Harrell v. Badger, — So.3d —-, 2015 WL 3631639 (Fla. 5th DCA June 12, 2015)
The default rule in most civil trials is that win or lose, each side pays its own attorneys fees. Known as the “American rule,” it’s something we all learn about in law school and assume applies most of the time. That assumption can get you in big trouble in trust and estate litigation. Why? Because it simply doesn’t apply. This is a huge risk factor litigators who don’t usually handle these cases can easily overlook. Which can be bad news if a case goes sideways on you and your client’s left holding the bag for the other side’s gazillion dollar legal tab.
Section 736.1004 of our Trust Code authorizes courts to award attorneys fees “as in chancery actions.” (There’s a similar rule in our Probate Code at F.S. 733.106). “The well settled rule in chancery cases is that a court of equity may, as justice requires, order that costs follow the result of the suit, apportion the costs between the parties, or require all costs be paid by the prevailing party.” Estate of Brock, 695 So.2d 714, 716 (Fla. 1st DCA 1996). Under the chancery rule, ordering the losing side to pay the prevailing party’s fees is one option, but not the only one. It all depends on what your particular judge believes is fair or “equitable” under the particular facts of your case. In other words, it’s virtually impossible to predict what might happen in advance with any reasonable degree of certainty. Which means your client better be ready for the worst case scenario, no matter how much of a slam dunk his case might look like going in. This case is a prime example of what a “worst case” scenario might look like.
Everything that could possibly go wrong, did go wrong. The trust’s assets were all transferred to a “pooled trust,” which was intended to preserve trust assets for the beneficiary’s care while not disqualifying him from needs-based government programs. This transfer was a form of “decanting,” which is authorized by F.S. 736.04117. If done right, decanting is a great way to fix tricky trust problems (see here). Unfortunately, it wasn’t done right. First, the remainder beneficiaries of the trust were completely cut out when the trust was decanted. Which is why they should have been notified in advance. That didn’t happen:
Here, section 736.04117(4) plainly and unambiguously requires a trustee to provide notice to “all qualified beneficiaries” of his intent to invade the principal of a trust at least 60 days prior to the invasion. Appellants are qualified beneficiaries as defined in section 736.0103(16), Florida Statutes (2008), of the Trust because of their interest in the distribution of any principal remaining after Wilson’s death. Badger improperly exercised his power to invade the principal of the Trust by failing to provide any notice to Appellants prior to transferring the entire contents of the Trust to the FFSNT.
Also, if you’re going to decant assets from one trust and send them to another trust, the second trust can only include beneficiaries of the first trust. Again, that didn’t happen:
Additionally, under section 736.04117(1)(a)1., the decantation of trust principal is limited to situations where the beneficiaries of the second trust “include only beneficiaries of the first trust.” Here, the first trust defined Wilson as the primary beneficiary and Appellants as the contingent remainder beneficiaries. The second trust—the FFSNT sub-account—also defined Wilson as the primary beneficiary but provided a contingent remainder interest to beneficiaries of the other FFSNT sub-accounts. The second trust clearly included beneficiaries not contemplated by the original Trust, rendering Badger’s decantation of all assets from the original Trust invalid.
Trustee’s lawyer steals the money:
OK, the decanting was botched, but the problem was still “fixable”. It’s what happened next that brought this case up to a whole new level of disaster. Working with her then husband, the elder law attorney hired by the trustee to make this all happen — stole the money! It turns out she and her now ex-husband stole $2.9 million from 26 clients. Included in that mess was the trust at issue in this case. Here’s how that story was reported by the Orlando Sentinel in Kissimmee couple plead guilty to defrauding elderly clients:
A Kissimmee couple who stole nearly $2.9 million from elderly clients pleaded guilty in federal court Tuesday and could be sentenced to 10 years in prison each. Linda Littlefield, a disbarred attorney also known as Linda Vasquez, and her former husband, Ross Littlefield, stole nearly $2.9 million from elderly clients and used the money to buy real estate and cars and prop up their other businesses. Between 2007 and 2010, the Littlefields took more than $4.7 million from 26 clients, then began transferring money to accounts for their personal use. Their business, with an office in downtown Kissimmee, was called JNN Foundation. Ross Littlefield, 48, sent falsified quarterly statements to clients making it appear as if their balances where greater than they actually were. In many cases, people lost most of their life savings. The money was supposed to become part of a pooled trust designed to shelter assets while maintaining the beneficiaries’ Medicaid eligibility.
For the official version, you’ll want to read the U.S. Attorney’s press release.
Can a trial judge assess over $85,000 in attorneys fees against beneficiaries for suing a trustee who committed “numerous breaches of his fiduciary duty to the Trust”? NO!
If trust money’s stolen, who pays? The trustee (whose job it is to safeguard the trust) or the beneficiaries (whose job it is to oversee their trustee)? That’s what this case should have been about. Instead, it became a scary example of what can go wrong when a fee-shifting statute’s improperly applied.
According to the 5th DCA, the trustee in this case was guilty of “numerous breaches of his fiduciary duty to the Trust.” When the remainder beneficiaries of this trust hired a lawyer to sue the trustee (after learning the money had been stolen), he probably thought: numerous breaches of fiduciary duty = slam dunk case, no problem. Which is why what happened next must have completely taken everyone by surprise. At trial, the judge ruled against the claimants on all grounds and, adding insult to injury, awarded $85,005.50 in attorneys’ fees to the trustee based on a finding that the claimants had “presented absolutely no evidence” of wrongdoing. But for this fee-shifting order, I don’t think this case would have gotten much attention at the 5th DCA. Because of this fee-shifting order, we now have another appellate opinion we can point to when weighing the risks and rewards of trust litigation:
We review a trial court order on a motion for attorneys’ fees in an action challenging the exercise of a trustee’s power for an abuse of discretion. Nalls v. Millender, 721 So.2d 426, 427–28 (Fla. 4th DCA 1998). Section 736.1004, Florida Statutes (2008), requires a trial court to award attorneys’ fees and other costs “as in chancery actions.” Under the chancery rule, a trial court “may apportion the costs between the parties, or require all costs to be paid by the prevailing party.” Nalls, 721 So.2d at 427. Although we find that the equities of the instant case do not favor any award in favor of Badger, the trial court did not specifically base its award on equitable considerations. See generally Tesla Elec., Armature & Mach., Inc. v. JLM Advanced Technical Servs., Inc., 128 So.3d 865, 866 (Fla. 1st DCA 2013). Rather, the trial court based its imposition of attorneys’ fees against Appellants on the finding that they “presented absolutely no evidence” in support of their claims. Because our ruling necessarily invalidates the trial court’s finding as to the sufficiency of Appellants’ evidence, the award of attorneys’ fees in favor of Badger was an abuse of discretion. We remand for a reasonable apportionment of the parties’ attorneys’ fees. See Republic Nat’l Bank v. Araujo, 697 So.2d 164, 166–67 (Fla. 3d DCA 1997).
So what now?
In trust cases, the same person is your law giver and fact finder: the judge. If that judge has made up his mind about how a certain case should turn out, getting reversed doesn’t matter all that much if the case is sent back to the same judge post appeal for a “do over.” At least that won’t happen here. Although the 5th DCA sent the case back to the trial court, the original trial judge has since announced his retirement (see here).