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July 30, 1951


The opinion of the court was delivered by: WEINFELD

These are cross-motions for summary judgment in an action wherein plaintiff seeks to recover fees, disbursements and expenses incurred by it in a proceeding in the New York State Supreme Court upon the ground that such litigation was improperly thrust upon it by the defendant herein who was the petitioner therein.

It seeks recovery upon two causes of action: (1) breach by the defendant (also referred to hereinafter as the 'Trustee') of its obligations under a Trust Agreement wherein plaintiff was the Settlor and (2) malicious prosecution of a legal proceeding without probable cause.

Plaintiff moves for summary judgment only on its first cause of action conceding that the question of probable cause in the second is one of fact, which may not be determined on affidavits. Defendant, however, presses its cross-motion in both actions.

 The following are the facts which gave rise to the present litigation. On November 1, 1943, the plaintiff (also referred to hereinafter as the 'Settlor') adopted, as of December 31, 1943, an Employees' Profit-Sharing and Retirement Plan for the exclusive benefit of its employees. A provision in the Plan that plaintiff would make contributions to the trust fund from its profits as determined by its Board of Directors was subsequently amended so as to specify an exact percentage of annual profits to be paid into the fund.

 Administration of the Plan was vested in a Committee appointed by the plaintiff's Board of Directors. Complete authority to determine rights and benefits of employees, the extent of participation and any claim under the Plan was lodged in the Committee. The Plan was implemented by a Trust Agreement, executed December 14, 1943, wherein the defendant was designated as Trustee to receive and disburse for the benefit of eligible employees such funds as might be paid to it by the plaintiff as Settlor.

 The Agreement also granted to the Company and the Committee 'the exclusive right to enforce any and all provisions' on behalf of all participants or beneficiaries. It also provided that 'In any action or proceeding affecting the Trust Fund or the administration thereof or for instructions to the Trustee, the Company, Committee and the Trustee shall be the only necessary parties and no Participant * * * or any other person having or claiming to have * * * an interest in * * * the Trust Fund shall be entitled to any notice or process * * * .'

 The Trustee's duties, obligations and rights were expressly limited to the terms and provisions of the Trust Agreement which also provided that it was not bound to any extent by the terms and provisions of the Plan.

 The Trustee was required to make payments from the trust fund to such persons and in such amount as directed by the Committee. Although the Committee was enjoined from directing any payment either during the existence or upon the discontinuance of the Plan 'which would cause any part of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their Beneficiaries' nonetheless the Trustee was to be fully protected in acting 'upon any such written direction of the Committee without inquiry or investigation and shall have no duty to determine the rights or interests of any person in the Trust Fund or under the Plan or to inquire into the right or power of the Committee to direct any such payment.' Similar protection was granted to the Trustee as to claims against the fund by any participant or beneficiary, the agreement providing that no such person 'shall have any claim against the Trustee by virtue of any of the provisions of the Plan.'

 As of December 31, 1943, the plaintiff deposited securities with the Trustee, of the value of $ 19,783.70. Subsequently it developed that there had been no profits for that year. So, too, there were none in 1944 and 1945. Accordingly in November 1945 plaintiff gave preliminary notice to the defendant of termination of the Trust Agreement. In its communication it stated that the Plan had not been put into effect and had never been announced to its employees. It contended that the amount in the Trust Fund was intended as a prepayment but there had been no profit since the Plan was initiated and that no contribution had been made to the Plan.

 Thereafter in December 1946 it passed a formal resolution abandoning its intention to establish the Plan and withdrawing from the Trust Agreement. This resolution, together with a certificate by the Committee certifying that no employee had any interest, or was entitled to participate, in the fund was forwarded to defendant with a demand for the return of the fund to plaintiff. The Trustee refused to deliver the assets contending that distribution was required to be made to the Settlor's employees at the time of giving notice of termination, although it admitted that under the termination clauses in the plan and trust, plaintiff was relieved from making contributions in the future. The basis of its position, at least in part, was that the purpose of the trust under the Federal Tax Law was to create an irrevocable trust.

 The Trustee then instituted a proceeding in the Supreme Court of the State of New York under Article 79 of the Civil Practice Act for a judicial settlement of its account, and for leave to resign and to turn over the fund to a successor trustee. Trustee, as petitioner in that proceeding obtained an order permitting service by publication directed to the plaintiff, the Committee under the Plan, and all persons who were in the employ of the plaintiff since December 14, 1943 as unknown persons who were or might be interested in the trust to show cause why the requested relief should not be granted. Following completion of publication only plaintiff appeared and offered no objection to the correctness of the account. In addition, it interposed a counterclaim for the return of the deposit to which defendant entered a general denial.

 The Court appointed a guardian ad litem to represent unknown beneficiaries. The issues raised by the counterclaim were referred to an Official Referee who, after conducting hearings, recommended the return of the fund to the Settlor. The Court at Special Term, holding that the plaintiff did not deposit the fund under a mistake of fact but under a mistake of judgment, declined to follow the recommendation of the Referee and dismissed the counterclaim. In re Corn Exchange Bank Trust Co., Sup., 87 N.Y.S.2d 675. Upon plaintiff's appeal, the Appellate Division of the New York State Supreme Court refund returned as having been deposited under a mutual mistake of fact as to plaintiff's earnings in 1943. Matter of Corn Exchange Bank Trust Co. (Adley Express Co.), 276 App.Div. 430, 95 N.Y.S.2d 210.

 In the proceedings various allowances were granted pursuant to Court orders to the Trustee, its attorneys, the guardian ad litem, and disbursements, all payable from, and amounting to a very substantial part of, the fund. Plaintiff now seeks to recover such sums and in addition its own counsel fee.

 The first cause of action alleges various breaches by the defendant of the Trust Agreement, consisting of refusal to return the deposited funds despite the Committee's direction; examination into the disposition of the fund; undertaking to enforce the agreement on behalf of participants and beneficiaries; causing service by publication on 'non-existent' participants and beneficiaries; depriving the Committee of exclusive control over the administration of the Plan and of rights ...

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