STEWART et al v. STEWART/KOURKOUMELIS
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IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE 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 DEPARTMENT A O P I N I O N FILED 9/27/2012 Appeal from the Superior Court in Maricopa County Cause Nos. CV2010-020200; CV2010-023018; PB2010-000507; PB2010-001587 (Consolidated) The Honorable Gary E. Donahoe, Judge (Retired) AFFIRMRED IN PART, REVERSED IN PART Tiffany & Bosco PA By Richard G. Himelrick David L. Case Phoenix And McDermott Will & Emery LLP By David A. Baker pro hac vice Attorneys for Respondents/Appellants Chicago, IL Stinson Morrison Hecker LLP By Michael Charles Manning James E. Holland Attorneys for Appellee Aaron Stewart Phoenix T I M M E R, 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 such challenge. testamentary documents or cooperate in any 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. 2 ¶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 clauses the providing, Will in and the relevant Trust part, contain that if in a terrorem 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 1 The in terrorem clause in the Will provides in full as follows: 8.01 In Terrorem Clause. To the maximum extent applicable state law permits, if any person should take any one or more of the actions described in this paragraph, either directly or indirectly, then thereafter for all purposes the provisions of this will shall be construed and my estate shall be disposed of as though such person had predeceased me, effective as of the date such action is taken. This paragraph shall take effect if any person identified in the preceding sentence: 3 (a) Contests my will or any codicil thereto, any exercise of a power of appointment by me, either during life or at death, or any transfer of property from any person to a trust identified in the immediately following subparagraph; (b) Contests my revocable trust or any other trust created by me either during life or at death and whether by way of grant, exercise of power of appointment or otherwise, or any amendment to any of the foregoing; (c) Contests any discretionary action taken by the personal representative or by the trustee or the adviser of my revocable trust with respect to the allocation or distribution of trust property at my death under my revocable trust, the sale or disposition of any Family Business (as defined in my revocable trust), or the allocation of estate charges against any trust property or beneficiary; (d) Seeks to obtain an adjudication in any court with respect to my testamentary capacity, capacity to enter into binding contracts, or mental capacity in general at any time; or (e) Cooperates or aids in any action described in the preceding provisions of this paragraph with any other person, regardless of whether that other person is himself or herself subject to this article. 8.02 Interpretation. For purposes of this article, a person shall be deemed to contest an instrument, action, or transaction if that person takes any action seeking to invalidate, nullify, set aside, render unenforceable, or otherwise avoid the effect of such instrument, action or transaction. This article shall take effect regardless of whether any such contest is 4 ¶5 Upon disinherited Thomas s and then death, filed Sean a learned petition for he had formal been 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 co-personal against his brother, Stewart ( Slade ), estate. representative of Slade The superior court consolidated these cases. ¶6 a damages Thomas s 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 made in good faith or is ultimately successful. The personal representative is authorized to defend any contest by any person at the expense of my estate. The in terrorem clause in the Trust is substantively identical. 5 instead reasserted these rulings in the judgment. Slade and his co-personal representative, Dan Kourkoumelis, timely appealed. Appellants do challenge the not contest portion of dismissal Sean s petition judgment the of ruling that but the in erred by terrorem clauses are invalid. 2 DISCUSSION I. ¶8 Standing Appellants first argue the superior court 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 the Because Arizona s constitution has no counterpart to federal standing constitution s is jurisdiction. not case or constitutionally controversy required requirement, to confer 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 2 applied by our courts as a Appellees have not filed an answering brief. Although we could consider this silence a confession of error, we exercise our discretion to consider the merits of the appeal as we recognize that Appellees may have refrained from advocating against enforcement of the in terrorem clauses for fear these clauses would be invoked against Appellees. See Nydam v. Crawford, 181 Ariz. 101, 101, 887 P.2d 631, 631 (App. 1994). Appellee Aaron Stewart filed a motion to dismiss this appeal for lack of jurisdiction. By separate order, we deny that motion. 6 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 plaintiff to allege a distinct and palpable injury. the Sears v. Hull, 192 Ariz. 65, 69, ¶ 16, 961 P.2d 1013, 1017 (1998). ¶10 Appellants beneficiary under contend the Will that or because Trust, the Sean was clauses not could a not affect him, and he therefore had no interest in invalidating them. products We disagree. of Thomas s Sean alleged failed the mental Will and Trust were 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. the in refrain terrorem from clauses cooperating may compel with Sean, these thereby Because beneficiaries impairing to Sean s ability to prosecute his action, Sean adequately alleged injury from enforcement of the clauses. 7 Sean therefore had standing to contest the clauses, and the superior court correctly considered his motion. II. ¶11 the Ripeness Appellants next argue the superior court erred because viability adjudication. of the in terrorem clauses is not ripe for 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 occur. judgment or opinion on a situation that may never 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 clauses a situation that may never occur. enforcement of the 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 occurred). judgment We disagree. resolving events that had not yet 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 cooperating with Sean s discovery efforts. 8 beneficiaries from It was not necessary for Appellants to enforce the clauses to make their validity ripe for embarked adjudication; on discovery the was threat of sufficient enforcement to create as an Sean 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. ¶14 A.R.S. § 14-2517 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 3 Absent material revisions after the relevant date, we cite a statute s current version. 9 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. initially noted the law favors The supreme court testamentary property according to the intent of the decedent. 7, 9 P.3d at 1065. disposition of Id. at 326, ¶ Thus, in terrorem clauses are not prohibited as they preserv[e] the transferor s donative intent, avoid[] 4 By its plain language, § 14-2517 applies only to an in terrorem clause set forth in a will, and no party offers an argument to the contrary. On this basis alone, the superior court erred by invalidating the in terrorem clause in the Trust as violating § 14-2517. Thus, we address the parties arguments concerning § 14-2517 only as they apply to the in terrorem clause in the Will. 10 waste of the estate in litigation, and avoid[] use of a will contest to coerce a more favorable settlement to a dissatisfied beneficiary. intervention Id. when But because public policy also favors court wills are procured by improper means, our legislature enacted § 14-2517, which mirrors section 2 517 of the Uniform Probate Code, to prohibit enforcement of a valid in terrorem clause when probable cause testamentary document at issue. ¶16 existed to contest the Id. at ¶¶ 6-7. The court defined probable cause, in pertinent part, as meaning the existence, at the time of the initiation of the proceeding, of evidence which would lead a reasonable person, properly informed substantial likelihood successful. Id. Restatement at (Second) ( Restatement ) Applying and this § advised, to that the 327, ¶ of 9.1 conclude contest 12, 9 cmt. definition, j the or P.3d Property: (1983)) Shumway that there attack at 1066 is will a be (quoting Donative Transfers (emphasis removed). court held that the applicable beneficiary did not forfeit her interests under the in terrorem clause because she had probable cause to challenge the enforceability of the will. Id. at 330, ¶ 22, 9 P.3d at 1069. ¶17 Applying Shumway, we agree with Appellants the superior court erred by invalidating the in terrorem clause in all circumstances rather than only 11 when a beneficiary lacks probable cause to challenge the Will or institute[es] other proceedings relating to the estate. Section 14-2517 does not require that an in terrorem clause contain specific language to be enforceable. will occur And the clause s pronouncement that forfeiture regardless of the beneficiary s good faith or ultimate success does not direct a different outcome than in Shumway, as the superior court concluded. Indeed, the clause is effectively no different than the one at issue in Shumway, which required forfeiture without apparent regard to beneficiary s good faith or ultimate success. ¶ 3, 9 P.3d at 1064 n.1. a challenging Id. at 325 n.1, The key consideration under § 14-2517 is whether the beneficiary had probable cause to contest the will or probable person at institute cause the substantial other estate-related determination time of likelihood will be successful. the turns on challenge [existed] that proceedings. whether would the a have The reasonable believed contest or a attack Id. at 327, ¶ 12, 9 P.3d at 1066 (quoting Restatement § 9.1 cmt. j (1983)) (emphasis removed). Whether the beneficiary acted in good faith or ultimately prevailed is not part of the probable-cause inquiry. the superior court s conclusion conflicts with § 14-2517. 12 that Therefore, we reject the clause necessarily B. ¶18 Public policy The in terrorem clauses in both the Will and the Trust disinherit any direct indirect or superior because beneficiary court it who cooperates to testamentary contest ruled this encourages provision perjury by or aids in any documents. violates expressly public The policy incentivizing a beneficiary with knowledge related to a will contest to lie in order to seeking avoid disinheritance[,] purpose of the . court, . . undermines inhibits the truth truthfulness and unreasonably impedes the judicial process. ¶19 The record does not support the court s premise that the no cooperation part of the in terrorem clauses encourages perjury or impedes the judicial process. The court s view necessarily rests on a restrictive interpretation of the clauses to mean beneficiaries subpoenaed to testify forfeit in a their court interests proceeding even or to when provide documentary evidence or when sworn to provide truthful testimony in court. We agree that if the in terrorem clauses were interpreted in this manner, they would violate public policy. better violate interpretation public of policy, the is clauses, that and one beneficiaries that does forfeit A not their interests when they urge or voluntarily aid a party to contest 13 testamentary documents. 5 This reading is consistent with the express provision of the in terrorem clauses that they apply to the maximum extent permitted by state law. Trust § 10.01. See Will § 8.01; Such an interpretation also aligns with the Restatement s view of permissible restrictions in an in terrorem clause, and we see no language in the clauses suggesting Thomas possessed a different intent. ( [S]uch a restraint is See Restatement § 9.1 cmt. f violated when the person restrained voluntarily instigates or aids another person in that person s attempt to contest the will or other donative transfer or to attack particular provisions of it. ); see also Cunningham v. Goettl Air Conditioning, Inc., 194 Ariz. 236, 239, ¶ 14, 980 P.2d 489, 492 (1999) (stating Arizona courts are guided by the Restatement in the absence of contrary authority). reasons, we reject the court s public policy For these basis for invalidating the in terrorem clauses. ¶20 In summary, the superior court erred in invalidating the in terrorem clauses on their face for statutory and public policy grounds. We therefore reverse the judgment to the extent it invalidates the in terrorem clauses in the Will, the Trust, and any other related testamentary documents. 5 In light of our We do not define the contours of conduct prohibited by an in terrorem clause, as this task is best accomplished by considering the unique facts of individual cases on appeal. The propriety of any particular conduct in this case is not before us. 14 holding, we do not address Appellants remaining argument concerning the applicability of Delaware law as application of that state s equivalent to A.R.S. § 14-2517 would not alter our disposition of this appeal. CONCLUSION ¶21 For the foregoing reasons, we reverse the judgment to the extent it invalidates the in terrorem clauses in the Will, the Trust, and related testamentary documents. We affirm the remainder of the judgment. /s/ Ann A. Scott Timmer, Presiding Judge CONCURRING: /s/ John C. Gemmill, Judge /s/ Margaret H. Downie, Judge 15
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