Senior Partner, Inc., as Trustee of the Ardythe Hope Children's Hospital v. David L. Lee ( 2022 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
SENIOR PARTNER, INC., AS )
TRUSTEE OF THE ARDYTHE HOPE )
CHILDREN’S HOSPITAL, )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0226-SEM
)
DAVID L. LEE, )
)
Defendant. )
MASTER’S FINAL REPORT
Final Report: November 28, 2022
Draft Report: August 31, 2022
Date Submitted: May 5, 2022
Jason C. Powell and Thomas Reichert, THE POWELL FIRM, LLC, Wilmington,
Delaware; Counsel for Plaintiff.
Anthony Delcollo, Christopher J. Isaac, and Frank E. Noyes, II, OFFIT KURMAN,
P.A., Wilmington, Delaware; Counsel for Defendant.
MOLINA, M.
In this breach of fiduciary duty action, the former fiduciary agreed to prepare
“a detailed, itemized accounting” of how he handled trust assets. Unfortunately, he
could not account for a large portion of the funds he controlled and concedes he
should repay the trust for $247,256.97 in unsupported expenditures. He argues,
however, that the judgment should be reduced to reflect appreciation on real property
he purchased with trust funds (bringing the repayment down to $165,738.47). The
current fiduciary argues there is no basis for a credit for appreciation and the
unaccounted-for expenditures is much higher; as such, the current fiduciary seeks
judgment against the former fiduciary in the amount of $376,531.43.
With the parties unable to agree on the amount due to the trust, the accounting
was presented for my consideration at an evidentiary hearing, during which the
former fiduciary testified about his handling of the assets and preparation of the
accounting. After careful consideration of the evidence presented, I find the
defendant owes the trust $366,412.34 and judgment should be entered against him
as explained herein. I further recommend the real property be deeded to the trust
and the former fiduciary vacate such property within one year of this report
becoming an order of the Court. The former fiduciary should also be required to
return any assets remaining in his possession to the current trustee. This is my final
report.1
I. BACKGROUND2
This dispute arises out of the Ardythe Hope Children’s Trust (the “Trust”).
Ardythe Hope (the “Decedent”) was a senior firefighter with the City of Wilmington,
who was injured in the line of duty on September 24, 2016.3 She succumbed to her
injuries December 1, 2016, leaving behind three (3) daughters: Aryelle Hope, Alexis
D. Lee, and Ardavia D. Lee.4
After her death, the Decedent’s two minor daughters, Alexis and Ardavia Lee
(together, the “Beneficiaries”), moved in with their father, David Lee (the
“Defendant”).5 But the Defendant was not without financial support in caring for
1
This final report makes the same findings and recommendations as my August 31, 2022
draft report, to which exceptions were filed. Docket Item (“D.I.”) 54, 55. The exceptions
are addressed in footnotes where appropriate; as explained herein, I find they should be
overruled and denied.
2
The facts in this report reflect my findings based on the record developed on February 16,
2022. See D.I. 47. I grant the evidence the weight and credibility I find it deserves.
Citations to the trial transcript, D.I. 47, are in the form “Tr. #.” The Plaintiff’s exhibits 1-
14 are cited as “PX __.” The Defendant’s exhibits 1-2 are cited as “DX __.” The
Defendant indicated an interest in submitting additional evidence, which I denied
explaining “today was the evidentiary hearing to discuss the accounting and any supporting
documentation or invoices. The record is now closed.” Tr. 174:12-14.
3
PX 10 p. 1.
4
Id.
5
Id. Although her loss was no less tragic, Aryelle Hope was already an adult when the
Decedent passed. D.I. 1 ¶ 5. Currently, the Beneficiaries are both over eighteen years old,
but the Plaintiff remains their fiduciary and trustee. See Tr. 34:21-24. Notably, the Trust
2
the Beneficiaries, now as a single parent; the Beneficiaries began receiving benefits
from their mother’s passing in 2017.
A. The Benefits
With the Decedent’s death, the Beneficiaries were entitled to their share of
benefits from the federal Public Safety Officers Benefit Office (the “PSO benefits”),
lost wages from the City (the “PMA benefits”), and the Decedent’s pension (the
“Pension benefit,” collectively, with the PSO benefits and the PMA benefits, the
“Benefits”).6
On July 26, 2017, the PSO benefits were confirmed for a total of
$343,589.00.7 But, the Defendant received only $323,922.67.8 The Defendant
admitted the PSO benefits were reduced due to the Defendant’s personal tax
does not terminate upon them reaching the age of majority, but rather begins a winddown
process when the youngest of the Beneficiaries reaches the age of 22. D.I. 1, Ex. A §3.B.
The Trust should be fully distributed once the youngest of the Beneficiaries reaches the
age of 35. Id.
I would be remiss not to acknowledge the triumphs and successes of the
Beneficiaries. When this matter was heard, the Beneficiaries were both in college, with
Alexis on a full volleyball scholarship at Maryland Eastern Shore and Ardavia studying
political science and pre-law at Delaware State University. Tr. 126:12-127:23. Their
perseverance, drive, and determination in the face of tragedy is inspiring. See, e.g., Tr.
126:12-128:11 (explaining that not only is Alexis on a volleyball scholarship but that she
was All-State in basketball and track and field, and that Ardavia was Delaware’s Boys and
Girls Club Youth of the Year and awarded a Sallie Mae scholarship).
6
PX 10 p. 3-4.
7
PX 9.
8
Tr. 107:12-14.
3
obligations.9 Unlike the lump sum PSO benefits, the PMA benefits of $1,378.90
were delivered monthly, beginning in January 2017, via paper checks.10 Altogether
the PMA benefits totaled $149,709.00, but the Defendant contends he only
controlled $122,722.10 (a discrepancy of $26,986.90).11 Finally, the Pension benefit
totaled $103,879.36 for the relevant time.12
B. The Trust
The Defendant received the Benefits as the father and guardian ad litem for
the Beneficiaries and, on January 5, 2017, established the Trust on their behalf.13
The Trust expressly provides:
Trustor established this Trust for the benefit of the Children of Ardythe
Denise Lee, who survived their mother after her passing on December
2, 2016 as a result of injuries sustained in the line of duty. Any Trustee
serving hereunder shall keep in mind that it is Trustor’s primary desire
that the assets held in the Trust Fund be available for the sole benefit of
the Children during their lifetimes[.]14
9
Tr. 107:17-108:8.
10
See Tr. 38:19-39:5; PX 8. While the Beneficiaries were minors, the Defendant handled
the Benefits, but the Defendant testified that once the Beneficiaries reached the age of
majority, the checks were deposited into their personal accounts or send to them via
CashApp. Tr. 35:4-37:1.
11
See, e.g., D.I. 51 p. 9.
12
Tr. 99:12-16. See also PX 7 (reflecting one monthly payment); D.I. 52 p. 7 (identifying
the parties’ agreement). A portion of the Pension benefit remains untouched in an account
in the name of the Trust. Infra n.45.
13
PX 10 p. 1.
14
D.I. 1, Ex. A §1. “The Children” is defined in the Trust to mean the Beneficiaries. Id.
§19.
4
The Trust further provides, “[a]ny individual Trustee serving hereunder shall be not
be [sic] entitled to compensation for his or her services as Trustee, but shall be
entitled to reimbursement for out-of-pocket expenses incurred in administering this
Trust.”15
Fully aware of this charge and limitation as the trustor, the Defendant
appointed himself as the trustee and managed the Trust and the Benefits until he was
removed from that position and replaced with Senior Partner, Inc. (the “Plaintiff”).16
Through this action, the Plaintiff challenges the Defendant’s use of the Benefits and
the Trust. The Plaintiff further avers that the Defendant continued to hold funds
belonging to the Trust in multiple accounts and continued to make expenditures on
behalf of the Beneficiaries after his removal.17
C. The Property
Among these expenditures was the purchase of a house at 113 Buena Vista
Drive, New Castle (the “Property”), on July 30, 2018.18 The Defendant made the
down payment of $52,278.21, using the Benefits he received on behalf of the
15
Id. §16.
16
PX 10 p. 1. The Defendant testified that the Plaintiff’s involvement was a resolution to
a guardianship action initiated by a family member of the Beneficiaries, who accused the
Defendant of “pocketing money or whatever the case may be.” Tr. 43:21-44:16.
17
PX 10 p. 4-8.
18
Tr. 87:7-9.
5
Beneficiaries.19 Before the Defendant purchased the Property, he and the
Beneficiaries lived in his home in New Castle, Delaware.20 But the home was too
small and he was concerned about the Beneficiaries’ safety and ability to live
comfortably.21 But, although the Defendant represents the Property as the family
home, the Defendant has been the primary resident, with the Beneficiaries both away
at college.22 Nonetheless, the Defendant used the Benefits and assets of the Trust to
cover the full amount of the household expenses for the Property.23
D. Procedural History
The Plaintiff filed the underlying complaint on March 26, 2020.24 The
Plaintiff pled two claims: (1) the Defendant unjustly enriched himself with the Trust
funds and (2) the Defendant breached his fiduciary duties as trustee. 25 To remedy
the harm from these claims, the Plaintiff asked for (1) imposition of a constructive
19
PX 10 p. 9. See also D.I. 51 p. 18. The Plaintiff points to the Accounting (as defined
herein), which identifies both $51,278.21 and $52,278.21 as the down payment amount.
See PX 10 p. 9. I accept the latter as the claimed down payment based on the Defendant’s
testimony. Tr. 115:19:116-16.
20
Tr. 87:10-14.
21
Tr. 87:15-88:14.
22
See Tr. 92:9-12, Tr. 128:24-129:3, Tr. 140:3-142:19. See also Tr. 129:4-22 (explaining
other temporary residents in the Property).
23
Tr. 64:15-20; Tr. 130:5-20. Although the Defendant initially testified that he made utility
and other payments toward the Property, he clarified he did so with the Benefits. Compare
Tr. 92:24-93:2 with Tr. 130:5-20.
24
D.I. 1.
25
Id.
6
trust, (2) an accounting by the Defendant to determine how he used the Trust funds,
(3) judgment against the Defendant for any misused or misappropriated funds, and
(4) a lien against any real estate improperly titled.26 The Defendant filed an answer
on May 18, 2020, denying that he acted improperly and raising multiple affirmative
defenses.27
After the Defendant answered, the docket sat dormant for around nine (9)
months. In February 2021, the parties reached out about scheduling and on March
23, 2021, I issued (at the parties’ request) a brisk schedule for fact discovery to close
in May, expert discovery to close in July, and trial in November.28 Discovery and
pre-trial preparation did not, however, go to plan. In July, the Plaintiff filed a motion
to compel discovery responses from the Defendant, which were still outstanding.29
In early August, the Plaintiff also moved for a protective order to bar discovery
served by the Defendant two months after the deadline.30 On October 15, 2021, after
the motions were fully briefed, I granted both and shifted fees in an amount to be
determined.31
26
Id.
27
D.I. 8.
28
D.I. 11.
29
D.I. 17.
30
D.I. 18.
31
D.I. 29-30. Those orders were final reports and the stay on exceptions was lifted when
my draft report was issued; no exceptions were filed to those orders.
7
Shortly after my discovery rulings, on October 29, 2021, the parties reached
a “tentative agreement” to resolve this matter.32 The resolution was submitted
through a stipulation and proposed order, wherein the parties agreed that (1) the
Defendant would complete an accounting, (2) the parties would meet and confer to
review the accounting, (3) the Defendant waived his affirmative defenses, (4) the
Defendant would transfer ownership of the Property to the Beneficiaries, and (5) the
Plaintiff may apply to the Court for reimbursement of costs and attorneys’ fees in
the amount of $2,750.00 in connection with the Plaintiff’s discovery motions.33
Through their stipulation, the parties proposed two options for resolution.
If the parties reached an agreement, the parties would enter into a stipulation to be
submitted to the Court as a consent judgment, under which the Defendant would
reimburse the Trust for any “short fall” between the Trust funds received by the
Defendant and expenses paid for the Beneficiaries.34 If the parties failed to reach an
agreement, the parties agreed to a “fact finding hearing” to allow the Court to make
determinations regarding any disputed expenses.35 After a status conference on
November 1, 2021, I approved the stipulation and proposed order on November 9,
32
D.I. 31.
33
D.I. 32.
34
Id. ¶4.
35
Id. ¶5.
8
2021 (the “Order”).36 In the Order, I tentatively scheduled the fact-finding hearing,
if necessary, for February 16, 2022 (the “Hearing”).37
The parties advised on January 20, 2022 that disputes remained, and the
Hearing was necessary.38 As set forth in the Order, the Hearing was meant to be “a
fact finding hearing limited to a determination as to the disputed expenses . . . . Any
evidentiary presentation at the Hearing [was to] be limited to the Accounting and
supporting testimony of the Defendant as to the sufficiency and further
explanation/justification of the Accounting.”39 Thus, the Plaintiff’s witness list,
which included a proposed expert witness, raised concerns. But, after discussion
during the Hearing, I accepted a proffer regarding the expert’s testimony and
admitted his report into evidence.40
The Hearing permitted a deep dive into the Defendant’s accounting, which he
served on the Plaintiff on December 15, 2021 (the “Accounting”).41 The Accounting
36
See D.I. 33; D.I. 34.
37
D.I. 34.
38
D.I. 35. The Hearing was held on the Zoom platform; relevant instructions were
provided, and a record has been retained for de novo review, if necessary. See D.I. 37, 47.
39
D.I. 34.
40
See Tr. 152:16-159:11, 166:20-167:3; PX 13.
41
PX 10. The Accounting was complicated by the Defendant’s use of numerous different
accounts, both concurrently and serially, with assets being transferred from one account to
another, and accounts being opened and closed during the accounting period. See, e.g., Tr.
47:15-17 (explaining “[i]t was three different accounts for each girl, and then it was two
other accounts for [the Defendant]”). This report does not address how the funds were held,
9
begins with a “background” section, which contains explanations and commentary
which I do not accept for the truth of the matters asserted.42 The Accounting then
explains the three sources of income and the various accounts the Defendant
utilized.43 It ends with a summary, totaling the income, expenditures, and other
items for consideration, and attaches exhibits A-D, which include the itemized
expenditures, transfers, and the estimated value of the Property.44
In addition to the Accounting, the Defendant served two supplements on
January 7, 2022 and January 22, 2022 (collectively, the “Supplements”).45 The
Supplements clarified the cash transfers and payments to the Beneficiaries.
The Defendant further disclosed that funds totaling $14,392.71 remain in a
WSFS bank account, which is titled in the name of the Trust (the “WSFS
Account”).46 The Defendant has declined to account for the WSFS Account, arguing
the funds were never expended or withdrawn by the Defendant; as such, there is
or the historical transfers, but rather deals in absolutes—how much money came in (or
should have come in), how much went out, and what the Defendant can support.
42
PX 10 p. 1-3. Rather, I rely on the Defendant’s testimony at the Hearing.
43
Id. p. 3-8.
44
PX 10. See also DX 1-2 (supporting documentation).
45
PX 11-12; Tr. 24:15-19.
46
PX 10 p. 9. Who controls or has the ability to control the WSFS Account is unclear; there
appears to be no dispute, however, that the funds in the WSFS Account should be under
the stewardship of the Plaintiff. See D.I. 52 p. 7.
10
nothing for which he needs to account. But he seeks a credit for those remaining
funds, reducing his debt to the Trust.
Through the Accounting, which was supported by the Defendant’s testimony,
the Defendant claims a total of $244,144.85 in general expenditures for the benefit
of the Beneficiaries.47 These general expenditures included purchases of clothing,
food, technology, and other things for the Beneficiaries.48 They also included
groceries and meals for the Beneficiaries and the Defendant together, and household
expenses that benefitted all residents of the Property.49 The Defendant also testified
that he threw a “Sweet 16” party for one of the Beneficiaries, using the Benefits,
which cost more than $5,000.00.50 In addition to the general expenditures, the
Defendant identified electronic cash transfers to the Beneficiaries, including
$8,669.72 in direct transfers to the Beneficiaries and $3,448.00 in CashApp
payments to the Beneficiaries, for a total of $12,117.72.51 The Plaintiff agrees that
47
PX 10 p. 9. At the Hearing, the Defendant explained how he created the Accounting and
his list of expenditures. See, e.g., Tr. 49:4-13, Tr. 49:20-23, Tr 124:2-11.
48
PX 10 p. 9.
49
See, e.g., Tr. 56:15-22. See, e.g., Tr. 64:15-20, Tr. 124:15-21. See also Tr. 129:4-22
(explaining other temporary residents in the Property).
50
Tr. 70:20-71:11.
51
PX 10 p. 9.
11
these payments should be credited to the Defendant as appropriately expended for
the benefit of the Beneficiaries.52
But the Accounting and the Supplements left much to be desired. At the
Hearing, the Plaintiff identified three (3) remaining issues in dispute: (1) whether
the Defendant underreported the Benefits for which he was required to account, (2)
whether the expenditures claimed by the Defendant could be accepted on their face
and without any supporting documents, such as invoices or receipts, or if an
alternative calculation should be made as to reasonable expenses for raising the
Beneficiaries, and (3) whether the Defendant should be provided a credit for
appreciation on the Property. Based on their positions on disputes, the parties seek
judgments more than $200,000.00 apart.53 And, although the parties agreed that the
Property should be transferred to the Trust, they presented differing proposals on
how that should be accomplished and the ancillary relief that is necessary and
appropriate in connection therewith.
Following the Hearing, the parties were directed to submit closing briefs
addressing: (1) the income discrepancy, (2) the supported/unsupported expenditures,
52
D.I. 52 p. 23.
53
Compare D.I. 51 ($165,738.47) with D.I. 52 ($376,531.43). I note, the Plaintiff’s position
on expenditures is a generous one. The Defendant did not provide any receipts or invoices
for his expenditures. See Tr. 145:13-147:12. The Plaintiff could have latched onto this
deficiency and argued that judgment be entered for the full amount. But the Plaintiff took
the reasonable and equitable route, which I largely adopt herein.
12
(3) the Defendant’s request for a credit for the Property’s appreciation, (4) how the
Property should be retitled and ancillary relief necessary and appropriate, and (5)
each side’s recommended final judgment.54 Because the Defendant bears the burden
of proving he handled the Benefits appropriately, the Defendant was directed to
submit his brief first, followed by the Plaintiff.55 After briefing was complete, I
issued my draft report on August 31, 2022, to which the Defendant filed
exceptions.56 This is my final report.
II. ANALYSIS
This action began as one for unjust enrichment and breach of fiduciary duties.
But the parties agreed to streamline their claims and submit the dispute to the Court
on a limited evidentiary record, primarily on the Accounting. “An accounting is an
equitable remedy that consists of the adjustment of accounts between parties and a
rendering of a judgment for the amount ascertained to be due to either as a result.”57
“It is elementary that in this accounting phase, [the Defendant] bears the burden of
54
See Tr. 183:14-184:1, 185:13-15.
55
Tr. 177:17-20.
56
D.I. 51, 52, 54, 55.
57
Albert v. Alex Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *11 (Del. Ch. Aug. 26,
2005).
13
proving both the accuracy of [his] accounting and the propriety of the underlying
transactions.”58
In large part, the Defendant did not meet this burden. But as explained further
herein, I find he is entitled to credits and reasonable valuations of the cost of raising
the Beneficiaries. As such, I find judgment should be entered in the amount of
$366,412.34, representing the unaccounted-for income and expenditures, less
appropriate credits, and plus attorneys’ fees. I further find the Property should be
deeded to the Trust, as explained herein. To reach these conclusions, I separately
address the five (5) issues briefed.
A. The Defendant failed to account for all the Benefits and judgment
should be entered against him.
The Defendant agreed—and was required by the Order—to account for all
“funds he has received from sources related to the injuries and death of [the
Decedent] for the benefit of [the Beneficiaries] . . ., including, but not limited to
Public Safety Officers’ Award in the gross amount of $343,589.00, bi-weekly lost
wage benefit, and payments from the County/Municipal Police Pension.”59
The parties do not dispute that the Defendant received $103,879.36 from the
Pension benefit and that the Defendant must account for the entire $343,589.00 of
58
Dolby v. Key Box “5” Operatives, Inc., 1996 WL 741883, at *1 (Del. Ch. Dec. 17, 1996).
59
D.I. 34.
14
the PSO benefits. Because he failed to do so and admitted that the PSO benefits
were reduced to pay for his person tax liabilities, judgment should be entered against
the Defendant for the amount withheld from the PSO benefits, $19,666.33.
The parties disagree about the amount of the PMA benefits for which the
Defendant must account—the Defendant argues he must account for $122,722.10,
which is the amount that was deposited into the various accounts, but the Plaintiff
argues that the Defendant must account for $149,709.00, which is the full amount
the Defendant should have received.
I find the Defendant failed to account for all the PMA benefits and should be
held liable for the “missing” funds. It is the Defendant’s burden, as the former
trustee and fiduciary, to account for how he handled funds directed to his attention
for the benefit of the Beneficiaries. The Defendant testified that the PMA benefits
were always directed to his, and the Beneficiaries’, home. And he testified that he
took stewardship over those checks, depositing them and making the funds available
to the Beneficiaries. His testimony that certain checks may have been deposited into
accounts owned by the Beneficiaries, or otherwise transferred to them in full, lacks
any support, is self-serving, and should not be credited.60 Because of the hands-on,
fiduciary role he played, I find the Defendant should be liable for any bi-weekly
60
See Dweck v. Nasser, 2012 WL 3194069, at *6 (Del. Ch. Aug. 2, 2012) (holding a
fiduciary failed to meet his burden when the accounting could not be connected to “credible
documentation” and what was offered was, instead, mere “generalized explanations”).
15
payments for which he cannot account. The total amount unaccounted for is
$26,986.90 and judgment should be entered against the Defendant for this
deficiency.61
The Defendant failed to include the entire value of the Benefits in the
Accounting and should be held liable for the deficiency in the PSO benefits
($19,666.33) and the PMA benefits ($26,986.90) for a total of $46,653.23. I find
this total should be reduced by $14,392.71, to $32,260.52, as a credit for the
remaining untouched portion of the Pension benefit in the WSFS Account.62
B. The Defendant failed to provide support for all claimed
expenditures and judgment should be entered against him.
In addition to accounting for all income received, “the party responsible for
rendering an equitable accounting, [has] the burden of coming forward and of
proving their expenditures.”63 This burden is “quite demanding” and the Defendant
61
In his exceptions, the Defendant argues that by failing to accept his testimony that he did
not receive these funds, I am allowing a windfall to the Beneficiaries or the Plaintiff which
is “shocking to the conscience and inconsistent with the equitable principles that serve as
a foundation of this Court.” D.I. 56. I disagree for the reasons articulated herein and find
this exception should be overruled.
62
The Plaintiff argues that the Defendant should be required to account for $14,392.71
remaining in the WSFS Account, whereas the Defendant seeks a credit against any
judgment for this amount of the Pension benefit. I find the Defendant has adequately
disclosed the funds within the WSFS Account and no further accounting of such funds is
necessary. He should, however, take any and all steps necessary to direct those funds to
the Plaintiff and relinquish any control or authority thereover. But I agree that the
Defendant should be credited for such remaining funds.
63
Dolby, 1996 WL 741883, at *4 (citations omitted).
16
must prove “both the accuracy of its accounting and the propriety of the underlying
transactions.”64 The underlying transactions must be for the sole benefit of the
Beneficiaries.65 An accounting will not be sufficient where “certain listed expenses
were not supported by sufficient evidence or appeared to have been inaccurately
recorded.”66
I start with the uncontested matters. The electronic transfers to the
Beneficiaries, which total $12,117.72, were appropriate and are hereby approved.
Likewise, I accept that the Defendant spent $52,278.21 from the Benefits on the
down payment for the Property. The Defendant met his burden of proving these
expenditures were for the benefit of the Beneficiaries.
But, otherwise, the Defendant failed. The Accounting is, on its face,
deficient.67 The Defendant claims general expenditures of $244,144.85. But he
64
Id. at *1.
65
In re DeGroat, 2020 WL 2078992, at *23 (Del. Ch. Apr. 30, 2020).
66
Dolby, 1996 WL 741883, at *4.
67
The Defendant failed to keep adequate contemporaneous records and I have concerns
about how seriously he took his accounting promise and the Order’s directives. To the
former, the Defendant testified that he was unaware of the need to keep records of how he
was expending the Benefits and handling the Trust’s assets. Tr. 135:3-14. Although I am
lenient with the Defendant, I cannot fully excuse his failings and I find his professed
ignorance that he owed fiduciary duties to the Beneficiaries lacks credibility. See Tr.
138:15-19. See also In re Dougherty, 2016 WL 4130812, at *12 (Del. Ch. July 22, 2016)
(explaining a fiduciary cannot “excuse her own failure to maintain records in a safe place,
nor can she rely on a ‘narrative’ and answers to deposition questions as a substitute for a
formal accounting”). Regarding the latter, it is disappointing that the Defendant did not
diligently investigate and build a record for the Accounting. See Tr. 145:11-147:24.
17
provided no supporting receipts or invoices that the Court could review to determine
if the expenditures were for the sole benefit of the Beneficiaries.68 And many of the
expenditures, on their face, clearly benefitted persons other than the Beneficiaries.
The Accounting, deficient as it is, reflects that the Defendant failed to treat the Trust
assets as solely for the benefit of the Beneficiaries; he routinely used them to fully
cover expenses the Beneficiaries shared with others, including himself. Even with
the Defendant’s testimony, which is self-serving and difficult to believe, the
Accounting does not effectively serve its intended purpose.69
Despite establishing the Trust, the Defendant failed to take seriously his duties
to the Trust and the Beneficiaries. He commingled the Benefits with his personal
and business assets, and he used the Benefits to benefit himself. Further, the
Defendant used the Benefits to purchase the Property in his own name and continues
to assert an unearned interest in the Property. I simply cannot accept the Defendant’s
testimony that the items listed in his general expenditures were for the benefit of the
Beneficiaries.70 As such, I find the Defendant failed to meet his burden of proof that
any of the claimed general expenditures were made for the benefit of the
68
Cf. DX 1-2.
69
And, by the Defendant’s own admission, he cannot provide any support for $247,256.97
of the Benefits. See D.I. 51.
70
See Dweck v. Nasser, 2012 WL 3194069, at *6 (holding a fiduciary’s testimony which
“merely offered generalized explanations” or “speculat[ion] about the types of
expenditures” was “not sufficient to carry [the fiduciary’s] burden”).
18
Beneficiaries or are otherwise appropriate. Thus, I find the claimed general
expenditures on the Accounting should be rejected.
In crafting the appropriate remedy notwithstanding this rejection, I find Dolby
v. Key Box “5” Operatives, Inc., 1996 WL 741883, at *1 (Del. Ch. Dec. 17, 1996)
instructive. There, Chancellor Allen also rejected an accounting, finding the
defendant “had the opportunity to present an accurate accounting to this Court based
on sufficient evidence to meet its burden of proof, but failed to do so, providing
primarily largely uncorroborated testimony that was at times difficult to follow.”71
The Chancellor explained the defendant’s evidence of payments was “partial, replete
with self-dealing, and . . . often suspicious.”72 Unable to rely on the evidence
presented by the party with the burden of proof, Chancellor Allen explained that he
could use “an alternative method to compute the correct award owed to the
plaintiffs” or “[i]nstead of choosing an alternative method, the court may also rely
on an accounting provided by the other party if it appears reliable and accurate.”73
Chancellor Allen chose the latter.74
Here, like the accounting in Dolby, the general expenditures on the
Accounting cannot be accepted. But I find I can look to an alternative method to
71
Dolby, 1996 WL 741883, at *4.
72
Id.73
Id.74
Id.19
calculate the judgment owed by the Defendant to the Trust. The only options
presented to me are to (1) hold the Defendant liable for the full value of the Benefits
received and expended or (2) accept the Plaintiff’s valuation of $160,000.00 as the
reasonable cost for rearing the Beneficiaries.75 The Defendant provides no other
alternative for my consideration.
Equity compels me to accept the Plaintiff’s proposal. Initially, I find it would
be inequitable to ignore the practical reality that the Defendant was providing for the
Beneficiaries as a single parent. It would defy reason to hold, essentially, that none
of the Benefits went toward the needs of the Beneficiaries. Of course, some did.
But the Defendant has failed to meet his burden to prove how much and for what
75
The Plaintiff also suggested the alternative of reducing the credited general expenditures
by one-third (1/3) to account for the portion of benefit the Defendant received from the
general expenditures, for a total of $162,763.14. D.I. 52 p. 16. But I find such would not
appropriately account for the expenses which solely benefitted the Beneficiaries. See, e.g.,
PX 10 p. 54 (noting a purchase at Apple, where the Defendant made purchases for the
Beneficiaries). Thus, I find myself limited to the above two options.
In his opening brief on exceptions, the Defendant argues that I should have utilized
an unspecified alternative method for calculation. D.I. 56. But the Defendant did not
proffer one. The closest he gets to doing so is in his reply brief on exceptions. D.I. 59
(arguing: “Due to limited nature of testimony at Hearing, the Defendant believes that in
order for this alternative method to [be] accomplished, the Plaintiff should be required to
provide Defendant with detailed objections to Defendants December 7, 2021 accounting
and all supplements thereto, in order to determine what expenses are disputed by the
parties, and allow for the Court to review these objections, along with Defendant’s response
thereto – and order further evidentiary hearing to any extent necessary – in order to
determine if the Defendant has met his burden of demonstrating that expenditures were for
the benefit of the beneficiaries.”). But parties may not reserve arguments for exceptions,
let alone for their reply brief on exceptions; I find this exception should be overruled and
the untimely proposed alternative denied.
20
purposes. On the other hand, the Plaintiff was able to quantify a reasonable amount
of expenses for such a single parent, through its expert’s report, which recommends
that $160,000.00 be credited.76 Presented with either accepting this valuation or
entering judgment for the entirety of the Benefits, I chose the former. As such, I find
the Defendant should be credited for $160,000.00 of the general expenditures.77
Judgment should be entered against him for the remaining expenditures—
$331,401.82. This brings the recommended judgment, including the unaccounted-
for income, to $363,662.34.
76
The report used the IRS’s monthly allowable living expenses national standards for a
family of three, including expenses for food, housekeeping, clothing, and housing. PX 13.
The total expenses ($240,000.00) were reduced by 1/3 to reflect just the Beneficiaries’
portion. Id.Through his exceptions, the Defendant argues that I erred in accepting this credit
because it “failed to address the Defendant’s accounting in any meaningful way, or account
for the lifestyle of the trust beneficiaries,” and pleads that I should use an alternative
method under Dolby. D.I. 56. But the Defendant appears to misunderstand my ruling; I
chose the alternative method route under Dolby and went with the only alternative
provided. I did not, as the Defendant appears to represent, accept the credit as a “reliable
and accurate” accounting from the Plaintiff. The Plaintiff was not required to submit an
accounting, did not submit an accounting, and rather proposed an alternative method,
which I accepted. This exception should be overruled and the appeal to a new alternative
method denied.
77
Although I accept this number, I pause to note the rate at which these funds were
expended, many through large cash withdrawals, is disappointing and concerning. See Tr.
105:23-106:20. The Defendant, as the father of the Beneficiaries, had a duty to support the
Beneficiaries and, ideally, the Benefits should have been preserved in large part to support
and provide for the Beneficiaries for years in come. See 13 Del. C. § 503 (a), (c)-(d).
21
C. The Defendant should not receive credit for the appreciation in
value of the Property.
The parties agree that the Property was purchased with the Benefits and should
be titled to reflect the Beneficiaries’ or the Trust’s ownership. But the Defendant
asks that any judgment against him related to the unaccounted-for income or
unsupported expenditures be offset by the appreciation of the Property since the time
of its purchase, which the Defendant calculates as $81,518.50.78
The Defendant makes his request under the theory of quantum meruit, which
“allows a party to recover the reasonable value of his or her services if: (i) the party
performed the services with the expectation that the recipient would pay for them;
and (ii) the recipient should have known that the party expected to be paid.”79 But
this equitable principle cannot supplant the terms of the Trust, which provide: “[a]ny
individual serving hereunder shall be not be [sic] entitled to reimbursement for his
or her services as Trustee, but shall be entitled to reimbursement for out-of-pocket
expenses incurred in administering this Trust.”80 Thus, to the extent the Defendant
78
PX 10 p. 9.
79
Petrosky v. Peterson, 859 A.2d 77, 79 (Del. 2004).
80
D.I. 1, Ex. A §16. See Chrysler Corp. v. Airtemp Corp., 426 A.2d 845, 854 (Del. Super.
1980) (“If it is determined that the relationship of the parties and the services involved in
this claim are the subject of an express contract, the terms of that contract control and there
is no occasion to pursue the theory of quantum meruit or contract implied in law.”)
(citations omitted).
22
seeks compensation from serving as trustee or de facto trustee, his request should be
denied.
Further, to the extent the Defendant is arguing he was serving the Property or
the Beneficiaries in some other capacity, he has failed to establish that he did so
expecting payment and the Beneficiaries or the Trust, on their behalf, should have
known he expected payment. And, finally, the Defendant fails to justify why and
how appreciation is the appropriate measure of compensation due to him. His
request should be denied.
D. The Property should be transferred to the Trust.
The Order provided that the “Defendant will transfer ownership of the
[Property] to [the Beneficiaries] as tenants in common, or as remainder interest
owners with residency rights, or shall agree to a secured lien in favor of the [T]rust
as the parties further discuss and agree, or such other method of transferring
ownership, subject to the approval of the Court.”81
The Parties dispute how this should be accomplished. The Defendant seeks a
life estate in the Property and a remainder interest for the Beneficiaries.82 The
Defendant argues that this “would be the least disruptive solution for the parties.”83
81
D.I. 34 ¶11.
82
D.I. 51 p. 16-17.
83
Id. p. 17.
23
In the alternative, the Defendant requests to remain living in the Property for 18
months, to give him time to demonstrate consistent payments on the judgment in this
case to qualify for a loan.84 The Plaintiff asks that the Defendant be directed to
“execute a deed conveying the . . . Property to the Trust” and to “vacate the . . .
Property within a year.”85
The Defendant has no legal argument to justify granting him an interest, such
as a life estate, in the Property. The Property was purchased by assets owed to the
Trust, which expressly provides “that it is Trustor’s primary desire that the assets
held in the Trust Fund be available for the sole benefit of the [Beneficiaries] during
their lifetimes[.]”86 As such, the Property should be used solely to benefit the
Beneficiaries. This is best accomplished by transferring full ownership of the
Property to the Trust. The Defendant worries the Trust selling the Property would
lead the Beneficiaries to live a “nomadic existence[.]”87 The Plaintiff, as trustee of
the Trust, owes a fiduciary duty to the Beneficiaries; if the Plaintiff determines it is
in the Beneficiaries’ best interest that the Property not be sold, I expect the Plaintiff
will act accordingly.
84
Id.
85
D.I. 52 p. 22.
86
D.I. 1, Ex. A § 1.
87
D.I. 51 p. 16.
24
The remaining question is how long the Defendant should be allowed to
remain in the Property. The Plaintiff asks that the Defendant vacate within one year;
the Defendant seeks an 18-month transition period. I find the one-year period
proposed by the Plaintiff is sufficient and appropriate under the circumstances.88
Thus, I recommend the Defendant be ordered to convey the Property to the Trust
and vacate the Property within one year of this report becoming an order of the
Court.89
E. Judgment should be entered against the Defendant and in favor of
the Trust.
Based on the above findings, judgment should be entered against the
Defendant in the total amount of $366,412.34, representing $46,653.23 in missing
income, $331,401.82 in unsupported expenditures, and $2,750.00 for attorneys’
fees, minus a credit of $14,392.71. Pre-judgment and post-judgment interest should
be added to this judgment, compounded quarterly.90 I find the Defendant should be
88
The Defendant used the Benefits to purchase the Property yet titled the Property in his
name. He has since been living in the Property and covering the Property’s expenses, in
full, with the Benefits. I find it would be inequitable to allow this situation to continue for
another eighteen months after this report becomes an order of the Court.
89
I encourage the Defendant to consider the draft proposed documents submitted by the
Plaintiff. PX 14.
90
See, e.g., Dweck v. Nasser, 2012 WL 3194069, at *6 (holding a fiduciary liable for
unsupported expenditures on his accounting and granting pre- and post-judgment interest
compounded quarterly). See also Soterion Corp. v. Soteria Mezzanine Corp., 2013 WL
869353, at *2 (Del. Ch. Mar. 7, 2013) (explaining that pre- and post-judgment interest is
“a matter committed to the Court’s discretion,” and finding “that quarterly compounding
25
required to make monthly payments on the judgment and accept the Defendant’s
proposal for a 360-month period as unopposed.
The Defendant should also be required to hand over control and authority of
the WSFS Account to the Plaintiff within thirty (30) days of this report becoming an
order of the Court and to work to transfer and vacate the Property as provided herein.
III. CONCLUSION
For the foregoing reasons, I find the Defendant failed to account for all income
owed to the Trust or support all his expenditures as trustee. He should, therefore, be
charged with the missing income and his unsupported expenditures. In fairness, I
will, however, credit the Defendant with the only viable alternative method of
calculation before me. Altogether, the Defendant owes the Trust $366,412.34 and
judgment should be entered against him as explained herein. Further, the Property
should be transferred and vacated as provided herein.
This is my final report and exceptions may be filed under Court of Chancery
Rule 144.
Respectfully submitted,
/s/ Selena E. Molina
Master in Chancery
is both reasonable to maintain the value of the interest that is awarded and to incentivize
payment”).
26