Matter of Downs Charitable Remainder Trust
Annotate this CaseDecided on March 18, 2009
Sur Ct, Dutchess County
In the Matter of the Accounting by William Downs, as the Trustee of the Downs Charitable Remainder Trust. In the Matter of the Cross-Petition for Judicial Approval of the Intermediate Accounting for the Downs Charitable Remainder Trust and a Proceeding William Lefkowitz and vFinance Investments, Inc. as, Respondents as necessary parties pursuant to EPTL §11-2.3. In the Matter of the Downs Charitable Remainder Trust Application for Attorneys Fees Pursuant to SCPA §2110
In the Matter of the Cross-Petition for Judicial Approval of the Intermediate Accounting for the Downs Charitable Remainder Trust and a Proceeding against William Lefkowitz and vFinance Investments, Inc. as Respondents as necessary parties pursuant to EPTL §11-2.3.
In the Matter of the Downs Charitable Remainder Trust Application for Attorneys Fees Pursuant to SCPA §2110
95818/A
GERALD A. VERGILIS, ESQ.
VERGILIS, STENGER, ROBERTS & DAVIS, LLP
Attorneys for Trustee
WILLIAM J. DOWNS
1136 Route 9
Wappingers Falls, New York 12590
ANDREW M. CUOMO, Attorney General of New York
DEBORAH YURCHUK McCARTHY, ESQ. Assistant Attorney General
Attorneys for Ultimate Charitable Beneficiaries
120 Broadway
New York, New York 10271
BRIAN J. NEVILLE, ESQ.
LAX & NEVILLE, LLP
Attorneys for vFINANCE INVESTMENTS, INC.
and WILLIAM LEFKOWITZ
1412 Broadway, Suite 1407
New York, New York 10018
The Law Offices of KEVIN H. COHEN, P.C.
Attorneys for JUDITH M. KRUG
30 Glenn Street, 2nd Floor
White Plains, New York 10603
MICHAEL BECKMAN, ESQ.
BECKMAN, LIEBERMAN & BARANDES
Attorneys for WILLIAM LEFKOWITZ
116 John Street, Suite 1313
New York, New York 10038
PAMELA BARRACK
DUTCHESS COUNTY COMMISSIONER OF FINANCE
22 Market Street
Poughkeepsie, New York 12601
James D. Pagones, J.
There are four (4) proceedings emanating from the captions noted above. The
first two are intertwined. They relate to a petition filed by Judith M. Krug ("Krug") to compel an
accounting from William J. Downs ("Downs"), as Trustee of the Downs Charitable Remainder
Trust ("the trust"). Krug is a beneficiary under the trust instrument. Other relief is requested,
including reinstating Krug as the Trustee, appointing John J. Krug as successor Trustee and
removing William J. Downs as trustee.
Downs filed a cross-petition for approval of his intermediate account. Objections have been filed by Krug and the Attorney General of New York on behalf of the ultimate charitable beneficiaries pursuant to EPTL Article 8 to which Downs has replied. Downs also seeks relief against William Lefkowitz ("Lefkowitz") and the entity known as "vFinance Investments, Inc." ("vFinance") pursuant to Estates, Powers and Trusts Law §11-2.3 [Prudent Investor Act]. [*2]Downs seeks a decree directing a hearing to determine if the investments made by him, Lefkowitz or vFinance were improper and imprudent. Lefkowitz and vFinance oppose the cross-petition urging that the matter in controversy is subject to arbitration under the Federal Arbitration Act pursuant to an agreement between them and Mr. Downs.
Finally, there is an application by the law firm of Vergilis, Stenger, Roberts and Davis, LLP pursuant to SCPA §2110 for approval of additional legal fees in the amount of $10,000.00. If approved, the fee would be paid from the Trust corpus. This petition is opposed by Krug and the Attorney General.
The arbitration issue should be addressed first, as it will have a direct bearing upon the issues raised in the other proceedings.
The record indicates that William J. Downs signed an Account Customer Agreement with vFinance on December 30, 2006 in his capacity as the Trustee of the Downs Charitable Remainder Trust. vFinance is a broker-dealer firm and a member of the Financial Industry Regulatory Authority ("FINRA"). Lefkowitz is associated with vFinance. He is registered with FINRA.
The Customer Agreement provides in relevant part:
"Pre-Dispute Arbitration Agreement
This agreement contains a pre-dispute arbitration clause. By signing an arbitration
agreement, the parties agree as follows:
(A)All parties of this agreement are giving up the right to sue each other in
court, including the right to trial by jury, except as provided by the rules of the arbitration forum
in which a claim is filed.
(B)Arbitration awards are generally final and binding; a party's ability to have a court reverse or modify an arbitration award is very limited.
(C)The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings.
(D)The arbitrators do not have to explain the reason(s) for their award.
(E)The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
(F)The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
(G)The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement. [*3]
All controversies that may arise between us
(including, but not limited to controversies concerning any account, order or transaction, or the
continuation, performance, interpretation or breach of this or any other agreement between us,
whether entered into or arising before, on or after the date of this account is opened) shall be
determined by arbitration in accordance with the rules then prevailing of the New York Stock
Exchange, Inc., or the NASD, Inc., as I may designate. If I do not notify you in writing of my
designation within five (5) days after I receive from you a written demand for arbitration, then I
authorize you to make such designation on my behalf. I understand that judgment upon any
arbitration award may be entered in any court of competent jurisdiction."
EPTL §11-2.3(c)(3) provides:
"By accepting the delegation of a trustee's function from the trustee of a trust that is subject to the law of New York, the delegee submits to the jurisdiction of the courts of New York even if a delegation agreement provides otherwise, and the delegee may be made a party to any proceeding in such courts that places in issue the decisions or actions or the delegee."
The arbitration language adopted by the parties causes their agreement to be governed by the Federal Arbitration Act (9 USC §1 et seq). (Matter of Smith Barney v. Luckie, 85 NY2d 193, 200 [1995] rearg denied, 85 NY2d 1033 [1995].)
This Court has jurisdiction to determine whether the New York statute is preempted by the Federal Arbitration Act. (Matter of Blumenkrantz, 14 Misc 3d 462, 464 [Sur. Ct., Nassau County, 2006].) The court concludes that the FAA does take precedence over the statute. Downs, however, has a conflict of interest should he proceed to arbitration. A finding of misfeasance against vFinance and/or Lefkowitz by the arbitrator could result in an adverse finding of dereliction against the trustee for failure to properly monitor the delegee as required by EPTL §11-2.3(c)(1)(C).
Downs is directed to commence a proceeding in arbitration as set forth in the Customer Agreement within ten (10) days from the date of this decision and order. Upon his failure to do so, Judith M. Krug may file a petition for limited letters of trusteeship to allow her to represent the trust in the arbitration proceeding. The Dutchess County Commissioner of Finance may file such a petition in the event of Krug's failure to do so. (Matter of Blumenkrantz, supra at 467, SCPA §702[8]; 15 Warren's Heaton on Surrogate's Court Practice, Seventh Edition, Legislative and Case Digest, Vol. 11. No. 1, Feb. 2007; Radigan, Delegation Under the Prudent Investor Act at 9-10.) The definition of estate in SCPA §702(8) includes the property of a trust. (SCPA §103[19].)
The remaining proceedings must abide the outcome of the arbitration. Counsel for Downs is directed to provide the court with a copy of the arbitration decision no later than thirty (30) days after it is rendered. This court shall retain jurisdiction of any application to confirm an award pursuant to CPLR §7510. (SCPA §§ 102, 201, 202; CPLR §7501.)
On this application, the Court considered the following papers:
1.Petition for a compulsory accounting pursuant to SCPA §2205 with four (4) exhibits;
2.Three (3) waivers and consents;
3.Accounting by Trustee William Downs; [*4]
4.Objections to accounting filed by Judith M. Krug;
5.Objections to accounting filed by the Attorney General of New York;
6.Answer to Petition filed by William Downs;
7.Reply to Objections filed by William Downs;
8.Cross-Petition for judicial approval of intermediate accounting and a proceeding pursuant to EPTL §11-2.3 supported by two (2) exhibits;
9.Affidavit in opposition to cross-petition with two (2) exhibits and affirmation in opposition;
10.Notice of Petition, application for payment of counsel fees, petition in support of application with four (4) exhibits, amended notice of petition with multiple exhibits stapled together;
11.Affidavit in opposition to amended petition for attorney fees filed by Judith Krug;
12.Answer and objection filed by the Attorney General of New York; and,
13.Reply affirmation of Gerald A. Vergilis, Esq.
The foregoing constitutes the decision and order of the Court.
Dated:Poughkeepsie, New York
March 18, 2009
ENTER
HON. JAMES D. PAGONES, S.C.J.
TO:
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