Lawsuits over the management by past Quincy officials of a 192-year-old trust established by former president John Adams have frustrated current city officials to the point of taking action to get out of the trustee business altogether.
The state’s highest court recently affirmed a lower court’s ruling that the city of Quincy, in its role as trustee, mismanaged the fund in several ways, including inadequate bookkeeping and selling related property for less than fair market value.
However, the Supreme Judicial Court remanded a judgment against the city for a portion of the $3 million in damages awarded to The Woodward School, a private school for girls and the sole beneficiary of the trust, ordering the matter back to Norfolk Probate and Family Court to be recalculated.
The July 23 decision comes just five months after the city, along with the Quincy Historical Society, was hit with yet another lawsuit filed by the court-appointed successor of the Adams Fund, alleging further mismanagement by the city for entering into a 50-year lease in 1972 with the historical society allowing it to rent the Adams Academy Building for only $100 a month.
Woodward School spokesman Thomas Wesner, a former headmaster, said the school is grateful that the court agreed the trust has been financially mismanaged. He said the city’s contributions to the school from the fund, which is used for tuition scholarships, have decreased from $25,000 annually to $3,000-$4,000.
“To be validated by the state’s highest court in a 50-page ruling that spoke to all the fiduciary duties that were breached is complete validation of the school’s position,” Wesner said. “Once the court ordered a forensic accounting, the horse was out of the barn and it revealed all the irregularities.”
The city introduced the school as the beneficiary of the Adams Fund in 1953. The school’s board of trustees filed a complaint against the city in 2007, two years after complaining of receiving smaller-than-anticipated annual payments and getting no documentation from the city explaining why. School officials claimed the city owed as much as $10 million in lost income and interest.
‘When this particular decision came down, one of the first things we talked about is why are we even in the business of serving as trustee?’
Boston attorney James R. DeGiacomo, the court-appointed trustee, said he was pleased the Supreme Judicial Court upheld the 2011 ruling finding the city liable for financial mismanagement of the trust despite rejecting the way the lower court calculated damages.
“The overarching finding is that the city of Quincy breached its fiduciary duty as trustee of the Adams Fund and therefore is responsible and liable for damages,” DeGiacomo said. “The calculation of the damages was the only issue that was reversed. We know there’s going to be damages, because the court has found that they were at fault.”
City Solicitor James S. Timmins said the city is disappointed that most of its appeal arguments were rejected, but “we were very happy that the SJC vacated that damage award that had been entered, because we thought it was wrong and extraordinarily expensive.
“When this particular decision came down, one of the first things we talked about is why are we even in the business of serving as trustee for these private funds?” he said. “People would leave money and name the city as a trustee, and [now] we started moving forward dissolving them. There’s no upside for the city to [continue to] do that.”
In reversing the $3 million award, the justices ruled that the lower court erred in calculating damages using hypothetical unrealized gains based on specific diversification investment advice Quincy officials sought, but did not heed, from a bank in 1973. Despite the lack of growth in the fund, which includes an additional smaller bequest by the president’s grandson, between 1953 and 2008, the Supreme Judicial Court ruled that a trustee is not obligated to follow investment advice.
“Therefore, an award of damages cannot be based solely on what the trust’s investment portfolio performance would have been had the trustee complied with certain, specific advice,” read the ruling. “Such reliance on a potential investment portfolio necessarily and improperly employs the benefit of hindsight.”
The ongoing dispute surrounding the trust shows no signs of letting up as the city prepares for a lawsuit brought against it and the Quincy Historical Society by DeGiacomo following up on the initial finding of the trial judge that among Quincy’s financial missteps was leasing the trust’s only remaining real property, the Adams Academy Building, to the nonprofit organization for $1,200 a year until 2022.
In 1972, the city sought and received authorization from the Supreme Judicial Court, as well as approval from the then-state attorney general, to enter into a 50-year lease with the Quincy Historical Society allowing the organization to pay $100 a month in rent at 8 Adams St.
The problem, DeGiacomo argues, is that officials at The Woodward School, as the sole beneficiary of the trust’s profits, were never formally notified of the proceedings and were not aware of the existence of the lease until the school began complaints against the city.
In court documents, lawyers for the society argue that in addition to the agreed-upon rent, the nonprofit pays all taxes, water rates, sewer charges, and insurance with respect to the property to the tune of $670,000 over the course of the lease. Society officers also contend that they have spent at least $500,000 since 1975 making capital improvements to the property and argue that they helped elevate the value of the building by advocating for its successful placement on the National Register of Historic Places and its designation as a National Historic Landmark.
In the documents, both the city and the historical society question the assertion that Woodward School officials were unaware of the existence of the lease for the past 40 years. In its counter claim, the historical society stated that while the Woodward School was not formally named in the lease proceedings, at least four school trustees were.
Wesner contends that at the time the lease was signed, the city was also the school’s trustee. The school became independent of the city in 1991, establishing its own board of trustees.
If the lease or the option to renew it is rescinded by the court, the society has asked to be reimbursed by the Adams Trust for the value they say they added to the Adams Academy building over the years.
Until 1907, Adams Academy was a private all-boys school directly benefiting from the Adams Trust. For the five decades after the school closed, income from the trust supported the Quincy High School library and the president’s crypt. In 1953, the city moved to name Woodward, the sister school to Adams Academy, as the sole beneficiary.
“We also believe they’ve been aware of what’s going on, so it’s not fair to claim in 2014 that they didn’t know,” said Timmins, the city solicitor.
“We’re disappointed we’re being put in a defensive position regarding assets John Adams regarded to be important public assets entrusted to Quincy.”Katheleen Conti can be reached at email@example.com. Follow her on Twitter @GlobeKConti.