Stewart v. Stewart (In re Estate of Stewart)

• Decision Date: 21 November 2012
• Docket Number: No. 1 CA–CV 11–0499.,1 CA–CV 11–0499.
• Citation: 648 Ariz. Adv. Rep. 47,230 Ariz. 480,645 Ariz. Adv. Rep. 4,286 P.3d 1089,644 Ariz. Adv. Rep. 26
• Parties: In the Matter of the ESTATE OF Thomas J. STEWART, Deceased. Sean Stewart; Stacie Ann Stewart; Andrea Crystal Stewart; Aaron Stewart, Appellees, v. Slade Stewart and Dan Kourkoumelis, as Co–Personal Representatives of the Estate of Thomas J. Stewart; and as Co–Trustees of the Restatement of the Thomas J. Stewart Revocable Living Trust, Respondents/Appellants.
• Court: Arizona Court of Appeals

230 Ariz. 480

286 P.3d 1089

644 Ariz. Adv. Rep. 26

645 Ariz. Adv. Rep. 4

648 Ariz. Adv. Rep. 47

In the Matter of the ESTATE OF Thomas J. STEWART, Deceased.Sean Stewart; Stacie Ann Stewart; Andrea Crystal Stewart; Aaron Stewart, Appellees,

v.Slade Stewart and Dan Kourkoumelis, as Co–Personal Representatives of the Estate of Thomas J. Stewart; and as Co–Trustees of the Restatement of the Thomas J. Stewart Revocable Living Trust, Respondents/Appellants.

No. 1 CA–CV 11–0499.

Court of Appeals of Arizona, Division 1, Department A.

Sept. 27, 2012.

As Amended Sept. 28 and Oct. 11, 2012.

As Amended on Reconsideration Nov. 21, 2012.

Stinson Morrison Hecker LLP by Michael Charles Manning, James E. Holland, Phoenix, Attorneys for Appellee Aaron Stewart.

Tiffany & Bosco PA by Richard G. Himelrick, David L. Case, Phoenix, and McDermott Will & Emery LLP by David A. Baker, pro hac vice, Chicago, IL, Attorneys for Respondents/Appellants.

OPINION

TIMMER, Presiding Judge.

¶ 1 In this will contest case, we consider whether the superior court properly invalidated on statutory and public policy grounds in terrorem clauses of a will and living trust that serve to disinherit beneficiaries who either challenge the enforceability of testamentary documents or cooperate in any such challenge. For the following reasons, we hold that the clauses are enforceable unless a beneficiary had probable cause to contest the testamentary documents. We therefore reverse the portion of the judgment invalidating the in terrorem clauses but otherwise affirm.

BACKGROUND

¶ 2 On February 14, 2010, Thomas J. Stewart (“Thomas”) died in an accident along with his wife and their minor child. Thomas is survived by five adult children.

¶ 3 Three years prior to his death, Thomas executed a will (“Will”) and a living trust (“Trust”), which amended a prior trust. The only beneficiary of the Will is the Trust, and the Will explicitly revoked any previous testamentary instruments. Unlike the prior trust, both the Will and the Trust explicitly exclude one of Thomas's sons, Sean Stewart (“Sean”), from receiving any interest in Thomas's estate.

¶ 4 Both the Will and the Trust contain in terrorem clauses providing, in relevant part, that if a beneficiary contests any portion of the Will or Trust, any discretionary act of the personal representative or trustee, or Thomas's testamentary or mental capacity, that beneficiary will forfeit his or her beneficial interest. The forfeiture provisions also apply if a beneficiary “cooperates or aids” another in making any such contest.¹

¶ 5 Upon Thomas's death, Sean learned he had been disinherited and then filed a petition for formal testacy pursuant to Arizona Revised Statutes (“A.R.S.”) section 14–3401 seeking to invalidate the Will on a number of grounds. He subsequently filed civil complaints seeking both to invalidate the Trust and to recover damages against his brother, Slade Stewart (“Slade”), a co-personal representative of Thomas's estate. The superior court consolidated these cases.

¶ 6 Sean next filed a motion to invalidate the in terrorem clauses, arguing they impeded his discovery efforts by prohibiting beneficiaries from “cooperating or aiding” him in contesting the Will and Trust. After briefing and oral argument, the court granted the motion and ruled “the clause is unenforceable.” The court later clarified that its ruling applied to the Will, Trust, and any other testamentary document.

¶ 7 After Sean settled his claims against Slade and Thomas's estate, the court approved the settlement and signed a joint proposed form of judgment. At the urging of beneficiaries Stacie Stewart and Andrea Stewart, however, the court refused to vacate its rulings regarding the in terrorem clauses as moot and instead reasserted these rulings in the judgment. Slade and his co-personal representative, Dan Kourkoumelis, timely appealed. Appellants do not contest dismissal of Sean's petition but challenge the portion of the judgment ruling that the in terrorem clauses are invalid.²

DISCUSSION

I. Standing

¶ 8 Appellants first argue the superior court erred by granting Sean's motion because Sean lacked standing to challenge the in terrorem clauses. We review whether Sean had standing de novo as an issue of law. City of Tucson v. Pima County, 199 Ariz. 509, 514, ¶ 10, 19 P.3d 650, 655 (App.2001).

¶ 9 Because Arizona's constitution has no counterpart to the federal constitution's “case or controversy” requirement, standing is not constitutionally required to confer jurisdiction. Armory Park Neighborhood Ass'n v. Episcopal Cmty. Servs. in Ariz., 148 Ariz. 1, 6, 712 P.2d 914, 919 (1985). Rather, standing is a principle applied by our courts as a matter of judicial restraint. Id. As our supreme court has explained:

We impose that restraint to insure that our courts do not issue mere advisory opinions, that the case is not moot and that the issues will be fully developed by true adversaries. Our court of appeals has explained that these considerations require at a minimum that each party possess an interest in the outcome.

Id. Consequently, standing to bring an action requires the plaintiff to “allege a distinct and palpable injury.” Sears v. Hull, 192 Ariz. 65, 69, ¶ 16, 961 P.2d 1013, 1017 (1998).

¶ 10 Appellants contend that because Sean was not a beneficiary under the Will or Trust, the clauses could not affect him, and he therefore had no interest in invalidating them. We disagree. Sean alleged the Will and Trust were products of “Thomas's failed mental health and the undue influence ... Slade exerted over their father.” Any formal or informal discovery into the state of Thomas's mental health and Slade's influence over his father prior to execution of the Will and Trust in 2007 would likely involve inquiries made to other family members, some of whom are Trust beneficiaries. Because the in terrorem clauses may compel these beneficiaries to refrain from cooperating with Sean, thereby impairing Sean's ability to prosecute his action, Sean adequately alleged injury from enforcement of the clauses. Sean therefore had standing to contest the clauses, and the superior court correctly considered his motion.

II. Ripeness

¶ 11 Appellants next argue the superior court erred because the viability of the in terrorem clauses is not ripe for adjudication. We review ripeness de novo as an issue of law. Safeway Ins. Co. v. Collins, 192 Ariz. 262, 264, ¶ 9, 963 P.2d 1085, 1087 (App.1998).

¶ 12 Ripeness is closely related to standing in that enforcement of the principle “prevents a court from rendering a premature judgment or opinion on a situation that may never occur.” Winkle v. City of Tucson, 190 Ariz. 413, 415, 949 P.2d 502, 504 (1997). Appellants contend the court violated this doctrine by entering a ruling in anticipation that a beneficiary may be precluded from inheriting due to enforcement of the clauses—a situation that may never occur. See Santa Fe Ridge Homeowners' Ass'n v. Bartschi, 219 Ariz. 391, 397–98, ¶ 22, 199 P.3d 646, 652–53 (App.2008) (noting impropriety of granting anticipatory judgment resolving events that had not yet occurred). We disagree. At the time Sean moved to invalidate the in terrorem clauses, he had contested the Will and Trust in a lawsuit and was entitled to conduct discovery to prove his case. The clauses served to deter beneficiaries from cooperating with Sean's discovery efforts. It was not necessary for Appellants to enforce the clauses to make their validity ripe for adjudication; the threat of enforcement as Sean embarked on discovery was sufficient to create an actual controversy.

III. Validity of in terrorem clauses

¶ 13 Appellants next argue the superior court erred by ruling the in terrorem clauses violated both A.R.S. § 14–2517 (West 2012)³ and public policy. We review the enforceability of an in terrorem clause de novo as an issue of law. In re Estate of Shumway, 198 Ariz. 323, 326, ¶ 9, 9 P.3d 1062, 1065 (2000).

A. A.R.S. § 14–2517

¶ 14 Section 14–2517 provides:

A provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable if probable cause exists for that action.

The superior court ruled § 14–2517 conflicts with the in terrorem clauses in the Will and Trust because the clauses are effective “regardless of whether any such contest is made in good faith or is ultimately successful.” The court concluded the clauses are facially invalid because the court would have to rewrite the clauses in order to enforce them.⁴ Appellants argue the court erred because § 14–2517 neither prohibits in terrorem clauses nor requires them to include specific language to be enforceable. Rather, § 14–2517 serves only to prevent enforcement of an in terrorem clause when probable cause existed for contesting the validity of a testamentary document.

¶ 15 We are guided by our supreme court's decision in In re Estate of Shumway, 198 Ariz. 323, 9 P.3d 1062 (2000), which interpreted and applied § 14–2517 to enforcement of the following in terrorem clause:

If any beneficiary under this Will in any manner, directly or indirectly, contests or attacks this Will or any of its provisions, any gift or other provision I have made to or for that person under this Will is revoked and shall be disposed of in the same manner provided herein as if that contesting beneficiary had predeceased me without issue.

Id. at 325 n. 1, ¶ 3, 9 P.3d at 1064 n. 1. The supreme court initially noted the law favors testamentary disposition of property according to the intent of the decedent. Id. at 326, ¶ 7, 9 P.3d at 1065. Thus, in terrorem clauses are not prohibited as they “preserv[e] the transferor's donative intent, avoid[ ] waste of the estate in litigation, and avoid[ ] use of a will contest to coerce a more favorable settlement to a dissatisfied beneficiary.” Id. But because public policy also favors court intervention when wills are procured by improper...