Court Opinion

ID: 4164588
Source: CourtListenerOpinion
Date Created: 2017-04-28 19:17:52.092597+00
Date Added: 2024-06-11T07:46:53.653112
License: Public Domain

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
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                                                         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
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                                                         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