Evan W. Gray v. Chester L. Gray, III

2019 DNH 013

• Court: District Court, D. New Hampshire
• Decided: January 31, 2019
• Docket: 18-cv-522-JD
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Evan W. Gray

v. Civil No. 18-cv-522-JD Opinion No. 2019 DNH 013 Chester L. Gray, III

O R D E R

Evan Gray (“Evan”) brought suit against Chester L. Gray,

III (“Skip”), as executor of the estate of Chester L. Gray, Jr.,

as sole trustee of a trust (the “CLG Trust”) created by Chester,

and as co-trustee of a trust (the “BJG Trust”) created Barbara

Gray.1 Evan alleges that Chester, prior to his death, breached

his fiduciary duties while he was trustee of the BJG Trust.

Evan also alleges that Skip has breached his fiduciary duties as

trustee of the CLG Trust.

Skip filed a third-party complaint against the co-trustees

of the BJG Trust, who are himself, Scott Gray (a third brother),

and Evan, seeking indemnification for any liability, attorneys’

fees, and costs arising from Evan’s suit. Skip also seeks a

declaratory judgment to enforce certain terms of the BJG Trust.

Evan then filed an amended complaint. In his Amended Answer to

1 As is explained below, the suit is the result of a dispute between brothers about their parents’ trusts. the Amended Complaint and his Answer to the Third-Party

Complaint, Skip alleges a counterclaim and a crossclaim, each

with three parts, against Evan, seeking indemnification.

Evan moves to strike and dismiss Skip’s Third-Party

Complaint and moves to dismiss Skip’s counterclaim and

crossclaim. Skip objects.

Background

This suit involves three brothers, Skip, Scott, and Evan

Gray. In 1996, the brothers’ parents, Barbara and Chester Gray,

created, respectively, the “BJG Trust” and the “CLG Trust.” In

2011, they restated the terms of their respective trusts by

executing the trust documents at issue.

Barbara and Chester Gray served as the initial co-trustees

of both the CLG Trust and the BJG Trust, which were revocable

until their respective settlor’s death. The CLG Trust includes

among its assets valuable real estate located in Grafton and

Springfield, New Hampshire.

1. The Trust Terms

It is the general purpose of the CLG Trust to maintain and

hold the Grafton and Springfield real estate for Barbara and

Chester Gray’s descendants “as long as is reasonably and

prudently possible.” Doc. 15-1 at 5. To that end, the CLG

2 Trust provides for the creation of a “Maintenance Fund”

consisting of the real estate and $820,000, adjusted for

inflation, after Chester’s death.2 After all the provisions of

the CLG Trust have been satisfied, the remainder of the CLG

Trust’s assets are to be distributed equally among Skip, Scott,

and Evan.

The BJG Trust has no expressly stated purpose other than to

provide for the disposition of Barbara Gray’s assets after her

death. In addition, Article 2.4.A of the BJG Trust provides the

following:

If at the time of the death of my husband and myself, the amount of liquid assets held in the continuing trust for real estate located in Grafton and Springfield, New Hampshire as set forth in my husband’s trust is less than [$820,000 plus calculated inflation], I direct that my trustee distribute from my trust an amount of property that will increase the sums held in said continuing trust of my husband’s to [$820,000 plus calculated inflation].

Doc. 15-2 at 5. The BJG Trust documents require that the

remaining trust property be distributed equally among Skip,

Scott, and Evan. In short, the BJG Trust must make up any

deficit in the CLG Trust’s Maintenance Fund that exists “at the

2 The CLG Trust names Skip as the primary beneficiary of the Maintenance Fund. Doc. 15-1 at 4.

3 time of the death of”3 Chester and Barbara, and then distribute

the remaining money or assets equally among Skip, Scott, and

Evan.

Both trusts contained various contingencies for succession

of trustees depending on the order in which Barbara and Chester

died and whether any of their children predeceased them. As it

happened, Barbara Gray died in 2013. Upon his wife’s death,

Chester Gray became sole trustee of both trusts. Although the

BJG Trust became irrevocable, Chester retained a lifetime

interest in it.

Specifically, as to the BJG Trust, Chester was permitted to

receive any income from the trust paid “in convenient

installments.” Doc. 15-2 at 4. He was also permitted to

receive “from the principal of the trust from time to time such

amounts as are in [the] trustee’s discretion necessary for his

support and maintenance in his accustomed manner of living and

for his health care,” after taking into account any other

“resources available to him,” including the income from the

trust. Id. The “power to use principal for [Chester’s] benefit

3 The parties appear to dispute the meaning of this phrase. The court’s description of this language in this order does not create any findings as to the phrase’s construction or interpretation.

4 shall not be exercised without the consent of an independent

trustee or one of [Barbara’s] children.” Id.

Chester remained as trustee of both the BJG Trust and CLG

Trust until his death in 2017. Upon their father’s death, Skip,

Scott, and Evan became co-trustees of the BJG Trust; Skip became

sole trustee of the CLG Trust, which became irrevocable upon the

death of Chester. Skip was also named executor of Chester’s

estate (the “CLG Estate”).

2. Evan’s Complaint

In June 2018, Evan filed this lawsuit, and he filed an

amended complaint on September 26, 2018. In Count 1, Evan

states that the claim is brought “by Plaintiff as trustee and

beneficiary of the BJG Trust.” Doc. 9 at 14. Evan alleges

that, during Chester’s four-year tenure as sole trustee of the

BJG Trust, he improperly invested in high-yield, low-growth

assets. In Count 2, Evan, also “as trustee and beneficiary of

the BJG Trust,” alleges that Chester violated the BJG Trust’s

terms by removing principal from the BJG Trust and giving it to

the CLG Trust without receiving the consent of an independent

trustee or one of the beneficiaries, as the trust requires. Id.

at 15. Evan alleges that Chester then used these assets to

purchase real estate in Grafton, New Hampshire, which he later

5 donated to the town. In Counts 1 and 2, Evan appears to name

Skip as a defendant in two capacities: as executor of the CLG

Estate and as trustee of the CLG Trust.

In Count 3, Evan, as “qualified beneficiary and distributee

of the CLG Trust,” alleges that Skip breached his fiduciary

duties as trustee of the CLG Trust, by failing to deliver

reports on the condition of the trust and by failing to properly

invest and manage the trust property. Id. at 16. In Count 4,

Evan, as “trustee and beneficiary of the BJG Trust,” asks that

Skip be removed as co-trustee of the BJG Trust due to breaches

of his duty of loyalty to the BJG Trust, fundamental conflicts

of interest with his duties as sole trustee of the CLG Trust,

and his failure to cooperate with Evan and Scott, his co-

trustees of the BJG Trust. Id. at 18.

3. Skip’s Third-Party Complaint, Counterclaim, and Crossclaim

On September 18, 2018, before Evan filed the Amended

Complaint that added Counts 3 and 4 along with language

clarifying that the lawsuit was brought by Evan in his capacity

as a trustee of the BJG Trust, Skip filed a third-party

complaint naming himself, Scott, and Evan in their capacities as

trustees of the BJG Trust as third-party defendants. In Count

1, Skip requests indemnification for the CLG Estate and the CLG

6 Trust from the BJG Trust, alleging that Article 4.3 of the BJG

Trust, which exonerates a trustee from liability where he acts

in good faith, allows for “indemnification from the BJG Trust

for any damages that may be awarded to [Evan], as well as any

defense costs that have been and will be incurred, in connection

with this litigation.” Doc. 7 at 6. In Count 2, Skip requests

a declaratory judgment to enforce Article 2.4.A of the BJG

Trust, which, Skip contends, requires a pour over of funds to

the extent the CLG Trust’s assets are insufficient to fund the

Maintenance Fund to be created by the CLG Trust.

On October 31, 2018, Skip filed an amended answer to the

Amended Complaint, alleging a counterclaim with three parts

against Evan. In the counterclaim, Skip appears to request

indemnification from Evan personally and from the BJG Trust

corpus for “any and all expenses, fees, damages, or other items”

resulting from the litigation. Doc. 20 at 21.

The same day, Skip, in his capacity as a trustee of the BJG

Trust, answered the Third-Party Complaint that he had filed

against himself.4 In the Answer, Skip generally denied the BJG

4 Skip filed the Third-Party Complaint in his capacity as executor of the CLG Estate and his capacity as trustee of the CLG Trust and seeks indemnification from the BJG Trust. Skip is also a defendant in the Third-Party Complaint in his capacity as a trustee of the BJG Trust.

7 Trust’s responsibility for indemnification of the CLG Estate and

CLG Trust. Skip states that Evan’s Amended Complaint indicates

that he brought claims as a trustee of the BJG Trust. Skip

asserts that Evan was not authorized to bring claims on behalf

of the BJG Trust. For that reason, Skip alleges, any

indemnification to the CLG Estate or the CLG Trust should come

from Evan personally or from his share of the BJG Trust. In

addition, Skip brings a crossclaim against Evan “in his

individual capacity and as co-trustee” for losses resulting from

his suit.

Discussion

Evan moves to strike/dismiss the Third-Party Complaint and

to dismiss the counterclaim and crossclaim. Skip objects.

A. Standard of Review

In considering a motion to dismiss under Federal Rule of

Civil Procedure 12(b)(6), the court accepts all well-pleaded

facts as true and makes all reasonable inferences in the

pleading party’s favor. See Ocasio-Hernández v. Fortuño-Burset,

640 F.3d 1, 11-13 (1st Cir. 2011). The court, however,

disregards conclusory allegations. Manning v. Boston Med. Ctr.

Corp., 725 F.3d 34, 43 (1st Cir. 2013).

8 Under Federal Rule of Civil Procedure 14(a)(4), “[a]ny

party may move to strike the third-party claim, to sever it, or

to try it separately.” Fed. R. Civ. P. 14(a)(4). The court

should strike a third-party complaint only “if it is obviously

unmeritorious and can only delay or prejudice the disposition of

plaintiff’s claim.” Fed. R. Civ. P. 14(a), Advisory Committee

Notes (1963 Amendments). The court “should allow [third-party

practice] on any colorable claim of derivative liability that

will not unduly delay or otherwise prejudice the ongoing

proceedings.” Lehman v. Revolution Portfolio L.L.C., 166 F.3d

389, 393 (1st Cir. 1999).

B. Motion to Strike/Dismiss the Third-Party Complaint

Evan argues that the court must strike/dismiss the Third-

Party Complaint because it is procedurally improper. He

contends that Skip cannot bring a third-party complaint against

him because, as the plaintiff, he is a party in the case. Evan

also asserts that Skip cannot sue himself. Evan further

contends that the Third-Party Complaint fails to state a claim

upon which relief can be granted and fails to state appropriate

derivative liability claims.

9 1. Procedural Issues

“A defending party may, as third-party plaintiff, serve a

summons and complaint on a nonparty who is or may be liable to

it for all or part of the claim against it.” Fed. R. Civ. P.

14. A person who possesses two or more distinct legal

capacities is a distinct “party” in each capacity. Cohen v.

Baker, 845 F. Supp. 289, 291 (E.D. Pa. 1994) (“A party to a

lawsuit in one distinct capacity is not considered to be a party

with regard to other distinct legal capacities. . . . Although

[the third-party defendants] were already parties in their

capacities as plan beneficiaries, they were not parties in their

capacities as ERISA plan fiduciaries.”); see also Goldstein v.

Galvin, 719 F.3d 16, 23 (1st Cir. 2013) (observing that persons

sued in their official capacity are merely proxies for the

entities they represent and holding that “a person sued in his

official capacity is a different party, in contemplation of law,

than the same person sued in his individual capacity”). A

trustee has two distinct legal capacities: his personal capacity

and his fiduciary capacity, which may also be called his

capacity as a trustee. RSA § 564-B:10-1010(c) (stating that

certain claims “may be asserted in a judicial proceeding against

the trustee in the trustee’s fiduciary capacity, whether or not

the trustee is personally liable for the claim”); State of N.H.

10 Wetlands Bd. v. Marshall, 127 N.H. 240, 250 (1985) (sustaining

judgment against assets of trust where pleading named the

trustee “individually and in her capacity as the sole trustee

. . .”).

Skip correctly contends that when he filed the Third-Party

Complaint, Evan was not a party in his capacity as a trustee of

the BJG Trust. For that reason, a claim against Evan as a

trustee would be a third-party claim under Rule 14. Skip

acknowledges that the Amended Complaint changed the parties by

adding Evan in his capacity as a trustee of the BJG Trust. He

asks the court to construe the Third-Party Complaint as a

counterclaim if necessary to conform to the Federal Rules of

Civil Procedure or to allow him to file amended pleadings.

To avoid any further confusion about the parties and claims

in this case and because the Amended Complaint was filed after

the Third-Party Complaint, it is appropriate to allow Skip to

file amended pleadings to address the changed circumstances.5

5 Skip denies that Evan was authorized to bring this suit as a trustee of the BJG Trust in his pleadings, but he has not moved to dismiss Evan from the suit in that capacity. See Fed. R. Civ. P. 9(a) (noting that a party need not plead the capacity in which he sues and that denial of capacity must be made through negative pleading); see, e.g., Doermer v. Oxford Fin. Group, Ltd., 884 F.3d 643, 648-49 (7th Cir. 2018) (holding that an individual lacks capacity to sue in his capacity as a trustee where he does not have the requisite authorization of his co- trustees). Therefore, Evan is a party to the suit in both his personal and trustee capacities.

11 2. Substantive Issues

Evan also moves to dismiss the Third-Party Complaint on the

ground that it fails to state an actionable claim. Because the

Third-Party Complaint is struck, it is not necessary to address

the substantive issues that Evan raises.

C. Motion to Dismiss Counterclaim and Crossclaim

Evan moves to dismiss Skip’s counterclaim and crossclaim,

included in the Amended Answer to the Amended Complaint and

Answer to the Third-Party Complaint. In support, Evan contends

that the claims lack sufficient facts to show a plausible claim

for relief and the cited laws do not support the claims. Evan

also contends that the claims are unripe. Skip objects to the

motions, arguing that he alleged sufficient grounds to avoid

dismissal.

Because the Third-Party Complaint will be struck, the

Answer to it is moot and the crossclaim will be dismissed,

without prejudice, as moot.

With respect to the counterclaim, the court agrees with

Evan that it appears to be incomplete. The counterclaim is

alleged as follows:

1. Under RSA 564-B:7-709, a trustee is entitled to reimbursement out of the trust property, with

12 interest, for expenses properly incurred in the administration of the trust. Further, under RSA 564- B: 10-1004 and/or 564-B:10-1002, the court may award costs and expenses, including reasonable attorney's fees, to any party to be paid by another party or from the trust that is the subject of the controversy.

2. Notice is hereby given that Defendant shall ask the Court to order that Plaintiff Evan Gray reimburse him for his costs, expenses, and attorney's fees, that the same be reimbursed to him out of the corpus and charged to Plaintiff or, in the alternative, or that the same be reimbursed to him out of the corpus and charged to Plaintiff.

3. Notice is hereby given that Defendant shall ask the court to order that Plaintiff Evan Gray indemnify and reimburse him and/or the BJG Trust for any and all expenses, fees, damages, or other items (“Losses”) from him in both his fiduciary and individual capacities, that he or the BJG Trust suffer relating to or as a result of this action. See RSA 564-B:10- 1004.

Doc. 20 at 21. As written, the counterclaim simply provides

notice of a claim or claims that Skip may pursue in the future.

He does not ask for relief to be granted. The counterclaim is

dismissed without prejudice to allow Skip to file a claim in

proper form.

Conclusion

For the foregoing reasons, Evan’s motions to strike and

dismiss (documents nos. 22, 23, and 24) are granted as follows:

(1) Skip’s Third-Party Complaint (doc. 7) is struck,

13 (2) Skip’s Answer to the Third-Party Complaint and

crossclaim (doc. 21) are struck.

(3) Skip’s counterclaim in his Amended Answer (doc. 20) is

dismissed without prejudice.

Skip is granted leave to file an appropriate third-party

complaint and/or counterclaims or crossclaims on or before

January 31, 2019.

SO ORDERED.

__________________________ Joseph A. DiClerico, Jr. United States District Judge

January 15, 2019

cc: Adam M. Hamel, Esq. Ralph F. Holmes, Esq. Roy S. McCandless, Esq. Neil B. Nicholson, Esq. Andrea Jo Schweitzer, Esq.