Opinion
No. 16–P–348.
11-02-2016
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The defendants appeal from three judgments of the Probate and Family Court. On a complaint in equity alleging undue influence and breach of fiduciary duties, a reinstated judgment, dated June 1, 2015, (equity judgment) entered requiring the defendants to transfer certain funds and real property interests to Alice Migell (defendant Andrew B. Migell's mother) or to the estate of Bruce A. Migell (the deceased husband of Alice and father of Andrew). On a complaint for criminal contempt, a judgment entered against each defendant. Andrew was sentenced to forty-five days' imprisonment; his wife, defendant Kai Sun, was sentenced to perform 200 hours of community service. We reverse in part the equity judgment, and we affirm the contempt judgments.
The original judgment on the equity complaint was vacated when the defendants filed a bankruptcy petition. Upon dismissal of the bankruptcy petition, the judgment was reinstated.
1. Background. The plaintiff filed the equity action in 2009 alleging that, with respect to a series of real property transactions, the defendants had exercised undue influence, breached fiduciary duties to Alice Migell, and been unjustly enriched, to the detriment either of Alice or of Bruce's estate from which Alice as surviving spouse would have benefited. The plaintiff sought to void certain of the transactions, obtain accountings and repayment of the proceeds of others, and remove Andrew as trustee or fiduciary with respect to any of Alice's interests. After a 2013 trial, the judge entered the equity judgment awarding relief substantially as requested.
For clarity, we refer to all parties using their first names.
While the equity action was pending, the plaintiff filed a separate action seeking restitution of fees and expenses he had incurred on behalf of Alice due to the defendants' conduct. After a 2012 trial, the same judge entered a 2013 judgment ordering the defendants to pay restitution and enjoining them from transferring or encumbering any real property in which they had an ownership or beneficial interest. A panel of this court affirmed that judgment in an unpublished decision. O'Regan v. Migell, 85 Mass.App.Ct. 1102 (2014). Thereafter the plaintiff filed a complaint for criminal contempt, alleging that the defendants had violated the judgment's injunctive provision by recording a declaration of homestead on one property and by transferring the beneficial interest in another property. After a 2015 trial, a different judge found both defendants guilty of contempt and imposed the sentences.
2. Equity judgment. We discuss in turn each of the properties as to which the equity judgment granted relief.
a. 17 Wyola Road, Hull. The judge found that Andrew exercised undue influence in causing Alice, in 2005, to convey this property from herself to Andrew and herself as joint tenants with rights of survivorship. Having carefully reviewed those detailed findings, as well as the elements of undue influence, see Rostanzo v. Rostanzo, 73 Mass.App.Ct. 588, 604–605 (2009), we discern no clear error. The property having been partitioned and sold prior to trial, the judge correctly determined that Andrew was not entitled to any of the sales proceeds.
We reject the defendants' argument that the judge, in finding undue influence as to the 2005 transaction, erred by considering evidence of two other transfers of property from Alice to Andrew in 2006, without Andrew ever having paid Alice the consideration stated in the relevant deeds. The judge found such evidence admissible and indicative of a plan by Andrew to obtain transfers of and control over Alice's property. “Subsequent bad acts” evidence is admissible to show a plan or pattern of conduct. See Commonwealth v. Source One Assocs., 436 Mass. 118, 128–129 (2002) (admitting such evidence in civil enforcement action); Commonwealth v. Crayton, 470 Mass. 228, 249 (2014) ; Commonwealth v. Centeno, 87 Mass.App.Ct. 564, 567 (2015). See also Mass. G. Evid. § 404(b) note (2016). We are not persuaded by the defendants' arguments that such evidence here was too remote in time from the 2005 transaction and was more prejudicial than probative. The judge's admission of this evidence was not an abuse of discretion, nor was her finding of such a plan or pattern clearly erroneous.
b. 215 Lakeshore Drive, Wayland. The judge found that the effective transfer from Bruce to Andrew of the beneficial interest in this property was the product of Andrew's undue influence over Bruce. She entered judgment declaring that Bruce retained legal title at the time of his death, so that the property remained in his estate. We agree, albeit on slightly different reasoning, that the property remained in Bruce's estate.
Prior to November, 2005, Andrew was a trustee of and Bruce was the sole beneficiary of the Mockingbird Nominee Realty Trust (trust). On November 9, 2005, Bruce transferred his beneficial interest in the trust to Andrew for no consideration. On December 16, 2005, Bruce transferred ownership of the Wayland property to the trust for nominal consideration, thus giving Andrew beneficial ownership of the property. Bruce died in January, 2006. By way of a subsequent deed, Andrew as trustee conveyed the property from the trust to Andrew and Kai Sun as tenants by the entirety for one dollar.
The judge's reference to the transfer as having occurred on November 5, 2005, is evidently a typographical error, as the parties both stated, and the transfer document shows, that it occurred on November 9.
We agree with the judge that the transfer of the beneficial interest in the trust from Bruce to Andrew was invalid. At the time of that transfer, Andrew as trustee owed fiduciary duties to Bruce as beneficiary. “[T]he fiduciary who benefits in a transaction with the person for whom he is a fiduciary bears the burden of establishing that the transaction did not violate his obligations.” Cleary v. Cleary, 427 Mass. 286, 295 (1998)(Cleary). See Rempelakis v. Russell, 65 Mass.App.Ct. 557, 563 (2006). This includes “the burden of proving the absence of undue influence.” Ibid. See Cleary, supra at 290–291. “The fiduciary can take precautions to ensure that proof exists that the transaction was fair and that his principal was fully informed, and he is in the best position after the transaction to explain and justify it. It is his burden to do so, whether or not he is in a family or other close relationship.” Id. at 293.
Andrew failed to appear at trial, and the judge found that Andrew's deposition testimony, admitted at trial, failed to meet his burden. There was no evidence of the circumstances of the transfer or of the intended benefit to Bruce. On this record, the judge's finding of undue influence was not clearly erroneous.
The result of the invalid transfer is that Bruce remained the sole beneficiary of the trust at the time he transferred the Wayland property to the trust. Upon Bruce's death, his beneficial interest was includable in his estate, which remains in a pending probate proceeding. And the defendants do not challenge the judge's finding that under Bruce's will, his property passed either to Alice or to a family trust of which Alice was a principal beneficiary. Therefore, Alice had a sufficient legally protected interest to confer standing upon her (and thus the plaintiff) to seek inclusion of Bruce's real property interests in his estate, without the estate itself being made a party.
The judge also found that undue influence voided the transfer to the trust of the property itself, leaving title to the property in Bruce's name and thus includable in his estate. That finding was clearly erroneous because, at the time of that transfer, Andrew was no longer a fiduciary as to Bruce; the burden was thus on the plaintiff to prove undue influence; and the plaintiff introduced no evidence that Bruce was “susceptible to undue influence,” Rostanzo, 73 Mass.App.Ct. at 604, at that time. The error is of little practical consequence, however, because the transfer of the beneficial interest in the trust from Bruce to Andrew was invalid. That interest, which encompassed Bruce's beneficial interest in the Wayland property, remained in Bruce's estate.
We reject the defendants' argument that Alice had no such standing. The judge correctly ruled that Alice had a cause of action against Andrew for tortious interference with an expectancy of receiving an inheritance or gift. See Labonte v. Giordano, 426 Mass. 319, 320–321 (1997)(Labonte); Monach v. Koslowski, 322 Mass. 466, 469–471 (1948). Such a claim has four elements. “The defendant must [1] intentionally interfere with the plaintiff's expectancy [2] in an unlawful way.... [3] The plaintiff must have a legally protected interest.... [4] The plaintiff must show that the defendant's interference acted continuously on the donor until the time the expectancy would have been realized.” Labonte, supra (citations and footnote omitted).
The trial judge found that each of these elements was present here and her findings were supported by record evidence. Andrew had a plan to obtain transfers of and control over property Alice owned or reasonably expected to inherit. See supra, note 5. Andrew's manner of interference was unlawful as to Bruce in that he exercised undue influence in obtaining the transfer to himself of the beneficial interest in the trust. See Labonte, supra at 321 n. 4. Alice's expectation of inheriting under Bruce's will qualified as a legally-protected interest. See id. at 320–21. Finally, under Cleary, supra at 290–295, the burden was on Andrew, as trustee, to show that the effect of his undue influence upon the transfer of the beneficial interest did not continue to operate until the time of Bruce's death in January, 2006. Andrew offered no evidence of the circumstances of the transfer (including that Bruce was ever fully informed of its effect) or of the intended benefit to Bruce.
Concluding that the beneficial interest in the Wayland property (but not legal title thereto, see supra note 7) remained in Bruce's estate, paragraph 3 of the judgment shall be amended.
c. Properties in Berlin, New Hampshire. The judge found that Bruce, using marital funds, had purchased two properties in Berlin, New Hampshire in 1997. Bruce took title to one property in the name of the trust; he took title to the second property in his own name, but using the trust address. The judge then determined that, due to the narrow timeframe for these purchases, the use of the trust address for both purchases, and Bruce's then-existing role as beneficiary of the trust, that Bruce treated both properties as existing in the name of the trust. The judge further found that in 2004, Andrew, in breach of his fiduciary duty as trustee, transferred these properties out of the trust without paying the full proceeds to the trust or to Bruce as beneficiary thereof. The equity judgment ordered the defendants to pay the full proceeds of both transfers to the personal representative of Bruce's estate.
On appeal, the defendants challenge the plaintiff's standing to seek inclusion of the proceeds in Bruce's estate. We reject this challenge for the reasons explained, supra, as to the Wayland property. The defendants also challenge the judge's calculation of the amount of the proceeds. That argument was not raised below and is therefore waived. See Palmer v. Murphy, 42 Mass.App.Ct. 334, 338 (1997).
d. 5 Timucuan Drive, Ormond Beach, Florida. The judge found that in May, 2005, Bruce used marital funds to purchase this property, with title taken in the names of Bruce and Andrew as joint tenants with rights of survivorship. The judge further found that the purchase occurred at a time when Alice had suffered significant deterioration in her mental and physical health and when Bruce's mental and physical health was “arguably in question.” The joint tenancy was uncharacteristic of both Bruce's and Alice's estate plans (which primarily benefited each other) and, but for the purchase as a joint tenancy, Alice would have received either the funds paid for the property or the property itself upon Bruce's death. Instead, upon Bruce's death in January, 2006, title passed to Andrew, who then rented the property to tenants and retained the proceeds.
The street name is spelled “Timicuan” in the judgment, but is spelled “Timucuan” in the decision, and the exhibits. We have adopted the latter spelling here.
The judge found that the joint tenancy was established in violation of fiduciary duties owed by Andrew to both Bruce and Alice. The equity judgment thus “restated” the deed to vest title in Bruce individually; the judgment further required Andrew to account for and pay to Bruce's estate all rental income from the property, and to pay all liabilities relative thereto, since the time of Bruce's death.
On appeal, Andrew challenges the ruling that he owed fiduciary duties to either Bruce or Alice with respect to this property. “Where the fiduciary relationship is not one created by law, the existence of the relationship ordinarily is a mixed question of law and fact for which the party asserting the relationship bears the burden.” Doe v. Harbor Schs., Inc., 446 Mass. 245, 252 (2006). When reviewing determinations of mixed questions, “we review the judge's subsidiary findings of fact under the clearly erroneous standard, while reviewing de novo [her] ultimate conclusion of law.” Vita v. Berman, DeValerio & Pease, LLP, 81 Mass.App.Ct. 748, 756 (2012) (internal quotations omitted). “Ordinarily, family relations do not suffice to create a fiduciary relationship that heightens scrutiny for fraud or undue influence,” although “these relations can become fiduciary if the decedent was dependent on the beneficiary in financial affairs.” Cleary, 427 Mass. at 292–293. See Collins v. Huculak, 57 Mass.App.Ct. 387, 394–395 (2003).
Here, the judge erred in ruling that Andrew owed fiduciary duties to either Bruce or Alice with respect to the purchase of the Florida property. With regard to a duty to Bruce, the existence of family relations alone does not suffice. That Andrew was trustee of the trust of which Bruce was beneficiary does not mean Andrew owed fiduciary duties to Bruce in transactions not involving the trust. Nor was there evidence that Bruce was dependent upon Andrew in financial affairs at the time of the purchase. With regard to a duty to Alice, neither the judge's decision nor the plaintiff on appeal articulates the basis on which Andrew's intrafamilial fiduciary duties could extend to this transaction.
To the extent the judge's statement that Bruce's mental and physical health was “arguably in question” at the time of the purchase was intended as an implicit finding of Bruce's susceptibility to undue influence, such a finding would be clearly erroneous. We have not been pointed to, nor can we find, any record evidence of Bruce's diminished capacity in May, 2005, eight months prior to his death. Accordingly, we need not pass upon the defendants' argument that it was error to admit Bruce's medical records in evidence; any potential error was of no consequence in light of the result we reach as to this property.
We do not see how Andrew was obligated to prevent or reject his father's decision to use marital assets in a manner that benefited the father's son (Andrew) rather than his spouse (Alice). To be sure, Alice may, at that time, have been dependent upon Andrew in certain financial matters, and she was subject to his undue influence in the disposition of the property in Hull. See ante at 3. But there was no finding, and we have not been pointed to evidence indicating, that at that time she was dependent upon Andrew in all financial matters—particularly those, such as the purchase of the Florida property, in which her own husband, Bruce, was centrally involved and had control of the funds used for the purchase.
Accordingly, we reverse those provisions of the equity judgment pertaining to the Florida property.
e. Kai Sun's liability. We reject the defendants' argument that there was no basis for the judge to enter the equity judgment against Kai Sun. Even if, as the defendants argue, Kai Sun was not directly involved in Andrew's wrongdoing, it would be unjust for her to retain any benefits from that wrongdoing. The equity judgment voided the transfer of the Wayland property from the trust to Andrew and Kai Sun as tenants by the entirety; made them responsible for all outstanding debts, liabilities, and encumbrances relative thereto; and made them responsible, by imposing a resulting trust in favor of Bruce's estate, for any sales proceeds attributable to the Wayland and New Hampshire properties. This did no more than prevent Kai Sun, along with Andrew, from being unjustly enriched by Andrew's actions to the detriment of Bruce's estate and thus of Alice. See Keller v. O'Brien, 425 Mass. 774, 778 (1997) (“Restitution is an equitable remedy by which a person who has been unjustly enriched at the expense of another is required to repay the injured party”).
Kai Sun properly does not argue that she was protected from liability by any status as a bona fide purchaser for value of the properties in question. Compare Rogers v. Barnes, 169 Mass. 179, 183–184 (1897) (“The law goes a great way in protecting the title of a purchaser for value without notice or knowledge of any defect in the power of the vendor to sell”); Bevilacqua v. Rodriguez, 460 Mass. 762, 777 (2011). Kai Sun and Andrew purchased the Wayland property from the trust for one dollar. And Kai Sun never purchased the two New Hampshire properties; rather, Andrew as trustee sold them to other persons or entities. The judge found that Andrew spent the proceeds of one sale, and that Andrew and Kai Sun more likely than not retained the proceeds of the other sale, for their personal use.
3. Contempt judgments. A different judge found the defendants in criminal contempt for violating the 2013 restitution judgment's provision enjoining them from transferring or encumbering any real property in which they had an ownership or beneficial interest. The defendants do not challenge the factual findings that, after that judgment entered, they recorded a declaration of homestead on the Wayland property and that Andrew transferred the beneficial interest in a property in Waltham from himself to Kai Sun and their daughter. Instead, they argue that these acts (1) did not violate the judgment's injunctive provision because they did no harm to the plaintiff; and (2) in any event were not found to be “wilful” violations, as required for a finding of criminal contempt. See Furtado v. Furtado, 380 Mass. 137, 150 (1980)(Furtado).
The judge's decision recited that the plaintiff bore the burden of proving, beyond a reasonable doubt, a clear violation of a clear and unequivocal court order. See Furtado, supra.
We reject the first contention. Unlike the remedial purpose of civil contempt, “[t]he purpose of criminal contempt ... is punitive: its aim is to vindicate the court's authority and to punish the contemnor for doing a forbidden act or for failing to act as ordered.” Sodones v. Sodones, 366 Mass. 121, 130 (1974). Birchall, petitioner, 454 Mass. 837, 848 (2009). Thus a finding of criminal contempt requires no proof that the violation harmed the party for whose benefit the order was entered.
In any event, both violations likely harmed the plaintiff here. The recording of the homestead under G.L. c. 188, § 3, while perhaps ineffective as against the plaintiff by reason of the exception in § 3(b)(6), created another issue that the plaintiff might have to litigate in this already protracted dispute. The homestead was plainly an encumbrance. And the transfer of Andrew's beneficial interest in the Waltham property to Kai Sun and their minor daughter, who is not a party, necessitated the appointment of a guardian ad litem to represent the daughter's interests in any effort by the plaintiff to look to the Waltham property to satisfy the 2013 judgment.
We also reject the defendants' argument that there was no finding that their violations were wilful. Noncompliance with the judgment's injunctive provision would not, standing alone, have sufficed to establish a wilful violation, but noncompliance coupled with an ability to comply (which the defendants clearly possessed here) may, absent other evidence bearing on wilfulness, support a finding of criminal contempt. See Furtado, supra at 150. It is enough that a “defendant purposefully ordered his priorities to place his [obligation under the court order] behind his interest in [pursuing other financial goals].” Ibid. “Any stricter standard of proof would make Probate and Family Court judges substantially helpless in punishing a disobedient defendant for his disregard of a court's order.” Ibid.
Moreover, here the judge found an “element of wilfulness that is transparent” from Andrew's remarkably flippant statements about the transfer of his beneficial interest in the Waltham property to Kai Sun and their daughter. The judge also found that Kai Sun's execution of the declaration of homestead on the Wayland property “was a deliberate and serious act and she has been well aware of this litigation.” These findings, in light of Furtado, supra, satisfy the wilfulness requirement for criminal contempt.
4. Appellate attorney's fees. Because the plaintiff has prevailed on all but one issue, we grant his request for appellate fees and costs to be paid by the defendants, under the authority of G.L. c. 215, § 45. See Matter of the Estate of King, 455 Mass. 796, 801–810 (2010) ; Howe v. Tarvezian, 73 Mass.App.Ct. 10, 16, 19 (2008). The plaintiff is invited to file a verified and itemized application for fees and costs within fourteen days of the date of this decision, and the defendants will have fourteen days thereafter in which to file any opposition to the amounts requested. See Fabre v. Walton, 441 Mass. 9, 10 (2004).
5. Conclusion. Paragraph 3 of the reinstated equity judgment, dated June 1, 2015, (pertaining to the Wayland property) is vacated and a new paragraph 3 is substituted as follows:
3. The “Transfer of Beneficial [Interest] In The Mockingbird Nominee Realty Trust” and accompanying “Revised Schedule of Beneficiaries Of The Mockingbird Nominee Realty Trust,” dated November 9, 2005, are null and void. Bruce A. Migell remained the sole beneficiary of that trust from that date through the date of his death on January 21, 2006, and his beneficial interest is properly includable in his probate estate which is pending before the Middlesex Probate and Family Court, Docket No. MI06P2176EA. The property located at 215 Lakeshore Drive, Wayland, Massachusetts, conveyed from Bruce A. Migell to the Mockingbird Nominee Realty Trust by deed dated December 16, 2005, and recorded at Book 46845, Page 536, Middlesex (South) Registry of Deeds, remained in the trust at the time of the death of Bruce A. Migell. The deed to convey that property from the trust to Andrew Migell and Kai Sun Migell, husband and wife as tenants by the entirety, dated March 19, 2010, and recorded at Book 54426, Page 284, Middlesex (South) Registry of Deeds, and any and all subsequent deeds executed by either or both of them concerning this property, are and void, and Andrew Migell and Kai Sun Migell shall forthwith execute any and all deeds and other instruments and take any other steps requested by the plaintiff to effectuate transfer of the property to the trust.
Paragraphs 7, 8, and 9 of the reinstated equity judgment, dated June 1, 2015, (pertaining to the Florida property) are vacated, and the following new paragraph 7 is inserted in their place:
7. The deed to convey the property located at 5 Timucuan Drive, Ormond Beach, Florida from St. James Bay, Inc. to Andrew Migell and Bruce A. Migell, as joint tenants with the right of survivorship dated May 23, 2005, and recorded at Book 5564, Page 4253, Volusia County Registry of Deeds, is not invalid for any of the reasons claimed by the plaintiff in this action.
The equity judgment is otherwise affirmed. The contempt judgments are affirmed.