Title: Stepp v. Foster

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
GAIL STEPP, ET AL. 
 
OPINION BY 
v.  Record No. 990404 
JUSTICE LAWRENCE L. KOONTZ, JR. 
 
January 14, 2000 
JAMES A. FOSTER, ET AL. 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Kathleen H. MacKay, Judge 
 
In this appeal, the principal issue we consider is whether 
the trustees of a trust who successfully defended an action by 
beneficiaries of the trust are entitled to recover an award of 
attorney’s fees and expenses from the beneficiaries rather than 
from the trust corpus. 
BACKGROUND 
The Belmont Park Estates subdivision was created by 
recorded plat in 1956 and consists of 140 residential lots 
located in Fairfax County.  Marketing of the subdivision by the 
owner/developer included reference to an adjoining 6.8-acre 
parcel (hereafter Parcel A) as the site of a future clubhouse, 
marina, dock, and other recreational facilities on Belmont Bay 
in Occoquan Creek near its outlet into the Potomac River. 
A Declaration of Covenants for Belmont Park Estates was 
recorded on September 1, 1960.  The covenants, which deal 
primarily with restrictions on lot use and easements, do not 
reference Parcel A or any other common property.  No provision 
for a community association, either voluntary or mandatory, is 
contained in these covenants.  Sometime after the covenants were 
recorded, the owner/developer abandoned the project leaving the 
majority of the lots in the subdivision unsold. 
On February 24, 1973, the new owner of Parcel A transferred 
it to a trust, naming James A. Foster, Marvin E. Lear, and 
Marshall L. Ware, three resident lot owners, as trustees.1  The 
trust is for the benefit of all lot owners in Belmont Park 
Estates.  The trust deed recites various powers of the trustees, 
but imposes upon them no express duties to enforce those powers.  
Among the powers given to the trustees is the power to appoint 
successor trustees, to restrict access to Parcel A to those lot 
owners in the subdivision who pay “a uniform charge as 
determined by the trustees . . . to pay expenses incurred in the 
ownership, maintenance and improvement of the property,” and to 
create a governing board of lot owners.  The deed further 
provides that the trustees are “to have no personal liability as 
a trustee for any act or omission in connection with said 
property, except for . . . acts committed with malice or in bad 
faith.” 
                     
1When Foster sought to acquire title to a vacant lot 
adjoining his home, he learned that Parcel A and the unsold lots 
in the subdivision had been acquired by the new owner some time 
after the owner/developer had abandoned the project.  Foster and 
the new owner subsequently entered into a joint venture to 
market the unsold lots. 
 
 
2
Pursuant to the terms of the trust deed referencing a 
governing board, the trustees called a meeting of the lot owners 
and established Belmont Bay Community Associates (Associates), 
an unincorporated association.  Gail Stepp, a resident lot 
owner, was elected as Associates’ first president.  The minutes 
and other records of Associates indicate that it was initially 
and principally concerned with the maintenance and improvement 
of Parcel A, frequently referred to as “the park,” and the 
imposition of a maintenance fee for that purpose.  Over time, 
however, Associates expanded the scope of its activities to 
include enforcement of the covenants, sponsoring civic and 
social functions, involvement in local planning and land use 
issues, and cooperation and encouragement of efforts by Foster 
and others to market the unsold lots in the subdivision.  The 
widening scope of the activities of Associates caused some 
friction among resident and nonresident lot owners. 
In November 1986, Stepp was named a successor trustee after 
Ware moved out of the subdivision.  The deed in the record to 
this effect appears to have been filed on April 23, 1987.  On 
September 29, 1993, apparently related to the growing discord 
among lot owners over the role and authority of Associates, 
Stepp and Marie Stepp, his wife, submitted a letter of 
resignation from Associates. 
 
3
In 1994, the Belmont Bay Community Association, Inc. (the 
Association), a Virginia non-stock corporation, was chartered 
and assumed the duties of the governing board called for in the 
trust deed.  Marie Stepp became treasurer and a board member of 
the Association.  Associates’ assets were transferred to the 
Association on May 22, 1994. 
Disputes over the role and authority of the Association 
continued and a controversy developed over the selection of 
candidates for election to the Association’s board in 1995.  
Apparently in connection with this controversy, some members of 
the Association asserted that there was no record of Stepp’s 
selection as a substitute trustee.  Ware was asked by the 
Association to submit a letter of resignation as trustee, which 
he did on May 31, 1995.  A notation in the minutes of the 
December 15, 1995 board meeting indicates that “Carol Ann Wright 
has accepted the position of Trustee.”2
On February 4, 1997, Stepp, both individually as a lot 
owner and as a trustee, Marie Stepp as a lot owner, and Ralph 
Edwards, both individually as a lot owner and “for the use and 
benefit of Belmont Bay Community Associates,” and Patricia 
                     
2No formal action to record Wright’s selection as a trustee 
was taken at this time.  Subsequent to the initiation of the 
suit from which this appeal arises, a deed was filed naming 
Wright as successor trustee replacing Ware and naming Polifko as 
successor trustee replacing Lear.  
 
4
Edwards as a lot owner, filed an amended bill of complaint 
against the Association, Foster and Lear, both individually and 
as trustees, and seven individual lot owners including Wright 
and Michael Polifko.3  In essence, the Stepps and the Edwardses 
sought a declaration that the Association was not the governing 
board of the trust called for by the February 24, 1973 trust 
deed, and that it lacked the power to enforce the collection of 
dues from lot owners.  They further sought a declaration that 
Wright was “not a duly appointed Trustee.”  In addition, they 
sought an accounting of the funds collected by the Association 
and Associates, the removal of Foster and Lear as trustees, and 
damages from Foster and Lear for alleged breaches of their 
fiduciary duties.4
Characterized by the chancellor in her final opinion letter 
as a “firestorm,” the proceedings in the trial court, 
culminating in a six and one-half day ore tenus hearing, reveal 
the extent to which the dispute over conflicting interpretations 
                     
3The original bill of complaint had been filed on October 3, 
1996.  The amended bill of complaint was filed in order to add 
additional lot owners as respondents in order to provide 
adequate notice to the beneficiaries of the trust.   
 
4On April 11, 1997, in a preliminary hearing, the trial 
court granted partial summary judgment to Foster, Lear, and 
Wright, finding that the trustees did not have to act 
unanimously, but could act by majority vote.  The chancellor 
also found that the trust in question is “a charitable trust.” 
 
 
5
of the trust deed, the duties of the trustees under that deed, 
the authority of the community associations, and the rights of 
the individual lot owners had devolved into a bitter and 
acrimonious community feud.  For purposes of our resolution of 
this appeal, however, it is unnecessary to recount the full 
extent of the accusations and counter-accusations of the 
principal parties.  It will suffice to say that the Stepps, the 
Edwardses, and their supporters opposed the efforts to expand 
the role of the Association beyond the maintenance and use of 
Parcel A as a “park” and viewed these efforts as intended to 
primarily benefit Foster and Lear individually.  Foster, Lear, 
and their supporters maintained that these efforts were 
altruistic and were intended to benefit the entire community. 
After the chancellor issued preliminary findings in their 
favor, Foster, Lear, and Wright (the trustees) filed a motion to 
recover the attorney’s fees and expenses expended by them in 
defending the suit.  The trustees specifically sought to recover 
these fees and expenses personally from the Stepps and the 
Edwardses (the beneficiaries). 
After receiving briefs from the parties, the chancellor 
issued a preliminary ruling.  In a letter opinion dated June 5, 
1998, the chancellor recognized that, as an exception to the 
“American Rule” that attorney’s fees and costs generally are not 
recoverable by a prevailing litigant, a trustee who is required 
 
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to defend in his capacity as trustee “without his own fault” is 
entitled to be reimbursed for attorney’s fees and expenses 
incurred in the litigation.  Willson v. Whitehead, 181 Va. 960, 
965, 27 S.E.2d 213, 216 (1943).  The chancellor, relying on 
Willson, accepted the trustees’ argument that because “there is 
no trust fund within the control of the court but, rather, the 
trust is non-liquid realty,” the burden of reimbursing the 
trustees should fall on the cestuis que trust, i.e., the 
beneficiaries who sued the trustees, personally. 
After receiving briefs and exhibits from the parties, the 
chancellor held an ore tenus hearing to determine the 
reasonableness of the attorney’s fees and “expenses” claimed by 
the trustees.  In an opinion letter dated November 23, 1998, the 
chancellor found that the attorney’s fees were reasonable and, 
after making minor adjustments to their claim for expenses and 
rejecting the beneficiaries’ claim for offset for reimbursement 
received by Foster under his homeowner’s liability policy, the 
chancellor awarded the trustees $158,343.50 in attorney’s fees 
and $14,153.71 in “costs” against the beneficiaries personally. 
Incorporating by reference the opinion letter dated the 
same day, a final decree dated November 23, 1998, confirmed the 
 
7
award of attorney’s fees and “expenses.”5  In addition, the 
chancellor memorialized the findings of fact and conclusions of 
law made earlier in the proceedings.  Relevant to this appeal, 
the chancellor held that Stepp had been properly named as a 
substitute trustee, but had been removed and replaced by Wright, 
and that the current trustees are Foster, Wright, and Polifko.  
The chancellor further held that no evidence supported a finding 
that Foster and Lear had breached their fiduciary duties as 
trustees or acted in bad faith.  Although the decree makes no 
express reference to the request for an accounting, it is clear 
by implication that this relief was denied.  We awarded the 
Stepps this appeal. 
DISCUSSION 
The parties concentrated the majority of their argument on 
brief and the entirety of their oral argument on the issue 
whether an award of attorney’s fees and expenses could be made 
against an unsuccessful beneficiary/litigant personally.  
However, because a judgment in favor of the beneficiaries on the 
other assigned errors would necessarily render moot the 
                     
5Throughout the proceedings the parties and the chancellor 
use the terms “expenses” and “costs” interchangeably.  For 
reasons that we will subsequently address, the proper term in 
the context of this case is “expenses.”  
 
 
8
trustees’ claim for attorney’s fees and expenses, we will first 
address these assigned errors. 
The Stepps have assigned error to the chancellor’s findings 
that Mr. Stepp is no longer a trustee, that the trustees were 
not required to act unanimously, and that Foster and Lear had 
not breached their fiduciary duties as trustees.  Additionally, 
the Stepps assign error to the chancellor’s failure to order an 
accounting of Associates and the Association.  Each of these 
challenges to the chancellor’s judgment involves and is 
determined by a disputed issue of fact.  When the chancellor 
hears evidence ore tenus, her decree is entitled to the same 
weight as a jury verdict, and we are bound by the chancellor’s 
findings of fact unless they are plainly wrong or without 
evidence to support them.  Rash v. Hilb, Rogal & Hamilton Co., 
251 Va. 281, 283, 467 S.E.2d 791, 793 (1996).  The record 
adequately supports the chancellor’s findings of fact in favor 
of the trustees on each of these issues, and, accordingly, we 
will affirm the chancellor’s judgment on them. 
As framed by the Stepps, the remaining issue to be resolved 
is whether “[t]he trial court erred in entering a personal 
judgment against the Stepps in the amount of $172,497.21 as 
attorney’s fees and costs awarded to Foster, Lear and Wright.”  
For the reasons that follow, we hold that the award was proper, 
 
9
but that the chancellor erred in not assessing that award 
against the trust. 
The trustees’ premise for seeking to have the chancellor 
assess the award against the beneficiaries rather than the trust 
is that assessing the award against the trust would require 
mortgaging or liquidation of the only trust asset, Parcel A, 
and, thus cause undue hardship on the other beneficiaries.  
Accordingly, they assert that “under the circumstances of this 
case, that right and entitlement requires that the reimbursement 
come personally from the Stepps.”  In support of this assertion, 
the trustees cite Willson and Cooper v. Brodie, 253 Va. 38, 480 
S.E.2d 101 (1997).  In neither case, however, was the award to 
the trustee charged to the beneficiary/litigant personally.  
Indeed, we expressly held in Cooper that “the trial court erred 
in charging a portion of Cooper’s attorney’s fees and [expenses] 
to her individual interest. . . .  [T]hat portion should be 
charged to the trust.”  253 Va. at 44, 480 S.E.2d at 104.  
(Emphasis added). 
The trustees contend, however, that because the corpus of 
the trust is real property, there is no fund from which the 
chancellor could have ordered payment of the attorney’s fees and 
expenses.  They contend that this is so because the chancellor 
is without power to force the termination of the trust by 
ordering the sale of the real property as this would frustrate 
 
10
the purpose of the trust.  Accordingly, they conclude that “the 
proper source of reimbursement is the Stepps.”  We disagree. 
Unquestionably, in Willson we recognized an exception to 
the “American Rule” that litigants bear the burden of their own 
expenses in litigation.  However, as we explained in Ward v. 
NationsBank, 256 Va. 427, 441, 507 S.E.2d 616, 624 (1998), 
“[t]he correct application of Willson is that a trustee, who has 
the duty to defend the actions challenged as detrimental to the 
trust, is entitled to attorney’s fees when he has been called on 
to defend himself against a charge of dereliction of duty and 
there is neither substantial evidence that the trustee wasted or 
mismanaged the trust nor evidence of any conduct warranting the 
removal of the trustee. . . . [W]here a trustee has a good faith 
basis for defending a suit challenging his actions as trustee, 
attorney’s fees and [expenses] incurred in the defense of the 
suit should be charged against the trust.”  (Emphasis added.)  
See also Cooper, 253 Va. at 44, 480 S.E.2d at 104. 
That the corpus of a trust consists of real property rather 
than liquid assets does not remove those assets from the control 
of the chancellor.  Nor is it controlling that an award of 
attorney’s fees and expenses to a trustee who has successfully 
defended the interests of the trust might result in diminution 
of the corpus and thereby frustrate the grantor’s intention.  
Nothing in our prior case law suggests such limitations on the 
 
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ability of the chancellor to make an award from the corpus of a 
trust, charitable or otherwise, reimbursing a trustee for 
expenses incurred in representing the trust.  Moreover, in the 
present case the record does not establish that making an award 
of the trustees’ expenses from the trust corpus would 
necessarily terminate the trust as the trustees suggest. 
There is no dispute here that because the trustees had a 
duty to defend the suit and the chancellor found no breach of 
their fiduciary duties, they are entitled to recover their 
expenses incurred in the defense of the suit.  As we previously 
noted in footnote 5, supra, the parties and the chancellor use 
the terms “expenses” and “costs” interchangeably.  To the extent 
that it might appear we draw no distinction between these terms 
in this case, a further discussion of the nature of the 
chancellor’s judgment is necessary.   
In this case, we are not concerned with an award of costs 
as contemplated by Code § 17.1-601, which provides, in part, 
that “the party for whom final judgment is given in an action or 
motion shall recover his costs against the opposite party.”  Nor 
are we concerned with the distinctions we necessarily draw 
between costs essential for the prosecution of a suit, such as 
filing fees or charges for service of process, and incidental 
expenses incurred in an attorney’s representation of clients in 
the form of expert witness fees, express mail service, 
 
12
messengers, meals, law clerk temporaries, computer-based legal 
research, library research, photocopies, parking, taxicabs, 
telephone calls, and transcript preparation in appropriate 
cases.  See Advanced Marine Enterprises v. PRC Inc., 256 Va. 
106, 126, 501 S.E.2d 148, 160 (1998); see also Lansdowne 
Development Company v. Xerox Realty Corp., 257 Va. 392, 403, 514 
S.E.2d 157, 163 (1999)(discussing award of “all litigation 
expenses” under contract). 
While a portion of the chancellor’s award in the present 
case reimburses the trustees for some of the items of expense 
listed above that we rejected in Advanced Marine, here we are 
not concerned with an award of what are commonly referred to as 
“court costs.”  Rather, we are concerned with “expenses” of 
trustees incurred in defending a suit brought against them by 
beneficiaries of the trust.  In that context, we apply our 
holding in Willson as requiring that the trustees be held 
financially harmless in that “they ought not in justice and good 
conscience to be put to any expense out of their own moneys 
. . . [and] if it appears . . . that they have sustained charges 
and expenses beyond the costs of the suit, as between solicitor 
and client, the court will order such further expenses properly 
incurred to be paid to them.”  Willson, 181 Va. at 965, 27 
S.E.2d at 216.  Accordingly, here we are concerned with any 
reasonable expense of the trustees beyond and above their 
 
13
attorney’s fees, that they may have incurred as a result of 
being required to defend this suit.  In short, here the 
chancellor properly awarded expenses in the unique context of 
trustees defending a suit brought by beneficiaries of the trust 
so as to hold them financially harmless.6
CONCLUSION 
For these reasons, we will reverse that portion of the 
chancellor’s judgment making the beneficiaries personally liable 
for the attorney’s fees and expenses awarded to the trustees, 
modify the judgment to place the liability for that award on the 
trust, and enter final judgment for the trustees. 
                                   Affirmed in part,
reversed and modified in part, 
                                   and final judgment. 
                     
6Moreover, because the amount of their expenses is not 
challenged on appeal, the trustees are entitled to recover those 
expenses as awarded by the chancellor’s judgment.  We stress 
that our affirmance of the judgment in this case should not be 
interpreted as permitting an award of similar incidental 
expenses in a different litigation context.   
 
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