## Facts

- Julie McDaniel Hamilton’s will created a testamentary trust naming her sister, Virginia Haberstick, as lifetime beneficiary, entitled to monthly distributions of net income or $1,000, whichever was greater.
- The trust’s sole asset was a real estate installment contract involving three multi-family buildings (17 units) originally sold for about $190,000.
- After a buyer default, the trustee entered a new installment contract with Thomas Trosky for $110,000 without adequate inquiry or property inspection.
- Under Trosky, the properties deteriorated; inspectors issued repeated citations, the buildings became uninhabitable, and one building burned without insurance coverage being maintained.
- Trosky failed to pay property taxes; the successor trustee redeemed two parcels but allowed a third parcel to be lost at tax sale without notifying Haberstick.
- Despite deterioration and loss of trust assets, the trustee’s annual court reports stated there were no changes to trust assets, while trustee fees increased substantially.
- The trustee eventually forfeited Trosky’s contract and sold remaining property for $35,000; after liens and expenses, Haberstick received about $5,000.
- Expert testimony valued the properties, if competently managed, at approximately $134,000 to $204,000 with potential income of about $4,000 per month.
- Haberstick and contingent remaindermen sued the trustee for breach of fiduciary duty, negligence, and waste; the trial court dismissed the contingent remaindermen’s legal damages claims for lack of standing.
- A jury awarded Haberstick $276,000 compensatory damages and $750,000 punitive damages.

## Issues

1. Whether the evidence supported the life beneficiary’s $276,000 compensatory damages award and whether the measure of damages was proper for breach of trust involving mismanaged income-producing real property.
2. Whether the evidence justified punitive damages against the trustee and whether the $750,000 award was excessive under Iowa law or due process limits.
3. Whether contingent remaindermen had standing to sue the trustee at law for damages based on waste or mismanagement of trust property.

## Decision

- Affirmed the $276,000 compensatory damages award to Haberstick as supported by evidence of loss in value and income-producing potential attributable to trustee mismanagement.
- Affirmed the $750,000 punitive damages award; the record supported a finding of willful and wanton disregard of fiduciary duties, and the amount was not excessive.
- Affirmed summary judgment against the contingent remaindermen; they lacked standing to pursue an action at law for damages based on their contingent interests.

## Legal Principles

- A trustee managing income-producing real estate must prudently preserve trust property and manage it to protect and generate reasonable value and income for beneficiaries.
- Compensatory damages for breach of trust may be measured by losses caused by mismanagement, including diminished asset value and lost income potential, not merely by the payment terms of an underlying installment contract.
- Punitive damages may be imposed on a trustee when conduct shows willful and wanton disregard of fiduciary obligations; factors bearing on excessiveness include reprehensibility, the punitive-to-compensatory ratio, and comparison to civil penalties.
- Contingent remaindermen generally lack standing to sue at law for damages for trustee mismanagement because their interests may never vest; their remedies are typically equitable (e.g., accounting, injunction, trustee removal) and constrained by the contingent nature of their interests.

## Conclusion

The court upheld substantial compensatory and punitive awards against a trustee for severe mismanagement of trust real estate, while limiting contingent remaindermen to equitable remedies by denying them standing to pursue legal damages for alleged waste.


Hamilton v. Mercantile Bank of Cedar Rapids, 621 N.W.2d 401 (Iowa 2001)