NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-0929-16T1
IN THE MATTER OF THE TRUST OF RAY D. POST. _______________________
Argued May 3, 2018 – Decided August 15, 2018
Before Judges Haas, Rothstadt and Gooden Brown.
On appeal from Superior Court of New Jersey, Chancery Division, Probate Part, Morris County, Docket No. P-000817-2012.
Michael A. Saffer argued the cause for appellant/cross-respondent Valley National Bank (Mandelbaum Salsburg, PC, attorneys; Michael A. Saffer, of counsel and on the briefs; Arla D. Cahill and Brian M. Block, on the briefs).
Andrew J. Cevasco argued the cause for respondent/cross-appellant Sarah E. Post- Ashby (Archer & Greiner, PC, attorneys; Andrew J. Cevasco, of counsel and on the briefs; Andrew T. Fede, on the brief).
Deborah Post, respondent/cross-appellant, argued the cause pro se.
PER CURIAM
Valley National Bank (Valley), trustee for The Trust of Ray
D. Post, appeals from a judgment awarding damages to beneficiaries, the grantor/decedent's granddaughters, Deborah Post and her
sister, Sarah Post-Ashby. The trial judge held that Valley
breached its fiduciary duty to the sisters when it diversified the
trust's corpus, a portfolio of stock, in contravention of a
retention provision in the trust agreement that directed the stocks
not to be sold. Although the judge awarded damages to the sisters,
he also awarded commissions and fees to Valley.
On appeal, Valley asserts numerous arguments, the gist of
which is that the judge erred in finding that Valley's actions
were not authorized by the Prudent Investor Act (PIA), N.J.S.A.
3B:20-11.1 to -11.12, especially since the corpus of the trust
changed in nature over the years due to various corporate
reorganizations. Deborah and Sarah1 cross-appeal, claiming that
Valley was not entitled to certain fees and commissions the trial
judge credited to Valley, and that he failed to correctly calculate
damages and should have awarded counsel fees. For the reasons
that follow, we affirm.
The facts developed at the bench trial in this matter are
summarized as follows. Ray owned and operated a fuel oil
distribution business in Newark. He and his business were
customers of the Peoples National Bank & Trust Company of
1 We refer to the individuals by their first names to avoid any confusion caused by their common surnames.
2 A-0929-16T1 Belleville (Peoples) and he was a member of its board of directors
until the mid-1980s. Ray created the subject irrevocable trust,
appointing Peoples as trustee, pursuant to a trust agreement dated
July 23, 1975. The corpus of the trust consisted of 2550 shares
of common stock of AT&T, 304 shares of Exxon Corporation, and a
$4500 AT&T thirty-year bond due May 5, 2000. The value of the
trust assets at that time was $156,550.25.
The trust agreement contained a retention provision that
stated: "The Trustee shall retain, without liability for loss or
depreciation resulting from such retention, the property received
from the Grantor." It also provided that the trustee was "entitled
to compensation for its services . . . in accordance with a
separate agreement between it and [Ray], to be entered into on or
before the execution of this Agreement." On September 24, 1975,
Ray and Peoples entered into a letter agreement that stated: "In
order to induce Peoples . . . to act as Trustee . . . I hereby
agree to pay a fee of 5% per annum on the total income collected."
Pursuant to the trust agreement, the trust's income was paid
to Ray in monthly or other installments during his life and, upon
his death, the income was paid to Ray's wife, Enid Post, whom he
had married in 1974, until her death or remarriage.2 Upon the
2 Enid was not Deborah's or Sarah's grandmother.
3 A-0929-16T1 occurrence of either of those two events, the trustee was directed
to distribute the corpus to Deborah and Sarah.
Ray died on May 5, 1989. At the time of his death, the value
of the trust's assets was $483,172. The trust corpus consisted
of 1169 shares of Bell South, 520 shares of NYNEX, 1040 shares of
Pacific Telesis, 780 shares of South Western Bell, 1040 shares of
U.S. West, 2432 shares of Exxon and 2200 shares of AT&T.3
Deborah, who held a Masters of Business Administration from
Harvard Business School, was appointed executrix of the estate
and, in 1990, filed the first Form 706 Estate Tax Return. Deborah,
as executrix, also participated in a litigation filed in
approximately 1991 by Enid over Ray's estate in which the trust
and its assets were a topic of the dispute. See In re Estate of
Post, 282 N.J. Super. 59, 64 (App. Div. 1995).
In June 1993, Valley acquired Peoples and became the trustee.
The trust assets Valley received from Peoples, according to Valley,
totaled $157,436.86. The stock included 2600 shares of AT&T, 2432
shares of Exxon, and approximately 7000 shares of seven companies
3 To the extent the portfolio contained different stock than what Ray had deposited, the difference was caused by the divestiture of AT&T and the creation of its "spin offs" that were required by the 1984 anti-trust action against AT&T. See Verizon N.J., Inc. v. Hopewell Borough, 26 N.J. Tax 400, 408 (Tax Ct. 2012); In re Estate of Strauss, 521 N.Y.S.2d 642, 644 (N.Y. Sur. Ct. 1987).
4 A-0929-16T1 that had also been created as part of AT&T's divestiture. When
Valley became trustee, it began to take statutory corpus
commissions4 from the trust in addition to the five percent income
commissions provided for in the fee agreement, even though Peoples
had never done so while it was trustee.
In May 2000, Valley's in-house counsel wrote a memo addressing
the bank's trust investment management committee's concern about
whether the trust was adequately diversified in light of the
enactment of the PIA in 1997. In response, Valley obtained advice
from outside counsel in July 2000, who concluded that the trust's
retention provision did not relieve Valley of its duty to diversify
the portfolio.
In his letter to Valley, counsel stated that he "believe[d]
that a court would conclude that the language of [the retention
provision] did not deprive [Valley] of power to sell the
stock . . . ." Counsel advised that if Valley determined that
"non-diversification [was] prudent," it could take no action and
"rely" on the retention provision, or it could "develop and
implement a plan to diversify the portfolio," if it "decide[d]
that that is the most reasonable and prudent course of action."
If Valley chose to diversify the portfolio,
4 N.J.S.A. 3B:18-14.
5 A-0929-16T1 it could choose to notify [Enid] and [Deborah and Sarah] of its plans and seek out their consent or other points of view. Finally, to fully protect itself for its course of action, [Valley] could file an action . . . judicially . . . and . . . seek authorization to deviate from the language of the trust and diversify the portfolio.
Valley began diversifying the trust assets on September 12,
2000, selling 864 shares of ExxonMobil stock and purchasing other
stocks with the proceeds without either court approval or notice
to Enid or the sisters.5 In a follow-up letter from outside counsel
in November 2000, Valley was advised that it not unilaterally
deviate from the retention provision because it would then be
"acting at its own peril" in light of recent (unpublished) case
law.6 "Rather, to fulfill its investment responsibilities . . .,
[Valley] should apply to [the] Court for advice and restrictions
to satisfy its obligation to protect the interests of the
beneficiaries." By so doing, it would have an "insurance policy"
against future liability. Despite that advice, and while Valley
understood that the trust language severely restricted its ability
to sell or reinvest the trust assets, it continued the
5 Exxon became ExxonMobile after an intervening merger in 1999. See In re Exxon Mobil Corp. Sec. Litig., 387 F. Supp. 2d 407, 410 (D.N.J. 2005), aff'd, 500 F.3d 189 (3d Cir. 2007). 6 In re Vivos Trust of Ackerson, No. A-159-99 (App. Div. Oct. 23, 2000).
6 A-0929-16T1 diversification until shortly before Enid's death in 2008, without
expressly notifying Enid or the sisters or seeking court approval.
Although Valley did not seek Deborah's or Sarah's prior
approval for not retaining the trust's stocks, or provide either
of them with a copy of the trust agreement until Enid died, it did
send statements and other information about the trust's holdings
that reflected the sale of the original stocks. Deborah began
receiving information about the trust after she made a request in
March 1998 for information. She started receiving annual
statements from Valley in 2002 and they continued until Enid died
in 2008 at which time Deborah began to receive monthly statements.
In April 2004, Valley also sent Deborah and Sarah a letter
seeking their approval for a "30% fixed income and the
balance . . . in equity/growth positions" asset allocation. They
both gave their approval to the allocation. At the time, neither
Deborah nor Sarah had seen a copy of the trust agreement.
According to Deborah, Ray never showed her a copy, she did not
recall seeing it in connection with her filing of estate tax
returns or during the estate litigation, and she only became aware
of the trust assets after Ray's death.
According to Sarah, she did not read or view the trust
agreement until she received Valley's letter in April 2004 seeking
her approval of the trust's asset allocation. When Sarah approved
7 A-0929-16T1 the April 2004 proposed assets allocation, she also requested that
she be provided the same information regarding the trust that
Deborah had been receiving. After that time, Sarah began receiving
annual statements. However, according to Sarah, none of the
ensuing letters she received from Valley contained information
about the terms of the trust.
Enid died on March 27, 2008, triggering Valley's obligation
to distribute the corpus to the sisters. Valley wrote to Deborah
and Sarah on May 2, 2008, enclosing a copy of the trust agreement
and setting forth the trust assets. According to an account
investment synopsis prepared by Valley, as of July 31, 2001, the
value of the trust was $1,431,869.06, as of April 30, 2006;
$1,084,988.51, as of August 2007, $1,286,678.88; and as of May 2,
2008, $1,218,556. Valley informed the sisters that the process
of preparing a final accounting had begun and would take several
months to finalize, due to the extended term of the trust.
The first time Deborah or Sarah saw the trust agreement was
when Valley sent it to them on May 2, 2008. When they did, Deborah
"probably skimmed it," and Sarah "did a casual review" of the
document, but neither recalled reading the retention provision.
The granddaughters only became aware of the provision when, in
March 2012, Valley filed its complaint for approval of its final
accounting.
8 A-0929-16T1 In 2009 and 2010, Valley sent requests to Deborah and Sarah
asking them "what type of accounting you would like us to prepare
for your review and approval in order that we may conclude the
administration of the Trust." According to Deborah, she did not
respond to these requests because Valley had been unresponsive to
her requests for information, such as any previous accountings and
financial statements prior to 2001. Sarah too did not respond
because she did not understand the requests. The fact they did
not respond, however, did not prevent Valley from preparing an
interim accounting for submission to the sisters.
On October 6, 2010, Valley's attorney sent a letter to Deborah
and Sarah requesting that they sign a waiver of a formal
accounting, and provided them with an informal accounting. Deborah
did not sign the waiver because of Valley's failure to provide
information she previously requested about the trust for the period
from 1975 to 1992. Sarah also did not respond to the attorney's
letter because she was not provided with sufficient information
and felt the formal accounting was "pressuring" her with more
fees.
Deborah met with Valley's trust officer Steven Gudelski in
January 2011 and complained about the trust's performance,
Valley's failure to provide information and an accounting, and
Valley taking what she considered to be excessive fees. The
9 A-0929-16T1 retention clause and diversification of the stock were not
discussed, but Deborah asked for a copy of the fee agreement and
was told there was no written agreement. A month later, however,
Gudelski provided Deborah with copies of annual statements from
between 2002 and 2010, and a copy of the trust fee agreement,
which Gudelski discovered after a further review of the file. In
June 2011, Deborah wrote to Gudelski asking that he provide her
with records from Peoples and Valley's computer records in
connection with the trust from June 1993 until February 2001.
Valley eventually provided a final accounting during discovery
after it filed its complaint.
On March 19, 2012, Valley filed a complaint to approve a
final trust accounting and to be discharged as trustee. According
to Valley, it took four years to complete the final accounting
because it was "waiting to hear from the beneficiaries as to what
type of accounting they wanted."
The accounting was ultimately completed between the summer
of 2011 and November 2011. A vice-president and senior trust
officer at Valley prepared the accounting covering the period from
June 22, 1993 to November 30, 2011. The final accounting stated
that the trust's value was $901,578.73. Approximately $563,000
was in a cash management account for the period beginning June 22,
1993 through November 30, 2011; the balance was stocks and mutual
10 A-0929-16T1 funds. Over the subject time period, $60,225.45 was added to
principal as a result of tax refunds. Valley took a total of
$485,491.03 in income commissions and $96,450.51 in corpus
commissions, constituting .5% on the first $400,000, and .3% on
the balance. Valley stopped taking fees in November 2010.
On April 12, 2012, Deborah filed an answer taking exceptions
to the accounting. She objected to Valley taking commissions on
the trust's corpus, and claimed that Valley was only entitled to
a five percent commission on trust income rather than six percent.
The matter was referred for mediation and on the night before
a scheduled session, Deborah read the trust document "word for
word with complete comprehension for probably the first time."
She was "astounded" because she "had no idea . . . that this
retention clause existed in this document." She "suddenly realized
[that] they weren't allowed to sell [her] grandfather's good
stocks." As a result, Deborah amended her answer to add a
counterclaim for breach of fiduciary duty, negligence, conversion
and breach of the implied duty of good faith and fair dealing, all
arising from Valley's violation of the retention provision. She
claimed an over $900,000 loss as a result of Valley's failure to
"abide by and honor Ray Post's wishes pursuant to their fiduciary
duty of care" to the beneficiaries. Sarah filed a similar answer
and counterclaim.
11 A-0929-16T1 On April 15, 2015, a judge signed an order granting Valley's
motion for summary judgment as to all counts of the sisters'
counterclaims, except for breach of fiduciary duty and the implied
covenant of good faith and fair dealing, and granted in part the
sisters' motion to compel discovery and distribution of the trust
assets.
Trial was held before a different judge, Stephen C. Hansbury
in April 2016. The trial initially addressed the sisters'
counterclaims and Valley's liability. At the trial, in addition
to Valley's representatives and the sisters, who testified about
the history of the trust as set forth above, the parties presented
testimony from experts.
Richard Greenberg, a lawyer and certified public accountant,
testified for the sisters as an expert in trust administration.
He concluded that Valley breached its fiduciary duty as trustee
by violating the retention clause of the trust agreement. He
cited the PIA, which grants the trust settlor the right to restrict
the general duty to diversify as long as the settlor expressly
provides for that restriction in the trust document. As Greenberg
explained, if a trustee believes the restriction is not in the
best interests of the beneficiary, it should seek the consent of
the beneficiary or apply to the court for approval to diversify.
12 A-0929-16T1 John Langbein, a trust and estates law professor, who has
trained bank trust officers and served on an advisory panel for
the drafting of the Restatement (Third) of Trusts, testified for
Valley as an expert in the standard of care applicable to a trustee
and trust assets. He stated that the trust portfolio was under-
diversified because the stocks did not involve "a wide number of
different industries" and confining the portfolio to two
securities was "capricious." Valley had a "duty to diversify" in
order to avoid the risk of "catastrophic loss." Langbein concluded
that Valley's decision to diversify was "routine good trust
administration." Failure to do so, he stated, would have put
Valley at risk of a breach of fiduciary duty by violating the duty
to diversify. He did not believe that a trust beneficiary was
entitled to prior notice or to give its consent prior to the
trustee diversifying because management of the trust lies with the
trustee, and a beneficiary has "no voice in investment policy."
Nor did he believe that Valley was under an obligation to seek
court approval before diversifying because approval is for the
trustee's benefit, not the beneficiaries'. Nonetheless, he
believed it was highly likely that Valley would have received
judicial approval. He added that Valley's decision to seek the
advice of outside counsel showed prudence, but that the advice
provided was not conclusive because, as a general matter, a trustee
13 A-0929-16T1 could then "keep on shopping" until it found someone "willing to
. . . do anything [it] wanted."
Even if the diversification constituted a breach of fiduciary
duty, Langbein believed that the breach was "innocuous" because
it was done for the beneficiaries' and not Valley's, benefit. In
support, Langbein cited to the Restatement (Third) of Trusts § 95
cmt. d (Am. Law Inst. 2012) "innocuous breach rule," which he
explained was an "old principle of equity . . . that when the
trustee has acted in a way that was not driven by trustee self
interest [and] that was motivated by the effort to benefit the
beneficiaries, . . . the court has the discretion not to find them
liable. . . ."
On April 28, 2016, Judge Hansbury issued an oral decision
finding in favor of the sisters as to Valley's liability. The
judge first addressed the trust agreement and found that since its
inception, the sisters owned the corpus. He then rejected Valley's
contention that "because the Exxon stock and the AT&T stock
morphed, . . . that . . . was in itself . . . a diversification
which then permitted [Valley] to diversify as it chose. . . ."
According to the judge, there was "not a shred of evidence" that
the stock held in the trust after the various corporate
restructurings was "not substantially equivalent" to what was
14 A-0929-16T1 originally held. The judge stated while the stocks may have
changed, it did not "trigger the right to simply diversify."
Judge Hansbury turned to the PIA and rejected Valley's
argument that the statute trumped the settlor's intent as expressed
in the retention provision. Quoting from one of our earlier
unpublished decisions relied upon by Valley, Judge Hansbury found
the opinion persuasive as to its statement that "diversification
of investments, N.J.S.A. 3B:2-11.4, . . . is a default rule that
may be expanded, restricted, eliminated or otherwise altered by
express provision of the trust agreement, N.J.S.A. 3B:20-11.2(b)."
Next, Judge Hansbury considered Valley's "standard of
conduct" and concluded it breached its duty to the sisters by not
following the advice of its own attorneys to seek their approval
or the court's approval before diversifying, and its failure to
keep the sisters informed as to the status of the corpus. The
judge relied upon the experts' testimony and the provisos of
Restatement (Third) of Trusts, which set forth a trustee's
obligation to keep a beneficiary reasonably informed. The judge
found that "months, years went by and no information was provided"
to the sisters.
Judge Hansbury also found that contrary to Valley's
arguments, neither laches, equitable estoppel nor the sisters'
conduct provided Valley with legitimate defenses to the sisters'
15 A-0929-16T1 counterclaims. He stated that Valley unjustifiably delayed its
preparation of the accounting and seeking court approval for four
years following Enid's death.
Judge Hansbury concluded that there was a breach of Valley's
fiduciary duty, but he did not find that Valley acted in bad faith.
The judge, therefore, found Valley liable to the sisters under
that cause of action, but dismissed their claim for a violation
of the covenant of good faith and fair dealing.
The judge considered counsels' arguments regarding the
valuation date to be applied in his calculation of damages based
upon what the value of the portfolio should have been had the
retention provision been honored compared to its actual value.
The sisters contended the date was the day of the judge's decision.
Valley argued it should be when the sisters knew or should have
known about the retention provision. It contended that the date
Deborah filed the first estate tax return, or the commencement
date of the estate litigation that Deborah participated in were
appropriate dates for valuation because Deborah should have known
about the retention clause at those times. It also argued as an
alternative, October 6, 2010, when Valley sent the waiver and
release to Deborah and Sarah as the appropriate date.
Judge Hansbury determined that the proper date for valuation
of the stocks' value was May 2, 2008, when Valley sent the trust
16 A-0929-16T1 agreement and portfolio value to the sisters. He found that on
that date, Deborah and Sarah had the "the trust agreement, they
ha[d] the statements that they've been getting for several
years[,]" and they first learned that the retention provision was
not being followed.
Trial on damages was held on June 13, 2016. After considering
an in limine motion filed by Valley, Judge Hansbury granted the
motion, barring the sisters from presenting any evidence regarding
Valley not investing trust money held in Valley's Cash Management
Fund. The judge found that the sisters failed to present any
evidence at the liability trial about Valley's failure to invest.
At the ensuing damages trial, Michael Gould, a certified
public accountant, testified for Valley and concluded that the
estimated value of the trust assets, assuming that Valley had not
diversified the portfolio, as of May 2, 2008 was $1,739,248, which
was $520,692 more than the actual value of $1,218,556. Gould
utilized the first quarter 2008 income taxes, $9606, actually paid
by the trust in determining the hypothetical portfolio's after tax
value. He added: "It's not necessarily related to any particular
sale of securities. It was just an estimate . . . ." He denied
that constituted double counting, adding for clarification:
[W]hat the [$]9606 represents are the estimated income taxes for 2008 that were paid by the trustee in April of 2008. And we used
17 A-0929-16T1 it as a reduction of the hypothetical portfolio on the basis that dividends . . . and interest would have been received by the trust and income taxes would have had to been paid in some amount. And rather than . . . try to calculate what the hypothetical tax would have been, we just used the estimates that were paid. It was just an estimate. An imprecise estimate. . . .
Joseph Matheson, a certified public accountant, testified on
behalf of the sisters and concluded that the estimated value of
the trust assets, assuming that Valley had not diversified the
portfolio, as of May 2, 2008 was $1,833,306, which was $616,467
more than the actual value of $1,216,839. Matheson testified that
he determined the share amount for the stocks by averaging the
"daily high and the daily low on May 2nd" because the stocks
"probably would have sold . . . sometime . . . during the day."
Next, he stated that he "subtract[ed] the [capital gains] tax and
then . . . added the net proceeds" that totaled $1,833,306.
Matheson also admitted that Gould's report reflected $2600 of
"dividends between Enid's death and May 2nd" that was missing from
his calculations in his report, which increased the difference
between the value of the hypothetical portfolio and the actual
value by $619,897.
On July 8, 2016, Judge Hansbury signed an order for judgment
approving the accounting submitted by Valley through 2011, and
entered judgment against Valley in favor of the sisters for
18 A-0929-16T1 $520,548 based upon Gould's calculations. Attached to the judgment
was a statement of reasons in which he identified September 2000
as the date when Valley breached its agreement by selling trust
assets. He also concluded that consistent with Ray's intent as
expressed in his agreement with Peoples, Valley was entitled to
the income commissions expressed in the agreement as well as
statutory corpus commissions under N.J.S.A. 3B:18-2. Relying upon
the court's holding in Babbitt v. Fidelity Trust Co., 72 N.J. Eq.
745 (1907), he also concluded Valley was entitled to commissions
even though it breached its fiduciary duty by diversifying because
it did not do "anything 'willfully wrong.'"
On August 31, 2016, Judge Hansbury signed an order awarding
the sisters $57,423.08 in prejudgment interest from May 2, 2008,
to July 8, 2016, denying the parties' cross-motions for counsel
fees and Valley's application for corpus commissions from November
1, 2010, to July 27, 2016.7 In his attached statement of reasons,
the judge explained how he applied the Rules' provision for pre-
judgment interest, see R. 4:42-11, for the period during which the
sisters were deprived of their funds, which he identified as May
7 On September 20, 2016, Judge Hansbury signed an amended supplemental order of judgment reducing the amount of prejudgment interest awarded to $48,654.13, pursuant to N.J.S.A. 4:42-11(b). In support of the order, he issued a written decision, explaining in detail the error he made in its original calculation and showing how the corrected amount was calculated.
19 A-0929-16T1 2, 2008 to July 8, 2016. He turned to the parties' claims for
counsel fees and rejected them. As to Valley, he concluded it was
not entitled to fees for defending itself, especially in light of
his finding that it breached its fiduciary duty. He rejected
Valley's reliance upon the frivolous litigation statute, N.J.S.A.
2A:15-59.1, and Rule 1:4-8 because the sisters prevailed on their
claim and "frivolous litigation theories were not appropriate to
examine . . . the basis of each claim to determine whether a
particular claim was continued in good faith and not to harass a
party in light of defendants' success." Addressing the sisters'
claim, Judge Hansbury relied upon his and the summary judgment
motion judge's finding that Valley did not act in bad faith, and
therefore the sisters did not "fit one of the exceptions" to the
"American Rule which requires each party to pay its own counsel
fees."
The judge turned to Valley's entitlement to income and corpus
commissions for the period from November 1, 2010 to July 26, 2016
and rejected the claim. The judge observed that "no management
of the trust took place after Enid's death," citing to N.J.S.A.
3B:17-3's requirement for the timely completion of an accounting,
the inexplicable delay in Valley completing it by November 1,
2010, and N.J.S.A. 3B:31-71 and N.J.S.A. 3B:31-84 for authority
to reduce compensation due to a trustee "as a remedy for breach
20 A-0929-16T1 of trust." Finally, the judge addressed claims arising from Valley
not investing the trust corpus after November 30, 2011 and noted,
as he had in response to Valley's motion in limine, that there was
"[in]sufficient evidence" presented about the claim as it had not
been "prosecuted."
Deborah filed a motion for reconsideration that Judge
Hansbury denied on October 21, 2016. In his written decision, the
judge considered the applicable law, explained errors in Deborah's
arguments regarding the effect of the summary judgment motion
judge's order and his own order regarding commissions, and contrary
to Deborah's arguments, that he had properly accounted for tax
consequences in his calculation of damages. On the same date, the
judge signed an order discharging Valley as trustee and approved
the final accounting. This appeal followed.
Our review of a trial court's fact-finding in a non-jury case
is limited. Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150,
169 (2011). "The general rule is that findings by the trial court
are binding on appeal when supported by adequate, substantial,
credible evidence. Deference is especially appropriate when the
evidence is largely testimonial and involves questions of
credibility." Ibid. (quoting Cesare v. Cesare, 154 N.J. 394, 411-
12 (1998)). The trial court enjoys the benefit, which we do not,
of observing the parties' conduct and demeanor in the courtroom
21 A-0929-16T1 and in testifying. Ibid. Through this process, trial judges
develop a feel of the case and are in the best position to make
credibility assessments. Ibid. We will defer to those credibility
assessments unless they are manifestly unsupported by the record.
Leimgruber v. Claridge Assoc., 73 N.J. 450, 456 (1977) (citing
Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App.
Div. 1963)). However, we owe no deference to a trial court's
interpretation of the law, and review issues of law de novo.
Mountain Hill, LLC v. Twp. Comm. of Middletown, 403 N.J. Super.
146, 193 (App. Div. 2008).
On appeal, Valley first argues that Judge Hansbury did not
satisfy his obligation "to find the facts and state [his]
conclusions of law" under Rule 1:7-4 because his decision was not
based on facts in the record and his conclusions of law were
inadequate. Although couched in terms of the Rule, Valley's
argument is in actuality that the judge "ignored salient facts in
his finding of facts and issued patently erroneous conclusions of
law." We disagree. As discussed infra, we conclude that Judge
Hansbury's decision clearly set forth his reasons, was supported
by substantial evidence in the record, and was legally correct.
We turn to Valley's contention that Judge Hansbury misapplied
the PIA by holding that the retention provision of the trust
agreement took precedence over the PIA's mandate for a trustee to
22 A-0929-16T1 diversify. We reject that contention and conclude the judge
correctly applied the statute.
The PIA mandates the diversification of investments. It
states that "[a] fiduciary shall diversify the investments of the
trust unless the fiduciary reasonably determines that, because of
special circumstances, the purposes of the trust are better served
without diversifying." N.J.S.A. 3B:20-11.4. Even outside of the
PIA, "[d]iversification is a uniformally recognized characteristic
of prudent investment and, in the absence of specific authorization
to do otherwise, a trustee's lack of diversification would
constitute a breach of its fiduciary obligations." Robertson v.
Cent. Jersey Bank & Trust Co., 47 F.3d 1268, 1274 n.4. (3rd Cir.
1995).
However, the PIA recognizes that despite the mandate, the
grantor's intent controls and, if there is any doubt as to that
intent, application should be made to the court. It states:
The prudent investor rule is a default rule that may be expanded, restricted, eliminated, or otherwise altered by express provisions of the trust instrument. A fiduciary is not liable to a beneficiary to the extent that the fiduciary acted in reasonable reliance on those express provisions. Nothing herein shall affect the jurisdiction of the Superior Court to order or authorize a fiduciary to deviate from the express terms or provisions of a trust instrument for the causes, in the manner, and to the extent otherwise provided by law.
23 A-0929-16T1 [N.J.S.A. 3B:20-11.2(b).]
Applying to Ray's trust agreement the PIA and well settled
requirements for ascertaining a trust's settlor's intent, see In
re Trust of Duke, 305 N.J. Super. 408, 418 (Ch. Div. 1995), aff'd,
305 N.J. Super. 407 (App. Div. 1997), it is beyond cavil that he
directed Peoples, as trustee, to retain the stock he deposited and
specifically insulated his trustee from liability against any
claim being raised if it failed to diversify. The provision did
not make retention optional. Compare Robertson, 47 F.3d at 1271
(where the trust instrument authorized but did not require the
trustee to "retain, temporarily or permanently, any or all of the
stock"); Americans for the Arts v. Ruth Lilly Charitable Remainder
Annuity Trust #1, 855 N.E.2d 592, 595 (Ind. Ct. of App. 2006)
(where the trust instrument stated "any investment made or retained
by the trustee in good faith shall be proper despite any resulting
risk or lack of diversification").
Moreover, to the extent Valley believed that despite the
retention provision, it would be better to diversify, it was
obligated to seek authorization from the court before selling the
trust's corpus. N.J.S.A. 3B:20-11.2(b); Matter of Wold, 310 N.J.
Super. 382, 387 (Ch. Div. 1998); see also Restatement (Second) of
Trusts § 167(1) (1959) (stating that a court will deviate from the
24 A-0929-16T1 express terms of the trust instrument "if owing to circumstances
not known to the settlor and not anticipated by him compliance
would defeat or substantially impair" the purpose of the trust).
Notably, Valley's counsel explained these options to his client,
but Valley chose to act at its own peril despite counsel's advice.
Under these circumstances, we have no reason to question Judge
Hansbury's legal conclusion regarding the impact of the PIA and
Valley's obligation to retain the stock in Ray's trust.
We similarly agree with Judge Hansbury's rejection of
Valley's related argument that the sisters' claims were barred by
the doctrine of laches, equitable estoppel, avoidable
consequences, or ratification because they had obtained sufficient
knowledge by January 2001 when the 2000 statement reflecting its
diversification was sent to Enid, and did not object to it for
over a decade. We conclude Valley's arguments are without
sufficient merit to warrant discussion in a written opinion. R.
2:11-3(e)(1)(E). We only observe that Judge Hansbury found that
the sisters should have known about the retention provision in May
2008 and his finding was based on credible evidence presented at
the trial. Moreover, his decision to reject defenses asserted by
Valley were legally correct as they are "not regarded with favor
where the parties stand in a confidential relation[ship,]"
Weisberg v. Koprowki, 17 N.J. 362, 378 (1955), and where a party's
25 A-0929-16T1 actions have contributed to or caused the delay, its equitable
claims will not be sustained. See Rolnick v. Rolnick, 262 N.J.
Super. 343, 364 (App. Div. 1993).
Valley also contends that the passive changes to the trust's
stocks that occurred as a result of the AT&T "spin offs" and the
merger of Exxon and Mobile voided the retention provision. We
disagree and again conclude that Valley's contentions on appeal
are without merit. We agree with Judge Hansbury's finding that
there was absolutely no evidence that the stocks that resulted
from the spinoffs or the merger were substantially different than
the original stocks deposited by Ray into the trust. "[N]ew stock
[issued] as a result of a merger, reorganization or other cause"
is treated as the same stock as the old "if the new stock is the
equivalent or substantially the equivalent of the old." Fidelity
Union Trust Co. v. Cory, 9 N.J. Super. 308, 312 (Ch. Div. 1950);
see also Restatement (Second) of Trusts § 231 cmt. f (1959). The
new shares are considered substantially equivalent to the original
shares in companies if the resulting companies are conducting
business that is of the same nature as the original companies.
See Fidelity, 9 N.J. Super. at 313; In re Estate of Riker, 124
N.J. Eq. 228, 231-32 (Prerog. Ct. 1938), aff'd o.b., 125 N.J. Eq.
349 (E. & A. 1939). There was no evidence that the Bell stocks
26 A-0929-16T1 or ExxonMobile represented any substantial change in the nature
of the portfolio.
Contrary to Valley's contention that Judge Hansbury should
have taken judicial notice under N.J.R.E. 201 of the fact that the
"[n]ew [c]ompanies were wholly unrelated" to their predecessors,
that fact, even if judicially noticeable, did not satisfy Valley's
burden to demonstrate a substantial change in the stocks subject
to the retention clause. That evidence, as Valley points out in
its discussion of Mertz v. Guaranty Trust Co. of N.Y., 247 N.Y.
137, 139-4 (N.Y. 1928), must establish that the "identity and
substance" of the original shares were "destroyed." Here, there
was no such evidence.
Next, we address Valley's contention that even if it breached
its fiduciary duty to the sisters, it did so in good faith and
should, therefore, be excused from paying any damages under the
"innocuous breach" doctrine. The doctrine is an exception to the
general rule that a trustee shall be held liable for a loss it
causes by failing to adhere to the trust instrument without
judicial sanction, even if it acts in good faith. See Conover v.
Guarantee Trust Co., 88 N.J. Eq. 450, 458 (Ch. 1917), aff'd o.b.,
89 N.J. Eq. 584 (E. & A. 1918). A court can invoke the doctrine
"[i]f [it] concludes that . . . it would be unfair or unduly harsh
to require the trustee to pay, or pay in full . . . ." Restatement
27 A-0929-16T1 (Third) of Trusts § 95 cmt. d (Am. Law Inst. 2012). "Ordinarily,
such relief would be based on a finding that the trustee had made
a conscientious effort to understand and comply with applicable
fiduciary standards and the duties of the trusteeship." Ibid.
When determining whether to relieve the trustee of liability, a
court must consider "whether the trustee was aware of the
availability (in an appropriate situation) of court
instruction . . . and, if so, the reasons for the trustee's
decision not to seek instruction." Ibid.
Applying these guiding principles here, we conclude there was
ample evidence in the record to establish that Valley was aware
from its counsel's advice about the wisdom of seeking the
beneficiaries' or the court's approval before deviating from the
retention provision. Yet, there was no evidence explaining why
Valley chose to ignore that advice. Under these circumstances,
we see no reason for the application of the doctrine either to
relieve Valley from liability for damages, or, as Valley also
argued, for pre-judgment interest.
We also disagree with Valley's contention that Judge Hansbury
improperly denied it additional corpus commissions for the period
from November 2010 through July 2016. In support of its argument,
Valley relies upon In re Armour's Will, 61 N.J. Super. 50, 57
(App. Div.), rev'd on other grounds, 33 N.J. 517 (1960), a case
28 A-0929-16T1 that addressed commissions on income, not corpus commissions. We
find its reliance inapposite. There, in reversing our decision
to approve an executor/trustee receiving double income commissions
based on its dual capacity, the Supreme Court stated that in
determining entitlement to commissions, a court should look to the
service performed. It stated that commissions should be paid when
a trustee "h[e]ld, manage[d] and invest[ed] . . . assets and
pa[id] over the income thereon as well as the principal to the
specified beneficiary." In re Armour's Will, 33 N.J. 517, 524
(1960). In denying commissions here, Judge Hansbury did just that
when he determined Valley was not entitled to such commissions
because it was "clear that no management of the trust took place
after Enid's death." Moreover, N.J.S.A. 3B:31-71(b)(8) permitted
the judge to deny compensation to Valley for its "breach of trust."
There was no error in denying the commissions.
We next address Valley's challenge to Judge Hansbury's
finding that May 2, 2008 was the proper date for valuation of the
trust for the purpose of calculating damages. We review the
determinations for an abuse of discretion, see Musto v. Vidas, 333
N.J. Super. 52, 64 (App. Div. 2000), and find none.
Here, Judge Hansbury rejected Valley's contention that the
proper date should have been as early as 2000, when Valley began
to diversify and its actions were disclosed in statements sent to
29 A-0929-16T1 Enid and later to Deborah. In his oral decision, Judge Hansbury
explained why the earlier date was not appropriate and why he
relied upon the May 2008 date. The judge's findings were supported
by the record and his determination of the date was consistent
with principles of fairness and justice. Graziano v. Grant, 326
N.J. Super. 328, 342 (App. Div. 1999).
In sum, as to Valley's contentions, we conclude neither the
PIA nor any of the sisters' actions, as argued by Valley, warrant
our interference with the outcome in this matter as to Valley's
liability or the damages assessed against it by the judge. To the
extent we have not specifically addressed any of Valley's remaining
arguments, we find them to be without sufficient merit to warrant
discussion in a written opinion. R. 2:11-3(e)(1)(E).
Turning to the cross-appeals filed by the sisters, we begin
by rejecting their argument that the stock portfolio's valuation
date should have been the date of the judge's final "decree" for
the same reason we rejected Valley's contention about an earlier
date being used. We find the sisters' reliance on the opinion in
the New York case of In the Estate of Rothko, 401 N.Y.S.2d 449,
455-56 (N.Y. 1977), to be inapposite. In that case, the court
held an executor, who ignored a testamentary direction that certain
paintings be retained, liable for the value of paintings he sold
as of the date of judgment to account for "appreciation damages"
30 A-0929-16T1 between the date of sale and the date of judgment. Here, as to
the stock portfolio, the judge's use of the May 2008 date and his
award of pre-judgment interest fully compensated Deborah and Sarah
for their loss, including any rise in the portfolio's value had
the stocks been retained. We are satisfied the court's award
properly compensated them for loss of money that rightfully should
have been turned over to them upon Enid's death, after taking into
consideration their failure to take action for a period of four
years after they learned of Valley's breach. Penpac, Inc. v.
Passaic Cty. Util. Auth., 367 N.J. Super. 487, 504 (App. Div.
2004). Their contentions to the contrary are without any merit.
We turn next to Sarah's argument that all or part of the
commissions Judge Hansbury and the summary judgment motion judge
awarded to Valley should be reversed because Valley violated the
retention provision and performed in a materially deficient
manner. Sarah claims that Valley was not entitled to corpus
commissions under N.J.S.A. 3B:18-14 based upon Ray's fee agreement
with Peoples, as well as Peoples choosing to not take such
commissions.
In granting summary judgment to Valley on the question of
corpus commissions, the motion judge stated that Valley was
"entitled to its corpus commissions, because in the absence of any
expressed commission, N.J.S.A. 3B:18-2 clearly provides that those
31 A-0929-16T1 commissions be allowed." With respect to income commissions, he
held that Valley was bound by the five percent commission set
forth in the fee agreement. Later, in response to Valley's motion
in limine to exclude evidence regarding the corpus commissions,
Judge Hansbury granted the motion relying upon the motion judge's
determination with which Judge Hansbury independently agreed.
Ultimately, Judge Hansbury awarded Valley corpus commissions from
August 13, 1993 to May 2, 2008, totaling $80,181, after concluding
that Valley did not do anything "willfully wrong." We agree with
both judges.
"The allowance of corpus commissions is a discretionary
determination which will not be disturbed unless there has been
an abuse of discretion[,]" or "the court did not utilize 'the
proper legal approach[.]'" In re Estate of Summerlyn, 327 N.J.
Super. 269, 272 (App. Div. 2000).
N.J.S.A. 3B:18-2 provides:
On the settlement of the account of a nontestamentary trustee, as defined in N.J.S.A. 3B:17-9, the court shall allow him the compensation as may have been agreed upon by the instrument creating the trust; and in the absence of any express provision concerning compensation, shall allow him commissions in accordance with this chapter.
[(Emphasis added).]
32 A-0929-16T1 Here, it was undisputed that the fee agreement between Ray
and Peoples was silent about the trustee's entitlement to a corpus
commission and there was no agreement with Valley. Both judges
properly applied the statute and permitted Valley to recover those
commissions. Valley's entitlement to a corpus commission was not
altered by Peoples' earlier decision to forgo payment of those
commissions because Valley as successor trustee was not bound by
Peoples' decision. See, e.g., In re Loree's Trust Estate, 24 N.J.
Super. 604, 607 (Ch. Div. 1953) (noting that a court must allow
compensation to a successor trustee where there are no express
terms regarding compensation, entitling successor trustee to the
commissions set forth by statute).
Finally, the sisters argue that even if Valley was entitled
to claim a commission, its request should have been denied or at
least reduced, due to its "materially deficient performance,"
N.J.S.A. 3B:18-14,8 including violation of the retention clause,
8 The statute states in relevant part:
Such commissions may be reduced by the court having jurisdiction over the estate only upon application by a beneficiary adversely affected upon an affirmative showing that the services rendered were materially deficient or that the actual pains, trouble and risk of the fiduciary in settling the estate were substantially less than generally required for estates of comparable size.
33 A-0929-16T1 filing improper capital gains tax returns, and holding money un-
invested in a bank account. We find this contention to be without
sufficient merit to warrant further discussion in a written
opinion. R. 2:11-3(e)(1)(E). We only observe that there was no
finding that while Valley acted as trustee it performed in a
materially deficient manner. Cf. In re Will of Landsman, 319 N.J.
Super. 252, 275 (App. Div. 1999) (undue influence banned executor
from receiving commissions). To the extent it failed to honor the
retention clause, Judge Hansbury adjusted Valley's compensation
and awarded damages against it for its breach.
Contrary's to Deborah's next argument, we also discern no
abuse of the judge's discretion, see Magnet Res., Inc. v. Summit
MRI, Inc., 318 N.J. Super. 275, 297 (App. Div. 1998), in not
permitting the sisters to present evidence at the damages trial
related to Valley's failure to invest the money it held in its
Cash Management Fund. "The evidence [they sought to introduce]
obviously was not newly discovered" and "had been in the hands of
the" sisters prior to the liability trial, but they did not present
it when given the opportunity. Henry Clay v. City of Jersey City,
84 N.J. Super. 9, 18 (App. Div. 1964). Under these circumstances,
Judge Hansbury properly ruled it was too late.
[N.J.S.A 3B:18-14].
34 A-0929-16T1 Deborah also challenges the summary judgment motion judge's
determination that the sisters' claim about Valley negligently
utilizing a cost basis, rather than stepped-up basis, in its
capital gains tax filings was not cognizable in the probate
litigation. We conclude that while Deborah correctly states the
claim was cognizable because it related to a breach of the
fiduciary's duty, see In re Estate of Lash, 169 N.J. 20, 27 (2001);
F.G. v. MacDonell, 150 N.J. 550, 564 (1997), the motion judge's
error was harmless. R. 2: 10-2. We are satisfied that9 because
the sisters were able to cross examine Grudelski during the
liability trial about Valley's choice of basis as part of their
breach of fiduciary duty claim, they suffered no prejudice as a
9 In granting Valley summary judgment on the negligence counterclaim, the summary judgment motion judge stated that "compensatory damage-type award[s]," such as negligence, are usually not permitted in a Probate Part proceeding. Rather, such claims are encompassed in breach of fiduciary duty claims. Valley's "liability, if any, will be based on a breach of fiduciary duty and/or implied covenant of good faith and fair dealing, not on a theory of negligence or conversion." As noted earlier, breach of fiduciary duty is a tort theory. Lash, 169 N.J. at 27. As a result, a fiduciary may be held liable for harm resulting from a breach of the duties imposed by the fiduciary relationship, and damages may be awarded as a result of that breach. Ibid.; F.G., 150 N.J. at 564. Therefore, the summary judgment judge was in error by concluding that a negligence claim and a breach of fiduciary claim were unrelated theories of recovery, and by dismissing defendants' negligence claim, in which they sought to recover for the payment of unnecessary capital gains tax, on summary judgment on that basis.
35 A-0929-16T1 result of the judge's error, especially in light of the sisters'
success on that claim.
Deborah also maintains that Judge Hansbury erred by
accepting Gould's use of the trust's actual 2008 tax payments in
determining the estimated taxes for that year in the hypothetical
describing the result had the stock been retained. She claims
that the damages award should be increased by $8024 to account for
Gould's error. We disagree.
Gould included $9606 in his hypothetical as the estimated
taxes that the trustee paid in April 2008. He used it as an
estimate of income tax that would have been due on interest and
dividends received by the trust had the stocks been retained.10
Judge Hansbury, as the factfinder, was free to accept or reject
Gould's expert testimony, in whole or part. See Torres v.
Schripps, Inc., 342 N.J. Super. 419, 430-31 (App. Div. 2001); City
of Long Branch v. Liu, 203 N.J. 464, 491 (2010). Moreover, we
discern no error, as argued by Deborah, in Gould's accounting for
the 2008 taxes actually paid on the sale of stock in his estimate.
10 The fact that the amount coincided with the capital gains tax on the early 2008 sale of Comcast and Exxon shares did not constitute double counting since Gould was using the figure as an estimate of taxes due on the interest and dividends received by the trust in the hypothetical scenario where the stock had been retained in the trust.
36 A-0929-16T1 Finally, Deborah contends that Valley should reimburse
Sarah's counsel fees, an argument not raised by Sarah in her cross-
appeal. She argues that Valley's failure to adhere to the
retention provision and its failure to follow its attorney's advice
established the bad faith that Judge Hansbury refused to find when
he denied the sisters' fee application. We disagree.
The decision whether to award counsel fees rests within the
sound discretion of the trial court. Maudsley v. State, 357 N.J.
Super. 560, 590 (App. Div. 2003). When exercising that discretion,
courts must be cognizant of New Jersey's strong public policy
against the shifting of counsel fees and our adherence to the
"American Rule," which prohibits recovery of counsel fees by the
prevailing party against the losing party, In re Niles Trust, 176
N.J. 282, 293-94 (2003), unless authorized by statute or rule.
See Rule 4:42-9; In re Estate of Vayda, 184 N.J. 115, 120 (2005).
"[L]imited exceptions" have been created in the interest of equity
in those instances involving claims against an attorney, or when
an executor or trustee have acted in bad faith such as by acting
in self-interest or committing "the pernicious tort of undue
influence." Id. at 122-23; Niles, 176 N.J. at 298; see also In
re Estate of Stockdale, 196 N.J. 275, 308 (2008) (the tort of
undue influence is available where breach of fiduciary would be
inadequate).
37 A-0929-16T1 Judge Hansbury properly determined that Valley did nothing
to promote its self-interest by diversifying, and acted in what
it believed was the beneficiaries' best interests. We conclude
therefore that he properly denied the sisters' fee application and
we reject Deborah's arguments to the contrary.
In sum, despite the sisters' arguments to the contrary, we
conclude that all of Judge Hansbury's determinations were
supported by credible evidence and legally correct. To the extent
that the summary motion judge erred, we find no harmful error.
Finally, to the extent we have not specifically addressed any of
their remaining arguments, we find them to also be without
sufficient merit to warrant discussion in a written opinion. R.
2:11-3(e)(1)(E).
Affirmed.
38 A-0929-16T1