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May 7, 2002


The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.


Plaintiff Luiz Eduardo Fontes Williams ("Williams") is a remainderman of an inter vivos trust (the Trust"). Invoking the Court's jurisdiction under 28 U.S.C. § 1332, Williams filed suit against the trustee of the Trust, defendant J.P. Morgan & Co. Incorporated ("Morgan"), seeking damages for a breach of fiduciary duty and an accounting. By leave of the Court, the parties filed cross-motions for summary judgment on the issue of damages calculation. For the reasons set forth below, the Court grants Morgan's motion in part, denies Morgan's motion in part and denies Williams's motion.


The parties do not dispute the facts for the purposes of this motion, which they assert concerns only issues of law.*fn1 According to Williams's complaint, the Trust was created in 1958 with a corpus of approximately $500,000. Morgan, a New York corporation, was appointed the trustee. Williams's mother ("Mrs. Williams"), a citizen of Brazil, was identified as the income beneficiary. By its terms, upon Mrs. Williams's death, the Trust's assets were to be distributed to her surviving descendants. Williams, also a citizen of Brazil, is a descendant of Mrs. Williams, as is his brother Anthony Forrest Williams, and they therefore are the remaindermen of the Trust.

In or about November 1970, the assets of the Trust had a fair market value of $1,000,000. Morgan learned that a bilateral income tax treaty between the United States and Brazil was being negotiated (the "Contemplated Treaty") Morgan consulted its counsel to determine how to avoid the adverse tax consequences for the income beneficiary that would result if the treaty were ratified by both nations. To this end, Morgan also liquidated the Trust's stock portfolio and reinvested the proceeds in cash and tax-exempt bonds (the "1970 Investment"). On January 18, 1971, Mrs. Williams ratified Morgan's 1970 Investment decision. Morgan did not seek the remaindermen's ratification. Morgan did not alter the 1970 Investment at any date thereafter.

The United States and Brazil never entered the Contemplated Treaty. Williams thus claims that by the mid-1970's it was clear that the Contemplated Treaty no longer posed a risk to the income beneficiary's interests. At that point, Williams claims that the justification for the trustee's investment in tax-exempt bonds disappeared and that Morgan had a duty to diversify the investment and consider the remaindermen's interests in the Trust. Williams does not claim that Morgan engaged in any fraud or self-dealing or misconduct apart from the negligent and imprudent failure to invest and/or diversify trust assets since the mid-1970's. Currently, by Williams's calculation, the trust assets are valued at "less than $800,000." (Compl. to ¶ 19.)


A. Standard of Review

"It is axiomatic that federal courts are courts of limited jurisdiction and may not decide over which they lack subject matter jurisdiction." Lyndonville Sav. Bank & Trust Co. v. Lussier, 211 F.3d 697, 700 (2d Cir. 2000). The federal diversity jurisdiction statute provides federal courts with subject matter jurisdiction over state law claims if the amount in controversy exceeds $75,000 and the parties are "citizens of a State and citizens or subjects of a foreign state." 28 U.S.C. § 1332(a). The claims at bar meet the requirements for diversity jurisdiction because Williams is a citizen of Brazil and Morgan is a New York corporation. In addition, the amount in controversy exceeds $75,000.

A federal court must apply state "substantive" law to a diversity case. See Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427 (1996) ("[F]ederal courts sitting in diversity apply state substantive law and federal procedural law."); Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). Here, New York State substantive law applies.

A federal court sitting in diversity must follow the law as enunciated by the highest court of the state, here, the New York Court of Appeals. See Calvin Klein Ltd. v. Trylon Trucking Corp., 892 F.2d 191, 195 (2d Cir. 1989). In the absence of a ruling by the Court of Appeals, a federal district court is not bound by the opinions issued by New York State's lower courts. See id. (citing Plummer v. Lederle Laboratories, 819 F.2d 349, 355 (2d Cir. 1987) and Stafford v. International Harvester Co., 668 F.2d 142, 148 (2d Cir. 1981)). Indeed, a federal court should reject any lower court's ruling that is inconsistent with a Court of Appeals decision. See Levin v. Tiber Holding Corporation, 277 F.3d 243, 253 (2d Cir. 2002) (citing First Investors Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162 165 (2d Cir. 1998). Only "where the substantive law of the forum state is uncertain or ambiguous, the job of the federal courts is carefully to predict how the highest court of the forum state would resolve the uncertainty or ambiguity." Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir. 1994).

In matters of "procedure," however, federal courts must apply federal law. See Gasperini, 518 U.S. at 427; Erie, 304 U.S. at 64. As such, a court reviews a motion for summary judgment under the federal standard of review. See Gasperini, 518 U.S. at 427; Com/Tech Communications Technologies v. Wireless Data Systems, Inc., 163 F.3d 149 (2d Cir. 1998).

Summary judgment is appropriate only when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits" demonstrate an absence of any genuine issue of material fact and "the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1936). To grant the motion, a Court must determine from the record before it that a reasonable trier would not be able to find in favor of the non-mover. See Brady v. Colchester, 863 F.2d 205, 211 (2d Cir. 1988). In considering the motion, the evidence is viewed in the light most favorable to the non-moving party; reasonable inferences and factual conflicts are resolved in his favor. See Cruden v. Bank of New York, 957 F.2d 961, 975 (2d Cir. 1992).

Here, based on Williams's pleading, the parties' cross-motions largely raise a legal question regarding the availability of damages under New York law. Accordingly, the factual record before the Court is brief. The lack of factual detail does not prevent the Court from addressing the discrete legal issue before it. However, the Court concludes that at this stage of the litigation, ...

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