United States District Court, D. South Carolina, Charleston Division
WENDY C.H. WELLIN, on behalf of the Estate of Keith S. Wellin as its duly Appointed Special Administrator, Plaintiff,
THOMAS M. FARACE, ESQ., individually and as agent for Nixon Peabody, LLP and Nixon Peabody Financial Advisors, LLC; NIXON PEABODY, LLP; and NIXON PEABODY FINANCIAL ADVISORS, LLC Defendant.
C. NORTON UNITED STATES DISTRICT JUDGE
following matter is before the court on defendants Thomas
Farace, individually and as an agent for Nixon Peabody, LLP
and Nixon Peabody Financial Advisors (“Farace”),
Nixon Peabody, LLP (“Nixon Peabody”) and Nixon
Peabody Financial Advisors, LLC (“NPFA”, together
with Farace and Nixon Peabody, “defendants”)
motion for summary judgment, ECF No. 62 and 144. For the
reasons set forth below, the court grants defendants'
motion for summary judgment.
February 10, 2016, Wendy C.H. Wellin (“Wendy”),
on behalf of the Estate of Keith S. Wellin as its duly
appointed Special Administrator (“Estate”), filed
a complaint against defendants for legal malpractice related
to the estate planning services provided to Keith S. Wellin
(“Keith”) as his attorney and advisor. ECF No. 9
approximately 2001, defendants began representing Keith with
respect to his estate planning, both individually and as
Trustee of the Keith S. Wellin Florida Revocable Living Trust
dated December 11, 2001 (“Revocable Trust”),
which defendants drafted on Keith's behalf. ECF No. 62-2
at 5-7. Keith discussed with Farace his desire to give a
substantial portion of the Berkshire Hathaway Class A stock
he owned to his three children in the most tax-advantaged way
possible. Id. at 9. Keith and his children, Peter J.
Wellin, Cynthia W. Plum, and Marjorie W. King (collectively,
“Wellin Children”) established Friendship
Partners, L.P. (“Friendship Partners”), a
Delaware Limited Partnership, on or around December 9, 2003
(the “2003 Partnership Agreement”). ECF No. 62-7.
This limited partnership was established using the
“Strangi” strategy and was funded with 906 shares of
Berkshire Hathaway Class A stock (the “Berkshire
Stock”). ECF No. 62-4 at 23-30; ECF No. 62-7 at 26.
time Friendship Partners was formed, Keith was a limited
partner and owned 98.9% of the partnership units. ECF No.
62-7 at 26. The general partner was Friendship Management,
LLC (“Friendship Management”), a Delaware limited
liability company, which owned the remaining 1.1% of the
total partnership units. Id. The Wellin Children
controlled Friendship Management, collectively owning 60% of
the limited liability company in equal shares, and the
remaining 40% was owned by a trust, the 2003 KSW Family
Trust, the trustees of which were Farace, and a family
friend. Wellin v. Wellin et. al., No. 2:13-cv-1831,
ECF No. 301-1 at 22.
November 7, 2006, Farace sent Keith a letter enclosing a
compilation of Keith's net worth and taxable estate. ECF
No. 62-8. In the letter, Farace stated that most
practitioners were advising clients to no longer rely on the
“Strangi” strategy for potential estate tax
savings. Id. Farace stated it would be prudent to
consider other strategies and techniques, including a sale to
an intentionally defective grantor trust, which was one of
the four options Farace presented to Keith in 2001.
Id. Keith did not take any action at that time, and
the existing structure remained in place. Id.
December 19, 2007, Keith issued a notice of his intent to
transfer his 98.9% ownership interest of limited partnership
units in Friendship Partners to the Revocable Trust (of which
the Wellin Children were the beneficiaries). ECF No. 62-9.
Additionally, on December 26, 2007, Keith signed the
following: (1) an Assignment and Assumption of Limited
Partnership Interest, (2) a document stating the Revocable
Trust agreed to be bound by the 2003 Partnership Agreement,
and (3) a document agreeing to pay the Revocable Trust any
benefits to which the trust was entitled under the 2003
Partnership Agreement. ECF No. 62-10-12.
November 2, 2009, pursuant to the advice and direction of
defendants, Keith established the Wellin Family 2009
Irrevocable Trust (“2009 Irrevocable Trust”) with
South Dakota Trust Company and the Wellin Children as the
Trustees. Farace was named as Trust Protector. ECF No. 62-13.
The Wellin Children were the Distribution Advisors and the
Investment Advisors of the 2009 Irrevocable Trust.
Id. On November 30, 2009, the Revocable Trust sold
its economic interest in Friendship Partners to the 2009
Irrevocable Trust for a promissory note (“2009
Promissory Note”). ECF No. 62- 20. Following an
independent appraisal, the value of the economic interest in
Friendship Partners was determined to be $49, 800, 000, which
was approximately 55% of the value of the underlying
Berkshire Stock. ECF No. 62-21. The 2009 Promissory Note was
issued to the Revocable Trust with a face value of $49, 800,
000, interest only, payable in kind. Id. The 2009
Promissory Note was subsequently restated several times, most
recently in 2012, to extend the due date of the principal
owed and to reduce the rate of the interest due to the
Revocable Trust. Wellin v. Wellin et. al., ECF No.
301-1 at 22.
receiving a letter from Farace on January 6, 2010, Keith
expressed confusion regarding the impact of the 2009
Transaction on Keith's estate. ECF No. 62- 22. Farace
sent a follow-up letter to Keith on January 10, 2010 where
Farace attempted clear up any confusion Keith had on the
regarding the impact of the 2009 Transaction. ECF No. 62-23.
Farace sent letters again in November 2011 and November 2012
summarizing the 2009 Transaction. ECF No. 62-24. At no point
did Keith and Farace discuss the impact of the 2009
Transaction if the Berkshire Stock were to be sold prior to
Keith's death. Wellin v. Wellin et. al., ECF No.
599-5 at 5.
2013, Farace was fired and on July 3, 2013, with new counsel
in place, Keith sued his three children seeking, among other
things, to set aside the 2009 Transaction on the ground that
the transaction was not in Keith's best interests.
Wellin v. Wellin et. al., ECF No. 1. The complaint
alleges that Keith “did not know or understand that he
had lost all control over and access to his partnership
interests” in the 2009 Transaction. Wellin v.
Wellin et. al., ECF No. 301. The complaint further
alleges that Keith “unknowingly sold his partnership
interest for less than market rate while also retaining the
income tax liability should any of the [Berkshire Stock] or
the partnership interests be sold.” Id.
Neither the complaint nor the amended complaints challenge
the 2003 transaction forming Friendship Partners.
died on September 14, 2014. Wellin v. Wellin et.
al., ECF No. 231. On February 10, 2016, the Estate filed
the present case against defendants alleging causes of action
for negligence, breach of fiduciary duty, breach of contract,
and aiding and abetting breach of fiduciary duty. ECF No. 1.
The Estate alleges that defendants designed and implemented
estate planning structures in 2003 and 2009 that
“failed to adequately protect the interests of [Keith].
. . .” ECF No. 9 at 11. The Estate further alleges
defendants failed to “inform or advise [Keith] as to
the inherent risks and consequences of participating in [the]
transaction[s].” Id. at 11-14. Finally, the
Estate alleges that defendants aided and abetted Peter J.
Wellin and Cynthia W. Plum, in breaching fiduciary duties
owed to Keith in connection with the 2009 Transaction.
Id. at 15.
filed this motion for summary judgment on September 8, 2017
alleging the Estate should be barred by the three-year
statute of limitations. ECF No. 62. The Estate responded to
the motion on October 30, 2017, ECF No. 65, to which
defendants replied on November 21, 2017, ECF No. 69.
Defendants filed an additional motion for summary judgment
incorporating its prior motion for summary judgment and
asserting summary judgment should be granted due to: (1) the
statute of limitations, (2) lack of evidence that Keith did
not understand and agree to the 2009 Transaction (3)
ratification, waiver, and/or estoppel, (4) lack of knowledge
as to the claim of aiding and abetting a breach of fiduciary
duty, (5) lack of any evidence showing NPFA performed any
work on behalf of Keith Wellin, meaning NPFA is not liable to
the Estate as a matter of law, (6) lack of any damages
suffered as a result of the 2009 Transaction, and (7) lack of
evidence to support the claims of attorney's fees and
punitive damages. ECF No. 144. The Estate responded to
defendants' new motion on November 15, 2018, ECF No. 155,
and defendants replied on November 30, 2018, ECF No. 166. The
motions are now ripe for the court's review.
judgment shall be granted “if the pleadings, the
discovery and disclosure materials on file, and any
affidavits show that there is no genuine dispute as to any
material fact and that the movant is entitled to judgment as
a matter of law.” Fed.R.Civ.P. 56(c). “By its
very terms, this standard provides that the mere existence of
some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue
of material fact.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247-48 (1986). “Only disputes
over facts that might affect the outcome of the suit under
the governing law will properly preclude the entry of summary
judgment.” Id. at 248. “[S]ummary
judgment will not lie if the dispute about a material fact is
‘genuine,' that is, if the evidence is such that a
reasonable jury could return a verdict for the nonmoving
party.” Id. “[A]t the summary judgment
stage the judge's function is not himself to weigh the
evidence and determine the truth of the matter but to
determine whether there is a genuine issue for trial.”
Id. at 249. The court should view the evidence in
the light most favorable to the non-moving party and draw all
inferences in its favor. Id. at 255.
initial matter, the court will examine the argument that
summary judgment should be granted to NPFA because there is
no evidence that NPFA provided any services to Keith. ECF No.
144-1 at 29. The Estate acknowledges it has not discovered
any evidence suggesting that NPFA provided services to Keith,
and accordingly, the Estate concedes that NPFA should be
dismissed from this action. ECF No. 155 at 28. Therefore, ...