September 10, 2013
Authored by: Luke Lantta
Calculating damages in breach of fiduciary duty cases can be tricky business. The aggrieved trust beneficiary is going to make a claim that the trust assets should have (or would have but for the breach of duty) been invested in some high earning funds that beat the S&P, while the fiduciary is going to claim that a money market rate is the only reasonable measure of damages. In In re Harry Inge Baker & Jeanne C. Baker Trust dated August 9, 1988, the Minnesota Court of Appeals gives us some guidance on bridging that gap.
Trust assets were missing or otherwise inappropriately distributed by the trustees of a trust created by Harry Baker. A beneficiary (and later successor trustee) of that trust sued the estate of one of the former trustees of the trust (that trustee also having inappropriately received principal distributions from that trust). The plaintiff claimed that a 6% interest rate should apply as the lost-investment interest rate on the missing principal. The trial court, instead, awarded lost-investment interest rate damages calculated at 3.77%.
The plaintiff based her 6% calculation on a theoretical investment in a Franklin Fund because certain of the trust assets were held in that specific fund. The trial court, however, noted that the trust principal was held in several different funds and accounts, and “it is merely speculative that the principal would have been otherwise invested at all, much less in the Franklin Fund, and that it would have actually earned 6% given current market realities.” The trial court imposed a 3.77% interest rate, that it based on the average rate from an account where principal was being held.
The Minnesota appellate court determined that the trial court’s application of the lower lost-investment interest rate was not manifestly and palpably contrary to the evidence.