Title: In the Matter of the Niles Trust
Citation: N/A
Docket Number: a-7-02
State: new-jersey
Issuer: new-jersey Supreme Court
Date: May 28, 2003

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). This appeal arises out of three inter vivos trusts executed by Laura J. Niles, who was born on July 1, 1909. Laura Niles never married and had no children. She had only a younger brother, Henry. Laura and Henry Niles inherited a large fortune from their father s estate. Geoffrey Parkinson, a long-time neighbor and friend, become Laura and Henry s financial advisor in the 1980 s. By 1990. Henry s health had declined to the point that he could no longer handle his personal and financial affairs, prompting Parkinson and Leland Selby, Henry s New York attorney, to institute voluntary conservatorship proceedings in New York on Henry s behalf with Laura s approval. After those proceedings were commenced, Parkinson and Selby learned that Henry and Selena Bono, a woman whom Laura considered a con artist who wanted to marry Henry for his money, indeed planned to marry. Although Selby obtained a restraining order in April 1991 prohibiting the marriage, the couple nevertheless married in November 1992. Prior thereto, in March 1992, Laura created two inter vivos trusts, one into which she placed most of her assets and which designated the Laura J. Niles Foundation, Inc. as her residuary beneficiary, and the other a charitable remainder trust into which she placed a small portion of her assets to generate income and tax savings. On her death, any money remaining in the trust would be paid to Henry and at his death, the principal and income of the trust would go to the Foundation. Laura created a third trust in August 1994, when she established a second charitable remainder unitrust designed to yield her a higher income from the corpus. Parkinson was named trustee of all three trusts and he served in that capacity until May 1997, when Laura was unduly influenced by Serena and her son, Salvatore Bono, to execute new estate and trust instruments modifying the original trust agreements. Laura had been persuaded to execute new trust instruments after spending more time with Serena, following Serena s marriage to Henry. At some point, Serena began to pressure Laura to purchase a condominium in Naples, Florida for use by Serena, Henry, Laura and other family members. Laura purchased a condo in Naples in late 1995. A year earlier, she had begun to suffer from a variety of medical problems, including dementia. Following the condominium purchase, Laura began to spend more and more time with Serena and her son, Salvatore Bono in Florida, New Jersey, and New York. By 1997, Laura allegedly began to voice dissatisfaction with Parkinson s handling of her financial affairs. In response, Bono recommended the New York law firm of Fischbein, Badillo, with which he had a prior relationship to review her trust documents. As noted, on May 21, 1997, Laura amended her will and modified the trust agreements. Under the modified documents, Bono became executor of Laura s will and he also replaced Parkinson as trustee under the three trust agreements. Significantly, the changes in Laura s will and trust agreements heavily favored the Bono family, including a bequest of Laura s interest in the $700,000 Florida condo to Serena; $125,000 to each of Bono s four children to be held in trust for them with Bono as trustee; and a reduction from $500,000 each to $100,000 each in a bequest to the two children of Laura s beloved goddaughter. Following Laura s execution of the modified documents, Bono embarked on a sixteen-month looting spree of Laura s estate. Working as a team, Serena and Bono used Laura s trust accounts, checkbook, signature stamp, cash and credit cards to purchase thousands of dollars worth of goods. After Bono had been acting as Laura s fiduciary for approximately eight months, Parkinson filed a verified complaint and accounting on January 20, 1998, seeking among other things, the appointment of a guardian ad litem (GAL) for Laura because Serena and Bono had unduly influenced her into changing her will and trust agreements. The court appointed a GAL and ordered him to investigate the claim of undue influence. After that investigation, the GAL recommended that the court conduct a plenary hearing on the undue influence issue. Thereafter, Bono filed his accounting with the trial court, to which Parkinson filed exceptions and further sought to remove Bono as trustee and to surcharge him for improper expenditures. At about the same time in August 1998, Laura slipped into a coma from which she never recovered before her death in February 2000. In September 1998, the trial court temporarily removed Bono pending a final determination on the merits. Subsequently, in January 1999, the Foundation filed a verified complaint seeking a determination that Bono and Serena unduly had influenced Laura to execute the trust documents to their benefit. The complaints filed by Parkinson and the Foundation were consolidated for trial. The Chancery Division bifurcated the issues into two separate bench trials. At the conclusion of the first, which focused on Bono s accounting and whether he should be removed as trustee, the trial court permanently removed Bono as trustee, finding that his conduct was inexcusable and reprehensible because he had embezzled and misused Laura s assets. The trial court rejected Bono s accounting and directed him to pay surcharges to Laura s estate in the amount of $361,800 for his breach of fiduciary duty as trustee. At the conclusion of the second trial, which addressed the allegations of undue influence, finding no clearer case of undue influence by both Serena and Bono, the trial court declared null and void the modifications to the will and the trust instruments and restored Laura s original will and trust agreements. Finally, the trial court authorized Parkinson and the Foundation to file an application for additional surcharges, including counsel fees, against Bono and Serena, based on the court s finding of undue influence. Parkinson and the Foundation then sought reimbursement of counsel fees incurred by the estate in connection with the litigation and various compensatory damages. The trial court granted the application in part and denied it in part, surcharging Bono individually for counsel fees for representation provided Bono by three law firms; Serena individually for counsel fees; and Bono and Serena jointly and severally for counsel fees. However, the trial court denied the part of the application that sought reimbursement for the counsel fees charged to the estate by the Foundation, Parkinson, and the other parties in the case, finding no basis in In re Landsman, 319 N.J. Super. 252 (App. Div.), certif. denied, 161 N.J. 335 (1999) to shift the attorney s fees from the other parties to Bono and Serena. Bono and Serena appealed and the Foundation and Parkinson cross-appealed. The Appellate Division affirmed the trial court s finding of undue influence by Bono and Serena and the imposition of fees, costs and surcharges against both. The panel also concluded that Serena s undue influence to get Laura to execute the modifications to her Will and trust agreements justified impositions of a joint and several obligation on her for counsel fees on equitable principles, notwithstanding her lack of fiduciary status. Finally, the panel determined that the trial court had read Landsman too narrowly in its denial of counsel fees incurred by the Foundation, Parkinson, and the other parties, but nevertheless rejected those claims for reasons unrelated to the American Rule, finding instead that the counsel fees did not disclose precisely what services were rendered and why the estate was obligated to pay them. The Supreme Court denied Serena s and Bono s petition for certification and granted the cross-petitions filed by the Foundation and Parkinson. HELD : When an executor or trustee reaps a substantial economic or financial benefit from undue influence, the fiduciary may be assessed counsel fees incurred by plaintiffs and third parties in litigation to restore the estate s assets to what they would have been had the undue influence not occurred; the mother and son team in this matter should be jointly and severally liable for all reasonable counsel fees authorized by the Court s opinion. 1. New Jersey s counsel fee Rule, which is based on a strong policy against the shifting of counsel fees, prohibits the award of counsel fees as taxed costs or otherwise, except in exceptional circumstances enumerated in the Rules themselves or when such fees are specifically authorized by statute. The purposes underlying this American Rule are to allow unrestricted access to the courts for all persons; to ensure equity by not penalizing persons for exercising their right to litigate a dispute; and administrative convenience. Because the Rule contains no explicit exception applicable to this case, the Court must decide whether there is an existing exception to the American Rule that supports fee shifting under the special circumstances of this case. (pp. 12-13) There is an exception to New Jersey s counsel fee rule that allows the award of counsel fees where they are a traditional element of damages in a particular cause of action. Thus, a plaintiff has the right to recover attorney s fees incurred in other litigation with a third person if he became involved in that litigation as a result of a tortious act by the present defendant. Since Bono committed a tort when he breached his fiduciary duty as Laura s trustee, the counsel fees incurred for representation of those third parties represent consequential damages to the estate proximately caused by that breach, and all counsel fees charged to the estate for representation of third parties in the litigation should be reimbursed by tortfeasor Bono. (pp. 13-15) Other exceptions to the American Rule have been created when important public policy concerns are involved, such as when a plaintiff can demonstrate the existence of an attorney-client relationship. Like the attorney-client relationship, a trustee s fiduciary relationship is based on utmost trust, and justifies fee shifting in this case where the fiduciary psychologically overpowered an eighty-eight-year old demented person. (pp. 16-18) The Supreme Court has created exceptions to the American Rule when the interest of equity has demanded it. Thus, when an executor or trustee commits the pernicious tort of undue influence, an exception to the American Rule is created that permits the estate to be made whole by an assessment of all reasonable counsel fees against the fiduciary that were incurred by the estate. (pp. 19-20) Undue influence by an attorney who becomes executor-beneficiary under a will, and undue influence by a non-attorney who becomes trustee-beneficiary, should be treated the same regarding payment of counsel fees required to remove the person as a fiduciary. (pp. 20-21) The new exception to the American Rule created by this case will not open the floodgates, as the exception is limited to cases in which an executor s or trustee s undue influence results in the development or modification of estate documents that create or expand the fiduciary s beneficial interest in the estate. It is based on the fiduciary s misconduct regardless of his or her professional status. Moreover, undue influence, as a form of fraud, must be proved by clear and convincing evidence. Most important, the undue influence exception does not violate the American Rule because undue influence represents such an egregious intentional tort that it establishes a basis for punitive damages in a common law cause of action. Thus, the exception created here directly flows from the special status of the undue influence tort. (pp. 21-22) Serena should be held jointly and severally liable for the additional counsel fees awarded to the estate because she was the driving force behind the changes Laura made to her estate plan documents so as to benefit Serena, Salvatore, and their family members. Moreover, Serena initiated the undermining of Parkinson by her constant baseless comments, criticisms, and accusations of his financial treachery and dishonesty. (p. 22) Judgment of the Appellate Division with respect to the two additional counsel fee issues is REVERSED, and the matter is REMANDED to the Chancery Division, Probate Part, to determine the reasonable counsel fees to be awarded in accordance with the Court s opinion. JUSTICE LaVECCHIA has filed a separate dissenting opinion in which JUSTICE VERNIERO joins. Justice LaVecchia believes that the Court s opinion represents an unwarranted departure from the well-founded American Rule and that the departure will open the floodgates to other litigants seeking an award of counsel fees in a case of fraud by a trustee and fees in the case of any other intentional tort. CHIEF JUSTICE PORITZ and JUSTICE LONG join in JUSTICE COLEMAN s opinion. JUSTICE LaVECCHIA has filed a separate dissenting opinion in which JUSTICE VERNIERO joins. JUSTICE ZAZZALI and JUSTICE ALBIN did not participate. SUPREME COURT OF NEW JERSEY A-7/ 8 September Term 2002 IN THE MATTER OF THE: TRUST CREATED MARCH 31, 1992, BETWEEN LAURA J. NILES, GRANTOR, AND GEOFFREY M. PARKINSON, TRUSTEE; TRUST CREATED MARCH 31, 1992, BETWEEN LAURA J. NILES, GRANTOR, AND GEOFFREY M. PARKINSON, TRUSTEE; and TRUST CREATED AUGUST 23, 1994, BETWEEN LAURA J. NILES, GRANTOR, AND GEOFFREY M. PARKINSON, TRUSTEE. Argued March 17, 2003 Decided May 28, 2003 On certification to the Superior Court, Appellate Division. John A. Ridley argued the cause for appellants, The Laura J. Niles Foundation, Inc. and Geoffrey M. Parkinson (Drinker Biddle &amp; Shanley, attorneys; Bruce L. Shapiro, Edward A. Gramigna, Jr., Megan J. Harris and Michael G. Langan, on the briefs). Jonathan C. Scott, a member of the New York bar, argued the cause for respondent, Salvatore A. Bono (Murray &amp; Kimball, attorneys; Mr. Scott and William J. Murray, on the briefs). Joseph P. Castiglia argued the cause for respondent, Serena Niles. The opinion of the Court was delivered by COLEMAN, J. In this appeal a mother and her son working as a team unduly influenced an eighty-eight-year-old, single, demented multimillionairess to modify three inter vivos trust agreements to name the son as trustee and to confer upon them substantial economic benefits under the altered trust agreements. The former trustee and the primary residuary beneficiary under the former trust agreements successfully prosecuted litigation to remove the illegitimate trustee and to require the mother-son team to make the estate whole except for certain counsel fees. The issue raised in this appeal is whether to create an exception, if one does not exist already, to the American Rule, which generally does not permit a prevailing party to recover counsel fees from a losing party. We hold that when, as in this case, an executor or trustee reaps a substantial economic or financial benefit from undue influence, the fiduciary may be assessed counsel fees incurred by plaintiffs and third parties in litigation to restore the estate s assets to what they would have been had the undue influence not occurred. We also hold that the mother-son team should be jointly and severally liable for all reasonable counsel fees authorized by this opinion. IN THE MATTER OF THE: TRUST CREATED MARCH 31, 1992, BETWEEN LAURA J. NILES, GRANTOR, AND GEOFFREY M. PARKINSON, TRUSTEE; TRUST CREATED MARCH 31, 1992, BETWEEN LAURA J. NILES, GRANTOR, AND GEOFFREY M. PARKINSON, TRUSTEE; and TRUST CREATED AUGUST 23, 1994, BETWEEN LAURA J. NILES, GRANTOR, AND GEOFFREY M. PARKINSON, TRUSTEE. LaVECCHIA, J., dissenting. In this suit involving an express trust and a paid fiduciary, the trustee was removed from his post based on proof of his undue influence over the beneficiary. Although the urge to award counsel fees in favor of the trust and against the ousted trustee is understandable, it is not permitted under our court rule governing fee shifting. I would not expand our case law to cover it. The majority acknowledges that the history of [Rule 4:42-9] demonstrates that New Jersey has a strong policy against the shifting of counsel fees. Ante, at ___ (slip op. at 12). A long-standing exception to that policy allows a plaintiff the right to recover attorney s fees incurred in other litigation with a third person, if [the plaintiff] became involved in that litigation as a result of a . . . tortious act by the present defendant. Ante, at __ (slip op. at 14) (quoting In re Estate of Lash, 169 N.J. 20, 31 (2001)). In other words, one has the right to recover attorneys fees when such fees are a provable element of damages incurred in litigation with third parties. I part company with my colleagues, however, when they take the momentous step of holding that the estate can recover its fees incurred directly in litigation against the fiduciary, Bono, and against Serena. The majority clearly understands the import of its holding: [t]hat claim directly implicates the American Rule . . . . To charge them with the counsel fees incurred by the Foundation and Parkinson as plaintiffs is tantamount to charging the losing parties with the prevailing parties counsel fees. Ante, at __ (slip op. at 16). The American Rule, or principle, that litigants should bear their own costs for counsel fees was recognized by the United States Supreme Court as early as 1796. See Arcambel v. Wiseman, 3 Dall. 306, 1 L. Ed. 613 (1796). As that Court has explained, the outcome of litigation is at best uncertain, and one should therefore not be penalized for merely defending or prosecuting a lawsuit. Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718, 87 S. Ct. 1404, 1407, 18 L. Ed. 2d 475, 478 (1967). In addition, the time, expense, and difficulties of proof inherent in litigating the question of what constitutes reasonable attorney's fees would pose substantial burdens for judicial administration. Ibid.; see also Lash, supra, 169 N.J. at 43. Rule 4:42-9 represents our Court s policy determination that the American Rule generally governs the award of fees in New Jersey. That rule requires a denial of fees in the normal course of events. McGuire v. City of Jersey City, 125 N.J. 310, 326 (1991). When originally enacted, it pointedly sought to eliminate the abuses of the pre-1948 chancery practice of granting excessive fees to favored members of the bar. Satellite Gateway Communications, Inc. v. Musi Dining Car Co., 110 N.J. 280, 285 (1988); see also Sunset Beach Amusement Corp. v. Belk, 33 N.J. 162, 167 (1960) ( This rule constituted a policy decision to break with the practice of the former Court of Chancery which authorized counsel fees to the victor in the ordinary adversary proceeding. . . . In actual operation it proved onerous upon litigants and spawned charges of favoritism. ); Pressler, Current N.J. Court Rules, comment 1 on R. 4:42-9 (2003). Indeed, shortly after the rule originally was adopted, the Legislature passed a bill to overturn the rule, which Governor Driscoll vetoed, stating that it would revive an unhappy practice that has been generally repudiated. State v. Otis Elevator Co., 12 N.J. 1, 27 (Jacobs, J., dissenting). For over fifty years, the Court has resisted the temptation to carve out exceptions, adhering to the policy determination codified in the rule despite the sympathetic facts in individual cases no different from those presented here. Liberty Title &amp; Trust Co. v. Plews, 6 N.J. 28 (1950), also involved an express trust and a paid fiduciary. Writing for the Court, Chief Justice Vanderbilt stated that the proofs demonstrate[d] conclusively that the trustee was guilty of self-interest, self-dealing, private profit-taking and flagrant mismanagement . . . all of which it successfully concealed from the court. Id. at 37. Nonetheless, the Court denied counsel fees, stating that despite the fraud, the then-recently enacted rule on fee shifting specifically enumerated the types of actions in which allowances to counsel may be made, and the discretion of the trial court is limited to the granting or denying of allowances in such actions. Id. at 44. The Court underscored that [i]t was not contemplated that the rule would or could be completely dispensed with in individual cases. Ibid. Sixteen years later in Grober v. Kahn, 47 N.J. 135 (1966), Chief Justice Weintraub found it necessary to reiterate the Court s adherence to the policy codified in our court rules, again in the context of an assertion that fraud by a fiduciary should give rise to an award of counsel fees. The Chief Justice understood the natural desire to award fees in such circumstances, stating that [t]here is a defensible feeling that counsel fees should be awarded in a case of fraud, and if the wrongdoer has breached as well a duty of loyalty, that feeling is intensified. Id. at 150. Nonetheless, the Court rejected the argument that counsel fees should be allowed, and held that imposition of counsel fees is a policy issue which was resolved when our rules of court were formulated. If a change is to be made, it should be made with directness and in relevant terms. Meanwhile, the policy of our rule should be honored. Id. at 151. Thus, we have adhered strictly to our court rule in the past, recognizing that "sound judicial administration is best advanced if litigants bear their own counsel fees. In accordance with this policy, unless legal fees are authorized by statute, court rule, or contract, they are not recoverable." Satellite Gateway, supra, 110 N.J. at 285 (citations omitted). However, despite recognizing this well-established rule, ibid., the majority chooses to award counsel fees in this case, without any statute, court rule, or contract permitting an authorization. The majority asserts that it will not open the floodgates to fee shifting because the counsel-fee award is limited to the particular facts here involving fraud by a fiduciary, an egregious intentional tort that requires clear and convincing evidence. Ante, at __ (slip op. at 21). The assertion that this holding will be circumscribed by the narrow facts of this case does not withstand scrutiny. Once the Court decides that it can pick and choose from among individual cases when to deviate from the traditional requirement that there must be a statute, rule, or contract allowing an award of counsel fees, there is no discernible difference between fees in a case of fraud by a trustee and fees in the case of any other intentional tort. In either, a prevailing plaintiff has incurred harm (including attorneys fees) because of the intentional tortious acts of another, and may argue, based on today s holding, that he or she should be entitled to fees to be made whole. The majority justifies its holding by analogizing this award of counsel fees to awards authorized by Saffer v. Willoughby, 143 N.J. 256 (1996), and Packard-Bamberger &amp; Co. v. Collier, 167 N.J. 427 (2001), wherein the Court allowed fee shifting in attorney-malpractice cases. However, as explained by the dissent in Lash, supra, those departures were justified only because they were grounded in this Court s exclusive and unique role in regulating the bar. Lash, supra, 169 N.J. at 44 (Verniero and LaVecchia, JJ., dissenting). Consistent with that rationale, the Court in Packard-Bamberger, supra, emphasized that a plaintiff must demonstrate the existence of an attorney-client relationship as a prerequisite to recovery [of attorneys fees]. 167 N.J. at 443. The Court specifically noted that the defendant in Packard-Bamberger acted in a dual capacity, as a corporate director and as legal counsel, and owed the plaintiffs a fiduciary duty in both roles. Ibid. However, it was only due to the existence of the attorney-client relationship that fees could be shifted as consequential damages to the attorney because, as the Court emphasized, [the defendant] violated the duty he owed [the plaintiffs] as legal counsel. Ibid. If the defendant had not been legal counsel, and had only violated his fiduciary duty as a director, attorneys fees would not have been appropriate unless authorized by contract, statute, or some other specific rule. Ibid. Accordingly, the restricted holdings in Saffer and Packard-Bamberger are not persuasive support for the counsel-fee shifting that the Court now authorizes. In sum, the majority s justification for its holding is unsatisfying not only because of the lack of statute, rule, or contract authorizing the award (as has traditionally been required), but even more so because, as explained above, the Court has considered, and rejected, awarding fees in cases that are indistinguishable from the case at bar. The desire to award counsel fees in extreme circumstances, such as a fraud committed by a fiduciary, is understandable. Fraud, especially by a fiduciary, is a contemptible thing; but the efficient and equitable administration of justice is best served by adherence to the rule that counsel fees will not be awarded except when provided for by rule, statute, or contract. Today s decision is a step towards reviving the pre-1948 unhappy practice that our Court rectified with the promulgation of Rule 4:42-9. I decline to join in a decision that undercuts our court rules. Accordingly, I respectfully dissent. Justice Verniero joins in this dissent. NO. A-7/8 SEPTEMBER TERM 2002 ON CERTIFICATION TO Appellate Division, Superior Court IN THE MATTER OF THE: TRUST CREATED MARCH 31, 1992, BETWEEN LAURA J. NILES, GRANTOR, AND GEOFFREY M. PARKINSON, TRUSTEE; TRUST CREATED MARCH 31, 1992, BETWEEN LAURA J. NILES, GRANTOR, AND GEOFFREY M. PARKINSON, TRUSTEE; and TRUST CREATED AUGUST 23, 1994, BETWEEN LAURA J. NILES, GRANTOR, AND GEOFFREY M. PARKINSON, TRUSTEE. DECIDED May 28, 2003 Chief Justice Poritz PRESIDING OPINION BY Justice Coleman CONCURRING OPINION BY DISSENTING OPINION BY Justice LaVecchia