Opinion
21-P-45
04-04-2022
Barbara E. GREENBERG, personal representative, & others v. Henry GREENBERG & another; Jeffrey S. Aaron, trustee, & another, third-party defendants.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The plaintiffs, Karin A. Fitch and Tara S. Roy, are coexecutrices of the estate of Agnes E. Kull. Kull was a trustee of the Mimi Greenberg Revocable Trust (trust). The defendants, Ruthanne G. Miller and Henry Greenberg (collectively, the beneficiaries), are two of the beneficiaries of the trust. The instant appeal stems from an amended judgment in favor of the beneficiaries on their counterclaims against Kull and a cotrustee, Nathan Greenberg (collectively trustees), after a jury-waived trial in the Superior Court.
Also defendants in counterclaim.
Also plaintiffs in counterclaim.
Nathan Greenberg was Mimi Greenberg's spouse and the beneficiaries’ father. For clarity, we use first names to refer to members of the Greenberg family.
As relevant here, the trustees initially brought a claim against the beneficiaries for a declaratory judgment, and the beneficiaries counterclaimed against the trustees for breach of fiduciary duty, fraud, malpractice, tortious interference with an expectancy, conversion, and negligent misrepresentation, for the removal of the trustees, and for an accounting. Following trial, an amended judgment entered in favor of the beneficiaries and against the trustees on the beneficiaries’ counterclaims for breach of fiduciary duty in two areas: trust distributions and trust investments. After an accounting, the judge awarded the beneficiaries total damages of approximately six million dollars. Considering the plaintiffs’ appeal, we discern no error in the judge's finding that, as a trustee, Kull acted with "reckless indifference" as to trust distributions, and so affirm the amended judgment for breach of fiduciary duty on that theory. As to the investments, however, where the judge did not make a finding of reckless indifference or of bad faith by Kull, and where the judge did not make subsidiary findings demonstrating a basis for distinguishing between the risky investments that the judge found to be proper and those that the judge found to be improper, we vacate that portion of the amended judgment on count two of the counterclaims.
Both Kull and Nathan died during the pendency of the action, and the executrices of their respective estates were substituted as parties.
The executrix of Nathan's estate did not join in this appeal. The beneficiaries noticed a cross appeal from the amended judgment but state in their brief that they do not intend to pursue it.
Background. Mimi established the trust in 1973. Its purpose, as relevant to this appeal, was to enable Nathan and the beneficiaries to maintain the standard of living they enjoyed while Mimi was alive, as well as to provide for their healthcare needs.
To that end, and in relevant part, the trust reads:
"1.1 During the lifetime of the Grantor, the Trustee shall hold, manage and care for the trust estate ... as follows: (a) ... to pay to or apply for the use and benefit of the Grantor's spouse for his health, comfort, support and reasonable enjoyment so as to permit him ... to live in the same manner and enjoy the same comforts to which he has been accustomed and to provide for hospital and medical attention and any other expenses that may be necessary or advisable for his health, comfort, support and such reasonable enjoyment ...
"7.1 ... (a) During the life of the Grantor's spouse, to pay over to him (and to the Grantor's issue who are from time to time living during said period) and to use or apply for the use and benefit of the Grantor's spouse ... whatever part or all of the net income or principal of the trust, or both thereof as the Trustee other than the Grantor's spouse, in his discretion, shall deem necessary or advisable for (i) his health, comfort, support and reasonable enjoyment in life so as to permit him, taking into consideration any other income and assets he may have or which may be available to him, to live in the same manner and enjoy the same comforts to which he was accustomed during the Grantor's lifetime and to provide hospital and medical attention."
The trust was designed to have three trustees and provided a mechanism for filling any vacancies in those three positions. It afforded the trustees broad discretion in making investment decisions, explicitly authorized the trustees "to invest and reinvest in stocks, shares and obligations of corporations ... notwithstanding the fact that any or all of the investments made or retained are of a character or size which, but for this express authority, would not be considered proper for trustees," and limited the trustees’ liability for "acts in good faith" and "honest errors of judgment." Notably, however, the terms of the trust prohibited Nathan from making distributions to himself.
"12.3 In the event that for any reason any Trustee shall be unable or unwilling to act as Trustee or to continue to act as Trustee, the remaining Trustee or Trustees shall appoint a successor Trustee or successor Trustees to fill any vacancy so that there shall always be three Trustees in office, but any action taken by the Trustee in office pending the filling of any vacancy shall be valid.
"12.4 If at any time there is no Trustee in office for a period of thirty (30) days, the Probate Court in and for the County of Worcester, Massachusetts shall appoint a Bank or Trust Company."
The relevant provision reads:
"12.12 In the exercise of any of the powers given him by law or provisions of this Trust Agreement, the Trustee shall not be liable for any loss to the trust estate occasioned by his acts in good faith, and in any event shall be liable only for his own negligence, malfeasance, willful default or willing misfeasance and not for honest errors of judgment."
See note 11, supra.
The original three trustees were Nathan, Mimi's brother, and a family friend. The family friend resigned from the position in 1980, at which time Kull was appointed as successor trustee. Nathan asked Mimi's brother to resign, which he did in 2005. No successor to this trustee was ever appointed and little, if any, effort was made to find a replacement trustee or have one appointed. Neither Nathan nor Kull received a fee for their services as trustee.
Discussion. 1. Standard of review. We review the trial judge's findings of fact for clear error. Trace Constr., Inc. v. Dana Barros Sports Complex, LLC, 459 Mass. 346, 351 (2011), citing Commissioner of Revenue v. Comcast Corp., 453 Mass. 293, 302 (2009). We review the judge's rulings on questions of law de novo. Id., citing T.W. Nickerson, Inc. v. Fleet Nat'l Bank, 456 Mass. 562, 569 (2010).
2. Distributions to Nathan. The plaintiffs argue that the judge's finding that Kull acted with "reckless indifference" in approving the trust's distributions to Nathan is unsupported by the evidence. The record, however, includes only portions of the trial transcript; without a complete record of the trial evidence, we are unable to resolve the question.
On the record we do have, we discern no error in the judge's conclusion that Kull acted with reckless indifference. The record supports the judge's findings that Kull essentially rubber-stamped Nathan's substantial distributions to himself and the beneficiaries, without questioning the necessity of the distributions or that they were made in violation of the express terms of the trust.
Kull's approvals contravened the terms of the trust in at least two ways: the distributions were made by Nathan himself as the "[g]rantor's spouse," in violation of section 7.1; and the distributions enriched Nathan beyond maintaining the standard of life he enjoyed with Mimi and were not for his medical expenses, as required by section 1.1.
3. Investments. The judge found that Kull approved Nathan's "risky" investments with each of three entities -- Bernard Madoff, Howard Waxenberg, and KL Financial Group (KL).
In supporting a finding of Nathan's liability as to the Waxenberg and KL investments, the judge found that Nathan was "motivated by greed," which drove him to investments that were "neither reasonable nor prudent." Conversely, the judge found Nathan to have acted in good faith in making the Madoff investment, though it "exposed the assets of the [t]rust to high[ ] risk," and noted that the Madoff investment was the only one of the three that "achieve[d] a return consistent with that of a reasonably prudent investment." As to Kull, the judge found that "she acted in good faith in approving Nathan's investment decision with regard to Madoff," but that, "[w]ith regard to Waxenberg and KL, [Kull] ... disregard[ed] her obligations to exercise reasonable care, skill, and caution," thus violating her fiduciary duty.
Neither Nathan nor Kull met with an investment advisor before investing trust assets in any of the three operations, though either one or both of the trustees met with Madoff, Waxenberg, and representatives from KL prior to investing in each. For each of the investments, Nathan either believed the risks to be "nominal" or otherwise invested what he considered to be a "relatively small portion" of trust assets; the judge did not include findings as to Kull's knowledge (or lack thereof) of the relative risks. Each of the investments would turn out to be "criminal enterprises," though this was not apparent to the trustees at the time they made the investments.
Indeed, the beneficiaries, who argue that Kull's approval of Nathan's investments in these operations was "reckless," were aware of the trustees’ investments with Madoff, Waxenberg, and KL. Ruthanne, an attorney, and Henry, an "investment advisor[,] sophisticated in investments," each approved of the trust's investment with Madoff, and themselves invested with Waxenberg and KL.
Given the judge's finding that Kull, at all times, acted in good faith, or at least without bad faith, in giving her approval of Nathan's investment decisions; the lack of any finding that Kull acted with reckless disregard as to the investments; and the judge's findings that Kull took a materially indistinguishable course in approving each of the three risky investments, the findings do not support the conclusion that Kull breached her fiduciary duty as to the KL and Waxenberg investments.
At the time each of the three investments was made, the trustees could not predict which of the "high risk, high reward" investments would prove to be successful, and the success of the Madoff investment is not enough to distinguish the course the trustees took at the time of investment. Each of the investments was "risky"; however, the perceived risks at the time of the investments were so alike that a finding of liability as to Kull for only certain of those investments is not supported. Where the subsidiary findings support the conclusion that Kull did not violate her fiduciary duties with respect to the Madoff investment because she, like other investors, could not predict at the time of investment that "this was a criminal enterprise," but do not provide a basis for distinguishing the risks of the Madoff investment from those of the Waxenberg and KL investments, the finding of liability for the latter investments must be reversed.
Conclusion. So much of the amended judgment on count two of the counterclaims that finds Kull liable for breach of fiduciary duty based on Kull's approval of the trust's investments is vacated. In all other respects, the amended judgment is affirmed.
So ordered.
affirmed in part; vacated in part