Co-trustees had standing to contest revocation

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Where appellee revoked a trust, of which two of her children were trustees, and a New York guardianship court found that appellee was not an incapacitated person, the Fairfax Circuit Court incorrectly ruled that the New York proceeding collaterally estopped appellant trustees from challenging appellee’s mental capacity.

Overview

Paula Plofchan executed a power of attorney in Texas naming her husband as attorney-in-fact. Under the POA’s terms, after her husband died, her son, Thomas, served as attorney-in-fact. In 2006, she created a trust, which was governed by Virginia law. She named herself as trustee and reserved the right to amend or revoke the trust without consulting any other trustees.

Plofchan moved to New York in 2013 to reside with her daughter, Jennifer. In June 2014, Plofchan was diagnosed with Alzheimer’s disease. She resigned as trustee on Sept. 26, 2016, and named Thomas, and another of her daughters, Elizabeth, as co-trustees. A short time later, two doctors determined she was incapacitated.

On May 29, 2018, Plofchan revoked Thomas’ power of attorney and petitioned a New York guardianship court to appoint Jennifer as her guardian for her under that state’s Mental Hygiene Law. She also asked the court to terminate Thomas and Elizabeth’s authority as trustees and to revoke any documents suggesting that she had surrendered her capacity or competency to Thomas and Elizabeth pursuant to the trust.

The two doctors who declared Plofchan revoked their previously issued certificates of incompetency. Following a hearing, the New York court found Plofchan was not an incapacitated person. And denied all of her requested relief.

In Virginia, Thomas and Elizabeth filed a complaint alleging that Plofchan was incapacitated as it relates to financial matters. She responded with a plea in bar, in which she argued that Thomas and Elizabeth lacked standing to sue, and that the New York court’s finding that she was not incapacitated collaterally estopped their suit. The circuit court agreed and dismissed the case with prejudice.

Collateral estoppel

“We conclude Ms. Plofchan failed to establish that the issues of her mental capacity to revoke the POA in May 2018 and to revoke the Trust in August 2018, and her mental capacity at present, were actually litigated in the New York proceedings. This is so for two reasons.

“First, the New York guardianship court evaluated Ms. Plofchan’s mental capacity in terms of whether she needed a guardian appointed to protect her interests, applying a different standard than is applied when determining testamentary or contract capacity.

“Second, the issue of whether Ms. Plofchan specifically had the capacity to revoke her Trust and POA was not actually litigated.

“The standard New York courts apply in a guardianship proceeding is set forth in the Mental Hygiene Law, which provides that ‘the determination of incapacity shall be based on clear and convincing evidence and shall consist of a determination that a person is likely to suffer harm because: 1. the person is unable to provide for personal needs and/or property management; and 2. the person cannot adequately understand and appreciate the nature and consequences of such inability.’ …

“Notably, this standard is different from the New York standard for determining whether an individual had capacity to execute trust documents. … When evaluating an individual’s capacity to execute trust documents, New York courts apply the ‘contract standard of capacity, which focuses on whether the person was able to understand the nature and consequences of a transaction and make a rational judgment concerning it.’ …

“The determination of whether Ms. Plofchan had capacity to execute or revoke the POA and the Trust was not actually litigated in the New York guardianship proceeding. …

“The key inquiry, regarding Ms. Plofchan’s mental capacity, in the action initiated by Thomas and Elizabeth is whether Ms. Plofchan had the mental capacity on the dates she signed the revocations of the POA and the Trust and presently, not whether she generally had the mental capacity to manage her affairs at the time of the guardianship hearing.

“Even if the New York guardianship court’s order could be construed as ruling on Ms. Plofchan’s mental capacity generally, it made no findings regarding her mental capacity on May 29, 2018, and August 21, 2018, the dates she attempted to revoke the POA and the Trust.

“Thus, the issues regarding Ms. Plofchan’s mental competence, relevant to the instant lawsuit, were not actually litigated in the New York guardianship proceeding, and collateral estoppel does not preclude those issues from being litigated in this case. Therefore, the circuit court erred in sustaining Ms. Plofchan’s plea in bar based upon collateral estoppel.”

Standing

“Thomas and Elizabeth argue that they have standing to bring their action and that the circuit court erred in concluding otherwise. They assert that because Ms. Plofchan failed to present evidence to support her plea, the circuit court was required to accept the well-pled allegations in their complaint as true and that their complaint alleged sufficient facts to give rise to standing. They aver that they not only had standing to bring the suit, but an obligation to do so to protect the Trust and Ms. Plofchan’s assets. …

“Thomas and Elizabeth alleged that they were co-trustees of the Trust, that Thomas was Ms. Plofchan’s attorney-in-fact, that Ms. Plofchan did not have the mental capacity to revoke her Trust or the POA, and that they, in their fiduciary capacities, were bringing suit to protect the assets and administration of the Trust.

“Taking these allegations as true, as the circuit court was required to do when ruling on a plea in bar without taking evidence, Thomas and Elizabeth have standing to bring the underlying action. Therefore, the circuit court erred in sustaining the plea in bar for lack of standing.

“Relatedly, the circuit court also erred in dismissing Thomas and Elizabeth’s claims for fees and costs they purportedly incurred in carrying out their fiduciary duties, because that ruling was based upon the circuit court’s erroneous determination that Thomas and Elizabeth did not have standing to bring those claims.”

Reversed and remanded.

Plofchan, et al v. Plofchan, Record No. 200237, April 1, 2021 (Goodwyn). From the Circuit Court of the County of Fairfax (Smith). Jacqueline Audrey Kramer for appellants. Elizabeth Vandetta C. Morrogh, Michael Kwang-Min Kim, Juli Marie Porto for appellee. VLW 021-6-018, 14 pp.