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HERE A DISPUTE AMONG BROTHERS ABOUT OWNERSHIP OF REAL PROPERTY WAS RESOLVED BY AN OPEN COURT STIPULATION (CONTRACT) WHICH CANNOT BE INVALIDATED ABSENT FRAUD, COLLUSION, MISTAKE OR ACCIDENT; THEREFORE SUPREME COURT SHOULD HAVE HELD A HEARING BEFORE APPROVING THE SUBSEQUENT APPORTIONMENT OF THE PROPERTY BY A RECEIVER WHICH WAS INCONSISTENT WITH THE STIPULATION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the receiver’s (Hafner’s) apportionment of the proceeds of the sale of real property owned by several brothers was inconsistent with the open court stipulation which had attempted to resolve the dispute before the receiver was appointed. Absent fraud, collusion, mistake or accident, a stipulation (contract) should not be invalidated. Therefore, Supreme Court should have held a hearing to determine whether there are grounds for avoiding the terms of the stipulation:

Supreme Court should have held an evidentiary hearing before approving Hafner’s amended final report and account based on the factual issues raised by the parties and the contentious nature of the proceedings … . “Stipulations of settlement are favored by the courts and not lightly cast aside . . . Only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident, will a party be relieved from the consequences of a stipulation made during litigation” … . Here, Hafner’s amended final report and account was confirmed without the off-the-top credits owed to John and Thomas pursuant to the stipulation. Further, the amended final report and account allocated receivership costs for insurance that were inconsistent with the allocation of costs agreed to in the stipulation.

Additionally, a hearing is necessary to calculate Hafner’s commissions and to determine whether special circumstances exist warranting a recovery in excess of five percent of the sums received and disbursed … . CPLR 8004 allows a receiver to be paid commissions for his or her work “‘not exceeding five percent of sums received and disbursed by him or her'” … . Feeney v Giannetti, 2025 NY Slip Op 03043, Second Dept 5-21-25

Practice Point: An open court stipulation is a contract which cannot be invalidated absent fraud, collusion, mistake or accident. Here the apportionment of disputed property by the receiver was inconsistent with the stipulation. The court, therefore, should not have upheld the receiver’s apportionment without holding a hearing to determine whether there exist grounds for invalidating the stipulation.

 

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