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LORRAINE O'HAYER v. HONORE DE ST. AUBIN ET AL. (08/19/68)

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT 1968.NY.42791 <http://www.versuslaw.com>; 293 N.Y.S.2d 147; 30 A.D.2d 419 August 19, 1968 LORRAINE O'HAYER, APPELLANT,v.HONORE DE ST. AUBIN ET AL., AS EXECUTORS OF OVIDE DE ST. AUBIN, JR., DECEASED, RESPONDENTS Appeal from an interlocutory judgment of the Supreme Court (Hugh S. Coyle, J.), entered June 6, 1967 in Westchester County, which, inter alia, dismissed the first, second, third, fourth, fifth and seventh causes of action in the amended complaint on the merits, and made a declaration of rights upon defendants' counterclaim. Cahill, Gordon, Sonnett, Reindel & Ohl (John P. Ohl, Paul W. Williams, Jerome Doyle and Allen S. Joslyn of counsel), for appellant. McCarthy, Fingar, Gaynor, Sullivan & Donovan (Arthur F. Gaynor and John G. McQuaid of counsel), for respondents. Hopkins, J. Benjamin, Munder and Martuscello, JJ., concur; Brennan, Acting P. J., not voting. Author: Hopkins


Appeal from an interlocutory judgment of the Supreme Court (Hugh S. Coyle, J.), entered June 6, 1967 in Westchester County, which, inter alia, dismissed the first, second, third, fourth, fifth and seventh causes of action in the amended complaint on the merits, and made a declaration of rights upon defendants' counterclaim.

Hopkins, J. Benjamin, Munder and Martuscello, JJ., concur; Brennan, Acting P. J., not voting.

Author: Hopkins

 In 1942 Ovide de St. Aubin, Sr., created a revocable inter vivos trust, which provided that its terms were to be interpreted under the laws of Rhode Island. He designated himself as a trustee, together with Ovide de St. Aubin, Jr., his son, and three Rhode Island residents, as co-trustees. He limited the duration of the trust for the lives of himself and his son, Ovide, Jr., and directed that the income from the trust should be paid wholly to him during his lifetime and, on his death, to Lorraine, his daughter (the appellant), and to Ovide, Jr., in equal shares. Upon the termination of the trust, the principal was directed to be paid one half to the appellant (or, if she were not living, to her husband and her descendants) and one half to Honore de St. Aubin, Ovide, Jr.'s wife (or, if she were not living, to Ovide, Jr.'s descendants).*fn1

This litigation by the appellant in essence challenges Ovide, Jr.'s right to purchase shares of corporate capital stock from the trust and seeks an accounting of his actions as trustee. After the entry of the interlocutory judgment Ovide, Jr., died and his executors have been substituted as parties defendant and are the respondents on this appeal.*fn2 Our main concern is with the construction of the terms of the trust which grant to Ovide, Jr., broad powers of administration far beyond the traditional notions of trusteeship; the pertinent provisions are set out in full in the appendix to this opinion.

In effect, these provisions command that the rule of undivided loyalty which the law exacts from trustees shall not burden the settlor or Ovide, Jr., in their proceedings as trustees; and we are asked by this appeal to determine the rights and responsibilities of Ovide, Jr., in the light of the settlor's prescription.*fn3 The appellant contends that the exemption from the rule did not permit Ovide, Jr., to purchase a portion of the trust assets or to deal with the corporate enterprises in which the trust holds a substantial interest so as to gain a personal profit. She alleges breaches of trust by Ovide, Jr., in diverting opportunities open to the trust corporations which he personally controlled, in failing to pay income to the beneficiaries, in obtaining loans from the trust corporations, and in neglecting to petition for the appointment of substituted trustees to replace the original three Rhode Island trustees, the last of whom died in 1955. (The latter claim has been abandoned on this appeal.)

The Special Term held that Ovide, Jr., could legally purchase trust assets at a fair price and directed that a reference be held to determine whether a fair price had been paid. Except in one instance, which Special Term said should be subject to scrutiny by the Referee, no improper actions were found to have been committed by Ovide, Jr. In general, we are in accord with the Special Term's comprehensive and well grounded findings, but we are also of the opinion that in certain aspects the reference should include an accounting by the respondents as to specific transactions. We treat at length, accordingly, only certain of the principal questions raised by this appeal.

THE PURCHASE OF STOCK BY THE TRUSTEE

The assets set over to the trust by the settlor were all of the outstanding capital stock (1,300 shares) of Vesta Corporation (hereafter called "Vesta") and all his 1,300 shares of stock of Vesta Underwear Corporation (hereinafter called "Underwear"). Ovide, Jr., had a pretrust option to purchase 1,000 of these Underwear shares and it is undisputed that he properly exercised his option in the latter part of 1942 and that at that time the remainder of the Underwear shares (1,200), held by the estate of a predeceased other son of the settlor, were transferred to the appellant. The relative stock holdings at the time of the death of the settlor in 1943 were as follows:

Vesta Underwear

Trust 1,300 300

Appellant 1,200

Ovide, Jr. 1,000

The subsequent 1962 transfer to Ovide, Jr., from the trust, by sale, of 300 shares of Underwear and 52 shares of Vesta led to the following distribution of stock between the parties (giving effect ...


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