A new law is making it easier for Florida personal representatives to access digital data—such as email, photos and social-media postings—after the account holder dies. It’s called the Florida Fiduciary Access to Digital Assets Act, and it’s modeled on the Revised Uniform Fiduciary Access to Digital Assets Act. This new legislation was passed as Senate Bill No. 494, and it goes into effect starting July 1, 2016. Once effective you’ll be able to find the new act at new Chapter 740 of the Florida Statutes.

The Florida Fiduciary Access to Digital Assets Act accomplishes two purposes. First, it provides fiduciaries the legal authority to manage digital assets and electronic communications in the same manner that they manage tangible assets and accounts. The act distinguishes between when a fiduciary may access the content of digital assets and electronic communications and when the fiduciary may only access a catalog of the digital property. Second, the act provides custodians of digital assets and electronic communications the legal authority they need to interact with the fiduciaries of their users while honoring the user’s privacy expectations for his or her personal communications. Most importantly, a custodian is granted immunity from liability for acts or omissions done in good faith compliance with the provisions of the new act.

And last but not least, the new legislation gives Internet users the ability to plan for the management and disposition of their digital assets if they should die or become unable to manage their assets. This is done by vesting fiduciaries with the authority to access, control, or copy digital assets and accounts.

For more on how the new law is supposed to work while still respecting legitimate privacy concerns, you’ll want to read the bill’s Legislative Staff Analysis. Here’s an excerpt:

General Overview

Because the Florida Statutes do not authorize fiduciary access to digital assets, the purpose of [Senate Bill No. 494] is to provide fiduciaries with specific authority to access, control, or copy digital assets and accounts. The four types of fiduciaries this bill applies to are personal representatives of decedents’ estates, guardians of the property of minors or incapacitated persons, agents who are acting under a power of attorney, and trustees.

According to the Real Property, Probate and Trust Law Section of The Florida Bar, or RPPTL, this act provides the legal authority that a fiduciary needs to manage digital assets in compliance with a person’s estate plan, while also ensuring that a person’s private electronic communications remain private unless the person gave consent for disclosure. The bill allows a user to specify whether his or her digital assets will be preserved, distributed to heirs, or destroyed. In keeping with federal privacy laws, the bill prevents companies that store electronic communications from releasing them to fiduciaries unless the user has consented to the disclosure. Fiduciaries are required under the bill to provide proof of their authority under Florida law to the custodians of the digital assets. Custodians that comply with a fiduciary’s apparent authorization request are given immunity from liability under the statutes that prohibit unauthorized access.

The Uniform Law Commission has stated [here] that this revised uniform act, which [Senate Bill No. 494] mirrors, gives Internet users the ability to plan for the management and disposition of their assets in similar ways that they make plans for tangible property. The bill has a three-tiered system of priorities in the event of conflicting instructions. Additionally, the bill is designed as an overlay statute that works in conjunction with a state’s existing laws involving probate, guardianship, trusts, and powers of attorney.

Limited Application

According to RPPTL, the bill is limited in its scope and applies only to fiduciaries who are already bound to act in compliance with their fiduciary duties and powers. The bill does not extend to family members or other people who seek access to digital assets unless they are also a fiduciary. Moreover, the ability of a fiduciary to access a digital asset does not entitle the fiduciary to own the asset or make transactions with the asset.

The scope of the bill is further limited by the definition of “digital assets.” The bill’s only application is to an electronic record, which includes electronic communications, and does not apply to the underlying asset or liability unless the asset or liability is itself an electronic record.

Online Tool

One significant addition to this year’s version of the bill that was not present last year is the concept of an “online tool” for directing fiduciary assets. The online tool is an electronic service provided by a custodian which allows the user, in an agreement separate and distinct from the terms-of-service agreement, to provide directions for disclosure or nondisclosure of digital assets to a third person.

If you make your living in and around our probate courts you’ll find the FY 2014-15 Probate Court Statistical Reference Guide interesting reading. The chart below provides the “cases filed” data for three of our largest circuits/counties: Miami-Dade (11th Cir), Broward (17th Cir), and Palm Beach (15th Cir). For prior years see (2013-14), (2012-13), (2011-12).

But numbers alone don’t tell the whole story. To understand the breadth of issues a typical probate judge contends with in an average year at the end of this post I’ve provided a glossary with the official definition given for each of the categories listed in my chart. Finally, as a rough measure of the crushing case load your average big-city probate judge is saddled with in Florida, I took the total filing figures and divided them by the number of probate judges serving in each of those counties.

So what’s it all mean?

In Miami-Dade – on average – each probate judge took on 3,122 NEW cases in FY 2014-15, in Broward the figure was slightly lower at 3,044/judge, with Palm Beach scoring the lowest at 2,020/judge. Keep in mind these figures don’t take into account each judge’s EXISTING case load or other administrative duties. These stat’s may be appropriate for uncontested proceedings, which represent the vast majority of the matters handled by a typical probate judge, but when it comes to that small % of estates that are litigated, these same case-load numbers (confirmed by personal experience) make two points glaringly clear to me:

[1]  We aren’t doing our jobs as planners if we don’t anticipate — and plan accordingly for — the structural limitations inherent to an overworked and underfunded state court system. As I’ve previously written here, one important aspect of that kind of planning should be “privatizing” the dispute resolution process to the maximum extent possible by including mandatory arbitration clauses in all our wills and trusts. Arbitration may not be perfect, but at least you get some say in who’s going to decide your case and what his or her minimum qualifications need to be. And in the arbitration process (which is privately funded) you also have a fighting chance of getting your arbitrator to actually read your briefs and invest the time and mental focus needed to thoughtfully evaluate the complex tax, state law and family dynamics underlying these cases (a luxury that’s all but impossible in a state court system that forces our judges to juggle thousands of cases at a time with little or no support).

[2]  We aren’t doing our jobs as litigators if we don’t anticipate — and plan accordingly for — the “cold judge” factor I wrote about here; which needs to be weighed heavily every time you ask a court system designed to handle un-contested proceedings on a mass-production basis to adjudicate a complex trial or basically rule on any technically demanding issue or pre-trial motion of any significance that can’t be disposed of in the few minutes allotted to the average probate matter.

FY 2014-15 Probate Court Filing Statistics

Type of Case Miami-Dade (11th Cir) Broward (17th Cir) Palm Beach (15th Cir)
Probate 4,156  4,028  4,941
Baker Act  5,107  3,384  1,475
Substance Abuse 861  973  697
Other Social Cases 1,361  312  242
Guardianship 950  396  506
Trust 55  41  219
Total 12,490  9,134  8,080
# Judges 4 3 4*
Total/Judge 3,122  3,044  2,020

*In Palm Beach County (15th Cir) there are 6 part time probate judges and 1 full time probate judge. For purposes of the chart I count them as 4 full time probate judges.

Glossary: 

Probate: All matters relating to the validity of wills and their execution; distribution, management, sale, transfer and accounting of estate property; and ancillary administration pursuant to chapters 731, 732, 733, 734, and 735, Florida Statutes.

Guardianship (Adult or Minor): All matters relating to determination of status; contracts and conveyances of incompetents; maintenance custody of wards and their property interests; control and restoration of rights; appointment and removal of guardians pursuant to chapter 744, Florida Statues; appointment of guardian advocates for individuals with developmental disabilities pursuant to section 393.12, Florida Statutes; and actions to remove the disabilities of non-age minors pursuant to sections 743.08 and 743.09, Florida Statutes.

Trusts: All matters relating to the right of property, real or personal, held by one party for the benefit of another pursuant to chapter 736, Florida Statutes.

Florida Mental Health Act or Baker Act: All matters relating to the care and treatment of individuals with mental, emotional, and behavioral disorders pursuant to sections 394.463 and 394.467, Florida Statutes.

Substance Abuse Act: All matters related to the involuntary assessment/treatment of substance abuse pursuant to sections 397.6811 and 397.693, Florida Statutes.

Other Social Cases: All other matters involving involuntary commitment not included under the Baker and Substance Abuse Act categories. The following types of cases would be included, but not limited to:

  • Tuberculosis control cases pursuant to sections 392.55, 392.56, and 392.57, Florida Statutes;
  • Developmental disability cases under section 393.11, Florida Statutes;
  • Review of surrogate or proxy’s health care decisions pursuant to section 765.105, Florida Statutes, and rule 5.900, Florida Probate Rules;
  • Incapacity determination cases pursuant to sections 744.3201, 744.3215, and 744.331, Florida Statutes;
  • Adult Protective Services Act cases pursuant to section 415.104, Florida Statutes.
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Lawyers love to brag about their court wins, not so much about their prowess as contract drafters. But the reality is that the vast majority of inheritance cases settle, which means in most instances “who gets what” is going to be the product of a settlement agreement, not some dramatic trial victory. And inheritance negotiations almost always turn on the value of the assets being divvied up.

So one of the big risk factors that needs to be nailed down in any estate-related settlement agreement is whether anyone’s being dishonest about the assets (which is easily done with “reps and warranties”, as discussed below). Two recent decisions out of the 3d DCA are prime examples of what can go wrong when this risk factor is NOT addressed in the text of your settlement agreement. The first was the Sugar case, which I wrote about here. The second is this case. Both boil down to one simple rule: GET IT IN WRITING!

Case Study

Moriber v. Dreiling, — So.3d —-, 2016 WL 145968 (Fla. 3d DCA January 13, 2016)

This case involves three siblings, one of whom (Ms. Moriber) sued her mother over disputes involving a family business, her father’s estate and trusts, and three $1.5 million life insurance policies. The case settled. Part of the settlement agreement involved Ms. Moriber getting one-third of the life insurance after her mother’s death.

According to Ms. Moriber, her mother (and her mother’s lawyer) led her to believe the insurance policies remained in effect at the time she signed her settlement agreement. However, these were all oral statements, they weren’t incorporated into the actual text of the contract. Should Ms. Moriber have relied on her mother’s oral representations? Not according to the 3d DCA:

It is without question that the parties in the instant case had a hostile and antagonistic relationship at the time of Ms. Moriber’s alleged reliance on [her mother’s] representations. Ms. Moriber knew, or should have known, from her own dealings with [her mother] that Ms. Moriber should not rely on any representations made by [her mother].

After her mother’s death Ms. Moriber learned she’d been duped. The three insurance policies had been cancelled years before the settlement agreement was signed. Ms. Moriber sued her mother’s estate for fraud. According to the 3d DCA:

The gravamen of the fraud counts . . . is that Ms. Moriber would never have entered into the Settlement Agreement had she known that the insurance policies . . . had been canceled.

So here’s the $1.5 million question on appeal. Can you sue a hostile party for fraud if they lie to you during settlement negotiations? NO, so saith the 3d DCA:

Beginning with Columbus Hotel Corp. v. Hotel Management Co., 116 Fla. 464, 156 So. 893 (Fla.1934), Florida state and federal courts have . . . consistently [held] that, as a matter of law, a plaintiff may not rely on statements made by litigation adversaries to establish fraud claims. . . .

In reaching its holding [in Columbus Hotel, the [Florida Supreme Court] explained, “[t]here can be no ground for complaint against representations where the hearer lacked the right to rely thereon, because he had reason to doubt the truth of the representation, as where … a [representor] … was obviously hostile to the hearer and interested in misleading him.” Id. at 486, 156 So. 893.

While, in Butler v. Yusem, 44 So.3d at 105, the Florida Supreme Court recently determined that “justifiable reliance” is not an essential element of fraud, we do not read Butler as receding from the well-established and common sense principle of law espoused in Columbus Hotel and its progeny: generally, adverse parties negotiating a settlement agreement in an attempt to avoid litigation cannot rely upon the representations of one another.

So if you can’t sue a hostile adversary for (surprise!) lying to you during settlement negotiations, how can you protect yourself from this kind of deception? Better contract drafting. Again from the 3d DCA:

In the context of settlement agreements, one party certainly may insist upon certain assurances from the other party. In our opinion, however, such assurances are better enforced through contract principals (e.g., warranties, indemnities, etc.) rather than fraud claims.

Think: “reps and warranties”

If you’re settling a case based on the assurance by an adverse party that fact “X” is true, that representation needs to be incorporated into the text of your contract and the adverse party needs to assume the risk of the statement being false by warranting its truthfulness. For example, “Party ‘A’ represents and warrants that the three $1.5 million life insurance policies are in effect.” If the fact that’s been represented and warranted in your settlement agreement turns out to be false (for example, the three $1.5 million life insurance policies were cancelled), your client’s remedy is a standard breach of contract lawsuit, not a fraud claim.

For more on the value of “reps and warranties” and how they work in real life, you’ll want to read this short ABA article on the subject. Here’s an excerpt:

A lawyer drafting a business contract has multiple responsibilities, but two of the most important are to protect her client against risks and to secure those advantages that are reasonable and appropriate. Having a client receive both “representations and warranties” will generally help you fulfill these responsibilities. . . .

We will begin with representations. They are statements of present or past fact. For example, “The financial statements fairly present the financial condition of the seller.” Future “facts” cannot generally form the basis of representations because no one can know the future. At best, someone can have an opinion. . . .

Now, let’s turn to warranties. In the past 15 years, courts have been struggling anew with the meaning and implications of a common law warranty — a promise that a fact is true. The seminal case was CBS Inc. v. Ziff-Davis Publishing Co., 75 N.Y.2d 496 (1990). In that case, Ziff-Davis “represented and warranted” the financial condition of the division it was selling to CBS. CBS, however, as part of its due diligence, sent in its own accountants to review the division’s financial statements. They reported that the financial condition was not as represented and warranted. The parties closed anyway, and then CBS sued.

In New York’s highest court, the issue was whether CBS had a cause of action for breach of warranty. Ziff-Davis argued that CBS did not because it had known about the problems with the financial statements and had not justifiably relied on the warranties. Stated differently, Ziff-Davis argued that the standards for a cause of action for a fraudulent misrepresentation and a breach of warranty both required justifiable reliance on the truthfulness of the statement. Ziff-Davis lost.

According to the New York court, a warranty is a promise of indemnity if a statement of fact is false. A promisee does not have to believe that the statement is true. Indeed, the warranty’s purpose is to relieve a promisee from the obligation of determining a fact’s truthfulness.

Since the CBS case was decided, the majority of states have followed New York.

Dowdy v. Dowdy, — So.3d —-, 2016 WL 56785 (Fla. 2d DCA January 06, 2016)

In trust litigation one of the first moves you’ll often see is some kind of “emergency” motion asking the judge to freeze the trust’s assets and/or in some way remove the trustee.

What this kind of motion is of course asking for (whether explicitly stated or not) is a temporary injunction. When I point this out I’m often met with blank stares (and not just from the lawyers). Which is why it’s useful to have a few appellate decisions handy stating the obvious: trust litigation is not the twilight zone, when it comes to temporary injunctions, the same rules apply. See here, here. And is that what the court decided in this case? YES!

In order to obtain a temporary injunction, the moving party must make four showings. Atomic Tattoos, LLC v. Morgan, 45 So.3d 63, 64–65 (Fla. 2d DCA 2010). The movant must demonstrate that he will suffer irreparable harm without an injunction, that he has no adequate remedy at law, that he enjoys a substantial likelihood of success on the merits, and that an injunction would be in furtherance of the public interest. Id. When granting an injunction, the court must make factual findings to support each element. Liberty Fin. Mortg. Corp. v. Clampitt, 667 So.2d 880, 881 (Fla. 2d DCA 1996) (citing City of Jacksonville v. Naegele Outdoor Advert. Co., 634 So.2d 750, 753–54 (Fla. 1st DCA 1994) (“If it is to be subject to meaningful review, an order granting a temporary injunction must contain more than conclusory legal aphorisms…. Facts must be found.”), approved, 659 So.2d 1046 (Fla.1995)); see also Fla. R. Civ. P. 1.610(c) (mandating that every injunction shall specify the reasons for entry).

Here, the circuit court’s order contained no factual findings or legal analysis, and it is vulnerable to reversal for that reason alone.

What’s important about decisions like this one is that they’ll hopefully put the brakes on the almost haphazard manner temporary injunctions are often doled out in trust cases. Dispensing with the need for an order containing detailed findings of fact based on evidence (and not just argument of counsel) may be expedient for the judge, but it actually makes litigating the merits of these cases a whole lot harder and more expensive for everyone else.

Gus Boulis was a spectacularly successful self-made millionaire with a sixth grade education whose life story was as colorful as it was improbable. And it all came to an end in 2001 when he was gunned down gangland style. The “hit” took 12 years to unravel, culminating in the 2013 murder trial and conviction of Anthony “Little Tony” Ferrari. The wheels of justice do indeed move slowly — but they still beat probate! It’s 2016 and Boulis’s estate remains embroiled in litigation.

Boulis cut his wife out of his will, leaving her nothing. But does that mean she actually gets nothing? No way! The surviving spouse of a person who dies domiciled in Florida has the right to claim a portion of the deceased spouse’s estate known as the “elective share,” which is equal to 30% of the “elective estate.” The gross value of Mrs. Boulis’s elective share was $12.5 million.

Does the “elective share” get reduced by attorney’s fees? NO

Elective share calculations are tricky under the best of circumstances; add litigation to the mix and things get interesting real fast (as I’ve reported here). And one of the most confoundingly complex elements of this calculation is figuring out which expense items get netted out of the final figure and which don’t.

Blackburn v. Boulis, — So.3d —-, 2016 WL 231405 (Fla. 4th DCA January 20, 2016)

In large contested estates (like this one), the two biggest expense items are going to be estate taxes and attorneys’ fees. Both were heavily litigated in this estate. First up was taxes. As I reported here, the last time this estate was before the 4th DCA the court concluded Mrs. Boulis’s $12.5 million elective share is NOT exempt from paying its proportionate share of estate taxes. This time around the question was whether Mrs. Boulis’s elective share gets whittled down even further by attorneys’ fees. The 4th DCA said NO. Here’s why:

The 1998 version of the surviving spouse’s-elective-share statute is applicable to this appeal. That statute provides:

732.207 Amount of the elective share.—The elective share shall consist of an amount equal to 30 percent of the fair market value, on the date of death, of all assets referred to in s. 732.206, computed after deducting from the total value of the assets:

  1. All [1] valid claims against the estate paid or payable from the estate; and
  2. All [2] mortgages, [3] liens, or [4] security interests on the assets.

§ 732.207, Fla. Stat. (1998).

It is axiomatic that the Legislature is presumed to know the meaning of words it uses in laws it enacts and a court must ascribe generally-accepted meanings to words in a statute in the absence of contrary meanings expressly set forth in the statute. State v. Bodden, 877 So.2d 680, 685 (Fla.2004). In other words, when interpreting a statute, the court must look to the plain meaning of the language in the statute. P.E., 14 So.3d at 234. Here, the statute clearly and unambiguously sets forth only four types of expenses or costs which the probate court is to deduct from the value of the assets in the surviving spouse’s elective share. § 732.207(1)-(2), Fla. Stat. (1998). Attorneys’ fees is not one of those four. Id. Had the Legislature intended to allow a probate court to deduct attorneys’ fees paid by an estate’s personal representative(s) in litigating claims from the surviving spouse’s elective share, it could and would have done so. Therefore, the probate court reversibly erred by deducting attorneys’ fees from the value of Spouse’s elective share.

Still true today? YES

One reason why doing an elective-share calculation can be so tough is that the statute’s been revamped heavily over time (see here). So would this case have turned out the same under today’s iteration? I think so. The controlling provision is now found in subsection (5) of F.S. 732.2055, which is limited to the same four cost items listed in the 1998 statute relied on by the 4th DCA:

  1. creditor claims,
  2. mortgages,
  3. liens and
  4. security interests.

In other words, attorney’s fees remain excluded. Here’s how the statute reads today:

732.2055 Valuation of the elective estate.—For purposes of s. 732.2035, “value” means . . .

(5) In the case of all other property, the fair market value of the property on the date of the decedent’s death, computed after deducting from the total value of the property:
(a) All [1] claims paid or payable from the elective estate; and
(b) To the extent they are not deducted under paragraph (a), all [2] mortgages, [3] liens, or [4] security interests on the property.

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I’m a big fan of “privatizing” trusts and estates litigation whenever possible, which we can do in Florida by incorporating mandatory arbitration clauses in all our wills and trusts (see here). Florida was one of the first states to statutorily authorize these clauses in F.S. 731.401, removing all doubt as to their enforceability in this jurisdiction.

But no solution’s perfect. There are always tradeoffs. And arbitration’s no different. I was recently reminded of this fact in a conversation I had with Steven K. Schwartz, an Aventura, FL wills and probate lawyer with years of experience as a litigator. Steve’s thought long and hard about arbitration in the trusts and estates context. I invited him to share his thoughts on the blog and he graciously accepted.

Steven K. Schwartz on the “other side of the coin regarding arbitration”

First, the initial cost of proceeding via arbitration is usually more than in court.  Filing fees plus cost of the venue can be many thousands of dollars.  For a disappointed beneficiary this may be a barrier to proceeding.  Of course, while some cases should be stopped early, I am using the assumption that my hypothetical beneficiary has a meritorious claim.

We all know that mistakes get made and judges or arbitrators are not immune.  The inability of appellate review may prevent the meritorious position from being revealed, even if the arbitrator was, er, arbitrary.

The fact that there is little or no opportunity for appellate review multiplies the risks of proceeding.  Because of that limited review, the risk/reward evaluations that should be made by a party in evaluating the benefits of continued litigation, compared to settling, cannot be based upon precedent because there is no guarantee that the arbitrator’s decision will be based on precedent.  Therefore, the lawyer’s skill and expertise and judgment are diminished because the lawyer is operating in a more unpredictable environment.  For a disappointed heir, the risk may be too much.

The arbitrator may allow in evidence that would not be admissible in court.  The rules of evidence have developed over 1,000 years and the rules that have survived this long have value.  I certainly would not want to give them away for free.  In a similar note, discovery may be more limited thereby preventing facts from coming to light.

Arbitrators may have a predisposition towards trustees because there is a potential for future referrals from one trustee to another (or repeat business) and therefore a subtle bias in favor of the trustee and against the beneficiary may be in play.

While some cases may take a long time in court, that may not be bad.  Attorneys need time to prepare a case.  An arbitrator may insist on a case being prepared too quickly.

There is also a societal cost to arbitration.  If a case goes to court there is a chance the disappointed party will take an appeal.  We all benefit from those appellate decisions because they help attorneys to advise their clients as to the law as the law develops.  Fewer appeals means fewer appellate case to guide the bench and bar.

In conclusion, I am not saying that all these are always true or will be true in every case.  However, when choosing a dispute resolution forum, an informed choice must include discussion of these issues because ultimately it is the client’s choice.  Otherwise, you have essentially arbitrated away your client’s right to make an informed choice of a dispute resolution forum.

Of the points made by Steve, all of which are valid and worth considering, the lack of appellate review is the most significant to me. In my opinion the trade-offs still weigh in favor of arbitrating inheritance disputes. However, if you’re on the fence and looking to do a deep dive into this issue yourself, a good starting place is a Florida Bar Journal article entitled On What Grounds? Challenging an Arbitration Award Under Federal and Florida Law. Here’s an excerpt:

The benefits of arbitration, however, do not come without trade-offs, one of which is the right to traditional appellate review. Just as courts will enforce the parties’ initial decision to arbitrate, they will not interfere with that decision after an arbitration award is issued beyond a few limited, statutorily defined grounds. Crucially, these grounds do not include substantive review of the award for “mere” errors of law or fact. As a result, “judicial review of arbitration decisions is among the narrowest known to the law.”

Parker v. Parker, — So.3d —-, 2016 WL 404636 (Fla. 4th DCA February 03, 2016)

When most lawyers think “inheritance” litigation, they assume you’re talking about some kind of will contest. In reality, inheritance disputes often have nothing to do with transfers made at death, and everything to do with gifts made while a senior family member is still very much alive and kicking.

Referred to as inter vivos transfers, these cases have a rich body of Florida law to draw on (see here). But a recent 4th DCA opinion demonstrates that commonly held assumptions about how these cases need to be litigated don’t always hold up under scrutiny. For example, if the claim is prosecuted after the donor dies, is his personal representative always going to be an indispensable party to the case? In other words, can your case get booted out of court if you don’t join the PR as a party to the lawsuit? The answer might surprise you.

Case Study:

Most probate litigators would assume you can’t adjudicate a dispute involving a decedent’s property without including his personal representative as a party to the case. Think about it. If plaintiff “A” believes defendant “B” unduly influenced an elderly parent to make a series of inter vivos gifts to B, who’s to say A has a stake in the outcome. If the gift is voided, you’ll need a probate proceeding to tell you who gets dad’s estate by default. And it might not be A. But does that mean you’re required — as a matter of law — to always add a deceased donor’s PR as a party to this kind of lawsuit? By statute, that’s the rule for wrongful death actions (see here). Does the same rule apply here? NO. So saith the 4th DCA:

Florida courts have repeatedly permitted a decedent’s children to pursue claims to set aside inter vivos conveyances based upon allegations of undue influence, without requiring that the decedent’s estate be joined as a party to the suit. See Prat v. Carns, 85 So. 681, 682 (Fla.1920) (entertaining suit brought by decedent’s sons to invalidate deeds executed by decedent prior to his death, on the grounds that they were obtained by undue influence); Mulato v. Mulato, 705 So.2d 57, 5963 (Fla. 4th DCA 1997) (entertaining suit brought by son to invalidate deeds executed by decedent before her death, on the grounds that they were obtained by undue influence); Dunn v. White, 500 So.2d 565, 566 (Fla. 2d DCA 1986) (permitting son to be substituted as plaintiff for father who died after filing suit to recover property allegedly conveyed as a result of undue influence); Omel v. Simpson, 386 So.2d 2, 2 (Fla. 4th DCA 1980) (entertaining suit brought by decedent’s daughter to challenge deed executed by decedent, on the grounds that it was obtained by undue influence); Barger v. Barger, 183 So.2d 253, 253–54 (Fla. 2d DCA 1966) (permitting decedent’s son, who was the sole heir, devisee, and executor of decedent’s estate, to pursue action to set aside conveyance of real estate as the product of undue influence).

Other family members have also been permitted to challenge inter vivos transfers of property for undue influence without joining the decedent’s estate. See Bryant v. Bryant, 379 So.2d 382, 383 (Fla. 1st DCA 1979) (entertaining suit by family member of unstated relation to cancel deed executed by decedent, on the basis of decedent’s alleged lack of capacity and a confidential relationship with the grantee); Wrobbel v. Walda, 217 So.2d 340, 341 (Fla. 4th DCA 1968) (entertaining suit by decedent’s granddaughters to set aside gifts and transfers made by decedent on the grounds that they were the product of undue influence); Rowland v. McCall, 118 So.2d 846, 847 (Fla. 2d DCA 1960) (entertaining suit by decedent’s sister to void deed on the grounds that decedent executed it as a result of undue influence).

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We can all agree hourly billing is a terrible way to do business. Unfortunately, Florida courts are required— as a matter of law — to evaluate contested attorney’s fees using the “lodestar” method (which is all about hourly billing). And that means that in the absence of agreement we lawyers are stuck with the tyranny of the billable hour. But does the same rule apply to trustees? That was the $24.6 million question the 2d DCA grappled with in this blockbuster case involving the $2 billion estate of Robert Rauschenberg, the most famous American artist you’ve never heard of.

Case Study

Robert Rauschenberg Foundation v. Grutman, — So.3d —-, 2016 WL 56456 (Fla. 2d DCA January 06, 2016)

Prior to his death in 2008 Rauschenberg established a revocable trust whose sole remainder beneficiary was the Rauschenberg Foundation. Rauschenberg’s trustees were three long-time friends and business associates. Shortly after Rauschenberg’s death the three trustees and the Foundation became entangled in litigation after the trustees claimed they were entitled to $60 million in fees — a sum that an expert hired by the Foundation maintained was “unconscionable,” amounting to a $40,000-an-hour wage.

Now $60 million may sound like a lot, but it’s less than a rounding error when you consider that during the four years the trustees were in charge of the Rauschenberg collection its value more than tripled, going from a paltry $600 million to slightly over $2 billion.

But we’ve all seen cases where an estate’s largest asset is a business or real estate investment that shoots up in value due to market conditions having nothing to do with a trustee’s efforts. Is that what happened in this case? Not according to the trial judge. According to his order the trustees were actively involved in building the collection’s market value after Rauschenberg’s death.

Upon Rauschcnberg’s death, the Trustees planned, advertised, and managed several exhibitions and memorials. The Trustees developed a strategic plan to withdraw Rauschenberg’s art from the market, in order to prevent a decline in value from speculators or collectors flooding e market with his art. [The Trustees] testified that this decline in value had occurred following the death of other famous artists, such as Andy Warhol. The Trustees contacted all galleries holding art on consignment, and directed that the art be returned. They contacted insurance agents regarding insurance on all assets. The Trustees moved all artwork to the Mount Vernon warehouse in New York for inventory and appraisals. They hired an art advisor. They then interviewed companies regarding a formal appraisal of all artwork, and hired Christie’s to perform the appraisal. The Trustees reviewed the collection to determine which pieces should remain in the Foundation’s permanent collection. The Trustees oversaw security, maintenance and conservation of the art and properties. The Trustees handled litigation of employment and intellectual property issues, and managed authentication requests. The Trustees managed placement of art in museums and galleries for exhibitions when the time was right to re-introduce the art on the market. They interviewed galleries and selected the Gagosian Gallery to hold exhibitions worldwide. The Trustees curated, set prices, negotiated with the galleries and museums, and were involved in all aspects of each exhibition, such as advertisements and catalogs.

Are trustees (like lawyers) condemned to getting paid by the hour if their fees are disputed?

Rauschenberg’s trust didn’t contain a specific fee clause (which is the norm). In the absence of a specific fee schedule written into the trust agreement (which never happens), F.S. 736.0708(1) tells us a trustee’s “entitled to compensation that is reasonable under the circumstances.” One man’s “reasonable” payday could be another’s highway robbery. Which is basically what happened here. By the time the case got to trial the two sides had staked out hugely varying positions. According to the trustees a reasonable fee for the job they’d done was in the range of $51-55 million. According to the Foundation they were only entitled to $375,000.

The reason the competing offers were so far apart is that they reflect two fundamentally different world views: one based on getting paid for the value you create (the trustee’s worldview) and the other based on getting paid a fair hourly wage for the time you spent on the job (the Foundation’s worldview).

Both approaches are defensible economically and as a matter of fiduciary law. So at its core this case boiled down to one legal question: are courts prohibited — as a matter of law — from evaluating contested trustee fees on any basis other than some form of hourly billing? The Foundation said YES, pointing to decades of Florida law applying the lodestar method to contested attorney’s fees. The trustees said NO, pointing to the following 11-factor test adopted by the Florida Supreme Court in West Coast Hospital Ass’n v. Florida National Bank of Jacksonville, 100 So.2d 807 (Fla.1958) for contested trustee fees.

  1. The amount of capital and income received and disbursed by the trustee;
  2. the wages or salary customarily granted to agents or servants for performing like work in the community;
  3. the success or failure of the administration of the trustee;
  4. any unusual skill or experience which the trustee in question may have brought to his work;
  5. the fidelity or disloyalty displayed by the trustee;
  6. the amount of risk and responsibility assumed;
  7. the time consumed in carrying out the trust;
  8. the custom in the community as to allowances to trustees by settlors or courts and as to charges exacted by trust companies and banks;
  9. the character of the work done in the course of administration, whether routine or involving skill and judgment;
  10. any estimate which the trustee has given of the value of his own services; and
  11. payments made by the cestuis to the trustee and intended to be applied toward his compensation.

After hearing testimony from 21 witnesses and admitting over 300 exhibits as evidence, the trial court basically split the difference (which is exactly what you’d expect under the “midpoint rule” discussed below), awarding the trustees about half of their total ask. No matter how warranted this fee award may (or may not) have been on the merits, it was subject to reversal as a matter of law if the 2d DCA bought the Foundation’s legal argument. So did they? NO:

The Foundation argues that the use of the term “reasonable” in section 736.0708(1) without further elucidation suggests a legislative intent to adopt the lodestar method set forth in [Florida Patient’s Compensation Fund v. Rowe, 472 So.2d 1145 (Fla.1985)]. The Foundation asserts that the lodestar method, which the Rowe court applied to calculate attorney’s fees, is equally applicable to trustee’s fees. The Foundation points to the supreme court’s application of the lodestar method in [In re Estate of Platt, 586 So.2d 328, 336 (Fla.1991)] to “reasonable compensation” for attorneys and personal representatives in probate actions.

However, the legislative history of section 736.0708(1) indicates an intent to apply the West Coast factors. Specifically, the Senate Staff Analyses in support of the bill reference section 736.0708(1) and explain, “On the factors to be taken into account in determining a reasonable compensation, see West Coast Hospital Association v. Florida Nat’l Bank of Jacksonville, 100 So.2d 807 (Fla.1958) citing with favor Bogert, Trusts and Trustees, s.976.” Fla. S. Comm. on Banking & Ins., CS for SB 1170 (2006) Staff Analysis 18 n. 258 (Mar. 21, 2006); Fla. S. Comm. on Jud., CS for SB 1170 (2006) Staff Analysis 19 n. 255 (Mar. 10, 2006). And there is no indication of legislative intent to apply the lodestar method in any manner. Thus, we conclude that the lodestar method set forth in Rowe does not apply to trustee’s fees.

Takeaway No. 1: Concrete advice for trustees and the lawyers who advise them

Corporate trustee fees are almost never a mystery: they abide by their published fee schedules. And individual trustees usually opt for payment that is equal to or slightly less than the prevailing corporate trustee rates for their area. So figuring out what’s “reasonable” compensation for most trustees isn’t as difficult as you’d think.

But what if the trust’s unusual? Or the trustees want to make a case for getting paid some kind of extraordinary fee based on an especially challenging assignment or successful business strategy they formulated and executed? In those cases you’ll want to apply the 11 West Coast factors — and hire the right expert witness (the expert witness for the winning side in this case was Charles W. Ranson).

Takeaway No. 2: Behold the power of “anchoring”

For me, what’s most interesting about this case is the apparent impact “anchoring” had on the outcome. Anchoring is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions. Once an anchor is set, other judgments are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor. A corollary to the anchoring bias is the “midpoint rule,” which states that the best predictor of the final deal price in any negotiation is the midpoint between the first semi-reasonable offer and counter offer. At trial the midpoint rule manifests itself this way: your judge or jury splits the difference.

As a starting point, Rauschenberg’s trustees set a high “anchor” with an aggressive fee request in the $51-55 million range that was at least arguably plausible. Based on the 2d DCA’s ruling we now know you can’t use a strict legal argument to block this kind of first-mover advantage. So what’s left? Double down on your negotiation/advocacy efforts by “defusing” the high anchor rather than simply ignoring it. Defusing is a term used in negotiation research for tactics designed to counter aggressive (but plausible) anchors.

The extent to which you can achieve or even surpass the midpoint rule will depend on how effectively you’ve defused the anchor. For a user-friendly introduction to these concepts you’ll want to read Dealmaking: Grappling with Anchors in Negotiation. Here’s an excerpt:

A well-known cognitive bias in negotiation, anchoring is the tendency to give too much weight to the first number put on the table and then inadequately adjust from that starting point. When your counterpart has dropped an anchor, the first and perhaps most important step is to recognize the move, since you can’t defend against something that you don’t see coming. Fortunately, you’ve already identified your counterpart’s maneuver as an attempt to anchor the negotiation in his favor.

Next, you need to defuse the anchor clearly and forcefully: “I’m not trying to play games with you, but we are miles apart on price.” A common mistake is to respond with a counter offer before defusing the other side’s anchor. If someone opens with $100, and you want to counter with $50, before presenting your number you need to make clear that $100 is simply unacceptable. If you don’t defuse the anchor first, you are suggesting that $100 is in the bargaining zone.

. . .

In making your counter offer, be sure to explain your proposal; don’t just throw a number over the fence. It’s particularly important to explain why your counter offer is fair. Also, be aware of the “midpoint rule”: the best predictor of the final deal price is the midpoint of the first semi-reasonable offer and counter offer. The extent to which you can achieve or even surpass the midpoint rule will depend on how effectively you have defused the anchor.

Gossett v. Gossett, — So.3d —-, 2015 WL 8947627 (Fla. 4th DCA December 16, 2015)

As a general rule, a trust litigant can’t have it both ways: he can’t simultaneously benefit from and contest the validity of the same trust agreement. Which means that if a beneficiary wants to sue to invalidate a trust agreement, he first has to renounce his interest in the trust and give back any contested trust assets he’s previously received. Known as the “renunciation rule,” it’s an equitable doctrine I’ve written about before that’s premised on three underlying rationales. Renunciation:

  1. protects the trustee if the trust is invalidated,
  2. shows that the suit is sincere and not vexatious, and
  3. ensures the property is available for disposition and free from third-party claims.  Barnett Nat’l Bank of Jacksonville v. Murrey, 49 So.2d 535, 536–37 (Fla.1950).

But what if the same trust agreement’s been amended on multiple occasions (which often happens) and no matter what version finally gets upheld in court, your beneficiary client’s guaranteed a floor amount of the trust. Does this beneficiary have to renounce all his interest in the contested trust, or just the share that’s in dispute? That’s the question at the heart of this case.

The renunciation doctrine doesn’t force you to give back uncontested trust assets:

This case involves a trust agreement that had been amended five times. The 4th and 5th amendments included the settlor’s wife, the 3d cut her out. According to the 4th DCA:

At some point after executing the Third Amended Trust, the settlor filed for divorce from the surviving spouse, but was still married when he died. The settlor died from a stroke he suffered on the same day he and the surviving spouse were in a divorce settlement meeting.

Settlor’s son from a prior marriage challenged the 4th and 5th amendments to his dad’s trust. Wife shot back, contending son’s lawsuit was barred as a matter of law because he’d already accepted limited trust distributions, which he refused to give back. In his defense son argued he didn’t have to give the money back because “he was entitled to an equal or greater amount under each of the Amended Trusts.” This was the same argument that won the day in the Fintak case, which I wrote about here. Apparently unswayed by the 2d DCA’s reasoning/holding in Fintak, the trial court dismissed son’s trust challenge. Wrong answer says the 4th DCA. Here’s why:

[T]he [central] issue [in this appeal] is whether the renunciation rule applies to the son under the circumstances of this case. We find Fintak v. Fintak, 120 So.3d 177 (Fla. 2d DCA 2013), helpful in arriving at the answer. . .

[T]he son is in a similar situation as the settlor in Fintak. He will receive more than the distributed amounts under any version of the Trust. Applying the three rationales underlying the renunciation rule, the son prevails. First, the trustee is protected because the son is entitled to more than the distributions made under any of the Amended Trusts. Second, the risk of vexatious and insincere claims is present in any case, but no more so here. Third, the distribution to the son is free from third-party claims as he is entitled to more than the distributed amount. “[A]n individual cannot be estopped from challenging an instrument by accepting that which he or she is legally entitled to receive regardless of whether the instrument is sustained or overthrown.” Id. at 185 . . .

Although the son did not restore the monies received, the renunciation rule is inapplicable where none of the three rationales support its application.

Lesson learned?

There are two key takeaways from this case, one practical and the other doctrinal. First, just because the law and facts are clearly on your side, doesn’t mean you’re going to win. As I reported here, our courts are overworked and underfunded. In that context, you can’t expect perfection. Client expectations need to be managed accordingly.

Second, the renunciation rule’s an equitable doctrine that should be applied “equitably” based on the particular facts and circumstances of each case. If a litigant’s entitled to a floor % of the trust no matter what happens, that fact should bar dismissal of his or her complaint. Blindly applying an all-or-nothing standard invites unfair manipulation, which is exactly what son accused wife of in this case:

The son alleged that the surviving spouse, as trustee, began sending him distributions under the Fifth Amended Trust, while failing to provide him with Trust documents he had requested. The distributions were sent to the son when he was in financial need, and the surviving spouse intended that he accept them to prohibit him from challenging the validity of the Fourth and Fifth Amended Trusts.

I’m pleased to announce I’ve been voted the 2016 lawyer of the year in Best Lawyers for trusts and estates litigation in Miami, Florida.

I’m a bit ambivalent about rating services in general, and I certainly didn’t seek this one out. But then again, gone are the days when word of mouth was all we had.

Pre-internet, if you didn’t know someone who knew the “right” lawyer for the job, you were out of luck. Today, the internet has become the place where most professionals “check each other out,” and where most laypeople shop for the exact specialists they need to solve their particular problem, including lawyers. This world favors niche practitioners (like yours truly!). And ratings services are an integral part of that informational ecosystem. So who am I to judge?

Anyway, here’s how Best Lawyers described its background and methodology in an ABA piece entitled The Lawyer Raters: In Their Own Words:

Best Lawyers was first published in 1983, founded by the Harvard Law grads who were hired by a publisher to produce a book called “What Every Client Needs to Know About Hiring an Attorney.” Because attorneys know each other’s work and because they are quite candid about each other, it was decided that if you ask enough people the right questions, you’ll get something close to the truth.

Best Lawyers is still an advertisement-free publication. From the beginning, Best Lawyers has been excerpted in various city and regional publications to let people know about the local attorneys who represent the best in their profession, based on detailed evaluations by other lawyers.

Methodology
The peer review methodology lets you know who the voting pool is. The listees in the previous edition are asked to give their opinion on the quality of the work of nominees and other listees. You have to be voted into the books each year. There’s no sequential ranking within the book. It represents about 3% of private practice attorneys in the United States.

Recently we announced a partnership with U.S. News and World Report, which is known for its institutional rankings, to power its list of Best Law Firms. U.S. News came to Best Lawyers because of our strength in the legal marketplace and our reputation built on providing rankings of individual lawyers.