Before this Court is a motion for default judgment and summary judgment requesting the Court to: (1) issue an order and judgment holding respondent in default of the Court’s conditional order dated January 3, 2018; (2) determine that respondent has engaged in unlawful self-dealing and direct respondent to return $725,453 to the estate; (3) surcharge respondent for consequential damages, accrual damages, costs and attorneys’ fees suffered by the estate as a result of alleged self-dealing; and (4) direct the parties to appear for a hearing to determine the amount of any surcharges against respondent. Respondent opposed the motion, in part, and the matter was submitted for decision.William J. Smith (hereinafter decedent) died testate on May 19, 2003, a resident of Albany County. His Last Will and Testament dated March 1, 2001 was offered for probate by respondent on July 11, 2003, through his counsel Matthew J. Kelly, Esq. of the law firm Roemer Wallens Gold & Mineaux, LLP. This Court issued Preliminary Letters Testamentary to respondent on July 11, 2003, and subsequently admitted the will to probate and issued Letters Testamentary on February 7, 2006 (Doyle, S.). Pursuant to Article III of the will, 70 percent of decedent’s stock in Quailman Investors, Inc. was to be held in trust for distribution by the trustee “as he deems fit according to my instructions, and for the college education of various individuals as per my instructions.” Decedent’s will also left 15 percent of Quailman Investors to respondent and 5 percent to Aaron Berhaupt. By decision of this Court construing the will, Surrogate Doyle found “that the decedent’s testamentary intent is clear. His dominant plan of distribution was to place the majority of his assets — seventy percent (70 percent) of the stock in his closely held company, plus the remainder of his estate — in trust for a particular group of children.” The Court found fourteen individuals, many of them minors, to be the intended beneficiaries of the estate. Respondent was named as trustee under Article VI of said will, but did not obtain letters of trusteeship.At the time of his death, decedent owned 90 percent of Quailman Investors and the other 10 percent was owned by respondent. The probate petition and the application for preliminary letters testamentary filed by respondent listed the gross value of the assets in the estate to be greater than $100,000, but less than $250,000, and, in an incomplete accounting filed with this court in 2007, respondent listed the value of Quailman Investors as $20,000. A guardian ad litem was appointed by this Court (Nichols, S.) in a proceeding brought by respondent to terminate the trust as uneconomical, in January 2010. The guardian ad litem’s report revealed the net value of real property sales by Quailman Investors between October 31, 2003 and May 10, 2004 to be $960,184.41. Respondent retained his estate counsel, Matthew J. Kelly, of Roemer Wallens Gold & Mineaux, LLP, to assist with the real property sales by Quailman Investors. A supplemental report of the guardian ad litem revealed a corporate resolution, adopted at a special meeting of the Board of Directors of Quailman Investors and signed by respondent as Secretary of the Corporation on August 15, 2003, paying himself $435,000 in deferred compensation for the years 1973 through 2002, and a salary of $290,453 for the year 2003, without court authorization in an act of alleged self-dealing. Said resolution states: The following is a true copy of a resolution adopted by the Board of Directors, Shareholders of Quailman Investors, Inc. at a special meeting of said board held on August 15, 2003.RESOLVED, that the corporation pay Jerold A. Nadel $15,000.00 per year commencing in 1973 and continuing through 2002 for services thereon for a total of $435,000.00 an after taxamount which amount to be paid pursuant to the sale of property herein, and further resolved that he be paid an appropriate salary for the year 2003.RESOLVED, that the Secretary of the Corporation be authorized on behalf of the corporation to execute any and all documents necessary to make such payments.The resolution was then signed “Jerold A. Nadel, Secretary.”According to the guardian ad litem’s supplemental report, there were no minutes of said meeting offered and the identity of the persons at that meeting could not be determined. At the time of the corporate resolution and subsequent real estate sales, respondent remained a minority shareholder of Quailman Investors (10 percent) and was acting in a fiduciary capacity as preliminary executor of decedent’s estate, representing the estate’s 90 percent interest in the corporation since decedent’s will had not been probated at that time. This made respondent the sole director and officer of Quailman Investors at the time the Board adopted the corporate resolution to pay himself $725,453 out of the proceeds of estate assets sold after decedent’s death.The guardian ad litem’s report also revealed that the Corporate Income Tax Return for Quailman Investors for the fiscal year August 1, 2003 through July 31, 2004 reflected not only the sale of real property and the payment to respondent in the amount of $725,453, but a $72,989 loan to shareholders that had been repaid. Notably, the return does not identify the shareholder repaid, nor does the proposed estate accounting reflect the payment so it was assumed by the guardian ad litem that the payment was to respondent. Finally, two other significant deductions were questioned in the report; specifically, $15,160 in supplies and $14,000 in travel. These amounts were questioned for two reasons. First, the guardian ad litem thought it was unusual that aggregate expenses in any category would appear as such round numbers. The expenses also reportedly seemed excessive given that respondent lived in Albany County at the time the corporation was in the process of liquidating its inventory and all of the real property sold was also in Albany County. By Order of this Court dated August 31, 2015, Letters Testamentary issued to respondent were revoked due to his failure to comply with the numerous orders to file a complete accounting. Petitioner, Public Administrator, was thereafter appointed as the Temporary Administrator CTA of the estate and subsequently attempted to obtain information from respondent necessary to render a proper account, which included a valuation of Quailman Investors. Respondent failed to cooperate with petitioner’s requests. On January 31, 2017, petitioner commenced this discovery proceeding pursuant to SCPA 2103, seeking to obtain personal property from respondent in the amount of $960,184.41. According to petitioner, this figure represents the profits from the sale of assets held by Quailman Investors at decedent’s death, and subsequently paid by respondent to himself as secretary of Quailman Investors while he was the preliminary executor of the estate. On March 10, 2017, respondent, through Attorney Kelly, moved for a protective order and to vacate the Order of the Court removing him as executor. This motion was denied by Order of this Court entered June 8, 2017, and respondent was ordered to file an answer in the discovery proceeding within ten days of service of notice of entry of the Order. Respondent appealed this decision and moved for an order pursuant to CPLR 2201 staying the discovery proceeding pending the appeal.1 Respondent’s motion to stay the discovery proceeding was denied by Decision and Order of this Court dated August 1, 2017 and respondent was ordered to comply with the scheduling order issued by this Court.2 On October 26, 2017, petitioner moved to compel compliance with discovery demands, to preclude respondent from offering any evidence or testimony to substantiate his compensation pending compliance with the discovery demands, within thirty days of the order and conditionally striking respondent’s answer. By Decision and Order of this Court dated January 3, 2018, petitioners motion was granted and respondent subsequently appealed. Respondent’s counsel then moved for recusal of the Surrogate based on his alleged bias and prejudice against respondent and respondent’s counsel. By Decision and Order of this Court dated February 26, 2018, respondent’s motion was denied and respondent subsequently appealed. Now before this Court is a motion for summary judgment and default judgment requesting the Court to find that respondent has engaged in unlawful self-dealing and to hold respondent in default of the Court’s order dated January 3, 2018.
