ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 11/27391
DATE: 2012-04-16

IN THE MATTER OF THE ESTATE OF IRVING ZUCKER, Deceased

L. Silver, for M. Kevey Leibow
F. DeSantis, J. Kranjc, S. Roth, for Michael Moore
P. Trudelle, for David Zucker and Suzy Zucker
J. Evans, Q.C., for Taylor Leibow
A. H. Socken, Estate Trustee of the Estate of Irving Zucker

HEARD: at Hamilton on April 10, 2012

LOFCHIK J.

REASONS FOR JUDGMENT

[ 1 ] This is a motion for directions in the context of a contested passing of accounts for the Estate of Jacob Irving Zucker.

[ 2 ] Jacob Irving Zucker passed away on December 22, 2002 leaving an estate valued at approximately $43,000,000.

[ 3 ] M. Kevey Leibow and Michael Moore were appointed as executors and estate trustees of the Estate under the last Will of Jacob Irving Zucker.

[ 4 ] Michael Moore was a partner in the accounting firm of Taylor Leibow LLP. Of the approximately 2.4 million dollars in executor fees received by Michael Moore, approximately one half was transferred to and received by the partnership of Taylor Leibow

[ 5 ] Two of residual beneficiaries under the Will, David and Suzy Zucker, have made application for the accounts of the Estate to be passed. The beneficiaries have alleged that excessive executor’s compensation was pre-taken and should be repaid to the estate.

[ 6 ] A trial of an issue is required to determine if any executor’s compensation was excessive, and if so, how much was excessive and who should repay it.

[ 7 ] Kevey Leibow also seeks a trial of the issue to determine whether the extensive legal costs he has incurred in proceedings related to his executorship are payable from the Estate of Irving Zucker.

[ 8 ] Kevey Leibow also seeks to add Taylor Leibow LLP as a necessary party to the passing of accounts on the basis that if a finding is made that executor’s compensation was excessive, Taylor Leibow is liable, as partners of Michael Moore, to repay some or all of the amounts improperly taken by Moore, including, but not limited to, approximately 1.2 million dollars in executor’s compensation which has been received by Taylor Leibow.

[ 9 ] The parties are in agreement that a timetable is required to ensure that the passing of accounts proceeds in an orderly fashion and is heard as soon as possible.

Facts

[ 10 ] Jacob Irving Zucker passed away on December 22, 2002. Under the Will, Kevey Leibow and Michael Moore were appointed as executors of the estate. Suzy Zucker, David Zucker and Martin Zucker, the children of the deceased, are the residual beneficiaries under the Will.

[ 11 ] The value of Jacob Irving Zucker’s Estate as of the time of his death was approximately $43,000,000.

[ 12 ] To date, the residual beneficiaries have each received distributions from the estate of almost $11,000,000 each.

[ 13 ] Moore was a partner in the accounting firm Taylor Leibow beginning in 1988. Moore continued to be a partner of the firm until he was terminated by the partnership on March 28, 2011.

[ 14 ] Over the course of the administration of the estate, Kevey Leibow received a total of $500,000 in executor’s compensation. Michael Moore received approximately $2,397,424.34. Of the executor’s compensation received by Moore, approximately $1,182,439.54 was transferred to Taylor Leibow due to Moore’s partnership agreement with the firm.

[ 15 ] Taylor Leibow was at all material times aware that Moore was performing executor services for the estate and approved of Moore’s doing that work. A specific work code entitled “executor services” was set up in the accounting firms records to allow Moore to docket his time working on the estate. Taylor Leibow LLP received approximately $1,182,439.54 as a result of work done by Moore on the estate.

[ 16 ] Moore used Taylor Leibow resources to administer the estate, including the computer system, copy machines, fax machines, emails, courier services and support staff services. Moore sent letters dealing with estate matters on Taylor Leibow letterhead.

[ 17 ] The monies received by the accounting firm as the result of Moore’s executor services to the estate was added to the firm’s general revenues and allocated out to the partners as with any other revenue of the firm.

[ 18 ] Save and except for fees billed by Taylor Leibow to the Estate for professional services rendered, which are not being contested, all other monies that were received by Taylor Leibow were received from Moore pursuant to private contract, namely the Taylor Leibow partnership agreement.

[ 19 ] All cheques were drawn on the Zucker Estate account. All cheques were signed by Moore and/or Leibow.

[ 20 ] Executor’s compensation in the amount of $500,000 has been paid to Kevey Leibow from the Zucker estate in cheques signed by Moore and/or Leibow to Leibow. The executor’s compensation in the amount of $2,397,424.34 has been paid from the Zucker estate by cheques signed by Moore and/or Leibow to Michael Moore.

[ 21 ] All cheques were drawn on the Zucker Estate account and signed by Moore and/or Leibow. All cheques for executor’s compensation were payable to Leibow, Moore, or to Moore’s professional corporation, although some of the cheques payable to Moore were endorsed over to Taylor Leibow.

[ 22 ] In accordance with the partnership agreement, Moore turned over to Taylor Leibow a portion of the fees he received for his role in the administration of the Zucker Estate. Taylor Leibow assert that in breach of the partnership agreement, Moore failed to turn over to the firm the entirety of the fees that he received. This alleged breach set in motion a series of events which culminated in Moore’s withdrawal from the Taylor Leibow partnership.

[ 23 ] The beneficiaries, David and Suzy Zucker commenced proceedings to, inter alia , require Moore and Kevey to pass their accounts and repay executors compensation.

[ 24 ] By order of Grace J., dated February 2 nd , 2011, Moore and Leibow, as co-estate trustees for the Zucker Estate were ordered to pass their accounts for the period from the deceased’s death to December 31, 2010.

[ 25 ] On or about May 6, 2011, the estate trustees filed an application to pass accounts as ordered by Grace J. This application was originally returnable June 8 th , 2011. The application to pass accounts has been set down for a hearing at the May 2012 trial sittings at Hamilton.

[ 26 ] On or about June 8, 2011, Parayeski J. made an order giving directions. Amongst the orders he made was an order that Moore and Leibow shall provide to Suzy and David Zucker, and Suzy and David Zucker shall provide to Moore and Leibow documentary disclosure pursuant to Rules 76.03 within 30 days of Justice Parayeski’s order.

[ 27 ] Parayeski J. further ordered that Suzy and David Zucker shall deliver their final notice of objections on or before August 19, 2011 and that Michael Moore should deliver his response to the final notice of objections on or before September 9, 2012.

[ 28 ] On or about September 9, 2011, counsel for the beneficiaries Suzy Zucker and Martin Zucker served a notice of objection to accounts. The notice of objection provides notice of the beneficiaries’ particular objections, also provides the parties and the court with an itemized list of claims and issues to be determined by a court in due course.

[ 29 ] Neither Moore nor Leibow have, to date, served a response to the notice of objections.

[ 30 ] As a result of Moore and Leibow’s failure to file a notice of objections, the issues for the passing of accounts are not defined, notwithstanding that the passing of accounts is set for May 2012. Once the issues are defined, production of documents will need to be made, and examinations for discovery will need to proceed, transcripts will need to be ordered and the parties will have to deal with undertakings, refusals and any resulting motions.

[ 31 ] Both Kevey Leibow and Michael Moore have been removed as estate trustees. The current Estate Trustee is Allan Socken, who is a Toronto lawyer with an estates practice.

[ 32 ] On or about September 26, 2011, the beneficiaries, Suzy and David Zucker brought a motion in Toronto court file number 01.2521/04 which asks for, among other things, an order that Taylor Leibow be added as a party to these proceedings. That motion was adjourned sine die .

[ 33 ] The beneficiaries have now settled with Taylor Leibow and no longer seek a motion adding the accounting firm as a party to any of the estate proceedings, including the passing of accounts. For that reason Kevey Leibow has brought this motion for among other relief, adding Taylor Leibow as a party to the passing of accounts proceeding.

[ 34 ] Save and except for the costs award of Ramsay J. dated November 15, 2011 in the amount of $15,506.92, Kevey Leibow has personally borne his own legal costs throughout the proceedings relating to the estate. In contrast, Moore’s legal fees have been paid from the estate. Greer J., in her endorsement of December 2, 2011, ordered that no further amounts shall be distributed from the estate for Moore’s legal fees.

[ 35 ] The passing of accounts scheduled for January 2012 was adjourned due to the proliferation of motions. In particular, the endorsement of Greer J. on the motion heard October 7, 2011 required Moore to prepare additional stub accounts for the period from December 31, 2010 to the date of his removal as executor, being December 2, 2011. The stub period accounts were delivered February 28, 2012.

[ 36 ] The passing of accounts is currently scheduled for May 2012. A timetable has been proposed by Kevey Leibow to ensure that the passing of accounts proceeds on that date. The beneficiaries take the position that given the current state of affairs in these proceedings, that timing is unrealistic.

Statement of Issues, Law and Authorities

[ 37 ] The issues raised in this motion are:

(a) Was the executor’s compensation paid from the Estate of Irving Zucker to Michael Moore and Kevey Leibow excessive?;

(b) If so, what portion of the compensation was excessive and who is liable for repayment of same?;

(c) Should Taylor Leibow LLP be added as a party?;

(d) Are the legal fees incurred by Kevey Leibow in connection with the Estate, including, but not limited to costs arising out of the proceedings in court files 01-2521/04, 11-29036 and 11-27391 recoverable from the Estate of Irving Zucker?;

(e) Any other issues arising out of the notice of objection to the accounts which the respondents David and Suzy Zucker intend to pursue;

(f) What is a reasonable timetable to be set for the passing of account to proceed?

[ 38 ] On a motion for directions, the court may determine the issues to be decided.

Rule 75.6(3)(a) of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194.

[ 39 ] On a motion for directions, the court may determine who are the parties, who is plaintiff and defendant and who is submitting rights to the court.

Rule 75.06(3) (b) of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194.

[ 40 ] Section 11 of the Partnerships Act states that, “Whereby any wrongful act or omission of a partner acting in the ordinary course of business of the firm, or with the authority of the co-partners, loss or injury is caused to a person not being a partner of the firm, or any penalty is incurred, the firm is liable therefore to the same extent as the partner so acting or admitting to act.”

Partnerships Act , R.S.O. 1990, c. P. 5, s. 11.

[ 41 ] Section 12 of the Partnerships Act states that:

(a) Where one partner, acting within the scope of the partner’s apparent authority, receives the money or property of a third person and misapplies it; and

(b) Where a firm in the course of business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm, the firm is liable to make good the loss.

Partnerships Act , R.S.O. 1990. c. P. 5, s. 12.

[ 42 ] Every person whose presence is necessary to enable the court to adjudicate effectively and completely on the issues in a proceeding, shall be joined as a party to the proceeding.

Rule 5.03(1) of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194.

[ 43 ] The court may order that any person who ought to have been joined as a party or whose presence as a party is necessary to enable the court to adjudicate effectively and completely on the issues in the proceeding shall be added as a party.

Rule 5.03(4) of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194.

Analysis

[ 47 ] Counsel for Taylor Leibow relies upon the decision of Killeen J. in Rumford Estate, RE dated September 25, 1996, docket: P/A 16: 66855, 14 ETR 2d 300 , 14 O.T.C. 252 as authority for the proposition that a passing of accounts is no place for the trial of collateral issues. The issue that was attempted to be raised in that case was the validity of the signing of a transfer of land by the deceased at the same time as she signed her Will. Clearly that transfer had nothing to do with the Estate and that decision is distinguishable on that basis. Here, if it is found that Moore was acting within the scope of his duties as a partner of Taylor Leibow, or that the partners of Taylor Leibow approved of and authorized his working on the Estate as executor, Taylor Leibow may be vicariously liable to repay some or all of the executor’s compensation found on the passing of accounts to be improperly taken, including indemnifying Kevey Leibow for any amounts he might be required to repay to the Estate.

[ 48 ] Based on the facts as set out above, I find that there is a triable issue as to whether Michael Moore was acting in his capacity as a partner of Taylor Leibow or with the approval of Taylor Leibow so as to render Taylor Leibow LLP liable for any of his acts or omissions.

Public Trustee v. Mortimer et al., 1985 2061 (ON SC) , [1985] O.J. No. 2306 , 49 OR 2d 741 , 18 ETR 219 PP. 6 and 7.

[ 49 ] In the circumstances of this case I find that it is necessary to add Taylor Leibow LLP as a party in order that the court might adjudicate effectively and completely on the issues that arise in this proceeding. If there has been excessive payment of executor’s compensation taken, the issue of whether Kevey Leibow is entitled to be indemnified by his co-trustee or by Taylor Leibow LLP will have to be dealt with. It makes good sense that from the point of view of economy of time and costs the issue be dealt with in this proceeding rather than a separate proceeding having to be brought.

(see Horan v. Beattie Estate , [1999] O.J. No. 4739 (Sup. Ct.) )

[ 50 ] The executor of the estate and counsel for the beneficiaries have expressed concern that the Estate or the beneficiaries might incur unnecessary costs through this procedure. That situation might be avoided by having the trial of the issues related to the passing of accounts including the question of whether there was overpayment which must be reimbursed dealt with first, and the issue of any liability on the part of Taylor Leibow LLP to be dealt with immediately following so that the executor or counsel for the Estate or counsel for the beneficiaries need not remain present for the latter issue. However, I leave this to the discretion of the judge dealing with the passing of accounts. I also leave to the discretion of the judge dealing with the passing of accounts the question of whether the estate or the beneficiaries should bear any liability for costs relating the issues between Taylor Leibow and the former executors.

[ 51 ] Counsel for Kevey Leibow and Moore argue that by imposing a strict schedule for proceeding with this matter, it might be dealt with during the upcoming sittings of this court commencing May 14 th , 2012 and given that Kevey Leibow is 94 years of age, I am urged to order that the passing of accounts proceed in May.

[ 52 ] Regrettably I am of the view that it is unrealistic to expect the passing of accounts to be ready to proceed in May given that no reply to the original objections to the accounts has been delivered, that no objections to the supplemental accounts for the period January 2011 to December 2011 has been delivered, that the claim against Taylor Leibow has yet to be filed and examinations of the parties need to be held.

[ 53 ] I find that it would be more reasonable to implement a schedule which would result in the passing of accounts proceeding during the September 12, 2012 trial sittings in Hamilton.

[ 54 ] Accordingly, with respect to the motion for directions, I make the following order:

1. That the issues to be tried shall be defined as follows:

a. Is the compensation received by the respondents in the accounts before the court reviewable by the court in the passing of accounts or does any approval or consent by the beneficiaries to such compensation, s. 4 of the Limitations Act or the legal doctrines of acquiescence or latches preclude such review?;

b. If any such compensation is reviewable by the court, for what period is such compensation reviewable and what amount of such compensation is reviewable?;

c. If any such compensation is reviewable by the court, is such compensation fair and reasonable, and accordingly not subject to adjustment?;

d. If any such compensation is not fair and reasonable, what amount of compensation is fair and reasonable?;

e. Are the respondents liable for repayment of any of the compensation received, and if so, what amount is each of the respondents liable to repay;

f. Regarding the compensation received, if any, which is not reasonable was the pretaking of same reasonable?;

g. Are Kevey Leibow’s outstanding unpaid legal costs incurred in respect of the estate including, without limitation, costs relating to general estate administration matters and costs arising out of the proceedings in Toronto court file 01-2521/04, Hamilton court file 11-29036 and Hamilton court file 11-27391 which are not subject to being fixed in accordance with a prior court order relating to a prior motion or by the court on the passing of account to be paid from the Estate, subject to assessment?;

h. Are Michael Moore’s outstanding unpaid legal costs incurred in regards to the estate which are not subject to being fixed in accordance with a prior court order relating to a prior motion or by the court on passing of accounts including, without limitation, costs relating to general estate administration matters, to be paid from the estate subject to assessment?;

i. Any other issues arising out of the notice of objection to the accounts which the respondents David Zucker and Suzy Zucker intend to pursue;

j. Any outstanding matters arising from the order of Greer J. dated December 2, 2012;

k. Costs on the passing of accounts.

2. As to the timetable for the scheduling of these proceedings, I order that the matter proceed as follows:

a. Beneficiaries to serve notice of objections to the supplemental accounts by April 16 th , 2012;

b. Any claims to be made against Taylor Leibow LLP to be filed by April 30 th , 2012;

c. Estate trustees to file responses to the notice of objection to the original accounts and the notice of objection to the supplemental account by May 30 th , 2012;

d. Any response by Taylor Leibow LLP to the claims made against it to be delivered by May 30 th , 2012;

e. Settling of the order of Justice Greer by May 15 th , 2012;

f. Examinations of the parties to be completed by July 15 th , 2012;

g. Any motions for undertakings or refusals to be scheduled by August 15 th , 2012;

h. Pretrial conference to be held by September 1, 2012;

i. Trial to be heard in September 2012.

3. That the applicants shall be David Zucker and Suzy Zucker and the respondents shall be M. Kevey Leibow, Michael Alexander Moore and Taylor Leibow LLP.

[ 55 ] The costs of this motion to be reserved to the trial judge.

LOFCHIK J.

Released: April 16, 2012

COURT FILE NO.: 11/27391
DATE: 2012-04-16

ONTARIO SUPERIOR COURT OF JUSTICE
IN THE MATTER OF THE ESTATE OF IRVING ZUCKER, Deceased

REASONS FOR JUDGMENT
LOFCHIK J.

TRL:mg

Released: April 16, 2012