Posts tagged with "undue influence"

Conveyance of Trust Assets Must Abide by the Clear and Unambiguous Terms of the Trust Instrument

Gabriele v. Williams, KNLCV096001373S, 2011 WL 2480535 (Conn. Super. Ct. May 26, 2011)

In a case before the Superior Court of Connecticut, a daughter, in her capacity as the conservator of her mother’s estate, petitioned the court to determine the rights of the family members to undeveloped land and to quiet title to the contested property. In her answer to the complaint, the mother requested that the court declare her trust terminated and declare her the sole title owner of the contested real estate. The court quieted title to the property in the trust and declared the attempted revocation of the trust to be null and void.

In 1992, at the age of 68, the mother established a nominee trust to assist with estate planning for approximately 170 acres of undeveloped land that she owned. On the same date that the trust was established, the mother conveyed her interest in the property to the trust, excepting a two acre lot with her residence. Keeping the land in the family and undeveloped as long as possible was a priority for the mother and, together with estate tax planning, were motivating reasons for establishing the trust. She named herself as the trustee and a beneficiary of the trust, and named her daughter and her daughter’s two sons as additional beneficiaries. All three additional beneficiaries agreed with her philosophy of keeping the land intact and undeveloped. The trust contained two provisions that limited the trustee’s powers to deal with the trust property except as directed by all beneficiaries. It also required that any amendments be signed by all the beneficiaries. An agreement was later provided to clarify the administrative provisions of the trust, stating that if the beneficiaries differed in opinion as to the directions that should be given to the trustee, a majority vote by beneficial interest would control. From 1992 to 1998, the mother made a series of gifts of percentages of interest in the trust to her daughter and to her daughter’s two sons. According to the percentage in the final schedule of beneficial interests dated 1998, the mother owned approximately 49-percent, the daughter owned approximately 21-percent, and the two grandsons each owned approximately 15-percent. The trust, the property conveyance and the later agreement were all recorded in the town land records in a timely fashion.

In 2004, at the age of 80, the mother began to have medical and cognitive difficulties. She was diagnosed with breast cancer. During a brief hospital stay in April, a neurologist also diagnosed her with mild dementia. In October 2004, her primary doctor re-examined the mother and diagnosed her with “senile dementia with depression, Alzheimer type.” Because of the mother’s ill health and the conflict her care was causing between family members, the town probate judge petitioned for an involuntary conservatorship of the mother. The daughter later requested that the petition for conservatorship be withdrawn because the hearings were causing her mother obvious distress. The acting judge withdrew the petition without making a finding of the mother’s capacity.

While the conservatorship hearings were in process, a family member who was not a beneficiary of the 1992 trust arranged for a new attorney to get involved with the mother’s affairs. In October 2004, the new attorney prepared a deed for the mother to sign as trustee purporting to convey all trust assets from the trust to herself individually. In November 2004, the attorney prepared a revocation of trust for the mother’s signature. The family attorney who wrote the trust and who represented the mother for many years was not consulted in any of the transactions. None of the beneficiaries of the 1992 trust were consulted or involved in the decision making process to convey the sole trust asset to the mother individually nor did they consent to the conveyance. When the family attorney learned of the deed and the attempted revocation, he prepared an affidavit and had it recorded in the town land records.

In 2006, the mother was formally declared incompetent through temporary conservatorship. A permanent involuntary conservatorship of the person and estate followed, and was still in effect at the time of the instant case.

In order to render judgment in a quiet title action, Connecticut courts are permitted to determine the construction of instruments that are the sources of contested title. Conn. Gen. Stat. § 47-31(f). The instant case required the court to examine four documents: the 1992 trust instrument, the 1998 final schedule of beneficial interests, the 2004 deed conveying the trust asset to the mother individually, and the 2004 revocation of trust. The construction of a trust instrument presents a question of law to be determined in the light of facts. According to Connecticut case law, a court’s role is to determine the meaning of what the grantor stated in the trust instrument and to not speculate upon what the grantor meant to state in the instrument. Connecticut Bank & Trust Co. v. Lyman, 148 Conn. 273, 278-79, 170 A.2d 130 (1961). Expressed intent must control the court’s interpretation of the instrument. In determining the intent of the grantor, the words used in the trust instrument are to be interpreted in their ordinary sense and all the provisions must be construed together. Tremaine v. Tremaine, 235 Conn. 45, 61, 663 A.2d 387 (1995). Therefore, the plain language of the trust instrument itself, rather than extrinsic evidence of actual intent, is determinative of the grantors’ intent. Heffernan v. Freedman, 177 Conn. 476, 481, 418 A.2d 895 (1979).

The 1992 trust instrument contained clear and unambiguous language that the trustee had no power to deal in or deal with the estate except as directed by all beneficiaries. At the time of the attempted conveyance of the contested property from the trust back to the mother individually, the trust had four beneficiaries. Three beneficiaries neither knew of nor agreed to the conveyance. Therefore, the court found that the attempted conveyance in 2004 was a violation of the trust document, and declared the conveyance to be void for that reason. Furthermore, any attempted transfer of the trust estate back to the grantor by deed or revocation without compliance with the clear and unequivocal terms of the trust constitutes a breach of the grantor’s fiduciary duty to the beneficiaries. The mother, in her capacity as trustee, was a fiduciary within the definition of Connecticut law, Conn. Gen. Stat. § 45a-199, and could not personally benefit from the trust. Therefore, the court declared the both conveyance and revocation were void due to the mother’s breach of fiduciary duty resulting from her violation of the terms of the trust agreement and her intention for personal benefit.

The court additionally determined that the mother lacked the necessary capacity to execute the 2004 documents due to her mental condition. The mental capacity to make a deed is defined as whether, at the time of executing the deed, the person possessed understanding sufficient to comprehend the nature, extent and consequences of the deed. Both the doctor who attended to the mother during a brief hospital stay and the mother’s primary doctor had diagnosed her with mild dementia in relatively close proximity to the attempted transactions. Additionally, the mother was not able to remember and understand the trust she created in 1992 and the gifts she had granted subsequent to its creation. These two factors taken together supported the court’s determination that the 2004 attempted conveyance of the contested property from the trust and the attempted revocation of the trust was null and void.

Even if the conveyance and revocation were otherwise effective, the court declared these transactions to be null and void because the family member involved in bringing them about did so through the exercise of undue influence. A deed procured by undue influence is voidable regardless of whether the undue influence was exerted by the grantee or another individual. Fritz v. Mazurek, 156 Conn. 555 (1968). Connecticut case law sets out four elements necessary for a finding of undue influence: (1) a person who is subject to influence, (2) an opportunity to exert undue influence, (3) a disposition to exert undue influence, and (4) a result indicating undue influence. Dinan v. Marchand, 279 Conn. 558, 560, fn.1 (2006). As evidence of these elements, the court cited the affidavit of the town probate judge who initiated the involuntary conservatorship proceedings to protect the mother from the family member. The affidavit described the family member’s intention to change the mother’s trust and will to benefit him, as well as the steps that he took to keep the mother isolated and locked in the house. The family member selected a new attorney, failed to contact the family’s regular attorney and attended all the conferences the new attorney held with his mother. The changes that would result from the conveyance and revocation would solely benefit the family member involved. Based on this evidence, taken together with other facts of the case, the court found the elements of undue influence satisfied and the two instruments to be null and void on this basis.

Because the trial court declared the 2004 property conveyance and revocation of trust to be null and void on several bases, the court determined that title to the contested property remained vested in the 1992 trust. Furthermore, the court clarified that the beneficiaries of the trust and the proportions of their interests are as described in the schedule of beneficial interests signed by the mother in 1998.

Should you have any questions relating to trusts, real estate and other personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.
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Property Conveyance May Satisfy the Statute of Frauds Requirement to Create a Trust

Property Conveyance May Satisfy the Statute of Frauds Requirement to Create a Trust

Ciccaglione v. Stewart, CV074008040, 2012 WL 671933 (Conn. Super. Ct. Feb. 8, 2012)

In a recent case before the Connecticut Superior Court, two daughters sought a declaratory judgment as to the validity of an unsigned document purporting to be their deceased mother’s trust agreement and quiet title to a contested piece of real estate. The daughters contended that the trustees held the contested property in fee simple; therefore, the real estate was not part of the mother’s estate to be distributed in accordance with her will. The trial court concluded that the trust was validly created and the contested real property was a trust asset.

The original executed copy of the mother’s 2004 trust agreement could not be found after her death. Two of her daughters sought a court judgment declaring that an unsigned copy of their mother’s trust agreement created a valid and enforceable inter vivos trust, They contended that an irrevocable trust had been created in August 2004 when their mother executed and recorded the warranty deed that conveyed the contested property to the trust because the conveyance and circumstances surrounding it manifested their mother’s clear intent to create that trust. The remaining heirs denied these allegations and raised several special defenses, including that the unsigned trust agreement did not comply with the Statute of Frauds, that the deed was invalid, that one or both of the daughters exerted undue influence over their mother and that their mother lacked capacity when she created the trust.

The requisite elements of a valid and enforceable trust are: (1) a trustee, who holds the trust property and is subject to duties to deal with it for the benefit of one or more others; (2) one or more beneficiaries, to whom and for whose benefit the trustee owes the duties with respect to the trust property; and (3) trust property, which is held by the trustee for the beneficiaries. Goytizolo v. Moore, 27 Conn.App. 22, 25, 604 A.2d 362 (1992). According to the Restatement of Trusts, if the owner of property declares himself to be the trustee of the property or transfers it “in trust” for a named person, such writing sufficiently demonstrates the purpose of the trust to satisfy the writing requirement of the Statute of Frauds. Restatement (Second) of Trusts § 46 cmt. (a) (1959).

The daughters alleged that the August 2004 warranty deed conveying the contested property to their mother’s inter vivos trust satisfied the Statute of Frauds because it set forth the trust property, the beneficiaries and the purpose of the trust with reasonable definiteness. Because the warranty deed transferred the property from the mother individually to the inter vivos trust, it was as if the property was transferred “in trust” for a named person and the warranty deed was a declaration of a passive trust. They also contended that because the mother signed the warranty deed as trustee, she was declaring herself to be the trustee of the property for the beneficiaries of the inter vivos trust. Although the court concluded that the execution of the warranty deed by itself funded rather than created the inter vivos trust, the court also concluded that the warranty deed was sufficient evidence to satisfy the Statute of Frauds. The deed was a writing signed by the mother demonstrating that she manifested an intent to create the trust and impose the duty of a trustee upon herself. Additional testimony from witnesses at the trial supported the court’s conclusion that the mother executed the trust agreement, along with her will and the warranty deed, in August 2004 as part of her overall testamentary plan and that unsigned copy of the trust agreement submitted by the two daughters was a true copy of the agreement which established the terms of the agreement.

The heirs contesting the trust alleged that the August 2004 warranty deed conveying the contested property to the mother’s inter vivos trust was invalid because the deed named the trust rather than the trustee as the grantee of the property. According to the Connecticut Standards of Title, a grantee of real property must be in existence and have capacity to take and hold legal title to land at the time of the conveyance. A trust does not have such capacity: the trustee, or other fiduciary of the trust, is the appropriate grantee. See Connecticut Bar Association, Connecticut Standards of Title (1999), standard 7.1, comments 1 and 4. Connecticut law, however, provides that deeds with certain defects are considered to be valid unless an action challenging the deed and a lis pendens are recorded in the town land records within two years of recording the defective instrument. Conn. Gen. Stat. § 47-36aa(a). This statute covers defective deeds made to grantees that are not recognized by law as having the capacity to take or hold an interest in real property. Conn. Gen. Stat. § 47-36aa(a)(4). Because the heirs contesting the trust did not file an action challenging the validity of the deed within two years of its recording, the trial court concluded that the August 2004 warranty deed had been validated by the operation of the statute, which confirmed the conveyance to the grantee and any subsequent transfers of the interest by the grantee to any subsequent transferees.

The heirs contesting the trust alleged that the trust was void because one or both of the two daughters seeking to enforce the trust exerted undue influence over their mother during its making. Undue influence is the exercise of sufficient control over a person in an attempt to destroy his free agency and constrain him to do something other than what he would do under normal circumstances. Connecticut case law sets out four elements necessary for a finding of undue influence: (1) a person who is subject to influence, (2) an opportunity to exert undue influence, (3) a disposition to exert undue influence, and (4) a result indicating undue influence. Gengaro v. New Haven, 118 Conn.App. 642, 649–50, 984 A.2d 1133 (2009) (internal quotations omitted); see also Dinan v. Marchand, 279 Conn. 558, 560, fn.1 (2006). The heirs contesting the trust argued that their mother was susceptible to undue influence because of her medical condition and fear of being placed in a nursing home. They also alleged that one or both of the daughters who were seeking to enforce the trust were in a position to influence her because they had medical and financial control over their mother. At least one of the two daughters, who was the oldest female in a family of eleven, had the disposition to exert such influence. Finally, they argued that the terms of the trust revealed the extent of that influence because the terms benefitted the daughters seeking to enforce the trust. However, based on the testimony of witnesses at trial, the court concluded that the mother was not under any undue influence when she executed the trust and other testamentary documents in August 2004.

Finally, the heirs contesting the trust argued that the trust agreement was void due to their mother’s lack of capacity. Specifically, they argued that there was evidence that their mother did not understand the terms of the trust agreement because when she later wanted to sell the contested property, she discovered that she could not. The mother had medical and neurological conditions, including a stroke in 2003 and terminal cancer in 2006; therefore, she was preoccupied with her health and was concerned about being placed in a nursing home. Furthermore, she loved all of her children and wanted them to be treated equally and fairly, but the terms of the trust are unfair to some of the beneficiaries.

Capacity to make a trust is the same as the capacity to make a will or other testamentary instrument. Connecticut statutory law generally requires that at testator be “any person eighteen years of age or older, and of sound mind.” Conn. Gen. Stat. § 45a-250. Case law establishes the test for testamentary capacity as “whether the testator had mind and memory sound enough to know and understand the business upon which he was engaged at the time of execution.” City National Bank and Trust Co.’s Appeal, 145 Conn. 518, 521, 144 A.2d 338 (1958). Testamentary capacity is assessed at the time the instrument is executed, and not on the testator’s ability years later to remember the contents of the instrument. Therefore, based on testimony from several witness at trial, the court concluded that the mother had sufficient testamentary capacity to create an enforceable inter vivos trust at the same time she created her other testamentary documents. Furthermore, the mother’s expressed wishes were to preserve her property for her children and grandchildren; the court concluded that the trust was the most plausible legal means to carry out these wishes.

The trial court concluded that the trust was validly created and the contested real property was a trust asset. Therefore, the unsigned copy of the trust was an expression of the intent of the mother, in her capacity as grantor, and was a valid and enforceable trust instrument.

Should you have any questions relating to trusts, estates and other personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

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FINRA Arbitrators are Immune from Civil Liability When Making Decisions within Their Jurisdiction

FINRA Arbitrators are Immune from Civil Liability When Making Decisions within Their Jurisdiction

Richard Sacks, d/b/a Investors Recovery Service, v. Dean Dietrich and Teri Coster Boesch, 663 F.3d 1065 (9th Cir. 2011)

In a case before the Ninth Circuit, Richard Sacks (“Sacks”), doing business as Investor Recovery Services, appealed a United States District Court ruling dismissing his claims of intentional and negligent interference with contract and negligent interference with prospective economic advantage against Financial Industry Regulatory Authority (“FINRA”) arbitrators Dean Dietrich and Teri Coster Boesch (“the challenged arbitrators”). The Ninth Circuit affirmed the United States District Court for the Northern District of California ruling that Sacks’s claims were barred by arbitral immunity.

Sacks entered into a written contract with a client to represent him in a FINRA securities arbitration proceeding. In order to submit his dispute to FINRA, Sacks’s client signed a FINRA submission agreement. On behalf of his client, Sacks submitted a Statement of Claim, paid filing fees and requested a hearing. FINRA appointed a panel of three arbitrators, including the challenged arbitrators, to hear and decide the claims of Sacks’s client.

After two telephone hearings, the respondents in the arbitration moved to have Sacks disqualified on the grounds that he was ineligible under FINRA Rule 13208, which disallows representation by a person who is not an attorney and who is also “currently suspended or barred from the securities industry in any capacity.” Sacks was not an attorney and was barred from the securities industry in 1991. In his response to the motion to disqualify, Sacks objected to the arbitration panel’s consideration of the issue arguing that the panel did not have the authority to make a decision on his client’s representation and that he had not contracted with the panel to make any such decision. However, Sacks disputed neither the fact that he was not an attorney nor the fact that he had been barred from the securities industry. The challenged arbitrators signed an order disqualifying Sacks from representing his client. The third arbitrator did not join in the order.

Sacks filed a complaint in state court against the challenged arbitrators alleging that, by preventing him from representing his client, the challenged arbitrators exceeded their authority under his client’s FINRA submission agreement, FINRA rules and state law. The challenged arbitrators removed the case to federal district court. The district court ruled that Sacks’s claims were barred by arbitral immunity, granted the challenged arbitrators’ motion to dismiss and entered judgment dismissing all claims with prejudice. Sacks appealed.

The doctrine of arbitral immunity aims to protect decision makers from undue influence and the decision making process from reprisals by dissatisfied litigants. Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579, 1582 (9th Cir.1987). The doctrine only applies to claims that effectively seek to challenge the decisional act of an arbitrator or an arbitration panel. More specifically, it limits arbitrators’ immunity to “civil liability for acts within their jurisdiction arising out of their arbitral functions in contractually agreed upon arbitration hearings.” Id. at 1582.

Sacks argued that the doctrine of arbitral immunity was inapplicable to bar his claims because the challenged arbitrators exceeded their jurisdiction. The first basis for this argument was that FINRA rules and applicable law prevented the challenged arbitrators from deciding a representational issue. Specifically, Sacks argued that FINRA Rule 13208 itself did not give arbitrators the authority to prohibit him from representing his client. However, the appellate court determined that, taken as a whole, FINRA rules and applicable law dictate that the challenged arbitrators were acting within their jurisdiction. FINRA Rule 13413 grants the arbitration panel authority to interpret and determine the applicability of FINRA rules and provides that “[s]uch interpretations are final and binding upon the parties.” There was no issue regarding Sacks’s lack of qualification under FINRA Rule 13208 because it was undisputed that he was not an attorney and had been barred from the securities industry. Therefore, the challenged arbitrators did not exceed their authority in issuing the disqualification order.

The second basis for Sacks’s argument that the challenged arbitrators exceeded their authority is that he could not be bound by the arbitration panel because he was not a party to the arbitration agreement. The appellate court determined that Sacks was still bound by the arbitration agreement under ordinary contract and agency principles. When Sacks’s client submitted his claim to FINRA, the FINRA arbitrators had jurisdiction to issue binding interpretations of FINRA rules. Therefore, because the challenged arbitrators acted with full authority under the client’s arbitration agreement, they could not be subject to suit by a party representative.

The appellate court determined that the arbitrators were acting within their jurisdiction and Sacks’s claims arose out of a decisional act. Therefore, the district court properly applied the doctrine of arbitral immunity to bar Sacks’s claims. The appellate court affirmed the district court rulings.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

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