Dumont has been reversed, but the appellate court's holding is so narrow that fiduciaries should not take heart. In fact, they should stay afraid -- very afraid.
Stock concentrations are still dangerous and fiduciaries may get slammed for them, warns John T. Brooks of the Chicago office of Foley & Lardner LLP. So, he advises, continue to "heed the sermon" offered by the Dumont trial judge in Estate of Charles G. Dumont, 791 N.Y.S.2d 868. And that, Brooks says, can be summed up as: "Document the decision-making process as a defense against a claim of poor results. The requirement is prudence not performance. The process is the key."
The Dumont reversal also leaves fiduciaries unhappy because it failed to address some very pressing questions:
For example, says Henry Christensen III, partner in the New York office of Sullivan and Cromwell: How, when and should a trust document's exculpatory clauses let a trustee off the hook for concentrated stock positions?
Also, "How should damages be calculated in stock concentration cases?" asks Jonathan Rikoon, partner in the New York office of Debevoise & Plimpton. (For Rikoon's analysis of the problems in the Dumont trial court's methodology, see "Dumont Reversed," Trusts & Estates, February 2006, p.56).
There's another, larger question, not at issue in Dumont but critical to fiduciaries, according to Maureen Bateman, partner in the New York office of Holland and Knight, and Gail Cohen, the New York-based general trust counsel of Fiduciary Trust International Company: How exactly will the courts define "stock concentration"? Will they acknowledge that the Prudent Investor Act authorizes a trustee to look at a family's entire holdings rather than at one trust alone, thereby changing the picture significantly in these cases?
The answers to all these questions immediately impact how trustees perform their jobs properly -- or pay the litigation piper for failing to do so.
JPMorgan was liable for a whopping $24 million in Dumont until New York's appellate court in the Fourth Department on Feb. 3 reversed on a technicality. (See Rikoon's February T&E article for details on the Dumont decisions and its predecessor cases.)
Perry Honors the Military
By John T. Brooks, partner, Foley & Lardner LLP
Estate of Perry, 168 S.W.3d 577 (Mo. Ct. App. 2005), is very timely, given the number of military personnel currently on active duty in Iraq and other parts of the world.
Perry involves the application of the Servicemembers' Civil Relief Act (SCRA) to toll the time limit allowed for probating a will -- but it could have broader application to a servicemember's legal affairs. And practitioners everywhere should keep in mind that the SCRA is out there.
Marvin J. Perry died in July 2003. In September 2004, his son, Paul E. Perry, filed a petition to probate Marvin's will and an application for letters testamentary. The probate court denied the son's petition and application based on a Missouri state law prohibiting the probate of a will not filed within one year from the date of death. The son essentially argued that he was serving the country and couldn't serve his own interests by attending to his father's estate. The tolling provisions of the SCRA should apply and give him one year from the time he got out of the military to file a petition to probate his dad's will.
The appellate court reversed, finding that the SCRA's tolling provisions did apply to a servicemember's filing of petition for presentment of will and application for letters testamentary. Missouri Court of Appeals Judge Joseph M. Ellis so ruled because the provision at issue in Perry states that the "period of a servicemember's military service may not be included in computing any period limited by law, regulation, or order for the bringing of any action or proceeding in a court, . . . by or against the servicemember or the servicemember's heirs, executors, administrators, or assigns." (50 App. U.S.Code Section 526(a)).
The court first examined the issue of whether the time limit for probating a will and applying for letters testamentary was actually a statute of limitations to which the tolling provisions of the SCRA would apply. After noting that the SCRA "is always to be liberally construed to protect those who have been obliged to drop their own affairs to take up the burdens of the nation," and examining Missouri caselaw in which the tolling provisions of the SCRA were applied to other statutes that were not "traditional" statutes of limitations, the court found that the time limit for probating a will and applying for letters testamentary was a statute of limitations.
The court then turned to the issue of whether the tolling provisions of the SCRA apply to toll the limitation period for probating a will and applying for letters testamentary. The court notes that although filing a petition for probate of will and an application for letters testamentary is much different from filing a tort or contract claim, it "nevertheless involve[s] 'judicial . . . proceedings . . . that may adversely affect the civil rights' . . . of a . . . servicemember, namely, as in this case, the inheritance to which the servicemember is entitled, as well as the right to administer the estate."
The court also considered Congress' intent in enacting the SCRA and stated that it believes the lawmakers intended that servicemembers like Perry's son "should not be required to concern himself with the presentment of his father's will, in which he is named as the executor and a beneficiary, and with applying for letters testamentary while he was on active duty in the defense of his country."
The probate court's decision was based on its determination that the SCRA did not apply to the son's petitions, and therefore no evidentiary hearing was held to determine whether the son actually served in the military subsequent to his father's death and for what time period he'd served. The appellate court consequently reversed and remanded so that the probate court could determine whether the son was in fact on active duty during the relevant time period.
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