Marc Barreca, U.S. Bankruptcy Court Judge.
This matter came before me for trial on the complaint filed by Cristi Kessler-Maue ("
On September 25, 2018, the Defendants filed a petition for relief under chapter 13 of the Bankruptcy Code. On January 7, 2019, the Plaintiffs timely filed the present adversary proceeding. In addition to the claims for relief discussed in this decision, the Plaintiffs initially objected to entry of the Defendants' discharge under §§ 727(a)(2), (a)(4) and (a)(5), but have since withdrawn the objection.
Administration of the bankruptcy estate is heavily affected by adjudication of the present adversary proceeding. A chapter 13 plan has not been confirmed. On March 1, 2019, I entered an order denying confirmation. See Bankr. W.D. Wash. Case No. 18-13683-MLB, Dkt. No. 110. Within that same order, I continued the chapter 13 trustee's motion to dismiss subject to recall, continued the chapter 13 trustee's objection to exemptions subject to recall, continued the Plaintiffs' objection to exemptions subject to recall and consolidated the Defendants' objection to proofs of claim nos. 4 and 5 into the present adversary proceeding.
I have jurisdiction over "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b).
Here, I have exclusive jurisdiction to determine and enter final judgment as to whether the debt owed to Plaintiffs is nondischargeable under §§ 523(a)(2), (a)(4) and (a)(6). Dietz v. Ford (In re Dietz), 760 F.3d 1038, 1043 (9th Cir. 2014). Additionally, I have authority and jurisdiction to adjudicate and liquidate Plaintiffs' underlying state law claims. Id. at 1043-50 (a bankruptcy court may liquidate a debt and enter final judgment in conjunction with finding the debt nondischargeable); Sasson, 424 F.3d at 870 (holding that "bankruptcy courts have jurisdiction and power to enter money judgments in adjudicating nondischargeability adversary proceedings"); Stanbrough v. Valle (In re Valle), 469 B.R. 35, 43 (Bankr. D. Idaho 2012) ("In the case of an unliquidated debt, the bankruptcy court must necessarily determine liability and damages in order to establish the underlying debt. Adjudication of the underlying claim, which arises under nonbankruptcy law, becomes part and parcel of the dischargeability determination and thus integral to restructuring the debtor-creditor relationship.") (internal citations omitted).
Whether I have jurisdiction to grant Plaintiffs the injunctive relief requested is a closer call. Plaintiffs seek entry of an order that restrains Defendants from taking any further action in connection with the Trusts and that either suspends or removes Jan as trustee.
As indicated earlier, the scope of matters covered by "related to" jurisdiction is broad and covers proceedings that may have a conceivable effect on the bankruptcy estate and that could alter the administration of the estate. The bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." § 541(a)(1). Courts construe § 541 broadly to bring any and all the debtor's property rights within the bankruptcy court's jurisdiction. See United States v. Whiting Pools, Inc., 462 U.S. 198, 205 n.9, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). "[W]hile assets transferred to a trust do not ordinarily become property of the bankruptcy estate of the trust's trustee, powers that a debtor who is trustee of a trust may exercise for his or her own benefit become property of the estate." Cutter v. Seror (In re Cutter), 398 B.R. 6, 19 (9th Cir. BAP 2008) (citing Askanase v. LivingWell, Inc., 45 F.3d 103, 106 (5th Cir. 1995)); see also In re Gifford, 93 B.R. 636, 640 (Bankr. N.D. Ind. 1988) ("Thus, what comes to the bankruptcy estate is not only the property in which the debtor has an interest, but also, the powers the debtor can exercise for its own
Here, property held by the Trusts is likely not property of the estate. Conversely, Defendants' beneficial interest in the Trusts and Jan's legal interest as trustee are property of the estate. Therefore, the bankruptcy estate is affected to the extent Plaintiffs seek an order, under applicable nonbankruptcy law, to restrain Jan from exercising his right to administer the Trusts and to either remove or suspend him as trustee. I therefore have "related to" jurisdiction to determine whether the requested injunctive relief is appropriate.
For these reasons, I have jurisdiction over the parties and the subject matter of this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334. Venue is proper in the Western District of Washington pursuant to 28 U.S.C. § 1409.
1. Jan is the brother of the Plaintiffs and a debtor in this chapter 13 proceeding.
2. Mary, who is Jan's wife and a co-defendant in connection with the Plaintiffs' claims, is also a debtor in this chapter 13 proceeding.
3. Mary testified and I find that she has been married to Jan for 45 years and that they have lived in Washington for 26 years.
4. Plaintiffs and Jan's parents, Howard J. Maue ("
5. Plaintiffs and Jan also established the MPT to hold certain real property.
6. Jan was appointed trustee of the Trusts and remains the trustee.
7. Ruby died in 1995.
8. Howard died on March 11, 2017.
9. The RMMT was established by Ruby, as the grantor, on September 18, 1992 and became irrevocable upon Ruby's death. See Pls.' Ex. 1.
10. The beneficiaries of the RMMT are Howard, Cristi, Craig, Martin and Jan, as well as Howard's grandchildren.
11. While Howard was alive, each beneficiary of the RMMT was entitled to so much of the income or principal of the trust as the trustee deemed necessary for the health, support and maintenance of the beneficiaries.
12. After the death of Howard and Ruby, the RMMT called for the remaining assets to be divided and distributed outright to Craig, Martin, Cristi and Jan, per stirpes.
13. The corpus of the RMMT consisted primarily of securities.
14. The terms of the RMMT require that the trustee provide semi-annual reports of trust finances.
15. The RMMT provides that the trustee shall receive compensation for his services as "agreed by the trustee and a majority of the adult beneficiaries." The RMMT also provides that trustee fees are to be charged against income.
16. The RMMT also contains a choice of law provision, specifically, Article 4(g) that
17. The MFLT was established by Howard, as the grantor, on May 25, 1995 and became irrevocable upon execution. See Pls.' Ex. 5.
18. Craig, Martin, Cristi and Jan are beneficiaries of the MFLT.
19. The MFLT was an insurance trust funded entirely with insurance policies, and it never held more than $150,000 in assets.
20. The choice of law provision in the MFLT indicates that it was created under the laws of the state of Ohio, and pursuant to its terms, was intended to be administered pursuant to Ohio state law.
21. Howard and Jan signed the MFLT agreement in Florida.
22. The MPT was formed on December 15, 2000 by Craig, Cristi, Martin and Jan as the grantors and beneficiaries. See Pls.' Ex. 7.
23. Howard was neither a settlor nor beneficiary of the MPT, however, the MPT was initially funded with property originally owned by Howard located at 425 Harbour Drive, Naples, Florida ("
24. Pursuant to the MPT, Craig, Cristi, Jan and Martin owned equal shares in the trust and its property.
25. In 2014, the MPT received an additional parcel of real property as a result of a Qualified Personal Residence Trust created on December 18, 2000, which contained Howard's residence located at 2850 Gulf Shore Rd. N., Naples, Florida ("
26. Jan was named the trustee of the MPT.
27. Pursuant to the terms of the MPT, upon the first to occur of: (i) twenty-five (25) years after the date of the MPT agreement or (ii) the death of Howard Maue and a 50% vote of the then living grantors to terminate the MPT, the MPT would be terminated and the trustee was required to distribute the trust property in separate shares to each living Grantor.
28. While the MPT was in existence, the terms provided that the trustee pay the grantors the net income of the trust, pro rata, at least annually.
29. The MPT contains a Florida choice of law provision in Article VI, which provides "[t]his agreement shall be construed and administered according to the laws of the State of Florida (except as to real property which is situated outside the State of Florida and to which local law must apply)."
30. Jan served as trustee of the MFLT and the RMMT for more than two decades.
31. Jan did not provide contemporaneous interim accountings for the Trusts. In August 2016, after litigation was instituted against Jan by the Plaintiffs, Jan provided approximately 15 years of "Interim Accounting Reports" for the MPT and RMMT, but it appears that Jan never provided any accountings for the MFLT.
32. The Interim Accountings do not adequately distinguish between expenses, fees and distributions pertaining to the separate trusts, but instead essentially lump what Jan claimed to be decades worth of outstanding trustee fees, loans to beneficiaries, and unreimbursed trust expenses across all of the Trusts. The Interim Accountings
33. After receiving a letter from Howard's attorney in April 2014 requesting trust accountings for the MPT, Jan provided some financial information on April 22, 2014, but did not provide a full accounting. See Pls.' Ex. 322.
34. Although Jan provided certain investment account statements in late April 2014, Jan did not disclose that he had just distributed $70,000 to himself from the RMMT on April 17, 2014, or that he planned to distribute $143,891 and $141,416 to himself on April 25 and April 30, 2014, respectively.
35. In or about May 2014, Cristi requested documentation pertaining to the Trusts from Jan, including RMMT account statements, RMMT year-end accountings and a "report on income" from the MPT. See Pls.' Exs. 330 and 331.
36. Jan did not disclose to the Plaintiffs that he considered the April 30, 2014 disbursement of $141,416 to be a loan to himself. At trial he asserted that the undocumented loan was unsecured, non-amortized and payable interest only on a monthly basis at an annual interest rate of 3.25%. See Pls.' Ex. 128 and Defs.' Ex. 2, Tab 18.
37. The payment terms and interest rate of the purported loan by Jan as trustee to himself were far more favorable than any of the purported loans made to his siblings and the interest rate was lower than the rate he was accruing for asserted trustee fees and unreimbursed expenses. See Pls.' Exs. 65, 90 and 119 at pg. 959.
38. On or about April 20, 2014, Jan sent a letter to Craig, advising him that he purportedly owed Jan, individually, $70,476.74, based upon various claimed advances and loans to Craig from 2003 to 2009. In the letter, Jan advised Craig to let him know whether he had funds available, or he would "release some of your trust money so you can pay your debt and clear the books." See Pls.' Ex. 90.
39. Without hearing back from Craig, Jan, as trustee, unilaterally satisfied the purported claim owed to Jan individually through the April 25, 2014 distribution of $143,981. See Pls.' Exs. 93 and 312 at pg. 3157.
40. The validity of this purported claim owed to Jan is questionable. More than three years prior, on January 31, 2011, Jan advised Craig that the debt owed to him consisted of only $98,541.70. See Pls. Ex. 65. Craig paid this exact amount the next day. Pls.' Ex. 67.
41. Jan used at least $80,000 of trust funds to pay for Craig's legal fees, with money disbursed to Jan directly from the Trusts. These funds appear to have been used primarily for what the parties refer to as the Keating litigation (the "
42. On May 12, 2014, after failing to provide trust information requested by various beneficiaries, Jan received a letter from attorney, Brian McNamara, on behalf of Howard requesting an accounting and Jan to resign as trustee. See Pls.' Ex. 101.
43. Jan refused to resign, and instead, only days later, with Mary, quitclaimed his home to their family trust. See Pls.' Ex. 102.
45. On June 10, 2014, Jan sent a letter to Howard, assertedly enclosing account statements for the RMMT. In that same letter, Jan indicated that Howard had requested that Jan distribute $300,000 from the RMMT to a Morgan Stanley account to "settle family debts and provide for future cash needs." See Pls.' Ex. 104. Jan testified that he sent this letter to remind Howard of his prior directive because of Howard's allegedly failing memory.
46. The June 10, 2014 letter was sent only one month after receipt of the letter from Howard's attorney requesting accountings and around the same time Jan hired attorneys, with RMMT funds, to have Howard declared incapacitated. Given the timing, the assertion that Howard requested Jan distribute $300,000 from the RMMT to settle family debts is not credible.
47. Despite Jan's assertion that the $300,000 transferred from the account in the RMMT was no longer part of the trust, bank records for RMMT establish that another RMMT account was created under the name of the trust, with Jan as trustee. Further, all distributions from both RMMT accounts were signed by Jan as trustee of the RMMT.
48. Jan's self-serving testimony regarding the "distribution to Howard" is inconsistent with the financial records and is not credible. Jan provided no basis to distribute almost 50% of the RMMT to Howard, who was an equal beneficiary with the Plaintiffs. Jan also provided nothing to support that Howard authorized Jan to serve as a "trustee" of the $300,000 he supposedly distributed to Howard. For these reasons, I find that no "distribution" of $300,000 from the RMMT actually took place.
49. Jan testified, without providing factual or legal support, that the April 1, 2014 distribution to himself in the amount of $70,000 was his one quarter share of the $300,000. Besides $70,000 not being one-quarter of $300,000, I also note that Jan sent a memorandum to the Plaintiffs in May 2014 advising them that no beneficiary had a "vested" share of the RMMT pursuant to the trust document. See Pls.' Ex. 97.
50. Jan testified that he frequently created documentation and reports to present to his siblings at family trust meetings but destroyed all evidence of the spreadsheets and did not preserve any records on his computer. Jan's testimony that he satisfied his obligation to account by having annual trust meetings lacks credibility and is not supported by the evidence.
51. Jan's testimony regarding the "meetings" was contradicted by his May 2014 memorandum, in which he advised that he swore "an oath to Howard" never to disclose the financial information pertaining to the trusts to any of the beneficiaries. See Pls.' Ex. 97.
52. Jan was unable to produce any copies of the alleged annual trust financial accountings. Jan testified that he did not keep copies because he was not required to keep copies for more than one year.
53. Craig, Martin, and Cristi's husband Richard Kessler, testified that no reports were ever provided until after demands were made in 2014 and the Plaintiffs' filed their legal action in Florida in 2015.
54. As reflected in Table A, Jan made a significant number of disbursements from the Trusts between 2006 and 2019, which exceeded $934,000, and deposited the
55. Jan also disbursed $100,000 to Boston Co., purportedly for the benefit of Howard. However, he failed to provide any documentation to support his allegation that the deposit was for Howard, or for a trust purpose. These disbursements, which occurred between February 2006 and October 2009, have never been repaid to the trust or accounted for in any manner by Jan, and were not disclosed to the Plaintiffs until 2016, after the Plaintiffs brought litigation against Jan in Florida.
56. Jan disbursed $85,000 to Howard in February 2009 from the RMMT.
57. While Jan was the trustee and in control of and responsible for tax preparation and payments by the Trusts to the Department of Revenue, Jan authorized the submission of the MPT tax return for 2013, which reflected a refund credit of $89,252 for a deduction on trust distribution of $454,822. See Pls.' Ex. 304. However, the accounting shows $0 in distributions for 2013. Jan testified that he never received the tax refund.
58. The 2014 Interim Accounting for the RMMT dated April 15, 2015 contained an entry noting a $70,000 distribution to Jan. The entry contained no explanation for the distribution despite explanations for all other entries in that report. The report also listed distributions for $49,000 and $71,167 to Jan for partial payment of debts assertedly owed to Jan, individually, by Martin and Craig. Jan paid himself with funds from the Trusts despite not receiving authorization to do so from Martin and Craig. See Pls.' Ex. 310.
59. In February 2016, after being requested to provide accountings, and after being requested to resign, Jan distributed $220,000 from the Maue Property Trust to his wife and himself as reimbursement of personal expenses that he claimed to be trust expenses. Jan failed to provide competent evidence that the $220,000 was related to trust expenditures. Jan also failed to notify the beneficiaries that he intended to disburse these funds to himself and Mary until long after he took the money.
60. In 2016, after litigation was brought by the Plaintiffs in Florida, Jan provided in bulk almost 15 years of Interim Accountings, without back up support or documentation. The Interim Accountings indicate that many disbursements were for individuals other than Jan and for undisclosed expenses, loans or other activities. However, source documents from the financial institutions show that many of these disbursements were made directly to Jan and Mary's personal bank accounts. For instance, the 2014 RMMT Interim Accounting shows a $49,000 distribution to Jan for Martin in partial payment of Martin's debts to Jan. It also shows a $71,167.92 distribution to Jan for partial payment of Craig's debts to Jan. These two distributions total $120,167.92. However, financial source documents show that the actual distribution was in the amount of $143,891 and went to Jan directly. Without providing evidentiary support, Jan treated the difference as a payment to himself for a reduction of allegedly long-term debts owed to Jan.
61. Jan provided a voluminous record of receipts to his expert shortly before trial, asserting that the receipts justified the large disbursements that Jan made to himself as reimbursement for trust expenditures. The receipts reflect various expenditures that Jan incurred individually from 1993 through 2014. However, Jan did not provide evidence of how the overwhelming majority of these receipts pertained to trust business.
63. Jan made other disbursements to attorneys as provided for in Table B in the total amount of $132,094.98, which are discussed at greater length in the Conclusions of Law below.
64. In May 2013, the 425 Harbour Drive property owned by the MPT was sold for approximately $690,000. See Pls.' Ex. 78. In August 2013, Jan distributed Cristi's share of the MPT proceeds in the amount of $145,000. Jan retained a portion of Cristi's share for the payment of a capital gains tax. See Pls.' Ex. 97, pg. 0834.
65. Despite indicating to a banker at Morgan Stanley that the $145,000 disbursement to Cristi was a beneficiary distribution, after Cristi confronted Jan in 2014 with respect to Jan's actions as trustee, Jan identified the disbursement as a loan. See Pls.' Exs. 80 and 286.
66. In the Interim Accounting, Jan identified the $145,000 distribution as a loan to Cristi with an interest rate greater than the interest rate he imposed upon himself. Jan provided no documentation to support his contention that Cristi "borrowed" the funds from the MPT.
67. Martin and Craig never received their one-fourth shares from sale of the 425 Harbour Drive property, despite requests to Jan to make such distributions.
68. After the death of Howard on April 14, 2017, Craig and Martin voted to terminate the MPT. See Pls.' Ex. 427. Cristi also voted to terminate the MPT and for distribution of the MPT assets. Accordingly, the trust property should have been distributed to the beneficiaries pursuant to the terms of the MPT.
69. The Plaintiffs' forensic accountant, Mr. McFarland, identified $259,991.96 in disbursements to "unknown" persons or entities. See Pls.' Ex. 128. During trial, Mr. McFarland testified that after being provided further documentation from Defendants just prior to trial, he was able to properly account for a large portion of the unknown disbursements. However, even after these documents were produced, Mr. McFarland still identified approximately $19,000 in unsupported payments to Jan, and $69,000 in additional payments to Jan's attorneys. Jan provided no invoices or support to substantiate the attorneys' fees as having been incurred for trust business.
70. By way of comparison, from 2006 to present, Jan disbursed a total of $934,376.80 directly to himself from the Trusts, not including attorneys' fees. During that same period of time, Craig received two distributions totaling $30,000; Cristi received $146,309.00, comprised of three disbursements; Howard received a total of $159,679.41; and Martin was distributed nothing. See Pls.' Ex. 128.
71. Jan's actions show a pattern of treating the Trusts' assets as his personal bank, from which he enjoyed unfettered access. Jan deliberately withheld information and intentionally created a pattern of deception, convenient record keeping and improper disbursements which personally benefited him.
"While the existence or not of a fiduciary relationship, and the breach or
Federal courts in the Ninth Circuit and Washington state courts both look to the Restatement (Second) of Conflicts of Law (1971) (the
The modern choice of law analysis generally requires the application of the state's law with the most significant relationship to the matters at issue. See Aqua-Marine Constructors, Inc. v. Banks, 110 F.3d 663, 673 (9th Cir. 1997) (citing Restatement § 6 cmt. c). Although § 6 of the Restatement covers general factors for consideration when analyzing choice of law, other sections of the Restatement specifically deal with the validity and enforceability of a choice of law clause in a trust agreement. See Green v. Zukerkorn (In re Zukerkorn), 484 B.R. 182, 189 (9th Cir. BAP 2012).
Applying these principles, only Florida, and not Ohio, has a substantial relation to the relevant trusts. Howard and Cristi resided in Florida for much of the time periods in which the trusts were administered. The family met at various times throughout the years at locations in Florida, sometimes discussing trust business. 2850 Gulf Shore and 425 Harbour Drive, real properties held by the MPT, are both located in Florida. Even the MFLT, which is the only trust that does not designate Florida law, was executed and notarized by the grantor, Howard, in Florida.
As the MPT and the RMMT contain choice of law provisions designating the application of Florida law, the choice of law provisions should be upheld. Conversely,
Under Florida law, "[u]pon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries, and in accordance with [the Florida Trust Code]." Berlinger v. Wells Fargo, N.A., 2016 WL 740521, at *9, 2016 U.S. Dist. LEXIS 23158, at *30-31 (M.D. Fla. Feb. 25, 2016) (quoting Fla. Stat. § 736.0801). "A breach of trust is `[a] trustee's violation of either the trust's terms or the trustee's general fiduciary obligations.'" Covenant Trust Co. v. Guardianship of Ihrman, 45 So.3d 499, 504 (Fla. 4th DCA 2010) (quoting Black's Law Dictionary 201 (8th ed. 2004)); see also Fla. Stat. § 736.1001(1). "The elements of a claim for breach of trust or fiduciary duty under Florida law are: (1) the existence of a fiduciary duty; (2) the breach of that duty; and (3) damage proximately caused by that breach." Berlinger, 2016 WL 740521 at *9, 2016 U.S. Dist. LEXIS at *31 (internal quotation marks omitted) (quoting Treco Int'l S.A. v. Kromka, 706 F.Supp.2d 1283, 1288 (S.D. Fla. 2010) and citing Gracey v. Eaker, 837 So.2d 348, 353 (Fla. 2002)).
Even if a trust document grants the trustee broad discretion, it does not absolve a trustee from adhering to his or her obligations to act in good faith and to act judiciously in administering trust assets. Mesler v. Holly, 318 So.2d 530, 533 (Fla. 2d DCA 1975). The Florida Trust Code sets forth various duties owed by a trustee. See Fla. Stat. § 736.0801 (duty to administer trust in good faith and in accordance with the interests of the beneficiaries); Fla. Stat. § 736.0802 (duty of loyalty); Fla. Stat. § 736.0803 (duty of impartiality when trust has two or more beneficiaries); Fla. Stat. § 736.0810 (duty to keep distinct, clear and accurate records); Fla. Stat. § 736.0813 (duty to keep beneficiaries reasonably informed and to provide accountings at least annually); Fla. Stat. § 736.08135 (trust accounting must be a reasonably understandable report from the date of the last accounting).
There are additional obligations placed on a trustee when he or she is also a beneficiary. Under Fla. Stat. § 736.0814, unless the terms of a trust explicitly states that a rule in the statute does not apply, a person who is both a beneficiary and a trustee may not:
Fla. Stat. § 736.0814(2). None of the agreements for the Trusts contain an explicit waiver of Fla. Stat. § 736.0814. Accordingly, a trustee in Florida like Jan, who is also a beneficiary, may not make discretionary distributions to himself of either principal or income, except to provide for his health, education, maintenance or support. Id.; see also In re Kiesewetter, 2011 WL 4527365, at *9, 2011 U.S. Dist. LEXIS 110573, at *36 (W.D. Pa. Sept. 28, 2011).
The beneficiaries have the burden to demonstrate that a breach of trust occurred and that it resulted in injury. See Taylor v. Taylor, 2018 Fla. Cir. LEXIS 3787, at *14 (Fla. Cir. Ct., Jan. 23, 2018) (citing Fort Myers Memorial Gardens, Inc. v. Barnett Banks Trust Co., 474 So.2d 1215, 1218 (Fla. 2d DCA 1985)). Conversely, a trustee has the burden of proving that all expenses incurred by him or her, including attorneys' fees, were reasonably necessary and incurred for the benefit of the trust. Ortmann v. Bell, 100 So.3d 38, 46 (Fla. 2d DCA 2011); see also Traub v. Traub, 135 So.2d 243, 244 (Fla. 2d DCA 1961) (quoting Benbow v. Benbow, 117 Fla. 37, 157 So. 512, 519 (Fla. 1934)) ("If the trustee fails to keep clear, distinct, and accurate accounts, all presumptions are against him and all obscurities and doubts are to be taken adversely to him. If he loses his accounts, he must bear any resulting damage ... the burden of proof is upon him to show that the money expended was a proper disbursement.").
Once a breach of trust or fiduciary duty has been established, there are a variety of remedies available under Florida law. Under Fla. Stat. § 736.1001, the court may order the trustee to pay money or restore money to redress a breach of trust and the court may reduce or deny compensation to the trustee. Fla. Stat. § 736.1001(2)(c) and (h). Similarly, Fla. Stat. § 736.1002 provides in relevant part:
Fla. Stat. § 736.1002(1). "A `surcharge' is the amount that a court may charge a fiduciary that has breached its duty." Reed v. Long, 111 So.3d 237, 238 (Fla. 4th DCA 2013) (citing Merkle v. Guardianship of Jacoby, 862 So.2d 906, 907 (Fla. 2d DCA 2003)). The purpose of a surcharge is to make the estate whole when the fiduciary's conduct has caused loss or damage to the estate. Reed, 111 So. 3d at 239. In the context of a breach of trust proceeding, the court may surcharge a trustee and impose personal liability for breaches of fiduciary duty through either intentional or negligent conduct. See Miller v. Miller, 89 So.3d 962, 962 n.1 (Fla. 5th DCA 2012) (citing Surcharge, Black's Law Dictionary (6th ed. 1990) and Harding v. Rosoff, 951 So.2d 912, 914 (Fla. 4th DCA 2007)).
Jan, as trustee of the Trusts, owed the Plaintiffs the above-mentioned fiduciary duties as provided in the Florida Trust Code. Jan breached his duty to administer the Trusts in good faith, failed to administer the Trusts solely in the interests of the beneficiaries, failed to treat the beneficiaries impartially, and failed to provide timely and accurate accountings. Although Jan testified that he held annual trust meetings on family vacations, it appears that even when these vacations occurred, they occurred without all beneficiaries being present, and in certain instances, without all beneficiaries being invited. I therefore find that the family vacations were insufficient to meet the annual accounting requirement under the Florida Trust Code. Jan exhibited a pattern of disbursing trust money to himself assertedly to pay back debts he testified were owed to him by the Plaintiffs, but without their knowledge or approval.
In order to calculate the proper amount of the surcharge, I must determine which of the relevant disbursements were improper. As mentioned earlier, the trustee has the burden to demonstrate that each of the disbursements were reasonably necessary and were incurred for the benefit of the trusts. Furthermore, where a trustee has failed to keep accurate and timely records, as is the case here, all presumptions must be taken against the trustee in determining damages. In the present case, Jan has submitted numerous receipts, attempting to show that the disbursements were proper reimbursements for trust expenses. I acknowledge that it is possible that some of these expenses were incurred for the benefit of the trust, however, given the utter lack of record-keeping and the negligent administration of the trusts, it is, for the most part, impossible to distinguish which expenses were incurred for the benefit of the trusts and in the interests of the beneficiaries.
I will individually address each of the following disbursements put at issue in this proceeding.
Based on the above, the amount of funds improperly disbursed to Defendants, as a result of a breach of Jan's fiduciary duties, totals
As provided in Table B, from the years 2014 through 2018, Jan disbursed money from the Trusts to pay various legal expenses. The disbursements consist of payments to three firms: the Beliveau Law Group in the amount of $10,000, the Law Offices of Brantley Oakey in the amount of $6,000; and Lindsay & Allen in the amount of $116,094.98. Jan testified at trial that he did not provide legal invoices to the Plaintiffs regarding these payments, nor were any such invoices submitted at trial.
With respect to the payment to Beliveau Law Group, Jan testified that he retained the firm to initiate guardianship proceedings against Howard. He further testified that he retained Beliveau Law Group at a time when Howard was initiating proceedings to have Jan removed as trustee from the Howard Maue Trust and around the same time that Howard disinherited Jan from the will. Jan's testimony that he retained Beliveau Law Group for Howard's own benefit lacks credibility and I find that this expenditure did not relate to administration of the RMMT. I therefore
With respect to the payments to Brantley Oakey, the Defendants did not provide any evidence that these expenditures were related to the MPT. The Defendants, therefore, have not met their burden in showing that the disbursements to Brantley Oakey were proper trust expenditures.
Lastly, with respect to the payments to Lindsay & Allen, Jan testified that the firm was retained to initiate a civil defamation lawsuit against Cristi and to defend the breach of trust lawsuit brought against him by his siblings. Jan could not sufficiently clarify which of the payments to Lindsay & Allen pertained to which lawsuit and admitted that he did not provide the necessary invoices to the Plaintiffs. For this specific reason, the Defendants have not demonstrated that the payments to Lindsay & Allen were appropriate trust expenditures. Moreover, to the extent the payments to Lindsay & Allen were related to Jan's state-law defense for breach of trust, I conclude the funds should be disgorged given my finding that Jan breached his fiduciary duties and that Jan administered the Trusts in bad faith. See e.g., Kritchman v. Wolk, 152 So.3d 628 (Fla. 3d DCA 2014); McCormick v. Cox, 118 So.3d 980 (Fla. 3d DCA 2013).
For these reasons, I conclude that the Defendants should be surcharged for the improper payment of legal fees in the amount of
As provided in Table C, Jan disbursed $100,000 to Boston Company in four separate payments. At trial, Jan testified that he believed the funds went to Howard. The Defendants did not provide any other evidence or support to indicate that the disbursements were in fact for Howard or for any other trust purpose. The Defendants, therefore, failed to demonstrate that the disbursements to Boston Company were proper trust expenditures and they should be surcharged in the amount of
Plaintiffs seek to impose a surcharge in the amount of $89,000 based on an asserted 2013 MPT tax refund paid to Jan. The MPT tax return for 2013 indicates that there was an over payment of $89,252 which was to be refunded. See Pls.' Ex. 304. The tax return was dated and signed on April 16, 2018. Id. Jan testified that he did not receive any such refund. Plaintiffs have not provided any evidence, beyond the existence of a signed tax return, that the Defendants received and took possession of tax related funds owed to the MPT. Furthermore, the Plaintiffs' own expert witness, Harold McFarland, testified that he has not seen any documentation indicating that the asserted refund has been received and that "given [his] experience, that may be normal that it has not yet been received." As explained earlier, a trustee in Florida that fails to keep proper records has the burden to demonstrate that all expenses were proper and incurred for the benefit of the trust. However, in this instance, where the Plaintiffs have not established that Jan actually received the money, it would be improper to allocate the burden of proof to the Defendants. I therefore conclude that the Plaintiffs have not met their burden, as it relates to this asserted tax refund, in demonstrating that a breach of trust occurred and that it resulted in injury.
Plaintiffs seek to impose a surcharge in the amount of $85,000 for a distribution to Howard from the RMMT in 2009. See Pls.' Ex. 198. Howard was a beneficiary of the RMMT. The RMMT gave Jan the discretion to disburse to Howard an amount
Under Florida law, when a beneficiary has received too much or too little as a result of a breach of trust, the court has discretion to determine the appropriate amount that should be restored to either the trust or the beneficiaries. Fla. Stat. § 736.1001 provides in relevant part:
Fla. Stat. § 736.1001(3) (emphases added).
As a result of Jan's breach of trust, the Defendants received a disproportionate share of trust funds, far more than they would have otherwise received on account of Jan's interest as a beneficiary. Conversely, the Plaintiffs were deprived of the fair share of trust funds that they were entitled to as beneficiaries. As discussed infra, it is in the best interest of the parties to fully administer and distribute all remaining trust property to the beneficiaries so that the parties are able to move forward with their lives. To this end, the parties would not benefit from any relief that requires the Defendants to pay a surcharge back to the Trusts. I therefore conclude that payment of the surcharge should go directly to the Plaintiffs.
I have calculated the total amount of the surcharge of improperly disbursed funds to be
A creditor objecting to the dischargeability of its claim bears the burden of proving, by a preponderance of the evidence,
The Plaintiffs assert that the Defendants' debt is exempt from discharge under § 523(a)(2)(A) based on the Defendants' material nondisclosures which allowed them to wrongfully disburse funds from the Trusts. In the Ninth Circuit, a creditor's claim of nondischargeability under § 523(a)(2)(A) must establish five elements: (1) misrepresentation, fraudulent omission or deceptive conduct by the debtor; (2) knowledge of the falsity or deceptiveness of his statement or conduct; (3) an intent to deceive; (4) justifiable reliance by the creditor on the debtor's statement or conduct; and (5) damage to the creditor proximately caused by its reliance on the debtor's statement or conduct. Turtle Rock Meadows Homeowners Ass'n v. Slyman (In re Slyman), 234 F.3d 1081, 1085 (9th Cir. 2000).
The Plaintiffs contend that they are able to prove all elements required under § 523(a)(2)(A) despite difficulty proving reliance and causation. In support, Plaintiffs argue that the nondisclosure of a material fact has been held to establish the requisite elements of reliance and causation for actual fraud under the Bankruptcy Code, citing Apte v. Japra (In re Apte), 96 F.3d 1319, 1324 (9th Cir. 1996).
Although I agree with the Plaintiffs as to the legal proposition raised, their analysis does not fully address the issue. "Section 523(a)(2)(A) does not except from discharge `any debt for false pretenses, a false representation or actual fraud.' Rather it excepts from discharge `any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud[.]" Whittaker v. Whittaker (In re Whittaker), 564 B.R. 115, 138 (Bankr. D. Mass. 2017) (emphases altered). Here, even if there were material nondisclosures, the Plaintiffs do not establish that the Defendants obtained money by false pretenses, a false representation, or actual fraud, only that the nondisclosures enabled the Defendants to conceal disbursements that already occurred. Jan, as trustee, had legal authority to transfer money out of the Trusts, including to himself. The fact that Jan breached various fiduciary duties, including the failure to account, is not sufficient to determine that the debt is nondischargeable under § 523(a)(2)(A).
The Plaintiffs assert that the Defendants' debt is exempt from discharge under § 523(a)(4) on grounds of both defalcation and embezzlement. In the Ninth Circuit, a debt is excepted from discharge under § 523(a)(4) where "1) an express trust existed, 2) the debt was caused by fraud or defalcation, and 3) the debtor acted as a fiduciary to the creditor at the time the debt was created." Otto v. Niles (In re Niles), 106 F.3d 1456, 1459 (9th Cir. 1997) (quoting Klingman v. Levinson, 831 F.2d 1292, 1295 (7th Cir. 1987)). "[T]he fiduciary relationship must be one arising from an express or technical trust that was imposed before and without reference to the wrongdoing that caused the debt." Lewis v. Scott (In re Lewis), 97 F.3d 1182, 1185 (9th Cir. 1996) (citing Ragsdale v. Haller, 780 F.2d 794, 796 (9th Cir. 1986)); Davis v. Aetna Accept. Co., 293 U.S. 328, 333, 55 S.Ct. 151, 79 S.Ct. 393 (1934). Courts look to state law to determine whether the requisite trust relationship exists. Lewis, 97 F.3d at 1185.
Defalcation has been defined as the "misappropriation of trust funds or money held in any fiduciary capacity; [the] failure to properly account for such funds." Id. at 1186 (quoting Black's Law Dictionary 417 (6th ed. 1990)). "To prove defalcation, a creditor must establish a `culpable state of mind ... involving knowledge of, or gross recklessness in respect to, the improper nature of the relevant fiduciary behavior.'" Campbell v. Spencer (In re Spencer), 752 Fed. Appx. 510, 511 (9th Cir. 2019) (quoting Bullock v. BankChampaign, N.A., 569 U.S. 267, 269, 133 S.Ct. 1754, 185 L.Ed.2d 922 (2013)). More specifically, the state of mind required for defalcation includes not only bad faith, moral turpitude and immoral conduct, but other intentional wrongdoing, such as "conduct the fiduciary knows is improper" or conduct where the fiduciary "consciously disregards (or is willfully blind to) a substantial and unjustifiable risk that his conduct will turn out to violate a fiduciary duty." Bullock, 569 U.S. at 273-274, 133 S.Ct. 1754 (internal quotation marks omitted) (citation omitted). Put another way, the unjustifiable risk taken by a fiduciary "must be of such a nature and degree that, considering the nature and purpose of the actor's conduct and the circumstances known to him, its disregard involves a gross deviation from the standard of conduct that a law-abiding person would observe in the actor's situation." Id. at 274, 133 S.Ct. 1754 (quoting ALI, Model Penal Code § 2.02(2)(c), p. 226 (1985)). Unlike embezzlement and larceny, defalcation "can encompass a breach of [a] fiduciary obligation that involves neither conversion, nor taking and carrying away another's property, nor falsity." Id. at 275, 133 S.Ct. 1754 (citation omitted). Furthermore, defalcation "may be used to refer to nonfraudulent breaches of fiduciary duty." Id. (citation omitted).
To prevail on an embezzlement claim under § 523(a)(4), a creditor must prove three elements: (1) property rightfully in the possession of a nonowner; (2) the nonowner's appropriation of the property to use other than that for which it was entrusted; and (3) circumstances indicating fraud. Transamerica Commercial Fin. Corp. v. Littleton (In re Littleton), 942 F.2d 551, 555 (9th Cir. 1991).
As discussed earlier, Jan breached a multitude of his fiduciary duties as trustee of the Trusts. To determine whether these breaches should result in a determination of nondischargeability under § 523(a)(4), I will address specific instances of Jan's conduct independently.
I determined earlier that Jan, under Florida law, improperly disbursed to himself $905,328.80. After accounting for Jan's 25% beneficial interest, these disbursements constitute $678,996.60 of the underlying state law surcharge.
The actions underlying Jan's breach of trust, as it relates to disbursements made to himself, were done with the requisite state of mind to constitute defalcation under § 523(a)(4). Although I previously found that Jan acted in bad faith, the disbursements made to himself, at the very least, were done with conscious disregard of a substantial and unjustifiable risk that his conduct would violate his fiduciary duties. Furthermore, I find that Jan's actions were a gross deviation from the actions that an ordinary law-abiding citizen in Jan's position would take. For years,
I determined earlier that Jan, under Florida law, improperly disbursed $132,094.98 to three different law firms. To determine whether the disbursements constitute defalcation or embezzlement under § 523(a)(4), I look at the nature of each expenditure independently.
As discussed earlier, Jan retained Beliveau Law Group to initiate guardianship proceedings against Howard. The retention of Beliveau Law Group was not related to trust business. Although Jan testified that he retained the firm for Howard's benefit, this testimony lacks credibility, and demonstrates an improper intent, as Jan initiated the guardianship proceedings during the same time period in which Howard sought to remove Jan as trustee from the Howard Maue Trust, and, also, in a time period in which Howard disinherited Jan from his will. Jan paid Beliveau Law Group with funds from the RMMT in bad faith and with conscious disregard to his duties as trustee, and I therefore conclude that Jan's action with respect to the payment constitutes defalcation.
With respect to the payments to Brantley Oakey, the Defendants did not provide any evidence that these expenditures were related to the MPT. Although these payments, which amount to $6,000, were part of the surcharge as the Defendants did not sufficiently account for the nature of the expense, the Plaintiffs have not shown the necessary scienter element to prove defalcation or embezzlement. Having reviewed the record, it is not clear for what purpose Brantley Oakey was retained. Neither the briefing nor my review of the testimony provided any clarity on the issue. I acknowledge that the Defendants failure to account for trust expenditures, especially when those specific expenditures have been put at issue in this proceeding, is probative of an improper intent. However, in this instance, beyond Jan's mere failure to account, there is no evidence that this expenditure was made with the necessary intent to constitute defalcation or embezzlement. The Plaintiffs, therefore, have failed to prove this portion of the surcharge should be nondischargeable.
Whether the payments to Lindsay & Allen constitute defalcation is a closer call.
As for payments to Lindsay & Allen for the defense of the breach of trust lawsuit, I conclude that these actions do not constitute defalcation or embezzlement. Even though the breach of trust lawsuit alleged bad faith, the hiring of defense counsel by Jan clearly relates to his administration of the Trusts. The terms of the Trusts allowed Jan to hire professionals and the Florida Trust Code permits the initial payment of legal fees in connection with the defense of a breach of trust lawsuit brought against a trustee. See Fla. Stat. § 736.0802(10)(b). Even though I determined that Jan breached his fiduciary duties and imposed a surcharge in the amount of all fees paid to Lindsay & Allen, I do not believe such findings meet the necessary scienter requirements to render the debt nondischargeable under § 523(a)(4). The act of paying Lindsay & Allen, in itself, does not demonstrate bad faith or conscious disregard for an unjustifiable risk that the payment would breach Jan's fiduciary duties. Similarly, embezzlement cannot be established as there is no indicia of fraud. Since I am unable to determine which amounts paid to Lindsay & Allen pertained to the breach of trust, the Plaintiffs have not shown that any of the amounts should be nondischargeable under § 523(a)(6).
I determined earlier that Jan, under Florida law, improperly disbursed $100,000 to Boston Company. Jan testified that these funds went to Howard. The Plaintiffs did not provide any evidence that contradicts Jan's testimony. Although these disbursements were improper under the Florida Trust Code, as Jan failed to provide adequate accountings and to meet his burden to show that they were proper trust expenditures, I conclude that Jan's actions did not constitute defalcation or embezzlement under § 523(a)(4). There is no evidence to suggest that Jan acted with the requisite intent to constitute defalcation in disbursing money to Boston Company. Similarly, there is absolutely no evidence that the funds were embezzled for Jan's benefit. I therefore conclude that Plaintiffs have not established that this portion of the debt should be nondischargeable under § 523(a)(4).
Under § 523(a)(6), any debt "for willful and malicious injury by the debtor to another entity or property of another entity" is exempt from discharge. In the Ninth Circuit, the willful injury requirement is met when either the debtor has the subjective intent to inflict injury or when the debtor believes that injury is substantially certain to result from his or her conduct. Carillo v. Su (In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002). "The Debtor is charged with the knowledge of the
The Plaintiffs seek a determination that the debt owed by Jan on account of improper disbursements made to himself is excepted from discharge for willful and malicious injury. In each circumstance in which Jan disbursed money to himself, he did so with the intent to injure the Plaintiffs as the actions, which Jan fully intended, naturally deprived the Plaintiffs of their share of trust funds they otherwise would have received. I therefore conclude that Jan's actions were willful. Furthermore, the injury was also malicious. As indicated earlier, Jan breached various fiduciary duties in disbursing money to himself without the knowledge or approval of the Plaintiffs. Jan's actions were wrongful and intentional and caused injury to the Plaintiffs. Despite Jan's attempt to render an after-the-fact accounting, the disbursements were without just cause of excuse. Accordingly, the portion of the underlying surcharge related to disbursements that Jan made to himself, which total
The Plaintiffs seek a determination that the Defendants' liability for disbursements made to attorneys is excepted from discharge for willful and malicious injury. To determine whether this portion of the surcharge should be nondischargeable under § 523(a)(6), I look to the nature of each expenditure independently.
As discussed earlier, the payment to Beliveau Law Group was not related to trust business, but rather, was used to initiate a guardianship proceeding against Howard. The guardianship proceeding was unrelated to the RMMT and was initiated around the same time that Howard sought to remove Jan as trustee from the Howard Maue Trust and around the same time that Howard disinherited Jan from his will. The injury was therefore willful as I am able to infer from circumstantial evidence that Jan intended to harm the other beneficiaries by distributing money to Believeau Law Group to advance his personal interests. The injury was also malicious. For the reasons described earlier, Jan's actions were wrongful and intentional and caused injury to the Plaintiffs. Jan's assertion that this expenditure was for Howard's benefit was not credible and I find that the money was disbursed without just cause or excuse. After accounting for Jan's 25% beneficial interest, the disbursement to Beliveau Law Group constitutes
Like my determination under § 523(a)(4), the Plaintiffs have not shown that the portion of the underlying liability for disbursements to Brantley Oakey and Lindsay & Allen should be nondischargeable under § 523(a)(6). Beyond the mere failure to account for the disbursements to Brantley Oakey, the Plaintiffs did not highlight any evidence that suggests that Jan made this disbursement for a wrongful purpose or with the intent to inflict injury. With respect to the payments to Lindsay & Allen, for the reasons stated under the § 523(a)(4) analysis, I am unable to determine which portion of the underlying debt pertained to the civil defamation lawsuit against Cristi, which was unrelated to the Trusts and which would otherwise constitute a wrongful act. The payments to Lindsay & Allen for defense of the state law breach of trust action was not a wrongful action, within the context of § 523(a)(6), and I do not believe that Jan intentionally mixed the two expenditures together.
The Plaintiffs seek a determination that the Defendants' liability to them for disbursements made to Boston Company is excepted from discharge for willful and malicious injury. As indicated earlier, although Jan failed to timely account for these disbursements, Jan eventually did account and testified that the disbursements to Boston Company were made for Howard's benefit. The Plaintiffs have not shown that Jan made the disbursements wrongfully or without just cause or excuse. The failure to account does not, in itself, demonstrate that the disbursements were wrongful and therefore malicious. The Plaintiffs have not shown that this portion of the underlying surcharge should be non-dischargeable under § 523(a)(6).
Based on the above, the portion of the underlying state law surcharge that is non-dischargeable under §§ 523(a)(4) and (a)(6) is
The Defendants raise various affirmative defenses and counterclaims. See Pretrial Order, Dkt. No. 86, pgs. 3-4. I address each one independently.
The Defendants assert that the Plaintiffs waived their right to receive accountings by refusing "to provide tax records, receipts and expense reports to Defendant so that a proper accounting could be produced." Id. Despite this assertion, the Defendants did not elicit, at trial, any evidence that the Plaintiffs refused to provide relevant documentation and that this refusal prevented Jan from issuing a proper accounting. Furthermore, it is unclear how the Plaintiffs could prevent Jan from producing a proper accounting when all evidence suggests that it was Jan who had access to the relevant information, i.e., how much money was disbursed from, and the amount of expenses incurred to, the Trusts. I therefore conclude that the Plaintiffs did not waive their right to an accounting.
In a somewhat redundant second affirmative defense, the Defendants assert that the Plaintiffs waived their right to receive semi-annual accountings as the Plaintiffs agreed to an annual meeting format during family vacations. Martin testified that he was never given information on annual trust meetings and that, for the most part, he was not even invited on family vacations. Similarly, Craig testified that he was only invited a few times. During those family vacations that Craig attended, including trips to Florida, British Columbia and the Caribbean, Craig testified that there was never a trust meeting. As indicated earlier, the family vacations, which were usually attended by Jan and Cristi, were not sufficient to fulfill Jan's duty to account, and the evidence presented does not support a finding that the Plaintiffs waived their right to be reasonably informed on trust administration.
The Defendants assert that Plaintiffs should be barred from any relief sought concerning alleged losses or damages related to investments and market fluctuations. Id. As the underlying liability did not relate to Jan's investment decisions or strategy, the third affirmative defense is inapplicable.
The Defendants assert that they are entitled to payment of all outstanding trustee fees and reimbursement for all personal expenses incurred in connection with the Trusts. I previously indicated that Jan was not entitled to trustee compensation in light of his bad faith actions and breaches of fiduciary duty. For the same reason I imposed a surcharge on all prior disbursements to Jan on account of asserted trustee compensation, I conclude that he is not entitled to further compensation as part of his counterclaims. Similarly, as discussed earlier, Jan has not met his burden to show that he is entitled to reimbursement from the Trusts for any further expenses incurred by him personally. I will therefore deny the Defendants any relief based on these asserted counterclaims.
The Plaintiffs request that I enjoin the Defendants from taking any further actions regarding the Trusts and that I either suspend or remove Jan from his powers as trustee. As discussed earlier, I have jurisdiction under applicable nonbankruptcy law to grant the requested relief. The Florida Trust Code provides in relevant part that:
Fla. Stat. § 736.1001(2).
To prevent further breaches of trust, I find that it is appropriate to enjoin the Defendants from taking any further action regarding the Trusts, including the disbursement of funds and the payment of expenses. It is also appropriate to suspend Jan as trustee pending further clarification on whether a successor trustee should be
The Plaintiffs request an award of attorneys' fees incurred in prosecuting their claims against the Defendants.
The Supreme Court has held that the discharge exception under § 523(a)(2)(A) applies to all liability arising on account of a debtor's fraudulent conduct, including attorneys' fees and costs. Cohen v. de la Cruz, 523 U.S. 213, 223, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998). The holding in Cohen is not limited solely to cases under § 523(a)(2)(A) as the Supreme Court also cited § 523(a)(4) and § 523(a)(6) as examples in which damages, including attorneys' fees, would be nondischargeable. Fry v. Dinan (In re Dinan), 448 B.R. 775, 785 (9th Cir. BAP 2011); see also Correia-Sasser v. Rogone (In Correia-Sasser), 2014 WL 4090837, at *12-13, 2014 Bankr. LEXIS 3513, at *33-34 (9th Cir. BAP Aug. 19, 2014) (applying Cohen to § 523(a)(4)); Bertola v. N. Wis. Produce Co. (In re Bertola), 317 B.R. 95, 100 (9th Cir. BAP 2004) (applying Cohen to § 523(a)(6)). "[U]nder Cohen, the determinative question for awarding attorney's fees is whether the creditor would be able to recover the fee outside of bankruptcy under state or federal law." Dinan, 448 B.R. at 785 (citing cases).
In Florida, a court may award attorneys' fees for actions arising under the Florida Trust Code for "breach of fiduciary duty or challenging, the exercise of, or failure to exercise, a trustee's powers." Levine v. Stimmel, 272 So.3d 847, 849 (Fla. 5th DCA 2019) (citing Fla. Stat. § 736.1004). Fla. Stat. § 736.1004 provides that the court may award attorneys' fees "as in chancery actions." Under Florida's chancery rule, the court has the discretion, as justice so requires, to apportion the costs between the parties or to require the prevailing party to pay all costs. Harrell v. Badger, 171 So.3d 764, 770 (Fla. 5th DCA 2015) (citing Nalls v. Millender, 721 So.2d 426, 427 (Fla. 4th DCA 1998)). The party seeking attorneys' fees has the burden to demonstrate what portion of the fees were expended on claims for which § 736.1004 authorizes attorneys' fees. Levine, 272 So. 3d at 848-49. Put another way, the Plaintiffs are only entitled to attorneys' fees under the Florida Trust Code for counsels' work performed in connection with the prosecution of Jan's breaches of fiduciary duties and not fees incurred in connection with unrelated or unsuccessful grounds for relief.
Here, the Plaintiffs are entitled to reasonable attorneys' fees under Florida law and a determination that a portion of those fees are nondischargeable under §§ 523(a)(4) and (a)(6). The Plaintiffs have not specified the amount of the award sought, nor have they provided supporting evidence. I will therefore reserve judgment on the amount and dischargeability of attorneys' fees and will require supplemental briefing, including necessary evidence, to be filed by the parties.
For the reasons stated above, I will enter a judgment: (1) liquidating and allowing the Plaintiffs' underlying claim and imposing a surcharge against the Defendants in the amount of
Table A Disbursements to Jan Trust Date Withdrawal Plaintiffs' Exhibit No. RMMT 4/7/2006 $24,048.00 32 MFLT 4/7/2006 $10,000.00 31 MFLT 5/4/2006 $2,500.00 33 RMMT 6/1/2006 $5,000.00 171 MFLT 8/29/2006 $5,000.00 34 MFLT 8/1/2007 $13,000.00 39 MFLT 10/4/2007 $6,466.02 41 RMMT 6/12/2008 $50,000.00 45 MFLT 11/21/2008 $20,000.00 191 RMMT 5/28/2010 $32,000.00 56 RMMT 11/4/2010 $30,000.00 58 RMMT 3/7/2011 $5,000.00 66 RMMT 1/31/2012 $15,000.00 72 RMMT 3/1/2012 $20,000.00 74 RMMT 8/14/2013 $15,000.00 81 RMMT 4/17/2014 $70,000.00 89 RMMT 4/25/2014 $143,891.00 93 MPT 4/30/2014 $141,416.00 96 MPT 5/19/2014 $3,668.00 311
MPT 5/19/2014 $992.60 311 MPT 2/12/2016 $220,000.00 371 RMMT 3/25/2016 $2,166.08 378 MPT 4/7/2016 $66,285.00 379 RMMT 4/21/2017 $3,060.86 405 RMMT 10/12/2017 $10,000.00 414 MPT 2/17/2016 $2,884.00 428 MPT 3/16/2016 $2,596.93 428 MPT 10/27/2017 $2,500.00 428 MPT 5/29/2018 $5,065.95 428 MPT 5/30/2018 $6,836.36 428
Table B Disbursements to Attorneys Trust Date Withdrawal Transfer Plaintiffs' To/From Exhibit No. RMMT 5/9/2014 $10,000.00 Beliveau Law Group 325 MPT 5/13/2014 $3,000.00 Brantley Oakey 327 MPT 5/16/2014 $3,000.00 Brantley Oakey 327 RMMT 5/9/2017 $14,817.56 Lindsay & Allen 408 MPT 1/2/2018 $2,400.00 Lindsay & Allen 417 MPT 1/2/2018 $975.50 Lindsay & Allen 417 MPT 2/22/2018 $2,000.00 Lindsay & Allen 419
MPT 2/26/2018 $3,288.39 Lindsay & Allen 419 MPT 4/3/2018 $18,000.00 Lindsay & Allen 421 MPT 5/25/2018 $825.00 Lindsay & Allen 422 MPT 5/25/2018 $1,119.50 Lindsay & Allen 422 MPT 6/28/2018 $3,064.50 Lindsay & Allen 424 MPT 6/28/2018 $79.00 Lindsay & Allen 424 MPT 6/28/2018 $65.00 Lindsay & Allen 424 MPT 6/28/2018 $1,017.50 Lindsay & Allen 424 MPT 3/25/2016 $5,738.00 Lindsay & Allen 428 MPT 6/1/2016 $10,234.00 Lindsay & Allen 428 MPT 7/15/2016 $7,767.16 Lindsay & Allen 428 MPT 3/3/2017 $6,243.40 Lindsay & Allen 428 MPT 4/4/2017 $2,697.10 Lindsay & Allen 428 MPT 4/4/2017 $6,619.20 Lindsay & Allen 428 MPT 7/11/2017 $7,271.47 Lindsay & Allen 428 MPT 10/12/2017 $4,014.75 Lindsay & Allen 428 MPT 12/4/2017 $4,915.50 Lindsay & Allen 428 MPT 1/26/2018 $3,932.00 Lindsay & Allen 428 MPT 5/1/2018 $9,010.45 Lindsay & Allen 428
Table C Distributions to Boston Company Trust Date Withdrawal Plaintiffs' Exhibit No. RMMT 2/13/2006 $10,000.00 27 RMMT 8/15/2006 $20,000.00 180 RMMT 2/21/2007 $30,000.00 185 RMMT 10/10/2007 $40,000.00 186
Table D RMMT Distribution to Howard Trust Date Withdrawal Plaintiffs' Exhibit No. RMMT 2009 $85,000.00 198
