FIDUCIARY LITIGATION in NEW JERSEY
at McCarter & Higgins

         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."
 

The Bank of New York  ("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".

 

First Union  ("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.

 

Merrill Lynch 
                 

        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".

      When Patricia demanded her money back,  Merrill Lynch took the offensive and sued her and her family for a $35,000 bad check drawn by Cap City and signed by Patricia's daughter as a corporate officer.  The check was deposited in another Merrill account and successfully written against before it was dishonored.  Patricia counterclaimed for her $75,000.   Merrill Lynch litigated these relatively small (for Merrill Lynch) claims as if its corporate life depended on them.  Together with its counsel, Anthony Pasquariello, Esq., Merrill devised a scheme to induce Patricia to sue the wrong corporate entity within the Merrill Lynch corporate umbrella.  See, for example, two certified statements by Merrill Lynch lawyers, attesting that Merrill Lynch Pierce Fenner & Smith, Inc. should be the plaintiff on the check claim, but that Merrill Lynch Bank, USA should be the defendant on the counterclaim. 
        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.
     

PNC Bank

         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.  

United States Trust Company

        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.
      

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