Opinion
2018-1242/H
08-24-2021
In the MATTER OF the Petition for Appointment of Successor Co-Trustee of the By-Pass Trust Under Article VI of the WILL OF Gerald R. CLIFFORD Deceased.
For William N. Clifford: The Glennon Law Firm, Peter J. Glennon, of counsel, 160 Linden Oaks, Rochester, New York 14625 For Daniel Clifford: Harter Secrest & Emery LLP, Martin W. O'Toole, of counsel, Jerauld E. Brydges, of counsel, 1600 Bausch and Lomb Place, Rochester, New York 14604
For William N. Clifford: The Glennon Law Firm, Peter J. Glennon, of counsel, 160 Linden Oaks, Rochester, New York 14625
For Daniel Clifford: Harter Secrest & Emery LLP, Martin W. O'Toole, of counsel, Jerauld E. Brydges, of counsel, 1600 Bausch and Lomb Place, Rochester, New York 14604
Christopher S. Ciaccio, S.
By Decree of this court dated July 16, 2021, William N. Clifford is the successor trustee of the Gerald L. Clifford By-Pass Trust, which has as its largest asset Thirsty's Young Gentlemen, Inc., the owner of property located at 8 State Street in the Village of Pittsford, New York as well as the popular bar and "watering hole" located on the property (the real estate, corporate entity and bar are hereinafter collectively referred to as "Thirsty's").
The trustee now moves, by Order To Show Cause, for approval, in accordance with limitations in the Decree granting letters of trusteeship, of the sale of Thirsty's to FGB Acquisitions LLC ("FGB"), a third-party buyer not affiliated with the trust or any beneficiaries. A purchase and sale agreement have already been negotiated and accepted by the trustee to purchase Thirsty's for $1.45 million.
Beneficiary Daniel Clifford, brother of the trustee, objects to the sale on the ground that he has also offered to buy Thirsty's for slightly more money — $1.453 million — and that his offer has significant tax and operating advantages and should be accepted by the Trustee.
For the reasons below, the Order To Show Cause is denied , if for no other reason because the Order To Show Cause has not been filed as part of any pending proceeding. The application for the appointment of a successor trustee was closed by this Court's Decree appointing a successor trustee.
The Court's Order directing a hearing, made at oral argument, is hereby reversed.
What William Clifford has filed as an Order To Show Cause under file no. 2021-1242/H should have been brought by petition (see SCPA 301 ) and designated as a proceeding under either SCPA 2107 ("Advice and Direction," the "extraordinary circumstance" being the limitation in the letters or the "conflict among interested parties") or under Article 19 ("Disposition of Real Property"). In essence, there is no proceeding pending before the Court on which it can render a judgment, the proceeding to appoint a successor trustee having been terminated.
Even if the Order To Show Cause were deemed to have been appropriately filed, it would be denied and a hearing ordered with regard to outstanding material issues of fact as to which offer, Daniel Clifford's or FGB's, provides superior benefit to the beneficiaries .
Upon consent of the parties, the Court closed all further bids on the asset.
The factual and legal background is as follows:
William N. Clifford is the son of the late Gerald R. Clifford and Jane L. Clifford. Gerald died in 2018, and his Last Will and Testament created a By-Pass trust into which passed Thirsty's Young Gentlemen, Inc. and the property at 8 State Street.
On June 1, 2018, Letters Testamentary were issued to his wife, Jane N. Clifford as executor. She subsequently asked for permission to resign and successor letters testamentary were issued to William N. Clifford on June 25, 2018.
Jane was also appointed as the nominated trustee of the By-Pass trust. and under the terms of the Will, she selected John A. Post III to serve as the co-trustee. Letters of Trusteeship were issued to Jane N. Clifford and John A. Post III on August 31, 2018.
Jane Clifford then died on January 3, 2021, leaving Mr. Post as the sole trustee.
Daniel Clifford, one of three sons of Gerald Clifford (along with William Clifford and Peter Clifford), then made various proposals to purchase Thirsty's, none of which were formally accepted.
In March of 2021 William Clifford moved for a Temporary Restraining Order and Preliminary Injunction to enjoin the trust from selling Thirsty's, alleging that Mr. Post was contemplating a sale for less than fair market value. William believed ("I am aware") that "at least" two offers had been made to purchases Thirsty's — one from a disinterested buyer and the other from Daniel Clifford — and that he believed the offer made by Daniel Clifford was $20,000.00 less than the offer from the disinterested buyer. William Clifford asserted that Daniel Clifford "had a single focus of purchasing the Bar and Building for less-than-market value." (Emergency Affirmation in Support of Order to Show Cause of Peter Glennon, Esq., attorney for William N. Clifford, dated 3/25/2021), and that he, William Clifford, is concerned that the "Trust has not been properly marketed and has not been offered at market rates reflecting its true value." (Memorandum of Law of Peter Glennon, dated March 25, 2021).
William Clifford also maintained that if Thirsty's is allowed to be sold (and being the biggest asset in the trust,) the trust will be damaged irreparably by a sale for less than the fair market value, "..to the detriment of the trust and inconsistent with the intended purpose of the Trust."
Notably, William Clifford asks that any sale of Thirsty's be restrained and enjoined "pending disposition of the appeal" involving the Estate of Gerald Clifford, so that the "Trust shall retain sufficient assets . in case the Estate is forced to reopen."
John Post, for his part and for various reasons - no doubt, being not terribly excited at having been accused by counsel for William Clifford that he was "acting out of his own self-interest" (a claim in no way substantiated in any pleading or factual submission) - did not wish to continue to act as trustee. He petitioned the Court to be allowed to resign, and that request was granted.
William Clifford, named in the Last Will and Testament of Gerald Clifford as a successor trustee, then petitioned for letters of trusteeship.
Daniel Clifford filed Objections in which he alleged that his brother William lacked fitness to serve as trustee because, among other things, he had made errors in the accounting submitted as co-Executor; refused to consider Daniel's counteroffer for the sale of the stock of Thirsty's Young Gentlemen, Inc. and the real properties at 8 State Street, 10 State Street, and 20 State Street; that William was mismanaging Thirsty's; and that William maintains "personal animosity" toward Daniel that "has and will continue to affect his judgment as a fiduciary."
If the hostility expressed by counsel toward each other in their submissions is any indication of how the brothers feel about each other, then the allegation of animosity is accurate and mutual. Mr. Glennon's description of one of Mr. O'Toole’s letters to the court as a "vituperative screed" is the most memorable expression, but far from being the only one.
A decree appointing William Clifford as interim successor trustee with limitations was issued and filed on May 12, 2021. The Decree explicitly bars the interim trustee from selling any assets held by the trust.
In addition to the Objections filed by Daniel Clifford and the assertions in William Clifford's application for a temporary restraining order and preliminary injunction, there was considerable discussion both on the record, via email, and in chambers between counsel and the court, as to how to maximize the offer that was to be made for Thirsty's, all parties recognizing that getting the most money for Thirsty's was the responsibility of the trustee to the beneficiaries. Also discussed was how to allow Daniel Clifford an opportunity to match any "fair market value" offer and purchase the property himself.
It was then agreed that the only way to be certain of the fair market value of Thirsty's was to list it on the open market and solicit offers. To satisfy the requests by Daniel Clifford's attorneys to allow Daniel an opportunity to purchase the property, the court considered including in the Decree appointing William Clifford as trustee limiting language that granted Daniel Clifford a right of first refusal on any offer made to purchase the property, or, directing that any listing contain an "escalation" clause, again giving Daniel the right to match or exceed any offer.
In fact, counsel for William Clifford submitted a proposed Decree that included language granting a "right of first refusal" to Daniel Clifford to purchase Thirsty's on the same terms and conditions "as the best bonafide offer from a Third Party."
The court concluded, following extended discussions with counsel again both in chambers and in court, that a right of first refusal would depress any offers, because a bonafide purchaser of a commercial property would not want to engage in extended "due diligence" involved in the formation of a purchase offer if it knew that its offer could be matched and superseded by Daniel Clifford's offer. The court recalls that discussions were also held on the need for "transparency," specifically in the context of allowing Daniel Clifford the earliest opportunity possible to review any offers and to counter them.
Thus, the decree granting letters of trusteeship to William Clifford has limiting language that reads as follows:
It is ORDERED AND DECREED, that the sole limitation upon the Successor Trustee is that any sale by the By-pass Trust 8 State Street, Pittsford, New York and/or Thirsty's Young Gentlemen, Inc., and/or its business commonly known as Thirsty's (collectively Thirsty's Bar), requires Court approval, for which all offers for Thirsty's Bar and/or any appraisals of the same shall be submitted to the Court on notice to the remaindermen of the By-Pass trust; and it is further
ORDERED AND DECREED, William N. Clifford, as Successor Trustee shall immediately provide to Daniel Clifford and his counsel copies of any and all offers received for the stock or assets of Thirsty's Young Gentlemen, Inc., and/or 8 State Street, Pittsford, New York.
Accordingly, the Decree was signed on July 16, 2021 and entered in the Clerk's office on July 21, 2021.
William Clifford then brought this instant Order To Show Cause seeking approval not just for an offer but for an accepted purchase and sale agreement to buy Thirsty's for $1.45 million.
According to William Clifford, as set forth in his Affidavit in support of the Order To Show Cause, he solicited offers upon his appointment as successor trustee. Dennis Wilmot was contacted; he had previously made an offer to purchase for $1,000,000.00 but declined to make another offer. Daniel Clifford was also contacted; he had previously offered $790,000.00, and now offered $1,000,000.00 to purchase the property. A third party who had expressed in interest, signed a non-disclosure agreement, received the same information, but did not submit an offer.
William Clifford says he was then contacted then by a fourth party. Terms were negotiated, and a Purchase and Sale Agreement was entered into on July 16, 2021, the same day as the Decree was signed by the Court.
As successor trustee William Clifford now asks for court approval on the rationale that he has been able to secure fair market price for the property, and in doing so has fulfilled his fiduciary duty to all beneficiaries.
Daniel Clifford, as a beneficiary of the Trust, opposes the sale and seeks to have the Court direct the sale of Thirsty's to him, as he has apparently made an offer (after the Purchase and Sale agreement with FGB had been finalized) that he asserts is superior to the offer made by the FGB. Although Daniel Clifford's offer is very close in price to the one offered by FGB, it is a better offer, he asserts, because 1) the liquor license in his name, thus the transaction can close almost immediately, certainly this year, with no delay or interruption of operations, and 2) because he is offering to purchase the stock, rather than the assets, of Thirsty's, resulting in a tax saving of $220,000.00.
Daniel Clifford also has raised issues with regard to the disposition of Revitalization Funds, as well as the delay FGB will encounter in securing a special use permit, which he says will lengthen the time needed to close the deal.
The court heard argument on Friday, August 20, 2021.
William Clifford argued that the limitation in the Decree is essentially ministerial, i.e., that once an offer reflecting fair market value - which the offer of FGB is - has been presented and accepted, the Court must defer to the business judgment of the fiduciary and approve the sale, citing EPTL 11-1.1 (b) (5) (B) ; Matter of Flaum , 168 AD2d 933, 934, 565 NYS2d 633 [4th Dept 1990] ; and Matter of Southwick , 127 AD2d 662, 663, 511 NYS2d 888 [2d Dept 1987] ).
In response to the Court's direction that a hearing should be held, he argues that there are no material issues of fact.
However, Flaum and Southwick can be distinguished from the present situation.
In Flaum the Fourth Department reversed the Monroe County Surrogate (Ciaccio, J.) who had ordered two of the co-fiduciaries to sell an estate asset to a buyer arranged for by a third co-fiduciary, Saul Birnbaum. The Court held that generally the Surrogate "should not usurp the fiduciary's powers (citing to EPTL 11-1.1 [b] [5] [B] ) but rather defer to the "business judgment and powers of the fiduciary" (Flaum at 934, 935). However, it also noted that the general powers afforded a fiduciary pursuant to EPTL 11-1.1 (b) (5) (B) apply "in the absence of a contrary or limiting provision in a will or court order"
Here, the Decree appointing William Clifford as trustee contains such a "limiting provision." The court specifically and after extended discussion limited the power of the trustee William Clifford to act to sell the property without the Court's approval. Although perhaps the limiting language could have been more precise (for example, limiting the power of the fiduciary to accept any offer without approval of the Surrogate), nonetheless, the entire panorama of the discussions prior to the issuance of the letters, as evidenced if only by the form of the Decree proposed by William Clifford, suggests the Court intended to be able to negate any purchase offer in favor of an offer that it deemed superior. Thus, EPTL 11-1.1 (b) (5) (B) is not strictly applicable, and Flaum , in which the decree appointing the fiduciaries had no such limiting language, is distinguishable.
Moreover, Flaum can be read to favor Daniel Clifford's position. Co-fiduciary Saul Birnbaum sought to compel a sale of an estate asset, and although it is not spelled out in the decision, his application was brought pursuant to the catch-all provision of section 1902(7) of the SCPA, authorizing the sale of real property "For any other purpose the court deems necessary." The Fourth Department pointed out the sale was in fact not "necessary" because the fiduciaries had raised "valid and serious objections to certain aspects of the sale agreement negotiated by Saul," including "potentially adverse tax consequences to the Estate," which Daniel Clifford has argued is the case here ( Matter of Flaum , 168 AD2d 933, 935 [4th Dept 1990] ).
William Clifford also complains that should the sale to FGB be disapproved, the Trust will suffer injury, as FGB has incurred costs in its performance of due diligence which it may seek to recoup. However, the trustee knew that he did not have unlimited authority to enter into a binding contract, and the provisions of paragraph 10(s) of the Purchase and Sale Agreement — entitled "Authority " - are flatly inaccurate. The seller did not have "full power and authority" to enter into the Agreement and he was and continues to be "subject to any . Decree" that limits his ability to sell the property without court approval.
Matter of Southwick can also be distinguished and is not seen as being "eerily" similar to the case at bar, as suggested by counsel for William Clifford. There the Surrogate held a hearing (although the decision does not state what type of proceeding had been commenced) following which he determined that the trustee was within her discretion to approve a sale of real property to a third-party buyer as against an offer made by a beneficiary. The beneficiary's offer was made only after the executrices had in hand a binding offer, and as the Surrogate, acting within his discretion, had not afforded the beneficiary a right of first refusal, the executrices were within their authority to reject the beneficiary's offer.
Here, the decree appointing William Clifford as trustee contained limiting language, absent in both Flaum and Southwick , that although regrettably not precise, was intended to bestow a fair and equitable opportunity to Daniel Clifford to make a competing offer, which he has done and which in some respects, may be superior, and which, should it prove to be superior, ought to be accepted. The court's intent in signing the Decree and including limiting language can (as has been stated) be readily gleaned from all the submissions in this matter, not the least of which was William Clifford's proposed Decree granting Daniel the right of first refusal. It borders on the disingenuous for him to now say the Court has no discretion to disapprove the admittedly fair market value offer made by William Clifford's chosen buyer, when the entire scope of all prior discussions, which resulted in letters of trusteeship being granted to William upon consent, was to reserve to the court the discretion that the Southwick court failed to carve out , and by doing so "ensure maximum value for all three Trust beneficiaries (see letter to the court of Peter Glennon, Esq., counsel to William L. Clifford, dated June 10, 2021).
This court inquired of counsel at oral argument whether the Decree was on consent. Counsel for Daniel Clifford said it was, counsel for William Clifford said it was not. The court's recollection, and the entire background of motion practice and discussions, leaves no doubt that it was on consent.
Consistent with Southwick , and out of an abundance of caution, given disagreement on issues which seem at this point to be material and are unquestionably disputed, the Court (assuming the Order To Show Cause is refiled as an SCPA Article 19 proceeding or one under SCPA 2107 ), when the matter is re-filed under a new proceeding, will likely order a hearing. The focus of a hearing was discussed at oral argument, to be limited to three issues: 1) whether the stock sale or an asset sale results in a benefit to the beneficiaries, 2) whether the trust stands to benefit Daniel Clifford's name is on the liquor license and should he be the purchaser, closing of the transaction will be expedited; and 3) which buyer will be able to expeditiously secure a special use permit .
Although the court remains curious, and may take testimony, regarding the timetable as to when negotiations with FGB commenced and how soon details of that negotiation were provided to Daniel Clifford.
However, given that the application for approval of the sale under Article 19 or SCPA 2017 may raise different issues than what has been set forth in the Order To Show Cause, the court will await that filing and the responses before it finally sets the parameters for any hearing, should one be necessary.
CONCLUSION
The application for relief in the Order To Show Cause is DENIED.