Court Opinion

ID: 9644774
Source: CourtListenerOpinion
Date Created: 2023-08-22 21:04:41.842626+00
Date Added: 2024-06-11T18:11:18.177530
License: Public Domain

Roberts, J.,
concurring. Although I agree generally with the result reached by the majority of the court, my view of the issues herein persuades me to state separately my reasons for concurrence.
The preliminary injunction is based upon two entirely different grounds. The first ground is that the respondent trustees were unable to exercise an independent judgment to sell The Outlet Company stock. The second ground is that, assuming the decision to sell the stock to have been properly made, the trustees did not perform their duty to obtain the highest available price therefor. In my opinion the alleged conflict of interests on the part of the trustees has relevance only to their decision to sell the stock. The question whether the trustees performed their duty to obtain the highest price would become material only if the court were to conclude that for the purposes of a preliminary injunction the decision to sell the stock was not in violation of the fiduciary duty.
It is my view that the complainants have shown prima facie that there was on the part of the trustees a sufficient conflict of interests to prevent the fulfillment of their duty of undivided loyalty to the beneficiaries in deciding to sell The Outlet Company stock. Having so concluded, I would not reach the question whether the trustees performed their duty to obtain .the highest available price. My purpose herein is to specify what I conceive to be the conflict of interests.
*472The respondent bank is a trustee of several trusts which hold The Outlet Company stock. It is also- a creditor of Clare -S. Quinn. Further, the bank as her creditor is a pledgee of 5,250 shares of the stock. Clare S. Quinn has no interest in the Joseph Samuels trusts with which we are concerned in this cause, and -for most purposes the property in which she does have an interest is completely separate from the Joseph -Samuels trust property. If, as respondents contend, the pledged shares were entirely disconnected from the property in the Joseph .Samuels trusts, I would be -constrained to conclude that no conflict of interests has been shown. However, because the evidence establishes a practical link between the pledged stock and the stock in the Joseph Samuels trusts, it is my opinion that the bank is incapable of giving undivided loyalty to the complainants in deciding to sell the stock.
The pledged shares constitute a relatively small portion of the outstanding stock of The Outlet Company. However, a combination of all the stock held by respondents in the several trusts represents voting control of the company, and the evidence indicates that by selling such voting control a considerably higher price can be obtained for each share than if small blocks of the stock were sold separately. Consequently the bank as pledgee would be able to obtain a more attractive price for the pledged shares by selling together therewith all the stock in the several trusts. As a practical matter a decision to- sell the pledged stock would include a decision to sell all the stock in the five trusts. In my view it is this nexus between the pledged stock and the stock in the Joseph Samuels trusts which gives rise to- the conflict of interests.
“It is the duty of a trustee to- administer the trust solely in the interest of the beneficiaries. He is not permitted to place himself in a position where it would be for his own benefit to violate his duty to the beneficiaries.” 2 Scott, Trusts (2d ed.), §170, p. 1193. See 1 Restatement of Trusts *4732d, §170, p. 364. In the circumstances of the instant cause the respondent bank’s decision to sell The Outlet Company-stock inevitably involves a consideration not only of the interests of the complainants as beneficiaries but also of its own security interests as pledgee of the Clare S. Quinn shares. Clearly a sale of the pledged shares could be of benefit to the bank as creditor even though the complainants’ interests as beneficiaries might require a retention of The Outlet Company stock. Such a position is inherently antagonistic and prevents adherence to- the fiduciary’s duty of undivided loyalty.
It is clear that where a trustee possesses a direct non-fiduciary interest in trust property, the duty of undivided loyalty is violated. Dodge v. Stone, 76 R. I. 318; Industrial Trust Co. v. Dean, 67 R. I. 504; Horton v. Maine, 22 R. I. 126. See also Scott, The Fiduciary Principle, 37 Calif. L. Rev. 539. In the circumstances of this cause it seems to me that the trustees’ position as pledgee of the Clare S. Quinn stock is in essence the same as though the bank were a pledgee of stock in the Joseph Samuels trusts. The conflict of interests therefore is not, as respondents urge, an indirect conflict only. Compare Anderson v. Bean, 272 Mass. 432, Donnelly v. Consolidated Inv. Trust, 99 F.2d 185, and Fidelity Union Trust Co. v. Guaranty Trust Co., 135 N.J. Eq. 222. Because of the considerations involved in the decision to sell the stock, there is a direct competition between .the commercial interests of the bank as pledgee and its fiduciary -duty to the complainants.
For the reasons stated, I concur in sustaining the decree appealed from.