Bauer v. Bauernschmidt

• Decision Date: 09 November 1992
• Citation: 589 N.Y.S.2d 582,187 A.D.2d 477
• Parties: Valerie BAUER, et al., Respondents, v. Garrett BAUERNSCHMIDT, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 582

589 N.Y.S.2d 582

187 A.D.2d 477

Valerie BAUER, et al., Respondents, v. Garrett BAUERNSCHMIDT, Appellant.

Supreme Court, Appellate Division Second Department.

Nov. 9, 1992.

Scavuzzo & Hart, Mineola (Julius J. Scavuzzo, of counsel), for appellant.

Hobbs and Hobbs, Setauket (C. Whitman Hobbs, of counsel), for respondents.

Before BRACKEN, J.P., and HARWOOD, BALLETTA, and EIBER, JJ.

MEMORANDUM BY THE COURT.

In an action to compel an accounting by the defendant as trustee of the Valerie Bauernschmidt Trust and the Claudia Bauernschmidt Trust, the defendant appeals from a judgment of the Supreme Court, Suffolk County (D'Amaro, J.H.O.), dated July 13, 1990, which, after a nonjury trial, directed him to pay, as a surcharge for the mismanagement of the trusts, the sum of $21,985 for each trust.

ORDERED that the judgment is modified, as a matter of discretion, by reducing the amount awarded to each plaintiff from the principal sum of $21,985, to the principal sum of $2,500, with interest from January 1, 1976; as so modified, the judgment is affirmed, without costs or disbursements, and the matter is remitted to the Supreme Court, Suffolk County, for entry of an appropriate amended judgment.

The trust instrument pursuant to which the defendant acted granted him the power to invest and reinvest trust funds of approximately $18,000 on behalf of each of the plaintiffs, his daughters, as he in his absolute judgment and discretion deemed in their best interests. Moreover, the trust instrument provided that he was not to be held liable for any act or failure to act where he acted in good faith. The trust instrument authorized him to render informal accountings to the trusts' settlor (his mother and the plaintiffs' grandmother), in lieu of any formal accounting. The settlor confirmed through her trial testimony that the defendant was to have absolute discretion over the use of the trust funds and she acknowledged that the expenditure of trust funds for the purchase and maintenance of horses for her granddaughters' enjoyment and recreation was with her knowledge and tacit approval. The trial court determined, however, that the defendant's inability to satisfactorily account for his expenditures on behalf of the plaintiffs constituted evidence that he mismanaged the funds entrusted to him and it imposed a surcharge payable to each plaintiff exceeding the original value of each trust.

To warrant a surcharge, the plaintiffs must show that a financial loss resulted from the defendant's negligence or failure to exercise that degree of care which " 'prudent [people] of discretion and intelligence in such matters, employ in their own like affairs' " (Matter of Hahn, 93 A.D.2d 583, 586, 462 N.Y.S.2d 924, affd 62 N.Y.2d 821, 477 N.Y.S.2d 604, 466 N.E.2d 144, quoting from King v. Talbot, 40 N.Y. 76, 86; Matter of Bank of N.Y., 35 N.Y.2d 512, 518-519, 364 N.Y.S.2d 164, 323 N.E.2d 700; Matter of Clark, 257 N.Y. 132, 136, 177 N.E. 397). While the essential ingredient of a trust is the accountability of the trustee ( see, Matter of Kassover, 124 Misc.2d 630, 476 N.Y.S.2d 763), exculpatory provisions like those in the present case are valid in inter vivos trusts so long as there is some accountability, at least, to the settlor...