Matter of DeThomasis
Annotate this CaseDecided on September 9, 2005
Surrogate's Court, Nassau County
In the Matter of the Estate of John DeThomasis, Deceased.
292837
John B. Riordan, J.
In this proceeding commenced by the executor of the estate of a deceased partner for discovery (SCPA 2103) respondent moves for an order directing the release of funds held in escrow.
The executors of the estate of John DeThomasis commenced this proceeding against the surviving partner, Terry Lazar, for the turnover of the decedent's interest in the partnership.
The decedent John DeThomasis and respondent Terry Lazar formed a partnership for the practice of public accounting in 1987 governed by a written agreement that included a provision for a buyout in the event of the death of a partner, to be funded by life insurance. In 1991 the original partnership merged with another firm. In the same year, the decedent and Terry Lazar withdrew from the merged partnership. A new partnership agreement was drafted but never signed. The unsigned proposed agreement provided for the purchase of life insurance to fund the buy-out of a deceased partner's interest. John DeThomasis died on July 19, 1995.
At the time of death of John DeThomasis, Terry Lazar was the owner and named beneficiary of an insurance policy on the life of John DeThomasis, in the amount of $300,000, which had been obtained pursuant to the 1987 agreement. The proceeds of the policy were paid to Terry Lazar.
In December, 1995, Terry Lazar deposited the proceeds of the insurance policy with his attorney, to be held in escrow. He alleges that at that time he believed the 1987 partnership agreement was still binding and that the insurance proceeds would be used to fund the buy-out of the estate's interest in the partnership. Since there was a family dispute over the probate of decedent's Will, Lazar placed the funds in escrow for fear of paying the fund to the wrong party. The estate contends that the parties entered into an agreement that the funds would be held in escrow pending settlement of the partnership accounting. The estate further alleges that Terry Lazar agreed to deposit the funds in escrow only on the condition that the estate transfer to him ownership of the policy on his life.
In a decision dated January 5, 2004, the Court determined that the buy-out provision in the written agreement became ineffective at the date of dissolution of the first partnership. The decision stated that the surviving partner was required to account to the estate; it contained no finding regarding the escrow nor any provision regarding its release.
Following the court's January 5, 2004 decision, the parties submitted a proposed order and counter-order. The proposed counter-order submitted by Mr. Lazar's counsel contained an ordering paragraph directing release of the escrow funds to Mr. Lazar, despite the fact that that issue had never been raised on the motion nor addressed by the court. By decision dated [*2]February 10, 2004, the court held that the estate's proposed order more closely followed the court's decision and would be signed, and noted that as the escrowee had never been made a party nor submitted itself to the ocurt's jurisdiction, the court had no authority to order it to release the escrow. The escrowee has now appeared in the proceeding and Mr. Lazar moves for an order directing release of the escrow funds to him.
The dispute as to the existence of the agreement to hold funds in escrow is before the court for the first time on this motion. The submissions by the parties raise an issue of fact as to whether the parties intended to create a binding escrow agreement. Normally that issue would be resolved by a hearing (Martin H. Bauman Associates, Inc. v H&M Intern. Trans., Inc., 171 AD2d 479 [1991]).
Following their withdrawal from the merged partnerships, the parties entered into a partnership without a written agreement in 1991 and each continued to own an insurance policy on the other's life for over four years until the decedent's death. One of the issues in this case involves what dispostion is to be made of the insurance proceeds. There are essentially only three possible dispositions of life insurance acquired in the context of a partnership. Either it belongs to the surviving partner, to the decedent's estate or to the partnership itself (Annotation, Relative Rights of Surviving Partner and Deceased Partner in Proceeds of Life Insurance, 83 ALR 2d, 1347). Here, it would appear that the parties probably intended to employ the insurance as part of the buy-out of a deceased partner's interest. Nevertheless, since this presents a question of fact, a hearing will be required (Herman v Provident Mut. Life Ins. Co. , 886 F2d 529 [1989]). To impose the additional requirement of a separate hearing to determine whether a binding escrow agreement exists would be a diversion from the primary issue, that is the value of the decedent's interest in the partnership and the intention of the parties with regard to the insurance proceeds.
These issues can be resolved in the partnership accounting previously directed by the court. Following the order directing an accounting, Mr. Lazar supplied the estate with what is said to be a financial statement. Partnership Law §44 provides that any partner has a right to a formal account of the partnership affairs under certain circumstances, including circumstances which render it "just and reasonable." The parties are directed to 1 NY Practice Guide: Business and Commercial, §5.04[3] and Form 5-17 at §5.27[17] in the same text for an example of the type of accounting required. Such an accounting should be filed within sixty (60) days of the order following this decision.
Since the insurance proceeds presently held by Mr. Lazer's attorneys may ultimately be held payable to the estate, they should be secured. Should the attorneys have any reservations or concerns about their continued retention of the funds, they will have the option to pay those proceeds into court (CPLR 2601) or continue to hold those sums subject to the further order of the court. However, it is the court's intention that those funds, either way, remain intact pending a final resolution of this proceeding.
The court also notes that since the prior decision held that the buy-out provision in the 1987 agreement was unenforceable, the $300,000 limitation on the valuation of the estate's share is no longer applicable. At this point, the estate may be entitled to more than $300,000; it may also be entitled to less.
An additional issue to be determined on the accounting is whether the estate, by its [*3]consent to place the insurance funds in escrow, has elected to take interest on the insurance proceeds as opposed to the profits of the partnership (Partnership Law §73).
The motion for an order directing the release of the funds to Terry Lazar, individually, is denied.
Settle order.
Dated: September 9, 2005John B. Riordan
Judge of the
Surrogate's Court
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
