Probate Court Correctly Appointed Interim Trustee While Successor Trustee Decision Was Pending

Where the probate court appointed an interim trustee pending a full decision on the appointment of the plaintiff as successor trustee, the probate court acted properly and plaintiff did not establish that he was entitled to appellate relief, the Michigan Court of Appeals has ruled.

Kurt G. Hatfield is the plaintiff in In re Michael Eyde Trust (Docket Nos. 363624 and 363625). He was to be the successor trustee in a complex trust worth more than $250 million in assets. At an October 2022 hearing in the case, the Clinton County Probate Court appointed an interim trustee until it made a decision about the plaintiff’s appointment as successor trustee. The plaintiff appealed this ruling. He argued, among other things, that the probate court had no jurisdiction, authority or basis to appoint an interim trustee and that it erred by not letting him immediately assume the role of successor trustee.

The Court of Appeals disagreed, pointing out the applicable statutes permit a probate court - on its own initiative “even without a specific petition” to remove a person as successor trustee - to remove a person as trustee and appoint a special fiduciary.

“This is what the probate court did,” the Court of Appeals said. “As such, [the plaintiff’s] complaints about the lack of a specific petition or about allegedly unverified briefs filed by [other interested persons] are unavailing.”

Judge Michael J. Kelly, Judge Mark T. Boonstra and Judge Thomas C. Cameron were on the panel that issued the unpublished opinion.

Background

Julie Baker, Elizabeth Daly Unis, Carol Palinski Hildebrand and Christopher Palinski were designated by the decedent, Michael Eyde, as the beneficiaries of a smaller “credit portion” of the applicable trust. Meanwhile, the remainder of the trust - the “charitable portion” - was supposed to go to Richland Animal Rescue, Inc.

In January 2022, the Court of Appeals ruled that Costello, the original trustee, had validly transferred the situs of the trust to Illinois. On remand, the Clinton County Probate Court ruled that, under MCL 700.7205(1), it could entertain Baker’s and Richland’s petitions to remove Costello as trustee. Baker and Richland argued in their briefs that the plaintiff, who was named in the trust as the successor trustee, should not be allowed to assume the role of trustee if Costello was indeed removed because he was “closely aligned with the supposedly untoward actions Costello undertook.” (It was alleged that Costello and the plaintiff were trying to remove Richland as a beneficiary and designate “MGE Foundation,” which was purportedly controlled by Costello, as the beneficiary of the charitable portion of the trust.)

Thereafter, Costello unexpectedly offered to resign as trustee. The probate court then appointed Greenleaf Trust as interim trustee “to preserve trust assets and to continue the complex business dealings involving the trust.”

Greenleaf Trust’s appointment as interim trustee was pending a full hearing on whether the plaintiff should assume the role of successor trustee. After the probate court entered the order appointing Greenleaf Trust as interim trustee, the plaintiff emailed Greenleaf Trust representatives and reportedly indicated they would be arrested for trespassing if they appeared at any property belonging to the trust. As a result, the probate court entered an order imposing sanctions on the plaintiff. The sanctions order was later set aside.

In the meantime, a motion for partial summary disposition involving former trustee Costello’s compensation was filed. The probate court held that Costello had engaged in self-dealing by “hiring” his sole-member company, CFO-Intelligence, LLC, to sell trust assets. The probate court also found that Costello had “improperly paid himself $1,762,341.32 in bonus compensation in connection with the sales.” The probate court ordered Costello to repay this money to the trust.

The plaintiff appealed.

Interim Trustee Appointment

On appeal, the plaintiff first argued the probate court had no jurisdiction, authority, or factual basis to appoint Greenleaf Trust as interim trustee and not allow him to immediately assume the role of successor trustee.

“We disagree,” the Court of Appeals stated, citing MCL 700.7205 and the previous decision in this case.

The plaintiff claimed that because Costello transferred the trust’s principal place of administration to Illinois, the probate court had no jurisdiction to entertain any of the proceedings at issue in this appeal. “But, the probate court properly followed this Court’s directive [on remand],” the Court of Appeals said. “In the earlier appeal, this Court made clear that an analysis regarding whether MCL 700.7205(1)(b) applied, such that the probate court could entertain further substantive petitions involving the trust, was ‘a question for further proceedings.’”

On remand, the probate court held that MCL 700.7205(1)(b) provided a basis to entertain the claims, the Court of Appeals observed. “It reasoned that almost all of the trust property was located in Michigan and that Richland and most of the other beneficiaries were located in Michigan. The probate court noted the trust agreement was registered in Clinton County, Michigan, and that ‘Illinois has no connection to Eyde, the trust, or trust property except … for the formality of the principal place of business and some subsequent paperwork being housed there.’”

The plaintiff further asserted the probate court “applied an improper framework, applicable to forum non conveniens, in analyzing whether subdivision (b) applied ….” However, the plaintiff “does not explain what he believes the proper framework should have been,” the Court of Appeals pointed out. “Thus, we conclude that [the plaintiff] has abandoned the argument that the probate court should have applied an alternative framework.”

The plaintiff also argued that In re Murray Estate, 191 Mich App 347 (1991), must be followed and required reversal in this case. “But, this Court has already indicated in the earlier appeal that the question regarding whether subdivision (b) applies is a fact-intensive inquiry,” the Court of Appeals wrote. “That the facts in In re Murray Estate did not support the exercise of jurisdiction does not mean the same is true for this case. As noted by the probate court, Illinois has almost no connection to the trust in this case. Further, the trust in this case is not a ‘simple’ trust. It involves millions of dollars of assets and complicated dealings with businesses and banks which are primarily located in Michigan, and the primary beneficiary of the trust is also located in Michigan.”

In addition, the plaintiff maintained that, even if the probate court had jurisdiction over the petitions to remove Costello as trustee, it had no jurisdiction under MCL 700.7205 to entertain any claim that the plaintiff should not be named as successor trustee. “But, MCL 700.7205(1) refers to whether the probate court should ‘entertain a proceeding’ under MCL 700.7203. MCL 700.7203(1) states that ‘[t]he court has exclusive jurisdiction of proceedings in this state brought by a trustee or beneficiary that concern the administration of a trust as provided in section 1302(b) and (d).’ … MCL 700.1302(b) states, in relevant part, that the court has jurisdiction over a ‘proceeding that concerns the validity, internal affairs, or settlement of a trust [and] the administration, distribution, modification, reformation, or termination of a trust[.]’ The probate court had jurisdiction over the proceedings.”

Next, the Court of Appeals looked at MCL 700.7208, which says: “A proceeding under section 7203 is initiated by filing a petition in the court and giving notice to interested persons as provided in section 1401. The court may order notification of additional persons. A judgment or order binds each person who is given notice of the proceeding even if not all interested persons are notified.” Here, the appeals court explained the plaintiff “clearly” had “actual notice of the hearing” because legal counsel appeared on his behalf at the May 11, 2022 hearing and the plaintiff did not then challenge the probate court’s jurisdiction under MCL 700.7205. Therefore, the plaintiff’s argument that he did not have an opportunity to be heard on the MCL 700.7205 matter was “disingenuous,” the appeals court said.

The plaintiff further argued that no proper petition to remove him as a successor trustee was filed and, as a result, the probate court improperly appointed Greenleaf Trust as interim trustee, instead of immediately recognizing him as successor trustee after Costello offered to resign. Addressing this argument, the Court of Appeals cited MCL 700.7706 and emphasized that: “(1) The settlor, a cotrustee, or a qualified trust beneficiary may request the court to remove a trustee, or a trustee may be removed by the court on its own initiative. … (3) Pending a final decision on a request to remove a trustee, or in lieu of or in addition to removing a trustee, to the extent it is not inconsistent with a material purpose of the trust, the court may order any appropriate relief under section 7901(2) that is necessary to protect the trust property or the interests of the trust beneficiaries.” The appeals court noted that MCL 700.7901(2)(e) says, “To remedy a breach of trust that has occurred or may occur,” the probate court may “[a]ppoint a special fiduciary to take possession of the trust property and administer the trust.”

According to the Court of Appeals, these statutes “indicate that the probate court, even without a specific petition to remove [the plaintiff] before it, could, on its own initiative, remove him as a trustee and appoint a special fiduciary. This is what the probate court did. As such, [the plaintiff’s] complaints about the lack of a specific petition or about allegedly unverified briefs filed by Baker and Richland are unavailing.”

The plaintiff “appears to assert that the probate court could not remove him as a trustee before he actually assumed the position after Costello’s resignation,” the Court of Appeals observed. “But, the probate court was well aware that Costello was resigning with an effective date of October 18, 2022, and it ruled at the October 17, 2022 hearing that, pending its final decision on whether [the plaintiff] should be ‘removed’ as the successor trustee as designated in the trust, Greenleaf would serve as interim trustee. This was a proper application of the statutory framework as a whole.”

Therefore, the plaintiff “has not demonstrated any entitlement to appellate relief in connection with the probate court’s decision to appoint an interim trustee pending a full decision on [his] appointment as successor trustee,” the Court of Appeals concluded.

Other Arguments

The plaintiff further claimed that the probate court improperly imposed sanctions on him for contempt of court. Although the Court of Appeals “decline[d] to address this issue because the probate court rescinded the order of sanctions,” it also said “[t]his is a clear situation in which we should exercise our authority under MCR 7.216 and MCR 7.208(A)(1) to rescind the probate court’s order of sanctions in order to give the court’s prior order full force and effect. … We therefore order that the probate court’s order rescinding the sanctions be given effect.”

In addition, the plaintiff argued the case should be remanded to a different judge. “However, this contention is merely based on rulings made against him,” the Court of Appeals observed. “[The plaintiff] has not demonstrated favoritism or antagonism to overcome the presumption of impartiality.”

Accordingly, “[w]e affirm in all the appeals, with the clarification that the sanctions set forth in the order being appealed in Docket No. 363624 are vacated,” the Court of Appeals held. “This case is remanded for further proceedings ….”