STACY L. PETTIT, J.
Decedent died testate a resident of Albany County on June 21, 2007. Pursuant to her will, executed in 2006, decedent left the residue of her multimillion-dollar estate to the Alice P. Kenney Memorial Foundation (hereinafter the Foundation), a charitable lifetime trust established by decedent for charitable and educational purposes in remembrance of her daughter. Decedent nominated petitioner, her longtime attorney, to act as executor of her estate. He had already been named a co-trustee of the Foundation, which was established in June 1994.
In July 2014, pursuant to statutory authority (see SCPA 1409, 2205  [i]; EPTL 8-1.1 [f], 8-1.4 [e]), respondent commenced a proceeding to compel petitioner to judicially settle his account as executor of decedent's estate. In February 2015, petitioner filed his account and respondent formally objected.
Respondent's first objection is that petitioner violated the Prudent Investor Act (see EPTL 11-2.3) by failing to diversify the estate's $4.6 million investment portfolio of which General Electric (hereinafter GE) stock accounted for more than 85% of the estate's securities.
EPTL 11-2.3 sets forth the standard for a prudent investor. Among other things, this standard requires the fiduciary "to diversify assets unless the trustee reasonably determines that it is in the interests of the beneficiaries not to diversify, taking into account the purposes and terms and provisions of the governing instrument" (EPTL 11-2.3 [a]; Matter of Hyde, 44 A.D.3d 1195, 1197-1198 [3d Dept 2007], lv denied, 9 N.Y.3d 1027 ). "Whether a trustee has acted in conformity with the prudent investor rule is a determination which must be made in light of all the surrounding facts and circumstances" (Matter of Hyde, 44 AD3d at 1198).
By way of background, petitioner met decedent and her family in 1981 and, the following year, he prepared wills for both decedent and her husband. It was at that time petitioner learned that their primary asset was GE stock that decedent's husband had inherited. Decedent's husband died in 1984, and their adult daughter, Alice P. Kenney, died in 1985. At that time, assets previously held by a family trust passed to decedent, including the GE stock. From 1986 to 2006, petitioner continued to act as decedent's counsel, preparing 17 wills for decedent during that time. Decedent granted petitioner a power of attorney in 1986.From 1994 through 2006, petitioner met with decedent annually at her home in order to assist her in making year-end charitable donations. During these meetings, he would review decedent's financial statements. Petitioner testified that he raised the idea of diversifying decedent's portfolio but decedent was not willing to sell the GE stock. From 1994 to 2006, GE stock constituted at least 85% of the market value of the securities in decedent's US Trust account valued in the millions of dollars. In 2001, petitioner, as attorney-in-fact for decedent, opened an account at Morgan Stanley (hereinafter the POA account) with an initial deposit of $316,666. The POA account consisted entirely of GE stock from its inception through decedent's death in 2007. Aside from the stock in her US Trust account and the POA account, decedent's only other assets were her checking and savings accounts totaling approximately $100,000, and her home. The GE stock was not just the majority of decedent's investments, it was the majority of decedent's entire estate.
According to the amended accounting, at the time of decedent's death, she had stocks in US Trust and the POA account valued at $4,665,208, bank and cash deposits valued at $159,104, and her home. Schedule A-1 of the accounting lists $139,393 in realized increases on sales during the ten years of the accounting period, and Schedule B lists $888,158 in realized decreases on sales, with $789,286 of the losses resulting from sales of GE stock in 2015 and 2016. Petitioner stopped making investment decisions on his own in November 2015, when he moved the estate's investments to an investment advisory account at US Trust. It is noted that this transfer occurred after this accounting proceeding was contested by respondent. Between November 2015 and February 2016, petitioner sold 88.5% of the GE stock. He sold the remaining shares in July 2016, nine years after decedent's death. It is noted that neither the will nor the document establishing the Foundation contain any exoneration clause for investment choices or any specific instructions for, or even any mention of, GE stock.
Respondent presented expert witnesses Darren Beauchamp and Loren D. Ross to address the holding of GE stock. According to their testimony, GE stock accounted for 86% of decedent's equity portfolio, and 69% of the total market value of the estate. On the date of decedent's death, in June 2007, GE's closing price per share was $38.28. Petitioner was appointed as executor October 18, 2007; however, he began managing the estate and continued to access the POA account after decedent's death and prior to his appointment.
Ross opined that, by October 2007, petitioner should have diversified the GE stock. He further stated that, pursuant to the Prudent Investor Act, a fiduciary is charged with considering the total return of a stock which includes a consideration of dividends, but also the potential for increases in stock price, or capital appreciation. Ross further opined that neither GE's history of paying dividends, nor its status as a diversified company, was a legitimate basis for foregoing sale of the GE stock.
Ross further explained that the GE stock performed poorly when compared to the S & P 500 between October 2007 and July 2016. Specifically, GE's annualized return was -.53%, while the S & P 500's annualized return was +5.9%. Ross testified that the S & P 500 "was a legitimate alternative particularly at that time that you might have invested in."
The Court finds that petitioner did not act prudently in retaining the GE stock, which accounted for the vast majority of the estate assets, for approximately eight years after decedent's death. Respondent's first objection is therefore granted. The Court finds that it would have been prudent for petitioner to diversify the stock on October 29, 2007. "A surcharge is warranted where a demonstrated financial loss is suffered as a result of the fiduciary's imprudent conduct" (Matter of Braasch, 140 A.D.3d 1341, 1343 [3d Dept 2016]). As a result of his imprudent actions, petitioner is surcharged for the value of the lost capital to the estate, with statutory interest of 9% offset by the dividends and income earned.
According to respondent's experts, had petitioner sold 95% of the GE stock on October 29, 2007, when it was valued at $40.56 per share, the estate would have realized $3,353,784.80. Adding statutory interest of 9% through January 31, 2019 of $3,397,981.25, the amount the estate would have realized is $6,751,766.06. Credits against that amount include $2,452,034.86 in actual sales proceeds of GE stock, the interest earned on the proceeds through January 31, 2019 of $221,119.22, $535,635.22 in dividends received by the estate from the GE stock, and $116,086.74 in interest on the dividends through January 31, 2019, for a total credit of $3,324,876.03. Subtracting that credit from the potential value of $6,751,766.06 results in a loss to the estate of $3,426,890.02. This amount shall be subject to the statutory interest rate from February 1, 2019 through the submission of this matter for decision, for an additional interest charge of $86,974.05. Thus, the total lost capital damages are $3,513,864.07.
Respondent's second objection also alleges that petitioner violated the Prudent Investor Act by failing to sell decedent's real property in 2007 and instead imprudently investing $233,614.93 of estate assets to renovate the property.
Decedent died possessed of a 1,500 square foot residence located at 78 Salisbury Road in the Hamlet of Delmar, Town of Bethlehem, Albany County. At the time of her death, the property was in a general state of disrepair. Petitioner listed the property value as $150,000 on the probate petition and $130,000 on the estate tax return. Petitioner did not consider selling the property in an "as is" condition. Based on his own judgment, and not any formal appraisal or assessment, petitioner determined that the "as is" value of the house was around $50,000-$60,000; thus, he believed it was worthy of being renovated. A few weeks after decedent's death, petitioner met with his long-time contractor, Christopher Markessinis, at the property and they discussed renovating the property. Markessinis had been doing work for petitioner for approximately 20 years, including work for petitioner personally at his home and office and work on estates related to petitioner's legal work. Petitioner testified that the total cost of the renovation would be between $100,000 and $200,000. The contractor testified that the renovation budget was around $160,000. Petitioner did not solicit other bids for the project. He did not enter into a written contract with a clearly defined scope of work and an estimate of cost; rather, petitioner thought he would spend "100, $200,000 on the house."
During the renovations, petitioner provided minimal supervision of the project. Petitioner testified that he relied on his law office secretary to review Markessinis' invoices and receipts, and that she would issue payment and reimbursement checks to Markessinis using a stamp of petitioner's signature. Petitioner visited the property only three or four times during the several-month renovation, while his secretary made weekly site visits.
After extensive renovations which refinished or replaced nearly the entire property, petitioner had the property appraised by a licensed real estate broker and appraiser, who assigned the property a fair market value of $270,000. Petitioner then listed the house on the market with a different agent in May 2008 for $330,000. It remained on the market for almost a year, selling in 2009 for a reduced sale price of $250,000, and netting the estate $233,972.09. Since decedent's death, the estate had expended $233,614.93 on the project, including $181,595.30 to Markessinis for labor and materials. Thus, the estate received essentially nothing for the value of decedent's home.
"`[A] fiduciary is required to employ such diligence and prudence to the care and management of the estate assets and affairs as would prudent persons of discretion and intelligence in their own like affairs'" (Matter of Billmyer, 142 A.D.3d 1000, 1001 [2d Dept 2016]; accord Matter of Shambo, 169 A.D.3d 1201, 1205 [3d Dept 2019]). The Court finds that petitioner's decisions and actions with respect to decedent's real property fell far below the standard of care expected of a fiduciary and, therefore, grants respondent's second objection.
In order to surcharge the fiduciary, it is "`not enough for the contestants to show that the representatives of the estate did not get the highest price obtainable; it must be shown that they acted negligently, and with an absence of diligence and prudence which an ordinary man [or woman] would exercise in his [or her] own affairs'" (Matter of Shurtleff, 206 Misc. 255, 258-259 [Sur Ct, St. Lawrence County 1954], appeal dismissed 285 App Div 988 [3d Dept 2955], quoting Matter of Brower, 71 Misc. 398, 400 [Sur Ct, Kings County 1911]; accord Matter of Lovell, 23 A.D.3d 386, 387 [2d Dept 2005]). Here, petitioner did not obtain an appraisal of the house at the time of death in "as is" condition. He did not seek multiple estimates for the substantial project of renovating an entire house, nor did he even obtain a written estimate of the work or have a written contract with the contractor he hired. He did not directly supervise the work or regularly visit the site. The testimony established that the payments to the contractor contained some duplicate payments for the same materials, and submissions for reimbursement for purchases of materials were not always actual receipts. There were also questions raised during the testimony as to whether materials and labor charged to the estate may have been for other properties being worked on by the contractor, rather than the estate's property. Whether the payments made by the estate were accurate or not, the end result of the renovation project was that only the amount recouped at the real estate closing was the amount paid by the estate for the renovations and carrying costs for owning the house for nearly two years after decedent's death. The cost of those renovations and carrying costs eclipsed any profit and resulted a total loss of the value of the real property. The Court finds that these facts establish such negligence by petitioner as to warrant a surcharge.
As for the amount of damages to the estate as a result of petitioner's mismanagement of the real property, respondent asserts that petitioner should be surcharged $116,375, the amount that the estate would have received from selling the house in an "as is" condition after decedent's death. This value is based on the opinion of respondent's expert witness. Respondent presented expert witness Peter McKee, a licensed real estate broker with 16 years of experience in the local real estate market. McKee testified that he had sold more than 100 houses within two and a half miles of the estate property, as his home and office are both located in the area. McKee prepared a historical comparative market analysis for similar size and style houses in Bethlehem from 2008 through 2009. He opined that the real property, in its condition at decedent's date of death, was worth around $125,000 to $130,000, which would have netted the estate approximately $116,000, after taxes, fees and commissions. McKee testified that the renovation provided no benefit to the estate and stated that he would have sold the property in an "as is" condition. According to a report McKee prepared, the estimated net profit from an "as is" sale of the property for $125,000 would have netted the estate $116,375. The Court finds that this is a reasonable assessment of the damages to the estate caused by petitioner's mismanagement of the estate property, and surcharges petitioner this amount (compare Matter of Shambo, 169 AD3d at 1207). The damages shall be subject to statutory interest of 9% from January 1, 2008 through the submission of this matter for decision, which is $108,551.35, for a total of $224,926.35.
Respondent's third objection is to the payment of statutory commissions to petitioner, which respondent argues should be disallowed based on his mismanagement of the estate's assets and his failure to comply with SCPA 2307-a. On the amended accounting, petitioner indicates that he is entitled to $141,024.54 as one full executor's commission. It is noted that petitioner's original accounting indicated that he was only entitled to a half commission.
Turning first to SCPA 2307-a, this statute requires that an attorney who is named as an executor make certain disclosures to the testator prior to the execution of the will, as evidenced by the testator's written acknowledgment. The statute has been amended several times, thus raising questions about what constitutes compliance with the statute based on the date of the will execution. Decedent's will was executed in July 2006. The Appellate Division, Second Department, recently concluded that "where a will was executed between the 2004 and 2007 legislative amendments to SCPA 2307-a, an attorney-executor is limited to one-half of the statutory commission when the testator's written acknowledgment does not contain the fourth acknowledgment specified in the statutory model forms" (Matter of Brier, 171 A.D.3d 737, 739-740 [2d Dept 2019]).
Here, however, the Court finds that petitioner is not entitled to any commission. It is well settled that commissions may be disallowed based on "`misconduct amounting to dereliction, complete indifference or other comparable acts of misfeasance'" (Matter of Johnson, 166 A.D.3d 1432, 1433 [3d Dept 2018], quoting Matter of Drier, 245 A.D.2d 787, 788 , lv denied 91 N.Y.2d 812 ). Unreasonable delay in closing an estate may constitute grounds for disallowance of commissions or fees (see 22 NYCRR 207.42; Matter of Johnson, 166 AD3d at 1433). Petitioner held letters testamentary for eight years before filing his account as executor, which account had been compelled by respondent pursuant to SCPA 2205. Despite the fact that the estate's assets poured into the Foundation by the terms of decedent's will, which was drafted by petitioner, the distribution of the estate's residue to the Foundation was never made. This was because petitioner failed to obtain tax-exempt status for the Foundation until 2015,
Respondent's fourth objection is to the payment of legal fees to petitioner, which respondent argues should be disallowed based on his repeated failure to follow the applicable laws pertaining to estate administration. "`The determination of a reasonable attorney's fee in a matter concerning an estate is within the sound discretion of the Surrogate's Court'" (Matter of Elenidis, 120 A.D.3d 1229, 1231 [2d Dept 2014], lvs denied 24 N.Y.3d 910 , 25 N.Y.3d 904 , quoting Matter of Weinberg, 107 A.D.3d 729, 730 [2d Dept 2013]). The Court takes into consideration a number of factors when determining and fixing counsel fees, including but not limited to the "time and labor required, the difficulty of the questions involved, and the skill required to handle the problems presented; the lawyer's experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved" (Matter of Freeman, 34 N.Y.2d 1, 9 , citing Matter of Potts, 213 App Div 59, 62 [4th Dept 1925], affd 241 N.Y. 593 ; see Matter of Von Hofe, 145 A.D.2d 424, 425 [2d Dept 1988]). In determining the reasonableness of counsel fees in a particular case, a Surrogate is required to consider all of the relevant factors (see Matter of Patchin, 106 A.D.2d 730, 732 [3d Dept 1984]).
Petitioner has not submitted an affidavit detailing his legal services and contemporaneously recorded time records in support of a fee request (see 22 NYCRR 207.45).
According to the amended accounting, petitioner paid himself the following amounts during the administration of the estate, despite his letters prohibiting him from paying attorney's fees or commissions without a court order:
This totals $68,000 in legal fees from December 2011 through February 2014. Petitioner omitted these payments on his initial accounting, which indicated only that petitioner was owed $58,000 in unpaid legal fees for the period of June 2007 through December 2014. Petitioner's amended accounting indicates he is owed $48,000 in legal fees, in addition to the $68,000 already paid.
Petitioner, who was decedent's attorney for decades prior to her death, was certainly familiar with her assets and her testamentary plans. He paid bequests to all the individual will beneficiaries by the end of 2007 and decedent's real property was sold by mid-2009. Accordingly, the assets on hand should have been turned over to the Foundation and the estate closed by the end of 2009. Petitioner had not, however, obtained tax-exempt status for the Foundation, despite having been the one to create the Foundation for decedent over ten years before her death. He then engaged in litigation with the IRS for several years in order to obtain retroactive tax-exempt status, which ultimately occurred in 2015, but the status was then revoked again due to petitioner's failure to file required IRS forms. Petitioner has had ample opportunity to explain the basis for his legal fees and to provide documentary evidence of the hours and tasks performed yet has failed to do so. While this was a sizeable estate, it was not overly complicated and did not involve novel issues of law (compare Matter of Mergentime, 207 A.D.2d 452, 453 [2d Dept 1994]). Had petitioner acted with diligence, he could have concluded this estate nearly ten years ago. Given that his services have provided little if any benefit to the estate, and that petitioner deceived the Court and respondent by omitting his legal fee payments on his initial accounting, the Court sees no reason to award him any legal fees (see Matter of Shambo, 169 AD3d at 1207; Matter of Rodken, 2 A.D.3d 1008, 1009 [3d Dept 2003]). Accordingly, respondent's fourth objection is granted.
Respondent's fifth objection seeks restitution from petitioner for the $68,000 in legal fees that petitioner paid to himself in violation of SCPA 2111 and the terms of the letters testamentary. Surrogate's Court is "`empowered to order a return of the counsel fees previously paid out without prior court approval'" (Matter of Williams, 168 A.D.3d 753, 754 [2d Dept 2019], quoting Matter of Greenidge, 134 A.D.2d 592, 593 [2d Dept 1987], appeal dismissed 71 N.Y.2d 993 , lv denied 72 N.Y.2d 806 ). Inasmuch as the Court has determined that petitioner is not entitled to any legal fees, the fifth objection is granted, and petitioner is directed to repay the $68,000 he paid to himself without obtaining prior court approval (see Matter of Kinzler, 195 A.D.2d 464, 466-467 [2d Dept 1993]). He is surcharged the statutory interest rate of 9% for those payments, equaling $39,899.57 as of the submission date.
Respondent's sixth objection is to the payment of attorney fees to counsel hired by petitioner for this proceeding, which payment respondent argues should be reimbursed to the estate. Petitioner represented himself in this estate until early 2017, at which time he retained attorney Frederick Killeen. At some point in mid-2017, petitioner also retained Hon. C. Raymond Radigan as counsel, although a formal notice of appearance was never made. Petitioner discharged both counsel on the first day of trial. According to petitioner's accounting, a partial legal fee of $18,000 was paid to Killeen in March 2017, and $7,500 was paid as a retainer for Radigan's representation in September 2017. "[L]egal expenses involved in an unsuccessful defense resulting in removal for misconduct are the removed trustee's own personal obligation" (Matter of La Corte, 7 A.D.3d 909, 911 [3d Dept 2004]). Inasmuch as these legal fees were incurred to defend petitioner for his wrongdoing, and the associated legal services benefitted him and not the estate, the legal fees for Killeen and Radigan are the responsibility of petitioner personally, and not the estate (see Matter of La Corte, 7 AD3d at 911; Matter of Newhoff, 107 A.D.2d 417, 423 [2d Dept 1985], lv denied 66 N.Y.2d 605 ; Matter of Hildreth, 274 App Div 611, 615-616 [2d Dept 1949], affd 301 N.Y. 705 ). Accordingly, respondent's sixth objection is granted, and petitioner is directed to reimburse the estate $25,500.
Respondent's seventh objection seeks removal of petitioner as executor of the estate and as trustee of the Foundation, and the appointment of a corporate fiduciary as successor executor and trustee. A fiduciary may be removed by the Court where, among other things, she or he has "wasted or improperly applied the assets of the estate, or made investments unauthorized by law or otherwise improvidently managed or injured the property committed to [her or] his charge" (SCPA 711 ; see also SCPA 719 ; Matter of Shambo, 169 AD3d at 1206). Based on the Court's findings set forth in this decision, the grounds for removal provided in SCPA 711 (2) have been met (see Matter of Witherill, 37 AD3d at 881). Accordingly, objection seven is granted and petitioner is removed as executor of the estate and trustee of the Foundation. Bank of America is named as the successor executor and trustee in the relevant documents. A copy of this decision shall be provided to Bank of America by respondent so that it may take the steps necessary to qualify as successor fiduciary.
Respondent's eighth objection requests that this Court enjoin petitioner from serving as a trustee, director, officer or in any other fiduciary capacity of any charitable trust, not-for-profit corporation, or other charitable entity conducting activities in the State of New York, or as the executor of any estate which contains a disposition to charity. "Surrogate's Court, as a court of limited jurisdiction, may exercise only the powers conferred upon it by statute and those powers incidental, inherent or necessary to do justice in a particular case to which its jurisdiction extends" (Matter of Stortecky v Mazzone, 85 N.Y.2d 518, 524 ; see NY Const art VI, § 12 [d]). The Court finds that it lacks jurisdiction to enjoin petitioner as requested (see generally SCPA 201; see also Executive Law §§ 63, 175 [authorizing the attorney general to commence an action or special proceeding in Supreme Court to enjoin persons or organizations from certain activities related to charitable causes]). The Court's authority to remove petitioner is limited to the proceedings pending before it. The Court has the authority to remove a fiduciary in other estates and trusts pending in this Court, either sua sponte or upon application of an interested party, pursuant to SCPA 711 and 719.
Finally, respondent requests costs and disbursements pursuant to CPLR 8101 and CPLR 8301. CPLR 8101 provides that "[t]he party in whose favor a judgment is entered is entitled to costs in the action, unless otherwise provided by statute or unless the court determines that to so allow costs would not be equitable, under all of the circumstances." Respondent is awarded $700 in costs under CPLR 8201 and, pursuant to CPLR 8110, the costs are chargeable to petitioner personally and not the estate. CPLR 8301 provides that "[a] party to whom costs are awarded in an action or on appeal is entitled to tax his necessary disbursements for [among other things] the reasonable expense of taking, and making two transcripts of testimony on an examination before trial, not exceeding two hundred fifty dollars in any one action" (CPLR 830[a]). Respondent is awarded $250 in disbursements related to the examinations before trial.
To the extent that the Court has not expressly addressed any of the parties' arguments, they have been examined and found to be without merit. This constitutes the decision and decree of the Court. Accordingly, it is hereby
ORDERED that respondent's objections one through seven are sustained and objection eight is denied; and it is further
ORDERED that petitioner is surcharged for all damages resulting from the breach of his fiduciary duty to the estate, along with statutory interest as set forth above; and it is further
ORDERED that petitioner is denied his statutory commission; and it further
ORDERED that petitioner is denied legal fees; and it is further
ORDERED that petitioner reimburse the estate for legal fees improperly paid without court order, with statutory interest; and it is further
ORDERED that petitioner's letters testamentary are revoked and that petitioner is removed as trustee of the Alice P. Kenney Memorial Foundation; and that Bank of America may apply as successor executor and successor trustee; and it is further
ORDERED that respondent is awarded costs and disbursements.