Life Insurance Co. Not Liable for Lawyer's Probate Plunder - U.S. First Circuit
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Life Insurance Co. Not Liable for Lawyer's Probate Plunder

Overloaded with complicated legal concepts and boring litigation fact patterns? This opinion, penned by Judge Thompson, reads like a Hardy Boys mystery novel, including the pun-ny heading, "Misplaced Trust." It looks like Selya isn't the only talented author in the First Circuit.

Lillian Smillie penned a will in 1986 that bequeathed her entire estate, minus a few odds and expenses, to the Smillie Trust, which benefited her blind nephew Thaddeus. Thaddeus' brother, Dr. Frederick Jakobiec was named as trustee.

Lillian passed away in 1988. Her sister Beatrice, the mother of Frederick and Thaddeus, also planned for the care of Thaddeus after her death - by obtaining a life insurance policy through Merrill Lynch. The benefits of the policy were to be split 50/50 between Frederick and the Smillie Trust.

At Beatrice's wake in 2001, Frederick enlisted his cousin, Thomas Tessier, esq., to administer the estate. Thomas was suffering from a drinking problem and had failed to plan for his rapidly-approaching retirement. Along with his brother Michael, he executed a plan to raid over $2 million from Frederick, Thaddeus, and the estate of Beatrice, including the life insurance funds at issue in this case.

After Frederick either changed his mind or forgot to appoint Thomas as the administrator of the estate, Thomas went to Beatrice's house anyway and dug through her documents. As the already-acting attorney for the Smillie Trust, and Beatrice's attorney for various matters since the mid-1980s, he had access to much of her information. The expedition through her papers gave him access to financial records, including information about the insurance policy.

He began the heist by substituting Michael as the trustee of the Smillie trust, filing an ex-parte petition that accused Frederick of neglecting his dear brother. Thomas then created a second trust, an inter-vivos trust that named Michael as trustee and death beneficiary.

Between July and November 2002, Thomas wrangled with Merrill Lynch over the life insurance proceeds. He first accidentally sent the information for the second fraudulent trust instead of the Smillie Trust, which was the named beneficiary. Then, through a series of letters, he explained that the money should be given Michael, as trustee of the Smillie Trust (and enclosed the aforementioned ex parte order).

Merrill Lynch paid out, but accidentally addressed the check to the fraudulent trust instead of Smillie. In 2010, Thaddeus sued Merrill Lynch for breach of contract - as they paid the proceeds to the wrong trust. Though he may have been correct about the error, he was wrong about causation - and summary judgment was granted to the insurance company.

Basic contract law, including the Restatement Second of Contracts, states that one is only responsible for the damages resulting from the breach. Even assuming that Merrill Lynch breached the contract by issuing the check to the wrong trust, Thaddeus would have been bamboozled either way - the Tessiers controlled both trusts, legitimate and illegitimate. Mistake or breach, it didn't cause the damage complained of.

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