ESTATE OF NORMAN KNOX, ALSO KNOWN AS NORMAN KNOX, JR., Deceased — In this proceeding in which the administrator seeks to compel New York Life Insurance Company (the objectant) to turn over to the estate all annuity payments payable to the decedent's spouse, the objections interposed by the objectant assert lack of subject matter jurisdiction and failure to join an indispensable party; namely, New York Life Insurance and Annuity Corporation (New York Annuity), the entity that allegedly owns and is contractually obligated to make the annuity payments. On the return date of the proceeding the spouse appeared pro se without filing objections and all parties agreed to treat the objections as a motion by the objectant, in effect, pursuant to CPLR 3211 (a) (2) and (10), to dismiss the proceeding. The administrator opposes the motion. Essentially he asserts that because this court's order dated April 29, 2010 directed the spouse to turn over the annuity, and the spouse failed to comply, that order is the law of the case warranting turnover of payments by the annuity issuer.
The decedent died on July 1, 2004 at the age of 42. His distributees are the spouse and two sons who are not the children of the spouse. Although the spouse filed with the court a testamentary instrument dated September 24, 2003, she failed to take any steps to commence a probate proceeding and in a November 7, 2008 decree the court conditionally granted a motion by the administrator to deny probate of the instrument if the spouse failed to commence the probate proceeding and obtain jurisdiction over all necessary parties by January 5, 2009 (see Matter of Knox, NYLJ, Oct. 2, 2008, at 35, col 1). The spouse failed to proceed to probate by that date, and the branch of the November 7, 2008 decree precluding her from probating the instrument became self-effectuating (see id.; see also Matter of Knox, NYLJ, July 20, 2009, at 30, col 6).
The court entertained an SCPA 2103 proceeding against the spouse by an order to show cause entered August 3, 2005. That petition alleges that a medical malpractice action by the decedent and the spouse settled on May 27, 2003 for the gross amount of $4.8 million and, thereafter, on September 24, 2003, the decedent executed a power of attorney in favor of the spouse. It also alleges that from September 24, 2003 to the date of the decedent's death on July 1, 2004, the spouse improperly utilized the power of attorney to purchase an annuity and Bronx realty in the names of the decedent and herself as tenants by the entirety, and the spouse deposited the remaining settlement proceeds in joint bank accounts in her name and that of the decedent (see Matter of Knox, NYLJ, July 20, 2009, at 30, col 6). The August 3, 2005 order to show cause contained a temporary restraining order restraining the spouse from transferring, gifting or otherwise divesting herself of more than onehalf of any funds derived from the alleged 2003 medical malpractice action, and from encumbering the Bronx realty "until the further order of this court."
In response to the turnover proceeding, the spouse filed an answer alleging that the decedent was competent to execute a power of attorney, as evidenced by the settlement agreement and medical records from the lawsuit, and there was no need to probate the testamentary instrument as all assets passed to her by operation of law (see id.). Upon the administrator's subsequent motions based on the spouse's failure to comply with discovery requests or with a court order directing her compliance with same, this court struck the spouse's answer and, by order entered April 29, 2010 which was served on the spouse on November 12, 2011, the spouse was directed to turn over the Bronx realty, all funds in her possession and the annuity (see Matter of Knox, NYLJ, February 17, 2010, at 35, col 4; Matter of Knox, NYLJ, July 20, 2009, at 30, col 6). In one of those decisions and in an order entered October 15, 2009, both of which were settled on the spouse, this court noted "[t]he restraining order entered August 3, 2005 is to remain in full force and effect pending further order of the court" (see Matter of Knox, NYLJ, July 20, 2009, at 30, col 6). To date, the spouse failed to comply with the April 29, 2010 order directing the turnover which resulted in the commencement of a contempt proceeding against her which remains pending, and the commencement of the instant proceeding.
The papers submitted by the objectant in response to this proceeding reveal both the terms of the annuity entered into in the underlying medical malpractice action, and that the spouse repeatedly ignored the restraint orders issued by this court. According to the objectant, upon reaching a confidential settlement, the defendant in the medical malpractice action assigned to New York Annuity its obligation to make periodic payments, and New York Annuity purchased the annuity from the objectant to fund the contractual obligation. The "owner" of the annuity is identified as New York Annuity, with the decedent identified as the "annuitant" or payee during his lifetime. The spouse is designated as the beneficiary of the annuity upon the decedent's death. The annuity provides that if no beneficiary survives the annuitant, the right to the payments pass to the decedent's estate.
The annuity guarantees payments of $8,465 per month beginning October 15, 2003 for 20 years, increasing by 3 percent annually starting October 15, 2004 with the following additional guaranteed lump sum payments: (1) the sum of $25,000 due on October 7, 2008; (2) the sum of $50,000 due on October 7, 2013; (3) the sum of $100,000 due on October 7, 2018; and, (4) the sum of $175,000 due on October 7, 2023. Upon the decedent's death on July 1, 2004, all payments were made to the spouse pursuant to the beneficiary designation. Since that date, and notwithstanding this court's temporary restraint in the order to show cause of August 3, 2005, the spouse entered into a series of transactions with factoring companies, three of which were approved by the Supreme Court, Bronx County under the New York Structured Settlement Protection Act (see General Obligation Law §5-1701 et seq.), and another which is apparently pending. In all such proceedings, the spouse named as parties both the objectant and New York Annuity, and it appears she has now transferred almost all of the annuity proceeds.
Based upon the spouse's failure to comply with the April 29, 2010 order of this court directing her to turn over all annuity payments, the administrator now seeks to compel the objectant to deliver the annuity payments to him in his fiduciary capacity. The objectant asserts, inter alia, that the proceeding against it must be dismissed for lack of subject matter jurisdiction as the annuity payments are not assets of the estate (citing EPTL 13-3.2; Matter of Tillinger, 26 Misc 3d 1229 [A], 2010 NY Slip Op 50303 [U] ), and for failure to join New York Annuity as a necessary/ indispensable party. In opposition, the administrator asserts, inter alia, that the estate always alleged that the decedent lacked capacity and was incapable of making the designation or disposing of the settlement proceeds, so this court's order entered April 29, 2010 directing the spouse to turn over all annuity payments is the law of the case.
Generally, where a person is validly designated to receive annuity payments, EPTL 13-3.2 prohibits the estate from impairing the right of the designated beneficiary to receive payment and those proceeds may not be paid into the estate for any purpose (see American Int'l Life Assur. Co. v. McGillicuddy, 307 AD2d 228 ). The case of Matter of Tillinger (26 Misc 3d 1229 [A], 2010 NY Slip Op 50503 [U]), on which the objectant relies, involved a subsequent designation of beneficiaries which changed the decedent's initial designation of the decedent's grandmother as beneficiary. This court found, inter alia, that even assuming, arguendo, that the subsequent designation was invalid based on the ground of fraud or undue influence as claimed therein, the net effect was the same as if there was never any such subsequent designation, and the grandmother, individually, and not the estate, would be entitled to the annuity benefits as the designated beneficiary (see id.). As a result, the annuity payments in that case were payable only to a living party; i.e., the grandmother or the subsequent designated beneficiaries, and not to the petitioners in their capacity as fiduciaries of the estate as requested in their petition (see Matter of Tillinger, 26 Misc 3d 1229 [A], 2010 NY Slip Op 50503 [U]). Therefore, in Tillinger, the court dismissed so much of the petition as sought payment of the annuity payments to the estate as the annuity payments at issue were not estate assets and could not be paid to the estate, and other issues raised relating to subject matter jurisdiction were rendered academic (see Matter of Tillinger, 26 Misc 3d 1229 [A], 2010 NY Slip Op 50503 [U]).
In contrast to Matter of Tillinger (id.), in this case, the net effect of the claims interposed against the spouse previously and her default throughout the prior proceedings is that the annuity benefit payments are now to be turned over to the estate, and not to the spouse. Just as there can be competing claims between living parties arising from first and subsequent designations of them as beneficiaries of life insurance or annuity payments based on allegations that the last designation was invalid as a result of undue influence or fraud (see Shallow v. Carballal, 278 App Div 328 , affd 303 NY 827 ; Matter of Tillinger, 26 Misc 3d 1229 [A], 2010 NY Slip Op 50503 [U]; see also Medeiros v. John Alden Life Ins. Co., 1990 US Dist LEXIS 10393, 1990 WL 115606 [SD NY 1990]), an estate, where it becomes the beneficiary if another designation of beneficiary is declared invalid, may claim that the initial designation of a beneficiary was based on undue influence, fraud or some other ground such as lack of capacity to make a gift, rendering the asset an estate asset (see Matter of Neill, 35 Misc 3d 1244 [A], 2012 NY Slip Op 51139 [U]  [invalidating bank and insurance policy transfers due to lack of any evidence of donative intent]; Matter of Griffin, 160 Misc 2d 871  [sister acting as conservator breached fiduciary duty she owed decedent during his lifetime by making election of payment of state retirement benefits which continued payments to her if she survived the decedent, so those benefits are the property of the estate]). The situation presented in the prior proceedings in this estate relate to the spouse improperly taking advantage of the decedent, and this court has subject matter jurisdiction over the affairs of the decedent and the administration of her estate (see NY Const, art VI, 12; SCPA 201, 202, 209; Matter of Piccione, 57 NY2d 278  reh denied 68 N 2d 824 ). Accordingly, the branch of the objectant's motion seeking to dismiss this proceeding against it based on a lack of subject matter jurisdiction, is denied.
Necessary parties are those who might be inequitably affected by a judgment in the action or who ought to be parties if complete relief is to be accorded to the persons who are parties to the action (see CPLR 1001 [a]; Calderone v. Wiemeier, 77 AD3d 1232, 1233 ). The primary reason for compulsory joinder of parties is to avoid multiplicity of actions and to protect nonparties whose rights should not be jeopardized if they have a material interest in the subject matter (see Calderone v. Wiemeier, 77 AD3d at 1233, quoting Joanne S. v. Carey, 115 AD2d 4, 7 ). Nonetheless, when a person who should be joined under CPLR 1001 (a) is not a party and is subject to the jurisdiction of the court, a court "shall order him summoned" (SCPA 201 , 209 ; CPLR 1001 [b]; see also Bragarnik v. Zodiac on Brighton Cafe, Inc., 189 AD2d 744  [affirming supreme court direction that party be joined even absent a motion for such relief]).
Here, it is undisputed that nonparty New York Annuity is the "owner" of the annuity policy and obligated to make the payments. As the relief sought in this proceeding is the turnover of the annuity payments to the estate instead of to the spouse, the avoidance of a multiplicity of actions cannot be ensured absent the joinder of New York Annuity (see David Christa Constr., Inc. v. American Home Assur. Co., 41 AD3d 1211  [primary insurer must be joined as necessary party in action against defendant excess insurer]; Calderone v. Wiermeier, 77 AD3d at 1233 [granting motion to compel joinder of trust beneficiary under insurance policies which might be inequitably affected by insured's allegations of conversion]; Bragarnik v. Zodiac on Brighton Cafe, Inc., 189 AD2d at 744 requiring joinder of second purchaser who assumed all rights and obligations under security agreement of first purchaser]). On this record, there is no evidence that New York Annuity is not subject to personal jurisdiction in New York and, indeed, it has been a named party subject to the jurisdiction of the supreme court in at least three, if not four, prior supreme court proceedings. Accordingly, the remaining branch of the motion seeking to dismiss for failure to join a necessary party is denied at this time, without prejudice to renewal should the petitioner fail to obtain jurisdiction over New York Annuity within 60 days of the date of this decision and order (see CPLR 1001 [a]). Should the administrator be unable to obtain personal jurisdiction over New York Annuity within the 60-day period, he may move for an extension of the time period, which motion shall be supported by affidavits explaining efforts to serve the necessary party and why he failed to effectuate such service or, if appropriate, move for relief pursuant to CPLR 1001 (b).
The Chief Clerk is to mail a copy of this decision and order to all parties, including the spouse, notwithstanding her default.
December 20, 2012