Barash v. Lembo

348 Conn. 264

303 A.3d 577

Susan Shapiro BARASH, Cotrustee, et al. v. Barbara LEMBO

SC 20676

Supreme Court of Connecticut.

Argued February 15, 2023

Officially Released November 7, 2023

Barbara M. Schellenberg, with whom were Owen T. Weaver and, on the brief, David B. Zabel, for the appellants (plaintiffs).

Laura Pascale Zaino, Hartford, with whom was Joseph V. Meaney, Jr., for the appellee (defendant).

Robinson, C. J., and McDonald, D'Auria, Mullins, Ecker and Alexander, Js.

ECKER, J.

The primary issue in this appeal is whether the trustee of an inter vivos trust that is the residuary beneficiary of the estate of the settlor-decedent has a duty to protect and collect assets that have not yet been transferred to the trust. After providing for the payment of debts and taxes and setting forth a number of specific bequests, the will of the decedent, Richard Ripps, who died in 2006, bequeathed the residue of his estate to an amended and restated revocable trust benefiting his three children, the plaintiffs Jennie R. Ripps, Michael J. Ripps, and Elizabeth J. Ripps (trust beneficiaries). The present action and five other consolidated cases ¹ concern the proper administration of that portion of the decedent's residuary estate that has not yet been distributed to the trust. In particular, the undistributed assets consist of a 49 percent interest in certain commercial real estate development projects (residuary assets), including properties owned by Evergreen Walk, LLC (Evergreen Walk), Northern Hills, LLC (Northern Hills), and M/S Town Line Associates, LLC (M/S Town Line Associates) (collectively, commercial assets). ²

Approximately seventeen years later, the estate has not yet settled. In 2018, the trust beneficiaries and their mother, the plaintiff Susan Shapiro Barash, one of three cotrustees of the Richard Ripps Amended and Restated Revocable Trust Dated February 8, 2008, filed this action in the Superior Court, alleging that the defendant and cotrustee, Barbara Lembo, breached her fiduciary duty as trustee by failing to protect and collect trust property, to investigate or ask questions regarding the alleged misconduct of the executor of the estate, Laurence P. Rubinow, ³ and to seek recovery from and hold Rubinow accountable for any damages sustained by the trust as a result of the alleged misconduct. The plaintiffs sought damages and the removal of the defendant as cotrustee. The trial court rendered judgment in favor of the defendant, who was the decedent's widow, on the basis of its conclusion that the defendant, as a trustee, had no duty, prior to the distribution of the residuary assets, to take any action against Rubinow with respect to those assets—including investigating, questioning or monitoring Rubinow's administration of the estate, or, as the trial court stated, to "[s]hap[e]" or "gather" the property that has not yet poured over into the trust.

We agree with the plaintiffs that the trial court incorrectly concluded that, as a matter of law, no material issue of fact remained as to whether the defendant owed the trust beneficiaries a duty to collect and protect the prospective trust property in the residuary estate. We also conclude that the complaint sufficiently alleges a cause of action against the defendant for breach of her fiduciary duty as trustee. Accordingly, we reverse the judgment of the trial court.

The record reflects the following facts relevant to this appeal. Almost one year before his death, in February, 2006, the decedent executed his will, which left the residue of his estate to the amended and restated revocable trust benefiting his three children as trust beneficiaries. The will and the trust were executed on the same day. During his lifetime, the decedent served as the sole trustee. After his death, Rubinow, the defendant, and Edwin Silverstone began serving as successor cotrustees. The decedent's will named Rubinow and Silverstone as coexecutors. Silverstone resigned as coexecutor and cotrustee in 2009, and Barash was appointed as the third cotrustee in 2016. Since 2009, Rubinow has served as the sole executor of the estate. It is undisputed that the trust beneficiaries have received $976,600 in distributions from the trust.

Upon the decedent's death, the initial total gross value of the estate was $12,897,768. Included in that estate was his 49 percent interest in the commercial assets. The decedent's business partner, John Finguerra, retained a 49 percent interest in each of the commercial assets and, following the decedent's death, served as the sole manager of each of those entities pursuant to their respective operating agreements. ⁴

In their complaint, the plaintiffs relied on three sets of factual circumstances relating to Finguerra's management of the commercial assets and Rubinow's administration of the estate to support their allegation that the defendant had breached her fiduciary duty to investigate, to ask questions, to seek recovery of damages from Rubinow, or otherwise to hold him accountable for his management of the estate. First, in 2011, Evergreen Walk's operating agreement was amended to provide Finguerra with an annual salary of $175,000 for his services as manager, retroactive to January, 2007—contrary and detrimental, the plaintiffs claim, to the interests of the trust. The plaintiffs allege that the defendant signed the amendment upon the request of Rubinow and Finguerra without first reviewing the operating agreements of the commercial assets or otherwise making an independent determination whether it would be in the best interest of the trust to do so. Second, the plaintiffs complain about a loan of $3 million to Evergreen Walk from the proceeds of the sale of assets owned by M/S Town Line Associates and Northern Hills. The plaintiffs contend that Rubinow instead was obligated to convey those proceeds to the trust. Lastly, the plaintiffs support their claims of wrongdoing by reference to the 2014 sale of a real estate parcel owned by Evergreen Walk. The plaintiffs allege that, despite Rubinow's initial representations that the estate would receive more than $2 million as a result of the sale, which would then be distributed to the trust, the estate received only $490,000 following the sale.

In addition to these three particular transactions, the plaintiffs allege that Rubinow had ongoing conflicts of interest—stemming both from his personal friendship with Finguerra and the legal representation provided to Finguerra by the law firms with which Rubinow has been associated during the administration of the estate—that triggered the defendant's duty on behalf of the trust to investigate, object or seek to recover from Rubinow any resulting damages.

The parties filed separate motions for summary judgment. In support of their motion, the plaintiffs produced evidence of Rubinow's accountings, demonstrating that, although the trust beneficiaries have received a total of $976,600 in distributions, Rubinow and his present and former law firms have received more than $1.8 million in fees. Additionally, to establish that Rubinow took actions that benefitted Finguerra, to the detriment of the trust beneficiaries, the plaintiffs adduced evidence that Rubinow had assisted in facilitating the approval of a 2011 amendment of Evergreen Walk's operating agreement, which authorized the payment of a salary to Finguerra for his services as manager of Evergreen Walk, retroactive to January, 2007, allegedly depriving the trust of additional funds. The plaintiffs argued that the retroactive amendment violated § 5.5 of the original 2006 operating agreement of Evergreen Walk, which provided in relevant part: "No [m]anager shall receive any compensation for his services as a [m]anager of the [c]ompany." They also claimed wrongdoing in connection with the $3 million loan to Evergreen Walk from the proceeds of the sales of the properties owned by Northern Hills and M/S Town Line Associates. They produced communications in support of their claim that Rubinow advised Finguerra to make the loan so that Evergreen Walk could repay bank loans that had been personally guaranteed by Finguerra, thereby serving Finguerra's financial interests rather than directing the sale proceeds to the estate for distribution to the trust.

The plaintiffs also submitted the deposition testimony of the defendant in support of their allegations that she had breached her fiduciary duty, relying on the defendant's admissions that she, among other things, failed to attend any of the Probate Court hearings pertaining to the estate, never inquired regarding the assets that the trust should be receiving from the estate, kept no records of distributions made to the trust or to the trust beneficiaries, never made any inquiries regarding Northern Hills or M/S Town Line Associates, signed the amendment to the Evergreen Walk operating agreement authorizing compensation for Finguerra, did not discuss the amendment with the trust beneficiaries, and never took steps to determine whether Rubinow had properly performed his duties as executor of the estate.

In arguing for summary judgment in her favor, the defendant primarily relied on the fact that none of the three commercial assets in the decedent's estate had been conveyed to the trust. Because the three commercial assets are not part of the trust res, the defendant argued, and because the trust is currently unfunded, her duties as a trustee will not arise until the estate settles and its residue is conveyed to the trust. ⁵

The trial court granted the defendant's motion for summary judgment, concluding that the defendant's duties as a trustee with respect to the residuary assets in the estate had not yet commenced. ⁶ The court relied on the decision of the Appellate Court in Warner v. Merchants Bank & Trust Co. , 2 Conn. App. 729, 732, 483 A.2d 1107 (1984), for the proposition that, when "money flows from an estate into a trust ... ‘[t]he duties of ...