United States District Court, Northern District of Illinois, E.D
April 13, 1981
SUSAN KEMPER HAMILTON, PLAINTIFF,
ARTHUR C. NIELSEN, JR., AND AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, DEFENDANTS.
The opinion of the court was delivered by: Aspen, District Judge.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This cause coming on for trial without a jury and the Court
having considered the sworn testimony of the witnesses, the
exhibits received in evidence, argument of counsel, the
relevant authorities, and being fully advised in the premises
makes the following findings of fact and conclusions of law
pursuant to Fed.R.Civ.P. 52:
FINDINGS OF FACT:
1. Plaintiff, Susan Kemper Hamilton ("Plaintiff"), is a
citizen of California currently residing in Switzerland.
2. Defendant, Arthur C. Nielsen, Jr. ("Nielsen"), is a
resident of Illinois.
3. Defendant, American National Bank and Trust Company ("the
Bank"), is a national banking association with its principal
place of business in Chicago, Illinois.
4. The matter in controversy, exclusive of interest and
costs, exceeds the sum of $10,000.
5. Plaintiff is one of several surviving children of Milton
J. Hamilton who died on October 16, 1972, a resident of Lake
6. On March 9, 1961, prior to his death, Milton J. Hamilton
created an insurance trust ("the Trust") naming the Bank as
trustee. By a subsequent amendment, Nielsen was named advisor
to the trustee. The Trust provided that after the death of Mr.
Hamilton and his mother, now both deceased, the Trust would be
divided equally among five beneficiaries, one of whom is the
plaintiff. The Trust authorized the trustee, subject to the
authority of the advisor, to retain any property it received
and to sell such property at private sale.
7. Mr. Hamilton's will was executed on September 20, 1972,
and it was admitted to probate in Lake County, Illinois, on
November 9, 1972. The will contained a "pour over" provision
whereby the residue remaining after the payment of taxes,
costs, claims, and specific legacies (hereinafter referred to
as the "cash requirements") was to go to the Bank as trustee
of the Trust. The will also authorized the executors to sell,
retain, or invest property, or continue present investments
upon such terms and in such manner as they deemed best, free
from any limitations imposed by law and without order of any
court. The will named the Bank and Nielsen as co-executors.
8. As co-executors, the Bank and Nielsen were responsible
for meeting the estate's cash requirements out of the assets
of the estate and funneling any residual assets to the Trust
for the benefit of the five beneficiaries.
9. Among the assets of the Milton J. Hamilton estate were
58,718 shares of stock in Frank B. Hall and Company ("Hall"),
31,680 shares of Zenith United Corporation ("Zenith"), and a
nontransferable option to acquire an additional 9,375 shares
of Zenith at $2.72 per share on or before December 27, 1972.
The executors exercised the option before it expired in
December, 1972, when Zenith was trading at between $4 5/8 and
$5.00 per share.
10. At the date of Mr. Hamilton's death, the 58,718 shares
of Hall stock had a trading value of $1,548,687.25 at $26 3/8
11. During the administration of the estate, the executors
made the following sales of Hall stock:
NO. OF PRICE NET
DATE SHARES PER SHARE COMMISSIONS PROCEEDS
1/29/73 11,000 19 1/8 $2,750.00 $207,625.00
6/13/73 5,000 12 60,000.00
7/17/73 5,000 13 1/4 66,250.00
9/04/73 5,000 15 75,000.00
2/18/75 4,700 14 5/8 775.50 67,962.00
2/18/75 300 14 7/8 49.50 4,413.00
4/21/75 4,000 (3,900) 16 1/4 874.09 64,113.41
5/09/75 6,000 17 7/8 1,213.07 106,036.93
5/20/75 368 ( 300) 18 1/2 124.34 6,537.16
TOTALS 41,368 $5,786.50 $657,937.50
12. During the administration of the estate, a total of
17,350 shares of Hall stock were transferred to the Trust as
NO. OF VALUE OF STOCK AT VALUE PER SHARE AT
DATE SHARES TIME OF TRANSFER TIME OF TRANSFER
9/30/73 10,000 $150,000.00 15
1/22/75 1,350 16,368.75 12 1/8
4/16/75 1,000 17,187.50 17 3/16
5/01/75 5,000 91,250.00 18 1/4
TOTAL 17,350 $274,806.25
13. The Trust then made the following sales of Hall stock:
NO. OF PRICE NET
DATE SHARES PER SHARE COMMISSIONS PROCEEDS
1/17/75 4,017 11 5/8 $46,697.63
1/17/75 985 11 5/8 11,450.62
4/16/75 483 17 1/8 96.76 8,174.62
4/16/75 4,119 Approx. 17 1/8 unknown 69,712.38
4/16/75 1,373 Approx. 17 1/8 unknown 23,460.06
4/16/75 1,373 Approx. 17 1/8 unknown 23,259.42
5/02/75 5,000 17 7/8 $1,010.86 88,364.15
TOTALS 17,350 276,118.88
14. The Trust and estate received a total of $934,056.38
from the sales of the Hall stock.
15. At the date of Mr. Hamilton's death the 31,680 shares of
Zenith stock had a trading value of $160,380.00 at $5 1/6 per
16. After the estate exercised the option to acquire an
additional 9,375 shares of Zenith stock in December, 1972, the
estate held a total of 41,055 shares. The estate borrowed
$25,500.00 from the Trust in order to exercise the option at
$2.72 per share. At the time the option was exercised, the
9,375 shares had a trading value of approximately $46,875 at
$5.00 per share, representing a potential capital gain of over
$20,000 for the estate.
17. The entire Zenith holding was sold by the estate to
Zenith at $2.00 per share on December 14, 1976, without
commissions, for a total of $82,110.00. No Zenith stock was
ever transferred to or sold by the Trust.
18. The market for both Hall and Zenith stock was relatively
limited or "thin" which inhibited the ability of the executors
to make large block sales of the stock at favorable prices.
Zenith was traded over the counter at all relevant times and
the Hall stock was traded over the counter until December,
1973, when it was listed on the New York Stock Exchange.
19. Between September 1, 1972, and the end of December,
1973, the average weekly volume of trading in Hall stock was
approximately 66,000 shares while the average weekly volume in
Zenith stock was approximately 3,700 shares, less than
one-tenth of the estate's entire Zenith holding.
20. The Internal Revenue Service acknowledged the limited
marketability of the Zenith stock by allowing a "blockage
discount" of $1.00 per share on the ultimate sale of the stock
to Zenith in 1976 which represented 22.7% of the market value
of the stock.
21. The free transferability of the Hall stock was initially
in doubt since it was "lettered stock" not registered under
the applicable federal or state securities laws at the time it
was acquired by Mr. Hamilton in a tax free reorganization of
his insurance agency. By letter dated December 15, 1972,
outside legal counsel advised the executors of the Hamilton
estate that the stock could be sold free and clear of any
restrictions provided that the Hall company was notified and
acquiesced in the transfer. Although Hall was notified in a
timely manner, the company did not remove the restrictions on
the stock certificates until late February, 1973, nearly one
month after the first sale of the stock on January 29, 1973,
accomplished pursuant to Rule 144 of the Securities and
22. The Bank assigned experienced and competent officers to
administer the day-today affairs of the estate who frequently
reviewed the cash requirements of the estate as they changed
over time, the marketability of the securities that formed the
major portion of the corpus of the estate, the tax
consequences of particular transactions, and who constantly
and conscientiously considered the course of action that would
reap the maximum potential benefit for the resulting Trust and
its beneficiaries, including the plaintiff herein.
23. A thorough review of Hall, an insurance brokerage
company, and Zenith, an insurance company,*fn2 undertaken by
the Bank in late 1972 revealed that they were both inherently
sound companies with relatively favorable prospects for the
24. The Bank determined that the Hall stock, which comprised
72% of the estate's holdings, would be the logical source of
funds with which to satisfy the cash requirements of the
estate. As the cash requirements of the estate changed,
however, in part due to the declining value of the estate's
holdings and the corresponding decrease in the estate tax
liability, the Bank resolved not to precipitously dump either
the Hall or Zenith stock in a limited and falling market so as
not to further adversely affect the price.
25. The executors had substantially satisfied the cash
requirements of the estate by mid-1973 through the sale of
various real estate and other security holdings of the estate
and a partial liquidation of the Hall stock in January, June,
and July of 1973.
26. In 1973, stock in insurance brokerage companies declined
generally in a "bear market" that preceded the decline that
affected the stock market as a whole in 1974. The stock of one
well known brokerage company, Marsh & McLennan, reached $69 in
February, 1972, declined to $30 1/2 in February, 1973, and was
still selling in the $30 range in 1974. The Dow Jones index of
selected companies was in excess of 1,000 in January, 1973,
but it declined to 570 in December, 1974. 1974 was the worst
year in the stock market since the crash in 1929.
27. The executors received two offers in the first months of
the administration of the Hamilton estate, both of which
exceeded the price at which the Hall and Zenith stock was
eventually sold. In early December, 1972, Burnham & Company
offered to buy the Hall stock at one point under bid or
approximately $25 3/4 per share. At about the same time, The
Illinois Company, Inc. expressed interest in the block of
Zenith stock which was trading at approximately $5 per share
at the time.
CONCLUSIONS OF LAW:
1. This Court has jurisdiction over this matter pursuant to
28 U.S.C. § 1332(a)(1).
2. As co-executors of the Hamilton estate, the Bank and
Nielsen owed fiduciary duties of care to the plaintiff.
Estate of Venturelli v. Granville National Bank, 54 Ill. App.3d 997,
12 Ill.Dec. 667, 370 N.E.2d 290, 293 (3d Dist. 1977);
Estate of MacLeish v. MacLeish, 35 Ill. App.3d 835, 842,
342 N.E.2d 740, 746 (1st Dist. 1976).
3. The actions of the co-executors in administering the
estate must be judged under the "prudent man" rule which, as
articulated by the Illinois Supreme Court, requires that an
with the highest degree of fidelity and with the
utmost good faith, but he is held to the exercise
of only that degree of skill and diligence which
an ordinarily prudent man bestows on his own
similar private affairs. Nothing more can be
required of him, and, if his acts will stand the
test of that rule, he cannot be held liable for
any loss that may be sustained by the estate of
Christy v. Christy, 225 Ill. 547, 80 N.E. 242, 243 (1907);
Estate of Venturelli, supra, 54 Ill. App.3d 997, 12 Ill.Dec.
667, 370 N.E.2d at 293.
4. A corporate executor is held to the same standard of care
as an individual executor. Estate of Venturelli, supra.
5. Although an executor or trustee must act in a prudent
fashion, it is clear that neither is an insurer or guarantor
of the assets with which he is charged. As Judge Weinfeld of
the Southern District of New York stated in a case very
similar to the one at bar, "[n]either prophecy nor prescience
is expected of trustees and their performance must be judged
not by hindsight but by facts which existed at the time of the
occurrence." Stark v. United States Trust Company of New York,
445 F. Supp. 670, 678-79 (S.D.N.Y. 1978) (citations omitted).
6. "The general rule is that a trustee is presumed to have
acted in good faith and to have performed his duties under the
trust. The burden of proving his breach of trust rests upon
the one asserting it." Elmhurst National Bank v. Glos, 99 Ill. App.2d 74,
80, 241 N.E.2d 121 (2d Dist. 1968).
7. Viewing the actions of the executors in the case at bar
in light of the applicable legal standards as set forth above,
it is clear that the plaintiff has failed to prove by a
preponderance of the evidence that either Nielsen or the Bank
breached their fiduciary duties during the administration of
the Hamilton estate. Rather, plaintiff, with the benefit of
hindsight, attempts to fix the point at which the Hall and
Zenith stock should have been sold and at which other actions
should or should not have been taken so that, in retrospect,
the yield to the resulting Trust would have been maximized. In
the "best of all possible worlds," as Pangloss would say, the
stock would have been sold at its peak and the exercise of the
Zenith option would have yielded in excess of a $20,000
profit.*fn3 However, the plaintiff has not shown that the
course of action followed by the executors was imprudent in
light of all the facts and circumstances at the time or that
they failed to act with the utmost good faith, diligence, and
skill in administering the estate as they would their own
private affairs. The only culprit in this case appears to be
the unpredictable stock market whose fluctuations have made
some men millionaires and caused others to lose their fortunes
8. The executors did not act unreasonably in handling either
the Hall or Zenith stock in a period of declining market
values. Moreover, it was also not unreasonable to exercise the
Zenith option, even with borrowed funds, at a time when the
stock was trading at almost twice the option price. Neither
can the executors be faulted for not selling the stock
holdings to Burnham & Company or The Illinois Company during
the infancy of the estate when the general prognosis for both
stocks was relatively optimistic.
9. Apropos to the case at bar are Judge Weinfeld's comments
in Stark v. United States Trust Company of New York, supra, a
case involving some of the same issues as the instant case
during the same relevant time period of general market decline.
The court said:
But of probably greatest relevance is the
substantial body of case law uniformly rejecting
the notion that the decline of a stock's market
price forbids retention by a trustee of a trust's
holding in that stock. It is not inherently
negligent for a trustee to retain stock in a
period of declining market values, nor is there
any magic percentage of decline which, when
reached, mandates sale. Indeed, the market
fluctuations have expressly been rejected as a
trustworthy indicia of a holding's value —
specially in times of general economic decline.
Similarly, the fact that a stock may not be
desirable for long term investment does not mean
that a trustee is under a duty to sell it at the
first possible opportunity.
445 F. Supp. at 679 (citations omitted).
Accordingly, judgment is entered in favor of defendants and
against the plaintiff, costs to be borne by the respective
parties. It is so ordered.