Opinion
No. CV 98-0332126 S
December 9, 2003
MEMORANDUM OF DECISION
From the evidence and testimony adduced at trial, and the reasonable inferences drawn therefrom, the court makes the following findings of facts and conclusions of law.
The court notes that this case involved multiple complex issues. Counsel for all parties are to be commended for their candor and cooperation with the court, their professionalism in the handling of the case and for the quality of their legal analysis of the issues.
On July 12, 1993, Michael J. McHugh died a resident of Redding, Connecticut. Prior to his death, McHugh was in the interior construction business with Robert DiVincent and Julian Alessi in an entity known as McHugh, DiVincent, Alessi, Inc. (MDA). Owing to his illness, McHugh borrowed various amounts of money from DiVincent, Alessi and MDA. Some of the money was paid back prior to McHugh's death but some was not. These unpaid loans totaled $105,923.50. McHugh attested to these loans in writing and his companion Robert Gaddy signed as a witness. McHugh also had tax claims against him by the Internal Revenue Service (IRS) and the State of New York and the State of Connecticut in excess of $100,000.
McHugh's Last Will and Testament dated March 3, 1993, was submitted to the Redding Probate Court on August 17, 1993 for administration. The Will named DiVincent as the proposed executor of McHugh's estate. DiVincent had no experience at administrating an estate.
On or about August 4, 1993, DiVincent retained Attorney Donald Altschuler to advise him about the administration of the estate.
The terms of the Will called for certain specific cash bequests to various friends and relatives in the total amount of $390,000 to Louise San Filippo, Janet Whalen, Kathleen L. Licato, Kathleen J. Licato, Christopher J. Licato and Kelly Licato, a specific devise to Robert Gaddy of the decedent's house in Redding, and apartment in New York City together with all household and personal effects. These properties were encumbered by mortgages and tax liens. Gaddy was also named as the residuary beneficiary of the Estate.
Eventually these liens were settled but apparently owing to defects in some of the liens the estate was not required to pay them in full.
On September 2, 1993 the decedent's Will was admitted to probate by the Redding Probate Court and DiVincent was appointed Executor of the Estate. Thereafter, DiVincent took over the administration of the Estate.
Within three months of McHugh's death, DiVincent had liquidated the Estate. DiVincent, however, failed to resolve the existing tax problems or resolve the succession tax obligations of the estate. Moreover DiVincent paid off the following amounts of money allegedly borrowed by McHugh without seeking prior approval from the Redding Probate Court:
$71,663.89 from McHugh, DiVincent, Alessi, Inc.
$19,500.00 from Julian Alessi
$11,500.00 from Robert DiVincent
DiVincent also distributed cash to SanFilippo, Whalen, and the Licatos in the amount of $390,000. DiVincent testified that he made these payment after consulting with Altschuler.
After McHugh's death, Gaddy was living at the Redding property and paying the mortgage and other expenses of the property. At some time during 1993, Gaddy asked DiVincent to have the Estate take over the expenses of the property claiming that they were the responsibility of the Estate. DiVincent consulted with Altschuler who advised him that the Estate should take over the payments for the Redding property. Altschuler admitted at trial that this was bad advice.
It appears that beginning in November 1993, DiVincent started using the assets of the Estate to pay for the mortgage and other expenses for the Redding property as well as for the New York property. No certificate of devise for the Redding property was sought by DiVincent from the Probate Court. DiVincent also made some cash distributions to Gaddy from the Estate as follows:
March 16, 1994: $19,199.83
July 26, 1994: $96.60
February 6, 1995: $2,756.83
February 26, 1995: $15,000.00
Gaddy also received a Mercedes Benz automobile valued at $25,000.
In January 1996, Gaddy retained Attorney Candace Paige, who, in April 1996, demanded that DiVincent reimburse Gaddy for the earlier payments that Gaddy had made for the mortgage, insurance and other expenses of the Redding property, as well as a full accounting for the Estate.
In May 1996, DiVincent paid himself $30,000 as the executor's fee. Sometime in 1996, DiVincent realized that there were insufficient assets in the estate to cover the expenses and sought to sell the Redding property. Gaddy resisted these attempts.
Eventually, the Redding property was foreclosed and sold at auction in 1998.
By decree dated October 1, 1997, the Redding Probate Court found that DiVincent had failed to file a Return of Claims or an Accounting with regard to the Estate despite the Probate Court's demands for such an accounting, and ordered that it be filed on or before October 20, 1997.
DiVincent filed a "final account" on November 4, 1997 and a revised "final account" on December 5, 1997. DiVincent also petitioned for permission to sell the Redding property and for approval of payments that DiVincent had already made to himself, Alessi and MDA for the money borrowed by McHugh.
Gaddy filed an objection to the sale of the Redding Property and petitioned for removal of DiVincent as the executor and for appointment of another executor. The Commissioner for Revenue Services also filed a petition for DiVincent's removal on the ground that the succession tax had not yet been paid in fill.
The Probate Court held hearings on December 5, 1997, January 7, 1998 and January 19, 1998. DiVincent and Gaddy attended those hearings as well as Gaddy's attorney.
On March 30, 1998, the Redding Probate Court issued four decrees. In one, regarding DiVincent's petition for sale of the Redding property, the Probate Court's order denied permission to sell the Redding property. In its finding, the Probate Court noted that it had advised Gaddy's counsel that while it was unable to order the sale of the property, that Gaddy should take steps to sell the property in order to:
(i) mitigate the liability of Mr. Gaddy for his receipt from the fiduciary of improper payments made to or on behalf of Mr. Gaddy relating to said real property, and (ii) to avoid threatened foreclosure of said real property.
The Probate Court also noted that Gaddy had refused to follow this advice.
As to DiVincent's petition for approval of the payments made for McHugh's alleged debts to DiVincent, Alessi and DiVincent, the Probate Court's order denied the claim, finding that DiVincent had not sought approval for such payments as required by General Statutes § 45a-403.
As to the decree regarding the Commissioner of Revenue Service's petition for removal of DiVincent as executor of the Estate, the Probate Court found that DiVincent had neglected to perform the duties of his trust, has made improper payments of Estate assets and has failed to pay taxes which are due and payable. The Probate Court's order was to appoint the plaintiff as Administrator of the Estate and empowered him with the authority to sell the personal estate as deemed necessary and make an inventory of the estate.
Finally, the Probate Court issued a decree entitled, "Court's own motion to compel the completion of the Administration of the Estate." Therein, the Probate Court stated:
Although the fiduciary, Robert DiVincent, has made good faith efforts to provide the court with an accounting and to provide such other information as has been requested by this Court, this Court finds that the fiduciary has improperly discharged his fiduciary duties in numerous respects, including but not limited to, (i) paying claims of the fiduciary and of parties related to or in which the fiduciary has an interest without the approval of this Court, (ii) improperly paying in excess of $150,000.00 in expense relating to the real property in Redding, Connecticut as specifically devised to Robert Gaddy which amount should not have been paid by the fiduciary to or on behalf of Robert Gaddy, (iii) improperly making distributions of property to Robert Gaddy, and (iv) improperly making cash distributions to Louise San Filippo, Janet Whalen, Kathleen L. Licato, Kathleen J. Licato, Christopher J. Licato and Kelly Licato, in all such cases without having made appropriate arrangements for payment of all lawful claims, including unpaid taxes, against the estate.
In this decree, the Probate Court further found that there was a potential claim by the Estate against DiVincent and denied approval of the Accounting offered by DiVincent. The Probate Court's order was to deny approval of DiVincent's accounting of the Estate.
A few months later, the plaintiff brought suit against DiVincent for violation of his fiduciary duties; against Gaddy for unjust enrichment; and against SanFilippo, Whalen, and the Licatos for unjust enrichment and requested that a constructive trust be created in the amount of the unjust enrichment. DiVincent filed cross claims against Gaddy, SanFilippo, Whalen, and the Licatos for unjust enrichment. Gaddy filed a cross claim against DiVincent, alleging violations of his fiduciary duties.
In the course of the litigation, the plaintiff and DiVincent sought a temporary injunction to enjoin Gaddy from dispersing or transferring any proceeds from the sale of the New York property. Thereafter, all the parties signed a stipulation in which Gaddy agreed to pay to the plaintiff the sum of $100,000 from the sale of the New York apartment, out of which the plaintiff would use about $52,000 to pay the federal estate tax lien on the property, with the remainder to be held in escrow pending disposition of the cases. The plaintiff was specifically authorized to apply the funds to any potential judgment against Gaddy.
While the litigation was pending, the plaintiff filed an application to determine proration of taxes pursuant to General Statutes § 12-401 and for other remedies pursuant to General Statutes § 45a-98. As part of the application, the plaintiff provided several schedules which detailed various components of McHugh's estate. Included in "Schedule B — Estate of Michael McHugh Non-tax Claims" were the claims by MDA, DiVincent and Alessi as to moneys allegedly borrowed by McHugh prior to his death. In "Schedule G" the plaintiff gave an account of the Estate from May 8, 1998 through September 30, 1999, including therein under "Charges" an item stating: "3/26/98 Robert Gaddy repayment of distributions $100,000.00."
The plaintiff's application was addressed by the Redding Probate Court by decree dated December 2, 1999. The Probate Court essentially adopted the plaintiff's application, including all of the schedules and incorporated them into its decree. The Redding Probate Court, inter alia, made the following finding:
(11) The removed Executor, Robert DiVincent, liquidated estate assets on September 24, 1993 (less than three months after Michael J. McHugh's death), and as a result, at that time received cash having a value of $1,000,000. Such sum was more than sufficient to satisfy all tax antemortem claims and all estate and succession taxes in a timely manner to avoid additional interest and penalty accruals.
In paragraph (12) of the decree, the Probate Court calculated the value of the Estate by using all of the "non-tax claims" listed on "Schedule B."
The Probate Court issued four orders regarding this application. The first authorized the plaintiff to withdraw his lawsuit against the Licatos and Whelan and San Filippo. The second approved of the plaintiff's account of the estate from May 8, 1998 through September 30, 1999 as set forth in "Schedule G" of the application. The third and fourth orders approved and authorized payments of legal fees.
Eventually, all parties withdrew their complaints and cross-complaints against SanFilippo, Whalen, and the Licatos for unjust enrichment. The parties also entered into two stipulations for judgment regarding the Probate decrees. The first set forth in pertinent part:
1. The four decrees entered by the Probate Court on March 30, 1998, limited to the orders entered by the Court, may be affirmed.
2. None of the factual findings or legal conclusions of the Probate Court shall be accorded res judicata or collateral estoppel effect in any proceeding. The parties reserve their rights to contest those factual findings and legal conclusions. CT Page 14351
The second stipulation sets forth in pertinent part:
1. The orders set forth in paragraphs numbered 1, 3, and 4 of the Probate Court's December 2, 1999 Decree . . . shall be confirmed on all respects.
2. The order set forth in paragraph number 2, may be confirmed in all respects, except as to the item described as the $100,000 contributed by Robert Gaddy as "a repayment of distributions." As to that item, said Robert Gaddy reserves the right to seek recovery thereof.
3. None of the findings or legal conclusions of the Probate Court shall be accorded res judicata or collateral estoppel effect in any proceeding. The parties reserve the right to contest those factual findings and legal conclusions.
During the hearing on this case, the defendant, DiVincent, testified that it was his intent to repay the $30,000.00 executor's fee to the estate, and at this point, all parties agree that this has in fact happened. All parties filed post-hearing briefs. The plaintiff now claims that the entire case can be resolved by a payment from DiVincent to Gaddy of $30,000. Both Gaddy and DiVincent continue to press their claims against each other.
After the hearing was concluded and briefs had been filed, all three parties attended an in-chambers conference and stipulated that the $30,000 had been returned to the estate. Thereafter, Gaddy's lawyers submitted another post-hearing brief on another issue in the case.
Before addressing those disagreements, there are several points upon which all parties agree. First, they agree that if the estate had been properly handled, all the claims of the estate could have been settled and there would have been some residuary estate to pass on to Gaddy. The Court finds that if the estate had been properly handled then there would have been sufficient assets to settle the estate and provide for a residuary estate.
Second, neither the plaintiff nor Gaddy makes any claim that DiVincent should pay back the moneys distributed to the Licatos, Whalen and SanFilippo. Indeed, all parties dropped their suits of unjust enrichment against these individuals. Therefore, the Court finds that these moneys were properly payable from the estate and that DiVincent is not liable to estate for those moneys.
Finally, both DiVincent and Gaddy agree that the proper measure of damages in this case is for the beneficiary to be placed in the same position that he would have been if the estate had been properly handled. See State ex. rel. Raskins v. Schacter, 120 Conn. 337, 343-44 (1935).
As the areas of disagreement, the first issue that is contested by Gaddy and DiVincent is the status of the payments to DiVincent, Allessi and MDA for the funds that McHugh had borrowed from them. Gaddy asserts that this issue was decided by the Probate Court when it denied the claims in its 1998 decree. Gaddy argues that DiVincent should pay these moneys into the estate and should belong to Gaddy as part of the residuary estate. DiVincent counters that Gaddy's argument violates the parties' stipulations that res judicata would not apply. DiVincent also argues that the payments were proper and that Gaddy would be unjustly enriched if DiVincent were forced to pay that money back into the estate.
On this issue, the court finds that the stipulations do not preclude the court from ruling on this issue. The language of the stipulations are plain and unambiguous in stating that the doctrines of res judicata and collateral estoppel shall not apply to all of the Probate Court's findings and legal conclusions. Further, inasmuch as Gaddy has had the opportunity to litigate the issue before this court, he cannot claim harm. See Satti v. Rago, 186 Conn. 360, 363-64 (1982). In examining the issue, the court finds persuasive the evidence presented to show the legitimacy of these pre-mortem debts and the court finds that they were properly payable out of the estate. Therefore, Gaddy's claims against DiVincent in this regard are rejected.
Moreover, it appears from the Probate Court's ruling of December 2, 1999 that it implicitly approved the payments of these moneys, so that the application of res judicata would not benefit Gaddy in any event.
Indeed, since the moneys were properly payable out of the estate if DiVincent were to return this money to the estate it would result in an unjust windfall for Gaddy.
The next set of issues concern the specific bequest of the Redding property. As noted in 1993, DiVincent, as executor, took over the payments of the mortgage and other expenses of the Redding property. Eventually these payments helped to drain the estate of its assets, resulting in the foreclosure and loss of the Redding property. Gaddy contends that Connecticut General Statutes § 45-450 imposes a mandatory duty on DiVincent to obtain a certificate of devise within one month of the distribution of the estate. Gaddy claims that DiVincent failed to obtain the devise in a timely manner and thereby kept control of the Redding property in derogation of Gaddy's rights as specific devisee. Gaddy further claims that DiVincent's allowance of the mortgage payments out of the estate was improper. Gaddy contends that but for DiVincent's mismanagement of the estate, Gaddy would have received the Redding property with an equity value of $117,049.60 and that DiVincent is liable for the value of the lost equity.
DiVincent contends that he always acted in good faith. He acknowledges that it was his responsibility as executor to clear off the tax encumbrances on the property. DiVincent contends, however, that since the estate and succession tax liability could not be determined within six months of McHugh's death, it was the executor's responsibility to retain the Redding property in case it was needed to pay off the debts of the estate. Therefore, DiVincent argues that the payments for the mortgage and other expenses were proper. DiVincent also argues that the payments were made for Gaddy's benefit and that Gaddy has been unjustly enriched by the amount of those payments inasmuch as Gaddy resided at the property without payment of rent or any other property expenses. Finally, DiVincent claims that since he used his own funds to pay $112,063.69 in Connecticut Succession Taxes to the benefit of the Estate as well as $49,617.91 towards the plaintiff's legal fees, this court should impose a constructive trust for his benefit as to any funds to which Gaddy would be entitled. DiVincent also argues that since the payments were made at Gaddy's request, essentially Gaddy is estopped from making a claim for those funds under Mathews v. Sheehan, 76 Conn. 654 (1904).
For the reasons that follow, the Court finds in favor of Gaddy on this issue. First, as noted, the court finds that had the estate been properly handled, there would have been sufficient assets to pay off the liens. The court further finds that if the estate had been settled within a reasonable time, the Redding property would have had an equity value of $117,049.60. The court also finds that DiVincent failed to settle the estate within a reasonable time as was his duty. See Mathews v. Sheehan, supra at 660. DiVincent was appointed executor in 1993 but did not file his "final accounting" or request permission to sell the Redding property until 1997. While some delay in winding up the estate might have been necessary and reasonable, the court finds that the delay that actually occurred was unnecessary and unreasonable.
DiVincent's claim that he properly made the mortgage payments due to the need to assess the debts of the estate is not persuasive to the court. While he claims that the estate could not be properly assessed within six months, the court finds that no real attempt to "settle" the Redding property was made with the Redding Probate Court until 1997 when the estate was depleted. While it is true that "title to real property passes upon death to the heirs of the owner subject to the right of administration"; Satti v. Rago, supra, 365; it is also true that Gaddy made the initial mortgage payments on the property. Thus the court finds that DiVincent did not begin his duties with the view that he had to retain control of the Redding property. This is further buttressed by the fact that DiVincent made no attempts to settle the tax claims against the property in a timely manner. Instead he paid the cash bequests to the Licatos, Whalen, and SanFilippo before the tax encumbrances were resolved. The result was that DiVincent failed in his duty to settle the estate anywhere close to the six months that he now claims was necessary. Thus, even under DiVincent's argument, he failed in his duty to settle the estate within a reasonable time.
Thus it is unnecessary to decide whether the one-month time period set forth in General Statutes § 45a-450 is mandatory or directory because even if the statute is merely directory, DiVincent still failed to settle the estate within a reasonable time.
The Court also finds that DiVincent cannot find refuge in Mathews v. Sheehan, supra.
In Mathews, the decedent had bequeathed stock to several beneficiaries, one of which was the plaintiff. Mathews, id. at 656-57. The executor in Mathews, after consulting with the beneficiaries, held onto these stocks rather than immediately liquidating them in the hopes that their value might rise and initially Mathews acquiesced in this arrangement. Id. at 659. Later, however, Mathews made it known that she wanted the stocks liquidated as soon as possible. Id. 662-63.
Although the trial court found that this initial acquiescence insulated the executor from the claims of Mathews, our Supreme Court held that this acquiescence was only of limited duration and after that time had passed, the executor was liable for any subsequent loss of the stocks. Id. at 663. The Court held that it was the duty of the executor to settle the estate within a reasonable time and to withdraw the stocks from their perilous position as soon as possible. The failure to do so would make the executor personally liable for any resulting loss. Id. at 660. The Court did note that if an "executor acting in good faith and with ordinary care and prudence for the good of the beneficiaries of the estate, deviates, with their consent and approbation, from the strict line of duty, and loss results therefrom . . . the consenting beneficiaries cannot charge the representative of the estate with such loss." Id. at 662. But the Court also held that since it was not clear that Mathews had consented to the executor's deviation from his duty for more than a limited amount of time, the executor could be held liable after that limited amount of time. Id. at 663.
Mathews sets forth several principles that are applicable here. First, if the executor deviates from his duty at the behest of the beneficiaries, he must first be acting in good faith and with ordinary care and prudence for the good of the estate. Second, the beneficiary's consent to this deviation must be clear and unambiguous. The Court finds that while DiVincent was acting in good faith, he was not acting with ordinary care and prudence for the good of the estate. By paying the mortgage and expenses of the Redding property, DiVincent was not acting with ordinary care and prudence for the good of the estate; rather he was draining it of assets needed to discharge the other debts of the estate. Although this was due to the erroneous legal advice that he was given, nonetheless, it is chargeable to DiVincent as executor of the estate. Moreover, the failure of DiVincent to obtain permission from the Probate Court before making repayments to DiVincent, Allessi and MDA for McHugh's debts is further evidence of not acting with the ordinary care and prudence for the good of the estate. Therefore, DiVincent fails to meet this prong of Mathews.
DiVincent also fails to meet the second prong in that it is not clear that Gaddy acquiesced in this deviation from duty because there was no evidence that he was aware that it was a deviation. In Mathews it was clear that the parties, including the plaintiff, held meetings and were aware of the possible fluctuations in the value of the stocks before acquiescing in the executor's deviation from his normal duty. See Mathews, supra, at 659. Here, the court is not persuaded that Gaddy was aware that what he was requesting was a deviation from the executor's normal duty of care, and while that should have been raised by DiVincent's counsel, it was not. Thus DiVincent's claim under Mathews must fail.
In sum, the court finds that if the estate had been properly handled, then Gaddy would have received the Redding property with an equity value of $117,049.60. Given that DiVincent argues that the estate could not have been properly administered inside of six months, the court finds that this benefit should have passed to Gaddy six months after DiVincent was appointed administrator in September 1993. The value of this specific devise was present and easily calculable from the inception of the administration of the estate. Therefore, based upon all facts and circumstances of this case the court finds that Gaddy also is entitled to interest under Connecticut General Statutes § 37-3a on the aforementioned sum.
On the issue of the residuary estate, as noted, if the estate had been properly administrated, there would have been a residuary estate for Gaddy to enjoy. The court credits the plaintiff's testimony and calculations to the effect that there should have been a residuary estate of $33,342.69, if the estate had been properly handled. The court also finds, however, that Gaddy has already received cash payments from the estate in the amount of $36,292.26. Inasmuch as Gaddy has already received more than the value of what the residuary estate would have been, the court finds for DiVincent on this count. The court, however, declines to impose a constructive trust in favor of DiVincent as to any overpayments given the facts and circumstance of this case.
The Court also finds that had the estate been properly administrated that Gaddy would not have had to contribute the $100,000 into the estate to satisfy the federal estate tax. Therefore, DiVincent is liable to Gaddy for the $52,000 used to satisfy the tax obligations and based on the facts and circumstances of this case, he is also entitled to statutory interest on that sum under Connecticut General Statutes § 37-3a. The remainder of the $100,000 that is held in escrow is ordered returned to Gaddy.
The court declines to impose a constructive trust on the $112,063.69 that DiVincent contributed to pay the succession tax or on the $49,617.69 that DiVincent contributed for the plaintiff's legal fees. Again, if the estate had been properly administrated the tax would have been paid out of the assets of the estate and it would not have incurred these additional legal expenses. In addition, DiVincent is held liable for any additional reasonable legal expenses that have been incurred by the plaintiff in excess of the $49,617.69. Inasmuch as Gaddy has already received the full benefit of the residuary estate, DiVincent may offset the legal fee costs by whatever remains of the $30,000 that he has repaid the estate.
Finally, the court rejects Gaddy's claim for attorneys fees. Absent contractual or statutory authority, each party is responsible for its own legal fees. Doe v. State, 216 Conn. 85, 106 (1990). The award of such fees is not appropriate in this case. See also Doe v. Heintz, 204 Conn. 17, 22-23 (1987).
In conclusion, the court enters judgment as noted in the foregoing opinion.
JACK W. FISCHER, JUDGE