In re HSBC Bank USA (formerly Marine Midland Bank) (Ely)

James S. Ely established a testamentary trust naming his son, James S. Ely, Jr. as beneficiary. James’s stated goal for the trust was long-term investment growth. At the time of litigation, the trust was administered by HSBC Bank USA (HSBC). Stock in The Soper Company (Soper), a closely held business in which the Ely family had a significant ownership interest, made up 60 percent of the trust assets. The remaining 40 percent of the trust assets consisted of stock holdings in 25 publicly traded corporations. Seventy percent of the publicly traded stock holdings were concentrated in four corporations: General Electric, Merck, Microsoft, and Pfizer. HSBC reviewed the trust’s performance and investment strategy at least annually, considering factors including overall market performance, the performance of individual stocks, and the effect of potential capital-gains taxes on the value of the trust in light of James’s goal of long-term growth. Between 1968 and 2006, the trust’s value increased from $172,618 to more than $3.6 million. The trust distributed $1.9 million to James Jr. during James Jr.’s lifetime. At the death of James Jr., the trust assets were paid over into a new trust. The beneficiary of the new trust was James Jr.’s wife, Michele T. K. Ely (plaintiff), and the trustee was Genesee Valley Trust Company (Genesee) (plaintiff). Michelle and Genesee objected to HSBC’s accounting for the period of July 10, 2000, to September 7, 2006. In 2001, global stock markets crashed, and by 2006, markets had only partially recovered. Michelle and Genesee argued that had HSBC managed the trust assets imprudently by retaining the General Electric, Merck, Microsoft, and Pfizer stock during this time period rather than diversifying the non-Soper portion of the portfolio. HSBC denied wrongdoing and filed a motion for summary judgment. Michelle and Genesee filed a cross-motion for summary judgment.