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Martin v. Dieringer (03/04/2005) sp-5873
Martin v. Dieringer (03/04/2005) sp-5873
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
DARREL MARTIN, )
) Supreme Court No. S-11102
Appellant, )
) Superior Court No.
v. ) 4FA-85-113 PR
)
JAMES DIERINGER, Personal ) O P I N I O N
Representative of the Estate of)
WILLIAM CHARLES MARTIN, )
)
Appellee. ) [No. 5873 - March 4, 2005]
)
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District,
Fairbanks, Niesje Steinkruger, Judge.
Appearances: Thomas R. Wickwire, Law Office
of Thomas Wickwire, Fairbanks, for Appellant.
Matthew C. Christian, Borgeson & Burns, P.C.,
Fairbanks, for Appellee.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
PER CURIAM
This case involves an estate that remained open for
more than seventeen years. William Martin died in 1985. He was
survived by two children, Donna, then age fourteen, and Darrel,
then age eighteen. His will left everything (after payment of
debts and certain expenses) in equal shares to the children, in
trust. James Dieringer (Dieringer or PR) was the personal
representative, and with his wife Nancy Dieringer, co-trustee of
the trust.
The assets of the estate included a house in Fairbanks,
a lot on Summit Lake, a motor home, some snowmachines, an escrow,
and some life insurance. The net value of the estate was less
than $250,000.
Dieringer put all cash generated by the estate in
estate accounts when he received it. Under the terms of the
trust, the funds were to be distributed as necessary for the
childrens education at least twice each year. The trust was to
terminate when Donna turned twenty-two, and the remainder
distributed to the children. Although money was not distributed
biannually, Dieringer applied funds to the childrens needs. He
appears to have performed this aspect of his duties well. He
required the children to make budgets and they received
substantial funds from the trust for educational purposes.
About the time Donna turned twenty-two, in 1992, the
children met with Dieringer. At the meeting he presented them
with the option of distributing the remaining assets to them then
or leaving the estate open so he could collect the assets and
close the estate at some later time. The children agreed that
they preferred the latter option, but Darrel testified that he
believed this would mean that the estate would remain open only
for a matter of months.
By 1997 the only remaining assets of the estate were
the Summit Lake lot, which was subject to a mortgage, and a loan
Dieringer had made to a company that he owned a half interest in.
The children agreed that Darrel would receive the Summit Lake
property and Donna would receive more cash from the estate.
Darrel contacted Dieringer a number of times concerning the
Summit Lake property and closing the estate. Dieringer informed
Darrel that he wanted to buy the Summit Lake property for
$15,000. Darrel had received a substantially larger offer for
the property and was reluctant to agree to sell to Dieringer at
Dieringers price. When this occurred Dieringer took the position
that unless Summit Lake were sold to him he would charge the
estate fees for his services. Further, he stated that the
proceeds of a $50,000 life insurance policy he and Nancy had
received when William died were actually owned by him and Nancy,
that they had merely loaned the proceeds to the estate, and that
the proceeds would have to be repaid. Darrel was unpersuaded and
the parties apparently remained at an impasse for some time.
Eventually Darrel became concerned that the Summit Lake property
would be foreclosed. Dieringer told him there were insufficient
funds in the estate to pay the mortgage, so Darrel loaned the
estate $6,700 of his own funds to pay it in March 2000. Darrel
expected to be conveyed the property from the estate when the
mortgage was paid.
Dieringer used the funds to pay off the mortgage.
There was some delay in obtaining the necessary releases and the
deed was not transferred to Darrel. Darrel petitioned to have
Dieringer removed as personal representative. While the petition
to remove was pending, Dieringer took steps to close the estate.
After a series of hearings and an aborted settlement agreement,
the petition to remove and Dieringers motion for approval of a
final accounting were scheduled for hearing. At that point Darrel
filed an independent civil action against Dieringer and sought to
have his petition to remove withdrawn. The petition to withdraw
was denied, and after an evidentiary hearing and a supplemental
evidentiary hearing the master issued extensive findings and
conclusions that denied the petition to remove. The masters
findings and conclusions were approved by the superior court,
which also granted Dieringers final accounting motion and closed
the estate.
The final accounting shows that the estate sold the
Summit Lake property to a third party for $30,000. In round
numbers and less appraisal costs the final sum was distributed as
follows: $16,320 in attorneys fees for Dieringers counsel,
$5,850 in fees for Dieringers services (pared down from a $49,000
request), and $7,430 as a distribution to Darrel.
Darrel appeals, focusing primarily on the findings that
supported the denial of the petition to remove Dieringer.
Although the estate has closed and Dieringer is no longer its
personal representative, many of the challenges to the masters
findings and conclusions may still be important because of the
collateral estoppel effect the latter were given in the dismissal
of Darrels separate civil action against Dieringer.1 Because of
this effect and because Darrels challenge might impact the award
of counsel fees and fees to Dieringer, this case is not moot.2
On appeal Darrel contends that Dieringer breached his
duty as a fiduciary with respect to his rental of the house at
what Darrel contends were submarket rates, with respect to his
sale of the motor home to his partner, with respect to the loan
of estate funds to a company half-owned by Dieringer, and with
respect to his efforts to buy the Summit Lake property at
submarket rates. Darrel further challenges the masters finding
that the $50,000 in life insurance proceeds received by James and
Nancy Dieringer in 1985 on account of William Martins death were
the property of the Dieringers rather than trust property for the
children.
We conclude that the masters findings concerning the
house and the motor home are supported by the evidence and are
not clearly erroneous. But the masters findings concerning the
loan, the Summit Lake transaction, and the $50,000 life insurance
policy are erroneous, as explained in the following paragraphs.
Darrel presents seven primary arguments. We summarize
each below together with our decision concerning it.
ARGUMENT I
Darrel argues that numerous findings made by the
probate master and adopted by the superior court are erroneous.
We conclude that several of the findings are erroneous.
Findings 21 through 25
Findings 21 through 25 are clearly erroneous. These
findings have to do with an $8,000 loan made by the estate. The
master found:
21. The estate made a loan of $8,000 to
a company called AEC. Without being asked,
PR volunteered the information that he was a
shareholder in AEC Corp. The AEC loan was
documented with a Promissory Note. The note
was unsecured and was set at an interest rate
that was equal to the savings account rate
that the money was earning at the bank at
that time. The loan was paid back in full.
This loan clearly involved a conflict of
interest between the estate and the PR.
22. A.S. 13.16.400 Sale, encumbrance,
or transaction involving conflict of interest
voidable; exceptions provides [sic] as
follows:
Any sale or encumbrance
to the personal
representative, the
personal representatives
spouse, agent, or
attorney, or any
corporation or trust in
which the personal
representative has a
substantial beneficial
interest, or any
transaction which is
affected by a substantial
conflict of interest on
the part of the personal
representative, is
voidable by any person
interested in the estate
except one who has
consented after fair
disclosure, unless
(1) the will or a
contract entered into by
the decedent expressly
authorized the
transaction; or
(2) the transaction is
approved by the court
after notice to
interested persons.
There is no statutory requirement for a
personal representative to seek court
approval to do a conflict of interest sale or
loan. However the penalty for failing to do
so is set out in the statute as is the
procedure to obtain approval and the
procedure for asking that the loan be voided.
It does not appear that petitioner is
requesting that either transaction be voided
at this time.
23. The only credible testimony before
the court is that the interest rate on the
note to AEC was at the rate of 6% and it was
paid back in full with all interest that was
owing.
24. Although technically a conflict of
interest transaction, the evidence before the
court indicates that the loan to AEC was an
arms length transaction documented by a
Promissory Note and paid back in full. The
6% interest rate equaled the bank rate and as
such was a comparable transaction and caused
no harm to the estate. The interest rate on
the AEC loan was 6% and all sums appear to
have been paid in full. There is no harm to
the estate from the transaction.
25. Occasional payments on the Summit
Lake property were technically delinquent.
However, PR testified that the note payments
were allowed to be delayed. In all
actuality, PR should not have distributed
money to the heirs that they had requested.
This distribution to the petitioner and his
sister caused the estate to be in a cash poor
situation which situation caused the
delinquency. Petitioner and his sister
should have understood that as payments came
in from the house and other sources that the
Summit Lake property would be paid.
The masters conclusion that the loan was an arms length
transaction and that it caused no harm to the estate is clearly
erroneous. Dieringers loan to his own company was a breach of
his fiduciary duty to the trust and not an arms length
transaction. The bank rate of six percent was the rate banks
paid at the time on savings accounts, not the rate at which they
loaned money, and thus was a preferential benefit to AEC. The
loan caused harm to the estate. The last undisposed asset held
by the trust was property on Summit Lake. There was an initial
$13,000 debt on the property, bearing a twelve percent interest
rate. The $8,000 loaned to AEC could have been applied to the
remaining debt on the Summit Lake property, discharging part of
the twelve percent obligation.
Findings 42 and 43
Findings 42 and 43 are clearly erroneous. These
findings concern the alleged $50,000 loan that Dieringer claims
to have made to the estate. In Finding 26, the master found that
the petitioner does not dispute that PR and Nancy Dieringer put
$50,000 into the estate. The master addressed this subject in
Findings 42 and 43 stating:
42. It was reasonable for the PR to
leave the estate open and continue to manage
the affairs of the estate. It was understood
that decedents estate at the time of his
death was not in financially good condition.
In fact, PR had to loan the estate $50,000 in
order to allow the estate the liquidity it
needed so that Donna and petitioner could
have funds to attend college.
43. PR did testify at the hearing and
it is true that he and Nancy Dieringer
received life insurance proceeds payable to
them individually in the amount of $50,000
which policy was purchased by decedent. This
money passed to PR and Nancy Dieringer
outside of the estate and per the insurance
policy between decedent and the insurance
company.
The evidence does not sustain the finding that the
$50,000 life insurance payment was intended to be the individual
property of the Dieringers as distinct from property that passed
to them for the benefit of the Martin children.3 The Dieringers
were not relatives, business partners, or associates of William
Martin, and were not the natural object of Williams beneficence.
Upon receiving the $50,000 insurance payment shortly after the
death of William Martin in 1985, Dieringer paid it into the
estate. He made no claim that it was a loan until fourteen years
later, in approximately 1999, when this dispute arose. Even then
Dieringers claim was equivocal in nature. His attorney, upon
opening statement, suggested that reimbursement for the $50,000
would only be sought by Dieringer if he were removed as personal
representative. When asked by his counsel would you characterize
that as a loan? Dieringer answered I will today, yes. He
explained that what he meant by today was that he could forgive
some of that loan. He was asked on cross-examination: Are you
reserving your position from what you do with that loan depending
on what Mr. Martin does in this court proceeding? His answer was
Possibly. Given the fact that there was no reason for William
Martin to leave property to the Dieringers except to benefit his
children, for whom they were trustees, and the contemporaneous
treatment by Dieringer of the $50,000 in 1985 by contributing it
to the estate with no indication that it was merely a loan until
the dispute arose fourteen years later, the court clearly erred
in concluding that the $50,000 was individually owned by the
Dieringers.
This conclusion is supported by the general rule
concerning gifts to executors that unless the intention to
benefit the executor personally is clearly expressed, it will
ordinarily be assumed or presumed that the gift was to the
executor in his fiduciary capacity . . . .4 No intention
contrary to this presumption was expressed in this case.
Findings 27 through 33
Findings 27 through 33 are clearly erroneous. In these
findings the master addressed the situation that arose with
regard to the Summit Lake property. The master found:
27. PR never refused to convey the
Summit Lake property to petitioner after he
made the $6,700 payment. PR used those funds
to pay off the note on Summit Lake and
proceeded with getting the Deed of
Reconveyance executed. He retained the
services of legal counsel to do that.
Petitioner became impatient with the time
that it was taking the legal counsel to
complete the transaction.
29.[sic] At one point PR was told by
petitioner that he intended to keep the
Summit Lake property. PR apparently told
petitioner if he ever wanted to sell the
property, he would like to buy it.
30. In determining what shares
petitioner and his sister would receive from
the estate, at a meeting between them, PR,
petitioner and petitioners sister, Donna
Martin, had agreed that the value of the
Summit Lake property was $15,000. PR,
apparently at this time, does not wish to
purchase the Summit Lake property and
believes it needs to be sold to pay the debts
of the estate at the highest value possible.
The parties seem to agree this is in excess
of $15,000 and in fact there is a court order
for the property to be sold at appraised
value but not less than $25,000 entered by
the court 11/30/01 in this case.
31. The payments to the Summit Lake
property were deferred; and although they
were technically delinquent, PR did not view
them as delinquent as he had obtained
permission to defer payments from the seller,
Joseph D. Lanni. Petitioner believed that
the $6,700 he reimbursed to PR would pay off
the balance on this note and that PR would
convey the Summit Lake property to
petitioner.
32. At one point in the dealings
between petitioner and PR, the PR demanded
that he be allowed to purchase the Summit
Lake property at the price which had been
given it in the share of the estate meeting
which was held with PR, petitioner and Donna
Martin. Petitioner had received an offer
from a third party to purchase the Summit
Lake property for $23,000. Petitioner
testified that PR told him that the decedent
had expressed his desire to sell the Summit
Lake lot to PR if neither of the decedents
children wished to remain in Alaska. This
evolved into a significant dispute between PR
and petitioner which caused much hard feeling
between them and significant breakdown in
their communications and understanding of
communications made between them. All of
this resulted in the dispute which is now
before the court.
33. As stated above, PR most likely
should not have distributed as much cash to
petitioner and Donna Martin but instead used
those funds to pay off the Summit Lake
property. If any harm to the estate occurred
by his premature distributions, it resulted
in the benefit to the heirs of their use of
the funds at a time they apparently had
requested and were in need of the funds. It
is unclear therefor if there was any breach
of fiduciary duty and since this issue is
unclear, the preponderance of evidence
standard would dictate that the court can
find no breach of fiduciary duty regarding
this issue. Even were there to be findings
of some breach of fiduciary duty, there is
insufficient evidence in the record to
determine the extent of damage to the heirs
of the estate.
The finding that there was no breach of fiduciary duty
is clearly erroneous. When asked by opposing counsel whether
Darrels refusal to sell him the Summit Lake property for $15,000
was the reason he decided to charge the estate fees, Dieringer
responded, Im sure that had an influence on my decision, yes.
Dieringer testified that he had not decided what he would do
concerning the $50,000 life insurance money at the time he put it
into the estate. He also testified that he first told Darrel the
money had to be repaid during the discussion about the Summit
Lake property, after Darrel refused to sell the property to him
for $15,000.
Dieringers demand that he be allowed to purchase a
trust asset for less than fair market value and the threats he
made in conjunction with this demand were self-dealing and a
breach of his fiduciary duty.
Finding 39
Finding 39 was based on a legal error about the extent
of the superior courts discretion to control the appointment of a
personal representative to replace Dieringer. The master
determined that Nancy Dieringer, who was named as the successor
personal representative in the will, would have the next priority
of appointment if Dieringer were removed. But it would be within
the courts discretion not to appoint Nancy as the successor
personal representative.5 If Dieringer were removed for
conflicts of interest, Nancy probably would not have been an
appropriate successor given that she would also have many of the
same conflicts.
Finding 52
Finding 52 is clearly erroneous. This finding stated:
This PR did little if anything contrary
to the will and little if anything that could
be construed as substantial harm to the
estate that would require his removal as PR
in light of the facts and circumstances
listed in these findings. There is no
credible evidence in the record to indicate
bad faith on the part of PR in administering
this estate or in defending his position in
these proceedings.
Our discussion of Findings 21-25, 42 and 43, and 27-33
indicates that Dieringer breached his fiduciary duties as a
trustee. He engaged in self-dealing when he made a loan with the
estate assets to a company in which he had an interest. He
improperly, albeit equivocally, claimed that the $50,000 life
insurance proceeds were his individually rather than as trustee,
and he engaged in self-dealing when he attempted to purchase the
Summit Lake property for less than fair market value. These
breaches were intentional and are equivalent to bad faith.6
ARGUMENT II
Darrel argues that the master erred in failing to
remove Dieringer as the personal representative of the estate.
Although we agree that there were grounds under which Dieringer
could have been removed, we conclude that the master did not err
in recommending nonremoval given that the estate was ready to be
closed by the time the petition to remove was decided.
ARGUMENT III
Darrel argues that the master erred in Finding 36 that
there was no bad faith on Dieringers part as personal
representative. For the reasons already indicated with respect
to Dieringers breaches of fiduciary duty and his claim of trust
property as his own, we agree that this finding is clearly
erroneous.
ARGUMENT IV
Darrel makes an evidentiary argument concerning the
exclusion of testimony. We find no abuse of discretion.
ARGUMENT V
Darrel raises a statute of frauds argument concerning
the apparent agreement of the beneficiaries to extend the
continuation of the trust. It appears that this point was not
raised below and it is therefore waived.
ARGUMENT VI
Darrel challenges the award of $16,320 in attorneys
fees and $5,850 award of personal representative fees. In light
of our conclusion that the court clearly erred with respect to
failing to find that Dieringer had committed breaches of
fiduciary duties and acts of bad faith, we vacate these awards
and remand the fee issues for reconsideration.
ARGUMENT VII
Darrel argues that the court erred in failing to allow
him to withdraw his petition to remove the personal
representative. We conclude that there was no error because the
petition to withdraw was untimely.
CONCLUSION
For the foregoing reasons, we VACATE as erroneous in
the respects indicated Findings 21-25, 42 and 43, 27-33, 36, 39,
and 52, VACATE the award of attorneys fees and personal
representative fees, and REMAND this case for reconsideration of
attorneys fees and fees of the personal representative in light
of the conclusions expressed herein.
_______________________________
1 Martin v. Dieringer, Mem. Op. & J. No. 1203 (Alaska,
March 4, 2005).
2 Cf. City of Valdez v. Gavora, Inc., 692 P.2d 959, 960-
61 (Alaska 1984) (where appeal had become moot, not reaching
merits but vacating judgment, to prevent judgment from having
collateral effects).
3 Notwithstanding the masters findings that the $50,000
life insurance proceeds were the individual property of the
Dieringers, it does not appear from the final accounting that
this amount was repaid or approved for repayment from the estate
to the Dieringers.
4 R. A. Horton, Annotation, Testamentary Gift to Executor
as One in His Fiduciary Capacity or in His Own Right, 3 A.L.R.3d
1376, 1380 (1965).
5 See AS 13.16.305.
6 See Blacks Law Dictionary 108 (Abridged 7th ed. 2000).
