The opinion
Heinitsh v. Wachovia Bank, 2007 NCBC 19
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF HENDERSON 04 CVS 734
BEULAH R. HEINITSH, )
)
Plaintiff, )
)
v. )
)
WACHOVIA BANK, NATIONAL ) ORDER ON MOTIONS FOR
ASSOCIATION f/k/a FIRST UNION ) SUMMARY JUDGMENT
NATIONAL BANK, N.A., AGNES H. )
WILLCOX, JOHN S. HEINITSH, )
ISABEL H. NICHOLS, and REGINALD )
D. HEINITSH, JR., )
)
Defendants. )
{1} This case arises out of Plaintiff’s suit for declaratory judgment, breach of fiduciary
duty, and unfair and deceptive trade practices against Defendants. These matters come before
the Court on cross motions for summary judgment.
{2} After considering the briefs and oral arguments, the Court GRANTS Defendant
Wachovia’s Motion for Summary Judgment and DENIES Plaintiff’s Motion for Summary
Judgment on the grounds that the trustee acted reasonably and in good faith in addressing a
dispute it did not create.
Smith Moore LLP by Larry B. Sitton and Manning A. Connors for Plaintiff Beulah R.
Heinitsh.
Bell, Davis & Pitt, P.A. by James R. Fox and Kevin G. Williams for Defendant Wachovia
Bank, National Association f/k/a First Union National Bank, N.A.
Adams Hendon Carson Crow & Saenger, P.A. by Martin K. Reidinger and Gregory S.
Hilderbran for Defendants Agnes H. Willcox, John S. Heinitsh, and Isabel H. Nichols.
Tennille, Judge.
I.
PROCEDURAL BACKGROUND
{3} This action was filed in Guilford County Superior Court on February 6, 2003. The
case was designated as exceptional under Rule 2.1 of the General Rules of Practice and
Procedure for the Superior and District Courts and assigned to the undersigned Special Superior
Court Judge for Complex Business Cases by order of the Chief Justice of the Supreme Court of
North Carolina dated October 14, 2003.
{4} Following a dispute and appeal on the issue of venue, the parties agreed to transfer
venue of this matter to Henderson County and also agreed not to challenge the assignment of the
case to the Business Court. (Consent Order, Apr. 28, 2004.)
{5} The disputes between Plaintiff and Defendants Willcox, John S. Heinitsh, Nichols, and
Reginald D. Heinitsh, Jr. were compromised and approved by the Court in a Partial Consent
Judgment dated June 13, 2005. Plaintiff and Defendant Wachovia filed cross motions for
summary judgment on the issue of breach of fiduciary duty on February 28, 2006. The Court
heard oral arguments on the motions on April 13, 2006. All other claims, counterclaims, and
crossclaims between the parties have been resolved.
II.
FACTUAL BACKGROUND
A.
THE PARTIES
{6} Plaintiff Beulah R. Heinitsh is a resident of Transylvania County, North Carolina.
{7} Defendant Wachovia Bank, National Association f/k/a First Union National Bank,
N.A. (“Wachovia”) is a national banking association with its principal place of business in
Mecklenburg County, North Carolina.
{8} Defendant Agnes H. Willcox is a resident of Transylvania County, North Carolina.
{9} Defendant John S. Heinitsh is a resident of Transylvania County, North Carolina.
{10} Defendant Isabel H. Nichols is a resident of Transylvania County, North Carolina.
{11} Defendant Reginald D. Heinitsh, Jr. (“Reg., Jr.”) is a resident of Transylvania County,
North Carolina.
{12} Plaintiff is the widow of Reginald D. Heinitsh, Sr. (“Reg., Sr.”).
{13} Defendants Willcox, John Heinitsh, Nichols, and Reg., Jr. (“the children”) are the
children of Reg., Sr. and Isabel Sloan Heinitsh (“Isabel”).
{14} Reg., Sr. and Isabel were married in 1941 and divorced on February 19, 1976.
{15} Reg., Sr. and Plaintiff were married on March 13, 1976. They remained married until
Reg., Sr.’s death on September 27, 1992.
B.
THE 1987 AGREEMENT
{16} In 1985, the children filed a lawsuit against their father in the District Court of
Transylvania County. Under a settlement agreement dated January 5, 1987 (“1987 Agreement”),
the children agreed to dismiss the suit. Reg., Sr. agreed to incur two obligations in return. First,
he agreed to create an irrevocable trust, funded with $900,000. These funds were to be used for
the benefit of Isabel and Reg., Sr. during their lives. At their respective deaths, the funds were to
be transferred to Isabel’s estate. Reg., Sr. also agreed to pay $100,000 to Defendant Willcox in
her capacity as Isabel’s guardian. (Compl. ¶ 7.)
{17} Second, Reg., Sr. entered into a contract to make a will. He agreed that at least eighty
percent of his residuary estate would pass to the children. However, the contract also provided
that Reg., Sr. could place all or part of the property that was to go to the children in trust. The
income would be paid to his surviving spouse, and the remainder would go to the children upon
her death. If the surviving spouse was Beulah Inman (now Plaintiff Beulah Heinitsh), then the
trust could provide for the trustee in its discretion to invade the principal of the trust for health,
support, and maintenance of Beulah Heinitsh. (Compl. ¶ 8.)
C.
THE WILL AND MARITAL TRUST
{18} On January 6, 1987, Reg., Sr. executed a Last Will and Testament. (Compl. ¶ 9.) As
contemplated by the 1987 Agreement, the Will directed that eighty percent of the residuary
estate be distributed to a trust known as the Beulah R. Heinitsh Marital Trust (“Marital Trust”).
(Compl. ¶ 10.) Income was to be paid to Plaintiff during her life. So long as Plaintiff remained
unmarried following Reg., Sr.’s death, she was also eligible to receive distributions of principal
as the trustee deemed necessary to provide for her health, support, and maintenance. The
children were to receive the remaining principal and income at Plaintiff’s death. (Compl. ¶ 11.)
{19} The Will appointed Wachovia 1 to serve as both personal representative of Reg., Sr.’s
estate and trustee of the Marital Trust. (Compl. ¶ 13.)
{20} Reg., Sr. died on September 27, 1992. (Compl. ¶ 14.)
D.
THE 1996 SETTLEMENT AGREEMENT
{21} During the administration of the estate of Reg., Sr., certain controversies arose
regarding the valuation of Lake Toxaway Company (“LTC”), a real estate development company
founded by Reg., Sr. in 1960. (See Compl. ¶ 16.) Controversies also arose regarding the actions
of the officers and directors of LTC prior to Reg., Sr.’s death. These controversies delayed the
closing of Reg., Sr.’s estate and consequently the funding of the Marital Trust for a number of
years. (Compl. ¶ 18.) In 1996, LTC, Plaintiff, and Reg., Jr. resolved these disputes and entered
into a Settlement Agreement and Release (“1996 Settlement Agreement”). (Compl. ¶ 19.) The
1996 Settlement Agreement allowed the estate to be closed and permitted funding of the Marital
Trust. (Def.’s Br. Supp. Mot. Summ. J. 4.)
{22} With the closing of the estate, Wachovia was able to establish the Marital Trust as
contemplated by Reg., Sr.’s will. For tax reasons, Wachovia established two trusts—a
Qualifying Terminable Interest Property trust and a Nonqualifying Terminable Interest Property
trust (collectively “the Trusts”). (Statement of Stipulated Facts Between Pl. Beulah Heinitsh and
Def. Wachovia Bank, N.A. ¶ 3, Feb. 13, 2006.) As authorized by the will, the Trusts were
created to hold eighty percent of the residuary of Reg., Sr.’s estate. (Compl. ¶ 28.) As part of
this share in the residuary estate, the Trusts came into ownership of 2,975 shares of common
stock of LTC, constituting 48.217% of the issued and outstanding stock of LTC. (See Compl. ¶¶
15, 29.) Reg., Jr. was LTC’s largest shareholder with 3,147 shares. (Pooling Agreement 2.)
Together, the estate (and eventually the Trusts) and Reg., Jr. owned 99.2% of the outstanding
stock of LTC. (Settlement Agreement and Release, Dec. 31, 1996 1.)
{23} Wachovia and Reg., Jr., as shareholders of LTC, executed a Pooling Agreement
contemporaneously with and as a condition to the effectiveness of the 1996 Settlement
Agreement. (Compl. ¶ 20.) Under the Pooling Agreement, Wachovia and Reg., Jr. agreed to
1
The Will was executed prior to the 2001 merger of First Union Corporation and Wachovia Corporation, see First
Union Corp. v. SunTrust Banks, Inc., 2001 NCBC 9 (N.C. Super. Ct. Aug. 10, 2001),
http://www.ncbusinesscourt.net/opinions/2001%20NCBC%2009A.pdf, and appointed First Union as personal
representative and trustee. For convenience and clarity, the Court refers to the trustee as “Wachovia” throughout
this Order.
vote their shares to elect a majority of directors who would vote for a declaration of dividends by
LTC according to a Dividend Policy which was attached to the Pooling Agreement. (Pooling
Agreement 2.) The Dividend Policy provided as follows:
LTC shall pay dividends each year, equal to: (i) the product of the combined
highest federal and North Carolina income tax rates (currently 47.15%) and the
Net Income before taxes of LTC and (ii) the Adjusted Net Excess Cash.
Dividends under the Dividend Policy shall be paid for each fiscal year of LTC on
or before March 31 of the following fiscal year without further action of the
Board of Directors of LTC, and the first such dividend shall be paid on or before
March 31, 1997, for LTC’s 1996 fiscal year.
(Pooling Agreement Ex. A.) The LTC board of directors ultimately adopted the Dividend
Policy. (Compl. ¶ 22.)
{24} Plaintiff entered into the 1996 Settlement Agreement “with the understanding and
intent that the Dividend Policy would cause LTC to pay dividends each year to the Trusts, which
dividends would be income to the Trusts and distributed to her as the sole income beneficiary of
the Trusts.” (Compl. ¶ 24.)
E.
THE PRESENT DISPUTE
{25} After the Settlement Agreement, Pooling Agreement, and Dividend Policy were in
place, the parties entered a period of relative peace. LTC continued to realize ordinary income
from the development and sale of real estate. This income was paid as dividends to the
shareholders, including the Trusts. (Compl. ¶ 33.) Until 2002, Wachovia considered the LTC
dividends to be trust income, and distributed them to Plaintiff as the sole income beneficiary of
the Trusts. (Statement of Stipulated Facts ¶ 7.) In 2002, Wachovia noticed a change in LTC’s
business practices. Rather than selling developed land in the normal course of business, LTC
appeared to be liquidating a substantial portion of its real estate assets, including undeveloped
and unimproved tracts. LTC indicated to Wachovia “that it would thereafter operate primarily as
a retail real estate brokerage business,” (Zorigian Aff. ¶ 11), rather than a real estate development
company. This change in business practices generated far more income than LTC had realized in
years past or expected to earn in the future as a real estate developer. (Zorigian Aff. ¶ 12.) LTC
characterized this income as capital gain, rather than ordinary income, on its 2001 financial
statements and tax returns. (Zorigian Aff. ¶ 13.) LTC was, in effect, liquidating its real estate
holdings. These events caused Wachovia to question whether the dividends the Trusts had been
receiving from LTC were properly characterized as income or principal. If the dividends
consisted of proceeds from a partial liquidation of LTC, they should have been characterized as
principal and left for the children as contingent remainder beneficiaries, rather than distributed to
Plaintiff as the sole income beneficiary. To help resolve this question, Wachovia sought advice
from legal and accounting professionals. (Zorigian Aff. ¶ 14.)
{26} As a result of these consultations, Wachovia concluded that “a significant part of the
distributions from LTC to the trusts for tax year 2001, a lesser but material part of tax year 2000
and most of the distributions projection from 2002 and 2003 should be allocated to principal.”
(Zorigian Aff. ¶ 15.A.) Plaintiff took issue with this conclusion and a dispute arose between her
and the children as to the proper characterization of the LTC dividends. (Zorigian Aff. ¶ 16.)
Wachovia was caught in the middle. This dispute culminated in the filing of this action, in
which Plaintiff contends that all distributions paid by LTC to the Trusts should be allocated to
income and paid to her. (Compl. ¶¶ 53–54.) The Complaint also alleges breach of fiduciary
duty and unfair and deceptive trade practices against Wachovia. (Compl. ¶¶ 57–70.) All parties,
including Wachovia, asked the Court to declare whether the distributions were trust principal or
trust income. The distributions paid by LTC to the Trusts for 2001 and 2002 total $6,886,491
(the “Disputed Funds”). (Statement of Stipulated Facts ¶ 9.) Wachovia paid Plaintiff
$2,021,660 from the 2001 distribution and thus retained $4,864,831 of the Disputed Funds. The
$4,864,831 is referred to as the “Retained Funds.” (Statement of Stipulated Facts ¶ 10.)
Wachovia placed the Retained Funds into a single money market fund. (Statement of Stipulated
Facts ¶ 11.) On March 31, 2004, the Court entered an Order approving the investment of the
Retained Funds as principal by Wachovia until this litigation was resolved. (Order, Mar. 31,
2004.)
F.
THE BENEFICIARIES’ SETTLEMENT AGREEMENT AND ALLEGED DAMAGES
{27} On December 24, 2004, Plaintiff and the contingent remainder beneficiaries of the
Trusts agreed to settle their differences over the Disputed Funds. They agreed on an amount that
would be allocated to principal and an amount that would be allocated to income. On June 14,
2005, the Court entered a Partial Consent Judgment approving the terms of the beneficiaries’
settlement. Plaintiff continues to seek damages against Wachovia for breach of fiduciary duty
for investing the Retained Funds in a money market account during the pendency of the dispute.
She “contends that the Court may calculate damages by analyzing what the market value and
income performance of the Retained Funds would have been had Wachovia invested the
Retained Funds when it received them in the same investment mix as the Bank selected on April
14, 2004” when the Court ordered they be invested as principal until the case was resolved.
(Statement of Stipulated Facts ¶ 19.) Thus, Plaintiff argues that damages should be calculated as
if the Retained Funds had been invested as principal.
{28} The Retained Funds were invested at a low rate. The money market account where
Wachovia placed the Retained Funds earned an estimated annual yield ranging from 0.720% to
1.580%. By comparison, the assets that were treated as principal were invested in a tax-exempt
municipal bond fund, earning an estimated annual yield ranging from 4.565% to 5.208%. (Pl.
Beulah R. Heinitsh’s Statement of Claims Against Wachovia Bank, N.A. ¶ 9.)
III.
MOTIONS FOR SUMMARY JUDGMENT
A.
STANDARD OF REVIEW
{29} Summary judgment is proper “if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that any party is entitled to judgment as a matter of law.” N.C. R. Civ.
P. 56(c). “It is not the purpose of the rule to resolve disputed material issues of fact but rather to
determine if such issues exist.” N.C. R. Civ. P. 56 cmt. The burden of showing a lack of triable
issues of fact falls upon the moving party. See, e.g., Pembee Mfg. Corp. v. Cape Fear Constr.
Co., 313 N.C. 488, 491, 329 S.E.2d 350, 353 (1985). Once this burden has been met, the
nonmoving party must “produce a forecast of evidence demonstrating that [it] will be able to
make out at least a prima facie case at trial.” Collingwood v. Gen. Elec. Real Estate Equities,
Inc., 324 N.C. 63, 66, 376 S.E.2d 425, 427 (1989). The Court must exercise caution in granting
a motion for summary judgment. N.C. Nat’l Bank v. Gillespie, 291 N.C. 303, 310, 230 S.E.2d
375, 379 (1976).
B.
RELEVANT TRUST LAW
{30} There is remarkably little guidance from trust law commentators or our appellate
courts regarding situations such as this in which a trustee is faced with a dispute among
beneficiaries over the proper characterization of funds. In the absence of specific authority, the
Court must rely on general principles of fiduciary and trust law. It is clear that a “trustee under
any trust” is a fiduciary. N.C. Gen. Stat. § 32-2 (2005). A fiduciary relationship “exists where
there has been a special confidence reposed in one who in equity and good conscience is bound
to act in good faith and in due regard to the one reposing confidence.” Moore v. Bryson, 11 N.C.
App. 260, 265, 181 S.E.2d 113, 116 (1971). The details of a trustee’s fiduciary duty in investing
property is defined by statute as follows:
In acquiring, investing, reinvesting, exchanging, retaining, selling, and managing
property for the benefit of another, a fiduciary shall observe the standard of
judgment and care under the circumstances then prevailing, which an ordinarily
prudent person of discretion and intelligence, who is a fiduciary of the property of
others, would observe as such fiduciary . . . .
N.C. Gen. Stat. § 32-71(a). More specifically, “[a] trustee shall invest and manage trust assets as
a prudent investor would, by considering the purposes, terms, distribution requirements, and
other circumstances of the trust.” Id. § 36C-9-902(a) (emphasis added). In carrying out these
duties, “the trustee shall exercise reasonable care, skill, and caution.” Id. The statute specifically
authorizes the trustee to consider “[n]eeds for liquidity, regularity of income, and preservation or
appreciation of capital” when making investment and management decisions. Id. § 36C-9-
902(c)(7).
{31} As custodians of the property of others, trustees must be cautious and, to a certain
extent, conservative in their approach to investing. The requirement of caution “requires the
trustee to invest with a view both to safety of the capital and to securing a reasonable return.”
Restatement (Third) of Trusts § 227 cmt. e (1992). However, “the degree of conservatism
required and thus the degree of risk permitted for a particular trust is ultimately a matter for
interpretation and judgment.” Id. The trustee must “make reasonable efforts to ascertain the
purposes of the trust and to understand the types of investments suitable to those purposes in
light of all the relevant circumstances.” Id.
{32} Although a trustee is generally obligated to diversify investments and endeavor to
secure a reasonable return, the trustee must also consider the specific facts and circumstances
before it. Trusts “differ considerably in their risk-bearing capacities,” and “[i]f a trust cannot
tolerate adverse outcomes in the short run, the trustee should not adopt a high risk-reward
strategy.” Id. An example of when a trust would not be able to tolerate short-run adversity
would be when there is a dispute as to the proper characterization of funds. In that situation,
additional caution is warranted. One treatise notes as follows:
Occasionally the trustee has good reason for holding the trust property in an
unproductive condition and he will not be liable to pay to the beneficiary for
either interest or the value of the use measured in any other way. Thus where the
money is held under a mistake of law, or where the money is held during a period
when there is no duty to pay over or invest, or where the trustee has in good faith
paid the money to the wrong party under a mistake of law, or where the trustee is
holding the money to await the determination of conflicting claims to it, or there
is no unreasonable delay in applying the trust money and no use of it by the
trustee for his own purposes . . . there may be no liability to pay interest.
George Gleason Bogert et al., The Law of Trusts and Trustees § 863 (2d rev. ed. 1978). A good
example of this principle in action is found in the New Jersey case of Liberty Title & Trust Co. v.
Plews, 61 A.2d 297 (N.J. Ch. 1948), modified on other grounds, 70 A.2d 784 (N.J. Super. Ct.
App. Div. 1950), aff’d in part and rev’d in part on other grounds, 77 A.2d 219 (N.J. 1950). In
Plews, the trustee did not invest funds which came into his possession after the death of the
trust’s life tenant. Id. at 297. After the life tenant died, all parties were of the opinion that the
disputed issues could be resolved quickly and that a distribution could be made sooner rather
than later. Id. Ultimately the case took much longer to resolve than the parties contemplated.
Id. at 298. However, the court found that the trustee was not negligent in his decision to keep
“the cash on hand liquid for distribution.” Id. The court held that “[a] fiduciary who has a
reasonable expectation that he may be called upon on an early date to make distribution may, for
a reasonable time, hold the cash uninvested for the purpose of making such distribution.” Id.
The trustee reasonably believed it would be called on to distribute the cash in the immediate
future, and appropriately and in good faith planned for that event. “It is only when under
circumstances where a failure of the trustee to invest trust funds may be deemed negligent that
such trustee is held liable . . . .” Id.
{33} The trustee’s good faith in the commission of its duties is an important consideration
for North Carolina courts in reviewing the trustee’s actions. In Carter v. Young, 193 N.C. 678,
137 S.E. 875 (1927), the Supreme Court of North Carolina stated the following:
When it appears that a trustee has exercised, or proposes to exercise, such
discretion in good faith, and with an honest purpose to effectuate the trust, the
courts will not undertake to supervise or control his actions. They will not
undertake to set aside or over-ride his judgment in matters clearly committed to
his discretion, and to substitute therefor the judgment of others, or their own
judgment, upon the sole allegation that the action of the trustee is not wise or just.
Id. at 681–82, 137 S.E. at 877. Accordingly this Court will not overturn the actions of a trustee
acting in good faith to carry out the intentions of the grantor.
C.
ANALYSIS
{34} As trustee of the Marital Trusts, Wachovia stood in a fiduciary relationship to both
Plaintiff as income beneficiary and the children as remainder beneficiaries. See N.C. Gen. Stat. §
32-2. In dealing with trust funds, Wachovia was therefore subject to the rules described above.
The Court must determine if there is a genuine issue of material fact over whether Wachovia ran
afoul of these rules. Given the facts of this case, the Court concludes that no genuine issue of
material fact exists.
{35} As noted above, the law requires trustees to be cautious and consider all the relevant
circumstances in making investment decisions. The evidence here shows that Wachovia made
its decision to place the Retained Funds in a money market account after careful consideration of
a number of circumstances unique to this trust. When a dispute arose between the income and
remainder beneficiaries, Wachovia wisely saw the need to be especially cautious in light of the
Heinitsh family’s history of litigation. These parties had taken their disputes to the courts on
several prior occasions, and it was reasonable to conclude that this matter might ultimately be the
subject of litigation. The children filed a lawsuit against their father, Reg., Sr., in 1985, resulting
in the contract to make a will and the contemplation of the Trusts. Controversies arose during
the administration of Reg., Sr.’s estate, leading to the 1996 Settlement Agreement. And
predictably, a legal controversy arose regarding trust distributions, resulting in the filing of this
action. Historically, the various factions of the family ultimately settled their disputes.
{36} When a dispute arose as to the proper characterization of the LTC dividends,
Wachovia considered this history of conflict and settlement. If it characterized the funds as
income, it was likely to be sued by the remainder beneficiaries. If it characterized the funds as
principal, it was likely to be sued by the income beneficiary. On the horns of this dilemma, the
trustee placed the funds in a money market account and urged the parties to settle the dispute.
{37} Wachovia’s decision to keep the funds in a money market account during the time it
was attempting to broker a compromise was reasonable under the circumstances. Although the
parties had a history of conflict, Wachovia hoped to resolve the matter and distribute the funds
accordingly. Even after this action was commenced, the parties consented to stay the litigation
in the hopes of resolving the matter through a mediated settlement conference. The mediator did
not declare an impasse until July 1, 2003. Based on these good faith settlement discussions,
Wachovia planned for the possibility that the funds would have to be distributed quickly. Such a
possibility required that the funds be kept liquid, which Wachovia accomplished through the
money market investment. Had Wachovia invested the Disputed Funds as principal and without
regard for liquidity, the funds would not have been readily available for distribution in the event
of a settlement, thus exposing the trustee to liability on yet another front.
{38} Wachovia was well within its discretion to consider a potential settlement and the
resulting need for liquidity in its decision to keep the Retained Funds in a money market account.
The relevant statute explicitly authorizes trustees to consider “[n]eeds for liquidity” in managing
trust assets. N.C. Gen. Stat. § 36C-9-902(c)(7). There is also authority in the commentary and
from another jurisdiction indicating that it is proper for trustees faced with conflicting claims to
funds to keep the funds as liquid as possible. See Plews, 61 A.2d at 298; Bogert, supra, § 863.
In Plews, the trustee was faced with a dispute between beneficiaries and expected a quick
resolution. Id. at 297. The dispute took longer than anticipated to resolve. Id. at 298.
Nevertheless, the court held that the trustee was not liable for holding the funds uninvested for
the sake of liquidity. Id. at 299. Wachovia was faced with a similar situation here. There was a
dispute between beneficiaries, and a settlement could have come at any time, whether as a result
of informal discussions between the parties or the mediated settlement conference convened after
the filing of the complaint. Like the trustee in Plews, the trustee here had “a reasonable
expectation that he may be called upon on an early date to make [a] distribution.” Id. at 298.
Barring negligence or bad faith, a trustee will not be held liable in these circumstances.
{39} There is no genuine issue of material fact on the issue of Wachovia’s good faith in
taking the actions described above. Wachovia’s rationale in carrying out its duties is found in
the affidavit of William Edmond Zorigian, the trust officer responsible for the Heinitsh Trusts.
According to Mr. Zorigian,
Wachovia’s primary concern was making sure that the Retained Funds did not
decline in value. Therefore, instead of investing the Retained Funds in any asset
that potentially fluctuated in value, the Retained Funds were invested in a money
market account . . . . In my opinion, prior to this Court’s Order of March 31,
2004, which allowed Wachovia to invest the Retained Funds as trust corpus, it
would have been imprudent to invest the Retained Funds in any asset that was
subject to market fluctuations, including fixed income securities.
(Zorigian Aff. ¶¶ 19, 22.) Plaintiff has offered no evidence to indicate that Wachovia was not
acting in good faith or was negligent in its duty to properly balance the interests of the income
and remainder beneficiaries other than the low return on the funds. On the contrary, Wachovia’s
actions with regard to the Retained Funds were fair to all parties. By placing the Retained Funds
in a money market account, there was no risk that they would become the victim of a downturn
in the market. The Retained Funds were also liquid enough to be readily available for possible
distribution to the income beneficiary.
{40} The Court also notes Plaintiff’s inconsistent position with respect to these funds. This
lawsuit arose because Plaintiff and the children had a disagreement over whether the funds were
to be characterized as trust income or trust principal. It is Plaintiff’s position that these funds
were income and that Wachovia should have paid the funds to her without delay. However,
Plaintiff also argues to this Court that it was improper for Wachovia to invest the funds in a
money market account and that the trustee should have invested the funds as it would have
invested trust principal.
{41} Wachovia considered the funds to be in dispute. As Mr. Zorigian indicated in his
affidavit, “[b]ecause of the ongoing dispute between Beulah Heinitsh and the Remainder
Beneficiaries as to whether the retained Funds were principal or income . . . Wachovia did not
consider the Retained Funds to be trust corpus. Accordingly, absent intervention from the Court
or consent from all of the beneficiaries, until the dispute was resolved, it would not have been
appropriate to invest the Retained Funds as trust corpus.” (Zorigian Aff. ¶ 19.) Wachovia was
faced with the following situation: Plaintiff was arguing that the Funds were income. The
children were arguing that the funds were principal. For Wachovia to ignore Plaintiff and invest
the funds as principal would have been an odd solution indeed. Wachovia was protecting the
interests of both income and remainder beneficiaries.
{42} It is the trustee’s job to make these types of decisions and carefully balance the
interests of the income and remainder beneficiaries. Wachovia acted reasonably and in good
faith, and the Court does not find its decisions to be negligent, improper, or a breach of fiduciary
duty. To do so would discourage persons and institutions from serving as trustees. Trustees,
institutional or otherwise, are sometimes caught in the middle of disputes between beneficiaries.
In these situations, the law directs trustees to use caution, consider all the surrounding
circumstances, and carefully balance the interests of both income and remainder beneficiaries.
Wachovia did not cause the dispute in this case. When the dispute arose, the trustee acted
conservatively and in good faith. There is no genuine issue of material fact as to whether these
actions were in breach of the trustee’s fiduciary duties to Plaintiff.
IV.
CONCLUSION
{43} Based on the foregoing, it is hereby ORDERED, ADJUDGED, and DECREED that
Defendant Wachovia’s Motion for Summary Judgment is GRANTED. Plaintiff’s Motion for
Summary Judgment is DENIED.
IT IS SO ORDERED, this the 11th day of June, 2007.