Trustee and Challenging Beneficiaries Got Mixed Results, So Trustee Entitled To Fees, Inclusive Of “Fees On Fees.”
In Farnocchia v. Harms, Case No. A164639 (1st Dist., Div. 1 Nov. 29, 2023) (unpublished), two beneficiaries of a trust filed a petition to remove Harms as trustee, for an accounting, and for breach of fiduciary duty. Although trustee was removed and provided asset documentation acceptable to the beneficiaries, the petition was resolved by a stipulation through which the asset information was deemed adequate, and no finding of fiduciary duty breach was made. The lower court then granted trustee’s attorney’s fees in the amount of $61,557 for the work of the attorney helping trustee reach the stipulation resolving the petition, including “fees on fees” on the fee entitlement issue. Beneficiaries appealed the order, but it was affirmed on appeal.
Initially, the Court of Appeal provided a nice review of the situations giving rise to fee entitlement under these circumstances. “In People ex rel. Harris v. Shine (2017) 16 Cal.App.5th 524, our colleagues in Division Five summarized when such fees are appropriate:
“ ‘ “The underlying principle which guides the court in allowing costs and attorneys’ fees incidental to litigation out of a trust estate is that such litigation is a benefit and a service to the trust,” ’ and not for the personal benefit of the trustee. [Citation.] Courts have found a trustee’s legal services were for the benefit of the trust, and thus payable from trust funds, where the attorneys helped prepare an accounting [citation]; successfully defended an accounting [citation]; litigated to preserve trust assets [citation]; successfully defended against a petition to invalidate the trust [citation]; or successfully defended against a petition to remove or surcharge the trustee [citation].
“Fee awards have been denied or reduced where the attorneys helped prepare an inaccurate accounting [citation]; unsuccessfully defended an accounting [citation]; or unsuccessfully defended a petition to remove or surcharge the trustee [citation]. Where the results of such proceedings were mixed, courts have either awarded fees based on the trustee’s overall success in the proceeding [citation] or apportioned fees according to the trustee’s success [citation]. [¶] Fee awards have also been found inappropriate where the trustee acts from personal interest or motive. [Citations.]
“In short, the costs of a successful defense to a removal or surcharge petition are generally chargeable against the trust even though the trustee personally benefits as a result. [Citation.] However, a trustee is not entitled to indemnity for fees incurred in an unsuccessful defense of such a petition absent an additional showing that ‘the trustee subjectively believed that the expense was necessary or appropriate to carry out the purpose of the trust and that belief was objectively reasonable.’ ” (Id. at pp. 534–535.)
The appellate court found that beneficiaries were not necessarily the prevailing party because although they got Harms removed as trustee and obtained asset information, the trustee did successfully defend against the accounting challenges, and no breach of fiduciary findings were made. This mixed result allowed recoverable compensation for the work of trustee’s attorneys in reaching a stipulation with respect to beneficiaries’ petition. Furthermore, trustee was entitled to “fees on fees” in demonstrating fee entitlement before the lower court. (Estate of Griffith, 97 Cal.App.2d 651, 656 (1950).)
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