Preview:

[*1]


Decided on January 6, 2004
Surrogate's Court, Kings County,

File No. 5101/95
For the Petitioner Gerhard Frohlich Charles Gibbs, Esq. Holland & Knight 195 Broadway, New York, New York 10007
(212)
513-3200 For the Petitioner Theodore Wagner Theodore Wagner, Esq. Carter, Ledyard & Milburn

2 Wall Street, New York, New York 10005 (212) 732-3200 For Objectant Chemical Heritage Foundation Richard Mescon, Esq. Morgan, Lewis & Bockius 101 Park Avenue, New York, New York 10178 (212) 309-6000 For Objectant Polytechnic University George Gillespie, III, Esq. Cravath, Swaine & Moore Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019

(212)
735-3000 For Objectant The Long Island College Hospital David McCabe, Esq. Wilkie, Farr & Gallagher 787 Seventh Avenue, New York, New York 10019 (212) 728-8000 For the AG Laura Werner, Esq. Charities Bureau New York State Department of Law 120 Broadway, New York, New York 10271 Michael H. Feinberg, S .


In this proceeding to settle the account of the executors of the will of Donald Othmer, the objections of the beneficiaries raise the question as to whether one of the accounting parties, Gerhard Frohlich, is bound by the provision in the will limiting his commissions to $400,000. The dispute is important because the difference between the commissions fixed in the will and statutory commissions claimed by Frohlich exceeds $5,000,000.
Donald Othmer died testate on November 1, 1995 at the age of 91, survived by his widow, Mildred Othmer. Dr. Othmer had been a chemical engineer and had a successful career as a professor, inventor, entrepreneur and philanthropist. During his career, he amassed a large fortune, worth over $250,000,000.
His last will and testament, dated August 5, 1994, left his widow their home in Brooklyn Heights and a $5,000,000 trust fund. After a number of bequests to family and friends, he left his sizable estate to charity. The residuary estate was divided among Polytechnic University (25%), Long Island College Hospital (25%), and Chemical Heritage Foundation (50%). [*2]
The testator named Theodore Wagner, Esq., ("Wagner") and Dr. Gerhard Frohlich ("Frohlich") as executors of his will. Wagner is an attorney who represented the decedent in his estate planning for more than fifteen years. He prepared a number of wills for him, including the propounded will. Frohlich knew Dr. Othmer for more than forty years. Frohlich managed Dr. Othmer's affairs with the help of Wagner under a power of attorney from 1994 until Dr. Othmer's death in 1995.
Article FOURTEEN of the will provided that the total commissions payable to the executors shall not exceed $800,000, which amount shall be divided between them. As a condition of qualifying, Dr. Othmer directed that the nominated executors agree in writing to this limitation of commissions. If one or both refused to serve, he provided that Fiduciary Trust Company ("Fiduciary Trust") act as successor executor, either alone or as co-executor with the remaining executor. ARTICLE FOURTEEN provides as follows:
"ARTICLE FOURTEEN: I appoint my friends Theodore R. Wagner and Gerhard Frohlich as joint executors of this will and trustees of the trust, or, if either shall fail to qualify or cease to act, I appoint Fiduciary Trust Company International of New York, to be the joint or sole executor or trustee or both, as the case may be. I appoint Theodore R. Wagner knowing and approving that he will be entitled to receive fiduciary's commissions as provided in this Article, and that in addition his law firm will be compensated for legal services rendered to my estate and trust.
The commissions payable to my executors shall be according to the New York statute
then in effect, but shall in no event exceed the sum of $800,0000, which amount shall be
divided between my executors, if more than one shall be serving, as they may agree,
recognizing the extent of the duties and the relative difficulty of the duties assumed by
each or done by each in his respective tenure in office, and the remaining duties and their
extent remaining after his tenure, and I direct that each executor agree in writing to that
provision as a condition of qualifying."
Wagner and Frohlich offered the will for probate on November 3, 1995. On the same day, they filed a petition for preliminary letters testamentary. In the petition, they averred that they were "entitled to letters testamentary immediately upon the probate of the said propounded instrument." Preliminary letters testamentary were issued to them on November 20, 1995. The will was admitted to probate on July 8, 1996, without objection, and the preliminary letters testamentary vacated. Neither Wagner nor Frohlich executed an agreement in writing to accept the compensation provided in the will. Nonetheless, letters testamentary were issued to them upon filing their oaths and designations.
On November 6, 1996, Frohlich filed a renunciation of the compensation provided under the will pursuant to SCPA 2307 (5) and served a copy on his co-executor, Wagner. SCPA 2307 [5] [b] (the "Statute") provides, in pertinent part:
"Where the will provides a specific compensation to a fiduciary other than a trustee he is
not entitled to any allowance for his services unless by an instrument filed with the court
within 4 months from the date of his letters he renounces the specific compensation."
Wagner did not renounce the provision limiting his compensation as executor. On November 25, 1996, the executors filed an ex parte petition for advance payment of commissions pursuant to SCPA 2311. The petition requested that each executor receive $200,000 on account of their commissions. In his affidavit in support of his petition, Frohlich stated that, when the complexities of the estate became apparent to him during the first ten months of the administration, he asked counsel whether he could receive compensation greater than the amount provided under the will. Counsel informed him of the right to renounce the will's compensation provisions under the Statute. He was further advised that it was not "entirely clear" that the Statute is applicable to him and that the determination would be made in the accounting. He stated that he filed his renunciation, although he had not yet decided whether to request statutory [*3]commissions, to preserve his right to compensation under the Statute. As a result, he only asked for $200,000 on account of commissions at that time.
In July, 1999, the executors filed their account of their administration of the estate and petitioned for the settlement of their account. In the petition, Frohlich requested that he be awarded full statutory commissions of $5,323,112, of which $200,000 has been paid and Wagner requested that the court award him $400,000 in compensation as provided in the will, of which $200,000 has been paid. The charities who are residuary beneficiaries and the attorney general (hereinafter referred to as the "objectants") filed objections and counterclaims. The gravamen of their objections and counterclaims is that Frohlich had no right to serve as fiduciary in this estate without filing the necessary agreement to accept the compensation under the will. Therefore, notwithstanding the renunciation, he either expressly or implicitly agreed to the limitation under the will, or, if no express or implied agreement can be found, his right to compensation is nevertheless limited to the provisions in the will under equitable doctrines.
The parties entered into lengthy negotiations over the commission issue without success. Frohlich has now moved for partial summary judgment for receiving commissions of $2,563,803.81 as preliminary executor and the objectants have cross-moved for partial summary judgment denying Frohlich's claim for compensation as preliminary executor.
Summary Judgment
It is well settled that summary judgment may be granted only where it is clear that no triable issue of fact exists (see e.g. Alvarez v Prospect Hosp., 68 NY2d 320; Phillips v Joseph Kantor & Co., 31 NY2d 307). Frohlich argues that he is entitled to summary judgment because he is entitled to statutory commissions as preliminary executor under SCPA 1412 (7) whether or not he is entitled to statutory commissions as executor, citing Matter of Hillman (280 App Div 310, affd 305 NY 577, lv denied 305 NY 797), Matter of Lowenstein (72 Misc 2d 193) and Matter of Koch (NYLJ, Mar. 29, 1995, at 31, col 3). Statutory compensation of a preliminary executor is limited to a receiving commission that an executor is entitled to receive (Matter of Birch, 50 AD2d 951, appeal dismissed 38 NY2d 902). Frohlich claims that the statutory receiving commissions to which he is entitled are $2,563,803.81.
Objectants disagree that Frohlich is entitled to greater commissions as preliminary co-executor than as co-executor. Furthermore, they argue that even if he would normally be entitled to statutory commissions as preliminary executor, Frohlich is not entitled to them because he was not entitled to serve as preliminary executor.
Right to Serve as Preliminary Executor
Where an applicant is fully qualified, the court must issue letters to the nominated executor (SCPA 1412; Matter of Patton, 43 Misc 2d 807; Matter of Molnar, NYLJ, Mar. 4, 1974, at 18, col 7). The rationale for this rule is to avoid contests over the appointment of the preliminary fiduciary before the will is admitted to probate (see Turano, Practice Commentaries, McKinney's Cons Laws of NY, Book 58A, SCPA 1412, at 344; 2d Report of Temp St Commn on Estates ["Bennett Commission Report"]; 1963 NY Legis Doc No. 19, Appendix B, at 94-95). However, an applicant has no right to preliminary letters unless he or she is entitled to letters testamentary under the will (Matter of Bayley, 72 Misc 2d 312, affd 40 AD2d 843, appeal denied 31 NY2d 1025).
Right to Letters Testamentary
Objectants argue that Frohlich was not entitled to letters testamentary without first agreeing in writing to the reduced compensation of ARTICLE FOURTEEN. Since he did not agree in writing to accept compensation under the will, he was not entitled to serve as co-executor (and Fiduciary Trust was). They argue that since he was not entitled to serve as executor, he could not be appointed preliminary executor and is not entitled to statutory commissions as preliminary executor (compare Matter of Jones, 136 Misc 122).
The general rule is that a testator may condition the right to serve as fiduciary (Matter of Healey, 255 App Div 361). Acceptance of an appointment as executor cannot be given effect unless the condition is satisfied (Matter of Grant, 155 Misc 2d 819). On the other hand, an [*4]appointment of an executor upon a condition precedent which violates public policy is invalid in its entirety (Oliver v Wells, 254 NY 451; Hogan v Curtin, 88 NY 162).
Frohlich argues that requiring him to agree to the will's compensation provision as a condition precedent to serving as executor is invalid as against public policy, citing In re Folsom's Will (142 NYS2d 144). In that case, the will provided that if any beneficiary attempted to set aside, interfere with, or invalidate any of the provisions of the will, the beneficiary forfeited his or her right to receive any portion of the estate. The nominated executor was also a beneficiary under the will. He brought a construction proceeding to determine whether he forfeited his bequest if he renounced his right to compensation under the will to obtain statutory commissions. The court held that, if the in terrorem clause was intended to apply to the executor's renunciation of compensation, it was invalid as contrary to public policy (id. at 147). Frohlich argues that, for the same reason, the requirement of the will that he waive statutory compensation to qualify as executor is invalid.
There are two competing public policies at issue when a will attempts to limit the compensation of a fiduciary. The first is the public policy in favor of paying executors statutory commissions (see Matter of Worthington, 141 NY 9; 6 Cox-Arenson-Medina, NY Civ Prac [2002]

Download 2004_50005.pdf

New York Law