Fourth District, Division 3 Finds That Fee Recordkeeping and Trust Litigation Expenses Must Be Scrutinzed Closely to Determine if Fees Were Reasonable and Appropriate From a Trust Benefitting Perspective.
Donahue v. Donahue, Case Nos. G040628/G041503 (4th Dist., Div. 3 Feb. 24, 2010) (certified for publication), is sure to be a widely cited opinion when it comes to adjudging the reasonableness of attorney’s fees requested by a trustee in trust litigation. It is a recent 3-0 decision authored by Justice Aronson of our local Court of Appeal.
There, a former trustee had pressed claims for substantial attorney’s fees reimbursement in defending litigation against a trust beneficiary’s allegations of self-dealing and conflict of interest, although many of the fees were incurred to defend trustee’s own interest in the overall dispute. (Trustee supervised the trust of his dead brother which named the decedent’s wife Michelle as a life income beneficiary.) Trustee had been principally represented by eight lawyers from three major law firms (although there was a 45-member overall team from the three firms), with multiple attorneys appearing simultaneously at the 14-day court trial. Some of the attorneys charged up to $690 as hourly rates. In contrast, Michelle used the services of two attorneys charging about $350 per hour. Eventually, the trial court overruled Michelle’s objections to the trust accounting after a two week trial, with trustee petitioning for more than $5 million in attorney’s fees and personal trustee fees allegedly incurred in defending against Michelle’s challenges. (The fee reimbursement was sought from the trust; $184,453 of the sought amount was for preparation of the fee petition.) Later, trustee sought an additional $300,000 in fees incurred between the close of trial through May 2008.
The trial judge issued a terse minute order granting most of the $5 million initial fee request, followed by a later order additionally reimbursing trustee for over $175,000 in attorney’s fees and $2,500 in trustee fees in satisfaction of the second fee request.
On appeal, the Fourth District, Division 3 reversed both fee awards and remanded for reconsideration.
Justice Aronson honed in on the fact that this case involved trust litigation, where reasonableness/appropriateness of fees had to be gauged from the perspective of whether they were beneficial to the trust (rather than Patrick’s individual interests). (Kasperbayer v. Fairfield, 171 Cal.App.4th 229, 235 (2009); Conservatorship of Lefkowitz, 50 Cal.App.4th 1310, 1314 (1996).) California does not follow a “prevailing party” outcome approach when it comes to surcharge actions between trust beneficiaries. This means that a probate court, even more than in ordinary civil litigation, must make sure that fee recordkeeping and claimed fee requests are for trust beneficial activities, with the lower court needing to issue more than terse orders that appear to “rubber stamp” the trustee’s fee requests.
The appellate panel was obviously troubled by the sheer number of attorneys engaged by trustee—dubbed a “Rolls Royce defense”—especially when it found that the same destination could have been reached “in a Buick, Chrysler or Taurus.” The Court of Appeal was concerned that the 800 pages in attorney billings were likely replete with duplications, inefficiencies, and block billings that deserved detailed analysis given that any fee reimbursement would come from the trust. In reversing and remanding, Justice Aronson suggested that the lower court might want to act favorably on Michelle’s request for limited discovery on fee issues (a request denied below) as well as retention of a fee expert when it came to presenting evidence on the reasonableness of fees upon remand. (The appellate court observed that a judge’s past litigation experience might not extend to expertise in the area of fees appropriately incurred in trust litigation of this sort; hence, the need for an outside fee expert.)
Although much of this opinion is somewhat unique to trust litigation, it should not be limited to that context. For example, Justice Aronson did observe that comparative analysis of each side’s respective litigation costs might be a “useful check” on the reasonableness of fees, especially a comparison of trustee’s 45-member team from three law firms versus Michelle’s two attorneys. (BLOG OBSERVATION—Co-contributors have explored past posts which can be gained through the SEARCH THIS BLOG function on the home page—where judges have very differing perspectives on whether an opponent’s litigation expenses and approach are relevant to a claimant’s fee request, especially on reasonableness inquiries.)
BLOG FAVORITE QUOTE FROM DECISION—“However, just as there can be too many cooks in a kitchen, there can be too many lawyers on a case.” (Guckenberger v. Boston Univ., 8 F.Supp.2d 91, 101 (D. Mass. 1998).)