Recent Virginia Cases of Interest to Fiduciaries: April 2011

April 13, 2011

Parish v. Parish – The Virginia Supreme Court affirmed the trial court’s upholding of a will made by the victim of a traumatic brain injury, notwithstanding the appointment of a guardian and conservator for the testator and the involvement of the conservator in the preparation and execution of the will leaving a significant part of the estate to the conservator.

Carlson v. Wells – The Virginia Supreme Court affirmed a surcharge against UTMA custodians for pre-2007 speculative investments under the common law prudent person standard, failure to account, and co-mingling and abuse of custodial assets.

Addison v. Jurgelsky – The Virginia Supreme Court holds that a remedial statute on nonjoinder of parties should be liberally construed to permit the joinder of a co-administrator to a wrongful death action, after the expiration of the statute of limitations, where the other co-administrator is already a party plaintiff to a timely suit and the claims in the suit do not change as a result of the joinder.

Harkleroad v. Linkous The Virginia Supreme Court affirms a claim of adverse possession, even though the adverse possessors were not aware that they had title to less than complete ownership of the property and did not know of the existence of other claimants to the property.

Chaplain v. Chaplain The Virginia Court of Appeals upholds the enforceability of a premarital agreement notwithstanding inadequate disclosure of the husband’s financial assets.

In re Estate of Dorsey W. Rohrbaugh The Fairfax Circuit Court finds that the cumulative effect of numerous contract and other claims by a widow against her husband’s estate amounted to an indirect contest of the will that violated a no-contest clause.

Derringer v. Emerson – The U.S. District Court for the District of Columbia, applying Virginia law, finds that a suit to declare that a trust was not validly amended amounted to a contest to the trust and was barred by the statute of limitations.

Parish v. Parish, 281 Va. 191 (January 13, 2011)

Eugene Parrish suffered a head and spinal cord injury in 1982 after being struck in the head with a metal pipe while at a bar. Eugene recovered $3.5 million in damages in connection with the injury. At the time, Eugene’s only child, David, was only 11 months old. In 1983, a Florida court declared Eugene incompetent due to encephalopathy (a form of general brain dysfunction) and appointed his mother as his guardian and conservator. In 1989, Eugene moved to a facility in Tennessee, and his brother Wayne and Wayne’s wife Diane, who lived in Tennessee, took over as Eugene’s co-conservators.

In 2002, Wayne assisted Eugene in preparing a will for Eugene by acting as translator (Eugene had to speak through a voice box following a tracheotomy), and he was present when the will was executed. In the will, Eugene gave 25% of his estate to Wayne, 25% to Diane, 25% to his son David (who was also his sole heir at law), and 25% to other family members. Eugene named Wayne and Diane as executors. Wayne and Diane did not inform David about the will.

In 2003, Wayne and Diane renewed their appointment as co-conservators for Eugene. In 2004, at Wayne and Diane’s request, Eugene’s son David and David’s wife Jessika were appointed in Virginia as Eugene’s guardian and conservator. The guardian ad litem appointed for Eugene in the Virginia proceedings reported that Eugene was communicative and understood the questions posed to him, but thought he still had $3.5 million in the bank and was not aware that his funds had been applied for his care for more than 20 years.

Eugene died in 2006. David qualified as administrator of what he believed to be his father’s intestate estate. Wayne declined to qualify as executor under the purported will executed in 2002, but Diane petitioned to remove David and have herself appointed as executor under the 2002 will. David filed a counterclaim to impeach the will on the grounds of incapacity and undue influence. The trial court found that Diane had proved by clear and convincing evidence that Eugene had testamentary capacity and was not subject to undue influence. David appealed.

On appeal, the Virginia Supreme Court reaffirmed existing Virginia law that adjudication of a person as incompetent for purposes of appointment of a guardian and conservator does not create a presumption of incapacity for purposes of executing a will. The court noted that where a will is executed with the requisite formalities, there is a presumption of testamentary capacity that shifts the burden of production to the person contesting the will.

The court assumed without deciding that the testimony of David, Jessika, and a certified neurologist who treated Eugene starting in 2004 (two years after the execution of the will), was sufficient to overcome the presumption of capacity, which then shifted the burden of proving capacity back to Wayne as the proponent of the will.

The Virginia Supreme Court affirmed the trial court’s determination that Wayne met the burden of proof of capacity, observing that testimony of persons present at the time of execution of the will is entitled to the greatest consideration. The paralegal that drafted and witnessed the will, Eugene’s treating physician at the time of the execution, Wayne, Diane, Eugene’s attorney at the time of the Tennessee conservatorship proceedings, and Eugene’s Tennessee social worker all testified in support of Eugene’s capacity to execute the will. The court found this testimony sufficient to support the trial court’s decision.

Turning to David’s claim of undue influence, the court recognized the prior Virginia decisions creating a presumption of undue influence where an individual with weakness of mind names a beneficiary that stands in a relationship of confidence or dependence to the testator, and where the individual had previously expressed a contrary intention or no intention with respect to the disposition of his property. The court observed that the prior decision contemplated undue influence in the context of elderly testators, and not young victims of brain injuries (who never had a realistic opportunity to express a testamentary intent). The court found the limitations of the prior cases too restrictive in this case, and held that the age and “contrary expression” requirements in the prior cases were inappropriate for determining whether Eugene was unduly influenced by Wayne.

The trial court did not apply the presumption of undue influence to Wayne’s actions in connection with the 2002 will, but the Virginia Supreme Court refused to reverse the trial court on this basis, holding that if the trial court had properly applied the presumption the trial court would have ruled the same way based on its conclusion by clear and convincing evidence that Eugene was not subject to undue influence. The Virginia Supreme Court affirmed the trial court’s decision upholding the will and rejected David’s claims against the will.

Carlson v. Wells, 281 Va. 173 (January 13, 2011)

Jon Carlson and his brother James Carlson were named as custodian of accounts for Jon’s children created under the Virginia Uniform Transfers to Minors Act by Jon and his ex-wife during their marriage. In 2003, Jon’s son Eric asked Jon about the funds that were available in the accounts for his education. Jon told Eric the funds might not be available. Eric accessed the accounts online, and discovered that funds had been withdrawn from the accounts. Eric asked his Jon, James, and Jon’s attorney to see the records for the accounts, but all three failed to respond.

Jon’s children and Jon’s ex-wife filed suit to remove the custodians, compel an accounting, and to seek compensatory and punitive damages and attorneys’ fees. In 2004, the custodians turned over $190,000 that they claimed was all of the remaining funds, effectively resigned, and provided what they claimed was a full accounting. The accounting showed that Jon as custodian had closed the accounts in 2002, transferred the funds to an account in his and the children’s names, made several withdrawals from the accounts, transferred funds to his own personal investment accounts, and used $40,000 of the UTMA funds to purchase US Airways stock shortly before the company sought bankruptcy, rendering the stock worthless.

In 2005, the trial court referred the complaint to a commissioner in chancery who made several findings favorable to the custodians and awarded the children only $3,600 in damages. The trial court largely rejected the commissioner’s report, instead finding that the custodians had breached their duties by abdicating their custodial responsibilities, failing to keep records, and improperly speculating in investments, and awarded the children more than $90,000 in damages. The custodians appealed.

On appeal, the Virginia Supreme Court largely affirmed the judgment against the custodians on the following grounds: (1) for investment decisions prior to a statutory change in 2007, UTMA custodians are subject to the common law prudent person rule that focuses on each individual investment, and not the Prudent Investor Act standard that focuses on total return; (2) the custodians breached the prudent person standard by speculating with respect to the US Airways stock knowing the company was on the brink of bankruptcy; (3) the fact that Jon invested his own assets in the stock did not excuse the breach; and (4) the trial court properly placed the burden of proof with respect to co-mingled funds on the UTMA custodians due to their duty to account, and held the custodians responsible for funds they could not prove were used for proper purposes.

The Virginia Supreme Court affirmed the award of attorneys’ fees to the children, and the denial of the custodians’ request for fees, on the basis that the children has substantially prevailed, and that an award was justified by the exceptions to the general rule with respect to parties bearing their own fees where there is fraud and a long course of self-dealing. In support of its ruling, the court commented that the custodians callously disregarded their custodial obligations, deliberately withheld records, commingled funds, and followed a pattern of misconduct amounting to a pervasive and wanton dereliction of the duties of an UTMA custodian.

Addison v. Jurgelsky, 281 Va. 205 (January 13, 2011)

Joseph Addison died on April 3, 2004, after receiving medical treatment. Joseph’s parents qualified as administrators of his estate, and on March 21, 2006, (within the statute of limitations), Joseph’s father Jerry as co-administrator (and without Joseph’s mother Shirley, the other co-administrator) filed a wrongful death action alleging medical malpractice against several parties.

The defendants moved to abate the suit for the failure to join Shirley as co-administrator. The trial court denied the motion and granted Jerry leave to amend his complaint. Jerry filed an amended complaint adding Shirley as a plaintiff on September 12, 2008, which was after the applicable statute of limitations on the claim. The defendants pled the statute of limitations as a defense to the claims, and the trial court granted the pleas and dismissed the suit with prejudice. The co-administrators appealed.

On appeal, the Virginia Supreme Court reversed the trial court and remanded the case on the following grounds: (1) the wrongful death statute requires a “unity of action” in order for the personal representatives to bring a cause of action and the co-administrators must join in the act; (2) Virginia Code section 8.01-5(A) should be liberally construed to permit the joinder of a co-administrator to a wrongful death action where the other co-administrator is already a party plaintiff to a timely suit, and the claims in the suit do not change as a result of the joinder; and (3) Jerry’s initial filing, even though lacking his co-administrator, still tolled the statute of limitations for the claim.

Harkleroad v. Linkous , 281 Va. 12 (January 13, 2011)

In 1952, Pauline Smith and her husband David each acquired an undivided one-half interest in real property in Bristol, Virginia. David died in 1976, and in his will gave his one-half interest to his daughter Louise and his granddaughter, subject to a life estate in favor of Pauline. In 1990, Louise died leaving her interest to her children. In 2004, one of Louise’s children died and his interest passed to his widow. These conveyances resulted in three family members claiming ownership of David’s one-half interest in the property (the Family Claimants).

Pauline lived on the property until 1982, when she purported to convey outright ownership of the property to D.H. Frackelton, even though she owned only a one-half interest plus a life estate in the other one-half. In 1990, the IRS sold Frackelton’s interest in the property to Mr. and Mrs. Linkous in order to satisfy delinquent taxes owed by Frackelton The Linkouses did not obtain a title search in connection with their purchase.

The Linkouses thereafter took possession of the property, made renovations, , and rented the property. In 2007, the Linkouses sought to sell the property and their ownership interest was questioned by the potential purchasers. The Linkouses brought a quiet title action against the Family Claimants asserting outright ownership of the property by adverse possession. The Family Claimants opposed the claim, and asserted the right to one-half ownership and back rents, and sought partition of the property. Until that time, the Family Claimants had not asserted any rights to the property.

The trial court heard the matters together, and held that the Linkouses met their burden of proving adverse possession and granted them fee simple ownership of the property. The Family Claimants appealed, contending that the Linkouses’ possession of the property could not have been “hostile” to the Family Claimants (a required element of proving adverse possession) from 1991 until 2007, because the Linkouses did not know that their title only gave them a one-half interest in the property, as opposed to the fee simple they thought they had, and because the Family Claimants did not have actual notice that they were being excluded from the property.

On appeal, the Virginia Supreme Court affirmed the trial court’s ruling and the award of fee simple ownership to the Linkhouses by adverse possession on the basis that: (1) the presumption that the occupancy of a co-tenant is not adverse to another co-tenant in privity does not apply where, as in this case, a stranger to the original co-tenancy takes possession under a conveyance that on its face (albeit incorrectly) purports to give the new co-tenant ownership of the fee simple; (2) under those circumstances, the Linkhouses’ exclusive possession of the property was ouster of the other co-tenants that can support an adverse possession award; (3) the Linkouses were not required to discover the fact of the Family Claimants’ co-tenancy or to give them actual notice of their intent to posses the property exclusively, because their actions were so obvious as to give the Family Claimants constructive notice of their intent; (4) inherent in the doctrine of adverse possession is that the law will not permit an owner to be so dilatory as to remain unaware of the exclusive use of his property by a stranger for the 15-year adverse possession period, and claim ignorance as a defense to adverse possession; and (5) the fact that the Family Claimants were unaware of their interest in the property is irrelevant, since their ignorance was not the result of any actions by the Linkouses, and their rights arose through the normal operation of the law of real property, wills, and intestate succession and could have been ascertained through minimal due diligence.

Although not raised by the parties, the court sua sponte raised the principle that a life tenant, or a person claiming through a life tenant, is not adverse to the remaindermen during the term of the life estate, and its concern that the record did not establish the date of Pauline’s death and the end of her life estate. The court resolved its concern by concluding, under the clear terms of the deed from Pauline to Frackelton, that Pauline had not conveyed her life estate to Frackelton (or subsequently to the Linkouses) and any privity with Pauline was severed by the deed from the IRS.

Chaplain v. Chaplain, 2011 Va. App. LEXIS 15 (January 18, 2011)

The Virginia Court of Appeals concluded that Billy Chaplain failed to properly disclose his assets to his wife, Rabha, in connection with their premarital agreement. Following remand, the trial court held that the premarital agreement was still enforceable, the agreement was not unconscionable, and Rabha had signed it voluntarily.

On appeal, the Court of Appeal affirmed the decision of the trial court. The court held that a recital included in the agreement stating that the agreement was not unconscionable gave rise to a rebuttable presumption to that effect, and Rabha had the burden of overcoming that presumption by clear and convincing proof. The court rejected Billy’s argument that the presumption was not rebuttable on the basis that the parties could not contract away judicial review of the agreement.

The court held that Rabha failed to meet the burden of overcoming the presumption on the basis that the evidence, viewed in the light most favorable to Billy, showed that: (1) Rabha could speak and understand English without a translator; (2) she stated that she planned to lie about her ability to understand English if her husband ever sought to divorce her in order to avoid the agreement; (3) she had good employment in Morocco before coming to the United States as a tourist, had assets, and was college educated; (4) while Billy did not fully disclose his financial condition, Rabha knew Billy had extensive real estate holdings; (5) Billy did not want to remarry, and only acceded to Rabha’s repeated requests for marriage after she agreed to sign the agreement; and (6) even though Rabha did not hire her own attorney, Billy’s attorney explained the agreement to her and provided her with a copy that she studied, hired another attorney to explain the agreement to Rabha (who testified that Rabha understood the agreement), had his secretary explain the agreement to Rabha, and allowed Rabha an ample opportunity to consult with her own counsel if she desired.

The Court of Appeals held that the trial court was entitled to disregard Rabha’s testimony about gross disparity in her assets compared to Billy’s, on the grounds that Rabha had stated to Billy that she had assets in Morocco that could exceed Billy’s in value, and Billy was honest and above-board with Rabha, who married him in order to obtain citizenship and his money, and planned to lie about her understanding of the agreement if he sought divorce.

The Court of Appeals also concluded that Rabha executed the agreement voluntarily, on the basis that: (1) Rabha was 40 years old, educated, and financially independent; (2) Rabha proposed after learning of Billy’s real estate holdings; (3) Billy only agreed to her repeated proposals after she agreed to sign the agreement; (4) Rabha had the opportunity to consult her own counsel; and (5) they were married in a small civil ceremony three weeks after signing the agreement, and there was no time pressure arising out of a large planned wedding ceremony.

Finding that Rabha signed the agreement knowingly, intelligently, and voluntarily, the Court of Appeals affirmed the trial court’s decision upholding the agreement as enforceable notwithstanding the shortcomings in Billy’s financial disclosures.

In re Estate of Dorsey W. Rohrbaugh, 80 Va. Cir. 253 (Fairfax Circuit Court, March 31, 2010)

Dorsey and Geanie Rohrbaugh were married in 1974. Before their marriage, they entered into a premarital agreement in which Mrs. Rohrbaugh waived various rights including the right to claim an elective share and any rights to Mr. Rohrbaugh’s property in Orlando, Florida.

Mr. Rohrbaugh died in 2002, and his sons from a prior marriage qualified as executors under the will. Under his will, Mr. Rohrbaugh gave his wife his interest in the Orlando property and provided a trust for her benefit to be funded with property in Virginia or the proceeds from the sale of the Virginia property. Mr. Rohrbaugh left the residue of his estate to his four children from a prior marriage. Before his death, Mr. Rohrbaugh sold the Orlando property and purchased property in Inverness, Florida, with the proceeds. Mr. Rohrbaugh’s will contained a no-contest clause that left any contestant to the will only $100.

In 2002, Mrs. Rohrbaugh filed a 12-count complaint against the executors, which included claims to void the premarital agreement, breach of the agreement, elective share claims, and claims to the Florida and Virginia property owned by Mr. Rohrbaugh at his death. Mrs. Rohrbaugh nonsuited various claims, and her other claims were found to be barred by laches or the premarital agreement. Cross appeals to the Virginia Supreme Court were denied.

In 2004, Mrs. Rohrbaugh filed another suit against the executors for $2 million claiming conversion of property by the executors and re-alleging her contract claims. At trial, Mrs. Rohrbaugh admitted on cross examination that she was contesting what she felt was the “will from hell” and that she was aware of the consequences of the no-contest clause. While the second suit was pending, the executors filed a motion claiming that Mrs. Rohrbaugh violated the no-contest clause. The trial court concluded that she had violated the clause, but the Virginia Supreme Court reversed and remanded the ruling due to lack of evidence of the second lawsuit formally in the record.

On remand, the Fairfax circuit observed that no-contest clauses are strictly applied in Virginia in order to protect the testator’s right to dispose of his property as he sees fit, and the societal benefit of deterring bitter family disputes that will contests frequently engender. Reviewing the facts of this particular case, the court concluded that: (1) Mr. Rohrbaugh intended, by the use of the phrase “to the extent permitted by law,” that the no-contest clause be given the broadest possible scope; (2) Mrs. Rohrbaugh’s claims were designed to grant her property rights that were broader than those provided under the will; (3) Mrs. Rohrbaugh on cross examination revealed that her motive was to contest the will; and (4) Mrs. Rohrbaugh’s cumulative actions constitute an indirect contest or claim against the will that violates the no-contest clause. For these reasons, the court held that Mrs. Rohrbaugh forfeited all rights under the will other than $100.

Derringer v. Emerson, 2010 U.S. Dist. LEXIS 79522 (August 6, 2010)

Richard Solem executed a living trust agreement in 2004, with himself as trustee, that provided at his death for the distribution of more than $2 million to his daughters and the balance to his charitable foundation. In 2004, Solem sent a memorandum to his common law wife expressing his decision to change his trust to leave everything to the foundation. Thereafter, Solem executed a notarized summary of the changes to his trust, and informed his daughters that he had made changes to his estate plan.

Solem died in 2006. In 2009, the daughters filed a complaint seeking a declaration that the trust was not validly amended, and that they were entitled to a distribution of $2 million. Solem’s wife, as successor trustee, moved for summary judgment on the grounds that the action was barred by the statute of limitations.

The federal district court for the District of Columbia, applying Virginia law, granted the motion for summary judgment and dismissed the daughters’ claims as untimely on the following grounds: (1) a resort to the means provided by law to attack a will is a contest; (2) whether an action seeking interpretation of a will is a contest depends on the no-contest clause and the facts of the case; (3) an action that would thwart the purpose of the will is a contest; (4) Solem had the right to amend the trust by a writing delivered to the trustee, but since he was the trustee he only had to put in writing his amendments to render them effective; (5) the daughters’ claims challenging the amendment sought to invalidate the amendments and amount to a contest; and (6) a trust contest must be brought within two years after the settlor’s death (or six months after receiving certain notice), and the daughters’ claims were brought two years after the statue of limitations ran on the claims.

McGuireWoods Fiduciary Advisory Services

McGuireWoods’ Fiduciary Advisory Services and Private Wealth Services teams stand ready to advise financial institutions and other clients about planning, tax, and fiduciary matters. Private Wealth Services is ranked by Chambers and Partners, the international rating service for lawyers, as one of two top-band private wealth services practice groups in the country. Please click here for a full listing of Fiduciary Advisory Services lawyers and their locations.