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Chase Manhattan Bank must pay $21 million in damages for failing to promptly liquidate Eastman Kodak stock in an estate it was managing after the stock took a nosedive in 1973, a New York surrogate has ruled. Chase was held liable for the inaction of trust managers of a Rochester, N.Y., bank, Lincoln First, which it acquired after the damage was done. Surrogate Edmund A. Calvaruso also ruled that the bank must pay back the fees it has collected for work on the trust since 1974. The fees are estimated at several million dollars, said William Josephson, the head of the Charities Bureau at the state attorney general’s office, which represented the interests of several charities. The case involved an unusual provision in a will written in 1951 by Charles G. Dumont, whose family’s wealth was closely intertwined with the Kodak Co. The will set up a trust to be created upon Dumont’s death. The trust consisted overwhelmingly of Kodak stock. The will expressly exonerated the trustee — Lincoln First — from losses caused by failure to diversify the trust’s assets. In fact, the will barred Lincoln First from selling trust assets for the purpose of diversification alone. However, Lincoln First was authorized to sell the stock for a “compelling reason.” Dumont’s instruction to retain Kodak stock in the trust reflected his desire that “a legacy” of the family’s “affinity” with Eastman Kodak be passed on to his heirs, Surrogate Calvaruso wrote in Matter of Dumont, 1956 TT 443. Dumont’s father-in-law, Edwin O. Sage, was an original director of Eastman Kodak when it was incorporated in 1889. Dumont’s instruction did not exculpate Lincoln First from “poor judgment and laziness,” Surrogate Calvaruso wrote, but required what he called a delicate balancing of Dumont’s desires with the requirements of prudent management. The steep decline in the value of Eastman Kodak stock in 1973 should have prompted the bank to sell 95 percent of the trust’s Kodak’s holdings, the surrogate ruled in finding that the bank violated its fiduciary duty to the trust. In the first eight months of 1973, the value of Kodak’s stock fell by 17 percent, he wrote. There was a further major drop of the stock’s value by November of that year. Calvaruso also noted that the return on the Kodak stock in 1973 was less than half the average return on stock included in the Standard and Poor’s index. Calvaruso rejected the bank’s defense that a low rate of return was acceptable because the sole income beneficiary of the trust had substantial other assets. The duty to assure an adequate return, he wrote, applies to “the wealthy no less than the poor.” The bank also had a duty to protect the interests of all the potential beneficiaries of the trust equally, which would include parties with an interest in the corpus of the trust as well as income beneficiaries, Calvaruso concluded. The sole income beneficiary is Dumont’s granddaughter, Margaret Hunter. Since all of her children are deceased, three charities will receive the corpus of the estate when Hunter dies, which accounts for the attorney general’s role in the case. The charities named in Dumont’s will are the University of Rochester, the Rochester Institute of Technology and the American Red Cross. Chase Manhattan Bank was represented by Paul J. Yesawich and Gregory J. McDonald of Harris Beach. Hunter was represented by Mitchell T. Williams of Williams & Williams and Kenneth Joyce. Assistant Attorney General Audrey Cooper handled the case for the state attorney general’s office.

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