In re Mills ( 2014 )

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in accordance
with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.
NO. COA13-1440
NORTH CAROLINA COURT OF APPEALS
Filed: 2 September 2014
IN THE MATTER OF THE ESTATE OF:
Cabarrus County
HAROLD LUTHER MILLS No. 08 E 169
Appeal by respondent from order entered 9 May 2013 by Judge
Richard L. Doughton in Cabarrus County Superior Court. Heard in
the Court of Appeals 23 April 2014.
Weaver, Bennett & Bland, P.A., by Michael David Bland; and
William L. Mills, III, for petitioner-appellee.
Orsbon & Fenninger LLP, by R. Anthony Orsbon, for
respondent-appellant.
GEER, Judge.
Respondent E. Thomas Hartsell ("respondent") appeals from
the trial court's order affirming the clerk of superior court's
removal of respondent as executor of Harold Luther Mill's
estate. Respondent argues that the trial court should have
conducted a de novo review of the clerk's decision and that its
factual findings were insufficient to support its conclusion
that respondent has a private interest that may be adverse to
the fair and proper administration of the estate. However, the
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statute upon which respondent relies in arguing for de novo
review had not come into effect as of the date of Harold Luther
Mills' death and, therefore, cannot be applied in this case. We
hold that the trial court applied the proper standard of review
and correctly concluded that the clerk's findings of fact
regarding respondent's private interests were sufficient to
justify respondent's removal as executor under N.C. Gen. Stat. §
28A-9-1(a)(4) (2009). Accordingly, we affirm.
Facts
Decedent Harold L. Mills ("decedent") was married to Audree
S. Mills. The couple owned a substantial amount of property and
did not have any children. Mrs. Mills suffered three strokes
between 1996 and 2002, rendering her physically and mentally
impaired and in need of a full-time caretaker.
On 8 September 2005, William L. Mills, III ("Mr. Mills,
III"), decedent's nephew, filed a special proceeding seeking a
declaration that both decedent and his wife were incompetent and
requesting the appointment of guardians. Respondent's brother,
Fletcher Hartsell ("Mr. Hartsell"), was decedent's attorney and
represented decedent and his wife in those proceedings.
Evidence before the clerk indicated that in early 2006,
while the incompetency proceedings were ongoing, Mr. Hartsell
suggested that David Piatt, a long-time friend, employee, and
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care-giver for decedent and his wife, persuade decedent to hire
respondent to do the Mills' estate planning. Mr. Piatt
introduced respondent to decedent in March 2006, and respondent
began assisting decedent in financial planning around that time.
Additionally, respondent, decedent, and Mr. Piatt, who were all
members of McGill Baptist Church, began sitting together during
church.
On 29 June 2006, decedent executed his last will and
testament naming respondent as the personal representative of
his estate. On 16 November 2006, decedent formed H & A Mills
Properties, LLC with decedent and his wife each owning a 50%
share of the LLC. Decedent then entered into an operating
agreement under which both he and respondent served as co-
managers of the LLC. Decedent and his wife transferred
substantially all of their real and personal property to the
LLC.
On 9 February 2007, Mr. Hartsell prepared the Harold L. and
Audree S. Mills Charitable Remainder Unitrust Agreement (the
"Trust"). Decedent and Mrs. Mills were named as the grantors of
the Trust, and Mr. Hartsell was designated its trustee. The
initial corpus of the Trust consisted of a 100% ownership
interest in the LLC, and the Trust's terms provided for
quarterly distributions to both decedent and Mrs. Mills in an
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"amount equal to six and one-half percent (6.5%) of the net fair
market value of the assets of [the Trust]" for the remainder of
their lives. The Trust's terms further provided that upon the
death of the survivor of decedent and Mrs. Mills, the entire
balance of the Trust's assets would pass to McGill Baptist
Church.
On 19 February 2008, decedent died, and the incompetency
proceeding relating to him was subsequently dismissed. Upon
decedent's death, respondent became the sole manager of the LLC.
On 20 February 2008, respondent, as the personal representative
named in decedent's will, was issued letters testamentary.
On 1 May 2008, Mrs. Mills was adjudicated incompetent, and
Ray White was appointed as the guardian of her estate. On 9
September 2008, Mr. White filed suit ("White v. Hartsell") on
behalf of Mrs. Mills against the Trust, Mr. Hartsell in his
capacity as trustee of the Trust, the LLC, decedent's estate,
respondent in his individual capacity and as executor of
decedent's estate, and McGill Baptist Church. The complaint
included causes of action, among others, for breach of fiduciary
duty, undue influence, conversion of personal property, and
unjust enrichment. As one of the remedies sought, the complaint
asked the trial court to invalidate the Trust, which would have
the effect of divesting McGill Baptist Church of its remainder
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interest in the real estate held by the Trust and of returning
ownership of that real estate to Mrs. Mills and decedent's
estate.
Mrs. Mills died on 29 January 2010. On 17 June 2011,
Michael David Bland was appointed collector of Mrs. Mills'
estate.
On 8 February 2010, Mr. Mills, III filed a Verified
Complaint for Removal of Personal Representative in the estate
proceedings below. The complaint was voluntarily dismissed on
16 March 2012 for failure to serve respondent. On the same day,
Mr. Mills, III filed a second complaint to remove respondent as
executor of decedent's estate alleging (1) conflict of interest
due to respondent's status as manager of the LLC, (2) lack of
jurisdiction, and (3) breach of fiduciary duty. In response, on
9 May 2012, respondent filed a declaratory judgment action in
superior court seeking a declaration whether the grounds alleged
in the complaint existed and whether those grounds justified
respondent's removal as executor under N.C. Gen. Stat. § 28A-9-
1.
Additionally, respondent moved pursuant to N.C. Gen. Stat.
§ 28A-2-4(b) (2013) to transfer the removal proceedings to the
superior court. On the same day, 9 May 2012, the clerk of court
entered an order granting respondent's motion to transfer
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pursuant to N.C. Gen. Stat. § 28A-2-4(b). Apparently, the clerk
orally rescinded the transfer order, although the record on
appeal does not include any written order.
On 13 July 2012, the Chief Justice of the North Carolina
Supreme Court designated the estate proceedings of decedent, the
estate proceedings of Mrs. Mills, respondent's declaratory
judgment action, and a separate civil action against decedent's
estate as exceptional cases under Rule 2.1 of the General Rules
of Practice for the Superior and District Courts. The order
assigned Special Superior Court Judge Richard L. Doughton to the
cases designated as exceptional.
Assistant Clerk Jonathan Watson, on his own motion, held a
hearing on 21 August 2012 for the purpose of addressing whether
respondent should be removed as executor of decedent's estate.
In an order entered 23 August 2012, the clerk concluded that
respondent "has a private interest that hinders and is adverse
to his being able to fairly and properly carry out his duties as
executor of Mr. Mills' estate" and revoked the letters
testamentary issued to respondent.
Respondent appealed the clerk's order, and, on 26 September
2012, Judge Doughton entered an order reversing the Assistant
Clerk's decision based on his determination that alternate
executors named in decedent's will had not been served and that
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the record did not contain evidence to support the clerk's
findings. Judge Doughton remanded to the clerk "for such
proceedings as the Clerk deems just and proper." On 11 October
2012, Mr. Bland, acting as collector for Mrs. Mills' estate,
filed a verified complaint also seeking removal of respondent as
executor of decedent's estate.
On 26 October 2012, 7 November 2012, and 16 November 2012
the Assistant Clerk held an evidentiary hearings regarding the
removal of respondent as executor. At the close of the
hearings, the Assistant Clerk orally rendered his decision. He
noted that he would not address questions of fiduciary duty
because that issue would be addressed in White v. Hartsell. On
19 November 2012, the Assistant Clerk entered an order revoking
the letters testamentary issued to respondent based again upon
the conclusion that, under N.C. Gen. Stat. § 28A-9-1(a)(4),
respondent "has private interests, direct or indirect, that
might tend to hinder or to be adverse to a fair and proper
administration of the Estate of Harold L. Mills . . . ."
Respondent appealed to the Superior Court. After a hearing
on 14 and 15 January 2013, the trial court entered an order on 9
May 2013 affirming the Assistant Clerk's 19 November 2012 order.
The order stated that the trial court had reviewed the Assistant
Clerk's order and the record as required by N.C. Gen. Stat. § 1-
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301.3 (2013) and had determined that the findings of fact in the
19 November 2012 order were supported by the evidence in the
record and that those findings of fact supported the conclusions
of law. Respondent timely appealed to this Court.
Statutory Framework
N.C. Gen. Stat. § 28A-9-1 (2009), the version of the
statute applicable to this case, sets forth the procedure by
which the clerk of superior court may revoke letters
testamentary and remove an executor in an estate proceeding.
Pursuant to N.C. Gen. Stat. § 28A-9-1(b), "[w]hen it appears to
the clerk of superior court, on his own motion or upon verified
complaint made to him by any person interested in the estate"
that grounds exist for revocation of letters testamentary, the
clerk "shall issue citation requiring such personal
representative or collector, within 10 days after service
thereof, to show cause why his letters should not be revoked."
Upon return of a duly executed citation, the clerk "shall set
the date for a hearing." Id.
The clerk must revoke the letters issued to the executor if
at the hearing he or she determines that any of the following
grounds exist:
(1) The person to whom [letters
testamentary] were issued was
originally disqualified under the
provisions of G.S. 28A-4-2 or has
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become disqualified since the issuance
of letters.
(2) The issuance of letters was obtained by
false representation or mistake.
(3) The person to whom they were issued has
violated a fiduciary duty through
default or misconduct in the execution
of his office, other than acts
specified in G.S. 28A-9-2.
(4) The person to whom they were issued has
a private interest, whether direct or
indirect, that might tend to hinder or
be adverse to a fair and proper
administration. The relationship upon
which the appointment was predicated
shall not, in and of itself, constitute
such an interest.
N.C. Gen. Stat. § 28A-9-1(a).
Under N.C. Gen. Stat. § 28A-9-4 (2009), "[a]ny interested
person may appeal from the order of the clerk of superior court
granting or denying revocation." In matters arising out of the
administration of an estate, "the clerk shall determine all
issues of fact and law" and enter an order "containing findings
of fact and conclusions of law supporting the order[.]" N.C.
Gen. Stat. § 1-301.3 (2013). On appeal of the clerk's order to
superior court, the judge reviews the order solely for the
purpose of determining:
(1) Whether the findings of fact are
supported by the evidence.
(2) Whether the conclusions of law are
supported by the findings of facts.
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(3) Whether the order or judgment is
consistent with the conclusions of law
and applicable law.
N.C. Gen. Stat. § 1-301.3(d).
Discussion
Respondent first argues that the trial court should have
considered de novo whether there existed grounds for removing
respondent as executor of decedent's estate because the clerk
lacked subject matter jurisdiction over the removal proceedings.
Specifically, respondent argues that the clerk was divested of
jurisdiction over the removal proceedings (1) by respondent's
filing of a declaratory judgment action and request for transfer
pursuant to N.C. Gen. Stat. § 28A-2-4(b), and (2) by the Chief
Justice's designation of the case as "exceptional" and
appointment of Special Superior Court Judge Doughton. We
disagree.
The General Assembly amended the jurisdictional and
procedural provisions of the probate code in 2011 and added N.C.
Gen. Stat. § 28A-2-4 -- a new section and the section upon which
respondent relies -- which now governs the subject matter
jurisdiction of the clerk of superior court in estate
proceedings for decedents dying on or after 1 January 2012.
2011 N.C. Sess. Laws ch. 344 § 14. Because decedent died in
2008, N.C. Gen. Stat. § 28A-2-4 does not apply to this case.
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Instead, N.C. Gen. Stat. § 28A-2-1 (2009) governs the clerk
of superior court's jurisdiction over the estate proceedings in
this case. N.C. Gen. Stat. § 28A-2-1 provides:
The clerk of superior court of each
county, ex officio judge of probate, shall
have jurisdiction of the administration,
settlement, and distribution of estates of
decedents including, but not limited to, the
following:
(1) Probate of wills;
(2) Granting of letters testamentary
and of administration, or other
proper letters of authority for
the administration of estates.
"It is well-settled that the clerk of court is 'given exclusive
original jurisdiction in the administration of decedents'
estates except in cases where the clerk is disqualified to
act.'" Livesay v. Carolina First Bank, 200 N.C. App. 306, 309,
683 S.E.2d 453, 455 (2009) (quoting In re Estate of Longest, 74
N.C. App. 386, 390, 328 S.E.2d 804, 807 (1985)).
This Court has held that proceedings to remove an executor
involve an estate matter over which the clerk has exclusive
original jurisdiction. See In re Estate of Parrish, 143 N.C.
App. 244, 251, 547 S.E.2d 74, 78 (2001). See also In re Estate
of Lowther, 271 N.C. 345, 354, 156 S.E.2d 693, 700 (1967)
(holding that proceedings to revoke letters of administration
"must be commenced before the clerk who issued them in the first
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instance" and "the judge of the Superior Court has no
jurisdiction to appoint or remove an administrator or a
guardian"); Porth v. Porth, 3 N.C. App. 485, 497-98, 165 S.E.2d
508, 517 (1969) (holding superior court judge in declaratory
judgment action properly denied motion to remove administrator
of estate because such motion "must be presented by direct
proceedings before the Clerk of Superior Court, who, as probate
judge, has exclusive original jurisdiction to hear and decide"
the motion).
Consequently, this Court has applied the standard of review
applicable to appeals from estate matters to an appeal from a
clerk's order revoking letters testamentary. See In re Estate
of Monk, 146 N.C. App. 695, 697, 554 S.E.2d 370, 371 (2001). As
explained by this Court in In re Estate of Pate, 119 N.C. App.
400, 402-03, 459 S.E.2d 1, 2 (1995):
On appeal to the Superior Court of an order
of the Clerk in matters of probate, the
trial court judge sits as an appellate
court. When the order or judgment appealed
from does contain specific findings of fact
or conclusions to which an appropriate
exception has been taken, the role of the
trial judge on appeal is to apply the whole
record test. In doing so, the trial judge
reviews the Clerk's findings and may either
affirm, reverse, or modify them. If there
is evidence to support the findings of the
Clerk, the judge must affirm. Moreover,
even though the Clerk may have made an
erroneous finding which is not supported by
the evidence, the Clerk's order will not be
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disturbed if the legal conclusions upon
which it is based are supported by other
proper findings.
(Internal citations and quotation marks omitted.) In this case,
the trial court, therefore, properly declined to review the
clerk's order de novo.
Respondent contends, nonetheless, that "the complaints and
evidence presented were based upon purported breach of fiduciary
duty" and "[s]uch matters are clearly not a part of the
administration of an estate." However, as explained in In re
Estate of Parrish, although "an action for damages resulting
from a fiduciary's breach of duty in the administration of a
decedent's estate is not a claim under the original jurisdiction
of the clerk of court[,]" a proceeding to remove an estate
administrator based upon a breach of fiduciary duties is "not a
civil action, but a proceeding concerning an estate matter,
which [is] exclusively within the purview of the Clerk's
jurisdiction, and over which the Superior Court retain[s]
appellate, not original, jurisdiction." 143 N.C. App. at 251,
547 S.E.2d at 78.
Accordingly, we conclude that the clerk had subject matter
jurisdiction over the revocation hearing. Furthermore, the
clerk did not have authority to transfer the removal proceedings
to the superior court pursuant to N.C. Gen. Stat. § 28-2-4(b)
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because that statute was inapplicable to these estate
proceedings. Therefore, the transfer order was invalid and did
not divest subject matter jurisdiction from the clerk.1 Finally,
the trial court applied the proper standard of review.
Respondent next contends that the Supreme Court's
designation of the estate proceedings as "exceptional" and the
appointment of Special Superior Court Judge Doughton divested
the clerk of subject matter jurisdiction over the removal
proceedings. We disagree.
Rule 2.1(a) of the General Rules of Practice for the
Superior and District Courts allows the Chief Justice to
"designate any case or group of cases as (a) 'exceptional' or
(b) 'complex business'" and to appoint a specific superior court
judge to the case. The Rule explains:
Factors which may be considered in
determining whether to make such
designations include: the number and diverse
interest of the parties; the amount and
nature of anticipated pretrial discovery and
motions; whether the parties voluntarily
agree to waive venue for hearing pretrial
motions; the complexity of the evidentiary
matters and legal issues involved; whether
it will promote the efficient administration
of justice; and such other matters as the
Chief Justice shall deem appropriate.
1
We express no opinion on whether the clerk has authority to
grant a N.C. Gen. Stat. § 28-2-4(b) transfer over matters that
are otherwise within the clerk's exclusive original
jurisdiction.
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Gen. R. Pract. 2.1(d).
Where, as here, a group of cases requires substantial
judicial expertise and involves multiple claims regarding the
same subject matter and parties, the appointment of one judge to
preside over each case is intended to promote judicial
efficiency and prevent inconsistent rulings. Beroth Oil Co. v.
N.C. Dep't of Transp., ___ N.C. ___, ___, 757 S.E.2d 466, 476
(2014). The appointment of a specific superior court judge in
this case simply meant that any matters for the superior court
to decide would be decided by Judge Doughton. Nothing in the
General Rules of Practice suggests that the appointment of a
specific superior court judge divests a clerk of superior court
of jurisdiction over matters within its statutory exclusive
original jurisdiction. Respondent cites no authority suggesting
that Rule 2.1 designations are intended to -- or legally could -
- alter the allocation of subject matter jurisdiction decided
upon by the General Assembly.
Accordingly, we conclude that the trial court invoked the
proper standard of review in reviewing the clerk's order. The
question remains whether the trial court applied that standard
of review properly.
The Assistant Clerk revoked respondent's letters
testamentary based on his conclusion that respondent "has
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private interests, direct or indirect, that might tend to hinder
or to be adverse to a fair and proper administration of the
Estate of Harold L. Mills in violation of N.C.G.S. § 28A-9-
1(a)(4)." "[T]he determination of whether to revoke an
executor's Letters should be guided by consideration of whether
the Estate is harmed or threatened with harm." In re Estate of
Monk, 146 N.C. App. at 698, 554 S.E.2d at 371. There exist
grounds for removal under N.C. Gen. Stat. § 28A-9-1(a)(4) "when
it appears that the personal interests of the prospective
executor are so antagonistic to the interests of the estate and
those entitled to its distribution that the same person cannot
fairly represent both[.]" In re Moore, 292 N.C. 58, 65, 231
S.E.2d 849, 854 (1977). However, "it is not necessary to show
an actual conflict of interest to justify a refusal to issue
letters of administration; it is sufficient that the likelihood
of a conflict is shown." In re Moore, 25 N.C. App. 36, 40, 212
S.E.2d 184, 187 (1975)2.
In this case, the Assistant Clerk made the following
pertinent findings of fact in support of his conclusion that
respondent has a personal interest. Prior to decedent's death,
respondent and decedent were co-managers of H & A Mills
2
Although the Court of Appeals case in In re Moore involved
the same parties as the Supreme Court case, the two opinions
related to separate appeals, and the Supreme Court decision did
not disturb the Court of Appeals' holding in In re Moore.
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Properties, LLC, and respondent continued to be manager of the
LLC until August 2012. As a manager, respondent "exercised a
great deal of control" over decedent's property and transferred
a large amount of decedent's and Mrs. Mills' assets to a
Charitable Remainder Unitrust created by his brother, Mr.
Hartsell, with Mr. Hartsell serving as trustee. Respondent was
paid in excess of $150,000.00 by the LLC for his services as
manager.
The Assistant Clerk found that as executor of decedent's
estate, respondent was tasked with determining how the estate
should proceed in litigation. Specifically, respondent would
have to decide whether the estate would join the Estate of Mrs.
Mills in White v. Hartsell. That lawsuit "raised issues of both
extrinsic and intrinsic fraud" by respondent relating to the
creation and implementation of the Trust. In a separate matter,
respondent was responsible for deciding whether the estate
should sue Wachovia Bank for mismanagement of the estate's
funds. At the time respondent decided that the estate would not
pursue a lawsuit, respondent's wife was employed by Wachovia.
Additionally, the Assistant Clerk found that respondent
"has control of the attorney-client privilege which exists
between the Estate of Harold L. Mills and Attorneys William L.
Mills, III, Tony Orsbon, Jerry Parnell, Fletcher L. Hartsell,
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Jr., Michael Burgner and others who may have relevant
information and testimony which is adverse to the interests of
[respondent] but necessary for a proper and just administration
of the Estate of Harold L. Mills."
As this Court explained in In re Moore, "[o]ne cannot
represent his own interest and at the same time represent those
of another which are in conflict with his own with fairness and
impartiality to either." Id. In In re Moore, this Court held
that the executor could not act impartially when one of his
duties as executor would require him to decide whether to sue
his former employer, for whom he had performed accounting
services for approximately 19 years. Id. The Court explained
that "[e]specially when a decision to bring suit might endanger
respondent's chances of future employment by the firm, the
possibility that his decision to bring suit will be influenced
by his own personal interests is great. . . . Even if
respondent actually brings suit on behalf of the estate, his
position would be such as to make him amenable to suggestions of
failure to prosecute the action fully because of his
relationship with [his former employer]." Id.
Here, as in In re Moore, the findings establish a
likelihood that respondent cannot act impartially in making
decisions involving litigation on behalf of decedent's estate.
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With respect to the alleged mishandling of the estate's funds by
Wachovia, respondent faced a choice of (1) filing suit against
Wachovia and potentially adversely affecting his wife's
employment there or (2) not vigorously pursuing the recovery of
funds owed to the estate.
Even more significant, however, is the potential conflict
arising with respect to the estate's position in White v.
Hartsell. If the allegations of fraud raised in that lawsuit
are proven true, the Trust would be voided and the property
respondent transferred from the LLC to the Trust would be
distributed to decedent's and Mrs. Mills' estates. The estate,
therefore, would benefit by recovering a significant amount of
assets. On the other hand, respondent has a personal interest
in establishing that he committed no wrongdoing and in
vindicating his and his brother's actions.
Even if respondent is not a party, the pending litigation
would confront him with a decision related to the attorney-
client privilege that would place his personal interests at odds
with those of the estate. On the one hand, as the manager of
the LLC and the brother of the Trust's creator and trustee,
respondent would have an interest in enforcing the privilege in
order to protect his own personal interests by concealing
harmful information. In doing so, however, respondent could be
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preventing decedent's estate from recovering assets of which it
may have been fraudulently deprived.
Although it may be that respondent did not in fact commit
any wrongdoing, under In re Moore, the findings need not show an
actual conflict of interest, but rather "it is sufficient that
the likelihood of a conflict is shown." Id. The Assistant
Clerk's findings, in this case, are sufficient to show a
likelihood of a conflict of interest and, therefore, support the
conclusion that respondent has a private interest "that might
tend to hinder or be adverse to a fair and proper
administration." N.C. Gen. Stat. § 28A-9-1(a)(4).
Respondent's arguments on appeal regarding the Assistant
Clerk's findings of fact amount to factual arguments that he did
not in fact engage in any misconduct or breach of a fiduciary
duty. The Assistant Clerk, however, made no determination
regarding whether respondent engaged in misconduct. Instead,
the Assistant Clerk's findings simply recognize that evidence
exists to support the allegations of misconduct and that this
created a potential conflict of interest with respect to
respondent's personal interests and the best interests of the
estate. Because the Assistant Clerk's findings are supported by
evidence in the record, and those findings support the
conclusion that respondent has a private interest that might
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tend to hinder or be adverse to a fair and proper administration
of decedent's estate, we affirm.
Affirmed.
Judges STEPHENS and ERVIN concur.
Report per Rule 30(e).