Opinion
No. 4-576 / 03-1924
Filed January 13, 2005
Appeal from the Iowa District Court for Harrison County, James Richardson, Judge.
The executor and beneficiaries of a decedent's estate appeal from a district court order that awarded attorney fees to a law firm which had represented the decedent in certain matters. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Warren Bush of Bush Law Office, Wall Lake, for appellants.
Robert Kohorst of Kohorst, Early Louis, Harlan, for appellee.
Heard by Huitink, P.J., and Mahan, Miller, Vaitheswaran and Eisenhauer, JJ.
Daniel Clark as executor of the estate of Howard Reynolds, and Daniel and Maxine Clark individually as beneficiaries under the will of Howard Reynolds, appeal from a district court order that awarded attorney fees to the law firm of Kohorst, Early Louis (Kohorst Law Firm), pursuant to a contingency fee agreement. While we conclude the district court's initial award of $85,000 in fees must stand, as must its award of costs and fees for tax services, we reverse the district court's award of an additional $61,883.90 in attorney fees, and remand the matter for rehearing.
I. Background Facts and Proceedings.
It appears that many of the items contained within the appendix are not in fact part of the record in this matter. However, neither side disputes the contents of the appendix, or the facts they purport to show. To the extent the parties agree on these factual matters, they will be accepted by this court.
Howard Reynolds entered into an amended revocable inter vivos trust, as both trustor and trustee, in January 1999. In May 1999 Henry Bollinger apparently became successor trustee, under the trust provision that required such substitution in the event Reynolds was "incapacitated or . . . otherwise declared to be incompetent by two physicians licensed to practice within the State of Iowa."
On October 19, 1999, Bollinger filed a petition for an involuntary guardianship in Decatur County. Two days later, on October 21, attorney Marcus Gross, Jr. of the Kohorst Law Firm filed in Decatur County, on behalf of Reynolds, an Application to Dissolve Revocable Trust or in the Alternative to Remove Trustee and for Accounting. A week later, on October 28, Daniel Clark, Reynolds's brother-in-law, signed a "Contingency Retainer Compensation Agreement." The agreement provided that "the Kohorst Law Firm . . . shall represent Howard Reynolds Dan Clark . . . in regard to the Howard Reynolds Trust and Henry Bollinger, Jr.'s alleged misappropriation of funds." The agreement further provided that, "[i]n the event of recovery," the Kohorst Law Firm would be entitled to a percentage of the "net recovery."
The agreement was not signed by Reynolds, attorney Gross, or any representative of the firm.
The contingency fee, which varied with the timing of recovery, was set at thirty-three and one-third percent if recovery occurred between the filing of the petition and appeal.
On November 8, 1999, Howard Reynolds filed a voluntary petition to establish a guardianship and conservatorship in Harrison County. Daniel Clark was appointed guardian and conservator. Clark designated attorney Gross as attorney for himself as guardian and conservator.
On January 28, 2000, Reynolds executed a last will and testament leaving his estate, in equal shares, to his sisters, Hazel and Maxine, and Daniel Clark, Maxine's husband. The will nominated Daniel as executor. Attorney Kohorst was one of the two witnesses attesting to Reynolds's "sound mind."
On February 10, 2000, pursuant to Bollinger's petition for an involuntary guardianship in Decatur County, the district court appointed Daniel and Maxine co-guardians of Reynolds. Although the court directed the ruling also applied to the voluntary Harrison County proceeding, it does not appear that letters of appointment were ever issued for Maxine in the Harrison County proceeding.
On May 31, 2000, Daniel Clark as conservator and intervenor, and Bollinger as trustee, entered into a stipulated judgment in the Decatur County law action. In exchange for dismissal of the application to dissolve the trust or to remove Bollinger as trustee, the trust was terminated and the trust assets were transferred to Clark as Reynolds's conservator. Clark neither sought nor obtained approval for the settlement in the Harrison County proceeding.
In September 2001, after several extensions, Clark filed the initial conservatorship report in the Harrison County proceeding. The report listed Reynolds's assets as a home valued at $55,000, certificates of deposit in the amount of $344,492.77, and an annuity policy in the amount of $104,953.83 (the Allied policy). After the next report and accounting was filed in July 2002, the district court appointed attorney Alan Anderson as guardian ad litem for Reynolds and directed Anderson to review the report and prepare an answer.
Attorney Anderson's answer, filed in August 2002, noted several concerns, including the fact that there was no report filed regarding the trust litigation or approval to engage counsel to represent Reynolds in the litigation, and the fact the Kohorst Law Firm (which had been discharged as the attorney for the guardianship and conservatorship in March 2002) had been paid $85,000 from conservatorship funds even though there was no application for or order approving the fees. Pursuant to attorney Anderson's requests, on August 15, 2002, the court ordered Daniel Clark to file a supplemental report explaining a number of items, including "litigation brought on behalf of the ward," and "the payment of fees and costs to Kohorst Law Firm in an amount in excess of $85,000." It also ordered the Kohorst Law Firm to file a report explaining the fees and costs paid to it. That same day, August 15, the clerk of court mailed copies of the order to counsel, as well as to Daniel and Maxine Clark.
On September 6, 2002, the Kohorst Law Firm filed a "Report of Fees and Reimbursement of Costs Received." In the report attorney Robert Kohorst stated under oath that Daniel Clark had retained the firm to litigate against Bollinger, and that, based on the stipulated judgment and the contingency fee agreement, the firm was entitled to total fees of $146,883.90, of which $61,883.90 was still due and owing, and total costs of $2,903.64, of which $583.64 was still due and owing. Attached to the report was a self-styled "Settlement Sheet outlining the assets recovered how disbursed," which listed a "total recovery" of $500,651.71, including a $106,000 "annuity w/Allied," and a "net recovery" of $440,651.71.
The difference is due to two terms of the stipulation: the creation of a $50,000 certificate of deposit with income payable to the conservatorship, payable on death to a local library; and $10,000 for fees and expenses owed in regard to operation of the trust.
On December 30 the court entered an order noting the Kohorst Law Firm had filed its report, and scheduling hearing on "this report" for January 27, 2003. Daniel Clark and attorney Kohorst were ordered to appear and "answer all inquiries propounded by the Guardian Ad Litem." On the same day, December 30, the clerk of court's designee mailed copies of the order to counsel, and to Daniel and Maxine Clark.
Hearing was held on January 27, 2003. On June 9, 2003, the district court entered its order which stated, in relevant part:
The Kohorst Law Firm has explained that this [$85,000] fee resulted from litigation occurring in Decatur County, Iowa, in which over $400,000 was recovered for the conservatorship. The Kohorst Law Firm had entered into a written contingency fee contract on that matter with the conservator herein prior to the time that the conservatorship existed whereby the attorneys would be entitled to one-third of any recovery made in the litigation. . . . That it appears that the contingency fee contract was fair and reasonable. . . . That it is appropriate for the Court to approve of this fee arrangement at this time. . . . THEREFORE, IT IS ORDERED, ADJUDGED AND DECREED by the Court that the contingency fee contract dated October 28, 1999, between the Kohorst Law Firm and Dan Clark is hereby approved and ratified for the Conservatorship . . . [and that] the prior accountings of the Conservator and all receipts and disbursements made by the conservator through January 27, 2003, are approved.
No appeal was taken from this order.
In July 2003 Daniel Clark, having failed to comply with prior court orders, was removed as guardian and conservator. Christopher Hartwig was appointed in his stead. In September 2003 attorney Kohorst, on behalf of the Kohorst Law Firm, made a claim in probate for $62,571.04. The claim consisted of $61,883.90 in attorney fees allegedly outstanding under the contingency fee agreement, $583.64 in unreimbursed costs, and an additional $103.50 in attorney fees for tax work performed for Reynolds.
Hearing on the claim was set for October 20, 2003. Neither Daniel nor Maxine Clark was provided notice of the hearing. Following hearing, on October 22 the court ordered the conservator to pay the $62,571.04, finding that "the contract between the Kohorst . . . Law Firm has been previously approved by the Court and no appeal has been taken therefrom [and] under the circumstances the Court finds that the claimant is entitled to the fees in the amount of $62,571.04." The claim was paid, and on October 23 the Kohorst Law Firm filed a satisfaction.
Reynolds died on November 14, 2003. Daniel Clark was appointed executor of Reynolds's estate on November 20, 2003. That same day a notice of appeal from the October 22 order was filed by Daniel Clark as executor of Reynolds's estate, and Daniel and Maxine Clark individually as sole beneficiaries under the will. The Clarks assert that the June 2003 order, approving the contingency fee agreement and the payment of $85,000 in fees, was subject to review at the October 2003 hearing. They contend that, upon proper review, it is clear that the contingency fee agreement was unenforceable against conservatorship assets; that even if the contract was enforceable there was no "recovery" from which attorney fees were to be paid; and, alternatively, that any such recovery did not include the Allied policy, which they assert was never an asset of Reynolds's trust but was always in his own name and thus could not have been "recovered" from the trustee. The Kohorst Law Firm asserts the Clarks do not have standing to appeal, and that even if standing exists, the district court did not err in awarding it the requested fees and costs.
We presume the Clarks' representation that they are the sole beneficiaries means Reynolds was predeceased by his other sister, Hazel, and that she had no heirs to take her share under Reynolds's will.
II. Scope of Review.
The claim in probate for attorney fees and costs was triable as a law action. See Iowa Code § 633.33 (2003). Accordingly, our review is for the correction of errors at law. Iowa R. App. P. 6.4.
III. Standing.
The Kohorst Law Firm asserts that neither Daniel nor Maxine has standing to appeal, as they had no legal standing on behalf of the conservatorship at the time the October 2003 order was entered, and the right to appeal, if any, lay exclusively with the conservator at that time, Christopher Hartwig. However, pursuant to Iowa Code section 633.675, the guardianship ceased and the conservatorship terminated upon Reynolds's death. At that time, the powers given to the conservator under section 633.646, those that do not require court approval, automatically terminated. See In re Conservatorship of Britten, 430 N.W.2d 408, 410 (Iowa 1988). These include the right "to enforce . . . or prosecute any claim by . . . the ward," and "to sue on . . . claims in favor of, or against, the ward. . . ." Iowa Code § 633.646.
Those rights of the ward accordingly passed to the ward's personal representative. As Daniel Clark was appointed as executor of that estate on November 20, the day the notice of appeal was filed, he would have standing to advance a claim held by the ward, as well as the right to appeal from an order that allegedly erroneously prejudiced the rights of the ward. See Iowa Code § 633.81 ("Any fiduciary may sue, be sued and defend in such capacity."); Iowa R. Civ. P. 1.224 ("When a conservatorship or guardianship ceases for any reason . . . [t]he . . . former ward, or the personal representative of the ward's estate shall be substituted or joined as a party."). Daniel, as executor, had a right to appeal the October 2003 order.
IV. Binding Effect of June 2003 Order.
The June 9, 2003 order, which approved the contingency fee agreement as well as the $85,000 in fees already paid to the Kohorst Law Firm, was a final order and binding upon any party having notice. See Iowa Code § 633.36. If notice is lacking, however, the order would be reviewable by the district court at any time prior to approval of the final report. Id. § 633.37; In re Estate of Borrego, 490 N.W.2d 833, 837 (Iowa 1992). Here, the record is clear that both Daniel and Maxine Clark were provided with notice of the January 2003 hearing, from which the June 2003 order stemmed, and that no appeal was taken from the June 2003 order. The Clarks nevertheless contend that the order was not binding upon them, as they did not have notice the court would be reviewing the binding nature of the contingency fee agreement.
Upon review of the record, we conclude the Clarks received sufficient notice of the issues that would be pertinent to the district court's order. Both Daniel's right to pay the Kohorst Law Firm $85,000 from conservatorship funds pursuant to the contingency fee agreement, and the firm's right to receive payment, were at the heart of the hearing. Because Daniel as conservator, and though him Reynolds as ward, had due, legal, and timely notice of the January 27, 2003 hearing, the court's June 9, 2003 order was an appealable, final judgment as to them, binding on Daniel as executor. To the extent Daniel and Maxine were entitled to notice in their individual capacities, we note again that they were given notice of the hearing, and thus the order would be similarly binding on them as individuals. V. October 2003 Fee Approval.
We note, however, that Maxine had no formal role in the guardianship and conservatorship proceeding. Moreover, at the time of the hearing and order in question both Daniel and Maxine had a mere expectancy, or future contingent interest in Reynolds's estate. They had no legal or enforceable right or interest in Reynolds's conservatorship or property, as Reynolds could have thereafter revoked or amended his will.
It is clear from the October 2003 order that the district court did not independently consider the question of whether the Kohorst Law Firm was entitled to the additional $62,571.04 in fees and costs. Rather, the court felt it was bound to award the fees and costs, because the June 2003 order had approved both the contingency fee agreement and the $85,000 in fees already paid. Although the June 2003 order never explicitly concluded that the Kohorst Law Firm had made a "recovery" under the contingency fee agreement, such a finding is implicit in the court's approval of the $85,000 in fees and costs already paid out of conservatorship funds. It is also implicit that, at the time of the June order, the court concluded any "net recovery" was adequate to support an award of a one-third contingency fee of $85,000.
However, in the June order the court did not, either explicitly or implicitly, find or conclude that the Kohorst Law Firm had achieved a "net recovery" in an amount that would justify or support any fees above or in addition to the $85,000. Nor did the June 2003 order speak to the contents of any recovery, including whether any specific assets, such as the Allied policy, were in fact a part of any "recovered" trust assets. We accordingly conclude the district court erred when it concluded that the June 2003 order had preclusively determined the Kohorst Law Firm's right to recover any attorney fees under the contingency fee agreement over and above the $85,000 already awarded. The court should have addressed the merits of the Kohorst Law Firm's claim for additional attorney fees.
VI. Conclusion.
The June 2003 order of the district court is a final and binding order, and its approval of the initial $85,000 in attorney fees will not be disturbed on appeal. Moreover, the parties do not dispute, and the record adequately supports, that portion of the district court's October 2003 order that approved $103.50 in attorney fees for tax services, and $583.64 in unreimbursed costs. However, the October 2003 order is reversed to the extent it approved an additional $61,883.90 in attorney fees pursuant to the contingency fee agreement. This issue is remanded to the district court for a hearing on the merits. The court may, in its discretion and upon its own motion or a request from any interested party, take additional evidence on the limited issue of whether the Kohorst Law Firm attained a "net recovery" under the contingency fee contract adequate to support an award of attorney fees over and above $85,000. If the court so finds it shall ascertain the amount of any such recovery, and approve a contingency fee award for any fees earned beyond the previously approved $85,000.