Title: Carlson v. Wells

State: virginia

Issuer: Virginia Supreme Court

Document:

PRESENT:  All the Justices 
 
JON C. CARLSON, ET AL. 
 
 
 
 
 
 
 
 OPINION BY 
v. 
Record No. 092076 
  
    
JUSTICE WILLIAM C. MIMS 
 
 
 
 
 
 
 
    January 13, 2011 
VALERIE A. WELLS, ET AL.  
 
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH 
Frederick B. Lowe, Judge 
 
In this appeal, we consider the duty of care owed by the 
custodian of a Virginia Uniform Transfers to Minors Act 
(“UTMA”) account and whether the appellants in this case 
breached that duty.  We also review the tracing of commingled 
funds and the award of attorneys’ fees. 
I. 
BACKGROUND AND MATERIAL PROCEEDINGS BELOW 
Jon C. Carlson (“Jon”) and Valerie A. Wells (“Wells”) were 
married from 1984 to 2000.  They had three children during the 
marriage:  Eric Carlson (“Eric”), Scott Carlson (“Scott”), and 
Ariel Carlson (“Ariel”) (collectively, “the Children”).  During 
the marriage, Jon and Wells established several accounts for 
the Children under the UTMA, Code §§ 31-37 to –59.1  Jon was the 
custodian of the majority of these accounts but Jon’s brother, 
                                                 
1 Specifically, Eric, Scott, and Ariel each had a Vanguard 
money market account (account numbers ending in 826, 839, and 
128, respectively), a Vanguard brokerage account, and Vanguard 
Health Care and Primecap mutual fund accounts.  Eric and Scott 
each had an additional Vanguard money market account (account 
numbers ending in 595 and 980, respectively).  Each child also 
had an American Century account. 
James Carlson (“James”),2 was the custodian of the money market 
accounts with account numbers ending in 595 and 980, which held 
the bulk of the UTMA funds for Eric and Scott. 
In December 2003, while Eric was in high school and 
deciding where to apply to college, he and Jon discussed the 
financial resources available to fund Eric’s education.  Jon 
told Eric that the money that had been saved for the Children’s 
education might not be available.  Eric then accessed the UTMA 
accounts online and discovered that the funds had been 
withdrawn.  He asked the Carlsons and Jon’s attorney to see the 
financial records for the UTMA accounts but they did not 
respond. 
Wells, together with Eric in his own right and Scott and 
Ariel through Wells as their next friend,3 subsequently filed a 
complaint in the circuit court seeking removal of the Carlsons 
as custodians of the UTMA accounts, a full accounting, 
compensatory damages, punitive damages, attorneys’ fees, and 
costs.  In May 2004, Jon paid the Plaintiffs $190,571.40, which 
he contended represented the balance of the UTMA funds in the 
Carlsons’ custody, and effectively resigned as custodian.  In 
March 2005, Jon also provided what he contended was a full 
accounting of the UTMA funds. 
                                                 
2 We refer to Jon and James collectively as “the Carlsons.” 
3 We refer to these parties collectively as “the 
Plaintiffs.” 
 
2
Jon’s accounting showed that he had closed most of the 
Children’s individual accounts in 2002 and transferred their 
balances to a single Bank of America savings account opened in 
his and all of the Children’s names (the “BOA 866 account”).4  
Jon had made several withdrawals from the BOA 866 account, 
ostensibly to reimburse himself for expenses he incurred on the 
Children’s behalf and to make further investments for them.  
These investments included transferring funds to his personal 
Vanguard Health Care mutual fund and Fidelity Investments 
accounts.  He also used his own money and $40,000 of the 
Children’s UTMA funds to purchase US Airways stock shortly 
before the company sought bankruptcy protection in 2002, 
thereby rendering the stock worthless. 
In April 2005, the court referred proceedings on the 
Plaintiffs’ complaint to a commissioner in chancery.  In April 
2009, following six days of testimony taken in the spring of 
2006, the commissioner reported his findings.  In his report, 
the Commissioner found that the Plaintiffs had received a full 
accounting in March 2005; that, despite having commingled UTMA 
funds with his own property, Jon had breached his custodial 
duties only by failing to permit the Plaintiffs to make an 
                                                 
4 The Children’s American Century accounts were not closed 
and the funds in them were undisturbed at the time of the 
accounting.  Money market accounts 595 and 980 were not closed 
but held only nominal balances at the time of the accounting. 
 
3
inspection of the UTMA records when they sought to do so in 
2003 and 2004; that James had not breached his custodial 
duties; that the Carlsons had not breached any common law 
fiduciary duty; that, prior to the hearings, the Carlsons had 
resigned as custodians, rendering their removal moot; that the 
Children were entitled to $3600 in compensatory damages; that 
the Children were not entitled to punitive damages; that the 
Plaintiffs were entitled to recover attorneys’ fees incurred 
only through the date they received the full accounting in 
March 2005; and that the Plaintiffs bore the costs of the 
commissioner’s hearing. 
Jon filed exceptions to the commissioner’s report 
challenging the award of $3600 in compensatory damages, the 
award of any attorneys’ fees to the Plaintiffs, and the failure 
to award him attorneys’ fees.  The Plaintiffs filed exceptions 
to the report challenging the failure to find that the UTMA 
funds did not significantly diminish while in the Carlsons’ 
custody, the failure to find that Jon breached his custodial 
duty to maintain records, the failure to find that James 
breached his custodial duties, the failure to find any breach 
of common law fiduciary duty, the finding of only $3600 in 
compensatory damages, the failure to find punitive damages, the 
failure to award them attorneys’ fees incurred after March 
 
4
2005, and the failure to award them the costs of the 
commissioner’s hearing. 
Reviewing the commissioner’s report, the evidence, and the 
exceptions filed by the parties, the circuit court found that 
the Carlsons had breached their duties to the Children.  
Specifically, the court found that James had abdicated his 
custodial responsibility; that Jon had violated his custodial 
duties by failing to keep proper records, resulting in his 
inability to account for $19,910.88 in UTMA funds; and that Jon 
had violated the applicable standard of care by speculating in 
US Airways stock when he knew the company was on the verge of 
bankruptcy, resulting in a loss of $40,000 in UTMA funds.  
Accordingly, the court awarded the Children $31,767.36 in 
damages from James and $28,143.52 in damages from Jon, in 
proportion to the amounts in their custody, as well as awarding 
the Plaintiffs $20,000 in attorneys’ fees, $10,500 in 
commissioner’s fees, and $2,602.03 in costs from the Carlsons 
jointly and severally.  We awarded the Carlsons this appeal. 
II. ANALYSIS 
“When a [circuit court] has disapproved a commissioner in 
chancery’s report, we must determine whether, under a correct 
application of the law, the evidence supports the findings of 
the commissioner or the conclusions of the [court].”  Jampol v. 
Farmer, 259 Va. 53, 58, 524 S.E.2d 436, 439 (2000).  To do so, 
 
5
we review the evidence to determine which set of findings it 
supports.  Parkes v. Gunter, 168 Va. 94, 98, 190 S.E. 159, 160 
(1937).  We review the legal holdings de novo.  E.g., Ladysmith 
Rescue Squad, Inc. v. Newlin, 280 Va. 195, 200, 694 S.E.2d 604, 
607 (2010). 
We granted the Carlsons an appeal on seven assignments of 
error.  Four present the questions of what duty a custodian of 
a UTMA account owes to its beneficiary, whether the Carlsons 
breached that duty, and, if so, what damages should be awarded.  
Another assignment presents the question of whether the circuit 
court erred in finding that the Carlsons did not properly trace 
the UTMA funds in their custody.  The remaining assignments 
present the question of who, if anyone, is entitled to an award 
of attorneys’ fees.5 
A.  STANDARD OF CARE FOR UTMA CUSTODIANS 
The Carlsons do not assign error to the circuit court’s 
factual finding that Jon’s 2002 investment in US Airways was 
speculative because “he knew [the company] was in financial 
trouble, and was gambling on ‘buy low-sell high’ success.”  
Rather, they merely contend that the standard of care for UTMA 
custodians permitted such speculation. 
                                                 
5 The Carlsons have not assigned error to the part of the 
circuit court’s judgment awarding the Plaintiffs costs and 
commissioner’s fees and those awards therefore are final.  Rule 
5:17(c). 
 
6
At the time relevant to this case, Code § 31-48(B) 
provided that 
[i]n dealing with custodial property, a 
custodian shall observe the standard of care 
that would be observed by a prudent person 
dealing with such person’s own property and is 
not limited by any other statute restricting 
investments by fiduciaries.  If a custodian has 
a special skill or expertise or is named 
custodian on the basis of representations of a 
special skill or expertise, the custodian shall 
use that skill or expertise.  However, a 
custodian, in the custodian’s discretion and 
without liability to the minor or the minor’s 
estate, may retain any custodial property 
received from a transferor. 
 
Former Code § 31-48 (2001).6 
Analyzing the statute, the circuit court found that its 
language mirrored the common law standard of care for 
fiduciaries prior to the 1956 enactment of a statutory standard 
in former Code § 26-45.1.7  While the court considered several 
                                                 
6 The General Assembly amended the statute in 2007 to 
incorporate the Uniform Prudent Investor Act, Code §§ 26-45.3 
to –45.14 (the “UPIA”).  2007 Acts ch. 517. 
7 See also Hoffman v. First Virginia Bank of Tidewater, 220 
Va. 834, 263 S.E.2d 402 (1980).  The statutory standard 
provided that, except with regard to specific investments 
subject to statutory safe harbors created by other sections of 
the Code, 
 
an executor, administrator, trustee, or other 
fiduciary . . . shall exercise the judgment of 
care under the circumstances then prevailing, 
which men of prudence, discretion and 
intelligence exercise in the management of their 
own affairs, not in regard to speculation but in 
regard to the permanent disposition of their 
 
7
of our precedents applying the common law standard, it 
distinguished them on the ground that they arose from suits for 
waste brought against fiduciaries by beneficiaries whose assets 
had been lost when investments had not been liquidated or bank 
deposits had not been withdrawn. 
Seeking further guidance, the court then turned to Buder 
v. Sartore, 774 P.2d 1383 (Colo. 1989), a Colorado case 
analyzing that state’s standards for custodians under its 
Uniform Gifts to Minors Act and the UTMA.  Applying Buder, the 
circuit court found that the Carlsons had a duty to preserve 
the principal of the UTMA funds and that Jon’s speculative 
investment in US Airways stock violated that duty.  The court 
reasoned that, under the common law standard, a fiduciary is 
liable for breaches concerning specific investments regardless 
of the performance of the portfolio as a whole.  Consequently, 
the Carlsons were liable to the Children for the $40,000 lost 
in the US Airways investment. 
                                                                                                                                                           
funds, considering the probable income as well 
as the probable safety of their capital. 
 
1956 Acts ch. 660.  Although Code § 26-45.1 was subsequently 
amended, we determined that its original terms “merely 
incorporated the principle long established by our case law 
that, unless a trust instrument provides otherwise, the 
‘prudent [person] rule’ will be applied to the management of 
assets by a fiduciary.”  Hoffman, 220 Va. at 840, 263 S.E.2d at 
406. 
 
8
On appeal, the Carlsons argue that because Code § 8.01-2 
does not list UTMA custodians as fiduciaries the only standard 
applicable to UTMA custodians is the one set forth in former 
Code § 31-48(B).  Emphasizing the phrase “a custodian shall 
observe the standard of care that would be observed by a 
prudent person dealing with such person’s own property,” they 
assert that Jon’s 2002 investment was reasonable and comported 
with the standard both because Jon made a similar, profitable 
investment in the 1990s and because he invested his own funds 
with the Children’s UTMA funds in 2002.  We disagree. 
The phrase “a prudent person dealing with such person’s 
own property” is a term of art invoking the common law Prudent 
Person Rule and effectively imposing the common law duties of 
trustees on UTMA custodians.  The Prudent Person Rule is stated 
in Restatement (Second) of Trusts § 174 as a duty “to exercise 
such care and skill as a [person] of ordinary prudence would 
exercise in dealing with his own property; and if the trustee 
has or procures his appointment as trustee by representing that 
he has greater skill than that of a [person] of ordinary 
prudence, he is under a duty to exercise such skill.”  It is 
clear that the Prudent Person Rule embodied in the Restatement 
is consistent with Virginia’s common law prior to the enactment 
of any statutory standard.  See Harris v. Citizens Bank & Trust 
Co., 172 Va. 111, 125, 200 S.E. 652, 657 (1939) (“[T]rustees, 
 
9
executors and other fiduciaries . . . are required to do those 
things which a [person] of reasonable intelligence and prudence 
would be expected to do in the management of his own affairs . 
. . .”); accord Commercial & Savings Bank of Winchester v. 
Burton, 183 Va. 133, 150, 31 S.E.2d 289, 296 (1944); Parsons v. 
Wysor, 180 Va. 84, 89, 21 S.E.2d 753, 755 (1942); Powers v. 
Powers, 174 Va. 164, 171, 3 S.E.2d 162, 165 (1939). 
As constrained by the Prudent Person Rule, the Carlsons 
had “a duty to the [Children] to use reasonable care and skill 
to preserve” the UTMA funds.  Restatement (Second) of Trusts 
§ 176.  Accordingly, Jon had a duty to make “only such 
investments as a prudent [person] would make of his own 
property having in view the preservation of the estate.”  
Restatement (Second) of Trusts § 227(a).  However that standard 
is not met whenever a fiduciary to whom the Rule applies 
invests his beneficiary’s money however he invests his own.  
Rather, the Restatement clarifies that while “a [person] of 
intelligence may make a disposition which is speculative in 
character with a view to increasing his property instead of 
merely preserving it[, s]uch a disposition is not a proper 
trust investment, because it is not a disposition which makes 
the preservation of the fund a primary consideration.”  
Restatement (Second) of Trusts § 227, cmt. e; see also Stewart 
E. Sterk, Rethinking Trust Law Reform:  How Prudent is Modern 
 
10
Prudent Investor Doctrine?, 95 Cornell L. Rev. 851, 853 (2010) 
(Under the Prudent Person Rule, “trustees were not to make 
‘speculative’ investments.”); C. Boone Schwartzel, Is the 
Prudent Investor Rule Good for Texas?, 54 Baylor L. Rev. 701, 
705 (2002) (The Prudent Person Rule emphasizes “safety, 
preservation of the trust corpus, and income productivity.”); 
Paul G. Haskell, The Prudent Person Rule for Trustee Investment 
and Modern Portfolio Theory, 69 N.C. L. Rev. 87, 94 (1990) 
(“Under the prudent person rule, any speculative investment is 
a breach of trust.”) 
Thus, the standard imposed by former Code § 31-48(B) is 
not met merely because Jon’s previous investments in US Airways 
had been profitable or because Jon invested his own money with 
the Children’s UTMA funds in 2002.  The evidence presented to 
the commissioner, considered by the circuit court, and 
unchallenged on appeal establishes that Jon knew at the time he 
used the Children’s UTMA funds to purchase US Airways stock 
that the company was on the brink of bankruptcy.  Consequently 
the circuit court found the investment to be speculative.  It 
therefore violated the Prudent Person Rule’s standard of care 
as imposed by former Code § 31-48(B). 
The Carlsons next assert that the overall return on the 
UTMA funds while in their custody offsets the loss of value in 
US Airways stock and that former Code § 26-45.1 required the 
 
11
circuit court to evaluate their overall performance rather than 
consider the US Airways investment in isolation.  We again 
disagree.8 
The conduct of fiduciaries held to the Prudent Person Rule 
is evaluated with respect to each individual investment.  The 
performance of an investment portfolio as a whole is not 
considered.  Haskell, 69 N.C. L. Rev. at 93 (Under the Prudent 
Person Rule, “the standard of prudence is applied to each 
investment in isolation. Each investment is either in 
compliance or it is not, without regard to its relationship to 
other investments in the portfolio. The trustee is liable for 
loss in value of any improper investment, without regard to the 
performance of any other investment, proper or improper, or to 
the performance of the portfolio as a whole.”); see also 
Restatement (Second) of Trusts § 213 (“A trustee who is liable 
for a loss occasioned by one breach of trust cannot reduce the 
amount of his liability by deducting the amount of a gain which 
has accrued through another and distinct breach of trust.”). 
In both respects – the prohibition on speculation and the 
evaluation of each investment in isolation – the Prudent Person 
Rule admittedly is anachronistic.  The divergence between 
outdated capital-preservation investment strategies and modern 
                                                 
8 We note that former Code § 26-45.1 was repealed in 1999 
and had no effect at the time Jon purchased the US Airways 
stock.  1999 Acts ch. 772. 
 
12
portfolio management is the motivating force behind states’ 
replacement of the Prudent Person Rule with the Prudent 
Investor Rule.  This especially was true as inflationary 
pressures from the 1970s to mid-1990s had an erosive effect on 
trust corpuses locked in relatively low-return investments.  By 
contrast, the Prudent Investor Rule permits fiduciaries to 
engage in reasonable speculation to benefit from the higher 
returns of modestly riskier investments, while concomitantly 
shifting the focus of evaluating the fiduciary’s conduct from 
the performance of individual investments to the portfolio as a 
whole.  Sterk, 95 Cornell L. Rev. at 853-54 (noting that the 
prudent investor rule accommodates modern investment portfolio 
management theory); Schwartzel, 54 Baylor L. Rev. at 713-14 
(same); Haskell, 69 N.C. L. Rev. at 93-94 (same). 
The Prudent Investor Rule does not apply to this case, 
however.  Though the General Assembly enacted the UPIA in 1999, 
see 1999 Acts ch. 772, it did not then apply the new standard 
to custodians of UTMA accounts.  The Prudent Person Rule 
continued to apply through Code § 31-48(B) until 2007, when 
that section was amended to incorporate the UPIA.  2007 Va. 
acts ch. 517.  At the same time, the legislature amended Code 
§ 26-45.13 to include UTMA custodians among the fiduciaries 
covered by the UPIA.  Id.  Consequently, the Prudent Person 
Rule applied to the Carlsons at the time Jon made the 
 
13
speculative investment in US Airways.  Thus, that investment 
breached his duty of care and we affirm the circuit court’s 
ruling that the Carlsons are liable to the Children for the 
UTMA funds lost as a result. 
B.  TRACING THE COMMINGLED UTMA FUNDS 
The Carlsons argue that the circuit court failed to defer 
to the commissioner’s factual finding that the UTMA funds were 
accounted for and erroneously substituted its own 
interpretation of the evidence.  We disagree. 
The commissioner found that all UTMA funds were traceable 
but that $3600 was used for improper purposes.  However, the 
commissioner’s report failed to address whether the Plaintiffs 
bore the burden of proving that UTMA funds were missing or 
whether the Carlsons bore the burden of proving that all funds 
were accounted for, and failed to state what evidence the 
commissioner considered in evaluating whether that burden had 
been met by the appropriate party.  By contrast, the circuit 
court began its examination of the UTMA funds with an analysis 
of the applicable burden of proof. 
The circuit court first noted that Code § 31-48(E) 
requires a UTMA custodian to “keep records of all transactions 
with respect to custodial property.”  It then found that the 
Carlsons and their expert could not account for all funds that 
had been removed from the various individual UTMA accounts, 
 
14
commingled in the BOA 866 account, and then transferred to 
several of Jon’s personal accounts, ostensibly for the 
Children’s benefit. 
Finding no cases specifically dealing with the burden of 
proof for an accounting of UTMA funds, the circuit court turned 
to our decision in Tauber v. Commonwealth, 263 Va. 520, 562 
S.E.2d 118 (2002).  In that case we determined that when 
trustees commingle their property with trust property and 
subsequently seek to separate their own property from the 
assets of the trust, they bear “the burden of proving how much 
of the commingled funds they owned personally.”  Id. at 541, 
562 S.E.2d at 129.  The burden lies on the trustees because 
they are required to account for the trust assets, and if they 
“conduct their affairs in a manner that prevents a precise 
accounting of trust assets, the trustees, rather than the 
trust, must suffer the consequences.”  Id.  The circuit court 
also considered Vaiden v. Stubblefield, 69 Va. (28 Gratt.) 153, 
162 (1877), and Bain v. Pulley, 201 Va. 398, 403, 111 S.E.2d 
287, 291 (1959), in which we applied the same burden to the 
executor of an estate and an agent for property entrusted to 
him by a principal, respectively. 
Because Jon admitted to commingling the UTMA funds in the 
BOA 866 account and then transferring them into his personal 
accounts, the circuit court held that Jon 
 
15
has the burden of proving that the funds 
committed to his care were properly used by him.  
Attempts to follow the children’s funds are made 
more difficult as they were transferred into 
three or four accounts in Jon’s name, and there 
were additional transfers back and forth between 
those accounts.  This conduct “prevents a 
precise accounting” and therefore Jon should 
bear the burden of untangling matters. 
 
We find the circuit court’s reasoning sound.  The 
custodian of a UTMA account has a statutory duty to keep 
records of the custodial funds.  When the custodian commingles 
his own funds with the custodial funds, he does so at his 
peril.  Any failure to maintain clear and accurate records 
distinguishing his funds from the custodial funds places the 
custodian’s funds in jeopardy.  This approach is pragmatic and 
sensible, for it is the custodian who chooses to commingle the 
funds and it is the custodian who knows to what purpose he has 
used them.  It is far simpler for him to record his 
transactions as he makes them than for the beneficiary to 
attempt to reconstruct the transactions after the fact.  
Accordingly, the Carlsons bore the burden of establishing that 
each transfer from the BOA 866 account was used for a proper 
purpose. 
The circuit court found that the Carlsons had not met this 
burden.  The court then attempted to trace the transactions 
questioned by the Plaintiffs.  Of $177,006.81 in questioned 
transactions, the court found that $19,910.88 could not be 
 
16
traced to a proper purpose.9  The Carlsons contend that the 
commissioner’s factual finding that only $3600 was untraceable 
to proper purposes is the only finding supported by the 
evidence.  We disagree. 
After reviewing the accounting submitted by the Carlsons 
and the testimony of their expert, we find that the circuit 
court correctly determined that $3,910.88 was not properly 
traced to proper purposes.  Two transactions found to be 
untraceable by the circuit court, a $5000 transfer in June 2003 
and a $11,000 transfer in October 2003, are traceable to 
deposits into the BOA 866 account.  Accordingly, the circuit 
court erroneously determined that $16,000 was untraceable and 
we will reverse that portion of its judgment. 
C.  ATTORNEYS’ FEES 
The Carlsons assign error to the circuit court’s failure 
to award them attorneys’ fees and its award of fees to the 
Plaintiffs.  The principal ground for their challenge is that 
the Carlsons substantially prevailed below and the Plaintiffs 
did not.  We disagree. 
We note that both the commissioner and the circuit court 
found that James abdicated his statutory duties as a custodian.  
The Carlsons have not assigned error to these findings and 
                                                 
9 The Plaintiffs have not assigned cross-error to the 
circuit court’s determination that the remaining $157,095.93 
was properly traced. 
 
17
appear to shrug off this condemnation.  Their position reflects 
disrespect for the gravity of the responsibilities assumed by 
one who agrees to serve as a custodian under the UTMA.  We 
believe the General Assembly acted purposefully when it imposed 
the obligations found in the statutes.  Those obligations may 
not be treated casually or with cavalier disregard. 
Similarly, Jon admitted to commingling UTMA funds into a 
single account for all the Children, despite the requirement in 
Code § 31-48(D) that a custodian “at all times shall keep 
custodial property separate and distinct from all other 
property in a manner sufficient to identify it clearly as 
custodial property of the minor” for whose benefit it is held.  
He likewise admittedly failed to permit an inspection of the 
records of the UTMA accounts between December 2003, when Eric 
first demanded an inspection, and May 2005, despite Code § 31-
48(E)’s requirement that a custodian make such records 
available “for inspection at reasonable intervals by a parent 
or legal representative of the minor or by the minor if the 
minor has attained the age of fourteen years.”  His ignorance 
of or indifference to his statutory obligations is perhaps 
explained, though in no way excused, by his continuing 
misapprehension that he was “a father who at all times . . . 
was investing his own money for his children” rather than the 
 
18
mere custodian of property owned by the Children and entrusted 
to his care.  (Emphasis added.) 
In short, the Carlsons appear never to have grasped the 
import of their roles as custodians.  This was a grave 
misunderstanding on their part as it led them to breach their 
statutory obligations to the detriment of the Children and the 
diminution of the funds entrusted to the Carlsons’ care.  In 
light of the circuit court’s findings, there can be no 
plausible contention that the Carlsons substantially prevailed 
below.  Although the Carlsons argue that their attorneys’ fees 
are a reasonable expenditure for which they are entitled to 
reimbursement under Code § 31-51 – because the costs of 
litigation would not have been incurred had the Plaintiffs not 
brought and maintained this action – it is clear that the 
Plaintiffs were justified in bringing the action to compel the 
accounting and recovery of the untraceable or misused funds.  
Accordingly, the Carlsons’ assertion that the circuit court 
erred in failing to award them attorneys’ fees is without 
merit. 
The Carlsons also contend the circuit court erred in 
awarding the Plaintiffs attorneys’ fees because the Plaintiffs 
did not substantially prevail below.  We may dispose of this 
argument swiftly. 
 
19
In their complaint, the Plaintiffs sought an accounting of 
the UTMA funds.  They received an accounting more than a year 
after the complaint was filed.  They also sought removal of the 
Carlsons as custodians.  Though James had long before abandoned 
his role and left management of the two UTMA accounts entrusted 
to his care to Jon, Jon resigned and surrendered the UTMA funds 
to the Plaintiffs after the complaint was filed.  The 
Plaintiffs also sought compensatory damages.  Both the 
commissioner and the circuit court found the Children were 
entitled to compensatory damages.  The only relief the 
Plaintiffs sought which they did not receive as a result of 
filing the complaint was an award of punitive damages.10  We 
therefore find that the Plaintiffs were the prevailing parties 
below. 
Nevertheless, “[t]he general rule in this Commonwealth is 
that in the absence of a statute or contract to the contrary, a 
court may not award attorney's fees to the prevailing party.”  
Prospect Dev. Co. v. Bershader, 258 Va. 75, 92, 515 S.E.2d 291, 
300 (1999).  In Prospect Development, we noted several 
exceptions to the rule: 
For example, we have permitted a prevailing 
party, who prosecuted a cause of action for 
malicious prosecution or false imprisonment, to 
recover attorney's fees.  Burruss v. Hines, 94 
                                                 
10 The Plaintiffs have not assigned cross-error to the 
circuit court’s denial of punitive damages. 
 
20
Va. 413, 420, 26 S.E. 875, 878 (1897); Bolton v. 
Vellines, 94 Va. 393, 404, 26 S.E. 847, 850 
(1897). 
 
We have held that "where a breach of 
contract has forced the plaintiff to maintain or 
defend a suit with a third person, he may 
recover the counsel fees incurred by him in the 
former suit provided they are reasonable in 
amount and reasonably incurred."  Owen v. 
Shelton, 221 Va. 1051, 1055-56, 277 S.E.2d 189, 
192 (1981); accord Fidelity Nat. Title Ins. Co. 
v. Southern Heritage Title Ins. Agency, Inc., 
257 Va. 246, 253-54, 512 S.E.2d 553, 557-58 
(1999); Hiss v. Friedberg, 201 Va. 572, 577-78, 
112 S.E.2d 871, 875-76 (1960). We have permitted 
a trustee, who defended his trust in good faith, 
to recover attorney's fees from the estate, 
Cooper v. Brodie, 253 Va. 38, 44, 480 S.E.2d 
101, 104 (1997), and we have approved an award 
of attorney's fees in certain cases involving 
alimony and support disputes even though such 
awards of attorney's fees were neither 
authorized by statute nor by contract. See 
Carswell v. Masterson, 224 Va. 329, 331-32, 295 
S.E.2d 899, 900-01 (1982); Alig v. Alig, 220 Va. 
80, 86, 255 S.E.2d 494, 498 (1979); McKeel v. 
McKeel, 185 Va. 108, 116-17, 37 S.E.2d 746, 750-
51 (1946); McClaugherty v. McClaugherty, 180 Va. 
51, 69, 21 S.E.2d 761, 768 (1942); Heflin v. 
Heflin, 177 Va. 385, 399-400, 14 S.E.2d 317, 322 
(1941). 
 
Id. at 92, 515 S.E.2d at 300-301.  We concluded that “in a 
fraud suit, a chancellor, in the exercise of his discretion, 
may award attorney's fees to a defrauded party.”  Id. at 92, 
515 S.E.2d at 301.  In addition, in Tauber, we opined that “a 
longstanding course of self-dealing . . . would have supported 
an award of attorneys' fees” but declined to reverse a circuit 
 
21
court’s denial of such fees as an abuse of discretion.  263 Va. 
at 547, 562 S.E.2d at 133. 
The Carlsons argue that there was no evidence that they 
“engaged in callous, deliberate, deceitful acts,” id. at 546, 
562 S.E.2d at 133 (quoting Prospect Development, 258 Va. at 92, 
515 S.E.2d at 301), and there was no finding of intentional 
wrongdoing, fraud, or self-dealing.  We disagree. 
The Carlsons callously disregarded their custodial 
obligations under the UTMA.  They deliberately withheld the 
records of the UTMA accounts from the Plaintiffs for more than 
a year.  Those records, once produced and examined by the 
commissioner and the circuit court, revealed that Jon had 
commingled the UTMA funds from the Children’s various 
individual accounts into a single account, in violation of Code 
§ 31-48(E).  Thereafter, he used a charitable contribution made 
from UTMA funds to the Children’s school as a charitable 
deduction on his personal income tax return and used UTMA funds 
to reimburse himself for a child support payment he made to 
Wells, in violation of Code § 31-50.  In this case, these facts 
are sufficient to establish a “pattern of misconduct,” Prospect 
Development, 258 Va. at 92-93, 515 S.E.2d at 301, specifically 
a pervasive, wanton dereliction of the duties imposed by the 
General Assembly on UTMA custodians.  Accordingly, we find no 
 
22
error in the circuit court’s award of attorneys’ fees to the 
Plaintiffs. 
III.  CONCLUSION 
We will affirm the circuit court’s judgment with respect 
to its finding that Jon violated the custodial standard of care 
provided in former Code § 31-48(B) by speculatively investing 
$40,000 in US Airways stock.  We will affirm the circuit 
court’s judgment with regard to allocating the burden of proof 
to the custodians after finding that the Carlsons had 
impermissibly commingled UTMA funds, but we will reverse its 
finding that $16,000 in UTMA funds was untraceable or misused.  
We will affirm the circuit court’s judgment as to the award of 
attorneys’ fees to the Plaintiffs and the denial of such fees 
to the Carlsons. 
In assessing the respective liability of Jon and James for 
the losses in UTMA funds, the circuit court ruled that James 
was liable for 83% of the losses to the UTMA funds owned by 
Eric and Scott as a result of his custodianship of the 595 and 
980 money market accounts, that Jon was liable for 17% of Eric 
and Scott’s losses as a result of his custodianship of the 
other accounts held for their benefit, and that Jon was liable 
for 100% of Ariel’s losses.  The court also allocated Scott 
$5000 less than Eric or Ariel for the $40,000 loss attributable 
to the US Airways investment.  No party has assigned error to 
 
23
these allocations by the circuit court.  We therefore will rely 
on them for the entry of final judgment. 
We will enter final judgment of $16,303.63 in compensatory 
damages to Eric, $11,303.62 to Scott, and $16,303.63 to Ariel, 
of which James is liable for $22,914.02 and Jon is liable for 
$20,996.86.  We also will enter final judgment of $33,102.03 in 
attorneys’ fees, commissioner’s fees, and costs to the 
Plaintiffs for which James and Jon are jointly and severally 
liable. 
 
                                 Affirmed in part, 
                                 reversed in part, 
and final judgment. 
 
24