May 29, 2013
In the Matter of the Application of, Maria Verdugo and MARIA ROCIA AUQUI for the Appointment of a Guardian for JOSE VERDUGO, An alleged incapacitated Person, and Maria Rocio Auqui, Property Guardian of Jose Verdugo, Petitioner,
Peachtree Funding Northeast, LLC, Respondent.
Counsel for Petitioner, Maria Rocio Auqui, in her capacity as Property Guardian of Jose Verdugo Sabrina E. Morrissey Morrissey & Morrissey, LLP.
Counsel for Respondent, Peachtree Funding Northeast Kathy S. Marks Yankwitt & McGuire.
LOTTIE E. WILKINS, J.
The property guardian of Jose Verdugo, Maria Rocio Auqui, commenced this action to set aside four Assignment, Sale, Springing Assignment and Equitable Lien Agreements ("Agreements") pursuant to Mental Hygiene Law Section 81.29(d), on the ground that Jose Verdugo lacked capacity to enter into such Agreements with Respondent Peachtree Funding Northeast, LLC ("Peachtree"). Having held a trial on May 8, May 11, and June 14, 2012, and having reviewed the parties' post-trial memoranda of law, the Court issues the following conclusions of law and findings of fact, as required by CPLR 4213(b). For the reasons set forth below, the Court finds that insufficient evidence was adduced at trial to support a conclusion that Mr. Verdugo lacked capacity to contract when the Agreements were executed.
Findings of Fact
On December 23, 2003 Mr. Verdugo sustained a wide laceration to his scalp, profuse external bleeding and bleeding inside his brain when he was struck by a piece of plywood which fell from a building. (Transcript 6/14/12 p. 6). A battery of neurocognitive tests evidenced significant deficits in different regions of Mr. Verdugo's brain, supporting a finding that his brain function was negatively impacted by the accident. (Id.). In 2004 Mr. Verdugo and his wife retained the law firm of Smiley and Smiley, LLP, to represent them in a personal injury action alleging grievous injury for the damages sustained from the accident. (Id.) That action, entitled Verdugo v Seven Thirty One Ltd. Partnership, et al., Index Number 100232/04, is currently still pending in New York Supreme Court, New York County. 
Traumatic Brain Injury
The Court credits the testimony of Respondent's witness, Dr. Daniel Kuhn, as well as petitioner's witnesses Susan Gelb, Occupational Therapist, and Court Evaluator Lisa D'Urso, who collectively furnished relatively consistent testimony of Mr. Verdugo's mental condition during 2006 through 2009. A discussion of each witness' testimony is set forth seriatim below.
Approximately six months after the accident Mr. Verdugo came under the care and treatment of Dr. Kuhn, a Diplomate of the American Board of Neurology and Psychiatry. (Transcript 6/14/12 p.5). Dr. Kuhn initially saw Mr. Verdugo once a week from June 2004 until the beginning of 2005, and then thereafter every two weeks until the end of 2006, and now currently treats him once a month since the end of 2006. (Transcript 6/14/12 p. 7-8). Mr. Verdugo's treatment primarily involves psychotherapy and psychotropic medications. (Transcript 6/14/12 p. 20-21). Dr. Kuhn testified that he used a translator during therapy sessions with Mr. Verdugo, who speaks limited English. (Transcript 6/14/12 p. 16).
Dr. Kuhn diagnosed Mr. Verdugo as having a traumatic brain injury and a myriad of significant cognitive deficits known collectively as post concussion syndrome. (Transcript 6/14/12 p.6, 22). In 2007 and 2008 Dr. Kuhn found Mr. Verdugo to have impaired executive function, which he defined as "the ability of the person to apply what he knows, to give solutions to situations" (Transcript 6/14/12 p. 21-23). Dr. Khun opined that Mr. Verdugo also exhibited signs of unclear and fragmented communication, short term memory loss, mental slowing, difficulty with abstract thinking and problem solving and lack of concentration. (Id., at 23).
Dr. Kuhn testified that he saw Mr. Verdugo on February 2, March 2 and March 30 of 2007, and January 2008. (Transcript 6/14/12 p. 12-17). During those sessions Mr. Verdugo was oriented to where he was and with whom he was speaking, and was able to converse with Dr. Kuhn in Spanish (Transcript 6/14/12 p. 14-17). Mr. Verdugo reported that although his depression was abated by taking English classes and he had some improvement in his cognition and mental state while taking medication, he continued to be impulsive and dysfunctional, to experience dizzy spells, and to have difficulty with attention, cognition and shorter memory. (Transcript 6/14/12 p.15-17). Dr. Kuhn stated that Mr. Verdugo shared with him during their sessions that he would get lost at times, would forget to turn off the stove, has been burned once, and that he is constantly attended by someone. (Id., at 23).
Dr. Kuhn testified that in August 2006 he wrote two letters to Mr. Michael Flomenhaft, who was the trial attorney for Mr. Verdugo's personal injury action that is currently still pending. In the first letter Dr. Kuhn opined that Mr. Verdugo was permanently and totally disabled, from a worker's compensation board standard, as a result of his chronic depression and attention and cognitive deficits. (Transcript 6/14/12 p. 28). Dr. Kuhn further stated in this letter that Mr. Verdugo will need to undergo psychotherapy and take psychothropic medications indefinitely as he may have reached a plateau in his improvement. (Id., at 28-29)
Two weeks later Dr. Kuhn wrote a second letter to Mr. Flomenhaft, stating that he did not think Mr. Verdugo was so incompetent as to need a guardian. (Transcript 6/14/12 at 28-29). Dr. Kuhn explained that from a neuropsychiatric perspective, when he sees signs of progress in a patient, he does not rush to "assign a guardian." (Id., at 10). Dr. Kuhn opined that even with Mr. Verdugo's cognitive deficits he did not require a guardian in 2006 because "he could understand the issues that he was dealing with and [could] be represented by someone who [could] explain it to him." (Id., at 29).
Though less persuasive than the testimony of Mr. Verdugo's treating doctor, Dr. Kuhn, the testimony of Susan Gelb, Occupational Therapist, who was hired by Mr. Verdugo's trial counsel to do an occupation therapy assessment in connection with his personal injury case was insightful. Based on her four hours examination of Mr. Verdugo in January 2008, Ms. Gelb, opined that Mr. Verdugo suffered from cognitive deficits which impacted his understanding of conversations and directions. (Transcript 5/8/12, p. 28, 30). Ms. Gelb testified that Mr. Verdugo lacked insight and judgment as well as an ability to follow simple directions, and that he required assistance using the telephone, food shopping, taking his medications and managing finances. (Id., at, 22, 26).
Ms. Lisa D'Urso, a License Master Social Worker who was the appointed court evaluator in Mr. Verdugo's 2006 and 2009 guardianship proceedings, testified credibly and clearly. (Transcript 5/11/12, p. 14). She testified that Mr. Verdugo's primary language is Spanish and that he had a sixth grade education (Id., at 10- 11). A translator was used for both interviews. (Transcript 5/11/12, p. 8, 14). In 2006 Ms. D'Urso determined from her investigation that a guardian was necessary for Mr. Verdugo because, inter alia, he was impulsive and could not be left alone as there were instances when he was found wandering the streets. (Id., at 8). She found that he did not have an understanding of the family finances, needed assistance with his activities of daily living and only had a limited understanding of the 2006 guardianship proceeding. (Id.). Ms. D'Urso testified that she consented to the withdrawal of the 2006 guardianship petition so that the petitioner therein could ascertain with medical certainty for the court the long term consequences of Mr. Verdugo's limitations. (Id.; Respondent's Ex. A).
Ms. D'Urso testified that she evaluated Mr. Verdugo again in 2009 in connection with the second guardianship petition. She found him to be more depressed and confused than her earlier interview. (Transcript 5/11/12, p. 12). She testified that when she interviewed him he did not remember that he had been in court earlier that day for shoplifting charges. (Id.). She again determined that Mr. Verdugo had no knowledge of his finances and medications and that appointment of a guardian was needed. (Id., at 13).
Shortly after the first guardianship proceeding was marked off the calendar and ultimately withdrawn by the petitioner therein, Peachtree issued four funding agreements pursuant to which approximately $80, 000 was issued to Mr. Verdugo against the proceeds of his pending personal injury lawsuit. (Petitioner's Exs. 1-4). The Agreements were executed separately on March 2, March 6, and April 3 of 2007 and January 18, 2008 and were signed in the office of Flomenhaft & Cannata, LLP, trial counsel retained by Mr. Verdugo's personal injury attorneys. (Petitioner's Exs. 1-4; Transcript 5/11/12, p. 66). According to the Agreements, Peachtree was to receive 10 percent of the purchase price every six months, plus costs, payable from the proceeds of the personal injury lawsuit. (Id.). The money was not due until the resolution of the personal injury action. (Id.). Each Agreement sets out that Peachtree was aware of Mr. Verdugo's physical injuries, which were the subject of the underlying personal injury litigation. (Id.).
Conclusions of Law
As a general rule, a person is presumed competent to enter into a binding agreement (Horrell v Horrell, 73 A.D.3d 979 [2d Dept 2010]). Mental Hygiene Law empowers courts presiding over Article 81 proceedings to void certain agreements if it is determined that a party was incapacitated at the time the agreement was executed. Specifically, Mental Hygiene Law § 81.29(d) provides in relevant part that if a "court determines that the person is incapacitated and appoints a guardian, the court may modify, amend or revoke... any contract, conveyance, or disposition during lifetime or to take effect upon death, made by the incapacitated person prior to the appointment of the guardian if the court finds that the previously executed... contract... was made while the person was incapacitated."
The person seeking to void the consequences of an otherwise binding agreement bears the burden of establishing that, when the agreement was executed, the party "was suffering from a mental illness or defect which rendered [the party] incapable of comprehending the nature of the transaction or making a rational judgment concerning the transaction, or that by reason of mental illness [the party] was unable to control [his or her] conduct" (Horrell v Horrell, 73 A.D.3d 979 [2d Dept 2010], Feiden v Feiden, 151 A.D.2d 889, 542 N.Y.S.2d 860 [3d Dept 1989]; see also Ortelere v Teachers Retirement Bd., 25 N.Y.2d 196 ; Restatement Second, Contracts § 15). However, the burden may shift if the party bearing the initial burden demonstrates that the person in question was suffering from psychiatric or neurological damage or disease in the brain prior to execution (Hubbard v Gatz, 130 A.D.2d 622 [2d Dept 1987]).
Applying the forgoing here, the evidence adduced during the hearing falls short of meeting this burden and thus is insufficient to support a finding that Mr. Verdugo was incompetent when the four subject Agreements were executed. While there is no question that Mr. Verdugo sustained physical and cognitive injury as a result of the accident in 2003, there is insufficient proof that Mr. Verdugo's mind was so impacted as to render him incapable of understanding the nature of his transaction with Peachtree when he executed the Agreements in 2007 and 2008. Although Ms. Gelb portrayed a bleak mental condition of Mr. Verdugo, her assessment was based on a single examination, which was conducted in connection with his personal injury trial. Similarly, although the Court credits the opinion of Ms. D'Urso with greater weight in that it appeared to be more informed because she had more than one occasion to examine Mr. Verdugo, she did not see him in close proximity to when the agreements were executed.
Conversely, Dr. Kuhn, the only credible witness who not only saw Mr. Verdugo during the relevant time periods but who also consistently treated him since the onset of the accident, testified that Mr. Verdugo was oriented to where he was and with whom he was speaking and his depression had abated. Dr. Kuhn also opined that Mr. Verdugo's cognitive and mental state improved while taking medication, indicating that during the course of treatment Mr. Verdugo's condition fluctuated, thus rendering it difficult to determine, without more evidence, what his state of mind was when he executed each specific contracts. Also, to the extent that the burden shifted to Peachtree to prove that Mr. Verdugo possessed the requisite mental capacity at the time he executed the Agreements, Peachtree met this burden by showing that the Agreements were discussed with his trial counsel and that he had rational conversations with Dr. Kuhn, who found him to be oriented to time, place and person (see Hubbard, 130 A.D.2d at 623 [holding that the burden shifted back to the party seeking to revoke the agreement where it was shown that the alleged incompetent person had discussed the document with an attorney prior to signing and that he had rational conversations with acquaintances during the relevant period]).
To be sure there are troubling factors that plague this case. For one, it appears to have been a disservice to Mr. Verdugo that the initial 2006 guardianship proceeding that was supported by Ms. D'Urso but which was ultimately withdrawn, purportedly to obtain medical evidence of the extent and duration of Mr. Verdugo's alleged deficits, was not reinstated until three years later. The issue the court seemed to have at that time was not whether Mr. Verdugo had a deficiency, but the extent of his injury. During the interim, Mr. Verdugo was able to execute the four Agreements, supposedly unbeknownst to his family who were allegedly supervising him at all times because of his impulsiveness. Second, Mr. Verdugo's trial counsel, Mr. Flomenhaft, who specializes in traumatic brain injuries, was aware of the Mr. Verdugo's alleged deficiencies when he facilitated the transaction between Peachtree and presumably represented him in executing the Agreements. Red flags should have been raised when Mr. Verdugo executed a new agreement three times within one month.
Mr. Verdugo's mental weakness and questionable financial choices, however, are generally not sufficient to justify setting aside a contract, and absent a showing that at the time of the transactions, he was so deprived of his mental faculties as to be wholly unable to understand or comprehend the nature and consequences of executing the Agreements or, was unable to act in a reasonable manner in relation to the four separate transactions (see In re Nealon, 57 A.D.3d 1325, 870 N.Y.S.2d 578 [3d Dept 2008], holding that the existence of progressive dementia was insufficient to rebut the presumption of competency in a son's diminished mental capacity action brought to determine the legitimacy of certain disbursements from his mother's bank accounts prior to her death, where there was no proof in the record concerning the mother's capacity at the time of the specific money transactions at issue occurred; see also Gala v Magarinos, 245 A.D.2d 336 [2d Dept 1997]).
Based upon the foregoing, petitioner's application, brought in her capacity as Guardian for the Property Management of Mr. Verdugo, an Incapacitated Person, for an order rescinding the Agreements with Peachtree, pursuant to Mental Hygiene Law Section 81.29(d), on the ground that Mr. Verdugo lacked capacity to enter into such Agreements, is hereby denied.
This decision constitutes the order of the court.