Dennis v. Rhode Island Hospital Trust Co.

744 F.2d 893 (1984)

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Dennis v. Rhode Island Hospital Trust Co.

United States Court of Appeals for the First Circuit
744 F.2d 893 (1984)

  • Written by Rose VanHofwegen, JD

Facts

Alice Sullivan’s will created a trust in 1920 that held partial interests in three buildings in downtown Providence, Rhode Island. The trust directed income to Sullivan’s descendants with remaining principal distributed among those still living 21 years after Sullivan’s last child died in 1970. By that time, only Robert Dennis and another great-grandchild (plaintiffs) remained. Rhode Island Hospital Trust Company (RIHTC) (defendant) served as trustee and was authorized to sell the real estate. In the roaring 20s, the trust interests in the buildings were worth over $300,000. RIHTC rented two buildings under long-term leases requiring the tenants to maintain the buildings. Some improvements were made, but values plummeted during the Depression. The neighborhood recovered briefly after World War II but deteriorated again due to 1950s flight to the suburbs. Meanwhile, RIHTC did not conduct periodic appraisals, keep proper records, or make accountings for 55 years. Instead, RIHTC agreed with the income beneficiaries’ requests to maximize the trust income paid to them. High rents, poor maintenance, changing neighborhoods, and failure to modernize consumed the buildings’ value. RIHTC sold the buildings in 1945, 1970, and 1979, at or near their lowest values. The proceeds totaled only $185,000. The great-grandchildren sued, claiming RIHTC mismanaged the trust multiple ways, including failing to act impartially and preferring the income beneficiaries over the remaindermen by allowing the principal to devalue. Ample evidence showed RIHTC should have known the buildings would have minimal value by 1950 and should have sold all three buildings before then. The court ordered a surcharge of $365,000 to restore the trust value as if the trustee had sold the buildings in 1950, and removed RIHTC as trustee. RIHTC appealed, arguing the decision rested on hindsight and that trustees may prefer retaining assets the settlor placed in trust from inception and approved of keeping.

Rule of Law

Issue

Holding and Reasoning (Breyer, J.)

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