## Facts

- A testamentary trust was created for James S. Ely Jr. under Article 6A of James S. Ely’s will, with a corporate trustee (predecessor to HSBC Bank USA) and Franklin J. Ely as co-trustees.
- The trust was funded on May 31, 1968 (about $172,618) and pursued a stated goal of long-term principal growth.
- Trust assets became heavily concentrated in The Soper Company, a closely held family business; Soper stock ultimately comprised about 60% of the trust.
- The remaining portfolio (about 40%) consisted of publicly traded stocks; roughly 70% of that publicly traded portion was concentrated in four large-cap issuers (GE, Merck, Microsoft, and Pfizer).
- Franklin J. Ely resigned (May 5, 2000) and died (July 10, 2000). An intermediate account through July 10, 2000 was settled based on written releases by James Jr., his children, and Franklin’s executor, broadly releasing HSBC and others from claims for that period and acknowledging compliance.
- James Jr. died on December 21, 2004. By testamentary appointment, the trust remainder funded a successor trust for his widow, Michele T.K. Ely, with Genesee Valley Trust Company as trustee.
- HSBC filed a final account for its trusteeship through September 7, 2006. Michele and Genesee objected, alleging imprudent investment management and damages, focusing on alleged failure to diversify and over-concentration in the publicly traded holdings during 2000–2006, particularly around the 2001 market decline.
- HSBC moved for summary judgment dismissing objections; objectants cross-moved for summary judgment.

## Issues

1. Whether HSBC breached fiduciary duties under New York’s Prudent Investor Act (EPTL 11-2.3) by failing to diversify and by maintaining a concentrated publicly traded equity portfolio during 2000–2006.
2. Whether the objectants raised triable issues on causation and damages attributable to any alleged imprudence.
3. Whether broad releases executed in connection with an earlier intermediate accounting barred objections insofar as they challenged conduct within the released period.
4. Whether either side was entitled to summary judgment on the final accounting.

## Decision

- The court granted HSBC’s motion for summary judgment and denied the objectants’ cross-motion.
- The court held HSBC’s investment management complied with the Prudent Investor Act when evaluated under a portfolio-wide, time-of-decision standard and in light of the trust’s long-term growth purpose and dominant family-company holding.
- The court found no triable issue that any alleged concentration or lack of diversification was imprudent within the range of reasonable trustee judgment, including considering tax consequences and the overall portfolio.
- The court found the objectants’ causation and damages proof insufficiently concrete and too speculative to defeat summary judgment.
- The court held the prior releases barred claims attacking conduct within the period covered by the settled intermediate account.
- The court judicially settled HSBC’s final account and dismissed the objections.

## Legal Principles

- Under EPTL 11-2.3, trustee prudence is assessed based on the trust portfolio as a whole, the trust’s purposes and terms, and information available when investment decisions are made, not by later market outcomes.
- Diversification is generally required, but may be adjusted when justified by the trust’s objectives and circumstances, including tax consequences and the presence of a significant unique or family-business asset.
- A trustee’s investment choices are not actionable merely because a different allocation might have produced better results; objectants must show an imprudent decision process and a non-speculative causal link to quantifiable loss.
- Broad, valid releases executed to settle an intermediate accounting can preclude later claims and objections concerning the same accounting period.

## Conclusion

The Surrogate’s Court settled the corporate trustee’s final account on summary judgment, finding no actionable breach under the Prudent Investor Act, rejecting speculative damages theories, and enforcing broad releases from an earlier intermediate accounting to bar challenges to the released period.


In re HSBC Bank USA (Ely), 2012 N.Y. Slip Op. 22284 (Sur. Ct. Erie Cnty. 2012)