Witzman v. Lehrman, Lehrman & Flom, C6-98-555.

• Decision Date: 12 August 1999
• Docket Number: No. C6-98-555.,C6-98-555.
• Citation: 601 N.W.2d 179
• Court: Minnesota Supreme Court
• Parties: Joyce WITZMAN, Respondent, v. LEHRMAN, LEHRMAN & FLOM, et al., petitioners, Appellants.

601 N.W.2d 179

Joyce WITZMAN, Respondent, v. LEHRMAN, LEHRMAN & FLOM, et al., petitioners, Appellants.

No. C6-98-555.

Supreme Court of Minnesota.

August 12, 1999.

William M. Hart, Bradley M. Jones, Mark A. Bloomquist, Jenneane L. Jansen, Meagher & Geer, P.L.L.P., Minneapolis, for appellants.

John F. Bonner, III, Amy E. Dawson, Malkerson Gilliland Martin L.L.P., Minneapolis, for respondent.

Louis A. Craco, Colin F. Bell, Willkie Farr & Gallagher, Richard I. Miller, General Counsel, American Institute of Certified Public Accountants, New York City, Charles E. Lundberg, Bassford, Lockhart, Truesdell & Briggs, P.A., Minneapolis, for amicus curiae The American Institute of Certified Public Accountants.

Jeffrey J. Lindquist, Pustorino, Tilton & Parrington, P.A., Minneapolis, for amicus curiae Minnesota Defense Lawyers Association.

Heard, considered, and decided by the court en banc.

OPINION

PAUL H. ANDERSON, Justice.

At all times relevant to this action, respondent Joyce Witzman was a beneficiary under three trusts for which her brother, Blair Wolfson, served as trustee. The present case stems from Witzman's allegations that, since 1978, Wolfson has repeatedly breached his fiduciary duty as trustee. Two years after settling her claims against Wolfson, Witzman filed a complaint against appellants, Lehrman, Lehrman & Flom and its partners, who, at all times relevant to this litigation, served as Wolfson's accountants. In addition to several other claims, Witzman alleged that appellants were jointly and severally liable for Wolfson's breach of trust under a theory of joint tortious conduct/aiding and abetting. Witzman also claimed that appellants participated in a pattern of racketeering activity in violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C. §§ 1961-1968 (1994). The district court awarded summary judgment in favor of appellants, concluding that Witzman had failed to allege facts sufficient to establish her claims. The Minnesota Court of Appeals reversed, concluding that Witzman asserted cognizable claims against appellants for joint tortious conduct, violating the RICO Act, and common law fraud. We reverse.

At the time respondent Joyce Witzman commenced this litigation, she was a beneficiary under three trusts—the "Residuary Trust" and "Marital Trust" established by the will of her father, Wilfred Wolfson, and the "Revocable Trust" established by her mother, Elizabeth Wolfson. Witzman's brother, Blair Wolfson (Wolfson), was a co-beneficiary under each trust and was a trustee for each trust. At all times relevant to this litigation, appellants Lehrman, Lehrman & Flom, an accounting firm, and Harvey Flom, a certified public accountant, (collectively LL & F/Flom) served as the accountants for Wolfson in his personal capacity and in his capacity as trustee.

Wilfred Wolfson died in 1968 and his estate remained in probate for the next 10 years. In 1977, Wolfson and his mother, Elizabeth Wolfson, were appointed trustees of the Residuary Trust and Marital Trust. Wolfson also served as the personal representative of his father's estate and was responsible for transferring certain estate assets to the Residuary and Marital Trusts pursuant to the terms of Wilfred Wolfson's will and a 1978 Decree of Distribution issued by the Probate Division of the Hennepin County District Court.

In 1991, Elizabeth Wolfson created the Revocable Trust, which named Wolfson and Harvey Flom as trustees, but reserved for Elizabeth Wolfson complete authority over the trust until her death. Elizabeth Wolfson died in April 1992. Harvey Flom resigned his position as trustee shortly thereafter. Since that time, Wolfson has served as the sole trustee of each trust.

In 1993, Witzman commenced three separate actions against Wolfson, alleging that as trustee he had failed to provide accountings for the trusts, had paid himself excessive compensation and charged excessive fees to the trusts, had engaged in self-dealing and imprudent investments, and had taken advantage of opportunities as an individual that should have been opportunities for the trusts. From 1978 to 1993, no annual accountings for any of the trusts were filed with the probate court. In 1993 and 1994, in the wake of Witzman's trust litigation, Wolfson had LL & F/Flom prepare financial accountings for the trusts for the years 1978 to 1993. A disclaimer attached to these accountings stated that the accountings were "intended solely for the information and use of the Trustee, the beneficiaries and the District Court."

Wolfson and Witzman reached a mediated settlement (Settlement Agreement) in 1994. Per the terms of the Settlement Agreement, Witzman was to receive approximately $4 million in trust assets and, in exchange, agreed to relinquish her rights as a beneficiary of the trusts. Upon payment of the agreed-upon assets to Witzman, the residue of the trusts was to be transferred to Wolfson with the trusts then being terminated. Both parties agreed to release one another from any continuing obligations under the trusts and to dismiss the action with prejudice and on the merits. The Settlement Agreement was approved by the probate court in November 1994.

In 1995, Witzman filed a motion in probate court to compel performance under the Settlement Agreement and for reformation of that agreement. She argued that Wolfson had breached the terms of the agreement by failing to transfer certain trust assets to her "forthwith," that Wolfson had made material misrepresentations concerning trust assets, and that the Settlement Agreement should be set aside due to the mutual mistake of the parties. The court denied Witzman's motion.

In mid-1996, Witzman commenced the present action against LL & F/Flom. In her original complaint, she alleged that LL & F/Flom were liable to her on grounds of professional negligence, negligent misrepresentation, "Aiding and Abetting Breach of Trusts," and violation of the RICO Act, 18 U.S.C. §§ 1961-1968. Witzman also filed a complaint against Wolfson's attorney asserting claims based on the same four theories. Wolfson's attorney removed the action against him to federal district court. In June 1997, the federal district court granted summary judgment in favor of the attorney on all counts. On appeal, the Eighth Circuit Court of Appeals affirmed the district court. See Witzman v. Gross, 148 F.3d 988 (8th Cir.1998).

In July 1997, LL & F/Flom moved for summary judgment in the state district court. Although LL & F/Flom cited both Minn. R. Civ. P. 12 and 56 in support of their motion and submitted several documents to be entered into the record, LL & F/Flom's accompanying memorandum alleged only that Witzman's complaint failed to state a claim upon which relief could be granted. In response, Witzman moved to amend her complaint and to join Wolfson as a defendant. Along with her amended complaint, Witzman also submitted for the record numerous documents detailing various trust transactions and asset valuations.

In her proposed amended complaint, Witzman set forth additional facts allegedly evidencing Wolfson's various breaches of trust. The complaint alleged that LL & F/Flom participated in these breaches by failing to disclose Wolfson's allegedly tortious activity, by "prepar[ing] trust `draw' accounts" from which Wolfson withdrew money from the Marital Trust for personal use, by doing nothing to prevent Wolfson from charging excessive fees and compensation to the trusts, and by failing to disclose that Wolfson had not transferred certain assets from his father's estate to the trusts as required by the 1978 Decree of Distribution. Based on these allegations, Witzman repeated her claims of professional negligence, negligent misrepresentation, and RICO Act violations. Witzman reasserted her aiding and abetting claim under the new heading, "Joint Tortious Conduct/Aiding and Abetting Breach of Trust." Her amended complaint also asserted a new claim against LL & F/Flom for breach of trust. LL & F/Flom opposed Wolfson's motion to amend her complaint on substantive grounds, arguing that the allegations therein, even if taken as true, still failed to state a claim upon which relief could be granted.

LL & F/Flom's motion for summary judgment was granted by the district court in November 1997. The court concluded that, because "no confidential or fiduciary relationship existed between [Witzman] and [LL & F/Flom]" and Witzman "was never an intended recipient of accounting services performed by [LL & F/Flom]," LL & F/Flom owed no duty of care to Witzman on which to base the professional negligence and negligent misrepresentation claims. The court also concluded that Minnesota did not recognize a "common law cause of action for `aiding and abetting'" tortious conduct and that Witzman had failed to establish a claim for joint tortious conduct because her complaints "failed to state any facts upon which a claim could exist that defendant had knowledge of or participated in any plan to harm plaintiff personally." The court also granted summary judgment on the RICO claim, concluding that LL & F/Flom's provision of the "run-of-the-mill accounting services" alleged in Witzman's complaint was insufficient to constitute "participation in the management or operation of" a racketeering enterprise. With respect to Witzman's motion to amend her complaint, the court concluded that the allegations in the amended complaint, even if taken as true, were still insufficient to overcome the "legal insufficiency" of Witzman's purported causes of action and that the Settlement Agreement and the 1994 probate court order precluded Witzman from asserting claims against either Wolfson or Harvey Flom as trustees.¹

On appeal, the court of appeals affirmed summary judgment in favor of LL & F/Flom with respect to the counts of negligence and misrepresentation, but the court of appeals reversed the district court on the remaining counts and remanded the...