By JAMES FINK
jfink@bizjournals.com | 716-541-1611

The widow and heirs of former Buffalo Sabres owner Seymour H. Knox III have won a decision against HSBC Bank USA N.A. that could see the family collect $25.6 million.

New York Surrogate Court Judge Barbara Howe made her ruling on Thanksgiving eve covering seven separate trusts, one of which dates to 1957 and was founded and funded by Seymour H. Knox II - father of Sabres founders Seymour H. Knox III and Northrup Knox. The ruling refers only to trusts connected to Seymour H. Knox III, his widow and heirs.

The award is one of the largest in the history of the Surrogate Court's Western New York district.

HSBC Bank is planning an appeal, which may be heard early next year in the state Appellate Division in Rochester.

"We are not commenting on this matter other than to say that we are disappointed in the decisions and plan to appeal," said Neil Brazil, HSBC Bank vice president of public affairs.

At issue is how HSBC and its predecessor, Marine Midland Bank, handled the seven trusts, some of which were funded in 1957 with $100,000. The Knox family alleges the bank's trust department mismanaged the accounts, causing them to lose millions in potential income and investments.

Howe, in her Nov. 24 ruling, agreed.

"I upheld all objections, found that HSBC had negligently managed this trust and concluded that HSBC was liable for all damages as a result thereof," she wrote in her decision, according to court documents. "There is no question in this case, as my liability decision makes clear, that HSBC, as fiduciary of this trust, was derelict in the performance of its duties."

The court case, nearly four years in the making, included several weeks of testimony this year in downtown Buffalo. It pitted the Knox family against a financial institution with which it has deep ties.

"It was an extremely difficult decision to make (initiating the lawsuit)," said Seymour H. Knox IV, son of Seymour H. Knox III.

In the largest of the seven awards, Howe said the 1957 trust suffered $21.43 million in damages.

"It is almost unbelievable to have something like this happen to you," said Jean Knox, widow of Seymour Knox III. "Needless to say, I am very disappointed in HSBC Bank."

The family has roots with HSBC and Marine Midland Bank dating to 1926, when Seymour H. Knox and later Seymour H. Knox II were named to its board of directors. Northrup Knox was also a bank director and served as chairman of the Western New York division, following the path of his father and grandfather.

Seymour H. Knox III, because of his career as a stockbroker and financial adviser, was precluded from serving on the board of directors. He died in July 1996, just months before the Sabres moved into HSBC Arena. Northrup died two years later.

The Knox trust issue came to light when, by joint agreement, the family and bank decided to shift the investments away from HSBC. By law, the Surrogate Court appointed legal counsel to review the trusts.

Hodgson Russ LLP partner Daniel Oliverio and Amherst attorney Brad Stamm were named guardian ad litem for trust accounts for the grandchildren of Seymour H. Knox III. Attorneys Donald McGrath and Dennis Cleary, a partner in Duke Holzman Photiadias & Gresens LLP, were retained to represent Jean Knox and her children. Hodgson Russ partners John Sinatra and Britta Lukomski were part of the team that represented Seymour H. Knox III's grandchildren.

"The more we looked, the more we uncovered," Oliverio said, adding that the focus of their investigation was solely on the seven Seymour H. Knox II trusts.

In addition to the $21.43 million awarded to the 1957 trust, Howe awarded $2 million to the Seymour H. Knox IV Trust and $484,000 for a marital trust created for Jean Knox. Also awarded was $800,000 for Seymour H. Knox III's grandchildren and $800,000 to three other Knox-related trusts.

"I don't really feel vindicated today," Seymour H. Knox IV said. "The outcome has been very fortunate, to be sure. Never in my wildest dreams did I think we'd get that outcome, but I also know there'll be a lot of peaks and valleys with this. And we're still in the middle of it until all the appeals are heard. This entire case has been the source of a lot of stress and strain on our family."

Oliverio said some of the appeals process could be completed next year.

"This whole case is truly unfortunate for everyone involved," he said. "This is not something anyone relishes. It is unfortunate for the Knox family. It is unfortunate for the bank. No one is taking any pleasure in this or its outcome."