Ferri v. Powell-Ferri

• Decision Date: 08 August 2017
• Docket Number: SC 19432, SC 19433
• Citation: 165 A.3d 1137,326 Conn. 438
• Court: Connecticut Supreme Court
• Parties: Michael J. FERRI, Trustee, et al. v. Nancy POWELL–FERRI et al.

326 Conn. 438

165 A.3d 1137

Michael J. FERRI, Trustee, et al.

v.Nancy POWELL–FERRI et al.

SC 19432, SC 19433

Supreme Court of Connecticut.

Argued November 12, 2015

Officially released August 8, 2017

Dominic Fulco III, with whom was John W. Larson, for the appellants and cross appellees in SC 19432, and the appellees in SC 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 SC 19432, and the appellee in SC 19433 (named defendant).

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

Palmer, Eveleigh, McDonald, Espinosa and Robinson, Js.^*

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 dissolution action by failing to take any affirmative steps to contest the decanting of certain assets from a trust by the plaintiffs]." (Footnote in original.) Ferri v. Powell–Ferri , 317 Conn. 223, 225–26, 116 A.3d 297 (2015).³

The trial court agreed with Powell–Ferri that the plaintiffs were not allowed to decant assets from the 1983 trust because Ferri had a vested irrevocable interest in 75 percent of those assets and that, therefore, the 1983 trust document did not authorize the plaintiffs to decant that portion of the trust. The trial court determined that Massachusetts law allowed for decanting, generally, but only if the specific trust language gave the plaintiffs absolute and uncontrolled discretion or an analogous power. The trial court held that the 1983 trust, which granted the plaintiffs the power to "segregate irrevocably," did not encompass the type of absolute power necessary to decant the 1983 trust. Instead, the court held that in construing the "segregate irrevocably" language, it needed to look at the entire context of the trust document. The court decided that because the language "segregate irrevocably for later payment to [Ferri]" was followed by a paragraph stating that the plaintiffs "shall pay to [Ferri] ... as he may from time to time request in writing," the 1983 trust made clear that the funds were for payment to Ferri and that the plaintiffs were obligated to pay if and when Ferri requested payment. The trial court further stated that, even though Ferri had not requested a distribution from the 2011 trust, the plaintiffs could avoid paying him under the terms of the 2011 trust, which would frustrate the payment provisions of the 1983 trust.

Although the trial court found that the decanting violated the terms of the 1983 trust, it did not order restoration of the entire 1983 trust. Instead it ordered the plaintiffs to restore 75 percent of the assets to the 1983 trust. The court found that, at the time of decanting, Ferri did not have any right to direct, control or receive 25 percent of the trust corpus, and, therefore, the plaintiffs were authorized to decant that portion of the 1983 trust. These appeals followed.⁴

On appeal, the plaintiffs and Ferri claim that, under Massachusetts law, the plaintiffs were authorized to decant the entirety of the 1983 trust. Specifically, the plaintiffs and Ferri assert that Massachusetts law allowed the decanting because the terms of the 1983 trust unambiguously granted the plaintiffs such power. The plaintiffs and Ferri further claim that Ferri's unexercised right of withdrawal did not restrict the plaintiffs ability to decant. Next, the plaintiffs and Ferri claim that Powell–Ferri lacked standing to challenge the plaintiffs' actions. Finally, the plaintiffs and Ferri claim that Powell–Ferri was not entitled to an award of attorney's fees. In her cross appeal, Powell–Ferri claims that the trial court improperly refused to remove Michael Ferri from his position as a trustee of the 1983 trust. Powell–Ferri also asserts, as an alternative ground for affirming the judgment of the trial court, that the 2011 trust was effectively self-settled. We address each of these questions in turn.

I

The resolution of the first issue in this appeal presented a novel issue of Massachusetts trust law—namely, whether the trial court correctly determined that the plaintiffs did not have authority to decant the assets of the 1983 trust. Therefore, we certified the following three questions to the Massachusetts Supreme Judicial Court: (1) "Under Massachusetts law, did the terms of [the 1983 trust] empower [the plaintiffs] to distribute substantially all of its assets ... to [the 2011 trust]?" (2) "If the answer to [the first question] is ‘no,’ should either [75 percent] or [100 percent] of the assets of the 2011 [t]rust be returned to the 1983 [t]rust to restore the status quo prior to the decanting?" (3) "Under Massachusetts law, should a court, in interpreting whether [Paul John Ferri, Sr.] intended to permit decanting to another trust, consider an affidavit [from him], offered to establish what he intended when he created the 1983 [t]rust?" The Massachusetts Supreme Judicial Court answered the first and third questions in the affirmative.⁵

Ferri v. Powell–Ferri , supra, 476 Mass. at 663–64, 72 N.E.3d 541. We adopt the Massachusetts Supreme Judicial Court's thorough and well reasoned decision in full.⁶ On the basis of that decision, we conclude that the trial court incorrectly determined that the plaintiffs did not have authority to decant the 1983 trust and, accordingly, reverse the judgment of the trial court on that issue.⁷

II

The plaintiffs and Ferri also claim that the trial court incorrectly concluded that Powell–Ferri had standing to challenge the plaintiffs' actions of decanting the 1983 trust and to assert her counterclaims against the plaintiffs in connection with their actions as trustees. Specifically, the plaintiffs and Ferri claim that, because Powell–Ferri is not a beneficiary of the 1983 trust, she cannot challenge the plaintiffs' actions as trustees. We disagree.

The trial court determined that Powell–Ferri had standing to challenge the plaintiffs' actions related to the 1983 trust. The trial court concluded that "[t]he 1983 trust is marital property under Connecticut law. Therefore, [Powell–Ferri] had an inchoate interest in that property,...