In re Knox

• Decision Date: 19 June 2012
• Citation: 2012 N.Y. Slip Op. 04951,946 N.Y.S.2d 817,96 A.D.3d 1652
• Parties: In the Matter of the Judicial Settlement of the Intermediate Account of W.A. Read KNOX, Successor Trustee, and Jean R. Knox and HSBC Bank USA, N.A., as Trustees of the Trust Under Article Seventh of the Will of Seymour H. Knox, III, Deceased, for the Benefit of Jean R. Knox (Marital Trust) for the Period June 3, 1996 to November 3, 2005. HSBC Bank USA, N.A., Petitioner–Appellant; Jean R. Knox, W.A. Read Knox, Seymour H. Knox, IV, Avery Knox and Helen Keilholtz, Objectants–Respondents. (Proceeding No. 2.) (Appeal No. 5.)
• Court: New York Supreme Court — Appellate Division

96 A.D.3d 1652
946 N.Y.S.2d 817
2012 N.Y. Slip Op. 04951

In the Matter of the Judicial Settlement of the Intermediate Account of W.A. Read KNOX, Successor Trustee, and Jean R. Knox and HSBC Bank USA, N.A., as Trustees of the Trust Under Article Seventh of the Will of Seymour H. Knox, III, Deceased, for the Benefit of Jean R. Knox (Marital Trust) for the Period June 3, 1996 to November 3, 2005.
HSBC Bank USA, N.A., Petitioner–Appellant;
Jean R. Knox, W.A. Read Knox, Seymour H. Knox, IV, Avery Knox and Helen Keilholtz, Objectants–Respondents. (Proceeding No. 2.) (Appeal No. 5.)

Supreme Court, Appellate Division, Fourth Department, New York.

June 19, 2012.

[946 N.Y.S.2d 818]

Harris Beach PLLC, Buffalo (Richard T. Sullivan of Counsel), and Blair & Roach, Tonawanda, for Petitioner–Appellant.

Donald G. McGrath, PLLC, Williamsville (Donald G. McGrath of Counsel), and Duke, Holzman, Photiadis & Gresens LLP, Buffalo, for Objectants–Respondents.

PRESENT: SCUDDER, P.J., SMITH, CENTRA, AND LINDLEY, JJ.

MEMORANDUM:

[96 A.D.3d 1653]Petitioner, HSBC Bank USA, N.A. (Bank), appeals from an order determining that the Bank, as cotrustee of the testamentary trust at issue in this proceeding, was negligent in purchasing stock in Efdex, Inc. (Efdex) and that the Bank is “liable for all damages occasioned by its negligent conduct.” The trust was created in the last will and testament of Seymour H. Knox, III (decedent) to provide income to his wife, objectant Jean R. Knox. Upon the death of decedent's wife, the principal would be distributed equally among the remaining objectants. The Bank, under its former name, was named as a corporate trustee, and decedent's wife and brother were named as individual trustees. After decedent's brother died, decedent's son, W.A. Read Knox (objectant Read Knox), was substituted as a successor individual trustee.

In July 2006, the Bank petitioned to resign as trustee and to settle the “intermediate account of the proceedings of the Trustees.” Attached to the petition was an interim accounting showing, inter alia, an August 2000 investment of $200,000 in Efdex, an Internet-based “trading platform and information network for the food and beverage industry.” It is undisputed that the investment was “worthless” by September 2001. In their amended objections to the accounting, the five objectants contended that, by investing in Efdex, the Bank “failed to comply with the prudent investor standard as provided for in EPTL 11–2.3(b).”

Following a trial on the objections, Surrogate's Court concluded that the Bank had violated the prudent investor standard by failing to comply with its own internal policies and procedures before investing in Efdex, a high-risk corporation. The Surrogate determined, however, that the Bank was liable for all damages occasioned by the investment in Efdex on the ground that decedent's wife and objectant Read Knox were “unsophisticated in the investment area [and] relied on the expertise of the [Bank].” The Surrogate did not address the amended objections insofar as they were also submitted by the remaining three objectants.

The Bank does not dispute that its portfolio manager failed to comply with the Bank's internal policies and procedures with [96 A.D.3d 1654]respect to investing in high-risk initial public offerings. The Bank contends, however, that the exclusionary clause found in article Twelfth, section J, of the will absolves it of liability. We reject that contention. That section states that, where there is a disagreement...