Appellate Division Declines to Award Compensatory, Punitive, and Equitable Damages With Respect to Claims of Trustee Misconduct
In re Gloria T. Mann Revocable Tr., A-2663-19, 2021 WL 2212701 (N.J. Super. App. Div. June 2, 2021).
Gloria Mann (“Gloria”) died on August 10, 2017. Her children, plaintiff David Mann (“David”) and defendant Doree Gottlieb (“Doree”), were the primary beneficiaries and successor co-trustees of the Gloria T. Mann Revocable Trust (“Trust”).
A few months after Gloria passed away, David and Doree retained an attorney to assist them with the Trust administration. They opened bank accounts and bank personnel conducted credit checks and judgment searches that revealed four outstanding judgments against David that were over 10 years old.
David met with Doree and her husband soon thereafter and according to David, Doree was worried that the judgments would affect their ability to administer the Trust. She also expressed this concern to the trust attorney. David agreed to resign as co-trustee. The trust attorney drafted the resignation documents and David signed them on November 24, 2017. He subsequently submitted the resignation to the banks holding Trust assets, and Doree was thereafter the sole trustee of the Trust.
Displeased with Doree’s administration of the Trust, David filed a Verified Complaint about eight months after he resigned, seeking: an account of Doree’s administration; return of trust property; an order declaring him trustee of the Trust; compensatory, consequential, incidental, nominal and expectation damages, and interest; and attorney’s fees.
The trial court dismissed David’s complaint with prejudice and ordered Doree to provide an updated accounting and to distribute the Trust assets in accordance with the court’s order. The court additionally set dates for Doree’s counsel to file a fee application.
David appealed the trial court’s judgment on the above as well as its subsequent order allowing Doree’s counsel fees to be paid from Trust assets. He argued that the trial court erred in: (1) finding that David had resigned as trustee; (2) declining to award David adequate compensatory, punitive, and equitable damages in light of Doree’s conduct; (3) failing to order the Trust to pay David’s legal fees and costs from the Trust, and assessing all such fees against Doree’s interest in the Trust; and (4) preventing David from presenting rebuttal witnesses.
The Appellate Division affirmed the trial court’s decision for the reasons set forth below.
The facts supported the trial court’s finding that David had resigned as trustee. The resignation document was unambiguous on its face, and David submitted the resignation to the banks which caused him to be removed from the accounts.
While the applicable law generally requires that notice be provided to beneficiaries when a trustee resigns, such notice was not required in this case because the Trust instrument provided for continuing administration of the Trust and the only other primary beneficiary — Doree — knew that David resigned.
Compensatory, Punitive, and Equitable Damages for Trustee Misconduct
David claimed that the court should award him compensatory, punitive, and equitable damages for Doree’s misconduct, which he claimed included: poor investment decisions, making distributions to herself without offering a similar distribution to David, and failing to keep David informed of the Trust administration.
David asserted that Doree’s failure to invest over $700,000 violated the Prudent Investor Act (“the Act”). While the Trust allowed Doree to hold Trust funds in commercial and savings loan accounts, David argued that that was only suitable when Gloria was alive and acting as trustee. As a result of being held in savings accounts, the assets realized a return on investment of only 0.45% over a 28-month period. David argued that this investment strategy was not in compliance with the requirements of the Act.
Under the Act, a fiduciary has a six-month grace period in which it is required to review the trust assets, and make and implement a plan regarding the administration of the assets. N.J.S.A. 3B:20-11.7. After the six-month period expires, the fiduciary has a duty to make the trust property “productive so that a reasonable income will be available for the beneficiaries.” See Pa. Co. for Ins. on Lives v. Gillmore, 137 N.J. Eq. 51, 58 (Ch. 1945).
The Act also provides that the prudent investor rule “may be expanded, restricted, eliminated, or otherwise altered by express provisions of the trust instrument,” and a fiduciary is not liable to a beneficiary to the extent that it relies on those trust provisions. N.J.S.A. 3B:20-11.2(b).
The Trust at issue had such provisions which allowed Doree to hold Trust property without regard to diversification or productivity, and to deposit them in savings accounts. The court also noted that Doree was under an obligation to manage the Trust’s assets with caution. The appellate panel determined that the trial court was correct in its determination that Doree had not violated the Act.
The court also determined that damages were not incurred as a result of Doree’s refusal to make interim distributions to David. The trust attorney had advised Doree that she should wait to make interim distributions to David from November 2017 until the inheritance taxes were paid. Under the broad powers granted the trustee under the Trust, Doree had authority to pay trust expenses and any liabilities sustained in the Trust’s administration, as well as to distribute Trust assets. The Trust instrument did not compel her to make interim distributions. A beneficiary’s right to compel distributions is limited by the terms of the trust. See Tannen v. Tannen, 416 N.J. Super. 248, 265-67 (App. Div. 2010).
The appellate panel determined that other than Doree’s $37,000 distribution to herself, she did nothing inappropriate in administering the Trust. That distribution to herself, without making an equal distribution to David, was in violation of Doree’s fiduciary duty. See N.J.S.A. 3B:31-56.
However, David’s claim that he was entitled to interest on the $37,000 not distributed to him above and beyond the 5% awarded by the trial court was without merit. David’s expert opined on the income David could have earned on his share of the Trust if he was managing the investment. The trial court dismissed the expert’s opinion as pure speculation and concluded damages were not appropriate. Specifically, in order for David to recover lost profits, he must show with certainty the amount he lost; the court instead awarded the undistributed funds with 5% interest. The appellate court determined that the trial court’s decision was well within its discretion.
An additional award based on punitive damages for Doree’s breach of trust for failing to make a distribution to David when she made one to herself was not appropriate, in part because David did not claim punitive damages in his Verified Complaint, as is required. See N.J.S.A. 2A:15-5.1. Even if David had requested the relief in his Complaint he did not demonstrate by clear and convincing evidence that Doree acted with actual malice or acted with wanton and willful disregard. See N.J.S.A. 2A:15-5.12(a).
Informing Beneficiaries of Trust Administration
N.J.S.A. 3B:31-67(a) requires “[a] trustee [to] keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.” David did not make any inquiries of Doree until April 2018, at which time there was about a two-week delay before the trust attorney responded to him. Other than her breach with regard to the $37,000 distribution, the trial court determined that Doree had complied with her fiduciary duties. Furthermore, David did not show how Doree’s failure to inform him of actions she took resulted in any loss to him.
Award of Counsel Fees and Costs
David objected to Doree’s counsel fee application by simply stating in his appeal that Doree’s misconduct should result in a punitive damages award and that she should not be reimbursed for her legal fees from the Trust. Since he did not adequately brief the issue, David waived his right to challenge the fee award. Irrespective of that failure, the appellate court stated that David failed to show that Doree attempted to deprive David of any Trust asset, which could preclude her from receiving a fee award. See Behrman v. Egan, 31 N.J. Super. 95, 100 (Ch. Div. 1953), modified, 16 N.J. 97 (1954). The trial court did not abuse its discretion in awarding counsel fees and costs to Doree.
On appeal, David also requested that his fees be paid by the Trust, but he made no such application to the trial court; accordingly, the appellate panel did not address that claim.