Opinion
C.A. No. 16902.
Date Submitted March 30, 1999.
Date Decided July 23, 1999.
Neal C. Belgam and Francis J. Schanne, Esquires, of MORRIS, JAMES, HITCHENS WILLIAMS, Attorneys for Petitioner
John H. Benge, Jr., Esquire, Pro Se
MEMORANDUM OPINION
Pending is the application of the petitioner, Charles W. Smith ("Smith"), for an equitable award of costs and attorneys' fees against his former attorney, John H. Benge, Jr., Esquire ("Benge"). On June 23, 1997, Benge, a Delaware attorney, prepared and drafted for Smith, his client at the time, the Charles Win. Smith Trust, which named Smith as both the Trustor and Trustee (the "Trust"). Significantly, Benge was named as the Successor Trustee, and the Trust instrument included a provision that required Benge's written consent to any amendments to the Trust.
This dispute between Benge and Smith arose after Smith asked Benge to consent to an amendment to the Trust that would replace Benge as the Successor Trustee. Benge did not consent, nor did he communicate his reasons for his refusal to consent, for over nine months. As a consequence, Smith commenced this action against Benge, who ultimately consented to the amendment moments before a conference was to be held with the Court. Smith then applied for an award of attorneys' fees and costs to be assessed against Benge.
For the reasons next discussed, the Court determines that Smith is entitled to $4,119.30 in attorneys' fees and costs, on the basis that Benge's conduct amounted to bad faith that forced his former client to institute litigation and incur expense that would otherwise have been unnecessary.
I. FACTUAL BACKGROUND
The material facts are undisputed. The Trust became effective on June 23, 1997. Sometime thereafter, Smith claims, Benge failed to comply with his official duties as the administrator of the Estate of Smith's late wife, Josephine, in that he neglected to file an inventory and accounting for her Estate, and he did not communicate adequately with Smith about these matters. Unhappy with Benge's performance, Smith retained the law firm of Morris, James, Hitchens and Williams ("Morris James") to pursue the active administration of Josephine's Estate and to seek the removal of Benge as the Successor Trustee of the Trust.
On July 16, 1999, Vice Chancellor Strine held Mr. Benge in contempt for his failure to comply with those obligations as Estate administrator. See In the Matter of: The Estate of Josephine S. Smith, Del. Ch., R.W.F. No. 111570, Strine, V.C. (July 20, 1999) (Contempt Order).
On February 10, 1998, Smith (through Morris James), wrote to Benge and requested his consent to an amendment to the Trust. As stated above, Benge had included in the Trust instrument a provision requiring his (Benge's) consent for any amendment thereto. The amendment Smith requested would have removed Benge as the named Successor Trustee, and replaced him with William M. Freed and Carolyn F. Truitt as co-Successor Trustees. That request gave Benge two choices: (I) either accede to Smith's request to remove himself as Trustee; or (ii) advise Smith or Morris James of his grounds, if any, for opposing Smith's request.
The Trust pertinently provides that:
The Trust shall be an irrevocable trust; provided, however, that the administrative provisions of this Agreement, the provisions of this Agreement for distribution of trust assets and income to Trustor during Trustor's lifetime, and the beneficiary designations made by Trustor from time to time, but only in accordance with paragraph 4 of this Agreement, may be amended or modified by (i) written amendments to this Agreement signed by Trustor, Trustee and Successor Trustee; (ii) during Trustor's lifetime, by Successor Trustee as attorney in fact for Trustor pursuant to a durable power of attorney hereby granted by Trustor and Trustee for such purpose; and (iii) by Trustor as to beneficiary designations in accordance with the provisions of paragraph 4 of this Agreement.
Freed and Truitt are beneficiaries of Josephine's will, which Benge also drafted.
Benge did neither: he simply never responded to Smith's February 10 request. Thereafter, Smith and Morris James attempted to elicit a response from Benge by telephoning him and by writing him letters on April 17 and June 3, 1998.
Not until June 23, 1998 did Benge respond by contacting Morris James and agreeing to meet to discuss the situation. At that point, Benge expressed, for the first time, a "concern" that Smith's stated desire to remove and replace him as Successor Trustee was disingenuous. Benge agreed that rather than meeting with Smith personally, that Smith and his (Benge's) representative, Mr. Richard Harris, would meet with Mr. Terry DiSabatino, Smith's personal financial advisor, to determine Smith's reasons for requesting the amendment.
Smith was reluctant to have a private meeting with Benge about replacing him as Successor Trustee. Benge's prior legal representation of Smith, and the conflict created by Benge's drafting of the Trust document, put Smith in an awkward position and persuaded Morris James that such a private meeting would be inappropriate.
Mr. Harris met with Smith during the weekend of June 26-27, 1998. Mr. DiSabatino, Smith's representative, was not present. Smith explained to Mr. Harris why he wanted Benge removed as Successor Trustee, which explanations were presumably communicated to Benge. After that meeting, Morris James again attempted repeatedly to obtain Benge's written consent to the Trust amendment, by telephoning Benge and by sending him letters on July 1, August 18, October 7, and November 17, 1998. Benge never responded to those telephone messages or letters, nor did he ever consent to the Trust amendment or proffer any basis for withholding his consent to the amendment.
After more than nine months of trying unsuccessfully to obtain a response from Benge, Smith and his counsel determined that they had no other choice other than to commence this lawsuit. Benge was served with process on February 1, 1999, two weeks after he had been furnished a courtesy copy of the complaint covered by a letter that (again) requested his voluntary consent. A telephone call repeating that request was also made to Benge on February 1, 1999, but to no avail. Finally, on February 23, 1999 — over one year after Smith made his first request for Benge's consent — Benge consented to Smith's Trust amendment in this Court's waiting room, moments before a scheduling conference on the case was to take place. This fee application followed.
II. ANALYSIS
Smith contends that Benge's failure to respond to his request to amend the Trust forced him to institute this lawsuit and to incur $4,119.30 of unnecessary legal expenses. It is undisputed that those expenses were legitimately incurred by Morris James for legal services that included making repeated requests for Benge's consent over a nine-month period, preparing and filing the complaint, and arranging to appear before this Court. Benge opposes Smith's application on the ground discussed below.
Those expenses are broken down as follows: (a) $3,848.50 for attorneys' fees; (b) $74.40 for reproduction costs associated with filing the petition; and (c) a $200 filing fee.
The parties do not contest the equitable standards for a fee award. This Court, in its discretion, may award attorneys' fees as costs under 10 Del. C. § 5106 and Court of Chancery Rule 54 (d) where the equities so dictate. Generally, this Court follows the American Rule, which makes each litigant responsible for defraying the fees of his or her own counsel. There are limited exceptions to that Rule. The exception pertinent to this case is that attorneys' fees will be awarded to a party where the Court finds that the action was filed in bad faith, or that litigation had to be brought as a result of a party's bad faith conduct, or that a party has acted in bad faith during the course of the litigation.
Kerns v. Dukes, Del. Supr., 707 A.2d 363, 369 (1998);Wilmington Trust Co. v. Coulter, Del. Ch., 208 A.2d 677, 681-82 (1965); 10 Del. C. § 5106 ("The Court of Chancery shall make such order concerning costs in every case as is agreeable to equity."); Court of Chancery Rule 54(d) ("Except when express provision therefor is made either in a statute or in these Rules, costs shall be allowed as of course to the prevailing party unless the Court otherwise directs.").
See Goodrich v. E.F. Hutton Group. Inc., Del. Supr., 681 A.2d 1039, 1044 (1996).
See Walsh v. Hotel Corp. of Am., Del. Supr., 231 A.2d 458, 462 (1967) (holding that as an equity exception to the American Rule, a litigant may secure award of counsel fees upon showing opposing party's bad faith); See generally, Donald J. Wolfe, Jr. and Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery, § 13-3(b) (discussing the bad faith exception to the American Rule).
To find that the "bad faith" exception applies, the challenged conduct must rise to the level of "glaring egregiousness." That requires a showing by clear evidence that the opposing party acted with subjective bad intent, i.e., fraudulently, frivolously, vexatiously, wantonly, or oppressively. Although actual bad intent is required, such intent may be inferred from proof that judicial intervention had to be sought to enforce clearly defined and established rights, or from a showing that the defendant's conduct was intended to force the plaintiff to resort to litigation for purposes of causing unreasonable delay.
See Arbitrium (Cayman Islands) Handels AG v. Johnston, Del. Ch., C.A. No. 13506, Jacobs, V.C. (May 27, 1997); ABEX. Inc. v. Koll Real Estate Group. Inc., Del. Ch., C.A. No. 13462, Jacobs, V.C. (December 22, 1994).
See Slawik v. State, Del. Supr., 480 A.2d 636 (1984);Arbitrium, supra note 9.
See e.g., Barrows v. Bowen, Del. Ch., C.A. No. 1454-S, Allen, C. (September 7, 1994) (refusing to award attorneys' fees without evidence of actual intent to mislead or take unfair advantage).
See e.g., ABEX, supra note 9; Judge v. City of Rehoboth Beach, Del. Ch., C.A. No. 1613, mem.op. at 4, Chandler, V.C. (April 29, 1994); Mother African Union v. Conference of African Union, Del. Ch., C.A. No. 12055, Jacobs, V.C. (April 22, 1992).
In cases involving fiduciaries this Court has found bad faith (i) where the fiduciary fails to act without a showing of reasonable justification supported by credible evidence, or (ii) where the fiduciary does act and the fiduciary's conduct is found to be "incompatible with fiduciary standards."
See Loretto Literary Benev. Inst. v. Blue Diamond Coal Co., Del. Ch., 444 A.2d 256, 260-61 (1982); see also Weinberger v. UOP. Inc., Del. Ch., 517 A.2d 653, 656 (1986) (discussingLoretto); Coulter, Del. Ch., 208 A.2d 677, 682 (1965).
Based upon these principles, Smith's argument runs as follows: Benge, as a fiduciary (i.e., as Smith's lawyer and as Successor Trustee with a veto power), failed to respond timely to his client's request to amend the Trust, and as a result Smith was forced to incur $4,119.30 of unnecessary attorneys' fees. Benge never supplied a reasonable justification supported by credible evidence for refusing for over one year — to consent to an amendment of the Trust. Moreover, Benge's conduct was wholly incompatible with fiduciary standards.
I concur, and determine that the requested fees and costs must be awarded in Smith's favor and against Benge. Under the terms of the Trust instrument, Smith (as Trustor) had the power to amend the Trust to change the Successor Trustee (Benge). For reasons not adequately explained of record, Benge drafted the Trust to require Benge's consent to any such amendment. Morris James repeatedly communicated to Benge, Smith's desire to amend the Trust, but Benge persistently and unreasonably failed to provide that consent or any reasonable justification for withholding it. The evidence supporting those findings is uncontroverted. It includes, for example, Benge's unexplained failure to respond to the numerous letters and telephone calls made by Morris James, on behalf of Smith, seeking Benge's consent. It is undisputed that not once — either before or after his representative met with Smith — did Benge ever communicate to Smith or Morris James any reason for withholding his consent to the amendment. Understandably, that conduct left Smith and Morris James with no alternative but to seek relief from this Court.
Benge now contends — for the first time in this litigation — that he did not consent to the requested amendment because he was "obliged to determine by personal conduct" Smith's competency and the true intent behind Smith's request to amend the Trust, and because he was prevented from doing that by Morris James. According to Benge, that state of affairs left "clouded" in his mind the issue of whether he should consent to the amendment, and that "cloud," in turn, led to an entire year of indecision. This argument was made for the first time in the papers Benge submitted in opposition to Smith's fee and costs application. It was never communicated to Smith or Morris James before then.
For this argument, Benge relies on In re: The Last Will and Testament of Melson, Del. Supr., 711 A.2d 783 (1998) and In re Norton, Del. Supr., 672 A.2d 53 (1996).
Benge also argued in his papers that there should be no fee or cost award because there was no trial of the facts. This argument is wholly without merit. Not only did Benge fail to answer Smith's Complaint, he does not dispute the material facts in his Memorandum of Law in opposition to Smith's application for attorneys' fees and costs.
Benge's belated explanation is totally unsatisfactory for a host of reasons. First, Benge was no longer Smith's attorney when Smith requested the Trust amendment. Morris James was. Thus, Benge had no fiduciary responsibility to meet personally with Smith to determine Smith's competency or true intent. If there was any such responsibility, it rested upon Morris James.
Second, by drafting the Trust to name himself as Successor Trustee with a veto power over any amendment to the Trust document, Benge created the very conflict situation that ultimately required his client to incur the cost of retaining independent counsel. For nine months thereafter, independent counsel (Morris James) attempted to communicate with Benge about the matter, yet Benge never saw fit to respond.
Third, Benge's late-blooming explanation for his conduct is at odds with his behavior. In fact, Benge was given the opportunity independently to verify Smith's "bona fides" when Mr. Harris, Benge's representative, met with Smith to discuss Smith's reasons for desiring the amendment. Despite that, Benge continued to withhold his consent and refused to communicate his reasons to Smith's counsel. Benge's argument is an evasion — it is unresponsive to the undisputed fact that Benge not only failed to consent to the Trust amendment, but also he avoided communicating with his former client's representative on a matter of significant importance to the client.
Finally, Berige's conduct — which ultimately led to Smith instituting this action — is entirely incompatible with fiduciary standards and the standard of conduct applicable to members of the Delaware Bar. Benge failed to respond promptly to a legitimate request by a former client, failed to respond to formal communications sent to him by that client's new counsel, and failed to demonstrate any reason, supported by credible evidence, for his failure to respond and to accede to the request. In my opinion, that conduct rises to the standard of "glaring egregiousness" and falls within the bad faith exception to the American Rule. Accordingly, Smith is entitled to recover his requested attorneys' fees and costs.
IV. CONCLUSION
For the foregoing reasons, the plaintiffs application for fee and cost award is granted. The parties shall submit a conforming order.
cc: Mary M. Johnston, Esquire, Disciplinary Counsel
Because that conduct potentially implicates the Code of Professional Responsibility, a copy of this Opinion is being forwarded to the Disciplinary Counsel for such action as Disciplinary Counsel deems appropriate.