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McDevitt v. Wellin

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

January 15, 2016

LARRY S. McDEVITT, as Trustee of the Wellin Family 2009 Irrevocable Trust, Plaintiff,
v.
PETER J. WELLIN, et. al., Defendants.

ORDER

DAVID C. NORTON UNITED STATES DISTRICT JUDGE

This matter is before the court on plaintiff Larry S. McDevitt (“McDevitt”) and counterclaim defendant Lester S. Schwartz’s (“Schwartz, ” together with McDevitt the “trust plaintiffs”) motion for payment of interim trustee fees, trust protector fees, and attorneys’ fees and expenses, and for segregation of trust assets or funds for payment of ongoing or future fees and expenses. ECF No. 315 (Pls.’ Mot.). The trust plaintiffs ask the court to order: (i) payment/reimbursement of the interim trustee fees, trust protector fees, and attorneys’ fees and costs from the trust or its assets; and (ii) segregation and preservation of sufficient trust assets or funds to pay the ongoing and future trust protector fees, trustee fees, and attorneys’ fees and costs.

For the following reasons, the court denies the trust plaintiffs’ motion.

I. BACKGROUND

As the parties are familiar with the facts of this litigation, the court will dispense with a comprehensive review and focus only on the facts relevant to the instant motion.

On November 2, 2009, Keith Wellin (“Keith”) created the Wellin Family 2009 Irrevocable Trust (the “Trust”) for the benefit of his children and grandchildren. Pls.’ Mot. ¶ 1. In late 2013, defendants Peter J. Wellin, Cynthia W. Plum, and Marjorie W. King (the “Wellin children”), acting as co-trustees, liquidated and distributed over $95.6 million of the Trust’s estimated $154 million in assets to themselves. Id. ¶ 4. On December 17, 2013, then-plaintiff Schwartz, acting as trust protector, initiated the present action, claiming that the Wellin children’s liquidation of the Trust assets was both tortious and in violation of the Trust. Id. ¶ 6. The action also seeks to remove the Wellin children from their positions as co-trustees. Id. Notably, at the time Schwartz was hired by Keith as trust protector, and at all times since, Keith has pursued a separate action-Wellin v. Wellin et. al., 2:13-cv-1831- seeking to declare the Trust void ab initio.[1] Defs.’ Response 3. Recognizing this conflict, Keith released any claims he may have against Schwartz for reimbursement of Schwartz’s fees and attorney fees in the event Keith’s separate action is successful. Id. at Ex. D.

In May 2014, after this court found that Schwartz did not qualify as a real party in interest and dismissed the instant action, Schwartz exercised his powers under the Trust and appointed McDevitt as an additional trustee. Pls.’ Mot. ¶ 11. McDevitt quickly ratified the commencement of this action. Id. On October 10, 2014, McDevitt filed a new complaint seeking actual and punitive damages from the Wellin children and asserting a cause of action for the recovery of attorney’s fees. Defs.’ Response 9. The Wellin children counterclaimed that Schwartz was not properly appointed trust protector because Keith lacked capacity at the time of his appointment, and that Schwartz was “subordinate” to Keith in violation of the Trust requirements. Id. at 10. The Wellin children also seek to have the trust plaintiffs removed from their fiduciary positions based on various actions taken in bad faith and against the best interests of the Trust. Id.

The Wellin children are currently holding the distributed Trust assets in certain UBS accounts, and have used millions of dollars in Trust assets to pay their own attorneys, experts, and consultants in this litigation. Pls.’ Mot. ¶ 34. The trust plaintiffs and their attorneys have not been paid or reimbursed by the Trust. Id. However, the trust plaintiffs and their attorneys are being paid, pursuant to letter agreements between Keith and the trust plaintiffs, which provide that Keith will pay the trust plaintiffs’ fees and expenses, and their attorneys’ fees. Defs.’ Response Exs. E & F. The letter agreements further state that these advances must only be repaid to the extent the trust plaintiffs are able to recover such fees from the Trust assets or the Wellin children. Id.

On June 17, 2015, the trust plaintiffs filed the instant motion seeking: (i) confirmation that the trust protector fees, trustee fees, attorneys’ fees and costs are properly payable out of the Trust assets, (ii) payment of trust plaintiffs’ fees out of the Trust assets, (iii) payment of trust plaintiffs’ attorneys’ fees out of Trust assets, and (iv) an order requiring the Wellin children to segregate and preserve sufficient Trust assets to fund ongoing and future payments of such fees and compelling the Wellin children to pay such fees no later than thirty (30) days after submission for payment using personal funds or funds of the Trust. The Wellin children responded to the trust plaintiffs’ motion on July 6, 2015, and the trust plaintiffs replied on July 16, 2015. The motion is now ripe for the court’s review.

II. DISCUSSION

A. Appropriate Standard [2]

At the outset, the parties disagree on the nature of the instant motion, and consequently, on the standard to be applied. The trust plaintiffs contend that the court may award the requested fees directly under South Dakota Codified Laws § 55-3-20.1.[3] Pls.’ Mot. ¶ 18; Pls.’ Reply 2-3. That section provides authority for a trust protector or co-trustee to “request the court to remove a trustee, ” and further states that: “[p]ending a final decision on a request to remove a trustee, the court may order such appropriate relief as may be necessary to protect the trust property or the interests of the beneficiaries.” S.D. Codified Laws § 55-3-20.1. The trust plaintiffs argue that because they are authorized to prosecute the instant action in their capacities as co-trustee and trust protector, and because they are entitled to reasonable compensation for the performance of their duties, [4] the court should award the requested fees as the “appropriate relief” contemplated by § 55-3-20.1. Pls.’ Reply 2-4.

The Wellin children do not directly dispute the trust plaintiffs’ reading of South Dakota law or the trust instrument. Instead, they dispute the trust plaintiffs’ characterization of their motion, arguing that the motion is properly construed as a motion for a preliminary injunction, and therefore, the trust plaintiffs must make a clear showing that: (i) they are likely to succeed on the merits; (ii) they are likely to suffer irreparable harm in the absence of preliminary relief; (iii) the balance of the equities tips in their favor; and (iv) the injunction is in the public interest. Defs.’ Response 13-14; see also Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008).

To demonstrate that the instant motion seeks injunctive relief, the Wellin children point to the court’s January 7, 2014 order denying Schwartz’s motion for a preliminary injunction prohibiting the Wellin children from disposing of liquidated Trust assets. ECF No. 15. In that decision, the court rejected Schwartz’s argument that § 55-3-20.1 allows the court to impose a preliminary injunction without applying the four-pronged Winter test. See ECF No. 15 at 5-6. Though the issue is slightly different here, given the trust plaintiffs’ contention that a fee award granted under § 55-3-20.1 does not constitute injunctive relief, the court’s prior reasoning remains instructive. In its January 7, 2014 order, the court concluded that § 55-3-20.1 “simply codifies a court’s inherent power by reiterating that the court may award appropriate relief to the parties before it.” Id. ...


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