Since
crossing over to "the other side" when I left McCarter & English, I
have found that it is more fun, and more satisfying, to sue large
corporations and
other vested interests than to defend them. In particular, I have
found that professional fiduciaries,
especially bank trust departments, are often far more eager to obtain
fee income than to implement a prudent investment plan, and so
they can be sitting ducks for breach of trust litigation. Since
1996, I have been in
litigation on behalf of customers of United States Trust Company, Bank
of New York, First Union, Merrill Lynch, and PNC Bank. Banks are
great fun to sue, because, as Willie Sutton famously said, "That's
where the money is."
("BONY" to its friends
)
Some of these cases have involved my own family. On August 25,
2000, New York Post business reporter
John
Crudele wrote an article describing my aunt's
problems
with the Bank of New York. I originally filed this case here in
Monmouth
County. BONY had it "removed" to federal court in Newark, then
transferred
to federal court in Manhattan, and finally to the New York
County
Surrogate's Court. But whatever the court,
one fact was undisputed. The amount my great grandmother
originally
placed in "trust" in 1929 with the Bank of New York was $18,333 (an
amount
reporter Crudele described as "enormous" at the time). In 2000,
more
than seventy years later, that "trust" was worth less than
$17,000,
a sum far from "enormous" in 2002! Judge for yourself whether
that
record gibes with BONY's own description of
its fiduciary services.
In November, 2002, BONY
agreed to bring the trust to a total of $102,000 in order to settle
this case. They didn't pay until September 9, 2003. From
first to last, customer service was the farthest thing from BONY's
corporate "mind".
("FU" to everyone)
The case against First Union also involved my family. When my
great-great
uncle Thomas N. McCarter died in 1955, he established a $10,000
trust
in his will to maintain "in permanent good order" a small cemetery
in Rumson where he had established a mausoleum
for himself and his family. His daughter, Madeleine McC. Kelly,
later
contributed another $10,000 to the trust, which was held by a bank that
is now First Union. By the spring of 2000, First Union had
dissipated
all but about $300 of the $20,000 that had been entrusted to it.
Incredibly, the Bank wrote a letter asking
the
Borough of Rumson to sign a release agreeing to "indemnify, release and
forever discharge First Union National Bank from any and all liability,
loss or expense ... in connection with acts or omissions of the bank"
during
the entire 45 year term of the trust, in return for the $300 pittance
remaining
in the trust, plus a promise by Rumson that it would take over
management
of the cemetery. Rumson declined, and I filed suit against First
Union, pro bono, as a borough taxpayer to compel it to honor
the
terms of the trust. During the lawsuit, the Bank had to admit
it had lost 36 years of records for the trust and could only
account
for the most recent ten years. Rather than go to trial, First
Union
agreed to restore the entire $20,000 that had originally been placed in
trust. Instead of a mere $300, the
full $20,000 was given to Rumson to take over management of the
tiny
cemetery. The local Two
River Times wrote a comprehensive
article about the settlement
. I also received a lovely letter from
the Mayor of Rumson, thanking me for my pro bono
efforts.
If robbery is defined as theft by force, then
Merrill Lynch
robbed its client Patricia Conte of $75,000. Mrs. Conte
had opened a brokerage account at
the Red Bank, N.J. office of Merrill Lynch to secure a loan from
Merrill Lynch
Bank to Cap City Products, a company run by her daughter. The
loan was paid off in 2000, and the
Merrill Lynch Bank unit in Utah sent Patricia two
letters
confirming that
her collateral account in Red Bank would be released to her. But
when she tried to liquidate the account,
the Red Bank brokerage office unilaterally
withheld $75,000, claiming
that Cap City
owed
that amount to the Red Bank office. Patricia had
never guaranteed any aspect of Cap City’s relationship with the Red
Bank office
of Merrill Lynch. In discovery, we even
located an internal Merrill
Lynch memo in which the company admitted it knew at the time
that its $75,000 claim was "unsecured".
After the jury ruled in favor of Patricia on her claim to get her $75,000 back, Merrill said "gotcha" - we don't have to pay because you sued the wrong company. Counsel's implication of unfair surprise because the correct party had not been "named as a counterclaim defendant" was totally unfounded, as I had written him before trial advising him of the error in the caption. Fortunately, the trial judge was not easily fooled and he granted our motion to change the caption of the lawsuit to reflect the correct defendant in the Final Judgment. Even then, Merrill refused to pay what it owed to its own client, and we were forced to have the Sheriff of Monmouth County serve a Writ of Execution at the Red Bank office of Merrill Lynch to make them pay our judgment. At long last, they did.
In case you're wondering about the claim on the corporate check, the jury ruled that Patricia's daughter did NOT intentionally sign a bad corporate check, but she was held liable anyway because the judge gave Merrill an alternate theory ("conversion") that did not require Merrill to prove intentional wrongdoing by the daughter. The same judge also made the remarkable ruling that Patricia could not claim punitive damages against Merrill Lynch for stealing her money, but that Merrill could claim punitive damages against the daughter for signing a bad corporate check. Of course, the jury laughed Merrill's claim for punitive damages all the way out of Freehold. You can check the jury's findings in the jury verdict sheet, especially nos. 4, 9, and 12.
The moral of the story? "B-u-l-l-i-s-h" isn't quite the correct spelling of Merrill Lynch's attitude toward its own customers when it has a dispute with one of them.
This case is a lot like the Bank of New York case above. PNC was
given money to hold in trust, and it invested solely in fixed income
instruments
during the entire period of the trust, to the detriment of my clients,
the remainder beneficiaries. Check this
document to see how in 1983 the Bank designated the investment
policy
for this trust as “tax free income with growth.” Click to see the
same form ten years later , still indicating “growth w/ tx exempt
income”
as the investment policy, even though the trust had been invested only
in municipal bonds during that entire decade. Note that on the
latter
document someone (never identified) finally added a handwritten
addendum
“Change to #11, max inc, (tx ex),” presumably to reflect the reality of
ten years’ practice. Needless to say, the remainder beneficiaries
were never
advised
either of the original designation or the subsequent change.
If you think appointing
a professional fiduciary like PNC Bank and a relative as co-trustees
means
the Bank will supervise the relative and make sure he acts according to
law, think again. Look at this letter
, where PNC Bank tells its co-trustee he is breaching his fiduciary
duty
by not investing partly in equities, but lets him continue that policy
provided he signs an acknowledgment that he has been warned. So
much
for the professional watchdog. Once again, my clients had no
knowledge
of this document until the Bank was forced to produce it in the
lawsuit.
PNC Bank ultimately agreed
to augment the trust substantially to settle this lawsuit and avoid a
trial. Before the settlement was consummated, PNC's lawyer
falsely claimed that another beneficiary
not represented by me
was entitled to $12,000 that would otherwise have gone to my
clients. Since that beneficiary did not want the money,
apparently PNC was trying at the last minute to con us out of $12,000
for its own pocket. In any event, I had fortunately recorded a
telephone
message that revealed the fraud, and the court would not allow
it. It is remarkable how petty and duplicitous these "trust"
departments can be.
A few years later, a
potential customer of PNC Bank's trust department came upon this
website and
asked me to review a trust agreement the Bank wanted him to sign.
I am
producing that Agreement here,
with names appropriately changed to protect the
innocent. The client's accountant had told him it was the worst
agreement
he had ever seen. I agreed. Don't even try to read
all 36
pages. Just note that (a) PNC disclaims any duty to follow the
prudent
investor rule and agrees to be liable only for “willful misconduct”
(i.e.
outright theft); (b) PNC is entitled to all the fees that are in its
"published fee schedule," whatever that is (it's not in the
Agreement); (c) that “ the Trustee shall have no duty or
obligation to
make the disclosure described in Section 3312 of Title 12 of the
Delaware Code
or any similar provision of law that generally would be applicable to
the
Trustee but that may be waived by the express terms of this Agreement”;
and (d)
Delaware law governs this supposedly New Jersey trust, and the poor
client can
sue PNC only in Delaware. As
far as I know, the client threw the whole
thing into the trash.
U.S. Trust was named in a will
as co-trustee of a trust. The other trustee (the decedent's son)
was to receive income
from the trust for life, and my clients were the remainder
beneficiaries.
U.S. Trust also had a half million dollar loan due from the
co-trustee
when the decedent died. During the estate administration, both
trustees agreed to a "settlement" allowing them to use the entire trust
principal
(instead of the debtor's own money) to repay the $500,000 loan to U.S.
Trust, and
they
had that decision approved in a "Consent Judgment" signed by the
probate
judge. The trouble was, my clients never knew about the
"settlement"
by the trustees, and they never received a copy of the Consent
Judgment
until six years after it was entered, when the trustees presented their
final account. That was when my clients discovered "their" trust
had no money in it.
For
a clear example of how
U. S. Trust duped my clients, read the last paragraph of
this letter
from U.S. Trust's lawyer, Joseph Imbriaco (rated one of New Jersey's
"best"
trust and estate lawyers by New Jersey Magazine), where he expresses
reservations as to the fairness of the settlement to my
clients ("the
children of Robert E. Wallace, Jr.")
Mr. Imbriaco sent copies of that letter to all interested parties in
the
case, except my clients. Despite its reservations, U.S.
Trust took no steps to change the settlement and kept the $500,000 it
had
taken from the trust.
My clients objected to the
trustees' account, but the probate judge was very sympathetic to Mr.
Imbriaco (the judge had once been his client) and hostile to my
clients. The probate judge's approach to the
case is best expressed in this excerpt from
the
trial transcript, where he says my clients had no right to
be notified of the settlement because they hadn't then retained their
own lawyer to
monitor
the fiduciaries. In the judge's words, without their own
lawyer,
the trust beneficiaries weren't "players" entitled to an opportunity to
object
when
the fiduciaries hired to protect them engaged in
self-dealing. The learned judge proceeded to throw out the claim against U. S. Trust,
on
the ground that my clients were "negligent"
in not discovering the
fiduciaries' scheme. That was a
staggering
misapplication of fiduciary law. Beneficiaries don't have a duty
to discover fiduciary self-dealing - the
fiduciaries have a duty to disclose it!
Incredibly (and I mean that
literally), the
Appellate Division sustained the unfavorable result, but since it
couldn't
possibly sustain the court's negligence standard, it made up a
fictional finding by the probate judge
that he doubted my clients' credibility, and then it
sustained
that fictitious ruling. Although our appeal was focused on
the probate judge's negligence ruling, the Appellate Division opinion
never once mentioned it. Check the opinion
at page 9 for its reference to "credibility" findings the trial judge
never made. Read the entire opinion and see whether you can find
any reference to the "negligence" ruling, or to the letter from Mr.
Imbriaco cited above. That decision by the Appellate
Division was the most intellectually dishonest judicial opinion I
have seen in nearly 30 years practicing law.
