Miller v. Bank of Am., N.A.

• Decision Date: 01 May 2014
• Docket Number: No. 31,463.,31,463.
• Citation: 326 P.3d 20
• Court: Court of Appeals of New Mexico
• Parties: George Robert MILLER, Barbara Jean Miller, and Charles Richard Miller, Plaintiffs–Appellants/Cross–Appellees, v. BANK OF AMERICA, N.A., As Trustee of the Qualified Terminable Interest Marital Trust and Family Trust created under the Last Will and Testament of Rudolph C. Miller, Jr., Deceased, Defendant–Appellee/Cross–Appellant.

326 P.3d 20

George Robert MILLER, Barbara Jean Miller, and Charles Richard Miller, Plaintiffs–Appellants/Cross–Appellees,

v.BANK OF AMERICA, N.A., As Trustee of the Qualified Terminable Interest Marital Trust and Family Trust created under the Last Will and Testament of Rudolph C. Miller, Jr., Deceased, Defendant–Appellee/Cross–Appellant.

No. 31,463.

Court of Appeals of New Mexico.

Dec. 10, 2013.

Certiorari Granted, May 1, 2014, No. 34,554.

Catron, Catron, Pottow, & Glassman P.A., Michael T. Pottow, Santa Fe, NM, Tucker Law Firm, P.C., Steven L. Tucker, for Appellants.

Keleher & McLeod, P.A., Thomas C. Bird, Phil Krehbiel, Cassandra R. Malone, Albuquerque, NM, for Appellee.

OPINION

GARCIA, Judge.

{1} Three of the remainder beneficiaries (Beneficiaries) of their father's two testamentary trusts appeal a judgment awarding them damages in an amount lower than they claimed that the trust Beneficiaries were entitled to recover. The trustee, Bank of America (the Bank), cross-appeals. The Bank's cross-appeal challenges the court's determination of liability. We deny the Bank's cross-appeal but we partially agree with Beneficiaries regarding the calculation of certain compensatory damages. As a result, we affirm in part and reverse in part.

BACKGROUND

{2} This dispute concerns two trusts created by the Last Will and Testament of Rudolph C. Miller, Jr. (the Will). The two trusts created by the Will were a qualified terminable interest property marital trust for Father's widow and a remainder trust for Beneficiaries (the Trusts). The central purposes of the Trusts were: (1) the generation of income for beneficiary distribution, and (2) the preservation of the value of the principal assets for distribution to Beneficiaries upon the surviving spouse's (Ann's) death. In 1985, the Bank assumed the position of trustee of the Trusts. It administered the trusts until their termination on January 30, 2004.

{3} The original lawsuit and this appeal arise from the Bank's actions as trustee from the end of 1991 through 2003. As of 1991, the net value of the Trusts was $669,996.07 and primarily consisted of real property in Virginia, Hawaii, and New Mexico. At the end of 2003, the Trusts consisted of one “ratty piece of property,” and the net value of the Trusts was effectively zero. As a result, Beneficiaries brought this action to recover damages and other remedies against the Bank for breaches of its fiduciary duty and duty of loyalty.

{4} Following the bench trial, the district court ruled in favor of Beneficiaries but awarded damages in an amount lower than Beneficiaries believe they were entitled to receive. Beneficiaries timely appealed the district court's judgment regarding the damages awarded. The Bank timely filed a cross-appeal challenging the district court's imposition of liability in favor of Beneficiaries. The additional facts and procedural history pertinent to each argument will be included in the appropriate section of the discussion below.

DISCUSSION

{5} We first address the issue of liability raised by the Bank. Because we affirm the district court on liability, we will then address Beneficiaries' challenge to the district court's determination of the amount of damages.

I. LIABILITY

{6} The Bank had very little experience with commercial property management. However, in late 1991, it acquired a commercial building in Albuquerque (the Building) as an asset of the Trusts. At some point prior to April 1995, the Building was unproductive of net income and a drain to the income and other assets of the Trusts. The crux of the district court's liability determination revolves around the Bank's continued investment in the Building despite its status as a wasting commercial real estate asset. The Will provided that the “Trustee shall not invest any portion of the [T]rust assets in unproductive property ... but may retain unproductive property received into the trust.”

{7} In 1995, when the Bank became aware that the Building was unproductive, Patrick Schaefer, the trust officer responsible for administering the Trusts, stated in a handwritten note that the Building was “draining income of [the] trust.” Schaefer did not communicate this information to Beneficiaries. Yet Schaefer instead told Beneficiaries that it would be prudent to “look into sale of [the] property.” After evaluating the Building and the other real property owned by the Trusts, however, the Bank instead recommended obtaining a $395,000 loan to renovate the Building. Without disclosing the Building's unproductive status to the Beneficiaries, the Bank's recommendation stated, “[I]t is obvious that the most advantageous scenario to increase income would be to renovate the [Building] to a competitive condition.” The Bank advocated that Beneficiaries agree to sell the other properties owned by the Trusts and to use the proceeds from the sale to reduce the loan balance on the Building. The Bank implemented this plan without objection from Beneficiaries.

{8} In implementing its recommendations, the Bank borrowed from an affiliate entity in amounts much greater than the $350,000 amount initially approved by Beneficiaries. It also proceeded to sell the other property belonging to the Trusts. The record demonstrates, however, that the sales proceeds were not used to reduce the loan balance on the Building. By 2003, the Bank had invested $800,000 of the Trusts' assets into the Building for the speculative purpose of reversing its declining condition. As a result of this investment, the Bank was also able to produce $400,000 in “phantom income” for distribution to Beneficiaries.

{9} After trial, the district court issued a letter decision against the Bank on the issue of liability. Based on the Bank's conduct with regard to the Building, the district court found that the Bank had committed breaches of its fiduciary duty to the Trusts and its responsibility of loyalty to protect the best interest of the Beneficiaries by (1) investing in unproductive property, (2) failing to administer the trust prudently, (3) failing to preserve principal, and (4) failing to produce income. The district court also found the Bank liable for at least four additional breaches of trust and loyalty based on conduct unrelated to the Building. The district court did not enter findings or conclusions that correlated specific breaches of particular duties with all or any specific portion of the damages awarded.

{10} The Bank challenges the district court's liability determinations that the Bank owed certain duties as the trustee of the Trusts, breached its duties, and caused harm to Beneficiaries, as remainder beneficiaries of one of the Trusts. We address each challenge in turn.

A. Standard of Review

{11} The issues raised by the Bank on cross-appeal involve only evidentiary challenges to the district court's findings of fact and conclusions of law. Thus, we apply a substantial evidence standard of review. Koprian v. Mennecke, 1949–NMSC–023, ¶ 5, 53 N.M. 176, 204 P.2d 440; Roybal v. Morris, 1983–NMCA–101, ¶ 30, 100 N.M. 305, 669 P.2d 1100. “Substantial evidence is such relevant evidence that a reasonable mind would find adequate to support a conclusion.” Landavazo v. Sanchez, 1990–NMSC–114, ¶ 7, 111 N.M. 137, 802 P.2d 1283. In reviewing a substantial evidence claim, “[t]he question is not whether substantial evidence exists to support the opposite result, but rather whether such evidence supports the result reached.” Las Cruces Prof'l Fire Fighters v. City of Las Cruces, 1997–NMCA–044, ¶ 12, 123 N.M. 329, 940 P.2d 177. “[W]e will not reweigh the evidence nor substitute our judgment for that of the [factfinder].” Id.; Williams v. Williams, 1989–NMCA–072, ¶ 7, 109 N.M. 92, 781 P.2d 1170 (explaining that the duty to weigh the credibility of witnesses and to resolve conflicts in the evidence lies with the trial court, not the appellate court). We consider the evidence in the light most favorable to the prevailing party and disregard any inferences and evidence to the contrary. Williams, 1989–NMCA–072, ¶ 7, 109 N.M. 92, 781 P.2d 1170; see Las Cruces Prof'l Fire Fighters, 1997–NMCA–044, ¶ 12, 123 N.M. 329, 940 P.2d 177 (resolving all factual disputes in favor of the successful party and indulging all reasonable inferences in support of the prevailing party).

B. Duties Owed by the Bank

{12} The Bank argues that the district court misapplied unambiguous terms in the Will and the relevant law when it defined the duties owed by the Bank as trustee of the Trusts. Specifically, the Bank disputes the district court's findings that it had duties to maintain a depreciation reserve, not to lend money to the Trusts, to treat Beneficiaries and Ann impartially, and not to allocate between principal and income. The Bank does not challenge the district court's findings that it owed four other duties as trustee: (1) a duty not to invest in unproductive property, (2) a duty to administer the trust prudently, (3) a duty to preserve trust principal, and (4) a duty to produce income. For the reasons that follow, we will not fully address the merits of this argument on appeal.

{13} The Bank's cross-appeal challenges the imposition of four duties, but the district court based its liability determination on at least eight distinct breaches of duty. The district court did not enter findings or conclusions correlating any breach of a particular duty with any portion or the entirety of the damages award, and the Bank asserted that Beneficiaries were entitled to one assessment of damages regardless of the number of separate duties that the district court might determine had been breached. McCauley v. Ray, 1968–NMSC–194, ¶ 11, 80 N.M. 171, 453 P.2d 192 (“[A] party litigant may not invite error and then take advantage of it.” (internal quotation marks and citation omitted)). Thus, the Bank's liability for damages rests on the assumption that any one or all of the breaches found to exist by the district court...