Essay
The Trustee Who Drained a Trust to $41 and the Penalty He Couldn't Argue Down
What is a trustee’s promise worth if breaking it costs him only whatever he still happens to have left?
That is the question underneath a recent California appellate decision, Moramarco v. Nowakoski (No. E084620), and the answer the court gave is one every beneficiary and every fiduciary should sit with. The facts are ugly, the law is clean, and the lesson is older than any statute: the person who holds what belongs to someone else does not get to set the price of betraying them.
What actually happened
John Moramarco died in 2016. His living trust — drafted by Edward Nowakoski, the very attorney he later named as successor trustee — held roughly $684,000 after two of its real properties were sold. Over the next two years, that money left the trust account. Not through bad investments or an honest miscalculation, but through transfer after transfer into Nowakoski’s own hands. By the time a beneficiary petitioned to suspend him in 2019, the trust account held $41.06.
The consequences arrived from every direction. The State Bar found that Nowakoski had willfully misappropriated the funds, disbarred him, and ordered $542,688 in restitution. The district attorney charged him with grand theft, money laundering, fraud, embezzlement, and perjury; he pleaded guilty and was placed on probation. And then, in a separate trial, the probate court imposed one more thing: a civil penalty of $399,681 under Probate Code section 859, plus attorney fees.
That last penalty is where the law got interesting.
The rule: bad faith costs double
Probate Code section 859 is the teeth of California trust law. When a court finds that someone has in bad faith wrongfully taken property belonging to a trust, an estate, an elder, or a minor, the wrongdoer “shall be liable for twice the value of the property recovered.” Double damages. The penalty attaches once two conditions are met: the property is recoverable under section 850, and the taking was in bad faith.
Nowakoski did not really dispute that he took the money. His argument was about the price. He was 71, he told the court, living on roughly $2,871 a month in Social Security, his assets largely consumed by the restitution he had already paid. Imposing a six-figure penalty on a man who could not pay it, he argued, was an excessive fine barred by the federal and state constitutions.
The honest counterargument
There is a real principle on Nowakoski’s side, and it deserves to be stated plainly. Courts do sometimes weigh a defendant’s ability to pay before imposing a penalty, and a punishment so far beyond a person’s means that it can never be satisfied starts to look less like justice and more like theater. A penalty no one can collect deters no one who is already ruined. That is not a frivolous point.
What the court held
It just was not the law here. The Court of Appeal held that section 859 imposes a strict and mandatory penalty. The statute is silent on mitigating factors, and that silence is not an invitation — it is an instruction. A section 859 award is punitive in nature, the court acknowledged, but it is not a punitive damages award, and only the latter requires evidence of the defendant’s financial condition. The probate court therefore had no authority to shrink the penalty because Nowakoski was broke.
The court also explained why this was not an unconstitutional excessive fine. It distinguished Hale v. Morgan, where the California Supreme Court struck down a penalty of $100 per day against a landlord precisely because it was “mandatory, mechanical, potentially limitless in its effect regardless of circumstance.” Section 859 is different in kind: it is a fixed multiple of actual damages — twice what was taken, never more — and it applies only on a finding of bad faith. A penalty tethered to the size of the theft and gated by the wrongdoer’s intent is not limitless. It is proportionate by design.
The purpose, the court emphasized, is deterrence. And deterrence does not bend to the deterred party’s bank balance.
The fiduciary read
It would be easy to file this under “extreme case” and move on. A disbarred attorney who looted a trust he drafted is not the typical trustee, and the court was careful to say so: section 859’s double penalty is not aimed at the family member who makes a self-dealing error or mishandles an account out of inexperience. It turns on bad faith, and courts keep real discretion to decide whether that line was crossed. Beneficiaries should not assume a doubling award is automatic just because a trustee fell short.
But the principle underneath the case is not extreme at all. It is the whole foundation of holding property for someone else. A fiduciary answers for what he was trusted with, and the answer cannot be negotiated down to whatever is convenient after the fact. I learned that discipline in a different uniform, signing for equipment where the count had to balance whether or not it was convenient, and where “I already spent it” was never an answer to “you signed for it.” Trust administration runs on the same rule. The duty is fixed at the moment you accept it, not at the moment you are caught.
Section 859 simply writes that truth into statute. Break faith with a beneficiary in bad faith, and the law does not ask what you can afford. It asks what you took, and then it asks for twice.
Source: Bad Faith Comes at Full Price: Moramarco v. Nowakoski and the Teeth of Probate Code Section 859 (Downey Brand LLP, via JD Supra), discussing Moramarco v. Nowakoski, No. E084620 (Cal. Ct. App. 4th Dist. 2026). Educational only — not legal, tax, or investment advice.