In the Matter of the Judicial Settlement of the First and Final Account of Proceedings of Jeffrey Scott Lasdon as Co-trustee and Preliminary Executor of the Estate of Gene Lasdon, Deceased Co-trustee, of the Trust Created for the Benefit of Michael B. Abrams under Article Fifth of the Last Will and Testament of Stanley S. Lasdon, Deceased, 703/93
Cite as: In the Matter of Stanley S. Lasdon, 703/93, NYLJ 1202474997186, at *1 (Surr., NY)
Surrogate Kristen Booth Glen
In the Matter of the Judicial Settlement of the First and Final Account of Proceedings of Jeffrey Scott Lasdon as Co-trustee and Preliminary Executor of the Estate of Gene Lasdon, Deceased Co-trustee, of the Trust Created for the Benefit of Daniel A. Abrams under Article Fifth of the Last Will and Testament of Stanley S. Lasdon, Deceased., 703/93
In the Matter of the Judicial Settlement of the First and Final Account of Proceedings of Susan Lasdon Abrams as Co-trustee of the Trust Created for the Benefit of Michael B. Abrams under Article Fifth of the Last Will and Testament of Stanley S. Lasdon, Deceased., 703/93
In the Matter of the Judicial Settlement of the First and Final Account of Proceedings of Susan Lasdon Abrams as Co-trustee of the Trust Created for the Benefit of Daniel A. Abrams under Article Fifth of the Last Will and Testament of Stanley S. Lasdon, Deceased., 703/93
Two of the objectants in these trust accountings, Michael Abrams and Daniel Abrams, are the sole beneficiaries of separate trusts under the will of their grandfather, Stanley Lasdon. They presently seek leave to reargue three of this court's rulings in favor of one of the trustees, Jeffrey Lasdon (their uncle), in a decision on cross-motions for summary judgment (Matter of Lasdon, NYLJ, Jun. 29, 2010, at 36, col 6) (the June 29th decision). The rulings in question denied objectants' requests that Jeffrey (1) be barred from receiving any of his attorneys' fees, (2) be disallowed all commissions, or at least all annual commissions on principal, and (3) be made to absorb the legal expenses incurred by objectants in their litigation with him in this court.
The history of the parties' dispute with respect to these trusts is described in detail in the June 29th decision and will not be retraced here. For present purposes it is enough to note that the root of the litigation was Jeffrey's refusal1, after each trust had formally terminated, to cooperate
*2in a final distribution until he could iron out certain issues through discussions with Susan Abrams (his sister and a co-trustee of these trusts) relating to other family trusts. The stand-still continued at length (indeed, in the case of the earlier-terminated of the two trusts, for about 30 months) until Michael and Daniel forced the issue by bringing a petition to compel Jeffrey to account. In the interim, the value of trust assets declined considerably. In its June 29th decision, this court ruled that Jeffrey was surchargeable for the resultant loss to Michael and Daniel. The thrust of the motion to reargue is that the decision otherwise erred in Jeffrey's favor in the three above-indicated respects.
A motion for leave to reargue is based on the premise that, in making a particular ruling, the court may have overlooked or misapprehended some matter of material fact or applicable law (CPLR 2221[d]). Such a motion calls upon the court to acknowledge and correct any error thus brought to its attention or to recognize when there is no need for correction.
With respect to the challenged rulings relating to Jeffrey's legal fees and costs and to his entitlement to annual commissions on principal, the court concludes that it neither misapprehended the law nor overlooked the facts. The other challenged aspects of the June 29th decision, relating to whether objectants' own legal expenses (in an as-yet-unidentified amount) may be shifted to Jeffrey individually and whether Jeffrey should be found to have forfeited all commissions, warrant further discussion.
As noted in the June 29th decision, the New York courts subscribe to what is commonly
*3referred to as the American Rule,2 under which parties prevailing in litigation ordinarily may not shift their legal expenses to the losers. The Rule is a creature of policy, designed as it is to avoid a chilling effect on parties who would seek to vindicate what they in good faith believe to be their legitimate claim or defense (see A.G. Ship Maint. Corp. v. Lezak, 69 NY2d 1, 5 ). To be sure, in barring a prevailing party from recovering "another form of damage" (Hooper Assoc., Ltd. v. AGS Computers, Inc., 74 NY2d 487, 491) or sanction (A.G. Ship Maint. Corp. v. Lezak, supra), the Rule can at times seriously erode the practical value of a legal victory. But, whatever the arguments against such policy, the Rule has clearly survived them to date in this jurisdiction (see e.g. Chapel v. Mitchell, 84 NY2d 345, 348-49 (1994); Hooper Assoc., Ltd. v. AGS Computers, Inc., supra; Adesso Cafe Bar & Grill, Inc. v. Burton, 74 AD3d 1253 [2d Dept 2010]; Horwitz v. 1025 Fifth Avenue, Inc., 34 AD3d 248, 249 [1st Dept 2006]).
Nevertheless, the Rule does allow such burden-shifting from winner to loser under certain limited circumstances. Thus, a prevailing party's litigation expenses will be imposed upon the losing party if there is a contractual or statutory provision to support such a shift (see e.g. Breed, Abbott & Morgan v. Hulko, 139 AD2d 71 [1st Dept 1988], aff'd 74 NY2d 686 ; Brooklyn Union Gas Co. v. Shields Detective Bur., 121 AD2d 587 [2d Dept 1986], appeal denied ; CPLR §909; DRL §237[c]), albeit only to the extent that a strict reading of the contract or statute will permit (see Hooper Assoc., LTD. v. AGS Computers, Inc., supra, at 491; Gotham Partners, LP v. High River Ltd. Partnership, 76 AD3d 203 [1st Dept 2010]; Adesso Cafe Bar & Grill, Inc. v. Burton,, 74 AD3d 1253 [2d Dept 2010]).
*4Furthermore, courts sitting in equity have carved out an exception to the American Rule that has direct bearing here. The decisions embodying the exception involve fiduciaries who have been surcharged for causing harm to their estates or trusts and have also been required to indemnify their adversaries for litigation expense incurred in the pursuit of such surcharges (see e.g. Matter of Garvin, 256 NY 518, 521-22 ; Matter of Marsh, 265 AD2d 253, 254 [1st Dept 1999]; Matter of Campbell, 138 AD2d 827 [3d Dept. 1988]; Matter of Bausch, 280 AD 482, 494 [4th Dept 1952]; Matter of Rothko, 84 Misc 2d 830, 885 [Sur Ct, NY County, 1975], decree modified on other grounds by 56 AD2d 499 [1st Dept 1977], aff'd 43 NY2d 305 ; Matter of Whitting, NYLJ, July 11, 2002, at 23, col 1 [Sur Ct, Nassau County]; Parker v. Rogerson, 76 Misc 2d 705 [Sup Ct, Erie County 1973]).3
The germinal case in this area is Matter of Hidden (243 NY 499 ), which involved the estate of an incompetent who was found to have suffered loss as a result of her committee's wrongdoing. The Hidden court observed that the expenses incurred in protecting the estate's
*5interests through the litigation were among the "direct results of wrong found" and concluded that such expenses were therefore amounts "for which [the] delinquent fiduciary may be held accountable" (id. at 514).4
Although the Hidden court acknowledged the absence of "direct precedent" for re-allocating expenses from one party to the other,5 it nevertheless expressed confidence in its power to do so. As the source of that power, the court looked to "the directory and supervisory control by the court of the committee appointed by it" (id. at 513).6 As for the American Rule, the court did not advert to it at all. This is not to ignore that equity may, of course, afford broader relief than is available at law where and as appropriate. But nothing in the Hidden decision suggests that the court intended to swallow the bedrock American Rule whole by requiring every surchargeable estate fiduciary to pay the legal expenses of every objectant in every accounting. Nor do the cases following in the wake of Hidden suggest such inflexibility (see Matter of Rothko, 84 Misc 2d 830, supra, decree modified on other grounds by 56 AD2d 499 [1st Dept 1977], aff'd 43 NY2d 305  [beneficiaries' legal fees reallocated to two self-dealing
*6executors, but not to the third executor, despite his surcharge for failure to curb his co-fiduciaries' wrong-doing]). Instead, such cases have typically involved (as did Hidden) fiduciaries who, under color of their license from the courts, enriched themselves at the expense of the funds with which they had been entrusted (see e.g. Matter of Birnbaum v. Birnbaum, 157 AD2d 177 [4th Dept 1990][executor had misappropriated funds from partnership in which estate had an interest]; Matter of Bausch, 280 App Div 482, supra [corporate trustee found to have purchased mortgages for the trust from its own portfolio]; Parker v. Rogerson, 76 Misc 2d 705, supra [fiduciary schemed to acquire an asset at the expense of two related estates]; Matter of Kaskawits, NYLJ, Oct. 28, 2009, at 31, col 3 [Sur Ct Westchester County][trustee made loans to self and took commissions without leave of court and in excess of statutory schedule]; Matter of Buxton, NYLJ, Oct. 13, 2006, at 32, col 3 [Sur Ct Westchester County][de facto estate fiduciary withheld assets from estate]; Matter of Whitting, NYLJ, Jul. 11, 2002, at 23, col 1 [Sur Ct Nassau County][trustees used trust fund as personal piggy bank]; Matter of Marsh, NYLJ, Aug. 6, 1997, at 25, col [Sur Ct, NY County][preliminary executor had been removed for self-dealing and had "flagrant[ly] mismanage[d]" estate]; Matter of Miller, NYLJ, Aug. 30, 1995 [Sur Ct Westchester County][removed trustee had misappropriated trust funds]; see also Matter of Garvin, 256 NY 518, supra [evidence of bad faith on the part of individual co-executor in retention of investment until it became valueless]).
There is, however, at least one case possibly devoid of fiduciary self-dealing in which the fiduciary was nonetheless made to bear his objectants' litigation expenses (Matter of Campbell, 134 Misc 2d 960 [Sur Ct, Columbia County 1987], aff'd 138 AD2d 827 [3d Dept 1988]). In the accounting proceeding there, the court directed that objectants' attorneys' and accountants' fees
*7in the sum of about $10,000 be paid from the commissions of the administrator/distributee where he had consigned the trust to management by agents during an "unconscionably prolonged" period of "manifest…deficiencies in the administration of the estate" (id. at 961).
The facts in Campbell may or may not have added up to a case of bad faith on the fiduciary's part. In other words, it is not clear whether Campbell stands for the application of Hidden where the mala fides of the fiduciary are not self-evident. Nevertheless, even if Campbell did represent such authority, that would not necessarily mean that Hidden should be applied under the following circumstances of the present case.
The fiduciary here has been held surchargeable (in what will undoubtedly be very substantial amounts) for the consequences of his decision to withhold distribution of the trust remainders pending protracted discussions about the management of various family trusts and pending receipt of releases from the beneficiaries (if not an accounting by the active co-fiduciary).7 In other words, this court has ruled that such decision was a misstep as a matter of law. But the ruling does not denote that, at the time, it should necessarily have been clear to the
*8fiduciary that he was thereby committing an inarguable breach.
It is of course well settled that a trustee cannot defer final distribution beyond a reasonable time. But there was no black letter law to tell Jeffrey that the delay in final distributions of these trusts was unreasonable under the particular circumstances (see Matter of Bausch, 280 App Div 482, supra [although final distribution was deferred during eight-year litigation, deferral mentioned as neutral fact rather than as ground for surcharge or reallocation of objectants' legal expenses to trustee]). Indeed, Jeffrey's counsel had told him otherwise. Although (as the June 29th decision ruled) advice-of-counsel was not an effective per se defense, that does not mean that the fiduciary's reliance on his lawyer's advice to withhold distribution is irrelevant to the matter now at issue. Whatever the beneficiaries' speculations about Jeffrey's bad faith in tabling distributions pending negotiations about these and other family trusts, his efforts to persuade his sister to resign as trustee of some of the trusts (in exchange for his resigning from others, including those for her sons) do not unequivocally bespeak a malign or self-serving purpose.
Of course, Jeffrey would not have been so perilously ignorant of the trusts' condition during the preceding decade had he (along with his mother) not agreed at the outset to leave to Susan the active role in administering these funds for her branch of the family, from whom the record indicates he had already been in some measure estranged. As discussed in the prior opinion, that state of affairs left Jeffrey vulnerable to the major surcharge that he now faces. But, although Jeffrey's decision to defer final distributions was not on balance justified or prudent, and he has therefore been held surchargeable for the losses occurring in the interim, the facts do not also add up to a warrant for imposing upon him all of the expenses of this litigation.
*9Moreover, Jeffrey will be suffering the price (and the beneficiaries reaping the advantage) of the necessarily rough justice of this court's June 29th decision, under which he has been deemed to have become in effect a guarantor of the remainders' value since the trusts' formal terminations. Even with commissions, what he will have to show for having accepted the office will thus undoubtedly be a net loss (i.e., given the surcharge and his liability for his own lawyer's bill)—notwithstanding the absence of a manifest bad faith on his part.
Accordingly, although the Hidden decision is considerably more viable than was credited in the June 29th decision, it is nevertheless concluded that the reallocation of litigation expenses sought by objectants should be denied.
Nor under the above circumstances do the cases point decidedly toward the forfeiture of commissions for which objectants have now also reargued.
This is not to overlook the similarities between this case and Matter of Rosof (NYLJ, Jul. 15, 2002, at 27, col 6 [Sur Ct, Nassau County]), where the Surrogate in his discretion denied part of the commissions of co-trustees (who were also remainder beneficiaries) for their unjustified delays in making final distribution to the third remainder beneficiary, their sibling. But in that case, the sibling received no substantial portion of what was due her until at least nine years had passed since the trust's termination. Moreover, the trustees' loss of a portion of their commissions was not coupled with a hefty surcharge upon them as a result of the delay,8 as would be so here if such a forfeiture were visited upon Jeffrey. Furthermore, despite the reduction in their commissions, the Rosof fiduciaries had still derived individual advantages—
*10qua beneficiaries—from having accepted responsibility for the trust. In other words, the factors militating toward a forfeiture in Rosof are either not present here or are of a considerably lesser degree.
This court is mindful of its discretion to deny commissions also where fiduciaries have in effect forfeited their right to compensation by neglecting the condition of their trusts and being indifferent to the welfare of their beneficiaries (see e.g. Matter of Smith, 91 AD2d 789 [3d Dept 1982]; Matter of Schaich, 55 AD2d 827 [2d Dept 1977]; Matter of Israel, 64 Misc 2d 1035 [Sur Ct NY County 1970]). The record here, however, does not support the conclusion that this is such a case. Rather, the fiduciaries' agreement to confer the laboring oar of trust administration to one of them alone appears merely to have accommodated the wish of Susan (and perhaps also of her adult sons, objectants here) that Jeffrey be hands-off in the affairs of Susan's side of the family.
Prior to that point, the record indicates that Jeffrey participated in the administrative steps needed to set the trusts' investments in place. Thereafter, until the impasse reached when Michael's trust formally terminated, the record further indicates that Jeffrey did not fail to cooperate when Susan called upon him to do so. At no point did he have reason to believe that the trusts were being left unattended or that the active co-fiduciary, the beneficiaries' mother, might be careless in attending to them.
To the extent that Jeffrey allowed himself to remain in the dark about the details of Susan's management of the trusts and to the further extent that he erred by inaction when called upon to make final distributions, he bore the risk of liability for any harm to the trusts that his personal attentions might have averted. In other words, by his inaction in both respects, Jeffrey
*11in effect gambled and lost. But, having at all points borne the risk of liability by dint of accepting the office, and now being made subject to just such liability, he is not an appropriate candidate for forfeiture of commissions as well.
For the reasons discussed above, the court on re-argument adheres to its original decision as to all three rulings reargued by objectants.
This constitutes the decision and order of the court.
1. It should be noted that Jeffrey was only one of three co-trustees, the other two being his sister Susan Abrams (the mother of Michael and Daniel) and their mother Gene (the grandmother of Michael and Daniel). Early in the trusts' administration, Jeffrey and Gene had agreed to confide de facto responsibility for trust management to Susan, and that arrangement had continued during the ten or so years before the trusts terminated (when Michael, and then Daniel, turned 35). Susan had urged that the co-trustees sign certain instruments under which final distribution of the first trust to terminate would have been effected by the fall of 2004. The record indicates that Gene was no quicker to cooperate in that request than Jeffrey. The record suggests, however, that Gene's position in this connection was largely if not entirely dependent upon Jeffrey's.
2. To be contrasted with the American Rule is the so-called English Rule, under which a prevailing party's legal fees and other costs of litigation may ordinarily be shifted to the adversary (see Alyeska Pipeline Serv. Co. v. Wilderness Socy., 421 U.S. 240, 247 n 18).
3. At least one court has proposed that such decisions are compatible with the American Rule because they involve litigation expenses that are an element of damages whereas, or so the opinion in question suggests, the American Rule involves litigation expenses that are merely "incidents of litigation" (see Birnbaum v. Birnbaum, 157 AD2d 177, 191 [4th Dept 1990]). In truth, the distinction does not survive a review of the decisional law that comprises the American Rule. Such review reveals that the phrase "incident of litigation" is simply a conclusory term announcing the denial of a request for reallocation of legal expenses from the winning party to the loser. Sometimes the phrase is used in cases involving damages or loss (see, e.g, Hooper Assoc., Ltd. v. AGS Computers, Inc., 74 NY2d 487, 491, supra [barring recovery of litigation expenses to vindicate a contract right, as "incidents of litigation," even though such an expense would otherwise have been "another form of damage"]; City of Buffalo v. J.W. Clement Co., Inc., 28 NY2d 241, 262 ). At other times, the phrase has been used where there has been some abuse of the judicial system in the very litigation for which the prevailing party seeks to recover his legal expenses; when invoked in such context, the phrase simply denotes that in the court's view the American Rule will not allow reallocation of legal fees as a form of sanction under the circumstances (A.G. Ship Maintenance Corp. v. Lezak, 69 NY2d at 5, supra).
4. In this connection, it may be noted that litigation expenses incurred to right a wrong are as a practical matter no less attributable to a wrong that is a breach of contract than to a wrong that is instead a breach of fiduciary duty. Nevertheless, in light of Hidden, such expenses may be recouped in the latter case whereas, under the Rule, they cannot be in the former case.
5. Decisions such as Matter of Holden, 81 Sickels 589 , and Matter of Galvin, 44 AD 623 [2d Dept 1899], did not supply such precedent, both imposing on their fiduciaries only the limited costs and allowances prescribed by the then applicable statute (the Code of Civil Procedure) rather than the adversaries' legal fees.
6. The Appellate Division has made it clear that the Hidden ruling cannot be extended to cases involving "breach of fiduciary duty in a non-testamentary context" (Schneidman v. Tollman, 261 AD2d 289, 290 [1st Dept 1999][attorneys' fees not recoverable from defendants/limited partners]).
7. On the summary judgment cross-motions, the beneficiaries had attempted to make much of the fact that considerable time had passed before Jeffrey or his counsel communicated with them personally. But, whatever the technical distinctions between the beneficiaries' status and their mother's vis-a-vis these trusts, as a practical matter Jeffrey and his counsel might naturally have regarded his co-fiduciary Susan and her counsel as proxies for her children (Michael and Daniel) in the written correspondence that began a few months after Michael's trust terminated. It is noted that, as evidenced even in the initial written correspondence, Jeffrey's lawyer had asked for, among other things, an accounting from Susan (the active trustee) and/or a receipt and release from Michael. Such a request was understandable, Jeffrey having been out of touch with the particulars of the trusts' administration. Although Jeffrey's ignorance hardly insulated him from liability for trust losses—including those occurring during the periods of resultant delays in distributions of the trusts' remainders—the fact of delay in such circumstances does not clearly evince a bad faith on his part. Moreover, to the extent that distribution was further delayed by Jeffrey's efforts to persuade Susan to resign from some trusts in exchange for his own resignation from others, the linkage was ill-conceived, but not necessarily the product of mala fides.
8. Nor for that matter did the Rosof objectants seek to have their attorneys' fees imposed upon the trustees individually (see Matter of Rosof, id.)