Matter of Rotraut L.U. Beiny
Decided on April 20, 2009
Sur Ct, Bronx County
In the Matter of the Application for a Judicial Settlement of the Account of Rotraut L.U. Beiny, as Trustee of the Trust Created by Elisabeth N.F. Weinberg, F/B/0 Martin Wynyard, Ruth Wynyard and The Issue of Martin Wynyard and Martin Wynyard et al. Rotraut L.u. Beiny, et al. The Antique Company of New York, Inc., Intervening, Petitioner
The appearances are as follows:
Peter G. Eikenberry, Esq. (Justin R. Miller, Esq., of counsel) for petitioner, The Wynyard Trust
Patterson, Belknap,Webb & Tyler, LLP, (John D. Winter, Esq., of counsel) for respondents, Michele Beiny Harkins, David Hanns Michael Beiny and Michele Beiny, Inc.)
Lee L. Holzman, J.
The latest installment in the litigation between the Wynyard and Beiny branches of the Weinberg family is a motion on behalf of the Wynyard branch of the family "for an order . . . declaring ACNY the owner of the converted "Z" goods, now held by the Liechtenstein trustees." Although the Beiny Trusts had a 55% interest and the Wynyard Trusts a 45% interest in the Antique Company of New York (ACNY) during the period that the relevant transactions discussed herein transpired, thereafter, as part of the agreement disposing of the entire ACNY inventory, the Wynyard Trusts obtained sole ownership of ACNY.
On March 14, 1996, while the proceedings were still pending before the New York County Surrogate's Court, the Wynyards filed an "Amended and Consolidated Petition for a Declaratory [*2]Judgment, and Accounting and Other Relief." The second cause of action in the amended petition states in relevant part: "Petitioners request that this Court declare that the assets of ACNY include all inventory property and monies entrusted to the receiver and all inventory, property and monies held by the Liechtenstein Trusts . . . ." Although Surrogate Preminger dismissed a number of claims in the amended petition, she allowed others to proceed including "the second cause of action . . . for [a] declaratory judgment that assets of the Liechtenstein Trust and certain other respondents are the property of ACNY" (Matter of Weinberg, NYLJ, Nov. 18, 1998, at 27, col 3). Thus, Surrogate Preminger recognized "that petitioners' claim of ownership of the disputed assets will be resolved in these proceedings" (id.).
The genesis of this motion is the November 20, 2003 decree of this court as modified in part on appeal (Matter of Beiny [Wynyard v Beiny], NYLJ, July 22, 2003, at 19, col 5, mod 16 AD3d 221 , lv denied 5 NY3d 710 ). This court, confirming in substantial part findings of fact made by a referee appointed by Surrogate Preminger, surcharged Rotraut Beiny (Beiny) the sum of $8,305,860. The surcharges were imposed against Beiny for failing as a trustee of the Wynyard Trusts to recover on behalf of the trusts the following: misappropriated "Z" goods belonging to ACNY, the profit from a business opportunity that she diverted from ACNY to herself, and the cash surrender value of a life insurance policy owned by ACNY which she misappropriated. The surcharges were imposed solely for the benefit of the Wynyard Trusts which had a 45% interest in ACNY at that time. Consequently, the amount surcharged was equal to 45% of the actual loss to ACNY. The decree further provided that, in the event that Beiny failed to satisfy the surcharges within 20 days, a sufficient amount of ACNY assets could be sold to satisfy the surcharges.
This court reasoned as follows: (1) the Beiny Trusts controlled ACNY, as those trusts owned 55% of ACNY; (2) the Beiny Trustees had the authority to invade the principal of the trusts for Beiny's benefit; (3) the Beiny Trustees, in effect, exercised that power of invasion in favor of Beiny by allowing Beiny to operate ACNY in any manner she desired, including the actions which benefitted her and for which she was surcharged; (4) the referee and the court were both concerned that Beiny, who was living abroad, was transferring assets to make herself judgment proof; and (5) based upon the foregoing, and in the event that Beiny failed to satisfy the surcharges, it was equitable that a portion of the ACNY inventory in an amount equal to 45% of the invasion of principal from ACNY which had benefitted Beiny should be sold with the proceeds payable solely to the Wynyard Trusts (Matter of Beiny, supra). On appeal, the amount of the surcharges imposed by this court, including the $7,366,870 surcharge for Beiny's failure to seek to recover the misappropriated "Z" goods was affirmed; however, the portion of the decree directing that ACNY inventory be sold to satisfy the surcharges in the event that Beiny failed to personally satisfy the sum surcharged was vacated. The Appellate Division, First Department, held that "[o]f the Beiny Trust beneficiaries, only Ms. Beiny has been deemed a malefactor, and equity is not served by a remedy that would essentially require innocent trust beneficiaries [Beiny's issue, who take the remainder interest in the trust in the event that the trustees neither distribute nor permit Beiny to take the entire trust corpus during her lifetime] to answer in damages for her derelictions" (Matter of Beiny,16 AD3d at 223).
Shortly after the determination of the appeal from this court's November 20, 2003 decree, the Wynyards, who were unable to collect any portion of the surcharges imposed against Beiny, made the instant motion, which, in effect, is a motion for summary judgment on the second cause of action in their amended petition. They contend that no questions of fact exist as this court confirmed the [*3]referee's finding that the "Z" goods constituted inventory of ACNY that was diverted to the Liechtenstein Trusts without consideration. Specifically, they rely upon the portions of the decisions of this court and the Appellate Division holding that Beiny breached her duties as a trustee of the Wynyard Trusts by countenancing the misappropriation of ACNY goods by failing to seek recovery of the "Z" goods. These decisions note that Beiny took no action despite her knowledge that inaccurate bills of sale reflected that those goods had been sold by ACNY to third parties when, in fact, this ACNY inventory had been transferred by one or both of her parents to the Liechtenstein Trusts without any consideration (Matter of Beiny [Wynyard v Bieny], NYLJ, July 22, 2003, at 19, col 5, mod 16 AD3d at 221).
The respondents who oppose the movants' request, specifically, Michelle Beiny Harkins, Michelle Beiny, Inc. and David Hanns Michael Beiny, contend that the motion is procedurally defective, the court lacks jurisdiction over necessary parties, and the relief requested is barred by an election of remedies and by the applicable statute of limitations and/or laches. They also assert that even if this court does consider the application on its merits, questions of fact mandate that the motion be denied.
The various supplemental submissions of the parties reflect that they now appear to agree that the instant application is a motion for summary judgment on the second cause of action set forth in the movants' amended petition. The movants concede that the trustees of the Liechtenstein Trusts were not made parties to the proceedings before the court, and consequently, a declaratory judgment cannot be entered that would be binding upon them. Nonetheless, the movants argue that Beiny controlled the Liechtenstein Trusts, and therefore, each of the trusts can either be ignored as an entity or the declaratory judgment can be deemed to be effective as against only Beiny at the time that each of the trusts terminates in 2010 or 2011. The movants also concede that to the extent that it might be inequitable to allow them to obtain both the surcharges imposed against Beiny and all of the "Z" goods, they might be declared to have less than a 100% ownership interest in the "Z" goods.
Although the court cannot embrace many of the respondents' arguments, the court concurs with the respondents that the motion must be denied for the following reasons: (1) the failure to include the Liechtenstein trustees as parties to the proceeding is fatal to making a determination that is binding upon those trusts; (2) as long as the Liechtenstein Trusts are in existence, the right of the contingent beneficiaries, who have the beneficial interest in the "Z" goods in the event that Beiny dies prior to the termination of each trust in 2010 or 2011, cannot be affected or terminated in a proceeding in which the trustees are not joined as parties; and, (3) to the extent that the movants seek only a declaratory judgment against Beiny, individually, upon termination of the Liechtenstein Trusts, such relief would impair the present ability of the Liechtenstein Trusts to sell the goods, and in any event, is barred by an election of remedies, as the movants already obtained a monetary judgment against Beiny.
The movants' contentions fail to give sufficient weight to the fact that EPTL 7-2.1 (a) expressly provides that legal title to trust property vests solely in the trustees. Thus, neither the beneficiaries of a trust nor any one other than the trustee may validly encumber or convey legal title to property owned by a trust (see Matter of Wynyard v Beiny, 228 AD2d 265 ; Cohn v United States Trust Co., 127 AD2d 523 ). It follows that the trustee is a necessary party in any action that seeks a determination that affects title to property in which the trust claims an interest. As noted by the Court of Appeals long ago, "[i]t is the duty of a trustee to defend and protect the title [*4]to the trust estate, and as legal title is in him, he alone can sue and be sued in a court of law" (Matter of Straut, 126 NY 201, 212 ; see also Emigrant Indus. Sav. Bank v New Rochelle Trust Co., 273 App Div 62, 66 , affd 297 NY 996  ["The trustee being the owner of the fee was a necessary and proper party in the foreclosure action"]; Katz v Village of Southampton, 244 AD2d 461, 462  [in an action to declare an easement over land held by a trust, the court noted that as the trust might be inequitably affected by a judgment in the action, "[i]t follows, therefore, that the . . . causes of action asserted in the complaint must be dismissed because of the nonjoinder of a necessary party"]).
Here, the movants candidly state that they seek a declaratory judgment because they believe that a cloud on the title of the "Z" goods would impede the ability of anyone to transfer title to the goods to a third party, and therefore, might force Beiny into reaching a settlement with them. Consequently, even if the court were to follow the movants' suggestion that the declaratory judgment be limited to the legal title that Beiny will acquire in 2010 or 2011, such a determination, based upon the above premise of the movants, would impair the trustees' ability to sell the "Z" goods presently held in the name of the trusts. Under these circumstances, as the trustees are charged with the responsibility of protecting title to the trust property, they are necessary parties to this proceeding. Therefore, the failure to join the Liechtenstein Trustees as parties requires that the motion for a declaratory judgment be denied (see Matter of Straut, 126 NY at 212; Emigrant Indus. Sav. Bank v New Rochelle Trust Co., 273 App Div at 62; Katz v Village of Southampton, 244 AD2d at 461).
The movants' contention that the court should ignore the existence of the Liechtenstein Trusts on the ground that for all practical purposes Beiny controls the trusts, cannot be accepted by the court. Although the court did confirm the referee's finding that Beiny, essentially, controlled the operations of ACNY as a result of the Beiny Trustees allowing her to operate ACNY with a blind-eye towards her improper conduct, this court has not made a similar finding with regard to the Liechtenstein Trusts. Furthermore, even if the court had made a similar finding of fact with regard to those trusts, the existence of contingent remainder interests would preclude this court from ignoring the Liechtenstein Trusts as entities even though it is likely that Beiny will ultimately receive all of those trust assets by 2011, if not sooner (see Matter of Beiny [Wynyard v Beiny], 16 AD3d at 221).Finally, even assuming, arguendo, that the court agreed with the movants that the existence of the Liechtenstein Trusts can be ignored as the relief sought is really against Beiny, the movants still face an election of remedies defense with respect to her. This is so even though CPLR 3002 (a) provides that "[w]here causes of action exist against several persons . . . the recovery against one of a judgment which is unsatisfied, shall not be deemed an election of remedies which bars an action against the others" (see Prudential-Bache Sec., Inc. v Golden Larch-Sequoia, Inc., 118 AD2d 487 ). Thus, CPLR 3002 (a) allows a plaintiff to obtain judgments against multiple parties until the full amount of the judgment is satisfied (see Gillespie v Flight Line Pub., Inc., 2 AD3d 1014, 1015 ).
However, the CPLR 3002 (a) relief allowed against multiple parties provides no remedy to the movants with respect to their present claim against Beiny, as once a party obtains a judgment against one defendant, the statute does not allow that party to rely upon the gravamen of the prior action to sue the same defendant for a different remedy (see Sabeno v Mitsubishi Motors Credit of Am., Inc., 20 AD3d 466  [plaintiff who obtained a monetary judgment against defendant for a defective car that could not be repaired had "elected her remedy" and was barred from thereafter [*5]pursuing a conversion action against the same defendant or its assignee notwithstanding that the plaintiff had not collected on the judgment and the car was reposessed]). Instead, the statute provides only that a plaintiff may pursue additional relief and remedies against other defendants until the judgment is satisfied (see Seaman v Fichet-Bauche N. A., Inc., 176 AD2d 793 ; Gatz v Foster, 159 AD2d 482 ; Prudential-Bache Sec., Inc. v Golden Larch-Sequoia, Inc., 118 AD2d at 487). Thus, because the movants obtained a money judgment against Beiny for the "Z" goods, they are now barred from obtaining a declaration as to ownership of the "Z" goods as against her (Sabeno v Mitsubishi Motors Credit of Am., Inc., 20 AD3d at 466).
The court is cognizant of the fact that when the November 20, 2003 decree was entered awarding the movants $7,366,870 in damages against Beiny for the "Z" goods, the movants did not know that the provision of the decree granting the remedy that ACNY inventory be sold to satisfy the decree would be vacated on appeal. Nonetheless, the movants have not sought to vacate that portion of the decree that awarded damages for the loss of the "Z" goods. Consequently, to grant the relief presently requested would be tantamount to awarding prohibited double damages with respect the "Z" goods; i.e., both a multi-million dollar award against Beiny for the "Z" goods and a declaratory judgment that ACNY is now the owner of all or a percentage of the "Z" goods.
In light of the determination that the motion for a declaratory judgment must be denied, the court will not address the remaining contentions of the respective parties; however, the parties' remaining contentions were either considered and rejected, or based upon the submissions herein, were not ripe for determination in a summary judgment motion.