Smith v. Del Giorgio (In re Estate of Smith)

• Decision Date: 07 January 2014
• Docket Number: No. 1 CA-CV 12-0626,1 CA-CV 12-0626
• Parties: In the matter of the Estate of: T. MARIE SMITH aka THELMA MARIE SMITH, deceased RONALD L. SMITH, as Personal Representative of the T. Marie Smith Estate and Successor Trustee of the Smith Family Trust, Plaintiff/Appellee/Cross-Appellant, v. L. MARTIN DEL GIORGIO aka LEE MARTIN DEL GIORGIO, Defendant/Appellant/Cross-Appellee.
• Court: Arizona Court of Appeals

In the matter of the Estate of: T. MARIE SMITH aka THELMA MARIE SMITH, deceased

RONALD L. SMITH, as Personal Representative of the T. Marie Smith Estateand Successor Trustee of the Smith Family Trust, Plaintiff/Appellee/Cross-Appellant, v. L. MARTIN DEL GIORGIO aka LEE MARTIN DEL GIORGIO, Defendant/Appellant/Cross-Appellee.

No. 1 CA-CV 12-0626

ARIZONA COURT OF APPEALS DIVISION ONE

FILED: January 7, 2014

NOTICE: NOT FOR PUBLICATION.

UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT

AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.

Appeal from the Superior Court in Coconino County

No. S0300PB20090098

The Honorable Ted Stuart Reed, Judge Pro Tempore

AFFIRMED

COUNSEL

Gammage & Burnham, PLC, Phoenix

By Richard K. Mahrle, Carolyn V. Williams

Counsel for Plaintiff/Appellee/Cross-Appellant

Jackson White, PC, Mesa

By Bradley D. Weech, Roger R. Foote

Counsel for Defendant/Appellant/Cross-Appellee

MEMORANDUM DECISION

Presiding Judge Andrew W. Gould delivered the decision of the Court, in which Judge Donn Kessler and Judge Michael J. Brown joined.

GOULD, Judge:

¶1 Both parties appeal from the court's amended ruling; for the reasons that follow we affirm.

Facts and Procedural History

¶2 This is a probate case to administer the Estate of Dr. T. Marie Smith ("the Estate"). Dr. Smith's Estate consists of a will and a trust. Dr. Smith created the Smith Family Trust ("the Trust") in 1984. On August 10, 2007, she executed her Last Will and Testament, which contained a pour-over clause transferring her estate assets to the Trust. Dr. Smith died on June 22, 2009. Dr. Smith's three surviving children, Ronald Smith, Teresa Lewis, and Eugene Smith, are beneficiaries of the Trust. Ronald Smith ("Petitioner") was appointed as personal representative of the Estate and trustee of the Trust.

¶3 The issues in this case relate to certain property jointly owned by Lee Martin Del Giorgio ("Appellant") and Dr. Smith.

¶4 Appellant and Dr. Smith were in a dating relationship and lived together for more than 20 years prior to Dr. Smith's death. During their relationship Appellant and Dr. Smith had both separate and joint accounts which they used without distinction to pay for separate and joint expenses. They also associated as co-owners of various real estate parcels for profit. Appellant and Dr. Smith would purchase real estate, develop it and re-sell it for profit; the proceeds of these joint ventures would be reinvested into new properties. As of May 2009, Appellant and Dr. Smith held the following properties as joint tenants with right of survivorship ("Yavapai lots"):

• Lot 311 of Lake Montezuma Hills Subdivision

• Lot 312 of Lake Montezuma Hills Subdivision

• Lot 313 of Lake Montezuma Hills Subdivision

• Lot 314 of Lake Montezuma Hills Subdivision

• Lot 80 of Montezuma Park, Unit 7

• Lot 49 of Montezuma Park, Unit 11

• Lot 50 of Montezuma Park, Unit 11

• Lot 51 of Montezuma Park, Unit 11

Appellant and Dr. Smith also held a 12-acre parcel in Coconino County ("12-acre Parcel") and Lot 139, Kangaroo Trail, Nakusp, British Columbia ("the Canadian Property") as joint tenants with right of survivorship. They held Lot 81 of Montezuma Park, Unit 7 as tenants in common, and Appellant held Lot 243 of Lake Montezuma Estates as his individual property and an A-Frame house located at 671 Awatabi Ovi, Flagstaff, Arizona ("the A-Frame") as his individual property.

¶5 In May 2009, Dr. Smith, Appellant, and Petitioner entered into an agreement to divide their interests in these properties. Pursuant to the agreement, they agreed that Appellant would be given the Yavapai Lots, the 12-acre Parcel, and the A-Frame; and that the Canadian Property would go to the Trust. Other property belonging to Dr. Smith would also be placed in the Trust and intended for certain of her three children, all beneficiaries of the Trust. This agreement was referred to as the Property Division Agreement, and it addressed and allocated the joint venture properties between Appellant and Dr. Smith.

¶6 However, after Dr. Smith died and before the transfer of the Canadian Property could be completed, Appellant halted registration of the title documents in Canada. Six months after Dr. Smith's death in June 2009, Appellant sold the Canadian Property for $137,500 (Canadian). This action breached the Property Division Agreement. In light of these actions, the Estate elected to rescind the Property Division Agreement.

¶7 In addition to the Property Division Agreement, Dr. Smith had set up a joint bank account with her daughter, Teresa, to deposit $100,000 of her separate funds. After Dr. Smith's death, however,Appellant initially diverted that money into a Scottrade account he held jointly with Dr. Smith, and over which he had exclusive control; he eventually returned $85,000 of the $100,000 to the Estate/Trust.

¶8 Petitioner applied for informal probate of Dr. Smith's will and was appointed as the Personal Representative. Appellant objected and requested a formal proceeding. Appellant had submitted a claim against the Estate on August 24, 2009 requesting $299,750.58 that he claimed was a loan to Dr. Smith and $71,336.15 from a Scottrade joint tenancy account he claimed was proceeds from his contracting business. Petitioner disallowed Appellant's claim in full. The court proceeded with informal probate of Dr. Smith's will.

¶9 In February 2010, Petitioner filed a petition for recovery of estate assets pursuant to Arizona Revised Statutes ("A.R.S.") section 14-3709. Petitioner claimed that Appellant had failed to produce records or assets and otherwise refused to give Petitioner access to the records in order to account for property of the Estate and Trust. The petition (1) sought return of the property and documents and double damages for any property belonging to the Estate/Trust, (2) charged Appellant with breaching his fiduciary duty arising from a confidential relationship with Dr. Smith and sought imposition of a constructive trust over any assets Appellant wrongfully withheld from the Estate/Trust, (3) claimed Appellant took advantage of Dr. Smith, a vulnerable adult, and (4) asked for reformation of the deeds of property that were, Petitioner claimed, intended to be held jointly by Appellant and Dr. Smith. The court held a hearing regarding the petition and ultimately the parties stipulated to produce the needed records and Appellant agreed that no property in dispute would be transferred.

¶10 Appellant filed a counterclaim. The court permitted Appellant to amend the counterclaim twice; his second amended counterclaim (1) made a claim against the Estate in the amount of $1,390,292.73, (2) alleged the lis pendens were improperly recorded and requested damages under A.R.S. § 33-420, (3) claimed Petitioner breached his fiduciary duty, (4) asked that non-probate assets be used to satisfy his claims, and (5) alleged Petitioner was unjustly enriched when he denied Appellant's claims. As to count six of his counterclaim, Appellant asked for special action relief to find the lis pendens on the A-Frame, the 12-acre parcel, and the Yavapai lots invalid and an award of damages.

¶11 Following a bench trial the court issued its findings of fact and conclusions of law in detail. The portions relevant to this appeal held as follows.

¶12 One of the issues disputed by the parties was the nature of the business relationship between Appellant and Dr. Smith with respect to the jointly owned properties. The court found that at the time of Dr. Smith's death, she and Appellant associated as co-owners of the Yavapai lots, the 12-acre Parcel, the Canadian Property and the A-Frame, and that all of these properties were held as investments for profit.

¶13 The court found there was no written business partnership agreement or verbal agreement to be in a general partnership between Appellant and Dr. Smith. The court concluded, however, that Appellant and Dr. Smith held the investment properties as joint venturers. The court also determined that the A-Frame property was included with the other jointly held properties based on evidence indicating the parties intended to share ownership of the A-Frame property.

¶14 The court also found that the Property Division Agreement was a valid contract that constituted the agreement for dissolution and winding up of Appellant's and Dr. Smith's joint ventures. It further determined that Appellant's actions halting the registration of the Canadian property and selling it was a material breach of the Property Division Agreement and represented a substantial failure of consideration, thereby entitling Petitioner to rescind the Agreement. In attempting to restore the parties to the status quo existing prior to the Agreement, the court concluded that the deeds of the joint venture properties did not reflect the parties' intentions prior to implementation of the Agreement due to mutual mistake. The court therefore ordered the deeds be reformed to reflect that Appellant and Dr. Smith owned them as tenants in common.

¶15 The court found that Dr. Smith intended to deposit $100,000 of her funds into a joint bank account with Teresa, but that Appellant diverted those funds to a Scottrade account held jointly by him and Dr. Smith before returning all but $15,000 to the Estate.

¶16 Finally, the court concluded that Appellant violated A.R.S. § 14-3709 when he improperly sold the Canadian Property, and that as a result, the Estate was entitled to double damages under the statute. It also concluded that Appellant's diversion of the $15,000 constituted "embezzlement" in violation of § 14-3709, and the Estate was also entitledto double damages on this claim. The court's remaining resolution of the claims and counterclaims are not relevant to this appeal.

¶17 Following the court's ruling, Appellant filed a motion to amend the judgment and Petitioner filed an application for attorneys' fees. The court considered both filings and issued an amended ruling.

¶18 The court reexamined whether rescission and reformation were...