To Be Argued By:
SETH P. WAXMAN
Time Requested: 20 Minutes
APL-2015-00052
New York County Surrogate’s Court File No. 2604/08
Court of Appeals
STATE OF NEW YORK
Proceeding of KEVIN AOKI, KANA AOKI NOOTENBOOM, KYLE AOKI and
KENNETH PODZIBA, as Trustees of the Benihana Protective Trust, for Relief with
Respect to the Benihana Protective Trust dated June 8, 1998 by and between
Rocky H. Aoki, as grantor, and Kevin Aoki and Darwin C. Dornbush, as trustees,
for the benefit of Rocky H. Aoki and others.
KEVIN AOKI, KANA AOKI NOOTENBOOM, KYLE AOKI
and KENNETH PODZIBA,
Respondents,
—against—
ECHO AOKI, OLIVIA YUMI NOOTENBOOM, NATALIE EMI NOOTENBOOM,
SKY AI AOKI and NOA AOKI, DEVON AOKI and STEVEN AOKI,
Respondents,
KEIKO ONO AOKI,
Appellant.
REPLY BRIEF FOR APPELLANT KEIKO ONO AOKI
d
ALAN E. SCHOENFELD
WILMER CUTLER PICKERING HALE
AND DORR LLP
7 World Trade Center
250 Greenwich Street
New York, New York 10007
Telephone: (212) 230-8800
Facsimile: (212) 230-8888
Attorneys for Appellant
Keiko Ono Aoki
Of Counsel:
SETH P. WAXMAN (pro hac vice)
DANIEL S. VOLCHOK (pro hac vice)
ADAM I. KLEIN
THOMAS G. SPRANKLING
(pro hac vice)
WILMER CUTLER PICKERING
HALE AND DORR LLP
1875 Pennsylvania Avenue NW
Washington, D.C. 20006
Telephone: (202) 663-6000
Facsimile: (202) 663-6363
July 23, 2015
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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ................................................................................... iii
ARGUMENT ............................................................................................................. 1
I. THE SURROGATE’S FACTUAL FINDINGS ARE FULLY SUPPORTED BY
THE RECORD AND REFUTE DEVON’S AND STEVEN’S DISTORTED
RECITATION ...................................................................................................... 1
A. Devon’s And Steven’s Argument For Restricting Review To
The Summary-Judgment Record Is Meritless ....................................... 2
B. Devon And Steven Rely Heavily On Testimony The
Surrogate Explicitly Discredited ........................................................... 4
C. Devon’s And Steven’s Arguments Regarding The Lawyers’
Memos Are Meritless ............................................................................ 8
D. The Children’s Remaining Factual Arguments Fail ............................. 9
II. DEVON AND STEVEN OFFER NO SOUND RATIONALE—AND NO
PRECEDENT—THAT SUPPORTS THE APPELLATE DIVISION’S RULE ................ 13
A. No Ill Consequences Will Result From Continuing To
Apply The Constructive-Fraud Doctrine Where, As Here, A
Disloyal Fiduciary Misleads A Client Into Entering Into A
Transaction .......................................................................................... 14
B. Devon And Steven Cite No Prior Case Endorsing The
Appellate Division’s Rule, And Their Arguments Regarding
The Cases Keiko Cited Lack Merit ..................................................... 20
III. EVEN IF THE APPELLATE DIVISION’S RULE WERE CORRECT, THE
FACTS HERE WOULD SATISFY IT .................................................................... 27
A. The Lawyers’ Attorney-Client Relationship With Kevin And
Kana Made The Lawyers Effective Parties To The Release .............. 28
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B. Keiko’s Argument Regarding Dornbush’s And Shaw’s
Interest In The Release Is Preserved And Well Supported By
The Record .......................................................................................... 32
IV. DEVON’S AND STEVEN’S REMAINING ARGUMENTS LACK MERIT .................. 34
A. The Appellate Division Cannot Be Affirmed On Alternative
Grounds ............................................................................................... 34
B. Remand To The Appellate Division Is Unwarranted .......................... 37
CONCLUSION ........................................................................................................ 39
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TABLE OF AUTHORITIES
CASES
Page(s)
Adams v. Cowen, 177 U.S. 471 (1900) .............................................................. 24, 25
Addis v. Grange, 192 N.E. 774 (Ill. 1934) ............................................................... 26
Allen v. La Vaud, 213 N.Y. 322 (1915) ................................................................... 23
Amend v. Hurley, 293 N.Y. 587 (1944) ................................................................. 3, 8
American Broadcasting Cos. v. Wolf, 52 N.Y.2d 394 (1981) ................................. 18
Aoki v. Aoki, 985 N.Y.S.2d 523 (1st Dep’t 2014) ............................................passim
Beatty v Guggenheim Exploration Co., 225 N.Y. 380 (1919) ................................. 18
Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150 (Del. Ch. 2005) ............. 34
Bernstein v. Greenfield, 281 N.Y. 77 (1939) ........................................................... 38
Bibeau v. Ward, 645 N.Y.S.2d 107 (3d Dep’t 1996) ............................................... 37
Brown v. Lockwood, 432 N.Y.S.2d 186 (2d Dep’t 1980) ........................................ 37
Callahan v. Callahan, 514 N.Y.S.2d 819 (3d Dep’t 1987) ................... 17, 21, 23, 24
Chemetall GMBH v. ZR Energy Inc., 320 F.3d 714 (7th Cir. 2003) ......................... 3
Cowee v. Cornell, 75 N.Y. 91 (1878) .......................................................... 16, 20, 23
Doheny v. Lacy, 168 N.Y. 213 (1901) ............................................................... 16, 23
Fisher v. Bishop, 108 N.Y. 25 (1888) ...................................................................... 22
Gardine v. Cottey, 230 S.W.2d 731 (Mo. 1950) ...................................................... 25
Horn v. Municipal Information Services, Inc., 724 N.Y.S.2d 320 (2d
Dep’t 2001) .................................................................................................... 30
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Hutchison v. Ross, 262 N.Y. 381 (1933) ................................................................. 36
In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014) ......................... 15
Jones v. Lopez, 2006 N.Y. Misc. LEXIS 2006 (Sup. Ct. Bronx Cty. Jan.
30, 2006) ........................................................................................................ 29
Levin v. Kitsis, 920 N.Y.S.2d 131 (2d Dep’t 2011) ................................................. 23
Locricchio v. Legal Services Corp., 833 F.2d 1352 (9th Cir. 1987) ......................... 3
Mali v. De Forest & Duer, 553 N.Y.S.2d 391 (1st Dep’t 1990) ............................. 31
Martin v. City of Albany, 42 N.Y.2d 13, 19 (1977) ................................................. 38
Matter of Feinberg, 543 N.Y.S.2d 300 (2d Dep’t 1989) ....................................... 3, 8
Matter of Gordon v. Bialystoker Center & Bikur Cholim, Inc., 45 N.Y.2d
692 (1978) ...................................................................................................... 23
Matter of Greiff, 92 N.Y.2d 341 (1998) .................................................................. 21
Matter of Nealon, 962 N.Y.S.2d 481 (3d Dep’t 2013) ............................................ 23
Meinhard v. Salmon, 249 N.Y. 458 (1928) ............................................................. 15
Messner Vetere Berger McNamee, Schmetterer Euro RSCG Inc. v. Aegis
Group PLC, 93 N.Y.2d 229 (1999) ............................................................... 19
Negri v. Stop & Shop, Inc., 65 N.Y.2d 625 (1985) .................................................... 4
Olitkowski v. St. Casimir’s Saving & Loan Ass’n, 4 N.W.2d 664 (Mich.
1942) .............................................................................................................. 27
Pellegrino v. Oppenheimer & Co., 851 N.Y.S.2d 19 (1st Dep’t 2008) ................... 29
Pimpinello v. Swift & Co., 253 N.Y. 159 (1930) ..................................................... 36
Richter v. Richter, 60 So. 880 (Ala. 1913) .............................................................. 26
Rollins v. Fencers Club, Inc., 8 N.Y.S.3d 202 (1st Dep’t 2015) ............................... 4
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Simonds v. Simonds, 45 N.Y.2d 233 (1978) ............................................................ 18
State v. Barone, 74 N.Y.2d 332 (1989) ................................................................... 19
Stuart Silver Associates, Inc. v. Baco Development Corp., 665 N.Y.S.2d
415 (1st Dep’t 1997) ...................................................................................... 37
Tropp v. Lumer, 806 N.Y.S. 2d 599 (2d Dep’t 2005) ........................................ 29, 30
Weadick v. Herlihy, 792 N.Y.S.2d 25 (1st Dep’t 2005) .......................................... 30
Wechsler v. Bowman, 285 N.Y. 284 (1941) ............................................................ 38
Wells Fargo Bank, N.A. v. Zurich American Insurance Co., 874 N.Y.S.2d
68 (1st Dep’t 2009) .......................................................................................... 3
Zanett Lombardier, Ltd. v. Maslow, 815 N.Y.S.2d 547 (1st Dep’t 2006) ............... 37
OTHER AUTHORITIES
7 Corbin On Contracts (2002) ................................................................................. 35
Karger, Arthur, The Powers of the New York Court of Appeals (3d ed.
2005) .............................................................................................................. 39
5 N.Y. Jur. 2d Appellate Review (2009) ................................................................. 38
Smith, Henry E., Why Fiduciary Law Is Equitable, in Philosophical
Foundations of Fiduciary Law 261 (Andrew S. Gold & Paul B.
Miller eds., 2014) ........................................................................................... 19
The Appellate Division here minted a novel rule regarding the scope of the
constructive-fraud doctrine, adopting a rigid limitation that arbitrarily excludes a
broad swath of deceitful conduct from the doctrine’s burden-shifting framework.
Devon and Steven offer no principled defense of that limitation, nor point to any
prior case, in New York or elsewhere, that endorsed it. Instead, they offer a
combination of hyperbole, mischaracterization of Keiko’s position, misstatement
of this Court’s equity jurisprudence—and, as explained immediately below, a
wholesale revision of the facts. None of that justifies either the Appellate
Division’s rule, or its decision here. This Court should reject both.
ARGUMENT
I. THE SURROGATE’S FACTUAL FINDINGS ARE FULLY SUPPORTED BY THE
RECORD AND REFUTE DEVON’S AND STEVEN’S DISTORTED RECITATION
After hearing days of live testimony and receiving hundreds of documents,
the Surrogate (Kristin Booth Glen, S.) issued a 32-page decision making clear
findings regarding Rocky Aoki’s signing of releases that purported to irrevocably
prevent him from leaving his assets to his wife, Keiko. These factual findings—
which as shown below and in Keiko’s opening brief are amply supported by the
record—included:
• that “Rocky was not aware that the releases were irrevocable,” RA 34;
accord RA 38 (“I … find that it is far more likely, indeed persuasive
when considered in light of other evidence, that Rocky … did not know
that the Releases he signed were irrevocable.” (footnote omitted));
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• that Rocky’s lack of awareness resulted from “‘misrepresentation[s],
omission[s], or concealment’ by [Darwin] Dornbush,” Rocky’s longtime
lawyer, RA 42; and
• that “Rocky would not have signed the releases had he understood their
true import,” RA 43.
The contrary factual recitation offered by Devon and Steven is untenable.
They rely heavily on testimony the Surrogate discredited, improperly read all facts
in the light most favorable to them, and belittle any reasonable inference in
Keiko’s favor as “speculative” or “speculation” (e.g., Br. 14, 33, 55, 65). When
the proper legal standards are applied, and Devon’s and Steven’s factual support
scrutinized, their story collapses.
A. Devon’s And Steven’s Argument For Restricting Review To The
Summary-Judgment Record Is Meritless
Devon and Steven first contend (Br. 13-14) that this Court must ignore the
Surrogate’s detailed findings and credibility determinations, and rely exclusively
on the summary-judgment record. They cite no authority supporting this
contention—nor any explanation of why it makes sense—and it is curious given
their concession (Br. 13) that the summary-judgment and trial records “tell
essentially the same story.” In any event, their argument is wrong for two reasons.
First, this is an appeal from the Surrogate’s decree after trial. See Aoki v.
Aoki, 985 N.Y.S.2d 523, 524 (1st Dep’t 2014) (“Decree … entered March 5, 2013,
after a nonjury trial, … reversed, on the law[.]”). And after a trial on the merits,
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the summary judgment record is immaterial: As one federal appellate court has
explained, “denial of summary judgment is a prediction that the evidence will be
sufficient to support a verdict in favor of the nonmovant. Once the trial has taken
place, … the merits should be judged in relation to the fully developed record
emerging from that trial.” Chemetall GMBH v. ZR Energy, Inc., 320 F.3d 714, 718
(7th Cir. 2003) (citation omitted); see also Locricchio v. Legal Servs. Corp., 833
F.2d 1352, 1359 (9th Cir. 1987) (“[W]e have found no case in which a jury verdict
was overturned because summary judgment had been improperly denied.”); cf.
Wells Fargo Bank, N.A. v. Zurich Am. Ins. Co., 874 N.Y.S.2d 68, 70 (1st Dep’t
2009) (considering facts adduced at nonjury trial when determining that whether
lower court erred in reversing prior grant of summary judgment). Given that
posture, the Surrogate’s factual findings and credibility determinations must—as
Keiko’s opening brief explained (at 24, 45)—be given “the greatest weight.”
Amend v. Hurley, 293 N.Y. 587, 594 (1944); see also Matter of Feinberg, 543
N.Y.S.2d 300, 300 (2d Dep’t 1989) (“determination of the Surrogate, who presided
at trial and heard all of the testimony, is entitled to great weight” and generally
“should not be set aside on appeal”). Devon and Steven ignore this key point.
Second, even if this Court were to consider the summary-judgment record
alone, it would have to view the facts “in a light most favorable” to the non-
moving party (Keiko), and give that party “the benefit of every reasonable
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inference.” Negri v. Stop & Shop, Inc., 65 N.Y.2d 625, 626 (1985); accord, e.g.,
Rollins v. Fencers Club, Inc., 8 N.Y.S.3d 202, 203 (1st Dep’t 2015). Given that
the Surrogate, after trial, largely viewed the evidence and drew reasonable
inferences in Keiko’s favor, there is (again as Devon and Steven acknowledge)
effectively no difference between reviewing the summary-judgment and trial
records—so long as each is viewed under the proper standard.
B. Devon And Steven Rely Heavily On Testimony The Surrogate
Explicitly Discredited
Perhaps the most glaring flaw in Devon’s and Steven’s narrative is their
heavy reliance on Dornbush’s testimony, which the Surrogate expressly did not
credit on the relevant points (and for good reason, given his clear self-interest and
failing memory, and the lack of corroborating evidence). See RA 35-37 & n.41, 42
& n.51; Keiko Br. 43. Indeed, for an array of “facts”—including that “Rocky
instructed Dornbush to ‘go ahead’ with the Release,” Br. 20—Devon and Steven
rely exclusively on Dornbush’s testimony. See also id. at 16, 17, 20, 55-56.
Devon and Steven also rely heavily on Dornbush’s testimony in the nine
pages they spend (Br. 15-24) describing the genesis and execution of the releases.
Indeed, more than a third of the citations in those nine pages are to Dornbush’s
testimony, which the Surrogate, again, found not credible.
More specifically, Devon and Steven invoke (Br. 21-22) Dornbush’s
testimony that he met with Rocky “at least three times to explain the release and
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read it” to him. The Surrogate, however, “d[id] not credit [this] testimony.” RA
35 n.41. As she explained, there was “no independent evidence of meetings other
than on the 24th, while there are ample examples of the loss of memory which the
80-year-old Dornbush freely acknowledged.” Id. (citing RA 325, 369-376).
Indeed, the Surrogate noted, one of the three meetings, “allegedly with Shaw, was
contradicted by Shaw’s [own] testimony.” Id.; see also RA 20 (citing Shaw’s
conflicting testimony that “the only time he met with Rocky about the Release was
on the date of signing”).
Devon and Steven try to bolster Dornbush on this point by asserting in a
footnote (Br. 21 n.10) that “Dornbush’s time-sheets show” he met with Rocky on
September 23 and 24. But they ignore the Surrogate’s observation that “[n]o time
records were produced to substantiate any of the pre-signing meetings to which
Dornbush testified.” RA 21. And the only evidence they cite for this assertion is
an email Shaw sent to someone other than Dornbush nearly a year after the release
was signed, RA 897—i.e., when it was clear to Shaw (or becoming clear) that his
misconduct would not go unchallenged. That is plainly inadequate.
Devon’s and Steven’s presentation about the substance of what the lawyers
told Rocky regarding the release (Br. 21-22) is similarly flawed. For example,
Devon and Steven tout (Br. 21) Dornbush’s testimony that he explained to Rocky
that, as a consequence of the releases, Rocky would “no longer be entitled in [his]
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will to leave the BOT stock to anyone you choose,” RA 365. The Surrogate heard
that testimony and explicitly found Dornbush’s explanation to be “deliberately
obfuscatory or accidental,” and “not relevant to what the Releases were actually
intended by Dornbush and Shaw to do: keep Keiko … from ultimately taking the
BPT assets.” RA 36 n.43. More generally, the Surrogate “mostly discredited”
Dornbush’s testimony that “Rocky had the Releases fully explained to him and
read them.” RA 42; see also RA 44 n.55. Indeed, the Surrogate’s “observation of
Dornbush’s live testimony” (RA 44) led her to make this pellucid—and
dispositive—finding: “I do not believe that he clearly conveyed the meaning of
[the Release] to Rocky,” RA 43.
That finding is confirmed by Devon’s and Steven’s own brief, which
nowhere even suggests that anyone specifically told Rocky that the release could
not be revoked later. That is the critical point, not whether:
• Rocky “actively participated in the process that led to the Releases
being executed,” Br. 7;
• “Rocky … and his children were united in interest and shared a
common goal,” id.;
• “Rocky asked what could be done to solve his problem,” Br. 16, 56,
63 (emphasis omitted);
• the lawyers intended “to achieve what [Rocky] wanted,” Br. 18
n.9; or
• the release left “Rocky complete control to decide” other issues, Br.
19.
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These are just distractions. The key is that the lawyers—while operating under a
“conflict of interest,” and “in violation of their professional responsibility to
Rocky,” RA 36—misled Rocky into signing the release by concealing what they
knew and he did not: that it purported to be irrevocable.
Devon and Steven relatedly assert (Br. 22) that it is “of no consequence” that
neither Dornbush nor Shaw used the words “wife” or “Keiko” with Rocky when
they claimed to be apprising him of the release’s effect (instead telling him it
meant he could no longer “give [his assets] to the ASPCA,” RA 365). That
assertion is startling because the entire reason the release was drafted was to
exclude Keiko from inheriting the bulk of Rocky’s estate. Far from being “of no
consequence,” it is shocking that the lawyers—particularly Dornbush, who by his
own testimony had been Rocky’s attorney and friend for nearly thirty years, RA
300-301—would have their trusting client sign a document irrevocably dis-
inheriting the client’s wife without specifically mentioning this purpose, and
thereby cautioning him about that irreversible consequence.
Put simply, Devon’s and Steven’s factual recitation impermissibly depends
on this Court fully crediting testimony that the fact-finder here squarely rejected
(after listening to that testimony live) as lacking credibility on the relevant points.
Perhaps recognizing this, Devon and Steven repeatedly invoke (e.g., Br. 1,
23, 56) the Appellate Division’s conclusory statements that the lawyers took “all
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reasonable efforts” to explain the release to Rocky and that there is “no evidence
… that either Dornbush or Shaw ever represented to him that the [release] w[as]
anything but irrevocable,” Aoki, 985 N.Y.S.2d at 527. In light of the record, those
conclusions are, with respect, indefensible. At the very least, they are not the sort
of considered appraisal of the Surrogate’s fact-finding required to controvert
determinations that generally “should not be set aside on appeal,” Feinberg, 543
N.Y.S.2d at 300, and that, under this Court’s precedent, must be given “the greatest
weight,” Amend, 293 N.Y. at 594. Such weight is appropriate, of course, because
it is the Surrogate and not the Appellate Division that had the opportunity to assess
the key witnesses’ credibility by observing and listening to their testimony.
C. Devon’s And Steven’s Arguments Regarding The Lawyers’
Memos Are Meritless
Devon and Steven also strive to rehabilitate memos that the two lawyers
wrote regarding the release—memos that confirm the Surrogate’s findings about
the attorneys’ lack of fidelity. In a memo written after the release was executed,
for example, Dornbush wrote that the “fur will fly” when Rocky “discover[ed]”
the true nature of the release. RA 633 (emphasis added). Devon and Steven seek
to explain away this revealing language as a “drafting error.” Br. 26, 60. But the
Surrogate sensibly did not accept this strained excuse when Dornbush offered it at
trial, explicitly “discredit[ing]” his claim that the memo reflected “no more than
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‘sloppy’ drafting” and concluding that the memo “clearly demonstrate[d] what had
been concealed” from Rocky, RA 44—that the release was irrevocable.1
Similarly, Devon and Steven contend (Br. 58-59) that a memo Shaw wrote
in 2003 (RA 626-632) regarding a possible legal challenge to the release was a
dispassionate historical account that has no bearing on whether the attorneys were
acting in Rocky’s interest when the release was executed. That description is
belied by the memo’s substance and tone. As the Surrogate concluded in denying
summary judgment, “[i]t is difficult to read this memo as consistent with an
undivided loyalty to the client, Rocky.” RA 728 n.16; see also Keiko Br. 50-51.2
D. The Children’s Remaining Factual Arguments Fail
None of the other evidence that Devon and Steven point to warrants the
conclusion that Rocky understood either that he was irrevocably disqualifying
1 Devon and Steven say (Br. 60) that the memo cannot be as incriminating as
the Surrogate concluded because no sensible lawyer would have purposefully
placed a memo with incriminating words in a file to which Rocky had access, and
later produced it to Keiko’s attorney. But the Surrogate concluded that Dornbush
did not believe he was doing anything wrong by convincing Rocky to sign the
release—even though he was. RA 43. It was thus entirely sensible to conclude
that Dornbush felt no need to obscure his actions, and that the memo accurately
reflected both his thoughts and the state of affairs with respect to Rocky’s
knowledge of the release.
2 The children also contradict the Surrogate in baldly asserting (Br. 56 n.39)
that “Dornbush and Shaw discussed [with Rocky] the substance of the memos”
Shaw wrote before the release was executed. The Surrogate concluded in denying
summary judgment that “neither [memo] … apparently[] was ever shown to or
discussed with Rocky.” RA 724.
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Keiko from inheritance by signing the release or that he nonetheless signed
voluntarily—let alone warrants setting aside the Surrogate’s contrary findings.
1. Devon and Steven repeatedly note (e.g., Br. 3, 20, 56) that the release
includes the word “irrevocably.” It does use that word—once—but that alone does
not prove that Rocky understood the release’s true nature. The abstruse title,
“Partial Release of Power of Appointment Under New York Estates, Powers &
Trusts Law §10-9.2,” coupled with the fact that the operative clause both omits the
word “irrevocably” and is phrased as an affirmative power rather than a limit on
Rocky’s appointment power, hardly makes the document’s ramifications clear,
particularly to a non-lawyer. See Keiko Br. 11. And this obscurity, together with
Shaw’s and Dornbush’s failure to explain its true (and intended) nature, or even to
send Rocky a copy so he could review the terms, strongly supports the inference—
which the Surrogate reasonably drew at summary judgment and reiterated after
trial, RA 34, 38, 725 n.9—that Rocky did not know that the release was
irrevocable, and in fact was misled into believing it was not.3
3 Devon and Steven contend (e.g., Br. 3, 44) that the release “prominently”
states that it is irrevocable. This Court can review the actual document (RA 744-
745) and make its own judgment—bearing in mind that the relevant reader is not
an attorney but a layman for whom “English … is second language,” RA 804. But
the actual release does not, of course, include the italics that Devon and Steven use
to make the word “irrevocably” more prominent (Br. 20). Nor does it italicize the
“from now on” phrase, which does nothing to “amplify [its] permanence,” as
Devon and Steven argue (Br. 3). A revocable but otherwise-identical release could
use exactly the same phrase.
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2. To shore up their contrary claim that Rocky knowingly signed the
release to placate his family, Devon and Steven repeatedly cite (e.g., Br. 23, 62) a
snippet of Keiko’s deposition testimony in arguing that “Rocky … told her he had
signed … to ‘make [the] children happy.’” Br. 8. In fact, Dornbush told Rocky it
would please the children if Rocky signed. See RA 594 (143:20-22) (“[Rocky]
said that he received explanation from Darwin that signing the document would
make children happy.”). In the same transcript excerpt, moreover, Keiko testified
that Rocky “was very surprised to hear” later that the “content of the document
could not be changed,” id. (142:5-7), and that Rocky could “not believe that his
own attorney [Dornbush] allowed him to put [his] signature” on the release, id.
(142:18-19). The testimony is thus consistent with the Surrogate’s finding that
Rocky, even if he acquiesced in Dornbush’s suggestion and signed the release to
“make [his] children happy,” did not understand that it was irrevocable—because
his lawyers failed to inform him, “and may have even misled him,” RA 43.4
This is not the only example of Devon and Steven distorting deposition
testimony. As supposed evidence that Rocky fully understood the irrevocable
4 Devon and Steven relatedly harp (Br. 17, 56) on the fact that Rocky arranged
a dinner in September 2002 with Keiko, Kevin, and Kana, to allow the two
children to propose that Keiko sign a postnuptial agreement. Rocky’s decision to
have the children discuss such an agreement with Keiko in no way suggests an
intent to permanently disinherit her if she did not sign. If anything, the reasonable
inference to be drawn is that Rocky wanted Keiko’s express agreement to any legal
change in their marital-financial relationship.
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nature of the release, they repeatedly cite (e.g., Br. 14, 27) Rocky’s deposition
testimony, in an unrelated case, that Shaw explained to him what the release was
“all about.” The full exchange tells a different story:
Q. Did Norman [Shaw] tell you what [the release] was all about?
[Objection.]
A. Yes. Estate and will is specialty of—like yourself.
RA 804-805. The nebulous “all about” phrase on which Devon and Steven place
so much weight was thus uttered not by Rocky but by opposing counsel, and the
exchange did not touch on the question here: whether Shaw either mentioned
Keiko or told Rocky that the release was irrevocable. And moments before this
exchange, Rocky addressed that point, stating that he “signed without knowing
much. Darwin [Dornbush] was there, so I thought everything was okay.” RA 804.
3. Finally, Devon and Steven argue that Rocky must have understood the
release’s irrevocability when he signed because (as they note at every last turn) he
did not sue to invalidate it before he died. But while the Appellate Division found
that inference “[m]ost significant[]” in concluding that Rocky understood the
release was irrevocable, 985 N.Y.S.2d at 528, the Surrogate considered and
rejected it, based on the reasonable inference that Rocky did not want to spend his
last days “literally play[ing] out the conflict between Keiko’s interests and those of
the children,” RA 40; see Keiko Br. 20-21, 43-44. The Surrogate’s conclusion on
this point was underscored by the fact that Rocky anticipated litigation about the
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release in his 2007 will, stating—in an example of “actual and purposeful conduct”
(Devon-Steven Br. 9)—that it would be “contrary to my desires” for the release to
be upheld. RA 547, quoted in RA 39; see also Keiko Br. 20-21, 43-44. Devon and
Steven say that Rocky might have had a different intent when he signed the release,
but that was an inference the Surrogate was free to reject, and did. RA 38-40.
Devon and Steven respond (Br. 24-25) that Rocky did not shy away from
suing when he felt aggrieved. The lawsuit that they say Rocky initiated against
Dornbush in Delaware, however (Br. 24), was actually initiated by Benihana of
Tokyo. And as Devon and Steven concede, Rocky brought the lawsuit in New
York Supreme Court against his children and Dornbush in their capacities as
trustees of the Benihana Protective Trust. Id. These business disputes are
categorically different from this case; among other things, none involved similar
conflict between Rocky’s wife and his children. There is no sound reason to credit
Devon’s and Steven’s suggestion that this one fact alone outweighs everything else
in the record, and simply must be deemed conclusive by any court.
II. DEVON AND STEVEN OFFER NO SOUND RATIONALE—AND NO
PRECEDENT—THAT SUPPORTS THE APPELLATE DIVISION’S RULE
On this factual record (reviewed under the appropriate standards), there is no
reason for the constructive-fraud doctrine not to apply. Devon’s and Steven’s
principal argument—that there will be widespread, destabilizing litigation about
commonplace transactions, resulting in catastrophic consequences for New York
- 14 -
commerce—is hyperbole. Again, the Surrogate found that two fiduciaries duped
their client into entering into a transaction by engaging in “misrepresentation[s],
omission[s], or concealment.” RA 42; see also id. (“substantial and convincing
evidence … demonstrates, or tends to demonstrate, ‘misrepresentation, omission,
or concealment’ by Dornbush”); RA 43 (“post-signing events … reinforce the
finding of omission and concealment”). Deleterious consequences would result
not from applying the doctrine in such egregious and rare circumstances, but from
refusing to do so. See Keiko Br. 39-42.
Nor can Devon and Steven defend the Appellate Division’s novel rule with
precedent. Keiko’s opening brief cited New York and other cases applying the
constructive-fraud doctrine even if the deceptive fiduciary was not a party to the
relevant transaction. The children cannot distinguish these cases, and they do not
cite even one case that refused to apply constructive fraud on analogous facts.
A. No Ill Consequences Will Result From Continuing To Apply The
Constructive-Fraud Doctrine Where, As Here, A Disloyal
Fiduciary Misleads A Client Into Entering Into A Transaction
The Appellate Division held that “for constructive fraud to apply, the
fiduciary must be a party to or have an interest in the subject transaction.” Aoki,
985 N.Y.S.2d at 527. Devon and Steven defend that holding primarily on the
ground that a decision in Keiko’s favor would “wreak incalculable havoc” (Br. 41)
and yield “disastrous” consequences (Br. 4)—including “protracted fact-based
- 15 -
litigation”; the demise of New York as the “financial nerve center of the Nation”;
and a “negative impact on commerce” (Br. 6). As shown below, these histrionic
forecasts (which are in any event facially implausible) rest to a significant extent
on mischaracterization of Keiko’s position.
The predictions are also empirically unfounded. The Surrogate’s decision,
which applied longstanding constructive-fraud principles without the Appellate
Division’s new constraint, triggered no flurry of panic or criticism. Cf., e.g., In re
Kellogg Brown & Root, Inc., 756 F.3d 754, 756 (D.C. Cir. 2014) (“The District
Court’s decision has generated substantial uncertainty about the scope of the
attorney-client privilege in the business setting.”). That is because it was already
widely recognized that, as the Surrogate held, fiduciaries must act with complete
loyalty toward their beneficiaries—not merely “honesty alone, but the punctilio of
an honor the most sensitive,” Meinhard v. Salmon, 249 N.Y. 458, 464 (1928)
(Cardozo, C.J.). And when a fiduciary fails to do so, the transactions tainted by
disloyalty must be shown to be fair by the proponents, rather than proven unfair by
a beneficiary who was entitled to faithful service and did not receive it. These
equitable tenets have prevailed in this State for more than a century, with no
evident harm to New York’s status as the global epicenter of commercial law.
1.a. Devon and Steven assert that Keiko espouses a rule under which the
constructive-fraud burden shifts anytime a fiduciary relationship is implicated.
- 16 -
See, e.g., Br. 4 (“Keiko … asks the Court … to extend the doctrine of constructive
fraud to every case in which a fact-finder concludes that lawyers have failed
sufficiently to explain a transaction to their client.”). In reality, the rule Keiko
advocates is drawn from this Court’s precedent: that the burden shifts when
“superior knowledge … derived from a fiduciary relation” is deployed against the
beneficiary, such that “unfair advantage in a transaction is rendered probable.”
Cowee v. Cornell, 75 N.Y. 91, 99, 100 (1878). In other words, there must be not
just a fiduciary relationship but fiduciary disloyalty—for example, when (as here) a
fiduciary induces his beneficiary to enter into a transaction by engaging in
misrepresentation or concealment. See RA 42. The burden to prove such
disloyalty, moreover, is on the party claiming fraud. Only if that substantial
burden is carried does the burden regarding the validity of the transaction shift.
See Doheny v. Lacy, 168 N.Y. 213, 223 (1901) (whether the burden shift was
warranted is a question “of fact” to be “determined upon satisfactory extrinsic
evidence,” with the party claiming constructive fraud bearing the burden).
Once the mischaracterization of Keiko’s position is set aside, the children’s
parade of horribles melts away. The Surrogate’s and Keiko’s rule would not
“make attorneys responsible for explaining every word and permutation of a
document to the satisfaction of the reviewing court years later,” Br. 39-40, nor
make every “will, contract or similar instrument … presumptively invalid unless a
- 17 -
court later finds the lawyer’s explanation of it to be without flaw,” Br. 4; see also
Br. 39. Again, the burden to prove a transaction’s fairness shifts only if the party
claiming fraud makes the difficult showing of fiduciary disloyalty and superior
knowledge deployed against a beneficiary in connection with that transaction.
b. Devon and Steven eventually acknowledge their mischaracterization.
Br. 41. They insist, however, that even under the rule Keiko actually advocates,
parties would “be permitted simply to allege with speculation and surmise that
[disloyalty] exists and thereby shift the burden of proof.” Br. 41-42; see also Br.
40. That is equally true, however, of the Appellate Division’s rule: A party could
“simply … allege with speculation and surmise” that a fiduciary “had an interest
in” the transaction. In any event, this concern is baseless because as explained, the
burden shifts only if the party claiming constructive fraud proves the requisite
disloyalty. Allegations do not suffice.5
Perhaps recognizing this, Devon and Steven seek to bolster their prediction
that cases will proceed based solely on “speculation and surmise” by claiming (Br.
5 Although this is not a pleading case, Devon and Steven also claim (Br. 40)
that finding constructive fraud here “would upend the centuries-old requirement
that a party asserting fraud … allege fraud with particularity and prove … every
element with clear and convincing evidence.” Again, that applies equally to the
Appellate Division’s “interest in the transaction” corollary. That aside, courts have
had no trouble applying the particularity and heightened-proof requirements to
allegations of constructive fraud. See, e.g., Callahan v. Callahan, 514 N.Y.S.2d
819, 822 (3d Dep’t 1987) (“While … conclusory allegations of fraud do not satisfy
the minimum pleading requirements …, we find that the complaint adequately
apprises [the defendant] of the conduct complained of.” (citations omitted)).
- 18 -
42) that there is no evidence that Dornbush and Shaw secretly worked for Kana
and Kevin. Indeed, Devon and Steven label the supposed absence of a conflict of
interest an “unrebutted fact,” id.—as if the Surrogate had not twice found the
opposite, see RA 36-37, 42, 726-727. Keiko proved at trial that the lawyers had,
and acted on, an undisclosed conflict of interest. Devon’s and Steven’s dire
forecast that innocuous contracts will be tossed out based on “speculation and
conjecture” therefore has no basis in the facts of this case.
2. Devon and Steven also predict that the Surrogate’s and Keiko’s rule
would engender an “extemporary approach” to judging, i.e., a regime of decision-
making in which courts are free to “depart from established precedent.” Br. 45-46.
That is also wrong. The equitable principles Keiko advocates recognize both the
importance of respecting and following precedent as well as the need for courts to
retain flexibility to adapt existing doctrine to novel circumstances.
Devon and Steven dispute this, asserting (Br. 46), that Keiko’s argument that
equity is characterized by flexibility “has no basis” in New York law. That is
demonstrably wrong. See, e.g., Am. Broad. Cos. v. Wolf, 52 N.Y.2d 394, 406 n.10
(1981) (noting “the flexibility of equitable remedies”); Simonds v. Simonds, 45
N.Y.2d 233, 243 (1978) (citing Beatty v Guggenheim Exploration Co., 225 N.Y.
380, 389 (1919) (Cardozo, J.)). Indeed, this Court has quoted the precise language
from the U.S. Supreme Court that Keiko’s opening brief quoted (at 28) and that the
- 19 -
children now deride. See State v. Barone, 74 N.Y.2d 332, 336 (1989) (“essence of
equity jurisdiction has been the power of the Chancellor to … mould each decree
to the necessities of the particular case” (omission in original)). This Court is also
the source of Keiko’s use of “malleable,” which the children repeatedly mock (e.g.,
Br. 41). See Messner Vetere Berger McNamee Schmetterer Euro RSCG Inc. v.
Aegis Grp. PLC, 93 N.Y.2d 229, 235 (1999) (“As a hallmark of equity, the
doctrine remains malleable to address a myriad of facts and circumstances.”).
The children nonetheless insist that the Appellate Division’s rigid rule fits
within established equity jurisprudence. That is not only incorrect (as just shown),
but also particularly misguided in this context because flexibility is indispensable
to combat opportunism by fiduciaries, a core concern of the constructive-fraud
doctrine. Equity “is especially concerned with gaps and other openings that
opportunists intentionally exploit (and even create).” Smith, Why Fiduciary Law Is
Equitable, in Philosophical Foundations of Fiduciary Law 261, 264 (Gold &
Miller eds., 2014). And such opportunism is rampant (and hence “presum[ed]”) in
“situations of undisclosed conflict of interest.” Id. at 262. It is thus critical for the
constructive-fraud doctrine to remain flexible so that courts can deal properly with
fiduciaries whose disloyalty stems from such an undisclosed conflict—as here.
Devon and Steven respond (e.g., Br. 4, 37) that constructive fraud is
intended to address only misconduct by “interested” fiduciaries. That is not
- 20 -
correct. Again, the doctrine’s purpose is to ensure appropriate scrutiny whenever
“superior knowledge of the matter derived from a fiduciary relation” leads to
“unfair advantage in a transaction.” Cowee, 75 N.Y. at 99-100. The concern the
doctrine addresses, then, is disloyalty. And that concern is present whether or not
the disloyal fiduciary has a personal interest in the tainted transaction. In fact, the
children never explain why, as a matter of first principles, the doctrine should not
apply when a fiduciary who is disloyal uses his superior knowledge to induce a
beneficiary to enter into a transaction, even if the fiduciary does not have a direct
interest in the transaction. That silence is telling.
B. Devon And Steven Cite No Prior Case Endorsing The Appellate
Division’s Rule, And Their Arguments Regarding The Cases
Keiko Cited Lack Merit
The children’s position is inconsistent with decisions from both New York
and other jurisdictions. Keiko Br. 30-39. Those cases show that courts have
repeatedly held constructive fraud applicable to transactions tainted by a
fiduciary’s undisclosed conflict of interest even though the fiduciary was not
formally a party to the transaction.
1. New York Precedent. The children claim that the Appellate
Division’s rule has a long pedigree—yet they cite no New York case rejecting a
claim of constructive fraud on facts like those here. By contrast, at least one
previous Appellate Division case permitted a claim of constructive fraud in similar
- 21 -
circumstances. See Callahan v. Callahan, 514 N.Y.S.2d 819, 821-822 (3d Dep’t
1987). More fundamentally, this Court’s precedents make clear that the Appellate
Division’s approach to constructive fraud is incompatible with the doctrine’s
historic equitable character, which prizes flexibility and focuses on preserving an
effective remedy for fiduciary misconduct.
For example, in Matter of Greiff, 92 N.Y.2d 341 (1998), this Court rejected
the inflexible approach to the constructive-fraud doctrine that the Appellate
Division employed here. See Keiko Br. 31. As they did in opposing leave to
appeal, Devon and Steven argue (Br. 34-35) that Greiff’s admonition against
“absolutist rubrics,” 92 N.Y.2d at 346, is limited to the question whether a
confidential relationship exists. They never explain, however, why the Court
would have limited its admonition in that way. In any event, their claim is rebutted
by Greiff itself, which “emphasize[d] … that the burden shift is neither
presumptively applicable nor precluded.” 92 N.Y.2d at 346 (emphasis added).
Rather, whenever “unfair advantage in a transaction is rendered probable” because
of misuse of a fiduciary relationship or trust “justifiably reposed,” constructive
fraud’s “enduring, nuanced balance of fair assessment” applies. Id. at 345-346.
Greiff held that this principle can apply to prenuptial relationships, so long
as the challenging party shows a “a fact-based, particularized inequality.” 92
N.Y.2d at 346. That is the approach Keiko urges here. Where a party can show
- 22 -
such an inequality because of a fiduciary’s hidden conflict of interest, “unfair
advantage in [the] transaction is rendered probable” and constructive fraud’s
burden-shift should apply. Id. at 345-346.
Devon’s and Steven’s crabbed reading of Greiff rests on a misunderstanding
of common-law reasoning. The Court in Greiff did what courts do day in and day
out: announce a principle (that constructive fraud cannot pivot on legalisms or
rigid rubrics) and then apply it to a particular set of facts (holding that constructive
fraud can apply in “the context of prenuptial agreements” when the circumstances
warrant). 92 N.Y.2d at 345. The principle, no less than the conclusion, was
necessary to this Court’s decision and is therefore precedential. The Appellate
Division erred in departing from that precedent, by holding that an “absolutist
rubric[]” prevented the Surrogate from applying constructive fraud, irrespective of
her finding of “a fact-based, particularized inequality.” Id. at 345, 346.
The children’s discussion of Fisher v. Bishop, 108 N.Y. 25 (1888), is
similarly misguided. This Court’s focus in Fisher was on the trusted fiduciary’s
exploitation of “his position of trust ‘to the detriment or disadvantage of his
employer,’” and constructive fraud’s role in remedying that exploitation. Keiko
Br. 33 (quoting Fisher, 108 N.Y. at 29).
The children’s response, accusing Keiko of “obfuscation of the facts” (Br.
37), is baseless. Keiko’s brief acknowledged (at 33) that the Appellate Division,
- 23 -
unlike this Court, described the fiduciary as a party to the suspect mortgage. But
Keiko’s argument does not depend on whether the fiduciary actually was a party;
the point is that this Court did not regard his status as important enough even to
call out—strongly suggesting that being a party is not a prerequisite to application
of the constructive-fraud doctrine. Devon and Steven never explain why, if it is
indeed essential that a party be involved, this Court did not even bother to address
the fiduciary’s status (especially when the Appellate Division had). Nor, as noted,
do they cite any prior New York case refusing to apply constructive fraud on facts
like those here. That is because no New York case ever has.6
By contrast, Callahan v. Callahan did find constructive fraud could exist
based on misconduct by a fiduciary who did not benefit from the transaction. See
514 N.Y.S.2d at 821-822, cited in Keiko Br. 33. In Callahan, a wife sought to
rescind an unfavorable separation agreement based on deceptive behavior by her
husband’s lawyer—“a trusted friend” on whose advice she had “relied … in
6 None of the New York decisions the children cite in passing as evidence of
“the settled principles of constructive fraud” (Br. 38) rejected an analogous claim.
See Cowee, 75 N.Y. 91 (no confidential or fiduciary relationship); Matter of
Gordon v. Bialystoker Ctr. & Bikur Cholim, Inc., 45 N.Y.2d 692 (1978) (finding
constructive fraud applicable); Doheny, 168 N.Y. 213 (plaintiffs entitled to
opportunity to prove confidential relationship, which if established would shift
burden); Allen v. La Vaud, 213 N.Y. 322 (1915) (holding that burden shifted to
proponent of conveyance); Levin v. Kitsis, 920 N.Y.S.2d 131 (2d Dep’t 2011) (no
confidential or fiduciary relationship); Matter of Nealon, 962 N.Y.S.2d 481 (3d
Dep’t 2013) (ordering new trial to permit jury to determine as a factual matter
whether dependent relationship existed at time of suspect conveyances), aff’d
without op., 22 N.Y.3d 1045 (2014).
- 24 -
signing the documents in dispute.” 514 N.Y.S.2d at 822. Although there was no
claim that the attorney had thereby obtained a personal advantage, the court held
his “breach of duty actionable as constructive fraud.” Id. at 821.
2. Out-Of-State Precedent. As with New York cases, Devon and Steven
cite not one out-of-state case demonstrating that a fiduciary must be a party to the
transaction for constructive fraud to lie. That failure confirms that courts else-
where (as here) look to whether a fiduciary used his or her superior knowledge and
position of trust to a beneficiary’s disadvantage in a transaction. If the answer is
yes, it is appropriate to require the transaction’s proponent to prove its fairness.
The children’s attempts to distinguish the cases Keiko’s opening brief cited
(at 35-39) lack merit. For example, in Adams v. Cowen, 177 U.S. 471 (1900), the
Supreme Court affirmed the setting aside of a release that was signed but later
challenged by the beneficiary of a will, even though the release benefitted other
beneficiaries rather than the defendant administrators who procured the signature,
see id. at 483-485. In doing so, the Court explained—contrary to the children’s
theory—that “equity … looks with careful scrutiny upon all transactions between
trustee and beneficiary, and if it appears that the trustee has taken any advantage of
the situation of the beneficiary, … even for only the benefit of other beneficiaries,
… it will refuse to uphold the transaction,” id. at 484 (emphases added). Devon
and Steven claim (Br. 51) that the administrators in Adams “had a direct interest in
- 25 -
the transaction, which was to benefit the estate.” But the Supreme Court’s opinion
refutes that argument, expounding that the administrators had no cognizable
interest in how the estate was divided up among their various beneficiaries, i.e., no
interest in merely helping some beneficiaries at the expense of others. See 177
U.S. at 483 (“The administrators were acting in a fiduciary capacity. Their
obligations to each of the beneficiaries were equal .… [T]hey were not at liberty to
act in the interests of one legatee as against those of another.”). There is thus no
meaningful distinction between Adams and this case.7
The children commit a similar error with respect to Gardine v. Cottey, 230
S.W.2d 731 (Mo. 1950) (en banc). The deceptive fiduciary there (Cottey) was not
a party to the inequitable divorce, and did not benefit financially from it—yet the
court found constructive fraud. See Keiko Br. 38-39. Devon and Steven suggest
(Br. 52) that as the executor of the husband’s estate, Cottey had an “interest” in the
transaction because the husband’s property would ultimately be under Cottey’s
control. As a fiduciary, however, Cottey would be obligated to use his control to
benefit the legatees, not himself. He therefore lacked what the children call (Br.
7 The children’s argument regarding the administrators’ interest also gainsays
their earlier assertion that “the fundamental requirement” of constructive fraud is
“that the fiduciary exploit the relationship of trust for his or her own benefit,” Br.
30 (emphasis added)—i.e., not just “to benefit [an] estate,” Br. 51. And even if
helping one beneficiary at the expense of another did constitute a sufficient
interest, this case would be covered, because Dornbush and Shaw acted to assist
some beneficiaries—Kevin and Kana, with whom they had established an attorney-
client relationship—at the expense of another.
- 26 -
11) a “personal interest.” That the court nonetheless found fraud rebuffs the
children’s suggestion that the lack of such a personal interest “is fatal” to a
constructive-fraud claim. Id.
As for Richter v. Richter, 60 So. 880 (Ala. 1913), Devon and Steven say (Br.
52) that it “is directly analogous to Greiff.” Whatever that means, it cannot
obscure the fact that Richter further undermines the children’s argument. In that
case a husband persuaded his wife to surrender her statutory dower rights for a
pittance, but the beneficiaries of his deception were his children from a prior
marriage, rather than the man himself. See 60 So. at 881-885; see also id. at 884
(“The acts and influence of the husband … must be treated as collaborating and
coinciding with the acts … by those who were to profit by the relinquishment by
the wife … of her exemption rights.” (emphasis added)). And just as the fact that
the husband’s deceit benefited third parties was no obstacle to a finding of
constructive fraud in Richter, the fact that Dornbush’s and Shaw’s conduct did so
as well is not an obstacle either.
Finally, the Illinois Supreme Court similarly applied constructive fraud in
Addis v. Grange, 192 N.E. 774 (Ill. 1934), even though the disloyal fiduciary was
not a party to the transaction, see id. at 777, cited in Keiko Br. 37. Devon and
Steven note (Br. 49) that the banker desired that the transaction occur for personal
reasons. On that basis, they claim (Br. 49-50) that Addis “reaffirms that
- 27 -
constructive fraud applies where the fiduciary has an interest in the transaction.”
But the fiduciary in Addis did not have any direct “‘interest’ in the transaction”; he
merely anticipated that it would yield some incidental benefit for him. See Keiko
Br. 38.8 If that is sufficient, then this case is also covered, because Dornbush and
Shaw had an interest in receiving the incidental benefit of strengthening their own
position by ensuring that Benihana would pass to the children, to whom they were
trusted advisers, rather than to Keiko, who had her own counsel. See id.
In short, Devon and Steven cannot avoid the force of the out-of-state cases
Keiko presented. And as noted, they do not cite any case, from any court, refusing
to apply constructive fraud on the ground adopted by the Appellate Division here.
III. EVEN IF THE APPELLATE DIVISION’S RULE WERE CORRECT, THE FACTS
HERE WOULD SATISFY IT
As Keiko’s opening brief explained (at 48-57), the facts here fall well within
even the Appellate Division’s truncated view of the constructive-fraud doctrine.
Specifically, the lawyers were effectively parties to the release because Kevin and
Kana enlisted them to effectuate a particular legal agenda, and the lawyers obliged,
securing from Rocky the releases Kevin and Kana sought. See id. at 49-53. And
the lawyers had an interest in the transaction because misleading Rocky into
8 The same is true of Olitkowski v. St. Casimir’s Savings & Loan Ass’n, 4
N.W.2d 664 (Mich. 1942): Devon and Steven acknowledge (Br. 52) that the
disloyal fiduciary there was not a direct party to the transaction, but at most hoped
to realize an indirect benefit from it.
- 28 -
signing assured the cementing of a relationship with the children, who would
eventually have control of the Benihana fortune. Id. at 53-57. Devon’s and
Steven’s responses (Br. 53-68) lack merit.9
A. The Lawyers’ Attorney-Client Relationship With Kevin and Kana
Made The Lawyers Effective Parties To The Release
Devon and Steven never dispute that if an attorney-client relationship
formed between two of their siblings (Kevin and Kana) and the lawyers (Dornbush
and Shaw), then the attorneys were Kevin’s and Kana’s agents, and hence effective
parties to the release. See Keiko Br. 53. Instead, Devon and Steven disparage (Br.
54) Keiko’s account of the relationship that formed between the children and the
lawyers as “speculation and conjecture.” The Surrogate saw things differently—
and Devon and Steven never attempt to explain why the Surrogate was wrong.
In particular, noting Kevin’s and Kana’s crucial concession that they “sought
legal advice [from Dornbush] individually, as potential beneficiaries of BPT,” RA
724 n.6, the Surrogate concluded in denying summary judgment that there was “no
question that Kana and Kevin had sought Dornbush’s legal advice and assistance
for the purpose of limiting or denying Rocky’s ability to provide for his new wife,”
RA 726, and that Dornbush “had an impermissible conflict of interest” because of
his “simultaneous representation” of Rocky and Kevin and Kana, RA 726, 727
9 Many of the factual misstatements Devon and Steven make in this section of
their brief are addressed in Part I.
- 29 -
n.14. The Surrogate reaffirmed all this after trial—having heard and rejected the
Dornbush testimony that Devon and Steven rely on—finding that the evidence
“reinforce[d] the charge of conflict of interest and violation of [Dornbush’s and
Shaw’s] professional responsibility to Rocky.” RA 36.
These factual findings amply satisfy the standard that both sides agree
determines whether an attorney-client relationship was formed: whether there was
“an explicit undertaking [by the lawyers] to perform a specific task.” Tropp v.
Lumer, 806 N.Y.S. 2d 599, 600 (2d Dep’t 2005), cited in Keiko Br. 49 and Devon-
Steven Br. 64. Indeed, even the Appellate Division appeared to agree that such a
relationship was formed, stating that “Kana and Kevin met with Dornbush to
express their concern that their father did not have a prenuptial agreement” and
“Dornbush advised them that a postnuptial agreement would resolve their
concerns.” Aoki, 985 N.Y.S.2d at 524-525 (emphasis added).
Devon’s and Steven’s three contrary points lack merit. First, they argue (Br.
63) that the facts proved at trial were “not probative of whom Dornbush viewed as
his client.” That is immaterial. “To determine whether an attorney-client relation-
ship exists, a court must consider the parties’ actions.” Pellegrino v. Oppenheimer
& Co., 851 N.Y.S.2d 19, 23 (1st Dep’t 2008) (Lippman, P.J.) (emphasis added).
Hence, “subjective belief of an attorney-client relationship is not determinative.”
Jones v. Lopez, 2006 N.Y. Misc. LEXIS, at *5 (Sup. Ct. Bronx Cty. Jan 30, 2006)
- 30 -
(citing Weadick v. Herlihy, 792 N.Y.S.2d 25, 26 (1st Dep’t 2005)). Nor does it
matter that the parties did not execute a written retention agreement, or that Kevin
and Kana evidently did not pay a fee to Dornbush for procuring the release. See
Devon-Steven Br. 63. In New York, such “formality is not essential to the
formulation of an attorney-client relationship.” Keiko Br. 49 (citing cases).10
Second, Devon and Steven attempt (Br. 64 n.47) to dismiss as “innocuous”
the Appellate Division’s statement that Dornbush “advised” Kevin and Kana. But
they cannot change what occurred: Having heard the children’s concerns and
considered their problem, the lawyers informed (i.e., advised) Kevin and Kana that
their legal aims would be accomplished by a postnuptial agreement—or, barring
that, by the release that Shaw and Dornbush then drafted and induced Rocky to
sign. That is paradigmatically “an explicit undertaking to perform a specific task.”
Tropp, 806 N.Y.S. 2d at 600. In fact, it was two specific tasks: advising Kevin and
Kana about the legal effects of a postnuptial agreement and the available
alternatives, and then drafting the release that would accomplish their goal.
Third, Devon and Steven rehash (Br. 64) an argument they made in
opposing leave to appeal: that no attorney-client relationship existed because
Dornbush’s and Shaw’s handiwork just “incidentally conferred a potential benefit
10 Citing Horn v. Municipal Information Services, Inc., 724 N.Y.S.2d 320 (2d
Dep’t 2001), Devon and Steven say more generally (Br. 58 n.41) that Keiko has
the burden to prove Dornbush’s and Shaw’s conflict of interest. As the Surrogate’s
findings show, Keiko carried any burden she had in this regard.
- 31 -
on” Kevin and Kana. As Keiko’s opening brief explained, however (at 52), the
benefit that Rocky’s children enjoyed from the release was not the result of, say,
Rocky’s simple inadvertence. It was the product of the children’s and the lawyers’
deliberate shared efforts to substitute their testamentary agenda for Rocky’s. An
attorney-client relationship was formed when the children asked the attorneys to do
something (further their financial interests) and the attorneys did it (by giving them
legal advice and then drafting the release). The Surrogate found as much when she
concluded that Dornbush engaged in “simultaneous representation” that should
have been disclosed to Rocky, but was not. RA 726-727 & n.14.
None of the cases Devon and Steven cite in challenging that finding
provides any support. Indeed, one of the cases—Mali v. De Forest & Duer, 553
N.Y.S.2d 391 (1st Dep’t 1990)—underscores the indefensibility of Dornbush’s and
Shaw’s conduct here. The plaintiff there sued his father’s estate-planning
attorneys for failing to disclose recommendations they had made to the father in
connection with his will, which the father rejected, to the plaintiff’s financial
detriment. The court concluded that the lawyers owed the plaintiff no fiduciary
duty, and underscored that disclosing to the plaintiff the advice they had given his
father would, “absent their client’s consent,” have been a violation of the Code of
Professional Responsibility. Id. at 392. Just such a violation occurred here:
Dornbush and Shaw shared with Kevin’s and Kana’s subsequent lawyer the advice
- 32 -
they had given Rocky, in disregard of Rocky’s rights to confidentiality and
conflict-free representation. See RA 29 & n.32.
B. Keiko’s Argument Regarding Dornbush’s And Shaw’s Interest In
The Release Is Preserved And Well Supported By The Record
Devon and Steven fare no better in arguing that the lawyers did not even
have an “interest” in the release. They first say (Br. 11) that Keiko did not
preserve this point “in the Appellate Division.” But the argument that the facts
here satisfy the Appellate Division’s rule could not possibly be raised until that
court announced its rule. As soon as it did, Keiko raised this argument, both in
asking the Appellate Division for leave to appeal (at 25-33) and then in seeking
leave from this Court (at 38-41). Notably, Devon and Steven made no preservation
objection in opposing those motions.
To the extent Devon and Steven are saying that the Appellate Division was
not presented with the argument that Dornbush and Shaw secured the release
because of their own interest in the outcome of the family dispute, that is incorrect.
Keiko’s Appellate Division brief stated (at 3) that Dornbush “was beset by a
classic conflict of interest,” and that, acting under that conflict, Dornbush “misled
[Rocky] to sign the [release] for the benefit of one … set of interests (the children)
to the detriment of another … set of interests (Rocky).” Keiko further argued (id.
at 21, 56) that, in securing the release, “the Dornbush firm’s allegiance was with
[Rocky’s] children,” and that the firm’s conduct “amounted to constructive fraud
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upon Rocky which misled him to execute the Releases for the benefit of the
children.” All this is what Keiko argues here in asserting that Dornbush possessed
the requisite interest in the release to fall within the Appellate Division’s rule.
On the merits, Devon and Steven submit (Br. 65-68) that because Keiko was
granted day-to-day control of the BPT after Rocky died in 2008, Dornbush and
Shaw did not actually benefit from their successful efforts to persuade Rocky to
sign the release. That too is incorrect. For one thing, it ignores the fact (which
Devon and Steven acknowledge (Br. 67)) that Kevin and Kana hired Dornbush’s
firm for further legal work in connection with the release. See RA 636-637. That
alone is a sufficient “interest” for purposes of the Appellate Division’s rule.
Furthermore, Devon’s and Steven’s focus (Br. 66) on Keiko’s “ultimate[]”
appointment as trustee of the BPT ignores the relevant time period. The question
under the Appellate Division’s test is whether Dornbush and Shaw had a personal
interest at the time of the transaction. See 985 N.Y.S.2d at 527 (“For constructive
fraud to apply, the fiduciary must … have an interest in the subject transaction.”
(emphasis added)). At the time they were working with the children to secure the
release, Dornbush and Shaw were concerned about a split forming in the family,
and they thought that control of Benihana—and their future engagement by the
company—hung in the balance. See Keiko Br. 53-57. Indeed, Dornbush testified
in a different case that he was concerned that he and others would be fired if Keiko
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took control of Benihana. See Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d
150, 186 (Del. Ch. 2005) (“Dornbush … testified that he ‘shared’ a ‘concern’ that,
upon obtaining control of Benihana, Keiko Aoki, would ‘remove all of the people
who were there for 20 years of service’”), aff’d, 906 A.2d 114 (Del. 2006).11
In sum, the record compellingly demonstrates that Dornbush and Shaw were
not only serving two sets of clients’ interests (arguably, in the case of Rocky), but
also their own, i.e., that they indeed had an “interest” in the release sufficient to
satisfy the Appellate Division’s test.
IV. DEVON’S AND STEVEN’S REMAINING ARGUMENTS LACK MERIT
A. The Appellate Division Cannot Be Affirmed On Alternative
Grounds
Devon and Steven say (Br. 68) that the decision of the Appellate Division
can be affirmed on the grounds that (1) Dornbush and Shaw did not engage in any
misrepresentation or concealment and (2) even if they did, Rocky could not have
reasonably relied on any misrepresentations or concealment because the release
used the word “irrevocably” and Rocky is charged with knowledge of its content.
11 Devon’s and Steven’s attempt to dismiss Dornbush’s testimony in the
Chancery Court case is misplaced. The point is that Dornbush candidly admitted
in that case that he was concerned he and others would be displaced if Keiko took
over Benihana, Inc. Although Devon and Steven make much about the procedural
posture of the case—that Benihana of Tokyo did not carry its “heavy burden” of
proving, under corporate-law standards, that the Benihana, Inc. “Board’s sole or
primary purpose” in a share sale constituted unlawful entrenchment, see 891 A.2d
at 186, 188—that is not relevant here.
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The first point has been addressed above. In brief, despite Devon’s and
Steven’s (Br. 68) insistence that Dornbush and Shaw “affirmatively undertook all
reasonable efforts to apprise [Rocky] of the effect of the Releases,” the record tells
a categorically different story. See supra Part I.
As to the second point, Devon and Steven argue (Br. 42-44, 69-71) that
Rocky’s failure to review the release before signing it bars application of the
constructive-fraud doctrine. But the law in this State is that failure to read does not
create any such bar when the failure results from the party being misled or
defrauded by a trusted fiduciary. See Keiko Br. 45-47; see also 7 Corbin On
Contracts § 29.9 & n.24 (2002) (under New York law, when “a party
misrepresents the terms of a writing and the other party, relying on the
misrepresentation, signs without having read the document,” the instrument is not
binding). Devon and Steven acknowledge this in a footnote (Br. 43 n.30), but they
argue that there was no such misleading or fraud here. That argument—like their
charge of “gross negligence” (Br. 70)—is simply another example of their refusal
to recognize the Surrogate’s fully-supported findings that the reason “Rocky was
not aware that the releases were irrevocable,” RA 34, was that his lawyers had
engaged in misrepresentation and concealment, see RA 42-43.
Keiko’s opening brief also explained (at 46-47 & n.7) that this Court has
repeatedly held that written instruments had to be canceled under similar
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circumstances. Devon and Steven dismiss those cases in a footnote, asserting that
they involved misrepresentations while this one does not. That, yet again, just
ignores the record and the Surrogate’s findings.
The cases the children cite, meanwhile, do not support them. They rely, for
example (Br. 43 n.30), on Pimpinello v. Swift & Co., 253 N.Y. 159 (1930), in
arguing that a writing is not rendered void by a counterparty’s intentional mis-
representation if the “signer be negligent,” id. at 163. This Court has since made
clear, however, that the signer’s negligence is irrelevant when a signature is
“obtained by misrepresentation.” Hutchison v. Ross, 262 N.Y. 381, 400 (1933). In
fact, Devon’s and Steven’s interpretation of Pimpinello is the one the dissenters in
Hutchison adopted. Compare id. at 401 (majority opinion) (“The doctrine that
those who negligently sign an instrument without reading it may be estopped or
precluded from showing that in fact they never assented to its terms (Pimpinello v.
Swift & Co., 253 N.Y. 159) does not apply here” because “the consents which have
been signed … were obtained by misrepresentation.”), with id. at 402 (Kellogg, J.,
dissenting) (“That the signer did not intend to execute such terms is immaterial;
and whether the lack of intent was due to a failure to read it over, or to some other
cause, is immaterial.”).
Nor do any of the other cases Devon and Steven cite support their claim that
Rocky’s reliance was unreasonable. Apart from reciting reliance as an element of
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actual fraud, Brown v. Lockwood, 432 N.Y.S.2d 186, 193 (2d Dep’t 1980), says
nothing helpful to the children. To the contrary, the court noted that with respect
to constructive fraud, “the existence of a fiduciary or confidential relationship
warrant[s] the trusting party to repose his confidence in the defendant and therefore
to relax the care and vigilance he would ordinarily exercise in the circumstances.”
Id. at 194 (emphasis added). In Bibeau v. Ward, 645 N.Y.S.2d 107 (3d Dep’t
1996), the court never came to the question of reasonableness because it concluded
that the plaintiff had not relied on the defendant’s misrepresentation, see id. at 109-
110. And Zanett Lombardier, Ltd. v. Maslow, 815 N.Y.S.2d 547 (1st Dep’t 2006),
involved “relatively sophisticated investors” who made an investment without
adequately researching market conditions, id. at 548.12
B. Remand To The Appellate Division Is Unwarranted
As a final fallback, the children argue (Br. 71) that if this Court finds in
Keiko’s favor, it should remand the case to the Appellate Division for
12 Illustrating how far afield Zanett is from this case, the court cited, as its sole
authority for this point, Stuart Silver Associates, Inc. v. Baco Development Corp.,
665 N.Y.S.2d 415 (1st Dep’t 1997), which concluded that sophisticated investors
had behaved unreasonably when they relied on oral representations by a
counterparty “without conducting a ‘due diligence’ investigation or consulting
their lawyers and accountants,” id. at 418. Here, Rocky did consult his lawyers for
the precise purpose of understanding the effect of the release. He reasonably relied
on their counsel, and their choreographed omissions induced him into executing
the release.
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consideration of certain “issues raised, but not reached, on Devon[’s] and Steven’s
appeal to that court.” That too is wrong.
As this Court has held, “[w]here the judgment of the lower court is improper
as a matter of law, this court has the power to reverse and grant final judgment.”
Wechsler v. Bowman, 285 N.Y. 284, 296 (1941); accord 5 N.Y. Jur. 2d Appellate
Review § 785 (2009); see also Martin v. City of Albany, 42 N.Y.2d 13, 19 (1977)
(“Had the Appellate Division reversed the judgment solely upon the law, our
review of the law issue would have led us to reinstate the jury verdict[.]”);
Bernstein v. Greenfield, 281 N.Y. 77, 81 (1939) (“As the Appellate Division
erroneously reversed upon the law and dismissed the complaint, we are required to
reinstate the verdict.”). Here, the Appellate Division’s ruling was solely “on the
law,” Aoki, 985 N.Y.S.2d at 524; accord Devon-Steven Br. 13, and should be
reversed on the law for the reasons discussed above. Nothing would be gained by
remanding the matter to the Surrogate for reconsideration under the correct legal
standard, which the Surrogate already applied.
That is particularly true given that, as discussed, none of the Surrogate’s
factual findings were reversed by the Appellate Division. To the extent that
court’s decision is nonetheless read to disagree with those findings, this Court can
review the contested facts and should conclude—based on the trial record and the
Surrogate’s determinations—that the Surrogate’s findings were correct and support
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the decree. See Karger, The Powers of the New York Court of Appeals § 15:15 (3d
ed. 2005) (“Reinstatement of the determination of the court of first instance … is
appropriate … where … the Appellate Division has made its own determination on
the facts … and the Court of Appeals reviews the questions of fact and agrees with
the disposition made thereof by the court of first instance.”). Again, then, no
remand is needed or appropriate.
* * *
The constructive-fraud doctrine has served this State well for more than a
century, providing the courts with a critical tool to protect innocent parties from
fiduciary deceit. The doctrine’s utility and vitality stem from its flexibility: Courts
root out fiduciary opportunism in all its forms by shifting the burden to a
transaction’s proponents to prove its fairness. With no basis in logic or precedent,
the Appellate Division’s rule unaccountably hamstrings that function—and does so
in a case where the factfinder found a clear and egregious form of fiduciary
misconduct.
CONCLUSION
The Appellate Division’s decision should be reversed and the case remanded
with instructions to reinstate the Surrogate’s decree invalidating the irrevocable
release.
Date: July 23, 2015 Respectfully submitted,
Seth P. Waxman (pro hac vice) Alan E. Schoenfeld
Daniel S. Volchok (pro hac vice) WILMER CUTLER PICKERING
Adam I. Klein HALE AND DORR LLP
Thomas G. Sprankling (pro hac vice) 7 World Trade Center
WILMER CUTLER PICKERING 250 Greenwich Street
HALE AND DORR LLP New York, New York 10007
1875 Pennsylvania Avenue N.W. (212) 230-8800
Washington, D.C. 20006
(202) 663-6000
seth.waxman@wilmerhale.com
Attorneys for Appellant Keiko Ono Aoki
/s/ Alan E. Schoenfeld