Beneficiary To A Trust Lacks Standing To Collect Unpaid Debt

The poet, Robert W. Service once wrote that “a promise made is a debt unpaid.” The question that remains is: Who gets to collect on that unpaid debt?

The issue of standing to collect on a debt owed to a beneficiary of a trust recently arose in Zachariou v Manios where plaintiff (a resident of Cyprus) sued her brother (a resident of Greece) for her share of their jointly held assets.

This family dispute arose after plaintiff’s and defendant’s brother died without a will, leaving the siblings as co-owners of a world-wide shipping company along with U.S. real estate owned by various U.S. companies, which included a New York City apartment building.

Thereafter, the parties executed a settlement agreement in Greece whereby they agreed to joint ownership and defendant’s continued management of the business and properties for the benefit of himself and the plaintiff.

The parties executed a second agreement in London whereby they divided their jointly-held U.S. companies between themselves and appointed a Trustee for the purpose of receiving and distributing the estate’s assets in accordance with the London agreement. As part of this second agreement, plaintiff also agreed to convey her 50% shareholder interest in the U.S. companies to defendant in exchange for $6.5 million, which represented 50% of the value of the NYC apartment building, which was the only remaining asset of the U.S. companies.

The parties also annexed a U.S. agreement to the London agreement which provided for an accounting of the finances of the U.S. companies and permitted for the appointment of an arbitrator to determine if either party should receive additional funds.

In 2006, plaintiff filed an action in New York County Supreme Court alleging that defendant was involved in embezzlement with the president of the U.S. companies to deprive plaintiff of her half of the estate. Ultimately, Justice Lowe dismissed all of the claims, except for breach of contract against defendant, and held that the remaining breach of contract claim fell under the London agreement and should be litigated in Greece. The First Department affirmed the dismissal.

In 2009, plaintiff commenced an arbitration against defendant before the American Arbitration Association International Centre for Dispute Resolution (AAA) to determine if either party should receive additional funds from the U.S. companies. The AAA awarded plaintiff over $10 million to be paid by defendant to the Trustee, who would then distribute the funds to plaintiff pursuant to the London Agreement.

Plaintiff attempted to enforce the arbitration award in Greece but the Greek courts refused to declare the arbitration award enforceable as a money judgment in Greece.

Thereafter, plaintiff brought this action before the New York County Supreme Court seeking an order compelling defendant to pay the Trustee the distribution awarded to plaintiff by the AAA.

Justice Andrea Masley determined that although the U.S. agreement controlled, the provisions of the agreement required the Trustee to collect the funds payable to either party, put the funds in the trust, and thereafter, distribute them between the parties. Plaintiff’s attempt to argue that she was simply seeking to enforce a promise that was made to her to deliver funds to the Trustee was not persuasive. Ultimately, the Court determined that plaintiff did not have standing to compel defendant to pay the AAA award to the Trustee and dismissed the complaint for lack of standing.

Although plaintiff has no standing to force her brother to pay her AAA award into the trust, the Court noted that plaintiff does have standing to sue the Trustee to enforce the procedures of the U.S. agreement.

Stay tune for more litigation arising out of this long-standing sibling rivalry.