Appeal from the United States District Court for the District of New Jersey. (D.C. Civil Action No. 91-cv-03383).
Present: Hutchinson and Nygaard, Circuit Judges, and Katz, District Judge*fn*
HUTCHINSON, Circuit Judge.
Appellant, Melissa L. Robertson ("Robertson" or "Beneficiary"), appeals an order of the United States District Court for the District of New Jersey granting summary judgment to appellee, The Central Jersey Bank and Trust Company ("Bank" or "Trustee"). Robertson is the beneficiary of a testamentary trust that names the Bank as trustee. She asserts that the district court erred in holding that a will provision authorizing the Bank to retain its own stock protected it from liability for failure to diversify trust assets when she failed to show that the Trustee acted either "recklessly or in disregard of [its] fiduciary duty of loyalty." Robertson v. The Central Jersey Bank and Trust Company, No. 91-3383, slip op. at 11 (D.N.J. Dec. 9, 1993). Robertson also contends that the district court erred when it held that she could not recover against the Bank for alleged mismanagement of the testator's estate prior to August 12, 1988, the date on which the Superior Court of New Jersey, Law Division, Probate Part ("Probate Court") approved the Bank's account of its administration of the testator's estate.
We hold that the district court erred when it granted the Trustee summary judgment on Robertson's claim that the Trustee violated its fiduciary duty of care by keeping as much as 95% of the trust assets invested in the Trustee's own corporate stock. We also believe the district court erred in using recklessness, instead of due diligence, to define the standard of care New Jersey fiduciaries must meet when broadly authorized to retain trust investments. On the present record, there remain genuine disputed issues of material fact as to whether the Trustee met the standard of care New Jersey requires fiduciaries to exercise to protect trust beneficiaries from investment losses. We will therefore reverse that part of the district court's order granting the Bank summary judgment on Robertson's claim that it breached its fiduciary duty of care in retaining the investment of almost all of Robertson's trust in its own stock, without any attempt to diversify her trust's investments.
On the preclusion issue, we are in basic agreement with the district court's legal analysis. We will modify its order, however, to limit preclusion to the period covered by the Bank's account, which ended March 21, 1988, rather than extending it, as the district court did, to August 12, 1988, the date the Probate Court entered its decree approving the Bank's account.*fn1
Robertson is the step-granddaughter of Irene Lockwood Robertson ("Testator"). The Testator died on December 25, 1983. In her will, she created a trust in which she gave Robertson one half of any balance remaining in the trust upon the death of Testator's husband. The will was admitted to probate by the Surrogate's Court of Monmouth County on January 23, 1984 and letters were issued to the Bank on the same day.
Article IV of the will gave the Testator's husband, Abraham Robertson (Robertson's grandfather), a life estate that included the marital residence, located at 62 Harvard Road, Fair Haven, New Jersey. Article V placed the Testator's residuary estate in trust for the life of her husband, Abraham, and named the Bank trustee. The Bank accepted this residuary trust on January 26, 1984. Article VI directed the Trustee, upon the death of Testator's husband, to divide the balance of the residuary estate equally between Robertson and the Monmouth County Society for Prevention of Cruelty to Animals. Article VII of the will deferred distribution of Robertson's share of the corpus until she reaches age twenty-five.
The Testator's husband died in 1985. Robertson's trust was separately funded in 1988. At that time, 95% of its corpus was invested in the Bank's own corporate stock. This stock had been held by the Testator at death. Article X of the will gave the Trustee the power to retain any investments. Article X provides in part:
The Trustee, . . . in addition to and not by way of limitation of the powers provided by law, shall, except as otherwise provided in this my Will, have the following powers to be exercised in its absolute discretion: To purchase or otherwise acquire and to retain any and all stocks, bonds, notes, or other securities, or any such variety of real or personal property, including interests in common trust funds and securities of or other interests in investment companies or investment trusts, whether or not such investments be of the character permissible for investments by fiduciaries and without regard to the effect of any such investment or reinvestment may have upon the diversification of investments . . . .
Appellant's Appendix at 91-92. It also provides:
I specifically authorize my corporate fiduciary to retain, temporarily or permanently, any or all of the stock of the corporate fiduciary owned by me at the time of my death in the form in which it then exists.
In September 1987, the Bank filed its first account of its administration of Testator's estate. It reported the estate's inventory and appraisements at an initial value of $919,425.19. This included 34,277 shares of the Bank's corporate stock at a book value of $690,957.56. The account showed that the Fair Haven property was sold for $138,347.03 on February 11, 1986, following the death of the life tenant, Robertson's grandfather. The account also showed that the Bank had sold more than 3,000 shares of its own corporate stock during the period covered, leaving a balance of 31,000 shares. The shares remaining had a book value of $625,812.50, but the market value had increased to almost $1.5 million. The estate's remaining corpus had a total book or inventory value of $775,837.62.
On March 21, 1988, the Bank supplemented its September 1987 accounting and reported the book or inventory value of the Testator's estate at $779,670.03; in the six months or so between September 1987 to March 21, 1988, however, the market value of the Bank's stock had decreased approximately $300,000 to about $1.2 million.
In April 1988, the Bank asked the Probate Court to approve its administration of the estate and its residuary trust to March 21, 1988. The court appointed Kerry E. Higgins, Esq. as guardian ad litem to protect Robertson's interest. In June 1988, Higgins reported to the court that she had met with Robertson's parents, and they "expressed extreme dissatisfaction" with the Trustee's administration of the estate and trust, as well as its failure to communicate adequately with them. Robertson's parents were particularly disturbed by the Bank's sale of the Fair Haven property without notice to them, despite their expressed interest in purchasing it. In addition, they questioned the Bank's sale of some of its own stock. After investigating these matters, however, Higgins reported that, in her opinion, both the Fair Haven property as well as the Bank's own corporate stock were properly sold for fair value.
On August 12, 1988, the Probate Court entered a judgment approving the Bank's administration of the estate and the trust the will created for the life of the Testator's husband, and discharged the Bank from liability for its conduct from the Testator's death through March 21, 1988. The Probate Court held:
[The Bank], individually and as personal representative and trustee [of] aforesaid are hereby fully, finally and forever discharged and released of and from any and all liability and accountability with respect to the administration of the Will from the date they commenced serving as such personal representative and trustee, through and including March 21, 1988, the closing date of their First and Final Account and Supplemental Account, and thereafter.
See In re Estate of Robertson, No. 134166, slip op. at 4 (N.J. Super. Ct., Law Div., Probate Part, filed Aug. 12, 1988) (emphasis added).
In or about September 1988, the Bank transferred Robertson's one-half share of the estate's residuary balance into a separate trust for her benefit. Robertson and her parents received an opening statement that showed the Bank's stock passing to Robertson's trust at an opening book value of $309,878.12. These shares again represented more than 95% of the $325,810.98 total book value of Robertson's trust. On September 30, 1988, the market price of the Bank's stock was $21.00 per share. Accordingly, it had a market value of $644,700.00 at that time.
In her deposition, Robertson testified that the Bank had begun giving her quarterly financial statements at the end of 1988 and that she had examined them to determine the market value of the stock in her trust and the trust's total value. Robertson realized that the Bank stock, which was transferred to her trust from the testator's estate, was the trust's main asset.
In January 1991, Robertson wrote to the Bank's trust committee seeking money to purchase a home from her parents near the college she was attending in Florida. In that letter, Robertson also said that she was "deeply concerned" about the decline ...