LOUISE W. FLANAGAN, District Judge.
Plaintiffs, citizens and residents of Poland,
While the complaint was not filed until December 3, 2018, the genesis of this case on the court's docket relates back to June 26, 2018, when plaintiff Radoslaw Zeglinski filed forleave to proceed in forma pauperis (which motion was rendered moot by plaintiff submitting the appropriate fees). Plaintiffs' claims spring from dispute concerning settlement of the Paziuk estate, particularly regarding distribution of the George Paziuk Revocable Trust ("revocable trust"). Plaintiffs accompanied their complaint with a plethora of documentary evidence ranging from documents governing the Paziuk estate, to correspondence between plaintiffs and defendants, to state-court orders regarding Paziuk and the estate.
Each defendant has raised for decision a motion to dismiss. Defendants Saffo, Thompson, and Posey separately move pursuant to Federal Rule of Civil Procedure 12(b)(6) for dismissal arguing plaintiffs have failed to state a claim and that, if a claim is stated, which they collectively deny, it is for reformation of a revocable trust, which is barred by the statute of limitations. Defendants Craige and Schardt rely on unique grounds for dismissal while jointly maintaining that plaintiffs' claims are barred by the statute of limitations and statute of repose, also pursuant to Rule 12(b)(6). All defendants, save Posey, argue they have received insufficient service of process, with defendants Saffo, Thompson, and Craige moving for dismissal of plaintiffs' complaint pursuant to Rule 12(b)(5) on said basis.
Each defendant relies on personal affidavit, with defendants Thompson and Craige also submitting affidavits of assistants that work at their respective law firms. Defendant Craige also relies on January 31, 2013 state court order modifying the guardianship of Paziuk, removing guardianship of Paziuk's person, but maintaining defendant Craige as guardian of Paziuk's estate, (Jan. 31, 2013 order (DE 50-1) at 4), as well as final account submitted to state court for the guardianship estate of Paziuk, (DE 50-2). Defendant Schardt relies on his renunciation of right to serve as a co-trustee of the revocable trust, as was filed in state court. (DE 66-1).
On February 28, 2019, plaintiffs moved for entry of default against defendants Craige and Schardt pursuant to Rule 55(a). Twelve days later, discovery was stayed pending the court's address of the instant motions to dismiss submitted at that time. Nine days later, Defendant Craige has moved for leave to file response to complaint, and defendant Schardt also seeks an extension of time to file answer. Plaintiffs filed response in opposition to defendants Saffo, Thompson, and Posey's motions to dismiss. The rest of defendants' motions have, however, not been responded to.
Unwinding of the facts starts with creation of the revocable trust. The issues disputed came to life upon Pazuik's death. The court's summary of pertinent events, from the trust's creation to Pazuik's death, rests on plaintiffs' complaint and documents appropriately considered.
Pazuik, a resident of New Hanover County, North Carolina, created the revocable trust at issue March 26, 1998. No copy of the original trust agreement is before the court; however, this is of no moment to the analysis following.
Twenty years after its inception, the revocable trust was amended and restated in its entirety on September 12, 2008. The September 12, 2008 Restatement is lodged on the docket at entry 16-11 at pages 1-37. It references Exhibits "A," "B," and "C." Exhibit A purports to be a list of the prope rty of the revocable trust. This exhibit was not filed with the court. Exhibit B to the September 12, 2008 Restatement purports to identify individuals receiving specified distributions. There is no Exhibit B effective September 12, 2008 in the court's file.
Under the September 12, 2008 Restatement, once Paziuk died, the revocable trust's assets were to be distributed in three successive steps:
The September 12, 2008 Restatement additionally provided that "[a]t such time the initial Trustee [Paziuk] no longer serves as Trustee, and if the Grantor [Paziuk] has not, or cannot, act to appoint a successor trustee, then Anthony A. Saffo, Esq. and Bret Schardt shall become Trustees, and shall serve together as Co-Trustees." (September 12, 2008 Restatement (DE 16-11) at 25).
In 2011, Paziuk had a stroke. After the stroke, the General Court of Justice, Superior Court Division, for New Hanover County ("state court") appointed two guardians: one for Paziuk's person, LaVaughn Nesmith, and another for Paziuk's estate, defendant Craige.
On May 29, 2012, defendant Schardt filed with the state court renunciation of right to serve as a co-trustee of the revocable trust. (
In May 2012, defendant Craige petitioned the state court to authorize Paziuk's estate to pay for the wedding of Paziuk to Posey. In the petition, defendant Craige also indicated that Paziuk would have an attorney prepare a premarital agreement, which defendant Craige would sign on behalf of Paziuk's estate. Defendant Craige wrote to plaintiff Katarzyna Zeinkiewicz May 25, 2012, enclosing for her review the petition for disbursement and notice of hearing regarding the petition. The state court granted the petition.
The June 15, 2012 premarital agreement incorporated the September 12, 2008 Restatement and provided that the September 12, 2008 Restatement "shall take priority and control over any rights and interests in property of PAZIUK which might otherwise become vested in [de fendant Posey] by reason of her marriage to PAZIUK." (June 15, 2012 premarital agreement (DE 16-14) at 10-11;
The premarital agreement additionally provided that "[n]either party shall hereafter secure any credit card which the other party is authorized to use nor shall either party use or make changes on any credit account in the other party's name, and neither party shall be liable in any manner for debts created through the use of a credit card or charge account in the other party's name." (June 15, 2012 premarital agreement (DE 16-14) at 11;
In January 2013, the guardianship of Paziuk's person was modified, restoring to Paziuk rights to make all decisions that would otherwise be made by a guardian of his person. (
On May 7, 2013, Paziuk amended the revocable trust, creating a marital trust. (May 7, 2013 Amendment (DE 16-11) at 38-44). Changes made to the September 12, 2008 Restatement through the May 7, 2013 Amendment were made by George Paziuk at the time when he was adjudicated to be incompetent. Under the May 7, 2013 Amendment, and a September 25, 2014 modification reflecting a fully executed Exhibit B thereto,
The first and second steps remain as sequenced in the September 12, 2008 Restatement. The third step previously described, where the trustee would distribute the remainder to plaintiffs and two others lost itsorder in the May 7, 2013 Amendment. This became the fourth and final step where the parties agree, after the first and second steps, the trustee must distribute $6,000,000.00 to the marital trust for defendant Posey before distributing any remainder to plaintiffs.
Defendant Schardt, defendant Saffo, who served as Paziuk's attorney, executor, and trustee of the Paziuk estate and trusts, and defendant Thompson, who drafted the May 7, 2013 Amendment, were aware Paziuk's competency had not been restored. Plaintiffs allege these defendants knew defendant Craige was a necessary party to any attempt to change the revocable trust and that defendant Craige as guardian had a duty to protect the assets of Paziuk. It is also alleged that defendant Craige intentionally was not notified concerning the May 7, 2013 Amendment.
On September 25, 2014, Exhibit B, which identifies by name those who are to receive specified distributions, as directed by Article VI, Section 1(A) of the September 12, 2008 Restatement (and as not altered by the May 7, 2013 Amendment), apparently was modified. The exhibit bearing this date provides for cash distributions totaling in excess of $3,000,000.00 to 17 individuals.
On April 20, 2015, Paziuk died. Defendant Saffo, as trustee, began distributing the trust's assets. Defendant Posey started to transfer money out of the marital trust. On June 12, 2015, defendant Craige filed in state court the final account for the guardianship estate.
During a July 12, 2016 meeting with defendants Saffo and Thompson, plaintiff Radoslaw Zeglinski was informed of the May 7, 2013 Amendment. He received a partial distribution from the estate. Plaintiffs also appear to allege that defendant Posey accrued $22,497.95 in credit card debt after Pazuik's death, which was paid for by the Paziuk estate. This is in alleged contravention of the June 15, 2012 premarital agreement. Plaintiffs also allege that defendant Posey lied to Paziuk during his lifetime, stating his aunt had died and that he had no living relatives. Plaintiffs contend, too, that defendant Posey was abusive to Paziuk during his lifetime. On March 7, 2018, the state court granted motion made by plaintiffs' then attorney Lonnie Merritt ("Merritt"), wherein it was represented to the state court that plaintiffs sought order directing defendant Saffo to make distribution to plaintiffs and to close Paziuk's estate.
Plaintiffs seek the May 7, 2013 Amendment, which created the marital trust, to be declared void. They also seek the $6,000,000.00 transferred to the marital trust to be returned and a constructive trust created on their behalf. It appears they seek Exhibit B to the September 12, 2008 Restatement, dated September 25, 2014, to be declared void even though it provides for a $1,500,00.00 distribution in equal shares to them and two others, ostensibly because it also provides for a $100,000.00 distribution to defendant Schardt.
The court first takes up motions concerning defendants Craige and Schardt's pleadings status. Then it turns its attention to the motions to dismiss, where all defendants seek the court on varying grounds to dismiss the case.
Plaintiffs seek entry of default against defendants Craige and Schardt. Under Rule 55(a), entry of default isappropriate "[w]hen a party against whom a judgment for affirmative re lief is sought has failed to plead or otherwise defend . . . ." Fed. R. Civ. P. 55(a). It is "axiomatic," however, that effective service of process on a defendant must be accomplished as a prerequisite for entry of default against that defendant.
Individuals must be served in one of several ways: first, by "following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service ismade," Fed.R.Civ.P. 4(e)(1);
Defendants Saffo and Thompson, together with Craige, attest that service has not been made in accordance with the above rules, notwithstanding plaintiffs' proofs of service indicating otherwise.
In addition to protesting proper service, defendant Craige defends against plaintiffs' motion for entry of default with one seeking leave to respond also with reference to professional and personal distractions occurring at the time. His motion, filed March 21, 2019, refers to the immediate hiring of counsel when he realized his oversight. Defendant Craige seeks the court to excuse his delay and allow him opportunity to respond to plaintiffs' complaint out of time. Contemporaneous with filing of his motion, defendant Craige filed his motion to dismiss.
Defendant Schardt initially attested while he received documents relating to this lawsuit March 22, 2019, these did not include any summons or complaint, (
Under these unique circumstances, where international plaintiffs proceeding pro se have made substantial effort to effect service properly, although falling short, and where defendants Craige and Schardt, together with the other defendants, having actual knowledge of this litigation, have moved also on substantive grounds for dismissal, the just and speedy determination of this action is appropriately achieved by:
"To survive a motion to dismiss" under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'"
Courts must liberally construe pro se complaints, and "a pro se complaint, however inartfully pleaded, must be held to less stringent standards than formal pleadings draft ed by lawyers."
Plaintiffs argue they have alleged this case involves "fraudulent action against the Estate of late George Paziuk" as well as "professional misconduct and misdemeanor relating to guardianship abuse and elder abuse and exploitation of incompetent person . . . ." (DE 45 at 1). Plaintiffs additionally argue that because they were not aware of the May 7, 2013 Amendment until July 2016, the statute of limitations on their claims did not begin to accrue until that time.
Liberally construing plaintiffs' complaint, the court addresses the viability of the following claims: breach of fiduciary duty, undue influence, reformation of a revocable trust, fraud, and professional misconduct.
In order "[f]or a breach of fiduciary duty to exist, there must first be a fiduciary relationship between the parties."
The trustee of a revocable testamentary trust is a fiduciary. N.C. Gen. Stat. § 32-2 ("fiduciary" includes a trustee under any trust);
Additionally, a trustee has the legal duty to communicate to beneficiaries certain information under certain circumstances concerning the state of the trust:
N.C. Gen. Stat.§ 36C-8-813.
Because pledging a fiduciary duty to a trust is most similar to the acceptance of a contract, the North Carolina Supreme Court has determined that the statute of limitations applicable to an action for breach of such a fiduciary duty is the same as that applicable to an action for breach of contract, which is three years.
Here, plaintiffs have alleged a claim for breach of fiduciary duty against defendant Saffo, where plaintiffs have alleged that 1) defendant Saffo was the trustee of the revocable trust to which plaintiffs were beneficiaries, 2) defendant Saffo breached his fiduciary duty to plaintiffs by allowing Pazuik to amend the revocable trust when Paziuk had been adjudicated incompetent and by failing to communicate with plaintiffs regarding the state of the trust, and 3) plaintiffs did not know nor could have known of the alleged breach until they were informed of the May 7, 2013 Amendment at the July 12, 2016 meeting.
Plaintiffs have not alleged any other defendant owed plaintiffs a fiduciary duty. Defendant Posey, as wife to Pazuik, and defendant Schardt, as beneficiary under the revocable trust, owed no such duty to plaintiffs. Although plaintiffs have named defendant Schardt as a "co-trustee of George Paziuk Revocable Trust," defendant Schardt has submitted to the court his renunciation of right to serve as a co-trustee of the revocable trust, filed in state court, stating he has never acted as trustee of the revocable trust, of which the court may take judicial notice. (
Plaintiffs allege defendant Thompson, as attorney for Pazuik who drafted the May 7, 2013 Amendment, and defendant Craige, as guardian of the Pazuik estate during Pazuik's lifetime, owed a duty to Pazuik, but plaintiffs do not allege either owed a duty to plaintiffs. More specifically regarding defendant Craige, plaintiffs allege defendant "Craige as Guardian of the Estate should protect all estate assets of ward George Paziuk" and that defendants Saffo, Thompson, and Schardt "knew that Defendant Lawrence S. Craig[e] was a necessary party to any attempt to change or modify the Revocable Trust." (Compl. (DE 16) ¶¶ 45-46). Defendant Craige argues in response that "[t]o the extent that Plaintiffs' Complaint alleges that Defendant Craige had a duty to monitor Mr. Paziuk's trust and prevent or approve modifications thereto, such duties are simply beyond the scope of an appointed Guardian of the Estate pursuant to N.C. Gen. Stat. Chapter 35A." (DE 50 at 9).
In carrying out the responsibilities of a guardian of an estate, a guardian may "petition the court for approval of the exercise of any of the following powers with respect to a revocable trust that the ward, if competent, could exercise as settlor of the revocable trust: a. Revocation of the trust. b. Amendment of the trust. c. Additions to the trust . . . ."). N.C. Gen. Stat. § 35A-1251(24). However, a guardian of the estate also "has the power to perform in a reasonable and prudent manner every actthat a reasonable and prudent person would perform incident to the collection, preservation, management, and use of the ward's estate to accomplish the desired result of administering the ward's estate legally and in the ward's best interest . . . ."
Here, there is no indication that it was not in Pazuik's best interest for defendant Saffo, as trustee of the revocable trust, to administer the trust, and defendant Craige, as guardian of the estate, to administer the remaining estate, consistent with the direction of both the terms of the revocable trust and the state court order regarding defendant Craige's guardianship. (
Therefore, plaintiffs' claim for breach of fiduciary duty is allowed to proceed against defendant Saffo only.
The North Carolina Supreme Court has defined undue influence as "a fraudulent influence over the mind and will of another to the extent that the professed action is not freely done but is in truth the act of the one who procures the result."
The North Carolina Supreme Court has listed the following factors as those probative on the issue of undue influence in the context of formation of a will:
"[A]ny evidence showing an opportunity and disposition to exert undue influence, the degree of susceptibility of [the] testator to undue influence, and a result which indicates that undue influence has been exerted is generally relevant and important."
Liberally construing plaintiffs' complaint, plaintiffs have sufficiently alleged a claim against defendant Posey for undue influence where plaintiffs have alleged that at the time of entering into the May 7, 2013 Amendment, Paziuk had been adjudicated incompetent to handle his estate; the May 7, 2013 Amendment reallocated $6,000,000.00 from the earlier iteration of the trust to be distributed to defendant Posey; and that at some point during Paziuk's lifetime, defendant Posey lied to and abused Paziuk, including not allowing him to speak to his relatives.
Plaintiffs have not alleged a claim for undue influence against any other defendant. Therefore, plaintiffs' claim for undue influence is allowed to proceed against defendant Posey only.
Under North Carolina law, plaintiffs have three years from the date of the settlor's death to challenge the validity of a revocable trust.
There are two types of fraud, actual and constructive.
"In order to maintain a claim for constructive fraud, plaintiffs must show that they and defendants were in a `relation of trust and confidence . . . [which] led up to and surrounded the consummation of the transaction in which defendant is alleged to have taken advantage of his position of trust to the hurt of plaintiff.'"
Rule 9(b) of the Federal Rules of Civil Procedure is also applicable. Under this Rule, claims for fraud or mistake "must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). Rule 9(b) applies to all allegations which bear "the substance of fraud."
Plaintiffs have failed to allege any claim based in fraud against defendants Thompson, Craige, or Schardt, where plaintiffs allege no false representation, no concealment of material fact, nor any allegations these defendants took advantage of Paziuk for their own gain.
The only false representation or concealment of material fact alleged by plaintiffs as to defendant Saffo is that defendant Saffo, as trustee of the revocable trust, failed to inform plaintiffs thatthe trust had been amended pursuant to the May 7, 2013 Amendment, until the July 12, 2016 meeting, over a year after Paziuk died. As stated above, defendant Saffo had the legal duty to communicate to beneficiaries certain information under certain circumstances concerning the state of the trust. However, plaintiffs do not allege that this failure to inform was reasonably calculated to deceive or was done with the intent to deceive, and it appears at most plaintiffs allege that defendant Saffo acted negligently in his duty to inform. An allegation of failure to inform without more is insufficient to state a claim for fraud under Rule 9(b).
The only false representation alleged by plaintiffs as to defendant Posey isthat she lied to Paziuk, not to plaintiffs, and told Pazuik that his aunt had died and that he had no living relatives. Assuming, based on these allegations, that plaintiffs are asserting a claim for fraud against defendant Posey, there is no indication these alleged lies were reasonably calculated to deceive or did indeed deceive anyone, including Paziuk, where plaintiffs thereafter remained beneficiaries under the May 7, 2013 Amendment until Paziuk's death.
Plaintiffs additionally state as follows: "Forging signatures (signed [May 7, 2013 Amendment], about providing 6,000,000.00 from Paziuk Trust to Marital Trust is very similar to Matthew Thomson sign)." (
These ambiguous assertions, found in plaintiffs' response in opposition to certain defendants' motions to dismiss, do not arise to the level of a claim and are inconsistent with plaintiffs' allegations in their complaint. (
Therefore, plaintiffs have failed to state a claim against any defendant for fraud.
As stated above, plaintiffs have argued this case involves "professional misconduct and misdemeanor relating to guardianship abuse and elder abuse and exploitation of incompetent person. . . ." (DE 45 at 1). However, plaintiffs do not have a professional relationship with any defendant such that plaintiffs can bring a professional misconduct claim. As stated by the North Carolina Supreme Court:
To the extent plaintiffs seek to bring a claim for professional misconduct on behalf of Pazuik's estate, plaintiffs lack standing to do so.
Therefore, plaintiffs' have failed to statea claim against any defendant for professional misconduct.
For the foregoing reasons, plaintiffs' motions for entry of default as to defendants Craige (DE 42) and Schardt (DE 43) are DENIED. Defendant Craige's motion for leave to file response to complaint (DE 48) is ALLOWED as is defendant Schardt's motion for extension of time to file answer (DE 57).
Defendant Saffo's motion to dismiss (DE 34) is GRANTED IN PART and DENIED IN PART. Defendant Thompson's motion to dismiss (DE 38) is GRANTED. Defendant Posey's motion to dismiss (DE 40) is GRANTED IN PART and DENIED IN PART. Defendant Craige's motion to dismiss (DE 49) is GRANTED. Defendant Schardt's motion to dismiss (DE 65) is GRANTED.
In accordance with the court's order, the following claims are allowed to proceed:
All other claims are dismissed as set forth herein. When defendants Saffo and Posey have been heard in answer, in accordance with the Federal Rules of Civil Procedure, the court's stay of discovery automatically shall be LIFTED, and the court's initial order regarding planning and scheduling will follow.
SO ORDERED.