As Published In Jury Verdict Publications
When a professional trustee of family trust uses funds to invest in his own investment company, family cries foul!
Case Name: Russell Family Trust v. Richard A. Cox
Court and Case Number: : Tehama Superior Court / PR 14010
Date of Jury Verdict: Tuesday, July 03, 2012
Date Action was Filed: Tuesday, 29 November 2011
Type of Action: Breach of Fiduciary Duty
Judge or Arbitrator(s): Hon. Jonathan W. Skillman
Darla Jean Dykier, a beneficiary of the Russell Family Trust
Richard A. Cox
Type of Result: Bench Verdict
Gross Verdict: $280,209.31 including interest, costs and attorney fees
Award as to each Defendant:
Against Richard A. Cox: $93,857.00 damages; $28,157.00 prejudgment interest; $37,537.50 attorney fees; $3,742..53 costs; $116,915.28 trustee fees. The court found that defendant had not made proper and full disclosures of his business transactions and dealings to plaintiff Russell Family Trust, and that he breached his fiduciary duty.
Trial Time: 2 days
Attorney(s) for Plaintiff:
Freedman Law Firm by Michael E. Freedman, San Francisco
Attorney(s) for Defendant:
John C. Schaller, Chico
Plaintiff’s Technical Experts:
John Bentley, real estate appraiser, Janesville
Facts And Background
Facts And Background:
On November 24, 2008, Richard A. Cox was appointed as trustee of the Russell Family Trust, which consisted of a marital trust and decedent’s trust. Mr. Cox was a professional fiduciary and acted as trustee in a number of other trusts.
On March 9, 2009, defendant Cox withdrew $89,075.25 from The Russell Decedent’s Trust and deposited the money into his Bank of America account that he used to run his company, Fiduciary Investments, Incorporated. Fiduciary Investments, Inc.’s assets consisted of a small cash reserve (under $500) and real property in Portola, California.
After withdrawing the $89,075.25 from the Russell Trust account, defendant issued stock in his company, Fiduciary Investments, Inc. to The Russell Decedent’s Trust. Over the next four-day period, defendant used $70,572 to pay off other trusts that he had invested in Fiduciary Investments, Incorporated. He paid those other trusts off at full value or at carry value, despite the fact that the real estate assets in Fiduciary Investments, Inc. had been declining for several years. After paying off these other trusts, he also used the plaintiffs’ money to pay himself $8,469. The remaining $10,000 was used by defendant to run Fiduciary Investments, Inc.
On July 6, 2009, defendant withdrew another $11,682 from The Russell Trust and deposited the money into his company’s Bank of America account. He paid $5,175 to plaintiff trust and $5,175 to another trust that he managed. In 2010, he paid back to plaintiff trust $1,725, calling it a dividend.
On August 25, 2011, defendant dissolved Fiduciary Investments, Inc. and transferred a 50% interest in the Portola real estate to himself as Trustee of The Russell Decedent’s Trust. Defendant redeemed the shares of Fiduciary Investments, Inc. that were owned by the Russell Decedent’s Trust with the conveyance of this one-half interest in the real property. The current fair market value of the property is $55,000 according to trial testimony, and the 50% interest transferred to the Russell Decedent’s trust is worth $27,500.
In the 2009 accounting for The Russell Decedent’s Trust, and again in 2010, defendant listed the value of Fiduciary Investments, Inc., which consisted of the real property in Portola, at $100,757.25. He did not have the properties appraised but relied upon letters from the real estate agent who sold him the properties; even this agent indicated that the value of the properties was declining.
Prior to the commencement of the petition for suspension and removal, defendant did not disclose to the beneficiaries or to the court that Fiduciary Investments, Inc. was his own wholly managed and operated real estate business.
That defendant’s actions should result in removal of trustee by the Court for breaching the duty of loyalty; conflict of interest; disclosure; Uniform Prudent Investment Act and self-dealing. [Probate Code Sections 15642(b)16002, 16004, 16045].
Plaintiff asked that defendant be found in contempt of court for failure to turn over trust documents.
Plaintiff asked that the court set aside settlement of accounts due to fraud and asked for punitive damages.
Defendant denied wrongdoing and contended that no damages were suffered. Defendant denied charge of contempt for failure to turn over trust documents.
Injuries And Other Damages
Surcharge damages of $93,857. Plaintiff asked forfeiture of trustee compensation of $116,915, plus attorney fees and costs.
Defendant was found not guilty of contempt, and punitive damages were not awarded, though requested by plaintiff.