The issue presented is whether a “special master” appointed by a judge of this court and who was given authority by consent of interested parties to market and sell properties in which the decedent had substantial ownership interests, can be paid his outstanding fees from funds collected by a receiver appointed pursuant to a foreclosure proceeding brought by the secured lenders, and given the authority to collect rents, and manage and sell the properties, where the interests of the secured lenders exceed the likely value of the properties. Anthony J. Costello, a prominent businessman and real estate developer, died unexpectedly in 2016. His Last Will and Testament named as co-executors his son Brett Costello (Brett), and his accountant, Thomas Bonadio (Bonadio). The Will was admitted to probate, and they received letters testamentary in April 2016. Conflicts arose between the co-executors over the management of the estate assets, which included membership interests in more than 30 separate business entities that Anthony had created. Those entities were part owners of several real estate developments, including “The Reserve,” a planned residential community consisting of single-family homes, townhomes, and a large clubhouse and common area; “City Gate,” a commercial development featuring a Costco store as a tenant; and “Clinton Crossing,” a medical office complex consisting of several free-standing buildings. Mortgage loans encumbered each of the developments, and, together with millions of dollars in unsecured loans personally pledged by Anthony, the claims against them and the Estate consisting of unpaid loans totaled at the time of Anthony’s death more than 108 million dollars. Concerned that he would be liable for mismanagement of the properties and the wasting of estate assets, Bonadio petitioned the court for “Advice and Direction, pursuant to SCPA 2016 and 2107,” and requested that management of the entities be handed over to him pursuant to a management plan outlined in the Petition. All heirs of Anthony J. Costello made appearances, including Anthony’s three daughters, Lynn Ward, Alicia Smith, and Andrea Diliberto; his wife Elaine Costello; his adult grandchildren, who were part owners of some of the business entities which owned the real estate; and his minor grandchildren, who were represented by guardians ad litem appointed by the court. After many filings and with the prospect of protracted litigation, the parties and the court agreed to the appointment of Richard M. Beers, Esq., to serve as a “special master” who, as set forth in a “Consent Order (NYSCEF # 219) which was signed by all Costello heirs,1 was given the “exclusive authority . to engage a broker . and market, negotiate, and consummate the sale of the properties.” The New York Civil Practice Laws and Rules does not provide for the appointment of a “special master” to market and sell real estate, let alone retain the services of a broker. The only authorization for the appointment of a special master is pursuant to 22 NYCRR 202.14, which states that “The Chief Administrator of the Courts may authorize the creation of a program for the appointment of attorneys as special masters in designated courts to preside over conferences and hear and report on applications to the court. Special masters shall serve without compensation. NY Ct R 202.14 Nonetheless, various provisions of the laws of the State of New York authorizes judicial appointments of private individuals to serve in various positions to assist the court in the determination of issues (see e.g., referees [Article 43 of the CPLR]; court evaluators [Mental Hygiene Law section 81.09]; guardians ad litem [SCPA Article 4]; see also Matter of Pokoik, NYLJ 32, col. 2, 1/20/10 [Sur. Ct. NY Co]; In Roe’s Estate, 65 Misc 2d 143 (Sur Ct. 1970) ) Even though the role of the special master in this instance stretches the definition of “assistance to the court in the determination of issues,” nonetheless, surrogate’s court is a court of equity (see In re Beall’s Will, 184 Misc 881, 883 [Sur Ct 1945]) and it is in the interest of equity, and the “widows and orphans” within its protection, to resolve estate issues in the most efficient manner possible, lest the proceedings resemble those depicted in Bleak House, Charles Dicken’s satire of an English probate, or “chancery,” court. Here, the application for advice and direction, if litigated to its conclusion, would have been costly for all parties2, and since all consented to the appointment of a “special master” to have the unusual, unprecedented, and sweeping powers delineated in the consent order, the court cannot disagree (especially five years later) with the prior surrogate judge’s decision to make the appointment, and to provide for a means of payment to the special master for his work. Nor can this court, given the documented amount of work that the special master has devoted to this case, deny that he is entitled to his compensation. Upon his appointment Mr. Beers went to work in short order, but after four years had not, by no fault of his own, been able to sell any of the properties named above3. The reasons were varied — COVID, interest rate rise, general market conditions, etc. Finally, in June 2022 the Reserve sold, and in July 2022, CityGate sold. Both properties were encumbered by liens amounting to many millions more than the purchase prices paid for each property. The secured lenders and the Estate in each instance agreed to pay Mr. Beers $250,000 with respect to each closing, in consideration of the work he had done to bring buyers to the table and close each deal. This was consistent with the Consent Order, which stated that the proceeds of each sale “will be held in escrow and not used to pay any costs other than closing costs, mortgages against the Commercial Property to be sold, and debt necessary to effectuate the closing .” Mr. Beers’ fee in those instances could readily be construed as a closing cost as well as an administration expense. He now makes application on notice to all interested parties, for payment of the remainder of his fees4. His most recent filing shows an outstanding amount of $517,920.5000 (see NYSCEF # 1080, email from Richard Beers summarizing payments and amount owed). Of that he is willing to accept $250,000 in full satisfaction if payment can be made now and he can submit his resignation as special master. The court has reviewed the billing records for the work performed by the “special master” and finds them to fair and reasonable (In re Jud. Settlement of Second Intermediate Account of Chase Manhattan Bank, 68 AD3d 1670, 1671 [4th Dept 2009]; Matter of Wilhelm, 88 AD2d 6, 12 [4th Dept 1982]; Matter of Potts, supra, p. 62, 209 NYS 655 [1925]; Matter of Freeman, 34 NY2d 1, 9 [1973]). Mr. Beers spent a great deal of time on the Costello matters (it can be presumed to the detriment of his law practice), and review of the billing records indicates none of it was duplicative or not encompassed by the very broad dictate of the Consent Order. He had a difficult task, trying to sell properties that were all groaning under the weight of a mountain of debt. Mr. Beers brought to his appointment years of experience as an attorney specializing in commercial real estate transactions as well as an in-depth understanding of the real estate market. He has an excellent reputation in the legal community generally and among lawyers who work in the real estate matters. He achieved excellent results, facilitating the sale and transfer of three of the Costello properties: Hydroacoustics, the Reserve, and CityGate. His hourly rate, on which his fee is based, is in line with fees charged by local lawyers in similar matters (commercial real estate transactions). Thus, the amount of his fee request, even before the discount is considered, is fair and reasonable and is approved. The more difficult issue, as set forth in the objections filed in response to Beers’ application, is whether there is money available from the management and/or sale of Clinton Crossings from which to pay the outstanding fees. Each of the secured lenders has objected to payment from the proceeds of the sale of Clinton Crossing, arguing, as is settled law, that secured assets are not assets of the estate. And here, the amount of the secured liens exceeds the most recent offering price for Clinton Crossing. Moreover, the secured lenders ague that they were not signatories to the consent Order and are not bound by its provisions. Finally, pursuant to mortgage foreclosure actions brought by Wells Fargo and M and T Bank, a receiver was appointed to manage Clinton Crossing and collect the rents, and with respect to the buildings on the Clinton Crossing property that were the subject of M and T’s foreclosure action, to sell them5. Thus, they assert, the appointment of the receiver terminated any role to be played by the special master with respect to the Clinton Crossing property. Those arguments are rejected. The receiver secured an offer to purchase the property from an entity know as Blue Sky, and the court approved the sale by Order dated July 21, 2022 (NYSCEF # 966). The deal did not close (the financing fell through) but all work necessary to close had been completed, i.e., the receiver was “ready and able” to close. The receiver had sent to Blue Sky a “time of the essence” letter indicating his intent to keep the deposit of $500,000.00 in the even the closing did not take place. Which he did. A review of the billing records submitted by Mr. Beers shows that much of the legal work reflected in his outstanding billings were done with respect to efforts on Mr. Beers’ part to get Clinton Crossing sold. The court reasons then that even if a sale has not yet been consummated, the work performed by the special master can be construed as a “closing cost,” as it is a cost incurred in furtherance of the (attempted and eventual) sale and closing, for which Mr. Beers ought to be compensated,6 even if the transfer of title did not occur. The fact that the secured creditors were not on notice of the Consent Order does not override the provision providing for payment of the special master from the closing costs, since no foreclosure action had been commenced when the Consent Order was entered and notice to them was not required. The appointment of the receiver did not terminate the special master’s commission, which could only be done by order of this court, and in any event, since the receiver did not have the authority to sell the buildings encumbered by the Wells Fargo mortgage, the special master had a continuing role to play in arranging for the sale of those properties (Buildings A, B, and C). Additionally, the court agrees that secured properties are not estate assets, but only to the extent of the value of the secured interests, so at this point, it cannot be known whether the final sale of Clinton Crossing will result in proceeds over and above the secured interest. Consequently, it is not known whether the forfeited deposit held by the receiver will be required to satisfy the secured creditors’ outstanding balances. Accordingly, the application for payment of the special master’s fees in the amount requested is GRANTED. The receiver is directed to pay Mr. Beers the sum of $250,000.00, which will be in full satisfaction of the total amounts he believes he is owed. The special master’s resignation is accepted. He is to be commended for the outstanding work he performed in service to the Estate of Anthony Costello and to the court. SO ORDERED Dated: October 13, 2022
