Perplexing Problems Under the Uniform Transfers to Minors Act

The first part of this article discussed UTMA requirements, accounting and liability. The conclusion herein addresses attorneys' fees and sanctions.

Attorneys' Fees

Not only can custodians be held liable for misuse of custodial property, but some states have also assessed attorneys' fees. In Sartore v. Buder, 759 P.2d 785 (Colo. App.Ct. 1988) the children's custodial parent brought suit against the father for violation of fiduciary duty. The trial court awarded damages, including interest and attorneys' fees. A little over half of the assets were in publicly traded stock, and a little under half were in “penny stocks.” The “Blue Chip stocks” had both gains and losses; almost all of the penny stocks suffered huge losses. The statutory provision for care of custodial property is to do “as would a prudent person of discretion and intelligence who is seeking a responsible income and the preservation of his capital.” 760 ILCS 20/13(b).

The trial court held that the statutorily required standard of prudence in investment was not met as to the penny stocks because they were speculative. The trial court awarded loss of appreciation of the funds invested in the penny stock of $15,000, plus interest and ordered the father to pay $65,000 to replace all the sums expended on the penny stock investments. Attorneys' fees were also awarded. The Colorado Court of Appeals affirmed. The father then took the case to the Supreme Court of Colorado, 774 P.2d 1383 (Colorado 1989), which affirmed. The father's argument was that since he also invested his own funds in the same penny stocks, he was not liable. The court disagreed, though it did not find the father liable for any losses resulting from “Blue Chip” stocks. In Colorado, the UTMA actually imposed a stricter standard than the UGMA, but in either event, the father was properly held to be liable. Noting that the court had broad discretion in fashioning an appropriate remedy, both courts were affirmed. The father was given the penny stocks in exchange. The father also claimed that neither the UGMA nor UTMA contained any provision authorizing the trial court to assess attorneys' fees. The court likened the case to a breach of trust and found that there was discretion to order attorneys' fees.

This reasoning was later accepted in Connecticut as well. In Mangiante v. Niemiec, 843 A.2d 656 (Conn.App.Ct. 2004), the daughter brought an action against the mother for breach of fiduciary duty. There was a custodial account with approximately $4,000 in it. The Judgment For Dissolution Of Marriage was again silent as to the funds placed in this account. The mother was ordered to pay the father $75 a week for their daughter's support. The mother used the account to write checks to her ex-husband for the child support until it was exhausted. The complaint contained counts alleging fraud, theft, embezzlement, conversion and breach of fiduciary duty. The trial court found a fiduciary relationship existed, and the mother breached it by engaging in self-dealing. It was held that the Act explicitly provides for fiduciary powers, which means there is a fiduciary relationship. The appellate court affirmed. Thereafter, the daughter filed a motion in the trial court to recover attorneys' fees for the trial and the appeal. The trial court exercised its equitable powers and awarded fees. The mother appealed again. 910 A.2d 235 (Conn.App.Ct. 2006) The trial court awarded attorneys' fees in excess of the $4,000 that was in the custodial account.

Affirming, the appellate court discussed general law regarding attorneys' fees, and the court indicated that there were equitable policy considerations stemming from the law of trusts arising from England's Courts of Equity. It was noted that without the award of fees, the daughter would not be made whole because her recovery was less than the amount of the fees. Still, it is a somewhat curious ruling because the fee award is not based on the UTMA. It is unclear whether short of a statutory provision for fees, many other states will follow these cases, although the wisdom cannot be denied.

Sanctions

However, if you shoot the king you must kill the king. Baseless UTMA suits will subject you to sanctions. In Lamberton v. Lamberton, 2004 WL 2032094 (Va. App. Unpublished Opinion; Check Court Rules Before Citing, 2004) a petition seeking removal of the husband as custodian of his son's account, and an accounting was filed. The husband consolidated the UTMA suit with a presently pending divorce action. The motion was denied, and the wife was sanctioned $8,000, finding that the UTMA suit was harassment where there was no evidence that the husband had done anything adverse to the children's best interest. The husband was also awarded fees for defending the appeal.

In Singer v. Brookman, 578 N.E.2d I (Ill.Ct. App. 1991), a child, through her father's divorce lawyers, filed a petition against the mother for an accounting and breach of fiduciary duty. No pleadings were actually filed alleging violation of the UTMA. The trial court dismissed on res judicata grounds, holding that the divorce case ruling was binding
on the children, as the husband's legal rights and interest in the first action, were the same as the children's rights and interest in the instant case. The father had previously sought and received an accounting of the accounts in the divorce case, and the court had found the mother had furnished all necessary documentation. The trial court also awarded sanctions, finding that the action was unreasonable by every standard. The appellate court affirmed.

Conclusion

Results throughout the country are unpredictable despite this Uniform Act. This unpredictability allows the matrimonial practitioner to use his or her creativity.

Paul L. Feinstein, a member of this newsletter's Board of Editors, is a Chicago sole practitioner who concentrates his practice in family law, with emphasis on divorce litigation, custody and visitation, and appeals.

The first part of this article discussed UTMA requirements, accounting and liability. The conclusion herein addresses attorneys' fees and sanctions.

Attorneys' Fees

Not only can custodians be held liable for misuse of custodial property, but some states have also assessed attorneys' fees. In Sartore v. Buder , 759 P.2d 785 (Colo. App.Ct. 1988) the children's custodial parent brought suit against the father for violation of fiduciary duty. The trial court awarded damages, including interest and attorneys' fees. A little over half of the assets were in publicly traded stock, and a little under half were in “penny stocks.” The “Blue Chip stocks” had both gains and losses; almost all of the penny stocks suffered huge losses. The statutory provision for care of custodial property is to do “as would a prudent person of discretion and intelligence who is seeking a responsible income and the preservation of his capital.” 760 ILCS 20/13(b).

The trial court held that the statutorily required standard of prudence in investment was not met as to the penny stocks because they were speculative. The trial court awarded loss of appreciation of the funds invested in the penny stock of $15,000, plus interest and ordered the father to pay $65,000 to replace all the sums expended on the penny stock investments. Attorneys' fees were also awarded. The Colorado Court of Appeals affirmed. The father then took the case to the Supreme Court of Colorado, 774 P.2d 1383 (Colorado 1989), which affirmed. The father's argument was that since he also invested his own funds in the same penny stocks, he was not liable. The court disagreed, though it did not find the father liable for any losses resulting from “Blue Chip” stocks. In Colorado, the UTMA actually imposed a stricter standard than the UGMA, but in either event, the father was properly held to be liable. Noting that the court had broad discretion in fashioning an appropriate remedy, both courts were affirmed. The father was given the penny stocks in exchange. The father also claimed that neither the UGMA nor UTMA contained any provision authorizing the trial court to assess attorneys' fees. The court likened the case to a breach of trust and found that there was discretion to order attorneys' fees.

This reasoning was later accepted in Connecticut as well. In Mangiante v. Niemiec , 843 A.2d 656 (Conn.App.Ct. 2004), the daughter brought an action against the mother for breach of fiduciary duty. There was a custodial account with approximately $4,000 in it. The Judgment For Dissolution Of Marriage was again silent as to the funds placed in this account. The mother was ordered to pay the father $75 a week for their daughter's support. The mother used the account to write checks to her ex-husband for the child support until it was exhausted. The complaint contained counts alleging fraud, theft, embezzlement, conversion and breach of fiduciary duty. The trial court found a fiduciary relationship existed, and the mother breached it by engaging in self-dealing. It was held that the Act explicitly provides for fiduciary powers, which means there is a fiduciary relationship. The appellate court affirmed. Thereafter, the daughter filed a motion in the trial court to recover attorneys' fees for the trial and the appeal. The trial court exercised its equitable powers and awarded fees. The mother appealed again. 910 A.2d 235 (Conn.App.Ct. 2006) The trial court awarded attorneys' fees in excess of the $4,000 that was in the custodial account.

Affirming, the appellate court discussed general law regarding attorneys' fees, and the court indicated that there were equitable policy considerations stemming from the law of trusts arising from England's Courts of Equity. It was noted that without the award of fees, the daughter would not be made whole because her recovery was less than the amount of the fees. Still, it is a somewhat curious ruling because the fee award is not based on the UTMA. It is unclear whether short of a statutory provision for fees, many other states will follow these cases, although the wisdom cannot be denied.

Sanctions

However, if you shoot the king you must kill the king. Baseless UTMA suits will subject you to sanctions. In Lamberton v. Lamberton, 2004 WL 2032094 (Va. App. Unpublished Opinion; Check Court Rules Before Citing, 2004) a petition seeking removal of the husband as custodian of his son's account, and an accounting was filed. The husband consolidated the UTMA suit with a presently pending divorce action. The motion was denied, and the wife was sanctioned $8,000, finding that the UTMA suit was harassment where there was no evidence that the husband had done anything adverse to the children's best interest. The husband was also awarded fees for defending the appeal.

In Singer v. Brookman, 578 N.E.2d I (Ill.Ct. App. 1991), a child, through her father's divorce lawyers, filed a petition against the mother for an accounting and breach of fiduciary duty. No pleadings were actually filed alleging violation of the UTMA. The trial court dismissed on res judicata grounds, holding that the divorce case ruling was binding
on the children, as the husband's legal rights and interest in the first action, were the same as the children's rights and interest in the instant case. The father had previously sought and received an accounting of the accounts in the divorce case, and the court had found the mother had furnished all necessary documentation. The trial court also awarded sanctions, finding that the action was unreasonable by every standard. The appellate court affirmed.

Conclusion

Results throughout the country are unpredictable despite this Uniform Act. This unpredictability allows the matrimonial practitioner to use his or her creativity.

Paul L. Feinstein, a member of this newsletter's Board of Editors, is a Chicago sole practitioner who concentrates his practice in family law, with emphasis on divorce litigation, custody and visitation, and appeals.