This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Tuesday, March 3, 2015
Court of Appeals Upholds Actions of Trustee Because the Trustee Was Authorized To Do What It Did
Appeals Upholds Actions
of Trustee Because
the Trustee Was Authorized To Do What It Did
In a recent decision, the Kentucky Court
of Appeals considered certain criticisms
as to the investment of trust assets. Ultimately, it would determine that the actions of the trustee were not subject to the asserted criticisms, essentially on the basis that the trustee was authorized to engage in the complained of conduct. Watkins v. PNC Bank, N.A., No. 2013-CA-001457-MR (Ky. App. Jan. 30, 2015).
Lowery Watkins a beneficiary of the Thomas W. Bullitt Fund 3 Trust, brought suit against PNC
Bank, trustee thereof (PNC was itself the successor to Citizens Fidelity Bank and Trust Company, the original trustee) asserting that
it had violated its duties as a trustee by (1) retaining in the trust PNC stock in violation of the Prudent Investor
Rule, (2) that the PNC stock had be retained in violation of the duty of loyalty and (3) that PNC applied trust assets to purchase Black Rock mutual
funds in violation of the duty of loyalty. The trial court had granted summary judgment
to PNC Bank
on all of these counts, and this appeal followed. The Court of Appeals would
the trial court on all three theories of liability.
As to the Prudent Investor
Rule of KRS 386.3-277, it provides
in part that the trustee has a duty to conform the investments
to the directions pursuant
to the trust instrument. In this instance, it had been directed
that the trust assets would be shares of Citizens Fidelity
Bank and Trust, which ultimately
became PNC. On this basis, it was determined that
PNC did not violate the Prudent Investor Rule. Separately, Watkins challenged the
holding of the PNC stock as a violation of the duty of loyalty. Again, consequently to the directive
from the trust with respect to holding the stock, when combined with KRS 386.025, there was no violation of the duty of loyalty. With respect to the purchase of the Black Rock mutual funds, with which PNC is affiliated, and the charge of self-dealing, Kentucky law, specifically KRS
386.3-272, allows it to make such investments. As such, and a cursory basis, the Court determined
that PNC did not act improperly
in making this investment.
that PNC did what the law and/or the trust instrument
to do, no viable claims