A Strong Offense
A Stronger Defense
Sean Swendsen was a remainder beneficiary of the Richard Swendsen Trust. Sean sued Richard Corey, the trustee of the Trust, alleging breach of trust and wrongful dissipation of trust assets. Sean also sued Clayne Corey, who was Richard’s son, alleging claims that (1) Clayne acquired trust property with knowledge of a potential breach of trust by or conflict of interest on the part of the Trustee, and (2) Clayne committed trespass on trust property.
The question before the United States District Court for the District of Idaho in Swendsen v. Corey (2011 WL 4352363) was whether Clayne – a stranger to the trust – owed Sean a duty of care. The court determined that Clayne did, in fact, owe Sean a duty of care concerning the trust even though Clayne was not a trustee or a beneficiary of the trust.Under Idaho law, a third party cannot knowingly take advantage of a breach of fiduciary duty. Idaho’s approach is consistent with courts in other states, such as Utah, California, Arizona, and New Jersey, which have decided that trust beneficiaries have the right to sue a third party where the beneficiary has interests adverse to, or has been damaged due to breach by, the trustee.
Interestingly, Corey did not dispute that he owed a duty to the trust beneficiaries. Instead he argued that due to a medical condition, the consequences of his conduct were not foreseeable.
So, which third parties are most likely to get sued by a trust beneficiary relating to a trustee’s breach of fiduciary duty? Attorneys, real estate agents, and financial advisors are a few professions that quickly come to mind. The court noted that Sean had alleged legal malpractice claims against Clayne which had been previously dismissed, so Clayne may have had a closer relationship to the trust than was disclosed in the court’s opinion.