Opinion
4:97CV3179
August 1, 2000
MEMORANDUM OF DECISION
The plaintiff in this case is Ronald Fairbairn, the Receiver of Oaktree Trust Company. The defendant is the Hartford Fire Insurance Company. The plaintiff initiated this suit against the defendant to recover for the alleged wrongful and dishonest actions that Wayne Grachek committed while he was an officer and employee of the trust company. The defendants denied benefits under the terms of the fidelity bond that it had issued. In the first cause of action, the key issue is whether the fidelity bond is subject to the terms and conditions of Neb. Rev. Stat. § 8-205.01. If so, then the statute controls, not the terms of bond itself. In the third cause of action, the key issue is whether the stock was purchased by Mr. Grachek for legitimate trust business or for the sole benefit of his son, David. The second cause of action has been abandoned by the plaintiff. A bench trial was held beginning on April 24, 2000. Jurisdiction is appropriate in this case pursuant to 28 U.S.C. § 1332.
All facts related in this Memorandum of Decision are found by the greater weight of the evidence.
I. Findings of Fact
Oaktree Trust Company was licensed by the State of Nebraska Department of Banking and Finance to conduct general trust business back in 1987. On July 10, 1990, the trust company sought and obtained, as required by the department of banking and state statute, a fidelity bond, the Commercial Crime Policy No. 91, from the defendant. The purpose of this bond was to protect and indemnify the trust company from the loss of money or other personal property that it may sustain through employee dishonesty. The limit of bond was in the amount $350,000 with a $10,000 deductible. On July 10, 1993, the bond was renewed with the same limit of coverage but without the $10,000 deductible. On October 24, 1995, the plaintiff sought and obtained a change in the limits and another change in the deductible of the bond from the defendant. The limit of bond was increased in the amount $650,000 to $1,000,000 and a $25,000 deductible was added.
First Cause of Action
On May 31, 1996, the department of banking conducted a surprise examination of the trust company's records. The examination revealed, among other things, numerous non-posted records and capital deficiencies, as well as some management indiscretion. The examination also unmasked scores of illegal conduct by the trust company's president and chief trust officer, Wayne Grachek. First, there were numerous withdrawals — classified as loans by the department's report of trust examination — of trust fund assets from non-insider accounts that were taken and deposited into other corporate accounts to cover, according to Mr. Grachek, the business expenses of the trust company. These withdrawals, in addition to being illegal, the department noted, appeared to be self-serving with Mr. Grachek and the members of his family who were employed by the trust company receiving most of the benefit. The withdrawals were:
The trust company's bylaws provide that the president "shall have the supervision over funds, securities, receipts, and disbursements of the corporation, and the accounts, records, and reports pertaining thereto." Trial Ex. 75.
12-15-95 Billy and Carol Jordan Agency $25,000 Claire and Madge Huggler Agency $25,000 La Rene Busler IRA Rollover $25,000
01-11-96 Luella A. Urish Trust $50,000 Luella A. Urish IRA Rollover $50,000
04-01-96 Margaret Pospishil Living Trust $10,000
04-12-96 Lloyd Pospishil Testamentary Trust $ 2,000
04-15-96 Lloyd Pospishil Testamentary Trust $ 8,000 Margaret Pospishil Living Trust $10,000
05-01-96 Lloyd Pospishil Testamentary Trust $ 2,000
05-06-96 Lloyd Pospishil Testamentary Trust $ 5,000
05-10-96 Lloyd Pospishil Testamentary Trust $ 2,000
06-14-96 Margaret Pospishil Living Trust $15,000
Second, there was a withdrawal from one of these non-insider trust fund accounts that was not a loan but a payment for shares of common stock in the trust company which also was violation of the law. The withdrawal for the shares of common stock was made from the Lloyd Pospishil Testamentary Trust; the amount was $40,000.
Also in its report of examination, the department of banking concluded that the basic trust premise of undivided loyalty to the best interest of grantors and beneficiaries was either lost or ignored by Mr. Grachek. The evidence set forth at trial supports this conclusion. The fact is that when these withdrawals were made (or authorized) by Mr. Grachek, the trust company had been deep in the red for some time. Even though fee income had increased over the years, the amount was trivial compared to the explosion of expenditures that were allowed by Mr. Grachek — most of which benefitted him, his wife, Carolyn, and his two boys, David and Tim. A snapshot of the numbers reveals that annual losses went from $5,764 in 1993 to $166,155 in 1994 and $224,581 in 1995. As a director, president, and senior trust administrator, Mr. Grachek understood the serious financial condition that faced the trust company. In fact, he closely monitored the situation. Thus, he knew, as he testified, that the trust company had insufficient income and could not repay the withdrawals. He claims, of course, that he was authorized by the non-insiders to make the withdrawals, that he informed them of the financial condition of the trust company and that the non-insiders wanted to help — to help save the company. But this is of no importance. First, even if true, the withdrawals were illegal nonetheless, as noted by the department of banking. Second, Mr. Grachek testified that by the time several of the withdrawals were made, he understood that the only way out of the red was to sell the trust company. In other words, although he understood that the trust company was unable to repay the withdrawals, he made them anyway. It is the trustee's obligation to protect the interests of the trust beneficiaries. The withdrawals violated this obligation. Whether it was wilful, fraudulent, or just plain negligent, the evidence shows that it was a breach of trust.
In addition, the department of banking noted in its report of trust examination that several other withdrawals from insider trust fund accounts were made by Mr. Grachek including, but not limited to, the Betty Fairbairn Living Trust ($12,500), the Ron Fairbairn Living Trust ($12,500), the Eva Todd Living Trust ($17,800), and the Roni, Inc. Agency ($32,000). Although these withdrawals were ignored by the department of banking in its report because it had determined that such withdrawals were not in violation of state trust laws, the fact is that Mr. Grachek was not authorized by the insiders to make the withdrawals. Mr. Grachek, as trustee, was responsible for the safe-keeping and investment of all the trust fund assets under his control including the assets of insider trust funds.
Mr. Grachek also made withdrawals from his and his wife's trust fund accounts. These withdrawals, however, are not at issue in this case.
The reason that the withdrawals from both non-insider and insider accounts were made (or authorized) by Mr. Grachek, it seems clear, was because he and his family benefited. While it is true that, as the defendants claim, through the withdrawals, he obtained the funds that were necessary to maintain operations of the trust company, the fact is that most of expenses that were incurred by the trust company were salaries and other benefits such as bonuses, life insurance premiums, country club memberships, cellular phones, and expense accounts paid to and provided for Mr. Grachek and his family. Although Mr. Grachek testified at trial that his sole motivation for the withdrawals was to keep the trust company afloat, his actions belie such a statement. Instead, his actions demonstrate, as the department of banking noted, that he sought to protect the lifestyle, that is, the nice salaries and other benefits that he and his family had become accustomed to through the withdrawals from trust fund accounts.
The plaintiff's first cause of action seeks recovery under the fidelity bond that was issued by the defendant for numerous withdrawals of assets from trust fund accounts made (or authorized) by Mr. Grachek that were either in violation of state law or in violation of his obligations and duties as a trustee.
Third Cause of Action
In 1993, Mr. Grachek invested trust fund assets in a highly speculative security, Rocky Mountain Helicopter, Inc, even though the subscription agreement for the stock warned that the issue there was a high degree of risk and a possibility of complete loss of investment. He testified that he thought it was an acceptable risk. The stock was selling for a $1.86 per share, and he was offered it at $1.27 per share. He bought 100,000 shares and distributed them among eight different trust fund accounts in various amounts as follows: the Ronald Fairbairn Living Trust and Betty Fairbairn Living Trust as well as the Ronald Fairbairn IRA and Betty Fairbairn IRA received 32,950 shares (although Mr. Fairbairn, who also spoke for Mrs. Fairbairn, told Mr. Grachek that neither wanted to be a part of the deal); the Lloyd Pospishil Trust received 25,400 shares; the William R. Simpson Trust received 31,750 shares; and the Carolyn Grachek IRA and Wayne Grachek IRA received 28,015 shares. A few months later, Rocky Mountain Helicopter was bankrupt.
The plaintiff's third cause of action seeks recovery under the fidelity bond that was issued by the defendant for the purchase of this stock. The plaintiff claims that the purchase was made by Mr. Grachek for the benefit of his son, David, who was the securities broker that sold the stock, and not for legitimate trust business.
II. Jurisdiction
The subject matter jurisdiction of this court is founded upon the citizenship of the parties and the amount in controversy, as granted by 28 U.S.C. § 1332. In such a case, the court must apply the substantive rules of decision which the state courts would apply. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941); Birnstill v. Home Savings of America, 907 F.2d 795, 797 (8th Cir. 1990). In this action, the parties agree that the state law of Nebraska is the appropriate law that should be applied to the resolution of the claims made by the plaintiff.
III. Analysis First Cause of Action
A fidelity bond is a contract whereby, for a consideration, one — the surety — agrees to indemnify another — the obligee — against loss that arises from the want of honesty, integrity, or fidelity of an officer or other employee who holds a position of trust. See Foxley Cattle Co. v. Bank of Mead, 196 Neb. 587, ___, 244 N.W.2d 205, 208 (1976). In general, the obligation of such a bond runs to the obligee, to respond to actual loss it sustains, not the loss of third persons. Id. at ___, 244 N.W.2d at 209.
As a contract, the bond is construed so as to arrive at the mutual intention of the parties. See State v. Easley, 207 Neb. 443, 446, 299 N.W.2d 439, 441-42 (1980). The parties then are entitled to stand on the express terms found within the four corners of the bond, and interpret it according to the fair import of the language used. See 35 Am. Jur. 2d Fidelity Bonds and Insurance § 3 (1997). The exception, of course, is where such a bond is required by statute. See, e.g., Easley, 207 Neb. at 446, 299 N.W.2d at 441. In that case, "the language of the bond is not necessarily controlling." State Surety Co. v. Peters, 197 Neb. 472, 475, 249 N.W.2d 740, 742 (1977). Instead,
`The liability of a surety on statutory undertaking i[s] measured by the terms of the statute rather than by the terms set forth in the agreement, where the two are in conflict, as the statute forms a controlling part of every such agreement.'Id. (quoting Stearns, Law of Suretyship § 2.4 (5th ed. 1951)).
In Nebraska, a fidelity bond is required of state-chartered trust companies. See Neb. Rev. Stat. § 8-205.01. It was in response to this requirement that the bond at issue in this case was sought by the trust company. The bond, once obtained, was filed with and subsequently approved by the department of banking as the statute required. Even so, the defendant claims that it was not issuing the bond pursuant to the requirement of the statute. In support, the defendant points out that the bond does not, in its terms, conform to the requirements of the statute. The bond, it claims, provides a very narrow form of coverage — much narrower than that required by the statute — that is limited to employee dishonesty. The reason for this is, the defendant continues, that the bond was not intended to be and was not a statutory bond. The plaintiff contends, however, that it is a statutory bond, that the parties to the bond executed and delivered a statutory bond. Therefore, the plaintiff says that the statute is to be read into the bond, and that the bond must be interpreted and construed in connection with the provisions of the statute. I agree with the plaintiff.
The fact is that the bond in this case was signed by the defendant and offered by it. There was no compulsion upon the defendant to execute the bond, but it did so. In doing so, it, as an insurance carrier that issues bonds and other insurance policies in the state and that is identified by the department of banking as an authorized insurer, is charged with knowledge of the law of the state which called for the bond. Therefore, it is assumed (and I note that this assumption is supported by the evidence in this case that demonstrates that the defendant's agent, who increased the coverage of the bond from $350,000 to $1,000,000, suspected that the bond sought and obtained by the trust company was required by law) that the defendant had the law in contemplation when the bond was executed, and the bond must be construed and applied as if it had complied with the law.
The statute requires that the bond be issued by an authorized insurer. Therefore, the fact that the bond was accepted by the department of banking, that was only permitted to accept bonds issued by an authorized insurer, shows that the department made such an identification. I also note that the defendant has not claimed that its bond could not be accepted by the department because it was not an authorized insurer.
I now turn my focus to whether the withdrawals from the trust account funds resulted in a "loss" within the meaning of the statute. The defendant claims that the obligee, that is, Oaktree, suffered no loss because the trust funds were deposited into another corporate fund and used for corporate expenses. Therefore, since there was no diminution of total assets, there was no loss within the meaning of the statute. I disagree.
The resolution of this issue requires application of well-established standards of statutory construction as defined by the Nebraska Supreme Court. First, in the absence of anything to the contrary, statutory language is to be given its plain and ordinary meaning; an appellate court will not resort to interpretation to ascertain the meaning of statutory words which are plain, direct, and unambiguous. In re Estate of Muchemore, 252 Neb. 119, 126, 560 N.W.2d 477, 482 (1997); PSB Credit Servs. v. Rich, 251 Neb. 474, 477, 558 N.W.2d 295, 297 (1997). "It is not for the courts to supply missing words or sentences to a statute to make clear that which is indefinite, or to supply that which is not there." State v. Woods, 255 Neb. 755, 764, 587 N.W.2d 122, 128 (1998).
However, in considering the meaning of a statute, the court must, if possible, discover the legislative intent from the language of the statute and give to the statute a reasonable construction which best achieves that intent, rather than a construction which would defeat it. See Cass Constr. Co. v. Brennan, 222 Neb. 69, 75, 382 N.W.2d 313, 318 (1986). To this end, the Nebraska Supreme Court has stated that "`[w]hen considering a series or collection of statutes pertaining to a certain subject matter which are in pari materia, they may be conjunctively considered and construed to determine the intent of the Legislature, so that different provisions of the act are consistent and sensible.'" In re Interest of Joshua M. et al., 256 Neb. 596, 605, 591 N.W.2d 557, 563 (1999) (quoting Baker's Supermarkets v. State, 248 Neb. 984, 991, 540 N.W.2d 574, 579 (1995)). It has also stated that courts should be "guided by the presumption that the Legislature intended a sensible, rather than an absurd, result in enacting the statute and its amendments." Battle Creek State Bank v. Haake, 255 Neb. 666, 680, 587 N.W.2d 83, 92 (1998).
The statute in this case requires the bond to "be conditioned to protect and indemnify the trust company for loss of money or other personal property, including that for which the trust company is responsible. . . ." Neb. Rev. Stat. § 8-205.01. This language is clear and unambiguous, it seems to me. A trust involves the creation of two separate and distinct interests in trust assets: the legal title which is held by the trustee; and the beneficial interest which is held by the beneficiaries of the trust. The trustee who accepts money for the purpose of safe-keeping and investment is responsible for that money and must account for the investments and income. In other words, the trustee is vested with legal title and is responsible for the trust assets. Consequently, the loss that the statutorily mandated bond covers includes a loss to trust assets.
Moreover, in considering the meaning of a statute, it also seems clear that a fundamental purpose of the statute is to protect the public. If the bond were solely for the protection of the trust company, as the defendant contends, there would be no need to make the bond available to the public for inspection. See Neb. Rev. Stat. § 8-205.01. The fact is that the statutes that relate to the set-up and subsequent conduct of trust companies set forth by the Legislature are for the benefit of the public, not the company. For example, the statutes mandate that the department of banking conduct an investigation to determine
that the parties requesting the charter are parties of integrity and responsibility, that the corporation will apply safe and sound methods for the purpose of carrying out trust company duties, and that the public necessity, convenience, and advantage will be promoted by permitting the corporation to transact business as a trust company, the department shall issue to the corporation a charter entitling it to transact the business provided for in the act.Id. at § 8-201. The statutes also require, among other things, that the board of directors conduct annual audits with the help of approved accounts; that the trust company submit to the department of banking statements, made under oath, of the condition of the corporation on a semi-annual basis; and that the department of banking publish the aforementioned statements in a newspaper of general circulation in the county where the trust company is chartered. See id. at §§ 8-201, 8-204, 8-223, and 8-224. This is good evidence that the legislative intent of the trust statutes is for the public's benefit. Thus, I find that the legislative intent to require trust companies to obtain a fidelity bond to protect the trust assets and the beneficiaries thereto, not the trust company itself. Therefore, the withdrawals from the trust account funds in this case resulted in a "loss" within the meaning of the statute, as the withdrawals resulted in the trust company's being unable to fulfill its legal obligations as trustee.
In light of this, the defendant's claim must be dismissed. Indeed, to conclude, as the defendant asks, that there was no loss because the moving funds from a trust account to another corporate account is nothing more than a mere "shifting of liabilities" and not a loss covered under a fidelity bond defeats the legislative intent of the statute and the collection of statutes that pertain to the regulation of trust companies in Nebraska.
The next issue is whether the withdrawals of trust fund assets by Mr. Grachek were in violation of the statute. The statute requires that trust companies obtain a fidelity bond
to protect and indemnify the trust company from loss of money or other personal property, including that for which the trust company is responsible, which it may sustain through or by reason of fraud, dishonesty, forgery, theft, embezzlement, wrongful abstraction, misapplication, misappropriation, or other dishonest or criminal act of or by any of its officers or employees.Id. at § 8-205.01.
With respect to the non-insider accounts, I find that there has been a wrongful abstraction of trust fund assets by Mr. Grachek within the meaning of the statute. Although the term "wrongful abstraction" is unambiguous, it is not defined within the confines of the statute. In that case, it must be given its plain and ordinary meaning. I start and end with the standard language dictionaries. A "wrongful" act is the infringement of some right. See Webster's New Collegiate Dictionary 5 (1975). Thus, it may result from disobedience to the law. See id. "Abstraction" simply means to withdraw or remove. See id. at 1355.
The evidence in this case demonstrates that Mr. Grachek made numerous withdrawals of trust fund assets. In fact, he made fourteen separate withdrawals, from as much as $50,000 to as little as $2,000, from seven different non-insider trust funds. These assets were taken and deposited into other corporate accounts to cover the business expenses, mostly the salaries and other benefits of the employees, of the trust company. Therefore, I find that the assets were abstracted from the funds by Mr. Grachek.
The question, then, becomes whether the abstraction was wrongful. All but one of the withdrawals from non-insider funds, thirteen to be exact, were classified as loans on the books. Neb. Rev. Stat. § 8-224.01(2) provides that
No trust company shall cause or allow funds of any account entrusted to the trust company to be loaned, directly or indirectly, to any director, officer, or employee of the trust company. . . . Any director, officer, or employee of the trust company causing, consenting to, or receiving funds from a loan made in violation of this section shall be guilty of a Class III felony.
The department of banking concluded in its investigation that the loans for business expenses appeared to be self-serving for Mr. Grachek and the members of his family. I agree. The evidence illustrates that even though fee income had increased over the years, the increases had not been adequate to compensate for the dramatic rise of expenditures allowed by Mr. Grachek — especially in expenses attributable to salaries and other benefits. In 1994, salaries and other benefits more than doubled from the year before. In 1995, salaries and other benefits increased again by more than eighteen percent. The beneficiaries of increases were, for the most part, Mr. Grachek and his family. Mr. Grachek not only received high wages, the trust company also paid life insurance premiums as well as country club dues for his benefit. The annual life insurance premiums were in the neighborhood of $11,500 to $13,000. The trust company also saw a run-up in phone bills and other miscellaneous business expenses. The increase in phone charges was due in part to the three cellular phones that Mr. Grachek and his family utilized, as the department of banking noted, freely and without concern of the cost. The increase in miscellaneous business expenses, such as travel and entertainment, were due in part to purchases of gas for personal use, plane tickets, upscale dinners and entertainment, including, among other things, golf and personal internet service by Mr. Grachek and his sons. In light of this, there can be little doubt that the withdrawals were not just necessary to maintain operations of the trust company but rather to protect the lifestyle — the salaries and other benefits, such as bonuses, life insurance premiums, country club memberships, cellular phones, and expense accounts — that Mr. Grachek and his family had become accustomed to. As a result, I find that there was a wrongful abstraction of trust fund assets by Mr. Grachek within the meaning of the statute.
The other abstraction from a non-insider fund was not a loan but a payment for some 400 shares of common stock in the trust company. This, too, is an illegal transaction. Neb. Rev. Stat. § 8-224.01(1) provides, again, in no uncertain terms, that
No investments of an estate or trust shall be made in the capital stock or securities of the trust company, in the stock or securities of its affiliated companies, or in obligations, either direct or indirect, of any director, officer, or employee of the trust company. The trust company shall not substitute any of the assets of an estate or trust under its control for securities of the trust company. . . . Any officer or employee of the trust company making such an investment or consenting to such an investment or causing such substitution or consenting to such substitution shall be guilty of a Class III felony.See also Neb. Rev. Stat. § 8-206(9) (the statute grants power to trust companies to buy, hold, own, and sell securities except for stock or other securities of any corporation organized under the Nebraska Trust Company Act). Therefore, I find that there has been a wrongful abstraction of trust fund assets by Mr. Grachek within the meaning of the statute.
With respect to the insider accounts, I find that there has been a misappropriation of trust fund assets by Mr. Grachek within the meaning of the statute. Much like the wrongful abstraction, the term "misappropriation" is also unambiguous, and is also not defined within the confines of the statute. Again, I must give such a term its plain and ordinary meaning. To do so, I start, as before, with the standard language dictionaries. In this context, misappropriation is the dishonest appropriation of funds for one's own use. See Webster's Third New International Dictionary 1442 (1966). With this standard in mind, I now turn to the evidence in this case.
The evidence in this case demonstrates that Mr. Grachek made withdrawals from the trust funds of insiders. In fact, he made six separate withdrawals, from as much as $25,000 to as little as $6,000, from five different insider trust funds. These assets were taken and deposited into other corporate accounts of the trust company to cover business expenses, which for the most part were salaries and other benefits that Mr. Grachek and the members of his family enjoyed, as I illustrated above. Although Mr. Grachek claims that he had consent from the insiders from who's trust funds he made withdrawals, the fact is that the plaintiff, who made the investment decisions for three of the four trust funds, denies that he ever consented the withdrawals. I find that I am inclined to believe the plaintiff: Mr. Grachek was not authorized by the insiders to make the withdrawals. Nevertheless, he made the withdrawals. In doing so, he breached his position of trust, and that was dishonest. Although Mr. Grachek testified at trial that his sole motivation for the withdrawals was to keep the trust company afloat, his actions belie such a statement. Instead, his actions demonstrate, as the department of banking noted, and I discussed above, that he sought to protect the lifestyle, that is, the nice salaries and other benefits, that he and his family had become accustomed to through the withdrawals. Therefore, it is without hesitation that I find that Mr. Grachek misappropriated the trust fund assets of insiders within the meaning of the statute.
The defendant argues that the bond itself does not cover the actions of Mr. Grachek that were listed above. The bond, it claims, only provides coverage for employee dishonesty. The bond defines employee dishonesty as
dishonest acts committed by an "employee," whether identified or not, acting alone or in collusion with other persons, except you and a partner, with manifest intent to:
1) Cause you to sustain loss; and also
2) Obtain financial benefit (other than employee benefits earned in the normal course of employment, including: salaries, commissions, fees, bonuses, promotions, awards, profit sharing or pensions) for:
a) The "employee;" or
b) Any other person or organization intended by the employee to receive that benefit.
Thus, the defendant maintains that the language of bond narrows the range of conduct covered to dishonest acts that were committed with the manifest intent to harm the obligee, that is, Oaktree Trust, and were of financial benefit, as defined by the bond, to the employee, in this case, Mr. Grachek.
Again, the bond attempts to limit coverage to only those acts that were dishonest and that were committed with the specific intent set forth in the bond. The statute, however, does not contain such limitations. Instead, the statute requires coverage of not only dishonest acts but fraudulent acts, including forgery, theft, embezzlement, wrongful abstraction, misapplication or misappropriation. Moreover, the statute requires coverage for any dishonest or criminal act of or by any of its officers or employees that results in a loss of money or other personal property, including that for which the trust company is responsible. Thus, the two are in conflict.
If I accepted the defendant's argument, then the defendant would be allowed to provide less coverage than the statute mandates. See Estate of K.O. Jordan v. Hartford Accident and Indemnity Co., 844 P.2d 403, 412 (Wash. 1993). But the rule is, as I discussed above, that the terms of the bond cannot limit the coverage to less than that required by the bond. Thus, I must interpret the bond so that it covers all of the circumstances the statute requires that it cover. See id. Restated, "the bond must cover all fraudulent and dishonest acts of employees that result in a loss to the insured. The bond's restrictions on which acts are covered conflict with the statute, and [I] must therefore give no effect to those restrictions." Id. (citations omitted).
Third Cause of Action
As I stated above, the plaintiff's third cause of action seeks recovery under the fidelity bond that was issued by the defendant for the purchase of this stock. In particular, the plaintiff claims that the purchase was made by Mr. Grachek for the benefit of his son, David, who was the securities broker that sold the stock, and not for legitimate trust business. This allegation, however, was not supported at trial. The plaintiff set forth no evidence that Mr. Grachek made this purchase of stock for the benefit of his son. In fact, the evidence demonstrates that Mr. Grachek and his wife, Carolyn, invested almost $35,600 (twenty-eight percent of the overall investment) in this stock themselves. That is a lot of money to risk when the most his son could have obtained was a commission for the sale (of which there was no evidence) from his employer. In short, I find that the plaintiff failed to show that Mr. Grachek's only purpose in buying the stock was to benefit the broker, his son, David.
IV. Damages
The trust company has experienced losses as a result of the illegal withdrawals from non-insider trust fund accounts made (or authorized) by Mr. Grachek as follows:
Loans
Billy and Carol Jordan Agency $25,000 interest $ 1,475.41
Claire and Madge Huggler Agency $25,000 interest $ 1,475.41
La Rene Busler IRA Rollover $25,000 interest $ 1,475.41
Luella A. Urish Trust $50,000 interest $ 2,581.96
Luella A. Urish IRA Rollover $50,000 interest $ 2,581.96
Margaret Pospishil Living Trust $35,000 interest $ 693.98
Lloyd Pospishil Testamentary Trust $19,000 interest $ 438.51Stock
Lloyd Pospishil Testamentary Trust $40,000 interest $ 4,832.79.See Trial Exs. 25 and 54.
The trust company has experienced losses as a result of the illegal withdrawals from insider trust fund accounts made (or authorized) by Mr. Grachek as follows:
Betty Fairbairn Living Trust $12,500 interest $ 737.71
Ron Fairbairn Living Trust $12,500 interest $ 737.71
Eva Todd Living Trust $17,800 interest $ 594.53
Roni, Inc. Agency $32,000 interest $ 1,714.48See Trial Ex. 25.
JUDGMENT
For the reasons stated in my Memorandum of Decision of today,
IT IS ORDERED that judgment is entered in favor of the plaintiff with respect to the first cause of action in the amount of $363,139.86 but in favor of the defendant with respect to the second and third causes of action.