Stark v. United States Trust Company of New York

445 F. Supp. 670 (1978)

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Stark v. United States Trust Company of New York

United States District Court for the Southern District of New York
445 F. Supp. 670 (1978)

Facts

Henry Rousseau created four trusts for the benefit of his four children and their descendants (plaintiffs). The trusts named the United States Trust Company of New York (defendant) as trustee. The trusts gave the trustee discretion to retain stocks that Rousseau had used to fund the trust, even if these investments were not diversified. The trust also provided that the trustee would not be surcharged for any losses occasioned by retaining these stocks. While Rousseau was alive, the trustee had sold stock over Rousseau’s objection, intending to diversify the portfolio. After Rousseau died, a series of events caused stock prices to fall substantially: an oil embargo, inflation, high interest rates, less discretionary spending, and Watergate. Economic analysts could not foresee these events or their effect on the stock market. Partially based on these economic forecasts, the trustee retained three stocks in which Rousseau had invested. The trustee also used its own internal economic forecasts and coding for purchasing, holding, or selling stocks to inform its decision to retain the stocks. Over three years, the portfolio containing these stocks dropped in value from $940,000 to $93,000. The beneficiaries sued the trustee for breach of care.

Rule of Law

Issue

Holding and Reasoning (Weinfeld, J.)

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