SunTrust Bank v. Farrar

Present: Hassell, C.J., Keenan, Koontz, Lemons, and Millette,
JJ., and Carrico, and Lacy, S.JJ.

SUNTRUST BANK, INDIVIDUALLY
AND AS TRUSTEE OF THE TRUST
UNDER THE LAST WILL AND TESTAMENT
OF CHARLES E. WILSON, DECEASED
OPINION BY
v. Record No. 080550 JUSTICE LEROY F. MILLETTE, JR.
April 17, 2009
SYDNEY D.F. FARRAR, ET AL.

FROM THE CIRCUIT COURT OF NOTTOWAY COUNTY
Thomas V. Warren, Judge

In this appeal, we consider whether the circuit court

erred in entering a monetary judgment against the trustee and

in favor of the beneficiaries of a trust for breach of

fiduciary duty arising from the management of a coal mining

property when the only evidence of damages presented by the

beneficiaries was based on an appraisal without evidence of a

willing buyer at the appraised value.

BACKGROUND

Charles E. Wilson (Mr. Wilson) died in 1921, survived by

his wife, Mary C. Wilson, and two sons, Charles Everett Wilson,

Jr. (Everett) and Richard B. Wilson (Richard). In his will,

Mr. Wilson established a trust (the Wilson trust) that

contained land in Harlan County, Kentucky (the property), upon

which a coal mine (the coal mine) was located. Old Dominion
Trust Company in Richmond, Virginia, now SunTrust Bank (the

Trustee), was named as co-trustee, along with Mrs. Wilson. 1

The property was the sole principal asset of the Wilson

trust from 1921 until it was sold in 1997. Believing there to

be “no safer or more permanent or more profitable investment,”

Mr. Wilson used strong language in his will directing the co-

trustees to hold the coal mine “unless conditions undergo a

very radical change from what they are at present.” According

to the will, the income from the coal mine was to be paid to

Mrs. Wilson, Everett, and Richard, during their lifetimes. 2

Following their deaths, the income would be distributed to Mr.

Wilson’s remaining beneficiaries. The Wilson trust was to

terminate 20 years from the date of death of the last of the

three income beneficiaries, and income and principal

distributed to “such persons as shall at that time be [Mr.

Wilson’s] heirs at law under the Virginia Statute of Descents

and Distributions.”

Everett, who became the last surviving income beneficiary,

died in 1984. Following Everett’s death, the Trustee

petitioned the Circuit Court of Nottoway County to terminate

the Wilson trust or, in the alternative, to obtain authority to

1
Mrs. Wilson died in January 1976, leaving only the
Trustee charged with the administration of the Wilson trust.
2
Richard died in 1926.

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sell the property and reinvest the proceeds into “more

profitable and safer investments.”

At the June 1987 hearing, in support of its petition, the

Trustee presented evidence that the coal mine’s income had

dropped significantly in the preceding few years. 3 Hartwell

Harrison, the Trustee’s vice president and administrative

officer responsible for the Wilson trust since 1983, testified

that the trust was on an August fiscal tax year and from

September 1983 to August 1984, the trust had a total income of

approximately $113,000, the vast majority of which was income

from the property. For the fiscal tax year 1984 to 1985, the

trust income, which was still primarily income from the

property, was approximately $110,000, but dropped to $52,000

for the fiscal tax year 1985 to 1986 and down to $13,000 from

September 1986 to May 1987. Harrison acknowledged that the

“income ha[d] dropped quite drastically.” When asked

“generally how the assets of th[e] trust could be converted

into safer and more profitable investments,” Harrison replied

that “the bank would pro[b]ably use a balanced approach, and a

balanced approach would mean an allocation of the [proceeds

from the sale of the property] between common stocks of maybe

3
The Honorable Thomas V. Warren also presided over the
1987 hearing.

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55 to 65 percent, and the balance would be exposed to fixed

income securities or bonds.”

William H. Eanes, head of the Trustee’s real estate

division with primary responsibility for the Wilson trust since

1960, testified that when Everett died in 1984, the coal market

was on a “trend downward” and there had been little mining

activity on the property since that time. Eanes also testified

that the property was encumbered by coal mining leases,

including a lease in which the lessee was “in bankruptcy.”

Nevertheless, Eanes stated:

It is my opinion that the property could be
sold. I think the timing of the sale is
critical. I believe there is a market for the
property. It is a risky asset in terms of
management, a lot of labor problems associated
with it, a lot of negotiations, and it is an
expensive asset to manage.

Following the 1987 hearing, the circuit court entered an

order granting the Trustee authority to sell the property. To

accomplish a sale, the Trustee sought the assistance of Dennis

D. Willis, a licensed professional engineer. 4 In 1986, the

Trustee had asked Willis to appraise the property. Willis

appraised it at $1.1 million “[b]ecause that [was] the value of

the property . . . if all the coal was indeed there, the

4
In Kentucky, Willis was classified a “professional mining
engineer.” It was undisputed at the trial underlying this
appeal that Willis is an expert appraiser and engineer.

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measured, the indicated and the inferred.” 5 The property was

sold in 1997, for $350,000.

In October 2004, twenty years after Everett’s death, the

Wilson trust terminated. Thereafter, the Trustee sought

guidance from the circuit court regarding distribution of the

trust assets to its beneficiaries. In August 2007, beneficiary

Sydney D.F. Farrar, on behalf of himself and other

beneficiaries (collectively, the Beneficiaries), filed an

amended complaint against the Trustee, alleging breach of

fiduciary duty and seeking compensatory as well as punitive

damages. At a bench trial conducted in December 2007, the

Beneficiaries maintained that for years the property could have

been sold for the $1.1 million appraised value and presented

evidence of damages based on that premise.

The only witness offered by the Beneficiaries at trial to

prove damages was Robert W. Cook, Jr., an expert in economics.

Cook testified that he gleaned the Trustee’s “investment

5
At trial, Willis explained that:

Reserves are classified as measured and
proven or probable reserves and inferred
reserves. There’s [sic] three
classifications. Proven or measured
reserves are the most reliable because you
have more measurements to take at known
points. . . . [T]he indicated reserves would
be further out, and inferred reserves are
much further out. They are just like the
name implies, inferred.

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philosophy” of allocating the trust portfolio between common

stocks and fixed income securities or bonds from Harrison’s

testimony at the 1987 hearing. Cook used this hypothetical

allocation to construct investment scenarios to determine the

value of the trust portfolio in 1997 if the property had been

sold for $1.1 million at the time the Trustee was granted

permission to sell, and the $1.1 million had been invested on

September 1, 1987. The September 1, 1987 date was suggested to

Cook by the Beneficiaries’ counsel, based upon the premise that

since the hearing was in June 1987, it “[gave] a reasonable

period of time here so that the property could in fact be sold

and these investments could be made.” Cook employed the $1.1

million figure because “[t]hat’s all [he] knew,” but conceded

on cross-examination that the $1.1 million appraised value

would not actually have been placed into the investment

portfolio. Instead, what would have gone into the portfolio

would have been the net proceeds after deduction of the

commission on the sale.

Cook determined that if, on September 1, 1987, 65 percent

of $1.1 million was invested in stocks and 35 percent in bonds,

trust distributions would have been $1,761,000, and the

remaining trust portfolio would contain $3,709,000 in stocks

and bonds, totaling $5,470,000. Cook testified that he used a

mathematical formula to create his scenarios:

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 Arithmetic and algebra. That is all that’s
required here, because I was looking back
rather than in the future. The numbers that
I was adding and subtracting and multiplying
were known with certainty. I looked them up
from documents that I had at my disposal
that I researched, and then I applied some
arithmetic and division that I used to get
to the results.

However, Cook acknowledged that he was not testifying that on

September 1, 1987 there was a buyer willing to purchase the

property for $1.1 million.

Willis testified that his $1.1 million valuation took into

account existing coal market conditions, which he described as

in a state of decline from 1975 until 2003 or 2004. However,

Willis was not aware of any buyer willing to pay $1.1 million

for the property as of the 1986 appraisal. According to

Willis, the property was not sold in 1987 because no one was

interested in it. In addition, Willis acknowledged that “[t]he

appraisal was probably somewhat high. Based upon the declining

coal market it was high, but it was based upon available

information at the time.” Further, a sale of the property was

not feasible until the termination or expiration of all of the

coal mining leases encumbering the property, because there was

not any production or very little production of coal on the

property at that time and the leases would have a considerable

negative effect on the value of the property. Willis could not

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recall if he took the existence of the leases into

consideration in the 1986 appraisal.

The circuit court found that the Trustee failed to

appropriately market the property, allowed the coal mine to

become “unproductive of income,” allowed it to become a

“wasting asset,” and failed to diversify the trust assets in a

timely manner. For these reasons, the circuit court determined

that the Trustee did not act as a prudent person would,

constituting a breach of its fiduciary duty to the

Beneficiaries. The circuit court awarded judgment to the

Beneficiaries for $2.4 million, which was “a net judgment

considering [a] 5% brokerage fee, the $350,000 received from

sale, [the] date of court authorization [of the sale], [the]

date of sale, and accrued interest.”

In a separate action on the Trustee’s objections to the

Commissioner of Accounts’ reports, the circuit court held that

the Beneficiaries’ incurrence of $89,028.30 in trust

expenditures from September 1992 through August 1998 resulted

from the Trustee’s breach of its fiduciary duty. The circuit

court concluded that these expenditures, which included

engineering fees in maintaining the property, would not have

been incurred had the Trustee not breached its fiduciary duty

by failing to sell the property and diversify the Wilson trust

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portfolio. The circuit court ordered the Trustee to reimburse

these fees, with interest, to the Beneficiaries.

DISCUSSION

The Trustee assigns error to the circuit court’s holding

that the Trustee breached its fiduciary duty and to the damages

awarded to the Beneficiaries. The Trustee alleges that the

Beneficiaries failed to prove there was a buyer willing to pay

the appraised value for the property. In addition, the Trustee

contends the circuit court erred in disallowing certain

engineering expenses and trustee’s fees, as that ruling was

based solely on the circuit court’s erroneous conclusion that

the Trustee breached its fiduciary duty by not selling the

property and timely diversifying the trust assets.

The Trustee argues that the circuit court’s judgment in

effect made the Trustee an insurer of the appraised value of

the property, which the evidence showed was unobtainable given

the actual market conditions. The Trustee maintains the

Beneficiaries did not meet their burden of proving damages,

because the award of damages was based upon the assumption that

there was a willing buyer for the property at the appraised

value when the circuit court granted the Trustee the authority

to sell, and the proceeds of the sale would be available for

investment by September 1987. The Trustee contends that, by

making this assumption, the circuit court disregarded the

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depressed coal market conditions and other impediments to the

sale of the property existing at that time.

The Beneficiaries contend the circuit court’s conclusion

that the Trustee breached its fiduciary duty to preserve the

value of the property and to timely diversify the trust

portfolio must be upheld because the circuit court’s judgment

is supported by sufficient evidence and is not plainly wrong.

The Beneficiaries assert that the Trustee failed to market the

property in a manner that satisfied the prudent person

standard, and sold the property at a sacrificial price of

$350,000 despite its appraised value of $1.1 million.

According to the Beneficiaries, no law exists to support the

Trustee’s contention that the damages award must be reversed

because the Beneficiaries failed to show that there was a buyer

willing to pay the appraised value.

It is well-settled that when a decision is rendered

following a bench trial and a party objects to the ruling on

the ground that it is contrary to the evidence, the judgment

shall be upheld unless it appears from the evidence to be

plainly wrong or without evidence to support it. Pizzarelle v.

Dempsey, 259 Va. 521, 527, 526 S.E.2d 260, 263 (2000); Code

§ 8.01-680. We hold that the circuit court’s judgment was

erroneous, because the Beneficiaries failed to meet their

burden of proof on the issue of damages.

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 The Beneficiaries, as the plaintiffs below, had the

“‘burden of proving with reasonable certainty the amount of

damages and the cause from which they resulted; speculation and

conjecture cannot form the basis of the recovery.’” Shepherd

v. Davis, 265 Va. 108, 125, 574 S.E.2d 514, 524 (2003) (quoting

Carr v. Citizens Bank & Trust Co., 228 Va. 644, 652, 325 S.E.2d

86, 90 (1985)); Sunrise Continuing Care, LLC v. Wright, 277 Va.

148, 156, 671 S.E.2d 132, 136 (2009). Damages cannot be

recovered if derived from uncertainties, contingencies, or

speculation. Saks Fifth Avenue, Inc. v. James, Ltd., 272 Va.

177, 188, 630 S.E.2d 304, 311 (2006); Shepherd, 265 Va. at 125,

574 S.E.2d at 524. In Shepherd, we held that the evidence of

damages was speculative because the calculations submitted were

based on the assumption that the property could be sold to a

large, well-known home and building supply retailer. 265 Va.

at 125, 574 S.E.2d at 523-24. Likewise, in this case, the

evidence of damages was premised on the assumption that the

property could have been sold for $1.1 million in 1987.

Although there was testimony from a developer regarding an

offer to purchase the property in Shepherd, 265 Va. at 125-26,

574 S.E.2d at 524, damages calculated from that offer were

rejected because of the need for rezoning and other

contingencies rendering the valuation speculative. Here, the

Beneficiaries presented no evidence that there was a buyer

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willing to purchase the property, regardless of the

encumbrances, for $1.1 million in 1987 or at any time

whatsoever. In fact, evidence to the contrary was presented to

the circuit court. Willis, the expert appraiser and engineer,

and Cook, the Beneficiaries’ economics expert, each testified

that he was not aware of the existence of such a buyer. Willis

specifically testified that the property was not sold in 1987

because “no one was interested in it.”

Nowhere in the record of this case is there evidence of a

willing buyer or other proof to show the existence of a viable

market for the property at the appraised price. This Court has

held that damage calculations based on unsupported projections

are improper. See Saks Fifth Avenue, Inc., 272 Va. at 187, 630

S.E.2d at 310. Estimates of damages based entirely upon such

assumptions “are too remote and speculative to permit ‘an

intelligent and probable estimate of damages.’” Vasquez v.

Mabini, 269 Va. 155, 159, 606 S.E.2d 809, 811 (2005) (quoting

Bulala v. Boyd, 239 Va. 218, 233, 389 S.E.2d 670, 677 (1990)).

Willis described the depressed coal market in Harlan

County, Kentucky during the relevant period. He explained that

the coal market peaked in 1974 and 1975 due to an oil embargo

that caused coal prices to escalate rapidly. After the embargo

ended, the coal market was in a continuous state of decline

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until 2003 or 2004. Eanes confirmed that by the end of the

1980s, “the bottom had fallen out” of the coal market.

Willis testified that he was familiar with the coal market

in Harlan County in 1986, and that the price per ton of coal

continued to decline from the 1970s peak. Willis wrote a

letter dated February 11, 1987 to Eanes, informing him that

“[i]n recent months, it has come to our attention that the

depressing coal market has caused a decrease in the activity on

the C. E. Wilson Estate property.” In an interoffice

memorandum written in April 1987, with “C.E. Wilson Estate –

1600 Acres in Harlan, KY” as the subject, Eanes stated:

At present, due to the depressed coal
market, there [is] little or no mining
activity on the property or in the area. . .
. Coal is selling for $19.00 to $20.00 per
ton; the cost to mine the coal is almost
$19.00 - $20.00 per ton so it is not
economically feasible to mine and sell coal
in today’s market at a profit.

At trial, Eanes testified that “[a]ny purchaser would buy the

property for the reserves, but if he couldn’t mine the reserves

and he couldn’t sell the coal, it had a very negative impact on

the ability to sell the property.”

Although the Trustee introduced only scant evidence of its

efforts to market the property from 1987 to 1997, the

Beneficiaries presented even less evidence as to anyone’s

reasonable interest in purchasing the property. Based upon the

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lack of evidence of a market for the property, it is impossible

to conclude that anything the Trustee did or did not do caused

any damage to the Beneficiaries. We have cited with approval

the legal principle that a trustee who retains a trust asset

during a “‘precipitous decline in the market,’” when there was

no market for the asset, “‘cannot be held to account,’” so long

as the trustee acted as a reasonable and prudent person would

act in light of then existing conditions. Harris v. Citizens

Bank & Trust Co., 172 Va. 111, 125-26, 131, 200 S.E. 652, 657,

659 (1939) (quoting In Re Pettigrew’s Estate, 171 A. 152, 155

(1934)).

To appraise the property in 1986, Willis had employed

present worth, price per ton, and comparable sales approaches.

However, the present worth and price per ton approaches

utilized estimates only, and the comparable sales Willis relied

upon were sales in 1979 and 1980, when the uncontroverted

testimony was that the coal market was in a continuous state of

decline from 1975 until 2003 or 2004. While comparable sales

often provide the soundest basis for an appraisal, in a

declining market, sales completed six or seven years prior to

the appraisal date cannot provide an accurate means of

valuation. The comparable sales were also of properties “much

larger than the C.E. Wilson Estate.”

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 The goal of an appraisal is to reflect the fair market

value of the subject property. “We have defined the fair

market value of a property as its sale price when offered for

sale ‘by one who desires, but is not obliged, to sell it, and

is bought by one who is under no necessity of having it.’”

Keswick Club, L.P. v. County of Albemarle, 273 Va. 128, 136,

639 S.E.2d 243, 247 (2007) (quoting Tuckahoe Woman’s Club v.

City of Richmond, 199 Va. 734, 737, 101 S.E.2d 571, 574

(1958)). The record is devoid of sufficient evidence to

substantiate the $1.1 million appraisal. Eanes’ testimony at

the 1987 hearing that the property “could be sold” and that

there was “a market for the property,” without factual support,

was insufficient to show there was a willing buyer.

The earliest evidence of a willing buyer for the property

was an offer in October 1992 for $75,000. Thereafter, the

following offers were made: August 1996 – $281,190, November

1996 – $25,000, and March 1997 - $100,000. The last offer was

countered by the Trustee at $350,000 and accepted in May 1997.

The record contains no evidence of a willing buyer prior to

1992 or of a buyer at any time willing to pay close to $1.1

million for the property. With no evidentiary support for the

$1.1 million figure, and evidence contrary to the accuracy of

the appraisal, it was an improper figure to serve as the

expert’s foundation for the damages award.

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 The circuit court’s order that the Trustee reimburse

$89,028.30, plus interest, in engineering fees and trust

expenses from 1992 through August 1998 rested on its conclusion

that the Trustee’s failure to sell the property and timely

diversify the Wilson trust portfolio resulted in additional

damages to the Beneficiaries. We need not resolve the issue of

whether the Trustee breached its fiduciary duty to the

Beneficiaries, because the Beneficiaries failed to present

sufficient evidence that a sale of the property before 1997 was

possible, and therefore failed to prove damages. Since there

was insufficient evidence to show that any action or inaction

by the Trustee resulted in a failure to sell the property prior

to 1997, and to invest the sale proceeds to accomplish

diversification, there is insufficient evidence to support the

circuit court’s order that the Trustee repay fees and expenses

incurred in maintaining the property.

CONCLUSION

The circuit court erred in awarding damages to the

Beneficiaries for breach of fiduciary duty on this record,

which contained no evidence supporting the appraiser’s

assumption and premise that there existed a willing buyer or

other circumstances creating a viable market at the appraised

or other reasonable value to enable the Trustee to diversify

the Wilson trust portfolio in 1987. For the reasons stated, we

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will reverse the judgment of the circuit court and enter final

judgment in favor of the Trustee.

Reversed and final judgment.

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