Heisinger v. Cleary

• Decision Date: 20 December 2016
• Docket Number: SC 19633
• Citation: 150 A.3d 1136,323 Conn. 765
• Court: Connecticut Supreme Court
• Parties: Cody B. HEISINGER v. Ward Frank CLEARY et al.

323 Conn. 765

150 A.3d 1136

Cody B. HEISINGER

v.Ward Frank CLEARY et al.

SC 19633

Supreme Court of Connecticut.

Argued September 21, 2016

Officially released December 20, 2016

Ralph P. Dupont, with whom, on the brief, was Barbara J. Dupont, for the appellant (plaintiff).

James L. Brawley, with whom were Michael R. Keller and, on the brief, Cristin E. Sheehan, for the appellee (named defendant).

James R. Fogarty, for the appellee (defendant Ann Heisinger Dillon).

Rogers, C. J., and Palmer, Zarella, Eveleigh, McDonald, Espinosa and Robinson, Js.

ROGERS, C.J.

This case concerns the standard of care applicable to executors who seek professional advice to value the assets of an estate for the purpose of preparing state and federal estate tax returns. The plaintiff, Cody B. Heisinger, appeals¹ from the trial court's rendering of summary judgment in favor of the defendants, Ward Frank Cleary and Ann Heisinger Dillon, after the plaintiff failed to produce an expert witness on standard of care in his action alleging that the defendants had breached their fiduciary duties by overvaluing an estate asset. The plaintiff claims that the trial court improperly concluded that an expert was required and that, on the undisputed facts, the court instead should have rendered summary judgment, as to liability, in his favor. We agree that an expert witness was unnecessary but conclude, nevertheless, that the trial court properly rendered summary judgment in the defendants' favor because the undisputed facts demonstrated conclusively that they could not be held liable for any errors allegedly committed by the professionals they had selected and retained. Accordingly, we affirm the judgment of the trial court.²

The following undisputed facts and procedural history are relevant to the appeal. The plaintiff is the son of Frank B. Heisinger (decedent), who died testate on November 9, 2007. The plaintiff is the decedent's sole heir and the only beneficiary of a trust established under the decedent's will. Pursuant to the terms of that will, the defendants are coexecutors of the decedent's estate. Dillon is the decedent's sister, and Cleary is an attorney with the law firm of Curtis, Brinckerhoff & Barrett, P.C., which serves as counsel for the estate and for many years had provided various legal services to the decedent and his family members. In addition to an extensive enumerated list of specific powers, the decedent's will, which was executed on November 21, 2005, granted the defendants, as the estate's executors, "all powers conferred on executors and trustees under the Connecticut Fiduciar[y] Powers Act [General Statutes § 45a–233 et seq. ], as amended, as the same exists on ... the date of the execution of [the] [w]ill and all powers conferred upon executors ... wherever [they] may act." Among the specific powers enumerated in the will was "to employ attorneys, accountants and other persons for services or advice."

Prior to the events in question, Dillon had no prior experience acting as a fiduciary. Following the decedent's death, she met with Cleary, who informed her that the estate's most valuable asset was shares of stock in the F.A. Bartlett Tree Expert Company (Bartlett), a closely held corporation established by the decedent's grandfather, and that the stock needed to be valued, for estate tax purposes, as of the date of the decedent's death. Neither Cleary nor Dillon possessed any training or expertise in the valuation of corporate stock. Approximately five years prior to the decedent's death, a trial court adjudicating the dissolution of the decedent's marriage, relying on an appraisal that valued the Bartlett stock as of September 30, 2001,³ had found that the stock was worth "approximately $2,120,000."⁴ About two months before the decedent's death, the Bartlett stock had been valued, for business purposes and with the decedent's awareness, by Management Planning, Inc. (Management), at $4,071,600. Pursuant to Cleary's recommendation,⁵ and with Dillon's agreement, the estate hired Management for the purpose of valuing the stock as of the date of the decedent's death. Management has more than seventy years of experience in preparing valuations of corporate stock for the purposes of, inter alia, estate tax return preparation. In deposition testimony, the plaintiff agreed that the defendants had a responsibility to get a date of death appraisal from a qualified appraisal firm and that Management was such a firm.

In July, 2008, Management provided the defendants with an appraisal report that concluded that the value of the Bartlett stock as of November 9, 2007, was $4,862,820.⁶ The increase in the value of the stock from its previous valuation was attributed to new information regarding the earnings of Bartlett in the third quarter of 2007. The July, 2008 appraisal report was signed by three members of Management's professional staff⁷ and contained a certification that it was prepared in conformity with various professional standards for appraisers. That same month, Cleary provided a complete copy of the appraisal report to the plaintiff. In November, 2008, Cleary sent draft copies of tax documents using the Management valuation to an attorney who represented the plaintiff at that time. In early 2009, the defendants filed state and federal tax returns for the estate using the Management valuation. From 2008 through 2011, neither the plaintiff nor any of the three attorneys who represented him during this period ever informed either of the defendants that they believed that the Bartlett stock had been overvalued, provided the defendants with an alternative appraisal, or requested that an additional appraisal be conducted. In 2011, the estate satisfied its Connecticut tax liability after its counsel negotiated a substantial reduction in that liability on the basis that the estate possessed insufficient liquid assets to pay the entire amount due. For similar reasons, the estate's payment of federal taxes was deferred until 2013, when the estate sold some of the stock back to Bartlett at the per share price included in Management's July, 2008 appraisal report.

In August, 2012, the plaintiff brought this action against the defendants alleging "maladministration" of the estate. In the operative complaint, the plaintiff averred that the defendants had breached their fiduciary duties as executors of the decedent's estate by "grossly overvaluing" the Bartlett stock.⁸ According to the complaint, Management's valuation of $4,862,820 as of the date of the decedent's death was approximately $3 million too high,⁹ which in turn had resulted in an excessive assessment of estate taxes. More specifically, the complaint alleged that the defendants had breached their fiduciary duties by failing: to cause a correct assessment and payment of estate taxes; to supervise properly the work of others; and to amend the purportedly erroneous estate tax returns in a timely fashion. It averred further that, because of the illiquidity of the estate's assets, the plaintiff had been exposed to the potential for personal liability for the taxes. As to the standard of care, the plaintiff alleged that the defendants had a duty to manage the decedent's estate "with the care and skill of a prudent business person in the management of his or her own business affairs," knowing that the stock was closely held and unmarketable, and constituted a large percentage of the estate's assets.

In answering the plaintiff's complaint, the defendants denied that they had breached their fiduciary duties. Additionally, they each advanced a number of special defenses, including that of reasonable reliance. Specifically, the defendants averred that they had engaged Management, a reputable company experienced in valuing corporate stock, for purposes of valuing the Bartlett stock, and that they reasonably had relied on the appraisal provided by Management when they filed the estate's federal and state tax returns.

In January, 2015, after substantial discovery had taken place, both defendants moved for summary judgment arguing, inter alia, that the plaintiff had failed to produce an expert who would testify as to the relevant standard of care for a fiduciary acting under the particular circumstances.¹⁰ They contended further that the plaintiff had produced no evidence that either of the defendants, by relying on the Management appraisal report, had committed an act constituting a breach of fiduciary duties, which, in the defendants' view, necessarily contemplates acts of fraud, self-dealing, conflict of interest or something similar.

The plaintiff objected to the defendants' motions and responded with his own motion for partial summary judgment, requesting that the court render judgment in his favor as to both defendants' liability. The plaintiff contended, inter alia, that expert testimony was unnecessary to prove a claim of breach of fiduciary duty and that breaches of fiduciary duty are not limited to instances of intentional wrongdoing, but rather, can include more passive behaviors such as "benign neglect," "simple neglect" or " ‘blind ... unreasonable reliance.’ " In the plaintiff's view, a jury could conclude, without the assistance of an expert, that the 2001 appraisal of the Bartlett stock in connection with the decedent's divorce proceedings, which employed a larger discount rate and resulted in a substantially lower valuation, should have raised a "red flag" for the defendants once they received the higher valuation from Management in 2008, and that their failure to seek an additional valuation, given the existence of this "red flag" and their general familiarity with Bartlett, was a breach of their fiduciary duties. Moreover, the plaintiff claimed, the defendants should have sought to amend the estate's tax returns on the basis of this knowledge, because the estate possessed insufficient liquid assets to pay the taxes calculated pursuant to the Management valuation, and the defendants...