Opinion
1684 CV 2373 137993
08-14-2017
Deborah A. Clayman, Individually and as Trustee, and Richard E. Mastrocola, Trustee [1] v. John T. McLaughlin et al
Filed August 15, 2017
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS
Edward P. Leibensperger, Justice of the Superior Court.
The widow of a real estate entrepreneur sues several individuals and entities following the death of her husband. The Second Amended Complaint (" SAC" ) alleges breach of fiduciary duty, aiding and abetting tortious acts, tortious interference with a contractual relationship and conversion. To briefly summarize the SAC, the widow alleges at least three wrongful acts or series of acts. First, she claims that the individual selected by her husband to be his executor (personal representative) and trustee of his revocable trust, upon the husband's death, breached fiduciary duties to her as a beneficiary and co-trustee. Second, she alleges that the brother/business partner of her husband schemed with the executor to diminish what she was to receive under her husband's estate planning documents. Third, she alleges that defendants are, to this day, refusing to pay to her trust amounts owed after the sale of a property and are, thus, converting those proceeds. Defendants move to dismiss arguing that the SAC fails to state a claim upon which relief can be granted. To address the arguments, the stage must be set from the facts as alleged in the SAC, including the documents attached or referenced in the SAC.
BACKGROUND
Deborah A. Clayman married Richard I. Clayman in 2005. In connection with their marriage, Deborah and Richard entered into a Prenuptial Agreement dated October 13, 2005. Subsequently, Richard executed a Will and a Revocable Trust on January 25, 2006. Richard's Will names defendant, John T. McLaughlin, as his executor (personal representative). Under the Revocable Trust, McLaughlin is named as trustee. These instruments, read together, detail Richard's intent with respect to what Deborah should receive after Richard's death.
Mr. and Mrs. Clayman, as well as other Clayman family members, will be referred to by their first names to avoid confusion.
All of these instruments are attached to the SAC and, thus, may be considered on a motion to dismiss. Schaer v. Brandeis University, 432 Mass. 474, 477, 735 N.E.2d 373 (2000).
McLaughlin was a trusted friend of Richard's. He is a lawyer and a partner in the defendant law firm, Berluti McLaughlin & Kutchin, LLP.
A. Estate Plan Instruments
The relevant terms of the Prenuptial Agreement are the following. Richard's interests in nine real estate investments are defined as " Separate Property." Richard's interest in the real estate project known as Revere Beach at Oak Island is defined as " Marital Property." One of the properties listed as Separate Property is Richard's residence at 615 Revere Beach Boulevard, Revere. With respect to that property, Richard expressly agrees that upon his death Deborah shall be entitled to receive the Revere residence outright and free of encumbrances.
The Prenuptial Agreement also contains the following provision for the division of Richard's property after Richard's death:
Deborah shall be entitled to receive the annual income from property of an amount equal to Two Million Dollars ($2,000,000), provided that such property shall be held in a Qualified Terminable Interest Property Trust, as defined in § 2056(b)(7) of the Internal Revenue Code of 1986, as amended, for the sole benefit of Deborah. The choice of the specific property to be held in trust for Deborah shall be made in the sole discretion of the Executor of Richard's estate and Trustees of such Trusts. Deborah shall be entitled to be a co-Trustee of such Trust, but shall have no authority to make distributions of principal. Deborah shall be entitled to receive income from such Trust at least as often as quarterly.
Prenuptial Agreement, Article III, A, 3(c)(ii). Finally, the Prenuptial Agreement provides that if either party breached any provision of the agreement, " the breaching party or his or her estate shall indemnify the other party and make the other party whole as if no such breach had taken place with respect to this Agreement." Id. at III, C.
Richard's Will makes explicit reference to the Prenuptial Agreement. The Will provides that all of Richard's interest in the Revere residence go to Deborah, free of any mortgages. All of Richard's Separate Property, other than the Revere home, is bequeathed to Richard's Revocable Trust. McLaughlin is appointed as Richard's Executor. The Executor is given broad power and discretion. Specifically, with respect to Richard's interest in the real estate listed as Separate Property, the Will provides that the Executor shall not be held liable for any action or omission, except for willful default or bad faith, in retaining, selling or otherwise dealing with such interest.
Richard executed the Revocable Trust on the same day as his Will. The Revocable Trust provides that upon Richard's death, McLaughlin shall serve as trustee. The Revocable Trust is the vehicle used to pour the assets of that trust into two subtrusts--Deborah's Trust and the Family Trust. With respect to the subtrust called Deborah's Trust, the Revocable Trust provides that " if property is held on the terms of Deborah's Trust under paragraph 5, Deborah may serve as a co-trustee of Deborah's Trust." Revocable Trust, § 9.1.
With respect to Deborah's Trust the Revocable Trust provides as follows:
My trustee shall set aside the sum of Two Million Dollars ($2,000,000) and deal with that sum under paragraph 5 as a separate trust known as " Deborah's Trust." This provision is intended to establish the Qualified Terminable Interest Property Trust described in Article III, Paragraph A(3)(c)(ii) of the Prenuptial Agreement and Deborah's Trust is intended to satisfy the requirements thereof.
Revocable Trust, § 4.1(b). The remaining property that flowed into the Revocable Trust from the Will is, pursuant to the terms of the Revocable Trust, put into a subtrust called the Family Trust. The beneficiary of the Family Trust is Kate Clayman, Richard's daughter by a previous marriage.
Under § § 5.1 and 5.2 of the Revocable Trust describing Deborah's Trust, Deborah is to receive the income produced by the principal in Deborah's Trust for her lifetime. Upon Deborah's death, after payment of estate taxes, the trustee is instructed to pay the principal into the Family Trust. The trustee is given discretion to pay Deborah, during her lifetime, all or part of the principal of Deborah's Trust.
The Revocable Trust contains the following provision with respect to the trustee's discretion:
Whenever my trustee " may" pay income or principal to a beneficiary or group of beneficiaries, my trustee shall have the absolute discretion to make the payments at any time to one or more of those beneficiaries, in any amounts and proportions and for any purposes, except as specifically provided otherwise, as my trustee considers advisable.
Revocable Trust, § 8.1.
Deborah was given the power to remove any trustee of Deborah's Trust upon 30 days notice. Under the terms of the Revocable Trust, each appointment, removal, resignation, acceptance or notice regarding the trustees shall be in writing and shall be given to all of the trustees.
Section 9.6 of the Revocable Trust recognizes that the subtrust may include assets that are shares of stock or other ownership interests in closely held businesses. These interests are defined as " Closely-Held Interests." Section 9.7 describes the liability of a trustee for dealing with Closely-Held Interests. Section 9.7(a) states that " [n]o trustee shall be liable for any action or omission, except for willful default or bad faith, in retaining, selling or otherwise dealing with an interest in the " Closely-Held Interests." Section 9.10(b) of the Revocable Trust states that " [a]ny account of the trustee of any trust under this agreement shall be conclusive, except for fraud or manifest error, on all Parties in interests, whether or not of full age or in being or in being or ascertained, if assented to . . . by Deborah . . ."
The Revocable Trust contains special provisions regarding Deborah's Trust so as to qualify it for the federal marital deduction from estate tax. The Trust expresses Richard's intent for the trustee to administer the property to qualify for the marital deduction and directs the trustee to allocate property to Deborah's Trust so as to constitute qualified terminable interest property. In Section 11.1(c) the trustee is instructed that he " may purchase or retain property that is unproductive of income in any trust under this agreement, except that my trustee shall make any unproductive property in Deborah's Trust productive or converted into productive property within a reasonable time after receiving a written request to do so from Deborah."
This provision is consistent with the Prenuptial Agreement where it referenced Deborah's entitlement to property to be held in a Qualified Terminable Interest Property Trust, called a " Q-Tip" Trust.
B. After Richard's Death
Richard died on May 1, 2013, McLaughlin was appointed as executor of Richard's estate and became trustee of the Revocable Trust. As executor, McLaughlin was charged to convey Richard's interest in the Revere residence to Deborah free of all encumbrances. As trustee, McLaughlin was charged with allocating property in an amount equal to $2 million to Deborah's Trust in a manner to qualify for and be maintained as a Q-Tip Trust.
Claim for Reimbursement of Attorneys Fees
According to the SAC, the first disagreement between Deborah and McLaughlin concerns the conveyance of the Revere residence. In breach of the Prenuptial Agreement, Richard had, during his life, conveyed an interest in the Revere residence to a third party. After Richard's death, McLaughlin, as executor, worked to recover from the third party the property interest in the Revere residence and to convey the Revere residence to Deborah free and clear. Ultimately, McLaughlin was successful. Deborah, however, had engaged her own attorney to advise her with respect to obtaining her unencumbered interest in the Revere residence. Deborah requested that McLaughlin, as executor, cause the estate to reimburse her for the fees that she incurred. Deborah's request was based upon the portion of the Prenuptial Agreement that expressly made the estate of Richard liable to indemnify Deborah for any breach of the agreement and to make her " whole as if no such breach had taken place . . ." McLaughlin, however, refused to indemnify Deborah. Deborah sues to recover from McLaughlin alleging that his refusal to indemnify is a breach of fiduciary duty.
Claims Arising from Allocation of Property to Deborah's Trust
Under the terms of the Revocable Trust, McLaughlin was obligated to fund Deborah's Trust with property worth $2 million. According to the SAC, McLaughlin, on August 1, 2014, conveyed minority interests in some of Richard's Closely-Held Interests (i.e. LLCs or other entities owning interests in real estate projects). Although not mentioned explicitly in the SAC, defendants attach to their motion papers a copy of McLaughlin's July 31, 2014, letter to Deborah that describes the transfers of property interests he intended to execute to fund Deborah's Trust. The next day, the property interests were transferred. Deborah then removed McLaughlin as a trustee of Deborah's Trust on November 25, 2014.
The SAC alleges that McLaughlin " willfully operated in bad faith by putting his own self interest above the interests of Deborah to whom he owed a duty of loyalty" in connection with allocating property interests to Deborah's Trust. SAC, ¶ 119. In support of that assertion, Deborah points to the following alleged facts. The Closely-Held Interests owned by Richard were held, in most instances, in 50/50% ownership with Richard's brother, Steven Clayman. " In the summer of 2014 and no later than August 2014 and without the knowledge of Plaintiffs" Steven and the Closely-Held Interests became clients of McLaughlin and his law firm. SAC ¶ 93. McLaughlin consulted with Steven regarding what properties McLaughlin should select from the Revocable Trust to fund Deborah's Trust. Steven expressed to McLaughlin that, in his opinion, Richard's intent to provide $2 million worth of property to Deborah's Trust was too generous. It is alleged that McLaughlin followed Steven's directions regarding the funding of Deborah's Trust. SAC ¶ 108.
Notwithstanding the provision in the Revocable Trust directing the trustee to deliver $2 million to Deborah's Trust in accordance with the Prenuptial Agreement, Article III, Paragraph A(3)(c)(ii), whereby the " choice of specific property to be held in trust for Deborah shall be made in the sole discretion of the Executor of Richard's estate and Trustees [which would include Deborah] of such Trusts" (emphasis added), McLaughlin unilaterally selected specific properties in which he transferred only a portion of Richard's interest to Deborah's Trust. McLaughlin failed to consult with Deborah before executing the allocation. McLaughlin did not obtain Deborah's consent to the choices of property. Instead, he presented the funding of Deborah's Trust to her on July 31, 2014, as a fait accompli. McLaughlin allegedly selected partial interests in properties that would not produce significant income. In addition, by splitting Richard's 50% interest between Deborah's Trust and the Family Trust, the allocation guaranteed that the trusts held minority positions with no ability to affect management decisions, including decisions to produce income rather than to invest for growth in principal. Richard and Steven controlled their real estate investments though a management company called 5C, Inc. It is alleged that 5C, Inc. was the entity that made decisions about the amount of any possible income distributions to owners. McLaughlin chose not to allocate any of Richard's 50% interest in 5C, Inc. to Deborah's Trust. In addition, McLaughlin agreed to changes in the operating agreements of the entities constituting the Closely-Held Interests " that further disenfranchised [Deborah] and specifically benefitted [Steven]." SAC, ¶ 109. Finally, McLaughlin allegedly used inadequate and improper evaluations of the property interests allocated to the Deborah Trust resulting in a failure fully to fund the $2 million value of property required by the Revocable Trust. McLaughlin's conduct, it is alleged, was motivated by his interest to obtain and retain legal representation of Steven and the various real estate entities. The result of the alleged breaches of fiduciary duty was that the income from Deborah's Trust (intended by Richard to flow from $2 million worth of property) was less than $25,000 annually.
A Q-tip Trust, such as Deborah's Trust, is premised on the requirement that the surviving spouse may direct that the principal in the trust be converted to income producing property. By transferring to Deborah's Trust minority interests in all the properties transferred, and not even one property with Richard's 50% interest, McLaughlin allegedly deprived Deborah of any ability to affect what income would or could be distributed.
The allegations regarding McLaughlin's conduct, allegedly at the behest of Steven, regarding the choice of property interests to fund Deborah's Trust are the basis of Deborah's claims, as trustee of Deborah's Trust, and individually, that McLaughlin breached fiduciary duties and acted in bad faith. In addition, these allegations are the basis for the claims against Steven for intentional interference with contract (the Prenuptial Agreement) and McLaughlin for aiding and abetting the tort of interference with contract.
Claim for Conversion
The SAC alleges conversion with respect to the interest of Deborah's Trust in a property called Nesmith Park, LLC. In short, Deborah claims that Nesmith sold its real estate holdings in November 2015 for $6.8 million. On April 6, 2017, Nesmith informed Deborah's Trust that it intended to make a distribution to its members of $1,256,092 as a return of capital, " intended to cover the federal tax liability of all Members." SAC, Ex. P. The portion of the return of capital attributed to Deborah's Trust was $281,787. Nevertheless, while Nesmith distributed the return of capital to other members of the LLC, it only returned to Deborah's Trust a portion of the return of capital. Nesmith unilaterally decided to keep $182,638 belonging to Deborah's Trust in an escrow account because Nesmith did not have " any desire to become embroiled in a dispute between the Marital [Deborah's] Trust and the Family Trust." The SAC alleges that by these actions Nesmith wrongfully exercised dominion and control over property of Deborah's Trust and therefore converted the amount not distributed. Exhibit P to the SAC is a letter on the letterhead of C.C. Real Investments, Inc. The letter is signed by Thomas O. Levenberg, President of C.C. Real Investments, Manager of Nesmith Park, LLC. On that basis, plaintiffs allege that C.C. Real Investments, Inc. is also liable for conversion. Deborah's Trust also cites these events as further evidence of McLaughlin's breach of fiduciary duty because McLaughlin was acting as legal counsel to C.C. Real Investments, Inc. at this time when he allegedly still owed fiduciary duties to Deborah's Trust arising from being trustee of Richard's Revocable Trust.
DISCUSSION
A motion to dismiss for failure to state a claim upon which relief may be granted under Mass.R.Civ.P. 12(b)(5) permits " prompt resolution of a case where the allegations in the complaint clearly demonstrate that the plaintiff's claim is legally insufficient." Harvard Crimson, Inc. v. President & Fellows of Harvard Coll., 445 Mass. 745, 748, 840 N.E.2d 518 (2006). To survive a motion to dismiss, a complaint must set forth the basis for the plaintiff's entitlement to relief with " more than labels and conclusions." Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, 888 N.E.2d 879, quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). At the pleading stage, Mass.R.Civ.P. 12(b)(6) requires that the complaint set forth " factual 'allegations plausibly suggesting (not merely consistent with)' an entitlement to relief . . ." Id., quoting Bell A. Corp., 550 U.S. at 557. The court must, however, accept as true the allegations of the complaint and draw every reasonable inference in favor of the plaintiff. Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 676, 940 N.E.2d 413 (2011). With respect to a statute of limitations defense at the Rule 12(b)(6) stage, the facts in the complaint must " clearly reveal that the action was commenced beyond the time constraints of the statute of limitations." Epstein v. Seigel, 396 Mass. 278, 279, 485 N.E.2d 947 (1985).
A. Motion to Dismiss by McLaughlin and Berluti McLaughlin & Kutchin LLP
The law firm makes no argument for dismissal other than the arguments asserted by McLaughlin. At this stage, the law firm appears to assume that if McLaughlin is held to respond to the allegations of the SAC, then so should the firm on the basis of potential vicarious liability.
The allegations of the SAC against McLaughlin must be accepted as true at this stage of the litigation. I find that the allegations reasonably outline a claim by Deborah and Deborah's Trust for breach of fiduciary duty. With respect to the allegations concerning the allocation of property interests into Deborah's Trust, the SAC adequately pleads that McLaughlin acted in bad faith. All of these allegations remain to be proven.
McLaughlin's motion to dismiss makes two arguments with respect to the adequacy of the allegations in the SAC. He argues (a) that the SAC does not sufficiently allege a theory of damages, and (b) that the claim of willful bad faith is not stated with particularity. Both arguments are rejected.
As to damages, the pleading threshold is very low. Plaintiffs do not have to explicate a particular amount of damages or a potential calculation of damages. Instead, at this stage the SAC must reasonably show that Deborah and Deborah's Trust were harmed by McLaughlin's alleged conduct. The SAC meets this test as the allegations reasonably suggest that but for the alleged conduct, Deborah's Trust would have been in a better position to produce a higher level of income from the assts used to fund the trust. McLaughlin cites no authority, nor could he, for the proposition that a trustee is immune to personal liability for damages caused by his breach of fiduciary duty to the trust and its beneficiary.
McLaughlin cites Mass.R.Civ.P. 9(b) for the argument that plaintiffs' claims of breach of fiduciary duty, including willful bad faith, must be pleaded with particularity. The rule does not, however, include breach of fiduciary duty as one of the averments that must be pleaded with particularity. Indeed, the rule goes on to say that " [m]alice, intent, knowledge, and other condition of mind of a person may be averred generally." In any event, however, I find that the allegations are sufficiently particular (indicating the time, place and persons involved in the alleged acts) to satisfy the pleading requirement. To repeat, the court must accept plaintiffs' allegations as true at this stage of the case.
The lead arguments in McLaughlin's motion to dismiss are that plaintiffs' claims against him and his law firm are time barred. As referenced above, to succeed on a motion to dismiss based upon a statute of limitations defense the moving party must be able to point to facts in the SAC that " clearly reveal that the action was commenced beyond the time constraints of the statute of limitations." Epstein v. Seigel, 396 Mass. 278, 279, 485 N.E.2d 947 (1985).
The first argument is that the claims against McLaughlin are barred by the six months statute of limitations in G.L.C. 203E, § 1005(a). This argument rests on the July 31, 2014 letter from McLaughlin to Deborah attached to McLaughlin's motion. While this letter was not attached to the SAC, or specifically mentioned in the SAC, it appears that plaintiffs do not dispute the authenticity or receipt of the letter. McLaughlin contends that the letter, describing his allocation of the properties from the Revocable Trust to Deborah's Trust was a " final account or other statement fully disclosing the matter and showing termination of the trust relationship between the trustee and the beneficiary" as required by the statute in order to trigger the six months limitation period.
On its face, the July 31, 2014 letter says nothing about the termination of the trust relationship. Indeed, McLaughlin continued as trustee at least for Deborah's Trust, if not the Revocable Trust, for months. But more importantly, it cannot be determined on a motion to dismiss whether the letter is a " final account" or whether it " fully disclosed" the matter. Consequently, the application of this statute of limitations cannot be decided on a motion to dismiss.
The letter does not say it is a final account and it does not appear to meet the requirements of an account as described in G.L.c. 203E, § 813 because there is no description of receipts and disbursements, including the amount of the trustee's compensation.
Next, McLaughlin avers that Deborah waived her claims against McLaughlin as trustee by not objecting to the July 31, 2014 letter within sixty days, as required by the Revocable Trust. Again the application of this provision depends on the adequacy of the disclosure by McLaughlin and cannot be determined on a motion to dismiss.
Finally, McLaughlin argues that the claim by Deborah (not Deborah's Trust) to obtain reimbursement from the estate for legal fees incurred by Deborah in connection with obtaining the Revere residence free and clear is barred by G.L.c. 190B, § 3-803(a). That statute provides a time bar against claims against a personal representative. There can be no question that Deborah's claim for reimbursement of attorneys fees is a claim, as a creditor of the deceased, against McLaughlin as the personal representative of the estate. This claim, therefore was required to be asserted by Deborah in an action commenced within one year after the date of death of the deceased. The present action was commenced in July 2016, more than three years after Richard's death. As a result, Deborah's claim for reimbursement of attorneys fees is barred.
In sum, the motion to dismiss Count I of the SAC by McLaughlin and his law firm must be denied, except for Deborah's claim for reimbursement of attorneys fees. That claim is dismissed as untimely. The motion by McLaughlin and his law firm to dismiss Count IV of the SAC will be addressed in the next section.
B. Motion to Dismiss by Steven Clayman
Steven is named as a defendant in Counts II and III of the SAC. Count II alleges that Steven, as a trustee, officer, director and shareholder of the several Closely-Held Interests in which Deborah's Trust held a life interest, owed a fiduciary duty to Deborah's Trust and Deborah. Steven allegedly took steps to disenfranchise Deborah's Trust, " freeze out" the Trust and eliminate the value of the interests of Deborah's Trust resulting in " little to no payment of distributions" to Deborah's Trust. SAC ¶ ¶ 162, 164, 165. Count III alleges that Steven " intentionally and knowingly induced McLaughlin as Executor of the Estate to break the contractual relationship with Deborah [the Prenuptial Agreement] and not fulfill the obligation to fund fully [Deborah's Trust] with the sum of two million dollars." SAC ¶ 173.
In his motion to dismiss Steven does not dispute that he owes a fiduciary duty to Deborah's Trust because of the Trust's equity interests in the Closely-Held Interests. Steven does not deny that he operated the Closely-Held Interests for capital growth, not income production. He argues that he is absolutely entitled to do so. That is true only to a degree. " As a fiduciary, a partner must consider his or her partner's welfare, and refrain from acting for purely private gain." Meehan v. Shaughnessy, 404 Mass. 419, 434, 535 N.E.2d 1255 (1989).
The SAC alleges that in exercising control over the Closely-Held Interests, Steven failed to observe and respect corporate form among the LLCs and management companies. He is alleged to have intermingled the relationships among the Closely-Held Interests with inter-company loans, all to the purpose of avoiding income distributions to the owners, including, specifically, Deborah's Trust. The SAC also alleges that Steven deprived Deborah's Trust of " information sufficient to understand the management and financial circumstances" of the entities. SAC ¶ 163. At the motion to dismiss stage, this is enough to assert a breach of fiduciary duty.
With respect to Count III of the SAC, Steven accurately points out that a claim for intentional interference with contract requires an allegation of improper motive or improper means or both. Mere interference with a contract is not actionable. See G.S. Enterprises, Inc. v. Falmouth Marine, Inc., 410 Mass. 262, 272, 571 N.E.2d 1363 (1991) (" In an action for intentional interference with contractual relations, the plaintiff must prove that: (1) he had a contract with a third party; (2) the defendant knowingly induced the third party to break that contract; (3) the defendant's interference, in addition to being intentional, was improper in motive or means; and (4) the plaintiff was harmed by the defendant's actions" ). Steven argues that, in his contact with McLaughlin, he was motivated by his desire to manage the Closely-Held Interests in his own best interest. Thus, there can be no improper means or motive. Pembroke Country Club, Inc. v. Regency Savings Bank, 62 Mass.App.Ct. 34, 39, 815 N.E.2d 241 (2004) (legitimate advancement of actor's own interest is not improper conduct).
Steven's argument ignores, however, the allegations of the SAC. The SAC avers that Steven was motivated by spite; i.e., that he was unhappy with the largesse left to Deborah by Richard. Next, the SAC contends, read indulgently, that Steven acted with improper means by promising future legal business to McLaughlin in exchange for McLaughlin's cooperation to defeat the contractual obligations of the Prenuptial Agreement. " [I]mproper conduct 'may include ulterior motive (e.g., wishing to do injury) or wrongful means (e.g., deceit or economic coercion,'; the plaintiff need not prove both." Cavicchi v. Koski, 67 Mass.App.Ct. 654, 658, 855 N.E.2d 1137 (2006) (citation omitted.) The SAC alleges sufficient facts (wishing to deprive Deborah of full inheritance and economic inducement to McLaughlin) that, if true, support a reasonable inference of improper interference. Id. at 660 n.9, 663 (Rule 12(b)(6) dismissal reversed where allegations in complaint of improper means, while conclusory, were sufficient to resist a motion to dismiss). " The propriety of an actor's motives in a particular setting necessarily depends on the attending circumstances, and must be evaluated on a case-by-case basis." G.S. Enterprises, Inc., 410 Mass. at 273. This kind of evaluation of the facts cannot be done on a motion to dismiss.
For the reasons stated, Steven's motion to dismiss counts II and III must be denied. Likewise, McLaughlin's motion to dismiss count IV of the SAC must be denied. Count IV alleges that McLaughlin aided and abetted Steven's breach of fiduciary duties and interference with contract. It is alleged that McLaughlin actively and knowingly participated in Steven's alleged torts. That is enough at the pleading stage. See Go-Best Assets Ltd. v. Citizens Bank of Massachusetts, 463 Mass. 50, 64, 972 N.E.2d 426 (2012) for the elements of an aiding and abetting claim. Applied to this case, the SAC adequately pleads a claim for aiding and abetting against McLaughlin by alleging the following elements: (1) that Steven committed the relevant torts; (2) that McLaughlin knew Steven was committing the torts; and (3) that McLaughlin actively participated in or substantially assisted in the commission of the torts. McLaughlin's motion to dismiss Count IV must be denied.
C. Motion to Dismiss by Business Entities
The SAC names business entities, all of which were Closely-Held Interests under the Revocable Trust, as defendants in this action. The nine business entities mentioned in the SAC move to dismiss. For five of the entities, the argument for dismissal is that the SAC asserts no cognizable claim against them. The entities are sued simply because Deborah's Trust views the entities as indispensable parties to the possible relief sought; namely, to obtain an equitable re-allocation of ownership interests in the properties originally held in the Revocable Trust and distributed to Deborah's Trust and the Family Trust. For two of the entities, 5C, Inc. and C.C. Real Investments, Inc., named in Count II of the SAC as the management companies utilized by Steven to execute a plan to deprive Deborah's Trust of reasonable income from its ownership interests, the argument for dismissal is that such companies owed no fiduciary duty to Deborah's Trust. Finally, for two of the entities, Nesmith Park, LLC and C.C. Real Investments, Inc., named in Count V of the SAC for allegedly converting funds belonging to Deborah's Trust, the argument for dismissal is that Count V fails to state the requisite elements of the tort of conversion.
With respect to the business entities named solely as indispensable parties, plaintiffs concede that they do not allege a substantive claim against those entities. They argue, however, that the business entities are necessary and indispensable parties because plaintiffs seek, in addition to monetary damages, potential equitable relief to re-allocate Richard's interests in the business entities to Deborah's Trust.
Mass.R.Civ.P. 19 mandates that plaintiffs join as parties individuals and entities that, in their absence, complete relief could not be accorded. This is, in part, a protection because such entities have an interest in the subject matter (the proper allocation to and management of property interests in Deborah's Trust) and their interest could be impaired or impeded by the potential remedy sought by Deborah's Trust. Defendants argue that Rule 19 is available to a defendant moving to dismiss a claim for failure to join an indispensable party, but the rule is not an authorization to a plaintiff to add a party against whom no independent substantive claim is asserted. That argument is incorrect. The plaintiff has an obligation to name as parties all persons falling within the various tests prescribed in Rule 19(a) for when a party should be joined. Smith and Zobel, Rules Practice, 6 Mass. Prac. Series § 19.5 (2006). " If plaintiff has failed to join such a party as a defendant, the court must order joinder." Id. at § 19.2. The parties named as indispensable parties by Deborah's Trust in the SAC clearly fall within the tests prescribed in Rule 19(a). Accordingly, so long as a potential remedy of reallocation remains in the case, the business entities and other indispensable parties must remain as parties.
5C, Inc. and C.C. Real Investments, Inc. move to dismiss Count II of the SAC. Read indulgently, Count II alleges that these companies were the vehicles used by Steven to breach fiduciary duties owed to Deborah's Trust arising from Deborah's Trust's interest in the Closely-Held Companies. Under well established principles of agency, the companies might be held to be vicariously liable for the alleged conduct of Steven. That is enough to satisfy the Rule 12 standard. Count II will not be dimissed.
Lastly, Nesmith Park, LLC and C.C. Real Investments, Inc. move to dismiss Count V, Conversion. Count V alleges that Nesmith, aided and abetted by C.C. Real Investments, is exercising dominion and control over property owned by Deborah's Trust.
" Owned" in this case means that the property is part of the corpus of Deborah's Trust for her benefit during Deborah's lifetime.
" The elements of conversion require that a defendant be proved to have 'intentionally or wrongfully exercise[d] acts of ownership, control or dominion over personal property to which he has no right of possession at the time . . .'" Grand Pac. Fin. Corp. v. Brauer, 57 Mass.App.Ct. 407, 412, 783 N.E.2d 849 (2003), quoting from Abington Nat'l Bank v. Ashwood Homes, Inc., 19 Mass.App.Ct. 503, 507, 475 N.E.2d 1230 (1985). See Matter of Hilson, 448 Mass. 603, 611, 863 N.E.2d 483 (2007) (" The elements of conversion may be established by a showing that one person exercised dominion over the personal property of another, without right, and thereby deprived the rightful owner of its use and enjoyment" ). Money may be the subject of conversion, and " [t]here is no requirement that the one converting property be shown to have had the intent to deprive permanently the rightful owner of its use and enjoyment, as in stealing." Matter of Hilson, 448 Mass. at 611. One may be liable for conversion even though he or she received no benefit from the conversion. Boston Educ. Research Co. v. American Mach. & Foundry Co., 488 F.2d 344, 348 (1st Cir. 1973) (" Liability will lie for conversion . . . even though the defendant received no benefit from his deed" ). Finally, funds held in an escrow account may be the subject of a conversion claim. Grand Pac. Fin. Corp. v. Brauer, 57 Mass.App.Ct. at 412-14. Applying these principles, Count V adequately pleads a claim for conversion.
D. Motion to Dismiss of the Family Trust, Amy L. Nechtem, Trustee
Plaintiffs concede that they assert no substantive claim against the Family Trust. Instead, they name the Family Trust, by its trustee, Amy L. Nechtem, as an indispensable party defendant in the SAC. As with the Business Entities, plaintiffs assert that the equitable remedy they seek implicates the interests of the Family Trust as described and protected by Rule 19(a) of the Mass.R.Civ.P. For the reasons stated above in connection with the motion to dismiss of the business entities, the motion of the Family Trust must be denied.
CONCLUSION
The Motion to Dismiss of John T. Mclaughlin and his law firm will be ALLOWED, in part, and DENIED, in part. The motion is allowed with respect to the claim by Deborah Clayman, individually, for reimbursement of attorneys fees she incurred in connection with the transfer of ownership of the Revere residence. Otherwise, the motion to dismiss is denied.
The motions to dismiss of Steven Clayman, Amy L. Nechtem, Trustee of the Family Trust and the business entities are DENIED.
By the Court,