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withdrawn.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 

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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 

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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.

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