U.S. Trust Will Duke It Out In Bid to Remain Executor

It's showdown time for U.S. Trust Corp. in its bid to stay on as an executor of the estate of tobacco heiress Doris Duke.

The banking company, its reputation tarnished by its dismissal last month as preliminary co-executor of the $1.2 billion estate, was headed for court today to plead for reinstatement.

In a hearing scheduled to start at noon, the Appellate Division of the New York Supreme Court will review a lower court's decision to fire U.S. Trust as co-executor.

Briefs filed at the court suggest that U.S. Trust is in for a fight. The bank's arguments that it acted in the best interests of its client will be hotly contested by a number of parties - including Morgan Guaranty Trust Co., which is waiting in the wings to take over as co-executor.

Chemical Banking Corp. and Bank of New York Co. have also taken an interest in the proceedings. Those companies - which had been named fiduciaries in 199 and 1992 - have filed affidavits in support of a challenger to Ms. Duke's April 1993 will.

The hearing will also have something of a sideshow quality. Three of Ms. Duke's former household employees have claimed U.S. Trust was an "eyewitness" to a series of sordid events they say contributed to the October 1993 death of one of the world's richest women - an allegation that the banking company firmly rejects.

And the three have fingered Bernard Lafferty - Ms. Duke's former butler and U.S. Trust's co-executor - as a party to the murky circumstances surrounding Ms. Duke's death.

But the most direct threat to U.S. Trust's position as co-executor will come from Morgan Guaranty.

In a brief submitted to the court in advance of today's hearing, Morgan Guaranty argued that U.S. Trust has "received more process than is due a fiduciary" in the Duke case and that its quick removal was "justified."

The brief lists 11 items that U.S. Trust has yet to address on Ms. Duke's estate, including tax returns, "unusual gifts made shortly before her death, and the need to admit a will to court. U.S. Trust has maintained that its work as co-executor is essentially completed.

Morgan Guaranty also maintained that U.S. Trust's investment strategy for the estate over the last 18 months ought to be reviewed - a contention U.S. Trust is likely to dispute.

U.S. Trust will also find itself in the middle of some sensational claims. Much of the drama at today's hearing is expected to come from the three members of Ms. Duke's former household staff, including her cook, who are arguing for the removal of both co-executors.

The three employees - Ann Bostich, Mariano De Velasco, and Colin Shanley - accuse U.S. Trust of covering up a host of misdeeds by Mr. Lafferty.

Ms. Duke's physician has acknowledged administering a large dose of morphine to end the dying woman's pain, giving rise to the employees' accusations that the death was planned.

"U.S. Trust and Lafferty, through counsel, had perpetrated a massive fraud on the court with respect to Lafferty's mental condition, with respect to the circumstances of Doris Duke's death, and with respect to the hiring and intimidating (of) illegal aliens," a brief filed last week by the employees said.

In removing U.S. Trust as preliminary co-executor last month, Manhattan Surrogate Court Judge Eve M. Preminger criticized Mr. Lafferty for reckless spending at the estate's expense - and maintained that U.S. Trust had facilitated his spending spree by extending loans that were unlikely to be repaid.

The judge replaced U.S. Trust and Mr. Lafferty with Alexander D. Forger, a well-known trust lawyer, and Morgan Guaranty - which apparently was initially interviewed by both Ms. Duke and Mr. Lafferty before losing out to U.S. Trust.

The testimony of Harry B. Demopoulos, another of Ms. Duke's former physicians, promises to be nearly as dramatic as the domestics'.

Dr. Demopoulos, who was named executor in a 1991 will and who has been fighting for a chance to contest the April 1993 document, will be arguing that U.S. Trust had "an affirmative duty to stop" Mr. Lafferty from violating his duties as fiduciary.

"By way of example only, U.S. Trust knew that Lafferty was living like the lord of the manor, occupying and redecorating Duke's homes, using her servants for his personal benefit," Dr. Demopoulos' brief said.

Dr. Demopoulos is separately trying to block the proposed April 1993 will and is awaiting a decision on whether he has standing to challenge the will. Named a co-fiduciary with Chemical in a 1991 codicil, he stands to gain about $25 million in fees if that will is ever admitted in court.

U.S. Trust, defended by Thomas D. Barr of Cravath, Swaine & Moore, will be poised to deny all allegations.

In a brief filed Monday, the bank denies all the allegations and disputes the findings of Richard Kuh, a former New York prosecutor assigned to look into the charges.

Moreover, U.S. Trust will argue that legal precedent will not allow for its removal, given that endangering Ms. Duke's estate is the only grounds for that final action.

Moreover, U.S. Trust is hoping that the appellate court will either assign the case to Judge Preminger's colleague, Judge Renee R. Roth, or in the worst case scenario, impose a fine on the bank while leaving it as co- executor.

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