- SunTrust Bank v. Farrar, 277 Va. 546 (April 17, 2009)
- October 27, 2009
- Law Firm: McGuireWoods LLP - Richmond Office
Charles Wilson died in 1921, and was survived by his wife and two sons. Under his will, he established a trust to hold a coal mine in Harlan County, Ky. He named a corporate predecessor to SunTrust Bank as co-trustee. His wife served as co-trustee until her death in 1976. The trust provided for distributions among his wife and descendants, and upon termination (20 years after the death of his wife and children), for outright distributions to his heirs at law. Under his will, he directed that the trustees hold the coal mine "unless conditions undergo a very radical change from what they are at present."
Upon the death of Mr. Wilson's last surviving child in 1984, SunTrust petitioned the circuit court for authority to sell the coal mine, due to a rapid decline in the income produced by the coal mine.
In 1987, the circuit court granted SunTrust the authority to sell the property. In connection with the possible sale, SunTrust hired an appraiser who valued the property at $1.1 million.
By the end of the 80s, the bottom fell out of the coal market. An offer was made for the coal mine in 1992 for only $75,000. Later offers were made in the amounts of $281,190 (1996), $25,000 (1996), and $100,000 (1997). SunTrust eventually sold the coal mine in 1997 for $350,000.
The trust terminated in 2004, and the remainder beneficiaries of the trust sued SunTrust alleging breach of fiduciary duty for failure to sell the coal mine for the appraised value of $1.1 million, and seeking compensatory and punitive damages. In support of their claim, the beneficiaries only offered the testimony of an expert in economics who determined, based on a series of assumptions, that if the property had been sold for $1.1 million on Sept. 1, 1987, and invested in a mix of 65% stocks and 35% bonds, the trust distributions would have been $1,761,000 and the remaining trust assets would contain $3,709,000 in assets. The expert acknowledged he could not testify that there was a buyer on the date willing to pay $1.1 million for the coal mine. The appraiser also testified that the property did not sell in 1987 because no one was interested in it.
The circuit court found that SunTrust failed to properly market the property and allowed the coal mine to become unproductive and a wasting asset. It awarded the beneficiaries judgment in the amount of $2.4 million. In a separate action on SunTrust's accountings, the circuit court also ordered SunTrust to reimburse the beneficiaries for $89,000 paid out of the trust, plus interest, for costs of maintaining the property.
On appeal, the Virginia Supreme Court reversed the trial court and dismissed the beneficiaries' claims because: (1) they failed to meet their burden of proving damages; (2) the beneficiaries had the burden of proving damages with reasonable certainty; and (3) the circuit court could not rely on speculation and conjecture.
The court noted that the beneficiaries' claims were premised on the assumption that the property could have been sold for $1.1 million in 1987, and the beneficiaries presented no evidence of a willing buyer at any time whatsoever, while SunTrust presented evidence that no one was interested in the property at that time. The court noted that "a trustee who retains a trust asset during a precipitous decline in the market, when there was no market for the asset, cannot be held to account so long as the trustee acted as a reasonable and prudent person would act in light of then existing conditions." The court also noted problems with the appraised value of the coal mine.
The Virginia Supreme Court reversed the surcharge award and the award for reimbursement of the property costs, and entered final judgment in favor of SunTrust.