Court Opinion

ID: 9818992
Source: CourtListenerOpinion
Date Created: 2023-09-01 06:17:49.454696+00
Date Added: 2024-06-11T11:35:06.547269
License: Public Domain

OPINION OF THE COURT
Gische, J.
This action involves a dispute between plaintiff and defendant Merrill Lynch Pierce, Fenner & Smith, Incorporated (Merrill Lynch), regarding a securities account that had been held in the name of Alberto Arroyo, plaintiff’s deceased father. Following Mr. Arroyo’s death in 2010, Merrill Lynch delivered the account assets to the executors of Mr. Arroyo’s estate, named in his August 22, 2008 last will and testament, which was admitted to probate in Surrogate’s Court on October 25, 2011. Plaintiff’s substantive claims in this action stem from her allegation that a 2003 letter sent by the decedent to Merrill Lynch makes plaintiff a direct beneficiary of the account, obviating the need for it to pass through the estate. Plaintiff asserts several causes of action against Merrill Lynch, the financial institution holding the account at the time of Mr. Arroyo’s time of death, predicated on its failure to deliver the account assets directly to her in accordance with Mr. Arroyo’s letter instructions.
Plaintiff previously petitioned the Surrogate’s Court to vacate probate, claiming that the 2008 will was either the product of undue influence or that Mr. Arroyo lacked testamentary capacity to make it. Although the petition refers to the securities account and the 2003 letter, the ultimate relief *4requested by plaintiff does not concern distribution of the account assets. The Surrogate’s Court denied plaintiff’s challenge to probate, and thus the earlier decree admitting the 2008 will to probate remained in force.
The motion court dismissed this action based upon principles of res judicata and collateral estoppel implicated by the prior Surrogate’s Court proceedings. We now affirm, but solely on the basis that all of plaintiff’s substantive claims, which are ultimately grounded upon alleged violations of New York’s Transfer-on-Death Security Registration Act (TODSRA) (EPTL 13-4.1 et seq.), fail to state a cause of action.
 Res judicata does not apply in this case because a linchpin of the doctrine, that there be an identity of parties litigating against each other in the two actions, is missing (City of New York v Welsbach Elec. Corp., 9 NY3d 124, 127 [2007]). The parties in the earlier Surrogate’s Court action were plaintiff and the coexecutors of the estate of Alberto Arroyo. Although plaintiff served Merrill Lynch with her petition to vacate the decree admitting the 2008 will to probate, Merrill Lynch was not an interested party in that proceeding nor did it participate in it, having absolutely no right or interest whatsoever in decedent’s estate. Collateral estoppel has no application here either, because the issues in the Surrogate’s Court action are not identical to those raised here and were not “necessarily decided” by the Surrogate’s Court (Welsbach Elec. Corp., 9 NY3d at 128 [internal quotation marks omitted]). The only issue before the Surrogate to decide was whether the 2008 will should be admitted to probate. At no point did the Surrogate determine what assets actually constituted the probate estate, and she did not decide whether the securities owned by decedent at the time of his death were probate assets. By admitting the will to probate, the Surrogate did not assert authority over the account and did not implicitly or explicitly find that the securities account should be distributed as part of the estate. The will itself does not reference the securities account.
Admitting a will to probate involves the validity of the will and the designation of an estate representative (SCPA art 14), who is then responsible for, among other things, marshaling probate assets (see Matter of Schultz, 104 AD3d 1146, 1148 [4th Dept 2013]; Matter of Skelly, 284 AD2d 336, 336 [2d Dept 2001]). Disputes about particular assets are usually the subject of subsequently brought collateral proceedings, including *5discovery, turnover and accounting proceedings (SCPA arts 21, 22). No party claims that there is any collateral proceeding concerning the securities account currently pending in the Surrogate’s Court.
We disagree with our concurring colleague that principles of comity control the outcome of this appeal. They are not argued by the parties, nor do they apply. While there is no question that the Surrogate’s Court could have exercised jurisdiction over the dispute under TODSRA if a proceeding or claim had been brought, there is no such proceeding or claim and the court did not exercise such jurisdiction. Consequently, based upon the procedural context in which this dispute is before this Court, we only reach the merits of the claim asserted.
We hold that under TODSRA, the 2003 letter sent by the decedent to Merrill Lynch did not create an enforceable right in favor of plaintiff to have the securities pass directly to her upon Mr. Arroyo’s death. New York State passed TODSRA during the 2005 legislative session as part of a national effort to create a method of owning securities in a manner that would allow them to automatically transfer to an owner’s designee upon death (L 2005, ch 325). Before its enactment, joint ownership with the beneficiary during a decedent’s lifetime was the only option for a non-probate disposition of securities (Margaret Valentine Turano, Practice Commentaries, McKinney’s Cons Laws of NY, Book 17B, EPTL art 13, part 4 at 696). Beginning in 1990 a majority of States enacted laws substantially similar to TODSRA, with New York being the 47th State to do so (McKinney’s Cons Laws of NY, Book 17B, EPTL art 13, part 4, 2015 Pocket Part at 142-144 [“Table of Jurisdictions Wherein Act Has Been Adopted”]). The primary advantage of TODSRA is that securities need not pass through probate in order to be transferred upon the death of the owner (Margaret Valentine Turano, Practice Commentaries, McKinney’s Cons Laws of NY, Book 17B, EPTL art 13, part 4 at 695). The beneficiary designation is effective only upon the owner’s death; before then an owner is free at any time to cancel or change the designation without consent of the beneficiary (EPTL 13-4.6).
In order to take advantage of New York’s law, certain categories of owners may request that a security be registered in beneficiary form (EPTL 13-4.2). The institution holding the securities account, however, is not required to either offer or accept a request to register a security in beneficiary form (EPTL 13-4.8). It is only if the owner requests that a security be held in beneficiary form and the entity holding the security *6accepts the designation, that an enforceable contractual relationship is created between the owner and that registering entity, requiring the registering entity to act in accordance with the designation (EPTL 13-4.9). Under TODSRA, the registering entity has the sole right to establish the terms and conditions under which it will receive and implement requests to register securities in beneficiary form (EPTL 13-4.10), and TODSRA statutorily mandates that the registering entity have certain protections in the process (EPTL 13-4.8). A registering entity is not the owner of the security, but rather the person or entity that originates or transfers title to a security by registration, which includes a broker such as defendant (EPTL 13-4.1 [i]). Thus, under the statute, it is perfectly clear that a unilateral action by an owner of a securities account to designate a beneficiary in the event of death is not by itself sufficient.
Against this statutory framework, the 2003 letter relied upon by plaintiff is not a legally enforceable beneficiary designation under TODSRA. At most, it is a unilateral request by the owner of the account to have Merrill Lynch register the securities in beneficiary form. In order to have an enforceable registered beneficiary form under TODSRA, plaintiff would need to have a certificate or designation on the account itself indicating transfer-on-death instructions (EPTL 13-4.1 [h]; 13-4.5). Without that certificate or designation demonstrating the acceptance of the request, there are no rights under TODSRA. Without those rights (i.e., TODSRA), there are no independent contractual or common-law rights to compel distribution of securities outside of probate, unless the securities were jointly titled in decedent and the beneficiary’s name before the decedent’s death. Consequently, plaintiff has no direct statutory or common-law cause of action against Merrill Lynch for delivering the securities to decedent’s coexecutors upon Mr. Arroyo’s death.
Accordingly, the judgment of the Supreme Court, New York County (Eileen Bransten, J.), entered April 10, 2014, dismissing the complaint in its entirety, with prejudice, should be affirmed, with costs. The appeal from the order, same court and Justice, entered December 12, 2013, which granted defendant’s motion to dismiss the complaint, should be dismissed, without costs, as subsumed in the appeal from the judgment.