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Wellin v. Farace

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

November 6, 2019

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.



         The 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.

         I. BACKGROUND

         On 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 at 2.

         In 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”[1] 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.

         At the 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.

         On 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.

         On 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.

         On 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.

         After 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.

         In June 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. Id.

         Keith 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.

         Defendants 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.

         II. STANDARD

         Summary 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.


         A. NPFA

         As an 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, ...

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