The opinion of the court was delivered by: WALKER
Defendant Claus von Bulow moves pursuant to Fed. R. Civ. P. 9(b), 12(b)(1), (6), and (7), and 19(b) for dismissal of this action. For the reasons stated below, the Court denies the motion in its entirety with one exception.
This action is brought by the two children of Martha von Bulow's earlier marriage suing on her behalf as her "next friends." They allege that defendant devised a scheme to murder their mother, a woman of substantial wealth, and twice attempted to carry out his plan through the surreptitious injection of drugs. His aim, they contend, was to gain a multi-million dollar inheritance from Mrs. von Bulow's estate and attain the freedom to marry another woman. In the case of the second attempt, they allege he also sought to ensure continued receipt of payments from an inter vivos trust established by Mrs. von Bulow following her recovery from the first attempt. Mrs. von Bulow today remains in a permanent coma, which is the result, plaintiffs allege, of defendant's second murder attempt.
On July 20, 1984, the Supreme Court of the state of New York, acting pursuant to N.Y. Mental Hygiene Law § 78.01 (McKinney 1985), adjudicated Mrs. von Bulow an incompetent and appointed a committee consisting of Chemical Bank and attorney C. Sims Farr, ("the committee"), to administer her non-trust assets.
Under various legal theories in ten claims, plaintiffs seek to deny Claus von Bulow all material gain, past, present, and future, derived from his alleged misdeeds. The complaint was filed on July 19, 1985, one day less than a year following the appointment of the committee and less than two months after a Rhode Island jury acquitted defendant in his second trial of two counts of assault with intent to murder his wife. The first Rhode Island criminal trial resulted in a conviction on the same criminal charges but was reversed on appeal.
In his motion, defendant asserts that (1) plaintiffs lack standing to bring the action as Martha von Bulow's "next friends"; (2) six of the ten claims are time-barred; (3) the RICO claims are insufficiently alleged; (4) indispensable parties, citizens of New York, must be joined as defendants, thereby destroying diversity; (5) the common law fraud allegation does not state a claim and lacks particularity; and (6) the Court is without authority or jurisdiction to deny defendant support and maintenance from the assets of his comatose wife. The consideration and resolution of these motions require a somewhat detailed exposition of the allegations in the complaint.
The complaint alleges the following unhappy series of facts as the basis for its claims:
Defendant married Martha von Bulow in 1966 and was completely supported by her. He concealed from her various extra-marital affairs, including one with a woman with whom he discussed marriage in 1979 and who gave him until January 1980 to leave his wife. He helped prepare his wife's will, which she executed on December 12, 1979, and was aware that it left him tangible personal property worth approximately $4,000,000; an outright share of the testamentary estate valued at approximately $2,500,000; and income for life from a trust valued at $7,500,000, with the power to dispose of the principal at his death. The will also named him trustee of various trusts including a charitable instrument under which defendant could control the distribution of income amounting in 1979 to approximately $1,000,000 per year for 21 years.
During the night of December 26-27, 1979, defendant attempted to murder his wife by surrepetitiously injecting her with insulin and other drugs. He caused her to lapse into a coma, did nothing to help her, and tried to conceal her condition from those who would assist her. Finally, her condition became apparent to others who demanded that a doctor be summoned.
Mrs. von Bulow survived, and defendant lied to her doctors and family about his knowledge of and responsibility for her condition by creating the false impression that alcoholism caused her coma. He also concealed his murder attempt from Mrs. von Bulow. As a result of these misrepresentations and concealments, Mrs. von Bulow was induced to establish a $2,000,000 charitable remainder trust giving defendant a lifetime income of $120,000 per year.
Defendant and his wife discussed divorce in late 1980. On the night of December 20-21, 1980, he again attempted to murder her by the same means, this time putting her into a permanent coma. He again lied to her doctors and family concerning his knowledge of and responsibility for her condition and tried to persuade her family to remove her from life support systems and allow her to die.
The complaint alleges diversity jurisdiction under 28 U.S.C. § 1332, federal subject matter jurisdiction under 18 U.S.C. § 1964(c), and pendent jurisdiction for the state law claims.
B. Theories of Recovery and Relief Sought
The complaint alleges ten claims: assault and battery for the two alleged murder attempts (Claims I and II); negligent withholding of care on each occasion (Claims III and IV); common law fraud (Claim V); a claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and a similar state claim under Rhode Island law (Claims VI and VII); unjust enrichment from the fraudulent scheme (Claim VIII); mistake resulting in the creation of the 1980 inter vivos trust and unjust enrichment (Claim IX); and a declaratory judgment of defendant's non-entitlement to maintenance payments pursuant to the New York Mental Hygiene Law (Claim X). Plaintiffs bring Claims I-IX as "next friends" of Mrs. von Bulow. They bring Claim X both individually and as "next friends."
The complaint seeks relief in the form of money damages on Claims I-VII. It also asks for equitable relief as follows: a constructive trust on money and property wrongfully received; recission of the 1980 trust or, alternatively, excission of defendant's interest and acceleration of the charitable remainder; an accounting of funds wrongfully received from Mrs. von Bulow and restitution (Claims VIII and IX); and a judgment barring defendant from receipt of safekeeping, support, or maintenance from Mrs. von Bulow or her committee (Claim X).
A. Plaintiffs' Capacity to Sue as "Next Friends"
Defendant challenges the capacity of plaintiffs to bring their ten claims against him as the "next friends" of Martha von Bulow.
He argues that under New York law the existence of a court-appointed committee, administering her non-trust assets, precludes a suit on her behalf by her children from a previous marriage. He contends that they may not bring the action as "next friends" without demonstrating a conflict of interest between the committee and the incompetent. Defendant argues further that the committee's decision not to bring this action after being requested to do so by plaintiffs, conclusively precludes plaintiffs' right to sue as "next friends."
This Court's analysis begins with Fed. R. Civ. P. 17(c) which states:
(c) Infants or Incompetent Persons.
Whenever an infant or incompetent person has a representative, such as a general guardian, committee, conservator, or other like fiduciary, the representative may sue or defend on behalf of the infant or incompetent person. If an infant or incompetent person does not have a duly appointed representative he may sue by his next friend or by a guardian ad litem. The court shall appoint a guardian ad litem for an infant or incompetent person not otherwise represented in an action or shall make such other order as it deems proper for the protection of the infant or incompetent person.
Rule 17(c) is permissive, not mandatory. It gives the Court power to authorize someone other than a committee to sue on behalf of an incompetent where the committee is unable or refuses to act or its interests conflict with those of the incompetent. 6 C. Wright & A. Miller, Federal Practice and Procedure: Civil 1570; 3A J. Moore & J. Lucas, Moore's Federal Practice, [P] 17.26 (2d ed. 1985). Professor Moore states:
Under the second sentence of subdivision (c) an infant or incompetent person who does not have a duly appointed representative, may sue by his next friend or by a guardian ad litem. Even though the infant or incompetent has a general representative, if the representative is unable or refuses to act or his interests conflict with the person represented, the infant or incompetent may sue in federal court by his next friend or by a guardian ad litem. Courts have always had the power to appoint special representatives under such circumstances, and this power should be considered retained by the federal court in Rule 17(c). The fact that the first sentence is permissive is an implicit recognition of that power; and, in any event, a guardian ad litem probably can be appointed in such cases under the third sentence of subdivision (c).
Id. at 17-275 to 276 (footnotes omitted).
The power to appoint a guardian ad litem notwithstanding the existence of a committee is also rooted in the history of Rule 17(c). That Rule is derived in substance from former Equity Rule 70, which authorized suit either by a guardian or by a "prochein ami," i.e., next friend, subject only to "such orders as the court . . . may direct." See Fed. R. Civ. P. 17(c) advisory committee comment.
Both federal and New York state courts have repeatedly affirmed the power of the court to determine that the interests of a child or incompetent would best be represented not by a general representative, such as parent or guardian, but by a guardian ad litem or "next friend." In Seide v. Prevost, 536 F. Supp. 1121 (S.D.N.Y. 1982), and Child v. Beame, 412 F. Supp. 593 (S.D.N.Y. 1976), courts in this district concluded that Rule 17(c) permitted appointment of a guardian ad litem where parents were unable or refused to act or had abandoned interest. In Hoffert v. General Motors Corp., 656 F.2d 161 (5th Cir. 1981), cert. denied sub nom. Cochrane & Bresnahan v. Smith, 456 U.S. 961, 72 L. Ed. 2d 485, 102 S. Ct. 2037 (1982), the appearance of a conflict of interest between a minor and his general representative justified the appointment of a guardian ad litem. See also Adelman v. Graves, 747 F.2d 986 (5th Cir. 1983); Noe v. True, 507 F.2d 9 (6th Cir. 1974) (where the interests of a child and her legal guardian were adverse, the child was "not otherwise represented" as stated in Rule 17(c) and thus appointment of a guardian ad litem was appropriate); cf. Developmental Disabilities Advocacy Center, Inc. v. Melton, 689 F.2d 281 (1st Cir. 1982) (suit by a "next friend" not allowed where there was no discernible conflict in the general representative and the general representative opposed the suit as not being in the incompetent's best interest).
The New York rule is the same in substance as the federal rule. N.Y. Civ. Prac. Law & R.("CPLR") 1201 (McKinney supp. 1986), like Fed. R. Civ. P. 17(c), authorizes courts to exercise broad discretion to direct representation of an incompetent by a guardian ad litem rather than by the committee of his property "because of a conflict of interest or for other cause." While CPLR § 1201 does not mention "next friend" representation, there is no substantial difference between a "guardian ad litem " and a "next friend." Historically, the "next friend" has represented the incompetent as plaintiff, the guardian ad litem as defendant. But, as Professor Moore has observed, despite any difference in terminology, "the functions of the two are precisely the same" 3A Moore's Federal Practice [P] 17.26, at 17-281; see also 6 Wright and Miller, Federal Practice & Procedure: Civil § 1572.
Even prior to the enactment of CPLR § 1201 in 1962, New York law permitted courts to appoint a special representative in appropriate circumstances, notwithstanding the existence of a committee. Sengstack v. Sengstack, 4 N.Y.2d 502, 151 N.E.2d 887, 176 N.Y.S.2d 337 (1958); Moore v. Flagg, 137 A.D. 338, 122 N.Y.S. 174 (App. Div. 1910). Since the enactment of CPLR § 1201, New York law is settled that an adjudicated incompetent can be represented by a guardian ad litem because of a "conflict of interest or for other cause." In re Becan, 26 A.D.2d 44, 270 N.Y.S.2d 923 (App. Div. 1966). Berman v. Grossman, 24 A.D.2d 432, 260 N.Y.S.2d 736 (App. Div. 1965);
Thus, the New York and federal rules are in harmony. As under Fed. R. Civ. P. 17(c), the appointment of a "next friend" or guardian ad litem in New York is not confined to situations where there is a conflict of interest between the committee and the incompetent. The term "for other cause" in CPLR § 1201 also encompasses circumstances where the committee is unable or refuses to act.
The instant case is not one in which the committee opposes the action as against the interests of the incompetent, as was the situation in Developmental Disabilities Advocacy Center. To the contrary, the committee here, when requested by plaintiffs to bring this action and informed that if it did not sue they would sue as "next friends," concluded that it was in Mrs. von Bulow's best interest for the plaintiffs to sue as "next friends." The committee had three options: bring the suit, oppose the suit, or allow plaintiffs to bring the suit as "next friends." It chose the last as consonant with its duty to preserve Mrs. von Bulow's estate. It reasoned that the legal expenses of a committee suit would likely deplete Mrs. von Bulow's assets since, in its view, the collectability of any judgment against defendant would be problematical, while any unrecovered costs of the "next friend" suit would be borne by plaintiffs themselves. On the other hand, the committee reasoned, its charge could only benefit from a suit subsidized by plaintiffs.
Defendant's argument that the committee arrived at a "considered decision that prosecution of this action was not in the best interests of their charge"
is groundless. This is not a case where the committee has opposed the action. The committee expressly concluded that the action brought by plaintiffs as "next friends" could only redound to the benefit of the assets held by the committee. The committee has affirmatively and repeatedly taken a position in support of plaintiffs' suit as consistent with Mrs. von Bulow's best interest and has expressed that position in two separate letters.
Defendant also attacks the standing of plaintiffs as "next friends" on the ground that duplicative litigation might follow if the committee is not a party here. At oral argument, defendant's counsel stated: "If the committee comes in and says, 'We are willing to be bound by this action as if we were the parties, and to be bound by that for all of its collateral estoppel and res judicata in the state courts of New York,' we would be in a much different position."
Following oral argument, the committee did precisely what defendant requested. While it already appeared that Mrs. von Bulow and her committee, having approved the suit, would be legally bound by the outcome of this litigation, the committee has made that result explicit in its letter of March 25, 1986:
When we concluded after careful consideration, that it was appropriate for Mrs. Kneissel and Mr. Auersperg to bring this suit as "next friends," it was our understanding that they as plaintiffs would direct the litigation or settlement of the action on behalf of Mrs. von Bulow and that Mrs. von Bulow would be bound by the outcome of the litigation or by any settlement of the action. This is still our understanding and we agree that Mrs. von Bulow should be so bound. Of course, the Committee, in its capacity as such, would as a matter of law also be bound by any such judgment or settlement. However, to foreclose any possible dispute, the Committee expresses in this letter its explicit agreement and consent that any judgment or settlement in this action that would be binding on Mrs. von Bulow would be similarly binding on the Committee, as her representative.
Letter from Committee to Michael Armstrong at 1 (Mar. 25, 1986). Under these circumstances, where the committee has declined to sue but endorses the "next friends" action and agrees to be bound by the judgment, this Court orders, pursuant to Fed. R. Civ. P. 17(c), that plaintiffs may bring this action in a representative capacity.
There is also a separate and independent ground for plaintiffs' standing as "next friends." The committee consists of attorney C. Sims Farr, a partner with White & Case in New York, and Chemical Bank, both of whom have managed Martha von Bulow's finances and counseled her "for decades." Matter of von Bulow, 63 N.Y.2d 221, 224, 470 N.E.2d 866, 867, 481 N.Y.S.2d 67, 68 (1984) (per curiam). The committee is a fiduciary and owes its ward no less a duty of loyalty, diligence, and prudence than an attorney owes to his client. Compare Model Rules of Professional Responsibility Rule 1.7 (1983); Model Code of Professional Conduct Canon 5 (1980). Here, conflicts exist which cast serious doubt on the committee's ability to bring this action and at the same time fulfill its duty.
White & Case prepared her 1969 and 1979 wills, the 1980 inter vivos trust for defendant's benefit at issue here, and the defendant's 1981 will. The instant suit, among other things, attacks the 1980 trust. It would be difficult, if not impossible, for Mr. Farr, who is a likely witness, to bring the action against the trust he created.
In addition, Chemical would be attacking a trust from which it derives fees. Further, defendant, Mr. Farr, and Chemical are all executors or trustees under the 1979 will of Martha von Bulow. If Mr. Farr and Chemical were unsuccessful in their suit against the defendant, they would then be placed in the difficult position of having to act jointly with their former adversary in administering the estate and testamentary trust.
Moreover, Mr. Farr drafted defendant's 1981 will and presumably received privileged communications from him regarding his finances, his expectations as his wife's heir, and other matters. Mr. Farr would be in a difficult position bringing a suit in a representative capacity against a client for whom he worked only two months after the alleged second murder attempt and who may have revealed to him confidential information bearing on the period involved in this lawsuit. In addition, if Mr. Farr were to bring this action, he would be acting contrary to defendant's legatee and trust interests he helped create.
These conflicts persist even though Mr. Farr would not be litigating this action himself. As a "client" responsible for financing the suit, he would at very least be deciding how to allocate resources, whether to settle the case and on what terms. Thus, there remains the distinct possibility that a case brought against Mr. von Bulow by a committee that includes Mr. Farr would not be pursued as vigorously as Mrs. von Bulow's interests could require.
Defendant maintains that the committee is not conflicted because any conflict is between the committee and defendant, not the committee and Mrs. von Bulow -- the conflict that matters. This argument overlooks the fact that the relationship between the committee and defendant inevitably creates a conflict between the committee and Mrs. von Bulow since the committee would be less inclined as plaintiff to pursue her claims against Mr. von Bulow with vigor.
Indeed, the Court suspects that the conflicted status of Mr. Farr and Chemical may have contributed to their decision to support an action by the "next friends" rather than by the committee. Defendant's further claim that there is no conflict because the committee would be serving in a representative capacity is frivolous. It is precisely the committee's ability to vigorously pursue their charge's cause of action that is at stake.
Defendant and his daughter, Cosima von Bulow, a non-party, urge the Court to conduct an evidentiary hearing to consider the committee's conflicts. This Court's determination that the suit may proceed since the committee has declined to act -- irrespective of any conflict -- obviates the need for a hearing on that issue. Moreover, even if plaintiff's standing was not based upon the separate ground that "next friends" may sue where the committee has declined to do so, a hearing would not be required.
Ample basis exists in the present record for this Court to conclude that the committee's ties to Mr. von Bulow leave it conflicted in this matter. Defendant has asserted no facts that, if established at a hearing, would contradict those that support this conclusion. Thus, a hearing would serve no purpose other than to delay this proceeding. The Court has already determined from incontrovertible facts that the relationship between the committee and Mr. von Bulow, and between the committee and the trust and will under attack, raises sufficient conflicts between the committee and Mrs. von Bulow to make the committee an inappropriate representative in this action.
This Court, however, expressly declines to relitigate the capacity of the committee to represent Mrs. von Bulow in all her affairs. That matter is within the exclusive jurisdiction of the New York State Supreme Court that appointed the committee. N.Y. Mental Hyg. Law § 78.01 (McKinney supp. 1986); People ex rel. Flagg v. Lengyel, 19 A.D.2d 834, 244 N.Y.S.2d 519 (App. Div. 1963); In re Barnes, 185 Misc. 215, 56 N.Y.S.2d 386 (Sup. Ct. 1945). In this case, it appears that the committee has acted in Mrs. von Bulow's best interest by declining to proceed itself and by supporting an action by plaintiffs as next friends. The committee has, in effect, found, at no cost, a proxy to vigorously prosecute an action it supports and from which its ward can gain monetary benefit.
(1) Standing as "Next Friends"
In the tenth claim, plaintiffs, suing both as "next friends" and individually, seek a judgment declaring defendant ineligible to receive the "safe-keeping, support and maintenance" to which he would otherwise be entitled under the New York Mental Hygiene Law (the "MHL").
Section 78.01 of the MHL places "jurisdiction over the custody of a person and his property if he is incompetent to manage himself or his affairs" in the Supreme Court, and the county courts outside the city of New York. That section requires the court to "preserve the property of a person it declares incompetent . . . from waste or destruction and, out of the proceeds thereof, provide for the payment of his debts and for the safekeeping support and maintenance . . . of the incompetent and his family."
Defendant argues that plaintiffs are foreclosed from bringing this claim because the MHL does not create a "right of action allowing one heir or dependent of an incompetent to sue to interfere with the property and support rights of another heir or dependent."
Plaintiffs, however, are not claiming a right under the statute. They are invoking the equitable jurisdiction of this Court to obtain a declaration of defendant's ineligibility, due to his alleged wrongful conduct, to receive property or funds from his incompetent wife's estate. The question does not turn on whether a remedy in favor of the incompetent or plaintiffs is provided for by the MHL but whether this Court has equitable powers to declare that defendant's misdeeds, if proven, render him ineligible to receive benefits and proceeds arising therefrom. It is clear that the Court has such powers. Those powers and plaintiffs' ability to invoke them do not depend upon the existence of a right of action under the MHL.
Defendant further asserts that because the non-trust property of his incompetent wife is exclusively vested in the Supreme Court, this Court is powerless to grant the relief requested in the tenth claim since "this court has no jurisdiction over the defendant's property, which is the subject matter of the tenth cause of action."
Defendant relies on Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 83 L. Ed. 285, 59 S. Ct. 275 (1939) where the Supreme Court held that beneficiaries of a trust could not maintain an action in a Pennsylvania federal district court against the trustee to account for mismanagement since the trustee had previously filed an accounting in the Court of Common Pleas which, under Pennsylvania law, was vested with exclusive jurisdiction over the trust res. Defendant argues that since the New York Supreme Court is exclusively vested with jurisdiction over Mrs. von Bulow's non-trust property from which the committee may make payments as an agent of the court pursuant to the MHL, Princess Lida dictates dismissal of any claim that affects that property. He asserts that Claim X must be brought, if at all, in the New York Supreme Court.
Defendant's reliance on Princess Lida is misplaced. In that case, the Supreme Court made it clear that the principle allowing a court first assuming jurisdiction over property to maintain and exercise that jurisdiction to the exclusion of another court is an exception to the general rule that a state and federal court may simultaneously adjudicate the same issues. This exception "does not apply to a case in federal court based upon diversity of citizenship wherein the plaintiff seeks merely an adjudication of his right or interest as a basis of a claim against a fund in the possession of a state court." Id. at 467. The longstanding rule that a federal court may adjudicate a right to a fund in the exclusive custody of a state court was articulated in Markham v. Allen, 326 U.S. 490, 90 L. Ed. 256, 66 S. Ct. 296 (1946):
[W]hile a federal court may not exercise its jurisdiction to disturb or affect the possession of property in the custody of a state court, it may exercise its jurisdiction to adjudicate rights in such property where the final judgment does not undertake to interfere with the state court's possession save to the extent that the state court is bound by the judgment to recognize the right adjudicated by the federal court.
Id. at 494 (citations omitted).
The tenth claim is within this Court's diversity jurisdiction and is in personam. It seeks to determine defendant's right, or more precisely his absence of a right, to receive payments by the committee from the incompetent's property. It does not purport to exercise control over that property or to affect the committee's administration of the incompetent's assets. Unlike the situation in Princess Lida or Barnes v. Brandrup, 506 F. Supp. 396 (S.D.N.Y. 1981), cited by defendant, there is no attempt here to surcharge a trustee for mismanagement of the res. Thus, this Court need not inquire, as Judge Sofaer did in Barnes, whether, since both courts purport to exercise jurisdiction over the res, the state court was exercising prior control with exclusivity under state law and could effectively dispose of all the issues.
Defendant also argues that the tenth claim should be dismissed since declaratory relief is not available "where a special statutory proceeding has been provided." Katzenbach v. McClung, 379 U.S. 294, 296, 13 L. Ed. 2d 290, 85 S. Ct. 377 (1964). He contends that an application to the committee for payment pursuant to the MHL is such a proceeding. This argument must also fail. The existence of the statutory mechanism under the MHL for defendant is not a "special statutory proceeding" available to plaintiffs to object to such payments. This is not a situation where a statute expressly provides a special avenue of relief so as to preclude declaratory judgment. Cf. Sobell v. Attorney General of the United States, 400 F.2d 986 (3rd Cir.) (no declaratory judgment where statutory provision existed for prisoner to challenge sentence in sentencing court), cert. denied, 393 U.S. 940, 21 L. Ed. 2d 277, 89 S. Ct. 302 (1968); Carolina Brown, Inc. v. Weinberger, 365 F. Supp. 310 (D.S.C. 1973) (no declaratory judgment available where statute provided that challenge to new drug was to be made before the Food and Drug Administration). In this case, where no special statutory remedy is provided for plaintiffs, a declaratory judgment is available.
Indeed, defendant himself has pointed out that the MHL is an administrative statute that does not provide a right of action to an objecting heir or dependent. Defendant correctly observes that "plaintiffs have no right of action under the Mental Hygiene Law either as 'next friends' or acting on their own behalf."
This proposition contradicts defendant's claim of the availability of a "special statutory proceeding" that would foreclose a declaratory judgment. On the contrary, it supports plaintiffs' position that if relief is to be had at all, it must be by way of declaratory judgment.
Defendant's assertion that no justiciable controversy exists because defendant has not applied to the committee for payments is also without merit. The Supreme Court has articulated the test for an "actual controversy" under the Declaratory Judgment Act, 28 U.S.C. § 2201, as follows:
Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and ...