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Keywords

contractlawsuitbreach of contractappealfiduciarytrust
contractbreach of contractplaintiffappealtrialfiduciarytrustbench trial

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Van Gundy v. Van Gundy, 292 P.3d 1201, 2012 COA 194

Facts

Eldon Van Gundy created an irrevocable trust in 2004, managed by his son Quinton Van Gundy, funding it with real estate and stock. The trust agreement allowed the trustee to manage the trust assets with discretion, including investing in various securities. However, the trustee invested heavily in stocks, including margin purchases, which led to significant losses. After the beneficiary requested a liquidation of the trust assets, he filed a lawsuit against the trustee for various claims, including breach of contract.

In 2004, beneficiary created an irrevocable trust to be managed by trustee, his son, funding it with real estate and shares of stock in a family business.

Issue

Did the trustee breach his fiduciary duties under the trust agreement by investing in stocks on margin and failing to diversify the trust's investments?

Did the trustee breach his fiduciary duties under the trust agreement by investing in stocks on margin and failing to diversify the trust's investments?

Rule

The prudent investor rule requires trustees to invest trust assets with reasonable care, skill, and caution, and to diversify investments unless the trust agreement states otherwise.

A trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule set forth in this article.

Analysis

The court found that the trustee's actions of purchasing stocks on margin and failing to diversify were imprudent given the trust's purpose and the beneficiary's financial situation. However, the appellate court determined that the trust agreement explicitly allowed the trustee to make such investments without adhering to the prudent investor rule, leading to the conclusion that the trustee did not breach his duties.

The district court found that trustee had breached his contractual duty to beneficiary by purchasing stocks on margin, which, 'under the circumstances,' violated the prudent investor rule codified in subsection 15–1.1–102(a), C.R.S. 2012.

Conclusion

The Court of Appeals reversed the district court's finding that the trustee breached the trust agreement by purchasing stocks on margin and failing to diversify, while affirming the award related to the investment in Crystallex.

Accordingly, we conclude that the district court erred by deeming trustee's purchases on margin and failure to diversify investment as breaches of his duty under the trust agreement.

Who won?

Quinton Van Gundy (trustee) prevailed in part on appeal, as the court reversed the finding of breach regarding margin investments and diversification, indicating that the trust agreement allowed such discretion.

Trustee appeals a portion of the judgment entered after a bench trial in favor of plaintiff, Eldon Van Gundy (beneficiary), on beneficiary's breach of contract claim.

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