U.S. Trust Co. won a key decision Thursday in the long-running and highly embarrassing battle over its handling of the $1.2 billion estate of tobacco heiress Doris Duke.

New York's top court ruled that a lower court judge erred when she removed U.S. Trust as co-executor of the estate, and ordered her to reconsider the case.

The ruling by the state court of appeals reinstates U.S. Trust as co- executor, pending a hearing by surrogate court Judge Eve M. Preminger. The hearing has not yet been scheduled, a surrogate court clerk said.

For U.S. Trust, the decision is the first big break in a case that has tarnished its image for many months. The New York-based bank, founded in 1853, has long prided itself on its discreet dealings with upscale clients. And the Duke estate is an important chunk of its business, representing about 3% of U.S. Trust's managed assets.

U.S. Trust said in a prepared statement that it was very pleased with the outcome. "We have always maintained that we have handled our fiduciary responsibilities for the Duke estate with professionalism and integrity."

Industry observers said the decision is a clear boost for the bank. "A hearing will allow them to present facts that might exonerate them and put them in a better light," said Donald W. Smith, a banking attorney with Kirkpatrick & Lockhart in Washington.

The crux of Thursday's 7-0 ruling, penned by state appellate Judge Vito J. Titone, was that Judge Preminger erred by removing U.S. Trust from the estate last May without a hearing.

"The surrogate may remove without a hearing only where the misconduct is established by undisputed facts or concessions," Judge Titone wrote. That condition was not satisfied, Judge Titone said, because the lower court ruling relied heavily on findings of a much-disputed report by Richard H. Kuh.

Mr. Kuh, a former New York district attorney, was appointed by the lower court to investigate alleged misconduct on the part of numerous players in the estate. A key finding of his report, cited by Judge Preminger in her removal order, was that U.S. Trust had extended nearly $1 million in loans to co-executor Bernard Lafferty - the late Ms. Duke's one-time butler - even though he had no independent means of repaying them.

In overturning the lower court, Judge Titone said U.S. Trust and Mr. Lafferty, who was also removed as co-executor, had "persistently disputed the disclosures contained in the (Kuh) report and sought an opportunity to defend themselves."

Industry lawyers said Judge Preminger's decision to remove U.S. Trust without a hearing was a serious error.

In doing so, the judge denied U.S. Trust "the opportunity to show that the loans were proper and not intended to gain a benefit from the estate," said a Chicago-based lawyer, who did not want his name used.

But a hearing does pose a downside risk for the bank, this lawyer said. "It'll put them more in the spotlight while doing that. There will be a hearing on why did they make the loans."

Edward S. Schlesinger, a prominent New York trust and estates attorney, said he was not surprised by the outcome.

"It seemed to me that removal of the executors without a hearing was patently unfair because no assets of the estate were in jeopardy," he said.

Mr. Schlesinger did admit some partiality in the matter: U.S. Trust handles his parents' estate, and he routinely refers clients there.

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