Opinion
CIVIL ACTION CV-14-157
02-28-2020
KELLEY ANN O'SHEA, Plaintiff, v. KATHLEEN M. O'SHEA; BRIAN CONNOR O'SHEA; JOHN J.C. O'SHEA, III; and K1LLYBEGS, LLC, Defendants.
PLAINTIFF ATTORNEY: BRIAN CHAMPION ESQ LIBBY O'BRIEN KINGSLEY & CHAMPION PRO HAC VICE: JEFFREY DUNCAN ESQ DUNCAN LAW PC DEFENDANTS ATTORNEY TOBY DILWORTH ESQ AMY OLFENE ESQ DRUMMOND WOODSUM ANDREW DUCHETTE ESQ (KILLYBEGS LLC] TAYLOR MCCORMACK & FRAME LLC
PLAINTIFF ATTORNEY: BRIAN CHAMPION ESQ LIBBY O'BRIEN KINGSLEY & CHAMPION
PRO HAC VICE: JEFFREY DUNCAN ESQ DUNCAN LAW PC
DEFENDANTS ATTORNEY TOBY DILWORTH ESQ AMY OLFENE ESQ DRUMMOND WOODSUM
ANDREW DUCHETTE ESQ (KILLYBEGS LLC] TAYLOR MCCORMACK & FRAME LLC
JUDGMENT
JOHN O. NEIL, JR. JUSTICE
Plaintiff Kelley O'Shea ("Kelley`"), in her individual capacity and as co-trustee of two trusts ("Trusts") established by the late John J.C. "Rusty" O'Shea in his Last Will and Testament, brought this action in August 2014 for breach of fiduciary duty, breach of contract, fraud, conversion, and alleged violations of the Maine Uniform Fraudulent Transfers Act ("UFTA") against Kathleen O'Shea ("Kathleen"), in her individual capacity, as co-executor of the estate of Rita O'Shea ("Rita"), as co-trustee of the Trusts, and as a manager of Killybegs, LLC; Brian O'Shea ("Brian"), in his individual capacity, as co-executor of Rita's estate, as co-trustee of the Trusts, and as a manager of Killybegs; John O'Shea ("John"), in his individual capacity, as co-trustee of the Trusts, and as a manager of Killybegs; and against Killybegs itself.
In particular, Kelley seeks recovery for alleged hreach of fiduciary duty to the Trusts and Rusty's estate by Rita, the parties' mother and the primary beneficiary of and trustee for the Trusts (Count I); breach of contract by Kathleen, Brian and Killybegs (Count II); breach of fiduciary duty by Kathleen, Brian, and John (collectively "Individual Defendants") as members of Killybegs (Count III); breach of fiduciary duty by Killybegs itself (Count IV), and fraud (Count V), conversion (Count VI), and violations of the UFTA (Count VII) by the Individual Defendants. She asks this court to provide relief in the form of a constructive trust (Count VIII) and punitive damages (Count IX). Although not listed in the complaint, Kelley also seeks a judgment (1) declaring that Rita did not satisfy the terms of a final judgment entered by the 237th District Court of Lubbock County, Texas in 2011; (2) ordering Rita's estate to reimburse the Trusts for the amount she distributed or allocated to cover her attorneys' fees in that case; (3) ordering the defendants to pay Kelley's attorneys' fees in this litigation; (4) cancelling the deed that conveyed the Trusts' one-half interest in real property in Kennebunkport, Maine into Killybegs in 2009; (5) cancelling the change of beneficiary forms Rita executed for the two life insurance policies; and (6) appointing a conservator to manage Rita's remaining assets and Rusty's estate.
There is a total absence of any discussion in Kelley's post-trial brief or her reply brief on this cause of action. (Pl.'s Br. at 31 (limiting her recitation of the law and facts related to breach of fiduciary duty to actions by Kathleen and Brian); Pl.'s Reply Br. at 16 (moving from her breach of fiduciary duty claim against Kathleen and Brian on Count III to her claim against the Individual Defendants for fraudulent concealment on Count V).) Kelley has not cited to any Texas authority for the proposition that a limited liability company as an entity owes a fiduciary duty to its members or that it is liable for breaching that duty, assuming it exists. The Texas Business Organizations Code does not appear to burden the LLC itself with a fiduciary duty. See Tex. Bus. Orgs. Code § 101,401 (referencing only the duties owned by a "member, manager, officer or other person" in its discussion of which duties can be expanded or restricted by a company agreement). Because Kelley has failed to prosecute this claim in a meaningful way at trial or through her post-trial briefs, the court will not discuss its merits further.
The Superior Court (O'Neil, J.) issued an order on April 4, 2018 in which it granted in part and denied in part defendants' motion for summary judgment, holding, inter alia, that the doctrine of res judicata barred any claims for distributions prior to the commencement of the litigation in Texas in October 2009 and any claims regarding a transfer in 2004 of property known as "Brehon" by Rita to Kathleen. O'Shea v. O'Shea, No. CV-14-157, 2018 Me. Super. LEXIS 190, at **22, 24 (Apr. 4, 2018). The court held a bench trial on the remaining claims from June 24 to June 27, 2019 at which it entertained testimony for the plaintiff from Kelley and her financial expert, Roderick Moe, and for the defendants from Kathleen; Brian; John; Gary Lane, a certified financial planner who has served as an accountant to Rita, the Trusts and Killybegs; and Michael Gomez, a financial advisor to the Trusts since 2009. The parties submitted written closing arguments in the form of post-trial briefs. This decision follows.
I. Findings of Facts
The facts that gave rise to this action begin with Rusty's death on November 10, 1996. (Trial Transcript, hereinafter "Tr.," 1 at 11:16, 165:12.) He was survived by his wife, Rita and four children, including the plaintiff and Individual Defendants. (Tr. 1 at 165:22-166:7.) Rusty's estate was probated in Lubbock County, Texas, which is where he and Rita primarily resided. (Defs.' Ex. 1 at DEF-0001.) Since Texas is a community property state, half of the marital estate remained with Rita as the surviving spouse while Rusty's half passed according to the terms of his Last Will and Testament ("Rusty's Will" or "Will"). See Tex. Fam. Code Ann. § 3.002.
A. The Trusts
Rusty's Will established two support trusts: the Family Trust ("Family Trust") and the Marital Deduction Trust ("Marital Trust"). (Pl.'s Ex. 1, hereinafter "Will," §§ 4.1, 6.1.) Gary Lane, a certified public accountant who started working for Rita in 1998 and continues to serve as the accountant for the Trusts and Killybegs, divided the one-half of the community property that belonged to Rusty into the two trusts in consultation with the lawyer working to probate his estate. (Tr. 3 at 62:17-20, 63:1-12, 66:4-7.) Lane funded the Family Trust with one-half of the marital estate's interest in the home Rusty and Rita owned at 168 Kings Highway, Kennebunkport, Maine and the majority of their stocks that Lane believed were most likely to appreciate in value. (Tr. 1 at 12:10-11; Tr. 3 at 66:8-67:1.) The Marital Trust's corpus was initially comprised of the remaining stocks and one-half of the couple's other real estate assets, including land in Hockley County, Texas, and Tarrant County, Texas and the following pieces of property in Lubbock, Texas: the family home and an adjacent lot; three barns for boarding horses and riding stables known as "Brehon" sitting on roughly sixteen acres; an office building; and a parking lot. (Tr. 3 at 52:16-22, 57:10-12, 67:4-7; Deis.' Ex. 1 at DEF-0002.)
This court sees no reason to deviate from the Texas Court of Appeals decision to classify the Trusts as "support trusts" given their expertise and experience in interpreting the Texas Trust Code. Duncan v. O'Shea, No. 07-11-0088-CV, 2012 Tex. App. LEXIS 64, at *I3 (Tex. App. Aug. 7, 2012).
The value in assets tunneled into the Family Trust was the maximum that qualified for tax exemption. (Tr. 3 at 120:13-16.) The remaining property compromised the Marital Trust's corpus.
Kathleen has owned Brehon since 2005, which is when she purchased from Rita the interests in Brehon, LLC held by the Marital Trust and her mother. (Tr. 3 at 32:13-19, 52:23-25.) Although Kelley and Rita never really got along, the friction that led ultimately to Kelley's litigation against Rita and the Individual Defendants appears to have emerged only after Kelley learned of this transaction in 2007. (Tr. 1 at 167:25-168:3; Tr. 3 at 49:22-50:22.)
1. The Family Trust
Rusty designated Rita as the trustee and primary beneficiary of the Family Trust. (Will § 6,1.) As such, Rita was entitled to:
Such amounts of trust income and principal as shall be necessary, when added to funds reasonably available to [Rita] from all other sources known to [her] (including, without limitation, property in the [Marital Trust]), to provide for her health, support and maintenance in order to maintain her, to the extent reasonably possible, in accordance with the standard of living to which [she was] accustomed at the time of [Rusty 's] death.(Will § 6.2 (emphasis added).) As to Rita's standard of living, Kathleen testified that Rusty would provide Rita with "[w]hatever [she] wanted, including the sixteen acre property known as Brehon so that she could satisfy her love of horses. (Tr. 3 at 32:10-12, 32:20-22, 33:14-16.) In other words, "she wanted for nothing[;] [w]hatever Rita wanted, Rita got." (Tr. 3 at 35:12-16.)
Whereas Rita was the primary beneficiary of the Family Trust, Rita's descendants, including her children, were permissible beneficiaries up until Rita's death. (Will § 6.2.) Specifically, Rusty's Will provided that Rita had the option, as indicated by the word "may," of distributing to her descendants "such amounts of trust income and principal as shall be necessary, when added to the funds reasonably available to such distributee from all other sources known to [Rita], to provide for the health, support, maintenance and education of each such distributee." (Will § 6.2.) Upon Rita's death, the descendants were to be appointed co-trustees of the Family Trust and the remaining funds in both Trusts were to be combined and then distributed per stirpes into four separate support trusts one for each of Rita's children. (Will §§ 6.3, 7.1, 7.2, 8.1.) While the descendants have assumed their roles as co-trustees and the roughly $3,000 in the Marital Trust's account remaining at the time of Rita's death in 2013 has been transferred into the Family Trust, its corpus has yet to be distributed into the Descendant Trusts because of the pending litigation. (Tr. 3 at 85:12-15, 205:23-206:6.)
2. The Marital Trust
Rusty also appointed Rita as trustee and sole beneficiary of the Marital Trust. (Will § 4.1.) Under its terms, Rita was entitled to all trust income on a quarterly basis and "amounts of trust principal... as are necessary when added to the funds reasonably available to [Rita] from all other sources known to [her]... to provide for her health, support and maintenance in order to maintain her, to the extent reasonably possible, in accordance with the standard of living to which [she was] accustomed at the time of [Rusty's] death." (Will § 4.2 (emphasis added).) In contrast to her authority under the Family Trust's terms, Rita did not have power to make distributions to her descendants from Martial Trust funds. (Will § 4.2.)
Kelley testified at trial that her layperson's interpretation of the Will led her to believe that every single distribution Rita made as trustee from either trust to either herself or her descendants violated its terms because Rita did not require any beneficiary to demonstrate a need for the funds-even though Kelley admits that the "[n] umber one priority for my father was to ensure that Rita would be taken care of through her life" through his Will. (Tr. 1 at 43:14-19, 179:1-2, 180:3-11, 180:22; Tr. 2 at 25:12-19, 34:23-25.) According to Kelley, "[Rita] had plenty of money of her own. And if she didn't, she had to go to the Marital Trust first. And then, after she had spent those monies, she would have to go to the Family Trust." (Tr. 1 at 78:13-17.) As a result, Kelley believes that Rita repeatedly breached her fiduciary duty because "[s]he did not make distributions based on necessity." (Tr. 1 at 43:14-19.)
3. The Trustee's Powers and Duties
Notwithstanding the restriction on Rita's power to distribute Marital Trust funds to her descendants, Rita, as trustee of both Trusts, had broad authority to, inter alia, exchange, sell and lease the Trusts' assets; invest assets without concern for generating a return; hold trust property in her name; contract on behalf of the Trust with any other party, including a beneficiary, a trustee, a business controlled by a trustee and a trustee's estate; lend money or property from the Trusts to her beneficiaries; allocate, receipt and charge expenses incurred by the Trusts to income or principal, even if such actions "may be contrary to the terms and provisions of the Texas Trust Code"; and make distributions, if authorized, "without any obligations to make proportion distributions or to distribute to all beneficiaries property having equivalent value." (Will § 10.1.) The Will includes an exculpatory clause that indemnifies and holds a trustee, whether it be Rita or the Individual Defendants, harmless from "any liability" resulting from action or inaction "done in good faith and without gross negligence, including without limitation indemnity for . . . ordinary negligence." (Will § 10.4.) Rita's reporting obligations as trustee were minimal; she was only required to apprise the "primary beneficiary" (i.e., herself) of the Trusts' activities on at least an annual basis and to provide an accounting to the Family Trusts' permissive beneficiaries upon request. (Will § 10.2.)
Although Rita's power to exchange the Trusts' assets is expansive under the terms of the Will, she was prohibited from disposing of "any trust income or principal for less than a full and adequate consideration in money or monies worth." (Will § 10.6.) What qualifies as "full and adequate" consideration is not explained. In her testimony, Kelley acknowledged that the Will permitted Rita to "exchange her real property for stock within the Family Trust" without the need to be insolvent but ignored the very clear power granted to Rita to make distributions to herself and the Family Trust's permissible beneficiaries beyond exchanging property for in-kind consideration. (Tr. 1 at 57:17-20.)
The Will requires that another person can only borrow principal if "adequate interest and security" is provided but does not specify what amount in interest and security suffices as "adequate." (Will § 10.6.)
4. Rita's Management of the Trusts
According to Gary Lane, Rita had three accounts with Prospera Financial Services relevant to managing the Trusts' assets: a personal account from which she would pay expenses, including those generated by the Trusts; a margin account for the Family Trust; and a checking account for the Marital Trust (Tr. 3 at 67:23-68:4, 71:4-10, 94:18-95:6, 124:15-19.) When Rita made a distribution to herself, she would either transfer the funds from the appropriate Prospera account to her individual account with a journal entry recording the transaction or write a check to herself and deposit it in her individual account at Lubbock National Bank. (Tr. 3 at 70:14-71:2, 124:9-14.) Eventually, in May 2012, Kathleen became an authorized signatory on the Marital Trust so that she could pay Rita's bills when Rita was not in Texas. (Tr. 3 at 55:22-56:10.) Kathleen never wrote checks without Rita authorizing her to do so and never used Marital Trust funds to pay her own expenses, (Tr. 3 at 56:11-18.)
In its 2011 Judgment, discussed infra, the 23 7th District Court in Lubbock, Texas heard testimony from Rita regarding her methods for managing the Trusts' assets and did not find that her use of her personal account to pay trust expenses constituted a violation of her -237:9; Defs.' Ex.5.).
B. Killybegs, LLC
Killybegs, LLC is a foreign limited liability company organized under the laws of Texas that Rita formed on February 19, 2009. (Pl.'s Ex. 13 at PL-151.) On March 4, 2009, Rita transferred her half-interest and the Family Trust's half-interest in the Kennebunkport home into Killybegs. (Tr. 3 at 217:4-6.) Kelley was not a party to this transaction. According to Kathleen, Rita transferred the property into Killybegs in order to protect against potential lawsuits from tenants. (Tr. 3 at 217:12-14; Tr. 4 at 101:8-18.)
Texas is also selected as the governing law in § 10.7 of Killybegs's LLC Company Agreement. (Pl.'s Ex. 13 at PL-165.)
Killybegs' "Company Agreement" dictates that members are not permitted to convey their interest to anyone other than the descendants of Rita O'Shea and that the Kennebunkport property can only be sold by a majority vote of members' interests. (Pl.'s Ex. 13 at PL-152-PL-153.) In 2012, Rita gifted her personal half-interest in Killybegs to Kathleen, Brian and John. (Tr. 1 at 137:9-11; Pl.'s Ex. 3 at PL-035.) Since then, Brian has served as manager; Kathleen has served as the LLC's secretary and treasurer; and John has been involved solely as a member. (Tr. 3 at 221:13-21.) Kelley first became aware of Killybegs' existence immediately after her mother's death on November 8, 2013, at which point she came into possession of an one-eighth interest in Killybegs as a co-trustee of the Family Trust (Tr. 1 at 31:8-9, 109:11-14, 127:25-128:1, 128:25-129:1.) Killybegs was not formed to generate a profit nor has it in fact generated a profit. (Tr. 3 at 217:15-17, 217:18-20, 218:20-22, 222:9-12.) Instead, the home has been rented to generate revenue to pay the LLC's legal expenses. (Tr. 3 at 171-172.) A majority of members' interests in Killybegs voted to require all family members except Kathleen to pay a $100 a day rental fee and a $100 cleaning fee whenever they stayed at the property. (Defs.' Ex. 18 at DEF-0228.).
The court heard credible testimony that Kathleen was not required to pay the rental fee because of her active involvement in managing the property. (Tr. 3 at 223:25-224:13; Tr. 4 at 102:23-103:9.)
C. The 2009 Texas Lawsuit and the 2011 Judgment
Litigation between Kelley and her family began in 2008 when she brought suit against Rita in the 237th District Court of Lubbock County, Texas. (Tr. 1 at 226:16-18.) Kelley voluntarily dismissed this action without prejudice but then refiled her suit in 2009 ("2009 Texas Lawsuit"), naming Rita in her individual capacity and as trustee of both Trusts and Kathleen as co~ defendants. (Tr. 1 at 227:12-24.) In it, Kelley alleged that Rita had committed fraud, breached her fiduciary duties, and converted trust property and that Kathleen that also converted trust property. (Tr. 1 at 227:25-228:12,) Amongst the allegations, Kelley claimed that Rita violated the terms of the Will by distributing monies from the Trusts to herself as beneficiary without adequately demonstrating that she needed the funds; comingling Trust and personal funds; distributing to her descendants the revenue generated when she sold the Marital Trust's half-interest in the office building and parking lot in Lubbock, Texas; and using Marital Trust funds to purchase a $30,000 horse trailer for Kathleen. See O'Shea, 2018 Me. Super. LEXIS 190, at *5 (summarizing claims raised in the 2009 Texas Lawsuit).
The District Court granted summary judgment in favor of Kathleen on the conversion claim and rendered its decision ("2011 Judgment") on the remaining claims against Rita on February 15, 2011 after a bench trial. Id, It held, inter alia, that Rita had not violated the terms of the Will by making distributions to herself from Marital Trust principal and Family Trust income and principal; Rita complied with the provisions of the Family Trust when she made "gifts" to her descendants from its Trusts funds because they constituted distributions that were permitted under the terms of the Family Trust; the revenue resulting from the sale of the Marital Trust's one-half interest in the office building and parking lot belonged to the Marital Trust; Rita did not have the authority to distribute those proceeds to her descendants; and Rita did not abide by the terms of the Marital Trust when she used its funds to purchase a horse trailer for Kathleen. (Pl.'s Ex. 5 at PL-040-PL-42.)
The District Court ordered Rita to reimburse the Marital Trust for the cost of the trailer ($30,000) and for the Family Trust to hold in constructive trust the net proceeds from Rita's sale of the Marital Trust's one-half interest in the office building and parking lot. (Pl.'s Ex. 5 at PL-041.) The court never directed her to transfer the proceeds from this sale into the Marital Trust.The court also ordered "each party to bear their own attorney's fees and costs incurred in this matter" but was silent as to whether Rita could use trust funds as a trustee cover the cost of litigation or if she could reimburse herself as a beneficiary for the expense. (Pl.'s Ex. 5 at PL-042.) The District Court's decision was final and disposed of all claims before it, including Kelley's claim that Rita breached her fiduciary duty in her management of the Trusts. (Pl.'s Ex. at PL-042.)
Kelley testified that she believed that Rita needed to "pay back" the Marital Trust for the amount the court ordered to be held in a constructive trust. (Tr. 1 at 28:7-9.) She made a similar demand with pre-and post-judgment interest added on the Estate of Rita O'Shea. (Pl.'s Ex. 14 at PL-169-PL-170.) Kelley's argument that Rita needed to move funds from the Family Trust to the Martial Trust to correct for her accounting error is not supported by evidence on the record. Tellingly, Kelley admitted on cross-examination that Rita's personal liability for reimbursing the trust was limited to the $30,000 and acknowledged that the proceeds were to be held in constructive trust. (Tr. 1 at 244:2-6, 244:17-22.).
Before the 2011 Judgment was entered, Rita put roughly $60,000 into the Family Trust's Prospera account-depositing $30,000 in cash on January 25, 2011 and transferring in $29,875.34 of brokered assets on January 28,2011. (Tr. 3 at 129:12-25, 131:21-25; Defs.' Ex. 7-A at DEF-0129.) Then, on February 23, 2011, eight days after the District Court issued its decision, Rita transferred $32,462.35 from the Family Trust account into the Marital Trust account. (Tr. 3 at 132:12-22; Defs.' Ex. 8-A at DEF-0138.)
Although Kelley does not dispute that these particular transactions occurred, she argues that there is no way to know if they were conducted to satisfy the 2011 Judgment. (Tr. 2 at 6:14-21.)
The entry of this judgment did not end Kelley's litigation in Texas. She appealed the decision to the Court of Appeals for the Seventh District, which affirmed the trial court's judgment. O'Shea, 2012 Tex. App. LEXIS 6494, at *25. After she filed another lawsuit in 2014 seeking, inter alia, a bill of review for the 2011 Judgment, the District Court denied it and the Court of Appeals eventually affirmed the lower court's decision. O'Shea v. O'Shea, No. 07-16-00321-CV, 2018 Tex. App. LEXIS 6530, at *13 (Tex. App. Aug. 17, 2018); Duncan v. O'Shea, No. 07-11-0088-CV, 2012 Tex. App. LEXIS 6494, at *25 (Tex. App. Aug. 7, 2012).
D. Rita's Life Insurance Policies
Rita owns two life insurance policies-a policy with Transamerica with a present value, exclusive of interest, of $100,103 and another with Metlife with a value of $22,742. (Pl.'s Ex. 9 at PL-123; Pl.'s Ex. 10 at 130; Pl.'s Ex. 15 at PL-190, PL-191.) The documents in evidence concerning the policies are limited to a business records affidavit from a claims examiner attesting to Rita's ownership of the Transamerica policy as of May 15, 2012; two changes of beneficiaries forms-one from Metlife and the other from Transamerica-executed on that date indicating Rita O'Shea owned the policies; and an Internal Revenue Service Form 712 for the Transamerica policy with a certifying signature from January 3, 2014 that also lists Rita as the policy's owner. (Pl.'s Ex. 9 at PL-121-123; Pl.'s Ex. 10 at PL-124-PL-130.)
Neither party introduced the original Metlife policy into evidence, but the change of beneficiary form contains Rita's signature as the policy's "owner" as of May 15,2012. (Pl.'s Ex. 10 at PL-130.)
In May 2012, Rita called Michael Gomez, inquiring into how she could remove Kelley as a beneficiary of these policies. (Tr. 3 at 137:16-138:18.) Gomez subsequently procured the change of beneficiary form for both policies for Rita, and, then, on May 15, 2012, he witnessed her sign them and attested to her signature. (Tr. 3 at 138:25-139:5, 140:6-11,144:7-15, 145:6-146:12, 146:19-147:6; PL Ex. 10 at PL-126, PL-130.) Gomez testified credibly that Rita was not under any duress and that it was her voluntary decision to change the beneficiaries. (Tr. 3 at 147:7-17.)
Kelley testified to her belief that Rita did not sign the change of beneficiary forms in front of Michael Gomez in Lubbock, Texas on May 15, 2012 because charges were made on Rita's credit card in Maine on that same date. (Tr. 1 at 147:19-148:18, 151:10; Pl.'s Ex. 11 at PL-132.) But when confronted with two charges-one in Lubbock, Texas and the other in Kenncbunkport, Maine-on Rita's card on May 11, 2012, Kelley acknowledged that it was possible that more than one person possessed cards linked, to one of Rita's accounts. (Tr. 1 at 192:15-23; Pl.'s Ex. 11 at PL133.) In fact, John; his daughter, Samantha O'Shea; and Kathleen had credit cards that connected to her accounts. (Tr. 3 at 40:7-20, 4l:4~8.)
E. Actions by Individual Defendants as Co-Trustees
Rita was diagnosed with cancer in May 2013 and died on November 8, 2013, at which point, by operation the Rusty's Will, Kelley, Kathleen,, Brian and John become co-trustees of the Trusts. (Tr. 1 at 31:8-9; Tr. 3 at 46:11-14; Will § 8.1.) At the same moment Kathleen and Brian became co-executors of Rita's estate in accordance with to the terms of her will. (Defs.' Ex. 2 at DEF-Q015-0016.) After her mother's death, Kelley filed two claims against Rita's estate- -one to recover for amounts she believed she is owed under the 2011 Judgment and the other for damages stemming from Rita's alleged breach of her fiduciary duties as trustee of the Trusts. (Pl.'s Ex, 14.) Brian and Kathleen, acting in their capacities as co-executors of Rita's estate, did not respond to either claim, effectively denying them, (Tr, 1 at 39:1-7.)
Kelley views this litigation us her attempt to adjudicate these claims. (Pl.'s Br. at 2.)
In October 2014, Kathleen opened a "special account" with a $100,000 wire transfer from the Family Trust's Prospera account after she consulted with counsel for the exclusive purpose of paying expenses incurred by the Trusts, including a portion of the taxes on the real estate in which the Trusts had an interest and expenses related to closing Rita's estate. (Tr. 3 at 211:4-12; Tr. 4 at 29:10-13, 35:11-23; Pl,'s Ex. 7 at PL-063; Defs.' Ex. 25 at DEF-0412.) In addition, the Individual Defendants established a separate account (the "Rita O'Shea Estate Account") for other expenses charged to Rita's estate, which they initially funded through personal contributions and/or their portions of the proceeds from Rita's life insurance policies. (Tr. 3 at 199:5-12, 199:25-200:2; Tr. 4 at 22:14-16, 33:23-34:3, 34:24-35:3.)
In order to make a distribution from the Family Trust Prospera account after Rita's death, Kathleen, Brian and John need to all sign a letter of authorization for the money to be released. (Tr. 3 at 135:24-136:3.) None of the Individual Defendants used funds from the special account to pay for personal expenses. (Tr. 3 at 210:19-211:3. Tr. 4 at 29:3-9.) Kathleen consulted with her counsel prior to making any distributions from the Family Trust. (Tr. 3 at 213:6-10.) Through course of litigation, the roughly $600,000 in the brokerage account connected to the Family Trust fell to roughly $19,000 by the time of trial on account of legal fees, accounting fees and taxes stemming from the Family Trust's one-half interest in the Kennebunkport home. (Tr. 3 at 57:21-58:11.)
F. Kelley's Claims for Damages
In support of her claim for damages related to the alleged breaches of fiduciary duty by Rita and the Individual Defendants, plaintiff called to the stand Roderick Moe, a certified public and forensic account who has previously testified as an expert in federal court and in state courts in Florida and Georgia. (Tr. 2 at 154:13,154:25-146:1, 156:16-17.) Moe is not licensed in Maine or Texas and has not previously testified regarding Texas trusts or Maine probate issues. (Tr. 2 at 144:16-145:14.) The court ruled from the bench that Moe was not qualified as an expert to identify whether a particular transaction abided by the Will's terms. (Tr. 2 at 153:22-25.)
As a starting point for his analysis, Moe assumed that all of the transactions he reviewed violated the Will's terms. (Tr. 2 at 146:21-147:10.) In reaching his findings, Moe relied on Kelley's representations to him and the documents she and her husband provided. (Tr. 2 at 190:8-14.) Moe did not investigate Rita's standard of living other than reading her testimony. (Tr. 2 at 215:11-16.) Moe added interest to the amounts claimed as damages because Kelley instructed him to do .so-even though he did not know if any judge authorized the imposition of interest on any of the amounts he calculated. (Tr. 2 at 192:3-9, 217:22-24.)
Moe divided the damages alleged into three claims: (1) damages related to the 2011 Judgment (Tr. 2 at 158:3-6, 171:20-22, 172:18-20); (2) the amount in transactions between October 19, 2009 and Rita's death in excess of the income generated by either the Martini or Family Trust (Tr. 2 at 174:11-12, 174:20-24); and (3) the sum of all transactions after Rita passed in November 8, 2013 through to December 31, 2018 from assets held in the Family Trust exclusive of any legal fees related to the 2011 Judgment. (Tr. 2 at 179:15-19, 180:8-16, 180:24-25). Through his analysis, Moe determined that $162,937 belonged to the Marital Trust on account of Rita selling the office building for $240,332 and the parking lot for $85,542 in 2005 and 2007 respectively in which she and the Marital Trust each had a half interest. (Tr. 2 at 169:14-16, 170:1-3,170:9-14, 171:8-12; Pl.'s Ex. 15 at PL-192.) With interest, Moe valued "Claim 1" at $455,950. (Pl.'s Ex. 15 at PL-204.) A3 to "Claim 2," Moe calculated, with interest, that Rita took distributions from the Trusts in excess of income equal to $951,463. (Tr. 2 at 178:25-179:1; Pl.'s Ex. 15 at PL-216.) The amount in damages for "Claim 3" that Kelley seeks with interest is $684,559, for a total claim for damages of $2,091,973. (Tr. 2 at 183:2-5, 183:19-23, 183:17-23; PL*s Ex. 15 at PL-230.)
This is the exact amount held in constructive trust in the Family Trust as a result of the 2011 Judgment. (Pl.'s Ex. 5 at PL-041.)
Although Moe initially calculated "Claim 2" to be for $955,865, Moe testified that this figure was off by $4,402 because he included a distribution to Rita that occurred prior to October 19,2009. (Tr, 2 at 173:20-174:2; Pl.'s Ex, 15 at PL-216, PL-217.) Rafter than adjust the total for all three claims, which Moe did at trial, the $4,402 has been deducted directly from the alleged damages under "Claim 2." (Tr. 2 at 183:17-18.)
II. Discussion
Fundamentally, resolution of most of the claims in this case depends on whether this court adopts Kelley's interpretation of Rusty's Will as authorizing distributions from the Trusts under a very limited set of circumstances or the reading advocated by the Individual Defendants, which provided Rita and now provides the Individual Defendants as co-trustees a high degree of latitude to distribute funds even absent a showing of necessity. Because this court finds that the defendants' interpretation accords with the unambiguous and plain language of Rusty's Will, the Individual Defendants, in the various capacities in which they are subject to suit, are not liable for the damages alleged by plaintiff, Each of counts articulated in Kelley's complaints and the additional claims she asserted at trial will be discussed in turn.
The claims related to Killybegs are conceptually distinct and will be addressed separately.
A. Breach of Fiduciary Duty to the Trusts by Rita and the Individual Defendants (Count I)
Under Maine law, the jurisdiction either named in a trust or will or with the most significant relationship to the testamentary instrument govern the meaning and effect of its terms. 18-B M.R.S. §§ 107-108. The express terms of Rusty's Will identify that jurisdiction as Texas. (Will § 10.1.) In addition, Texas is the sovereign with the most significant contacts to the dispute: Rusty published his will in 1996 while living in Texas (Will art. I, IV, VI); his will and estate were probated in Texas (Will art. 1); and the trusts, since their inception, have been administered in Texas (Tr. 4 at 97:2-15). Therefore, the law of Texas-not Maine-governs the meaning and effect of Rusty's Will and the trusts established thereby and therein.
To establish that the Individual Defendants violated Texas law, Kelley must first prove by a preponderance of the evidence that (1) a valid trust existed at the time of the alleged breach; (2) a fiduciary relationship between Kelley and Rita and/or the Individual Defendants existed at that time; and (3) Rita and/or the Individual Defendants breached the duty owed to Kelley. (Order on Pl.'s Mot. Lim 7.) If Kelley can satisfy these three requirements, then the burden of persuasion shifts to defendants, who must show by a preponderance of the evidence that their actions were justified and did not violate the fiduciary duties that they or Rita owed to Kelley. (Id)
1. Kathleen and Brian Liability as Co-Executors of Rita's' Estate
Kelley's allegations regarding breaches of fiduciary owed to the Trusts are best understood as relying on three distinct theories for holding the Individual Defendants liable. The first is Kathleen and Brian are liable as co-executors of Rita's estate for Rita's alleged breaches when she served as trustee between October 19, 2009 and November 8, 2013. These allegations track Kelley's second claim against Rita's estate. (Pl.'s Ex. 14 at PL-175-PL-176; see Pi,'s Br. at 26.) For these allegations, Kathleen and Brian stand in Rita's shoes, and the degree to which they are accountable will depend on the extent of Rita's liability, including whether the Will's exculpatory clause protects Rita's actions.
Claims related to Rita's actions prior to October 19,2009 are barred by res judicata, O'Shea, 2018 Me, Super. LEXIS 190,at *22.
Contrary to defendants' argument, Kathleen and Brian cannot find safe harbor for these particular claims in § 10.3 of Rusty 's Will because it only protects successor trustees from liability for a predecessor's breach-not co-executors of the trustee's estate. (Defs.' Br. at 52.)
Kelley argues, in essence, that Kathleen and Brian are liable as co-executors of Rita's estate for Rita's breach of fiduciary when she (a) made distributions after October 19,2009 to herself as the sole beneficiary of the Marital Trust and the primary beneficiary of the Family in contravention of the Will's terms; (b) distributed Family Trust funds to her descendants without requiring diem to demonstrate a financial need; (c) loaned funds to her descendants without requiring adequate security; (d) comingled trust and personal assets; (e) received compensation for managing Killybegs; (e) transferred the Family Trust's interest in the Kennebunkport home into Killybegs without protecting the permissible beneficiaries' rights; (f) changed the beneficiaries on life insurance policies that belonged to the Trusts; and (h) did satisfy the accounting provisions in Rusty's Will.
Kelley testified to her belief that Rita also breached a fiduciary duty by receiving compensation for managing Killybegs. (Tr. 1 at 135:13-15.) Kelley does not advance this argument in either her post-trial brief or her reply brief, nor does she cite to a provision in the Will that would prevent Rita from being remunerated for managing an LLC with a one-half interest property belonging to the Family Trust. Consequently, the court will not reach this undeveloped claim.
a. Rita's Distributions from the Trusts to Herself
This court does not find merit in Kelley's argument that the terms of Rusty's Will prevented her from distributing funds to herself as the sole and primary beneficiary of the Marital and Family Trusts respectively because the Will's unambiguous language authorizes her to do so. Rusty's Will clearly authorizes Rita to distribute either income or principal from either of the Trusts to herself in her dual role as trustee and beneficiary without requiring her to demonstrate to herself that she had a financial need for such distributions because the terms of both Trusts include identical language authorizing her to make distributions "in order to maintain her, to the extent reasonably possible, in accordance with the standard of living to which [she was] accustomed at the time of [Rusty's] death." (Will §§ 4.2, 6.2,) Consequently, Rita was entitled to make distributions to herself as a beneficiary of both Trusts without demonstrating a financial need if she did so to maintain her standard of living, which was affluent.
This Conclusion echoes the Court's decision in its pretrial order on pending motions. O'Shea v. O'Shea, No. CV-14-157, 2018 Me. Super. LEXIS 190, at *27 (Apr. 4, 2018).
Kelley has failed to establish that Rita's distributions were in excess of an amount sufficient for Rita to preserve the quality of life she was accustomed to when married to Rusty. Instead, Kathleen testified credibly that that Rusty provided for Rita to such a degree that [w]hatever Rita wanted, Rita got" and that Rita maintained the same lifestyle that she had while [Rusty] was alive" with any increases in spending after the 2011 being attributable to Rita's medical and legal expenses and to updating her home in Lubbock to accommodate her worsening physical condition. (Tr. 3 at 35:12-16, 162:7-14, 162:25-163:2, 165:1-16.) In the end, Kelley reads a means test into Rusty's Will that simply does not exist. Therefore, Kathleen and Brian are not liable as co-executors of her estate for any such distributions between October 19, 2009 and her death on November 8, 2013.
Even if this were not the case, the Will's exculpatory clause would protect her actions because Kelley did not offer any evidence that Rita acted in either bad faith or with gross negligence. The pertinent part of Rusty's Will reads as follows:
"Any Executor or Trustee shall be indemnified and saved harmless from any liability for any action such Executor or Trustee may take, or for the failure ... to take any action, if done in good faith and without gross negligence, including without limitation indemnity for the ordinary negligence of such Executor or Trustee.(Will § 10.4.) Under Texas law, such clauses are valid if they protect actions in good faith and without gross negligence. Messner v. Boon, 466 S.W.3d 191, 210 (Tex. App. 2015); See Tex. Prop. Code Ann. § 113.051 ("The trustee shall administer the trust in good faith according to its terms and this subtitle.") Kelley argues unpersuasively that this exculpatory clause is invalid under Texas law because it relieves a trustee of liability to the extent it is incurred for breaches committed in bad faith, intentionally, or with reckless indifference to a beneficiary's interest or for liability stemming from any profit derived from the trustee's breach. Tex. Prop. Code Ann. § 114.007(a). As is obvious by its plain language, § 10.4 does not absolve a trustee from liability for actions taken with bad faith, intent, or a reckless disregard for a beneficiary's interest; nor does this section protect a trustee for claims related to profits derived from a breach of fiduciary duty. Therefore, even if Kelley established that Rita breached her fiduciary duty by making distributions to herself as a beneficiary of the Trusts, Kathleen and Brain still would not be liable because of the Will's exculpatory clause.
Although discussed only in reference to Kelley's claim that Rita breached her fiduciary duty by making distributions to herself as a beneficiary of the Trusts, this exculpatory clause is effective to protect Kathleen and Brian from liability for all of breaches of fiduciary duty that Kelley alleges Rita committed. Kelley never introduced evidence that Rita acted in bad faith or with gross negligence between October 19, 2009 and November 8, 2013.
b. Rita's Distributions to her Descendants
The same principles and reasoning apply to shield Kathleen and Brian from liability in their roles as co-executors for any distributions Rita made to her descendants from the Family Trust after entry of the 2011 Judgment. As trustee, Rita could exercise her powers to "distribute to [Rusty's] descendants such amounts of [Family] [T]rust income and principal as shall be necessary, when added to the funds reasonably available to each such distributee from all other sources known to [Rita], to provide for the health, support, maintenance and education of each such distributee." (Will § 6.2.) This section of the Will is unambiguous in providing Rita with the discretion to decide, based on the information available to her as trustee, that a distribution would help provide for her descendants' wellbeing. Nowhere is there a requirement that a descendant demonstrate a sufficient financial need before Rita could exercise this power. Since no such limitation on Rita's power exists under the Will, Kelley cannot carry her burden of proof by simply pointing to evidence that distributions to Rita's descendants, including Kelley, were not absolutely necessary. As such, Rita did not breach a fiduciary duty owed to Kelley for making distributions that are clearly in accordance with the Will's terms.
c. Rita's Loans
Another claim Kelley makes is that Rita breached her fiduciary duty in loaning trust funds m contravention of the Will's terms. (Pl.'s Br. at 28.) While Kelley admits that Rita was authorized to make loans from the Trusts, she believed that a beach occurred because Rita did not require the other party to the transaction to provide security and interest in exchange. (Tr. 1 at 43:21- 44:13.) The limitations on a trustee's power to lend trust assets depends on the interplay between § 10.l(p), which authorizes a trustee "[t]o lend cash or property any beneficiary or any other person . . . upon such terms and conditions as may be appropriate," and a qualification to a trustee's powers articulated in § 10.6:
Notwithstanding the provisions of section 10.1, none of the powers enumerated therein or any other power accorded to my Executor or my Trustee under Texas law or any other provisions of this Will shall be construed to . . . enable my Executor, my Trustee, or any other person or persons to borrow principal from my estate or any trust, directly or indirectly, without adequate interest and security.(Will §§ 10.1(p), 10.6.) What constitutes "adequate interest and security" is not defined or explained in the Will. Regardless of this apparent ambiguity, there are three fundamental problems with Kelley's argument. First, there is not credible evidence in the record except as to a single loan to Brian-that Rita did not collect interest or require security in exchange for a loan. Instead, she argues that the absence of records in itself is proof of impropriety: "there are no trust records of loans at all[,] nor are there any records of any payments on the loans. The money is simply gone without a trace." (Pl.'s Br. at 28-29.) Her general appeal to argwnentum ad ignorantiam is misplaced because of the burden of proof in this case; in order for the Individual Defendants to be required to prove by a preponderance of the evidence that a breach did not occur, Kelley has to first carry her burden of persuasion, and she cannot rely solely on the absence of evidence as proof necessary to advance her claim. Second, Kelley has not offered evidence to establish by a preponderance that any of these loans concerned principal from either trust, which means that Rita's action may not have even triggered the interest and security requirement in § 10.6. Third, she has not provided evidence that even if the distributions qualify as loans, the interest and security was not "adequate," particularly in right of the fact that many of those alleged loans were to Rita's children. Therefore, Kelley has not carried her initial burden in showing that Rita breached a fiduciary duty owed to Kelley by loaning trust assets, which means her claim on this ground fails.
Brian acknowledged that he did not pay interest or provide security for the loan he received from Rita for $50,000 on September 5, 2012. (Tr. 4 at 87:1-3, 88:17-22.) Kelley has not provided evidence that this was a loan of trust principal, which is a prerequisite to trigger the restrictions in § 10.6. She concedes in her brief that the only record of this transaction is a wire transfer instruction, which does not indicate the purpose of the transfer or whether the funds came from the Family Trust's income or principal. (Pl.'s Br. at 9; Pl.'s Ex. 7 at PL-062.) Therefore, she has not carried her initial burden of proof as to a breach of fiduciary duty by Rita for making this loan without requiring interest and security as to Rita's loan to Brian.
The court understands the frustrating position in which this lack of records places plaintiff to prove her claim that Rita breached her fiduciary duties by loaning funds in contravention of § 10.6, but the absence of these records does not prove that Rita did not abide by the Will if and when making loans from the Trusts' principal.
d. Rita's Comingling of Trust Assets
Similarly, Kelley has not carried her initial burden in showing that Rita breached her fiduciary duty by comingling personal and trust funds. To prevail, Kelley would have needed to prove that the Will forbids commingling (i.e., Rita had a duty to Kelley not to comingle assets) and that the transfer of funds from one of the Trusts' Prospera accounts to her personal account constituted comingling (i.e., Rita breached her duty to Kelley). Assuming for a moment that Rita did hold trust and personal assets in the same account, her actions would not violate the Will's terms because she was authorized to register and carry trust property in her name in her role as trustee. (Will § 10.1(e).) Regardless, the record demonstrates what Kelley classifies as comingling-the transfer of trust funds from one of the Trusts' Prospera accounts into Rita's personal Prospera account-was, in fact, Rita making distributions to herself as a beneficiary. (Tr. 3 at 70:14-71:2, 124:9-14; Defs.' Ex. 5 at DEF-0059-DEF~0061.) Needless to say, the funds cease to belong to the trust once they have been distributed to a beneficiary, which means that Kelley did not establish that Rita ever comingled trust and personal assets and that Brian and Kathleen are not liable on this basis.
e. Rita's Conveyance of the Family Trust's Interest in the Kennebunkport Home into Killybegs
Another ground on which Kelley advances her claim that Rita breached her fiduciary duty concerns Rita's conveyance of the half-interest in the Kennebunkport home belonging to the Family Trust into Killybegs, which Kelley alleges compromised without compensation the rights she now possesses in the Kennebunkport property as a co-trustee of the Family Trust. (Pl.'s Br. at 29.) The court finds it difficult to differentiate this breach of fiduciary duty claim from Kelley's breach of contract claim. To the extent that it is qualitatively different, it is barred by res judicata because the conveyance occurred in March 2009, which is prior to the commencement of Kelley's litigation against Rita and Kathleen in Texas District Court. Contrary to Kelley's assertion in her reply brief that this court decided that res judicata did not bar claims related to Killybegs, the court did not resolve the matter but instead held the issue in abeyance until the conclusion of the trial. (Tr. 1 at 7:13-17; see Pl.'s Reply. Br. at 15.)
Counsel for plaintiff appeared to confuse this court's decision that Maine's statute of limitations would govern claims related to Killybegs with a ruling on the applicability of res judicata (Tr. 1 at 5:22-3.) Although both doctrines may bar a particular claim, the court's decision on one did not preclude it from relying on the other to dispose of one or more of Kelley's arguments.
With all of the evidence now before it, the court cannot conceive of a reason to treat claims related to Killybegs that arose prior to October 19, 2009 any differently than the claims Kelley puts forward stemming from distributions by Rita as trustee before that date. See O'Shea, 2018 Me. Super. LEXIS 190, at ** 19-22 (outlining the court's rationale for barring claims related to distributions executed before Kelley sued Rita and Kathleen in October 2009). Kelley had an opportunity to raise this claim in Texas District Court, and its 2011 Judgment was final, disposing of all of Kelley's claims that Rita breached her fiduciary duty prior to October 2009. (Pl.'s Ex. at PL-042.) This court sees no reason to not recognize the binding nature of its sister court's decision.
f. Rita's Life Insurance Policies
Kelley also argues that Rita breached her fiduciary duty by changing the beneficiaries on the Transamerica and Metlife policies, but this claim is fatally flawed because it presupposed a fact not in evidence-viz., that the policies belonged to the Trusts. For the policies to have flowed into the Trusts at Rusty's death, they would have needed to qualify as "community property"- not Rita's "separate property." Tex. Fam. Code Ann. § 3.001 (defining "separate property" as, inter alia, "property owned or claimed by the spouse before marriage" and "property acquired by a spouse during marriage by gift, devise or descent"); Tex. Fam. Code Ann. § 3.002 (defining "community property" as "property, other than separate property, acquired by either spouse during marriage"). The facts before the court regarding the two policies are scant; the court has received no evidence indicating when the policies were purchased, which may have been dispositive given that property acquired during marriage is presumed to be communal. Tex. Fam. Code § 3.003. Because Kelley has not established that the policies belonged to the Trusts vis-avis their status as community property, her breach of fiduciary duty claim against Kathleen and Brian on this ground necessarily fails.
It is important to note that the court is not necessarily convinced that the Will prevented Rita from changing the beneficiaries on the life insurance policies even if it found that the policies belonged to the Trusts, with the outcome dependent on whether they belonged to the Marital Trust or Family Trust. As trustee, Rita had broad authority to distribute trust income and principal from the Family Trust to its permissible beneficiaries, and she was under no obligation to dispose of trust property equally between them. (Will §§ 6.2, 10.1(j)) If the policies did, in fact, belong to the Family Trust, she certainly possessed the power as trustee to change the policies' beneficiaries. If, instead, Rusty's one-half interest in the policies belonged to the Martial Trust, then Rita likely would not have been authorized as trustee to change the beneficiaries. But Kelley has not established that any interest in the policies belonged to either of the Trusts, which means that this court cannot state definitively whether she would have succeeded on this claim if she had proven that the policies belonged to the martial estate.
8. Rita's Accounting of Trust Assets
The last ground on which Kelley's claim that Rita breached her fiduciary duty stands is that Rita violated the Will's terms by not maintaining adequate records. Simply put, Rita was not required either by record-keeping provisions enshrined in § 10.2 of Rusty's Will or Texas law to account to all of the Trusts' beneficiaries for her actions as trustee. Tex. Prop. Code Ann. § 113.151; See Corpus Christi Bank&Tr. v. Roberts, 587 S.W.2d 173, 181 (Tex. App. 1979), aff'd, 597 S.W.2d 752 (Tex. 1980) (finding that the Texas Trust Act did not impose a precise accounting requirement when none existed by the trust's terms). Instead, Rita was only obligated to provide a written statement to the primary beneficiary (i.e., herself) and to produce for inspection records in response to a written demand by a permissible beneficiary. (Will § 10.2.) Kelley has not offered evidence that she made such a demand during Rita's tenure as trustee, which means that neither Rita, or, by extension, Kathleen and Brian as co-trustees of her estate are not liable for a failure to adequately account for the Trusts' assets.
2. The Individual Defendants' Liability as Co-Trustees for Profiting from Rita's Breach of Fiduciary Duties
The second theory on which Kelley relies is that the Individual Defendants are collectively liable as co-trustees of the Trusts for profiting from Rita's alleged breach of her fiduciary duty. (Kelley's Br. at 26.) The defendants argue that they cannot be held liable as co-trustees for Rita's actions because § 10.3 of Rusty's Will states that successor trustees are "relieved of any duty to examine the acts of any prior fiduciary" and "responsible only for those assets which are actually delivered" to them. (Defs.' Br. at 52.) Kelley counters by positing that as a matter of law this clause is invalid because it relieves trustees of liability for breaches of fiduciary duty committed in bad faith, intentionally, or with reckless indifference to a beneficiary's interest or liability stemming from any profit derived from the trustee's breach. Tex. Prop. Code Ann. § 114.007(a). This court is not persuaded that § 10.3 violates § 114.007(a) of the Texas Trust Code given the clause's unambiguous language. It does not, in either intent or effect, absolve trustees of liability for actions committed by their predecessor in bad faith, intentionally or with reckless indifference. Since it is not invalid as matter of law, Kelley would need to show that Rita, in fact, acted in bad faith, intentionally or with reckless indifference in order to pierce the protection offered by § 10.3. She has failed to do so. Kelley has not offered any evidence that might prove that Rita took actions during her life, as the primary beneficiary of both Trusts and their trustee, other than to provide for herself and her descendants in accordance with the terms of Rusty's Will. Absent such a showing, the defendants are shielded from liability for allegedly profiting from Rita's impropriety.
Even assuming, arguendo, that Kelley had carried her initial burden of persuasion in demonstrating that the Individual Defendants' profiting from Rita's breach constituted a breach of fiduciary duty in itself, the Individual Defendants would still be protected by the Texas Trust Code. Tex. Prop. Code Ann. § 114.002 (limiting liability of a successor trustee to situations in which they "know[ ] or should know of a situation constituting a breach of trust committed by the predecessors" and the successor trustees "improperly permit[ ] it to continue; fail[ ] to make a reasonable effort to compel the predecessor trustee to deliver the trust property; or fail[ ] to make a reasonable effort to compel a redress of a breach of trust committed by the predecessor trustee"). The court heard credible testimony from Kathleen did not know and had no reason to know how Rita managed the Trusts, and Kelley did not provide evidence that either John or Brian had any knowledge of how their mother managed the Trusts prior to assuming their roles as co-trustees. (Tr. 3 at 52:2-6.)
3. The Individual Defendants' Liability as Co-Trustees for Breaching their Fiduciary Duties
The third and final theory of liability put forward by Kelley is that the Individual Defendants violated their fiduciary duties when serving as co-trustees by comingling trust funds, not requiring a beneficiary to demonstrate a financial need prior to any distributions of assets from the Family Trust, and using the trust's funds to pay for expenses associated with closing Rita's estate. (Kelley's Br. at 24-25.) The facts and the Will's unambiguous language do not support any of these claims, The court heard credible testimony that the Individual Defendants established a separate "special account" that has been used exclusively for paying the Trusts' expenses and that none of the Individual Defendants have used funds from this account to pay for personal expenses. (Tr. 3 at 210:19-211:12; Tr. 4 at 29:3-13.) The Individual Defendants' use and maintenance of this special account defeats Kelley's claim that they comingled the Trusts' assets. Nor does this court find persuasive Kelley's argument that the Individual Defendants have breached their fiduciary duties by not requiring beneficiaries to demonstrate a financial need prior to making a distribution for the identical reasons, articulated above, regarding Rita's authority to make distributions without the beneficiary demonstrating that they absolutely needed the funds,
These expenses include taxes on the home in Kennebunkport and other costs associated with maintain the property because the Family Trust has a one-half interest m it.
Kelley's argument that the Individual Defendants could not use the Family Trust to pay expenses incurred on account of Rita's death also contradicts the plain meaning of the Will's unambiguous language. Kelley explained at trial that she believes that the only permissible use of any funds left in the trusts once Rita died was to establish the four descendant trusts as outlined in Article VIL (Tr. 1 at 123: l(M 1.) The problem with this position is that § 4,3 explicitly requires, as indicated by the word "shall," the co-trustees to use trust assets to pay for any taxes incurred if the inclusion of the trusts' principal in the calculation of Rita's gross estate unless she provided to the contrary in her will:
Upon the death of my wife, unless my wife provides to the contrary by specific reference to this trust in her Will, my Trustee shall pay for the principal of the trust administered pursuant to this Article the difference between all taxes which must be paid by reason of my wife's death and those taxes which would be payable by reason of her death had such principal not been includable in her gross estate for the purpose of calculating such taxes.(Will § 4.3 (emphasis added).) In addition, the Will authorizes the co-trustees to exercise their "absolute and uncontrolled discretion" to pay from the trusts' principal "all or any part of [Rita's] funeral expenses, claims which [are] legally enforceable against [her] estate (including estate, inheritance, transfer and success taxes) and reasonable expenses of administration of [Rita's] estate" with the limitation that the co-trustees cannot "make any such payments that are not in the best interests of my descendants." (Will § 4.3,) As evidenced by this language. Kelley's proposition that the Will only allows for the creation of the descendants' trusts after Rita's death is undermined by the its unambiguous terms.
In the alternative, Kelley argues that even if the Will permits the use of principal to pay for expenses associated with Rita's estate in the abstract, the restriction regarding the use of those assets in a way that is not in the descendants' best interests bars the Individual Defendants from drawing from trust funds because Rita disinherited Kelley. As a result, the court is required to decide whether the use of the word "descendants" should be interpreted to mean that trust funds are only available to pay Rita's expenses if doing so is in the best interest of all descendants or just a majority of descendants. By its unambiguous language, the instrument imposes a limitation on the use of principal to pay expenses associated with Rita's death if not in the best interests of the descendants as a class, not if the distributions offend a single descendant's interests. The Will does not provide a single descendant veto power over the trustee's exercise of its discretion.
The inclusion of the word "any" before "my descendants" might have aligned the will's language with Kelley's interpretation. Absent such verbiage, Kelley's argument does not accord with the plain meaning of the will's terms.
Because the trustees' power to pay for expenses incurred at the end of Rita's life is discretionary-as indicated by the word "may" in § 4.3-this court can only intervene to override their decision if it constituted an abuse of discretion. In re XTO Energy Inc., 471 S.W.3d 126,131 (Tex. App. 2015) ("[W]hen a trustee is given discretion with respect to the exercise of a power, a court may not interfere except to prevent an abuse of discretion."); Di Portcmova v. Monroe, 229 S.W.3d 324, 330 (Tex. App. 2006) (finding that "the [t]rustees, not the court, are given the power to determine the best interest of the beneficiary" when the trust is discretionary). The co-trustees acted within the bounds of the authority provided to them by using the principal to pay for the exact types of expenses described in the Will, which means that they did not abuse their discretionary powers as co-trustees; therefore, the Individual Defendants did not breach a fiduciary duty to Kelley by dispensing principal to pay for the expenses incurred by Rita's passing.
It is worth noting that even if Kelley had carried her initial burden in showing that any of the Individual Defendants' actions constitute a breach of fiduciary duty, she would also need to pierce the protections provided by the Will's exculpatory clause (§ 10.4) by either establishing, as a matter of law, that this clause is invalid pursuant to § 114.007(a) of the Texas Trust Code (an argument this court has already addressed) or by proving that the Individual Defendants acted in bad faith or with gross negligence. Although Kelley states in her post-trial brief that the Individual Defendants breached the trust "in bad faith and intentionally" and "with reckless indifference to the interest to the interests of the beneficiaries," she does not adduce to any evidence to support her contention that the exculpatory clause should not apply. (Pl.'s Br. at 26.) Bare recitations of the statutory language without more does not pierce the protections offered by the exculpatory clause in Rusty's Will, especially in light of the evidence produced by the defendants at trial that they consulted with counsel prior to making any distributions. (Tr. 3 at 213:6-10.)
B. Breach of Contract by Brian, Kathleen and Killybegs, LLC in Purchase of Kennebunkport Home (Count II)
Beyond her claims against the Individual Defendants for breach of fiduciary duties stemming from the Trusts, Kelley also seeks relief for an alleged breach of contract by Killybegs, Brian and Kathleen related to the conveyance of the Family Trust's interest in the Kennebunkport home into Killybegs in March 2009.
First, Kelley cannot recover for breach of contract because her claim is barred by res judicata. Claim preclusion bars relitigation of a cause of action if (1) the same parties or their privies are involved in both actions; (2) the prior court entered a valid final judgment; and (3) the matters presented for decision in the subsequent action were litigated in the prior action or might have been litigated in that proceeding. Macomber v. Macquinn-Tweedie, 2003 ME 121, ¶ 22, 834 A.2d 131. To determine whether an action is barred by claim preclusion, the court applies a transaction test that examines "the aggregate of connected operative facts that can be handled together conveniently for purposes of trial to determine if they were founded upon the same transaction, arose out of the same nucleus of operative facts, and sought redress for essentially the same basic wrong." Norton v. Town of Long Island, 2005 ME 109, ¶ 18, 883 A.2d 889 (quotation marks omitted). A claim is precluded if it satisfies this test even if the second action "relies on a legal theory not advanced in the first case, seeks different relief than that sought in the first case, or involves evidence different from the evidence relevant to the first case." Id. (quotation marks omitted). Here, the same parties or their privies are involved in this action and the lawsuit Kelley filed in Texas in 2009; the Texas District Court entered a valid judgment that was upheld on appeal; the breach of contract claim arises out of the same operative facts as those that form the basis of Kelley's 2009 lawsuit (i.e., that Rita improperly transferred assets out of the Trusts); Kelley seeks redress for essentially the same wrong; and Kelley could have litigated her claim regarding the transfer of the Kennebunkport home into Killybegs in the prior proceeding because it occurred roughly six months before she filed her lawsuit in October 2009 and she was put on notice of the transfer through an interrogatory answer as of four months prior to the trial starting. (Pl.'s Ex. 4 at PL-036-038; Defs.' Ex. 4 at DEF-0033). Therefore, the court finds that her breach of contract claim is barred by the doctrine of res judicata.
Second, even if this court were to decide Kelley's breach of contract claim on its merits, she cannot recover because she has proven that a contract existed or that a breach occurred. Under Maine law, "a contract exists when the parties mutually assent to be bound by all its material terms, the assent is either expressly or impliedly manifested in the contract, and the contract is sufficiently definite." McClare v. Rocha, 2014 ME 4, ¶ 16, 86 A.3d 22 (internal quotations marks omitted). When asked to articulate the basis for her breach of contract claim, Kelley stated that the defendants' liability stems from a nebulous "agreement" through which Rita, as trustee, conveyed the Kennebunkport resident into Killybegs in exchange for Killybegs promising to abide by the LLC agreement. (Tr. 2 at 110:7-17.) But Kelley has not furnished the court with the terms of any agreement-even one that is vague and indefinite -that might be interpreted to have governed the transaction between Rita as trustee of the Family Trust and Killybegs for the Kennebunkport residence. Kelley has also failed to offer evidence that either the Individual
Defendants or Killybegs breached a material contractual term or that she suffered damages as a result. See Tobin v. Barter, 2014 ME 51, ¶ 10, 39 A.3d 1088. It is elementary that without a contract, there can be no breach. As to damages, Kelley acknowledged at trial that her voting power and control over the property's management as a member of Killybegs is identical to any powers she would possess as co-trustee if it belonged entirely to the Family Trust because either way she would only have a one-eighth interest. (Tr. 2 at 85:18-86:2.) Since Kelley has not provided evidence to establish that Brian, Kathleen and Killybegs entered into a contract; that any of them breached a contract: or that Kelley has suffered any damages, she cannot recover on her breach of contract claim.
C. Breach of Fiduciary Duty by Individual Defendants as Members of Killybegs (Count III)
Kelley's argument that she can recover for the Individual Defendants' alleged breach the fiduciary duties they owe to Kelley in regards to Killybegs suffers from similar deficiencies, Under the Maine Limited Liability Company Act, "[f]he laws of the State. .. under which a foreign limited liability company is formed govern its formation and internal affairs and the liability and authority of its members and agents," which means that the degree to which the Individual Defendants are liable for breaching their fiduciary duties hinges on the law of Texas-not Maine, 31 M.R.S. § 1502(11)(B) (defining a "foreign limited liability company" as, inter alia, a LLC "[o]rganized under the laws of a state other than the laws of this State"); 31 M.R.S. § 1621(1).
To date, Kelley's interest in Killybegs is as a co-trastee of the Family Trust, which itself is a member of die LLC, Because Kelley has not put forward evidence that she can recover even if she was a member of Killybegs, the applicable law is discussed in terms of the duties owed by Kathleen and Brian to Kelley as if Kelley did, in fact, qualify as a member.
Both parties submitted briefs that couched their arguments in the language of the Maine Limited Liability Company Act. (Pl.'s Br. at 31; Defs.' Br. at 54-57.) Since the Act explicitly states that the law of the state of organization applies, this court is not swayed that it should instead decide whether the Individual Defendants breached a fiduciary duty in accordance with Maine common or statutory law.
Subject to exceptions that do not apply in this case, an LLC's company agreement governs its internal affairs and the relations amongst its member(s) and manager(s). Tex. Bus. Orgs. Code § 101.052. It may expand or restrict any duties, including fiduciary duties, owed by any member or manager to the LLC itself or to its members or managers. Tex. Bus. Orgs. Code § 101.401. But it may not eliminate liability under applicable law for (1) a breach of a person's duty of loyalty, if any exists; (2) an act or omission in bad faith that constitutes a breach of a duty owed or involves either intentional misconduct or a knowing violation of the law; (3) a transaction from which the person receives an improper benefit, even if the benefit resulted from an action taken in accordance with the person's duties; or (4) an act or omission for which the person is expressly liable under applicable law. Tex. Bus. Orgs. Code § 7.001(c)-(d).
While the Texas statute acknowledges that a fiduciary duty can exist between members and/or managers, it "is silent on whether such a duty is imposed" on members in particular, which is in sharp contrast to Maine law. Compare Houle v. Casillas, S.W.3d(Tex. App. 2019) ("[T]he Texas Supreme Court has recognized that in certain formal relationships, including partnerships, a fiduciary duty arises as a matter of law .... It is less clear, however, whether members of an LLC owe each other a fiduciary duty."); to Cianchette v. Cianchette, 2019 ME 87, ¶¶ 34-35, 209 A.3d 745 (holding that the Maine Limited Liability Act does not impose a fiduciary duty on an LLC's members when the company agreement is silent on the matter). It is also not entirely clear if Texas law imposes, as a default, a fiduciary duty on even a LLC's manager(s) absent express language in a company agreement:
[A]s was true with its predecessor, the Texas Limited Liability Company Act, Chapter 101 of the Texas Business Organizations Code does not directly address the duties owed by LLC managers and members .... Thus, though Texas statute governing limited liability companies implies that certain duties may be owed, it does not define any such duties, but rather allows the contracting parties to specify the breadth of those duties in the company agreement.In re Lau, No. 11-40283, 2013 Bankr. LEXIS 4587, at *74 (Bankr. E.D. Tex, 2013). Consequently, the degree to which the Individual Defendants owe Kelley a fiduciary duty as a members of Killybegs depends on the duty or duties set forth in the Company Agreement, so long as the lack thereof does not violate the limitations imposed by Tex. Bus. Orgs. Code § 7.001(c)-(d).
To begin, Kelley has not introduced evidence a trial or cited to either relevant Texas law or language in the Killybegs Company Agreement that John, as a non-managing member, had or has a fiduciary duty to Kelley, which means that her claim survives only as it relates to Kathleen and Brian. Kelley's claim is further limited, to the extent the court recognizes it in regards to its interpretation of the Company Agreement, to breaches for fiduciary duty that occurred after November 8, 2013 because Kelley did not gain an interest of any kind in the LLC until she became a co-trustee in the Family Trust upon her mother's death.
Kelley has not consistently identified John as a defendant in his capacity as either a member or manager of Killybegs. (See Pl.'s Br. at 2 (indicating that Kelley is suing John "individually and as a co-trustee of the Trusts").) In her reply brief, Kelley acknowledges that John is not liable for his involvement in Killybegs. (Pl.'s Reply Br. at 15.) The court agrees with Kelley that she has not set forth a claim against John under Count HI of her amended complaint.
In arguing her claims against Killybegs, Kelley spells out several alleged breaches of fiduciary duty by Rita even though she only names the Individual Defendants in her amended complaint as the liable parties for Count III. (Am. Compl. at 17; Pl.'s Br. at 12-13, 31.) Kelley has not cited to any governing law that provides her a cause of action for alleged mismanagement that predates her membership in LLC. Instead, she points out that the court decided in its April 22, 2015 order that the Maine statute of limitations would apply to any suit against Killybegs. See O'Shea v. O'Shea, CV-14-157, 2015 Me. Super. LEXIS 122, at * 11 (Apr. 22, 2015) (citing to Johnson v. Dunnington, 2001 ME 169, ¶ 16, 785 A.2d 1244). What Kelley fails to recognize is that this decision on the applicable statute of limitations pertains to the court's forum non conveniens analysis for claims against Killybegs itself; it does not provide her with standing to bring a claim against Rita's estate related to her decisions as Killybegs's manager. So there is no confusion, the court finds that Kelley 's claims as they relate to Rita's management of Killybegs are not actionable given Kelley's lack of a legal interest in Killybegs during Rita's lifetime even though Maine's statute of limitations applies to Kelley's claim against Killybegs.
The Company Agreement explicitly sets forth the duties owed by manager in § 6.07. (Pl.'s Ex. 13 at PL-160.) It limits liability to acts or omission that either qualify as gross negligence or willful misconduct or constitute a breaches of the agreement-but excludes liability for breaches of fiduciary duties to the extent they are not expressly recognized in the agreement:
A Manager shall be liable to the Company and the other Members for acts or omissions in the management of the Company only in the case of gross negligence, willful misconduct or breach of this Agreement by such Manager; but a Manager shall not be liable to the Company or any other Member for any other acts or omissions, including negligence, strict liability or other fault or responsibility (short of gross negligence, willful misconduct or breach of this Agreement) by such Manager. Except for such duties as may be expressly set forth in this Agreement, a Manager shall not be subject to any duties (including fiduciary duties) in the management of the Company.(Id. (emphasis added).) This section appears on its face to accord with the § 7.001(b) and § 7.001(d) of Texas Business Organizations Code, which permits such a limitation on liability subject to the exceptions in § 7.001(c). Although the agreement details several governing principles, it does not recognize a single fiduciary duty owed by Kathleen or Brian as managers of Killybegs to the LLC itself or its members. Therefore, the degree to which either of them are liable depends on whether their conduct triggers any of the four exceptions in § 7.001(c).
It is important to recognize that Kelley's claim is as a co-trustee of the Family Trust, which itself is a member of the LLC, She has not brought a derivative suit as a member on behalf of Killybegs for harm done to the LLC by Kathleen and Brian. See Tex. Bus. Orgs. Code §§ 101.451-101.463 (outlining the procedure for initiating and litigating a derivative proceeding against a limited liability company). Therefore, her ability to show a breach of fiduciary duty depends on the rights recognized in the Company Agreement and under Texas law for someone in her position to assert a claim for damages against a LLC's managers.
First, Kelley has not put any facts before this court to support a claim that Kathleen or Brian either owned her a duty of loyalty as a member of the LLC or breached such a duty by acting in bad faith or while subject to a conflict of interest, Tex. Bus. Orgs. Code § 7.001(c)(1); see Pinnacle Data Sews., Inc. v. Gillen, 104 S.W.3d 188, 198 ("[T]he duty of loyalty dictates that a corporate officer or director must act in good faith and must not allow his or her personal interest to prevail over the interest of the corporation."). In support of her claim, Kelley points to the lack of evidence that Brian and Kathleen made in-kind contributions to Killybegs equal to the amount contributed from Family Trust funds as proof that they did not deposit such funds. (Pl.'s Br. at 31.) But the court did hear credible testimony that the Individual Defendants did contribute funds into Killybegs to pay bills incurred in the maintenance of the Kennebunkport home. (Tr. 3 at 219:10-21.) Kelley did not provide evidence that this contribution was insufficient given the costs associated with the house and the revenue it generated as a rental property. As with Kelley's claim for breach of contract, she cannot carry her burden of proof in showing a breach of fiduciary duty if she does not adduce to any evidence that a breach in fact occurred. Second, Kelley has not provided evidence that Kathleen or Brian breached a fiduciary duty, to the extent one is recognized in the Company Agreement, in bad faith; engaged in intentional misconduct; or knowingly violated the law. Tex. Bus. Orgs. Code § 7.001(c)(2). Third, she has not pointed to any transaction from which either Brian or Kathleen received an improper benefit. Id. § 7.001(c)(3). Neither Kathleen or Brian receive compensation for managing Killybegs, which means that they do not even benefit indirectly as a result of their positions within the LLC. (Tr. 3 at 222:13-18.) Fourth and finally, Kelley has not identified any conduct undertaken by Kathleen or Brian as managers of Killybegs that constitutes a violation of Texas law. Id. § 7.001(c)(4). Because the company agreement does not impose a fiduciary duty on Kathleen or Brian and Kelley has not established that their actions violate § 7.001(c) of the Texas Business Organizations Code, Kelley has not carried her burden of proof as to the third count of her amended complaint.
D. Fraud by Individual Defendants Against the Trusts and Rusty's Estate (Count V)
Kelley alleges that the Individual Defendants are liable for fraud on two grounds, to wit, (1) they made materially false representations about how Rita managed the Trusts and Killybegs and (2) Rita, not the Individual Defendants, fraudulently concealed the distributions made from the Trusts and the conveyance of the Kennebunkport home into Killybegs. (Pl.'s Am. Compl. at 21-22; Tr. 1 at 141:25-142:4; Tr. 2 at 16:10-11.) Kelley's claims do not hold water under Maine law for the following reasons.
In her post-trial brief, Kelley outlines her case for fraudulent concealment in terms of Rita's actions as trustee of the Trusts. (Pl.'s Br. at 32-33.) The Individual Defendants are not mentioned, nor did Kelley couch her claim against Kathleen and Brian in terms of their roles as co-trustees of Rita's estate. Because Kelley's amended complaint is against the Individual Defendants and not Rita's estate, this court's review of Kelley's claim is limited to the acts or omissions of Kathleen, Brian and John.
To recover for fraudulent misrepresentation, a plaintiff must establish that (1) there is a false representation (2) of a material fact, opinion, intention or law (3) with knowledge as to the falsity of the representation or a reckless disregard as to its veracity (4) for the purpose of inducing another to act or refrain from acting in reliance upon it and (5) the person justifiably relies on the representation as true by acting upon it to her detriment. Cianchette, 2019 ME 87, ¶ 20, 209 A.3d 745. Kelley testified that she believed the Individual Defendants committed fraud when they represented to her that "the Trust[s] and Killybegs were handled in an appropriate manner," that "they believed that Rita had taken care of the Trusts to the terms of the Will," and that Rita had "done a good job" in her management of the Trusts. (Tr, 1 at 141:24-142:4; Tr. 2 at 17:5-18:23.)
Kelley's fraudulent misrepresentation claim is fatally defective because she did not present evidence at trial to satisfy any of its elements. There is no evidence before this court that the Individual Defendants misrepresented a material fact or their opinion regarding the management of the Trusts, stated their belief that the Trusts were properly managed with knowledge that this representation was false, or that they shared their opinion with Kelley to either induce her to act or refrain from acting. Nor has Kelley established that she relied on the Individual Defendants' statements, let alone that she did so to her detriment. Instead, Kelley testified that after the Individual Defendants shared their opinion regarding Rita's conduct as trustee, she responded by searching the family home in Lubbock for documents so that she could find out for herself how Rita managed the Trusts and Killybegs. (Tr. 1 at 35:14-24.) These actions are highly suggestive that she did not take their representations at face value or rely on them in any way. Collectively, Kelley failed to provide the evidence necessary to support a claim for fraudulent misrepresentation, which means that the Individual Defendants cannot be held liable for their statements to Kelley concerning how Rita acted as trustee of the Trusts and manager of Killybegs.
The second ground on which Kelley seeks relief is for fraudulent concealment, which requires her to establish that (1) there was a failure to disclose (2) a material fact (3) where an equitable duty to disclose the fact exists (4) with the intention of inducing the person raising the claim to act or refrain from acting in reliance on the nondisclosure and (5) that the aggrieved party in fact relied on the concealment to her detriment. Picher v. Roman Catholic Bishop of Portland, 2009 ME 67, ¶ 30, 974 A.2d 286. Beyond the fact that Kelley has not explained how the Individual Defendants might be liable for Rita's alleged fraudulent concealment, she has not set forth the facts necessary to succeed on her claim. Specifically, she has demonstrated that Rita owed her an equitable duty to disclose facts related to either the conveyance of the Kennebunkport home into Killybegs or distributions from the Trusts. See Morrow v. Moore, 98 Me. 373, 57 A. 81 (1903) (explaining that the withholding of information, in and of itself, is not fraudulent concealment absent a duty to disclose), overruled on other grounds by Rulon-Miller v. Carhart, 544 A.2d 340, 342 (Me. 1988). The terms of Rusty's Will, which govern any duty owed by Rita as trustee of the Family Trust, explicitly provides that she was not required to affirmatively account to anyone other than the primary beneficiary (i.e., herself). (Will § 10.2.) Instead, the Will, at most, provided Kelley the right to demand that Rita disclose records to her as a permissible beneficiary. Since Kelley did not offer any evidence that she did, in fact, make such a demand, Kelley has not established that that Rita owed her a duty-legal or equitable-to keep Kelley abreast of her management of the Trusts and her decision-making regarding her transfer of the Kennebunkport home into Killybegs.
Kelley's reliance on Montgomery v. Kennedy, 669 S.W.2d 309, 313 (Tex. 1984) is misplaced. In that case, the party claiming that a trustee had an equitable duty to disclose information related to the management of the trust was a life beneficiary of the decedent's estate. Here, Kelley's rights vis-a-vis the Family Trust was as only a permissible beneficiary. Nor can Kelley rely on 18-B M.R.S. § 813; any duties stemming from this court's interpretation of the Will are governed by Texas law pursuant to 18-B M.R.S. §§ 107-108.
E. Conversion by Kathleen, Brian, John and Killybegs (Count VI)
Nor has Kelley set forth evidence that the Individual Defendants or Killybegs are liable for conversion of trust property. Under Maine law, a defendant is liable for conversion only if (1) the plaintiff has a property interest in the property allegedly subject to conversion; (2) the plaintiff s rights included aright to possession at the time of the alleged conversion; (3) the plaintiff demanded the property's return and that demand was denied by the party with possession. Barron v. Shapiro & Morley, LLC, 2017 ME 51, ¶ 14, 157 A.3d 769. Whether interference with a person's right to property is of sufficient severity to constitute conversion depends on the extent and duration of the other person's exercise of dominion or control; whether the other person acted in good faith; the extent and duration of the resulting interference with the claimant's right to control, to the extent it exists; the resulting harm; and the inconvenience and expense caused to the property's owner. Lougee Conservancy v. CitiMortgage, Inc., 2012 ME 103, ¶ 12, 48 A.3d 774. This interference must go "beyond a brief and ultimately harmless withholding" to qualify as conversion. Id.
The essence of Kelley's conversion claim is that the Individual Defendants converted property belonging to the Trusts by making impermissible distributions-i.e., using its assets to pay legal expenses, settle Rita's estate, and maintain the Kennebunkport home. (Pl.'s Br. at 33- 34.) To start, Kelley's conversion claim is limited to property she was entitled to possess, which means that she cannot maintain a claim for conversion for distributions made by Rita from the Trusts because Kelley was only a permissible beneficiary of the Family Trust without a right to possess during Rita's life. This court agrees with the Texas Court of Appeals that "[a]t best, John's Will gives his descendants, including Kelley, the possibility of a distribution from the Family Trust during Rita's lifetime or an inheritance from the Martial Deduction and Family Trusts' assets upon Rita's death." O'Shea, 2012 Tex.App. LEXIS 64, at *111 (emphasis in original). Consequently, any conversion claim only survives as to the Individual Defendants for actions they have taken as co-trustees of the Trusts and as to Killybegs for property it allegedly converted after Kelley gained an interest in it as a co-trustee of the Family Trust. As to claims for distributions after November 8, 2013, Kelley has not established that the Individual Defendants converted trust property by drawing on trust funds to pay legal expenses incurred in this or prior litigation because the Will expressly provides its trustee(s) with the right to "commence or defend, at the expense of my estate or of any trust, such litigation with respect to my estate or any trust." (Will § 10.1(o) (emphasis added).) Even if this court accepts Kelley's argument that Texas law prohibits trustees from being reimbursed for attorneys' fees if they are found to have committed a breach of trust, the facts here support the exact opposite conclusion-i.e., that the Individual Defendants did not breach their fiduciary duties to the Trusts, See duPont v. S. Nat'l Bank, 575 F. Supp. 849, 864 (S.D. Tex. 1983), aff'd in part, rev'd in part on other grounds, 771 F.2d 874 (5th Cir. 1985) ("[W]here litigation results from the fault of the trustee, he is not entitled to charge the expenses of litigation against the trust estate."). The Individual Defendants are not barred by law or by the terms of Rusty's Will from using trust funds to cover litigation costs, which means they did not convert trust property when they paid these expenses from trust funds. Similarly, the Individual Defendant did not commit conversion when they used trust funds to settle Rita's estate given the express authorization to do so in § 4.3 of Rusty's Will. Kelley has also not provided evidence that the amount in Family Trust funds paid into Killybegs were disproporfional given the its interest in the property, the expenses associated with the Kennebunkport home and the revenue the home generates from rentals. Since Kelley has not carried her burden of proof as to the causes of action that provide the factual predicate for conversion claim, she cannot recover for conversion.
F. Violation of the Maine Fraudulent Transfers Act (Count VH)
The final substantive claim Kelley asserts is that the Individual Defendants are liable for when Rita allegedly violated the UFTA by placing the Kennebunkport home into Killybegs in an attempt to avoid the repercussions of the 2011 Final Judgment. Because this court finds that Rita complied with the 2011 Final Judgment, Kelley has not set forth the factual predicate for a MFTA violation.
The remaining counts in Kelley's amended complaint and the various demands she made upon this court are best construed as the remedies she seeks for any liability placed upon the Individual Defendants as a consequence of counts I through VII.
A claim under the MFTA exists in this case only if Kelley could establish that (1) the Trusts qualify as a creditor; (2) Rita was a debtor vis-a-vis the Trusts; and (3) either (a) Rita transferred assets with actual intent to hinder, delay or defraud the trust as a creditor or (b) "[w]ithout receiving a reasonably equivalent value in exchange for the transfer" Rita (i) engaged or was about to engage in a business or transaction for which the remaining assets were unreasonably small or (ii) intended to incur, believed she would incur, or should have reasonably believed she would incur debts beyond her ability to pay them. 14 M.R.S. § 3575(1); see 14 M.R.S. § 3572 (defining "insolvency"). Under the Act, a creditor is a "person with a claim" while a "debtor" is a "person who is liable on a claim." 14 M.R.S. §§ 3572(5), (6). A claimant is required to prove intent by clear and convincing evidence. Morin v. Dubois, 1998 ME 160, ¶ 5, 713 A.2d 956. In deciding if Rita acted with actual intent to hinder, delay or defraud the Trusts as a creditor, the court may take into account, amongst other possible factors, whether the transfer occurred to an "insider." 14 M.R.S. §3575(2)(A).
Kelley's claim is without merit because Rita and the Trusts were not bound by a creditor-debtor relationship given Rita's compliance with the 2011 Judgment. Rita transferred $32,462.35 from the Family Trust account into the Marital Trust account after the judgment was entered on the record. (Tr. 3 at 132:12-22; Det`s.' Ex. 8-A at DEF-0138.) She was under no obligation to transfer additional funds from the Family Trust into the Marital Trust; instead, the District Court ordered her to hold the net proceeds from her sale of the Marital Trust's one-half interest in the office building and parking lot in the Family Trust, which she did. (Pl.'s Ex. 5 at PL-041.) Because Rita was not a debtor vis-a-vis the Trusts, Kelley cannot obtain relief under the UFTA.
Assuming for a moment that Kelley established that Rita did not abide by the 2011 Judgment, she would still not be able to recover under the UFTA because she has not provided evidence that a "fraudulent transfer" occurred when Rita conveyed the Family Trust's interest in the Kennebunkport property into Killybegs or when she transferred her personal interest in Killybegs to the Individual. Defendants. Kelley has not proven Uiat Rita acted with actual intent to hinder, delay or defraud or that she intended to or in fact became insolvent as a result of the transfer. Kelley is correct that Rita transfer the house into Killybegs to avoid liability, but only as to any claim by its renters-not to place the property beyond the Kelley's reach in attempting to enforce the 2011 Judgment. (Tr. 3 at 217:7-14; Tr. 4 at 101:S-18.) She also correctly points out that Rita's transfer of her personal interest in the Kennebunkport home was to an "insider" as the term is defined under the UFTA, but that factor alone is not sufficient to prove actual intent. 14 MRS. § 3572(7) (including "a relative of the debtor" within the definition of an "insider"); 14 M.R.S. § 3575(2) (listing a transfer to an insider" amongst eleven indicators of a debtor acting with intent). Consequently, she must prove that the Rita was insolvent-either before the transfer or as a result of it. See 14 M.R,S. § 3573(1) ("A debtor is insolvent if the sum of the debtor s debts is greater than all of the debtor's assets at a fair valuation."); 14 M.R.S. § 3573(2) ("A debtor who is generally not paying his debts as they become due is presumed to be insolvent"). Kelley has failed to do so. The evidence presented at trial shows that Rita's estate was valued at $490,998,96-an amount hi assets in excess of any debt she owed. Consequently, even if this court determined that Rita did not satisfy the 2011 Judgment. Kelley could not recover under the UFTA.
Because the court has not found in Kelley's favor in any of the counts in her amended complaint, it will not assess the amount in damages Kelley claims she and/or the Trusts are owed in deciding whether or riot Rita qualified as insolvent at any point subsequent to her transfer of the Family Trust's interest in the Kennebunkport home into Killybegs in 2009.
G. Constructive Trust (Count VIII)
Kelley's argument that this court should order property held in a constructive trust is completely dependent on this court finding in Kelley's favor on her various claims through which she attempts to recover for what she perceives to be impermissible distributions from the Trusts, including the conveyance of the Family Trust's interest in the Kennebunkport home into Killyhegs. But Kelley has not carried her burden of proof on any of her claims, which means a constructive trust would be impropriate in these circumstances. A constructive trust serves as an equitable remedy to prevent unjust enrichment by subjecting a person holding title to a property to an equitable duty to convey it to another regardless of die parties' intentions. See Estate of Campbell, 1997 VIE 212, ¶ 5, 704 A.2d 329; Gaulin v. Jones, 481 A.2d 166,168 (Me. 1984). Constructive trusts exist to rectify unjust enrichment. When, as here, the plaintiff has not demonstrated that the defendants have been unjustly enriched, the court will not impose a constructive trust.
H. Punitive Damages (Count IX)
Nor will this court award punitive damages. Kelley argues that punitive damages are proper because Rita, the Individual Defendants and Killybegs acted maliciously. In particular, Kelley claims that the Rita and the Individual Defendants acted with malice by attempting to punish her for pursuing legal action against them, such as when Rita disinherited Kelley and her descendants through her will and removed Kelley as a beneficiary from her life insurance policies. (Tr. 1 at 34:14-17, 52:17-19,60:17-21; Pl.'s Br. at 37-38.) The court cannot award punitive damages unless Kelley establishes that the defendants acted maliciously and tortuously. Waxier v. Waxier, 1997 ME 190, ¶ 15,699 A.2d 1161. In this contest, malice can exist in fact if the defendant's conduct was motivated by actual ill will or by implication if the defendants' actions were sufficiently outrageous. Fine Line, Inc. v. Blake, 677 A.2d 1061, 1065 (Me. 1996). Here, the court heard credible testimony that the Individual Defendants never tiled to punish her for suing them or their mother, (Tr, 3 at 198:9-11, 205:1-6; Tr. 4 at 96:4-97:1.) Kelley did not provide any evidence that Rita, in fact, acted with malice when she disinherited Kelley; nor has Kelley explained why Rita's decision to disinherit her daughter after Kelley filed several lawsuits against her is so outrageous that this court should presume that Rita acted maliciously. Absent such a showing, this court is not permitted to award punitive damages.
Even if Kelley provided sufficient evidence that the defendants' conduct qualifies as malicious, her claim fails because she has not satisfied the second prong of the analysis-i.e., that the defendants acted tortuously. See Waxier, 1997 ME 190, ¶ 15, 699 A.2d 1161.
I. Other Matters
1. Satisfaction of 2011 Judgment
Rita satisfied the 2011 Judgment entered by the 237th District Court of Lubbock County, Texas by transferring funds from the Family Trust into the Marital Trust to cover for her accounting error in excess of the $30,000 she was ordered to deposit. (Tr. 3 at 132:12-22; Pl.'s Ex. 5 at PL-041; Dets.' Ex. 8-A at DEF-0138.) It is irrelevant that Rita later distributed to herself as the sole beneficiary of the Marital Trust an amount in excess of the amount deposited because she had the authority to do so under the unambiguous terms of Rusty's Will. (Will § 4.2.) The purpose of this deposit was to remedy Rita's accounting error-i.e., her mistaken withdrawal from the Marital Trust of funds used to purchase an vehicle for Kathleen when adequate monies were available in the Family Trust for her to make an identical distribution. (Pl.'s Ex. 5 at PL-041.) Kelley's contention that Rita needed to keep $30,000 in the Martial Trust in perpetuity accords with neither the 2011 Judgment or the Will's plain language. Similarly, Rita complied with the 2011 Judgment by leaving assets in the Family Trust in constructive trust. The District Court never required her to, in fact, transfer funds from the Family Trust to the Martial Trust for one-half of the value of the distributions she made to her descendants from the revenue generated by the sale of the building and parking lot. (Pl.'s Ex. 5 at PL-041.) Therefore this court will not declare that liability exists on any defendant on the grounds that Rita did not abide by the District Court's judgment.
2. Attorneys' Fees for 2011 Judgment
The 2011 Judgment did not order Rita to pay her attorneys' fees from her personal funds. Instead, the District Court ordered "each party to bear their own attorneys [sic] fees and costs incurred in this matter." (Pl.'s 5 at PL-042.) Kelley reads this language to mean that Rita was barred from using trust funds to defend her actions as trustee. No such prohibit exists in the 2011 Judgment. Instead, the District Court appears to be indicating that it will not require either party to pay their adversary's fees. Kelley's interpretation also ignores the provisions in Rusty's Will that provide Rita with broad discretion as trustee to make distributions to herself as the sole beneficiary of the Marital Trust and primary beneficiary of the Family Trust and language that expressly permits any trustee to use trust funds to defend herself in litigation. (Will §§ 4.2, 6.2, 10.1(o).) Even if Kelley could establish that the 2011 Judgment prevents Rita from allocating trust funds as trustee to defend herself pursuant to § 10.1(o), she has not explained why Rita would be prohibited from receiving a distribution as a beneficiary to cover her expenses under either § 4.2 or § 6.2. Consequently, this court will not order Rita's estate to reimburse the Trusts for the amount Rita distributed and/or allocated to cover attorneys' fees associated with the 2009 Texas Lawsuit.
3. Attorneys' Fees for Instant Case
his court recognizes no grounds on which to justify awarding Kelley attorneys' fees associated with this litigation. In support of her argument, Kelley cites to 18-C M.R.S. § 1-601 and In re Estate of Stowell, 636 A.2d 440 (1994)-both of which concern the discretionary power of a court overseeing a contested probate proceeding to assess costs on one party or the other. Kelley's reliance on this law is misplaced. This court is not in the process of probating an estate so neither § 1-601 of the Maine Probate Code or the Law Court's decision in Stowell apply here. Not reading in Kelley's brief any other legal basis on which to assess her litigation costs on defendants, this court will not award attorneys' fees in contravention of the default rule that each party pays his or her own way. In re Estate of McCormick, 2001 ME 24, ¶ 20, 765 A.2d 552 ("In the absence of a statute or some exception recognized at common law, the American Rule provides that parties to litigation pay their own attorney fees."), 4. Rescission of Deed Conveying Kennebunkport Borne into Killybegs
Kelley essential argues that the deed Rita executed conveying her personal one-half interest and the Family Trust's one-half interest in the Kennebunkport home to Killybegs in 2009 should be rescinded on one of two bases-either her breach of contract claim (Count II) or as a result of Rita's alleged violation of the UFTA (Count VII). Kelley adduces to no authority that would permit this court to cancel this deed. Given the absence of support for Kelley's position and its decision against her on both counts, this court will not in any way modify or cancel the deed conveying the Kennebunkport home into Killybegs.
5. Rescission of Change of Beneficiaries Forms
Beyond claiming that the Individual Defendants are liable for Rita's breach of her fiduciary duty by removing Kelley as a beneficiary on Rita's Metlife and Transamerica insurance policies, Kelley argues that this court should void the change of beneficiaries because Rita's signatures on the them were forged. (Tr. 1 at 147:19-148:18, 157:1-3.) In particular, Kelley alleges that credit card statements on and around May 15, 2012, the day Rita met with Michael Gomez to change the policies' beneficiaries, suggest that Rita was not in Lubbock, Texas but instead in Maine. (Tr. 1 at 151:10; Pl.'s Ex. 11, PL-138.) The factual record does not support Kelley's position. Evidence introduced at trial show multiple charges in early May in Texas and Maine, which suggests that more than one person had a card connected to Rita's accounts. Kelley admitted as much on cross examination. (Tr. 1 at 192:23.) In addition, the court heard credible testimony that multiple family members had cards that drew from Rita's accounts. (Tr. 3 at 40:7-20; Tr. 4 at 63:13-19.) Not finding Kelley's version of events believable, this court will not void Rita's change of beneficiaries on her life insurance policies.
6. Conservatorship
Finding entirely in favor of the defendants, this court sees no reason to appoint a conservator to oversee management of the Trusts going forward.
III. Conclusion
For the foregoing reasons, judgment is entered as follows.
As to each and every claim raised by plaintiff Kelley O'Shea in her amended complaint (Counts I-IX) and at trial, including every ground on which she seeks relief for such claims, judgment is entered for Kathleen O'Shea, in her individual capacity, as co-executor of Rita's estate, as co-trustee of the Trusts, and as a manager of Killybegs, LLC; for Brian O'Shea, in his individual capacity, as co-executor of Rita O'Shea's estate, as co-trustee of the Trusts, and as a manager of Killybegs LLC; for John O'Shea, in his individual capacity, as co-trustee of the Trusts, and as a manager of Killybegs, LLC; and for Killybegs, LLC.
The Clerk is directed to incorporate this Judgment and Order into the docket by preference pursuant to M.R. Civ. P. 79(a).