Will of Duke
| Decision Date | 10 October 1995 |
| Citation | 632 N.Y.S.2d 532,220 A.D.2d 241 |
| Parties | Probate Proceeding, Will of Doris DUKE, Deceased. Bernard Lafferty, et al., Removed Preliminary Co-Executors-Appellants. Alexander D. Forger, et al., Temporary Administrators-Respondents. Ann Bostich, et al., Beneficiaries. Harry B. Demopoulos, M.D., Respondent. Dennis C. Vacco, Attorney General of the State of New York, etc. |
| Court | New York Supreme Court — Appellate Division |
H.J. Stern, T.D. Barr, for co-executors-appellants.
R.E. Brooks, D.F. Kolb, for temporary adm'rs-respondents.
R.J. Dowd, for beneficiaries.
R.N. Houghton, for respondent.
J.H. Carley, for state.
Before MURPHY, P.J., and RUBIN, ROSS, ASCH and TOM, JJ.
Order and decree (one paper), Surrogate's Court, New York County (Eve Preminger, S.), entered on or about May 22, 1995, which removed the preliminary coexecutors, and appointed Alexander D. Forger, Esq. and Morgan Guaranty Trust Company as temporary administrators, affirmed, without costs.
The Surrogate's removal of the preliminary coexecutors pursuant to SCPA 711 and 719 was a proper exercise of discretion, and no evidentiary hearing was required under the particular circumstances. While the Surrogate's characterization of the facts as "undisputed" may not have been technically accurate, the unfitness of the coexecutors was established by a combination of documentary proof and the coexecutors' own concessions, and the totality of written submissions failed to raise any triable issue of fact. We note that the coexecutors were not prejudiced in any manner by the informality of the investigation and report completed by limited temporary administrator Richard H. Kuh, since the Surrogate's decision expressly disclaimed reliance on the report's unproven allegations.
The unfitness of the coexecutors to take responsibility for this $1.2 billion estate, bequeathed primarily to charity, was manifest. While "courts will not undertake to make a better will nor name a better executor for the testator" (Matter of Flood, 236 N.Y. 408, 410, 140 N.E. 936, 937), the standard of behavior of a fiduciary is "[n]ot honesty alone, but the punctilio of an honor the most sensitive" (Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545).
The Surrogate properly concluded that the individual coexecutor, Lafferty (the decedent's former butler) wasted estate assets by collecting a substantial salary and lavish fringe benefits, supposedly as a "live-in" estate employee, living as if the estate properties were his own. There was no justification for these emoluments, since Lafferty was also entitled to lucrative executor's commissions. This also constituted self-dealing, since this dual capacity was authorized by no one except Lafferty himself, and the corporate coexecutor appointed and removable by Lafferty under the terms of the will.
The Surrogate also properly concluded that Lafferty routinely commingled personal and estate assets, a serious breach of fiduciary duty for which repayment is no defense (see, EPTL 11-1.6).
The Surrogate also properly concluded, based on medical records showing repeated hospitalization for drunken binges, that Lafferty was unfit by reason of drunkenness (SCPA 711[2], [8]. The Surrogate was not obligated to expose the estate to the risk that Lafferty's drunkenness might affect his performance.
The Surrogate also properly concluded that the corporate coexecutor created a conflict of interest (see, Matter of Donner, 82 N.Y.2d 574, 584, 606 N.Y.S.2d 137, 626 N.E.2d 922) by granting Lafferty unsecured loans in the amount of $825,000, to pay for his "personal needs," i.e., still more luxuries. This gave the corporate coexecutor a financial stake in Lafferty's continued service as an executor, so that he could repay the loans out of his commissions, a conflict which was actual and not theoretical (compare, Matter of Rimland, 205 A.D.2d 693, 694, 614 N.Y.S.2d 26, with Matter of Marsh, 179 A.D.2d 578, 580, 578 N.Y.S.2d 911), since it was apparent that the corporate coexecutor improperly acquiesced in Lafferty's assorted misconduct (see, Matter of Rothko, 43 N.Y.2d 305, 320, 401 N.Y.S.2d 449, 372 N.E.2d 291).
At issue on this appeal is the propriety of the removal, pursuant to SCPA 719(10), of the preliminary co-executors, appellants Bernard Lafferty and United States Trust Company of New York, designated under the will of Doris Duke. Under the circumstances, the removal of the designated co-executors, without an evidentiary hearing, is truly an extraordinary measure. The estate is represented by a corporate fiduciary with substantial resources, and there is no suggestion that any impairment of estate assets will go without remedy.
Whether removal of the co-executors will ultimately be warranted is an issue not properly before the Court at this juncture. In view of the failure to conduct an evidentiary hearing, the various reasons advanced by the Surrogate to support replacement of the co-executors are not sustained by proof of serious misconduct, which the law requires to justify supplanting the decedent's choice of executors. Moreover, because the record is devoid of findings of fact, it is insufficient to permit appellate review of the adequacy of the proposed grounds for removal. Finally, without a judicial accounting, the current record is insufficient to support even the imposition of a surcharge against the co-executors. Therefore, the summary removal of the preliminary co-executors must be regarded as contrary to law.
The interests of the residual charitable beneficiaries of decedent's estate are represented by the Attorney General, who submits that while, His brief further notes that permitting the removal of a designated executor absent demonstrated substantial grounds sets an unfortunate precedent with an undesirable result: "Nominated fiduciaries may be judicially removed without a hearing and replaced with persons unknown and perhaps unwanted by the testators."
As a practical matter, the Attorney General maintains that litigation of this preliminary matter, involving the administration of the estate, will generate "greater expense than the alleged financial malfeasance referred to in the order", with the ultimate cost borne by the residual charitable beneficiaries. "Because the route the Surrogate chose to address the allegations of misconduct (i.e., the appointment of a limited temporary administrator to investigate and report) was unconventional, any hearing emanating from that route undoubtedly will be beset with untested (and probably appealable) procedural issues." He urges this Court to "direct that all issues regarding alleged misconduct by the preliminary executors be resolved promptly in a judicial accounting proceeding."
There is considerable merit to this position. The statutory language providing that "the court may make a decree suspending, modifying or revoking letters issued to a fiduciary * * * without a petition or the issuance of process" (SCPA 719) should be read to mean only that no formal notice is required to bring on a hearing for removal. It does not mean that the dismissal of an executor by the Surrogate may rest on less than compelling grounds (SCPA 719[10]; and it certainly does not mean that such action may be based on a record that is less than adequate to permit appellate review.
The concerns raised by the Attorney General about the cost of this litigation have already been substantiated. The New York Law Journal (August 7, 1995, at 1, col 1; August 8, 1995, at 1, col 1) reports that the limited temporary administrator, Richard Kuh, Esq., submitted a request to the Surrogate for payment totalling $620,000, including investigative services in the amount of $364,629, plus $32,603 in disbursements and $222,000 in consultants' fees. Furthermore, the purported findings of fact made by the court--and the evidentiary value of the investigative report on which the decree rests--are of questionable value (Matter of McDonald's Estate, 160 App.Div. 86, 87, 145 N.Y.S. 267, affd. 211 N.Y. 272, 105 N.E. 407).
As a consequence of the failure to conduct an evidentiary hearing, the record on appeal is insufficient to permit adequate review of the Surrogate's determination (Matter of Farber, 98 A.D.2d 720, 469 N.Y.S.2d 126, citing Matter of Burns' Estate, 1 A.D.2d 505, 507, 151 N.Y.S.2d 986). The "clear showing of serious misconduct that endangers the safety of the estate" (In re Israel's Estate, 64 Misc.2d 1035, 1043, 315 N.Y.S.2d 453) has not been made with respect to Bernard Lafferty (Matter of Jung, 205 App.Div. 37, 199 N.Y.S. 122; cf., Matter of Flaum v. Birnbaum, 191 A.D.2d 227, 594 N.Y.S.2d 247), and the convincing demonstration of misconduct that would warrant the removal of the corporate fiduciary is not supported by any evidence in the record before us. United States Trust Company, in its brief, asserts that there is no reported case in this jurisdiction in which a corporate fiduciary has been removed as an executor of an estate, and no such case has been brought to the attention of this Court by any other party.
It has long been recognized that a testator is entitled to designate who will settle her estate from among those qualified by statute (Matter of Leland, 219 N.Y. 387, 393, 114 N.E. 854). Case law therefore holds that "the power to revoke should be exercised sparingly" (Cooper v. Jones, 78 A.D.2d 423, 429, 435 N.Y.S.2d 830, citing In re Israel's Estate, supra ). ...
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