The opinion of the court was delivered by: Spatt, District Judge.
MEMORANDUM OF DECISION AND ORDER
In this case, the plaintiff Brenda A. Beacher ("Brenda" or the "plaintiff") initially presented a cause of action for a constructive trust with regard to the ownership of shares in a corporation, called the B.B.E. Realty Corp. ("BBE"). In fact, the complaint in this action sets forth only one cause of action against the defendant, the Estate of Fred M. Beacher, based on a constructive trust. However, in his Post-Trial Memorandum of Law, plaintiff's counsel now seeks "a judicial declaration that she is the owner of fifty percent of the shares of the stock in the corporation known as B.B.E. Realty Corporation." (Plaintiff's Post-Trial Memorandum at 1).
Stated otherwise, in addition to the cause of action based on a constructive trust, the plaintiff seeks to amend her complaint to add a cause of action seeking "a declaratory judgment declaring that Brenda had never transferred her shares (of BBE), and that she continues to hold the shares she has held since 1991." (Plaintiff's Post-Trial Memorandum at 3). This request is in the nature of a motion to amend the complaint to add a cause of action for a declaratory judgment in addition to the constructive trust cause.
In 1986, the corporation involved, B.B.E. Realty Corp. was formed by Fred M. Beacher ("Fred" or "Fred Beacher"), Robert Beacher ("Robert" or "Robert Beacher") and Melvin Epstein. At the time of the formation of BBE, Fred Beacher, Robert Beacher and Melvin Epstein were apparently each owners of one-third (33 1/3%) of the stock of BBE. The Court uses the word apparently because, in this case, the shares of stock were never issued; there was no stockholders' agreement; no relevant corporate books; and the stock ownership was solely delineated in tax records. In early 1991 Robert Beacher transferred his shares of stock in BBE to his wife Brenda. Thereafter, BBE bought Epstein's interest in BBE, thereby, ostensibly, making Fred Beacher and Brenda Beacher each fifty percent (50%) owners of the stock in BBE. As stated above, with the exception of the purchase of the Epstein stock, all of the other transactions and events were without documents. The absence of any documents with regard to the ownership of the BBE stock is a significant fact in this case.
A. The Plaintiff's Contentions
Commencing with BBE's fiscal 1993 tax year, Brenda's interest in the BBE stock was diminished on the BBE tax returns. Thereafter, from 1995 over the next nine years, solely as reported in the BBE tax returns, Brenda's entire stock interest in BBE appeared to be transferred to Fred Beacher. These purported stock transfers from Brenda to Fred were without written agreements or other documentary proof between the parties and, apparently, without any consideration.
According to the plaintiff, notwithstanding the facts reported in the tax returns, Brenda never relinquished and was the owner of her fifty percent (50%) interest in the BBE stock. As stated, there were no agreements making any transfer of the stock by Brenda to Fred and no consideration was paid to her. However, after the death of Fred Beacher, his Estate and Harry Helfeld, as Executor of the Estate, have refused to acknowledge Brenda Beacher's right to her ownership interest of any stock in BBE.
B. The Defendant's Contentions
The defendant, the Estate of Fred M. Beacher, contends that the plaintiff cannot prove all of the essential elements of a constructive trust; cannot now assert a declaratory judgment cause of action; and the doctrines of laches and unclean hands preclude any relief by the plaintiff. Initially, the defendant Estate contends that the plaintiff's motion to assert a declaratory judgment cause of action should be denied on the ground that the plaintiff should have raised this issue some five years ago. In addition, the defendant contends that where the plaintiff has interposed a request for a constructive trust "a declaratory judgment serves no useful purpose" and "would fly in the face of all that the declaratory judgment act seek to accomplish." (Defendant's Post-Trial Memorandum at 12).
In addition, with regard to the claim of constructive trust, the defendant contends that the plaintiff Brenda Beacher did not have a confidential relationship with the defendant's decedent.
Also, the defendant contends that no promises were made by the defendant's decedent to the plaintiff. In addition, the defendant contends that the defendant's decedent did not perpetrate any fraud involving the plaintiff.
Further, the defendant contends that the inequitable conduct of the plaintiff and the unreasonable delay in bringing this constructive trust action are sufficient to invoke the doctrines of "unclean hands" as well as "laches". Finally, the defendant also invokes the defenses of the six year statue of limitations under CPLR § 213(8) and the statute of frauds under New York General Obligation Law §§ 5-701 and 5-706.
II. THE JUDGE PLATT DECISION
On September 18, 2008, Judge Thomas C. Platt rendered a decision on the defendant's motion for summary judgment seeking a dismissal of the plaintiff's constructive trust cause of action. In that decision, Judge Platt denied the defendant's motion for summary judgment and made the following statements and decisions:
(1) No shares of stock were ever issued by BBE nor was there a shareholder's agreement.
(2) In 1986, three BBE shareholders were reported as each possessing a one-third share on the BBE K-1, namely, Fred Beacher, Robert Beacher and Melvin Epstein.
(3) In 1993, Robert Beacher filed for bankruptcy, which was discharged on October 24, 1995.
(4) From 1995 to the date of the decision, the K-1s for BBE reflect that the decedent was the sole shareholder.
(5) From 1986 until after the decedent's death in November 2004, neither Brenda nor Robert communicated with executor Helfeld with regard to the representations in the K-1s.
(6) Both the plaintiff and Robert were aware that from 1995 through 2004, Fred acted as sole owner of BBE and paid all taxes connected with the enterprise.
(7) There was no writing confirming a stock transfer from Brenda or Robert to the decedent, and Brenda, the plaintiff, disputes whether the stock was, in fact, transferred.
(8) A confidential relationship existed between the plaintiff Brenda Beacher and the decedent Fred Beacher.
(9) A promise to reconvey legal title to BBE stock may be implied by the circumstances surrounding the transfer.
(10) In this case, there are no documents evidencing a transfer of BBE between decedent and plaintiff, nor has any proof of consideration for the transfer been offered.
(11) As a result, a genuine triable issue of fact as to the circumstances surrounding the transfer of BBE, and whether the transfer was made in reliance upon an express or implied promise exists.
(12) "[I]n the absence of any evidence of consideration for the transfer of all of BBE's shares into decedent's name alone, there is a question of fact as to whether decedent's estate will be unjustly enriched by the inclusion of BBE."
(13) Another issue of material facts exists as to whether the plaintiff and her husband received profits from BBE and paid no taxes on the income, leading to the doctrine of "unclean hands".
Beacher v. Estate of Fred Beacher, No. 105, CV-1625 (TCP) (Sept. 18, 2008).
Harry Helfeld is a public accountant and a practicing lawyer. He is familiar with the B.B.E. Realty Corp., which is a real estate entity. Its principal asset is the building at 116-22 Metropolitan Ave. in Jamaica, New York, which has three tenants. The other asset of BBE is cash in its bank account which consists of rental income, and a checking account. Helfeld manages the BBE business and collects the rent. In addition, BBE has a money market account with a broker with a minimal amount of $200 to $300 a year. BBE has no other source of revenue. It is a single real estate corporation. Helfeld was the BBE accountant from 1986 when BBE was formed, to the death of Fred Beacher on November 10, 2004. As the accountant, he had access to the books and records of BBE.
Helfeld testified that the initial stockholders of BBE were Robert Beacher, Fred Beacher and Melvin Epstein. Helfeld never prepared any financial statements for BBE, nor has he ever seen such a financial statement. Also, he never participated in any stockholders' meetings of BBE. In the beginning, he knew only one officer, Fred Beacher, "who signed all tax returns as president." Tr. at 37.*fn1 He has never seen any other documents signed by any of the other stockholders.
Helfeld "believes" that Brenda Beacher was the wife of Robert Beacher. In 1991, he was told by Fred Beacher that Brenda was a stockholder. Melvin Epstein had been a stockholder in BBE. On June 1, 1993, a "Stock Purchase Agreement" was executed for the sale of the stock of Melvin Epstein to BBE. (Pltf's Ex. 1). The sale was for the sum of $15,000. This agreement was signed by Fred M. Beacher, Robert L. Beacher and Brenda Beacher. Helfeld professed no knowledge of this transaction. He hasn't seen Robert or Brenda for years.
Helfeld has prepared Fred Beacher's income tax returns. His office prepared Fred Beacher's last will and testament which is dated April 30, 2003. (Dft's Ex. A). He reviewed the contents of the will with Fred on two occasions. Helfeld is named as executor in the will. The will of Fred Beacher refers to the BBE real property at issue in this case, as follows:
My office building at 116-22 Metropolitan Avenue, Kew Gardens, NY shall also be placed in a trust for the benefit of my Son Jeffrey Beacher. I ask that my executor and or Trustee allow my current associate, Dr. Leonard Rickman be allowed to practice there as long as he desires. He currently pays $1,608.00 per month for said use. Should he purchase or in any way acquire my practice, I desire the minimum rent to be $3,216.00 per month. These decisions as to the sale of the building; sale of the practice and or amount of rental to charge shall be decided by my accountant, attorney and friend HARRY HELFELD who, if he feels necessary may consult with my brother Robert L. Beacher.
The net proceeds (after all expenses and taxes) of the sale of the building and or practice shall be given to my Son Jeffrey Beacher in a trust. I do not authorize the trustee to use any proceeds for the purchase of a new, used auto or rental of a chauffeur driven limo.
Should the building where my office is located not be sold, then the rental proceeds shall be placed in this trust for Jeffrey and the building maintenance be paid from said trust.
I ask that my trustee call my neighbor David Montrose on Metropolitan Avenue with a view to giving him a verbal first option to purchase said property on Metropolitan Avenue. (Dft's Ex. A).
The Fred Beacher will contained no specific bequest with regard to the shares of BBE. In fact, there is no mention of BBE in the will. Helfeld never saw any deed to the BBE property. As the accountant of BBE from 1986 through 2004, it was his understanding that BBE was the owner of the real estate on Metropolitan Avenue in Queens. Helfeld also testified that that he never saw any contract or any other document regarding the sale of Brenda's share.
Q. Have you ever seen any contract of sale for the conveyance of shares by Brenda Beacher to Fred Beacher?
Q. Have you ever seen any documents signed by Brenda Beacher or any agents of Brenda Beacher memorializing her acquiescence to the transfer of the shares of BBE to Fred Beacher?
Q. Have you ever seen any document which would indicate any consideration passing between Fred Beacher and Brenda Beacher for the shares of stock of BBE?
Helfeld explained what an S Corporation was. An S Corporation "is the same as a regular corporation . . . except that the income or loss is transferred to the individual shareholders in the . . . exact percentage of ownership." Tr. at 57. He also explained that a K-1 is a "squeal sheet. In a sense we're negotiating the government. They get the original return . . . a copy is given to the individual person and it is attached to the corporate return form 1120S." Tr. at 57. The K-1s were prepared by Helfeld and sent to the appropriate persons listed on the K-1. Neither Robert nor Brenda ever contacted him orally or by writing or by a telephone call. He never heard from either of them stating that the K-1 information was incorrect.
As to the K-1 filed in 1994, as reported to the government, Brenda's interest in BBE was one-third. No one contacted him to say that the K-1 was in error. However, in 1993, Epstein sold his one-third share and Brenda apparently acquired a fifty percent (50%) interest in BBE so that the 1994 K-1 which reflected that she had a one-third interest was incorrect. Also, Helfeld testified that he never received any information that Robert Beacher or Brenda Beacher actually "reviewed" the BBE tax returns, nor did he ever discuss the returns with either or them.
Robert Beacher, the brother of the decedent, Fred Beacher, testified that he, his brother and Melvin Epstein formed BBE in 1986. In fact, the initials BBE, stand for Beacher, Beacher and Epstein. Each of the three partners contributed $25,000 to capitalize the BBE corporation. No stock certificates were issued, but each of the three investors owned one-third. In 1991, Robert transferred his shares in BBE to his wife Brenda. In 1993, Epstein sold his shares in BBE. A Stock Purchase Agreement was executed on June 1, 1993 (Pltf's Ex. 1), in which Epstein agreed to sell his one-third share of the common stock in BBE for the sum of $15,000. As stated in the Stock Purchase Agreement, the purchaser of the Epstein common stock was BBE.
Robert testified that Brenda did not participate in the operation of BBE, and, even after he transferred his shares to her, he acted as her agent. Fred died on November 10, 2004. Significantly, prior to his death, Robert never saw any document concerning the sale of Brenda's share. Nor did Brenda receive any return of capital or compensation of any kind from BBE or Fred. Only after Fred's death did Robert learn that Fred's estate claimed that Fred owned one hundred percent of the BBE shares. Robert first saw this alleged change of ownership in the K-1 tax returns. He never authorized Fred to transfer Brenda's shares "in any way". It was Robert's understanding that after Epstein sold his shares in BBE, it was to be a 50/50 partnership between Fred and Brenda. There was, apparently, a close relationship between Robert and Fred. Especially when Fred became ill, Robert communicated with his brother on a daily basis.
On cross-examination, Robert testified that there was a written agreement between himself, Robert and Epstein but he cannot locate a copy of that agreement. Robert testified that no share of stock of BBE were ever issued. Further, he stated that he did not review the BBE tax returns for the years 1987 through 2003, until after Fred's death. In 1991 he transferred his interest in BBE to his wife Brenda, but no documents were executed to indicate such a transfer. In fact, there were never any documents or any writing between him, Brenda and Fred, with regard to the stock ownership of BBE. The only written reference to such stock ownership were in the corporate K-1s. Also, the corporate records, with regard to stock ownership, were never filled out. The corporate books were blank.
Robert believed that Fred signed the BBE tax returns, because Fred solely ran this real estate business. According to Robert there were often errors in the tax returns. Robert noted that the 1991 tax return was incorrect in that he was named as a stockholder, when he had transferred his share of the corporate stock to Brenda. In 1994, the K-1indicated that Brenda's share was 33 1/3%. However, in 1993, BBE purchased Epstein's shares, so that his wife's interest became 50% and yet the return indicated 33 1/3%. Robert has no recollection of ever reporting any income or loss to Brenda attributable to BBE in any of their joint income tax returns. With regard to the subsequent K-1s which reflected that Fred had a 100% stock ownership, Robert had no explanation, except that he did not review these subsequent returns. Nor could he state whether his own tax returns indicated a BBE stock ownership for Brenda. In that regard, Robert's response was as follows:
THE WITNESS: I would like to answer your question.
My tax returns for many, many years was about an inch or so thick. My accountants would give me the returns. I never bothered to thumb through the individual pages to see what was in it. My only concern was how much did I have to pay the government, and sign the check.
THE COURT: Well, you know that that issue is an important one in this case, don't you?
THE WITNESS: I recognize that there's an issue in this case of how my wife's stock disappeared.
THE COURT: No, I didn't say that. I said to you: Do you understand? And if you don't, I'm telling you now that whether you reported income to Brenda or yourself from BBE during the years 1995 to 2003 is an important issue in this case.
THE WITNESS: I do right now.
THE COURT: Did you ever look to see whether you reported that? THE WITNESS: No, I didn't.
A strange and disturbing event arose during Robert's cross-examination. A document referred to as a will of Fred Beacher, was produced by the defendant. (Dft's Ex. B). The document purported to be Fred Beacher's will. This document was dated November 1, 2004 and was not signed by Fred Beacher. However, it was purportedly notarized by Patricia G. Martino as of November 1, 2004 with the notary stamp affixed. This singular and unsettling circumstance is described by counsel for the plaintiff in his "Post-Trial Memorandum of Law."
Absent all the hyperbole, Defendant asks this Court to strip Brenda of her ownership rights because her husband participated in an abandoned attempt to have a substitute Last Will and Testament of Fred Beacher executed. The underlying facts being that Robert Beacher, together with Fred Beacher's children, Mindy and Jeffrey, and Fred Beacher's sister, Rosalind Abel, were considering offering a will wherein Fred Beacher's signature would be forged by Mindy (the "Unsigned Will"). After Mindy rescinded her willingness to forge her father's name, the Plan was aborted.
A copy of the Unsigned Will was admitted into evidence as Exhibit B. No evidence was presented that Brenda was a participant in this abandoned act.
The difference between the Unsigned Will and the Will admitted to probate was the person named as executor. It did not change any bequest. There was no bequest to Plaintiff or Robert Beacher. The testimony of Todd Nahins, Esq. indicated that the deceased requested this change before he died, and Mr. Nahins prepared the Unsigned Will at Fred Beacher's request. Tr. at 134-137. (Plaintiff's Post-Trial Memorandum at 20, 21).
In response to the description of this so called substitute will by the attorney for the plaintiff, the defendant's counsel responded in his "Post-Trial Memorandum of Law" as follows:
On the same date as the death of Dr. Beacher, November 10, 2004, Mr. Robert Beacher: (a) accessed Dr. Fred M. Beacher's computer; (b) took the bogus Last Will & Testament prepared by Mr. Nahins (Exhibit "B"), purportedly in the name of Dr. Fred Beacher, to a notary public; (c) had the notary, who he had known for many years, and with whose husband he had a business interest, affix both her stamp, signature, and date to the bogus Last Will & Testament prepared by Mr. Nahins in order to make same appear to be genuine; (d) took same to his niece Mindy Nirenberg and recruited her to forge the name of her late father, Dr. Beacher. But for the fact that Mindy Nirenberg refused to sign, Mr. Robert Beacher was prepared to have other witnesses sign, their signatures notarized, and ultimately present the fraudulent Last Will & Testament to the Nassau County Surrogate's Court.
As a result, the Estate was caused to incur expenses in its efforts to make sure the bogus Last Will & Testament (Exhibit "B") was not probated. (Defendant's Post-Trial Memorandum at 10, 11).
Defendant's counsel also contends that, if this scheme had succeeded, Robert Beacher would be the executor of Fred's estate and he would have been in a position to approve Brenda's claim to 50% of the stock of BBE. There is some justification to this theory. Robert's explanation for this serious conduct was that Fred wanted this document signed and he was attempting to comply with his brother's wishes. It seems that Robert had a power of attorney from Fred up to the date of his death. However, Robert conceded that he signed his name "Robert Beacher" on half of twelve checks for his brother and he signed "Robert Beacher POA" on the other half. Robert contends that the checks "were all for the bills of my brother". To compound the questionable nature of Robert's conduct, he conceded that when Mindy refused to sign this "Will", he stated "that if she doesn't sign . . . I'll tie everything up for the next five years, and you'll get nothing." Tr. at 303.
After Fred's death, Robert's questionable actions continued. Acting as the president of BBE, he accessed "the cash that was in the BBE account". Tr. at 307. In November 1994 after Fred's death, he took $29,000 and change from the BBE bank account. Robert's attorney, Joseph J. Haspel is now holding that money in escrow. From 1986 until 2004, Robert asserts that he was the president of BBE. However, in the only document referring to BBE, the agreement in which Epstein sold his stock, (Pltf's Ex. 2), Robert did not sign as president.
Although Robert Beacher admitted in his deposition that from 1995, in the tax returns sent to him, his brother Fred was reporting himself as the sole owner of BBE, at the trial he was evasive on this subject. Robert testified that he just threw the data into a folder "in the pile and not even be concerned about it." Tr. at 331. From 1995 to 2003, he did not review the K-1 returns. He threw them in a box or a drawer and did not review them. Also, at his deposition Robert testified that Helfeld changed the tax returns; took his wife off the returns and "made my brother the sole owner of it". On November 17, 2004, after Fred's death, he had a conversation with Jeffrey Beacher, Fred's son, in which Jeffrey said to Robert that "his father had bought the building from you". Tr. at 346, 347. Robert responded to that statement by denying it was true, accompanied by obscenities.
Robert explained that BBE owned a small office building located in Queens and that his role was limited to making financial contributions to make up shortfalls and also to do maintenance work on the building. He was not involved in the day to day operation of the building. His brother collected the rent and paid the bills. Again questioned about the BBE tax returns, Robert explained that "Fred would give me the returns, and I would, you know, generally put it into a file." Tr. at 369. While he did not review the returns from 1991 and 1992, he knew there was a mistake in that he was still referred to as a shareholder, when his share had been transferred to Brenda.
Robert was questioned about the K-1 for 1993, after the Epstein sale, when the K-1 stated that Fred had a 55% ownership interest, then a 66 2/3% interest and then a 100% ownership interest.
Q. That K-1 designated Fred Beacher as a 55 percent owner. Do you see that?
Q. When was the first time you saw that K-1 - -A. After Fred - -
Q. Excuse me. When was the first time you saw that?
Q. Do you have any idea as to how that transaction occurred, to give Fred Beacher an ownership interest of 55 percent?
Q. Now look at the next year, 1994. Do you see that?
A. (Perusing) Yes. I found the K-1 for 1994 for Fred Beacher. * * * *
Q. Now, during the year 1994, are you aware of any sale or transfer of any owner's interest in BBE to anyone?
Q. Now, the K-1s for the 1994 year designate Fred Beacher as what percentage?
Q. When was the first time you saw and reviewed this K-1? THE COURT: Just one minute now.
Q. Do you have any idea as to how the ownership was changed or the thought process to the ownership changed from the 1993, 55 percent, to the 1994, 66.667 percent?
A. No idea whatsoever. Tr. at 378, 379.
Significantly, Robert Beacher testified on several occasions that he first saw and received the 1995 K-1 only after Fred's death.
Q. Now, let's continue with the 1995 tax return.
Did you find the K-1s in those ...