In connection with the final account of Orin A. McCluskey, as the sole surviving trustee of a trust created under the will of Allan S. Lehman, a motion has been made for an order, pursuant to Rules 2221 (a) and (e) of the CPLR, granting renewal of the trustee's discovery motion which led to this court's decision dated September 27, 2012 (Dec. No. 28040) and, upon renewal, directing objectants to provide the disclosure sought in the prior discovery motion. For the reasons set forth below, the motion is denied.

The facts underlying this proceeding were set forth in this court's previous decision but will be briefly reviewed here. Allan S. Lehman ("decedent") created a testamentary trust for the lifetime benefit of his son, Orin Lehman ("Lehman"). The decedent also gave Lehman a testamentary power of appointment over the principal remaining in the trust at the time of Lehman's death. Lehman exercised the power by appointing the principal and accrued and accumulated income of the trust to the trustees named under his own will, for the benefit of his children who survived him. Lehman directed his trustees to pay one share outright to each of his [*2]children who survived him and reached the age of 30.

Lehman died on February 22, 2008, survived by three daughters who had reached the age of 30. Accordingly, the trust was to terminate on February 22, 2008 and be divided into three equal shares, with one share to be distributed to each of Lehman's daughters. The trustee's amended petition to settle the account reflects that the gross value of the trust assets was $8,893,803.32. The trust assets were distributed thirteen months after termination, in March of 2009.

On January 20, 2011, Orin A. McCluskey (the "trustee") filed his account; he amended it on March 8, 2011. Lehman's daughters (the "objectants") responded with multiple objections, including their objection that Schedule A-1 of the account failed to reflect that there were decreases in the value of trust assets which were caused by "the trustee's (a) unreasonable delay after the termination of the trust at the death of the income beneficiary (on February 22, 2008) in winding up the trust administration and in making an expeditious distribution of trust assets to the remaindermen, and (b) mismanagement of trust assets."

The trustee responded that even if the objectants could prove that the trustee's failure to distribute the trust assets sooner than 13 months after the trust termination was imprudent, the objectants must also prove that actual damages resulted. In order to refute any allegation of damages suffered by the objectants, the trustee demanded production of the objectants' personal investment portfolios for two time periods:

June 1, 2008 to March 2009, to determine whether the objectants retained or sold the trust securities that had previously been distributed to them in kind. The trustee argued that if the objectants retained these securities in their personal portfolios during this time period, they would have also retained any additional shares that might have been distributed to them from the trust, and that it would therefore be inappropriate to surcharge the trustee for the delay in distribution.

March 2009 to date, to determine whether the objectants ultimately retained or sold the trust securities that were distributed to them in kind in March 2009. The trustee argues that an increase in value subsequent to distribution, if any, "would be an offset against any damages for the value of said securities as of their sales date, if sold, or as of the current date, if retained."

In this court's decision dated September 27, 2012 (Dec. No. 28040), the court denied the trustee's motion for an order, pursuant to CPLR 3124, compelling the beneficiaries to produce their personal investment portfolios for the periods of June 1, 2008 to March 2009, and March 2009 to date. With respect to discovery of the objectants' personal investment portfolios for June 1, 2008 through March 2009, the court held that a trustee cannot avoid a potential surcharge by obtaining the personal investment portfolios of the trust beneficiaries and then attempting to establish, based on the beneficiaries' personal investment decisions, that the beneficiaries would have made the same investment decisions that were made by the trustee. If discovery of beneficiaries' personal portfolios were permitted for this purpose, a trustee could avoid responsibility for imprudent conduct by arguing that the beneficiaries themselves, in managing their own personal portfolios, failed to meet the investment standard set by the Prudent Investor Act, which is the standard required of fiduciaries (EPTL 11-2.3 [b] [2]), not of beneficiaries. [*3]

With respect to discovery of documents contained in the objectants' personal investment portfolios for March 2009 to date, this court ruled that the documents could not be discovered by the trustee, because an increase in the value of the securities after distribution could not offset losses that may have been incurred by the retention of the securities beyond the termination of the trust.

Counsel for the trustee argues that his present motion to renew should be granted because this court's prior decision relied upon the New York County Surrogate's Court decision in Matter of Lasdon, 32 Misc 3d 1245 (A) (Sur Ct, New York County 2011), among others, in support of its holdings, which decision was subsequently modified in part by the Appellate Division (Matter of Lasdon, 105 AD3d 499 [1st Dept 2013]) in April 2013.

In Matter of Lasdon, the beneficiaries had requested that the trustees make an in kind distribution of the trust assets, but the trustee delayed in making the requested distribution. During this time, the shares significantly decreased in value. In the lower court decision, the Surrogate noted that the parties agreed as to the calculation of an appropriate surcharge, which was: "subtraction of the securities' value on the date of actual distribution from their value on the date that distribution should have been made, with the difference constituting the basic surcharge" (Matter of Lasdon, 32 Misc 3d 1245 [A] Sur Ct, New York County 2011]). The Appellate Division eliminated the surcharge and interest which had been imposed on the trustees by the lower court, finding that the trust beneficiaries had "failed to demonstrate that the imposition of a surcharge (the difference in the value of the stocks between the date they should have been distributed and the date they were actually distributed) is warranted" (id. at 500). The court noted that the surcharge was based upon the assumption that the beneficiaries would have sold the shares had the trustees distributed them. The facts clearly demonstrated otherwise; the beneficiaries had specifically requested that the shares be distributed in kind. The Appellate Division concluded that the surcharge was therefore inappropriate, given the fact that the beneficiaries had expressed a clear desire to receive the shares in kind. Ultimately, the beneficiaries received the shares in kind, and during the period of delay, they received the income.

Counsel for the trustee asserts that this modification of the lower court decision in Matter of Lasdon provides a change or clarification in the law, which makes the information sought by the trustee in the present case relevant and therefore discoverable.

A motion for leave to renew must be based upon new facts or on a change in the law that would alter the court's earlier determination (CPLR 2221 [e]).

The only question raised by the motion to renew is whether the decision rendered by the Appellate Division in Matter of Lasdon is a change in the law that would alter this court's prior determination (CPLR 2221 [e] [2]); it is not whether a surcharge is warranted. That issue awaits trial, and the beneficiaries bear the burden of proof. The motion pertains only to discovery, and whether the trustees should be given access to the beneficiaries' personal investment portfolios so that the trustees may try to establish that (1) if the beneficiaries retained certain investments in their personal portfolios then they were likely to have retained the shares that should have been distributed to them when the trust terminated, and (2) the shares increased in value after distribution, and these gains should offset losses which occurred prior to distribution. The court finds that the decision of the Appellate Division in Matter of Lasdon is not a change in the law [*4]that impacts upon the earlier decision of this court, which was limited to a finding that a trustee may not discover the personal records of beneficiaries in an effort to offset a potential surcharge.

For the above-stated reasons, the motion is denied in its entirety.

This matter is on the court's calendar for a conference on November 12, 2013 at 3:15 p.m. It is scheduled for trial on February 24, 25, 27 and 28, 2014.

This is the decision and order of the court.

Dated: September 30, 2013

Edward W. McCarty III

Judge of the

Surrogate's Court