Surrogate Anderson ESTATE OF ELIZABETH L. DE SANCHEZ, Deceased (01-3187/S) — These are cross-motions for summary judgment in an accounting proceeding for an inter vivos trust (“the 5462 Trust” or “the trust”) created by Elizabeth L. de Sanchez (“grantor”). Objectant Pedro Arellano Lamar, as personal representative of grantor’s estate, seeks a ruling that trustee JPMorgan Chase Bank, N.A. (as successor to Central Union Trust Co. of New York) breached its fiduciary duty by failing to retain the trust’s records, rendering its account speculative and incomplete. He asks the court to make presumptions against the trustee because of its admitted inability to account fully and accurately, and to grant the estate partial summary judgment as to any surcharge for this breach. The trustee cross-moves for summary judgment dismissing the objections and in effect seeking to discontinue the proceeding, arguing that objectant has failed to come forward with any evidence to overcome the trustee’s prima facie case that the trust was revocable and was revoked by grantor (see Matter of De Sanchez, 107 AD3d 409 [1st Dept 2013]). The trustee asks the court to conclude that it fulfilled all of its accounting obligations to grantor during her lifetime and thus had no further obligations to retain trust records or to account. For the reasons set forth below, the court concludes that dismissal of the objections and the proceeding is appropriate. Background. Little is known for certain about the trust which is the subject of this proceeding. Grantor, a Cuban national, created the 5462 Trust for her own primary benefit. Although the exact date of its creation is not known, it is possible that the 5462 Trust was created in September of 1927, when grantor created seven trusts for the benefit of her children and their spouses and issue (referred to collectively as “the children’s trusts”). The trustee’s predecessor was named as fiduciary of the 5462 Trust as well as of the children’s trusts. It is undisputed that the trust instrument, account statements, and any documents evidencing the trust’s termination are not extant. Nor are there any people still alive who have personal knowledge of the relevant facts. All that is known of the 5462 Trust is what is learned from the references to it in 13 documents, dated between 1931 and 1940, which were included in a 80,000-page document production in pending accountings relating to the children’s trusts. The documents mentioning the 5462 Trust consist of ten letters between the trustee and either grantor or her son concerning the administration of the 5462 Trust; a cover letter from the trustee to its lawyers enclosing a memo (which has not survived) about some aspects of trust administration; the trustee’s internal memo regarding inquiries received from grantor and her family; and a letter from the trustee to a different bank introducing grantor as a potential client and describing her as the beneficiary of a “very substantial” trust. These documents indicate that grantor had retained and exercised investment authority over the trust. Several bond holdings are mentioned, but only one — a $50,000 City of Miami bond due on February 1, 1937, which was reinvested — is identified as to issue and value. The correspondence indicates that in March of 1940 grantor instructed the trustee not to reinvest the trust’s $60,900 cash balance. Grantor died in 1951, more than ten years after the date of the most recent document referencing the 5462 Trust. At that time, the trustee searched its records for evidence of any agreements or relationships with grantor other than the children’s trusts, but found none. The children’s trusts, which had all become irrevocable by the terms of the respective trust agreements, continued thereafter. Procedural history. Objectant here, who is also an objectant in his individual capacity to the accountings of the children’s trusts, learned of the 5462 Trust from the 13 documents described above. To obtain standing to compel this account (SCPA 2205[e]), objectant obtained appointment as the personal representative of grantor’s estate, and thereafter petitioned to compel the trustee to account for the 5462 Trust (Matter of De Sanchez, #2001-3187/G, filed Dec. 22, 2011 [Sur Ct, NY County]). The trustee initially defaulted, and the court entered an order directing it to account (Matter of De Sanchez, Decision and Order, Feb. 15, 2012 [Sur Ct, NY County]). The trustee moved to vacate its default, alleging improper service, and sought an order allowing it to file a motion to dismiss the petition nunc pro tunc on grounds (1) that the 5462 Trust had been revoked by grantor prior to her death, (2) that the revocation had obviated the trustee’s obligation to retain trust records, and (3) that the proceeding was barred by the statute of limitations and laches. The motion was denied (Matter of De Sanchez, Decision and Order, Oct. 19, 2012, NYLJ, Oct. 31, 2012 at 23 [Sur Ct, NY County]), and the trustee appealed. The Appellate Division held that the trustee had demonstrated a reasonable excuse for its default (Matter of De Sanchez, 107 AD3d 409 [1st Dept 2013]), and thus considered whether the trustee had presented a meritorious case for dismissal of the petition (Bergen v. 791 Park Ave. Corp., 162 AD2 330 [1st Dept 1990], citing Tat Sang Kwong v. Budge-Wood Laundry Serv., Inc., 97 AD2 691 [1st Dept 1983]). Although the court rejected the trustee’s defenses based on statute of limitations and laches, it concluded that a prima facie case had been made that grantor had revoked the 5462 Trust before her death (Matter of De Sanchez, 107 AD3d at 410). However, since the showing of revocation “was not so overwhelming” as to warrant dismissal of the petition, the court remanded the case to permit the trustee to file its objections to the petition nunc pro tunc, “after which this matter can take whatever course is required (e.g. discovery and a trial)” (id.). The trustee filed its objections and again moved to dismiss the petition to compel it to account, this time on the ground that objectant would not be able to overcome its prima facie case that the trust had been revoked. The motion was denied, both because the Appellate Division had rejected out of hand the trustee’s position that dismissal was appropriate at this juncture, and because revocation of a trust does not, in itself, exonerate a fiduciary from its duty to account (Matter of De Sanchez, NYLJ, Dec. 29, 2017 at p. 24, col 5 [Sur Ct, NY County, Dec. 27, 2017]). The decision necessarily left determination of the disputed issue — whether the trust had in fact been revoked (i.e., whether the trustee’s prima facie case could be rebutted) and, if so, whether the trustee had discharged its obligation to account — to the subsequent judicial accounting proceeding. In the accounting before the court, the trustee has set forth limited facts drawn from some of the extant documents and has now accounted solely for the $50,000 City of Miami bond pus interest and the approximately $60,900 cash balance identified in the correspondence. Although there is no explicit evidence of a revocation in the surviving record, there is an absence of communication about the trust after March of 1940, when grantor directed that the cash balance not be reinvested. The trustee assumes revocation of the trust around this date and distribution of assets to grantor sometime before her death. Objections filed in response to the trustee’s admittedly incomplete and inaccurate account assert that the trustee’s understatement of the trust’s assets, other accounting omissions, and its assumption that the trust terminated by revocation in or around 1940, are all a result of the fiduciary’s failure to fulfill its duty to maintain records. In sum, objectant asserts that the trustee’s failure to keep records warrants the raising of all presumptions against it, including a presumption that the trust was never revoked and another that the trustee’s obligation to account was never discharged. Objectant also asserts that the trustee should have accounted for other trust assets mentioned in general terms but not specifically described in the correspondence (e.g., “State of Arkansas bonds,” and “rr obligations,”) and should have made assumptions the trust’s value and other specifics by extrapolating from known holdings of the same type in the children’s trusts. Cross-motions for summary judgment followed. Summary judgment standard. Summary judgment is appropriate where a movant makes a “prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact” (Alvarez v. Prospect Hosp., 68 NY2d 320, 324 [1986]). If a prima facie case is made, the adversary must come forward with sufficient evidence to demonstrate the existence of a bona fide material issue of fact which requires a trial (id.). Accordingly, “it is incumbent upon a [party] who opposes a motion for summary judgment to assemble, lay bare and reveal his proofs, in order to show that the matters set up in his answer are real and are capable of being established upon a trial,” (Di Sabato v. Soffes, 9 AD2d 297, 301 [1st Dept 1959]), and are not merely “formal, perfunctory, or shadowy” (id. at 300). Although the evidence must be viewed in a light most favorable to the party resisting summary judgment, “mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient” (Zuckerman v. New York, 49 NY2d 557, 562 [1980]; see also Matter of Neuman, 14 AD3d 567 [2d Dept 2005]). Where no genuine issues of fact are raised, summary judgment is appropriately granted to the moving party (Matter of Shambo, 169 AD3 1201 [3d Dept 2019]); Matter of Ryan, 34 AD3d 212 [1st Dept 2006], lv denied, 8 NY3d 804 [2007]). Discussion. Objectant’s argument that the trustee’s failure to maintain records constitutes a violation of its fiduciary duties is based on the well-established principle that a fiduciary has an obligation to maintain adequate records of its fiduciary transactions in order to be able to account meaningfully to the beneficiaries1 (7 Warren’s Heaton, Surrogate’s Court Practice §91.01 at 91-2 [7th ed 2017]). While objectant faults some specific assumptions made by the trustee in preparing its account, his primary argument is that every adverse inference about the trust that could have been rebutted by trust documents, had they survived, should be made in objectant’s favor, and a surcharge should be imposed on the trustee for ensuing trust losses. Objectant does not attempt to identify or quantify those losses here; rather, he proposes that the court first address whether the trustee is subject to surcharge, and defer a determination as to the amount to a future hearing at which expert witnesses would testify. Since the actual assets, investments, administrative expenses and distributions of the 5462 Trust are unknown, objectant suggests that the experts would calculate losses by drawing parallels between the 5462 Trust and the children’s trusts, whose records were maintained and are available. Objectant dismisses as irrelevant the Appellate Division’s determination, in the context of vacating the trustee’s initial default, that the trustee had made a prima facie case that the trust had been revoked (Matter of De Sanchez, 107 AD3d 409, 410). Objectant argues that vacatur of a default requires merely a first blush showing of a possible defense, without actual proof, while, in the context of summary judgment, a litigant must actually prove its case on the merits in order to prevail. “Prima facie” is a term that applies to a quantum of evidence, and a prima facie case is made out by presentation of “evidence that will establish a fact or sustain a judgment unless contradictory evidence is produced” (Black’s Law Dictionary 598 [8th ed. 2004]. Whether trying to prove a likelihood of success on the merits to vacate a default judgment or asserting an affirmative case for summary judgment, a litigant must come forward with evidence sufficient to support a ruling in its favor if contrary evidence of material facts is not offered by its opponent. Thus, in the default context, the party seeking dismissal cannot prevail without an affirmative showing of “proof of the facts” (CPLR 3215[f]) which would support a judgment in its favor, which proof can be presented by affidavit or a pleading verified by a person with knowledge of the facts (Joosten v. Gale, 129 AD2 531 [1st Dept 1987]; Levi v. Oberlander, 144 AD2 546 [2d Dept 1988]). Similarly, as noted above, a party seeking summary judgment must present proof of material facts sufficient to show “entitlement to judgment as a matter of law” (Alvarez v. Prospect Hosp., 68 NY2d at 324) if not rebutted. The record before the Appellate Division contained ample evidence from which to reasonably infer that by 1941 grantor had revoked the 5462 Trust. Such proof includes a paper trail of communications between grantor and the trustee which show the grantor’s active involvement in monitoring and managing both the 5462 Trust and the children’s trusts prior to 1941, while later communications refer solely to the children’s trusts. Further, grantor was revising her estate plan around 1940, which led to a new will executed in 1941. The timing of this estate planning coincided with changes to Unites States tax law which increased the tax burden on non-resident alien trust income. In addition, the De Sanchez family accounts, including the 5462 Trust and the children’s trusts, were managed by a single trust officer over an extended period of time beginning before 1940 and continuing for years after grantor’s death, making it unlikely that the trustee would have lost track of a continuing substantial trust. Throughout this extended period, the trustee maintained and retained extensive records in regard to the children’s trusts. Finally, after grantor’s death, the trustee searched for, but did not find, evidence of existing relationships with grantor other than the children’s trusts. Nor did grantor’s sons, who served as her executors and were aware of her assets, assert the continued existence of the 5462 Trust or any beneficial interest in it after her death. The record is sufficient to establish a prima facie case that the 5462 Trust had been revoked, whether in the context of vacating a default or on summary judgment. It is now incumbent on objectant to offer rebuttal evidence sufficient to warrant a trial on the issue (Nomura Asset Capital Corp. v. Cadwalader, Wickersham & Taft LLP, 26 NY3 40 [2015]; Di Sabato v. Soffes, op cit., 9 AD2d at 301). The Appellate Division remanded the matter for this purpose. Objectant has failed to offer any such evidence. The record reveals that objectant learned of the existence of the 5462 Trust from the documents the trustee provided to him. Objectant has produced no evidence whatsoever which might suggest that the Trust was not revoked. Since objectant has failed to come forward with any evidence refuting or casting into question the revocation of the 5462 Trust, the trustee has established both its revocability and its revocation. The fact that grantor revoked the trust does not, however, establish whether the trustee satisfied its obligation to account to grantor. The court must determine whether the trustee has made out a prima facie case that it did account, formally or informally, or whether grantor waived an accounting.2 In the absence of a written release, which would have gone a long way toward establishing that the trustee satisfied its fiduciary obligations (Matter of James, 173 Misc 1042 [Sur Ct, NY County 1940]), the court must consider whether the trustee has presented other evidence sufficient to establish its prima facie case on the issue of waiver. The record contains sufficient circumstantial evidence from which the court can infer that grantor waived an accounting of the 5462 Trust. Evidence of the grantor’s active control over the trust provides some circumstantial evidence of her waiver. As shown in the existing correspondence, grantor’s investment control was not a mere formality. She was a hands-on participant in the management of the trust, not only reviewing the trustee’s investment recommendations, but rejecting its advice and following her own preferences. Her two oldest sons, Emilio and Jorge, who were familiar with her assets (and who later became the executors of her estate), communicated with the trustee on her behalf. Correspondence dated between 1940 and grantor’s death in 1951 shows that grantor, often acting through Emilio, continued her active engagement in the management of the children’s trusts. The correspondence also reflects the family’s awareness that changes in U.S. tax law had increased the taxes on non-resident alien trust income, which rendered trusts a less attractive investment vehicle. Although such adverse tax consequences were unavoidable for the irrevocable children’s trusts, that was not so for the revocable 5462 Trust. Furthermore, given the family’s proclivity for close coordination with the trustee regarding the details of trust administration, the absence of post-1940 communications by or with the family or its retention of records as to the 5462 Trust is particularly telling. Second, the record shows that grantor was knowledgeable about a fiduciary’s accounting obligations and that she was hostile to the process and the cost it entailed. In her September 1941 will, while conferring broad authority upon her sons as executors, she explicitly directed that they administer her estate “without judicial intervention, which she absolutely prohibits, and which shall only happen in case of being required by an act of voluntary jurisdiction to finish complying with the will of the testator.” In view of her expressed wishes, coupled with her detailed knowledge of and control over the activities of the 5462 Trust, it is reasonable to infer that she would have eschewed any accounting. This inference is supported by correspondence between the trustee and grantor’s children after the grantor’s death. The trustee notified the children that it would proceed with formal accountings of their trusts despite some family resistance. It advised the children that “[i]nasmuch as the investments of your trusts…were made during the lifetime of [grantor] at her direction, we saw no particular need to settle accounts [of the children's trusts] during her lifetime.” Rather, it informed them of its intention to formally account after the grantor’s death. Emilio replied: “As all the changes during all the years have been done with my approval and that of [grantor]…I do not see the necessity of all that accounting, unless [it is] something you have to do by law, but do not do it on account of us.” In addition to periodic informal accountings, the trustee formally accounted for the children’s trusts following grantor’s death; again in 1974 after the deaths of several of grantor’s children; and more recently in pending proceedings. Most persuasive is the complete absence of any evidence of open questions regarding the 5462 Trust. There is a voluminous and continuous decades-long record of active engagement between the family (grantor, her children — acting both as her executors and in their own interests as her beneficiaries — and her later descendants) with the trustee. Yet grantor retained no documents concerning the 5462 Trust; not even so little as a copy of the trust instrument, much less the original. No inquiry as to the trust’s assets or management was made in the years before her death; no effort to obtain an accounting was made by her executors; no family history reveals any lingering disquiet about this trust. This is not to suggest that a trust beneficiary has a legal duty to maintain records or initiate requests for an accounting. In the particular circumstances of this case, however, the failure of the grantor or her descendants to question the trustee’s actions or to demand further disclosure is itself strong circumstantial evidence of waiver and satisfaction. The record thus supports the inference that the grantor was fully aware of the trustee’s actions, approved them, and waived any further accounting obligations under fair and equitable circumstances. Accordingly, the objections are dismissed and this proceeding is dismissed as moot because the trustee fulfilled its accounting obligations to the grantor. This decision constitutes the order of the court. Dated: November 23, 2020
