“Busting” the Trust!

Posted on May 21, 2011 by Richard Klass

A Trust was created by a woman in her Last Will and Testament (testamentary trust), leaving her children and their issue (children) as the sole beneficiaries of the trust. The Children’s Trust was formed as a “mixed” discretionary trust; meaning that the trustees maintain the discretion to pay moneys to the beneficiaries of the trust but the trust itself is a spendthrift trust, whereby the beneficiaries cannot invade the trust or, in other words, take out money themselves. A “discretionary” trust is typically set up to give the trustees the authority to pay money (either principal or interest) as they see fit, considering the lifestyle and resources of the beneficiary. A “spendthrift” trust prohibits the beneficiary, creditors of the beneficiary, or any other person from taking money out of the trust.

The “deadbeat” parent

A couple was married and had two children. The husband was one of the children of the woman who set up the trust. They got divorced and the two children lived with the wife. As part of the Judgment of Divorce, the husband was ordered to pay child support and yeshiva tuition for the couple’s daughter. The husband failed to pay the court-ordered amounts. The judge granted money judgments against the husband to pay child support arrears, tuition and legal fees. Enforcement of the money judgments proved fruitless. The wife brought proceedings to punish the husband for contempt of court. The judge found that the husband was guilty of contempt of court and even granted an Order of Contempt, allowing for the husband’s arrest for not paying child support. The husband and his assets could not be located – the typical case of a “deadbeat parent.”

Unfortunately, the wife was, perhaps, more down and out than most people. She was ill and unable to work; not eligible for social security disability income; and living off of her adult son’s meager income and public assistance through food stamps. Her daughter was going to be expelled from school for nonpayment of three years’ worth of tuition. That’s when the wife’s divorce lawyer referred her to Richard A. Klass, Your Court Street Lawyer, for help.

Looking at invading the Children’s Trust

Generally, a trust can be made invincible – no one can gain access to the moneys or property contained in it, not even the beneficiary. The “settlor” (the one who sets up the trust and funds it) appoints a trustee who will carry out her wishes and follows the directions contained in the trust document.

In this particular trust, the beneficiaries were listed as “the Child and the Child’s issue.” Clearly, the Children’s Trust envisioned the trustees giving money not only to the “deadbeat parent” but also to his children, including the daughter who was about to be kicked out of school.

An Order to Show Cause was brought in New York State Supreme Court to (a) have the trustees pay the child support arrears and yeshiva tuition owed by the husband; (b) restrain the trustees from paying any money out of the trust to the “deadbeat” parent; and (c) sequester, or set aside, enough money from the trust to pay future child support until the daughter’s age of majority.

The guiding light of Judge Nathan Sobel

The issue of “busting” a trust set up by a grandparent for the benefit of a grandchild was brought up in a case over 40 years ago, in a case of first impression, before the beneficent Surrogate of Kings County, Judge Nathan Sobel. In Matter of Chusid, Judge Sobel first stated the general proposition that a testator may dispose of his own property as he pleases. Among other things, a testator may create a trust for the benefit of an infant or improvident person, so that the beneficiary does not squander the money. However, Surrogate Sobel stated the oft-cited principle which applied to this situation (and, unfortunately, to so many others): “No man should be permitted to live at the same time in luxury and in debt.”

While recognizing that the general purpose of a discretionary trust is to protect the trustee from unreasonable demands of a beneficiary or from creditors’ claims, it does not insulate or protect the trustee from responsibility to and reasonable directions from a court. Further, as stated in the Chusid opinion, this “is particularly true where the income beneficiaries are dependent children who will either starve or become public charges if the trustees refuse to exercise discretion in their favor.” Judge Sobel then held that the trustee’s discretion yields to and is subordinate to the equity powers of the court to direct payment for the support of minor dependent children.

After argument of the Order to Show Cause, with the opposition of the trustees of the Children’s Trust, the judge made the determination that the wife was entitled to “bust” the trust open to have the trustees pay the child support arrears and yeshiva tuition owed by the husband from the principal and interest of the trust. The judge ordered the trustees of the Children’s Trust to pay the following amounts: (a) 82,350 for yeshiva tuition; (b) 43,329 for child support arrears; and (c) $3,960 for school transportation expenses; he also ordered the trustees to sequester $53,891 for future child support payments.

Richard A. Klass, Esq.

Art credits: Leute am blauen See, by August Macke (1887-1914).

R. A. Klass
Your Court Street Lawyer

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Notice to Admit: The Power of a Piece of Paper

Posted on May 1, 2011 by Richard Klass

In the Civil Practice Law and Rules (CPLR) – the “Game Book” of civil practice in New York State courts, there is a little-used device called the “Notice to Admit.” While not as often utilized by attorneys as it ought to be, it can pack a powerful punch to the other side in litigation.

As most of us know, the old days of Perry Mason pulling out a trick at trial have greatly diminished due to the introduction into the legal process of a phase in the litigation known as “discovery.” During the discovery phase, each adversary is permitted to inspect and “discover” relevant documents and information pertaining to the lawsuit, through the use of various discovery techniques. Those discovery techniques may include, among other things, inspecting the books and records of a business, asking questions known as “interrogatories,” performing a physical examination, viewing photographs or videos made of the scene of an incident, and inspecting the geographic location of an area which is the subject of the litigation. Among those discovery techniques, there is the Notice to Admit.

CPLR Section 3123 provides that: “a party may serve upon any other party a written request for admission by the latter of the genuineness of any papers or documents, or the correctness or fairness of representation of any photographs, described in and served with the request, or of the truth of any matters of fact set forth in the request, as to which the party requesting the admission reasonably believes there can be no substantial dispute at the trial and which are within the knowledge of such other party or can be ascertained by him upon reasonable inquiry.” It is further provided that, if the latter party fails to respond, the effect is that the matter shall be deemed “admitted.”

In Rodriguez v. Moreno, it was alleged that, in 1994, the owner of a 2-family house in Brooklyn had to leave this country in a hurry and needed cash. He made an agreement with his tenant that, in exchange for $30,000 cash and the continued payment of the mortgage on the house, the tenant could effectively purchase the house from him. To memorialize their understanding, the owner and his tenant went to the owner’s attorney to sign documents.

The owner’s attorney drafted the documents necessary to transfer title to the house, including a Deed. The owner signed the documents, and the attorney held onto the originals. The agreement was, once the tenant paid off the last of the mortgage payments on the house, the Deed would be released to him from the attorney’s escrow. This arrangement continued for 13 years.

In 2007, the tenant discovered that the owner, who still held title to the house, was trying to sell it to someone else. The only proof of the agreement he had was a photocopy of the front side of the Deed that the owner signed 13 years earlier. Unfortunately, the owner’s attorney had been disbarred years earlier and was nowhere to be found; also gone were the original documents.

Quick Action Was Needed

Armed with only a skimpy photocopy of the first page of the Deed, which had the signature of the owner, the tenant hired Richard A. Klass, Esq., to bring an action under New York’s Real Property Actions and Proceedings Law (RPAPL) to enforce his rights to the house. Since the owner was actively trying to sell the house, and had signed a contract to sell the house to someone else, quick action to stop the sale was needed. With the filing of the Summons and Complaint, a Notice of Pendency (also known as a “lis pendens”) was filed against the house, which operates as notice to outsiders that someone is laying claim to ownership of the house.

The owner denied the agreement, since there was no proof of the agreement between himself and the tenant. He also claimed that the mortgage payments made by the tenant were intended as rent.

Proving the Copy To Be a Duplicate of the Original

The next, important step was to nail down through the discovery phase the proof of the agreement. In general, contracts relating to the sale of real estate require written proof under a legal doctrine known as the Statute of Frauds. Since here, there was no writing other than the photocopy of the Deed, the lawsuit appeared to be futile.

The admissions requested were as follows:

That the attached Deed was signed by the defendant on September 1, 1994.
That the attached Deed was prepared by the defendant’s attorney, or on his behalf by a member of his staff or office.
That the defendant’s attorney prepared the attached Deed at the request of, or on behalf of the defendant.
That the original of the attached Deed was taken into escrow by the defendant’s attorney at or about the time of execution thereof.

Despite being served with this Notice to Admit, the defendant failed to respond to it within the 20-day time frame in which to respond. By virtue of his not timely responding, the above allegations were deemed “admitted.”

Since it was now admitted that the owner signed the Deed in favor of the tenant, and the Deed was to be held in escrow by his attorney, the terms of the agreement were arguably established in a manner allowed by the Statute of Frauds. Coupled with the fact that the tenant made all of the mortgage payments for 13 years, the owner elected to settle the case instead of proceeding to trial.

Richard A. Klass, Esq.

copyr. 2011 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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A New Way to Award Attorney’s Fees

Posted on April 7, 2011 by Richard Klass

The “American Rule” governs most cases in United States’ courts, where each party to the litigation bears its own costs and attorney’s fees (as opposed to the “English Rule,” according to which the loser of the litigation is chargeable with the winner’s attorney’s fees). There are three exceptions to the “American Rule,” which are when there is:

(a) an agreement between the parties pertaining to attorney’s fees;
(b) a statute which awards reasonable attorney’s fees to the “prevailing party;” or
(c) a court rule provides for attorney’s fees.

Out With The “Old” Ways

Generally, courts around the country use one of two methods to determine the amount of “reasonable attorney’s fees” to be awarded to a party: (1) the “lodestar” method and (2) the “Johnson” twelve-factor method (these methods were the two existing methods endorsed by the US Supreme Court in Hensley v. Eckerhart, 461 US 424 (1983)).

The “lodestar” method figures out the reasonable attorney’s fee to be awarded — which is basically the product of the attorney’s usual hourly rate multiplied by the number of hours worked (for example: $3,500 attorney’s fees award based on 10 hours of the attorney’s hourly rate of $350). After figuring out the product, the fee may be adjusted by the court as part of the court’s fee-setting method — a starting point (if you will) for an initial estimate before considering the particulars of the case’s circumstances.

The “Johnson” method came about from a case titled Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974), in which the court envisioned a one-step inquiry into attorney’s fees, based upon twelve factors, allowing the court to rely more on its experience and judgment with both the attorney and type of case involved. Market forces, which generally influence the hourly rate charged, are not to be the sole determining factor under this method.

In theory, courts that adopted the “lodestar” method were expected to consider fewer variables than the “Johnson” method; in practice, however, many courts consider the same set of variables under both methods to arrive at a fee amount. Some court decisions held that the “Johnson” factors should be applied after applying the “lodestar” calculation; some held that many of the “Johnson” factors were subsumed into the initial calculation.

The Presumptively Reasonable Fee

In a Decision rendered in April 2007 by the United States Court of Appeals for the Second Circuit in the case of Arbor Hill Concerned Citizens Neighborhood Association v. County of Albany, the Second Circuit held that it was abandoning the traditional “lodestar” method in favor of the concept of the “presumptively reasonable fee.” (The Second Circuit Court of Appeals covers cases in the federal courts of New York and Vermont). The Decision actually stated that the term, “lodestar method,” was a metaphor that has “deteriorated to the point of unhelpfulness.”

The Second Circuit decided to switch over to a new method of figuring out the reasonable attorney’s fee to be awarded to a prevailing party termed the “presumptively reasonable fee.” This new way asks the court to bear in mind all of the case-specific variables, including the reasonable hourly rate that a paying client would be willing to pay if he was able to negotiate with his attorney. In determining that, the court should consider, among other things, the “Johnson” factors and the fact that a reasonable, paying client would likely want to spend the minimum amount necessary to effectively litigate the case.

The Forum Rule

The Decision also highlighted a particular issue involved in setting fees — the “forum rule.” To determine the general hourly rate, the court has to consider the “community” in which the court sits; in federal courts, it has generally been the geographic area of the district in which the court is located. The Second Circuit recognized that that area could be skewed, depending on the district. So, the court clarified that a district court may use an out-of-district rate (or a rate in between in-district and out-of-district) if it is clear that a reasonable, paying client would have paid the higher rate; however, the court will presume that a client will either hire counsel located within the district or counsel whose rates are consistent with those of local counsel. The presumption may be rebutted if it can be shown that hiring higher-priced, out-of-district counsel was reasonable under the circumstances.

Like all considerations involved in deciding whether to bring a lawsuit against someone, the issue of attorney’s fees is an important one. Without effective, compensated counsel, a litigant with a true cause may be deprived of “his day in court.” Fee-shifting statutes and agreements for attorney’s fees ensure that each side to a dispute knows the risks of his conduct — whether it be the breach of a contract or commission of an act that a statute or court rule is designed to protect.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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Getting it Done: The Importance of Entering Timely Defaults

Posted on March 14, 2011 by Richard Klass

In 2004, a guy went out for a night of drinkin’ on the town. On the way home, he stopped in to one last bar to drink. At the bar, in a very drunk condition, he hit on a woman. After leaving the bar to go home, he saw standing by a nearby building a woman who he thought was the same one as the one in the bar. When the guy saw the woman on the street, thinking it was the one he saw in the bar, he grabbed and touched her. Unfortunately, it turned out that she was not the same woman—and she pressed charges of assault.

Naturally, the woman claiming assault not only sought criminal charges but also brought a civil action to recover damages from the guy. She brought the law suit against him through her lawyer in 2004. The defendant failed to answer the complaint after being served; however, her lawyer did not ask the judge to enter a default against the guy until 2006 – two years later. In support of the request for the default judgment, the lawyer stated that the woman had left New York to return to her native country because she was emotionally distraught over the assault and did not return until 2006. The judge granted a default judgment for the woman’s pain and suffering for $1,000,000.

The relevant New York statute governing default judgments, CPLR 3215, provides that, when a defendant has failed to appear in an action, the plaintiff may seek a default judgment against him. However, the plaintiff is required to do so within one year after the default, as required by subsection (c) thereof:

Default not entered within one year: If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed. A motion by the defendant under this subdivision does not constitute an appearance in the action.

According to the above subsection, the court should have dismissed the complaint as abandoned, based upon the woman’s failure to take proceedings for the entry of default within one year. Numerous cases have held that dismissal of the complaint is required when there has been a failure to take timely proceedings for entry of default. See,Saunders v. Central Brooklyn Coordinating Council, Inc., 273 AD2d 294 (2d Dept. 2000); PM-OK Associates v. Britz, 256 AD2d 151 (1st Dept. 1998).

Plaintiff must show a justifiable excuse

The Second Department held, in Winkelman v. H&S Beer and Soda Discounts Inc., 91 AD2d 660 (1982), that, absent a justifiable excuse and a showing that the action is meritorious, the plaintiff’s failure to enter a default judgment against the defendant within one year of the latter’s default mandates dismissal of the action against defendant as abandoned. In the affirmation of the woman’s attorney, he stated:

“ That shortly after the Summons and Complaint was served, the Plaintiff, suffering from emotional stress and trauma based on the underlying assault and battery complained in this action, left the United States for her home country of Spain, as Defendant resided in the same neighborhood as Plaintiff, and Plaintiff, in fear of her safety and mental well-being, withdrew from the country. ”

In Herzbrun v. Levine, 23 AD2d 744 (1st Dept. 1965), the Court held that the plaintiff’s excuse that she was forced to move to West Germany shortly after the action was commenced was not sufficient cause to excuse the failure to comply with the provisions of CPLR 3215. In Sortino v. Fisher, 20 AD2d 25, 30 (1st Dept. 1963), the court stated that “[T[he duty of prosecuting …. (an) action rests upon the (person) who brings it, not the (party) who defends it.” In that case, the court stated that “there is an intimate relationship between the merit of an action and the fact that it has been neglected.” This is the reason why an affidavit is needed because it must be “as good as the kind of affidavit which could defeat a motion for summary judgment on the ground that there is no issue of fact.” As Justice Breitel wrote in the decision: “Given the delay, he has a double burden; to justify the delay and to lend credit to the proferred justification by establishing merit.” Further, “Even an action of great merit may be forfeited by prolonged delay. It is the right of a defendant to be free of a case which is not diligently prosecuted. For obvious reasons, it is very rare and quite perverse that an action of merit is not diligently prosecuted.”

Richard A. Klass, Your Court Street Lawyer, brought a motion, termed an “Order to Show Cause,” to vacate the default judgment and dismiss the action. The motion stated that the excuse of the plaintiff for not entering the default within one year (that the woman suffered from emotional stress) had absolutely nothing to do with the requirement that her attorney should have moved for the default within one year since he proceeded on the Verified (or sworn) Complaint of his client and did not need any further sworn affidavits from her to obtain the default judgment.

In response to the Order to Show Cause, the plaintiff capitulated and agreed to settle the ‘Million Dollar’ case for a mere $7,500 to avoid further litigation!

by Richard A. Klass, Esq.
Your Court Street Lawyer

R. A. Klass
Your Court Street Lawyer

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The (Property) Bonds of Matrimony That Can’t Be Broken

Posted on February 21, 2011 by Richard Klass

Two sisters and their respective husbands decided to purchase a two-family house in The Bronx in 1995. At the closing, they took title to the property, reflected on the Deed, as follows: “Gilberto Hernandez and Consolacion Hernandez, his wife …. And Erlinda Que and Elpidio Rodriguez, her husband.” Erlinda executed her Last Will and Testament, in which she devised her “half share and interest in the real property” to her sister, Consolacion, and her husband, Elpidio, in equal shares. In December 2000, Erlinda passed away, survived by her husband, Elpidio.

For a long time after Erlinda’s death, Elpidio and his deceased wife’s sister continued to maintain the house. At some point, he remarried and wanted to sell it and move. And, when they all couldn’t agree on how to accomplish this, a lawsuit was initiated called a “Partition and Sale” action. In this type of lawsuit, the parties ask a judge to order the property sold at auction.

The decedent’s sister and her husband, along with the nominated executor under the Will, claimed that ownership of the Bronx property passed under Erlinda’s Last Will and Testament. Therefore, they claimed that half of Erlinda’s quarter-share went to Consolacion (or one-eighth of the total interest in the property), and half of Erlinda’s quarter-share went to Elpidio. By their claim, Elpidio would be entitled to only 37.5% of the house.

Elpidio, the decedent’s surviving spouse, came to Richard A. Klass, Your Court Street Lawyer, for legal advice. Elpidio felt that, as Erlinda’s husband, he should get more.

Tenancy by the Entirety:

One of the “perks” of being married is that real property deeded to a husband and wife creates a “tenancy by the entirety,” under New York’s Estates Powers and Trusts Law Section 6-2.2(b). This form of ownership, among other things, prevents creditors of one spouse from forcing the sale of the house and easily transfers title to one spouse upon the death of the other. The exception to this rule about a tenancy by the entirety is if the Deed expressly declares it to be a joint tenancy or tenancy in common (where each spouse owns a divisible share).

Commonly, the Deed to a husband and wife will indicate that they are married, with language such as “A and B, as husband and wife” or “A and B, his wife” or “A and B, her husband.” This form of ownership, by statute, cannot be altered or changed without the mutual consent of the spouses or a divorce. Obviously, the ownership of a house by spouses as a tenancy by the entirety gives comfort that one spouse cannot sell his/her interest in the house without the other spouse’s consent. Only in limited circumstances, such as a divorce proceeding or bankruptcy case, can a court force the disposition of a house owned by the spouses in this form without their consent.

Granting of Summary Judgment:

The term “summary judgment” means that the litigant believes that there are no issues of fact which necessitate a trial before a judge or jury. When one litigant “moves” or asks the judge to grant summary judgment, he must present proof (in admissible form) which supports the request and which demonstrates that the matter may be decided on the law alone. It can then be said that the movant has established his“prima facie” case (meaning “at first sight”). Then, the other side to the litigation must present the judge with proof that there are genuine factual issues, and that the matter cannot be decided without a trial. Many readers will understand that judges deny summary judgment motions in most cases because they want to give litigants their day in court, and the facts are not always the facts.

In the probate proceeding in the Surrogate’s Court for Bronx County, Elpidio asked the Surrogate to grant him “summary judgment” on his claim that he is entitled to Erlinda’s entire interest in the house. The ‘Exhibit A’ proof, offered by Elpidio that he was entitled to Erlinda’s whole share, was the Deed itself. There was no express declaration in the Deed that it had been conveyed or transferred to Elpidio and Erlinda as anything other than husband and wife.

In granting summary judgment to Elpidio, in In the Estate of Erlinda Que, Deceased [Surrogate’s Court, Bronx County, February 25, 2010], Surrogate Holzman determined that, despite the language of Erlinda’s Last Will and Testament granting her sister a half-share of her interest in the house, Elpidio should be declared the full owner of half or 50% of the whole house. Specifically, Surrogate Holzman held that:

“ A tenancy by the entirety is different from both a tenancy in common and a joint tenancy in that ‘it remains fixed and cannot be destroyed without the consent of both parties’ for ‘as long as the marriage remains legally intact,’ with both parties continuing ‘to be seized of the whole, and the death of one merely results in the defeasance of the deceased spouse’s coextensive interest in the property.’ (V.R.W. Inc. v. Klein, 68 NY2d 560 [1986].) ”

Accordingly, by operation of law, the death of Erlinda, one of the spouses, resulted in that spouse/tenant no longer having an interest in the property, with Elpidio, as the surviving spouse, now owning her share as well as his own. Surrogate Holzman recognized the long-standing rule that “a severance of a tenancy by the entirety cannot be effectuated by the unilateral last will of one of the spouses alone.” (Matter of Strong, 171 Misc. 445 [1939].

by Richard A. Klass, Esq.

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copyr. 2010 and 2011 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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