Opinion
HHDCV106008073S.
11-14-2012
Neil STEDMAN et al. v. Caryn STEDMAN.
UNPUBLISHED OPINION
PECK, J.
On January 26, 2012, a court trial was held on a two-count complaint brought by the plaintiffs, Neil Stedman and Nicholas Stedman, against the defendant, their stepmother, Caryn Stedman, who was married to their father, John Stedman, from 1997 until his untimely death from cancer in 2007.
The court finds the following facts. The plaintiffs are the children of John Stedman's marriage to Elizabeth O'Neil. Nicholas Stedman was born on April 28, 1982. Neil Stedman was born on September 20, 1983. In May 1997, John Stedman and Elizabeth O'Neil divorced. As part of the divorce judgment, the court ordered that John Stedman create a trust for the benefit of his sons to be funded by one-half of the proceeds from a then pending medical malpractice action, which arose out of a failure to timely diagnose the cancer that ultimately led to John's demise in February 2007. Shortly after the divorce, John and the defendant married. In May 2001, the medical malpractice action settled for approximately $400,000. At the time of the settlement, Nicholas and Neil were ages 19 and 17, respectively. The defendant was aware that pursuant to the terms of the divorce judgment one-half of the settlement proceeds were to be held in trust for the children. Upon receipt of the proceeds, John and the defendant opened a joint investment account (the " investment account") at People's Bank which was funded with the $400,000. The investment account was not the account that John and the defendant customarily used. Although the investment account was opened through the trust department, it was not designated as a trust account. A few days later, John Stedman created " The Stedman 2001 Trust for Children." John was the settlor of the trust which was funded with one dollar. John and the defendant were designated as co-trustees of the trust which named Neil and Nicholas Stedman as the beneficiaries. At no time was $200,000 set aside in a separate account for the benefit of the plaintiffs; nor was such an amount otherwise added to the corpus of the trust.
The defendant's Exhibit B consists of the investment account quarterly statements dating from June 1, 2001 to September 30, 2007. The statements reflect numerous cash disbursements from the investment account. Prior to the second quarter statement in 2004, disbursements from the account, other than for reinvestment, all contained the following notation: " Disbursed Cash Disbursement by Settle." Beginning with the statement for the third quarter of 2004, the notation for these cash disbursements was changed to: " Disbursed Cash Disbursement by Settle To Caryn W. Stedman." Although the bank statements are somewhat confusing to read, Caryn Stedman was aware that the entire $400,000 settlement proceeds were deposited to open the investment account. Based on this knowledge, there was no basis for the defendant to believe that $200,000 was set aside for the plaintiffs. Her testimony was not credible on this issue.
The balance of the investment account was approximately $135,430 at the time of John's death in February 2007. The defendant closed the investment account approximately seven months after John's death. The balance at the time it was closed was approximately $75,806. The attorney who handled John's estate told the defendant that she was not the beneficiary of John's $150,000 life insurance policy, that the money was going to John's first wife because he never changed the beneficiary after the divorce. The attorney also told the defendant that the trust had not been funded and that the $135,430 remaining in the account was hers. She closed the investment account after the plaintiffs made a claim against John's estate in the Bloomfield Probate Court. The defendant had a power of attorney from John during his life and she was the executrix of his estate.
Over the years, the money from the investment account was used to supplement John's income in order to pay John's and the defendant's living expenses after John was forced to retire because of his declining health and vitality. Some of the money was also used to supplement the living expenses of the plaintiffs while they were in school. The plaintiffs had a great relationship with their father. John's parents financed the plaintiffs' private school education, including college. John had three courses of treatment with Interferon which was expensive and only partially reimbursed by health insurance. After John's death, the defendant used money from the account to pay John's outstanding bills and only learned later on that it was not her obligation to do so. She paid off bills for joint credit card accounts as well as the accounts in John's name only. She did not invest any of the money for her own benefit.
In June 15, 2006, when Nicholas graduated from officer candidate school in Georgia, John told both Neil and Nicholas that " everything was good to go" with the trust. Neither Nicholas or Neil ever spoke to the defendant about the trust and she was not present during any conversation with anyone else about the trust. Nicholas and Neil believed what their father told them and trusted him. They also trusted the defendant not to do anything to harm them. John was essentially wheelchair bound for the last six months of his life. There was no evidence that funds from the investment account were the source of any specific asset currently held by the defendant. There is no evidence that the defendant hid from the plaintiffs any disbursement from this account. There is also no evidence that the defendant controlled the disbursements from the investment account to the exclusion of John. At no time, prior to this lawsuit, have the plaintiffs requested an accounting of the trust assets.
In count one of their complaint, the plaintiffs claim that the defendant breached her fiduciary duty as trustee by failing to inform them about the funds held in the trust, by hiding numerous distributions made from the account, by failing to prevent her fellow trustee (John) from using the plaintiffs' trust money for his own use and benefit and by failing to use the assets of the trust for the plaintiffs' benefit. The plaintiffs also claim that the defendant fraudulently concealed her misuse of the trust assets from 2001 until the present.
Although the plaintiffs allege fraudulent concealment on the part of the defendant, there has been no evidence or proposed finding in connection with this claim; nor has it been briefed or argued by the plaintiffs. Accordingly, the court considers the fraudulent concealment claim to be abandoned.
In count two of the complaint, the plaintiffs claim that the defendant knew that at least $200,000 of the money in the investment account was the property of the plaintiffs, and, despite this knowledge, the defendant converted the money for her own use. They further allege, upon information and belief, that the defendant acquired assets with the income and principal of the account to their loss, which she should restore to the trust.
The defendant raised four special defenses including the statute of limitations. Each special defense was denied by the plaintiffs. Although the defendant did not recite a specific statute of limitations in her special defense, her post-trial memorandum specifies the three-year general tort statute of limitations set forth in General Statutes § 52-577.
The other three special defenses (failure to state a claim, laches and unclean hands), were not briefed or argued and the court considers them to be abandoned.
At trial, the witnesses were the plaintiffs and the defendant. The full exhibits included the investment account statements and other bank documents, the divorce judgment as between John Stedman and Elizabeth O'Neil, an affidavit of Elizabeth O'Neil, now deceased, the trust document and a calculation of the plaintiffs' claimed damages. The issues before the court are essentially as follows: (1) whether the defendant, as co-trustee, owed a fiduciary duty to the plaintiff beneficiaries to fund, hold, invest, manage, distribute and account for the trust funds for their benefit and, if so, whether the defendant breached that duty; 2) whether the actions of the defendant, as trustee, constituted conversion, and, if so, whether to impose a constructive trust.
I
COUNT ONE: BREACH OF FIDUCIARY DUTY
" The essential elements to pleading a cause of action for breach of fiduciary duty under Connecticut law are: (1) That a fiduciary relationship existed which gave rise to (a) a duty of loyalty on the part of the defendant to the plaintiff, (b) an obligation on the part of the defendant to act in the best interests of the plaintiff, and (c) an obligation on the part of the defendant to act in good faith in any matter relating to the plaintiff[; ] (2) That the defendant advanced his or her own interests to the detriment of the plaintiff; (3) That the plaintiff sustained damages; (4) That the damages were proximately caused by the fiduciary's breach of his or her fiduciary duty." (Internal quotation marks omitted.) Everett v. Everett, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 10 6004013 (December 16, 2010, Adams, J.).
" It is well settled that a fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other ..." (Internal quotation marks omitted.) Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 38, 761 A.2d 1268 (2000).
" In the seminal cases in which this court has recognized the existence of a fiduciary relationship, the fiduciary was either in a dominant position, thereby creating a relationship of dependency, or was under a specific duty to act for the benefit of another." Id . On the other hand, " [i]n the cases in which this court has, as a matter of law, refused to recognize a fiduciary relationship, the parties were either dealing at arms length, thereby lacking a relationship of dominance and dependence, or the parties were not engaged in a relationship of special trust and confidence." Id., at 39. Furthermore, " [t]he law will imply [fiduciary responsibilities] only where one party to a relationship is unable to fully protect its interests [or where one party has a high degree of control over the property or subject matter of another] and the unprotected party has placed its trust and confidence in the other." (Internal quotation marks omitted.) Id., at 41. " One of the most fundamental duties of the trustee is that he must display throughout the administration of the trust complete loyalty to the interests of the cestui que trust. He must exclude all selfish interest and also all consideration of ... third persons ... He must not put himself in a position where self interest may conflict with his duties as trustee." (Citations omitted; internal quotation marks omitted.) Phillips v. Moeller, 148 Conn. 361, 369, 170 A.2d 897 (1961); see also Hall v. Schoenwetter, 239 Conn. 553, 559, 686 A.2d 980 (1996) (" A trustee must always be loyal to his trust").
" The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him ... " Once a [fiduciary] relationship is found to exist, the burden of proving fair dealing properly shifts to the fiduciary." (Citation omitted; internal quotation marks omitted.) Konover Development Corp. v. Zeller, 228 Conn. 206, 219, 635 A.2d 798 (1994).
The trust instrument, denominated, " The Stedman 2001 Trust for Children" (Plaintiff's Exhibit 2), names John Stedman as the settlor, and he and the defendant as co-trustees. The trust then goes on to describe the fiduciary powers and duties of the trustees. The trust states that " [t]he trustees ... are authorized ... to receive additional property or cash from any person ... including the settlor, and such ... cash shall thereupon become a part of the trust corpus listed on schedule A." It goes on to state that " the trustees shall hold, invest and reinvest ... pay to or for the benefit of [the beneficiaries]." Section 1 of the trust provided the trustees with all the powers set forth in General Statutes § 45a-234 of the fiduciary powers act, along with the powers in General Statutes § 45a-235 (excluding subparagraph 2).
Schedule A lists the trusts assets as one dollar. There is no evidence it was ever amended to reflect the $200,000 in medical malpractice proceeds.
The trust instrument and the statutes referenced create a series of duties the trustee owes to the plaintiffs. In Connecticut, any amount, even a nominal one, is enough to fund a trust. R. Folsom & G. Wilhelm, Revocable Trusts and Trust Administration in Connecticut § 8-2 (2003) (latest supplement 2011). The trust in this case was funded with a nominal amount of one dollar. It was not funded with the money promised to the plaintiffs by virtue of the John Stedman/Elizabeth O'Neil divorce decree. Pursuant to this decree and his status as settlor of " The Stedman 2001 Trust for the Children, " it was John Stedman's obligation and apparent initial intention to place the proceeds of his medical malpractice action into a trust for the plaintiffs as promised.
A trustee who is not the settlor of the trust has no duty to fund the trust. While the defendant was not the settlor of the trust and, therefore, had no duty to fund the trust herself, the issue is whether as co-trustee of a trust that contemplated a $200,000 corpus derived from the settlement proceeds of John's medical malpractice case, the plaintiff had a fiduciary obligation to safeguard a fund of money, originally consisting of $200,000, over which she had control and which she knew was clearly contemplated to be held in a trust for which she was the co-trustee. While the investment account was technically not set up as a trust account, there is no question that one-half of the money with which it was funded ($200,000), was intended, by the defendant's own testimony and other undisputed evidence, to form the body of the trust. Accordingly, the court finds that the plaintiffs have established by a preponderance of the evidence that the defendant's failure to safeguard this money for the plaintiff beneficiaries of the trust constituted a breach of her fiduciary duty as trustee. This is so even though she did not take the money for herself but expended it on behalf of her terminally ill husband and in payment of his debts including those stemming from the expenses of his last illness. A trustee " must exclude all selfish interest and also all consideration of ... third persons ... [She] must not put [her]self in a position where self interest may conflict with h[er] duties as trustee." Phillips v. Moeller, supra, 148 Conn. at 369. " A trustee must always be loyal to his trust." Hall v. Schoenwetter, supra, 239 Conn. at 559.
To the extent that the burden was on the defendant to prove her fair dealing with the plaintiffs, she has failed to meet that burden. See Konover Development Corp. v. Zeller, supra, 228 Conn. at 219. On the other hand, the plaintiffs have established, by a preponderance of the evidence, that the defendant breached her fiduciary duty to them as co-trustee of a trust established for their benefit when she, individually, or in combination with John Stedman, failed to safeguard the fund of money $200,000, which she knew was meant to form the corpus of the trust, and, in fact, used that money for her own benefit and for the benefit of John Stedman or his estate.
A
Accounting
The plaintiffs also claim that the defendant as trustee had a duty to give the defendants an accurate accounting of the trust assets. Under the heading " accountings-power in trust" the trust states: " The trustees may, in their absolute discretion, at any time and from time to time, render an account of their transactions as trustees with respect to the trust herein created to the beneficiaries of the trust ... The records of the trustees shall be open at all reasonable times to the inspection of the beneficiaries or their accredited representative." (Emphasis added .)
In the present action, the trust agreement leaves rendering an accounting of the trust assets to the absolute discretion of the trustees. The trust also provides that in the event the trustees do not provide an accounting, the beneficiaries or their representative can inspect the trust records. Therefore, the defendant, as trustee, had no duty to provide an accounting to the plaintiffs as it was a discretionary function. There was no evidence presented that the plaintiffs ever requested an accounting of the trust. Thus, the plaintiffs have failed to prove by a preponderance of the evidence that the defendant breached her fiduciary duty by failing to provide them with a trust accounting.
B
Constructive Trust
The plaintiffs also argue that the trust instrument and bank account created a constructive trust over which the defendant was the trustee. " A constructive trust arises contrary to intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment or questionable means, or who has in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy ... [Therefore, a] constructive trust arises whenever another's property has been wrongfully appropriated and converted into a different form ... [or] when a person holds title to property is subject to an equitable duty to convey it to another on the ground that [she] would be unjustly enriched if [she] were permitted to retain it." (Internal quotation marks omitted.) Cadle Co. v. Gabel, 69 Conn.App. 279, 288, 794 A.2d 1029 (2002). " [T]o impose a constructive trust, the court must find the existence of fraud, misrepresentation, imposition, circumvention, artifice or concealment, or abuse of confidential relations." (Internal quotation marks omitted.) Jarvis v. Lieder, 117 Conn.App. 129, 144, 978 A.2d 106 (2009).
" A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee." (Internal quotation marks omitted.) New Hartford v. Connecticut Resources Recovery Authority, 291 Conn. 433, 466, 970 A.2d 592 (2009).
The questions for the court on the issue of constructive trust are essentially twofold. First, did the defendant " by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment or questionable means" obtain the funds in the investment account? Or has the defendant " obtained the legal right to property which [she] ought not, in equity and good conscience, hold and enjoy?" While the defendant may not have initially obtained the funds deposited in the investment account by any wrongful conduct, over time she did use (and convert, as addressed further in this memorandum), $200,000 of those funds within her control which she ought not to have done in equity and good conscience. Therefore, although the court cannot find that she acted with wrongful intent to harm the plaintiffs by her actions in the course of her ownership of the investment account, although that account was not a trust account, a constructive trust arose for the benefit of the plaintiffs as the defendant did wrongfully [appropriate] or [convert] the funds in question to the use and benefit of herself and John Stedman. Although the plaintiffs did not claim or prove " unjust enrichment" by the defendant, nonetheless the evidence reflects that she had a clear conflict of interest in that she did retain and use a fund of money for which she had a fiduciary obligation to safeguard on behalf of the plaintiffs. Accordingly, the court finds that the investment account was a constructive trust to be held for the benefit of the plaintiffs to the extent of the original $200,000 and that the defendant wrongfully dispensed the assets for her own use benefit and that of her husband. The investment account no longer exists, however, and no evidence was presented that traced the funds from this account to any other tangible or identifiable assets or fund of money over which this court could impose a constructive trust, and therefore, the court has no ability to order this remedy and declines to do so. With respect to the judgment entered in favor of the plaintiffs in the conclusion of this memorandum of decision, the plaintiffs are left to resort to the remedies available to other judgment creditors.
The plaintiffs did not present evidence that the plaintiff used the money for any purposes other than what she stated in the course of her testimony. She testified that the money was used in significant part for living and household expenses, supplemental medical expenses for John's cancer treatment, other expenditures in aid of the comfort of her dying husband and for the payment of outstanding bills at the time of John's death. The defendant further testified that some of the funds in the investment account went to supplement the college and living expenses of the plaintiffs. There was no evidence that the defendant otherwise invested or otherwise expended any portion of these funds for her own enjoyment, in the classic sense.
II
COUNT TWO: CONVERSION
The second count of the complaint alleges conversion. The plaintiffs reallege many of the allegations contained in count one and rely on the following evidence in support of their claim of conversion. The investment account contained sufficient money to fulfill John Stedman's obligation to place half of the proceeds of his malpractice settlement into a trust for the plaintiffs. The defendant owed a fiduciary duty to, inter alia, fund the trust. The defendant knew that $200,000 of the money in the investment account was intended for the trust; yet converted it for her own use.
" The tort of [c]onversion occurs when one, without authorization, assumes and exercises ownership over property belonging to another, to the exclusion of the owner's rights." (Emphasis in original; internal quotation marks omitted.) Hi-Ho Tower, Inc. v. ComTronics, Inc., supra, 255 Conn. at 43. Thus, " [c]onversion is some unauthorized act which deprives another of his property permanently or for an indefinite time; some unauthorized assumption and exercise of the powers of the owner to his harm. The essence of the wrong is that the property rights of the plaintiff have been dealt with in a manner adverse to him, inconsistent with his right of dominion and to his harm ... The term owner is one of general application and includes one having an interest other than the full legal and beneficial title ... The word owner is one of flexible meaning, and it varies from an absolute proprietary interest to a mere possessory right ... It is not a technical term and, thus, is not confined to a person who has the absolute right in a chattel, but also applies to a person who has possession and control thereof." (Citation omitted; internal quotation marks omitted.) Label Systems Corp. v. Aghamohammadi, 270 Conn. 291, 329, 852 A.2d 703 (2004).
It is clear from a comparison of the elements of statutory theft and conversion that a defendant does not need intent to commit conversion. " [S]tatutory theft requires an intent to deprive another of his property ... conversion requires the owner to be harmed by a defendant's conduct. Therefore, statutory theft requires a plaintiff to prove the additional element of intent over and above what he or she must demonstrate to prove conversion." (Internal quotation marks omitted.) Rana v. Terdjanian, 136 Conn.App. 99, 114 (2012). In this case, there was no claim and no evidence of statutory theft.
The plaintiffs must establish, however, legal ownership or right to possession of specifically identifiable moneys. Macomber v. Travelers Property & Casualty Corp., 261 Conn. 620, 650, 804 A.2d 180 (2002). " [A]n action for conversion of funds may not be maintained to satisfy a mere obligation to pay money ... It must be shown that the money claimed, or its equivalent, at all times belonged to the plaintiff and that the defendant converted it to his own use." Id. (Emphasis in original.)
The court finds, by a preponderance of the evidence, that the plaintiffs had a beneficial interest in $200,000 of which the defendant had unquestionable knowledge. The money claimed by the plaintiffs was in the bank account from which the defendant was withdrawing funds. Pursuant to the divorce decree, John Stedman owed the plaintiffs half of the medical malpractice settlement. Once John Stedman received the settlement he had an obligation to safeguard $200,000 according to the terms of the divorce agreement for the benefit of the plaintiffs. As co-owner of the investment account, the defendant assumed control over those funds to the exclusion of the plaintiffs, funds which she knew to be rightfully theirs. To the extent that she and John Stedman knew that $200,000 was the property of the plaintiffs and used those funds as if they were their own, it constituted conversion.
III
STATUTE OF LIMITATIONS
Although the defendant asserts that the plaintiffs' claim is barred by the three-year statute of limitations set for in General Statutes § 52-577, the court rejects this special defense. The plaintiffs' complaint alleges a breach of fiduciary duty and conversion by the defendant that continued at least until the investment account was closed in September 2007 and continuing thereafter by virtue of the defendant's failure to return the funds claimed by the plaintiff. This lawsuit was commenced by service of process on February 20, 2010. In her post-trial memorandum, the defendant assumes that the basis of the plaintiffs' claim of conversion is that possession of their funds was wrongful at the outset, dating back to 2001. Although the plaintiffs' allegations are sweeping, they allege breach of fiduciary duty and conversion which occurred over time. For this reason and because the basis of the defendant's statute of limitation defense is lacking in sufficient detail or proof to sustain the defendant's burden of proof on this issue, the court hereby rejects it.
IV
DAMAGES
The plaintiffs claim damages in the amount of $200,000 plus simple interest in the amount of six (6) percent per annum, from June 2001 through June 2012. The defendant has not challenged the rate of interest sought. Since the plaintiffs were entitled to $200,000 dating back to the receipt of the settlement proceeds and any interest or return on investment of those funds, the court finds that six (6) percent simple interest is fair and reasonable under all the circumstances. Pursuant to the calculations of the plaintiffs as set forth in Plaintiffs' Exhibit 3, the court hereby awards interest in the amount of $126,000 ($12,000 per year for 111/2 years) for a total damage award of $326,000.
Finally, although the defendant argues that pursuant to the terms of Section 6— Liability of Trustee she cannot not be held liable for the acts of her co-trustee, in accordance with this memorandum of decision, she is being held liable for her own acts or omissions as proven by a preponderance of the evidence at trial.
CONCLUSION
Accordingly, for all the foregoing reasons, judgment is hereby ordered in favor of the plaintiffs in the amount of $326,000, plus costs. Further, postjudgment interest is ordered to accrue on the judgment at the rate of six (6) percent per annum.