Lynda Cich, of Estate of June McLeish, Lynda Cich, Hedilyn Leavitt, and Heatherlyn Lambert v. Mark McLeish ( 2019 )


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  •                    IN THE COURT OF APPEALS OF IOWA
    No. 18-0069
    Filed March 6, 2019
    LYNDA CICH, EXECUTOR OF ESTATE OF JUNE McLEISH, LYNDA CICH,
    HEIDILYN LEAVITT, and HEATHERLYN LAMBERT,
    Plaintiffs-Appellees,
    vs.
    MARK McLEISH,
    Defendant-Appellant.
    ________________________________________________________________
    Appeal from the Iowa District Court for Bremer County, Colleen D. Weiland,
    Judge.
    Mark McLeish appeals the probate of June McLeish’s will. AFFIRMED AND
    REMANDED.
    Christopher F. O’Donohoe of Elwood, O’Donohoe, Braun & White, LLP,
    New Hampton, for appellant.
    James J. Burns of Miller, Pearson, Gloe, Burns, Beatty & Parrish, PLC,
    Decorah, for appellees.
    Heard by Vogel, C.J., Vaitheswaran, J., and Gamble, S.J.*
    *Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2019).
    2
    VAITHESWARAN, Judge.
    June McLeish executed a will under which one of her sons, Mark, would
    receive land known as the Hawkeye farm and her three daughters would receive
    land known as the Maynard farm. June transferred the Hawkeye farm to Mark
    during her lifetime.
    June’s health deteriorated, and she eventually entered a nursing home.
    She gave Mark power of attorney over her affairs, including power “[t]o transfer,
    assign, convey, and deliver any real or personal property.” The document she
    executed stated Mark would “be liable for willful misconduct or breach of good faith
    in the performance of any of the” document’s provisions.
    Mark sold the Maynard farm for $862,500 and deposited the net proceeds
    of $782,917.90 into an investment account he opened at a firm where his daughter-
    in-law worked. Shortly thereafter, Mark presented June with a “transfer on death
    beneficiary designation form.” June designated Mark the “100%” beneficiary of the
    account.
    The sisters learned of the sale at their mother’s funeral. One of the sisters,
    Lynda Cich, who served as executor of June’s estate, sued Mark in her capacity
    as executor and in her individual capacity.1 Her two sisters, Heidilyn Leavitt and
    Heatherlyn Lambert, also were named plaintiffs in the lawsuit. The sisters alleged
    (1) Mark breached his fiduciary duty “by selling the [Maynard farm] for substantially
    less than its fair market value” of $1,061,000; (2) Mark used his confidential
    1
    Mark served as executor of the estate until his resignation.
    3
    relationship with June “to wrongfully benefit himself to the exclusion of others”; and
    (3) Mark intentionally interfered with receipt of their inheritance.
    Following trial, the district court entered judgment of $1,029,344 in favor of
    the executor, “for distribution to the three plaintiffs, individually, pursuant to the last
    will and testament of June McLeish.”
    On appeal, Mark challenges the district court’s determinations that (1) he
    had a confidential relationship with June, (2) he breached a fiduciary duty under
    the terms of the power of attorney, (3) he intentionally interfered with the sisters’
    inheritance, and (4) the sisters were entitled to damages under the doctrine of
    ademption.
    I.     Confidential Relationship
    A confidential relationship exists “whenever a continuous trust is reposed
    by one person in the skill and integrity of another.” Mendenhall v. Judy, 
    671 N.W.2d 452
    , 455 (Iowa 2003). “A transfer to a grantee standing in a confidential
    or a fiduciary relationship to the grantor is presumptively fraudulent.” 
    Id. at 454
    .
    To rebut the presumption, the fund recipient must “prove by clear, satisfactory, and
    convincing evidence that the grantee acted in good faith throughout the transaction
    and the grantor acted freely, intelligently, and voluntarily.” Jackson v. Schrader,
    
    676 N.W.2d 599
    , 605 (Iowa 2003).
    The district court found a confidential relationship based on the following
    evidence: (1) “Mark had been in a fiduciary relationship with June since 2008 by
    virtue of the power-of-attorney” and (2) “the evidence established that, from at least
    2008, June relied on Mark for assistance and advice.” We review the fact findings
    de novo. 
    Id. at 603
    .
    4
    By virtue of his power of attorney, Mark had a fiduciary relationship with
    June for four years preceding her death. See Mendenhall, 
    671 N.W.2d at 455
     (“A
    fiduciary relationship includes a relationship in which one is under a duty to act for
    the benefit of the other as to matters within the scope of the relationship.”); Trumm
    v. Iowa [Nat.] Heritage Found., No. 15-0813, 
    2016 WL 3272295
    , at *10 (Iowa Ct.
    App. June 15, 2016) (“As Robert’s attorneys-in-fact under the durable [power of
    attorney], Joe and Betty were in a fiduciary and confidential relationship with
    Robert.” (citing Mendenhall, 
    671 N.W.2d at 460
    )); In re Estate of Frye, No. 13-
    1170, 
    2014 WL 3511827
    , at *8 (Iowa Ct. App. July 16, 2014) (“One acting under a
    power of attorney is a fiduciary required to act in the principal’s best interests.”
    (citing In re Estate of Crabtree, 
    550 N.W.2d 168
    , 171 (Iowa 1996))). That fact
    alone created a confidential relationship, rendering his sale of the Maynard farm
    presumptively fraudulent.
    Mark attempted to rebut the presumption by testifying June “made her own
    decisions” and “[y]ou couldn’t tell her any other way.” He characterized the sale of
    the Maynard farm as “a financial decision” based on depletion of June’s funds to
    pay for nursing home care. He noted that June expressed a desire to sell the farm
    to the tenants farming the land and was satisfied with the value.
    Mark’s testimony did not establish that he acted in complete good faith.
    Jackson, 
    676 N.W.2d at 605
    . There was no evidence Mark conferred with his
    sisters about the need to sell the farm to pay for June’s continued nursing home
    care. And, as the district court found, there was no evidence “to demonstrate
    June’s bills, assets or financial status” at the time of sale or evidence “from
    caregivers or experts as to June’s competency or cognitive abilities” at the time of
    5
    sale. Finally, as the district court also found, the transfer-on-death beneficiary form
    was “even more suspicious.” Mark could not “recall” whether he or June contacted
    the investment firm to make the change, but he admitted to retrieving the
    paperwork from the firm and bringing it to June for her signature. One of the sisters
    testified the signature did not appear to be June’s. Mark furnished no expert
    testimony to controvert this testimony.        In short, the record lacked clear,
    satisfactory, and convincing evidence of good faith on Mark’s part.
    Mark’s testimony also was insufficient to establish June acted freely,
    intelligently, and voluntarily in connection with the Maynard farm sale and the
    subsequent appropriation of sale proceeds. 
    Id.
     Mark’s two aunts testified June
    lacked the mental capacity to manage her own affairs. Based on weekly visits to
    the nursing home, one stated June “did not know who her living relatives were”
    and she was “[p]retty far gone by” the time of the farm sale. The other described
    June as “incompetent” and “delusional” and plagued by “[l]oss of memory.” She
    testified June was completely reliant on Mark, because she “had no money, and
    she had no checkbook.”
    Mark’s three sisters did not see their mother as often as his aunts did, in
    part because of geographical distance. But when they visited, they uniformly found
    her to be disoriented. One testified to receiving a call from Mark explaining that
    June was on dementia medication. Another stated June was unable to recognize
    her and was “very confused” around the time of the Maynard farm sale. The third
    sister similarly testified June stopped recognizing her despite “virtually daily
    [telephone] contact.” In her words, June was “[one] hundred percent” dependent
    on Mark. Again, the record lacked clear, satisfactory, and convincing evidence to
    6
    establish June freely made decisions about the Maynard farm sale and disposition
    of the proceeds.
    We conclude the district court acted equitably in finding a confidential
    relationship between Mark and June resulting in a presumption of a fraudulent
    transfer and in concluding Mark failed to rebut the presumption.
    II.    Breach of Fiduciary Duties as Power of Attorney
    Mark contends the district court should not have found he breached his
    fiduciary duties under the terms of the power of attorney. Our discussion above
    resolves this issue. We conclude the district court acted equitably in finding a
    breach of fiduciary duty. Cf. Trumm, 
    2016 WL 3272295
    , at *11 (holding nephew,
    under power of attorney, did not act in good faith in executing real estate contract
    for uncle, due to uncle’s “mental incapacity, the disadvantageous terms of the
    sales contract . . . , [his] awareness of the terms of [his uncle’s] will, and the fact
    that the price on the contract was below market value”).
    III.   Intentional Interference with Inheritance
    The Iowa Supreme Court has recognized “an independent cause of action
    for the wrongful interference with a bequest.” Frohwein v. Haesemeyer, 
    264 N.W.2d 792
    , 795 (Iowa 1978).            “[I]n an intentional interference case, the
    wrongdoer’s unlawful intent to prevent another from receiving an inheritance is the
    key issue.” Huffey v. Lea, 
    491 N.W.2d 518
    , 521 (Iowa 1992); see also In re Estate
    of Boman, No. 16-0110, 
    2017 WL 512493
    , at *10 (Iowa Ct. App. Feb. 8, 2017)
    (setting forth elements of the tort).
    The district court concluded:
    7
    [T]he plaintiffs have proven that they expected to receive an
    inheritance from June upon her death. Mark testified that he was
    aware of June’s will’s provision regarding the Maynard farm, so the
    court considers this element also met. And the plaintiffs have clearly
    suffered damages as a result of their loss of inheritance.
    Two other elements require more discussion. For the plaintiffs
    to succeed in this claim, the court must additionally find (a) that Mark
    intentionally and improperly interfered with the plaintiffs’ expectance
    and (b) a reasonable certainty that the plaintiffs would have received
    an inheritance but for the interference.
    If the sale of the Maynard farm were the only act in question,
    the court would not be able to find that the plaintiffs met their burden
    on the “intentional and improper interference” element. The need for
    funds provides an explanation for Mark’s acts as agent that is
    reasonable, and there are not suspicious extenuating circumstances
    as to the sale.
    But that element is not as easily discarded as to the
    beneficiary designation. The court recognizes that the only direct
    evidence as to Mark’s actions and intent (or lack of it) is Mark’s
    testimony. But the circumstances make it impossible to take Mark’s
    testimony at face value. “Direct and circumstantial evidence are
    equally probative.” After having executed the Maynard farm sale
    agreement, the sale closing and the opening of the [investment]
    account as June’s agent, this court cannot believe that June then
    decided on and was able to accomplish the beneficiary designation
    without Mark even knowing. Even if the court accepts that June was
    cognitively competent and that the signature on the designation is
    indeed hers, it would have to believe that June made these
    arrangements despite her significant hearing loss, which made
    telephone communication difficult. It would have to accept that June
    told Mark nothing of her plan and knew just where to sign on both
    forms, even though she had relied on him for other recent financial
    transactions. It would have to accept that Mark, even though he was
    June’s financial fiduciary, did not even inquire as to what documents
    he was transporting from and to [the investment firm]. The court
    would have to ignore that whoever filled out the initial [investment]
    account application was very clearly the same person who filled out
    the beneficiary designation forms with Mark’s birthdate and social
    security number—the most likely candidates being Mark or his
    daughter-in-law. Finally, the court would have to accept that, for no
    discernable reason, June decided to cut her daughters out of her will
    after Mark had already received the farm that she had devised to
    him. These are circumstances that the court cannot ignore or accept.
    In regard to the final element, the court concludes that the
    plaintiffs have demonstrated a reasonable certainty that they would
    have received an inheritance but for Mark’s interference. They would
    have at least received the sale proceeds remaining in the
    8
    [investment] account, even if some of the funds had been expended
    for June’s care.
    The plaintiffs’ burden of proof on their claim of intentional
    interference is a preponderance of the evidence, and the court
    concludes that they have met that low burden.
    (footnote and citation omitted). We could not have analyzed the claim any better.
    On our de novo review, we fully concur in the district court’s findings and
    conclusion that Mark interfered with the sisters’ inheritance.
    IV.    Damages – Ademption
    “Ademption means ‘a taking away’ and generally refers to removing or
    eliminating a specific bequest from a will or trust before the death of the testator.”
    In re Steinberg Family Living Tr., 
    894 N.W.2d 463
    , 468 (Iowa 2017) (citing In re
    Estate of Anton, 
    731 N.W.2d 19
    , 23 (Iowa 2007)). “[A]demption occurs where a
    testator had knowledge of a transaction involving a specific devise, realizes the
    effect of the transaction on his or her estate plan, and has an opportunity to revise
    the will. Where these elements are not present, no ademption occurs.” Anton,
    
    731 N.W.2d at 26
    .
    The sisters alleged no ademption occurred and they were entitled to
    damages equivalent to the fair market value of the Maynard farm. The district court
    agreed with the sisters on the sale of the Maynard farm. Specifically, the court
    stated “failure of the devise is presumptively inconsistent with [June]’s intent, and
    [u]nless the presumption is rebutted the specific devise does not fail.” The court
    concluded Mark failed to “overcome that presumption as to the sale.” Based on
    this conclusion, the court awarded the sisters damages equal to the fair market
    value of the property, minus the amount of a mortgage loan that was satisfied.
    9
    On appeal, Mark contends the court inappropriately awarded damages
    “based on the [Plaintiff’s] ademption claim which was denied by the court.” Mark’s
    real challenge is not to the court’s discussion of ademption but to the amount of
    damages awarded by the court. Specifically, he contends the court should have
    deducted “capital gains tax which would have been paid by the decedent on her
    federal and state income tax returns for calendar year 2011 and again for the cost
    of probate administration.”
    Mark did not raise these damage items at trial, nor did he file a post-trial
    motion asking the court to revisit these damage amounts. Accordingly, we could
    conclude he failed to preserve error. See Semler v. Knowling, 
    325 N.W.2d 395
    ,
    399 (Iowa 1982) (“Since the damage issue was not preserved for appeal, we have
    nothing to review in that regard.”). We bypass this error preservation concern and
    proceed to the merits. See State v. Taylor, 
    596 N.W.2d 55
    , 56 (Iowa 1999).
    The district court ordered the subtraction “of any costs necessary for final
    administration of the probate proceedings.” And, as the sisters note, “The trial
    court specifically assigned the damage award to . . . June’s estate” and,
    accordingly, “[a]ny taxes owed will therefore be charges against the damage award
    in that matter.” In short, Mark received the relief he is now requesting.
    V.     Appellate Attorney Fees
    The sisters request an award of appellate attorney fees. In Huffey, the court
    stated, “We are strongly committed to the rule that attorney fees are proper
    consequential damages when a person, through the tort of another, was required
    to act in protection of his or her interest by bringing or defending an action against
    a third party.” 
    491 N.W.2d at 522
    . In light of this statement, we remand to the
    10
    district court for consideration of an award of appellate attorney fees. See In re
    Herrera, 
    912 N.W.2d 454
    , 473 (Iowa 2018); De Stefano v. Apts. Downtown, Inc.,
    
    879 N.W.2d 155
    , 191–92 (Iowa 2016).
    AFFIRMED AND REMANDED.