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Stuart v. Freiberg

Supreme Court of Connecticut

May 19, 2015

WILLIAM A. STUART ET AL.
v.
RICHARD M. FREIBERG

Argued October 22, 2014

Page 1196

Action in four counts to recover damages for, inter alia, fraud and negligent misrepresentation, and for other relief, brought to the Superior Court in the judicial district of Stamford-Norwalk, where the court, J. R. Downey, J., granted the defendant's motion to strike the complaint; thereafter, the court, Jennings, J., granted the defendant's motion for judgment and rendered judgment for the defendant, from which the plaintiffs appealed to the Appellate Court, DiPentima, McLachlan and Dupont, Js., which reversed the trial court's judgment and remanded the case with direction to deny the defendant's motion to strike and for further proceedings; on remand, the court, Tobin, J., granted the defendant's motion for summary judgment on all four counts and rendered judgment thereon in his favor; thereafter, the court, Tobin, J., denied the plaintiffs' motion to reargue and the plaintiffs appealed to the Appellate Court, Beach and Bishop, Js., with DiPentima, C. J., dissenting, which reversed in part the trial court's judgment and remanded the case for further proceedings, and the defendant, on the granting of certification, appealed to this court.

Reversed in part; judgment directed.

SYLLABUS

The plaintiffs, W and J, sought to recover damages from the defendant, a certified public accountant, for, inter alia, fraud, negligent misrepresentation and accounting malpractice, alleging that the defendant prepared inaccurate and misleading financial statements that facilitated a misappropriation of funds from their father's estate. Specifically, the plaintiffs claimed that, because they relied on certain financial statements prepared by the defendant, they delayed pursuing the removal of their brother, K, from his position as executor of the estate. The defendant filed a motion for summary judgment claiming that the plaintiffs had not actually relied on any of his financial statements. In support of this motion, the defendant submitted an authenticated copy of a civil complaint seeking the removal of K that had been filed by the plaintiffs before the defendant began to work for the estate and deposition transcripts from the present case in which the plaintiffs had testified to not seeing, reading, or relying on the defendant's financial statements. The plaintiffs objected to the defendant's motion and submitted an affidavit from W stating that he relied on the defendant's inaccurate financial statements and that this reliance resulted in a delay of the efforts to remove K as a fiduciary. The trial court subsequently granted the defendant's motion for summary judgment, concluding that the plaintiffs failed to produce any evidence of actual reliance on the defendant's financial statements. Thereafter, the plaintiffs appealed to the Appellate Court, which reversed in part the trial court's judgment, concluding that there were genuine issues of material fact relating to the plaintiffs' claims of fraud, negligent misrepresentation and accounting malpractice. From that judgment, the defendant, on the granting of certification, appealed to this court. Held :

1. The Appellate Court improperly reversed the trial court's summary judgment rendered in favor of the defendant on the counts of fraud and negligent misrepresentation, this court having concluded that, in light of the plaintiffs' deposition testimony and the conclusory nature of the averments in W's affidavit, the plaintiffs had failed to demonstrate the existence of a genuine issue of material fact regarding actual reliance on a false statement by the defendant; contrary to the plaintiffs' claim, it was proper for the trial court to consider whether a genuine issue of material fact existed as to the element of reliance following its determination that there were genuine disputes over material facts bearing on other elements of the plaintiffs' claims, such as whether the financial statements were false, because, if the plaintiffs were unable to present sufficient evidence of reliance at trial, they could not prevail as a matter of law.

2. The Appellate Court improperly reversed the trial court's summary judgment rendered in favor of the defendant on the claim of accounting malpractice, this court having concluded that the plaintiffs failed to present sufficient evidence to demonstrate the existence of a genuine issue of material fact regarding the element of causation; a review of the operative complaint confirmed that the plaintiffs tailored their pleadings on accounting malpractice to the concept of reliance, rather than causation, and, on appeal, the plaintiffs failed to present any arguments that would allow this court to reach a result on the accounting malpractice count different from that reached on the counts of fraud and negligent misrepresentation.

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

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

Rogers, C. J., and Palmer, Zarella, Eveleigh, Espinosa, Robinson and Vertefeuille, Js. ROBINSON, J. In this opinion ROGERS, C. J., and PALMER, ZARELLA, ESPINOSA and VERTEFEUILLE, Js., concurred. EVELEIGH, J., dissenting.

OPINION

Page 1197

[316 Conn. 811] 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

Page 1198

complaint by the plaintiffs, William A. Stuart and Jonathan Stuart.[3] We agree and, accordingly, reverse the judgment of the Appellate Court in part.

[316 Conn. 812] 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 [316 Conn. 813] 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

Page 1199

simultaneously," Kenneth told the plaintiffs about the limited partnership's existence.

[316 Conn. 814] 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 (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

Page 1200

the plaintiffs finally [316 Conn. 815] 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. 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., 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., 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., 378.

At another point, however, Judge Adams commented on the plaintiffs' " languorous" approach to the misappropriations, [316 Conn. 816] 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., 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., 393.

On April 8, 2004, the plaintiffs commenced the present action against the defendant. The operative complaint[10] contains

Page 1201

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 [316 Conn. 817] 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. 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 [316 Conn. 818] 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 remove Kenneth as a fiduciary. The plaintiffs did not submit an affidavit by Jonathan in support of the objection. Although the plaintiffs submitted other affidavits, they did not speak to the plaintiffs' manner of reliance.

On July 15, 2011, the trial court granted the defendant's motion for summary judgment. The trial court acknowledged that the parties disputed some facts, such as whether the defendant had prepared false financial statements, but determined that the plaintiffs' claims were fatally undermined by their failure to produce any evidence that could support " their allegations of actual reliance upon any materials produced by the defendant." As to the counts of fraud and negligent misrepresentation, the trial court reviewed the undisputed

Page 1202

evidence and concluded that it was " impossible to see how the plaintiffs could have relied" on the defendant's allegedly false financial statements in the manner they described, because " the plaintiffs had already instituted an action in the Superior Court to remove Kenneth . . . as a fiduciary of the estate before the defendant was hired to do accounting work for the estate." As to the count of accounting malpractice, the trial court similarly reasoned that the plaintiffs could not conceivably " demonstrate that the defendant's conduct caused their supposed injuries." The trial court therefore determined that the plaintiffs had failed to raise a genuine issue of material fact with respect to each count and granted the defendant's motion for summary judgment. The trial court subsequently denied the plaintiffs' motion for reargument.

The plaintiffs appealed from the trial court's judgment to the Appellate Court, claiming that they had presented sufficient evidence to raise genuine issues of material fact with respect to each count. Stuart v. [316 Conn. 819] Freiberg, supra, 142 Conn.App. 706-707. In a divided decision, the Appellate Court reversed the trial court's award of summary judgment on the counts of the complaint that are relevant to this certified appeal. Id., 686-87; see also footnote 3 of this opinion. Following a review of the record, the Appellate Court first determined that the plaintiffs did not seek to remove Kenneth as executor and trustee by commencing Stuart v. Stuart, supra, 37 Conn.L.Rptr. 367, in 1993; rather, the plaintiffs sought different forms of injunctive relief and yet, " for whatever reasons," " appeared to tolerate" Kenneth continuing in his fiduciary roles " for some period of time during the Stuart v. Stuart [supra] litigation . . . ." Stuart v. Freiberg, supra, 701. Moving on to the issue of reliance, which was integral to the counts of fraud and negligent misrepresentation, the Appellate Court held that whether the plaintiffs " were misled into believing the financial reports prepared by the defendant and provided during the [ Stuart v. Stuart, supra] litigation . . . [remained] to be determined in a fact-based hearing." Stuart v. Freiberg, supra, 701. As for the issue of causation, which was integral to the accounting malpractice count, the Appellate Court drew a close comparison to reliance and then concluded that it too was " not amenable to summary judgment because it [was] fact bound" and the material facts were in dispute. Id., 706. Accordingly, the Appellate Court reversed in part the trial court's award of summary judgment and remanded the case for further proceedings.[11] Id.,

Page 1203

710. [316 Conn. 820] This certified appeal followed. See footnote 1 of this opinion.

On appeal, the defendant claims that the plaintiffs, in objecting to summary judgment, did not present sufficient counterevidence of the following: (1) their reliance on his financial statements, as was necessary in this particular case to demonstrate that a genuine issue of material fact existed on the counts of fraud and negligent misrepresentation; and (2) a causal connection between his financial statements and their alleged injuries, as was necessary in this particular case to demonstrate that a genuine issue of material fact existed on the count of accounting malpractice.[12] Thus, the defendant contends that the Appellate Court improperly reversed in part the trial court's grant of his motion for summary judgment. We agree, and address each of the defendant's claims in turn.

We begin by setting forth the appropriate standard of review. " Practice Book [§ 17-49] provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. . . . In deciding a motion for summary judgment, the [316 Conn. 821] trial court must view the evidence in the light most favorable to the nonmoving party. . . . The party seeking summary judgment has the burden of showing the absence of any genuine issue [of] material facts which, under applicable principles of substantive law, entitle him to a judgment as a matter of law . . . and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact. . . . A material fact . . . [is] a fact which will make a difference in the result of the case. . . . Finally, the scope of our review of the trial court's decision to grant the plaintiff's motion for summary judgment is plenary." (Internal quotation marks omitted.) DiPietro v. Farmington Sports Arena, LLC, 306 Conn. 107, 116, 49 A.3d 951 (2012).

I

FRAUD AND NEGLIGENT MISREPRESENTATION

Before we examine the dovetailing legal issues for the plaintiffs' counts of fraud and negligent misrepresentation, we first observe the ...


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