Bartolini v. Kunze (In re Spiak)

• Docket Number: 533468
• Decision Date: 15 September 2022
• Parties: In the MATTER OF the ESTATE OF Stefan SPIAK, Also Known as Stefan P. Spiak, Deceased. Maria Bartolini et al., as Coadministrators of the Estate of Stefan Spiak, Also Known as Stefan P. Spiak, Deceased, Appellants—Respondents; v. Maria Kunze, Respondent—Appellant.
• Court: New York Supreme Court — Appellate Division

208 A.D.3d 1482

175 N.Y.S.3d 582

In the MATTER OF the ESTATE OF Stefan SPIAK, Also Known as Stefan P. Spiak, Deceased.

Maria Bartolini et al., as Coadministrators of the Estate of Stefan Spiak, Also Known as Stefan P. Spiak, Deceased, Appellants—Respondents;

v.Maria Kunze, Respondent—Appellant.

533468

Supreme Court, Appellate Division, Third Department, New York.

Calendar Date: August 18, 2022

Decided and Entered: September 15, 2022

Bond, Schoeneck & King, PLLC, Albany (Mara D. Afzali of counsel), for appellants-respondents.

Ilasz & Associates, New York City (Glen Wertheimer of counsel), for respondent-appellant.

Before: Garry, P.J., Lynch, Aarons, Ceresia and Fisher, JJ.

MEMORANDUM AND ORDER

Garry, P.J. Cross appeals from an order of the Surrogate's Court of Albany County (Stacy L. Pettit, S.), entered May 13, 2021, which, in a proceeding pursuant to SCPA article 22, among other things, partially granted respondent's cross motion for summary judgment on her objections to petitioners’ accounting.

These cross appeals arise out of the administration of the estate of Stefan Spiak (hereinafter decedent), who died intestate as a resident of Albany County in October 2017, survived by respondent – his sister – and petitioners – his nieces and nephew. Respondent, who resides in and is a citizen of Poland, is a one-half beneficiary of the estate, and petitioners, who reside in various states and are citizens of the United States, are each one-sixth beneficiaries. In November 2017, petitioners were granted letters of administration without objection and appointed as coadministrators of the estate.

At the time of his death, decedent owned several assets that petitioners, collectively speaking, marshalled and administered, with the assistance of the estate's counsel. Of note, decedent owned a Fidelity Investments balanced fund (hereinafter the Fidelity IRA); the named beneficiary of this fund was petitioners’ mother, who had predeceased decedent. According to petitioners, they were advised by Fidelity representatives that their only options for managing the Fidelity IRA were to either liquidate the entire account and distribute the funds to the estate or transfer the entire account in kind into an inherited IRA in the estate's name. Petitioners proceeded with the latter option, and they subsequently created three additional inherited IRAs in the estate's name, one for each of their benefit. Petitioners ultimately directed Fidelity to transfer a one-sixth share of the estate's inherited IRA, in kind, into each of their inherited IRAs, liquidate the remaining balance of assets held in the account, withhold specified federal taxes (37%) and state taxes (10%) therefrom and then close the account.

In February 2019, petitioners commenced this proceeding to judicially settle their accounting, requesting three statutory commissions along with counsel fees. Respondent filed objections to the accounting, alleging, among other things, that petitioners breached their fiduciary duties and engaged in self-dealing by mishandling the Fidelity IRA. Specifically, respondent alleged that petitioners caused her to incur avoidable tax liability by failing to contact her to obtain a United States individual taxpayer identification number (hereinafter U.S. ITIN) and procure the same type of inherited IRA for her as they did for themselves or, alternatively, by permitting her to take periodic distributions from the estate. Respondent also alleged that petitioners needlessly transferred the Fidelity IRA into an inherited IRA in the estate's name, thereby inflating the value of the estate by the amount of their collective half-share and artificially increasing their statutory commissions. She also challenged petitioners’ entitlement to any commissions, asserting that, even without the foregoing breach, there is no evidence that they performed any work administering the estate.

Meanwhile, the federal and state taxes that petitioners directed Fidelity to withhold were returned as erroneously paid;¹ instead, a sum of money was withheld on respondent's behalf pursuant to the Foreign Account Tax Compliance Act (hereinafter FATCA), which imposes a tax at a flat rate of 30% on the amount received from sources within the United States by a nonresident foreign citizen (see generally 26 USC §§ 871 [a]; 1441[a]). Respondent's alleged net distribution from the Fidelity IRA was paid to her following her request for a partial distribution from the estate.² Petitioners accordingly amended their final accounting to reflect these developments.

In November 2020, following some discovery, petitioners moved for summary judgment dismissing respondent's objections and settling the account. In relevant part, petitioners asserted that they had been advised by an unspecified Fidelity representative that only those with a U.S. ITIN could create an inherited IRA, and they apparently knew that respondent did not have said number at the time that they created their own accounts. Respondent opposed the motion and cross-moved for summary judgment, providing proof that petitioners had been directly advised that respondent was eligible for an inherited IRA and arguing that, at minimum, petitioners should have communicated to her that she could contact Fidelity to inquire about same. She also sought to compel certain discovery, impose sanctions, limit petitioners to no more than one statutory commission and audit the legal fees sought by petitioners.

Surrogate's Court denied petitioners’ motion in its entirety and partially granted respondent's cross motion, finding, as a matter of law, that petitioners breached their fiduciary duties and engaged in self-dealing by not affording respondent the opportunity to enjoy a benefit that petitioners secured for themselves, although questions of fact remained as to the precise measure of damages. With respect to the commissions sought by petitioners, the court concluded that issues of fact exist in light of the breaches established by respondent and the limited evidence of services performed by certain petitioners, but any commissions would not be computed on the value of assets transferred into petitioners’ inherited IRAs as that property allegedly passed directly to petitioners as beneficiaries and bypassed the estate. These cross appeals ensued.

Initially, it is not disputed that petitioners met their prima facie burden with respect to the branch of their motion that sought summary judgment settling their accounting by submitting a verified accounting petition, a facially complete accounting and affidavits of the accounting parties (see Matter of Crane, 100 A.D.3d 626, 628, 953 N.Y.S.2d 170 [2d Dept. 2012], lv dismissed 21 N.Y.3d 1000, 971 N.Y.S.2d 249, 993 N.E.2d 1271 [2013], lv denied 29 N.Y.3d 906, 2017 WL 1718559 [2017] ; Matter of McAlpine, 85 A.D.3d 1185, 1185–1186, 926 N.Y.S.2d 167 [2d Dept. 2011] ; Matter of Korn, 36 Misc.3d 1224[A], 2012 WL 3165410, 2012 N.Y. Slip Op. 51468[U], *7 [Sur. Ct. N.Y. County 2012] ). We therefore turn to the branch of their motion that sought summary judgment dismissing respondent's objections, the first of which involves their alleged mishandling of the Fidelity IRA.

Petitioners, as coadministrators of the estate, "were fiduciaries who owed a duty of undivided loyalty to the decedent and had a duty to preserve the assets ... entrusted to them" ( Matter of Donner, 82 N.Y.2d 574, 584, 606 N.Y.S.2d 137, 626 N.E.2d 922 [1993] ; see Matter of Wallens, 9 N.Y.3d 117, 122, 847 N.Y.S.2d 156, 877 N.E.2d 960 [2007] ). They were therefore "required to employ such diligence and prudence to the care and management of the estate assets and affairs as would prudent persons of discretion and intelligence in their own like affairs" ( Matter of Shambo, 169 A.D.3d 1201, 1205, 94 N.Y.S.3d 690 [3d Dept. 2019] [internal quotation marks and citations omitted]; see Matter of Braasch, 140 A.D.3d 1341, 1342, 33 N.Y.S.3d 541 [3d Dept. 2016] ), "accented by ‘not honesty alone, but the punctilio of an honor the most sensitive’ " ( Matter of Rothko, 43 N.Y.2d 305, 320, 401 N.Y.S.2d 449, 372 N.E.2d 291 [1977] [brackets omitted], quoting Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545 [1928] ; see Matter of Carbone, 101 A.D.3d 866, 868, 955 N.Y.S.2d 209 [2d Dept. 2012] ). They were also duty-bound to remain impartial and treat all beneficiaries "in like manner and without prejudice or discrimination" ( Matter of Muller, 24 N.Y.2d 336, 341, 300 N.Y.S.2d 341, 248 N.E.2d 164 [1969] ; see Matter of Grawe, 32 A.D.3d 1309, 1309, 822 N.Y.S.2d 683 [4th Dept. 2006] ; Banker v. Banker, 23 Misc.3d 1111[A], 2009 WL 1018630, 2009 N.Y. Slip Op. 50701[U], *7 [Sup. Ct. Delaware County 2009] ) and avoid both "blatant self-dealing" and "situations in which a fiduciary's personal interest possibly conflicts with the interest of those owed a fiduciary duty" ( Birnbaum v. Birnbaum, 73 N.Y.2d 461, 466, 541 N.Y.S.2d 746, 539 N.E.2d 574 [1989] ; see Matter of Lawrence, 24 N.Y.3d 320, 344, 998 N.Y.S.2d 698, 23 N.E.3d 965 [2014] ).

We agree with Surrogate's Court that petitioners’ arguments on their motion fail to address the root of respondent's objection and eliminate the existence of triable issues of fact with respect thereto – that petitioners failed to communicate with her about the availability of a benefit that they, aided by counsel for the estate, secured for themselves. We therefore cannot conclude that petitioners are entitled to judgment as a matter of law with respect to respondent's breach of fiduciary duty objection.

The next question is whether respondent is entitled to summary judgment on her objection. As to the breach, respondent submitted recorded telephone calls between Fidelity and the law firm representing the estate. Those calls reveal that a paralegal with the firm repeatedly sought "to confirm" that respondent, as a nonresident foreign citizen, could not open an inherited IRA, while conveying that petitioners would like to take...