Opinion
File No.: 1994 DT00316/B
04-12-2012
In the Matter of the Accounting by LAURIE C. KALKMAN, as Trustee under L. WILLIAM COULTER FAMILY TRUST dated July 20, 1994 Under Will of L.WILLIAM COULTER Deceased.
Lacy Katzen, LLP. (Karen Schaefer, Esq., of Counsel) for the Trustee, Laurie C. Kalkman; Geoffrey R. Coulter, pro se as a Remainderman and the Objectant.
DECISION AND ORDER
APPEARANCES
Lacy Katzen, LLP. (Karen Schaefer, Esq., of Counsel) for the Trustee, Laurie C. Kalkman; Geoffrey R. Coulter, pro se as a Remainderman and the Objectant.
BACKGROUND
This matter comes before the Court by way of a petition for judicial settlement of the Trustee's Account against which objections were filed by Geoffrey R. Coulter (Objectant), a remainderman of the Trust, in which he alleged the Trustees' distribution of real property was impermissible under the Trust Agreement. Objectant moved for summary judgment of his Objections and the co-Trustee filed a cross-motion for summary judgment, seeking the dismissal of the Objections.
By a Decision dated June 29, 2009, this Court dismissed the Objections to the Account and issued a decree of final judicial settlement. The Objectant, acting pro se, appealed. The Appellate Division, Fourth Department issued a Memorandum and Order dated October 10, 2010 in which it modified this Court's Order by reinstating the Objections relating to the distribution of the Blue Mountain Lake property, once held by the Trust, to the other three remaindermen.
Subsequently, a long series of conferences ensued so as to foster a resolution among the parties. The breakdown of a potential and apparent settlement necessitated a hearing on August 23, 2011 to establish the value of the Blue Mountain Lake property (Camp), which is now the sole asset of the Trust, for purposes of an equal division of the Trust remainder among the Objectant and other remaindermen and to also fix the legal fees incurred by the Trustee.
At the conclusion of the hearing, this Court was informed by the Objectant that he moved in the Appellate Division for re-argument of the initial appeal. This Court refrained from issuing a decision on the evidence submitted during the hearing until that motion was resolved by the Fourth Department. It was only until early February of this year that this Court, on its own volition to determine the result of the Objectant's motion to reargue, discovered that the Appellate Division denied the motion to re-argue by way of its Order dated September 30, 2011. The Court's records indicate neither party filed a copy said Order; nor was there any other notification from either of them that the Appellate Division denied the motion to reargue.
Nevertheless, this Court is now prepared to render a decision as to both the parties' legal fees and the distribution of the Trust consistent with both the Fourth Department's Memorandum and Order and the evidence submitted during the hearing.
DECISION
Contrary to his assertions, the Objectant offered no evidence of bad faith during the hearing that would negate either the award of commissions or attorney fees incurred by the Trustee. Ellis v. Kelsey, 241 NY 374 (1925). As the Fourth Department has stated "a trustee shall not be penalized for an honest mistake of law on his part." Matter of Maguire, 261 AD 878 (4th Dept.1941). In the instant case, the Appellate Division notably did not disallow commissions nor did it ever state that the Trustee operated in bad faith when the initial distribution of the Camp was made. Instead it was determined that the co-trustee, (along with the now deceased co-trustee, who was the surviving spouse of the decedent) "failed to exercise the requisite reasonable care diligence and prudence." Matter of Coulter, 77 AD 3d 1287 (4th Dept. 2010).
The question of fees is discretionary and the Court would be justified in denying legal fees if the Trustee failed to exercise good faith and diligence in the management of the Trust. In re Baker's Estate, 249 AD 265 (4th Dept. 1936). However, in this instant case such a charge is unwarranted as even upon a finding of a breach of fiduciary duties, a trustee may not necessarily be personally liable for attorney fees where such breach was not characterized by bad faith and was the result an honest mistake in exercising discretion. In re Wilhelm, 88 AD 2d 6 (4th Dept. 1982). The distribution of the Camp by the Trustee cannot be described as the type of "egregious misconduct" that would compel the Trustee to be personally responsible for her legal fees. Matter of Kaskawits, 25 Misc. 3d. 1228A (Surr. Ct. Westchester Co. 2009). See also Matter of Newhoff, 107 AD 2d 417 (2nd Dept. 1985). Therefore, both the Trustee's commissions, as calculated by statute using the value of the Camp once it is distributed, and her attorney fees are awarded.
The issue now turns to whether the fees sought by counsel for the Trustee are reasonable. From the beginning, there should be recognition of the traditional authority of the courts to supervise the charging of fees for legal services under its inherent statutory power to regulate the practice of law. People ex rel. Karlin v. Culkin, 248 N.Y. 465(1928); Gair v. Peck, 6 NY 2d 97 (1959). Such authority has been explicitly extended to Surrogate's Court by both statute (see SCPA §2110) and the Court of Appeals (see In re Estate of Freeman, 34 NY 2d. 1 [1974]; Matter of Stortecky, 85 NY 2d 518 [1995]). The Surrogate's Court bears the ultimate responsibility for deciding what constitutes a reasonable attorney's fee, and the evaluation of what constitutes a reasonable attorney's fee is a matter within the sound discretion of the court. Matter of Szkambara, 53 AD3d 502 (2nd Dept. 2008); Matter of Gluck, 279 AD2d 575 (2nd Dept. 2001); Pistolesi v. North Country Ins. Co., 226 AD2d 1117 (4th Dept.1996).
The factors to be considered by the Court when evaluating the reasonableness of a legal fee are set forth in the seminal decisions issued by the Appellate Division, Fourth Department, in Matter of Freeman (40 AD 2d 387 [4th Dept. 1973], aff'd 34 NY 2d 1 [1974]) and Matter of Potts (213 AD 59 [4th Dept. 1925], aff'd 241 N.Y. 593 [1925]). These considerations include the time expended, difficulties involved in the matters in which services were rendered, the skill necessary to address the issues presented, the size of the estate, the professional standing of counsel, the customary rates, and the results obtained. Id. The burden with respect to establishing the reasonable value of legal services rests on the attorney performing those services. In re Lester, 172 AD 509 (3rd Dept. 1916); Matter of Potts, 213 AD 59 (4th Dept. 1925), aff'd 241 N.Y. 593 (1925).
Counsel for the Trustee has submitted an Affirmation of Services that contains a thorough description of the services she provided to the Trustee. Additionally, the attorney time sheets attached to her Affirmation meticulously set forth the 275 hours devoted to the representation of the Trustee. The aggregate fee requested is $41,020.28 which breaks down to an hourly rate of $149.00, much less than the ordinary rate in of a trusts and estate attorney in this legal community. It is the opinion of this Court that upon considering the amount of work conducted by the Trustee's counsel, the amount in controversy (i.e. the value of the real property held by the Trust), the skill evident throughout the course of this proceeding, and both the protracted litigation and her several diligent, if unsuccessful, attempts of resolving the dispute between the parties, the legal fee requested is both fair and reasonable and are a legitimate expense of the Trust. In re Central Trust Co., 159 AD 2d 997 (4th Dept. 1990).
In his Affidavit filed after the hearing, the Objectant demands that his legal fees be paid by the Trustee. Initially, the Objectant was represented by counsel then proceeded to represent himself on his successful appeal of this Court's original decision. The Objectant appeared pro se at all subsequent appearances, including the hearing that took place last Fall.
SCPA §2301(2) states that "Any award for costs or an allowance is in all instances discretionary with the Court." Additionally, the statute provides: "Except where special provision is otherwise made by law costs or an allowance may be made payable by any party personally or out of the assets of the estate or out of the share or interest of any person or from both in such proportion as directed by the court and justice requires." SCPA §2301(4). SCPA §2301 grants the court broad discretion, but that discretion cannot be unrelated to the facts nor to be exercised arbitrarily. Matter Greatsinger, 67 NY 2d 177 (1986).
Generally speaking, an attorney representing an interested party other than the fiduciary must normally seek payment from his client. Where the legal services rendered did not benefit the estate, but only the individuals whom the attorney represented, the attorney must seek compensation from the clients individually. In re Baxter, 196 AD 2d 186 (4th Dept. 1994). However, if the legal services provided to an interested party conferred a benefit not only that individual but others as well, then those fees may be paid from the general estate. In re Graves, 197 Misc. 638 (Monroe Co. Sur. Ct. 1950). "Even in such case, however, the services rendered must be substantial, and must be directed toward a bona fide issue, and may not be merely nominal in overcoming an obviously erroneous claim by the fiduciary." Estate of Bellinger, 55 AD 2d 448 (4th Dept. 1977). In those rare instances, "the court should use great care before it makes such a direction." Id at 640, quoting Matter of Vorndran, 132 Misc. 611 (Surr. Ct. Bronx Co. 1928).
The Objectant has not offered any argument or proof that the legal services provided to him protected anything more than his own interests. While his contest of the Account brought the Camp back into the Trust, it did not benefit or enlarge the estate for the other remainder beneficiaries as they had possession of the Trust assets at the time the Account was initially settled. Here, there is a clear distinction that the services rendered were for the benefit of the Objectant and not for the Trust or its remaindermen. In re Bacharach, 12 AD 2d 938 (2nd Dept. 1961); Matter of Winburn, 160 Misc. 49 (Surr. Ct. New York Co. 1936). The Objectant has failed to show any compelling facts or circumstances that would warrant the award of his legal fees from the Trustee as an individual. Estate of Herrmann, 141 Misc. 2d 214 (Surr. Ct. Erie Co. 1988).
Furthermore, if this Court were to award the Objectant his legal fees, there is insufficient documentation provided to determine the reasonableness of the Objectant's request. No Affirmation of Services is provided as required by NYCRR §20745(a). All that is submitted is a Statement of Account, received from the law firm of his erstwhile counsel. The Statement does not even make a reference to suggest the services billed relate to the initial underlying proceeding. Here, there is no basis in the record to ascertain whether the amount sought is reasonable because the Objectant failed to submit time records that would substantiate the conclusory allegations in the invoices. Matter of Manufacturers & Traders Trust Co., 2012 NY Slip Op 1297 (4th Dept. 2012). As such, the Objectant's request that the Trust bear the cost of his attorney's is denied.
The Appellate Division sustained the objection were that the Camp was impermissibly and prematurely distributed to the other remaindermen to the exclusion of the Objectant. Contrary to the Objectant's assertion, Appellate Division did not direct that he is to be compensated for a 1/4 interest of the appraised value of the Camp, rather it brought the Camp back into the Trust and remitted the matter to this Court for the final distribution of the Trust remainder. As the Trust's income beneficiary is deceased, the Camp, which is the only remaining asset of the Trust, must be distributed among the settlor's four children as directed under the Trust Agreement.
During the course of these proceedings it has become apparent that the three remaindermen do not want to hold the property as tenants-in-common with the Objectant. Based upon the Objectant's stated and ulterior desire to compel upon his siblings some recognition of their misunderstanding of his perceived mental condition, which has resulted in both the perpetuity of this proceeding and his prolonged familial alienation, the same could be implied by the Objectant.
The only recourse is to direct the liquidation of the asset by selling the Camp, with each of the four remaindermen receiving a quarter of the net proceeds after the trust expenses are paid. This Court held a hearing to determine the value of the Camp. In her Account, the Trustee valued the Camp at $230,000 which was presumably the value when it was first distributed by the co-Trustees in 2004. The Objectant asserts the Camp was appraised in 2008 at $458,000. During the hearing, the Trustee testified since her Account, she conferred with two relators as to fair market value of the Camp. One suggested listing the property at $365,000 and the other held the opinion that the list price should be $395,000, but both concurred that any offer at $350,000 should be seriously considered as they indicated to the Trustee that property values in the region's real estate market have dipped significantly.
It is noted that the Objectant, acting pro se during the hearing, did not object to the testimony nor chose to cross-examine the Trustee. Additionally, the Objectant, who has throughout the course of this proceedings been able to fully articulate and advocate his position before this Court and the Appellate Division, demurred when given the opportunity to present his case to support his valuation, other than offer the appraisal conducted in 2008.
Based upon the forgoing, the Court directs that the Camp be listed for sale forthwith and that during the listing of the property, each party shall have reasonable access to the Camp. Additionally, due to the lack of liquid assets in the Trust, and in order to maintain the Camp while on the market, each remainderman shall share proportionally the carrying costs of the Camp. Otherwise, any outstanding shares of the carrying costs will be offset when the respective shares of the net proceeds are calculated among the remaindermen.
This decision shall constitute an Order of this Court Dated: April 12, 2012
Rochester, New York
__________________
Hon. Edmund A. Calvaruso
ENTER.