Key Takeaways
- The penalty under Probate Code section 859 is automatic, not discretionary. If a court finds that a trustee wrongfully took trust property in bad faith, it must impose the double-damages penalty under Probate Code section 859. The court has no authority to reduce or waive it.
- Financial hardship is not a defense. Unlike punitive damages, this penalty is not adjusted based on the wrongdoer’s ability to pay. A trustee’s health, income, or financial condition does not factor into the calculation.
- The penalty amount is tied directly to what was taken. Because the penalty is calculated from the value of the property wrongfully taken, a large award is not, by itself, evidence that it is excessive.
- Other consequences do not offset this penalty. Discipline, criminal prosecution, or restitution ordered in a separate proceeding does not reduce or replace a distinct penalty owed under the Probate Code.
What Happened: A Trustee Depletes the Trust, Then Cites Financial Hardship
Edward Nowakoski, an attorney who also drafted the operative estate plan, served as trustee of the John A. Moramarco Trust. During his administration, he diverted a substantial portion of the trust’s funds for his own benefit and failed to provide the beneficiaries with the accountings he was required to give them. Of approximately $683,000 that had passed through the trust, only $41.06 remained by the time the beneficiaries discovered what had happened.
The beneficiaries petitioned the probate court for several forms of relief: removal of the trustee, a full accounting, surcharge damages, attorney’s fees, and a penalty under Probate Code section 859.
Nowakoski faced consequences beyond the probate proceeding as well. The State Bar investigated separately, found that he had intentionally misappropriated trust funds, disbarred him, and ordered restitution. He was also criminally prosecuted, entered a plea agreement, and paid restitution through that case.
At trial, Nowakoski argued that the section 859 penalty should be reduced given his poor health, the loss of his law license, his lack of income, and his resulting inability to pay.
The Trial Court Doesn't Budge
The probate court was not persuaded by that argument. It awarded the beneficiaries a section 859 penalty of $399,681.88, prejudgment interest of $205,928.68, and attorney’s fees and costs of $61,702.54. Nowakoski appealed, arguing that the trial court should have considered his financial circumstances before calculating the penalty.
The Court of Appeal Says the Penalty Isn't Optional
The Court of Appeal rejected Nowakoski’s arguments and affirmed the judgment. It explained that Probate Code section 859 does not give courts discretion on this point. Once a court finds both a wrongful taking of trust property and bad faith, the statute requires the double-damages penalty to be applied — there is no additional step at which the court may weigh the defendant’s personal or financial circumstances.
An Inability to Pay Does Not Reduce the Penalty
A central part of the Court’s reasoning involved distinguishing this penalty from punitive damages, which courts sometimes calibrate in part based on a defendant’s finances. Section 859 works differently: it is a fixed statutory penalty tied to the value of the property taken, and nothing in the statute allows a court to reduce that amount based on the defendant’s ability to pay. The Court noted that if the Legislature had intended to allow for a hardship exception, it would have included one in the statute.
A Substantial Penalty Is Not Necessarily an Excessive One
Nowakoski also argued that the penalty amount itself was excessive. The Court disagreed, explaining that the penalty is calculated directly from the value of the property wrongfully taken from the trust. That structure reflects the Legislature’s intent: to deter fiduciaries from abusing their position by ensuring the penalty scales with the extent of the misconduct.
The Interest and Fee Awards Were Also Upheld
The Court affirmed the awards of prejudgment interest and attorney’s fees without modification. As a result, Nowakoski remained responsible for the full penalty, interest, and fee awards, notwithstanding the discipline he had already faced in the State Bar and criminal proceedings.
Why This Case Matters
Moramarco reinforces that Probate Code section 859 functions as intended: a mandatory penalty that does not bend based on a trustee’s personal circumstances, even where those circumstances are genuinely difficult, such as illness or the loss of a career.
For beneficiaries and their counsel, the decision confirms that a section 859 penalty remains a viable and meaningful remedy even when a trustee claims to lack the resources to pay it. Once bad faith and wrongful taking are established, calculating the penalty is a straightforward exercise tied to the amount taken, not a case-by-case balancing test.
Cases like this serve as a reminder of the significant responsibilities that come with serving as a trustee,” said Lindsey Munyer, Partner at Keystone Law. “When disputes arise, courts will look closely at whether fiduciary duties were honored throughout the administration of the trust.”
For trustees and the professionals who advise them, the case is a reminder that consequences in one proceeding do not always offset consequences in another. Restitution paid in a criminal case does not satisfy, and does not reduce, a separate penalty owed under Probate Code section 859.
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