Rafalko v. Georgiadis
290 Va. 384
| Va. | 2015Background
- Dimitri Georgiadis executed an August 27, 2012 restated revocable trust (August trust) removing his sons as co-trustees and deferring their distributions until after his wife Margaret's death.
- On September 21, 2012 Dimitri amended the trust (September trust) adding a no-contest clause (Article VII(L)) and a release requirement; the clause disinherits any beneficiary who "directly or indirectly, by legal proceedings or otherwise, challenge[s] or contest[s] this trust agreement" unless the trustee acts with fraud, dishonesty, or bad faith, and the trustee’s determination is "final" absent those faults.
- After Dimitri died, Paul sent letters (Jan. 3 and Jan. 4, 2013) threatening to contest the August trust and urging Margaret to agree to terminate the August trust; Basil disavowed Paul’s letter and both sons later signed releases after learning of Article VII(L).
- Successor trustee Celia Rafalko investigated and concluded the sons violated the no-contest clause, disqualifying them; the sons sued for declaratory relief and attorney’s fees, alleging Rafalko misapplied the clause and acted arbitrarily.
- The circuit court held (1) the no-contest clause applied only to challenges to the September 21, 2012 testamentary documents (not the August restatement) and the sons’ letters targeted the August documents, so no forfeiture occurred, and (2) alternatively found the trustee acted in bad faith; it awarded the sons attorneys’ fees. Rafalko appealed.
Issues
| Issue | Plaintiff's Argument (sons) | Defendant's Argument (Rafalko/trustee) | Held |
|---|---|---|---|
| Whether demurrer should have been sustained for failure to plead fraud, dishonesty, or bad faith | Sons: trustee’s decision is reviewable for arbitrary or capricious misinterpretation of trust terms; pleading alleged such misconduct | Trustee: trust makes her determination final absent fraud/dishonesty/bad faith; complaint lacked those allegations | Court: demurrer properly overruled; court may review trustee discretion for abuse or arbitrariness under statutes and case law |
| Whether record supports circuit court’s finding of trustee bad faith | Sons: evidence (deliberation after releases, motive, potential benefit to trustee) supports bad-faith finding | Trustee: no evidence of bad faith; acted in good faith with counsel advice | Court: affirmed—finding of bad faith supported by record; but primary affirmance rests on alternative ground (clause construed to apply to Sept. document only) |
| Whether sons’ letters triggered the no-contest clause as an "attempt to interfere with administration" | Sons: letters addressed August trust and were merely proposals/threats; did not interfere with trustee’s administration of the September trust | Trustee: letters threatened termination and litigation and therefore attempted to interfere and triggered forfeiture | Court: letters did not interfere with trustee’s administration of the trust as amended; proposing actions or threats not pursued (and directed at August doc) did not trigger clause |
| Proper scope/interpretation of the no-contest clause ("this trust agreement") | Sons: clause should be strictly construed and not read to reach challenges to prior documents; their actions targeted August 27 instrument | Trustee: clause applies to the trust as amended (including September amendment) and encompasses challenges "by legal proceedings or otherwise"; trustee’s determination should be final absent fraud/bad faith | Court: construed clause narrowly—"this trust agreement" meant the testamentary documents in effect Sept. 21, 2012; because sons targeted August 27 instrument, clause did not apply; judgment affirmed (alternative bad-faith ground unchallenged) |
Key Cases Cited
- Keener v. Keener, 278 Va. 435, 682 S.E.2d 545 (2009) (no-contest clauses enforceable but strictly construed according to their terms)
- Womble v. Gunter, 198 Va. 522, 95 S.E.2d 213 (1956) (scope of a no-contest clause depends on its wording and the facts of each case)
- NationsBank of Virginia, N.A. v. Estate of Grandy, 248 Va. 557, 450 S.E.2d 140 (1994) (trustee discretion broadly construed but subject to good faith and reasonable judgment; courts may intervene for arbitrary abuse)
- Rinker v. Simpson, 159 Va. 612, 166 S.E. 546 (1932) (equity may intervene when trustees exercise discretion so arbitrarily as to destroy the trust)
- Hoffman v. First Virginia Bank, 220 Va. 834, 263 S.E.2d 402 (1980) (for trustees with broad discretion, liability requires proof of dishonesty, bad faith, or abuse of discretion)
- Perry v. Commonwealth, 280 Va. 572, 701 S.E.2d 431 (2010) (appellate review considers all evidence in light most favorable to prevailing party when assessing factual findings)
- Lovitt v. Warden, 266 Va. 216, 585 S.E.2d 801 (2003) (standard for reversing factual findings of bad faith: only if plainly wrong or unsupported)
- Eagle Harbor, L.L.C. v. Isle of Wight Cty., 271 Va. 603, 628 S.E.2d 298 (2006) (pleadings must be sufficiently definite to show a legal basis to survive demurrer)