manager of Cyberpulse, which he is unwilling to provide. Jeffrey further asserts that
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the probate court’s most recent order was peremptory in nature and denied him his right to due
process.
Issues of statutory interpretation and questions of law are subject to review de novo. In
re Capuzzi Estate, 470 Mich. 399, 402; 684 NW2d 677 (2004); Rental Props Owners Ass’n of
Kent Co v Kent Co Treasurer, 308 Mich. App. 498, 532; 866 NW2d 817 (2014). Similarly, “[t]he
determination whether a party has been afforded due process is a question of law subject to
review de novo on appeal.” Id. at 531.
At the outset, we reject Jeffrey’s claim that the probate court lacked jurisdictional
authority to enforce its own order. MCL 600.847 states: “In the exercise of jurisdiction vested in
the probate court by law, the probate court shall have the same powers as the circuit court to hear
and determine any matter and make any proper orders to fully effectuate the probate court’s
jurisdiction and decisions.” In addition, MCL 700.1302(b)(v) provides, in relevant part, that a
probate court maintains “exclusive legal and equitable jurisdiction” with regard to:
A proceeding that concerns the validity, internal affairs, or settlement of a trust;
the administration, distribution, modification, reformation, or termination of a
trust; or the declaration of rights that involve a trust, trustee, or trust beneficiary,
including, but not limited to . . . . [The determination of] a question that arises in
the administration or distribution of a trust, including a question of construction of
a will or trust.
After the payment of $92,562 each to Richard and Jeffrey “to equalize principal
distributions” made from the trust to Melinda, the probate court originally ordered the
termination and distribution of the trust and its assets to occur in the following manner:
[T]he remaining trust property, net of reasonable tax preparation fees, shall then
be divided on a pro rata basis and distributed equally and outright to Melinda
Soble-Greenberg, Jeffrey Soble and Richard Soble.
Notably, at the time this order was entered, the parties do not dispute that the trust maintained a
financial interest and membership interest in Cyberpulse, with voting rights.
Richard and Jeffrey stipulated to the distribution of the trust assets in order to avoid the
probate court’s indication that it would not break up the trust but would instead appoint an
independent trustee to deal solely with matters that involved the self-interest of any of the
trustees. At no time during the proceedings was it discussed or disclosed that the trust’s voting
rights in Cyberpulse were to be excluded or were not considered a part of the anticipated
distribution of assets. In his role as co-trustee, Jeffrey agreed to distribution of the trust assets.
But as an agent or manager of Cyberpulse, Jeffrey contends that he is not required to distribute or
award precisely the same interest held by the trust to Melinda. Importantly, he is not precluded
from providing her membership or voting rights, rather he simply elects or prefers not to award
her a membership interest with voting rights. Arguably, then, the value of the distribution was
not equivalent or distributed on a “pro rata” basis and “equally and outright.”
It is obvious from the probate court’s response at the most recent hearing that the probate
court understood the stipulation of the parties to establish an agreement that all of the assets held
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by the trust, less the amounts paid to equalize payments of principal, were to be distributed to the
beneficiaries in a manner that was equivalent in amount and type as held by the trust. For
Jeffrey, a co-trustee of the trust, to now contend that the probate court lacked the authority to
require him, as manager of Cyberpulse, to effectuate the probate court’s order of distribution is
disingenuous. Courts have imposed on trustees “the fiduciary duties of honesty, loyalty, restraint
from self-interest and good faith.” In re Green Charitable Trust, 172 Mich. App. 298, 313; 431
NW2d 492 (1988).
Jeffrey’s contention that the probate court’s issuance of the order appealed from cannot
be effectuated because the trust had already been terminated and the current order merely directs
the same behavior as the original 2014 order to distribute assets is also disingenuous. The
original 2014 order directed that “the remaining trust property . . . be divided on a pro rata basis
and distributed equally and outright” to the three beneficiaries. The need for the second order to
enforce the distribution of one of the assets involved in the 2014 order, the voting interest in
Cyberpulse, is more explicit given the conflict that has arisen between the parties. In the most
recent order, the probate court instructed the trustees to execute assignments of the trust’s
membership interest in Cyberpulse . . . “equally and outright” to the three trust beneficiaries.
Given Jeffrey’s contention that the 2014 order did not and could not encompass this requirement,
we reject his argument that the two orders are identical and that his compliance with the 2014
order precludes his ability to comply with the subsequent or later order.
In part, Jeffrey’s arguments are dependent on the Cyberpulse Operating Agreement
(CPOA) and whether the order governing the distribution of the trust assets comprises a transfer
or an involuntary withdrawal. The CPOA, Article I, defines a “transfer” as “any sale,
hypothecation, pledge, assignment, attachment, or other transfer.” The same article defines an
“involuntary withdrawal,” “with respect to any Member,” as “the death, bankruptcy, insolvency,
incompetence, or dissolution, termination of existence, or liquidation of such Member.” In
accordance with Article 10, Section I of the CPOA, “No Member may Transfer all or any portion
of such Member’s Membership Interest, and no Unit Holder may Transfer any Units, except with
the prior written consent of the Manager. . . . Any person to whom a Membership Interest is
attempted to be transferred in violation of this Section shall not be entitled to vote on any matters
coming before the Members . . . or have any other rights with respect to such Membership.”
Alternatively, Section 3 of Article 10 of the CPOA addresses involuntary withdrawals and
indicates:
Immediately upon the occurrence of an Involuntary Withdrawal, the successor of
the withdrawn Member shall thereupon become an [sic] Unit Holder, but not a
Member unless admitted by the Manager. If the Manager is the Member with
respect to whom an Involuntary Withdrawal occurs, however, any successor to
any of his Units shall be admitted to the Company as (and shall automatically
become) a Member in respect to such Units without the consent, approval or any
other action on the part of any Member. The successor to a Member with respect
to whom an Involuntary Withdrawal has occurred shall have all the rights and
interests of a Unit Holder (and, if admitted to the Company as a Member, all of
the rights of a Member), but neither the withdrawn Member nor his successor
shall be entitled to receive in liquidation of the Units or the withdrawn Member’s
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Membership Interest . . . the fair market value of such Units or Membership
Interest. . . . unless the Manager otherwise agrees in writing.
Jeffrey as the manager of Cyberpulse, under the CPOA, has the authority to grant
membership rights. Arguably, if the distribution of the trust assets to the beneficiaries is
construed as a “transfer,” it required the consent of Jeffrey as the manager of Cyberpulse. Thus,
the 2014 stipulated probate court order appears to fulfill the consent requirements of the CPOA,
Article 10, Section 1, based on Jeffrey’s stipulation to the probate court order.
It is only the membership interests that are transferred without the written approval of the
manager that are precluded from voting on issues that arise before the Members. Arguably,
Section 3 of Article 10, addressing involuntary withdrawals and the necessity of manager
approval to retain membership status, is also encompassed by the 2014 probate court order, to
which Jeffrey stipulated. Although, ultimately, the trust was terminated, the termination was
effectuated to permit the transfer of its assets to the beneficiaries. The restrictions on involuntary
withdrawals appears designed more to avoid problems resulting from receiverships, bankruptcies
or other hostile or disinterested assumption of rights rather than the formality of transferring a
trust asset to an intended beneficiary. Contrary to Jeffrey’s characterization, the probate court is
not exceeding its authority by ordering Jeffrey as the manager of Cyberpulse to effectuate a
transfer of rights to Melinda. Rather, the probate court is ordering Jeffrey to comply with the
probate court order to which he agreed and stipulated as a co-trustee of the trust.
Jeffrey further contends that the probate court’s order is violative of Illinois law, where
Cyberpulse is established. Specifically, Jeffrey relies on a distinction in 805 ILCS 180/1-5
between a “distributional interest” and a “membership interest.” A “distributional interest” is
defined as “a member’s right to receive distributions of the limited liability company’s assets,
but no other rights or interests of a member.” 805 ILCS 180/1-5. In contrast, a “membership
interest” is defined as “all of a member’s rights in the limited liability company, including the
member’s right to receive distributions of the limited liability company’s assets.” 80 ILCS
180/1-5. Jeffrey contends that he complied with the probate court’s 2014 order by granting
Melinda a distributional interest in Cyberpulse.
According to Illinois law, pertaining to a “member’s distributional interest”:
(a) A member is not a co-owner of, and has no transferable interest in, property of
a limited liability company.
(b) A distributional interest in a limited liability company is personal property
and, subject to Sections 30-5 and 30-10, may be transferred in whole or in part.
(c) An operating agreement may provide that a distributional interest may be
evidenced by a certificate of the interest issued by the limited liability company
and, subject to Section 30-10, may also provide for the transfer of any interest
represented by the certificate. [805 ILCS 180/30-1.]
Concurrently, 805 ILCS 180/30-5(b) provides: “A transfer of a distributional interest does not
entitle the transferee to become or to exercise any rights of a member. A transfer entitles the
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transferee to receive, to the extent transferred, only the distributions to which the transferor
would be entitled.”2 The rights of a “transferee” are delineated in 805 ILCS 180/30-10 as
follows:
(a) A transferee of a distributional interest may become a member of a limited
liability company if and to the extent that the transferor gives the transferee the
right in accordance with authority described in the operating agreement or all
other members consent.
(b) A transferee who has become a member, to the extent transferred, has the
rights and powers, and is subject to the restrictions and liabilities, of a member
under the operating agreement of a limited liability company and this Act. A
transferee who becomes a member also is liable for the transferor member’s
obligations to make contributions under Section 20-5 and for obligations under
Section 25-35 to return unlawful distributions, but the transferee is not obligated
for the transferor member’s liabilities unknown to the transferee at the time the
transferee becomes a member.
(c) Whether or not a transferee of a distributional interest becomes a member
under subsection (a) of this Section, the transferor is not released from liability to
the limited liability company under the operating agreement or this Act.
(d) A transferee who does not become a member is not entitled to participate in
the management or conduct of the limited liability company’s business, require
access to information concerning the company’s transactions, or, except as
provided in subsections (c) and (d) of Section 1-40, inspect or copy any of the
company’s records.
(e) A transferee who does not become a member is entitled to:
(1) receive, in accordance with the transfer, distributions to which the
transferor would otherwise be entitled;
(2) receive, upon dissolution and winding up of the limited liability
company’s business:
2
We note similarities in Michigan law, specifically MCL 450.4505, which states in relevant part:
“(1) Except as provided in an operating agreement, a membership interest is assignable in whole
or in part. (2) An assignment of a membership interest does not of itself entitle the assignee to
participate in the management and affairs of a limited liability company or to become or exercise
any rights of a member. An assignment entitles the assignee to receive, to the extent assigned,
only the distributions to which the assignor would be entitled.” See also MCL 450.4506
pertaining to the membership interests of assignees.
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(A) in accordance with the transfer, the net amount otherwise
distributable to the transferor; and
(B) a statement of account only from the date of the latest
statement of account agreed to by all the members.
(f) A limited liability company need not give effect to a transfer until it has notice
of the transfer. [805 ILCS 180/30-10.]
Case law in Illinois has recognized the need for transfers of members’ interests in a
limited liability corporation to comply with the operating agreement of the corporation. For
instance, in In re Marriage of Schlichting, 2014 IL App 2d 140158; 385 Ill Dec 859, 867-868; 19
NE3d 1055 (2014), it was determined that the trial court violated the terms of the limited liability
corporation’s operating agreement when it ordered the member to sell her membership interest to
her husband, in this divorce proceeding because the operating agreement “required that the LLC
buy out a divorcing member’s interest. . . . Contrary to these terms, the court did not allow the
LLC to buy out [the wife’s] interest; rather, it allowed [the husband], a nonmember, to buy out
[the wife’s] interest.” Similarly, in First Mid-Illinois Bank & Trust, NA v Parker, 403 Ill App 3d
784; 342 Ill Dec 922, 928; 933 NE2d 1215 (2010), it was recognized:
Where a limited liability company is member-managed, a member may transfer a
distributional interest entitling the transferee to receive the distributions that
would have been made to the transferor, but the Limited Liability Company Act
does not entitle the transferee to become or to exercise any rights of a member,
unless the operating agreement so specifies or all the other members consent.
[Citations omitted.]
The circumstances of this case are unique and distinguishable. While Jeffrey is correct
that Illinois law requires assignments or distributions of interests in a limited licensed company
(LLC) to comport with the operating agreement of the LLC, there is nothing that impedes Jeffrey
from treating Melinda as a member in the same manner afforded to the trust. The CPOA gives
Jeffrey the authority to grant or award Melinda a membership interest in Cyberpulse. And it is
undisputed that the trust had a membership interest with voting rights in Cyberpulse. In agreeing
as a co-trustee to assign the trust’s interest in Cyberpulse on a “pro rata basis” and “equally and
outright” to his co-trustees, Richard and Melinda, Jeffrey agreed to award to these individuals the
same interest enjoyed by the trust.
In addition, each of the co-trustees, Richard, Jeffrey and Melinda, signed an individual
“Assignment of Membership Interest,” which stated:
FOR VALUE RECEIVED, Richard S. Soble, Jeffrey S. Soble and
Melinda Soble[-]Greenberg, as co-trustees of the Soble Family Trust u/a/d July
14, 1986 (“Assignor”), hereby transfer and assign all of Assignor’s interests (the
“Assigned Membership Interest”) in Cyberpulse LLC, a limited liability company
(“Company”), to Richard S. Soble, Jeffrey S. Soble and Melinda Soble[-
]Greenberg individually (“Assignees”) in equal (1/3) shares. This assignment
may be executed in any number of counterparts.
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Jeffrey, as the manager of Cyberpulse, signed the consent to assignment of interest, which stated,
in relevant part: “Consent. The undersigned hereby consents to the transfer and assignment by
the Assignor of the Membership Interest and/or Units to Assignees pursuant to the Assignment
(but not to the substitution of the Assignees as Members).”3 Only Jeffrey signed the consent to
assignment, which appears to unilaterally alter the assignment of interest, whereas each of the
beneficiaries executed the assignments of interest, which convey that the document intended to
“transfer and assign all of Assignor’s interests (the “Assigned Membership Interest”) in
Cyberpulse LLC, a limited liability company (“Company”), to Richard S. Soble, Jeffrey S. Soble
and Melinda Soble[-]Greenberg individually (“Assignees”) in equal (1/3) shares.”
Trustees are required to “administer [a] trust solely in the interests of the trust
beneficiaries.” MCL 700.7802(1). “[T]ransactions involving self-dealing should be closely
scrutinized . . . to see whether the trustee’s actions indicate[ ] any fraud, bad faith or
overreaching on the part of the trustee.” Green, 172 Mich. App. at 314. “Bad faith is not a
specific act in itself, but defines the character or quality of a party’s actions.” Id. at 315. “[B]ad
faith has been defined as arbitrary, reckless, indifferent, or intentional disregard of the interests
of the person owed a duty.” Id. (quotation marks and citation omitted). Jeffrey’s role as trustee
conflicted with his self-interest as manager of Cyberpulse. The award of a different level or type
of interest in Cyberpulse to the co-trustees and beneficiaries does not comply with the probate
court’s order that each of the beneficiaries receive a share of the trust assets “equally and
outright.”
Finally, Jeffrey contends that he was denied his right to due process because the probate
court’s orders do not fully explicate the court’s reasoning. “The essential [elements] of
procedural due process are adequate notice, an opportunity to be heard, and a fair and impartial
tribunal.” Hughes v Almena Twp, 284 Mich. App. 50, 69; 771 NW2d 453 (2009). Jeffrey does
not claim he was unaware that proceedings were scheduled and occurring in the probate court in
this matter. Three separate hearings occurred. While Jeffrey elected not to be present, he
permitted his interests to be represented by Richard and retained counsel. Extensive briefing was
conducted in this matter, and there was no suggestion during the proceedings that the probate
judge was biased in any manner. At this late date, any assertion by Jeffrey that he was denied
due process in this regard is without merit or support in the record.
Further, the probate court’s order was not “peremptory” considering the opportunities to
submit briefs and present argument at the hearings. And we reject Jeffrey’s argument that
Melinda’s motion for enforcement was an improper motion for summary disposition, which the
probate court lacked the authority to grant “sua sponte under MCR 2.116 in contravention of a
party’s due process rights.” Under certain conditions, “a trial court has authority to grant
summary disposition sua sponte[.]” Al-Maliki v LaGrant, 286 Mich. App. 483, 485; 781 NW2d
853 (2009). And when the trial court does so, “due process can be satisfied by affording a party
3
The parties dispute the wording of the signed version with Jeffrey claiming the document was
prepared by Melinda’s counsel and Melinda asserting that the version signed was modified by
Jeffrey to include the limiting provision.
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an opportunity for rehearing.” Id. at 485-486. In this case, the parties were permitted to submit
briefs and participate in oral argument, and were also afforded the opportunity to file a motion
for reconsideration, which was rejected by the probate court. Accordingly, Jeffrey failed to
establish that he was denied due process in this regard.
Affirmed.
/s/ Kathleen Jansen
/s/ Mark J. Cavanagh
/s/ Thomas C. Cameron
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