Linda Pitts v. Dustin Mitchell

ca05-907

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION III

CA05-907

April 5, 2006

LINDA PITTS AN APPEAL FROM FAULKNER COUNTY

APPELLANT CIRCUIT COURT, [NO. CV2002-569]

v. HONORABLE CHARLES CLAWSON, JR.

CIRCUIT JUDGE

DUSTIN MITCHELL

APPELLEE AFFIRMED AS MODIFIED IN PART;

DISMISSED IN PART

David M. Glover, Judge

Appellant Linda Pitts brings this appeal from the Faulkner County Circuit Court's net judgment of $8,073.79 in favor of appellee Dustin Mitchell for Pitts's breach of her fiduciary duties as trustee for Mitchell. Pitts asserts four points for reversal. We affirm as modified in part and dismiss in part.

Mitchell is the grandson of LeRoyce Mitchell ("decedent"), who died on October 6, 1991. Pitts is one of the decedent's daughters and the aunt of Mitchell. The decedent's will bequeathed two tracts to Pitts as trustee for the benefit of Mitchell. One tract, containing two houses on 3.73 acres, was subject to a life estate in favor of Maggie Mitchell, the decedent's mother. The houses are referred to as the "white house" and the "green house." The other tract contained approximately 145 acres. The trust was to terminate on Mitchell's twenty-third birthday. The will allowed the property to be rented with the income being paid over to Mitchell. All expenses of ownership were to be paid from the trust estate or the income received from the rental of the property. If Mitchell did not survive until the trust terminated, Pitts was to receive the property.

On July 11, 2002, Mitchell filed his complaint, alleging that Pitts breached her fiduciary duty by committing waste, by squandering assets, by failing to collect rents and account for income, and by renting the property for nominal sums. The complaint sought Pitts's removal as trustee and judgment for the sums she wasted or failed to collect. Pitts answered, denying the material allegations of the complaint. She later filed a petition seeking a fee for her services as trustee, together with reimbursement for her expenses. The trial court appointed Barbara Money, a certified public accountant, as special master to render an accounting. The special master's report was made a joint exhibit at trial.

Dustin Mitchell testified that he was asking the court to award him damages for the waste and lost rental income due to Pitts's actions. He testified that Maggie Mitchell was his great-grandmother and that she lived in the white house. He said that, after Maggie Mitchell's death in December 1996, Pitts and others used the white house for storage. Mitchell stated that Sherry Williams moved into the green house in July 1995 and lived there until December 2001. He acknowledged that he received $3,150 in 1998-99 for rent from Williams. Mitchell stated that he was not making any claims beyond the time that Williams moved out. He stated that Pitts had cattle on the land until 2001. He also admitted that Pitts properly cared for the property by cutting it or letting cows graze on it. He disputed Pitts's and her husband's testimony as to repairs made and the dates of the repairs. Mitchell testified that he made repairs costing $15,000 to the green house.

Sherry Williams testified that she and her family lived in the green house from July 1995 until December 2001. She paid $350 per month in rent to Pitts. She also stated that Pitts made some repairs to the property and estimated them at less than $1,000. She also stated that she made some repairs herself in exchange for a pair of chaps purchased from Pitts's son.

Linda Pitts testified that she understood that Maggie Mitchell was entitled to the use and possession of both houses until her death. She admitted that her son Kevin Gray lived in the white house for a period without paying rent and that she allowed the house to be used for storage.

Pitts stated that she inherited a herd of cattle from her father and kept them on the property until Mitchell told her in 1997 or 1998 that he wanted them removed from the property. She admitted that she cut hay for the cattle, which she contended benefitted Mitchell. According to Pitts, Mitchell put locks on the gates to the pastures and changed the locks on the white house. She also said that Mitchell started cutting and selling hay in late 1997 or early 1998.

Pitts testified that she understood that she was supposed to act solely for Mitchell's benefit during her time as trustee. She also acknowledged that Mitchell could use and possess the property and that the decedent's will specified that all rents should be attributable to Mitchell. She stated that Mitchell collected some rent directly from Sherry Williams.

Pitts asserted that she lost money and did not benefit from her use of the property. She stated that she paid the taxes on the property even though she later learned that Maggie Mitchell should have been paying the taxes while she was alive. She believed that the services that she and her husband performed, such as bushhogging the property, repairing fences, and maintaining the houses, benefitted the estate. Pitts stated that she was asking the court to award her a reasonable trustee's fee and credit for the expenses she incurred. She stated that it was not her intention to do anything to decrease or diminish the value of what Mitchell stood to inherit.

Pitts's husband, John Pitts, testified that he performed all of the work necessary to maintain the houses and the farm. This work included collecting rents from the tenants, maintaining the fences and fence rows, cutting the grass with a bushhog, and maintaining both the white house and the green house. He stated that he never received any compensation for his work. He testified to an itemization of the fees and expenses, stating that he and Pitts were seeking a fee of $10,100 for their services, based on $100 per month for 101 months. He also added materials, for which he had receipts of $2,573.45, which brought the total sought for labor and materials to $12,673.45.

Mr. Pitts admitted that he and his wife had some cattle on the property. He stated that the surrounding properties rented for an average of $3.67 an acre and offered to deduct a yearly rental of $532.15 for the 145 acres for the period of October 1991 to October 1999, for a total of $4,257.20. He stated that the net reimbursement sought was $8,316.25. He also admitted to having cut hay on the property, and he said that major repairs were done on the houses. He also collected rent on the green house from Sherry Williams and turned the money over to his wife, but he stated that he did not know what she did with the money.

The trial court issued a letter opinion in which it found that, although Pitts did not act dishonestly, she could have put the property to better use, thereby maximizing the income for Mitchell. The court also found that Pitts used the property for her own benefit without compensation to Mitchell and did not account for all of the rents for the green house. The court noted that Pitts's son, Kevin Gray, lived in the white house for a period of at least four months without paying rent. The court concluded that Gray should have paid at least $1,000 during his occupancy. The court also noted that the costs of repairs to the white house would have exceeded the reasonable rental value of the property.

The trial court further found that Sherry Williams rented the green house for approximately five-and-a-half years for a rental of $350 per month. The court calculated the total rental due at $23,100, based on sixty-six months, and deducted $3,150 for rent collected directly by Mitchell, leaving a total of $19,950. The court then subtracted the amount shown as collected in the special master's report ($17,262.76) to arrive at $2,687.24 in unaccounted rent. Concerning Pitts's use of the property, the trial court noted that the testimony showed a range of $3.50 per acre to $4 per acre for hay property. The court calculated the rent based on $4 per acre for 145 acres, arriving at a total rental of $6,960 for the twelve-year period.

Adding the sums together, the trial court found that Mitchell was entitled to $1,000 due from Kevin Gray, unaccounted rent of $2,687.24, and hay rent of $6,960, for a total of $10,647.24. The court awarded Pitts a setoff for her expenses in the amount $2,573.45, resulting in a net judgment for Mitchell in the sum of $8,073.79. Judgment in accordance with the court's letter opinion was entered on May 2, 2005. Pitts filed her notice of appeal on May 24, 2005.

Pitts raises four points on appeal: that the trial court erred in its assessment of $4 per acre for the hay meadow for twelve years; that the trial court erred in the rents collected on the green house; that the trial court erred in not awarding Pitts compensation for her services as trustee; and that the trial court erred in awarding Mitchell his attorney's fees.

This court reviews equity cases de novo and will not reverse a finding of fact by the trial judge unless it is clearly erroneous. Sanford v. Sanford, 355 Ark. 274, 137 S.W.3d 391(2003). A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed. Id. We view the evidence in a light most favorable to the appellee, resolving all inferences in favor of the appellee. Id. However, a trial court's conclusion on a question of law is given no deference on appeal. Id.

For her first point, Pitts argues that the trial court erred in assessing damages at $4 per acre for rent on the property. She argues that the testimony showed that the surrounding property rented for an average of $3.67 per acre. She further argues that the trial court erred in calculating damages for the entire twelve-year period from the decedent's death until Mitchell attained the age of twenty-three and the trust terminated.

There is no question that a fiduciary who uses trust property for his own benefit is chargeable with the fair and reasonable rental value thereof. In re Estate of Marlin, 299 N.W. 626 (Neb. 1941). The question becomes what the fair rental value is. Based on the testimony of the four neighboring landowners, the rental charges ranged from a low of $3.26 per acre to a high of $6.25 per acre, with the average charge being $4.18 per acre. The rental value of the property was a question of fact for the trial court, and the value chosen fell within the range of testimony presented. See Kellett v. Pocahontas Fed. Sav. & Loan Ass'n, 25 Ark. App. 243, 756 S.W.2d 926 (1988). Therefore, we affirm on this point.

Pitts also argues under her first point that the trial court should not have calculated the rent on the entire 145 acres, contending that there were actually only 143 acres. However, Pitts stated that she had access to "approximately 145 acres" and calculated rent on that entire amount as a setoff to the amount owed to her, and we cannot say that the trial court was clearly erroneous in the total acreage used in the calculation of damages.

However, we hold that the trial court erred in calculating the damages for the rental of the property for the entire twelve-year period of the trust. Mitchell testified that Pitts ran cattle on the land until 2001, but there was no evidence that Pitts used the property at all after 2001. Mitchell turned twenty-three in 2003. We modify the trial court's award of damages for pasture rent to $5,800 to reflect the ten-year period for which Mitchell testified that Pitts utilized the property.

For her second point, Pitts argues that the trial court erred in calculating the rent on the green house. The trial court found that $2,687.24 in rent was not accounted for and awarded Mitchell this sum. Pitts argues that the trial court erred in its calculation because the house was subject to a life estate in favor of Maggie Mitchell until her death in December 1996. We agree.

A life tenant is entitled to the rents from the property. See Cherokee Constr. Co. v. Harris, 92 Ark. 260, 122 S.W. 485 (1909). As such, Mitchell was not entitled to any rents during the term of Maggie Mitchell's life estate. After Maggie's death in December 1996, Sherry Williams continued to occupy the green house until December 2001. Therefore, the total rent for which Pitts would be required to account would be $21,000. After subtracting the amount Mitchell collected directly ($3,150) and the amount shown as collected by the accounting ($17,262.76), there is $587.24 in rent not accounted for by Pitts. We reduce the trial court's judgment on this point to $587.24.

For her third point, Pitts argues that the trial court erred in not awarding her a fee for her services as trustee. The trial court found that Pitts should have been charging compensation throughout the course of her service as trustee instead of waiting until the termination of the trust. The court did award Pitts $2,573.45 in expenses for maintaining the property.

The general rule appears to be that, where the trust instrument does not undertake to fix the trustee's compensation, the trustee is entitled to reasonable compensation and reimbursement for proper expenses. Hill v. Zanone, 184 Ark. 594, 43 S.W.2d 238 (1931); James v. Echols, 183 Ark. 826, 39 S.W.2d 290 (1931); see also Restatement (Third) of Trusts § 38 (2001). However, a trustee can, by his or her actions, waive the right to compensation. Hardy v. Hardy, 222 Ark. 932, 263 S.W.2d 690 (1954); George G. Bogert and George T. Bogert, The Law of Trusts and Trustees § 980 (2d rev. ed. 1983). Further, a trustee who neglects his duties or violates his obligations forfeits his right to compensation. See Cole v. Williams, 215 Ark. 366, 220 S.W.2d 821 (1949); McHenry v. McHenry, 209 Ark. 977, 193 S.W.2d 321(1946).

Here, the trial court found that Pitts waived her right to compensation by failing to timely request compensation and also found that Pitts engaged in self-dealing in that she ran cattle on the property without compensating Mitchell for that use. Other examples of Pitts's self-dealing include hiring her husband to maintain the property and allowing her son to live in the white house without paying rent. We cannot say that the trial court was clearly erroneous when it denied Pitts a fee for her services as trustee. Pitts argues that her limited use of the property did not breach her fiduciary duty. Self-dealing breaches the fiduciary duty even when the action taken is innocent and unintentional. Cole v. Laws, 349 Ark. 177, 76 S.W.3d 878 (2002); Hosey v. Burgess, 319 Ark. 183, 890 S.W.2d 262 (1995). Further, the services for which Pitts and her husband claim compensation, i.e., maintaining and repairing the fences and bushhogging the property, benefitted Pitts and her husband and their cattle as much as they benefitted Mitchell. We affirm on this point.

In her fourth point, Pitts argues that the trial court erred in awarding Mitchell his attorney's fees. We cannot reach this issue because we are without jurisdiction.

The trial court issued a letter opinion announcing its ruling on April 15, 2005. Mitchell filed a motion for attorney's fees on April 20, 2005. On April 27, 2005, the trial court sent a letter requesting Mitchell to provide an itemized statement of the fees requested and the basis for the request. The judgment was entered on May 2, 2005. As noted above, Pitts filed her notice of appeal on May 24, 2005. The trial court issued a letter opinion on June 9, 2005, awarding Mitchell an attorney's fee of $5,000. Pitts did not file an amended notice of appeal from the award of fees. Our supreme court recently addressed this very situation, stating:

This court has held that where the order granting or denying attorney's fees is entered after entry of the judgment, the issue of attorney's fees is a collateral matter. As such, the challenging party must file a notice of appeal from the fee order, and without such a notice, this court will not address any argument on the fee issue. This is based on the well-settled law that the failure to file a timely notice of appeal deprives the appellate court of jurisdiction. This rule applies to orders granting attorney's fees.

Craig v. Carrigo, 353 Ark. 761, 777, 121 S.W.3d 154, 164 (2003) (citations omitted). Here, there is no dispute that Pitts failed to file a separate notice of appeal from the fee ruling. Accordingly, we must dismiss this part of the appeal.

In conclusion, we reduce the trial court's award of rent for the pasture to $5,800 and rent for the green house to $587.24. This results in a modified net judgment of $4,813.79 in favor of Mitchell.

Affirmed as modified in part; dismissed in part.

Hart and Robbins, JJ., agree.