The Virginia Supreme Court recently handed down one of the most significant trust and estate litigation opinions in years. In the unanimous ruling in Hunter v. Hunter (Record No. 190260), the Court (for the first time) expressly approved of an alternative-pleading model whereby a trust beneficiary may first seek a declaratory judgment as to whether a proposed claim would trigger a no contest clause, and obtain a ruling on that threshold question, before deciding whether to proceed with the prosecution of the claim.
Full disclosure: I litigated the Hunter case on behalf of the successful appellant, both at the trial court level and on appeal. I may be biased, but I believe that the ruling’s impact is significant. Not only does the ruling bring clarity on a method of navigating no contest clauses, but it also briefly touches on numerous other areas of trust law that could come before the Court in the future. In the appeal from the trial court, we raised seven assignments of error, several of which touched on open issues of trust law in Virginia. While the Court ruled in our favor on one of the assignments, it didn’t reach the other assignments, but interestingly it mentioned some of those issues in its opinion.
In future blog posts in the coming weeks and months, I’ll discuss those issues as well as provide my thoughts on how the opinion’s brief discussion of some of those issues could affect future litigation of those issues. This blog post is part 1 of 7 on the Hunter opinion, so please stay tuned for those future posts in which I discuss some of the other interesting issues raised by the opinion. But for now, the following is an overview of the Hunter opinion itself, as well as a discussion of the implications for estate litigators.
Background Facts
The case centered on a dispute between two siblings: Chip and Eleanor. Their mother established a trust that left certain assets to both of them, and named Eleanor as the trustee of the trust. After their mother died in 2015, Chip received a brokerage account statement from Eleanor that allegedly showed a decline in the value of trust assets from $4.25 million to $1.77 million over the course of less than 6 years. Chip requested additional information from Eleanor about the trust assets. Eleanor’s counsel did not provide that information, claiming that a provision in the trust relieved her of having to provide such. That provision stated that the settlor “waive[d] the Trustee’s formal requirements to inform and report set forth under Section 55-548.13 of the Code of Virginia” (which was recodified into current Code Section 64.2-775 [the Uniform Trust Code’s inform and report provision]).
Chip believed that the language in the trust purporting to waive the inform and report requirement under Section 55 of the Code may not have relieved the trustee of her obligations to provide Chip with information under other sources of Virginia law, including sections of the Virginia Uniform Trust Code, or stand-alone principles of common law and equity jurisprudence. Chip wanted clarity on that issue. However, the trust contained a no contest clause that purported to be triggered by certain contests to the trust. Chip certainly didn’t want to trigger the no contest clause. As a result, Chip filed a two-count declaratory judgment action, closely modeled off of the Virginia Supreme Court’s holding in Virginia Foundation of Independent Colleges v. Goodrich, 246 Va. 435 (1993).
Count I sought a declaratory judgment, asking the trial court to “initially determine” whether determining Chip’s and Eleanor’s rights and duties under the trust “would constitute a contest” under the no contest clause, and stating that “if and only if” the court ruled that it wouldn’t, should the trial court proceed to rule on Count II (which sought a declaratory judgment on whether the language in the trust purporting to waive the inform and report requirement under Section 55 of the Code, relieved the trustee of all legal obligations that she may have to provide Chip with information about the trust assets and administration).
Eleanor responded by filing a counterclaim seeking a ruling that Chip’s complaint, when read as a whole, constituted a contest of the trust, thereby resulting in Chip’s disinheritance. The trial court agreed and entered summary judgment in Eleanor’s favor on her counterclaim. Chip appealed.
The Court’s Holding
In its analysis, the Court pointed out that Chip’s complaint closely tracked the model of the two-part “if and only if” alternative-pleading filed by the successful litigant in Goodrich, a model that was implicitly accepted by the Court in that holding. The Court then stated that it now expressly approves that model:
We now give our express approval to the alternative-pleading model implicitly accepted in Goodrich. The alternative-pleading model has the virtue of principle by conforming to the traditional view that the complainant is the “master of the complaint”, and the value of pragmatism by permitting a declaratory judgment action to gauge the cost-benefit ratio of continuing litigation.
(citations omitted).
The ruling proceeded to state that Chip’s complaint specifically asserted that it did not seek to “contest” the trust but rather sought only “an interpretation of the trustee’s inform and report requirements” under the specific “language” of the trust and under any independent duties pursuant to “Code Section 64.2-775, the Virginia Uniform Trust Code, Virginia common law, and/or equitable principles of law.” The Court held that because those allegations “fit squarely” within the alternative-pleading model, the trial court erred by disregarding the if-and-only-if proviso of Count I of the Complaint and ordering a forfeiture based upon Count II. “Instead, in such a scenario, the circuit court should have entered judgment on Count I in Eleanor’s favor and dismissed Count II as moot.”
Notably, the Court then proceeded to examine the trial court’s reasoning that Count II of Chip’s complaint violated the no contest clause. The no contest clause purported to apply to conduct that sought to “invalidate, nullify, set aside, render unenforceable, or otherwise avoid” any provision of the trust. The Supreme Court rejected the trial court’s interpretation of the clause, and instead held that the complaint merely sought an interpretation of the trust, as opposed to contesting its provisions. Relying on Goodrich, the Court stated that one who seeks the “guidance of a court in interpreting” a disputed provision of a will does not contest the will “in a manner which would actuate a forfeiture clause.” The Court held that “[t]he same is true in trust law.”
Implications
The helpful opinion makes clear that a trust beneficiary may first seek a declaratory judgment as to whether a proposed claim would trigger a no contest clause, and obtain a ruling on that threshold question, before deciding whether to proceed with the prosecution of the claim. The result is that a beneficiary can obtain clarity on whether a proposed action would trigger a no contest clause before having to first undertake that action and risk potential disinheritance as a result. The deterrent effect of no contest clauses is not thereby removed; rather, their application is clarified so that a party can conduct a conscious cost-benefit calculation of pursuing such an action.
Going forward (and with certain exceptions) just about any litigant that intends to assert a claim in a complaint that could even remotely risk triggering a no contest clause, should seriously consider bringing an alternative-pleading complaint to first obtain a ruling on the applicability of the no contest clause. There are certain exceptions, however, namely in those scenarios in which a party knows full well that his suit would trigger a no contest clause, yet he deems it to be worthwhile to proceed forward anyway (for example, in suits to contest the underlying validity of a will or trust).
Additionally, future litigants should try to plead claims like this with care. To be as safe as possible, they should try to reference the Hunter ruling in their complaints, and make clear that they’re bringing an alternative-pleading as permitted by Hunter. When we filed the underlying complaint in the trial court in the Hunter case, we went to great lengths to explicitly state that it sought no further relief than that which had been sanctioned by the Court in Goodrich. The complaint stated:
Notwithstanding anything that may be contained in this Complaint to the contrary, this Complaint seeks no further relief than that which has been held by the Virginia Supreme Court in Virginia Foundation of Independent Colleges v. Goodrich, 246 Va. 435 (1993), to permit a beneficiary to file a declaratory judgment action seeking an interpretation of a phrase in a testamentary instrument, without such conduct being held to fall within the scope of a no contest clause and/or actuating a no contest clause. Consistent with Goodrich, this Complaint requests that the Court initially determine whether a declaratory judgment action (with respect to a determination of the rights and duties of Chip and Eleanor under the terms of the Trusts in light of Virginia Code Section 64.2-775, the Virginia Uniform Trust Code, Virginia common law, and/or equitable principles of law) would constitute a “contest” under either of the no contest clauses contained in the Trusts; and if, and only if, the Court determines that it would not constitute a “contest” under the no contest clauses contained in the Trusts, this Complaint asks the Court to then proceed with a determination of the rights and duties of Chip and Eleanor under the terms of the Trusts in light of Virginia Code Section 64.2-775, the Virginia Uniform Trust Code, Virginia common law, and/or equitable principles of law.
The Virginia Supreme Court apparently found this to be persuasive to our case, as it quoted the entire section of the pleading above, verbatim, in its opinion. To be as careful as possible in future alternative-pleading claims concerning no contest clauses, litigants may want to consider crafting their complaints with similar language.
Stayed tuned for the remaining parts of this 7-part series of blog posts on the Hunter decision. In the next post, I’ll discuss the opinion’s treatment of “strict construction” of no contest clauses (including some interesting new language used in the opinion to address that concept).