ATTORNEY S FEES IN PROBATE MATTERS. Colorado Bar Association Elder Law Committee October 20, 2005
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1 ATTORNEY S FEES IN PROBATE MATTERS Colorado Bar Association Elder Law Committee October 20, 2005 Martha L. Ridgway, Esq. and Thomas A. Rodriguez, Esq. Ridgway, Romeo & Vincent, LLC 1070 Century Drive, Suite 200 Louisville, CO (303) I. Introduction Probate cases involving disputes over attorney s fees seemingly have skyrocketed in the last several years. The issue typically arises either directly as a fees dispute or as part of an explicit or implied breach of fiduciary duty action against the lawyer s client. Attorney s fees in probate arise in the context of both estate administration and guardianship and protective proceedings. Statutory provisions govern attorney s fees in both areas of the law; although not identical, the statutes do contain significant similarities. II. Estate Administration In a probate administration case, an attorney for a personal representative, as well as any lawyer who provided services which resulted in an order beneficial to the estate, is entitled to compensation pursuant to C.R.S (2). That subsection provides: (2) If not otherwise compensated for services rendered, any lawyer for the personal representative, any lawyer whose services resulted in an order beneficial to the estate, and any person appointed by the court, is entitled to reimbursement for costs and reasonable compensation from the estate. Thus, not only is the personal representative s attorney entitled to be paid from the estate, but if, for example, counsel for a beneficiary raises an issue in the estate proceeding, and obtains an order beneficial to the estate, such counsel also can be paid his or her attorney s fees from the estate. C.R.S discusses attorney s fees in the event of estate litigation. Consisting of three subsections, each will be discussed separately. Subsection (1) of provides as follows: (1) Except as provided in subsection (2) of this section, if any personal representative, person with priority for appointment as personal Page 1
2 representative, or court-appointed fiduciary defends or prosecutes any proceeding in good faith, whether successful or not, he or she is entitled to receive from the estate his or her necessary expenses and disbursements including reasonable attorney fees incurred. [Emphasis supplied.] Thus, if a personal representative is under attack by a beneficiary, and the personal representative hires an attorney to defend him or her in the litigation, the personal representative s attorney may receive fees from the estate, even if the personal representative loses the case, so long as the prosecution or defense is in good faith and the expenses were necessary and reasonable to administration of the estate. In re Estate of Phipps, 713 P.2d 412 (Colo. App. 1985). The same is true even if the personal representative or respective counsel is no longer serving. In re Estate of Breeden, 87 P.3d 167 (Colo. App. 2003). Nonetheless, this recovery is subject to the following subsection. Subsection (2) of provides as follows: (2) Any personal representative, person with priority for appointment as personal representative, or court-appointed fiduciary, who is unsuccessful in defending the propriety of his or her actions in a breach of fiduciary duty action, shall not be entitled to recover his or her expenses under this section to the extent of any matter in which breaches of fiduciary duty are found. [Emphasis supplied.] It is important to note that this provision limits reimbursement of attorney s fees by a fiduciary in a breach of fiduciary action only. 1 Query, however, how many actions brought against a personal representative or others are for breach of fiduciary duty claims versus some other cause of action? As noted above, a fees challenge is often clothed in a breach of fiduciary claim. The other primary claim against a fiduciary or his or her attorney is for fees (whether fiduciary or attorney) which are too high or are excessive. This raises a second query: is such a claim, in reality, for a breach of fiduciary duty? Subsection (3) of provides as follows: (3) If any personal representative, any person with priority for appointment as personal representative, any court-appointed fiduciary, any lawyer for any of said persons, or any lawyer whose services resulted in an order beneficial to the estate is required to defend his or her fees or costs, the court may review the fees at the end of such proceedings and shall consider and may award the fees and expenses incurred by any of such 1 Colorado courts have fashioned an equitable remedy to permit trial courts discretion to award prevailing beneficiaries their attorney s fees in breach of trust or breach of fiduciary actions in order to make injured parties whole. Heller v. First Nat l Bank, 657 P.2d 992 (Colo. App. 1982). See also Buder v. Sartore, 774 P.2d 1383 (Colo. 1989). Moreover, the Colorado Court of Appeals has refused to extend this equitable remedy to prevailing fiduciaries in breach of trust or breach of fiduciary actions as the fiduciary has other recourse to recover such attorney s fees, including, but not limited to, the trust agreement or C.R.S Moore v. Edwards, 111 P.3d 572 (Colo. App.2005). Page 2
3 parties, including but not limited to their attorney fees and costs, as the court deems equitable. An award of fees or costs to the fiduciary, lawyer, or person may be ordered paid from, and may be allocated among, the estate or trust and any party that required the fiduciary, lawyer, or person to defend his or her fees or costs. If a personal representative or others, as well as a lawyer whose services were beneficial to the estate, are required to defend their fees, this broad subsection permits payment of attorney s fees from or allocated among the estate or any party who was responsible for the litigation. Note, however, that the court must determine what is equitable and that payment or allocation of any fees is in the court s discretion. If the court or other interested person believes that the compensation of a personal representative, other fiduciary or their respective attorney s fees are inappropriate, C.R.S provides for a review procedure by the court, in its discretion. Note that, if the court finds that any such person has received excessive compensation from an estate for services rendered, that person can be ordered to make a refund to the estate. Subsection (1) of provides: (1) After notice to all interested persons or on petition of an interested person or on appropriate motion if administration is supervised, the propriety of employment of any person by a personal representative including any attorney, auditor, investment advisor, or other specialized agent or assistant, the reasonableness of the compensation of any person so employed, as determined by the personal representative, or the reasonableness of the compensation determined by the personal representative for his own services may be reviewed by the court. Any person who has received excessive compensation from an estate for services rendered may be ordered to make appropriate refunds. Subsection (2) of provides the court with guidelines in determining whether a fee is reasonable. (2) Factors to be considered as guides in determining the reasonableness of a fee include the following: (a) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the service properly; (b) The likelihood, if apparent to the personal representative, that the acceptance of the particular employment will preclude the person employed from other employment; (c) The fee customarily charged in the locality for similar services; (d) The amount involved and the results obtained; Page 3
4 (e) The time limitations imposed by the personal representative or by the circumstances; (f) Repealed. (g) The experience, reputation, and ability of the person performing the services. These guidelines are virtually identical to those found in the Colorado Rules of Professional Responsibility, Rule 1.5, which provide: Rule 1.5. Fees. (a) A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent. The determination of these factors relative to the attorney s fees paid and/or sought rests in the sound discretion of the trial court, Chase v. Lathrop, 223 P. 54 (1924), and will not be disturbed on review absent a showing of abuse of discretion. In re Estate of Musso, 932 P.2d 853 (Colo. App. 1997). An attorney in a complex estate should be compensated on a basis which takes into account his or her expertise. Accordingly, those involved in administering an estate requiring special expertise, such as litigation skills, are entitled to compensation which, in addition to compensating for time spent, gives emphasis to the factor of amount involved and results obtained. On the other hand, services which are routine and require no special Page 4
5 expertise or experience should be compensated with more weight being given to the factor of amount of time expended. In re Estate of Painter, 567 P.2d 820 (Colo. App. 1977). Finally, subsection (3) of provides that [a] fiduciary who is a member of a law firm may use that law firm and charge for the legal services of the members and staff of that law firm to assist the fiduciary in his or her duties as a fiduciary. This circumstance pertains to a situation in which a lawyer is serving as personal representative, and his law firm is serving as his legal counsel and providing supportive assistance to the personal representative. However, a personal representative who also happens to be a lawyer cannot retain himself or herself in such capacity as a means to collect additional fees. Chase v. Lathrop, 223 P. 54 (1924). III. GUARDIANSHIP AND PROTECTIVE PROCEEDINGS The statute governing compensation of guardians, conservators, attorneys and others in guardianship and protective proceedings, C.R.S , is similar to the estate administration statute, although more condensed. Subsection (1) of that statute provides as follows: (1) Compensation. If not otherwise compensated for services rendered, any visitor, guardian, conservator, special conservator, lawyer for the respondent, lawyer whose services resulted in a protective order or in an order beneficial to an incapacitated person or to a protected person's estate, any physician, guardian ad litem, or any other person appointed by the court is entitled to reasonable compensation from the estate even if no fiduciary is appointed. Except as limited by court order, compensation may be paid and expenses reimbursed without court order. In a special conservatorship, compensation may only be paid with court approval after notice and hearing. If the court determines that the compensation is excessive or the expenses are inappropriate, the excessive or inappropriate amount must be repaid to the estate. It is important to note that a lawyer for the respondent, who is the person for whom a guardianship and/or protective arrangement is sought, as well as a lawyer whose services resulted in a protective order or in an order beneficial to an incapacitated or a protected person, such as the attorney for the petitioner, is entitled to compensation from the protected person s estate. No prior court order for payment is required, unless otherwise directed by court order. However, note that, in contested cases, it is always prudent to seek court approval. In a special conservatorship, which is a temporary conservatorship, the court must approve payment of compensation after notice and hearing. As with a probate estate, if the court finds that compensation in any circumstance is excessive, the estate must be repaid. Page 5
6 Also as with fees in estate administration cases, the statute sets forth factors to be considered by the court in determining fees in guardianship and protective proceedings. Subsection (2) of provides as follows: (2) Factors to be considered as guides in determining the reasonableness of any fee referred to in this section or in this article or in article 16 of this title, include the following: (a) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the service properly; (b) The likelihood, if apparent, that the acceptance of the particular employment will preclude the person employed from other employment; (c) The fee customarily charged in the locality for similar services; (d) The amount involved and the results obtained; (e) The time limitations imposed by the circumstances; (f) The experience, reputation, and ability of the person performing the services. Again, compare these provisions to Colorado Rule of Professional Conduct 1.5. Rule 1.5. Fees. (a) A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and Page 6
7 (8) whether the fee is fixed or contingent. Subsection (3) of provides for expenses, including attorney s fees, for any guardian, conservator or court-appointed fiduciary who has to defend his or her actions in good faith, whether successful or not, unless the fiduciary is unsuccessful in defending a breach of fiduciary action. The subsection specifically provides: (3) Expenses in estate litigation. For purposes of this article or article 16 of this title, if any guardian, conservator, special conservator, or courtappointed fiduciary defends or prosecutes any proceeding in good faith, whether successful or not, he or she is entitled to receive from the estate his or her necessary time, expenses, and disbursements including reasonable attorney fees incurred. Any such person or fiduciary who is unsuccessful in defending the propriety of his or her actions in a breach of fiduciary duty action shall not be entitled to recover expenses under this section to the extent of any matters on which such breaches are found. Subsection (4) of provides that, if a fiduciary is required to defend his or her fees, at the conclusion of the proceeding, the court shall conduct a fee review and shall determine whether to award the fiduciary s fees, including the fiduciary s attorney s fees, incurred by the fiduciary in the defense of the fees. The court also has the discretion to award fees paid from or allocated among the estate or from the person, party or organization that required the litigation. The specific provision states: (4) Expenses incurred in defense of fiduciary fees. For purposes of this article and article 16 of this title, if any fiduciary is required to defend his or her fees or costs, at the end of the proceedings, the court shall consider the fees and expenses incurred by the fiduciary in a fee review. The court has the authority and duty to determine whether to award to the fiduciary the fiduciary's own fees and costs, including the fiduciary's own attorney fees and costs, incurred in the defense of the fiduciary's fees and costs as the court deems equitable under the circumstances of the case. Any award of fees or costs to the fiduciary may be ordered paid from, and may be allocated among, the estate or trust, or from the person, party, or organization that required the fiduciary to defend his or her fees or costs, as the court deems just. Subsection (5) of discusses priority for payment of guardianship and/or conservatorship costs and expenses and the expenses of administration after the death of the incapacitated and/or protected person. That subsection provides: (5) When an incapacitated person or a protected person dies, all fees, costs, and expenses of administration of the guardianship or conservatorship including any unpaid guardian or conservator fees and costs and those of their counsel may be submitted to the court for court Page 7
8 approval in conjunction with the termination of the guardianship or conservatorship estate. Thereafter, all court-approved fees, costs, and expenses of administration arising from the guardianship or conservatorship shall be paid as court-approved claims for costs and expenses of administration in the decedent's estate. In the event that there are insufficient funds to pay all claims in the decedent's estate in full, the fees, costs, and expenses of administration arising from the guardianship or conservatorship shall retain their classification as "costs and expenses of administration" in the decedent's estate and shall be paid pursuant to section Subsection (6) of provides for a fiduciary to use his or her law firm and to charge attorney s fees, as with the estate administration statute. The specific provision provides: (6) A fiduciary who is a member of a law firm may use that law firm and charge for the legal services of the members and staff of that firm to assist the fiduciary in his or her duties as a fiduciary. IV. PRACTICAL CONSIDERATIONS While the statutes pertaining to attorney s fees in estate administration and guardianship and protective proceedings cases may appear to be simple to understand and therefore easily applied, in practice, they often lead to a veritable blood bath of litigation. As discussed above, attorney s fees litigation in probate matters most typically arises either in a fees dispute, in which the lawyer s fees are directly challenged, or as a part of a breach of fiduciary duty action against the lawyer s fiduciary client, in which the lawyer s fees also are challenged. Typical issues raised in a fee dispute directed at the attorney include, but are not limited to, (1) spending too much time on a particular matter; (2) charging too much for the lawyer s time, a paralegal s time or the time of others in the firm; (3) double billing by the lawyer and an associate or paralegal; (4) billing for actions that typically are not billed for, such as file maintenance; (5) failure to provide adequate billing information; and (6) failure to keep contemporaneous records. Typical issues raised in a challenge to an attorney s fees arising out of a breach of fiduciary action against a fiduciary whom the attorney represents include, but are not limited to, (1) if the fiduciary breached his or her duty, then the attorney is not entitled to payment of fees from the estate; (2) the fiduciary delegated to the attorney, and the attorney charged for, duties that should have been completed by the fiduciary and billed at a lower rate; (3) over-reliance on the attorney for legal advice by the fiduciary, for which the attorney charges (e.g., reviewing simple correspondence); (4) the lawyer overinvolving or over-insinuating himself or herself into the case to the point that the lawyer Page 8
9 is serving as de facto fiduciary; (5) giving the fiduciary bad or wrong advice; and (6) billing for work that extends beyond the scope of the fiduciary role. One of the considerations for an attorney, as well as a fiduciary, is whether to seek to have fees approved by the court on a fairly frequent basis, rather than waiting to do so until the end of the case. This strategy, while creating more work up front, has the advantage of (1) determining early in the litigation whether any party is suspect of and likely to challenge fees, (2) obtaining court approval of fees on an ongoing basis, thereby foreclosing a major challenge to all of the fees at the end of the case, and (3) setting a precedence concerning the reasonableness of the fees early in the case. Asking the court to approve fees is accomplished by the filing of a Petition to Approve Fees, citing the relevant facts and legal authority, and attaching the relevant billing statements. If no objection is anticipated, the matter can be set for hearing on the non-appearance docket pursuant to C.R.P.P Notice must be given to all parties and other persons entitled to notice. If an objection is anticipated, the matter should be set for a hearing on the court s regular docket. If the matter proceeds to hearing, in most courts, it will be necessary for the attorney (or the fiduciary) to have an expert witness testify to the reasonableness of the fees. However, note that, in Denver Probate Court, Judge Stewart does not permit expert witnesses on this issue as she considers herself to be knowledgeable and expert in this area. Other courts seek to limit expert s testimony (e.g., only allow testimony concerning prevailing rates in the community and reputation of the counsel seeking fees). It is wise to determine in advance the practice of the court before which you expect to appear. If such cannot be ascertained, this subject-matter can be raised formally, e.g., in a motion for limine, or informally, e.g., a request for a status conference. Counsel would be well advised to be aware of the particular court s practices before expending funds on an extensive expert report, all or some of which may be unnecessary. Perhaps one of the most difficult issues facing practitioners in this field of probate practice is the misperception by litigants, other attorneys and even sometimes judges that probate is a simple, routine area of the law involving dead people, with few, if any, really difficult issues. Nothing could be further from the truth. With the aging and passage of wealth from the Great Depression/World War II generation to the Baby Boomers, the amount of litigation in the probate arena has spiraled. Adult children are fighting over who gets to (or has to) take care of a parent in the last years and who will control the funds. Will contests have become particularly prevalent. This is due to disharmony within families, but also to second and subsequent marriages by the decedent, with the surviving children facing a widow younger than they, as well as the widow s children who stand ready to steal the family heirlooms. Additionally, financial exploitation of the elderly is on the rise and has resulted in an increase in will contests. Attorneys can best protect themselves in probate litigation by carefully and contemporaneously documenting their time, by using common sense when billing, by following the standards set forth in the Colorado Rules of Professional Conduct and by Page 9
10 being willing to answer questions raised by clients, parties and other attorneys in an undefensive manner. Although attorney s fees litigation in probate likely cannot be avoided, it can be successful if handled appropriately. Page 10
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