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SURROGATE’S COURT, IN AWARDING ATTORNEY’S FEES FOR THE PETITION FOR JUDICIAL SETTLEMENT AND FINAL ACCOUNTING REGARDING A TRUST, DID NOT MAKE THE REQUIRED FINDINGS, MATTER REMITTED (FOURTH DEPT).

The Fourth Department remitted the matter to Surrogate’s Court for a determination of the reasonableness of the attorney’s fees Surrogate’s Court had awarded petitioner. Petitioner trustee filed a petition for judicial settlement and final accounting regarding a trust. Surrogate’s Court awarded attorney’s fees to the petitioner but did not make the required findings:

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We … agree with objectants that the Surrogate erred in approving the attorneys’ fees, costs and disbursements requested by petitioner without considering the required factors. “It is well settled that, in determining the proper amount of attorneys’ fees and costs, the court should consider the time spent, the difficulties involved in the matters in which the services were rendered, the nature of the services, the amount involved, the professional standing of the counsel, and the results obtained’ ” … .Here, the Surrogate failed to make any findings with respect to the Potts factors [Matter of Potts, 213 App Div 59, 62], and we are therefore unable to review the Surrogate’s implicit determination that the attorneys’ fees, costs and disbursements are reasonable … . We therefore modify the decree by vacating the award of attorneys’ fees, costs and disbursements, and we remit the matter to Surrogate’s Court for a determination whether those fees, costs and disbursements are reasonable, following a hearing if necessary … . Matter of JPmorgan Chase Bank, N.A., 2018 NY Slip Op 00775, Fourth Dept 2-2-18

ATTORNEYS (FEES, SURROGATE’S COURT, IN AWARDING ATTORNEY’S FEES FOR THE PETITION FOR JUDICIAL SETTLEMENT AND FINAL ACCOUNTING REGARDING A TRUST DID NOT MAKE THE REQUIRED FINDINGS, MATTER REMITTED (FOURTH DEPT))/TRUSTS AND ESTATES (ATTORNEY’S FEES, SURROGATE’S COURT, IN AWARDING ATTORNEY’S FEES FOR THE PETITION FOR JUDICIAL SETTLEMENT AND FINAL ACCOUNTING REGARDING A TRUST DID NOT MAKE THE REQUIRED FINDINGS, MATTER REMITTED (FOURTH DEPT))/ATTORNEY’S FEES (SURROGATE’S COURT, IN AWARDING ATTORNEY’S FEES FOR THE PETITION FOR JUDICIAL SETTLEMENT AND FINAL ACCOUNTING REGARDING A TRUST DID NOT MAKE THE REQUIRED FINDINGS, MATTER REMITTED (FOURTH DEPT))

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DEFENDANTS IN THIS WRONGFUL DEATH CASE WERE ENTITLED TO DISCOVERY OF TAX RETURNS TO DETERMINE WHETHER THE MOTHER AND FATHER WERE MARRIED AT THE TIME OF MOTHER’S DEATH, IF SO, THE STATUTE OF LIMITATIONS HAD PASSED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined defendants in this wrongful death case were entitled to discovery of tax returns to determine whether the parents of the plaintiff-children were married. If the parents were married when mother died, the statute of limitations had passed:

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Individual tax returns are generally not discoverable unless the movant makes a ” requisite showing that [the] tax returns [are] indispensable to [the] litigation and that [the] relevant information possibly contained therein [is] unavailable from other sources’ ” … . A wrongful death action has a two-year statute of limitations from the date of the decedent’s death…  Where the sole distributee is an infant, the statute is tolled “until appointment of a guardian or the majority of the sole distributee, whichever is earlier”… . Where, however, the decedent is married and the surviving spouse is thus a distributee of the estate, the infancy toll does not apply because the spouse “was available both to seek appointment as the personal representative of the estate and to commence an action on behalf of the children in a timely fashion” … . Has K’Paw Mu v Lyon, 2018 NY Slip Op 00687, Fourth Dept 2-2-18

CIVIL PROCEDURE (DISCOVERY, TAX RETURNS, DEFENDANTS IN THIS WRONGFUL DEATH CASE WERE ENTITLED TO DISCOVERY TAX RETURNS TO DETERMINE WHETHER THE MOTHER AND FATHER WERE MARRIED AT THE TIME OF MOTHER’S DEATH, IF SO, THE STATUTE OF LIMITATIONS HAD PASSED (FOURTH DEPT))/DISCOVERY (TAX RETURNS, DEFENDANTS IN THIS WRONGFUL DEATH CASE WERE ENTITLED TO DISCOVERY TAX RETURNS TO DETERMINE WHETHER THE MOTHER AND FATHER WERE MARRIED AT THE TIME OF MOTHER’S DEATH, IF SO, THE STATUTE OF LIMITATIONS HAD PASSED (FOURTH DEPT))/TAX RETURNS (CIVIL PROCEDURE, DISCOVERY, DEFENDANTS IN THIS WRONGFUL DEATH CASE WERE ENTITLED TO DISCOVERY TAX RETURNS TO DETERMINE WHETHER THE MOTHER AND FATHER WERE MARRIED AT THE TIME OF MOTHER’S DEATH, IF SO, THE STATUTE OF LIMITATIONS HAD PASSED (FOURTH DEPT))/STATUTE OF LIMITATIONS (WRONGFUL DEATH, DISCOVERY, TAX RETURNS, DEFENDANTS IN THIS WRONGFUL DEATH CASE WERE ENTITLED TO DISCOVERY TAX RETURNS TO DETERMINE WHETHER THE MOTHER AND FATHER WERE MARRIED AT THE TIME OF MOTHER’S DEATH, IF SO, THE STATUTE OF LIMITATIONS HAD PASSED (FOURTH DEPT))/WRONGFUL DEATH  (DISCOVERY, TAX RETURNS, DEFENDANTS IN THIS WRONGFUL DEATH CASE WERE ENTITLED TO DISCOVERY TAX RETURNS TO DETERMINE WHETHER THE MOTHER AND FATHER WERE MARRIED AT THE TIME OF MOTHER’S DEATH, IF SO, THE STATUTE OF LIMITATIONS HAD PASSED (FOURTH DEPT))/TRUSTS AND ESTATES (WRONGFUL DEATH, DISCOVERY, TAX RETURNS, DEFENDANTS IN THIS WRONGFUL DEATH CASE WERE ENTITLED TO DISCOVERY TAX RETURNS TO DETERMINE WHETHER THE MOTHER AND FATHER WERE MARRIED AT THE TIME OF MOTHER’S DEATH, IF SO, THE STATUTE OF LIMITATIONS HAD PASSED (FOURTH DEPT))

RELEASE SIGNED BY ONE OF THE BENEFICIARIES OF THE WILL, RELEASING THE EXECUTOR FROM LIABILITY STEMMING FROM THE ADMINISTRATION OF THE ESTATE, WAS NOT VALID BECAUSE THE BENEFICIARY WAS NOT FULLY INFORMED ABOUT THE VALUE OF THE SECURITIES IN THE ESTATE, AND THE EFFECTS OF LEAVING A TRUST UNFUNDED, SURROGATE’S COURT IMPROPERLY PLACED THE BURDEN OF DEMONSTRATING THE RELEASE WAS INVALID ON THE BENEFICIARY (FOURTH DEPT).

The Fourth Department, reversing Surrogate’s Court, determined that a release drawn up by the initial executor, who died, was not valid because the objectant, a beneficiary of the will who signed the release, was not informed that the value of the securities in the estate had declined significantly and was not informed of the ramifications of the executor’s decision to leave a trust unfunded. Surrogate’s Court had erroneously placed the burden of demonstrating the release was invalid on the objectant:

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… [T]he Surrogate improperly shifted the burden from petitioners to objectant to prove that the release was fraudulently obtained and erred in determining that the release is valid. With releases, “as in other instances of dealing between a fiduciary and the person for whom he [or she] is acting, there must be proof of full disclosure by the [executor] of the facts of the situation and the legal rights of the beneficiary” … . A release should be subject to careful scrutiny, and the executor must affirmatively demonstrate full disclosure of “material facts which he [or she] knew or should have known” … . “The mere absence of misrepresentation, fraud, or undue influence in the obtaining of a release is not sufficient to insulate the release from a subsequent attack by the beneficiaries; the fiduciary must affirmatively demonstrate that the beneficiaries were made aware of the nature and legal effect of the transaction in all its particulars” … . Here, petitioners’ burden of proving that full disclosure was provided was improperly shifted to objectant, i.e., the beneficiary who challenged the validity of the release.

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Decedent’s will contemplated equal bequests to objectant and his sister (decedent’s children). There was a substantial discrepancy in the value of the properties decedent left to each child, however, and most of objectant’s inheritance was to come from the liquidation of the estate’s securities. The will also directed that the trust be funded in the maximum sum allowable to benefit decedent’s children and their descendants. Objectant and the executor were named as co-trustees of the trust. Accurate information concerning the current value of the estate’s securities and the propriety of defunding the trust in contravention of the will was therefore highly material to objectant. Matter of Alford, 2018 NY Slip Op 00752, Fourth Dept 2-2-18

 

 

TRUSTS AND ESTATES (RELEASE SIGNED BY ONE OF THE BENEFICIARIES OF THE WILL, RELEASING THE EXECUTOR FROM LIABILITY STEMMING FROM THE ADMINISTRATION OF THE ESTATE, WAS NOT VALID BECAUSE THE BENEFICIARY WAS NOT FULLY INFORMED ABOUT THE VALUE OF THE SECURITIES IN THE ESTATE, AND THE EFFECTS OF LEAVING A TRUST UNFUNDED, SURROGATE’S COURT IMPROPERLY PLACED THE BURDEN OF DEMONSTRATING THE RELEASE WAS INVALID ON THE BENEFICIARY (FOURTH DEPT))/RELEASES (TRUSTS AND ESTATES, RELEASE SIGNED BY ONE OF THE BENEFICIARIES OF THE WILL, RELEASING THE EXECUTOR FROM LIABILITY STEMMING FROM THE ADMINISTRATION OF THE ESTATE, WAS NOT VALID BECAUSE THE BENEFICIARY WAS NOT FULLY INFORMED ABOUT THE VALUE OF THE SECURITIES IN THE ESTATE, AND THE EFFECTS OF LEAVING A TRUST UNFUNDED, SURROGATE’S COURT IMPROPERLY PLACED THE BURDEN OF DEMONSTRATING THE RELEASE WAS INVALID ON THE BENEFICIARY (FOURTH DEPT))/EXECUTORS (RELEASE SIGNED BY ONE OF THE BENEFICIARIES OF THE WILL, RELEASING THE EXECUTOR FROM LIABILITY STEMMING FROM THE ADMINISTRATION OF THE ESTATE, WAS NOT VALID BECAUSE THE BENEFICIARY WAS NOT FULLY INFORMED ABOUT THE VALUE OF THE SECURITIES IN THE ESTATE, AND THE EFFECTS OF LEAVING A TRUST UNFUNDED, SURROGATE’S COURT IMPROPERLY PLACED THE BURDEN OF DEMONSTRATING THE RELEASE WAS INVALID ON THE BENEFICIARY (FOURTH DEPT))

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MOTION TO DISMISS MADE BY DECEASED DEFENDANT’S FORMER ATTORNEY PURPORTEDLY ON DECEDENT’S BEHALF WAS A NULLITY, MOTIONS TO DISMISS MADE BY OTHER DEFENDANTS ARGUING THAT PLAINTIFFS DID NOT TAKE TIMELY STEPS TO SUBSTITUTE A REPRESENTATIVE FOR THE DECEASED DEFENDANT SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department determined plaintiff’s failure to take timely steps to substitute a representative for a defendant who had died required the dismissal of the complaint against that defendant. A motion to dismiss made by decedent’s former attorney, purportedly on behalf of the decedent, was a nullity and should not have been granted. Motions to dismiss made by the other defendants should have been granted:

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“The death of a party divests the court of jurisdiction and stays the proceedings until a proper substitution has been made pursuant to CPLR 1015(a). Moreover, any determination rendered without such substitution will generally be deemed a nullity” … . The death of a party terminates his or her attorney’s authority to act on behalf of the deceased party… . Although the determination of a motion pursuant to CPLR 1021 made by the successors or representatives of a party or by any party is an exception to a court’s lack of jurisdiction, here, one of the motions pursuant to CPLR 1021 was made by the former attorney for the decedent purportedly on behalf of the decedent. Since the former attorney lacked the authority to act, the Supreme Court lacked jurisdiction to consider that motion to dismiss … . Accordingly, so much of the order as granted the motion purportedly made on behalf of the decedent is a nullity.

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Nonetheless, the Supreme Court had jurisdiction to consider the other defendants’ separate motions to dismiss pursuant to CPLR 1021 and to consider the plaintiffs’ cross motion. CPLR 1021 provides, in pertinent part, that “[i]f the event requiring substitution occurs before final judgment and substitution is not made within a reasonable time, the action may be dismissed as to the party for whom substitution should have been made, however, such dismissal shall not be on the merits unless the court shall so indicate” … . …

Here, the Supreme Court providently exercised its discretion in determining that substitution of the decedent was not made within a reasonable time. As such, the court providently exercised its discretion in denying those branches of the plaintiffs’ cross motion which were to appoint a representative for the decedent and, upon appointment, substitute the representative for the decedent as a defendant. Given that substitution was not made within a reasonable time, dismissal of the complaint as against the decedent, “the party for whom substitution should have been made” (CPLR 1021), was proper. However, contrary to the court’s determination, CPLR 1021 did not authorize dismissal of the complaint as against any of the other defendants. Vicari v Kleinwaks, 2018 NY Slip Op 00576, Second Dept 1-31-18

CIVIL PROCEDURE (SUBSTITUTION OF REPRESENTATIVE FOR DECEASED DEFENDANT, MOTION TO DISMISS MADE BY DECEASED DEFENDANT’S FORMER ATTORNEY PURPORTEDLY ON DECEDENT’S BEHALF WAS A NULLITY, MOTIONS TO DISMISS MADE BY OTHER DEFENDANTS ARGUING THAT PLAINTIFFS DID NOT TAKE TIMELY STEPS TO SUBSTITUTE A REPRESENTATIVE FOR THE DECEASED DEFENDANT SHOULD HAVE BEEN GRANTED (SECOND DEPT))/SUBSTITUTION OF REPRESENTATIVE FOR DECEASED DEFENDANT MOTION TO DISMISS MADE BY DECEASED DEFENDANT’S FORMER ATTORNEY PURPORTEDLY ON DECEDENT’S BEHALF WAS A NULLITY, MOTIONS TO DISMISS MADE BY OTHER DEFENDANTS ARGUING THAT PLAINTIFFS DID NOT TAKE TIMELY STEPS TO SUBSTITUTE A REPRESENTATIVE FOR THE DECEASED DEFENDANT SHOULD HAVE BEEN GRANTED (SECOND DEPT))/TRUSTS AND ESTATES (CIVIL PROCEDURE, SUBSTITUTION OF REPRESENTATIVE FOR DECEASED DEFENDANT, MOTION TO DISMISS MADE BY DECEASED DEFENDANT’S FORMER ATTORNEY PURPORTEDLY ON DECEDENT’S BEHALF WAS A NULLITY, MOTIONS TO DISMISS MADE BY OTHER DEFENDANTS ARGUING THAT PLAINTIFFS DID NOT TAKE TIMELY STEPS TO SUBSTITUTE A REPRESENTATIVE FOR THE DECEASED DEFENDANT SHOULD HAVE BEEN GRANTED (SECOND DEPT))

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UNDER THE TERMS OF THE LIMITED LIABILITY AGREEMENT, THE ESTATE OF A DECEASED MEMBER OF THE LIMITED LIABILITY COMPANY (LLC) WAS NOT A MEMBER OF THE LLC AND THEREFORE COULD NOT PARTICIPATE IN THE RUNNING OF THE LLC OR INSPECT ITS BOOKS AND WAS NOT OWED A FIDUCIARY DUTY (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Kapnick, determined the limited liability agreement controlled in this action by the estate of a member of the limited liability company (LLC) against the LLC.  Under the terms of the agreement the estate of the deceased member (Alex) was not a member of the LLC and therefore could not participate in the running of the company, could not demand to inspect the LLC’s books, and was not owed a fiduciary duty:

Ultimately, the parties disagree on the Estate’s rights and status under the LLC Agreement … . The Estate contends that it stepped into Alex’s shoes upon his death, and that it possesses all of his rights and privileges as a Member under the LLC Agreement. Defendants, on the other hand, contend that under the terms of the LLC Agreement, the Estate is considered the successor in interest of a Withdrawing Member (Alex) with rights only to potential distributions, and no rights to control or participate in the running of the company. Estate of Calderwood v ACE Group Intl. LLC, 2017 NY Slip Op 08750, First Dept 12-14-17

TRUSTS AND ESTATES (DEATH OF MEMBER OF LLC, UNDER THE TERMS OF THE LIMITED LIABILITY AGREEMENT, THE ESTATE OF A DECEASED MEMBER OF THE LIMITED LIABILITY COMPANY (LLC) WAS NOT A MEMBER OF THE LLC AND THEREFORE COULD NOT PARTICIPATE IN THE RUNNING OF THE LLC OR INSPECT ITS BOOKS AND WAS NOT OWED A FIDUCIARY DUTY (FIRST DEPT))/LIMITED LIABILITY COMPANY (TRUSTS AND ESTATES, DEATH OF A MEMBER, UNDER THE TERMS OF THE LIMITED LIABILITY AGREEMENT, THE ESTATE OF A DECEASED MEMBER OF THE LIMITED LIABILITY COMPANY (LLC) WAS NOT A MEMBER OF THE LLC AND THEREFORE COULD NOT PARTICIPATE IN THE RUNNING OF THE LLC OR INSPECT ITS BOOKS AND WAS NOT OWED A FIDUCIARY DUTY (FIRST DEPT))/CORPORATION LAW (LIMITED LIABILITY COMPANY, DEATH OF A MEMBER, UNDER THE TERMS OF THE LIMITED LIABILITY AGREEMENT, THE ESTATE OF A DECEASED MEMBER OF THE LIMITED LIABILITY COMPANY (LLC) WAS NOT A MEMBER OF THE LLC AND THEREFORE COULD NOT PARTICIPATE IN THE RUNNING OF THE LLC OR INSPECT ITS BOOKS AND WAS NOT OWED A FIDUCIARY DUTY (FIRST DEPT))

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BREACH OF CONTRACT ACTION BY CALIFORNIA TRUSTEE OF MORTGAGE-BACKED-SECURITIES TRUSTS IS CONTROLLED BY NEW YORK’S BORROWING STATUTE AND MUST BE TIMELY UNDER BOTH CALIFORNIA AND NEW YORK LAW, SUIT WAS UNTIMELY UNDER CALIFORNIA LAW (FIRST DEPT).

The First Department determined this breach of contract action stemming from a mortgage-backed-securities trust, brought by a California plaintiff (trustee) ,and concerning California lenders must be timely under both California and New York law. The action, although timely in New York, was not timely under California law, which has a four-year statute of limitations. The New York choice-of-law provisions in the agreements did not expressing incorporate the NY statute of limitations:

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CPLR 202 requires that an action brought by a nonresident plaintiff, “based upon a cause of action accruing without the state,” be timely under the respective statutes of limitations of both New York and “the place without the state where the cause of action accrued.” In Global Fin. Corp. v Triarc Corp. (93 NY2d 525, 529-530 [1999]), the Court of Appeals set forth the general rule that, in cases where (as here) the alleged injury is purely economic, a cause of action is deemed, for purposes of CPLR 202, to have accrued in the jurisdiction of the plaintiff’s residence. …

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it is undisputed that the domiciles of the trust beneficiaries, which are in various jurisdictions, do not provide a workable basis for determining the place of accrual. As to the New York choice-of-law clauses of the relevant agreements, because these provisions do not expressly incorporate the New York statute of limitations, they “cannot be read to encompass that limitation period” … . By contrast, the subject trust in each action comprises a pool of mortgage loans, originated by California lenders and encumbering California properties, either exclusively … or predominantly ,,,, and … administered in California by plaintiff, a California-based trustee …. Further, it is undisputed that the relevant pooling and servicing agreement (PSA) for each trust contemplates the payment of state taxes, if any, in California … . To the extent the physical location of the notes memorializing the securitized mortgage loans has relevance to the analysis, each trust’s PSA contemplates that the notes may be maintained in California, but neither contemplates maintaining the notes in New York … . ​Deutsche Bank Natl. Trust Co. v Barclays Bank PLC, 2017 NY Slip Op 08459, First Dept 12-5-17

 

CIVIL PROCEDURE (BORROWING STATUTE, CONTRACT LAW, BREACH OF CONTRACT ACTION BY CALIFORNIA TRUSTEE OF MORTGAGE-BACKED-SECURITIES TRUSTS IS CONTROLLED BY NEW YORK’S BORROWING STATUTE AND MUST BE TIMELY UNDER BOTH CALIFORNIA AND NEW YORK LAW, SUIT WAS UNTIMELY UNDER CALIFORNIA LAW (FIRST DEPT))/BORROWING STATUTE (CIVIL PROCEDURE, BREACH OF CONTRACT ACTION BY CALIFORNIA TRUSTEE OF MORTGAGE-BACKED-SECURITIES TRUSTS IS CONTROLLED BY NEW YORK’S BORROWING STATUTE AND MUST BE TIMELY UNDER BOTH CALIFORNIA AND NEW YORK LAW, SUIT WAS UNTIMELY UNDER CALIFORNIA LAW (FIRST DEPT))/CONTRACT LAW (CIVIL PROCEDURE, BORROWING STATUTE, STATUTE OF LIMITATIONS, BREACH OF CONTRACT ACTION BY CALIFORNIA TRUSTEE OF MORTGAGE-BACKED-SECURITIES TRUSTS IS CONTROLLED BY NEW YORK’S BORROWING STATUTE AND MUST BE TIMELY UNDER BOTH CALIFORNIA AND NEW YORK LAW, SUIT WAS UNTIMELY UNDER CALIFORNIA LAW (FIRST DEPT))/SECURITIES (MORTGAGE-BACKED SECURITIES, CONTRACT LAW, CIVIL PROCEDURE, BORROWING STATUTE, BREACH OF CONTRACT ACTION BY CALIFORNIA TRUSTEE OF MORTGAGE-BACKED-SECURITIES TRUSTS IS CONTROLLED BY NEW YORK’S BORROWING STATUTE AND MUST BE TIMELY UNDER BOTH CALIFORNIA AND NEW YORK LAW, SUIT WAS UNTIMELY UNDER CALIFORNIA LAW (FIRST DEPT))/TRUSTS AND ESTATES (MORTGAGE-BACKED SECURITIES TRUST, BREACH OF CONTRACT, CIVIL PROCEDURE, BORROWING STATUTE, BREACH OF CONTRACT ACTION BY CALIFORNIA TRUSTEE OF MORTGAGE-BACKED-SECURITIES TRUSTS IS CONTROLLED BY NEW YORK’S BORROWING STATUTE AND MUST BE TIMELY UNDER BOTH CALIFORNIA AND NEW YORK LAW, SUIT WAS UNTIMELY UNDER CALIFORNIA LAW (FIRST DEPT))

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SUPREME COURT SHOULD NOT HAVE AWARDED A MONEY JUDGMENT AGAINST DEFENDANT PERSONALLY, DEFENDANT WAS ONLY A PARTY TO THE ACTION AS A TRUSTEE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined Supreme Court exceeded its authority when it, sua sponte, awarded a money judgment against defendant personally. Defendant was only a party to the action in his representative capacity (trustee):

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“[A] court may grant relief that is warranted by the facts plainly appearing on the papers on both sides, if the relief granted is not too dramatically unlike the relief sought, the proof offered supports it, and there is no prejudice to any party” … . Here, the Supreme Court not only strayed from this principle … , but did so by purporting to impose liability on an individual who was not even a party to the action. ” It has been repeatedly held that persons suing or being sued in their official or representative capacity are, in contemplation of law, distinct persons, and strangers to any right or liability as an individual, and consequently a former judgment concludes a party only in the character in which he was sued'” … . Magid v Sunrise Holdings Group, LLC, 2017 NY Slip Op 07718, Second Dept 11-8-17

 

CIVIL PROCEDURE (PARTIES, SUPREME COURT SHOULD NOT HAVE AWARDED A MONEY JUDGMENT AGAINST DEFENDANT PERSONALLY, DEFENDANT WAS ONLY A PARTY TO THE ACTION AS A TRUSTEE (SECOND DEPT))/TRUSTS AND ESTATES (CIVIL PROCEDURE, PARTIES, SUPREME COURT SHOULD NOT HAVE AWARDED A MONEY JUDGMENT AGAINST DEFENDANT PERSONALLY, DEFENDANT WAS ONLY A PARTY TO THE ACTION AS A TRUSTEE (SECOND DEPT))/TRUSTEES  (CIVIL PROCEDURE, PARTIES, SUPREME COURT SHOULD NOT HAVE AWARDED A MONEY JUDGMENT AGAINST DEFENDANT PERSONALLY, DEFENDANT WAS ONLY A PARTY TO THE ACTION AS A TRUSTEE (SECOND DEPT))

EXECUTOR’S DISCLOSURE OF THE INFORMAL ACCOUNTING OF THE ESTATE TO BENEFICIARIES WAS SUFFICIENT, BENEFICIARY’S MOTION TO SET ASIDE A RELEASE PROPERLY DENIED (SECOND DEPT).

The Second Department determined the executor’s informal accounting and disclosures to beneficiaries were sufficient, therefore the release signed by a beneficiary could not be set aside:

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“[A] fiduciary, as an executor or trustee, is obligated to account for his or her decisions and actions in administering an estate or trust” … . “While formal accountings of an estate are done in the context of a judicial proceeding, [a] fiduciary may also account informally by obtaining receipts and releases from interested parties regarding the handling of the estate or trust'” … . ” [S]uch an informal accounting is as effectual for all purposes as a settlement pursuant to a judicial decree'” … . ” [I]f a fiduciary gives full disclosure in his [or her] accounting, to which the beneficiaries are parties . . . they should have to object at that time or be barred from doing so after the settlement of the account'” … . “Where the validity of a release is challenged, the fiduciary must affirmatively demonstrate that the beneficiaries were made aware of the nature and legal effect of the transaction in all its particulars'” … .

Here, the documents provided by [the executor] to … the … beneficiaries along with the release made the beneficiaries aware of all the distributions that would be made from the estate. The tax return showed that [the executor] would receive a greater share of the estate as a result of bank accounts she held jointly with the decedent. Thus, the Surrogate’s Court correctly denied [the beneficiary’s] motion to set aside the release. Matter of Spacek, 2017 NY Slip Op 07737, Second Dept 11-8-17

 

TRUSTS AND ESTATES (EXECUTOR’S DISCLOSURE OF THE INFORMAL ACCOUNTING OF THE ESTATE TO BENEFICIARIES WAS SUFFICIENT, BENEFICIARY’S MOTION TO SET ASIDE A RELEASE PROPERLY DENIED (SECOND DEPT))/ACCOUNTING (TRUSTS AND ESTATES, XECUTOR’S DISCLOSURE OF THE INFORMAL ACCOUNTING OF THE ESTATE TO BENEFICIARIES WAS SUFFICIENT, BENEFICIARY’S MOTION TO SET ASIDE A RELEASE PROPERLY DENIED (SECOND DEPT))/EXECUTORS (ACCOUNTING, EXECUTOR’S DISCLOSURE OF THE INFORMAL ACCOUNTING OF THE ESTATE TO BENEFICIARIES WAS SUFFICIENT, BENEFICIARY’S MOTION TO SET ASIDE A RELEASE PROPERLY DENIED (SECOND DEPT))/RELEASES (TRUSTS AND ESTATES, INFORMAL ACCOUNTING, EXECUTOR’S DISCLOSURE OF THE INFORMAL ACCOUNTING OF THE ESTATE TO BENEFICIARIES WAS SUFFICIENT, BENEFICIARY’S MOTION TO SET ASIDE A RELEASE PROPERLY DENIED (SECOND DEPT))/INFORMAL ACCOUNTINGS (TRUSTS AND ESTATES, EXECUTOR’S DISCLOSURE OF THE INFORMAL ACCOUNTING OF THE ESTATE TO BENEFICIARIES WAS SUFFICIENT, BENEFICIARY’S MOTION TO SET ASIDE A RELEASE PROPERLY DENIED (SECOND DEPT))

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DECEASED PLAINTIFF’S LAWSUIT DISMISSED FOR FAILURE TO TIMELY SUBSTITUTE A REPRESENTATIVE OF PLAINTIFF’S ESTATE (SECOND DEPT).

The Second Department determined the causes of action brought by plaintiff’s decedent were properly dismissed because counsel did not timely substitute a representative for the deceased plaintiff:

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“CPLR 1021 requires a motion for substitution to be made within a reasonable time”… . “The determination of reasonableness requires consideration of several factors, including the diligence of the party seeking substitution, the prejudice to the other parties, and whether the party to be substituted has shown that the action or the defense has potential merit” … .

Here, the plaintiff’s counsel failed to demonstrate that he made any diligent efforts to substitute a representative for the deceased plaintiff. Additionally, the plaintiff’s counsel did not demonstrate a reasonable excuse for failing to seek a substitution. Further, the plaintiff’s counsel failed to submit an affidavit of merit, and did not rebut the contention of  [defendants] that they were prejudiced in their ability to defend the case. Howlader v Lucky Star Grocery, Inc., 2017 NY Slip Op 06067, Second Dept 8-9-17

 

CIVIL PROCEDURE (TRUSTS AND ESTATES, SUBSTITUTION FOR DECEASED PLAINTIFF, DECEASED PLAINTIFF’S LAWSUIT DISMISSED FOR FAILURE TO TIMELY SUBSTITUTE A REPRESENTATIVE OF PLAINTIFF’S ESTATE (SECOND DEPT))/TRUSTS AND ESTATES (CIVIL PROCEDURE,  SUBSTITUTION FOR DECEASED PLAINTIFF, DECEASED PLAINTIFF’S LAWSUIT DISMISSED FOR FAILURE TO TIMELY SUBSTITUTE A REPRESENTATIVE OF PLAINTIFF’S ESTATE (SECOND DEPT))/ATTORNEYS (TRUSTS AND ESTATES, SUBSTITUTION FOR DECEASED PLAINTIFF, DECEASED PLAINTIFF’S LAWSUIT DISMISSED FOR FAILURE TO TIMELY SUBSTITUTE A REPRESENTATIVE OF PLAINTIFF’S ESTATE (SECOND DEPT))

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ALTHOUGH THE DEFENDANT INDENTURE TRUSTEE DID NOT OWE PLAINTIFFS A FIDUCIARY DUTY, THE TRUSTEE DID OWE PLAINTIFFS A DUTY OF CARE AS DESCRIBED IN THE TRUST AGREEMENT, THE BREACH OF CONTRACT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, in a full-fledged opinion by Justice Gische, determined that defendant’-trustee’s motion to dismiss the breach of contract cause of action should not have been granted. Although the defendant indenture trustee did not owe the plaintiffs a fiduciary duty with regard to the sale of securities, the trustee still owed plaintiffs a duty of care as described in the trust agreement, including a duty to avoid conflicts of interest. Here the plaintiffs alleged the trustee sold the securities below market price and then sold them for a profit, thereby depriving plaintiffs of the equity in the securities:

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This appeal concerns the rights and obligations of the parties with respect to the termination of certain REMIC (real estate mortgage investment conduit) trusts. The assets held by the trusts were mortgage loans. The trusts originally sold securities to outside investors, representing two classes of holders, i.e., regular security holders and residual security holders. Plaintiffs … are holders of the residual security interests in those trusts. While the holders of regular securities were entitled to receive regular payments on distribution dates, the residual security holders had no such right. Instead, they were entitled to receive the proceeds of the disposition of any asset remaining in the trust REMICs upon their termination, but only after each class of regular security holder had been paid. Plaintiffs’ interest is referred to as the trust “equity.” The residual holder interest was the riskiest tranche of ownership and any right to payment was subordinate to payment in full of amounts due to the regular interest holders.

… The trustee argues that under the trust documents, it had the right to purchase trust assets at below market, even though it could resell them within days of acquiring them, allowing the trustee to realize millions of dollars in personal profit. The trustee is alleged to have kept for itself the profit it realized on the forward sale, which was in excess of $3,000,000.

… Even if the sale of assets to the trustee had been conclusively established by documentary evidence, there is still a valid claim that the trustee’s actions create a conflict of interest prohibited under the operative trust agreements and in violation of the trustee’s contractual obligations. The trust documents do not give the trustee the express right to purchase the trust assets for its own financial benefit at less than market value and to thereby diminish, let alone extinguish, plaintiffs’ interest as residual security holders. NMC Residual Ownership L.L.C. v U.S. Bank N.A., 2017 NY Slip Op 05923, First Dept 8-1-17

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Similar issues and result in Cece & Co. Ltd. v U.S. Bank N.A., 2017 NY Slip Op 05924, First Dept 8-1-17 (Gische, J)

 

SECURITIES (ALTHOUGH THE DEFENDANT INDENTURE TRUSTEE DID NOT OWE PLAINTIFFS A FIDUCIARY DUTY, THE TRUSTEE DID OWE PLAINTIFFS A DUTY OF CARE AS DESCRIBED IN THE TRUST AGREEMENT, THE BREACH OF CONTRACT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FIRST DEPT))/TRUSTS AND ESTATES (REAL ESTATE MORTGAGE INVESTMENT CONDUIT TRUSTS, ALTHOUGH THE DEFENDANT INDENTURE TRUSTEE DID NOT OWE PLAINTIFFS A FIDUCIARY DUTY, THE TRUSTEE DID OWE PLAINTIFFS A DUTY OF CARE AS DESCRIBED IN THE TRUST AGREEMENT, THE BREACH OF CONTRACT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FIRST DEPT))/REAL ESTATE MORTGAGE INVESTMENT CONDUIT TRUSTS (ALTHOUGH THE DEFENDANT INDENTURE TRUSTEE DID NOT OWE PLAINTIFFS A FIDUCIARY DUTY, THE TRUSTEE DID OWE PLAINTIFFS A DUTY OF CARE AS DESCRIBED IN THE TRUST AGREEMENT, THE BREACH OF CONTRACT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FIRST DEPT))/CONTRACT LAW (REAL ESTATE MORTGAGE INVESTMENT CONDUIT TRUSTS, ALTHOUGH THE DEFENDANT INDENTURE TRUSTEE DID NOT OWE PLAINTIFFS A FIDUCIARY DUTY, THE TRUSTEE DID OWE PLAINTIFFS A DUTY OF CARE AS DESCRIBED IN THE TRUST AGREEMENT, THE BREACH OF CONTRACT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FIRST DEPT))

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