Johannes v. Johannes, No. 35504-3-II (Wash. App. 4/22/2008)
| Decision Date | 22 April 2008 |
| Docket Number | No. 35504-3-II.,35504-3-II. |
| Court | Washington Court of Appeals |
| Parties | ESTATE OF EVELYN C. JOHANNES, GERALD JOHANNES, Personal Representative, Respondent, v. JAMES JOHANNES, JANE DOE JOHANNES, and the marital community composed thereof, Appellant, SHERRY KAY FERRANTE; KATHLEEN D. YORKMARK; JEFFREY W. JOHANNES; MATTHEW S. JOHANNES; AND TIM F. JOHANNES, as beneficiaries of the Evelyn C. Johannes Testamentary Trust, Cross-Appellant, v. GERALD JOHANNES, in his individual capacity and as personal representative of the estate of Evelyn C. Johannes, Respondent. |
Appeal from Pierce County Superior Court. Docket No: 04-2-10194-3. Judgment or order under review. Date filed: 09/26/2006. Judge signing: Honorable Frederick Barton Hayes.
Counsel for Appellant(s), Barton Louis Adams, Adams & Adams, 2626 N Pearl St, Tacoma, WA, 98407-2499.
Counsel for Respondent(s), Brian M. Born, Turnbull & Born PLLC, 950 Pacific Ave Ste 1050, Tacoma, WA, 98402-4435.
Counsel for Respondent/Cross-Appellant, Brian Thomas Comfort, Attorney at Law, 1901 65th Ave W Ste 200, Fircrest, WA, 98466-6232.
James Johannes, a beneficiary of the Estate of his mother, Evelyn Johannes, appeals the trial court's findings of fact and conclusions of law and award of damages and attorney fees to the Estate and to his children (James's children), as cross-appellants. James1 argues that (1) the trial court's finding of fact that the Estate's personal representative, Gerald Johannes, should have closed the Estate by 1995 (instead of James's contention that Gerald should have closed the Estate two years earlier, by 1993) was not supported by substantial evidence; (2) the trial court erred by failing to award him (James) attorney fees and damages for Gerald's breach of fiduciary duties in his capacity as the Estate's personal representative; (3) the trial court improperly shifted the burden of proof regarding unaccounted-for Estate assets; (4) the trial court erred in finding that Evelyn had completed lifetime gifts to Gerald; (5) the trial court improperly adopted a hearsay Estate accounting in its findings of fact and conclusions of law; and (6) the trial court's awards of attorney fees to the Estate and to James's children were not reasonable.
James's children cross appeal, arguing that the trial court erred by (1) failing to award them damages for Gerald's delay in closing the Estate; (2) finding that Gerald's lending Estate money to James amounted to self-dealing; (3) shifting the burden of proof and failing to include unaccounted-for assets in the Estate; (4) failing to award damages to the Estate for Gerald's improper investments of Estate assets; and (5) improperly adopting a hearsay Estate accounting in its findings of fact and conclusions of law.
Affirming the trial court in part, we hold that: (1) Gerald breached his fiduciary duty when he failed to close the Estate by 1995; (2) James's active participation in Gerald's delay in closing the Estate estops him from personally recovering damages; (3) the value of the Estate had it been closed in 1995, is not reasonably certain enough to award James's children, as contingent beneficiaries, damages for Gerald's delay in closing the Estate; (4) Gerald, a layman, did not breach his fiduciary duties to James and James's children when he invested Estate funds based on professional financial advice; (5) the record supports the trial court's ruling that Gerald received certain lifetime gifts, including a parking garage and City of Phoenix bearer bonds, from the testator, his mother Evelyn, for which he was not required to reimburse the Estate; (6) the 2004 Estate accounting was not hearsay because the trial court used it only as a starting point for the newly appointed personal representative of the Estate, not as proof of the actual financial status and transactional history of the Estate; (7) the trial court did not abuse its discretion in ordering James and Gerald each to pay half of James's children's attorney fees at trial; and (8) the trial court did not abuse its discretion in ordering that Gerald pay half of the Estate's attorney fees at trial.
Holding that the trial court also erred in part, we reverse the trial court's refusal to order Gerald to reimburse the Estate for: (1) the unaccounted-for bank certificate of deposit in the Estate's name, and (2) the five unexplained monthly payments of $328 to Puget Sound National Bank. Although the trial court found credible Gerald's explanation that he did not know what had happened to these Estate funds, based on the same facts before the trial court, we hold as a matter of law that Gerald's inability to account for these assets constituted a breach of his fiduciary duty as personal representative to account for all Estate funds. Accordingly, we remand to the trial court to determine damages for this specific breach and to order Gerald to restore these funds to the Estate.
In addition, we deny James's request for attorney fees on appeal, and we order him to pay attorney fees on appeal to the Estate, to James's children, and to Gerald.
Evelyn Johannes died testate on March 26, 1989, leaving her estate to her two sons, James and Gerald Johannes. After two charitable bequests, Evelyn left 60 percent of her estate to Gerald, whom she nominated to be her Estate's personal representative.
Evelyn's will mandated that Gerald, as personal representative, use the remaining 40 percent of the Estate to establish a trust for James (the James Trust),2 for which she named Puget Sound National Bank as trustee. Evelyn specified that if the James Trust funds were inadequate to maintain his "health and support in reasonable comfort, and the health, support and education of any of his children dependent upon him for support," the trustee had discretion to invade the principal. Evelyn made no outright bequests to her grandchildren. Instead, she directed that upon James's death, any remaining funds in the James Trust would pass to his children equally.3
On April 12, 1989, the Pierce County Superior Court opened probate for Evelyn's Estate and appointed Gerald personal representative, with nonintervention powers.
On June 27, 1989, Gerald took inventory of the Estate and filed a 7064 tax return. He estimated the Estate's worth to be $1,072,444 including a fourplex rental property, valued at $140,000, and Evelyn's residence, valued at $98,000. In August 1989, Gerald sold Evelyn's residence and deposited the $105,000 proceeds into the Estate.
In 1992, Gerald attempted to close the Estate and to set up the James Trust. But Puget Sound National Bank, the trustee Evelyn named in her will, told Gerald that the will prevented the bank from accepting a trust containing real estate (namely, the unsold fourplex). The bank also requested a full accounting of the Estate's assets.
Gerald tried unsuccessfully to put the fourplex in a separate trust so he could close the Estate; in 1993, he sold the fourplex. Gerald then distributed the proceeds from the fourplex sale equally to himself and to James, with each receiving $84,000. In 1995, Gerald distributed $68,000 from the Estate to James and $102,000 to himself. On appeal, the parties do not dispute these distributions.5
In June 1995, James requested a $300,000 loan from the Estate for his business, Valley Packers. Gerald agreed, and James signed a promissory note for the loan with a five percent interest rate. James repaid the note on time, including interest.
James was dissatisfied with the James Trust provision of Evelyn's will; and in 1997, he asked Gerald if he (Gerald) could help him (James) "get out of the trust." Gerald agreed to help James terminate the James Trust. Gerald consulted an attorney about terminating the James Trust and sharing the Estate with James as co-tenants. The attorney advised Gerald that he could terminate the James Trust if James, all of James's children, and the trustee consented. But the record does not indicate that Gerald took any further steps to terminate the James Trust.
On March 26, 1998, James invited Gerald to attend a meeting with James's accountant, Tom Pagano, and the Estate's accountant, Frank Johnson. At that meeting, James expressed to Gerald that he needed a $188,000 loan from the Estate to lend to his business, Valley Packers. Gerald agreed; and James, in his personal capacity, signed a promissory note to repay the $188,000 loan, with eight percent interest, by September 26, 1998.
James failed to repay any amount on the loan. On September 26, 1998, the note went into default. In 1999, Gerald discussed the defaulted note with James, who promised to repay the $188,000 "soon." But James did not follow through on his promise.
In 2000, James asked Gerald to attend a meeting with his accountant, Pagano, and to provide the Estate's accountant, Johnson, with information for a full accounting of the Estate. Gerald agreed, and in exchange, James again promised to repay the loan. Gerald submitted the information to Johnson, and Johnson prepared an accounting for James. Once again, James failed to follow through on his promise to repay the loan from the Estate.
In 2001, Gerald consulted Steve Beck and McDonald Investments, who advised the Estate to invest $297,000 in K-Mart bonds, which Gerald did. This investment, however, resulted in a loss to the Estate.
On the Estate's behalf, Gerald filed a National Association of Securities Dealers (NASD) arbitration claim against the financial advisors. The arbitrator found that the financial advisors had been negligent and fiduciary irresponsible in recommending that the Estate invest in the K-Mart bonds. The arbitrator awarded $304,603 to the Estate. After...
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