Barry E. Pepper v. Laurie L. Dunton

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

BARRY E. PEPPER, )
)
Plaintiff, )
)
v. ) C.A. No. 2022-0639-LM
)
LAURIE L. DUNTON, )
)
Defendant. )

POST-TRIAL FINDINGS OF FACT AND CONCLUSIONS OF LAW

Dated: November 4, 2024

1. This final report makes post-trial findings of fact and reaches

conclusions of law concerning the Second Amended Trust of Charles B. Pepper

(“Decedent”), the Trustee, and Liquidation of the Trust.

2. Plaintiff, Barry Pepper, filed this Complaint on July 22, 2022, for

breach of fiduciary obligations regarding the Irrevocable Trust of Charles B. Pepper

(the “Trust”), his father.1 Defendant is Laurie L. Dunton, Plaintiff’s sister, the other

beneficiary of the Trust, and the current Trustee.2

3. Plaintiff asserts that the Defendant has breached the fiduciary duties she

owed as Trustee by failing to distribute his 50% share of Trust funds and failing to

1
D. I. 1.
2
Id.
pay rent for her occupancy of estate property.3 Plaintiff requests a sale of the real

property, a distribution of the proceeds, an accounting of any rental income

Defendant owes and is earning from the property, a surcharge, fees and costs, and

any other equitable remedy.4

4. The parties engaged in motion practice prior to the trial. On October 4,

2023, I denied four motions; Defendant’s Motions to Dismiss, Change Venue, to

Compel Discovery Responses, and Plaintiff’s Motion for Summary Judgment.5

5. There were also multiple requests to postpone the trial. I removed the

October 9, 2023, trial from the calendar,6 rescheduling it to February 21, 2024, 7 and

later to May 22, 2024. 8

6. The Court held a one-day trial on May 22, 2024. 9

FINDINGS OF FACT

7. The evidence presented at trial supports the following findings of fact:10

3
Id.
4
D. I. 1 at 2.
5
D. I. 49.
6
D. I. 50.
7
D. I. 51.
8
D. I. 57.
9
D. I. 63.
10
D. I. 64 (Official trial transcript of May 22, 2024).

2
a. This Trust was created in Delaware on August 15, 2001,

amended October 14, 2004, and again on July 28, 2009. 11 Decedent's Last Will and

Testament (“Will”), executed on July 28, 2009, was a pour over will, devising all of

Decedent's property to the substitute trustee under the Trust and appointing

Defendant his executrix; 12

b. Letters of administration for Decedent's estate (“Estate”) were

granted to Plaintiff on or about October 11, 2012, and then revoked, and testamentary

letters were granted to Defendant on or about June 6, 2013; 13

c. Decedent’s spouse, Deborah English, was deemed a beneficiary

of the Trust by order of this Court.14

d. In 2016, English petitioned this Court to remove Plaintiff as

personal representative and accused him of several fiduciary violations and

misdeeds. 15

e. The parties eventually settled the petition, which resulted in

certain properties and money transferred to English, and Defendant named the

11
In re Pepper, 2021 WL 3055739, at *1 (Del.Ch. July 19, 2021).
12
Id.
13
Id.
14
In re Est. of Pepper, C.A. No. 10360-ML, D.I7.
15
D. I. 10 (Def.’s Exhibit B).

3
substitute trustee following Master Griffin’s 2021 Order.16 The Order noted that the

Second Amended Trust appointed Defendant as substitute trustee, removing Plaintiff

from that role, which he had held previously under the 2001 Trust Agreement.17

Master Griffin held that the Trust property (not distributed to the Decedent’s widow)

should be “held in further trust.”18 The Will confirmed Decedent's intent for

Defendant to serve as substitute trustee and that all of Decedent's property (at the

time of his death) should be “added to the corpus of [the Trust].” 19

f. Both Plaintiff and Defendant are the sole beneficiaries of the

Trust. 20

g. Approximately $36,277.22 was the remaining amount of money

that was added to the Trust account. 21 Of the real property Decedent owned, only the

Virginia property is left.22 The Virginia property was previously valued, in 2012, at

$70,000. 23

16
Id.
17
In re Pepper, 2021 WL 3055739, at *2 (Del.Ch. July 19, 2021).
18
Id.
19
Id.
20
D.I. 1 at 1 (Complaint filed by Barry E. Pepper)
21
Pl.’s Tr. Exhibit A.
22
Tr. 61:22-23.
23
Tr. 62:10-15.

4
h. At trial, Defendant testified that the Decedent purchased the

Virginia property for the Defendant and her small children when her husband had

been diagnosed with brain cancer. 24 Decedent placed the home in the Trust but

created a lease agreement for the Defendant so she could enroll her children in the

neighborhood school. 25 Defendant testified that there was never a requirement for

her to pay rent for her occupancy of the property. 26

i. To date, Defendant has not distributed any payments to Plaintiff

for his beneficiary share and the parties have had little contact until this matter was

filed.27

j. In March of 2023, Defendant sent Plaintiff copies of

homeowner’s insurance that she paid out of her personal account. 28 Defendant also

claims that the Trust estate is potentially missing assets due to Plaintiff’s prior

administration of the Estate and Trust.29

24
Tr. 75:14-19; Tr. 96:22-97:12.
25
Tr. 77:20-24.
26
Tr. 78:5-8.
27
Tr. 60:1-4; Tr. 62:17-19; Tr. 74:7-18.
28
Tr. 72:18-74:4.
29
Tr. 115:8-13.

5
CONCLUSIONS OF LAW

8. A large portion of Plaintiff’s claims relate to whether the Virginia

Property is a Trust asset, so I begin my analysis with that issue. The Plaintiff

contends that the Virginia property is an asset of the Trust and is therefore subject to

the "one-half division" provision in subsections C(1) and D(1) of Amended Article

III. Defendant claims that the Virginia property was always intended as a gift from

the Decedent for her sole use and discretion and is therefore not subject to the

provisions of the Trust. While I note that the Defendant has occupied and maintained

the Virginia property for over two decades, there is no evidence to support that it

should not be construed as a valid Trust asset. As a Trust asset, it is subject to

distribution in accordance with Amended Article III of the Trust as further explained

below.

9. Plaintiff alleges Defendant has breached her fiduciary duty as trustee.30

Delaware law authorizes the Court of Chancery to remove a trustee if the trustee

commits a breach of trust, or if the court determines, “with due regard for the

expressed intention of the trustor and the best interests of the beneficiaries,” that

there has been a substantial change in circumstances, the trustee is unfit, unwilling

30
D. I. 1.

6
or unable to administer the trust properly, or the hostility between the trustee and

beneficiaries threatens the efficient administration of the trust.31

10. Plaintiff argues that Defendant breached her fiduciary duty by not

paying rent to the Trust for her occupancy of the Virginia Property. Plaintiff refers to

Master Griffin’s Order where she says: “As trustee, Dunton is a fiduciary and must

act impartially, keep proper accounts, furnish information, preserve Trust assets, and

ensure that the Trust assets, including the Virginia Property, are properly invested

and productive;”32 and then notes in Footnote 36: “To make Trust property

productive, Dunton must either sell the Virginia Property or pay fair market rent to

the Trust if she continues to live on that property.”33 Plaintiff asserts that Defendant

has breached her duties as trustee because she has not made the Trust profitable and

also owes rent to the Trust. However, I reject the argument that Defendant is required

under the Trust to make the Trust property profitable, as Master Griffin was citing

from Delaware Tr. Co. v. Bradford, as opposed to the provisions of the Trust, which

control. 34

31
12 Del.C. § 2237.
32
Tr.133:1-6.
33
Tr. 133:7-11.
34
Delaware Tr. Co. v. Bradford, 59 A.2d 212, 214 (1948) (Generally the courts will infer
that the testator intended the life beneficiary to have the benefit of income from all property
in the trust unless the terms of the trust indicate otherwise. See 1 Restatement of Trusts, §
241. Consequently, where the terms of the trust are silent, the courts will direct the trustee
7
11. Article V of the Trust grants the trustee broad discretion to “hold and

retain all or any property … without regard to any law or rule of court…” and “[to]

invest and reinvest (or leave temporarily uninvested) any funds … real or personal,

without regard to any law or rule of court prescribing or restricting investments of

fiduciaries.” 35 As such, Defendant is not required to make the Virginia Property

profitable under the terms of the Trust and her failure to do so will not constitute a

breach of her fiduciary duties.

12. Plaintiff also argues that Defendant breached her fiduciary duty by

failing to make distributions under the Trust. Article III of the Second Amendment

to the Revocable Trusts orders the remaining property to be held in Trust for both

beneficiaries.36 Furthermore, subsections C(1) & D(1) of amended Article III

require the Trustee to pay half of the net income to both beneficiaries at least as often

as “quarter-annually.”37

13. Subsection C(2) states that “[w]henever the Trustee determines” that

Plaintiff’s income is insufficient to “provide for his "health, maintenance, and

support, the Trustee shall pay to him, or use for his benefit, such sums as the Trustee

to apportion the net proceeds from the sale of an unproductive asset between capital and
income.).
35
D.I. 38 (Exhibit. B, Revocable Trust Agreement).
36
D. I. 38 (Exhibit B, Second Amendment to Revocable Trust, Art.III(C) &Art. III (D)).
37
Id.

8
determines to be required for those purposes from the principal of his share of the

trust."38 Subsection D(2) provides a reciprocal provision for Defendant.39

14. The Trusts' declaration of "health, maintenance and support" provides

the Trustee broad application of the use of Trust assets under subsections C(2) and

D(2). Unlike subsections C(1) and D(1) where the trustee is required to distribute

the income of the Trust, subsections C(2) and D(2) dictate the terms for when the

Trustee is able to access the principal of the Trust.

15. When assessing whether an administrator has breached their duty of

care, they are held to a standard of “ordinary care, prudence, skill and diligence[.]” 40

16. Here, there was no proof at trial that Defendant neglected her duty to

distribute. Although subsections C(1) and D(1) of Amended Article III require the

Trustee to pay out the income of the Trust to the beneficiaries, Plaintiff has not

provided proof that the Trust currently has actual income.41 Going solely off the

Trust accounting prepared by Defendant, there doesn’t appear to be any income

38
D. I. 38 at Art. III, section C (2).
39
D. I. 38 at Art. III, section D (2).
40
Del. Trust Co. v. McCune, 80 A.2d 507, 511 (Del. Ch. May 3, 1951).
41
When the trust was drafted, and at the time of the second amendment, the Trust contained
several rental properties. Those rental properties were available when Plaintiff served as
Trustee and failed to report any income. That said, some of those properties were given to
Decedent’s widow as a result of the Settlement Agreement and some may have been sold
during Plaintiff’s tenure as Trustee. Nevertheless, the Trust no longer contains that
property.

9
coming into the Trust.42 Income, in this instance is not the $36,277.22 cash principal

that was remaining after the Plaintiff served as Trustee and subsequent settlement

with Decedent’s spouse, but rather the income would be the money that comes into

the Trust as a result of the cash principal such as interest, dividends, capital gains, or

rental income.43 The existence of the $36,277.22 is not evident that it is income,

rather it is a lump sum that I see as principal and subject to subsections C(2) and

D(2) of Amended Article III.

17. In accordance with the Trust, the Trustee is not required to make income

or make the Trust productive. However, to the extent there is income from either

interest, dividends, or capital gains on the $36,277.22, the trustee is required to pay

that to the Plaintiff quarterly. If there is no income generated from the $36,277.22,

no distributions are required in accordance with subsections (C)1 and D(1) because

Article V of the Trust does not require the trustee to make income or make the Trust

productive.

18. Finding no requirement to distribute under subsections C(1) and D(1),

I now turn to distributions according to subsections C(2) and D(2), which provides

the trustee the ability to access the Trusts’ principal if the trustee deems it necessary

for Plaintiff’s “health, maintenance and support.” To the extent Plaintiff asserts a

42
D.I. 62.
43
12 Del.C. § 6102(4).

10
need for a distribution of the principal (the $36,277.22 or the Virginia property)44 for

his “health, maintenance and support;” Plaintiff has failed to submit or assert any

need related to this provision and no evidence thereof was presented at trial.

Removal of Defendant as Trustee for failing to make distributions is hereby

DENIED.

19. I further DENY the Plaintiff's request that the Court compel Defendant

to provide a share of the estate proceeds to the extent Plaintiff argues that all of the

proceeds from the estate are “income.” Although I have denied Plaintiff’s request as

noted above, I ORDER the Defendant to provide details to the Court on whether

any income from the $36,277.22 has been received by the Trust. If so, she must

distribute one-half of that income, whether it is interest, dividends, or capital gains

earned to the Plaintiff within 45 days of this Order with proof of compliance to be

provided to the Court within 30 days of distribution. The proof of compliance should

include Trust account statements and distribution amounts. If the Trust receives any

further income or deposits, one-half of that amount should be distributed quarterly

in accordance with the terms of the Trust.

20. The Plaintiff also argues that the Defendant neglected her duties by

failing to pay taxes and insurance. A trustee has an independent duty to maintain

44
See 12 Del.C. § 6102(10).

11
records for the trust. 45 Furthermore, a trustee has a duty to furnish information about

essential facts to the beneficiaries upon request or even without a request.46 The

Defendant has provided one accounting as a result of the instant case.47 Additionally,

although Plaintiff alleged Defendant failed to pay taxes and insurance, no proof of

such failure was provided. Evidence at trial showed that the Defendant used the Trust

account to pay taxes and insurance.48 The Defendant produced documentation to

show that insurance and taxes on the Virginia Property are current. Records show

that Plaintiff paid the real estate tax for 2017. 49 The real estate taxes for 2018

through 2022 were paid by the Trustee from the Trust.50 This Court has no reason to

conclude that the property is at risk of default or seizure for failure to pay taxes or

fees. As such, it is premature to claim that she has neglected her duty to pursue claims

on behalf of the estate.

45
Cf. Mennen v. Wilmington Tr. Co, 2015 WL 1914599, at *25 (Del. Ch. Apr. 24, 2015),
aff’d sub nom. Mennen v. Fiduciary Tr. Int’l of Delaware, 166 A.3d 102 (del. 2017).
46
E.g., McNeil v. McNeil, 798 A.2d 503, 510 (Del. 2002); President & Fellows of Harvard
Coll. V. Glancy, 2003 WL 21026784, at *20, n. 33 (Del. Ch. Mar. 21 2003 (citing
Restatement (Second) of Trusts§ 173 (1959), “[t]rustee I sunder a duty to the beenficary to
give him upon his request at reasonable times complete and accurate information as to the
nature and amount of the trust property”).
47
D.I. 62 Ex. I (Laurie Dunton's Accounting of Trust Assets).
48
Id.
49
D.I. 22 Ex. D at 33 (Documents related to tax bill).
50
D.I. 22 Ex. D at 34-39 (Documents related to tax bill).

12
21. Because the Plaintiff has failed to prove any neglect of duties to this

point, I find that the Defendant should not be removed for neglect of duties.

Accordingly, the request for substitution of Defendant for Plaintiff as Trustee under

this premise is DENIED.

22. Plaintiff also request that the court terminate the Trust. A court may

terminate a trust where the beneficiaries consent, and after considering the objective

of the settlor in establishing the Trust, the court determines that the purpose of the

trust has become impossible to achieve, the administration of the Trust is extremely

difficult or impractical, and/or continuing the Trust is not in the best interest of the

beneficiaries.51 Neither of these scenarios are prevalent here. The beneficiaries do

not agree to dissolve the Trust, rather one beneficiary seeks to terminate the Trust in

order to obtain access to the principal outside of the terms of the Trust. In addition,

from the facts presented at trial, I am not convinced the purpose of the Trust is

impossible to achieve.

23. It is clear that part of the Decedent’s intent in creating this Trust was for

the Trust to serve as a potential resource to his children for the rest of their life. This

is possible under subsections C(1) and D(1) of amended Article III if the trusts

produces income and under subsections C(2) and D(2) if the beneficiaries meet the

requirements. Although the Trust assets are less than they were at the Decedent’s

51
Lynch v. Barba, 2018 WL 1613834, at *9 (Del. Ch. April 3, 2018).

13
death, that alone is not sufficient to show the Trust’s purpose is frustrated.

Furthermore, there is no evidence that the Decedent intended to terminate the Trust

before the death of the living beneficiaries. Therefore, I DENY Plaintiff’s request to

terminate the Trust.

24. For the reasons set forth above, I find that the Plaintiff's claims should

be DENIED.

25. The Plaintiff also seeks to shift the cost of filing and prosecuting this

action to the Defendant.52 Under Court of Chancery Rule 54(d), “costs shall be

allowed as of course to the prevailing party unless the Court otherwise directs.”

Although I am requiring the Defendant to submit supplemental information

regarding the Trust, the Plaintiff has not prevailed on his claims and, as such, costs

should not be shifted.

26. This is my Final Report and exceptions may be filed under Court of

Chancery Rule 144.53

/s/ Loren Mitchell
Magistrate in Chancery

52
D. I. 1.
53
See Ct. Ch. R. 144(d)(1) (“In actions that are not summary in nature or in which the
Court has not ordered expedited proceedings, any party taking exception shall file a notice
of exceptions within eleven days of the date of the report.”).

14