In the Matter of Michael Duffy

When Eleanor Kopec died in July 2001, her estate included an investment portfolio valued at $619,418. Kopec’s will named her husband, Gilbert Stone (defendant), as the sole beneficiary of her estate and her friend and long-time attorney Michael Duffy (plaintiff) as her executor. By the time Duffy distributed the investment portfolio to Stone in October 2002, the portfolio’s value had declined by $226,750. When Duffy later petitioned for a judicial settlement of his account, necessary to end his role as executor, Stone objected to Duffy’s accounting. Stone argued that Duffy’s management of the portfolio predistribution was improper and unnecessarily decreased the estate’s value. Stone therefore claimed that Duffy should be liable for a surcharge, meaning that Duffy should be personally liable to the estate for the losses. In support, Stone claimed that Duffy failed to analyze the investments and take appropriate action to protect the portfolio from ongoing losses as the stock market declined after the September 11, 2001, terrorist attacks. Stone believed that Duffy should have liquidated the stocks after Kopec’s death, converting them to cash and thus rendering the value stable until distribution. Duffy argued that his conduct regarding the investments complied with the prudent-investor standard applicable to fiduciaries. He claimed that shortly after becoming executor, he formed a plan to leave the stocks invested as they were at Kopec’s death and then distribute them in kind to Stone, meaning transferring the stocks themselves to Stone. Duffy argued that plan was proper because the stocks, as invested, had satisfied Kopec’s and Stone’s income needs for years; Kopec’s long-term plan had been to transfer the stocks to Stone; Duffy could not have predicted the overall market decline; and Duffy sought a broker’s advice once the decline started. The New York Surrogate Court considered the parties’ arguments.