Opinion
No. X-08-CV-06-5001264S
January 22, 2008
Factual and Procedural Background
The plaintiff Indian Spring Land Company ("ISLC") is a Connecticut corporation which at all relevant times was the owner of undeveloped land in Greenwich including an approved subdivision containing a number of building lots intended for residential development. The defendant Andrew C. Rockefeller was the president and a director of ISLC. His father, James Stillman Rockefeller was vice president and a director of ISLC. At the times alleged in the complaint James Stillman Rockefeller was more than 100 years of age, and is now deceased, and the co-executors (the "Executors") of his estate have been substituted in his stead. Andrew C. Rockefeller is a 25% beneficiary of his father's estate.
In Count One of the Complaint ISLC alleges that in or shortly after 2000 James Stillman Rockefeller was working to secure subdivision approval from the Town of Greenwich for certain property owned by him which was adjacent to ISLC property, and that, in connection with that planned subdivision of the James Stillman Rockefeller property, the defendant Andrew C. Rockefeller agreed on behalf of ISLC to a "land swap" whereby approximately 3.35 acres of ISLC property would be exchanged for a like quantity of land belonging to James Stillman Rockefeller. It is alleged that the foregoing "land swap" was consummated in or about November 2002 and resulted in the conveyance of highly valuable property belonging to ISLC to James Stillman Rockefeller in return for which ISLC received land having absolutely no economic value. ISLC claims that the land swap was made by Andrew C. Rockefeller with full knowledge that it was highly advantageous to his father James Stillman Rockefeller and entirely unfair and disadvantageous to ISLC, and that neither the fact of the land swap, nor any information concerning Andrew C. Rockefeller's participation in it on behalf of ISLC was ever disclosed to ISLC's Board of Directors, but was in fact concealed from the Board. ISLC alleges that Andrew C. Rockefeller's conduct with respect to the land swap was in breach of his fiduciary duties as an officer and director of ISLC, and inflicted injury and damage on ISLC.
At oral argument counsel for defendant Andrew C. Rockefeller, conceded that his third-party complaint against the Executors seeks contribution only on "the breach of fiduciary duty claims" against her client, which is the Count One of the ISLC complaint. It is therefore unnecessary to discuss any other counts of the fourteen-count complaint.
Defendant Andrew C. Rockefeller has filed a third-party complaint against the Executors of the Estate of James Stillman Rockefeller reciting the foregoing ISLC allegations of his own breach of fiduciary duties and further alleging that his father James Stillman Rockefeller, the other party to the alleged "land swap," was also an officer and director of ISLC at the time in question with fiduciary duties to ISLC. Andrew C. Rockefeller therefore asks for contribution from the Estate of James Stillman Rockefeller if he, Andrew, is found liable to ISLC for breach of fiduciary duties on Count One of the Complaint:
Andrew C. Rockefeller himself is one of the four Co-Executors of his father's estate. He is therefore simultaneously a third-party plaintiff and a third-party defendant, but in different capacities. The instant motion to strike the third-party complaint is filed by the Estate of James Stillman Rockefeller acting by his Co-Executors, pointing out in their memorandum of law that the estate has authority to act upon the consent of three of the four co-executors.
If Indian Spring's claims against Mr. Andrew Rockefeller for a breach of his fiduciary duties are proven to be meritorious, then the Estate of James Stillman Rockefeller is liable to Mr. Andrew Rockefeller for all or part of the foregoing damages arising out of such breach since Mr. James Stillman Rockefeller, by arranging for and participating in the land Swap with Mr. Andrew Rockefeller, jointly breached with Mr. Andrew Rockefeller the identical fiduciary duties which each of them owed to Indian Spring, and Mr. James Stillman Rockefeller was unjustly enriched thereby.
Third-Party Complaint, ¶ 22
Now before the court is a motion to strike the foregoing Third-Party complaint, filed by the Estate of James Stillman Rockefeller (the "Estate") on the ground that the Third-Party Complaint fails to state any valid basis for impleader in that it fails to state a valid cause of action for indemnification or contribution under the law of Connecticut.
Discussion
The issue presented by this motion is whether Connecticut law allows for indemnification or contribution between the parties to the Third-Party Complaint under the facts and circumstances alleged. The moving party, the Estate, argues that Connecticut law does not allow for indemnification or contribution between joint tortfeasors as a general matter; therefore, any right of contribution or indemnity must arise specifically from statute, contract, or some judicially crafted exception, none of which are applicable to this case. The opposing party (the Defendant/Third-Party Plaintiff Andrew Rockefeller, or "Andrew") argues that in a situation involving co-fiduciaries such as the case at bar, the law of equity — being completely separate and distinct from the common law governing relations between joint tortfeasors — allows for indemnification and contribution between co-fiduciaries who jointly breach their duties to a common beneficiary.
The Estate argues, and Andrew Rockefeller does not dispute, the principle in the State of Connecticut that "as a general matter, there is no right of indemnity between joint tortfeasors." Krytatas v. Stop Shop, Inc., 205 Conn. 694, 697 (1988). The crux of the dispute between the two parties centers on whether there exists a separate body of law based on equitable principles governing indemnity and contribution amongst breaching fiduciaries. Andrew's position is that common-law principles regarding indemnity and contribution between joint tortfeasors are inapplicable in this situation due to Andrew and James Stillman Rockefeller owing joint fiduciary duties to Indian Spring. The Estate's position is that no separate body of law exists for breaches of fiduciary duties, and that jointly breaching fiduciaries are joint tortfeasors and should be treated the same as all other joint tortfeasors in regards to indemnification and contribution.
Andrew's position that jointly breaching fiduciaries should be treated differently from joint tortfeasors based on the law of equity requires a short synopsis. The argument is based largely on the Restatement of Trusts and treatises on the law of trusts.
[Absent bad faith conduct] . . . where two trustees are liable to the beneficiary for a breach of trust, each of them is entitled to contribution from the other . . .; and for any further liability, if neither is more at fault than the other, each is entitled to contribution.
Restatement (Second) of Trusts § 258(1)(b)
Where two trustees participate in a breach of trust, ordinarily either trustee who makes good the breach of trust can compel the other to reimburse him as to one-half of what he has had to pay.
Restatement (Second) of Trusts, § 258, Comment b
. . . if one of two trustees receives a benefit from a breach of trust, the other is entitled to indemnity from him to the extent of the breach.
Austin W. Scott, The Law of Trusts § 258.2 (4th ed. 1998)
The trustee who is obliged to pay more than his proportionate share of the damage may have a cause of action for contribution against his co-trustees who are equally or more guilty than he.
George Gleason Bogert, The Law of Trusts and Trustees § (Rev 2 ed. 1982).
Contrary to Andrew's assertions the court finds that neither the claimed general principle of the law of trusts nor its claimed application to corporate officers and directors finds support in Connecticut law. Swift v. Levesque, 614 F.Sup. 172 (D.Conn. 1985) does not involve breaches of fiduciary obligations at all. Both the corporate officer seeking contribution and the corporate officer from whom contribution was sought had fiduciary responsibilities to the corporation but their joint and several liabilities for nonpayment of quarterly employee withholding taxes of the corporation are not premised on any finding of breach of those fiduciary responsibilities, but rather on the express provisions of the Internal Revenue Code making "responsible persons" personally liable for nonpayment of such taxes to the IRS. The court (Burns, J.) treated the situation as one of joint obligors on a debt and found that Connecticut law allowed for contribution on a theory of implied contract, citing Waters v. Waters, 110 Conn. 342 (1930) and Fidelity and Casualty Insurance Co. v. Sears, Roebuck Co., 124 Conn. 227. Neither of those cited cases involved any breach of fiduciary duties. In Waters contribution was allowed between two former co-executors of a decedent's estate, with the court expressly holding that the parties at the relevant time occupied the "position of joint and several creditors of the estate" 110 Conn. at 345. Fidelity and Casualty Insurance involved the allocation of risk and contribution rights between the primary employer and the "principal employer" under the Workmen's Compensation Act. (No contribution allowed to the insurer of the primary employer which had paid the entire claim.)
With respect to the claim that breaches of fiduciary obligations of corporate officers and directors should be governed by the law of trusts and not by tort law, the most that can be said is that Connecticut courts have occasionally in the past analogized the fiduciary duties of a corporate officer or director to those as trustee, but their defalcations have always been addressed under the law of torts and not under any separate law applicable to trusts. In holding that the misconduct of a director was such that he ought not to be treated as if he had violated the terms of an express trust with respect to the statute of limitations, but rather that the claim against him was governed by the applicable statute of limitations for tort claims, the Supreme Court said in Arrgoni v. Adorna, 129 Conn. 673, 681 (1943): "A director and officer undoubtedly occupies a fiduciary relationship to the corporation and its stockholders, but he is not a trustee in the strict sense of the term." And in Mallory v. Mallory-Wheeler Co., 61 Conn. 131 (1891) the court said: "The relation between directors of a corporation and the company itself is in most respects a fiduciary relation. While not trustees in a technical sense, they are often called such in practice." Even the primary authority cited by Andrew for the law of trusts claim is tenuous. In DePinto v. Landoe, 411 F.2d, 297 (9 Cir. 1969) the court held that under Arizona law "A director's breach of fiduciary duty is to be treated as a violation of duties under an implied or constructive trust instead of under the common law of torts." Id. at 300, but then equivocated and reverted to a tort analysis: "However, if we are mistaken in this analysis, and DePinto should, under Arizona law, be regarded as a tort-feasor with respect to the breach of his fiduciary duty, we are nevertheless of the view that, under the particular circumstances of the case, his status as a tort-feasor does not bar him from obtaining indemnity." Id. (The court then applied the "active negligence — passive negligence" exception to the general rule that there is no right of contribution among joint tortfeasors to uphold the defendant director's right to seek indemnity.)
§ 1677c of the Connecticut General Statutes, Cumulative Supplement of 1935, the statute of limitations held to be applicable in CT Page 1154 Arrgonil v. Adorna, infra, provided: "No action founded upon a tort shall be brought within three years from the date of the action complained of." See, also, Ahern v. Kappalumakkel, 97 Conn.App. 189, note 3 where the Appellate Court said "Breach of fiduciary duty is a tort action governed by the three year statute of limitations contained within General statutes § 52-577."
Andrew Rockefeller also relies upon a "developing public policy" in Connecticut of moving away from the traditional rule of no contribution among joint tortfeasors and the allowance of contribution claims, as evidenced by the enactment of Conn. Gen Stat. §§ 52-572h and 52-572o (Abolishment of contributory negligence in favor of comparative negligence in actions based on negligence and allowance of actions for contribution among joint negligent tortfeasors). He also points out that Connecticut recognizes a statutory right to contribution amongst partners under the Connecticut Uniform Limited Partnership Act, Conn. Gen. Stat. § 34-9 et seq. and a statutory right to contribution amongst directors of business corporations for having made unlawful distributions to shareholders, under the Business Corporation Act, Conn. Gen. Stat. § 33-575(b). But none of the cited statutes allows generally for contribution among corporate officers or directors charged with violation of fiduciary duties to a corporation, and the comparative negligence enactment expressly excludes breaches of trust or other fiduciary obligations from its scope: "This section shall not apply to breaches of trust or of other fiduciary obligation." Conn. Gen. Stat. § 52-572h(k). The fact that the legislature enacted very specific provisions allowing contributions among limited partners and among corporate directors in the limited situation of having authorized unlawful distributions to shareholders evidences, not a general intent to abandon the concept of no contribution among joint tortfeasors, but rather an intent to keep that general rule in effect in all other situations.
In ATC Partnership v. Coats North America Consolidated, 284 Conn. 537 (2007) the plaintiff had purchased certain property from Eastern Connecticut Industrial Park Association ("Eastern"). The property was later taken by the Town of Windham under its power of eminent domain. The plaintiff was awarded $1.7 million for the taking, which award reflected a discount for the cost of environmental remediation which the plaintiff claimed the defendant had obligated itself to make when it had sold the property to Eastern. The plaintiff was seeking indemnification or reimbursement from the defendant of the costs of remediation which had been discounted from plaintiff's eminent domain award. The plaintiff's claims under Conn Gen. Stat. § 22a-452 and under the Connecticut Transfer Act were rejected by the court. The plaintiff alternatively sought to prevail by asking the court to "recognize a new cause of action for equitable indemnification" under the facts presented. Acknowledging the court's inherent authority under the state constitution to recognize new causes of action, the Supreme Court nonetheless declined to do so under the circumstances of the case:
When we acknowledge new causes of action, we also look to see if the judicial sanctions available are so ineffective as to warrant the recognition of a new cause of action . . . To determine whether existing remedies are sufficient to compensate those who seek the recognition of a new cause of action, we first analyze the scope and applicability of the current remedies of the facts alleged by the plaintiff . . . Finally, we are mindful of growing judicial receptivity to the new cause of action, but we remain acutely aware of relevant statutes and do not ignore the statement of public policy that such statutes represent. (Emphasis added; citations omitted.) 284 Conn. at 553.
Here, the plaintiff is in effect asking this court to recognize a new cause of action under Restatement (Second) of Trusts § 258, which would be directly contrary to the traditional common-law rule that disallows contribution among joint tortfeasors. But there is an expression of public policy within our statutes that maintains the common-law rule (which itself allows of certain judicially recognized exceptions, not at issue here) except in discreet situations where the legislature has expressly provided for rights of contribution. In all other cases the policy is that the common-law rule continues to govern, and, particularly in this case because the legislature has expressly carved out breaches of fiduciary duties from the scope of the comparative negligence statute. The public policy argument therefore also fails.
Having held that the rule of Restatement (Second) of Trusts § 258 is not applicable, it is not necessary for the court to discuss or analyze its exceptions for bad faith conduct or situations where one fiduciary has received the benefit of the transgression alleged.
Order
For the foregoing reasons the motion of the Estate of James Stillman Rockefeller to strike the third-party complaint of the defendant/third-party plaintiff Andrew C. Rockefeller is granted.