Porter v. Ogden & Newell
| Decision Date | 15 February 2001 |
| Citation | 241 F.3d 1334 |
| Parties | (11th Cir. 2001) H. Boone PORTER, III, in his capacity as individual co-trustee of the H. Boone Porter Trust created under Deed of Trust dated |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Appeals from the United States District Court for the Middle District of Florida.94-00051-CIV-J-16A), John H. Moore, II, Judge.
Before TJOFLAT, BIRCH and DUBINA, Circuit Judges.
The Trustees of the Estate of H. Boone Porter appeal the district court's order finding that a legal malpractice action against the Defendants had not accrued under Florida law because no injury had occurred. Also appealed are an order of a magistrate judge denying the Trustees' motion to compel and an order of the magistrate judge permitting the Trustees to obtain financial worth documents. We affirm in part and reverse in part.
This case revolves around H. Boone Porter's ("H.Boone") will and deed of trust. In 1960, the law firms of Rogers, Towers & Baily, (the "Bailey firm"), and Ogden, Newell, & Welch, (the "Ogden firm"),1 jointly prepared a will and deed of trust for H. Boone. The law firms drafted the deed of trust to create a "double generation skipping trust" that would benefit H. Boone during his lifetime, then his wife and his son, Reverend Porter, and finally Reverend Porter's children and grandchildren. Although H. Boone's estate included the trust corpus in his taxable estate, the generation skipping trust would provide great tax advantage to H. Boone by protecting the trust's corpus from taxation until the death of H. Boone's great-grandchildren.
In order to create a "double generation skipping trust," one must comply with the relevant tax laws, rules, and regulations. Here, the Ogden firm reviewed the initial deed of trust drafted by the Bailey firm and made suggestions to ensure compliance with the Internal Revenue Code ("IRC"). The Bailey firm made the suggested changes. One of these changes created a provision permitting Reverend Porter to assume a co-trustee position with the corporate trustee. Furthermore, at some point during the revision of the deed of trust, paragraph 8 of the deed of trust was drafted to state as follows:
8. The Trustee is authorized to pay, out of principal of the trust property, to or for the benefit of any beneficiary who at the time is entitled to receive income from the trust property, hospital, nursing and medical expense of any such beneficiary, and also such amounts as may be considered advisable for the maintenance, support and welfare of any such beneficiary; but the amount or amounts of any such payments shall be determined by the Trustee in its sole discretion.
(Emphasis added). Plaintiffs complain that the inclusion of the word "welfare" in the above paragraph has caused the "double generation skipping trust" to fail.
Under current tax law, when a trust beneficiary holds a general power of appointment, the trust corpus must be included in his taxable estate. See I.R.C. 2041(a)(2). A trust beneficiary has a "general power of appointment" if he has the power to distribute the corpus to himself as a beneficiary, except if the trust limits this power "by an ascertainable standard relating to the health, education, support or maintenance" of the beneficiary. See I.R.C. 2041(b)(1). According to Treasury Regulation 20.2041-1(c)(2), "[a] power to use property for the comfort, welfare or happiness of the holder of the power is not limited by the requisite standard." Thus, a provision in a trust instrument which allows for the paying out of the corpus to the beneficiary for his or her welfare is not limited and is treated as a general power of appointment. As a result, the Trustees believe that, upon the death of Reverend Porter, the trust corpus may be included in his estate for tax purposes because the deed of trust permits Reverend Porter to distribute funds for his welfare.
Reverend Porter discovered this potential problem in 1990 and attempted to remedy it. Reverend Porter's law firm informed him that federal tax law examines state law to determine whether the word "welfare" has an ascertainable standard. At that time, Florida law was unsettled as to the meaning of the word "welfare." In order to ensure favorable treatment under Florida law, Reverend Porter lobbied the Florida Legislature to change the law. He succeeded and the Florida Legislature changed the law so that the inclusion of the word "welfare" in a Florida trust instrument does not give the trustee the ability to do more than disperse limited amounts of the corpus, thereby complying with the limiting requirements of the tax laws.
After the change in Florida law, Reverend Porter hired the law firm of Miller & Chevalier to request a private letter ruling from the Internal Revenue Service ("IRS"). The law firm gave the IRS the facts of the case, including the changes in the Florida law, and requested its opinion. In response, the IRS stated that it would not find the trust to be a part of the Reverend's estate.2 See Priv. Ltr. Rul. 9510065. Because this letter ruling depended on the recently enacted Florida law, Reverend Porter took two other actions designed to ensure that the trust would achieve the generation-skipping result even if Florida changed its law. First, Reverend Porter succeeded in seeking a judicial reformation of the trust instrument to remove the word "welfare" from Paragraph 8, on the ground that the word's presence was a scrivener's error. Second, he sought another private letter ruling from the IRS. In response to Reverend Porter's inquiry, the IRS stated that the judicial reformation would not trigger any adverse tax consequences. See Priv. Ltr. Rul. 199942016.
Subsequently, the Trustees of Reverend Porter's estate brought this legal malpractice action to recover the costs expended in their efforts to avoid the general power of appointment problem.3 The Trustees also sought a declaratory judgment requiring the Defendants to indemnify the Trustees for any adverse tax consequences resulting from the drafting error. In addition, the Trustees sought punitive damages pursuant to Florida Stat. 768.72. On cross-motions for summary judgment, the district court dismissed the Trustees' complaint without prejudice on the ground that it was premature. The district court based its order on the conclusion that under Florida law, a tort action does not commence until damages have accrued, and that the Trustees have not suffered any damages because the IRS has not attempted to levy an estate tax on the trust's corpus. In the same order, the district court affirmed the magistrate judge's order permitting the Trustees to obtain confidential financial worth documents from the Defendants in support of the Trustees' punitive damages claim. In a previous order, the magistrate judge denied the Trustees' motion to compel answers to deposition questions prompted by two letters between the Ogden firm and its insurance carrier. On appeal, the Trustee's and Defendants challenge these orders.
(1)Whether the district court erred in dismissing as not ripe the Trustees' suit to recover the costs taken to avoid a potential consequence of Defendants' alleged malpractice.
(2)Whether the magistrate judge erred in denying the Trustee's motion to compel answers to deposition questions prompted by two letters between the Ogden firm and its insurance carrier.
(3)Whether the district court erred in affirming the magistrate judge's order permitting the Trustees to obtain confidential financial worth documents from the Defendants in support of the Trustees' punitive damages claim.
This court reviews de novo a district court's determination that a case is not ripe for determination. See Southeast Fla. Cable, Inc. v. Martin County, 173 F.3d 1332, 1335 n. 5 (11th Cir.1999). We review a district court's discovery orders and evidentiary rulings for abuse of discretion. See Goulah v. Ford Motor Co., 118 F.3d 1478, 1483 (11th Cir.1997).
The Trustees argue that the district court erred in two respects. First, the Trustees contend that expenses incurred to avoid the possible consequences of the alleged malpractice constitute damages, thereby allowing their claim to ripen.4 Second, the Trustees assert that the magistrate judge abused his discretion by not requiring Defendants to answer certain deposition questions prompted by two letters between the Ogden firm and its insurance carrier. Defendants present one issue in their cross-appeal. They argue that the district court erred in permitting the Trustees to obtain confidential financial information from the Defendants in support of their punitive damages claim.
Under Florida law, "[g]enerally, a cause of action for negligence does not accrue until the existence of a redressable harm or injury has been established and the injured party knows or should know of either the injury or the negligent act." Peat, Marwick, Mitchell & Co. v. Lane, 565 So.2d 1323, 1325 (Fla.1990). When a plaintiff bases a malpractice action on errors committed in the course of litigation, and the litigation proceeds to judgment, the redressable harm is not established until final judgment is rendered. See Silvestrone v. Edell, 721 So.2d 1173, 1175 (Fla.1998). The present case, however, does not involve litigation malpractice, but transactional malpractice. The...
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