Opinion
No. 1 CA-CV 13-0196
02-11-2014
SUSAN F. FAVOUR, as Trustee of the Marital Trust under the Last Will and Testament of Alpheus H. Favour, dated August 23, 2002, as a Member of Summit Mt., L.C., and individually, Plaintiff/Appellant, v. LISA M. FAVOUR (formerly ROSITO); JENNIFER E. FAVOUR; CATHARINE L. FAVOUR; and ASPEN GROVE, LLC, Defendants/Appellees, ROBERT S. STEARNS, in his capacity as Successor Trustee of the Favour Marital Trust, Appellee.
Curley & Allison, L.L.P., Phoenix By Roger D. Curley, Kiernan S. Curley Counsel for Plaintiff/Appellant Goodman Law Firm, P.C., Prescott By Mark N. Goodman Counsel for Defendants/Appellees Lisa Favour, Jennifer Favour, Catharine Favour and Aspen Grove, L.L.C. Brown Hanna & Mull, P.L.L.C., Prescott By Clint A. Brown, John G. Mull Counsel for Appellee Robert Stearns
NOTICE: NOT FOR PUBLICATION.
UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
Appeal from the Superior Court in Yavapai County
No. P1300CV201000204
The Honorable Patricia A. Trebesch, Judge
AFFIRMED IN PART; VACATED IN PART; REMANDED
COUNSEL
Curley & Allison, L.L.P., Phoenix
By Roger D. Curley, Kiernan S. Curley
Counsel for Plaintiff/Appellant
Goodman Law Firm, P.C., Prescott
By Mark N. Goodman
Counsel for Defendants/Appellees Lisa Favour, Jennifer Favour, Catharine
Favour and Aspen Grove, L.L.C.
Brown Hanna & Mull, P.L.L.C., Prescott
By Clint A. Brown, John G. Mull
Counsel for Appellee Robert Stearns
MEMORANDUM DECISION
Judge Margaret H. Downie delivered the decision of the Court, in which Presiding Judge Kent E. Cattani and Judge Michael J. Brown joined. DOWNIE, Judge:
¶1 Susan Favour appeals from various rulings issued by the superior court after an order to show cause ("OSC") evidentiary hearing. For the following reasons, we affirm in part, vacate in part, and remand for further proceedings.
FACTS AND PROCEDURAL HISTORY
¶2 Susan is the widow of Alpheus H. Favour, whose last will and testament ("Will") established a marital trust ("Trust") for which Susan became sole trustee and income beneficiary after Mr. Favour's death in 2002. Lisa Favour, Jennifer Favour, and Catharine Favour (collectively, "Siblings") are Mr. Favour's children from a previous marriage.
We use the parties' first names where necessary to distinguish between them.
¶3 Mr. Favour's Will states that the trustee "shall distribute the entire net income from time of my death to or for the benefit of my wife, so long as my wife shall live." It also provides that "[n]either the Trustee nor my wife shall have the right to invade principal for any purpose." The Will specifies that property allocated to the Trust "is intended to qualify as 'qualified terminable interest property' for which an election can be made under Section 2056(b)(7) of the [Internal Revenue] Code." Upon Susan's death, the successor trustee is to "divide the remaining principal into equal shares, to create one share for each then living child of mine."
¶4 When Mr. Favour died, the Trust included the following assets: $411,840.03 in cash; 600 shares of Wells Fargo stock; 200 shares of Cisco stock; 174 shares of Ford Stock; approximately 340 shares of Investment Co. America stock; a parcel of improved commercial property in Prescott (the "Commercial Rental"); a 20.28% interest in Summit Mountain, L.C. ("Summit"); and a 9.405% interest in roughly 160 acres of real property in Coconino County (the "Ranch"). The members of Summit are Susan, Siblings, and the Trust.
¶5 The record reflects that, over Susan's objection, Jennifer and Lisa obtained a loan secured by Summit's only asset — real property and improvements known as the Paramount Apartments. The property previously had no encumbrances and produced sufficient income to cover operating costs, expenses, repairs, and capital improvements. The apartments also generated income for Summit's members. Jennifer conceded that the loan proceeds secured by the Paramount Apartments were not used for Summit's benefit.
¶6 Siblings had difficulty repaying the loan. They arranged to sell the Ranch, which they owned jointly with the Trust. Lisa testified that Susan, as trustee, would not consent to the sale because she did not like certain terms of the agreement. The Ranch was not sold, and Summit eventually defaulted on the loan.
After the failed attempt to sell the Ranch, Siblings formed Aspen Grove, L.L.C., and transferred their interests in the Ranch to it.
¶7 Paramount Apartments was listed for sale without holding a meeting of Summit's members to discuss the sale. Lisa testified that Summit received an offer for the property, but Siblings rejected it without consulting Susan. Paramount Apartments was ultimately sold at a trustee's sale.
¶8 Susan filed the instant litigation as trustee, as a member of Summit, and individually. She sought to recover damages allegedly suffered by the Trust, as well as her own personal damages, stemming from the loss of the Paramount Apartments. Susan retained attorney Richard Mabery to represent her both individually and as trustee. She paid at least some of Mabery's fees with Trust funds.
¶9 Siblings filed an answer and counterclaim, naming Susan as a counterdefendant both individually and as trustee. Siblings also petitioned for an OSC, alleging Susan had breached her fiduciary duties and seeking to remove her as trustee, force an accounting, and recover allegedly misappropriated Trust funds. Susan filed a "counterpetition" asking the court to appoint a receiver for Summit and Aspen Grove.
¶10 Just before the OSC hearing began, Susan deposited funds from her personal account into the Trust brokerage account. After the first day of the OSC hearing, Susan deposited additional sums into the Trust's account.
¶11 Susan testified that she invested the Trust's original cash principal of more than $411,000 in a "low-risk stock account." By the time of the OSC hearing, the Trust no longer held "anywhere near" that amount and no longer owned the original securities. Throughout most of her trusteeship, Susan did not maintain a checking account for the Trust. She admitted depositing income from the Commercial Rental that was owed to the Trust into her personal checking account. Susan did not report income from the Commercial Rental on the Trust's tax returns, but instead reported it on her personal tax returns. Susan also took a depreciation deduction for the Commercial Rental on her tax returns.
¶12 Susan did not generate monthly or annual financial statements for the Trust. Although Siblings requested accountings, Susan admitted she did not provide a full or complete accounting until 2010. Additionally, Susan set up automatic $3,000 monthly distributions to herself from the Trust, notwithstanding her entitlement to only "net income."
¶13 The superior court ruled that Susan breached her duties as trustee by: (a) failing to account; (b) failing to keep Siblings reasonably informed of the Trust's administration; (c) using Trust assets for personal benefit; (d) failing to report Trust income or file accurate tax returns for the Trust; (e) invading principal; (f) disposing of stock held by the Trust; and (g) using Trust assets to fund personal litigation. The court removed Susan as trustee, surcharged her, ordered Mabery to disgorge $70,000 in legal fees, and awarded attorneys' fees and costs to Siblings. The court included Rule 54(b) language in its signed order. It subsequently denied Susan's motion for new trial/motion to alter or amend judgment/motion for reconsideration.
¶14 Susan timely appealed. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") sections 12-120.21(A)(1), -2101(A)(1) and (5)(a), and Arizona Rule of Civil Procedure 54(b).
DISCUSSION
I. Standard of Review
¶15 "Generally, a trial court's factual findings must be accepted on appeal unless they are 'clearly erroneous.'" Davis v. Zlatos, 211 Ariz. 519, 523, ¶ 18, 123 P.3d 1156, 1160 (App. 2005). Factual findings are not clearly erroneous if they are supported by substantial evidence. Id. at 524, ¶ 18, 123 P.3d at 1161. We review the superior court's legal conclusions de novo. In re Estate of Zilles, 219 Ariz. 527, 530, ¶ 7, 200 P.3d 1024, 1027 (App. 2008).
II. Distributable Net Income Does Not Define Net Income Distributions
¶16 The superior court ruled that "[t]he income beneficiary of the Marital Trust is entitled only to the annual 'distributable net income' . . . reported on the federal income tax return, and no more than that." As a matter of law, we disagree.
¶17 Mr. Favour's Will requires the trustee to "distribute the entire net income from time of my death to or for the benefit of my wife, so long as my wife shall live." The Will further states that Trust property "is intended to qualify as 'qualified terminable interest property' for which an election can be made under Section 2056(b)(7) of the [Internal Revenue] Code." The Trust must therefore comply with Internal Revenue Code ("Code") provisions relating to qualified terminable interest property ("QTIP").
¶18 "Net income" is defined in the Revised Uniform Principal and Income Act, A.R.S. §§ 14-7401 to -7431, (the "Principal and Income Act") as follows:
"Net income" means the total receipts allocated to income during an accounting period minus the disbursements made from income during the period, plus or minus transfers under this article to or from income during the period.A.R.S. § 14-7401(8).
¶19 "Distributable net income" ("DNI") under the Code is a different concept. "Trusts are taxable entities which compute their deductions basically as do individuals, though in order to effectuate the 'flow-through' scheme of taxation of subchapter J they are allowed a special deduction for distributions to beneficiaries." Fabens v. Comm'r, 519 F.2d 1310, 1313 (1st Cir. 1975); accord I.R.C. § 661(a). DNI is a figure that establishes the maximum allowable distribution deduction. Fabens, 519 F.2d at 1313; see also I.R.C. § 661(a). DNI is not synonymous with net income owed to income beneficiaries. See I.R.C. § 651(b) (acknowledging that income required to be distributed under a trust may exceed DNI). The terms of the testamentary instrument govern the latter determination. See Treas. Reg. § 1.651(a)-2(a) ("The determination of whether trust income is required to be distributed currently depends upon the terms of the trust instrument and the applicable local law."). Here, the Trust mandates distribution of "the entire net income" to Susan — a clear directive inconsistent with reliance on a tax code concept that could diminish distributions.
¶20 QTIP status is not jeopardized merely by distributing sums in excess of DNI to an income beneficiary. The surviving spouse must have a "qualifying income interest" in the trust for life to maintain QTIP status. I.R.C. § 2056(b)(7)(B)(i)(II). A surviving spouse will have a qualifying income interest for life if he or she "is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property." I.R.C. § 2056(b)(7)(B)(ii)(I). Treasury Regulation § 20.2056(b)-7(d)(2) provides that "[t]he principles of § 20.2056(b)-5(f) . . . apply in determining whether the surviving spouse is entitled for life to all of the income from the property regardless of whether the interest passing to the spouse is in trust." Treasury Regulation § 20.2056(b)-5(f)(1) reads:
If an interest is transferred in trust, the surviving spouse is "entitled for life to all of the income["] . . . if the effect of the trust is to give her substantially that degree of beneficial enjoyment of the trust property during her life which the principles of the law of trusts accord to a person who is unqualifiedly designated as the life beneficiary of a trust. Such degree of enjoyment is given only if it was the decedent's intention, as manifested by the terms of the trust instrument and the surrounding circumstances, that the trust
should produce for the surviving spouse during her life such an income, or that the spouse should have such use of the trust property as is consistent with the value of the trust corpus and with its preservation. The designation of the spouse as sole income beneficiary for life . . . will be sufficient to qualify the trust unless the terms of the trust and the surrounding circumstances considered as a whole evidence an intention to deprive the spouse of the requisite degree of enjoyment.
¶21 The superior court erred by using DNI as the measure for income distributions to Susan and by concluding that distributions in excess of DNI were per se invasions of Trust principal.
III. Payment of Trust Expenses
¶22 Susan also challenges the superior court's determination that she invaded principal and breached her fiduciary duties by paying legal expenses from the Trust corpus. She argues that the Will prohibition against invading principal bars distribution of Trust principal to any beneficiary, but it does not prohibit disbursements of Trust principal for legitimate Trust expenses, including legal fees.
Most of the authorities cited by the superior court involve invasions of principal for the benefit of a beneficiary — something all parties agree Mr. Favour's Will prohibits. To the extent Susan used Trust principal for personal expenses, including personal attorneys' fees, she improperly invaded principal.
¶23 Section 14-7402(A)(1), requires a fiduciary to "administer a trust or estate in accordance with the terms of the trust or the will, even if there is a different provision in this article." The terms of Mr. Favour's Will therefore control over statutory provisions that conflict with his express directives.
¶24 The Will provides that "[n]either the Trustee nor my wife shall have the right to invade principal for any purpose." But the Will also states that the trustee "shall have the rights and powers granted to trustees under Title 14, Chapter 7, Article 2.1 of the Arizona Revised Statutes." That article was in effect when the Will was executed, though it has since been repealed. It specifically authorized a trustee to "[p]ay taxes, assessments . . . and other expenses incurred in the collection, care, administration, and protection of the trust." A.R.S. § 14-7233 (repealed 2009) (emphasis added). The question becomes how to reconcile these seemingly contradictory provisions of the Will.
¶25 "A will is ambiguous when the written language is fairly susceptible of two or more constructions[.]" Estate of Pouser, 193 Ariz. 574, 578, ¶ 10, 975 P.2d 704, 708 (1999) (internal quotation marks omitted). In the case at bar, both sides present plausible interpretations of the Will. On one hand, the language of section 4.3.3 is broad — barring the invasion of principal "for any purpose." But the specific incorporation of the statutory provisions discussed supra suggests that Mr. Favour authorized the trustee to make expenditures necessary to administer and protect the Trust.
A contrary interpretation would mean that the Trust could not use principal to fund legal proceedings ranging from a quiet title action involving Trust property to an eviction action necessary to regain possession of Trust property from a non-paying tenant.
¶26 Additionally, because the Will was prepared in 2002 and does not address the allocation of Trust expenses between principal and income, the Principal and Income Act is relevant in determining whether Trust expenses may be made from Trust principal. See Laws 2001, Ch. 176, § 3 (The Principal and Income Act "applies to every trust or decedent's estate existing on the effective date of this article [January 1, 2002] except as otherwise expressly provided in the will or terms of the trust or in this article."). Under the Principal and Income Act, a trustee may pay legal expenses from principal under some circumstances. See, e.g., A.R.S. §§ 14-7425(2), -7426(A)(1), (4).
To the extent the Arizona Trust Code applies, it similarly authorizes a trustee to take legal action to protect the Trust. See A.R.S. § 14-10816(24).
¶27 Attorney Barry Cline, who drafted Mr. Favour's Will, testified at the OSC hearing. But when Susan attempted to elicit testimony from Mr. Cline regarding Mr. Favour's intent vis-à-vis the invasion of principal clause, the court repeatedly sustained Siblings' objections based on the parol evidence rule. We conclude that such testimony should have been admitted.
¶28 "If the language of the will is reasonably susceptible to two interpretations, [a court] may consider extrinsic evidence to ascertain the testator's intent." Pouser, 193 Ariz. at 579, ¶ 10, 975 P.2d at 709. Pouser affirmed the trial court's admission of extrinsic evidence from both expert and fact witnesses regarding the testator's intent. Id. at 579-80, 975 P.2d at 709-10. Because both sides in the case at bar have advanced plausible interpretations of the Will, we vacate the determination that Susan invaded principal and breached her fiduciary duties by paying the Trust's legal expenses and remand for reconsideration, including the presentation of relevant extrinsic evidence.
IV. Disposition of Stocks
¶29 The superior court ruled that Susan invaded principal by disposing of the Trust's original stock holdings. We conclude otherwise. Nothing in Mr. Favour's Will required the trustee to hold, in perpetuity, the stocks originally funding the Trust. The trustee was instead obligated to reasonably manage Trust assets. See Shriners Hosps. for Crippled Children v. Gardiner, 152 Ariz. 527, 528, 733 P.2d 1110, 1111 (1987) ("[A] trustee has the duty to observe the standard in dealing with the trust assets that would be observed by a prudent man dealing with the property of another.") (internal quotation marks omitted).
¶30 The Revised Arizona Prudent Investor Act (the "Prudent Investor Act") governs actions taken by a trustee prior to implementation of the Arizona Trust Code (the "Trust Code") on January 1, 2009. See Laws 2008, Ch. 247, § 18 ("An act done before January 1, 2009 is not affected by th[e Trust Code]."); A.R.S. § 14-7611(A) (repealed 2009) (The Prudent Investor Act "applies to trusts existing on or created after" July 20, 1996.). The Prudent Investor Act required a new trustee to "review the trust assets and make and implement decisions concerning the retention and disposition of assets." A.R.S. § 14-7604 (repealed 2009). Thereafter, the trustee was required to "invest and manage trust assets as a prudent investor would." A.R.S. § 14-7602 (repealed 2009). The Prudent Investor Act recognized the trustee's investment and management authority in several other sections. See, e.g., A.R.S. §§ 14-7603 (repealed 2009) ("A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying."), -7605 (repealed 2009) ("A trustee shall invest and manage the trust assets solely in the interest of the beneficiaries."). As a matter of law, Susan had the authority to invest, trade, diversify, and manage Trust assets prior to January 1, 2009.
¶31 The result is the same under the Trust Code. Section 14-10815(A)(2) states that, "[e]xcept as limited by the terms of the trust," a trustee may exercise "[a]ny other powers appropriate to achieve the proper investment, management, and distribution of trust property." Section 14-10816 grants trustees authority to "[a]cquire or sell property," "[e]xchange, partition or otherwise change the character of trust property," "[w]ith respect to an interest in a . . . corporation or other form of business or enterprise, . . . take any action that may be taken by shareholders, members or property owners," and "with respect to stocks or other securities, exercise the rights of an absolute owner." The Trust Code imposes on a trustee the duty to "invest and manage trust assets as a prudent investor would." A.R.S. § 14-10902(A).
¶32 Susan's disposition of the Trust's original stock holdings, standing alone, did not breach her duties as trustee. Nor does the decline in value of the Trust corpus, by itself, establish such a breach, as Siblings suggest. The propriety of the trustee's investment decisions must be evaluated in light of the reasonableness of her actions at the time they were taken. Restatement (Third) of Trusts § 90 cmt. b (2007) ("[P]erformance tests and hindsight are not to be applied in judging a trustee's investment conduct . . . .") (internal quotation marks omitted). The superior court incorrectly ruled that any disposition of the original stocks would constitute an invasion of principal and a breach of the trustee's duties.
V. Conflict of Interest
¶33 According to Susan, the superior court essentially adopted a "no harm, no foul" approach to the misconduct by Siblings that was alleged in the complaint, reasoning that any reduction in Trust principal they caused would inure only to their detriment. Certain findings by the court support this characterization of the ruling.
¶34 Siblings are contingent remainder beneficiaries. Should one of them pre-decease Susan, her living descendants will become Trust beneficiaries. Section 14-10803 requires a trustee to "act impartially in investing, managing and distributing" trust property and to give "due regard to the beneficiaries' respective interests." This duty extends to all potential beneficiaries. It would be improper for Susan to permit Siblings to dissipate Trust assets under the theory that such action will ultimately harm only them. Moreover, the interests of the income beneficiary (Susan) and the contingent beneficiaries (Siblings and, potentially, their children) are aligned in terms of maximizing Trust principal. To the extent the superior court ruled otherwise, including concluding that the instant litigation is a per se conflict of interest (as certain conclusions of law suggest), we disagree.
¶35 Under Restatement (Third) of Trusts § 37 cmt. b (2003), a trustee may be removed "for cause." However, "the fact that the trustee named by the settlor is one of the beneficiaries of the trust, or would otherwise have conflicting interests, is not a sufficient ground for removing the trustee." Id. at cmt. f(1) (emphasis added); see also In re Herbst, 206 Ariz. 214, 217, ¶ 17, 76 P.3d 888, 891 (App. 2003) (Arizona follows the Restatement absent contrary controlling authority.). Porter v. Porter, 726 P.2d 459, 466 (Wash. 1986), cited by the superior court, is consistent with this authority, standing for the proposition that a conflict of interest between the trustee and the beneficiaries may be cause for removal. The inquiry, though, is necessarily fact-intensive. A facial conflict, standing alone, does not justify removing or sanctioning a trustee. See In re CVR 1997 Irrevocable Trust, 202 Ariz. 174, 178, ¶ 23, 42 P.3d 605, 609 (App. 2002) ("[T]he court should look at the actual administration of the trust, not just possible conflicts, to determine if the trustee and his agents have acted in the best interests of trust beneficiaries.").
¶36 Because the superior court adopted an overly broad view of the conflict of interest concept, concluding that a trustee must avoid actual as well as potential conflicts of interest, we vacate its conflict of interest findings and conclusions. On remand, the court shall determine whether, notwithstanding any facial conflicts of interest, Susan in fact advanced her own interests to the detriment of the beneficiaries'.
VI. Other Rulings
¶37 We do not disturb other aspects of the superior court's ruling. The record supports the determinations that Susan failed to: (1) prepare adequate or timely accountings; (2) maintain adequate financial records; and (3) keep Siblings reasonably informed of the Trust's administration and of material facts necessary for them to protect their interests. See A.R.S. § 14-10813(A); see also A.R.S. § 14-7303 (repealed 2009). Susan admitted she did not provide a full or complete accounting prior to 2010. Siblings' August 2009 accounting request went unanswered. Siblings made additional requests for financial information on March 7, April 6, and April 20, 2010. Susan finally provided some information on April 30, 2010. But because she did not maintain balance sheets or income statements for the Trust, Susan could only provide monthly statements from the brokerage account.
¶38 The court could also reasonably conclude that Susan breached her duties as trustee by depositing rent payments from the Commercial Rental into her personal account, by failing to properly report that income in tax filings, and by improperly reporting capital gains. See A.R.S. § 14-10810(A) ("A trustee shall keep adequate records of the administration of the trust."), (B) ("A trustee shall keep trust property separate from the trustee's own property.").
¶39 The record also supports the determination that Susan improperly invaded Trust principal via the automatic disbursements that were in excess of net income. The court correctly rejected Susan's contention that it should rule based on the entire lifespan of the Trust. Such an approach is legally impermissible given the Trust's QTIP status, see I.R.C. § 2056(b)(7)(B)(ii)(I) (income distributions must be made "annually or at more frequent intervals"), and under the Will, which states that "[r]equired distributions of income to a beneficiary shall be made in convenient installments which must be at least as frequent as quarter-annually." Whether the Trust suffered a net monetary loss as a result of this conduct is an inquiry relevant to any remedy imposed by the court, but the absence of a net loss would not negate the fact that Susan impermissibly invaded Trust principal for her own personal benefit for a period of time.
¶40 We reject Susan's contention that Siblings "circumvented the Arizona Rules of Probate Procedure by filing an application for an Order to Show Cause under Arizona Rules of Civil Procedure Rule 6(d)." Susan filed the instant litigation as a civil cause of action and responded without procedural objection to Siblings' OSC application. By failing to timely object on procedural grounds, she has waived this issue for purposes of appeal. See Medina v. Ariz. Dep't of Transp., 185 Ariz. 414, 418, 916 P.2d 1130, 1134 (App. 1995) ("[P]rocedural defects are waived if not raised and preserved in the trial court.").
VII. Scope of Remand
¶41 It is unclear how the superior court would have ruled had it not concluded that Susan invaded Trust principal by disposing of stock holdings and by receiving income distributions in excess of DNI — both of which it labeled material breaches of her fiduciary duties. We have also vacated the ruling that using Trust funds for legal proceedings was a per se invasion of the Trust corpus. We recognize that there are additional bases for the court's actions, several of which we leave undisturbed. But, as the superior court observed, whether to remove or sanction a trustee is a decision to be made based on the totality of the misconduct. On remand, the superior court must determine what remedies are appropriate after it re-determines the conduct that was legally inappropriate.
¶42 The superior court's monetary awards were at least partially predicated on the erroneous conclusions that Susan was limited to DNI-based income and that she invaded Trust principal by trading stocks. And the surcharge most definitely encompassed the use of Trust principal for legal fees. The court articulated the surcharge as follows:
Susan F. Favour is hereby surcharged in the amount of two hundred thousand dollars ($200,000.00) less fifty-six thousand four hundred ninety-nine dollars and sixty-two cents ($56,499.62) that she deposited into the Marital Trust in 2011, for a total surcharge of one hundred forty-three thousand, five hundred dollars and thirty-eight cents ($143,500.38).
¶43 Because it was based on several erroneous legal conclusions, we vacate the $200,000 surcharge (and the pre-judgment interest award based on that amount) and remand for reconsideration of what surcharge, if any, is appropriate.
¶44 We also vacate the superior court's award of attorneys' fees and costs to Siblings. Even if Siblings remain the prevailing party on remand, the court must revisit the amount of any award given Susan's success on several legal issues. Moreover, the court indicated that its fee award was partially based on Susan's failure to maintain the stocks that were original Trust assets — a legal determination we have vacated.
On remand, the parties may litigate their respective interpretations of A.R.S. § 14-11004 and whether it authorizes a fee award to Siblings. In opposing Siblings' fee request in the superior court, Susan did not raise the legal arguments about the statute that are presented in the opening brief. See Cullum v. Cullum, 215 Ariz. 352, 355 n.5, ¶ 14, 160 P.3d 231, 234 (App. 2007) (party generally cannot argue on appeal legal issues not raised below).
¶45 Finally, the existing findings are inadequate for a fee award based on A.R.S. § 12-349. An award under that statute requires specific findings. A.R.S. § 12-350. In large measure, the superior court's ruling awarding fees simply reiterates Susan's defalcations as trustee, rather than assessing the factors relevant to a fee award under A.R.S. § 12-349. See A.R.S. § 12-350 (setting forth non-exclusive factors the court may consider).
¶46 We do not disturb certain factual findings relevant to the fee issue. The record, for example, supports the determination that Susan unnecessarily expanded the OSC proceedings by attempting to litigate her counterpetition, which was not properly before the court. Standing alone, though, this finding would clearly not justify the entire amount awarded. It is, however, a factor the court may consider on remand.
VIII. Attorneys' Fees and Costs on Appeal
¶47 The successor trustee requests an award of attorneys' fees incurred on appeal pursuant to ARCAP 21, as well as A.R.S. §§ 12-349, -120.19, and -120.3. Only one of the cited authorities — § 12-349 — provides a substantive basis for a fee award. We deny the request under that statute because we conclude that this appeal was not brought without substantial justification, was not solely or primarily for purposes of delay or harassment, and did not unreasonably expand or delay the proceedings. For these same reasons, we deny Siblings' request for fees under § 12-349.
¶48 We also reject Siblings' claim for fees under the common fund doctrine. That doctrine permits a court, in its discretion, to award fees to "counsel for the prevailing side whose efforts in litigation create or preserve a common fund from which others who have undertaken no risk or cost will nevertheless benefit." Kerr v. Killian, 197 Ariz. 213, 217-18, ¶ 19, 3 P.3d 1133, 1137-38 (App. 2000). Not only do we find the doctrine inapplicable to the facts of this proceeding, but neither side has clearly prevailed on appeal.
¶49 Susan requests attorneys' fees pursuant to A.R.S. § 14-11004(A) and (B). Section 14-11004(A) provides:
A trustee or a person who is nominated as a trustee is entitled to reimbursement from the trust for that person's reasonable fees, expenses and disbursement, including attorney fees and costs, that arise out of and that relate to the good faith defense or prosecution of a judicial or alternative dispute resolution proceeding involving the administration of the trust, regardless of whether the defense or prosecution is successful.
¶50 Given the broad scope of our remand order, which will require reconsideration of many issues relevant to the good faith nature of these proceedings and any corresponding benefit to the Trust, we deny Susan's request under § 14-11004(A). We also deny her request for a fee award against Siblings personally pursuant to A.R.S. § 14-11004(B).
¶51 We decline to award appellate costs to any party. Each was partially successful on appeal, and no party has clearly prevailed.
CONCLUSION
We express no opinion about the superior court's findings and conclusions relating to attorney Mabery's alleged legal and ethical breaches. Mabery is not a party to this appeal. The court concluded that Susan had her own independent conflicts of interest, but it did not impute Mabery's purported conflicts to her. Nor is Susan aggrieved by the fee disgorgement order directed at Mabery. See In re Estate of Friedman, 217 Ariz. 548, 552, ¶ 11, 177 P.3d 290, 294 (App. 2008) (party not directly affected by alleged error lacks standing to raise it).
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¶52 For the reasons stated, we affirm the judgment of the superior court in part, vacate in part, and remand for further proceedings consistent with this decision.