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IN THIS FORECLOSURE ACTION THE DEATH OF THE MORTGAGOR/PROPERTY OWNER DID NOT TRIGGER AN AUTOMATIC STAY BECAUSE THE MORTGAGOR/PROPERTY OWNER DIED INTESTATE AND THE ACTION COULD CONTINUE AGAINST THE DISTRIBUTEES WITHOUT THE APPOINTMENT OF A REPRESENTATIVE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that the death of the mortgagor/property owner in this foreclosure action did not divest the court of jurisdiction because the mortgagor/property owner died intestate and the suit could continue against the distributees without the appointment of a representative:

“Generally, the death of a party divests a court of jurisdiction to act, and automatically stays proceedings in the action pending the substitution of a personal representative for the decedent” … . “In most instances a personal representative appointed by the Surrogate’s Court should be substituted in the action to represent the decedent’s estate”  … . “However, if a party’s death does not affect the merits of a case, there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution” … . “Where a property owner dies intestate, title to real property is automatically vested in his or her distributees” … . Under such circumstances, “a foreclosure action may be commenced directly against the distributees” … . Thus, where a mortgagor/property owner dies intestate and the mortgagee does not seek a deficiency judgment, the mortgagor/property owner’s death “does not affect the merits of a case, [and] there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution” … . Wells Fargo Bank, N.A. v Miglio, 2021 NY Slip Op 04780, Second Dept 8-25-21

 

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SUPREME COURT, PURSUANT TO CPLR ARTICLE 77, PROPERLY RESOLVED THE DISTRIBUTION OF A $4.5 BILLION GLOBAL SETTLEMENT PAYMENT BY JP MORGAN CHASE IN THIS RESIDENTIAL-MORTGAGE-BACKED-SECURITIES-RELATED ACTION (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Manzanet-Daniels, determined Supreme Court properly resolved the distribution pursuant to CPLR article 77 of a $4.5 billion global settlement payment by JPMorgan Chase to investors to be made by residential mortgage-backed securities (RMBS) trusts. The opinion is detailed, fact-specific and cannot be fairly summarized here.  The rulings are specific to provisions included in or absent from the relevant pooling and servicing agreements (PSA’s). Matter of Wells Fargo Bank v Aegon USA Inv. Mgt., LLC, 2021 NY Slip Op 04740, First Dept 8-19-21

 

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ALTHOUGH DOMINICA, THE EXECUTRIX OF JOSEPHINE’S ESTATE, WAS NEVER SUBSTITUTED FOR JOSEPHINE AFTER JOSEPHINE’S DEATH, DOMINICA APPEARED AND ACTIVELY LITIGATED A MOTION TO VACATE; THE FAILURE TO EFFECT SUBSTITUTION IN THAT CIRCUMSTANCE IS A MERE IRREGULARITY; TWO-JUSTICE DISSENT (FOURTH DEPT).

The Fourth Department, over a two-justice dissent, determined the failure to substitute the executrix of Josephine’s estate, Dominica P., after Josephine’s death did not nullify the proceedings. Dominca P appeared and actively litigated a motion to vacate brought by Kathleen. In that circumstance the failure to effect substitution was deemed a mere irregularity:

Josephine died at some point before the entry of the order on appeal, and the executrix of her estate, Dominica P., was never formally substituted as the petitioner in this proceeding. There is no dispute, however, that Dominica was properly served with Kathleen’s motion to vacate, and Dominica never objected to adjudicating Kathleen’s motion in the absence of a formal substitution order. To the contrary, Dominica—acting in her capacity as the executrix of Josephine’s estate—appeared and successfully opposed Kathleen’s motion on the merits. Dominica likewise appeared in this Court to oppose Kathleen’s appeal. Because Dominica appeared and actively litigated Kathleen’s motion on the merits, it is well established that any “defect in failing to first effect substitution was a mere irregularity” … . Moreover, to formally correct this irregularity, we now modify the order by substituting Dominica as the petitioner in this proceeding … . Matter of Robinson v Kathleen B., 2021 NY Slip Op 04320, Fourth Dept 7-9-21

 

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DIFFERENCES BETWEEN AN ACTION TO IMPOSE A CONSTRUCTIVE TRUST AND AN ACTION ALLEGING UNJUST ENRICHMENT EXPLAINED (THIRD DEPT).

The Third Department explained the differences between an action to impose a constructive trust and an action alleging unjust enrichment, here in the context of a couple’s investment in building a new house and the allegation one party put in 800 hours of unpaid labor which benefitted the other party.  The court held the constructive trust action was properly dismissed, but the unjust enrichment action should not have been dismissed:

Although the equitable claims of constructive trust and unjust enrichment are elementally related and involve overlapping proof, certain essential elements differ. “[A] constructive trust may be imposed 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 a confidential relationship, a promise, a transfer in reliance on that promise and unjust enrichment” … .As relevant here, with respect to the promise element, it may be express or implied, as determined by the circumstances … . “Finally, a person . . . is unjustly enriched when retention of the benefit received would be unjust considering the circumstances of the transfer and the relationship of the parties” … .

Importantly, and as relevant here, “the constructive trust doctrine serves as a fraud-rectifying remedy rather than an intent-enforcing one” … . By contrast, an action based on unjust enrichment, which would only result in a money judgment rather than a judicially imposed lien, requires the plaintiff to establish that “(1) the other party was enriched, (2) at [the plaintiff’s] expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered” … . Clark v Locey, 2021 NY Slip Op 04176, Third Dept 7-1-21

 

DECEDENT, WHO DIED TESTATE IN 2004, WAS AWARDED COMPENSATION BY CONGRESS IN 2015 BECAUSE HER HUSBAND HAD BEEN HELD IN IRAN AS A HOSTAGE FROM 1979 TO 1981; BECAUSE THE COMPENSATION WAS AWARDED AFTER HER DEATH, IT DOES NOT PASS BY WILL, BUT RATHER BY THE LAWS OF INTESTACY (FOURTH DEPT).

The Fourth Department, reversing Surrogate’s Court, in a full-fledged opinion by Justice Centra, determined the funds awarded by Congress to the decedent, after the decedent’s death, do not pass by decedent’s will, but rather by the laws of intestacy. Decedent, who died in 2004, was the wife of a man held hostage in Iran from 1979 to 1981. In 2015 Congress awarded compensation to the hostages’ families:

Regarding property acquired by an estate after the death of the testator, case law is sparse, but is consistent with the language in EPTL 3-3.1 providing that only property that a testator is entitled to devise “at the time of his [or her] death” may be distributed pursuant to the terms of the will … . We are particularly persuaded by the decision in Shaw Family Archives Ltd. , which involved a dispute over ownership interest in Marilyn Monroe’s right of publicity after her death. The court determined that New York law did not permit a testator to dispose by will of property that she did not own at the time of her death … . The court cited to EPTL 3-3.1 and held that “[t]he corollary principle recognized by the courts is that property not owned by the testator at the time of his [or her] death is not subject to disposition by will” … .

We agree with the reasoning in Shaw Family Archives Ltd. that the New York rule is grounded in the testator’s lack of capacity to devise property he or she does not own at the time of death … . Matter of Keough, 2021 NY Slip Op 03948, Fourth Dept 6-17-21

 

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QUESTIONS OF FACT PRECLUDED SURROGATE’S FINDING THAT THREE JOINT BANK ACCOUNTS WERE PART OF THE ESTATE AS OPPOSED TO JOINT ACCOUNTS WITH RIGHT OF SURVIVORSHIP (FOURTH DEPT).

The Fourth Department, reversing (modifying) Surrogate’s Court, determined there were questions of fact about whether three joint bank accounts passed to respondent outside the estate or were part of the estate. The was no evidence of a signature card which included “right of survivorship” language. Respondent argued decedent intended the bank accounts to be gifts to the respondent, but the language of the will raised questions of fact about decedent’s intent:

Absent the necessary survivorship language, the statutory presumption contained in Banking Law § 675 does not apply, even if the documents creating the account provide that it is a “joint” account … . Here, on her motion, respondent failed to establish that the statutory presumption created under Banking Law § 675 is applicable because she failed to submit signature cards or ledgers of the accounts that included the required survivorship language. …

Respondent averred in an affidavit that decedent placed her name on the accounts with the stated intention of gifting them to her. Respondent also submitted related account documents, including bank documents for all four accounts that reference both respondent and decedent’s names and include survivorship or joint tenancy language. Thus, respondent submitted evidence establishing that the four accounts were joint accounts with right of survivorship, and the burden then shifted to petitioners. …

… [P]etitioners submitted decedent’s will, which left the estate to the three children. Thus, the intent of decedent, as evidenced by her will, is inconsistent with respondent’s contention that the three bank accounts were gifts to respondent or joint tenancies with survivorship rights … . … [P]etitioners submitted respondent’s deposition testimony that those three accounts were funded solely by decedent, that one of the … accounts was used as decedent’s primary checking account, and that payments out of that account were for only decedent’s benefit. … [R]espondent, who became joint owner of those three accounts when decedent was in her mid to late eighties, testified that she helped decedent with her banking. Matter of Najjar (Sanzone), 2021 NY Slip Op 03777, Fourth Dept 6-11-21

 

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THE FIDUCIARY TOLLING RULE TOLLED THE STATUTE OF LIMITATIONS IN THIS CONSTRUCTIVE TRUST ACTION AGAINST AN EXECUTOR (WHO WAS REMOVED BY THE COURT) UNTIL THE SUCESSOR FIDUCIARY WAS APPOINTED (THIRD DEPT).

The Third Department, reversing Surrogate’s Court, determined the constructive trust action based upon alleged self-dealing by an executor who was removed by the court was not time-barred. The fiduciary tolling rule applied:

Under the fiduciary tolling rule, a claim alleging wrongful conduct by an individual in his or her fiduciary capacity does not accrue until there is an open repudiation of the fiduciary obligation or a judicial settlement of the fiduciary’s account … . This rule tolls the statute of limitations “for all misconduct committed by the fiduciary prior to repudiation of its obligation or termination of the [fiduciary] relationship” … since, absent either repudiation or removal, the aggrieved parties “were entitled to assume that the [fiduciary] would perform his [or her fiduciary] responsibilities” … , and it is highly unlikely that a sitting fiduciary would assert a constructive trust claim against himself or herself. …  Under this rule, the toll continues until a successor fiduciary is appointed … . Matter of George, 2021 NY Slip Op 03231, Third Dept 5-20-21

 

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WRONGFUL DEATH PROCEEDS BELONG TO THE DISTRIBUTEES, NOT THE ESTATE; THEREFORE, RATHER THAN DIVIDING THE PROCEEDS EQUALLY, SURROGATE’S COURT MUST CONDUCT A HEARING AND DISPURSE THE PROCEEDS BASED UPON PECUNIARY LOSS (FIRST DEPT).

The First Department, reversing Surrogate’s Court, noted that the proceeds of a wrongful death action belong to the distributees, not the estate. Therefore the proceeds should not be divided equally among the distributees:

Petitioners commenced this proceeding in Surrogate Court seeking judicial allocation and distribution of the settlement proceeds resulting from a Supreme Court wrongful death action. The proceeds of a wrongful death action belong to the statutory distributees of the decedent and not to the estate; therefore, the law does not presume equal distribution of shares (see EPTL 5—4.3 and 5—4.4[a][1] ). Instead, each distributee receives damages in proportion to the pecuniary injuries suffered by him or her, as determined after a hearing in Surrogate’s Court (see EPTL 5—4.4[a][1]). Here, Surrogate’s Court allocated objectant 50% of the settlement proceeds of the wrongful death action without conducting a hearing on the issue of pecuniary loss. Matter of Dixson, 2021 NY Slip Op 02870, First Dept 5-6-21

 

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A TAX FORECLOSURE PROCEEDING IS AN IN REM ACTION AGAINST THE PROPERTY, NOT THE PROPERTY OWNER; THEREFORE THE ACTION WAS NOT A NULLITY DESPITE THE DEATH OF THE OWNER (FOURTH DEPT). ​

The Fourth Department, reversing Supreme Court, determined the tax foreclosure proceeding was not a nullity and did not violate due process. The foreclosed restaurant belonged to plaintiff’s husband, who died in 2006. The treasurer of Ontario County followed all the proper procedures for notification of the tax foreclosure proceedings. Tax foreclosure is an in rem action to which there are no parties. So the argument that the action could not be brought against the deceased owner of the restaurant was rejected:

… [B]y statute, mortgagors are necessary party defendants to mortgage foreclosure actions (see RPAPL 1311 [1]). In contrast, a petition in a tax foreclosure proceeding relates only to the property and not any particular person (see RPTL 1123 [2] [a]). The distinction between in rem tax foreclosure proceedings and mortgage foreclosure actions with respect to the “parties” is critical. While an action or proceeding cannot be commenced against a dead person who, by necessity, is a named party to the action … , a tax foreclosure proceeding is not commenced against any person; it is commenced against the property itself. The owners are not necessary “parties” to the tax foreclosure proceeding; they are only “[p]arties entitled to notice” of the proceeding (RPTL 1125 [1] [a]; see RPTL 1123 [1], [2] [a]; cf. RPAPL 1131). As a result, the tax foreclosure proceeding was properly commenced even though decedent had died … , and there was no need to substitute someone for the dead owner (see CPLR 1015). Hetelekides v County of Ontario, 2021 NY Slip Op 02697, Fourth Dept 4-30-21

 

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THE COMPLAINT STATED CAUSES OF ACTION FOR CONSTRUCTIVE TRUST AND PROMISSORY ESTOPPEL; THE UNJUST ENRICHMENT ELEMENT OF THE CONSTRUCTIVE TRUST WAS NOT PRECLUDED BY A CONTRACT SIGNED BY PLAINTIFF AS A TRUSTEE (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, over a partial dissent, determined the complaint stated a cause of action for a constructive trust, the unjust enrichment element of the constructive trust was not precluded by a contract, and the alleged promise to take care of plaintiff in return for an interest in an LLC was clear and unambiguous enough to support a cause of action for promissory estoppel:

According to plaintiff, defendant [plaintiff’s daughter] had promised that, if plaintiff created the LLC and gave her a 90% membership interest in the LLC and control as sole manager, she would “help [plaintiff] manage his businesses and real property interests, help take care of [plaintiff and his wife], help ensure their financial well-being, and visit them often.” After plaintiff’s wife died, defendant allegedly ended all direct communication with plaintiff and gave “sporadic and cursory” attention to plaintiff’s business and real property interests, prompting him to commence this action. * * *

Inasmuch as the amended complaint alleged a confidential or fiduciary relation, a promise, and a transfer made in reliance on that promise, the issue concerning the [constructive trust] cause of action is whether the amended complaint adequately alleged unjust enrichment.

“[I]n order to sustain an unjust enrichment claim, ‘[a] plaintiff must show that (1) the other party was enriched, (2) at [the plaintiff’s] expense, and (3) that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered’ ” … . … Where the parties executed a valid and enforceable written contract governing a particular subject matter, recovery on a theory of unjust enrichment for events arising out of that subject matter is ordinarily precluded” … .

Here, there is a written contract that covers the particular subject matter, i.e., the LLC’s operating agreement. That agreement, however, was executed by defendant and plaintiff in his role as trustee. … Inasmuch as plaintiff, individually, was not a party to the operating agreement, his first cause of action, insofar as it was asserted by him, individually, is not precluded by the written contract … . Van Scoter v Porter, 2021 NY Slip Op 02692, Fourth Dept 4-30-21

 

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