It’s not easy to walk away from your fiduciary duties as a trustee, even if you try to resign. That’s the subject of Judge Murphy’s opinion this week in Wortman v. Hutaff, 2012 NCBC 9.
Two of the Defendants, Moyer and Hutaff, were trustees of a trust established by Dan L. Moser. They resigned as trustees by filing a written "Notice of Resignation" with the Union County Superior Court on December 3, 2007. The Moser Trust hadn’t funded when they "resigned." It was a "pour over" trust from Moser’s estate, which had not yet been settled.
The Plaintiffs, potential beneficiaries of the Moser Trust when it was funded, claimed that the trustees had breached their fiduciary duties after their resignation. The nature of the alleged breach isn’t that relevant, but it involved allowing an LLC interest in a golf course, an asset of the Estate, to be sold at foreclosure at substantially less than its fair market value, eliminating an equitable interest in the LLC which should have poured into the Moser Trust.
The trustees said they had no fiduciary duty after their resignation. The resignation to the clerk of court, however, wasn’t a resignation in compliance with G.S. §36C-7-705. Judge Murphy said that the terms of the statute were "exclusive" as to the procedure for resignation. The statute says that a trustee can resign “(1) [u]pon at least 30 days’ notice in writing to the qualified beneficiaries, the settler, if living, and all co-trustees; or (2) [w]ith the approval of the court.” Moyer and Hutaff had followed neither path to resign.
In addition, G.S. §36C-7-707(a) says that a trustee’s duties don’t pass "until the trust property is delivered to a successor trustee." The successor trustee wasn’t appointed for nearly three years. It was during that gap of trusteeship that the claimed breach of fiduciary duty occurred.
Judge Murphy refused to carve out an exception from the strictures of the statute regarding trustee resignation. He also didn’t buy the argument that resignation procedures ought to be different because the Trust hadn’t yet been funded. So the defendant trustees of the Moser Trust who thought they had terminated their responsibilities are still on the hook for what may be a substantial claim.
Judge Benjamin Cardozo said in a famous (at least from law school) quote in Meinhard v. Salmon that "[a] trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. . . ." And you know what Johnny Paycheck said. I guess that Judge Murphy is more of a Cardozo fan.