IN THE MATTER OF: MELLINGER, 2315-K (Del.Ch. 8-13-2007)

C.M. No. 2315-K.Court of Chancery of Delaware, Kent County.Date Submitted: January 29, 2007, Draft Report Issued: May 22, 2007.
Final Report Issued: August 13, 2007.

Latifa S. Ring and David Hake, pro se, Guardians.

Thomas L. Preston, Esquire and John E. O’Brien, Esquire, Attorneys for Respondent Majid Sefiane.

Benjamin A. Schwartz, Attorney-Ad-Litem.

GLASSCOCK, Master

MASTER’S REPORT

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This is my report on the accounting presented on December 5 and 6, 2006 by Majid Sefiane in the matter of Mary Margaret Mellinger.

Background

Some of the history of this action may be helpful. Ms. Mellinger for many years ran an orphanage in Morocco known as the Haven. A number of the children who were raised in the Haven (the “Haven children”) are now residents of the United States. They consider Ms. Mellinger as their mother. When Ms. Mellinger occasionally returned to the United States from Morocco, she frequently made contact with one of the Haven children, Majid Sefiane, now a Dover-area businessman.

In February, 2005, Ms. Mellinger, by then extremely elderly, retired from her duties at the Haven and returned to the United States. At that time, she had amassed a small estate that would have probably allowed her to live the remainder of her life in modest comfort. According to the testimony at the hearings,[1] by the time of her return to the United States Ms. Mellinger was becoming progressively less competent to handle her own affairs. At some time in the past, Ms. Mellinger had made one of the directors of the Christian Mission, which financed the Haven, her attorney-in-fact. After returning to the United States, Ms. Mellinger moved in with Mr. Sefiane in Dover. Shortly thereafter, she

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issued a new power-of-attorney, canceling the power-of-attorney in favor of the Christian Mission director, and making Mr. Sefiane her attorney-in-fact.

In August, 2005, Latifa Ring, another of the Haven children, together with a nephew of Ms. Mellinger’s, David Hake, filed a guardianship petition (the “Ring petition”) with this Court. Mr. Sefiane filed a counter-petition, also seeking guardianship. The relationship between Mr. Sefiane, and Ms. Ring and the several other Haven children who supported her petition, was unfortunately extremely poor. The course of the resulting litigation was therefore contentious. IKOR, a fee-for-service guardianship agency, was appointed interim guardian for Ms. Mellinger in an attempt by the Court to create a buffer between the factions. Ms. Mellinger continued to reside in Mr. Sefiane’s home, and IKOR attempted to arrange visits between the Haven children and Ms. Mellinger. IKOR reported to me that Mr. Sefiane would not cooperate in allowing these visits and was intimidating and upsetting Ms. Mellinger in an attempt to have her declare that she did not want to visit with the other Haven children. Based on this representation and the application of IKOR, I directed IKOR to remove Ms. Mellinger from Mr. Sefiane’s home.

The guardianship matter came before me for a hearing on February 16, 2006 and during the course of that hearing the parties were able to reach a settlement, under which another fee-for-service guardianship agency was appointed guardian for Mrs. Mellinger’s property, and the agency and Mr. Hake were appointed co-guardians of her person; the power-of-attorney in favor of Majid Sefiane was declared void; Mr. Sefiane was ordered

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to account for his tenure as attorney-in-fact; and the Ring petition was dismissed. This agreement was placed on the record in open court, all parties agreed to it, and it was accepted as a Court Order (the “Agreement and Order”). The Agreement and Order was restated in written form on March 3, 2006.

Shortly after the February 16 hearing, Mr. Sefiane moved to set aside the Agreement and Order, a motion I denied. Subsequently, the fee-for-service guardian withdrew, Ms. Ring and Mr. Hake were appointed co-guardians for Ms. Mellinger’s person and property and Ms. Mellinger began living with another of the Haven children in Pennsylvania. Ms. Mellingers had lived in the Sefiane home, and Mr. Sefiane had acted as her attorney-in-fact, for about 10 months.

Pursuant to the Agreement and Order, Mr. Sefiane was to provide a formal accounting in compliance with Chancery Court Rules within 30 days. At the request of Mr. Sefiane, this period was extended twice. Eventually, a document entitled “Expense Report” was filed by Mr. Sefiane on May 14, 2006. This was Mr. Sefiane’s attempt at an accounting of his tenure as a fiduciary for Ms. Mellingers. In addition to being extremely informal and not in compliance with Rule 117, the statement contained an accounting of sums spent, theoretically on Ms. Mellinger’s behalf by Mr. Sefiane, that seemed impossible to justify given his brief ten-month tenure over Ms. Mellingers. These included, for example, travel and transportation expense of $14,050, white-goods expense of $3500, and $30,000 for food. Because I was gravely concerned by the nature of the accounting filed by Mr. Sefiane, I appointed Benjamin Schwartz, Esquire as attorney-ad-litem

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for Ms. Mellingers, and eventually scheduled the accounting hearing which is the predicate for this report. Before the hearing, Mr. Sefiane hired an accountant to prepare a more precise accounting. It also came to light that Mr. Sefiane, in violation of the Agreement and Order entered on February 16, 2006, had used the (voided) power-of-attorney to remove a large sum of money from Ms. Mellinger’s account after the entry of that Order.

Discussion

It is, I think, useful to state at the outset some conclusions about the nature of this guardianship litigation and about Mr. Sefiane’s actions. First, while there was good cause for the original Ring guardianship petition, the initial guardianship litigation involved a number of allegations about Mr. Sefiane’s treatment of Ms. Mellingers which remain unproven. While Mr. Sefiane was isolating Ms. Mellingers from other Haven children, he was not, as alleged, mistreating her. In fact, Mr. Sefiane was treating Ms. Mellingers, at least with respect to her material situation, like a queen. He purchased a new house so that she would have a room of her own on the ground floor. He bought a luxury sedan so that she would not have to climb up into his SUV or down into his sports car. He provided her with the best food and bedding money could buy. Nor was Mr. Sefiane exploiting Ms. Mellingers financially at the time the guardianship petition was filed. He employed care-givers so that Ms. Mellinger would not be alone, and paid for all her needs from his own funds.

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A curious thing happened after the filing of the Ring petition, however. Armed with the power-of-attorney from Ms. Mellingers,[2] Mr. Sefiane opened a new bank account for Ms. Mellingers and removed her funds from her old account, some to the new account he had opened but the bulk to his own bank accounts. This was during (or after) the time Ms. Mellingers was living with him, during which he acted as a fiduciary for her under the power-of-attorney and during the time when he was alleging that she was in need of a guardian and was petitioning the Court to be named that guardian. This conversion of Ms. Mellinger’s funds continued after the Agreement and Order was entered on February 16, 2006: one week later, Mr. Sefiane withdrew $30,000 from Ms. Mellinger’s much-depleted account. In total, he removed around $168,000 from her accounts beginning after the Ring guardianship petition was filed in August, 2005. Despite the fact that, at the beginning of his term as attorney-in-fact for Ms. Mellingers, Mr. Sefiane had provided care-givers, transportation and room and board for Ms. Mellingers all from his own pocket, at first blush it appears that his actions after the guardianship case commenced were simple acts of exploitation of Ms. Mellingers. They were not. In fact, the evidence at the hearing, including Mr. Sefiane’s own testimony, made it clear to me that Mr. Sefiane had, and holds, a sincere but mistaken belief that Latifa Ring is herself out to financially exploit Ms. Mellingers. He had no faith that this Court would protect Ms. Mellinger’s assets and feared that I would allow Ms. Ring to

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loot Ms. Mellinger’s estate. He also has a severe antipathy for Ms. Ring and her allies in this matter. His motive was to prevent Ms. Mellinger’s assets coming under the control of the Court and Ms. Ring. Therefore, while it is clear to me that Mr. Sefiane acted out of contempt for this Court in filing his original accounting and in using the defunct power-of-attorney to withdraw money from Ms. Mellinger’s accounts, and while I in no way condone his actions, his motive was not to profit from Ms. Mellinger’s assets but, in a twisted way, to protect them. Some of the funds taken from Ms. Mellingers by Mr. Sefiane have been returned, or have been otherwise accounted for. However, by his accounting, Mr. Sefiane seeks to retain more than $60,000 of Ms. Mellinger’s funds that he argues were spent on her behalf.

Legal Standard

At all times relevant, Mr. Sefiane was acting as attorney-in-fact for Ms. Mellingers. “The creation of a power-of-attorney imposes the fiduciary duty of loyalty on the attorney-in-fact.” Shock v. Nash, Del.Supr., 232 A.2d 217, 224 (1999). Because Mr. Sefiane has transferred and retained substantial sums of money from the accounts of Ms. Mellingers pursuant to the power-of-attorney, he must account for those sums. Mr. Sefiane concedes that he has retained $61,758.86 from Ms. Mellinger’s assets. And the attorney-ad-litem agrees that this is the amount at issue.[3] The burden, therefore, is on Mr.

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Sefiane to demonstrate that he is entitled to retain this amount, to reimburse himself for amounts reasonably expended for Ms. Mellinger’s benefit or otherwise. I ordered Mr. Sefiane to file a formal accounting within 30 days of the entry of the Agreement and Order. Mr. Sefiane sought and was granted two extensions. Finally, on May 3, 2006, Mr. Sefiane filed an “Expense Report” in an apparent attempt to comply with the Court order requiring a formal accounting.

The Expense Report was totally inadequate as a formal accounting, and has proved to be substantially inaccurate. More troubling, for the less than ten-month period during which Mr. Sefiane cared for Ms. Mellingers, he claimed to have expended on her behalf breathtaking sums, including $3500 for bed clothes; $9500 for airline tickets and travel; $4550 for other transportation costs; $2000 for moving expenses; $4500 for furniture; $30,000 for groceries and meals; $8000 for clothing; $2900 of telephone charges; $2800 for cleaning services; $3500 for “appliances”; and $1000 for “entertainment”; all expended for the alleged benefit of the nonagenarian Ms. Mellingers. Together with numerous other claimed expenditures on her behalf, Mr. Sefiane claimed to have spent over $215,000 on Ms. Mellingers in under ten months. This sum exceeded Ms. Mellinger’s total assets.

Upon receipt of the accounting on May 3, 2006, I scheduled a telephone conference, which occurred on May 5. In a May 8, 2006 Letter Order memorializing that telephone conference, I found that the “Expense Report” did not satisfy my March 3, 2006 Order, and that, “[b]ecause the accounting, if true, appears to represent actions by

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Mr. Sefiane which were clearly non-compliant with his fiduciary duty toward Ms. Mellingers” I found it appropriate to appoint Benjamin Schwartz as attorney-ad-litem for Ms. Mellingers to complete a proper accounting of Mr. Sefiane’s tenure as attorney-in-fact, to recover all funds and property of Ms. Mellingers being held by Mr. Sefiane and to pursue any breach of duty action against Mr. Sefiane which he found appropriate. Subsequent to the entry of this Letter Order, and despite having filed an “Expense Report” which showed out-of-pocket costs of over $200,000, Mr. Sefiane voluntarily returned $95,000 of Ms. Mellinger’s funds to the guardians. Mr. Sefiane also hired an accountant, Mr. Pelillo, in an untimely attempt to create the formal accounting required by Court Order. Mr. Sefiane has retained almost $62,000 of Ms. Mellinger’s assets, however, leading to the accounting hearing and this report. Mr. Sefiane argues that he has fully accounted for expenditures greater than the amount of money which he has retained. The attorney-ad-litem points out that Mr. Sefiane is in contempt of Court Orders and has failed to provide specific documentation for many of the expenses he claims. The attorney-ad-litem thus urges the Court to order return of the entire $62,000 to Ms. Mellingers.

As attorney-in-fact, Mr. Sefiane was entitled to make reasonable expenditure of Ms. Mellinger’s funds for her benefit. To the extent Mr. Sefiane himself made these expenditures out-of-pocket, he may seek reimbursement from the ward’s assets. He must, however, demonstrate strictly that these self-dealing transfers were to reimburse necessary expenses of the ward.

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With the respect to the lack of receipts for the claimed expenditures, Mr. Sefiane points out that he was acting as a volunteer in taking care of Ms. Mellingers, that his position is analogous to that of a blood relative, and that he had no idea that receipts would be required for an eventual accounting. It is quite true that many volunteer care-givers operating under a power-of-attorney do so, quite innocently, under a very informal system. This is particularly so in the case of parents and children. Here, however, it was not until after the commencement of the contested guardianship that Mr. Sefiane began “reimbursing” himself, without benefit of Court Order, or even notice to the Court or the interested parties. Mr. Sefiane has voluntarily violated Court Orders and placed himself in the situation where the burden is on him to account for Ms. Mellinger’s funds. Based on that allocation of the burden of proof, I will address the expenses claimed by Mr. Sefiane on behalf of Ms. Mellingers.

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The Accounting

It became quite clear at the hearing that Mr. Sefiane enjoys a first-class lifestyle. When he buys a car, it is a luxury car. When he buys a suit it is an expensive suit. When he goes out for a steak, it is at Ruth’s Chris, not the local Bonanza. It is, of course, Mr. Sefiane’s right to spend his funds as he sees fit. A good deal of the accounting was taken up with a different question, however: whether Ms. Mellingers should be forced to pay for similar spending decisions made by Mr. Sefiane on her behalf. I will discuss each category of expense claimed below.

a) Care-Giver Expense

Evidence of record shows that Mr. Sefiane employed family members to provide care for Ms. Mellingers. Nothing in the record indicates that Ms. Mellingers required skilled nursing care. She did, however, require a companion, and the use of family members for this purpose was entirely appropriate. The payment method used by Mr. Sefiane, however, was byzantine. He paid varying weekly amounts to one teen-aged relative, giving her a series of raises. He paid for airplane flights for her and others. He bought clothes, expensive restaurant meals, and exercise equipment for them. He considers all of these expenses to be part of the cost of care-giving. To justify the alleged expense of around $5000 a month for the unskilled care which Ms. Mellingers received, he points to the similar costs charged by fee-for-service guardians and by a nursing facility. These are not comparable, however. The fee-for-service guardians’ costs were

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unusually high because of the on-going dispute among the Haven children about Ms. Mellinger’s care, complicated by a need to referee disputes about visitation largely caused by Mr. Sefiane himself. The market value of placement in a skilled nursing home, moreover, is hardly comparable to the appropriate cost for the casual companionship provided to Ms. Mellingers by a teenage relative of Mr. Sefiane.

The ad litem and the attorney for the guardians point to the fact that Ms. Mellingers is currently being fed, boarded and cared for by another of the Haven children for $200 per month, and urge the use of that figure to establish the cost of care. It is clear to me, however, that that amount barely covers the cost of utilities and food for Ms. Mellingers, and represents the voluntary actions of a loving child, and not of the market value of care-givers as hired by Mr. Sefiane.

Mr. Sefiane also testified that he paid one of his relatives $10 per hour to stay with Ms. Mellingers. That is the only evidence of record that appears to describe a market value for the care given her by Mr. Sefiane. Mr. Sefiane volunteered to take his mother into his home. However, he was not able to be with her at all times since he has a job outside the home. Assuming, as seems reasonable in the face of a paucity of evidence, that Mr. Sefiane was away from home 50 hours per week and needed to provide companionship care for Ms. Mellingers during that time, and applying the $10 per hour labor cost over a period of 40 weeks, I find that $20,000 of the amount expended on care for Ms. Mellingers may be retained by Mr. Sefiane as reimbursement.

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b) Room and Board

As stated above, Mr. Sefiane has a life-style that includes eating meals at or from fine restaurants. He is not, however, entitled to impose that life-style on Ms. Mellingers. The only evidence (other than the speculative testimony of Mr. Sefiane’s accountant) as to the appropriate cost of room and board for Ms. Mellingers is her current placement, at $200 per month. Therefore, Mr. Sefiane may retain $2,000 from Ms. Mellinger’s funds for room and board over the period during which she lived in his home.

c) Personal Property Purchased for Ms. Mellingers

Mr. Sefiane claims to have purchased numerous items of expensive clothing and furniture for Ms. Mellingers. The guardians and the attorney-ad-litem dispute the propriety of these purchases. I need not reach a decision on that matter, however, because that property has been retained by Mr. Sefiane. Therefore, he is not entitled to be reimbursed for these purchases, which remain his property.

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Attorney’s Fees and Sanctions

Mr. Sefiane’s actions following the entry of the Agreement and Order establishing the guardianship and voiding the power-of-attorney are both a violation of his fiduciary duty to Ms. Mellingers and an expression of contempt for that Order. Mr. Sefiane also violated my Order directing him to file a formal accounting, by filing the “Expense Report” which was inadequate, and more fundamentally, inaccurate and misleading. Because of these contemptuous and inequitable acts, I was forced to appoint an attorney-ad-litem to litigate on behalf of Ms. Mellingers to recover the property converted from her accounts by Mr. Sefiane. Under the American Rule on litigation costs, typically each party bears his own attorney’s fees. This Court has broad discretion to shift fees, however, where equity and the administration of justice require. Where an expenditure of fees results from another party’s bad-faith conduct or litigation tactics, such a shifting of fees is appropriate E.g. MBKS Co. v. Reddy, Del. Ch., No. 1853, Lamb, V.C. (April 30, 2007) (Mem. Op.) at 8. Because the expense of this litigation was a direct result of the inequitable actions of Mr. Sefiane, taken in bad-faith violation of Court Orders, he must bear the burden of the ad litem fees. Therefore, the reasonable fees of the ad litem shall be paid by Mr. Sefiane.

A great deal of the legal effort in this matter was expended by the attorney for the guardians here. That effort has clearly benefitted Ms. Mellingers, as it has helped create a fund of money resulting from the return of the converted assets. Therefore, it is appropriate that the reasonable fees of guardians’ counsel be paid from the ward’s funds.

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As with the attorney-ad-litem’s fee, I could direct Mr. Sefiane to pay these additional fees under the bad-faith exception to the American Rule on damages. Having appointed an attorney for Ms. Mellingers in this matter whose fees have already been shifted onto Mr. Sefiane, however, I am content to allow the fees of the guardians’s attorney to be paid from the funds of the ward.[4]

The guardians’s attorney has filed a motion for additional sanctions against Mr. Sefiane for his breach of Court Orders. I indicated to the parties at the time of the hearing that I would not impose sanctions, beyond shifting attorney’s fees. Given the motivation of Mr. Sefiane and the considerable expense which his actions in this matter have cost him, I do not find further sanctions appropriate.

Conclusion

For the reasons stated above, once this report becomes an order of the Court, the attorney-ad-litem shall submit a form of order requiring Mr. Sefiane to remit to the attorney-ad-litem, on behalf of the ward, $61,758.86, less those out-of-pocket expenses which I have allowed in this report, together with Mr. Schwartz’ attorney fees and costs including the costs and fees incurred in the presentation of and opposition to exceptions to

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the draft version of this report. The attorney-ad-litem shall pay his own and Mr. Ferry’s fees and costs from this fund and deliver the balance to the guardians.

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