Aoki v. Aoki

Citations: 117 A.D.3d 499; 985 N.Y.S.2d 523

Court: Appellate Division of the Supreme Court of the State of New York; May 13, 2014; New York; State Appellate Court

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A decree from the Surrogate’s Court of New York County, issued by Judge Rita Mella on March 5, 2013, invalidated two partial releases of a power of appointment executed by decedent Rocky Aoki and reversed an earlier order denying a summary judgment motion by respondents Devon Aoki and Steven Aoki, declaring the releases valid. The Benihana Protective Trust (BPT), established by Rocky Aoki in 1998, allowed him to appoint beneficiaries through his will, with his children Kevin Aoki and Kana Aoki, along with attorney Darwin C. Dornbush, serving as trustees.

Following Rocky's marriage to Keiko Ono Aoki in July 2002, concerns arose regarding the absence of a prenuptial agreement. Dornbush advised the Aoki siblings that a postnuptial agreement could address their concerns, which Keiko declined. Subsequently, a meeting took place where Norman Shaw, Dornbush's partner, suggested that Rocky execute a partial release of his power of appointment to limit asset distribution to his descendants, thereby protecting Benihana assets from potential claims by Keiko.

On September 23, 2002, Rocky reviewed and later signed a partial release document restricting his appointment powers to his descendants. Despite his deteriorating relationship with his children and subsequent litigation against them and Dornbush, testimony indicated that Rocky was informed of the implications of the release. Both Shaw and Rocky confirmed he understood that the release limited his power to appoint only to descendants.

On the same day, Rocky signed a codicil to his will and consented to amend the BPT agreement. Following IRS regulatory changes, a second release was prepared on December 27, 2002, again irrevocably restricting his power of appointment to descendants who were not nonresident aliens. Rocky was given the opportunity to read this release before signing.

On August 4, 2003, Rocky executed a codicil that allocated 25% of the Beneficiary Trust (BPT) outright to Keiko and provided her with the income from the remaining 75% for her lifetime. The codicil also allowed Keiko to appoint the principal to Rocky’s descendants in her will and designated her as the executrix. The document was drafted by Keiko’s attorney, Joseph Manson, who later informed another attorney, Dornbush, about its provisions and suggested a meeting to discuss Rocky's will and related matters. During this meeting, Manson sought an opinion on the validity of Rocky’s exercise of his power of appointment. On September 8, 2003, Shaw opined that the codicil's grant to Keiko was invalid due to a prior partial release signed by Rocky, which rendered her an impermissible appointee.

On September 22, 2003, Rocky executed an affidavit claiming he was unaware that signing the releases restricted his ability to bequeath his Benihana stock. Despite this affidavit, Rocky did not challenge the releases before his death in July 2008 and executed a new will on September 7, 2007, attempting again to exercise his power of appointment, while stipulating an alternative distribution if the releases were deemed valid. In February 2009, the trustees of the BPT initiated legal action to confirm the validity of the partial releases. Keiko claimed these releases were invalid due to fraud. After discovery, Devon and Steven moved for summary judgment, which the Surrogate partially granted, recognizing a triable issue concerning Keiko's constructive fraud claim.

Post-trial, the Surrogate found insufficient direct evidence that Rocky was unaware the releases were irrevocable but deemed the circumstantial evidence adequate to support Keiko’s claims. Consequently, the Surrogate declared the releases invalid. However, the court reversed this decision, reiterating that while fraud can void contracts, it must be proven by the party seeking relief, particularly when imbalances in the parties’ positions indicate possible exploitation or undue influence.

The burden of proof in cases involving alleged fraud in releases is placed on the stronger party to demonstrate that no deception or undue influence occurred, ensuring the transaction was fair and voluntary. To successfully contest a release on fraud grounds, the challenging party must provide specific evidence of every material element of that claim. In the absence of a fiduciary relationship, the burden to prove fraud lies with the party seeking to invalidate the release. A release should not be easily set aside, and only in cases of severe injustice should it be reconsidered for litigation. 

Keiko's argument that the releases are invalid due to a fiduciary exception fails because neither Dornbush nor Shaw were involved in the releases. The Surrogate incorrectly shifted the burden of proof to Devon and Steven. Rocky's claims of misunderstanding the irrevocable nature of the waivers are unsupported, as he had ample opportunity to read the documents and received explanations from his attorneys. His later assertions that he did not understand or read the release do not suffice to invalidate it, particularly since he was fluent in English and did not seek clarification before signing. The evidence shows he was aware of the irrevocable waivers well before raising any objections. As a result, the releases should be upheld, and the Surrogate's Court should have granted summary judgment in favor of the defendants. The remaining arguments presented by the appellants do not need to be addressed.