Opinion
No. 2-991 / 02-0016
Filed March 26, 2003
Appeal from the Iowa District Court for Winneshiek County, Bruce B. Zager, Judge.
The executor challenges a fee order. REVERSED AND DISMISSED.
David Dutton and Carolyn Rafferty of Dutton, Braun, Staack Hellman, P.L.C., Waterloo, for appellant.
Patrick Sauter and Daniel Poretti of Rider, Bennett, Egan Arundel, L.L.P., Minneapolis, Minnesota, and Richard Zahasky of Zahasky Law Office, Decorah, for appellees.
Heard by Sackett, C.J., and Huitink and Zimmer, JJ.
The question we address here is whether the district court was correct in awarding appellees Jim Nichols and the Marquette Trust Company ordinary executors' fees and reimbursement for attorney fees they paid to a series of attorneys for the litigation of several issues. Appellant Kathleen Nelson, the current executor of decedent Arlin Falck's estate and the trustee of his living trust, contends the district court abused its discretion in ordering fees of approximately $350,000. Appellees, named as executors in a 1988 will, were appointed executors of the estate of decedent in Winneshiek County on October 31, 1995, on the petition of decedent's widow. At the time appellees were appointed and filed an oath of office, they and their attorney were aware that there existed two subsequent wills executed in 1993 and 1995, and that both of these will revoked the 1988 will and named appellant as the sole executor. Appellees also knew that the 1995 will had been filed for probate in the state of Texas. On April 9, 1996, a little more than six months after their initial appointment, the district court, in ruling on a motion for summary judgment, found there was sufficient proof the 1995 will revoked all prior wills and set aside the 1988 will admitted to probate. As of the time administration was terminated, appellees had collected about $4,200 of decedent's assets.
Appellant contends appellees obtained their positions by wrong doings and they failed to act in good faith and with just cause. Appellant further advances the estate should not be required to pay the attorney fees as the litigation for which they were charged did not benefit the estate. Appellees contend that the fee for ordinary fees for the executors and their attorneys are provided for under Iowa Code sections 633.197 and 633.198. They further contend the fees are proper because they were defending the 1988 will, and fees should be allowed for the defense even though they were not successful. They also contend the fees for the tort action against them as individuals was properly allowed because, among other reasons, it settled the legality of their actions and allowed for a more expeditious closing of the estate. We reverse the order fixing fees and dismiss the fee application.
SCOPE OF REVIEW
Probate proceedings concerning the costs of administering an estate are equitable in nature. In re Estate of Wulf, 526 N.W.2d 154, 155-56 (Iowa 1994); In re Estate of Bass, 196 N.W.2d 433, 435 (Iowa 1972); In re Estate of Cory, 184 N.W.2d 693, 697 (Iowa 1971). An award of attorney or executor fees stands in equity and thus is reviewed de novo. In re Estate of Simon, 288 N.W.2d 549, 551 (Iowa 1980); In re Estate of Boulton, 403 N.W.2d 40, 42 (Iowa Ct.App. 1987). We give weight to the findings of fact of the district court, particularly concerning the credibility of witnesses, but are not bound by them. Iowa R.App.P. 6.14(5)( g). We accord the district court considerable discretion in taxing executor and attorney fees to estates. In re Estate of Petersen, 570 N.W.2d 463, 465 (Iowa Ct.App. 1997). The burden is on the attorneys to justify the fees claimed. Boulton, 403 N.W.2d at 44; In re Estate of Bruene, 350 N.W.2d 209, 217 (Iowa Ct.App. 1984).
On our de novo review we find the following facts. Decedent died in Decorah, Iowa, on September 2, 1995. He was survived by his wife Maxine and his son Jerry. His holdings allegedly exceeded seven million dollars. The majority of these assets were located in the state of Minnesota. Three wills executed by decedent in 1988, 1993, and 1995 were in existence at his death. Appellees were named executors in the first will, executed in 1988. Appellant was named executor in the second and third wills, executed in 1993 and 1995.
After decedent's death appellant filed the third will, executed in 1995, for probate in Texas on October 25, 1995. Appellant contended decedent's residence at the time of his death was Texas. Texas apparently requires notice and a hearing before an executor can be appointed and a will can be admitted to probate. Consequently, the executor was not appointed immediately in Texas. The 1995 will gave all of decedent's property to a living trust he established in 1993. Appellant was named the trustee of the trust. On August 3, 1995 decedent's wife Maxine signed a consent and waiver to the living trust agreement. The third will by its language revoked any and all prior wills as did the second will.
Six days after the third will, executed in 1995, was filed for probate in Texas, appellees filed the first will, executed in 1988, in Iowa. On the same day, October 31, 1995, appellees obtained an order naming them as executors of decedent's estate under the 1988 will. They hired attorneys and attempted to challenge the will in Texas. They did not seek court authority before doing so.
On November 22, 1995 appellant filed a petition in the Iowa courts to set aside the probate of the 1988 will alleging that the 1988 will had been revoked by the subsequent 1995 will. On April 9, 1996 the district court ruled on a motion for summary judgment filed by appellant. The district court found that the 1995 will had been duly executed, there was no proof to show there was a genuine issue of fact with respect to whether decedent signed the will or whether it was properly executed, and there was sufficient proof that the execution of this will revoked the 1988 will which had been admitted into probate in Iowa. The court ordered that the 1988 will that had been admitted into probate be set aside. The court held "that administration of the estate under the 1988 will is terminated." Appellees were ordered to preserve the assets of the estate they had collected as would a receiver appointed by Iowa law. Appellees' tenure as executors in Iowa was over. No appeal was taken from this order which bore all the markings of a final order.
Appellees continued to challenge the jurisdiction of the Texas court to admit the 1995 will, despite the fact that action had no bearing on any obligation to defend the prior will which had been set aside. Then on May 20, 1996, on appellees' application to take possession of all of decedent's assets wherever located including the living trust, and to file income, federal estate, and state inheritance tax returns, the district court clarified that portion of the summary judgment order with reference to appellees' handling the assets as receivers. The court found appellees were not court-appointed receivers and they were only to preserve the assets that actually came into their possession during the period of their service as executors until the will was admitted to probate in Iowa or Texas, at which time any assets in their possession were to be turned over to the executor. These assets totaled about $4200 and represent the only assets of decedent ever held by appellees.
Subsequent litigation followed, including the tort action brought on May 29, 1997 by appellant against the appellees individually.
Ultimately a settlement of issues between decedent's heirs and beneficiaries, the appellant, and taxing authorities among others was made. It was agreed the 1995 will could be admitted into probate in Texas, and it was admitted. Appellees were not parties to the settlement nor did the settlement resolve the tort action filed against appellees individually in Winneshiek County. Trial commenced there on that suit on September 20, 2000, with the jury finding against the appellant on the two counts submitted to it.
On September 20, 2001, the district court heard the matter of the fee applications at issue here. On November 9, 2001 the district court granted all fees requested. It appears the major portion of these fees had been paid. Consequently what was actually sought was reimbursement or indemnification. In allowing the fees the district court found:
The co-executors performed the ordinary duties of executors from the time of their appointment until April 1996 when the court ultimately determined the 1988 Will was not the Last Will and Testament of Arlin Falck.
. . . .
[T]he court is firmly convinced that Marquette Trust and Jim Nichols acted in good faith and just cause at all times during their representation of the Arlin Falck Estate. Additionally, they were not serving their own personal interest in pursuing the original actions, or in the defense of the independent tort action later on. They were in fact asked by the family to become the executors of the 1988 Will which the evidence showed they did appropriately and consistent with their obligations under the 1988 Will, the Orders of the Iowa Court, and the applicable Iowa statutes.
The Court also said their duties included defending the 1988 will and challenging the 1995 will.
The district court's award was as follows: it awarded Marquette Trust $2,813 and Nichols $6,035 for ordinary executor fees; attorney Jerome Perry, $6,326 for ordinary attorney fees; Marquette Trust, $34,673.77 for ordinary attorney fees; and Marquette Trust, $299,640.24 in extraordinary attorney fees for defense of the tort action against the appellees individually. Judgment for such amount was entered against both decedent's estate and his living trust, and the Minnesota courts were ordered to give full faith and credit to these judgments.
The earlier Minnesota court which handled probate of the majority of decedent's assets was asked to rule on these fee applications but refused to do so.
We first address the appellant's claim that appellees should not receive fees because they operated in bad faith in presenting the 1988 will for probate and in accepting their positions as executors under that will. Appellees contend they acted in good faith because they were named executors in that will, had an obligation to defend it and, consequently, are entitled to fees for doing so. We agree with appellees that there are situations where an executor can receive reasonable attorney fees for unsuccessfully defending the will that appoints him or her executor. For guidance on when those fees can be recovered we first look at Iowa Code section 633.315, which provides:
When any person is designated as executor in a will, or has been appointed as executor, and defends or prosecutes any proceedings in good faith and with just cause, whether successful or not, that person shall be allowed out of the estate necessary expenses and disbursements, including reasonable attorney fees in such proceedings.
The existence of good faith and just cause is a question of fact. In re Estate of Brady, 308 N.W.2d 68, 71 (Iowa 1981); see also In re Estate of Olson, 479 N.W.2d 610, 614 (Iowa Ct.App. 1991). We apply an objective, not a subjective standard in evaluating good faith. Olson, 479 N.W.2d at 614; see also Petersen, 570 N.W.2d at 465. One element of good faith is the existence of reasonable grounds or probable cause for believing the propounded will to be valid. Even a statutory duty to defend a will and appeal an invalidating decree does not impose a duty or right to engage in unnecessary litigation where the executor has reasonable grounds to believe the will is invalid. 31 Am. Jur.2d § 436, at 305 (2002).
We focus on whether we agree with the district court's conclusion that appellees operated in good faith. In reviewing this issue we find the following facts relevant. After Falck died on September 2, 1995, appellant provided Maxine and her attorney with the living trust, the 1995 will, and Maxine's consent and waiver to the trust. Maxine's attorney was the attorney designated attorney for the 1988 will on October 31, 1995. Prior to accepting a position as executor under the 1988 will, Marquette Trust had an unsigned copy of the 1993 will, an executed copy of the 1994 codicil to that will, and a copy of the 1993 trust agreement in its files. On October 30, 1995 appellant's attorney notified Maxine's attorney by fax that the 1995 will had been filed for probate in Texas on October 27. From various meetings between Maxine's attorney, Nichols, Marquette Trust, Maxine, and Jerry Falck, everyone knew two wills were in existence that were executed after the 1988 will and both revoked all prior wills. Also, Nichols had a falling out with decedent in 1992 or 1993 and, from comments made by decedent in 1993 or 1994, he assumed decedent was working on a new will.
With full knowledge there were subsequent wills revoking the 1988 will, Nichols and Maxine's attorney went to the district court in Winneshiek County on October 31, 1995 and filed the 1988 will for probate, telling the court it was Arlin Falck's last will and testament. They did not disclose to the court the existence of the two later wills, both of which revoked the 1988 will and appointed not appellees, but appellant executor. Both appellees signed court officer's oaths affirming, in part, they would act without fraud. Neither came forward, either before or after being appointed co-executors, to tell the court that a 1993 will existed and a 1995 will existed, both of which by their terms revoked the 1988 will. Nor did they tell the court when seeking appointment a petition had been filed in Texas to admit the 1995 will. Appellees contended they had concerns as to whether decedent was competent to execute the 1995 will and was under undue influence when he did so. However there was no showing that they had made any independent investigation as to these facts. They make no similar challenge as to the 1993 will.
The attorney withdrew as attorney for the executors about two weeks later but represented Maxine in the settlement. He does not seek fees for representing the executors.
At the time the motion for summary judgment was sustained, appellees were unable to show any evidence existed that would have supported a finding either the 1993 or 1995 will was invalid when executed. Marquette Trust contends it did not know of the existence of the 1993 will because it did not have the original. This argument is disingenuous. Even if there were concerns about the 1995 will, the proper procedure would have been to (1) make those facts known to the Iowa court when seeking appointment, and (2) notify appellant of the petition for probate in Iowa. Or appellees could have filed the copies of the later wills with the Iowa court, and sought to contest the later wills. See generally Sheldon F. Kurtz, Kurtz on Iowa Estates § 4.34, at 174-75 (3rd ed. 1995).
The only conclusion we can draw from this evidence is that appellees have failed to show that they had a good faith belief that the 1988 will was decedent's last will and testament and it had not been revoked. In arriving at this conclusion we must also disagree with the district court's conclusion that the appellees should have fees and their actions were justified because they were representing decedent's widow and son. The Iowa Courts have said that an executor is not justified in seeking fees against an estate where the issue litigated is one of personal interest to an heir. See In re Estate of Law, 253 Iowa 599, 603, 113 N.W.2d 233, 235 (1962); In re Estate of Pence, 511 N.W.2d 651, 652 (Iowa Ct.App. 1993); In re Estate of Roggentien, 445 N.W.2d 388, 389-90 (Iowa Ct.App. 1989).
Beneficiaries of decedent included a number of charities whose share would be reduced by increasing the widow's and the son's share. Whether the widow and/or son are responsible individually for attorney fees incurred by appellees to advance their position is not at issue here.
We agree with appellant that the executors did not show good faith in opening the estate, knowing there were in existence subsequent wills revoking the will they sought to probate and naming a different executor; in failing to advise the court that subsequent wills existed, including one filed for probate in Texas; in failing to notify the executor and beneficiaries named in those wills prior to obtaining an order appointing them executor; and in continuing to push their position when it became obvious the 1988 will had been revoked.
AWARD OF ORDINARY EXECUTOR AND ATTORNEY FEES
Appellant challenges the award of ordinary executor fees. Marquette Trust was awarded ordinary executor fees of $2,813. Nichols was awarded ordinary executor fees of $6,035. Marquette filed an itemized billing showing 66.6 hours for a charge of $2,813. Nichols claimed fees for 288 un-itemized hours at a rate of $20 an hour plus $275.20 for phone calls, copies, and other unspecified expenses. The district court ordered ordinary fees in the exact amount of these two requests. Appellees contend that these fees were properly allowed under Iowa Code sections 633.197 and 633.198. Appellees correctly point out that appellant did not challenge the reasonableness of any of the fees but only whether they should be charged against the estate and trust.
Nichols's statement provides no guidance as to what duties he performed during the period he was executor, but is merely a statement of hours for his work on the Falck estate. Marquette's statement, though itemized by date, generally gives little guidance as to how time charged was spent to benefit the estate.
We recognize that Iowa Rule of Probate Procedure 7.2(2) provides that the district court, in fixing ordinary executor fees under Iowa Code section 633.197 may, unless special circumstances are called to its attention, rely on the probate file as proof of the nature and extent of responsibilities assumed and services rendered. With this in mind we have reviewed that part of the probate file covering the little more than six-month period between appellees' appointment and qualification as executors and the ruling on summary judgment terminating probate of the estate under the 1988 will.
For this period beginning October 31, 1995, the probate file reflects the following filings were made by the executors. On October 31 they were appointed, filed their oaths of office, and designated an attorney. On November 3 they waived notice of and consented to Maxine's application for a $250,000 widow's allowance. On November 30 they filed a notice of publication. On December 15 they answered appellant's November 27 petition to set aside the 1988 will. On January 17, 1996, they filed a petition for injunction, an application to appoint temporary administer pursuant to 633.343, and an application to enjoin appellant from dealing with the assets of the Falck estate and trust. On January 17, 1996 they sent a notice of probate of will, appointment of executor and notice to creditors to seven persons — Maxine and Jerry, and five charities. On February 9, they filed a resistance to a motion to dismiss the petition for injunction and a resistance to objections to pretrial conference. On March 15, they filed a brief, statement of material facts, and resistance to appellant's motion for summary judgment.
This review would suggest that the executors' time in that period was not spent on those tasks generally considered in fixing ordinary fees, such as inventorying and marshalling the assets. A probate inventory was never filed. The maximum ordinary executor fee which shall be received as full compensation for all ordinary services is calculated by applying the statutory schedule of fees to the gross assets of the estate as listed in the probate inventory for Iowa inheritance tax purposes. In re Estate of Lynch, 491 N.W.2d 157, 179 (Iowa 1992); see alsoIowa Code § 633.197. Appellees have failed to meet their burden of showing the fees awarded were justified.
Whether the executors may have qualified for extraordinary fees under section 633.199 is not an issue. They were not claimed and the executors' requests do not comply with the requirements for requesting extraordinary fees in Iowa Rule of Probate Procedure 7.2(3).
The court awarded Jerome Perry of Rochester, Minnesota ordinary attorney fees of $6,326.30. Perry is not licensed to practice in Iowa. The file does not reflect that he was designated as attorney for the appellees prior to the summary judgment ruling. He appears to be licensed to practice in the state of Minnesota. Appellant claims, citing Boulton, 403 N.W.2d at 42, that the Iowa courts do not have jurisdiction to award attorney fees to out-of-state attorneys. Boulton is distinguishable in that in Boulton the Iowa court's order that was reversed set fees for an Illinois attorney probating the Illinois real estate owned by one who died an Iowa resident and the executor had not requested that the Iowa court fix the fee of the Illinois attorney. We need not determine whether or not Perry should be denied ordinary attorney fees because he is not licensed to practice law in Iowa. His accounting of fees does not reflect time spent on those items generally associated with ordinary fees and no application for extraordinary fees has been made. Furthermore the attorney fee cannot be in excess of the schedule of fees provided in 633.197 for the personal representative. See Iowa Code § 633.198.
While no probate inventory was filed, we note the only assets handled by appellees between October 31, 1995 and April 6, 1996, was $4,200. The district court sitting in probate has jurisdiction of the probate because probate proceedings are in rem and the presence of property in Iowa implicates the district court's subject matter jurisdiction. See In re Estate of Lamb, 584 N.W.2d 719, 722 (Iowa Ct.App. 1988). The district court's probate jurisdiction does not include matters unrelated to the administration of the estate. Id. at 723.
We have considered the appellees bad faith in (1) obtaining appointment as executors under a will with knowledge it was revoked by two subsequent wills, without advising the court the two subsequent wills existed, and without notice to the executor of the two wills and the beneficiaries thereunder; (2) seeking fees for their efforts and those of their attorneys in pursuing claims for the benefit of the widow and son, which claims were adverse to other beneficiaries; and (3) seeking fees for their efforts and those of their attorneys, which were not those efforts considered for fixing ordinary fees in an estate. We reverse all orders awarding ordinary executor and attorney fees.
AWARD OF EXTRAORDINARY ATTORNEY FEES
The district court awarded Marquette Trust $34,673.77 for extraordinary attorney fees for the defense of the 1988 will and the challenge to the 1995 will. Appellant contends these fees were not justified. This sum included $10,185.86 for Iowa attorney Richard Zahasky and $22,762.96 for three Texas law firms.
Appellees carry the burden to demonstrate good faith and just cause for the litigation. See Brady, 308 N.W.2d at 72.
Generally a personal representative has the duty, as well as the right, to defend the will by all fair means, and with his best efforts at least where he has reasonable ground to believe the will is valid. 95 C.J.S § 331, at 185-86 (1957); In re Estate of Flaherty, 484 N.W.2d 515, 518 (N.D. 1992). Good faith and just cause is ordinarily a question of fact. Brady, 308 N.W.2d at 71; Cory, 184 N.W.2d at 698.
We have determined the executors did not show good faith in obtaining their appointment as executors under a will they knew had been revoked by two subsequent wills without advising the Iowa court of the subsequent wills. Appellees did not obtain court approval before seeking to support the 1988 will and to challenge the 1995 will. Seeking court approval for the litigation would have been evidence of good faith. See Brady, 308 N.W.2d at 72. Nor had they adequately investigated any claims the later wills were invalid. See id. Furthermore, they continued to litigate the jurisdiction of the Texas court after the 1995 will had been established.
On our de novo review we find appellees failed to demonstrate good faith and just cause for the litigation. Id. at 72. We reverse the order for $34,673.77 for attorney fees.
Appellant next contends the district court abused its discretion in fixing extraordinary fees in the amount of $299,640, the sum the appellees paid to defend a tort action brought against them as individuals by appellant. The district court reasoned these fees should be paid because appellant continued the litigation after a settlement agreement was reached in 1997. The court reasoned that the 1988 will should have been admitted to preserve the estate, defend the 1988 will, and challenge the 1995 will. The court determined Bruene, 350 N.W.2d at 219, supported awarding the fees.
Appellees argue that, in defending the lawsuit, they did not act in their self interest; rather they acted in the interest of the estate. They also contend that payment of fees is justified because they were successful in the litigation. See id. at 218.
The executors seeking to charge attorney fees against an estate have the burden of proving they acted in good faith and they must demonstrate a special estate interest in the contest. Wulf, 526 N.W.2d at 156. Appellees were sued in their individual capacity for intentionally interfering with appellant's contractual duties. The tort action was filed after the Iowa estate was terminated and they no longer were executors. The defense of the tort action was for appellees' protection. Brady, 308 N.W.2d at 74; cf. Bruene, 350 N.W.2d at 218-19 (awarding attorney fees for defense of a claim against the executor which benefited the estate).
Appellees' entitlement for what amounts to indemnification for attorney fees turns on whether their defense of the litigation was for their personal protection against claims of malfeasance or for expenses properly incurred to defend the management of the estate. See In re Trust of Killian, 459 N.W.2d 497, 503 (Iowa 1990). There is nothing in the record to show the defense of this action benefited the decedent's estate or that what appellees were defending was their good faith management of the estate. We reverse the order awarding the $299,640.24 fee.
Appellees also have requested an award of appellate attorney fees. Having reversed the district court's order awarding fees and finding no basis for an award of appellate attorney fees, which, like the majority of fees requested, were for their own protection, not to benefit the estate, we deny the appellees' request.
REVERSED AND DISMISSED.
Huitink, J. concurs, Zimmer, J. concurs specially.
I concur in the result.