Robert H. Jackson

“ The most effective sanction for good administration is personal liability for the consequences of forbidden acts, and there are ways by which a trustee may effectively protect himself against personal liability.
The practice is well established by which trustees seek in structions from the court, given upon notice to creditors and interested parties, as to matters which involve difficult questions of judgment. In this particular matter, it is claimed that the special knowledge of Miss Johnson and Kulp was indispensable to the trustee. ”

“ If people were willing to trudge to the trustee's office to dispose of their holdings for less than his offer, there is no reason why the advantage of that low price should not have been taken by the trustee. Instead, in his own office, Miss Johnson intervened between the seller and the buyer and made a profit for herself by doing so.
In one of the larger transactions, a block of securities was offered at judicial sale. Darrow did not bid but Miss Johnson did. About one-half of the purchase price she obtained through a resale to Darrow. ”

“ It is argued, and the Court of Appeals appears to have been impressed by the argument, that this surcharge creates a very heavy liability upon a man who enjoyed no personal profit and must be condoned "so as not to strike terror into mankind acting for the benefit of others and not for their own." ”

“ It is contended, however, that the trust has incurred no loss. Indeed, it is argued, and much evidence was taken to the effect, that the buying program of Darrow as a whole was to the advantage of the trust. Of course, these dealings in a rising market did not directly extract any amounts from the till of the trustee. But it is obvious that a buying program to retire at discount bonds of subsidiaries advances most rapidly and achieves its greatest results when the purchase prices are lowest. Darrow concededly relied on Miss Johnson in fixing offering prices. ”

“ The motives of man are too complex for equity to separate in the case of its trustees the motive of acquiring efficient help from motives of favoring help, for any reason at all or from anticipation of counterfavors later to come. We think that which the trustee had no right to do he had no right to authorize, and that the transactions were as forbidden for benefit of others as they would have been on behalf of the trustee himself. ”

“ Trustees are often obliged to make difficult business judgments, and the best that disinterested judgment can accomplish with foresight may be open to serious criticism by obstreperous creditors aided by hindsight. Court are quite likely to protect trustees against heavy liabilities for disinterested mistakes in business judgment. ”

“ The principal question here concerns personal liability of a reorganization trustee who, although making no personal profit, permitted key employees to profit from trading in securities of the debtors' subsidiaries. Upon a long record, controlling facts have been found with little disagreement.
In 1935, the United States District Court appointed respondent Darrow as reorganization trustee for two common-law trusts. ”