Opinion
C.A. No. 15508.
Date Submitted: August 20, 1999.
Date Decided: September 14, 1999.
Johannes R. Krahmer, Esquire, Thomas R. Hunt, Jr., Esquire, David J. Teklits, Esquire, of MORRIS, NICHOLS, ARSHT TUNNELL, Wilmington, Delaware, Attorneys for Petitioners.
Arthur G. Connolly, Jr., Esquire, Collins J. Seitz, Jr., Esquire, Matthew F. Boyer, Esquire, of CONNOLLY, BOVE, LODGE HUTZ, Wilmington, Delaware; OF COUNSEL: Lawrence T. Hoyle, Jr., Esquire, Ralph A. Jacobs, Esquire, Elliot C. Fertik, Esquire, of HOYLE, MORRIS KERR, Philadelphia, PA, Attorneys for Respondent, Henry Slack McNeil, Jr.
Wayne N. Elliot, Esquire, April Caso Ishak, Esquire, Sheldon K. Rennie, Esquire, of PRICKETT, JONES, ELLIOTT KRISTOL, Wilmington, Delaware, Attorneys for Respondents, Justin McNeil and Cameron McNeil.
Grover C. Brown, Esquire, of MORRIS, JAMES, HITCHENS WILLIAMS, Wilmington, Delaware, Guardian Ad Litem for the Minor, Unborn and Contingent Beneficiaries of the Trust for Henry Slack McNeil and Others.
MEMORANDUM OPINION
Regrettably, this case pits child against father and fiduciary against beneficiary in a fight over the administration of a family trust (the "Trust") created by the late Henry S. McNeil, Sr. ("Mr. McNeil, Sr."), of McNeil Laboratories/Johnson Johnson fame.
Their dispute concerns whether the trustees (the "Trustees") of the Trust properly addressed a request by Mr. McNeil, Sr.'s son, Henry S. McNeil, Jr. ("Henry"), for a $28 million principal distribution amounting at that time to half of the Trust's value. The Trustees seek approval of their decision to grant Henry a smaller distribution. For his part, Henry alleges that the Trustees breached their fiduciary duties, disrespected Mr. McNeil, Sr.'s intent for the Trust, and injured Henry by mishandling, delaying decision on, and wrongfully disposing of his request. He therefore seeks an order compelling a large principal distribution and the removal of all but one of the Trustees. Henry's adult children, Justin McNeil ("Justin") and Cameron McNeil ("Cameron"), oppose the relief Henry seeks and support the positions advocated by the Trustees.
A guardian ad litem was appointed to represent the interests of unborn beneficiaries of the Trust. At the time of appointment, Henry's youngest child, Calder, was not yet born and is thus represented by the guardian ad litem. The guardian ad litem also supports the positions taken by the Trustees in the litigation.
In this post-trial opinion, I conclude that: the Trustees acted in good faith and reached decisions within their wide discretion in addressing Henry's request and by considering the needs of Justin and Cameron in their decisionmaking process; the Trustees should not be removed because they acted in good faith, if awkwardly and torpidly at times; and the Trustees' request for a declaration that one of their decisions was proper is too broad and the Trustees should present a more specific decision, in accordance with the instructions set forth below, if they desire further judicial approval.
I. Factual Background A. The Current Beneficiaries of The Trust
Respondent and cross-petitioner Henry is 55 years old and a current beneficiary ("Current Beneficiary") of the Trust. Henry is a highly capable collector of minimalist art and handler of national champion retrievers. He last held a full-time job in the early 1970s. Since then, he has devoted himself to his avocations and has met his economic needs from the Trust.
Respondent and cross-petitioner Justin is Henry's son, 31 years old, and a Current Beneficiary of the Trust. Justin does not work and lives off income from the Trust and other assets received from his grandfather, Mr. McNeil, Sr., and his grandmother, the late Lois McNeil.
Respondent and cross-petitioner Cameron is Henry's daughter, Justin's sister, 29 years old, and a Current Beneficiary. Cameron is pursuing a doctorate in cultural anthropology. Like Justin, she derives her economic support from the Trust and other assets received from her McNeil grandparents.
Both Justin and Cameron (the "Children") are emotionally estranged from Henry and have no discernible father-child relationship with him. They cannot expect to receive financial support from him.
B. The Trust And The Other McNeil Family Trusts Created At The Same Time
Mr. McNeil, Sr. created the Trust in 1959. The Trust is named for Henry and benefits Henry, Henry's spouse, and Henry's issue and the spouses of Henry's issue (the "Intended Beneficiaries"). The Trust "is a Delaware trust, and is to be governed, administered and construed according to the laws of Delaware." JX 1, Art. 7.
Mr. McNeil, Sr. also created and named identical trusts for Henry's siblings (the "Sibling Trusts"). At the same time, he created a trust for his wife Lois McNeil (the "Lois Trust"), of which Henry, his siblings, and their issue are also Current Beneficiaries. During her lifetime, the Lois Trust was administered solely for Lois McNeil's benefit. It is now much larger than either the Trust or the Sibling Trusts, and litigation is also pending in this court regarding its administration.
Although these trusts (the "Family Trusts") were created in 1959, they were not activated until 1969. During the preceding decade, Mr. McNeil, Sr. worked to secure favorable tax treatment from the United States government. This tax treatment allows assets remaining in the trusts to be exempt from the federal generation skipping tax, or "GST."
When the Family Trusts were activated, Mr. McNeil, Sr. gave each of his children an identical letter stating:
A Father's Privilege
Dear [Name of Child],
On Wednesday, April 16, 1969, the Trustees of the Wilmington Trust decided to activate them. What does this really mean?
To history, it means ten years of constant mental combat homogenized with five years of litigation against Uncle Sam and four years fighting Montgomery County . . . with a dash of coronary and ulcer thrown in for good measure.
To you, it means freedom from financial worries, the constant capability to have brothers and sisters live on an equal level regardless of varying circumstances, the availability of funds when you most need them, deaf ears to the pawnbroker's song, "if you can't see Dad, see Dave", and finally, the responsibility of administering your own financial affairs.
To me, it means happiness coupled with the satisfaction that I have taken adequate care of my children.
To the future, it means . . . you receive this total gift — bought and paid for — from your Dad as a result of his accomplishments in his field. You will understand its value only when you can match it with your own success — financially, professionally, philanthropically or by the pride of raising a family as fine as mine.
Lovingly, Dad
JX 12.Henry drew different conclusions from the Trust's terms and Mr. McNeil, Sr.'s letter than the Trustees. Henry viewed the Trust as primarily his to do with as he pleased, the Trustees as owing a duty to help him live as he wished, and the other Current Beneficiaries as mere remaindermen. As I will discuss, the Trustees did not share these beliefs.
C. How the Trust is Governed
A committee (the "Committee") of three general trustees (the "General Trustees") governs the Trust and can act by majority vote. In the event of a tie vote, the "Administrative Trustee" under the Trust can cast a deciding vote. Other than in that circumstance, the Administrative Trustee carries out the decisions made by the General Trustees and administers the Trust pursuant to the General Trustees' instructions.
All living persons within the category of Intended Beneficiaries are Current Beneficiaries of the Trust and are eligible for distributions of principal and/or income from the Trust. The Trust vests extraordinarily broad authority in the General Trustees to determine how to distribute Trust income and principal. As provided in Article 2 (a):
The trustees in their discretion may accumulate the income of the trust and add it to principal or may, at any time or from time to time, distribute any part or all of the income and principal of the trust to or among Henry, his spouse, his lineal descendants and their spouses; and after, the death of Henry and all his lineal descendants, to or among [Mr. McNeil, Sr.'s] lineal descendants and their spouses. All distributions under this Paragraph (a) shall be at such times and in such proportions and amounts as the trustees shall determine, and the trustees shall have the power to omit from participation in any or all of such distributions any one or more of the persons among whom such distributions could be made.
JX 1, Art. 20(a).
D. The Current Trustees
The current General Trustees are: Edward L. Bishop, III ("Bishop"), Charles F. Mather, III ("Mather"), and PNC Bank, N.A. ("PNC").
Bishop is the newest General Trustee. He assumed that position in 1993 at the suggestion of Henry, a friend of Bishop's since their college days. Bishop is a successful businessman and a veteran of over 300 carrier landings as a Vietnam War combat fighter pilot.
Mather became a General Trustee in 1981 at the request of Mr. McNeil, Sr., with whom he enjoyed a close friendship. Mather is President of Mather Co., an insurance brokerage firm.
PNC became a General Trustee in the late 1970s. It fulfills its duties as General Trustee by designating a trust officer to represent it at meetings of the General Trustees. The trust officer derives her authority from a committee at PNC. For the relevant period before 1996, Carl Werley ("Werley") was PNC's designated trust officer for the Trust. Werley retired in 1996, at which time Linda Manfredonia ("Manfredonia") assumed his responsibilities with regard to the Trust.
Wilmington Trust is the Administrative Trustee, having been designated as such by the Trust instrument. Like PNC, Wilmington Trust fulfills its duties through trust officers who represent it at Trustees' meetings, but reserves ultimate decision-making authority to an internal committee. For the years relevant to this case, Mary Lou Flood ("Flood") and Neal Howard ("Howard") were the officers designated by Wilmington Trust to carry out its role as Administrative Trustee.
E. The Administration of The Trust During The Years Before This Dispute Arose: 1969-1994
Henry began receiving distributions of some of the income from the Trust in 1969, the year Mr. McNeil, Sr. activated the Trust. During the ensuing decade or more, George Brodhead ("Brodhead") was the dominant General Trustee and required Henry to submit household budgets demonstrating, to the satisfaction of the General Trustees, that he was leading a financially prudent lifestyle. Brodhead derived his stature among the Trustees from Mr. McNeil, Sr., who informed Mather that Brodhead was the "man to listen to on the Trust." Tr. 155.
Although Brodhead counseled his fellow trustees to err on the side of generosity as Mr. McNeil, Sr. wanted, Brodhead did not equate generosity with profligacy. Instead, he viewed the Trustees as having the duty to: provide Henry with an ample annual income; ensure Henry used it well; make principal distributions to Henry only for truly important needs; and otherwise protect and grow the Trust principal. This strategy was also consistent with Brodhead's view that the Trust was intended to benefit current and future descendants of Henry on a tax-advantaged basis well served by principal growth.
Thus the General Trustees' approach was quite conservative from the outset. On more than one occasion, Mr. Brodhead informed Henry that the General Trustees expected him to live within the means afforded him by the Trust income. These means were quite substantial: Henry has received in excess of $20 million in income from the Trust since 1969. The real inflation-adjusted value of these distributions would be even higher.
In accordance with this conservative approach, the General Trustees were reluctant to make principal distributions to Henry to fund one of his primary interests, the collecting of minimalist art. The General Trustees disdained this approach in favor of making loans to Henry for this purpose.
On the other hand, Henry was given generous principal distributions to purchase and refurbish two personal residences. He also obtained principal distributions to start two art galleries. The galleries were not economic successes.
During this period, the General Trustees made distributions only to Henry. Although Justin and Cameron were Current Beneficiaries at that time, their interests were assumed, it seems, to have been protected by distributions to Henry. Even after the Children left Henry's care in the 1980s, no distributions were made to them.
Indeed, even when Justin and Cameron reached the age of majority in 1986 and 1987, respectively, the Trustees still made no distributions to them. In fact, the Trustees did not provide them with any information about the Trust, even though Wilmington Trust has a policy of sending trust statements to all adult current beneficiaries of trusts that it solely administers. In sum, the Trustees treated the Children more as remaindermen than the Current Beneficiaries they in fact were.
The reason for this was that the Trustees assumed that the Children were more than adequately provided for through other family trusts. Werley and Henry both led the Trustees to believe this was so.
Werley led Wilmington Trust to believe — erroneously — that the Children had no desire for information about the Trust. As a PNC trust officer, Werley was in touch with the Children regarding far smaller trust accounts each had at PNC Bank. But Werley never told the Children about their Current Beneficiary status in the Trust.
Meanwhile, Henry and his advisors told the Trustees that the Children had wealth in other trusts that far exceeded the wealth in the Trust. Because the Trust was Henry's sole source of wealth while the Children were (allegedly) provided for by Mr. McNeil, Sr. through other means, Henry and his advisors contended that Henry's interests should be the paramount concern of the Trust.
Henry's estrangement from the Children made this situation all the more delicate.
F. The Origins of The Current Dispute: Henry's Request For A Large Principal Distribution
This case originates with events in 1995. Early that year, Wilmington Trust's Flood discussed with Henry's primary financial advisor, Brett Senior ("Senior"), the fact that the principal in the Trust had been growing at a rapid pace, while the income had not. According to Senior, Flood told him that it was "almost embarrassing how much money [was] in the account" and suggested that the Trustees should consider making a principal distribution to Henry of all the assets over $40 million. Tr. 1034. At that time, such a distribution would have totaled nearly $8 million.
Henry then discussed the possibility of such a principal distribution with Bishop. In April 1995, Bishop informed the other Trustees that Henry would be seeking a principal distribution to develop properties in rural Winslow, New Jersey, which Henry had purchased in 1993.
The core of the Winslow properties is a parcel ("Winslow Farms") that was formerly the site of a clay quarrying operation. When Henry purchased Winslow Farms in 1993 as a training site for his dogs, the property was scarred by its history. A good deal of the property was barren because the clay company had dug out all the earth, leaving behind clay-rich earth shorn of topsoil and vegetation. Using advanced techniques, Henry reclaimed Winslow Farms and turned it into an organic farm and a pastoral site suitable for training his retrievers. He converted a "dreadful looking" mess and "complete junkyard," Mather Dep. 49; Tr. 187, into a "very beautiful piece of property" now capable of supporting vegetation in the abandoned quarry. Tr. 382-383, 194.
Presaging the languid pace at which all the parties to this proceeding operated, Henry did not actually make a principal distribution request until October 2, 1995 (hereinafter the "Request").
In this regard, I note my refusal to resolve the issue of whether the Trustees or Henry are most at fault over the torpor of events. At trial and in their briefs, the parties point fingers at each other regarding timing issues. In reality, neither the Trustees nor Henry acted with alacrity. For their part, the Trustees took too long to resolve issues and did too little to process Henry's requests in a timely manner consistent with appropriate fiduciary standards of diligence. For his part, Henry failed to provide requested information promptly and engaged (through his lawyers) in feisty verbal duels with the Trustees about their information needs that resulted in the needless and inefficient conversion of the process into one not unlike a litigation discovery battle.
G. The General Purposes of The Request
Henry's Request asked for a principal distribution of approximately $13 million, or 27% of the then-total Trust assets. The Request had several purposes.First, the distribution was intended to support a land reclamation business (the "Reclamation Business") Henry wished to establish in Winslow. Second, Henry sought to retire his outstanding debt of over $2 million. This debt had been racked up by Henry in reclaiming Winslow Farms and purchasing art. Third, Henry wished to build a residence at Winslow Farms on par with the type of residences his siblings owned.
Even with this debt, Henry had a net worth of nearly $10 million, most of which resulted from the appreciation in value of his minimalist art collection. Henry's collection is considered quite outstanding and of museum quality by respected art experts.
Finally, Henry wanted to place the remaining funds in a sub-trust for his exclusive benefit. The sub-trust was to afford Henry some financial independence and to permit him to pursue his Reclamation Business and art collecting without having to obtain loans or seek further principal distributions from the Trustees.
In his submission to the Trustees, Henry contended that the Trust was created primarily for his benefit and not that of future generations. In this regard, it was noted that:
Hank has few assets outside the [T]rust, except for highly illiquid art and real estate interests. He has liabilities in excess of $2 million. Hank has no other interests in trusts of which he is aware, although he hopes to receive some benefit from his mother's January 2, 1959, trust at some point in the future. Accordingly, as far as he knows, the [T]rust comprises his entire inheritance.
On the other hand, Hank's children and their issue, the other beneficiaries of the [T]rust, have equitable interests in trusts with substantial assets, reportedly in excess of this [T]rust. Hank does not have direct access to these trust instruments, or their asset statements. However, he believes that a portion of the Claneil Foundation and certain other trusts established in 1972 and 1976 will ultimately pass to his children and their issue. He believes that his issue have an equitable interest in these entities which substantially exceeds the value of the trust held for his benefit.
Hank urges the trustees to satisfy themselves that these other equitable interests exist, and that their value is as he represents. The trustees have a good reason to request this information in order to develop their distribution policy. Even if they do not receive a complete response to their request, they will be able to develop reasonable inferences from the response they do receive.
JX 84 at 8-9 (emphasis added).
Henry amended his Request a short time later. In lieu of asking for $23 million, Henry asked for half of the Trust — approximately $25 million at that time — to be placed in a separate trust over which he would have total discretion. From the remainder left in the Trust, Henry wanted to continue to receive all the income.
H. The Trustees' Awkward Efforts To Obtain Information Regarding Henry's Request
At their October 31, 1995 meeting, the Trustees discussed the Request and concluded that they needed a financial statement and a business plan from Henry in order to consider it. At the instance of Werley and Mather, the General Trustees also asked Wilmington Trust, as Administrative Trustee, to review the Request and make a recommendation once the necessary information had been received. Wilmington Trust wanted to visit Winslow Farms and get a first hand impression of the type of reclamation work Henry contemplated. Such a visit had been in the works since the spring, but Wilmington Trust had been put off by Henry.
At the meeting, Werley also reported that he had taken Henry up on his suggestion that the Trustees investigate the Children's financial status. Werley reported that he had learned that Justin and Cameron each had other trust assets comprising approximately $1.5 million — far less than Henry had suggested might be the case. Despite learning this, the Trustees apparently continued to believe that Justin and Cameron had far greater assets from other sources about which they lacked information. The Trustees did, however, agree to "apprise the other beneficiaries of the Trust of the Trustees' ultimate decision regarding [Henry's] request." JX 92.
A communications mess followed the Halloween meeting. The visit to Winslow Farms did come off. On December 1, 1995, four representatives of Wilmington Trust (including Flood and Howard) toured the property with Henry and Senior.
But the Trustees' request for written information did not proceed so smoothly. Wilmington Trust did not memorialize the need for the business plan and the financial statement in a letter to Henry because Bishop had agreed to take the lead in obtaining the necessary information from Henry. Bishop dropped the ball, however. Bishop did communicate the need for a financial statement to Henry, a request Henry fulfilled despite expressing his belief that such information was unnecessary to the Trustees' decision. But Bishop did not clearly communicate the need for a business plan. Moreover, neither Bishop nor Mather forwarded the financial statement they received from Henry on January 4, 1996 to Wilmington Trust.
There is a mountain of conflicting evidence about this molehill of an issue. After considering it all carefully, I conclude that Bishop (and therefore the Trustees) failed to communicate the need for a business plan until late January 1996.
As a result, on January 15, 1996, Flood wrote the General Trustees, but not Henry, stating that Wilmington Trust had not received any of the information it needed to make a recommendation regarding the Request. Mather forwarded the financial statement to Flood the next day. After a conference call among the General Trustees, Mather wrote Flood and asked that she formally request the information she "need[ed] in order for Wilmington Trust to make its recommendation." JX 115. On January 25, 1996, Flood formally requested a business plan.
There then ensued a lengthy round of "lawyer's letters," in which counsel for Henry and outside counsel for the Trustees jousted about matters largely incidental to the question asked by Henry's counsel, specifically, what information the Trustees wanted Henry to include in his business plan. A direct appeal from Senior to Mather in March was required to break this logjam.
Although Henry was not happy at having to produce a business plan and expressed his displeasure, he did not refuse to produce one and appears to have largely followed Bishop's advice of late January 1996 to have Senior prepare such a plan "professionally" even if he did not exactly follow the advice to do so "expeditiously." JX 122 at 2.
I. The Disparate Perspectives of The Trustees
A partial explanation for this messy process is that by the winter of 1995-1996 the Trustees were essentially divided into three camps. In one camp was Bishop, whom the other Trustees rightly viewed as being closely aligned with Henry and urgently supportive of his Request.
Meanwhile, Werley and Wilmington Trust were in lockstep as well, and wished to proceed quite deliberately on Henry's Request. Their caution is best explained by the psychic trauma that large principal distribution requests cause to trust officers. As the Trustees' own expert — a distinguished career-long trust officer — testified, institutional trustees find large principal distribution requests "frightening." Tr. 830. Such distributions disrupt the ideal world of the institutional trustee, in which principal is allowed to safely grow, and current beneficiaries live contentedly off the income.
Mather was not aligned with either camp, and was discomforted at being in the middle. Although his instincts and experience led him to rely heavily upon Wilmington Trust's Flood and Howard and PNC's Werley, due to their status as professionals in the trust business, Mather found himself as the swing Trustee seeking harmony and consensus between the two other camps.
As a result of these differing approaches, Wilmington Trust, and to a lesser extent the other Trustees, looked to Bishop to get the needed information from Henry and appeared reluctant to deal directly with Henry themselves. When forced to do so, Wilmington Trust employed outside counsel for that purpose, a move inspired in part by Henry's own reliance of counsel and increasingly combative posture. Wilmington Trust's approach, like PNC's, also seems to have been driven by an institutional aversion to being involved in risky decisions.
J. The Trustees Debate Wilmington Trust's Authority
One of the major sources of friction between Henry and the Trustees at this stage was the extent of Wilmington Trust's authority as Administrative Trustee. Henry and Bishop contended that Wilmington Trust had merely a ministerial role, which involved carrying out the instructions of the General Trustees. While the General Trustees could seek the advice of Wilmington Trust in determining whether to make a principal distribution, they had no duty to do so.
Werley and Wilmington Trust believed that Wilmington Trust had the much more active role of reviewing all matters to be considered by the General Trustees and providing the General Trustees with its recommendation as to the appropriate course of action. Wilmington Trust also claimed the right to refuse to implement instructions from the General Trustees.
This dispute came to a head at the Trustees' January 30, 1996 meeting, during which Bishop and Wilmington Trust's Howard had an emotional argument over this issue. The rendition of this meeting reflected in Bishop's handwritten notes of the meeting rings true to me. According to Bishop's notes, Howard contended that the General Trustees had control of distribution requests "subject to the advice and consent" of Wilmington Trust. JX 121 at P1949. Werley agreed with this view. Bishop vigorously disagreed:
I asserted: The responsibility/authority for controlling disbursements lies solely with the Committeemen. Wilmington Trust can only advise the Committee, unless there is a tie vote among the members, in which case it can vote to break the tie. Werley and Howard argued that Wilmington Trust had a veto. I asked them to show me where in the inst. it said that. They couldn't (idiots). (Find out what axe they have for being obstructionist).
Finally, Neal [Howard] acquiesced.
Meeting adjourned.
The official minutes, prepared by Wilmington Trust, note: "Ed Bishop asked why the Wilmington Trust was asked to provide a proposed reply [to Henry's October 2 Request] since the General Trustees has [sic] the responsibility for making the decision. Neal Howard explained that the Trust agreement provides that the Administrative Trustee is to propose and the General Trustees are to dispose." JX 120 at P2872. To anyone learned in the study of the American presidency, Howard's view of Wilmington Trust's power implies that he thought it had veto authority, since his phrasing quotes from the well-worn catch phrase about the relative powers of the President and Congress. Note that Howard's use of the phrase "advice and consent" in regard to Wilmington Trust's authority, JX 121, also implied blocking power, referring as it does to the United States Senate's power over presidential nominations. Howard's mixed (executive and legislative) analogies both suggest blocking authority.
I find that Howard and Werley argued that Wilmington Trust had a de facto veto over the General Trustees' exercise of discretion. That is, the General Trustees could make a decision "but unless Wilmington Trust agree[d] with that [decision], the distribution doesn't get made." Tr. 90. Bishop's contrary view, that the General Trustees had the obligation to make their own decisions and not defer to the views of Wilmington Trust, clashed with the mindset of the other Trustees, who in the post-Brodhead era had largely taken their cue from Wilmington Trust and its outside counsel on big issues.
The debate about the relative powers of the General Trustees and the Administrative Trustee was resolved that day in the following manner. From then on, the General Trustees were acknowledged to have the ultimate authority to decide on distributions. While Wilmington Trust had fiduciary responsibilities and could provide input, it could not refuse to make a distribution ordered by the General Trustees if it merely disagreed with the instruction but could only do so if the instruction, in its judgment, constituted a breach of trust.
K. The Business Plan
On April 29, 1996, Henry presented the Trustees with a business plan (the "Plan" in total, and the "Business Plan" as to the Reclamation Business only). The Plan sought a principal distribution of $28 million.
The concept of the Reclamation Business is straightforward. Winslow, New Jersey is close to Philadelphia and is a short drive from the "PATCO high speed line," making it a relatively easy commute. As a result, Winslow is anticipated by Henry to become one of the next rural communities to fall to America's insatiable appetite for communities that combine, depending on your view, the best or worst aspects of urban and rural life.
Henry wanted to exploit this potential by developing several identified properties in the Winslow area. Some of them were quarry properties, like Winslow Farms. As to these, Henry intended to use the reclamation techniques he applied at Winslow Farms and make the properties suitable for development. As to the non-quarry parcels, Henry intended to swap the valuable residential zoning rights he held on Winslow Farms over to the non-quarry properties, in order to make them eligible for development as residential neighborhoods.
The Plan contained a four-year capital budget of $9,749,999 for the Reclamation Business. As Senior (who prepared the Plan) acknowledged at trial, this estimate was inexact and was designed to give Henry a cushion to ensure that he could carry out the Business Plan. For example, the per acre estimated reclamation costs utilized in the Business Plan were twice the per acre cost of the Winslow Farms' reclamation and were applied to each acre proposed for development regardless of whether reclamation was required. On top of these estimated costs, the Business Plan included a $1.4 million reserve to address other possible cost-overruns. Based on the projections in the Business Plan, the Reclamation Business would begin to show substantial profits in the third year.
In addition to money for the Business, Henry desired a distribution in the amount of $2.3 million to retire his debts, as well as $3.5 million for the construction of a residential compound at Winslow Farms. Finally, the remainder of the $28 million — over $12 million — was to be placed in an undesignated reserve (the "Set Aside") for use by Henry as he determined, giving Henry the financial independence he desired.
Henry did not back off his desire to receive all of the income from the assets remaining in the Trust.
L. The April 29, 1996 Meetings
On April 29, 1996, the Trustees heard a presentation regarding the Plan. During this presentation, Henry and his advisors changed positions regarding whether the Trustees should be in contact with Justin and Cameron during the Request evaluation process.
Whereas Henry had earlier encouraged the Trustees to assure themselves that the Children had sufficient assets outside the Trust so as to render any substantial distribution from the Trust insignificant to them, Henry and his advisors now urged the Trustees not to contact the Children. While they phrased their objection in terms of warning the Trustees not to "consult" with or "delegate" their decision-making authority to the Children regarding the Request, JX 141, it was clear that Henry and his advisors preferred that the Children not be informed about the Request.
The putative reason for this concern was that if the Children knew about the Request then parent-child relations — which were non-existent — would get even worse. Further heightening the tension between the Trustees and Henry was the fact that Henry's lawyers less than subtly conveyed Henry's willingness to sue the Trustees if their contact with the Children resulted in an alteration of Henry's Request.
Wilmington Trust's Howard exacerbated the situation by remarking that approval of Henry's Request could spark a "run on the bank." Tr. 96-97; 875-876. This inappropriate remark suggested that Wilmington Trust opposed a large distribution for fear it would lead Henry's siblings to request similar distributions from the Sibling Trusts at Wilmington Trust and thus result in the substantial dimunition of assets under Wilmington Trust's control, to the bank's pecuniary and reputational detriment. Henry, and to some degree Bishop, began to see these concerns, rather than the Children's best interests, as Wilmington Trust's real interests.
The below market fees Wilmington Trust receives for administering the Trust are too insubstantial to have likely motivated it or any of its employees. Even taken together, the fees on all the Family Trusts, if lost to Wilmington Trust, are unlikely to be very material to the bank. On the other hand, there is no doubt that the bank derives a commercial benefit from being the "home" of nearly a half-billion dollars of McNeil Family Trusts, a benefit that would be greatly diminished if these Trusts were all down-sized by one-half.
M. Wilmington Trust's Recommendations
On June 14, 1996, Wilmington Trust recommended a principal distribution to Henry in an amount of $7.3 million, which was less than a third of the amount he had requested. With respect to the Reclamation Business, Wilmington Trust recommended a distribution of $5 million. This was the amount of funding the Plan indicated was needed in order for the Reclamation Business to make it into the black and to fund itself. Wilmington Trust did not recommend funding the reserve Senior had budgeted in case the Reclamation Business had cost overruns, reasoning that Henry could seek loans if such reserve funding became necessary. Although Wilmington Trust considered the Reclamation Business risky, it acknowledged that the Business had potential and provided Henry an opportunity to apply his artistic sensibilities in the business world.
Wilmington Trust also supported a principal distribution of $2.3 million to enable Henry to pay off his debts, noting that this would give him the wherewithal to cover the estimated reserve and to raise additional capital for the Reclamation Business if needed.
Wilmington Trust opposed the remainder of Henry's Request. It opposed the request for a $3.5 million residential compound at Winslow Farms, since Henry already had two expensive residential properties and could fund a new residence by "repositioning . . . his own assets." JX 160 at 5.
Wilmington Trust opposed the $12 million Set Aside because, among other reasons, the Trust might not be sufficient to provide for Henry and the other Current Beneficiaries in the future, after such a sizable reduction in Trust principal. In particular, Wilmington Trust noted that Henry had used every penny of the Trust's income in recent years and that the other Current Beneficiaries had received nothing. Wilmington Trust expressed concern that there might be inadequate income if Henry still needed substantial income from the Trust and the other beneficiaries also merited distributions:
There are two other living current beneficiaries of the trust. It is our understanding that they presently are not seeking distributions from the trust. They are, however, in their twenties and the trustees must realize that their needs and wishes may in the future indicate that distributions be made to them. Although the trustees may omit any person from all distributions it makes, at this time we believe it would be unwise to assume that such an eventuality would occur. We believe it is appropriate to consider that Mr. McNeil's children and his children's spouses and descendants may someday have need of a portion of the funds in this trust. To distribute one-half of the trust to Mr. McNeil would impair the ability of the trust to provide for these current and future beneficiaries to a degree which we believe at this time is inadvisable. Moreover, in light of the substantial distributions proposed, we recommend that the committee assure itself that the other current beneficiaries do not presently have needs which might indicate the amount of the proposed distributions to Mr. McNeil should be reconsidered. Mr. McNeil's children have no right to veto any decision the trustees may make with respect to distributions to him. Nonetheless, we think it appropriate to investigate the childrens' need [sic] prior to finalizing a decision on the proposed distributions.
JX 160 at 6-7 (emphasis added).
N. The July 17 And July 24, 1996 General Trustees' Meetings
After learning of Wilmington Trust's recommendation, Henry fired off a "frustrated and angry" letter to Mather in which he complained about what he saw as an obstructionist and unresponsive course of conduct by the Trustees. Henry asserted that the Trustees were "trying to push [him] into going to court." JX 168 at 2. More constructively, Bishop put together a report detailing why Henry's Request was reasonable and why Wilmington Trust's opposition to the Request was unfounded.
On July 17, 1996, the General Trustees met alone, without Wilmington Trust. At the meeting, Bishop presented his report and attempted to persuade his fellow Trustees to fund the Request in whole. Manfredonia, PNC's representative, opposed Bishop. While PNC was willing to fully fund the first two years of the Business Plan (including the reserve Wilmington Trust denied) and retire Henry's debts, it was at that time unwilling to fund a residence, further money for the Reclamation Business, or the Set Aside. For his part, Mather did not favor the $28 million Request, but thought a distribution in excess of $10 million was in order.
By the end of the meeting, Bishop had agreed that a distribution of $23 million in securities (or cash of $15 million) to cover the first two years of the Business Plan, fund a residence, and give Henry a $3-4 million reserve was something with which he could live. Mather seemed comfortable with something near that level of distribution. The Trustees adjourned so that Manfredonia could see if she could get approval for a higher distribution more in accord with Bishop's and Mather's positions.
On July 24, 1996, the three General Trustees met again without Wilmington Trust. Manfredonia reported that PNC could not agree to a principal distribution in the cash equivalent of $15 million, but one of only $10.6 million. The General Trustees then voted two to one to support a distribution of $23 million in securities to Henry (the "Proposed Distribution"). The Proposed Distribution was subject to the condition that the Children be notified about the Trust and the Proposed Distribution.
O. The July 25, 1996 Trustees' Meeting
The Trustees' quarterly meeting, which included Wilmington Trust, was held the next day. Wilmington Trust's representatives did not take the news of the Proposed Distribution well.
Howard stridently opposed the Proposed Distribution. Howard's objection was based on two concerns. His primary concern was that the Children had not been contacted by the General Trustees in accord with Wilmington Trust's June 14 recommendation.
Howard's ardent desire to inform the Children was triggered by the size of Henry's Request. Although Howard had for several years expressed a desire that the Children be contacted, he had failed to force action on that front so long as Henry was simply receiving income and modest principal distributions. The prospect of distributing nearly half the principal to Henry impelled Howard to give more than lip service to his concern for the Children.
Another issue that drove him was the fact that a distribution of this magnitude could set a precedent that other McNeils would cite in seeking distributions from the other Family Trusts, all of which are also administered by Wilmington Trust. Howard argued: "We'll probably all be opening a can of worms with respect to other McNeil Trusts once the word of this distribution gets out." JX 182.
Howard further stated that Wilmington Trust would not implement the instructions of the General Trustees unless the Trustees interviewed the Children, informed them of their status under the Trust, and determined whether the Proposed Distribution was appropriate in view of their needs. If necessary, Howard stated, Wilmington Trust would seek the opinion of this court about the question, so that Wilmington Trust could not be accused of executing an instruction that constituted a breach of trust.
Bishop was not well pleased. He viewed Howard's actions as "shameless obstructionism" and Wilmington Trust's expressed concern for the Children as a pretext to avoid a large distribution. JX 183. Although Bishop questioned Wilmington Trust's motives for contacting the Children, he did not object to the substance of its request. Rather, Bishop and the other General Trustees agreed that the Proposed Distribution would not be made until the Trustees had met with the Children and assured themselves that the Proposed Distribution remained prudent in view of their economic circumstances. Once that occurred, however, Bishop "expect[ed] to see no further impediments by the bank." Id.
At the end of the meeting, the Trustees felt that they had made progress. The General Trustees believed that the distribution issue was settled, subject to their meeting with the Children and their confirmation that the Children were well provided for by other assets. Wilmington Trust, the Administrative Trustee, had received assurance that the Proposed Distribution would be made only after the General Trustees considered the Children's economic circumstances. All seemed to expect that the meeting with the Children would confirm that the Children had plenty of financial resources outside the Trust and that the Proposed Distribution would not adversely affect or draw opposition from them.
Even though the information they had received earlier from Werley should have disturbed their confidence on this score. See JX 92 and n. 4 supra.
After the meeting, Bishop informed Henry of the Proposed Distribution and its contingent nature:
Q. Did you tell him not to count on the distribution until that meeting with Justin and Cameron took place?
A. I said it was a precondition and we weren't, effectively, going anywhere until this whole thing had been played out.
Tr. 44. Henry was concerned about this because he believed the Children would disapprove of any large distribution to him. Nonetheless, Henry apparently hoped for the best and wrote a letter to Mather expressing his appreciation for the Proposed Distribution. Henry's appreciation was to be fleeting.
P. The Draft Instruction
After the July 24, 1996 meeting, Bishop prepared a draft of instructions from the General Trustees to the Administrative Trustee ordering Wilmington Trust to make the Proposed Distribution approved by the majority of the Trustees and to "notify Cameron and Justin McNeil of the existence of [the] Trust[.]" JX 178. Bishop executed a copy of the instruction. None of the other General Trustees did.
At the July 25, 1996 meeting, the General Trustees resolved to rewrite the draft instruction in accordance with their decision that day. On August 7, 1996, Manfredonia circulated a rewrite of the instruction to the other General Trustees for their consideration. The rewrite changed the language regarding the Proposed Distribution and Henry's children, stating that the Proposed Distribution would only be made "[a]fter" the Trustees met with "Cameron and Justin McNeil and advise[d] them of the existence of the Trust and assess[ed] their current needs." JX 190. The rewrite reflected the General Trustees' unanimous agreement that the Proposed Distribution was conditional on their confirmation that the Proposed Distribution was not imprudent in view of the economic interests of Justin and Cameron.
Through a faxed letter from his secretary, Mather approved the rewrite in general and made one suggested correction. Mather never signed the rewrite. Nor did Bishop. While Manfredonia prepared the rewrite, she never signed it on behalf of PNC.
The rewritten instruction was never delivered to Wilmington Trust by the General Trustees.
Q. The Trustees Meet With Justin And Cameron
Continuing their less than elegant ways, the Trustees initiated contact with Justin and Cameron by having Bishop, the Trustee closest to Henry, call Justin at home. Justin claimed to have no knowledge of the Trust or his status as a Current Beneficiary. Bishop asked Justin how this could be, because a sub-trust had been funded out of the Trust for Justin's benefit in the period 1979-1984, into which some $250,000 had flowed. But Justin had no knowledge of the sub-trust and disputed that it had been spent for his benefit, as he did not live with Henry for much of that period.
After this discordant opening note, the Trustees met with Justin and Cameron on August 26, 1996. The meeting did not pan out as expected. Rather than having substantial (by McNeil family standards) assets of their own, it turned out that Justin and Cameron had relatively modest resources. For example, Justin, at one point liquidated assets to pay his college tuition, a financial strategy that I daresay is uncommon in the McNeil family.
Justin, in particular, was upset that the Trustees had never informed him about the Trust and the fact that he and his sister were Current Beneficiaries. His ire was understandable in light of his regular contact with PNC's Werley over the years.
Justin and Cameron opposed the Proposed Distribution to Henry, out of concern that it would compromise their own financial interests. They also wanted distributions from the Trust for themselves, in view of their needs and relative lack of resources.
Even worse, the meeting got contentious when the discussion turned to the subject of the sub-trusts that had been created when Justin and Cameron lived with Henry, the sub-trusts Bishop mentioned in his phone conversation with Justin. A quarter of a million dollars had been placed in a sub-trust for each of Justin and Cameron for the purpose of saving on taxes.
Justin and Cameron were concerned that virtually all the funds placed in the sub-trusts in the late 1970s and early 1980s were in fact spent by Henry for his own needs, not theirs. They asked the Trustees to account for these funds. They also made clear their general distrust of Henry, and their corresponding suspicions of Henry's friend, Bishop. At one point, the meeting degenerated into a heated verbal battle between Justin and Bishop.
If funds in the sub-trusts were spent for the relevant Child's benefit, then the funds were taxed at the Child's, rather than Henry's higher, rate. However, the sub-trusts also benefited Henry personally, and distributions could be made to meet his needs, so long as the taxes on such distributions were paid at his rate.
Recognizing that the Children's financial situation was materially different than they had anticipated, the Trustees agreed to investigate the Children's situation further and to get them information regarding the expenditures from the sub-trusts. They also promised to provide the Children with a complete history of the Trust's past administration as well to update the Children about new events on a timely basis.
Henry was furious upon learning how the meeting went. He fired off a letter to the President of Wilmington Trust blaming Howard, rather than his friend Bishop, for raising the subject of the sub-trusts with Justin and Cameron. Henry's letter elicited a defensive letter from Wilmington Trust, defending Howard's actions. The letter, and an attached memorandum from Howard indicating his lack of recall about his "run on the bank" statement, angered Henry even more.
R. The General Trustees Reach A Final Decision
After meeting with Justin and Cameron, the Trustees found themselves in a cross-fire between Henry and the Children. Henry insisted on receiving the Proposed Distribution. To bolster the Trustees' fortitude to make that Distribution, Henry promised to indemnify the Trustees in the event of a suit from Justin and Cameron.
For their part, the Children made plain their continued objection to the Proposed Distribution. The Children's counsel argued that the Trustees had breached their obligations by ignoring the Children for so long and that the Trustees would deepen the breach by providing Henry with the Proposed Distribution. The Children also demanded more equal treatment with Henry in terms of future distributions of income and principal from the Trust.
The Trustees' failure to ever account for the sub-trusts' expenditures did not help matters. Although this failure was to some extent understandable because the expenditures had occurred over a decade before and the primary trustee of the sub-trusts was dead, it increased the Children's distrust of Henry.
The competing demands of Henry and the Children put the Trustees in an awkward position. Although they were unwilling to give the Children veto authority over the Proposed Distribution, the Trustees' decision to inform them of the Request and to consider how the Request affected their needs inevitably led to demands from them to review Henry's need for a large principal distribution. The Children asked to review the Plan themselves, a request the Trustees denied. But this did not stop Henry from complaining that the Trustees had breached their duties of confidentiality to him by sharing other information with the Children.
The back and forth between the Trustees and the Children reinforced Henry's suspicion that Wilmington Trust and PNC had involved the Children simply to thwart his desire for a large principal distribution. Since the Trustees were walking a fine line between Henry and the Children, it is not hard to see why Henry viewed the Trustees as appeasing the Children or, even worse, delegating their authority to them.
Bishop, nonetheless, persevered in the pursuit of a sensible outcome. In spite of the rockiness of the meeting with the Children, Bishop was glad that the meeting had occurred and that the Trustees now had an accurate picture of the Children's resources and needs. He undertook to craft a decision that would meet the needs of Henry and the Children in a balanced fashion, recognizing their respective ages in life.
To that end, Bishop had discussions with the Children's attorney in an effort to forge a mutual understanding. Through these efforts, Bishop made some headway in convincing the Children's attorney that a sizeable principal distribution to Henry was within the power of the Trustees and would not have disastrous consequences for the Children. At the same time, Bishop also gained an appreciation of the Children's needs that led him to believe that the Trustees should consider providing each of them with an income allocation that, while far more modest than Henry's, was still respectable. Bishop came to this belief despite realizing that Henry would oppose such an outcome and consider the Trustees to have yielded to pressure from the Children.
Bishop drove the Trustees' decision-making process to a conclusion and on January 7 and January 15, 1997 the General Trustees met to make a final decision regarding the Request. At the latter meeting, the General Trustees agreed to:
• Make a $10 million principal distribution to Henry to retire his debts and provide over 75% of the funds sought in the Plan for the Reclamation Business.
• Not to fund Henry's request for funds for a residence at Winslow Farms because Henry had no current plans for the house, but to consider the proposal favorably when Henry advanced specific plans.
• Make a principal distribution of $450,000 to Justin and $300,000 to Cameron as catch-up payments to account for the fact that Henry had begun receiving some Trust income at age 25 and they had not.
• Pay $75,000 of Trust income annually to each of Justin and Cameron.
• Pay the balance of the Trust income to Henry.
• Not fund the Set Aside.
As Bishop explained the rationale for this level of funding:
After understanding the needs of the children and taking a good hard look at the whole situation, we decided in the interests of expediting the process, getting him some important money, and getting it done in our lifetime, that we would distribute $10 million, under the provision that it not include money for a residence, but that he could come ask for that later, which he subsequently did, which was anywhere around 3 to 3-and-a-half million dollars.
That's what was conceived of at that time. And if we — we all believed if the business proved successful, that he could come back and request further moneys to support the business.
The idea was, "Here is $10 million. It will get you started. It will liquidate your debts. It would fund the initial one or two years of the business, and we'll take a look at it."
Tr. 47-48. The General Trustees' ("January 15 Decision") was set forth in an instruction to Wilmington Trust, which was signed by each of the General Trustees in counterparts and delivered to Wilmington Trust. JX 221.
The General Trustees' January 15 Decision was not made in deference to Henry, the Children, or Wilmington Trust, but instead reflected the General Trustees' independent balancing of the needs and interests of the Current Beneficiaries. Indeed, the Trustees expected that they would displease all the Current Beneficiaries to some extent.
S. Henry Carries Out His Threat of Litigation And The Trustees Modify Their January 15 Decision
Two days later, Henry sued the Trustees in the Pennsylvania Court of Common Pleas, alleging that they had breached their fiduciary duties by failing to fund his full Request. In response, the Trustees filed this action for instructions. In connection therewith, the General Trustees decided to defer the principal distributions approved in the January 15 Decision until this action was decided (the "Postponement") because it was not clear that any of the Current Beneficiaries supported that Decision.
The Pennsylvania litigation was eventually dismissed because the claims were within this court's jurisdiction.
During the pendency of this case, Henry has done little to implement the Business Plan. As a result, some of the properties he identified for purchase in the Business Plan have been sold to other buyers. Had he accepted the January 15 Decision of the Trustees, the $10 million would have been more than sufficient to buy these properties and commence major elements of the Business Plan. For sums within his personal economic capacity or for which he could have gotten commercial financing, Henry could have developed his existing Winslow properties in accordance with the Business Plan and, if things went as planned, reaped substantial profits.
In lieu of such interim measures, Henry put his Reclamation Business on hold pending Trust distributions, complaining to the Trustees that he had no funds with which to accomplish the Reclamation Business. In September 1997, Henry requested $3.5 million for the Business, $1.5 million to cover agricultural operations costs he would otherwise have to cover out of his own personal resources, and $2 million to acquire and reclaim certain of the properties identified in the Business Plan.
It is noteworthy that the Business Plan did not contain allocations for the agricultural operations at Winslow Farms, operations which to date have not been profitable. It is also rather odd that Henry, whose focus at this time was supposedly fixed on the Reclamation Business, sent several entreaties to the Trustees during this period for help with his art collecting hobby.
At the same time, Justin and Cameron were upset at the deferral of their principal distributions, which, they observed, were designed to be catch-up payments for past income and thus different from Henry's request. They were also frustrated that litigation costs were eating into the income they had only recently begun receiving from the Trust. They made it clear that they expected, like Henry, to "live like McNeils." JX 234.
On February 5, 1998, Henry reiterated his request for a principal distribution to fund the purchase of a residence that would meet McNeil family standards. Henry eschewed his plans for a residence at Winslow Farms for the opportunity to purchase the locally renowned McIlhenny House on Rittenhouse Square in Philadelphia. Shortly thereafter, Henry repeated his request for $1.5 million to fund current capital and operating expenses at Winslow Farms, but did not repeat his request for $2 million for land acquisition and reclamation costs.
In response to these demands, the Trustees made several distributions (collectively, the "1998 Distributions"). First, the Trustees made one-time principal distributions of $100,000 each to Justin and Cameron. Second, in March 1998 the Trustees provided Henry with $1.5 million for the Reclamation Business. Third, they also released the catch-up distributions to Justin and Cameron that they had previously deferred pending this litigation. Finally, the Trustees agreed to provide Henry with a principal distribution of $5 million to fund the purchase and renovation of a new residence.
When the Trustees embodied the bulk of the 1998 Distributions in a binding instruction to Wilmington Trust, they rescinded the previous January 15 Decision to make a $10 million principal distribution to Henry (the "Rescission"). Instead, the Trustees decided to change the way they did business in a fundamental way. Rather than paying out merely income to the Current Beneficiaries, the Trustees resolved to move to a "unitrust" method of distribution "[i]n lieu of further specific distributions of trust principal to Trust beneficiaries." JX 245 (emphasis added). Under a unitrust method, the Trustees would pay out a percentage of the Trust's income and principal each year.
The unitrust method ensures that living beneficiaries share in the favorable total returns that can be achieved by equity investments. In recent decades, the bulk of the payoff from equity investments has come from principal, not dividend, growth. Therefore, absent payments of principal, current beneficiaries tend to suffer — and future beneficiaries to benefit — from equity investments. This leads to demands from current beneficiaries to weight trust portfolios away from equities and toward slower-growing but higher income-producing investments. The unitrust method is a rational way of balancing the needs of multiple generations. By providing regular principal distributions, current beneficiaries share in the upside of equity investments. In turn, trust assets can be more aggressively invested in equities and therefore generate greater growth to the advantage of future generations.
Although the Trustees retained the discretion to change the unitrust pay-out, they initially resolved to pay out five percent of the Trust's total value each year in the following percentages: four-sixths to Henry; one-sixth to Justin; and one-sixth to Cameron.
II. Legal Analysis A. The Contentions of The Parties
The Trustees seek an order validating each of their decisions. Henry wants me to find that the Trustees have engaged in multiple breaches of their fiduciary duties during their consideration of his Request, justifying the removal of all of them except Bishop. Henry also desires an order compelling the Trustees to distribute to him $23 million in securities from Trust principal to fully fund the Proposed Distribution. The Children support the position of the Trustees and oppose Henry's claims.
Henry's post-trial briefs would have me adjudicate twenty-five years' worth of pent-up grievances he has with the Trustees. I will not do so. While there is evidence in the record that the Trustees' past approach to principal distributions was too rote, this was not the case when they addressed the Request. Although each of the Trustees had his own approach, none reflexively opposed a sizable principal distribution and each supported sizable distributions after quite extensive research and consideration of the bases for Henry's Request. Viewed objectively, Henry's contention that he has been hindered from pursuing his dreams by the Trustees is not convincing when he has been afforded extremely generous income, a substantial residence, periodic principal distributions, and therefore the ability to live affluently and to pursue his avocations without generating any economic support for himself.
Henry would also like an order dividing the remainder of the Trust into separate sub-trusts, given the likelihood of continued strife between himself and the Children. This belated request must be denied on procedural and fairness grounds alone, since the other parties did not have the opportunity to present evidence at trial in opposition to this request.
In the following order, I will address:
• whether the Trustees acted within their discretion in handling Henry's Request and reaching their January 15 Decision. Within that context, I will address Henry's argument that the Proposed Distribution was a final, non-rescindable decision of the Trustees that the Trustees are bound to implement;
• whether the Postponement was within the Trustees' discretion;
• whether the 1998 Distributions were within the Trustees' discretion
• whether the Rescission was within the Trustees' discretion; and
• whether the Trustees should be removed.
To the extent I appear to have missed any of the multiple claims and arguments strewn throughout the record, that is because I consider them too insignificant to discuss and as not justifying relief for or against the Trustees.
Before addressing these issues, I will discuss the extent of discretion afforded by the Trust instrument to the Trustees and the standard by which I will evaluate the conduct of the Trustees.
B. The Applicable Standard of Review
Article 2(a) of the Trust accords the Trustees broad discretion to make or not make distributions:
The trustees in their discretion may accumulate the income of the trust and add it to principal or may, at any time or from time to time, distribute any part or all of the income and principal of the trust to or among Henry, . . . [or] his lineal descendants . . . All distributions under this Paragraph (a) shall be at such times and in such proportions and amounts as the trustees shall determine. . . .
JTX 1, Art. 2(a); see also JX 1, Art. 2(b) (giving the Trustees substantial authority to attach conditions to distributions).
I cannot upset the judgment of the Trustees in exercising their discretion under Article 2(a) unless I find that they "acted in bad faith or in an arbitrary or unreasonable manner." In re Couch Trust, Del. Ch. , 723 A.2d 376, 382-383 (1998). Any more intrusive form of review would be contrary to Mr. McNeil, Sr.'s patent desire to free the Trustees from judicial scrutiny to the extent legally permissible. JX 1, Art. 3(e) (decisions of the Trustees shall not be "subject to review by any court"); JX 1, Art. 4(c) (providing that all good faith acts of the Trustees "shall be proper" and absolving the Trustees of liability except in cases of "gross negligence" or "willful wrongdoing").
The Trustees have not argued that Article 3(e) forbids all judicial review, nor have they argued that Article 4(c) should be construed to prevent the court from setting aside actions of the Trustees that are negligent but not grossly so.
Even under this deferential standard of review, the Trustees can be found to have abused their wide discretion if they failed to carry out the settlor's intent, Dickinson v. Wilmington Trust Co., Del. Ch. , C.A. No. 15605, ___ A.2d ___, 1999 WL 66530, at *4, Lamb, V.C. (Feb. 5, 1999), aff'd, Wilmington Trust Co. v. Dickinson, Del. Supr., No. 68, 1999, ___ A.2d ___, 1999 Del. LEXIS 219, 1999 WL 591864 (July 14, 1999), as reflected in the language of the Trust instrument. In re Couch Trust, 723 A.2d at 382. "Intent is determined by `considering the language of the trust instrument, read as an entirety, in light of the circumstances surrounding its creation.'" Id. ( quoting Annan v. Wilmington Trust Co., Del. Supr., 559 A.2d 1289, 1292 (1989)). However, I cannot consider extrinsic evidence to vary or contradict provisions of the Trust instrument that are unambiguous. Id.
During this litigation, all the parties have relied upon documents and statements made well after the Trust instrument to establish Mr. McNeil, Sr.'s intent regarding the administration of the Trust. Reliance upon this post-hoc, extrinsic evidence of Mr. McNeil, Sr.'s wishes is not appropriate in this case because the terms of the Trust instrument are unambiguous.
See Wilmington Trust Co. v. Annan, Del. Ch. , 531 A.2d 1209, 1215-1216 (1987) (settlor had no intent with respect to adopted children when the trust was created and therefore his post-hoc preference for legitimates was not probative or admissible), aff'd. Del. Supr., 559 A.2d 1289 (1989); Benz v. Wilmington Trust Co., Del. Supr., 333 A.2d 169, 171 (1975) (finding that "the record made by appellants is not probative of the trustors' intent at the crucially relevant time — i.e., when the trusts were created"); Restatement (Second) of Trusts § 4 cmt. a (1959) ("The intention of the settlor which determines the terms of the trust is his intention at the time of the creation of the trust and not his subsequent intention."); Id. § 164 cmt. b ("The duties or powers of the trustee cannot be enlarged or diminished by a direction of the settlor given subsequent to the creation of the trust. . . .").
Article 2(a) is very clear. It states that the General Trustees have the discretion to determine if and when distributions should occur, to which Current Beneficiaries they should go, and the amount of any such distributions. The fact that the settlor made all living Intended Beneficiaries into Current Beneficiaries and crafted the Trust instrument so as to qualify for a GST exemption makes it plain that the General Trustees are permitted, if indeed not required, to balance the interests of several generations of McNeils in determining how to exercise their broad distributive powers. It is impossible to read the Trust instrument as reflecting a judgment by Mr. McNeil, Sr. to dictate to the General Trustees that they elevate Henry's interests over those of the other Current and future Intended Beneficiaries. Therefore, in deciding whether the Trustees abused their discretion, I will not rely upon evidence such as Mr. McNeil, Sr.'s April 22, 1969 letter, see JX 12, or George Brodhead's February 16, 1977 letter commenting on the meaning of the Trust. See JX 10. Rather, I will measure the Trustees' conduct against the clear terms of the Trust instrument.
I note that even were I to consider the extrinsic evidence, it would not alter my conclusions. The Trustees' balancing of the respective interests in no manner contradicts any intent expressed in Mr. McNeil, Sr.'s 1969 letter. Moreover, Mr. McNeil, Sr.'s universally acknowledged approval of Brodhead's conduct as a Trustee undercuts any suggestion that Mr. McNeil, Sr. intended for the Trustees to simply pay out Trust principal in such amounts and at such times as Henry desired. Certainly, the Trust instrument itself does not support such an intent. Finally, Mr. McNeil, Sr.'s strenuous efforts to obtain the GST exemption, referenced in vivid terms in his 1969 letter, JX 12, belie any assertion that the Trustees were to disregard the effects of their acts on future generations of McNeils. See also JX 18 (Mr. McNeil, Sr. letter referring to fact that the Trust would ensure that his grandchildren were provided for).
C. The Trustees' Handling of The Request And The January 15 Decision
1. Was The Proposed Distribution Final?
Henry contends that the Proposed Distribution was final, not rescindable by the Trustees, and should therefore be compelled by this court.The Proposed Distribution was not a final decision of the Trustees that the Trustees are bound to implement. The Trust instrument provides that:
No exercise of any power . . . shall be effective until such action shall be manifested by an instrument or instruments in writing signed by the person or persons authorized to take such action and delivered to the administrative trustee.
JX 1, Art. 3(h).
A majority of the Trustees never signed a Proposed Distribution instruction (even in counterparts) and no such instruction was ever delivered to Wilmington Trust. Even if they had, the General Trustees conditioned the Proposed Distribution on a later determination that the Distribution was prudent in view of the Children's needs. Finally, the broad authority accorded the General Trustees by the Trust includes, because it does not exclude, the authority of the General Trustees to rescind an unexecuted instruction so long as the rescission is not the product of bad faith or arbitrariness.
2. The Trustees' Handling And Resolution of The Request
Bearing in mind the substantial discretion afforded the Trustees by the Trust instrument, I conclude that the Trustees acted within their discretion in handling Henry's Request and reaching their January 15 Decision. The process they used brings to mind scrapple-making. It was not very appetizing to behold, but its end product was satisfying.
I reach this conclusion even though there is reason for Henry to be upset. The Trustees' failure to act as promptly or as adroitly as ideal trustees caused Henry understandable frustration and angst. For example, it would have been preferable for the Trustees to have obtained the necessary information about the Children's resources and needs simultaneous with their information-gathering efforts regarding the Request. This would have cut down on delay. The Trustees would also have avoided raising Henry's hopes through their conditional approval of Proposed Distribution, only to deflate his expectations through the reduced distribution they provided in the January 15 Decision.
Henry also suffered because he was the first of his generation to make a substantial principal distribution request from one of the Family Trusts. The Family Trusts had for years been run in a simple manner, in which income went to the current beneficiary for whom the relevant Family Trust was named and in which principal distributions were made sparingly and mostly for residential purposes. The bliss of such administrative practices in an era of booming equity markets was bound, at some point, to come to an end due to the maturation of a new generation of McNeils. Unfortunately for Henry, it was his Request that triggered the Trustees of his particular trust to examine the needs of the next generation of current beneficiaries and to consider how to address the more complex problems presented when a trust must play a role in meeting the needs of multiple current beneficiaries.
That the Trustees failed to make this difficult transition gracefully is apparent. That their failure to do so gracefully does not constitute bad faith or an abuse of discretion justifying a judicial reversal of their acts is also clear.
Regardless of Henry's wish that it were not so, the Trustees had an affirmative duty to consider the needs and resources of the Children. Henry himself bears a good deal of the responsibility for the Trustees' failure to do so more promptly. After all, Henry and his advisors led the Trustees to believe that the Children's wealth far exceeded his own.
Although the Trustees have the discretion to deny any Current Beneficiary distributions from the Trust, that discretion must be exercised in an informed and impartial manner. Restatement (Second) of Trusts § 187 cmt. h(1992); Restatement (Second) of Trusts § 183 (1992). The Trustees' decision to consider the needs and resources of the Children before making a final decision on the Request was therefore reasonable and flawed only by delay.
Similarly, the Trustees' balancing of the needs and interests of Henry and the Children was within their substantial discretion. The January 15 Decision reflects a reasoned allocation of Trust principal and income in view of the respective ages and life circumstances of Henry and the Children.
By determining to fund the bulk of Henry's Plan for the Reclamation Business, the Trustees recognized the legitimacy of facilitating Henry's ambition to "make his mark on the world." JX 123. The distribution enabled him to fund his Reclamation Business to the point at which Henry's own Plan said the Business would be profitable. Moreover, the distribution enabled Henry to be debt-free and was made without prejudice to Henry's opportunity to obtain a further distribution to build a substantial residence. Not only that, the Trustees resolved to continue to pay Henry the bulk of the Trust income.
Had Henry accepted the January 15 Decision, he would then have been a debt-free 53 year-old man, with over $7.5 million in cash capital for his Business, and the prospect of receiving annual income of over $1 million a year. Putting aside the Trust instrument and looking — as Henry wishes — at Mr. McNeil, Sr.'s 1969 letter, the January 15 Decision was more than sufficient to enable Henry to "turn a deaf ear to the pawnbroker's song" and to pursue a self-chosen venture without fear of poverty. JX 12.
At the same time, the Trustees recognized that Mr. McNeil, Sr. intended the Trust to benefit Justin and Cameron. While not treating them with the primacy they gave Henry because of his age and his status as the son of the settlor, the Trustees did acknowledge that the Children had reached adulthood and had legitimate needs of their own. The Trustees' decision to accord the Children a healthy stream of income (far smaller than Henry's) and catch-up distributions of principal was well within their discretion.
The denial of the Set Aside also cannot be faulted. While the Trustees were permitted to give weight to Henry's desire for independence, they did not have to give that desire preeminence. In this regard, it is noteworthy that the settlor could have provided for the type of independence Henry sought by providing that a percentage of the Trust principal had to be distributed by the Trustees to Henry at certain ages. Instead, Mr. McNeil, Sr. chose to leave this decision to the Trustees and to permit them to consider the independence factor along with considerations such as the effect of a substantial principal distribution on Current and future Intended Beneficiaries.
The Set Aside denial was also appropriate in view of Henry's refusal to accept any responsibility for his own future support. While Henry desires to be free of the need to apply to the Trustees when he wants cash, Henry has never promised to renounce his interest in all or a part of the Trust in exchange for a large principal distribution. To the contrary, Henry asked for $23-28 million and to continue to receive all of the income from the remaining assets left in the Trust.
He does not seem to recognize that his refusal to commit to live independently demonstrates the reasonableness of the Trustees' decision to review his Business Plan carefully and to deny the Set Aside. The Trustees had to consider the possibility that a $23-28 million distribution would — if the Reclamation Business failed to thrive and thereby reduce Henry's need for Trust income — leave the Trust with depleted assets from which to take care of Henry, the Children, and other Current and Intended Beneficiaries.
The possibility that the Reclamation Business will not thrive is quite real and Henry's own track record in business is not one that inspires confidence. Without adding more to this overly lengthy opinion, let me just note that, based on the evidence, Wilmington Trust's and PNC's analyses of the Business Plan more than accorded Henry the benefit of the doubt about the Plan's viability — a benefit that they gave Henry because he was a Beneficiary whose ambitions they were trying to fulfill, not a commercial client seeking a loan.
In essence, Henry has chosen to remain a well-funded ward of his Trustees. Rather than pursuing an income-generating profession, Henry chose to live solely off the Trust. Rather than using the $20 million in Trust income he has received to build a pool of liquid assets from which to fund business endeavors, Henry chose to indulge his passion for minimalist art. Rather than pursuing commercial financing for his Reclamation Business, as would a typical businessman, Henry chose to hold off doing business until the Trust provides cash financing. There is nothing wrong with these choices, but in all cases the choices left Henry — at his own election — dependent on the Trustees.
I am also satisfied that the Trustees' January 15 Decision was untainted by bad faith or improper motives. It is true that Wilmington Trust's Howard behaved in a manner that was suspect. I am convinced, however, that his conduct was not motivated by a desire to ensure that Wilmington Trust continued to receive fees from the Trust and the Family Trusts.
Howard was concerned about the precedential effect granting the Request would have on the other Family Trusts. This was not a relevant concern in the sense that the Trustees had the duty to administer the Trust solely in view of the needs of the Intended Beneficiaries, and not with reference to whether what they were doing would be taken as influential, one way or the other, by the beneficiaries of the other Family Trusts. On the other hand, Howard's concern that making such a distribution on an uninformed basis in the Trust was likely, as a practical matter, to have a negative "precedential effect" on the Family Trusts was understandable. His inept way of expressing that concern — openly fearing a "run on the bank" — is not so understandable.
Howard's motivations were legitimate, however. His desire to ensure that the Trustees considered the circumstances of the Children before making a sizable distribution request may have been poorly presented, but it was proper. His desire not to set a bad example that could be cited by beneficiaries of the Family Trusts was driven by a zealous sense of duty, rather than selfish impulses.
Most important, the General Trustees never merely bent to the Administrative Trustee's desires. The emotion that characterized some of the discussions at Trustees' meetings is quite inconsistent with the notion of supine General Trustees being dominated by the Administrative Trustee or being overborne by the Children and their lawyers. In their own varying ways, each of the General Trustees applied considerable independent thought to the issues and reached a permissible balance of interests in difficult circumstances. The delays and missteps that occurred along the way did not compromise the integrity of their final resolution of the Request.
D. The Trustees' Decision To Postpone The January 15 Decision
Henry contends that the Trustees' decision to postpone the January 15 Decision until this court could opine about its propriety was designed to retaliate for the lawsuit he filed. The Trustees contend that it was prudent in view of Henry's displeasure and the uncertain emotions with which the Children reacted to that Decision.
I confess to believing that the Postponement was not the most courageous decision the Trustees could have made. After grappling for over a year with the Request and finally reaching a conclusion in a heated atmosphere, the Trustees threw up their hands when Henry decided to involve the courts.
That being said, I do not believe that the Postponement was the product of retribution by the Trustees or of any other sort of bad faith or misconduct. It was within the realm of reason for the Trustees to conclude that the contentious circumstances made it advisable to obtain an opinion of this court before distributing such a sizable portion of the Trust.
There is no doubt that it would have been preferable had the Trustees avoided the need for the Postponement altogether. The Trustees did seek more expedited treatment of their Petition than has occurred, but were thwarted by Henry's objection. It would have been even better for the Trustees to have considered conditioning immediate distributions in accord with the January 15 Decision on the recipients' secured agreement to return the funds if the court ruled that the Decision was improper. This would have enabled the Trustees to protect the Trust from any inconsistency between their January 15 Decision and this court's ruling.
Even so, the Postponement was well within the discretion afforded to the Trustees by the Trust instrument. Furthermore, Henry did not take substantial steps to mitigate any harm caused by the Postponement. In lieu of pursuing the Business Plan using traditional financing sources, Henry put it on hold. That cost him the opportunity to buy certain properties. On the whole, however, it appears that much of the Business Plan may still be accomplished as originally contemplated. Winslow, New Jersey is still rural. Henry can still be among the first to develop it if he gets on with it. If he does not, the Postponement will not be the reason the Reclamation Business did not come to fruition.
E. The 1998 Distributions
There is really no dispute that the 1998 Distributions were within the Trustees' discretion. The $6.5 million to Henry enabled him to further his Reclamation Business and to purchase a residence up to the lofty McNeil family standards. The $950,000 to the Children reflected the fact that the Trustees did not start paying them income until they were above the age — 25 — at which Henry first began to receive income, and gave the Children the resources to improve their living conditions and to pay off their debts.
Hence, all the 1998 Distributions benefited Current Beneficiaries in a manner consistent with the Trust instrument.
F. The Rescission of The January 15 Decision
The Trustees ask me to bless their decision to rescind the January 15 Decision and to move to the unitrust concept instead. Crediting the $1.5 million 1998 Distribution to Henry towards the $10 million in the January 15 Decision, the practical effect of the Rescission is as follows:
• Henry will not receive $2.3 million to retire his debts or $5.2 million more for the Reclamation Business;
• Instead, 5% of the total Trust value will be paid out annually in a combination of income and principal. The total Trust value is currently around $70.65 million. Five percent of $70.65 million is $3.53 million.
• Henry would receive four-sixths of that, or $2.36 million annually.
• Justin would receive one-sixth of that, or $589,000 annually.
• Cameron would receive one-sixth of that, or $589,000 annually.
It is not apparent to me exactly why the Trustees decided to take the approach they did. I understand the unitrust concept and find it unobjectionable in general terms. Certainly, it is in keeping with the Trustees' broad discretion to pay out income and principal in such, or no sums, as they in their discretion choose.
What I have difficulty understanding is whether the Trustees made a decision that the increased annual distributions Henry would receive under the unitrust concept eradicated the need for additional principal distributions to fund the Reclamation Business. The parties cite no record evidence from which to conclude that such a judgment was made.
I imagine that the decision of the Trustees to fund a $5 million new residence for Henry and $1.5 million for the Reclamation Business factored into the Rescission. To the extent that Henry uses the $5 million for his new residence and eventually sells his existing Delancey and Spruce Street properties, he should be able to retire his outstanding debts. Furthermore, using a 5% payout, the unitrust concept gives him a 62% increase over his annual income in 1996, a substantial increase he can choose to apply to the Reclamation Business, his art collections, or his other avocations.
Even though the Trustees earlier agreed to consider a substantial distribution to Henry for a $3.5 million residence on top of the $10 million.
I also understand that the Trustees may have viewed the unitrust concept as a method by which to minimize, if not eliminate, future fights over large principal distributions. Through that method, the Current Beneficiaries will benefit from receiving larger sums on an annual basis. Meanwhile, the Trust should — because its investments can be more heavily weighted in equities — grow at a fast enough rate to satisfy non-living Intended Beneficiaries down the line.
The trouble is that the rationale for the Rescission is not clear to me. After spending such a long time analyzing how much of the Business Plan to fund and deciding to provide a distribution large enough to fund it up to the point that the Reclamation Business was to become self-sustaining, the Trustees' abandonment of that well-considered decision is a tad inscrutable. Nor is it clear why the Trustees provided the Children with a much larger share of the Trust income than in the January 15 Decision.
Furthermore, I hesitate to endorse on a going-forward basis a decision as tentative and subject to change as the Rescission. While it is clear that the January 15 Decision is rescinded, it is not clear that the Trustees have made any firm decision to implement the unitrust concept in a specific way for a specific period of time. Indeed, they have left themselves the flexibility to "from time to time vary the unitrust percentage, the designated Trust beneficiaries and the percentages of the unitrust amount which each of these beneficiaries will receive." JX 245.
For these reasons, all I am prepared to say is that the Rescission is a choice that well-informed Trustees could have made in their discretion. Henry has not persuaded me that the Rescission was the product of bad faith or an arbitrary or unreasonable judgment by the Trustees. As such, I will not set it aside.
Nor, however, have the Trustees persuaded me that I should declare that their "determination to make periodic annual principal distributions from the Trust, based on the unitrust concept, in lieu of other principal distributions, as set forth in the Committee's letter of May 12, 1998 to the administrative Trustee is a proper exercise of the Committee's discretion." Second Am. Pet. ¶ 39(i) (emphasis added). Such a sweeping declaration would be inappropriate.
The Trustees cannot abdicate their responsibility to exercise an informed judgment regarding future principal distribution requests. While a substantial adherence to a well-considered general policy will not be set aside by this court lightly, the court will not sanction the Trustees' use of such a general policy to evade their duty to make tough decisions. If the history of this Trust demonstrates anything, it is that the Trust cannot run on auto-pilot. Thoughtfully applied judgment that takes account of current circumstances is what is required of the Trustees. I cannot give the Trustees the blank check their proposed declaration seeks from me.
In this regard, I note that if the Trustees are going to consider a unitrust concept as a method of avoiding, except in highly compelling circumstances, other principal distributions, the Trustees ought to consider the realities of the poor relations between Henry and the Children. As things stand, Henry and the Children will not politely drink from the same, albeit quite large, pool.
As the Children get older, their needs are likely to increase, heightening the potential for future conflict. While there is more than enough money in the Trust to satisfy three families, it is unlikely that there is enough money in the Trust to satisfy three families — at odds with each other — who all want to live like McNeils — solely off the assets in the Trust.
While it would be inappropriate to order the separation of the Trust into sub-trusts, I do think the three families may wish to consider whether they are willing, in the interests of harmony and getting on with the business of enjoying life, to trade some potential tax benefits for financial autonomy and a separation of their financial interests. If Henry and the Children act rationally and put aside any desire to repay emotional injuries, they may be able to work with the Trustees to craft a solution so that their affairs are administered in a way that ensures their financial security and their financial separation. To work, such a solution may require Henry (and his current nuclear family) and the Children to renounce their interests in each other's shares of the Trust.
While the Lois Trust raises issues not squarely before me, it is relevant to note that Henry, the Children, and their issue are intended beneficiaries of the Lois Trust — a Trust valued at over $150 million. The trustees of the Lois Trust are, I am given to understand, already grappling with how to deal with the reality of Lois McNeil's death and the concomitant complexities of developing a policy to allocate the Lois Trust's income and principal among the current beneficiaries of that trust, who include all of the living issue of Mr. McNeil, Sr. and their children. Assume that the trustees of the Lois Trust can divide that trust for allocative purposes into four shares — one share for each of the families of Mr. McNeil, Sr.'s children (It may be that the litigation now pending over the Lois Trust or adverse tax consequences preclude any such possibility.). In such a scenario, that trust would provide nearly $40 million for the support of Henry and his issue. Combined with the over $70 million in the Trust, Henry (and his current wife and child, Calder), Justin (and his future family), and Cameron (and her future family) would have over $100 million to divide and from which to make prosperous and happy lives.
In determining whether such a separation is advisable, I encourage the Trustees to consider the effect of such a division on future Intended Beneficiaries in view of responsible estimates of future investment returns. While such estimates are imperfect predictors of the future, they are, in the absence of a crystal ball, appropriate and relevant for the Trustees to consider in evaluating the effect of a division or a large principal distribution on Beneficiaries.
Given that the Rescission seems to reflect a judgment by the Trustees that a practical separation of the interests of Henry and the Children may be advisable, I see no reason why the Trustees would not consider a genuine separation of their interests even if it might require a loss of all, or part, of the GST exemption. The potential loss of the GST exemption is but one factor in the calculus and must be weighed against the gains that the Current Beneficiaries would make in terms of financial independence and a diminution in family strife. Although future Intended Beneficiaries might be financially benefited by maximal avoidance of the GST, one wonders how much non-quantifiable harm they will suffer if their parents spend their lives engaged in avoidable internecine warfare over the difference between living really well and living really, really well.
On the other hand, I am mindful of the need to bring closure to this situation. By failing to issue the declaration the Trustees seek with respect to the Rescission, they may perceive that I am leaving them without guidance. I am not. I reiterate that I am not setting aside that decision; however, I am also not issuing a declaration that absolves the Trustees from considering a new principal distribution request from Henry.
If the Trustees want me to rule on a more defined decision by them, I will do so on an expedited basis. If they choose that course, I urge them promptly to: make a definitive decision regarding the application of the unitrust concept in the near future and articulate their rationale for that decision; identify how that decision bears on whether to make additional principal distributions to Henry to fund the Reclamation Business and to retire his debts; and consider, along with Henry, the Children, their respective advisors, and the guardian ad litem whether a financially prudent plan of financial separation can be developed in the Trust.
And/or in concert with the Trustees of the Lois Trust.
G. Should Any of The Trustees Be Removed?
Our law regards the removal of a trustee as an extreme form of equitable relief that should be exercised sparingly. In re Heizer Corp., Del. Ch. , C.A. No. 7949, 1988 WL 58272, at *21 Berger, V.C. (June 6, 1988). "When, therefore, the trust property is not endangered by a lack of capacity, honesty or fidelity, some mere negligent breach of duty arising largely from an honest mistake, may not be sufficient to justify removal." In re Catell's Estate, Del. Ch. , 38 A.2d 466, 469-470 (1944). The court should not remove a trustee merely because she has "acted otherwise than as the [c]ourt would have deemed expedient, or upon grounds not altogether satisfactory to the [c]ourt. . . ." Massey v. Stout, Del. Ch. , 4 Del. Ch. 274, 281 (1871). Whether to remove a trustee for breach is a decision within the sound discretion of the court. Broeker v. Ware, Del. Ch. , 29 A.2d 591, 598 (1942).Henry has failed to convince me that any of the Trustees have been so dilatory in their duties as to warrant the severe sanction of removal. Although the Trustees were neither graceful nor speedy in their decision-making process, they attended to their duties in a serious and independent fashion. All of the Trustees, including the Administrative Trustee, were on the whole motivated by a sincere concern for the Beneficiaries of the Trust, including Henry. None of the Trustees bears Henry any animus.
The behavior by the Trustees that is most worthy of condemnation — their failure to implement responsible policies guaranteeing timely and continuing notification to the Children and other Current Beneficiaries of their interests — adversely affected the Children, not Henry. See Restatement (Second) of Trusts § 214(1), cmt. b(1959) ("A particular beneficiary cannot maintain a suit for a breach of trust which does not involve any violation of a duty to him."). The Children, however, oppose removal. I do note that any future failures in this regard may warrant removal. Therefore, the Trustees would be well advised to put policies in place ensuring timely notification of and ongoing communications with all Current Beneficiaries.
Two of the representatives with whom Henry had difficulties over the years — Howard and Werley — have departed Wilmington Trust and PNC and will therefore play no future role on the Trust.
It is noteworthy that Henry does not seek to remove Bishop, his friend. Yet Bishop concurred in all of the Trustees' decisions under challenge and was the driving force behind some of the decisions Henry most opposed — including the January 15 Decision. Not only that, it was Bishop — not the other Trustees — who fumbled the request for a business plan and got the discussions with Justin and Cameron off on the tangent of the old sub-trusts.
The fact that Henry is antagonistic toward the other Trustees because he disagrees with their decisions does not justify their removal. In re Catell's Estate, 38 A.2d at 470; Broeker, 29 A.2d at 598; George G. Bogert George T. Bogert, The Law of Trusts and Trustees § 527, at 89 (rev.2d ed. 1993). The General Trustees came out of the difficult process leading to this lawsuit with a heightened appreciation of their decision-making authority and responsibilities, and a greater understanding of the more circumscribed role of the Administrative Trustee. Bishop, Mather, and Manfredonia all impressed me as people committed to doing what was right, and the balance among the General Trustees — reflective of Bishop's courage and willingness to make hard decisions, Mather's sensitivity to human concerns and desire for family harmony, and PNC's more traditional institutional approach — is one that can be of benefit to all the Current Beneficiaries, including Henry.
III. Conclusion
For the foregoing reasons, the Trustees' petition is Granted in Substantial Part and Denied in Part, and Henry's Counterclaims are Denied. The Trustees shall, upon notice as to form, submit a conforming order.