Gebbie Foundation, Inc. v. Rogerson

• Decision Date: 26 March 1970
• Citation: 310 N.Y.S.2d 919,62 Misc.2d 944
• Parties: GEBBIE FOUNDATION, INC., Plaintiff, v. J. Russell ROGERSON, individually and as Executor and Trustee under the Last Will and Testament of Geraldine G. Bellinger, deceased, and as Executor and Trustee under the Last Will and Testament of Marion B. Gebbie, deceased, Manufacturers Hanover Trust Company, as Executor and Trustee under the Last Will and Testament of Geraldine G. Bellinger, deceased, Phelps Can Company, Burton N. Lowe, Rita R. Lowe, Lyman C. Wynne, Adele R. Wynne, and Luis J. Lefkowitz, Attorney General of the State of New York, Defendants.
• Court: New York Supreme Court

Page 919

310 N.Y.S.2d 919

62 Misc.2d 944

GEBBIE FOUNDATION, INC., Plaintiff, v. J. Russell ROGERSON, individually and as Executor and Trustee under the Last Will and Testament of Geraldine G Bellinger, deceased, and as Executor and Trustee under the Last Will and Testament of Marion B. Gebbie, deceased Manufacturers Hanover Trust Company, as Executor and Trustee under the Last Will and Testament of Geraldine G. Bellinger deceased, Phelps Can Company, Burton N. Lowe, Rita R. Lowe Lyman C. Wynne, Adele R. Wynne, and Luis J. Lefkowitz, Attorney General of the State of New York, Defendants.

Supreme Court, Erie County.

March 26, 1970.

Nixon, Hargrave, Devans & Doyle, Rochester, for plaintiff.

Raichle, Banning, Weiss & Halpern, Buffalo, for defendants J. Russell Rogerson, Phelps Can Co., Burton N. Lowe, Rita R. Lowe, Lyman C. Wynne and Adele R. Wynne.

Kelly, Drye, Newhall, Maginnes & Warren, New York City, for defendant Manufacturers Hanover Trust Co.

Louis J. Lefkowitz, Atty. Gen. (Gustave Harrow, New York City, of counsel), for ultimate charitable beneficiaries.

DECISION

MICHAEL CATALANO, Justice.

Defendants, J. Russell Rogerson, individually and as Executor and Trustee under the Last Will and Testament of Geraldine G. Bellinger, deceased, and as Executor and Trustee under the Last Will and Testament of Marion B. Gebbie, deceased, Phelps Can Company, Burton N. Lowe, Rita R. Lowe, Lyman C. Wynne, Adele R. Wynne, ('Applicants') apply for a judgment dismissing the cross-claim of defendant, Louis J. Lefkowitz, Attorney General of the State of New York ('Lefkowitz') pursuant to CPLR 3211(a), par. 7 for insufficiency.

This action was commenced by the service of a summons and verified complaint on October 31, 1968, personally, within the State of New York, upon Lefkowitz, named a defendant herein, and upon all of the other defendants at a later time.

This action was brought by the Gebbie Foundation, Inc. ('Gebbie'), a New York membership corporation and charitable foundation, which is the legatee of the remainder of the entire residuary estate of one Marion B. Gebbie, deceased ('Marion') and the legatee of one-third of the residuary estate of one Geraldine G. Bellinger, deceased ('Geraldine') against the defendants (other than Lefkowitz) in individual and fiduciary capacities, for a judgment based upon self-dealing and profiting; the plaintiffs' complaint alleging self-dealing and profiting in connection with the sale of 125 shares of stock of the defendant, Phelps Can Company ('Phelps') from each of the estates of the aforesaid decedents, and demanding that the defendants be declared constructive trustees, account, and pay over to the estates their proper share and/or the aforesaid shares of stock.

Lefkowitz was made a party in this action in his capacity as representative of the ultimate charitable beneficiaries herein, to wit, the ultimate beneficiaries intended to be benefited by the corporate charter of the plaintiff, Gebbie, and as such Lefkowitz' representation herein as sole representative of the beneficiaries of the plaintiff is allegedly distinct and independent from that of Gebbie itself.

Issue was joined on behalf of Lefkowitz on November 18, 1968 by service of an answer and issue has not been joined between the plaintiff and the other defendants inasmuch as plaintiff has granted the other defendants time within which to do so.

November 22, 1968, Lefkowitz moved to amend his answer in order to cross-claim against the other defendants. At that time, Rogerson was a member, director and president of Gebbie.

April 29, 1969, Mr. Justice Nevins of the Supreme Court rendered his decision, granting permission to Lefkowitz to cross-claim.

In his memorandum decision dated May 14, 1969, Mr. Justice Nevins stated:

'It would be an anomaly of the law that the Attorney General's duty to 'shepherd' charitable trusts (Matter of Lachett (Lachat), 184 Misc. 492 (52 N.Y.S.2d 451); St. Joseph's Hospital v. Bennett, 288 N.Y. 115 (22 N.E.2d 305)) and give him the power to demand to demand that the trust be devoted to its charitable purposes (Matter of James, 22 Misc.2d 1062 (123 N.Y.S.2d 520); Matter of Hamilton, 296 N.Y. 578 (68 N.E.2d 872)) but deny him the power to participate and seek relief as sought in the cross-claim as set forth in the proposed amended answer.' His decision continued:

'Upon an application to serve an amended answer which contains a cross-claim, a possible affirmative defense such as res adjudicata should not be considered, but should be more properly left to a separate motion to dismiss after its interposition into the action.'

In a related matter, Lefkowitz had on October 30, 1968, commenced a proceeding in Surrogate's Court, Chautauqua County, to vacate accounts previously settled by Rogerson with respect to the Gebbie Estate. In this proceeding, Rogerson argued that Lefkowitz could only so proceed directly if Lefkowitz made the allegations necessary for a derivative suit, that is, that Gebbie had failed to protect the charitable interests involved. In a decision dated May 20, 1969, Surrogate Phillips decided that Lefkowitz could proceed directly against Rogerson.

On appeal from Surrogate Phillips' order, the Supreme Court, Appellate Division, Fourth Department, (Decision filed February 12, 1970, In Matter of Gebbie's Will, 33 A.D.2d 1093, 307 N.Y.S.2d 1002) held that:

'We agree with appellant Rogerson that the Attorney General in his capacity as supervisor of charitable trusts (EPTL, art. 8) has no direct right to sue in behalf of a charitable trust such as the Gebbie Foundation, Inc., and has only a derivative right which he may pursue upon alleging that the trustee of such trust, namely the Gebbie Foundation, Inc., has failed to act to protect the rights of the beneficiaries of the trust after notice and demand for action therefor (see Riviera Congress Associates v. Yassky, 18 N.Y.2d 540, 547, 277 N.Y.S.2d 386, 391, 223 N.E.2d 876, 879; Western R.R. Co., v. Nolan, 48 N.Y. 513, 517--518; 4 Scott on Trusts (3rd ed.), §§ 281, 282.1 and 393). The petition lacks such allegations, and so the Attorney General has no standing to institute this proceeding.'

A notice of motion dated March 9, 1970, returnable March 24, 1970, has been served and filed by Lefkowitz in his application for an order in the Appellate Division, Fourth Department, pursuant to CPLR 5602(a)(2) granting him leave to appeal to the Court of Appeals.

The rights of beneficiaries of an express trust are derivative, not direct, so that:

'As long as the trustee is ready and willing to take the proper proceedings against the third person, the beneficiaries cannot maintain a suit against him.' (4 Scott on Trusts, Sec. 282, p. 2336, 3rd ed. 1967. See also: Western Railroad Co. v. Nolan, 48 N.Y. 513, 518, 1872)

The whole controversy can be settled in one suit, since the beneficiaries may join the third person as a co-defendant with the trustee, thereby avoiding the need for two suits. (4 Scott on Trusts, Sec. 282.1, p. 2339, 3rd ed. 1967) When the trustee is not within the court's jurisdiction, or is dead, or ceases to be trustee without the appointment of a successor, the beneficiaries can sue the third person directly. (Ettlinger v. Persian Rug & Carpet Co., 142 N.Y. 189, 36 N.E. 1055, 1894; 4 Scott on Trusts, Sec. 282.2, pp. 2340--2341, 3rd ed. 1967)

'Where a testator makes a bequest upon a charitable trust, the trustees can maintain a suit against his personal representatives to recover the property bequeathed to them' (4 Scott on Trusts, Sec. 393, p. 3017, 3 ed. 1967)

'* * * In all cases of bequests to charitable uses, where the beneficiaries are not definitely designated, that court (the supreme court) shall have full control, and it shall be the duty of the attorney general to enforce the trust, and represent the beneficiaries.' (Dammert v. Osborn, 140 N.Y. 30, 43, 35 N.E. 407, 411, 1893)

The Attorney...