PROVIDENCE — A state Superior Court judge this week refused to toss out key elements of a lawsuit that accuses millionaire developer Arnold B. “Buff” Chace Jr. of self-dealing from a family trust, setting the stage for a trial as early as this spring.
The lawsuit involves one of the state’s richest families, which began building its fortune with textile mills and benefitted when Warren Buffett took control of the family’s struggling textile company, Berkshire Hathaway, in 1965, transforming it into a multinational conglomerate.
Malcolm G. “Kim” Chace III, one of the state’s leading philanthropists and businessmen, died in 2011, at age 76, after naming his nephew, Buff Chace, and his stepson, William Saltonstall, as trustees of an $80 million trust.
In 2021, Kim Chace’s oldest son, Malcolm G. Chace IV, and other family members filed a lawsuit seeking to remove them as trustees and accusing Buff Chase of enriching himself by investing trust assets in real estate deals in downtown Providence.
This week, Superior Court Judge Brian P. Stern issued a 32-page decision, saying more facts are needed before deciding whether Buff Chase and Saltonstall engaged in “divided loyalty transactions” and should be removed as trustees.
“It is not clear that the trustees were able to remove their personal interests from these transactions and acted solely in the interest of the beneficiaries,” Stern wrote. “Without more information, the court cannot conclude as a matter of law that all of the transactions with the real estate ventures at issue do not constitute a breach of the duty of loyalty.”
Robert Clark Corrente, a former US Attorney representing Malcolm Chace, said Buff Chace tried “short-circuit the trial and prevent any scrutiny into their glaring conflicts of interest and self-dealing.”
But Stern’s ruling “soundly rejects this effort on nearly every point, and reaffirms that these matters will be fully considered and decided at a public trial,” Corrente said. “We are ramping up our trial preparations, and we look forward to getting the trial scheduled at the court’s earliest convenience.”
Matthew T. Oliverio, an attorney representing Buff Chace, did not immediately return a request for comment.
In court filings, defense lawyers argue that Buff Chace’s investments in the revitalization of downtown Providence are in keeping with Kim Chace’s vision, and they say the trust granted Buff Chace and Saltonstall the “broadest discretionary powers of investment, reinvestment and management” decisions over the trust.
The plaintiffs contend that the trust’s grant of broad discretion didn’t allow for the trustees to self-deal.
“Buff had a substantial personal interest in all of the entities and used (trust) assets to help him achieve certain goals,” Stern wrote. “Although the court agrees that the (trust) eventually obtained ownership interest in all of the entities at issue, possibly benefited from certain tax subsidies, and that the beneficiaries did not point to any substantive harm to themselves or the (trust), the no-further-inquiry rule only requires a transaction to be disloyal to be avoided.”
The judge explained that the “no-further-inquiry rule” of trust law allows a beneficiary to void a transaction without needing to prove that a trustee acted in bad faith. And, he wrote, “The law does not require the transaction to be unfair or for beneficiaries to suffer a loss for a breach of the duty of loyalty to exist.”
Stern also refused to toss out a section of the lawsuit that claims the trustees failed to provide the trust beneficiaries with an accounting of the transactions.
Rhode Island law contains no requirement to file an accounting in the court with jurisdiction over the trust, but after “a reasonable request” from the beneficiaries, trustees must provide “complete and accurate information as to the nature and amount of the trust property, the judge wrote.
“Because the court finds that defendants owed plaintiffs a duty to provide accurate accounting of (trust) investments, the court determines that an issue of fact exists,” Stern wrote, meaning that issue should be addressed at trial.
Stern did dismiss a section of the lawsuit that accuses the trustees of a “breach of the duty of impartiality” by allegedly favoring Kim Chace’s widow and second wife, Elizabeth Z. “Liz” Chace. “While plaintiffs argue that animosity clouds trustees’ judgment, they present no evidence that the trustees managed trust assets in a way that favored Liz at the expense of other beneficiaries,” he wrote.
But the judge has not ruled on another lawsuit, which claims Kim Chace’s will was improperly changed days before he died in 2011, resulting in $4.8 million in “unjust enrichment” for Liz Chace.
That lawsuit claims that in May 2011 Kim Chace was battling a highly malignant brain tumor and when he went into the hospital for brain surgery, his will provided his then-wife, Liz Chace, with $400,000 each year for the rest of her life. But in June 2011, his will was changed to double that annual amount to $800,000. The lawsuit claims Kim Chace lacked the capacity to change his will at that point “and/or” he was “unduly influenced” when the change was signed on his behalf.