Ex-Butler Ruled Unfit to Handle Duke Estate : Courts: Divided panel also castigates bank for conflict of interest as co-executor of tobacco heiress’ will. Action is stayed pending appeal.

A divided appeals court declared Tuesday that Doris Duke’s former butler Bernard Lafferty is unfit to administer the $1.2-billion estate left by the tobacco heiress when she died two years ago.

The ruling on a 3-2 vote by the New York State Supreme Court’s Appellate Division is a potentially crushing blow to Lafferty and the co-executor of the estate, the U.S. Trust Co.

The appeals judges said Lafferty wasted assets, engaged in self-dealing and could not control his drinking. The panel also ruled that the bank created a conflict of interest when it loaned Lafferty $825,000 to pay for his personal needs because it gave the bank a financial stake in his continuing service as executor.

“The unfitness of the co-executors to take responsibility for this $1.2-billion estate, bequeathed primarily to charity was manifest,” the court said, affirming a decision by Surrogate Judge Eve M. Preminger on May 22 that removed Lafferty and the bank from administering the estate.

Preminger’s ruling was stayed by appellate Judge Israel Rubin pending an appeal. Lafferty has continued to live in Duke’s Los Angeles mansion, Falcon Lair, the former home of Rudolph Valentino.

Lawyers for Lafferty said they would appeal the appellate division ruling to the Court of Appeals, New York’s highest court. U.S. Trust Co. said it was disappointed by the ruling and called it unjustified. The bank declined to say whether it would appeal.

The appeals judges said Preminger properly concluded that Lafferty wasted estate assets by collecting a substantial salary and lavish fringe benefits by living as if the estate properties were his own.

The judges also said Preminger was correct in finding that Lafferty routinely mingled personal and estate assets--a serious breach of fiduciary duty--and that based on medical records showing repeated hospitalizations for drunken binges, he was unfit.

Both U.S. Trust and Lafferty’s lawyers cited a dissenting opinion by Rubin, who wrote that removal of a chosen executor without a hearing or requisite proof of malfeasance and injury to the estate ran counter to Duke’s wishes and was not supported by the evidence.

“It has yet to be established that the estate has sustained any loss, much less has been placed in jeopardy,” Rubin said.

Suffering from the results of a stroke, anemia and other medical problems, the 80-year-old heiress died Oct. 28, 1993, at her gated estate above Beverly Hills. Her will, however, was filed in New York, where she had another of her many homes.

Though the revelation that Duke had named her former butler as executor raised some eyebrows, the will drew only moderate attention until last January, when a barrage of allegations were unleashed by Dr. Harry B. Demopoulos, a former physician to Duke who was named her executor in an earlier will.

Lawyers for Demopoulos charged that Duke was incompetent when she signed her final will, that Lafferty was unfit to handle such an estate and even that Duke may have been murdered by an overdose of drugs.