Opinion
File No. 2012-1469
02-08-2022
In the MATTER OF the Accounting of Tom J. THOMAS as Executor of the Estate of Anthony J. Thomas, Deceased. In the Matter of the Accounting of Tom J. Thomas as Trustee of the Trust under Article Fourth of the Last Will and Testament of Anthony J. Thomas, Deceased. In the Matter of the Accounting of Tom J. Thomas as Executor of the Estate of Dorothy Thomas, Deceased.
For the Executor, Tom J. Thomas: Barclay Damon LLP, Karen Schaefer, of counsel, Rachelle Nuhfer, of counsel, 2000 Five Star Bank Plaza 100 Chestnut Street Rochester, NY 14604 For Objectant, Gloria M. Borrelli: Phillips Lytle, LLP, Alan J. Bozer, of counsel, Kenneth A. Grossberg, of counsel, Tara M. Ward, of counsel 28 East Main Street, Suite 1400 Rochester, NY 14614 Co-Counsel to the Executor, Anthony J. Adams, Jr. : Adams Leclair LLP, Anthony J. Adams, Jr., of counsel, 28 East Main Street, Suite 1500, Rochester, New York 14614
For the Executor, Tom J. Thomas: Barclay Damon LLP, Karen Schaefer, of counsel, Rachelle Nuhfer, of counsel, 2000 Five Star Bank Plaza 100 Chestnut Street Rochester, NY 14604
For Objectant, Gloria M. Borrelli: Phillips Lytle, LLP, Alan J. Bozer, of counsel, Kenneth A. Grossberg, of counsel, Tara M. Ward, of counsel 28 East Main Street, Suite 1400 Rochester, NY 14614
Co-Counsel to the Executor, Anthony J. Adams, Jr. : Adams Leclair LLP, Anthony J. Adams, Jr., of counsel, 28 East Main Street, Suite 1500, Rochester, New York 14614
Christopher S. Ciaccio, S. Since the death of Anthony J. Thomas in April 2012 and the death of his wife Dorothy in August 2012, Tom J. Thomas (hereinafter referred to as "Tom") and his siblings Gloria Borrelli ("Gloria") and Joseph Thomas ("Joseph") have been tethered in litigation over the disposition of the assets of their parents’ estates, and primarily (but not solely), whether shares of the New York State Fence Company ("NYSFC"), a company founded in 1958 by Anthony Thomas and incorporated in 1978, were transferred to Tom J. Thomas prior to Anthony's passing, or were intended to be included as an estate asset shared by the siblings, all legatees under the Last Will and Testament ("Will") of Anthony Thomas and the trust created for the benefit of his wife Dorothy.
Sibling Daniel Thomas has not been involved in any of the litigation.
That litigation has come to a near end, this court having previously decided, after nine years of litigation, two bench trials, three appeals, two reversals, three judges presiding over the proceedings, and a final decision on the merits following the second bench trial, that the disputed shares of NYSFC were indeed not estate assets but belonged solely to the executor Tom J. Thomas. The only remaining issue, as set forth in the pending Petition for Judicial Settlement filed by Tom, is whether the court shall grant Tom's request to have the estate, and not Tom individually, pay the attorneys’ fees and costs incurred by Tom in defending against the proceedings brought by his siblings, and if the estate is to pay any or all of those fees, then whether any of the fees and costs should be borne by the individual litigants, the objectants herein, Gloria and the Estate of Joseph Thomas (the objectants).
Joseph passed away in 2017.
Pursuant to CPLR 3212, Tom now moves for summary judgment dismissing the sole remaining objection and granting the relief requested in his Petition for Judicial Settlement.
History Of The Litigation
Anthony and Dorothy Thomas had four children: Tom Thomas, Gloria Borrelli, Daniel Thomas, and Joseph Thomas. Pursuant to the Last Will and Testament of Anthony J. Thomas, son Tom J. Thomas was named executor of his estate and trustee of a trust created for the benefit of his wife Dorothy. When Dorothy died shortly after Anthony, Tom was named executor of her estate as well.
All the children were named in Anthony's Will as beneficiaries of either the residuary estates or of the trust ( Matter of Thomas , 124 A.D.3d 1235, 1236, 1 N.Y.S.3d 598 [4th Dept. 2015] ). The wills of both Anthony and Dorothy were admitted to probate and Letters Testamentary were issued to Tom J. Thomas.
Joseph Thomas's share of the estate was left to the "Joseph Thomas Family Trust."
In 2013 Gloria and Joseph commenced a proceeding "to impose a constructive trust over certain monies, real property, insurance proceeds and business interests controlled by fiduciary (emphasis added) Tom J. Thomas" (Petition, NYSCEF No. 25). The proceeding challenged real estate transactions between Tom and his father related to properties located on North Greece Road and Manitou Road.
That same proceeding "also challenged respondent's failure to identify any shares of New York State Fence Company (NYSFC) as being included within the assets of decedents’ estates" and requested the imposition of a constructive trust on all "stock certificates in NYSFC owned by Anthony," given that Tom had failed to produce any records reflecting the transfer of NYSFC stock from Anthony to respondent or any records reflecting respondent's payments for the stock ( Matter of Thomas , 124 A.D.3d at 1236, 1 N.Y.S.3d 598 ).
No mention is made in the wills or trust of the ownership of the NYSFC stock, nor was mention made of properties on North Greece Road and Manitou Road.
Petitioners Gloria and Joseph also sought a partial distribution pursuant to SCPA 2102 (5), information pursuant to SCPA 2102 (1), an accounting pursuant to SCPA 2205 and revocation of letters granted to respondent pursuant to SCPA 711 (1) and (2).
According to the Verified Petition filed by Gloria and Joseph, their brother Tom " ‘exploited his close relationship with [Anthony and Dorothy] by inducing them to transfer to him certain properties they owned, with the promise of payment for, and/or re-conveyance of, the parcels to [decedents] and/or his siblings.’ Inasmuch as respondent never paid for the parcels or reconveyed them to decedents or his siblings, petitioners sought to impose a constructive trust, inter alia, on monies received by respondent or entities controlled by him related to the sale of property on North Greece Road (NGR property), and on the Manitou Road property and any monies received by respondent or entities controlled by him related to a lease on that property" ( Matter of Thomas , 124 A.D.3d at 1236, 1 N.Y.S.3d 598 ).
Regarding the NYSFC stock, it was alleged that Tom had claimed to be the sole shareholder of NYSFC, yet that he was unable to produce "any records reflecting the transfer of NYSFC stock from Anthony to him or records reflecting any payments to Anthony for said stock. Nor did Anthony file any gift tax returns reflecting a gift of these shares to Tom during his life, according to counsel for the estate." That stock was at the time of Anthony's death "valued in the multi-millions of dollars." (Petition, NYSCEF # 25.)
Monroe County Surrogate's Court granted Tom's motion to dismiss the entire proceeding 1) for failing to state a cause of action for the imposition of a constructive trust to prevent "unjust enrichment," and 2) as time-barred. The Appellate Division, Fourth Department, modified, reinstating the cause of action for a constructive trust with respect to the NYSFC stock. "Based on the circumstances of the relationship between respondent and decedents and the nature of their multiple transactions, we conclude that there are sufficient facts from which we can conclude that there was an implied promise made by respondent to decedents; that the transfer of stock, if indeed there was a transfer, was made in reliance upon that promise; and that the promise was thereafter broken, resulting in an unjust enrichment to respondent" ( Matter of Thomas , 124 A.D.3d at 1238, 1 N.Y.S.3d 598 ).
The Fourth Department also determined the action with respect to the NYSFC stock was not time-barred. "That promise (to re-convey the property to his father) was thus not breached until 2012, when decedents died, and respondent failed to share that stock with his siblings. Inasmuch as this proceeding was commenced in 2013, the claim for a constructive trust over the NYSFC stock therefore is not time-barred." ( Matter of Thomas , 124 A.D.3d at 1239, 1 N.Y.S.3d 598 ).
It also modified the Surrogate's decision with respect to the North Greece Road and Manitou Road properties, finding that the petition stated a cause of action for a constructive trust and unjust enrichment:
"The facts as alleged in the petition and set forth in the corresponding affidavits establish the existence of a confidential and fiduciary relationship between respondent and decedents. The facts with respect to the NGR [North Greece Road] and Manitou Road properties establish that respondent promised to pay decedents for the NGR property and to reconvey the Manitou Road property to decedents after it was subdivided by respondent. The petition further alleges that the properties were transferred to respondent as a result of those promises, and that respondent breached those promises and was thereby unjustly enriched." ( Matter of Thomas , 124 A.D.3d at 1237-38, 1 N.Y.S.3d 598.)
Even though it found a cause of action had been properly stated regarding the NGR and Manitou Road properties, the Fourth Department affirmed that part of the Surrogate's decision dismissing the actions as time barred, finding that the statute of limitations began to run on the NGR property sometime between 1989 and 1992, and on the Manitou Road property at the latest in 1998, thus, expiring fifteen years and nine years, respectively, prior to the commencement of the proceeding in 2013.
On March 7-8, 2016 the Surrogate held a bench trial and allowed "Petitioners. (to present) testimony and exhibits in support of a claim that decedent Anthony J. Thomas was a shareholder of NYSFI [sic] at the time of his death ..." (see Decree dated March 25, 2016, NYSCEF # 277). Ruling from the bench, and on motion of the respondent Tom J. Thomas pursuant to CPLR 4401 for dismissal, the court held that "Petitioners (Gloria Borrelli and Joseph Thomas) failed as a matter of law to meet their burden of proof either that a constructive trust should be imposed upon Respondent's interest in NYSFC or that decedent Anthony J. Thomas owned any interest in NYSFC at the time of his death."
The Fourth Department in its multiple decisions in this matter references the New York State Fence Company as "New York State Fence Company, or NYSFC," not "NYSFI" as in the Surrogate's decisions.
Petitioners appealed, and the Appellate Division, Fourth Department, reversed, reinstated the petition and a supplemental petition, and remitted the matter to the lower court. Noting, inferentially, that the Surrogate had mischaracterized the proceeding as "basically ... dealing with a miscellaneous proceeding to determine the ownership of" the NYSFC stock, the Fourth Department held that the lower court had erred in placing the burden of proof on the petitioners to prove the "substantially impossible," that the stock was not transferred by the decedent to the fiduciary. The court went on to state that where a fiduciary seeks to withhold from an estate inventory an asset which he asserts belongs to him, such assertion is "in essence, the assertion of a personal claim by the fiduciary ..., the burden of demonstration of which is upon the fiduciary who claims adversely to the estate ( Matter of Thomas , 148 A.D.3d 1764, 1765, 51 N.Y.S.3d 760 [4th Dept. 2017], citing Matter of Greenberg , 158 Misc. 446, 448, 286 N.Y.S. 56 [Sur. Ct., Kings County 1936] ; Matter of Zuckerman , 8 Misc. 2d 57, 59, 164 N.Y.S.2d 342 [Sur. Ct., Nassau County 1957] ; Matter of Camarda , 63 A.D.2d 837, 839, 406 N.Y.S.2d 193 [4th Dept. 1978] ).
The remittal trial was held on December 7, 2017. A Decision (NYSCEF # 345) was rendered on August 21, 2018, and although the court did not explicitly state the "facts it deems essential" to its Decision ( CPLR 4213 ), it nonetheless found that the Tom Thomas had met his burden of demonstrating that the NYSFC stock belonged to him, not in the estate. It thereby denied the Petition and Supplemental Petition and the petitioners’ claim that Anthony Thomas held any ownership interest in New York State Fence Company at the time of his death.
Which had been altered to allege failure to include the shares within the accounting of estate assets, and no longer sought to impose a "constructive trust."
The Appellate Division Fourth Department affirmed the trial verdict ( Matter of Thomas , 179 A.D.3d 98, 104, 113 N.Y.S.3d 447 [4th Dept. 2019] ). It stated that "Contrary to petitioners’ further contentions, the Surrogate properly determined that respondent met his burden of demonstrating a legal and sufficient reason for withholding the NYSFC stock from the estate and the nature of the purported transaction between Anthony and respondent with respect to that stock" ( Matter of Thomas , 179 A.D.3d at 102, 113 N.Y.S.3d 447 ).
In doing so it also affirmed the decision of the trial court to allow Tom J. Thomas, as executor, to waive the attorney-client privilege that existed between Anthony J. Thomas and the attorney who drafted his Will, thus allowing her to testify as to her recollection of her conversations with Anthony Thomas regarding the ownership of NYSFC stock.
Standard on a Motion for Summary Judgment
It is well-settled that the proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact necessitating a trial ( Winegrad v. New York Univ. Med. Ctr. , 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 [1985] ; 2006905 Ontario Inc. v. Goodrich Aerospace Can., Ltd. , 197 A.D.3d 1008, 150 N.Y.S.3d 663 [4th Dept. 2021] ); Oddo v. City of Buffalo , 159 A.D.3d 1519, 1520, 72 N.Y.S.3d 706 [4th Dept. 2018] ). The failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. ( Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324, 508 N.Y.S.2d 923, 501 N.E.2d 572 [1986] ; CPLR 3212 [b] ; see also Malamas v. Toys R Us — Delaware, Inc. , 94 A.D.3d 1438, 1438, 942 N.Y.S.2d 840 [4th Dept. 2012] [a moving party must affirmatively demonstrate the merits of its cause of action or defense and does not meet its burden by noting gaps in its opponent's proof]). Proof offered by the moving party must be in admissible form. Further, the evidence should be viewed in the light most favorable to the party opposing the motion. (See Zuckerman v. City of New York , 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 [1980] ; Dix v. Pines Hotel, Inc. , 188 A.D.2d 1007, 1007, 592 N.Y.S.2d 993 [4th Dept. 1992].) Once a prima facie showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form, sufficient to establish the existence of material issues of fact which require a trial of the action ( Alvarez , 68 N.Y.2d at 324, 508 N.Y.S.2d 923, 501 N.E.2d 572 ; Mortillaro v. Rochester Gen. Hosp. , 94 A.D.3d 1497, 942 N.Y.S.2d 743 (4th Dept. 2012]). Conclusory and speculative assertions are insufficient to defeat a motion for summary judgment ( Trahwen, LLC v. Ming 99 Cent City #7, Inc. , 106 A.D.3d 1467, 965 N.Y.S.2d 264 [4th Dept. 2013], lv dismissed 21 N.Y.3d 1066, 974 N.Y.S.2d 35, 996 N.E.2d 917 [2013] ).
Here, the parties have not submitted new facts but have asked the court to take notice of the entire scope of the proceedings and submissions to date, including the transcripts of two trials.
Other than billing records, which will be discussed in a separate decision determining the reasonableness of fees.
A summary judgment motion "shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party" ( CPLR 3212 [b] ).
The Court's Discretion to Grant and Determine the Source of Legal Fees
Pursuant to EPTL 11-1.1 (22), a fiduciary is authorized to pay attorneys’ fees incurred during the administration of an estate or trust without first receiving an order of the court (see generally 8 Warren's Heaton on Surrogate's Court Practice § 106.01 [2021]).
Pursuant to SCPA 2110 (1) the Surrogate, when asked, "is authorized to fix and determine the compensation of an attorney for services rendered to a fiduciary or a devisee, legatee [and] distributee ...," and, pursuant to SCPA 2110 (2) upon a proceeding instituted by petition of a fiduciary the "court may direct payment therefor from the estate generally or (emphasis added) from the funds in the hands of the fiduciary belonging to any legatee, devisee, distributee or person interested" (see 8 Warren's Heaton 106.01 [1] [a]); see also Matter of Hyde , 15 N.Y.3d 179, 906 N.Y.S.2d 796, 933 N.E.2d 194 [2010] ). Hyde concerned the allocation of the estate expenses among interested persons and mandated that a court undertaking a review of a request to allocate the funds in the hands of the fiduciary use a multi-factor approach ( Matter of Hyde , 15 N.Y.3d 179, 186, 906 N.Y.S.2d 796, 933 N.E.2d 194 [2010] ). However, the Court of Appeals explicitly stated that its decision did not "involve or affect the Surrogate's discretion to make the underlying determination of whether or not the fiduciary is entitled to charge its counsel fees to the estate" which is the first part of the analysis and which is the primary issue here ( Matter of Hyde at 186 n. 5, 906 N.Y.S.2d 796, 933 N.E.2d 194 ).
In that regard, it is the general rule that an attorney may recover fees from the estate only where the services rendered benefit the estate (see Matter of White , 128 A.D.3d 1366, 1367-68, 9 N.Y.S.3d 485 [4th Dept. 2015] ; Matter of Bellinger , 55 A.D.2d 448, 451, 390 N.Y.S.2d 739 [4th Dept. 1977] ; Betz v. Blatt , 116 A.D.3d 813, 816, 984 N.Y.S.2d 378 [2d Dept. 2014] ; Matter of Rodken , 2 A.D.3d 1008, 1009, 768 N.Y.S.2d 521 [3d Dept. 2003] ; Matter of Winckler , 234 A.D.2d 307, 309, 651 N.Y.S.2d 69 [2d Dept. 1996] ; Matter of Baxter [Gaynor] , 196 A.D.2d 186, 190, 609 N.Y.S.2d 992 [4th Dept. 1994] ; Matter of Della Chiesa , 23 A.D.2d 562, 562, 256 N.Y.S.2d 519 [2d Dept. 1965] ; see also Matter of Smolley , 188 A.D.2d 535, 538, 591 N.Y.S.2d 441 [2d Dept. 1992] ; Matter of Linder , 153 A.D.3d 1343, 1345, 62 N.Y.S.3d 121 [2d Dept. 2017] ; Matter of Ajala, 117 A.D.3d 550, 550, 986 N.Y.S.2d 72 [1st Dept. 2014] ["An award of counsel fees and expenses is ‘dependent upon a finding that [counsel's] services were necessary and beneficial to the estate’ "], quoting Matter of Hofmann, 284 A.D.2d 92, 95, 727 N.Y.S.2d 84 [1st Dept. 2001] ).
Benefit to the estate has inarguably been held to mean a pecuniary benefit, i.e., an "enlargement of the distributive shares of the estate beneficiaries ( Matter of Bellinger , 55 A.D.2d 448, 451, 390 N.Y.S.2d 739 [4th Dept. 1977] ; Matter of Graves, 197 Misc. 638, 639, 95 N.Y.S.2d 310 [Sup. Ct., Monroe County 1950] ). As stated by the learned Surrogate Witmer of this court:
"It seems only fair and proper that where legal services have been rendered for the benefit of the estate which result in enlargement of the distributive shares of the estate beneficiaries, reasonable compensation should be granted out of the estate for such services." ( Matter of Graves , 197 Misc. at 639, 95 N.Y.S.2d 310 ; see also Matter of Bellinger , 55 A.D.2d 448, 451, 390 N.Y.S.2d 739 [4th Dept. 1977] ["The test of benefit is whether the distributees of the estate, in their capacities as such, have become entitled to receive greater sums from the assets of the estate during administration than those that might have been expected without the applicant's efforts"].)
This court, more recently, held that benefit "is not limited solely to a monetary increase in the estate value," citing as an example a kinship proceeding ( Matter of Poletto , 31 Misc. 3d 1206(A), 2011 N.Y. Slip Op. 50504[U], *4, 2011 WL 1233323 [Sur. Ct., Monroe County 2011], citing Matter of Wiltshire , 4 A.D.2d 981, 982, 167 N.Y.S.2d 852 [3d Dept. 1957] ).
This is no doubt true. For example, where parties attacked a will under which the executor benefitted as a legatee, counsel fees for services "rendered in successfully defending the attack upon the will were allowed as a charge against the estate" ( Matter of Everman , 279 A.D. 843, 843, 109 N.Y.S.2d 669 [4th Dept. 1952] ). As was stated by the Appellate Division, Fourth Department, "It was not only the right of these executors, but their duty, to use all reasonable care and diligence to sustain the will and ‘[t]o prevent the intention of a testator from being frustrated’ " ( Matter of Everman , 279 A.D. 843, 843, 109 N.Y.S.2d 669 [4th Dept. 1952], quoting Matter of Dutcher , 251 A.D. 184, 186, 295 N.Y.S. 643 [2d Dept. 1937] ).
And in Matter of Pelgram, 146 Misc. 750, 756, 262 N.Y.S. 848 (Sur. Ct., New York County 1933) the Surrogate for the county of New York stated that "To be beneficial, it need not be shown that net tangible monetary advantage was realized or that a money loss was avoided. The administration of trust property does not permit so simplified a test of ‘benefit.’ The word applies to every aspect of administration which sound judgment would approve. If in the carrying on of such an administration legal services are required either in defense or in attack, the fiduciary may contract for or may pay and receive allowance for reasonable fees" ( Matter of Pelgram at 756, 262 N.Y.S. 848 ).
In two cases cited by the petitioner courts allowed the fiduciary's counsel fees to be paid by the estate even where they were expended to benefit the fiduciary's personal claims and added no monetary value to the estate.
In Matter of Volkenburgh, 139 Misc. 437, 439, 247 N.Y.S. 831 (Sur. Ct., New York County 1931), the decedent, a prominent and wealthy lawyer, died without a will. His widow was named administratrix, and in the course of the administration of the estate a "bitter and prolonged controversy" arose between her and her step-daughter over whether certain gifts of securities to his wife were assets of the estate for which the administratrix must account ( Matter of Volkenburgh at 438, 247 N.Y.S. 831 ).
The gifts the decedent made to his wife were held valid, the step-daughter was ultimately unsuccessful, and the wife/administratrix sought to have her legal fees paid by the estate. The court agreed, and in doing so, made several observations, all relevant to the instant matter.
It cited the "good faith of the fiduciary" as an essential test. It referred to the administratrix's success in resisting the attack as an "important consideration, but not an exclusive one." It noted that the administratrix's "persona(l) profit by the litigation does not affect the allowance of her expenses out of the estate ..." It found that "the nature of the attack upon the administratrix as one arising out of her representative capacity (emphasis added)" ( Matter of Volkenburgh , 139 Misc. at 439, 247 N.Y.S. 831 ).
The Petitioner also cites in support (Matter of Rockefeller , 44 A.D.3d 1170, 1172, 843 N.Y.S.2d 732 [3d Dept. 2007] ).
Decedent was survived by five children, and daughter Ella Roden was named executor (sister Leslie was named co-executor but waived). Ella filed a petition for judicial settlement, and her inventory of estate assets excluded two CDs she held jointly with the decedent. Her siblings objected, the Surrogate's Court dismissed the objections, and the Third Department affirmed.
Ella then sought to have the fees incurred in keeping the CDs out of the distributive shares paid by the estate. The Surrogate agreed, and the Third Department affirmed, holding that "Most of the counsel fees [incurred by the executor] approved by Surrogate's Court were properly charged to the estate" (Matter of Rockefeller , 44 A.D.3d at 1172, 843 N.Y.S.2d 732 ). Also approved were fees incurred in fending off a challenge to an easement right that had been granted to her.
Objectants argue that "nowhere in the opinion were counsel fees in achieving that result approved." That is a misread of Rockefeller . The Third Department was clear in stating that "most" of the counsel fees were chargeable to the estate and went on to state what fees incurred by the executor were not chargeable to the estate, namely "counsel fees attributable to petitioner's potential claim against the estate for nursing services" as they "would benefit only petitioner and not the estate" and "petitioner's payment of counsel fees to her former divorce attorney" which also "did not benefit the estate and should not have been paid out of estate assets" ( Matter of Rockefeller , 44 A.D.3d at 1173, 843 N.Y.S.2d 732 ).
The use of the word "benefit" in this context can only mean that keeping the CDs out of the estate and refusing to relinquish her property rights were benefits to the estate in that those actions effectuated the will of the testator.
The oft-cited case of Matter of Ordway , 196 N.Y. 95, 98, 89 N.E. 474 [1909] cuts both ways.
There, the administratrix, wife of the decedent, sought to have the estate pay her counsel fees incurred in defending against an action brought by Sarah Middleworth, a sort of indentured servant who had been taken into the custody of Mrs. Ordway and her husband when Sarah was yet an infant. Sarah's father, unable to provide for her support, contracted with the decedent to provide for her support until she was 18, at which time, in the event of his death, she was to receive a share of the estate.
Mrs. Ordway, acting as administratrix, refused to disburse the legacy. Sarah sued and won. Mrs. Ordway then asked Surrogate's Court for leave to cover her legal fees in opposing Sarah's action from the estate assets.
The Court of Appeals, reversing the Third Department, held that counsel fees were chargeable to the estate but only up to the point at which the conditions changed and "in the exercise of due diligence it was ascertained, or should have been ascertained, that the interests of the estate called for no further protection" ( Matter of Ordway , 196 N.Y. 95, 98, 89 N.E. 474 [1909] ).
The objectants place great weight on the Fourth Department's characterization, in an appeal of this court's decision summarily dismissing the Petition to impose a constructive trust, of Tom's claim as "the assertion of a personal (emphasis added) claim by the fiduciary ..." Matter of Thomas , 148 A.D.3d 1764, 1765, 51 N.Y.S.3d 760 [4th Dept. 2017] quoting Matter of Greenberg , 158 Misc. 446, 448, 286 N.Y.S. 56 [Sur. Ct., Kings County 1936] ).
Additionally, the objectants cite to Matter of Baxter, 196 A.D.2d 186, 189-190, 609 N.Y.S.2d 992 (4th Dept. 1994), in which the Appellate Division, Fourth Department denied counsel fees to the Administrator because they were "personal."
In that case Charlotte Lindner Gaynor, the daughter of decedent's adopted-out half-brother, applied for letters of administration, the decedent having died without a will. Letters were denied, the Surrogate finding that she was not a distributee. Letters were granted instead to Baxter, a maternal first cousin. Charlotte appealed, and the Court of Appeals found that she was in fact a distributee and not precluded from sharing in the decedent's estate. Upon remittal to the Surrogate, Baxter's letters were revoked, Charlotte's petition for letters was granted, and Baxter was directed to file an intermediate account. Charlotte objected to the account.
At issue was the roughly $100,000 in attorneys’ fees charged by the firm of Mackenzie Smith that Baxter had retained and which he sought to have paid by the estate. He was unsuccessful, because, as held by the Appellate Division, Fourth Department, "the legal services of Mackenzie Smith rendered to Baxter and the other respondents for whom Mackenzie Smith appeared in those appeals were performed for them individually and not on behalf of the estate" ( Matter of Baxter , 196 A.D.2d at 189, 609 N.Y.S.2d 992, citing Matter of Ordway, 196 N.Y. at 98, 89 N.E. 474 ; Matter of Bacharach, 12 A.D.2d 938, 211 N.Y.S.2d 230 [2d Dept. 1961] ).
Essential to the Fourth Department's determination was that Baxter had not appeared in the proceedings in the capacity of administrator, but rather, individually as a representative of claimants who believed they were distributees entitled to the assets of the estate" ( Matter of Baxter , 196 A.D.2d at 189, 609 N.Y.S.2d 992 ).
No part of the record listed Baxter as anything but an individual. "A review of the record reveals that Mackenzie Smith was listed as ‘Attorneys for Respondents, William H. Baxter, Helene Baxter Ennis and Margaret Baxter Fine’ both in this court and in the Court of Appeals" ( id. ).
However, the issue before the Fourth Department in Thomas , as in Greenberg, 158 Misc. 446, 286 N.Y.S. 56 (Sur. Ct., Kings County 1936), was which party would bear the burden of proof, not who pays legal fees. No part of SCPA 2110 or EPTL 11-1.1 was implicated. No discussion was had regarding the discretion of the Surrogate to award fees or the authority of the fiduciary to pay them. Thus, this court declines to read the quoted passage "personal claim" as binding - i.e., "law of the case" - on the issue regarding who pays the attorneys’ fees. The context is different, and no reference was made to the relevant statutes. That the claim was "personal" to Tom goes without saying and barely needs to be stated.
Tom's claim is no more (or less) personal than the claim of the wife in Van Volkenburgh, 139 Misc. 437, 247 N.Y.S. 831 (Sur. Ct., New York County 1931), and the claim of the executrix in Matter of Rockefeller, 44 A.D.3d 1170, 1172, 843 N.Y.S.2d 732 (3d Dept. 2007). Nor does the fact that at issue are acts of Tom long before he became executor serve to distinguish this matter, because Mrs. Van Valkenburg and executrix Ella (Rockefeller) Roden also were called to account for actions taken long before the death of the decedents in each case.
Baxter, 196 A.D.2d 186, 609 N.Y.S.2d 992 (4th Dept. 1994) too is distinguishable, because in the instant case, in the Petition to impose a constructive trust, Tom J. Thomas was named in his capacity as the fiduciary and appeared as the fiduciary, and he is alleged to have failed "as fiduciary " (emphasis added) to identify assets which the petitioners believed belonged to the estate.
It can be seen then that there is no binding decisional law. The Fourth Department in Matter of White , 128 A.D.3d 1366, 1367-68, 9 N.Y.S.3d 485 (4th Dept. 2015) speaks powerfully and most recently to the proposition that "[A]n attorney may recover fees from the estate only where the services rendered benefit the estate" but presents a completely different factual scenario. Additionally, the court there did not finally disallow fees incurred by the fiduciary but remitted the matter for a hearing.
The Third Department's decision in (Matter of Rockefeller, 44 A.D.3d at 1172, 843 N.Y.S.2d 732 ) is on its face as close factually as any reported case.
Conceding by inference the weight of the decision in Rockefeller , the objectants assert that "in any event" this court need not follow "non-binding decisional law from the Third Department." Actually, because the Fourth Department has not addressed the issue of under what circumstances fees incurred by a fiduciary in defense of a personal claim can be chargeable to the estate, it is "axiomatic" this court is bound to follow the Third Department (see Phelps v. Phelps , 128 A.D.3d 1545, 9 N.Y.S.3d 519 [4th Dept. 2015] ; McKinney's Cons. Laws of NY, Book 1, Statutes § 72 [b]).
But what is that holding? Only that, under certain circumstances, a fiduciary's fees may (emphasis added) be paid by the estate, depending on the factual circumstances.
Good faith would seem to be an important factor, as well as the quality of the evidence.
Thus, in Matter of Graham, 238 A.D.2d 682, 686, 656 N.Y.S.2d 434 (3d Dept. 1997) the fiduciary was found to be acting in bad faith in withholding assets — cash, jewelry and stocks — from the estate. The Surrogate disallowed the payment of a portion of his attorneys’ fees which were "placed upon the estate by [his] wrongful withholding of assets’ " ( Matter of Estate of Graham at 686, 656 N.Y.S.2d 434, quoting Matter of Burns, 126 A.D.2d 809, 812, 510 N.Y.S.2d 732 [3d Dept. 1987] ; see Matter of Atkinson, 148 A.D.2d 839, 842, 539 N.Y.S.2d 112 [3d Dept. 1989] ). In Matter of Ordway, 196 N.Y. 95, 98, 89 N.E. 474 (1909), counsel fees were allowed only up to the point where "the interests of the estate called for no further protection" i.e., up to the point where there was doubt as to the conduct of Mrs. Ordway, the widow/administratrix, in opposing the interest of her former ward.
In Matter of Rockefeller , 44 A.D.3d 1170, 1173, 843 N.Y.S.2d 732 [3d Dept. 2007] ) the bank that held the CDs, which the executor sought to withhold from the estate, maintained extensive documentation, including the signature cards (which created a presumption of right of survivorship under Banking Law § 675 ) that gave an imprimatur of good faith to the fiduciary's actions.
In (Matter of Valkenburgh, 128 Misc. 819, 820-21, 221 N.Y.S. 309 [Sur. Ct., New York County 1927], affd sub nom. In re Van Volkenburgh's Adm'x , 226 A.D. 10, 233 N.Y.S. 457 [1st Dept. 1929], affd, 254 N.Y. 139, 172 N.E. 269 [1930], the court referenced the evidence by which the decedent's wife and administratrix proved ownership of securities she claimed had been gifted, all of which demonstrated her good faith: "written declarations"; "irrefutable documentary proof"; "independent oral testimony of disinterested witnesses"; "no elements of proof in the record or reasonable inferences therefrom, which point to any fraud on the part of the widow, or opportunity of access by her to the decedent's property or other circumstances customarily shown in cases where fraudulent diversions of estate property have been established" ( Matter of Valkenburgh , 128 Misc. 819, 820-21, 221 N.Y.S. 309 [Sur. Ct., New York County 1927], affd sub nom. In re Van Volkenburgh's Adm'x , 226 A.D. 10, 233 N.Y.S. 457 [1st Dept. 1929], affd, 254 N.Y. 139, 172 N.E. 269 [1930] ).
Applying the facts as found by Surrogate Owens in his verdict to the principles in the case law discussed above, the court concludes that Tom's legal fees incurred defending himself against the attempt first to impose a constructive on the NYSFC stock and then in the objections to the accounting should be charged against the estate but only partially. Tom should bear a portion of the fees incurred.
The trial judge was the present Surrogate's predecessor, whose term expired in 2020. The court concedes it is handicapped by not having heard the trial testimony.
The trial court decided by "clear and convincing" evidence that Anthony Thomas had transferred the NYSFC stock to Tom but just as clearly, to this court, there was considerable and "justifiable doubt" as to the actions Tom took when Anthony Thomas was alive as to give credence to the litigation instituted by his siblings. The corporate ledger could not be produced. There was no record of payment anywhere near the value of the stock, yet no gift tax return was filed.
Matter of Hyde , 15 N.Y.3d 179, 186, 906 N.Y.S.2d 796, 933 N.E.2d 194 [2010]. As noted above Hyde concerned the allocation of the estate expenses among beneficiaries (including the fiduciaries’ share) and did not "involve or affect the Surrogate's discretion to make the underlying determination of whether or not the fiduciary is entitled to charge its counsel fees to the estate ..." which is the issue here (Matter of Hyde at 186 n. 5, 906 N.Y.S.2d 796, 933 N.E.2d 194 ). Notwithstanding, Hyde's emphasis on the "good faith" and "justifiable doubt" of the beneficiaries is relevant here.
The court's verdict rested to a great extent on the testimony of the attorney representing Tom who drafted Anthony and Dorothy's wills. She stated that she discussed with her client Anthony Thomas that the stock had been transferred to Tom, yet the probated Will made no mention of the disposition of the stock. Thus, it cannot be said that Tom in defending his interests in the stock was effectuating the will of the testator, because the testamentary instrument said nothing about what his "will" was.
Tom has referred to the litigation as "meritless." The court disagrees. The Fourth Department determined that there was a question of fact to deny summary judgment. The issues raised on appeal were substantive and complex. No fair trial could have been held without a determination of burden of proof and the admissibility of the attorney testimony following waiver of privilege.
The benefit always was to Tom. No other beneficiary would benefit in the least by hissuccess.
There is evidence that the stock was worth "millions." The beneficiaries, children of Anthony and Dorothy, split in unequal shares a total estate of approximately $3 million, of which hundreds of thousands have gone (or will go) to attorneys’ fees. Of course, Tom's victory negates any claim that Tom wrongfully withheld the stock shares from the estate, thus rendering inapplicable Matter of Graham , 238 A.D.2d 682, 687, 656 N.Y.S.2d 434 [3d Dept. 1997].
Although not clear in the implied factual findings of the Surrogate, the trial verdict makes apparent that Anthony Thomas trusted his son Tom to run the business during his lifetime and after his death, and so arranged, as decided by the Surrogate, to transfer the shares of this closely-held family-run corporation to him. Still, the lack of a corporate ledger suggests to this Surrogate at least that Tom's victory was by no means obvious or a foregone conclusion.
A different way of weighing the equities can be accomplished by imagining the result had a "neutral" party been named as executor — for example, a trust company. In an action to impose a constructive trust over non-estate assets, it cannot be disputed that Tom would have had to pay his own legal fees. The claim would be viewed as strictly personal. If the trust company failed to identify the NYSFC stock shares as an estate asset (as here) and/or filed an accounting and objections to it were filed, then certainly it would have had its attorney costs paid by the estate, because for the trust company, its actions on construing the evidence of the stock transactions were strictly business, not personal. Accordingly, viewing the evidence in the light most favorable to the non-moving party, Tom has not established his entitlement to summary judgment. An allocation of fees under Hyde is appropriate.
Allocation of Payments
In order to determine whether and how much of the estate's fees shall be allocated to the individual beneficiaries, the court must apply the factors set forth in Matter of Hyde, 15 N.Y.3d 179, 180, 906 N.Y.S.2d 796, 933 N.E.2d 194 (2010).
In Matter of Hyde , the Court of Appeals chose "to restore the plain meaning of SCPA 2110 (2) : to place discretion in the hands of the trial courts to allocate expenses when ordering that fiduciaries be indemnified by an estate for attorneys’ fees. The trial court's discretion extends to the timing and structure of deducting funds against the present and future interests of the beneficiaries" ( Matter of Hyde , 15 N.Y.3d at 186, 906 N.Y.S.2d 796, 933 N.E.2d 194 [footnote reference omitted]).
The Court of Appeals set forth a number of factors to guide the Surrogate in his allocation:
"In cases where a fiduciary is to be granted counsel fees under SCPA 2110 (2), the Surrogate's Court should undertake a multi-factored assessment of the sources from which the fees are to be paid. These factors, none of which should be determinative, may include: (1) whether the objecting beneficiary acted solely in his or her own interest or in the common interest of the estate; (2) the possible benefits to individual beneficiaries from the outcome of the underlying proceeding; (3) the extent of an individual beneficiary's participation in the proceeding; (4) the good or bad faith of the objecting beneficiary; (5) whether there was justifiable doubt regarding the fiduciary's conduct; (6) the portions of interest in the estate held by the non-objecting beneficiaries relative to the objecting beneficiaries; and (7) the future interests that could be affected by reallocation of fees to individual beneficiaries instead of to the corpus of the estate generally" (Matter of Hyde , 15 N.Y.3d at 186-187, 906 N.Y.S.2d 796, 933 N.E.2d 194 ).
Applying the factors to the facts at hand and acknowledging that at issue is the amount of the fees incurred by Tom to be paid by funds in the "hands of the fiduciary," here, the objectants acted in the interest of the pecuniary value of the estate. If the NYSFC stock had been brought into the estate, it would have increased the distributions for all beneficiaries.
The benefit from successful litigation would have provided a benefit across the board, to all beneficiaries, not just the individuals who brought the Petition.
Gloria and Joseph drove the litigation. Joseph passed away and his daughters proceeded pro se. Daniel seemingly had no part.
Treated together are factor (4), which concerns the good or bad faith of the objecting beneficiary, and factor (5), which goes to the whether there was justifiable doubt regarding the fiduciary's conduct.
As noted above, the court finds no bad faith on the part of the objectants, given the lack of a "paper trail" documenting the transfer of stock. That same omission raises justifiable doubt as to the conduct of the fiduciary.
While litigation relative to the NYSFC stock was prolonged, neither side acted frivolously or in bad faith in pursuing it. Objectants were successful in two appeals, and while neither appeal dealt with the substance of the claims, both were essential to gain a fair hearing. Objectants lost the third appeal, but the question regarding waiver of privilege in these circumstances was one of first impression and key to the result reached by the court. If the testimony of the attorney who drafted the Will had been disallowed, this court believes that his predecessor would have ruled against the fiduciary. Accordingly, the estate shall pay one-half of Tom's fees related to the NYSFC litigation. Tom shall bear the other half.
Further, no part of the attorneys’ fees incurred by the objectants in litigating the issue of the transfer of the NYSFC stock shall be paid by them individually (see Matter of Driscoll , 273 A.D.2d 381, 382, 709 N.Y.S.2d 597 [2d Dept. 2000] ).
They are, however, responsible for fees, to be paid out of their individual shares of the estate, related to:
1) Real Property claims to West Ridge Road, North Greece Road and Manitou Road. Tom had deeds of transfer. The claim that no payment had been made for the properties was suspect but not worthy of the extended litigation, especially since the statute of limitations barrier was obvious and a recorded deed of transfer had been presented.
2) Revocation of letters. There was no basis to believe that Tom had acted in bad faith or indulged in self-dealing as executor. As noted above, he believed (and the court credited his belief) that he owned the shares of NYSFC stock.
3) 499 Mill Road. This court had already determined per its Order entered June 25, 2014 that the estate properly bear the executor's costs and legal fees related to the 499 Mill Road application without apportionment against individual shares. Any fees incurred with respect to the objectants’ objection to the value of 499 Mill Road with the Answer and Objections filed in 2020 are disallowed.
4) Life Insurance. The search for life insurance was unsuccessful and without any basis to believe policies payable on the death of Anthony and/or Dorothy existed.
5) Objections filed in 2020 to accounts, all of which, save one, were withdrawn.
Fees associated with settlement negotiations are part and parcel of any litigation and will be a covered estate expense. Fees associated with requests for partial distributions will also be paid by the estate.
Counsel for Tom is directed to file a supplemental submission within seven days of the date of the entry of this Decision and Order regarding how much of the fee request is related solely to the NYSFC litigation, if it can be done (and the court herein acknowledges that it may be difficult to parse out where work covered multiple issues, to give one example, at pre-trial conferences). Counsel for Gloria and the Estate of Joseph are directed to provide a supplemental submission within seven days after service of Tom's.