Court Opinion

ID: 6326326
Source: CourtListenerOpinion
Date Created: 2022-03-24 13:14:26.449328+00
Date Added: 2024-06-11T09:22:10.544007
License: Public Domain

VIRGINIA:
       In the Supreme Court of Virginia held at the Supreme Court Building in the
City of Richmond on Thursday the 24th day of March, 2022.

Present: Mims, Powell, Kelsey, McCullough, and Chafin, JJ., and Russell and Millette, S.JJ.

Rachel Hurley Kittrell,
as Member of Hurley, LLC, et al.,                                                    Appellants,

against        Record No. 201419
               Circuit Court No. CL18-64

Susan H. Fowler, et al.,                                                             Appellees.

                                                             Upon an appeal from an order
                                                      entered by the Circuit Court of Middlesex
                                                      County.

       In this interlocutory appeal, Appellants challenge the circuit court’s decision overruling

their demurrer and allowing Appellees to proceed with their claims. Upon consideration of the

record, briefs, and argument of counsel, the Court is of opinion that the decision of the circuit

court should be reversed.

                                          I. Background

       Walter Hurley, Sr. and his wife, Margaret, had two daughters, Susan H. Fowler and Lisa

H. Foster (collectively, the “Appellees”), and one son, Walter Hurley, Jr. Before Walter, Sr.’s

death, Walter, Sr., Margaret, and Walter, Jr. each owned approximately one-third of Hurley,

LLC. When Walter, Sr. died on April 28, 2006, his interest in Hurley, LLC passed to Walter, Jr.,

his tangible personal property passed to Margaret, and the remainder of his property passed to

the Walter Boyd Hurley Revocable Trust (the “Walter Sr. Trust”). Walter, Jr. served as trustee
of the Walter Sr. Trust, and as such, he was to distribute assets to provide for Margaret during

her lifetime and distribute any remaining trust assets to his siblings after Margaret’s death.

         On May 15, 2006, Margaret signed a document entitled “Sales Verification” transferring

her interest in Hurley, LLC to Walter, Jr. in exchange for a promissory note in the amount of

$950,000 (the “Hurley Transaction”). 1

         In July 2007, Margaret created her own revocable trust, the Margaret H. Hurley Living

Trust (“Margaret’s Living Trust”), which provided that upon Margaret’s death, any residual trust

property should be distributed equally between her children. However, Margaret’s Living Trust

specifically indicated that Walter, Jr. should not receive a share of the trust after Margaret’s

death.

         In September 2008, Margaret signed a document entitled “First Amendment to the

Margaret H. Hurley Living Trust.” In the amended trust agreement, Margaret specifically stated

that she “intentionally, and with full knowledge, chose[] not to provide for [her] child WALTER

B. HURLEY, JR., or his issue” as he received “Five Hundred Thousand Dollars ($500,000.00) in

disclaimed assets and the Fair Market Value (“FMV”) of the campsite properties.” Thus,

Appellees were to receive the living trust properties in two equal shares.

         On March 8, 2013, Walter, Jr. closed Margaret’s checking account titled “Margaret H.

Hurley Living Trust” at the Colonial Bank of Gloucester and opened a new account bearing the

same title. On April 1, 2013, a check for $999,999.00 was written on the new account and was

made payable to “Margaret’s Future Trust.” Appellees contend this check was repayment for the

promissory note given in exchange for Margaret’s 2006 sale of her one-third interest in Hurley,

         1
         A $950,000 check dated May 15, 2006, and payable to “Margaret H. Hurley” from
Hurley, LLC appears in the record. However, the check does not appear to have been negotiated.

                                                  2
LLC to Walter, Jr.

           On April 15, 2013, Margaret purportedly signed a document entitled “Second

Amendment to the Margaret Hurley Living Trust,” which provided that if Margaret resigned as

the trustee of her living trust, Walter Jr. would become the substitute trustee. On the same date,

Margaret purportedly signed another document entitled “Margaret’s Future Trust,” creating an

irrevocable trust for the benefit of Walter, Jr.’s children, of which Walter, Jr. was named the

trustee.

           On April 19, 2013, Walter, Jr. made two deposits into the new checking account: one for

$1,000,000.00 and one for $36,000.00. On April 22, 2013, Margaret resigned as trustee of

Margaret’s Living Trust.

           On April 16, 2014, Margaret died, and her living trust became irrevocable. Per the terms

of the trust, William Farinholt became the trustee and personal representative of Margaret’s

estate. Appellees became suspicious of Walter, Jr.’s handling of Margaret’s assets. In early

2017, Farinholt confronted Walter, Jr. on Appellees’ behalf. On May 16, 2017, Walter, Jr. died

by suicide. Walter, Jr.’s will directed that the assets of his estate passed to the Nanba-wan Sai

Trust for the benefit of his children.

           On February 28, 2018, Appellees filed a complaint against Margaret’s Future Trust, the

Estate of Walter, Jr., and the Nanba-wan Sai Trust, seeking an accounting of each party’s assets,

restitution, and the imposition of a constructive trust on the assets of the trusts based on Walter,

Jr.’s alleged fraudulent conduct, unjust enrichment, and breach of fiduciary duty as trustee of

Walter, Sr.’s and Margaret’s estates. The defendants filed a demurrer and plea in bar. The

demurrer specifically alleged that Appellees failed to name the trustees of the trusts or the

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executors of Walter, Jr.’s estate as defendants, failed to attach the pertinent trust documents, and

failed to state a cause of action.

        Appellees filed a motion to join the proper parties and attached a First Amended

Complaint. The parties submitted an agreed order to the circuit court granting Appellees’ motion

to join parties and setting a briefing schedule for responsive pleadings. The defendants filed a

demurrer and plea in bar to Appellees’ First Amended Complaint. Following a hearing, the

circuit court overruled both the demurrer and plea in bar and the case was set for trial.

        On April 29, 2019, Appellees filed a motion for leave to file a Second Amended

Complaint, which proposed to add claims relating to the Hurley Transaction and join the relevant

members of Hurley, LLC as defendants. Specifically, the Second Amended Complaint requested

that the circuit court declare the Hurley Transaction void and award Appellees an “amount of

damages that is equivalent to the value of Margaret’s interest in Hurley, LLC as of the date of

Margaret’s death.” The defendants opposed Appellees’ motion, contending that the Appellees

lacked standing to assert Counts 5, 6, 7, 8, and 9 of the Second Amended Complaint (the “Hurley

Claims”). 2   The circuit court granted Appellees’ motion for leave to amend, specifically stating

that the “new issues raised are, in fact, intertwined with the existing issues. Standing, as well as

any other issues, can be argued upon proper motions.”

        2
           In Counts 5-9, Appellees sought the imposition of a constructive trust on the assets of
Hurley, LLC for Appellees’ benefit; requested an accounting of Hurley, LLC’s assets; requested
that Hurley, LLC be required to make restitution to Appellees in the form of all assets they
should have received from Margaret at the time of her death, plus interest from that date; and
sought to unwind the 2006 Hurley Transaction and Margaret’s Future Trust because they were
both products of Walter, Jr.’s undue influence and breach of fiduciary duty. Appellees only seek
relief to the extent the claims apply to the 2006 Hurley Transaction.

                                                  4
       The defendants filed a demurrer and plea in bar, contending, among other things, that

Appellees lack standing to assert the Hurley Claims because neither Appellee was the personal

representative of Margaret’s estate. The circuit court heard arguments on the demurrer, 3 after

which it ruled that “because [Walter, Jr.] basically, allegedly formed [the trust] documents

making himself in a representative capacity, I’ll overrule the demurrer and allow the claim to go

forward.”

       The defendants at that time, Rachel H. Kittrell, Sarah G. Hurley, and Walter Hurley, III

as members of Hurley, LLC, and William and Rachel Edwards as trustees of Margaret’s Future

Trust and Executors of Walter, Jr.’s estate, and Rachel Edwards as trustee of the Nanba-wan Sai

Trust (collectively, the “Appellants”), sought an interlocutory appeal of the circuit court’s ruling

as to standing pursuant to Code § 8.01-670.1. Although the circuit court consented, Appellees

withheld their consent.

       In January 2020, Appellants filed a “Verified Petition for Writs of Prohibition and

Mandamus” in this Court. On September 8, 2020, this Court dismissed Appellants’ petition. On

July 1, 2020, the General Assembly’s amendment to Code § 8.01-670.1 went into effect. The

amendment removed the requirement that all parties consent to an interlocutory appeal. See

2020 Acts ch. 907. On October 1, 2020, Appellants once again sought interlocutory review of

the circuit court’s decision as to Appellees’ standing. The circuit court certified Appellants’

interlocutory appeal to this Court.

       3
         The defendants’ plea in bar to the Appellees’ Second Amended Complaint remains
pending in the circuit court. The arguments contained therein are not at issue in this
interlocutory appeal.

                                                 5
                                            II. Analysis

       In this interlocutory appeal, Appellants contend that the circuit court “improperly

conferred standing on [Appellees] to pursue claims to challenge and unwind the arms-length sale

by their mother, Margaret, of her minority interest in Hurley, LLC in 2006.” We agree with

Appellants.

       This issue presents a question of law that we review de novo on appeal. See Platt v.

Griffith, 299 Va. 690, 692 (2021). “To establish standing, it is essential for a litigant to ‘show an

immediate, pecuniary, and substantial interest in the litigation, and not a remote or indirect

interest.’” Id. (quoting Westlake Prop., Inc. v. Westlake Pointe Prop. Owners Ass’n, 273 Va.

107, 120 (2007)). “Virginia law establishes that ‘[t]he personal representative, not a beneficiary

of the estate, is the proper party to litigate on behalf of the estate and that is true even when the

personal representative is also a possible beneficiary of the estate.’” Id. (quoting Reineck v.

Lemen, 292 Va. 710, 722 (2016)); see also Code § 1-234.

       Appellees maintain that Margaret’s Living Trust, a revocable trust created in 2007, would

have received title to Margaret’s minority share in Hurley, LLC upon her death in 2014 but for

the sale of her interest to Walter, Jr. in 2006. Appellees further theorize that because they were

the ultimate remainder beneficiaries of Margaret’s Living Trust, they would have received

Margaret’s minority interest in Hurley, LLC upon her death. Therefore, they seek to unwind the

2006 Hurley Transaction between Margaret and Walter, Jr. based upon Walter, Jr.’s alleged

undue influence over Margaret and his breach of fiduciary duty.

       Notably, the 2006 Hurley Transaction occurred approximately one year before the

creation of Margaret’s Living Trust, disposing of Margaret’s minority interest in Hurley, LLC

well before the creation of her revocable trust. Consequently, Margaret’s minority interest was

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never to be a trust asset. As remainder beneficiaries of Margaret’s Living Trust, Appellees are

legal strangers to the 2006 Hurley Transaction because they never obtained an interest in

Margaret’s minority interest.

         Assuming arguendo that a claim exists for the rescission of the 2006 Hurley Transaction,

the claim belongs to Margaret’s estate as it would have belonged to Margaret during her lifetime.

Upon her death in 2014, any viable claim relating to the sale of her minority interest in Hurley,

LLC passed to her estate and may only be pursued by the estate’s personal representative. See

Platt, 299 Va. at 693; see also Code §§ 8.01-25, 64.2-519, and 64.2-520. Because neither

Appellee is the personal representative of Margaret’s estate, they lack standing to bring such a

claim.

         For the reasons stated, we reverse the circuit court’s decision on these issues, dismiss

Appellees’ claims relating to the 2006 Hurley Transaction, and remand to the circuit court for

further proceedings consistent with this order.

         This order shall be published in the Virginia Reports and certified to the Circuit Court of

Middlesex County.

                                               A Copy,

                                                  Teste:

                                                                         Clerk

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