In re JPMorgan Chase Bank N.A.
| Decision Date | 14 November 2014 |
| Docket Number | 1015 CA 14-00062 |
| Citation | 2014 N.Y. Slip Op. 07799,996 N.Y.S.2d 816,122 A.D.3d 1274 |
| Parties | In the Matter of the Judicial Settlement of the Final Account of JPMORGAN CHASE BANK N.A., Petitioner–Respondent, as Trustee of the Trust Created under the Last Will and Testament of Lucy Gair Gill, Deceased, Dated October 26, 1975, for the Benefit of Mary Gill Roby, et al. Elizabeth Lee Roby, Kathryn Starr Roby Johnson, and William S. Roby, III, Objectants–Appellants. |
| Court | New York Supreme Court — Appellate Division |
William S. Roby, III, Rochester, Objectant–Appellant Pro Se, and for Elizabeth Lee Roby and Kathryn Starr Roby Johnson, Objectants–Appellants.
Nixon Peabody LLP, Rochester (Stephanie T. Seiffert of Counsel), for Petitioner–Respondent.
PRESENT: CENTRA, J.P., FAHEY, WHALEN AND DeJOSEPH, JJ.
Objectants Elizabeth Lee Roby (Elizabeth), Kathryn Starr Roby Johnson (Kathryn), and William S. Roby, III, (William), appeal from an amended order granting the motion of petitioner JPMorgan Chase Bank N.A. to dismiss the objections filed by objectants. Lucy Gair Gill died in 1983, and her will established a trust for the benefit of her daughter, Mary Gill Roby (Mary), with petitioner's predecessor in interest, Lincoln First Bank, named as trustee. The trust provided that income and principal would be paid to Mary and her children and grandchildren for Mary's lifetime and, upon Mary's death, the trust would terminate and the remainder of the trust would be distributed pursuant to Mary's limited power of appointment. Mary had three children: William, Peter Roby (Peter), and Gill Roby DeChario (Gill). Mary died on July 9, 2010, and she exercised her limited power of appointment in her will to distribute the trust assets to Peter, Gill, William, and each of William's daughters, Elizabeth and Kathryn.
As trustee, petitioner prepared an accounting and distributed it with proposed releases to the trust beneficiaries. Kathryn, Peter, and Gill executed releases in January and February 2011, thereby releasing petitioner from any liability related to the administration of the trust. On January 29, 2012, apparently due to an inability to reach a voluntary settlement with the other beneficiaries, petitioner filed a petition for judicial settlement and final accounting in Suffolk County. Petitioner retained some portion of the trust funds pending judicial settlement for payment of legal fees and other expenses. The matter thereafter was transferred to Monroe County upon William's motion.
On March 11, 2013, objectants filed verified objections to the final accounting. The primary objection raised by objectants concerned petitioner's investment of the trust assets in mutual funds managed by petitioner (proprietary funds) and petitioner's refusal to consider investing in mutual funds managed by third parties (nonproprietary funds). In 2000 and 2001, the beneficiaries had expressed in writing their displeasure with petitioner's investment strategy and demanded that petitioner resign as trustee. According to objectants, petitioner's refusal to consider investment in nonproprietary funds was a breach of fiduciary duty that caused objectants “great loss,” inasmuch as the growth of investment proceeds from the trust assets failed to keep pace with the Standard and Poor's 500 index and the Dow Jones Industrial Average. Objectants alleged that petitioner should have resigned as trustee upon the demand of the beneficiaries.
Petitioner subsequently moved to dismiss the objections pursuant to CPLR 3211(a)(1) and (7) and, in an amended decision and order, Surrogate's Court granted petitioner's motion. The Surrogate held, inter alia, that, inasmuch as objectants took no action when petitioner repeatedly advised them in 2000 and 2001 that it would not invest in nonproprietary funds, the objections were barred by the defense of laches. The Surrogate also agreed with petitioner that the “open repudiation rule” did not apply because that rule had originated as a toll of the statute of limitations to protect beneficiaries who were not aware that a fiduciary had ceased to act in that capacity (see Access Point Med., LLC v. Mandell, 106 A.D.3d 40, 45, 963 N.Y.S.2d 44 ) and, here, the beneficiaries were aware of petitioner's investment strategy. Although we affirm the amended order, we do so on grounds other than those relied on by the Surrogate (see Parochial Bus Sys. v. Board of Educ. of City of N.Y., 60 N.Y.2d 539, 545–546, 470 N.Y.S.2d 564, 458 N.E.2d 1241 ; Summers v. City of Rochester, 60 A.D.3d 1271, 1273, 875 N.Y.S.2d 658 ; Cataract Metal Finishing, Inc. v. City of Niagara Falls, 31 A.D.3d 1129, 1130, 818 N.Y.S.2d 409 ).
We agree with objectants that the Surrogate erred in dismissing the objections on the ground that the objections were barred by the defense of laches. Contrary to petitioner's contention, the open repudiation rule applies to the defense of laches (see Matter of Barabash, 31 N.Y.2d 76, 82, 334 N.Y.S.2d 890, 286 N.E.2d 268, rearg. denied 31 N.Y.2d 963, 341 N.Y.S.2d 1029, 293 N.E.2d 258 ; Knobel v. Shaw, 90 A.D.3d 493, 496, 936 N.Y.S.2d 2 ; Matter of Baird, 58 A.D.3d 958, 960, 871 N.Y.S.2d 755 ; Matter of Meyer, 303 A.D.2d 682, 683, 757 N.Y.S.2d 98 ; Matter of Rodken, 270 A.D.2d 784, 785, 705 N.Y.S.2d 429 ). As the Court of Appeals stated in Barabash, “[a] fiduciary is not entitled to rely upon the laches of his beneficiary as a defense, unless he repudiates the relation to the knowledge of the beneficiary” (31 N.Y.2d at 82, 334 N.Y.S.2d 890, 286 N.E.2d 268 [internal quotation marks omitted] ). Moreover, the open repudiation rule “requires proof of a repudiation by the fiduciary which is clear and made known to the beneficiaries” (id. at 80, 334 N.Y.S.2d 890, 286 N.E.2d 268 ). In other words, the rule requires “either an open repudiation of the fiduciary's obligation or a judicial settlement of the fiduciary's account” (Meyer, 303 A.D.2d at 683, 757 N.Y.S.2d 98 [emphasis added]; see Rodken, 270 A.D.2d at 785, 705 N.Y.S.2d 429 ). Here, we conclude that petitioner's refusal to consider investing trust assets in nonproprietary funds in accordance with the desires of the beneficiaries did not constitute an open repudiation of petitioner's role as fiduciary. To the contrary, petitioner asserted in letters to the beneficiaries that it continued to act “as trustee” and that petitioner's investment strategy was based upon its belief that investing in proprietary funds was in the best interest of the beneficiaries and was an exercise of its fiduciary responsibilities.
Thus, petitioner did not repudiate its role as fiduciary but, rather, expressly continued to fulfill it (see Baird, 58 A.D.3d at 959–960, 871 N.Y.S.2d 755 ; see also Barabash, 31 N.Y.2d at 81, 334 N.Y.S.2d 890, 286 N.E.2d 268 ). Inasmuch as petitioner's repudiation of its role of fiduciary was a prerequisite to its assertion of the defense of laches, and because no such repudiation occurred, we conclude that the Surrogate erred in permitting petitioner to assert that defense and in dismissing the objections on the ground that the objections were barred thereby.
We agree with petitioner, however, that the objections should be dismissed for failure to state a cause of action. On a motion to dismiss pursuant to CPLR 3211(a)(7), (Genesee/Wyoming YMCA v. Bovis Lend Lease LMB, Inc., 98 A.D.3d 1242, 1244, 951 N.Y.S.2d 768 [internal quotation marks omitted]; see Leon v. Martinez, 84 N.Y.2d 83, 87–88, 614 N.Y.S.2d 972, 638 N.E.2d 511 ; see also Matter of Budd, 267 App.Div. 966, 966, 47 N.Y.S.2d 664 ). The elements of a cause of action for breach of fiduciary duty are “ ‘the existence of a fiduciary duty, misconduct by the [petitioner] and damages that were directly caused by the [petitioner's] misconduct’ ” (McGuire v. Huntress [Appeal No. 2], 83 A.D.3d 1418, 1420, 920 N.Y.S.2d 531, lv. denied 17 N.Y.3d 712, 2011 WL 4916446 ). As a preliminary consideration, we reject objectants' contention that they raised 17 separate and distinct objections and, instead, we conclude that they raised only five distinct objections in the context of alleging breach of fiduciary duty, each of which we will address in turn.
We reject objectants' contention that they stated a cause of action for breach of fiduciary duty by filing an objection to petitioner's refusal to consider investment in nonproprietary funds. Objectants correctly concede that the Prudent Investor Act permits petitioner to invest trust assets in proprietary funds (see EPTL 11–2.3[d] ). The Prudent Investor Act also requires a trustee such as petitioner with “special investment skills” to “exercise such diligence in investing and managing assets as would customarily be exercised by prudent investors of discretion and intelligence having special investment skills” (EPTL 11–2.3[b][6] ). Even under this standard, however, “ ‘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 HSBC Bank USA, N.A. [Knox], 98 A.D.3d 300, 309, 947 N.Y.S.2d 292, lv. dismissed 20 N.Y.3d 860, 2013 WL 599729, quoting Matter of Bank of N.Y., 35 N.Y.2d 512, 519, 364 N.Y.S.2d 164, 323 N.E.2d 700 ; see Matter of Chase Manhattan Bank, 26 A.D.3d 824, 828, 809 N.Y.S.2d 360, lv. denied 7 N.Y.3d 824, 822 N.Y.S.2d 753, 855 N.E.2d 1167, reconsideration denied 7 N.Y.3d 922, 827 N.Y.S.2d 691, 860 N.E.2d 993 ). Thus, it is well settled that “ ‘a fiduciary's conduct is not judged strictly by the success or failure of the investment ... In short, the test is...
To continue reading
Request your trial