Estate of Frankowski

DECISION/ORDER This is a decision on an intermediate accounting filed by Michael J. Frankowski as former administrator of the estate of Robert E. Frankowski. It is offered by him to purge the Court’s finding of civil contempt against him. Robert Frankowski died on December 5, 2013 survived by his spouse, Qiuhong Frankowski, his son Michael Frankowski and his minor grandson Alexander Frankowski, the only child of his predeceased son Shawn R. Frankowski. Michael Frankowski (“petitioner”) fought for the privilege of acting as administrator of his father’s estate, opposing the surviving spouse’s early petition for letters of administration and then petitioning in his own right for appointment (In re Estate of Kahr, 85 Misc2d 363 [Sur Ct Albany Cty 1976]). Having secured his appointment, however, petitioner apparently lost interest in managing the estate. His hard-won appointment was followed only by inaction and procrastination, to the apparent frustration of his attorney, who moved to be relieved as a result.¹ By November 2016, then-Surrogate Work was compelled to issue an order setting forth a series of tasks he was required to complete within 30 days. All of the tasks related to basic tasks of administration: marshalling, valuation and sale of estate assets, including real property and decedent’s automotive repair Shop, People’s Auto II (the “Shop”), which was owned and operated jointly with petitioner. Then, as now, the real property consisted of one unimproved parcel (the site of decedent’s former home), the Shop property and three residential rental properties, one of which was owned jointly with a third party. Petitioner’s failure to comply with the 2016 order ultimately lead to his removal by this Court in June 2019 and a finding, after a hearing he declined to attend, of civil contempt. Letters of administration were issued to decedent’s surviving spouse, Quihong Frankowski (“administrator”) in February 2021. Removing petitioner as fiduciary did not relieve the Court — or the estate — of his misconduct, because he remained in possession of the Shop books, records and income tax returns. Similarly, only petitioner could provide the records of his management of the estate’s rental properties. Obtaining the petitioner’s final accounting was thus critical to the ability of the new administrator to carry out her duties. To that end, when petitioner was found to be in contempt of court and required to serve a period of incarceration in the county jail, he was offered the opportunity to purge the contempt — and avoid jail time — by filing a complete accounting of his abbreviated term as fiduciary. This he did, after a fashion. In September 2020, the petitioner filed his intermediate accounting. It was wholly inadequate and inaccurate. Rife with errors, the accounting was replete with evidence of petitioner’s misconduct. Schedule A-2, which should have reflected seven (7) years of income generated by the rental properties and by the Shop, instead showed income of only $81.76 for the entire period. The inventory at decedent’s Shop, which consists of junked and parts cars, was valued at $9,900 in Schedule J: there was no mention of equipment or fixtures, or of the value of the 30-year old business itself. Schedule G (“Assets on Hand”) is missing entirely. The $221,508.95 non-probate proceeds of retirement accounts and joint bank accounts appear, inexplicably, in both Schedule A as assets and Schedule E as distributions. In Schedule D of the intermediate accounting, petitioner assumed the role of estate creditor, seeking reimbursement in the amount of $244, 294.88.² This figure is composed largely of real estate taxes, but also includes petitioner’s claim for $47,500 in capital improvements to estate properties. By way of supporting documentation, petitioner filed date of death appraisals for the real property, copies of bills and some proof of payment for appraisals, electrical service and real property taxes. He offered no income tax returns for the Shop, the decedent, or the estate. No rental or income history was provided for the rental properties or for the Shop. His attorney explained that petitioner planned to purchase the properties and the Shop from the estate. A citation was issued on the deficient accounting as submitted. In anticipation of a conference with the new administrator in April 2021, the petitioner was directed to prepare a rent roll, identify current fuel suppliers and insurers and to provide keys to the three rental properties. The Court learned then for the first time that there was no insurance on any of the estate properties. Rent was accruing and being collected fitfully in cash from 2 properties for a total of $2,300 per month. The third property was a two-family residence owned jointly with a third party and was occupied by petitioner, who was not paying rent. Objections were filed by the administrator and by the guardian ad litem for the infant distributee, Alexander Frankowski. A bench hearing on the objections was conducted on November 17 and 18, 2021. Petitioner was the sole witness. In a contested accounting, the fiduciary has the burden of proving that they have fully accounted for the entire estate (Matter of DiGiovanna, 148 AD3d 699 [3d Dept 2017]). The fiduciary retains the evidentiary burden in a contested accounting: the objectant bears the burden of establishing that the account is inaccurate or incomplete and upon the objectant’s making such a showing, the accounting party must prove, by a fair preponderance of the evidence, that his or her account is nevertheless accurate and complete (In re Bartolini, 2021 NYLJ LEXIS 607, *5-6 [Sur Ct Albany Cty]). The executor has not met his initial burden of proving that he had “fully accounted for the entire estate” because his petition and account schedules are incomplete, inaccurate and facially deficient (see, Matter of Cook, 177 AD3d 1214, 1216 [3d Dept 2019]). Indeed, petitioner’s haphazard submissions are not an accounting at all, consisting almost entirely of his claims for reimbursement (In re Flaum, 177 AD2d 170, 175-76 [4th Dept 1992]) and lacking the details required to “make [his] accounting meaningful” (Estate of Carvel, 2002 NY Misc LEXIS 2096, *4-5 [Sur Ct Westchester Cty]). It is particularly disappointing that this submission was prepared by a firm of CPA’s, who were paid to produce these documents. The burden of proof is on the petitioner to establish his right to reimbursement, which depends in part on establishing that the sums expended were proper expenses of administration (In re Estate of Naumoff, 301 A.D.2d 802, 803 [3d Dept 2003]). Capital improvements are not within the usual powers or duties of the administrator: it is their duty to distribute the estate, not to make capital improvements (In re Gugliuzza’s Estate, 131 N.Y.S.2d 213, 215 [Sur Ct Erie Cty 1954]). The $47,500 in work for which petitioner seeks reimbursement was made without the consent of the other beneficiaries or approval of the Court, as required (Estate of Aiello, 2000 NYLJ LEXIS 4418, *15-17 [Sur Ct Kings Cty]). Absent the consent of the Court or other beneficiaries, a fiduciary’s capital improvements are reimbursable only if they are undertaken in good faith, and result in gain to the estate (Estate of Aiello, supra). Petitioner provided only limited proof of the capital improvements performed. There is scant evidence of payment. He offered, without explanation, an invoice and copies of building permits for a $28,750 3-car garage built at a rental property. An entry in Schedule D for $14,200 to replace a roof is utterly unsubstantiated. Petitioner did provide an invoice for $4,550 for paving a shared driveway serving the vacant parcel. The invoice is addressed to a third party, who appears to have paid the entire bill. (The lower portion of the invoice, which appears to contain calculations for splitting the sum four ways, is missing or erased.) The Court finds that the capital improvements referred to in the accounting, made without the consent of the Court or the other beneficiaries, were not undertaken in good faith. Indeed, there is nothing about Petitioner’s conduct that gives the Court reason to believe he acted in good faith at any point during his tenure as fiduciary. He has not established that the sums expended for capital improvements were proper expenses of administration and is therefore not entitled to reimbursement for them. The balance of the sums sought for reimbursement were for real estate taxes, utilities and appraisals during the period 2014-2020. There is no question that these types of expenses are often proper expenses of administration.³ A good portion of the expenses would not have been incurred, however, had petitioner moved promptly to sell the estate’s properties after his appointment in 2016. Petitioner submitted an assortment of bills and evidence of payment in support of his accounting. Ultimately, it became clear that petitioner could not produce books and records which had been demanded of him because they did not exist. Petitioner did not keep records. He did not maintain books. He did not file income taxes returns on a regular basis. He never opened an estate bank account. He kept no records of rental activities. He kept no records of the Shop income or expenses. Even when called upon to testify as to rents received, he could not recall when the properties were rented and when they were left vacant. He was certain, however, that whatever rents he received were deposited into his personal account as reimbursement for his out-of-pocket expenses. There is no indication that his $244,294.88 claim for reimbursement has been adjusted for the rents he pocketed. Through the intermediate accounting and his testimony, the petitioner has conceded without explanation or excuse every point on which objections were made. The Court finds that administrator’s misconduct is thereby amply proved (Matter of Duke, 87 NY 2d 465, 472 [1996]): Failure to maintain accurate books and records (Matter of Braasch, 140 AD3d 1341 [3d Dept 2016]) Failure to marshall assets by delaying the sale of the real property or, in the alternative, collecting rental income therefrom (Matter of Berlin, 135 AD3d 746 [2d Dept 2016]; (EPTL 11-2.3[b](3)[D]) Failure to file income tax returns after 2015 or to pay real estate taxes in a timely manner (Ellis v. Kelsey, 241 NY 34 [1925]) Using and occupying an apartment owned by the estate without paying rent; using and occupying the Shop property without paying the estate its 55 percent share of rent (Estate of Bainbridge, 82 Misc2d 895 [Sur Ct Nassau Cty1975]) Failure to insure improved real property (Estate of Donner, 82 NY2d 574, 584 [1983]) Self-dealing, in retaining for his personal benefit the income from rental properties and the Shop (Estate of Naumoff, 301 AD2d 802, 803 [3d Dept 2003]) Petitioner may have purged — just barely — the Court’s finding of civil contempt by his intermediate accounting, but he must nevertheless bear the consequences of his extraordinary misconduct as administrator. Given the “utter deficiency of the accounting, coupled with the incomplete supporting documentation and the [petitioner's] largely unhelpful testimony,” the Court will follow the directive of the Appellate Division in Matter of Jewett, 145 AD3d 1114, 1116 [3d Dept 2016], deciding any otherwise-favorable presumptions against petitioner and resolving all doubts adversely to him. Petitioner, to his credit, does not seek a commission. The objectant bears the affirmative burden of proof of actual damages sustained by the estate by reason of the fiduciary’s wrongdoing (Matter of Newhoff, 107 Misc 2d 589 [Sur Ct Nassau Cty 1980] affd 107 AD2d 417), but petitioner’s misconduct makes it impossible for objectant to calculate the injury to the estate. Damages from the failure to file income tax returns for the decedent, the Shop or the fiduciary won’t be known until those tax returns are filed. The Court can’t project the sale price the properties would have commanded in 2016 had petitioner actively marketed them. Income owed to the estate for its share of Shop operations cannot be calculated. Also unknown is how much rent petitioner could have collected and paid over to the estate had he made even the slightest effort to exercise the powers conferred upon him for the benefit of anyone but himself. The petitioner had a duty to make a determination, within a reasonable time after his appointment, whether to sell the properties or to rent them (EPTL 11-2.3(b)(3)(D). Inaction is not an option. When fiduciaries negligently retain assets which should have been sold, the measure of damages is the value of the lost capital (In re Estate of Janes, 90 NY2d 41, 55 (1997). Damages are calculated using the difference between the value of a property at the time of the accounting, and its value at the time when it reasonably should have been sold (Matter of Shambo, 169 AD3d 1201 [3d Dept 2019]). The Court finds that the petitioner should have sold the properties in 2016, notwithstanding that he was disappointed by the offers received. Only two of the properties were listed, but the Court finds that there was no impediment to the sale of all five properties at that time.⁴ None of the properties were mortgaged and tenancies, to the extent there were any, could have been terminated through the expedited proceedings available to landlords at the time. Due to the extraordinary market conditions in Ulster County during the last 3 years, several of the properties have appreciated in value. Market forces may therefore restore to the estate some portion of the loss it sustained due to the petitioner’s prolonged retention of title to the properties. The appreciation of assets arising during petitioner’s tenure does not, however, deprive the objectants of a remedy (see, In re Bank of New York, 35 NY2d 512, 518 [1974](“a substantial overall increase in total value during the accounting period does not insulate the fiduciary from responsibility”). Given the dearth of information about the estate’s finances, the Court is compelled to fashion a remedy using what little it has: real estate taxes, appraisals and rental figures. Petitioner is surcharged for all real estate taxes and other operating expenses for the period beginning January 1, 2016 and ending on December 31, 2020. No reimbursement shall be made to petitioner for interest or penalties on delinquent payments of real estate taxes accrued at any time during the accounting period, nor shall he be reimbursed for any real estate taxes paid on the Shop property since his father’s death. Objectants are also entitled to their share of the rental income petitioner received but denied to the estate (Matter of Braasch, 140 AD3d 1341, 1342 [3d Dept 2016]). Petitioner testified that two properties generate rent at $2,300 per month; an apartment in a third property was occupied by petitioner without payment of rent. The Shop, in which petitioner has a 45 percent interest and where he “works every day,” paid no rent to the estate for property it occupies. Monthly rent for these properties in the amount of $3,500 is therefore imputed to petitioner for the period of 2017-2019 for a surcharge of $168,000. He is surcharged for the amount of objectants’ share of the imputed rent: $126,000. The proceedings brought by the objectants were necessitated by and attributable to the improper conduct of the executor (Matter of Rose BB, 35 AD3d 1044 [3d Dept 2006]). Their attorney’s services benefitted the estate by bringing holding the administrator to account. The legal fees incurred by the objectants in this proceeding shall therefore be paid by the estate, which benefited from their legal services pursuant to SCPA 2110. It is, therefore, ORDERED and DECREED that petitioner shall, within 30 days of the date of this order, file with the Court an affidavit bringing his account to date, which shall reflect the following corrections to the accounting schedules: Schedule A shall consist solely of the estate’s $9,900 interest in Shop inventory; The entries in Schedule C-1 shall be deleted and replaced with the expenses listed in Schedule D, but only the cost of appraisals, and real estate taxes and utilities for all properties other than the Shop from December 5, 2013 to December 31, 2015 shall be offered for reimbursement; the amount of penalties and/or interest paid or payable on taxes during petitioner’s accounting period shall be excluded from all such reimbursements on Schedule C-1; Schedule E shall be deleted, since no distributions of probate assets have been made; and it is FURTHER ORDERED and DECREED, the attorney’s fees incurred by the objectants in prosecuting their claims against the petitioner shall be paid by the estate as an expense of administration and shall be added to Schedule C-1; and it is FURTHER ORDERED and DECREED, upon the final accounting of the administrator, a reserve of $50,000 shall be established for payment of income taxes, penalties or interest on income of the decedent, the estate or the Shop attributable to the years 2013-2021, the Court reserving jurisdiction over the fiduciary on this issue, post decree; and it is FURTHER ORDERED and DECREED, upon such accounting, the petitioner’s distribution shall be reduced by (1) the amount of interest and penalties on delinquent income tax returns for the years 2013-2019; (2) surcharge of $126,000 for objectants’ share of imputed rent; and (3) the objectants’ share of the value of the Shop business, as determined after filing of income tax returns for Shop operations. This constitutes the decision/order of the Court. All papers, including this decision/order, are hereby entered and filed with the Clerk of the Surrogate’s Court. Counsel is not relieved from the applicable provisions of CPLR Section 2220 relating to service and notice of entry. Documents reviewed: 1. Petition for Settlement of Account filed September 28, 2020, together with Schedules. 2. Date of Death Appraisals for all real property filed December 10, 2020. 3. Bills received for electrical service filed December 15, 2020. 4. Bills for miscellaneous services filed December 15, 2020. 5. Bills for real estate taxes filed December 15, 2020. 6. Rent roll filed April 1, 2021. 7. Verified Objections to the Accounting by Stewart P. Glenn, Esq., as guardian litem, filed August 18, 2021. 8. Verified Objections by King L. Wu, Esq., attorney for Qiuhong Frankowski, filed August 20, 2021. 9. 2021 Appraisals for all real property filed November 15, 2021. Dated: February 28, 2022