California Legal Brief

The Rule of Moramarco v. Nowakoski is that a trustee's inability to pay is not a mitigating factor that can reduce a Probate Code section 859 civil penalty for bad faith wrongful taking of trust property, under circumstances where a trustee attorney misappropriated trust funds and the statute provides mandatory double damages.

Appeal from judgment after trial in Superior Court, Riverside County.

Defendant Appellant was Edward J. Nowakoski — the attorney who served as trustee and misappropriated $394,681.88 in trust funds.

Plaintiff Respondents were Jon and Anthony Moramarco — beneficiaries of the John A. Moramarco Restated Living Trust who sought removal of the trustee and civil penalties.

The suit sounded in breach of fiduciary duty and trust administration. Beneficiaries sought removal of trustee, accounting, civil penalties under Probate Code section 859, and attorney fees.

The key substantive facts leading to the suit were that attorney-trustee Nowakoski made multiple electronic transfers from 2016 to 2018 from the trust account totaling $394,681.88 to other accounts for neither client purposes nor trust beneficiary benefit, leaving only $41.06 in the trust account, and failed to provide an accounting to beneficiaries for three years following the settlor's death.

The procedural result leading to the Appeal: The trial court awarded a civil penalty of $399,681 under Probate Code section 859, plus $205,928.68 in prejudgment interest and $61,702.54 in attorney fees and costs, ruling that there is no authority to consider inability to pay as mitigation of the statutory penalty and that the penalty serves important deterrent purposes.

The key question(s) on Appeal: 1. Whether inability to pay can be considered as mitigation of a Probate Code section 859 civil penalty 2. Whether the award of additional prejudgment interest was proper 3. Whether the attorney fees award was an abuse of discretion

The Appellate Court held that Probate Code section 859 imposes a strict and mandatory penalty structure requiring double damages for bad faith wrongful taking of trust property, with no discretion to consider mitigating factors including defendant's financial inability to pay, where the trustee was a licensed attorney who breached his fiduciary duties by misappropriating nearly $400,000 in trust funds.

The case is inapplicable when the statutory penalty provision expressly authorizes consideration of mitigating factors, when the taking was not done in bad faith, when the penalty would result in limitless or confiscatory damages wholly disproportionate to legitimate legislative goals, or when the defendant challenges the inherent excessiveness of the statutory multiple rather than arguing personal inability to pay.

The case leaves open whether constitutional excessive fines challenges might succeed in extreme circumstances where the mandatory penalty itself (rather than just the defendant's ability to pay) creates confiscatory results, and the scope of when other statutory penalty provisions might permit consideration of financial hardship as mitigation.