A trust beneficiary can maintain a derivative suit on behalf of a trustee against a third party de facto trustee, and the Norfolk Circuit Court overrules an estate’s demurrers to plaintiff’s suit alleging mismanagement of two irrevocable trusts of which she was a beneficiary.
Plaintiff Stephanie Burton filed suit against several defendants Old Point Trust & Financial Services (Old Trust), Cyrus Dolph and Old Point Trust & Financial Services as Executor of the estate of Lester Hudgins (Hudgins Estate). Defendants have filed demurrers to the amended complaint. The sole issue now before the court is whether there is merit to the Hudgins estate’s demurrer to plaintiff’s amended complaint.
The remaining claim is a beneficiary derivative claim on behalf of Old Point Trust against a third party. The court in its June 27, 2014 opinion discussed in detail whether Burton, as a beneficiary, could assert derivative claims on behalf of Old Point as trustee. The court concluded Burton had standing to lodge derivative claims as a beneficiary of the irrevocable trusts.
The court finds no basis to grant the relief requested by defendant Hudgins Estate, whose demurrer largely ignores the court’s prior opinion and again raises issues not appropriate at this stage of the proceedings.
The court also overrules the demurrer asserting that the express terms of the trusts preclude Lester Hudgins from acting as trustee. The trusts’ preclusion of Lester Hudgins’ serving as trustee does not bar him from being a de facto trustee. Whether the circumstances support that Hudgins acted as a de facto trustee is a factual issue improper to resolve via demurrer.
The statutory procedures necessary to establish an actual trustee are not required to classify Lester Hudgins as a de facto trustee. A de facto trustee is not a creature of statute; hence, unlike an actual trustee, Burton is not required to allege the satisfaction of statutory procedures to establish that Lester Hudgins is a de facto trustee. The court overrules the demurrer on this ground.
Burton articulates facts in her amended complaint sufficient to allege that Hudgins acted as a de facto trustee. At this stage, Burton does not have to match legal principles with facts to prove that Hudgins was a de facto trustee. Whether the circumstances warrant Hudgins being classified as a de facto trustee is a factual issue that is improper to resolve via demurrer. The court overrules the demurrer as to this ground.
Hudgins Estate is free at trial to argue against any purported duties Burton assigns to a de facto trustee. Simply stating there is “no Virginia law” imposing duties on a de facto trustee, without citing applicable authority, is insufficient to undermine the adequacy of Burton’s pleading. The court overrules the demurrer on this ground.
The court also overrules the demurrer asserting that Burton’s claim stems solely from an act of God. Burton states in her amended complaint that the “breach of Hudgins’ duties as de facto Trustee” led to the relief sought.
Finally, contrary to Hudgins Estate’s assertion, Burton does not allege that Lester Hudgins had an individual duty to make policy payments or advise his beneficiaries of the lack of payments or gifts. Burton instead argues that Lester Hudgins was a de facto trustee and, concomitant with that title, had certain duties. Burton alleges sufficient facts in her amended complaint to put Hudgins Estate on notice of this claim.
Burton v. Dolph (Lannetti) No. CL 13-6812, Feb. 24, 2015; Norfolk Cir.Ct.; Edward B. Lowry, Sherri Nelson, Alan B. Rashkind, Charles M. Sims, S. Frear Hawkins, Samuel W. Meekins Jr. for the parties. VLW 015-8-017, 7 pp.