SUPREME COURT OF THE STATE OF NEW YORK

Appellate Division, Fourth Judicial Department

1015 

CA 14-00062 

PRESENT: CENTRA, J.P., FAHEY, WHALEN, AND DEJOSEPH, JJ.

 

 

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 MEMORANDUM AND ORDER

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.

WILLIAM S. ROBY, III, ROCHESTER, OBJECTANT-APPELLANT PRO SE, AND FOR

ELIZABETH LEE ROBY AND KATHRYN STARR ROBY JOHNSON, OBJECTANTSAPPELLANTS. 

NIXON PEABODY LLP, ROCHESTER (STEPHANIE T. SEIFFERT OF COUNSEL), FOR

PETITIONER-RESPONDENT.

 

Appeal from an amended order of the Surrogate’s Court, Monroe

County (Edmund A. Calvaruso, S.), entered October 7, 2013. The

amended order granted petitioner’s motion to dismiss the objections.

It is hereby ORDERED that the amended order so appealed from is

unanimously affirmed without costs.

Memorandum: 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,
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CA 14-00062 

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 AD3d 40, 45) 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 NY2d 539, 545-546; Summers v City of

Rochester, 60 AD3d 1271, 1273; Cataract Metal Finishing, Inc. v City

of Niagara Falls, 31 AD3d 1129, 1130).

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 NY2d 76, 82, rearg denied 31 NY2d 963; Knobel v Shaw, 90

AD3d 493, 496; Matter of Baird, 58 AD3d 958, 960; Matter of Meyer, 303

AD2d 682, 683; Matter of Rodken, 270 AD2d 784, 785). 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
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CA 14-00062 

the relation to the knowledge of the beneficiary” (31 NY2d at 82

[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). 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 AD2d at 683 [emphasis added]; see Rodken, 270 AD2d at

785). 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 AD3d at 959-960; see

also Barabash, 31 NY2d at 81). 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), “we . . . must accept the facts

as alleged in the [objections] as true, accord [objectants] the

benefit of every possible favorable inference, and determine only

whether the facts as alleged fit within any cognizable legal theory .

. . [T]he criterion is whether [objectants have] a cause of action,

not whether [they have] stated one” (Genesee/Wyoming YMCA v Bovis Lend

Lease LMB, Inc., 98 AD3d 1242, 1244 [internal quotation marks

omitted]; see Leon v Martinez, 84 NY2d 83, 87-88; see also Matter of

Budd, 267 App Div 966, 966). 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 AD3d 1418, 1420, lv denied 17 NY3d 712). 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
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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 AD3d 300, 309, lv dismissed 20 NY3d

860, quoting Matter of Bank of N.Y., 35 NY2d 512, 519; see Matter of

Chase Manhattan Bank, 26 AD3d 824, 828, lv denied 7 NY3d 824,

reconsideration denied 7 NY3d 922). 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 prudence, not

performance, and therefore evidence of losses following the investment

decision does not, by itself, establish imprudence’ ” (Knox, 98 AD3d

at 309, quoting Matter of Janes, 223 AD2d 20, 27, affd 90 NY2d 41,

rearg denied 90 NY2d 885). Here, objectants merely alleged that the

proprietary funds were underperforming, which is insufficient to state

a cause of action for breach of fiduciary duty (see Knox, 98 AD3d at

309; Matter of Morgan Guar. Trust Co. of N.Y., 89 Misc 2d 1088, 1092).

We further conclude that objectants’ claim that petitioner did

not consider the tax consequences of its investment in tax-exempt

municipal bonds failed to state a cause of action for breach of

fiduciary duty. The Prudent Investor Act requires trustees “to

consider . . . the expected tax consequences of investment decisions

or strategies” (EPTL 11-2.3 [b] [3] [B]). We agree with petitioner,

however, that its letters to the beneficiaries, which are attached to

the objections, demonstrate that petitioner considered the investment

in municipal bonds as part of its overall investment strategy and,

further, that petitioner properly considered the tax consequences of

that investment decision. The mere fact that Mary allegedly lost

interest income in return for a “negligible break on her tax return,”

as the objectants characterize it, does not establish that petitioner

was imprudent in choosing to invest in fixed-income assets such as

tax-exempt municipal bonds (see Knox, 98 AD3d at 309). 

Objectants failed to state a cause of action for breach of

fiduciary duty on the ground that petitioner failed to advise the

beneficiaries of changes in the law and further failed to take any

action based on those changes. Objectants provide no support for

their assertion that trustees have a fiduciary duty to advise

beneficiaries of changes in the EPTL. In any event, the provisions of

the EPTL cited by objectants merely authorize particular actions by a

trustee in its discretion (see EPTL 11-2.3 [b] [5] [A]; 11-2.4 [e] [1]

[B]); thus, even if it were true that petitioner “took no action

pursuant to th[ose] change[s] in the law,” such inaction does not

establish a breach of fiduciary duty.

We agree with petitioner that the allegations in the objections

regarding petitioner’s failure to communicate and consult with the

beneficiaries regarding investment decisions failed to state a cause

of action for breach of fiduciary duty. “[A] trustee may not delegate

his or her investment authority to a beneficiary or others” (Matter of

Saxton, 274 AD2d 110, 120; see Matter of Roche, 233 App Div 236, 237,

mod on other grounds 259 NY 458). Thus, that part of the objections
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stating that petitioner excluded the beneficiaries from choosing

between proprietary funds or nonproprietary alternatives and failed to

consider the beneficiaries’ investment advice does not state a cause

of action for breach of fiduciary duty. In any event, the factual

basis for the objectants’ claim is belied by the record. A trustee

has a duty to communicate material facts to beneficiaries (see Janes,

223 AD2d at 32; Matter of Wood, 177 AD2d 161, 167, citing Restatement

[Second] of Trusts § 170) and, here, objectants did not allege that

petitioner failed to communicate material facts to the beneficiaries

regarding investment strategy; rather, the record supports the

conclusion that the beneficiaries merely disagreed with the strategy

as properly communicated by petitioner. Moreover, the record

establishes that petitioner repeatedly advised the beneficiaries that

it welcomed their input regarding the management of the trust. 

Objectants also alleged that petitioner required all

beneficiaries, even those who had signed releases, to contribute part

of their share of the trust distribution to a litigation reserve

pending judicial settlement and that petitioner withheld the entirety

of the objectants’ interest in the trust for the litigation reserve.

We conclude that such allegations do not state a cause of action for

breach of fiduciary duty. To the extent that objectants contend that

petitioner wrongfully withheld a portion of the shares of Gill and

Peter in the litigation reserve, we conclude that objectants do not

have standing to challenge petitioner’s conduct relating to nonobjecting beneficiaries (see Matter of Schultz, 104 AD3d 1146, 1147). 

In any event, the Surrogate required petitioner to pay costs

associated with the litigation from William’s share and to distribute

Peter’s and Gill’s shares as soon as practicable. In addition, the

Surrogate had discretion to allocate expenses among the objecting

beneficiaries only (see generally Matter of Hyde, 15 NY3d 179, 186-

187), and the objections do not state that petitioner failed to comply

with the Surrogate’s order. Finally, objectants cite no legal

authority prohibiting petitioner from delaying distribution of trust

assets pending judicial settlement in order to pay for legal fees and

other expenses. The objections therefore fail to state a cause of

action for breach of fiduciary duty based on petitioner’s creation of

a litigation reserve. 

Entered: November 14, 2014 Frances E. Cafarell

Clerk of the Court