Executor surcharged for delay in distributing stock to beneficiaries, conditioning distributions on signing releases and approving an inaccurate accounting, and allowing court ordered sale of stock from estate at discounted price.

Magda L. Burt died in August 1987. Under her will she gave the residue of her estate, including 2,256 shares of Class A non-voting common stock in a closely held company called Nyman Manufacturing, to 10 beneficiaries. Bank of America and Robert Gates were appointed co-executors under the will. A valuation of the stock was completed in February 1988 and after an IRS audit the stock was valued at $403.35 per share.

Early in the administration of the estate, the bank approached Nyman about buying the stock from the estate, but Nyman rejected the proposal. The bank corresponded with the estate beneficiaries on multiple occasions and indicated that the co-executors were preparing the final accounting for filing with the court. By January 18, 1991, the final accounting had still not been completed or sent to the beneficiaries for review but a partial distribution of $1,000 was made to each beneficiary at that time. On March 18, 1991, the bank sent the beneficiaries a first and final accounting along with a receipt, release, and indemnity form for them to sign and return if they approved the accounting. The final accounting showed the shares of Nyman stock as having been distributed in kind to the beneficiaries, but no such distribution had taken place. The beneficiaries refused to sign the agreement.

In April 1991, one of the beneficiaries, Roland Burt, hired an attorney and demanded a complete audit of the estate and an appraisal of the stock. A revised accounting for the estate was sent to Burt. In 1992, new regulations of national banks were issued by the Comptroller of Currency and the bank was required to review certain closely held assets, including the Nyman stock, resulting in further delays. The beneficiaries continued to request that the final accounting be prepared and the estate closed. On March 12, 1993, Burt filed suit in Rhode Island Superior Court against the bank alleging negligence and breach of fiduciary duties and seeking a distribution of cash for his share of the estate.

Based on discussions with Burt and his preference for a cash distribution, the bank again approached Nyman about purchasing the stock but Nyman declined. The bank advised the other beneficiaries of the issues related to Burt’s litigation and pointed to the litigation as a reason for further delays. A final account was again prepared and sent to the beneficiaries with a receipt, release, and indemnification agreement, again showing that the stock had been distributed to the beneficiaries when in fact it had not been distributed. The beneficiaries again refused to sign the release agreement.

On January 30, 1995, before resolution of the issues related to the release agreement, Nyman approached the executors about purchasing the stock at a low price. The bank pointed to this overture as an additional reason for delay in completing the administration of the estate and distribution of the estate assets.

On August 4, 1995, Nyman formally offered to purchase the stock from the estate for $145.36 per share on the condition that the beneficiaries approved the offer. The executors provided the offer materials to the beneficiaries but did not request additional information, review the offer, or do independent research. Several beneficiaries approved the offer but others did not.

The bank then decided that an in-kind distribution of the stock was in the best interests of the beneficiaries. On September 28, 1995, the executors petitioned the probate court for distribution of the stock. On October 19, 1995, a hearing was held before the probate court on the amended account of the executors and the executors’ petition for distribution of the stock. At the hearing, a representative of Nyman appeared and urged the sale of the stock to Nyman pursuant to the terms of Nyman’s previous offer and presented the sale as a great deal for the beneficiaries. The probate court allowed the executors account and ordered the sale of stock to Nyman for $145.36 per share.

On September 29, 1997, Nyman was sold to Royal Packaging Industries Van Leer and holders of the Class A stock of Nyman received $1,667.38 per share in the sale.

The beneficiaries sued the Bank alleging breach of their fiduciary duties to the beneficiaries by: (1) undue delay in closing the estate and distributing the stock; (2) failing to properly advocate for distribution of the stock at the hearing; (3) failing to appeal the probate court’s order to sell the stock; (4) failing to apprise the beneficiaries of their right to appeal the probate court’s order to sell the stock; (5) deficiencies in the negotiations with Nyman and failing to independently evaluate the sales price; (6) conflicts of interest; and (7) excessive fees.

The trial court found in favor of the beneficiaries on all counts on the following grounds: (1) there was no evidence that the bank had interpreted the will as requiring a bargain sale to Nyman at the time of the sale; (2) the bank had unduly delayed distribution of the stock; (3) requiring receipt and release or indemnity forms was not a legal precondition for the distribution of the stock; (4) to the extent Rhode Island law provides any authority for such a requirement, it must be imposed by the probate court and the executors did not seek a release from the court until 1995; (5) the bank breached its duty by requesting that the beneficiaries attest to something that was inaccurate in the accountings they had received; (6) the bank waited more than three years before they sent any form of an accounting to the beneficiaries; (7) the bank had failed to act in the best interests of the beneficiaries by meaningfully advocating for a distribution of the stock in kind at the hearing; (8) the bank breached its duties by failing to appeal the probate court’s order compelling the sale; (9) the bank breached its duties in connection with Nyman’s offer to purchase by failing to check the accuracy of the data, investigate the business to appraise the stock, and failing to negotiate; and (10) the bank breached its duties by collaborating with Nyman on the petition with the court and seeking remuneration from Nyman for its contents.

On the issue of damages the court found as follows: (1) for beneficiaries who would have held on to their stock had it been distributed and then sold to Van Leer, appropriate damages were the difference between the price per share in the sale to Van Leer and the sale to Nyman times the number of shares plus interest; and (2) for the beneficiaries who would have sold their stock to Nyman pursuant to its offer had the stock been distributed to them, damages would not be awarded and these beneficiaries had no entitlement to recover for the bank’s breaches of its fiduciary duties.

The court found in favor of the bank on its fees and found payment of the executors’ fees appropriate because they were merely negligent and there was no showing of bad faith, intentional misconduct, or improper motive.