Opinion
No. FSTCV10-6004573S
July 26, 2011
Memorandum of Decision on Motion to Dismiss (No. 102)
Procedural/Factual Background
In this civil action, the plaintiffs, Richard Blonstein, Judith Rosenkrantz, Stacey Aronson and Andrew Rosenkrantz, have brought suit against Attorney Mark A. Rubenstein and his various law firms (collectively, the defendants). The plaintiffs' complaint alleges the following facts relevant to the disposition of the motion that is currently before the court. In 1991, Judith Rosenkrantz retained the services of Attorney Mark A. Rubenstein, a trusts and estates lawyer, to establish a trust for the benefit of her children, Stacey Aronson and Andrew Rosenkrantz. Consequently, Attorney Rubenstein established the Rosenkrantz Irrevocable Children's Trust and Judith Rosenkrantz deposited $1.2 million in principal into the trust. Attorney Rubenstein was appointed the trustee of the trust and, as a result, the plaintiffs relied on Attorney Rubenstein to invest properly the trust funds and to protect the trust for the benefit of the beneficiaries. Furthermore, the plaintiffs allege that between 1991 and 2009, Attorney "Rubenstein and the Law Firm Defendants provided legal services to the Plaintiffs for work generated by Defendant Mark A. Rubenstein, serving in his capacity as Trustee." (Complaint, ¶ 10.)
In general, the plaintiffs will be referred to collectively as "the plaintiffs," but they will also be referred to separately when it is appropriate. Moreover, as the defendants are not moving to dismiss his claims, the plaintiff Richard Blonstein will not be included in any references to "the plaintiffs."
The plaintiffs allege that at all relevant times, Attorney Rubenstein was a partner in the law firms of Rubenstein Albright, LLC, Rubenstein, Paige, Schneider Stark, LLC, Rubenstein, Paige, Stark Green, LLC, Rubenstein Green, LLC, Rubenstein, Green Bass, LLC and. Rubenstein Glazer, LLC. Each of these law firms were located in Westport and they have all been named as defendants in the present case.
The plaintiffs contend that Attorney Rubenstein and the defendant law firms "breached their duties to the plaintiffs in that they failed to exercise the usual and customary care required by attorneys in connection with the provision of legal services as aforesaid and acted in a manner that consistently put their interests, financial and otherwise, before the interests of plaintiffs . . ." (Complaint ¶ 11). Specifically, the plaintiffs allege that the defendants placed their financial interests above those of the plaintiffs when they: (1) provided loans using trust funds to individuals and companies such as Riv Finder and Grey Flannel Auctions, Inc. without the proper controls in place to ensure that the money would be repaid and (2) invested significant amounts of trust funds in real estate companies and other ventures in which the defendants had a substantial financial interest such as 131 Danbury Group, LLC, Reservoir Corporate Group, LLC, 4 Real Estate, LLC, Locust Realty, LLC and 100 Manchester Realty, LLC. (¶ 11.) Additionally, the plaintiffs allege that the defendants took money out of the trust without informing the plaintiffs in order to pay for their legal fees. (¶ 12.) As a result of all of these acts committed by the defendants, the plaintiffs allege that the trust principal has been substantially depleted. The plaintiff Richard Blonstein is a party in this case because he is currently the successor trustee of the subject trust.
On June 25, 2010, the defendants filed a motion to dismiss the claims brought by the plaintiffs Judith Rosenkrantz, Stacey Aronson and Andrew Rosenkrantz. In support of their motion, the defendants also filed a memorandum of law. The defendants move to dismiss the claims of these plaintiffs on the ground that the settlor and beneficiaries of a trust lack standing to bring a lawsuit alleging legal malpractice regarding the management of the trust. According to the defendants, only the trustee has standing to bring causes of action for a trust. Consequently, the defendants are not moving to dismiss Blonstein's claims. On August 23, 2010, the plaintiffs filed a memorandum of law in opposition to the defendants' motion. The defendants filed a reply memorandum on March 1, 2011. On April 4, 2011, the parties appeared before the court and argued this matter at short calendar.
The claims of Richard Blonstein, Trustee are the very same claims made by the other plaintiffs. Consequently, if this motion to dismiss is granted, the case would continue in the name of Blonstein, Trustee as the sole plaintiff.
Discussion
"A motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court . . . A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) Beecher v. Mohegan Tribe of Indians of Connecticut, 282 Conn. 130, 134 (2007). "When a . . . court decides a jurisdictional question raised by a pretrial motion to dismiss, it must consider the allegations of the complaint in their most favorable light . . . In this regard, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader." (Internal quotation marks omitted.) Cogswell v. American Transit Ins. Co., 282 Conn. 505, 516 (2007). "The issue of standing implicates subject matter jurisdiction and is therefore a basis for granting a motion to dismiss . . . [I]t is the burden of the party who seeks the exercise of jurisdiction in his favor . . . clearly to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute . . . It is well established that, in determining whether a court has subject matter jurisdiction, every presumption favoring jurisdiction should be indulged." (Internal quotation marks omitted.) St. Paul Travelers Cos. v. Kuehl, 299 Conn. 800, 808 (2011). "Standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless [one] has, in an individual or representative capacity, some real interest in the cause of action . . . Standing is established by showing that the party claiming it is authorized by statute to bring suit or is classically aggrieved . . . The fundamental test for determining [classical] aggrievement encompasses a well-settled twofold determination: first, the party claiming aggrievement must successfully demonstrate a specific personal and legal interest in the subject matter of the decision, as distinguished from a general interest, such as is the concern of all the members of the community as a whole. Second, the party claiming aggrievement must successfully establish that the specific personal and legal interest has been specially and injuriously affected by the decision." (Internal quotation marks omitted.) Id., 809.
In order to resolve this motion, the court must determine whether the beneficiaries and settlor of a trust have standing to maintain an action against the attorneys who were allegedly negligent in the role as counsel to the trustee of the trust. It should be noted that the plaintiffs' one-count complaint is somewhat ambiguous as to precisely what claim the plaintiffs have brought against the defendants. Given the facts alleged, the complaint could arguably be construed as either a legal malpractice claim against an attorney and his law firms or a breach of fiduciary duty cause of action against a trustee for his mismanagement of the trust. Nevertheless, in their memorandum of law in opposition at p. 5, the plaintiffs state that "the current action is against the Trust's counsel for legal malpractice and not a claim against the trustee for breach of fiduciary duty." (Emphasis in original.) Construing the allegations of the complaint most favorable to the plaintiffs, their interpretation of the legal theory pleaded will be accepted as correct and operative. The legal malpractice theory is evident when one considers that there are not separate allegations against the defendants. All of the liability allegations are directed jointly against all defendants which includes one individual attorney, Mark A Rubenstein, and six limited liability company law firms composed of an unknown number of individual attorneys in addition to Mr. Rubenstein (who is the first named member of each firm). Only one of these defendants, Mark Rubenstein, was the trustee, making it logical that the allegations are meant to state a theory of legal malpractice which would factually apply to all defendants. The motion to dismiss will therefore be addressed in the context of an action for legal malpractice against all defendants.
Although the complaint does allege that defendant Mark A. Rubenstein "established" the Rosenkrantz Irrevocable Children's Trust in approximately 1991 (Complaint, ¶ 8), none of the allegations of wrongdoing concern his services in drafting or establishing the trust. All of the liability allegations go to legal services regarding the management of the trust and the investment of trust assets in the decade after the trust was established.
Just counting the named members of the firms, there are nine attorney defendants including Atty. Rubenstein.
Another more practical indication that breach of trustee fiduciary duties was not the cause of action intended is that the record discloses that only defendant to whom that claim would apply, Mark A. Rubenstein, filed a petition for relief under Chapter 7 of the Bankruptcy Code in the Bankruptcy Court at Bridgeport on July 31, 2010 (Notice of Filing of Bankruptcy, August 5, 2010, No. 104). (Counsel agreed at oral argument that relief from the stay under Section 262 of the Bankruptcy Code has been granted by the Bankruptcy Court to permit this action to proceed in the Superior Court.)
This memorandum of decision will first address the standing of the trust beneficiaries, Stacey Aronson and Andrew Rosenkrantz, to maintain the present action. It is well established that "[a]s a general rule, attorneys are not liable to persons other than their clients for the negligent rendering of services." (Internal quotation marks omitted.) Goodyear v. Discala, 269 Conn. 507, 517 (2004). Accordingly, "to prove any legal malpractice claim, a plaintiff must establish the four necessary elements: (1) an attorney-client relationship; (2) a wrongful act or omission by the attorney; (3) proximate cause; and (4) legal damages . . . Put another way, a plaintiff must prove that there existed an attorney-client relationship and that the client sustained legal injury or damage that proximately was caused by the attorney's wrongful act or omission." (Citation omitted.) Lee v. Harlow, Adams Friedman, P.C., 116 Conn.App. 289, 302 (2009). The complaint does not allege that there was ever an attorney-client relationship between Stacey Aronson or Andrew Rosenkrantz and Attorney Rubenstein or any of the other defendants. Consequently, in order to have standing to bring this legal malpractice claim, Stacey Aronson and Andrew Roskenkrantz must fit within some exception to this general rule.
In their respective memoranda of law, the parties both fail to cite to any Connecticut caselaw — nor has the court's research disclosed any — that precisely addresses the issue of whether the beneficiaries of an irrevocable trust have standing to sue the attorney or attorneys who counseled on trust administration and investment. In support of their position, the defendants primarily rely on the general rule of Superior Court cases holding that only a trustee can maintain an action against a third party for the benefit of a trust or to enforce the rights of a trust. See, Naier v. Beckenstein, Superior Court, Judicial District of Hartford at Hartford, Docket No. CV07-5014236S (May 15, 2008, McWeeny, J.) 2008 Conn.Super Lexis, 1262 (Only the trustee — not the beneficiaries — of a family trust had standing to sue another family trust for fraudulent misrepresentation and other claims relating to a certain settlement). The Naier court did recognize two exceptions to the principle that a beneficiary of a trust is generally not the real party in interest and may not sue in the name of the trust: (1) "[i]f the beneficiary is in possession of the subject matter of the trust, he can maintain such actions against the third person as the person of possession is entitled to maintain ( Id., *7); and (2) [a trust beneficiary's] right to sue is ordinarily limited to enforcement of the trust, according to its terms ( Id., *8). Neither exception applies here. See, also, I'Anson v. Kirstein, Superior Court, Judicial of Ansonia/Milford at Milford Docket No. CV09-4011742S (October 29, 2009, Tyma, J.) 2009 Conn.Super LEXIS 2891 which holds that only the trustee of a landowner-trust has standing to challenge a charter revision of the special tax district in which the trust's property is located, and Bank of New York, Trustee v. Bell, Superior Court Judicial District of Hartford at Hartford, Docket No. CV07-5103037 (November 12, 2009, Satter, J.), 2009 Conn.Super. LEXIS 3087 at *5 (Beneficiaries of the trusts have only an equitable interest in the assets of the trust and cannot bring an action in their names). The plaintiff's memorandum of law in opposition cites to Superior Court cases that permit trust beneficiaries to bring an action against a trustee for breach of fiduciary duties. See Payson v. Adams, Superior Court Judicial District of Fairfield at Bridgeport, Docket No. CV94-0316118S (December 2, 1994, McGrath, J.) 1994 Conn.Super LEXIS 3094 [ 13 Conn. L. Rptr. 133]; and Weiss v. Weiss, Superior Court, Judicial District of Windham at Putnam, Docket No. 0065932S (January 10, 2002, Kocay, J.) 2002 Conn.Super LEXIS 84, appeal dismissed, 76 Conn.App. 901 (2003). These cases are within the exception to the general rule recognized in Naier, supra, and in any event they are totally inapplicable as plaintiff has expressly disclaimed any intent to have this lawsuit construed as an action against the trustee Mark Rubenstein for breach of fiduciary duty. The court will follow and apply the general rule of Naier, I'Anson, and Bell, supra, that trust beneficiaries have no standing to sue third parties to enforce the rights of the trust. This rule derives from the Restatement (second) of Trusts, Chapter Nine Section 281 where the commentary is clearly applicable to this case: "if a third person commits a tort with respect to the trust property, the beneficiary, if he is not in possession, cannot maintain an action at law against him" (quoted in Naier at *7), and is supported generally in legal treatises. See IV Scott, Trusts Section 280 (4th ed.) and 76 Am.Jur.2d, Trusts, Section 672, both cited and discussed by Judge McQueeny in Naier at *8-9.
Plaintiffs attempt to superimpose a concept of tort law onto the law of trusts to overcome the well established principle that the trustee is the real party in interest in dealing with third parties. Plaintiffs cite Stowe v. Smith, 184 Conn. 194 (1981), where the Connecticut Supreme Court held that the plaintiff intended beneficiary could sue the attorney who incorrectly drafted his mother's will when the mother had intended that her son be a beneficiary. The Supreme Court stated that "a person named in an invalid will could recover as an intended third party beneficiary of an attorney-client agreement to prepare that will, if the attorney's error caused the loss." Id., 198-99. This holding is an exception to the well-settled general rule of tort law that "attorneys are not liable to persons other than their clients for the negligent rendering of services." Krawczyk v. Stingle, supra. The exception has been characterized as a ". . . narrow exception — essentially limited to wills only — to the rule that an attorney has no duty to a third party." Continental Casualty Company v. Pullman, Comley, Bradley Reeves, 709 F.Sup. 44, 47, n. 4 (D.Conn. 1989) (Refusing to extend the exception to a claim of an excess insurance carrier against counsel for the primary insurance carrier). In Krawczyk, supra, the court declined to extend the exception to claims of intended beneficiaries of an estate against decedent's attorney for counsel's negligent failure to execute estate planning documents in a timely fashion. "Determining when attorneys should be held liable to parties with whom they are not in privity is a question of public policy . . . In addressing this issue, courts have looked principally to whether the primary or direct purpose of the transaction was to benefit the third party . . . Additional factors considered have included the foreseeability of harm, the proximity of the injury to the conduct complained of, the policy of preventing future harm and the burden on the legal profession that would result from the imposition of liability . . . Courts have refrained from imposing liability when such liability had the potential of interfering with the ethical obligations owed by an attorney to his or her client." (Citations omitted.) Id. 245-46. In paragraph seven of their complaint, the plaintiffs allege that Judith Rosenkrantz hired Attorney Rubenstein "to establish a trust for the benefit of her children, Plaintiffs Stacey Aronson and Andrew Rosenkrantz . . ." Attorney Rubenstein then established the Rosenkrantz Irrevocable Children's Trust in order to implement the desires of the settlor, Judith Rosenkrantz. There is no claim that Atty Rubenstein failed to properly name the plaintiffs Stacey Aronson and Andrew Rosenkrantz as beneficiaries of the trust. Although the name of the trust allegedly includes the word "irrevocable," there is no allegation of the specific terms of irrevocability during the life of Judith Rosenkrantz, who is a living person and a plaintiff in the case. There is no allegation whether or not trust income and or principal should or might be distributed to or invaded by Judith Rosenkratz under any circumstances. There is no allegation of the circumstances under which distributions of interest and/or principal were to be made to Stacey Aronson and Andrew Rosenkrantz, or what would happen in the event of the death of either or both of them before such distribution. Under these circumstances the court cannot say that the legal advice given to the trustee by Atty. Rubenstein and the law firm defendants over a period of ten years had the "primary and direct purpose" of benefitting the plaintiffs or that the plaintiffs have met their burden of showing "the proximity of the injury to the conduct complained of" so as to entitle the plaintiff beneficiaries to an exception to the general rule of attorney liability only to clients, especially when, as here, that exception would be superfluous because the plaintiff's interests are represented by the successor trustee, plaintiff Richard Blonstein, whose standing to make these claims has not been questioned, and who, under the law of trusts, is the only real party in interest to advance these claims.
The "proximity of the injury to the conduct complained of" standard was also a determining factor in allowing the intended beneficiary to sue his mother's lawyer in Stowe v. Smith. In that case the mother had already died and the drafting error was discovered in connection with the probate of her will. In holding that the son had standing, the court said: It therefore follows that the benefit which the plaintiff would have received under a will prepared in accordance with the contract [between the attorney and the mother] is so directly and closely connected with the benefit which the defendant promised to the testratrix that under the allegations of the complaint the plaintiff would be able to enforce the contract." Stowe v. Smith, supra, 184 Conn. at 198.
The next issue for the court to address is whether the settlor, Judith Rosenkrantz, has standing to sue the defendants. In their memorandum of law, the plaintiffs argue that Judith Rosenkrantz has standing because she is the individual who hired Attorney Rubenstein to draft and manage the subject trust. Accordingly, the plaintiffs argue that Judith Rosenkrantz had an attorney-client relationship with the defendants and, as a result, she can state a claim for legal malpractice. Although this argument has some appeal, it ignores the general rule that "[a]fter a settlor has completed the creation of a trust, the settlor is not . . . in any legal relationship with the beneficiaries or the trustee, and has no rights, liabilities or powers with regard to the trust administration . . . A trustee of a private trust is under a duty to follow the instructions of the settlor with regard to implementation of the terms of the trust, but only the beneficiary, not the settlor, may enforce this duty." G. Bogert G. Bogert, Trusts and Trustees (3d Ed. 2007) § 42, pp. 445-48. Furthermore, although "[n]o Connecticut case law specifically addresses the issue of whether a settlor has standing to sue a trustee . . . the majority of states follow the rule that a trust settlor does not have standing to sue a trustee for breach of fiduciary duty unless the settlor retained an interest in the trust property." Peplau v. Roberto, Superior Court, Judicial District of Hartford, Docket No. CV 09 5026591 (November 12, 2010, Sheldon, J.) ( 50 Conn. L. Rptr. 890, 891); see also Weiss v. Weiss, supra, (stating that "[o]nly the beneficiaries of the trust, the cotrustees of a trust or a successor trustee have standing to sue for breach of trust by a trustee. No one other than a beneficiary or one suing on his behalf can maintain a suit against the trustee to enforce the trust"). When quoting a decision from the Utah Supreme Court, Judge Sheldon has stated that when the plaintiff "[is] the creator of the trust . . . [and] he ha[s] divested himself completely of any interest whatsoever in the trust res, and ha[s] not reserved any right or power of revocation therein, any such trust would be irrevocable insofar as he is concerned and he would therefore be without any standing to sue for an alleged breach of trust." (Internal quotation marks omitted.) Peplau v. Roberto, supra, 891. Although the plaintiffs in this action have brought suit for legal malpractice as opposed to breach of fiduciary duty, they are still suing an attorney for the malpractice that he allegedly committed while acting as trustee. Therefore, this case law is instructive.
This treatise has been cited numerous times by the appellate courts of this state, including as recently as 2006. See Ramondetta v. Amenta, 97 Conn.App. 151, 159, 903 A.2d 232 (2006).
When making this statement, Judge Sheldon cites to cases from appellate courts in Alabama, Florida, New York and Utah. See Ex Parte Ingalls, 266 Ala. 45, 48, 93 So.2d 753; Sanders v. Citizens National Bank, 585 So.2d 1064, 1065 (Fla.App. 1991); Webelovsky v. Manufacturers Trust Co., 12 App.Div.2d 793, 793, 209 N.Y.S.2d 564 (1961); Child v. Hayward, 16 Utah 2d 351, 354, 400 P.2d 758 (1965).
In the present case, all of the allegations of wrongdoing on the part of the defendants involve mismanagement of the trust by the trustee. There are no allegations that Attorney Rubenstein negligently drafted the trust or otherwise did not draft the trust in accordance with the wishes of the settlor, Judith Rosenkrantz. Although Judith Rosenkrantz and the defendants certainly had an attorney-client relationship when she obtained their legal services in order to draft a trust for her children, that relationship ended once the trust was formed. "The formal termination of the [attorney-client] relationship occurs when . . . the matter for which the attorney was hired comes to a conclusion . . ." DeLeo v. Nusbaum, 263 Conn. 588, 597 (2003). As a result, Judith Rosenkrantz lost her legal interest in the $1.2 million of funds that were deposited into the trust (Complaint ¶ 8). Accordingly, she lacks standing to sue the defendants for legal malpractice.
CONCLUSION
For all of the reasons stated above, the motion to dismiss is granted as to the claims of the plaintiffs Stacey Aronson, Andrew Rosenkrantz, and Judith Rosenkrantz.