Sec. 736.0812, F.S. provides that a “trustee shall take reasonable steps to compel a former trustee or other person to deliver trust property to the trustee and, except as provided in s. 736.08125, to redress a breach of trust known to the trustee to have been committed by a former trustee.”
A. Assuming the former trustee is sued for breach of trust, can he recover his attorney’s fees/costs from the trust after he prevails at trial? Maybe. Sec. 736.1004, F.S. reads in relevant part: “In all actions for breach of fiduciary duty or challenging the exercise of, or failure to exercise, a trustee’s powers… the court shall award taxable costs as in chancery actions, including attorney fees and guardian ad litem fees.” [Emphasis added]. In chancery cases, the court may order that the attorney’s fees/costs follow the result of the suit, apportion the attorney’s fees/costs between the parties, or require all attorney’s fees/costs be paid by the prevailing party. See Nalls v. Millender, 721 So. 2d 426 (Fla. 4th DCA 1998). Therefore, it is within the court’s discretion to award the former trustee his attorney’s fees/costs. The following cases lend support to a former trustee’s recovery of attorney’s fees/costs from the trust:
(a) In In re Trusts Created Under the Will of Hammes, 102 Wis. 2d 720; 308 N.W.2d 419 (Wis. App. 1981), the trustees sued the former trustees for improper administration. The former trustees prevailed at trial and petitioned the court to recover their attorney fees. The court found that the will and codicil manifested an intent to provide the former trustees with an allowance from the trusts to reimburse them for any expenses incurred by them in defense of their good faith performance as trustees. Further, the court believed that in defending their performance from what the jury found to be an unjustified attack, the former trustees must be viewed as carrying out the settlor’s intent.
(b) In Ladd v. Stockham, 209 So. 3d 457 (Ala. 2016), the court held that the former trustee was entitled to reimbursement for attorney fees and costs for successfully defending against the beneficiary’s breach of fiduciary duty claim which was based on actions he took while acting as co-trustee of the Trusts. The court, citing to Morrison v. Watkins, 20 Kan. App. 2d 411, 889 P.2d 140 (1995), concluded that a former trustee should be able to recover expenses as long as the reason for the suit was an action which occurred while he was a trustee. The court reasoned that to hold otherwise would prevent trustees from defending themselves against even unjustifiable assaults, which would ultimately frustrate the settlor’s purpose in establishing the trust. When a “trustee’s administration of the assets is unjustifiedly assailed it is a part of his duty to defend himself, for in so doing he is realizing the settlor’s purpose. To compel him to bear the expense of an unsuccessful attack would be to diminish the compensation to which he is entitled and which was a part of the inducement to his acceptance of the burden of his duties.”
(c) In Preston Corp. v. Reeves, 762 F. Supp. 948 (N.D. Ga. 1991), the court held that in the absence of malfeasance or misfeasance, a former trustee’s defense of his actions as trustee, even if done after the termination of the trust relationship, is chargeable against the trust. See also Morrison v. Watkins, 889 P.2d 140, 20 Kan. App. 2d 411 (Kan. App. 1995).
(d) Contra (revoked trust): In Kimbrough v. Union Planters Nat’l Bank, 764 S.W.2d 203 (Tenn. 1989), the executors brought an action against the former trustee of a trust for negligence and improper administration for retaining its own stock in the trust in view of a declining market. The trustee prevailed at trial and sued the trust for attorney fees in defending the action. The court held that a trustee could recoup attorney fees for defending a claim of improper administration, but that such fees were not warranted in this action because the trust had been revoked prior to the executors’ action against the trustee. Attorney’s fees cannot be awarded to litigants when there is no property or funds before the court which have been protected or preserved out of which attorney’s fees can be paid.
(e) Contra (reasonableness of fees/costs): In Donahue v. Donahue, 182 Cal. App. 4th 259; 105 Cal. Rptr. 3d 723 (Cal. App. 2010), The trial court charged a trust with past and ongoing attorney fees incurred on behalf of a former trustee (Patrick) in defending against a beneficiary’s allegations of self-dealing and conflict of interest. Patrick’s legal team consisted of eight attorneys from three major law firms with four to five of those attorneys simultaneously appearing at the 14-day court trial. Patrick incurred through trial $4.85 Million in attorney fees and $155,375 for personal compensation. Patrick’s fee request included the sum of $184,453 simply to prepare the fee petitions. Another $366,000 was spent to prepare an 80-page case chronology and for “case administration.” One attorney at Jones Day billed 3,661 hours, for a total of $ 1.5 million during his involvement. Among Patrick’s cost requests were $150,000 in charges billed by DecisionQuest, a trial consulting firm retained to provide “visual planning and development” and “multimedia design, programming & production” during the court trial. Patrick claimed he incurred these audio-visual expenses “in the ordinary course of business of administering the Trust as successor trustee and in the proceedings relating to my activities as successor trustee.”
The appellate court reversed and remanded the case to the trial court for further consideration and amplification of its reasoning on the fee awards. The court reasoned that “[w]hile trustees are properly reimbursed for reasonable attorney fees to defend adverse claims against the trust, we cannot determine from the trial court’s order whether the fee awards are consistent with applicable legal principles. Long-established principles of trust law impose a double-barreled reasonableness requirement: the fee award must be reasonable in amount and reasonably necessary to the conduct of the litigation, but it also must be reasonable and appropriate for the benefit of the trust.”…. Patrick’s “spare-no-expense strategy calls for close scrutiny on questions of reasonableness, proportionality and trust benefit. “Consequently, where the trust is not benefited by litigation, or did not stand to be benefited if the trustee had succeeded, there is no basis for the recovery of expenses out of the trust assets.” (Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221, 1230 [128 Cal. Rptr. 2d 742].) Patrick’s defense by so many top-flight lawyers may have benefitted Patrick, but was it also reasonable and beneficial to the trust? Did Patrick demand a Rolls Royce defense when a prudent trustee could have arrived at the same destination in a Buick, Chrysler or Taurus? The Restatement Third of Trusts expressly recognizes the need for trustees to incur costs proportional to the trust’s objectives. “The comprehensive powers of a trustee (§ 85) include the power to incur and pay expenses in the course of trust administration, but the exercise of this power is subject to the trustee’s fiduciary duties (§ 70). Implicit in a trustee’s fiduciary duties is a duty to be cost-conscious.” (Rest.3d Trusts, § 88, com. a, p. 256, italics added.) “ ‘Wasting beneficiaries’ money is imprudent.’ ” (Id., reporter’s notes, com. b, p. 261.) Although the veteran jurist here may have had these principles in mind, we find nothing in the fee orders of April and November 2008 to assure us the trial court analyzed these factors. This is not sufficient. The trial court’s assessment of reasonableness depends not simply upon what fees were reasonably incurred in representing Patrick, but also upon whether such fees were reasonably and prudently incurred for the trust.”
B. Assuming the former trustee is sued for breach of trust, can he retain trust assets to pay for his anticipated attorney’s fees/costs pursuant to §736.0707? Maybe. Sec.736.0707(2), F.S. reads in relevant part: “A trustee who has resigned or been removed shall within a reasonable time deliver the trust property within the trustee’s possession to the cotrustee, successor trustee, or other person entitled to the property, subject to the right of the trustee to retain a reasonable reserve for the payment of debts, expenses, and taxes. The provisions of this subsection are in addition to and are not in derogation of the rights of a removed or resigning trustee under the common law.” [Emphasis added]. I would anticipate that if the Plaintiff objects to the holdback, it will be necessary to obtain a court order approving the holdback.
C. Assuming the former trustee is sued for breach of trust, is he entitled to interim (pendente lite) attorney’s fees/costs? Maybe. In People ex rel. Harris v. Shine, 16 Cal. App. 5th 524; 224 Cal. Rptr. 3d 380 (Cal. App 2017), the Attorney General petitioned for the removal of the trustee of a family trust and for surcharge based on his mismanagement of the trust. An interim substitute trustee was subsequently appointed. The former trustee (Shine) petitioned the trial court to pay his future attorney fees and costs subject to repayment if he was ultimately found not entitled to indemnification. The lower court granted the petition and the appellate court reversed and remanded for reconsideration. The court held that “in an ordinary case, where the trust instrument is silent on interim fees, the grant of interim fees should be governed by the following:”
The court must first assess the probability that the trustee will ultimately be entitled to reimbursement of attorney fees and then balance the relative harms to all interests involved in the litigation, including the interests of the trust beneficiaries. An assessment of the balance of harms requires at least some inquiry into the ability of the trustee or former trustee to repay fees if ultimately determined not to be entitled to the costs of defense.
The court reasoned that “[i]n its Fee Order, the trial court focused on the “inequity of forcing the former trustees to fund their own defense against the unlimited resources of the Attorney General’s office.” It did not expressly weigh the balance of relative harms to Shine, the People, and most significantly, the charitable beneficiaries of the Trust if Shine’s defense fees are or are not advanced by the Trust. A mere imbalance in resources between parties is not, standing alone, a proper equitable consideration supporting an award of interim fees. “[I]t is the rare case where the state does not have greater resources than a private party in any sort of litigation.” (Clark v. Superior Court (1998) 62 Cal.App.4th 576, 591 [73 Cal. Rptr. 2d 53].) Rather, the court must consider whether Shine will be unduly prejudiced by having to bear his own attorney fees until resolution of the petition allegations (i.e., his ability to mount an adequate defense) and whether the charitable beneficiaries would be unduly prejudiced if the fees were advanced and not repaid (i.e., Trust assets would be placed at risk). On the current record, we cannot conclude that the trial court applied the correct legal standards in deciding to approve the fee request.”