Matter of Sakow

[*1] Matter of Sakow 2009 NY Slip Op 52637(U) [26 Misc 3d 1203(A)] Decided on December 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 22, 2009
Sur Ct, Bronx County

In the Matter of Estate of Max Sakow, Deceased



207-P/56



Gordon, Gordon & Schnapp, P.C. (Elliot Schnapp, Esq., of counsel) for Max Sakow, son

Scott J. Steiner, P.C. (Ely J. Rosenzveig, of counsel) for Evelyn Breslaw and Diana Sakow, daughters

Lee L. Holzman, J.

The sole remaining issue with respect to a distribution in kind of the seven parcels of real property still held by the temporary administrator of the estate of the decedent, who died in 1956, is whether the distribution should be based upon the appraised values of the court appointed appraiser, or whether the appraisals should be modified as requested by the decedent's son (see Matter of Sakow, NYLJ, Aug. 7, 2009, at 37, col 1). The temporary receiver has been administering estate assets for over a decade. Two parcels of real property were previously sold by the temporary receiver for a substantial sum of money and cash distributions were made to the decedent's three children, each of whom has a one-third interest in the estate. The temporary administrator filed his account and it now appears that, upon updating his account, a final decree judicially settling his account may be entered.

The parties agreed that the three sets of appraisals produced during the pendency of this litigation were out of date and that, if the parties were unable to agree on an appraiser, the court should appoint an appraiser from the list of qualified appraisers maintained by the Office of Court Administration pursuant to Part 36, Rules of the Chief Judge to provide new independent appraisals in order to avoid a possibly lengthy and expensive trial with respect to valuation. The parties were unable to agree upon an appraiser. After the court provided counsel for both sides with a copy of the OCA list of appraisers and afforded them an opportunity to advise the court if there were any reasons to disqualify any appraiser on that list, the court designated Peter Zachary, a Member of the Appraisal Institute (MAI), a professional association of appraisers. No party stated that they knew Mr. Zachary or presented any other reason why he should be disqualified. The appraiser performed his function with expedition and provided the following values for the properties:

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The daughters seek distribution to themselves of the apartment building known as Rose [*2]Gardens (2121 Matthews Avenue), the property on which a gas station has operated (2801 Tiemann Avenue), and a lot on Thwaites Place. The appraised value of these three parcels approximates two-thirds of the value of the remaining properties, so the one-third share of their brother would consist of the four remaining undeveloped properties, together with a cash distribution of slightly more than $9,000. The son was held to be the de facto fiduciary of this estate for the period prior to the appointment of the temporary receiver (Matter of Sakow, 219 AD2d 479 [1995]) and his accounting as the de facto fiduciary was rejected by the court (Matter of Sakow, NYLJ, Apr. 16, 2004 at 26, col 4, affd 21 AD3d 849 [2005]).

The son challenged the appraiser's valuations of the three most valuable properties on the list, claiming that Rose Gardens is significantly undervalued and that both 2801 Tiemann and 2800 Ely Avenue are overvalued, based upon various alleged mistakes of fact and/or errors in methodology and procedure. The son sets forth his own valuations ($7,134,000 for Rose Gardens, $850,000 for 2801 Tiemann Avenue, and $1,200,000 for 2800 Ely Avenue) which conveniently cause Rose Gardens to be worth more than two-thirds of all of the remaining properties. Thus, presuming the daughters are awarded Rose Gardens, the son would receive the six other properties, plus a cash distribution in excess of $100,000, a sum which the daughters might not be able to raise without causing financial problems for them. Furthermore, the son now offers to purchase Rose Gardens for $7,134,000, without a mortgage contingency, and to forfeit two-thirds of his down payment in the event that he fails to consummate the transaction. If the court disagrees with the son and uses Mr. Zachary's appraisals, then the son seeks a distribution of the remaining properties that would involve partition of the property at 2800 Ely Avenue.

At the conference with the court, the son argued that the appraiser should be required to justify his appraisals at a hearing and thereby be subjected to cross-examination. The son's counsel also suggested that it would be appropriate to have other witnesses testify as to the proper valuation of the properties. The daughters vehemently objected to any attempt to set aside or modify the appraisals rendered pursuant to the procedure that was established to finally conclude this estate, and to any further delay that will result if the matter is allowed to degenerate into a battle between appraisers. The court, on the record, denied the son's application to examine the appraiser, but afforded the parties a short time in which to provide submissions setting forth their respective positions as to whether there should be any departure from the valuations provided by Mr. Zachary.

The acts of the parties with regard to this litigation-plagued estate are relevant to the issue sub judice. As neither the decedent's son nor his daughters were bashful when it came to litigating any issue, and on many occasions each of them litigated the identical issue several times, it would not be surprising if this estate holds the record for the highest number of applications presented to this court in any single estate. Nonetheless, this does not mean that the equities are equally balanced between the son and the daughters. To the contrary, for decades, the decedent's wife, during the period that she survived the decedent, and his son, disregarded the fact that the daughters were beneficiaries under the decedent's will. Once the daughters discovered their beneficial interest in the estate and sought to compel an accounting, their mother and brother essentially took the position that the estate was insolvent. Notwithstanding that the decedent's will was admitted to probate in 1956, the daughters did not receive any distribution from the estate prior to the appointment of the temporary receiver. On the other hand, as evidenced by the son's proposal herein that he purchase Rose Gardens for cash in excess of $7,000,000, he has become wealthy from his real estate [*3]transactions. However, although it is clear that the son got his start in the real estate business from managing, developing or selling real property that the decedent owned, and he was adjudicated to be the de facto executor of the estate based on such activities, the daughters never proved that the son acquired any portion of his wealth from estate properties instead of from totally independent real estate transactions.

The son did not hesitate to use deceptive devices in an attempt to minimize the daughters' share of the estate and to delay any payment to them. Some examples of the son's deceptive conduct are the following: (1) after this court rejected the son's contention at trial that he was the sole shareholder of a real estate corporation, the son requested reconsideration and, for the first time, provided documents that purported to establish that he was only one of the shareholders; (2) the son's initial response to an order that he produce his tax returns for the period that he was the de facto fiduciary of the estate was to state that he did not file any tax returns for that period of time; (3) the son's account as the de facto executor, reflecting that the daughters were not entitled to any distribution in kind or cash from the estate, appears to be more a work of fiction than fact inasmuch as the temporary receiver, after real property was turned over to him, collected millions of dollars from rental income and sales during his stewardship, and the estate still owns realty with an appraised value in excess of $10,000,000; (4) the son testified in this estate that he did not have an ownership interest in a certain parcel of realty and then, in litigation against other parties before another tribunal, testified that he did have an ownership interest in the realty and that his prior inconsistent testimony was false because he wanted to hide his interest in the realty from his sisters; and, (5) a party to whom the son purported to lease estate property during the period that the son was the de facto executor filed an affidavit in this court stating that the lease was a "sham" and, in fact, the lessee paid more rent to the son than the amount set forth in the lease.

Although the son's conduct with regard to the affairs of this estate is not a basis to reduce his one-third interest in estate assets, the equities mandate that the daughters have first choice as to the properties that are to satisfy their two-thirds interest. Furthermore, if past conduct is a prognosticator of future conduct, the court cannot accept any of the son's proposals or allegations in the absence of such proposals or allegations being 100% verifiable.

Although certain of the son's arguments have some superficial appeal, it is clear that any hearing delving into the details of the appraiser's fact-finding and methodology would completely defeat the purpose of his appointment and the procedure previously agreed to by the parties. For instance, although the son argues that the appraiser did not give sufficient weight to a recent comparable sale of a property near Rose Gardens, resulting in its lower valuation, the daughters correctly contend that appraisals generally, and specifically the use of comparable sales, are not an exact science and can vary significantly depending on the appraiser (see Olympia & York 2 Broadway Co. v Produce Exch. Realty Trust, 93 AD2d 465 [1983] [one appraiser valued a Manhattan building at $23,700,000, an appraiser designated by the opposing party valued the same building at $62,300,000, and with a third appraiser involved, the building was ultimately valued at $40,200,000, a valuation upheld by the court]). Moreover, many of the son's arguments for overturning or modifying the appraisals involve pure speculation; e.g., that an old building necessarily has its original plumbing and electrical systems, requiring a lower valuation.

In Olympia & York 2 Broadway Co. (id., at 468), which involved a CPLR 7601 proceeding to confirm an appraiser's report analogous to the instant application, the Appellate Division, First [*4]Department, set forth the criteria for setting aside an appraisal produced by a qualified appraiser chosen in accordance with a procedure agreed to by the parties, holding that "the determination of an appraiser is to be upheld as long as the appraiser proceeds in good faith and without bias or fraud."

In another CPLR 7601 proceeding, Penn Central Corp. v Consolidated Rail Corp. (56 NY2d 120, 128 [1982]), the Court of Appeals distinguished the standard for overturning appraisers' valuations from that for overturning an arbitration award, stating that "an award made in an appraisal proceeding, conducted in the informal manner accepted in such proceedings, should not be subject to challenge for failure to observe the formalities suited only to arbitrators." In the instant case, as in Penn Central Corp. (56 NY2d at 127-128), "the valuation determination resolves the entire dispute between the parties," and "there are no issues left for a plenary trial." Here, no fraud, bias or bad faith has been alleged. In fact, the son concedes that Mr. Zachary is an MAI appraiser and does not charge him with anything more than working too fast and coming up with figures with which he disagrees.

Now that the court ruled that the estate is to be concluded by a distribution in kind of the real property based upon appraisals made by a qualified appraiser who has no connection with either side, it is far too late for the son to now change the proposed distribution by alleging that he is willing to purchase Rose Gardens for an amount in excess of the appraised amount. Moreover, there is no reason to believe that this proposal, which is not set forth in full detail, is made in good faith.

The son argues that the gas station property at 2801 Tiemann Avenue should not be appraised at this time because there is still a possibility that an eviction proceeding commenced by the temporary receiver could be reversed on appeal, making the property subject to a long-term tenancy that would reduce its value. Inasmuch as this property is one that the daughters seek to have distributed in kind to them, and they propose to value the property as unencumbered, the son has no cause for complaint, especially since he is responsible for the "lease" at issue. With respect to the valuation of the 2800 Ely Avenue parcel, an investigation into the son's myriad complaints would require the court to second guess the appraiser based upon the son's speculation and conjecture.

In view of the entire history of this case and in light of the agreed-upon procedure adopted by the parties, the properties shall be valued at the amounts set forth in the Zachary appraisals. The daughters' application is granted and the balance of their two-thirds share of the estate shall be satisfied with a distribution in kind of the three properties requested: Rose Gardens, 2801 Tiemann Avenue and Thwaites Place. The value of Rose Gardens shall be adjusted to reflect the current amount of the outstanding mortgage. The temporary receiver shall update his account and settle a decree reflecting a distribution of non-real estate assets, two-thirds to the daughters and one-third to the son, taking in to account the distributions of the real property directed herein and making appropriate adjustments for sums advanced to or for the benefit of any party pursuant to prior court order. The amount due to any party to equalize the shares shall be paid upon the

judicial settlement of the temporary receiver's final account.

Should any party not want to wait for the final decree in the accounting proceeding, such party may now settle an interim decree directing that the temporary receiver execute and deliver to the daughters' counsel deeds in recordable form conveying their three parcels to them, as tenants in common or in such other manner or form as they may jointly request, together with any necessary transfer documents. The decree shall also provide that the temporary receiver is relinquishing control [*5]over the remaining four parcels of realty and that title to such properties shall remain in the individuals or entities that are presently the record owners thereof. The son, during the period that he was the de facto executor of this estate, selected who would be the owner of record of the parcels.

The decree(s) to be entered hereon shall also be settled on the Jacob D. Fuchsberg Law Firm. The Chief Clerk shall mail a copy of this decision to counsel for the respective parties, the temporary receiver and the Jacob B. Fuchsberg Law Firm.

Settle decree(s).

Lee L. Holzman

SURROGATE