Bad blood: Legal feud over $70-million trust roils one of Rhode Island's richest families

PROVIDENCE — One of Rhode Island’s most prominent families is locked in a bitter legal dispute over the alleged mismanagement of a $70-million trust, and it’s pitting cousin against cousin.

Malcolm Chace IV, his siblings and their children are seeking to have their cousin Arnold B. “Buff” Chace Jr. removed as trustee of a $70-plus-million trust that Malcolm’s father, Malcolm “Kim” Chace III, left his heirs upon his death in 2011.

Malcolm IV’s faction cites a climate of animus and distrust in requesting Buff’s removal. They say they have been spurned for more than a decade in their attempts to get an accounting of how the trust has been managed. They accuse Buff of breaching their trust and his duties by engaging in self-dealing and using the fund for his own enrichment.

“I think some of the paperwork raises questions. Who got what, and who benefited? Those are the issues,” said former U.S. Attorney Robert Clark Corrente, who is among the lawyers representing Malcolm IV and 12 other beneficiaries.

Also at stake is whether a trustee can invest trust assets in an entity in which they hold an interest, particularly without notice to the beneficiaries, Corrente said.

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Corrente said he believes  “unequivocally” that trustees have an obligation to notify the beneficiaries about transactions.

“We think the law is clear on that,” he said. Depositions in the case are underway.

Dueling allegations of self-dealing

Buff Chace and co-trustee William Saltonstall, Kim’s stepson, shot back in court documents that any charges of animus and distrust are a “manufactured pretext” for Malcolm IV to enrich himself and come in retaliation for Malcolm IV's father not naming him trustee. They accuse Malcolm IV, who goes by Malcolm Jr., of wanting to manage the trust to extract fees for himself and his own investment firm, Canton Hathaway LLC.

The trustees say they have operated in good faith at all times and without conflict in their administration of the trust, in keeping with Kim’s wishes.

Buff Chace, who has put his stamp on the city through his real estate development company Cornish Associates, did not respond to a message left at his 46 Aborn St. office. 

His lawyer, Matthew T. Oliverio, said his office has a policy not to offer comment on cases “that have yet to be finally adjudicated in the courts, and we certainly have no interest in grandstanding in the media.”

 “Rather, we will litigate these matters in the proper forum — the courtroom.  We have full confidence that we will prevail in all respects,” Oliverio said in an email.

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Malcolm IV’s stepmother, Elizabeth Zopfi Chace, the only beneficiary to be named a defendant in the case, echoed the trustees’ sentiments. Allegations of distrust and animus, she said, are “merely a facade” for the other 12 beneficiaries’ own “avarice and self-interested desire to gain control” of the trust, which encompasses more than $68 million in liquid assets and property valued at upwards of $2 million. She alleges the claims are at odds with the terms of the trust and her late husband’s wishes.

Zopfi Chace receives $800,000 annually from income from the trust through a codicil in her husband’s will made days before his death from brain cancer at age 76. 

Zopfi Chace declined to comment, other than to say “it’s a family issue, so it’s not so great.” She is represented by Hannah Sfameni of DarrowEverett LLP. 

What started the Chace family battle?

The storied Chace family made its fortune through a string of textile mills that spun a quarter of the country’s fine cotton in the 1930s and later merged to form Berkshire Hathaway. Their ancestors were renowned activists in the anti-slavery, women's-rights and prison-reform movements.

Kim Chace ranked as one of the state’s wealthiest businessmen and philanthropists. He served for years on the Berkshire Hathaway board, forming a close alliance with billionaire Warren Buffett.

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The family's ownership of textile mills, ties with Berkshire Hathaway and other investments even landed Kim on Forbes' annual list of wealthiest Americans, placing him at 271 in 1999 and at 236 in 2001, with wealth estimated at more than $900 million. In 1996, he founded BankRI.

The family acrimony traces to February 2020, when Malcolm IV and the other beneficiaries became aware that the trust made a $4-million investment in Downcity Phase II LLC, according to the complaint filed in Superior Court. Downcity Phase II LLC, is managed by Buff Chace and based at his Cornish Associates offices at 46 Aborn St., secretary of state records show.

Records indicate that the trust holds a 30% stake in Downcity II, with Buff or an entity he controls owning the remaining 70%, the complaint said. Despite the 30% stake, none of the beneficiaries were provided notice of the investment or of Buff Chace’s role in Downcity, nor has the trust reaped any economic benefits.

The beneficiaries assert that Downcity, together with unknown investors, holds interests in various limited liability companies that own commercial buildings at 31 Aborn St., 290 Westminster St., 270 Westminster St., and 91 Clemence St. 

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The beneficiaries also say they learned in February 2020 that the trust made a $530,000 investment in Gardner CA Member LLC, a limited liability company managed by Buff Chace and based at Cornish, the suit said.

In that case, trust records indicate that it has a 50% interest, with Buff Chace and undisclosed investors holding the remaining 50% interest in a commercial building at 40 Fountain St., the suit said. Again, the beneficiaries allege they were not provided notice, nor has the trust benefited economically from the investment.

Beneficiaries call for removal of trustees, voiding of transactions

Malcolm Chace IV and the others argue that Buff Chace and Saltonstall are obligated to provide them with a meaningful accounting annually of the fund’s assets and liabilities and administration. Instead, the beneficiaries say, they have failed to hold annual meetings or detail the income and principal and have refused requests that they voluntarily step down.

They accuse the trustees of breaching their duty to invest prudently and ask that they be removed to remedy their “ongoing and willful” breaches of their duty to loyalty. 

They ask, too, that the court void all “self-dealing” transactions entered into by the trustees and that any profits they received be disgorged. They want the court to order the trustees to provide an accounting of the trust and related personal real estate ventures dating to 2011. 

Buff Chace and Saltonstall responded that there is no legal requirement that they provide beneficiaries with prior notice of any investments the trustees are authorized to make under the trust terms and in keeping with Kim’s intent. Their actions, they say, were with the complete faith and confidence of Zopfi Chace and with guidance and legal advice of estate-planning lawyers for Zopfi Chace and her late husband.

“To the extent a response is necessary, the allegations are always denied and state that the trustees have exercised reasonable care, skill, diligence, prudence and caution in all their obligations in administering and managing the trust assets,” their lawyer, Oliverio, wrote. They say the trust has experienced “significant appreciation” to the beneficiaries’ benefit.

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The trustees insist they have at all times acted in accordance with the expressed intentions of Kim by investing “a small fraction” of the trust assets in rehabilitation and revitalization projects in historic buildings in downtown Providence.

They charge that Malcolm IV and the other beneficiaries' claims are barred based on the concept of unclean hands, meaning the lawsuit was brought in bad faith, and that Malcolm’s claims, in particular, are precluded “by his own desire to engage in self-dealing and self-enrichment.

They ask Judge Brian P. Stern, who is hearing the case, to dismiss the complaint. 

Tax agreements under review for Buff Chace properties

The lawsuit comes as the Providence City Council's Committee on Finance is set to review tax agreements for properties owned by Buff Chace’s real estate interests. The city reached a consent agreement last year in which it agreed to assess several properties under a state law, referred to as 8-Law. 

Under the agreement, the city placed a 30-year restrictive covenant on the properties requiring that 25% of the residential units be dedicated to tenants who earn 100% of the area median income. In exchange for providing the restricted units, the city agreed that the property will be subject to a tax that equals 8% of the property's gross scheduled rental income in the previous year.

The agreement, signed by Nicholas J. Hemond, of DarrowEverett, and City Solicitor Jeffrey Dana, resolved several court cases brought by Chace’s interests challenging the assessments. The properties previously had been under tax stabilization agreements.

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The properties set to go before the Finance Committee include 91 Clemence St., 210 Westminster St., 220 Westminster St. and 65 Eddy St., though others were incorporated into the deal. Those are 1 Fulton St. and 236, 290, 276, 270 and 326 Westminster St., according to a court filing.

Melina Lodge, executive director of the Housing Network of Rhode Island, said 8-Law operates on the premise that affordable-housing units don’t have the same value as those at market rate. The 8% calculation is intended to make the assessment fair and is typically applied to the restricted units, though it can be used more broadly by a municipality to incentivize developers to build affordable or workforce units, she said.

“Because it’s municipal taxation, it leaves a lot of wiggle room in how it’s used,” Lodge said. A city or town can charge less than 8%, but not more.

The units that fall under the consent agreement qualify as workforce housing, not low-income, she said. That means a one-person household could earn $68,320, or $78,080 for two people, she said. College students are generally not eligible, she said.

“There is a need for those rental units, for sure,” Lodge said.

The city stands by the agreement.

“The city is pleased to have reached a resolution on this lawsuit that the presiding judge determined to be acceptable. As part of the agreement, the city is gaining a significant number of affordable units downtown which is consistent with the city’s work to prioritize affordable housing citywide,” said Theresa Agonia, spokeswoman for Mayor Jorge Elorza.

She added that the impact of the agreement on city revenue “is a function of many variables, such as future property values and future tax rates, so there is no financial impact at this time.” 

Affordable units are based on tenant income and the city does not retain information on how tenants identify, she said.

Also to be considered is another settlement agreement reached last year with a Buff Chace-affiliated entity, Orchard Garage LLC, that owns 51 Washington St., the parking garage and retail shops behind the Graduate Providence hotel.

That agreement settles five lawsuits brought by Orchard in Superior Court seeking to recover property taxes paid to the city for 2009 through 2011 and 2013 and 2014.

The city agreed to reduce and credit Orchard’s account by $235,000, of which $184,083 is to be applied to 2020 and $50,916 to 2021.