Gray v. Gray

Filing 54

ORDER denying 41 Motion to Dismiss. So Ordered by Judge Joseph A. DiClerico, Jr.(gla)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Evan W. Gray
v.

Civil No. 18-cv-522-JD
Opinion No. 2019 DNH 086

Chester L. Gray, III
O R D E R
In 1996, Barbara Gray and Chester L. Gray, Jr.,1 created,
respectively, the “BJG Trust” and the “CLG Trust.”

In 2011,

they restated the terms of their respective trusts by executing
the trust documents at issue in this case.
Barbara and Chester served as the initial co-trustees of
both the CLG Trust and the BJG Trust, which were revocable until
their respective settlor’s death, at which point they became
irrevocable under their provisions.

Among the assets included

in the CLG Trust is real estate located in Grafton and
Springfield, New Hampshire.
One of the principal purposes of the CLG Trust is to hold
and maintain the Grafton and Springfield real estate for Barbara
and Chester’s descendants “as long as is reasonably and
prudently possible.”

Doc. 15-1 at 5.

To that end, the CLG

Trust provides that, after Chester’s death, the real estate will

For ease of reference, the court will refer to the
principals in this case by their first names.
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be held in a Continuing Trust, which shall exist until certain
conditions outlined in Article 2.2.A(2)-(4) of the CLG Trust are
met.
In addition, after Chester’s death, the CLG Trust provides
for the creation of a “maintenance fund” for the real estate,
which is to be funded with assets valued at $820,000 adjusted
for inflation.

After all of the CLG Trust provisions have been

satisfied, the remainder of the CLG Trust’s assets are to be
distributed equally among Barbara and Chester Gray’s three sons,
Skip Gray, Scott Gray, and Evan Gray.
The BJG Trust provides for the management of Barbara’s
assets before and after her death.

Barbara died in 2013.

Following her death, Chester became sole trustee of both trusts.
Under the BJG Trust, after Barbara’s death the income from
the trust was payable to Chester “in convenient installments, at
least quarterly during his lifetime.”
at 4.

Art. 2.3.A(1), doc. 15-2

Chester was also allowed to receive “from the principal

of the trust from time to time such amounts as are in [the]
trustee’s discretion necessary for his support and maintenance
in his accustomed manner of living and for his health care,
after taking into account the income payable to him hereunder
and all other resources available to him.”
15-2 at 4.

Art. 2.3.A(2), doc.

The “power to use principal for [Chester’s] benefit

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shall not be exercised without the consent of an independent
trustee or one of [Barbara’s] children.”

Id.

Chester remained as trustee of both the BJG Trust and the
CLG Trust until his death in 2017.

The BJG Trust includes

provisions that became effective after the death of both Barbara
and Chester.

One of the principal provisions of the BJG Trust

is Article 2.4.A which provides:
If at the time of the death of my husband and myself,
the amount of liquid assets held in the continuing
trust for real estate located in Grafton and
Springfield, New Hampshire as set forth in my
husband’s trust is less than [$820,000 adjusted for
inflation], I direct that my trustee distribute from
my trust an amount of property that will increase the
sums held in said continuing trust of my husband’s to
[$820,000 adjusted for inflation].
Doc. 15-2 at 5.

Any remaining money and assets are to be

distributed equally among Skip, Scott, and Evan.
After Chester’s death, Skip, Scott, and Evan became cotrustees of the BJG Trust, and Skip became sole trustee of the
CLG Trust.

Skip was also named executor of Chester’s estate

(the “CLG Estate”).
This case involves disputes among Skip, Scott, and Evan.
Evan brought suit against Skip as executor of the CLG Estate; as
sole trustee of the CLG Trust; and as co-trustee of the BJG
Trust.

Evan alleges that his father, Chester, prior to his

death, breached his fiduciary duties while he was the trustee of

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the BJG Trust.

Evan also alleges that Skip has breached his

fiduciary duties as trustee of the CLG Trust, and he seeks
removal of Skip as co-trustee of the BJG Trust based on alleged
conflicts of interest.
In his capacities as executor of the CLG Estate and trustee
of the CLG Trust, Skip filed counterclaims for indemnification
and for a declaratory judgment concerning the application of the
BJG Trust’s “pour over” provision, Article 2.4.A (the “CLG
Estate Counterclaims”).2
Estate Counterclaims.3

Doc. 36.

Evan moves to dismiss the CLG

Skip objects.

Counterclaims
A.

Indemnification (CLG Estate Counterclaims - Count I)

In Count I of the CLG Estate Counterclaims, Skip alleges
that the CLG Estate is entitled to “indemnification” for
expenses associated with this lawsuit.

Skip contends that

Skip also filed counterclaims in his capacity as a trustee
of the BJG Trust (the “BJG Trust Counterclaims”). In the BJG
Trust Counterclaims, Skip seeks reimbursement of expenses,
attorneys’ fees, and costs under RSA 564-B:10-1004, RSA 564-B:7709, and Harkeem v. Adams, 117 N.H. 687 (1977). Skip seeks to
recover from Evan personally and from the BJG Trust assets.
2

This order addresses only doc. no. 41, which is Evan’s
motion to dismiss the CLG Estate Counterclaims. The court will
issue a separate order addressing doc. no. 42, in which Evan
moves to dismiss the BJG Trust Counterclaims.
3

4

Article 4.3 of the BJG Trust4 permits indemnification for actions
taken by a trustee in good faith.

See Doc. 36 ¶¶ 28-29.

Skip

also cites New Hampshire Revised Statutes Annotated (“RSA”)
564-B:10-1004, which provides for awarding attorneys’ fees,
costs, and expenses “as justice and equity” require to any party
in a suit “involving the administration of a trust.”
Additionally, he asserts that a trustee is entitled to
reimbursement for expenses incurred in managing a trust under
common law rules.

B.

Declaratory Judgment (CLG Estate Counterclaims - Count
II)

In Count II of the CLG Estate Counterclaims, Skip asks the
court for a declaratory judgment construing Article 2.4.A of the
BJG Trust, which provides for a pour over of funds to the CLG
Continuing Trust’s maintenance fund.

Skip alleges that, under

Article 2.4.A of the BJG Trust, the trustees of the BJG Trust
must pour over property into the Continuing Trust if, as a
result of this lawsuit, the liquid assets in the Continuing

Article 4.3 states, in relevant part: “The trustee shall
be entitled to use the trustee’s best judgment in exercising the
powers and rights conferred by this trust and in fulfilling the
trustee’s obligations under the trust and those imposed by law;
the trustee shall not be liable for any action taken or omitted
in good faith pursuant to such provisions.” Doc. 15-2 at 10
(emphasis added).
4

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Trust are less than the requisite $820,000 adjusted for
inflation.

Discussion
Evan moves to dismiss both of the CLG Estate Counterclaims.
He argues that the court lacks subject matter jurisdiction
because the counterclaims are unripe; that Count I provides no
legal basis for “indemnification”; that the counterclaims are
procedurally improper under Federal Rule of Civil Procedure 13;
that Count I must be brought by motion under Federal Rule of
Civil Procedure 54(d)(2) not by counterclaim; and that Count II,
Skip’s declaratory judgment counterclaim, fails to state a claim
as a matter of law.

Skip objects, arguing that the

counterclaims were properly brought and state claims for relief.
Evan filed a reply, and Skip filed a surreply.

A.

Standard of Review

In considering a motion to dismiss under Federal Rules of
Civil Procedure 12(b)(1), for lack of subject-matter
jurisdiction, and 12(b)(6), for failure to state a claim upon
which relief can be granted, the court accepts all well-pleaded
facts as true and draws all reasonable inferences in the
pleading party’s favor.

See Martinez-Rivera v. Commonwealth of

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Puerto Rico, 812 F.3d 69, 73-74 (1st Cir. 2016).5
however, disregards conclusory allegations.

The court,

Manning v. Boston

Med. Ctr. Corp., 725 F.3d 34, 43 (1st Cir. 2013).

B.

Subject Matter Jurisdiction

Evan contends that the court lacks subject matter
jurisdiction over both of the CLG Estate Counterclaims because
they are unripe and contingent on the outcome of his own claims.
Skip responds that the CLG Estate Counterclaims are ripe for
adjudication because the relevant facts are fully developed.
Skip further notes that the declaratory judgment counterclaim
rests “simply upon the Court’s legal interpretation of the trust
document’s terms.”

Doc. 46 at 18-19.

A claim is ripe if “[t]he facts alleged, under all the
circumstances, . . . show that there is a substantial
controversy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance of

Evan presents a “sufficiency” or facial challenge to the
court’s subject matter jurisdiction. See Valentin v. Hospital
Bella Vista, 254 F.3d 358, 363 (1st Cir. 2001) (“The first way
is to mount a challenge which accepts the plaintiff’s version of
jurisdictionally-significant facts as true and addresses their
sufficiency . . . . In performing this task, the court must
credit the plaintiff’s well-pleaded factual allegations . . . ,
draw all reasonable inferences from them in her favor, and
dispose of the challenge accordingly.”).
5

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judicial relief sought.”
(1st Cir. 2017).

Reddy v. Foster, 845 F.3d 493, 501

The “ripeness doctrine seeks to prevent the

adjudication of claims relating to ‘contingent future events
that may not occur as anticipated, or indeed may not occur at
all.’”

Id. at 500 (quoting Texas v. United States, 523 U.S.

296, 300 (1998)).

“Its basic function is ‘to prevent the

courts, through avoidance of premature adjudication, from
entangling themselves in abstract disagreements.’”

R.I. Ass’n

of Realtors v. Whitehouse, 199 F.3d 26, 33 (1st Cir. 1999)
(quoting Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967)).

1.

Indemnification

Skip, in his capacity as executor of the CLG Estate, seeks
indemnification from the BJG Trust for all costs incurred in
connection with this litigation.

The relief Skip is seeking

extends beyond what Evan might recover as damages in his claim
against Skip.

Instead, he seeks all the costs of the

litigation, which are already accruing.
While the result of Evan’s claims will be a factor in
assessing the alleged costs of the litigation, that is not the
only consideration.

Therefore, the question of whether Skip is

entitled to indemnification is ripe, and the amount of

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indemnification, if any, would be decided at the conclusion of
the case.

2.

Declaratory Judgment

In his declaratory judgment claim, Count II, Skip asks the
court to construe the pour over provision in the BJG Trust.
Article 2.4.A, doc. 15-2 at 5.

Skip contends that the provision

requires the BJG Trust to add funds to the maintenance fund if
the liquid assets of the CLG Trust’s Continuing Trust are
insufficient to fund the maintenance fund at the threshold level
of $820,000 adjusted for inflation.

Based on that

interpretation, Skip alleges that Evan’s suit will cause a pour
over from the BJG Trust to the Continuing Trust if the CLG Trust
pays Evan damages, which would deplete the assets available in
the Continuing Trust to fund the maintenance fund.
Evan contends that whether a pour over was necessary was
determined at the moment of Chester’s death so that this suit
cannot affect the provision.

A substantial controversy exists

about the interpretation of the terms of the BJG Trust and the
CLG Trust.

Evan has not shown that the declaratory judgment

claim, Count II, is unripe.

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C.

Legal Basis for “Indemnification” under New Hampshire
Law

Evan argues that New Hampshire law does not support Count
I, which purports to seek indemnification on the CLG Estate’s
behalf.

Evan asserts that Article 4.3 of the BJG Trust cannot

support Skip’s counterclaim for indemnification because Article
4.3 is an exculpatory clause not an indemnification clause.
Skip responds that his indemnification claim arises from common
law rules that provide indemnification for trustees for expenses
“properly incurred in the administration and management of the
trust, and is justified by the exculpatory provision in Article
4.3 of the BJG Trust, which shielded Chester from liability for
actions taken or omitted in good faith.”

Doc. 46 at 4-5.

Article 4.3 states that the trustee “shall not be liable”
for actions taken in good faith.

Article 4.3 does not require

another party to pay an obligation for which the trustee is
primarily liable.

See Gray v. Leisure Life Indus., 165 N.H.

324, 327 (2013) (noting that a “right to indemnity arises ‘where
one is legally required to pay an obligation for which another
is primarily liable.’”) (quoting Coco v. Jaskunas, 159 N.H. 515,
519 (2009)); see also Weiss v. Weiss, 984 F. Supp. 675, 677-78
(S.D.N.Y. 1997) (discussing exculpatory provisions in trusts).
In his response, Skip appears to agree that Article 4.3 is an

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exculpatory provision, not an indemnification provision.6
Accordingly, Article 4.3 does not provide Skip a cause of action
for indemnification.7
Skip, however, does not merely rely on Article 4.3 of the
BJG Trust to support Count I.

He also refers to principles

codified by RSA 564-B:7-709(a) and cites RSA 564-B:10-1004.

“A

trustee . . . is entitled to be reimbursed out of the trust
property [for] . . . expenses that were properly incurred in the
administration of the trust . . . .”

RSA 564-B:7-709(a);

Restatement (Third) of Trusts § 38 (2003) (“A trustee is
entitled to indemnity out of the trust estate for expenses
properly incurred in the administration of the trust.”).
RSA 564-B:7-709 permits reimbursement of “properly” incurred
expenses by a trustee.

Furthermore, RSA 564-B:10-1004 permits

recovery of attorneys’ fees “as justice and equity may require.”
Evan contends that Skip has not pled sufficient facts to
show that “justice and equity” require an award of fees or

Skip alleged in his Answer to Evan’s Amended Complaint
that the exculpatory clause provides him with a defense to
Evan’s claims because Chester acted in good faith. Doc. 15 at
32.
6

The parties set forth several additional arguments related
to Article 4.3, its enforceability, and its “good faith”
precondition which need not be addressed in the context of the
pending motion Evan’s arguments on this point include Sections
II(D)(1)-(6) of his motion to dismiss.
7

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costs.

The court, however, has wide discretion “to determine

what is fair on a case by case basis.”
164 N.H. 490, 502 (2013).

See Shelton v. Tamposi,

Skip alleges enough to state the

claim.
Evan also argues that Skip is not entitled to
indemnification for expenses incurred after Chester’s death.
Evan, however, does not dispute that Skip is the executor of the
CLG Estate or that, as executor, he can file claims on behalf of
the estate.

Evan has not shown that Skip fails to state a claim

on behalf of the CLG Estate against the trustees of the BJG
Trust to the extent Chester properly incurred expenses while
trustee of the BJG Trust.

He also has not shown that Skip fails

to state a claim on behalf of the CLG Estate for attorneys’ fees
and costs incurred in defense of Chester’s actions as trustee of
the BJG Trust.8

In his role as trustee of the CLG Trust, Skip

can also claim attorneys’ fees and costs under RSA 564-B:101004.
Skip has alleged a sufficient legal basis for Count I of
the counterclaim.

To the extent Evan argues that any expenses relevant to
this suit were not “properly” incurred, he fails to fully
develop that argument for the court to sufficiently address it
at this stage. See Doherty v. Merck & Co., Inc., 892 F.3d 493,
500 (1st Cir. 2018). In any event, the argument is premature
until there is evidence about the expenses incurred.
8

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D.

“Maturity” of Counterclaims

Evan recasts his ripeness argument to challenge the
“maturity” of the counterclaims under Rule 13.

Evan relies on

Stahl v. Ohio River Co., 424 F.2d 52, 55 (3d Cir. 1970), which
held that a party seeking contribution must wait until liability
has been determined or use the third-party pleading procedure in
Rule 14, if otherwise permissible.

Skip responds that the

indemnification counterclaim “arises directly out of the same
occurrences that are the subject matter of Evan’s claims . . .
and is based entirely upon pre-action events with only the right
to relief depending upon the outcome of the main action.”
46 at 8.

Doc.

He argues that the Federal Rules of Civil Procedure

encourage resolving a “main action” and an indemnification claim
arising from the same transactions or occurrences together.
Stahl is neither governing law nor pertinent to this claim,
which does not seek contribution.

“Immaturity” is not a basis

on which to dismiss Skip’s counterclaims.

E.

Motion for Attorneys’ Fees under Rule 54(d)(2)

Next, Evan argues that, under Rule 54(d)(2), Skip cannot
assert a claim for attorneys’ fees through a counterclaim.

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Rather, Evan asserts, the claim must be made through a motion at
the end of the case.
Rule 54(d)(2) states that a claim for attorneys’ fees and
related expenses must be made by motion.

The rule provides “a

procedure for presenting claims for attorneys’ fees, whether or
not denominated as ‘costs’.”

Advisory Committee Note to 1993

Amendment of Fed. R. Civ. P. 54(d)(2).

Importantly, Rule

54(b)(2) does not apply to fees and costs that are recoverable
as an element of damages, which must be claimed in a pleading.
Fed. R. Civ. P. 54(d)(2)(A).
Evan has not addressed the issue of whether a claim for
expenses under RSA 564-B:7-709 must be proved as an element of
damages at trial.

More importantly, a claim for attorneys’ fees

and expenses puts the parties on notice that Skip is claiming
them and does not preclude Skip from later filing a motion under
Rule 54(d)(2), if appropriate.

Evan has not shown that the

counterclaim must be dismissed in favor of a later motion under
Rule 54(d)(2).

F.

Failure to State Claim for Relief (Declaratory
Judgment on Article 2.4.A of the BJG Trust)
1.

Statutory Basis

Evan argues that, in Count II, Skip incorrectly relies on
the New Hampshire declaratory judgment statute, RSA 491:22,
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rather than the federal statute, 28 U.S.C. § 2201(a).

RSA

491:22 is an appropriate vehicle for Skip to advance his
declaratory judgment claim.

See, e.g., Deutsche Bank Nat. Trust

Co. v. Stewart Title Guar. Co., 2013 WL 425126 (D.N.H. Jan. 31,
2013); DAE Aviation Enters. v. Old Republic Ins. Co., 2012 WL
3779154 (D.N.H Aug. 31, 2012).
2.

Interpretation of Article 2.4.A

Evan also moves to dismiss the declaratory judgment
counterclaim on its merits.

Based on his interpretation of

Article 2.4.A, Evan claims that Skip fails to state a claim for
relief.

Skip, however, asserts a conflicting interpretation of

Article 2.4.A.

Therefore, in Count II, Skip states a claim upon

which relief can be granted.

Conclusion
For the foregoing reasons, Evan’s motion to dismiss (doc.
no. 41) is denied.
SO ORDERED.
__________________________
Joseph A. DiClerico, Jr.
United States District Judge
May 14, 2019
cc:
Evan W. Gray, pro se
Adam M. Hamel, Esq.
Ralph F. Holmes, Esq.
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Bradley M. Lown, Esq.
Royi S. McCandless, Esq.
Neil B. Nicholson, Esq.
Andrea J Schweitzer, Esq.

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