Matter of Cohn

[*1] Matter of Cohn 2013 NY Slip Op 51228(U) Decided on June 28, 2013 Sur Ct, Nassau County McCarty III, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through July 30, 2013; it will not be published in the printed Official Reports.

Decided on June 28, 2013
Sur Ct, Nassau County

Accounting by Constance Fay Klein Ecker, as the Executor of the Estate of Herman Cohn, Deceased.



289261/M

Edward W. McCarty III, J.

This is the first and final account of Constance Fay Klein Ecker as executor of the estate of Herman Cohn. Before the court are: (i) petitioner's motion for partial summary judgment seeking dismissal of ten of the fourteen objections filed by respondent Gladys Bletter to petitioner's account; (ii) petitioner's motion to preclude the objectant Gladys Bletter from offering evidence at the trial and documentation relating to Herbil Holding Company and to preclude Marcum, LLP, James T. Ashe and other Marcum, LLP employees from participating in the trial; and (ii) a cross-motion for an order modifying the order of the Supreme Court of Nassau County (Justice LaMarca) dated February 27, 2009 to permit the full and unrestricted participation by Marcum, LLP employees at the trial as witnesses.

BACKGROUND

Herman Cohn died a resident of Nassau County on January 31, 1995. His will dated August 23, 1994 was admitted to probate on June 12, 1995 and letters testamentary issued to Constance Fay Klein Ecker, a licensed real estate broker who worked with the decedent or the companies with which he was associated for more than thirty years. The decedent was survived by his wife, Blossom Cohn, and his two children, Paul Cohn and Norma Cohn Brygmann. Blossom Cohn filed a notice of election against the will and by decision dated January 2, 1998, this court approved the right of election. Subsequent to filing her notice of election, Blossom died. In that decision, this court held that Blossom's elective share was valid; the elective share would be paid ratably pursuant to statute; and the fractional bequest in trust to Blossom under the will would fall into the decedent's residuary estate.

Gladys Bletter was a partner, co-venturer and co-shareholder with the decedent in a business devoted to the purchase of tax liens. Bletter also developed a personal relationship with the decedent, and for a period of approximately ten years prior to his death, the decedent left his wife and lived with Bletter. Bletter is a beneficiary under the decedent's will. As a result of Blossom's right of election, this court further determined that Bletter's one-third (1/3) share of the estate was subject to reduction for ratably paying the elective share and was also to be calculated net of debts and administration expenses, but not reduced by estate taxes. The decedent's children, the residuary beneficiaries, were similarly required to contribute to the elective share pro rata.

At the time of the decedent's death, the bulk of his estate was held in a company known as Herbil Holding Co. (hereinafter "Herbil") a partnership that the decedent had with his brother, William Cohn, in which they were equal 50% partners. During the course of doing business [*2]through Herbil, the decedent was involved in a number of business transactions with Bletter. At the time of his death, the bulk of the decedent's estate consisted of ownership of approximately 175 parcels of real estate, dozens of mortgages and hundreds of real property liens. The majority of these interests were fractional interests, held with other people or through Herbil. In a number of instances, the interest was formally held in the name of a third-party, with the ownership of Herbil or the decedent memorialized in a separate writing or document.

In June of 1997, a stipulation was entered into between the executor, William Cohn, Gladys Bletter, Blossom Cohn, Paul Cohn and Norma Cohn Brygmann. The 1997 stipulation moved or deemed, as the case may be, many of the assets out of the de jure name of the title holder and into the de facto name of the actual purchasers to reflect their appropriate interests.

One of the assets of the estate was the interest Herbil had in various tax liens that had been acquired in a joint venture with Bletter and/or companies owned by Bletter. For several years after the decedent's death, Bletter refused to voluntary provide an accounting for the assets. In 1999, Herbil brought an action in Supreme Court, Nassau County, against Bletter to account for the various funds and proceeds she had received from Herbil to purchase tax liens. William Cohn was also a plaintiff in that action seeking proceeds he was entitled to under the 1997 stipulation. On motion of Bletter, that action was transferred to this court.

After failing to comply with multiple court orders from the Supreme Court and then the Surrogate's Court to turn over to Herbil the necessary documents in that action in order to permit Herbil to determine what was owed to it, Bletter's answer was stricken. The decision was appealed and upheld. At a subsequent trial of that action, since Bletter was still permitted to defend on the issue of the extent of her liability, a decision was entered in favor of Herbil in 26 of its 27 claims and in favor of William Cohn on his one claim. The judgment in favor of Herbil was for $1,988,881.27. The judgment in favor of William Cohn against Bletter was for $119,187.66.

In addition, Bletter refused to honor a promissory note she had executed in favor of the decedent. The executor brought an action on the note in this court and judgment was entered in favor of the estate and against Bletter on January 13, 2004 in the amount of $364,283.27.

Bletter has made no voluntary payments against any of the three judgments that were now entered in favor of Herbil, the estate and William Cohn.

Bletter has filed fourteen objections to the accounting. The objections at issue in the instant motion are as follows:

"1. Objectant is a one-third beneficiary of the Estate of Herman Cohn without reduction for estate taxes. To date, the Executrix has distributed approximately $916,666.66 to the Estate of Blossom Cohn in excess of the amount distributed to objectant even though objectant's interest in the Estate of Herman Cohn is equal to the interest of Blossom Cohn.

2. The Executrix improperly received and accepted a "severance plan payment" from Herbil Holding Company, a dissolved partnership in which the estate owns a fifty (50%) percent interest, in the amount of $150,000.00 even though the Executrix was not an employee of Herbil Holding Company.

3. The Executrix improperly permitted, allowed or acquiesced to the improper charging [*3]of deductions from income received by Herbil Holding Company in which the estate held a fifty (50%) percent interest. Specifically, and without limitation, Herbil Holding Company improperly deducted medical insurance benefits for the Executrix as an employee of Herbil Holding Company even though in fact the Executrix was not an employee; the Executrix improperly operated her independent real estate brokerage business in office space occupied by Herbil Holding Company without the payment of rent or contribution or other expenses; the Executrix improperly permitted Herbil Holding Company to deduct expenses and employment benefits for individuals who were not employees of Herbil Holding Company, the Executrix permitted Herbil Holding Company to operate other businesses in addition to the business of Herbil Holding Company without allocation of rent and office expenses; the Executrix accepted payment of weekly compensation from Herbil Holding Company for her duties as Executrix for which she was not entitled to compensation therefore in addition to the fee fixed by the testator's will; the Executrix improperly accepted payment for a monthly automobile allowance and expenses from Herbil Holding Company for her duties as Executrix for which she was not entitled to compensation therefore. The wrongful allocation of expenses reduce the amount of monies due and owing to the estate from its interest in Herbil.

4. The executrix has improperly claimed an ownership interest in certain parcels of real property in which the estate holds an interest but which in fact the Executrix holds no interest, including but not limited to, 280 Main Street, Farmingdale, New York and 3 Cheshire Place, North Babylon, New York.

5. The Executrix has improperly claimed an interest in real property belonging to the Estate of Herman Cohn located at 76 Cumberland Street and 92 Alabama Street and 288 Jerusalem Road even though in fact the Executrix has no equitable or legal title to same.

8. The Executrix improperly allowed the surviving partner of the dissolved partnership known as Herbil Holding Company to improperly withdraw in excess of $100,000.00 in purported "draw" payments even though, as a matter of law, the remaining partners of a winding up partnership are not entitled to draw but only a distribution of their share of the profits.

11. The Executrix sold the estate's interest in a property known as Val-Beth Realty for less than fair market value.

12. The Executrix has failed and refused to promptly pay over to and for the benefit of the objectant monies received by the estate for the benefit of the beneficiaries.

13. The Executrix improperly deprived the estate of fifty (50%) percent of the amounts received in litigation against Herman Cohn's accountants and wrongfully and without court order paid over fifty (50%) percent of the proceeds to William Cohn.

14. The Executrix has failed to properly value assets purchased by the estate at a Sheriff's sale held on September 6, 2007. [*4]

WILLIAM COHN MATRIMONIAL ACTION

In and around 2006, the decedent's sister-in-law, Linda Cohn, commenced a post-divorce action against the decedent's brother, William Cohn. In such proceeding, Linda Cohn retained the accounting firm of Marcum & Kleigman, LLP (now known as "Marcum, LLP"), including a partner of the firm. William Cohn's counsel in the matrimonial proceeding believed that Linda Cohn was providing confidential financial documents and records to Bletter to be used in the Surrogate's Court litigation. Accordingly, counsel for William Cohn moved for a protective order to insure the confidentiality of documents provided by William Cohn as a defendant in the matrimonial proceeding.

In a decision dated December 15, 2008, Justice LaMarca noted that Linda Cohn's counsel's position was "that sharing documents disclosed in the instant action with Bletter's counsel is appropriate." Justice LaMarca stated that William Cohn had been cooperative in providing private fiscal documents and was entitled to "the assurance that the use of such documents [was] restricted to the prosecution of the instant action." Accordingly he ordered as follows:

"ORDERED, that any party to this action, their attorney, accountants or representatives, are barred from prospectively disclosing obtained trade or business secrets, confidential material, tax returns or any other confidential record disclosed during discovery, to anyone other than counsel working on this case, officers of the Court supervising disclosure and any expert reasonably necessary for the preparation of the trial of this case, and that said information shall be utilized solely for the instant litigation unless directed to be provided to others by further order of this or any other Court."

On February 27, 2009, Justice LaMarca signed a protective order governing confidential material. The protective order provides:

"1. The Motion is granted. Any party to this action, their attorneys, accountants or representatives are barred from prospectively disclosing obtained trade or business secrets, confidential material, tax returns or any other confidential record disclosed during discovery to anyone other than counsel working on this case, officers of the Court supervising disclosure and any expert reasonably necessary for the preparation of the trial of this case, and such information shall be utilized solely for the instant litigation unless directed to be provided to others by further order of this or any other Court."

2. This protective order (hereafter the "Confidentiality Order") shall govern the handling of all documents (whether in writing, on magnetic tape or otherwise), testimony and other information (collectively, "Material") previously or subsequently produced, given or filed by any party or any non-party during proceedings in the above-captioned action and designed "confidential" as set forth below."

5. Subject to the terms of this order, all material produced to date shall be deemed to have been marked "Confidential."

7. Any person receiving Confidential Material shall not disclose such information to any person who is not entitled to receive such information under paragraph 6. If Confidential Material is disclosed to any person not entitled to receive such information under paragraph 6 the person responsible for the disclosure must immediately bring all pertinent facts relating to [*5]such disclosure to the attention of counsel for the producing party and, without prejudice to other rights and remedies of any party, make a reasonable good faith effort to retrieve such material and to prevent further disclosure of it."

Petitioner believes that Gladys Bletter received confidential material from Linda Cohn in violation of the protective order. The petitioner requests that Bletter be ordered to disclose how she obtained information and records relating to Herbil Holdings. In addition, petitioner argues that to the extent Gladys Bletter relied on such material to object to the accounting, the objections should be dismissed. Counsel points out that a representative of Marcum, LLP attended and assisted at petitioner's examination and appeared at a conference at which it was conceded that the information they were relying on for Bletter's objections had been provided by Marcum, LLP. Objectant Bletter argues that the confidentiality agreement bound only the parties thereto. She asserts that Marcum, LLP was not even involved in the Cohn matrimonial litigation at the time the orders were signed, and, even if the order was binding on Marcum, LLP, this court should modify the Supreme Court order to allow Marcum, LLP to participate on her behalf at trial.

MOTION FOR PARTIAL SUMMARY JUDGMENT

1. Objection 14

Bletter's counsel have agreed that this objection should be withdrawn.

2. Objection 1

Petitioner argues that Objection 1 has already been ruled on by this court. Objection 1 asserts that Bletter is a one-third (1/3) beneficiary, without reduction for estate taxes. Petitioner argues that this court already determined that Bletter had to contribute pro rata to Blossom's elective share which necessarily results in the fact that Bletter's share will never be equal to Blossom's share. Petitioner argues that there is no legal basis for Objection 1 since Bletter is not legally entitled to have the same distribution as Blossom.

Bletter responds that no decree was ever settled on notice with respect to the court's January 2, 1998 order and, thus, pursuant to Section 207.37 (a) and (b) of the Uniform Rules for Surrogate's Court, the proceeding is to be deemed abandoned if the order is not settled on notice after the signing and filing of the decision unless good cause is shown. Bletter further argues that even if that section of the Uniform Rules did not apply, Petitioner's argument is legally inaccurate.

The court finds Bletter's arguments unavailing. First, it appears that a decree was noticed for settlement on July 9, 1998. Accordingly, there was no abandonment. Bletter's objection has no legal basis since this court previously decided that Gladys Bletter had to contribute pro rata to fund Blossom's share; therefore, Bletter's fractional share is not equivalent to Blossom's pecuniary share. However, it is unclear whether the executor made appropriate distributions of Bletter's proportionate fractional share simultaneously with the distributions to Blossom.

Summary judgment is therefore denied on Objection 1.

3. Objection 12

Petitioner argues that it is Bletter who has caused the delays and is not entitled to receive any distribution until the judgments against her have been paid. Moreover, petitioner argues that Bletter is the one delaying distribution by virtue of the objections she has raised in the accounting proceedings. [*6]

Bletter argues that petitioner has artificially manipulated when payments are credited to her in reduction of the judgment which is a breach of fiduciary duty by virtue of petitioner taking steps to favor one beneficiary over the other.

The issue raised by Bletter precludes summary judgment on Objection 12.

Remaining Objections

As to the remaining objections, the court must first ascertain whether Bletter relied upon any documentation or financial information she received from Marcum, LLP by virtue of the Cohn matrimonial action in raising such objections. The purpose of confidentiality agreements and protective orders is to provide "[j]udicial safeguards" to balance the needs of the party seeking disclosure against opposing interests such as confidentiality of information subject to abuse if widely disseminated (see Town of Pleasant Valley v New York State Board of Real Property Services, 253 AD2d 8 [2d Dept 1999]; Mann v Cooper Tire Co., 33 AD3d 24 [1 st Dept 2006]).

The court is not persuaded by Bletter's arguments regarding the confidentiality agreement and protective order since Justice LaMarca specifically stated that the dissemination of information to Bletter for purposes of the Surrogate's Court litigation was the primary reason for the protective order and confidentiality agreement. To find otherwise on the basis of Bletter's arguments made herein would render Justice LaMarca's order meaningless.

Accordingly, an evidentiary hearing is scheduled for September 3, 2013 at 9:30 a.m. to determine whether Gladys Bletter and/or her attorneys received information from Marcum, LLP for purposes of this litigation. Given Bletter's prior flagrant disregard for this court's orders, her failure to appear at the hearing will result in her objections being stricken. A conference shall be held on July 11, 2013 at 9:30 for purposes of scheduling any discovery in connection with the evidentiary hearing.

The remaining branches of the motions and cross-motion are held in abeyance pending the evidentiary hearing.

This constitutes the decision of the court.

Dated: June 28, 2013

EDWARD W. McCARTY III

Judge of the

Surrogate's Court