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Karu v. Feldman

Decided: May 29, 1990.

MICHAEL H. KARU, INDIVIDUALLY, AND ON BEHALF OF THE POTENTIAL HEIRS AND BENEFICIARIES OF THE ESTATE OF MORRIS M. KARU, PLAINTIFF-RESPONDENT,
v.
ARLINE KARU FELDMAN, DEFENDANT, AND FIRST JERSEY NATIONAL BANK, DEFENDANT-APPELLANT, AND JOEL H. FELDMAN, AS EXECUTOR, ADDITIONAL COUNTERCLAIM DEFENDANT



On appeal from and on certification to the Superior Court, Appellate Division.

For reversal -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, and Stein. Opposed -- None. The opinion of the Court was delivered by Garibaldi, J.

Garibaldi

On May 17, 1985, Morris Karu purchased two $100,000 Certificates of Deposit (CD) and one $50,000 CD from defendant, First Jersey National Bank (First Jersey). On January 29, 1986, Morris Karu died. This case arose from a dispute between two relatives of Morris Karu with respect to ownership of those three CDs. Specifically, on this appeal, Michael Karu, Morris Karu's nephew, alleges that First Jersey wrongfully allowed his uncle to designate Arline Karu Feldman, Morris Karu's sister, as a trust beneficiary of the CDs and later prevented him from deleting that designation by imposing an early withdrawal penalty.

I

When Morris Karu initially purchased his three CDs on May 17, 1985, Michael Karu accompanied him to First Jersey. During August 1985, Morris Karu returned to the Bank with Arline Feldman. He requested that Arline Feldman's name be added to the CDs so that Ms. Feldman would not have access to the funds while he was alive, but that the money would pass to her on his death. Colleen Danella, a representative of First Jersey, testified at trial that Morris Karu had said to her, "I want it where I don't want her to be able to use the money now but when I pass on." Ms. Danella suggested the funds be designated "In Trust For." Accordingly, she typed the words "I/T/F Arline Karu Fieldman" [sic] on the Certificate. The Bank did not assess a penalty for that addition. On July 9,

1985, Morris Karu purchased another CD in the amount of $65,000 from First Jersey, with the designation, in trust for Arline Feldman.

When the three earlier CDs totalling $250,000 matured in November 1985, they were rolled over for an additional six-month period, so that they would mature on May 17, 1986. On January 21, 1986, however, Morris Karu returned to the bank with Michael Karu and asked to delete Arline Feldman's name from all of his CDs. Since the $65,000 purchased in July 1985 CD had just recently matured, he was permitted to delete its I/T/F designation without a penalty in accordance with bank policy. However, Ms. Danella informed him that he would be assessed an early-withdrawal penalty of $5,000-$6,000 if he attempted to delete Arline Feldman's name from the remaining CDs. He chose not to do so, presumably intending to wait until the CDs matured in May 1986.

Two days after his final visit to the bank and before his CDs had matured, Morris Karu suffered a massive heart attack and lapsed into a coma. Michael Karu immediately obtained an order temporarily restraining First Jersey from distributing the three CDs totalling $250,000 that remained designated in trust for Arline Feldman. On January 29, Michael Karu filed a complaint on behalf of himself and other potential heirs and beneficiaries of his uncle's estate against both Arline Feldman and First Jersey. The complaint sought to have the certificates included in the estate based on allegations by plaintiff that Arline Feldman caused Morris Karu to add her name to the CDs through fraud, undue influence, and other means. It also alleged that First Jersey had violated "State and/or Federal law and/or regulations" by allowing Morris Karu to add Arline Feldman's name to the CDs and by not permitting Morris Karu to delete her name from his CDs without penalty.

On January 29, 1986, Morris Karu died. His will named Michael Karu as residuary beneficiary, and Joel Feldman, Arline Feldman's son, as executor. Plaintiff instituted this action

on behalf of himself and the potential heirs and beneficiaries, and not on behalf of the estate. He is the residuary beneficiary under Morris Karu's will and presumably will benefit if the certificates are included in the estate rather than paid to decedent's sister, Arline Feldman. Arline Feldman filed a counterclaim, alleging that plaintiff had used undue influence over Morris Karu in having successfully caused the removal of her name from the $65,000 CD. The estate filed a cross-claim seeking to invoke the will's "no contest" provision against both of the other litigants.

All parties moved for summary judgment. The court denied Michael Karu's and Arline Feldman's motion against each other, finding that their complaint and counterclaim raised legitimate issues of intent that could overcome the presumption in N.J.S.A. 17:16I-5 that the form of the account governs. The court also denied plaintiff's summary judgment motion on the estate's cross-claim as not yet ripe.

In support of its motion for summary judgment, First Jersey submitted the affidavit of a Senior Vice President stating that it was the bank's policy to treat deletions of names from CDs, but not additions, as early withdrawals for the purpose of assessing penalties. The court found that First Jersey had complied with federal and state law, as well as its own rules and regulations, policies, and procedures in connection with Morris Karu's CDs. Moreover, it ruled that the decedent had agreed to those rules and regulations by executing the signature cards and accepting the certificates from First Jersey. Finding no disputed questions of fact, the court granted First Jersey's motion for summary judgment and dismissed with prejudice all claims asserted against First Jersey in the complaint. The court rendered that decision orally on January 13, 1987, and filed it on March 25, 1987.

The remaining litigants, Michael Karu, Arline Feldman, and the estate, entered into a final settlement agreement before the court on February 25, 1987. The final agreement provided that

$200,000 of the $250,000 CD money at issue would be released to Arline Feldman directly, and $50,000 would be held in escrow by her attorney for various expenses, including funds payable to the estate, such as reimbursement for inheritance and intervening interest on the CDs. As part of the agreement, Joel Feldman also resigned as executor in favor of Michael Karu. All parties involved in the settlement were to issue each other releases from liability, and the plaintiff agreed to execute a hold-harmless agreement for Arline Feldman and other beneficiaries in the event they were joined in litigation with First Jersey. The court also noted that in any further litigation with First Jersey, title to the $250,000 would not be subject to dispute, and that the Bank would be liable only for its own "misconduct or wrongdoing." The court entered a Consent Order requiring First Jersey Bank to release immediately and distribute the CDs in accordance with the Final Settlement, which First Jersey immediately did.

Plaintiff appealed the grant of summary judgment in favor of First Jersey, and a split Appellate Division panel reversed. The majority found genuine issues of material fact as to whether the Bank's policy regarding withdrawal penalties existed and whether Morris Karu was aware of that policy. The majority raised a cause of action never asserted by plaintiff by suggesting that absent such a policy, or absent notice, First Jersey might be liable for negligent misrepresentation. The court also ruled that N.J.S.A. 17:16I-12, which protects banks from liability on payment of multiple party accounts, would not protect First Jersey from a claim based on negligence.

One judge dissented. He argued that the only available cause of action would have been one grounded in contract. That breach of contract claim could have been asserted only by Morris Karu or the estate. Of course, neither Morris during his lifetime nor his estate had asserted any claim against the bank with regard to the CDs. The dissent reasoned that if Morris Karu had transferred the account and incurred a penalty, damages would have been limited to the $5,000 penalty.

Alternatively, under plaintiff's theory that the bank had caused Morris Karu to abandon his intent, the remedy would have been a constructive trust imposed on the CDs for the benefit of the estate. The dissent reasoned, however, that by settling with Arline Feldman, plaintiff had abandoned that claim for relief. "Plaintiff cannot by settling this issue allow the ...


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