Luke v. Gager

• Decision Date: 28 December 2000
• Docket Number: No. 00-106.,00-106.
• Citation: 2000 MT 377,16 P.3d 377,303 Mont. 474
• Parties: Sally R. LUKE and James Doering, Co-Personal Representatives of the Estate of Margaret Louise Liddell, Plaintiffs and Appellants, v. Alice GAGER, and John Does 1 AND 2, Defendants and Respondents.
• Court: Montana Supreme Court

16 P.3d 377

2000 MT 377

303 Mont. 474

Sally R. LUKE and James Doering, Co-Personal Representatives of the Estate of Margaret Louise Liddell, Plaintiffs and Appellants, v. Alice GAGER, and John Does , Defendants and Respondents.

No. 00-106.

Supreme Court of Montana.

Argued and Submitted July 19, 2000.

Decided December 28, 2000.

Phillip J. Grainey (argued), French, Mercer, Grainey & O'Neill, Ronan, MT, James A. Manley (argued), Manley & O'Rourke Mullins, Polson, MT, For Appellants.

Erika L. Johnson (argued), Warden, Christiansen, Johnson & Berg, PLLP, Kalispell, MT, For Respondents.

Justice JIM REGNIER delivered the opinion of the Court.

¶ 1 This is an appeal from a bench trial in the Twentieth Judicial District Court, Lake County. The Plaintiffs, Sally R. Luke and James Doering (hereinafter referred to as Luke), are the personal representatives of the estate of Margaret Louise Liddell (Maggie) and in such capacity bring this lawsuit against Alice Gager (Alice) and John Does 1 and 2, to recover damages for fraud, undue influence, conversion, constructive fraud, and breach of implied-in-law covenant of good faith and fair dealing. The matter was tried without a jury on October 21 and 22, 1999. On November 18, 1999, the District Court entered its findings of fact, conclusions of law and judgment in favor of the Luke, awarding damages in the sum of $5450. Luke appeals. We reverse the judgment of the District Court and remand this matter for a new trial.

¶ 2 There are three issues raised by this appeal:

¶ 3 1. Did the District Court err when it imposed the burden of proving undue influence on Luke?

¶ 4 2. Did the District Court err when it imposed the burden of proving constructive fraud on Luke?

¶ 5 3. Are the District Court's findings of fact and conclusions of law supported by substantial credible evidence?

BACKGROUND

¶ 6 This case arises from transfers of Maggie Liddell's assets by her long-time companion and caretaker, defendant Alice Gager. Suit was originally filed by Sally Luke, as guardian and conservator for Maggie. Following Maggie's death in April 1999, Sally Luke and James Doering, as corepresentatives of Maggie's estate, were substituted as plaintiffs.

¶ 7 Maggie and her husband owned a tavern and cafe business in Dayton, Montana, and were long-time residents of the area, owning a lake front home near Dayton. Over the years, the couple accumulated assets from their business and from the sale of several lakeside lots. Maggie's husband passed away in the 1970s. During the same time period, her sister Ida, who had previously lived nearby in Plains, Montana, moved to Minnesota. The sisters maintained regular contact by telephone and letters. Maggie also had a niece, Sally Luke, in Helena, Montana, and a nephew, Jim Doering, in Dillon, Montana (both personal representatives herein). Although Maggie appeared to have a good relationship with her relatives, there were no family members within the Dayton area. Alice, Maggie's long-time friend, lived down the road from her.

¶ 8 In 1991 Maggie asked her sister, Ida and her friend, Alice to witness her execution of various estate planning documents, including a will, trust agreement, deed, bill of sale, bank signature card, and durable power of attorney. The will left the majority of her estate to her siblings, and named Ida as personal representative. In the same year, Maggie underwent a complete physical exam by her physician, Dr. Peter A. Philips, who found that she was of sound mind and body.

¶ 9 Over the next few years, Maggie's physical and mental condition began to deteriorate. She had respiratory problems, a chronic heart condition, diabetes, and other medical conditions. Maggie also consumed regular quantities of alcohol and smoked heavily. Alice began to visit Maggie on a daily basis, bringing her some meals and providing occasional transportation. Maggie became increasingly dependent on Alice for all of her needs. Over time, Alice began to handle Maggie's financial affairs, her mail, and write all of her correspondence. Alice testified that with Maggie's consent she signed Maggie's name on Maggie's personal checks.

¶ 10 In 1992 or 1993 Ida, who had a valid durable power of attorney, was visiting and learned that Alice had spent $800 of Maggie's money for tree removal. Ida requested that Alice not write checks for more than $100 without her approval. Ida testified that Alice agreed to such an arrangement. From 1990 to 1998, however, Alice continued to manage Maggie's finances and spent large sums of Maggie's money, writing checks far in excess of $100.

¶ 11 In 1993 Alice brought Maggie to Dr. Philips for her annual physical. He diagnosed Maggie with senile dementia and other chronic health problems. Dr. Philips testified that Maggie had mental deterioration starting in 1993 or 1994, and by 1995 Maggie had significant mental deterioration. He further testified that by 1995 it was very unlikely that Maggie could manage her own finances. Dr. Philips also noted that Maggie's mental deterioration was progressive, with no specific point of mental incapacity-merely an on-going, progressive increase in mental senility. He testified that by 1996 she was totally incapable of caring for herself.

¶ 12 On January 1, 1995, Maggie was so disoriented, she walked to a Dayton tavern in her bathrobe. An employee at the tavern contacted Alice who came to the tavern and escorted Maggie to her home. Alice testified that Maggie was disoriented for the rest of the day. As of that day, Alice moved in with Maggie. Alice conceded that Maggie was mentally impaired at that point.

¶ 13 From this point forward Maggie was dependent on Alice for all of her needs, including travel, meals, all financial transactions, medicine, home care, hygiene, and contact with the outside world. Alice drafted all of Maggie's correspondence and answered her phone. Alice monitored all of Maggie's incoming mail. During a January 26, 1995, medical examination, Dr. Philips noted that Maggie was becoming more and more infantile, relying exclusively on Alice for her personal needs.

¶ 14 In February 1995, one month after she moved in, Alice called Maggie's bank and successfully transferred $209,955.59 from Maggie's money market account to Maggie's checking account, thus allowing Alice, who at this point was affixing Maggie's signature to her checks, increased access to Maggie's funds. In March 1995 Alice arranged the sale of Maggie's stock in Pacific Power Corp. and when the check in the amount of $15,917.10 arrived, endorsed Maggie's name and deposited the check into Alice's personal bank account in Anaconda, Montana. Then in July 1995 Alice arranged the liquidation of Maggie's D.A. Davidson stock account, and when the check in the amount of $20,138.49 arrived, signed Maggie's name to the check and deposited the money into Alice's bank account in Anaconda. Alice testified that these checks were gifts from Maggie.

¶ 15 Alice brought Maggie to the hospital and medical clinic several times during the next year. Health care workers generally found that Maggie continued to deteriorate both mentally and physically. Her physician advised Alice that Maggie needed home health care services. Instead, Alice continued to take Maggie on trips to see Alice's relatives, take her to gambling establishments, shopping, and dining out, completely financed by Alice writing checks from Maggie's checking account. It is unclear whether Maggie had the mental and physical capacity to enjoy such activities. ¶ 16 In April 1996 Alice arranged for Maggie to execute a power of attorney, naming Alice as attorney-in-fact, even though Maggie had already granted Ida a durable power of attorney. Alice contacted a different attorney than the one who had previously drafted estate planning documents for Maggie in 1991. Alice took Maggie to the attorney's office and instructed the attorney as to what should be included in the document. Maggie received no independent advice or representation, but did sign the papers granting Alice power of attorney in her own barely legible scrawl.

¶ 17 At the time the power of attorney was executed, Maggie still had over $178,000 in her checking account. Over the next two years, Alice wrote checks to herself, for cash, or for expenses not clearly benefitting Maggie, for over $135,000. Alice loaned her son $10,000 and paid off a debt for her granddaughter of over $5000. During this time period, Alice also continued to pay for all of Maggie and Alice's daily expenses.

¶ 18 Maggie was hospitalized several times from 1996 to 1998 for pneumonia, heart failure, and other conditions, and she continued to generally deteriorate. Alice didn't notify Maggie's relatives concerning her failing health. Dr. Philips testified that by October 1996, Maggie was totally incapable of caring for herself, and that Alice could not adequately take care of her. Yet Alice continued to inform Maggie's family, by letter and telephone, that Maggie was in good health and everything was going well.

¶ 19 In July 1998, after several emergency room visits, Dr. Philips insisted that Maggie enter a nursing home. Alice resisted. Finally, Alice placed Maggie in the Evergreen Nursing Home which was an appropriate facility. Alice didn't notify Maggie's relatives of the move. Approximately $31,000 remained in Maggie's checking account. Between June 30 and August 8, 1998, Alice withdrew $30,350 in cash from the account.

¶ 20 On August 1, 1998, against physician's advice, Alice used her power of attorney and removed Maggie from the full-care Evergreen facility and placed her in a partial care facility closer to Dayton. Shortly thereafter, Maggie was twice hospitalized. Dr. Philips reiterated that Maggie required the services of a full care facility, but his advice fell on deaf ears. Finally, Alice arranged for Maggie to be placed in a local nursing home. Alice continued to deplete Maggie's account until there was no money...