All Trust Beneficiaries Were Required Parties in a Case Involving No Contest Clause
The United States District Court for the Western District of Virginia recently held that all trust beneficiaries were necessary parties to litigation involving the application of a trust’s no contest provision. Graves v. Vitu,(W.D. Va. Feb. 2013) is just one of many cases involving the descendants of Colonel Theodore Clay Northcott, the founder of the well known Virginia tourist attraction Luray Caverns. In Graves, three trust beneficiaries, who are Northcott’s great grandchildren, filed suit in federal court against two other great grandchildren beneficiaries. Plaintiffs claimed that defendants’ interests in two trusts should be nullified because they opposed the appointment of certain successor trustees in violation of the trusts’ no contest clause. Plaintiffs, however, did not name the sixth beneficiary of the trusts, Ms. Rebecca Hudson (Hudson), a Virginia resident who would have destroyed the court’s diversity jurisdiction, as a defendant. Defendants moved to dismiss this declaratory judgment action pursuant to Federal Rules of Civil Procedure 12(b)(1) and Rule 12(b)(7) for failure to join a necessary party.
The Court concluded that Hudson was a “required” party to the litigation because proceeding without her could have impaired her ability to protect her interests in the trusts. First, the court determined that given the broadly worded no-contest clause, Hudson also may have indirectly opposed the nomination of the trustees, and if so, like the defendants, her beneficial interest in the trusts could be in jeopardy. Plaintiffs sought to eliminate this possibility by filing a stipulation that if the court retained jurisdiction of the case, they would not assert that Hudson forfeited her interest in the trusts. The court held that the “cleverly conceived stipulation” did not eliminate Hudson’s interest in the outcome of the lawsuit. Second, although Hudson’s beneficial interests in the trusts would increase slightly if the defendants lost theirs, any such increase “pales in comparison to the increase in control plaintiffs would enjoy if [the defendants’] trusts interests are vitiated.” Finally, the court found that as a non-party, Hudson would not be bound by the court’s judgment and could bring a state court action on the same grounds, which could result in inconsistent verdicts.
The Court granted defendants’ motion to dismiss, concluding: “This is a state law matter, and the plaintiffs’ effort to invoke federal diversity jurisdiction by leaving out an interested party, Rebecca Hudson, is unavailing.” The Court held that Hudson is an indispensible party, and the court cannot, ‘in equity and good conscience,’ allow this action to proceed in her absence.”
This recent decision is a good reminder that in will and trust litigation, two important issues always are: 1) ascertaining who the necessary parties to the case are; and 2) determining whether the case belongs in federal versus state court. Parties and practitioners with clients involved in will and trust disputes should keep these issues in mind in determining the most advantageous litigation strategy.
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