Opinion
No. 1-773 / 00-1576.
Filed May 15, 2002.
Appeal from the Iowa District Court for Des Moines County, CYNTHIA DANIELSON, Judge.
The trustee appeals from the district court's ruling awarding the trust beneficiaries actual and punitive damages for the trustee's conduct in managing the trust. A trust beneficiary cross-appeals. AFFIRMED AS MODIFIED ON APPEAL; AFFIRMED ON CROSS-APPEAL.
John M. Loeschen of Loeschen Loeschen, Burlington, for appellant.
Timothy D. Roberts of Anderson, Roberts Porth P.L.C., Burlington, for appellee.
Heard by SACKETT, C.J., and ZIMMER and VAITHESWARAN, JJ.
Trustee Cosette Smith appeals from a district court ruling awarding Robert and Jonathan Critser, trust beneficiaries, actual and punitive damages for Smith's conduct in managing the trust. Smith contends the record does not support the award of punitive damages. Robert Critser cross-appeals, claiming he was entitled to greater actual damages and an award of attorney fees. We affirm as modified on appeal, and we affirm on cross-appeal.
Only Robert Critser brought this suit, and only Robert cross-appeals. For the sake of clarity, we will refer to Robert Critser as Critser, and use Jonathan to refer to Jonathan Critser.
I. BACKGROUND FACTS.
Shirley Critser died in August 1988, leaving two minor children, Robert and Jonathan. Shirley's will provided for the creation of a testamentary trust, to be used only for the uses and purposes of providing, caring for, and in all and every manner attending to the needs and requirements, including shelter, education and general welfare, of my two youngest children, they being Robert Lloyd Critser, age eight, and Jonathan William Critser, age seven, until the youngest attains the age of eighteen (18) years.
Shirley appointed her friend, Cosette Smith, as executor of her will and attorney Edward Dailey as trustee of the testamentary trust. In 1991, Dailey received permission to withdraw as trustee, and Smith was substituted as trustee on April 30, 1991. As of December 16, 1991, trust assets were in the sum of $30,793.62.
Smith filed her Final Report on October 12, 1999. Critser objected to the report. Following hearings on the matter, the district court entered an order awarding Critser and Jonathan each $8,661.74 in actual damages and $25,000 in punitive damages.
Smith appeals. She does not contest the award of actual damages, conceding that she did a "poor job" in accounting for the use of the trust funds. Instead, she contends the record does not support the award of punitive damages. She specifically asserts there is no evidence of self-dealing or bad faith or that she filed untimely reports with the design of misleading or deceiving the court or the beneficiaries. She points out she never demanded fees for her services as trustee despite being entitled to them and that she incurred unreimbursed expenses for taking care of the children during various periods when they resided with her.
Critser cross-appeals. He contends the court erred in failing to award certain additional actual damages. He also claims he should be awarded his attorney fees given the egregiousness of Smith's conduct as trustee.
II. SCOPE OF REVIEW.
Our scope of review in this equity case is de novo. Iowa R. App. P. 6.4. We give weight to the fact-findings of the trial court, especially when considering the credibility of witnesses, but we are not bound by them. Iowa R. App. P. 6.14(6)(g).
III. PUNITIVE DAMAGES.
Smith argues the evidence is not sufficient to justify the punitive damages award. She contends her conduct does not reveal any acts of self-dealing or bad faith in her capacity as trustee.
Iowa Code section 668A.1 (1999) provides that punitive damages may be awarded where "the conduct of the defendant from which the claim arose constituted willful and wanton disregard for the rights or safety of another." "Willful and wanton" means that the actor has intentionally committed an act of an unreasonable character, which is in disregard of a known or obvious risk that was so great as to make it highly probable that harm would follow, and which is usually accompanied by a conscious indifference to the consequences. Fell v. Kewanee Farm Equip. Co., 457 N.W.2d 911, 919 (Iowa 1990). Punitive damages serve "as a form of punishment and to deter others from conduct which is sufficiently egregious to call for the remedy." Coster v. Crookham, 468 N.W.2d 802, 810 (Iowa 1991). Our primary focus in review of a punitive damage award is the relationship between that award and the wrongful conduct of the offending party. Ryan v. Arneson, 422 N.W.2d 491, 496 (Iowa 1988).
We conclude that Smith's activities constituted willful and wanton disregard for the rights of the Critsers. Smith intentionally retained money belonging to the trust. She repeatedly violated a court order, entered at her request, that she not withdraw any trust funds without prior court approval. She expended trust assets for the boys' benefit only when they were in her temporary care despite the fact they obviously needed economic assistance while in the physical care of their father. She wrote checks on the trust account to her daughter and indicated they were actually cash withdrawals. Smith filed untimely, inaccurate, and incomplete reports. She received disbursements from the trust funds for personal expenses.
In 1994, Smith took the boys and her friend to Virginia on a two-and-a-half week vacation. The expenses to cover the boys allegedly included the following: motel expense ($1,200); food, meals out, and snacks ($1,440); recreation, entertainment, and souvenirs ($230); gas for round trip ($150); and groceries ($200). The friend who accompanied Smith and the boys did not pay for gas. There was no organized method for calculating each party's expenses.
Smith expended trust funds for medical and dental bills, despite the fact that the boys were covered under their father's medical insurance. She deluded the boys into thinking that she was personally paying for their expenses rather than the trust. She maintained $2,000 in cash in a "slush fund," which she did not report as trust assets. She is unable to account for this money, and she argues the boys stole it along with receipts. She never told either beneficiary of the existence of the trust, and she failed to take action to terminate the trust in December 1998 when Jonathan turned eighteen. After the boys found out about the trust in the spring of 1999, Smith tried to get the boys to sign a "paper of silence."
Smith showed willful and wanton disregard for the rights of the trust beneficiaries. We conclude that Smith's actions rise to the level required for an award of punitive damages.
While we believe the boys are entitled to punitive damages, we find the amount awarded by the trial court excessive in light of the award of actual damages and the harm done to them. Therefore, we modify the punitive damage award to $5,000 each to Robert Critser and Jonathan Critser.
IV. CROSS-APPEAL.
On cross-appeal, Critser claims (1) there was substantial evidence to support a remedy that allowed actual damages in excess of that awarded by the court and (2) he is entitled to attorney fees.
A. Actual damages. Critser requests that this court deny all expenditures after December 18, 1991, because they are in contravention of a specific court order. However, in the trial court's ruling, it noted that Critser "does not contest expenses that were identifiably paid on the boys' behalf such as the purchase of vehicles, insurance, payment of criminal fines, camp fees, etc." Critser did not file an Iowa Rule of Civil Procedure 1.904(2) motion raising this issue. See Nepstad Custom Homes Co. v. Krull, 527 N.W.2d 402, 405 (Iowa Ct. App. 1994) (holding a rule 1.904(2) motion is necessary to preserve error when the court fails to resolve a matter properly submitted). Therefore, he has failed to preserve error, and we do not address his argument.
In the alternative, Critser requests this court disallow the $1,700 for a truck the trust paid on his behalf, medical expenses in the amount of $950.08, $180 for tax preparation, $580.06 for a deposition, and several other minor expenses. The trial court in its ruling stated that Critser did not contest expenses that were identifiably paid on his behalf for the purchase of vehicles. The trial court did not address the tax preparation fee or the deposition cost. Furthermore, there is no indication that the trust paid the deposition cost. In its ruling, the trial court stated, "No one is contesting expenditures which Cosette made on the boys for medical expenses such as braces, glasses and medications." Critser failed to file a rule 1.904(2) motion, and thus error has not been preserved on this issue.
Critser also requests a higher amount of prejudgment interest. However, he has not cited any authority on this issue, nor has he indicated what that amount should be. We conclude he has waived this issue. Iowa R. App. P. 6.14(1)(c), (2) (stating that failure in the brief to state, argue, or cite authority in support of an issue may be deemed waiver of that issue).
B. Attorney fees. Critser contends the trial court should have ordered Smith to personally pay his attorney fees incurred in the trial court under the common law and Iowa Code section 633.159. In order to award fees under the common law, Critser must prove "that the culpability of the defendant's conduct exceeds the `willful and wanton disregard for the rights of another'; such conduct must rise to the level of oppression or connivance to harass or injure another." Hockenberg Equip. Co. v. Hockenberg's Equip. Supply Co. of Des Moines, 510 N.W.2d 153, 159-60 (Iowa 1993). Section 633.159 provides that if judgment is entered against a fiduciary for costs in any action prosecuted or defended by the fiduciary in that capacity, then execution is awarded against the fiduciary as for the fiduciary's own debt, if it appears that the action was prosecuted or defended without reasonable cause. Although we find that Smith's actions constitute willful and wanton disregard for the rights of the trust beneficiaries, we conclude her actions do not exceed that level. Critser is not entitled to attorney fees incurred in the trial court. We also deny his request for appellate attorney fees.
V. CONCLUSION.
We affirm the award of punitive damages, but adjust the amount awarded from a total of $50,000 to a total of $10,000. We affirm the award of actual damages. We determine Critser is not entitled to attorney fees.
AFFIRMED AS MODIFIED ON APPEAL; AFFIRMED ON CROSS-APPEAL.