The opinion of the court was delivered by: SOFAER
This is an action by two sons, Daniel and Ralph Elyachar, to compel their 85-year old father, Colonel Jehiel R. Elyachar, to deliver to them certain stock certificates. They claim their father long ago gave them the interests represented by the certificates, but now refuses physically to deliver the certificates because he wants to revoke the gifts he made. The father contends he never made the gifts claimed by his sons, and that his failure to deliver the certificates proves his intent. These differences resulted in an eight-day trial to ascertain the father's intentions from his statements and actions. The evidence establishes that Colonel Elyachar intended to create and created irrevocable, intervivos trusts (or remainder interests), whereby he implicitly declared himself trustee of the shares he gave to his children and grandchildren as beneficial owners, with full control over the interests to pass to them only upon the Colonel's death or resignation.
Jehiel Elyachar was born in Jerusalem in 1898. He left what was then Palestine around 1928 to come to this country. He became an engineer, and then a builder and owner of office and apartment buildings in Manhattan. He enlisted in the war against Hitler, joining General Patton's army in its march across Europe into the Nazi homeland, and helping to construct the bridges used by Patton's troops in their advance. His service earned him promotion to the rank of full Colonel, as well as the Bronze Star from the United States Army and the Legion of Honor from the French Government.After the war, Colonel Elyachar returned to his real estate business in New York. Over the years he built and managed several valuable properties. He also built a family -- twin sons, the plaintiffs in this case, and a daughter named Ruth, who has interests similar to those of her brothers, but who has refused to join a suit against her father.
I. Jurisdictional Defenses
Defendants contend that diversity of citizenship is absent here, because Daniel and Ralph are domiciliaries of New York, where their father also lives. The evidence establishes, however, that the sons are domiciled in Florida. Daniel has lived in Florida for over ten years, Ralph for over five. They run a real estate business there, as partners in two companies that operate only in Florida. Both have been registered to vote there for several years, and both hold Florida drivers' licenses. The fact that they rent and do not own their homes in Florida has little significance, in that many bona fide domiciliaries rent their homes. Ralph and Dan appear from the record to have economic constraints on their ability to buy homes at this time, given their other Florida land holdings. They left New York in part because their father cannot constructively work with them in running the family real estate. The Colonel himself recognized at trial that his sons "live in Florida." Tr. 867; see Tr. 831, 834.
Defendants argue that Ralph owns a Scarsdale home worth over $250,000, that he has spent substantial time there, see Tr. 585, 587-88, 592-93, that Ralph's wife has retained her New York citizenship, and that Ralph and his wife filed a verified complaint in a personal injury action in October 1981 in New York County Supreme Court reciting that they reside at the Scarsdale home. In fact, Ralph's wife Alice does regard herself as a New York resident, and while she lives with her husband in Florida she apparently does so with the hope that he will someday return to New York. Alice, however, and not Ralph, owns the Scarsdale home, see Tr. 584; and Alice filed the complaint alleging that she and her husband were residents of New York without consulting Ralph or obtaining his authorization for such a statement, see Tr. 589-90. Defendants also refer to statements that indicate that plaintiffs intend to return to New York, particularly if they succeed in this suit and assume control of significant properties. Defendants failed to prove, however, that plaintiffs have formed an intent to return to New York at any specific time. Plaintiffs have made a bona fide change in their domicile, and the fact that they might be inclined to return to New York under circumstances that may or may not ever come about does not nullify their present intent to live in Florida, which is potentially unlimited in time. See generally 1 Moore's Federal Practice P0.74[3-4] (2d ed. 1983).
The suggestion that plaintiffs are guilty of laches or should be estopped from bringing this suit is untenable. Plaintiffs have always understood that their father retained control of the business in which they argue he gave them ownership interests. They have also understood and agreed that they had no right to sell or pledge the stock, all in the Colonel's possession and control, in their names. Until recently, the Colonel gave no hint that he intended to revoke what his sons thought were gifts.In 1982, for example, when the Colonel stopped payment on dividend checks from Gerel Corporation his sons demanded the dividends as owners of "20 percent of the Gerel Corporation," and new checks were then issued at the Colonel's direction. See PX 74; see Tr. 458, PX 47. The Colonel has not been prejudiced by the alleged delay, moreover. He has voluntarily continued running the family businesses, and would have done so even if he had known all along that some of his companies were irrevocably owned by his children and grandchildren. The missing documents and faded memories encountered at the trial were partially if not exclusively the product of the Colonel's willful suppression of evidence. Had he produced the missing documents they would have established even more clearly that he intended to convey ownership interests to his children and grandchildren. In addition, he failed to call some available witnesses who have intimate knowledge of his intentions, and the evidence of record provides no reason to believe that the potential witnesses who have died would have supported the Colonel's position.
Defendants also argue that Plaintiffs are barred by the applicable statute of limitations, having sought delivery of the certificates for over 10 years and having been denied delivery or use of the stock during that period. The earlier requests that the Colonel deliver the certificates were not demands, however, but only suggestions that he arrange his affairs to avoid estate tax problems. No demand for the certificates was made until the Colonel recently made clear that he wanted to deny his sons the interests he and the family had always treated as theirs. When that repudiation occurred, plaintiffs promptly made the formal demands that led to this litigation.
II. Relevant History and Findings
Plaintiffs claim that their father made them outright gifts of the stock certificates they now seek to have delivered. To establish their claim they must prove the requisites of a valid, intervivos gift of stock. In New York, these are an intention on the part of the donor to make a gift, delivery of the property, and acceptance by the donee. In re Estate of Szabo, 10 N.Y.2d 94, 98, 176 N.E.2d 395, 396, 217 N.Y.S.2d 593, 595 (1961); In re Van Alstyne, 207 N.Y. 298, 306, 100 N.E. 802, 804-05(1913). Defendants assert that the Colonel never intended to make a present gift of the stock, that the stock has never been delivered to plaintiffs, and that plaintiffs have never accepted the certificates. Plaintiffs alternatively argue that their father made them gifts of ownership interests in the defendant corporations to the extent reflected by the certificates, retaining for himself the power to control the corporations during his lifetime. This claim was raised and advanced well before trial, and defendants have presented their evidence and argument against it. Plaintiffs' motion to deem the complaint amended to conform to the proof supporting this claim is therefore granted. See Fed. R. Civ. P. 15(b).
The Colonel decided early in his career to place each of the buildings he owned in a separate corporation. Huguel Corporation, for example, owns a building on East 56th Street; Timston Corporation owns a building at Second Avenue and 39th Street; Ruradan Corporation owns a building on East 48th Street; and Gerel Corporation owns a building on Madison Avenue. When Ruradan, Huguel, and Timston were formed, in about 1935, 1938, and 1945 respectively, Colonel Elyachar had not yet given his children ownership interests in those entities. In 1948, however, he arranged through his attorney and accountant to transfer all the stock of Ruradan (a name based on the names of Ruth, Ralph and Dan) to the Drell Corporation, which at that time was owned by his three children. PX 58-61. Thereafter, on December 29, 1948, the original stock certificates issued for Ruradan were cancelled, and four new certificates were issued, reflecting 20 shares to J. R. Elyachar and 10 shares each to the three children. Each 10-share block was "in exchange for 10 shares of Drell Corporation." DX 1003, Certificate Nos. 4-7. The Colonel placed or arranged to have placed on each certificate the stock transfer tax stamps required under New York law for such transfers. See N.Y. Tax Law § 270 (McKinney's 1966 & Supp. 1983). All three of the children's certificates were countersigned some time after June 1949 by the Colonel's daughter, Ruth Elyachar, who had by that time married Spencer Dvorkin. Tr. 373-74. Some time during the same year, Colonel Elyachar also told his sons Daniel and Ralph that he had given them stock in Ruradan, for which they thanked him. Tr. 426, 566. The Colonel did not give physical control of the certificates in Ruradan to his children, however; rather, he retained them, completely executed in the corporation's stock book, which he kept in a closet or desk at the office from which he managed his real estate business.
During 1950, Daniel and Ralph began working full time with their father in the family business. In February 1950, the Colonel issued 20 shares of stock in Gerel Corporation to himself, 40 shares to his daughter, and 20 shares to each son. DX 1001. In December 1952, the Colonel began to distribute the 10 shares of Huguel Corporation, initially issued to himself in 1938. Colonel Elyachar retained six Huguel shares, and certificates for one share each were issued to his three children and to his son-in-law, Spencer Dvorkin. DX 1002. In December 1953, the Colonel cancelled his six-share certificate in Huguel, issued himself one certificate for two shares, and issued certificates for one share each to the same four beneficiaries of his 1953 transfer. In December 1954, he cancelled his remaining two-share certificate, and issued certificates for one share each to his daughter and son-in-law. Ruth Dvorkin countersigned five of the preceding certificates, which are still in the stock book, and probably signed the missing certificates as well. See Tr. 372-73. The Colonel's 10-share certificate in Timston, issued in 1945, was cancelled on October 4, 1955. He issued himself a certificate for five shares, and issued certificates for two shares each to his sons and one share to his daughter. Daniel countersigned the last three certificates. Tr. 427.Stock transfer tax stamps were attached to the stubs of all the certificates issued by all three corporations (Gerel, Huguel, and Timston), but the Colonel kept all the shares in his possession. The children knew of some or all the Colonel's actions transferring shares to them, and thanked him contemporaneously for what they believed were gifts. See Tr. 426 (Daniel); Tr.566 (Ralph); Tr. 371-76 (Ruth).
Other transfers of stock in the corporations occurred in the 1950s. During 1955 two of the three Huguel shares in Spencer Dvorkin's name were transferred to two of Dvorkin's children, and on December 22, 1958, Dvorkin's third Huguel share was transferred to two other Dvorkin children. These transfers were accomplished unilaterallly by the Colonel, who had not told Dvorkin that any shares were in his name. Dvorkin fouand out in the late 1970s that shares had been in his name, when he examined the books at the Colonel's request. At that time he made notations on the certificate stubs, at the Colonel's direction, to conform "the stubs to the certificates." Tr. 180. In 1958 the Colonel also transferred his five remaining shares in Timston to eight of his grandchildren. All the certificates issued in the 1950s contained stock transfer tax stamps.
In 1975 the Colonel began a series of annual transfers of his 20 remaining shares in Ruradan. During that year he announced to Spencer Dvorkin, who had been working in the Colonel's office since 1960, that "I'm giving five of my shares to Ralph, Dan, and my grandchildren." Tr. 60. He instructed Dvorkin to prepare the necessary papers, including new certificates reducing the Colonel's shares by five, and reflecting the other transfers. Dvorkin filled in the shares and stubs in accord with the Colonel's instructions, and both the Colonel and Dvorkin signed the certificates, on each of which was affixed the necessary stock transfer tax stamps. Dvorkin also drafted a letter for the Colonel to the Colonel's accountant, dated December 9, 1975, which enclosed "a list of 20 people to each of whom I have given 1/4 of a share of Ruradan Corporation stock as a gift. . . . Please figure out what the tax is and prepare the necessary papers for filing." PX 82. The accouantant thereupon prepared and the Colonel signed and filed a federal gift tax return for the quarter ending December 1975, reflecting the one-quarter share gifts to 20 people, including Ralph and Dan, on which the Colonel paid a gift tax of $2,569. PX 14; see PX 83.
In 1976 and 1977 the Colonel again gave one-quarter share interests in Ruradan to 20 family members. On both occasions he asked Dvorkin to make all the necessary arrangements, signed all the necessary stock certificates, instructed his accountant to implement his "gifts," filed gift tax returns reflecting the transfers made, and paid the required tax.PX 84-88, 18. During 1977 and 1978 the IRS audited the 1975 and 1976 gift tax returns and assessed deficiencies. The deficiencies were based on a valuation of Ruradan, derived from data supplied by the Colonel and his accouantant, all of which assumed that 50 shares were outstanding, and that each transfer of one-quarter share therefore represented 0.5% of the company's stock. In a letter responding to an IRS request that he provide a "list of all stockholders and their holdings," PX 19, the Colonel reported that, as of December 31, 1976, 50 shares were outstanding of which Ralph and Dan each owned 10-1/2. PX 21. The value of the shares was revised upward by agreement, and the Colonel paid gift tax deficiencies, based on the revised values of his gifts, of $2,071 for 1975 and $7,831.43 for 1976. See Tr. 682, 692-94, 699; PX 17-24, 85, 91, 106.
In 1978 the Colonel transferred four of his remaining Ruradan shares to 20 Elyachar family members, including Ralph and Dan. Dvorkin made the necessary arrangements, pursuant to the Colonel's instructions, and the Colonel announced to his accountant in a letter dated December 28, 1978:
Today I have given one-fifth of a share of Ruradan Corporation to each of the following people. . . . Will you please prepare the necessary tax returns reflecting this gift.
PX 26. A gift tax return was duly prepared, and Colonel Elyachar signed and filed it. The return reflected gifts in exactly the proportion he had ordered, and called for the payment of a tax of $1,079. PX 108, 109.
In 1978 the Colonel also began to have dividends issued by the corporate defendants. He had been made aware at about that time that if the corporations continued to retain all earnings they would be classified as personal holding companies. His accountants told him that the holding company classification, and consequential tax, could be avoided if the companies distributed certain amounts of earnings as dividends to shareholders. Tr. 741-43. Colonel Elyachar decided to have the dividends issued. He ordered Spencer Dvorkin to compile from the stock books the names of all shareholders and their holdings, and to draw up checks to them in proportion to their stock ownership. Tr. 82-83.
The first distribution was from Huguel. Ralph and Daniel received $2,195.40 each, 20% of the total amount paid out, precisely proportionate to their ownership in the company as reflected in the stock books in the Colonel's possession. This payment enabled Huguel to file a "Claim for Deficiency Dividends Deduction" to recover the tax which would have been lost but for the 1978 payment. Colonel Elyachar signed the return and listed his sons as each owning two of the 10 outstanding shares. A resolution attached to the form recited that Huguel had "authorize[d] payment of a dividend totalling $10,977 to the shareholders of Huguel Corporation pro-rata, payable immediately," and was signed by J. R. Elyachar, Ruth Dvorkin, and Spencer Dvorkin. PX 104.
In 1979, 1980, and 1981, dividend distributions were made to the plaintiffs and others by all four companies, and in 1982 by Gerel. Every distribution was exactly proportional to the percentage of the recipients' stock ownership as reflected in the stock books. Each company reported these dividend distributions in its federal income tax returns. E.g., PX 4-7, 38-39, 105, DX 1042-44. Each company's financial statements reflected these payments as dividends to stockholders. PX 63-64, 68-72. The payment checks frequently had "dividend" written on them. PX 2, 27, 32, 36. The companies also often filed forms or resolutions with the IRS reporting the dividend payments. PX 3, 28, 30, 33, 37; Tr. 87-88, 760-61. In 1979 the timston tax return included forms for both Ralph and Daniel entitled "Consent of Shareholder to include Specific Amount in Gross Income." PX 105. Ralph and Ruth reported these dividend payments as income in the year of their receipt; Daniel reported the dividends soon after he was informed in 1981 that the payments were in fact dividends. See PX 40, 54-56, 76-79, DX 1064, 1067-68; Tr. 379, 443-45. All the dividend checks were signed by Colonel Elyachar, and were issued at his direction. Finally, when the ...