| Matter of Aoki v Aoki |
| 2014 NY Slip Op 03433 [117 AD3d 499] |
| May 13, 2014 |
| Appellate Division, First Department |
[*1]
| In the Matter of Kevin Aoki et al.,Petitioners, v Echo Aoki et al., Respondents, Devon Aoki et al., Appellants, andKeiko Ono Aoki, Respondent. |
Pryor Cashman LLP, New York (David C. Rose of counsel), for appellants.
Rosenberg Feldman Smith, LLP, New York (Richard B. Feldman of counsel), forKeiko Ono Aoki, respondent.
Decree, Surrogate's Court, New York County (Rita Mella, S.), entered March 5,2013, after a nonjury trial, invalidating two partial releases of a power of appointmentexecuted by decedent Rocky Aoki, and bringing up for review an order, same court(Kristin Booth Glen, S.), entered April 27, 2010, which, insofar as appealed from, deniedthe motion of respondents-appellants Devon Aoki and Steven Aoki for summaryjudgment declaring said releases valid, based on the alleged constructive fraud ofRocky's attorneys, unanimously reversed, on the law, without costs, the decree vacated,the motion granted, and it is declared that the releases are valid.
In 1998, decedent Rocky Aoki, the founder of the Benihana restaurant chain createdthe Benihana Protective Trust (BPT) to hold stock and other assets relating to Benihana.The BPT trust agreement gave Rocky the power to appoint the beneficiaries of the BPTthrough his will. He selected as trustees of the BPT two of his six children (petitionersKevin Aoki and Kana Aoki) and his longtime attorney, Darwin C. Dornbush.
In July 2002, Rocky married respondent Keiko Ono Aoki. A few months later, Kanaand Kevin met with Dornbush to express their concern that their father did not have aprenuptial agreement. Dornbush advised them that a postnuptial agreement wouldresolve their concerns. Rocky discussed this issue with Keiko but she refused to consentto such an agreement. Rocky thereafter met with Dornbush, Kevin and Kana to discusstheir concerns regarding possible claims by Keiko against Benihana assets in the event ofRocky's death.
Norman Shaw, Dornbush's partner and an attorney experienced in estate work,recommended that Rocky could partially release his power of appointment under theBPT agreement so that he could appoint only to his descendants or trusts for hisdescendants, thereby [*2]restricting Benihana assets tomembers of his direct family. Rocky, Kana and Kevin again met with Dornbush onSeptember 23, 2002 and they reviewed what Dornbush characterized as a "close to finaldraft" of the partial release. The following day, Rocky met with all three again andsigned the one-page document captioned "Partial Release of power of AppointmentUnder New York Estates, Powers & Trusts Law § 10-9.2." Thepertinent terms of the release are: "I hereby irrevocably partially release the power ofappointment [in Article V (a) of the BPT agreement] so that, from now on, I shall haveonly the following power: I shall have a testamentary power to appoint any of theprincipal and accumulated net income remaining at my death to or for the benefit of anyone or more of my descendants."
Rocky's relationship with his children began to deteriorate and reached the pointwhere he commenced litigation against them and Dornbush in their capacities as trusteesof the BPT. At his deposition in that litigation, Dornbush testified that he explained toRocky that upon signing the release, disposition of the Benihana assets would now belimited to his children and their descendants, whereas before his appointment powerswere unlimited. In that same action, Rocky testified that Dornbush just told him "signhere." However, both Rocky and Shaw testified that Shaw explained that the effect of therelease was that Rocky could appoint only to his descendants. It is also undisputed thatRocky had sufficient opportunity to read the one page release before signing it. On thesame day that he signed the release, Rocky signed a codicil to his will and a consent to anamendment to the BPT agreement.
Because of a change in IRS regulations concerning bequests to nonresident aliens,Shaw prepared a "Further Partial Release of Power of Appointment Under New YorkEstates, Powers & Trusts Law § 10-9.2" to cover that eventuality. Thissecond release again provided that Rocky was "irrevocably" partially releasing his powerof appointment under the BPT agreement, restricting his power to appoint only to hisdescendants, provided that they were not nonresident aliens. Rocky was given theopportunity to read this release before he signed it on December 27, 2002.
On August 4, 2003, Rocky executed a codicil which purported to exercise his powerof appointment, giving 25% of the BPT outright to Keiko, and the income from theremaining 75%, to her for her lifetime. It also gave her the power to appoint the principalto one or more of Rocky's descendants in her will, and designated her as the executrix.The codicil was drafted by Keiko's regular counsel, Joseph Manson.
Manson thereafter wrote to Dornbush, advising him of the provisions of the codicil.He advised Dornbush that, at Rocky's suggestion, the two should meet to discuss the will"and other matters concerning the Aoki family." At their meeting, Manson askedDornbush for an opinion from his firm as to whether Rocky's purported exercise of hispower of appointment in the codicil was valid. On September 8, 2003, Shaw responded,opining that the portion of the codicil giving Keiko a beneficial interest in the BPT wasinvalid because the partial release signed by Rocky rendered Keiko an impermissibleappointee of the trust. On September 22, 2003, Rocky executed an affidavit in which hestated that he did not understand that by signing [*3]thereleases he could not leave his Benihana stock to anyone he chose through his will. Hefurther stated: "If I had known that these documents prevented any changes to thedisposition of my stock, I never would have signed the documents." The purpose ofpreparing this affidavit is unclear, in light of the fact that at no time prior to his death inJuly 2008 did Rocky take any steps to declare the releases invalid, or otherwise challengetheir execution.
In fact, on September 7, 2007, almost four years after executing that affidavit, Rockyexecuted a new last will and testament. In it, he again purported to exercise his power ofappointment in the same manner as in his August 3, 2004 codicil. However, he added:"In the event that it is finally determined that the [above] exercise of my power ofappointment . . . is invalid because, contrary to my wishes, the [Septemberand December 2002 partial releases] are found to be valid, . . . I herebyexercise said power fifty percent . . . in favor of DEVON AOKI,. . .and fifty percent . . . in favor of STEVEN AOKI."
In February 2009, the trustees of the BPT brought this action to determine thevalidity of the partial releases. Devon and Steven answered. Keiko answered and assertedaffirmative defenses, claiming, inter alia, that the proposed releases "are invalid as theyare the product of fraud or were obtained through fraudulent devices."
After discovery was conducted, Devon and Steven moved for summary judgment todismiss Keiko's affirmative defenses and to declare the releases valid. The Surrogategranted the motion in part and denied it in part, finding that Keiko had raised a triableissue of fact as to her affirmative defense of constructive fraud. After a bench trial,although the Surrogate found that Keiko had adduced no direct evidence that Rocky wasunaware that the releases were irrevocable, the court held that the circumstantial evidencewas sufficient to meet Keiko's burden and that Devon and Steven failed to meet theirburden of proving that Rocky's signing of the releases was voluntary and not the result ofomission by his counsel. The Surrogate declared the releases invalid. We nowreverse.
The principles underlying the concept of constructive fraud are of long-standingduration: "It may be stated as universally true that fraud vitiates all contracts, but as ageneral thing it is not presumed but must be proved by the party seeking to relievehimself from an obligation on that ground. Whenever, however, the relations between thecontracting parties appear to be of such a character as to render it certain that they do notdeal on terms of equality but that either on the one side from superior knowledge of thematter derived from a fiduciary relation, or from an overmastering influence, or on theother from weakness, dependence, or trust justifiably reposed, unfair advantage in a[*4]transaction is rendered probable, there the burden isshifted, the transaction is presumed void, and it is incumbent upon the stronger party toshow affirmatively that no deception was practiced, no undue influence was used, andthat all was fair, open, voluntary and well understood. This doctrine is well settled."(Cowee v Cornell, 75 NY 91, 99-100 [1878]; Matter of Gordon v BialystokerCtr. & Bikur Cholim, 45 NY2d 692, 698-699 [1978]).
"To avoid a release on the ground of fraud, a party must allege every materialelement of that cause of action with specific and detailed evidence in the recordsufficient to establish a prima facie case" (Shklovskiy v Khan, 273 AD2d371, 372 [2d Dept 2000]). "In the absence of a fiduciary relationship between the partiesto the release, the party seeking to avoid the release bears the burden of proving suchfraud or other vitiating circumstances" (Matter of O'Hara, 85 AD2d 669, 671 [2dDept 1981]). Moreover, a release should "not be treated lightly" and "should never beconverted into a starting point for renewed litigation" except in cases of "grave injustice"and then, only under "the traditional bases of setting aside written agreements"(Touloumis v Chalem, 156 AD2d 230, 231 [1st Dept 1989]).
Keiko relies on the fiduciary exception to support her contention that the releases areinvalid. However, for constructive fraud to apply, the fiduciary must be a party to or havean interest in the subject transaction (O'Hara, 85 AD2d at 671). Here, neitherDornbush nor Shaw were parties to the releases and thus could not benefit from them.The Surrogate therefore erroneously shifted the burden of proof to Devon and Steven toprove that the releases were not procured by fraud.
The record does not support the claim that the releases are invalid because Rocky didnot understand that he was irrevocably relinquishing his power to appoint the BPT assetsto any person as he saw fit. Rocky's later allegations that he was not aware he wassigning an irrevocable waiver, that he did not read the document and did not understandit are not sufficient to set aside the releases. There is no evidence in the record that eitherDornbush or Shaw ever represented to him that the waivers were anything butirrevocable, or misled him regarding their effect. There is nothing to indicate that theattorneys either concealed from or did not affirmatively provide Rocky with anyinformation he needed to make an informed decision. In fact, despite his later disclaimer,Rocky testified at his deposition that Shaw did explain the effect of these waivers. Theattorneys thus took all reasonable efforts to apprise Rocky of the effect of what he wassigning. It is uncontested that Rocky had ample opportunity to read the documents andask any questions regarding them. He chose not to do so, not once, but twice.
It is well established that a "party who signs a document without any valid excuse forhaving failed to read it is conclusively bound by its terms" (Shklovskiy v Khan,273 AD2d at 372; Morby v Di Siena Assoc., 291 AD2d 604, 605 [3d Dept2002]). The record is devoid of any excuse, let alone a valid excuse, for failing to readthe release prior to signing it (see Davis v Rochdale Vil., Inc., 109 AD3d 867 [2d Dept2013]). Nor does the record support the allegations that Rocky did not understand thewaivers because they were in English. To the contrary, the record clearly demonstratesthat Rocky was fluent in English, conducted his business affairs in [*5]English and gave his deposition in English. In any event, aclaimed unfamiliarity with the English language will not support a claim of fraud wherethe proponent fails to demonstrate any efforts to have someone read and explain adocument to him or her before signing it (Shklovskiy, 273 AD2d at 372; Flusserova v Schnabel, 92AD3d 464, 465 [1st Dept 2012]). This is a commonsense principle, for "to hold arelease forever hostage to legal afterthoughts basically vitiates the nature of the release"(Tajan v Pavia & Harcourt, 257 AD2d 299, 306 [1st Dept 1999], lvdismissed and denied 94 NY2d 837 [1999]).
Most significantly however, it is undisputed that from at least the August 4, 2003codicil, and most likely before, Rocky was aware that he signed irrevocable waivers. Atno point did he make any attempt to have those waivers declared invalid, thereby callinginto question his later allegations that the waivers did not represent his wishes.Accordingly, the releases should have been given effect and the Surrogate's Court shouldhave granted the motion for summary judgment.
In light of the foregoing, we need not reach appellants' remaining contentions.Concur—Sweeny, J.P., Renwick, Moskowitz, Richter and Gische, JJ.