Robert Blechman and Cathy Blechman Chermak v. Estate of Bertram Blechman

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
ROBERT BLECHMAN and CATHY BLECHMAN CHERMAK,
Appellants,
v.
ESTATE OF BERTRAM BLECHMAN,
Appellee.
No. 4D13-4801
[April 1, 2015]
ON MOTION FOR REHEARING
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; John L. Phillips, Judge; L.T. Case No.
502011CP001529XXXXMB.
Laura Bourne Burkhalter of Hark|Burkhalter|Yon, PL, Boca Raton, for
appellants.
Katherine S. Dely of Law Offices of Katherine S. Dely, P.L., Lighthouse
Point, for appellee.
GROSS, J.
We grant the motion for rehearing in part, withdraw our previous
opinion, and reissue the following opinion.1
In this probate administration case, the children of Bertram Blechman
(“the Decedent”)—Robert Blechman and Cathy Blechman Chermak—
challenge an order determining their father’s ownership interest in a
limited liability company to be part of his probate estate. By virtue of a
provision in the operating agreement of the limited liability company, the
Decedent’s membership interest immediately vested with his children
1We agree with appellee that, in applying New Jersey law, we should not have
applied an unpublished appellate opinion that New Jersey courts would not rely
upon as binding authority. The reissued opinion eliminates the citation to the
unpublished opinion.
upon his death, so that the interest was not a part of the probate estate.
Accordingly, we reverse.
Factual Background
This dispute arises from the Decedent’s testamentary devise of his 50%
ownership interest in Laura Investments, LLC, a limited liability company
created in New Jersey. In August 2009, the Decedent and his sister formed
the LLC and executed an operating agreement (“the Agreement”), which
outlined the business’s basic structure and gave each sibling—as an
owner—a 50% “Membership Interest” in the company. As defined by the
Agreement, this “interest” consisted of “rights to distributions (liquidating
or otherwise), allocations and information, and the right to vote on matters
coming before the Members.”
In addition to providing a managerial framework, the Agreement
imposed restrictions upon each member’s ability to convey his or her
interest in the company. The Agreement’s Section 6, which governs the
“transferability of membership interests,” conditions each member’s ability
to transfer “all or any portion of his or her Membership Interest in the
Company” on obtaining “the prior written consent of all of the other
Members,” unless limited exceptions applied. One such exception arises
where the member transfers, “during lifetime or at death, all or any portion
of his or her Membership Interest outright or in trust to or for the benefit
of any member and/or any person or persons who are a member of the
immediate family of the Member.” The member’s “immediate family,” in
this context, is comprised of his or her “living children and issue of any
deceased child,” not parents, spouses, stepchildren, or paramours.
Upon a member’s death, the Agreement’s Section 6.3 controls the
disbursement of a membership interest. As amended on April 30, 2010,2
section 6.3(a) provides:
2In its original incarnation, Section 6.3 provided as follows:
(a) Unless (i) a Member shall Transfer all or a portion of his or her
Membership Interest in accordance with 6.1 or 6.2 hereof, or (ii) a
Member bequeaths the Membership Interest in the Member’s last
will and testament to members of the Immediate Family of the
respective Member, or (iii) all such Membership Interests of a
deceased Member are inherited, or succeeded to, by Members of the
Immediate Family of the deceased Member, then in the event of a
death of a Member during the duration of this Agreement, the
legal representative of the deceased Member’s estate shall be
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6.3 Death of Member
(a) Unless (i) a Member shall Transfer all or a portion of his or
her Membership Interest in accordance with 6.1 or 6.2 hereof,
or (ii) a Member bequeaths the Membership Interest in the
Member’s last will and testament to members of the
Immediate Family of the respective Member, or (iii) all such
Membership Interests of a deceased Member are inherited, or
succeeded to, by Members of the Immediate Family of the
deceased Member, then in the event of a death of a Member
during the duration of this Agreement, the Membership
Interest of the deceased Member shall pass to and
immediately vest in the deceased Member’s then living
children and issue of any deceased child per stirpes.
Under this section, if a member fails to transfer his or her interest in one
of the three ways enumerated in Section 6.3(a)(i)-(iii), then ownership
“immediately” vests in the deceased member’s children.
The Litigation in the Circuit Court
On February 25, 2011, the Decedent passed away, leaving behind his
estranged wife of sixty years and two adult children—appellants Robert
Blechman and Cathy Blechman Chermak. Two months after the
Decedent’s death, the trial court admitted his will3 into probate, which
appointed his son, Robert, as personal representative and directed that
the residue of his estate be marshaled into “The Bertram Blechman
Revocable Living Trust, dated December 12, 2000.” (the “Trust”). Since
the will contained no provision pertaining to the Decedent’s 50%
ownership interest in the LLC, if that interest were part of the probate
estate, it would have “poured over” pursuant to Article V of the will into
the Decedent’s previously unfunded Trust.
obligated to sell the deceased Membership Interest pursuant to
the provisions and in accordance with the order set forth in 6.2
hereof.
(Emphasis added).
3The decedent’s will consisted of his last will and testament and a later-dated
codicil.
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As originally crafted in December 2000, the Trust was silent regarding
the LLC and provided only for the Decedent’s children and their issue.
However, on August 20, 2010, the Decedent amended the Trust to provide
a “specific gift” of his residence and “one half of the distributions from the
LLC, to” a trustee for the benefit of Arlene Roogow—the Decedent’s
girlfriend since 2003. Pursuant to the amendment, Roogow could remain
in the residence “for as long as she shall live or until she cohabitates with
another male for six (6) months.” To pay for the residence’s expenses,
$5,000 was to be deposited from the Laura Investments, LLC distributions
into “an account designed by . . . [R]oogow.”4 All remaining distributions
from the company—either at the year’s end or at the close of Roogow’s
interest—would be disbursed to the Decedent’s children.
Following the Decedent’s death, Robert—in his capacity as personal
representative—transferred the Decedent’s monthly distributions from the
LLC to the estate, depositing them into the estate’s restricted account to
be used for estate expenses. Relying on the Trust amendment, Roogow
moved to compel Robert to transfer the funds to her account for the
maintenance of her residence. The trial court agreed with Roogow in part,
entering a November, 2011 written order stating:
4Specifically, the amendment provided:
A specific gift of the final residence of Grantor currently located
at 10198 Noceto Way, Boynton Beach, FL 33437 and one half of the
distributions from Laura Investments, LLC, to Daniel G. Gass,
Esquire, as trustee, if surviving; otherwise to Robert Blechman as
successor trustee for the below certain Beneficiaries.
Upon the death of grantor, the trustee of this specific gift shall
make the following gifts:
(a) Arlene S. Roogow shall remain in the house for as long as she shall
live or until she co-habitates with another male for six (6) months.
...
(b) While Arlene S. Roogow is alive and has not co-habitated with
another maile [sic] for six (6) months resides [sic] in the house,
$5,000.00 shall be deposited in an account designated by Arlene
[R]oogow for her to pay for the monthly maintenance of the grantor’s
final personal residence, including but not limited to, mortgage
payments, homeowner’s association fees, assessments, repairs,
utilities, taxes, homeowner’s insurance and appliance agreements.
...
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C. The Personal Representative shall obey the directions of
Article V of the Last Will & Testament of Bertram Blechman
until such time as this Court orders otherwise.
D. The provisions of the Amendment to the Bertram
Blechman Revocable Living Trust, Dated August 20, 2010,
shall be complied with until such time as this Court orders
otherwise.
The following week, Robert submitted an inventory for the estate, listing
the Decedent’s “50% membership interest in Laura Investments, LLC” as
an estate asset.
In July, 2012, Roogow moved for an order to show cause, asserting that
Robert violated the November 2011 order by failing to transfer the LLC
distributions pursuant to the Trust amendment. The trial court issued an
order to show cause and set a hearing. On the advice of counsel, Robert
did not personally appear at the scheduled hearing and, as a result, the
trial court removed him as personal representative. This Court has since
reversed that decision, remanding with instructions that Robert be
reinstated to his prior post. See Blechman v. Dely, 138 So. 3d 1110, 1115
(Fla. 4th DCA 2014).
After being removed, Robert submitted a final accounting, in which he
noted that the Decedent’s 50% interest in Laura Investments, LLC had
been “incorrectly listed” as an estate asset. In line with this belief, Robert
and his sister, Cathy, filed a petition seeking reimbursement of the
$89,500.00 in LLC distributions deposited into the estate’s restricted
account. According to their petition, since the Decedent’s Trust
amendment did not “convey all of his Membership Interest to his
Immediate Family,” the Decedent’s interest in the LLC immediately vested
in his children upon his death, placing the asset outside of his probate
estate.
Following a hearing, the trial court entered a written order confirming
the Decedent’s interest in the LLC as an estate asset, articulating the
following findings:
2. The Operating Agreement (OA) for [Laura Investments,
LLC (“LI”)] shows Decedent owned a 50% Membership Interest
in LI at his death. The OA and its Amendment are valid and
enforceable.
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3. The Decedent bequeathed his interest in LI to members
of his immediate family in his will, admitted to probate on
April 7, 2011. Under the terms of that will, Decedent’s
residual probate estate passes to the Trust executed by the
Decedent December 12, 2000.
4. Decedent’s Membership Interest in LI is an asset of
Decedent’s probate estate. That interest does not, and never
did, automatically pass to or vest in Decedent’s children at the
time of his death (See Amendment to OA Section 6.3 [a],
executed April 30, 2010). This Court makes no ruling as to
the extent or value of this Membership Interest at this time.
5. Distributions of money from LI since the Decedent’s
death should have gone to the Decedent’s estate. Any
distributions taken or received by any other person or entity
had been wrongfully received and are to be replaced into the
Estate immediately. . . .
It is this order that the Blechman children challenge on appeal.
Standard of Review
Like articles of incorporation and corporate bylaws, operating
agreements for limited liability companies are construed applying
principles of contract interpretation. See Berkowitz v. Delaire Country
Club, Inc., 126 So. 3d 1215, 1218 (Fla. 4th DCA 2012). Accordingly, since
there is no disagreement regarding this case’s historical facts, the trial
court’s interpretation of the Agreement—and its effect on the Decedent’s
probate estate—is a legal matter, subject to de novo review. See Chipman
v. Chipman, 975 So. 2d 603, 607 (Fla. 4th DCA 2008) (“The trial court’s
interpretation of a contract is a matter of law subject to a de novo standard
of review.” (citations omitted)); cf. SPCA Wildlife Care Ctr. v. Abraham, 75
So. 3d 1271, 1275 (Fla. 4th DCA 2011) (“Where the trial court’s decision
is based on the interpretation of the language of a will, the standard of
review is de novo.” (citing Timmons v. Ingrahm, 36 So. 3d 861, 864 (Fla.
5th DCA 2010)).
Analysis
The Decedent’s children—Robert and Cathy—assert the trial court
erred in confirming their father’s 50% membership interest in the LLC as
an estate asset because that interest passed to them outside of probate
upon his death. As below, the children argue that the Decedent’s “failure
to specifically devise his Membership Interest as mandated by the
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Operating Agreement activated a default provision in the Operating
Agreement, which vested [his] Member Interest in [Laura Investments,
LLC] immediately at death” to his children. The appellee counters that the
Operating Agreement did not effectuate a transfer of the Decedent’s
membership interest because the Decedent “owned a fifty percent . . .
interest in Laura Investments at the time of his death.” Additionally, the
appellee contends the Decedent complied with the Agreement by
bequeathing his membership interest to his children as vested residual
beneficiaries.
The Florida Probate Code broadly defines the probate “estate” as
encompassing the decedent’s property “that is the subject of
administration.” § 731.201(14), Fla. Stat. (2011). In deciphering a probate
estate’s parameters, the deciding factor is the decedent’s ownership
interest in property. § 731.201(32), Fla. Stat. (2011). If the subject
property will pass either intestate or by way of a will, then it is part of the
decedent’s probate estate. Cf. In re Estate of Riggs, 643 So. 2d 1132, 1134
(Fla. 4th DCA 1994) (noting that an “estate” does not include property
passing outside of probate).
Estate planners frequently use non-probate mechanisms to transfer a
decedent’s property outside of the probate system. This can be
accomplished in a myriad of ways, such as: “inter vivos gifts . . . , Totten
trusts, joint tenancy, life insurance, employee benefit and other annuity
beneficiary designations, payable on death or transfer on death accounts,
and” any other contractual means. Nathaniel W. Schwickerath, Public
Policy and the Probate Pariah: Confusion in the Law of Will Substitutes, 48
Drake L. Rev. 769, 798 (2000) (quoting Jeffrey N. Pennell, Minimizing the
Surviving Spouse’s Elective Share, 32 Inst. on Est. Plan. (MB) 900, 904
(1998)). The common thread of such non-probate mechanisms is that the
assets to which they apply are “distributed to the designated beneficiaries
immediately upon the transferor’s death” without the need for judicial
intervention. Roberta Rosenthal Kwall, The Superwill Debate: Opening the
Pandora’s Box? 62 Temp. L. Rev. 277, 278 (1989).
In contrast with property transferred outside of probate, property
transferred from a “pour-over” will to a trust constitutes part of the
decedent’s probate estate, albeit briefly, since the property is devised by
way of a will.
The question before us, therefore, is whether the Decedent’s
membership interest in the LLC was subject to the Decedent’s will or
whether the Agreement’s provisions immediately passed the interest to the
Decedent’s children upon his death. Answering this inquiry involves
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interpretation of the Agreement. Since, under Florida’s choice-of-law
rules, the “laws of the jurisdiction where [a] contract was executed govern
interpretation of the substantive issues regarding the contract,”
Lumbermens Mut. Cas. Co. v. August, 530 So. 2d 293, 295 (Fla. 1988),
interpretation of the Agreement is governed by New Jersey law. See
Walling v. Christian & Craft Grocery Co., 27 So. 46, 49 (Fla. 1899)
(“[M]atters bearing upon the execution, interpretation, and validity of a
contract are determined by the law of the place where it is made.”).
In New Jersey, parties may provide by contract that ownership of, or a
designated right in, property may pass according to the terms of the
contract at the promisor’s death. See Michaels v. Donato, 67 A.2d 911,
913 (N.J. Super. Ct. Ch. Div. 1949). Thus, for example, in Minoff v.
Margetts, 81 A.2d 369, 372-73 (N.J. Super. Ct. App. Div. 1951), a
partnership agreement controlled the transfer of the decedent’s interest in
a partnership. Inferentially, New Jersey permits the members of an LLC
to include a provision in an operating agreement that will be followed upon
the death of a member. Cf. Kuhn v. Tumminelli, 841 A.2d 496, 501 (N.J.
Super. Ct. App. Div. 2004) (“The LLC Act is . . . quite flexible and permits
the LLC members great discretion to establish the company structure and
procedures . . . . ”); N.J. Stat. Ann. § 42:2B-66(a) (2011) (stating that New
Jersey’s Limited Liability Act must be “liberally construed to give the
maximum effect to the principle of freedom of contract and to the
enforceability of operating agreements”).
Where supported by adequate consideration, such contracts
transferring a property interest upon death are neither testamentary nor
subject to the Statute of Wills, but are instead evaluated under contract
law. Bower v. The Estaugh, 369 A.2d 20, 23 (N.J. Super. Ct. App. Div.
1977). As one court has explained, the justification for enforcing such
contractual provisions lies in the differing characteristics of wills and
contracts:
A contract operates immediately to create a property interest
in the premises while a will is revocable, or, more properly
speaking, inoperative or ambulatory until the death of the
testator, at which time it operates to create a property interest
in the beneficiary.’ . . . The undertaking of a party under a
contract is made in consideration of something to be paid or
done by or on behalf of the other party, so that the obligation
to and the right to require performance are reciprocal. A
contract creates a present, enforceable and binding right over
which the promisor has no control without the consent of the
promisee, while a testamentary disposition operates
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prospectively. . . . An instrument which does not pass any
interest until after the death of the maker is essentially a will.
But not every instrument which provides for performance at
or after death is testamentary in character. If the instrument
creates a right in the promisee before the death of the testator,
it is a contract. . . . [T]here is nothing in the statute of wills
that prevents the creation by contract of a bona fide equitable
interest in property and its enforcement after the death of a
contracting party, even though the date of death is agreed
upon as the time for transfer.
Michaels, 67 A.2d at 913 (internal citations omitted); see also Bendit v.
Intarante, 175 A.2d 222, 228 (N.J. Super. Ct. App. Div. 1961). Under New
Jersey law, transfers of property upon death are thus permissible in LLC
operating agreements, as members of a limited liability company “are free
to restrict and expand the rights, responsibilities and authority of its
managers and members.” Kuhn, 841 A.2d at 501.
As to the construction of the Agreement, the parties have provided no
New Jersey law to contradict the general principle that express language
in a contractual agreement “specifically addressing the disposition of
[property] upon death” will defeat a testamentary disposition of said
property. Murray Van & Storage, Inc. v. Murray, 364 So. 2d 68, 68 (Fla.
4th DCA 1978).
To that end, Section 6 of the Agreement expressly limited the
Decedent’s ability to devise or otherwise transfer his membership interest.
In Section 6.3(a), the agreement sets forth three circumstances permitting
disposition of a membership interest: (i) where the member transfers
during his lifetime “all or a portion of his or her Membership Interest in
accordance with 6.1 or 6.2,” (ii) where the member “bequeaths the
Membership Interest in the Member’s last will and testament to members
of the Immediate Family of the respective Member,” or (iii) where “all such
Membership Interests of a deceased Member are inherited, or succeeded
to, by Members of the Immediate Family of the deceased Member.” Should
none of these three scenarios occur prior to a member’s death, the
member’s interest passes to and “immediately vest[s] in the deceased
Member’s then living children and issue of any deceased child per stirpes.”
By providing for such “immediate vesting,” the April 30, 2010 amendment
to Article 6.3 explicitly steered the membership interest away from the
probate estate, unlike the earlier iteration of that provision.
Conceding that neither the first nor third situations contemplated by
Section 6.3(a) occurred, appellee argues that the second condition was
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satisfied “by the Decedent bequeathing his membership interest in Laura
Investments through his Last Will and Testament” to his children as the
residual beneficiaries of his Trust. Furthermore, the appellee contends
Roogow’s life interest renders her “a contingent beneficiary” whose
“interest is certain to terminate,” leaving the Decedent’s children as the
only vested beneficiaries of his Trust.
However, once the Decedent died, Roogow’s interest under the will and
the amended trust was not a contingent one. A trust beneficiary’s interest
is contingent where such interest is “conditioned upon the happening of
an event in the future, which may never happen and which lies entirely
outside the control of the [beneficiary] to bring about with certainty.”
Hexter v. Gautier, 143 So. 2d 695, 697 (Fla. 3d DCA 1962). Here, Roogow’s
interest was conditioned upon outliving the Decedent. Once the Decedent
died, her interest in the $5,000 monthly distributions vested, exclusive of
the children.
The clear intent of the Agreement was to place limitations on a
member’s ability to transfer his or her interest in the LLC, so as to keep
the company within the family bloodlines. Section 6.3(a)(ii) serves this
goal by ensuring that unless the member “bequeaths” his or her
membership interest via will “to members of the Immediate Family,” the
interest vests immediately with the member’s children. See Black’s Law
Dictionary 168 (8th ed. 2004) (defining “bequeath” as “[t]o give property
(usu[ally] personal property) by will”). Here, the Decedent through the
Trust amendment “bequeathed” his membership interest to a trustee for
the benefit of Roogow, contravening not only the Agreement’s terms but
also its intent. While it is true that the Decedent’s children maintain a
vested remainder interest in the property, enforcing the Trust would make
Roogow the present transferee of a significant aspect of the Decedent’s
membership “interest,” as defined in the Agreement—his right to
distributions. Since the Decedent thus “bequeathed” his interest to
Roogow, rather than to his immediate family, the Decedent’s death
triggered Section 6.3(a)’s default provision, immediately vesting his
membership interest with his children, his “immediate family” within the
meaning of the Agreement.
The situation here is analogous to our decision in Murray Van &
Storage, where we held that the specific provisions of a “buy-sell”
agreement between corporate stockholders trumped a conflicting
disposition of corporate shares through a will. 364 So. 2d at 69. In
Murray, the deceased was a principal stockholder who died without a
spouse and left the residue of his estate to his two surviving sons. Id.
Prior to his death, the deceased executed a “buy-sell” agreement with his
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fellow stockholders, obligating him to provide the corporation with a right
of first refusal of his corporate shares. Id. Adhering to the majority rule
“that any restriction on the alienation of stock is to be strictly construed
and testamentary disposition thereof will not be defeated in the absence of
express language in a stockholders agreement specifically addressing the
disposition of the stock upon death,” we found the stockholder’s
testamentary disposition inferior to the “buy-sell” agreement’s provisions
requiring that the shares be first offered to the corporation. Id. at 68-69.
Accordingly, the remaining stockholders and executives were permitted
the first chance at purchasing the deceased’s stocks, notwithstanding the
deceased’s attempted testamentary disposition. Id. at 69.
In this case, by virtue of Section 6.3(a)’s default provision, the
Deceased’s membership interest immediately passed outside of probate to
his children upon his death, thus nullifying his testamentary devise as an
attempted disposition of property not subject to his ownership. See In re
Estate of Corbitt, 454 S.E.2d 129, 130 (Ga. 1995) (“The effect of the
invalidity of a bequest (or the ademption thereof) would be to render the
bequest void, but not to invalidate the will and it is no ground of caveat to
the probate of a will that a devise to a particular person may be void.”
(internal quotation omitted)).
Based on the foregoing, since the children are the rightful owners of
their father’s membership interest in the LLC, we reverse the trial court’s
order and remand with instructions that the Decedent’s membership
interest not be considered an estate asset.
WARNER, J., and LINDSEY, NORMA SHEPARD, Associate Judge, concur.
* * *
Not final until disposition of timely filed motion for rehearing.
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