## Facts

- A decedent created a testamentary trust for his two daughters and appointed, among others, David T. Goldstick, an attorney, as trustee.
- Goldstick invested roughly $180,000 of trust money in real-estate partnerships in which he held substantial personal interests, commingling trust and personal funds in the ventures.
- The ventures became highly profitable; Goldstick attributed about $160,000 of profit to the trust while realizing about $2.6 million of profit personally from the overall investments.
- In 1977, each beneficiary retained separate estate and tax counsel who reviewed the accounts and, after inquiry, the beneficiaries executed releases that expressly acknowledged and ratified fiduciary acts and legal fees, including a $233,000 fee to Goldstick’s law firm.
- In later final accounting proceedings, the beneficiaries objected, alleging self-dealing, commingling, and improper or excessive legal fees, among other fiduciary breaches.
- After extensive hearings, the Surrogate’s Court imposed substantial surcharges, including awarding the trust the full amount of Goldstick’s personal profit from the commingled investments and drastically reducing the $233,000 legal fee by surcharging about $190,000.
- The fiduciaries appealed from the surcharges and fee rulings; a related appeal challenged denial of a motion to disqualify the trial judge.

## Issues

1. When a trustee commingles trust funds with personal funds in a profitable investment involving a conflict of interest, must the trustee disgorge all personal profit, or only amounts tied to the trust’s proportionate interest and proven harm?
2. Whether beneficiaries who, with independent counsel and after inquiry, executed releases ratifying transactions and legal fees may later surcharge fiduciaries for the ratified items absent fraud, overreaching, or material nondisclosure.
3. Whether the Surrogate’s Court could deem a ratified $233,000 attorney’s fee “unconscionable” and impose a large fee surcharge notwithstanding the releases.

## Decision

- The Appellate Division modified the Surrogate’s Court decree on the law and the facts and otherwise affirmed as modified.
- The court agreed that Goldstick’s conflicted investment conduct constituted self-dealing subject to strict fiduciary scrutiny, but held the trial court’s remedy—awarding the trust the entirety of Goldstick’s personal profit—was excessive and required recalculation consistent with the trust’s interest and legally supportable damages.
- The court rejected the drastic reduction of the $233,000 legal fee and the related surcharge where the beneficiaries, advised by separate counsel, had expressly ratified the fee in written releases, and no sufficient showing warranted setting those releases aside.
- In the related matter, the denial of the motion to disqualify the trial judge was affirmed.

## Legal Principles

- Trustees owe beneficiaries a duty of undivided loyalty; transactions involving conflicts of interest and commingling of trust and personal interests are presumptively improper and subject to strict review.
- Remedies for fiduciary self-dealing must be tied to the trust’s rights and legally supportable measures of recovery; courts may reject a remedy that functions as a windfall unrelated to the trust’s proportionate stake or actual harm.
- Beneficiary releases and ratifications executed with independent counsel and after meaningful inquiry are generally binding and bar later challenges to the released transactions and fees absent fraud, overreaching, or material nondisclosure.
- Judicial review of fiduciary attorney’s fees may consider reasonableness, but a court should not override informed, counseled ratification of fees without an adequate equitable basis.

## Conclusion

The Appellate Division held that the trustee’s conflicted investments warranted liability but required a more limited surcharge than full disgorgement of the trustee’s personal profit, and it enforced the beneficiaries’ counseled releases that ratified a substantial attorney’s fee, modifying the accounting decree accordingly.


Matter of Goldstick, 177 A.D.2d 225, 581 N.Y.S.2d 165 (1st Dep’t 1992)