Opinion
Withdrawn from bound volume; vacated by order of the Court July 30, 1991.
Charles F. Gibbs, James J. Sabella, Brenda F. Szydlo, Breed, Abbott & Morgan, New York City, for plaintiff.
Irwin J. Sugarman, Chaye Zuckerman Shapot, David J. Murray, Schulte Roth & Zabel, New York City, for defendants.
OPINION AND ORDER
MUKASEY, District Judge.
Defendants move to dismiss plaintiff's complaint under Fed.R.Civ.P. 12(b) for lack of personal jurisdiction over all defendants and for failure to join indispensable parties under Fed.R.Civ.P. 19. In the alternative, defendants move for abstention because of parallel state proceedings in the Delaware Chancery Court under Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Plaintiff cross-moves to enjoin the Delaware proceedings. For the reasons discussed below, defendants' motion to dismiss for failure to join indispensable parties is granted. Plaintiff's motion is denied.
I.
Plaintiff, a New York resident, brings this action, based on diversity jurisdiction, as the settlor of a trust established in 1990 against her three co-trustees seeking a declaration that the trust is void. The defendants, her co-trustees, are two of plaintiff's children, Ruth Harrison Grobe and Alfred C. Harrison, Jr., and Wilmington Trust Co., a corporate trustee. Plaintiff seeks to have the trust declared invalid because, inter alia, it is the product of duress and undue influence, she lacked the capacity to execute it, and its terms are contrary to her understanding and her directions. She claims that while she was in a New York hospital, after suffering a stroke, defendants Grobe and Harrison took advantage of her infirmity and prevailed upon her to establish a trust which contained the bulk of her assets, worth over $20 million. Plaintiff alleges that she intended to establish a revocable trust, but because she was debilitated and confused as a result of her stroke, she entered into a trust agreement that could not be revoked without the unanimous consent of the trustees. She alleges that she was unaware until July 1990 that the consent of the other trustees, defendants here, was needed for her to revoke. She then demanded the return of her property. Defendants refused to revoke the trust.
Defendants dispute plaintiff's version of the facts, but ground this motion solely on Fed.R.Civ.P. 12. For purposes of this motion, plaintiff's version of the facts therefore must be accepted as true.
II.
Defendants argue that plaintiff's Complaint must be dismissed for lack of personal jurisdiction over them. Defendant Alfred C. Harrison, Jr., plaintiff's son, is a resident of California. Defendant Ruth Harrison Grobe, plaintiff's daughter, is a resident of Connecticut. Defendant Wilmington Trust Co. is a Delaware corporation that has neither offices nor employees in New York. All argue that their contacts with New York are insufficient to establish personal jurisdiction.
The burden of establishing personal jurisdiction is on the party asserting it, although when a motion to dismiss under Rule 12(b)(2) is to be decided on the pleadings and affidavits, and without an evidentiary hearing, the plaintiff need only make a prima facie showing that jurisdiction exists. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir.1981). In making this determination, the court must construe all pleadings and affidavits in a light most favorable to the plaintiff and all doubts will be resolved in her favor. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir.1985); Hedlund v. Products From Sweden, Inc., 698 F.Supp. 1087 (S.D.N.Y.1988). Based on this standard, I find that plaintiff has met her burden to show prima facie that personal jurisdiction exists over each of the three defendants.
Plaintiff articulates various theories for the assertion of personal jurisdiction over each of the defendants. For purposes of this motion, I only need find that plaintiff has established one basis for jurisdiction for each of the defendants. I therefore need not address the parties' arguments as to any other bases.
Plaintiff asserts personal jurisdiction over all defendants under N.Y. C.P.L.R. § 301, which articulates the bases upon which an individual or corporation is found to be subject to the general jurisdiction of New York courts. Specifically, plaintiff asserts that all of the defendants are " doing business" in New York within the meaning of § 301. To establish that a defendant is subject to jurisdiction under § 301, plaintiff must show that defendant is engaged in such continuous and systematic course of doing business in New York as to warrant finding its presence in the state. The mere existence of a business relationship with entities in the state is insufficient to establish presence. Insurance Co. of Pennsylvania v. Centaur Ins. Co., 590 F.Supp. 1187 (S.D.N.Y.1984). Infrequent, attenuated and incidental contacts with New York are also insufficient to warrant jurisdiction under this section. Birmingham Fire Ins. Co. of Pennsylvania v. KOA Fire & Marine Ins. Co., 572 F.Supp. 962 (S.D.N.Y.1983).
Plaintiff contends that defendant Wilmington Trust Co. is subject to the general jurisdiction of New York under N.Y. C.P.L.R. § 301, and I agree that plaintiff has made a prima facie showing of jurisdiction under § 301. Although Wilmington has no offices or employees in New York, plaintiff alleges that Wilmington regularly solicits and does business in New York, as evidenced by 835 applications to act as trustee or otherwise exercise fiduciary powers in New York filed with the New York State Banking Department pursuant to N.Y. Banking Law § 131(3). According to plaintiff, these applications reflect continuous, voluntary use of the privilege of doing business in New York, and therefore presence within the state for purposes of § 301.
Defendants argue that in contrast to filing a certificate of authority to do business in New York under N.Y. Business Corporation Law § 304(b), registering under N.Y. Banking Law § 131(3) requires consent to jurisdiction only in an action arising out of the trust or fiduciary relationship for which the application is filed. Even if this is true, limited consent to jurisdiction does not rule out the possibility that another basis for jurisdiction exists-that is, that Wilmington avails itself of the privilege of acting as a trustee or fiduciary in New York so regularly as to constitute regular and continuous business activity adequate to support general jurisdiction under N.Y. C.P.L.R. § 301. Although I cannot find on the basis of the applications and affidavits presented on this motion alone that Wilmington is subject to general jurisdiction in New York under § 301, plaintiff has made a prima facie showing that Wilmington is engaged in a continuous and systematic course of business within New York.
Plaintiff alleges that defendants Harrison and Grobe are subject to personal jurisdiction under § 302(a)(1) through the acts of their agents, the lawyers who drew up the trust agreement. According to plaintiff, while purporting to represent plaintiff, the lawyers were in fact functioning as agents for defendants and not for her. Plaintiff alleges that the lawyers ignored her interests and failed to inform her that, although she requested that the trust be revocable, it was in actuality effectively irrevocable because the unanimous consent of the four trustees was necessary to revoke the trust.
To establish that the lawyers were acting as agents for defendants Grobe and Harrison such that those defendants are subject to jurisdiction in New York under § 302 based on the acts of those agents, plaintiff need show only that the lawyers engaged in purposeful activities in New York that relate to the transaction at issue for the benefit of and with the knowledge and consent of the defendants, and that the defendants exercised some control over the lawyers with regard to the transaction. Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 527 N.Y.S.2d 195, 522 N.E.2d 40 (1988). Plaintiff has had no discovery as yet, so she cannot state from personal knowledge facts which support her allegations, other than inferences she has drawn from the trust documents. The New York Court of Appeals held in Peterson v. Spartan Industries, Inc., 33 N.Y.2d 463, 467, 354 N.Y.S.2d 905, 908, 310 N.E.2d 513, 515 (1974), that if the plaintiff has " made a sufficient start, and [has] shown [her] position not to be frivolous," she should be allowed an opportunity for discovery before the court decides the motion to dismiss for lack of personal jurisdiction. Because for purposes of this motion I must take all of plaintiff's allegations as true, and because I cannot find that plaintiff's position is patently frivolous, I find that she has shown prima facie that defendants Grobe and Harrison are subject to jurisdiction under N.Y. C.P.L.R. § 302(a)(1) based on the acts of their alleged agents, the lawyers who drew up the trust documents.
III.
Defendants move to dismiss under Fed.R.Civ.P. 12(b)(7) for failure to join the beneficiaries of the trust as defendants. It is undisputed that if the beneficiaries of the trust, some of whom are New York residents, are joined as defendants to this suit, the action would have to be dismissed for lack of subject matter jurisdiction.
Defendants argue that the beneficiaries are indispensable parties within the meaning of Fed.R.Civ.P. 19(b) in an action to void a trust. Rule 19 requires a two-step inquiry to determine whether an action must be dismissed for failure to join a party with an interest in the litigation. First, is the party necessary under Rule 19(a) such that he must be joined if feasible? Second, if the necessary party cannot be joined, either because he is beyond the jurisdiction of the court or because joining him would destroy subject matter jurisdiction, can the case proceed in his absence?
A party qualifies as necessary under Rule 19(a) if either complete relief among those already parties cannot be accorded in that party's absence, or if the absent party " claims an interest relating to the subject of the action and is so situated that the disposition of the action in [his] absence may ... as a practical matter impair or impede [his] ability to protect that interest or ... leave any of the persons already parties subject to a substantial risk of incurring double, multiple or otherwise inconsistent obligations by reason of the claimed interest." Fed.R.Civ.P. 19(a). This is an action by the settlor to void a trust; obviously, if she is successful, the beneficiaries under the trust may no longer have any beneficial interest in the trust. Whether or not they would be bound by any determination against the trustee assuming they were not joined, it is clear that as a practical matter such a determination would impair their ability to protect their beneficial interests. Hansen v. Peoples Bank of Bloomington, 594 F.2d 1149, 1151 (7th Cir.1979). The beneficiaries are therefore necessary parties under Rule 19(a) and should be joined if feasible.
If those beneficiaries are joined, there will no longer be complete diversity; plaintiff and beneficiaries who have a potential interest adverse to hers are residents of New York. It is therefore not feasible to join the beneficiaries. The second stage of the Rule 19 inquiry-whether the case can in equity and good conscience proceed in their absence-must be approached pragmatically, with consideration of the four factors enumerated in Rule 19(b). The district court must consider: (1) the extent to which a judgment rendered in the parties' absence might be prejudicial to the absent parties or those already parties; (2) the extent to which the prejudice can be lessened or avoided by protective provisions in the judgment, by the shaping of relief, or other measures; (3) whether a judgment rendered in the parties' absence will be adequate; and (4) whether the plaintiff will have an adequate remedy if the action is dismissed. Associated Dry Goods v. Towers Financial Corp., 920 F.2d 1121, 1124 (2d Cir.1990).
Plaintiff does not dispute that all parties can be joined in the Delaware Chancery Court. Although plaintiff argues that that court is much more inconvenient for her as an elderly resident of New York, this inconvenience will not alone be the basis to retain a suit which otherwise belongs elsewhere.
The parties dispute whether there will be prejudice if the beneficiaries are not joined. Defendants obviously have an interest in avoiding multiple litigations, with the accompanying risk of inconsistent adjudications. If the beneficiaries would be bound by a determination against the trustees, then there is no risk of multiple adjudications. If those beneficiaries will not be bound by any such determination, then there is such a risk. The issue of whether the beneficiaries are bound by a determination against the trustee mirrors the issue under trust law of whether beneficiaries must be joined in a suit by or against trustees.
The general rule is that trustees may represent beneficiaries in all actions relating to the trust, if rights of the beneficiaries as against the trustees, or the rights of the beneficiaries among themselves, are not brought into question. If there is no conflict of interest between beneficiaries and trustees, or between beneficiaries, then trustees may sue or be sued without joining beneficiaries, and, in the absence of fraud or collusion, the beneficiaries will be bound by the judgment. In re Straut's Estate, 126 N.Y. 201, 211-12, 27 N.E. 259, 262 (1891); Bogert, Trusts & Trustees, § 593. Basically, beneficiaries need be joined only when joinder is necessary to protect their interests. Generally when a third party sues or is sued by the trust, the trustees can adequately represent the interests of the beneficiaries, and for convenience, the beneficiaries need not be joined. Kerrison v. Stewart, 93 U.S. 155, 23 L.Ed. 843 (1876); In re Clemens' Estate, 198 Misc. 1049, 101 N.Y.S.2d 367 (Surr.Ct. New York County 1950).
Plaintiff argues that this is such a case. The settlor, who is a third party, is suing to void the trust on the ground of undue influence. According to plaintiff, the trustees who have been joined will adequately represent the interests of all the beneficiaries such that they need not be joined, and in their absence they will be bound by a judgment against the trustees. Defendants argue that as the settlor the plaintiff is not a third party. In addition, the plaintiff is both a beneficiary and one of the co-trustees. Finally, there is a conflict of interests among the beneficiaries which makes representation by the remaining trustees inadequate to protect their diverse interests. For all of these reasons, argue defendants, the beneficiaries will not be bound by a judgment against the trustees, thereby creating a risk of multiple, inconsistent adjudications. The practical effect of a judgment against the trustees will be substantially to impair their interests, and therefore, equity and good conscience requires that the complaint be dismissed.
It seems apparent that although plaintiff is both a beneficiary and a co-trustee of the trust, she brings the present suit solely in her capacity as the settlor. I must therefore decide whether in this suit to set aside a trust for undue influence, the settlor is a third party for purposes of determining when the beneficiaries must be joined. Several California cases, cited by defendants, hold that in a suit by a settlor to invalidate a trust, the beneficiaries must be joined as indispensable parties; a judgment against the trustee alone is void and of no effect against the beneficiaries. Cuneo v. Superior Court of Merced County, 213 Cal.App.2d 452, 28 Cal.Rptr. 791 (5th Dist.1963); Straube v. Security First Nat. Bank, 205 Cal.App.2d 352, 23 Cal.Rptr. 213 (5th Dist.1962) (" But when the parties to a trust indenture are placed in a position of losing their basic rights in the trust through the bringing of a suit by one of the other parties to the trust agreement, the beneficiaries must be joined as indispensable parties" ); accord 3A Moore's Federal Practice, ¶ 19.08 (" The general rule is that in a suit to alter the terms of a trust instrument or to declare the trust invalid all parties who would be affected by the adjudication are indispensable" ).
Plaintiff argues that a settlor should be considered a " stranger" to the trust-a third party for purposes of deciding whether the beneficiaries must be joined. According to plaintiff, the trustees will represent adequately the interests of the beneficiaries by seeking to uphold the trust, and therefore, for purposes of Rule 19, the beneficiaries need not be joined.
It is essential to plaintiff's argument that the interests of the trustees and the interests of the beneficiaries be identical. I do not believe that they are. The beneficiaries of the trust include plaintiff's husband, plaintiff's children, including defendants Grobe and Harrison, plaintiff's grandchildren, employees of plaintiff and charitable institutions. Some of these beneficiaries, including plaintiff's husband, Boyd P. deBrossard, may stand to benefit if the trust is invalidated. Plaintiff would have greater freedom to effect inter vivos transfers of her assets if the trust were invalidated, which presumably would benefit some trust beneficiaries more than others. Invalidation of the trust could also affect the testamentary disposition of plaintiff's assets, although it is unclear which beneficiaries, if any, would ultimately benefit from such a change.
Although plaintiff herself may advance the cause of those beneficiaries whose interests conflict with the interests of the trustees, that limited de facto representation is not sufficient to bind those beneficiaries to a judgment. Plaintiff does not purport to represent anyone other than herself, nor does it necessarily follow that, although it may serve the interests of those beneficiaries to have the trust set aside, it would also be within their interest to have plaintiff adjudicated the victim of undue influence. Therefore, I find that there is a substantial risk that some of the beneficiaries will not be bound by a judgment against the trustees. The trustees cannot fully represent the interests of the entire group of beneficiaries.
The plaintiff does not suggest, nor could she, that there is a means to shape the relief requested in this suit to avoid prejudice to the beneficiaries or to defendants. Because of this unavoidable prejudice, and because there is an alternative forum in which all the parties, including the beneficiaries, can be joined, I find that the beneficiaries are indispensable parties and must be joined. Because they cannot be joined without destroying diversity, this action must be dismissed.
* * * * * * For the reasons discussed above, defendants' motion to dismiss the complaint is granted. Plaintiff's motion to enjoin the Delaware proceedings is denied.
SO ORDERED.