Estate litigators arguably see more probate contests than any other type of conflict. While the details are always unique, they almost always include allegations that someone unduly influenced the decedent to change his or her will to either disinherit, or favor, a particular person.  These cases also often include an allegation — which is usually contested — that the purported influencer was in a “confidential relationship” with the decedent.  The frequency of such claims beg the questions (1) what exactly is a “confidential relationship,” and (2) what is the practical benefit to an objectant in establishing that one existed?

A confidential relationship is characterized as unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other. Some relationships are considered confidential as a matter of law, i.e., attorney-client, guardian-ward, and physician-patient, to name a few, while others will be deemed confidential as a matter of fact, based upon the details of the relationship, i.e., when one person is dependent on, and subject to the control of, another (see Matter of Satterlee, 281 AD 251 [1st Dept 1953]).

In a probate contest, it always is the burden of the objectant to prove that someone perpetrated undue influence upon the testator by establishing motive, opportunity, and the actual exercise of that undue influence (Matter of Walther, 6 NY2d 49, 55 [1959]; see Matter of Ryan, 34 AD3d 212, 213-14 [1st Dept 2006]).  However, where it is established that the decedent was in a confidential relationship with the alleged influencer, and there were other “suspicious circumstances” present (such as the alleged influencer having retained the attorney-draftsman for the decedent, or having accompanied the decedent to the will execution, for example) an inference of undue influence arises.  That inference requires the person in the confidential relationship to explain the circumstances surrounding the relationship between him and the decedent, and to establish by clear and convincing evidence that the subject bequest was fair and voluntary. (see Matter of Neenan, 35 AD3d 475, 476 [2d Dept 2006]; Matter of Bartel, 214 AD2d 476 [1st Dept 1995]).

As with most aspects of the law, there is an exception. Where the person in the confidential relationship also shared a close family relationship with the decedent, no inference of undue inference arises, and therefore, no explanation of a bequest in favor of that person will be required (see Matter of Walther, 6 NY2d 49 [1959]; Matter of Zirinsky, 10 Misc 3d 1052[A] [Sur Ct, Nassau County 2005]). This is generally because “a sense of family duty is inexplicably intertwined in this relationship” (Matter of Zirinsky, 10 Misc 3d at *8-9).  The exception exists despite the presence of “suspicious circumstances.”  Unsurprisingly, this often leads to questions about what degree of family relationship is close enough to negate the inference.

It must be noted that the inference of undue influence that may arise as a result of a confidential relationship should not be confused with shifting the burden of proof from the objectant (see Matter of Neenan, 35 AD3d 475 [2d Dept 2006]).  The burden of proving undue influence in the context of a will contest never shifts (see Matter of Bach, 133 AD2d 455, 456 [2d Dept 1987] quoting Matter of Collins, 124 AD2d 48, 54 [4th Dept 1987]).  The inference just makes it a little bit easier for an objectant to satisfy that burden, and ultimately succeed in his or her case.

In Matter of Conklin, 2015 NY Slip Op 25094 (Sur Ct, Nassau County 2015), a contested accounting proceeding, the Nassau County Surrogate’s Court addressed, among other things, whether specifically bequeathed property sold by an attorney-in-fact prior to the decedent’s death, adeemed.  My article entitled Ademption and the Power of Attorney, published in the Fall 2009 New York State Bar Association Trusts & Estates Law Section Newsletter, contains a thorough discussion of the ademption doctrine in the context of conveyances by attorneys-in-fact.  While the article predated revisions to the General Obligations Law intended to curb abuses of power by attorneys-in-fact, this recent decision demonstrates that the law has not evolved significantly on the subject despite such changes.

As explained in my article,

Ademption is the ‘extinction or withholding of some legacy in consequence of some act of the testator which, though not directly a revocation of the bequest, is considered in law as equivalent thereto, or indicative of an intention to revoke.’ A bequest adeems when property that had been specifically devised no longer exists at the time of the testator’s death. (Jaclene D’Agostino, Ademption and the Power of Attorney, NYSBA Trusts & Estates Section Newsletter, at p.7, Vol. 42 [Fall 2009]).

In Conklin, one of the decedent’s two attorneys-in-fact, Lori Conklin (“Lori”) sold his cooperative apartment while he was residing in a nursing or rehabilitation facility. The decedent’s will had specifically devised the apartment to his two children and first wife, with a direction that it be sold after his death and the proceeds divided among the three of them. But a sale prior to death meant that the proceeds would become part of the decedent’s residuary estate, of which Lori’s mother and co-agent, Joan Conklin (“Joan”), was the sole beneficiary.

The attorney who prepared the power of attorney testified at the hearing.  He explained that Lori initially contacted him regarding preparing a power of attorney and doing Medicaid planning for the decedent. Lori and Joan had several meetings with the attorney on the subject– none of which included the decedent. The attorney advised them that the decedent should execute a new power of attorney because the old one (under which Lori and Joan had both been appointed) did not contain a major gifts rider. He further advised that the decedent’s apartment should be sold for purposes of Medicaid planning, and the proceeds thereof be deposited into an account in the decedent’s name.

The decedent executed the new power of attorney on March 24, 2010, at the nursing or rehabilitation facility where he resided.  It named Lori and Joan as co-agents, and contained a major gifts rider, authorizing the agents to make gifts to themselves or others in any amount (see GOL §5-1514).  The attorney met the decedent for the first time on that date, when he supervised the execution of the document. He testified that at that meeting, he discussed with the decedent his recommendation that the apartment be sold.

The attorneys-in-fact subsequently sold the apartment. On the date of the closing, the attorney contacted the decedent to ensure that he was still alive. The agents then deposited the $125,500 proceeds from the sale into an account in the decedent’s name. The decedent died approximately two weeks thereafter.

The proceeds benefitted Joan, as the residuary beneficiary of the estate. Mere days after the decedent’s death, Lori used her power of attorney to close the decedent’s account (a fact that raises its own issues), and utilized the proceeds to pay off Joan’s home equity loan.

Despite the fact that Joan ultimately benefitted from the sale, the court rejected the contention that there had been a breach of fiduciary duty by the attorneys-in-fact in selling the apartment and thus, that the proceeds of the sale should be returned to specific devisees. The court explained the general rule that if a specifically bequeathed item is sold, given away, lost or destroyed during a decedent’s lifetime, then the bequest generally fails, or adeems. “Moreover, ‘it matters not whether [the sale] came to pass because of an intentional or voluntary act of the testator’” (Matter of Conklin, supra at *5 [quoting Matter of Wright, 7 NY2d 365, 367 [1960]). In addition, “once the devise is found to be adeemed, the court is not permitted to substitute something else for it. This includes tracing the proceeds from the sale of the real property” (Matter of Conklin, supra at *6 [relying on Labella v Goodman,198 AD2d 332 [2d Dept 1993]; see also Matter of Wallace, 86 Misc 2d 175, 180 [Sur Ct, Cattaraugus County 1976] [opining proceeds of a sale of specifically bequeathed property “do not constitute the legacy bequeathed,” and thus, “the general rule of ademption applies and the legacy fails”]).

Given counsel’s advice to sell the apartment, and his contacting the decedent on the date of the closing, the court concluded that there had been no breach of fiduciary duty by the attorneys-in-fact, and thus, the foregoing general rules applied to this situation. Consequently, the specific devisees of the apartment were not entitled to the proceeds of the sale. The bequest had adeemed. Although this result might seem less than equitable on its face, it is in accordance with the laws of New York.

New York’s “slayer rule” essentially provides that if an individual kills another person, he has automatically forfeited any interest he may have had in his victim’s estate.  The rationale is simple – no one should financially benefit from his own crime. 

As we have explained in prior posts, this longstanding rule was never codified in New York, but is a common law principle emanating from the nineteenth century Court of Appeals decision in Riggs v Palmer, 115 NY 506 (1889). There, a grandson who intentionally killed his grandfather to ensure his inheritance, was barred from profiting from his own wrong. 

Applicability of the rule is generally straightforward, but in certain cases, the lines can become blurred — such as in Matter of Edwards, 2014 NY Slip Op 05873 (2d Dept 2014), where the killer sought to inherit from his victim only indirectly, through the estate of the victim’s post-deceased daughter. 

The facts of Edwards are somewhat complex.  Brandon Palladino pleaded guilty to manslaughter in connection with the death of his mother-in-law, Dianne Edwards.  Brandon’s wife, Deanna, was Dianne’s only child, and the sole beneficiary of her estate.  Less than a year after Dianne’s death, Deanna died, intestate, from an accidental drug overdose.  Brandon was Deanna’s sole distributee.  Accordingly, Brandon stood to inherit his victim’s entire estate indirectly, through his wife’s estate.

In a 2012 decision, Suffolk County Surrogate John M. Czygier, Jr., opined that the slayer rule should be extended upon equitable principles to prohibit Brandon from inheriting in this manner.  Recently, the Appellate Division, Second Department, affirmed. 

Acknowledging that this was a case of first impression, the Second Department was guided largely by its decision in Campbell v Thomas, 73 AD3d 103 (2d Dept 2010).  There, the court held that a surviving spouse forfeited her elective share by her own wrongdoing, having knowingly taken advantage of the decedent in a deathbed marriage for her own pecuniary gain. Although none of the statutory disqualification provisions of EPTL 5-1.2 applied to that situation, the court relied upon principles of equity in making its determination.

The Second Department also relied upon an Illinois case that presented facts analogous to those in Edwards.  In In re Estate of Vallerius, 259 Ill App 3d 350 (5th Dist 1994), the decedent was murdered by two of her grandsons.  Their mother post-deceased mere months later, leaving them as her only heirs.  The Illinois court held that the grandsons could not indirectly benefit from their own crime by inheriting the murdered grandmother’s estate through their mother’s estate, and explained that an intervening estate “should not expurgate the wrong of the murderer or thwart the intent of the legislature that the murderer not profit by his wrong.” 

Notably, in upholding Surrogate Czygier’s extension of the slayer rule, the Second Department rejected arguments that (1) Deanna’s inheritance vested immediately in her upon her mother’s death, allowing her to do what she wished with the property, and (2) extension of the slayer rule would raise “a host of enforceability problems” — for example, if the intervening estate resulted from a death that occurred a decade after the wrongful death or murder. The Court explained that it was unpersuaded by hypothetical scenarios and noted that the rule, as extended, would be applied on a fact-specific basis. 

In sum, the Second Department opined that Edwards was on point with both Campbell and Vallerius in that there was “a clear causal link between the wrongdoing and the benefits sought.”  Accordingly, it affirmed the Surrogate’s Court’s decision to exercise its equitable powers in extending the slayer rule to this case (see SCPA 201[2]).

 

“A testator’s choice of executor should be given great deference” (see Matter of Palma, 40 AD3d 1157, 1158 [3d Dept 2007]). This rule is fundamental to the practice of trusts and estates law, yet is often challenged by those who want to disqualify or remove the testator’s nominee -with or without valid basis. 

A court will generally issue letters to the nominee who is deemed eligible to serve as a fiduciary pursuant to SCPA §707, unless an interested party makes legitimate objections to the appointment as set forth in SCPA §709. Once letters do issue, removal is a very serious proposition, but it can be achieved if the fiduciary’s conduct falls within the realm of SCPA §711 – including but not limited to wasting or imprudently investing estate assets, acting dishonestly, refusing to obey a court order, or failing to have the necessary qualifications because of “substance abuse, dishonesty, improvidence, want of understanding,” or is “otherwise unfit to serve” (see SCPA §711). Courts may also take the more drastic measure of removing a fiduciary without process under certain circumstances, such as failing to account or refusing to supply information about estate assets despite court orders to do so, being convicted of a felony or judicially declared incompetent, or commingling estate funds with his or her own (see SCPA §719). In all events, however, courts tend to exercise their powers to remove fiduciaries somewhat sparingly.

It is against this backdrop that Matter of Russo, 100 AD3d 1547 (4th Dept 2012), should be considered. There, objections to probate were filed alleging that the petitioner, to whom preliminary letters had already issued, should be disqualified from serving as executor due to a purported conflict of interest “in connection with decedent’s interest in Tread City Tire, Inc. (“TCT”) and decedent’s classic car collection.” 

Regarding TCT, it was alleged that a conflict of interest arose from the decedent’s purported ownership interest in the entity, where petitioner also happened to be a salesperson. With respect to the decedent’s classic car collection, it seems that the purported conflict was asserted because one of the cars was bequeathed to the petitioner – but the Court did not elaborate much on this latter allegation. 

Petitioner moved for summary judgment seeking dismissal of the objections, arguing that no conflict existed. In support of the motion, petitioner provided corporate tax returns for TCT along with a third party affidavit, to prove that the decedent had no ownership interest in the entity; rather, it was fully owned by a third party, and the decedent merely managed the business. 

Moreover, with respect to the allegations of conflict in connection with the classic car collection, petitioner established that while one car was specifically bequeathed to him, he obtained two appraisals for each car, and two of the cars were sold at prices higher than the appraised price. In addition, petitioner demonstrated that the remaining classic cars were placed in a consignment program with objectant’s consent.

Citing the well-established law giving deference to a testator’s choice of fiduciary absent evidence of his or her actual misconduct, the court granted the petitioner’s summary judgment motion, dismissing the objections to his serving as executor. The court opined that objectant had failed to raise any issue of fact as to whether there had been any actual misconduct, explaining that the objectant did not make even one specific allegation of conflict or misconduct.

Accordingly, in view of the great deference given to the testator’s selected fiduciary, this case serves to reiterate the longstanding rule that actual misconduct is the key to the disqualification of a fiduciary; potential misconduct is not enough. Nonetheless, it should be noted that this is not an ultimate roadblock for a beneficiary who has legitimate concerns about the fiduciary’s ability to serve. Indeed, if the fiduciary subsequently displays one or more of the characteristics set forth in SCPA §711 or SCPA §719 as explained above, then he may be removed for cause during the course of his stewardship.


Generally, where an infant or someone under another disability is a necessary party to an action, it is the parent or guardian of the property who represents him in that action.  If the disabled individual has no such guardian, then the court shall appoint a guardian-ad-litem to represent his interests (see CPLR 1201).  It is the appropriate guardian who will have the authority to enter into a stipulation of settlement on behalf of the incapacitated individual, but he or she must seek court approval of said agreement by motion pursuant to CPLR 1207 prior to its becoming enforceable. 

Particularly relevant to the trusts and estates practitioner, the corresponding procedure in Surrogate Court is very similar.  Pursuant to SCPA 315, an adult competent party who has a similar economic interest to another necessary party who suffers from a disability (i.e., an infant) may represent the latter by virtual representation.  However, the statute restricts virtual representation to court proceedings and informal accounts, and thus, it does not apply with respect to a typical out of court settlement.  Instead, where an individual under a disability is a necessary party to a settlement agreement that falls outside of SCPA 315[8], the parties must file a compromise proceeding pursuant to SCPA 2106.

Pursuant to SCPA 2106[5], a compromise proceeding requires the petitioner to outline for the court the facts that caused the dispute, identify the various disagreeing positions and the interests of the parties, and establish the necessity for court approval of the agreement.  A guardian-ad-litem will then be appointed to represent the interests of the infant or other individuals under disabilities, and it is his responsibility to determine whether the proposed settlement is in the best interests of his ward(s).  If it is, then the guardian-ad-litem must obtain authority from the court to enter into the settlement.  However, it is only if the court deems the relief obtained through the settlement to be “just and reasonable,” that it will enter the requisite final decree binding on all interested parties, including those under a disability. (see Charles F. Gibbs and Colleen F. Carew, Surrogate’s Practice and Proceedings: SCPA 315 and Out-of-Court Settlements: Risk v. Reward, New York Law Journal, Nov. 6, 2006).

Although SCPA 2106 and CPLR 1207 provide vehicles by which necessary parties who are under a disability can be bound by a settlement, these statutes create additional hurdles to creating enforceable stipulations.  Indeed, the proposed agreement may be rejected by the guardian-ad-litem, his or her appointment may result in the filing of objections, or the court may not find the agreement to be “just and reasonable.”

 The validity of a decedent’s marriage is a topic that is litigated in Surrogate’s Courts with increasing frequency. A determination on the issue has multiple implications for those interested in an estate, including the surviving spouse’s right to an elective share, distributee status and consequential standing of other family members to participate in probate proceedings if the marriage were invalid, and priority in obtaining letters of administration. In the recent case of Matter of Cheek, decided by Surrogate Holzman of Bronx County, the decedent’s sister – motivated, at least in part, to obtain distributee status – challenged the validity of her brother’s marriage to the respondent as a basis to vacate a stipulation of settlement.

Specifically, the decedent’s sister, who had previously commenced a proceeding alleging that she was a creditor of the estate, sought to vacate the stipulation that had previously been entered into on the record in open court, settling her claim. She alleged that she had been in an emotional and volatile state when the agreement was made because it occurred on the one year anniversary of the decedent’s death. She further argued that the agreement was void based upon a mutual mistake of fact regarding the validity of the decedent’s marriage at the time of his death. To this extent, the sister alleged that after entering into the agreement, she learned that the decedent’s divorce from his first wife had been invalid, thus rendering his second marriage to the respondent invalid as well. The sister further claimed that the invalidity of the marriage eliminated the respondent’s status as sole distributee of the estate, and meant that either she or the first spouse, if living, were the sole distributees.

Opposing the sister’s application, the respondent provided an original certified copy of her marriage certificate, which recognized the decedent’s divorce from his first wife. The respondent further alleged that the sister lacked standing to contest the validity of her marriage; but even if standing existed, the decedent’s first wife, not his sister, would be the sole distributee. The respondent additionally asserted that there existed no grounds to vacate the stipulation of settlement for mutual mistake inasmuch as she had provided proof of her marriage, and the sister provided no proof to the contrary.

In response to the foregoing, the court explained that an original certificate of marriage in New York is generally prima facie evidence that the marriage existed (id., citing CPLR 4526), and also stated that absent contrary evidence, there exists a presumption of the validity of a second marriage; the burden of proving otherwise lies with those who assert it. The court went on to state that that burden is even greater where the party challenging the validity is a stranger to the marriage, such as the sister in the subject case (id. relying on Matter of Esmond v Lyons Bar & Grill, 26 AD2d 884 [3d Dept 1966]).

The court further explained the longstanding rule that “stipulations of settlement are favored by the courts and not lightly cast aside” (Hallock v State of New York, 64 NY2d 224 [1984]), “particularly where, as here the stipulation was entered on the record in open court, its terms are unambiguous, the parties were represented by counsel, and the court conducted a proper allocution of the petitioner and determined that she voluntarily and knowingly accepted the terms of the stipulation’” (Matter of Cheek, quoting Matter of Siegel, 29 AD914, 915 [2d Dept 2006]). Considering the sister’s allegations – which the court characterized as conclusory – in view of that standard, the court opined that there was no basis to vacate the stipulation of settlement.

The holding in Cheek is not surprising given the high standard one must meet to vacate a valid stipulation of settlement. Indeed, “only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident, will a party be relieved of the consequences of a stipulation made during litigation” (Hallock v State of New York, 64 NY2d 224, 230 [1984]). Nonetheless, the court refused the respondent’s request for affirmative relief of attorney’s fees against the sister in connection with her application for vacatur, and despite describing her allegations as conclusory, opined that it had not been a frivolous proceeding.

Generally, the testimony of at least one attesting witness is required to probate a will. But practitioners will sometimes face a situation where all of the witnesses to a propounded instrument are unavailable or cannot be located to testify in support of the document. In such cases, the common law “ancient document rule” may be relied upon to probate the instrument if it is of a certain age.

New York Courts have been utilizing the ancient document rule as a practical basis for probate since the early nineteenth century (see In re Hehn’s Will, 6 Misc 2d 801 [Sur Ct, Nassau County 1957]). But in the recent case of Matter of Santoro, 2011 NY Slip Op 50920(U), Surrogate McCarty of Nassau County addressed the question of whether the rule can be relied upon where the propounded instrument is only nineteen years old; he held that it cannot.

The basis for the ancient document rule has been explained as twofold: (1) “after a long lapse of time, ordinary testimonial evidence from those who saw the document’s execution or knew the style of handwriting or heard the party admit the execution is practically unavailable, and a necessity always exists for resorting to circumstantial evidence”; and (2) “the circumstance of age-or long existence-of the document, together with its place of custody, its unsuspicious appearance, and perhaps other circumstances, suffice, in combination, as evidence to be submitted to the jury” (In re Hehn’s Will, 6 Misc 2d 801 [Sur Ct, Nassau County 1957], quoting VII Wigmore on Evidence [Third Ed.] §2137]).

In his analysis, Surrogate McCarty did not raise any basis to dispute the genuineness of the instrument, and noted that the application was uncontested. However, he explained that the common law ancient document rule requires the propounded instrument to be at least thirty years old, although some liberal courts have adopted the federal twenty-year rule. Application of the rule to a nineteen-year old instrument was unprecedented. Accordingly, it was held that the instrument could not be probated as an ancient document.

Despite its failure to qualify as an ancient document, the Court explained a statutory basis upon which the instrument may be probated absent the testimony of any witnesses. SCPA §1405[4] provides that the will may be admitted to probate based solely upon “the handwriting of the testator and of at least one of the attesting witnesses and such other facts as would be sufficient to prove the will”. To satisfy this requirement, the Surrogate noted that the handwriting of the predeceased attorney draftsman could be obtained from his original will that was on file with the Court, and proved based upon an affidavit from a handwriting expert that the signature on the propounded instrument was written by the same person who executed his will. Similarly, he stated that the Court would be satisfied with the genuineness of the subject decedent’s signature based upon an affidavit from one of her children or other relatives.   Thus, it appears that the propounded instrument will ultimately be admitted to probate upon the Court’s receipt of the requisite testimony.

The decision in Matter of Santoro serves as a reminder to practitioners that there may often be more than one approach to probating an instrument absent the requisite support from witnesses, and perhaps introduces a method for doing so that may not have otherwise been considered. If a predeceased witness died testate, his will is (in most cases) a public record from which a handwriting expert should be able to testify in satisfaction of SCPA §1405[4]. Nonetheless, contested proceedings of this kind are unlikely to be so simple, especially if the surviving witness were to testify against the instrument (see SCPA §1405[3]).

Most simply explained, a constructive trust is an equitable remedy imposed to prevent unjust enrichment (see Simonds v Simonds, 45 NY2d 233, 242 [1978]; Sharp v Kosmalski, 40 NY2d 119 [1976]). According to the Court of Appeals, the constructive trust is “the formula through which the conscience of equity finds expression. Where property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee” (Beatty v Guggenheim Exploration Co., 225 NY 380, 386 [1919]). 

It is an amorphous doctrine, as the constructive trust is “not limited by rigid definition and its very purpose requires flexibility in its application” (In re Alpert, 9 Misc 3d 1102[A], *10). It therefore follows that the constructive trust “has been famously described as a remedy applicable to ‘whatever knavery human ingenuity can invent’” (In re Alpert, 9 Misc 3d at *7 [Sur Ct, New York County 2005], quoting Bogert, Trusts and Trustees Sec. 471 at 29 [2d ed rev]). In fact, it is of such broad scope that attempted precise definitions have been deemed inadequate (see Simonds v Simonds, 45 NY2d 233, 241 [1978]).

 

Even applicable in the case of an innocent donee, no wrongful act is necessary to find unjust enrichment warranting the imposition of a constructive trust. However, in the case of a bona fide purchaser, he or she takes property free of a constructive trust that would otherwise be imposed (5 Scott, Trusts [3d ed] sec.468).

 

A constructive trust “is perhaps more different from an express trust than it is similar”, in that “the constructive trustee is not compelled to convey the property because he is a constructive trustee; it is because he can be compelled to convey that he is a constructive trustee” (Simonds v Simonds, 45 NY2d 233, 241 [1978], relying on 5 Scott, Trusts [3d ed], sec. 461-462]). Generally, the following elements must be established to state a claim for this type of relief: (1) a confidential or fiduciary relation; (2) a promise; (3) a transfer in reliance thereon; and (4) unjust enrichment (see Sharp v Kosmalski, 40 NY2d 119, 121 [1976]). Nonetheless, unlike most causes of action, courts do not require strict satisfaction of each element, but rather use them more as flexible considerations (Lester v Zimmer, 147 AD2d 340, 341 [3d Dept 1989]). 

           

Courts most often impose constructive trusts where traditional remedies prove inadequate or unavailable.   Perhaps most illustrative in the context of trusts and estates is the landmark case of Latham v Father Divine, 299 NY 22 (1949), where the facts seemed appropriate for a claim for tortious interference with wills, a cause of action that is not recognized by New York law (see Restatement (Second) of Torts §774B [1979-2010], citing Vogt v Witmeyer, 87 NY2d 998, 999 [1996]). 

 

In Latham, the decedent had executed a will, but later expressed a desire to create a new testamentary instrument to contain bequests to other individuals.  However, due to fraud, undue influence, and ultimately murder committed by the defendant, the decedent was prevented from executing her new will.

 

As is often the case where a constructive trust proves to be the appropriate remedy, the Court of Appeals recognized that there was no precedent precisely on point to address the facts presented. But the Court relied upon other well-respected authorities and explained that “[w]here a devisee or legatee under a will already executed prevents the testator by fraud, duress or undue influence from revoking the will and executing a new will in favor of another or from making a codicil, so that the testator dies leaving the original will in force, the devisee or legatee holds the property thus acquired upon a constructive trust for the intended devisee or legatee” (Latham v Father Divine, 299 NY 22 , 26 [1949]).

 

In light of that rule, along with other analogous Court of Appeals decisions, the Court held that the imposition of a constructive trust was appropriate, as “its applicability is limited only by the inventiveness of men who find new ways to enrich themselves unjustly by grasping what should not belong to them” (299 NY at 27). The Court further stated that “a constructive trust will be erected whenever necessary to satisfy the demands of justice” (see id.). 

 

In coming to its conclusion, the Court cited Matter of O’Hara’s Will, 95 NY 403 (1884), noting that the plaintiffs in that case successfully obtained a constructive trust in their favor, notwithstanding the fact that “disappointed hopes and unrealized expectations were all that the secretly intended beneficiaries, not named in the will, had,” as well as Williams v Fitch, 18 NY 546 (1859), in which the fraud “consisted of the legatee’s failure or refusal to carry out the testator’s designs, after tacitly or expressly promising so to do” (see Latham, 299 NY at 27).   Notably, in Latham, there was no discussion of a fiduciary or confidential relationship, one of the elements generally considered in determining the appropriateness of imposing a constructive trust.

 

In sum, the constructive trust is a remedy that may be applied in a variety of situations where equity demands, despite the feasibility of strictly satisfying its elements, and should be kept in mind as a potential claim to correct a wrong that may not fit squarely within any other cause of action.

           

Jurisdictions within the United States have generally rejected the British concept of the prevailing party’s shifting the burden of litigation expenses to the losing party. Instead, we follow what is commonly known as the American Rule, under which each party typically bears the burden of his own legal fees, win or lose. However, like most other rules we face in the legal profession, certain circumstances are considered exceptions. Surrogate Glen of New York County recently addressed the question of whether a particular situation rose to the level of such an exception in Matter of Lasdon, 11/19/10 NYLJ 25 (Sur Ct, New York County).

In Lasdon, objectants to two trust accountings sought leave to reargue three of the Court’s rulings in its June decision that addressed the conduct of one of the co-trustees, and resulted in a surcharge. At the core of the contested accounting was the co-trustee’s delay in making the final distribution upon each trust’s termination, which resulted in trust assets declining in value. His delay was intentional, attributable to his desire to resolve certain issues pertaining to other family trusts with his sister and co-trustee, prior to making the distribution.  

In seeking reargument, objectants contended that the Court erred in denying their requests that (1) the co-trustee be barred from receiving his attorneys’ fees from the trust; (2) that the co-trustee be disallowed commissions; and (3) that the co-trustee be directed to absorb the objectants’ legal fees. Addressing the objectants’ motion, the Court explained that it did not misapprehend the law or overlook the facts in determining that the surcharged co-trustee is entitled to annual commissions and to have his legal fees and costs paid by the trusts. Nonetheless, Surrogate Glen noted that the issue that objectants raised in connection with the co-trustee’s payment of their legal fees warranted further discussion.

Although New York courts generally follow the American Rule, Surrogate Glen explained there are some exceptions. Hence, a prevailing party’s litigation costs may be shifted to the loser in situations where there is a statutory or contractual provision that when strictly construed, supports such a shift. Further, and most relevant here, a prevailing party’s legal expenses may be shifted when the losing party is a fiduciary who has been surcharged for causing harm to his estate or trust (Matter of Lasdon, 11/19/10 NYLJ 25 [Sur Ct, New York County], citing Matter of Garvin, 256 NY 518 [1931]; Matter of Hidden, 243 NY 499 [1926]; Matter of Marsh, 265 AD2d 253 [1st Dept 1999]). 

The court referred to the Court of Appeals’ holding in the seminal case of Matter of Hidden, supra, as instructive. There, it was determined that the estate of an incompetent suffered a loss as “direct results of wrong found” on the part of her committee.   Accordingly, the Court held that the expenses of litigating to protect the estate’s interests were “amounts ‘for which the delinquent fiduciary may be held accountable’” (Matter of Lasdon, supra, at *5 quoting Matter of Hidden, 243 NY 499 [1926]).

The Surrogate went on to explain that the Hidden decision itself gave no indication that every surcharged fiduciary should pay the legal expenses of every objectant, nor have the cases that followed it. Rather, Surrogate Glen interpreted Hidden and its descendant line of cases as warranting exceptions to the American Rule when fiduciaries enrich themselves “at the expense of the funds with which they have been entrusted” (id. at *6), or, in at least one case that did not involve bad faith, where the fiduciary’s actions caused “manifest . . . deficiencies in the administration of the estate” (id. quoting Matter of Campbell, 134 Misc 2d 960 [Sur Ct, Columbia County 1987], aff’d 138 AD2d 827 [3d Dept 1988]).

Applying the foregoing rationale to Lasdon, the court noted that while the co-trustee had been surcharged for his misconduct, there had been no self-dealing. Further, applying the reasoning of Campbell, the court stated that the Lasdon co-trustee’s delaying in the final distribution “[did] not unequivocally bespeak a malign or self-serving purpose” (Matter of Lasdon at *8). Consequently, it held that the facts did not warrant the imposition of the objectants’ litigation expenses upon the surcharged co-trustee.

It appears that the rationale for applying the exception to the American Rule in fiduciary situations is extremely similar to that applied when analyzing whether a fiduciary’s misconduct is so egregious as to result in his individual responsibility for his own legal fees. Indeed, if a fiduciary’s malfeasance rises to the level contemplated by Hidden and he must individually compensate the prevailing party for his litigation expenses, why should the cost of defending his improper actions be borne by the trust or estate that he was entrusted to serve? I would submit that in the vast majority of cases it should not. Thus, litigators should keep this exception to the American Rule in mind. Perhaps requests that a fiduciary be individually charged with his legal expenses when appropriate should routinely be coupled with requests to shift to the fiduciary the litigation costs of the prevailing objectant as well.