SUPREME COURT OF THE STATE OF NEW YORK

Appellate Division, Fourth Judicial Department

331 

CA 16-01627 

PRESENT: CARNI, J.P., LINDLEY, DEJOSEPH, TROUTMAN, AND SCUDDER, JJ. 

 

IN THE MATTER OF THE JUDICIAL SETTLEMENT OF THE 

INTERMEDIATE ACCOUNTS OF HSBC BANK USA, N.A., AS 

TRUSTEE OF THE TRUST UNDER AGREEMENT DATED 

JANUARY 21, 1957, SEYMOUR H. KNOX, GRANTOR, FOR 

THE BENEFIT OF THE ISSUE OF SEYMOUR H. KNOX, III, 

FOR THE PERIOD JANUARY 21, 1957 TO NOVEMBER 

3, 2005, AND NOVEMBER 4, 2005 TO JUNE 25, 2012. 

------------------------------------------------- 

HSBC BANK USA N.A., PETITIONER-APPELLANT,

V MEMORANDUM AND ORDER

 

SEYMOUR H. KNOX, IV, W.A. READ KNOX, AVERY KNOX, 

HELEN KNOX KEILHOLTZ, OBJECTANTS-RESPONDENTS, 

AND AURORA KNOX, RESPONDENT. 

(APPEAL NO. 2.)

 

HARRIS BEACH PLLC, BUFFALO (RICHARD T. SULLIVAN OF COUNSEL), FOR

PETITIONER-APPELLANT. 

HOGAN WILLIG PLLC, AMHERST (LINDA LALLI STARK OF COUNSEL), FOR

OBJECTANTS-RESPONDENTS. 

MOSEY ASSOCIATES, LLP, BUFFALO (ACEA M. MOSEY OF COUNSEL), FOR

RESPONDENT AURORA KNOX. 

 

Appeal from an order of the Surrogate’s Court, Erie County

(Barbara Howe, S.), entered January 28, 2016. The order, upon

reargument, adhered to a prior order denying in part the petition of

HSBC Bank USA, N.A.

It is hereby ORDERED that the order so appealed from is

unanimously modified on the law by granting the petition insofar as it

sought a determination that the amount of the damages to the Trust

Under Agreement Dated January 21, 1957, Seymour H. Knox, Grantor, For

the Benefit of the Issue of Seymour H. Knox, III, with respect to the

stock petitioner retained in the F.W. Woolworth Company beyond March

1, 1995, are $641,494.00 through June 30, 2012, and a determination

that the amount of $6.5 million paid by petitioner to the Trust

pursuant to a high/low agreement is in complete satisfaction of the

damages sustained by the Trust with respect to the F.W. Woolworth

stock and with respect to damages that may be awarded to the Trust as

a result of pending objections to accounting by an infant contingent

beneficiary unless the Trust is awarded damages in excess of $6.5
-2- 331 

CA 16-01627 

million and as modified the order is affirmed without costs, and the

matter is remitted to Surrogate’s Court, Erie County, for further

proceedings in accordance with the following memorandum: On a prior

appeal, we modified Surrogate Court’s determination sustaining

objections, by both the income beneficiaries and the guardian ad litem

(GAL) for the three minor remainder beneficiaries, to the petition

seeking a judicial settlement of an intermediate account of the Trust

Under Agreement Dated January 21, 1957, Seymour H. Knox, Grantor, For

the Benefit of the Issue of Seymour H. Knox, III (Trust) (Matter of

HSBC Bank, USA N.A. [Knox], 98 AD3d 300, lv dismissed 20 NY3d 1056). 

We concluded that the Surrogate erred in sustaining the objections,

with the exception of the objections by both the income beneficiaries

and the GAL concerning the retention of the stock of F.W. Woolworth

Company (Woolworth) (id. at 307), which was cofounded by the Knox

family (id. at 304). We remitted the matter to the Surrogate for a

recalculation of the amount of surcharges regarding the Woolworth

stock, using the lost capital methodology, i.e., the formula validated

by the Court of Appeals (id. at 320; see Matter of Janes, 90 NY2d 41,

55, rearg denied 90 NY2d 885). Before our decision was released,

petitioner and the GAL, as the representative for the then two minor

remainder beneficiaries and the remainder beneficiary who had reached

majority, orally agreed to a “high/low” agreement, which was

thereafter executed and approved by the Surrogate. Pursuant to that

agreement, petitioner paid the Trust $6.5 million within days of the

Surrogate’s approval. 

In 2014, petitioner sought, inter alia, to amend its petition and

supplemental petition for judicial settlement of its interim account

to include as an interested party an additional minor remainder

beneficiary, who was born approximately two weeks before the initial

petition in 2006, and to appoint a GAL for that additional minor

remainder beneficiary. As part of that application, petitioner also

sought an order determining the recalculated surcharges pursuant to

our remittal as determined by its expert, and for a determination that

the high/low agreement insofar as it applied to the recalculated

surcharges was binding upon the income beneficiaries and the

additional minor remainder beneficiary. The Surrogate granted that

part of the petition seeking to open the decree and to amend the

petition and supplemental petition in order to add the minor remainder

beneficiary as an interested person, appointed a GAL for the

additional minor remainder beneficiary, and otherwise denied the

petition. 

In 2015, by petition and motion, petitioner again sought an order

determining the recalculated surcharge pursuant to our remittal and

also determining that both the income beneficiaries and the additional

minor beneficiary are bound by the high/low agreement to the extent

that damages to the Trust are subsumed in the amount paid by

petitioner pursuant to the high/low agreement. The Surrogate treated

the application as a motion for leave to reargue her prior order,

granted leave to reargue, but again denied the relief requested. 

The record establishes that both petitioner and the income
-3- 331 

CA 16-01627 

beneficiaries retained experts to calculate the damages to the Trust

as a result of the retention of the Woolworth stock, using the Janes

formula as this Court directed on remittal, and including an interest

calculation to June 30, 2012. The record also establishes that

petitioner’s attorney agreed to accept the calculation of the expert

retained by the income beneficiaries that the Trust sustained damages

in the amount of $641,494.00, which was slightly more than the amount

calculated by petitioner’s expert. We therefore conclude that the

Surrogate erred in denying the petition to the extent that it sought

approval for the recalculation of the surcharge, and we modify the

order accordingly by determining that, with respect to the objections

related to the Woolworth stock, the Trust was damaged in the amount of

$641,494.00 as of June 30, 2012. Indeed, as we made clear on the

prior appeal, “the purpose of damages is to replace capital that has

been lost by the Trust, not by the beneficiaries” (Knox, 98 AD3d at

321). In other words, the surcharge is assessed “to put the [T]rust

in no worse—but no better—position than the one it would have occupied

if the trustee had duly sold [the Woolworth stock]” (Matter of Lasdon,

32 Misc 3d 1245 [A], 2011 NY Slip Op 51710[U], *3 [Sur Ct, New York

County 2011]). Although the beneficiaries may “enforce the [T]rust,”

they do not take “any legal estate in the property” (EPTL 7-2.1 [a]). 

 We conclude that the Trust has been made whole with respect to

the Woolworth stock. Indeed, an amount approximately 10 times that of

the assessed surcharge has been paid to the Trust in accordance with

the high/low agreement. We further conclude that the high/low

agreement, insofar as it resolves the issue of damages sustained by

the Trust as a result of petitioner’s retention of the Woolworth

stock, applies to both the income beneficiaries and 

the additional minor remainder beneficiary to the extent that her

pending objections to the interim accounts concern the Woolworth

stock. We therefore further modify the order accordingly. We further

conclude that the Trust has been made whole with respect to any

additional surcharges that may be imposed as a result of the pending

objections up to the amount of $6.5 million inasmuch as the additional

minor remainder beneficiary is “simply entitled to be put in the

position . . . she would have occupied had no breach occurred” (Matter

of Saxton, 274 AD2d 110, 121). We therefore further modify the order

accordingly. Finally, we remit the matter to Surrogate’s Court for a

determination whether additional interest shall be added to the

recalculated surcharge up to the date the Trust was made whole (see

generally Knox, 98 AD3d at 321). 

Entered: April 28, 2017 Frances E. Cafarell

Clerk of the Court