Dean Witter hit with $10 mil. penalty in handling of estate

Tuesday, Aug. 22, 2000 | 10:43 a.m.

CARSON CITY -- The Nevada Supreme Court has ordered the financial giant Dean Witter Reynolds and one of its senior vice presidents to pay $10.1 million plus interest for permitting the assets of an estate to be depleted in a case that involved forged papers.

The court said Dean Witter and stockbroker Warren House must reimburse the estate of Elfreda Gardner $4.1 million and Dean Witter must pay $6 million in punitive damages. A District Court jury in Douglas County found Dean Witter and House liable for conspiracy to convert personal and real property.

Justice Bill Maupin, who wrote the unanimous opinion Friday, ruled that the jury's award of $2.6 million in compensatory damages should be increased to $4.1 million. He said the $6 million in punitive damages should stand because there was "substantial evidence" at the trial "that proved misconduct resulting in the substantial depletion of the multimillion-dollar estate of their mentally and physically incompetent client (Elfreda Gardner)."

Assets worth $8 million were transferred from Gardner's account to the control of her nephew, Jack Gardner, a licensed California attorney. Elfreda allegedly signed all of the account documents. Jack Gardner and Donald Brooks, manager of Dean Witter's Lake Tahoe office, testified they witnessed the signatures.

But the court said two handwriting experts testified the signatures were not those of Elfreda Gardner and that three different inks were used in the signing of the papers. After the transfer, Jack Gardner spent at least $1.6 million of the account.

After Elfreda's Gardner's death in 1993, Jack Gardner continued to transfer assets from her account to his control. The court said Dean Witter allowed these transfers, despite its policy of freezing accounts when a client dies. House was the account executive who serviced this account.

In addition, the court said it is uncontested that Jack Gardner forged signatures to open an account to transfer gold coins to his account. House admitted notarizing the false signatures.

Jack Gardner died before the trial on this suit filed by the estate of Elfreda Gardner. But the estate of Jack Gardner entered into a separate out-of-court settlement and so did Pioneer Citizens Bank and trust counsel.

At trial Dean Witter and House "vehemently denied participation in the conversion of securities or a conspiracy to convert securities from Elfreda's accounts," the court said.

Maupin said, "... We conclude that there was clear and convincing evidence in the record to support the jury's finding that Dean Witter and House were liable for maliciously conspiring with Jack Gardner to convert Elfreda's securities."

Dean Witter and House contend their acts were negligent at best and they were only complying with the requests of Gardner, who had authority to act on behalf of Elfreda.

Witter and House, who was assessed $50,000 in punitive damage, contended the award was excessive.