In the Matter of The: Downey Family Trust v. Burge

• Decision Date: 13 April 2010
• Docket Number: 1 CA-CV 08-0573
• Parties: In the Matter of the: DOWNEY FAMILY TRUST. ROBYN MCCREA, Petitioner/Appellee, v. KAREN ANN BURGE, Respondent/Appellant.
• Court: Arizona Court of Appeals

In the Matter of the: DOWNEY FAMILY TRUST.ROBYN MCCREA, Petitioner/Appellee,

v.KAREN ANN BURGE, Respondent/Appellant.

1 CA-CV 08-0573

COURT OF APPEALS STATE OF ARIZONA DIVISION ONE DEPARTMENT D

Filed: April 13, 2010

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED

EXCEPT AS AUTHORIZED BY APPLICABLE RULES.

See Ariz. R. Supreme Court 111(c); ARCAP 28(c);

Ariz. R. Crim. P. 31.24

MEMORANDUM DECISION

(Not for Publication-Rule 28, Arizona Rules of Civil Appellate Procedure)

Appeal from the Superior Court in Maricopa County

Cause No. PB 2003-003340

The Honorable Phemonia L. Miller, Commissioner

AFFIRMED IN PART, VACATED IN PART, AND REMANDED

Phoenix

Dyer & Ferris, LLC

By Charles J. Dyer

Scott R. Ferris

Shad Blackford

Charles M. Dyer

Khalil C. Saigh

Kelly L. Kral

Attorneys for Petitioner/Appellee

The Franz Law Group, PC

By J. Noland Franz

Attorneys for Respondent/Appellant

Scottsdale

GEMMILL, Judge

¶1 This appeal concerns a trustee's duty to render an inventory and accounting of trust assets and the award of attorneys' fees and costs in such matter. Karen Ann Burge ("Karen") appeals from the probate court's judgment 1) determining that Karen breached her fiduciary duties as trustee; 2) ordering the distribution of all tangible personal property to Robyn McCrea ("Robyn"), a trust beneficiary; 3) denying Karen compensation and attorneys' fees; and 4) awarding attorneys' fees and costs to Robyn. For the following reasons, we affirm in part, vacate in part and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

¶2 On September 25, 1992, Robert W. Downey and his wife Adelaide N. Downey (collectively, the "Downeys") established the Downey Family Trust (the "Trust"). The Downeys were the trustors and initial co-trustees of the Trust. Karen and Robyn are the Downeys' two adult daughters. Upon the Downeys' deaths, the Trust assets were to be distributed to Karen and Robyn in equal shares.¹ Karen was nominated as first successor trusteeand Robyn was nominated as second successor trustee. Robert Downey died on April 17, 1998, and Adelaide Downey died on February 19, 2002. Karen became trustee of the Trust immediately upon Mrs. Downey's death.

¶3 Karen opened a Trust bank account. Karen sold the Downeys' house and deposited the proceeds of over $40,000 into the Trust bank account. Prior to selling the house, Karen removed the Downeys' tangible personal property and placed it in her garage. However, Karen stored the Downeys' coin collection in her own safe deposit box. Beginning in December 2002, Robyn, through her attorney, requested information and documentation pertaining to the Trust administration and the Downeys' estate. Karen responded to each of Robyn's requests and in February 2003, distributed $11,520.85 to Robyn as her one-half share of the Trust assets. In March, Karen submitted a handwritten check register of the Trust bank account to Robyn, followed in June by a revised typed list of checks issued from the Trust bank account.

¶4 On August 19, 2003, Robyn filed a petition for orderdirecting Karen, as trustee, to prepare and file a Trust inventory and accounting. Robyn alleged Karen's previous responses for requested information were insufficient and did not enable Robyn to identify the assets and value of her beneficial interest in the Trust. Karen responded that all information Robyn requested had been provided. In July 2006, the parties reached an agreement whereby Robyn was given access to Karen's garage to conduct a comprehensive inventory of the tangible personal property. Karen later agreed Robyn could have all the tangible personal property and in July 2007, Robyn went back to Karen's garage and picked up some tangible property.

¶5 A three day evidentiary hearing was held, and on September 5, 2007, Karen filed a formal accounting along with a petition for approval. The court accountant recommended an amended accounting be filed due to three areas of concern. In December, the court issued an order containing findings of fact and conclusions of law granting Robyn's petition and concluding Karen breached her fiduciary duties as trustee by failing to prepare an inventory and accounting, concealing Trust assets, falsifying a check register, and placing unreasonable restrictions on Robyn's efforts to confirm and receive tangible personal property. The court also determined Robyn was entitled to attorneys' fees and costs, all personal property should be given to Robyn, and Karen was not entitled to compensation forher services as trustee and ordered any fees she previously received for compensation to be returned.

¶6 Karen subsequently filed an amended accounting addressing the three areas of concern mentioned in the court accountant's report. The court accountant recommended the accounting be approved, subject to Karen returning $3,533.65 in trustee fees she had received, based on the court's December order. Thereafter, the court issued a judgment against Karen expressly incorporating the December order and awarding Robyn $60,369.49 in attorneys' fees and $4,762.98 in costs. Karen filed an alternate motion for new trial or to alter or amend the judgment, which the court denied. Karen timely appealed. We have jurisdiction under Arizona Revised Statutes ("A.R.S.") sections 12-2101(B), (F)(1), and (J) (2003).²

DISCUSSION

I. Standard of Review

¶7 We review findings of fact under a clearly erroneous standard. In re Estate of Zaritsky, 198 Ariz. 599, 601, 1 5, 12 P.3d 1203, 1205 (App. 2000). "A finding of fact is not clearlyerroneous if substantial evidence supports it, even if substantial conflicting evidence exists." Kocher v. Dep't of Revenue of State of Ariz., 206 Ariz. 480, 482, 5 9, 80 P.3d 287, 289 (App. 2003). Legal conclusions are reviewed de novo. Imperial Litho/Graphics v. M.J. Enterprises, 152 Ariz. 68, 72, 730 P.2d 245, 249 (App. 1986).

¶8 We review an award of attorneys' fees for an abuse of discretion; however, the application of a fee statute is reviewed de novo. Phoenix Newspapers, Inc. v. Dep't of Corr., State of Ariz., 188 Ariz. 237, 243, 244, 934 P.2d 801, 807, 808 (App. 1997). Finally, we review the court's denial of a Rule 59 motion for a new trial or to alter or amend judgment for an abuse of discretion. Mullin v. Brown, 210 Ariz. 545, 547, 1 2, 115 P.3d 139, 141 (App. 2005); see also Innovative Home Health Care Inc. v. P.T.-O.T. Assoc. of the Black Hills, 141 F.3d 1284, 1286 (8th Cir. 1998) (applying abuse of discretion standard to the federal counterpart of Rule 59(l), a motion to alter or amend judgment).

II. Arizona Trust Code

¶9 The Arizona Trust Code, A.R.S. §§ 14-7201 et seq., was substantially repealed and rewritten effective January 1, 2009. See 2008 Ariz. Sess. Laws, ch. 247, §§ 15, 16 (2d Reg. Sess.) (memorialized in House Bill 2806). The proceedings in this case concluded prior to January 1, 2009. The probate court cited andrelied on the Trust Code as it existed at the time of the proceedings. Accordingly, because the former Trust Code was in effect during these proceedings, and the probate court relied on the former Trust Code in reaching its decision, we consider the Trust Code as it existed prior to January 1, 2009, in this decision.³

III. Breach of Fiduciary Duties

¶10 Karen argues the probate court's findings regarding her breach of fiduciary duties should be reversed. The probate court found, in relevant part:

Karen has engaged in a course of continuous conduct in breach of the fiduciary duties owed by Karen to Robyn. Acts and omissions, in breach of such fiduciary duty by Karen, include, but are not limited to, the following: failure to account for her activity concerning Trust assets prior to the death of Adelaide Downey; failure to prepare an inventory and appraisement of the assets of the Trust notwithstanding reasonable requests therefore; failure to prepare an accounting of the Trust administration notwithstanding reasonable requests therefor; efforts to conceal Trust assets; intentional falsification of apurported informal accounting of the Trust delivered to Robyn; engaging in efforts to place unreasonable restrictions and conditions on efforts by Robyn to confirm and receive distribution of personal property of the Estate.

There is substantial evidence supporting these findings. We will, additionally, address each of Karen's arguments.

¶11 First, Karen contends the court erred in determining a breach based on her failure to account for her activity concerning Trust assets prior to Mrs. Downey's death. Evidence was presented that Karen paid her mother's bills and wrote checks from Mrs. Downey's checking account prior to becoming trustee. Robyn requested information regarding the depletion of Mrs. Downey's estate, and specifically a copy of the check register from Mrs. Downey's checking account. Karen did not initially disclose the check register, yet she could have accounted for her activity concerning this checking account. Moreover, Karen testified her mother did not fully understand Karen was assisting her in paying her bills. The court's finding was not clearly erroneous.

¶12 Second, Karen argues she did not breach her fiduciary duty by failing to provide an inventory, appraisement, and an accounting. The standard of care applicable to a trustee's actions is that of a reasonably prudent person. In re Schuster's Estate, 35 Ariz. 457, 469, 281 P. 38, 43 (1929);A.R.S. § 14-7302 (now repealed).⁴ A beneficiary is entitled to a statement of the accounts of the trust. A.R.S. § 14-7303(3) (now repealed).⁵ "In rendering an account, the burden is on the trustee to make a proper and satisfactory accounting of the funds coming into his hands, and, if he does not, every intendment is against him." Schuster's Estate, 35 Ariz. at 469, 281 P. at 43. Karen maintains she promptly responded to all of Robyn's requests for information and provided an inventory and accounting. Karen's inventory and accounting were not sufficient, however, to comply with her...