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Edelman v. Merrill Lynch Bank and Trust Co.

February 24, 2009

ALBERTO JOSE EDELMAN,*FN1 VIVIANA LEVY YEYATI, NATANIEL ALEJANDRO EDELMAN, AND SILVINA EDELMAN, PLAINTIFFS-APPELLANTS,
v.
MERRILL LYNCH BANK AND TRUST COMPANY (CAYMAN) LIMITED AND MERRILL LYNCH INVESTMENT MANAGERS, L.P., DEFENDANTS-RESPONDENTS.



On appeal from Superior Court of New Jersey, Law Division, Bergen County, No. L-7233-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 21, 2008

Before Judges Wefing, Yannotti and LeWinn.

Plaintiffs appeal from trial court orders granting motions by defendants Merrill Lynch Bank and Trust Company (Cayman) Limited ("Bank") and Merrill Lynch Investment Managers, L.P., ("Investment") to dismiss plaintiffs' complaint. After reviewing the record in light of the contentions advanced on appeal, we reverse and remand for further proceedings.

This litigation arises out of a revocable inter-vivos trust created in 1992 by Raquel Calles de Edelman, a resident of Argentina. She traveled to Florida to execute the trust documents, which named defendant Bank as trustee. Defendant Bank has no offices, employees or assets in New Jersey, and is not registered to do business in New Jersey.

The trust document provided that the trust, which was funded with a corpus of $3.5 million, was established under the laws of the Cayman Islands. It did not, however, have a clause setting the venue for any action against the trustee.

The terms of the trust called for the net income to be paid to Mrs. Calles de Edelman and also authorized the trustee to make principal distributions to her or on her behalf. It further provided that upon her death, the income was to be paid to or on behalf of her son Alberto Jose Edelman and his wife, Viviana Levy Yeyati, for their lives. The ultimate remaindermen were the children of Alberto and Viviana, grandchildren of Mrs. Calles de Edelman, and plaintiffs in this action.

The trust instrument provided that defendant Bank would manage and invest the trust in accordance with any written instructions it might receive from Mrs. Calles de Edelman or if it received none, as its sole discretion indicated. The trust instrument conveyed very broad powers upon defendant Bank with respect to investing and managing the trust assets.

In 1995, Mrs. Calles de Edelman appointed a three-person Advisory Committee to assist her in managing the trust and in 1996 she executed a written memorandum of her wishes that was delivered to defendant Bank. Pertinent portions of this memorandum provided:

Upon my death, you should continue to hold the trust fund upon trust for the benefit of my son Alberto Jose Edelman ("Alberto"), all of his children (at the time of this writing Alberto has one son, Nataniel Alejandro Edelman and one daughter, Silvina Esther Edelman), and for my son's wife, Viviana Levy Yeyati ("Viviana"), except that you should exclude Viviana if she is subsequently divorced or estranged from Alberto, or if she was divorced or estranged from Alberto at the time of Alberto's death. Upon my death, please provide for the medical care, health, maintenance, education, support, and general welfare of Alberto and his family. Considering that at present Alberto has other sources of income which should be sufficient for the needs of his family, it is my wish that some of the capital eventually be distributed to Alberto's children. Thereby, it is my wish that income disbursements to or for Alberto and his family be limited to thirty percent (30%) of the trust income (the remaining seventy percent (70%) of the trust income should be reinvested with the capital). As to any other disbursement of income or any capital disbursements, please consult with the Advisory Committee described below. In doing so, I ask that you take into consideration Alberto's and his family's other sources of income, their specific needs, and the need to maintain the trust for the long term period described herein. In other words, it is my wish that no income above thirty percent (30%) or any capital be distributed without prior approval from the below mentioned Advisory Committee. . . . . . . .

Please note that although Alberto is a physician dedicated to clinical research, he has never really had the responsibility of earning his own money for his support and that of his family since I have always subsidized the income and provided funds for his medical care. It is highly likely that Alberto and his family will require assistance and support in managing their household finances. It is mainly due to these reasons that I have established this trust to help ensure the possibility that there may always be funds available for the maintenance and general welfare of Alberto and his family. . . .

Upon the demise of the survivor of myself and Alberto, please continue to hold the trust fund upon trust for the benefit of Alberto's children in equal shares. You should continue to provide for their health, maintenance, support, education, and general welfare. Until each of Alberto's children attains the age of twenty-one (21) years please disburse funds for the benefit of such children directly to them or to their mother, Viviana.

Upon the demise of the survivor of myself and Alberto, please continue to maintain upon trust thirty percent (30%) of the trust fund for the benefit of Viviana during her lifetime so long as she was not divorced or estranged from Alberto at the time of his death. Please pay the income of this part of the trust fund to Viviana throughout her lifetime. You may also provide for Viviana's medical or other essential needs which may not be covered from other sources. Upon the death of Viviana, please distribute this part of the trust fund to Alberto's children or their respective lineal descendants per stirpes as each of them attains the age of thirty-five (35) years.

In regard to the remaining seventy percent (70%) of the trust fund, upon the demise of myself and Alberto, and as each of his children attains the age of twenty-five (25) years, please distribute outright and free of trust twenty-five percent (25%) of each child's respective share of this part of the trust fund to each of them. As each of his children attains the age of thirty (30) years, please distribute outright and free of trust, the remainder of each child's respective share of this part of the trust fund to each of them.

In light of those expressed concerns, the trust assets were conservatively invested. At the time of her death in 2000, the trust corpus was valued at $3.53 million and consisted solely of fixed-income securities. After her death, the Advisory Committee informed defendant Bank that Alberto and his family would require income of approximately $80,000 to $90,000 per year from the trust.

In addition, shortly following her death, responsibility for this fund within defendant Bank was transferred to the Isle of Man and the supervision of Alexandra Dillon, Regional Section Head, and Brian Hatton, Trust Manager. Dillon and Hatton, on behalf of Bank, opened an asset management account with defendant Investment, which is a limited partnership organized under New Jersey law and has its principal place of business in New Jersey. Dillon and Hatton informed the Advisory Committee that the trust's portfolio would be "following a balanced objective whereby the portfolio should grow over time and generate some current income with a moderate amount of risk."

By 2001, the portfolio suffered a precipitous decline in value. The record contains a letter from Dillon and Hatton to the Advisory Committee which confirmed that the account had suffered a 15.1% decline in value since Investment took over its management; the letter also indicated that Investment's asset allocation for the trust had been 65% in equities and 35% in fixed-income securities. The record before us contains a Merrill Lynch investment guideline, under which a portfolio managed with an eye to a moderate amount of risk would have 50% of its assets in bonds, 10% in cash and only 40% in stocks.

The Advisory Committee and defendants Bank and Investment engaged in a course of e-mails, exchanging their respective views on the situation. The record before us, by way of example, contains an e-mail from the Committee to Bank and Investment outlining its concerns.

We hope that we made our main point very clear: the fund was set up to take care of Alberto Edelman and his family. Doctor Edelman is a paranoid schizophrenic whose illness is kept under control through medication but who may necessitate hospitalization from time to time. He will never be able to work or manage his own affairs adequately. His wife also has a history of schizophrenia; and although she is able to function more normally, she also is in treatment. There are two children aged 10 and 7. From the very beginning, it was intended that the fund should be managed conservatively, i.e. with minimum risk investments, so as to ensure that there would always be sufficient funds for the family's needs. . . .

When the letter of intent was drawn up and signed by Alberto's mother, there was, as she says, sufficient local income to cover all his living expenses. She contemplated withdrawals from the fund to cover extra expenses he might have, plus the cost of any extra medical treatment he might need. She hoped that he would not have to withdraw the total amount of interest earned, nor touch capital except in case of emergency. Her hope was that in this way her grandchildren would eventually receive a sum more or less equivalent to the initial capital of the Fund adjusted for inflation. The Fund was set up because she knew that neither ...


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