STEPHEN J. MILLER, et al
ROSEWICK ROAD DEVELOPMENT, LLC, et al
Krauser, C.J., Kehoe, Salmon, James P. (Retired, Specially Assigned), JJ.
On December 14, 1998, appellants—Stephen J. Miller, Mary Ebner, and Francis Lee Moreland—were appointed, by the Circuit Court for Charles County, as trustees of the Frank E. Connell Trust, under the terms of a consent order entered by that court. The trust's principal asset was an undeveloped parcel of real property in Charles County. Among other things, the consent order directed the trustees (appellants) to sell the property and liquidate the trust, by distributing the proceeds from that sale to the trust's beneficiaries, "as soon as said sale and liquidation may be prudently completed."
Appellants encountered lengthy delays in completing that sale and liquidation, and, in 2010, Rosewick Road Development, LLC, one of the appellees, having acquired the interests of a number of trust beneficiaries, filed a motion in the Charles County circuit court, seeking removal of appellants as trustees and appointment of a successor trustee, who would "fulfill the express purpose" of the consent order by selling the property and liquidating the trust. This motion was supported by a number of beneficiaries, representing, collectively, nearly an eleven percent interest in the trust and who are parties to this appeal as appellees.
Although appellants opposed the motion, the circuit court, after several hearings, granted Rosewick Road's request and issued an order removing appellants as trustees and thereafter appointed a new trustee. Upon their removal as trustees, appellants noted this appeal, raising four issues, which are reducible to three. They are:
1. Whether Rosewick Road Development had standing to seek removal of the trustees, appointed under terms of a consent order to which its assignors had previously agreed;
2. Whether the circuit court exceeded its legal authority, either in unilaterally changing the terms of the consent order or in applying an incorrect legal standard, under Estates and Trusts Article § 15-112, in removing the trustees; and
3. Whether the circuit court committed clear error in removing the trustees in the absence of evidence that they had been derelict in the performance of their duties.
We hold that, notwithstanding appellants' claim to the contrary, Rosewick Road had standing to seek the removal of the trustees and that the circuit court had legal authority to remove appellants as trustees. We further hold that, although the court below neither unilaterally changed the terms of the consent order nor applied an incorrect legal standard, as appellants claim, it nonetheless erred in removing appellants as trustees. Consequently, we shall vacate the order of the circuit court and remand with instructions to reinstate appellants as trustees.
In 1937, Frank E. Connell purchased, in his sole name, a farm just outside of La Plata, Maryland. According to the deed, it was, at that time, believed to be, "by estimation, four hundred and sixty-five (465) acres more or less." Thirty years later, he died. At the time of his death, he was married to Rose L. Connell. She received, under the terms of his handwritten will, the use of all of his property and assets, including the property at issue, for the remainder of her life, and, upon her death, his "remaining property and assets" were to be "divided equally among her relatives and [his]."
In May 1977, Rose Connell died. Thereafter, the executors of the estates of Mr. and Mrs. Connell sought to sell the property. They soon learned, however, that there were no buyers, as the property had been "extensively" mined for gravel, and, pursuant to a lease then in effect, mining operations were still ongoing. Those operations eventually ended in 1994, upon the expiration of the gravel mining lease.
But, then, a dispute arose among the beneficiaries of the respective estates of Mr. and Mrs. Connell, because it was unclear which of the two estates owned the tract of land at issue and because the beneficiaries could not agree on an appropriate disposition of that property. Some of the beneficiaries wanted to operate it as a farm; others wanted to lease it for gravel and pulpwood extraction; and still others wished to sell it. Ultimately, the beneficiaries resolved their dispute, and the resultant settlement agreement was memorialized in a consent order, which was issued by the Charles County circuit court on December 14, 1998.
That order provided that the will of Frank E. Connell be "hereby interpreted as establishing a trust, " containing the property at issue. The stated purpose of the trust was to "hold the Real Property and assets previously or subsequently derived therefrom as a liquidating trust for sale with assets to be distributed to the beneficiaries in accordance with their interests as soon as said sale and liquidation may be prudently completed." The consent order vested legal title in that property "solely and absolutely" in the trustees, whose appointment was provided for elsewhere in that document. It further declared that the trust "shall have three trustees . . ., who shall act together by consensus" but that, should it become impossible to reach a consensus, any two trustees "together shall have the authority to act" on behalf of the trust.
The consent order named, as trustees, appellants: Francis Lee Moreland, Jr.; Stephen Miller; and Mary Ebner. Their appointment reflected, as Miller would later testify, a compromise among the various factions: Moreland was a relative of Rose Connell as well as a licensed real estate agent in Maryland; Miller was a relative of Frank Connell as well as an attorney; and Ebner was purportedly a "neutral party." Under the terms of the consent order, replacement trustees "may only be appointed by" court order "upon recommendation of the Trustees" themselves, "after notice to the beneficiaries and an opportunity to be heard."
Pending final sale of the real property and distribution of the proceeds, the trustees were granted authority to "create, increase, maintain, invest and reinvest reasonable reserves" from the liquid assets of the trust. They were further authorized to mortgage or encumber the real property "to facilitate a sale of one or more parcels" but could not, without prior court approval, mortgage or encumber it for development. Once the real property was sold, the trustees were required to distribute the proceeds to the beneficiaries in proportion to their interests and to dissolve the trust.
The consent order also authorized the trustees to "do all things necessary or helpful to effect the sale of" the property "in a single transaction or in a number of transactions." "For purposes of sale, " the trustees could, "in their discretion, among other things, accept such arrangements for purchaser inspection, independent testing, governmental commitments, approvals and consents as may be customary or appropriate in marketing properties of similar size and condition in the greater Washington-Baltimore Metropolitan area."
As for the timing of the sale of the property and its sale price, the consent order provided:
The Trustees may enter into a sales contract for the entire parcel of Real Property, subject to court approval, at 85% or more of the appraised value of the entire parcel, at any time within 36 months of the date of this consent decree. Subsequently, the Trustees may enter into a sales contract, for the entire parcel of Real Property, subject to court approval, in any amount. Sales of less than the entire parcel of Real Property at any time shall also require court approval, but are not subject to the 85% limitation noted above.
A total of fifty-five trust beneficiaries were listed in the consent order, with interests ranging from 1.19 percent to, in one instance, 7.14 percent. Their interests were, stated the order, "freely transferable" and, "consistent with Maryland law, each trust beneficiary" could "sell, transfer during life or upon death, donate or take any other lawful action regarding ownership of trust interests."
Upon their appointment as trustees, appellants learned that the property was a "large, " "undeveloped, " and "irregularly shaped parcel" of "undetermined" size. Indeed, though the 1937 deed purported to convey four hundred sixty-five acres, "more or less, " subsequent surveys of the property estimated its size as somewhat less than that. In addition to the potential problems presented by the gravel mining that had been carried on at the property, appellants faced at least two other problems: the property lacked water and sewer access and was landlocked. In fact, access to it could only be obtained via a poorly maintained, single-lane, gravel path.
At about the same time the consent order was entered into by the parties, appellants retained a law firm to advise them as to the appropriate course of action they should take in disposing of the property. They thereafter obtained the services of a local engineering firm to perform the following studies of the property: first, a boundary survey, to obtain a more reliable estimate of the property's size; second, geotechnical and wetlands studies, to assess the then-unknown impact of the decades-long gravel mining operations that had taken place on the property and to determine the impact "several areas of wetlands on the property" would have on both the property's use and value; third, a feasibility study, to identify both potential uses of and buyers for the property; and fourth, a marketing analysis, to identify potential problems with the property, so that appellants could either take measures to alleviate them (thereby increasing the value of the property) or, at least, know of them and thus be in a better position to market the property to potential buyers.
After the feasibility study was completed, appellants commissioned an appraisal of the property, as the consent order required them to do. That appraisal, which was the first of several that would ultimately be done, was completed in 2001 by Lipman Frizzell & Mitchell, LLC. That firm estimated that the property was then worth $3.275 million. But, as appellant Miller would later testify, it soon became "obvious, " after consultations with the appraiser, that this appraisal "severe[ly] discount[ed]" the property's value, because the property then had neither highway access nor water and sewer service. That appraisal prompted appellants to begin discussions with town and county planning officials, to investigate the feasibility of infrastructure improvements, including improved highway access as well as water and sewer hookup.
County officials informed appellants that an extension was planned for a nearby limited-access highway, the St. Charles Parkway, and that, if appellants would agree to a land swap, the county was willing to ensure that the highway would be routed along the southern boundary of the property and that it would include several interchanges, which would provide direct access to this tract. Those negotiations were successfully concluded in December 2005, and construction of the St. Charles Parkway extension commenced in 2006.
The county also informed appellants of another nearby road construction project, a planned extension of Radio Station Road across the property. The county suggested that, if appellants would agree to a land grant, to provide the necessary right-of-way, not only would the county build the road at its own expense, thereby further improving highway access to the property, but it might also approve the property for water and sewer hookup, though, as of the time this appeal was heard, water and sewer had not been provided.
Believing, in any event, that they had made significant strides in removing the major obstacles to marketing the property, appellants stepped up their promotion efforts. Appellants had, according to appellant Miller, attempted to sell the property "[r]ight from the beginning, " by meeting with several potential buyers, including Facchina Construction Company, an affiliate of appellee Rosewick Road. But, after construction of the St. Charles Parkway extension began in 2006, appellants experienced increased interest in the property.
Appellants distributed a "term sheet" to nine potential bidders, setting forth a minimum bid of $9 million, and three companies, including Facchina Construction, accepted the term sheet. Appellants then offered each of the three "an opportunity to raise their bid above the minimum." Two of them did, but Facchina Construction did not, whereupon appellants selected KLM Real Estate Services, LLC, which had increased its bid to $10.5 million for the property.
Appellants' attorneys then drafted a formal sales contract, and, in November 2006, KLM and the trust executed that document. Consistent with standard industry practice, the contract included a due diligence period, of 120 days, during which the buyer had the right to withdraw its offer and terminate the contract. Unexpected problems in obtaining investor financing led KLM to do precisely that in March 2007.
Appellants then renewed their attempts to sell the property, and, in August 2007, they, on behalf of the trust, entered into a sales contract with TC Fund Property Acquisitions, Inc., a wholly owned subsidiary of a large national developer, Trammell Crow Company. This contract provided, as the previous contract did, for a purchase price of $10.5 million. It also included a due diligence clause, but reduced the due diligence period from 120 to 95 days. That period was later extended to 155 days in exchange for forfeiture, by TC Fund, of a portion of its deposit.
During its due diligence period, TC Fund commissioned a number of environmental, geotechnical, engineering, and marketing reports concerning the property, which, under the terms of the sales contract, were provided to the trust and were usable by it for its own purposes. Satisfied with the results of those reports, TC Fund, in late 2007, indicated to appellants its intention to proceed to closing. But, before it could do so, a nationwide financial crisis began, which, according to the uncontroverted testimony of appellants' commercial real estate expert, Harry Shasho, essentially froze commercial real estate activity in southern Maryland, because "[t]here was practically no financing available." The financial crisis led TC ...