LItchfield v. Bank of New York

2000 | Cited 0 times | D. Maine | September 14, 2000

FINDINGS OF FACT AND CONCLUSIONS OF LAW

John Lambie and Burnham Litchfield, Plaintiffs in this case, brought multiple claims against Defendant, the Bank of New York. One of the Plaintiffs' claims was for unjust enrichment. The Court held a jury trial on September 12th and 13th , 2000 to adjudicate one of Plaintiffs' other claims. Because unjust enrichment is a matter of equity, the parties agreed that the Court alone would render a decision regarding unjust enrichment. The Court makes the following findings of fact and conclusions of law.

I. FINDINGS OF FACT

A. The Trust Agreement

1. In June 1955, Elizabeth Rodman Litchfield entered into a trust agreement with the Bank of New York.

2. As settlor, Elizabeth Rodman Litchfield placed in trust $28,000 and named her children, Elizabeth Lambie and Burnham Litchfield, as two of the beneficiaries.

3. The trust agreement named the Bank of New York as trustee.

4. The Bank of New York began managing the trust in 1955. From income generated by the trust, the Bank issued quarterly distributions to the beneficiaries.

5. In 1971, beneficiary Elizabeth Lambie passed away. Pursuant to the terms of the trust agreement, her son John Lambie assumed her role as a beneficiary of the trust. At that time, John Lambie began receiving quarterly distributions generated by the trust.

6. Today, John Lambie and Burnham Litchfield, the Plaintiffs in this case, are the only beneficiaries of the trust.

B. The Different Commission Rates

7. As trustee, the Bank of New York is entitled to earn commissions on the income generated by the trust. Article 9 of the trust agreement specifies the appropriate commission arrangement for the trust

For its services as the Trustee The Bank of New York shall receive compensation annually at the following rates: ½ of 1 percent per annum of the aggregate market value of the principal up to $50,000, plus ¼ of 1 percent per annum of any of such value in excess of $50,000; provided, however, in no event shall the annual compensation of The Bank of New York be less than $50. (Pls. Ex. 1, Art. 9.)

8. The Bank of New York serves as trustee for a number of trusts. With approximately 90% of the trusts that it manages, the Bank receives commissions based on the Bank's own "published rates schedules".

9. The commission arrangement in Article 9 of the Litchfield trust is unique and differs from the Bank of New York's published rates schedules.

10. The Bank refers to unique commission arrangements as "negotiated fees," which are found in approximately 10% of the trusts managed by the Bank. The Litchfield trust's commission arrangement is a negotiated fee.

C. The Overcharges

11. From June 1955 to May 1988, the Bank of New York withdrew commissions from the trust fund as prescribed by Article 9 of the trust agreement.

12. In 1988, the Bank of New York entered data relating to a number of the trusts that it managed into its computer system. Among the data compiled into the computer system was information regarding the Litchfield trust.

13. In May 1988, a computer operator employed by the Bank of New York made an error while entering into the Bank's computer system the mathematical formula for calculating commissions on the Litchfield trust. Rather than entering the negotiated fee specified in the trust agreement, the employee entered the Bank's usual commission rates according to the published rates schedules.

14. The Bank made an inadvertent, unintentional mistake.

15. Beginning in May 1988, the Bank began charging commissions against the income of the trust based on its published rates schedules as opposed to the negotiated fee found in Article 9 of the trust agreement. Consequently, the Bank mistakenly was overcharging commissions from the income generated by the trust.

16. Continuing to issue quarterly distributions to the beneficiaries, the Bank overcharged on its commissions each year. From May 1988 to May 1997, the Bank wrongfully withdrew a total of $16,206.39 from the trust's income, and $874.90 from the trust principal itself.

17. From May 1988 until May 1997, the overcharges went unnoticed by the Bank and the beneficiaries, John Lambie and Burnham Litchfield.

18. Relying on its computer system, the Bank continued to make an inadvertent, unintentional mistake from 1988 to 1997.

19. In May 1997, an employee of the Bank of New York realized the error that the Bank had been making for nine years. A trust officer and assistant treasurer with the Bank, Angela McCarthy conducted an audit of the Litchfield trust. During the audit, she discovered that since May 1988 the Bank had been overcharging the trust income and wrongly had withdrawn funds from the trust corpus.

20. Ms. McCarthy immediately notified Kevin Monahan, a vice president and senior trust officer of the Bank of New York. He instructed her to immediately reimburse the trust, notify the beneficiaries and pay to the beneficiaries what was taken wrongly from the trust.

21. Ms. McCarthy restored to the trust principal $874.90, credited the beneficiaries' bank accounts $16,206.39 (divided evenly between John Lambie and Burnham Litchfield) and sent letters to the beneficiaries explaining the error.

22. As soon as the Bank of New York realized the mistake it had made, it reported the error and returned the money.

23. On August 8th , 2000, the Court granted partial summary judgment on a separate count, a claim for breach of fiduciary duty. To compensate Plaintiffs for being dispossessed of the money for nearly ten years, the Court awarded interest on the funds taken from the trust. The Court ordered Defendant to pay Plaintiffs compounded interest of 9% per annum on the $874.90 taken from the trust corpus, and simple interest of 9% per annum on the $16,206.39 taken from the trust income.

II. CONCLUSIONS OF LAW

Unjust Enrichment

1. To prevail on a claim of unjust enrichment, a "plaintiff must show that (1) defendant was enriched (2) at plaintiff's expense, and (3) that 'it is against equity and good conscience to permit ... defendant to retain what is sought to be recovered'". Lake Minnewaska Mountain Houses, Inc. v. Rekis, 686 N.Y.S.2d 186, 187 (N.Y. App. Div. 1999) (quoting Paramount Film Distrib. Corp. v. State of New York, 285 N.E.2d 695, 698 (N.Y. 1972)).

2. A claim for unjust enrichment may be maintained when, in the absence of an agreement, the defendant possesses the plaintiff's money, and equity and good conscience demands that the plaintiff recover that money. See State of New York v. Barclays Bank of New York, 563 N.E.2d 11, 14 (N.Y. 1990) (unjust enrichment arises "in the absence of any agreement, when and because the acts of the parties or others have placed in the possession of one person money, or its equivalent, under such circumstances that in equity and good conscience he ought not to retain it..." (quoting Miller v. Schloss, 113 N.E. 337, 339 (N.Y. 1916))).

3. Because the Bank of New York reported its mistake to Plaintiffs and returned all of the money in question, and because the Court already has ordered the Bank to pay interest on those funds, there is no evidence that the Bank of New York has been enriched at the expense of Plaintiffs.

4. There is no evidence that the Bank of New York possesses any money which in equity and good conscience properly belongs to John Lambie and/or Burnham Litchfield.

5. In addition, Plaintiff's claim for unjust enrichment is based upon the commission arrangement established in Article 9 of the trust agreement. Such a claim for unjust enrichment is inappropriate because the claim is based on the breach of an agreement.

6. Thus, Plaintiffs fail with their claim of unjust enrichment.

SO ORDERED.

Dated this 14th day of September, 2000.

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