Opinion
C.A. No. 14488.
Date Submitted: May 2, 1999.
Date Decided: September 14, 2000.
David J. Ferry, Jr., Esquire, of FERRY JOSEPH, P.A., Wilmington, Delaware, Attorney for Plaintiff
Douglas A. Shachtman, Esquire, of DOUGLAS A. SHACHTMAN ASSOCIATES, Wilmington, Delaware, Attorney for Defendants
MEMORANDUM OPINION
This is the post-trial Opinion of the Court in this action, brought on August 18, 1995 by the then-Guardian of Aline G. Brugmann ("Mrs. Brugmann" or "the decedent"). The defendants are Robert J. Spanagel and his wife, Rose M. Spanagel (the "Spanagels"). In its complaint the plaintiff alleged that the defendants breached fiduciary duties that they owed to Mrs. Brugmann in connection with the transfer of her residence to themselves in 1987 for inadequate consideration. The complaint also alleged that the Spanagels had misappropriated and failed to account for the decedent's other assets over which the defendants had control. The complaint prayed for: (a) an accounting, (b) a re-transfer of the Property to Mrs. Brugmann, (c) damages equal to the amount of the decedent's assets that were misappropriated and/or not accounted for, and (d) attorneys' fees to be paid out of Mr. Spanagel's share of the Estate.
The original plaintiff was Mrs. Brugmann's guardian, Supportive Care Services, Inc. After Mrs. Brugmann's death on March 12, 1996, John FL Williams, Jr., Esquire, the Administrator of the decedent's estate, was substituted for the guardian as plaintiff.
Mrs. Brugmann's home, which was located at 3403 South Rockfield Drive, Wilmington, Delaware, is referred to in this Opinion as "the Property."
I conclude that except for the attorneys' fees-shifting remedy, the plaintiff is entitled to the relief that he seeks.
I. BACKGROUND
A. Procedural Background
The procedural history of this five year old case has been, to say the least, erratic. As a consequence the issues of liability had been determined, and one portion of the relief being sought had been granted, before the final hearing was held. What presently remains to be decided is the plaintiffs entitlement to the balance of the relief he requests.
On March 4, 1996, this Court granted default judgment against the defendants on the issue of liability for failure to appear and respond to the complaint, despite having had ample opportunity to do so. The defendants then made several applications to set aside the default judgment, all of which were denied. Thereafter, an inquisition hearing was held on March 26, 1999 to determine damages and other remedies.
The latest of the defendants' attempts to vacate the judgment was denied by letter opinion dated September 21, 1999. It appears that the defendants' present counsel is the fifth (successive) attorney that the defendants have retained during the five year pendency of this case.
At that hearing the defendants proffered three volumes of documents that (they contend) established that they had no liability to the plaintiff. The defendants were reminded that liability had already been determined by virtue of the default judgment against them, and the Court then proceeded to hear the testimony of the plaintiffs witnesses and one defense witness. It soon became evident, however, that the issues that the defendants were attempting to litigate had not been clearly defined and, moreover, that the matter could not be concluded in the time allotted. Accordingly, the Court continued the hearing to a later date, and directed the parties to submit, in connection with the continued hearing, a pretrial stipulation and memoranda addressing the impact of the default judgment on the plaintiffs entitlement to the requested relief.
On April 9, 1999, after considering the parties' submissions (but before the evidentiary hearing was reconvened), the Court determined that the plaintiff was entitled to have the Property transferred back to Mrs. Brugmann's Estate, and it entered an order to that effect. The defendants did not comply with that order. As a result the plaintiff filed a motion to authorize the Register in Chancery to execute the deed in lieu of the defendants. The Court granted that motion on April 27, 1999, and the deed was executed on April 29, 1999.
The reconvened hearing took place on December 20, 1999,at which time the Court received into evidence Mr. Spanagel's testimony, and the exhibits he had offered as a full accounting for the decedent's moneys that had come into his hands. The defendants also claimed entitlement to a setoff against any monetary award entered against them, equal to the amounts they claim to have expended to maintain and improve the Property, and to care for the decedent, between 1986 and 1995.
For ease of reference, the transcript of the March 26, 1999 hearing is cited as "Tr. I," and the transcript of the reconvened hearing held on December 20, 1999 is cited as "Tr. II."
B. Factual Background
Based upon the evidence submitted at both hearings, I find the facts to be as follows: At the time of her husband's death on May 22, 1986, Mrs. Brugmann lived at 3403 South Rockfield Drive in Wilmington. Mrs. Brugmann was an elderly disabled person who needed assistance in handling her personal and financial affairs. On June 6, 1986, she appointed Robert Spanagel as her attorney-in-fact, and for the next 9 years Mr. Spanagel handled Mrs. Brugmann's financial affairs, and Mrs. Spanagel was involved in caring for her. Mrs. Brugmann had been a lifelong friend of Mr. Spanagel's mother, and had known Mr. Spanagel for many years. The closeness of the relationship between Mr. Spanagel and Mrs. Brugmann is evidenced by the fact that in her will she named him one of the two beneficiaries of her residuary estate. The other beneficiary is Mr. Spanagel's brother, Herman Spanagel.
Mr. Spanagel testified that he and his wife cared for Mrs. Brugmann completely after her husband's death, and that all she could do was watch television and dress herself. Tr. II at 41, 60.
At the time of her husband's death, Mrs. Brugmann's assets consisted of approximately $30,000 in various bank accounts, the Property, and insurance proceeds of about $16,000. She also had monthly income of about $1200 from Social Security and pension benefits. Although Mr. Spanagel and his wife handled Mrs. Brugmann's financial affairs between 1986 and 1995 (when a guardian for Mrs. Brugmann was appointed), they were unable to account for Mrs. Brugmann's funds for the period 1986 to 1990, because they claim that Brugmann-related documents and papers in their possession during that period are missing.
Tr. II at 123-25.
Id. at 127-28. For that same time period, however, Mr. Spanagel was able to produce invoices and receipts supporting claims for which he sought reimbursement. Id. at 130.
On June 18, 1987, Mrs. Brugmann conveyed the Property to the defendants for $125,000. The defendants paid $50,000 in cash, and agreed to pay the $75,000 balance over time. Although the Spanagels were represented by counsel in that transaction, Mrs. Brugmann was not. No appraisal of the Property was obtained and, in fact, there was no other documentation supporting the $125,000 purchase price, or any documentary evidence of a promissory note for the $75,000 purchase money loan. Indeed, Mr. Spanagel testified that no promissory note was ever executed, yet he also contended (inconsistently) that sometime after the transfer of the Property in 1987, he and Mrs. Brugmann entered into a debt forgiveness agreement. According to Mr. Spanagel, Mrs. Brugmann agreed to forgive the $75,000 loan balance at the rate of $20,000 per year, in exchange for the Spanagels providing for her care. Mr. Spanagel offered into evidence a November 1987 document he claimed was the debt forgiveness agreement, but the document was ruled inadmissible because Mr. Spanagel was unable to authenticate the signature as that of Mrs. Brugmann. Because Mr. Spanagel's self-serving testimony — which I find not credible — is the only evidence of the alleged loan forgiveness agreement, I conclude that no such agreement was proven. What is undisputed, however, is that the $75,000 balance of the purchase price was never paid to Mrs. Brugmann or to her Estate.
Although the plaintiff contends that the $125,000 price was "far below the value of the home" (Pl. Reply Ltr. Memo. at 8), he presented no evidence to support that claim, nor does he suggest what transaction price would have been fair in 1986. In any event, because the Property has been re-transferred to the Estate, the fairness issue is not addressed in this Opinion.
Tr. II at 65-66.
DX F.
Tr. II at 83-91.
Mr. Spanagel's testimony was contradictory and inconsistent at several critical points. With respect to the loan forgiveness issue, Mr. Spanagel testified that in 1990, he made two payments on the promissory note to Mrs. Brugmann to "quiet her down" because she was "upset about money." Tr. II at 159. Mr. Spanagel never explained why he was making payments on the promissory note in 1990, if in fact Mrs. Brugmann had entered into a loan forgiveness agreement in November, 1987.
Between 1987 and June 1990, Mrs. Brugmann lived in the home that she had previously sold to the Spanagels, and the Spanagels provided for her care. By mid-1990, Mrs. Brugmann, apparently disenchanted with the Spanagels, revoked their power of attorney. Adult Protective Services, which had voiced concerns about the management of Mrs. Brugmann's finances, arranged for Supportive Care Services to serve as attorney-in-fact for Mrs. Brugmann, who then signed a new power of attorney. However, that new arrangement lasted for only four months. In October 1990, Supportive Care Services was informed that Mrs. Brugmann had decided to reinstate the Spanagels' power of attorney.
Tr. I at 22-23.
By this point Mrs. Brugmann was 90 years old. Because she was incapable of living independently in her (former) residence under the arrangements in effect since 1986, in April, 1991 the Spanagels prepared and submitted an application for Mrs. Brugmann to reside at the Forwood Manor Nursing Home in Wilmington. In that application Mr. Spanagel intentionally overstated what he believed were Mrs. Brugmann's assets and income, in order to qualify her for the minimum asset and monthly income requirements for admission. Mrs. Brugmann was admitted to Forwood Manor in 1991, and she lived there until 1995.
PX 1. In the financial statement portion of the application, Mr. Spanagel represented that Mrs. Brugmann's assets included a "note due" of $71,000. In fact, however, no note existed. Tr. II at 109-11, 152-53. Because I find that the Spanagels did owe the $75,000 balance, there was in fact no actual misrepresentation of Mrs. Brugmann's assets. Ironically, however, the fact that the correct representation was inadvertent, because Mr. Spanagel either believed that he did not owe the $75,000 to Mrs. Brugmann or believed that he did owe the money but did not intend to repay it. Accordingly, although Mr. Spanagel unintentionally told Forwood Manor the truth about his outstanding debt to Mrs. Brugmann (except insofar as he described the debt as a "note"), he intended to misrepresent that indebtedness. That is one of several reasons why I have found that Mr. Spanagel's testimony (except where it was independently corroborated or constituted an admission against interest) lacked credibility.
After Mrs. Brugmann went into the nursing home, the Spanagels rented the Property to third parties. Mr. Spanagel collected rents and cash that he deposited into his personal bank account at Maryland National Bank. He made no effort to verify the amount of the rents he had collected, nor did he provide an accounting for the moneys that were deposited into the Maryland National Bank account. This failure to account is significant, because at the December 1999 resumed hearing, Mr. Spanagel testified that although the Property had been transferred to himself and his wife, he was ". . . holding on to that house . . . in case Mrs. Brugmann needed it back or [he] needed to sell it to pay expenses."
Tr. II at 136-40. There had also been an account for Mrs. Brugmann's funds at Nations Bank that Mr. Spanagel had been handling. There is confusion in the record as to whether the Maryland National and Nations Bank accounts were one and the same. At the December 1999 hearing, Mr. Spanagel testified that the Nations Bank account had been closed out in 1994, yet at the 1995 guardianship hearing Mr. Spanagel had testified that there was approximately $6,000 of Mrs. Brugmann's funds on deposit in that account. Id. at 141-42.
Tr. II at 145-46.
Between April 1991 and December 1993, the Spanagels used Mrs. Brugmann's liquid assets to pay her expenses at Forwood Manor. By December 1993 those assets had been depleted, and the Spanagels stopped paying Mrs. Brugmann's Forwood Manor expenses. Thereafter, the unpaid expenses continued to accrue, despite many requests by Forwood Manor for payment. Finally, in late April 1995, Forwood Manor instituted a proceeding for the appointment of Supportive Care Services as guardian of the person and property of Mrs. Brugmann. That application was granted in late June 1995. Then, in July 1995, Supportive Care Services, which was unable to locate assets sufficient to pay the outstanding debt to Forwood Manor, caused Mrs. Brugmann to be moved to Governor Bacon Health Center, where she remained until she died on March 12, 1996.
Tr. II 141-43.
After its appointment as guardian, Supportive Care Services made diligent efforts to identify, locate, and obtain an accounting of Mrs. Brugmann's assets, the value of which was approximately $152,000 when she moved to Forwood Manor four years earlier, in 1991. The Spanagels, who had been directed by the Court to provide an accounting to the guardian, never responded to the guardian's July 27, 1995 letter requesting information about Mrs. Brugmann's assets, including her bank accounts and significant documents such as copies of deeds, tax bills, and her will.
Px 1.
PX 2.
Having received no response from the Spanagels, the guardian undertook its own investigation, and discovered that on June 27, 1995 — shortly after the guardian's appointment — the Spanagels had entered into a contract to sell the Property for $153,500. The guardian then instituted this action and sought to enjoin the sale. During the course of those proceedings, the parties reached an agreement to allow the sale to go forward but to hold the proceeds in escrow until this action was resolved. The sale never went forward, because the Spanagels did not attend the settlement, and as a result the Property was never transferred.
PX 3.
After Mrs. Brugmann's death, the guardian was initially unable to locate a will, but a will was eventually produced and Mr. Williams, at the request of the Register of Wills, was appointed Administrator of the decedent's Estate.
Supportive Care Services, as guardian, submitted its final accounting, but at that point the guardian had no assets to turn over to the Administrator. From that point forward, the prosecution of this litigation and the effort to obtain an accounting of the decedent's assets became the Administrator's responsibility. The Administrator, like the guardian, received no cooperation from the Spanagels in his efforts to obtain information, or to effect a reconveyance of the Property or to collect any rents collected on the Property.
The guardian was able to collect approximately $7,000 in income. Those moneys were ultimately utilized, with Court authorization, to pay the fees of the guardian and certain outstanding legal fees. The assets were not sufficient, however, to pay the outstanding charges of Forwood Manor and the Governor Bacon Health Center. Tr. I at 36.
Tr. I at 48-49.
III. ANALYSIS OF THE CLAIMS
By way of overview, when the defendants assumed control over Mrs. Brugmann's finances in 1986, she had assets totaling approximately $171,000, consisting of the Property which was worth approximately $125,000, plus personal property worth approximately $46,000. She also had income of approximately $1200 per month. By June 1995, when Supportive Care Services was appointed guardian, the Spanagels had no assets to turn over: the personal assets had been exhausted and the real estate was gone. The real estate (the Property) was later transferred back to the Estate by virtue of an Order of this Court, predicated upon the earlier default judgment; and the remaining assets consisted of numerous items of personal property for which the Spanagels were obligated, but failed, to account.It is unquestionable that Mr. Spanagel, as attorney-in-fact under a durable power of attorney, was a fiduciary who owed a duty of loyalty to his principal, Mrs. Brugmann. The common law fiduciary relationship created by a durable power of attorney is regarded as similar to the relationship created by a trust. Therefore, the fiduciary principles of trust law govern that relationship. The plaintiff claims that as a result, the Spanagels are liable to Mrs. Brugmann's Estate for (i) the income derived from the actual or imputed rental of the Property (less appropriate credits), and (ii) the decedent's remaining personal property, not otherwise accounted for, over which the Spanagels exercised control (again, less appropriate credits). In addition, the plaintiff seeks (iii) an order rejecting the Spanagels' proffered accounting, and (iv) an award of attorneys fees and expenses, payable out of Mr. Spanagel's share of the Estate.
Schock v. Nash, Del. Supr.. 732 A.2d 217, 224-225 (1999).
The Spanagels contend that the plaintiff is not entitled to any relief, for reasons that are addressed in the analysis that follows.
A. The Claim For Real Estate Income
Although the Property has now been transferred to the Estate, the plaintiff claims that the Spanagels had a duty to account for all income they received — or should have received — for the rental of the Property during the period that it was under the Spanagels' control. Because the parties stipulated that $1,000 per month was a fair rental value, and because it was undisputed that the Property was in the Spanagels' possession for 96 months, the plaintiff contends that the Spanagels are liable for $96,000 in rent. The plaintiff gives the Spanagels a $50,000 credit for their cash payment to Mrs. Brugmann in 1986 when she transferred the Property to them. Accordingly, the plaintiff concludes, the Spanagels are liable for the $46,000 difference.
The Spanagels advance several arguments in response. First, they claim entitlement to restitution in the amount of $77,211.50. of that amount, $50,000 represents their partial payment for the Property — which the plaintiff concedes is a proper credit. The remaining $27,211.50 consists of (i) two payments made in 1990, totaling $8,000, that the defendants contend were payments on the purchase money note, and (ii) $19,211.50 for renovations which the defendants claim they made to the Property. Second, the defendants argue that the plaintiff has the burden to prove what rents, if any, are due; that he has not met that burden; and that in any event they should not be liable for rents during times when the Property was not rented. None of these arguments, in my view, has merit.
1.
The first issue is whether the plaintiff has established his $96,000 claim for rents, which amounts to a net claim of $46,000 after the $50,000 credit. As noted, the defendants argue that he has not, because the plaintiff had the burden of establishing that claim but failed to discharge it. I disagree. Even if (arguendo) the plaintiff had that burden, he clearly discharged it with respect to $26,000 of his (net) claim, because: (a) the Spanagels had rented the property for $1,000 per month to a tenant during the 26 month period between March 1, 1997 and May 1, 1999, when the Property was returned to the Estate; and (b) the defendants stipulated that $1,000 per month was a fair rental value. By virtue of the default judgment, it is established that the Property was improperly transferred to the Spanagels, who (as a legal consequence) held the Property as constructive trustees for the benefit of Mrs. Brugmann. A constructive trustee's duty to transfer the trust property to the beneficial owner relates back to the wrongful act that led to the constructive trust. It therefore follows that all rental income generated by the Property belonged to Mrs. Brugmann, and the Spanagels had a duty to account for it. Because the Spanagels could not account for the whereabouts of the $26,000 of rental income that came into their hands, they are liable to the Estate for that amount. I find for the reasons next discussed, that they are liable for the balance of the rental claim as well.
Tr. I at 64-65.
Hogg v. Walker, Del. Supr., 622 A.2d 648, 652 (1993); 76 Am. Jur. 2d. Trusts § 413 (1992).
The $20,000 balance of the plaintiffs rental claim represents imputed rental income for the remaining 70 month period during which the Spanagels controlled the Property. As to this amount, it is unclear whether, or to what extent, the Property was actually rented during this period. The defendants claim that they should not be liable for rent during periods when the Property was not rented. One factual difficulty with that argument is that the Spanagels kept no records of any rentals or rental income during the first six years (72 months) that they controlled the Property. As fiduciaries they had a duty to keep adequate records of all transactions involving assets of the beneficiary that came into their hands. At the rate of $1,000 per month, the plaintiff's claim is equivalent to the rental income for only 20 of those 72 months. It is undisputed that the Property was rented to at least one other tenant before March 1, 1997. The Spanagels may have rented the Property to that tenant for 20 months or for some greater or lesser period, but unfortunately the Spanagels were unable to shed any light on that question. What is clear, however, is that they and they alone were capable of keeping records of when they rented the Property, to whom, and at what rate. The Spanagels were obligated to do that, yet they did not.
Technicorp International II. Inc. v. Johnston, Del. Ch., C.A. No. 15084, Jacobs, V.C.. Mem. Op. at 52-54 (May 31, 2000) (citing Samia v. Central Oil Co., Mass. S.J.C., 158 N.E.2d 469, 484-85 (1959) (holding that the fiduciary has the burden to account for the disposition of the beneficiary's assets that come under his control).
Tr. I at 64; Tr. II at 140.
Technicorp supra at 52-54; Sadler v. Smith, Del. Ch., C.A. Nos. 861S, 862S, Berger, V.C. Mem. Op. at 5 (April 30, 1987) (citing 4Pomeroy's Equity Jurisprudence § 1063 (5th ed. 1941) (holding that a trustee "is bound to keep regular and accurate records respecting trust property and render a full account of the property . . . at the time of settlement.").
The issue is who — the defendants or the plaintiff — should bear the financial responsibility for that failure. In my view, it should be the defendants for two reasons. First, as fiduciaries, the Spanagels have the duty to account for their disposition of the Property and any income generated therefrom while they exercised exclusive control over it. They failed in that duty. Second, even if it is assumed (contrary to fact) that the Property was not rented for the entire 72 month period up to March 1, 1997, the Spanagels, as constructive trustees, had a fiduciary duty to assure that the asset in their charge was productive, consistent with assuring its preservation and protection. The Spanagels have not shown that the Property was uninhabitable or not rentable during this period or any portion thereof. Accordingly, unless reduced by an appropriate offset, the Spangels are liable to the Estate on this claim in the amount of $46,000.
Broeker v. Ware, Del. Ch., 29 A.2d 591, 597 (1942) (Trustees are bound to collect all rents due, as part of duty to do all acts necessary for the preservation of the trust estate that would be usually performed by reasonably prudent persons in the management of their own property under like circumstances); accord, Lockwood v. OFB Corporation, Del. Ch., 305 A.2d 636, 642 (1973).
See Hogg at 654 (Court of Chancery has jurisdiction to enter money judgment against constructive trustee who has dissipated trustres).
2.
That leads to the second issue, which is whether the defendants are entitled to an offset of $27,211.50, consisting of(i) $8,000 of payments on the purchase money loan respecting the Property, and (ii) $19,211.50 of renovations that the Spangels claim they made to the Property. I conclude that the defendants have proved some, but not most, of these claimed offsets.The $8,000 of payments consists of two checks, one for $3,500 and the other for $4,500. Those checks were drawn on the Spanagel's personal Maryland National Bank account on January 24 and April 2, 1990, and were made payable to "Aline G. Brugmann." The problem is that nothing on the checks themselves or on any other document of record evidences that those payments were made to reduce the $75,000 loan balance. The only evidence that links the payments to the loan balance is Mr. Spanagel's testimony which, if it were credited, would require the Court to accept the implausible argument that Mr. Spanagel was making payments on an obligation he contends no longer existed. For that reason the Spanagels have failed to persuade me that the $8,000 payments were made on account of the Property.
See Exhibit E to Volume I of Defendants' Trial Exhibits.
The remaining $19,211.50 for which the Spanagels claim credit (they describe it as "restitution") is said to represent a portion of the moneys they expended out of their own pockets to renovate and maintain the Property. The defendants produced no invoices that would establish that these expenses were made to improve the Property. The only corroborative evidence are copies of the checks that were written during that period. Some of those checks contain an annotation showing that the moneys were being expended on the Property; the rest do not. I have credited the Spanagels with the amounts represented by those annotated checks; the remaining checks were not credited because they did not adequately document the claim. On this basis, the allowed credits for renovations to and maintenance of the Property total $9,966.73.
The list of payments in this category, totaling $77,211.30 and spanning the period from December 26, 1986 through May 24, 1994, is also found at Exhibit E to Volume I of the Defendants' Trial Exhibits.
The Maryland National Bank checks that will be credited are as follows:
12/26/86 1624 $4,988. 12/26/8 1625 1,500. 7/27/92 3357 1,170. 7/28/92 3359 150. 7/29/92 3360 996.23 9/2/92 3387 285. 12/19/92 3443 149. 8/26/93 3560 728.50 _________ Total: $9,966.73
Accordingly, the net amount of the surcharge against the Spanagels with respect to this claim is $36,033.27, exclusive of interest.
($46,000 less $9,966.73 $36,033.27). The defendants argue that Mrs. Spanagel should not be subject to any liability. But, she received joint title to the Property and enjoyed the other benefits (such as rent) flowing from her husband's breach of his fiduciary duty to the decedent. She also occupied a relationship of trust and confidence with Mrs. Brugmann and, thus, was a fiduciary in her own right. See Schock v. Nash, 732 A.2d 217, 232-34 (1999) (holding that family members of fiduciary who were unjustly enriched by fiduciary's breach were properly ordered to make restitution to the wronged beneficiary).
B. The Claim For Other Moneys Not Otherwise Accounted For
Although the plaintiff also asserts a claim to recover personal property not otherwise accounted for, the presentation in the briefs on this point leaves much to be desired, principally because the amount of the claim is nowhere specified. The plaintiff's argument begins with $46,000, which (the plaintiff claims) was the value of Mrs. Brugmann's personal property when they began handling her affairs in May 1986. To that figure the plaintiff adds $112,000, representing the amount of combined Social Security and pension income they estimate Mrs. Brugmann received between 1986 and 1995. The plaintiff adds those two figures to arrive at a total amount of Mrs. Brugmann's funds that passed through the Spanagel's hands, i.e., $158,000.
At this point one would expect the plaintiff to identify whether he seeks to recover all or some portion of that amount. Instead, however, the plaintiffs Opening Brief argues that although Mr. Spanagel "provided some accounting of these funds . . . there are several reasons to reject the accounting provided," and for the next three pages, the Brief goes on to describe the many flaws in the Spanagels' accounting. Having done that, the plaintiff then states that ". . . there is no dispute that Mrs. Brugmann was in a nursing home between 1991 and 1995, which was certainly quite expensive, and could very well have exhausted her personal estate." Despite his apparent concession that the accumulated income may be considered as having been expended to pay the nursing home expenses, the plaintiff's Opening Brief does not identify whether the dollar value of this claim is for a specific amount or nothing ($0).
P1. Op. Ltr. Brief. (March 10, 2000) at 11.
Id. at 13.
Not until the Reply Brief did this claim become linked to a specific dollar amount, and even then only obliquely. There, the plaintiff shows that at the 1995 guardianship hearing, Mr. Spanagel testified that he was holding $6,000 of Mrs. Brugmann's funds in the Nations Bank account. Mr. Spanagel did, in fact, so testify; moreover, it is undisputed that those moneys were never turned over to the guardian or to the plaintiff Administrator. Complicating the matter somewhat is that Mr. Spanagel repudiated his 1995 testimony at the December 1999 resumed hearing, claiming that it was in error. I find Mr. Spanagel's 1995 testimony to be more credible than his 1999 testimony, however, because the former was an admission against interest, was far more specific, and was given before any monetary claims were asserted against him.
Pl. Ltr. Reply Br. at 2.
Id., Exhibit A; Tr. of June 30, 1995 hearing, at 109-110.
Tr.II at 142-143.
Accordingly, the Spanagels will be surcharged $6,000 on this claim, exclusive of interest.
C. The Plaintiff's Other Requests For Relief
Lastly, I address the plaintiffs remaining requests for relief, which are for an order (i) rejecting the Spanagels' proffered accounting, and (ii) directing that any award of attorneys' fees to the plaintiff be paid out of Mr. Spanagel's share of the Estate.
The plaintiff is not requesting a specific fee award at this time, only a determination that the award, when made, will be payable solely out of Mr. Spanagel's share of the Estate.
The first request may be dealt with summarily, because the Spanagels' proffered accounting, properly understood, is a matter of defense, not a basis for seeking relief. The claim is that the Spanagels are liable for all of the decedent's assets for which they are unable to account. The defense is that the Spanagels have no liability because they properly accounted for those assets. The Court has already rejected that defense with respect to the specific claims being asserted. Any further determination of the deficiencies of the proffered accounting would serve no useful purpose, since no remedy would flow from it.
The plaintiffs final prayer — that any attorneys' fees award be paid out of Mr. Spanagel's share of the Estate — raises the question of whether fee-shifting is legally appropriate in this case. The plaintiff seeks that remedy on the basis that the Spanagels conducted this litigation in bad faith. That "quite narrow exception . . . [to the American Rule that each party must pay his own attorneys fees] . . . is applied only in the most egregious instances of fraud or overreaching. . . . To award fees under the bad faith exception, the party against whom the fee award is sought must be found to have acted in subjective bad faith ... [which] involves a higher or more stringent standard of proof, i.e.,`clear evidence.'" The question is whether the Spanagels' conduct in this case satisfies that exacting standard. I conclude that it does not.
Arbitrium (Cayman Islands) Handels AG, et al v. Johnston, Del. Ch., 705 A.2d 225, 23 1-232 (1997), aff'd, Del. Supr., 720 A.2d 542 (1998) (emphasis in original) (citations omitted).
In this case there is no question that the Spanagels violated their fiduciary duty to Mrs. Brugmann in handling her financial affairs, and that they conducted their defense of this litigation in a manner that was at best highly irresponsible. Nothing determined here should be viewed as condoning their behavior. But having said that, I am unable to conclude that there is "clear evidence" that the defendants acted in subjective bad faith or that their conduct, though wrongful, was so egregious that an injustice would result if they were not ordered to pay their adversary's attorneys' fees. There is evidence that during the proceedings leading up to the default judgment, Mr. Spanagel was clinically depressed. My review of the record also persuades me that if the Spanagels had been more sophisticated and meticulous about their recordkeeping obligations, it is likely that they would have been able to prove more offsets against the surcharges against them than this Court has allowed.
Although the fee-shifting request is denied, in my view that will not result in an injustice. By virtue of the default judgment entered against them, the Spanagels have already lost their opportunity to disprove liability. And, as one of the two residuary Estate beneficiaries, Mr. Spanagel will effectively be paying one half of the eventual attorneys' fees award that will be made an obligation of the Estate.
IV. CONCLUSION
The parties shall confer and submit a form of order that implements the rulings contained herein. The order shall appropriately provide for prejudgment interest for a sale of the Property, and for the sale proceeds to be used to pay the Estate's expenses, including attorneys' fees, with the balance to be distributed to the beneficiaries.
_______________ Vice Chancellor