Opinion ID: 3152258
Heading Depth: 2
Heading Rank: 2

Heading: the sons’ proposed “arbitrary

Text: AND CAPRICIOUS” STANDARD Virginia has more than a century of jurisprudence addressing specific settlor grants of broad discretionary authority to trustees. A long line of authorities limits judicial review to allegations of trustee fraud, bad faith, or other misconduct of similar magnitude. See, e.g., Givens v. Clem, 107 Va. 435, 437-38, 59 S.E. 413, 414 (1907) (stating that “a court of equity has no jurisdiction to interfere” with a discretionary trust “so long as the trustee acts in good faith”); Trout v. Pratt, 106 Va. 431, 442, 56 S.E. 165, 169 (1907) (“If the trustees exercise their discretionary powers in good faith and without fraud and collusion the court cannot control or review their discretion.” (citation omitted)); Dillard v. Dillard, 97 Va. 434, 442, 34 S.E. 60, 63 8 On this last point, it bears mentioning that the sons only address their personal interest as remainder beneficiaries. They fail to acknowledge that their father also designated charitable organizations as contingent remainder beneficiaries that would take the sons’ shares of the trust if the sons were found to have violated the no-contest provision. The sons fail to explain why these contingent remainder beneficiaries should not also be considered within the command of Code § 64.2-703(B)(2) that the trustee take into account the “interests of the beneficiaries.” 43 (1899) (same); 9 1 Harrison & Cox, supra, § 21.13, at 21-42 (“It is well settled in Virginia . . . that where the trust is discretionary or one of personal confidence a court of equity has no jurisdiction to interfere with its exercise by the trustee so long as he acts in good faith.”); see also McCamant v. Nuckolls, 85 Va. 331, 337-38, 12 S.E. 160, 162 (1888) (“As regards such powers as are discretionary and depend on the opinion and judgment of the donee of the power, the courts, unless in cases of fraud, have no jurisdiction to interfere.” (alterations omitted)); Cochran v. Paris, 52 Va. (11 Gratt.) 348, 356-57 (1854) (noting that, under Virginia law, trustee determinations committed to their “pure personal judgment” are matters that “cannot in general be assumed or even controlled by the court”). 10 The no-contest provision in this case incorporated similar limitations on the trustee’s authority by withdrawing the settlor’s authority to make a “final” determination if it is infected by “fraud, dishonesty, or bad faith.” J.A. at 299. The sons argue that this restriction does not go far enough. They propose that we adopt an “arbitrary and capricious” standard of judicial review 9 In Dillard, the testatrix of a will vested her testamentary co-trustees with “an absolute and uncontrollable discretion” regarding the gift of certain real estate to her son. Id. at 440, 34 S.E. at 62. In her will, she expressly stated that the trustees “shall not be compelled, or be liable to be compelled to do so, either at law or in equity” to act other than their judgment required, thus implying the finality of their decision. Id. We affirmed the “uncontrollable power of the trustees,” id. at 441, 34 S.E. at 63, and noted that “[w]here the trust is discretionary, or one of personal confidence, a court of equity has no jurisdiction to interfere with its exercise by the trustee so long as he acts in good faith,” id. at 442, 34 S.E. at 63; see also James Hill, A Practical Treatise on the Law Relating to Trustees 715 (2d Am. ed. 1854) (“As a court of equity will not in general assume the exercise of a discretionary power vested in trustees, so it will not interfere to control the trustees acting bona fide in the exercise of their discretion.”). 10 This approach is consistent with the majority of other jurisdictions, which similarly limit the scope of judicial review in cases in which a trustee possesses “more extensive discretion” to determinations of “whether the trustee acted or failed to act in good faith and with proper motive.” 4 George Gleason Bogert et al., The Law of Trusts and Trustees § 228, at 564 (3d ed. 2007); see also id. § 228, at 563 nn. 3-4 (collecting cases reviewing actions of trustees with absolute discretion for bad faith, fraud, improper motive, malice, dishonesty, or failure to act in the interest of the beneficiaries). However, “[a]t the other end of the continuum, where the trustee’s discretion is least extensive, courts may give the trustee less latitude and review for reasonableness.” Id. § 228, at 565. 44 to cover situations when a trustee makes an outrageously wrong determination under a nocontest provision of this kind — but does so innocently, with honest motives, and in good faith. Appellees’ Br. at 14-18. I find the argument purely academic in this case. Even if such a standard judicially supplemented the language of the no-contest provision in this case, 11 nothing in this record comes close to showing that the trustee’s determination was arbitrary and capricious. 12 The sons’ first attempt to implicate their proposed standard is to say that the trustee’s interpretation of the no-contest provision was grossly in error because the provision only applies to litigation contests. I see no merit in this argument. The father intended the forfeiture to be mandatory (“shall be revoked”) if either son directly or indirectly asserted a challenge or contest via litigation (“by legal proceedings”) or by any other means (“or otherwise”). J.A. at 299. He also intended the forfeiture to be similarly mandatory if his sons “attempt[ed] in any way to interfere with the administration” of the trust. Id. No legitimate exercise in textual interpretation would justify the conclusion that this provision applies only to contests and challenges asserted 11 I acknowledge our cases stating that a trustee may not abuse her discretion by exercising it “in such an arbitrary manner, as, in effect, to make it a means of destroying the trust.” Rinker v. Simpson, 159 Va. 612, 621-22, 166 S.E. 546, 549 (1932); see also NationsBank of Va., N.A. v. Estate of Grandy, 248 Va. 557, 561-62, 450 S.E.2d 140, 143 (1994); Trout, 106 Va. at 443, 56 S.E. at 169. In both Rinker and Trout, however, the trust instrument vested absolute discretion in the trustee, making no express exception for the presence of fraud, dishonesty, or bad faith, as the father did here. See J.A. at 299. In Grandy, we restated the equitable principle raised by Rinker, but we held that the trial court had “impermissibly substituted its judgment for that of the trustees.” Grandy, 248 Va. at 562, 450 S.E.2d at 144. In these cases, we merely recognized, as the Virginia Uniform Trust Code does now, that broad trustee discretion cannot be employed to destroy the trust, which would be the ultimate defiance of the settlor’s intent. See Code § 64.2-703(B)(2). Enforcing the no-contest clause in this case, which expressly nullifies the trustee’s discretion in cases of “fraud, dishonestly, or bad faith,” J.A. at 299, cannot reasonably be said to have this effect. 12 For reasons previously mentioned, supra at 41-42, I do not address whether the nocontest provision would preclude a court from examining whether a trustee’s determination violated Code § 64.2-765’s duty of impartiality. 45 in court. 13 As I noted earlier, the “wording of the ‘no contest’ provision” determines its scope and identifies the circumstances that constitute “a contest or attempt to defeat” the trust. Keener, 278 Va. at 441, 682 S.E.2d at 548 (quoting Womble, 198 Va. at 529, 95 S.E.2d at 219). We have never held that Virginia law invalidates no-contest provisions worded in such a way as to apply to contests short of litigation, and I see no reason to do so now. Next, the sons say that the trustee’s determination offended their proposed arbitrary-andcapricious standard because the trustee failed to take into account that they backed down after they realized their actions put their inheritance in jeopardy. This assertion may have some emotive value, but that does not translate into legal relevance. The law does not give parties an inviolate right to cure a fully consummated breach. Nor has any precedent ever suggested that the legal efficacy of a conditional gift necessarily depends on the donee’s knowledge of the condition. And for good reason: If there were such a rule, a donor’s condition could be avoided unilaterally simply by a donee willfully ignoring it, falsely claiming ignorance, or conceding knowledge of the condition but protesting his misunderstanding of it. I thus cannot conclude that the trustee acted arbitrarily or capriciously by not giving dispositive weight to the sons’ expression of regret for their actions upon discovering their father’s no-contest provision. 14 Even in cases in which the no-contest provision applies only to litigation contests, the “general rule is that ‘a resort to the means provided by law for attacking the validity of a will amounts to a contest, although the contestant subsequently withdraws before the final hearing 13 The trial court appears to have agreed. The court’s letter opinion, incorporated by reference into the final order, stated: “The Court concludes that the aforesaid letters [directed by the sons to the trustee’s counsel and to the stepmother] were as enumerated in the ‘no-contest’ provision.” J.A. at 125. 14 The trial court appears to have agreed with this point as well. The court’s letter opinion concluded that the “fact that neither brother was aware of the [no-contest] provision” was “not dispositional.” Id. 46 and even though the contestant subsequently treats the will as valid and seeks construction.’” Womble, 198 Va. at 529, 95 S.E.2d at 219 (citation omitted); see also 1 Harrison & Cox, supra, § 21.05[4], at 21-13; Restatement (Third) of Property: Wills and Donative Transfers § 8.5 cmt. d (2003). The same principle equally applies here, where the sons later recanted their fully consummated violation of the no-contest provision that, by its express terms, applied to contests asserted in litigation “or otherwise.” J.A. at 299. Finally, although the sons only briefly mention the point on appeal, I address the theory raised by the trial court during closing argument and adopted in its letter opinion. The court apparently reasoned that the sons had in fact violated the no-contest provision, but that the provision, as the court interpreted it, only applied to contests directed at the September 2012 amendment. In other words, the court held, “There was no prohibition against challenging any prior agreement or the trust agreement as written in 1989 or August 27, 2012.” Id. at 125 (emphasis in original). I find this argument unpersuasive. The no-contest provision applies to challenges or contests of “this trust agreement or any of its provisions” — which would necessarily include provisions in earlier versions that the amendment explicitly “ratified and confirmed.” Id. at 299-300. The provision also applied to attempts to interfere with the administration of “this trust.” Id. at 299. There was, and still is, only one trust. The trust agreement includes the August 2012 restatement and the September 2012 amendment. The September 2012 amendment was as much a part of the “trust agreement” as the August 2012 restatement. Id. at 299-300.