03.30.2017

Appeallate Division Affirms Finding Of Trustee’s Breach Fiduciary Duty

Estate of Lerner v. Lerner, No. A-0399-15T4, 2017 N.J. Super. Unpub. LEXIS 804 (N.J. Super. Ct. App. Div. Mar. 30, 2017).

Defendant Tisa Lynn Lerner appeals from an August 11, 2015, judgment finding she breached her fiduciary duties as trustee for plaintiff, the Estate of Harry Lerner.  Tisa is one of three daughters of the late Harry Lerner (“decedent”), who died in 2012.  Phyllis Kornblatt, defendant’s sister, initiated the underlying complaint on behalf of the estate beneficiaries.  Namely, Phyllis alleged that Tisa breached her fiduciary duty as trustee of the Harry Lerner Revocable Trust (“Trust”).  Phyllis sought Tisa’s removal as trustee, requested a complete accounting, and sought repayment of any improper distributions Tisa made to herself.

The trial court conducted a three-day bench trial and the court found Tisa committed defalcation in her role as trustee and removed her.  The court further ordered Tisa to pay damages and expert accounting and counsel fees incurred in the litigation.

On appeal, Tisa contends that the trial judge erred in accepting Phyllis’s expert testimony with regard to real estate carrying costs related to the Trust’s real property appropriated by Tisa and by adding four percent (4%) prejudgment interest to damages awarded.  Further, Tisa maintains that the attorney fee award was improper.

The Appellate Division affirmed the trial court’s rulings.   First, as to the admissibility of expert testimony, the appeals court reviewed the admissibility of expert testimony for an abuse of discretion – the standard applied in the case of Brennan v. Demello, 191 N.J. 18, 31 (2007).  In doing so, the appellate court found that Tisa was aware Phyllis was presenting an expert and she cross-examined the witness.  Thus, under the circumstances, the court found there was no abuse of discretion.

Next, as to the carrying charges spent for the co-op and the imputation of four percent (4%) prejudgment interest to the damages awarded, the appeals court found the facts and evidence support the costs associated with the co-op.  Specifically, the documents showed the Trust remitted $38,123 to pay carrying costs on the co-op from 2008 until its sale in 2014.  The trial judge found reasonable the sum of about $8,322 incurred in 2008, and concluded that a sale should have been effectuated early in 2009.  Interest was awarded against the net sum spent to retain the co-op.

The appellate court noted that the duty of a fiduciary is to exercise that degree of “care, prudence, circumspection and foresight that an ordinary prudent person would employ in like matters of his [or her] own.”  In re Mild, 25 N.J. 467, 480 (1957).  Applying that standard to the circumstances, the appeals court found ordinary prudence required Tisa as trustee to liquidate the co-op, which could not be utilized by the decedent, to maximize the funds available for the beneficiaries.  Instead, Tisa did the opposite, as she allowed the assets to lie fallow and expended monies for their retention.

Thus, the Appellate Division affirmed the trial court’s finding that Tisa breached her fiduciary duty.  As a result, the four percent (4%) compounding interest rate was appropriate; it was calculated by averaging the return on existing Trust investments.  Tisa offered no evidence to refute those facts.  Therefore, the appeals court found the imposition of interest added to the sums wasted by Tisa was neither unreasonable nor unfounded.

Finally, the appellate court noted that Tisa did not object to counsel’s request to file a certification of services or to the facts set forth in the certification submitted.  In doing so, the court cited the New Jersey Supreme Court’s ruling in In re Estate of Lash, 169 N.J. 20, 33 (2001), namely that the “American Rule does not preclude an allowance of reasonable counsel fees where the incurring thereof is a traditional element of damages in a particular cause of action,” which includes actions for breach of fiduciary duty.