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In re Estate of Janes

Court of Appeals of New York
681 N.E.2d 332 (1997)


Facts

Rodney B. James’ will left most his $3.5 million estate, including a $2.5 million stock portfolio mostly comprised of Eastman Kodak Company stock, to three trusts. Two of these trusts, containing seventy-five percent of the estate together, paid the income to Rodney’s seventy-two year old wife, Cynthia W. Janes (plaintiff) during her lifetime. Following Rodney’s death in May 1973, officers of the trustee company (Trustee) (defendant) met with Cynthia to suggest selling some of the Kodak stock in order to pay the administrative expenses and taxes of the estate and Cynthia agreed. At the time of this meeting, the Kodak shares were worth $139 per share for a total value of almost $1,840,000. However, the price of Kodak stock fell to $109 per share by the end of that year. Trustee continued to retain the Kodak stock and between 1973 and the filing of Trustee’s initial accounting in 1980, the Kodak shares fell to $47 per share, for a total value of approximately $530,000. Cynthia and the charitable beneficiaries (plaintiffs) filed objections when the Trustee requested judicial settlement of the account in 1981. The Surrogate’s Court found that Trustee’s retention of the Kodak stock and failure to diversify was imprudent and that the stock should have been sold in August 1973. The court calculated damages as the difference between the stock’s value at the time of trial and its value if sold and reinvested in August 1973. Trustee appealed and the Appellate Division affirmed imposition of the surcharge but reduced it by calculating damages as the difference between the value of the stock when it was sold and when it should have been sold. Trustee appealed to the Court of Appeals of New York asserting that retention of the Kodak stock was not an imprudent investment because it was a “blue chip” stock so no investment risk factors, such as the stock issuing company’s capital structure, management and historical profitability, were applicable to the Kodak stock.

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Holding and Reasoning (Levine, J.)

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