Davis v. Davis

• Decision Date: 30 June 2008
• Docket Number: No. 82A01-0706-CV-262.,82A01-0706-CV-262.
• Parties: Randall R. DAVIS, Appellant-Petitioner, v. M. Brian DAVIS, Individually and as Trustee of the Trust of Maybelle V. Reichert, dated August 5, 1996, Appellee-Respondent.
• Court: Indiana Appellate Court

889 N.E.2d 374

Randall R. DAVIS, Appellant-Petitioner, v. M. Brian DAVIS, Individually and as Trustee of the Trust of Maybelle V. Reichert, dated August 5, 1996, Appellee-Respondent.

No. 82A01-0706-CV-262.

Court of Appeals of Indiana.

June 30, 2008.

Jeff Shoulders, Barber & Shoulders, Evansville, IN, Attorney for Appellant.

Catherine A. Nestrick, Donald J. Fuchs, Bamberger, Foreman, Oswald and Hahn, LLP, Evansville, IN, Attorneys for Appellee.

OPINION

KIRSCH, Judge.

Randall R. Davis ("Randall"), a beneficiary of a trust established by his mother, Maybelle V. Reichert ("Reichert"), filed a petition to have his brother, M. Brian Davis ("Brian" or the "Trustee"), removed as the trustee of the trust. The trial court denied Randall's petition. Randall appeals raising the following restated issues for our review:

I. Whether the trial court abused its discretion in finding that Brian's actions did not warrant his removal as the trustee of the Trust.

II. Whether the trial court erred in setting the interest rate at 4.5% for the Trustee's repayment of loans despite expert testimony that the applicable rate during that time period was 8%.

III. Whether the trial court erred in reducing Randall's attorney fee award from his requested $29,628.69 to $4,000.00.

We reverse and remand.

FACTS AND PROCEDURAL HISTORY

Reichert, as Trustor, established the "Trust of Maybelle V. Reichert (Revocable)" on August 5, 1996 ("Trust"). Appellant's App. Vol. 3 at 124.¹ Reichert had three children, two of whom are involved in this litigation. Randall, who resides in Texas and also had three children, was Reichert's oldest child and a beneficiary of the Trust. Tr. at 62. Brian, who resides in Evansville, was Reichert's youngest son and was both the trustee and a beneficiary of the Trust. Reichert's third son, Donald, who is not mentioned in the Trust, had four children. Id.

Under the terms of the Trust, Reichert was the sole beneficiary with unlimited rights to all principal and income during her lifetime. Appellant's App. Vol. 3 at 124. The original Trust assets consisted of only two pieces of property—(1) "Lot sixteen (16) in Green River Estates ..." (4646 English Way, Evansville, Indiana); and (2) "The East 5 feet of Lot 11 and all of Lots 12, 13 and 14 in Block 4 in Legler Heights ..." (2323 E. Gum Street, Evansville, Indiana). Id. at 144. Reichert's United Fidelity Bank accounts, no. 0854 ("Operating Account") and no. 4916 ("Savings Account"), were not included as part of the original Trust property. However, the Trustee opened these accounts in the Trust's name on August 6, 1996—the day after Reichert created the Trust. Id. at 168-69. Also in August 1996, Reichert named Brian to be her power of attorney and health care representative.² Tr. at 122. Brian testified that he provided his mother with annual statements of the Trust during her lifetime. Id. at 33.

On December 27, 1996, five years prior to Reichert's death, the Trustee paid each of his two children a $10,000.00 gift from the Trust's Operating Account. Appellant's App. Vol. 3 at 176. Two months later, the Trustee paid his two children a second gift of $10,000.00 from the Operating Account. In May 1997, the Trustee gave himself a gift of $10,000.00 from the Trust's Operating Account. The Trustee made no gift from the Trust to Randall or any of his three children.

On April 30, 1997, the Trustee loaned $36,000.00 from the Trust's Savings Account to himself, $30,000.00 of which he repaid the next day without interest. Later that same year, the Trustee loaned himself $3,000.00 from the Trust's Operating Account. He repaid the $3,000.00 three weeks later with interest in the amount of $6.98.

During this time in 1997, the Trustee was Vice Chairman of United Fidelity Bank ("Bank"), and was President, Chief Executive Officer, Director, and Vice Chairman of the Bank's holding company, Fidelity Federal Bancorp. Appellant's Br. at 3. In September of that year, the Bank's board of directors decided to raise additional capital to enhance the Bank's business plan because the Bank's earnings were down from the previous year. Tr. at 216. On September 30, 1997, the Trustee paid $85,866.54 from the Trust's Operating Account for 22,017 shares of stock in the Bank ($3.90 per share). Tr. at 39, 218-23. The price of the shares was established by warrants, i.e. stock options, that Reichert received in 1994 and 1995 as a stockholder of the Bank. Id. at 36. At the time of Reichert's death, the Bank's stock was worth $1.31 to $1.81 per share.

In 1998 and 1999, the Trustee paid, from the Savings Account, a gift to himself and one to Randall in the amount of $10,000.00 each. In November 1999, the Trustee also made a loan from the Trust's Savings Account to himself in the amount of $25,000.00.

Reichert became afflicted with Alzheimer's disease and cancer, and by June 2000, she was unable to care for herself. At that time, the Trustee moved Reichert into a separate living area within his home. Reichert died on February 13, 2001. Two months after Reichert's death, Randall's attorney, Edward Johnson, sent a letter to Donald Fuchs, the attorney for the Trustee, requesting a copy of the Trust's checking, savings, and investment accounts. Pl.'s Ex. 19. Having received no response, Johnson sent Fuchs a follow-up letter and made the same request in August 2001. Pl.'s Ex. 20. Yet a third time, on January 24, 2002, Johnson sent a letter to Fuchs requesting a "current accounting" for the Trust. Id.

On February 20, 2002, Randall filed a "Petition to Docket Trust for Accounting" alleging that the Trustee had failed, for more than a year, to provide Randall with any record of the Trust. Pl.'s Ex. 11. The Trustee filed an answer claiming that he had, and would, continue to make all financial information pertaining to the Trust available for Randall's inspection. Pl.'s Ex. 12. During February and March 2003, Johnson sent Fuchs three additional letters inquiring about the Trustee's progress in gathering the requested financial information about the Trust. Pl.'s Ex. 20.

Having received no response from Fuchs or the Trustee, on July 29, 2003, Randall filed "Petition to Request an Accounting." Pl.'s Ex. 18. A year later and more than three and a half years after the initial request, on November 17, 2004, the Trustee filed "Trustee's Intermediate Accounting and Report," which itemized transactions from the years 2000 through 2004. Pl.'s Ex. 13. On December 1, 2004, Randall filed an "Objection to Accounting" and raised the following issues: (1) the Trustee had withdrawn $36,000.00 from the Trust on or about April 30, 1997; (2) the Trustee had failed to repay a $25,000.00 loan paid from the Trust account; (3) the Trustee had paid each of his two children $10,000.00 from Trust money in each of two successive years, but gave nothing to Reichert's other grandchildren; and (4) the proceeds from the Integra Trust—a trust created by Reichert's mother— were delivered to Reichert prior to December 31, 1999. Pl.'s Ex. 14. Randall also asserted that the accounting was incomplete and asked the trial court to order an accounting that commenced in August 1996. Id.

On August 17, 2005, the Trustee filed a second intermediate accounting and report, which again began with the year 2000. Pl.'s Ex. 15. Randall filed an objection to this accounting on September 2, 2005. Pl's Ex. 16. Three months later, the Trustee filed a Supplement to Trustee's Intermediate Accounting and Report. Pl.'s Ex. 17. This third accounting added the named payee for each disbursement, but still showed no accounting for the period from 1996 through 1999. Randall filed a supplemental objection to the accounting on May 10, 2006. Appellant's App. Vol. 1 tab A at 6.

Finally, on July 7, 2006, five years after Reichert's death, the Trustee filed a supplemental and amended intermediate accounting and report. Pl.'s Ex. 8. For the first time, this accounting revealed missing Trust transactions for the years 1996 through 1999. The Trustee later testified that this was the first time he discovered that the loans made from the Trust to himself had not been repaid. Tr. at 124. This accounting also revealed that the Trustee had made deposits to the Trust from unnamed sources and that funds from another trust had been commingled with the assets of the Trust. Id. at 106, 131-36, 174-75, 182-83. The Trustee testified, "I erred in not ... in not keeping a more accurate deposit history." Id. at 175.

The Trustee's failure to repay the money he borrowed from the Trust was discovered by Randall's accountant, Steven Brackmann. Id. at 328. In his review of the accounting, Brackmann also discovered missing checks and deposits made to the Trust without explanation. Randall was charged fees in the amount of $19,273.58 for the accounting services of Brackmann and two prior accountants, all of who took some part in the review of the Trust's finances. Id. at 313-14, 331-34, 366-69.

On June 29, 2006, just one week prior to filing the fourth accounting, the Trustee repaid the Trust $6,000.00. This sum represented the Trustee's deficiency on the $36,000.00 loan the Trustee had made to himself on April 30, 1997. This money was repaid without interest.

Randall filed objections to the Trustee's July 7, 2006 accounting, and the trial court set a hearing date. Appellant's App. Vol. 1 tab C at 190. On January 24, 2007, Randall also filed a petition to remove Brian as Trustee on the grounds that the Trustee: (1) had co-mingled funds from this trust with funds from another trust; (2) had engaged in self-dealing; (3) had failed to keep appropriate Trust records; and (4) had and continues to have a conflict of interest. Id. at 201.

Prior to the hearing, the Trustee repaid the Trust $39,415.62 on January 17, 2007. Appellant's App. Vol. 3 at 203-04. This payment represented the following:

1. Loan of November 29, 1999, in the amount of $25,000 with interest [at the rate of 4.5%] from that...