Opinion
No. 2021-1074/A
11-29-2022
In the Matter of the Estate of William D. Walls, Jr., Deceased.
Edward A. Wurtz, Esq., Gallo & Iacovangelo, LLP, Rochester, New York, Attorney for the Executor, Susan Del Pozzo. Max T. Stoner, Esq., Stoner & Associates, P.C., Rochester, New York, Attorney for the Petitioner, Benjamin Walls. Anthony J. Adams, Jr., Esq., Adams Leclair, LLP, Rochester, New York, Attorney for the Petitioner, Benjamin Walls.
Unpublished Opinion
Edward A. Wurtz, Esq., Gallo & Iacovangelo, LLP, Rochester, New York, Attorney for the Executor, Susan Del Pozzo.
Max T. Stoner, Esq., Stoner & Associates, P.C., Rochester, New York, Attorney for the Petitioner, Benjamin Walls.
Anthony J. Adams, Jr., Esq., Adams Leclair, LLP, Rochester, New York, Attorney for the Petitioner, Benjamin Walls.
Hon. Christopher S. Ciaccio, Surrogate
In this proceeding brought pursuant to SCPA §§ 2101, 2103 and 2105, Benjamin Walls, adult son of the decedent William D. Walls, Jr. and a beneficiary of a trust under his father's Will, seeks to recover from his step-mother, Susan Del Pozzo and on behalf of the Estate of William D. Walls, Jr., the proceeds of a life insurance policy on decedent's life that was paid to Susan in accordance with a beneficiary designation that had been changed through the use of an "electronic signature." Benjamin alleges that the changed beneficiary designation did not reflect the decedent's "true intention," as it was the product of undue influence or a mistake. He argues the court can "reform" or re-write the beneficiary designation so as to reflect the decedent's "true intent," which he says was the same as the testamentary disposition.
Susan has moved to dismiss pursuant to CPLR 3211(a)(7), failure to state a claim upon which relief can be granted. At issue are also questions of standing and this court's subject-matter jurisdiction.
For the reasons below, the motion to dismiss is granted.
Facts
The undisputed facts are as follows. William Walls, Jr. died February 9, 2021, survived by his wife, Susan Del Pozzo, and three adult sons from a prior marriage. His Will was probated May 13, 2021, and Susan was appointed executor.
Decedent had executed his Will on February 2, 2020, a few days after being diagnosed with brain cancer. The Will provides for his residuary estate to be divided fifty percent to his wife, and fifty percent in trust for his three children. The following day, February 3, 2020, the decedent made a change to his William Penn life insurance beneficiary designation using an electronic signature and "electronic transaction." The prior designation had provided for all proceeds to be distributed to a pre-deceased individual, with the three sons as contingent beneficiaries. The new designation provided for $250,000 of life insurance proceeds to be split fifty percent to his wife ($125,000.00), and fifty percent to his Estate (the wife, as beneficiary under the Will, would of course receive a portion of the fifty percent payable to the Estate as well as the entirety of the fifty percent payable to her).
The Will does not mention the life insurance policy. There is no allegation that the decedent intended to or attempted to alter the beneficiary designation again prior to his death.
Pleadings
Benjamin Walls petitioned pursuant to SCPA §§ 2101, 2103, and 2105 to invalidate the beneficiary designation. This, Benjamin asserts, would result in no beneficiary designation, and that Susan Del Pozzo would have to pay into the estate the $125,000.00 she received, which then in turn would be distributed according to the provisions in the Will.
By a petition amended by leave of the court and dated August 31, 2021.
It is not clear to me why the original beneficiary designation would then become binding, but that position is not being asserted by the petitioner.
Petitioner argues that the changed beneficiary designation was the "product of compromised capacity and/or undue influence by Susan Del Pozzo," and thereby "void for lack of his actual consent or subject to reformation due to a scrivener's error." The "electronic change in beneficiary designation," he says, "did not align with my father's wishes or his understanding."
Susan Del Pozzo, as executor of the Estate of William David Walls, Jr., moved to dismiss the amended petition pursuant to CPLR 3211(a)(7).
Analysis
Preliminarily, I question whether the petitioner has standing to bring this action and whether this court even has subject-matter jurisdiction. Although the motion to dismiss does not notice subdivisions "2" and "3" of CPLR 3211(a), nonetheless, the parties briefed each issue and they are, in any event, intertwined with the issue of whether the petition states a cause of action, so they are considered here.
Clearly, petitioner Benjamin lacks standing to bring a claim for relief under SCPA 2103. That section is commonly referred to as a "turnover" proceeding and provides that a" fiduciary (emphasis added)" may petition to bring assets into an asset held by or in the control of another person. However, Benjamin is not a fiduciary of the estate and cannot claim to be acting on its behalf (although he could petition for limited letters). Thus, SCPA 2103 is not an appropriate avenue for the relief he seeks.
Matter of Obregon, 91 N.Y.2d 591, 593 (1998); Matter of Tenenbaum, 81 A.D.3d 738, 738 (2d Dept 2011)
Nor is SCPA 2105. That section, often referred to as a "reverse turnover" proceeding (see e.g. In re Garrasi, 33 Misc.3d 1224(A) [Sur Ct 2011]), provides an avenue for a person "having a claim to property. in the possession of or under the control of a fiduciary" to reclaim the property.
Here, Benjamin has no claim to the proceeds of the insurance policy. Even if he is successful in abrogating the beneficiary designation and allowing for the insurance proceeds to pass into the estate, those proceeds would not come to him, they would flow per the Will into a trust of which he is the beneficiary. The petitioner is a beneficiary of a trust deriving from the Estate, and as such, his interest would be properly represented by the independent co-Trustee of that trust, and he lacks standing to bring the instant proceeding (SCPA 2210[7]; see also Matter of Lupoli, 275 A.D.2d 780 [2d Dept 2000]).
The nominated Trustees are Susan Del Pozzo and Laura Jane Stelter, but Letters of Trusteeship have not been requested.
Moreover, his requested relief, "that an Order be granted directing the life insurance proceeds received by Susan Del Pozzo be paid to the estate," requires that the petitioner have some standing to pursue claims on behalf of the Estate. As noted above, Benjamin is not a fiduciary of the estate and has no standing to act on its behalf. It is worth repeating the point - he is not a fiduciary of the Estate, and further, is not even a direct beneficiary of the Estate.
Finally, SCPA 2105 contemplates an action to for recovery of property held by a "fiduciary." Here, however, Susan is holding property not as fiduciary but in her personal capacity, as the direct recipient, outside of the estate, of the one-half of the insurance proceeds. Even though the request for relief "requests that the fiduciary (emphasis added) , Susan Del Pozzo, be compelled" to turn over to the estate the death benefits she received, a liberal reading of the petition and the facts set forth in it allows the court (as it must) to infer that the use of the term "fiduciary" in the request for relief is descriptive and not accurate in a legal sense. Susan is not holding the $125,000.00 death benefits as the fiduciary on behalf of the estate but in her individual and personal capacity, in fact, that is the whole point of the petition.
Benjamin also seeks relief under the "catch-all" provision of SCPA 2101 and by extension, SCPA 202. SCPA 2101 provides that proceedings under Article 21 and "within the jurisdiction of the court under (SCPA) 202" may be commenced by a "person interested."
Benjamin is not a person interested, for the reason stated above that he is a beneficiary of a trust and has no direct claim to the insurance proceeds.
Additionally, it is questionable as to whether the court has subject-matter jurisdiction over the proceeding. It is well-settled that the Surrogate's court has no jurisdiction over disputes between living persons (see Matter of O'Connell, 98 A.D.3d 673, 674 [2d Dept 2012]; Matter of Praczkajlo, 143 Misc.2d 667, 669 [Sur Ct Erie County 1989]). "While the jurisdiction of the Surrogate's Court is broad where the controversy relates to the affairs of decedents or the proceedings pertain to the administration of an estate, the Surrogate Court's limited subject matter jurisdiction does not extend to independent matters involving controversies between living persons." (Matter of O'Connell, 98 A.D.3d 673, 674 [2d Dept 2012] [internal quotations and citations omitted]).
Here, although not briefed, there is an issue as to whether, if the beneficiary designation giving Susan one-half of the proceeds and the estate the other half were deemed invalid, the prior designation would take effect (Matter of Tillinger, 26 Misc.3d 1229 [A][Sur Ct Bronx County 2010]). If so, and the three sons are entitled to receive the proceeds of the insurance policy, the dispute becomes one between living persons - stepmother Susan on one hand, and the decedent's three sons on the other.
Accordingly, the action must be dismissed for lack of standing and possibly for lack of subject-matter jurisdiction, if for no other reasons.
However, even assuming that Benjamin has standing to proceed, and assuming the court has subject-matter jurisdiction, nonetheless the action must be dismissed for failure to state a claim upon which relief can be granted.
"In the context of a CPLR 3211(a)(7) motion directed at the sufficiency of the pleadings, the pleadings are to be afforded a liberal construction, and the court must accept the allegations as true, according the [petitioner] the benefit of every reasonable inference to determine whether they come within the ambit of any cognizable legal theory" (Matter of Hollenbach, 16 Misc.3d 1106 [A], at *5 [Sur Ct Nassau County 2007] [citations omitted]). "[T]he pleading is to be afforded a liberal construction. We accept the facts as alleged in the complaint as true, accord [petitioner] the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 N.Y.2d 83, 87-88 [1994]).
There are two theories by which Benjamin seeks to set aside the beneficiary designation. One is mistake or lack of intent, i.e., that based on statements he made prior to his death, and based on the net effect of the beneficiary designation, he could not possibly have intended to make the change that he did. The second is "undue influence."
Both theories fail, even when the pleadings are viewed in the light most favorable to the petitioner.
a. Claim that the beneficiary designation did not reflect the decedent's true intent
While there is a statutory basis generally for the surrogate's court to determine ownership of property between an estate and its distributees and legatees, the relief sought here by the Petitioner is not supported by law, even granting the Petitioner the inference to which he is entitled (Leon v. Martinez, id.) It is undisputed that the beneficiary designation was executed and effectuated pursuant to the terms of a contract the decedent had with the William Penn Insurance Company. It is also undisputed that Ms. Del Pozzo received the funds in her individual capacity as the designated beneficiary. Since the funds were disbursed, the court can assume that the company's internal review process was satisfied regarding the designation. "As a general rule, under... New York law, the method prescribed by the insurance contract must be followed in order to effect a change of beneficiary. Such a rule serves the paramount goals of ensuring that life insurance proceeds are disbursed consistently with an insured's stated intent and of preventing the courts and parties from engaging in rank speculation regarding the wishes of the deceased" (McCarthy v Aetna Life Ins. Co., 92 N.Y.2d 436 [1998] [citations omitted]).
It is precisely this type of 'rank speculation regarding the wishes of the deceased,' that the petition wishes the court to engage in. "As a rule, an insured has the right to designate the person who shall be the beneficiary under the insurance contract and such person is entitled to the insurance proceeds as a third-party beneficiary in accordance with the intention of the insured which is usually ascertained from the contract itself (Matter of Tanenblatt, 160 Misc.2d 490, 492 [Sur Ct Nassau County 1994] citing 2 Appleman, Insurance Law & Practice, sec. 77]).
Even in a situation in which a decedent expresses a contrary intent by attempting to bequeath life insurance proceeds through a will, the courts will still rely upon a valid beneficiary designation. "IRAs, like pension plans and insurance policies, typically set forth a procedure for designating a beneficiary. The payor is entitled to require strict compliance with such procedural rules, and if it does so, the designated beneficiary receives the asset irrespective of whether the beneficiary designation reflects decedent's actual intent (Matter of Trigoboff, 175 Misc.2d 370, 372 [Surr Ct NY County 1998] citing Matter of Jaccoma, 142 A.D.2d 875 [3d Dept 1988]; see also EPTL 13-2.1)
Viewed from another lens, were the Decedent in this case to have discovered his alleged error in the year between the change and his death and made statements expressing his intent to execute a new beneficiary designation, that would likely still not be sufficient to disregard the previously validly executed designation (see e.g. Cable v. Prudential Ins. Co. of Am., 89 A.D.2d 636 [3d Dept 1982] ["Mere intent, however, on the part of the insured is not enough; there must be some affirmative act or acts on [the part of the insured] to accomplish the change."]; see also Hunnell v Hunnell, 45 A.D.2d 521, 523 [4th Dept 1974]).
The Petitioner mistakenly relies on a quote from Matter of Stone (80 Misc.2d 762 [Sur Ct Monroe County 1975]) to support his argument that this Court should intervene in this matter and hear evidence regarding the Decedent's intent. In Matter of Stone, an insurance company refused to pay on an insurance contract at all (Id. at 762). The petitioner in that case, the estate fiduciary, tried to use SCPA Article 21 to compel the company to pay on the policy. Then Surrogate Judge Michael A. Telesca held,
The purpose of the discovery proceeding is to obtain the possession of specific personal property or money which belongs to the estate.
The proceeding is available to seek recovery of the proceeds of an insurance policy already paid to a third person, but not to compel the insurance company to pay the sum due under the terms of its policy.Matter of Balthazar, 4 Misc.2d 800 [Sur Ct NY County 1956], Matter of Reilly, 111 Misc. 66 [Sur Co Bronx County 1920] [internal citations omitted].
While at first glance, this quote seems to support the contention that this Court should step in, it is clear upon a review of the cases cited by Judge Telesca that what is meant by "to seek recovery of the proceeds of an insurance policy already paid to a third person" is to recover proceeds paid to another individual when the beneficiary designation in fact states otherwise. Matter of Reilly, cited by Judge Telesca above, involved a common insurance practice in the early 20th century of including and effectuating a broad "Facility of Payment" clause, allowing the company to pay the policy to any blood or marital relative, regardless of their beneficiary or fiduciary status (Id. at 68: "It will thus be observed that [the policy] is not payable on its face to the respondent by name... and the [company] cannot, by electing to pay one of the persons [described in the Facility of Payment clause], invest that person with the absolute ownership of the moneys paid"]).
This practice led to frequent litigation, and is no longer common (s ee e.g. Wachtel v. Harrison, 84 Misc. 76 [1st Dept 1914]; Ruoff v John Hancock Mut. Life Ins. Co., 86 AD 447 [2d Dept 1903]; Wokal v Belsky, 53 AD 167 [1st Dept 1900]). This situation is readily distinguishable from the case before this Court, and thus, does not control.
Litigation in which, it is important to note, the insurance companies were always included as a defendant, which the Petitioner has not done here.
In the instant case, William Penn has paid out the policy to the properly designated and identified beneficiary, pursuant to its contract with the Decedent. The company is entitled to promulgate and enforce such policies, and the courts are discouraged from interfering (McCarthy, 92 N.Y.2d at 436). The Estate's only claim to those funds is a dispute with William Penn regarding its internal controls for the execution and investigation of beneficiary designations. That dispute is not before this Court.
Benjamin argues that it is the executor's burden to prove her rightful ownership of the insurance proceeds paid to her, relying on a prior Decision of the Appellate Division, Fourth Department in Matter of Thomas (148 AD3 1764 [4th Dept 2017]). This reliance does not recognize the unique and distinguishable nature of the disputed asset in this case. As discussed above, life insurance proceeds are paid only pursuant to a contract with a third party - they are not an asset of the decedent in life. In Thomas, the decedent owned the stock at some point during his life. The question was if and when he divested himself of that asset. Here, the Decedent was not holding $125,000 that he sold or gave to the Executor. Instead, he entered into a contract with a company to pay the Executor $125,000 upon his death. The company, pursuant to that contract, did so. This difference is relevant as to the burden described by the Court in Thomas because the intervening third-party insurance company's payment of the funds is proof of the recipient's entitlement to them (see McCarthy v Aetna Life Ins. Co., 92 N.Y.2d 436, 440 [1998] ["[S]ubstantial compliance with the terms of the policy will suffice to demonstrate the policyholder's intent"]).
It is not uncommon for an insurance company, faced with competing claims to the same policy proceeds, to pay the proceeds into court (often in a federal interpleader action) so the court can weight the equities between two colorable claims (see e.g. Sun Life and Health Ins. Co. v Colavito, 14 F.Supp.3d 176 [SD NY 2014]). This is treated by the courts as a waiver of the insurance company's requirement of strict compliance with its policies, and consent to the courts' determination of the equities (see e.g., Cable v. Prudential Ins. Co. of Am., 89 A.D.2d 636 [3d Dept 1982] ["Since Prudential paid the proceeds of the policy into court leaving the parties to settle the controversy between themselves, the contract requirements as to the changing of beneficiaries have been waived by Prudential and strict compliance with those requirements is unnecessary"]) However, that is not what has happened here. Instead, William Penn has relied upon strict compliance with its contract, and is entitled to do so (see Matter of Ziolkowski, 47 Misc.2d 752 [Sur Ct, Erie County 1965]). To rule otherwise could potentially subject the company, which is not properly before the Court, to incur a double liability (see e.g., Matter of Tanenblatt, 160 Misc.2d 490 [Sur Ct, Nassau County 1994]).
b. Claim of undue influence
Benjamin claims that the change of beneficiary designation was the result of undue influence. The sum total of his submissions to demonstrate undue influence consist of an entirely unsupported allegation in the petition that the beneficiary designation change was the result of "undue influence," and a statement from decedent's sister that his wife Susan was "overbearing" and "domineering."
These fail to rise to the level of a prima facie case of undue influence (see Matter of Walther, 6 N.Y.2d 49 [1959]; Matter of Turner, 56 A.D.3d 863 [3d Dept 2008]; Borchert v Metro. Life Ins. Co., 84 N.Y.S.2d 529, 532 [Sup Ct, Kings County 1948]; Estate of Dorothy Mendelson, 2012 NYLJ LEXIS 712, *1-2 [Sur Ct, NY County] ["By contrast, Jonathan's opposing papers have failed to identify, much less substantiate with proofs, the specific acts constituting undue influence or the dates and places of their occurrence. Jonathan's speculative and conclusory allegations do not amount to evidence and thus fail to raise such triable issue."] see also Vermylen v Genworth Life Ins. Co. of NY, 28 Misc.3d 1236 (A) [Sup Ct, NY County 2010]).
The affidavits submitted by Benjamin in support of his petition do not remedy the insufficiency of the pleadings or create a question of fact, even if they were to be treated as submissions to be considered in the context of a motion for summary judgment, pursuant to CPLR 3211(c). That section allows a party to submit "any evidence that could properly be considered on a motion for summary judgment," and the court "may" treat the motion as one for summary judgment. The court declines to do so here. The affidavits submitted are not "evidence that could be properly considered." One consists of an attorney's recollection of conversations he had with Susan's attorney after the decedent had passed, regarding decedent's intent in changing the beneficiary designation. Those are irrelevant. The other affidavit is from decedent's sister, who states that Susan, the widow, was "overbearing" and domineering." That does create an issue of fact as to whether Susan exercised undue influence over decedent in his change of beneficiary.
CONCLUSION
Therefore, in accordance with the above decision, it is hereby
ORDERED, ADJUDGED and DECREED that the Executor's Motion to Dismiss the Petition is hereby granted.