Just over a year ago, an article in this column titled “Rulings of Trustee’s Duty to Diversify: What Have We Learned?“1 contained an examination of the lessons learned in the 25 years since the Court of Appeals decision in Matter of Janes2 by looking to its progenyMatter of Rowe, Matter of Saxton, Matter of Dumont, Matter of Hyde, Matter of Creighton and Matter of Knox.3
In all of these cases, a trust was created where a bank was named as either trustee or co-trustee. The vast majority of the trust assets consisted of one or two stock holdings (i.e., Kodak, IBM, Marine Midland, and Woolworth). The bank trustee initially decided to retain the concentrated holding. The retained stock eventually decreased in value and as a result, the beneficiaries alleged that the bank trustee negligently managed the trust’s investments. At the trial level, each case, except Hyde, held that the bank trustee was liable for damages because it was negligent for retaining the concentrated positions and not diversifying the portfolio. The damages were measured by the value of the lost capital.
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