Opinion
2401/1985.
Decided July 26, 2005.
These are two contested motions to confirm referee's reports in a protracted family battle waged in this Court and at appellate levels for more than two decades. The report in the Zusman Alpert matter concerns the entitlement of the post-deceased wife and children of Leon Alpert to a share of the Alpert family's real estate business assets, purportedly worth hundreds of millions of dollars. The report in the Hyman Alpert matter concerns the entitlement of the post-deceased wife and children of Leon's brother, Hyman, to participate in the same assets.
By stipulation of the parties the record in the Zusman Alpert matter was incorporated into the record of the Hyman Alpert matter. The cases, based on somewhat different theories of recovery, are decided separately; because of their many common facts, however, the decisions are issued together.
Trust under the Agreement of Zusman Alpert
Petitioners in the underlying proceeding seek, as a first cause of action, the declaration of an express trust created by Leon's father Zusman Alpert, a compulsory accounting, and the distribution to them of one-eighth of such trust. As a second cause of action, petitioners seek the imposition of a constructive trust on assets in an alleged Alpert family partnership and the distribution to them of a one-sixth share of the Alpert family partnership interests. Petitioners were also allowed to submit evidence on the creation of an express trust by the six sons of Zusman. Respondents Abraham Alpert (who died in 2002) and Jack Alpert, the only brothers of Leon surviving at the commencement of the proceeding in 1985, are named as trustees of the alleged express trust and as partners in the alleged Alpert family partnership. Respondents Joseph and Charles Alpert, sons of Leon's brother William (who died in 1981), are named as members of a successor family partnership.
The original petitioners were Leon Alpert's widow Nettie and their four children: Everett Alpert, Burton Alpert, Barbara Alpert Nadler, and Elane Alpert Berk. Prior to the referee's hearing, two petitioners withdrew. The remaining petitioners are Everett Alpert, individually and as executor of the will of Nettie, who died in 1998, and Barbara Alpert Nadler.
As their first cause of action, petitioners claim Zusman created an express trust in or about 1922 for the benefit of himself, his wife Fanny, their eight children (David, Leon, Bessie, Emma, William, Abraham, Hyman, and Jack), and the children's "families." The trust is said to have been funded initially with Zusman's retail woolen business, and thereafter reinvested in real estate and securities. The alleged terms were for the discretionary distribution of income and principal to the family members during Zusman's life. Upon his death the trust was to be divided into equal shares for each of the eight children, for distribution to the issue of each child upon the death of the child for whom the share was set aside. Zusman is alleged to be the original trustee. By the time of his death in 1941, petitioners assert, Leon, David, and Hyman were co-trustees managing the textile business, and William, Abraham, and Jack were co-trustees managing the real estate investments. William had assumed the role of "family patriarch and controlling trustee."
Leon Alpert's family claim that following the death of Leon the first of Zusman's children to die in 1951, they received "significant monetary benefits" from the trustees. In 1982, however, according to the petition, Jack and Abraham informed Leon Alpert's family that additional payments would not be forthcoming. The value of the Alpert family trust, as of 1985, was alleged to be in excess of $200 million.
As a second and alternative cause of action, dubbed by the referee a "partnership-based claim for a constructive trust" (Report p. 2), Leon Alpert's family seeks the impression of a constructive trust upon Leon's interest in an alleged family-wide partnership. In support of this claim, Leon Alpert's family state that Zusman "inculcated in his children the concept and guiding principle that he and his sons constituted, and should function as, an economic unit and a family partnership for the benefit and support of all family members." By 1922, it is alleged, David and Leon had become members with Zusman of a purported Alpert family partnership, conducting the textile business under the name of "Z. Alpert Sons," and had begun investing family partnership assets in real estate. Leon Alpert's family further claim that by the time of Zusman's death in 1941, his six sons had become equal partners, with three of the brothers David, Leon, and Hyman managing the textile business and the other three William, Abraham and Jack managing the real estate investments. William purportedly assumed the role of managing partner, and after his death his two sons, Joseph and Charles, allegedly became partners. It is claimed that in keeping with the patriarchal tradition of the family, Zusman's daughters were not accorded partnership status but were to be provided for in the discretion of Zusman's sons. According to the petition, the value of real estate interests in some 250 buildings purportedly owned by the family-wide partnership, as of 1985, was in excess of $200 million.
Leon Alpert's family claims the family-wide partnership functioned in part to enable each partner to minimize taxes on his estate. Therefore, they allege, legal title to the partnership assets was held in the name of "various family members and/or nominee entities," so that a partner would not have to disclose the true nature of his interests, and upon his death, the true value of his partnership interest could be omitted from his estate tax return. "Such omission of the deceased partner's interest in the partnership," claims Leon Alpert's family, "did not deprive his family of such interest, and his family continued to be the owner of such interest."
Respondents' motion to dismiss the petition for failure to state a cause of action was denied by this Court ( Matter of Alpert, NYLJ, Apr 16, 1996, at 26, col 6, affd 234 AD2d 150). By order dated November 5, 1998, the Court appointed a referee pursuant to SCPA 506 (1) to hear and report upon the issues raised in this proceeding.
In addition to the two stated causes of action the referee permitted petitioners to present evidence on an alternate theory, that an express trust had been created by Zusman's sons. In their post-hearing submissions petitioners claim that the six sons were trustees of such a trust, that the sons and their families were beneficiaries, and that Zusman's widow, two daughters, and their families were additional discretionary beneficiaries. This alleged trust is said to be comprised of the family textile and real estate businesses. Petitioners claim that principal distributions were to be made upon the death of Leon or David, presumably in the discretion of the trustees. Beyond these terms petitioners are vague.
The referee correctly concluded that no evidence was presented concerning an express trust created by Zusman Alpert. The only evidence of an express trust related to whether Zusman's sons had created such a trust.
At the hearing it was established that Zusman immigrated to the United States in the late nineteenth century, began work as peddler, and thereafter became a "jobber," buying fabric from textile mills wholesale and selling to clothing manufacturers. Operating at first from the family's Brooklyn residence, Zusman moved the business to a nearby building he purchased when his two oldest sons, David and Leon, joined him in 1914. In the early 1920's, Hyman joined his father and two brothers. By 1922, however, it was David and Leon who ran the thriving textile business, and they entered into a partnership with their father, known as "Z. Alpert Sons." Zusman began investing in real estate. When Zusman died in 1941, his gross estate which included a one-third partnership interest in Z. Alpert Sons and two closely held corporations, each of which owned a parcel of real property was valued on audit at $130,000.
While David, Leon and Hyman worked primarily at Z. Alpert Sons, Zusman's other three sons, William, Abraham and Jack, all of whom were lawyers, invested in real estate. By the 1960's, the textile jobbing business had ebbed and the real estate business was flourishing under William's leadership. In 1964 William estimated the real estate business to be worth $25 million.
The evidence about the details of the rise of the Alpert family fortunes was not disputed. The bulk of the testimony and documents presented concerned the minutiae of specific business transactions, stock purchases, transfers of title, job assignments and reassignments, and other elements of the Alpert family businesses as conducted over the last 60 years.
There was conflicting evidence, however, regarding the nature and scope of any family understanding concerning entitlement to the assets of the many business entities in which the family members participated. Petitioners produced various writings as evidence of an agreement, in support of their claim of entitlement. Respondents argued that the evidence reflected merely a moral obligation, not a binding agreement, to use assets for each other's benefit. The most compelling evidence of an agreement was a handwritten document, signed by all the brothers except David, which reads as follows:
July 6, 1942
We, the undersigned, being the male members of Zusman and Fanny Alpert, having always operated and done business as a family unit agree:
That all assets being in various names in fact belong to the male members of the family as a unit.
That Dave and Leo[n] are to continue to operate the business of Z. Alpert Sons as sole owners but for the benefit of and as trustees for the male members of the family.
Dave and Leo[n] are to act with full power and authority as if they are the sole owners and not to be accountable to anyone for their acts or conduct in the business.
The business conducted by Willie and Abe is with the same intentions.
In the event of any question whatsoever arising, the three oldest male members of the family shall make decisions. Such decisions shall be binding only if unanimous. In the event of any dissenting vote, all the male members shall vote and a majority vote shall control.
In the event of the decease of Dave or Leo[n], the surviving brothers shall consider the net worth of the business and any other interest and then determine the standard of living and/or the amount of money the family, or the member or members of the family, shall receive immediately or on some particular occasion.
The male members shall in their discretion give such sum or sums of money to the female members of the family when agreed upon in the manner above and to members of the family of the females.
Petitioners maintain that this document is evidence of an express trust created by Zusman's sons.
The referee identified certain internal inconsistencies and ambiguities in the document and heard evidence on the issue of the signatories' intent. Of the five signatories, only two were living at the time of the hearing and only one, respondent Jack Alpert, was able to testify. He claimed he could not recall signing the document or any conversation or discussion concerning it. None of the testimony shed light on intent or filled in gaps as to the terms of this alleged trust agreement.
Petitioners presented additional written evidence in an attempt to clarify and amplify the 1942 document. A 1965 handwritten memorandum from William recalled the 1942 document two decades later:
. . . I once again reread our expression[?] of July 6, 1942, and ask you to reread it again. . . . I repeat it is our understanding that we operate as a family group for the benefit of the family.
Similarly, handwritten, undated notes made by Jack, entitled: "General consept [ sic] of Wills as per ante," provide:
1 — Such assets are to be continued to be held in the same spirit as had been expressed thruout [ sic] our lives to effect that the assets are held essential [ sic] as trusts for each other as well as for other members of the family. We do not expect this to be literally followed but liberally expressed as the situation may warrant. We will do what we can to help others establish themselves to their own maximum potential.
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4 That in spite of the fact that various assets may be on [ sic] any particular name it is the intention of all of us that for all other purposes the assets be deemed to be in name of all. Nothing is intended to inhibit anyone from any person [ sic] expression of their own personal way of doing business but it is agreed that so long as each of us are in the office our primary duty will be for the common cause and each will be assumed to join the other in any business undertaking unless specifically exempted. . . . .
While this and other writings lend additional support to the existence of some sort of family arrangement, they only add to the confusion as to its terms. Indeed, more than twenty years after the 1942 document was drafted, various memoranda written by family patriarch William show that the family members were still hashing out a proposed division of assets, as well as attempting to identify the appropriate beneficiaries of the family's fortune. William's handwritten "Memo" dated November 6, 1964 discusses a possible distribution among the then living sons and daughters of Zusman, Leon's widow, and William's two sons, in various unequal shares. His April 28, 1965 memorandum recalls and confirms the 1942 agreement, but at the same time suggests both he and his two sons are to receive real estate assets. A May 22, 1965 memorandum handwritten by William discusses his willingness to "think of divisions by keeping the corpus capital of the family together presently and letting those who want out go out;" it then describes a plan for allocating shares to some of his nieces and nephews, sisters, and sisters-in-law. Another memorandum of the same date acknowledges an "imbalance" of holdings among the family and proposes yet another division.
None of the writings identify the specific terms of the alleged trust, nor do they establish criteria for, or the requirement of, distribution to family members. What is clear is the existence of a continuing plan to evade taxes. William's April 1965 memorandum speaks of an agreement among the five surviving brothers that "whatever is on our names in the names of our children in trust in personal holdings which have arisen from the office or business is in such name because of expediency, tax planning, family cooperation but is available to be moved from one to another. . . ." Following Hyman's death on May 12, 1975, William executed a "CONFIDENTIAL OFFICE MEMO TO BE SHOWN TO Mr. Milton Kain," which provides:
Hy's Will, like all our own, was prepared merely to designate one of us (as Executor) to distribute the Estate's assets at minimum tax cost in accordance with our own "family" concepts.
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For our family purposes, the total amount and the distribution will follow the pattern of Dave's Estate as is being resolved. The dollar amount involved therefore will not necessarily be the amount reflected in the Estate tax return.
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. . . The Estate tax return will undoubtedly be less than the amount actually to be distributed or earmarked.
These documents, while shedding some light on the Alpert family's tax-avoidance motives, also fail to identify the specific terms of the alleged express trust.
The factors essential to the creation of an express trust are a designated beneficiary or beneficiaries and trustee or trustees, a fund or property sufficiently designated to allow it to pass to the trustees, and, most important here, delivery of the fund or other property to the trustees, with intent to pass legal title to the trustees ( Brown v. Spohr, 180 NY 201, 209). The intent to pass title must be clear ( Matter of Gagliardi, 55 NY2d 109).
EPTL 7-1.17, requiring an acknowledged writing for the creation of an inter vivos trust, became effective in 1997.
Certain ambiguities in the July 6, 1942 document make the intent to pass title less than clear. Language that David and Leon were to operate their business "as sole owners and are not to be accountable to anyone," for example, conflicts with the earlier declaration that "all assets being in various names belong to the male members of the family as a unit." It is possible that the language could be construed to show an intent to divest the brothers of their individual ownership of the various businesses, but petitioners' heavy burden cannot be met by mere possibility. The 1942 instrument lacks many traditional elements of a trust agreement, most significantly instructions for the timing and duration of any distributions, and the standard to be applied in exercising any discretion for trust invasions. Given the absence of a traditional trust document, "the words and acts relied upon must be unequivocal in nature and admit of no other interpretation than that the property is held in trust" ( Matter of Fontanella, 33 AD2d 29, 30). Such is not the case here.
While the post-1942 documents identified above could be interpreted as an attempt by the putative trustees to identify their duties with respect to distribution under the 1942 instrument, the documentary evidence, taken as a whole, is also subject to multiple other interpretations. This Court need not attempt to do what petitioners themselves have failed to achieve: to provide an interpretation that coherently integrates what appears to be contradictory evidence of an intention to create a trust.
Regardless of whether a trust was intended, the 1942 document is unenforceable as a trust for the simple reason that it violates the Rule Against Perpetuities. The rule in effect in 1942 provided, "Every future estate shall be void in its creation, which shall suspend the absolute power of alienation . . . for a longer period than during the continuance of not more than two lives in being at the creation of the estate . . ." (Real Property Law 41, L. 1929, c. 229, § 16, eff. Sept 1, 1930). The lives which measure the period of suspension "must be designated or referred to, so as to be capable of ascertainment in the instrument by which the disposition is made" ( Everitt v. Everitt, 29 NY 39, 72). The 1942 instrument speaks of "the amount of money" family members "shall receive immediately or on some particular occasion" (emphasis added) following the death of Dave or Leon. Because the fund would not necessarily be distributed upon the second to die of living persons designated or referred to in the instrument, the trust, if it were a trust, would be void from its inception.
Petitioners argue that the words "on some particular occasion" refer only to the time of payment of the trust funds, not its vesting, but the Court disagrees. Unlike the document in the case relied upon by petitioners, Bankers Trust Co. v. Firth, ( 177 Misc 797), the 1942 instrument contains no clear language prescribing an earlier date requiring vesting within the allowable perpetuities period.
It is worth noting that the Rule Against Perpetuities is not merely an arcane or archaic technicality. Rather, its original purpose, to achieve vesting of property within a circumscribed period, remains both salutary and useful, as is aptly demonstrated by the facts of the instant case. The Rule puts an end to the chaos and uncertainty of title that would otherwise result from practices like those conceded by the Alpert family of deliberately disguising record ownership. See, e.g. Metropolitan Transp. Authority v. Bruken Realty Corp., 67 NY2d 156, 160-161; Dukeminier, A Modern Guide to Perpetuities, 74 Calif L Rev 1867, 1868-1869 (1986).
Accordingly, petitioners' cause of action for declaration of an express trust, whether created by Zusman or his sons, is dismissed.
The Court observes that on the nebulous evidence presented here, any agreement to share ownership of the assets would be no more enforceable as a contract. As stated by the Court of Appeals:
. . . before the power of law can be invoked to enforce a promise, it must be sufficiently certain and specific so that what was promised can be ascertained. Otherwise, a court, in intervening, would be imposing its own conception of what the parties should or might have undertaken, rather than confining itself to the implementation of a bargain to which they have mutually committed themselves. Thus, definiteness as to material matters is of the very essence in contract law. Impenetrable vagueness and uncertainty will not do [citations omitted].
Martin Delicatessen, Inc. v. Schumacher, 52 NY2d 105, 109. Similarly, the Court of Appeals found an oral agreement by a defendant "to take care of" plaintiff, in return for plaintiff's services, "too vague to spell out a meaningful promise" ( Dombrowski v. Somers, 41 NY2d 858, 859). In Trimmer v. Van Bomel, ( 107 Misc 2d 201, affd without op 82 AD2d 1023, lv denied 55 NY2d 602, cert denied 456 US 918), an alleged agreement by defendant to pay an amount sufficient to cover plaintiff's "costs and expenses for sumptuous living and maintenance for the remainder of his life" was deemed too vague to enable a Court to award plaintiff a sum certain. Granting summary judgment, the Court ruled:
No amount being specified, no time having been set forth, no mechanics for the payments having been spelled out and there being no specification as to what had to be done to qualify or disqualify the plaintiff for the payments, what we have, at best, is some vague but legally unenforceable reassurance that plaintiff "would be taken care of."
Trimmer v. Van Bomel, 107 Misc 2d 201, 212, supra.
Petitioners are left with their theory of constructive trust, which has been famously described as a remedy applicable to "whatever knavery human ingenuity can invent" (Bogert, Trusts and Trustees § 471, at 29 [2d ed rev]). Petitioners seek impression of a constructive trust on an alleged family-wide partnership in all the business assets in which any family member participated, both textile and real estate. This family-wide partnership is to be distinguished from the textile business mentioned above, known as Z. Alpert Sons, in which Zusman, David, and Leon became partners in 1922, and which was documented by a written partnership agreement after Zusman's death in 1941 to add William, Abraham, Hyman, and Jack as limited partners.
In 1948 the partnership agreement was amended to make all six brothers general partners. The partnership was dissolved in the 1960's.
The existence of a family-wide partnership in all the business assets was not addressed at the hearing, much less established. As discussed below in connection with the Hyman Alpert estate case, partnership and constructive trust theory are rooted in entirely distinct principles, and entitlement to imposition of a constructive trust does not depend on the existence of a partnership. Despite the numerous references to partnership in the pleadings, the Court's analysis of the constructive trust theory is made independent of the unsubstantiated partnership claim.
Generally, a constructive trust may be imposed if the court finds: (1) a confidential relationship; (2) a promise, express or implied; (3) a transfer made in reliance upon such promise; and (4) resulting unjust enrichment ( Sharp v. Kosmalski, 40 NY2d 119, 121). The referee reported no basis for the impression of a constructive trust.
It is undisputed that a confidential relationship existed among the brothers.
As to the existence of an express or implied promise, the referee concluded that most of the conduct established by the proof was antithetical to common ownership of the family businesses. In her view, the evidence negated the existence of an agreement that the assets were to be shared, whether through the vehicle of an express trust or otherwise. For example, she concluded that the 1950 valuation and sale agreement by which Leon purported to convey his partnership interest in Z. Alpert Sons for $350,000 "presupposes that Leo had an ownership interest to be conveyed." The Court disagrees. Her finding fails to take into account the acknowledged practice of the family to record title to assets, assign values, and make intra-family transfers as it suited them for "expedience" and "tax planning," to use the terms of William's April 28, 1965 memorandum. As noted above, the subject conduct is susceptible of many interpretations including that of petitioners that, vis-à-vis the family members, actual title to property was meaningless.
Certain other observations made by the referee in considering the claim for an express trust may have obfuscated her inquiry into the existence of a promise that would support the imposition of a constructive trust. For example, the referee found it significant that the 1942 writing was not typed, since the brothers were sophisticated businessmen who knew how to "do it right." Such reasoning ignores that this agreement was not another business deal, but a private, secret, and to the extent that it enabled the brothers to evade taxes illegal arrangement. It is more likely than not that such an arrangement would not be handled by lawyers and secretaries, or be executed with formality. The referee also found it significant that David did not sign the agreement, but David's failure to sign would not necessarily preclude the finding of a declaration by his five brothers, "the undersigned," that they hold property for the benefit of third persons. Furthermore, the Court finds the referee's considerable reliance on the existence of various buy-sell and option agreements between and among certain of Zusman's grandsons to be misplaced. Her conclusion that these contracts were evidence of the lack of a family-wide arrangement which would have rendered such formal agreements unnecessary ignores the possibility that the grandsons' generation were not parties to an earlier understanding among Zusman's sons, or that such contracts represented a violation of an earlier understanding.
It was not proved that any tax avoidance resulted from the actions of Leon Alpert, and the Court therefore finds no basis for dismissing the petition on grounds of public policy or the doctrine of "unclean hands." As discussed in this Court's decision denying summary judgment, Matter of Alpert, (NYLJ, Apr 16, 1996, at 26, col 6, affd 234 AD2d 150, supra), illegally motivated agreements may in certain circumstances be enforced, depending on the parties' relative culpability and the possibility of severing the illegal components of the plan. Other findings herein render it unnecessary for the Court to consider the effect of the "unclean hands" doctrine.
At the hearing Jack Alpert denied the existence of any family-wide agreement, and characterized the language in the 1942 document and others as nothing more than an expression of family "spirit" and unity. Although the referee chose to believe Jack Alpert's self-serving testimony, it is belied by the language of the writings themselves. It is unlikely that so many documents with such specific (albeit unclear) references to the family businesses would be created solely to express family unity.
While the referee's finding as to credibility is to be accorded great weight because of her opportunity to view the demeanor of the witness ( see In re Winsweiler's Estate, 146 Misc 436), the Court is entitled to make new findings without taking additional testimony (SCPA 506). This is appropriate where the referee's finding of fact is inherently less probable than another version ( see Kardanis v. Velis, 90 AD2d 727), or where the referee has not stated sufficient rationale for the finding ( see Kelly v. Eastern Airlines, 102 AD2d 793). In this regard, the highly selective nature of Jack Alpert's memory should be noted. On the one hand, he testified that he did not remember signing the 1942 document or any conversation or discussion surrounding it. On the other hand, his recall of the dozens of properties owned by members of the family beginning in the years following World War II, including details as to their cross streets, number of floors, number and size of units, type of elevator, lot dimensions, type of usage, and amount of rent revenue and real estate taxes, was highly specific (Tr. 3598 ff.). Furthermore, the Court is not persuaded by the referee's rationale that had Jack intended to lie about the purpose of the 1942 document, he would not have said he did not recall signing it or that he could not remember any discussions about it. Only if Jack claimed that he did not remember the circumstances of its creation could he avoid testifying to clarify its purpose. Accordingly, the Court rejects Jack Alpert's testimony about his intent and that of Leon, William, Abraham, and Hyman Alpert when they signed the 1942 document.
The Court finds that the writings produced at the hearing constitute abundant evidence of an agreement, however vague, that regardless of title, at least some portion of the various business interests was to be used in some way to take care of family members. This finding is sufficient to satisfy the element of a "promise" generally required for the imposition of a constructive trust, although, as noted above, what is not clear are the terms of the agreement or the assets that were intended to fall within its scope.
To satisfy the "transfer" element for imposition of a constructive trust, petitioners point to Leon's execution on September 29, 1950 of the valuation and sale agreement whereby he assigned and quitclaimed to his brothers:
all of his right, title and interest of every nature and description whatsoever, in and to his interests in Z. Alpert Sons, all other investments of real estate, stocks and Bonds, which directly or indirectly represent an interest of any of the aforesaid persons individually or as a member of the Alpert family in which Leon Alpert has an interest
in return for the payment to his executors of the sum of $350,000, less certain enumerated expenses. Petitioners adduced no evidence, however, that Leon's transferred assets were worth more than $350,000, and there is no proof that this transfer was for other than good consideration.
Petitioners also contend that Leon's last will constituted a transfer in reliance on a promise that his family would be cared for by his surviving brothers. In his will Leon provided a life income interest in a trust to his wife with remainder to his brothers, thereby disinheriting his children. The referee found that the provisions of Leon's will did not establish a transfer by Leon in reliance on his brothers' promises. Rather, the will, having been executed shortly after the marriage of his son, a marriage of which he disapproved, "reflected Leo's unhappiness with the members of his immediate family." The Court agrees that petitioners have not carried their burden of establishing that the provisions of Leon's will are referable to the alleged promise.
In post-trial submissions petitioners argue that the June 24, 1941 agreement granting partnership interests in Z. Alpert Sons by Leon and David to the other four brothers constituted a transfer sufficient for imposing a constructive trust. This transfer cannot support the constructive trust claim, however, because it was not proved that the transfer was made in reliance upon any promise. The partnership transfers were made more than a year before the 1942 writing on which petitioners primarily rely to establish an agreement to share assets. In addition, as the referee noted, the 1941 agreement made Hyman a partner, but Hyman had no real estate assets to transfer back. Third, as the referee also pointed out, the partnership transfer could have represented a partial distribution of Zusman Alpert's estate, which the parties had agreed to divide in accordance with an oral agreement reached the same month as the partnership agreement was signed.
Most important, petitioners have not established the critical element for imposition of a constructive trust, that of unjust enrichment. The Court is mindful that the doctrine of constructive trust is not limited by rigid definition and its very purpose requires flexibility in its application. Described by Judge Cardozo as "the formula through which the conscience of equity finds expression" ( Beatty v. Guggenheim Exploration Co., 225 NY 380, 386), constructive trust defies exact definition. Judge Breitel has noted that precise definitions have been deemed inadequate "because of the failure to recognize the broad scope of constructive trust doctrine" ( Simonds v. Simonds, 45 NY2d 233, 238). Nonetheless, it is the unjust nature of the enrichment of one party that forms the basis for the doctrine of constructive trust, without which this equitable remedy will not lie. See, e.g., Steinberger v. Steinberger, 252 AD2d 578; Simonds v. Simonds, supra, 45 NY2d 233, 242 ("It is agreed that the purpose of the constructive trust is prevention of unjust enrichment").
Petitioners misconstrue the principle of constructive trust when they argue that unjust enrichment exists by virtue of the disparity between the value of the real estate assets as a whole and the value of the textile business. Constructive trust is a remedy intended to restore the status quo when one has parted with property in reliance on an unkept promise. See generally, Scott, Trusts § 462.2, at 313 [4th ed]. Petitioners' relief, if a constructive trust were imposed, would be limited to the return of property transferred in reliance on the unkept promise, not enforcement of the promise. In this case petitioners have proved neither the value of Leon's transfers, nor the value of the total payments they concede in their pleadings were received during the 31-year period between 1951 and 1982. Having failed to demonstrate that Leon's transfers exceeded the distributions to his family, they cannot establish unjust enrichment.
SCPA 506 (4) authorizes the Court to confirm or reject the referee's report in whole or in part and to make new findings without taking additional testimony. Accordingly, the report of the referee in the Matter of the Trust under the Agreement of Zusman Alpert is confirmed in part and rejected in part, and the petition is dismissed, in accordance with the foregoing.
This constitutes the order of the Court.
Estate of Hyman Alpert
The proceeding underlying the motion to confirm the referee's report in the Hyman Alpert estate is for the settlement of estate and testamentary trust accounts filed in 1982 by Jack Alpert, as executor of the will of William Alpert, who was the original executor of and trustee under Hyman's will. Hyman Alpert died in 1975 survived by a wife and three children. They filed objections to Jack's accounts in 1993, based on the omission of certain "real estate and corporate assets" constituting what they allege is Hyman's share of an alleged "Alpert Family Fund." Claiming that Hyman and the other five sons of Zusman Alpert (David, Leon, William, Abraham, and Jack) were equal partners in a family-wide partnership, objectants seek the imposition of a constructive trust on the Alpert Family Fund, said to be comprised of all the business assets of the six brothers and their heirs. They also seek an accounting, a distribution to Hyman Alpert's family of one-sixth of the alleged Fund, and a surcharge of the accounting party for violating fiduciary obligations.
Objectants allege the Fund consists of interests in "up to 210 buildings in New York City and elsewhere, including major apartment and office buildings in prime locations, with a present value [as of 1993] substantially in excess of $200,000,000." Not in controversy is the family textile business which had been operated by a formally documented partnership, Z. Alpert Sons, of which all six brothers were partners, and which was dissolved in the 1960's.
The objections to the account also allege acts of self-dealing, which were not addressed in the referee's hearing.
Petitioners' motion to dismiss the answer and objections for failure to state a cause of action was denied by this Court ( Matter of Alpert, NYLJ, Apr 16, 1996, at 26, col 6, affd 234 AD2d 150). By order dated November 5, 1998, the Court appointed a referee pursuant to SCPA 506 (1) to hear and report upon the primary issues raised by objectants.
At the outset the Court notes that objectants have conflated two separate theories of recovery. While claiming that Hyman had a one-sixth partnership interest in an alleged family-wide partnership of all the real estate ventures, objectants simultaneously assert that they have no remedy at law and ask for imposition of a constructive trust on the alleged partnership share. Implicit in objectants' constructive trust theory is an acknowledgment that the family's business arrangements defy characterization as a partnership. Indeed, if objectants could establish a partnership, they would not need to seek imposition of a constructive trust. Mindful that the law authorizes pleading in the alternative (CPLR 3014), the Court will address the partnership and constructive trust claims independently.
Unlike the petitioners in the Zusman Alpert matter, objectants here make no claim in their pleadings for an express trust.
A partnership is defined as "an association of two or more persons to carry on as co-owners of a business for profit" (Partnership Law § 10). It is a "community of interest that manifests itself in mutual control" ( Needel v. Flaum, 248 AD2d 957, 958). The elements of a partnership are: (1) the parties' sharing of profits and losses; (2) the parties' joint control and management of the business; (3) the contribution by each party of property, financial resources, effort, skill, or knowledge to the business; and (4) the parties' intention to be partners ( Kidz Cloz, Inc v. Officially for Kids, Inc., 320 F. Supp. 2d 164, 170). The Court of Appeals has ruled that a mutual promise or undertaking of the parties to share in the profits and losses of the business is essential to the finding of a partnership; but an agreement to distribute the proceeds of an enterprise upon a percentage basis does not give rise to a joint venture without a joinder of property, skills and risks ( Steinbeck v. Gerosa, 4 NY2d 302, 317, lv dismissed 358 US 39). "The ultimate inquiry is whether the parties have so joined their property, interests, skills and risks that for the purpose of the particular adventure their respective contributions have become as one . . ." ( Hasday v. Barocas, 10 Misc 2d 22, 28). A party alleging a partnership bears the burden of proving it by a fair preponderance of credible evidence ( Kahn v. Kahn, 3 AD2d 820).
Testimony in the 41-day hearing in this matter and in the hearing in the Zusman Alpert matter, incorporated into this record as stated above, does not support the existence of a family-wide partnership encompassing all the various real estate assets. The record is devoid of evidence that the six brothers agreed to share in the profits and losses of the real estate investments as equals or otherwise, or that their respective contributions had become "as one." Jack Alpert testified that typically each real estate transaction was sui generis, involving a separate corporation; that William, using borrowed funds (the source and other details of which were not clearly established), would purchase property at auction, and then decide who would participate in the venture. Jack testified that initially he invested equally with William and Abraham, but this arrangement changed. Hyman, involved with sales in the family textile business and less financially secure than his brothers, was invited to participate in real estate investments from time to time. Beginning in the 1960's, William structured transactions so that his sons would end up with control over the bulk of the real estate investments. According to Jack, participation was not even limited to Zusman's sons and grandsons. For example, Jack testified extensively of investments by the sister of William's mother-in-law (Tr. 1560, 1749); by a cousin of Nettie Alpert (Tr. 1155); by one Lee Koffe (Tr. 1578-9); and by "outsiders" (Tr. 1945). By reason of the unrefuted testimony that myriad parties participated in the real estate transactions, in various combinations and not limited to the alleged partners, the Court is unable to conclude by a fair preponderance of the evidence that the mere interest of any one or more of Zusman's sons in a real estate parcel entitled each of the others to a one-sixth partnership interest.
Furthermore, there is no evidence that undistributed profits from the Z. Alpert Sons textile business partnership were used to purchase the real estate assets. Petitioners concede in their proposed findings of fact that "William entered the real estate business on his own" and "purchased certain properties on his own." Z. Alpert Sons partnership assets were sometimes borrowed or used to guarantee real estate purchases, but the evidence contradicts any notion that the real estate assets, as a whole, were the property of the textile partnership.
The written evidence is no more supportive of the partnership claim. Indeed, the July 6, 1942 writing belies any argument that the brothers intended to have joint control and joint management of the assets. Only David and Leon, not all the brothers, were "to act with full power and authority as if they are the sole owners" of the textile operation, and only William and Abraham were to have such management power over the real estate assets.
Objectants also cite William's November 6, 1964 memorandum as evidence of a family-wide partnership. The memorandum, which William gave to Hyman for safe-keeping before traveling to Israel, contemplates various divisions of the real estate investments among the five surviving brothers, their two sisters, Leon's widow, and William's two sons. The second paragraph provides:
I want Joseph and Charles [William's sons] to be part of the office activity. I want them to be a part of it just as Abe and Jack became part of the office when they came in. Therefore, I want the office to be in five shares instead of three.
The memorandum further asks that each of William's sons be given $2 million in "tax exempts," and continues, "Willie is now the one who wants a minimum of 5 million for each Joseph and Charles before any distribution reduction and splitting up is done." Such provisions undermine rather than support objectants' claim that the real estate investments were owned by Zusman's six sons as equal partners.
Objectants also argue that an agreement to share losses can reasonably be inferred from the transactions alleged. In support, they cite the decision of this Court denying petitioner's motion to dismiss objections for failure to state a cause of action ( Matter of Alpert, NYLJ, Apr 16, 1996, at 26, col 6, supra). Such reference is not apposite. Whereas in the motion to dismiss, objectants were given the benefit of every favorable inference ( see Rovello v. Orogino Realty Co., 40 NY2d 633) and were able to establish a cause of action through inference alone, more than inference is required to satisfy objectants' burden of proving a family-wide partnership. The Court agrees with the referee that even if objectants' evidence had been unopposed it was not adequate to carry that burden. Insofar as objectants claim omission of a partnership interest from the accounting for Hyman's estate, the objections are dismissed.
Turning to the cause of action for constructive trust, objectants claim that the Alpert brothers "caused legal title to partnership assets to be held in the names of various family members or nominee entities" as a strategy to disguise the true ownership and thereby minimize estate taxes and maximize profits. They assert that Hyman and his brothers had an understanding that the survivors held the combined family assets for the benefit of each other or their families, regardless of title. As stated in the companion proceeding, the Court may impress a constructive trust on assets if it finds: (1) a confidential relationship; (2) a promise, express or implied; (3) a transfer made in reliance upon such promise; and (4) resulting unjust enrichment ( Sharp v. Kosmalski, 40 NY2d 119, 121). The referee reported no basis for the impression of a constructive trust.
The Court agrees with the referee that a confidential relationship existed among the brothers. The Court disagrees with the referee, for the reasons expressed in the companion proceeding, about the element of "promise." But while there clearly was some sort of promise among the brothers to care for each other and their families, a promise alone is not sufficient to sustain objectants' claim. It was the prerogative of any of the brothers to change his mind. As stated by the court in Plotnikoff v. Finkelstein, 105 AD2d 10, at 11-12, "The shifting whims of familial intercourse cannot, however, provide a basis for the imposition of a constructive trust." Objectants have demonstrated neither Hyman's reliance upon a promise to his detriment, nor resulting unjust enrichment.
Objectants allege in their pleadings a transfer by Hyman, based upon a document dated April 16, 1969 with the heading, "This memo as to my assets." It is a valuation agreement, signed only by Hyman, in which the value to be agreed upon for Hyman's gross estate has been left blank. On the back of the one-page typed document is a handwritten notation by Abraham, "The same sum as allocated to Dave's family." While the document may reflect an arrangement among Zusman's sons, it is not evidence of a transfer made in reliance on a promise.
Objectants also assert that in reliance upon the agreement among Zusman's sons, Hyman "worked in the [family textile business] taking minimum drawings so that, with his brothers, they could pool their assets in order to acquire greater wealth." The evidence established that Hyman became a limited partner in the textile business, and later a general partner, and received a salary for his work. Objectants have not shown that Hyman began or maintained his employment in reliance on a promise, or that other family members were unjustly enriched as a result of his employment. See Mance v. Mance, 128 AD2d 448.
Despite abundant opportunity, objectants have failed to articulate a compelling theory to support their claim of entitlement. There being evidence of neither a transfer by Hyman in reliance on a promise nor unjust enrichment, the cause of action for imposition of a constructive trust is dismissed.
SCPA 506(4) authorizes the Court to confirm or reject the referee's report in whole or in part and to make new findings without taking additional testimony. Accordingly, the report of the referee in the Matter of the Estate of Hyman Alpert is confirmed in part and rejected in part, and the objections, as they relate to the existence of an Alpert Family Fund, are dismissed, in accordance with the foregoing.
This constitutes the order of the Court.