IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON
In re the Estate of: ) No. 78932-5-I ) THOMAS R. GILLESPIE ) DIVISION ONE
THOMAS GILLESPIE and MARIE ) GILLESPIE, and the marital community ) composed thereof, ) Appellants, ) v. ) PUBLISHED OPINION ) VALERIE GILLESPIE, an individual and ) co-personal representative of the ESTATE ) OF THOMAS R. GILLESPIE, and ) JAMES EECKHOUDT, an individual and ) co-personal representative of the ESTATE ) OF THOMAS R. GILLESPIE, ) ) Respondents. ) FILED: February 3, 2020
ANDRUS, J. — Tom and Marie Gillespie, beneficiaries of the Estate of T.R.
Gillespie (Estate), appeal a trial court order concluding that they triggered an in
terrorem clause in T.R.’s Last Will and Testament (Will) and forfeited their right to
any inheritance from the Estate when they commenced a lawsuit challenging the
personal representatives’ management of the Estate.
We affirm the trial court’s conclusion that the current suit fell within the
scope of the in terrorem clause, but conclude that res judicata bars the personal No. 78932-5-1/2
representatives from relitigating whether the in terrorem clause contains a good
faith exception. We also reverse the trial court’s finding that Tom and Marie failed
to bring the lawsuit in good faith because the court did not apply the correct
standard in making this determination. The trial court should, in the first instance,
determine whether Tom and Marie made a full and fair disclosure of all material
facts to their counsel and brought this lawsuit on that legal advice. If Tom and
Marie make this prima facie showing, they are entitled to a rebuttable presumption
of good faith, and the burden shifts to Val and Jim to overcome this presumption
with evidence of bad faith. We otherwise affirm the rulings of the trial court.
FACTS
Thomas (T.R.) Gillespie died testate in 2011, and his Will was admitted to
probate on July 14, 2011. At the time of his death, T.R. had two living children,
Valerie (Val) and Thomas Jr. (Tom).1 T.R.’s son, David, had predeceased him but
was survived by his wife, Judy, and their children. T.R.’s estate included the estate
of his wife, Marianne, who also had predeceased him (hereinafter collectively
“Estate”). T.R.’s fourth and final codicil named Val and James (Jim) Eeckhoudt,
Judy’s brother, to serve as co-personal representatives. The Will contained an in
terrorem clause, stating that any beneficiary who challenged the Will’s probate
forfeited his right to inherit from the Estate.
During their lifetimes, T.R. and Marianne created a number of trusts to hold
various assets. The Gillespie Family Trust (Trust), created in 2000, named Val
and Jim as co-trustees, and the beneficiaries of the Trust included every living
1 Because the majority of the parties have the same last name, this opinion refers to them by their first names. We mean no disrespect. -2- No. 78932-5-1/3
descendant of T.R. and Marianne, as well as Judy, their deceased son’s widow.
Jim is neither a Trust beneficiary nor a beneficiary of T.R.’s Estate.
Around the same time, T.R. and Marianne formed Gillespie, LLC (the LLC),
in which they each owned a 50 percent interest. In 2001, T.R. and Marianne
conveyed the majority of their interest in the LLC to the Trust. As a result of this
transfer, at the time of his death, T.R. held a 10 percent interest in the LLC, with
the remaining 90 percent owned by the Trust. In return, the Trust agreed to pay
T.R. and Marianne annual annuities until their deaths.
In November 2011, four months after Val and Jim opened the probate,
John Andersen, Tom’s then-attorney, e-mailed Charles Farrington, Val and Jim’s
attorney, a list of the Estate’s assets. Andersen’s list confirmed his understanding
that the Estate owned a 10 percent interest in the LLC. In a separate e-mail on
the same day, Andersen indicated to Farrington that the Trust had incurred a
significant amount of debt, which could be alleviated by liquidating the LLC.
Andersen sent Farrington his proposed liquidation plan, which reflected the Trust’s
receipt of 90 percent of the liquidation proceeds. In 2012, Val’s personal attorney
sent Andersen a Proposed Distribution Schedule for the Estate. This distribution
schedule similarly indicated that the Estate would receive 10 percent of the
liquidation proceeds.
In 2014, however, Tom and his wife, Marie, filed a petition in King County
Superior Court seeking an accounting by Val and Jim, an inventory and appraisal
of the Estate assets, and an order directing the Estate to pay the mortgage of an
Idaho home in which Tom and Marie lived. Tom explicitly sought a judicial
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declaration that T.R. had never effectively transferred any interest in the LLC to
the Trust. He claimed that T.R. and Marianne maintained their full interest in the
LLC until their deaths because the Trust failed to make the required annual annuity
payments to them. Tom also challenged the Estate inventory that Val and Jim had
prepared, claiming that assets identified as belonging to the Trust, including T.R.’s
capital account in the LLC, were never properly transferred from the Estate and
thus belonged to the Estate. Tom alleged that the LLC’s 2011 tax return showed
that T.R. “retained his entire original capital account in the LLC until his death.”
Consequently, Tom claimed that the entire LLC capital account belonged to the
Estate and that the inventory designation showing a 10 percent ownership interest
was erroneous.
Tom and Marie’s claims proceeded to trial in September 2014 before now
retired Judge Kimberly Prochnau. In her 34-page Findings of Fact, Conclusions
of Law and Judgment (2014 Order), Judge Prochnau rejected the contention that
the Estate held an interest in the LLC greater than 10 percent, and despite Tom’s
argument to the contrary, concluded that the Trust owned the remaining 90 percent
interest. Judge Prochnau also found no breach of fiduciary duties by Val and Jim
and denied the request for a forensic accounting. Judge Prochnau found that T.R.
and Marianne had not paid taxes on the annuity income they had received from
the Trust and authorized Val and Jim to withhold funds in the Estate to account for
potential tax liabilities.
Judge Prochnau also concluded that Tom was barred, under the doctrines
of waiver and laches, from challenging either the Trust’s failure to make certain
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annuity payments to T.R. and Marianne, or their transfer of a 90 percent interest
in the LLC to the Trust. The court concluded that even though the record showed
the payments had not been made as required, there was no evidence that T.R.
requested payment or otherwise challenged a lack of payment. Judge Prochnau
prohibited Tom from “trying to realign the assets in a manner which the various
estate planning devices do not support.”
Judge Prochnau also found that Tom had misled the probate court by filing
a 2013 petition to probate the Will and misrepresented that he resided in the state
of Washington, misstated that the Will appointed him as sole personal
representative, and failed to identify himself as the largest debtor of the Estate, to
which he owed $600,000. Judge Prochnau found that Tom owed the Estate
$605,000, with interest accruing at 6 percent per annum, as of the date of trial, and
she entered judgment against him in this amount. The court then credited Estate
distributions owing to Tom from Marianne’s Credit Shelter Trust toward this
judgment, leaving a balance owed by Tom to the Estate of $261,557.86. Judge
Prochnau ruled that additional cash advances made by the Estate to Tom and
Marie would be deducted from the value of their respective shares in the final
distributions made to them from the Estate.
As a result, Judge Prochnau ordered the personal representatives, Val and
Jim, to distribute the 10 percent interest in the LLC to its three beneficiaries, Tom
(2 percent), Marie (2 percent), and Val (6 percent). Before that could occur, Val
was ordered to list for sale real estate the LLC owned in Hawaii and to distribute
the net proceeds from the sale to the LLC.
-5- No. 78932-5-1/6
Finally, Judge Prochnau also included a provision prohibiting Tom and
Marie from suing Val and Jim again:
All claims which Tom and/or Marie may have with regard to facts and circumstances known or reasonably known as of this date, now or at any time in the future, against either of the Estates, the Gillespie Family Trust, the Gillespie, LLC, or Cam Square, LLC, or against either of the Personal Representatives of T.R.’s and Marianne’s Estates, Trustees and Managers of the LLCs are forever barred
Although Val and Jim sought to disinherit Tom and Marie under the in
terrorem clause of the Will, arguing that the lawsuit they initiated fell within the scope of that clause, Judge Prochnau declined to do so, concluding:
Article IX of TR’s Will contained an in terrorem clause (Ex. 4) which provided that a beneficiary under such Will forfeits his or her interest in the Estate by becoming an adverse party in a proceeding for its probate. . A similar, but not identical, provision in a will was read . .
broadly by our Court of Appeals to apply to requests to remove a PR. In re Kubick’s Estate, 9 Wn. App. 413, 513 P.2d 76 (1973), re’L denied, 83 Wash.2d 1002 (1973) . . Although TR’s in terrorem .
clause is similar in its breadth of coverage . .it differs from the . ,
Kubick will in that it does not explicitly except challenges made in good faith. Kubick noted, at least in dicta, that such a blanket prohibition might violate the policies inherent in RCW 11 .28.020. Given the specific statutory exceptions for good faith . . .
challenges and the policy concerns enunciated by Kubick and other cases, the court reads TR’s will to except good faith challenges from the punitive aspects of the in terrorem clause.
Judge Prochnau found Tom and Marie had brought the lawsuit in good faith and
thus had not triggered the in terrorem clause.
Tom and Marie were apparently not dissuaded from further litigation,
despite the resounding defeat they suffered in 2014. In January 2016,
John McGowan, an attorney in Idaho retained by Tom and Marie, sent Farrington
a letter demanding information on the status of the LLC capital accounts, claiming
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that Val and Jim had been withholding the LLC Schedule K-Is from 2012 through
2014 and as a result, the tax documents provided to Tom and Marie for their tax
return did not explain why there had been a contribution to the LLC in excess of
$2 million when there had been no distribution to the LLC members. McGowan
demanded that Farrington provide the LLC tax information and delay any
distributions from the LLC to the Trust and from the Trust to the beneficiaries.
In response, Farrington sent McGowan a copy of the 2014 Order and
explained that the capital account adjustments reflected on the LLC documents
were an effort to comply with the 2014 Order. He clearly stated that “[t]he capital
account issue youreference was considered . . . and conclusively found by the
Court to be inaccurate so your discussion of ownership, basis, capital accounts,
and liquidating distributions of the Gillespie LLC is not supported by the Findings
of Fact, Conclusions of Law and Judgment of the Superior Court.”
Farrington arranged to have the Estate’s K-I, Tom and Marie’s individual
K-Is, and the Estate’s tax returns for 2012 through 2014 sent to McGowan, but he
declined to delay any distributions, contending that Val and Jim had to make these
distributions in order to comply with the 2014 Order. Farrington informed counsel
that:
[Y]ou are at least the ninth attorney to contact Val and Jim and their attorneys in this case over a period of five years. We have . . .
provided extensive discovery and endured a 10-day trial. As each attorney retained by TJ has summarily dismissed TJ and/or Marie as their client, we have had to educate each new attorney as he/she/they appear in the case. Two of TJ’s and Marie’s former attorneys have filed attorney’s fee liens against TJ’s interest in the Estate of TR Gillespie. In addition, TJ owes the Estate of TR Gillespie in excess of $600,000.00. His current Washington attorney
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is representing TJ and Marie in the pending attorney’s fees motion relating back to the 2014 court decision.
Farrington also informed McGowan of the provision of the 2014 Order prohibiting
Tom and Marie from suing Val and Jim again.
Despite previously facing the risk of losing their inheritance based on the in
terrorem clause in the Will and being ordered not to sue Val and Jim based on
facts known to them at the time of the 2014 trial, on February 29, 2016, Tom and
Marie filed a new complaint against Val and Jim in a Blame County, Idaho district
court. They claimed that the LLC’s 2014 tax return and a balance sheet provided
to them in 2015 indicated a “transfer of capital” of approximately $2.5 million from
the Estate to the Trust. They alleged that Val and Jim had breached their fiduciary
duties by effectuating this capital transfer. Tom and Marie asked the Idaho court
to order an accounting and to find that Val and Jim had breached their fiduciary
duties by stating an intent to dissolve and liquidate the LLC without the members’
consent. They once again alleged that the Estate should receive 100 percent of
any proceeds generated by the liquidation of the LLC’s assets. They also asked
for a temporary restraining order to prevent Val and Jim from distributing the LLC’s
assets. On March 31, 2016, the Idaho court dismissed Jim from the lawsuit based
on a lack of personal jurisdiction. Shortly thereafter, Tom and Marie dismissed the
complaint against the remaining defendant, Val, without prejudice.
In July 2016, Val and Jim sent the Trust beneficiaries, including Tom and
Marie, a letter informing them of their intent to liquidate the LLC. They informed
the Trust beneficiaries that, as a result of the liquidation, $1,991,139 would be
transferred to the Trust’s capital account and that $467,387 would be transferred
-8- No. 78932-5-1/9
to the Estate’s capital account, consistent with their respective ownership interests.
It is undisputed that Tom received this letter.
On September 28, 2017, Tom and Marie filed a new petition in King County
Superior Court, seeking an accounting from the Estate. They alleged that any
proceeds from the LLC’s liquidation should be distributed in proportion to the
members’ capital account balances, rather than in proportion to their membership
interests. Tom and Marie claimed that the Estate, not the Trust, should receive
most, if not all, of the liquidation proceeds.
In response, Val and Jim, in their capacity as the executors of the Estate,
argued that the 2014 Order barred these claims because Judge Prochnau explicitly
found that the Estate owned only 10 percent of the LLC and it was entitled to
receive only 10 percent of the LLC’s liquidated assets. They also argued that the
2014 Order barred Tom and Marie from suing Val and Jim because their claims
were based on facts known to them in 2014.
Tom and Marie subsequently amended this petition to assert direct claims
of breach of fiduciary duty against Val and Jim individually. In their amended
complaint, Tom and Marie alleged that Val and Jim made an unauthorized transfer
of capital when they adjusted T.R.’s LLC capital account to reflect his 10 percent
ownership, an action T.R. and Marianne had failed to take when the majority of
their interest transferred to the Trust in 2001. Tom and Marie conceded that per
the 2014 Order, the Estate owned only 10 percent of the LLC and the Trust owned
the remaining 90 percent, but they argued that Judge Prochnau did not make
findings or conclusions as to the associated capital accounts and did not explicitly
-9- No. 78932-5-1/10
permit a transfer of capital to reflect the ownership interests. They argued that
because Judge Prochnau had not made express findings as to the capital
accounts, the Estate was entitled to all of the liquidation proceeds, which were in
excess of $2.5 million.
In response, Val and Jim testified that they simply had complied with the
2014 Order and had repeatedly informed Tom and Marie of their intent to comply
with the court’s ownership determinations. They denied initiating any “transfer of
capital;” instead, they testified they merely fixed an accounting error required by
the 2014 Order. They also asserted that Tom and Manes’ claims were barred by
res judicata and/or collateral estoppel. Val and Jim asserted a counterclaim
against Tom and Marie, seeking an application of the in terrorem clause.
Val and Jim then moved for summary judgment dismissal of Tom and
Marie’s claims, raising the collateral estoppel and res judicata defenses and asking
the court to conclude that Tom and Marie had triggered the in terrorem clause by
filing the lawsuit.
Tom and Marie filed a cross motion for partial summary judgment, claiming
they were entitled to judgment as a matter of law because Val and Jim were
unjustified in making a “transfer of capital” and that in doing so, they had unlawfully
converted Estate assets and breached their fiduciary duties. They asserted that
Judge Prochnau’s determination that the Trust owned 90 percent of the
membership interest in the LLC did not mean that the Trust also owned 90 percent
of the company’s capital. They contended that Val and Jim were barred by
res judicata from arguing that the LLC capital accounting was erroneous.
-10- No. 78932-5-I/i I
On June ii, 2018, the trial court granted Val and Jim’s summary judgment
motion and denied Tom and Marie’s motion. The order entered by the trial court
contained detailed factual findings and legal conclusions. First, the court
determined that the 2014 Order “required the Gillespie LLC to make an adjustment
to capital and did not require Val & Jim as Managers of Gillespie, LLC to ‘transfer’
any capital, and certainly not in their capacity as Co-PRs.” Second, it found no
evidence that Val and Jim had transferred any capital from the Estate to the Trust.
Finally, it found that Tom and Marie were attempting to relitigate the same claims
they had previously alleged against Val and Jim by “asserting that Val and Jim
acted improperly to carry out Judge Prochnau’s trial orders.” While the trial court
concluded that the filing of the petition violated Judge Prochnau’s order and
dismissed all of Tom and Marie’s claims, it reserved ruling and asked for
supplemental briefing on whether Tom and Marie had triggered the in terrorem
clause and forfeited their right to inherit from the Estate.
After further briefing from the parties, the trial court concluded that Tom and
Marie had become adverse parties in the proceeding for the Will’s probate and had
thus triggered the in terrorem clause and forfeited their rights to the Estate. It
further concluded, contrary to the legal ruling made by Judge Prochnau, that the
in terrorem clause did not contain either a “safe harbor” provision or a good faith
exception. It further found that “[t]he Plaintiffs have not acted in good faith and
cannot avoid the invocation of this clause simply because they commenced this
litigation with the advice of counsel.” The trial court subsequently entered
judgment of attorney fees and costs against Tom and Marie in the amount of
-ii - No. 78932-5-1/12
$53,635 and ordered that Tom and Marie must disgorge any and all partial
distributions, debt offsets, advances on distributions, and income they had
received from the Estate.
Tom and Marie moved for reconsideration, arguing that Judge Prochnau’s
legal ruling that there was a good faith exception to the in terrorem clause was
binding on the parties through the doctrine of collateral estoppel. The trial court
denied the reconsideration motion.
Tom and Marie appeal the trial court’s ruling that their lawsuit triggered the
in terrorem clause, the order that they disgorge any inheritance they had already
received, and the assessment of attorney fees against them.
STANDARD OF REVIEW
We review summary judgment orders de novo, engaging in the same inquiry
as the trial court. Summary judgment is warranted only when there is no genuine
dispute of material fact and the moving party is entitled to judgment as a matter of
law. CR56(c). The facts and all reasonable inferences are viewed in the light most
favorable to the nonmoving party. Young v. Key Pharm., Inc., 112 Wn.2d 216,
225-26, 770 P.2d 182 (1989); Northgate Ventures LLC v. Geoffrey H. Garrett
PLLC, _Wn. App._, 450 P.3d 1210 (2019).
ANALYSIS
1. A~licability of the In Terrorem Clause
Tom and Marie argue the trial court erred in concluding that the in terrorem
clause applied to this case. They alternatively argue that even if this lawsuit
invoked the clause, the trial court erred in failing to give preclusive effect to Judge
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Prochnau’s legal conclusion that the clause did not prohibit legal challenges made
in good faith on the advice of counsel.
The in terrorem clause provides:
Should any beneficiary under this Last Will become an adverse party in a proceeding for its probate, such beneficiary shall forfeit his entire interest hereunder and such interest shall pass as part of the residue of my estate; . .This Article shall not be construed to limit the .
appearance by any beneficiary as a witness in any proceeding for the probate of this Last Will, nor to limit his appearance in any capacity in a proceeding for its construction.
Tom and Marie argue that the clause applies only to challenges to the Will’s validity
and not to claims relating to the administration of the Estate by its personal
representatives.
This court reviews the trial court’s interpretation of a will de novo. In re
Estate of Burks, 124 Wn. App. 327, 331, 100 P.3d 328 (2004). “The primary duty
of a court when interpreting a will is to determine the intent of the testator.” In re
Estate of Niehenke, 117 Wn.2d 631, 639, 818 P.2d 1324 (1991). “Such intention
must, if possible, be ascertained from the language of the will itself and the will
must be considered in its entirety and effect must be given every part thereof.” In
re Estate of Berciau, 103 Wn.2d 431, 435, 693 P.2d 703 (1985).
The language of the clause provides that a beneficiary forfeits his or her
interest if he or she becomes an ‘adverse party in a proceeding for [the Will’s]
probate.” Nothing in the plain language of the clause limits its application to will
contests.
Tom and Marie contend that the word “probate” means the court’s act of
deeming a will valid and “admitting” it as the legally binding instrument of the
-13- No. 78932-5-1114
testator’s intent. The Will does not define the term “probate.” Nor does chapter
11 RCW. In such case, the court may use a dictionary definition to discern the
plain meaning on an undefined term. In re Estate of Petelle, 8 Wn. App.2d 714,
718, 440 P.3d 1026 (2019). At the time of the Will’s execution, the term “probate”
was defined as:
[The] Court procedure by which a will is proved to be valid or invalid; though in current usage this term has been expanded to generally refer to the legal process wherein the estate of a decedent is administered. Generally, the probate process involves collecting a decedent’s assets, liquidating liabilities, paying necessary taxes, and distributing property to heirs. These activities are carried out by the executor or administrator of the estate, usually under the supervision of the probate court or other court of appropriate jurisdiction.
BLACK’S LAW DICTIONARY 1202 (6th ed. 1990).2 The dictionary definition
demonstrates that the term “probate” has taken on a meaning beyond will contests
to cover the administration of an estate.
The trial court did not err in concluding that Tom and Marie’s lawsuit was an
adversary proceeding relating to the probate of the Will. Their initial petition for an
accounting invoked a probate statute, RCW 11 .68.065.~ This statute provides:
A beneficiary whose interest in an estate has not been fully paid or distributed may petition the court for an order directing the personal representative to deliver a report of the affairs of the estate signed and verified by the personal representative. Upon hearing of the . . .
petition after due notice as required in RCW 11.96A.110, the court may, for good cause shown, order the personal representative to deliver to the petitioner the report for any period not covered by a previous report.
2 T.R. executed his Will in 1996. “A testator is presumed to have known the law in force
when the will was drafted and to have drafted the will in conformity with that law. Consequently, if a will [is] ambiguous, the law when the instrument was drafted is a circumstance to consider in determining the testator’s intent.” McDonald v. Moore, 57Wn. App. 778, 780, 790 P.2d 213 (1990). ~ Chapter 11.68 RCW sets out procedures for the settlement of estates in probate without court intervention. The Will granted nonintervention powers to T.R.’s personal representatives, and as a result, the probate proceeded under chapter 11.68 RCW.
- 14- No. 78932-5-1/15
They sought a report because they contended that Val and Jim were refusing to
provide information to them or to explain discrepancies they believed existed in the
LLC and Trust tax documents. Their position was clearly adversarial in nature,
and they were directly challenging the manner in which Val and Jim were
administering the Estate.
Their position became even clearer in their amended complaint, in which
Tom and Marie accused Val and Jim of breach of fiduciary duty and conversion.
They alleged that Val and Jim had wrongfully appropriated Estate property by
transferring that property to the Trust. Tom and Marie alleged that Val and Jim’s
actions were taken ‘in the course of [their] administration and probate of the Estate
of T.R. Gillespie” and the administration of the Trust. Their 2017 claims were not
materially different from the 2014 claims that would have triggered the in terrorem
clause but for the implied good faith exception that Judge Prochnau concluded
exists. Tom and Marie invoked the in terrorem clause when they brought this suit.4
Tom and Marie next argue that even if their suit triggered the in terrorem
clause, the court erred in concluding that there is no good faith exception to the
clause. They maintain that Judge Prochnau’s contrary legal conclusion is binding
and that Val and Jim are precluded from now arguing that no such exception exists.
We agree.
“Although the clause permits a beneficiary to ask the court to interpret the Will without forfeiting his inheritance, we conclude that none of Tom and Marie’s challenges concerned the construction of the Will. Their breach of fiduciary duty and conversion claims were direct attacks on Val and Jim’s administration of the Estate. Thus, Tom and Marie’s claims did not fall under the exception to the clause. - 15- No. 78932-5-1/16
Whether res judicata bars an action is a question of law and is subject to a
de novo review. Ensley v. Pitcher, 152 Wn. App. 891, 899, 222 P.3d 99 (2009).
“The doctrine of resjudicata rests upon the ground that a matter which has been
litigated, or on which there has been an opportunity to litigate, in a former action in
a court of competent jurisdiction, should not be permitted to be litigated again.” ki.
(internal quotation marks omitted) (quoting Marino Prop. Co. v. Port Comm’rs of
Port of Seattle, 97 Wn.2d 307, 312, 644 P.2d 1181 (1982)). “The threshold
requirement of res judicata is a valid and final judgment on the merits in a prior
suit.” Id.
Judge Prochnau decided that under Estate of Kubick, 9 Wn. App. 413,419,
513 P.2d 76 (1973), the lack of a good faith exception in an in terrorem clause
might violate the policies inherent in RCW 11.28.020. Consequently, in the 2014
Order, Judge Prochnau concluded that “Given the specific statutory exceptions for
good faith challenges and the policy concerns enunciated by Kubick and other
cases, the court reads TR’s Will to except good faith challenges from the punitive
aspects of the in terrorem clause.”
Val and Jim argue that the public policy discussion in Kubick is dicta and
not the holding of the case. But that argument could have been made to Judge
Prochnau, who ultimately concluded that the clause contained such an exception.
Even if Judge Prochnau erred in concluding that there was a good faith exception
to the in terrorem clause of the Will, Val and Jim did not appeal this legal conclusion
and it became final and binding on the parties. The court erred in concluding
- 16- No. 78932-5-1/17
otherwise. Val and Jim are barred under the doctrine of res judicata from now
asserting the absence of such an exception to the Will.
Tom and Marie next challenge the trial court’s finding that they did not act
in good faith in initiating this lawsuit. They contend that they are entitled to the
conclusive presumption that they acted in good faith because they brought the
lawsuit on the advice of fully informed counsel. We conclude that the party
challenging the application of an in terrorem clause bears the burden of proving
they initiated a lawsuit in good faith and on the advice of fully informed counsel.
Once a petitioner has made a prima facie showing, there is a rebuttable
presumption of good faith which the opposing party may overcome with evidence
of the intentional violation of a court order, dishonesty, improper or sinister motive,
the lack of any factual basis for the asserted claims, or the intentional withholding
of material factual information from counsel. Because the trial court did not apply
the correct standard, we reverse for entry of findings of fact in light of the test set
out here.
In Kubick, this court adopted a presumption of good faith in the context of
the applicability of an in terrorem clause, but it did not explicitly indicate whether
the presumption was conclusive or rebuttable.5 In that case, the decedent’s
daughter, Mary Lou Cathersal, sought to remove the executor of her father’s
estate. 9 Wn. App. at 414. The guardian ad litem, acting on behalf of the other
~ A “conclusive presumption,” or an “irrebuttable presumption,” “cannot be overcome by any additional evidence or argument because it is accepted as irrefutable proof that establishes a fact beyond dispute.” BLACK’S LAW DICTIONARY 1435 (11th ed. 2019). A “rebuttable presumption,” on the other hand, is “drawn from certain facts that establish a prima facie case, which may be overcome by the introduction of contrary evidence.” BLACK’S LAW DICTIONARY 1436 (11th ed. 2019). - 17- No. 78932-5-1/18
beneficiaries, argued that Cathersal’s petition triggered the in terrorem clause in
Kubick’s will and that Cathersal’s lawsuit had not been initiated in good faith.
At trial, the court dismissed Cathersal’s case at the close of her case-in-chief but
rejected the guardian’s argument that Cathersal had forfeited her inheritance. k~.
at 417. The court reasoned that Cathersal brought the case in good faith because
she had consulted with an attorney before filing it. jç~
This court reversed the trial court’s good faith finding. jç~ at 419-20.
Although the court noted that a suit brought on the advice of counsel is “persuasive
of the bona fides of the suit,” it could not determine whether Cathersal’s suit had
been brought in good faith because the guardian had not been afforded the
opportunity to establish what facts were before counsel when counsel provided
advice to Cathersal. ki. at 420.
The court stated, in dicta, that “if Mrs. Cathersal laid the facts fully and fairly
before her attorney and acted on his advice in bringing the action, she must be
deemed to have acted ‘in good faith and for probable cause’ as a matter of law.”
Id. And it did not set out a test for determining whether a petitioner had laid the
facts “fully and fairly” before her attorney. The court remanded the matter to allow
the petitioner to demonstrate that she had fully informed her counsel and to give
the guardian the opportunity to present conflicting evidence. Id. at 420-21.
In Estate of Mumby, 97 Wn. App. 385, 387, 982 P.2d 1219 (1999), Darlene
Wood petitioned to invalidate her deceased father’s living trust on the grounds that
the executor and beneficiary had exerted undue influence over him before his
death. j~ at 388. The executor counterclaimed that the no-contest provision in
-18- No. 78932-5-1/19
Mumby’s will barred Wood from inheriting. j.ç[~. The trial court enforced the clause
against Wood. ~ at 391. On appeal, Wood contended that because she
consulted an attorney before filing suit, ‘she must be deemed to have acted in
good faith.” j~ at 393-94. The Mumby court determined that the record supported
the trial court’s conclusion that Wood had not fully and fairly disclosed all material
facts to counsel. k~. at 394. As a result, it concluded Wood was not entitled to a
presumption of good faith. j~
The court then went on to analyze whether, in the absence of such a
presumption, the trial court properly found that Wood acted in bad faith. j~ç~ It
defined “bad faith” as “actual or constructive fraud” or “neglect or refusal to fulfill
some duty,” or an act “not prompted by an honest mistake as to one’s rights or
duties, but by some interested or sinister motive.” Id. (internal quotation marks
omitted) (quoting Bentzen v. Demmons, 68 Wn. App. 339, 349 n.8, 842 P.2d 1015
(1993)). It affirmed the trial court’s finding of bad faith because the record
supported the conclusion that all independent witnesses testified that Wood’s
father was competent and exercised his own judgment until his death and his
expressed intent was consistent from the date of his will to the date of his death.
ki. at 395. In other words, there was no evidence to support any of Wood’s
allegations.
These cases suggest that any presumption of good faith that may arise after
a litigant consults counsel may be rebutted by the party seeking to enforce an
in terrorem or no-contest clause. The Kubick court hinted that any presumption of
good faith is rebuttable by allowing the guardian to challenge the completeness or
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fairness of the opposing party’s disclosure to counsel. ~ 9 Wn. App. at 417.
Similarly, in Mumby, the court rejected the argument that simply consulting with an
attorney is sufficient to show good faith. Mumby, 97 Wn. App. at 394. Even though
Wood’s attorney in Mumby submitted a declaration to the court saying he was fully
informed, the court identified several key facts that Wood had not disclosed to her
counsel. Id.
In this case, Tom and Marie presented declarations from their attorneys,
Christopher Wright and Kenneth Hart, who testified they were provided “all of the
information and the limited documentation they had available to them concerning
the transfer of capital between the members of the LLC,” including the LLC’s 2014
tax return, the 2014 Order, and the LLC’s Operating Agreement. They concluded
that they could not understand what had happened with the LLC’s capital accounts.
They retained a CPA expert, Gregory Porter, who consulted with them regarding
capital accounting for LLCs and calculating “the magnitude of the loss to the
Estate” when the capital account adjustment occurred. They advised Tom and
Marie to bring the lawsuit.
The record before this court, however, lacks any declaration from Tom or
Marie detailing what information they shared with their attorneys before they
brought this lawsuit. And Charles Farrington, probate counsel for the personal
representatives, testified that he repeatedly provided extensive documentation and
explanations to Tom and Marie’s attorneys to be transparent about what had
occurred and why.
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Val and Jim also presented evidence that Tom and Marie brought this
lawsuit based on factual information known to them at the time of the 2014 trial,
arguing that they violated the court’s order prohibiting them from suing Val or Jim
again. They also presented evidence that Tom and Marie had changed attorneys
repeatedly and forum-shopped in an attempt to avoid the adverse consequences
of the 2014 Order, despite knowing that they faced the risk that the in terrorem
clause could be triggered. Farrington testified that every time Tom and Marie
retain new counsel, he had to educate their new attorneys regarding the history of
the litigation between the parties.
Additionally, Val and Jim presented evidence that the language of the LLC’s
Operating Agreement explicitly required them to make the capital account
adjustment the Estate’s CPA recommended that they make. Paragraph 8.5.3 of
the LLC Operating Agreement provided:
Transfer of Capital Accounts. Except as otherwise required by law, if any Membership Interest is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the transferred Membership Interest.
The trial court concluded that this language was legally dispositive of any claim
that Val and Jim had made an improper asset transfer:
46. On lines 2b and 6b of Schedule M-2, the post-trial 2014 Gillespie, LLC 1065 Partnership Tax Return reported that Gillespie, LLC made a capital adjustment in the amount of $2,492,188 that year.
47. Such amount was simply a shift in the capital balance from one member (TR Estate) to another member (the Gillespie Family Trust).
48. No property or money changed hands as part of that $2,492,188; it was simply a paper transfer to match the capital accounts with support documents that occurred on 6/26/1 4.
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50. These capital adjustments were due to a change in ownership in a previous year that was not recorded properly in the year of the transaction. FOE 55; COL 3; Exh. A to Thomas J. Gillespie declaration, §8.5 and 8.5.3 (LLC Oper. Agmt.).
Val and Jim further presented evidence from Kenneth Pierce, the CPA who had
prepared the LLC’s tax returns from 2014 to 2017. He confirmed that when he
became aware of the Trust’s purchase of a capital interest in the LLC, it became
apparent to him that the transfer had not been properly reflected in the capital
accounts of the LLC members. He explained how the purchase of another
member’s ownership interest can affect an LLC member’s capital account: “When
a buyer purchases an [LLC] ownership interest for cash, it generally results in the
transfer of the seller’s capital account to the buyer.” But T.R. and Marianne failed
to have the LLC tax returns properly reflect the capital account transfers when they
transferred their membership interest to the Trust in 2001. He stated:
13 years after the transaction occurred, Defendants Valerie Gillespie and James Eeckhoudt properly corrected this omission via a capital adjustment which they made, and properly reflected such adjustment in the 2014 tax return of the Gillespie LLC.
The capital account adjustments made via the 2014 Gillespie LLC tax return did not affect the value of the underlying assets of the LLC.
Earrington also testified that the adjustment of the capital on the tax return did not
affect the value of the Estate’s interest in the LLC, a value to which Tom and his
attorney had agreed as early as 2011.
Based on this record, we conclude the trial court should, in the first instance,
determine whether Tom and Marie made a full and fair disclosure of all material
facts to their counsel and brought this lawsuit on their advice. If the trial court
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determines that Tom and Marie have made this prima facie showing, they are
entitled to a rebuttable presumption of good faith, and the trial court should then
determine if Val and Jim have overcome this presumption with evidence of bad
faith—for example, evidence of the intentional violation of a court order,
dishonesty, improper or sinister motive, the failure to have a factual basis for the
asserted claims, or the intentional withholding of material factual information from
counsel.6
2. Res judicata
Tom and Marie finally contend that the trial court erred in making extensive
findings of fact in the order granting summary judgment. But the court dismissed
Tom and Marie’s claims based on the doctrine of res judicata. The standard of
review of the application of resjudicata is de novo. Lynn v. Der’t of Labor & Indus.,
130 Wn. App. 829, 834 n.7, 125 P.3d 202 (2005). Thus, any findings of fact are
superfluous and are disregarded on appeal. Reddinci v. Virginia Mason Med. Ctr.,
75 Wn. App. 424, 426, 878 P.2d 483 (1994). Because our review is de novo, it is
immaterial that the trial court “found” that Tom and Marie sought to relitigate claims
that Judge Prochnau resolved in her 2014 Order.7
6 The resolution of disputed facts as to Tom and Marie’s good faith does not require an evidentiary hearing and may be based on affidavits. Tom and Marie’s complaint was brought under the Trust and Estate Dispute Resolution Act (TEDRA), chapter 11 .96A RCW. Under TEDRA, a court may resolve any and all disputed issues of fact through affidavits; there is no requirement for itto hold any evidentiary hearings. RCW 11.96A.100(7); Fosterv. Gilliam, 165 Wn. App. 33, 55, 268 P.3d 945 (2011) (under TEDRA, court need not hear oral testimony to make findings). ~ The only other findings of fact that Tom and Marie challenge are paragraph 55, in which the court found that “Val and Jim have not transferred any capital,” and paragraph 75, in which the court found that “Val & Jim have incurred significant attorney’s fees and costs in defending” the claims in this suit. But they point to no evidence to demonstrate that Val and Jim did transfer any assets from the Estate to the Trust. And the finding in paragraph 75 was not a material issue of fact on summary judgment.
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Tom and Marie contend their claims are not barred by res judicata or
collateral estoppel because they were based on actions Val and Jim took in
correcting the LLC capital accounts after the entry of the 2014 Order. But this
characterization of their claims is superficial and misstates the relief they actually
sought here. Tom alleged in 2014 that T.R.’s 100 percent ownership interest in
the LLC “is reflected in the 2011 tax return of Gillespie LLC, which shows that [T.R.]
retained his entire original capital account in the LLC until his death.” In other
words, Tom relied on the value of T.R.’s LLC capital account as reflected in the
LLC tax returns as proof of the value of T.R.’s membership interest in the LLC.
Judge Prochnau explicitly rejected this claim:
58. Tom argues, alternatively, that TR’s estate should be allocated 100% of the proceeds from liquidation of the Gillespie LLC assets because . the tax returns and K-is appear to indicate that . .
the Gillespie LLC assets were still titled and in the control of TR or his estate. .
59. While the tax returns prepared at the direction of TR are of some interest, they were generally prepared by CPAs in the State of Hawaii who did not testify nor was it shown that they were conversant with TR’s estate planning or working with TR’s estate planning attorneys. The returns provide insufficient evidence to demonstrate that the court should (1) disregard the various entitles, (2) look behind the entities’ legal framework and attempt to unwind the various transactions or (3) determine whether the various entities received their appropriate share of the assets during TR’s lifetime.
The only conclusion one can draw from the argument Tom advanced in 2014 and
this finding of fact is that the capital account reporting in the LLC tax returns were
unreliable evidence of the Estate’s ownership interest in the LLC. Judge Prochnau
refused to credit the Estate with more than a 10 percent ownership interest in the
LLC because to do otherwise would be contrary to T.R.’s intent.
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Despite these findings, Tom and Marie alleged in their 2018 complaint:
2.7 Neither Washington law, nor any generally accepted account[ing] principal, nor any provision of the Operating Agreement of Gillespie LLC required that each member’s percentage share of the total of the capital accounts of all members of the LLC match the member’s percentage ownership of the units of the LLC, or prohibit a member from owning a larger percentage of the total of the capital accounts of all members than the member’s percentage ownership of the LLC.
2.11 While the capital account balances of the members of Gillespie LLC were known at the time of trial to be disproportionate to each member’s ownership interest in the LLC, Judge Prochnau made no findings or conclusions regarding the capital account balance of the Estate and did not enter any judgment regarding adjustments or modifications to the existing capital accounts of the Estate and the Trust as reflected in the company’s records and contemporaneous tax filings.
Tom and Marie’s contention that the Estate’s 10 percent ownership interest
can exceed in value the Trust’s 90 percent ownership interest and should reflect
the values attributed in the admittedly incorrect LLC tax filings is an argument that
could have been litigated in 2014. While they point to Val and Jim’s post-trial
administrative activities in correcting the LLC tax returns as the basis for their
claims, the claims are premised on legal and factual contentions that were at issue
in the 2014 trial. While Judge Prochnau did not explicitly rule that the Estate’s
capital account balance had to reflect in value the membership percentage
interest, Tom and Marie certainly could have asked for such a ruling.
Res judicata bars not just the relitigation of claims or issues that were
litigated, but also the litigation of claims or issues that “might have been litigated,
in a prior action.” Loveridge v. Fred Meyer, Inc., 125 Wn.2d 759, 763, 887 P.2d
898 (1995). For the doctrine to apply, a prior judgement must have concurrence
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of identity in (1) subject matter, (2) cause of action, (3) persons and parties, and
(4) the quality of the persons for or against whom the claim is made. a There is a final and binding judgment between Tom and Marie, as
beneficiaries, and Val and Jim, as personal representatives, of the Estate. The
causes of action in 2014 are identical to the causes of action here: a request for
an accounting by the personal representatives and breach of fiduciary duty. The
legal and factual issues on which the current claims are based are identical to the
legal andfactual issuesthatwerethesubjectofthe2Ol4 litigation andwhich could
have been fully litigated then. Thus, the trial court did not err in granting summary
judgment based on res judicata.
3. Attorney fees on summary iudqment
Finally, Tom and Marie challenge the July 31, 2018 order awarding attorney
fees to Val and Jim.8 Although Tom and Marie assigned error to the award of fees,
they did not brief the issue. We thus decline to address this issue. .~ Norcon
Builders, LLC v. GMP Homes VG, LLC, 161 Wn. App. 474, 486, 254 P.3d 835
(2011) (appellate court will not consider inadequately briefed argument).
4. Attorney fees on appeal
Val and Jim request an award of attorney fees on appeal under
RCW 11.96A.150. We refer this request for the trial court to decide on remand
after determining whether Tom and Marie brought this lawsuit in good faith.
8 Val and Jim sought and received an award of attorney fees and costs under RCW
1 1.96A.150 which provides: (1) Either the superior court or any court on an appeal may, in its discretion, order costs, including attorneys’ fees, to be awarded to any party . that is the subject of the .
proceedings. - 26 - No. 78932-5-1/27
Affirmed in part, reversed in part, and remanded for further proceedings
consistent with this opinion.
WE CONCUR:
I
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