Flaum v. Birnbaum

• Decision Date: 13 March 1992
• Citation: 582 N.Y.S.2d 853,177 A.D.2d 170
• Parties: Matter of Ilene L. FLAUM and Janice S. Birnbaum, Individually and As Coexecutrix and Cotrustee of the Estate of Bernard P. Birnbaum, Deceased, and Ilene L. Flaum and Central Trust Company, as Temporary Coadministrators, C.T.A. and Trustee of the Estate of Bernard P. Birnbaum, Deceased, Appellants-Respondents, v. Victoria BIRNBAUM as Executrix of the Estate of Saul I. Birnbaum, Individually and As Coexecutor and Cotrustee of the Estate of Bernard P. Birnbaum, Deceased, Respondent-Appellant. Victoria BIRNBAUM as Executrix of the Estate of Saul I. Birnbaum, Individually and as Coexecutor and Cotrustee of the Estate of Bernard P. Birnbaum, Deceased, Third-Party Petitioner, v. Jay B. BIRNBAUM and Janice S. Birnbaum, Individually and as Coexecutor and Cotrustee of the Estate of Bernard P. Birnbaum, Deceased, Third-Party Respondents-Appellants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 853

582 N.Y.S.2d 853

177 A.D.2d 170

Matter of Ilene L. FLAUM and Janice S. Birnbaum,

Individually and As Coexecutrix and Cotrustee of the Estate

of Bernard P. Birnbaum, Deceased, and Ilene L. Flaum and

Central Trust Company, as Temporary Coadministrators, C.T.A.

and Trustee of the Estate of Bernard P. Birnbaum, Deceased,

Appellants-Respondents, v. Victoria BIRNBAUM as Executrix of the Estate of Saul I.

Birnbaum, Individually and As Coexecutor and

Cotrustee of the Estate of Bernard P.

Birnbaum, Deceased,

Respondent-Appellant.

Victoria BIRNBAUM as Executrix of the Estate of Saul I.

Birnbaum, Individually and as Coexecutor and

Cotrustee of the Estate of Bernard P.

Birnbaum, Deceased, Third-Party Petitioner, v. Jay B. BIRNBAUM and Janice S. Birnbaum, Individually and as

Coexecutor and Cotrustee of the Estate of Bernard

P. Birnbaum, Deceased, Third-Party

Respondents-Appellants-Respondents.

Supreme Court, Appellate Division Fourth Department.

March 13, 1992.

Harris, Beach & Wilcox (James Hartman, of counsel), Rochester, for appellants-respondents, Ilene Flaum & Janice Birnbaum & Cent. Trust.

MacKenzie, Smith, Lewis, Michell & Hughes (James Hartman, of counsel), Syracuse, for third-party respondent-appellant-respondent, Jay B. Birnbaum.

Allen & O'Brien (John J. Keigher, of counsel), Rochester, for respondent-appellant, Saul I. Birnbaum.

Before DENMAN, P.J., and GREEN, PINE and DOERR, JJ.

DENMAN, Presiding Justice:

Petitioners are Janice Birnbaum, Ilene Flaum, and Central Trust Company, who are, respectively, a suspended coexecutrix and the temporary coadministrators of the estate of Bernard P. Birnbaum (hereinafter the estate). The original respondent was Saul Birnbaum (Saul), a suspended coexecutor of the estate, but since Saul's death on April 20, 1991, Victoria Birnbaum, Saul's widow and the executrix of his estate, has been substituted as the respondent. This proceeding focuses on allegations of conversion, fraud and self-dealing by Saul in a series of transactions that resulted in divestment of the estate's interest in Queensbury Plaza, Inc. (the corporation or the plaza) and in two adjacent parcels of land (the "bank parcel" and the "small parcel") in Glens Falls, New York. Those transactions culminated in Saul's acquisition of fee title to the properties and his complete control of the entity which operated them. We have had the Queensbury matter on two prior occasions (see, Flaum v. Birnbaum, 120 A.D.2d 183, 508 N.Y.S.2d 115; Flaum v. Birnbaum, 168 A.D.2d 933, 565 N.Y.S.2d 633). ¹ In our November, 1986 decision and order in Queensbury I (Flaum v. Birnbaum, 120 A.D.2d 183, 508 N.Y.S.2d 115, supra ), we exposed Saul's self-dealing, awarded the estate a one-half undivided interest in the plaza, imposed a constructive trust in the estate's favor on Saul's interests in the plaza and the bank parcel, and ordered Saul to reconvey and account for his operation and/or sale of those properties.

Presently before us are cross appeals from an order and decree of Surrogate's Court. The Surrogate's order and decree was issued in response to cross motions by the estate and Saul to confirm in part and modify in part the report of a Referee, who determined the issues raised by the estate's objections to Saul's accounting. The Surrogate modified the Referee's report in five respects but otherwise adopted it and incorporated it into his decision.

On appeal, the estate challenges the Surrogate's order and decree insofar as it (1) permitted Saul to recover 50% of his alleged loans to Queensbury between 1977 and 1986; (2) held that the estate was not similarly entitled to 50% of its advances to Queensbury; (3) held that Queensbury's 1963 debt to Saul was not time-barred and could be asserted by Saul as an offset; (4) awarded Saul a credit for interest payments made in 1974, 1975 and 1976 on the 1963 corporate debt to Saul; (5) held that the estate was 50% responsible for repayment of Saul's 1985 debt to Bank Leumi; (6) held the estate 50% responsible for approximately $108,000 in legal fees incurred by Saul; (7) held that the estate had no interest in the 1.2 acre "small parcel"; (8) held that Saul was entitled to an offset against a 1961 corporate debt to the estate; and (9) refused to impose sanctions against Saul for his failure to account fully in accordance with the orders of this court and the Surrogate.

On his cross appeal, Saul challenges the Surrogate's order and decree insofar as it directed him to pay the entire balance of the corporation's 1961 debt to the estate.

THE SURROGATE DID NOT ERR IN DECLINING TO ASSESS SANCTIONS AGAINST SAUL

Saul's misappropriation of estate assets commenced shortly after Bernard's death. Consequently, the Surrogate, in a March 31, 1987 order implementing our 1986 decision, correctly interpreted it as requiring Saul to "give a full and complete accounting of the Queensbury Plaza project from February 13, 1976 to the present". Nonetheless, over two years went by until Saul, in response to a conditional order of contempt issued by the Surrogate in February 1989, submitted his purported accounting. Upon examination, Saul's purported accounting proves to be woefully deficient in complying with the directives of this Court and the Surrogate. Saul's accounting covers only the period October 1, 1982 to January 1, 1988, ignoring (except for his own claims against the estate) the periods from February, 1976 through September, 1982 and 1988 to the present. Even more serious, as admitted in the testimony of Saul's own accountant, Saul's submission is "not * * * an accounting at all", but rather a largely unsubstantiated "summary of cash receipts and cash disbursements". Critically, the "accounting" does not provide opening balances setting forth the plaza's market value and enumerating its assets at the time of Bernard's death or even on the October 1, 1982 date from which Saul chose to account. It is clear that Saul used his purported accounting as a vehicle for asserting new claims, or reasserting discredited old claims, against the estate. For that reason, we agree with the Referee's assessment that "based upon the account as filed * * * it is impossible to establish the precise amount which Saul must reimburse the estate as a result of the breach of his fiduciary obligations". We disagree with the Surrogate's contrary observation that Saul has "satisfactorily" accounted.

The estate requested both the Referee and the Surrogate to impose "sanctions" against Saul for his failure to render a complete accounting in proper form. The Referee deferred the issue of sanctions to the Surrogate. The Surrogate denied the estate's request "in the exercise of [his] discretion". On appeal, the estate reiterates its request that "sanctions [be] imposed against Saul for his patent and contumacious failure to submit a complete and adequate accounting".

The estate does not cite any authority for imposing punitive sanctions. There is no basis for such sanctions either in the Surrogate's Court Procedure Act or in the Uniform Rules for Trial Courts (see, 22 NYCRR part 207). ² Similarly, we conclude that the provisions of CPLR 8303-a do not apply. This case is not an action to "recover damages for personal injury, injury to property or wrongful death". Thus, by referring to "sanctions", the estate necessarily must be referring to punitive damages, a category of relief requested in the various petitions in this action.

The question thus is whether the Surrogate abused his discretion in declining to award punitive damages on account of Saul's failure promptly and completely to account to the estate. There can be no doubt that Saul, compounding his misappropriation of estate assets, engaged in dilatory and obstructive tactics throughout this litigation. In particular, the improper form of Saul's purported accounting was obviously designed to conceal rather than reveal the full extent of his defalcations. Nonetheless, we conclude that the Surrogate did not err in refusing to award punitive damages. As we observed on appeal of the North Shore Mart matter, "[i]mposition of punitive damages is discretionary, not mandatory" (Matter of Birnbaum v. Birnbaum, 157 A.D.2d 177, 192, 555 N.Y.S.2d 982, supra ). Additionally, the fact that Saul died during the pendency of this appeal must be taken into account. There is a strong policy against the assessment of punitive damages against an estate on account of the wrongful conduct of the decedent (see, EPTL 11-3.2 [a][1]; Gordon v. Nathan, 43 A.D.2d 917, 352 N.Y.S.2d 464). Consequently, we decline to disturb that portion of the Surrogate's order and decree denying the estate's request for sanctions.

THE SURROGATE ERRED IN ORDERING SAUL TO PAY THE ESTATE THE ENTIRE AMOUNT OF THE 1961 DEBT AND IN GRANTING SAUL AN OFFSET AGAINST THE CORPORATE DEBT.

Queensbury Plaza, Inc. was formed in 1961 by Bernard Birnbaum and two other men. Eventually, the corporation was owned by Bernard and Saul in equal shares. The corporation's principal asset was a long-term leasehold interest in a 12-acre parcel upon which it constructed a shopping center, known as Queensbury Plaza, in which the corporation sublet space to various commercial tenants. The corporation also owned an adjacent one-quarter acre parcel (the bank parcel) upon which it constructed a building that it leased to the First National Bank of Glens Falls. In connection with its construction of the plaza and bank, the corporation incurred a debt of $196,732.07 ³ to the general contractor, BCH Construction Corp., 90% of which was owned by Bernard. In 1964 the corporation's debt to BCH was assigned to Prime Real Estate Company, an entity wholly owned by Bernard. Between 1961 and 1976, when Bernard died, the corporation made no payments on the debt to BCH or Prime, but carried the debt on its books as a corporate liability, while Prime carried it on its books as an asset. In 1977, Saul, then coexecutor, breached his...