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concluding that "the evidence does not suggest a lack of capacity to contract" where people who conversed with the decedent on the date of execution "provided testimony as to his alertness and responsiveness"
Summary of this case from N.Y. Life Ins. Co. v. BrownOpinion
No. 2005–1202.
01-13-2014
In the Matter of the Application of Robert KOTICK, as Executor of the Last Will and Testament of Charles M. Kotick, Deceased, Pursuant to SCPA § 1805 for Permission to Pay a Debt Owing to Him by the Decedent.
David Rose, Esq. of Pryor Cashman LLP, for Robert Kotick. Eve Rachel Markewich, Esq. and Lawrence M. Rosenstock, Esq. of Markewich and Rosenstock LLP, for Natalia Shvachko.
David Rose, Esq. of Pryor Cashman LLP, for Robert Kotick.
Eve Rachel Markewich, Esq. and Lawrence M. Rosenstock, Esq. of Markewich and Rosenstock LLP, for Natalia Shvachko.
RITA M. MELLA, S.
Robert Kotick (“Bobby”), who serves as executor of the will of his father, decedent Charles Kotick, petitions under SCPA § 1805(2) for authority to pay himself individually from the estate on the note, which promises to pay Bobby $1,077,000, plus interest. Decedent executed the note in favor of Bobby, while in the hospital suffering from prostate cancer, 10 days before his death on March 21, 2005. Before the court is Bobby's motion for summary judgment seeking dismissal of the defenses to payment of this promissory note.
Bobby claims that the note transaction arose from decedent's desire to make certain gifts to benefit his family, a desire that decedent was unable to fulfill because he had insufficient liquid assets. No monies passed from Bobby to decedent on account of the note's being executed, but Bobby borrowed monies from another entity to make various gifts on decedent's behalf: decedent's daughter Deborah Gruber (“Debbie”) received $211,000 outright, and separate trusts for the benefit of her children, Morgan, Jordan and William, also each received that same amount. The remaining $233,000 went to the Kotick Family Trust, benefiting Bobby's three children, Grace, Audrey and Emily. Such payments were based on a letter of instruction, prepared by Bobby, that decedent also signed in the hospital on March 11, 2005.
On October 27, 2000, several years prior to his death, decedent married Natalia Shvachko (“Natalia” or “respondent”) in Las Vegas, Nevada. Decedent, who was a partner at the Manhattan law office of Bryan Cave, LLP, was then 64 years of age and she was 24. Natalia, decedent's surviving spouse, has raised numerous defenses to payment of the note which attack its enforceability, thereby raising issues typically addressed in a proceeding pursuant to SCPA § 1809, to determine the validity of a claim. Natalia claims the note transaction was a fraud and a sham, done, as the idea and at the insistence of Bobby, to deprive her of assets—including a Sutton Place apartment where she and the decedent resided during their marriage—given to her by decedent's will and their prenuptial agreement. Natalia claims that Bobby, who did not approve of her marriage to his father, and who, among other things, is the chief executive officer of Activision Blizzard, Inc., a large public video and computer game company, has substantial economic resources and has used them in an attempt to deprive her of her rights under both her October 25, 2000 prenuptial agreement with decedent and his estate plan. Bobby, in her words, has sought to deplete all the assets of the estate under a “scorch the earth policy of litigation .”
In addition to the instant SCPA § 1805 proceeding, Bobby as executor has brought two turnover and discovery proceedings against Natalia, seeking jewelry and personal effects (given to Bobby in decedent's will), and payment of a debt to the estate. Natalia, for her part, had previously petitioned to revoke Bobby's letters testamentary and for an accounting, which Bobby moved to dismiss. That matter and the motion to dismiss were held in abeyance pending conclusion of this § 1805 proceeding and the turnover proceedings. The court contemplates that the issues raised in the revocation proceeding will be addressed in Bobby's proceeding to judicially settle his account as executor, to which Natalia has objected. The estate account shows a gross probate estate for decedent of some $2.4 million, of which $1.65 million is the value of the Sutton Place apartment. It further shows some $358,000 in administration expenses paid on Schedule C, and Schedule C–1 shows unpaid administration expenses of some $1.7 million, of which $1.6 million are legal fees and costs of Bobby's former counsel as executor, the Skadden Arps firm. Bobby, as executor, has also petitioned pursuant to SCPA § 2107 for authority to sell decedent's Sutton Place apartment in order to pay these legal fees, but such petition was held in abeyance pending resolution of the current proceeding.
In addition to these general allegations and an indication of an aversion to her as decedent's spouse on the part of decedent's children, Bobby and Debbie, Natalia's Second Amended Answer (the operative one here) raises eight affirmative defenses, the last two of which are also denominated as counterclaims. First, Natalia claims the note was fraudulently induced by Bobby and Joel Kotick, decedent's twin brother, who oversaw the execution of the note, in that decedent was led to believe that the note transaction was one that would create no reduction in his estate, and second, she claims mistake in that decedent thought he was entering into a transaction that would not reduce his estate. The third affirmative defense also pleads mistake due to decedent's “weakened state of mind” and the fourth claims that decedent lacked capacity to enter into the transaction. Fifth, she asserts that the note transaction was a fraudulent conveyance under Debtor and Creditor Law, while the sixth and seventh affirmative defenses claim tortious interference against Bobby with Natalia's rights under her October 25, 2000 prenuptial agreement with decedent, with the seventh pled as a counterclaim. Here, Natalia asserts that Bobby's “methodology was and is to create a substantial debt of the Estate, so great that the assets of the Estate, other than the [decedent's] Sutton Place apartment” (which the prenuptial agreement obligated the decedent to give Natalia by will), could not satisfy the debt.
Joel Kotick is not a party to this proceeding.
The eighth denominated affirmative defense and counter-claim deals with a house in Westhampton, New York and an entity named Blue Water Management LLC (“Blue Water”). Natalia claims that Bobby improperly used estate assets to cover the costs and mortgage payments on the Westhampton house, even though it is not listed as an asset of decedent's estate; and that Bobby further improperly caused the mortgage on this property to be listed as a liability of the estate. This counterclaim also asserts that the IRS has investigated the Blue Water entity as an abusive tax shelter and that Bobby improperly used estate funds to defend against such investigation and audit, even though an entity alleged to be wholly controlled by Bobby, 1011 Partners LLC, allegedly owns 96.9124% of Blue Water. Natalia seeks to have the improper expenditures from the estate for the Westhampton house and in respect of the Blue Water investigation and audit offset Bobby's claim under the note or charged back to Bobby.
Discovery having concluded, Bobby has moved for summary judgment and seeks an order dismissing the defenses and authorizing the estate to pay him this debt. Natalia opposes the motion. The guardian ad litem for infant beneficiaries under decedent's will has filed a report that opposes the motion.
INITIAL PROCEDURAL ISSUES
The claims contained in the eighth affirmative defense and counterclaim regarding the Westhampton house and Blue Water do not provide a defense to payment under the note, and although a counterclaim need not relate to underlying claims of the petition, these particular claims as the court has informed the parties informally, are better addressed in the context of the executor's accounting proceeding. The Westhampton house and Blue Water claims are severed from this proceeding and consolidated with the pending proceeding to settle the executor's interim account of his administration of decedent's estate.
FACTUAL BACKGROUND
When the challenged transaction occurred, there were four major interests over which decedent had control: a primary marital residence on Sutton Place (“the Sutton Place apartment” or “the apartment”), worth some $1.65 million; retirement funds worth a total of approximately $5 million; various investments in limited liability companies and limited partnerships worth a total of about $335,000; and a million-dollar policy on his life. Under the prenuptial agreement with Natalia, decedent had bound himself to leave her at his death the Sutton Place apartment, one-half of the retirement funds, and one-half of the assets that he had acquired during the marriage. By February 2005, he had established a qualified domestic trust (“QDOT”) for her benefit and had named its trustee as beneficiary of one-half of the retirement funds (see IRC §§ 2056(d), 2056A [preservation of marital deduction for non-citizen spouses] ). Natalia was a citizen of the Ukraine but, since decedent's death, has now become a United States citizen. He had also executed a will that left the Apartment and residuary estate to her, outright if she had become a U.S. citizen by the time of his death or in a QDOT, if she had not. Decedent had in addition named Natalia as income beneficiary of the Kotick Grandchildren Trust, which was the beneficiary of his life insurance policy.
There was no requirement under the prenuptial agreement that decedent designate Natalia as beneficiary of a life insurance policy.
There have been several other litigations between the parties including some involving the inter vivos QDOT. Natalia sought to compel distribution of the corpus of the trust to her, which she was permitted to receive once she became a U.S. citizen. After the litigation as to her status as surviving spouse, discussed below, was resolved in her favor, this court directed that the corpus be distributed to Natalia (see Matter of Kotick, NYLJ, Oct. 25, 2012, at 26, col 2 [Sur Ct, New York County] ).
Decedent's former spouse, Judith Hans, sought, in relief against the QDOT's then trustee, Joel Kotick, a portion of the corpus as damages for failure to disclose certain assets in negotiations leading up to the separation agreement executed by Hans and decedent in 1988. This action by Hans was specifically contemplated by Bobby and discussed prior to decedent's death, as evidenced by a memorandum dated February 17, 2005 from Bobby's counsel, Ron Weiss, at the Skadden firm, who also had prepared the promissory note in question. This memorandum to another of Bobby's counsel, and copied to Hans and Bobby, stated that, “[t]he goal would be to bring an action to set aside the Separation Agreement [between Hans and decedent] and to settle that action by having a portion of Charles' pension plan (approximately $1 million) transferred to Judith [Hans]....” After transfer to this court from Supreme Court where Hans' action was commenced, Natalia was permitted to intervene, and the action was dismissed for failure to state a claim and summary judgment granted in favor of Natalia (Hans v. Kotick, NYLJ, Oct. 7, 2009, at 32, col 1 [Sur Ct, New York County] ). There has been a succession of trustees of this trust (the first three, John Walsh, Bobby and Joel, resigned; a fourth, Robert Bro, was removed). The prior trustees' accounts have been objected to by Natalia in this court. The trustee at distribution of the remaining corpus to Natalia was Brian Kelly.
Also, decedent's daughter Debbie obtained with another person limited letters in Nevada, where decedent and Natalia were married, and commenced an action challenging the validity of that marriage. That proceeding was dismissed and fees imposed on petitioners by the Nevada court for the application having been frivolous (Gruber v. Shvachko, Slip Op, No. D 07–377619U, District Court, Clark County, NV, Pomrenze, J [April 17, 2008] ). That decision was reversed on appeal in Nevada, and plaintiffs were given a chance to conduct discovery; given that the status of Natalia as surviving spouse remained in controversy, the current summary judgment motion was held in abeyance pending resolution of the Nevada litigation. That occurred when the Nevada court dismissed, upon plaintiff's motion, the marital status litigation with prejudice in 2012. There is thus no longer any question as to whether Natalia is in fact decedent's surviving spouse. The dismissal of the Nevada litigation coincided with a change of counsel for Bobby; this new counsel, before her untimely death, requested a further opportunity to attempt a settlement, to which the parties agreed. Moreover, there were to be further submissions regarding this motion if that settlement could not, as it has not, been effectuated. Successor counsel for Bobby has now appeared, additional submissions filed, and the parties have confirmed that the motion is ready for a decision.
During the first two weeks of March 2005, while hospitalized at Memorial Sloan Kettering Cancer Center, decedent made several changes to the foregoing arrangements after a number of discussions with his law partner and estate planning counsel, John Walsh. Thus, on March 9th, decedent gave Natalia $117,000 (the maximum amount exempt from gift tax when transferred to a non-citizen spouse). On March 11th, decedent changed his beneficiary designations on his retirement funds, raising Natalia's share from 50% to 65% (representing an approximately $750,000 increase) and decreasing daughter Debbie's share from 50% to 35%). Also on March 11th, decedent changed the beneficiary designation for his $1 million life insurance policy from the Kotick Grandchildren Trust to Debbie, and, as observed above, entered into the promissory note transaction that is the subject of this proceeding. Finally, on March 12th, decedent executed a codicil to his will, drafted by Walsh, which (to the extent relevant here) apportioned estate taxes against the persons receiving the assets attracting such taxes rather than, as under the original will, against the residuary estate. Thus, for example, as a result of the codicil, several hundred thousand dollars in estate taxes in respect of decedent's life insurance policy were to be borne by Debbie as designated beneficiary of that policy, rather than by Natalia as residuary beneficiary.
In an interpleader action by Sun Life, the issuer of the life insurance policy, in federal court, Natalia unsuccessfully challenged this change of beneficiary designation, which included the grounds that decedent lacked capacity or was unduly influenced to make this change (Sun Life Assurance Co. of Canada (U.S.) v. Gruber, 2007 WL 4457771 [SDNY 2007], affd 334 Fed Appx 355, 2009 WL 1560829 [2d Cir2009] ). In a decision on a motion in limine by petitioner, this court held that the Sun Life decision did not collaterally estop Natalia from raising the issue of undue influence regarding the promissory note. (Matter of Kotick, NYLJ, Jul. 31, 2009, at 39, col 3 [Sur Ct, New York County] )
Natalia seeks to avoid having decedent's estate pay the March 11, 2005 note. Given the lack of other estate assets, if the note is to be paid by the estate, the Sutton Place apartment given to her under the will as required by the prenuptial agreement will have to be sold, abating significantly, if not completely (given other claimed expenses) any legacy to her from decedent's estate.
THE PROMISSORY NOTE
Bobby claims that decedent promised to repay amounts that Bobby would loan him as soon as he could liquidate assets, or, if he died first, that his estate would repay Bobby. Apart from decedent's signature on the promissory note and the letter of direction, both dated March 11, 2005, no other evidence is offered indicative of decedent's intent to make these gifts. There is no indication that Natalia was aware of the note transaction, and the person who notarized decedent's signature on the note that day, decedent's twin brother, Joel, did not remember anything from when the note was signed. There is also no indication of whether Bobby was present at or around the time the note was executed.
The transcript of Joel's deposition reads:
“Q. Do you remember anything about when the note was signed?
“A. No, I do not.
“Q. Do you remember any discussion that you had with your brother about signing the note?
“A. No. It was something that he wanted to do, and I just knew that he was doing it. He did not ask my advice.
“Q. Who was present when he signed the note?
“A. We are starting under the assumption that I was present.
“Q. Do you remember being present?
“A. Two years later, no. If you show me the note, I will tell you if I was present.” (Transcript of Joel Kotick Dep., Aug. 7, 2007, at 29).
Joel thereafter confirmed that it was his practice to put his notary stamp and the date of the signature he is asked to notarize; and he noted that his notary stamp appears on the March 11, 2005 note and letter of direction.
It is undisputed, however, that the note was prepared by Bobby's counsel, Ronald Weiss at the Skadden Arps law firm, at Bobby's request, and there is no indication that Weiss ever spoke to decedent about the transaction. Bobby had also sent to Weiss the letter of direction that Bobby had drafted in his offices and which Bobby asked Weiss to send to Joel, care of the hospital, along with the promissory note Weiss had drafted, for decedent's signatures. The letter of direction provided that the $1,077,000 to be loaned by Bobby to his father should be paid, as noted above, to Debbie, and to various trusts benefiting Bobby's and Debbie's children.
Decedent's estate planning counsel, Walsh, was unaware of the note transaction as it occurred, but testified at his deposition as to conversations with decedent and Natalia about loan transactions within the Kotick family and the effect of those transactions on decedent's estate. He further testified as follows:
Although Weiss indicates in his deposition that he spoke with Walsh regarding gifts the decedent might make in order to take advantage of tax benefits, there was no specific discussion of the note transaction mentioned by Weiss.
“My recollection is that Chick [decedent's nickname] would borrow money, and I don't think the source of the loan was ever disclosed, and Chick would loan that money as I recall it to his daughter. She would sign a note, from my point, very simply was as long as it wasn't forgiven, then Chick's estate would not be diminished by the whole transaction.”
(Transcript of John Walsh Dep., July 25, 2006, at 155).
TIMELINESS OF MOTION
Note of issue having been filed by Bobby on March 10, 2009, a trial of this SCPA § 1805 proceeding was scheduled to begin on September 10, 2009. However, after a pretrial conference in August of 2009, Natalia brought a new proceeding alleging decedent's breach of the prenuptial agreement by entering into the note transaction. The trial, over Bobby's objection, was adjourned without date. He then filed this motion for summary judgment after the 120–day time limit from filing the note of issue imposed by CPLR 3212(a) (see Matter of Brill v. City of New York, 2 NY3d 648 [2004] ). Natalia cross-moved for consolidation of this § 1805 proceeding with her new proceeding. Her cross-motion also included her opposition to the current motion for summary judgment by Bobby. Once Natalia obtained jurisdiction over the parties in her new petition alleging breach, the court denied the motion to consolidate this § 1805 proceeding with the new petition. After review and based on motions to stay Natalia's new proceeding by the respondents therein, the court also held that new proceeding in abeyance, pending a finding as to the validity of the promissory note, which is, of course, the object of the instant motion (Shvachko v. Kotick, NYLJ, April 23, 2010, at 37, col 6 [Sur Ct, N.Y. County] ).
This new petition by Natalia pleads fraud and breach of prenuptial contract against decedent's estate and Bobby. It also claims that Bobby, as executor, failed to allocate to Natalia the amounts due her under the prenuptial agreement, specifically, “one half of the marital property acquired by the parties or either of them during marriage.” This relates to two entities, Blue Water Capital Management LLC and KMC Investments LLC. As regards the Blue Water entity, in the record on this motion, Natalia provides a copy of a deed of a property in Westhampton Beach from decedent to this entity, made as of December 31, 2002, after the date of their marriage. The transfer by deed, it is claimed, was an act of decedent's acquiring an interest in this entity (this issue has also been raised in the estate accounting proceeding). In this respect, it is alleged that decedent may have violated the prenuptial agreement. Duplicating a defense in the present SCPA § 1805 proceeding, the new petition also claims that Bobby tortiously interfered with the prenuptial agreement. It also pleads fraudulent conveyance against Bobby and the donees of the gift under the note transaction, and that Bobby aided and abetted the fraudulent conveyance.
Although Natalia opposes summary judgment on grounds of untimeliness under CPLR 3212(a) and Brill, the court is persuaded that the adjournment of the trial without date ified the note of issue. Appellate authority has made clear that when a case is removed from the trial calendar, i.e., the trial adjourned through no fault of the movant, the note of issue is, in essence, ified (Negron v. Helmsley Spear, Inc., 280 A.D.2d 305 [1st Dept 2001] ; Alexander v. City of New York, 277 A.D.2d 334 [2d Dept 2000] ; Farrington v. Heidkamp, 26 AD3d 459 [2d Dept 2006] ) and until a new one is filed, the 120–day clock does not start to run (see Rodriguez v. Ford Motor Co., 62 AD3d 573 [1st Dept 2009] ). In any event, the circumstances here would satisfy the statutory requirement of good cause—“a satisfactory explanation for the untimeliness” (Brill, 2 NY3d at 652 ). The unanticipated adjournment of the trial to accommodate respondent's new petition provided sufficient excuse for the delay (see Azcona v. Salem, 49 AD3d 343 [1st Dept 2008] ).
The court also notes that the parties engaged in mediation under the court's pilot mediation program for several months. Although the mediator reported progress, the mediation did not result in a settlement of the issues herein.
SUMMARY JUDGMENT STANDARDS AND BURDENS OF PROOF
The drastic remedy of summary judgment cannot be granted where there is a genuine issue of material fact to be determined at trial (see Andre v. Pomeroy, 35 N.Y.2d 361 [1974] ). The burden on a motion for summary judgment rests with the moving party to come forward with sufficient proof to enable the court to conclude that it is entitled to judgment as a matter of law (Zuckerman v. City of New York, 49 N.Y.2d 557, 562 [1980] ; Funding Group, Inc., v. Water Chef, Inc., 19 Misc.3d 483, 486 [Sup Ct, N.Y. County 2008] ). If the movant makes a prima facie showing of its entitlement to summary judgment, the burden shifts to the opposing party to produce proof that establishes the existence of a material issue of fact necessitating a trial of the action. (Zuckerman, 49 N.Y.2d at 560 ; Kornfeld v. NRX Technologies, Inc., 93 A.D.2d 772 [1st Dept 1983], affd 62 N.Y.2d 686 [1984] ; Gateway State Bank v. Shangri–La Private Club for Women, 113 A.D.2d 791 [2d Dept 1985], affd 67 N.Y.2d 627 [1986] ). Where there is any doubt as to the existence of such issues, or where the issue is arguable, the motion should be denied (Glick & Dolleck, Inc. v. Tri–Pac Export Corp., 22 N.Y.2d 439 [1968] ).
Movant satisfies his initial burden of going forward regarding the validity of the promissory note by submitting it to the court together with proof of nonpayment, and the presumption thus arises that he is the owner of the note and it is unpaid (Berlind v. Heinfling, 176 A.D.2d 452, 452 [1st Dept 1991] ; see Matter of Seigle, 289 N.Y. 300, 302, [1942] ; Metropolitan Life Ins. Co. v. Whitaker, 34 A.D.2d 729, 729 [4th Dept 1970] ). The burden then shifts to respondent to show payment (Bishop v. See, 23 Misc.3d 1 [App Term, 2d Dept, 9th & 10th Jud Dists 2009]; CPLR 3018(b) [listing “payment” as affirmative defense to be pled] ), which is not the question here, or to demonstrate some other defense relating to the validity or formation of the note as a contract (see Greenleaf v. Lachman, 216 A.D.2d 65 [1st Dept 1995] ; Sabo v.. Delman, 3 N.Y.2d 155 [1957] ; Dayan v. Yurkowski, 238 A.D.2d 541 [2d Dept 1997] ).
The note, of course, must be signed (UCC §§ 3–401, 3–307 ). Although given several opportunities to amend her answer, forgery, though mentioned in informal conferences with the court, is not pled by Natalia as a defense to the note.
She also attempts to argue lack of consideration, which likewise was not pled, but in any event is meritless [General Obligations Law (“G.O.L.”) § 5–1105 ]. The argument here appears to be that Bobby had already consummated the loan from KAG Holdings, the entity from which Bobby borrowed money to loan to his father, and made the payments before decedent executed the note. However, G.O.L. § 5–1105 provides that past consideration, even if the payments occurred prior to the execution of the note at issue, would suffice (see United States of Am. v. Quaintance, 244 A.D.2d 915, 916 [4th Dept 1997] ).
Although Bobby argues in a footnote that, as a holder in due course, he would take the note subject to real defenses under UCC § 3–305(2), he has not attempted to establish, as would be his burden, that he is such a holder under UCC § 3–302, i.e. that he took the note for value, in good faith (honesty in fact in the conduct or transaction concerned), and without notice of defenses or claims to it on the part of any person (or that it has been dishonored or is overdue). In any event, defenses should be permitted to be established by Natalia before the holder attempts to establish his status as a holder in due course (UCC § 3–307 [2 ]; D'Aureli v. Bono, 284 A.D.2d 493 [2d Dept 2001] ).
Natalia, however, has raised two other issues regarding burden of proof. First, she claims that a purported confidential relationship between Bobby and decedent requires Bobby to demonstrate “clear proof of the integrity and fairness of the transaction, or any instrument thus obtained will be set aside, or held as invalid between the parties.” (Ten Eyck v. Whitbeck, 156 N.Y. 341, 353 [1898] ). Nonetheless, she has provided no proof on this motion that Bobby assumed control of decedent's finances as was pled in her second amended answer, and her speculation on the point is insufficient to create a question of fact on the issue of the existence of a confidential relationship (Caraballo v. Kingsbridge Apt. Corp., 59 AD3d 270 [1st Dept 2009] ).
The fact of a close family relation alone is insufficient to raise an issue as to existence of a confidential relationship or overreaching because a sense of family duty and affection is inexplicably intertwined in this relationship which, under the circumstances, counterbalances any contrary legal presumptions (Matter of Swain, 125 A.D.2d 574, 575 [2d Dept 1986]quoting Matter of Walther, 6 N.Y.2d 49, 56 [1959] ). Given the lack of any proof that Bobby performed any other act for or at the behest of decedent, other than the note transaction at issue, Natalia has not demonstrated any basis for shifting the burden to Bobby under a theory of confidential relationship (see Allen v. La Vaud, 213 N.Y. 322, 327–328 [1915] ). Other indicia of abuse of the relationship by the close family member must be shown, such as where the donor is in a physical or mental condition such that he or she is dependent upon the donee or family member for the management of his or her affairs and/or is unaware of the legal consequences of the transaction (id. [citations omitted]; see also Matter of Zirinsky, 43 AD3d 946 [2d Dept 2007] ). The record here indicates that Bobby, a businessman, living and working in California, came to visit and be with his father during the latter's final illness, not that Bobby's presence was required to manage decedent's affairs generally or that decedent reposed his trust in Bobby to do so (cf. Hill v. Bolden, 191 Misc.2d 354 [Sup Ct, Putnam County 2002] ). Natalia is thus unaided in this proceeding by any shifting of the burden of proof to petitioner that would flow from a confidential relationship.
Second, Natalia claims that this transaction must be viewed as a gift, and that Bobby, as essentially the agent of the donees, or as the proponent of the gift, must show the elements of a valid inter vivos gift (donative intent, delivery and acceptance) by clear and convincing evidence (Gruen v. Gruen, 68 N.Y.2d 48, 53 [1986] ). However, under such a standard here, Natalia has failed to explain why Bobby's burden is not satisfied by proof of the note and letter of direction executed by the decedent, indicating a present desire to be bound by its terms and that certain money distributions be made to benefit certain of his family members, distributions that were in fact made. She cites no authority for the proposition that Bobby's burden of first demonstrating an inter vivos gift in a clear and convincing manner cannot be met in this fashion.
The court now turns to the merits of Natalia's defenses, and whether she has met her burden of demonstrating that there exist material questions of fact as to the note's validity.
LACK OF CAPACITY
Capacity is presumed (Feiden v. Feiden, 151 A.D.2d 889, 890 [3d Dept 1989] ). Natalia, in challenging that presumption, must show facts indicating that, at the time of contracting, decedent was wholly unable to understand or comprehend the nature of the transaction and its consequences (Blinn v. Schwarz, 177 N.Y. 252 [1904] ; Matter of Guardianship of Bessie C., 225 A.D.2d 1027 [4th Dept 1996] ; Matter of Goldberg, 153 Misc.2d 560 [Sur Ct, New York County 1992] ). Natalia's main argument in this regard is that the note “was executed by decedent shortly prior to his death and while he was in the hospital and medicated.” There is no doubt that decedent was receiving cancer treatments, including chemotherapy. However, as a general matter, neither physical impairment nor medical treatments, nor advanced age and eccentricity, nor even memory impairment by such conditions as Alzheimer's disease, gives rise to a presumption of mental incapacity ( Palumbo v. Norstar Bank Upstate NY, 212 A.D.2d 377 [1st Dept 1995] ; Ellis v. Keeler, 126 App.Div. 343 [2d Dept 1908] ; Gala v. Magarinos, 245 A.D.2d 336 [2d Dept 1997] ; Feiden v. Feiden, 151 A.D.2d 889 ; Martin v. Teachers' Retirement Bd. of City of NY, 70 N.Y.S.2d 593 [Sup Ct, New York County 1947] ). Facts bearing on decedent's inability to wholly comprehend the nature of the transaction around the time of the transaction still must be provided.
One caveat, however, is that, even with the requisite cognitive capacity, a person may nonetheless be adjudged incapacitated to contract or execute a deed, if compelled to do so by some psychosis or insane delusion (see Ortelere v. Teachers' Retirement Bd. of City of NY, 25 N.Y.2d 196 [1969] ; Fingerhut v. Kralyn Enterprises, Inc., 71 Misc.2d 846, affd 40 A.D.2d 595 [1st Dept 1972] ; Moritz v. Moritz, 153 App.Div. 147 [1st Dept 1912], affd 211 N.Y. 580 [1914] ). No such compulsion is claimed in this case.
Here, the evidence does not suggest a lack of capacity to contract. To the contrary, both Joel, who met with decedent that date, and, Walsh, who spoke with him on the phone or met with him that day (he could not remember which), provided testimony as to his alertness and responsiveness on March 11th. Moreover, Walsh, in overseeing the execution of the codicil on the following day, further substantiated that he was assured of decedent's capacity. Finally, the decedent's medical records for March 11th describe a patient who was “ambulating” and “awake, alert, communicative, and well-oriented” as well as “lucid.” Respondent's speculations to the contrary, based generally on the fact that he was receiving medications as a hospital in-patient, do not create material questions prohibiting summary disposition of this issue (Crawn v. Sayah, 31 AD3d 367 [2d Dept 2006] ; DeMarco–McCluskey v. Demarco, 11 Misc.3d 1058[A] [Sup Ct, Queens County 2006] ). The defense of lack of capacity is thus dismissed.
The test for contractual capacity is, however, more rigorous than for testamentary capacity (Matter of Coddington, 281 App.Div. 143 [3d Dept 1952], affd 307 N.Y. 181 [1954] ).
The court also notes that the Sun Life litigation in federal court determined that there was no question requiring trial of decedent's capacity to execute the change of beneficiary designation on the life insurance policy executed that same day, March 11th (Sun Life Assurance Co. of Canada (U.S.) v. Gruber, No. 05 Civ. 10194, 2007 WL 4457771 [SDNY Dec. 17, 2007, Buchwald, J.], affd 334 Fed Appx 355, 2009 WL 1560829 [2d Cir2009] ). Nor does Natalia claim that the document increasing her percentage of decedent's retirement assets, executed on the same date, was invalid due to decedent's lack of capacity or for any other reason.
FRAUD, MISTAKE, AND UNDUE INFLUENCE
As pled by Natalia, both her fraudulent inducement and the unilateral mistake claims hinge on the statements by Walsh, as decedent's estate planning counsel, that he was unaware of the note transaction as consummated, but that he remembered discussing another transaction whereby Debbie would execute a note in favor of decedent and that “Chick's estate would not be diminished by the whole transaction” as long as the note was not forgiven. These defenses fail because there is no proof that any misrepresentation was made to the decedent.
There is no defense of mistake on the basis of a “weakened state of mind” as Natalia attempts to plead in her third affirmative defense. As set forth herein, unilateral mistake must be shown to be induced by some inequitable conduct or it must be shown that the decedent lacked capacity. The fact that decedent was suffering from cancer and receiving related treatments does not provide a basis for relief from the note on the ground of mistake.
As to the inducement claim, Natalia must provide proof of a representation of fact, known to be untrue or recklessly made, and which is made to deceive the other party to act upon it, here, to make the note, and which causes injury (see Sokolow, Dunaud, Mercadier & Carreras LLP v. Lacher, 299 A.D.2d 64 [1st Dept 2002] ; Newcourt Small Business Lending Corp. v. Grillers Casual Dining Group, Inc., 284 A.D.2d 681 [3d Dept 2001] ). As to unilateral mistake, a rescission or voiding of the contract is available only upon proof of fraud or other wrongful conduct perpetrated by the non-mistaken party, and a lack of negligence on the part of the mistaken party (see Surlak v. Surlak, 95 A.D.2d 371, 384 [2d Dept 1983] ). Natalia claims that decedent was under a mistaken or fraudulently induced belief that Walsh's version of the transaction—one where there would be no diminishment of decedent's estate—was the transaction into which he was entering by executing the note. Walsh's statement as to his recollection appears in a two-page section of his deposition transcript provided in opposition to the motion, and no context for the recollection and no details as to date, time and place of the transaction are provided. It does include the following:
“Q. Do you recall the discussion was a loan from Chick to his daughter?
“A [Walsh]. Yeah, that's my recollection.
“Q. Do you recall the amount or approximate amount that was discussed?
“A. I think they were talking about a million dollars.”
(Transcript of John Walsh Dep., July 25, 2006, at 155)
Nothing from this testimony ties it to the March 11th note transaction, much less indicates that decedent was told that this was the transaction he was entering into on that date. Absent any proof that this transaction was represented to decedent as the one into which he was entering, there cannot be a viable claim of fraud or mistake, as it merely rests on respondent's speculation that it occurred, which is insufficient (see George Backer Mgt. Corp. v. Acme Quilting Co., 46 N.Y.2d 211, 219 [1978] ; Cape Vincent Milk Producers Coop., Inc. v. St. Lawrence Food Corp., 43 AD3d 606 [3d Dept 2007] ; J.L.B. Equities, Inc. v. Mind Over Money, Ltd., 261 A.D.2d 510 [2d Dept 1999] ; Kadish Pharmacy, Inc. v. Blue Cross and Blue Shield of Greater NY, Inc, 114 A.D.2d 439 [2d Dept 1985] ). Natalia's defenses of fraudulent inducement and mistake are therefore dismissed.
Natalia also attacks the validity of the note on the basis that “decedent could not read without his glasses and his glasses were not available to him at the time.” The only evidence which supports this claim are equivocal statements in Natalia's deposition testimony that she did not think decedent had his glasses and did not read while in the hospital. Such statements do not provide a defense against payment on a promissory note, and Natalia does not provide any authority in support of such a claim.
As to whether the execution of the note was the product of undue influence, however, Walsh's recollections are probative. To be undue, “the influence exercised [must have] amounted to a moral coercion, which restrained independent action and destroyed free agency, or which, by importunity could not be resisted, constrained the victim to do that which was against his free will and desire, but which he was unable to refuse or too weak to resist” (Matter of Zirinsky, 43 AD3d 946, 947–948 [citation omitted]; see Matter of Caruso, 70 AD3d 937 [2d Dept 2010] ). As is frequently noted, undue influence is seldom demonstrated by direct proof, as such influence does not occur in plain view (Rollwagen v. Rollwagen, 63 N.Y. 504, 519 [1876] ), and instead, can take the form of “subtle but pervasive ... coercion and influence” by which a perpetrator overwhelms or manipulates one's volition to advance his or her own interests (Matter of Neary, 44 AD3d 949, 951 [2d Dept 2007] [citations and internal quotation omitted] ). Here, Natalia has provided evidence supporting her claims that Bobby “quarterbacked” the entire note transaction as the product of his, rather than decedent's, wishes, and she has met her burden of demonstrating some circumstances indicating the actual exercise of undue influence by Bobby, in addition to motive and opportunity to exercise such influence, as required to make out such a claim (Matter of Fiumara, 47 N.Y.2d 845 [1979] ).
Although new counsel for movant addresses the merits of the undue influence claim, as had prior counsel for movant, both counsel assert that this claim is not pled in Natalia's Second Amended Answer, and that the defense is thus waived (see CPLR § 3018[b] ). While the term “undue influence” is not used, that is not what is required. Fact not law need be pled (CPLR § 3013 ; see Sinacore v. State of New York, 176 Misc.2d 1 [Court of Claims 1998] ), and the factual allegations necessary to make out the elements of the undue influence claim (motive, opportunity and some evidence of the actual exercise of undue influence) are contained in the Second Amended Answer.
Natalia has provided substantial proof as to several factors which courts have considered as supporting a finding of undue influence: significant change of testamentary plan or intention, deteriorating physical or mental condition, that the proponent of the gift or transaction implemented it or took an active role in procuring it and that the testator acted without independent advice and in secret (see generally Matter of Smith, 95 N.Y. 516 [1884] ). Significantly, it was new counsel, Weiss, selected by Bobby, and who was Bobby's own counsel, rather than decedent's, who prepared and delivered the note, and it was Bobby who had the letter of direction drafted (see Matter of Bach, 133 A.D.2d 455 [2d Dept 1987] ; Matter of Burke, 82 A.D.2d 260 [2d Dept 1981] ; Matter of Kruszelnicki, 23 A.D.2d 622 [4th Dept 1965] ). Decedent was hospitalized, arguably in a somewhat weakened physical condition, receiving treatments for cancer from which he never recovered, a factor that may have increased his susceptibility to influence (see Matter of O'Brien, 182 A.D.2d 1135 [4th Dept 1992] ). The note transaction, a significant one in relation to the size of his estate, also represented a departure from his estate plan (see Matter of O'Donnell, 91 A.D.2d 698 [3d Dept 1982] ; Matter of Goldman, 6 Misc.2d 663 [Sur Ct, Kings County 1956] ). Neither decedent's will nor any other evidence on this motion is suggestive of decedent's desire to make gifts of this magnitude. Although Bobby's version of the facts is that decedent, realizing his mortality, wanted to make further provision for his family, but did not have sufficient liquidity to do so, nothing but the documents he or his counsel had drafted support this view.
Moreover, decedent's counsel, Walsh, was unaware of the transaction as consummated, and, in another significant consideration, decedent did not have the benefit of independent counsel (see Matter of Henderson, 80 N.Y.2d 388 [1992] ; cf. Poluliah v. Fidelity High Income Fund, 102 A.D.2d 720 [1st Dept 1984] ). Although Walsh prepared detailed estate planning proposals dated September 20, 2004 and October 27, 2004, neither mentioned lifetime gifts. Indeed, Walsh's recollection of discussions with decedent of a different note transaction, one in which there would be no net loss to decedent's estate, stands in contrast to the note transaction as executed.
Bobby's motives and conduct also support a possible inference of undue influence and are not, as he argues, inconsistent with a contrary inference (see Matter of Branovacki, 278 A.D.2d 791 [4th Dept 2000] ). Apart from the documents themselves, which were prepared, controlled and delivered by Bobby or at his instruction, absent some other indicia of decedent's gift-making proclivities, the fact that Walsh, who was speaking to decedent daily on the phone or in person during this period, was unaware of such a significant departure from what appeared to be a carefully crafted estate plan remains circumstantial evidence of the actual exercise of undue influence (Matter of Ryan, 34 AD3d 212, 213 [1st Dept 2006] ). Bobby's arguments in favor of summary dismissal oversimplify the proof, since Natalia relies on more than the fact that there was animosity between the Koticks and Natalia, and that she and Walsh were unaware of the transaction. The fact that they did not know of it, along with all the other circumstances present, raise questions regarding undue influence which “merit the careful scrutiny that can only be obtained by a full airing of the matter before a trier of fact” (see Matter of Paigo, 53 AD3d 836, 840–841 [3d Dept 2008] ; Brown v. Graziano, 51 AD3d 962 [2d Dept 2008] ).
Nor is the fact that Bobby may or may not have been present at execution of the note and letter of direction fatal to the undue influence claim. Decedent's brother Joel apparently oversaw the execution, but did not remember who was present. He did recall, however, as stated above, his stamp as notary on the note and letter of direction and that the execution did take place in the hospital. As noted in the Sun Life Assurance decision, Joel has stated: “[B]ecause no matter what's going to happen, I'm going to take their [the family's] side ... this is my blood.” (Gruber v. Sun Life Assurance Company, 2007 WL 4457771, at *14 [S.D.NY 2007] ). Joel also had the following exchange in a deposition:
“Q.... Do you believe that he [decedent] had a right to consider Natalia and her daughter first above Debbie and his son Bobby?....
“A. In regards to what?
“Q. In his wealth, in wealth?
“A. No, I don't, absolutely not. He hardly knew Natalia. I don't consider it, no.”
(NS Ex 23, Joel Kotick Deposition, July 6, 2006, at 89).
Regarding the matter of getting the documents to decedent at the hospital, Bobby's attorney, Weiss, could not remember whether it was he who called Joel Kotick, or whether it was Joel who called him to arrange for the delivery of the promissory note to the Hospital on March 11, 2005.
Bobby relies heavily on statements in the Sun Life Assurance decision from Federal District Court, namely that, according to Joel Kotick, decedent preferred to deal with “financials quietly without many people around” and that “[a]s acrimonious as the battles between the Koticks and Schvachko [sic] have been, animosity does not amount to undue influence” (Sun Life Assurance Co v. Gruber, 2007 WL 4457771, at *14 ). As noted, Joel's allegiances are with his nephew and niece, and even if decedent's preferences were to handle financial matters quietly, this does nothing to explain why Bobby's counsel was implementing the note transaction, unbeknownst to anyone else, including decedent's own counsel. While the law of undue influence does not condemn the importuning of a bequest or gift (see Matter of Walther, 6 N.Y.2d at 172), motive remains an essential element of an undue influence analysis (Matter of Fiumara, 47 N.Y.2d 845 ). Unlike the note, Walsh and the Bryan Cave firm had a hand in sending decedent the change of beneficiary designations for both the Sun Life life insurance policy and decedent's retirement portfolio. In any event, the Sun Life court was explicit that it passed no judgment on the validity of the note (Sun Life Assurance, 2007 WL 44577771, at *3).
Bobby notes that Natalia's statements about what decedent did not tell her may not be admissible at trial under the Dead Person's Statute, CPLR § 4519 (see Greenman v. Butler, 258 App.Div. 311 [4th Dept 1939] ; Endervelt v. Slade, 162 Misc.2d 975 [Sup Ct, N.Y. County 1994] ). However, such statements can be used in opposing a summary judgment motion (Phillips v. Kantor & Co., 31 N.Y.2d 307 [1972] ).
FRAUDULENT CONVEYANCE
Natalia also claims that the note obligation was a fraudulent conveyance under the Debtor and Creditor Law, depriving her of rights under the prenuptial agreement, namely ownership of the Sutton Place apartment, which, as noted, decedent agreed to bequeath her (see generally Debtor and Creditor Law §§ 270 to 281 [Article 10] ). As limited by her brief, she seeks relief under Debtor and Creditor Law §§ 275 and 276. However, it is plain from the facts here that making of the note itself was not a fraudulent conveyance. By virtue of the note transaction, decedent was to have gained control over $1,077,000—and it is not argued otherwise by Natalia. His estate was not thereby diminished in any fashion. It was a subsequent, albeit related, act—the gifting of the monies received by virtue of the note transaction—that created the problem about which Natalia complains (see Riback v. Margulis, 43 AD3d 1023 [2d Dept 2007] ). Consequently, the claims of fraudulent conveyance should be addressed in the new proceeding brought by Natalia in which the donees of the gifts have been joined. Natalia's claims of fraudulent conveyance are severed from this proceeding and consolidated with those in the new proceeding by her.
Section 275 or the Debtor and Creditor law provides: “Every conveyance made and every obligation incurred without fair consideration when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors.”
Debtor and Creditor Law § 276 : “Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.”
In light of this ruling, the court need not reach Bobby's alternative arguments for dismissal of the fraudulent conveyance claims.
TORTIOUS INTERFERENCE WITH THE PRENUPTIAL AGREEMENT
In her sixth affirmative defense, Natalia claims that Joel, Debbie and Bobby, in orchestrating the note transaction, tortiously interfered with her and decedent's prenuptial agreement. Her seventh affirmative defense also pleads tortious interference by Bobby with the prenuptial agreement, specifically that portion of it requiring that decedent bequeath her the Sutton Place apartment (see generally Foster v. Churchill, 87 N.Y.2d 744, 749–750 [1996], citing Israel v. Wood Dolson Co., 1 N.Y.2d 116 [1956] ). If the note is to be paid by the estate, the apartment must be sold to do so, and Natalia, consequently, will not receive it. She claims Bobby knew this and desired this result.
As stated above, Joel is not a party to this SCPA § 1805 proceeding, and neither is Debbie.
There has been no showing, however, that the tortious interference claim here is a defense to payment on the note itself. As pled, the claim is properly considered a counterclaim which is also how it is denominated in Natalia's Second Amended Answer. This claim is based on allegations that there was a breach of the prenuptial agreement, and the same allegations are made in the new proceeding by Natalia. The court hereby severs the tortious interference claims from this SCPA § 1805 proceeding and consolidates them with that new proceeding, where the issue of the breach of the prenuptial agreement is squarely presented.
CLAIM THAT PROMISSORY NOTE IS A SHAM
The final claim by Natalia is that the note itself was nothing more than a sham transaction. She relies on several cases, which provide a narrow exception to the general rule that parol evidence cannot be used to vary, add to or subtract from the terms of an agreement, namely, that such evidence can be used to show that the agreement was “no contract at all” (Val–Ford Realty Corp. v. J.Z.'s Toys World, Inc., 231 A.D.2d 434 [1st Dept 1996] ; Greenleaf v. Lachman, 216 A.D.2d 65 ; Polygram Holding, Inc. v. Carfaro, 42 AD3d 339 [1st Dept 2007] ). The parol evidence contemplated by this exception, however, comes from one of the parties to the agreement alleged to be a sham, usually with an explanation as to why such an document was executed although it was not intended to be effective (e.g., Greenleaf v. Lachman, supra [avoidance of gift tax] ). Here, the parol evidence comes not from decedent or Bobby, but rather from an outsider to the agreement at issue, Natalia. She is not offering parol evidence based on her participation in the note transaction, but rather only her speculation that it was not intended to be enforceable primarily because it was what Bobby rather than what the decedent wanted. This is merely duplicative of the claim of undue influence, and reliance on her parol statements, in this instance, are not within the contemplation of this narrow exception. Consequently, Natalia has not presented a question of fact on her theory that the note transaction was intended to be a “sham.”
The note-is-a-sham claim is not specifically pled as an affirmative defense in Natalia's Second Amended Answer, but it is an allegation the permeates many of the pled affirmative defenses. The parties have briefed the issue, and the court addresses it.
CONCLUSION
Accordingly, movant's motion for summary judgment is granted in part and denied in part as set forth above, and respondent's defenses of lack of capacity, fraudulent inducement, mistake, and that the note transaction was a “sham” are dismissed. The claims of fraudulent conveyance and tortious interference with the prenuptial agreement are severed from this proceeding and consolidated with the proceeding in which Natalia seeks to prove decedent's breach of their prenuptial agreement.
This decision constitutes the order of the Court.