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Frank W. Streng, Esq. Partner 11 Martine AvenueWhite Plains, NY 10606-1934 McCarthy Fingar LLP 914‑946‑0134 (fax) 914-946-3817 ext. 256 (voice) e‑mail: fstreng@mccarthyfingar.com web: www.mccarthyfingar.com www.mfdds.com |
Gary E. Bashian, Esq. Partner Bashian, Enea &
Sirignano 235 Main Street White Plains, NY 10601914‑946‑5100 (voice) 914-946-5111 (fax) e‑mail: garybashian@aol.com |
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Joseph M. Accetta, Esq. Court Attorney/Referee Surrogate's Court 140 Grand Street White Plains, NY 10601914-995-3727 (voice) e-mail: jaccetta@courts.state.ny.us |
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Westchester County Bar Association – Trusts & Estates Section
June 7, 2004
Property Turnover Proceedings under SCPA Article 21 and Ethical Issues
in Surrogate's Court Litigation
I.
Property Turnover Proceedings under SCPA Article 21
1.
Nature of Miscellaneous
Proceedings Under Article 21
·
Discovery
Proceeding under SCPA 2103 and 2104 and Reverse Discovery Proceeding under SCPA
2105 are several of various miscellaneous proceedings under Article 21.
·
Other
miscellaneous proceedings specifically enunciated under Article 21:
o
2102:
proceedings for relief against fiduciary, including: seeking
information/documents concerning the estate; setting aside exempt property;
paying funeral expenses; pay a claim; make partial distributions or pay
expenses; dealing with fiduciaries’ disagreements; and obtain interest on
general legacies
o
2106:
proceedings to compromise controversies, in will contests or other matters
o
2107:
advice and direction sought by fiduciary;
o
2108:
continuation of a noncorporate business;
o
2109:
depositing estate distribution for a beneficiary whose identity or whereabouts
is not known with government entity;
o
2110
and 2111: applications for legal fees
o
2112:
fees for attorney-in-fact under a power of attorney form
o
2113:
determining title of ownership on real estate;
o
2114:
reviewing compensation of corporate trustee; and
o
2115:
reviewing costs of delegation under prudent investor act.
·
Other
proceedings not specifically enunciated within the general jurisdiction of the
Court under SCPA 202
·
Right
to commence a miscellaneous proceeding under Article 21 is not absolute: the
proceeding must be “entertained” under SCPA 2101. General reasons for Surrogate’s Court’s refusal to entertain
proceedings:
o
No
subject matter jurisdiction;
o
No
personal jurisdiction over necessary parties;
o
Lack
of standing;
o
Proceeding
or action pending in Surrogate’s Court or other courts;
o
Other
reasons, including the Court’s exercise of its discretion to defer
consideration of issue until a later time, usually the executor’s final
accounting;
o
Remedy
against the Court for refusing to entertain: argue to the Appellate Division
that the Court’s refusal to entertain was an abuse of discretion
2.
Discovery Proceeding Under
SCPA 2103 and 2104
·
Underlying
purpose of SCPA 2103: permit the fiduciary to carry out the job of marshalling
assets of the estate.
·
The
tools for a fiduciary for marshalling assets:
o
Conduct
an investigation of the decedent’s assets and affairs:
§
SCPA
2103(3)) permits the fiduciary to bring a third party into the Surrogate’s
Court to conduct an “inquiry” as that third party’s knowledge of the decedent’s
affairs and assets;
§
SCPA
2103 and SCPA 2104 permit the fiduciary to compel a third party to turn over
assets to the estate
·
Kinds
of matters that are the subject of an SCPA 2103 proceeding:
o
Joint
bank accounts and issue of whether an account is a convenience account;
o
Tangible
personal property [jewelry, furniture, etc.]
o
Intangible
personal property [money, securities, etc.]
o
Decedent’s
competency to execute beneficiary designations on traditional nonprobate
assets, such as insurance policies or qualified plan accounts;
o
Decedent’s
ownership in closely-held corporations;
o
The
decedent’s interest in assets that were purportedly transferred by the decedent
to a lifetime trust;
o
The
validity of purported gift transfers made by the decedent;
o
The
decedent’s interest, including contract rights under a stock agreement or
otherwise, in a closely-held corporation;
o
The
validity and propriety of transactions by the decedent’s attorney-in-fact,
acting under a power of attorney form;
o
The
Decedent’s creation and original or supplemental funding of “Totten” trust
accounts;
o
Issues
concerning the decedent’s ownership in real estate, including the decedent’s
competency to execute a deed transfer by gift;
o
Other
matters in which the decedent has a property right that is within the jurisdiction
of the Court. But . . .
§
The
Court cannot decide controversies between “living parties”
·
The “Inquisitorial” stage of
proceeding:
o
Petition:
alleges that a third party respondent has money, person property or information
and is withholding is from the fiduciary and seeks the Court’s exercise of
jurisdiction over the respondent;
§
The
petition “may” be accompanied by a supporting affidavit;
§
a
preliminary executor or any other fiduciary can commence proceeding;
§
Seeking
injunctive relief and special procedures of Court concerning applications for
injunctive relief;
§
Allege
that the Court has jurisdiction over the respondent [e.g., Respondent (a) lives
in NY; (b) is a NY domiciliary; or (c) committed an act or omission in NY
·
Special
circumstance: seeking long-arm jurisdiction of the Court over respondent
o
Permissible
respondents: anyone who has property or information, including a fiduciary of
another estate, a co-fiduciary of the same estate, an attorney, an
attorney-in-fact and a bank;
o
The
order directing the respondent to appear and be examined
§
The
Court’s granting the inquiry is in the nature of the Court’s exercise of its
subpoena power;
§
A
certified copy of the order is served on respondent together with the requisite
subpoena fee under CPLR 8001;
·
Failure
to serve order properly and tender proper subpoena fee is a jurisdictional
defect and will subject the proceeding to dismissal or require a supplemental
order and service of same
o
Procedural
matters on return date of “inquiry” order
§
Some
Court direct and/or conduct inquiry on the actual return date of the order;
§
Most
courts permit inquiry examination to take place on an agreed upon date, with
the examination to take place either at the Surrogate’s Court or at another
location
o
Scope
of “inquiry” and possible motion of respondent to dismiss proceeding
§
The
scope of the inquiry is broad and the Court permits great latitude to a
fiduciary since the premise of the proceeding is to permit the fiduciary to
perform the duty of marshalling assets of the estate
·
in
order to obtain an “inquiry” order, the Petitioner need not allege facts that
the estate owns the property that is the subject of the inquiry;
·
Evidentiary
issues, such as the Dead Man Statute, are not a barrier to the examination; and
giving or obtaining Dead Man Statute testimony does not waive the right of
either party to assert the evidentiary bar at an ultimate trial in the
“turnover” stage of the proceeding;
·
“Discovery”
is a one-way street in inquiry stage: respondent cannot obtain discovery from
petitioner;
·
Motions
to dismiss inquiry stage of proceeding are rarely granted.
·
The “Turnover” or “hearing”
stage of proceeding:
o
The
“turnover” or “hearing” stage of the discovery proceeding happens in one of two
ways:
§
If,
after the “inquiry” stage of the proceeding, a respondent has property and an
issue exits as to ownership, the respondent, either by Court direction or
voluntarily, would file a verified answer to the 2103 petition;
§
The
Petitioner skips the inquiry stage and merely alleges facts supporting the
petitioner’s position that the respondent has assets belonging to the estate or
trust and request that the respondent turnover such assets to the fiduciary;
·
If
the petitioner skips the inquiry stage, then the Court merely issues a citation
to be served in the usual way and without a subpoena fee;
·
Injunctive
relief would then be sought by separate order in many of the Surrogate’s Court;
o
Once
issue has been joined through the filing of an answer, normal discovery rules
under CPLR would then apply, including party and nonparty depositions, document
production requests, demands of bill of particulars and other disclosure
devices
o
Either
party can make a demand for a jury trial
o
Ultimate
remedies for the Court in discovery proceeding:
§
Direct
delivery of property to fiduciary;
§
Issue
injunctive relief;
§
Impose
a constructive trust as to the proceeds of the property
o
The
Dead Man Statute: CPLR 4519, which generally bars testimony upon a proper
objection to a respondent’s “transactions” with the decedent, is often an
essential weapon for a fiduciary’s success in discovery proceedings
§
Example: respondent alleges that
property in question was transferred to him or her by gift. Respondent, at trial, must be able to prove
each element of the gift [(a) donative intent; (b) delivery; and (c)
acceptance], through proof independent of the respondent’s own testimony
§
But, the Dead Man Statute is an
evidentiary issue for trial and petitioner cannot usually obtain summary judgment
against the respondent simply because the respondent’s evidence to support the
gift is “barred” by the Dead Man Statute.
o
Confidential
Relationship with the Decedent
§
The
respondent’s relationship with the decedent will often have a crucial impact on
discovery proceedings. For example, if
the respondent had a “confidential” or “fiduciary” relationship” with the
decedent, there are evidentiary burdens or inferences that will often require
the respondent to put in overwhelming evidene to support a purported gift.
·
What
is a confidential or fiduciary relationship?
o
Statute
of limitations
§
Discovery
proceeding is in the nature of replevin or conversion and is subject to the
three year statute of limitations
·
Statute
accrues on date when the property was taken
·
But
when is property taken?
3.
Reverse Discovery Proceeding
Under SCPA 2105
·
Underlying
purpose of SCPA 2105 is to permit the petitioner to obtain property that a
fiduciary holds that allegedly belongs to the petitioner
·
Proceeding
commenced by the filing of a petition and the issuance of a citation against
the fiduciary
·
The
discussion above on the “turnover” or “hearing” stage of the 2103 proceeding
generally applies to the 2105 “reverse” discovery proceeding
II. Ethical Issues in Surrogate's Court
Litigation
A.
Introduction – Source
Materials
·
Introduction:
·
Our
goal: to try to raise some issues for Surrogate’s Court litigants so we are
better able to work with the ethics rules and to become effective lawyers for
our clients
·
What
is professionalism? How does a lawyer
maintain professionalism and a successful business?
·
What
are lawyers selling? Knowledge,
competence and experience in solving a client’s problem?
·
In
the wake of the internet, how can you, the lawyer, compete in this market
place? How do you compete in market in
which, following a community based seminar on estate planning, someone asks you
if you could recommend (1) books or periodicals on estate planning or (2) good
web sites
·
Have
you ever talked to anyone who attending a “lawyer bashing” revocable trust
seminar?
·
Canons
of Ethics: Code of Professional Responsibility
·
Ethical
Considerations (ECs) (aspirational standards)
·
Disciplinary
Rules (DRs) (black letter rules)
·
American
Bar Association’s Model Rules of Professional Conduct (adopted by 4/5ths of
states) (black letter rules, with commentary)
·
Bar
Association Opinions
·
New
York State Bar Association Committee on Professional Ethics
·
Association
of the Bar of the City of New York
·
New
York County Lawyers Association
·
Court
decisions
Introduction: Take us through the Canons
of Ethics and to focus on particular ECs and DRs relevant to Surrogate’s Court
practice
Canon 1: A Lawyer Should Assist in Maintaining the Integrity
and Competence of the Legal Profession.
Canon 2: Lawyer Should Assist the Legal Profession in
Fulfilling its Duty to Make Legal Counsel Available.
Canon 3: A Lawyer Should Assist in Preventing the
Unauthorized Practice of Law.
Canon 4: Lawyer Should Preserve the Confidences and Secrets
of a Client.
* * *
B. Except
when permitted under DR 4-101(C), a lawyer shall not knowingly:
1. Reveal a confidence or secret of a client.
* * *
C.
A
lawyer may reveal:
*
* *
4.
Confidences
or secrets necessary to establish or collect the lawyer’s fee or to defend the
lawyer or his or her employees or associates against an accusation or wrongful
conduct.
CPLR 4503(a) “[U]nless the client
waives the privilege, an attorney . . . shall not disclose, or be allowed to
disclose such communication . . . .”
CPLR 4503(b) “in any action
involving the probate, validity or construction of a will, an attorney or his
employee shall be required to disclose information as to the preparation,
execution or revocation of any will or other relevant instrument, but he shall
not be allowed to disclose any communication privileged under subdivision (a)
which would tend to disgrace the memory of the decedent.”
·
Reconciling
the traditional attorney-client privilege rules with the attorney-client
relationship between a lawyer and a fiduciary of an estate. What is different about trusts and estates
clients? In theory, estate planning
clients are no different than any other client whose confidence we must
uphold. But see CPLR 4503(b) (will exception) (“tend to disgrace” the
decedent’s memory; concerned about how the decedent will be seen)
·
After
the client’s death, who does the lawyer represent:
·
the
estate?
·
the
executor(s)?
·
specific
legatees of tangible personal property
·
cash
or pecuniary legatees
·
the
independent trustee of residuary trust?
·
permissible
lifetime beneficiaries of residuary trust?
·
remainderman
of residuary trust?
·
the
outright residuary beneficiaries?
·
all of the above?
·
In
Hoopes v. Carota, 74 N.Y.2d 716
(1989), the Court of Appeals held that, since the trustees of a trust were
acting in a fiduciary capacity, the privilege is not absolute and may be set aside
on a showing of “good cause” by the beneficiaries. The Court also noted that “some courts have held that the
privilege does not attach at all.” Id. at 717. The Court upheld the Appellate Division’s finding of “good cause”
and concluded that “the communications are not privileged in any event.” Id. But
see AMBAC Indemnity Corp. v. Bankers Trust Co., 151 Misc. 2d 204 (Sup.
Ct., N.Y. Co. 1991) (good cause not shown for indentured trustee)
·
What
does it mean to “act in a fiduciary capacity”
Is it different to “act in a representative capacity”? No; you are acting “in behalf” of someone
else – the beneficiaries.
·
In
Matter of Baker, 139 Misc. 2d 573
(Surr. Ct., Nassau Co. 1988), Surrogate Radigan, after analyzing the various
cases and issues as to whether a privilege can be asserted by a fiduciary of an
estate, compelled the fiduciary to turn over a sensitive document in the estate
that pertained to distributions from the estate. Surrogate Radigan held as follows:
Id.
at 577 (Emphasis Supplied)
·
When
does a lawyer advise the fiduciary that “litigation . . . is anticipated”? For purposes of privilege, should we be
identifying areas where litigation might be “anticipated”?
·
The
answer: tell executors and trustees that, with few exceptions, they cannot be
expected to have a true privilege. As
in the case of Justice Stewart’s famous definition of pornography – you’ll know that the subject is “privileged”
when you see it
·
How
about:
·
Conflicts
between beneficiaries of estate and fiduciary/beneficiary of nonprobate assets
·
Estate
tax penalty issues
·
Noninterest
bearing funds and possibility of surcharges
·
A
“blown deal” for the sale of estate assets on the part of the executor, with
clear fault/imprudence on the executor’s part; communications with executor
before and after the blown deal
·
Retention
by client to represent executor in contested estate accounting proceeding, and
objectant seeks surcharges against the executor