Neto v. Thorner

• Decision Date: 05 September 1989
• Docket Number: No. 87 Civ. 3447 (RPP).,87 Civ. 3447 (RPP).
• Citation: 718 F. Supp. 1222
• Parties: Francisco Malandrini NETO, as administrator and executor of the Estate of Berthold Falk, deceased, Plaintiff, v. Gerald THORNER, Defendant.
• Court: U.S. District Court — Southern District of New York

718 F. Supp. 1222

Francisco Malandrini NETO, as administrator and executor of the Estate of Berthold Falk, deceased, Plaintiff, v. Gerald THORNER, Defendant.

No. 87 Civ. 3447 (RPP).

United States District Court, S.D. New York.

September 5, 1989.

Robert Lewis, Baker & McKenzie, New York City, for plaintiff.

Jack H. Dorfman, Fodera, Dorfman & Ferrari, Brooklyn, N.Y., for defendant.

OPINION AND ORDER

ROBERT P. PATTERSON, Jr., District Judge.

This motion for summary judgment presents the following question of New York law: when a foreigner dies testate, does New York law or the law of the decedent's domicile govern the disposition of the assets of the decedent's Totten trust?¹

In 1963, Berthold Falk opened a Totten trust for the benefit of Gerald Thorner in the New York branch of what later became the National Westminster Bank.² Twenty-two years later, on November 14, 1985, Falk died in Sao Paulo. A will under Falk's name dated January 17, 1985, unsigned, but apparently valid under the laws of Brazil, provided as follows (in the English translation from the Portuguese):

The Testator wishes and determines that, by the time of his succession, all the deposits or values existing in his name, in the banks located in Brazil or abroad, ... shall be distributed as follows: to Mr. Mauricio Carlos Szczupak Falk ..., 40% (forty percent) ...; to Dr. Francisco Malandrini Neto, 42,5% (forty two and a half percent) ...; to Mr. Arnaldo Vicentini ..., 7,5% (seven and a half percent) ...; and to Ms. Maria Lucimar Duarte Pimenta, ... 10% (ten percent)....

Upon learning of Falk's death, Thorner withdrew the proceeds of the Totten trust from the New York bank. Thereafter, in 1987, Francisco Malandrini Neto, the executor, as well as the major beneficiary, of Falk's estate, brought this diversity action for conversion when he learned of the existence of the account and of Thorner's withdrawal of the funds.³

Thorner has now moved for summary judgment.⁴ He contends that Falk's will does not meet the strictures of N.Y. Est. Powers & Trusts Law § 7-5.2(2) (McKinney 1989), and that the putative revocation of the Totten trust was therefore ineffective. Section 7-5.2(2), enacted in 1975, provides, in relevant part:

The funds in a trust account ... shall be trust funds subject to the following terms:

. . . . .

(2) A trust can be revoked, terminated or modified by the depositor's will only by means of, and to the extent of, an express direction concerning such trust account, which must be described in the will as being in trust for a named beneficiary in a named financial institution.... A testamentary revocation, termination or modification under this paragraph can be effected by express words of revocation, termination or modification, or by a specific bequest of the trust account, or any part of it, to someone other than the named beneficiary....

N.Y. Est. Powers & Trusts Law § 7-5.2(2) (McKinney 1989) (emphasis added).

Since the statute's enactment New York courts have consistently held that if a will does not conform precisely to the dictates of Section 7-5.2(2), the terms of a Totten trust remain in force. See, e.g., Matter of Will of Young, 137 Misc.2d 744, 522 N.Y. S.2d 795 (1987) (will naming bank but not beneficiary did not revoke Totten trusts); Estate of Flynn, 119 Misc.2d 561, 463 N.Y. S.2d 719 (1983); Estate of Silberkasten, 102 Misc.2d 227, 423 N.Y.S.2d 141 (1979); cf. Long Island Sav. Bank v. Savage, 116 A.D.2d 512, 497 N.Y.S.2d 914 (1986), aff'd mem., 69 N.Y.2d 751, 505 N.E.2d 244, 512 N.Y.S.2d 801 (1987). As the Law Revision Commission wrote in its official statement in support of the proposed law, "this bill is needed to achieve clarity and consistency in the law governing Totten trusts. It will reduce litigation in this area, where such litigation is unfortunate because many persons use this trust device as a substitute for a testamentary disposition." Memorandum of the Law Revision Commission Relating to Bank Accounts in Trust Form ("Totten Trusts"), 1975 N.Y. Legislative Reports 1534, 1534 (McKinney 1975) hereinafter Commission Memorandum; see also id. at 1534-36; Estate of Silberkasten, supra; Annotation, Revocation of Tentative ("Totten") Trust of Savings Bank Account by Inter Vivos Declaration or Will, 46 A.L.R.3d 487 (1971); cf., e.g., Matter of Estate of Bol, 429 N.W.2d 467 (S.D.1988).

As a federal court sitting in diversity, this Court must apply the law of New York. It is plain that Falk's will does not comply with section 7-5.2(2) of the Estates Powers & Trust Law. If that statutory provision applied, the would-be testamentary revocation of the account in trust for Thorner would have no legal bearing. In opposing this motion, however, Malandrini contends that Falk's will does not have to meet the requirements of the New York statute. According to Malandrini, under the law of Brazil, the will would be valid — and the law of Brazil, he argues, not the law of New York, governs this dispute's resolution. This Court reaches a different conclusion.

The substantive law of New York, of course, includes New York's choice of law principles. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Section 3-5.1 of the New York Estates Powers & Trusts Law codifies the rules concerning the "Formal validity, intrinsic validity, effect, interpretation, revocation or alteration of testamentary dispositions of, and exercise of testamentary powers of appointment over property by wills having relation to another jurisdiction." Section 3-5.1(b)(2) provides:

The intrinsic validity, effect, revocation or alteration of a testamentary disposition of personal property, and the manner in which such property devolves when not disposed of by will, are determined by the law of the jurisdiction in which the decedent is domiciled at death.

According to Malandrini, that statute embodies the "firmly established rule that the law of the testator's last domicile governs the testamentary disposition and intestate distribution of personal property." N.Y. Est. Powers & Trusts Law § 3-5.1 revisers' notes;⁵ see, e.g., Will of Brown, 120 Misc.2d 799, 466 N.Y.S.2d 988 (1983); New York Life Ins. & Trust Co. v. Viele, 161 N.Y. 11, 19, 55 N.E. 311 (1899); see also Restatement (Second) of Conflicts of Laws § 263(1) (1971); cf. Harrison v. Nixon, 34 U.S. (9 Pet.) 483, 504, 9 L.Ed. 201 (1835) (Story, J.). Malandrini argues that a Totten trust is personal property, see N.Y. Est. Powers & Trusts Law § 3-5.1(a)(2), and that it therefore passes to the Brazilian estate's beneficiaries in accordance with Brazilian law and the terms of Falk's will.

It is this Court's conclusion, however, that in passing section 7-5.2(2) in 1975, the legislature did not intend to bring Totten trusts within the coverage of section 3-5.1. Malandrini's argument thus fails as a matter of law.

The only relevant decisions on the application of the choice of law principles to Totten trusts are Wyatt v. Fulrath, 16 N.Y.2d 169, 211 N.E.2d 637, 264 N.Y.S.2d 233 (1965) and Matter of Senft, N.Y.L.J., Aug. 17, 1987, at 14, col. 2 (Sur.Ct.2d Dep't 1987). Each confirms that under New York law, the title to a bank account held in a New York bank is governed by the law of New York.

In Wyatt v. Fulrath, the ancillary administrator of the estate of the Duke of Arion sued the executor of the will of the Duchess of Arion to determine the title to joint bank accounts held in New York State. According to the Court of Appeals, "the main issue in the case is whether the law of Spain—the decedents' domiciles—should be applied to the property placed in New York during the lives of the spouses, ... or the law of New York—the situs of the accounts...." 16 N.Y.2d at 172, 211 N.E.2d 637, 264 N.Y.S.2d 233. New York law would have given the Duchess's estate all of the property; Spanish law would have given her estate half. Because the Duke and Duchess "agreed to a written form of survivorship account conformable to New York law," id. at 171, 211 N.E.2d 637, 264 N.Y.S.2d 233, the Court of Appeals gave their intentions effect. Judge Bergan explained the rationale supporting the rule that Wyatt v. Fulrath established:

... New York has the right to say as a matter of public policy whether it will apply its own rules to property in New York of foreigners who choose to place it here for custody or investment, and to honor or not the formal agreements or suggestions of such owners by which New York law would apply to the property they place here.

It seems preferable that as to property which foreign owners are able to get here physically, ... that we should recognize their physical and legal submission of the property to our laws, even though under the laws of their own country a different method of fixing such rights would be pursued.

16 N.Y.2d at 173, 211 N.E.2d 637, 264 N.Y. S.2d 233 (emphasis added); see also Hutchison v. Ross, 262 N.Y. 381, 388-89, 187 N.E. 65 (1933) ("When the owner of personal property authorizes its removal from his domicile or acquires property elsewhere, he must be deemed to know that his property comes under the protection of, and subject to, the laws of the jurisdiction to which it has been removed, and that appeal may be made to the courts of that jurisdiction for the determination of conflicting rights of such property.") (Lehman, J.), quoted in Wyatt v. Fulrath, 16 N.Y.2d at 174, 211 N.E.2d 637, 264 N.Y.S.2d 233.

In 1963 Berthold Falk chose a New York bank as the situs of his Totten trust. Like the Duke and Duchess of Arion, Falk elected to have his bank trust account governed by the laws of New York. Cf. Wyatt v. Fulrath, 16 N.Y.2d at 180, 211 N.E.2d 637, 264 N.Y.S.2d 233 (Desmond, C.J., dissenting); Estate of Renard, 108 Misc.2d 31, 437 N.Y.S.2d 860, aff'd mem., 85 A.D.2d 501, 447 N.Y.S.2d 573 (1981), aff'd mem., 56 N.Y.2d 973, 439 N.E.2d 341, 453 N.Y.S.2d 625 (1982); cf. also N.Y.Est. Powers & Trusts Law § 3-5.1(h); Sanchez v....