Flint v. Davis

Thomas D. Horne Judge

Mr. J. Howard Flint, Jr.
114 Dead Run Drive
McLean, Virginia 22101 Ms. Deborah Seal
282 Richland Road
Fredericksburg, Virginia 22401 Spencer D. Ault, Esquire
116-L Edwards Ferry Road, N.E.
Leesburg, Virginia 20176 Daniel D. Smith, Esquire
W. Franklin Pugh, Esquire
305 Harrison Street, S.E.
Leesburg, Virginia 20175 E. William Chapman, Esquire
Carla B. Hook, Esquire
44084 Riverside Parkway
Leesburg, Virginia 20176 Dear Ms. Seal, Mr. Flint, and Counsel:

The Court has invited and received comments from the parties with respect to a variety of issues in this case. Prior however, to addressing those issues it might be helpful to summarize the current status of this case, the history of the case, as well as certain bellwether findings of the Court in this case.

After the sale under court supervision of the Flint Farm, the proceeds of sale were deposited with the General Receiver of this Court. They are being held by the General Receiver pending a determination of those entitled to share in the distribution of such proceeds of sale.

This case has a long history, the initial Bill of Complaint having been filed on May 20, 1993. Other lawsuits have been instituted that address issues related to those presented in this case. The Court will incorporate into this letter opinion the various letter opinions authored by this Court in this case and in those related cases.

The instant litigation presents a conflict between various beneficiaries of the Trust and of the estates of Mr. and Mrs. Flint. The Court's findings are driven by the intent of the settlors and compelled by the terms of the Flint Trust agreement.

On April 16, 1985, J. Howard Flint, Sr. executed a power of attorney appointing Ida L. Flint, his wife, as his attorney in fact. This power of attorney would be exercised in the administration of the Flint Revocable Living Trust. Three years later the Flints would execute wills and the Flint Revocable Living Trust. This Trust is the centerpiece of the instant proceedings and of other cases filed with the Court.

Both Mr. and Mrs. Flint are deceased, Mr. Flint having predeceased his wife.

It is axiomatic that "the paramount rule of construction of a trust provision is that the settlor's intent is controlling; trusts are to be construed in a manner so as to implement the intent of the settlor and the purposes of the trust." 76 Am. Jur.2d, Trusts § 35 p. 62. In establishing the Trust, it was the intent of Mr. and Mrs. Flint to create a vehicle through which they might provide for their needs during their lifetimes and for the distribution of the remainder of the trust estate upon the death of the surviving settlor. During their lifetimes together, each would share equally in the Trust.

Upon the death of either Mr. or Mrs. Flint, the Trustees of the Trust were to transfer the corpus of the deceased settlor's share into either the surviving settlor's share of the Trust (which would then be known as Trust A) or into a by-pass trust (to be known as Trust B). The linchpin to an allocation of assets was to be the amount of the unified credit ($600,000.00 at that time). Thus, the share of the settlor first to die would be used to assist, if necessary, in funding Trust A up to the amount of the unified credit equivalent available to the surviving settlor. The balance would then be used to fund Trust B up to the amount of the available unified credit and any excess then transferred into Trust A.

The settlors provided for the distribution of the Trust corpus to named beneficiaries upon the death of the surviving settlor. Additionally, they specified that the surviving settlor retained the unrestricted right to amend or revoke Trust A. Within certain limitations, the surviving settlor could also control the interest and principal of Trust B. In the event the surviving settlor properly exercised his or her right to use or dispose of the corpus of Trust A or Trust B, a beneficiary adversely affected by such action would have no standing to complain. If however, the surviving settlor chose not to dispose of the corpus of Trust A or Trust B, the Trust assets would simply pass in accordance with the provisions of the original Trust document.

Only those assets transferred into Trust A by the Trustees during the lifetime of the surviving settlor would be subject to that person's control. Moreover, it was the manifest intent of the settlors to, if possible, fund Trust A and Trust B to the level of the unified credit.

Upon the death of Mr. Flint, Mrs. Flint and Eva Davis, as Trustees of the Flint Trust, funded Trusts A and B with percentage interests in the Flint Farm. Mrs. Flint's half interest in the Trust at the time of her husband's death was valued in excess of $600,000.00.

On September 11, 1989, the Trustees executed a Special Warranty Deed transferring to Ida L. Flint and Eva L. Davis, as Trustees of Trust B, a fractional interest in the Flint Farm. In accordance with the terms of the Trust, Trust B was to be funded from Mr. Flint's share not used to supplement the funding of Trust A up to the unified credit amount.

This Court has determined that the Trustees erred in their allocation of the fractional interests of the Flint Farm between Trust A and Trust B. Thus, Trust B was underfunded. A constructive trust was imposed on Trust A to cure the underfunding of Trust B and to provide for the payment of certain costs incident to the litigation of this issue.

At various times during her lifetime, Ida L. Flint exercised her right as surviving settlor to "amend or revoke in whole or in part the Trust Agreement." In executing a Sixth Amendment to the Flint Revocable Living Trust she amended the Trust to provide that Trust A was to be distributed by the Trustee to the Executrix of her estate for distribution in accordance with the terms of her will.

The probated will of Ida Flint, executed on February 17, 1994, revoked the will of June 4, 1988, and provided for the distribution of the residue of her estate to certain named beneficiaries. On the same date, Mrs. Flint executed a letter to the Trustees of Trust A which directed that the entire principal balance or corpus of Trust A was to be distributed to her immediately. She did not seek to effect a transfer of any asset titled to Trust B. The Trustees of the trust signed the letter as having transferred and delivered to Ida L. Flint title to all tangible personal property held by them as Trustees. By virtue of the amendments to the Trust, certain of the complainants were precluded from so sharing in Trust A. They will however, share in the distribution of Trust B. By letter opinion dated February 20, 1996, this Court concluded:

1) the settlors retained the right to amend or revoke the Trust during their lifetimes;
2) the surviving settlor retained the right to amend or revoke Trust A during his or her lifetime; and
3) the Trustees owed no duty to the complainant beneficiaries of Trust A until the death of the surviving settlor.

J. Howard Flint, Sr. died on December 12, 1988. Under the terms of his will executed on June 4, 1988, he left his principal residence and all adjoining real property and related casualty insurance to his wife, if she were to survive him, which she did. The residue of his real and personal estate was left to the Trustees under the Flint Trust. Ida Flint and Eva L. Davis were named as Co-Executrixes of his estate. The named successor Co-Executor was the First American Bank of Virginia. In the event it became necessary, the Executrix was authorized to nominate a person or institution to serve as Co-Executrix or Administrator for purposes of ancillary administration. The Executrix and Administrator were authorized to serve without bond or surety.

The Inventory of the estate of J. Howard Flint, Sr. filed on July 17, 1989, described the property of his estate as consisting of 50 shares of Nuveen Tax Exempt Bond Fund valued at $4,621.00 and a GE dividend of $292.82.

Ida L. Flint died on August 3, 1994. The First Accounting of the Estate of Ida L. Flint was received and filed in the office of the Clerk of this Court on August 14, 1997, with no exceptions having been noted thereto within 15 days of such filing. The accounting shows that the undistributed assets as of October 31, 1995, consisted in the aggregate of assets valued at $1,231,891.27. These assets included real property having a value of $1,011,355.00 (50% interest in parcel 33-36; 75% interest in parcel 33-36B; 100% interest in parcel 34-12; 100% interest in parcel 34-12D). Memorandum opinion dated July 15, 1996

The Court concluded that the value of the real property described in the Special Warranty Deed was $1,220,000.00 and that the aggregate value of the property that conveyed to part B of the Trust was $507,772.50. Thus, the deficiency arising from the Trustees' failure to properly fund Trust B was $92,227.50. A constructive trust was imposed upon the parcels described in Schedules A and B to the extent of the deficiency. Furthermore, the Court found that such deficiency would be reflected in an adjustment of the percentage interests in the parcels transferred to Part B of the Trust and the amounts to be paid to the beneficiaries of Trust B pursuant to a decree of distribution.

Decree entered August 6, 1996

The Court determined that it would supervise the sale of the real property and directed that the sale proceeds would be paid into the General Receiver to be held and distributed in accordance with the Trust document and the Court Decree. The distribution would include the payment of costs and attorneys' fees relative to the issue of the underfunding of Trust B by the Trustees. By decree dated December 13, 1996, the percentage of ownership interests in the real property held by Mrs. Flint's estate was modified to reflect the findings of the Court.

Decree entered September 6, 1996

The Trustees of Trust B and the Executrix of the Estate of Ida Flint were authorized to sell all of the four parcels described in the Deed of Correction and known as the Flint Farm. This included the two parcels mentioned in the Special Warranty Deed to Trust B (Parcel 3 consisting of 235.75 acres and Parcel 4 consisting of 41 acres), as well as the nearby or contiguous Parcels 1 (consisting of 28.75 acres) and 2 (80.5 acres). An agent was approved for purposes of selling the property. All contracts were to be submitted for review by the Court. The Trustees of Trust B and the Executrix of the Estate were authorized to make repairs, obtain a survey, and pay costs necessary to market the property. This Decree was deemed final for purposes of appeal as to the decree of sale. By Order of the Supreme Court of Virginia dated May 29, 1997, an appeal from the decision of the Court was refused and the matter returned to this Court. ¦ On April 6, 1999, the Court approved the sale of the property to Andre H. Fontaine for the sum of $1,500,000.00. ¦ On August 18 and 19, 1999, a hearing was conducted with respect to the real estate commission to be paid at settlement. ¦ On August 23, 1999, settlement on the sale took place. The proceeds of sale are on deposit with the General Receiver awaiting disbursement.

Decree entered September 3, 1999

An escrow deposit in the amount of $10,000.00, paid by a prospective contract purchaser who had defaulted, was paid to the General Receiver to the credit of this cause.

Issues

Complainants seek an accounting from the Trustees. They are entitled to an accounting of the assets, other than the real estate, which comprised Mr. Flint's one-half interest in the Trust at the time of his death. In addition, they are entitled to an accounting of the distribution of those assets in accordance with the terms of the Trust. Those assets not transferred into Trust A upon the death of Howard Flint, Sr. would pass to Trust A beneficiaries designated in the Trust, and not to the estate of Ida Flint. Such an accounting would consider whether there was either actual or constructive delivery of such assets, their identity, and their value.

The parties were invited to submit proposed Statements XYZ at Bar as to the distribution of the proceeds of sale. At a hearing, a number of unresolved issues were identified as a result of the Statements filed with the Court. Comments by the parties were solicited and the Court makes the following findings. I. The Decree prepared by Mr. Chapman reflecting the proceedings of December 3, 1999. ¦ The proposed Order should be amended to reflect that the Court directed Mr. Flint and counsel to consult with respect to the issue of discovery, and that such discussions were intended by the Court to informally provide discovery, as the hearing date was fast approaching. From the arguments made, it would appear no agreement was reached. The Court finds no prejudice at this time by reason of a failure to make discovery. Any award of counsel fees and costs in connection with the motion may be argued at the time of the return of the report of the commissioner designated herein and distribution of the funds on deposit with the General Receiver. ¦ The Order should reflect the proffer of counsel for the estate of Ida Flint regarding their involvement in these proceedings. That is, they have impleaded funds for purposes of distribution, and that, were this the case, then no conflict of interest between counsel for the Co-Trustees and Executrix of the estate of Ida Flint and the Trust B beneficiaries is indicated. However, such a determination is without prejudice to the complainants to raise the issue should their position change or they take a position in conflict with the interests of the beneficiaries of Trust A, Trust B, or of the estate.

With those changes the Court will enter the Decree. II. An Accounting of assets in Trust A at the time of the execution of the Sixth Amendment.

Upon the death of Mr. Flint, the title to Mr. Flint's one-half share in the Flint Trust vested in the Trustees of Trust A or Trust B upon delivery of the property to the Trustees. Other than the transfer of title to the real estate, there is no accounting for such assets. To the extent such assets were not transferred to Trust A during the lifetime of the surviving settlor, they could not pass to anyone other than the beneficiaries identified in the Trust document. Mr. Flint specifically provided in his will:

"B. I give the residue of my real and personal estate to the Trustees under a Joint Living Revocable Trust Agreement made by me and my wife dated June 4, 1988, to be held in trust under the terms in effect at my death.
"C. In the event for any reason the bequest under Paragraph B immediately preceding is ineffective and invalid, then I give the residue of my real and personal estate to the Trustee or Trustees specified in the Trust Agreement above-referenced, which Trust Agreement is hereby incorporated by reference and made a part hereof the same as if the entire agreement were set forth herein."

(Emphasis added.) The Trust Agreement was signed before the will.

A will speaks and takes effect as if executed immediately before the death of the testator. Code of Virginia, §64.1-62; Carper v. Reynolds, 211 Va. 567 (1971). Certain of the complainants are named beneficiaries of Trust A of the Flint Trust as of the date of death of Mr. Flint. After his death, Mrs. Flint executed various amendments to the Trust document, and more particularly to Trust A, that served to modify the distribution of assets to beneficiaries named in the original Trust. Mrs. Flint directed that the assets in Trust A be passed into her estate to be distributed in accordance with the 1994 will. ¦ The Trustees of Trust A should be required to account for the property in Mr. Flint's one-half interest at the time of his death. Additionally, they should account for those assets not transferred by the Trustees to Trust A during the lifetime of Mrs. Flint. Distribution of the remaining Trust A assets, including the proceeds from the sale of the Flint Farm, will be delayed until such an accounting is performed. Such an accounting, however, need not delay the distribution of corpus Trust B, including the proportionate share of the interest actually earned on the deposited funds, to the Trust B beneficiaries. See Ballard v. McCoy, 247 Va. 513 (1994). III. Reasonableness of costs and attorneys' fees. ¦ Various costs and fees are attributable to the instant litigation and sale of the property. Complainants' standing to object to such fees is limited only by the impact of such fees on assets identified by the accounting as passing to the Trust beneficiaries specified in the original trust document. Consistent with this Court's interpretation of the Trust document, recoverable fees and costs in this case are chargeable against those funds on deposit with the General Receiver, exclusive of the unified credit equivalents payable to the Estate of Ida Flint and to the Trust B beneficiaries. Once an accounting is performed, it can be determined what, if any, assets may have been included in the Estate of Ida Flint should pass to the Trust A beneficiaries identified in the original Trust document. An accounting should not delay the payment, or reimbursement, of certain expenses incurred in connection with the sale of the property and the funding of Trust B. Action on other claimed fees and costs must await an accounting. To the extent that complainants are found to have no justiciable interest in the payment of such fees or costs, the Court need not make a determination as to whether such fees may be recovered or the amount of such fees. ¦The Court observes that the following funds are on deposit with the General Receiver:

Proceeds of sale:

a.	Gross proceeds from sale of the Flint Farm	$ 1,500,000.00
b.	Less expenses paid as per court order of 4/6/99	(92,961.67)
c.	Escrow release from Round Fox L.P. contract	10,000.00
d.	Net proceeds of sale and escrow release	$ 1,417,038.33
e.	Amount held by First Union Bank for distribution	298.30
f.	Income earned on deposit with General Receiver	To be determined

¦The following costs and expenses should be paid out of the funds on deposit with the General Receiver at this time to the party owed as indicated:

Unpaid costs:

a.	F. Carnell Bowman (appraisal dated 9/11/98)	$ 2,930.00
b.	F. Carnell Bowman (court testimony dated 6/30/96)	767.50
c.	Spencer Ault, Esquire (legal fees in connection with the funding of Trust B)	20,000.00

Costs paid in advance by the estate:

a.	Cemetery study	$ 4,010.65
b.	Boundary survey	10,890.00
c.	Timber survey	200.00
d.	Real estate appraisals	1,470.00
e.	Prepaid legal fees on sale of land	3,221.50

Costs for utilities and maintenance advanced by the estate:

a.	Utilities and maintenance (before 1/1/97)	$ 2,900.89
b.	Utilities and maintenance (after 1/1/97)($2,133.25 less $1,318.34 reimbursed from rent of tenant)	814.91

Real estate taxes and other costs advanced by estate of Ida Flint:

a.

Real estate taxes and costs advanced by notes from the estate of Ida Flint

$ 22,872.29

¦ The amount of Trustee fees connected with the administration of the Trust will be delayed pending the return of an accounting. As part of the accounting, the commissioner shall take testimony and make report upon the allegations of the complainants that the Trustees breached their fiduciary duties to the complainants. If any such breach is found to have occurred, the commissioner is to make report upon the impact of such breach on an award of fees recoverable in connection with the administration of Trust B or in the handling of assets passing through Trust A to the benefit of the complainants. IV. Costs and attorneys' fees from proceeds of sale. ¦ Payment of approved costs and expenses should not act to withhold distribution of the amount of $600,000.00, with interest on the amount earned from date of deposit with the General Receiver, to the Trust B beneficiaries. The balance will be distributed after an accounting. ¦ Unless the award of fees will impact on a justiciable interest of the complainants in the remaining funds on deposit, such fees need not be subject to Court review. ¦ Previously, the Court imposed a constructive trust upon the proceeds of sale to cover costs and attorneys' fees. As noted, these costs and fees are not chargeable to Trust B. Mr. Ault is entitled to recover his fees incurred prior to the appearance of Mr. Chapman and Ms. Hook on behalf of the other Trust B beneficiaries in connection with the funding of Trust B. V. Allocation of the sales costs. ¦ Approved sales costs are payable out of the funds on deposit with the General Receiver and do not affect the stated minimum amounts passing to the Trust B beneficiaries or through Trust A to the beneficiaries of the Estate of Ida Flint. VI. The Statements XYZ at Bar issues. ¦ This is not a case sounding in quantum meruit. Any relief requested on those grounds is denied. Claims for punitive damages were not set forth in the Second Amended Bill of Complaint and are therefore not recoverable in this case. ¦ The other issues are addressed elsewhere in this opinion. VII. Limitations on the disbursement of funds. ¦ Trust B and the interest earned in connection with the deposit of such funds with the General Receiver should be distributed forthwith. The costs and fees incurred and approved by the Court should be paid forthwith. The disbursement of the remaining funds on deposit shall await an accounting. Fees of the General Receiver shall be paid out of the funds on deposit. VIII. Conflicts of Interest. ¦ The settlors granted to the Trustees considerable discretion in the handling of their property. Trustees, other than the original settlor/trustee, are entitled to receive reasonable compensation for their services and to reimbursement for expenses. The Trust however, provides that the Trustees and their agents shall be liable for intentional misconduct or gross neglect. The Trustees will be required to make an accounting; any finding with respect to the personal liability of the Trustees would require (1) the return of the accounting and (2) a factual determination of willful misconduct or gross negligence. ¦ Motions to disqualify counsel and for relief against the Trustees or their counsel have been filed. The commissioner will be directed to take testimony concerning these matters and to make report thereon as part of his accounting. IX. Funding beyond the distribution of the $1,500,000.00. ¦ The Court has ordered an accounting pursuant to the relief sought in the Second Amended Bill of Complaint. Pending such an accounting, the Court makes no ruling with respect to the entitlement of complainants to any assets which may have passed through Trust A into the estate of Ida Flint (rather than in accordance with terms of the original Trust document).

X. Consideration of Billings and Invoices.

Virginia adheres to the American Rule governing the award of attorneys' fees. That is, "each party is to bear the cost of representation chosen by that party for trial." See generally John L. Costello, Virginia Remedies § 19-1(a) (2d ed.) 1999. This rule is subject to certain exceptions, only one of which is applicable to this case - the common fund rule.

The Court has imposed a constructive trust upon the funds being held by the General Receiver to cover the costs and attorneys' fees in connection with the funding of Trust B. The common fund rule applies in those cases where the Court may require contribution by one party to the fees of counsel of another party, where that party requesting contribution,

"suing on behalf of himself and others of the same class, discovers or creates a fund which inures to the common benefit of all; but the discretion vested in the court should never be exercised in a case where the interests of the party whose fund is sought to be charged are antagonistic to the party for whose benefit the suit is prosecuted."

McCormick v. Elsea
, 107 Va. 472, 475 (1907). See also § 54.1-3933, Code of Virginia; Stuart v. Hoffman & Co., 108 Va. 307 (1908); Dunlop v. H. W. McGehee's Executor, 139 Va. 643 (1924); Edmonds v. Mapp, 175 Va. 73 (1940). ¦ In this case the beneficiaries and the Trustees of Trust B had a common interest in the proper funding of Trust B. It is that common interest which permits an award of attorneys' fees and costs. As a result of the efforts of the complainants and their counsel, and of the expert employed by them, the funding mistake was identified and later corrected by the Court. However, counsel fees are not recoverable after the employment of Mr. Chapman and Ms. Hook. ¦ The Trustees and the estate of Ida Flint were entitled to retain counsel and to reimbursement of their expenses. However, such fees and expenses should not be charged to Trust B. A decision as to the reasonableness of such charges, and whether or not such remaining fees may be the subject of judicial review, must await an accounting. XI. Sanctions. ¦ The Court finds that the issue of sanctions should be deferred until an accounting has been conducted. XII. Equitable Remedies. ¦ Any further relief must await an accounting. XIII. Trustee Fees. ¦ Fees are provided for in the Trust document. Fees would be payable out of the funds on deposit in excess of the unified credit amount payable to the beneficiaries of the estate of Ida Flint and to the beneficiaries of Trust B. However, neither the amount nor the entitlement thereto can be determined until the commissioner has conducted the accounting. XIII. Need for Further Evidentiary Hearings. ¦ An accounting is properly conducted before a commissioner. Any testimony will be before the commissioner. The commissioner shall make a recommendation concerning the allocation of the costs of the proceedings before the commissioner. XV. Right to Examine Eva Davis and others. ¦ Any discovery and the taking of evidence should be limited to the accounting before the commissioner to be appointed by the Court. The commissioner shall report as to the assets subject to distribution in Trust A, if any, and the persons entitled thereto.

Appointment of Commissioner in Chancery

The Court will appoint Douglas L. Fleming, Jr., Esq, as Commissioner in Chancery to conduct the accounting and make report thereon. Counsel and the parties should contact him with respect to the scheduling of further proceedings. The Commissioner shall be entitled to rule on matters of evidence. This Order of Reference incorporates herein the provisions of the General Order of this Court respecting decrees of reference dated February 27, 1995. A copy of this Order may be found in the Resource Book for the Circuit Court of Loudoun County, 1999. There is a copy of this publication in Loudoun County law library as well as at the front desk of the Clerk's Office.

Mr. Chapman may draw a Decree consistent with this opinion to which the parties may note their exception.

The Commissioner shall make a finding with respect to an allocation of his fee.

Very truly yours,

Thomas D. Horne

Judge