In re Estate
| Decision Date | 20 March 2020 |
| Docket Number | NO. CAAP-17-0000826,CAAP-17-0000826 |
| Citation | 463 P.3d 1248 |
| Parties | The ESTATE OF Joanna Lau SULLIVAN, aka Joanna Ngit Cho Lau Sullivan, Deceased |
| Court | Hawaii Court of Appeals |
On the briefs:
Paul Alston, Honolulu, Kristin L. Holland, (Alston Hunt Floyd & Ing), and Thomas E. Bush, (Thomas E. Bush Law Office, LLLC), for Petitioner-Appellant COLLEEN H.A. SULLIVAN.
Carroll S. Taylor, Honolulu, (Taylor, Leong & Chee), and Emily Y. Kawashima Waters, for Respondent-Appellee ELLIOT H. LODEN, Personal Representative.
Rhonda L. Griswold, Summer G. Shelverton, Pohai A.N. Campbell, (Cades Schutte LLP), Honolulu, for Respondents-Appellees MAUREEN JENAI SULLIVAN WALL and KATHLEEN WENG AI SULLIVAN WO.
FUJISE, PRESIDING JUDGE, LEONARD, J.; AND CIRCUIT JUDGE SOUZA, IN PLACE OF GINOZA, C.J., AND CHAN, HIRAOKA AND WADSWORTH, JJ., ALL RECUSED
This case arises out of a petition for the probate of a will and the appointment of a personal representative to administer the decedent's estate. One of the decedent's children petitioned for the appointment of a special administrator to properly administer a potential claim against the decedent's estate planning attorney, who is now the personal representative of the decedent's estate. The potential claim is that the attorney may have negligently advised the decedent and/or provided her with materially inaccurate information, which she allegedly relied on to the detriment of her estate or certain beneficiaries of her estate.
As explained below, we hold, inter alia , that under Hawai‘i law: (1) a special administrator is appointed when a personal representative cannot or should not act temporarily, such as when a conflict of interest exists; (2) a fundamental duty of a personal representative is to act as a fiduciary, consistent with the best interests of the estate and successors to the estate; (3) a personal representative cannot properly administer an estate with respect to evaluating issues related to a legally-cognizable claim against the personal representative himself because his self-interest creates a conflict with his fiduciary duties to the estate; (4) based on the potential claims identified by the petitioner here, we cannot conclude that there is no justiciable claim subject to the administration of the estate; and (5) therefore, the appointment of a special administrator is necessary under the circumstances of this case.
Petitioner-Appellant Colleen H.A. Sullivan (Colleen ) appeals from the Amended Judgment on Order Denying Petition to Appoint a Special Administrator (Amended Judgment ), entered on November 9, 2017, in the Circuit Court of the First Circuit sitting in probate (Probate Court ).1 Colleen also challenges the Probate Court's Order Denying Petition to Appoint a Special Administrator (Order Denying Appointment ), entered on February 27, 2017, as well as an earlier judgment, which was entered on February 27, 2017 (Judgment ).2
The Decedent, Joanna Ngit Cho Lau Sullivan (Mrs. Sullivan ), along with her husband, Maurice J. Sullivan (Mr. Sullivan ), started the Foodland Super Market, Limited (Foodland ) chain of grocery stores. Mr. and Mrs. Sullivan had four children: Respondent-Appellee Maureen Jenai Sullivan Wall (Jenai ); Respondent-Appellee Kathleen Weng Ai Sullivan Wo (Kitty ); Patrick Joseph Dick Ming Sullivan (Patrick ); and, Colleen. Mr. Sullivan died in 1998.
Foodland stock is not publically traded. At some time in or prior to 2001, all four children owned shares of Foodland common stock. In 2001, Patrick and Colleen sold all of their Foodland common shares to Mrs. Sullivan, Jenai, and/or Kitty. Patrick and Colleen have not been actively involved with the operation of Foodland.
The Joanna Lau Sullivan Family Limited Partnership (Joanna FLP ) is a limited partnership holding closely held stock of Foodland. At some time prior to December 28, 2011, Mrs. Sullivan transferred all of her 21.33% interest of common shares in Foodland to the Joanna FLP.
Respondent-Appellee Elliot H. Loden (Loden ), who is now the personal representative of Mrs. Sullivan's estate (Estate ), was Mrs. Sullivan's estate planning attorney. It appears that Mrs. Sullivan's estate plan included a will (Will ) and a trust, entitled the Revocable Trust of Joanna Ngit Cho Lau Sullivan (Trust ).3 The Will, which was executed in 2008, and the Trust apparently were both drafted by Loden. The Will named Loden as the Personal Representative. Both the Will and Trust include a "no-contest" provision.
On or about September 28, 2012, Mrs. Sullivan filed a 2011 United States Gift (and Generation-Skipping Transfer) Tax Return (2011 Return ). The 2011 Return reported certain cash gifts to Mrs. Sullivan's children and grandchildren. The 2011 Return also reported gifts, dated December 28, 2011, transferring general and limited partnership interests in the Joanna FLP to Jenai and Kitty. The 2011 Return included an appraisal of Foodland business interests—performed by Loden, who signed it as Appraiser and Attorney-At-Law—to support the valuation of the Joanna FLP interests gifted by Mrs. Sullivan. Loden's appraisal purportedly employed two different methods of valuing Foodland, ultimately rejecting a method based on capitalization of earnings4 and instead adopting a method based on book value, which was purportedly derived from a Foodland balance sheet and profit and loss statements. The appraisal also applied a "reasonable minority interest and lack of marketability" discount of 25% to the derived "final fair market value" to reflect a minority ownership interest in a closely-held business.
On or about May 9, 2013, Mrs. Sullivan filed a 2012 United States Gift (and Generation-Skipping Transfer) Tax Return (2012 Return ). The 2012 Return reported additional gifts, dated January 3, 2012, transferring additional general and limited partnership interests in the Joanna FLP to Jenai and Kitty. The 2012 Return again included an appraisal of Foodland business interests—signed by Loden as Appraiser and Attorney-At-Law—that was essentially identical to the appraisal supporting the 2011 Return. The Loden appraisals, which were dated July 27, 2012, and April 15, 2013, both valued the "donor's" 21.33% interest in Foodland as of a valuation date of December 2011, at $1,359,787.
Mrs. Sullivan passed away at the age of 94 on September 2, 2015.
On October 22, 2015, Loden filed a Petition for Probate of Will and for Appointment of Personal Representative (Petition for Probate ). The Petition for Probate requested that the Will be admitted to probate as and for the Last Will and Testament of Mrs. Sullivan and that Loden be named as the Personal Representative. On January 11, 2016, the Probate Court entered an order granting the Petition for Probate and naming Loden as the Personal Representative.
In May of 2016, Colleen's counsel obtained copies of the 2011 and 2012 Returns. Colleen's counsel engaged the services of Mark Hunsaker, a certified public accountant accredited in business valuation, certified business appraiser, and certified valuation analyst (Hunsaker ), to review the appraisals submitted with the returns. Hunsaker opined, for various reasons, that Loden's appraisals of Foodland "are not trustworthy valuations."
On September 12, 2016, Colleen's counsel wrote to Loden's counsel regarding "a potentially significant problem with the administration of [Mrs. Sullivan]'s estate and trust." The gravamen of the letter was that, if Loden's appraisals undervalued the Joanna FLP interests gifted to Jenai and Kitty, Mrs. Sullivan would have received and relied upon erroneous information that was material to her estate plan in attempting to equalize gifts among her children. The letter suggested that such an error might be rectified through a "reallocation" of residual assets.5 The letter went on to provide that it would be in Loden's best interests to get a proper valuation of the Joanna FLP interests prior to any significant distribution of Estate or Trust assets. The letter concluded by pointing out the "complication" that the appraisals in question were prepared by the current Personal Representative, and proposing that Loden either step down as Personal Representative and Trustee, or that a Special Administrator be appointed to secure a new appraisal(s) of the Joanna FLP interests.
On October 4, 2016, Loden's counsel responded. Counsel noted Loden's professional experience in business valuation and disputed that Mrs. Sullivan intended equal distributions to her children, as opposed to equitable distributions. Loden challenged Hunsaker's conclusions, noting in particular that the sole purpose of Loden's appraisals was for use in the filing of the respective 2011 and 2012 Returns.
On October 13, 2016, Colleen's counsel replied, indicating, inter alia , Loden's potential malpractice liability and resulting conflict of interest. Colleen again requested that Loden agree to the appointment of a Special Administrator. On October 24, 2016, through counsel, Loden declined to do so.
On November 3, 2016, Colleen filed a Petition to Appoint a Special Administrator (Petition to Appoint ), which sought the appointment of a Special Administrator to obtain financial information regarding the valuation of the 2011 and 2012 limited partnership gifts for the purpose of determining the value of the gifts and "the effect of an appropriate valuation on the estate." The Petition to Appoint submits that Mrs. Sullivan's estate plan shows an attempt to treat her four children more or less equally, in particular, that the limited partnership gifts were offset by cash gifts to Colleen and Patrick in the Trust, which was amended in the same time frame as the limited partnership gifts. The Petition to Appoint asserts that, depending on the result of the valuation, either the Estate or the aggrieved beneficiaries might pursue a claim against Loden.6
Loden opposed the Petition to Appoint, noting his...
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