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Ferri v. Powell-Ferri

Supreme Court of Connecticut

August 8, 2017

MICHAEL J. FERRI, TRUSTEE, ET AL.
v.
NANCY POWELL-FERRI ET AL.

          Argued November 12, 2015

          Dominic Fulco III, with whom was John W. Larson, for the appellants and cross appellees in S.C. 19432, and the appellees in S.C. 19433 (plaintiffs).

          Kenneth J. Bartschi, with whom were Karen L.Dowd and, on the brief, Thomas P. Parrino and Laura R. Shattuck, for the appellee an cross appellant in S.C. 19432, and the appellee in S.C. 19433 (named defendant).

          Jeffrey J. Mirman, with whom, on the brief, was Alexa T. Millinger, for the appellant in S.C. 19433 (defendant Paul John Ferri, Jr.).

          Palmer, Eveleigh, McDonald, Espinosa and Robinson, Js. [*]

         Syllabus

         The plaintiffs M and A, the trustees of two trusts established for the sole benefit of the defendant F, sought a declaratory judgment to determine, inter alia, whether they were authorized to decant certain assets from one trust to the other. Specifically, the plaintiffs transferred a substantial portion of the assets from the first trust, which permitted F to withdraw principal, to a second trust, which did not. The defendant P, who had previously filed a separate action seeking the dissolution of her marriage to F, filed a counterclaim seeking a judgment declaring that the plaintiffs lacked authority to decant and alleging, inter alia, breach of fiduciary duty. The trial court determined that the plaintiffs were not authorized to decant 75 percent of the assets in the first trust because F had a vested, irrevocable interest in those assets. The trial court ordered the plaintiffs to restore that amount to the first trust and awarded P attorney's fees. In separate appeals, the plaintiffs and F claimed that the trial court had incorrectly determined that the plaintiffs lacked authority to decant, that P lacked standing to challenge the plaintiffs' actions, and that the trial court improperly awarded attorney's fees to P. In her cross appeal, P claimed that the trial court improperly declined her request to remove M from his position as a trustee and also asserted, as an alternative ground for affirmance, that the second trust should be treated as self-settled. Thereafter, this court certified certain novel questions of Massachusetts law to the Massachusetts Supreme Judicial Court regarding, inter alia, the plaintiffs' authority to decant. Held:

         1. The trial court incorrectly determined that the plaintiffs did not have authority to decant assets from the first trust: on the basis of the Massachusetts Supreme Judicial Court's thorough and well reasoned decision in response to this court's certified questions, this court concluded that, under Massachusetts law, the plaintiffs were empowered to decant substantially all of the assets from the first trust to the second trust.

         2. The trial court correctly determined that P had standing to challenge the plaintiffs' actions and to assert a counterclaim: the issue of standing is procedural and, therefore, governed by Connecticut law, under which P had a colorable claim of injury sufficient to confer standing because the decanting of assets from the first trust, which could be included in the marital estate, directly affected the dissolution court's ability to make equitable financial orders; moreover, the plaintiffs having named P as a defendant in their declaratory judgment action and having acknowledged that she claimed an interest in the trusts assets, P had a right to be heard on the remedy that the plaintiffs sought.

         3. The trial court abused its discretion in awarding attorney's fees to P: in the absence of evidence demonstrating bad faith or other egregious conduct by the plaintiffs, P had failed to demonstrate that the present case qualified for an exception to the general rule that each party must bear his or her litigation expenses; the trial court's partial reliance on a Massachusetts statute (chapter 215, § 45) to award P attorney's fees was misplaced, that statute having authorized an exception to the general rule only in cases originating in a probate court.

         4. This court could not conclude that the trial court had abused its discretion in declining to remove M from his position as a trustee on the ground that he had a conflict of interest that compromised his ability to administer the second trust: the plaintiffs had the authority to decant assets from the first trust, and, in the absence of actual proof of M's breach of fiduciary duty, the mere assertion of a cause of action for such breach against M in his capacity as a trustee did not support the remedy of removal.

         5. P could not prevail on her claim that the judgment of the trial court should be affirmed on the alternative ground that, because F had been entitled to withdraw 75 percent of the assets from the first trust, the second trust was effectively self-settled; in light of the trial court's undisputed factual finding that F took no active role in planning, funding, or creating the second trust, this court could find no authority for the proposition that the second trust should be considered self-settled.

         Procedural History

         Action for a judgment declaring that the plaintiffs, as trustees, had validly exercised their authority to transfer certain assets from one trust to another trust and that the named defendant had no right, title or interest in the trust to which the assets were transferred, brought to the Superior Court in the judicial district of Hartford, where the case was transferred to the judicial district of Middlesex; thereafter, the named defendant filed a counterclaim; subsequently, the court, Munro, J., granted the named defendant's motion to strike an affidavit, denied the plaintiffs' motion for summary judgment, granted in part the named defendant's motion for summary judgment, rendered judgment thereon in favor of the named defendant on certain counts of her counterclaim, and ordered certain other relief; thereafter, the plaintiffs appealed and the named defendant cross appealed, and the defendant Paul John Ferri, Jr., filed a separate appeal. Reversed in part; judgment directed.

          OPINION

          EVELEIGH, J.

         These appeals arise from a declaratory judgment action filed by the plaintiffs, Michael J. Ferri and Anthony J. Medaglia, who are the trustees of a trust created by Paul John Ferri, Sr., in 1983 (1983 trust) solely for the benefit of his son, the defendant, Paul John Ferri, Jr. (Ferri).[1] Specifically, the plaintiffs sought a judgment declaring that they were authorized to decant certain assets from the 1983 trust and that the named defendant, Nancy Powell-Ferri, had no right, title, or interest in those assets. On appeal, the plaintiffs and Ferri assert, inter alia, that the trial court incorrectly concluded that the plaintiffs did not have authority to decant the 1983 trust because Ferri had a vested and irrevocable interest in its assets. We disagree. In light of the opinion issued by the Massachusetts Supreme Judicial Court in response to this court's certified questions; see Ferri v. Powell-Ferri, 476 Mass. 651, 72 N.E.3d 541 (2017); we conclude that, under Massachusetts law, it was proper for the plaintiffs to have decanted assets from the 1983 trust, and, therefore, we reverse the judgment of the trial court on that issue. We also reverse the trial court's award of attorney's fees to Powell-Ferri in this matter. We affirm the judgment of the trial court in all other aspects.

         The following facts and procedural history are relevant to this appeal. ‘‘Powell-Ferri filed an action for dissolution of her marriage to Ferri on October 26, 2010 . . . . Ferri is the sole beneficiary of [the 1983 trust, which was] created by his father, Paul John Ferri, Sr. . . . . The plaintiffs were named as trustees of the 1983 trust. Michael Ferri is Ferri's brother and business partner.

         ‘‘The 1983 trust provides that, after Ferri attained the age of thirty-five, he would have the right to withdraw principal from the trust in increasing percentages depending on his age. In March, 2011, while the underlying dissolution action was pending, the plaintiffs created a second trust whose sole beneficiary was Ferri (2011 trust). The plaintiffs then distributed a substantial portion of the assets in the 1983 trust to the 2011 trust.[2]

         ‘‘Unlike the terms of the 1983 trust, the terms of the 2011 trust do not allow Ferri to withdraw principal. Instead, under the terms of the 2011 trust, the plaintiffs have all of the control and decision-making power as to whether Ferri will receive any of the trust income or assets.

         ‘‘The trial court found that Ferri did not have a role in creating the 2011 trust or decanting any of the assets from the 1983 trust. The trial court further found that it was undisputed that Ferri took no action to recover the trust assets when Michael Ferri informed him of the creation of the 2011 trust and the decanting of the assets. The trial court characterized the reasoning behind this inaction as follows: ‘[Ferri] does not want to [bring a legal action against] his family . . . and he believes the [plaintiffs] are acting in his best interest.'

         ‘‘After the plaintiffs created the 2011 trust and transferred the assets from the 1983 trust to it, they instituted the present declaratory judgment action seeking a ruling from the court that they had validly exercised their authority in transferring the assets and that Powell-Ferri had no interest in the 2011 trust assets. Powell-Ferri filed a counterclaim asserting claims of common-law and statutory fraud, civil conspiracy, and seeking a declaratory judgment. After the trial court struck counts alleging fraud and conspiracy, Powell-Ferri filed a second amended counterclaim, later revised, asserting claims of breach of fiduciary duty, breach of loyalty, tortious interference with an expectancy, and seeking a declaratory judgment, as well as [a cross complaint alleging that Ferri had breached his duty to preserve marital assets during the pendency of their marital ...


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