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Both Wachovia Bank and the heirs to an Iraqi general’s fortune have asked Georgia’s court of appeals to undo damages done to them by a lower court ruling. The case tests to what extent a bank can be held responsible for investment decisions that expose an estate to higher taxes. The issue is clouded, however, by the bank’s unsuccessful efforts to contact the client, who died in an Iraqi prison. Issam Namik, son of retired Iraqi general Ibrahim Namik Ali, claims Wachovia mismanaged a living trust his father established with the bank in 1989. The bank, he claims, failed to follow Ali’s instructions and unnecessarily exposed the $3 million estate to $1.4 million in estate taxes. In December 2002, a Fulton County probate judge ordered the bank to pay $1.1 million to the estate. But Namik and his lawyer told a three-judge appeals panel that wasn’t enough. And lawyers for Wachovia told the panel that the trial judge was wrong to hold the bank responsible for estate planning. Wachovia v. Namik, No. A03A2198, and Namik v. Wachovia, No. A03A2199. The panel was made up of Presiding Judge Edward H. Johnson and Judges Charles B. Mikell Jr. and Frank M. Eldridge. Arguing for Wachovia, William J. Linkous Jr., of Powell, Goldstein, Frazier & Murphy, told the panel that Senior Judge Floyd E. Propst III had erred in giving too much weight to the testimony of an expert witness. Ali’s living trust, Linkous said, was not meant to be a “will substitute,” as the witness had testified. It was simply an investment vehicle, he said. “That’s the use of this form of trust,” Linkous told the judges. “The trust does not require the trustee to engage in estate planning.” Mikell interrupted Linkous to ask whether he was asking the court to evaluate the bank’s fiduciary duty to Ali as a matter of fact or of law. “Both, your honor,” Linkous replied. But Mikell noted that the lower court already had found that the bank breached its duty to Ali. “Isn’t that the end of the discussion if it’s a question of fact?” Mikell asked. Then Johnson cut in. “Isn’t the standard of review here whether there’s an error of law?” Johnson asked. IMPORTANCE OF FOLLOWING DIRECTIONS During his time before the panel, Namik’s lawyer, Robert J. Kaufman, of Kaufman, Chaiken, Miller & Klorfein, urged the judges to ignore the issue of estate planning, which he called “strictly a red herring.” The breach wasn’t in the failure to perform estate planning, Kaufman said. It was in the bank’s failure to manage Ali’s estate reasonably and in accordance with his instructions. “Failure to invest in U.S. government issues is the proximate cause of the damages sustained by Mr. Ali,” he said. “The bank failed to follow its customer’s instructions.” According to documents in the trial and appeals courts, Ali came to Atlanta in the spring of 1989 to visit his son. While he was here, he set up a living trust at Wachovia. Ali bought three certificates of deposit, two for $350,000 and one for $2.65 million. The bank sent Ali to trust officer Thomas Slaughter, who set up the revocable living trust with the understanding that when the largest CD matured, the proceeds would fund the trust. Ali told the bank he wanted the funds invested only in U.S. government backed investments, and Slaughter set down Ali’s instructions in a memo, according to court documents. The largest CD matured in September 1989, with $2,780,380 rolling into Ali’s trust. A new trust officer tried repeatedly to contact Ali, using the phone number and addresses Ali had provided earlier that year, but failed. Namik claimed he ordered the bank to stop trying to contact his father because Ali had been arrested on his return to Iraq and was in danger. Meanwhile, in order to avoid what it thought would be a 30 percent income tax withholding requirement, Wachovia parked the funds from the Ali trust in a tax-free Fidelity money market account while awaiting further instructions from Ali. Those instructions never came. Ali, arrested immediately and without explanation upon his return to Iraq, died in custody in May 1990. Namik didn’t learn of his father’s death until 1992 and did not inform the bank until 1994. Wachovia didn’t receive a death certificate until 1995, and that’s when the legal struggle began. HALF OF ESTATE WENT TO PAY TAXES Rather than probating his father’s estate in Fulton, Namik sued Wachovia in DeKalb County, trying to force the bank to release the proceeds of the trust. In the course of that litigation, the plaintiffs noticed that Wachovia hadn’t invested in U.S. backed securities as Ali had ordered, nor had it invested in investment vehicles that would have been tax-free for nonresident aliens. The estate was about to be on the hook for a huge tax bill, but the heirs couldn’t do any thing about it until the return was filed. The bank filed that return in 1997, showing a total of $933,248 in estate taxes and tax interest of $542,081 — a total of $1,475,329 — calculated from Feb. 17, 1990, through June 3, 1996. If Wachovia had done what Ali had directed, the total tax liability would have been $486,636. By the time Namik persuaded Wachovia to release his father’s funds, he ended up with just half of the nearly $2.88 million in the trust. The rest — some $1.4 million — went to pay U.S. income and estate taxes. Ali’s heirs sued Wachovia for negligence, breach of contract and breach of fiduciary duty for failing to place the funds in tax-free investments as Ali had instructed. The plaintiffs also argued that Wachovia ignored investments specifically created for foreign nationals, which would have been free of estate and income taxes. These investments, they argued, were “widely known” and designed to encourage nonresident aliens to keep their money in U.S. banks. Propst, sitting by designation in two cases consolidated from Fulton Probate and Superior courts, handed each side a small victory. After trial in the spring, the judge found Wachovia negligent for failing to place the trust money in the tax-free investments. Propst also found the bank had breached its contract by failing to invest only in U.S. backed securities. The judge ordered the bank to pay Ali’s son, Namik, $1,108,222 in damages, including estate taxes and interest, disgorgement of half the trustee’s fees and prejudgment interest. The value of the award was lower than the plaintiffs had sought, however, because Propst also found that Namik had failed to mitigate his damages when he waited years to tell Wachovia his father had died, and because he pursued a declaratory action in DeKalb rather than going straight to probate in Fulton. Propst also determined that 50 percent of the trust funds could have been invested in short-term bonds, reducing the trust’s total value over the time it was with the bank. In the court of appeals, Kaufman said Propst had unilaterally undervalued the trust’s assets. All of the money should have been in T-Bills, he told the panel. “This was purely arbitrary on the part of the court,” he said. Kaufman asked the panel to uphold Propst’s findings as to Wachovia’s liability and send the case back to him for a re-evaluation of proper damages. “Give us the full cup of justice and give us the full measure of our damages,” he said.

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