New York CPLR 3122(d) provides that the “reasonable production expenses” incurred by a non-party’s compliance with a subpoena shall be defrayed by the party issuing the subpoena. May a non-party’s counsel fees related to responding to a subpoena involving the production of electronically stored information be included as part of the “reasonable production expenses”?

This largely unsettled question was recently answered in the affirmative by Surrogate Peter J. Kelly in Matter of Khagan, 2019 NY Slip Op 29352 [Sur Ct. Queens Co. Sept. 18, 2019], who noted that “there is a dearth of Surrogate’s Court opinions on this issue”. Upon consideration of the limited relevant case law, the policy behind the statute, and the facts giving rise to the document discovery dispute, the Court awarded a non-party $40,000 in counsel fees and $5,571.28 for an e-discovery vendor’s services, pursuant to CPLR 3122(d). The Khagan decision presents an instructive analysis that may guide both attorneys issuing subpoenas duces tecum and those advising clients in receipt of such subpoenas.

Factual Background

Khagan involved a contested trustees’ accounting where the trust owned real property in Manhattan. The trustees retained the non-party as a consultant to assist in the development of that property. The property was never developed and the objections to the trustees’ accounting challenged payments from the trust to the non-party consultant.

In response to subpoenas served by the objectants, the non-party’s counsel inquired about payment of the reasonable costs of production and was informed that the objectants would share those costs equally. None of the communications between counsel about the subpoenas, over a period of months, concerned the non-party seeking counsel fees. There was some discussion between the attorneys about limiting the scope of the subpoenas, but no agreement was reached.

The non-party’s attorney advised the objectants’ counsel that approximately 20,000 electronically stored files had been collected which would need to be reviewed before production. Following the non-party’s attorneys’ review, 11,650 records were deemed responsive and not privileged and then shared with the trustees’ counsel for their own privilege review.

The responsive records were ultimately placed on a flash drive and the non-party’s attorneys conditioned delivery to the objectants on their payment of (i) e-discovery vendor invoices totaling $5,571.28 and (ii) the non-party’s legal fees of $92,076.04. The objectants refused and the non-party moved, pursuant to CPLR 3122(d), to compel the objectants to pay such expenses as “reasonable production expenses” incurred in responding to the objectants’ subpoenas.

NY CPLR 3122(d)

CPLR 3122(d) provides that “[t]he reasonable production expenses of a non-party witness shall be defrayed by the party seeking discovery.” The policy behind the rule is that a non-party should not be burdened with the costs of litigation to which that non-party is not related, especially when those costs may be significant. The statute does not define what constitutes “reasonable production expenses.”

The Non-Party’s E-Discovery Vendor Fees

In Khagan, Surrogate Kelly recognized that beyond the actual copying/reproduction, “there are labor related costs in the search, retrieval and production of the documents, and often the expense of an e-discovery professional. Logically these costs incurred by a non-party should unarguably be compensable as reasonable production expenses.”

In support of its motion, the non-party submitted invoices from an electronic discovery vendor for services in facilitating the collection, hosting and production of the records totaling $5,571.28. The Court ordered the objectants to pay this amount in full.

The Non-Party’s Legal Fees

In further support of its motion, the non-party submitted its attorneys’ time records totaling $92,076.04 for services related to the objectants’ subpoenas. The Court noted there is no specific reference to attorney’s fees at CPLR 3122 nor are there many decisions addressing whether attorney’s fees are included as “reasonable production expenses”.

While the Surrogate’s Court does not have rules governing e-discovery, the Surrogate found a review of such rules in the Commercial Parts of Nassau County and New York City instructive. The Court observed that the procedure followed here by the objectants and non-party “did not remotely comply with any of these guidelines, especially with respect to the discussion of costs.”

The Court held:

Upon the court’s reading of the statute, case law, commentaries and various court rules for the commercial parts, and considering the rational[e] underlying the rule, the court is of the opinion that legal fees incurred by a non-party conducting e-discovery in complying with a subpoena are potentially reimbursable in Surrogate’s Court proceedings [footnote omitted].

In reaching this decision, the Court considered the following factors:

 

  • The breadth of the subpoenas’ demands;

 

  • The lack of any showing by the objectants as to why the information sought from the non-party could not be gleaned from the trustees’ own records or how the trustees’ documents were inadequate;

 

  • The failure to reach an agreement on reducing the scope of the subpoenas;

 

  • The lack of prior notice given by the non-party that it would seek reimbursement for legal fees;

 

  • The non-party’s relationship with the trustees in the management of the trust; and

 

  • That expenses for the non-party’s counsel to draft objections to the subpoenas and confer with the trustees’ counsel should be excluded from what the objectants pay.

Thus, of the $92,076.04 sought by the non-party for counsel fees, as “reasonable production expenses” related to the subpoenas, the Surrogate awarded $40,000.

The Court cautioned that its decision should not be read as a license to a non-party to incur fees that it would not deem reasonable and necessary if the non-party were shouldering the burden. The Court added that, “in the absence of a prior agreement between the demanding party and the non-party, such fees are subject to the exercise of the court’s power to limit or deny them to prevent unreasonable expense or other prejudice to any person as the circumstances may present (see CPLR 3103[a]).”

Conclusion

Although the Uniform Rules for Surrogate’s Court do not contain provisions governing e-discovery, the rules of other Courts on this topic may prove instructive, as they were to the Surrogate in deciding Khagan.[1] An early good faith meet and confer between counsel concerning the scope and cost (including cost shifting) of such discovery may allow discovery to proceed more efficiently and potentially avoid a party from incurring significant, and unexpected, litigation costs.

 

[1] See, e.g., Commercial Division, Nassau County Guidelines for Discovery of Electronically Stored Information (“ESI”), http://www.nycourts.gov/courts/comdiv/nassau.shtml

 

 

“The attorney client privilege, the oldest among common-law evidentiary privileges, fosters the open dialogue between lawyer and client that is deemed essential to effective representation” (Spectrum Sys. Intern. Corp. v Chem. Bank, 78 NY2d 371, 377 [1991] [quotation marks and citations omitted]). While an otherwise privileged communication can lose the protections of the privilege by reason of waiver, either intentionally or inadvertently, two principles complicate application of the rules governing waiver in Surrogate’s Court proceedings. The first such principle is that the attorney client privilege belongs to the client and, generally speaking, only the client can waive the privilege (see generally Manufacturers and Traders Tr. Co. v Servotronics, Inc., 132 AD2d 392, 400 [4th Dept 1987] [“the attorney-client privilege belongs to the client and can be waived only by the client”]).  The second such principle is that, in New York State, the privilege survives the death of the client (see Matter of Riconda, 90 NY2d 733, 740 [1997]). While it is well established that the right to waive the privilege also survives the death of the client, case law is still developing concerning who can effectuate a post-death waiver and in what circumstances.

Recently, in Matter of Thomas, 2019 NY Slip Op 08293 (4th Dept Nov. 15, 2019), the Appellate Division, Fourth Department, addressed whether the executor of an estate is authorized to waive a decedent’s attorney client privilege, an issue of first impression in that Department. Agreeing with the Second and Third Departments, the Fourth Department answered the question in the affirmative. Perhaps more significantly, the Court held that the executor in that case could waive the privilege regardless of his self-interest in the testimony of the decedent’s former counsel, and over the petitioner’s objection that the executor’s success in the proceeding would result in the exclusion of an asset from the estate and, thus, would not benefit the estate.

Thomas involved a dispute among the decedent’s children (and the issue of a post-deceased child) over the ownership of a closely held company, New York State Fence Company (“NYSFC”), previously owned by the decedent. The respondent in the proceeding was one of the decedent’s sons, the executor of his estate. He did not identify any shares of NYSFC as assets of the decedent’s estate. The petitioners, other issue of the decedent, commenced a proceeding challenging numerous real estate transactions between the respondent and the decedent, as well as the respondent’s failure to identify any shares of NYSFC as being assets of the estate. They sought to impose a constructive trust claim, based on the fact that the respondent failed to produce any records reflecting the transfer of the stock from the decedent to himself, or any records reflecting respondent’s payments for the stock.

The Surrogate dismissed the constructive trust claim, and, in a prior decision, the Fourth Department reinstated it (see 124 AD3d 1235 [4th Dept 2015]). Then, in another decision, the Fourth Department held that the Surrogate erred in directing a verdict in favor of the respondent at the close of the petitioners’ proof (see 148 AD3d 1764 [4th Dept 2017]). This decision was grounded in the Court’s determination that the Surrogate erred in determining that the petitioners had the burden of proof to establish that the stock had not been transferred to the respondent. The Fourth Department held that where an asset is not included in the inventory of the estate based upon a fiduciary’s assertion that he is the owner of the asset, it is the fiduciary’s burden to show a legal and sufficient reason for withholding it.

Which brings us to the third appeal. Upon remittal, the Surrogate held a nonjury trial during which the respondent, in his capacity as executor, waived the decedent and his deceased wife’s attorney-client privilege, and their former counsel thereafter testified that she did not include a specific bequest with respect to NYSFC in the Decedent’s most recent will because he had already transferred those shares to the respondent. The Surrogate accordingly determined that the respondent satisfied his burden and specifically established that the shares of NYSFC were sold and transferred to him prior to the Decedent’s death.

The petitioners appealed, arguing, inter alia, that existing case law, from the Second and Third Departments, permit waiver of the attorney-client privilege by an executor only if the waiver benefits the estate. They asserted that excluding an asset from the estate would only benefit the respondent, not the estate or its beneficiaries.

In affirming the Surrogate’s determination, the Court relied heavily on the Second Department’s decision in Mayorga v Tate, 302 AD2d 11 (2d Dept 2002). In that case, a legal malpractice action brought against the decedent’s attorneys, the court held that the assignee of the executor of the decedent’s estate could waive the decedent’s attorney client privilege and compel production of the attorney’s file concerning the decedent. The court provided a detailed discussion concerning New York’s attorney-client privilege statute, CPLR § 4503, noting that it merely codifies the common law. Further, the court noted that while the statute expressly permits the “client” to waive the privilege, the common law “has always provided that an executor may, in the interest of the estate, waive the attorney-client privilege of the deceased client.” The court stated that “it makes no sense to prohibit an executor from waiving the attorney-client privilege of his or her decedent, where such prohibition operates to the detriment of the decedent’s estate, and to the benefit of an alleged tortfeasor against whom the estate possesses a cause of action[.]” It concluded that, “under the terms of CPLR 4503, just as under the common law, an executor may waive the attorney-client privilege of his or her decedent[.]”

The Fourth Department also noted that the Third Department reached the same determination in Matter of Johnson, 7 AD3d 959 (3d Dept 2004), lv denied 3 NY3d 606 (2004).

Rejecting the petitioners’ argument that Mayorga and Johnson only support an executor’s waiver of the attorney-client privilege if the waiver benefits the estate, the Fourth Department noted that, subsequent to Mayorga, the Second Department permitted a waiver in Matter of Bassin, 28 AD3d 549 (2d Dept 2006). In Bassin, a proceeding in which the decedent’s daughter sought to recover for the estate certain real property the decedent had deeded to her son, the court permitted a waiver to allow the decedent’s attorney to testify regarding the decedent’s intent in executing the deed in favor of her son.

Nevertheless, it is quite possible to reconcile the determinations in Thomas and Bassin – where an executor was permitted to waive privilege even though the result was a determination that the estate had no interest in a valuable asset – with a general rule that an executor may waive a decedent’s attorney-client privilege only “in the interest of the estate.” In the universe of trust and estate law, the primary focus of most proceedings is giving effect to a decedent’s intent. One could well argue, therefore, that ascertaining a decedent’s intentions with respect to the descent, distribution, and ownership of his or her assets after death is both “in the interest of the estate” and “benefits the estate.” This is true even where, as in Thomas, the estate is deprived of an asset as a result.

 

SCPA § 1404 requires that “at least two attesting witnesses must be produced before the court and examined before a written will is admitted to probate.” Very often, litigators think of examinations pursuant to SCPA § 1404 as examinations before trial that are conducted under Article 31 of the CPLR. This is understandable given that the statute itself makes numerous references to CPLR article 31. For example, SCPA § 1404(2) provides that the Surrogate’s Court may issue a commission under CPLR 3113 to take testimony “where a will offered probate is on file in a court or public office under the laws of which jurisdiction the will cannot be removed.” CPLR 3113 sets forth before whom a deposition may be taken, the oath of the witness, the allowance of examination and cross-examination, and it permits the parties to stipulate to conduct a deposition by telephone or other remote electronic means. Additionally, SCPA § 1404(4) expressly provides that the party conducting the examination is entitled to “all rights granted under article 31 of the civil practice law and rules with respect to document discovery.” SCPA § 1404(5)(a) and (b) provide that the testator’s estate pays the costs associated with the pre-objection examinations of the first two attesting witnesses, and that article 31 of the CPLR governs the costs associated with the other pre and post-objection examinations conducted in the proceeding. And of course, an examination under SCPA § 1404(4) of the preparer of a will, the attesting witnesses to a will’s execution and, where the situation warrants, the nominated executor of a will, is where the witness gives sworn testimony before a person authorized to administer oaths—i.e. a deposition.

But, while SCPA § 1404 may incorporate certain provisions of article 31 of the CPLR, it is its own, separate and unique statute. An examination of an attesting witness sought pursuant to SCPA § 1404(4) before objections to probate are filed is not simply a deposition conducted under article 31 of the CPLR. This is apparent from a recent decision in the Estate of Wood, NYLJ, Aug. 7, 2019, p. 23, col 1 (Sur Ct, Bronx County). The testator was survived by his spouse, one son, and two daughters. According to the court, the will offered for probate nominated the testator’s spouse as executor. However, the instrument itself was not dated or signed. Rather, it contained an apparent self-proving affidavit that was dated and signed by the testator and witnesses and notarized. The testator’s son requested examinations pursuant to SCPA § 1404. Claiming that the attorney draftsman and one attesting witness lived outside of New York State, and that the estate lacked the funds necessary to pay for the in-person examinations thereof, the testator’s spouse requested that the SCPA § 1404 examinations be conducted by written interrogatories. The son objected and insisted that the spouse produce the witnesses in person for examination.

CPLR 3108 allows for a deposition to be conducted by written questions when either (1) the examining party and witness so stipulate or (2) when the testimony is to be taken without the state. That statute further provides that the court may issue a commission where necessary or convenient for taking a deposition outside the state. It would seem that if the examinations sought in Estate of Wood, supra, were depositions under CPLR article 31, then conducting them by written question would be permitted under CPLR 3108. But, the Court denied the spouse’s request and directed that these pre-objection examinations be conducted by personal appearance. It specifically noted that under SCPA § 1405(2), where an attesting witness is outside of the state, and his or her testimony can be obtained with reasonable diligence, the court “may and shall upon the demand of any party require his testimony be taken by commission.” Notably, the court did not even refer to CPLR 3108, thus indicating that the rules governing the how pre-objection examinations are to be conducted lie within article 14 of the SCPA and not article 31 of the CPLR.

 

 

One of the most fundamental duties of a fiduciary is the duty of loyalty. That is, every fiduciary must administer the estate or trust subject to his or her stewardship solely in the interests of the beneficiaries. That duty is breached when a fiduciary engages in self- dealing; i.e. places his/her own interests over those of the beneficiaries. Self-dealing can take several forms, not the least of which is when a fiduciary purchases an estate or trust asset, or engages in competition with the estate or trust subject to his/her charge.

Fiduciary self-dealing has been the subject of numerous decisions affecting trusts and estates practice, the most notable of which include Matter of Rothko, 43 NY2d 305 (1977) and Flaum v Birnbaum, 120 AD2d 183 (4th Dept 1986). These decisions and others of their kind have relied on the “no further inquiry” rule, established by long-standing precedent as the basis for declaring any such transaction voidable at the behest of the beneficiaries (see e.g. Flaum v Birnbaum, supra.; Matter of Bradley, 143 NYS2d 264 [1955]).

This rule and the liability attendant to fiduciary self-dealing was recently examined by the Surrogate’s Court, Albany County, in Matter of Smith, NYLJ, May 17, 2018, at p. 28. Before the court was a motion by the petitioner, the Public Administrator, as temporary administrator of the estate, for, inter alia, summary judgment finding that the respondent engaged in unlawful self-dealing.

The decedent died, testate, on May 19, 2003. The principal asset of his estate consisted of a 90% interest in a closely held company, Quailman Investors, Inc. (“Quailman Investors”). The remaining 10% interest was owned by the respondent. Pursuant to the pertinent provisions of his Will, the decedent directed that 70% of his interest in Quailman Investors be held, in trust, together with the remainder of his estate, for the benefit of a group of individuals, some of whom were minors. The remaining 20% of the decedent’s interest in the company was bequeathed to the respondent (15%) and to another named individual (5%). Preliminary letters testamentary were issued to respondent, who served as preliminary executor of the estate until the Will was admitted to probate, at which time he received Letters Testamentary. Although respondent was also the nominated trustee of the trust created under the instrument, he never received letters of trusteeship.

Thereafter, in a proceeding instituted by the respondent to terminate the trust as uneconomical, the guardian ad litem, appointed by the court to represent the interests of the minor beneficiaries, revealed a corporate resolution of Quailman Investors, which had been adopted by the Board of Directors, and signed by the respondent, as Secretary, authorizing the respondent, without prior court approval, to pay himself the sum of $725,453, consisting of deferred compensation and salary for a number of years. In addition, the report of the guardian ad litem noted that the net value of real estate sales by the company from October 2003 through May 2004 amounted to approximately $960,184.81. Notably, at the time of each of these transactions, the respondent remained a minority shareholder of 10% of the company, and was acting as preliminary executor of the estate, through which he controlled the remaining 90% interest held by the decedent.

The respondent was subsequently removed as executor of the estate due to his failure to comply with numerous court orders directing him to account, and the Public Administrator was appointed temporary administrator cta in his place and stead. Upon his appointment, the Public Administrator requested information from the respondent pertinent to the valuation of Quailman Investors, and instituted a discovery proceeding against him seeking recovery of $960, 184, i.e. the alleged profits derived from the sale of assets by Quailman Investors, and subsequently paid by respondent to himself. After a series of motions and appeals, the Public Administrator moved for summary relief.

The court observed that one of the most sacred duties of a fiduciary is to avoid self-dealing. Once self-dealing is disclosed, the “no further inquiry rule” is triggered, which will result in the transaction being set aside regardless of its fairness. The court further noted that in cases where a fiduciary places himself in a position where his interest is in conflict with his duty of loyalty, the fiduciary may be surcharged.

Based on the foregoing, and the undisputed record reflecting the improper payments the respondent made to himself, without prior court authorization, at a time when he was serving as preliminary executor of the estate, and was in full control of Quailman Investors, the court held that his conduct was an act of self-dealing in violation of his fiduciary duty of undivided loyalty to the estate beneficiaries. As such, the court set aside the payments, and directed the respondent to restore the sum of $725,453 to the estate.

In addition, the record revealed that the respondent, also, without prior court approval, paid himself a personal claim he had against the estate (see SCPA 1805). As in the case of self-dealing, when a fiduciary pays himself a claim without leave of court, he subjects himself to a surcharge, which can include, among other things, costs, attorney’s fees, and interest. Noting that attorney’s fees may generally not be collected by a prevailing litigant in the absence of statute or agreement, or where the losing party has not acted maliciously or in bad faith, the court, nevertheless, found based on respondent’s conduct, that an award of attorney’s fees, to be paid by respondent personally, was warranted. Accordingly, the court scheduled a hearing to determine the surcharge and fees in connection with the improper payment of the claim.

The foregoing opinion provides a sharp lesson to be learned by fiduciaries who are tempted to benefit themselves at the expense of the estate or trust to which they owe undivided loyalty.

In 2016, the New York Legislature enacted a version of the Uniform Law Commission’s Revised Uniform Fiduciary Access to Digital Assets Act in Article 13-A (“Article 13-A”) of the Estates, Powers and Trusts Law (“EPTL”).   As illustrated by two recently decided New York Surrogate Court cases, and as previously discussed on this blog (You’ve Got (E-)Mail! Can Your Survivors Access It After Your Death? and AN UPDATE ON A FIDUCIARY’S ACCESS TO THE DIGITAL RECORDS OF A DECEDENT), the Courts have created a distinction between the disclosure of a decedent’s catalogue and that of a decedent’s digital content (Matter of Serrano, 54 NYS3d 64 [2017]; Matter of White, 10/3/2017 NYLJ p. 25, col. 1). The catalogue of electronic communications includes the name of the sender, the e-mail address of the sender, and the time and date of the communication.   A decedent’s digital content includes the subject line and text of e-mail messages. The disclosure of a decedent’s non-content information to a fiduciary is permitted, if not mandated, by Article 13-A of the EPTL (see Serrano, supra).

On the other hand, with respect to a service provider’s obligation to disclose the “content” of electronic communications, the determinative factor appears to be whether the deceased user gave an affirmative direction to disclose the content. The law first looks to whether the user used an online tool to direct disclosure of the content. Absent online direction, the law then looks to a deceased user’s will or other written instrument (see Wills, Trusts & Estates: Plain & Simple – What happens to your Social Media and other digital life when you die?). These decisions demonstrate the emergence of digital assets as the impetus of disputes in estate litigation matters and the importance of properly planning for same.

More recently, Surrogate Mella of New York County, addressed the interplay of Article 13-A of the EPTL and a decedent’s digital images.   In Matter of Swezey, 2019 NYLJ LEXIS 135 (Sur Ct, New York County 2019), the executor of the decedent’s estate commenced an SCPA 2103 proceeding for the turnover of photographs stored in the decedent’s iTunes or iCloud account from Apple Inc. (“Apple”). The decedent’s will bequeathed his personal property and residuary estate to his surviving spouse, the executor of the will. However, the decedent did not use an online tool to provide direction for his digital assets, nor did his will specifically provide for the disposition of those assets. Apple informed the executor that a court order would be required to disclose the electronic data from the Apple ID.  Accordingly, petitioner turned to the Court for an order directing Apple to disclose the digital data.

In analyzing the determining factors, the Court noted that “no provision in decedent’s will expressly authorizes the executor to access decedent’s digital assets and petitioner points to no other document authorizing such access.   Nor does petitioner provide proof of decedent’s use of any online tool granting his personal representative access to his digital property” (id.). Nevertheless, the Court ordered Apple to disclose the photographs stored in the decedent’s Apple account. In reaching her decision, the Surrogate distinguished electronic communications from other digital assets, such as photographs, pointing out that the disclosure of other digital assets does not require proof of a user’s consent or a court order.

With regard to a fiduciary’s duties, the Surrogate further noted:

[i]n this age, a decedent’s property – which is defined as anything that may be the subject of ownership, real or personal – must include assets kept in a digital form in cyberspace. The New York legislature enacted Article 13-A of the Estates, Powers and Trusts Law to apply traditional governing fiduciaries to this new type of property and authorize fiduciaries to gain access to, manage, distribute and copy or delete digital assets. Fiduciaries are now charged with the same duty of care, loyalty and confidentially to marshal and protect a decedent’s digital assets as they do to manage a decedent’s tangibles.

The Swezey decision reflects the importance of taking measures at the planning stage to ensure a fiduciary of an estate will be permitted access to a decedent’s digital assets. The decision is also significant because it makes clear that a decedent’s digital images, as opposed to electronic communications, do not require proof of a deceased user’s consent before his or her fiduciary may access them.

In a recent decision in the Estate of Grunwald (NYLJ Jan. 28 2019, at 33 [Sur Ct, Richmond County]), Surrogate Titone aptly noted that “the concept of domicile is … very important in the Surrogate’s Court.” True words indeed. Where a decedent is domiciled at the time of his or her death determines which court has subject matter jurisdiction over the decedent’s estate.

SCPA § 205(1) provides that every Surrogate’s Court has subject matter jurisdiction over an estate of a decedent who died a New York domiciliary, but the particular county of domicile is the proper venue for any proceeding. Under SCPA § 206, the Surrogate’s Court may have jurisdiction of a non-New York domiciliary if the decedent died owning property in New York, or there is a wrongful death claim against a New York domiciliary. If the decedent had real property in more than one county, then the county where a proceeding is first commenced shall be the proper venue and retain jurisdiction (SCPA § 206(2)).

Laymen often use the terms “domicile” and “residence” interchangeably, yet in the Surrogate’s Court there is a distinction between the two with a very big difference. SCPA § 103(15) defines domicile as “[a] fixed, permanent and principal home to which a person wherever temporarily located always intends to return.” “Residence,” on the other hand, just means “living in a particular place” (see King v Car Rentals, Inc., 29 AD3d 205, 210 [2d Dept 2006], quoting Matter of Newcomb, 192 NY 238 [1908]). A person can have several residences, but only one domicile.

Disputes over a decedent’s domicile—whether it is a different state, country, or county—typically arise at the early stage of a probate proceeding. These are very fact driven issues, and the courts have routinely recognized that where a decedent was domiciled is a “mixed question” of law fact that is determined by the unique circumstances of each case (Matter of Urdang, 194 AD2d 615 [2d Dept 1993]; Estate of Grunwald, supra). The issue in Grunwald, was whether the probate proceeding was pending in the proper New York county. The petitioner brought the proceeding in Richmond County on the grounds that the decedent (his mother) had been domiciled in Staten Island for more than two decades. The decedent’s granddaughter from a predeceased son moved to transfer the proceeding to Kings County on the grounds that the decedent died a domiciliary of Poland but owned real property in Brooklyn. The case law tells us that in determining where a decedent was domiciled, the Surrogate’s Courts often look at the following factors: where the decedent owned real property, filed income taxes, and registered to vote (id). But these are hardly exclusive. The case law further shows that proving any one factor is not necessarily dispositive of the issue. For example the Appellate Division has held that the fact that a decedent registered to vote in a particular state does not mean that the decedent made that state his or her domicile (see Laufer v Hauge, 140 AD2d 671 [2d Dept 1988]; Matter of Estate of Gadway, 133 AD2d 83 [3d Dept 1987]).

As this is a fact driven issue, the Surrogate’s Court will more often than not order a hearing to determine the decedent’s domicile, rather than decide the issue on motion. This is precisely what the Court did in Grunwald.  Matter of Powers, 2018 NY Misc LEXIS 3710 (Sur Ct, Nassau County Aug. 1, 2018)[1] is also instructive in this regard. In that case, the Nassau Surrogate’s Court determined that a hearing was necessary to determine whether the decedent died a domiciliary of New York or North Carolina. The respondent moved to dismiss the probate petition filed in the Nassau County Surrogate’s Court on the grounds that the decedent was a North Carolina domiciliary because he was living in an assisted living facility in North Carolina at the time of his death. In support of that position, the respondent presented undisputed evidence that the decedent maintained his personal possessions, attended church and social activities, and received medical care all in North Carolina.

The petitioners opposed dismissal, asserting that the decedent’s transition to the assisted living facility was not permanent and he always intended to return to his home on Long Island. The petitioners presented undisputed documentary evidence that the decedent filed tax returns in New York State (while in the North Carolina assisted living facility), retained a New York driver’s license, maintained bank accounts in New York, and declared New York his residence in the will offered for probate. Finding that the evidence presented by both sides “lead to conflicting inferences regarding domicile,” the court held that a hearing was required on the issue of domicile before it could decide the motion to dismiss.

[1] Farrell Fritz represented the petitioners in this proceeding.

Pursuant to the provisions of EPTL 5-1.1-A, every surviving spouse of a domiciliary decedent is entitled to a statutory right of election. The elective share statute is intended to provide a decedent’s surviving spouse with a requisite minimum amount of his/her estate. While a surviving spouse may be disqualified from an elective share under any one of the circumstances enumerated in EPTL 5-1.2, the Surrogate’s and Appellate Courts have crafted a further ground for forfeiture when equity so requires. This was the result achieved by the Second Department’s opinion in Campbell v. Thomas, 73 AD3d 103 (2d Dept 2010), and more recently, by the opinion rendered by the Surrogate’s Court, King’s County, in Matter of Berk, NYLJ, July 2, 2018, p. 31 (Sur Ct, Kings County), discussed below.

In In re Berk, the court held, after trial, that by virtue of her wrongdoing, the decedent’s surviving spouse had forfeited her right of election against his estate. Prior to thihttps://www.nyestatelitigationblog.com/wp-admin/post.php?post=16851&action=edit#edit_timestamps result, the Berk estate had been the subject of two opinions by the Appellate Division, Second Department. In the first, the Court reversed an order of the Surrogate’s Court, Kings County (Johnson, S.) granting summary judgment to the petitioner, finding that there was an issue of fact as to whether the petitioner had forfeited her right of election by her alleged wrongdoing. The Court further ruled that the appellants’ counterclaims alleging undue influence were improperly dismissed. In the second opinion, the Court modified an order of the same court by (1) adding as an issue of fact to be tried the question of whether the petitioner, the decedent’s surviving spouse, exercised undue influence upon the decedent to induce him to marry her for the purpose of obtaining pecuniary benefits from his estate, and (2) replacing so much of the order, as imposed the burden of proof on appellants, the executors of the estate, by clear and convincing evidence, with a provision that placed the burden of proof on appellants by a preponderance of the credible evidence.

At the trial of the matter that followed, the Surrogate’s Court framed three issues to be heard, lodged principally in whether the decedent possessed the requisite mental capacity to marry the petitioner, or alternatively, whether the petitioner unduly influenced the decedent to marry her for her own pecuniary benefit.

On the issue of capacity, the court found the record replete with credible evidence that the decedent suffered from both physical and mental impairments, and manifested significant hearing loss, and periods of confusion. Additionally, the court noted that on the day prior to his purported marriage to the petitioner, the decedent was unable to accurately complete the marriage license application, and made critical mistakes in the listing of his address, his place of birth, and his mother’s maiden name. Moreover, the court noted that in a photograph taken on his wedding day, the decedent appeared dazed and confused.

The court opined that the standard of capacity for marriage is whether each party to the contract was able to understand the nature, effect, and consequences of his or her actions. Within this context, and based on the “plethora” of credible evidence presented, the court concluded that the decedent was incapable of understanding or consenting to his marriage to the petitioner, and that the petitioner was well aware of his incapacity at the time the marriage was entered. Indeed, in view of the fact that the petitioner was the decedent’s primary caretaker and had ample opportunity to observe him in his daily routine, as well as the fact that she had experience in the medical field, the court found “it impossible to believe that the petitioner did not know of the decedent’s mental incapacity.”

Moreover, after considering the indicia of undue influence including the decedent’s physical and mental condition, the secrecy in which the marriage was entered, the petitioner’s control over the decedent’s daily needs, and her direction over his lifetime affairs as evidenced by the decedent’s handwritten notes that petitioner had apparently dictated, the court held that petitioner had the motive and opportunity to influence the decedent’s actions, and that she actually exercised undue influence over him in procuring their marriage.

Relying on the opinion by the Appellate Division, Second Department, in Campbell v. Thomas, 73 AD3d 103 (2d Dept 2010), the court observed that where a marriage has been wrongfully procured, the statutory right of election which would have emanated from such marriage will be forfeited. Accordingly, based on the record, the court denied petitioner’s request for an elective share of the decedent’s estate.

 

My colleagues have written on the enforceability of in terrorem clauses, and the courts continue to confront challenges in reconciling the testator’s intent to impose an in terrorem condition with the rights of beneficiaries to challenge the conduct of their fiduciary. The New York County Surrogate’s Court’s recent decision in Matter of Merenstein provides further guidance to practitioners in assessing the kind of conduct that will trigger an in terrorem clause. It illustrates that the courts, in construing broad in terrorem provisions, will draw a distinction between conduct aimed at challenging the conduct of an executor and conduct aimed at nullifying a testator’s choice of executor.

In Merenstein, the decedent bequeathed his estate to his two daughters. His daughter Ilene was favored under the will – – she received 73% of the decedent’s residuary estate and was nominated the sole executor. His daughter Emma received 27% of the decedent’s residuary estate. The in terrorem clause in Merenstein provided as follows:

If any person in any manner, directly or indirectly, challenges the validity or adequacy of any bequest or devise to him or her in this Will, makes any other demand or claim against my estate, becomes a party to any proceeding to set aside, interfere with or modify any provision of this Will or of any trust established by me, or offers any objections to the probate hereof, such person and all of his or her descendants shall be deemed to have predeceased me, and accordingly they shall have no interest in this Will.

Decedent’s will was admitted to probate and Ilene was appointed executor without objection.

Emma brought a proceeding asking the court whether certain contemplated conduct on her part would trigger a forfeiture of her beneficial interest under the in terrorem clause. Her first question was whether a petition to compel the executor to account, and a subsequent petition to remove the executor in the event that the executor disregarded a court order to account, would trigger the in terrorem clause. That was easy. The court held, consistent with well-settled law, that a beneficiary will not trigger an in terrorem clause by demanding an accounting of an executor, by objecting to an executor’s accounting, or by seeking removal of the executor in the event of the executor’s failure to comply with an order to account.

Emma also asked whether she would trigger the in terrorem clause by petitioning for limited letters of administration giving her the authority to conduct an investigation into whether Ilene had fraudulently used the decedent’s credit card during the decedent’s life. This was another easy one. Consistent with well-settled law, the court held that a petition for the issuance of limited letters to pursue an investigation into whether there are assets of the estate in the possession of others, including someone who is also a fiduciary, does not seek to challenge the validity of the will or any of its provisions. The filing of such a petition and even a subsequent discovery or turnover proceeding would not cause the beneficiary to forfeit her benefits under the will.

The court drew a line however, when Emma asked whether filing a petition to suspend Ilene’s letters testamentary during the investigation into the credit card charges would trigger a forfeiture under the in terrorem provision. Emma claimed that such an order of suspension was necessary to prevent Ilene from interfering with her investigation as limited administrator. The court held that such an application would trigger the in terrorem clause. Such conduct, according to the court, would constitute an attack on the decedent’s choice of fiduciary. The court explained:

Seeking the suspension of Ilene’s letters pending any investigation that Emma may pursue and in the absence of any allegation of misconduct by Ilene in her fiduciary capacity is akin to a challenge to the testator’s choice of fiduciary as established under the will. The in terrorem clause in decedent’s will disinherits a beneficiary who commences a proceeding to set aside any of the provisions of the will, and therefore, the filing of this type of petition, which does not fall within the safe harbor provisions of EPTL 3-3.5 (b), would result in forfeiture in this case

Finally, Emma asked the court whether a petition to remove Ilene as executor in the event that Ilene was determined to have engaged in improper conduct with respect to the credit card charges would trigger the in terrorem clause.   The court declined to rule on that question. It did however, point out that the alleged credit card charges occurred while the decedent was still alive, and earlier in the decision, cited to Matter of Cohn, which was affirmed by the Appellate Division, First Department.

In the Cohn estate, the courts confirmed that public policy will bar the application of an in terrorem clause where a beneficiary seeks removal of an executor based on allegations of the executor’s misconduct in their capacity as executor, but will not bar the application of an in terrorem clause where a beneficiary seeks to remove or supplant an executor based on some other ostensible basis that constitutes an attack on the testator’s choice of fiduciary, or on the powers and authority given to the fiduciary by the testator. There, the courts recognized that an attempt to displace the testator’s chosen executors based on the allegation that such executors had failed to fully inform the testator of the compensation that they would receive as executors was simply an attack on the testator’s choice of fiduciary that would trigger an in terrorem clause similar to the in terrorem provision in Merenstein.

The court in Merenstein, like the courts in the Cohn estate, recognized that fidelity to a testator’s intent warrants a fact-sensitive inquiry in enforcing terrorem clauses. Based on Merenstein and Cohn, it is clear that a beneficiary would be hard-pressed to claim that a limited administrator should supplant an executor in representing the estate in a litigation where the executor has no conflict, has not failed to act, and has not engaged in misconduct as executor, without triggering an in terrorem provision like that in Merenstein. Similarly, a beneficiary should understand that petitioning for a limited administrator to perform some estate administration task on the mere allegation that the executor has bias or hostility towards the beneficiary because of some events that occurred between the beneficiary and executor while the decedent was still alive is sure to be considered a challenge to the testator’s choice of fiduciary. Such a challenge will trigger an in terrorem clause like that in Merenstein. When faced with an in terrorem provision like that in Merenstein, a beneficiary must consider whether it is challenging the conduct of the fiduciary, or attacking the decedent’s choice of fiduciary. There is a difference, and it could mean a forfeiture.

Exoneration clauses seek to excuse fiduciaries, most notably executors and trustees, from liability for the failure to exercise reasonable care (cf. Margaret Valentine Turano, Practice Commentary: EPTL § 11-1.7 [2008] [discussing exoneration clauses]; Matter of Knox, 98 AD3d 300, 312-13 [4th Dep’t 2012]). Until recently, Estates, Powers and Trusts Law (“EPTL”) § 11-1.7 provided that exoneration clauses in testamentary instruments (i.e., wills and codicils) were void as against public policy, but did not address whether similar provisions in lifetime trust instruments were enforceable. In late-August 2018, Governor Cuomo signed into law amendments to EPTL § 11-1.7, which my colleague, Ilene S. Cooper, and I drafted as members of the New York State Bar Association’s Trusts and Estates Law Section, and which provide that exoneration clauses in lifetime trust instruments executed after August 24, 2018 are void as against public policy. This blog post discusses EPTL § 11-1.7 and the August 2018 amendments to that statute.

Prior to August 2018, EPTL § 11-1.7 prohibited a testator from exculpating an executor or trustee of a testamentary trust nominated in the testator’s will from liability for failing to “exercise reasonable care, diligence and prudence”. Will provisions that purported to do so were deemed void as against public policy (see Matter of Egerer, 30 Misc3d 1229[A], at *3 [Sur Ct, Suffolk County 2006]). Surrogate’s Court judges have described exoneration clauses in testamentary instruments as “toothless tiger[s]” (see Matter of Lubin, 143 Misc2d 121, 122 [Sur Ct, Bronx County 1989]), and “nothing more than a waste of good white paper” (see Matter of Stralem, 181 Misc2d 715, 719-20 [Sur Ct, Nassau County 1999]).

Although EPTL § 11-1.7 unquestionably applied to exoneration clauses in testamentary instruments before August 2018, the statute was silent as the enforceability of exculpatory provisions in lifetime trust instruments until August 24, 2018. That statutory silence led courts to conclude that exoneration clauses in inter vivos trust instruments generally were enforceable, except to the extent that they sought to excuse a trustee from liability for gross negligence, reckless indifference, self-dealing, or bad faith (see Matter of Tydings, 32 Misc3d 1204[A], at *6 [Sur Ct, Bronx County 2011]; Boles v Lanham, 55 AD3d 647, 648 [2d Dep’t 2008] [opining that a “trustee is liable if he or she commits a breach of trust in bad faith, intentionally, or with reckless indifference to the interests of the beneficiaries”]).

Fortunately, the August 2018 amendments to EPTL § 11-1.7 fill the aforementioned silence in the statute, and make clear that EPTL § 11-1.7 applies to executors, trustees of testamentary trusts, and trustees of lifetime trusts. Going forward, trustees of inter vivos trusts will not be able to rely upon exoneration clauses in order to avoid liability for losses that arise from their negligence, provided that the lifetime trust instruments under which they act are dated on or after August 24, 2018. In short, the August 2018 amendments to EPTL § 11-1.7 provide greater protection to beneficiaries of lifetime trusts who suffer losses as a result of negligence on the part of the trustees who administer their trusts.

It is easy to be cynical about the “pots and pans,” “tchotchkes,” and “junk” – – the property that is often divided in a contentious manner at the bitter end of an estate litigation, or sometimes forgotten after years of litigation. An ongoing dispute in one of my cases led me to reflect on a New York Times piece by Annie Correal, which explores a very personal account of the Great Migration through a discarded item of what estate lawyers might call “personalty” or “tangible personal property” – – a photo album. The photo album belonged to the late Etta Mae Taylor, and through good fortune, it caught the eye of a journalist before it could be collected by DSNY. The story is remarkable. While Etta Mae Taylor’s photo album may not be of tremendous pecuniary value, it is arguably a treasure of a different sort.

 

Etta Mae Taylor’s photo album may cause some reflection about our own personal effects, whether they are of pecuniary value, sentimental value, or both.  Ms. Taylor’s photo album is also an invitation to a mundane but perhaps useful discussion about tangible personal property in the law of trusts and estates.

 

What does “tangible personal property” mean? It depends. It generally means furniture, clothing, household goods, tools, jewelry, antiques, and other like personal effects. However, it can be up for interpretation. Quite often, wills and trusts dispose of personal effects with a general provision similar to the following:

 

I bequeath to Jane Doe all personal effects, household effects, automobiles, and other tangible personal property, whether located as at present at 40 Park Avenue, New York, NY, or elsewhere, at the time of my demise.

 

In an oft-cited case, the Surrogate’s Court held that cash in a safe deposit box did not fall within the definition of a tangible personal property in the face of the foregoing provision. As the Court explained “cash is not ordinarily thought of as ‘tangible personal property’ and here, under the familiar doctrine of ejusdem generis, the words ‘tangible personal property’ should be limited to property of the same or similar character as that described by the preceding words, to wit, personal effects, household effects and automobiles.”

 

What about a valuable stamp collection? Reggie Jackson’s rookie card? Fine art? Etc. . . Sometimes, the testator is detailed – – you will see a provision similar to the following:

 

I bequeath my jewelry, silverware, furs, leather goods, china, and any art to Jane Doe, if she shall survive me, and all my other tangible personal property shall be distributed to my children, in equal shares, or all to the survivor. If none of my children shall survive me or shall not desire any such property, I authorize my Executor to sell such property at such time or times, at such prices and on such terms as he or she shall deem advisable and to distribute the net proceeds of sale thereof as part of my residuary estate. However, my Executor shall be empowered to retain for the benefit of my children and any other family members any item of such property deemed to have a personal, a family or sentimental character such as pictures, memorabilia, keepsakes or the like, and he or she shall distribute such property among my children and any other family members at such time or times and in such proportions as he or she shall, in his or her sole and absolute discretion, deem advisable.

 

A fairly recent, and again, oft-cited and discussed decision of the Bronx County Surrogate’s Court, Estate of Rothschild, illustrates why specificity and clarity might avoid wasteful estate litigation. There, the petitioner received a bequest of tangible personal property pursuant to the following provision:

 

I give all of my tangible personal property (other than currency) including without limitation, wearing apparel, personal effects, jewelry, furniture, furnishings, pictures, paintings and other objects of art, silver, china, glassware and other household effects, books and automobiles to my wife, or if she does not survive me, to [the petitioner]. . .

 

The petitioner maintained that the decedent’s collections of stamps, platinum, gold, and silver coins (worth millions of dollars) passed to her under the foregoing provision as “tangible personal property.” Petitioner relied on a New York case, where the court held that collections of medallions, stamps and coins were “tangible personal property.”

 

The Bronx County Surrogate’s Court ruled against the petitioner, holding that the decedent’s collections were not items of “tangible personal property” that passed to the petitioner, but rather were residuary assets. The Court explained that “tangible personal property” is generally understood and construed “as being limited to tangible property having an intimate relation to the testator and ordinarily used by him.” It distinguished the principal case that petitioner relied upon – – in that case there was a disposition of tangible personal property “of every kind” (expansive language), while the foregoing will provision contained the language “and other household effects” (limiting language). The Court held that the tangible personal property identified in the will did not embrace items beyond the kind of household effects that the decedent used on a daily basis, and that the decedent’s collections were of a different character of property.

 

Notably, the disposition of valuable tangible personal property of the kind encountered in Rothschild could have a drastic effect on estate tax apportionment in a taxable estate. If the will directs against apportionment, and provides that estate tax is to paid from decedent’s residuary estate, and a tremendously valuable tangible item is disposed of as a pre-residuary bequest of “tangible personal property” (perhaps contrary to decedent’s true wishes), the residuary estate could be significantly depleted by estate tax, perhaps even leading to an interrelated computation.   The tax allocation clause can sometimes be a very important provision in a will – – as illustrated in another blog post – – and perhaps in further blog posts.