Lingo v. Lingo, No. 713, 2009 (Del. Supr., June
10, 2010), read opinion here. The factual background of this Delaware
Supreme Court decision involves a faithless fiduciary who abused the Power
of Attorney given to her, but the part of the opinion that will be of interest for
readers of this blog is the Court's more wide-ranging discussion of the
appropriate remedies for a breach of fiduciary duty.
Issue on Appeal
The standard of review applicable to equitable remedies
awarded by the Court of Chancery is de novo and the issue on appeal in
this case is whether the remedy imposed by the Court of Chancery was
appropriate for the breach of fiduciary duty involved. The Supreme Court
affirmed the trial court's choice of remedies (which was based on an
affirmation of a decision by the Master in Chancery.)
Standard of Review
Delaware's High Court recited the applicable standard of
review as follows:
"Whether or not an equitable remedy exists or is
applied using the correct standards is an issue of law and reviewed de novo.
Determinations of fact and application of those facts to the correct legal
standards, however, are reviewed for an abuse of discretion." (See
This dispute has its origin in an estate plan that left
property in part to a Trust and in part to the surviving widow who
had two children, Dinah and Archie. The original plan envisioned the two
children inheriting their mother's estate upon her death. At
some point after the father's death, Dinah moved in with her widowed mother,
Eleanor, who later revised her will and disinheritied Archie. Eleanor also gave
Dinah a Power of Attorney which Dinah abused in order to transfer,
illicitly, large amounts of money and property to herself. The trial court
ordered Dinah to return the property she converted and ordered an accounting as
well as voiding the transactions entered into by the faithless daughter.
Archie suggests that a fairer result would be to require
Dinah to return all misappropriated funds to the Trust and not to Eleanor.
Archie further contends that in addition to restitution, the Vice Chancellor
should have imposed equitable forfeiture and decreased Dinah's inheritance by
the amount she misappropriated. As the sole beneficiary under the revised Will,
Dinah did not object to the remedy.
The Court recited the well-established duty of one who holds
a Power of Attorney as follows:
A person who signs a power of attorney creates a common law
fiduciary relationship. To honor that relationship, the attorney-in-fact must
observe the duty of loyalty by acting in the best interest of the principal.
Failure to do so may result in a breach of trust.
The Court explained the goal when attempting to remedy
the breach of this duty:
Generally, should a breach occur, it should be
remedied with two objectives in mind: (1) to render whole both the beneficiary
and the estate; and, (2) to prevent the trustee from profitting from his
Restitution was appropriate in this case for the following
reasons explained by the Court:
Delaware courts have long recognized that restitution is the
appropriate remedy to meet those objectives and to redress a breach of
fiduciary duty where a party is unjustly enriched at the expense of another.
Apart from reimbursement, restitution also serves to deprive the wrongdoer of
any profits made as a result of his or her conscious, wrongful conduct.
The Court was not convinced that the additional remedy of
equitable forfeiture was necessary or appropriate in this case. The Court
Despite the well established remedies of restitution to cure
the unfaithful conduct that occurred here, Archie contends that the Vice
Chancellor erroneously failed to modify the Master's ruling and craft a new
remedy that would require Dinah to forfeit part of her inheritance. Because
equitable forfeiture may disincentivize the disloyal conduct of a fiduciary by
preventing him from becoming the ultimate beneficiary of the fruits of his
transgressions, under different circumstances Archie's requested remedy might
have merit. Here, however, no Delaware precedent exists for using such an
extraordinary remedy to rectify the bad behavior of an attorney-in-fact who is
also the sole beneficiary under a will. Recognizing the lack of Delaware
precedent, Archie claims that persuasive authority exists elsewhere that
justifies the relief he seeks [but which the Court declined to follow.](emphasis
Moreover, the Court added that:
Because restitution and disgorgement adequately remedy
Dinah's faithless conduct without disturbing Eleanor's testamentary intent, the
Vice Chancellor did not err by refusing to impose equitable forfeiture.
Accordingly, we uphold the remedy crafted by the Master and affirmed by the
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