Opinion
256989.
Decided September 30, 2008.
Lazarus Lazarus, New York, NY.
Rand Rosenzweig Radley Gordon LLP, White Plains, NY, for petitioner.
This is a proceeding by Robert Brody, a son of the decedent, to remove both his mother, Evelyn Brody, and his sister, Lorna Brody, as trustees of the testamentary trust for the mother's benefit based on their hostility towards him. In the alternative, he requests that the trust be divided into separate trusts with "neutral" trustees for each separate trust. The original motion by the respondent trustees to dismiss the petition for failure to state a cause of action has been converted by the court to a motion for summary judgment.
The decedent was survived by his spouse, Evelyn, and three children, Robert, Lorna and Richard. The Article FIFTH testamentary trust for the benefit of Evelyn during her life is payable on her death equally to the three children as contingent remaindermen. In the event they "then be dead" the shares are payable to their issue "in equal shares per stirpes." However, in default of issue for each child, the subsequent contingent remainders take disparate paths. If Lorna is not then survived by issue, she is given a testamentary power of appointment or on default thereof to her intestate distributees. If Robert is not then survived by issue, his share is payable to Lorna or "if she then be dead," then as her own remainder share is payable. The will is unclear whether Robert's entire remainder is payable to Lorna as outlined above, or one-half thereof to Lorna and one-half thereof to Richard if he is then living. Richard's share, if not then living and in default of issue, is payable one-half to Lorna as outlined above and one-half to Robert. Should only Lorna "then be living" and no issue then survive Robert or Richard, because of the contingent cross-remainders between shares, the entire remainder would be payable to Lorna; or even if all three children are "not then living" and have no issue then surviving, Lorna's power to appoint could effectively distribute the entire remainder.
The basis of the alleged hostility between the parties is centered on their ownership individually and through the trust of a corporation known as 466 Broome Street, New York, New York ("466"), a five-story industrial building located in the Soho district of New York City. Robert and Lorna are each the owner of 13.333 shares of 466 and the trust owns approximately ten (10) shares. The decedent for a number of years prior to his death in l988 had been engaged in the apparel business with his son Robert through a corporation known as UFO Contemporary, Inc. ("UFO") whose activities were eventually centered at 466. Apparently, UFO occupied a substantial portion of the rental space at 466, part of which was devoted to an apartment which Robert and his family occupied over a number of years.
On January 17, 2006, at a meeting of shareholders of 466 to elect directors, Lorna's and the trust's shares were voted to remove Robert as a director of the corporation. The following month, Robert commenced a proceeding for dissolution of 466, which eventually resulted in a stipulation of settlement providing for a sale of the building, the primary asset of 466, pursuant to a contract with a purchaser; payment by Robert of $87,500 in satisfaction of all claims for rent for occupancy of the apartment at 466, and the corporation's right to serve a ten-day notice to evict Robert from the apartment but in no event prior to the closing date for the sale. Eventually, the building was sold for a purchase price of $19,500,000. Of the net proceeds of $16,973,006.10, $5,259,151.03 was paid to Robert, a somewhat larger amount to Lorna, $4,341,609.90 to the trust, and $692,601.97 to 466.
In August 2007, Robert commenced a plenary Supreme Court action to compel compliance with the "so ordered" stipulation in the dissolution proceeding. Since the court in the dissolution proceeding had expressly retained jurisdiction of its enforcement and both sides agreed, the action was referred to the judge in the dissolution proceeding on June 18, 2008. The matter is apparently still pending and unresolved.
Robert's Contentions
Robert's primary complaints are: what he characterizes as "illegal and oppressive threats" of Lorna and Evelyn to evict him and his family "from their long standing residence at an apartment" at 466; that he was "unjustifiably" ousted from the board of directors of 466; and the respondents' failure to fully comply with the stipulation of settlement in the dissolution proceeding. By way of background, he alleges he managed the UFO business with Leo, the decedent, for a half a dozen years before Lorna had any full-time or significant involvement and that for the ten years he resided at the 466 building, he was the "de facto" super and building manager.
The Trustees' Contentions
The following are quotations from Lorna's affidavit in opposition to a motion by Robert in the dissolution proceeding to enjoin certain actions by 466.
"For years petitioner has run the corporation without consulting with the other directors or shareholders and pressured us to acquiesce to his demands." (Par. 2)
"As my mother and I are fully entitled to do, we decided we would no longer vote for petitioner as a director of the corporation — — — Moreover, in my view, continuing petitioner as a director or officer would have meant tolerating his continued misdeeds and unilateral decision-making, something I believe the corporation and its shareholders could no longer afford" (Par. 3).
"Although the scope of the proposed [preliminary injunction] goes well beyond it, the only reason given in his supporting affidavit for drastic and extraordinary relief is petitioner's fear that the corporation will commence eviction proceedings against him. Petitioner has the gall to ask this court to confirm his occupancy of a large portion of the corporation's premises which it had leased to UFO which he arranged at the time he controlled both the corporation and UFO, and prevent the corporation from seeking any legal redress. If petitioner has any right to live in the corporation's or UFO premises rent free, as he evidently argues, he can certainly assert these rights in Housing Court. Asking this court to preclude a ligitimate act of the corporation to either recover property or rent is the height of impudence" (Par 5).
As mentioned above, after the commencement of the dissolution proceeding, the parties entered into a stipulation of settlement providing for a sale of the building. Lorna claims that since Robert agreed to the settlement, he had to move his family because of the sale — "a sale precipitated by his commencement of the judicial proceeding. Furthermore, he negotiated for a ten-day eviction notice provision in the Settlement Agreement, which was rendered moot because he entered into the Holdover Agreement with the building's purchaser" (Lorna's aff., March 18, 2008, par. 8).
Her final contention is that, in any event, none of the litigation involved any activities of the trust administration and should be disregarded.
Discussion of the Law
"A testator or testatrix has the right to determine who is the most suitable among those legally qualified to settle his or her affairs, and the selection is not to be lightly discarded ( see Matter of Flood, 236 NY 408, 410, 140 N.E. 936; Matter of Leland, 219 NY 387, 392, 114 N.E. 854). While the Surrogate may disqualify a person from receiving letters of administration where the friction between such person and a beneficiary interferes with the proper administration of the estate ( see Matter of Jurzykowski, 36 AD2d 488, 321 NYS 438, affd 30 NY2d 510, 330 NYS2d 60, 280 N.E. 887; Matter of Thompson, 232 AD2d 219, 647 NYS2d 950), mere friction or hostility between such persons and a beneficiary is not sufficient grounds for removal ( see Matter of Edwards, 274 App Div 244, 247-249, 8 NYS2d 801; Matter of Miller, 48 Misc 2d 815, 265 NYS2d 999)." ( Matter of Venezia , 25 AD3d 717 [2d Dept, 2006]).
Expanding on this holding that mere friction or hostility is insufficient to warrant removal, the court in Matter of Graves ( 110 NYS2d 763, 767 [1952]) stated: "As a matter of law however if the respondent trustees establish that they have in all respects conducted themselves properly as trustees and are competent to continue to act as such, the mere fact of friction between them and the beneficiaries is not sufficient cause for their removal — — — if it were, an obstreperous malintentioned beneficiary could cause the removal of a competent trustee through no fault on the latter's part." ( see also 2 Scott and Ascher on Trusts, sec. 11.10 [5th ed] ["The question often arises whether beneficiaries can force removal of a trustee on account of friction or hostility. That such friction or hostility exists does not alone justify removal; otherwise beneficiaries could always, simply by quarreling with the trustee, force the trustee out."].
While the trustees argue that the litigation does not involve the trust administration per se, the cases have considered hostility engendered by litigation not directly related to the trust to be relevant ( Matter of Jurzykowski, 36 AD2d 488, affd 30 NY2d 510; Matter of Palma , 40 AD3d 1157 ).
As to the necessity of a hearing to inquire into the facts, the court in Matter of Venezia ( 25 AD3d 717 , 719 [2d Dept 2006]) stated: "Notwithstanding the evidence demonstrating that there was friction and hostility in the relationship between the petitioner and her counsel, and the objectant, an evidentiary hearing should have been held to determine whether such friction and hostility would interfere with the proper administration of the estate — — — thereby warranting a departure from the express intent of the testatrix." ( see also Matter of Celauro, 2007 WL 2174982, 2007 NY Slip Op. 3197 (U) [Sur Ct, Nassau County]; Matter of Iskyan, NYLJ, Aug. 5, 1994, at 31, col 6 [Sur Ct, Nassau County). Accordingly, the motion for summary judgment is denied as regards removal of the trustees.
The petitioner also alternatively requests that the trust be divided into three separate trusts: "A trust where I am the sole contingent remainderman; a trust where Lorna is the sole contingent remainderman and a trust where my brother Richard is the sole contingent remainderman" (Aff., July 15, 2008, p. 2). The court may divide a trust into multiple trusts for any reason not directly contrary to the primary purpose of the trust (EPTL 7-1.13[a][3]). "Except to the extent implicit in the establishment of separate trusts under this section, the terms of the disposing instrument would generally govern the separate trusts, unless modified by the court" (Legislative Memo, 1995 New York Session Laws at 2221, 2222).
As previously outlined, the trust envisions cross-remainders among the siblings which dispositive provisions would necessarily require excision to accomplish the requested relief that each sibling be the sole remainderman of their trust. While the terms of trusts have been modified, it has primarily been limited to cases where all the beneficiaries have consented and the changes have been relatively modest ( see Matter of Brett, NYLJ Nov. 15, 2002, at 25, col 4 [Sur Ct, Nassau County]; Matter of Jones, NYLJ, Oct. 10, 2006, at 33, col 4 [Sur Ct, New York County]). Here, there is opposition by both the surviving spouse and Lorna to the division of the trust.
Although the existence of an acrimonious relationship between the parties authorizes the court to establish separate trusts, this authority is limited pursuant to EPTL 7-1.13(a)(3) to the extent that the testator's primary purpose in establishing the trust cannot be altered by the division of the trust into separate trusts. In Matter of Fussell ( 34 AD3d 164 [4th Dept 2006]), the Surrogate granted a petition for a division of the trust on a per stirpes basis. The Appellate Division reversed, finding that the Surrogate divided the trust prematurely on a per stirpes basis, since before the death of the income beneficiary it would not be known whether the remainder was payable per stirpes or per capita. Here, it is apparent that the cross-remainder provisions were an essential element in the testator's plan and would require drastic alteration to achieve the requested division. Splitting the trust but retaining the cross-remainders would serve no useful purpose other than moving the alleged hostility from the main trust to the separate trust. Accordingly, the division of the trust under EPTL 7-1.13 is denied and the
motion for summary judgment to that extent is granted.
In order to prepare this matter for trial, it will appear on the calendar for a conference on October 15, 2008, at 10:00 a.m.