The Woodward School for Girls, Inc. v. City of Quincy
469 Mass. 151
| Mass. | 2014Background
- John Adams (1822) established the Adams Temple and School Fund; Charles Francis Adams added funds in 1886. The City of Quincy served as trustee; Woodward School has been the sole income beneficiary since 1953.
- The trusts were authorized by later acts (1827, 1898) that appointed municipal officers to manage the Funds and permitted sale of real estate and reinvestment of proceeds.
- By 1973 the Adams Fund was heavily weighted to fixed-income (≈90% bonds); Quincy solicited and received diversification advice from South Shore National Bank recommending a roughly 60% equity / 35% fixed income / 5% cash allocation, but Quincy never implemented that plan and by 1990 the Fund was nearly entirely fixed-income.
- Woodward sought an accounting in 2005 after lower-than-expected distributions; a special master and a Probate judge found multiple management failures (poor records, below-market real estate sales, failure to follow investment advice) and concluded Quincy breached fiduciary duties.
- The Probate judge removed Quincy as trustee and awarded Woodward ≈$2.99 million (including about $1.14 million for unrealized portfolio gains and ~$1.61 million prejudgment interest). Quincy appealed; SJC affirmed liability but reversed the unrealized-gains calculation and remanded for recalculation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Quincy breach fiduciary duty by maintaining a near-100% fixed-income portfolio for a charitable, perpetual income trust? | Woodward: Trustee should have balanced income and preservation/growth of principal to protect income in perpetuity; failure to guard against inflation was imprudent. | Quincy: As an income-only trust trustee should prioritize current income even at expense of growth; bonds were appropriate and consistent with trust terms. | Held: Quincy breached its duty. For a charitable perpetual income beneficiary, trustee must consider both income and protection/appreciation of principal (Prudent Investor standard). |
| Is a trustee required to follow specific investment advice it solicited? | Woodward: Failure to heed the bank’s 1973 diversification advice is evidence of imprudence. | Quincy: Trustee need not follow advice; it retained discretion and may reasonably have followed portions of the advice. | Held: Trustee is not required to follow specific advice; reliance on advice is a factor but not dispositive. The judge erred to the extent he treated noncompliance with advice as per se breach. |
| Were damages properly calculated by using a hypothetical 60-35-5 portfolio from 1973 to compute unrealized gains? | Woodward: Calculations based on expert testimony about the 60-35-5 portfolio give a reasonable basis for lost appreciation. | Quincy: Using hindsight and a single hypothetical portfolio is improper; damages must reflect what a prudent investor would have done considering entire context. | Held: Reverse. The award based solely on the unimplemented 1973 advice was erroneous. Damages for unrealized gains must be redetermined using an analysis of what a prudent investor would minimally have done (range of prudent strategies), with expert support. |
| Does sovereign immunity / the Massachusetts Tort Claims Act bar Woodward’s tort claim for breach of fiduciary duty? | Woodward: Quincy assumed trustee role and thus implicitly waived sovereign immunity; Tort Claims Act limits do not apply. | Quincy: Breach of fiduciary duty sounds in tort, so presentment and other Tort Claims Act requirements should bar or limit recovery. | Held: Quincy waived sovereign immunity by accepting and legislatively-affirmed duties as trustee; Tort Claims Act defenses do not bar this action. |
| Does laches bar Woodward’s claim for breaches occurring decades earlier? | Woodward: No actual notice until 2005; no laches. | Quincy: Constructive notice existed earlier; delay prejudiced Quincy (lost witnesses). | Held: Laches requires actual knowledge and prejudice; constructive knowledge is insufficient. No laches bar. |
Key Cases Cited
- Harvard College v. Amory, 9 Pick. 446 (articulating early prudent-investor principles)
- Chase v. Pevear, 383 Mass. 350 (discussing diversification and evaluating investments in context of entire portfolio)
- Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501 (clear-error standard for review of trial findings)
- Lattuca v. Robsham, 442 Mass. 205 (laches in fiduciary-context requires actual knowledge)
- Berish v. Bornstein, 437 Mass. 252 (beneficiary entitled to be placed in position had no breach occurred; remedies for breach of trust)
- McEvoy Travel Bureau, Inc. v. Norton Co., 408 Mass. 704 (purpose and nature of statutory prejudgment interest)
Disposition: Judgment as to liability affirmed; remanded to recalculate unrealized-gains damages (and related prejudgment interest) using a proper prudent-investor analysis and supporting expert evidence.