Lynne Sachs v. Caren Sachs and Steven Sachs

• Court: Court of Chancery of Delaware
• Decided: August 30, 2024
• Docket: C.A. 2018-0530-SEM
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LYNNE SACHS, ) ) Petitioner, ) ) v. ) C.A. No. 2018-0530-SEM ) CAREN SACHS, individually and ) as attorney-in-fact for DORIS SACHS, ) and STEVEN SACHS, ) ) Respondents. )

ORDER ON EXCEPTIONS TO ACCOUNTINGS

WHEREAS, this order resolves the issues left open in my March 7, 2023 post-

trial final report, which was adopted on March 22, 2023 (the “Report”); 1 capitalized

terms not defined herein shall have the meaning used in the Report; I decline to

provide an extensive background, which can be found in, and is adopted from, the

Report;

WHEREAS, on June 13, 2023, I granted an implementing order, in pertinent

part (1) requiring Caren to prepare and submit a formal accounting within 60 days

addressing her actions from December 16, 2014 through the death of the Decedent,

(2) permitting Lynne to submit a response to the accounting within 30 days of

1 Docket Item (“D.I.”) 135, 136 (adopted). submission, and (3) reserving the ability to schedule an evidentiary hearing as

necessary regarding the accounting and any response thereto; 2

WHEREAS, in the implementing order, I explained the accounting must

cover Caren’s actions “from December 16, 2014 through the death of the Decedent

including but not limited to actions taken in connection with (1) all financial

accounts of Decedent, including but not limited to the PNC Account, the Capital

One Accounts, and the Annuity, (2) the sale proceeds from the sale of Decedent’s

real estate by Caren Sachs, (3) Decedent’s Discover credit card, (4) the Decedent’s

savings bonds, (5) and the source of funds that Caren Sachs used to repay the loan

she owed to Decedent[;]”

WHEREAS, the accounting was filed in August 2023 (the “Accounting”) and

the Petitioner’s response was filed on September 14, 2023 (the “Response”); 3 in the

Response, Lynne challenged (1) the purported support for Caren’s repayment of the

Loan, seeking judgment for the remaining $7,135.16, (2) the new purported receipts

for cash withdrawals, seeking judgment for all the cash withdrawals from the PNC

Account in the total amount of $151,278.80, and (3) the expenditures from the

2 D.I. 140. 3 D.I. 141, 144. 2 Discover Card, seeking judgment in the amount of $19,542.69; 4 in the Response,

Lynne also reiterated her request for fee shifting;

WHEREAS, I presided over an evidentiary hearing on the Accounting and the

Response on January 11, 2024 (the “Hearing”); 5 before the Hearing, I granted

Lynne’s motion in limine precluding Caren’s proffered fact witnesses and additional

evidentiary record explaining that my accounting requirement “did not reopen the

discovery record nor permit [Caren] an opportunity to belatedly and prejudicially

(re)create the record that I found lacking at trial[;]”6 the Hearing, nevertheless, went

forward, whereat Caren testified in support of the Accounting and counsel to Lynne

provided a proffer regarding Caren’s exceptions to Lynne’s accounting filed in the

related Register of Wills proceeding (the “Estate Accounting”);7

WHEREAS, in her exceptions to the Estate Accounting, Caren challenges

Lynne’s attorneys’ fees and seeks reductions thereto, including a 35% reduction for

efforts “not productive to any benefit of the estate” and removal of the motion to

4 D.I. 144. 5 See D.I. 146, 158. For purposes of this Order, I will not endeavor to summarize the testimony from Caren at the Hearing and direct interested readers to the transcript. D.I. 160. I witnessed that testimony, re-reviewed the transcript in preparing this Order, and reviewed the parties’ post-hearing submissions; I have considered the entire record in making this decision, even if not directly mentioned herein. 6 D.I. 157. 7 See D.I. 133. 3 compel related expenses and mediation fee; 8 Lynne admits the motion to compel

expenses were an inadvertent error and will be corrected, but disputes that any

further reduction is warranted;

WHEREAS, at the conclusion of the Hearing, the parties agreed to submit

post-hearing submissions, on a schedule later confirmed via stipulation and order;9

post-hearing submissions were complete on April 30, 2024; 10

WHEREAS, Caren bore “the burden of proving both the accuracy of [her]

accounting and the propriety of the underlying transactions[;]” 11 for the Estate

Accounting, Lynne bore the burden to prove her accounting was properly prepared;12

WHEREAS, although Delaware follows the American Rule, requiring each

party to pay its own attorneys’ fees, there are limited exceptions, including where

“the losing party has acted in bad faith in opposing the relief being sought in the

lawsuit. A subset of this ‘bad faith’ exception is that attorneys’ fees may be awarded

8 D.I. 165, p.3. 9 See D.I. 159. 10 See D.I. 164–65, 167, 169. 11 Dolby v. Key Box “5” Operatives, Inc., 1996 WL 741883, at *1 (Del. Ch. Dec. 17, 1996). 12 In re Rich, 2013 WL 5966273, at *1 (Del. Ch. Oct. 29, 2013). 4 if it is shown that the defendant's conduct forced the plaintiff to file suit to ‘secure a

clearly defined and established right[;]’”13

IT IS HEREBY ORDERED this 30th day of August 2024, as follows:

1. The Exceptions are SUSTAINED, Caren’s exceptions to the Estate

Accounting are STAYED, judgment should be entered against Caren in the amount

of $180,750.36, plus pre- and post-judgment interest, and the AAL’s fees shall be

borne by the Estate, but attorneys’ fees are shifted in Lynne’s favor under the bad

faith exception to the American Rule. Within 14 days, Lynne’s counsel shall file an

affidavit under Court of Chancery Rule 88, to which Caren may respond within 14

days of filing. Within 30 days of this Order, the parties shall submit a proposed

implementing order addressing the judgment against Caren, leaving the shifted fee

amount blank for my insertion and addressing the appropriate calculation of pre- and

post-judgment interest.

2. The Exceptions. Lynne asks this Court to enter judgment against

Caren, payable first from her portion of the Estate, in the amount of $200,580.72,

which includes (a) $151,278.80 of unexplained cash withdrawals, (b) $21,988.42 in

attorneys’ fees, (c) $7,135.16 for the balance of the Loan, (d) $4,984.72 regarding

the Lincoln Financial annuity/IRA, and (e) $6,381.56 for an unaccounted for

13 McGowan v. Empress Ent., Inc., 791 A.2d 1, 4 (Del. Ch. 2000). 5 transaction made on the Discover Card. 14 Lynne further seeks pre- and post-

judgment interest. I take these itemized challenges in turn.

a. The cash withdrawals remain unsupported. At trial, Caren

admitted that she did not keep any record of the cash expenditures. 15 But she testified

that the cash was used for the Decedent’s care, an explanation she reiterated at the

Hearing. This narrative explanation, alone, would be insufficient to meet Caren’s

burden to prove the cash was properly withdrawn and expended for the benefit of

the Decedent. But, to some extent, it was not made in isolation. There is no dispute

that the Decedent had aides or other care providers, and it is reasonable to infer that

some of these funds went to such providers. But Caren did not offer any evidence

regarding the standard or reasonable rates for the type of care provided to the

Decedent, which, perhaps, I could use to reduce the judgment and craft a credit in

Caren’s favor.16 Absent such showing and holding Caren to her burden of proof, I

am compelled to enter judgment in the full amount withdrawn and unaccounted for.

14 The full amount requested includes “$8,812.06 representing the balance of checks written from the Decedent’s bank accounts that have no explanation[.]” D.I. 164, p.14. Lynne did not, however, include any discussion in the post-hearing submission in support of the check-related request, nor a listing of the checks at issue. Without such information, neither Caren, nor I, could address this request on its merits and therefore the request must be denied. 15 She did, however, seek to introduce belatedly produced records in advance of the Hearing, which I rejected when I granted Lynne’s motion in limine. See D.I. 157. 16 See Senior P’r, Inc. as Tr. of Ardythe Hope Child.’s Hosp. v. Lee, 2022 WL 17246317, 6 b. Caren must repay the attorneys’ fees. Caren admitted, and

accounted for, payments to her attorneys from the Decedent’s accounts in the

amount of $21,988.42. At the Hearing, Caren testified that she used the Discover

Card to pay for her legal fees “because my mother [the Decedent] had said that she

would pay for the legal fees.”17 To the extent Caren is arguing the fees were pre-

approved by the Decedent, I disagree and find the payment of attorneys’ fees would

have amounted to a self-dealing transaction, for which Caren has not demonstrated

that the Decedent obtained independent advice from a competent, disinterested third

party before consenting after full disclosure. 18 But setting that argument aside, this

Court has recognized that agents operating under a Delaware power of attorney are

entitled to reimbursement of expenses reasonably incurred on behalf of the principal,

including attorneys’ fees incurred in defense of a breach of fiduciary duty action.19

Those fees are, however, “subject to disgorgement should the court find the agent

breached their fiduciary duties.” 20 Here, through the Report which was adopted as

an order of this Court, Caren was found to have breached her fiduciary duties and

at *8 (Del. Ch. Nov. 28, 2022), adopted (Del. Ch. 2022) (accepting an estimate of care expenses to craft an equitable judgment despite a deficient accounting). 17 D.I. 160, 30:7–8. 18 See D.I. 135, p.27–28. 19 See, e.g., Tikiob v. Tikiob-Carlson, 2021 WL 4310513, at *7 (Del. Ch. Sept. 22, 2021). 20 Id. 7 these fees should be disgorged through a judgment in the amount of $21,988.42

against Caren.

c. The balance of the Loan remains unpaid. Caren contends the

final amount of the Loan was repaid through the Burial Payment. In the Report, I

held that the Burial Payment argument should not be credited. 21 Thus, Caren’s

continued reliance on this argument is barred, Lynne’s objection to such testimony

at the Hearing is sustained, and the testimony is stricken. Judgment should be entered

against Caren for the remaining balance of $7,135.16.

d. No relief is warranted regarding the IRA distributions.

There is no dispute that the Decedent was entitled to distributions from the Lincoln

Financial IRA, and a total of $4,984.72, distributed during Caren’s service as agent

for the Decedent, remains accounted for. But absent proof that Caren came into

possession of these distributions, I struggle to find Caren responsible for the ongoing

uncertainty, and decline to enter judgment against her.

e. The Discover Card transactions support a partial judgment.

Lynne has identified numerous items in the Discover Card statements for which she

seeks a judgment against Caren. Those items total $6,381.56 and reflect charges

made to restaurants, retailers, and service providers for which Caren failed to

21 D.I. 135, p.37, n.170. 8 produce any supporting invoices or receipts. Rather, Caren relies solely on the

Discover Card statements and her testimony that the charges were all for the benefit

of the Decedent or made at the Decedent’s insistence. I can largely credit her

testimony, but I find the expenses related to the Vehicle should be included in the

judgment for the reasons explained in the Report ($135.00 for the 2018 registration,

$183.00 at the Delaware DMV, and $29.98 at Autozone).

3. Attorneys’ Fees. Lynne asks that the AAL’s fees be borne solely by

Caren and that Lynne’s attorneys’ fees be shifted to Caren, in an amount to be

determined, for bad faith litigation. I address these in turn.

a. The AAL’s fees were appropriately charged to the Estate. I

appointed the AAL following Chancellor Bouchard’s lead in In re Phyllis C. Carey,

C.A. No. 2017-0079-AGB. There, the Chancellor approved payment of the attorney

ad litems’ fees from the principal’s trust, rather than from any party, individually. I

suspect the decision was an easy one; the attorney ad litem reported that all parties

were cooperative in his investigation, which was limited to the question of whether

the principal was able to manage her property or business affairs. Here, the AAL’s

role was broader, the AAL found Caren “to generally be hostile and

uncooperative,” 22 and the AAL uncovered concerns, and recommended further

22 D.I. 53, p. 14. 9 action, regarding Caren’s service as a fiduciary. Caren’s hostility and lack of

cooperation is disappointing, but it does not appear to have increased the AAL’s fees

or expenses to such an extent that shifting the AAL’s fees to Caren, individually,

would be equitable. The AAL served the Decedent admirably, providing a benefit to

her, which was rightfully paid for by the Estate.

b. Caren engaged in bad faith litigation. Under Section 49A-

114(g) of the Durable Personal Powers of Attorney Act, Caren, as the Decedent’s

agent, was required to account to Lynne, the administrator of the Decedent’s estate,

and provide “receipts, disbursements, [and] transactions conducted on” the

Decedent’s behalf “within a reasonable period of time.” Lynne filed her amended

petition seeking such accounting on May 27, 2020; Caren did not provide an

accounting until August 11, 2023, after heavily litigated proceedings and a court

order directing her to account. It should not have taken all the time, effort, and

expense of these contested proceedings for Caren to produce the statutorily

mandated accounting. Caren, thus, engaged in bad faith litigation and Lynne’s

reasonable attorneys’ fees incurred from July 27, 2020, the date of Caren’s answer

to the amended petition, through April 30, 2024, the last submission from Lynne on

the Accounting, should be shifted.23

23 In limiting the period for shifting, I am denying further shifting for the pre-amendment 10 4. Interest. Lynne requested that the judgment include pre- and post-

judgment interest for specific amounts reflected in Lynne’s post-hearing submission.

Caren failed to respond to this request in her responsive submission, a knowing

waiver, barring any further challenges. 24 Appropriate pre- and post-judgment

interest shall be included in the parties’ proposed implementing order.

5. The Estate Accounting. Caren challenged the attorneys’ fees reflected

on the Estate Accounting. Those fees included litigation-related fees that I am hereby

shifting, in large part, to Caren. This shift may well moot the exceptions and,

therefore, I am staying further consideration. The parties shall meet and confer on

this issue and include their positions in the cover letter for the implementing order.

6. This is a final report under Court of Chancery Rule 143 and exceptions

under Court of Chancery Rule 144 are stayed until the implementing order is issued.

IT IS SO ORDERED.

/s/ Selena E. Molina Magistrate in Chancery

conduct, for which I have already shifted discovery-related fees, an appropriate sanction to address Caren’s early deficiencies. See D.I. 42. 24 See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”). 11