Rosner v. Paley

• Court: New York Supreme Court
• Writing for the Court: DAVID B. SAXE
• Citation: Rosner v. Paley, 116 Misc.2d 454, 455 N.Y.S.2d 959 (N.Y. Sup. Ct. 1982)
• Decision Date: 17 October 1982
• Parties: June ROSNER, Plaintiff, v. Louis J. PALEY, et al., Defendants. Louis J. PALEY, et al., Plaintiffs, v. June ROSNER, Defendant. Louis J. PALEY, et al., Third-Party Plaintiff, v. Philip N. FORLENZA, et al., Third-Party Defendants.

Page 959

455 N.Y.S.2d 959

116 Misc.2d 454

June ROSNER, Plaintiff, v. Louis J. PALEY, et al., Defendants.

Louis J. PALEY, et al., Plaintiffs, v. June ROSNER, Defendant.

Louis J. PALEY, et al., Third-Party Plaintiff, v. Philip N. FORLENZA, et al., Third-Party Defendants.

Supreme Court, Special Term New York County, Part I.

Oct. 17, 1982.

Shea & Gould, New York City (Daniel L. Carroll, Mark E. Davidson, New York City,

of counsel), for defendants and third-party plaintiffs.

Hawkins, Delafield & Wood, New York City (Philip R. Forlenza, Laura V. Jones, New York City, of counsel), for third-party defendants.

DECISION ON MOTION

DAVID B. SAXE, Justice.

Questions Presented

The principal issues that I must resolve are as follows:

I. Did the advice given by the third-party defendant (Lawyer II) to the plaintiff to commence a proceeding seeking the advice and direction of the Court with respect to (a) an allegedly fault settlement agreement and (b) the validi of the appointment of plaintiff's mother and sister as co-trustees constitute legal malpractice; and

II. Whether Lawyer I who is sued by a former client for professional negligence may cross-complain for contribution against Lawyer II who was retained to extricate the client from the situation created by the alleged negligence of Lawyer I and where the advice of Lawyer II involved choices that were not risk free? This issue is one of apparent first impression in New York (cf. Schauer v. Joyce, 34 N.Y.2d 1, 444 N.Y.S.2d 564, 429 N.E.2d 83 (1981) which is distinguished).

The Underlying Facts and Events

A. Prior to the Death of Leo Rosner

1. On June 1, 1947, Anna and Leo Rosner, as grantors, executed an irrevocable deed of trust, creating three separate trusts--one for Anna, Leo's wife, and one for each of their two daughters, June (the plaintiff herein) and Mildred. Leo Rosner was sole trustee and the term of the trusts was measured by the lives of both daughters or the survivor of them. Basically, the income beneficiaries were Anna, June and Mildred and upon termination, the corpus of the trusts for each of the two daughters was given to their respective issue, per stirpes; the corpus of the trust for the benefit of Anna Rosner was given to her.

Leo Rosner was sole trustee; however, on Leo's death, resignation or failure or refusal to serve, alternate provision was made for two substitute trustees.

2. As of May 3, 1951, the two substitute trustees and the alternate substitute trustee renounced their respective appointments and consented that the grantor might name any person or corporation he chose in their place.

3. On May 29, 1951, all three trust beneficiaries--Anna, Mildred and June--and Leo Rosner, as trustee, executed an agreement under which they purportedly consented to these renunciations and to the appointment of Leo Rosner as a new substitute trustee, without requiring the further consent of Anna, Mildred or June to make any other substitutions or changes during Leo's life. Accordingly, three new substitute trustees were then appointed. At the time of the execution of this document, June was under the age of 21 years and Mildred had infant issue.

4. On November 12, 1963, Leo Rosner resigned as trustee and pursuant to the authority granted by the May 29, 1951 instrument, he removed the three substituted trustees and appointed Mildred Caplow (his daughter) and Anna Rosner (his wife) as his successor trustees.

5. In a written agreement dated December 16, 1963, the trust created for June was revoked in its entirety and the revocation was consented to by June, the grantors and the co-trustees. June released Leo Rosner, Anna Rosner and Mildred Caplow from all claims with respect to the administration of her trust from its inception. In return, she received the transfer from her father of 300 shares of 17 East 84th St. Corporation and the proprietary lease to apartment 5A in the cooperative building located at that address.

6. In a subsequent written agreement dated February 10, 1966, the agreement dated December 16, 1963, was rescinded and declared void and June renounced all of her right to the net income under the 1947 trust in favor of her three children. The trust as thus amended and reciting the May 29, 1951 modification was declared to remain in full force and effect.

7. On March 27, 1973, Leo and Anna as grantors, Mildred and Anna as successor co-trustees and June as beneficiary entered into another agreement rescinding the agreements of December 16, 1963 and February 10, 1966 and reinstating June as beneficiary of the 1947 trust. The 1947 trust agreement was declared to be irrevocable and reinstated, and any changes or modifications with respect to it, other than the appointment or substitution of trustees, were stated to have no validity.

8. On August 20, 1977, Leo Rosner died.

B. After the Death of Leo Rosner.

9. After Leo's death June became increasingly aware of what she believed to be serious irregularities and mismanagement of the trust assets and retained defendant Louis J. Paley and his law firm to represent her. Later, defendant Wishod and his firm were also retained. During subsequent negotiations with the co-trustees, an investigation of the trust books and records was made by accountants on plaintiff's behalf. This report stated, inter alia, that inadequate records and documents were being kept, that many of them normally expected to be kept were missing and that the Cen-Par Operating Corporation's books indicated some improprieties exceeding $200,000 in amount.

10. Paley and Wishod drafted a petition on plaintiff's behalf seeking a judicial accounting. However, that petition was not filed and instead, on the attorneys' advice, plaintiff entered into a Settlement Agreement dated November 1, 1978 with Anna Rosner, Mildred Caplow Alvin Caplow (Mildred's husband) and Cen-Par Operating Corp. (which operated a hotel constituting a major asset of the trust). The agreement provided, inter alia, as follows:

a) June agreed not to institute the proceeding against the trustees and to release all her rights to a judicial accounting, subject to her right to receive payments from the trust equal to those made to Mildred.

b) June was appointed as a third co-trustee of the trusts.

c) Anna waived any claims to receive additional income or payments from the trust to match those made to Mildred or June but in the future would receive equal amounts with Mildred and June.

d) Anna covenanted to make a will or codicil, and to keep the it in force during her lifetime in which she would appoint June (or her issue) as the sole beneficiary of one-half of the principal of the marital deduction trust provided for her in the will of her deceased husband, Leo Rosner.

e) June was appointed to participate in the management of the Century Paramount Hotel, with annual compensation of $18,000, as long as Alvin Caplow continued as manager.

11. In March, 1979, June terminated her retainer of defendant attorneys and retained the firm of Hawkins, Delafield and Woods, Esqs. After reviewing the relevant documents they determined that under EPTL 10-5.3 Anna Rosner's agreement to appoint June as the beneficiary of one-half of the corpus of the marital deduction trust was not enforceable, despite the assurance of her former attorneys that this agreement was irrevocable and enforceable as a matter of contract law. In their advice to her regarding the settlement agreement, June also alleged that defendant-attorneys failed to tell her that a serious question existed as to the validity of her mother's and sister's appointment as trustees and to her own appointment as co-trustee.

12. A review of the situation with her new attorneys also caused plaintiff June to conclude that, having assumed the duties of a co-trustee with knowledge of possible irregularities and mismanagement, she faced potential liability from the remaindermen if she failed to seek a judicial accounting.

Accordingly, in May, 1979, on the advice of her new attorneys, plaintiff began a proceeding in the New York Supreme Court (Rosner v. Caplow et al., N.Y.Co., Index No. 11001/79) seeking a declaration of rights and duties, including instructions and directions with respect to her obligation to seek an accounting and determine the validity of her mother's and sister's appointments as co-trustees of the 1947 trust, as well as of her own appointment as co-trustee. After this lawsuit was commenced, Anna Rosner revoked the codicil appointing plaintiff as a beneficiary of the marital deduction trust.

13. In June of 1979, plaintiff June Rosner commenced this legal malpractice action, the details of which may be summarized as follows:

Plaintiff Rosner retained defendant attorneys to advise her in connection with certain claims she had against the trustees (her mother and sister) of the 1947 trust as an income beneficiary. She alleged that the defendants recommended that she enter into a settlement agreement (which she did) in which, as beneficiary of the trust, she released all her claims against the trustees, waived her rights to a judicial accounting, and agreed not to initiate a proposed accounting proceeding in return for what she was given to understand were enforceable covenants and other valuable consideration.

A major element of the consideration provided in the settlement agreement was her mother's covenant to exercise the aforesaid testamentary power of appointment-a share estimated to be then worth at least $650,000.

Plaintiff Rosner specifically inquired of the defendants whether such an agreement by her mother was enforceable and was informed and later reassured in a letter to her from defendant Louis Paley that it was enforceable as a matter of contract law, that it was irrevocable and that it was immune from any subsequent change of heart or family problems that might arise. It is plaintiff's complaint that this advice was indisputably erroneous because ETPL Section 10-5.3...