## Facts

- Henry Rousseau created four substantially similar inter vivos trusts for each of his children and their issue and named a corporate trustee.
- Each trust was funded primarily with a concentrated block of common stock originally owned by the settlor.
- The trust instruments granted the trustee broad investment discretion, including express authority to retain the original securities without diversification even if ordinarily improper for trust investment.
- The instruments also contained an exculpatory provision stating the trustee would not be liable for losses resulting from retention of the original securities.
- During the settlor’s lifetime, the trustee once sold some stock to diversify; the settlor objected vigorously and insisted the preferred holdings be retained.
- After the settlor’s death, three retained stocks declined sharply during the early–mid 1970s; the relevant portfolio fell from about $940,000 to $93,000 over roughly three years.
- The trustee monitored outside economic analyses and used an internal buy/hold/sell “coding” system; based on this information, it decided to continue holding the stocks.
- Beneficiaries sued seeking a surcharge, alleging imprudent retention of an undiversified, speculative portfolio and arguing the retention and exculpatory clauses should not bar liability.

## Issues

1. Whether the trustee breached its fiduciary duty of prudence by retaining a concentrated position rather than selling or diversifying.
2. Whether express retention authority and an exculpatory clause barred surcharge absent proof of bad faith, dishonesty, or reckless indifference.
3. Whether the trustee’s reliance on professional forecasts and internal review procedures satisfied the required level of care and skill for a corporate trustee.

## Decision

- Judgment for the trustee; the beneficiaries’ claims for breach of fiduciary duty and surcharge were dismissed after a bench trial.
- The court found the trustee’s retention decisions fell within the scope of authority granted by the trust instruments and were made in good faith.
- The court held the exculpatory language was enforceable and precluded surcharge because plaintiffs did not prove bad faith, dishonesty, self-dealing, concealment, or reckless indifference.
- The court declined to treat the severe losses, standing alone, as proof of imprudence given the extraordinary and unforeseeable market events of the period.

## Legal Principles

- A trustee’s prudence is assessed in light of the trust instrument; express authorization to retain specified or concentrated holdings materially defines permissible investment conduct.
- Under New York law, an exculpatory clause may relieve a trustee from liability for ordinary negligence in investment management, but not for bad faith, intentional wrongdoing, or reckless indifference to beneficiaries’ interests.
- Fiduciary investment decisions are evaluated based on the facts and circumstances existing when decisions were made, not by hindsight based on later market performance.
- A corporate trustee may meet its duty of care by using informed judgment through reasonable investigation, including reliance on credible external analyses and systematic internal review processes, even if forecasts later prove wrong.
- A trustee is not an insurer of investment success; large losses do not alone establish a breach where the decision-making process was reasonable and loyal.

## Conclusion

The court refused to surcharge the corporate trustee for drastic market-driven losses because the trusts expressly permitted retention of the original concentrated holdings, the trustee employed a documented and informed decision-making process, and the beneficiaries failed to show bad faith or reckless indifference sufficient to overcome the exculpatory protections.


Stark v. United States Tr. Co. of N.Y., 445 F. Supp. 670 (S.D.N.Y. 1978)