Virginia Lawyers Weekly VA Lawyers Weekly
The trial court correctly issued a declaratory judgment that litigation of a trust beneficiary’s claims, which accuse his sister “of obtaining certain gifts from their parents through undue influence or fraud, thereby depleting their parents’ trusts and eroding [the beneficiary’s] inheritance,” would not violate the trust’s no-contest clause.
The complaint was fashioned “according to the ‘alternative-pleading model,’ a method of bringing a declaratory-judgment action that our Supreme Court recently approved in Hunter v. Hunter (Hunter I), 298 Va. 414 (2020).
Overview
Chip and Eleanor are the children of Charles and Theresa Hunter. Charles and Theresa executed trusts. The Charles Trust named Charles as trustee and Theresa and Eleanor as substitute co-trustees. The Theresa Trust named Theresa and Eleanor as trustees. Eleanor would be the sole trustee if Theresa could not serve.
The trust further provided that after Theresa died, if Charles was also deceased, the Theresa Trust would be distributed in three shares: one-third to Chip minus $87,650, one-half of the remaining assets to Eleanor and the other half to Eleanor’s daughter, Shannon.
“Eleanor began serving as the trustee of both the Charles Trust and the Theresa Trust in 2012. Charles died in 2013, and Theresa died in 2015.”
The trusts contained no-contest clauses. After Theresa died, Chip learned that the trust assets “decreased from approximately $4.25 million in December 2009 to approximately $1.7 million in September 2015. Suspicious that Eleanor’s wrongdoing accounted for that reduction, Chip initiated this declaratory-judgment action.”
‘Hunter I’
“This is not the first dispute between Chip and Eleanor to make its way through our courts. Their first foray resulted in the Supreme Court’s 2020 opinion in Hunter I, 298 Va. at 414. That dispute stemmed from Eleanor’s refusal to provide Chip certain information related to the steep decline in value of the trust assets over a six-year period. …
“The Supreme Court held that Chip successfully avoided the risk of forfeiture under the no-contest provision by employing the ‘alternative-pleading model.’
“The Court relied in part on Virginia Foundation of Independent Colleges v. Goodrich, 246 Va. 435 (1993), in which the plaintiff’s complaint contained two counts, the first of which resembled Chip’s Count I. …
“Although the Court in Goodrich did not explicitly comment on the two-step pleading method, it ruled that the plaintiff’s substantive claim did not violate the no-contest clause. … Hunter I characterized that holding as ‘[i]mplicitly approving [a] beneficiary’s use of alternative pleading.’”
The court in Hunter I stated that “[b]y ‘closely follow[ing] the Goodrich template for seeking a preliminary determination on the scope of the no-contest provision of the Theresa Trust prior to a resolution of the disputed … [trust] provision,’ … Chip avoided triggering the no-contest clause[.] …That enabled the trial court to answer the question posed in Count I before proceeding to Count II.
Chip’s 2019 complaint
“In 2019, Chip filed a three-count complaint against Eleanor alleging that she procured certain ‘gifts’ through undue influence or fraud perpetrated against their parents. As in Hunter I, Count I sought a declaratory judgment that litigating Chip’s claims – set forth in Counts II and III – would not trigger the no-contest provision.
“‘If, and only if’ the trial court determined that his claims would not trigger the no-contest provisions, then Chip asked the court to proceed to the merits of Counts II and III.
“As for the merits of those claims, Chip alleged that the parents’ gifts orchestrated by Eleanor ‘substantially depleted’ Charles and Theresa’s estates. …
“Eleanor filed a counterclaim alleging that the purported gifts listed in Chip’s complaint were discretionary distributions made by her in her capacity as trustee, rather than gifts directed by her parents themselves.
“She claimed that, by seeking to set aside those discretionary distributions, Chip had triggered the no-contest clause. …
“Following closing arguments, the trial court ruled that the claims made in Chip’s complaint did not run afoul of the no-contest clause.’
Eleanor appealed.
Justiciable controversy
“Eleanor argues that Chip failed to prove an actual, justiciable controversy between the parties on Count I because he did not establish that Eleanor had threatened that Chip’s advancing the claims made in Counts II and III would trigger the no-contest provision.”
Chip’s claims were “not speculative or ‘imaginary,’ but ‘actual and material.’…
“Chip claimed – and Eleanor did not deny – that Eleanor had tried to use the no-contest clause to disinherit Chip no fewer than three times before he filed the 2019 complaint. …
“[W]e find on these facts that an ‘actual controversy’ existed between Chip and Eleanor as to whether Chip’s proceeding on Counts II and III would violate the no-contest clause. His request for a declaratory judgment was therefore justiciable.”
Declaratory judgment
“We disagree with Eleanor that Chip was required to present evidence in support of the allegations in the complaint in order to obtain a declaratory judgment that those allegations, if true, would not violate the no-contest provision.
“Chip’s Exhibit 1 provided the trial court with sufficient information to rule on Count I. To determine whether the complaint, on its face, violated the no-contest clause, the trial court needed only to compare the two documents. Chip provided both, satisfying his burden of production. …
“As Chip acknowledged at oral argument, the declaratory judgment he obtained does not shield him if he otherwise violates the no-contest clause while litigating Counts II and III.
“The trial court’s declaratory judgment was limited in scope to the allegations on the face of the complaint. The trial court ruled that those claims, if established, would not violate the no-contest provision.
“Chip proceeds at his peril if, while litigating those claims on remand, he makes additional arguments or claims beyond those contained in the complaint that violate the no-contest provision. …
“Finally, we disagree with Eleanor that Chip’s lawsuit amounted to ‘improper procedural fencing because it deprived [her] of the opportunity to prosecute her Counterclaim.’ …
“It was not ‘procedural fencing’ for Chip to seek a declaratory judgment that the complaint, as framed, would not trigger the no-contest clause.
“Rather, Chip and the trial court simply abided by the alternative-pleading model expressly approved in Hunter I[.]”
Affirmed and remanded.
Hunter v. Hunter Jr., et al., Record No. 0555-22-1, May 2, 2023. CAV (published opinion) (Raphael). From the Circuit Court of the City of Williamsburg and County of James City (Maxfield). George H. Bowles for appellant. William W. Sleeth III for appellees. Christina Shelton for appellee City of Williamsburg. VLW 023-7-156, 12 pp.
