Matter of StewartAnnotate this Case
Decided on December 1, 2011
Sur Ct, New York County
In the Matter of the Gregory Stewart Inter Vivos Trust.
In the Matter of the William P. Stewart III Inter Vivos Trust.
In the Matter of the Jeffrey R. Stewart Inter Vivos Trust.
In the Matter of the Lisa Stewart Inter Vivos Trust.
In the Matter of the Jeffrey R. Stewart Irrevocable Trust f/b/o Barbara Stewart.
Nora S. Anderson, J.
Special Referee Howard Levine issued two reports, dated November 8, 2010, regarding the several Stewart Family Trusts that are the subject of this decision.[FN1] These reports address [*2]applications which were tried before the special referee in an omnibus hearing conducted January 25 through January 28, 2010. The first report addresses: a petition by Gregory Stewart ("Gregory") to remove his mother Barbara Stewart ("Barbara") as co-trustee of the Gregory Trust; a petition by William Stewart III ("Tres") to remove his parents, Barbara and William Stewart Jr. ("Bill"), as co-trustees of the Tres Trust; a petition by Jeffrey to remove his mother Barbara as co-trustee of the Jeffrey Trust; a petition by Bill to remove his wife Barbara as co-trustee of the Lisa Trust;[FN2] a petition by Barbara to remove Bill as co-trustee of the Gregory and Tres Trusts; a petition by Barbara to remove Bill as trustee of the Jeffrey f/b/o Barbara Trust; and a petition and motion by Barbara seeking to invade principal of the Jeffrey f/b/o Barbara Trust and to pay $2,000,000 of that principal to her. These matters were referred to the special referee by orders dated February 15, 2007, April 2, 2008, June 30, 2008, November 10, 2009, December 16, 2009, and March 23, 2010. In his second report, the referee addresses Tres's September 22, 2010, motion pursuant to CPLR 3217(b) seeking to discontinue his petition insofar as it seeks to remove Barbara as trustee of the Tres Trust. A motion to confirm the first of these reports has been made by Gregory and Jeffrey with respect to their trusts and by Bill with respect to the Lisa Trust. Barbara and Tres oppose confirmation. No motion has been made with respect to the second report.
Petitions to remove Barbara as trustee of the Gregory Trust, the Jeffrey Trust and the Lisa Trust. On the petitions to remove Barbara as trustee of the Gregory, Jeffrey and Lisa Trusts, the special referee recommends that the petitions be granted. He bases his recommendation on a thoroughly documented record of repeated instances in which Barbara put her own personal interests before her fiduciary duty and refused to approve trust expenditures necessary to preserve and protect the trusts' assets. In addition, the special referee found Barbara unfit to continue to serve as a trustee because of her documented hostility to her co-trustee and beneficiaries of such severity that it interferes with trust administration, as well as her apparent failure to comprehend or comply with this court's previous determination regarding the bona fides of the children's trusts and the fact that she is neither a beneficiary or beneficial owner of the trusts's assets (Matter of Stewart, NYLJ, July 16, 2009, at 39, col 6). The special referee found that Barbara's behavior has been so unmindful, if not scornful, of her fiduciary responsibility as to threaten the very continuation of the trusts. The court accepts these findings of the referee, who was in the best position to evaluate the evidence presented by the parties, and whose findings are supported by the record (Nager v Panadis, 238 AD2d 135, 135-36; Namer v 152-54-56 West 15 Street Realty Corp., 108 AD2d 705). [*3]
Barbara does not defend her conduct with respect to the trusts, nor does she oppose the special referee's recommendation that she be removed. Rather, in her opposition, she argues that both she and Bill have conflicts of interest with their children in relation to the trusts and that for such reason, as well as others, Bill should also be removed as trustee.
Accordingly, the court confirms the referee's report insofar as it recommends that Barbara be removed as trustee of the Gregory, Jeffrey, and Lisa Trusts.
Petition by Tres to remove Barbara as trustee of the Tres Trust and subsequent motion to discontinue his request for such relief. Tres's petition to remove Barbara as trustee of the Tres Trust was based upon allegations substantially similar to those made in other petitions seeking Barbara's removal from office.[FN3] Tres pursued this matter through pre-hearing proceedings before the special referee, the omnibus hearing, and the submission of post-hearing briefs.
Months after the close of the hearing, however, Tres filed a motion pursuant to CPLR 3217(b) to discontinue his petition against Barbara. In a separate report, Referee Levine recommends that this motion be denied because special circumstances exist which would render it unfair to the other litigants to allow such discontinuance (Tucker v Tucker, 55 NY2 378, 383; Kane v Kane, 163 AD2 568, 570-71). The referee found such special circumstances in the fact that many of the assets are owned in equal undivided shares by the four children's trusts and cannot be managed separately. In other words, if Barbara continues as trustee of the Tres Trust, she will be able to continue to obstruct the administration of all four trusts. The referee also found that despite Tres's claim that his motion was motivated by a desire to save the trusts additional expense, a discontinuance would undoubtedly cause the trusts to incur greater costs, since the inevitable result would be the commencement of a new proceeding by Bill to remove Barbara as trustee of the Tres Trust with its attendant expenses.
No motion was made by any party to confirm or reject this report, and it is thus deemed confirmed pursuant to SCPA sec.
506(4). Accordingly, Barbara is removed as trustee of the Tres Trust.
Petitions by Barbara and Tres to remove Bill as trustee of the Gregory and/or Tres Trusts. Barbara petitioned to remove Bill as trustee of the Gregory and Tres Trusts on the ground of financial mismanagement. In her post-hearing memorandum, she argued that Bill had wasted trust assets and that he was barred from serving as trustee because of the prohibition in EPTL 10-10.1 against a fiduciary's making discretionary distributions to him or herself.
Throughout the litigation, Tres had sought Bill's removal not on ground of mismanagement, but only on the ground that Bill had failed to stand up to his co-trustee Barbara's unreasonable demands. Having now changed his position and aligned himself with [*4]Barbara, however, Tres argues in this motion that Bill should be removed on grounds of misconduct and dishonesty based on alleged "newly discovered evidence."
The special referee has recommended against removing Bill as trustee. With respect to Barbara's argument based on EPTL 10-10.1, the court agrees with the referee that the statute does not support Barbara's request for relief, first, because the statute does not mandate removal, and, second, because Bill and Barbara do not have the lifetime interest to which the statute applies. With respect to Barbara's argument about Bill's misconduct, the referee fully considered the evidence of Bill's deficiencies as a trustee, including his failure to diversify the assets to reduce over-dependance on WP Stewart Company stock and his failure to act speedily to sell an asset-draining yacht and to curtail other expenses. However, in view of the factors weighing in favor of Bill's retention, including his overall success in asset management, the strong desire of three of the four grantor-beneficiaries that he continue to serve as sole trustee, his renewed role in the WP Stewart Company, and his credible plans to put the trusts on a sound financial footing, the referee recommended against removal. In accord with the prevailing law (see Nager v Panadis, supra; Namer v 152-54-56 West 15 Street Realty Corp, supra), the court accepts these findings of fact by the referee.
In opposition to the motion to confirm, Tres urges the court to consider what he characterizes as newly discovered evidence of Bill's misconduct. Much of the "newly discovered" matter consists of allegations and exhibits which pre-date the omnibus hearing and were aired there or in earlier proceedings.[FN4] For example, alleged tax irregularities at Pierce Capital Ltd., a corporation owned in large part by the children's trusts, were discussed at significant length during the omnibus hearing. The use of trust assets for the purchase and maintenance of luxury items, including issues involved in the purchase and sale of airplanes and the delays in selling the yacht, were fully considered by the referee and are discussed in his report. Positions taken by Bill (and Barbara) with respect to Gregory's employment by the trusts were addressed in an earlier proceeding (Matter of Stewart, NYLJ, December 15, 2008, at 31, col 4). The referee properly refused to consider Tres' allegation of forgery regarding another trust which was not at issue in this litigation.
Tres further argues that the court can consider allegations of misconduct which post-date the hearing, relying on Olstein v Olstein, 309 AD2d 697. The court in Olstein allowed a litigant to present to the court subpoenaed documents received after a hearing held before a referee, which directly related to a factual issue raised at the hearing. The court does not read that case as a license to introduce entirely new factual issues which were not addressed at a hearing. But even if such new allegations can be considered on this application, the issues raised by Tres are insufficient to cause the court to reject the referee's well-supported conclusions that, despite his deficiencies, Bill has acted consistently to protect the trusts and has demonstrated a consistent record of fiduciary responsibility. Accordingly, the referee's recommendation that Bill continue to serve as trustee of the Gregory and Tres Trusts is confirmed. [*5]
Application by Barbara to compel Bill to invade the principal of the Jeffrey f/b/o Barbara Trust. The Jeffrey f/b/o Barbara Trust was created in 1992 in response to Barbara's request for annual tax-free income of $1 million from the children's trusts.[FN5] The trust instrument provides for net income to Barbara and invasions of principal, in the sole discretion of the trustee, for Barbara's support, maintenance or general welfare. It appears that Barbara expected and received income of $1 million from this trust for many years, but the income was greatly diminished when dividends paid by WP Stewart Company stock (the trust's major income-producing asset) diminished and ultimately ceased. Barbara then sought an order compelling the trustee to distribute to her $2 million from principal.
The court agrees with the referee's determination that the trust language clearly and unambiguously provides not for a guaranteed annual payment of $1 million to Barbara, but, rather, for payment of the trust's net income to her. In view of the trust instrument's clear meaning in such connection, extrinsic evidence as to the grantor's intent is irrelevant. The court further agrees with the referee that the trust instrument allows the trustee to consider Barbara's needs and other sources of income and that she failed to show evidence of need for principal invasions. The referee correctly inferred from Barbara's failure to provide certain documents requested in discovery with respect to her finances that such documents, if produced, would have contained evidence adverse to her claim of dire financial need. The referee's findings of fact and conclusions of law are fully supported by the record, and the court therefore adopts his recommendation that the trustee not be ordered to make the requested invasion of principal for Barbara.
Application by Barbara to remove Bill as trustee of the Jeffrey f/b/o Barbara Trust.The referee recommends that Barbara's application to remove Bill as a trustee of the Jeffrey f/b/o/ Barbara Trust be denied. Barbara argued two grounds for removal: first, she claimed that Bill squandered money from the other children's trusts for Barbara's benefit. She then cited the hostility between them engendered by this litigation and the acrimonious nature of their divorce proceedings.
With respect to the first issue, the referee concluded that Barbara did not present evidence of mishandling of assets to make up her income payments. The record shows that during the years that the trusts were returning significant interest, Barbara's $1 million annual payment of income from the Jeffrey f/b/o Trust was funded by equal contributions from the children's trusts, with the knowledge and consent of the children. The referee found no evidence that such procedure was prejudicial to Barbara.
The referee also found that neither the litigation between the parties nor the feelings it generated provide grounds for Bill's removal. Reviewing the applicable law, the referee found that acrimonious litigation between the parties is not a ground for removal unless the hostility [*6]interferes with trust administration (not alleged here) or is detrimental to the interests of the beneficiary. The sole basis for Barbara's claim that Bill acted against her interests, however, is his refusal to accede to her demands for distribution from principal. As discussed above, the court accepts the referee's conclusion that such refusal was reasonable in the circumstances shown. Moreover, as indicated above, there were substantial considerations militating against Bill's removal. Based on this record, the referee's findings of fact and conclusions of law are accepted by the court. His recommendation that Bill continue to serve as trustee of the Jeffrey f/b/o Barbara Trust is thus confirmed.
For the reasons discussed here, the two reports of Special Referee Howard Levine dated November 8, 2010, are confirmed in their entirety.
S U R R O G A T E
Dated: December, 2011 Footnotes
Footnote 1:The Trusts at issue here are four inter vivos trusts created in 1985 (and re-executed in substantially similar form in 1987) by the Stewart children - Gregory, Jeffrey, Lisa and William III ("Tres") - which are referred to herein by the children's first names or collectively as the "children's trusts;" and a 5th trust, executed in 1992 by Jeffrey, which is referred to as the Jeffrey f/b/o Barbara Trust. The trusts have generated substantial litigation in this court, and the background is set out in prior decisions (Matter of Stewart, NYLJ January 11, 2010, at 28, col 4; Matter of Stewart, NYLJ January 7, 2010, at 34 col 6; Matter of Stewart, NYLJ, July 16, 2009, at 39, col 6: Matter of Stewart, NYLJ, April 7, 2009, at 38, col 4; Matter of Stewart, NYLJ, December 15, 2008, at 31, col 4). Familiarity with these decisions is assumed, and they are referenced here only to the extent needed to give full sense to this decision.
Footnote 2:Lisa Stewart died after the conclusion of the proceedings before the referee but before his report issued. Accordingly, an amended petition was served on her children, the successor beneficiaries of her trust, and a subsequent referral of that matter was made to the special referee.
Footnote 3:Although Tres's petition alleged some facts which were unique to his situation and did not necessarily accept all of the factual allegations made by his siblings, Tres "recognize[d] that the current arrangement is unworkable and detrimental to the welfare of the four Stewart trusts" (Matter of William P. Stewart III Trust, Index No. 4776-2005, Petition for Removal of Trustees, at 7, para. 20).
Footnote 4:Despite his current complaints about Bill's fitness to serve as trustee, the referee noted that Tres testified at the omnibus hearing that he was unable to identify a single instance of mismanagement by Bill.
Footnote 5:An issue raised by Barbara as to whether this was, or was supposed to be, achieved through the creation of four separate f/b/o Barbara trusts is the subject of separate litigation and is not material to this dispute. It appears undisputed that the Jeffrey f/b/o Barbara trust received infusions of income from the other trusts to make up Barbara's annual payments.