Opinion
2007/938.
Decided December 5, 2008.
Lewis and Garbuz, P.C. (Louis I Garbuz, Esq., of counsel) for Rochelle Posalski, Executrix.
Flicker, Garelick Associates, LLP (Robert N. Dengler, Esq., of counsel) for for movants.
David Steinmetz, Lucy Breitbart, R.R.W. Realty Corp., Drylawson Realty Corp., Plaza Management, USA, Inc.
In this SCPA 2103 proceeding, the respondents move to dismiss the executrix's petition seeking an accounting from the respondent managing agent for three corporations owning real property for "expenses paid, income received and distributions, violations accrued, remedies taken for violations accrued, status of legal proceedings where the corporate entities are named as a party, and all other issues pertaining to its management of the corporate entities." The decedent and two individual respondents are each the record owner of one-third of the shares of the respondent real estate corporations. The petition also requests that the managing agent and the other two shareholders of the corporate entities reimburse the estate for all legal fees and disbursements incurred in the proceeding.
The movants seek dismissal of the petition on alternative grounds. First, they contend that the executrix lacks standing to bring this proceeding because the estate is obligated to sell the decedent's interests in the corporations pursuant to shareholder agreements, an allegation which appears to be the subject of litigation pending in Supreme Court, New York County. The other contention is that the relief requested is in the nature of a shareholder derivative action over which the surrogate's court lacks subject matter jurisdiction. The executrix counters that as the issues in this proceeding relate to the affairs of the decedent, the surrogate's court has jurisdiction and, in fact, the surrogate's court has adjudicated numerous cases involving a decedent's interest in a corporation. She also argues that the movants are taking inconsistent positions in separate proceedings pending before this court inasmuch as they have not alleged that this court lacks subject matter jurisdiction in a separate SCPA 2103 proceeding she commenced to recover loans that the decedent allegedly made to the corporations.
The court concurs with the movants' contention that the petition requests relief that only may be granted in a shareholder derivative action. Specifically, the petition states that the respondent managing agent has committed conversion and waste, thereby "reducing the ownership interest of the estate" in the corporate entities by its "failure to collect rent; failure to meet code regulation; the incurrence of environmental and safety violations; cited in legal proceedings; and diminishment of insurance coverage for the properties."
It is true that historically the jurisdiction of the surrogate's court has expanded to include almost all proceedings that directly affect the affairs of decedents or the administration of their estates (see Matter of Piccione, 57 NY2d 278, 287; see also NY Const art VI, § 12 [d], [e] and SCPA 201). Nonetheless, Lincoln First Bank, N.A. v Sanford ( 173 AD2d 65) holds that the surrogate's court lacks jurisdiction to adjudicate the estate's claim that its 50% interest in a corporation entitles it to damages for conversion and waste of corporate assets because that claim is a shareholder derivative action where "[i]t is the corporation, not the estate, which is entitled to the award of damages" notwithstanding that the corporation "is a close corporation owned by two shareholders" ( 173 AD2d at 68). That court also noted that although the surrogate's court has jurisdiction over some matters involving a decedent's interest in a corporation, including a derivative action where it is alleged that the decedent misappropriated corporate assets, "[t]he fact that an estate owns stock in a corporation does not confer jurisdiction upon Surrogate's Court to resolve all matters involving that corporation" ( 173 AD2d at 69).
Here, as in Lincoln First Bank ( 173 AD2d at 65; see also Matter of Baum, 7 Misc 3d 1027 [A], 2005 NY Slip Op 50766 [U]), the fact that the decedent owned a one-third interest in the respondent corporations does not confer jurisdiction upon this court over a proceeding alleging that there should be an accounting for conversion and waste of corporate assets by the managing agent hired by the respondent corporations. Although the estate as a shareholder might suffer a loss in the value of its investments in the respondent corporations as a result of the alleged conversion and waste by the respondent managing agent, the estate as a shareholder has no individual cause of action against the managing agent, and the corporations, and not the estate, are the entities entitled to damages for any conversion and waste (Abrams v Donati, 66 NY2d 951). Furthermore, the movants are not being inconsistent by their failure to allege that this court lacks subject matter jurisdiction in the separate SCPA 2103 proceeding commenced by the executrix involving loans that the decedent allegedly made to the corporate entities because that proceeding is not in the nature of a shareholder derivative action. To the contrary, any recovery in that proceeding would be paid by the corporations to the estate.
Accordingly, for the reasons stated above, the motion to dismiss the petition on the ground that the court lacks subject matter jurisdiction is granted. Of course, in granting the motion on this ground, the executrix is not precluded from seeking the same or similar relief in the supreme court. Similarly, the court is not ruling upon the movants' status argument, based on their contention that any interest that the decedent had in the corporations must be sold pursuant to the terms of shareholders agreements, because it appears that this contention is the subject of litigation already pending in Supreme Court, New York County.
Settle decree.