by John T. Anderson, Chairman
Certified Specialist in Estate Planning, Trust
and Probate Law by the State Bar of California,
Board of Legal Specialization
In two recent cases, different Appellate Courts made rulings regarding awards of Trustee Fees and Attorney’s Fees in Accountings.
In the first case, Donahue v. Donahue (2010) 2010 DJDAR 2844, the Appellate Court reversed and remanded back to the Trial Court an award of $5 million. The court left no doubt that Trustees are entitled to “reasonable attorney fees to defend adverse claims against the trust.” The court here couldn’t determine the reasonableness of the award in light of established principles. “. . . [R]easonable in amount and litigation . . . but it also must be reasonable and appropriate for the benefit of the trust.”
Donahue was a fight between Michelle (surviving spouse) and her brother-in-law, Patrick. Michelle is the life income beneficiary of her husband’s trust, with her three daughters as remainder beneficiaries. Patrick filled multiple roles. He is the successor Trustee of the trust and the “director, officer, and shareholder of the real estate investment trust in which the Trust assets are heavily invested.”
After two years, Patrick resigned as Trustee and his brother, Terence and Northern Trust Bank of California succeeded him. Patrick initiated the court action by the filing of a Probate Code §17200 Petition to get court confirmation of this accounting. Michelle objected to the accounting and alleges that Patrick sold 40% of the Trust’s interest in the REIT below fair market value, at a loss of $20 million.
There was a 14 day trial resulting in the court’s approval of the accounting. Michelle’s appeal was denied.
In 2007, Patrick petitioned for more than $5 million in Attorney’s Fees and Trustee’s Fees for defending himself against un-meritorious allegations. Patrick used three separate law firms and a 45 member legal team. Charges included $184,000 to prepare fee petitions; $366,000 to prepare an 80 page case chronology and “case administration”; one attorney billed 3,661 hours at $1.5 million; $150,000 was charged for visual effects and multi-media; 86% of the fee request was for eight “key” individuals. The Trial Court approved the fee request after excluding some charges that it could not “assess the appropriateness . . . .”
Patrick argued that it would be unjust to make him sell assets and borrow funds “to fend-off Michelle’s relentless attacks.”
Michelle objected to duplication in charges between two firms and her attorney argued that the $150,000 for multi-media could have paid for two weeks of trial.
Both sides objected to the Trial Court’s “failure to specify how it arrived at the amount of fees and costs . . . .”
The Appellate Court said, “Probate courts have a special responsibility to ensure that fee awards are reasonable, given their supervisory responsibilities over trusts.” A lack of detail and explanation by the trial court thwarts meaningful appellate review.
“Reasonable compensation does not include compensation for ‘padding’ in the form of inefficient or duplicative efforts . . . .” (Ketchum v. Moses (2001) 24 Cal.4th 1122.
“A reduced award might be fully justified by a general observation that an attorney over litigated a case or submitted a padded bill . . . .” (Gorman v. Tessajara Development Corp (2009) 178 Cal.App.4th 44.
Over and again the Appellate Court emphasized “we cannot tell” in discussing the amount of work done; overlaps; multiple law firms; and not way to tell the necessity of the effort and resulting benefit to the Trust. Maybe the great effort was to protect Patrick in his “spare no expense” strategy.
THEN, in Leader v. Cords (2010), which I previously discussed, Terry was the Trustee and he and his sister, Carol, were the beneficiaries of their parent’s Trust. Carol died after her parents, but during administration of the Trust. Her two children, Adam and Rachel, succeeded to her interest. Terry delayed distribution and then, when he finally was ready to distribute, delayed an accounting, then offered to settle if previously distributed jewelry was reconsidered with some returned to him.
The Appellate Court ultimately ruled that Rachel and Adam could be entitled to attorney’s fees and costs for contesting a Trust accounting if the court finds that the Trustee acted “unreasonably and in bad faith” per Probate Code §17211(b).
These cases are a must read for Trust litigants and in particular for Trustees. Trustees must act in good faith in their responsibilities, which includes litigation.
John T. Anderson, Section Chair
Certified Specialist in Probate, Trust and Estate Planning
By the California State Bar Board of Legal Specialization