Banker v Banker

[*1] Banker v Banker 2009 NY Slip Op 50701(U) [23 Misc 3d 1111(A)] Decided on January 26, 2009 Supreme Court, Delaware County Peckham, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 26, 2009
Supreme Court, Delaware County

Arnold Banker, PLAINTIFF

against

Walburga Banker, Carl A. Banker, Glenn A. Banker, and Louis M. Banker, DEFENDANTS Delaware County Department of Social Services, PLAINTIFF Estate of Walburga Banker, Arnold L. Banker, Carl A. Banker, Glenn A. Banker and Louis M. Banker, DEFENDANTS



Delaware County Department of Social Services, PLAINTIFF v

against

Estate of Walburga Banker, Arnold L. Banker, Carl A. Banker, Glenn A. Banker and Louis M. Banker, DEFENDANTS



2004-207



APPEARANCES:

Richard A. Harlem, Esq

Attorney for Plaintiff.

493 Chestnut Street, Suite 2

Oneonta, NY 13820

Michael B. Mendelson, Esq.

Attorney for Defendant

127 Main Street

Delhi, NY 13753

Amy B. Merklen, Esq

Assistant County Attorney

111 Main Street

Delhi, NY 13758

Eugene E. Peckham, J.

The first action in this case is for partition of real property owned by the parties as tenants in common. In the second action Delaware County Department of Social Services is attempting to collect on a claim for Medicaid paid. Plaintiff, Arnold L. Banker (hereafter Arnold, Jr.), in the first action above and one of the defendants in the second action has filed a motion for summary judgment in both actions. The individual defendants join in the motion for summary judgment in the second action against the plaintiff Department of Social Services (DSS). In the first action the defendants oppose summary judgment and cross claim for an accounting by Arnold Jr. as managing partner of a partnership known as Peaceful Valley Campsites.

In the DSS action the Assistant County Attorney has submitted to the Court a letter in which she states that DSS does not oppose the motion for summary judgment. The DSS claim was based upon Medicaid payments that might be made for Walburga Banker, a defendant in the DSS suit, who is now deceased. The letter also states that the Department did not actually expend any money for Walburga's medical care. Thus the DSS claim is moot. Summary Judgment is granted against DSS in the second action and the complaint is dismissed with prejudice.

However, both Arnold Jr. and his three brothers, Louis, Carl and Glenn Banker have filed cross claims in the DSS action. The CPLR provides that when a complaint is dismissed by the Court it may sever and preserve any counter claims and cross claims for trial. CPLR §3019(d) and 3217(c); Siegel, Practice Commentary, McKinney's Cons. Laws of NY, Book 7B, CPLR §3019:20 at 221 and §3217:14 at 747. The cross claims assert matters that should be preserved for determination and thus are severed. In their cross motion in the first action, defendants also request that the two actions be consolidated for trial. CPLR §602. Since the first action and the severed cross claims involve common questions of law and fact, they are hereby consolidated.

The genesis of the dispute between the four Banker brothers lies in the estate of their father, Arnold A. Banker (hereafter Arnold, Sr.) and an action taken by his widow Walburga Banker after her husband's death to deed to Arnold Jr. her interest in the real property owned b y her husband. Arnold Sr. died on March 29, 1997 without a will.

For purposes of this proceeding the court will take judicial notice of the papers recorded in the Delaware County Surrogate's Court in the Estate of Arnold A. Banker, File No. 97-079. Fisch on New York Evidence, §1066 at 603.

Since he died without a will Arnold, Sr.'s estate passed by intestacy to his widow and their four sons. EPTL §4-1.1. The principal asset of the estate was a 330 acre parcel of real property on which was located the marital residence and which was operated by Arnold Sr. as a sole proprietor as Peaceful Valley Campsites. Shortly after his father's death Arnold Jr. on November 23, 1998 took over management of the campsites. (Accounting p.6 attached to Arnold Jr. Affidavit) Two of Arnold, Sr.'s sons, Arnold Jr. and Louis were appointed administrators of his estate. Arnold Jr. was suspended as administrator by order of the Delaware County Surrogate, dated March 18, 2003.

In the New York Estate Tax proceeding in Arnold Sr.'s estate it was determined that Walburga inherited 56.5552% of the real property and each son 11.8612%. This was because Walburga received $50,000 plus one half the residue under EPTL §4-1.1. On February 25, 1999 Walburga sold her share of the real property to Arnold Jr. in exchange for a self cancelling installment note (SCIN) in the amount of $278,478 at 6% interest. Arnold Jr. was to pay his mother $1669.62 per month until her death. (Wood Affidavit, Exhibits B & C). Walburga [*2]reserved in the deed the right to reside in the residence on the property for life. Walburga suffered a stroke and entered the Roscoe Nursing Home in April 2003. (Harlem Affidavit, Exhibit G, Paragraph 6).

In March 2004 Arnold Jr. began the first action against his mother and three brothers for partition of the real property claiming he owned 68.4164% of the real estate representing his original share of 11.8612% plus his mother's share of 56.5552% transferred to him. Walburga died on May 22, 2005. The action also asserted that Walburga transferred to Arnold Jr. in the deed the household appliances, furniture, furnishings and that the three brothers removed and converted the same and demanded their return or damages in the alternative (Harlem, Exhibit 0).

Defendant's in their answer dated March 29, 2004 ask for dismissal of the complaint and assert as a defense that "the deed sued on herein was obtained from defendant Walburga Banker by the fraud of the plaintiff". A counterclaim is also asserted on behalf of Walburga that Arnold had defaulted in making payments on the SCIN note. The answer is verified by Louis M. Banker and not Walburga. (Harlem Affidavit, Exhibit P).

In the Amended Answer and Cross Claim, dated July 5, 2006, in the DSS suit defendants also assert three Cross claims against Arnold Jr. 1) that Arnold Jr. as manager of the Peaceful Valley Campsites partnership should account for the operations of the partnership, 2) that Arnold Jr. and Louis entered into a partnership to operate a gravel pit on the real property and Arnold Jr. should account for the profits and losses of that partnership and 3) again asserting that Arnold Jr is in default on the note to Walburga. This Amended Answer expands the defense of fraud to include undue influence practiced upon Walburga by Arnold Jr. to secure the deed and SCIN note. Again the Amended Answer is verified by Louis and not Walburga. (Harlem, Exhibit M).

In his Amended Answer and Cross Claim, dated April 25, 2006, to the DSS suit Arnold Jr. asserts four cross claims against his three brothers: 1) for a declaration that Arnold Jr. owns a 68.4164% interest in three parcels of real property which were deeded on December 17, 2003 by Louis, as Administrator of the estate of Arnold, Sr., to himself, Carl and Glenn out of the large 330 acre Peaceful Valley real property, 2) for a money judgment for 68.4164% of the fair rental value of said three parcels from December 17, 2003 to date, 3) to set aside and cancel the said three deeds as being without fair consideration and 4) for an accounting by Louis, as administrator of the estate of Arnold Sr. and his removal and surcharge. (Harlem Exhibit L).

Summary Judgment can only be granted when there are no triable issues of fact. Phillips v Joseph Kantor & Co. 31 Ny2d 307 (1972); Wanger v Zeh 45 Misc 2d 93 aff'd 26 AD2d 729 (3d Dept. 1966). The affidavits and other materials submitted must be examined in the light most favorable to the party opposing the motion. Robinson v Strong Memorial Hospital 98 AD2d 976 94th Dept. 1983).

The claims by defendants that Arnold Jr. procured the deed from his mother by fraud or undue influence must be dismissed. The defendants who claim fraud and undue influence have the burden of proof on this issue. Matter of Schillinger, 258 NY 186 (1932); Matter of Simon NYLJ 5/11/01, p.24, col.6 (Surr. Ct.-Suffolk Co.). The elements of fraud are misrepresentation of a material fact, deception and resultant injury. To establish undue influence defendants must show motive, opportunity, and exercise of undue influence. Snyder v Puente 297 AD2d 432 (3d Dept. 2002); Matter of Simon, supra . A close confidential relationship between the person alleged to have been unduly influenced and the influencer may create a presumption of undue influence and shift the burden to the alleged influencer. Matter of Jarsky, NYLJ, 8/25/03, p.26 [*3]col.2 (Surr. Ct. Nassau Co.). The relation of mother and son is such a confidential relation particularly where, as here Arnold Jr. held a power of attorney from his mother (Harlem, Exhibit 6, Paragraph 10). It is important to recognize that the alleged fraud and undue influence would have been practiced by Arnold Jr. on his mother by persuading her to deed the property to him, and not his brothers.

The claims of fraud and undue influence practiced by Arnold Jr on his mother Walburga are set forth in the answer in the first action and the Amended Answer and Cross Claim in the second action. (Harlem, Exhibit M and O). Significantly these answers are verified by Louis, not Walburga. Since both were filed after Walburga's stroke there is no way to know if Walburga agreed with the claims made that she was defrauded or unduly influenced.

Rather the best proof is what she told her attorney, Francis W. Wood, Esq., a well respected attorney in the area, who knew and had represented Arnold, Sr. and Walburga Banker for several years. In his affidavit he states that Walburga came to his office about February 25,1999. She was accompanied by Arnold Jr., but Wood had him leave and met with Walburga alone. She expressed her desire to transfer her interest in the property to her son Arnold because the campground was not "productive enough to provide sustenance for all the boys." Wood states that Walburga "was a person of tough determination" and that she "was totally competent in making the decision which she did make and she expressed it rationally, it being obvious that it was what she desired, the transfer being an act of her own volition."

In their depositions in response to questions propounded by Arnold Jr.'s attorney, Louis, Carl and Glenn Banker each stated that he was not present for any conversations between Arnold Jr. and Walburga about the transfer of the farm, nor was he present during any conversation with the attorney about the transfers, nor was he present when the deed and note were executed (Harlem, Exhibits B, C, and D). Carl and Glenn were each asked specifically if he had any direct knowledge of fraud and each answered "I don't recall" or "I don't recollect (Harlem Exhibit B, p.25, and 62). The only proof put forward by the brothers of any fraud or undue influence was that she signed over the real property to Arnold Jr. and from that they draw the conclusion she must have been unduly influenced. (Harlem Exhibit B, p. 52 and 63). Even though she had a heart condition, Walburga was working in the campground, taking care of her house and living independently at the time of the deed transfer and handled her own finances. ( Exhibit J to Cross Motion; Harlem Exhibit C, p.23, Exhibit D, p.27-8, p.4-5).

In his responding affidavit herein Louis sets forth nothing to contradict this deposition testimony of himself and his brothers Carl and Glenn. All of them admit they were not present during any conversation about the transfer. Thus the defendant's testimony amounts to mere speculation that their mother must have been unduly influenced to sign the deed in exchange for the SCIN notes or else she wouldn't have done it. Such speculations are not facts. Even if we assume the burden of proof has shifted due to a confidential relation, such speculation is not sufficient to overcome the direct affidavit testimony of attorney Wood.

There is no direct proof of a misrepresentation made to Walburga other than defendants unsubstantiated claims of what took place at meetings at which they were not present. Furthermore, Walburga did not personally verify any of the answers to claim she was defrauded or unduly influenced. Any claims of the exercise of fraud or undue influence are refuted by the Wood Affidavit. "Merely showing motive and opportunity to exercise undue influence is insufficient to raise a triable issue of fact. Unsubstantiated claims are also insufficient" [*4](Citations omitted). Matter of Jarsky NYLJ, 8/25/03 (Surr. Ct. Nassau Co.). Summary Judgment is granted dismissing the claims of fraud and undue influence. It is held that Arnold Jr. is the owner of 68.4164% of the real property.

The next issue is the claim that Arnold Jr. has not fully paid the monthly payments due under the Note to Walburga. Again the answers in which this claim was made were verified by Louis not Walburga. In his deposition Carl stated some payments were not made while his mother was in the nursing home. (Harlem, Exhibit C, p.23). Arnold Jr. states in his affidavit at paragraph 6 that all payments were made and attaches copies of the checks issued in payment of the note. The court has reviewed said checks and finds that all payments were made up to the date of Walburga's death.

In the original Answer and Cross Claim to the DSS suit, but not the Amended Answer, defendants assert the deed to Arnold Jr. was for inadequate consideration. (Harlem Exhibit I). In other words the claim is that the SCIN note was not sufficient consideration. The Note itself attached to the Wood affidavit recites: "This is a self-Cancelling Installment Note, consideration for which has been factored into determining the purchase price of an illiquid, undivided interest in real estate." After conferring with her attorney as described above Walburga executed the deed in exchange for the Note thus demonstrating she was satisfied with the consideration she received. As stated above all required payments were made to her up to her death.

The full amount of the Note was $278,478 which is the same amount set forth at Schedule M of the estate tax return filed in Arnold Sr.'s estate for Walburga's marital deduction share. Even though transfer to Arnold Jr. of Walburga's interest in the real estate gave him a controlling interest, it is still a portion of a family enterprise for which a third party would not pay full price in an arm's length transaction. The transfer was also subject to Walburga's retained life estate in the residence. The price is not so unreasonable as to shock the conscience of the Court. Summary judgment is granted dismissing the claims in the first action and the cross claim in the Amended Answer in the DSS suit that there was a default in payment by Arnold Jr. under the Note or that consideration was inadequate.

In his complaint, Arnold Jr. alleges that his brothers have converted the "household appliances, furniture and furnishings" conveyed to him by Walburga in the deed. Defendants admit this in their verified Answer. (Harlem, Exhibits O and P, paragraph 15 of Complaint and paragraph 1 of Answer). However, no proof has been submitted as to exactly what items have been taken or their value. Accordingly an inquest must be held to establish this item of damages.

In his cross claim against his brother Louis in the DSS suit Arnold Jr. asks for an Accounting by Louis as administrator of their father's estate. As noted above Louis and Arnold Jr. were originally co-administrators, but Arnold, Jr. was suspended and directed to Account by order of the Delaware County Surrogate entered March 25, 2003. Arnold Jr. filed his account on or about May 15, 2003. Such account covers the cash and equipment of Peaceful Valley, but excludes the real property. This account alleges at page 16, that "the campground passed by operation of law to the distributees, as tenants in common pursuant to New York Estates, Powers & Trusts Law Section 6-2.2(f) and accordingly did not require administration."

The Surrogate's Court has jurisdiction over decedents' estates and estate accountings are filed in that court. SCPA §201 and 2205. Supreme Court is not the proper forum for an estate accounting. To the extent further accounting by Louis should be made for the real property it should be filed in the Surrogate's Court of Delaware County. The said cross claim against Louis [*5]is dismissed without prejudice to the filing of a claim for a compulsory account in the Delaware County Surrogate Court.

In his accounting filed in Surrogate Court Arnold Jr. states that he "assumed primary responsibility for the management of the Campground on behalf of all the family co-tenants, from on or about November 23, 1998 to date." (Banker Affidavit, Account p. 16). In the Complaint also he alleges that he and his brothers are tenants in common of the real property and improvements. In their Amended Answer and cross claim defendants allege there is a partnership to operate the Campground business on the real property.

It is clear the parties intended to operate Peaceful Valley jointly since special use value for the real property was elected on the tax return filed in Arnold, Sr.'s estate. All four brothers signed a material participation agreement which was attached to the tax return. IRC §2032 A and NY Tax Law §954 (c). Basically such agreement provides that each heir will participate actively in the operation of Peaceful Valley Campground for a period of ten years. Furthermore each of the four brothers received each year a Schedule K-1 from the partnership tax return (Cross Motion, Exhibit H).

However it is irrelevant whether Peaceful Valley is a co-tenancy or partnership. Either way Arnold has a fiduciary duty as managing partner or co-tenant to account to his brothers. Partnership Law §§43 and 44, RPAPL §1201. Defendants allege in their Amended Answers and Cross Claim to the DSS suit that Arnold Jr. took control of the management of Peaceful Valley, "excluded the defendants from anything to do with the business while siphoning funds from the partnership's account for his own purposes."In his affidavit herein Louis Banker alleges that he, Glenn and Carl received K-1's each year, but never received any of the income shown thereon. In his own affidavit Arnold Jr. states that when he accounted as administrator in Surrogate Court he voluntarily filed an accounting of the campground business and that he has continued to do so to date without any objection to said accounting.

First, no decree was entered by the Surrogate on the accounting filed by Arnold. The parties to the accounting did not submit waivers and no citation was ever submitted to the court or served upon them. SCPA §2208 and 2210.Second such an informal out of court account is not the same as a formal account filed in court.

An out of court accounting is only binding on the parties if there is some form of release or settlement. None has been alleged or submitted here. See Bradick v Deetjen 140 NYS2d 597 aff'd 1 AD2d 999, app den 2 NY2d 707 (1956); Cf. SCPA §2202; Warren's Heaton on Surrogate's Court, 7th ed, §91.04(3).

Arnold Jr. does not deny in his affidavit nor refute anywhere else the allegations that he never distributed any income to his brothers nor that he siphoned funds for his own purposes.

For example, it is alleged that Arnold Jr. used sand and gravel he excavated from the jointly owned land for personal jobs without paying for it. It is also alleged he used a Peaceful Valley credit card to pay his personal expenses. (Exhibits F & G to cross motion)

It is clear that if a partner or co-tenant violates his fiduciary duty to pay to the other partners or co-tenants a "just proportion" of the income of the venture, excludes them from the operation of the business, and appropriates business assets to his own purposes, the other partners or co-tenants are entitled to an accounting. RPAPL §1201; Partnership Law §§ 43 & 44. Goldberg v Ochman 143 AD2d 255 (2d Dept. 1988); Chamberlain v Amato 259 AD2d 1048 (4th Dept. 1999); Snyder v Puente v DeBrooklyn Realty Corp 297 AD2d 432 (3d Dept-2002); NCAS [*6]Realty Management v National Corp. 143 F 3d 38 (2d Cir. 1998).

A demand for an accounting was made in the Amended Answer and Cross Claim to the DSS suit filed on or about July 5, 2006 and thereafter no formal account has been filed. Making such demand in a complaint is sufficient. Non-Linear Trading v Braddis 243 AD2d 107 (1st Dept. 1998); Conroy v Cadillac Fairview Shopping Center 143 AD2d 726 (2d Dept. 1988).

It is claimed that Justice Coccoma in his decision dated July 31,2006 found that no demand for an accounting was ever made. That decision denied an injunction pursuant to RPAPL §211 in the first entitled action herein. He was undoubtedly unaware that an accounting was demanded in the cross claim in the second suit brought by DSS. But even if there was no demand for an accounting, the alleged misconduct of Arnold Jr. is sufficient to require an accounting. There are factual issues as to the disposition of the funds of Peaceful Valley that can only be resolved by an accounting. Goldberg v Ochman, supra ; Chamberlain v Amato, supra .

Arnold Jr. claims in his brief filed herein that the statute of limitations has expired on the demand for an accounting of his operation of Peaceful Valley. CPLR §213. Nonetheless he states in his affidavit that he has provided informal accounts to date indicating the partnership or co-tenancy is still active. Forms K-1 from the partnership tax return have been provided to all defendants up to 2007. (Exhibit H to Cross Motion). The brothers all signed agreements to mutually participate in the operations of the Campsites for a period of ten years from the death of their father on March 29, 1997. The accounting was demanded in the cross claim filed July 5, 2006. Thus it is clear that the six year statute of limitations had not expired at the time of the demand for the accounting in the cross claim.

The cross claim for an accounting from Arnold Jr. for his management of Peaceful Valley is granted. Such accounting shall be filed with the court and served upon defendants within 60 days of entry of the order herein. Any objections to the accounting shall be filed within 30 days thereafter. Such accounting shall include an account of all sand and gravel excavated from the Peaceful Valley real property and the price and disposition thereof.

In his cross claim in the DSS suit Arnold Jr. asks the court to set aside the three deeds to his brothers. (Harlem Exhibit L; the three deeds are Exhibit G, H & I to Exhibit G). The deeds were executed on December 17, 2003 by Louis as administrator of the estate of Arnold Sr. after the suspension of Arnold Jr. as co-administrator. These deeds were apparently issued without consideration as a partial distribution of the estate. (Arnold Banker Affidavit, p.2).

As fiduciary of the estate Louis had a duty to avoid self dealing and conflict of interest and to treat all the beneficiaries of the estate impartially. In the well known formulation by Chief Justice Cardozo "A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of honor the most sensitive, is then the standard of behavior." Meinhard v Salmon 249 NY 458 (1928). The requirement of impartiality means that a fiduciary may not pre-pay one or more beneficiaries ahead of others. All legatees must be treated equally and without prejudice or discrimination. Matter of Muller 24 NY2d 336 (1969).

The action by Louis in deeding portions of the real property to himself and his two brothers violated these duties. The conflict of interest and failure of impartiality requires that the three deeds in question be declared void. Flaum v Birnbaum 120 AD2d 183 (4th Dept. 1986); Matter of DePlanche 65 Misc 2d 501 (Surr. Ct. New York Co. 1971).

Yet another reason the three deeds must be set aside is that this is a partition action. Returning all the real property to the estate permits the partition to apply to the entire parcel of [*7]real property owned by Arnold Sr. and which passed to his beneficiaries by intestacy. It was determined in his estate proceedings that his widow was entitled to 56.5552% and each of his four children 11.8612%. As discussed above Walburga transferred her 56.5552% to Arnold Jr. giving him a total of 68.4164%.

Summary Judgment has been granted above dismissing all of the objections by defendants in the first action to the transfer from Walburga to Arnold Jr. There being no remaining objections to the partition it must be ordered. There are no triable issues of fact regarding the partition. Partition has been ordered in other estates to resolve disputes over real property. Matter of Liu NYLJ 6/14/06, p.38 (Surr. Ct. New York Co.). Turano, Supp. Practice Commentary, McKinney's Cons. Laws of NY, Book 7B, SCPA 2107 at 68. The shares of the parties in the real property have been determined above. Summary Judgment is granted on the cause of action for partition in the first action.

Partition of real property is governed by Article 9 of the Real property Actions and Proceedings Law. §915 provides that when partition is ordered the court shall enter an interlocutory order determining the share of each party in the property and designate "three reputable and disinterested freeholders as commissioners to make the partition so directed". Partition by sale of the real property shall only be ordered when the property "is so circumstanced that a partition thereof cannot be made without great prejudice to the owners." RPAPL §915.

A significant reason for partition in kind in this case is that several of the brothers occupy residences on the property. Arnold Jr. apparently now lives in the family residence on the property and Louis and one or more of the other brothers have residences on the property. (Complaint, Paragraph 7; Arnold Banker Affidavit, Paragraph 5, p. 4; Louis Banker Affidavit, Paragraph 2). There are several other structures on the property: a camp store, bath house, garage, several trailers and gravel pit. (Harlem, Exhibit D, pp. 4-5; Complaint, Paragraph 7; Cross Motion, Exhibit B -4). They have made improvements to the various residences. (Cross Motion, Exhibit D, pp. 45-6; Louis Banker Affidavit, Paragraph 2; See also Defendant's Memorandum of Law, Paragraph 2, p.7).

The rule in New York is that when one tenant in common has made permanent improvements to the property involved he will be allotted that portion of the property on which the improvements are located. Such partition does not take the improvements into account but rather decision is made on the basis of the unimproved value of the land. Ford v Knapp 102 NY135 (1886); Rasch, New York Law & Practice of Real Property, 2d ed. §40:106 at 218. Thus the parties who have residences on the property should be allotted those parcels in the partition. In the event that one of the parties to the partition receives a greater share than that to which he is entitled, the court may order a cash payment to the others receiving less than their proper share to equalize the shares. RPAPL §943; Rasch, supra §40:104 at 216.

The defendants in their Amended Answer and Cross claim filed July 5, 2006, have requested an accounting by Arnold Jr. for a partnership in a gravel business between Arnold Jr. and Louis. Louis testified this gravel partnership terminated in 1998 at the same time Arnold Jr. took over management of Peaceful Valley. (Harlem, Exhibit E, p. 128). Thus an accounting demanded eight years later is barred by the Statute of Limitations and is denied. CPLR §213.

The other contentions of the parties have been considered and found to be without merit and are denied.

Submit order on notice for partition and accounting in accord with this decision. [*8]

Dated: January 26, 2009

/s Eugene E. Peckham

Hon. Eugene E. Peckham

Acting Supreme Court Justice