Demircan v. Mikhaylov, Nos. 3D18-2054

• Decision Date: 20 May 2020
• Docket Number: Nos. 3D18-2054,3D18-1684
• Citation: 306 So.3d 142
• Parties: Genna DEMIRCAN, etc., et al., Appellants, v. Igor MIKHAYLOV, et al., Appellees.
• Court: Florida District Court of Appeals

306 So.3d 142

Genna DEMIRCAN, etc., et al., Appellants,

v.Igor MIKHAYLOV, et al., Appellees.

Nos. 3D18-2054

3D18-1684

District Court of Appeal of Florida, Third District.

Opinion filed May 20, 2020

Scott Alan Orth (Hollywood), for appellants.

Holland & Knight LLP, and Rebecca M. Plasencia and Israel J. Encinosa and Brett A. Barfield, for appellees.

Before LOGUE, SCALES and LOBREE, JJ.

LOBREE, J.

In this consolidated appeal, Genna Demircan (the "former trustee") and Nelson Rincon (the "current trustee"), successive trustees of the Igor Mikhaylov 2015 Irrevocable Trust (the "trust"), challenge a probate division final order modifying the business trust, as well as a civil division order denying attorney's fees to one of the trustees in the initial action for modification brought by Igor Mikhaylov (the "settlor") and Sergei Mikhaylov, Alexandra Mikhaylov, Anastasia Mikhaylov, and Audrey Mikhaylov (the "beneficiaries"). Because the trustees’ charges of procedural and evidentiary error in the modification proceedings were either unpreserved or invited, and the remaining arguments before us are unavailing, we affirm the modification order. However, we find the denial of attorney's fees for the former trustee erroneous and, therefore, reverse the order of denial.

Factual and Procedural Background

Seeking to invest in a complex business venture involving the development of a shopping mall, the settlor created the trust, initially consisting of $25,000,000. Its purpose was both to fund the venture and benefit the settlor's children, only one of whom has been an adult at all material times. Originally, the trust designated and appointed the former trustee as well as named Anatoly Zinoviev ("Zinoviev") as the only person with power to remove the trustee (or appoint additional trustees to her).

After a series of disagreements over the scale of the development between the settlor, Zinoviev, and the former trustee, the settlor halted all funding by the trust. This saddled the business entities carrying out the development with debt and liens by contractors and vendors. Deciding to modify the trust by stripping Zinoviev of his powers and removing the former trustee, the settlor and beneficiaries filed suit in the civil division, naming both as defendants. Zinoviev and the former trustee successfully moved to dismiss the initial complaint and, shortly after the filing of an amended one, the settlor and beneficiaries voluntarily dismissed the civil division suit without prejudice. The former trustee unsuccessfully moved for attorney's fees in this action.

The same day that they voluntarily dismissed their complaint in the civil division, the settlor and beneficiaries refiled suit in the probate division, seeking identical relief, but this time not naming Zinoviev as a defendant. Becoming aware that Zinoviev had recently appointed the current trustee, the settlor and beneficiaries amended their complaint to name him as a defendant and sought his removal as well. Well before the final hearing, the former trustee agreed to resign as trustee and sought to be dismissed from the suit.

Because motions to dismiss and to stay had not been disposed of and the parties agreed, the trial court carried them with the final hearing to adjudicate the merits of the complaint. At the hearing, the current trustee argued that Zinoviev was an indispensable party who had not been joined, that the beneficiaries’ consent was not sufficiently shown, and that common law modification required consideration of factors other than consent, as reflected in chapter 736, Florida Statutes. Despite these contentions, the trial court granted relief as a matter of law, allowed the modification of the trust, denied the removal of the former trustee as moot, and denied the current trustee's removal for lack of authority to order such. On the issue of modification, noting the settlor and all beneficiaries’ consent, the trial court granted the requested relief pursuant to the common law rule expressed in Preston v. City National Bank of Miami, 294 So. 2d 11, 14 (Fla. 3d DCA 1974). These consolidated appeals follow.

Standards of Review

We review de novo a trial court's construction of trust provisions, as well as its interpretation or application of controlling statutes, common law rules, or other legal principles. See Brigham v. Brigham, 11 So. 3d 374, 381-82 (Fla. 3d DCA 2009) (reviewing de novo interpretation, application and misapplication of trust statutes, other controlling Florida law, and trust provisions); Credo LLC v. Speyside Invs. Corp., 259 So. 3d 893, 898 (Fla. 3d DCA 2018) ("If a legal principle is involved, the standard of review is de novo ."). We also review de novo the determination of whether a party has standing. Herbits v. City of Miami, 207 So. 3d 274, 281 (Fla. 3d DCA 2016). While a trial court's denial of attorney's fees is generally reviewed for abuse of discretion, its determination of legal entitlement under statute or contract is reviewed de novo. Radosevich v. Bank of New York Mellon, 245 So. 3d 877, 880 (Fla. 3d DCA 2018).

Analysis

1. The current trustee has standing to appeal the trust's modification.¹

"In its broadest sense, standing is no more than having, or representing one who has, ‘a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy.’ " Kumar Corp. v. Nopal Lines, Ltd., 462 So. 2d 1178, 1182 (Fla. 3d DCA 1985) (quoting Sierra v. Morton, 405 U.S. 727, 731, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972) ). The trust here gave the trustees "all powers given to [them] by applicable law." Such trust provisions confer upon the trustee the standing recognized by statute or the common law. Reid v. Temple Judea, 994 So. 2d 1146, 1150-51 (Fla. 3d DCA 2008) (construing clause "the Trustee has the powers now or hereafter provided by law" as giving trustee standing to seek modification of trust). In Florida, a trustee shall not only "take reasonable steps to enforce claims of the trust and to defend claims against the trust," section 736.0811, Florida Statutes (2016), but "[a]ny person interested as ... trustee" may also have a declaration of rights to "determine any question relating to the administration of the ... trust, including questions of construction ...." § 86.041(3), Fla. Stat (2016). As we noted in Reid, "it is clear to us that in cases involving a determination of the settlor's true intent, a trustee is an ‘interested person,’ and an ‘interested person’ has standing to seek reformation of a trust." 994 So. 2d at 1151 ; see also Wells v. Wells, 24 So. 3d 579, 583 (Fla. 4th DCA 2009) (holding that pursuant to section 86.041 potentially wrongfully removed co-trustee had standing as interested person to bring cause of action for declaratory judgment). Here, where the trust conferred upon the trustee standing to seek its modification or sue for a declaration that he cannot be removed, it necessarily conferred standing to oppose modification on appeal, despite the current trustee's success below in the matter of his removal.

2. The trial court did not err by failing to join an indispensable party.

An indispensable party is "one whose interest will be substantially and directly affected by the outcome of the case," where "the subject matter is such that if he is not joined a complete and efficient determination of the equities and rights between the other parties is not possible." Dep't of Revenue ex rel. Preston v. Cummings, 871 So. 2d 1055, 1058 (Fla. 2d DCA 2004). Generally, the only indispensable parties to a trust action—including a modification—are the trustee, the settlor and the beneficiaries. See, e.g., Sylvester v. Sylvester, 557 So. 2d 599, 600 (Fla. 4th DCA 1990). Here, a "complete and efficient determination of the equities and rights between the other parties" was indeed possible without joining Zinoviev, and the equities only militate in favor of the settlor and beneficiaries’ proposed modification.² As such, the trial court did not err by failing to join Zinoviev as an indispensable party.

3. The trial court did not err as a matter of law in modifying the trust.

Contrary to the current trustee's primary argument, the trial court did not err in its application of Preston, 294 So. 2d at 11. The current trustee argues that common law modification has been either abrogated or qualified by the legislature's enactment of chapter 736, which allows judicial modification of trusts only upon certain evidentiary findings regarding, among other things, the impracticability or materiality of the trust's purpose. See § 736.04113(1), Fla. Stat. (2016). Because the trial court here failed to make such findings, the trustees contend the modification was invalid. The settlor and beneficiaries, however, correctly note that a common law trust modification under Preston is neither abrogated, nor controlled by section 736.04113 ’s requisite findings. Judicial modifications at common law are different from—and have so far survived—judicial modifications under chapter 736.

At common law, neither settlors nor beneficiaries have, by themselves , a right to modify an irrevocable trust, except pursuant to a power identified in the trust. MacFarlane v. First Nat'l Bank of Miami, 203 So. 2d 57, 60 (Fla. 3d DCA 1967) ("[A] valid trust once created, cannot be revoked or altered except by the exercise of a reserved power to do so."); Bogert's Trusts and Trustees § 992 (2d ed. 1962) ("[A] settlor ha[s] no power to modify the trust ... if the settlor did not expressly reserve such power in the trust instrument ... [and] neither some nor all of the beneficiaries have an implied power to modify the trust [either].").

However, in Preston, this Court noted:

The terms of a trust may be modified if the settlor and all the beneficiaries consent. Having the power to terminate, they obviously have the power to create a new trust or to modify or change the old. In Florida, this principle has long been recognized.

Preston, ...