Opinion
94 Civ. 4704 (JSM)
October 7, 1999
MEMORANDUM OPINION AND ORDER
This case is before the Court for summary judgment. The facts of this dispute are discussed at length in the Court's Memorandum Opinion and Order of June 25, 1997, familiarity with which is assumed. deBruyne v. Clay, 1997 WL 358012 (S.D.N.Y. June 25, 1997)
Seven motions are before the Court.
The Guardian moves for summary judgment against Henry J. Clay ("Clay") and Abberley Kooiman on his first claim for breach of fiduciary duty and moves for a declaratory judgment that defendant The Home Insurance Company ("The Home") is liable to indemnify Clay and Abberley Kooiman based upon a professional liability policy The Home issued to Abberley Kooiman.
Henry J. Clay moves for summary judgment on all claims against him.
Abberley Kooiman, represented by counsel, moves for leave to amend its Answer pursuant to Fed.R.Civ.P. 15(a) to assert a statute of limitations defense as to the first and second claims and for summary judgment on the substantive claims.
The Guardian also moves for summary judgment against John and Tracey deBruyne (the "deBruyne Defendants") on the third and fourth claims of the Second Amended and Supplemental Complaint alleging breach of contract and misappropriation.
John and Tracey deBruyne move for summary judgment against the Guardian on his third and fourth claims for relief.
Abberley Kooiman, proceeding pro se, moves for summary judgment against The Home on the issue of insurance coverage.
The Home moves for summary judgment declaring that the policy it issued to Abberley Kooiman does not provide coverage for punitive damages or equitable relief.
The Home also moved for summary judgment as to insurance coverage for DeWitt Lockman DeWitt. The action against the DeWitt firm was dismissed by Stipulation and Order dated January 6, 1999.
1. Clay's Alleged Breach of Fiduciary Duty
The Court will first address the motions of the Guardian and Defendant Clay for summary judgment on the issue of Clay's alleged breach of fiduciary duty. The essence of the claim against Clay is that he breached his fiduciary duty to the deBruyne children who were the beneficiaries of a trust of which he was a trustee by selling 63 shares of Techne stock to Dr. Norman deBruyne for $6,000 per share rather than either selling them to John deBruyne for $4,000 a share and a promise to place them in trust for the children's benefit or to negotiating a higher price from John.
The children's Guardian argues that Clay had a conflict of interest because, if Clay were not already acting as Dr. deBruyne's lawyer he was, at a minimum, soliciting legal business from him at the time of the transaction. In response Clay claims that he did not begin to act as Dr. deBruyne's lawyer until well after the transaction and that John's earlier failures to live up to his financial obligations provided legitimate reasons not to accept John's offer.
These competing claims involve factual disputes that must be resolved at trial. While the evidence cited by the Guardian that Clay was acting for reasons other than the best interests of the children is substantial, Clay has submitted an affidavit stating that he scrupulously avoided entering an attorney-client relationship with Dr. deBruyne because he recognized the potential conflict. One might say that it appears that Clay "doth protest too much," but that is for the trier of fact.
At the same time, Clay's claim that there is no evidence that he acted for any improper purpose and is therefore entitled to the benefit of the business judgment rule ignores substantial evidence that could be construed as indicating that, at a minimum, he was laying the groundwork for an attorney-client relationship with Dr. deBruyne at the same time that they were discussing the sale of the stock. Among other things there were a series of communications between Dr. deBruyne and Clay concerning the affairs of Techne in which Clay aligned himself with Dr. deBruyne against John and provided advice to him. Significantly, John testified that after Clay met with Dr. deBruyne on December 13, 1988 and signed the agreement for the sale of the stock, he asked Clay why he met with Dr. deBruyne and Clay said it was to discuss Dr. deBruyne's will. A trier of fact could find that this testimony establishes that Clay was in fact acting as Dr. deBruyne's lawyer at the same time he was negotiating the sale of the stock.
A further inference that Clay was acting in Dr. deBruyne's interest and not that of the children is found in the fact that he made no effort to negotiate with John after receiving the offer from Dr. deBruyne. As a result of his service on the Techne Board and his dealings with the deBruyne family, Clay was well aware that the Doctor and John were in a bitter dispute concerning the control of Techne and that each of them was eager to control the shares in the trusts. One would assume, therefore, that a reasonable trustee in Clay's circumstance would have gone back to John after receiving a higher offer from Dr. deBruyne to see if he could obtain better terms. While Clay raises what might be legitimate concerns about John's past failures to honor his commitments, those concerns could have been addressed in any contract of sale, i.e., Clay could have insisted that the sale would be made only to a new trust established for the children's benefit.
In sum both the Guardian and Clay can point to facts to support their positions but the inference to be drawn from those facts must be made by a trier of fact in light of all of the other evidence, including Clay's testimony.
2. Meaning of the September 30, 1991 Letter
The Guardian ad litem and the deBruyne defendants have cross-moved against each other as to whether a letter dated September 30, 1991 addressed to Alton Peters, the Trustee of the Elma deBruyne Trust signed by Elma, Norman, John and Anne deBruyne bound John to transfer certain Techne shares to his daughters.
In Adjustrite Systems, Inc. v. GAB Business Services, 145 F.3d 543 (2d Cir. 1998) the Second Circuit promulgated a four-part test to determine whether a preliminary agreement is binding. The test looks only to "words and deeds" that objectively manifest the parties' intent. Subjective evidence is inadmissible. The factors are:
a. an express reservation of right not to be bound;
b. evidence of partial performance;
c. whether all terms have been agreed upon; and,
d. whether the agreement involves a transaction normally committed to a formal writing.Adjustrite Systems, 145 F.3d at 549 citing Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir. 1985).
Summary judgment cannot be granted on this issue because the letter to Alton Peters is ambiguous as to the signatories' intent to be bound. The sentence "[t]he undersigned are in agreement with the above proposals" is open to two interpretations: 1) that the signatories themselves agreed to and accepted the proposals; or, 2) that the signatories agreed only to make the proposal to the Trustee.
As the Second Circuit has repeatedly held:
[I]n a contract dispute a motion for summary judgment may be granted only where the agreement's language is unambiguous and conveys a definite meaning If the language is susceptible to different reasonable interpretations, and where there is relevant extrinsic evidence of the parties' actual intent, then the contract's meaning becomes an issue of fact precluding summary judgment.Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1537 (2d Cir. 1997) (quotations and citations omitted)
A similar question arose in Barry v. Liddle, O'Connor, Finkelstein Robinson, 98 F.3d 36, (2d Cir. 1996), where the Court of Appeals reversed a grant of summary judgment and found that the existence of an informal memorandum created a fact question as to whether the parties had intended to enter into a contract.
It is similarly unclear whether this is the type of agreement that the parties would normally commit to a more formal writing. Because the Peters letter contemplates at least seven distinct commercial transactions, including the sale of real property, a jury could conclude that the signatories did not intend to be bound until signing more formal agreements. Like the first Adjustrite factor, this is a question of party intent that must be submitted to the trier of fact. Ciaramella v. Reader's Digest Assoc., Inc., 131 F.3d 320, 322 (2d Cir. 1997) citing Winston, 777 F.2d at 80. See also International Minerals and Resources v. Pappas, 96 F.3d 586, 593 (2d Cir. 1996) (The question of when a party intends to be bound must be submitted to the jury.)
For these reasons summary judgment cannot be granted on the legal significance of the September 30, 1991 letter.
3. Abberley Kooiman's Vicarious Liability
Abberley Kooiman asserts that it is not liable for Clay's alleged breach of fiduciary duties because he was acting as a trustee and not a lawyer and that, in any event, such claims are time barred.
An attorney rendering fiduciary services is held to the same standards as if he were providing legal services. Abbondanza v. Siegel, 619 N.Y.S.2d 896, 897 (N.Y.App.Div. 1994)
While it is true that the Abberley-Kooiman partnership agreement specifically excluded fees generated individually by attorneys acting as trustees or fiduciaries, Clay billed the children's trust on Abberley Kooiman letterhead for all the time he spent weighing the sale of Techne stock. DiGennaro Aff. Exh. A ¶ 6; Dep. Exhs. DLD 7, DLD 8. Abberley Kooiman distributed these fees to its partners like any legal fee. Martell Dep. 19-24. Although an Abberley partner testified that he was unaware of Clay's work as a trustee, knowledge of his work is imputed to the partnership by section 23 of the New York Partnership Law.
Abberley Kooiman suggests the Court adopt the test developed inSheinkopf v. Stone, 927 F.2d 1259 (1st Cir. 1991), in which the First Circuit found that an attorney-client relationship could be implied only when:
1. a person seeks advice or assistance from an attorney;
2. the advice or assistance pertains to matters within the attorney's professional competence; and,
3. the attorney impliedly or actually gives the desired advice or assistance.Sheinkopf, 927 F.2d at 1264.
None of the Sheinkopf factors aid Abberley Kooiman in its argument that Clay was not providing legal services to the children's trust. It cannot be disputed that the Trust sought Clay's services and that he actually provided these services, fulfilling the first and third elements of the test. There is substantial evidence that Clay's work also satisfied the second factor. First, Clay is a trust and estates lawyer, who must be presumed competent to serve as a trustee. Second, although one need not be an attorney to function as a trustee, the weighing of simple business propositions is within the professional competence of an attorney. This is particularly true here where assessing the offers required knowledge of corporate and trust law. Clearly, Clay himself considered it legal work and not trustee work, for otherwise he would not have shared his fee with his partners. For these reasons Abberley Kooiman's motion for summary judgment on the issue of its liability is denied.
The Guardian's claims are not time barred. C.P.L.R. § 208 tolls the applicable statute of limitations "until the earliest moment there is a personal representative or potential personal representative who can bring the action . . ." Hernandez v. NYC Health and Hospitals Corp., 578 N.Y.S.2d 510, 513 (N.Y. 1991). For the reasons stated when appointing the Guardian ad litem, the Court has found that John deBruyne was not an effective representative of his children regarding this matter due to his own conflicts of interest. Subsequent litigation has confirmed the Court's earlier view. Because there was no effective representative for Abigail and Leila deBruyne prior to March 1995 C.P.L.R. § 208 tolled the statute of limitations until that time and the Guardian's claims are timely. See Monaghan v. SZS 33 Associates, 827 F. Supp. 233, 241 (S.D.N.Y. 1993). The Court must therefore deny Abberley Kooiman leave to amend its Answer because such an amendment would be futile.
4. Insurance Coverage for Clay's Alleged Breach of Fiduciary Duty.
The Home provided insurance coverage to Abberley Kooiman without interruption from June 26, 1988 to June 26, 1996. The policy covered a lawyer's work as a trustee or fiduciary. See Abberley Kooiman Exh. O sec. B-I(b). Clay sold the Techne shares to Norman deBruyne in late January 1989. John deBruyne wrote to Clay in March of that year, threatening to sue. John did not sue until July 1994, at which time Clay notified The Home and requested a defense.
The first issue is whether Abberley Kooiman lost coverage because of Clay's failure to file a claim upon receipt of the March 1989 letter from John deBruyne. This issue is moot, however, because the policy has an "innocent partner" clause that excepts the partnership from the claim requirement if a partner conceals the fact of the claim. Sokol Aff. Exh. 3. All of the Abberley partners swear that they were unaware of John's threats to sue. See Martell Aff. ¶ 33; Langsam Aff. ¶ 2; Banker Aff. ¶ 2. In addition, The Home provided coverage at the time of the alleged wrongdoing and at the time of the claim.
Although the parties expend substantial effort discussing recission of the insurance contract, such a motion is not before the Court. For these reasons, The Home's motion for summary judgment on the issue of insurance coverage is denied and Abberley Kooiman's motion regarding insurance coverage is granted.
The Home has moved for summary judgment on the issue of its liability for punitive damages or equitable relief levied against Abberley Kooiman, its insured. One may not insure against punitive damages nor against the orders of a court sitting in equity. Home Ins. Co. v. American Home Prods., 551 N.Y.S.2d 481, 484-486 (N.Y. 1990); Reliance Group Holdings v. National Union Fire Ins. Co., 594 N.Y.S.2d 20 (N.Y.App.Div. 1993).
CONCLUSION
For the foregoing reasons:
The Guardian's Motion for Summary Judgment against Henry J. Clay and Abberley Kooiman, docket number 136, is DENIED.
Henry J. Clay's Motion for Summary Judgment, docket number 130, is DENIED.
Abberley Kooiman's Motion for Summary Judgment and Motion for Leave to Amend, docket number 124, is DENIED
The Guardian's Motion for Summary Judgment against the deBruyne Defendants, docket number 138, is DENIED
John and Tracey deBruyne's Motion for Summary Judgment on the third and fourth claims for relief, docket number 127, is DENIED.
Abberley Kooiman's pro se motion against The Home on the issue of insurance coverage, docket number 121, is GRANTED.
The Home Insurance Company's Motion for Summary Judgment on the issue of its liability for punitive damages and equitable relief levied against Abberley Kooiman, docket number 161, is GRANTED.
Counsel are to appear for a conference before the Court on October 22, 1999 at 4:00 PM.