Otto v. Below
| Decision Date | 22 May 2012 |
| Docket Number | 589,582,2011.,C.A. Nos. 559,2011 |
| Citation | 45 A.3d 120 |
| Parties | Jan P. OTTO, Joel C. Otto, and Nathan C. Otto, Respondent Below Appellants, v. Robert W. GORE, Virginia G. Giovale, David W. Gore, Elizabeth W. Snyder, Scott A. Gore, Thomas K. Gore, Sharon G. Rubin, Brian W. Gore, Peter R. Giovale, Daniel G. Giovale, Michael A. Giovale, Mark N. Giovale, Romy Chen Gore, Jeffrey Chen Gore, Emily Chen Gore, Ryan Chen Gore, Bret A. Snyder, Keith A. Snyder, Sean A. Snyder, and Kelly J. Snyder, Respondents Below Appellees. Susan W. Gore, Petitioner Below Appellant, v. Robert W. Gore, Virginia G. Giovale, David W. Gore, Elizabeth W. Snyder, Scott A. Gore, Thomas K. Gore, Sharon G. Rubin, Brian W. Gore, Peter R. Giovale, Daniel G. Giovale, Michael A. Giovale, Mark N. Giovale, Romy Chen Gore, Jeffrey Chen Gore, Emily Chen Gore, Ryan Chen Gore, Bret A. Snyder, Keith A. Snyder, Sean A. Snyder, and Kelly J. Snyder, Respondents Below Appellees. Jan C. Otto, Respondent Below Appellant, v. Susan W. Gore, Petitioner Below Appellee, v. Robert W. Gore, Virginia G. Giovale, David W. Gore, Elizabeth W. Snyder, Scott A. Gore, Thomas K. Gore, Sharon G. Rubin, Brian W. Gore, Peter R. Giovale, Daniel G. Giovale, Michale A. Giovale, Mark N. Giovale, Romy Chen Gore, Jeffrey Chen Gore, Emily Chen Gore, Ryan Chen Gore, Bret A. Snyder, Keith A. Snyder, Sean A. Snyder, Kelly J. Snyder, Jan P. Otto, Joel C. Otto, and Nathan C. Otto, Respondents Below Appellees. |
| Court | United States State Supreme Court of Delaware |
OPINION TEXT STARTS HERE
Court Below: Court of Chancery of the State of Delaware. C.A. No. 1165.
Upon appeal from the Court of Chancery. AFFIRMED.
Peter S. Gordon, Grover C. Brown (argued), and William Kelleher, Gordon, Fournaris & Mammarella, P.A., Wilmington, Delaware for appellants Jan P. Otto, Joel C. Otto and Nathan C. Otto.
Allen M. Terrell, Jr., W. Donald Sparks, II (argued), Chad M. Shandler, and Allison M. Camara, Richards, Layton & Finger, P.A., Wilmington, Delaware for appellant Susan W. Gore.
Jason C. Powell (argued) and Thomas R. Riggs, Ferry, Joseph & Pearce, P.A., Wilmington, Delaware for appellant Jan C. Otto.
Collins J. Seitz (argued), Seitz Ross Aronstam & Moritz LLP, Wilmington, Delaware; Gregory J. Weinig and Scott E. Swenson, Connolly Bove Lodge & Hutz LLP, Wilmington, Delaware for appellees Scott A. Gore, Thomas K. Gore, Sharon G. Rubin, Brian W. Gore, Peter R. Giovale, Daniel G. Giovale, Michael A. Giovale, Mark N. Giovale, Romy Chen Gore, Jeffrey Chen Gore, Emily Chen Gore, Ryan Chen Gore, Bret A. Snyder, Keith A. Snyder, Sean A. Snyder, and Kelly J. Snyder.
David E. Ross, Seitz Ross Aronstam & Moritz LLP, Wilmington, Delaware; David A. Jenkins, Smith, Katzenstein & Jenkins LLP, Wilmington, Delaware; Of Counsel: Mark C. Hansen, Derek T. Ho (argued), and Michael N. Nemelka, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., attorneys for appellees Robert Gore, Virginia Giovale, David Gore, and Elizabeth Snyder.
Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and RIDGELY, Justices constituting the Court en Banc.
Acting as settlors, Wilbert and Genevieve Gore signed two separate trust instruments in 1972—the “May Instrument” and the “October Instrument”—both purporting to transfer the same property into the “Pokeberry Trust.” Susan Gore, one of their daughters, claims that the earlier May Instrument controls while the other four siblings contend that the settlors never intended the May Instrument to be final and enforceable. The Vice Chancellor rejected Susan's claims. Susan and her children (including Jan C. Otto, her adopted child), raise five arguments on appeal: (1) the May Instrument controls, making the October Instrument a nullity; (2) Jan. C. Otto is a grandchild beneficiary of the trust; (3) the Pokeberry Trust formula should be disregarded because it is flawed; (4) a “mediation agreement” is enforceable; and (5) Jan C. Otto is entitled to specific performance and unjust enrichment. We find that none of these claims has merit, and affirm.
Wilbert (“Bill”) and Genevieve (“Vieve”) Gore founded W.L. Gore and Associates, Inc.2 in 1958. The privately held manufacturing company is headquartered in Newark, Delaware and best known for its GORE–TEX ® fabric.
In 1962, the Gores gave their five children (Robert, Susan, Virginia, David, and Elizabeth) 2,200 shares of Gore stock each. Two years later, the Gores established an irrevocable trust for their children, which distributed another 1,700 shares of Gore stock to each child. By 1965, the Gores had given each of their children a total of 3,900 Gore shares.
In 1971, W.L. Gore and Associates announced the formation of an industrial products group to sell GORE–TEX®. Bill Gore expected the value of Gore stock to grow tenfold over the next ten years. If Bill and Vieve were to suddenly pass away, the passage of highly valued Gore stock to the next generation would trigger massive estate taxes. Paying these taxes would force the sale of large amounts of stock and jeopardize the Company's privately held status.
To avoid that, Bill Gore, in a November 1971 letter to his lawyer, proposed a plan to prepare for the growth and future transfer of Gore stock to his children. The plan involved: (1) the Gores placing most of their Company stock into a holding company; (2) the holding company issuing preferred stock that would reduce the value of the common stock to almost nothing; and (3) the holding company transferring its common stock to a family trust for the Gore's grandchildren. This plan would avoid incurring significant gift tax at the time of transfer, and if the stock appreciated in value, the gains would be realized by the trust rather than by the Gores' estates.
The November 1971 letter described the intended distribution of trust assets to the Gore's “Grandkids.” 3 Specifically, “the trust [would be] distributed into individual trusts when the youngest grandchild reaches 21 years, in a fashion that as nearly as possible equalizes Gore stock and Gore stock expectations from parents and trusts which the grandchildren can be expected to benefit.” 4
An informal discussion with an unidentified person at the U.S. Internal Revenue Service (IRS) indicated that the Gores could solve their estate tax concerns by transferring their Gore stock to a holding company, and thereafter transferring the holding company stock to a family trust. The lawyer suggested obtaining a letter ruling from the IRS blessing the plan, but Bill did not want to wait. Were Bill and Vieve to suddenly pass away before addressing this estate problem, massive estate taxes would be triggered.
Bill and Vieve Gore formed Pokeberry Hill Securities, Inc., the holding company, on January 28, 1972. Months later, the Gores sent another letter to their lawyer summarizing their understanding of the proposed trust. As described in the letter, the grandchildren would receive a total of 7,000 shares of Gore stock based on the following parenthetical:
(their interest in the trust to be such as to equalize the Gore stock ‘expectations' at the time of the death of the last of G.W.G. or W.L.G. or at the time our daughter Betty reaches 45 years of age (or May 2, 1992) whichever occurs last)—note: so that all our Grandkids are born.5
Soon afterwards, the Gores acquired 1,000 shares of Pokeberry common stock in exchange for 7,000 shares of Gore common stock.
On May 8, 1972, the Gores signed, before two witnesses and a notary public, the May Instrument titled “Trust for the Grandchildren of Wilbert L. and Genevieve W. Gore.” Schedule A of the May Instrumentlists “1000 shares of Common Stock of POKEBERRY HILL SECURITIES, INC.” as the property of the purported trust. The settlers, however, did not initial Schedule A. Under the terms of the May Instrument, a large percentage of the trust corpus would need to be sold to pay estate taxes, but the remainder would be evenly divided among all of the Gore grandchildren.6 The Court of Chancery opinion described the May Instrument as a “placeholder.” 7
The next day, Bill wrote a letter describing the distribution of trust assets to his grandchildren based on the Pokeberry formula—a formula that was contrary to the terms of the May Instrument. The letter states:
At termination, we would like to establish the shares in this trust for each grandchild to equalize as nearly as possible the expectations of Gore stock of each grandchild. For this purpose we consider that each of our grandchildren have an expectation of sharing in 3,900 shares of Gore stock from their parents ... 8
This May 9 Letter was the last written reference that the Gores ever made to the May Instrument. After the May 9 letter was sent, the May Instrument disappeared into a file and was never discussed with any of the family members.
Following discussions in the summer of 1972, Bill proposed the final version of the Pokeberry formula in a letter to his attorney dated August 10, 1972. To equalize the expectations of the grandchildren, the formula first set 26,500 as the total shares to be given to all of the grandchildren (3,900 for each child plus 7,000 from the trust). Then, the total number of shares would be divided by the number of grandchildren (19). The result is the target number of 1,395 shares, which the Gores wanted each grandchild to have at the end of the day.
On October 16, 1972, the Gores signed, before a notary public, the October Instrument titled “Trust for Grandchildren of Wilbert L. and Genevieve W. Gore.” 9 Schedule A of the October instrument lists 1,000 shares of Pokeberry common stock. Unlike the May Instrument, the October Instrument also bears the initials “W.L.G. and G.W.G.” 10 The Pokeberry formula is incorporated into the October Instrument. The October Instrument also includes language indicating that the Gores intended for the Pokeberry formula to assume that each of their five...
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