Frivolous Litigation Sanctions Imposed On Siblings Who Challenged Sale Of Estate Property

Following their divorce, the decedent, John Garay, and his ex-wife owned a parcel of real property as equal tenants in common. Upon John’s death, the property was owned equally by John’s estate and the ex-wife. The co-executors of John’s estate were two of the Garays’ thirteen children.

In 2013, the property was sold to one of the Garay daughters (Nancy) and Nancy’s spouse. The sale included a “gift equity” of $90,000 to Nancy. The co-executors of the estate (other Garay children, not parties to the subsequent litigation) and the ex-wife approved the gift equity and the sale.

Three of Nancy’s siblings (who were beneficiaries of the estate) then sued Nancy and her husband, asserting claims of unjust enrichment and fraud, claiming that Nancy and her husband had made misrepresentations or committed fraud against the estate and/or the ex-wife in connection with the gift equity. They sought damages in the amount of $45,000, or an order voiding the sale. The plaintiffs did not sue the co-executors.

The defendants (Nancy and her husband) served interrogatories on the plaintiffs, seeking details supporting the claims. After the plaintiffs responded, the defendants’ counsel demanded more specific answers. That demand was ignored and the defendants filed a motion for summary judgment. The defendants also sought an order awarding frivolous lawsuit sanctions against the plaintiffs and their attorney.

The chancery judge granted the summary judgment motion and dismissed the plaintiffs’ complaint. She also awarded sanctions against the plaintiffs (but not their attorney). The plaintiffs appealed.

The Appellate Division affirmed the chancery court’s rulings. It found that the plaintiffs’ complaint had failed to set forth with specificity the elements of fraud, and the evidence produced during discovery did not support those elements.

Moreover, even if the elements of fraud had been established, summary judgment was appropriate because the defendants owned no duty to the plaintiffs to disclose information regarding the gift equity:

A party has no duty to disclose information to another party in a business transaction; [1] unless a fiduciary relationship exists between them, [2] unless the transaction itself is fiduciary in nature, or [3] unless one party expressly reposes a trust and confidence in the other.

Here, there was no fiduciary relationship between plaintiffs and the defendants because the defendants were not executors of the estate; although the sale was fiduciary in nature, plaintiffs were not party to the sale. In sum, although a fiduciary relationship existed between plaintiffs and the co-executors, any claims regarding the issue should have been asserted against the co-executors. Likewise, the unjust enrichment claims were properly dismissed because the plaintiffs were not parties to the real estate sale, so the defendants could have derived no benefit from them.

With regard to the frivolous litigation sanctions, the chancery judge limited those sanctions to fees incurred after the defendants’ demand for more specific interrogatory answers. In affirming that award, the Appellate Division noted that, although litigation is not frivolous where a party has a reasonable belief as to the merits of the claim, the litigation may become frivolous, and consequently sanctionable, later in the litigation. In this case, the litigation had clearly become frivolous when the plaintiffs continued where they had “no evidential support whatsoever.”

A copy of In re Garay can be found here – Matter of the Estate of John Garay