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Today's Law: Guardian Ad Litems and Claims to Irondequoit Bay Frontage
October 15, 2008
by Forsyth & Forsyth TODAY'S LAW
Newsletter for clients of Forsyth & Forsyth October 15, 2008 No 87
Triumph of Form over Substance
Sometimes form does count in the eyes of the law. For example, you incorporate a business to protect your personal assets from the creditors of the business. One tradeoff is that when a third party harms the corporation, the corporation, not you, must sue the third party. A plaintiff and her attorney learned this lesson the hard way in a recent case.
The plaintiff, Iman by name, wanted to buy for her corporation the trade name of bridal boutique business being discontinued. She hired Andrew to assist her in the purchase. Andrew advised her that her corporation needed to buy all of the assets of the business being discontinued to get its trade name. She agreed to do so.
Then Andrew drafted an agreement for Iman’s corporation to purchase the stock of the business being discontinued. Iman signed the agreement.
Buying stock means that Iman’s corporation acquired the debts as well as the assets of the business being discontinued. Iman claimed that Andrew did not tell her this crucial fact. Needless to say, the seller owed money, $52,000 to be exact. After closing Iman’s corporation paid the debts.
Believing that Andrew had committed legal malpractice, Iman sued him for $52,000. But she, really her attorney, made a fatal error. She named herself as plaintiff, not her corporation. When Andrew brought this fact to the attention of the court, it was too late to amend the complaint.
Iman replied that an amendment was not necessary. She was the sole officer and stockholder of her corporation. The court could disregard the corporate form to allow her to prosecute the lawsuit. In effect, she would be the beneficiary of any judgment.
The court rejected Iman’s argument. A corporation has a separate legal existence from its shareholders. Iman had chosen the corporate form to conduct
business, and “courts are loath to disregard” it.
Yes, courts will pierce the corporate veil to hold shareholders liable for certain unjust or fraudulent actions of the corporation. But this exception is typically employed by third parties, such as the Internal Revenue Service.
Inman loses on her claim against Andrew. Ironically, she and her corporation may now have a claim against Andrew’s successor.
Guardian ad Litems
Your eccentric Uncle Joe dies, naming you executor of his estate. In his will he gives some of his assets to a cousin of yours, whose whereabouts you do not know. What must you do?
You and your attorney must make a diligent search for the cousin. Inspect Uncle Joe’s papers in the hope that he stayed in touch with the cousin. If not, start with the cousin’s last sighting and move forward in time, gathering information about him or her from relatives, friends, and employers. Consult directories and do a name search on the Internet.
If you are unsuccessful in locating the cousin, you need to detail your efforts in an affidavit. The probate court will then issue an order allowing you to publish a notice in a newspaper serving the community where your cousin was last known to reside. Very few people read these back-page notices but under the circumstances notice by publication satisfies the Due Process Clause.
The probate court will also appoint an attorney to represent the cousin. The attorney is called a guardian ad litem. His or her job is to verify that you have performed a diligent search, that the will was properly executed, and that all necessary parties are before the court.
The job of a guardian ad litem is much narrower than the job of a general guardian. The latter can manage the assets of a person and even make personal living decisions.
Probate courts appoint guardian ad litems in other situations. If a beneficiary is an infant or imprisoned or incompetent, he or she cannot consent to the probate of the will, the acceptance of the gift or the release of an executor. A guardian ad litem must do this for the beneficiary. A guardian ad litem also has the power to object to the relief requested.
The estate will pay the guardian ad litem a fee, to be set by the court.
Several years ago some downstate courts were awarding big fees to select attorneys. The media exposed the practice and the Office of Court Administration cracked down. The Office put caps on what an individual attorney can earn and what his or her firm can earn from guardian ad litem work. A website tracks what attorneys have earned. Whether the caps and increased disclosure have stopped all of the abuses is an open question.
Claims to Irondequoit Bay Frontage
Speaking of notice by publication, George has handled three cases involving property owners who went to court to confirm their ownership of lands fronting on Irondequoit Bay.
The primary defendant in each case was Monroe County. The first case went to trial; George won and the County lost. The court ruled that the owners had acquired their frontage by adverse possession before the County acquired any rights. In the second and third case the County conceded the point that the owners acquired title to the frontage by adverse possession.
In each case there is a second defendant, the unknown heirs of the developer who subdivided the tract in 1910. The heirs are the persons who actually “lost” the title to the frontage by adverse possession. Not knowing who the heirs are, George published a notice of the pending lawsuits in the local legal newspaper and the Irondequoit Post.
Notice by publication was good enough for the judges presiding over the first two cases. The judge presiding over the third case is considering the matter. He has stated that he may want to appoint a guardian ad litem. George has nicely told him that doing so will be a waste.
If you have any questions about corporations, probate involving infants and the like, claims to water frontage, or any other matter, please contact us.
FORSYTH & FORSYTH
16 W. Main Street, Suite 110
Rochester, N.Y. 14614
(585) 262-3400
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