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Brothers Bring Will Contest Action over Division of Family Business

A resident of Nassau County died on 28 December 2010 and was survived by his sister, the petitioner; and two (2) brothers, the respondent and movant herein. The decedent’s last will and testament dated 23 May 2000 was offered for probate (estate litigation or estate administration or will contest) by the petitioner, who was named as the sole beneficiary of the decedent’s residuary estate, as well as the executrix. Preliminary letters testamentary were issued to the petitioner on 13 January 2011. The two (2) brothers of the decedent have filed their objections to the probate of the will.

The arguments presented before the court all boil down to a supermarket known as John’s Farms, which was run by the decedent and one of his brothers (“brother A”). The supermarket is comprised of three separate closely held corporations – (1) Corp. A, which operates the grocery and dry goods business within the decedent’s Farms, owned by the decedent and brother A as equal shareholders; (2) Corp. B, which sells fish and seafood at the decedent’s Farms, and was owned by the decedent and brother A as equal shareholders; and (3) Corp C, which operates a meat market within the decedent’s Farms, owned wholly by decedent.
The two (2) brothers of the decedent were ordered by the court to deliver and turn over to the petitioner the computer taken from the decedent’s home on the date of his death. While certain computer components were eventually turned over to the petitioner, the computer components turned over to the petitioner were not part of the home computer taken from the decedent’s home. A New York Probate Lawyers said that it appeared that the wrong computer had been turned over to the petitioner. Apparently, brother A had several computers used in the business which made it difficult to differentiate and offered to reimburse the estate for the value of the decedent’s computer equipment that was not delivered to the petitioner or her counsel in lieu of turning it over. The court has denied the same stating that the offer to pay the value of the computer is essentially pointless because of the fact that the reason the petitioner sought the decedent’s home computer was to obtain any relevant business records of the decedent thereon. Hence, the petitioner sought to clone all of the computers at the decedent’s Farms.
It has been ruled that computer data, electronic documents and computer memory may all be discoverable; “Whether the court is dealing with traditional paper discovery or electronic discovery, the first issue the court must determine is whether the material sought is subject to disclosure as ‘material and necessary’ in the prosecution or defense of the action”. Since the decedent owned all or part of each of the three corporations which operated their businesses at the decedent’s Farms, the information on the computers at the decedent’s Farms was properly discoverable by the petitioner as the preliminary executor of the decedent’s estate.

In response to the petitioner’s discovery request, Bronx Probate Lawyers said hard drive containing a clone of the cash registers and CD ROMS was provided to the petitioner’s counsel. At this juncture, there is no evidence that the cloning performed was improper or incomplete. In the absence of proof that a party intentionally destroyed or withheld evidence, the court should not direct the cloning of that party’s hard drives. Until the petitioner is able to review the cloned computer records and the CD ROMS, and demonstrate that the information provided by the respondents is incomplete, it would be precipitous of this court to order that the computers be cloned again. Hence, the request for another clone was denied.

The request that the petitioner’s forensic accountants be given access to the decedent’s Farms was also denied, and can only be granted upon a showing that the respondents have failed to provide the petitioner with the documentation and data requested.

Given the difficulties encountered by the parties, the petitioner’s request for a discovery conference has been granted. Nassau County Probate Lawyers said with regard to the petitioner’s request for costs and sanctions, the court declined to grant the same.

On the other hand, the court was troubled by the cavalier attitude brother A and his counsel have taken with regard to the court-ordered production of the home computer removed from the decedent’s home after his death. If after reviewing the information on the invoice (of the computer) and conducting a renewed search for the computer identified therein, brother A still cannot produce such computer, he was ordered to provide the petitioner and the court with a detailed statement, under oath, by someone with direct knowledge of the facts, setting forth the means and methods used to conduct the search for the decedent’s home computer. Such affidavit had to be submitted to the court before the date of the conference scheduled.

The rules provide for a proceeding by a fiduciary with regard to the continuation of a business. It permits a fiduciary to “petition for the continuation of a business other than a profession, of which decedent or the person whose estate is being administered was sole owner and it is desired to continue it for the best interests of the estate … ” . “[W]here the business of the decedent is a corporation, authority from the court is unnecessary”. In addition, a fiduciary may ask the court for advice and direction regarding the sale of estate property and in other “extraordinary circumstances.” In following the advice and direction, the fiduciary will be protected from liability. Generally, the property for which advice and direction is sought would be owned by the estate directly and not through corporate shares, but in practice, courts will give advice and direction where an estate owns all of the corporate shares, as opposed to owning a partial interest. “Where the fiduciaries, through the medium of ownership of all of the shares of stock, control a close corporation, the Surrogate possesses the equitable power to disregard the corporate entity and may proceed to treat the estate fiduciaries and their corporate problems with respect to disposition of the corporate assets, and its effect upon the estate, upon the realistic basis that the fiduciaries and the management of the corporation are one and the same.” “The doctrine that the court must treat the problem differently when rendering advice and direction in instances where the estate owns the entire stock of a corporation and the cases where it owns less than all of the stock seems to be the rule” finds application. “Where the entire stock of the corporation was owned by the estate, the court, in its equitable powers, might disregard the corporate entity”.

Hence, the petition was granted to the extent that petitioner was authorized to continue BNC for a period of up to two years from the date of the court’s decision but prohibited to employ someone to supervise the business on her behalf. A fiduciary has the power to employ an agent to act upon her decisions, even though there is no explicit authorization. “A fiduciary can employ agents to do work he legitimately cannot do himself.

Further, as Corp C is indisputably wholly owned by the decedent’s estate, it wasn’t necessary for the court to direct brother A to cease all interference with the operation thereof.

At this point, brother A was ordered to immediately turn over any cash receipts in his possession and stop taking, transferring or disposing of the cash receipts and income of Corp. C; make available, deliver or turn over the books and records of Corp. C and of the decedent; refrain from removing or altering any data contained within the hard drives of the computers which contain information pertaining to Corp C.

In the present case, the court the petition is not precluded on the basis of unclean hands, waiver, estoppel or laches.

The argument that there was an inconsistency between sections of the Corporate by-laws is without merit. Corporate by-laws may include additional qualifications for directors. Once the by-laws state a requirement for serving as a director, it need not be restated in each subsection, and a failure to have it restated repeatedly does not create an inconsistency or require reference to resolve an inconsistency. The assertion that the by-laws were silent on whether a personal representative of a shareholder’s estate is a shareholder according to the by-laws was correct but that silence doesn’t mean that a personal representative of a shareholder’s estate is a not shareholder. In fact, the law specifically gives fiduciaries the power to vote shares of stock held in a fiduciary capacity. “If the shares [of stock] are not specifically bequeathed, ownership thereof will vest in the fiduciary who will then have sole authority to vote for officers and directors.” None of the points averred altered the fact that a director of Corp. A must be a shareholder, and the personal representative of decedent’s estate is the only shareholder aside from brother A.

Moreover, the respondents argued that the relief sought has been sought by the petitioner in prior proceedings. The court ruled otherwise. The relief sought in the prior proceeding was for an authorization to continue Corp. C, whereas, in the instant case, the relief prayed for was to protect the assets of the estate.

In conclusion, the petition to protect the assets of the estate was decided as follows – The request to enjoin respondents from seeking to vacate an agreement between Corp. C and Corp. A. was denied as unnecessary; The request to vacate the selection of a replacement director was granted; The request to nullify the meeting of the board of directors of Corp. A., was granted.

The motion for summary judgment or dismissal of the petition was also denied.
The court acknowledged the challenges faced by the parties who have made it absolutely clear that they do not wish to work together. If it proves impossible that the parties could find a way to join forces or part amicably, the court would then have no choice but to consider the appointment of a temporary receiver pursuant, who will manage the business until such time as a buyer can be found. While this is an extreme remedy, the documents filed with the court presented a sufficient showing of the necessity for the conservation of the property at issue and the need to protect both parties’ interests in that property.

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