Court: Massachusetts Supreme Judicial Court; November 7, 2008; Massachusetts; State Supreme Court
Claims in this case center on alleged breaches of fiduciary duties by Sumner M. Redstone and his brother Edward regarding the redemption of shares in National Amusements, Inc. (NAI), which they held in trust for their children: Sumner’s children, Brent and Shari, and Edward’s children, Ruth Ann and Michael. The plaintiffs, Michael and current trustees of three trusts that previously held NAI shares, initiated their lawsuit in 2006, contesting stock redemptions from 1972 and 1984. They assert that Edward improperly converted shares held in trust for Ruth Ann and Michael in 1972 and sold them back to NAI under a redemption agreement sanctioned by Sumner. Additionally, they claim that in 1984, Sumner facilitated further redemptions of shares held in trust for both families for inadequate value, constituting breaches of fiduciary duty, self-dealing, and unjust enrichment. The plaintiffs seek either the reversal of these redemptions and return of the shares or monetary damages reflecting their current worth, alongside the disgorgement of profits gained by Sumner and Edward from these transactions.
The defendants, Sumner, Edward, and NAI, moved to dismiss based on statute of limitations, asserting that the three-year limit for such claims had lapsed by 1987, as a successor trustee, James R. DeGiacomo, was aware of the pertinent facts by 1984. They contended that Michael, then 27, also had enough knowledge to initiate claims regarding the 1984 redemption. The Superior Court judge, while acknowledging the strength of the statute of limitations argument, denied the motions without prejudice, allowing for future reassertion. He limited discovery to relevant issues surrounding the statute of limitations, including DeGiacomo's deposition and NAI’s financial records from 1983 and 1984. Following limited discovery, the defendants sought summary judgment on statute of limitations grounds, which the judge granted, concluding that DeGiacomo possessed sufficient knowledge by 1984 to have pursued legal action against Sumner and Edward for their alleged fiduciary breaches.
The judge referenced Demoulas v. Demoulas Super Mkts., Inc. to assert that the three-year statute of limitations begins for a trust and its beneficiaries when a prior trustee gains knowledge of a predecessor's wrongdoing. In 1984, Michael had sufficient knowledge regarding the redemption to trigger this limitations period for his claims. The judge indicated that the plaintiffs failed to provide evidence that would exempt their case from this statute. Following the judge's ruling, which allowed the defendants' joint motion for summary judgment, the plaintiffs appealed. The appellate court granted direct review and, while affirming some aspects of the judge’s decision, vacated others.
The background details reveal that in 1959, Mickey Redstone established NAI, issuing shares to himself and his sons, Sumner and Edward. In 1968, he created the Michael Redstone Trust to benefit his grandchildren, funded with fifty shares of NAI, divided equally among the four grandchildren. The trust did not specify procedures for share redemption, and beneficiaries would receive their shares upon turning thirty-five.
A significant conflict arose in the late 1960s between Mickey and Sumner on one side and Edward on the other, leading Edward to leave NAI in 1971. Edward sought his one hundred shares through attorney James R. DeGiacomo, resulting in two lawsuits against Mickey, Sumner, NAI, and an affiliate. Settlement negotiations ensued, focusing on the redemption of Edward's shares, amid disagreements regarding his entitlement. The dispute was resolved in 1972 through a written agreement, which acknowledged that Edward had been holding a portion of the shares for his children, although he contested the specific allocation.
Mickey asserted that upon the formation of NAI, there was an agreement dictating that over 50% of the stock registered in Edward's name would be held in trust for his children's benefit, despite Edward not owning that percentage. The settlement agreement established that Edward owned sixty-six and two-thirds shares of NAI, which he agreed to sell to NAI for $5 million. Additionally, he would execute irrevocable declarations of trust for Ruth Ann and Michael, each trust holding sixteen and two-thirds shares, which was fewer than the fifty shares claimed to be held in oral trusts.
Sumner was appointed as the sole trustee for both trusts, while Edward relinquished his role as cotrustee of the Grandchildren’s Trust, replaced by NAI’s general counsel, Louis Winer. The settlement agreement, signed by all involved parties and DeGiacomo as a witness, included NAI paying $135,000 in attorney’s fees. In a separate agreement, NAI redeemed Edward's shares for $5 million directly to him.
The trusts were designed to memorialize prior oral trusts, prohibiting distributions of principal to Ruth Ann and Michael until they reached forty years old. Sumner, as trustee, had the authority to sell the shares if deemed in the beneficiaries’ best interests and would be immune from liability for such actions. NAI retained the right of first refusal for any share sales, with arbitration for pricing disputes and beneficiary representation by independent counsel chosen by the trustee. At the time of the settlement, Ruth Ann was eighteen and Michael was fifteen, and neither had independent legal representation. Following the redemption, DeGiacomo informed Ruth Ann of the ownership dispute and the establishment of trusts, but it is unclear if she was aware of the claims regarding the fifty shares held in oral trusts. In 1982, to facilitate the redemption of shares in the trusts, Sumner appointed DeGiacomo as independent counsel for Ruth Ann and Michael's trusts.
DeGiacomo's responsibilities included assessing the best interests of the beneficiaries regarding share redemptions and determining their fair value. The shares in question were non-dividend-paying and non-marketable. Although the Grandchildren’s Trust did not appoint independent counsel, DeGiacomo viewed his role under the Ruth Ann and Michael Trusts as representing Ruth Ann and Michael's interests concerning their shares in the Grandchildren’s Trust. He did not consider himself independent counsel for other beneficiaries, Brent and Shari, but believed his valuation would also impact their shares.
Sumner commissioned CPA Samuel Rosen to appraise the fifty-eight and one-third shares of NAI, valued at $9.9 million in February 1983. DeGiacomo sought independent reviews from Citibank experts, who argued Rosen's valuation was understated, failing to account for NAI's real estate and improperly applying a 35% discount for lack of marketability. Edward, knowledgeable in the movie theater industry, provided insights that contrasted with Sumner and Rosen's negative outlook, citing healthy ticket sales.
To resolve valuation disputes, DeGiacomo proposed a “high-low” arbitration process for share pricing, suggesting a range of $15 million to $5 million. Sumner expressed impatience and suggested he could terminate the redemption process, which DeGiacomo contested, threatening legal action. Sumner did not proceed with termination. DeGiacomo had no current independent appraisal of NAI's real estate but referenced property tax bills and Edward's extensive knowledge of the property.
Sumner proposed a redemption price for shares that initially ranged from $12.5 million to $7.5 million, countering DeGiacomo’s “high-low” range. Ultimately, Sumner accepted DeGiacomo's range, leading to an agreement in November 1983 for NAI to redeem the shares at $15 million, the upper limit of DeGiacomo's proposed range. DeGiacomo testified to having verified the fairness of this price with Citibank experts and Edward, while Daume, despite not recalling his specific conclusions, did not dispute that he had deemed the price fair.
Leading up to the agreement, DeGiacomo maintained awareness of NAI's financial status and requested current financial information, although he could not specify the documents he received. On March 8, 1984, NAI redeemed 58.33 shares for $15 million—$5.1 million above Rosen's valuation—and an additional 25 shares held for other beneficiaries for $6.4 million, totaling $21.4 million. The payment was made to the trusts. On the redemption day, Rosen was appointed as cotrustee alongside Sumner for the Ruth Ann and Michael Trusts and replaced Bella as cotrustee for the Grandchildren's Trust.
The redemption agreement, signed on the same day, included Sumner as NAI’s president, with DeGiacomo as independent counsel. DeGiacomo's request for the redemption of shares held in the Grandchildren’s Trust was endorsed by the trustees, affirming it was in the best interest of all beneficiaries. Brent, Shari, and Michael, all adults at the time, signed a statement endorsing the redemption, although Ruth Ann's signature was absent due to her being missing. DeGiacomo testified in 2007 that he did not recall consulting Michael about the redemption in 1984.
Thomas M. Blake, an accountant for the plaintiffs, stated in his affidavit that the redemption price of NAI's common stock significantly undervalued the shares as of the transaction date. Blake, while acknowledging the preliminary nature of his analysis, criticized Rosen's valuation methodology and estimated that the shares held in trust for Ruth Ann and Michael were worth three to five times the $15 million paid based on NAI’s financial statements from 1983 and 1984.
Following the redemption agreement, there were changes in the trustees of the various trusts. Sumner resigned as cotrustee of the Ruth Ann Trust, appointing DeGiacomo as his replacement, while also maintaining his role in the Michael Trust alongside Rosen and DeGiacomo. The Grandchildren’s Trust saw similar changes with Sumner resigning in 1991, and the current trustees, Thomas N. O’Connor and Patricia Gatto, were appointed in 2006. Prior trustees, including George Duncan, William Eisen, and Mark Schuster, were mentioned but their specific roles and durations were unclear.
After the 1984 redemption, only 100 shares remained outstanding, with Sumner becoming the majority shareholder for the first time.
The excerpt also discusses the conditions for summary judgment under Massachusetts law, stating it is appropriate when there are no genuine issues of material fact. The judge evaluates evidence favorably for the nonmoving party without assessing witness credibility or weighing evidence. If a summary judgment is sought based on a statute of limitations, the burden shifts to the plaintiff to present facts that could exempt their claim from the statute limits. If the plaintiff successfully alleges such facts, the defendant cannot obtain summary judgment.
The statute of limitations for the plaintiffs' claims of breaches of fiduciary duty is governed by G. L. c. 260, § 2A, which stipulates a three-year limitation period. The defendants demonstrated that the period between the alleged injuries (1972 and 1984) and the filing of the complaint (2006) exceeded this limit. Consequently, the plaintiffs needed to present facts that would extend their claims beyond the limitations period. While the plaintiffs succeeded in some claims, others failed. The court emphasized the balance between protecting beneficiaries in fiduciary relationships and imposing reasonable liability limits.
In cases where beneficiaries pursue claims against trustees for breach of fiduciary duty, the statute of limitations starts only when the beneficiary has actual knowledge of the breach; mere constructive knowledge is insufficient. This approach safeguards beneficiaries' expectations of fiduciary conduct. Conversely, in situations involving a successor trustee, the successor can sue a predecessor trustee for breach of trust. The successor has an obligation to take reasonable actions to enforce claims against prior trustees and must review the predecessor's records to identify any breaches of duty.
A successor trustee, such as DeGiacomo, is liable for breaching their fiduciary duty if they fail to take reasonable steps to address a prior trustee's breach. The statute of limitations for claims against a former trustee, like Sumner and Edward, begins when the successor trustee is aware or should reasonably be aware of the breach. The plaintiffs allege that in 1972, Edward breached his fiduciary duty by converting shares from oral trusts allegedly created in 1959 for Ruth Ann and Michael’s benefit. They also claim Sumner aided Edward's actions through involvement in settlement agreements. Defendants do not contest that the statute of limitations did not start based on Ruth Ann’s or Michael’s knowledge of the wrongdoing prior to 2004. At the time of the alleged breach in 1972, both were minors without representation. After the redemption, Ruth Ann and Michael were represented by Sumner, who later became the sole trustee of their trusts until 1986. Although Sumner became a successor trustee to Edward in 1972, the statute of limitations did not commence during his tenure because his acceptance of Edward's ownership of the shares was part of a compromise for their mutual benefit. Following Sumner, DeGiacomo and Rosen became cotrustees in 1984, and the defendants assert that the statute of limitations for the 1972 redemption began to run based on DeGiacomo’s position as successor cotrustee.
DeGiacomo, as Edward's attorney during the 1972 settlement, had detailed knowledge of the circumstances surrounding Edward's holding of fifty shares of NAI under oral trusts established by Mickey in 1959, which contradicted the thirty-three and one-third shares stated in the settlement agreement. Despite this knowledge, the statute of limitations for potential claims regarding breaches of fiduciary duty did not begin to run because DeGiacomo, as Edward's agent, denied the existence of oral trusts during the negotiations. Furthermore, DeGiacomo's later role as a successor trustee in 1984 did not indicate any wrongdoing related to the redemptions in 1972 or 1984. The court's focus was solely on whether the statute of limitations was tolled, which it concluded was the case for the 1972 redemption.
The case is remanded for further proceedings to determine if oral trusts were indeed created in 1959 for the benefit of Ruth Ann and Michael, and if so, whether they could be altered, the number of shares held in those trusts, and the appointment of a trustee. Discovery will be limited to depositions of relevant individuals and related documentary evidence, concentrating solely on these issues. If oral trusts are confirmed, the question of damages will arise, specifically regarding shares that were redeemed in 1984, aligning with Ruth Ann's and Michael's wishes. Claims concerning the 1984 redemption are time-barred, meaning any potential damages would only reflect the price per share from 1984, plus interest, contingent on proving the existence of the oral trusts.
In 1984, plaintiffs allege that Sumner breached his fiduciary duty as cotrustee by causing NAI to redeem shares from the Ruth Ann, Michael, and Grandchildren’s Trusts at inadequate consideration, concealing the true value of NAI. The court determined that DeGiacomo, serving as successor trustee, had sufficient knowledge of NAI's financial condition and related valuations at the time of redemption to trigger the statute of limitations, which was not tolled. DeGiacomo was aware of the Rosen valuation and NAI’s financial data as of March 8, 1984, as well as property tax records regarding NAI's real estate. Despite not recalling specific financial statements during his 2007 deposition, the evidence established that he was on notice of any potential claim against Sumner regarding the share redemption price. Unlike in the 1972 redemption, DeGiacomo had no disqualifying relationship with Sumner; he acted independently, rejecting the Rosen valuation and negotiating persistently for a fair price. His efforts led to an agreement for a redemption price of $15 million, significantly higher than both what Sumner and the Rosen valuation proposed. Consequently, the court concluded that any potential claim against Sumner was not tolled, thereby barring the plaintiffs' claims related to the 1984 transaction based on the statute of limitations.
DeGiacomo became the successor trustee of the Ruth Ann and Michael Trusts in 1984, which marked the commencement of the statute of limitations for the redemption of shares in those trusts. Despite not being appointed as a trustee of the Grandchildren’s Trust, DeGiacomo maintained a fiduciary relationship with all beneficiaries, including Ruth Ann, Michael, and their children, Brent and Shari. This relationship obligates him to act in the beneficiaries' interests.
On March 8, 1984, DeGiacomo, acting as independent counsel for the Ruth Ann and Michael Trusts, was responsible for ensuring the sale of shares was fair and in their best interest. He also recognized his duty to represent Ruth Ann and Michael regarding their shares in the Grandchildren’s Trust, which influenced his assessment of the fairness of the share redemption for Brent and Shari.
The redemption agreement indicated that DeGiacomo initiated the sale of shares held in the Grandchildren’s Trust, with trustees agreeing that the redemption was in the beneficiaries' interest. The only compensation DeGiacomo received related to this transaction was $27,000 from the Grandchildren’s Trust. Given these facts, it is concluded that DeGiacomo acted as a fiduciary to the beneficiaries of the Grandchildren’s Trust, as established by the circumstances surrounding the 1984 redemption.
The court established that a fiduciary relationship existed between the parties based on their interactions, despite a fiduciary's denial of such a relationship. DeGiacomo’s awareness of NAP's financial condition during the 1984 redemption was consistent in both his role as fiduciary of the Grandchildren’s Trust and trustee of the Ruth Ann and Michael Trusts. Consequently, the statute of limitations for claims related to the 1984 redemption commenced in that year for both trusts, rendering the plaintiffs' 2006 claims time-barred.
The court affirmed in part and vacated in part the defendants’ motion for summary judgment, remanding the matter for further proceedings regarding claims tied to the 1972 redemption. The defendants challenged the standing of the trustee plaintiffs appointed in 2006, arguing the trusts expired by 2004, but this issue was not resolved in the lower court and remains unaddressed. The trustee plaintiffs have initiated trust interpretation actions pending in the Probate and Family Court for judicial confirmation on the trusts' status.
Discovery motions were discussed, with the judge suggesting that Michael would only have equitable rights against current trustees, thereby necessitating that only they could pursue claims against prior trustees. The defendants supported this viewpoint with precedent cases. Whether the current trustees are appropriate plaintiffs remains undetermined, making it premature to address Michael's standing. Additionally, there was no evidence in the record of NAI stock certificates or actions taken by NAI between 1959 and 1972 that involved the grandchildren’s consent.
DeGiacomo's 2007 deposition revealed that he had no knowledge of any stock certificate indicating Edward held shares in trust or any limitations imposed by Mickey on the shares registered to Edward during the 1972 redemption. He did not recall Mickey ever stating that he intended for Edward's children to inherit an interest in NAI, nor did he see evidence that Mickey paid gift taxes in 1959 related to an alleged gift to his grandchildren through supposed oral trusts. DeGiacomo was uncertain whether Mickey's claim of having created oral trusts in 1959 was genuine or a legal strategy, asserting that Mickey would likely lose if the matter went to court. The core issue was whether oral trusts existed that were irrevocable or unmodifiable, which underpinned the plaintiffs’ assertion that Ruth Ann and Michael were wrongfully denied shares. He referenced legal principles from Cooney v. Montana and the Restatement of Trusts, indicating that without express reservation of revocation rights, the presumption is that the settlor cannot revoke the trust. Concerning the 100 shares of NAI registered in Sumner's name, both he and Edward ultimately owned portions, with some shares held in trust for Sumner's children; however, there was no evidence of irrevocable trusts for them, and the shares were not redeemed in 1972 or 1984. Edward expressed he signed documents in 1972 under duress without attention to their content, but the defendants did not invoke this as a defense. DeGiacomo clarified in his depositions that he did not represent Sumner in an attorney-client capacity but served as independent counsel for trust beneficiaries. Additionally, an earlier share valuation of $7.5 million was revised to include 1982 financial data, which had been initially overlooked.
DeGiacomo provided Citibank experts with NAI’s financial reports from Rosen to prepare for reviews of Rosen’s valuation, which included an evaluation of the movie theater industry's overall outlook. Daume, who testified in a 2007 deposition, stated he was not employed by Citibank at the time of DeGiacomo's consultation but acknowledged his past employment. While he claimed not to be an expert in formal valuation methods, he considered himself knowledgeable in private company valuations as of 1984. Daume could not recall providing an opinion on the fairness of Rosen’s valuation but did not dispute that other Citibank representatives may have done so, indicating no genuine dispute regarding the valuation's fairness.
DeGiacomo did not remember reviewing NAI’s 1984 financial statements but noted that current financial information as of March 8, 1984, was pivotal for assessing the fairness of the redemption price. He received $27,000 in attorney’s fees from the Grandchildren’s Trust for his role as independent counsel, although this trust did not formally appoint independent counsel, and it was unclear whether he was compensated from the Ruth Ann or Michael Trusts.
The redemption agreement indicated that the parties had thoroughly studied the value of NAI stock, agreeing on a redemption price after detailed valuations by NAI’s accountant. Ruth Ann died in 1987, and her son, born in 1983, passed away in 2004. Following Rosen's death in 2006, the defendants contested the legitimacy of certain appointments, which remains unresolved. In unrelated litigation, Brent accused Sumner of breaching fiduciary duties in 1984, claiming he arranged for NAI to repurchase the Grandchildren’s Trust stock at a favorable price, though no specific evidence was presented to show the stock price was unfairly low. Brent's claims were settled in 2007.
The Lattuca v. Robsham case highlighted that knowledge of wrongdoing by cotrustees was relevant in determining the duty to investigate. The Uniform Trust Code supports the notion that a successor trustee must take reasonable action to address known breaches by a predecessor trustee, though Massachusetts has not adopted this code.
A person has "knowledge of a fact" through actual knowledge, notification, or circumstances that provide reason to know the fact. In this case, Sumner and Edward no longer hold any trust property, and plaintiffs do not distinguish between harm to the trusts and individual beneficiaries. Under the Restatement (Second) of Trusts, trustees have a duty to pursue claims against third parties for wrongs to trust property. Former trustees can be treated as third parties in legal cases. The Uniform Trust Code binds beneficiaries to a successor trustee's knowledge of claims against a former trustee and establishes a one-year limitations period that begins when a beneficiary or their representative has sufficient notice of a potential claim. At the time of settlement agreements, Sumner owned a substantial share of trust property, raising the issue of whether he converted shares belonging to his children, who have not contested this ownership. In 1972, Ruth Ann and Michael were minors, and there is uncertainty about their awareness of potential claims to additional shares from oral trusts established in 1959. Although a guardian ad litem is not always required for minors, Edward's conflicting interests with his children suggest that proper representation was lacking during the settlement. The actions taken by Mickey and Sumner seemed aimed at preserving family control over NAI rather than genuinely protecting Ruth Ann's and Michael's interests.
Mickey and Sumner acknowledged Edward's ownership of sixty-six and two-thirds shares, primarily for their benefit and that of NAI, rather than for Ruth Ann and Michael. The defendants did not assert that the statute of limitations began based on Rosen's role as successor cotrustee of the Ruth Ann and Michael Trusts, and Rosen had not been deposed before his death in 2006. The record lacks evidence to determine if the limitations period was triggered by his position. Similarly, the defendants did not claim that an interim trustee's knowledge after DeGiacomo's 1992 resignation started the limitations period. The court did not address whether a successor trustee must actively participate in a predecessor's wrongdoing for the limitations period to be tolled. In this case, the limitations period was tolled because DeGiacomo, as successor trustee in 1972, acted as an agent for Edward regarding the disputed actions and agreements. Although the plaintiffs made general allegations against Edward for aiding Sumner's breaches, they provided no specific facts for the 1984 redemption. Sumner's cotrusteeship with DeGiacomo from 1984 to 1986 did not relieve him of the duty to address breaches. Even after becoming a former trustee in 1986, Sumner could have acted against DeGiacomo until 1992. The plaintiffs contended that a guardian ad litem was needed for minor and unborn beneficiaries to start the limitations period, but the court rejected this argument, asserting that actual knowledge of the beneficiaries was not required. Consequently, the plaintiffs' claim regarding the necessity of a guardian ad litem was dismissed. The court also found that the plaintiffs did not waive their claim about the fairness of the share redemption from the Grandchildren’s Trust; however, this claim was ultimately deemed time-barred.
