Case Title: Tauber v. Commonwealth

Citation: 

Docket Number: 011150

State: virginia

Court: Virginia Supreme Court

Date: 2002-04-19T00:00:00Z

Document:
PRESENT:  All the Justices 
 
LASZLO N. TAUBER, ET AL. 
 
v.  Record No. 011150   OPINION BY JUSTICE BARBARA MILANO KEENAN 
 
 
                           April 19, 2002 
COMMONWEALTH OF VIRGINIA, EX REL. 
JERRY W. KILGORE, ATTORNEY GENERAL 
OF VIRGINIA, ET AL. 
 
FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA 
Alfred D. Swersky, Judge 
 
 
In this appeal, we consider issues related to an accounting 
of the assets of a defunct charitable corporation.  The 
chancellor awarded $20 million and certain real property to the 
Commonwealth for the public benefit after imposing a 
constructive trust on the assets of the corporation whose 
charter was revoked in 1973. 
We initially considered issues arising from the diversion 
of assets of Jefferson Memorial Hospital, Inc. (JMHI) in Tauber 
v. Commonwealth, 255 Va. 445, 499 S.E.2d 839 (1998) (Tauber I).  
There, we affirmed the chancellor's judgment imposing a 
constructive trust on the assets of the defunct charitable 
corporation and we remanded the case to the chancellor for 
further proceedings.  Id. at 450-51, 456, 499 S.E.2d at 842, 
845.  We will recite the relevant facts in the proceedings to 
date, including the inferences fairly deducible from those 
facts, in the light most favorable to the Commonwealth, the 
prevailing party below.  Id. at 452, 499 S.E.2d at 843; Hoffman 
Family, L.L.C. v. Mill Two Assocs. P'ship, 259 Va. 685, 696, 529 
S.E.2d 318, 325 (2000). 
Our standard of review on appeal is well established.  As 
the trier of fact, the chancellor evaluated the testimony and 
the credibility of the witnesses.  Johnson v. Cauley, 262 Va. 
40, 44, 546 S.E.2d 681, 684 (2001); Advanced Marine Enters., 
Inc. v. PRC Inc., 256 Va. 106, 120, 501 S.E.2d 148, 156 (1998).  
Therefore, we will not set aside his findings on appeal unless 
they are plainly wrong or without evidence to support them.  
Nelson v. Davis, 262 Va. 230, 234, 546 S.E.2d 712, 715 (2001); 
Hudson v. Pillow, 261 Va. 296, 302, 541 S.E.2d 556, 560 (2001). 
I.  BACKGROUND FROM TAUBER I
 
In the early 1960s, King Street Joint Venture (KSJV), 
through Laszlo N. Tauber, M.D., as trustee, acquired by deed and 
lease certain parcels of real estate located in the City of 
Alexandria.  In 1963, JMHI obtained a charter in the state of 
Maryland as a "for-profit" corporation for the purpose of 
operating a hospital in Alexandria to be built on the acquired 
parcels of real estate.  In 1964, JMHI amended its corporate 
charter to become a non-profit corporation and began operating 
the new hospital the following year.  In 1966, KSJV was 
dissolved and its assets were transferred to Jefferson Memorial 
Hospital Associates (JMHA), a partnership conducted by Tauber as 
trustee. 
 
2
 
In 1971, Jefferson Memorial Hospital Corporation (JMHC), a 
Delaware "for-profit" corporation, was formed and acquired the 
assets and liabilities of JMHA.  Soon thereafter, a purported 
merger was attempted between JMHC and JMHI.  As we observed in 
Tauber I, while "[t]his merger was reported on tax returns filed 
in 1972, . . . the record is devoid of documents to support such 
a transaction."  Id. at 453, 499 S.E.2d at 843. 
 
Also in 1972, the Internal Revenue Service issued a ruling 
revoking JMHI's tax-exempt status, retroactive to 1965, finding 
that JMHI engaged in transactions that resulted in "inurement of 
income to private individuals," in violation of Internal Revenue 
Code provisions allowing charitable corporations exemption from 
federal income taxation.  In 1973, Maryland revoked JMHI's 
corporate charter. 
 
In 1975, JMHC purportedly purchased the assets and assumed 
the liabilities of JMHI.  The directors of JMHC thereafter 
authorized the transfer of all JMHC's assets to Tauber as 
trustee for Jefferson Memorial Hospital Joint Venture (JMHJV), 
"a partnership in which those assets apparently still reside."  
Id. at 449, 499 S.E.2d at 841.  That same year, JMHJV "leased 
back" the transferred assets to JMHC. 
 
In 1982, JMHC subleased Jefferson Memorial Hospital's 
operating license, liabilities, plant, equipment, and tangible 
and intangible assets to Health Group of Virginia, Inc. (HGV), a 
 
3
Tennessee corporation, for ten years in exchange for annual 
payments of about $1 million.  A maximum of $240,000 of this 
amount was allocated toward payment of lease obligations owed to 
JMHJV, including payment of the $1.4 million mortgage that JMHJV 
had assumed from JMHI as part of the 1975 purported sale and 
"leaseback" transaction. 
 
JMHJV amended its lease with JMHC to provide that JMHC 
would assign the proceeds from its sublease with HGV to JMHJV, 
except for the first $100,000 annually, in effect increasing 
JMHC's rental payments from $240,000 to $900,000 per year.  
Following the execution of this lease amendment, JMHJV built a 
new office building and garage complex (the Beauregard 
Building).  JMHC later changed its name to Jefferson Corporation 
of Alexandria (JCA). 
 
In 1985, Tauber alleged that HGV had breached the terms of 
its lease and negotiated a termination and buy-out of the 1982 
agreement by Fairfax Hospital Systems (INOVA).  INOVA acquired 
HGV's stock for $5.8 million.  In a lease agreement with JCA, in 
exchange for the operating license rights of the hospital, INOVA 
agreed to pay annual rent of about $1,375,000 under provisions 
that escalated to about $2.2 million in the year 2005.  On the 
same date the INOVA lease was executed, JCA assigned "all of its 
right, title and interest" in the INOVA lease to Tauber as 
trustee for JMHJV. 
 
4
 
In 1992, INOVA discovered problems in the chain of title to 
the hospital, which ultimately resulted in litigation between 
INOVA and JMHJV.  In 1994, INOVA and JMHJV reached a settlement 
agreement (the 1994 INOVA Agreement), in which INOVA purchased 
all rights to operate the hospital, including the right to 
terminate hospital operations.  Under the 1994 INOVA Agreement, 
possession of the land and hospital building reverted to JMHJV.  
In exchange for the operating license rights of the hospital, 
INOVA agreed to pay JMHJV over $2 million per year, with a final 
payment of $10 million in 2005. 
 
In 1996, the Commonwealth of Virginia, ex rel. the Attorney 
General of Virginia and the Commonwealth's Attorney for the City 
of Alexandria (collectively, the Commonwealth), filed an amended 
bill of complaint against Tauber and nine other physicians.  
Each was sued "individually and as former directors and/or 
trustees and/or trustees in liquidation of [JMHI] . . . and/or 
its successors in interest, and/or as partners in [JMHA] . . . 
or [JMHJV], . . . and/or directors or shareholders of [JMHC] (a 
Delaware Corporation which changed its name to 'Jefferson 
Corporation of Alexandria')" (collectively, the defendants).  
The defendants also included JMHA, JMHJV, and JCA, as well as 
Tauber in his capacity as trustee and agent for JMHA and JMHJV. 
 
In its amended bill of complaint, the Commonwealth alleged 
that the 1971 purported merger between JMHI and JMHC never 
 
5
occurred.  The Commonwealth asked that the chancellor declare, 
among other things, that the defendants usurped JMHI's corporate 
opportunities and, thus, that legal title to JMHI's assets 
remained in JMHI.  The Commonwealth also requested that the 
chancellor impose a constructive trust on the hospital building, 
the underlying land, equipment, and assets, and on the proceeds 
from the 1994 INOVA Agreement. 
 
The chancellor held that the Commonwealth was entitled to 
the relief sought in its bill of complaint.  In a March 1997 
order, the chancellor declared that "the assets and liabilities 
of [JMHI] be, reside and remain with [the defendants] as 
trustees and further that a constructive trust be . . . imposed 
on such assets and liabilities."  The chancellor also ordered 
the defendants to submit "a full and complete accounting of all 
assets and liabilities" that were subject to the chancellor's 
ruling. 
 
In Tauber I, we affirmed the chancellor's judgment.  Id. at 
456, 499 S.E.2d at 845.  We stated, in relevant part: 
 
The record amply supports the following findings 
of the chancellor.  "There are numerous transactions 
shown, some of-record and some not, dealing with the 
real estate, the equipment, the leases, and the use of 
tax benefits.  The transactions show an entire course 
of self-dealing by the directors of the charity.  They 
were able to acquire interests in the real estate, the 
equipment and lease, and were able to use tax benefits 
belonging to the former charity to enhance the gain of 
the for-profit corporation.  The record is replete 
with discussions among [defendants] as to their 
 
6
personal profits and gains with no reference to the 
best interests of the beneficiaries nor of the 
charitable corporation.  The result was the total 
obliteration of the non-profit corporation." 
 
Id. at 453-54, 499 S.E.2d at 843-44.  We held that after the 
1973 revocation of JMHI's corporate charter, by operation of 
law, JMHI's directors became trustees in dissolution of the 
charity.  Id. at 455, 499 S.E.2d at 844.  We stated that any 
actions thereafter taken by the defendants "as corporate 
officers, and not done to wind up or liquidate the business, 
were without effect because there was no corporation for which 
to act."  Id., 499 S.E.2d at 844-45.  We also concluded that the 
record clearly demonstrated that the defendants "failed and 
refused to execute the trust," and we remanded the case to the 
chancellor for further proceedings.  Id. at 456, 499 S.E.2d at 
845. 
II.  EVIDENCE ON REMAND 
 
On remand, the chancellor considered evidence concerning 
the value of JMHI's assets that were subject to the constructive 
trust.  The record included the testimony of Celeste B. Vella, 
an attorney who testified in the original proceedings before the 
chancellor and qualified as an expert witness in the field of 
real estate transactions and title issues.  Vella testified that 
JMHI owned the beneficial interest in several parcels of realty, 
including a portion of land that overlaps "Hopkins Parcel 1" and 
 
7
"Hopkins Parcel 2," a 65% undivided interest in the totality of 
Hopkins Parcels 1 and 2, and the "Berman Parcel." 
Vella stated that she used the term "improvements" to refer 
to the buildings erected on the various properties, and that a 
majority of the hospital improvements were constructed on 
Hopkins Parcels 1 and 2.  Vella observed that JMHA's financial 
statement and tax return for 1971 indicated that JMHA 
transferred ownership of the hospital improvements to JMHI on 
June 30, 1971.  She also stated that JMHC's financial statement 
for 1971 indicated that JMHC acquired JMHA on July 1, 1971, one 
day after the improvements were transferred to JMHI.  Vella 
testified that in her opinion, title to both the land and the 
improvements JMHI owned in 1971 still remained in JMHI at the 
time of trial. 
Vella also concluded that JMHI owned the beneficial 
interest in all the structures, including the hospital building, 
which were located on Hopkins Parcels 1 and 2 and the Berman 
Parcel.  She stated that her opinion was based on an examination 
of record deeds, "off-record" deeds, leases, purchase 
agreements, corporate documents, federal tax returns, financial 
statements, letters, and the defendants' answers to 
interrogatories filed in the case. 
 
Vella noted that, in 1975, JMHI purportedly conveyed its 
interest in a smaller portion of the above properties to JMHC, 
 
8
which in turn purportedly conveyed that portion to Tauber as 
trustee.  However, Vella concluded that this transaction was 
void because JMHI no longer existed as a corporation after its 
1973 charter revocation and "the appropriate parties were not 
joined in the deed in order to effect conveyance."  In 
explaining her conclusion, Vella stated that "in order for the 
directors to act pursuant to a forfeited corporate charter, they 
would have to make this decision as trustees.  And it appears 
from the minutes that they were acting as if JMHI still 
existed." 
 
The Commonwealth also presented the testimony of Robert E. 
Wilson, a certified public accountant employed by Arthur 
Andersen LLP.  Wilson stated that he conducted a fiduciary 
accounting of JMHI's assets based on the requirements specified 
in the chancellor's March 1997 decree, which directed disclosure 
of "all rents, issues, profits, accretions, and benefits, 
tangible and intangible, which have accrued therefrom."  Wilson 
also explained that in conducting the accounting, he used a 
"conservative" approach that resolved any doubt in favor of the 
defendants. 
Wilson testified that the right to operate the hospital and 
to generate income, which was secured by the hospital's 
operating license, was an asset subject to the constructive 
trust because JMHI never surrendered ownership of that license.  
 
9
He explained that "[t]he operating license is the engine . . . 
that runs this hospital.  The bricks and mortar are simply the 
chassis.  The value is in the license." 
 
Wilson concluded that "[t]he reorganizations of the 
Hospital's operating entity appeared to be done with the primary 
intent of creating financial gain for the original investor 
group."  He stated that the defendants' actions "stripped" JMHI 
of much of its value and severely undercapitalized the operation 
of the hospital.  He explained that these actions required the 
charity "to absorb the burden of being a tenant . . . at a cost 
. . . in excess of what it would have been" had the charity 
owned and operated its own infrastructure, which purportedly had 
been transferred to the defendants' other "for-profit" 
enterprises. 
Wilson stated that the defendants made only a single 
capital contribution to the charity, and that there were "many 
instances" in which they had received a return on their original 
investment "many times over."  He also determined that the 
defendants commingled their personal funds with the assets of 
the charity, and that the activities of JMHJV "served to impair 
the fiscal stability of JMHI." 
 
Wilson calculated the income generated from the assets held 
in trust by the defendants as trustees in dissolution, including 
the proceeds from the HGV and INOVA transactions and the 1994 
 
10
INOVA Agreement.  Wilson's calculations showed that as of June 
30, 1999, JMHI had realized assets in the amount of $26,372,438 
that were subject to the constructive trust.  Wilson further 
determined that an additional $24,703,145 would accrue to the 
benefit of the constructive trust from July 1, 1999 through 
October 1, 2005, when INOVA is required to make final payment 
under the terms of the 1994 INOVA Agreement. 
 
Wilson also addressed the methodology used by the 
defendants in the accounting they submitted to the chancellor.  
He testified that the defendants' submission was not a fiduciary 
accounting because it did not reflect what actually had 
transpired with regard to JMHI's assets.  Wilson stated that he 
did not see evidence of "any recognition given to the accretion 
of any of the charity's assets at any point in time," and that 
the defendants did not account for the net operating losses of 
the charity.  He described the defendants' methodology as the 
act of choosing four dates and attempting "to create a value 
judgment or estimation of value based upon the creation of 
balance sheets which have one foot in reality and one foot in 
hypothesis." 
 
Wilson explained that valuation is relevant only "if you 
are winding up and liquidating a business, disposing of assets 
and liabilities."  He stated that because JMHI was never "wound-
 
11
up" or liquidated, "any valuation information at any point in 
time is nothing more than a reflection of what might be." 
 
The defendants' accounting, prepared by Arthur H. Cobb, 
reported JMHI's assets only through 1973, when JMHI's corporate 
charter was revoked.  Cobb also prepared value calculations that 
were based on certain assumptions, including the assumption that 
JMHI was liquidated in the alternative years of 1975, 1982, 
1992, and 2005. 
 
Cobb testified that JMHI was "undercapitalized" and had 
received only "one formal capital contribution," which was 
repaid within two years.  He also stated that the hospital was 
merely a "white elephant" if its assets were considered apart 
from its operating license. 
 
Cobb's accounting indicated that a liquidation of JMHI in 
April 1973 would not have yielded any net proceeds, because 
total liabilities would have exceeded total assets.  Cobb 
reached a similar conclusion for the hypothetical liquidation of 
JMHI on July 1, 1975, the date of the sale and "leaseback" 
transaction with JMHJV.  He also estimated that a hypothetical 
liquidation of JMHI in 1982, at the time of the HGV transaction, 
would have resulted in about $1,254,000 in net proceeds. 
 
Cobb prepared calculations involving a hypothetical 
liquidation year of 1992, "based on JMHI participating in 
leasing or sub-leasing certain land, building and related 
 
12
equipment, furniture and fixtures" to HGV and to INOVA.  Under 
this assumption, Cobb estimated that liquidation of JMHI's 
business at the end of 1992 would have resulted in about 
$5,462,000 in net proceeds. 
 
Using a hypothetical liquidation year of 2005, Cobb 
estimated the value of JMHI's assets including, among other 
things, payments that JMHI would receive from INOVA pursuant to 
the 1994 INOVA Agreement.  Cobb estimated that a liquidation of 
JMHI's business in September 2005 would result in net proceeds 
of about $21,944,511.  He estimated that the "present value" of 
this amount in December 1999 was between $4,646,000 and 
$10,347,000, depending on various annual rates of return.  
However, Cobb did not include in his calculations the $10 
million payment due from INOVA on October 1, 2005. 
 
Tauber testified concerning the buildings and building 
additions built by the partnerships KSJV, JMHA, and JMHJV.  His 
testimony primarily addressed the cost, rather than the source 
of the funds used, for the improvements constructed.  He stated 
that construction of the original hospital building was 
completed in 1965 at a cost of $1,055,000, and that a "nursing 
wing" was built in 1968 at a cost of about $110,000. 
Tauber testified that a foyer, corridor, and physical 
therapy unit were added to the hospital in 1974 at a cost of 
about $96,000, and that an intensive care unit was added in the 
 
13
late 1970's at an approximate cost of $92,000.  He also stated 
that in 1979, a six-story office building was built on King 
Street (the Medical Office Building) at a cost of about 
$2,650,000. 
Tauber testified that "the physicians" paid $1,600,000 of 
the construction costs of the Medical Office Building, but he 
did not identify more specifically who actually made these 
contributions.  He indicated that the remaining costs of that 
building were financed from the $1,400,000 "new mortgage" that 
was assumed by JMHC in 1978.  He also testified that another 
office building was constructed in 1982 on North Beauregard 
Street (the Beauregard Building) at an approximate cost of 
$722,000. 
 
Tauber stated that as part of an effort to attract doctors 
to the Beauregard Building, JMHJV leased two-thirds of the 
building's office space to Irwin S. Freedman, one of the 
defendants, and his medical practice group.  Freedman's lease 
was for a term of ten years and provided that at its 
termination, Freedman could purchase the portion of the building 
he occupied for $1, conditioned on his group practice having 
admitted at least 90% of its patients to the hospital.  Eight 
and one-half years into the lease term, Freedman was permitted 
to purchase this two-thirds ownership share of the Beauregard 
Building for $1. 
 
14
 
Tauber further testified that in 1983 a fourth-floor 
addition was built over the nursing wing of the hospital at a 
cost of approximately $927,000.  Finally, he agreed that the 
hospital building would be a mere "white elephant" without the 
license to operate the hospital because the building was "a 
single-purpose building." 
III.  CHANCELLOR'S DECISION 
 
In a letter opinion dated July 13, 2000, the chancellor 
rejected the defendants' accounting.  He observed that the 
methodology used by the defendants did not afford "an 
opportunity to calculate the receipts, disbursements, rents, and 
profits that actually accrued to [the defendants]."  The 
chancellor also found, in relevant part: 
 
[The defendants] obtained interests in real 
property, were paid "dividends" in excess of their 
capital contributions, and finally obtained a 
settlement of a dispute with Inova directly arising 
out of hospital operations. 
 
 
Under accepted principles, [the defendants] 
cannot profit from the wrong doing found by the Court 
and must be called to account for the profit obtained.  
In addition, where [the defendants], trustees in 
dissolution, commingle their interests with those of 
the charity, they bear the burden of proving the 
separate nature of the assets.  [The defendants] have 
not met that burden.  Hence, they are accountable for 
all of the assets, rents, profits, and receipts they 
obtained. 
 
 
The chancellor determined that JMHI's interest in the real 
property and improvements included a 70% interest in Hopkins 
 
15
Parcels 1 and 2, a 100% interest in the Berman parcel, which he 
referred to as "Beauregard Street," and a 100% interest in the 
hospital improvements and the Beauregard Building.  He concluded 
that the Commonwealth's accounting established that the 
defendants received net revenue through June 30, 1999 in the 
amount of $26,372,438.  The chancellor also determined from the 
Commonwealth's accounting that the anticipated revenue from the 
1994 INOVA Agreement through October 1, 2005, including the $10 
million payment, was $24,703,145.  These figures resulted in 
total net and future revenue in the amount of $51,075,583. 
 
The chancellor's ruling further provided, in relevant part: 
 
Under strict accounting rules, [the defendants] 
would be liable for the accrued revenues plus the 
present value of the future payments due from Inova.  
However, equitable principles require that a fairness 
test be applied to any award in this case. 
 
 
Since [the defendants] now hold valuable real 
estates as trustees in dissolution, and since the 
benefit to other charities will be substantial even if 
[the defendants] are not required to account dollar-
for-dollar, and the purposes of this cause will be 
served, this Court finds that an award of Twenty 
Million Dollars ($20,000,000.00) in addition to the 
real property is fair and just under all of the 
circumstances. 
 
The chancellor also stated that he would consider further 
argument whether the defendants were entitled to a credit for 
"costs of acquisition and improvements to the realty actually 
incurred." 
 
16
 
On November 13, 2000, a hearing was held in which the 
defendants presented evidence that Leslie P. Gondor, M.D., one 
of the defendants, paid $150,000 in 1964 to purchase an interest 
in certain real property from JMHI.  Gondor made this purported 
purchase in his own name by means of an "off-record" letter 
transaction.  At the same hearing, the defendants argued, among 
other things, that they should be given a credit for the 
construction costs of the hospital building, the Medical Office 
Building, and the Beauregard Building. 
 
In a letter opinion dated December 27, 2000, the chancellor 
denied the defendants' motion for acquisition and construction 
credits and their motion to release portions of the award to 
certain charities controlled by Tauber.  The chancellor also 
denied the Commonwealth's motion for an award of attorneys' fees 
and costs. 
 
On February 21, 2001, the chancellor entered a decree 
incorporating his previous letter opinions and awarding judgment 
in favor of the Commonwealth as trustee against the defendants 
"individually and as former directors and/or trustees and/or 
trustees in liquidation," and against JMHA, JMHJV, JCA, and 
Tauber as trustee and agent for JMHA and JMHJV.  The chancellor 
further decreed "that all of the assets referenced and described 
herein are subject to [the] constructive trust," including the 
anticipated revenue from the 1994 INOVA Agreement. 
 
17
 
The chancellor's decree directed that the assets subject to 
the constructive trust be distributed according to the doctrine 
of cy pres.  In his decree, the chancellor also provided for 
interest on his award at the statutory rate of nine percent from 
July 13, 2000, the date the chancellor issued his opinion letter 
deciding the case in favor of the Commonwealth. 
 
The chancellor later held a hearing to set the amount of an 
appeal bond.  He ruled that under Code § 8.01-676.1(C), he was 
obligated to "require the posting of an appeal bond . . . with 
surety or an irrevocable letter of credit in an amount 
sufficient to pay [the] judgment." 
 
The defendants appealed from the chancellor's holdings.  
The Commonwealth assigned cross-error to the amount of the 
judgment and the chancellor's refusal to award the Commonwealth 
its attorneys' fees and accounting costs. 
IV.  ISSUES RESOLVED BY TAUBER I 
 
The defendants raise several arguments that we resolved in 
Tauber I or are necessarily decided by our holdings in that 
appeal.  We will set forth these issues below. 
Void Transactions and "Fairness" 
 
The defendants argue that the chancellor erred in failing 
to hold that the purported sale in 1975 of JMHI's assets to 
JMHC, or in the alternative, the 1982 transactions with HGV, 
constituted acts of trustees in dissolution of JMHI to "wind-up" 
 
18
the non-profit corporation.  The defendants also assert that the 
chancellor erred when he held that the purported sale in 1975 of 
JMHI's assets to JMHC was void, regardless of the fairness of 
the sale from the perspective of JMHI.  We disagree with the 
defendants' arguments. 
 
In Tauber I, we concluded that the law and the evidence 
fully supported the chancellor's rulings that JMHI and JMHC did 
not "merge" in 1971.  Id. at 455, 499 S.E.2d at 844.  We also 
held that the transactions purportedly taken by the directors 
after the 1973 charter revocation were void.  We stated: 
Because the 1971 "transaction" never occurred, the 
1973 revocation of JMHI's corporate charter converted 
its directors by operation of law to trustees in 
dissolution . . . . 
 
The charter revocation terminated JMHI's corporate 
existence and powers, and it could no longer function 
as a corporation. . . .  From that day forward, the 
defendants' actions purportedly taken as corporate 
officers, and not done to wind up or liquidate the 
business, were without effect because there was no 
corporation for which to act.  The corporate assets 
had automatically transferred to the directors as 
trustees. 
 
Id., 499 S.E.2d at 844-45. 
 
In addition, as stated above, we concluded that the "record 
clearly demonstrates that the directors of JMHI, now trustees in 
dissolution, have failed and refused to execute the trust."  Id. 
at 456, 499 S.E.2d at 845.  We held that the transactions at 
issue showed "an entire course of self-dealing by the directors 
 
19
of the charity" that resulted in "the total obliteration of the 
non-profit corporation [JMHI]."  Id. at 453-54, 499 S.E.2d at 
844. 
These holdings in Tauber I mandate our present conclusion 
that the purported sale in 1975 of JMHI's assets to JMHC, and 
the 1982 transactions with HGV, did not constitute acts of the 
defendants as trustees in dissolution to "wind-up" the corporate 
affairs of JMHI.  This conclusion is amply supported by the 
record, which contains no indication that the transactions in 
1975 and 1982 were entered into by the defendants as trustees in 
dissolution of JMHI, on behalf of the charity, rather than as 
directors of JMHC who profited from the transactions. 
 
In Tauber I, we also rejected the defendants' contention 
that we should apply a "fairness" test to the 1971 failed 
"merger" between JMHI and JMHC.  Id. at 455-56, 499 S.E.2d at 
845.  Our conclusion was based on our holding that the 
defendants were not entitled under any circumstances to property 
rights or other assets belonging to JMHI, either during or after 
the life span of the corporation.  We stated that "[t]o hold 
otherwise would convert the public nature and purpose of the 
corporation into a vehicle for the personal pecuniary gain of 
the members."  Id. at 455, 499 S.E.2d at 845 (quoting Hanshaw v. 
Day, 202 Va. 818, 824, 120 S.E.2d 460, 464 (1961)).  This 
conclusion applies equally to the purported sale in 1975.  
 
20
Moreover, a defense of "fairness" is inapplicable to the review 
of a void transaction such as the 1975 purported sale, because 
that transaction in effect never occurred. 
Assets in Dissolution of JMHI
 
The defendants argue that the chancellor erred in 
classifying the rents, profits, and other sums accruing to 
entities controlled by the defendants, including revenues from 
the leases with HGV and INOVA and proceeds from the 1994 INOVA 
Agreement, as assets in dissolution of JMHI subject to the 
constructive trust.  However, as stated above, we concluded in 
Tauber I that after JMHI's charter revocation, its corporate 
assets were automatically transferred to the directors as 
trustees in dissolution of the charity.  Id. at 455, 499 S.E.2d 
at 844-45.  The evidence before the chancellor in the first 
proceeding, and Wilson's accounting testimony in the proceeding 
on remand, identified the leases with HGV and INOVA, and the 
proceeds of the 1994 INOVA Agreement, as assets of JMHI that 
were diverted by the defendants for their personal benefit to 
JMHJV. 
 
We also find no merit in the defendants' argument that the 
chancellor erred in including in the constructive trust a parcel 
of land that JMHI purportedly had transferred to Gondor in the 
1964 "off-record" transaction.  The chancellor's holding is 
supported by Vella's testimony in the initial proceeding that 
 
21
JMHI presently is the beneficial owner of certain real property 
that includes the interest allegedly transferred to Gondor.  
Therefore, we conclude that the chancellor properly placed the 
above assets and property in the constructive trust. 
"Sale" of Beauregard Building 
 
The defendants contend that the chancellor erred when he 
held that the Beauregard Building was an asset in dissolution of 
JMHI.  They contend that this building was sold to Freedman, one 
of JMHI's trustees in dissolution, and other bona fide 
purchasers for value who lacked notice of "any adverse claim" 
regarding the property.  The defendants further contend that the 
imposition of a constructive trust on this property violated the 
Due Process Clause of the United States Constitution.  We 
disagree with the defendants' arguments. 
 
In Tauber I, we held that the trustees in dissolution of 
JMHI were not entitled to any of the charity's assets after the 
dissolution of the charity.  Id. at 455, 499 S.E.2d at 845.  
However, Freedman purportedly purchased his two-thirds interest 
in the Beauregard Building for $1 in 1992, during his tenure as 
a trustee in dissolution of JMHI.  He entered into this 
purported transaction about 19 years after JMHI's charter 
revocation. 
A purchaser of real property is bound by both constructive 
and actual notice and "has no right to shut his eyes or his ears 
 
22
to the inlet of information, and then say he is a bona fide 
purchaser [for value] without notice."  Richmond v. Hall, 251 
Va. 151, 157, 466 S.E.2d 103, 106 (1996) (quoting Burwell v. 
Fauber, 62 Va. (21 Gratt.) 446, 463 (1871)).  Thus, we conclude 
that Freedman was not a bona fide purchaser for value without 
notice because at the time of his alleged purchase, he had 
actual notice that the charity had been dissolved and 
constructive notice that the Beauregard Building was one of the 
charity's assets.1  
"Safe Harbor" Defenses 
 
The defendants assert that the chancellor "failed to apply 
the law in effect at the time [he] rendered [his] decision," and 
that his "failure to apply Maryland law violated the Full Faith 
and Credit, Due Process, and Commerce Clauses of the United 
States Constitution."  In support of these arguments, the 
defendants note that Maryland law provides a "safe harbor" for 
corporate directors who act in good faith in discharging their 
corporate duties.2  The defendants also argue that the chancellor 
should have conducted a hearing concerning whether they took 
their actions as corporate officers in good faith. 
                     
 
1 We do not address the status of the other purported 
purchasers of the Beauregard Building because they are not 
parties to this suit. 
 
2 See Md. Code Ann., Corps. & Ass'ns § 2-405.1 (2001). 
 
23
 
These arguments are completely precluded by our holding in 
Tauber I that the defendants were trustees in dissolution of 
JMHI, rather than corporate directors, following JMHI's charter 
revocation in 1973.  Id. at 455, 499 S.E.2d at 844.  Therefore, 
any defenses of good faith in the exercise of business judgment 
that may be asserted by corporate directors of a non-profit 
corporation are inapposite here.  See Code § 13.1-870; Lake 
Monticello Owners' Ass'n v. Lake, 250 Va. 565, 571, 463 S.E.2d 
652, 656 (1995).  See also Md. Code Ann., Corps. & Ass'ns § 2-
405.1 (2001); Werbowsky v. Collomb, 766 A.2d 123, 138 (Md. 
2001). 
Doctrine of Cy Pres 
 
The defendants assign error to the chancellor's decision to 
apply the Virginia law of cy pres rather than Maryland law 
governing the distribution of assets of a Maryland non-profit 
corporation.  The common law doctrine of cy pres permits a court 
of equity to administer a charitable trust to conform as closely 
as possible to the purpose for which the trust was created or, 
if that purpose cannot be achieved, for some other charitable 
purpose.3  See Baliles v. Miller, 231 Va. 48, 56 n.7, 340 S.E.2d 
805, 810 n.7 (1986); Campbell v. Board of Trustees, 220 Va. 516, 
524, 260 S.E.2d 204, 209 (1979). 
 
24
 
In Tauber I, we held that the chancellor properly imposed a 
constructive trust so that the assets of JMHI can be distributed 
in accordance with appropriate charitable purposes.  We stated 
that 
the [chancellor] properly exercised [his] authority to 
insure that these assets, now held by the defendants 
as trustees in liquidation, are distributed in accord 
with the charitable purposes to which they should have 
been devoted.  This power to liquidate the assets and 
business of a nonstock corporation may be exercised 
over the property within the court's jurisdiction "of 
a foreign corporation that has ceased to exist."  Code 
§ 13.1-909(B). 
 
Id. at 456, 499 S.E.2d at 845.  Based on this holding in Tauber 
I, we conclude that the chancellor properly invoked the doctrine 
of cy pres in providing for the future distribution of JMHI's 
assets. 
Individual Liability 
 
The defendants argue that the chancellor erred in holding 
them individually liable for the amount of the assets diverted 
from the charity.  The defendants also assert that they were 
entitled to notice and a hearing on the issue of individual 
liability under Virginia Code § 13.1-870, Md. Code Ann., Corps. 
& Ass'ns § 2-405 (2001), and the Due Process Clause of the 
United States Constitution. 
                                                                  
 
3 We note that Code § 55-31, the "cy pres" statute, is 
inapplicable here because its provisions are confined to express 
trusts. 
 
25
 
These arguments, however, are precluded by our decision in 
Tauber I.  In the amended bill of complaint in the original 
proceedings, the Commonwealth asserted, among other things, that 
the defendants were liable for the acts complained of "each 
individually and as a former director of [JMHI] . . . and/or as 
partners in Jefferson Memorial Hospital Associates, or [JMHJV], 
and/or directors or shareholders of [JMHC] (a Delaware 
Corporation now known as 'Jefferson Corporation of 
Alexandria')."  Id. at 449, 499 S.E.2d at 841. 
The chancellor held that the Commonwealth was entitled to 
the relief requested in its amended bill of complaint, and we 
upheld the chancellor's determination, without exception.  Id. 
at 450, 456, 499 S.E.2d at 842, 845.  This disposition in Tauber 
I resolved the issue of the defendants' individual liability, 
and their liability for their actions on behalf of JMHI, JMHC, 
JCA, JMHA, and JMHJV. 
V.  ISSUES NOT RESOLVED BY TAUBER I
 
We turn now to consider the defendants' assignments of 
error that are not precluded by our decision in Tauber I.  After 
that discussion, we will examine the Commonwealth's assignments 
of cross-error. 
Burden of Proof on Remand 
 
The defendants argue that the Commonwealth had the burden 
of tracing JMHI's assets into an identifiable account or 
 
26
property.  They assert that as a claimant seeking recovery of 
assets that may have been commingled with other assets, the 
Commonwealth must identify the portion of the commingled 
property to which it is entitled.  In response, the Commonwealth 
contends that when trustees have commingled personal assets with 
those belonging to the trust, the entire commingled fund is 
subject to the constructive trust unless the trustees can 
distinguish the funds to which they personally are entitled. 
 
In stating the burden of proof applicable to these 
proceedings, we first observe that a constructive trust arises 
by operation of law to prevent what otherwise would result in a 
fraud.  See Crestar Bank v. Williams, 250 Va. 198, 204, 462 
S.E.2d 333, 335 (1995); Leonard v. Counts, 221 Va. 582, 589, 272 
S.E.2d 190, 195 (1980).  The chancellor's imposition of a 
constructive trust, which we approved in Tauber I, reflected his 
determination that the defendants had wrongfully diverted the 
assets of JMHI into other entities and business opportunities 
for their personal benefit. 
 
On remand, the chancellor was required to fix the amount of 
JMHI's assets held by the defendants as trustees in dissolution 
of the charity.  As the successful proponent of the constructive 
trust, the Commonwealth bore the initial burden on remand of 
tracing JMHI's assets and establishing the amount of its 
intangible assets.  See Crestar Bank, 250 Va. at 204, 462 S.E.2d 
 
27
at 335-36; Watts v. Newbury, 107 Va. 233, 240, 57 S.E. 657, 659 
(1907).  However, to the extent that the defendants commingled 
their own property with JMHI's assets and sought recovery of 
such property, they had the burden of proving how much of the 
commingled funds they owned personally.  See Brown v. Coleman, 
566 A.2d 1091, 1097 n.7 (Md. 1989); Bass v. Smith, 56 A.2d 800, 
805 (Md. 1948); MacBryde v. Burnett, 132 F.2d 898, 900 (4th Cir. 
1942); V Austin W. Scott & William F. Fratcher, The Law of 
Trusts § 515, at 609 (4th ed. 1989).  The defendants bore this 
evidentiary burden because when trustees conduct their affairs 
in a manner that prevents a precise accounting of trust assets, 
the trustees, rather than the trust, must suffer the 
consequences.  Am. Nat'l Bank v. Ames, 169 Va. 711, 750, 194 
S.E. 784, 798 (1938); see Royall v. Peters, 180 Va. 178, 189, 21 
S.E.2d 782, 787 (1942); First Nat'l Bank v. Commercial Bank & 
Trust Co., 163 Va. 162, 175, 175 S.E. 775, 779 (1934). 
Evidence Tracing JMHI's Assets 
 
The defendants argue that the Commonwealth's accounting, on 
which the chancellor relied, was "flawed" and did not account 
for the "separate income" attributable to JMHC and JMHJV.  They 
also contend that JMHI did not have an ownership interest in the 
hospital or in its underlying land, and that the Commonwealth 
failed to trace JMHI's assets into the Beauregard Building, the 
HGV lease, and the INOVA transactions.  The defendants also 
 
28
assert that the chancellor erred in rejecting their accounting, 
which they claim properly identified their separate personal 
assets. 
 
In response, the Commonwealth argues that its evidence was 
sufficient to meet its burden of tracing JMHI's assets and of 
establishing the amount of its intangible assets.  We agree with 
the Commonwealth. 
 
We consider the parties' arguments in the context of the 
chancellor's March 1997 order, which provided the framework for 
his determination of the amount of JMHI's assets.  As stated 
above, in that order the chancellor directed the defendants to 
submit "a full and complete accounting of all [JMHI's] assets 
and liabilities that . . . shall disclose all rents, issues, 
profits, accretions, and benefits, tangible and intangible, 
which have accrued therefrom." 
 
In response to the chancellor's directive, the defendants 
submitted Cobb's accounting, which did not satisfy these 
requirements identified by the chancellor.  Instead, Cobb 
attempted to place a value on the charity through the use of 
hypothetical dissolution dates of 1975, 1982, 1992, and 2005.  
This methodology was a complete departure from that used by the 
Commonwealth's accountant, Wilson, who structured his accounting 
of JMHI's assets in accordance with the requirements stated in 
the chancellor's decree. 
 
29
 
The chancellor's decision to reject Cobb's approach was 
supported by Wilson's testimony.  Wilson explained that Cobb's 
approach was not a fiduciary accounting because Cobb did not 
attempt to determine what actually had occurred with regard to 
JMHI's assets and liabilities, but merely made estimations 
regarding JMHI's value on certain dates.  Wilson indicated that 
the use of this approach was unsound because JMHI was never 
liquidated and, thus, any valuation information was merely 
hypothetical in nature.  Based on this evidence, we conclude 
that the chancellor did not err in rejecting Cobb's valuation 
approach. 
 
We also hold that the chancellor did not err in accepting 
the Commonwealth's evidence tracing JMHI's assets.  First, 
Vella's testimony supported the chancellor's award of the real 
property, including the improvements, to the Commonwealth.  
Vella, an expert in real property and title issues, stated that 
JMHI owned the Berman Parcel, which was also known as the 
Beauregard Street Parcel.  In addition, she stated that JMHI 
owned a 65% undivided interest in the entire portion of land 
comprising Hopkins Parcels 1 and 2, as well as a parcel of land 
that overlapped Hopkins Parcels 1 and 2.  Vella also testified 
that JMHI owned the beneficial interest in the hospital building 
and also owned all structures and improvements built on Hopkins 
Parcels 1 and 2 and the Berman Parcel.  These buildings included 
 
30
the Beauregard Building, which was built partly on the Berman 
Parcel. 
 
Second, Wilson's accounting testimony and supporting 
documentary evidence satisfied the Commonwealth's burden of 
tracing JMHI's other assets.  This evidence established that the 
primary value of the hospital derived from its operating 
license, which Wilson described as the "engine" that propelled 
the charity.  Wilson testified that because the hospital 
operated as a "going concern" until the time of the 1994 INOVA 
Agreement, the hospital license generated many financial 
opportunities that Wilson identified as belonging to JMHI, 
rather than to the defendants and their "for-profit" entities.  
These opportunities included the 1982 HGV lease and the INOVA 
transactions. 
 
As stated above, Wilson determined that the value of JMHI's 
assets, excluding the real property and improvements, subject to 
the constructive trust totaled $26,372,438 as of June 30, 1999.  
He also concluded that an additional $24,703,145 will accrue to 
the benefit of the constructive trust under the terms of the 
1994 INOVA Agreement.  Thus, we conclude that the evidence 
accepted by the chancellor adequately traced JMHI's assets, 
including the amount of its intangible assets. 
Acquisition and Construction Costs
 
31
 
The defendants argue that the chancellor erred in denying 
them credit for acquisition and construction costs relating to 
JMHI's assets that were subject to the constructive trust.  They 
assert that they are entitled to a credit for "sums advanced in 
transactions declared void by the Commonwealth," and for the 
purchase price paid by Gondor for the above-described interest 
in property he purportedly purchased in his own name.  We 
disagree with the defendants' arguments. 
 
In the chancellor's July 13, 2000 letter opinion awarding 
judgment in favor of the Commonwealth, he directed the parties 
to schedule a hearing for the determination, among other things, 
of any credit due to the defendants for acquisition costs.  The 
chancellor also stated that he would consider whether the 
defendants were entitled to a credit for "improvements to the 
realty actually incurred."  At a hearing in November 2000, the 
defendants did not present any testimony but argued from the 
evidence already presented that the costs expended in acquiring 
the properties and in building the improvements should be 
credited to them. 
 
After considering the parties' arguments, the chancellor 
denied the defendants' request for such credits.  We hold that 
the record supports the chancellor's decision.  The defendants 
did not meet their burden of proving that their personal funds, 
rather than funds received from the operation of the hospital or 
 
32
from some other source, were spent to acquire property in JMHI's 
name or to construct improvements on property already owned by 
JMHI. 
 
We also observe that the balance of the record fails to 
support the defendants' request for cost credits.  Most notably, 
as stated above, the evidence showed that they diverted about 
$51 million of the charity's present and future assets into the 
"for-profit" entities in which they participated.  They also 
received funds from the redemption of shares initially conveyed 
to them by JMHC in 1971 at the time of the failed "merger."  The 
record shows that the defendants obtained at least $508,000 in 
these redemption transactions.  Finally, the defendants' 
accountant, Cobb, acknowledged that the defendants made only one 
capital contribution to JMHI, which was repaid to them within 
two years. 
Donations to Other Charities 
 
We also find no merit in the defendants' argument that the 
chancellor improperly included in his award assets purportedly 
transferred by JMHJV to two charities, which are controlled by 
Tauber as trustee.  These alleged donations were made after 
JMHI's dissolution, and the defendants failed to prove that the 
"donations" were made from their own personal funds, rather than 
from the assets of JMHI that were subject to the constructive 
trust. 
 
33
Prejudgment Interest 
 
The defendants argue that the chancellor erred in 
calculating the award of interest from the date he issued his 
July 13, 2000 letter opinion rather than from February 21, 2001, 
the date of his decree awarding the $20 million judgment to the 
Commonwealth.  Citing Code § 8.01-382, the defendants assert 
that interest may be awarded only from the date of entry of a 
judgment or decree.  We disagree with the defendants' argument. 
 
We consider the language of Code § 8.01-382 in accordance 
with its plain meaning.  See Vaughn, Inc. v. Beck, 262 Va. 673, 
677, 554 S.E.2d 88, 90 (2001); Cummings v. Fulghum, 261 Va. 73, 
77, 540 S.E.2d 494, 496 (2001).  This statute provides, in 
relevant part, that when an action or a suit is heard by the 
court without a jury, the court "may provide for interest on any 
principal sum awarded, or any part thereof, and fix the period 
at which the interest shall commence." 
 
The plain language of Code § 8.01-382 gave the chancellor 
discretionary authority to determine whether the Commonwealth 
was entitled to prejudgment interest and to fix the date from 
which such interest was due.  The chancellor's decision awarding 
interest on the monetary portion of the judgment from July 13, 
2000 effectively provided prejudgment interest at the statutory 
rate between July 13, 2000 and the date of the chancellor's 
decree, February 21, 2001.  We conclude that based on the 
 
34
extended duration of this suit, and the overwhelming evidence in 
the record against the defendants, the chancellor's decision to 
award interest from July 13, 2000 was not an abuse of his 
discretionary authority under the statute. 
Appeal Bond 
 
Finally, the defendants argue that the chancellor erred in 
ruling that Code § 8.01-676.1(C) provides the sole method by 
which a court may suspend execution of a decree pending appeal.  
The defendants assert that this statute does not limit the 
chancellor's "inherent authority" to set a bond in an amount 
less than the judgment to stay execution of a decree.  We 
disagree with the defendants' arguments. 
 
The plain language of the statute governs our analysis.  
See Vaughn, 262 Va. at 677, 554 S.E.2d at 90; Cummings, 261 Va. 
at 77, 540 S.E.2d at 496.  In relevant part, Code § 8.01-
676.1(C) provides that an appealing party who requests a 
suspension of execution of a judgment during an appeal "shall 
. . . file an appeal bond or irrevocable letter of credit 
conditioned upon the performance or satisfaction of the judgment 
and payment of all damages incurred in consequence of such 
suspension, and . . . execution shall be suspended upon the 
filing of such security and the timely prosecution of such 
appeal." 
 
35
 
This statutory language does not give the trial court 
discretion to set an appeal bond in an amount less than the 
judgment.  The purpose of the statute is to secure payment of 
the full judgment amount and all damages incurred as a result of 
the suspension of execution of the court's decree.  A lesser 
amount would undermine the security of the judgment to which a 
prevailing party is entitled in the event that an appellant does 
not succeed on appeal.  Thus, we hold that the chancellor did 
not err in requiring the defendants to post an appeal bond in 
conformance with the mandatory terms of the statute. 
Amount of Judgment 
 
Asserting cross-error, the Commonwealth contends that the 
chancellor erred in failing to award the Commonwealth the full 
amount of diverted assets identified by Wilson in the amount of 
about $51 million.  The Commonwealth contends that it is 
entitled to that amount, rather than the $20 million amount 
awarded by the chancellor, based on the evidence presented and 
the defendants' failure to meet their burden of proving any 
separate sums to which they were entitled.  Thus, the 
Commonwealth argues that the chancellor improperly reduced the 
award from the total sum that he determined the defendants would 
have been liable to pay under "strict accounting rules."  In 
response, the defendants ask us to reject the Commonwealth's 
 
36
argument, asserting that the chancellor failed to make any 
findings supporting such an award to the Commonwealth. 
 
In resolving this issue, we first observe that the 
chancellor accepted the Commonwealth's accounting but cited 
general principles of "equity and fairness" in support of his 
decision reducing the amount of the award.  He also noted the 
fact that JMHI's property included valuable real estate, and 
that "the benefit to other charities will be substantial even if 
[the defendants] are not required to account dollar-for-dollar, 
and the purposes of this cause will be served."  The chancellor 
entered judgment in the reduced amount after finding that the 
Commonwealth had proved that the defendants diverted from JMHI 
the sum of $26,372,438 in present net revenues, and an 
additional sum of $24,703,145 in future net revenues, for a 
total lost revenue amount of $51,075,583. 
 
We conclude that because the assets at issue were funds 
belonging to a charity, the chancellor erred in reducing the 
amount of the award from the sums established by the evidence he 
had approved.  In effect, the chancellor's award permitted the 
defaulting trustees of JMHI to retain significant assets of the 
charity that belong to the public.  This result was erroneous.  
The defendants, as fiduciaries, were precluded from retaining 
any of these assets because they "acquired no property rights 
in, nor were they equitably entitled to such assets, either 
 
37
during the lifetime of the [non-profit] corporation or upon 
dissolution."  Tauber I, 255 Va. at 455, 499 S.E.2d at 845 
(quoting Hanshaw v. Day, 202 Va. 818, 824, 120 S.E.2d 460, 464 
(1961)). 
Attorneys' Fees and Costs 
 
The Commonwealth also assigns cross-error to the 
chancellor's decision denying the Commonwealth attorneys' fees 
and costs, asserting that the fees were incurred because the 
defendants failed to execute their duties as trustees in 
dissolution and evaded their accounting obligations under the 
chancellor's March 1997 decree.  The Commonwealth contends that 
an award of attorneys' fees would have been appropriate under 
our decision in Prospect Development Company v. Bershader, 258 
Va. 75, 515 S.E.2d 291 (1999), and that an award of costs should 
have been made under Code § 26-23. 
 
Upon consideration of these arguments, we conclude that the 
chancellor did not abuse his discretion in failing to award 
attorneys' fees and costs.  In Bershader, a fraud suit, we 
approved a chancellor's award of attorneys' fees when the 
evidence showed that the defendants engaged in "callous, 
deliberate, deceitful acts," which caused the plaintiffs to 
incur over $150,000 in attorneys' fees.  Id. at 92, 515 S.E.2d 
at 301.  We acknowledged the discretionary nature of the 
chancellor's authority and held that he did not abuse that 
 
38
discretion based on the amount of effort required to protect the 
defrauded parties' rights.  Id. at 92-93, 515 S.E.2d at 301. 
 
Unlike Bershader, this case does not involve a review of an 
award of attorneys' fees, but concerns the chancellor's failure 
to award such fees.  Thus, the Commonwealth effectively asks us 
to conclude that under the facts of this case, the chancellor 
was required as a matter of law to award attorneys' fees to the 
Commonwealth.  We decline to restrict the chancellor's 
discretion in this manner.  Although the defendants engaged in a 
longstanding course of self-dealing at the expense of JMHI, 
which would have supported an award of attorneys' fees under the 
evidence presented, we cannot say that the chancellor lacked the 
discretion to deny attorneys' fees after considering the other 
relief awarded. 
 
We also disagree with the Commonwealth's contention that 
the chancellor erred in failing to award the Commonwealth its 
costs under Code § 26-23 for the preparation of its accounting.  
Code § 26-23 provides: 
The costs of all proceedings against fiduciaries 
failing, without good cause, to make the returns and 
exhibits required, shall be paid by them personally, 
and they shall receive no allowance for the same in 
the settlement of their accounts. 
 
 
This statute is limited to an award of costs related to 
proceedings instituted against fiduciaries who fail to make 
returns required by statute in performance of their duties in a 
 
39
chancery case.  Thus, this provision has no application to the 
present case and did not provide the trial court the authority 
to award the Commonwealth its expert witness fees for its 
accounting. 
 
Finally, we have considered, and reject, the other 
arguments presented by the defendants in this appeal. 
VI. CONCLUSION 
 
For these reasons, we will reverse the monetary portion of 
the chancellor's award and enter final judgment for the 
Commonwealth as trustee in the amount of $26,372,438, with 
interest from July 13, 2000 at the judgment rate fixed by Code 
§ 6.1-330.54.  We will affirm the chancellor's judgment in all 
other respects, including the real estate interests awarded to 
the Commonwealth as trustee. 
 
We will remand the case to the chancellor for execution on 
the appeal bond, collection of the judgment, and for 
distribution of JMHI's current assets in accord, as nearly as 
possible, with the charitable purposes to which they should have 
been devoted.  The constructive trust imposed by the chancellor 
on the proceeds due from the 1994 INOVA Agreement will continue 
for the duration of that Agreement for receipt of future net 
revenues due after June 30, 1999, in the amount of $24,703,145.  
Such sums will be paid when due into the Circuit Court for the 
City of Alexandria for distribution by the chancellor in 
 
40
accordance, as nearly as possible, with the charitable purposes 
to which they should have been devoted. 
      Affirmed in part and final judgment, 
reversed in part, modified, and final judgment as modified, 
      and remanded.
 
41