Background
After Carmen John Palumbo died, his children Stephen, Lori, and Gregory became co-trustees of his revocable trust. Their relationship deteriorated amid allegations that Gregory had forged estate-planning documents, misappropriated their father’s funds, and engaged in hostile conduct. Gregory had also been convicted of multiple felonies and disbarred in Pennsylvania.
Stephen and Lori petitioned to remove Gregory as co-trustee. They presented evidence that his hostility and lack of cooperation obstructed trust administration, including a proposed sale of Delaware real estate that Gregory stopped before closing. Separately, Stephen and Lori sold Maryland property held by an LLC in which they held a controlling interest. Gregory counter-petitioned for a trust accounting and alleged misconduct by his siblings, but he did not separately plead a claim to remove them as trustees.
The Court’s Holding
In a final Magistrate’s Report, Magistrate in Chancery David Hume, IV recommended granting the petition to remove Gregory. The report concluded that Gregory’s criminal conduct and disbarment, his stipulated obligation under Pennsylvania disciplinary rules to resign from fiduciary positions, credible evidence of prior financial misconduct, and his hostility toward the other trustees justified removal under 12 Del. C. § 3327.
The report recommended denying Gregory’s cross-petition because he offered no evidence or argument supporting an accounting and therefore waived the issue. It also concluded that he had not adequately pleaded a claim to remove Stephen and Lori and, even if he had, failed to prove such a claim at trial. Finally, the report recommended shifting Stephen and Lori’s fees and costs to Gregory under the bad-faith exception to the American Rule, citing his unsupported legal representations, irrelevant litigation tactics, inaccurate citations, scheduling misrepresentations, and failure to prosecute his accounting claim.
Key Takeaways
- A trustee’s criminal conduct, disbarment, financial misconduct, and hostility toward co-trustees may support removal when they demonstrate unfitness or threaten efficient trust administration.
- A party who presents no evidence or argument for a requested trust accounting may waive that claim.
- Bad-faith litigation conduct—including false or unsupported legal citations and tactics that unnecessarily burden an opponent—can justify fee shifting.
Why It Matters
The report illustrates that Delaware’s demanding standard for trustee removal can be satisfied by conduct demonstrating dishonesty, unfitness, or hostility that jeopardizes effective administration, even when some misconduct occurred outside the trustee’s formal administration of the trust.
It also underscores that self-represented litigants with substantial legal experience remain accountable for accurate citations, properly pleaded claims, and good-faith litigation conduct. Because this is a final Magistrate’s Report under Court of Chancery Rule 144, it recommends relief rather than itself entering the ultimate order.