Phillips v. Citibank, N.A.

252 F. Supp. 3d 289, 2017 U.S. Dist. LEXIS 71520
CourtDistrict Court, S.D. New York
DecidedMay 4, 2017
Docket16 Civ. 3452 (DAB)
StatusPublished
Cited by30 cases

This text of 252 F. Supp. 3d 289 (Phillips v. Citibank, N.A.) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Phillips v. Citibank, N.A., 252 F. Supp. 3d 289, 2017 U.S. Dist. LEXIS 71520 (S.D.N.Y. 2017).

Opinion

MEMORANDUM & ORDER

DEBORAH A. BATTS, United States District Judge.

The instant action was filed by Grant Phillips and Scott Phillips (collectively, “Plaintiffs”) on May 9, 2016, against Citibank N.A. (“Citibank”), Neal Dorman, individually and in his representative capacity (“Dornpan”), Ira Schapiro, in his representative capacity (“Schapiro”), Lightstone Acquisitions III, LLC, LSG 365 Bond Street LLC, and The Light-stone Group LLC (collectively, “Light-stone”) (collectively, “Defendants”). Defendants now move to dismiss the Complaint under Fed. R. Civ. Proc. 12(b)(6) and 12(b)(1). For the reasons described below, the Motion is GRANTED in part, and the remaining claims are STAYED.

I. Background

This case involves the administration of a testamentary trust created by David J. Phillips (the “DJP Trust” or the “Trust”). David was a businessman who was survived by his wife, Sylvia, his son, Joseph, and his grandsons Grant and Scott, Plaintiffs in the current action. (Am. Compl. ¶ 13.)

In 1979, David and Sylvia bought the Brooklyn real property in which their business was headquartered (the “Property”). (Id. ¶ 15.) David and Sylvia owned the Property as tenants-in-common, with David owning a 65% interest and Sylvia owning a 35% interest. (Id.)

David died in 1988. (Id. ¶ 30.) According to. Plaintiffs, David’s intent — expressed through both his will and various interactions he had with Plaintiffs before his death — was to leave the majority of his estate to Plaintiffs, and only limited income to Joseph. (Id. ¶ 16; see also id. ¶¶ 17-18, 21-22, 25,115.)

[293]*293David’s will established the DJP Trust, which designated Sylvia and Joseph as income beneficiaries - and Plaintiffs as re-maindermen beneficiaries. (Id. ¶23.) The will also established two separate trusts for Sylvia and Joseph (the “Sylvia Trust” and the “Joseph Trust,” respectively). (Id. ¶¶ 25-26.) Sylvia, Joseph, David’s accountant, and Chase Manhattan Bank, N.A. (“Chase”) were appointed trustees and executors of David’s estate. (Id. ¶ 24.) After David’s death, his 65% interest in the Property was transferred to the DJP Trust. (Id. ¶ 30.)

Shortly after David died, his accountant did as well, leaving Sylvia, Chase, and Joseph as the three remaining trustees. (Id. ¶ 32.) Plaintiffs allege that, because of Sylvia’s old age, Joseph was able to exercise considerable control over the administration of the DJP Trust, and that as a result, Dorman, David’s long-time attorney, allegedly quickly aligned himself with Joseph. (Id. ¶¶ 31-35.)

According to Plaintiffs, Joseph and Dor-man conspired to persuade Sylvia to write a new will bequeathing her summer home, Manhattan apartment, and certain personal effects to Joseph, despite the fact that she had previously told Plaintiffs that she intended this property to go to them. (Id. ¶¶ 37-42.) Plaintiffs claim that Joseph and Dorman then used their influence to convince Sylvia to make an inter vivos gift to Joseph of her 35% interest in the Property, which she did in 1993. (Id. ¶¶ 44-46.) Sylvia died shortly thereafter, leaving Joseph and Chase as the two remaining trustees. (Id. ¶ 48.)

In 2000, Chase filed a petition for permission to resign as trustee in the New York Surrogate’s Court overseeing the administration of David’s estate, based in part on its belief that the Property should be sold and Joseph’s opposition to this plan. (Id. ¶56.) Joseph solicited Citibank to replace Chase, and in a May 2002 engagement letter, Citibank discussed its own intent to sell the Property as soon as possible, a position to which Joseph now apparently acquiesced. (|d. ¶¶ 58-60.) Grant signed the engagement letter, but only on the condition that certain property management fees paid to Joseph would be deducted from income; Scott never signed the letter. (Id. ¶ 62.) In November 2002, Citibank prepared a new engagement letter, and did not seek or obtain the signature of either Plaintiff. (Id. ¶ 63.)

In 2003, the Surrogate’s Court entered an order granting Chase’s request to resign and appointing Citibank as successor trustee. (Id. ¶¶65, 68.) Plaintiffs allege that the court’s approval was the result of Joseph’s and Citibank’s failure to be “forthright” with the court, and provision of an “illusory rationale” for the resignation — Joseph’s supposed opposition to the sale of the Property. (W. ¶¶ 65-66.)

In 2004, Joseph and Citibank, as trustees of the DJP Trust (the “Trustees”), and Joseph, as owner of a 35% interest in the Property, entered into a contract to sell the Property to a company named Toll Brothers for $21.5 million. (Id. ¶ 69.) For reasons not relevant to the current Motion, Toll Brothers refused to close on the sale as scheduled in 2009. (Id. ¶ 75.) Joseph and Citibank filed suit, and obtained a settlement of over $10 million for the DJP Trust and $5 million for Joseph individually. (Id. ¶ 76.)

In 2012, the Trustees and KingsPB, an LLC wholly owned by Joseph, entered into a new contract to sell the Property to Lightstone for $19 million. (Id. ¶¶ 74, 83-84.) Plaintiffs claim that the Trustees never obtained Plaintiffs’ approval of the sale, informed them of the salient terms, or performed the analyses necessary to ensure that the sale was in the Trust’s best interests. (Id. ¶¶ 85-86.) Plaintiffs also claim that Lightstone was aware that Jo[294]*294seph was both a trustee and owner of KingsPB, positions which Plaintiffs contend constituted a conflict of interest. (Id. ¶¶ 88-92.)

Joseph died in May of 2013, leaving the remainder of his estate to his wife Rosemary and nothing to Plaintiffs. (Id. ¶¶ 96, 99.) Schapiro and Dorman were appointed co-representatives of the estate. (Id. ¶¶ 8-9.) Fewer than six weeks after Joseph’s death, the sale of the Property to Light-stone closed. (Id. ¶ 108). Despite the $19 million sales price, Plaintiffs allege that Lightstone “flipped” a parcel adjacent to the Property in 2015 for $75 million. (Id. ¶ 110.)

Plaintiffs filed the instant lawsuit on May 9, 2016. (EOF No. 1.) Count One of the Complaint seeks damages against Citibank, Schapiro, and Dorman for breach of fiduciary duty; Count Two seeks damages against Dorman in his individual capacity for aiding and abetting breach of fiduciary duty; Count Three seeks damages against Citibank, Dorman, and Schapiro for fraud; Count Four seeks damages against Citibank, Dorman and Schapiro for negligent misrepresentation; Count Five seeks damages against Dorman and Schapiro for fraud; Count Six1 seeks an accounting against Citibank; Count Seven seeks a rescission of the sale or, in the alternative, damages against Lightstone for fraud; and Count Eight seeks to place the Property in constructive trust, and is asserted against Lightstone for aiding and abetting breach of fiduciary duty. (Am. Compl. ¶¶ 112-69.) Broadly speaking, the first five tort claims challenge the administration of the DJP Trust since Citibank’s substitution as trustee, the circumstances of Citibank’s engagement as trustee, the sale of the Property, and Sylvia’s testamentary and inter vivos transfers to Joseph. Count Six seeks a trust accounting for the same period, and Counts Seven and Eight relate solely to the circumstances surrounding the sale of the Property.

Although not detailed extensively in the Complaint,2 the Surrogate’s Court that probated David’s will has been overseeing the administration of his estate, including the DJP Trust, since 1989. (See Chmil Decl. Ex.

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252 F. Supp. 3d 289, 2017 U.S. Dist. LEXIS 71520, Counsel Stack Legal Research, https://law.counselstack.com/opinion/phillips-v-citibank-na-nysd-2017.