Trust issues: Fenwick loses candidates to ownership law

Four candidates to vie for three seats in election

Date Published: 
July 8, 2016

Fenwick Island had six candidates for its 2016 town council election — until the Town determined that two of those would-be candidates are ineligible because of property ownership technicalities.

In the Aug. 6 election, voters will select three candidates from among: Gardner Bunting (incumbent), Vicki L. Carmean, Kevin Carouge and Bernard “Bernie” H. Merritt Jr.

On July 5, the town council unanimously decided that would-be candidates Charlie Hastings and Mark McFaul were ineligible because they don’t live on or directly own property in Fenwick Island. Instead, they are trustees in artificial entities that own properties in town (Hastings’ trust is invested in a house, and McFaul owns Ropewalk restaurant).

“Those people don’t own the property themselves. They own interest in the LLC,” which owns the property, said Town Solicitor Mary Schreider-Fox.

Delaware law says that an LLC is an artificial entity. People often use such entities to shield themselves from liability, possessing an interest in the LLC but not directly in the property it, in turn, owns.

The two men meet other requirements for eligibility as council candidates (being natural-born people, 21 or older and non-felons), but they’re not bona fide residents or property owners. That fact came to light only after all six nominees had been certified by the Fenwick Island Board of Election and accepted by the town council on June 22.

“Your list of candidates’ qualifications is pretty clear,” Schreider-Fox said, adding that she believes a judge would agree that McFaul and Hastings are ineligible.

The Town already has a second opinion that supports that idea, in attorney Dennis Schrader, who has taught state seminars on municipal election law.

Who owns it?

So what’s the difference between owning property through a trust and having a person’s name directly on the deed?

Artificial entities have different components, Schreider-Fox said. A trust has trustees, beneficiaries and property.

“The trustee is technically the legal owner of the property … with strings attached,” Schreider-Fox said. They hold it for the benefit of someone else: the beneficiary, who has equitable interest, not necessarily written in a deed. But that trustee is beholden to them to do what’s right, for the benefit of them and the property.

“Often the trustee and beneficiary are the same person. It’s a vehicle people use for estate planning,” Schreider-Fox said. “It’s smart planning.”

The would-be candidates could exit those trusts and put their name directly on the deeds, but that leaves them liable in other ways. In gaining the protection of a trust, trustees are limited in voting and office-holding rights.

Who can run?

Trusts would be eligible to run for office based on the second prong of eligibility: owning land. But they fail to meet the first requirement: being human. A corporation cannot run for town council, and an individual trustee could still be another artificial entity, such as a bank.

Because trusts have a right to vote in Fenwick, through a designee, Election Board Inspector Audrey Serio said, such people should have a right to run.

“You have to be a live human being to run for office. That’s your No. 1 rule,” Schreider-Fox said.

The charter trumps all, Schreider-Fox emphasized, even if a trustee already has the right to vote in Fenwick (representing the entire trust through power-of-attorney).

In 2008, Fenwick Island changed its election law, which gave trusts one vote. There might have been an assumption that trustees could hold public office, but the charter simply doesn’t say this, Schreider-Fox said.

Although she walked town council members through alternate options, Schreider-Fox was confident in her opinion. A judge might ask if the correct process was followed but, ultimately, is the person eligible?

Don’t look to the State or County for help either, Schreider-Fox said. The Delaware Attorney General and state election commissioner wouldn’t get too involved because the Town has its own charter and council to figure things out.

The State gives each municipality “the power to decide your own destiny,” but the space to solve their own problems, too, Schreider-Fox said.

Have past trustees served on council? Town Manager Merritt Burke couldn’t say for certain if they have since the 2008 change. If they did, Schreider-Fox noted, it was because volunteers were scarce enough that Fenwick hasn’t had an election until 2015, and people didn’t question property ownership enough to get lawyer involved.

The two would-be candidates still have a right to contest the finding. But, either way, the result is that the Fenwick Island Town Council may be reviewing candidate eligibility and procedures in the future.

“It was never intentional, I’m sure, to restrict who could run. I think it just happened, and no one ever paid attention to it,” Mayor Gene Langan said.

Raising the issue

The issue of candidate eligibility for trustees came to light when Council Member Julie Lee saw the list of candidates for the August council election. However, that came after the June 22 meetings that declared there were six eligible candidates.

Lee said she was hospitalized at the time and only saw the names after the town council voted to accept all six candidates. Having led the Ad-Hoc Election Committee this winter, Lee has closely studied the Fenwick Island town code and realized that McFaul could be ineligible, owning Ropewalk through “an artificial entity. He is the designated voter by power-of-attorney. That was what caused me to question his eligibility.”

She immediately notified Burke.

“I’m sorry I was not at the meeting,” Lee said. “A mistake was made, and we can now move on.”

Fenwick has no specific procedure for re-evaluating candidates, so Burke reconvened both the Board of Election and the council.

Langan emphasized that the town council had wanted the re-evaluation to be in a public meeting, not an executive session (generally reserved for discussions of pending litigation and employee matters).

Board of Election

The Board of Election had passed the buck earlier on July 5, choosing not to issue an opinion on the candidates’ eligibility. They had certified the candidates in June, but the Town charter gives them no power to revoke a person’s candidacy. They discussed the issue for an hour before unanimously voting to defer the decision to the council.

Serio said she felt the issue was too “cloudy” for the BOE to decide.

“It’s not as cloudy to me,” Faye Horner responded. “It was not done intentionally. None of us knew. … It’s a shame something like this hasn’t been done sooner, but now I think the council’s going to be making changes and clarifying this.”

BOE Member Carl McWillliams suggested the Town make a clarification “ASAP,” but any charter change needs approval from the council and the Delaware State Legislature, which doesn’t meet again until 2017.

Schreider-Fox warned against a knee-jerk reaction in immediately allowing any trustee to run. There are many kinds of artificial entities, and 100 people could be considered trustees, she said.

The election

Council terms are two years. Council Members Diane Tingle and Bill Weistling did not apply to run for re-election to their seats.

Voters must be registered at Town Hall to vote in an election. In-person registration for the August election has ended, and registration by mail ends on July 8.

Election details are available by contacting Town Hall at (302) 539-3011 or online at www.fenwickisland.delaware.gov.