Case Title: In the Matter of a Trust Created by Charlotte P. Hyde, Deceased.

Citation: 

Docket Number: 

State: new-york

Court: New York Appellate Court

Date: 2010-06-29T00:00:00Z

Document:
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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 130  
In the Matter of a Trust Created 
by Charlotte P. Hyde, Deceased.   
Glens Falls National Bank and 
Trust Company et al., &c.,
            Respondents;
Carol J. Whitney, as Executor of 
the Estate of Louis H. Whitney, 
Deceased, et al.,
            Respondents;
Mary W. Renz, et al.,
            Appellants.
(And Another Proceeding.)
David H. Wilder, for appellants.
H. Wayne Judge, for Whitney respondents.
LIPPMAN, Chief Judge:
We hold that Surrogate's Court Procedure Act (SCPA) §
2110 grants the trial court discretion to allocate responsibility
for payment of a fiduciary's attorney's fees for which the estate
is obligated to pay -- either from the estate as a whole or from
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No. 130
1  Following Louis H. Whitney's death, his widow and
executor, respondent Carol J. Whitney, was substituted for him in
both proceedings by order entered in April 2008.  The Whitney
Children were simultaneously joined as respondents in the second
proceeding. 
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shares of individual estate beneficiaries.  In so doing, we
overrule our holding in Matter of Dillon (28 NY2d 597 [1971]).
We consequently modify the order of the Appellate
Division affirming the order of the Surrogate and remit to the
Surrogate's Court for de novo consideration of allocation of the
trustees' counsel fees.
   
I
This dispute developed out of a joint trial concerning
intermediate accountings of two trusts.  The first proceeding
involved a testamentary trust created by Charlotte P. Hyde (Hyde
Trust).  At the outset of the trust accountings in 2001, Hyde's
grandchildren, Mary Renz and her brother Louis H. Whitney, were
the two life income beneficiaries of two equal shares of the Hyde
Trust.  Mary Renz's three children (Renz Children) and Louis H.
Whitney's two children (Whitney Children) each possessed a
presumptive one-fifth remainder interest in both the Mary Renz
Share and the Louis H. Whitney Share that would vest upon the
death of Mary Renz and Louis H. Whitney, respectively.  Upon
Louis H. Whitney's death in January 2008,1 the Renz Children and
the Whitney Children each received a one-fifth interest in the
principal of the Hyde Trust. 
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No. 130
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The second proceeding concerned an inter vivos trust
created by Nell Pruyn Cunningham (Cunningham Trust).  The
Cunningham trust term is measured by the lives of two of
Cunningham's grandnephews.  In 2003, when the Cunningham
accounting commenced, Mary Renz and Louis H. Whitney were each
income beneficiaries and presumptive remaindermen of undivided
one-sixth shares of the Cunningham Trust.  The Mary Renz Share
and the Louis H. Whitney Share were to pass to their living issue
per stirpes upon the death of Mary Renz or Louis H. Whitney. 
Thus, upon Louis H. Whitney's death, the two Whitney children
became the income beneficiaries and presumptive remaindermen of
their father's undivided one-sixth share of the Cunningham Trust. 
The two proceedings arose out of objections made to the
Hyde Trustees' accountings by Louis H. Whitney and the Whitney
Children (the Whitneys) and objections made to the Cunningham
Trustees' accountings by Louis H. Whitney (and carried on by the
Whitney Children and Louis H. Whitney's executor after his
death).  The Whitneys sought to deny the Hyde Trustees and the
Cunningham Trustees their commissions and surcharge them on the
basis of their alleged failure to diversify the Trusts' assets,
among other objections. 
Mary Renz and the Renz Children (the Renzes) did not
participate in the Whitneys' objections to trustee conduct in
either the Hyde or the Cunningham Trust accounting proceedings. 
Neither did any of the other income beneficiaries or remaindermen
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No. 130
2  The court-made Pro Tanto Rule dictates that beneficiaries
who did not file objections to a fiduciary's conduct are not
entitled to share in the surcharge that accrues to the estate or
trust when other beneficiaries file successful objections.  The
rule sought to prevent non-objecting beneficiaries from being
rewarded for their quiescence while their co-beneficiaries
defended the estate assets (see Matter of Garvin, 256 NY 518
[1931]).
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of the Cunningham Trust, aside from Louis H. Whitney (and later
his executor and the Whitney Children), interpose objections to
the accounting of that Trust.
In advance of the joint trial on the Whitneys'
objections, the Renzes filed an Acknowledgment, attesting that
they were non-objectors; and thus, under the Pro Tanto Rule,2 
they would not be entitled to share in any surcharges that might
be imposed on the Hyde or Cunningham Trustees.  The Renzes
simultaneously filed a cross motion seeking to require that all
future trustees' counsel fees be deducted exclusively from the
objecting beneficiaries' shares of the Hyde and Cunningham Trust
assets.  The Renzes' cross motion also sought to reserve the
right to seek reallocation of and reimbursement of the Hyde Trust
for all counsel fees that had already been advanced from the
Renzes' interests in the Hyde Trust.   
Surrogate's Court dismissed all of the Whitneys'
objections.  As to the question of attorney's fees, the court
acknowledged that the Pro Tanto Rule had applied, which meant
that the non-objecting beneficiaries had not stood to gain from
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No. 130
3  The present SCPA 2110 was enacted in 1966 as part of a
recodification of the Surrogate's Court Act (SCA).  The original
SCA § 231-a, adopted in 1923, stated in relevant part, "The
surrogate may direct payment therefor from the estate generally
or from the funds in the hands of the representative belonging to
any legatee, devisee, distributee or person interested therein."
See Civil Practice Annual, Surrogate's Court Act § 231-a.  SCPA
2110, like SCA § 231-a before it, provides for compensation out
of estate funds for a fiduciary that accrues counsel fees in the
course of fulfilling its fiduciary duties to the estate. 
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the success the Whitneys' objections might have had.  Yet, the
court stated it was constrained by Dillon to treat the trusts as
single entities for purposes of trustee indemnification.  Thus,
regardless of potential unfairness to the Renz beneficiaries who
abstained from the costly litigation, the Surrogate's Court
ordered that the trustees' counsel fees be disbursed from the
corpus of each trust generally.  As a result, the Renzes' shares
of the Hyde and Cunningham Trusts were held responsible for more
than $700,000 in attorney's fees incurred by the trustees.
The Appellate Division affirmed, citing the
construction of SCPA 2110 articulated in Dillon and finding no
basis to distinguish this case (61 AD3d 1018 [3d Dept 2009]). 
II
SCPA 2110 (2) provides: "The court may direct payment
[for legal counsel rendered a fiduciary in connection with the
performance of his or her fiduciary duties] from the estate
generally or from the funds in the hands of the fiduciary
belonging to any legatee, devisee, distributee or person
interested."3
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No. 130
Although the fiduciary conducts the litigation and may have all
the hallmarks of a party to a suit (especially when the fiduciary
is defending itself in a surcharge proceeding), the estate is
ordinarily obligated to indemnify the fiduciary for attorney and
litigation fees (see e.g. Wetmore v Parker, 52 NY 450 [1873]; cf.
Matter of Wadsworth, 275 NY 590 [1937]).  The rationale is that
the actions of fiduciaries, absent misconduct, are undertaken to
benefit the estate, and the estate should therefore be charged
with the fiduciaries' costs.  
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We first construed SCPA 2110 (2) in our 1971 memorandum
decision, Matter of Dillon (28 NY2d 597). In Dillon, a legatee
under a testator's will that had been admitted to probate
challenged probate of a subsequent will that increased the number
of legatees who would inherit and thereby reduced the original
legatee's portion of the testator's estate.  The Surrogate's
Court refused to vacate probate and charged the objecting
legatee's share of the estate with the executor's legal fees
expended in defending probate of the later will.  The legatee
then appealed, asserting that legal fees should be allocated to
the whole estate generally, not to the legacy of an individual
party.  Ultimately, this Court held that "SCPA 2110 does not
authorize payment for legal services rendered a party to be
charged against the share of other individual parties. 
Accordingly, although appellant lost in this litigation, the
legal fees of the executor as her adversary were not chargeable
to her personally" (Dillon, 28 NY2d at 599). 
Although the decision in Dillon offers little rationale
for its conclusion, the statutory interpretation requiring the
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No. 130
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corpus of the estate generally, and not the shares of individual
beneficiaries, to pay for fiduciaries' counsel seems guided by
the common law American Rule.  In brief, the American Rule
requires all parties to a controversy -- the victors and the
vanquished -- to pay their own "incidents of litigation" (Chapel
v Mitchell, 84 NY2d 345, 349 [1994], quoting Alyeska Pipeline
Serv. Co. v Wilderness Socy., 421 US 240 [1975]).  Thus, the
unsuccessful objectant, under the American Rule, was required to
pay only its own attorney’s fee, not the executor’s attorney’s
fees as well, which were paid for by the estate.  
However, the Dillon decision, finding that SCPA 2110
required that the whole of the estate be charged with the
executor's counsel fees, in spite of the fact that actions of the
objecting party did not effect a benefit to the estate and
bordered on the vexatious, seems to have ignored the plain
meaning of the statute and departed from the earlier
jurisprudence of this Court.
In interpreting SCPA 2110, we bear in mind that it is
"presumed that no unjust or unreasonable result was intended and
the statute must be construed consonant with that presumption"
(Zappone v Home Ins. Co., 55 NY2d 131, 137 [1982], citing Matter
of Breen v New York Fire Dept. Pension Fund, 299 NY 8, 19 [1949];
McKinney’s Cons Laws of NY, Book 1, Statutes § 143).  The
Legislature's intentions should normally be ascertained from a
careful reading of the statute itself, especially where, as here,
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No. 130
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the language is unambiguous, and the legislative history reveals
nothing that would counsel an alternative interpretation (see
McKinney's Cons Laws of NY, Book 1, Statutes § 92 [b]).  On its
face, the statute provides the trial court with discretion to
disburse funds from any beneficiary's share in the estate -- and
not exclusively from "the estate generally."
In addition to departing from the plain meaning of the
statute, Dillon did not focus on the considerations of fairness
that guided Matter of Ungrich (201 NY 415 [1911]) and its progeny
(e.g. Matter of Garvin, 256 NY 518 [1931]; Matter of Bishop, 277
App Div 108 [1st Dept 1950]; see also Matter of Burns, 126 AD2d
809 [3d Dept 1987]).  In Ungrich, the plaintiff, a life tenant
under a testamentary trust, brought an action for a trust
accounting and to remove the trustees for alleged misconduct. 
The Surrogate's Court there had dismissed the objectants'
challenges.  Regarding the question of attorney's fees, we
determined as a matter of common law, prior to any statute on the
subject, that the court should have discretion to disburse fees
from the estate generally or from individual shares, depending on
the circumstances of each case. We stated that trustees should
have "an opportunity to prove their expenses and the
circumstances under which they were incurred," and at that point,
"it would be for the court to determine on the facts of the case
what part, if any, of such expenditures should be allowed to the
[trustees] and charged against the life tenant and what part
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No. 130
4 This holding does not involve or affect SCPA 2301 (4),
which provides for costs and allowances that may be made payable
by any party personally (see SCPA 2301 [4]).
5 This holding does not involve or affect the Surrogate's
discretion to make the underlying determination of whether or not
the fiduciary is entitled to charge its counsel fees to the
estate, or whether or not the amount of counsel fees is
reasonable. In assessing the reasonableness of a fee award, the
Surrogate should consider such factors as the extent of services
provided, the amount of time spent on the matter, the level of
sophistication required, and the size of the estate relative to
the amount of fees.     
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against the corpus of the estate" (Ungrich, 201 NY at 420).
Because we find that this construction is more faithful
to the statute, our precedents prior to Dillon, and fairness, we
choose to restore the plain meaning of SCPA 2110 (2): to place
discretion in the hands of the trial courts to allocate expenses
when ordering that fiduciaries be indemnified by an estate for
attorney's fees.4  The trial court's discretion extends to the
timing and structure of deducting funds against the present and
future interests of the beneficiaries. 
In cases where a fiduciary is to be granted counsel
fees under SCPA 2110 (2), the Surrogate's Court should undertake
a multi-factored assessment of the sources from which the fees
are to be paid.5  These factors, none of which should be
determinative, may include: 1) whether the objecting beneficiary
acted solely in his or her own interest or in the common interest
of the estate; 2) the possible benefits to individual
beneficiaries from the outcome of the underlying proceeding; 3)
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No. 130
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the extent of an individual beneficiary's participation in the
proceeding; 4) the good or bad faith of the objecting
beneficiary; 5) whether there was justifiable doubt regarding the
fiduciary's conduct; 6) the portions of interest in the estate
held by the non-objecting beneficiaries relative to the objecting
beneficiaries; and 7) the future interests that could be affected
by reallocation of fees to individual beneficiaries instead of to
the corpus of the estate generally (see e.g. Matter of
Greatsinger, 67 NY2d 177, 183-184 [1986][providing factors to
guide courts in discretionary allocation of attorney's fees among
multiple trusts in estate litigation]).  Inasmuch as Surrogate's
Court never exercised its discretion, we remit to allow it the
opportunity to do so. 
Accordingly, the order of the Appellate Division should
be modified, with costs to appellants, by remitting to
Surrogate's Court for further proceedings in accordance with the
opinion herein and, as so modified, affirmed.
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
Order modified, with costs to appellants, by remitting to 
Surrogate's Court, Warren County, for further proceedings in
accordance with the opinion herein and, as so modified, affirmed. 
Opinion by Chief Judge Lippman.  Judges Ciparick, Graffeo, Read,
Smith, Pigott and Jones concur.
Decided June 29, 2010