Matter of Cipriani

[*1] Matter of Cipriani 2009 NY Slip Op 51254(U) [24 Misc 3d 1204(A)] Decided on June 22, 2009 Sur Ct, Bronx County Holzman, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 22, 2009
Sur Ct, Bronx County

In the Matter of the Estates of Ralph Cipriani, Deceased and Esther Cipriani, Deceased



20-A/89



Richard M. Duignan, Esq., for Laura Cipriani, administratrix d.b.n. of the Estate of Ralph Cipriani and administratrix of the estate of Esther Cipriani. petitioners

Tarter, Krinsky & Drogin, LLP, (Andrew N. Krinsky, Esq., of Counsel) for Gary Cipriani, respondent

Jeffrey S. Goldberg, Esq., for Neil Avenue Construction Co., Inc., respondent

Lee L. Holzman, J.

In these consolidated proceedings, Laura Cipriani, as the administratrix d.b.n. of the estate of her father, Ralph Cipriani, and the administratrix of the estate of Esther Cipriani, Ralph's post-deceased mother, seeks: (1) a recovery against Gary Cipriani, Esther's other son, for distributions that he, as the former administrator of Ralph's estate, made to Esther; and (2) an order directing Gary to turn over to Esther's estate 22.91 shares of stock in Neil Avenue Construction Co. Inc. (Neil), a closely held real estate holding corporation in which all shareholders appear to be related, and the distributions that Gary received from Neil on those shares. A bench trial was held.

The unusual fact pattern of this case is set forth in the decision of this court rendered on October 12, 2001 (Matter of Cipriani, NYLJ, Nov. 13, 2001, at 21, col 2, affd 298 AD2d 263 [2002], lv denied 100 NY2d 514 [2003]). Laura's parents were not married when she was born on March 24, 1961. Approximately two years after Laura's birth, her parents married and they both executed the requisite documents so that Ralph was listed as Laura's father on her birth certificate. Laura's parents divorced while she was a young child, and she had not been in "touch" with him after he left the marital abode in 1966. Despite the fact that Ralph died intestate on November 24, 1988, Laura did not learn of his death until 1998 or 1999. In the interim, and based upon an allegation that Esther was Ralph's sole distributee, by a decree dated March 3, 1989 letters of administration issued to Gary as the designee of Esther.

In September 1999, Laura filed a proceeding in Ralph's estate seeking the following relief: [*2](1) a determination that she is Ralph's daughter and his sole distributee, (2) the revocation of Gary's letters of administration, (3) an accounting from Gary, and (4) the issuance of letters of administration to herself so that she could seek to recover the estate's assets. Gary opposed the application, alleging that no one in the Cipriani family knew that Ralph had a child because he never openly and notoriously acknowledged that he had a child to any of them, and consequently, Laura was not a distributee pursuant to EPTL 4-1.2. The court, relying upon the provisions of EPTL 4-1.2 (a) (2) and Domestic Relations Law § 24 as "guideposts," granted Laura's application without in any way "passing upon whether . . . [Gary] has incurred any liability to . . . [Laura] or whether . . . [Laura] will ultimately be entitled to recover from anyone" (id.).

Esther died intestate on February 26, 1998, almost 10 years after the death of Ralph. As Esther apparently died without any assets in her name, no application was made to appoint a fiduciary of her estate until November 25, 2003 when Laura, who is entitled to 50% of Esther's estate as the daughter of Esther's predeceased son Ralph (EPTL 4-1.1 [a] [3]), petitioned for letters of administration in Esther's estate in order to pursue claims on behalf of that estate against Gary. Gary's objections to the application were dismissed and letters of administration issued to Laura (see Matter of Cipriani, NYLJ, Feb. 11, 2004, at 27, col 6).

In the years prior to the instant trial, Gary filed his account in Ralph's estate, and the parties engaged in extensive discovery. They also made numerous motions, including a successful motion by Gary to disqualify Laura's original attorney. Laura contends that she, and not Esther, is Ralph's sole distributee, so all of Ralph's assets listed in either Gary's account or in an estate tax return filed for Ralph's estate (the account and estate tax return are both in evidence) were improperly distributed by Gary to Esther, and he is liable for such distributions. Gary responds that he is not liable for any of the distributions to Esther, as they were all made in good faith at a time when he had no reason to believe that Laura was Ralph's child. He also contends that Laura's claims in Ralph's estate are barred by the applicable statute of limitations, whether the limitations period is three or six years and, even if there is no applicable limitations period, her claims are barred by laches. Laura replies that any limitations period was tolled until 1998 or 1999 when she first learned of Ralph's death. She also maintains that because Gary was the fiduciary of Esther's estate, the limitations period did not commence until either Gary openly repudiated his role as fiduciary of Ralph's estate or accounted in Ralph's estate.

The respective positions of the parties with respect to the Neil shares that Gary received from Esther are similar to their respective positions with respect to the distributions made from Ralph's estate. Gary also contends that he received those shares as a gift from his mother in the early 1990's, while Laura asserts that Gary wrongfully transferred those shares to himself as attorney-in-fact for Esther.

At the trial, both sides called the same three witnesses, namely: Gary, Laura and Linda Marchesani, the latter of whom is an officer of Neil and Gary's cousin. The deposition of Laura's mother is also in evidence.

The proof adduced at trial as to whether Gary had any reason to know that Laura was Ralph's child prior to Laura's learning about Ralph's death was more extensive than, but entirely consistent with, submissions on the issue in prior applications. Specifically, during the marriage of Laura's parents, the other members of the Cipriani family were told that Laura, rather than being the child of Ralph and her mother, was the foster child of Laura's mother. During her deposition, Laura's [*3]mother opined that one of the reasons that she and Ralph divorced was that Ralph refused to tell his family that Laura was his child. It appears that Ralph took this position with his family both because he was embarrassed and because Laura's mother was not ready to marry him prior to Laura's birth. In any event, the only time Laura saw Ralph after 1966 when he left the marital abode, was in 1970, when she and her mother attended the funeral of Ralph's father. Laura waived to Ralph on that occasion but did not talk to him. Thereafter, Laura neither saw nor in any way communicated with either Ralph or any other member of the Cipriani family during Ralph's life. Although Ralph died in 1989, Laura first became aware of his death approximately ten years later.

Gary's accounting for Ralph's estate reflects that he collected "total assets" valued at $184,126.06. Although the New York State Estate Tax Return reflects a slightly larger taxable estate, the difference can be explained, at least in part, by life insurance proceeds that passed to Esther by operation of law. Gary stated that he distributed to Esther all of the estate assets, including Ralph's 1.11 Neil shares, within a period of approximately one year. He conceded that a substantial portion of the assets that Esther received from Ralph's estate were deposited by her in bank accounts on which he was named as a joint tenant. Nonetheless, Gary testified that from those accounts Esther paid her own bills and took care of her own financial affairs until she was hospitalized in 1995 or 1996. After Esther was discharged from the hospital, she resided in a nursing home until her death in 1998. Gary testified that he never used any of the funds in the joint accounts for his own benefit, and that Esther died without any estate, as her funds had been used during her life for her care.

Linda Marchesani, another shareholder of Neil, testified about a conversation that she had with Esther and Gary in the early 1990's, when she talked to them about the advisability of the older shareholders transferring their Neil shares to their children. Thereafter, she had conversations with Gary about the documents required to transfer Esther's shares to him. Eventually, in an undated letter signed by Gary as Esther's attorney-in-fact, a request was made to Neil that Esther's 22.91 shares be transferred to Gary. Gary was advised that a copy of the power of attorney would have to be sent to Neil before the transfer could be effectuated. After Gary signed the assignment on the back of the stock certificates as attorney-in-fact and complied with the request to supply a copy of the power of attorney, those shares were registered in Gary's name on the books of Neil on October 28, 1995.

The power of attorney, executed by Esther on October 1, 1994, is in evidence. It is a statutory short form general power of attorney ("Blumberg" form) on which Esther initialed all of the powers set forth in "A" through "N" with the exception of "J" relating to benefits from military service. It is noted that, at that time, the form did not provide any grant of authority to the attorney-in-fact to make gifts on Esther's behalf to anyone, let alone to the attorney-in-fact.

Linda also testified about certain records of Neil. The records in evidence clarify that the 1.11 shares that Esther obtained from Ralph's estate are included in the 22.91 shares that were transferred from Esther to Gary. In addition to the 22.91 shares that Gary acquired from Esther, the evidence demonstrates that Gary individually owned 1.11 shares that he received from an uncle's estate. Ralph received his 1.11 shares from the same uncle's estate. A document in evidence setting forth the distributions that Neil made to Esther and Gary from March 1993 through December 2004 reflects that Esther continued to receive all distributions from Neil on her 22.91 shares until the transfer of those shares to Gary was recorded on Neil's books in October, 1995. [*4]

The testimony of Linda and Gary was similar with respect to the conversation that Linda had with him and Esther about transferring the Neil shares. Although Gary asserts that after that conversation, in approximately 1992, Esther made a gift to him of her shares of stock in Neil, he could not recall whether documents were executed at that time to confirm or to effectuate the gift or where the shares were kept after the purported gift. When, on cross examination, Gary was confronted with the affidavit he submitted in opposition to an order to show cause in this proceeding wherein he stated that "prior to my mother's (Esther's) death, she had been severely debilitated by Alzheimer's disease," he responded that he was not a doctor, and he was unable to opine on his mother's mental state from the time period that she was hospitalized to the date of her death.

The first issue to be resolved is whether Laura is entitled to recover from Gary the assets of Ralph's estate or the value thereof that he distributed to Esther. The six-year statute of limitations for an action based upon a breach of a fiduciary duty did not begin to run until either Gary openly repudiated his obligation to administer the estate or judicially accounted (Matter of Barabash, 31 NY2d 76 [1972]; Elghanayan v Victory, 192 AD2d 355 [1993]; Matter of Francis, 19 Misc 3d 536 [2008]). As Gary neither openly repudiated his fiduciary obligations nor accounted prior to Laura's commencement of the proceeding seeking to recover for Gary's acts as the administrator of Ralph's estate, Laura had a right to an accounting.

Nonetheless, Laura does not automatically prevail merely because her time to demand an accounting is not time barred. To the contrary, although a fiduciary is held to a very high standard of conduct, the law does not require a fiduciary to be infallible. Thus, regardless of whether the actions under scrutiny are investments or distributions to beneficiaries, the standard applicable to a fiduciary is similar to that employed in negligence cases; to wit, to act as a prudent person of discretion and intelligence in such matters (see EPTL 11-2.2 [a][1]; Matter of Carpenter, 154 Misc. 143 [1935]).

In Matter of Carpenter (154 Misc. at 145), the court held that the administrator was not liable for distributing the entire estate in good faith to the decedent's son at a time when the administrator had no reason to know that the decedent was also survived by another distributee, an infant grandchild, and stated: "Administrators are not insurers or guarantors, and in order to hold such fiduciaries responsible for their acts it must be shown that they have been guilty of negligence or misconduct of some other nature by which the estate has suffered a loss" (citations omitted).

There is no statutory provision requiring a formal accounting in an estate. In fact, the overwhelming majority of fiduciaries in both testate and intestate estates make distributions to the beneficiaries of the estate without the delay and expense usually entailed in a formal accounting proceeding. Nonetheless, the fiduciaries who fail to judicially account run the risk that, at some future date, an interested party may compel them to account and seek to hold them responsible for their acts as a fiduciary. Therefore, based upon principles of equity and the public policy of encouraging the expeditious and economical administration of estates without a judicial accounting, SCPA 1802 provides that, "if any claim is not presented . . . within 7 months from the date of issue of letters, the fiduciary shall not be chargeable for any assets or monies that he may have paid in good faith . . . to the legatees or distributees . . . before such claim was presented." [*5]

Although SCPA 1802 is not a statute of limitations barring any recovery because a claim was not presented within seven months of the issuance of letters, it does bar recovery against a fiduciary where the claim was not presented within the seven-month period and the fiduciary neither knew nor should have known about the claim with due diligence before distribution was made to the beneficiaries of the estate (see Matter of Bailey, 147 Misc 2d 46 [1990]). Thus, in effect, SCPA 1802 is a statutory laches defense which bars a recovery against fiduciaries who, relying upon the fact that no claim was presented within the seven-month period, changed their ability to pay the claim with estate assets as a result of good faith distributions to beneficiaries.

Unquestionably, SCPA article 18 was enacted to deal with claims of a creditor of the estate and not the claims of beneficiaries (see SCPA 1803 [1]). This is so because the identity or possible existence of the decedent's distributees or legatees is usually known by the fiduciary from the inception of the estate. However, the court cannot think of any reason why a fiduciary should be held liable to a previously unknown beneficiary of an estate for a good faith distribution to all known distributees, but not liable for such a distribution to any other claimant (see Matter of Carpenter, 154 Misc at 145). The legislative policy favoring the expeditious good faith distribution to known beneficiaries of an estate is also reflected by the provisions of EPTL 11-1.5, entitling legatees and distributees to interest, under certain circumstances, where they did not receive all that they were entitled to receive from the estate after the expiration of seven months from the date of the issuance of letters. Furthermore, even though a claimant may not recover from the fiduciary under the circumstances provided in SCPA 1802, the claimant may trace the estate assets into the hands of the beneficiaries and obtain a recovery against them (see EPTL 12-1.1 et seq.), provided that the claim against the beneficiaries is not barred by the applicable statute of limitations or some other grounds.

The proof adduced clearly establishes that Gary acted in the good faith belief that Esther was Ralph's sole distributee when he distributed all of the assets of Ralph's estate to Esther within a year of his appointment as the administrator of Ralph's estate in March, 1989. Although it is completely understandable why Laura chose not to communicate with either her father or other members of the Cirpriani family in the approximately 20 years that elapsed between her attaining the age of 18 years and the presentation of her claim against Gary, she cannot now be heard to complain that Gary did not know of her "secret" status as Ralph's daughter where, as here, it is uncontroverted that neither she nor any other person made her status as Ralph's daughter known to any Cipriani family member prior to the pending litigation. Accordingly, Laura's claim against Gary for the distributions that he made from Ralph's estate to Esther must be denied, as she failed to establish that Gary did not act as a prudent fiduciary when he distributed the assets of Ralph's estate to Esther, the person he then reasonably and in good faith believed to be Ralph's sole distributee (see SCPA 1802; Matter of Carpenter, 154 Misc at 145). Moreover, as Esther received her distributive interest in Ralph's estate in 1989 or 1990, she too believed in good faith that she, as Ralph's mother, was his sole distributee. Thus, any claim that Laura might have had against Esther, as sole distributee of Ralph's estate, to recover the property distributed to her, or its value, was clearly time barred by 1999, when Laura first commenced proceedings in Ralph's estate (see CPLR 213 [1], [6]; CPLR 214 [3]).

The remaining issue is whether Esther's estate is entitled to recover from Gary the Neil shares that Gary contends Esther gifted to him in the early 1990's. Gary's alternate position is that, at the latest, the gift was made to him in October 1995, when the shares were registered in his name on the [*6]books and records of Neil.

Obviously the statute of limitations does not start to run against an action to set aside a gift until such time as the gift is made. The three elements that must be established to prove that the decedent made a valid inter vivos gift are donative intent, delivery and acceptance (Gruen v Gruen, 68 NY2d 48 [1986]; Matter of Szabo, 10 NY2d 94 [1961]). The donee of a

gift allegedly made by a decedent bears the burden of proving each of the three elements of the gift by clear and convincing evidence (Matter of Lefft, 44 NY2d 915, 918 [1978]; Bader v Digney, 55 AD3d 1290 [2008]; see also Gordon v Bialystoker Ctr. & Bikur Cholim, Inc, 45 NY2d 692 [1978]; Matter of Clines, 226 AD2d 269 [1996], appeal dismissed 88 NY2d 1016 [1996]).

Here, even if the evidence is viewed in a light most favorable to Gary, he established, at best, that Esther indicated that she was in favor of transferring the Neil stock to him. Assuming, arguendo, that this proof suffices to establish donative intent and that acceptance of a gift of value may be presumed in the absence of a rejection of the gift, Gary failed to offer any evidence of either an actual or constructive delivery of the Neil stock prior to his use of the power of attorney in 1995. Consequently, based upon the lack of proof of any type of delivery, and in light of the evidence that Esther continued to receive distributions from Neil during this period, Gary failed to clearly and convincingly establish that Esther gifted the Neil shares prior to the transfer effectuated by the power of attorney (see Matter of Szabo, 10 NY2d at 94).

Gary relies upon either the statute of limitations or laches to bar a claim on behalf of Esther's estate to recover the Neil shares that Gary, as attorney-in-fact for Esther, transferred to himself, purportedly to effectuate a valid gift. An attorney-in-fact has the same obligation to account to the principal as the fiduciary of an estate has to account to a beneficiary of an estate (Matter of Francis, 19 Misc 3d at 536). Consequently, the six-year statute of limitations did not begin to run until Gary either openly repudiated his obligations as attorney-in-fact or judicially accounted (Matter of Barabash, 31 NY2d at 76; Elghanayan v Victory, 192 AD2d at 355; Matter of Francis, 19 Misc 3d at 536).

Gary did not offer any proof that he ever repudiated his fiduciary obligation to Esther during her lifetime or that he ever told her that he used the power of attorney to effectuate the Neil gift. Gary's reliance upon either laches or the statute of limitations is misplaced for the following reasons: Esther did not die until February 26, 1998; Gary was aware that Laura was making inquiries about the Neil shares by 1999; and, in 2003, Gary opposed Laura's petition seeking to be appointed as administratrix of Esther's estate so that she could pursue this claim. In short, as Gary never made a repudiation to Esther, the earliest that the limitations period could have commenced was upon her death in 1998, and the claim against Gary for the Neil shares was instituted within six years of Esther's death. Furthermore, the doctrine of laches is not applicable because Gary failed to demonstrate that he was prejudiced by the time that elapsed from the date of Esther's death to the commencement of this proceeding (see First Nationwide Bank v Calano, 223 AD2d 524 [1996]).

Here, as the power of attorney did not authorize the making of a gift by the attorney-in-fact, Gary's unauthorized use of the power to make a gift to himself carries, at the very least, "a presumption of impropriety and self-dealing" that can be overcome only "with a clear showing of the principal's intent" (Matter of Maikowski, 24 AD3d 258, 260-261 [2005], quoting Matter of Naumoff, 301 AD2d 802, 805 [2003], lv denied 100 NY2d 534 [2003]). Furthermore, even if Gary had clearly demonstrated that when the power of attorney was executed, Esther intended that Gary [*7]have the power to make gifts to himself, which the proof did not clearly demonstrate, Gary would be required to also prove that when he transferred the Neil shares to himself, the gift was in Esther's "best interest" to carry out her "financial, estate or tax plans" (Matter of Ferrara, 7 NY3d 244, 254 [2006]).Gary failed to overcome the presumption of improper self-dealing by a clear showing of Esther's intent that he could use the power of attorney to make a gift of the Neil shares to himself. Thus, the purported gift fails on this ground alone (Matter of Maikowski, 24 AD3d at 260-261). In light of Gary's own affidavit that Esther had been severely debilitated by Alzheimer's disease, it is not even clear that Esther had the capacity to make a gift. If she had the requisite capacity, no explanation was offered for why she did not sign the assignment for the shares. Moreover, as Esther died without any assets in her own name, Gary failed to establish how the making of the gift was in Esther's best interests. Accordingly, the purported gift of the Neil shares to Gary is also invalid on the alternative ground that Gary failed to establish that the gift was in her best interest (Matter of Ferrara, 7 NY2d at 244).

Although the claim for the Neil shares is on behalf of Esther's estate, as a practical matter, there are no other estate assets to administer. Moreover, Laura and Gary are each entitled to one-half of Esther's estate. Accordingly, the decree to be entered hereon shall provide that Neil shall issue 11.46 shares (one-half of the 22.91 shares that were transferred from Esther's name to Gary's name pursuant to the power of attorney) in Laura's name, and that Gary shall execute any documents that Neil might reasonably require to effectuate the transfer. It also appears from petitioner's exhibit 6 in evidence that from March, 1996 through December, 2003, Neil made distributions to Gary in the sum of $66,362.12. Pursuant to a stipulation entered into by the parties in 2004, any distributions that were made on the Neil shares registered in Gary's name since the date of the stipulation have been held in escrow by Neil's attorney. It appears that as of January 10, 2008 Neil's counsel was holding $50,201.15 in escrow. Thus, the total distribution on these shares is $116,563.27 ($66,362.12 plus $50,201.15). It appears that Gary is entitled to .046 of all of such distributions that were made on the shares registered in his name (the 1.11 shares that Gary owned prior to receiving 22.91 shares from Esther divided by 24.02, representing the total number of shares in Gary's name). Therefore, Gary is entitled to $5,361.91 of the total distributions that were made (.046 of $116,563.27). After deducting $5,361.91 from the total distributions of $116,563.27, Laura is entitled to one-half of the balance of $111,201.36 or $55,600.68.

Accordingly, the decree to be entered hereon shall provide that the escrow agent is to pay the sum of $52,201.15 that he is holding in escrow to Laura and that Gary is to pay the balance of $3,399.53 that is owed to Laura. Of course, if the escrow agent has received any additional distribution since January 2008, Laura is entitled to receive her share of any such distribution; i.e., the amount of said distribution minus .046 of said amount divided by two.

The court, pursuant to the discretion granted in CPLR 5001 (a), is not awarding any interest on the recovery in this equitable proceeding based upon the following: Gary was not aware of Laura's possible status until at or about the time Laura commenced proceedings in the two estates; Laura, in effect, is receiving interest by receiving the distributions from the shares of Neil that she is entitled to from the date of the transfer of those shares from Esther's name to Gary to the present; and Gary voluntarily consented to have all distributions from those shares held in escrow since 2004.

Settle decree.



[*8]SURROGATE