Opinion
2014-635/C
07-07-2020
In the MATTER OF the Accounting by Roy LEIBOWITZ AS the TRUSTEE OF the HARRY BARON 1992 FAMILY TRUST
Attorney for Petitioner: Offit, Kurman, PA by Umar A. Sheikh, Esq., Attorneys for Petitioner Roy Lebowitz, 10 East 40th Street, New York, New York 10016, (212) 545-1900 Attorney for Respondent: Joseph P. Dineen, Esq., Attorney for Wendy Baron, Mark Baron, Lisa Itenberg and Viktor Baron, 1225 Franklin Avenue — Suite 325, Garden City, New York 11530, (516) 512-8968
Attorney for Petitioner: Offit, Kurman, PA by Umar A. Sheikh, Esq., Attorneys for Petitioner Roy Lebowitz, 10 East 40th Street, New York, New York 10016, (212) 545-1900
Attorney for Respondent: Joseph P. Dineen, Esq., Attorney for Wendy Baron, Mark Baron, Lisa Itenberg and Viktor Baron, 1225 Franklin Avenue — Suite 325, Garden City, New York 11530, (516) 512-8968
Peter J. Kelly, J.
In this proceeding for judicial settlement of the final account of Roy Leibowitz ("petitioner") as trustee of an irrevocable trust named The Harry Baron 1992 Family Trust No. 2 dated October 6, 1992 ("the Trust"), petitioner moves for summary judgment dismissing the objections of trust beneficiaries Lisa, Mark, Viktor and Wendy ("objectants") and granting judicial settlement of the final account.
Harry Baron and petitioner first met in or about 1980 when petitioner began working for Leewen Mechanical Corp., a business owned by Baron which operated from a building in Maspeth, Queens titled in the name of EMV Corp. which Baron controlled. During the ensuing years, petitioner served in various capacities at Leewen such as Comptroller, C.F.O. and eventually Vice- President. In 1992, Baron created the subject Trust and named petitioner as Trustee. Pursuant to the Trust, petitioner was to "hold all life and other insurance policies ...[c]onstituting all or part of the Trust Principal and shall be vested with all incidents of ownership in any such policies" (Trust Article Second [D] ). Upon the death of Baron, the proceeds of the life insurance policies were to be paid by the trustee to Baron's children, the objectants herein.
As grantor, Baron funded the Trust in 1992 with a life insurance policy for the face amount of $500,000.00 from National Life. Subsequently, in 1995, Baron purchased a second policy in the face amount of $500,000.00 from Transamerica Occidental Life ("Transamerica Life") and contributed that to the Trust. The premiums for these policies were paid with funds separately deposited in the Trust. The account shows that $145,585.80 of payments were made to the Trust during the years 1992 through 1997 and, thereafter, no further money was deposited. Upon depletion of the funds used to pay the premiums, further payments were made by the Trustee by drawing against the cash value of the policies in Trust. Upon the cash value in the policies being extinguished, each policy lapsed for non-payment of the premiums. The Transamerica Life policy lapsed for non-payment of premiums in 1999 and the National Life policy lapsed for non-payment of premiums in 2010. Since principal was left, the Trustee purchased extended term insurance for the National Life policy so that further premium payments could be made by drawing against the remaining cash value of the policy. However, when those payments were exhausted the policy was ultimately cancelled in 2011.
The objections filed dispute several schedules of the account and seek to impose a surcharge against petitioner for numerous alleged breaches of fiduciary duty resulting in the lapse of the life insurance policies and leaving the Trust without any assets to distribute to the beneficiaries.
Summary judgment is a drastic remedy that can be granted only when it is clear that no genuine issues of fact exist (see Alvarez v. Prospect Hospital , 68 NY2d 320 [1986] ; Andre v. Pomeroy , 35 NY2d 361 [1974] ; Phillips v. Joseph Kantor & Co. , 31 NY2d 307 [1972] ). On a motion for summary judgment the proponent must establish its claim sufficient to warrant the court in awarding 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 Hospital , 68 NY2d 320 [1986] ; Friends of Animals Inc. v. Assoc. Fur Mfrs., Inc. , 46 NY2d 1065, 1067 [1979] ). When the movant makes out a prima facie case, the burden 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] ; Albouyeh v. County of Suffolk , 96 AD2d 543 [2d Dept 1983], aff'd 62 NY2d 681 [1984] ).
In an accounting proceeding, the party submitting the account has the burden of proving that the account is accurate and complete (see Matter of DiGiovanna , 148 AD3d 699, 700 [2nd Dept 2017] ; Matter of Doman , 110 AD3d 1073, 1074 [2nd Dept. 2013] ; Matter of Crane , 100 AD3d 626, 628 [2nd Dept 2012] ; Matter of Schnare , 191 AD2d 859, 860 [3d Dept 1993], lv. denied 82 NY2d 653 [1993] ).
In support of the motion for summary judgment petitioner submits, inter alia, a copy of the verified pleadings including the amended account, petitioner's affidavit in support, a copy of account ledgers for the National Life and Transamerica Life insurance policies, copies of the transcripts of the SCPA 2211 examination of petitioner and the depositions of objectants, a separate affidavit of Mark and a copy of the Trust.
The amended account as filed appears complete and accurate in its schedules and, in summary, shows the entirety of the principal collected (Schedule A) and that any increases thereto realized (Schedule A-1) were expended on the payment of premiums, costs and other charges associated with the two life insurance policies (Schedules B and C). The net balance of undistributed principal and income on hand for distribution is zero ("0") dollars (Schedule G). There remains outstanding a Schedule C-1 claim by Mandelbaum, Salsburg P.C. for legal fees and costs incurred in this accounting proceeding in the amount of $1,670.00 for which there are no funds to pay and, although petitioner reserved his right to seek commissions, none are being requested (Schedule I).
The filing of the verified account supported by petitioner's affidavit and the annexed documents is prima facie proof of its completeness and accuracy (see Matter of Schnare , supra ; Matter of Korn , 36 Misc 3d 1224[A] [Sur Ct, New York County 2012] ; Matter of Romano , 8 Misc 3d 1010[A] [Sur Ct, Nassau County 2005] ; Matter of Rudin , 6 Misc 3d 1015[A] [Sur Ct, New York County 2000], affd 292 AD2d 283 [1st Dept. 2002] ; see generally 9 Warren's Heaton, Surrogate's Court Practice § 117.04 [2] [7th ed 2006] ).
Petitioner has satisfied the prima facie burden of establishing entitlement to summary judgment as a matter of law by submitting evidence that the amended account is accurate and complete. The role of the court, therefore, is to determine whether objectant raises any triable issues of fact (see O'Brien v. Port Authority of NY & NJ, 29 NY3d 27, 37 [2017] ; Sillman v. Twentieth Century- Fox Film Corp. , 3 NY2d 395, 404 [1957] ).
In opposition, the objections allege triable issues of fact exist as to the accuracy of the account as well as on their claim for a surcharge against petitioner due to numerous alleged breaches of his fiduciary duties of loyalty and care to the Trust. The latter can best be summarized as follows:
"The Trustee willfully and in bad faith failed to advise or notify the Grantor or the other beneficiaries of the Trust that the assets of the Trust were in danger of lapsing or being lost, thereby depriving the Grantor and/or the beneficiaries of taking appropriate action to assist in the protection and/or continuation of the Trust assets," and "The Trustee willfully and in bad faith deliberately mislead the Grantor and beneficiaries into the belief that the assets of the Trust were fully protected," and "The Trustee engaged in numerous wrongful and adversarial acts against the Grantor and his family designed to enrich the Trustee at the expense of the Grantor and the beneficiaries of the Trust," and "The Trustee engaged in fraudulent schemes against the Grantor, a finding made by ... the Supreme Court ... and affirmed by the Appellate Division ... which fraudulent schemes were designed to enrich the Trustee at the expense of the Grantor and the beneficiaries of the Trust," and "The Trustee failed, either deliberately or through gross negligence, to act with prudence and reasonable care in the management and protection of the assets of the Trust, resulting in the total loss of the Trust assets," and "The Trustee breached his fiduciary duties to the beneficiaries of the Trust ...by acting in bad faith in various respects and permitting and/or causing the assets of the Trust to lapse ..."
It is well settled that a fiduciary, such as a trustee, owes a duty of undivided and undiluted loyalty to those whose interests the fiduciary is to protect (see Matter of Wallens , 9 NY3d 117, 122 [2007[; Birnbaum v. Birnbaum , 73 NY2d 461 [1989] ; Meinhard v. Salmon , 249 NY 458 [1928] ). "A trustee bears the unwavering duty of complete loyalty to the beneficiaries of the trust no matter how broad the settlor's directions allow the trustee free rein to deal with the trust. The trustee is liable if he or she commits a breach of trust in bad faith, intentionally, or with reckless indifference to the interests of the beneficiaries" ( Boles v. Lanham , 55 AD3d 647, 648 [2d Dept 2008], citing Matter of Heller , 6 NY3d 649, 655 [2006] ).
Objectants first argue that petitioner admitted to the breach of his fiduciary duty in his SCPA 2211 testimony when he acknowledged that the purpose of the Trust was to maintain and protect the life insurance policies that would pay benefits to beneficiaries upon the grantor's death. This he obviously failed to do, they contend, since both of the policies lapsed.
However, the mere fact that petitioner admits a fiduciary duty existed while acknowledging that the purpose of the trust was not accomplished is, standing alone and without accompanying facts, a conclusion-oriented argument insufficient to defeat summary judgment. "The shadowy semblance of an issue or bald conculsory assertions, even if believable, are not enough to defeat a motion for summary judgment" ( Micoh v Smith , 173 AD2d 443, 444 [2d Dept 1991] ; see Alvarez v. Prospect Hosp., 68 NY2d 320 [1986] ; 110 Sand Co. v Nassau Land Improvement Co. , 7 AD3d 497, 498 [2d Dept 2004] ).
Objectants next specify several other alleged breaches of fiduciary duty by petitioner including his concealment of information about the status of the Trust from the grantor and beneficiaries; his failure to inform them that the life insurance policies were in danger of lapsing; his permitting the policies to lapse and be cancelled; his refusal to voluntarily resign as trustee when objectants requested that he do so; and his acts of engaging in bad faith and engaging in the numerous enumerated wrongful and adversarial acts against Baron during a prior, prolonged foreclosure litigation in the Supreme Court concerning the Maspeth property.
As evidence of thereof, objectants submit a copy of a letter from Baron to petitioner dated March 22, 2001 wherein Baron requests a copy of the "Irrevocable Life Insurance Trust" and the declarations page for the policies funding the trust, and petitioner's response thereto dated April 2, 2001 stating that he was advised by counsel that he was under no obligation to provide the documents requested and that doing so could expose him to liability from the beneficiaries. Additionally submitted is a copy of a letter to petitioner dated June 1, 2005 by an attorney representing the beneficiaries of the Trust, who requests on their behalf that petitioner voluntarily resign as trustee. Petitioner's attorney responded on October 20, 2005 rejecting the request since no information was provided that petitioner had breached any of his fiduciary duties with respect to the Trust.
While standing alone the foregoing correspondence may, at best, have an innocuous connection to any alleged breach of fiduciary duty by petitioner, the objectants ask this Court to consider them in light of all the pleadings, papers and court orders issued in a separate highly contested foreclosure action involving petitioner and Baron which spanned approximately thirteen years between 1999 and 2012. The exhibits pertaining to that contest include copies of pre-trial testimony, documentary discovery, decisions and orders of the Supreme Court, Queens County (Golia, J.) dated January 21, 2003, January 11, 2005, March 10, 2009, July 30, 2010; a decision and order of the Appellate Division, Second Department dated April 10, 2012; and a decision and order of the Supreme Court, Queens County (Kerrigan, J.) dated April 1, 2015.
To recapitulate the tedious history of the foreclosure litigation, undisputed and more fully drawn out in the record by the aforementioned court orders, Baron was the C.E.O. of EMV which owned and operated its business at the Maspeth property. In or about 1999 Baron began winding down its affairs and petitioner formed an entity called RJR Mechanical, Inc. ("RJR") for the purpose of taking over the operations of EMV. Baron eventually retired to Florida with his wife and left petitioner in charge of overseeing the property and entered into an oral lease agreement with petitioner by which RJR would operate out of the premises and continue to pay the mortgage, property taxes and other necessary expenses on the property.
In 2001, Baron notified RJR that he was in the process of selling the Maspeth property and petitioner should make arrangements to relocate his business. The petitioner responded by producing a faux twenty-five year lease in favor of RJR which, unbeknownst to Baron, was executed by petitioner on behalf of RJR and by petitioner's business partner, Karpman, seemingly on behalf of EMV, and which effectively rendered the potential pending sale of the Maspeth property by Baron impossible.
RJR thereafter failed to make the agreed mortgage payments on the
Maspeth property and precipitated a default. However, petitioner declined to forward to Baron any of the default notices that were being received at the Maspeth premises. RJR proceeded to negotiate with the mortgagee for an assignment of the EMV's mortgage, also without notice to Baron, and obtained the assignment in 2002. RJR then moved in the foreclosure action for summary judgment granting foreclosure and sale of the Maspeth property, with RJR being allowed to credit bid the amount of the mortgage. Baron, EMV and Merrill Lynch Business Financial Services Inc. ("Merrill"), a judgment creditor of Baron and EMV, all opposed the motion. The parties entered into a stipulation of settlement in 2004 agreeing to a judgment of foreclosure and sale if certain conditions were met, including resolution of the competing claims to the sales proceeds. RJR then proceeded to purchase an assignment of the Merrill judgment at a discounted rate and, promptly thereafter, commenced actions in Florida against Baron and his wife to enforce the full amount of the Merrill judgment at a rate nearly five (5) times it paid for the assignment.
Objectants maintain that the Florida litigation was maliciously brought by petitioner to oust Baron and his wife from their home when he was 70 years old and in weakened health, having recently survived major heart surgery.
initially consent to the private sale of the Maspeth property that would have satisfied the mortgage and resulted in a release of the Merrill judgment.
Ultimately, the Maspeth property was sold at private auction with approval of the Supreme Court for the sum of $2.3 million.
The ensuing litigation in New York following the stipulation of settlement resulted in a January 11, 2005 decision and order of the Supreme Court which found that RJR "continuously misled" the court and had engaged in a "fraudulent scheme" by precipitating the default of the mortgage and refusing to
Litigation continued over the competing claims to the proceeds of the sale held in escrow, for which RJR interposed claims approaching the extraordinary sum of $4 million dollars. After a hearing, the Supreme Court held that RJR was entitled to the distribution of $424,790.42 of the escrow funds, limiting its recovery on principals of equity, and granted RJR interest thereon totaling $399,933.82, while leaving open for future consideration the issue of RJR's reimbursement for tax payments allegedly made and the costs of repair it expended on the premises. By Order dated April 10, 2012, the Appellate Division, Second Department modified the Supreme Court order by deleting the award of $399,933.82 for interest and reducing RJR's distribution from the escrow account to the sum of $24,856.60, quoting the well-established principal of equity that "a wrongdoer should not be permitted to profit from his or her wrongdoing." Finally, a decision and order of the Supreme Court was issued on April 1, 2015 which rejected RJR's remaining, outsized request for reimbursement for taxes and repairs, and reducing those amounts to only $69,109.38 for real estate taxes and $2,051.07 for repairs.
Objectants emphasize that the aforementioned proof of petitioner's malfeasance with respect to the interaction of EMV and RJR, coincide with the time petitioner served as Trustee of the subject trust. While the above proof unquestionably demonstrates petitioner engaged in what could generously be described as "questionable conduct," regarding the Maspeth real estate, the objectants resultant analysis that a breach of fiduciary duty regarding the trust can be established by reliance on same wholly ignores any empirical inquiry of the relevant and express provisions of the Trust document itself.
The court is primarily tasked with determining petitioner's duties under the Trust by first looking at the instrument itself. "The Trust instrument is to be construed as written and the settlor's intention determined solely from the unambiguous language of the instrument itself" ( Matter of Wallens , 9 NY3d 117, 122 [2007], quoting Mercury Bay Boaring Club v. San Diego Yacht Club , 76 NY2d 256, 267 [1990] ; see Matter of Chase Manhattan Bank , 6 NY3d 456, 460 [2006] ). In construing the trust, the court must look within the four corners of the trust instrument to glean the grantor's intent (see Matter of Piel , 10 NY3d 163, 166 [2008] ; Matter of Hanlon , 169 AD3d 1039, 1040 [2d Dept 2019] ). Long- settled rules of construction preclude an attempt to divine the settlor's intention by first looking to extrinsic evidence (see Mercury Bay Boaring Club v. San Diego Yacht Club , 76 NY2d 256, 267 [1990] ; see also New York Life Insurance Trust v. Hoyt , 161 NY 1, 8-10 [1899] ). If the terms are ambiguous, however, the court may consider extrinsic evidence to determine the decedent's intent (see Matter of Piel, 10 NY3d at 166 ).
Turning to the Trust document, the express language provides as follows:
The Trustee may invest all or any part of the Trust Principal and of the income therefrom in one or more insurance policies of any kind (whole life, term, etc.) or in such other manner as he may determine, whether or not such instruments produce income during the Grantor's lifetime ...(Trust Article Second [A] )
The Trustee is further vested with the following rights and powers: [4] To cancel any such policy or permit any such policy to lapse (Trust Article Second [D][4] ) The Trust goes on to specify:
Nothing in this instrument shall be construed as a covenant by the Grantor to pay the premiums ... or furnish the Trustee with sufficient funds to pay them.
No Trustee shall incur any liability for any action taken by him or not taken by him in good faith. Each trustee shall be responsible only for net proceeds actually received by him (Trust Article Second [F] and [G] )
The express language of the Trust speaks for itself and is clear and unambiguous as an expression of Baron's intent that: (1) Petitioner (the Trustee) had discretion to use the Funds in the Trust to purchase investments including insurance policies on the grantor's (Baron's) life for the benefit of Baron's children, (2) The grantor (Baron) was not required to pay any policy premiums or furnish the Trustee with funds to pay the premiums, and (3) the Trustee (Petitioner) was permitted to allow any policy purchased to lapse.
Again, notably, the Trust did not require either Baron or petitioner to forward funds to ensure that the policies did not lapse, or to provide notice to the beneficiaries that they were in danger of lapsing, or give the beneficiaries an option to pay premiums. Nor did it permit the Trustee to voluntarily resign. Yet, objectants argue that petitioner was obliged to perform some or all of these acts and that his failure to do so should be found to be a breach.
Conceding for the purposes of this motion that ill will existed between Baron and petitioner, the objectants' arguments completely fail to make a considered analysis of any of the relevant schedules of the amended account in light of the express provisions of the trust instrument but, instead, rely solely upon speculation that petitioner had his own motivations to cause the two life insurance policies to lapse.
Significantly, the amended account and the undisputed evidence establish that no funds were paid into the trust on or after about December 1997, well before the commencement of the foreclosure litigation.
As to the Transamerica policy, the account shows that premium payments continued to be made through available means and that said policy lapsed in 1999, which was prior to the mortgage foreclosure litigation and Baron's letter request for a copy of its declarations page. Thus, any ostensible connection objectants seek to draw between these events appears misplaced.
With respect to the National Life trust which lapsed in 2010 and was cancelled in 2011, the Trust expressly stated, for whatever reason, that neither Baron nor petitioner bore any obligation to fund the Trust or pay the premiums for the life insurance policy. It is perfectly obvious and requires no specialized training to reason that life insurance policies would eventually lapse in the absence of continued premium payments. Satisfying the duty he had to preserve the assets of the trust, petitioner utilized the remaining cash value of each policy to make premium payments until said funds were exhausted. The account accurately reflects that the balance on hand for distribution from the Trust is zero.
In the absence of any ambiguity in the Trust, the court does not need to look to extrinsic evidence of the separate mortgage foreclosure litigation to impose fiduciary obligations on the petitioner that are not required by the Trust instrument or otherwise by law (see Mercury Bay Boating Club v. San Diego Yacht Club , 76 NY2d at 267 ; see also Golden Gate Yacht Club v. Societe Nautique De Geneve, 12 NY3d 248, 255-257 [2009] ; New York Life Insurance Trust v. Hoyt , 161 NY at 8-10 ).
Finally, objectants argue generally that petitioner is precluded from relying upon conversations with the grantor of the trust in support of the motion for summary judgment ( CPLR 4519 ). The court notes that none of any such conversations referred to by objectants are relevant to the court's consideration of the motion. To the extent that the objectants have relied extensively upon communications and transactions of the deceased grantor in opposition to the motion, they are entitled to do so (see Phillips v. Joseph Kantor & Co. , 31 NY2d 307 [1972] ; Matter of Cavallo , 6 AD3d 434, 435 [2nd Dept 2004] ) and the court has duly considered same.
Objectants, as the parties opposing summary judgment, are required to lay bare their proof to demonstrate a triable issue of fact, and conjecture and surmise is insufficient to satisfy this burden (see Zuckerman v. City of New York, 49 NY2d 557, 562 [1980] ; Leonard v. Kinney Sys., 199 AD2d 470 [2d Dept 1993] ). Based upon the evidence submitted, the court finds no triable issues of fact exist concerning petitioner's alleged breach of his fiduciary duty to the grantor and the Trust's beneficiaries, or whether petitioner's account is accurate or complete.
Accordingly, the petitioner's motion for summary judgment dismissing the objections is granted.
This is the decision of the court.