Probate: In Interesting Statutory Interpretation Issue, Fifth District Concludes That Trustee Can Face Fee Exposure For No Accounting At All And For Obtaining A Breach Of Fiduciary Duty Surcharge

Construction Of Probate Code Section 17211(b) Was Involved.

            Although unpublished, the Fifth District confronted the scope of Probate Code section 17211(b), the provision allowing assessment of attorney’s fees against a trustee who contests an accounting unreasonably and in bad faith, in Brown v. Jimenez, Case No. F073156 (5^th Dist. Sept. 12, 2017) (unpublished).

            In this case, daughter (a beneficiary of her mother’s trust) challenged grandmother successor trustee’s expenditure of trust assets (such as grandmother buying properties for the use of her son), expenditures which exhausted the trust corpus.  Daughter sued grandmother for her removal as trustee coupled with seeking damages, interest, and attorney’s fees (fee recovery primarily under section 17211(b)).  The fee recovery amounted to $265,000 based on her work in successfully pursuing a petition to compel an accounting (given grandmother initially failed to account at all) and a surcharge petition.  Daughter obtained most of her relief, prompting an appeal in which some relief was reversed.  However, the fee recovery was sustained.

            The Fifth District—in a 3-0 decision authored by Justice Smith--candidly framed the conundrum involved with construing section 17211(b) under the circumstances of this case, presenting it this way:  “The question here is not an easy one. Pitfalls are presented by both parties’ approaches. If the statute is construed strictly, counterintuitive consequences could follow. It would appear that if a trustee loots a trust and provides a false account to conceal the wrongdoing, a beneficiary challenging the account could recover attorneys’ fees when the trustee opposes that challenge in bad faith, but the beneficiary could not recover attorneys’ fees for expanding the action to remedy the underlying breach thus uncovered, even if the trustee continues to oppose the action in bad faith. On the other hand, if it is thought that the statute must be extended to a trustee’s bad-faith opposition to a beneficiary’s claims in general, then the statutory language specifically referencing a challenge to an account appears mystifying.”  (Slip Op., pp. 16-17.)

            Eventually, upon concluding that a challenge to an accounting can include the ancillary relief of obtaining a surcharge for breach of fiduciary duty, the Court of Appeal affirmed the fee recovery through this holding:  “[I]n our view, if a beneficiary’s action in probate is related to a trustee’s account—either alleging that the trustee has improperly failed to account or that an account is erroneous or inadequate—then section 17211, subdivision (b), is applicable if the trustee opposes the action unreasonably and in bad faith.  Further, the scope of the representation the fee award can cover can include activities to obtain a remedy, such as a surcharge, for breaches of duty uncovered through the account-related action.”  (Slip Op., p. 19.)