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Securities Did Not Pass Outside the Estate, Requirements of Transfer on Death Security Registration Act (TODSRA) Not Me

The First Department, in a full-fledged opinion by Justice Gische, over a concurring opinion arguing the matter had already been determined by Surrogate’s Court, determined a letter sent by decedent to Merrill Lynch did not meet the requirements of the Transfer on Death Security Registration Act (TODSRA) such that the securities account passed to the beneficiary outside the estate:

In order to take advantage of New York’s [TODSRA] law, certain categories of owners may request that a security be registered in beneficiary form (EPTL 13-4.2). The institution holding the securities account, however, is not required to either offer or accept a request to register a security in beneficiary form (EPTL 13-4.8). It is only if the owner requests that a security be held in beneficiary form and the entity holding the security accepts the designation, that an enforceable contractual relationship is created between the owner and that registering entity, requiring the registering entity to act in accordance with the designation (EPTL 13-4.9). Under TODSRA, the registering entity has the sole right to establish the terms and conditions under which it will receive and implement requests to register securities in beneficiary form (EPTL 13-4.10), and TODSRA statutorily mandates that the registering entity have certain protections in the process (EPTL 13-4.8).

A registering entity is not the owner of the security, but rather the person or entity that originates or transfers title to a security by registration, which includes a broker such as defendant (EPTL 13-4.1[i]). Thus, under the statute, it is perfectly clear that a unilateral action by an owner of a securities account to designate a beneficiary in the event of death is not by itself sufficient. Arroyo-Graulau v Merrill Lynch Pierce, Fenner & Smith, Inc., 2015 NY Slip Op 07774, 1st Dept 10-22-15

 

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Instructions In Will Re: Payment of Estate Taxes Properly Followed

The Second Department determined the instruction in the will that estate taxes be paid out of the residuary estate was properly followed:

All estate tax payments must be equitably apportioned among recipients of estate assets “unless otherwise provided in the will or non-testamentary instrument” (EPTL 2-1.8[c]), and such a contrary direction must be clear and unambiguous … . Although there is a strong policy favoring apportionment …, that policy gives way where the clear and unambiguous wishes of the testator direct otherwise … . Analysis begins with the general rules of will construction which provide that a court is to determine and effectuate the intent of the testator and that in doing so, it must construe his or her words according to their ordinary and natural meaning … .

Here, the second paragraph of the decedent’s will directs that all estate taxes, “in respect to any property required to be included in my gross estate for estate tax or like purposes by any such government, whether the property passes under this Will or otherwise, without contribution by any recipient of any such property,” were to be paid out of the residuary estate. The words clearly and unambiguously reflect the decedent’s intent that his preresiduary and nontestamentary beneficiaries … are to take their property without liability for the payment of any estate taxes, regardless of whether the taxes are imposed on property and assets passing under the will or outside of the will … . Matter of Priedits, 2015 NY Slip Op 07508, 2nd Dept 10-14-15

 

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Appropriate Statutes of Limitations and Accrual Dates Explained for “Breach of Fiduciary Duty,” Civil RICO,” and “Declaratory Judgment” Causes of Action

The Second Department described the analytical criteria for determining the statutes of limitations and accrual dates for (1) breach of fiduciary duty claims where allegations of fraud are essential; (2) civil RICO claims; (3) and declaratory judgment actions seeking a constructive trust:

“New York law does not provide a single statute of limitations for breach of fiduciary duty claims. Rather, the choice of the applicable limitations period depends on the substantive remedy that the plaintiff seeks. Where the remedy sought is purely monetary in nature, courts construe the suit as alleging injury to property’ within the meaning of CPLR 214(4), which has a three-year limitations period. Where, however, the relief sought is equitable in nature, the six-year limitations period of CPLR 213(1) applies” … .

“[W]here an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213(8)” … . “An exception to this rule . . . is that courts will not apply the fraud Statute of Limitations if the fraud allegation is only incidental to the claim asserted; otherwise, fraud would be used as a means to litigate stale claims'” … . “Thus, where an allegation of fraud is not essential to the cause of action pleaded except as an answer to an anticipated defense of Statute of Limitations, courts look for the reality, and the essence of the action and not its mere name” … . …

CPLR 213(8) provides, in part, “the time within which the action must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.” “The discovery accrual rule also applies to fraud-based breach of fiduciary duty claims. An inquiry as to the time that a plaintiff could, with reasonable diligence, have discovered the fraud turns upon whether a person of ordinary intelligence possessed knowledge of facts from which the fraud could be reasonably inferred” … . …

“The statute of limitations for civil RICO claims is four years” … . “A RICO claim is deemed to have accrued when the plaintiff knew or should have known of his or her injury, regardless of when he or she discovered the underlying fraud'” … . …

“Actions for declaratory judgments are not ascribed a certain limitations period. The nature of the relief sought in a declaratory judgment action dictates the applicable limitations period. Thus, if the action for a declaratory judgment could have been brought in a different form asserting a particular cause of action, the limitations period applicable to the particular cause of action will apply” … .

The … action for a declaratory judgment could have been brought … as a cause of action to impose a constructive trust … . A constructive trust is equitable in nature and governed by a six-year statute of limitations … . DiRaimondo v Calhoun, 2015 NY Slip Op 07002, 2nd Dept 9-30-15

 

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Flaws in Causes of Action Stemming from the Alleged Breach of a Joint Venture Agreement Explained

In an action stemming from the alleged breach of a joint venture agreement, the Second Department, in the context of a motion to dismiss for failure to state a cause of action, went through each cause of action and, where dismissal was appropriate, noted the pleading failure. The joint venture cause of action did not allege a mutual promise to share the losses. The constructive trust cause of action did not allege a confidential or fiduciary relationship. The fraud allegations were not collateral to the terms of the alleged joint venture and no out-of-pocket losses were alleged. The tortious interference with contract cause of action did not allege the intentional procurement of a breach of the joint venture agreement. The accounting cause of action did not allege that a demand for an accounting was made. The Second Department noted that the motion to amend the complaint to cure some of the defects should have been granted. With respect to the criteria for determining a motion to dismiss for failure to state a cause of action where documentary evidence supporting the motion is submitted, the court explained:

“A motion pursuant to CPLR 3211(a)(1) to dismiss the complaint on the ground that the action is barred by documentary evidence may be granted only where the documentary evidence utterly refutes the plaintiff’s factual allegations, thereby conclusively establishing a defense as a matter of law” … .

In considering a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), “the court must accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” … . A court may consider evidentiary material submitted by a defendant in support of a motion to dismiss pursuant to CPLR 3211(a)(7) … . When evidentiary material is considered on a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), and the motion has not been converted to one for summary judgment, “the criterion is whether the [plaintiff] has a cause of action, not whether he [or she] has stated one, and, unless it has been shown that a material fact as claimed by the [plaintiff] to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it . . . dismissal should not eventuate”… . Mawere v Landau, 2015 NY Slip Op 06317, 2nd Dept 7-29-15

 

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Failure to Timely Submit a Proposed Judgment of Divorce Did Not Constitute Abandonment of the Divorce Action/Decedent’s Death Before the Judgment of Divorce Was Entered Did Not Abate the Divorce Action/The Stipulation of Settlement (Re: the Divorce), In Which the Parties Agreed They Were No Longer the Beneficiaries of Each Other’s Wills, Was Enforceable

Decedent and her husband had entered a stipulation of settlement and all matters related to their divorce had been settled at the time of decedent’s death. Only the submission of the proposed judgment of divorce remained. The stipulation of settlement included the parties’ agreement that they were no longer the beneficiaries of each other’s wills. Decedent’s husband sought letters testamentary and a share in the estate, arguing that, because the proposed judgment of divorce was not submitted by decedent, decedent had abandoned the divorce action. Surrogate’s court agreed the divorce action had been abandoned and found there was a question of fact whether the stipulation of settlement was enforceable.  The Second Department reversed, finding that the divorce action was not abandoned and the stipulation of settlement was enforceable. Decedent’s husband, therefore, had no right to share in decedent’s estate:

Contrary to the Surrogate Court’s determination, the decedent did not abandon the divorce action pursuant to 22 NYCRR 202.48 by failing to timely submit a proposed judgment within 60 days of the Supreme Court’s verbal direction. Since the 60-day time period to submit a proposed judgment under 22 NYCRR 202.48(a) does not run until “after the signing and filing of the decision directing that the [judgment] be settled or submitted,” and the court’s direction was not reduced to a written decision, there was no violation of that rule here … . Furthermore, since all issues in the divorce action had been resolved at the time of the decedent’s death, the Supreme Court had adjudged that the decedent was entitled to a divorce, and nothing remained to be done except the ministerial entry of a judgment of divorce, the decedent’s death did not abate the divorce action … . Under these circumstances “the parties’ substantive rights should be determined as if the judgment of divorce had been entered immediately as of the time nothing remained to be done except enter a judgment” …, and the stipulation of settlement is thus enforceable as a matter of law. Moreover, since the stipulation of settlement contained language which “clearly and unequivocally manifests an intent on the part of the spouses that they are no longer beneficiaries under each other’s wills” …, the stipulation of settlement revoked any testamentary disposition in Carmine’s favor under EPTL 3-4.3, regardless of whether it was ultimately followed by a formal dissolution of the marriage … . Matter of Rivera, 2015 NY Slip Op 06247, 2nd Dept 7-22-15

 

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Constructive Trust Cause of Action Did Not Accrue When Defendant Acquired the Subject Property (In 1995 or 1996), But Rather When Defendant , Who Had Properly Acquired the Property, Breached Her Promise to Transfer an Interest in the Property to Plaintiff (In 2012)

In finding the constructive trust cause of action should not have been dismissed as time-barred, the Second Department explained that a cause of action for a constructive trust accrues (1) when the constructive trustee acquires the property wrongfully, or (2) when the constructive trustee wrongfully withholds property which was lawfully acquired but was to be transferred:

A cause of action “for the imposition of a constructive trust is governed by the six-year Statute of Limitations of CPLR 213(1), which starts to run upon the occurrence of the wrongful act giving rise to a duty of restitution” … . “A determination of when the wrongful act triggering the running of the Statute of Limitations occurs depends upon whether the constructive trustee acquired the property wrongfully, in which case the property would be held adversely from the date of acquisition, or whether the constructive trustee wrongfully withholds property acquired lawfully from the beneficiary, in which case the property would be held adversely from the date the trustee breaches or repudiates the agreement to transfer the property” … .

Here, the gravamen of the plaintiff’s cause of action for the imposition of a constructive trust is not … that the defendants wrongfully acquired the subject properties in or around 1995, or 1996, but rather that subsequent thereto, sometime in 2012, the defendant… breached her promise to the plaintiff that they would be equal partners with respect to those properties … . Barone v Barone, 2015 NY Slip Op 06102, 2nd Dept 7-15-15

 

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Estate of Mortgage-Holder Is a Necessary Party In a Foreclosure Proceeding

The Third Department determined that the estate of one of the mortgage-holders was a necessary party in a foreclosure proceeding. The court explained the relevant law:

“In an action to foreclose a mortgage, all parties having an interest, including persons holding title to the subject premises, must be made a ‘party . . . to the action'” … . Although defendant did not specifically raise the argument that decedent’s estate was a necessary party to the instant action, “the absence of a necessary party may be raised at any stage of the proceedings, by any party or by the court on its own motion” … . …. [W]here two individuals are the co-holders of a mortgage and one dies, the plaintiffs in a related foreclosure action would be the living mortgagee — or, in this case, his assignee … — and the personal representative of the deceased mortgagee … .

Here, given the lack of evidence that the corpus and distribution of decedent’s estate have previously been determined, such determination for the first time could inequitably affect decedent’s estate … . We find that decedent’s estate is therefore a necessary party to this action, as “[t]he rights, interests and equities of all of the parties claiming an interest in the mortgaged premises . . . should be settled and determined before any judgment of foreclosure and sale is entered” … . Bayview Loan Servicing, LLC v Sulyman, 2015 NY Slip Op 05989, 3rd Dept 7-9-15

 

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Constructive Trust Properly Imposed—Sister, Who Was Not Included on the Original Deed Because of Credit Problems, Contributed One-Third of the Downpayment Based Upon a Promise She Would Be Added to the Deed at a Later Time

The Second Department determined a constructive trust was properly imposed on property for which the plaintiff provided one-third of the downpayment.  Plaintiff Reynida Diaz was not included on the original deed with her two sisters because of her credit history. There was an agreement among the sisters that Reynida would be added to the deed at a later time. Defendant sister refused to add Reynida to the deed. The court explained the requirements for a constructive trust:

In general, the imposition of a constructive trust is appropriate in situations when ” property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest'” … . The elements of a constructive trust are (1) a fiduciary or confidential relationship; (2) an express or implied promise; (3) a transfer in reliance on the promise; and (4) unjust enrichment … . A party must establish the elements of a constructive trust by clear and convincing evidence … .

There is no dispute that the first element, a confidential relationship, exists among the sisters …, a fact conceded by the defendant. As to the second element, the testimony of the two plaintiff sisters, the defendant, and a family friend, as well as the documentary evidence, established the existence of an express agreement among the parties at the time the subject property was purchased that Reynida Diaz would be added to the deed at some later date … . The plaintiffs also established the transfer in reliance element in that, at the time of the purchase of the subject property, Reynida Diaz had given the defendant $13,000, the same amount contributed by the defendant and the other plaintiff, in exchange for the promise of being added to the title as a co-owner at a later date … . The fourth element, that the defendant would be unjustly enriched if the constructive trust was not imposed, was also established in that the defendant had received the $13,000 from Reynida Diaz, as well as payments from her toward the monthly mortgage and maintenance of the property equal to the amounts contributed by the defendant and the other plaintiff who was on the deed to the subject property … . Diaz v Diaz, 2015 NY Slip Op 05635, 2nd Dept 7-1-15

 

 

 

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No Survivorship Language in Joint Bank Account Documents/Evidence the Joint Account Was Created as a Matter of Convenience/Summary Judgment Should Not Have Been Granted Awarding Plaintiff Half the Funds in the Account Upon the Death of the Other Person Named on the Account

The Fourth Department noted that Supreme Court erred in concluding a joint bank account was a joint tenancy with right of survivorship and granting the aspect of plaintiff’s motion for summary judgment seeking half the funds in the account upon the death of the other party named on the account. There was no survivorship language in the account documents, and there was evidence tending to rebut any statutory presumption of a joint tenancy (i.e., evidence the account was created as a matter of convenience):

Contrary to the court’s determination, we conclude that the statutory presumption of joint tenancy set forth in Banking Law § 675 does not apply to the joint account inasmuch as “the account documents do not contain the necessary survivorship language” … .

We note in any event that the statutory presumption may be rebutted “by providing direct proof that no joint tenancy was intended or substantial circumstantial proof that the joint account[s] had been opened for convenience only” … . Even assuming, arguendo, that the statutory presumption of joint tenancy applies to the joint accounts, we conclude that defendant submitted evidence tending to rebut the statutory presumption that is sufficient to raise a triable issue of fact whether, “at the time the accounts were created, the accounts were opened as a matter of convenience” … . In particular, defendant submitted evidence establishing, inter alia, that decedent was the sole depositor of the joint accounts, and that plaintiff never withdrew funds from the joint accounts during decedent’s lifetime … . In addition, defendant submitted evidence establishing that decedent’s creation of a joint tenancy with the right of survivorship in the joint accounts “would represent a substantial deviation from [her] previously expressed testamentary plan” … , Harrington v Brunson, 2015 NY Slip Op 05309, 4th Dept 6-19-15

 

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Presumption, Pursuant to Banking Law 675, that a Joint Bank Account Created a Joint Tenancy with Right of Survivorship Is Not Triggered Unless the Signature Card for the Account Indicates a Right of Survivorship Was Intended

The Third Department determined petitioner, whose name was on a joint bank account with decedent and another, was not entitled to one-half of the proceeds in the account upon decedent’s death. The court explained that the presumption (Banking Law 675) that a joint bank account creates a joint tenancy with right of survivorship is triggered only when the signature card for the account indicates the parties intended the right of survivorship to apply.  Here the signature card made no mention of the right of survivorship:

Banking Law § 675 (a) provides, in relevant part, that, “[w]hen a deposit of cash . . . has been made . . . in the name of [the] depositor . . . and another person and in form to be paid or delivered to either, or the survivor of them, such deposit . . . and any additions thereto made, by either of such persons, . . . shall become the property of such persons as joint tenants and the same, together with all additions and accruals thereon, . . . may be paid or delivered to either during the lifetime of both or to the survivor after the death of one of them.” Further, Banking Law § 675 (b) provides that “[t]he making of such deposit . . . in such form shall, in the absence of fraud or undue influence, be prima facie evidence, in any action or proceeding to which the . . . surviving depositor. . . is a party, of the intention of both depositors . . . to create a joint tenancy and to vest title to such deposit . . ., and additions and accruals thereon, in such survivor.” Thus, “[w]here an account has been formed in compliance with the statute, it is presumed, absent a showing of fraud or undue influence, that the depositors intended to create a joint tenancy with rights of survivorship” … . That said, the statutory presumption embodied in Banking Law § 675 (b) will not be triggered unless the signature card for the account in question specifically references rights of survivorship … . Assuming the statutory presumption has been invoked, the burden then shifts to the party challenging the survivorship rights “to establish — by clear and convincing evidence — fraud, undue influence, lack of capacity or, as [respondent] asserts here, that the account[] [was] only opened as a matter of convenience and [was] never intended to be [a] joint account[]” … .

Here, the signature card for the Citizens money market account contains no survivorship language. Accordingly, under prevailing case law, petitioner simply is not entitled to the presumption afforded by Banking Law § 675 (b) … . Matter of Farrar, 2015 NY Slip Op 04902, 3rd Dept 6-11-15

 

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