Matter of Tydings

[*1] Matter of Tydings 2010 NY Slip Op 50628(U) [27 Misc 3d 1208(A)] Decided on April 13, 2010 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 April 13, 2010
Sur Ct, Bronx County

IN THE ACCOUNTING BY Frieda Tydings, AS TRUSTEE OF THE RICKI SINGER GRANTOR TRUST



2838-03



Law Office of Stone & Associates (David Stone, Esq., of counsel) for Frieda Tydings, trustee

Slade & Newman, LLP (Ira L. Slade, Esq. and Lewis I. Newman, Esq., of counsel) for Ricki Singer, objectant

Lee L. Holzman, J.

The separate accounting proceedings of the original and successor trustees of a trust established by the grantor, Ricki Singer (the objectant), for her life benefit, with remainder to her son, were transferred from Surrogate's Court, New York County to this court.

During a conference with the court the parties agreed as follows: (1) the hearing on the objections to the account of the original trustee, Frieda Tydings (the trustee), for the period from November 1, 1993 through December 31, 1996, is to be held prior to a hearing on the objections to the successor trustee's account; and, (2) prior to the hearing, the court would pass upon both the trustee's application to dismiss all of the objections on the ground that they are barred by the statute of limitations and the objectant's motion for summary judgment granting objections 4, 13, 14, 15, 19, 20, 27 (a), 29, 31, 32, 35, 41, 43, 44, 45, 46, and 47.

The trustee's application to dismiss the objections will be considered first as, if granted, the objectant's summary judgment motion, based on the merits of her objections, will be rendered academic. The trustee argues with respect to the statute of limitations issue that since more than six years elapsed from the date of the trustee's resignation at the end of 1996 to the date that the objectant commenced a compulsory accounting proceeding in August, 2003, the objections are time-barred. The objectant counters that this court may not pass upon this issue because the Appellate Division, First Department affirmed the January 30, 2006 order of Surrogate Roth denying the trustee's motion to dismiss the objections as time-barred (Matter of Singer, 12 Misc 3d 621, 625 [2006], affd 30 AD3d 211 [2006]). The trustee contends that this issue was not previously determined, and, in any event, any prior rulings on this issue in this litigation do not preclude this court from reconsidering the issue on reargument.

The short answer to the trustee's application is: (1) this issue was previously decided against the trustee at both the trial and appellate levels; (2) those determinations are the law of the case; and, (3) there is no basis to grant leave to reargue (see CPLR 2221 [d]). [*2]

The Appellate Division, in affirming the January 30, 2006 order, plainly held that the trustee "waived her statute of limitations defense by failing to raise it in response to the grantor's petition to compel an accounting" (Matter of Singer, 30 AD3d at 211). After judicial determination of an issue, the law of the case doctrine precludes the raising and consideration of the same issue thereafter "in the course of a single litigation before final judgment" (People v Evans, 94 NY2d 499, 502 [2000]). Assuming, arguendo, which this court is not willing to do, that it may grant reargument on a motion in which the order of the trial court was affirmed on appeal, albeit on only one of the two alternate grounds, the trustee failed to present a basis for the court to grant leave to reargue the determination embodied in the affirmed January 30, 2006 order of Surrogate Roth. Specifically, the trustee's contention that, in a related case where the trustee seeks a recovery for malpractice against the law firm that previously represented her in this matter, the Court of Appeals directly or indirectly questioned the ruling in this litigation that the trustee waived her statute of limitations defense, is without merit (see Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d 195 [2008]). . Accordingly, this decision constitutes the order of the court that the January 30, 2006 order denying the statute of limitations defense, which was affirmed on appeal, is the law of the case, and to the extent that the trustee seeks reargument on that issue, the application is denied.

Turning to the objectant's motion, it appears that the trust was prepared by the objectant's attorney as alleged by the trustee. In any event, the trust was funded in substantial part with the objectant's one-sixth interest in Romulus Holding, Inc. (Romulus), a closely-held family enterprise dealing, inter alia, in real estate and marketable securities. The trustee, the decedent's cousin, also has a one-sixth interest in Romulus and her father is the operating officer of Romulus. Although the parties agree that one of the primary purposes of the trust was to protect the objectant's assets while she battled drug addiction, they disagree as to its ultimate goal. The objectant contends that the trust was to provide sufficient income to her for life, while the trustee asserts that the purpose was to provide the objectant with income for a limited period to assist her in acquiring the skills she needed to become gainfully employed.

The trust agreement contains numerous provisions granting broad discretion to the trustee to retain non-income producing assets and limiting her liability for any losses incurred by the trust. Specifically, the trust agreement authorizes the trustee: (1) to retain an original investment for any length of time without liability for such retention; (2) to join or participate in a corporation, partnership, joint venture or any other business association and to contribute capital to any such venture; (3) to make loans in such amount and upon such terms to any such venture; and (4) to act on behalf of both the trust and herself or another entity with regard to any transaction in which both the trustee and the trust or the other entity have an interest. The trust agreement further provides that the trustee shall not be responsible for any loss unless such loss results from bad faith or fraud on the part of the trustee, and the trustee shall not be disqualified from acting because the trustee holds an interest in any property or entity in which the trust also holds an interest.

It appears that the objectant was satisfied with the administration of the trust until the trustee advised her that the trust no longer had sufficient liquidity to continue to pay a $10,000 monthly allowance to her. The objectant's displeasure with this situation led to the trustee's resignation at the end of 1996 and the appointment of the objectant's brother as the successor [*3]trustee. It is apparent from the objections filed to the successor trustee's accounting that eventually the objectant became even more dissatisfied with her brother than she was with the original trustee.

The objectant seeks summary judgment with respect to the following: (1) interest-free loans to Romulus (objections 13, 29, 35, 43 and 44); (2) a transfer of trust assets to a trust for the benefit of the objectant's son (objection 46); (3) the use of the trust as a conduit for gifts to third parties from the grantor's parents and the trustee's father (objection 45); (4) the failure to marshal and account for three closely-held entities (objection 19); (5) the failure to manage and segregate trust assets, in that the trust purportedly sold assets that did not belong to the trust so that the assets would appear to have a different basis for tax purposes (objections 14, 31, 32 and 41); (6) the failure to obtain any interest on loans and allowing trust assets to be gifted resulting in inadequate income to provide for the objectant's needs (objections 15, 43, 44, 45, 46); (7) the abdication of fiduciary duties as evidenced by the trustee's lack of knowledge when asked about trust transactions during her deposition (objections 4, 14); (8) the failure to collect the trust's interest in a cooperative apartment that was sold (objection 20); (9) the failure to have real property purchased for the objectant's benefit placed in the trust's name (objections 4, 47); and, (10) the failure to report the sum of $4,125 in interest that was paid on a United States Government bond on January 15, 1994 (objection 27 [a]).

The trustee contends that factual issues exist as to each of the objections enumerated in the motion. With respect to transactions involving Romulus, the trustee alleges that she should not be held liable for interest- free loans for several reasons. She notes that larger interest-free loans were made by other Romulus shareholders to that corporation and that all of the loans benefitted all of the shareholders, including the trust. The trustee asserts that the objectant was aware of those transactions and in fact, the objectant initially partially funded the trust with a note representing an interest-free loan that the objectant had made to Romulus. The trustee further notes that, as is the case with most closely-held corporations, there is a very limited market to sell the trust's interest in Romulus.

The trustee contends that the trust's gift of $600,000 to a trust for the benefit of the objectant's son was done at the objectant's direction, after they fully discussed whether the gift should be made, and that the objectant signed a gift tax return reporting the gift. With respect to the remaining objections, the trustee alleges either that the objectant failed to establish any loss flowing from the alleged breach of fiduciary duty or the objectant was aware, either prior or subsequent to each transaction, about those acts of which she now complains. The trustee contends that all of the objections must be viewed in the context of the assets the objectant used to fund the trust, the family's history in using those assets, the broad discretion the trust granted to the trustee with respect to those assets, and the exculpatory clauses contained in the trust. The trustee asserts that, as the objectant was kept at least "generally" aware of the status of the trust and continued to demand funds "to support a grandiose lifestyle beyond her means," despite the trustee's warnings to her that the trust lacked sufficient resources to continue such a lifestyle and that the objectant needed to become gainfully employed, equitable principles preclude the objectant from prevailing upon these transactions as she either requested or consented to them prior to their occurrence or thereafter acquiesced to them for more than six years prior to the interposition of the objections. [*4]

The parties also disagree with respect to the applicable law. The objectant contends that the exoneration clause in the trust is void as against public policy and that, in any event, the exoneration clause is not broad enough to relieve the trustee for the self-dealing and waste of trust assets alleged in the objections. The objectant also argues that as the trust was established to protect her and considering her age and lack of experience when she established the trust, the trustee may not rely upon the objectant's consent or ratification to avoid being surcharged for improper acts. The parties also disagree as to the applicable statute governing the trustee's investment policies. The trustee contends that EPTL 11-2.2, the statute in effect when the trust was established, is controlling while the objectant relies upon EPTL 11-2.3, which became effective January 1, 1995.

Summary judgment cannot be granted unless it clearly appears that no material issues of fact exist (see Phillips v Joseph Kantor & Co., 31 NY2d 307 [1972]). The movant must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence in admissible form to demonstrate the absence of any material issue of fact (see Alvarez v Prospect Hosp., 68 NY2d 320 [1986]; Friends of Animals, Inc. v Associated Fur Mfrs. Inc., 46 NY2d 1065 [1979]). When the movant has made out a prima facie case, the burden of going forward shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact (see Zuckerman v City of New York, 49 NY2d 557 [1980]). Summary judgment is a drastic remedy which requires that the party opposing the motion be accorded every favorable inference and issues of credibility may not be determined on the motion but must await the trial (see Glick & Dolleck, Inc. v Tri-Pac Export Corp., 22 NY2d 439 [1968]). The papers submitted in the summary judgment application are scrutinized in a light most favorable to the party opposing the motion (see F. Garofalo Elec. Co., Inc. v New York Univ., 300 AD2d 186 [2002]).

The trustee failed to offer a defense with respect to objection 27 (a), alleging that the trust should have collected $10,312.50 in interest on January 15, 1994 on a $250,000 United States bond bearing 8.25% interest and that the account reports that only $6,187.50 was collected in interest, leaving a deficiency of $4,125. The objectant further notes that the trustee's original account incorrectly reflects that the next payment due on that bond was $6,187.50; however, thereafter the trustee corrected that error without correcting the error for the amount due on January 15, 1994. Based upon these uncontroverted facts, the objectant is entitled to summary judgment on objection 27 (a) in the sum of $4,125. Moreover, in an equitable action "interest and the rate and date from which it shall be computed shall be in the court's discretion" (CPLR 5001 [a]). The failure to report the correct income received appears to have been an inadvertent error. Nonetheless, the correct amount should have been reported and earned interest from January 15, 1994. Accordingly, the objectant is entitled to summary judgment on objection 27 (a) in the sum of $4,125 plus interest for the period from January 15, 1994 to the date of this decision and order in the sum of $3,351.56, for a total surcharge of $7,476.56.

With respect to all of the other objections at issue in this motion, the uncontroverted allegations of interest-free loans, self-dealing, gifts of trust assets, and ignoring the trust as a separate legal entity would be sufficient to grant summary judgment to the objectant with respect to most trusts. Nonetheless, this is not a typical trust, and for the purpose of this motion the trustee's factual version of the relevant events must be accepted. As to many of the objections at [*5]issue, the objectant failed to establish that the trust incurred any loss as a result of the acts about which she now complains.

The trustee alleges that the objectant selected her as the trustee because she had a better relationship with the objectant than any other family member. Furthermore, the objectant induced the trustee to administer this trust, consisting of assets that were non-income producing interests in family enterprises, both by granting the trustee broad discretion with respect to such assets and limiting her liability for any loss. The objectant was aware of the manner in which the trust was administered and was completely satisfied with its administration for the entire period that the objectant received $10,000 monthly for the support of herself and her infant son. Moreover, the objectant was aware of the manner in which the assets in family-owned entities were administered prior to the objectant funding the trust with such assets, the trust's interest in such entities was treated similarly to all of the other interests in such entities, and all of the family members interested in these entities, including the trust, benefitted from the interest-free loans to these enterprises. With regard to the trust's involvement with gifts to the objectant's son and others, the objectant was aware of the transactions and consented. In fact, the objectant signed a gift tax return reporting the gift to her son's trust.

The trustee concludes that she administered the trust in accord with the purposes for which it was established, the objectant was aware of all of the transactions at issue in that she either directed those actions to be taken, or consented to such transactions in advance or acquiesced thereto thereafter. Moreover, the objectant did not seek any relief against the trustee when the trustee voluntarily resigned as trustee upon the objectant's request. Instead, it was not until after the successor trustee told the objectant that the trust could not meet her demands, that the objectant for the first time objected to alleged breaches of fiduciary duties by the trustee. Thus, more than six years elapsed from the dates that the objectant either requested or ratified such actions to the date the objections were filed herein.

Accordingly, with the exception of objection 27 (a), the court cannot conclude on the present state of the record that no factual issues exist with respect to the other objections enumerated in the motion. As to those matters where the trustee can establish that the objectant expressly requested that she take certain actions, the objectant may be estopped from seeking to surcharge the trustee (see Matter of Junkerfeld, 244 App Div 260 [1935]; Matter of Bunker, 183 Misc 523 [1944]). The trustee might also be able to avoid a surcharge as to those alleged breaches of fiduciary duty where the objectant consented to the breach or subsequently acquiesced, provided that such ratification was done with knowledge of the relevant facts (see Matter of Levy, 69 AD3d 630 [2010]; Matter of Newhoff, 107 Misc 2d 589 [1980], affd 107 AD2d 417 [1985], lv denied 66 NY2d 605 [1985]). Finally, the court notes that although the parties' respective positions with respect to both the effect, if any, of the trust's exculpatory clause and the applicable statute governing trust investments may, depending upon the proof adduced at trial, become relevant to the court's determination after the conclusion of the trial, the answer to these issues would not resolve the motion sub judice.

Accordingly, this decision constitutes the order of the court granting the objectant's motion for partial summary judgment as to objection 27 (a) in the sum of $7,476.56, and otherwise denying the motion. As previously scheduled, the trial will commence at 10 a.m. on April 20, 2010. The parties are to arrange with Court Attorney-Referee John Raniolo, a date [*6]prior to the trial for a pretrial conference and the marking of exhibits in evidence or for identification.

Proceed accordingly.



SURROGATE