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Wellin v. Wellin

United States District Court, D. South Carolina, Charleston Division

September 30, 2015

PETER J. WELLIN, et. al., Plaintiffs,
v.
WENDY WELLIN, individually and as Trustee of the Keith S. Wellin Florida Revocable Living Trust u/a/d December 11, 2011, Defendant

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          For Peter J Wellin, Individually and as Co-Trustee and Beneficiary of the Wellin Family 2009 Irrevocable Trust, u/a/d November 2, 2009, Cynthia Wellin Plum, Individually and as Co-Trustee and Beneficiary of the Wellin Family 2009 Irrevocable Trust, u/a/d November 2, 2009, Marjorie Wellin King, Individually and as Co-Trustee and Beneficiary of the Wellin Family 2009 Irrevocable Trust, u/a/d November 2, 2009, Plaintiffs: Bryson M Geer, LEAD ATTORNEY, Nelson Mullins Riley and Scarborough, Charleston, SC; Merritt G Abney, Patrick Coleman Wooten, Robert H Brunson, LEAD ATTORNEYS, Nelson Mullins Riley and Scarborough (Ch), Charleston, SC.

         For Wendy Wellin, Individually and as Trustee of the Keith S. Wellin Florida Revocable Living Trust u/a/d December 11, 2001, Defendant: Gedney M Howe, III, LEAD ATTORNEY, Charleston, SC; Gray Thomas Culbreath, John D Hudson, Jr, John T Lay, Lindsay Anne Joyner, LEAD ATTORNEYS, Gallivan White and Boyd, Columbia, SC; James B Hood, Molly Agnes Hood Craig, Robert H Hood, LEAD ATTORNEYS, Hood Law Firm, Charleston, SC.

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         ORDER

         DAVID C. NORTON, UNITED STATES DISTRICT JUDGE.

         This matter is before the court on defendant Wendy Wellin's (" Wendy" ) motion to dismiss ten of the eleven claims asserted against her by plaintiffs Peter J. Wellin (" Peter" ), Cynthia Wellin Plum (" Cynthia" ), and Marjorie Wellin King (" Marjorie" ). For the reasons set forth below, the court grants in part and denies in part Wendy's motion to dismiss.

         I. BACKGROUND[1]

         On October 20, 2014, Keith Wellin's (" Keith" ) three adult children--Peter, Cynthia, and Marjorie (collectively, " the Wellin children" ), individually and as co-trustees and beneficiaries of the Wellin 2009 Irrevocable Trust--filed a complaint against Wendy, individually and as trustee of the Keith S. Wellin Florida Revocable Living Trust u/a/d December 11, 2001. The complaint alleges that

[t]hrough her prolonged and consistent pattern of mistreatment toward the children and Keith, Wendy defamed the children to Keith and others, unduly influenced

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and coerced Keith with respect to his finances and estate planning, isolated Keith from his children, grandchildren, and other relatives, instilled in Keith anger, distrust, and hatred toward his three children, and, ultimately, enriched herself and her family at the expense of the children and Keith's other lineal descendants.

Compl. ¶ 3.

         Wendy, to whom Keith was married for almost twelve years before his death on September 14, 2014, was Keith's fourth wife. Id. ¶ ¶ 14-15. The Wellin children, who collectively have eight children, assert that both they and their children maintained a " close, loving relationship" with Keith until 2013. Id. ¶ ¶ 17-18. At the time of his marriage to Wendy, Keith's net worth exceeded $150 million. Id. ¶ 20.

         On November 12, 2002, shortly before their marriage, Keith and Wendy entered into a prenuptial agreement. Id. ¶ 21. The prenuptial agreement " [sought] to protect [the Wellin children's] interests in [Keith's] estate by having this Agreement in full force and effect." Id. ¶ 22. The prenuptial agreement identified Keith's assets at the time of his marriage as " Keith's Separate Property" and provided that Wendy " waive[d] any claim to whatsoever to [Keith's] Separate Property . . . that she may now have or hereinafter acquire as Keith's Wife." Id. ¶ 23. The prenuptial agreement provided that Wendy would receive $7.6 million in the event Keith predeceased Wendy and they were still married, and further provided that should Keith become infirm or mentally incapacitated, Wendy would not take actions to limit the Wellin children's access to Keith. Id. ¶ ¶ 24-25.

         In 2001, Keith, with the assistance of attorney Tom Farace (" Farace" ), created the Keith S. Wellin Florida Revocable Living Trust (" the Revocable Trust" ), which was the primary instrument that provided for distribution of Keith's assets upon his death. Id. ¶ 33. Under the terms of the Revocable Trust, Keith was the trustee, Peter was the successor trustee, and Cynthia was the backup successor trustee. Id. ¶ 34. Over the course of his marriage to Wendy and prior to 2013, Keith revised the Revocable Trust on multiple occasions, increasing the fixed amount Wendy would receive upon his death from $7.6 million to $25 million. Id. At all times prior to 2013, Keith's estate planning documents were structured so that Wendy would receive a fixed amount, and the Wellin children would receive the bulk of Keith's residuary estate, an amount significantly greater than the amount left to Wendy. Id. ¶ 35.

         In 2003, Keith set aside approximately 900 shares of Berkshire Hathaway stock for the benefit of the Wellin children. Id. ¶ 36. Acting on the advice of Farace, Keith placed these shares in a family limited partnership (the " LP" ). Id. Keith retained a 98.9% limited partnership interest in the LP, but the LP was controlled by the Wellin children. Id. The purpose of this transaction was to reduce Keith's tax liability and protect his assets for the Wellin children. Id. Between 2003 and 2009, Keith's estate planning documents provided that when Keith died, the Wellin children would receive his 98.9% interest in the LP. Id. at 37. In 2009, Farace advised Keith to enter into a another transaction, whereby Keith would create an intentionally defective grantor trust, the Wellin Family 2009 Irrevocable Trust (the " Irrevocable Trust" ), naming the Wellin children as beneficiaries, and transfer his 98.9% interest in the LP to the Irrevocable Trust in exchange for a promissory note. Id. at 38. Farace clearly communicated with Keith about the advantages and disadvantages of this transaction. Id. Before and after the

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2003 and 2009 transactions, Keith's estate planning documents provided that the Wellin children would receive the value of the Berkshire Hathaway shares, while Wendy would receive a fixed amount as provided in the Revocable Trust. Id. at 40.

         Beginning in 2011, Keith's health began to deteriorate, which increased his dependence on Wendy and caregivers controlled by Wendy to provide for his health and safety. Id. ¶ 48. Around July 29, 2011, Keith, acting as trustee of the Revocable Trust, divided a UBS account which held the majority of the Revocable Trust's liquid assets into two separate accounts. Id. ¶ 44. Keith then executed a power of attorney appointing Wendy as his attorney-in-fact with respect to one such account, UBS Account number XXX-4378. Id.

         In the spring of 2013, Keith's mental capacity began to decline.[2] Id. ¶ 49. During this time period, Keith terminated Farace and other long-time advisors and retained new attorneys and advisors, including attorneys selected by Wendy. Id. ¶ 50. The new attorneys requested that the Wellin children prepay the promissory note held by the Irrevocable Trust so that Keith could transfer the $25 million bequest to Wendy, as set out in the Revocable Trust, prior to his death. Id. ¶ 51. In the spring or summer of 2013, Keith transferred $4.5 million to Wendy, which she used to purchase a home in Sullivan's Island, South Carolina. Id. ¶ 52. Around the same time, he transferred $25 million to Wendy. Id. ¶ 53. These transfers were the product of Wendy " manipulating, coercing or unduly influencing Keith." Id. ¶ 54. Also in the spring or summer of 2013, Keith failed to consummate the sale of a property in Friendship, Maine to Marjorie, even though he had previously expressed excitement about the sale. Id. ¶ 55.

         In July 2013, Keith filed a lawsuit, Wellin v. Wellin (" Wellin I" ), No. 2:13-cv-1831, against the Wellin children. Id. ¶ 56. Around the same time, Keith revoked powers of attorney granted to Peter and Cynthia, removed Peter as successor trustee of the Revocable Trust, and removed Cynthia as backup successor trustee of the Revocable Trust, and installed Wendy into these positions. Id. ¶ 57. In the months following the initiation of litigation, Keith's new lawyers drafted one or more revised versions of the Revocable Trust that eliminated or significantly reduced Keith's bequests to the Wellin children and increased his bequests to Wendy and her children. Id. ¶ 60.

         In November 2013, Keith and his new attorneys attempted to " turn off" grantor status on the Irrevocable Trust, which would have caused the Irrevocable Trust to incur over $40 million in tax liability, and attempted to execute a " swap" transaction that would have significantly reduced the assets of the Irrevocable Trust. Id. ¶ 61. If effective, these actions would have shifted tens of millions of dollars that would have been received by Keith's children and grandchildren to Wendy and her children. Id. In November 2013, Keith purported to hire a new trust protector of the Irrevocable Trust to bring a separate lawsuit, McDevitt v. Wellin (" McDevitt" ), No. 2:13-cv-3595, against the Wellin children, in their capacity as trustees of the Irrevocable Trust. Id. ¶ 62.

         The Wellin children allege that " Keith's uncharacteristic and bizarre behavior" was the result of " certain lies, fraudulent mis

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representations, undue influence, coercion, and isolation" by Wendy designed to interfere with the Wellin children's inheritance and enrich herself. Id. ¶ ¶ 70-71. The Wellin children allege that Wendy's actions to interfere with the relationship between Keith and his children include: (1) preventing the Wellin children from visiting Keith; (2) refusing to answer calls from the Wellin children and failing to inform Keith when they called; (3) insisting that she be present for all visits between Keith and the Wellin children; (4) telling Keith and others lies about the Wellin children; and (5) initiating and controlling the litigation brought by Keith against the Wellin children. Id. ¶ 72. The Wellin children further allege that Wendy has taken steps to influence Keith with respect to his finances and estate planning, including: (1) " coaching" Keith regarding what he should say to lawyers, health care providers, friends, and others regarding the facts of the lawsuits; (2) meeting with Keith's lawyers outside his presence and instructing them on Keith's intentions with respect to the litigation; (3) disseminating communications on behalf of Keith not consistent with his actual or expressed intentions; (4) coercing Keith to terminate Farace and other long-time advisors; (5) coercing Keith to change his will, the Revocable Trust, and other estate planning documents to provide more for Wendy and less for the Wellin children; (6) signing documents on Keith's behalf without his informed consent; and (7) making distributions from Keith's accounts over which Wendy served as Keith's power of attorney that were inconsistent with Keith's best interests. Id. ¶ 74.

         The Wellin children bring the following causes of action against Wendy individually: (1) defamation; (2) intentional interference with inheritance; (3) intentional interference with prospective contractual relations/prospective economic advantage; (4) breach of fiduciary duty; (5) breach of prenuptial agreement related to the Wellin children's access to Keith; (6) breach of prenuptial agreement related to Wendy's control of Keith's separate property; (7) breach of contract accompanied by a fraudulent act; (8) constructive trust; (9) barratry; and (10) negligence per se. The Wellin children also seek a declaratory judgment against Wendy in her official capacity declaring that " all purported amendments to the Revocable Trust after the Tenth Amendment to and Restatement of the Revocable Trust, dated August 30, 2011 . . . were and are ineffective, invalid, ultra vires, and void." [3] Compl. ¶ 190.

         On December 3, 2014, Wendy, in her individual capacity, moved to dismiss ten of the eleven claims for failure to state a claim.[4] The Wellin children responded to this motion on January 12, 2014. Following a hearing on February 5, 2015, the Wellin children filed a supplemental response on February 13, 2015. Wendy replied to this response on February 23, 2015. This motion has been fully briefed and it is ripe for the court's review.

         II. STANDARDS

         Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss for " failure to state a claim upon which relief can be granted." When considering a Rule 12(b)(6) motion to dismiss,

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the court must accept the plaintiff's factual allegations as true and draw all reasonable inferences in the plaintiff's favor. See E.I. du Pont de Nemours & Co. v. Kolon Indus., 637 F.3d 435, 440 (4th Cir. 2011). But " the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). On a motion to dismiss, the court's task is limited to determining whether the complaint states a " plausible claim for relief." Id. at 679. Although Rule 8(a)(2) requires only a " short and plain statement of the claim showing that the pleader is entitled to relief," " a formulaic recitation of the elements of a cause of action will not do." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The " complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). " Facts pled that are 'merely consistent with' liability are not sufficient." A Soc'y Without a Name, for People without a Home, Millennium Future-Present v. Virginia, 655 F.3d 342, 346 (4th Cir. 2011) (quoting Iqbal, 556 U.S. at 678).

         III. DISCUSSION

         Pursuant to Federal Rule of Civil Procedure 12(b)(6), Wendy individually moves the court to dismiss the following claims against her: (1) intentional interference with inheritance; (2) intentional interference with prospective contractual relations/prospective economic advantage; (3) breach of fiduciary duty; (4) breach of prenuptial agreement--interfering with the Wellin children's access to Keith; (5) breach of prenuptial agreement--exercising control over Keith's separate property; (6) breach of contract accompanied by a fraudulent act; (7) constructive trust; (8) barratry; and (9) negligent per se.[5] The court will address each claim in turn.

         A. Count II -- Intentional Interference with Inheritance

         Wendy first argues that the Wellin children's claim for intentional interference with inheritance should be dismissed because it is not a recognized cause of action under South Carolina law. Def.'s Mot. 8. It is true that South Carolina has not adopted the tort of international interference with inheritance. See Douglass ex rel. Louthian v. Boyce, 344 S.C. 5, 542 S.E.2d 715, 717 (S.C. 2001) (" We have not adopted the tort of intentional interference with inheritance." ); Meehan v. Meehan, 2006 WL 7285712, at *3 n.3 (S.C. Ct.App. Feb. 10, 2006) (" South Carolina has yet to recognize intentional interference with inheritance rights as a valid cause of action." ); see also Malloy v. Thompson, 409 S.C. 557, 762 S.E.2d 690, 692 (S.C. 2014) (" [T]his opinion must not be understood as either adopting or rejecting the tort of intentional interference with inheritance." ).

         However, this does not end the court's inquiry. Rather, " [w]here there is no case law from the forum state which is directly on point, the district court attempts to do as the state court would do if confronted with the same fact pattern." Roe v. Doe, 28 F.3d 404, 407 (4th Cir. 1994); see also Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th Cir. 2005) (" If the Supreme

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Court of South Carolina has spoken neither directly nor indirectly on the particular issue before us, we are called upon to predict how that court would rule if presented with the issue." (citation and internal quotation marks omitted)). " In deciding how the courts of South Carolina would rule, this court is authorized to consider all available legal sources, including restatements of the law, treatises, law review commentaries, decisions from other jurisdictions whose doctrinal approach is substantially the same, and the 'majority rule.'" T.C. X, Inc. v. Commonwealth Land Title Ins. Co., 928 F.Supp. 618, 623 (D.S.C. 1995) (citation omitted); see also Twin City Fire, 433 F.3d at 369 (holding that in predicting state law, courts may " consider lower court opinions in South Carolina, the teachings of treatises, and the practices of other states." ). The court may also consider " well considered dicta," Private Mortg. Inv. Servs., Inc. v. Hotel & Club Assocs, Inc., 296 F.3d 308, 312 (4th Cir. 2002), and " recent pronouncements of general rules or policies by the state's highest court." [6] Wells v. Liddy, 186 F.3d 505, 528 (4th Cir. 1999).

         The court will consider the aforementioned available sources in turn to determine what the South Carolina Supreme Court would do if confronted with the instant fact pattern.

         1. South Carolina Supreme Court Dicta

         The South Carolina Supreme Court's most illuminating treatment of intentional interference with inheritance comes in Douglass ex rel. Louthian v. Boyce. In Douglass, a seventeen-year-old boy was killed in an automobile accident and the plaintiff alleged that he was the decedent's son. 542 S.E.2d at 716. After the decedent's parents settled a wrongful death action, the plaintiff brought an action against the parents, alleging that he was entitled to recover in the wrongful death action. Id. The plaintiff later amended his complaint to assert a claim for intentional interference with inheritance rights against the parents' attorneys. Id. The court held that it did not need to decide whether to recognize a cause of action for intentional interference with inheritance because the attorneys were immune from liability to third persons arising from their professional activities. Id. at 717. However, in a footnote discussing intentional interference with inheritance, the South Carolina Supreme Court stated:

We have adopted the closely analogous tort of intentional interference with prospective contractual relations. Crandall Corp. v. Navistar Int'l Transp. Corp., 302 S.C. 265, 395 S.E.2d 179 (S.C. 1990); see also Allen v. Hall, 328 Or. 276, 974 P.2d 199 (Or. 1999) (intentional interference with inheritance closely analogous to intentional interference with economic relations). Most jurisdictions adopting the tort of intentional interference with inheritance have required the plaintiff to prove the following elements: (1) the existence of an expectancy (2) an intentional

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interference with that expectancy through tortious conduct (3) a reasonable certainty that the expectancy would have been realized but for the interference and (4) damages. See, e.g., Nemeth v. Banhalmi, 99 Ill.App.3d 493, 425 N.E.2d 1187, 55 Ill.Dec. 14 (Ill.App.Ct. 1981); Morrill v. Morrill, 1998 ME 133, 712 A.2d 1039 (Me. 1998); Doughty v. Morris, 1994-NMCA-019, 117 N.M. 284, 871 P.2d 380 (N.M. Ct.App. 1994); Firestone v. Galbreath, 67 Ohio St.3d 87, 616 N.E.2d 202 (Ohio 1993); Wickert v. Burggraf, 214 Wis.2d 426, 570 N.W.2d 889 (Wis. 1997); see also Restatement (Second) of Torts § 774B (1979).

Id. at 717 n.4.

         This discussion, though brief, is instructive. First, the court noted that South Carolina has adopted the " closely analogous" tort of intentional interference with prospective contractual relations. Id. Specifically, in Crandall, the South Carolina Supreme Court " join[ed] the vast majority of [its] sister jurisdictions in recognizing" the tort of intentional interference with prospective contractual relations. 395 S.E.2d at 180. In both Crandall and Douglass, the South Carolina Supreme Court cited decisions from the Oregon Supreme Court. Douglass, 542 S.E.2d at 717 n.4; Crandall, 395 S.E.2d at 180. Specifically, the Douglass court cited the Oregon Supreme Court decision, Allen v. Hall, 328 Or. 276, 974 P.2d 199 (Or. 1999), for the proposition that the tort of intentional interference with prospective contractual relations is analogous to the tort of intentional interference with inheritance. Douglass, 542 S.E.2d at 717 n.4.

         In Allen, the Oregon Supreme Court held that " intentional interference with a prospective inheritance may be actionable under a reasonable extension of the well-established tort known as intentional interference with economic relations." 974 P.2d at 202. The Allen court pointed to " the very close analogy that exists between an expectancy of inheritance and those other interests to which this court already has extended the protections of the tort of intentional interference with prospective economic advantage," noting that " [a]lthough an expectancy of inheritance is, by definition, purely prospective, so are many of the commercial interests that have been associated with and are protected by the tort." Id. The same analogy can be drawn in South Carolina, where courts have also recognized that the tort of intentional interference with prospective contractual relations protects purely prospective interests, such as a plaintiff's " reasonable expectation of benefits." United Educ. Distribs, LLC v. Educ. Testing Serv., 350 S.C. 7, 564 S.E.2d 324, 329 (S.C. Ct.App. 2002).

         Moreover, after citing Allen, the Douglass court listed the elements of intentional interference with inheritance, citing multiple state courts that have adopted the tort and the Restatement (Second) of Torts section articulating the trot. 542 S.E.2d at 717 n.4. Notably the court did not cite any authority rejecting the application of the tort.

         The court finds that the foregoing case law strongly suggests that the South Carolina Supreme Court would adopt the tort of intentional interference with inheritance.[7]

         2. Majority Rule

         Restatement (Second) of Torts § 774B, cited by the South Carolina Supreme Court in Douglass, states that " [a] substantial

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majority of the cases now grant recovery in tort for intentionally and tortiously interfering with the expectation of an inheritance or gift." Restatement (Second) of Torts § 774B reporter's note (1979); see also Marshall v. Marshall, 547 U.S. 293, 296, 126 S.Ct. 1735, 164 L.Ed.2d 480 (2006) (recognizing intentional interference with inheritance as a " widely recognized tort" ); Beckwith v. Dahl, 205 Cal.App.4th 1039, 141 Cal.Rptr.3d 142, 148 (Cal. Ct.App. 2012) (joining " the majority of other states in recognizing the tort of [intentional interference with an expected inheritance]" ); Doughty v. Morris, 1994-NMCA-019, 117 N.M. 284, 871 P.2d 380, 387 (N.M. Ct.App. 1994) (same); Nemeth v. Banhalmi, 99 Ill.App.3d 493, 425 N.E.2d 1187, 1190, 55 Ill.Dec. 14 (Ill.App.Ct. 1981) (same).

         Here, Wendy argues that there is no true majority, as only twenty-five states have adopted the tort of intentional interference with inheritance. Def.'s Supp. Reply 3. While different observers have reached difference conclusions as to the specific number of states that have adopted the tort, what is clear is that " a majority of courts that have considered the tort have approved it." Nita Ledford, Note--Intentional Interference with Inheritance, 30 Real Prop. Prob. & Tr. J. 325, 352 (1995) see also John C.P. Goldberg & Robert H. Sitkoff, Torts and Estates: Remedying Wrongful Interference with Inheritance, 65 Stan. L.Rev. 335, 362 (2013) (recognizing that while appellate courts in twenty states have recognized the tort, " these numbers understate courts' receptiveness to the tort," and noting that only three states have rejected it). Thus, even if a formal majority of states has not adopted the tort, the court finds it significant that the great majority of courts that have reached the issue have adopted it.

         Wendy also argues that the court must consider differences in the character, origin, and elements of each state's version of the tort when assessing the strength of the majority position. Def.'s Supp. Reply 3. Unsurprisingly, although states have adopted different formulations of the tort, the court is not convinced that the differences are significant enough to undermine the clear trend toward the tort's adoption. The core elements recognized in Douglass are analogous to formulations used in other states, which sometimes require " a causal effect between the interference and the harm" rather than a " reasonable certainty that the expectancy ...


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