The Past Year's Most Significant, Curious, Or Downright Fascinating
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The Past Year’s Most Significant, Curious, or Downright Fascinating Fiduciary Cases* *At least it seems to me. Your mileage may vary. UPDATED NOVEMBER 2014 Dana G. Fitzsimons Jr. Principal and Fiduciary Counsel Bessemer Trust 3455 Peachtree Road, N.E., Suite 850 Atlanta, Georgia 30326-3257 Phone: (404) 965-9318 [email protected] www.bessemer.com With contributions from: Turney P. Berry & Mary Beth Anderson, Wyatt Tarrant & Combs LLP Gerard G. Brew, McCarter & English Copyright © 2015 Bessemer Trust Company, N.A. All rights reserved. The views and comments expressed herein are solely those of the authors and do not necessarily reflect the views or practices of Bessemer Trust Company, N.A. and its affiliated entities, Wyatt Tarrant & Combs LLP, or McCarter & English. These materials are for general educational and discussion purposes only and do not constitute legal advice. These materials are not intended as, and may be relied upon as, tax or legal advice by any person. No representation or warranty is made as to these materials. 1 TABLE OF CONTENTS I. INVESTMENTS. ................................................................................................................................ 14 A. Kastner v. Intrust Bank, 2014 U.S. App. LEXIS 11864 (10th Cir. Court of Appeals, 2014). Claims against trustee dismissed where beneficiary is not a “qualified beneficiary” under the Kansas Uniform Trust Code, for failure to provide expert testimony on the standard of care, and for lack of factual support. ........................................................................................................... 14 B. Greenberg v. JP Morgan Chase Bank, 2014 N.Y. Misc. LEXIS 2011 (2014). Court refuses to dismiss claims for investment losses during economic downturn, where bank rejected individual co-trustee’s and beneficiary’s requests to reallocate portfolio or liquidate equities. 15 C. Matter of Littleton, 2014 N.Y. Misc. LEXIS 2586 (2014). Court refuses to dismiss suit against trustee for failure to diversify concentration of Corning Glass stock, despite trust terms exonerating trustee for retention of stock. ......................................................................................... 16 D. Matter of Knox, 2010 NY Slip Op 52234U (February 24, 2010); 2010 NY Slip Op 52251U (November 24, 2010); 2012 N.Y. App. Div. LEXIS 4880 (June 19, 2012); Campbell v. Bank of America, 2014 N.Y. Misc. LEXIS 4353 (2014). Surrogate’s court surcharges trustee for over $21 million for not diversifying investments and taking investment directions from a non-fiduciary family member. The appellate division largely reverses the surcharge on appeal. Supreme Court refuses attempt by beneficiaries to relitigate lost claims, or raise new related claims in Suffolk County court and disqualify Erie judge that had rendered adverse rulings. ................................................................................................................................................... 17 E. Cavagnaro v. Sapone, 2014 Cal. App. Unpub. LEXIS 7011 (2014). Trustee did not breach duties by selling residential property to save expenses and better support widow, regardless of fact that remainder beneficiary resided there. .......................................................... 22 II. DISTRIBUTIONS. .............................................................................................................................. 22 A. Kritchman v. Wolk, No. 3D12-2977 & 3D12-2457 (Fla. 3rd District Court of Appeals, October 1, 2014). Trustees breached duties by failing to carry out settlor’s direction to pay grandchild’s college tuition out of revocable trust assets after the death of the settlor. ............ 22 B. Walker v. Brooks, 2014 Mich. App. LEXIS 2046 (Unpub. 2014). Settlor, serving as trustee of trust for his wife with remainder to her son, breached his duties and went beyond “health” standard by making distributions for charity and to educate wife’s orphaned grandchildren. ....................................................................................................................................... 23 C. Berlinger v. Wells Fargo, N.A., 2014 U.S. Dist. LEXIS 114571, 125872 & 134643 (M.D. Florida, 2014). In a claim that trust distributions to satisfy divorce obligations of primary trust beneficiary were improper, court refuses to dismiss trustee’s third party complaint against ex- spouse, dismissed $18 million claim of civil theft for 45 day delay in transfer of assets to successor trustee, and sustains objection to testimony seeking communications between trust officer and in-house counsel. .............................................................................................................. 24 2 D. Educational Trust for Ferren Chambers, 2014 Phila. Ct. Comm. Pl. LEXIS 237 (2014). Trustees surcharged for using trust assets set aside for educational needs to pursue civil rights litigation the school district................................................................................................................. 25 E. Favour v. Favour, No 1 CA-CV 13-0196 (Az. Court of Appeals 2014). Trial court surcharge reversed in part for limiting net income to DNI and construing trust terms prohibiting invasion of corpus as barring trustee from paying administrative expenses, diversifying trust investments, and allocating expenses to corpus under state law. ................... 27 F. Estate of Greenblatt, 2014 ME 32 (2014). Executor did not breach duty of loyalty by allowing eldest generation members, including executor, to select item of tangible personal property with significant family value but nominal monetary value, before making item available to younger generations......................................................................................................... 28 III. THIRD PARTY LIABILITY. ........................................................................................................... 30 A. Goldberg v. HSBC Securities, 2014 N.Y. Misc. LEXIS 858 (2014). Bank did not breach its contract or aid and abet undue influence by performing its banking function at arm’s length. .................................................................................................................................................... 30 IV. LIMITATIONS & OTHER DEFENSES. ........................................................................................ 30 A. Smith v. SunTrust Bank, A13A2256 (Georgia Court of Appeals, January 15, 2014). Line item on account statement reporting sale to straw man does not start statute of limitations on sale by trustee, but trustee’s detailed letter received by beneficiaries starts limitations period on income distributions. ...................................................................................................................... 30 B. Beck, et. al. v. Mueller, 2014 Wisc. App. LEXIS 377 (Court of Appeals of Wisconsin, May 8, 2014). Wisconsin Court of Appeals rules that trust beneficiaries’ claims against trustee were time-barred by the statute of limitations as the beneficiaries had notice of the trustee’s actions and their claims thus accrued before the trustee filed his formal accounting. .............. 32 C. Deborah K. Morris v. Trust Company of the Ozarks, 2014 Mo. App. LEXIS 284 (Ct App Missouri, Southern Dist. Div. 1, March 11, 2014). In Missouri, a trust validity contest by any other name is still a trust validity contest and subject to the two year statute of limitations.... 33 D. Ward v. Stanford, et. al., 2014 Tex. App. LEXIS 9061 (Court of Appeals of Texas, August 14, 2014). Texas Court of Appeals rejects trustees’ and grantor’s arguments that beneficiary’s claims were precluded by res judicata under a judgment entered in a separate divorce proceeding and that the claims were time-barred. ........................................................................... 34 E. Gibbs. V. Altenhofen, 2014 MT 200 (Supreme Court of Montana, July 29, 2014). Supreme Court of Montana finds that trial court properly ruled that beneficiaries’ claims against initial trustee were time-barred and that the claims brought in a second action against the successor trustee were barred by the doctrines of claim preclusion, judicial estoppel, and issue preclusion, with the exception of two claims that were not brought in the initial action. 37 V. ATTORNEYS’ FEES & COSTS. ........................................................................................................ 39 3 A. Regions Bank v. Lowrey, 2014 Ala. LEXIS 53 (Alabama Supreme Court 2014). Trial court improperly reduced trustee’s reasonable reimbursement of attorneys’ fees and costs of successful defense against surcharge claims. .................................................................................. 39 B. Larkin v. Wells Fargo Bank, 2014 Minn. App. Unpub. LEXIS 1077 (2014). Lone beneficiary that continues litigation following completed settlement, arbitration, and judicial resolution of claims is responsible for attorneys’ fees incurred by trustee and other beneficiaries incurred in responding to his actions. ........................................................................ 41 C. Sheen v. Sheen, 2014 WL 2940596 (California, Court of Appeal, Second District, Division 8, July 1, 2014). California Court of Appeal rules that beneficiaries who bring an action and benefit the trust are entitled to have their legal fees paid from the trust under the “common fund doctrine.” ...................................................................................................................