Contested Accountings and Attorneys Fees

Contested Accountings and Attorneys Fees

When objections to a fiduciary accounting are sustained and the court imposes a surcharge or denies commissions or grants removal, it may also charge the legal fees of the fiduciary against the fiduciary individually for their misconduct.  In other circumstances, the court may also impose the objectant's legal fees upon the fiduciary individually.

Since the Court of Appeals decided Matter of Hyde, 15 NY3d 139 (2010) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law], last year, fairness in the allocation of litigation expenses has become the hallmark of determinations to impose counsel fees on litigants. (See, Radigan and Kelly, Matter of Hyde and the American Rule in Surrogates Court, NYLJ, January 10, 2011, at 3; see e.g., Matter of Benware, 86 AD3d 687 (3rd Dept. 2011). [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law]

Normally, on the settlement of her account, a trustee would be entitled to have her reasonable and necessary legal expenses incurred on behalf of the trust charged to the trust itself.  SCPA 2309(1).  A trustee, however, is not permitted to charge to the trust that portion of the legal fee which was rendered in defending against objections which results in the imposition of a surcharge against the fiduciary.  Matter of Newhoff, 107 AD2d 417 (2d Dept. 1985) [enhanced version]; Matter of Hildreth, 274 App. Div. 611 (2d Dept. 1949) [enhanced version]; Matter of Tydings, 32 Misc 3d 1204(A) (Surr. Ct. Bronx Co. 2011) [enhanced version].  In Matter of Hildreth, supra, the bank as fiduciary was surcharged for self-dealing in mortgage participation investments.  The bank's attorney fees in defending "its illegal acts" was not charged to the estate, but to the bank.  In Matter of Newhoff, supra, all the objections to the trustee account were sustained, and accordingly, the services rendered in defending him were not paid from the estate.  The trustee was directed to refund legal fees paid to the estate, and if he failed to do so in a timely manner, the attorneys were directed to refund the paid fees to the estate (SCPA 2110(3)) without prejudice to the firm going against the trustee.

A fiduciary is not usually liable for objectant's counsel fees, particularly where the objections merely establish imprudence on the part of the fiduciary (Matter of Saxon, 179 Misc. 2d 681, at 692-693 (1998) [enhanced version], affm'd, 274 A.D. 2d 110 at 121 (2d Dept. 2000) [enhanced version].  On the other hand, a fiduciary will be liable for counsel fees of the objectant where the fiduciary is surcharged for self-dealing or misconduct.  (Matter of Marsh, 265 A.D. 2d 253 (1st Dept. 1999) [enhanced version]; Birnbaum v. Birnbaum, 157 A.D. 2d 177 (4th Dept. 1990) [enhanced version]; Matter of Tydings, supra).

In the Tydings case, some objections were sustained for self dealing where the trustee made no interest loans to an entity from the trust to which she had a personal interest.  Most of the other objections were not sustained, but the trustee was denied statutory commissions because of her misfeasance in the loan transactions.  Under all the circumstances, the Surrogate determined that it was more equitable to have the petitioner and the objectant pay their own legal fees and not charge the trust with any of these expenses.  Tydings is again an instance, post Hyde, of a determination by the courts to impose fairness in the allocation of litigation expenses.

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