Rich v Dahlgren

[*1] Rich v Dahlgren 2014 NY Slip Op 50096(U) Decided on January 30, 2014 Supreme Court, Broome County Lebous, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 30, 2014
Supreme Court, Broome County

Katherine M. Rich, a/k/a KARINE RICH, individually and as beneficiary of the TRUST FOR THE BENEFIT OF KATHERINE M. RICH u/t/a of WALTER G. RICH dtd 7/27/2007, Plaintiff,

against

Wilbur Dahlgren, Esq., HINMAN, HOWARD & KATTELL, LLP, BRUCE BOYEA, and SECURITY MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, Defendants.



2013-1077



COUNSEL FOR PLAINTIFF:

PARISI, COAN & SACCOCIO, PLLC

BY: GERARD F. PARISI, ESQ., OF COUNSEL

376 BROADWAY, 2ND FLOOR

SCHENECTADY, NY 12305

COUNSEL FOR DEFENDANTS

DAHLGREN AND HINMAN,

HOWARD & KATTELL, LLP:

COSTELLO, COONEY & FEARON, PLLC

BY: PAUL G. FERRARA, ESQ., OF COUNSEL 500 PLUM STREET, SUITE 300

SYRACUSE, NY 13204-1401

COUNSEL FOR DEFENDANTS

BOYEA AND SECURITY MUTUAL

LIFE INSURANCE COMPANY OF

NEW YORK:

HODGSON RUSS, LLP

BY: CYNTHIA GIGANTI LUDWIG, ESQ., OF COUNSEL

THE GUARANTY BUILDING

140 PEARL STREET, SUITE 100

BUFFALO, NY 14202-4040

Ferris D. Lebous, J.

This decision and order addresses two separate motions.

Defendants Bruce Boyea (Boyea) and Security Mutual Life Insurance Company of New York (Security Mutual) move for an order dismissing plaintiff's fourth cause of action on the grounds that it is barred by the statute of limitations, fails to state a cause of action, and/or fails to set forth a fraud claim with particularity pursuant to CPLR §§ 214 (4), 3211 (a)(7), & 3016 (b).

Defendants Wilbur Dahlgren, Esq. (Dahlgren) and Hinman, Howard & Kattell, LLP (HH & K) move to dismiss plaintiff's complaint (the first through third causes of action) alleging it is premature due to pending litigation in Delaware County Surrogate's Court.

BACKGROUNDAs an overview, this matter is framed by four sets of documents: (1) a 1990 Antenuptial Agreement between then Katherine (Karine) Canning and Walter Rich; (2) a March 2007 Will and Trust f/b/o Karine Rich executed by Walter Rich; (3) a July 2007 Will, Living Trust, and Trust f/b/o Karine Rich executed by Walter Rich; and (4) an annuity contract purchased on April 29, 2008.

1990 Antenuptial Agreement

On June 22, 1990, prior to their marriage, Katherine (Karine) Canning and Walter Rich entered into an antenuptial agreement (hereinafter "Antenuptial Agreement"). The sum and substance of said Antenuptial Agreement set forth that upon the death of Walter, Karine would receive an amount equal to one-third of Walter's adjusted gross estate.

In 1990, Karine Canning and Walter Rich were married. There were no children of the marriage.[FN1] Unfortunately, in early 2007, Mr. Rich received a diagnosis of terminal cancer and [*2]estate planning was begun in earnest.

March 2007 Will and Trust f/b/o Karine Rich

On March 15, 2007, Walter Rich executed a will (hereinafter "March 2007 Will") which, among other things, disposed of Mr. Rich's residuary estate as follows: [i]f my wife survives me, I give, devise and bequeath to my Trustee to hold the same as a separate trust fund, to be known as the 'TRUST FOR THE BENEFIT OF KATHERINE M. RICH', fifty percent (50%) of my residuary estate, or the sum of Seven Million Dollars ($7,000,000), whichever is greater [emphasis added].

So, simply stated, the March 2007 Will provided at least $7 million for Karine's trust, as well as an income stream for her lifetime.

Soon thereafter - accepting plaintiff's version of events - plaintiff and her husband came up with the idea of giving money to the Walter Rich Charitable Foundation's project of building a Franklin Railroad Museum. While plaintiff concedes that she and Walter agreed on the concept, she claims they did not discuss the manner of financing the project in detail. Rather, plaintiff alleges that defendant Boyea was the mastermind behind a new financial plan which included removing $1 million from Karine's Trust to use for the funding of the museum. To that end, plaintiff alleges that on or about July 9, 2007, Mr. Boyea presented a document to her called a "Distribution Calculation" to convince her that her Trust would not be adversely impacted by this change. More specifically, plaintiff asserts that Mr. Boyea affirmatively represented to her that despite the $1 million decrease in the Trust corpus that her Trust would continue to grow, the distributions would grow and at her death there would be significant funds for the Charitable Foundation. Plaintiff alleges that she agreed to the new estate plan based upon defendant Boyea's representations.

July 2007 Will, Living Trust, and Trust f/b/o Karine Rich

On July 27, 2007, Walter Rich executed a second will (hereinafter "July 2007 Will") and a Revocable Living Trust ("2007 Living Trust") implementing the estate changes discussed above. By way of the July 2007 Will, Mr. Rich elected to fund the 2007 Living Trust with "an amount equal to fifty percent (50%) of the residuary trust estate or Six Million Dollars ($6,000,000), whichever is greater [emphasis added]" with a guaranteed net income for life to Karine of the greater of: (i) $350,000 year; (ii) all of the net annual income from the trust; or (iii) 5.83% aggregate value.

On August 9, 2007, Walter Rich died.

The Annuity

Separate and apart from the estate changes made between March and July 2007 to fund the Railroad Museum, plaintiff also makes certain allegations involving defendant Boyea's advice [*3]that her Trust purchase an annuity contract. More specifically, on April 29, 2008, Karine's Trust purchased an annuity contract in the amount of $1 million that was issued by Security Mutual.

Plaintiff alleges that said annuity was purchased at a far lower rate than needed to support Boyea's own projections in the Distribution Calculation. Additionally, the annuity was purchased from Security Mutual, with Mr. Boyea's son acting as an agent of Security Mutual.

Delaware County Surrogate's Court proceedings

Neither side has given this court a concise synopsis of the pending matters and/or status thereof in Delaware County Surrogate's Court, but suffice it to say that there are two accounting proceedings pending involving both the Estate and the Living Trust.[FN2]

It appears from the record that the Hon. Carl F. Becker issued an Order dated February 19, 2013[FN3] stating, among other things, that Mr. Rich's estate plan developed through his July 2007 Will and 2007 Living Trust "[i]mplements and fulfills all of Mr. Rich's obligations to Mrs. Rich under the Antenuptial Agreement dated June 22, 1990" (Surrogate's Court Order, p 3 [emphasis added]). More specifically, Judge Becker found that the Antenuptial Agreement "provide[d] for less than [Karine Rich] ultimately receive[d] under the decedent's [July 2007] Last Will and Testament" (Surrogate's Court Order, p 2 [emphasis added]). Judge Becker denied the summary judgment motions and directed a hearing on the objections. Apparently no final determination has been made and it is unclear when such a determination is expected.

This Action

On May 7, 2013, the instant Summons and Complaint was filed containing four causes of action.

The first three causes of action are stated against defendants Dahlgren and HH & K and allege as follows: (1) malpractice in estate and trust planning and administration; (2) breach of fiduciary duty based upon Mr. Dahlgren's conflicting positions as plaintiff's attorney, trustee of plaintiff's Trust, and trustee of the Walter Rich Charitable Foundation; and (3) breach of contract (legal services).

The fourth cause of action is stated against defendants Boyea and Security Mutual and is entitled "Breach of Fiduciary Duty Based in Fraud."

[*4]DISCUSSIONI.DEFENDANTS' BOYEA & SECURITY MUTUAL MOTION TO DISMISS[FN4]

[Fourth cause of action only]

Defendants Boyea and Security Mutual move for an order dismissing plaintiff's fourth cause of action on the grounds that it is untimely, fails to state a cause of action, and/or fails to set forth a fraud claim with particularity pursuant to CPLR §§ 214 (4), 3211 (a)(7), & 3016 (b).

On a motion pursuant to CPLR § 3211(a)(7), the court's sole criterion is whether the pleading states a cause of action (Polonetsky v Better Homes Depot, 97 NY2d 46, 54 [2001]). In making this determination, the court must accept the facts alleged in the complaint as true and accord plaintiff the benefit of every possible inference and determine whether the facts as alleged fit within any cognizable legal theory (Goshen v Mutual Life Ins. Co. of NY, 98 NY2d 314, 326 [2002]; Leon v Martinez, 84 NY2d 83, 87-88 [1994]).

A.Statute of Limitations

The court will initially address the statute of limitations arguments. As noted, the fourth cause of action is entitled "Breach of Fiduciary Duty Based in Fraud". Defendants Boyea and Security Mutual argue that a three year statute of limitations is applicable to the breach of fiduciary duty cause of action because plaintiff is seeking purely monetary relief. In opposition, plaintiff alleges a six year statute of limitations is applicable because plaintiff is seeking an equitable remedy or in the alternative is pleading fraud as an essential element of breach of the fiduciary claim.

It is well-settled that: New York Law does not provide a single statute of limitations for breach of fiduciary duty claims. Rather, the choice of the applicable limitations period depends on the substantive remedy that the plaintiff seeks [citation omitted]. Where the remedy sought is purely monetary in nature, courts construe the suit as alleging 'injury to property' within the meaning of CPLR 214 (4), which has a three-year limitations period [citation omitted]. Where, however, the relief sought is equitable in nature, the six-year limitations period of CPLR 213 (1) applies [citation omitted]. Moreover, where an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213 (8) [citation omitted].

(IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 139 [2009]). [*5]

Stated another way, if plaintiff's remedy is purely monetary in nature or any fraud allegations are merely incidental to the claim asserted, then this matter is subject to a three year statute of limitations and this fourth cause of action must be dismissed as untimely. On the other hand, if the remedy is equitable or fraud is an essential element to the breach of fiduciary duty cause of action then the applicable statute of limitations is six years and this cause of action is timely.

With respect to whether the relief sought is equitable or monetary, plaintiff argues that the remedy is equitable because she is seeking to have the terms of her trust restored to what it was prior to the changes made based upon defendants' Boyea and Security Mutual alleged misrepresentations. The court declines to accept this argument. Here, plaintiff primarily seeks damages - return of $1 million and income - and the equitable relief she seeks - restoring the terms of the Trust - is incidental to that relief. Thus, the court finds that plaintiff is not entitled to the application of the six year statute of limitations under the theory she is seeking an equitable remedy.

That said, however, the next question is whether plaintiff's breach of fiduciary duty claim is essentially a fraud action. If so, then plaintiff may still avail herself of the six year statute of limitations and save this cause of action from an untimeliness argument. In order for the court to conclude that the breach of fiduciary duty cause of action is a sufficiently pleaded fraud action, plaintiff must establish a "[m]isrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury [citations omitted]" (Lama Holding Co. v Smith Barney, 88 NY2d 413, 421 [1996]). Thus, on this motion the court must be able to discern a claim that plaintiff acted in justifiable reliance on defendant Boyea's alleged misrepresentation or material omissions (IDT Corp., 12 NY3d at 140).

It bears repeating at this juncture that the court is presented here with a motion to dismiss prior to discovery between the parties. Additionally, the court is particularly mindful of the attendant burden on such a motion which is merely whether the pleading states a cause of action, accepting the facts alleged in the complaint as true and according plaintiff the benefit of every possible inference and determining whether the facts as alleged fit within any cognizable legal theory (Polonetsky, 97 NY2d 46; Goshen, 98 NY2d 314; Leon, 84 NY2d 83).

Viewed in that light, the court finds that plaintiff has alleged fraud as an essential component to her breach of fiduciary duty claim. On the facts as alleged plaintiff asserts that Boyea deceived her by presenting a financial scenario under the new estate plan and that she justifiably relied on those misrepresentations.[FN5] Quite simply, based upon the allegations alone, a conclusion of justifiable reliance cannot be definitively ruled out at this juncture (Paolucci v Mauro, 74 AD3d 1517 [3d Dept 2010]). That is not to say that the court does not have doubts [*6]about the viability of these allegations to withstand closer scrutiny after full discovery. As noted at oral argument, the court expects that these parties will return for summary judgment motion practice after full discovery. Suffice it to say for now, however, that on the limited issue presented on these motions, the court finds that the fourth cause of action is governed by a six year statute of limitations. The accrual date on this portion of the claim would be, at the latest, in July 2007 when the new estate planning documents were executed. Thus the claim filed on May 7, 2013 was timely. Additionally, any claim involving the annuity purchase would also be timely since that portion of the claim would have accrued - at the latest on April 29, 2008 (the date the annuity was purchased) and this claim filed on May 7, 2013 was timely.

B.Specificity/ Pleading

The court turns to defendants' Boyea and Security Mutual alternate argument that even if the claim is timely, as the court has now found, it fails to state a cause of action because the fraud cause of action is not pled with specificity (CPLR § 3016 [a]).

The court rejects defendants' arguments. It is well-settled that it is not unusual in cases involving concealment that a plaintiff will be unable to state the facts constituting fraud in detail since such facts are necessarily peculiarly within the knowledge of the defrauding party (Paolucci, 74 AD3d 1517; Jered Contr. Corp. v New York City Tr. Auth., 22 NY2d 187, 194 [1968]). Rather, plaintiff need only provide sufficient detail to inform defendants of the substance of the claims. The pleadings in this case accomplish that objective. Moreover, this requirement should not be interpreted so strictly as to require specificity where it may be impossible to state in detail the circumstances constituting fraud. Consequently, defendants' motion to dismiss the fourth cause of action for failing to state a cause of action (CPLR § 3211 [a][7]), and failing to set forth a fraud claim with particularity (CPLR § 3016 [b]) is denied without prejudice.

C.Security Mutual

Defendant Security Mutual moves to dismiss the fourth cause of action alleging there is no claim alleged against it. Plaintiff opposes the dismissal arguing that Security Mutual is liable for the actions of Boyea under the doctrine of respondeat superior.

The disposition of this portion of the motion is dictated by the procedural posture of this case. As previously noted, the standard for a motion to dismiss is that the court must afford the pleadings a liberal construction, take the allegations of the complaint as true and provide plaintiff the benefit of every possible inference (EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19 [2005]). At this juncture, the record is incomplete as to defendant Boyea's role throughout this process and the court cannot rule out the possibility that at crucial times he was working in his capacity as an employee of defendant Security Mutual. As such, the motion to dismiss the fourth cause of action as against Security Mutual must be denied without prejudice.

II.DEFENDANTS' DAHLGREN and HH & K MOTION [*7]

(First, Second, and Third causes of action)

Defendants Dahlgren and HH & K move to dismiss plaintiff's complaint alleging it is premature due to pending litigation in Delaware County Surrogate's Court.

During oral argument both parties agreed that the Surrogate's Court matter remains pending and that there remains the possibility that plaintiff may be made whole in that proceeding. Based upon this concession the court indicated its desire to stay the matter pending a final outcome of the surrogate court matters. Rather than a stay, however, defense counsel asked the court to consider dismissing this portion of the claim due to the realities of increased malpractice premiums for his client while any malpractice case remains open. Defense counsel, however, indicated it was not willing to enter into any stipulation waiving their right to raise a statute of limitations argument on a re-commenced action. That said, the court finds that defendants cannot have it both ways, a dismissal to save premiums but also retain the right to argue statute of limitations later. In view of the foregoing, the court elects to stay further proceedings on this portion of the case until such time as the Surrogate issues a final determination on the pending accountings (CPLR § 2201). At that time, plaintiff's counsel is instructed to advise chambers and the matter will be scheduled for a conference prior to resumption of any motion practice.

CONCLUSION

In view of the foregoing, the court finds as follows:

1.Defendants' Boyea and Security Mutual Life motion to dismiss plaintiff's fourth cause of action is denied in all respects; and

2.Defendants' Wilbur Dahlgren, Esq. (Dahlgren) and Hinman, Howard & Kattell, LLP (HH & K) motion to dismiss plaintiff's complaint alleging it is premature due to pending litigation in Delaware County Surrogate's Court is denied and this portion of the action is stayed pending further direction from this court.

This constitutes the order of the court.

Dated:January 30, 2014 Binghamton, New York

s/ Ferris D. Lebous

Hon. Ferris D. Lebous

Justice, Supreme Court Footnotes

Footnote 1:Karine has two children from a prior relationship.

Footnote 2:The formal caption is entitled In the Matter of the Accounting by Lester A. Sittler, Trustee of the Walter G. Rich Revocable Living Trust UAD 7/27/2007, File No. 2007-165, Delaware County Surrogate's Court.

Footnote 3:The Order is mis-dated February 19, 2012.

Footnote 4:This motion was framed as a motion to dismiss pursuant to CPLR § 3211. The motion papers contain arguments, for and against, the court converting the matter to a summary judgment motion pursuant to CPLR § 3212. The court declines to convert the motion and will treat the motion as drafted, namely a motion to dismiss.

Footnote 5:The court addresses the arguments relating to the specificity in pleading of the fraud claim in the next section.