Jack Nelson Jones Professional Association

September 26 - October 2, 2016

Scott v. Scott, 2016 Ark. App. 390 (September 14, 2016)

This appeal comes from the Pulaski County Circuit Court, Third Division, Honorable Cathleen V. Compton presiding. This case concerns the award of expenses incurred by a trustee in the administration of a trust.

Walter Scott filed a petition for accounting against Greg Scott on August 13, 2009, as co-trustee of the Jane B. Scott Family Trust (the “Trust”), which had been established by their mother. He alleged that Greg had repeatedly made decisions regarding Trust assets without proper input or permission from him as required by the Trust. Greg responded with an emergency petition for sale of the family home, alleging that Walter had agreed to transfer the home to Greg in exchange for $130,000 from the estate, and Walter had received the money and had cashed the check but would not sign the deed over to Greg. Greg ceased work on the house for a time but began improvements on it again without an agreement from Walter. He also claimed that Walter’s filing for an accounting was an adverse action against the Trust, invoking the in terrorem clause, alleging that Walter already possessed all of the information on the Trust. The in terrorerm clause stated that any person mentioned in the Trust or any beneficiary under the Trust that becomes an adverse party in the administration of the Trust, including in the valuation and distribution of the Jane Scott’s estate, shall forfeit his or her entire interest and his or her issue’s interest in Jane Scott’s estate or Trust inherited from Jane Scott.

An order was filed on March 7, 2011, wherein: Greg and Walter agreed to sell the home; Greg would provide the accounting; Walter would review it and obtain his own accounting if necessary; both would provide proof of payments made to Taylor Galusha (Walter’s daughter and a beneficiary of the Trust); Greg would retain the right to attempt to collect his costs and labor for remodeling the house; and both would provide proof of their expenses. The circuit court granted Taylor’s request to intervene as a necessary party on December 8, 2011. She filed a complaint on December 16, 2011, alleging that she was entitled to $50,000 under the Trust; that she wanted an accounting; that a declaration that the IOU she was forced to sign by Walter and Lani, his wife, was void; and that Walter should be removed as co-trustee.

On March 9, 2012, Greg filed his second amended response and amended counter-petition, alleging that Walter had not paid the real property taxes on the family home and that Greg had paid $8000 for insurance, termite coverage, electricity, gas, and water for the home since 2004. Greg also sought reimbursement for refurbishing/remodeling the family home, and he alleged that Walter had violated the in terrorem clause by filing an unnecessary petition for an accounting, alleging that the accounting petition was filed “solely as a pretext to litigate with less financially advantaged beneficiaries with the intent of holding them hostage with litigation until they settle under terms unpermitted by the Trust just to obtain funds they are entitled to.”

The trial began on April 13, 2015. During the trial, Greg presented receipts for the materials he purchased to upgrade the family home to get it into sellable shape. He testified that he paid those expenses out of his personal account. He also testified that he spent approximately 465-470 hours working on the house and that he charges $25 per hour for everything that he does. Thus, his cost for labor was approximately $11,750. He produced copies of invoices from Home Depot showing that he spent $11,404.46 for materials and provided copies of the bills he paid in maintaining the family home.

The trial court ruled that Taylor was to receive $13,000 from the remaining $126,761.73 left in the Trust and that she did not owe Walter any money. The court directed that Greg would receive credit for the maintenance and upkeep on Jane’s house in the sum of $12,945.13 and given credit in the sum of $11,750 for labor and expenses on Jane’s house. Walter was given credit for the $4000 he spent on his mother’s funeral. Greg appealed. This article concerns the labor and expenses awarded to Greg.

On appeal, Greg contended that the uncontroverted proof was the he spent labor valued at $11,750, and materials in the amount of $11, 404.46. But, the trial court made an award for labor and materials of only $11,750. He argued that there has to be evidence to support an award or the award should be set aside. Walter contended that the value of any work done by Greg to the Trust property was with the sound discretion of trial court based on the evidence presented. He submitted that there was no clerical error. He contended that the trial court provided Greg with adequate compensation for his labor and expenses.

The Court, however, pointed out that Arkansas statutory law provides explicitly for a trustee’s reimbursement of expenses, providing that “a trustee is entitled to be reimbursed out of the trust property … for reasonable expenses that were properly incurred in the administration of the trust.” Further, in accordance with case law, in an appeal where the Court is unable to determine the basis for the trial court’s award of damages, it may remand for the limited purpose of clarifying the method used to determine damages and to correct any erroneous calculations.

The trial court awarded the uncontroverted amount submitted by Greg for his labor costs but ignored the uncontroverted amount submitted for reimbursement for materials. Without an explanation of the trial court’s reasoning, and in light of the trial court’s reference to expenses incurred at Home Depot, the Court stated that it could not know whether the trial court intentionally awarded the exact labor costs but excluded the entire amount of materials when the court awarded $11,750 for “labor and expenses.” Accordingly, the Court reversed and remanded for further consideration of the award for “labor and expenses.” Reversed and remanded.