[*1]
| Matter of Chase Manhattan Bank |
| 2007 NY Slip Op 51552(U) [16 Misc 3d 1123(A)] |
| Decided on August 13, 2007 |
| Sur Ct, Monroe County |
| Calvaruso, J. |
| Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. |
| This opinion is uncorrected and will not be published in the printed Official Reports. |
Sur Ct, Monroe County
In the Matter of the Judicial Settlement of the Account of the Chase Manhattan Bank as Trustee u/a dated December 20, 1973 of A. Charles Pioch, f/b/o Kathleen M. Pioch, Deceased.
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2001 LT 45
Woods Oviatt Gilman, LLP, William G. Bauer, Esq., Attorneys for the Petitioner/Trustee, Chase Manhattan Bank.
Harter Secrest & Emery, LLP, A. Paul Britton, Esq., Attorneys for the Objectants/Beneficiaries, St. John Fisher College and The Lutheran Church of the Incarnate Word.
Edmund A. Calvaruso, J.
The charitable residual beneficiaries ("the charities") bring this motion, requesting an award of interest on $526,533 which the Chase Manhattan Bank (hereinafter "the bank" or "the trustee") paid over to them in accordance with the Court of Appeals decision dated March 30, 2006. In Re Chase Manhattan Bank, 6 NY3d 456 (2006). The charities argue that this court should award the statutory interest rate, compounded, on their damages as was done in the Dumont case, Matter of Dumont, 4 Misc 3d 1003A (2004), and in the Janes case, Matter of Janes, 165 Misc 2d 743 (1995). In reply, the bank argues that no interest should be payable, since the bank did not engage in bad faith, gross negligence or self dealing. The bank asserts that it took an active and productive role in managing the corpus, growing it appreciably since its onset, and that the mistaken payment to the estate of Kathleen Pioch was not on par with the negligence exhibited in prior case law where statutory compound interest was awarded.
OPINION
The statutory authorization for an award of interest is found in CPLR 5001(a). It gives the trial judge authority to award interest for "an act or omission depriving or otherwise interfering with ... possession or enjoyment of the property". Interest, therefore, is designed to be awarded for the purpose of making an injured party whole. De Long Corp. vs. Morrison-Knudson Co., 14 NY2d 346 (1964); Kavares vs. Motor Vehicle Accident Indemnification Corp., 29 AD2d 68 (1967); Lesjac Realty Corp. vs. Mulhauser, 43 Misc 2d 439 (1964). In equity actions, the trial judge is given great discretion on the issue of interest: what rate to set, even whether to award interest at all. CPLR 5001. Additionally, Surrogates have a broad grant of discretion to "make [a] direction as to [a] distribution as justice may require", SCPA 209(1), which includes the [*2]discretion to grant interest.
Here, the charities argue that this court should follow its own precedent established in the Janes and Dumont cases and award statutory interest, compounded, from the first date of improper payment. They argue that the negligence exhibited in this matter was similar to the negligence exhibited in Dumont, specifically, and therefore a similar mode of interest calculation ought to be employed. While the bank's unilateral determination that the $526,533 was income rather than principal and its subsequent payment of these funds to the Estate of Kathleen Pioch was negligent, unlike in the cited cases, the bank here was watchful over this trust, properly paying out a reasonable income to Kathleen Pioch while growing the corpus with admirable results over twenty years. By contrast, the Dumont trustee had exhibited an on-going neglectful attitude toward the trust for over thirty years, fell short of the standard of care with regard to basic tasks and procedures, and breached fundamental fiduciary duties [FN1]. The negligence in Pioch was a one-time event and not representative of the trustee's actions as a whole. A good faith error in paying out accumulated funds simply does not rise even remotely to the same magnitude as a thirty year period of neglect and realized loss of principal as was the case in Dumont.
In the exercise of equitable jurisdiction, each case is sui generis. The outcome necessarily hinges on details unique to each situation. In the instant case, it is notable that even if the bank had acted prudently, the charities would not have received their money any sooner than they actually did. The standard of care dictated that the bank earmark the funds in the trust for continued administration while it sought a judicial construction as to the proper recipient. Under such a circumstance, the outcome would not have changed from the actual facts: the charities would have received their funds shortly after the Court of Appeals decided in their favor in March of 2006. In other words, even if the negligent payment had not been made, the question of the ultimate beneficiary of these funds would still have been litigated. It would have been done in the context of a construction proceeding (with the bank serving as stakeholder) rather than in a settlement proceeding (where the bank was defending its actions), but it was nevertheless an issue which would have required Court of Appeals resolution, especially given the differing legal and judicial opinions on the matter. The only practical difference between the two methods is that if the bank had acted prudently, the earmarked funds would have accumulated a small amount of interest while they were held in the trust awaiting resolution.
A fiduciary's negligence alone is insufficient to support an award of interest beyond what is needed to make the beneficiaries whole. Estate of Acker, 128 AD2d 867 (1987). Statutory interest here would not be appropriate; it would overcompensate the beneficiaries. The court has complete discretion not to award any interest at all, CPLR 5001, but given that the bank did err in making the payment and since the charities would have received some interest if the negligence had not happened, some interest ought to be ordered. See, Aurnov v. Greenspan, 161 AD2d 438 (1990). See also, Matter of Harmelink, 78 AD2d 423 (1981), where an executor was surcharged a basic prevailing interest rate for failure to place cash funds in an interest bearing [*3]account. Interest corresponding to the rate which was earned by the trust itself during the time frame in question would place the charities where they would have been if the bank had acted appropriately, and is, in this court's belief, the best application of justice on this motion.
Taking all of the above into consideration, statutory interest will not be applied here as it was in Janes and in Dumont. An award of nine per cent interest would be a windfall to the charities and it would exceed the general purpose of interest awards, which is to make the injured party whole. The court has the discretion to apply an interest rate which it deems appropriate, CPLR 5001, and is bound to make a decree which serves the administration of justice. SCPA 209(1). The charities ought to receive that interest which they would have received if the funds had remained in the trust during the course of the litigation. The bank in its papers alleges that the actual interest these funds would have earned had they remained in the trust from July 11, 2000 to April 21, 2006 is $74,971.63. The charities have not disputed this calculation, rather they have maintained their right to statutory interest.
The bank is directed to pay $74,971.63 to the charities accordingly.
So ordered.
Edmund A Calvaruso
Hon. Edmund A. Calvaruso, Surrogate
Dated: August 13, 2007
Footnotes
Footnote 1:The Appellate Division's reversal of the case did not change these findings.