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Ehrlich v. McInerney

United States District Court, D. New Jersey

December 13, 2017

DENNIS P. McINERNEY, ESQ., et al., Defendants.

          PETER A. OUDA PETER A. OUDA, LLC On behalf of Plaintiff

          JOHN L. SLIMM MARSHALL, DENNEHEY, WARNER, COLEMAN & GOGGIN On behalf of Defendant Dennis P. McInerney


          NOEL L. HILLMAN, U.S.D.J.

         This matter arises from almost a decades' worth of litigation regarding the Estate of Richard D. Ehrlich (“Decedent”). In this federal court action, Plaintiff Jonathan Ehrlich, Decedent's nephew, brings a breach of fiduciary duty claim against Defendant Dennis P. McInerney, the temporary administrator of the Estate.[1]

         Defendant filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). The Court does not find the Rooker-Feldman doctrine precludes this Court from exercising jurisdiction over this matter and thus does not find this matter can be dismissed under Rule 12(b)(1). The Court will, however, grant the motion to dismiss pursuant to Rule 12(b)(6), as the Court finds N.J.S.A. 3B:17-8 and the entire controversy doctrine require dismissal of the breach of fiduciary duty claim against Defendant.


         The Court takes its facts and procedural posture not from Plaintiff's complaint, but from the various state court decisions preceding and related to this federal case, as a more thorough recitation of the facts and procedural history is necessary.[2]

         The following background facts come from the New Jersey Superior Court, Appellate Division (“Appellate Division”)'s June 29, 2012 decision, In re Estate of Ehrlich, 47 A.3d 12 (N.J.Super.Ct.App.Div. 2012), certif. denied, 59 A.3d 602 (N.J. 2013), appeal dismissed, 64 A.3d 556 (N.J. 2013). Decedent was a trust and estates attorney in Burlington County, New Jersey. Id. at 13-14. He died on September 21, 2009, with his only next of kin being his nephews, Todd Ehrlich and Plaintiff, and his niece Pamela Venuto. Id. at 14. While Decedent had not had contact with Todd or Pamela for over twenty years, he maintained a close relationship with Plaintiff, who he had told friends was the person to contact if he were to die and was the person to whom he would leave his estate. Id.

         Upon learning of Decedent's death, a search for Decedent's will ensued. Id. Plaintiff located a copy of a purported will in a drawer in Decedent's home. Id. On December 17, 2009, Plaintiff filed a complaint seeking to have the purported will admitted to probate. Id. Todd and Pamela objected. Id. Defendant, who had previously been named as Trustee of Decedent's law practice, was appointed as temporary administrator. Id. While Defendant was ordered to inspect Decedent's home, no other document purporting to be Decedent's will was ever located. Id.

         The purported will that was recovered provided a specific bequest of $50, 000 to Pamela, a specific bequest of $75, 000 to Todd, twenty-five percent of the residuary to pass through a trust to a friend, and seventy-five percent of the residuary to pass to Plaintiff. Id. On April 20, 2011, the proffered will was admitted to probate. Id. at 13. The court then denied a motion for reconsideration on June 20, 2011. Id. The Appellate Division then affirmed, finding the will was properly admitted to probate. Id. at 19. While the decision was appealed to the New Jersey Supreme Court, Plaintiff's complaint provides that the matter was settled by the siblings.

         On January 18, 2013, Judge Karen L. Suter of the Superior Court of New Jersey, Chancery Division granted Defendant's motion for instructions and to allow a settlement with regard to two actions pending against the Estate arising from Decedent's law practice: IMO Estate of Farias v. Estate of Ehrlich and Farias v. Estate of Ehrlich. Defendant filed the motion for instructions believing settlement of the matters was in the best interest of the Estate, as he believed the Estate could potentially be liable for more than the settlement amount. Plaintiff opposed the motion, arguing “more information is required before a determination of the propriety of the settlement can be made." Judge Suter determined Defendant was “acting within his powers as temporary administrator” and thus approved the settlement. The settlement was thereafter consummated.

         On July 15, 2011, Judge Michael J. Hogan of the Superior Court of New Jersey, Chancery Division approved Defendant's first intermediate account on behalf of the Estate. By a May 23, 2012 Order, Judge Suter denied Plaintiff's motion to vacate the July 15, 2011 court order.[3] Plaintiff appealed the denial of his motion to vacate. In re Estate of Ehrlich, 2013 WL 2476490. The Appellate Division affirmed, stating:

The present case provides no basis for disturbing the July 15, 2011 order approving respondent's intermediate accounting. Appellant, by his own admission, knew the accounting to be incomplete upon his receipt of the document yet neither filed any exceptions nor voiced any objection to the accounting at the hearing on its approval. Moreover, all acknowledged that the accounting was interim in nature and that the final accounting would include the assets belatedly brought to the administrator's attention by appellant.

Id. at *1.

         In a July 25, 2014 decision, Judge Mary C. Jacobson of the Superior Court of New Jersey, Chancery Division considered exceptions to a final accounting filed for Decedent's Estate, a motion seeking removal of Defendant as temporary administrator and appointment of Plaintiff as executor, and applications by Defendant and two other attorneys for fees payable from the Estate. In the course of considering the exceptions to the accounting, Judge Jacobson considered Plaintiff's complaint that the sale price of Decedent's home was substantially less than its value as set forth in prior appraisals. Judge Jacobson found, while the property had originally been appraised around $350, 000 at Decedent's death and for a couple years thereafter, Defendant had only received offers well below the original appraisal value. Defendant thus sought two updated appraisals, which determined the appraisal value had dropped to somewhere around $225, 000 to $250, 000, with necessary repairs approximating over $107, 000. Defendant thus sought instructions from the court as to whether he should accept an offer of $212, 500 or make repairs to the property to try to rent it until the market improved. After hearing Plaintiff's opposition, Judge Suter approved and authorized the proposed sale.

         Judge Jacobson concluded:

The record reveals no action taken by Mr. Ehrlich to stop the sale after Judge Suter's ruling. Moreover, Mr. Ehrlich has presented no evidence that would allow this court to set aside Judge Suter's Order . . . . To allow Mr. Ehrlich to re-litigate this issue after the property has been sold in an effort to obtain a surcharge would be unjust and oppressive to the Temporary Administrator. When a fiduciary has properly applied to the probate court for advice and direction with respect to a transaction involving the administration of the estate and acts in accordance with the court's instructions, it would be inequitable to allow an exceptant who had an opportunity to be heard at the time of the application to the court for instructions to later pursue the same objection through an exception to the final accounting. By that time the Temporary Administrator's actions had been sanctioned by the court and should be given res judicata effect. To allow otherwise by an exceptant would create havoc in the administration of estates, leaving none but the foolhardy willing to serve as fiduciaries. Mr. McInerney proceeded to sell the property only after court approval and an opportunity for Mr. Ehrlich to be heard. Mr. Ehrlich's exception to the sale of the property must therefore be denied.

         The Court also addressed Plaintiff's allegation that Defendant did not take adequate steps to locate Decedent's will on his computer:

Even if this claim is true, Mr. Ehrlich offers no explanation as to how this failure caused any loss to the Estate. The writing that was admitted to probate pursuant to N.J.S.A. 3B:3-3 by Judge Hogan, who issued a Judgment to this effect that was upheld by the Appellate Division, was a paper copy of a will, unsigned by the decedent and any witnesses, but which bore a notation in the handwriting of the decedent stating, “original mailed to H. W.Van Sciver 5/20/00.” . . . Because this document was admitted to probate, any failure to locate a draft of this document on the decedent's computer caused no loss to the Estate or to Mr. Ehrlich. Whether the decedent had any other draft of a different purported will on his computer and whether that different draft would have benefited Mr. Ehrlich is mere speculation. Moreover, any draft of an alleged will retrieved from the decedent's computer would lack the handwritten notation that both the chancery court and the Appellate Division relied upon in deciding that the decedent intended to constitute his will.

         Also in addressing the exceptions, the state court stated Plaintiff's “numerous allegations of duplicitous conduct” by Defendant were “factually unsupportable in the record before the court.” Rather, the court found Defendant “acted appropriately in bringing issues to the attention of the court for direction and presenting his accountings to the court for approval.” Later in the opinion, in addressing the motion to remove Defendant as temporary administrator, the court stated: “Mr. Ehrlich has not demonstrated that there has been a flagrant dereliction of duty by the Temporary Administrator . . . .” Judge Jacobson ultimately approved the account in all respects.

         In an October 30, 2015 Motion Hearing, Judge Jacobson considered a motion by Defendant seeking an order awarding attorneys' fees and costs to him, providing direction as to payment of an attorneys' fee award, and seeking direction as to the distribution of the balance of the Estate, among other requests. Plaintiff opposed the motion, largely based on the alleged failure of Defendant to pursue a particular asset of the Estate - a condominium titled in Decedent's name in the Harbour House Towers of Freeport in the Grand Bahamas.

         Judge Jacobson explained that, with regard to an earlier motion, Plaintiff noted that he located a condominium in the Bahamas in Decedent's name. He provided a deed purported to have been signed by Decedent. Plaintiff also provided an e-mail exchange between him and Harbour House, in which Harbour House confirmed Decedent owned a unit. Judge Jacobson then recounted a series of e-mails showing Plaintiff was aware of the possibility that Decedent owned the condominium in the Bahamas since June 2010.

         Defendant certified he was not made aware Decedent had an interest in property in the Bahamas, and if he had been so aware, he would have taken action to transfer the property to the Estate. Judge Jacobson concluded:

The Court is not convinced that Mr. McInerney, on the basis of the record before it, was ever informed about the Bahamas property and . . . made aware that it was something he should investigate. Jonathan Ehrlich himself had access to the decedent's files and documents. It is throughout the record of this lengthy estate litigation that he had removed documents and files prior to Mr. McInerney's appointment as administrator. . . .
. . . .
N.J.S.A. 3B:17-8 provides that a judgment allowing an account after due notice shall be res adjudicata as to all exceptions which could or might have been taken to the account and shall constitute, exonerate and discharge the fiduciary from all claims of all interested parties, and the statute was relied upon by the Appellate Division in the earlier estate litigation in refusing to allow Mr. Ehrlich to raise issues as to Mr. McInerney's performance that could have been raised in the first accounting but were not . . . .
Since Mr. Ehrlich was aware of the claim that the decedent owned a condominium in the Bahamas prior to the first and second accountings and failed to file an exception in this regard to either accounting the Court finds that the judgments approving both accountings constitute res adjudicata and eliminate any liability on the part of Mr. McInerney with regard to the Bahamas property.

         Similarly, in addressing Defendant's fee request, the court noted Plaintiff “claim[ed] that the Estate ha[d] been mishandled in many respects, ” but the court found Plaintiff's allegations meritless.[4]

         In this federal court action, Plaintiff's complaint brings only one count against Defendant for breach of fiduciary duty. Plaintiff alleges that, as a court-appointed fiduciary, Defendant “owed a common law and statutory duty of care to the beneficiaries and to the estate.” The complaint claims Defendant breached his fiduciary duty to Plaintiff and breached his duty, as an attorney, to comply with the Rules of Professional Conduct - specifically Rules 3.3 and 4.1. The following averments are the bases for Plaintiff's claim of a breach of fiduciary duty:

• “He had the obligation to perform a thorough search of the decedent's home and law office to locate the Will and/or evidence of such and he failed to do so.”
• “He had the obligation to maintain and preserve all of the papers and property of the decedent but instead he unilaterally and without court authorization discarded papers and property which Jonathan directed that he not discard and or destroy. He had the duty to properly account for and evaluate all assets and obtain fair market value of assets disposed of. He failed to do so.”
• “He withheld documents, suppressed, destroyed and or spoliated evidence needed by Jonathan to review the accountings he submitted in a proper manner.”
• “Years later, in or about March of 2015, Mr. McInerney destroyed all of the documents that were in the decedent's law office, which documents he had been ordered and or requested to maintain. This was done despite the fact that he knew that there were ongoing concerns voiced by Mr. Ehrlich about missing documents. This destruction of documents was also done in the face of repeated directives of Mr. McInerney that no items could be removed from the office.”
• “Mr. McInerney in contravention of his fiduciary role also severely undersold estate assets such as the decedent's home in Delanco, New Jersey. The home was appraised at $350, 000.00 but it was undersold by over $100, 000.00.”
• “[H]e had listed for sale the decedent's law office for $300, 000 but as of 2014 he suggested in open court before Judge Jacobson that the property should be donated because it had little value.”
• “He also was placed on notice of an asset of the estate, namely a condo in the Bahamas but he failed to undertake any investigation whatsoever to locate it and have it timely administered.”
• “Mr. McInerney, in his role as a fiduciary, settled a lawsuit that was filed against the decedent's estate without fully investigating the merits of the action and without defending the case in a manner that was consistent with his obligations to preserve the assets of the estate.”
• “Most if not all of the order[s] procured by Mr. McInerney were procured through fraud deception and or misrepresentation, including the two accounting orders, the orders for the sale of the house contents, the orders relative to the sale of the decedent's personal and real property and the settlement of the Farias litigation.”


         The Court first addresses its jurisdiction over this matter. This Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332(d), as the parties are diverse and the amount in controversy exceeds $75, 000. However, Defendant argues the Rooker-Feldman doctrine precludes this Court from exercising jurisdiction over this matter. Accordingly, Defendant moves to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1). For the reasons that follow, the Court finds the Rooker-Feldman doctrine does not bar the Court's jurisdiction over this matter.

         A. Standard for Dismissal Pursuant to Federal Rule of ...

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