Sisters Deemed Out of Time in Bringing Breach of Fiduciary Duty Claims Against Sister-in-Law
Geswaldo v. Geswaldo, 2024 WL 4615590, No. A-3540-21 (N.J. Super. App. Div. Oct. 30, 2024)
Christine and Rachel Geswaldo (the “sisters”) appealed a decision in favor of their sister-in-law, Joan Geswaldo, regarding a dispute over a family trust and real estate partnership.
In 1991, Joseph, the siblings’ father, set up a trust to hold two assets: a condominium in Florida and a 25 percent interest in an entity, Fairfield Park. The trust agreement was to be interpreted in accordance with Florida law and stated that in the event Joseph could no longer serve as trustee, his three children, Christine, Rachel, and George (Joan’s late husband), were to serve as co-trustees. On Joseph’s death, the entire trust was to be distributed to the three children in equal shares.
A year after the formation of the trust, Joseph and his three children formed a partnership, Geswaldo Associates, for the purpose of owning and managing real estate investments. The partnership agreement provided for 70 percent of the net cash flow to be distributed to the partners in accordance with their interests at the end of each fiscal year. In addition, partners were permitted to transfer their interest to a spouse or children without prior approval of the partnership. Further, on death, the partner’s personal representative, if a spouse or child, would succeed the partner.
In the decade between the formation of the partnership in 1992 and his death in 2002, Joseph gifted his interest to his children, leaving the three of them as equal partners. The only asset of the partnership was a multi-tenant commercial building in Lodi. The partnership documents named George as the managing partner, but George did not actively manage the books of the partnership until 2002 or 2003.
From 2002 to early 2017, the sisters and George would sit down about the partnership, and George would tell the sisters the revenues were insufficient to cover operating expenses. Christine claims to have asked to see the books repeatedly throughout the years, but George always provided an excuse. After George’s death in 2017, the sisters discovered George was depositing the rents from the partnership in his joint account with his wife Joan. Two lawsuits were filed by the sisters but voluntarily dismissed. In 2020, Joan filed suit against the sisters as a partner of Geswaldo Associates, as a beneficiary of the trust, and as executor of George’s estate. The sisters counterclaimed for breach of fiduciary duty.
By the time of trial, the sisters had been in full control of the partnership and trust for five years. They admitted that they did not provide an accounting to Joan for the trust assets and barred her from the Florida condominium. Furthermore, the Fairfield Holdings property was sold, but the sisters took no steps to obtain the proceeds which were escrowed at closing. Additionally, the sisters admitted they did not make any distributions to Joan as the partnership agreement required. In fact, the sisters tried to sell the Lodi property without Joan’s consent or knowledge, but cancelled the sale once the title insurance company wanted Joan’s consent to the sale.
The trial court found Joan became a partner of Geswaldo Associates pursuant to the partnership agreement and the sisters improperly shut Joan out of the partnership. The trial judge removed the sisters as managing partners and appointed a receiver to liquidate the partnership and distribute the assets. Further, the court found the sisters failed to provide Joan, as George’s successor beneficiary, with annual accountings of the trust and improperly barred her from using the Florida condominium. The trial court found no one adequately explained why the trust assets were not immediately sold upon Joseph’s death and distributed according to the trust terms. The court ordered the sale of the Florida condominium and a formal accounting of the trust. Additionally, the court ordered any income or proceeds of the trust be placed in escrow until further order by the court.
As to the sisters’ counterclaim, the trial court found that Christine and Rachel’s claims for breach of fiduciary duty and fraud resulting in purely economic loss were subject to the six-year statute of limitations in N.J.S.A. § 2A:14-1. As such, those claims accrued on the date of the act or omission giving rise to the claim or when it should have been reasonably discovered. Because Christine and Rachel had access to the books and records of the partnership and were co-trustees of the trust, the judge found that they could and should have reasonably discovered the actions of which they were now complaining. The judge also found that Christine and Rachel’s counterclaim for breach of the trust agreement, breach of the partnership agreement, breach of the covenant of good faith and fair dealing, and conversion were likewise barred by the six-year statute of limitations or laches given their delay in asserting their claims until after George’s death.
The sisters appealed for abuse of discretion on evidentiary issues, and claimed the trial court erred in appointing the receiver.
The Appellate Division affirmed the trial court’s decisions and found the trial court did not err in excluding the evidence or appointing a receiver. The appointment of a receiver for the partnership was appropriate because the sisters “testified unabashedly that they had completely shut Joan out of the business of the partnership, refusing her any information even as to a contract to sell the partnership’s only asset.” Id. at *22. The Appellate Division agreed with the trial judge that such actions were a clear breach of defendants’ fiduciary duties to Joan. The Appellate Division did not discuss the statute of limitations issue as it was not argued on appeal.