The widow of the former half-owner of the Modell’s Sporting Goods store chain may continue trying to have her brother-in-law and another man removed as trustees of trusts set up for her and her children upon her husband’s 2001 death, a Manhattan surrogate has ruled.

Surrogate Nora Anderson (See Profile) determined that Abby Modell’s pleading adequately alleged misconduct by the pair, including what the surrogate described as “disturbing” charges that CEO Mitchell Modell took an inordinately large pay increase and improperly charged personal expenses to the company.

Anderson rejected a motion by Mitchell Modell and the third trustee, Joel Goldberg, which contended that Abby Modell’s petition failed to state a claim for removal and was barred by the statute of limitations.

“A fair reading of the pleading … demonstrates that its allegations of misconduct by both fiduciaries provide more than sufficient grounds for their removal under SCPA §711,” Anderson wrote in Matter of the Petition of Modell, 2001-1730.

Sections of §711 that were germane to Abby Modell’s allegations include §711(2), which provides that a fiduciary’s letter may be revoked “by reason of his having wasted or improperly applied the assets of the estate,” and §711(10), which says removal is appropriate where the fiduciary “has violated or threatens to violate his trust … or is for any other cause deemed an unsuitable person to execute the trust.”

Mitchell Modell became CEO upon his brother Michael’s death in 2001 from Hodgkin’s disease at age 48.

Under the terms of Michael Modell’s will, three trusts were established for the benefit of his wife and their three children.

The 50 percent ownership interest Abby Modell inherited in the sporting goods company is the primary asset of the three trusts. It was valued at between $200 million and $300 million at the time she filed her petition in to remove Mitchell Modell and Goldberg as trustees in 2010.

Modell’s Sporting Goods operates about 150 stores in the Northeast.

Among Abby Modell’s allegations is that her brother-in-law unreasonably boosted his salary from $1.8 million when he took over day-to-day operations to $6.275 million, and that he charged some $7 million on the Modell’s corporate credit card for personal expenses, such as $103,000 for a family vacation in Barbados and $180,000 for a trophy that once belonged to the late Yankees’ catcher Thurman Munson.

Abby Modell said she was supposed to join equally in the decision-making as a trustee for the family trusts, but that Mitchell Modell and Goldberg made the decisions, often without telling her.

She also said Goldberg, who was described as a “friend” in Michael Modell’s will, is a psychologist with no fiduciary or accounting background who, by reason of the $130,000 he is paid by Modell’s annually, defers completely to Mitchell Modell in decision-making over the trusts.

Anderson disagreed with the contention by Mitchell Modell and Goldberg that the corporate operations following Michael Modell’s death were “irrelevant” to the trustee removal proceeding. The surrogate said that argument failed to take into account Abby Modell’s assertion that Mitchell Modell’s alleged “overreaching” as CEO has cost the marital trust from which she and her children benefit financially.

“That Modell’s may be a successful entity, that its value may have increased over time under Mitchell’s stewardship, and that Mitchell has an interest in the company’s property is irrelevant if he is reaping benefits of the company’s success to the exclusion of a 50 percent sharehold of Modell’s, namely the marital trust,” Anderson wrote.

Anderson also rejected the claim by Mitchell Modell and Goldberg that Abby Modell’s pleading was subject to a six-year statute of limitations applicable to claims in equity, such as for breach of fiduciary duty.

That argument “ignores the true nature of this proceeding,” namely, to remove a fiduciary based on allegations of breach of fiduciary duty, the surrogate said.

“In a removal proceeding, there is no statute of limitations period,” Anderson noted. To rule otherwise could prevent the removal of fiduciaries for a time-barred infraction and defeat the court’s overriding responsibility under the SCPA, which is to ensure the protection of an estate, she said.

Mitchell Modell and Goldberg are “misreading” two Appellate Division rulings, Matter of Coons, 161 AD2d 930 (3rd Dept. 1990), and Matter of Picillo, 19 AD3d 1087 (4th Dept. 2005), in finding support for their statute of limitations’ argument, according to Anderson’s ruling.

Eve Rachel Markewich, partner in Markewich and Rosenstock in Manhattan, is representing Mitchell Modell and Goldberg.

Markewich said the trustee dispute is rooted in a larger disagreement between Abby and Mitchell Modell over control of Modell Sporting Goods.

“By agreement with his deceased brother, Mitchell Modell is the CEO,” Markewich said in an interview Monday. “By agreement with his deceased brother, Mitchell Modell makes all the decisions related to the business of this company, and he is doing a very good job. Really what this case is about is that Abby Modell wants to run the business and when her husband specifically set up the estate plan, he said, ‘No, I don’t want you to run the business.’”

Markewich predicted that when the case before Anderson ends, the facts would show that “neither of my clients have breached their obligations as fiduciaries.”
John Morken, partner in Farrell Fritz in Uniondale, is representing Abby Modell and her children. He declined comment Monday.