Opinion
No. DO-0059/A
01-26-2022
In the Matter of the Intermediate Accounting of Manufacturers and Traders Trust Company, as Trustee of the Robert S. Bassett Trust Number 7 of 1974, for the period covering September 7, 1983 to October 18, 2013. In the Matter of the Intermediate Accounting of Manufacturers and Traders Trust Company as Trustee of the Robert S. Bassett Trust Number 7 of 1974, for the period covering October 19, 2013 to May 15, 2017.
HODGSON RUSS LLP Attorneys for the Trustee, Manufacturers and Traders Trust Company Kevin M. Kearney, Esq., Catherine B. Eberl, Esq. and Patrick J. Hines, Esq., of Counsel DANIEL H. WILLIAMS III, ESQ. Attorney for Sue M. Williams, Jennifer B. Williams, Individually and as Parent and Natural Guardian of J.C., Daniel H. Williams IV, Individually and as Parent and Natural Guardian of A.W. and B.W. ROGER B. SIMON, ESQ. Guardian ad Litem for Minor Beneficiaries TERRENCE M. CONNORS, ESQ. Guardian ad Litem for Unborn Beneficiaries Caitlin E. O'Neil, Esq., of Counsel
Unpublished Opinion
HODGSON RUSS LLP Attorneys for the Trustee, Manufacturers and Traders Trust Company Kevin M. Kearney, Esq., Catherine B. Eberl, Esq. and Patrick J. Hines, Esq., of Counsel
DANIEL H. WILLIAMS III, ESQ. Attorney for Sue M. Williams, Jennifer B. Williams, Individually and as Parent and Natural Guardian of J.C., Daniel H. Williams IV, Individually and as Parent and Natural Guardian of A.W. and B.W.
ROGER B. SIMON, ESQ. Guardian ad Litem for Minor Beneficiaries
TERRENCE M. CONNORS, ESQ. Guardian ad Litem for Unborn Beneficiaries Caitlin E. O'Neil, Esq., of Counsel
Stephen W. Cass, Surrogate Judge
This is a proceeding for judicial settlement of two intermediate accounts of Manufacturers and Traders Trust Company [hereafter, M&T], as trustee of an inter vivos trust established in 1974 by Robert Bassett. The trust provided that income during Bassett's lifetime was payable monthly to him or as directed by him. Following Bassett's death, the trust agreement directed the trustee to "pay or apply the net income per capita among the descendants of the grantor living at the time of each distribution and including descendants hereafter born" either "monthly or [in] other suitable installments". The trustee was also permitted to make distributions to income beneficiaries from the trust principal for "emergency purposes, including major medical expenses for such beneficiaries or their immediate families or support and maintenance during such periods as such beneficiaries are unable to support themselves or their immediate families".
The trust agreement specifically excluded "any adopted descendants."
The trust is to terminate upon the death of the last survivor of both Robert Bassett's, and his brother, Charles Bassett's, descendants who were alive when the trust was established [January 31, 1974].
To the extent relevant here, and to better understand the distribution structure of this trust, Robert Bassett had two children - Marcia McGratten, born in May, 1919, and Sylvia Street, born in January, 1931. Marcia had two children - Sue McGratten Williams, born in October, 1943, and Norman McGratten, born in October, 1946. Sue Williams, an objectant in these accountings, has two children - Jennifer Williams (who was born in 1975 and who is the mother of a minor, J.C., b. 2014), and Daniel H. Williams, IV (who was born in 1972 and who is the father of minors A.W., b. 2011, and B.W., b. 2013).
Sylvia Street died on April 26, 2016, and her estate was substituted as a party here. It is unclear on the record before me when Marcia McGratten died, but she was alive during some part of the 1980s (see fn. 16, infra).
At present, it appears that there are 18 living descendants of Robert Bassett. There are 6 Williams beneficiaries (3 of whom are minors), 8 McGratten beneficiaries (3 of whom are minors), and 4 Street beneficiaries (none of whom are minors).
Following Robert Bassett's death in January, 1982, M&T filed a petition for judicial settlement of its intermediate accounting of this trust, covering the period January 31, 1974 to January 12, 1982, and as thereafter supplemented from January 12, 1982 through September 6, 1983. By decree of this Court [MATTINA, J.], dated December 28, 1984, the accounting and supplemental accounting were approved and "M&T Trust Company is hereby discharged from all further liability and accountability as to all matters set forth [in such accountings]".
The current two intermediate accountings, which were filed on October 28, 2013 and June 30, 2017, respectively, cover the period from September 7, 1983 to October 18, 2013 [subrecord A] and from October 19, 2013 to May 15, 2017 [subrecord B]. Only the six (6) Williams beneficiaries have ever appeared in these two proceedings, and the three adult Williams beneficiaries [hereafter, objectants] have all filed objections to each accounting.
The summary portion of the September 7, 1983 to October 18, 2013 accounting is cached at https://www.nycourts.gov/reporter/webdocs/IntermediateAccountingofManufacturersandTradersTrustCo-Bassett-Appendices.pdf as Appendix A.
The summary portion of the October 19, 2013 to May 15, 2017 accounting is cached at https://www.nycourts.gov/reporter/webdocs/IntermediateAccountingofManufacturersandTradersTrustCo-Bassett-Appendices.pdf as Appendix B.
The three minor Williams beneficiaries have been represented by the guardian ad litem appointed for all minor beneficiaries. The objections filed by their guardian ad litem have been settled.
The accounts here show that, over the period in question, $4,709,688.87 in income was distributed to trust beneficiaries and $1,446,311.99 in discretionary principal payments were also made to some of them. Thus, $6,156,000.86 has been distributed to the beneficiaries from September 7, 1983 through May 15, 2017.
Objectants allege generally that M&T violated the Prudent Investor Rule and the Prudent Investor Act under EPTL 11-2.2(a) and 11-2.3, as well as the antecedent Prudent Person Rule, and they allege that M&T imprudently and negligently managed the trust assets. Objectants urge that M&T should be surcharged for damages to the trust resulting from its alleged negligence. M&T denies the allegations, and, following extensive discovery, including several SCPA 2111 examinations of various M&T employees, filed a motion on March 2, 2021 seeking summary judgment dismissing all the objections on the ground that M&T met its required fiduciary obligations to the trust.
In support of its motion for accelerated judgment, M&T has submitted, inter alia, an affidavit from Paul K. Napoli. Napoli's affidavit is in the nature of expert opinion evidence in support of M&T's motion, and is cached at https://www.nycourts.gov/reporter/webdocs/IntermediateAccountingofManufacturersandTradersTrustCo-Bassett-Appendices.pdf as Appendix C and is made a part hereof. That affidavit relies, at least in part, upon the deposition testimony of all seven of M&T's employees - trust managers, and so forth - who gave evidence at the SCPA 2211 examinations (all of which are before me in the record being reviewed).
Napoli is a Chartered Financial Analyst and Certified Trust and Financial Adivisor, with "more than 40 years of experience in the wealth management business". Among Napoli's credentials, he is currently a Director of the Fiduciary Trust Company, and chair of its Audit Committee. From 1983 to 2008, Napoli was at the U.S. Trust Corporation, serving as Vice-Chairman and head of its New York Region.
Objectants oppose M&T's motion, and voluminous papers have been submitted on the issues. Objectants have also filed what they styled a Motion "to Strike, or, in Limine, to Preclude" with respect to the Napoli affidavit, which is opposed by M&T (see infra at pp. 10-12).
As noted supra, the guardian ad litem for the minor beneficiaries of the trust also filed objections to the accountings, which were joined in by the guardian ad litem for unborn beneficiaries (see Matter of Farone, 101 A.D.2d 986, 987-988 [1984], rev'd on other grounds 65 N.Y.2d 764 [1985]). Those objections were settled by Order of this Court dated December 16, 2020. As pointed out now by M&T, these objections focused on "certain distributions to beneficiaries, which the guardians claimed were not permitted by the Trust instrument, [ and those objections] were settled by the Trustee and the guardians The Williams beneficiaries did not join in those objections. This is perhaps not surprising, as the majority of the distributions objected to were made to Sue M. Williams for expenses including country club dues, expenses connected to vacation homes, and others which the guardians claimed were not appropriate under the distribution standard set out in the trust agreement."
I now find and decide as follows.
(I)
(A)
Certain procedural issues need to be addressed at the outset.
Objectants contend initially that, because M&T did not append "a copy of the pleadings" to its moving papers (CPLR 3212 [b]), the motion must be denied without reaching the merits of the parties' claims. Objectants cite cases from our Appellate Division such as Kinach v. Tops Mkts, 194 A.D.3d 1456, 1456 [2021] as requiring such relief:
"[Defendant's] failure to support its motion with an accurate copy of the pleadings 'require[d] denial of the motion, regardless of the merits' (Tudisco v Mincer, 126 A.D.3d 1501, 1501 [4th Dept 2015]."
M&T has responded to objectants' CPLR 3212 (b) argument by urging that CPLR 2214 (c), dealing with "motion papers", controls here:
" Furnishing papers to the court. Each party shall furnish to the court all papers served by that party. The moving party shall furnish all other papers not already in the possession of the court necessary to the consideration of the questions involved. Except when the rules of the court provide otherwise, in an e-filed action, a party that files papers in connection with a motion need not include copies of papers that were filed previously electronically with the court, but may make reference to them, giving the docket numbers on the e-filing system. Where such papers are in the possession of an adverse party, they shall be produced by that party at the hearing on notice served with the motion papers. Only papers served in accordance with the provisions of this rule shall be read in support of, or in opposition to, the motion, unless the court for good cause shall otherwise direct" (emphasis added).
M&T acknowledges that our Appellate Division has taken a fairly strict approach to the failure of a moving party to attach a copy of the pleadings on its summary judgment motion. However, M&T says, there is nothing in decisions such as Kinach which would indicate whether those cases were efiled matters, and, if so, whether CPLR 2214 (c) had been urged as an exception to the CPLR 3212 (b) language.
I note that in Kinach our Appellate Division also said that the trial court "providently exercised its discretion in refusing to disregard" the failure of defendant to "support its motion with an accurate copy of the pleadings" (id., supra, at 1456, citing Galpern v. Air Chefs, LLC, 180 A.D.3d 501, 502 [2020]). In Galpern, the Appellate Division, First Department, had before it a summary judgment motion where the moving party had not supplied the pleadings with its papers. The Galpern Court held that:
"The motion court providently exercised its discretion under CPLR 2001 to disregard plaintiff's failure to submit the pleadings because the record was 'sufficiently complete' and otherwise available to the court and parties on the NYSCEF docket (Studio A Showroom, LLC v Yoon, 99 A.D.3d 632, 952 N.Y.S.2d 879 [1st Dept 2012]" (emphasis added).
Reading Kinach and Galpern together, I believe that I have discretion under CPLR 2001 to disregard, if appropriate, the failure of M&T to submit the pleadings with its pending summary judgment motion. Here, all the pleadings are all available on the electronic docket of this case, and were specifically referenced by docket number by M&T in its motion papers. Overlooking or excusing M&T's failure to strictly comply with CPLR 3212(b) is eminently sensible given that the motion papers themselves were efiled by M&T into the court's NYSCEF electronic docket and that this court has been a mandatory efiling court for nearly a decade.
The exercise of such discretion has also been approved by the Appellate Division, Second Department:
"While CPLR 3212 (b) requires that motions for summary judgment be supported by a copy of the pleadings, CPLR 2001 'permits a court, at any stage of an action, to disregard a party's mistake, omission, defect, or irregularity if a substantial right of a party is not prejudiced' (Long Is. Pine Barrens Socy., Inc. v County of Suffolk, 122 A.D.3d 688, 691 [2014] [internal quotation marks omitted]; see Avalon Gardens Rehabilitation & Health Care Ctr., LLC v Morsello, 97 A.D.3d 611, 612 [2012]). Although the defendants failed to include a copy of their answer with their motion for summary judgment, they attached a copy of their answer to the reply affirmation of counsel. Thus, the record is sufficiently complete, and there is no evidence that a substantial right of the plaintiff was prejudiced by the defendants' failure to submit a copy of their answer with their motion papers (see Lombardi v Lombardi, 127 A.D.3d 1038, 1040 [2015]; Avalon Gardens Rehabilitation & Health Care Ctr., LLC v Morsello, 97 A.D.3d at 612; Pandian v New York Health & Hosps. Corp., 54 A.D.3d 590, 591 [2008])" (Montalvo v. Episcopal Health Servs., Inc., 172 A.D.3d 1357, 1358-1359 [2019]).
I conclude, therefore, that M&T's failure to attach the pleadings to its motion papers does not require the motion to be denied, that objectants have shown no prejudice by such omission, and that my discretion is appropriately exercised (cf. CPLR 2001) by overlooking the technical defect under all the circumstances and dealing with the accounting issues on the merits.
(B)
In an approximately 80 page (including exhibits) motion in limine and to strike filed while this summary judgment motion was pending, objectants have requested that this Court strike "specific portions of the 'Affidavit of Paul K. Napoli' sworn to on February 4, 2021", for reasons more fully set out in those motion papers. Essentially, objectants seek (1) to preclude Napoli's testimony at any trial "or otherwise" on these accountings, and (2) to strike specific aspects of Napoli's affidavit.
M&T's position in response to objectants' motion in limine is as follows:
"In sum, the June 17 motion to strike or in limine is an untimely additional opposition, and can be disregarded and dismissed on that basis. However, given the motion simply repeats the incorrect arguments made in the Opposition, in the interests of efficiency the Court may want to consider the motion as part of the summary judgment record."
To the extent that objectants' motion in limine and to strike is directed towards possible trial evidence, it is premature and is hereby denied as such. To the extent the motion seeks to parse Napoli's affidavit and dispute it either legally or factually, it is simply further argument about the relevance and viability of Napoli's affidavit, it will be considered as part of objectants' overall submissions in opposition to summary judgment, but it requires no separate adjudication.
However, I do note in passing that Napoli's credentials, which are attached as Exhibit A to his affidavit (see Appendix C, infra), have not been called into question by objectants. I find, therefore, that Napoli" 'possess[es] the requisite skill, training, education, knowledge or experience from which it can be assumed that the information imparted or the opinion rendered is reliable'" (Montana v. David Markowitz Metal Co., Inc., 186 A.D.3d 1045, 1046 [2020], citing Matott v. Ward, 48 N.Y.2d 455, 459 [1979]; see also Isensee v. Upstate Orthopedics, LLP, 174 A.D.3d 1520, 1521 [2019]).
Finally, with respect to the arguments advanced by objectants in court on August 19, 2021 about this motion and with respect to a prior motion to produce, I note that M&T has correctly pointed out that objectants, through their attorney, have
Objectants urge that nothing can be advanced factually by M&T which is supported in whole or in part by documents or papers which have not previously been provided to objectants.
"refused to sign a confidentiality stipulation that would have provided him access to M&T's confidential business manuals. His refusal to do that is the only thing that has stood between him and, you know, production here."
I find no merit to objectants' present claims with respect to the issue of non-production of documents inasmuch as it was their repeated refusal to sign the required confidentiality agreement which led to the situation they now complain about. Thus, that motion is also dismissed.
(II)
In Matter of Schnare, 191 A.D.2d 859, 860 [1993], the Appellate Division, Third Department, articulated the standard applicable in contested accounting proceedings this way:
"In an accounting proceeding, the party submitting the account has the burden of proving that he or she has fully accounted for all the assets of the estate (see, e.g., Vinlis Constr. Co. v Roreck, 30 A.D.2d 668, mod 27 N.Y.2d 687; see generally, 29 Carmody-Wait 2d, Surrogate's Court & Estate Prac, § 166.181, at 418-420), and this evidentiary burden does not change in the event the account is contested. While the party submitting objections bears the burden of coming forward with evidence to establish that the account is inaccurate or incomplete, upon satisfaction of that showing the accounting party must prove, by a fair preponderance of the evidence, that his or her account is accurate and complete (cf., Matter of Mann, 41 A.D.2d 861, lv denied 33 N.Y.2d 517; 29 Carmody-Wait 2d, Surrogate's Court & Estate Prac, § 166.181, at 418)" (see also this Court's decision in Matter of Alles, 69 Misc.3d 1202 [A] [2019], aff'd 187 A.D.3d 1601 [2020]) "for the reasons stated by the Surrogate").
The Court in Schnare also noted that where "the legitimacy of most, if not all, of the objections was apparent from a plain reading of the account, no factual issues were presented which would necessitate the conducting of a hearing (see, Matter of Meister, 123 A.D.2d 264; Matter of Cameron, 165 Misc. 792, aff'd 253 A.D. 888, aff'd 278 NY 352; see generally, 29 Carmody-Wait 2d, Surrogate's Court & Estate Prac, § 166.180, at 416-417)" (id., at 860-861).
Former Nassau County Surrogate Judge Radigan explained the procedures in contested accountings this way:
"In a contested accounting proceeding, the fiduciary submitting the account has the burden of proving that he or she has fully accounted for all the admitted assets of the estate and that the accounting itself is complete and accurate (Matter of Schnare, 191 A.D.2d 859). The fiduciary's burden is usually met by simply placing the account into the record. Consequently, once the accounting party has made a prima facie showing of having discharged his or her duty to the estate by offering the account into evidence, the objectant bears the affirmative burden of coming forward with evidence to establish that the account is inaccurate or incomplete, (Matter of Schnare, supra). Upon introducing sufficient evidence to meet that burden, the burden of going forward shifts back to the accounting party to prove by a fair preponderance of the evidence that the account is accurate and complete, (Matter of Schnare, supra). The objectant, however, bears the affirmative burden of proof on the issue of the investment practices of a trustee, (Matter of Baker, 249 A.D. 265; Matter of Newhoff, 107 Misc.2d 589). With this in mind, the court will consider the objections in groups according to their similarities" (Matter of Pollock, NYLJ, Sept. 17, 1998, at 24, 1998 NYLJ LEXIS 3660 [1998], emphasis added).
The foregoing rules are no different now on this summary judgment motion:
"[T]he proponent of the motion for summary judgment bears the initial burden of demonstrating [its] entitlement to judgment as a matter of law by proffering evidentiary proof in admissible form (see Alvarez v Prospect Hosp., 68 N.Y.2d 320, 324, 326 [1986]; Zuckerman v City of New York, 49 N.Y.2d 557, 562 [1980]; Friends of Animals v Associated Fur Mfrs., 46 N.Y.2d 1065, 1068 [1979]. Only if that burden is met does the burden then shift to [the opposing party] to raise a triable issue of fact requiring a trial (see Alvarez v Prospect Hosp., 68 N.Y.2d at 324; Friends of Animals v Associated Fur Mfrs., 46 N.Y.2d at 1068)." (Lockwood v. Layton, 79 A.D.3d 1342, 1342-1343 [2010]).
As the Court in Matter of DeLuca, 2004 NYLJ LEXIS 2477 [dec.May 28, 2004], on a summary judgment motion in a contested accounting proceeding, pointed out:
"[T]he court has the right to accept the facts stated in the account as being true (SCPA 509, 2209; Matter of Schnare, 191 A.D.2d 859).
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To defeat a motion for summary judgment, objectant must assemble and lay bare affirmative proof to demonstrate the existence of a genuine triable issue of fact. Allegations must be specific and detailed, substantiated by evidence in the record; mere conclusory assertions will not suffice (William Iselin & Co v. Mann Judd Landau, 71 N.Y.2d 420; Zuckerman v. City of New York, 49 N.Y.2d 557; Friends of Animals Associated Fur Mfrs., 46 N.Y.2d 1065). Further, a motion for summary judgment may not be defeated merely by surmise, conjecture or suspicion (Shaw v. Time Life Records, 38 N.Y.2d 201)" (emphasis added).
(III)
The Williams objectants have set out fifteen separate objections to the M&T accountings:
Although separate pleadings - petitions, objections and replies - were submitted for each of the two accountings under review, the substantive objections remained essentially the same for both.
(1) Breach of contract;
(2) Failure to comply with 1984 decision of this Court [MATTINA,J.];
(3) Improper verifications to pleadings;
(4) Failure of petition(s) to comply with SCPA 304(3)(a);
(5) Excessive fees and expenses charged to the trust;
(6) Constructive fraud;
(7) No prior judicial settlement before the two now pending has ever occurred;
(8) Accounting for period from inception of trust [January 31, 1974] to September 7, 1983 is now required;
(9) Trust should be terminated;
(10) Actual Fraud;
(11) Breach of fiduciary duty;
(12) Guardian ad litem required for possible unborn remainderpersons;
(13) Breach of implied covenant of good faith;
(14) Improper allocation of trust as between principal and income;
(15) Improper payment of M&T legal fees from trust assets;
I will take up the objections either separately, or, where appropriate, as grouped together by a common fact or law basis.
OBJECTIONS 12 and 4
Objection 12 states that possible unborn remainderpersons of the trust must be represented by a guardian ad litem [GAL] and that the costs of that GAL must be paid by M&T and its attorney, not by the trust. This Court [HOWE, J.] appointed Terrence M. Connors, Esq. as GAL for possible unborn remainderpersons on June 14, 2017, and that representation continues to date. To that extent, objection 12 must be, and it hereby is, dismissed. To the extent there is an issue of who should pay the fees of the GAL for unborns, that issue is deferred (see infra, at pp. 48-49).
Objection 4 asserts a violation of SCPA 304(3)(a), which provides that "[i]f any person be an infant, his age, the date of his birth, whether he has a guardian, whether his father, or if he be dead, his mother, is living, his connection with the estate, and the names and addresses of such persons and the person with whom the infant resides." The petitions involved here comply with the statute to the extent known by M&T; to the extent that there might be any necessary parties missing from the petitions, it was incumbent upon the Williams' objectants to specify whom such parties might be, rather than raise an unsupported - and consequently uncurable - allegation. In the posture of the case before me, and given that there has been a guardian ad litem appointed to represent the interests of minor beneficiaries since this Court [HOWE, J.] appointed Roger B. Simon, Esq., in that regard on March 25, 2014, I find no merit to this objection and it is hereby dismissed. To the extent that there is any issue about who should pay the fees of the GAL for minors, that issue is deferred (see infra, at pp. 48-49).
OBJECTION 3
Objection 3 states that the verifications of the petitions and accounts do not contain the "to the best of his/her knowledge and belief" language set out in SCPA 2209 and CPLR 7702.
CPLR 7702 provides that "[a] petition by a trustee praying that his intermediate or final account be judicially settled shall be accompanied by an account verified in the form required by section twenty-two hundred nine of the surrogate's court procedure act." With respect to SCPA 2209, the accounting affidavit required must only be "to the effect that" the accounting contains "according to the best of his knowledge and belief a true statement of all his receipts and disbursements on account of the estate and of all money or other property belonging to the estate which have come into his hands or been received by any other person by his order or authority for his use and that he does not know of any error or omission in the account to the prejudice of any creditor of, or person interested in, the estate."
Here, the first accounting - subrecord A [1983 - 2013] - is substantially in compliance with SCPA 2209, and the second accounting [2013 - 2017] tracks the statutory language precisely . I find no basis to reject either accounting on CPLR 7702 and SCPA 2209 grounds.
I also note in passing that any technical omissions in the original pleadings were cured by subsequent amendments.
OBJECTIONS 7 and 8
Objections 7 and 8 must be considered together.
Objection 7 asserts, in effect, that there has been no judicial accounting for this trust for the period from the inception of the trust in 1974 to September 6, 1983. For that reason, objectants say in Objection 8, this Court must now require an accounting, together with a petition for judicial settlement thereof, to be filed by M&T covering the period from January 31, 1974 to September 6, 2013.
Objection 8 also seeks an order directing M & T to file an accounting which would run the accountings current to date from the date of the last currently-filed accounting(s).
Objections 7 and 8 are premised on language in a stipulation in a related case in this court, the judicial settlement by M&T as trustee of a common trust fund [file number 2004-3744/A] in which current objectant Sue Williams was a cited party. In settling that accounting proceeding, M&T entered into a "Stipulation and Order", the stipulation dated November 21, 2012 executed by Daniel H. Williams, Esq., on behalf of the Williams beneficiaries, and Hodgson Russ LLP, Daniel C. Oliverio, Esq., of counsel, on behalf of M&T. In relevant part, the stipulation provided as follows:
"1) M&T is the Trustee of 'Manufacturers and Traders Trust Co, Trustee U/Irrevocable Agreement dated 5/5/1947 Amended 10/19/1953 for the George Barclay Bassett Trust of 1947 for the Family of Robert S. Bassett', Account Number 115084428, and the 'RobertS. Bassett Trust No.7', Account Number 115084519, (collectively referred to hereinafter as 'the Bassett Trusts').
2) The Williams are, among others, beneficiaries of the Bassett Trusts.
3) There has never been a judicial accounting with respect to the Bassett Trusts" (emphasis added).
This Court [HOWE, J.] approved the stipulation by order dated December 4, 2012.
Stripped to essentials, objectants now contend that their November 21, 2012 stipulation, as approved by this Court's December 4, 2012 order, establishes that there was no accounting with respect to the current trust - Bassett Trust No. 7 - prior to the one(s) now pending before this Court covering the aggregate period from September 7, 1983 through May 15, 2017.
Put simply, I do not agree.
The undisputed record of this trust establishes that, on July 6, 1983, M&T filed a petition for judicial settlement of its intermediate accounting "of an Express Trust under Agreement dated January 31, 1974 made by Robert S. Bassett", covering the period January 31, 1974 to September 6, 1983 (as supplemented after the original filing date). All of the current so-called adult Williams beneficiaries - the current objectants - then alive in 1983 were cited in that original 1983 accounting proceeding of this trust. Sue M. Williams was represented by counsel in that accounting proceeding, and guardians ad litem were appointed to represent the interests of both minor trust beneficiaries - which then included Daniel H. Williams IV, and Jennifer Williams - and the interests of "unborn descendants of Robert S. Bassett" (which would now include J.C., A.W., and B.W.).
As noted supra, by Decree dated December 28, 1984, this Court [MATTINA, J.] "judicially settled and allowed" M&T's "revised accounts" of this trust, covering the period from January 31, 1974 through September 6, 1983. That decree "discharged [M&T] from all further liability and accountability as to all matters set forth" in that aggregate accounting.
Objectants now seek to rewrite the judicial history of this trust, and the determinations by this Court, with respect to what occurred in 1983 and 1984. Indeed, objectants seek to eliminate the original judicial accounting in this trust by relying on an erroneous factual assertion in a stipulation in an unrelated trust proceeding to which they were privy, contributed to, and to which they then consented. M&T, in its papers, has now acknowledged that that part of the 2012 stipulation which asserted that there had been no prior accounting in this trust was based on an error on its part.
Objectants say that "[s]tipulations and orders are powerful things", and they point out that parties can "stipulate away" statutory and constitutional rights (citing, for example, cases such as Mitchell v. New York Hospital, 61 N.Y.2d 208 [1984] and Matter of Clark, 168 NY 427 [1901]). However, objectants have not called my attention to any case which permits a party to stipulate away established historical fact, and my research has disclosed none.
The simple fact is that both these objectants, through their current attorney (who was also their attorney in the unrelated 2012 matter), and M&T through its current attorney, made a mutual mistake of fact in 2012 as to whether there had ever been a prior judicial accounting in this particular Bassett trust. And, candor dictates, this Court also made the same error in 2012.
Nevertheless, I know of no legal principle, statute or caselaw determination which holds that a prior judicial determination can be stipulated to as never having occurred. That, however, is precisely what objectants are seeking to accomplish now in their objections 7 and 8, and I find no merit to their claims.
Because a court possesses the power to correct its own records, a case could be made for an application to vacate so much of the November 21, 2012 stipulation, and the subsequent December 4, 2012, order, as is contained in paragraph 3 of the stipulation. No such application is presently before me.
Objections 7 and 8 must both be dismissed.
OBJECTION 13
Objection 13 is predicated on paragraph 9 of the trust, which provides as follows:
"ACCOUNTING BY TRUSTEE. The Trustee shall be entitled at any time to have judicial settlement of its accounts. The Trustee may at any time settle its accounts by agreement with the adult beneficiaries of the income and such agreement shall bind all persons, whether or not then in being, then or thereafter entitled to any portion of the crust and shall effectually release and discharge the Trustee for the acts and proceedings so accounted for."
Objectants urge in their thirteenth objection ["breach of contract and/or breach of implied covenant of good faith and fair dealing"] that
"M&T had an obligation to attempt an agreed settlement of its accounts under Paragraph 9 as a condition precedent to the filing of expensive and protracted legal proceedings seeking such as engendered by M&T's Petition in this case.
* * *
M&T deliberately violated Paragraph 9 because it did not want to file the full disclosure affidavit required by CPLR 7706 and because M&T did not want to disclose that which it had concealed from or had not disclosed to the beneficiaries of The Trust. M&T breached its contract and the implied covenant of good faith and fair dealing contained in all contracts including The Trust and thereby caused damages to The Trust and the beneficiaries of The Trust in an amount to be proven at trial, including, but not limited to, attorneys fees and costs paid or sought from The Trust to Hodgson as well as such fees and litigation costs incurred by The Trust and its beneficiaries in this case."
Paragraph 9 of the trust gives the trustee the option of either judicially settling its accounts "at any time" or settling its accounts by agreement "with the adult beneficiaries of the income" (thereby binding all persons entitled to any portion of the trust). Contrary to objectants' view, attempts at voluntary settlement are not a condition precedent to judicial settlement, and nothing in paragraph 9 or anywhere else in the trust can be so construed.
I can find no basis in the record before me to raise even a colorable issue of lack of good faith or fair dealing by M&T with objectants in this matter, let alone a breach of paragraph 9 of the trust.
The thirteenth objection must, therefore, be dismissed.
OBJECTIONS 2 and 11
Objections 2 and 11 are substantive challenges to M&T's actions as trustee in managing the trust assets and will be considered together.
The second objection alleges that M&T has refused "to obey Judge Mattina's 1984 decision" that "it was the grantor's intent to create a plan to provide substantial benefits to his descendants and, in so doing, to maximize the assets of the trust corpus."
In this objection, objectants contend that M&T did not make "reasonable and prudent efforts" to maximize trust assets. The objection is particularized as follows:
"The Trust, the remaindermen and the Williams Beneficiaries have been damaged by M&T's failure and refusals to obey Judge Mattina's 1984 Decision in an amount to be proven at trial, but in no event less than if the corpus of the Trust had been invested in the reinvested, and/or high yield and high quality, government or corporate bonds, from the inception of the Trust to the present."
The eleventh objection is characterized as follows:
"(Breaches of: duty to invest prudently; duty to diversify assets; duty to avoid self-dealing or any conflicts of interest; duty to preserve trust property and make it productive; duty to deal impartially with beneficiaries; duty of loyalty; duty of full disclosure; duty to follow the prudent man rule; duty to follow the prudent investor rule; duty to incur only costs that are reasonable in amount and appropriate to the investment responsibilities of the trusteeship; duty to act with prudence in deciding whether and to whom to delegate authority and in the selection and supervision of agents; duty to place the interests of the beneficiaries above those of the trustees; duty of impartiality; duty to conform to the terms of the trust; duty to keep truthful and accurate records of the affairs of the trust including, but not limited to its administration, disbursements, loans and investments)" (emphasis added).
The objectants flesh out this claim in more detail:
"M&T as Trustee of The Trust was enveloped by all the fiduciary duties which a trustee has to the beneficiaries of a trust, including the beneficiaries of The Trust, born and unborn. As set forth above, M&T has breached and/or failed to perform those duties in the investment, management and administration of The Trust, including, but not limited to, paying, collecting or incurring excessive or improper fees to M&T, its lawyers, consultants, accountants as well as investing in M&T funds or vehicles which generated profits for M&T, the keeping of true, accurate and correct records as well as the other matters set forth and alleged in Paragraphs 1 through 91, above and has concealed from and refused to disclose to the beneficiaries of The Trust, its actions, inactions and defalcations in the investment, record keeping regarding, management and administration of The Trust and its corpus. By virtue of the breaches of those duties by M&T and Hodgson, The Trust, the beneficiaries of The Trust and its remaindermen have been damaged in an amount to be proven at trial and M&T should be surcharged and pay the Trust, its beneficiaries and remaindermen for the amount of the damages so proven and awarded."
Objectants' arguments can be characterized in a general way from their papers as follows:
"THE TRUST HAS BEEN DESTROYED BY INFLATION and BAD MANAGEMENT
Thirty-nine (39) years ago, on January 12, 1982, Robert S. Bassett ('Mr. Bassett') died and left his entire estate to The Trust and M&T as Trustee under his Will. (See, Exhibit 3, Mr. Bassett's Will dated February 12, 1974). Mr. Bassett's Estate was valued at $3,899,154. (See, Exhibit 4, the September 21, 1982 United States Estate Tax Return for Mr. Bassett's Estate).
On January 13, 1982, the day after Mr. Bassett died, Charles Harrington, Esq., the lawyer for Mr. Bassett and M&T, and a co-executor of Mr. Bassett's Will, wrote a letter to Mr. Bassett's two living children stating that, as of January 12, 1982, Mr. Bassett had $2,772,023.92 in a custodian account with M&T and the value of the The Trust was $719,832.36. (See, Exhibit 11). On the day Mr. Bassett died, M&T had sole control of $3,491,855 of Mr. Bassett's cash and cash equivalents.
Three years later, on '12/31/84', the value of The Trust was $903,836." (See, Exhibit 16). On January 12, 1982, the date of Mr. Bassett's death, M&T had sole control of Mr. Bassett's $3,491,855 in cash or cash equivalents (See, Exhibit 11). Three (3) years later, on 12/31/84, there was only $903,836 in The Trust on 12/31/84. Where was the rest of the money?
Where did the $2,588,019 (the difference between $3,491,855 and $903,836) go? Where did the $2,995,318 (the difference between $903,836 and $3,899,153) go? M&T's Accounting and its MSJ are entirely silent on this crucial fact question, but M&T nonetheless asks the Court to approve of it. Where did the $2,995,318 or the $2,588,019 go? It wasn't in The Trust. Where was it? What was going on? These damages roll through The Trust to the present day. These are continuing torts and damages.
With normal Consumer Price Index (CPI) inflation, $3,899,154 in 1982 dollars should be worth $10,808,648 in today's inflated dollars. (See, Exhibit 5). According to the Minneapolis Fed Inflation Calculator, $1 in 1982 was worth $2.65 in 2019 (See, Exhibit 20). Inflation statistics are judicially noticeable: 'It was proper for the court to take judicial notice of government inflation statistics because they are historical data that are readily and precisely verifiable [citations omitted].' Sommers v. Sommers, 203 A.D.2d 975, 976 (4th Dept. 1994).
On February 28, 2021 the asset value of The Trust was $2,170,362. (See, Exhibit 6). Mr. Bassett's $3,899,154 in 1982 should now be worth "at the barest minimum" $10,808,648 (See, Exhibit 5) but, instead, 39 years later on February 28, 2021, The Trust was worth $2,170,362 in 2021 dollars.
The February 28, 2021 'asset value' of The Trust, $2,170,362, was worth $819,339 in 1982 dollars (See, Exhibit 7). M&T, as sole trustee of The Trust, turned Mr. Bassett's $3,899,154 in 1982 dollars into $819,339 in 1982 dollars. M&T argues M&T's destruction of the purchasing power of The Trust was not negligent and was 'prudent'. M&T's turning $3,899,154 in 1982 dollars into $819,339 in 1982 dollars is 'negligent' and 'imprudent' as a matter of law. Just looking at the numbers, it is impossible to attach 'prudent' to anything having to do with those numbers" (emphasis added).
Certain of the dollar amounts used by objectants in their quoted recitation are being utilized by them out of context. For example, the present trust accounting for the period September 7, 1983 through October 18, 2013 shows receipt of assets from the estate of Robert Bassett. It is noteworthy that the fiduciaries of Bassett's 1982 estate included his daughters, Marcia McGratten and Sylvia Street, and their estate accounting - covering the period September 20, 1982 through February 17, 1985 - was approved by decree of this Court [MATTINA, J.] on November 7, 1985. An accounting by M&T with respect to its handling of the Article IV testamentary trust under Robert Bassett's Will, covering the aggregate period September 20, 1982 through August 10, 1989, was also approved by decree of this Court [MATTINA, J.] on December 28, 1990. Thus, everything that was done with respect to Robert Bassett's estate assets was approved more than 30 years ago by decrees of this Court and any actions by the fiduciaries of the Bassett estate involved at that time - be it Marcia McGratten, Sylvia Street, or M&T Bank - are not subject to relitigation now. Finally, the estate accountings establish what was to be transferred from the estate to this trust, and the first trust accounting now before me (see Appendix A) shows those receipts, making the figures used by objectants here inaccurate and misleading. See generally, Estate of Robert Bassett, Erie County Surrogate's Court file #1982-227, of which I take judicial notice (Prince, Richardson on Evidence, §2-209 ["a court may take judicial notice of a record in the same court"] [11th ed., Farrell]).
(i)
M&T's expert, Paul Napoli, has submitted an affidavit on this motion for accelerated judgment in which he discusses the general standards applicable to this Court's review:
" From 1970 to 1994, New York's 'Prudent Man Rule' held trustees to the standard of investing in securities that would be acquired by prudent men of discretion and intelligence in matters seeking reasonable income and preservation of capital. Since 1995, New York's 'Prudent Investor Act' requires that trustees exercise reasonable care, skill and caution in making investment decisions as a prudent investor would for the entire portfolio guided by the terms of the governing instrument. Trustees must consider economic condition, taxes, diversification and the terms of the governing instrument with regard to current and future distributions.
I am aware that the Objectants have argued that a 1984 order by Surrogate Mattina imposed a higher standard of performance by the Trustee. The Objectants are incorrect.
Importantly, New York law is clear that trustee's investment decisions must be judged by reviewing the process, and not the performance of the trust investments. The standard looks to the Trustee's conduct, not outcomes or performance. Judge Mattina's [1984] order is consistent with the Grantor's intent and fiduciary standards of loyalty and care, and does not impose additional obligations on the Trustee" (emphasis added).
In Matter of Ely, 37 Misc.3d 875, 879-880 [2012], aff'd 109 A.D.3d 1118 [2013] "for reasons stated in the decision by the Surrogate", this Court [HOWE, J.] set out the standards governing trust accountings such as those now before me:
"On January 1, 1995, the Prudent Investor Act (EPTL 11-2.3) became the governing standard for fiduciaries, and it imposes an affirmative duty on a fiduciary 'to invest and manage property held in a fiduciary capacity in accordance with the prudent investor standard defined by this section' (EPTL 11-2.3 [a]). The standard of conduct under this role is not defined by 'outcome'; rather, compliance 'is determined in light of facts and circumstances prevailing at the time of the decision or action of [the] trustee' (EPTL 11-2.3 [b] [1]).
The rule expressly requires that a 'trustee shall exercise reasonable care, skill and caution to make and implement investment and management decisions as a prudent investor would for the entire portfolio, taking into account the purposes and terms and provisions of the governing instrument' (EPTL 11-2.3 [b] [2] [emphasis added]). When evaluating a fiduciary's decisions, 'it is not sufficient that hindsight might suggest that another course would have been more beneficial; nor does a mere error of investment judgment mandate a surcharge' (Matter of Bank of NY, 35 N.Y.2d 512, 519, 323 [1974])" (emphasis added).
In determining whether a trustee has met the standard of conduct required by the Prudent Investor Act, the "investment and management decisions" for "the entire portfolio" must be considered (EPTL 11-2.3[b][2]). The prudent investor standard requires that a trustee must consider:
"to the extent relevant to the decision or action, the size of the portfolio, the nature and estimated duration of the fiduciary relationship, the liquidity and distribution requirements of the governing instrument, general economic conditions, the possible effect of inflation or deflation, the expected tax consequences of investment decisions or strategies and of distributions of income and principal, the role that each investment or course of action plays within the overall portfolio, the expected total return of the portfolio (including both income and appreciation of capital), and the needs of beneficiaries (to the extent reasonably known to the trustee) for present and future distributions authorized or required by the governing instrument" (EPTL 11-2.3[b][3][B], emphasis added).
"Compliance with the prudent investor rule is determined in light of facts and circumstances prevailing at the time of the decision or action of a trustee. A trustee is not liable to a beneficiary to the extent that the trustee acted in substantial compliance with the prudent investor standard or in reasonable reliance on the express terms and provisions of the governing instrument" (EPTL 11-2.3[b][1]).
Where the "prudent person standard applies" - that is, prior to 1995 - Matter of Pollock, supra, explained the rule this way:
"In its essence, the trustee is impressed with a duty to exercise the diligence and prudence over his charge as would be exercised by prudent [persons] of discretion and intelligence in such matters who are seeking a reasonable income and preservation of their capital (EPTL 11-2.2[a][1]). Whether a fiduciary acted imprudently is a factual determination to be made by the trial Court (Matter of Donner, 82 N.Y.2d 574). There is no bright line standard applicable to the investment decisions of a trustee. The Court may consider a variety of factors to determine the prudence of a fiduciary's investments, including the amount of trust estate, the situation of the beneficiaries, the diversification of the portfolio, the qualities of the individual securities, etc. (Restatement [Second] of Trusts Sec. 227, Comment e; Turano and Radigan, New York Estate Administration, ch. 14, Sec. P, at 409 [1986]). While the fiduciary remains liable for imprudence as to each individual investment, the record of any individual investment is not to be viewed exclusively, of course, as though it were in its own water-tight compartment (Matter of Bank of NY 35 N.Y.2d 512, at 517). Therefore, it is of some significance that the trusts' assets increased in value as a whole over the accounting period" (emphasis added).
(ii)
The assets in the trust now before me were managed by both a trust administrator and an investment manager, and the trust's performance and investment strategy was reviewed at least annually. Additionally, the SCPA 2211 testimony establishes that, as the Napoli affidavit pointed out:
"New York law looks to the process and procedures followed by a trustee. Here, the Trustee had an Investment Policy Committee whose responsibility was to evaluate the economic environment, the outlook for interest rates, corporate profits, and inflation. Based on its assessment of those factors, recommendations are made for asset allocation ranges for a series of investment objectives. Those objectives range from low risk, high income, or all fixed income to high risk, low income, or all equity. The committee voting members include the most senior investment officer, heads of asset allocation, fixed income, equity, portfolio management and the chief economist. Non voting members include the deputy general counsel, chief compliance officer and director of investment implementation oversight. The Trustee's Investment Policy Committee's make-up is consistent with best industry practices for New York institutional trustees.
The monthly meeting of the Trustee's Investment Policy Committee concludes with a presentation to all portfolio managers, providing insights and asset allocation directives. It was quite clear from my interviews with Richard Scalfani, Steven Gattuso, and Todd Bemiller, coupled with reviews of 2211 examinations of Richard Scalfani, Steven Gattuso, Todd Bemiller, and Todd Murphy, that this process was consistently executed during the accounting period.
There was also appropriate oversight of trust account management through the annual review to the Trust Investment Committee of the Board, as required by banking law. Each year, regulators conduct a "Safety and Soundness" review, and the management of trust accounts is a key area of focus. The review, also called a Reg 9 review, details the type of trust, investment objective, asset allocation and ranges against policy, investment performances, tax issues, and liquidity requirements.
In addition to the Trust Investment Committee review, the Trustee also conducted an Administrative Committee review. This Committee focuses on the terms of the trust, ability to invade principal, discretionary or non-discretionary, fee language, list of beneficiaries, and a list of discretionary distributions and whether they are documented according to policy. A report for each trust is prepared by the Trust Officer and approved by a second Trust Officer.
Consistent with Grantor intent, and based on my knowledge and experience, the account was actively managed to balance the interests of both income and remainder interests. The Trustee's actions were consistent with prudent man and prudent investor standards."
The Napoli affidavit recitations about the process and procedures followed by M&T in managing this trust are all supported by the SCPA 2211 deposition testimony of the M&T employees so examined.
As of September 7, 1983, the trust was valued at $745,938.90, with an ending trust balance on May 15, 2017 of $2,113,117.79. Over the course of the two accountings now before me [September 7, 1983 through May 15, 2017], the trust has distributed a total of $6,156,000.86 to trust beneficiaries of which $1,686,488.97 has been paid to the current objectants (and of which $716,725.47 was discretionary payments from principal to one or more of the objectants).
See December 28, 1984 Decree of this Court [MATTINA, J.] settling M&T's accounting(s) for the period January 31, 1974 to September 6, 1983.
As the Napoli affidavit points out, the trust performance over the period in question showed "a highly competitive return". And Napoli notes that objectants' comparisons about performance results failed to take into account - or, in reality, ignore - the distributions made to the trust beneficiaries over the accounting periods, as well as such other appropriate items as State and Federal taxes and administration expenses.
Exhibit B to the March 2, 2021 affirmation of Kevin M. Kearney, Esq., counsel for M&T in these proceedings, shows a 9.22% "annualized return" over the first accounting period now before me. That number takes into account distributions from the trust; and it is also not without significance that it covers the period starting in 2008 when there was massive economic disruption in the country (see, e.g., 2211 testimony of Todd Murphy - who was at M&T for 20 years and acted "[a]kin to a portfolio manager" - relating that the market "dipped dramatically" in 2008, that the bottom was in March, 2009, and that, while market "recovery time varied", it was "somewhat complete around 2011."
Considering all the factors that impinged on the management of this trust, objectants reliance solely on an "outcome" comparison between the trust value at the end of the accounting periods before me and the abstract CPI and S&P 500 index performance for the same time frame is misplaced. Although growth for inflation is an objective, the SCPA 2211 examinations make clear that is not the only factor that has to be considered. And those examinations were clear about not measuring portfolio performance by comparison to the S&P 500 index performance for the same period. Richard Scalfani, former vice-president of M&T for fiduciary investing,"senior head" of M&T's "investment officers for the trust division" from 1983 to 1996, indicated in his SCPA 2211 examination why trust investment performance should not be "compared to the S&P 500 as a benchmark":
"it wouldn't be appropriate. First of all, very few trusts were 100 percent invested in equities and the S&P 500 is strictly large cap equity index. Not every trust was invested in large capital 100 percent. There was a mixture of fixed income and, you know, equities, small caps, large caps. That index didn't mirror - didn't - wasn't comparative to what was actually being invested in the trust. There was no index to measure that trust unless you created an index artificially to track it and you would only then create it uniquely to that one trust, and if you have several thousand trusts, you're not going to create several thousand indices to create - to track every trust you've got in your shop.
Q. You've answered the question. The answer is no, you didn't do that, correct?
A. No. The other problem with having trusts is that the tracking and index - you'd have to make adjustments all the time for principal withdrawals because, you know, you can take a trust that has capital that over time is diminishing, but not because of performance, but because of withdrawals. So you'd have to make adjustments along the way and it gets to be a complicated - to match it to some indice."
With respect to certain administration expenses - trustee fees - Napoli says that the fees and commissions taken as reflected by the accountings are consistent with what the trust agreement authorizes and as "may be allowed from time to time by the laws of the State of New York". Napoli also says that "these amounts are typical expenses for a trust of this size, and [are] consistent with industry standards".
It is also noteworthy that, throughout the periods in question, the record before me shows that M&T sent the trust beneficiaries regular statements of the trust account and there were no objections to any of them:
"The Trustee has provided monthly account statements to income beneficiaries. The Objectants have not identified any failure or deficiencies in those reports, or in the records maintained by the Trustee. Objectants' counsel has continually raised complaints about the Trustee's production of documents in this proceeding, but those complaints are unfounded." (Kearny, March 2, 2021 affirmation, at pgh. 58).
I find, from a review of the entire record of proceedings over the past eight (8) years with respect to these accountings, that M&T has managed this trust skillfully and appropriately according to both the prudent person standard (while it was the governing rule) and the (current) prudent investor standards. I can find no disputed issue of fact raised in any evidentiary way by objectants in this regard, and I conclude that objections 2 and 11 must both be dismissed.
OBJECTION 14
In urging that M&T did not properly manage this trust, objectants, in their fourteenth objection, allege that M&T:
"intentionally and imprudently failed in performing its duties properly to allocate to principal or income money in the corpus of The Trust and/or monies received by The Trust as a result of investments or otherwise. The result, and the resulting damage to The Trust, the beneficiaries and the remaindermen of these improper allocations between, or to, principal or income, was and is that the growth of the Trust's corpus and principal was systematically slowed and undervalued in favor of income payable to beneficiaries with the result that the corpus of The Trust grew too slowly, if at all, was substantially diminished by inflation and came to be substantially smaller in 2017 than it was thirty years earlier in 1987, all to the damage of The Trust and its beneficiaries and remaindermen."
The argument here seems to be that if there had been less on the "income" side of the trust ledger there would have been more on the investment side to generate additional income. Looked at differently, if there had been no (or less) income distributed to the trust beneficiaries, then that extra amount could have been used to grow the corpus. I find any such argument unpersuasive and, indeed, difficult to fathom given that the trust instrument directs payments of income be made regularly to all trust beneficiaries following the grantor's death [1982]. The "complaint" is even harder to understand when, as appears from the Napoli affidavit, as well as from the SCPA 2211 testimony of Sheila Blum, Karen Cummins and Richard Scalfani, that the trust beneficiaries - "the family members" - "were continually requesting more income".
See, e.g., Scalfani October 25, 2017 SCPA 2011 examination, at p. 113, with Scalfani recalling a September 9, 1985 meeting with Marcia McGratten - objectant Sue Williams' mother - and her sister, Sylvia Street, the trust grantor's daughters, in which both beneficiaries indicated that "fluctuation of income to the income beneficiaries was a problem they want to generate additional income".
It is not without some irony that now, thirty years later, Marcia McGrattan's daughter and grandchildren - the current objectants - make the argument that it "was the trustee's responsibility to set the targets, not the beneficiaries", with respect to how trust assets were allocated and managed. However, an objective reading of the record makes clear that M&T balanced and managed the trust portfolio in such a way as to give some consideration to the requests and needs of McGrattan and Street at the same time as such management also took into account "growth for remaindermen". See, e.g. SCPA 2211 examination of Richard Scalfani, pp. 76, and 121-122; SCPA 2211 examination of Steve Gattuso, p. 29 ["fiduciary interests lie both equally with the beneficiary and the remaindermen"]; and SCPA 2211 examination of Todd Bemiller, p. 42 [the goals and objectives of the trust management "made sense" given the "situation with the family and the number of beneficiaries"].
I conclude that there was nothing improper or imprudent about M&T's handling and management of this trust insofar as is alleged by objection 14, and that objection must be dismissed.
OBJECTIONS 5 and 15
Objections 5 and 15 relate to objectants' claims that M&T either overcharged or improperly charged items - including attorney fees - to the trust as administration expenses which should be disallowed.
In objection 5, objectants contend that M&T charged excessive fees and expenses to the trust. Specifically, objectants allege that, over the aggregate period of these two accountings [1983 - 2017], a period of nearly 34 years, M&T paid approximately $833,000 "in administration expenses to itself from the Trust's principal and income":
The $833,000 approximate number used by objectants does not include payments by M&T for federal and state taxes owed by the trust.
"Objection is made to each and every item of expense, fee or commission charged or collected with the exception of reimbursement for Federal and state taxes paid by M&T on behalf of the Trust."
With respect to the "expense, fee or commission charged or collected" issue, there is absolutely no particularization by objectants in any of their papers of what specifically is being objected to or why. It is unclear which amounts constitute the objectants' aggregate number of approximately $833,000 being challenged, or, much more to the point, what impropriety by M&T is alleged as to all or any specific item(s). Under all the circumstances, their claim is virtually unreviewable. In Matter of Faile, 1997 NYLJ LEXIS 2784 [dec. Oct. 2, 1997], Westchester Surrogate Judge Emanuelli pointed out that:
"SCPA 302(2) requires that statements in a pleading be sufficiently particular to give the court and parties notice of a claim, objection or defense, and contain demand for the relief sought. While this statute has been interpreted to require that the pleading be sufficiently informative so as to give notice of the objection which the party advancing it seeks to prove (see, Matter of Gil, 67 A.D.2d 779) nevertheless, the test of any good pleading is whether it advises litigants and the court clearly and unambiguously of the pleader's intentions as to his objections, and whether the essential facts which are required to give such notice are stated (see, Foley v. D'Agostino, 21 A.D.2d 60; see also, CPLR 3013)" (emphasis added).
The SCPA 2211 deposition testimony of Richard Scalfani indicates that M&T's fees were "based on the market values at certain dates and it was a percentage", and that the fees were calculated pursuant to "a published fee schedule". The 2211 testimony of Karen Cummings - who has been with M&T since 1996 and is a trust advisor there - explained more fully how the M&T trustee fees and discretionary distribution fees were handled.
I find that the Napoli affidavit establishes prima face that the trustee fees and commissions were "consistent with industry standards" for "a trust of this size"; and, in addition, the items complained about - to the extent they are identifiable - do not contravene the trust instrument. Similarly, other expense items appear proper, fair and reasonable; and, again, the Williams objectants do not particularize anything excessive or improper about any such items.
For example, although a small number in the overall scheme of things, $482.00 in "postage" is an expense item in the first accounting here charged against income (see Sch. C-2, at pp. 284-288), listed for sending certain things to beneficiary Norman McGrattan. This is apparently within the scope of the general objections to "administration expenses", but I perceive nothing excessive or improper about the charge.
Thus, objection 5 must be dismissed.
In objection 15, objectants urge that:
"The Trust does not expressly authorize payment of legal fees, the Trust does not expressly authorize any payment from the Trust to M&T's lawyers who are defending M&T's misconducts and tortious bungling of the Trust - M&T should pay those fees, not the Trust. The Trust does not authorize improper and/or excessive legal expenses or legal fees charged to, and paid by, the Trust without prior court approval or to lawyers who are representing M&T against the beneficiaries. The Williams benefici-aries demand the immediate refund to the Trust of all legal fees or expenses paid to Hodgson by M&T - also, an order to M&T that no payments be made from the Trust for legal fees or expenses to Hodgson, or any other lawyer or any guardian, or otherwise, without a prior order of the court made after a motion and hearing" (emphasis added).
With respect to objection 15, M&T's motion papers take the following position:
"The Fifteenth objection asserts that the Trust does not expressly authorize the payment of legal fees, and that therefore M&T must pay its lawyers itself, and cannot be reimbursed by the Trust. Respectfully, the issue of reimbursement of fees is one the Court will decide in connection with this proceeding. Objectants have made their position clear, but as with nearly all of the objections have failed to support their rhetoric with any applicable authority. The breadth and vehemence of the objections, and the conduct of Objectants' counsel in this proceeding, has forced the Trustee to incur substantial legal fees. Upon proper application, these fees should be paid from the Trust" (emphasis added).
Counsel for objectants has previously filed a letter sent to the adult beneficiaries of the trust dated January 16, 2018 from Karen Cummins, who was "Administrator of The Robert S. Bassett Trust #7 of 1974". In relevant part, the letter addressed the issue of M&T's attorney fees:
Counsel for the Williams objectants attached the letter as an exhibit to his affirmation dated October 16, 201[9], filed with respect to an earlier issue on these trust accountings.
"A trustee is allowed to be reimbursed from a trust for the reasonable attorneys' fees that it has incurred in connection with administering the trust. M&T has already paid Hodgson Russ $59,878 from the trust for legal fees incurred in settling the accounting. Since that payment, M&T has paid approximately $171,717 in additional legal fees through December 2017, which it has paid directly from its own assets.
M&T's legal fees have been incurred, for example, by participating in more than 20 hours' worth of the "examination of the fiduciary" hearing; responding to multiple motions and appeals filed by the Williams beneficiaries; responding to the 39 pages of objections filed by the Williams beneficiaries, and then responding again to the objections when they were amended several weeks later (notably Roger Simons' objections were only 2 pages); and participating in an all-day hearing that was held on Roger Simon's fee request. On this last point, it should be noted that Mr. Williams objected to Roger Simon's fee request and demanded the hearing. After a full day hearing, during which Mr. Williams questioned Mr. Simon on the witness stand, the Court went ahead and approved Mr. Simon's fee request.
M&T continues to incur and pay attorney's fees as the matter progresses. Eventually, before the end of the proceeding, M&T intends to petition the Surrogate's Court for permission to be reimbursed for all of its attorneys' fees incurred with respect to the Bassett trust from the Bassett trust itself."
I find that the record is not sufficient to determine at this juncture whether legal fees requested by M&T to be paid to its counsel should be approved in whole, in part, or at all. As our Appellate Division pointed out in Matter of JP Morgan Chase Bank, N.A. (Roby), 158 A.D.3d 1224, 1225 [2018], a "Surrogate has jurisdiction to award legal fees (see Matter of Stortecky v. Mazzone, 85 N.Y.2d 518, 525-526 [1995]" in a trust accounting proceeding. However, in making any such award, the Court must consider a variety of factors:
" 'It is well settled that, in determining the proper amount of attorney's fees and costs, the court "should consider the time spent, the difficulties involved in the matters in which the services were rendered, the nature of the services, the amount involved, the professional standing of the counsel, and the results obtained"' (Matter of HSBC Bank USA, N.A. [Campbell], 150 A.D.3d 1661, 1663 [4th Dept 2017], quoting Matter of Potts, 213 A.D. 59, 62 [4th Dept 1925], aff'd 241 NY 593 [1925])" (id., at 1225).
Here, as acknowledged, no detailed affidavit of services has been provided in connection with the attorney fees being requested, without which I have no way of reviewing those fees. Thus, further proceedings on that issue will be required (see infra, at pp. 48-49).
There are actually two discrete periods for which legal fees are at issue. The first relates to fees already paid - and reflected in the current first accounting [subrecord /A] now being reviewed - by M&T to its attorney. The second is for any legal fees owed by M&T to its attorneys for the period on and after that first accounting period through the date of this decision.
OBJECTIONS 6 and 10
In objection 6, objectants contend that M&T has committed constructive fraud in the form of "fraudulent concealment and tortious failures to disclose":
"Put succinctly, M&T had a duty to tell the beneficiaries of The Trust what had gone wrong, what was going wrong, what effect and damage it was going to have on them and do to them, what had been done wrong by M&T and what M&T intended to do to fix the harm and damages it had caused to The Trust, the beneficiaries and the remaindermen. M&T didn't tell the beneficiaries any of those things and that is constructive fraud" (emphasis is added).
As a variant of that claim, objection 10 asserts actual fraud by M&T:
" M&T, despite its various fiduciary and contractual duties of, inter alia, loyalty and disclosure, in doing the things alleged above, acted with scienter and an intent to conceal from and not disclose to the beneficiaries of The Trust, even in the accounting now before this Court, the failures, losses and poor management alleged above and the manner in which those failures came about and the nature and amount of the damages and expenses thereby caused, and to be caused in the future, to The Trust and its beneficiaries and does not disclose who is responsible for the failures, losses and poor management together with such other facts as were required to be disclosed to the beneficiaries of the Trust by M&T, the Trustee of the Trust" (emphasis is added).
Because I have found and concluded that M&T managed this trust properly within the legal requirements set forth supra, I likewise find and conclude that M&T did not "harm and damage" the trust, nor did it conceal or otherwise fail to disclose to the trust beneficiaries anything about which they were required to be apprised. It is worth repeating (see supra, at p. 36) that M&T sent each of the trust beneficiaries "monthly statements detailing the investment objective, asset allocation, monthly transactions and annual investment results", something which is not denied by any of the objectants.
I conclude that there was, in fact, no actual or constructive fraud by M&T as alleged by objectants; and, thus, objections 6 and 10 must be dismissed.
OBJECTION 1
Objection 1 asserts, inter alia, that M&T had basic "contractual" duties as a trustee which it failed to perform with respect to this trust:
"M&T breached its contract by failing properly to perform its duties including, but not limited to, properly and prudently to diversify and invest the corpus of The Trust in accordance with the express terms of The Trust and the intent of Mr. Bassett as expressed in The Trust and Judge Mattina's 1984 Decision, charging excessive and improper fees which unjustly enriched M&T and its lawyers, agents and vendors, acted in M&T's interests to the detriment and damage of the interests of The Trust, its beneficiaries and remaindermen, failed to disclose or discuss information and refused to even attempt a resolution of this accounting pursuant to Paragraph 9 of the Trust.
The Trust, the remaindermen and the Williams Beneficiaries have been damaged by M&T's breaches of contract in an amount to be proven at trial, but in no event less than if the corpus of Trust had been invested in the S&P 500 and/or the Dow Jones Industrial Average ("The Dow"), with dividends reinvested, and/or high yield and high quality, government or corporate bonds, from the inception of The Trust and particularly during the period 1987 to 2003, and to the present 'and the market conditions then and there prevailing'."
Objection 1 is merely a synthesis of all - or mostly all - of the other objections which the Williams beneficiaries have asserted against M&T. Because I have found no merit to any of the other objections asserted against M&T's conduct in question during these two accounting periods [September 7, 1983 to May 15, 2017], I likewise find no merit to objection 1.
OBJECTION 9
Objection 9 is a counterclaim by objectants seeking "termination of the trust and per capita distribution" to the trust beneficiaries.
I find that, because no separate citation was issued on this termination counterclaim to all interested parties, it cannot be entertained at this time as there is no jurisdictional predicate for doing so. This lack of jurisdiction is particularly significant with respect to the minor beneficiaries and the possible unborn beneficiaries of the trust because the guardians ad litem have no legal authority or capacity to represent the interests of such wards in the absence of jurisdiction over those wards on this specific issue (see, e.g., Matter of Beckley, 63 A.D.3d 855, 856 [1978]). Furthermore, the non-Williams respondents in these two accountings - that is, all the McGrattan and the Street beneficiaries - have not appeared or responded to the accounting citations in either of these two proceedings, nor have they participated in either of the accounting proceedings, and they are, therefore, totally unaware of the termination counterclaim in which they have a clearly vested interest.
Accordingly, objection 9 must be dismissed, without prejudice to the objectants filing a separate petition for the same or similar relief hereafter.
(IV)
I find that M&T has established its entitlement to judgment as a matter of law, and I further find that objectants have failed to raise any issues of material fact that M&T violated its fiduciary duty in any way in carrying out its management of the trust assets. See e.g., Matter of Schnare, supra; see also Matter of Gallagher, 81 A.D.3d [2011] and Matter of Campione, 58 A.D.3d 1032 [2009].
Therefore, M&T's motion for summary judgment must be, and it hereby is, granted by dismissing objectants' objections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14. And, with the exception of objection 9, which stands on a different footing, to the extent any objections also are characterized as a "counterclaim" with counterclaim damages requested, those counterclaims are likewise dismissed.
With respect to objection 15, that dealing with the payment of, and request for, legal fees, decision continues to be reserved on that objection, as well as on the issue of who should pay for those fees, and the following direction is hereby made:
The issue of who should pay for M&T's attorney fees, and the related issue of who should pay for any GAL fees, in these two accountings remains an open disputed issue (see, e.g., Matter of Hyde, 15 N.Y.3d 179, 186-187 [2010] and Matter of JP Morgan Chase Bank N.A., 122 A.D.3d 1274 [2014]). To the extent that there is any issue of where payment of the fees of the guardians ad litem should come, that issue may also be included in M&T's and the objectants' submissions, and the guardians ad litem may take a position if they deem it appropriate to do so.
(1) On or before March 4, 2022, M&T, with and through its attorney Hodgson Russ LLP - and any other attorney for whom M&T seeks payment from this trust of legal fees, expenses and disbursements - shall, pursuant to §207.45 of the Uniform Rules for Surrogate's Court, efile an affidavit of services, together with any legal brief with respect thereto it deems advisable;
(2) On or before April 15, 2022, the Williams objectants shall efile any response to the within fee application;
(3) On or before May 6, 2022, M&T, by its attorney, shall efile any final reply on the counsel fee issue;
(4) This Court will take the legal fee issue - that is, objection 15, as supplemented herein, as decision reserved as of the close of electronic business on May 6, 2022.
This decision shall constitute the Order of this Court and no other or further order shall be required.