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Criteria for Denial of Trustee Commissions Based On Misconduct, Including Post-Commission-Period Misconduct, Explained

The First Department discussed when a trustee can be denied commissions for misconduct, including misconduct after the commission period (a post-commission-period penalty is rare and none was imposed here):

We conclude that courts have the discretion to take into consideration all of a trustee’s misconduct in determining the grant of annual commission, even conduct that occurred after the period applicable to the commission. Although there are no appellate cases on point, no New York case holds otherwise. As a basic principle, the Surrogate has broad discretion to deny commission to a trustee if the trustee has engaged in misconduct… .. In determining if a commission should be denied, misconduct that is not directly related to the commission being sought may be taken into consideration … . The Restatement (Second) of Trusts § 243 supports this conclusion with a multi-factor analysis (Comment c). Among the factors to be considered under the Restatement in determining if a commission should be denied are whether the trustee acted in good faith, whether the misconduct related to management of the whole trust and whether the trustee completed services of value to the trust (id.). We conclude, therefore, it is within the court’s discretion to determine whether the trustee’s later misconduct bars her from receiving commission.

Trustees can be denied commission “where their acts involve bad faith, a complete indifference to their fiduciary obligations or some other act that constitutes malfeasance or significant misfeasance” … The denial of a commission, however, should not be “in the nature of an additional penalty” (Restatement (Second) of Trusts § 243, Comment a). Rather, it should be based on the trustee’s failure to properly serve the trust (see id.). Matter of Gregory Stewart Trust, 2013 NY Slip Op 05290, 1st Dept 7-16-13

 

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Application for Certification as NYC School Bus Driver Should Have Been Denied Because of Past Drug Convictions

The First Department, over a dissent, reversed Supreme Court’s order that petitioner, who had been convicted of two drug offenses (felonies) in the past, be certified as a NYC Department of Education school bus driver.  The First Department explained the relevant criteria as follows:

Where the applicant seeks employment with the New York City Department of Education, the School Chancellor’s regulations apply and Regulation C-105 establishes procedures to be followed …for background investigations of pedagogical and administrative applicants. Regulation C-105 incorporates by reference article 23-A of the Correction Law. Correction Law § 752 (et seq.) prohibits unfair discrimination against a person previously convicted of a crime “unless: (1) there is a direct relationship between one or more of the previous criminal offenses and the specific license or employment sought or held by the individual; or (2) the issuance or continuation of the license or the granting or continuation of the employment would involve an unreasonable risk to property or to the safety or welfare of specific individuals.” Correction Law § 753(a) – (h), which set forth eight factors a public agency must consider in connection with an application for a license, include the person’s duties and responsibilities, the bearing, if any, the criminal offense(s) will have on the person’s “fitness or ability” to perform his or her duties, the time that has elapsed since the occurrence of the crime(s), the seriousness of the crime, information about the applicant’s reputation, etc., and the legitimate interest of the agency in protecting the safety and welfare of specific individuals or the general public. Regulation C-105 provides further that in reviewing the record of an applicant who has a prior criminal conviction, DOE is particularly concerned with offenses, among others, that involve the possession, distribution or selling of controlled substances.

The Chancellor’s Regulation, like the Corrections Law, provides that where the applicant has a certificate of relief from disabilities, that certificate “shall” also be considered (Correction Law § 753[3]). The certificate, however, only creates a “presumption of rehabilitation” with respect to the crime the individual was convicted of, it does not create a prima facie entitlement to the license the person is applying for… .  Matter of Dempsey v NYC Dept of Educ, 2013 NY Slip Op 05289, 1st Dept 7-16-13

 

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“Direct Financial Loss” Caused by Employee Defined

The First Department explained what “direct financial loss” means in the context of bonds issued to indemnify a commodities futures broker [MF Global] for loss caused by a wrongful act by an employee:

In the bonds, plaintiffs agreed to indemnify MF Global for losses “sustained at any time for . . . any wrongful act committed by any employee . . . which is committed . . . with the intent to obtain financial gain for [the employee]” (emphasis omitted). “Loss” means “the direct financial loss sustained by [MF Global] as a result of any single act, single omission or single event, or a series of related or continuous acts, omissions or events.” The bonds exclude coverage for “[i]ndirect or consequential loss.” A “[w]rongful act,” with respect to trading in commodities and futures, is defined as “any . . . dishonest . . . act committed with the intent to obtain improper financial gain for . . . an employee” … .. * * *

The motion court properly concluded that MF Global’s loss constituted a “direct financial loss.” Although that term is not defined in the bonds, “[a] direct loss for insurance purposes has been analogized with proximate cause”… …

Here, [a broker’s] conduct in making unauthorized trades beyond his margin was the direct and proximate cause of MF Global’s loss… . New Hampshire Ins Co v MF Global, 2013 NY Slip Op 05291, 1st Dept 7-16-13

 

Complaint Sufficiently Alleged Facts to Support Piercing the Corporate Veil

In a full-fledged opinion by Justice Mazzarelli (which dealt with many corporation law issues not mentioned here), the First Department determined the complaint alleged sufficient facts to meet the criteria for piercing the corporate veil:

To make out a cause of action for liability on the theory of piercing the corporate veil because the corporation at issue is the defendant’s alter ego, the complaining party must, above all, establish that the owners of the entity, through their domination of it, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against the party asserting the claim such that a court in equity will intervene … . Piercing of the corporate veil is not a cause of action independent of that against the corporation; it is established when the facts and circumstances compel a court to impose the corporate obligation on its owners, who are otherwise shielded from liability… . “Because a decision whether to pierce the corporate veil in a given instance will necessarily depend on the attendant facts and equities, the New York cases may not be reduced to definitive rules governing the varying circumstances when the power may be exercised” … . Indeed, this Court has observed:  “In determining the question of control, courts have considered factors such as the disregard of corporate formalities; inadequate capitalization; intermingling of funds; overlap in ownership, officers, directors and personnel; common office space or telephone numbers; the degree of discretion demonstrated by the alleged dominated corporation; whether the corporations are treated as independent profit centers; and the payment or guarantee of the corporation’s debts by the dominating entity . . . [n]o one factor is dispositive”… .   Tap Holdings LLC v Orix Fin Corp, 2013 NY Slip Op 05293, 1st Dept 7-16-13

 

“John Doe” Party Who Was Not Served Waived Objection to Personal Jurisdiction

The First Department determined that an informal appearance by a “John Doe” party who was not served with the complaint waives any objection to personal jurisdiction.  The action stemmed from plaintiff’s decedent’s drowning at Coney Island:

CPLR 1024 allows for the commencement of an action against an unknown party…. While the use of a John Doe designation does not exempt a plaintiff from the requirement of serving process on the intended defendant by an authorized method under CPLR article 3…, a defendant may appear informally by actively litigating the action before the court…. When a defendant participates in a lawsuit on the merits, he or she indicates an intention to submit to the court’s jurisdiction over the action, and by appearing informally in this manner, the defendant confers in personam jurisdiction on the court…. Thus, absent a formal “appearance” by a defendant, a defendant may nevertheless appear in an action where his or her counsel communicates a clear intent to participate… . Taveras v City of New York, 2013 NY Slip Op 05199, 2nd Dept 7-10-13

 

Unsafe Access to Roof Supported Summary Judgment

In affirming the grant of summary judgment to the plaintiff pursuant to Labor Law 240 (1) based on the failure to provide equipment which would allow safe access to the roof where the window-washing equipment in need of repair was located, the First Department explained:

The record demonstrates that the Met and Lincoln Center failed to provide adequate safety devices to protect plaintiff from the risks associated with gaining access to the Opera House roof and the steel carriage rail, and therefore they are liable for plaintiff’s injuries under Labor Law § 240(1)…. Not only did plaintiff have to be elevated to the roof of the Opera House from the sixth floor, for which a ladder was provided, but he also had to use both hands to close the hatch door while standing on the ladder. No safety device was provided to protect him against the risk associated with breaking three-point contact with the ladder so as to use both hands to close the hatch door. Mayo v Metropolitan Opera Assn Inc, 2013 NY Slip Op 04993, 1st Dept 7-2-13

 

Criteria for Domicile Explained

In upholding Surrogate Court’s determination decedent’s domicile was New York, the First Department explained the relevant criteria as follows:

The Surrogate’s Court Procedure Act defines domicile as “[a] fixed, permanent and principal home to which a person wherever temporarily located always intends to return” (SCPA 103[15]). “The determination of an individual’s domicile is ordinarily based on conduct manifesting an intent to establish a permanent home with permanent associations in a given location”…. A person’s domicile is generally a mixed question of fact and law, which the court must determine after reviewing the pertinent evidence…. No single factor is dispositive…, and the unique facts and circumstances of each case must be considered…. A party alleging a change of domicile has the burden of proving that change by clear and convincing evidence … .  Matter of Ranftle, 2013 NY Slip Op 05006, 1st Dept 7-2-13

 

Plaintiff Unable to Prove Actual Malice—Summary Judgment to Defendant

In determining a libel complaint brought by the Humane Society of the United States (HSUS) against defendants based upon an ad defendants placed in the New York Times which was captioned “Why is [HSUS] Helping a Terrorist Group Raise Money?” should have been dismissed, the First Department wrote:

The court should have dismissed the amended complaint as against all of the defendants. Contrary to plaintiff’s contention, it is a public figure…. It thrust itself to the forefront of the public controversy on animal cruelty and sought to influence public action on this issue. Accordingly, as a public figure, plaintiff must show by clear and convincing evidence that defendants published the ad at issue with actual malice in order to prevail on any claim of libel….

“[A] libel defendant’s burden in support of summary judgment is not . . . to prove as a matter of law that it did not publish with actual malice, but to point to deficiencies in the record that will prevent plaintiff from proving that fact by clear and convincing evidence” …. Here, defendants were entitled to summary judgment because they cited deficiencies in the record that prevent plaintiff from proving actual malice (i.e., that defendants “entertained serious doubts as to the truth of [its] publication or acted with a high degree of awareness of . . . probable falsity . . . at the time of publication”) by clear and convincing evidence…. Humane League of Phila Inc v Berman & Co, 2013 NY Slip Op 04989, 1st Dept 7-2-13

 

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Elements of Tampering with Physical Evidence

The First Department explained the elements of the offense of tampering with physical evidence as follows:

…[A] person is guilty of the completed crime of tampering with physical evidence when, “[b]elieving that certain physical evidence is about to be produced or used in an official proceeding or a prospective official proceeding, and intending to prevent such production or use, he suppresses it by any act of concealment” (Penal Law 215.45[2]).

The offense of tampering does not require the actual suppression of physical evidence, but only that a defendant perform an act of concealment while intending to suppress the evidence…. Regardless of whether the defendant is successful in suppressing the evidence, once an act of concealment is completed with the requisite mens rea, the offense of tampering has been committed.  People v Eaglesgrave, 2013 NY Slip Op 05001, 1st Dept 7-2-13

 

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Detention and Frisk of Juvenile Supported by Reasonable Suspicion

The First Department determined the following scenario provided reasonable suspicion sufficient to justify the detention and frisk of the juvenile:

A police officer testified that she was investigating an unruly crowd when she observed appellant walking towards her with his arm under his shirt, clutching an object held at his waist. Based on the rigidity of his body and how tightly he held the object, she believed it to be a weapon. As he passed by, she heard him say that he was “going to get him.” When she approached with her shield visible around her neck, appellant moved towards her, whereupon she grabbed his hand and felt the handle of a knife. During a brief struggle, the knife fell to the ground. Appellant was placed under arrest and the knife, which had a six-inch blade, was recovered.  Matter of Daquan B, 2013 NY Slip Op 04974 1st Dept 7-2-13

 

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