Shriners Hospital for Crippled Children v. Gardiner
152 Ariz. 527, 733 P.2d 1110 (1987)

  • Laurabel established a trust. It gave life income to her daughter, Mary Jane, her grandchildren Charles and Robert, and her daughter in law Jean. After they all died the money was to go to Shriner’s Hospital.
    • The will named Mary Jane as the trustee, Charles as the first alternate trustee and Robert as the second alternate.
  • Mary Jane didn’t know much about investing, so she put all the money in a brokerage account and allowed Charles (who was a stockbroker) to oversee all the investment decisions.
    • Charles made the decision to embezzle over $300k of trust assets!
  • Shriner’s sued Mary Jane for breach of fiduciary duty.
  • The Trial Court found for Mary Jane. Shriner’s appealed.
  • The Appellate Court reversed. Mary Jane appealed.
  • The Arizona Supreme Court vacated the Appellate Court’s decision and remanded for a new trial.
    • The Arizona Supreme Court found that Mary Jane had breached her fiduciary duties.
      • Under the Prudent Investor standard, a trustee is required to manage the trust as a ‘prudent investor’ would. While the Court agreed that a prudent investor would seek out expert advice, Mary Jane gave 100% control to Charles and made no decisions herself, which was not prudent.
        • See Restatement of Trusts § 227.
      • The Court found that a trustee cannot delegate her investment authority, even to an alternate trustee.
    • The Arizona Supreme Court found that there was still a question as to whether Mary Jane’s actions were the proximate cause of the loss.
      • If Charles had lost the money through bad investing, then Mary Jane would certainly be at fault.
      • However, if Charles simply stole the money, then Mary Jane’s delegation of authority was not the proximate cause.
      • The Trial Court failed to adequately investigate how the money was stolen and whether Mary Jane was partially at fault for the embezzlement. Therefore the case was remanded for trial to determine questions of fact related to the relative culpability of Charles and Mary Jane.
    • The Court found that if Mary Jane was found liable for the embezzlement, then all the trustees, Robert included, should be removed and a neutral trustee appointed.
  • The basic rule is that you can delegate investment authority, but you must continue to oversee the accounts to make sure that the money is being invested properly.