March 9, 2011
EILEEN KIRSCHNER PASS, PLAINTIFF-RESPONDENT,
ETTA KIRSCHNER, INDIVIDUALLY AND IN HER CAPACITIES AS EXECUTRIX OF THE ESTATE OF ALFRED KIRSCHNER AND TRUSTEE OF THE KIRSCHNER FAMILY LIMITED PARTNERSHIP, HOWARD KIRSCHNER, INDIVIDUALLY AND IN HIS CAPACITIES AS SUCCESSOR TRUSTEE OF THE KIRSCHNER FAMILY TRUST AND GENERAL PARTNER OF THE KIRSCHNER FAMILY LIMITED PARTNERSHIP, DEBORAH KIRSCHNER, INDIVIDUALLY AND IN HER CAPACITY AS GENERAL PARTNER OF THE KIRSCHNER FAMILY LIMITED PARTNERSHIP, BRITTA KIRSCHNER, BENNETT KIRSCHNER, AUSTIN KIRSCHNER, STUART KIRSCHNER, RIVKA KAUFMAN, AND THE ESTATE OF ALFRED KIRSCHNER, DEFENDANTS-APPELLANTS, AND LEONARD PASS, ANDREA PASS, JULIE PASS, LEAH KAHN PLAVNICK, AND DWIGHT EPPERSON, DEFENDANTS.
On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-55-00.
The opinion of the court was delivered by: Cuff, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: February 3, 2010
Before Judges Cuff, Payne, and Waugh.
The opinion of the court was delivered by CUFF, P.J.A.D.
Alfred and Etta Kirschner, the parents of plaintiff Eileen Kirschner Pass (Eileen),*fn1 established a family limited partnership and a family trust to benefit Eileen and her brother, defendant Howard Kirschner (Howard), equally. Alfred and Etta gifted some of their interests in the family limited partnership to Eileen, Howard, and their families. During Alfred's lifetime, Eileen, her husband, and their children (the Pass family) in turn gifted their interests in the partnership to Howard, allegedly at the request of Alfred and Etta. After Alfred died, the gifts of interests in the limited partnership to Howard continued at Howard's behest, and Etta amended the trust to disinherit Eileen in favor of Howard. Eileen sued Etta, Howard, Alfred's estate, and other family members seeking to set aside the Pass family gifts to Howard and his family and the amendments to Etta's trust. She alleged unauthorized transfers, undue influence, and breach of fiduciary duty.
Following a trial that stretched over ten months, the trial judge found Howard unduly influenced Etta to execute amendments to the trust. The judge also found Howard crafted a "gift-back" plan without the knowledge of his parents, and that Howard and his wife breached their fiduciary duties to Eileen and her family with respect to the partnership. The judge voided all of the gifts of partnership interests by the Pass family to Howard and his family that occurred before and after Alfred died. The judge awarded Eileen and the Pass family damages, prejudgment interest, and attorneys' fees, totaling $6,838,271.71.
In this appeal, defendants argue that the trial judge erred in finding that Howard unduly influenced his mother to alter the estate plan in his favor. Defendants also argue that the trial judge erred in voiding the Pass family gifts of family limited partnership interests to Howard and his family, and in awarding damages to Eileen's husband and children. Defendants also assert the trial judge erred in finding that Howard and his wife Deborah Kirschner (Deborah) breached their fiduciary duties to the Pass family, and ignored Alfred's and Etta's handwritten notes. Defendants also argue the trial judge erred in calculating damages, admitting the testimony of Eileen's expert, and calculating prejudgment interest. They also urge that the reports of the fiscal special agent and plaintiff's expert should not have been admitted. Finally, defendants contend the trial judge should not have awarded counsel fees to Eileen and should have approved Howard's accounting.
We affirm the liability determination, the damage award, and the disapproval of the accounting submitted by Howard, but remand for recalculation of prejudgment interest.
Alfred and Etta were married in 1935 and had three children: Howard, Eileen, and Bernice Kirschner Kahn (Bernice).
Due to a dispute with Bernice regarding her eldest daughter's marriage to a man Bernice and her husband considered unsuitable, but whom Alfred and Etta did not, the Kirschner family became estranged from Bernice, and her parents amended their estate plan to disinherit Bernice. Following this amendment, the estate plan provided that Howard and Eileen would share equally.
Alfred developed a successful dental practice in Queens, New York. In anticipation of Howard's graduation from dental school and joining the practice in 1961, Alfred purchased a piece of property in Far Rockaway, New York, designed and built a building, and moved his dental practice to the building. Etta worked as the office manager. By all accounts, the dental practice flourished, ultimately allowing the practice to employ several dentists and other professional staff.
In 1970, Alfred and Howard established a pension plan for the practice, including themselves and Etta. They contributed a significant portion of the earnings from the dental practice to the plan. Alfred and Etta, however, contributed more to the pension plan than Howard due to their greater age. Alfred was sixty-one years old when they established the plan.
In the early to mid-1980s, Alfred and Howard decided to terminate the pension plan. In June 1985, the I.R.S. approved the termination and the assets were distributed as follows: Howard received $983,206; Alfred received $835,543; and Etta received $378,899. In January 1987, despite the fact that the pension had been terminated, Alfred designated Howard as the sole beneficiary of his pension and Etta waived her rights to Alfred's pension.
After attending a dental society meeting concerning estate planning and sheltering assets, Alfred and Etta retained a law firm in Utah to prepare their estate plan. In December 1987, Alfred dispatched Howard and Deborah to Salt Lake City to meet with Dwight Epperson, an associate at the firm, to work with them. Over two or three days, Epperson prepared estate planning documents for Etta and Alfred, consisting of a family trust with two inter vivos trusts, a family limited partnership, and two wills. The plan was created in consultation with Howard, Deborah, and Howard's parents, who participated by telephone.
Epperson prepared the Alfred and Etta Kirschner family trust (the family trust), which was established in April 1988. Article 7 provided that all real and personal property of Alfred and Etta was to be placed into the trust and any property later acquired by either of them would automatically become part of the trust at the time of acquisition. Article 2B provided that during the lives of Etta and Alfred, the trust property would be equally allocated between two separate living trusts, the Alfred Kirschner Trust (the Alfred trust) and the Etta Kirschner Trust (the Etta trust), and the property in each trust was to remain separate.
Article 6 provided that as long as Etta and Alfred were both alive, each could revoke or modify their own trust. Article 22 provided that upon the death of the first spouse, the inter vivos trust of that spouse would fund a credit shelter trust and a marital trust. The credit shelter trust was to be funded in an amount equal to the federal tax exemption. At the time, the exemption was $600,000. The credit shelter trust could not be revoked or amended.
The marital trust would be funded from two separate sources: the balance of assets in the deceased spouse's inter vivos trust, i.e., the assets in that trust which exceeded $600,000 became a power of appointment (POA) trust, and the assets in the surviving spouse's inter vivos trust. Upon the death of the first spouse, the survivor could only amend or revoke the marital trust provisions pertaining to the assets transferred therein by the surviving spouse.
The family trust also provided for a distribution of $200,000 to Leah, Bernice's oldest child, and the remainder to Eileen and Howard equally. Schedule A of the family trust agreement listed all the assets that Etta and Alfred transferred to the trust, including: bank accounts, cemetery plots, investment accounts, their interest in a cooperative apartment,*fn2 and their interests in the family partnership. The trust agreement contained language regarding a "Qtip" trust, but a Qtip trust was never established and Alfred's estate never made a Qtip election.*fn3
Epperson also prepared the documents establishing the Kirschner Family Limited Partnership (KFLP or the family limited partnership). Etta and Alfred were the general partners and also held a 16% limited partnership interest in the KFLP. There were eleven additional limited partners: Howard, Deborah, their four children (Britta, Bennett, Stuart, and Austin), Deborah's mother, Rivka Kopelman Kaufman (Kaufman), Eileen, Eileen's husband, Leonard Pass (Leonard), and Eileen's two children (Julie and Andrea). Alfred and Etta transferred all of their interests in the KFLP to the family trust.
Epperson testified that Alfred and Etta intended the KFLP as a vehicle to transfer their assets to Howard without incurring taxes. Notwithstanding this testimony, the express terms of the KFLP documents provided otherwise. Section 6.1 of the KFLP provided that all profits or losses would be credited or charged to the partners in proportion to their interests. Section 6.3 provided that all earnings would be distributed to the partners each year, except that they could be retained in capital accounts at the discretion of the general partners. Section 3.1 required maintenance of partnership records.
Alfred and Etta funded the KFLP with a deposit of $500,000. According to Epperson, Alfred and Etta intended to transfer proceeds from their pension plans to Howard to compensate him for years of work in the dental practice for which he had accepted a smaller salary in order to avoid taxes. Alfred and Etta, together, received in excess of $1.2 million when the pension plan dissolved, but initially only funded the KFLP with less than half that amount. In addition, the amounts received by Howard and his parents on dissolution of the plan were not grossly disparate. Howard received $983,206, which he invested in an individual retirement account. Moreover, none of the documents reflected Alfred's and Etta's purported desire to pay Howard amounts that had been distributed to them from the pension plan.
By the end of 1989, Alfred and Etta had contributed an additional $1,530,397 to the KFLP. Most of the funds Etta and Alfred transferred to the KFLP had been in a Smith Barney brokerage account (the Smith Barney account), which contained funds from sources other than the distribution from the dissolved pension plan.
In addition to the trust and the KFLP, Epperson prepared wills for Alfred and Etta. Each contained a clause disinheriting anyone who challenged the estate plan. Each will left the residue of the estate to a family trust.
In 1988, Alfred and Etta made gifts of part of their interests in the KFLP to each of the limited partners. In November 1989, Epperson met with Alfred, Etta, Howard, and Deborah in New York and discussed the gift plan. In 1989 and 1990, Etta and Alfred again diminished their own interests in the KFLP by gifts of equal portions of their interests to each KFLP limited partner. The gifts from Etta and Alfred disproportionately favored Howard's family because the family had seven limited partners (including Kaufman), and the Pass family had only four.
Eileen testified that her parents requested that the Pass family gift their interests in the KFLP received from Alfred and Etta to Howard and Deborah in order to give them some extra money, but there is no document in the record that reflects this instruction or request. In 1991, Howard contacted Epperson regarding the Pass family's gifts of their interests to him. Epperson never consulted the Pass family if they wanted to gift their interests to Howard. Epperson determined the maximum amount Etta and Alfred could gift to the limited partners as well as the amount that could be transferred by the Pass family to Howard and Deborah as gifts without incurring a tax consequence.
On January 3, 1992, Howard sent Eileen a package containing gift memoranda for the years 1989-1992.*fn4 At Howard's request, the Pass family signed the gift memoranda. The memoranda gifted the interests in the KFLP transferred from Alfred and Etta to the Pass Family to Howard and Deborah. Eileen testified that the Pass family signed the gifting documents, but she had no idea what they were. Etta and Alfred also transferred some of their interests to Kaufman, and she gifted her interests to Howard and Deborah.*fn5 In 1991 and 1992, Britta also gifted her interest to her parents.
In March 1992, Epperson wrote to Howard describing Alfred and Etta's remaining interest in the KFLP. He mentioned in this letter that Alfred and Etta needed to continue the gifting program, but that they had almost accomplished their goal of minimizing tax consequences.
Alfred died on May 17, 1993, and Eileen believed his death terminated the gift-back program. Nevertheless, Howard continued to ask Eileen to sign the gift memoranda, and she complied. Eileen executed gift memoranda in 1993, 1994, and 1995 at Howard's request. After 1992, Leonard never signed any gifting documents; it appears Eileen signed his name on the 1993, 1994, and 1995 memoranda.
On August 10, 1993, Epperson prepared an authorization, which Etta signed, giving Howard and Deborah full authority to buy and sell stock and to withdraw any of the partnership funds for their personal use. On the same day, Howard became a general partner of the KFLP. Although the KFLP required that all other partners be notified about any amendment to the partnership, the Pass family was not notified of either of the changes that had been made.
In 1994, the Pass family also began gifting to Howard's children. Howard stated that this was done at the Pass family's request because Eileen and her husband wanted to be written out of the gifting program. However, other than Howard's statement, there is no evidence in the record to reflect this intent.
After Alfred died, the West New York cooperative was held in Etta's name. Epperson prepared the documents to transfer ownership of the apartment from Etta to Howard and Deborah.
Epperson testified he represented Etta and Howard in this transaction. Indeed, Epperson testified that virtually all instructions about the KFLP after Alfred's death and all discussions about Etta's trusts were with Howard. Documents were sent from Epperson to Howard; most did not reflect that Etta received a copy. The judge also observed that Epperson seemed to confuse or forget at various times whether he represented Etta or Howard.
By 1995, Epperson determined that the Pass family had no remaining interest in the KFLP because they had transferred by gift their entire interest to Howard and his family. At trial, it was determined that Epperson miscalculated; therefore, Eileen continued to hold a small interest in the KFLP after 1995. The Pass family never received financial information or tax documents, such as K-1s, as required under the terms of the partnership. In November 1995, Etta signed an amended limited partnership certificate which reflected only eight partners in the KFLP, none of whom were members of the Pass family. Deborah was also named a general partner at that time. Beginning in 1996, Etta gifted her remaining shares in the KFLP to Howard, Deborah, and their children. On July 2, 1996, on the advice of Epperson, Etta signed a resolution limiting the accounting requirements of the partnership.
In late 1998 or early 1999, Howard spoke to Epperson about the fact that Eileen might inherit more than the $600,000 their parents had intended because the value of the assets in the Etta trust had increased. They discussed an amendment to the trust to foreclose that possibility.
In Spring 1999, Etta visited Bernice in Baltimore in an attempt to reconcile, and remained there for eight or nine weeks. Eileen visited her mother there, and said she looked
ill. Etta had been diagnosed with congestive heart failure and had been hospitalized for a possible stroke.
In April 1999, Epperson called Etta in Baltimore to suggest an amendment to her trust to limit Eileen's inheritance to $600,000. Although disputed, Epperson testified that he prepared the April 1999 amendment to Etta's trust at the request of Etta and Howard. That amendment provided that Eileen would receive no part of "the Etta Kirschner Trust Estate."
On April 21, 1999, Epperson sent Howard a copy of the amendment to Etta's trust. According to Epperson, Etta told him she was disinheriting Eileen because she did not need the money and Etta had already given her many other gifts. Eileen did not dispute that her parents had given her gifts over the years totaling hundreds of thousands of dollars. On April 28, 1999, Etta executed the amendment (the April amendment) in Baltimore;
Eileen was not informed. Thereafter, on June 15, 1999, Etta wrote to Smith Barney that she no longer wanted control over the brokerage account.
On October 17, 1999, Etta signed a document stating she wanted to give Eileen her inheritance before she died. Etta executed this letter a few days before Eileen and her husband arrived for a visit. At that time, Eileen and her husband lived in Florida. On October 24, 1999, Howard arrived at his mother's West New York apartment and told Eileen that she would get a $600,000 "gift" if she agreed to sign a release that disinherited her from her parents' estates. She inquired how Howard settled on this sum and asked other questions. Howard told Eileen there was no will and no documents to determine the worth of the estates. Eileen refused to sign and Howard left the house. However, he made numerous phone calls to her at their mother's home, threatening to cut her off from her mother and himself if she did not sign the release.
Eileen and Leonard returned to Florida on October 29, 1999. On that same day, Etta signed a second amendment (the October amendment), prepared by Epperson, which purported to amend not only the marital trust but also the Alfred and Etta family trust. Both the April and October 1999 amendments left Eileen with nothing. Epperson dealt directly with Etta in amending the trusts, but also spoke to Howard regarding the amendments.
Over the years, Epperson also added Howard, Deborah, and Kaufman, as clients. The record reflects Howard had frequent contact with Epperson regarding the amendments to the trust and the gifting, including the gift-back program from the Pass family to his family.
On November 1, 1999, Eileen wrote to Epperson requesting information about her parents' estates; Howard responded with a message not to communicate with Epperson because he was Howard's attorney. Howard called again with Etta on the phone and told Eileen that her mother wanted her to accept the $600,000. Howard called a third time and left an angry message on Eileen's answering machine.
On December 2, 1999, Epperson sent Eileen a release to sign, which provided that she would receive her 50% distribution of the credit shelter trust, approximately $450,000. In order to receive this sum, she had to surrender any claims to the KFLP or the trusts.
On December 18, 1999, Etta executed a notarized instrument disinheriting both of her daughters and leaving her entire estate to Howard (the December document). On February 18, 2000, Etta signed a codicil to her Last Will and Testament to the same effect.
Meanwhile, on November 5, 1999, Howard took Etta to be examined by Dr. Adam Chester, who performed a psychiatric examination and found Etta to be aware of her assets and how she would like to distribute them. Then, on January 7, 2000, Dr. Lee Angioletti examined Etta and found that she was legally blind. On January 28, 2000, Etta was videotaped in the office of attorney Laura B. Hoguet. On the videotape, Etta stated Eileen and Bernice had already received their inheritance. Significantly, notwithstanding the recent declaration that Etta was legally blind, the videotape shows her reviewing documents.
On March 28, 2000, Howard took Etta to Dr. Alberto M. Goldwaser (Goldwaser), who performed a psychiatric evaluation and found Etta competent to alter her estate plans. Goldwaser rendered this opinion without performing a "mini mental" exam of the type normally used as an indicator of mental competence. Etta told Goldwaser she had given Eileen and Bernice their inheritances in the amount of approximately $300,000 about twenty or thirty years earlier, and Howard was not given any money at that time. Etta also told him that Bernice was content with this arrangement and Eileen was not. Etta told Goldwaser her grandson*fn6 had invested the money and helped it grow from $1 million to $5 million but she did not mention her trust or any of her other estate planning documents. Etta did not tell Goldwaser that she had already executed a codicil to her will and two amendments to the trust disinheriting Eileen.
In January 2000, Eileen, Leonard, Andrea, and Andrea's child visited Etta. Howard called and told Eileen to leave the house. Eileen took pictures with Etta and her family members, as well as pictures of the contents of Etta's apartment. Howard subsequently restricted Etta's contact with the Pass family. Howard deterred Eileen's communication with their mother by forwarding all calls made to Etta's telephone number to the dental practice. Eileen did not see her mother again before her death in April 2001.
On April 12, 2000, Eileen filed a verified complaint and an order to show cause seeking to invalidate certain transfers of interest in the family trust. She also alleged that her mother had been unduly influenced by Howard in amending the trust. Eileen named her mother as a defendant in her individual capacity and as executor of Alfred's estate, general partner, and trustee of the KFLP. Eileen also named Howard in his individual capacity and as successor trustee and general partner of the KFLP, as well as his wife Deborah, their children, Britta, Bennett, Stuart, and Austin, and Deborah's mother. She also named Epperson and Alfred's estate as defendants. The judge entered an order to show cause on April 27, 2000.
Etta, Howard, Howard's wife, Deborah, Howard's children, Britta, Bennett, Austin, and Stuart, and Deborah's mother, Kaufman (hereinafter, defendants) filed an answer on June 13, 2000, which was later amended. In their counterclaim, defendants alleged that Eileen had forfeited her right to any proceeds of the estates by challenging her father's will or estate plan.
On June 28, 2000, the judge appointed two attorneys, Sharon Rivenson Mark (Mark) and Frank Stifelman (Stifelman), as special agents to investigate whether Etta needed a guardian ad litem and whether Etta's amendment to the Etta and family trusts was prohibited by the trust agreement. In her July 17, 2000 report, Mark opined that Etta did not require a guardian, but expressed concern about the influence or control Howard and members of his family exercised over her.
Mark reported that Howard's oldest daughter Britta had to be instructed to leave the room during Mark's initial interview with Etta. Mark suspected Britta may have been eavesdropping during the interview. Britta's subsequent call to her to explain or to interpret Etta's statements confirmed her suspicion. Then the second scheduled interview was cancelled because Etta was too upset after a late night visit from Britta, who discussed the case with her grandmother. In addition, Mark reported Etta was dependent on Howard, and he read everything to her because of her deteriorating eyesight. Etta put his name on her bank accounts; and put her jewelry in Howard's vault and closed her safety deposit box.
After receiving Stifelman's report, which among other things stated that the April 1999 amendment to the Etta Trust was prohibited by the terms of the trust agreement and that Howard treated the KFLP as "his personal candy store," the judge appointed Rufino Fernandez (Fernandez) and Joseph G. Aronson to perform a forensic accounting of the KFLP and trust accounts. They reviewed Stifelman's report, the report rendered by Robert Friedman, Howard's expert, and the available records of the KFLP and the family trust. They submitted a report on September 25, 2003, with the following findings: the limited partnership was initially funded with $500,000; an additional $1.5 million was contributed during 1988 and 1989; between May 1993 and May 2003 there were disbursements totaling $2,259,780, and of that amount $1.5 million went to Howard; some of the funds were used to pay Etta's taxes and legal fees, as well as taxes for Howard and his children; in May 1988, the proceeds of the pension plan had been $1,801,274;*fn7 Howard's share of the pension proceeds had been approximately $900,000; Alfred and Etta transferred $788,000 from the pension plan to the partnership on May 31, 1988, but this was not their entire interest in the pension proceeds; and it was not possible to determine where all of the money in the partnership came from because of the lack of records. They also found that despite the amended limited partnership certificate in November 1995, the Pass family still owned an interest in the KFLP because of Epperson's miscalculation.
The judge accepted Bruce Mantell (Mantell) as an expert in limited partnerships over defendants' objection. Mantell submitted a report on July 23, 2004, although many requested documents had not been supplied to him by defendants. He agreed with Stifelman's critique of the Friedman report, concluding that Friedman provided only estimates and did not refer to specific documents.
Mantell further concluded that even though the trust documents referenced a Qtip trust, one had not been created.
Instead, there was a POA trust, which was a component of the marital trust and contained the assets transferred from Alfred's inter vivos trust to Etta's trust. Mantell found that Etta could not amend the terms of this POA trust, but she could exercise her POA to change the beneficiaries. She could make distributions to herself from her POA trust with the consent of the successor trustees, who were Eileen and Howard. Mantel stated that because Etta never exercised her POA, the assets in the POA trust should have flowed at her death into the credit shelter trust to be distributed equally to Eileen and Howard.
Mantell reported that the partnership provided for an annual distribution of earnings based on percentages of ownership in the KFLP. Mantell found, however, that disbursements were made only to Howard and Etta. Although Mantell relied on the Fernandez report, he recognized that the report was incomplete because Fernandez lacked account information for the KFLP. Mantell proposed three different methods of valuing the Pass family's ownership interests in the KFLP and the trusts:*fn8
1) the partners receiving disproportionate distributions (Etta and Howard) could be deemed to have received loans from the
KFLP, which would have to be paid back with interest (the deemed loan approach);*fn9 2) the disbursements could be viewed as "equalization catch-up credits" to those partners that did not receive distributions; or 3) the "market approach" could be employed to determine what the value of the KFLP should have been if the distributions had not been made and the funds had been prudently invested instead. Mantell concluded the market approach was preferable because it accounted for fiduciary obligations to manage the money properly.
Mantell then assigned two possible dollar values to the Pass family's interest for each of the approaches. One, based on the Fernandez report, calculated the interest of Eileen and her family as of December 2003. The other was calculated using a "freeze" analysis, i.e., if all gifting had ended at Alfred's death.
Mantell then took the values he calculated under the three approaches and averaged them, giving the market approach double weight. Based on the Fernandez report, Eileen and her family's interest was $1,420,592. Using the freeze analysis, the value would be $2,039,783.*fn10 These amounts reflected Eileen's interest in the credit shelter trust and the marital trust as well.
Mantell concluded that if all gifting had ended in 1993, the Pass family would have had a 12.789% interest in the KFLP; Eileen would have received 50% of the credit shelter trust's interest of 18.139%; and 50% of the marital trust's 3.604% interest.*fn11
In rendering his decision, the trial judge found that Howard enjoyed a confidential relationship with his mother and exercised undue influence over her in all matters relating to the management of her assets. He, therefore, vacated the April and October 1999 trust amendments and the February 2000 codicil. The judge also found that Howard had concocted the gift-back program and that there was no evidential support that the program was consistent with his parents' wishes. In fact, the trial judge noted the trust and testamentary documents provided otherwise. Therefore, he set aside all gifts between Eileen and her family and Howard and his family.
In assessing damages, the judge accepted Mantell's freeze analysis calculation that the Pass family's interest in the KFLP in 1993 would have been 12.789%. Defendants did not offer any expert opinion to dispute this calculation. The judge then voided all the gifts that had been made by the Pass family, thereby adding an additional 7.75% to the Pass family's interest, for a total of 20.5496566%. In addition, the judge found Eileen was entitled to one half of the credit shelter trust's 18% interest in the KFLP and the POA trust's 3% interest in the KFLP. The Pass family's total interest in the KFLP thereby increased to 31%.*fn12
The judge did not utilize Mantell's averaged calculation, but instead chose the market approach because it was the method that best accounted for fiduciary obligations. Based on that approach, the judge accepted Mantell's calculations, and awarded Eileen $3,629,290.
At the same time, the judge voided all of Etta's gifting after Alfred's death and increased the value of the marital trust interest in the KFLP to 21.744%. He held that Eileen was entitled to an additional $1,088,189, which represented her 50% interest in Etta's marital trust. The judge entered final judgment on March 11, 2008. The judgment awarded Eileen a money judgment for the value of her attributed direct interest in the KFLP and her direct interest in the KFLP through the family trust. In addition, the judgment awarded money judgments to Leonard, and the two children of Eileen and Leonard. The total judgment is $4,717,479.*fn13 In addition, the judgment awarded prejudgment interest of $1,532,057.52 and attorneys' fees of $785,886.54.
Defendants argue that the trial judge erred by determining that Etta was unduly influenced by Howard, and that the evidence demonstrated that Etta's intent was to disinherit Eileen. We disagree.
Ultimately, the trial judge found Etta possessed testamentary capacity, but Howard enjoyed a confidential relationship with his mother and exercised undue influence over his mother to alter the estate plan in his favor crafted by his parents. In doing so, the trial judge emphasized Howard's reluctance and failure to produce documents and records, and his penchant for providing unresponsive answers to simple questions posed to him at trial. The judge found that Howard "orchestrated," "choreographed," and "organized" not only the amendments to the family and Etta trust, but also the codicil to her will, and created the gift-back program of KFLP interests from the Pass family to the Howard Kirschner family.
In Haynes v. First National State Bank of New Jersey, 87 N.J. 163, 175-76 (1981), the Court set forth the standard for finding undue influence. In Haynes, the testatrix had two daughters, and her will divided the estate evenly between them. Id. at 169. After her daughter's death, the testatrix moved into the surviving daughter's home, ibid., where she was dependent on her daughter for care and companionship, id. at 176. The surviving daughter substituted her attorney for her mother's long-time attorney, and he drew up a new will that substantially disinherited the deceased sister's children. Id. at 173.
The Court determined there were two factors necessary to prove undue influence. The first is a confidential relationship, which can be proved by the testator's dependence and reliance on the proponent of the will for companionship, care, and support. Id. at 176. The second element is "suspicious circumstances," which do not need to be substantial. Ibid. When these two elements exist, a presumption of undue influence arises. Ibid. The proponent of the will must overcome the presumption by a "preponderance of the evidence." Id. at 177-78.
Here, the trial judge determined that Howard enjoyed a confidential relationship with his mother and then exercised undue influence to alter the estate plan in his favor. The record fully supports these findings.
The record is replete with evidence of a confidential relationship. Etta stated she was dependent upon Howard. When Howard forbade Etta from seeing Eileen, Etta complied. When Eileen insisted on seeing her mother, Howard called and told Eileen to leave. After the visit, Howard forwarded all of Etta's telephone calls to his office. Eileen was never able to speak to her mother after that visit. In addition, when Mark interviewed Etta, Howard's daughter eavesdropped. Her attempt to prepare her grandmother before Mark's second visit upset Etta so much that the visit had to be postponed.
Other indications of a confidential relationship were related to Etta's impaired vision. Mark confirmed that Howard read everything to Etta. Mark commented at length about the circumstances that informed her concerns about the influence exercised over Etta by Howard and his family. Howard made appointments for Etta to see lawyers and doctors, and spoke directly to Epperson. He spoke with Goldwaser before and after Etta's examination. Etta's telephone calls were forwarded to Howard's office. The latter device isolated Etta from Eileen and other members of the Pass family.
In addition, the trial judge concluded that the case was "replete with incidents of suspicious circumstances." He cited the gift-back program; Howard's discussions with Epperson about amendments to the trust; Howard's attempt to buy out Eileen's interest in their parents' estates; the December 1999 document that purported to disinherit Eileen; the doctor visits and video at the attorney's office that depicted the legally blind Etta reviewing documents; Howard's harassing telephone calls to Eileen; Howard's withdrawal of funds from the KFLP for his own use; the October 1999 letter, which did not disclose that the April 1999 amendment had already been signed; and the October 1999 amendment, which coincided with Eileen and Leonard's return to Florida, after Eileen refused to sign the release tendered by her brother. In each instance involving a document, Howard prepared it or instructed Epperson to do so.
The confidential relationship coupled with suspicious circumstances created a presumption of undue influence, and it was defendants' burden to prove by a preponderance of the evidence that there was no undue influence. Haynes, supra, 87 N.J. at 177-78. The trial judge found that defendants could not overcome the presumption because of the longstanding pattern, dating from 1992, that Howard did as he wished with the partnership money, as well as the various ways in 1999 that he tried to insure that Eileen would not inherit. The judge found that defendants did not rebut the presumption of undue influence because Howard breached his fiduciary duties, Epperson took orders from Howard, and Howard played an active role in creating the February 2000 codicil to the will and the April and October 1999 amendments to the trusts. Virtually all of Howard's actions were directed at benefiting himself or his family at Eileen's expense.
Findings of the trial court on the issues of undue influence are entitled to great deference. The trial court had the ability to see and hear witnesses, and could form an opinion regarding their credibility. In re Will of Liebl, 260 N.J. Super. 519, 523 (App. Div. 1992), certif. denied, 133 N.J. 432 (1993). Such factual findings should not be disturbed unless they are "so manifestly unsupported or inconsistent with the competent, reasonably credible evidence so as to offend the interests of justice." Id. at 524.
The trial judge's findings of fact are also informed by his opportunity to observe the witnesses and form opinions concerning their credibility. In the midst of Howard's testimony, the judge interrupted the proceedings to remind Howard that non-responsive answers and argumentative responses served to undermine his credibility. This reminder occurred after Howard disparaged Stifelman, the court-appointed fiscal special agent, and offered his opinion that Stifelman's opinion and arithmetical calculations lacked any probative value. The trial judge also had to instruct Howard to lower his voice. We cannot ignore the trial judge's unique opportunity to assess this critical witness's credibility.
In addition, the trial judge had the opportunity over six days to assess Epperson's credibility. Once again, the judge found this critical witness for defendants to lack credibility. Moreover, the judge expressed considerable concern that Epperson seemed unable to distinguish among the interests of his various Kirschner family clients, thereby preparing documents affecting Etta's estate in Howard's favor without any discussion with Etta, and in some instances without even sending a copy of the document to her. We, therefore, affirm the judge's determination that Howard unduly influenced Etta, thereby rendering the April and October 1999 trust amendments and the February 2000 codicil invalid.
Defendants argue that the judge erred in voiding all of Eileen's transfers of KFLP interests to Howard and his family. We disagree.
Before Alfred's death in 1993, he and Etta transferred a portion of their interests to the limited partners. Each limited partner received the same interest, which resulted in the Howard Kirschner family receiving a disproportionate total interest due to the size of the family. In other words, the Howard Kirschner family received 7/11 of the interests distributed by Alfred and Etta; the Pass family received 4/11 of the interests.
Ostensibly before Alfred's death, Eileen and her family transferred the interests received from Alfred and Etta to Howard and Deborah and later to their children at Alfred's request. Defendants argue that the Pass family freely made the gifts to Howard and his family. Defendants emphasize that Eileen conceded this was done at her parents' request.
Eileen testified that her brother represented that their father approved the gift-back program. The trial judge noted that Alfred had been copied on a March 1992 letter from Epperson enclosing a form to amend the limited partnership agreement to reflect the present allocation of partnership interests. The letter also informs Howard that his parents had "gifted away about one-half of their limited partnership interests." The judge found, however, that no other documents revealed that Alfred was aware of the gift-back program, the gift-back program was contrary to the KFLP agreement, the trust agreements, and their parents' will. The record also reveals, and the judge found, this gift-back program actually did not commence until January 1992 when Howard sent Eileen a package with gifting memoranda for the years 1989, 1990, 1991, and 1992.
The trial judge found that Howard's parents were not aware of the gift-back program. To the extent Alfred contemplated some gifts to benefit Howard, the judge found that Howard's execution of Alfred's request was not authorized by him. The judge also did not credit Howard's statement that the program was consistent with their parents' intention to favor him over Eileen.
Finding no credible evidence that Alfred and Etta ever intended or were even aware that Eileen was gifting interests received from them to Howard and Deborah, the judge voided all of the transfers or gift-backs from her to the Howard Kirschner family. The judge also voided all gifts from Etta of her interests in the KFLP after Alfred's death. Defendants do not dispute this latter determination.
The evidence suggests that Alfred and Etta wished to provide additional benefits to Howard due to his long association with his father. The trial judge noted that such a desire would be reasonable. In fact, the per capita distribution utilized by Alfred and Etta to transfer their interests in the KFLP accomplished this goal. The judge emphasized, however, that the record was bereft of evidence of the degree to which Alfred desired to provide any benefit to Howard beyond that accomplished by their gift plan. The judge also found, and the record fully supports this finding, that Alfred and Etta were not aware of the gift-back program or the extent of the program crafted, "orchestrated," and "choreographed" by Howard. None of the governing documents provided for the gift-back program.
Howard's argument that Eileen freely executed the gift memoranda also ignores the finding that Howard falsely represented their parents' intentions to Eileen. Therefore, her execution of the gifting memoranda cannot be considered knowing or voluntary.
Defendants further support their argument by their contention that Alfred and Etta intended their pension proceeds for Howard. They cite the fact that Howard was the only designated beneficiary on his father's pension form, and those proceeds fully funded the KFLP. The trial judge rejected that argument, however, because the pension monies were commingled with other funds, and the only evidence that this was Etta's and Alfred's intent came from Howard, whom the judge found not to be credible. Also, the judge noted that Howard did not provide any evidence of whom Etta designated as the beneficiary of her pension.*fn14
The record does reveal that the KFLP was initially funded with $500,000 drawn from an account into which Alfred and Etta had deposited their pension distribution. Alfred and Etta also contributed another $1.5 million to the KFLP. Yet, the judge found, and the record supports, that the pension fund proceeds were commingled with other funds, thereby suggesting that Alfred and Etta had not earmarked the pension proceeds exclusively for Howard. There was no evidence that the source of the $2 million deposited in the KFLP was derived exclusively from the $1.2 million pension fund proceeds and any gains accruing to that sum.*fn15
The findings of the trial judge also negate defendants' argument that equitable estoppel bars Eileen from overturning the gifts from the Pass family to the Howard Kirschner family. The record reveals that Howard instructed her to sign the gift memoranda without giving her information to ascertain whether the gifting was necessary, and in what amounts. She stated she understood the gifting would end when her father died. She signed the gifting memoranda because Howard misled her and threatened that she would be cut off from her family if she did not comply. Given the family history of estrangement from Bernice, this threat could not have been considered idle to a woman who enjoyed a close relationship with her mother.
We, therefore, affirm the order voiding the gift-back transfers from the Pass family to the Howard Kirschner family from 1989 to 1995.
The judge voided all the transfers made by the Pass family and reinstated the interests of Leonard, Eileen, and their children in the KFLP. He awarded Leonard, Julie, and Andrea each $593,384.08, plus interest. Defendants contend that the judge erred because only Eileen sought any affirmative relief.
"[A] court of equity has the power of devising its remedy and shaping it so as to fit the changing circumstances of every case and the complex relations of all the parties." Sears, Roebuck & Co. v. Camp, 124 N.J. Eq. 403, 412 (E. & A. 1938) (citations omitted). "[A] court of equity should not permit a rigid principle of law to smother the factual realities to which it is sought to be applied." Graziano v. Grant, 326 N.J. Super. 328, 342 (App. Div. 1999). Here, the judge devised an equitable remedy that accounted for the fact that there was no evidence that Alfred and Etta intended Leonard and Leonard and Eileen's daughters to gift all of their interests in the KFLP to Howard and his family.
Eileen's attorney did not represent Leonard and their daughters, who did not assert claims against defendants. However, the equities of the case demanded that the transfers be voided because they had been done illegally or improperly or both. Upon reaching the conclusions that the transfers should never have occurred and that Howard and Deborah breached their fiduciary duties to the Pass family, (Section V, infra), it was a reasonable and equitable solution for the judge to void those transfers. This solution merely placed the parties in the same position they would have occupied had it not been for Howard's misdeeds.
The judge also found Howard and Deborah breached their fiduciary duty to the Pass family. Defendants argue the trial judge erred. Again, we disagree.
The judge found that Howard and Deborah transferred millions of dollars from the KFLP without any book- or record-keeping, and did not prudently invest the funds. In short, the judge characterized Howard as engaging in "a pattern of conduct that reflects evasion, avoidance, evading preparing documents, avoiding answering questions, and acts of omission[.]"
The Uniform Limited Partnership Law, N.J.S.A. 42:2A-1 to -73 (ULPL), sets forth requirements for a limited partnership. N.J.S.A. 42:2A-27 provides that a limited partner is only liable for the obligations of the partnership when he or she is also a general partner, or if he or she takes part in the control of the business. N.J.S.A. 42:2A-3 provides that any situations not covered by the ULPL are covered by the Uniform Partnership Act, N.J.S.A. 42:1A-1 to -56 (UPA). A general partner clearly owes a fiduciary duty to a limited partner. N.J.S.A. 42:1A-24.
In Zeiger v. Wilf, 333 N.J. Super. 258, 276 (App. Div.), certif. denied, 165 N.J. 676 (2000), this court emphasized that
in order for the limited partner to have been considered as taking part in the control of the business, other limited partners would have had to rely on him or her. The court explained the requirements for imposing liability on a limited partner:
[N.J.S.A. 42:2A-27] itself sharply limits the circumstances under which the exercise of "control" could lead to imposition of general partner liability on a limited partner. It first provides that if a limited partner's control activities are so extensive as to be "substantially the same as" those of a general partner, that control, by itself, is sufficient to impose liability: i.e., if a limited partner acts "the same as" a general partner, he will be treated as a general partner. [Ibid.]
The relationship of co-partners is one of "trust and confidence, calling for the utmost good faith, permitting of no secret advantages or benefits." Muscarelle v. Castano, 302 N.J. Super. 276, 283 (App. Div. 1997). Partners owe each other the "duty of the finest loyalty." Ibid.
After 1993, when Howard became a general partner of the KFLP, he had a fiduciary duty to the members of the Pass family who retained partnership interests. Howard essentially controlled the KFLP by making disbursements. In doing so, he maintained no records of the disbursements or provided any accounting of them. In 1993, even though Deborah was not a general partner, Etta authorized her, along with her husband, to manage and utilize the assets of the KFLP.
Defendants argue that Howard and Deborah were not obligated to the Pass family because they had no fiduciary duties to other limited partners. Defendants also state that Deborah did not become a general partner until 1995, so she had no fiduciary duty to the Pass family because they had no interest in the KFLP at that time. The judge rejected this argument, finding that Deborah enjoyed the benefits of the gifting program because she obtained a greater interest in the KFLP. The trial judge also noted Deborah's attendance at a meeting in 1989 where Epperson was instructed regarding the gifting program. Furthermore, after August 10, 1993, even though she was not a general partner, Etta had authorized her to conduct the business affairs of the KFLP to the same extent as Howard, who was a general partner. Zeiger, supra, 333 N.J. Super. at 276.*fn16
Based on Deborah's power to manage the funds, the judge found, and we agree, that she also had a fiduciary duty to the Pass family. Howard and Deborah breached their fiduciary duties by not accounting for the disbursements they made to themselves; by not keeping Eileen informed of changes in the partnership; by not prudently investing the funds; and by not keeping records.
Defendants contend that Howard and Deborah had absolutely no involvement with the KFLP prior to May 1993, when Howard was made a general partner. The record, however, does not support that assertion, as Howard discussed the gifting with Epperson as early as 1989, obtained the gifting memoranda from Epperson in 1991, and sent Eileen the gifting memorandum to sign in 1992, although we agree that this aspect of his involvement does not rise to control of the business of the partnership. Similarly, defendants argue they owed no duty to the Pass family after 1995 because by then the Pass family had been "zeroed out" of the KFLP. Eileen correctly questions this circular reasoning. If the Pass family was "zeroed out" by 1995, it was because of Howard's machinations. The trial judge also found, and the record supports this finding, that Epperson's calculations did not "zero-out" the Pass family. They actually still held a small interest in the KFLP.
Here, the record supported a finding that Howard and Deborah breached their fiduciary duties to the Pass family by transferring assets from the KFLP in excess of $2 million without creating or maintaining documents and records of those transfers. Defendants insist a portion of these disbursements supported Etta, but few records exist to determine the amount earmarked for Etta's support. Because Howard and Deborah breached their fiduciary obligations by withdrawing funds for themselves, not accounting or keeping records, and not informing the Pass family of changes in the partnership, we affirm this determination of the court.
Defendants further contend that the trial judge erred by ignoring Etta's and Alfred's handwritten notes indicating that Eileen was only meant to inherit $600,000. We disagree.
Defendants introduced evidence of handwritten notes from the 1990s that indicated Etta's and Alfred's intent to limit Eileen's inheritance to $600,000. Eileen conceded that the notes were in Etta's handwriting.
In a sense, this is a curious argument because defendants, particularly Howard, argue that the April 1999 and October 1999 trust amendments, the December 1999 writing, and February 2000 codicil reflected Etta's testamentary intention. The handwritten notes were written seven or eight years earlier. The notes certainly did not reflect any intention to disinherit Eileen.
N.J.S.A. 3B:3-2 provides that a will must be in writing, signed by the testator, and witnessed by two witnesses. A handwritten will may also be valid if it is intended to be a will. Ibid. In order for a document that is not executed in compliance with N.J.S.A. 3B:3-2 to be a valid will, however, there must be clear and convincing evidence that the testator intended the writing to be (1) his or her will; (2) a partial or complete revocation of his or her prior will; (3) an addition to or alteration of the will; (4) or a revival of a formerly revoked will. N.J.S.A. 3B:3-3. A will may not be altered except by another will or codicil that is executed in the same manner required by law for wills to be executed. N.J.S.A. 3B:3-16.
The judge found that the notes were not probative of Etta's and Alfred's actual testamentary intent, which was expressed in their formally executed wills and the related documents. They never amended their wills or executed new wills, other than Etta's February 2000 codicil that was set aside as the product of undue influence, to implement a testamentary plan such as may be suggested by the notes. The judge pointed out that the notes were written seven or eight years before the 1999 amendments and shortly before Alfred died. Consequently, these were not probative of Etta's testamentary intent in the years before she died.
Defendants press two arguments concerning the damage award. First, they argue the testimony offered by Eileen's expert, Bruce Mantell, should have been stricken because he failed to consider relevant facts or provide support for his analysis. Second, they contend the trial judge erred in his calculation of damages.
The threshold issue is the admissibility of Mantell's opinion.*fn17 We hold that the trial judge did not err in considering Mantell's analysis in formulating the damage award. A trial judge's decision to admit expert testimony is reviewed on an abuse of discretion standard. Kuehn v. Pub Zone, 364 N.J. Super. 301, 319-21 (App. Div. 2003), certif. denied, 178 N.J. 454 (2004). An expert witness must "give the why and wherefore of his expert opinion, not just a mere conclusion." Vitrano by Vitrano v. Schiffman, 305 N.J. Super. 572, 577 (App. Div. 1997).
In evaluating this issue, we cannot lose sight of the state of the documentary record concerning the affairs of the KFLP and the trusts. Defendants produced relevant records intermittently, and never produced all relevant documents. They failed to locate records for the 1987-93 period (the period between the creation of the KFLP and the trusts and Alfred's death) other than statements of various brokerage accounts. The lack of records hampered every financial professional asked to review the matter and render an opinion. For example, Robert Friedman, the expert offered by defendants, estimated all values because he had no records. The court-appointed experts, Aronson and Fernandez, faced similar difficulties. Without the relevant records, no one possessed all relevant facts.
Certainly, an expert's opinion must have supporting data and a factual basis in order to establish a cause and effect relationship. Rubanick v. Witco Chem. Corp., 242 N.J. Super. 36, 49 (App. Div. 1990), modified on other grounds, 125 N.J. 421 (1991). We are loathe, however, to hold that the absence of records of the affairs of the KFLP and trusts allows defendants to criticize the opinions offered by an expert derived from a reasonable reconstruction of the financial affairs of Alfred and Etta, particularly when Howard enjoyed a confidential relationship with both parents and was inextricably involved in their financial affairs. He also had access and control over their financial records. Mantell took a complicated matter with few records and offered several approaches to derive values for the assets, including the family limited partnership and several trusts that had never been funded, and recommended one of those approaches. Under the circumstances, we discern no mistaken exercise of the judge's discretion to admit Mantell's testimony.
As to the damage award, defendants contend the trial judge did not articulate how the award was calculated. They also argue that the judge appears to have double counted one asset leading to a $1.1 million error, and erroneously included $503,603 properly spent by Etta in her lifetime for her personal needs as a distributable part of the estate. To place this latter argument in context, we review the evidence presented by the various financial experts, those appointed by the judge and those retained by the parties.
The judge appointed Stifelman on June 28, 2000, as a special agent to determine the relationship between the family trust and the family limited partnership. He also inquired whether the October 1999 amendment to the trust was permitted by the trust agreement. Two years later, Stifelman submitted a report which found as follows: the trust was established in April 1988, and the family limited partnership was established in December 1987; the trust was designed to avoid federal estate tax; the October 1999 amendment was prohibited by the terms of the trust agreement because the credit shelter trust was irrevocable; the April 1999 amendment was probably permissible because it only sought to amend Etta's trust; Etta could amend her trust with respect to the assets she had originally contributed to the trust; the beneficiaries of the trust were Howard and Eileen, after a $200,000 gift to Bernice's oldest daughter. It was difficult to determine the source of the funds that had been contributed to the family limited partnership; Howard and his parents received virtually the same amount from the dental practice pension plan on its dissolution; there was a $1.7 million distribution from the family limited partnership to Howard's personal account with no documentation to support the distribution; and Howard treated the family limited partnership as "his personal candy store to do with as he chose in complete disregard of his fiduciary obligations."
Robert Friedman was defendants' forensic accounting expert. He submitted reports in June and July 2002. Friedman estimated amounts because he did not have the documentation required to make calculations from December 1993 to December 2001. He criticized the record-keeping. He highlighted the absence of any documentation or accounting of expenses or disbursements.
Friedman was unable to ascertain whether Etta's trust was funded at all, and found no tax returns for it. Due to the absence of standard records, he could provide only estimates and based his estimates on information supplied by Epperson, Howard, Deborah, and Bernard Pass, a distant relative of Leonard and the Kirschner family accountant.
By contrast, Mantell offered three approaches to value the family limited partnership and the trusts: the deemed loan approach, the equalization catch-up approach, and the market analysis approach. He also provided values premised on different scenarios, such as voiding some or all of the gift-backs between the Pass family and the Howard Kirschner family. The trial judge accepted the market approach advanced by Mantell in a modified form. He also accepted Mantell's freeze analysis calculation. Therefore, he found that the Pass family's interest in the KFLP in 1993 should have been 12.789%. Defendants did not offer any expert opinion to dispute this calculation. The judge then voided all the gifts from the Pass family to the Howard Kirschner family, thereby increasing the Pass family interest to a total of 20.5496656%. In addition, the judge found that Eileen was entitled to one-half of the credit shelter trust's 18% interest in the KFLP and the POA trust's 3% interest in the KFLP. Eileen and the Pass family's total interest in the KFLP thereby increased to 31%.
The trial judge did not utilize Mantell's average calculation but used the market approach because it was the method that accounted for fiduciary obligations. Accepting Mantell's calculations, the judge awarded Eileen $3,629,290. Defendants do not appear to dispute the accuracy of this calculation.
At the same time, the judge also voided all of Etta's gifting after Alfred's death and increased the value of the marital trust to 21.744%. He concluded that Eileen was entitled to 50% of Etta's marital trust portion of the KFLP, or an additional $1,088,189. Defendants contend the marital trust award double counts this asset.
In support of this argument, defendants refer us to a portion of the May 28, 2007 transcript. The judge had just concluded announcing his findings of fact, conclusions of law, and the damage award which he placed on the record over several hours on two separate occasions: May 14 and May 29, 2007. At the end of the May 29 proceeding and after clarifying that the award did not include prejudgment interest or attorneys' fees, the following exchange occurred between the trial judge and counsel for defendants:
MR. MOORE: Judge, just on the numbers, the three-six is the total award, or is it three-six plus the one?
THE COURT: No, that's the award.
MR. MOORE: Total award?
THE COURT: That's the total award.
Unfortunately, the exchange does little to clarify the issue.
On September 25, 2007, the parties and the judge addressed a motion to settle the judgment in which defendants' contention that the total amount of the judgment was $3,629,290 rather than $4,717,479 ($3,629,290 $1,088,189). The judge stated at the time that he anticipated the argument, had reviewed the evidence, and held "the number is the number, I [a]m satisfied that that's where the 4.7 comes from." The "that" to which he refers are Eileen's proposed findings of fact, specifically numbers 747-812, and the exhibits she submitted, including Schedules 1 and 2. The issue is whether Etta's marital trust interest in the KFLP had already been included in the 31.42177% Pass family interest in the KFLP.
The record supports the conclusion that Eileen and Howard held shares or interests in the KFLP directly and indirectly through the trusts created by their parents. In addition, the record supports the finding that the Etta trust was composed of two elements: the POA trust and the revocable portion of the marital trust. Mantell specifically testified that Etta never exercised her power; therefore, on her death, the POA portion of the marital trust, approximately 3%, reverted to the KFLP. See footnote 12. It was the revocable portion that Howard sought to have Etta alter by the April and October 1999 amendments. That portion of the marital trust was the one that was valued separately at $1,088,189. It was distinct from the Pass family's 31% direct interest in the KFLP. We therefore conclude that the trial judge did not double count a portion of Etta's trust and there is no basis to modify the damages.
Defendants contend that the trial judge should have stricken Stifelman's expert testimony because his opinion violated Evidence Rules 702 and 703. The judge refused to strike the testimony, and found the expert credible.
N.J.R.E. 702 provides that if scientific, technical, or other specialized knowledge will be helpful to the trier-of-fact, an expert witness may testify thereto. N.J.R.E. 703 provides that an expert opinion may be based upon "facts or data" so long as they are of the type reasonably relied upon by experts in that field. Experts must base their opinions on facts and may not state bare conclusions, unsupported by factual evidence, which are inadmissible as a "net opinion." State v. Townsend, 186 N.J. 473, 494 (2006).
The weight to which an expert opinion is entitled can rise no higher than the facts and reasoning upon which that opinion is predicated. Johnson v. Salem Corp., 97 N.J. 78, 91 (1984). The failure of an expert to give weight to a factor thought important by an adverse party does not reduce his or her testimony to an inadmissible net opinion if he or she otherwise offers sufficient reasons that logically support the opinion. Rosenberg v. Tavorath, 352 N.J. Super. 385, 401-02 (App. Div. 2002).
When Stifelman first submitted his report, defendants moved to strike it, and the judge denied their motion, stating that Stifelman had contact with both parties and his testimony was credible. On appeal, defendants argue that Stifelman's testimony was tainted because he had ex parte contact with Eileen's attorney and reviewed her litigation materials, but did not do the same with defendants'. They also take issue with the fact that he did not render a revised report after he changed his opinion regarding whether the trust could be amended. Defendants also contend that Eileen should be required to pay Stifelman's fees for reviewing documents at her counsel's request.
Rule 1:7-5 provides that any error that does not prejudice a substantial right shall be disregarded by the trial court. The test of whether an error is harmless depends on whether it led to an unjust result. Neno v. Clinton, 167 N.J. 573, 586 (2001); State v. Bankston, 63 N.J. 263, 273 (1973). Here, Stifelman originally found that Etta's trust could be amended, but apparently later changed his opinion without revising the report. However, the trial judge found that the amendments to the trust had been procured through Howard's undue influence on his mother. Therefore, Stifelman's opinion about whether the trusts, particularly the Etta trust, could be amended or not was not determinative.
In addition, Stifelman found that the proceeds of the pension were not meant to compensate Howard for his work in the dental practice. To be sure, Stifelman partially based this opinion on the fact that he reported a much lower amount than Fernandez did for the pension proceeds. There was other evidence in the record concerning the pension plan, however, and that other evidence supports the judge's finding that there was no evidence that the parents intended the entire proceeds of the pension to belong to Howard. Therefore, even if Stifelman's calculations regarding the pension proceeds were erroneous, they did not cause an unjust result.
Defendants argue that the trial judge erred in awarding prejudgment interest in the amount of prime plus 1.5%, which is higher than the rate set by the Court Rules. Defendants do not dispute an award of prejudgment interest, only the rate of interest used by the court.
The trial judge awarded prejudgment interest in the amount of prime plus 1.5% from January 1, 2004, through the date of judgment, which amounted to $1,532,057. The trial judge has the discretion to award or deny prejudgment interest. In re Estate of Lash, 169 N.J. 20, 34 (2001). "An appellate court will not interfere unless the interest charged is palpably unfair." Ibid. However, while the rate of interest is a matter of discretion in other types of awards, for tort claims the amount of prejudgment interest is determined by Rule 4:42-11(a)(ii). DialAmerica Mktg., Inc. v. KeySpan Energy Corp., 374 N.J. Super. 502, 508-11 (App. Div.), certif. denied, 184 N.J. 212 (2005). Undue influence and breach of fiduciary duty are torts. In re Niles Trust, 176 N.J. 282, 298 (2003).
According to Rule 4:42-11(a)(ii), the interest rate that the judge should have used was 2% for calendar year 2004, 1% for 2005, 2% for 2006, 4% for 2007, and 5.5% for 2008. See Pressler & Verniero, Current N.J. Court Rules, publisher's note to R. 4:42-11 at 1610 (2010). The prime rate for those years was significantly higher and varied between 4% and 8.25%. http://www.MoneyCafe.com/library/primerate.htm (last visited Feb. 23, 2011).
While the trial judge acted within his discretion in awarding prejudgment interest, the rules clarify the amount of interest that a court may impose in a tort case and, here, the judge failed to adhere to those guidelines. We remand, therefore, for a determination of prejudgment interest that is in accordance with Rule 4:42-11(a)(ii).
The trial judge awarded attorneys' fees and costs in the amount of $785,886.54 to Eileen. Defendants argue that the judge erred in awarding any attorneys' fees to Eileen, but do not challenge the amount of the award.
New Jersey abides by the American Rule that parties are responsible for their own attorney's fees, except for specific situations enumerated in Rule 4:42-9. The rule provides for fees in certain types of probate and guardianship proceedings.
R. 4:42-9(a)(3). An award of counsel fees is discretionary with the court and will not be reversed absent a demonstration of manifest abuse of discretion. In re Will of Landsman, 319 N.J. Super. 252, 271 (App. Div.), certif. denied, 161 N.J. 335 (1999).
In In re Niles, supra, 176 N.J. at 296-99, the Court balanced the adherence to the American Rule with the need to make the victims of perfidious behavior whole. Because the fiduciary relationship and the attorney-client relationship are both premised on "utmost trust," and because an attorney and a trustee both act as officers of the court when acting on behalf of clients and beneficiaries, the Court extended the existing exception to the American Rule in attorney malpractice cases to include actions to establish a fiduciary's liability. Id. at 297. The Court stated that when an executor or trustee commits the "pernicious tort" of undue influence, it should result in an award of all reasonable counsel fees and costs. Id. at 298-99.
The rationale behind the award of attorneys' fees in Niles was that the estate should be made whole when "undue influence results in the development or modification of estate documents that create or expand the fiduciary's beneficial interest in the estate." Id. at 299. This is exactly what occurred here. The Niles Court determined undue influence to be an appropriate exception to the American Rule. Id. at 299-300.
The judge held, and we have affirmed, that Howard unduly influenced his mother to disinherit his sister Eileen. Due to his actions, she was forced to bring this litigation to insure that Alfred's and Etta's testamentary intent was protected. Her claim was far from meritless. We discern no error in awarding attorneys' fees to Eileen.
The trial judge held that Howard's accounting failed because he did not provide the necessary documents. Defendants contend the judge should have approved Howard's accounting. We disagree.
Rule 4:87-1 sets forth the procedure for settling an executor's accounts. Rule 4:87-3(b)(1) and (2) state that the accounting must provide, among other things,
(1) a full statement or list of the investments and assets composing the balance of the estate in the accountant's hands, setting forth the inventory value or the value when the accountant acquired them and the value as of the day the account is drawn, and also stating with particularity where the investments and assets are deposited or kept and in what name;
(2) a statement of all changes made in the investments and assets since they were acquired . . . .
Rule 4:87-8 provides that any interested person may file exceptions to the accounting, but must state with particularity which item or omission is being excepted and what modification is sought. Exceptions must be adjudicated in an evidentiary hearing unless there is no factual dispute. Pressler & Verniero, supra, comment on R. 4:87-8.
The record reveals that the judge repeatedly ordered Howard to produce relevant documents. At trial, the judge remarked on several occasions that Howard had been recalcitrant with respect to his obligation to produce documents and also noted Howard's belated, mid-trial discovery and production of many relevant documents. Even with this late production, Howard was unable to produce any records for the trusts and minimal records for the KFLP. The judge disapproved the accounting based on Howard's failure to provide the required documentation. Howard's reluctance to produce and tardy production of relevant documents undermined any sense of reliability in the proffered accounting.
We also reject defendants' argument that Eileen was not an interested person who could object to the accounting. At a minimum, she was a beneficiary of the credit shelter trust, which held an interest in the KFLP. Moreover, this argument ignores the fact that Howard did not submit an accounting for Alfred's estate until he was ordered to do so by the judge on June 2, 2004, and that Eileen timely filed her exceptions on September 9, 2004. We discern no error in disapproving the accountings submitted by Howard.
In summary, we affirm the judgment in all respects, except the calculation of the prejudgment interest. We remand for recalculation of prejudgment interest and entry of an amended judgment.
Affirmed as modified and remanded for recalculation of prejudgment interest.