Richard Manson v. Anthony Gross

Citation: Not availableDocket: M2000-03206-COA-R3-CV

Court: Court of Appeals of Tennessee; January 30, 2003; Tennessee; State Appellate Court

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The Court of Appeals of Tennessee upheld the judgment of the probate court regarding the liability of Western Surety Company on a bond executed with Anthony Goss, who served as the executor of Gertrude K. Torbert's estate. Following Ms. Torbert's death on June 10, 1992, Goss proposed a will naming himself as executor, which was contested by the decedent's heirs. Goss was subsequently removed as executor by default judgment and fled, prompting a claim against him for fraud and conversion. The estate also included Western Surety as a defendant after Goss sought relief from the bond obligation. 

During the hearing, it was established that Goss failed to file an accurate inventory of the estate, omitting $9,460.20. The probate court ruled that Goss was liable for this amount under Tennessee law, with Western Surety also liable as the surety on Goss's bond. The court's decision affirmed the trial court's judgment in favor of the estate against Western Surety for the full amount of the bond, following evidence submission and arguments from the parties involved.

Defendant Anthony L. Goss failed to account for a total of $136,787.33 in estate funds, which includes an unreported $9,640.20. His inventory filed on August 26, 1992, listed funds amounting to $188,475.47, while $61,148.34 was later recovered after his disappearance. Western Surety Company contested that only funds misappropriated after the bond issuance should be chargeable; however, the Court ruled that Goss was liable for the entire amount under Tenn. Code Ann. 30-2-601, as he was entrusted with those funds. Evidence indicated that $35,700.56 was misappropriated within two months before the decedent's death, which was not disputed by the parties. However, Western Surety argued this amount should not be covered by the bond since it was taken before the bond's issuance. The Court maintained that these misappropriated funds were part of the estate and held in trust by Goss. Consequently, the surety is liable for both the pre- and post-death misappropriated funds due to Goss's breach of his duties as executor while the bond was active. The Court deemed the claim for misappropriated funds as liquidated and awarded prejudgment interest at 7% per annum, applicable from the bond issuance date, citing Tenn. Code Ann. 47-14-123 and related common law principles. Additionally, the Court determined that estate accountant fees would have been $1,000 without Goss's misconduct, thus both defendants are liable for $4,396.25 in fees.

The Court determined that, due to the actions of defendant Anthony L. Goss, both defendants are liable to the estate for attorney fees totaling $38,395.32, although these fees would have been $6,000 without Goss's misconduct. Additionally, court costs were assessed at $919.29, which would have been $350 absent the defendant's misdeeds. The Court also found the summons expenses to be reasonable and necessary, holding both defendants accountable for these costs. It noted no bad faith on the part of Western Surety Company. 

The damages were itemized as follows: unaccounted inventory funds of $136,787.33, predeath conversion of funds totaling $35,700.56, and prejudgment interest calculated at 7%, amounting to $88,587.89. The total administrative costs, including attorney fees, accountant fees, court costs, and summons expenses, came to $43,937.61. The total recovery against Western was set at $305,013.39, with an additional year of interest chargeable to Goss, bringing the total judgment against Goss to $317,087.54 and against Western to $250,000. 

The appellant seeks relief, arguing that the trial court improperly awarded amounts dissipated before the bond's execution and abused its discretion in awarding prejudgment interest and attorney fees. The fidelity bond stipulated that Goss and Western Surety Company were bound to the State of Tennessee for $250,000, with the appellant citing precedent that a surety is not liable for actions taken by the principal before the bond was executed, referencing King v. Jones, where a surety was not held responsible for funds misappropriated prior to the bond's issuance.

The trial court granted summary judgment to State Farm, which was appealed by the guardian ad litem on the grounds of the bond's retrospective effect. The court of appeals upheld the judgment, concluding that the guardian had already expended funds before the bond's execution and that Jones could not return the $29,500 to her ward. The court drew distinctions from prior cases, notably Gilliam and In re Keisker’s Estate, emphasizing that unlike in those cases, there was no evidence that Jones could reimburse the estate while bonded. Evidence indicated that Jones lacked assets to repay the amount, as confirmed by her interrogatories and a report to the probate court.

The court outlined two primary theories of retroactive liability for sureties regarding prior misappropriations by fiduciaries: 

1. **Continuing Duty to Recover Misappropriated Assets**: Courts recognize that fiduciaries have an ongoing obligation to recover misappropriated assets, leading to continual breaches if they fail to do so.

2. **Duty to Account**: This principle asserts that while sureties are not liable for pre-bond defalcations, they are responsible for a fiduciary's failure to account for and pay over misappropriated funds during the bond's term.

The court indicated that, although the general rule of prospective liability is recognized, its application extends to fiduciary bonds, distinguishing them as a unique category within official bonds.

Court-fiduciary bonds are subject to a special rule that holds sureties liable for defalcations occurring during a trustee's continuous term, even if these occurred before the bond was issued. This principle contrasts with the general prospective application of official bonds. Jurisdictions recognize that an executor’s surety is liable for all estate assets received before and after bond execution, especially in cases of maladministration or failure to account for those assets. Liability extends to property received prior to the executor's appointment if listed in an inventory. State law mandates that executors and their sureties are accountable for fulfilling all duties related to the will and estate, covering both real and personal property.

The court acknowledges that Mr. Goss's actions rendered him a debtor to the estate, necessitating diligence in debt repayment similar to that expected when collecting debts from third parties. Good faith in management does not require the utmost diligence, but a reasonable standard is applied. The court finds Mr. Goss's alleged malfeasance, characterized as a continuing exploitation of a confidential relationship, resulted in the dissipation of over $100,000 from the estate. His conduct, both before and during his role as executor, binds the surety for the amounts dissipated. Evidence indicates that Mr. Goss built trust with Mrs. Torbert through various tasks, which ultimately facilitated his exploitation of her estate.

Mr. Goss exploited the declining health of Mrs. Torbert by inserting himself into her financial affairs, obtaining a general power of attorney, and mismanaging her estate. He withdrew stocks, purchased real property with his girlfriend Ms. Haguewood, and drafted a will naming himself as executor, with the will typed by Ms. Haguewood. Under his executorship, Goss misappropriated funds, leading to a $172,487.69 reduction in the estate without providing a proper accounting. The court established a trust to prevent Goss from benefiting from his undue influence, restoring the misappropriated amount back to the estate, which makes the surety liable. The referenced case, Tenn. State ex rel. Teague v. Home Indemnity Co., illustrates a similar situation where an executor was found liable for misappropriating funds and the court ruled that such funds remained the property of the decedent, thus requiring restitution. The court concluded that a constructive trust is warranted due to Goss's actions that indicated undue influence and failure to account for the misappropriated funds. Consequently, the trial court's ruling was upheld, and the appellant's claim of error regarding prejudgment interest was rejected.

Appellant references Draper v. Great American Ins. Co. to support its position; however, this case specifically addresses statutory interest as a matter of right under Tennessee Code Annotated section 47-14-107. In contrast, the trial court awarded prejudgment interest under section 47-14-123, which recognizes interest as an element of damages. Prejudgment interest can be awarded by courts or juries at a maximum rate of ten percent per annum, with specific provisions for certain contracts. The state supreme court outlines that trial courts must use principles of equity when deciding on the award of prejudgment interest, focusing on fair compensation for the plaintiff rather than punishment for the defendant. 

Western Surety contends that prejudgment interest should not apply retroactively to the bond executed in 1993 due to the late discovery of misappropriation until 1996. However, since the bond did not exclude interest as damages, Western Surety is liable for the interest from the bond's execution as it relates to Mr. Goss's misdeeds that hindered the estate's use of funds. The court finds no abuse of discretion in this award.

Regarding attorney’s fees, Appellant argues that some fees should not be charged against the fidelity bond as they weren’t necessitated by Goss in his fiduciary role. The record indicates otherwise; the invalid will procured by Goss led to expenses for the estate to reclaim its rights, which were covered by Tennessee Code Annotated section 35-50-110. Western Surety accepted responsibility for these costs, and the court sees no abuse of discretion in awarding attorney’s fees against them. The trial court's decision is therefore affirmed, and the case is remanded for any necessary further proceedings, with costs assessed to Appellant.