At SCOVA, A Trust Dispute Runs Into An Appellate Pitfall

McMurtrie v. McMurtrie - A Trust Dispute Runs Into An Appellate Pitfall

As those familiar with our firm know, two of my primary practice areas are estate/trust litigation and appeals.  So, my interest was piqued immediately when I read the unpublished order issued by the Supreme Court last week in McMurtrie v. McMurtrie.  On the merits, the McMurtrie decision involves an interest estate/trust litigation issue I wrote about last year after SCOVA handed down its opinion in Hunter v. Hunter: The applicability and enforceability of "no-contest" provisions in wills and trusts.   

However, for the parties in McMurtrie, the more signficant implications of the Court's order will almost certainly involve an appellate procedure pitfall that I listed at # 20 on my list of "25 Surefire Ways To Torpedo Your Virginia Supreme Court Appeal": The "law of the case" doctrine.  When a party fails to appeal a trial court's ruling when they have an opportunity to do so, the parties are deemed to have waived their right to challenge the unappealed ruling in the future.  Although the trial court's unchallenged ruling may have been erroneous and may not reflect Virginia law, it neverthless becomes the "law of the case," and it binds the parties going forward. 
Appellate Court

How did a dispute over a trust's no-contest clause turn into a cautionary tale about the "law of the case" doctrine?  Let's find out.

A Trust Settlor In Search Of Declarations

Alexander McMurtrie established a revocable trust, of which he was the sole beneficiary during his lifetime.  When Mr. McMurtrie asked one of the co-trustees to distribute the trust's principal to him, however, the co-trustee refused.  As unhappy trust beneficiaries often do, Mr. McMurtrie sought judicial intervention.  The problem: Mr. McMurtrie's trust had a no-contest clause stating that "any devisee, legatee, or beneficiary" who sought to impair or invalidate any provision of the trust would forfeit their interest in the trust.

So, to make sure he was in the clear, Mr. McMurtrie sought declarations from the trial court that: (1) As settlor of the trust, he was not subject to the no-contest clause, and (2) Even if he was subject to the no-contest clause, he wouldn't violate it by seeking to terminate the trust under the applicable section of the Uniform Trust Code or by suing the co-trutees for breach of fiduciary duty.

The trial court agreed with Mr. McMurtrie on both counts.  It ruled that he wasn't subject to the no-contest clause.  But even if he was, the trial court said, he wouldn't violate it by bringing an action to terminate the trust or suing the co-trustees for breach of fiduciary duty.  Importantly, the trial court also ruled that Mr. McMurtrie didn't violate the no-contest clause by seeking those declarations.

The Co-Trustees' "Successful" Appeal

The co-trustees noted their appeal from the trial court's order.  Their sole assignment of error read as follows: "The circuit court erred by granting plainitff's motion for summary judgment because it failed to enforce an unambiguous no contest provision of the Trust, in violation of settled principles of Virginia law."  On appeal, the co-trustees argued that the trial court erred by ruling that the no-contest clause didn't apply to Mr. McMurtrie as settlor of the trust.  After all, the no-contest clause applied to "any . . . beneficiary," and Mr. McMurtrie was a beneficiary.  The Supreme Court agreed with the co-trustees that the no-contest clause does, in fact, apply to Mr. McMurtrie.

"We Note, However . . ."

So, the co-trustees won their appeal, right?  By now, you can probably guess that the answer, in the long run, is likely "no."  To explain why, we turn to the paragraph of the Supreme Court's order immediately after it seemingly handed a victory to the co-trustees:

We note, however, that the circuit court also ruled that the No Contest Clause would not apply to, and does not bar McMurtrie from raising, a claim under Code § 64.2-729 of the Uniform Trust Code or from bringing a claim that the Trustees breached their fiduciary duties.  These rulings of the trial court are not challenged on appeal.  Thus, as ruled by the circuit court, McMurtrie may, without triggering the application of the No Contest Clause, pursue any remedies to modify or terminate the Trust that may be provided in Code § 64.2-729 of the Uniform Trust Code, and any claims concerning the Trustees' alleged breaches of their fiduciary duties.

Although the Court didn't use the phrase, what it is saying is that the trial court's rulings the co-trustees left unchallenged on appeal have become the "law of the case."  The parties are now bound by them, and the co-trustees have waived their right to challenge them in the future.

Future Implications 

So, what does that mean in this case?  Well, for one thing, it's clear that Mr. McMurtrie now has free reign to sue the co-trustees for breach of fiduciary duty.  The no-contest provision can no longer prevent him from doing that. 

But the Court's order leaves some questions, at least for those not privy to the unstated facts of the case, about whether Mr. McMurtrie gains anything from the Court's holding that he may pursue remedies under Code § 64.2-729 without fear of triggering the no-contest clause.  That section provides that an irrevocable trust can be modified or terminated by the consent of the settlor and all of the beneficiaries.  However, the Court's order doesn't say whether Mr. McMurtrie's once-revocable trust (called the "Alexander B. McMurtrie, Jr. Revocable Trust") has since become irrevocable.  If it hasn't, a settlor's ability to unilaterally revoke or modify a revocable trust comes not from Code § 64.2-729, but from Code § 64.2-751.  But if the trust remains revocable, and Mr. McMurtrie could just unilaterally revoke it rather than fight with the co-trustees, one must wonder what all this fuss was about to begin with.

We Handle Estate/Trust Disputes And Appeals to the Supreme Court of Virginia

Either way, the McMurtrie case illustrates the dangers posed by the "law of the case" doctrine.  When pursuing an appeal to the Supreme Court of Virginia, parties must be careful to challenge all of the trial court's adverse rulings.  Otherwise, they might unintentionally find themselves bound by an unfavorable ruling they failed to appeal. 

Here at The Mottley Law Firm we have substantial experience handling appeals to the Supreme Court, as well as complex estate and trust litigation.  If you have an estate or trust dispute in Virginia, or you're facing the prospect of an appeal, call us today.

Benjamin P. Kyber
Richmond Appellate Law Attorney Serving Virginia, Henrico County.
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