2023 New Mexico Statutes › Chapter 46A - Uniform Trust Code › Article 10 - Liability of Trustees and Rights of Persons Dealing with Trustees › Section 46A-10-1002 - Damages for breach of trust.

A. A trustee who commits a breach of trust is liable to the beneficiaries affected for the greater of:
(1) the amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred; or
(2) the profit the trustee made by reason of the breach.
B. Except as otherwise provided in this subsection, if more than one trustee is liable to the beneficiaries for a breach of trust, a trustee is entitled to contribution from the other trustee or trustees. A trustee is not entitled to contribution if the trustee was substantially more at fault than another trustee or if the trustee committed the breach of trust in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries. A trustee who received a benefit from the breach of trust is not entitled to contribution from another trustee to the extent of the benefit received.
History:
Laws 2003, ch. 122, § 10-1002; 2007, ch. 128, § 26.
ANNOTATIONS
The 2007 amendment,
effective July 1, 2007, added Subsection A and amended Subsection B to add the exception.
Restoration damages and disgorgement damages may be awarded together when there is a breach of trust.
— When there is a breach of trust, the loss to the beneficiaries and the profit by the trustee are distinct harms that traditionally give rise to different types of damages: restoration and disgorgement. Each has its own remedial purpose, and both may be awarded if necessary to satisfy each purpose fully by compensating the trust and removing all profit from the trustee's self-dealing. The measure of disgorgement is the amount of defendant's gain, and a beneficiary need not suffer any loss at all to be entitled to the remedy. Disgorgement is not intended to compensate beneficiaries but to prevent unjust enrichment of the trustee and to deter that trustee and others from similar conduct. Damages for unjust enrichment differ from compensatory damages in that the measure and limit of compensatory damages is the plaintiff's loss or injury, while the measure of restitution is the defendant's gain or benefit. Miller v. Bank of America, 2015-NMSC-022,
rev'g
2014-NMCA-053, 326 P.3d 20.
Where trustee bank, in a breach of its duty of care, invested trust assets in an unproductive commercial building in direct violation of express trust provisions, which caused an $894,000 loss in the value of the trust, arranged loans to the trust from the bank's own affiliates that were secured by mortgages on the building, and collected loan fees and mortgage interest from the trust in breach of its duty of loyalty, and where the district court awarded $171,000 in damages without discussing the actual method of calculation for the restoration award, the court of appeals reversed the district court and awarded plaintiffs $894,000 to restore the value of the trust, but did not award disgorgement damages, holding that an award of restoration damages and disgorgement damages would amount to a double recovery. The New Mexico supreme court reversed the court of appeals, holding that both restoration and disgorgement damages were required under the New Mexico Uniform Trust Code, and remanded the case back to the district court for a recalculation of damages because it was unclear whether disgorgement damages, the mortgage interest and loan fees paid to the trustee, were included in the calculation of the restoration award. Miller v. Bank of America, 2015-NMSC-022,
rev'g
2014-NMCA-053, 326 P.3d 20.
Breach of duty.
— Where decedent created testamentary trusts for generation of income for beneficiary distribution and preservation of the value of the principal assets for distribution to plaintiffs upon the death of the decedent's spouse; the will prohibited defendant from investing in unproductive assets; in 1991, defendant purchased a commercial building as an asset of the trusts; by 1995, defendant became aware that the building was unproductive of net income and a drain on the income and other assets of the trusts; defendant continued to invest in the building despite its status as a wasting asset and obtained plaintiffs' consent to obtain a loan to renovate the building and to sell trust assets to reduce the loan balance; at the end of 1991, the net value of the trusts was $669,996; at the end of 2003, the net value of the trusts was effectively zero; defendant had very little experience with commercial property management and never disclosed the building's unproductive status to plaintiffs; and plaintiffs were unaware of all the material facts regarding the building and did not fully consent to defendant's conduct, defendant breached its fiduciary duty and was liable for damages to plaintiffs resulting from the decline in the value of the trusts. Miller v. Bank of America, N.A., 2014-NMCA-053, cert. granted, 2014-NMCERT-005.
Inflationary adjustment of restoration damages and prejudgment interest.
— Where defendant mismanaged trust assets and breached its fiduciary duty by improperly depleting trust assets for the purpose of improving an unproductive commercial building; the net value of the trust assets declined from $669,996 at the end of 1991 to a net value that was effectively zero at the end of 2003; the district court awarded plaintiffs restoration damages of $894,000, based on a standard adjustment for inflation from 1991 to June 1, 2004 when the trust assets were distributable to plaintiffs, plus prejudgment interest from June 1, 2014, the inflation adjustment did not constitute a double recovery and overlap the recovery of prejudgment interest because the inflation adjustment was required to keep plaintiffs whole and to calculate the amount needed to restore the real value of the trust for the period 1991 to June 1, 2004 and the prejudgment interest compensated plaintiffs for the use of the value of their trust shares from June 1, 2004 until judgment was entered. Miller v. Bank of America, N.A., 2014-NMCA-053, cert. granted, 2014-NMCERT-005.
Offset of damages for income distributions.
— Where defendant retained a commercial building during defendant's entire term as trustee even though the building was a wasting asset; defendant depleted trust assets and borrowed funds to renovate the building; during defendant's term as trustee, the return on trust assets was negative and the net value of trust assets decline substantially; despite the negative return on trust assets, defendant further depleted trust assets by paying $404,421 as income distributions to the beneficiaries; and the proper measure of damages for defendant's breach of its fiduciary duties was the amount required to restore the value of the trust estate and all of its income distributions to what they would have been if the trust had been properly managed, defendant was not entitled to an offset of the income distributions against compensatory damages because defendant offered no evidence that the income distributions exceeded the amount that would have been actually received by plaintiffs if defendant had timely sold the building and properly invested the principal in assets that produced a reasonable rate of return while continuing to preserve principal. Miller v. Bank of America, N.A., 2014-NMCA-053, cert. granted, 2014-NMCERT-005.
Disgorgement of profits to the trustee for self-dealing.
— Where defendant retained a commercial building during defendant's entire term as trustee even though the building was a wasting asset; defendant borrowed $800,000 from an affiliate entity in an attempt to restore the building to a competitive condition; district court awarded plaintiffs restoration damages of $894,000 for defendant's breach of its fiduciary duties; and plaintiffs sought to recover $540,000 as a disgorgement of profits to defendant for self-dealing arising from the loans to the trust, an award of disgorgement damages to plaintiffs would constitute a double recovery because the award of restoration damages made plaintiffs whole and effectively included the amount claimed as disgorgement damages. Miller v. Bank of America, N.A., 2014-NMCA-053, cert. granted, 2014-NMCERT-005.
Law reviews.
— For article, "The New Mexico Uniform Trust Code," see 34 N.M.L. Rev. 1 (2004).