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                                                   New Mexico Compilation
                                                 Commission, Santa Fe, NM
                                                '00'04- 16:22:44 2014.06.04
Certiorari Granted, May 1, 2014, No. 34,554

       IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: 2014-NMCA-053

Filing Date: December 10, 2013

Docket No. 31,463

GEORGE ROBERT MILLER,
BARBARA JEAN MILLER, and
CHARLES RICHARD MILLER,

       Plaintiffs-Appellants/Cross-Appellees,

v.

BANK OF AMERICA, N.A.,
As Trustee of the Qualified Terminable
Interest Marital Trust and Family Trust
created under the Last Will and Testament
of Rudolph C. Miller, Jr., Deceased,

       Defendant-Appellee/Cross-Appellant.

APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Beatrice Brickhouse, District Judge

Catron, Catron, Pottow, & Glassman P.A.
Michael T. Pottow
Santa Fe, NM

Tucker Law Firm, P.C.
Steven L. Tucker
Santa Fe, NM

for Appellants

Keleher & McLeod, P.A.
Thomas C. Bird
Phil Krehbiel
Cassandra R. Malone
Albuquerque, NM

                                          1
for Appellee

                                           OPINION

GARCIA, Judge.

{1}     Three of the remainder beneficiaries (Beneficiaries) of their father’s two testamentary
trusts appeal a judgment awarding them damages in an amount lower than they claimed that
the trust Beneficiaries were entitled to recover. The trustee, Bank of America (the Bank),
cross-appeals. The Bank’s cross-appeal challenges the court’s determination of liability.
We deny the Bank’s cross-appeal but we partially agree with Beneficiaries regarding the
calculation of certain compensatory damages. As a result, we affirm in part and reverse in
part.

BACKGROUND

{2}     This dispute concerns two trusts created by the Last Will and Testament of Rudolph
C. Miller, Jr. (the Will). The two trusts created by the Will were a qualified terminable
interest property marital trust for Father’s widow and a remainder trust for Beneficiaries (the
Trusts). The central purposes of the Trusts were: (1) the generation of income for
beneficiary distribution, and (2) the preservation of the value of the principal assets for
distribution to Beneficiaries upon the surviving spouse’s (Ann’s) death. In 1985, the Bank
assumed the position of trustee of the Trusts. It administered the trusts until their
termination on January 30, 2004.

{3}     The original lawsuit and this appeal arise from the Bank’s actions as trustee from the
end of 1991 through 2003. As of 1991, the net value of the Trusts was $669,996.07 and
primarily consisted of real property in Virginia, Hawaii, and New Mexico. At the end of
2003, the Trusts consisted of one “ratty piece of property,” and the net value of the Trusts
was effectively zero. As a result, Beneficiaries brought this action to recover damages and
other remedies against the Bank for breaches of its fiduciary duty and duty of loyalty.

{4}     Following the bench trial, the district court ruled in favor of Beneficiaries but
awarded damages in an amount lower than Beneficiaries believe they were entitled to
receive. Beneficiaries timely appealed the district court’s judgment regarding the damages
awarded. The Bank timely filed a cross-appeal challenging the district court’s imposition
of liability in favor of Beneficiaries. The additional facts and procedural history pertinent
to each argument will be included in the appropriate section of the discussion below.

DISCUSSION

{5}      We first address the issue of liability raised by the Bank. Because we affirm the
district court on liability, we will then address Beneficiaries’ challenge to the district court’s
determination of the amount of damages.

                                                2
I.      LIABILITY

{6}     The Bank had very little experience with commercial property management.
However, in late 1991, it acquired a commercial building in Albuquerque (the Building) as
an asset of the Trusts. At some point prior to April 1995, the Building was unproductive of
net income and a drain to the income and other assets of the Trusts. The crux of the district
court’s liability determination revolves around the Bank’s continued investment in the
Building despite its status as a wasting commercial real estate asset. The Will provided that
the “Trustee shall not invest any portion of the [T]rust assets in unproductive property . . .
but may retain unproductive property received into the trust.”

{7}     In 1995, when the Bank became aware that the Building was unproductive, Patrick
Schaefer, the trust officer responsible for administering the Trusts, stated in a handwritten
note that the Building was “draining income of [the] trust.” Schaefer did not communicate
this information to Beneficiaries. Yet Schaefer instead told Beneficiaries that it would be
prudent to “look into sale of [the] property.” After evaluating the Building and the other real
property owned by the Trusts, however, the Bank instead recommended obtaining a
$395,000 loan to renovate the Building. Without disclosing the Building’s unproductive
status to the Beneficiaries, the Bank’s recommendation stated, “[I]t is obvious that the most
advantageous scenario to increase income would be to renovate the [Building] to a
competitive condition.” The Bank advocated that Beneficiaries agree to sell the other
properties owned by the Trusts and to use the proceeds from the sale to reduce the loan
balance on the Building. The Bank implemented this plan without objection from
Beneficiaries.

{8}    In implementing its recommendations, the Bank borrowed from an affiliate entity in
amounts much greater than the $350,000 amount initially approved by Beneficiaries. It also
proceeded to sell the other property belonging to the Trusts. The record demonstrates,
however, that the sales proceeds were not used to reduce the loan balance on the Building.
By 2003, the Bank had invested $800,000 of the Trusts’ assets into the Building for the
speculative purpose of reversing its declining condition. As a result of this investment, the
Bank was also able to produce $400,000 in “phantom income” for distribution to
Beneficiaries.

{9}      After trial, the district court issued a letter decision against the Bank on the issue of
liability. Based on the Bank’s conduct with regard to the Building, the district court found
that the Bank had committed breaches of its fiduciary duty to the Trusts and its responsibility
of loyalty to protect the best interest of the Beneficiaries by (1) investing in unproductive
property, (2) failing to administer the trust prudently, (3) failing to preserve principal, and
(4) failing to produce income. The district court also found the Bank liable for at least four
additional breaches of trust and loyalty based on conduct unrelated to the Building. The
district court did not enter findings or conclusions that correlated specific breaches of
particular duties with all or any specific portion of the damages awarded.


                                                3
{10} The Bank challenges the district court’s liability determinations that the Bank owed
certain duties as the trustee of the Trusts, breached its duties, and caused harm to
Beneficiaries, as remainder beneficiaries of one of the Trusts. We address each challenge
in turn.

A.      Standard of Review

{11} The issues raised by the Bank on cross-appeal involve only evidentiary challenges
to the district court’s findings of fact and conclusions of law. Thus, we apply a substantial
evidence standard of review. Koprian v. Mennecke, 1949-NMSC-023, ¶ 5, 53 N.M. 176,
204 P.2d 440; Roybal v. Morris, 1983-NMCA-101, ¶ 30, 100 N.M. 305, 669 P.2d 1100.
“Substantial evidence is such relevant evidence that a reasonable mind would find adequate
to support a conclusion.” Landavazo v. Sanchez, 1990-NMSC-114, ¶ 7, 111 N.M. 137, 802
P.2d 1283. In reviewing a substantial evidence claim, “[t]he question is not whether
substantial evidence exists to support the opposite result, but rather whether such evidence
supports the result reached.” Las Cruces Prof’l Fire Fighters v. City of Las Cruces, 1997-
NMCA-044, ¶ 12, 123 N.M. 329, 940 P.2d 177. “[W]e will not reweigh the evidence nor
substitute our judgment for that of the [factfinder].” Id.; Williams v. Williams, 1989-NMCA-
072, ¶ 7, 109 N.M. 92, 781 P.2d 1170 (explaining that the duty to weigh the credibility of
witnesses and to resolve conflicts in the evidence lies with the trial court, not the appellate
court). We consider the evidence in the light most favorable to the prevailing party and
disregard any inferences and evidence to the contrary. Williams, 1989-NMCA-072, ¶ 7; see
Las Cruces Prof’l Fire Fighters, 1997-NMCA-044, ¶ 12 (resolving all factual disputes in
favor of the successful party and indulging all reasonable inferences in support of the
prevailing party).

B.      Duties Owed by the Bank

{12} The Bank argues that the district court misapplied unambiguous terms in the Will and
the relevant law when it defined the duties owed by the Bank as trustee of the Trusts.
Specifically, the Bank disputes the district court’s findings that it had duties to maintain a
depreciation reserve, not to lend money to the Trusts, to treat Beneficiaries and Ann
impartially, and not to allocate between principal and income. The Bank does not challenge
the district court’s findings that it owed four other duties as trustee: (1) a duty not to invest
in unproductive property, (2) a duty to administer the trust prudently, (3) a duty to preserve
trust principal, and (4) a duty to produce income. For the reasons that follow, we will not
fully address the merits of this argument on appeal.

{13} The Bank’s cross-appeal challenges the imposition of four duties, but the district
court based its liability determination on at least eight distinct breaches of duty. The district
court did not enter findings or conclusions correlating any breach of a particular duty with
any portion or the entirety of the damages award, and the Bank asserted that Beneficiaries
were entitled to one assessment of damages regardless of the number of separate duties that
the district court might determine had been breached. McCauley v. Ray, 1968-NMSC-194,

                                               4
¶ 11, 80 N.M. 171, 453 P.2d 192 (“[A] party litigant may not invite error and then take
advantage of it.” (internal quotation marks and citation omitted)). Thus, the Bank’s liability
for damages rests on the assumption that any one or all of the breaches found to exist by the
district court caused the full decline in the value of the Trusts’ assets. As a result, even if
we were to determine that it was error for the district court to impose certain duties on the
Bank as trustee, the Bank’s cross-appeal concedes that the Bank properly owed four specific
duties with regard to its administration of the Trusts and that a breach of any one of these
other duties was sufficient to cause the damages claimed by Beneficiaries. See Rule 12-
213(A)(4) NMRA (“A contention that a verdict, judgment[,] or finding of fact is not
supported by substantial evidence shall be deemed waived unless the argument identifies
with particularity the fact or facts that are not supported by substantial evidence[.]”);
Giovannini v. Turrietta, 1966-NMSC-103, ¶ 4, 76 N.M. 344, 414 P.2d 855 (“The [district]
court’s findings, not properly attacked, are conclusive on appeal.”). Therefore, we need only
address the merits of the Bank’s argument if we determine that the Bank did not breach any
of the duties it owed as trustee of the Trusts. See Newcum v. Lawson, 1984-NMCA-057, ¶
33, 101 N.M. 448, 684 P.2d 534 (“Even if a finding of fact or conclusion is erroneous, if it
is unnecessary to the court’s decision, the mistake is not a basis for reversal.”).

{14} As we discuss below, the district court did not err in imposing liability against the
Bank for the breach of its unchallenged duties as trustee of the Trusts. As a result, it is not
necessary to address the Bank’s argument regarding whether the district court may have
erroneously imposed additional duties upon the Bank as the Bank contends.

C.     Breach of Duty

{15} We now address the Bank’s contention that it was error to impose liability against
the Bank for its continued investment in the Building. On cross-appeal, the Bank does not
argue that its conduct did not breach the express terms of the Trusts or any of the four
undisputed duties owed to Beneficiaries. Rather, the Bank asserts that it was error to hold
the Bank liable for any possible breach of duty because Beneficiaries consented to or ratified
the Bank’s actions when it continued to invest in the Building. In response, Beneficiaries
take the position that the Bank may not rely upon consent as a defense to liability because
Beneficiaries were not fully informed of their rights or the material facts with regard to the
Building.

{16} When a fiduciary relationship arises from a trust instrument, the fiduciary is held to
a strict standard of care and loyalty, generally prohibiting the fiduciary or trustee from
making non-traditional investments that put at risk the preservation of the corpus or the
amount and regularity of income to be derived. See State ex rel. King v. Lyons, 2011-
NMSC-004, ¶ 103, 149 N.M. 330, 248 P.3d 878 (reasoning that “[a] trustee’s duties include
the protection and management of the trust property to provide returns or other benefits to
the trust[.]” (citing Restatement (Third) of Trusts § 86 cmt. b (2007))); Pino v. Budwine,
1977-NMSC-068, ¶ 9, 90 N.M. 750, 568 P.2d 586 (“A trust relationship imposes stringent
and high standards of conduct upon the trustee.”). However, this standard is considerably

                                              5
reduced if a beneficiary consents to a deviation from the traditionally strict investment
policies imposed upon a fiduciary. Restatement (Second) of Trusts § 216 (1959). Where
the beneficiary has consented to an investment strategy with full knowledge of the material
facts and their legal rights, the beneficiary may not later complain if the investment strategy
results in a breach of trust. Id.; see NMSA 1978, § 46A-10-1008 (2003) (recompiled at
NMSA 1978, § 46A-10-1009 (2007)).

{17} The Bank contends that Beneficiaries did not assert, and the district court did not
find, that Beneficiaries were not fully informed of the Bank’s actions. This contention does
not properly represent the record. Instead, the record reflects that the district court addressed
the disputed factual issues regarding informed consent by Beneficiaries and rejected Bank’s
requested findings of fact regarding whether Beneficiaries properly consented to and ratified
the Bank’s conduct and whether the Bank kept Beneficiaries reasonably informed about the
administration of the Trusts, including the necessary material facts related to their interests.
See In re Yalkut, 2008-NMSC-009, ¶ 18, 143 N.M. 387, 176 P.3d 1119 (“[F]ailure to make
a finding of fact is regarded as a finding against the party seeking to establish the
affirmative.”). While the district court did not make more specific findings on this issue, the
findings entered by the court include references that Beneficiaries received limited
information about the Bank’s actions, had many unanswered questions about the
management of the Trusts, and the Bank actually misrepresented the value of the Building
that was carried on its books. The issue is whether the evidence in the record is sufficient
to reflect that the Bank did not reasonably inform Beneficiaries regarding the unproductive
status of the Building or improperly advised Beneficiaries when the Bank was exercising its
special skills and expertise to prudently administer and manage the Trusts’ unproductive
asset while also preserving trust principal and producing reasonable income.

{18} The record established that the Bank knew that the Building was unproductive of net
income and draining the income and assets of the Trusts as early as April 1995. Yet the
district court found that the Bank never accurately communicated this information to
Beneficiaries, and the evidence supports these findings. Based upon its skills and expertise,
the Bank also recommended that Beneficiaries deplete the Trusts’ assets and reinvest them
in the Building. This recommendation directly violated an express provision of the Trusts.
See Rutanen v. Ballard, 678 N.E.2d 133, 139 (Mass. 1997) (finding a breach of fiduciary
duty where a trustee has a duty to sell unproductive property and fails to do so). In addition,
there was evidence that the Bank was not experienced in managing commercial real estate,
but the Bank fails to identify any evidence in the record to establish that this deficiency was
communicated to Beneficiaries. Without a fully informed consent or ratification from
Beneficiaries, the Bank’s imprudent conduct that resulted from rashly investing the entirety
of the Trusts’ assets in the unproductive and declining Building reflected a failure to exercise
the reasonable care, special skills, or expertise required of a trustee. See Mattocks v.
Moulton, 24 A. 1004, 1007 (Me. 1892) (reasoning that it is imprudent to invest trust funds
in a new venture that is sensitive to market changes, has no working capital, and is liable to
be overwhelmed “at the first unfavorable turn of affairs”).


                                               6
{19} On cross-appeal, the Bank merely directs this Court to the evidence favorable to its
argument and ignores the evidence relied upon by the district court in finding liability
against the Bank. The Bank points to Beneficiaries’ alleged consent to certain actions but
fails to address the evidence supporting the district court’s findings regarding the Bank’s
fiduciary responsibilities and its deficient investment recommendations or decisions
regarding the Building. See Rule 12-213; see also Aspen Landscaping, Inc. v. Longford
Homes of N.M., Inc., 2004-NMCA-063, ¶¶ 28-29, 135 N.M. 607, 92 P.3d 53 (explaining that
a party challenging a finding for lack of substantial evidence must refer to “all of the
evidence, both favorable and unfavorable, followed by an explanation of why the
unfavorable evidence does not amount to substantial evidence, such as is necessary to inform
both the appellee and the Court of the true nature of the appellant’s arguments”). Further,
the Bank has not specifically identified or challenged any of the district court’s findings that
were entered to support the inferences regarding a lack of informed consent by Beneficiaries.
See Giovannini, 1966-NMSC-103, ¶ 4. As a result, we affirm the district court’s decision
that Beneficiaries did not give fully informed consent. State v. Rojo, 1999-NMSC-001, ¶ 53,
126 N.M. 438, 971 P.2d 829; see Landavazo, 1990-NMSC-114, ¶ 7 (explaining that the duty
to weigh the credibility of witnesses and to resolve conflicts in the evidence is for the district
court, and this Court will not reweigh the evidence or substitute our judgment for the trier
of fact on appeal); see also Hines v. Hines, 1958-NMSC-098, ¶ 5, 64 N.M. 377, 328 P.2d
944 (“As to the [district] court’s refusal of appellant’s requested findings of fact, suffice it
to say that the refused findings were diametrically opposed to or inconsistent with the facts
properly found by the [district] court in support of the final decree and judgment. Therefore,
the refusal was not error.”).

{20} We conclude the record provides support for a determination that Beneficiaries were
unaware of all the material facts regarding the Building and did not fully consent to the
Bank’s conduct. It follows that the district court did not err in rejecting the Bank’s requested
findings of fact and conclusions of law that Beneficiaries were fully informed and consented
to or ratified the Bank’s conduct. See Fox v. Doak, 1968-NMSC-031, ¶ 10, 78 N.M. 743,
438 P.2d 153 (concluding that it is not error for the district court to reject requested findings
of fact where the requested findings are inconsistent with findings of the district court that
are supported by substantial evidence); see also Hines, 1958-NMSC-098, ¶ 5.

D.      Harm to Beneficiaries

{21} The Bank’s final contention challenges the district court’s finding that it failed to
keep adequate accounting records. The Bank further asserts that even if it failed to keep
adequate accounting records, Beneficiaries failed to show how any accounting errors caused
them losses or resulted in any profit to the Bank.

{22} We first note that, based on the Bank’s inadequate record keeping and lack of
financial evidence, the district court concluded that it would resolve all doubts related to the
Trusts’ administration against the Bank. The Bank has not challenged this conclusion by the
district court, and it is therefore conclusive on appeal. See Giovannini, 1966-NMSC-103,

                                                7
¶ 4 (“The [district] court’s findings, not properly attacked, are conclusive on appeal.”).
Second, as previously discussed, the Bank’s liability for damages rested on the unopposed
presumption that any and all of the breaches of duty found to exist by the district court were
the cause of the decline in the value of the Trusts’ assets. Because the Bank has not
challenged four of the undisputed fiduciary duties claimed to give rise to damages and
because its defenses of waiver and ratification were not sufficient to defeat liability for the
breaches of its fiduciary duties, damages for the decline in value of the Trusts were properly
awarded, irrespective of the district court’s ruling regarding inadequate record keeping. It
is unnecessary to address the issue of inadequate record keeping any further. We conclude
that the district court did not err in finding the Bank liable for damages to Beneficiaries
resulting from the decline in value of the Trusts. We now address Beneficiaries’ issues
regarding the amount awarded as damages.

II.    DAMAGES

{23} The district court’s damage award was calculated to restore the value of trust
property lost through the Bank’s mismanagement and breach of its fiduciary duty that started
in late 1991. Relying on testimony from accounting expert Henry Carl South regarding the
standard adjustment for inflation (the inflation adjustment) from 1991 to 2003 totaling
“about 33.5 percent,” the district court’s ruling found that the $670,000 value of the Trusts
in 1991 would have an inflation adjusted value expressed in 2003 dollars of $894,000. The
remedy fashioned by the district court in its decision letter consisted of $894,000 in
restoration damages plus prejudgment interest thereon, a $540,000 self-dealing disgorgement
award for interest paid to the Bank, as well as post-judgment interest, costs, and attorney
fees. In its decision letter, the court rejected Beneficiaries’ claim that they should also
recover trustee fees paid to the Bank in the amount of $173,710. It then ordered,
“[Beneficiaries’] counsel shall prepare the judgment incorporating the above
findings/conclusions” adopted by the district court in its decision letter.

{24} Beneficiaries prepared a proposed form of judgment for presentment to the district
court. The Bank disputed Beneficiaries’ form of judgment and argued that it contained
“impermissible damage[s]” because it: (1) failed to offset income distributions previously
made from the Trusts to Beneficiaries in the amount of $404,421; (2) provided for a double
recovery because it awarded both restorative damages and disgorgement of profits on the
loan interest paid to the Bank; and (3) provided for an adjustment for inflation as part of the
restorative damages. After hearing the parties’ arguments at the presentment hearing, the
district court agreed with the Bank and entered its proposed form of judgment awarding
damages in the amount of $171,000 plus post-judgment interest, attorney fees, and costs.

{25} The final judgment was an inconsistent mix of proposed findings and conclusions
offered by Beneficiaries along with the award of damages in the amount requested by the
Bank. Accordingly, it included the inflation adjustment for calculating the diminution of the
value of Trusts assets at $894,000 but instead of using this amount to calculate restorative
damages, it used $575,000, representing the decline in value without an adjustment for

                                              8
inflation. The district court further explained that this $171,000 restorative damage amount
also included the $540,000 in loan interest paid to the Bank. Thus, the total net damage
amount award to Beneficiaries was only $171,000 rather than the higher amount adopted in
the court’s decision letter. It excluded any additional or alternative damages for the self-
dealing disgorgement claim made by Beneficiaries even though the court entered findings
of fact and conclusions of law determining liability on the Trusts’ claim against the Bank for
self-dealing.

{26} Beneficiaries filed a timely appeal of the judgment entered, arguing that the damages
award is flawed in three ways: (1) despite the determination that an inflation adjustment
was proper, the inflation adjustment was not included in the amount of damages calculated
to properly restore the principal value of the Trusts; (2) the Bank was not entitled to an offset
for the income distributions made from 1991 to 2003 against the damages awarded to restore
the principal value of the Trusts to their proper 2003 level; and (3) the failure to award the
$540,000 amount as disgorgement damages for improper self-dealing by the Bank. We first
address the issues dealing with restorative damages and then discuss the award of
disgorgement damages for self-dealing. As a result of our decision regarding restorative
damages, we reject Beneficiaries’ contention that they are also entitled to an additional
disgorgement damage award of $540,000.

A.      STANDARD OF REVIEW

{27} The parties disagree on the standard of review that applies to this issue. Beneficiaries
contend that the proper measure of damages is a question of law that is subject to a de novo
standard of review. The Bank contends that the question presents issues controlled by abuse
of discretion and substantial evidence standards of review. Both parties appear to be
partially correct regarding the standard of review.

{28} Generally, we review findings regarding damages to determine whether they are
supported by substantial evidence. See Jacobs v. Phillippi, 1985-NMSC-029, ¶ 5,102 N.M.
449, 697 P.2d 132. Damages need not be proven with mathematical certainty. See Nosker
v. W. Farm Bureau Mut. Ins. Co., 1970-NMSC-046, ¶ 8, 81 N.M. 300, 466 P.2d 866.
Substantial evidence is “that which a reasonable mind accepts as adequate to support a
conclusion.” Bill McCarty Constr. Co. v. Seegee Eng’g Co., 1988-NMSC-019, ¶ 7, 106
N.M. 781, 750 P.2d 1107. “[I]n determining the amount of damages to be awarded, the
focus shifts to the objective of such an award: to fully compensate the plaintiff and to put
the plaintiff in as good a position as if the harm or injury had not occurred.” Cent. Sec. &
Alarm Co. v. Mehler, 1996-NMCA-060, ¶ 17, 121 N.M. 840, 918 P.2d 1340. Likewise,
“[t]he decision whether to order a defendant to disgorge profits and the amount of profits to
be disgorged rests within the sound discretion of the [district] court.” Peters Corp. v. N.M.
Banquest Investors Corp., 2008-NMSC-039, ¶ 32, 144 N.M. 434, 188 P.3d 1185. A
discretionary decision based on a misapprehension of the law is reviewed de novo. N.M.
Right to Choose/NARAL v. Johnson, 1999-NMSC-028, ¶ 7, 127 N.M. 654, 986 P.2d 450.


                                               9
{29} Thus, we review de novo the question of whether the district court applied the correct
law and its application of that law to the facts. Id. ¶¶ 7-8. After we determine whether the
correct law has been applied, we then review the award to determine whether it is supported
by substantial evidence and, finally, we review for any abuse of discretion. An abuse of
discretion will require reversal “only if it [is] contrary to logic and reason.” Id. ¶ 8 (internal
quotation marks and citation omitted).

B.      ADJUSTMENT FOR INFLATION

{30} We first address Beneficiaries’ argument that it was error to use the value of
$575,000 to calculate the amount of damage to the Trusts’ principal because Beneficiaries
were entitled to be made whole, and this would require including an adjustment for inflation.
Beneficiaries assert that the inflation adjustment was required to restore the real principal
value of the trust assets as of June 1, 2004, and should not have been excluded from the
district court’s damages award. The Bank does not dispute that Beneficiaries are entitled to
be made whole but responds that an inflation adjustment would constitute an improper
double recovery as Beneficiaries have already been compensated for this amount based upon
the court’s award of prejudgment interest. We disagree.

{31} This appeal arises from the Bank’s actions as Trustee from 1991 through 2003.
During this time period, the district court determined that the Bank breached its fiduciary
duty when it improperly depleted the Trusts’ assets for the purpose of improving the
Building, an unproductive property. The district court’s original decision letter and its final
judgment concluded that the inflation adjusted amount required to restore the real value of
the Trusts’ assets from 1991 through June 1, 2004, was $894,000. This lawsuit was not filed
by Beneficiaries until June 14, 2007. The Bank’s only argument asserted that the inflation
adjustment would provide a double recovery and duplicate the district court’s additional
award of prejudgment interest. Having accepted the Bank’s argument, the district court in
its judgment excluded the inflation adjustment from the damages award and calculated the
amount required to restore the real value of the Trusts’ assets on June 1, 2004 at $575,000,
despite finding that “the inflation adjustment [was] required to keep [B]eneficiaries whole
through 2003.” (Emphasis added.)

{32} We agree with the district court’s finding that the inflation adjustment was required
to keep Beneficiaries whole and to properly calculate the amount needed to restore the real
value of the trust for the period from the end of 1991 through June 1, 2004. See Hubbard
v. Albuquerque Truck Ctr., Ltd., 1998-NMCA-058, ¶ 15, 125 N.M. 153, 958 P.2d 111
(“[D]amage awards should provide full and just compensation for the injured party. Full and
just compensation is synonymous with the concept of making the injured person whole.”
(internal quotation marks and citations omitted)). The adjustment for inflation accounted
for the changes in the value or purchasing power of the dollar. See Dan B. Dobbs,
Handbook on the Law of Remedies, § 3.7 at 366 (2d ed. 1993); see also NMSA 1978, § 46A-
10-1002(A)(1), (2) (2003, amended 2007) (“A trustee who commits a breach of trust is liable
to Beneficiaries affected for the greater of: (1) the amount required to restore the value of

                                               10
the trust property and trust distributions to what they would have been had the breach not
occurred; or (2) the profit the trustee made by reason of the breach.”); 2.60.25.9 NMAC
(Recompiled 10/1/2001) (measuring income value in real dollars by adjusting for inflation);
Restatement (Third) of Trusts § 100(a) (2011) (stating that a trustee who commits breach of
trust is chargeable with “the amount required to restore the values of the trust estate and trust
distributions to what they would have been if the portion of the trust affected by the breach
had been properly administered”). The only issue this Court must address is the Bank’s
argument that the inflation adjustment would constitute a double recovery and overlap the
recovery for prejudgment interest.

{33} Neither party disputes the award of prejudgment interest in this case. The award of
prejudgment interest compensates Beneficiaries for the lost use of the real value of the Trusts
from either June 1, 2004, or June 14, 2007, until the date that judgment was entered on
February 9, 2011. See Pub. Serv. Co. v. Diamond D Constr. Co., 2001-NMCA-082, ¶ 52,
131 N.M. 100, 33 P.3d 651 (explaining that the purpose of prejudgment interest is to
“compensate a plaintiff for the lost opportunity to use the money owed between the time the
plaintiff’s claim accrued and the time of judgment”).

{34} The district court determined that Beneficiaries’ compensatory damages—the value
of their Trust shares—were readily ascertainable as of June 1, 2004, the date on which the
Trusts’ assets became distributable to Beneficiaries. The district court also agreed that this
amount was $894,000, including the inflation adjustment. Simply put, the evidence
established that the adjustment for inflation (to account for the change in the value of the
dollar from 1991 to 2004) does not duplicate the award of prejudgment interest (to account
for the loss of Beneficiaries’ use of their money from either 2004 or 2007 through 2011).
Prejudgment interest was, therefore, necessary and appropriate to compensate Beneficiaries
for the loss of use of the value of their Trust shares from either June 1, 2004, or the
subsequent date this lawsuit was filed, June 14, 2007, until judgment was entered in this case
on February 9, 2011. See Ponder v. State Farm Mut. Auto Ins. Co., 2000-NMSC-033, ¶ 37,
129 N.M. 698, 12 P.3d 960 (explaining that the obligation to pay prejudgment interest
“constitutes an obligation to pay damages to compensate a claimant for the lost opportunity
to use money owed the claimant and retained by the obligor between the time the claimant’s
claim accrues and the time of judgment (the loss of use and earning power of the claimant’s
funds”) (internal quotation marks and citation omitted)); Cavnar v. Quality Control Parking,
Inc., 696 S.W.2d 549, 552 (Tex. 1985) (“The purpose of awarding prejudgment interest is
to compensate the injured plaintiff for lost use of money due as damages between the accrual
of the claim and the judgment.”). Even if the district court were to award prejudgment
interest back to June 1, 2004, there is no overlap.

{35} The undisputed facts in the record fail to support the Bank’s argument that the
prejudgment interest award also served to compensate Beneficiaries for the effects of
inflation prior to June 1, 2004. In devising a remedy for the Bank’s violation of its duties
as trustee, the district court appropriately concluded that a proper trustee would have
maintained the value of the Trusts from 1991 through 2004. Cf. In re Trusteeship under

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Agreement with Mayo, 105 N.W.2d 900, 905 (Minn. 1960) (authorizing a trustee to deviate
from the express terms of a trust for the purpose of preserving the value of the trust when
changed conditions due to inflation impaired the dominant purpose of the trust). As a result,
the Bank’s argument fails. The award of prejudgment interest and the inflation adjustment
are not duplicative. Adjusting for inflation “simply ensures that inflation does not erode the
value of money; it does not compensate for the lost use of the money in the intervening
time.” State of Kan. v. State of Colo., No. 105, 2000 WL 34508307, at *37 (U.S. 2000)
(internal quotation marks and citation omitted). Beneficiaries are entitled to the inflation
adjustment, and the district court should have determined the compensatory damages award
by utilizing the $894,000 amount set forth in the court’s findings of fact.

A.     OFFSET FOR INCOME DISTRIBUTIONS

{36} We now address whether it was proper for the district court to reduce compensatory
damages by the amount of income distributions the Bank made to beneficiaries from 1996
to 2006. The district court allowed a reduction in the amount of $404,421 for these income
distributions. Beneficiaries argue that using income distributions to offset restorative
damages to the principal of the Trusts allowed the Bank to use the legitimate property of
Beneficiaries to improperly offset liability for other damages they incurred. The Bank
contends that the fact that income distributions were the property of Beneficiaries does not
address the issue of whether the distributions were justifiable offsets against compensatory
damages resulting from a decline in the principal value of the Trusts. We partially agree
with both parties’ arguments but the evidence in this case favors Beneficiaries’ position.

{37} It is undisputed that the Trusts had a net value of $669,996.07 in 1991 and consisted
of the Building and other real property in Virginia, Hawaii, and New Mexico. At the end
of 2003, all of the real property except the Building had been sold. The Building was a
wasting asset with a net value of $129,033.38. During the same period, the return on trust
assets—or income—was negative.

{38} The Trusts were created with two unambiguous central purposes: providing income
to the lifetime beneficiaries and, upon Wife’s death, distributing the principal of the Trusts
to Beneficiaries. Invasion of the principal of the Trusts to make distributions to the income
beneficiaries was not allowed under the terms of the Trusts. Where the Trusts were created
for both income and remainder beneficiaries, and where the trust assets included
unproductive property, the Bank was under a duty to convert the unproductive property
within a reasonable time and to invest the proceeds in productive property. See 4 Austin
Wakeman Scott, William Franklin Fratcher & Mark L. Ascher, Scott and Ascher on Trusts
§ 20.8 at 1559-60 (5d ed. 2006) (requiring, if any part of trust property should become
unproductive property, that a trustee take action to protect the income beneficiary’s interests
or to convert the unproductive property into income-producing property). The Bank held
the unproductive Building for its entire term as trustee and did so at the expense of all other
assets of the Trusts. Despite the negative return on the principal value of the Trusts’ assets,
the Bank further depleted principal when it paid out $404,421 as income distributions to the

                                              12
lifetime beneficiaries. The Bank now asserts that it is entitled to reduce the compensatory
damages that it caused to the principal value of the Trusts by the $404,421 paid to the
lifetime beneficiaries as income distributions. See Restatement (Second) of Trusts, § 209
illus. 1 (1959) (allowing an offset to damages for the dividends received during the period
that the trustee should have, but did not, sell the property); but see Restatement (Third) of
Trusts, § 101 cmt. a (2012) (“[T]he law is well settled that profits arising from proper
administration do not reduce a trustee’s liability for breach of trust; it would be ironic to
permit a profit from improper administration to be offset against a trustee’s liability.”).

{39} The argument proffered by the Bank relies on two fatal assumptions: (1) that the
lifetime beneficiaries were not entitled to reasonable distributions of income from the Trusts
and that the Bank was not obligated to keep the Trusts productive of income for their benefit;
and (2) that the improper retention of the unproductive Building resulted in some “net gain”
to the lifetime beneficiaries of the Trusts. Here, the $404,421 of so-called trust income was
produced by investing $800,000 of borrowed funds into the Building at a point when the
Building continued to be a wasting asset. The district court recognized that this phantom
trust income was produced from the $800,000 investment in the Building. The total return
of the Building remained negative, and any distributions the Bank allocated as income to the
lifetime beneficiaries were actually made from the principal of the Trusts. See, e.g., In re
Winthrop’s Estate, 6 N.Y.S.2d 539, 541 (N.Y.Sur. 1938) (refusing to permit a trustee to
make up a deficiency in income for failure to sell unproductive property out of the principal
of a trust); Stone v. Littlefield, 24 N.E. 592, 593 (Mass. 1890) (charging expenses incurred
to maintain unproductive property yielding no income to trust principal for the protection
of a life-tenant beneficiary who would otherwise receive nothing).

{40} No evidence was offered by the Bank to indicate that the $404,421 in income
distributions exceeded the amount that would have been actually received by the lifetime
beneficiaries if the Bank had timely sold the Building and properly invested the principal in
assets that produced a reasonable rate of return, while continuing to preserve principal. As
a result, there is no evidence of a “net gain” of income distributed to the lifetime
beneficiaries of the Trusts from 1996 to 2006. When the Bank was trustee and managed the
Building, it had a duty to preserve the principal value of the Trusts and to also produce a
reasonable return in order to make the required income distributions to the lifetime
beneficiaries. Thus, the proper measure of damages is the amount required to restore the
value of the trust estate and all of its income distributions to what they would have been if
the trust had been properly administered. See Restatement (Third) of Trusts § 100 cmt. b
(2012); see also Restatement (Second) of Trusts § 205 (1959); see also § 46A-10-
1002(A)(1), (2).

{41} Beneficiaries chose not to present any evidence to establish their damages arising
from the amount of additional income distributions that should have been made if the Bank
had properly administered the Trusts. If Beneficiaries had pursued damages for lost income,
the district court may have been authorized to subtract the $404,421 in income distributions
actually paid from the proper amount of income distributions that should have been paid to

                                             13
Beneficiaries, thereby producing a “net gain” or a “net loss.” If the net calculation would
have resulted in a benefit to the Bank’s position, it could have presented this evidence as
well. The net amount might have then adjusted the $894,000 in compensatory damages
awarded to restore the principal value of the Trusts. Without any evidence of a net gain or
net loss, the district court abused its discretion when it offset the compensatory damage
award by the $404,421 in income distributions made from 1996 to 2006. No such offset can
be calculated in this case. We reinstate the full inflation adjusted compensatory damage
award of $894,000 that would restore the principal value of the Trusts.

B.      DISGORGEMENT

{42} We now address Beneficiaries’ argument that it is entitled to an additional damages
award of $540,000 as a proper disgorgement of profits to the Bank for self-dealing arising
from the $800,000 in loans to the Trusts. The district court agreed with the Bank and did not
include the disgorgement award in the final judgment because it found that the amount was
included by definition in the compensatory damage award to restore the principal value of
the Trusts. We agree with the Bank and hold that an award of disgorgement damages in this
particular case would constitute a double recovery.

{43} “Disgorgement is an equitable remedy whereby a wrongdoer is forced to give up the
benefits obtained as a result of his wrongdoing.” Peters Corp., 2008-NMSC-039, ¶ 32. The
remedy of disgorgement is not a punitive remedy. See id. (requiring a causal connection to
exist between the breach and the benefit sought to be disgorged); S.E.C. v. Blatt, 583 F.2d
1325, 1335 (5th Cir. 1978) (“Disgorgement is remedial and not punitive. The court’s power
to order disgorgement extends only to the amount . . . by which the defendant profited from
his wrongdoing.”). “The decision whether to order a defendant to disgorge profits and the
amount of profits to be disgorged rests within the sound discretion of the [district] court.”
Peters Corp., 2008-NMSC-039, ¶ 32; see United Props. Ltd. v. Walgreen Props., Inc., 2003-
NMCA-140, ¶ 7, 134 N.M. 725, 82 P.3d 535 (“[T]he issue of how the district court uses its
equitable powers to provide an appropriate remedy is reviewed only for abuse of discretion.”

{44} “It is a well-settled rule that a trustee can make no profit out of his [position to
administer a] trust. The rule . . . springs from [the trustee’s] duty to protect the interests of
the estate, and not to permit his personal interest to in any wise conflict with his duty in that
respect. The intention is to provide against any possible selfish interest exercising an
influence which can interfere with the faithful discharge of the duty which is owing in a
fiduciary capacity.” Magruder v. Drury, 235 U.S. 106, 119 (1914) (internal quotation marks
and citation omitted). However, a fundamental rule of damages prohibits multiple recovery
for a single harm. Salazar v. Torres, 2007-NMSC-019, ¶ 20, 141 N.M. 559, 158 P.3d 449.
“[E]quity will not act if there is a complete and adequate remedy at law.” Sims v. Sims,
1996-NMSC-078, ¶ 28, 122 N.M. 618, 930 P.2d 153 (internal quotation marks and citation
omitted). The fact that Beneficiaries seek to recover two types of damages—restorative and
disgorgement—does not convert a single claim into multiple claims. Instead, Beneficiaries
have offered alternative theories of recovery in pursuit of one claim. Section 46A-10-

                                               14
1002(A)(1), (2) (“A trustee who commits a breach of trust is liable to Beneficiaries affected
for the greater of: (1) the amount required to restore the value of the trust property and trust
distributions to what they would have been had the breach not occurred; or (2) the profit the
trustee made by reason of the breach.” (emphasis added)); see Eckman v. Columbia
Oldsmobile, Inc., 585 N.E.2d 451, 452-53 (Ohio Ct. App. 1989) (prohibiting duplicative
recovery for an injury that had been “cured” by an earlier award of relief).

{45} A restorative award of damages from a trustee is based on the equitable principle of
making the beneficiary whole by placing the beneficiary in the position that he/she would
have been in if the trustee had performed the required duty. See § 46A-10-1002;
Restatement (Third) of Trusts § 100 (“A trustee who commits a breach of trust is chargeable
with (a) the amount required to restore the values of the trust estate and trust distributions
to what they would have been if the portion of the trust affected by the breach had been
properly administered; or (b) the amount of any benefit to the trustee personally as a result
of the breach.” (emphasis added)); Restatement (Second) of Trusts § 205 (“If the trustee
commits a breach of trust, he is chargeable with (a) any loss or depreciation in value of the
trust estate resulting from the breach of trust; or (b) any profit made by him through the
breach of trust; or (c) any profit which would have accrued to the trust estate if there had
been no breach of trust.” (emphasis added)). In compensating Beneficiaries, the district
court put them in the place they would have been if the Bank had never engaged in its self-
dealing. Because the disgorgement damages of $540,000 were less than the $849,000 in
compensatory damages awarded by this Court to make Beneficiaries whole, any additional
recovery for disgorgement would amount to a double recovery and improperly impose a
penalty on the Bank. See Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390, 399
(1940) (holding that the remedy of disgorgement is meant “not to inflict punishment but to
prevent an unjust enrichment by allowing injured complainants to claim that which . . . is
theirs, and nothing beyond this” (internal quotation marks and citations omitted)).

{46} Plaintiffs are entitled to be fully compensated, but there can only be one recovery.
The district court’s initial award set forth in the decision letter, as now reinstated by this
Court, made Beneficiaries whole and effectively included the $540,000 Beneficiaries also
claimed for disgorgement damages. Equity will not allow an award beyond the amount
required to make Beneficiaries whole. As a result of this Court’s redetermination of
restorative damages in the amount of $849,000, the district court did not abuse its discretion
in refusing to award further disgorgement damages of $540,000 to Beneficiaries.

CONCLUSION

{47} For the foregoing reasons, we deny the cross-appeal filed by the Bank and affirm the
district court’s judgment of liability against the Bank. We correct the district court’s
compensatory damages award to properly reflect the inflation adjustment amount submitted
by Beneficiaries. This adjusted amount is not offset by the income distributions to
Beneficiaries. The proper compensatory damages amount required to restore the principal
value of the Trust’s assets was $894,000. We deny Beneficiaries’ appeal requesting an

                                              15
additional compensatory damages award of $540,000 for disgorgement damages. We
remand to the district court for the entry of a final judgment consistent with our decision.

{48}   IT IS SO ORDERED.

                                             ____________________________________
                                             TIMOTHY L. GARCIA, Judge

WE CONCUR:

____________________________________
CYNTHIA A. FRY, Judge

____________________________________
J. MILES HANISEE, Judge

Topic Index for Miller v. Bank of America, N.A., No. 31,463

APPEAL AND ERROR
Standard of Review
Substantial or Sufficient Evidence

COMMERCIAL LAW
Fiduciary Duty
Financial Institutions

NEGLIGENCE
Breach of Duty

REMEDIES
Compensatory Damages
Credits and Offsets

WILLS, TRUSTS, AND PROBATE
Fiduciary Duty
Trusts, General




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