The opinion of the court was delivered by: VICTOR Marrero, District Judge
Plaintiff Luiz Eduardo Fontes Williams ("Williams") is a remainderman
of an inter vivos trust (the "Gem Trust"). Invoking the Court's diversity
jurisdiction under 28 U.S.C. § 1332, Williams filed suit against the
trustee of the Gem Trust, defendant J.P. Morgan & Co. Incorporated
("Morgan"), seeking damages for breach of fiduciary duty and an
accounting. Morgan then impleaded third-party defendant Maria Thereza
Fontes Williams ("Maria Williams"), asserting the right to contractual
indemnification, indemnification by estoppel and unjust enrichment if
Morgan is found liable to Williams. Maria Williams now moves for summary
judgment on the third-party complaint filed by Morgan. For the reasons
set forth below, the Court GRANTS Maria Williams's motion in its
entirety.
The principal facts underlying Williams's claims against Morgan are set
forth in the Court's Decision and Order, dated May 7, 2002. Williams v.
Morgan, 199 F. Supp.2d 189 (S.D.N.Y. 2002) ("Williams I"). Here, the
Court will outline the facts relevant to the third-party complaint that
is the subject of the instant motion for summary judgment.*fn1
Williams is a remainderman of the Gem Trust, which was created in 1958
by his father, John Williams, who was also Maria Williams's husband, with
a corpus of approximately $500,000. Morgan, a New York corporation, was
appointed the trustee. Maria Williams, a citizen and resident of Brazil,
is the income beneficiary of the Gem Trust. Upon her death, Gem Trust's
assets are to be distributed to her surviving descendants.
In the late 1960's, Davis Polk & Wardell ("Davis Polk"), as well
John and Maria Williams, became aware of a bilateral tax treaty that was
in the process of negotiation between the United States and Brazil, but
would not take effect until ratified by the legislatures of both
countries (the "Proposed Treaty")*fn2 According to the Proposed Treaty,
the Brazilian tax authorities would be empowered to request information
from the files of the Internal Revenue Service with respect to Brazilian
citizens. As of January 1971, the United States Senate had ratified the
Proposed Treaty, with certain reservations, but the Brazilian Congress
had not yet accepted the Proposed Treaty. Historically, such treaties are
made retroactive to January 1 of the year in which they become
effective.
Upon consultation with Davis Polk, John and Maria Williams grew
concerned that, because the Proposed Treaty set forth provisions allowing
for an exchange of information between the tax authorities of the two
governments, Maria Williams and her children could suffer severe
consequences for having failed to report the money in the Gem Trust, and
Maria Williams's income therefrom, to the Government of Brazil, including
financial and criminal penalties, if the Brazilian authorities learned of
the existence of the Gem Trust. Therefore, Maria and John Williams worked
with Davis Polk and Morgan to develop a plan of action to avoid potential
adverse consequences to the Williams family of the possible ratification
of the Proposed Treaty. In the process of determining the best course of
action, Davis Polk requested the law firm of Curtis, Mallet-Prevost, Colt
& Mosle ("Curtis Mallet") to provide two opinion letters regarding
the possible penalties Maria Williams would suffer under Brazilian law if
Brazilian authorities learned of the Gem Trust. (See Declaration of R.
Scott Greathead ("Greathead Decl."), dated September 16, 2002, Exhs. B,
C.) To avoid the possible penalties Maria Williams and her children could
suffer under the effects of the Proposed Treaty, the plan of action
developed was for the Gem Trust's assets to be reinvested solely in
tax-exempt bonds so that the assets would no longer be reported for tax
purposes in the United States.
Having decided on this course, Maria Williams authorized Morgan to
liquidate the Gem Trust's tax-generating investments beginning in late
1970. This direction to Morgan was reduced to writing in a letter, dated
January 18, 1971, from Maria Williams to William H. Hobson, a vice
president at Morgan (the "Letter"). (See Greathead Decl. Exh. E.) Davis
Polk drafted the Letter on Maria Williams's behalf, and the Letter was
reviewed by Morgan before Maria Williams signed it. The Letter explains
the nature of the Proposed Treaty, including the fact that, as of that
time, the treaty was only in the negotiation stage. However, opining that
such ratification was likely, the Letter tracks the conclusion stated in
Curtis Mallet's opinion letters concerning Maria Williams's potential
liability if the Proposed Treaty were ratified, and directs Morgan, as
trustee, "to take whatever steps necessary in order to assure that [Maria
Williams's] name and nationality will not appear on the trust's tax
returns filed with [the U.S.] Internal Revenue Service after January 1,
1971." (Id. at 2-3.)
Maria Williams also indicates in the Letter that she
understands that such disclosure could be avoided by selling the assets
in the Gem Trust and reinvesting the proceeds of such sales into
tax-exempt securities and therefore authorizes this action. Finally, and
crucial to the instant motion, Maria Williams also relates to Morgan her
own undertaking of responsibility with regard to the decision to sell the
assets in the Gem Trust, a taxable event, and the subsequent reinvestment
in tax-exempt bonds:
I hereby release and discharge you from any liability
to me for making such sales and causing the trust to
incur a net current decrease on account of capital
gain taxes. In addition, I hereby agree to indemnify
you against any claims made by other beneficiaries of
the trust arising out of my requested action.
(emphasis added). (Id. at 4.)
Based on these instructions from Maria Williams, Morgan proceeded early
in 1971 to liquidate the assets of the Gem Trust, reinvesting the
proceeds in tax-exempt securities. In order to receive further reassurance
concerning the propriety of its actions with regard to the Gem Trust,
while still in the process of reinvesting the Gem Trust assets, Morgan
requested that Davis Polk provide an opinion letter endorsing the
strategy authorized by Maria Williams, which Davis Polk did on February
10, 1971 ("Opinion Letter"). (See Greathead Decl. Exh. F.) In its Opinion
Letter, Davis Polk repeats the background circumstances leading up to the
liquidation and reinvestment of the Gem Trust in tax-exempt securities,
and the process by which Davis Polk came to the conclusion that this was
the best course of action. The Opinion Letter explains that Maria
Williams's concern that the Brazilian Congress would soon ratify the
Proposed Treaty did not provide Morgan sufficient reason to conclude that
ratification was imminent or probable, but concludes that:
[I]t is our opinion that [Morgan] may properly sell
all of the securities in the trust which generate
taxable income and reinvest the proceeds in securities
generating tax-exempt income and that [Morgan] may
maintain the trust portfolio invested entirely in
securities which earn tax-exempt income until [Morgan]
ha[s] reason to believe that the income beneficiary
and the remaindermen will no longer be in danger and
so long as the investment of the trust portfolio
entirely in securities earning tax-exempt income will
relieve [Morgan] of the duty of disclosing the name,
address and nationality of the income beneficiary and
remaindermen to the Internal Revenue Service.
The United States and Brazil never entered the Proposed Treaty.
Williams thus claims that by the mid-1970's it was clear that the
Proposed Treaty no longer posed a risk to the income beneficiary's
interests and that Morgan breached its fiduciary duty as trustee at that
point by not appropriately reinvesting the assets in the Gem Trust in
light of the fact that the threat from the Proposed Treaty had
disappeared.
Morgan seeks recovery in its third-party complaint from Maria Williams
for any liability it may incur to Williams for its alleged failure as
trustee of the Gem Trust to recognize that the Proposed Treaty was no
longer relevant and, accordingly, to reconsider the propriety of the
investments in the Gem Trust. Morgan bases its third-party complaint on
theories of contractual indemnification, indemnification by estoppel and
unjust enrichment.
A motion for summary judgment should be granted where "the pleadings,
depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to judgment as a
matter of law." Fed.R.Civ.P. 56(c); see Rodriguez v. Hahn,
209 F. Supp.2d 344, 346 (S.D.N.Y. 2002) (citing Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986)). The role of the Court is not to
resolve issues of fact but, rather, "to determine as a threshold matter
whether there are genuine unresolved issues of material fact to be
tried." Gibson v. Am. Broad. Companies, Inc., 892 F.2d 1128, 1132 (2nd
Cir. 1989). The moving party bears the initial burden of "informing the
district court of the basis for its motion" and identifying the matter
that "it believes demonstrate[s] the absence of a genuine issue of
material fact." Celotex, 477 U.S. at 323. The nonmoving party ...