In the Matter of the Conservatorship of Rose v. Alessio, Michael a. Leo, of the Estate of Rose v. Alessio v. First Community Trust, N.A. ( 2011 )


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  •                  IN THE SUPREME COURT OF IOWA
                                  No. 10–0096
    
                            Filed September 16, 2011
    
    
    IN THE MATTER OF THE CONSERVATORSHIP
    OF ROSE V. ALESSIO,
    
    MICHAEL A. LEO, Executor of the
    Estate of Rose V. Alessio, Deceased,
    
          Appellant,
    
    vs.
    
    FIRST COMMUNITY TRUST, N.A.,
    
          Appellee.
    
    
          On review from the Iowa Court of Appeals.
    
    
    
          Appeal from the Iowa District Court for Fayette County, Richard D.
    
    Stochl, Judge.
    
    
    
          An executor asks for further review from a court of appeals
    
    decision affirming a district court judgment dismissing his claim against
    a bank for failing to obtain court approval prior to investing a ward’s
    
    property.   DECISION OF COURT OF APPEALS AND JUDGMENT OF
    
    DISTRICT COURT AFFIRMED.
    
    
    
          Hugh M. Field of Beecher, Field, Walker, Morris, Hoffman &
    
    Johnson, P.C., Waterloo, for appellant.
    
    
    
          Gary F. McClintock of McClintock Law Office, Independence, for
    
    appellee.
                                         2
    
    WIGGINS, Justice.
    
          An executor brought a cause of action against a bank for failing to
    
    obtain court approval for investments it made on behalf of the deceased
    
    when the deceased was under conservatorship and the bank acted as
    
    conservator.    The district court dismissed the executor’s claim.     On
    
    appeal, our court of appeals affirmed the judgment of the district court.
    
    On further review, we affirm the decision of the court of appeals and the
    
    district court because the conservator’s failure to seek prior approval of
    
    the investment of the ward’s property under Iowa Code section 633.647
    
    (2009) does not, in and of itself, make the conservator personally liable
    
    for losses caused by the investment. Rather, the executor must prove a
    
    breach of fiduciary duty under Iowa Code section 633.633A, and the
    
    executor failed to prove such a breach.
    
          I. Background Facts and Proceedings.
    
          Rose Alessio passed away on September 23, 2008, at the age of 89.
    
    In the period leading up to her death, Rose lived in a nursing home in
    
    Oelwein.     Michael Leo, Rose’s grandnephew, was caretaker for Rose
    
    during the nine years preceding her death. Leo was also caretaker for
    
    Rose’s brother, Anthony Alessio. Leo assisted Rose and her brother with
    
    housing, medical care, and finances.
    
          After Anthony’s death, a dispute arose between Leo and another
    
    family member regarding assets inherited by Rose from her brother’s
    
    estate.    As a result, Leo and the family member entered into a family
    
    settlement agreement providing that a conservator would manage Rose’s
    
    assets, along with the assets from her brother’s estate.
    
          Leo filed a petition for involuntary appointment of conservatorship
    
    for Rose in August 2007.       According to the attorney appointed to
    
    represent her, Rose was in very good health, but suffered from
                                         3
    
    “progressive dementia and Alzheimer disease which rendered her
    
    incapable of understanding the nature of the proceeding or its purpose.”
    
    Following a hearing, the district court appointed Leo as guardian and
    
    Veridian Credit Union as conservator. On October 19 the court entered
    
    an order nunc pro tunc amending its order appointing conservator to
    
    specify the conservator’s legal name as First Community Trust, N.A.
    
    (FCT). The court issued letters of appointment on October 31.
    
          FCT received Rose’s assets in the form of cash. FCT also received
    
    Rose’s monthly income.        This amounted to approximately $3321 per
    
    month. Rose’s monthly expenses for the nursing home and other needs
    
    were approximately $5000.
    
          Leo met with FCT trust officer Julie Ames in December. During
    
    this meeting, Leo provided information and some documentation
    
    regarding Rose’s finances. At trial, Leo testified that he informed Ames
    
    that Rose was suffering from renal failure, heart disease, and dementia.
    
    Further, he claimed he told Ames that Rose “was in very bad shape” and
    
    that “it could be a month to six months and that’s about all we are
    
    looking at.” This was the only time Leo purportedly mentioned Rose’s
    
    physical condition to anyone at FCT before her death.
    
          Ames denied that Leo disclosed any information regarding Rose’s
    
    physical or mental condition. The notes Ames took during the meeting
    
    were devoid of reference to any health problems Rose may have been
    
    suffering from at the time.
    
          FCT filed an initial report on May 8, 2008, stating Rose had assets
    
    totaling $327,219.26.    On May 21 FCT’s trust investment committee
    
    determined Rose’s assets should be invested approximately twenty
    
    percent in equities and eighty percent in fixed-income securities.   The
    
    committee deemed this investment strategy appropriate for Rose because
                                            4
    
    of its conservative nature. This strategy had not produced a loss over
    
    any twelve-month period during the previous ten years.               After the
    
    meeting, FCT invested the conservatorship assets according to this
    
    strategy without obtaining court approval.
    
          On September 23 Rose passed away. The court appointed Leo as
    
    executor of her estate. Leo requested FCT to liquidate the investments
    
    because the equity mutual funds had declined in value by approximately
    
    $34,000 due to the market conditions in fall 2008.
    
          On March 25, 2009, FCT filed an application with the district court
    
    seeking   retroactive   approval   of       investments   and   disbursements.
    
    Thereafter, Leo filed an application for a hearing to discharge FCT as
    
    conservator and transfer the conservatorship’s assets to Rose’s estate.
    
    Leo alleged FCT failed to follow a prudent investment strategy and
    
    violated Iowa Code section 633.647 by not obtaining court approval prior
    
    to making the investments. Leo also requested the court to order FCT to
    
    reimburse the estate for the losses on the equity securities.
    
          At the hearing, Leo argued the investments were imprudent
    
    because the conservatorship was only for a limited duration. See Iowa
    
    Code § 633.123(2) (stating that, due to the limited duration of some
    
    estates, “there may be situations where an investment or a change in an
    
    investment is not warranted”). Leo alleged FCT failed to consider Rose’s
    
    particular circumstance because FCT did not inquire into Rose’s physical
    
    status, ask for a medical release to discuss her condition with the
    
    nursing home, visit Rose in person, or speak with her by telephone.
    
          Conversely, FCT’s Chief Executive Officer, Dale Repass, testified
    
    that FCT’s trust investment committee considered Rose’s particular
    
    circumstances before making its investment decision. More specifically,
    
    the committee considered “the . . . ward, the type of assets . . . receive[d],
                                        5
    
    the expenses [the ward was] likely to incur, and also if [the ward had]
    
    any testamentary intent that [was] governed by the assets.” Repass also
    
    testified that, if he had known Rose was terminally ill, he would not have
    
    invested her assets in equities. Likewise, FCT’s Senior Vice President,
    
    John Gonner, testified that the investment committee considered Rose’s
    
    age, that she lived in a nursing home, and whether she suffered from a
    
    terminal illness. In response to Leo’s complaint that no one from FCT
    
    ever contacted Rose or inquired about her physical status, Ames testified
    
    that Leo told her she should not visit Rose because “it wasn’t necessary,
    
    it would confuse [Rose], and so to go through him.” Ames’s notes from
    
    her December 2007 meeting with Leo are consistent with her testimony.
    
          Leo also argued that FCT failed to seek court approval of the
    
    investments, and, therefore, the court should hold FCT strictly liable for
    
    the ensuing losses. FCT maintained that the investments were proper
    
    under the circumstances and that it considered the needs of the ward.
    
          The district court determined that “the overall investment strategy
    
    . . . [was] not . . . imprudent under the circumstances.” However, the
    
    district court also recognized that FCT failed to obtain the statutory
    
    approval required under section 633.647. It added, “Where the actions
    
    of the conservator are unauthorized, the conservator may be liable to the
    
    estate for any damages incurred.” Still, the court found that “the estate
    
    suffered no particular damage as a result of the investment made by
    
    [FCT].” Rather, the district court found that, had Leo not compelled the
    
    liquidation of the assets “at an imprudent time,” the investment would
    
    have “recovered its original value thereby causing no damage to the ward
    
    or to the estate.” Leo appealed. We transferred the case to the court of
    
    appeals.
                                         6
    
          In affirming the district court, the court of appeals held that the
    
    investment strategy was not imprudent.          Additionally, it noted the
    
    district court’s decision to deny Leo’s reimbursement request, while
    
    correct, was done for the wrong reason. The court of appeals reconciled
    
    sections 633.647 and 633.633A by stating, “When a conservator fails to
    
    obtain prior court approval, the conservator has violated section
    
    633.647, and will be held liable for subsequent losses if the violation is
    
    subsequently determined to have been a breach of a fiduciary duty . . . .”
    
          II. Issue.
    
          To decide this appeal, we must determine whether a conservator is
    
    strictly liable for noncompliance with Iowa Code section 633.647(1).
    
          III. Scope of Review.
    
          Prior to the adoption of the Probate Code, objections to a
    
    fiduciary’s report were triable at law. In re Cory’s Estate, 
    184 N.W.2d 693
    , 695–96 (Iowa 1971); In re Jefferson’s Estate, 
    219 Iowa 429
    , 432,
    
    
    257 N.W. 783
    , 784 (1934).       The Code now contains a provision that
    
    provides:
                 Actions to set aside or contest wills, for the involuntary
          appointment of guardians and conservators, and for the
          establishment of contested claims shall be triable in probate
          as law actions, and all other matters triable in probate shall
          be tried by the probate court as a proceeding in equity.
    
    Iowa Code § 633.33. Leo’s objections did not constitute an action to set
    
    aside or contest a will, a petition for the involuntary appointment of
    
    guardians and conservators, or an action for the establishment of a
    
    contested claim.   Therefore, any objections to discharge are triable in
    
    equity, and our scope of review is de novo. In re Roehlke’s Estate, 
    231 N.W.2d 26
    , 27 (Iowa 1975); see also Iowa R. App. P. 6.907. However, our
    
    review is for correction of errors at law to the extent the arguments raise
                                         7
    
    issues of statutory interpretation. State v. Allen, 
    708 N.W.2d 361
    , 365
    
    (Iowa 2006).
    
         IV. Whether    a  Conservator    Is  Strictly              Liable   for
    Noncompliance with Iowa Code Section 633.647(1).
    
          The powers of a conservator are no different from those of all
    
    fiduciaries.    Iowa Code § 633.649.     Sections 633.63 through 633.162
    
    contain    the    general   provisions   for   qualification,   appointment,
    
    substitution, and removal of fiduciaries, while sections 633.641 through
    
    633.652 detail the specific duties and powers of a conservator.           In
    
    section 633.646, the Code sets forth specific actions a conservator may
    
    take without a prior order of the court.       Section 633.647 articulates
    
    actions a conservator may take subject to the approval of the court. In
    
    particular, court approval is required before a conservator may “invest
    
    the funds belonging to the ward.” Iowa Code § 633.647(1).
    
          It is undisputed that FCT failed to obtain court approval before
    
    investing conservator assets. Leo argues the district court erred by not
    
    using a strict liability standard when applying section 633.647 and
    
    rendering judgment in his favor for the amount lost allegedly because of
    
    FCT’s investment decisions.        FCT counters by claiming that the
    
    legislature’s enactment of section 633.633A relieves FCT of any personal
    
    liability because the investments did not breach a fiduciary duty imposed
    
    by the Probate Code. The relevant part of section 633.633A provides:
    
                Guardians and conservators shall not be held
          personally liable for actions or omissions taken or made in
          the official discharge of the guardian’s or conservator’s
          duties, except for any of the following:
    
                   1. A breach of fiduciary duty imposed by this probate
          code.
    
    Iowa Code § 633.633(A).
                                         8
    
           A. History of Court Approval for          Investments    Made by
    
    Fiduciaries. As with so many areas of the law, probate law is not static.
    
    Prior to 1933, we held an investment made without a prior order of the
    
    court would be valid, if, subsequent to the investment, the fiduciary
    
    submitted it to the court and the court approved the investment. See,
    
    e.g., Robinson v. Irwin, 
    204 Iowa 98
    , 101, 
    214 N.W. 696
    , 698 (1927). In
    
    1929 the legislature repealed section 12772 of the 1927 Code and
    
    enacted a new provision relating to the investment of funds by trustees,
    
    executors, administrators, and guardians. Iowa Code section 12772 now
    
    provided that “[a]ll proposed investments of trust funds by fiduciaries
    
    shall first be reported to the court or a judge for approval and be
    
    approved.” 1929 Iowa Acts ch. 259, § 1 (codified at Iowa Code § 12772
    
    (1931)). In 1933 we ceased subsequent approval of investments made
    
    without a prior order of the court, holding that, with the enactment of
    
    Iowa Code section 12772 in 1929, the courts no longer had that
    
    authority. In re Guardianship of Nolan, 
    216 Iowa 903
    , 907–08, 
    249 N.W. 648
    , 650 (1933).     In Nolan, we reasoned, “The present statute was
    
    evidently enacted for [this] very purpose . . . .   We can see no other
    
    reason for the adoption of this statute.” 216 Iowa at 907, 249 N.W. at
    
    650.
    
           Thereafter, we continued imposition of strict liability in instances
    
    where prior court approval was required, but not obtained by a
    
    conservator.   In In re Jefferson’s Estate, the conservator invested the
    
    ward’s funds without a prior court order authorizing him to make the
    
    investments. 219 Iowa at 431, 257 N.W. at 783. At that time, section
    
    12772 required a conservator to obtain prior approval.       Although the
    
    conservator    and   experts   deemed    the   investments   reliable   and
    
    trustworthy, we held the conservator liable for the loss because he failed
                                              9
    
    to obtain prior approval before making the investments. Id. at 433–34,
    
    257 N.W at 784–85.
    
           In 1989 the legislature enacted section 633.633A. 1989 Iowa Acts
    
    ch. 178, § 16 (codified at Iowa Code § 633.633A (Supp. 1989)). It states
    
    the court can only hold a conservator personally liable for a breach of a
    
    fiduciary duty imposed by the Code. 1 Therefore, we must determine the
    
    interplay between sections 633.647 and 633.633A to decide whether FCT
    
    is strictly liable for the losses suffered by the conservatorship.
    
           B. Analysis.        When confronted with the task of statutory
    
    interpretation our goal is to determine legislative intent from the words
    
    used by the legislature, not from what the legislature should or might
    
    have said. Auen v. Alcoholic Beverages Div., 
    679 N.W.2d 586
    , 590 (Iowa
    
    2004). We cannot extend, enlarge, or otherwise change the meaning of a
    
    statute under the pretense of statutory construction.                Id.   When we
    
    interpret a statute, we are required to assess the statute in its entirety,
    
    not just isolated words or phrases.           State v. Young, 
    686 N.W.2d 182
    ,
    
    184–85 (Iowa 2004). Indeed, “we avoid interpreting a statute in such a
    
    way that portions of it become redundant or irrelevant.” T & K Roofing
    
    Co. v. Iowa Dep’t of Educ., 
    593 N.W.2d 159
    , 162 (Iowa 1999). We look for
    
    a reasonable interpretation that best achieves the statute’s purpose and
    
    avoids absurd results.        Harden v. State, 
    434 N.W.2d 881
    , 884 (Iowa
    
    1989).
    
           When the legislature enacted section 633.633A, it intended to
    
    articulate when a conservator or guardian may be personally liable for its
    
    acts or omissions.        A plain reading of the relevant part of section
    
    633.633A is that a conservator will only be personally liable if the
    
           1The   original enactment was subsequently amended to provide personal liability
    for “[a] breach of fiduciary duty imposed by this probate code.” See 2005 Iowa Acts ch.
    38, § 51 (codified at Iowa Code § 633.633A (Supp. 2005)).
                                           10
    
    conservator breaches a fiduciary duty.            Section 633.647 creates a
    
    statutory duty requiring a conservator to obtain court approval before a
    
    conservator may invest the funds belonging to the ward.                Section
    
    633.647 does not create liability for failure to do so.           In Nolan, we
    
    reasoned the legislative intent for the enactment of section 12772 was to
    
    create strict liability for a conservator who failed to follow the statutory
    
    duty.      216 Iowa at 907, 249 N.W. at 650.            With the legislature’s
    
    enactment of section 633.633A in 1989, it overruled Nolan and narrowed
    
    the situations in which a court may hold a conservator personally liable.
    
    These situations are limited to when a conservator breaches a fiduciary
    
    duty imposed by the Probate Code or, in the official discharge of its
    
    duties, the conservator engages in willful or wanton misconduct. Iowa
    
    Code § 633.633A (2009).
    
              After the enactment of section 633.633A, there is a significant
    
    difference between noncompliance with a statutory requirement and a
    
    breach of fiduciary duty. Although FCT may have breached its statutory
    
    duty to obtain prior approval before investing the ward’s assets under
    
    section 633.647, the real issue is whether it breached its fiduciary duty
    
    by making the investments. If FCT breached its fiduciary duty, it can be
    
    held personally liable for the losses. Under the present state of the law, a
    
    mere breach of its statutory duty is not enough to hold FCT personally
    
    liable.
    
              Our holding is consistent with the statutory scheme after the
    
    enactment of 633.633A.        Under the present statutory scheme, if the
    
    conservator      obtains   prior   court    approval,   section   633.633A   is
    
    inapplicable because the court would not allow the conservator to make
    
    an investment under section 633.647 that breaches a fiduciary duty. On
    
    the other hand, if the conservator is strictly liable for any losses when it
                                        11
    
    fails to obtain prior approval under section 633.647, it does not matter
    
    whether the conservator violated section 633.633A by breaching a
    
    fiduciary duty.    Thus, if we were to adopt the conservator’s position,
    
    section 633.633A becomes mere surplusage.
    
          C. Whether FCT Breached Its Fiduciary Duty.             Iowa Code
    
    section 633.123 imposes a statutory duty on a conservator to invest a
    
    ward’s assets prudently.    The statute delineates several factors, which
    
    must be considered in deciding whether the duty has been breached,
    
    including “[t]he length of time the fiduciary will have control over the
    
    estate assets.” Iowa Code § 633.123.
          Leo’s argument that FCT breached a fiduciary duty imposed by
    section 633.123 rests on his claim that he told FCT that Rose had very
    little time left to live. Our review of the record reveals that Ames took
    notes during her meeting with Leo where he allegedly disclosed Rose’s
    health issues. Neither Ames’s recollection nor her notes support Leo’s
    claim. Moreover, Repass testified that FCT would not have invested in
    equities, but would instead have invested in fixed-income vehicles, if FCT
    had known Rose had only a short time left to live.      Additionally, the
    investment committee considered Rose’s age, that she lived in a nursing
    home, and whether she suffered from a terminal illness in making its
    investment choices.     Finally, there was uncontroverted evidence the
    investment strategy chosen by FCT had not produced a loss over any
    twelve-month period during the past ten years.
          Accordingly, on our de novo review, we agree with the district court
    
    that Leo failed to prove FCT breached its fiduciary duty.      Therefore,
    
    despite the loss resulting from its investment choices, we find FCT did
    
    not breach its fiduciary duty to act prudently as required by Iowa Code
    
    section 633.123.
                                       12
    
          V. Disposition.
          We hold that FCT’s failure to seek prior approval of the investment
    of Rose’s property under Iowa Code section 633.647 does not, in and of
    itself, make FCT personally liable for any losses caused by the
    investment.   Rather, Leo must prove a breach of fiduciary duty under
    section 633.633A.     Leo failed to prove a breach of fiduciary duty.
    Therefore, we affirm the decision of the court of appeals and the
    judgment of the district court.
          DECISION OF COURT OF APPEALS AND JUDGMENT OF
    
    DISTRICT COURT AFFIRMED.
    
          All justices concur except Mansfield, J., who takes no part.