On July 1, 2022, the U.S. Court of Appeals for the Third Circuit issued an opinion in favor of an HDRB&B client in a long-running hybrid corporate and trust litigation, reversing in part summary judgment that had been entered by the district court in the District of New Jersey. The case presented a question of first impression regarding a conflict between corporate law and trust law, and the Third Circuit adopted HDRBB’s argument that corporate directors who are also trustees of a trust that owns a controlling share of the company are subject to the stricter standards set out in the New Jersey Uniform Trust Code, over the more flexible standards generally applicable to corporate directors.
The Third Circuit held that although courts will generally not second guess corporate directors when a transaction is found to within the scope of the business judgment rule, if those corporate directors are also trustees of a trust, they must adhere to the higher standards of the trust law. This decision highlights an issue that clients and attorneys in the closely held business context should keep in mind, both in structuring business entities and estate plans, as well as in litigation. The case is Steven Jemison v. Michael Jemison, et al., No. 21-1805, 2022 WL 2383611 (3d Cir. July 1, 2022). The appeal was briefed by HDRB&B attorneys Paul S. Doherty, III, Jeremy B. Stein, and Janel Alania.