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R. Gudschinsky v. G. Hartill (7/26/91), 815 P 2d 851
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Notice: This is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors
to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, in order that
corrections may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
RUTH GUDSCHINSKY, )
) Supreme Court No. S-3651
Appellant, )
) Trial Court No.
) 4FA-85-246 P
v. )
) O P I N I O N
GLENDA HARTILL, as Personal )
Representative of the Estate )
of J. C. Bewley, ) [3720 - July 26, 1991]
)
Appellee. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Fourth Judicial District,
Fairbanks,
Richard D. Savell, Judge.
Appearances: Michael A. Stepovich,
Fairbanks, for Appellant. Valerie M.
Therrien, Fairbanks, for Appellee.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton, and Moore,
Justices.
MATTHEWS, Justice.
I. INTRODUCTION
Ruth Gudschinsky appeals from an order of the superior
court assessing her a total of $45,702.57 in the form of
surcharges stemming from her tenure as personal representative of
the estate of J.C. Bewley. The appellee is Glenda Hartill, the
current personal representative of the estate and one of Bewley's
children. Hartill replaced Gudschinsky as personal
representative in 1987 after Hartill petitioned the court to have
Gudschinsky removed.
II. FACTS AND PROCEEDINGS
J.C. Bewley died testate on June 11, 1985. Bewley's
will was admitted to probate in Alaska on June 19, 1985, with
Ruth Gudschinsky acting as personal representative of the estate.
Bewley was survived by three children: Glenda Hartill of Oregon,
Norma Womack of Oregon, and Jesse Bewley of Fairbanks. The will
bequeathed the estate to the children in equal shares.
Gudschinsky had managed some of Bewley's real property
before he died as part of a continuing long-term verbal contract
between friends. Although she hired an accountant and an
attorney to assist her in handling the estate after Bewley died,
she continued to manage things much the same way as she had when
Bewley was alive. Bewley's estate, valued to be at least
$760,601, consisted of real property in California, Oregon, and
Alaska and assorted personal property, including over $125,000 in
liquid investments.
Gudschinsky was appointed personal representative in
June 1985. Over the next two years, her performance led Hartill
to petition the court for her removal as personal representative.1
On November 10, 1987, the probate master entered findings of fact
and conclusions of law on Hartill's removal petition. Citing a
lack of full documentation, carelessness, and delay in settling
the estate, the master found that it would be in the "best
interests of the estate"to replace Gudschinsky with Hartill as
personal representative.2
A year and a half later, on May 15, 1989, Hartill filed
a "Petition for Judgment Against Ruth Gudschinsky." Following
hearings before another probate master in August 1989, findings
and recommendations were entered on September 15. The superior
court adopted these findings and recommendations on October 12,
entering judgment against Gudschinsky in the amount of
$45,702.57. The $45,702.57 figure was based on various
surcharges which will be discussed in turn.
III. DISCUSSION3
A. The Pre-Death Charges
The first surcharge was for "pre-death charges" of
$4,344.33. On July 3, 1985, notice to creditors was first
published, giving them until November 3, 1985, to present their
claims against the estate.4 In July and September of 1985,
Gudschinsky paid herself from estate funds a total of $4,344.33
for debts allegedly owed by Bewley to Gudschinsky at the time of
Bewley's death. The probate master found that: 1) it was
"inappropriate" for Gudschinsky to reimburse herself ahead of
other possible creditors, and 2) her reimbursement was supported
only by "scratch-pad"type notes and thus was "not satisfactorily
documented to allow court approval"several years later.
The master did not make clear the legal basis for this
assessment. Although she begins her discussion by citing AS
13.16.460, 460 does not provide for liability of the personal
representative.5 Alaska Statute 13.16.480 provides for liability
of a personal representative in cases of early payment.6 But
480 provides for such liability only in instances where another
claimant has been injured by the early payment. There has been
no finding, express or implied, to that effect. Without such a
finding, the master could not properly surcharge Gudschinsky for
the pre-death charges based on 480.
Reliance on AS 13.16.395,7 as suggested by Hartill,
suffers from the same deficiency. To impose liability based on
395, there must be findings that (1) there was an improper
exercise of power, (2) there was "damage or loss"to the party to
whom the personal representative is liable, and (3) this damage
or loss resulted from a breach of a fiduciary duty. Although the
master found that it was inappropriate for Gudschinsky to
reimburse herself ahead of other possible creditors, thus making
the first required finding, there has been no finding of any
"damage or loss"to any "interested persons,"which is the second
required finding. Nor has the third required finding been made,
i.e., that Gudschinsky breached her fiduciary duty by making such
payments. Without these findings, it was error to surcharge
Gudschinsky for the pre-death charges based on 395.8
We therefore reverse that part of the superior court's
order affirming the master's surcharge against Gudschinsky for
the pre-death charges. We remand to the superior court with
directions to remand the matter to the master to make findings of
fact on the issues discussed above.9
B. Personal Draws
The master surcharged Gudschinsky $2,297.05 for
excessive fees as personal representative. A personal
representative is entitled to "reasonable compensation for
services." AS 13.16.430. We, like most other courts, review a
lower court's determination of "reasonable compensation"only for
abuse of discretion. See, e.g., Estate of Tully, 545 A.2d 1275,
1276-78 (Me. 1988); In re Estate of Odineal, 368 N.W.2d 800, 801-
02 (Neb. 1985).
In the proceedings below, it was found that a
reasonable fee was $20 per hour and that Gudschinsky should be
allowed to bill the estate for 1000 hours. In setting the rate
at $20 per hour, the master considered Gudschinsky's lack of
special expertise, the large number of hours spent without much
to show for it, the poor job done in administering the estate,
and that the customary fee in the area is about $10-$20 per hour.
Gudschinsky does not dispute these considerations; she
simply maintains that her fee of $22,297.05 was not excessive in
light of the size of the estate. However, the only case she
cites in support of this position is In re Estate of Wright, 647
P.2d 1153 (Ariz. App. 1982). It is true that the total fee in
Wright was larger than what was awarded to Gudschinsky. Yet if
one calculates the representative's hourly fee in Wright, it
turns out that it was only $12.50 per hour -- $7.50 less than the
hourly rate awarded to Gudschinsky. In light of the master's
findings, we find no abuse of discretion in setting Gudschinsky's
rate at $20 per hour.
Gudschinsky also contests the master's finding that she
should be compensated for only 1000 hours instead of the 1148
hours she requested. The master cited an error rate of
approximately 10% in the time sheets submitted by Gudschinsky.
Considering this and the fact that Gudschinsky's sloppy
administration resulted in duplicative work by the new personal
representative, we cannot say that the figure of 1000 hours is
clearly erroneous. Thus, we affirm the superior court's order
with respect to the surcharge of $2,297.05 for excessive fees.
C. Expenditures After Authority Lapsed
Gudschinsky was assessed $1,834.38 for unapproved
payments made for work done on estate property in Fairbanks after
the court had issued an order requiring court approval. Although
Gudschinsky paid out $2,334.38, the master allowed $500 for
"reasonable" janitorial services as permitted under the court
order.
Gudschinsky argues that none of the necessary findings
for imposing this surcharge were ever made. Again, the master
did not specify the legal basis for imposing this surcharge.
Hartill contends that the surcharge was based on AS 13.16.395.10
As discussed above, to impose liability based on 395 requires
that there be findings of (1) an improper exercise of power, (2)
damage or loss, and (3) breach of a fiduciary duty. Not all of
these findings were made.
The master implicitly found that there was an improper
exercise of power.11 However, there was no finding of "damage or
loss"to the estate resulting from the payments.12 As Gudschinsky
notes, the entire benefit of these payments went to the estate.
There was no finding that Gudschinsky appropriated any of the
benefit from these payments to herself. Nor was there any
finding concerning the breach of a fiduciary duty. Given the
state of the record, we reverse the superior court's order to the
extent it affirms the surcharge for expenditures after authority
lapsed. We remand to the superior court with directions to
remand to the master to make specific findings on the issues
discussed above.
D. Penalties and Interest on Late Taxes
As a result of the late filing of estate tax returns,
the estate was assessed $26,688.84 in penalties and interest.
The master surcharged Gudschinsky this amount based on AS
13.16.485(b).13 The master also cited 47 A.L.R. 3d 507 (1973) for
the general proposition that a personal representative is
personally liable for penalties and interest if estate tax
returns are filed late. Gudschinsky acknowledges this general
rule but argues that it should not apply in her case.
Gudschinsky makes several arguments to escape all or
part of this surcharge. First, she argues that she reasonably
relied on the advice of her accountant who, she claims, informed
her that the returns had been timely filed. We have found no
cases which absolve from liability a personal representative who
took no steps to assure that the estate's tax return had been
filed on time. See, e.g., In re Estate of Bartlett, 680 P.2d
369, 377 (Okla. 1984) (executor not excused by failure of legal
counsel to notify him that taxes were due); In re Estate of Lohm,
269 A.2d 451 (Pa. 1970) (executor should be aware that deadline
exists); see also 47 A.L.R. 3d 512 (1973) (fiduciary cannot
escape liability if he "blindly leav[es] all tax matters and
considerations affecting an estate to his attorney"). We agree
with those courts which hold that if the personal representative
displays some effort to ascertain the deadline or comply with it,
then a delay might be justified. See, e.g., Estate of Smith, 767
S.W.2d 29, 36 (Mo. 1989) (personal representative not personally
liable after asking accountant to secure filing extension);
Giesen v. United States, 369 F. Supp. 33, 35 (W.D. Wis. 1973)
(financially inexperienced executor asked and was assured by tax
attorney that taxes would be filed on time); see also Wohl v.
Lewy, 505 So.2d 525, 526 (Fla. App. 1987) (personal
representative cannot be held liable for costs incurred in
erroneously claiming tax deduction where he relied on advice of
accountant).
In Gudschinsky's case, she apparently left all tax
matters to the accountant. Gudschinsky does not point to any
evidence in the record which shows that she tried to find out
when the taxes were due. She merely claims that she interpreted
a conversation with her accountant to mean that the estate's tax
returns had been filed on time. We find that Gudschinsky's mere
passive acceptance of an interpretation of a conversation with
her accountant does not relieve her of liability for penalties
and interest.
Second, Gudschinsky argues that she should not be held
liable for the late penalties because Hartill, as the new
personal representative, failed to appeal the State of Alaska's
decision not to waive the tax penalty despite the fact that all
other jurisdictions had done so. We see no reason why the estate
or its new personal representative is under a duty to appeal the
state's decision absent a showing that such an appeal had at
least a reasonable likelihood of success. The mere fact that
other jurisdictions waived their penalties does not establish a
reasonable likelihood that such an appeal would succeed in
Alaska. It is possible that the standard for granting waivers is
higher in Alaska than in other jurisdictions. In any case,
Gudschinsky cites no evidence that an appeal would likely have
succeeded. In fact, the only evidence revealed by our own
investigation of the record suggests that a successful appeal was
unlikely.
Finally, citing Orsini v. Bratten, 713 P.2d 791 (Alaska
1986), Gudschinsky argues that she should not have to pay the
surcharge for interest on the late taxes. In Orsini, Orsini had
given the Brattens erroneous investment and tax advice, including
the incorrect claiming of investment tax credits on their tax
returns. This resulted in state and federal interest penalties
charged against the Brattens. Id. at 792. On appeal, we held
that the Brattens could not recover these charges from Orsini:
[T]he Brattens are not entitled to
receive damages for interest repaid to either
the federal government or to the state
government. The Brattens had the use of
these monies and, presumably, were able to
earn interest while they held it. Therefore,
paying the interest penalties effectively
cost the Brattens nothing.
Id. at 794. The master distinguished Orsini on the ground that
the Brattens were individuals free to risk their money as they
desired whereas Gudschinsky's role as personal representative did
not allow her the same freedom. Although this distinction
certainly exists, it is nevertheless true that a personal
representative has the duty of prudently investing the assets of
the estate until they are ready for distribution. In re Estate
of Gregory, 487 P.2d 59, 64 (Alaska 1971).
Bewley's estate was apparently receiving interest on
its large reserves of cash.14 We therefore reverse that part of
the superior court's order affirming the master's surcharge for
interest paid on late taxes. However, since we cannot determine
from the master's decision the breakdown between the interest and
the penalties, we remand to the superior court with directions to
remand to the master to make such a determination and to assess
only the penalties against Gudschinsky.
E. Costs and Attorney's Fees
The last surcharge was for "costs and attorney's fees
required to review and correct work done by [Gudschinsky] as
personal representative." The master recommended that the estate
be awarded an "equitable assessment of $10,000." We review such
an award for any abuse of discretion.15
Gudschinsky is properly responsible for the costs and
fees required to review and correct the improper work done by
her.16 However, the master made no findings as to how much extra
cost was incurred by the estate in this remedial work. We
recognize the difficulty in this matter, but the master cannot
simply pick an arbitrary number.17 To do so is an abuse of
discretion. Findings establishing at least a ballpark figure are
required. Therefore, we reverse the superior court's order with
respect to the assessment of $10,000 in attorney's fees and
costs, and we remand to the superior court with directions to
remand to the master to make findings on the extra expenses
incurred due to any improper management of the estate by
Gudschinsky.
IV. CONCLUSION
To summarize, the order of the superior court affirming
the surcharges against Gudschinsky is affirmed in part and
reversed in part. First, the $4,344.33 surcharge for the pre-
death claims is reversed and remanded for the master to make
appropriate findings under AS 13.16.480 or AS 13.16.395. Second,
the surcharge of $1,834.38 for expenditures after authority
lapsed is reversed since not all of the required statutory
findings had been made by the court. Upon remand, the master is
to make all appropriate findings under AS 13.16.395. Third, the
surcharge for interest paid by the estate for the late payment of
taxes is reversed. Upon remand, the master is to determine how
much of the $26,688.84 surcharge was for interest and how much
was for penalties. Finally, the $10,000 surcharge against
Gudschinsky for attorney's fees is reversed and remanded for
findings on the amount of extra expenses incurred resulting from
Gudschinsky's management of the estate's affairs. AFFIRMED in
part, REVERSED in part, and REMANDED.
_______________________________
1 In her removal petition, Hartill claimed, among other
things, that Gudschinsky had improperly administered the estate
and had failed to take steps necessary to settle the estate.
Bewley's other two children opposed Hartill's petition and
submitted affidavits supporting Gudschinsky.
2 The "best interests of the estate"standard is enunciated
in AS 13.16.295(b). The November 10 findings and conclusions
were amended on December 2, but there were no significant
changes. The new findings and conclusions were approved by the
superior court on December 3.
3 We have considered Hartill's jurisdictional arguments and
find them to be without merit.
4 AS 13.16.460(a) provides that creditors' claims against
the estate are barred unless presented to the personal
representative within four months after first publication of
notice to creditors.
5 The New Mexico Supreme Court, interpreting a statute
similar to AS 13.16.460, held that a disbursement to an executor
could not be allowed to stand where no claim was filed. In re
Hamilton, 637 P.2d 542, 545-47 (N.M. 1981). But Hamilton does
not deal with reimbursement before other possible creditors,
which was the master's justification for the surcharge on
Gudschinsky.
6 AS 13.16.480(b) provides:
The personal representative at any
time may pay any just claim which has not
been barred, with or without formal
presentation, but the personal representative
is personally liable to any other claimant
whose claim is allowed and who is injured by
such payment if
(1) the payment was made
before the expiration of [four
months from the date of the first
publication of the notice to
creditors] . . . .
7 AS 13.16.395 provides:
If the exercise of power concerning
the estate is improper, the personal
representative is liable to interested
persons for damage or loss resulting from the
breach of fiduciary duty to the same extent
as a trustee of an express trust.
8 We note that neither the master nor Hartill called our
attention to any statutory requirement that a personal
representative submit written documentation to prove his or her
own claim. Nor does In re Estate of Gregory, 487 P.2d 59 (Alaska
1971), establish such a requirement. There we upheld a lower
court's ruling that a personal representative was required to
repay the estate certain insurance payments because she had not
introduced any evidence to support her claim to the money. Id.
at 64.
9 We also call attention to a possible error in calculating
the pre-death charges. Although Gudschinsky testified that she
reimbursed herself $4,404.33 for pre-death charges, the master
surcharged her only $4,344.33. The master may have switched a
digit in one of Gudschinsky's reimbursement checks from $1,882.04
to $1,822.04. This would account for the difference.
10 See supra note 7.
11 The master's report states: "[Gudschinsky] was prohibited
by court order to expend any further funds from the estate after
August 31, 1987. . . . [Gudschinsky nevertheless] paid out over
$2,000 for extensive work to be done at 508 9th."
12 Even if the estate were to some extent injured by these
payments, the master should have determined the value of the
unauthorized work done on the 9th Street property and deducted
that from the surcharge. See Estate of Tully, 545 A.2d 1275 (Me.
1988); In re Estate of Bartlett, 680 P.2d 369 (Okla. 1984). Such
a procedure would have more closely approximated the estate's
damages.
13 AS 13.16.485(b) provides:
A personal representative is
individually liable for obligations arising
from ownership or control of the estate or
for torts committed in the course of
administration of the estate only if
personally at fault.
14 The record reveals that, as of October 23, 1987, the
estate had $120,798 in a cash management fund and $7,135 in a
money market fund.
15 Cf. In re Estate of Gregory, 487 P.2d 59, 64 (Alaska 1971)
(reviewing award of attorney's fees to administrator under abuse
of discretion standard).
16 Gudschinsky does not contest this and has thus waived the
issue.
17 The master did not cite any specific evidence in support
of the $10,000 award for attorney's fees and costs. Hartill did
testify as to the additional costs and attorney's fees incurred
after she became personal representative. However, when the
accounting report on which Hartill's testimony was based was
offered into evidence, the master said:
[T]he Court will take i[t] as just a
summary of what's going on, but again it's
probably more appropriate that it would be
pleading rather than an exhibit. It has no
weight as to the truth of the contents of it.
(Emphasis added).
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