Chapter 13.7 Causes of Action and Remedies Against Fiduciaries

• Jurisdiction: Washington

§13.7 CAUSES OF ACTION AND REMEDIES AGAINST FIDUCIARIES

A personal representative may be removed in appropriate circumstances. In addition, damages for harm to the estate can be assessed against a personal representative who has breached his or her fiduciary duties. Similarly, trustees, attorneys in fact, and guardians can all be removed and are accountable for any breach of duty.

(1) Elements of fiduciary duty

Common-law claims for breach of fiduciary duty require proof (1) of the existence of the duty; (2) of breach of that duty; (3) of resulting injury; and (4) that the claimed breach proximately caused the injury. Miller v. U.S. Bank of Wash., N.A., 72 Wn.App. 416, 426, 865 P.2d 536 (1994). The duties of a fiduciary are established by both statute and case law.

The duties of an agent under a power of attorney are specified in RCW 11.125.140:

(1) Nothwithstanding provisions in the power of attorney, an agent that has accepted appointment shall:

(a) Act in accordance with the principal's reasonable expectations to the extent actually known by the agent and, otherwise, in the principal's best interest;

(b) Act in good faith; and

(c) Act only within the scope of authority granted in the power of attorney.

(2) Except as otherwise provided in the power of attorney, an agent that has accepted appointment shall:

(a) Act loyally for the principal's benefit;

(b) Act so as not to create a conflict of interest that impairs the agent's ability to act impartially in the principal's best interest;

(c) Act with the care, competence, and diligence ordinarily exercised by agents in similar circumstances; ....

See also Moon v. Phipps, 67 Wn.2d 948, 411 P.2d 157 (1966).

A personal representative's duties are to marshal the assets of the decedent; pay his or her debts, funeral expenses, and other necessary expenses of estate administration; and distribute the balance in accordance with his or her will. In re Estate of Winslow, 30 Wn.App. 575, 577, 636 P.2d 505 (1981) (quoting O'Neile v. Ternes, 32 Wash. 528,

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540-41, 73 P. 692 (1903)). RCW 11.48.010 provides that a personal representative's goal and duty is "to settle the estate ... as rapidly and as quickly as possible, without sacrifice to the probate or the nonprobate estate." Courts reiterate the trustee-like duties of a personal representative: "as with trustees, personal representatives owe a fiduciary duty to the heirs of the estate." In re Estate of Ehlers, 80 Wn.App. 751, 761-62, 911 P.2d 1017 (1996); see also In re Estate of Jones, 152 Wn.2d 1, 21 n.16, 93 P.3d 147 (2004) ("a personal representative has fiduciary duties similar to those of a trustee, as he is acting in a trust capacity"); Estate of Wilson v. Livingston, 8 Wn.App. 519, 527-28, 507 P.2d 902, review denied, 82 Wn.2d 1010 (1973) (executors nominated in a will and appointed with nonintervention powers nonetheless must exercise the utmost good faith and use the skill, judgment, and diligence that an ordinarily cautious and prudent person would employ in the management of his or her own affairs).

RCW 11.100.045 provides: "A fiduciary shall invest and manage the trust assets solely in the interests of the trust beneficiaries. If a trust has two or more beneficiaries, the trustee must act impartially in administering the trust and distributing the trust property, giving due regard to the beneficiaries' respective interests." RCW 11.98.078 also codifies the trustee's duty of loyalty:

(1) A trustee must administer the trust solely in the interests of the beneficiaries.

(2) Subject to the rights of persons dealing with or assisting the trustee as provided in RCW 11.98.105, a sale, encumbrance, or other transaction involving the investment or management of trust property entered into by the trustee for the trustee's own personal account or which is otherwise affected by a conflict between the trustee's fiduciary and personal interests is voidable by a beneficiary affected by the transaction unless:

(a) The transaction was authorized by the terms of the trust;

(b) The transaction was approved by the court or approved in a nonjudicial binding agreement in compliance with RCW 11.96A.210 through 11.96A.250;

(c) The beneficiary did not commence a judicial proceeding within the time allowed by RCW 11.96A.070;

(d) The beneficiary consented to the trustee's conduct, ratified the transaction, or released the trustee in compliance with RCW 11.98.108; or

(e) The transaction involves a contract entered into or claim acquired by the trustee before the person became or contemplated becoming trustee.

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(3)(a) A sale, encumbrance, or other transaction involving the investment or management of trust property is presumed to be "otherwise affected" by a conflict between fiduciary and personal interests under this section if it is entered into by the trustee with:

(i) The trustee's spouse or registered domestic partner;

(ii) The trustee's descendants, siblings, parents, or their spouses or registered domestic partners;

(iii) An agent or attorney of the trustee; or

(iv) A corporation or other person or enterprise in which the trustee, or a person that owns a significant interest in the trustee, has an interest that might affect the trustee's best judgment.

(b) The presumption is rebutted if the trustee establishes that the conflict did not adversely affect the interests of the beneficiaries.

(4) A sale, encumbrance, or other transaction involving the investment or management of trust property entered into by the trustee for the trustee's own personal account that is voidable under subsection (2) of this section may be voided by a beneficiary without further proof.

RCW 11.98.078(5) and (6) permit a trustee to engage in certain types of transactions that might otherwise be prohibited, conditioned on the transactions being fully disclosed and fair to the beneficiaries. RCW 11.98.079(7) provides for appointment of a "special fiduciary to make a decision with respect to any proposed transaction that might violate this section if entered into by the trustee." Finally, RCW 11.98.079(8) states: "If a trust has two or more beneficiaries, the trustee must act impartially in administering the trust and distributing the trust property, giving due regard to the beneficiaries' respective interests."

These provisions implicate both the duty of undivided loyalty and the duty not to self-deal. When the fiduciary is a trustee, RCW 11.100.045 and RCW 11.98.078(8) require the trustee to be impartial between different classes of beneficiaries (i.e., lifetime beneficiaries and remainder beneficiaries). See Baker Boyer Nat'l Bank v. Garver, 43 Wn.App. 673, 719 P.2d 583, review denied, 106 Wn.2d 1017 (1986) (trustee failed to diversify trust assets and had invested solely for income in breach of duty to remainder beneficiaries).

RCW 11.100.020(1) requires fiduciaries to "invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution." RCW 11.100.020(2) and (3) set forth the factors that govern a trustee's investment decisions. The statute then states:

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(4) A trustee shall make a reasonable effort to verify facts relevant to the investment and management of trust assets.

(5) A trustee may invest in any kind of property or type of investment consistent with the standards of this section.

(6) A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has special skills or expertise, has a duty to use those special skills or expertise.

RCW 11.100.020(4) -(6); see also RCW 11.125.140(5) ("If an agent is selected by the principal because of special skills or expertise possessed by the agent or in reliance on the agent's representation that the agent has specials skills or expertise, the special skills or expertise must be considered in determining whether the agent has acted with care, competence, and diligence under the circumstances.").

Negligence by a fiduciary or a failure to satisfy the requirements of the "prudent investor rule" can also be a breach of fiduciary duty. Gillespie v. Seattle-First Nat'l Bank, 70 Wn.App. 150, 156, 855 P.2d 680 (1993) (when trust investment failed, court found that investment was "unsuitable" due to its "excessive risk"; further, trustee failed to disclose pertinent information and negligently managed the asset), review denied, 123 Wn.2d 1012 (1994).

(2) Unjust enrichment

Washington common law recognizes a cause of action for unjust enrichment, regardless of whether the defendant is a fiduciary. A person is unjustly enriched when he or she profits or enriches himself or herself at the expense of another contrary to equity. Brooke v. Robinson, 125 Wn.App. 253, 257, 104 P.3d 674 (2004). The question is whether the enrichment is unjust, not whether the holder of the property acted with bad motive or malicious intent.

In the context of fiduciary liability for unjust enrichment, fiduciaries are held to the highest standard of loyalty to the interests of the beneficiary; accordingly, any act by a trustee or personal representative that enriches him- or herself at the expense of a beneficiary is generally viewed as "unjust," with the burden of proof falling to the fiduciary to prove otherwise. See, e.g., Wilkins v. Lasater, 46 Wn.App. 766, 777, 733 P.2d 221 (1987) (examining whether lease of trust property to trustee resulted in unjust enrichment of trustee).

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(3) Conversion

As with the concept of unjust enrichment, the tort of conversion is not exclusive to fiduciary relationships. "A conversion is the act of willfully interfering with any chattel, without lawful justification, whereby any person entitled thereto is deprived...