Jack Nelson Jones Professional Association

January 7-13, 2019

Horton v. Mitchell, 2018 Ark. App. 610 (December 12, 2018) 

This case came on appeal to the Arkansas Court of Appeals from the Circuit Court of Marion County, Honorable John R. Putman presiding from a judgment in favor of Deborah Mitchell (“Deb”) against her siblings Cynthia Horton (“Cindy”) and Prentice Young (“Butch”) (together referred to as “C&B”) over the management and distribution of their mother’s trust. C&B filed a counterclaim against Deb. Deb prevailed and was awarded attorney’s fees. The court later held Cindy in contempt of court for failing to comply with its orders; Butch had died by the time the contempt proceedings were held, although the court found they were both complicit in depleting the trust in direct violation of its orders. Bryce Brewer was appointed as special administrator of Butch’s estate; for simplicity’s sake in a convoluted case, Brewer was referred to as Butch. C&B appealed the circuit court’s judgment, the order awarding attorney’s fees, and the contempt finding against Cindy. Deb cross-appealed the court’s failure to void a lien on trust property given by C&B to settle their attorney’s claims.

Rena Byars Mitchell (“Rena”), a widow with three living children, established a Revocable Trust (the “Trust”) in June 2005. Pursuant to the Trust, Rena served as the initial trustee. Due to health problems, Rena resigned as trustee in 2008, and the terms of the Trust put Butch, Cindy and Deb as co-trustees ruling by majority vote. Deb had a strained relationship with her siblings for years, and it continued through this litigation. Deb claimed C&B (who lived on the same property as Rena until her death), abused drugs and mistreated their mother. C&B accused Deb of being absent from Rena’s life. C&B used trust funds as they wished exercising their 2/3 majority vote.

After Rena’s resignation, Deb petitioned for guardianship of Rena’s estate and person, and C&B petitioned to become co-guardians of Rena’s estate and person. Ultimately, Butch and Deb were appointed as co-guardians. Cindy admitted to long-term methamphetamine use at the guardianship hearing; Butch later resigned after refusing to submit to a drug test, and Deb became Rena’s sole guardian.

In May 2012, Rena died. Shortly after Rena’s death, Deb filed a complaint alleging misappropriation of Trust funds by C&B. Generally, Deb claimed that C&B used their powers as co-trustees to pay themselves hundreds of thousands of dollars out of the Trust for which Deb contended there was little or no justification or supporting documentation. C&B counterclaimed and alleged that Deb breached her duties as co-trustee.

A three-day jury trial was held on July 27, 28, and 30, 2015. At the conclusion of the trial, the jury rendered a verdict in favor of Deb. The jury found Butch liable to Deb on behalf of the Trust for $420,000 in compensatory damages and $630,000 in punitive damages and found Cindy liable for $205,000 in compensatory damages and $310,000 in punitive damages. The jury also rejected C&B’s counterclaim. This left pending several equitable claims to be decided by the circuit court. After the jury was released, counsel for Deb noted his concern that until Deb’s pending injunction claim was decided, C&B could clean out the Trust account. The court responded by saying there would be no action on the Trust over the weekend and directed the parties to promptly prepare a judgment for its approval. Shortly a judgment memorializing the jury’s verdict was entered. That same day, the circuit court entered a decree addressing many of Deb’s equitable claims. The decree included language that “in the event” Butch and Cindy “have withdrawn any money from the trust or disposed of any trust property, they are given ten (10) days from the date this decree is filed . . . to return said funds or property to the trust.”

The circuit court also held a contempt hearing based on Deb’s motion claiming that C&B had engaged in transactions following the jury trial, that they failed and refused to return the funds or property they withdrew or disposed of from the Trust and executed a lien in favor of their attorney against the trust property. Butch died soon thereafter, and Brewer was appointed as special administrator of his estate. At the contempt hearing, Deb proceeded against only Cindy since Butch had died. The court held Cindy in contempt and ordered her to reimburse the Trust for $41,054.32 that she and Butch had taken in violation of the court’s posttrial orders. The court denied Deb’s request to cancel the mortgage to pay their attorney. 

On appeal, the Court addressed several issues raised by C&B which included whether (1) the doctrine of laches barred Deb’s claims, (2) the language of the Trust barred Deb’s claims, (3) the jury verdict contained a mathematical error, (4) the punitive-damages award should be reversed, (5) the award of Deb’s attorney’s fees should be reversed, and (6) the finding of contempt against Cindy should be reversed. 

For the defense of laches to bar Deb’s action, C&B argued that Deb waited too long after she realized her siblings were improperly draining the trust to demand they stop and repay. Stated another way, if C&B were doing the wrong thing, Deb knew it and did not contest it, luring them into taking even more excessive action. The Court held that under Arkansas case law, laches was not applicable in actions for damages, accounting or the recovery of money or property fraudulently obtained and affirmed the lower court’s judgment in this point. 

C&B next argued that the language of the trust barred Deb’s suit. Here, the Court conducted a de novo review of the terms of the trust. While the Trust gave trustees absolute and uncontrolled ability to disburse the funds, it did allow for correction by a court if the Trustee acted utterly without reason, or in bad faith, or in violation of specific provisions of the Trust. The Trust further provided “unless …specifically provided otherwise, and subject to any ascertainable standard governing its exercise”, the Trustee’s discretionary power to distribute income or principal included the power to distribute all such income and/or principal to one or more members of a class to the exclusion of others. In other words, Rena authorized unequal distributions. However, Deb did not challenge her siblings’ “getting more” than she did. She challenged expenditures claimed by Butch for alleged work on the farm, and Cindy’s work caring for her mother on the basis that there was no documentation in support of their work. Moreover, she called into question whether C&B were truly caring for the farm and their mother as they purported to be or acted in bad faith or utterly without reason. Enormous distributions were made to Butch and Cindy, purportedly for Butch’s work on the farm and Cindy’s work acting as Rena’s caregiver; however, there was little to no documentation to support those distributions. Although the Trust did not require documentation for expenditures, the lack of documentation raised concerns, especially in view of the state of results. There was extensive testimony that neither Rena nor the farm were being properly cared for by C&B. Rena had Visqueen covering her windows and was living in a filthy room full of animal feces. The testimony coupled with the lack of documentation supported a finding of bad faith. 

The alleged math error by the jury was found to be not obvious, as is required by Arkansas caselaw. In fact, C&B’s counsel admitted in his oral argument that the math was complicated. Deb’s expert witness calculated her damages and opined that damages from Butch should amount to the $400,000 he received in excess of the royalties plus the $20,000 he kept from cattle sales. He testified that damages from Cindy should amount to $205,000. Although C&B’s attorney extensively cross-examined him, they did not call a damages witness of their own and the Court found one easily could have reached the conclusion that Deb should be awarded these amounts. 

C&B also sought reversal of the $630,000 punitive-damages award assessed against Butch and the $310,000 punitive-damages award assessed against Cindy. They argued that the award of punitive damages was not permissible, there having been no showing of more than a gross dereliction of duty. The Court however looked for proof of intentional wrong or conscious indifference from which malice could have been inferred. The Court found the evidence reflected C&B paid themselves large amounts of money from the Trust for providing services to their mother and the farm with no documentation of the services, and that Deb presented significant evidence regarding the lack of actual work having been done on the farm and as it related to the care of Rena. Specifically, there was evidence of neglect of these responsibilities despite the frequent and substantial distributions being made from the Trust. Finally, there was evidence that C&B used threats and intimidation to dissuade Deb from visiting or inquiring too much. The Court held that malice could be properly inferred by a jury from this evidence.

C&B also appealed the circuit court’s award of attorney’s fees to Deb. The Court held that, because it affirmed on each of Deb’s arguments, the award of attorney’s fees was affirmed as well.

Deb filed a motion for contempt against C&B for violating the court’s orders after the jury trial. Cindy was found to be in contempt (Butch having died) and ordered her to pay over $41,000 to Deb within thirty days of the order, or a judgment including interest would ensue. Deb’s motion for contempt centered on four transactions totaling over $41,000 including a check for $13,013.12 made out to Butch, signed by both Butch and Cindy, a cash withdrawal from the account of $6,707.86, and a check to each for $10,667.67. The Court considered the testimony given below regarding each transaction and found that the contempt finding was not clearly against the preponderance of the evidence for each and affirmed the lower court in all respects.