Litigators can often have a hard time backing down from the zealous representation of their clients.  This is particularly true when someone of diminished capacity is exploited and when still others are aware of the exploitation and either let it happen or facilitate it.  A fiduciary litigator in Iowa recently learned the hard way that, while it might be okay to sue based on suspicions, as soon as you learn that the facts don’t back up your suspicions, you better dismiss the lawsuit.

In Rowedder v. Anderson the Iowa Court of Appeals had it all – incapacitated executors, shady real estate deals, sanctions, a jury trial . . .

Gary Kral was the executor and sole heir of his father’s estate.  Kral, as executor, contacted a real estate agent, Roger Preul, about selling forty-acre tracts of land held in the estate.  Kral said he wanted to sell the land for the value listed in the estate inventory to avoid capital gains taxes.  Kral’s asking price was apparently about 50% less than the actual market value of the property.  Preul facilitated the sale of four tracts to Anderson, the Comstock Brothers, Rosener, and Raymond Helkenn.

After the sale of the land, Kral met with an attorney, Bradley Nelson, for help evicting a tenant (Raymond Helkenn’s brother) from a rental house.  Nelson felt that Kral was “low functioning” and lacked the ability to care for his own financial matters.  As part of his investigation, Nelson reviewed Kral’s bank records and found checks had been paid to certain individuals, which “appeared out of the ordinary” for Kral.  Nelson’s further investigation involved interviewing Kral’s acquaintances, including Preul, which convinced Nelson that a number of people were taking advantage of Kral and a number more knew this exploitation was happening.  Kral’s investigation led him to have his office manager, Kris Rowedder, appointed as Kral’s conservator.

Shortly thereafter, Rowedder, as conservator, filed suit against the buyers of the four parcels of estate property, Preul, and D.R. Franck, who was the attorney for the estate of Kral’s father.  The petition alleged fraud against the buyers, Preul, and Franck; that “certain of the defendants” conspired to steal Kral’s assets through real estate purchases; and that Preul and Franck were professionally negligent and breached the fiduciary duties they owed Kral by facilitating the property sales.  Rowedder requested that the court set aside the four sales and award additional damages.

As the case wound its way through discovery, it became clear that the plaintiff could develop no evidence to support the claims against a number of the defendants, yet the plaintiff continued to pursue the claims against them.  On a number of occasions, the plaintiff was ordered to detail the evidence supporting the claims against the defendants or, as the trial court described in a ruling granting summary judgment to Anderson, Rosener, and the Comstock brothers: “Plaintiffs have not only been challenged to produce evidence of such a tort by the court’s rulings, but have been challenged to do so in open court, in the court’s chambers, at least three times now.  The court cannot help but believe if this evidence existed, the court would have seen it by now.”  The trial court granted summary judgment to all of the defendants.  On appeal, the grant of summary judgment in favor of all defendants was affirmed except for Preul and his employer.  So, there was a trial of the claims against Preul and his employer.  The jury found that Preul and his employer did not breach any fiduciary duty to Kral, but that they were negligent in two of the sales.  The jury, however, awarded damages only with respect to one of the sales.  So, after all of that, the plaintiff ended up with a jury verdict of $15,400, which was affirmed on appeal.

As shouldn’t be a surprise, sanctions motions were filed and, ultimately, a symbolic $1,000.00 in sanctions were imposed against the plaintiff’s attorney.  While, at first blush, it appeared that there may have been a case against all defendants, it should have been clear upon the initial investigation that there was no basis for a cause of action against anyone other than Preul and his employer.  The court found that the plaintiff’s counsel “was zealously representing his client, which caused his objectivity to be clouded due to his desire to make things right for his client.”

What sparked the initial round of sanctions motions should be a lesson to litigators: when you are suing to set aside a transaction and the defendant offers to voluntarily set aside the transaction, accept the offer.  Helkenn actually offered to return the forty acres he purchased for the purchase price, and the plaintiff refused the offer.  In the end, Helkenn got to keep the property.  Summary judgment was granted in favor of Helkenn and it was Helkenn who filed the initial sanctions motion against the conservator’s attorney.

This case also involved some important lessons for testators, grantors, and the attorneys who assist them.  Consider who you’re appointing as your executor (or other fiduciary).  Too many people simply appoint a family member, who may not have the financial, administrative, or, frankly, mental ability to serve in a fiduciary capacity.  While it may end up costing a little more (but also likely may not), corporate or other professional fiduciaries eliminate a lot of fiduciary litigation issues while appointing a family member often increases the likelihood of litigation.

And the case also has an important lesson in morality and common sense for everyone:  if you think – or know – someone is “low functioning,” don’t just jump into business with him or her.  The evidence at trial showed that Preul knew that Kral could not handle his financial affairs by himself, yet Preul went on to act as Kral’s real estate agent.  Preul’s decision cost him a lot of attorney’s fees and a jury verdict.