Opinion ID: 2284440
Heading Depth: 2
Heading Rank: 2

Heading: The Special Interest Exception

Text: An exception to the general rule, recognized by this court, exists in situations where an individual seeking enforcement of the trust has a special interest in continued performance of the trust distinguishable from that of the public at large. YMCA v. Covington, supra, 484 A.2d at 591-92; RESTATEMENT (SECOND) OF TRUSTS, supra, § 391 & comment c. In these situations, though the private beneficiary is the conduit through which broader community benefits flow, the plaintiff sues to secure an individualized interest in the trust, and the problems presented by suits from a practically limitless and wholly indefinite group of persons, Mount Vernon Mortgage Corp., supra note 9, 98 U.S.App.D.C. at 430, 236 F.2d at 725, are less pronounced. While special interest is a term of uncertain scope, it appears that at least a clearly identified intended beneficiary has a justiciable interest in enforcement of the trust. Comment c of section 391 of the Restatement sets out examples of what constitutes a special interest within the meaning of the exception. Most address situations where the trust was created to benefit identified persons ( e.g., the current minister of a specific church) or entities ( e.g., a specific church or charitable organization). See RESTATEMENT (SECOND) OF TRUSTS, supra, § 391 comment c. In the present case, however, persons for whose benefit the Edes trust was created are not identified with that degree of particularity, but instead categorically. In these situations, the general rule is that one who is merely a possible beneficiary ... or a member of a class of possible beneficiaries, is not entitled to sue for enforcement of the trust. Alco Gravure, Inc. v. Knapp Found., 64 N.Y.2d 458, 465, 490 N.Y.S.2d 116, 119, 479 N.E.2d 752, 755 (1985); RESTATEMENT (SECOND) OF TRUSTS, supra, § 391 comment c; Kania v. Chatham, 297 N.C. 290, 291-93, 254 S.E.2d 528, 530 (1979). Older cases treat persons who fairly represent a class of identifiable (but not identified) beneficiaries as mere possible beneficiaries, denying them standing. See, e.g., Revici v. Conference of Jewish Material Claims Against Germany, 11 Misc.2d 354, 174 N.Y.S.2d 825 (N.Y.Sup.Ct.1958) (where trust was to benefit persons suffering damage as a result of Nazi persecution, suit could only be maintained by Attorney General; person injured by Nazis lacked standing). [10] The Restatement goes on to state, however, that where a charitable trust is created for the members of a small class of persons, a member of the class can maintain a suit on behalf of himself and the other members of the class [to enforce the trust]. Thus, where a charitable trust is created for the poor members of a particular church, any such member of the church can maintain a suit against the trustees.... RESTATEMENT (SECOND) OF TRUSTS, supra, § 391 comment c (emphasis added). This may reflect what Professor Bogert identifies as a modern trend in cases suggest[ing] some change from the more traditional approach by permitting persons deemed to represent a class of actual or prospective beneficiaries to bring suit to enforce the charitable trust. G. BOGERT, supra, § 411, at 446 (emphasis added). These decisions recognize that application of the strict traditional rule denying standing to potential beneficiaries of a charitable trust may be inimical to trust purposes in cases where a suit to enforce the trust does not present the dangers the rule was intended to guard against. Illustrative is Alco Gravure, supra, in which the court, while noting the general rule that excludes member[s] of a class of possible beneficiaries, defined the exception as embracing a particular group of people [which] has a special interest in funds held for a charitable purpose ... and the class of potential beneficiaries is sharply defined and limited in number .... 64 N.Y.2d at 465, 490 N.Y.S.2d at 119, 479 N.E.2d at 755 (emphases added). Appellants contend the trial court erred in concluding that, to have standing to enforce the trust, the plaintiffs must be present beneficiaries of the trust, in the sense that they must already have been selected by the Board of Trustees to reside in the House. They argue that the Trustees' discretion cannot encompass the power to confer or deny standing on persons who otherwise meet the admission criteriapersons in the very class the settlor intended to benefitwhen such persons do not challenge denial of benefits to them specifically, but to the class of intended beneficiaries. The Trustees state the legal proposition on which they prevailed below as follows: when trustees are invested with discretion to choose the beneficiaries of a trust from potential candidates, a person has no standing to sue the trust unless he or she has been chosen as a beneficiary, even though he or she may meet the threshold requirements of eligibility. In support of their arguments, both sides cite YMCA v. Covington, supra , in which this court held that members of a YMCA branch which the YMCA proposed to relocate had a special interest in the trust distinct from that of other members of the public. 484 A.2d at 592. According to the Trustees, YMCA compels the conclusion that standing is limited to persons with a current right to enjoy the trust benefits. Appellants counter that YMCA does not limit standing to current beneficiaries, and that there we conferred standing on the members not because they were members per se but because of the nature of their interest in the particular facility, the closing of which would injure them in a way different from the general public. YMCA, we conclude, does not decide the issue presented here. In that case the persons challenging the trustees' action in fact were members of the branch, and we had no occasion to decide whether, or under what circumstances, non-members desirous of membership would have standing to bring suit. For our purposes YMCA merely underscores that the essence of a special interest in a charitable trust is a particularized interest distinct from that of members of the general public. See Lokey v. Texas Methodist Found., 479 S.W.2d 260, 265 (Tex.1972), cited with approval in YMCA v. Covington, supra, 484 A.2d at 591. The Trustees also rely (as did the trial judge) on Kania v. Chatham, supra , as establishing the general rule that a potential, as opposed to current, recipient of trust benefits cannot enforce the trust. The Supreme Court of North Carolina in Kania did regard the plaintiff's asserted status as a potential beneficiary as fatal to his claim, noting that the mere fact that a person may, in the discretion of the Trustees, become a recipient of the benefit under the trust does not entitle him to maintain a suit for the enforcement of the trust. The opinion went on to state, however, that we do not mean to imply that a potential beneficiary of a charitable trust can never avail himself of legal process to enforce the provisions of such a trust. 297 N.C. at 293, 254 S.E.2d at 530. Key to Kania was a factor to be discussed momentarily: the avoidance of a multiplicity of lawsuits challenging the trustee's discretionary day-to-day administration of the trust. We reject a current beneficiary restriction which, at least as alleged in this case, would reserve to the Trustees the power to confer or deny standing to question their actions by refusing to act on applications and awaiting the natural diminution of the class of current beneficiaries by attrition. [11] The better reasoned view consistent with the Restatement's recognition of representative standing for a member of a small class of personsis that a particular class of potential beneficiaries has a special interest in enforcing a trust if the class is sharply defined and its members are limited in number. Alco Gravure, supra, 64 N.Y.2d at 465, 490 N.Y.S.2d at 119, 479 N.E.2d at 755. See also St. John's-St. Luke Evangelical Church v. National Bank, 92 Mich.App. 1, 13-19, 283 N.W.2d 852, 858-60 (1979) (where class of beneficiaries not uncertain and indefinite, standing should not be denied), distinguishing Oleksy v. Sisters of Mercy, 74 Mich.App. 374, 253 N.W.2d 772 (1977); Gray v. St. Matthews Cathedral Endowment Fund, 544 S.W.2d 488, 491 (Tex.Ct. Civ.App.1976) (problems of identification of beneficiaries and of undue harassment are not present when the class of persons to be benefited is a small, identifiable group, as distinguished from the public generally). We go further, however, and adopt another limiting factor as well. Even when a class of potential beneficiaries is small and distinct enough that its members appear to have an interest distinguishable from the public's, the problem of subjecting the trustees to recurring vexatious litigation may exist. Where potential beneficiaries are identified categorically (for example, as elderly indigent widows), the eligible class by nature will expand and contract continuously, and recognizing a representative member's right to challenge any action by the trustees raises the danger of proliferation of wasteful lawsuits which the exclusivity rule avoids. Thus, in addition to the nature of the class, we think it necessaryin the case of potential beneficiariesalso to consider the nature of the challenge to the trustees' acts in deciding whether to apply the special interest exception. In Alco Gravure, supra, the trustees of a foundation established to aid employees of the founder's corporations and their families decided, for tax reasons, to dissolve the foundation and transfer its assets to a kindred but tax-exempt foundation. In conferring standing to sue on employees of one of those corporations who were entitled to a preference in the distribution of the foundation's assets, the New York Court of Appeals observed that the present action concerns not the ongoing administration of a charitable corporation, but the dissolution of that corporation and the complete elimination of the individual plaintiffs' status as preferred beneficiaries; and thus, it concluded, the policy reasons for limiting standingto prevent vexatious litigation and suits by irresponsible parties who do not have a tangible stake in the matter did not apply. 64 N.Y.2d at 466, 490 N.Y. S.2d at 120, 479 N.E.2d at 765. In Alco Gravure, as noted, the trustees proposed an extraordinary measure threatening the existence of the trust, hence raising an issue that, by its nature, could only be tried once. By contrast, where the challenge is to an ordinary exercise of discretion on a matter expressly committed to the trustees, recurring litigation is much more probable. For example, in Kania v. Chatham, supra , the appellate court denied standing to a student who had been nominated for a scholarship (but not selected by the trustees) to sue the trustees for abuse of discretion. 297 N.C. at 291-93, 254 S.E.2d at 530. The court emphasized the large size of the class of nominees for the scholarship, and recognized the danger that, if standing were conferred on this plaintiff, every spurned nominee (some 930 in number) could file an action challenging a decision committed to the trustees' discretion. The court was unwilling to allow rejected potential beneficiaries to clog court dockets and dissipate trust assets with attacks on ordinary exercises of trustees' judgment. In Kania also, unlike in Alco Gravure, the challenged exercise of discretion involved denial of a benefit to an individual and not the class as a whole. A suit by a representative of a class of potential beneficiaries should aim to vindicate the interests of the entire class and should be addressed to trustee action that impairs those interests, not the interests of a given individual.