Stuart v. Freiberg

• Decision Date: 19 May 2015
• Docket Number: No. 19208.,19208.
• Citation: 316 Conn. 809,116 A.3d 1195
• Court: Connecticut Supreme Court
• Parties: William A. STUART, et al. v. Richard M. FREIBERG.

316 Conn. 809

116 A.3d 1195

William A. STUART, et al.

v.Richard M. FREIBERG.

No. 19208.

Supreme Court of Connecticut.

Argued Oct. 22, 2014.

Decided May 19, 2015.

James A. Fulton, Greenwich, for the appellant (defendant).

Sandra J. Akoury, for the appellees (plaintiffs).

ROGERS, C.J., and PALMER, ZARELLA, EVELEIGH, ESPINOSA, ROBINSON and VERTEFEUILLE, Js.

Opinion

ROBINSON, J.

This certified appeal is the latest outgrowth of a lengthy and bitter estate dispute between brothers. The defendant, Richard M. Freiberg, appeals, upon our grant of his petition for certification,¹ from the judgment of the Appellate Court reversing in part the summary judgment rendered in his favor by the trial court, Tobin, J.² See Stuart v. Freiberg, 142 Conn.App. 684, 686–87, 69 A.3d 320 (2013). On appeal, the defendant claims that the Appellate Court improperly concluded that there existed genuine issues of material fact as to the counts of fraud, negligent misrepresentation, and accounting malpractice that were pleaded in the operative complaint by the plaintiffs, William A. Stuart and Jonathan Stuart.³ We agree and, accordingly, reverse the judgment of the Appellate Court in part.

The record reveals the following undisputed facts and procedural history.⁴ The plaintiffs and their older brother, Kenneth J. Stuart, Jr., are the children of Kenneth J. Stuart, Sr.⁵ In 1991, Stuart created a living trust and a will, with Kenneth named as trustee and executor. At the time, Stuart owned one half of a home in Wilton, approximately $2 million in securities and cash, and a significant art collection that included several famous paintings by Norman Rockwell. Most of these assets were transferred into the living trust. Stuart's will instructed that, if his wife preceded him in death, upon his own death, the trust's principal was to be distributed equally between his three sons.

In 1992, Stuart lost his wife and he began to show signs of deteriorating physical and mental health. That summer, Kenneth contacted the plaintiffs and proposed moving Stuart's assets from the living trust into a family limited partnership, which, Kenneth claimed, would yield estate tax advantages. The plaintiffs objected to this proposal because, under the corresponding draft partnership agreements, Kenneth would have been granted a broad degree of control over the assets as a general partner, while the plaintiffs would have lacked such control as only limited partners.

Without the plaintiffs' knowledge, on November 4, 1992, Kenneth and Stuart created a limited partnership in which they were the sole general partners and the plaintiffs were not partners at all. Through a series of transactions executed the same day, virtually all of the living trust's assets were transferred into the limited partnership. As a net result, when Stuart died on February 17, 1993, Kenneth assumed exclusive control over valuable assets that the plaintiffs had expected to inherit promptly.

A saga of legal disputes began later in 1993, starting with the plaintiffs' request in Probate Court to have Kenneth removed as an estate fiduciary “immediately” because they doubted his “ability to carry out his ... role honestly and fairly.” This removal attempt was unsuccessful.⁶ “[A]lmost simultaneously,” Kenneth told the plaintiffs about the limited partnership's existence.

The plaintiffs' misgivings deepened as the year pressed on. Pursuant to their request, the plaintiffs received a financial summary from Kenneth, dated November 19, 1993, that documented expenditures from the living trust during 1992. Upon reviewing the financial summary, the plaintiffs saw that Kenneth had misappropriated the trust's funds. This prompted the plaintiffs to file a complaint, dated December 17, 1993, in Superior Court that alleged Kenneth unduly influenced Stuart and also breached numerous fiduciary duties owed to them as estate beneficiaries. Stuart v. Stuart, Superior Court, judicial district of Stamford–Norwalk, Complex Litigation Docket, Docket No. X08–CV–02–0193031–S, 2004 WL 1730143 (June 28, 2004) (37 Conn. L. Rptr. 367 ), aff'd, 112 Conn.App. 160, 962 A.2d 842 (2009), rev'd in part, 297 Conn. 26, 996 A.2d 259 (2010). Among the plaintiffs' more specific allegations in this original complaint were that, during 1992, Kenneth had used the trust's funds to: (1) make $607,480 in various disbursements, only $88,500 of which were spent on Stuart; (2) loan himself $83,267; and (3) purchase real estate for his personal benefit. The plaintiffs requested as their relief, inter alia, injunctions that would prohibit Kenneth from exercising any control over assets in the trust or the limited partnership without their consent.

By the middle of 1994, Kenneth engaged the defendant as a certified public accountant for the first time. The defendant's work grew over the years to include the preparation of various financial statements for Stuart's estate and its related entities, but he was eventually replaced in September, 2001. Throughout the defendant's seven year engagement, the plaintiffs' civil action against Kenneth remained unresolved—as did the plaintiffs' accompanying requests for injunctive relief. Only in 2002, following an attempt to have some of the Norman Rockwell paintings sold,⁷ did the plaintiffs finally obtain an injunction that barred Kenneth from exercising control over the assets related to Stuart's estate.

In 2004, more than one decade after the plaintiffs first initiated their civil action against Kenneth, the trial court, Adams, J., issued its posttrial memorandum of decision in Stuart v. Stuart, supra, 37 Conn. L. Rptr. at 367.⁸ In that case, Judge Adams found that Kenneth exercised undue influence over Stuart in creating the limited partnership and declared it, and any asset transfers thereto, null and void. Id., at 376. Further, Judge Adams found that from at least 1992 through 2001, Kenneth had breached his fiduciary duties by utilizing assets in the trust and the limited partnership for his personal benefit. Id., at 379. In lamenting the difficulty of quantifying Kenneth's misdeeds, Judge Adams observed that the plaintiffs' forensic accounting expert had testified at trial that the defendant's work product was “designed to hide, rather than disclose the truth.” Id., at 378.

At another point, however, Judge Adams commented on the plaintiffs' “languorous” approach to the misappropriations, stating: “[The plaintiffs] were aware of [Kenneth's] spending what they considered to be [Stuart's] money on himself early on.... Yet while a suit was filed in 1993, no further action was taken to stop the spending until an injunction proceeding in 2002. Indeed, William asked [Kenneth] why he did not put all the money in one account and spend it on himself out of that account.... While not amounting to a waiver, it was some basis for [Kenneth] to believe [that the plaintiffs] did not object strenuously to his using the money for basic living expenses.” (Citation omitted.) Id., at 389. Ultimately, Judge Adams ruled against Kenneth and awarded monetary damages to Stuart's estate in the amount of $2,375,528.38—inclusive of $180,000 to cover the forensic accounting expert's fees.⁹ Id., at 393.

On April 8, 2004, the plaintiffs commenced the present action against the defendant. The operative complaint¹⁰ contains the following three counts that are relevant to this appeal: (1) fraud; (2) negligent misrepresentation; and (3) accounting malpractice. See footnote 3 of this opinion. In essence, the plaintiffs alleged that the defendant prepared inaccurate and misleading financial statements that facilitated the misappropriation of estate funds by Kenneth. For each count, the plaintiffs alleged, more specifically, that they suffered financial harm because they “relied on [the defendant's] misrepresentations ... in that they ... [1] delayed pursuing the removal of [Kenneth] from his [fiduciary] position ... because they believed [the defendant's] statements to be true, and ... [2] delayed pursuing their claims in Superior Court against [Kenneth]....”

The defendant subsequently moved for summary judgment, asserting that no genuine issue of material fact existed as to any count. In particular, the defendant contended that the plaintiffs had not actually relied on any of his financial statements. In support of his motion, the defendant submitted an authenticated copy of the plaintiffs' original complaint in Stuart v. Stuart, supra, 37 Conn. L. Rptr. at 367, as well as authenticated excerpts from the depositions of William and Jonathan in the present case. Jonathan testified at his deposition that, by the middle of 1993, he had determined that Kenneth misappropriated hundreds of thousands of dollars from Stuart's estate. Jonathan further testified that, between 1994 and 2001, he had periodically received financial statements that the defendant had prepared. When asked to identify which of the defendant's financial statements he had relied on detrimentally, Jonathan testified that he “didn't rely on any documents,” “didn't look at documents,” and “didn't need documents to tell [him that he] lost money.” For his part, William similarly testified that, prior to initiating Stuart v. Stuart, supra, in 1993, he had already believed that Kenneth misappropriated hundreds of thousands of dollars from Stuart's estate. Moreover, William testified that he was not familiar with any of the defendant's financial statements, did not recall receiving them, and “couldn't have relied on” them.

In their objection to the defendant's motion for summary judgment, the plaintiffs asserted that genuine issues of material fact existed as to each count. In particular, they disputed the defendant's argument that they did not rely on his statements. In support of that objection, the plaintiffs submitted an affidavit from William in which he succinctly states that he relied on the defendant's inaccurate financial statements, and that this reliance resulted in a delay of the efforts to...