Opinion ID: 1059334
Heading Depth: 1
Heading Rank: 14

Heading: Acquisition and Construction Costs

Text: 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 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.