Spinner v. Nutt

• Decision Date: 14 April 1994
• Citation: 417 Mass. 549,631 N.E.2d 542
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: Howard SPINNER & others 1 v. Robert L. NUTT & others. 2

Page 542

631 N.E.2d 542

417 Mass. 549

Howard SPINNER & others ¹ v. Robert L. NUTT & others. ²

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Jan. 3, 1994.

Decided April 14, 1994.

Robert O. Berger, Boston, for Howard Spinner.

Stephen Hrones, Boston, for Alicia Spinner & others.

Richard W. Renehan, Boston, for Robert L. Nutt & others.

Harold Hestnes, Boston (B.J. Krintzman with him), for James H. Barnett & others.

Before LIACOS, C.J., and WILKINS, ABRAMS, LYNCH and O'CONNOR, JJ.

LYNCH, Justice.

This is an appeal from a judgment dismissing the plaintiffs' first amended complaint for failure to state a claim on which relief can be granted pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974). We granted the plaintiffs' application for direct appellate review and now affirm.

We review the allegations as set forth in the complaint mindful that, " '[i]n testing the correctness of a judgment dismissing a complaint for failure to state a claim on which relief can be granted, we accept as true all of the allegations of the complaint and all reasonable inferences which may be drawn from the complaint and which are favorable to the party whose claims have been dismissed. Jones v. Brockton Pub. Mkts., Inc., 369 Mass. 387, 388 (1975). Further, a motion to dismiss a complaint on such grounds should not be allowed unless it appears certain that the complaining party is not entitled to relief under any state of facts which could be proved in support of his claim. Romano v. Sacknoff, 4 Mass.App.Ct. 862 (1976).' Rae v. Air-Speed, Inc., 386 Mass. 187, 191 (1982)." Logotheti v. Gordon, 414 Mass. 308, 310-311, 607 N.E.2d 1015 (1993).

The plaintiffs are four of sixty-eight income and remainder beneficiaries of a testamentary trust established under the will of Robin Damon (Damon trust). The trust has two trustees, Damon Lyons and Cyrus J. Newbegin, who are also income beneficiaries of the trust. The defendants are the attorneys for one or the other of the individual trustees. ³

Over ninety per cent of the value of the Damon trust estate is comprised of stock in the Salem News Publishing Company (company). In 1987 and 1988, the trustees received written offers to purchase all the stock of the company for approximately $42,000,000. Apparently, trustee Newbegin did not want to accept the offer while trustee Lyons did. The two could not come to an agreement with respect to the offer and since then, the company's value has been substantially reduced.

The primary assertion in the complaint is based on the contention that the trustees' attorneys owe the plaintiffs, as beneficiaries of the trust, a duty of care. The defendants claim that they owe a duty only to their clients, the trustees, and owe no duty to the beneficiaries. The plaintiffs' negligence claims are said to arise because they foreseeably relied on the attorneys because:

"1) they live out of state;

"2) their families had relied on legal counsel since the 1920's to advise the trustees on the myriad legal issues that arose over a trust responsible for a newspaper and many beneficiaries;

"3) they expected and received income from the trust, based in part on the assistance of legal counsel; and

"4) beneficiaries are permitted by law to put complete faith and trust in their trustees and advisors."

The plaintiffs claim a breach of contract asserting that they were the intended beneficiaries of the contracts between the lawyers and the individual trustees. The plaintiffs further allege that the defendants are liable for aiding and abetting the trustees' breach of fiduciary duties. Finally, the plaintiffs allege that, pursuant to G.L. c. 230, § 5 (1992 ed.), and "established trust practice," they have the right to assert the claims that are the subject matter of their complaint on behalf of the trust since the trustees have refused to do so.

Negligence. In order to sustain a claim of negligence, the plaintiffs must show that the defendants owed them a duty of care. Such a duty would arise from an attorney-client relationship. 1 R. Mallen & J. Smith, Legal Malpractice § 8.1 (3d ed. 1989). It is undisputed that the plaintiffs and the defendants in this case had no direct attorney-client relationship. The plaintiffs claim that, even absent such a relationship, the defendants owed them a duty because it was foreseeable that the plaintiffs would rely on the defendants' advice to protect their interests.

We have observed that an attorney is not "absolutely insulated from liability to nonclients." Page v. Frazier, 388 Mass. 55, 65, 445 N.E.2d 148 (1983). "[A]n attorney owes a duty to nonclients who the attorney knows will rely on the services rendered." Robertson v. Gaston Snow & Ely Bartlett, 404 Mass. 515, 524, 536 N.E.2d 344, cert. denied, 493 U.S. 894, 110 S.Ct. 242, 107 L.Ed.2d 192 (1989). We have cautioned, however, that, " 'where an attorney is also under an independent and potentially conflicting duty to a client,' we are less likely to impose a duty to nonclients." Id., quoting Page v. Frazier, supra 388 Mass. at 63, 445 N.E.2d 148. See Logotheti v. Gordon, 414 Mass. 308, 312, 607 N.E.2d 1015 (1993) (we shall not impose conflicting duties on attorneys).

"A trustee must exercise good faith and act solely in the interests of the beneficiaries in administering the trust [and] must lay aside self-interest.... There can be no divided loyalty." Boston Safe Deposit & Trust Co. v. Lewis, 317 Mass. 137, 140, 57 N.E.2d 638 (1944). In the course of administering a trust, a trustee may be required to make difficult decisions with regard to his or her duties to the beneficiaries. A trustee's attorney guides the trustee in this decision-making process. That the interests of the trustee and the interests of the beneficiaries may at times conflict cannot seriously be disputed. G.L. c. 203, § 4B(c ) (1992 ed.). Should we decide that a trustee's attorney owes a duty not only to the trustee but also to the trust beneficiaries, conflicting loyalties could impermissibly interfere with the attorney's task of advising the trustee. This we refuse to do. We find the contrary authority unpersuasive, ⁴ and note that a number of jurisdictions and one legal commentator are in accord with the result we reach today. ⁵

The plaintiffs argue that the interests of the trustees and the interests of the beneficiaries in the circumstances presented here do not differ, and thus, conflicting duties are not a concern. We disagree. Our decisions make clear that it is the potential for conflict that prevents the imposition of a duty on the defendants to the trust beneficiaries. See DaRoza v. Arter, 416 Mass. 377, 383-384, 622 N.E.2d 604 (1993); Robertson v. Gaston Snow & Ely Bartlett, supra 404 Mass. at 524, 536 N.E.2d 344; Page v. Frazier, supra 388 Mass. at 63, 445 N.E.2d 148. See also S.J.C. Rule 3:07, Canon 5, DR 5-105, as appearing in 382 Mass. 781 (1981) (attorney prohibited from accepting employment if likely to involve representing differing interests). Therefore, an isolated instance identity of interests between the trustees and the beneficiaries would not support the imposition of a duty on the defendants to the plaintiffs.

Moreover, the disciplinary rules which govern attorney conduct in Massachusetts require in the circumstances of this case that an attorney preserve the secrets and confidences gained in the course of representing a client. S.J.C. Rule 3:07, Canon 4, DR 4-101, as appearing in 382 Mass. 778 (1981). To impose a duty on a trustee's attorney to beneficiaries could create situations antithetical to this disciplinary rule.

The plaintiffs claim that this case is analogous to the myriad of cases where courts in various jurisdictions have held attorneys liable to intended beneficiaries when will or trust drafting errors thwarted the intent of the decedent client. However, "[i]n those cases, there is no conflict between the duty the attorney owes to his or her client and the duty the attorney owes to intended beneficiaries. The beneficiaries, like the testator, want the will allowed." Logotheti v. Gordon, supra 414 Mass. at 311, 607 N.E.2d 1015. Here, not only did the two trustees disagree on the sale of the newspaper, but the plaintiffs are only four of sixty-eight beneficiaries of the trust. It is entirely likely that the class of beneficiaries also would have disagreed among themselves. Thus, there is no similarity to cases where the beneficiaries are seeking to enforce the desires of the client. We note, also, that policy considerations present in the negligent will-drafting cases where, if beneficiaries had no standing, an attorney's negligence would be sheltered from suit are nonexistent in this situation. Here, the beneficiaries may bring an action against the trustees and the trustees, in turn, may bring an action against the attorneys if appropriate. Indeed, the judge took judicial notice of a legal action pending against the trustees in this matter.

Third-party beneficiary theory. The plaintiffs claim that they were intended third-party beneficiaries of the contracts between the defendants and the trustees. ⁶ We have recognized that, "when one person, for a valuable consideration, engages with another, by simple contract, to do some act for the benefit of a third, the latter, who would enjoy the benefit of the act, may maintain an action for the breach of such engagement." Rae v. Air-Speed, Inc., 386 Mass. 187, 195, 435 N.E.2d 628 (1982), quoting Brewer v. Dyer, 7 Cush. 337, 340, 61 Mass. 337 (1851). In order to recover as a third-party beneficiary, the plaintiffs must show that they were intended beneficiaries of the contract between the defendant and the trustees. Rae v. Air-Speed, Inc., supra. A party is an intended beneficiary where "the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance." Id. 386 Mass. at 194, 435 N.E.2d 628, quoting Restatement (Second) of Contracts § 302(1)(b) (...