In re Judicial Settlement of Final Account of Proceedings of Panzirer

• Citation: 2019 NY Slip Op 32428 (U)
• Decision Date: 15 August 2019
• Docket Number: File No. 2007-2968/B
• Parties: In the Matter of the Judicial Settlement of the Final Account of Proceedings of DAVID PANZIRER, WALTER PANZIRER, SANDOR FRANKEL and JOHN CODEY, as Executors of the Estate of LEONA M. HELMSLEY, deceased.
• Court: New York Surrogate Court

2019 NY Slip Op 32428(U)

In the Matter of the Judicial Settlement of the Final Account of Proceedings of DAVID PANZIRER,
WALTER PANZIRER, SANDOR FRANKEL and JOHN CODEY,
as Executors of the Estate of LEONA M. HELMSLEY, deceased.

File No. 2007-2968/B

SURROGATE'S COURT : NEW YORK COUNTY

August 15, 2019

ANDERSON, S.

At issue in this final executors' accounting in the estate of Leona M. Helmsley is the compensation of the five executors and whether certain professional fees should be paid by the estate.

Leona Helmsley died on August 20, 2007, leaving an estate in excess of $5 billion. Under her will, she left the bulk of her fortune to The Leona M. and Harry B. Helmsley Charitable Trust, an inter vivos trust that she had established (the "Charitable Trust"). She nominated as executors her brother Alvin Rosenthal, her grandsons David Panzirer and Walter Panzirer, her attorney Sandor Frankel, and her friend and business advisor John Codey. Preliminary letters testamentary issued on August 28, 2007, followed by full letters on April 8, 2008.

Decedent provided in her will that her five executors were not to receive statutory commissions. Rather, they were to be compensated for their services on the following basis:

"Any one or more executors ... may render services to the Estate ... as an officer, manager or employee of the Estate ..., or in any other capacity, notwithstanding the fact that they may appoint themselves to serve in such capacities, and they

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shall be entitled to receive reasonable compensation for such services. No such person shall be required to furnish any bond in connection with such employment." [emphasis added].

Based upon this language, the executors commenced a proceeding for advance payment of their compensation as executors (the "Advanced Payment Proceeding"), seeking $4.5 million ($900,000 each) as partial compensation for their first year of service, i.e., August 20, 2007, through August 20, 2008.

The Attorney General for the State of New York (the "AG"), as the statutory representative of the ultimate beneficiaries of the Charitable Trust, objected to the size of the requested advance. The court granted the application, subject to the filing of a bond by each fiduciary, reasoning that the advance was "modest when viewed against the backdrop of the mammoth and highly complex estate for which these fiduciaries are responsible and the risk of enormous personal liability they incur" (Matter of Helmsley, Sur Ct, NY County, Feb. 5, 2012, Anderson, J., File No. 2007/2968, at 6).

In June 2014, after Alvin Rosenthal had died, the four remaining executors ("Petitioners") commenced their final accounting for the period from decedent's death through April 30, 2014. The fiduciary of Alvin Rosenthal's estate adopted the account for the period of Mr. Rosenthal's service. Thereafter, petitioner John Codey died, and the fiduciary of his estate was substituted into the proceeding.

Petitioners' account reflects decedent's direction that her

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executors receive "reasonable compensation" for their services instead of statutory commissions. Petitioners ask the court to fix their final compensation at a total of $100 million ($25 million each), plus $6,250,000 for Alvin Rosenthal's estate. In comparison, statutory commissions in an estate of this size would exceed $215 million (see SCPA § 2307).

The AG filed three objections to the account, none of which alleges that the executors acted improperly in administering this vast and complex estate. Rather, the AG takes exception to 1) the amount Petitioners seek as "reasonable compensation" for their services and the services of Alvin Rosenthal, 2) the legal fees that were paid or are proposed to be paid to two law firms associated with executor Sandor Frankel, and 3) Petitioners' request that the court approve the payment of legal fees incurred in connection with the Advance Payment Proceeding.

The surviving Petitioners (Sandor Frankel, David Panzirer and Walter Panzirer), the fiduciaries of the deceased executors, Alvin Rosenthal and John Codey, the Charitable Trust (represented by "independent counsel" because the surviving Petitioners are also the trustees of the Charitable Trust), and the AG have all briefed the issues raised by the objections. It is noted that the Charitable Trust, which ultimately bears the expense of the fiduciaries' compensation and legal fees, does not support the AG's position with respect to any of its objections. However, the Charitable Trust's

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position cannot be evaluated without consideration of the following fact: the Charitable Trust acts through its trustees each of whom is an executor. Given this dual role, Petitioners have an undeniable conflict of interest, which cannot be addressed adequately simply by denominating the Charitable Trust's counsel as "independent." Absent any explanation as to how the conflict has been eliminated in the circumstances here, the court does not consider as significant the fact that the Charitable Trust has no objection to the accounting.

Because the parties have waived an evidentiary hearing and have consented to adjudication of the issues based on their submissions, the court now considers the merits of the objections.

The Executors' Reasonable Compensation

Decedent provided for her executors to receive "reasonable compensation" in lieu of statutory commissions, but did not provide guidance as to the meaning of that term as applicable to her estate. Petitioners argue that the court's analysis should be guided by well-settled law in New York concerning the factors to be considered in determining "reasonable compensation" payable from estates to attorneys and corporate fiduciaries. These factors include the time spent, the value of the assets involved, the nature of the services rendered, the difficulty of the issues and the skills required to handle them, the benefits to the estate or trust from the services performed, and the service provider's experience, ability, and

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reputation (see Matter of Freeman, 34 NY2d 1 [1974]; Matter of Potts, 213 App Div 59 [4th Dept 1925], affd 241 NY 593 [1925]; see also Matter of McDonald, 138 Misc 2d 577 [Sur Ct, Westchester County 1988][applying similar factor-based analysis in determining reasonable compensation for corporate trustees under SCPA § 2312]).

The AG counters that the application of this multi-factor approach is inappropriate here. The AG argues that the determination of the executors' compensation should be based on a simple arithmetic formula which considers only the reasonable amount of time spent multiplied by an appropriate hourly rate. To that end, the AG "urges the Court to appoint a neutral expert to advise the Court and the parties on the reasonable value of each Executor's contribution to the Estate administration, based on the services actually rendered by him and on his individual knowledge and skills."

The AG cites no compelling authority to support its proposed methodology for determining fiduciary compensation. She contends that the equitable remedy of quantum meruit provides the basis for her approach. Such remedy's aim is to compensate parties for what they have earned, i.e., the value of their services, in the absence of a contract containing all necessary terms. However, the AG's arguments are based on an unfairly narrow view of the principle of quantum meruit. They ignore that New York courts often employ a multi-factor approach when awarding compensation based upon quantum

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meruit (see e.g. Mann v Lovett & Gould, 289 AD2d 206, 207 [2d Dept 2001] [court awarded compensation to attorneys based on quantum meruit "in light of all relevant factors," citing Matter of Freeman, 34 NY2d 1]; Matter of Karp, 145 AD2d 208 [1^st Dept 1989][court rejected a time-based analysis in favor of the Freeman-Potts standard to determine reasonable legal fees in a conservatorship matter]).

More important, the AG fails to demonstrate how her methodology, which stresses only time spent and would require an expert to ascribe an appropriate hourly rate, would yield a better result than the multi-factor approach. In fact, executorial services, by their nature, do not lend themselves to precise timekeeping, as do more circumscribed legal or other professional services. The executors' time records are a testament to this fact. Nor can a single hourly rate accurately reflect the many varied services executors perform and the inevitable risk they incur in performing them. As a result, the AG's efforts to compare the annual compensation that Petitioners seek to the salaries (and extrapolated hourly rates) of various executives within the Helmsley real estate empire do not aid her position. In these circumstances, the AG's reliance on anyone, including an expert, to bring precision, after-the-fact, to the issues of time spent and an appropriate hourly rate is misguided, at best.

For these reasons alone, the AG's call for a time and rate-

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based formula to determine the executors' "reasonable compensation" fails. But also worth noting is at least one additional reason to reject the AG's proposed methodology. The AG's lengthy and detailed suggested "guidelines" for the expert amply demonstrate that the application of the AG's standard is unworkable. Indeed, the AG's procedure would foist an unwieldy, time-consuming and costly process onto the parties and the estate. At minimum, it would require the court to select the expert, would likely involve the retention of additional professionals to assist the expert, would necessitate more discovery and possibly a hearing, all at the expense of the estate.

Lost in the AG's call for an expert is one simple fact - this court is uniquely qualified to determine compensation to be paid from an estate or trust based upon a reasonableness standard. Indeed, the Legislature has seen fit to confer upon this court the authority to determine "reasonable compensation" not only for preliminary executors in...