UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

TIFFANY S. STOPPER, as Beneficiary 

and Successor Co-Trustee of the

Irrevocable Trust Agreement of

John M. Stealey and Laura M.

Stealey dated December 25, 1995,  No. 00-2204 Plaintiff-Appellant,

v.

DAVID H. KESTEL,

Defendant-Appellee. 

Appeal from the United States District Court

for the District of Maryland, at Greenbelt.

Frederic N. Smalkin, District Judge.

(CA-00-1664-S)

Argued: May 10, 2001

Decided: June 15, 2001

Before LUTTIG, MOTZ, and TRAXLER, Circuit Judges.

Affirmed by unpublished per curiam opinion. 

COUNSEL

ARGUED: Russell Jay Pope, POPE & HUGHES, Towson, Maryland, for Appellant. Roger Warren Titus, VENABLE, BAETJER &

HOWARD, L.L.P., Rockville, Maryland, for Appellee. ON BRIEF:

Michael S. Barranco, POPE & HUGHES, Towson, Maryland, for
Appellant. Kathleen E. Wherthey, VENABLE, BAETJER & HOWARD, L.L.P., Rockville, Maryland, for Appellee. 

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c). 

OPINION

PER CURIAM: 

Tiffany S. Stopper ("Stopper"), beneficiary of an irrevocable trust

(the "Trust"), sued David H. Kestel ("Kestel") for breach of fiduciary

duty and gross negligence in his performance as trustee. For the reasons set forth below, we affirm the district court’s grant of summary

judgment to Kestel. 

I.

Stopper’s parents, John M. Stealey ("Stealey") and his then-wife

Laura Stealey, created separate irrevocable trusts for the benefit of

their three children in 1995. Each trust’s corpus consisted entirely of

stock in a new company founded by Stealey (the "Stealey stock").

Stealey made Kestel, his estate planning consultant, the trustee for

each of the trusts.1 Each Trust Agreement authorized Kestel to "retain

any and all property received [from the settlor] until such time as he

may deem it desirable to sell or otherwise dispose of the same." J.A.

16. 

Pursuant to an initial public offering ("IPO"), the Stealey stock

began trading on the NASDAQ at $8.00 per share on July 22, 1998,

and was at $14 per share on the second day of trading. As part of the

IPO, Kestel signed a lock-up agreement with the underwriter, in his

individual capacity as director, agreeing not to "sell, offer for sale,

1Stealey invited Kestel to become a member of the Board of Directors

of his company in February 1997. 

2 STOPPER v. KESTEL
transfer, assign, pledge, hypothecate or otherwise dispose of, any

securities of the company owned by the undersigned, pursuant to Rule

144 promulgated under the Securities Act of 1933," for nine months.2

J.A. 155, 157-58. During the lock-up period, the Stealey stock price

plummeted. 

As the Stealey stock fluctuated between $0.625 and $2.50 per share

after the lock-up agreement ended, Stopper pressured Kestel to sell

the Stealey stock in her Trust. Kestel refused, stating that in his opinion that stock was undervalued and would appreciate. Kestel told

Stopper that it was his duty to hold the stock until it rose to its true

value, which was at least $3.00 per share. J.A. 158. 

Faced with Stopper’s continued pressure to sell the Stealey stock,

Kestel resigned from his position as trustee for her Trust in October

1999. However, Kestel continued to serve as trustee for the trusts

established for the benefit of Stopper’s siblings. The Stealey stock in

Stopper’s Trust was sold by the successor trustee for $0.86 per share

in late October 1999, at Stopper’s request.3

Stopper then filed suit against Kestel, alleging that he breached his

fiduciary duty in failing to diversify the portfolio and liquidate the

Stealey stock held in the Trust, J.A. 8, and that he was grossly negligent in consciously and deliberately disregarding the risks of the "unitary investment in" the Stealey stock. J.A. 9. Applying Pennsylvania

law, the district court granted Kestel’s motion for summary judgment,

and this appeal followed. 

II.

The standard for imposing liability on a trustee who is authorized

to retain investments has long been clearly established: While "authority to retain investments [does] not justify holding without attention," a "trustee will not be held personally liable for an honest

2

See also 17 C.F.R. § 230.144(a)(2)(ii) (defining application of restriction under section 144 of the Securities Act of 1933 to include any trust

of which a covered person serves as trustee). 

3

In contrast, Kestel sold Stealey stock held under the siblings’ trusts

for more than $4.00 per share during the first quarter of 2000. 

STOPPER v. KESTEL 3
exercise of a discretionary power, in the absence of supine negligence

or willful default." In re: Mereto’s Estate, 96 A.2d 115, 116 (Pa.

1953) (citations omitted). Moreover, the Trust Agreement itself provides that Kestel, "while acting in good faith, shall not be liable or

held responsible for any loss or depreciation in the value of any trust

created hereunder, but shall be liable only for loss resulting from his

own willful default or gross negligence." J.A. 162 (emphasis added).

See also 20 Pa. Cons. Stat. Ann. § 7319(a) (providing that the liability

prescribed by the trustee in the trust instrument "shall control notwithstanding this chapter"). To constitute gross negligence, "the behavior

of the defendant must be flagrant, grossly deviating from the ordinary

standard of care." Bloom v. DuBois Reg. Med. Ctr., 597 A.2d 671,

679 (Pa. Super. Ct. 1991). 

While Stopper argues that Kestel’s failure to diversify the trust

portfolio constitutes gross negligence, Appellant’s Br. at 17, we are

aware of no case holding that it per se constitutes negligence, let

alone gross negligence, for a trustee to retain stock in a new company,

even a new company engaged in a highly competitive industry. Nor

was Kestel required to diversify trust investments under Pennsylvania

law. See Estate of Knipp, 414 A.2d 1007, 1009 (Pa. 1980) (holding

that non-diversification is not presumptively imprudent). 

More importantly, Stopper neither provided nor proffered any evidence that: (1) the Stealey stock was not undervalued at the time Kestel refused to sell it; (2) Kestel acted in bad faith; or (3) Kestel acted

with indolence, "supine negligence or willful default," In re: Mereto’s

Estate, 96 A.2d at 116. Indeed, the uncontroverted record evidence is

that Kestel exercised his discretion and refused to sell the Stealey

stock, despite Stopper’s demands, because he believed the stock was

undervalued — a decision that was vindicated by subsequent events.

See supra at 3 n.3. Further, because the Stealey stock was the only

Trust asset, in order to diversify Kestel would have had to sell the

stock when he believed it was undervalued — in violation of his fiduciary duties.

After considering the parties’ briefs, the oral arguments of counsel,

and the joint appendix, we are persuaded that the district court

reached the correct result because Kestel’s actions "fell far short of

gross negligence," the standard of liability selected by the trust settlor,

4 STOPPER v. KESTEL
and we affirm the judgment of the district court on that ground.4

 J.A.

247. We also agree with the district court that Kestel did not otherwise breach his fiduciary duties and, having considered Stopper’s

other arguments, we affirm the grant of summary judgment to Kestel

on that claim on the reasoning of the district court. 

AFFIRMED

4Thus, we need not decide the extent to which the obligation to exercise "due care and prudence in the performance of [Kestel’s] duties," 20

Pa. Cons. Stat. Ann. § 7302(a), was, or was not, modified by the Trust

Agreement’s retention clause. 

STOPPER v. KESTEL 5