Appeal from a decree of the Surrogate's Court, Erie County (Barbara Howe, S.), entered May 18, 2011.
Matter of Hsbc Bank Usa, N.A.
Appellate Division, Fourth Department, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
PRESENT: SCUDDER, P.J., SMITH, CENTRA, AND LINDLEY, JJ.
The decree imposed surcharges and fees on petitioner.
It is hereby ORDERED that the decree so appealed from is unanimously modified on the law by vacating the determination of liability with respect to amended objection No. 1 except insofar as petitioner retained stock in F.W. Woolworth Company beyond March 1, 1995 and dismissing amended objection No. 2, filed by W.A. Read Knox, Seymour H. Knox, IV, Avery Knox and Helen Keilholtz, by vacating the determination of liability with respect to objection Nos. 1 and 9 and objection Nos. 3 and 5 except insofar as petitioner retained stock in F.W. Woolworth Company beyond March 1, 1995 and dismissing objection Nos. 2, 4, 6, 7, 8 and 10, filed by Daniel C. Oliverio, as Guardian ad Litem for Seymour H. Knox, V, John Clayton Knox, and Georgia Brown Knox, and vacating the award of surcharges, fees and expenses and as modified the decree is affirmed without costs and the matter is remitted to Surrogate's Court, Erie County, for further proceedings on the petition and for a recalculation of the amount of the surcharges in accordance with the following Opinion by Scudder, P.J.: I
On January 21, 1957, Seymour H. Knox, II (Knox, II), executed a Trust Agreement establishing a trust "for the benefit of the issue of his son, Seymour H. Knox, III" (1957 Trust). The Knox family co-founded F.W. Woolworth Company (Woolworth), and Knox, II served as a chairman of the board of petitioner's predecessor in interest, The Marine Trust Company of Western New York, which was also formerly known as Marine Midland Corporation, Marine Midland Bank-Western and Marine Midland Bank, N.A. (Marine). When he established the 1957 Trust, Knox, II funded it with 5,000 shares of Woolworth capital stock and 5,200 shares of Marine common stock, making the "approximate size" of the 1957 Trust $325,525. The 1957 Trust provided in relevant part that Marine, as petitioner's predecessor in interest, would be the sole Trustee. The Trustee was given the power to invest and reinvest any and all of the funds "without regard to diversification or to limitations or restrictions of any kind." Finally, as pertinent to this appeal, the 1957 Trust provided that the Trustee "may advise with counsel and shall be fully protected in respect of any action under this instrument taken, suffered or omitted in good faith by the Trustee in accordance with the opinion of counsel." Notably, the 1957 Trust does not define who would qualify as "counsel," but the above-quoted sentence continues by authorizing the Trustee "to pay reasonable compensation to any counsel, attorneys and agents employed by it in the discharge of its duties." We thus conclude that the term "counsel," in the context of the 1957 Trust, is not limited to legal counsel. II
By petition dated July 13, 2006, petitioner sought, inter alia, judicial settlement of an "annexed intermediate Account . . . from January 21, 1957 through November 18, 2004" and acceptance of petitioner's resignation as Trustee. The account annexed to the petition in the record on appeal, however, is labeled a "Final Account" and covers the period from January 21, 1957 through November 3, 2005. All of the parties have used that Final Account as the basis for this appeal, and we do so as well. We note that none of the parties contests the figures contained therein, and we therefore use that as the basis for our analysis. Although the cost basis for the Marine stock was $12.399 per share, and the cost basis for the Woolworth stock was $5.186 per share, the Final Account lists the initial inventory value of those stocks as zero. According to the Summary Statement and Schedule F of the Final Account, as of the time of the accounting, the 1957 Trust had increased in principal by over $1.75 million, had generated approximately $1.5 million in income and had $1.28 million in principal "on hand."
The four adult income beneficiaries, objectants Seymour H. Knox, IV, W.A. Read Knox, Avery Knox and Helen Keilholtz (collectively, adult objectants), filed objections and amended objections to the accounting. In addition to objecting to the computation of commissions, the adult objectants objected "to the retention by the Trustee of 23,000 shares of Venator Group Inc. f/k/a F.W. Woolworth Co. . . . on the grounds that such retention of assets failed to comply with the prudent investor standard as provided for in EPTL 11-2.3 (b)."
A Guardian ad Litem (GAL) was appointed for the minor remainder beneficiaries [FN1], and he filed 10 objections to the accounting, contending, inter alia, that petitioner improperly abdicated its role as Trustee to Seymour H. Knox, III (Knox, III), failed to manage the 1957 Trust with due care in accordance with the law and petitioner's own internal protocols, and imprudently purchased and/or retained shares of various stocks including, but not limited to, Dome Petroleum LTD (Dome), Marine and Woolworth. III
In February 2010, following a trial on liability, Surrogate's Court issued the order in appeal No. 4, the appeal from which must be dismissed pursuant to CPLR 5501 (a) (1). By that order, the Surrogate determined that petitioner had breached its duties as Trustee insofar as it concerned the purchase and/or retention of six securities: Bristol Myers Co. and Bristol Myers Squibb (collectively, BMS); Digital Equipment Corp. (Digital); Dome; Leesona Corporation (Leesona); Marine; and Woolworth/Venator Group Inc [FN2]. Because of certain stock distributions and/or mergers related to BMS and Digital, the 1957 Trust received shares in two unrelated securities: Compaq Computer Corp. (Compaq) and Zimmer Holdings Inc. (Zimmer). We thus include evidence relating to those two securities in our analysis. Because the Surrogate failed to specify divestiture dates, the GAL moved for clarification of the dates when certain stocks held by the 1957 Trust should have been sold, for purposes of the damages trial. Petitioner agreed that clarification was necessary, but disputed the dates used by the GAL in the motion. In her divestiture order of June 17, 2010, the Surrogate determined that all of the Marine stock should have been sold on January 21, 1957, "the date of the inception and funding of the trust." With respect to Woolworth, the Surrogate determined that 90% of the initial 5,000 shares should have been sold on January 21, 1957, and all remaining shares should have been sold on May 7, 1991. The Surrogate did not set forth divestiture dates for any of the other securities until November 2010, when she issued an order adopting "in all respects" the damages calculations, including divestiture dates, of objectants' expert. Specifically, the Surrogate found damages for each stock as follows: BMS, $52,654; Digital, $1,514,693; Dome, $796,092; Leesona, $170,637; Marine, $7,815,541; and Woolworth, $11,087,467.
By the order in appeal No. 1, entered March 10, 2011, the Surrogate granted the respective motions of the GAL and the adult objectants seeking, inter alia, awards for guardian ad litem fees, attorneys' fees, and expenses. In the decree in appeal No. 2, and the statement for judgment in appeal No. 3, both of which were issued in May 2011, the Surrogate awarded damages in the amount of $21,437,084; $1,050,438 in fees and expenses for the GAL; $328,134 in attorneys' fees for the adult objectants' attorney, in addition to expenses; and $1,591,043 in interest from July 21, 2010 to the date of the decree. The appeals from the order in appeal No. 1 and the statement for judgment in appeal No. 3, as in appeal No. 4, likewise must be dismissed pursuant to CPLR 5501 (a) (1). IV
With respect to the determination on liability, we conclude that the Surrogate erred in sustaining the objections, with the exception of those objections concerning the retention of Woolworth stock after March 1, 1995, the date of Woolworth's last dividend payment. This case is unique in that it involves a trust that had no precipitous decline in any particular stock, had a net increase in principal of over $1.75 million and generated over $1.5 million in income for the income beneficiaries. Although Dome and Leesona were sold for losses, the losses were negligible. According to Schedule B of the Final Account, the net total loss for Dome was $9,690, but that figure does not appear to include four in-kind distributions to beneficiaries, which ...