DuPont v. Southern Nat. Bank of Houston, Texas, Civ. A. No. H-81-1546.
| Decision Date | 27 September 1983 |
| Docket Number | Civ. A. No. H-81-1546. |
| Citation | 575 F. Supp. 849 |
| Parties | Eugene duPONT III, Plaintiff, v. SOUTHERN NATIONAL BANK OF HOUSTON, TEXAS, Trustee, et al., Defendants. |
| Court | U.S. District Court — Southern District of Texas |
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J. Clifford Gunter III, Bracewell & Patterson, Houston, Tex., for plaintiff.
A. Hoyt Rowell, III, Gibbs, Gaillard & Rowell, Charleston, S.C., Margaret Irene Jones, John duPont Waters, Virginia Irene Waters, Florence, S.C., Duncan E. Osborne, John T. Anderson, Graves, Dougherty, Hearon, Moody & Garwood, Austin, Tex., Frank B. Davis, Andrews & Kurth, Houston, Tex., Robert A. Gwinn, Jerry D. Johnson, Johnson, Bromberg & Leeds, Dallas, Tex., Ronald L. Palmer, Baker & Botts, Houston, Tex., George J. Goldsborough, Jr., Goldsborough, Franch & Collett, P.A., Easton, Md., H. Lee Godfrey, Wood, Campbell, Moody & Gibbs, Houston, Tex., for defendants.
Leslie Dudley Myrin, pro se.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This is a civil action brought by Plaintiff Eugene duPont III against the trustees, income and contingent beneficiaries and remaindermen of an inter vivos trust created by Plaintiff on December 14, 1972, seeking, inter alia, to have the Court rescind, revoke or modify the trust. The case was tried to the Court. At the close of Plaintiff's evidence Defendants Southern National Bank of Houston, John H. Gardner, Edward J. Brady and Eugene duPont IV moved for dismissal of the action pursuant to Rule 41(b), Fed.R.Civ.P. After considering the weight and credibility of the evidence and the argument of the parties, the Court granted the motion for Defendants on the issue of validity of the trust, but found that trustee fees were improperly calculated. The Court enters the following findings of fact and conclusions of law pursuant to Rule 52(a), Fed.R.Civ.P.
1. Plaintiff, Eugene duPont III ("duPont III"), is a resident of the State of Florida. Plaintiff is settlor of an inter vivos trust under an agreement dated December 14, 1972 ("Trust").
2. Defendant, Southern National Bank of Houston, Texas ("SNB"), is a banking corporation with its offices in Houston, Harris County, Texas. SNB is the corporate trustee under the Trust and is a party to this action in its capacity as trustee.
3. Defendant, Edward J. Brady ("Brady"), is a resident of the State of New York. Brady is a trustee under the Trust and is a party to this action as trustee.
4. Defendant, John H. Garner ("Garner"), is a resident of the State of Texas. Garner was an officer of SNB and subsequent to his resignation from SNB was appointed as an individual trustee under the Trust. He is a party to this action as trustee.
5. Defendant, Eugene duPont IV ("duPont IV") resides in the State of Maryland and is the minor son of Plaintiff and a former wife, Joanne A. duPont. He is a life income beneficiary under the Trust.
6. Defendant, Margaret Irene Jones ("Jones"), is a daughter of Plaintiff and a contingent beneficiary and remainderman under the Trust. Jones is a resident of the State of South Carolina.
7. Defendant, Daphne Burma Vaughan ("Vaughan"), is a daughter of Plaintiff and a contingent beneficiary and remainderman under the Trust. Vaughan is a resident of the State of Texas.
8. Defendant, Leslie Dudley Myrin ("Myrin"), is a daughter of Plaintiff and a contingent beneficiary and remainderman under the Trust. Myrin is a resident of the State of Wyoming.
9. Defendant, Genette Lee duPont ("Genette duPont"), is a contingent beneficiary and remainderman under the Trust. Genette duPont is a resident of the State of South Carolina.
10. Defendants, John duPont Waters ("John Waters"), Virginia Irene Waters ("Virginia Waters"), Benjamin Franklin Vaughan IV ("Benjamin Vaughan IV"), Cuthbert Latta Myrin, Jr. ("Cuthbert Myrin"), and Mimi duPont Myrin ("Mimi Myrin"), are the grandchildren of Plaintiff and are contingent beneficiaries and remainderman under the Trust. John Waters and Virginia Waters reside in Florence, South Carolina. Benjamin Vaughan IV resides in Austin, Texas. Cuthbert Myrin and Mimi Myrin are minor grandchildren of Plaintiff who reside in Jackson, Wyoming.
11. In his original complaint, duPont III brought this action seeking to have the Court rescind or revoke the Trust on the grounds (1) that he created the Trust based on a mistake of fact and law—specifically, that the transaction would not be subject to federal transfer taxes; (2) that the purposes for which he created the Trust have become frustrated and impossible to accomplish; (3) that through no fault of his own, the Trust was never fully consummated; and (4) that the Trust was improvidently created by him.1 Alternatively, duPont III seeks to have the Trust modified and reformed to include a marital deduction clause, a by-pass trust or a tax allocation clause.
12. In a motion to amend the complaint, which was granted by the Court on November 9, 1982, as a motion to supplement pleadings, Plaintiff sought to have the Court remove Brady and Gardner as trustees on the grounds that there is hostility between these trustees and Plaintiff and that they no longer render beneficially active services to the Trust. Additionally, Plaintiff supplemented his complaint to allege that the trustees incurred excessive, duplicative and unnecessary legal fees to defend this action. Additionally, Plaintiff contends that the legal fees, which were charged to the income account of the Trust, should have been allocated between the corpus and income accounts.
13. In his answer, duPont IV counterclaimed alleging that the Trust is valid and enforceable and seeking to have the Court order duPont III to transfer to the Trust all properties in his possession and under his control which are the subject of the Trust; award punitive damages because Plaintiff's allegations are wanton, malicious and unfounded; and award reasonable attorney fees for this action.
14. On December 14, 1972, duPont III created an inter vivos trust naming Brady and SNB as co-trustees. After the Trust was established Garner resigned his position at SNB and, at duPont III's request, was appointed a co-trustee.
The dispositive provisions of the Trust provide for successive life estates in duPont III, as settlor, and his son duPont IV, followed by a contingent remainder in certain descendants of the settlor. During settlor's lifetime, the trustees are authorized to distribute at their sole discretion all or any part of the income of the Trust to the settlor. Since the Trust was created, the trustees have made discretionary payments of the entire income account to duPont III.
15. The gravamen of Plaintiff's argument is premised on the factual contention that his primary motive for creating this Trust was to minimize the ultimate transfer tax liability incurred by his estate upon his death.2 The Court, however, disagrees with Plaintiff's contention, concluding that on the basis of the evidence, duPont III's primary, if not exclusive, purposes in creating the Trust were (1) to prevent Joanne A. duPont, his former spouse, from obtaining duPont III's property in the event of divorce and (2) to provide for duPont IV on an economic level equal to that which had already been provided to duPont III's children by previous marriages.
This finding is based on weighing the credibility of the evidence and drawing relevant inferences from the following:
(a) The testimony of Brady, duPont III's former lawyer and confidant which the Court finds clear and convincing. Brady testified that he began discussing formation of the Trust with duPont III in February, 1972, and that the purpose for the Trust was not transfer tax considerations but was "to keep the property away from Joanne duPont." This position was confirmed in a third party memorandum dated October 26, 1972, prepared by Edward W. Turley, Jr., who at the time was a partner in a Houston law firm, indicating that it was his understanding "that Mr. duPont wants to place this property in trust, so that Joanne A. duPont will have no rights with respect to the property placed in trust if she subsequently institutes an action for separation or divorce." DuPont III's Exhibit 14. Although duPont III denies this statement as a motive, the Court relied on its credibility based on duPont III's testimony that it was not his position that Brady fraudulently induced him to execute the Trust and that if the Trust was created for tax purposes it seems more likely so than not so that duPont III would emphasize to third parties the exclusive purpose of the Trust to be tax avoidance.
(b) Secondly, duPont III transferred a substantial number of personal assets with a nominal asset value to the corpus of the Trust. The Court infers that the transfer of these assets, such as a soup tureen and plates, duPont III's Exhibit 6, indicates that the Trust was established for purposes other than minimization of transfer tax liability on the settlor's estate.
(c) Finally, duPont III was apprised of the tax consequences of the transfer in late 1977. Yet in light of his sophistication in financial matters and prior experiences with his father's estate, he continued to utilize and rely upon the validity of the Trust. During his divorce proceedings with Joanne duPont, Plaintiff relied upon the validity of the Trust to assert that his estate was nominal, Finding of Fact No. 19, and to effect the divorce settlement with Joanne.
16. At the time the Trust was created there was a dispute as to transfer tax liability. In his memorandum dated October 26, 1972, Turley concluded that "... when a pure discretionary trust is created, it is not clear that either a gift or an estate tax is required to be paid." DuPont III's Exhibit 14, p. 2. The memorandum and Turley letter of November 16, 1972, indicates that the parties intended to treat this item as a...
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