Recission of Inter Vivos Transfers Due to Undue Influence in Confidential Relationships: Estate of Erna Rousey

1. Introduction

In In the Matter of the Estate of Erna Rousey, the Alaska Supreme Court confronted the validity of substantial inter vivos transfers from an elderly testator to her son, James “Jimmy” Rousey, Jr. The decedent, Erna Rousey, conveyed five Alaska real properties and transferred nearly $225,000 in cash to Jimmy in the final years of her life. After her death, her daughter and personal representative, Lydia Cochran, petitioned the superior court to rescind those transfers on grounds of undue influence, lack of capacity, fraud, and coercion.

Key issues:

• Whether Jimmy stood in a confidential relationship with his mother that gave rise to a presumption of undue influence.
• Whether the transfers were the product of undue influence, rendering them voidable.
• Allocation of attorney’s fees and the propriety of an enhanced award based on bad-faith litigation conduct.

Parties:

• Erna Rousey: Decedent, alleged to have suffered from mild cognitive impairment and dementia in later years.
• Jimmy Rousey, Jr.: Son and respondent, recipient of the challenged transfers.
• Lydia A. Cochran: Daughter, personal representative of the estate, petitioner for rescission.

2. Summary of the Judgment

The Alaska Supreme Court affirmed rescission of the inter vivos transfers, holding that:

1. Jimmy and Erna shared a confidential relationship from 2014–2019, triggering a rebuttable presumption of undue influence under Ware v. Ware and Paskvan v. Mesich.
2. Erna’s transfers of the Maryland Avenue, East 10th Street, Jay Circle, Canter Circle and the funds withdrawn from her accounts in spring 2019 were the product of undue influence, subject to clear-and-convincing proof.
3. The estate was entitled to rescission of all challenged real property and cash transfers, including properties Jimmy subsequently purchased with Erna’s funds (Vaunda Avenue, Donovan Drive) and imputed rental income from wrongfully held properties.
4. Jimmy was ordered to account for and return rents received, subject to credits for $50,000 he advanced to his sister and for any sums directly returned or advanced under Erna’s valid 2016 will.
5. The superior court’s award of enhanced attorney’s fees (80% of the estate’s fees) was vacated and remanded for a more precise bad-faith analysis, but the finding of bad-faith discovery obstruction was upheld.

3. Analysis

3.1. Precedents Cited

• Paskvan v. Mesich (455 P.2d 229, 1969): Established that a presumption of undue influence arises in the testamentary context when a principal beneficiary shares a confidential relationship and participates in drafting the will.
• Ware v. Ware (161 P.3d 1188, 2007): Extended Paskvan’s reasoning to inter vivos gifts—if donor and donee share a confidential relationship, transfers carry a rebuttable presumption of undue influence.
• Additional authorities:
  • Crittell v. Bingo, 36 P.3d 634 (Alaska 2001): Undue influence defined by “dominating power” on donor’s mind.
  • Sharpe (Daubert/Coon) on expert-testimony admissibility.
  • Marathon Oil v. ARCO re enhanced attorney’s fees for bad-faith conduct.

3.2. Legal Reasoning

The Court’s decision rests on three pillars:

1. Confidential Relationship & Presumption of Undue Influence:

   The Rousey mother–son dynamic evolved from a typical family tie into a relationship in which Erna relied on Jimmy for financial, legal, and medical decisions. The superior court found that Jimmy’s role as property manager, caregiver, attorney-referrer, and co-owner conferred a special trust—satisfying the equitable definition of a confidential relationship. Under Ware, that relationship created a rebuttable presumption of undue influence over every inter vivos transfer.

2. Proof of Undue Influence:

   Once the presumption arose, Jimmy bore the burden to show Erna freely and knowingly intended each gift. His testimony was inconsistent:

   • He claimed some properties were loans repaid in rent or tracked by erased “handwritten tallies.”
   • He asserted she gifted him assets to qualify for Medicaid—though Erna had Medicare/TRICARE and the five-year look-back rendered the plan illogical.
   • He conceded drafting deeds but gave no credible account for delayed recordings.
   Expert psychologist Dr. Zelig corroborated that Erna’s mild dementia, isolation, narcotic use, and dependence made her vulnerable to Jimmy’s suggestions. The clear-and-convincing standard was thus met.

3. Rescission & Restitutio in Integrum:

   Equity requires unwinding unjust enrichment. The Court affirmed that all real property and cash transfers effected by undue influence must be rescinded. It upheld imputation of rental income based on Jimmy’s own evidence of market rents, subject to credits for sums advanced to his sister and any returns under the valid 2016 will.

3.3. Impact on Future Cases and the Law of Undue Influence

This decision clarifies and reinforces several key points:

• Confirmed that Ware applies to all inter vivos transfers between parties in confidential relationships—not just parent-child but any trust-based dynamic.
• Stressed the importance of contemporaneous, written agreements for loans or sales between family members to rebut gift presumptions.
• Warned professional caregivers, property managers, and fiduciaries to maintain independence and transparency when advising or assisting vulnerable adults.
• Demonstrated that late or incomplete discovery, especially withholding dispositive evidence (e.g., video wills, handwritten letters), may justify enhanced attorney’s fees under Alaska R. Civ. P. 82(b)(3).

4. Complex Concepts Simplified

• Undue Influence: When one person so dominates another’s mind that the dominated party no longer makes free, voluntary decisions, causing a gift or transfer the donor would not have made independently.
• Confidential Relationship: A situation—beyond ordinary family ties—in which one person places special trust and reliance on another, creating an ethical obligation for the trusted party to act in the other’s best interest.
• Rebuttable Presumption: A legal inference that a fact is true (here, that a transfer is suspect) unless the party who benefits (the donee) produces evidence to prove otherwise.
• Recission: An equitable remedy that unwinds a transaction and restores the parties to their original positions as if the transfer never occurred.
• Enhanced Attorney’s Fees: Under Alaska Rule 82(b)(3), a court may award more than the standard fee schedule if litigation misconduct—such as bad-faith discovery tactics—seriously prejudices the opposing party.

5. Conclusion

Estate of Erna Rousey stands as a landmark ruling that inter vivos gifts from a vulnerable donor to a confidant are subject to the same rigorous undue-influence analysis traditionally reserved for testamentary instruments. It underscores the critical need for clear documentation, independent legal advice, and scrupulous adherence to fiduciary duties when advising others, especially the elderly or cognitively impaired. The decision will guide Alaska practitioners in estate planning, elder law, and fiduciary engagements, and it places a clear burden on potential beneficiaries to demonstrate the voluntariness of family-related transfers.