In re Intermediate Accounting of NBT Bank, 2022-22003

CourtNew York Surrogate Court
Writing for the CourtDavid H. Guy, J.
Decision Date06 January 2022
PartiesIn the Matter of Intermediate Accounting of NBT Bank, N.A. as Trustee under the Last Will and Testament of Ellen C. Stark, Deceased.
Docket Number2022-22003,File 91-0815

In the Matter of Intermediate Accounting of NBT Bank, N.A. as Trustee under the Last Will and Testament of Ellen C. Stark, Deceased.

No. 2022-22003

File No. 91-0815

Surrogate's Court, Broome County

January 6, 2022

Roy H. Cunningham, Esq. Attorney for NBT Bank, N.A. Lewis, Glasser, Casey & Rollins PLLC

Mary A. Walsh, Esq. New York State Office of the Attorney General Binghamton Regional Office

David H. Guy, J.

NBT Bank, N.A. is the successor trustee ("Trustee") of the residuary trust created under the Will of Ellen C. Stark (the "Trust"). The Trust is an ongoing charitable trust with income payable annually to New York Natural Food Associates, Inc. ("Natural Food") and Cornell Cooperative Extension ("CCE"), equally. On September 22, 2020, the New York State Attorney General ("AG"), a statutory interested party due to the charitable nature of the trust beneficiaries, filed a petition to compel the Trustee to file an intermediate accounting. That petition appears to emanate from the AG's frustration with what is now known to be a six-year period of discussion among the beneficiaries, the Trustee and the AG, the genesis of which was the Trustee's discovery that Natural Food had lost its USC § 501(c)(3) charitable status. The Trust's language explicitly conditions each charity's receipt of income upon retention of its 501(c)(3) charitable status.

Three years of facially improper distributions had been made to Natural Food after the loss of its 501(c)(3) status by the time the discovery was made. The Trustee hatched a plan to address its distribution error through a proposed reformation of the Trust, which was discussed with and apparently acceptable to both beneficiaries, but not to the AG. When the AG declined to execute a stipulation of the terms agreed by the Trustee and the beneficiaries, and after protracted discussions, the Trustee indicated it would simply not move the matter forward. The AG's petition to compel an accounting ultimately followed, triggering the Court's awareness and involvement.

The AG's right to compel an accounting is without question. The Court issued an order on November 2, 2020, directing the filing of the petition and an interim accounting by the Trustee. That order resolved the petition to compel the accounting, although the allegations of the petitioner remain relevant to the other proceedings subsequently filed in this matter.

On December 1, 2020, the Trustee filed a petition to account and an intermediate accounting, for the period ending on September 8, 20 16, four years shy of the Order compelling its production. Clearly, the accounting was generated in the context of the earlier discussions among the parties and the AG.

On February 29, 2021, the Trustee filed a petition requesting reformation of the Trust, supported by a memorandum of law and the stipulation signed by all interested parties, except for the AG. These documents are also all dated in 2016.

Multiple citations, supplemental citations, return dates, and adjourned return dates were set, generating multiple conferences among counsel for the Trustee, the AG and the Court. The undisputed background facts of this situation, in very summary form, are that Natural Food fell into a state of organizational disarray, due to the "aging out" and passing of what had formerly been active members. By approximately 2006, the operation of Natural Food was left in the hands of one person, Maurice Uzick, who, in the words of the Trustee's counsel, "was appointed as the president and treasurer of Natural Food, and alone was left to deal with all of its day-to-day operations." Mandatory tax filings were not continued and the 501(c)(3) status of Natural Food was ultimately revoked by the Internal Revenue Service.

That status is an explicit component of each charity's qualification for distributions from the Trust. The Trust makes specific provision for how distribution changes in the event one, or both, charities lose their 501(c)(3) status. The Trustee became aware that Natural Foods had lost its 501(c)(3) designation three years after that loss occurred. Ultimately, and - if the fee affirmation of Trustee's counsel is any indication - without substantial effort, the three years of incorrect distributions (2012, 2013 and 2014) were recovered in from Natural Food, so the Trust was made whole. Annual distributions continue solely to CCE, pursuant to the terms of the Trust.

The Trustee and its counsel were in somewhat regular communication with Mr. Uzick from at least 2014 forward, but none the less service of citations upon Natural Food in connection with these petitions proved incredibly problematic. Ultimately, Mr. Uzick died, and his family indicated to the Trustee that they did not have any interest in trying to continue the operation of Natural Food. This effectively mooted the issue of distributions to Natural Food and the petition for reformation of the Trust was withdrawn and dismissed, with the consent of the AG.

The only petition which remains pending is the intermediate accounting. The only interested party who has not either defaulted or consented to the account, as stated, is the AG. The Court issued a scheduling order setting a deadline for the AG to file objections to the accounting, and for the Trustee to respond. Objections were received and responded to. That petition is now before the Court for a decision on submission.

The AG's objection to the interim accounting is that the legal fees the Trustee paid, which relate to these pending and resolved proceedings, should be mostly, if not exclusively, allocated to the Trustee, not paid from the Trust corpus to the detriment of its charitable beneficiaries. The AG also objects to payment of any legal fees from the Trust corpus subsequent to September 8, 2016, the end date of the intermediate accounting period. Trustee's counsel clearly spent...

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