- Matter of Hyde, 2007 BY Slip Op 7960 (New York Supreme Court Appellate Division, October 25, 2007)
- April 3, 2008
- Law Firm: McGuireWoods LLP - Richmond Office
Charlotte Hyde and Nell Cunningham were the daughters of Samuel Pruyn, who founded Finch Pruyn, a large manufacturer in Glenn Falls, New York. Following their deaths, Hyde’s estate was held in several testamentary trusts, and Cunningham’s estate was held in an inter vivos trust. This case involved two Hyde trusts and the Cunningham trust, each of which was funded with large concentrations of Finch Pruyn stock. Each trust granted the trustee “absolute discretion” but contained no directions concerning the Finch Pruyn stock.
This case involved objections to accountings for a twenty-year time period filed by Glens Falls National Bank and Trust Company and an individual co-trustee for the Hyde trusts, and an accounting for more the same twenty-year period filed by Banknorth, N.A. and an individual co-trustee for the Cunningham trust.
The trust beneficiaries objected to the accountings (interestingly, the objections were only to the actions of the corporate trustees, and not to the individual co-trustees) alleging breach of fiduciary duty and seeking surcharge for failure to diversify the trust investments. The trustees moved for summary judgment to dismiss the objections, which was denied by the Surrogate’s Court. At the conclusion of a lengthy trial, the Surrogate’s Court dismissed all of the objections. The beneficiaries appealed.
On appeal, the Appellate division affirmed the dismissal of the claims against the trustees, for the following reasons:
- With respect to one of the Hyde trusts, while the bank was purportedly appointed as trustee on June 19, 1995, the bank was not actually made aware of the appointment until 2004, and therefore the bank could not be liable for actions taken before its knowledge of the appointment.
- With respect to the other Hyde trust, the Appellate division found that the bank made a reasonable determination that it was in the interests of the beneficiaries not to diversify the Finch Pruyn stock, after considering (1) the liquidity of the stock, (2) the fact that the corporation was closely held and with an unusual corporate structure which discouraged liquidation, (3) the lack of marketability, (4) the disinterest of the company in buying the stock, (5) the comments made in meetings with financial advisors, investment bankers, and brokerage houses that a fair price for the stock could only be obtained through sale of the entire company, (6) the general economic condition of the trust, (7) the tax consequences of the sale, (8) the needs of the beneficiaries, (9) tax costs of a sale, (10) the significant dividends paid out with respect to the stock, and (11) the indications of the settlor’s desire that the stock remain in the family.
- Similarly, with the respect to the Cunningham trust, the Appellate division found that the bank reasonably determined it was not in the best interests of the beneficiaries to sell the stock at a discounted price merely for the sake of diversification, upon considering the lack of liquidity, the unmarketability of the stock, and the unusual corporate structure, and because the bank regularly explored the market for the stock, kept well informed of the company’s financial condition, and regularly reviewed corporate reports (the Appellate Division rejected the beneficiaries’ argument that the bank should have obtained third party reports of the company’s condition at additional costs).