ANALYSIS OF NOVEMBER 5, 2015 SUPREME COURT DECISIONS
[Posted November 5, 2015] Today we get another batch, albeit a small one, of published opinions from the Supreme Court. There are two published opinions today and one unpublished order. By my count, that leaves six cases unaccounted for from the batch of 23 that were argued in September.
By the way, if the court hadn’t changed to rolling release dates recently, today would have been the normal opinion day for this session, and would have marked the last release date of the calendar year. But with the new rule, we can get more on any Thursday before the calendar turns to 2016. While I expect a starkly low number of published opinions this year, we won’t have a final count until late December.
Justice Roush has a short, clear opinion in Grafmuller v. Commonwealth, which is a sentencing challenge. The appellant was convicted after an Alford plea of four Class 6 felonies in 2009. On two of them, he received ten-year prison sentences, with most of the time suspended. In all, he got 35 years, with ten to serve.
The problem is, the maximum sentence for a Class 6 felony is five years, not ten. When the appellant pointed this out in a 2015 motion for a new sentencing hearing, the trial judge looked at it and noticed that he was right. But the judge didn’t need a new hearing to fix the problem; he just entered an order that amended the ten-year sentences to five each. No harm, no foul (and no court appearance needed).
Also in 2009, the Supreme Court handed down Rawls v. Commonwealth, where a jury had fixed a sentence that exceeded the statutory maximum. In that case, the justices held that Rawls was entitled to a new sentencing hearing, not merely a reduction in sentence. This rule, the court noted back then, “will eliminate the need for courts to resort to speculation when determining how a jury would have sentenced a criminal defendant had the jury been properly instructed or had the jury properly followed correct instructions.”
But that was a jury trial. This was a bench trial, so there was no need for the judge to speculate. He could say categorically how he would have ruled if he had known the proper sentencing range.
That seems like a nice reason for a differing rule in bench trials. But surprise! The justices reverse anyway, expressly declining to carve out a bench-trial exception for the requirement of a new sentencing hearing.
Now, before you go throwing up your hands and viewing this as make-work for trial judges, keep reading. Today’s unanimous opinion lists two quite plausible reasons for a unitary rule. If there’s an exception for bench trials, what happens when the original judge isn’t available to reconsider the sentence? After all, there was a six-year delay before Grafmuller got around to moving for a new hearing, and the delay in Rawls was twice that. Suppose the judge died, or retired to Aruba, in the interim?
And before you try to carve out an exception to the exception (it’s okay to forgo the new hearing if the original judge is available), there’s another reason that’s even more important: every criminal defendant has a constitutional right to be present during each phase of the proceedings. Just allowing the judge to amend his judgment without any input from the defense would toss out the Sixth Amendment, and we can’t have that.
This case is accordingly remanded with direction that the judge conduct a new sentencing hearing. Yes, it might end up being perfunctory, with the judge listening patiently before entering the exact resentencing order that got us here in the first place. Actually, the judge can do that, and it would probably survive appellate scrutiny.
But a big part of our criminal-justice system is the assurance that we use proper procedures — you know it as due process of law — before taking away a person’s life or liberty. That makes remand the appropriate remedy.
One final point: you may have wondered about the timing. How could Grafmuller wait six years after sentencing before filing this challenge? Wouldn’t it be time-barred? No, because a sentence that exceeds the statutory maximum is void ab initio, and can be attacked at any time.
Estates and trusts
There are several interesting issues in Rafalko v. Georgiadis, a declaratory-judgment proceeding involving a multi-million-dollar estate. The facts really aren’t that complicated, but the legal analysis turns out to be; we get a 4-3 decision with two separate dissents. The three opinions run to 50 full pages.
In the 1980s, a man we’ll call Dad marries Stepmom. He has two sons by his first marriage. Shortly after his remarriage, he creates a revocable trust that names his new wife and his two sons as beneficiaries. The sons are listed as co-trustees.
In August 2012, he amends and restates the trust, removing the sons’ trustee roles and naming himself as the trustee. He lists Rafalko, “a professional investment and wealth manager,” as successor trustee.
The new amendment contained different pay-out provision on Dad’s death. Previously, the trust would give lump sums to each son upon their father’s passing. But the new provision continues the trust while Stepmom lives, giving her the income from it, and only distributes money to the sons when Stepmom dies.
Now, we all know that each testator gets to decide how his bounty should be distributed; no one else gets a vote in that decision. Even so, the sons are none too happy about the change. They complain to Dad about having to wait to receive inheritances, and contend that Rafalko was one of Stepmom’s pals.
Dad dies in December 2012; the record is silent about whether he was heartbroken about a rift with his sons. A month later, Son #1 sends a letter to the lawyer who drew the August amendment, asking him to preserve documents for a coming contest. The next day, he writes to Stepmom, asking her to agree to end the trust now and distribute one-third to each of Dad’s survivors. This letter tells Stepmom that if the sons have to file suit, they will contest Dad’s mental capacity and allege undue influence.
I’ll warn you: there’s a major-league curveball coming. Unknown to the sons, Dad had gone back to a lawyer in September and had executed a third set of documents. There were two significant changes in it. The first was that if there were no remaining beneficiaries of Dad’s trust, Rafalko was allowed to send the money to “a charity of her choosing.” The second was the killer: a no-contest clause.
This clause is the heart of today’s appeal. It provides that if any beneficiary:
shall directly or indirectly, by legal proceedings or otherwise, challenge or contest this trust agreement or any of its provisions, or shall attempt in any way to interfere with the administration of this trust according to its express terms, any provision I have made in this trust agreement for the benefit of such beneficiary shall be revoked and the property that is the subject of such provision shall be disposed of as if that contesting beneficiary and all of his or her descendants had predeceased me.
The clause provided an exception for the trustee’s fraud, dishonesty, or bad faith, but in the absence of that, “the decision of my Trustee that a beneficiary or potential beneficiary is not qualified to take a share of the trust assets under this provision shall be final.”
Uh-oh. The sons received from Rafalko a copy of this language, and probably swallowed hard. This new provision gave Rafalko the right to cut them out entirely from Dad’s estate, because they had sent a couple of ominous letters before they even knew about the September amendment. (You may wonder why I used the word they instead of saying “Son #1.” Son #2 effectively ratified his brother’s missives, and the brothers didn’t contest on appeal that they were both bound by the letters.)
In late January, Rafalko wrote to the brothers, saying that she was evaluating whether the letters violated the no-contest clause. She invited them to give her any relevant information on the point. The brothers responded that they weren’t challenging the administration of the trust; they included signed releases that Rafalko had given them, waiving the right to contest the trust. At this point, it looks like the situation will calm down.
Ah, but if it had, we wouldn’t have an appellate opinion today. After mulling things over for about three months, Rafalko made her decision. She wrote to the brothers and told them that she had decided that the letters violated the no-contest clause, so they and their descendants were barred from any trust assets. The brothers promptly responded by filing this DJ action, seeking a ruling that their actions didn’t disqualify them.
Rafalko demurred, noting (apparently correctly) that the sons didn’t allege that she acted with bad faith, dishonesty, or fraud. The court overruled that, holding that he could simply decide whether her actions comported with the trust language. The case went to a bench trial, after which the court issued a letter opinion, ruling in favor of the sons. The court held that the no-contest clause only applied to efforts to fight the September provision, and the sons had expressly directed their letters to the August document.
Rafalko filed a motion to rehear, noting that the judge hadn’t adjudicated the bad-faith issue. The court convened such a hearing and affirmatively found bad faith. It entered final judgment for the sons. Rafalko sought and got a writ.
Today, a bare majority of the court – Justice Goodwyn, writing for the chief justice, Justice Roush, and Senior Justice Lacy – votes to affirm. It affirms the trial court’s holding that the no-contest provision only applies to the September document, because Rafalko’s phrasing of the assignments of error didn’t expressly challenge that finding. It also notes that the bad-faith finding is an alternate ground to affirm.
Justice Mims sees nothing wrong with the phrasing of the assignments, finding them sufficient to “direct this court and opposing counsel to the points on which the appellant intends to ask a reversal of judgment.” On the merits of the August-vs.-September issue, he argues (persuasively, in my mind) that the trial judge got it wrong. The no-contest language applies to “this trust agreement.” The trial court and the majority interpreted that to be the September document. But as Justice Mims points out, that document isn’t a trust agreement: “Standing alone, it contains none of the elements required to create a trust.”
I think he’s right; the September document was a series of amendments to the August document (which was indeed a trust). That, logically, is the document that the new no-contest clause was intended to protect.
The problem with Justice Mims’s position, in my view, goes back to the language of the assignments. None of the assignments of error expressly challenge the court’s finding that the no-contest language only applies to the September amendments. I don’t like reaching this conclusion, because I believe the court is too quick, in a great many cases, to find waiver where the assignments aren’t perfect. (Full disclosure: I’ve made a lot of money over the years by pointing out the infirmities of my opponents’ assignments.) But based on what I’ve seen of the Supreme Court’s jurisprudence on this point, I agree with the majority that the wording of the assignments boxes Rafalko out of this key issue.
Justice Kelsey (joined by Justice McClanahan) is next. He broadly takes the position that Rafalko was just doing her job, exercising the role that the trust assigned to her. Here’s a compelling excerpt from her cross-examination:
When asked on cross-examination if she thought there was an overriding “fairness” issue for her to resolve, the trustee responded: “I am not in the position of deciding what’s fair. I’m in the position of deciding what the trust tells me to do.”
Justice Kelsey also assigns great weight to the settlor’s intent. No-contest clauses, he points out, are intended to prevent intra-family squabbling over money. Dad here had the right to cut anyone off if he wanted, on terms that he alone could fix.
There’s also discussion in the opinions over the need to construe no-contest clauses strictly, but also to enforce them rigidly when they apply. As often happens, the real fight here is whether the language of the clause is ambiguous. If it isn’t, then as Justice Kelsey correctly notes, no construction is needed; you just apply the plain language that the settlor used.
I get the sense that the equities of the situation played a major role here. I don’t have any inside information about this, but I suspect that the majority just couldn’t stomach the idea that the sons’ letters violated a clause that they had no idea existed. (Note that the majority never expressly reaches this precise issue, so it remains for adjudication another day.) There’s a great deal of emotional appeal to that angle, a fact that Justice Kelsey acknowledges. He goes on to point out how such a doctrine would enable abuses by beneficiaries who willingly remain ignorant or feign ignorance.
I don’t know whether that’s a valid point or a slippery-slope fallacy. But for now, lawyers in Virginia who prepare wills and trusts just got a major jolt; you need to be very careful now of just how you phrase these clauses.
He also has one other high card to play, relating to the finding of bad faith. The sons didn’t plead bad faith, and they disavowed at trial any desire, or even any need, to prove it. They just wanted a finding that Rafalko had interpreted the trust language incorrectly. Justice Kelsey is absolutely right to point out that when you don’t plead something, you can’t get relief for it. The trial court had no more business finding bad faith, based merely on its different reading of the document, than it would have in finding that Rafalko failed to pay Dad’s accountant’s bill. It wasn’t an issue in the case, because the sons didn’t plead it, and there was no basis for the trial court to rule as it did. I agree with him that the majority’s very brief treatment of this issue, as an alternate ground for its judgment, is entirely unsatisfying.
This opinion points out the enormous deference that courts give – or are at least supposed to give – to trustees when the settlor includes that “her decision shall be final” language. In that sense, one very significant issue here is what role courts may play. The court finds that the law imposes duties that the settlor can’t excuse, such as impartiality. But I sense that this is much like a review of arbitration, where the court doesn’t get to agree or disagree with the arbitrator’s decision.
One last minor, but interesting, point: Rafalko stood to gain nothing from this ruling, one way or another. In response to the sons’ contention that Rafalko was Stepmom’s pal (they stopped short of saying “Stepmom’s stooge”), there’s a simple, fatal riposte: Stepmom also stood to gain nothing based on Rafalko’s decision. Her share of the trust proceeds – an entitlement to the trust income for her lifetime – would be the same no matter what Rafalko decided. That puts a different spin on any suggestion that Rafalko was doing this for her old pal Stepmom’s benefit, doesn’t it?
Of course, the party that would benefit from a finding adverse to the sons is the as-yet-undesignated charity that Rafalko would choose in the event the sons were disqualified. Today’s opinion doesn’t identify any such entity, and that may be because Rafalko never got around to designating one before the sons sued.