Opinion
C.A. No. 1038-VCN.
Date Submitted: March 8, 2010.
June 30, 2010.
Glynis A. Gibson, Esquire, Gibson Nowak, LLP, Camden, DE.
Ms. Cynthia M. Lewis, Camden, DE.
Dear Ms. Lewis and Ms. Gibson:
Petitioner Thomas M. Harmon, Jr. ("Harmon") is the administrator of the estate of his father, Thomas M. Harmon, Sr. (the "Decedent"). One of the Decedent's other children, Respondent Cynthia M. Lewis ("Lewis"), served as the caretaker of their father and as his attorney-in-fact during the last year of his life.
Harmon, in this action, challenges Lewis's conduct under the power of attorney and her handling of the Decedent's affairs. He maintains that Lewis converted funds belonging to the Decedent for her benefit; he seeks to recover those funds for the benefit of the estate.
This letter opinion sets forth the Court's post-trial findings of fact and conclusions of law.
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The Decedent died, intestate, on November 20, 2001, leaving four children.
In addition to the parties, the Decedent was survived by his two other children, Gordon Harmon and Caron Harmon Branch.
Approximately one year after the Decedent's death Harmon opened the Decedent's estate (the "Estate").
The Decedent owned, and resided in a dwelling located at 220 Center Street, Camden, Delaware (the "Property"). For purposes of this proceeding, the best valuation of that property as of the date of his death is $75,000. The Decedent also held three personal bank accounts and a business bank account in the name of T. M. Harmon and Son, Inc.
Shortly before the Decedent's death, Lewis moved into the Property to help care for him. She has continued to live, rent free, in her father's home and has expended, after his death, a significant portion of the Decedent's assets to improve the Property.
The debate between the parties was framed as to the disposition of approximately $112,000 of the Decedent's funds. The evidence is clear that some of the funds were applied by Lewis, as a fiduciary, for her personal benefit. It is also clear that some of the funds were expended for her father's benefit, such as expenditures for food and medicine. In addition, some of the funds were invested in the Property, of which Lewis owns 25%, but of which the other siblings each also own 25%. Although the wisdom of some of the expenditures may be questioned, the Property, eventually to be shared equally by all four children as the intestate heirs, benefited from the expenditures, and there is no rational basis for a fact finding effort allocating the benefit conferred by these expenditures on the Property.
Harmon has proved that Lewis, acting under a power of attorney that made her a fiduciary, breached her fiduciary duties by using her father's money for her personal benefit. Because Lewis was the fiduciary and controlled the bank accounts, the burden is on her to justify her disbursements. Up to this point, this case is relatively simple and straightforward.
Lewis continued to use the power of attorney after her father's death. That, of course, was not proper. The Court is satisfied that she did not fully understand the effect of her father's death on the validity of the power of attorney. As long as the funds were applied for a proper purpose that would benefit his estate or the four children in roughly equal fashion, the Court is reluctant to impose any remedy for such conduct.
In re LeManna, 1999 WL 350486, at *1 (Del. Ch. May 11, 1999) (placing the burden on the former guardians "as fiduciaries" to justify expenditures made from guardianship assets).
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Given the shortcomings in the available records, however, any effort to ascertain and distinguish between the funds spent for the Decedent's benefit and those spent for Lewis's benefit is necessarily inexact. Indeed, the records do not show how much Lewis actually spent on improvements to the Property. The problem is further complicated by Lewis's commingling of her assets and her father's assets when she transferred some of her father's assets into a bank account in her name and not one indicating that she held the funds under the power of attorney. It appears that all of the Decedent's funds that were disbursed from this account were disbursed before his death.
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The Court thus turns to the necessarily inexact effort to ascertain a fair amount for Lewis to reimburse the Estate.The parties were at one point $112,585 apart. The difference was reduced to $92,121.50 based on an acknowledgement that the sum of $20,463 was used for the Decedent's care. That leaves two classes of disputed funds: some $45,945.15 for which there is at least some documentation and a balance of $46,175.35 for which documentation is lacking.
From among expenditures for which records exist, Harmon now seeks an award of $45,773.39. The following tabulation sets forth the challenged payments from Account No. 00-095788-06. In the first column are amounts which the Court finds were for Lewis's personal benefit and for which she is liable. In the second column are those amounts for which she has provided adequate justification.
See Pet'rs' Suppl. to the Record (dated Dec. 15, 2009); JX 5; JX 2. ("Petitioner hereby requests that the sum of $45,773.39 . . . be found due and owing by Respondent to the estate. . . .).
Lewis concedes that she does not have knowledge as to what many of the expenditures were for. See Resp'ts' Response to Pet'rs' Suppl. to the Record (filed Mar. 8, 2010).
Most of the expenses in this column are, by their very nature, fairly allocated to Lewis. They were personal in nature. The largest one, $9,172.79 to Beneficial, is allocated to Lewis because there is no credible countervailing explanation. She maintains that these were her funds that had been commingled with her father's funds. Most of the others, such as car payments and payments to a finance company, are fairly viewed as hers.
Most of these expenses were either for the Decedent or for the Property. The charges to Penneys, Bath Fitters, and Sears are examples of this category. Improvements to the Property account for $8,757.14 of the expenditure; they are denoted by an asterisk. The largest expenditure, $7,400 to USAA Savings Bank, was credibly described by Lewis as for a consumer debt of her father. The $600 entry was for the Decedent's funeral.
Thus, for this category, Lewis is liable for $17,737.13.
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Harmon challenged six transfers from the business account (Account No. 00-982652). Two of the challenges have been withdrawn because the funds were transferred to another one of the Decedent's accounts. Of the others (all totaling $171.76), two entries — Big Kmart ($38.45) and Boscov's ($63.31) — were for home improvements. The others were for a gift and a payment to a truck driver. Lewis is not liable for any funds taken from the business account.* * *
Next, Harmon challenges certain expenditures that have been characterized as "debit card transactions." These were all after the date of the Decedent's death. Payments to Lowe's, Furniture More, and Sears are accepted as having been for the Property. The payments to Kent Oil Co. was for a bill owed by the Decedent. The following expenditures can only fairly be allocated to Lewis:
Pet'rs' Suppl. to the Record (dated Dec. 15, 2009); see also Resp't's Post-Trial Mem., Ex. A.
These total $8,069.48.
Thus, for this category, Lewis is liable for $1,354.94.
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That leaves the balance of roughly $46,175.35 between the expenditures which have been accounted for, in one way or the other, and the total disputed amount. Lewis testified that she spent in excess of $50,000 of her father's money on improvements to the Property, both before and after his death. As noted, those expenditures, at least to some significant extent, accrued to the benefit of her siblings pro rata. The Court accepts Lewis's testimony to the effect that she spent $50,000 of her father's money on the dwelling. The expenditures on the Property, noted above, total $16,928.38. The amount nominally spent on the Property and not charged to her from the documented items listed above would total $33,071.62. When that number is subtracted from $46,176.35, the balance of the funds which are in dispute, the difference, $13,104.73, fairly identifies the balance of Lewis's liability as the result of expenditures for which there are no records.
This is the sum of $8,757.14 ( see supra note 8), plus $101.76 (from the business account), plus $8,069.48 ( see supra note 10).
Again this is a rough cut but necessary because of the lack of adequate financial records or proof at trial.
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When the various categories of damages are combined, Lewis is liable to Harmon, as the administrator of their father's estate, in the amount of $32,196.80. In addition, Lewis is liable for interest thereon at the legal rate from January 21, 2005, and court costs.
This is the sum of $17,737.13, plus $1,354.94, plus $13,104.73.
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That leaves the question of attorneys' fees. Under the American Rule, each party typically bears its attorneys' fees. There are exceptions: for example, bad faith conduct. The Court is satisfied that the conduct of Lewis, whether in terms of acting as a fiduciary or in maintaining a defense of this action, was not in bad faith. Especially with respect to her conduct as a fiduciary, many of the questioned expenses and much of the recordkeeping shortfalls are fairly attributed to her lack of understanding and not to any malicious intent.
Donald J. Wolfe, Jr. Michael A. Pittenger, Corporate Commercial Practice in the Del. Ct. of Chancery § 13.03[a], at 13-6 (2009).
See, e.g., Arbitrium (Cayman Islands) Handels AG v. Johnson, 705 A.2d 225, 231 (Del. Ch. 1997), aff'd, 720 A.2d 542 (Del. 1998).
Thus, the burden of attorneys' fees will not be shifted in this matter.
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An implementing order will be entered.