## Facts

- Eldon K. Van Gundy created a 2004 irrevocable trust, naming himself as the beneficiary and his son, Quinton Van Gundy, as trustee.
- Section 8(d) of the trust gave Quinton broad investment authority, including the power to invest and reinvest trust assets “whether or not such investments be of the character permissible for investments by fiduciaries under any applicable law, and without regard to the . . . diversity of the investments.”
- Quinton invested trust assets in common stocks and mutual funds, bought shares of Crystallex International Company (a Venezuelan gold-mining concern), and purchased some stocks on margin.
- From 2008 to 2009, the value of the trust assets dropped substantially.
- Eldon instructed Quinton to liquidate the trust’s holdings; at the time, about 32% of the trust assets were invested in a mutual fund.
- Quinton liquidated the holdings, and the trust realized a loss of roughly $340,000.
- Eldon sued Quinton in Colorado district court seeking, among other relief, to quiet title and recover for breach of contract, breach of fiduciary duty, and failure to provide a complete accounting.
- After a bench trial, the district court found Quinton liable for breach of contract on the ground that his purchases on margin and his failure to diversify violated the prudent investor rule. The court also found Quinton liable for the Crystallex investment and awarded Eldon attorney fees.
- Quinton appealed the portions of the judgment tying breach-of-contract liability to margin purchases and diversification, and he also challenged the attorney-fee award.

## Issues

1. Whether the trust’s Section 8(d) language (“without regard to the . . . diversity of the investments”) altered the default statutory duty to diversify so that a lack of diversification could not, by itself, support breach-of-contract liability.
2. Whether Section 8(d)’s authorization to invest “whether or not” permissible for fiduciaries excused or otherwise barred liability based on Quinton’s margin purchases under the prudent investor standard.
3. Whether the attorney-fee award required reconsideration after appellate review of the liability determinations.

## Decision

- The Colorado Court of Appeals held that the trust’s express instruction permitting investment “without regard” to the effect on diversity modified the usual diversification requirement, and the trial court therefore erred to the extent it imposed liability on the theory that failing to diversify was a prudent-investor violation notwithstanding Section 8(d).
- The court did not treat Section 8(d) as a blanket approval of all risk-taking; even with broad investment powers, a trustee’s conduct remains subject to fiduciary limits and the trust’s terms. The appellate court reversed the challenged parts of the breach-of-contract ruling to the extent they rested on an incorrect reading of Section 8(d), and remanded for further proceedings consistent with its interpretation.
- The court affirmed the judgment in part, reversed in part, and remanded. Because the scope of Quinton’s liability changed on appeal, the court also reversed the attorney-fee award in part and remanded for reconsideration.

## Legal Principles

- A trust’s terms control the trustee’s powers and duties; courts interpret the instrument to carry out the settlor’s expressed intent.
- Colorado’s prudent-investor and diversification duties function as default rules and may be changed by sufficiently specific language in the trust instrument.
- Language authorizing investment “without regard” to the effect on “diversity” can waive the duty to diversify, so a trustee is not liable merely because the portfolio is concentrated.
- Broad investment authorization does not eliminate fiduciary obligations; a trustee must still act in good faith and within the bounds of the trust’s purposes and directions.
- When an attorney-fee award depends on which party prevailed on the claims or issues, a partial reversal on the merits can require the fee award to be revisited on remand.

## Conclusion

In *Van Gundy v. Van Gundy*, the Colorado Court of Appeals held that Section 8(d) of the trust specifically waived the usual diversification requirement by permitting investment “without regard” to portfolio diversity, so the trustee could not be held liable in contract solely for failing to diversify; the court affirmed in part, reversed in part, and remanded, including for reconsideration of attorney fees in light of the revised merits rulings.


Van Gundy v. Van Gundy, 292 P.3d 1201 (2012)