Opinion ID: 1154523
Heading Depth: 1
Heading Rank: 18

Heading: the fee hearing

Text: The admissibility of expert testimony. Holman argues that Osborn's expert testimony, as a lawyer/cotrustee, should have been excluded because of surprise. Holman claims severe prejudice because he was not apprised of this new witness until the Friday before trial was to begin. Denied exclusion of testimony and permission to take Osborn's deposition, Holman settled for an interview with Osborn after the second day of trial. He claims that the interview inadequately prepared him to cross-examine Osborn or acquire a rebuttal witness. Respondents counter with several arguments: (1) That the parties had agreed to notify each other orally or by letter at least by the Friday before trial, of any changes or additions in their list of possible experts. Apparently under the mistaken impression he had not received notice of Osborn's role until the day of trial, Holman acknowledged the above agreement. (2) That CR 26(b)(4)(A)(i) requires only that a party, upon request, identify its experts, the subject matter of their expected testimony, and state the substance of the facts and opinions to which the [experts are] expected to testify and a summary of the grounds for each opinion. It is within the trial court's discretion, upon motion, to order further discovery by other means. (3) That Holman's attorney was allowed to interview Osborn prior to trial precluded prejudice. [2] With regard to alleged discovery violations, it is an abuse of discretion to exclude testimony as a sanction absent any showing of intentional nondisclosure, willful violation of a court order, or other unconscionable conduct. Smith v. Sturm, Ruger & Co., 39 Wn. App. 740, 750, 695 P.2d 600 (1985) (collecting cases); accord, Lampard v. Roth, 38 Wn. App. 198, 202, 684 P.2d 1353 (1984). The trial court found no such intentional nondisclosure, nor does Holman allege such improprieties. The only testimony on the subject indicates that, until Friday afternoon, respondents did not know if and when Osborn could testify. Respondents have not violated the discovery rule. If they had, however, it would have been error to have excluded the testimony. See, e.g., Smith, 39 Wn. App. at 750. Whether Holman properly surcharged for the difference between the fees he received and the fees deemed appropriate by the trial court. Holman challenges the trial court's determination that he should refund all moneys he received in excess of reasonable compensation. He claims that, at most, he should be required to pay back only $78,105.08  his personal profit after deductions made for various office expenses resulting from his trustee service. He also argues that the trial court erred in requiring the surcharge because his fees were reasonable. Because this court finds the fees to be excessive, even without there being a breach of trust, Holman may still be properly surcharged for the excess, as he would be for any profit. See Restatement (Second) of Trusts § 203 (1959). [3] Holman's argument ignores the reason for the surcharge; namely, to place Beneficiaries in the position they would have enjoyed but for the trustee's breach of trust. G. Bogert, Trusts and Trustees § 701, at 198 (rev. 2d ed. 1982). Notwithstanding the questionable character of many of Holman's office expenses, Holman cites no example of or authority for insulating office expenses from the excessive fee surcharge. As with most professional fees, a trustee's fee is calculated to cover overhead, as well as his time and expertise. A reasonable fee would therefore provide for an overhead allocation. Holman's argument is without merit. Holman's other arguments against the surcharge are no more compelling. Holman claims that respondents' authority does not support a surcharge of trustee's fees later found unreasonable. Here, Holman fails to acknowledge or meet his burden, as appellant, to marshal authority for the proposition that a surcharge may not be required of a trustee whose fees have been found excessive. [4] Holman also argues that, if his fees were unreasonable, then Seattle-First breached its duty by paying those fees. Holman apparently implies that it would be improper for Beneficiaries to release Seattle-First and allow the trust to pay Seattle-First attorney fees, while requiring Holman to restore those excess fees to the trust. Holman seems to imply that the release of Seattle-First somehow compromises Beneficiaries' claim against Holman. A more reasonable implication is that Holman may hold his cotrustee liable for damages suffered due to the cotrustee's alleged mismanagement. See 2 A. Scott, Trusts § 185 (3d ed. 1967). The latter reading makes more sense in light of the use Holman makes of Seattle-First's alleged complicity. Holman seeks to avoid the surcharge by claiming he reasonably relied on Seattle-First's approval of the arrangement, evidenced by its payment of the negotiated and agreed on fee. For this reason he urges that, where an agreed upon fee is paid and later found unreasonable, the remedy should be prospectively applied. Holman, however, has not cross-claimed against Seattle-First for recovery of any of the surcharge. Whether he has waived his right to such recovery for any reasonable reliance on Seattle-First is not before this court and is not relevant to this appeal. Finally, Holman alleges that the trial court failed to exercise any discretion in imposing the surcharge. This is based on the court's comment after determining the amount of a reasonable fee: In view of the Court's conclusion, the Court has no choice except to order that the defendant Holman return any fees in excess of that amount. (Italics ours.) Report of Proceedings, at 17 (Sept. 7, 1984). Even if this statement represents more than an unhappy choice of words, Holman has waived his right to appeal it by failing to challenge at trial the court's alleged misperception of its discretionary power. See RAP 2.5(a). Holman's various arguments on this issue are unconvincing. The normalcy of Holman's fees. This section goes to the heart of the case. Holman's several challenges to the trial court's determination that his fees were excessive will be addressed serially. Holman argues (1) that the trial court incorrectly interpreted the testator's term, normal compensation, to mean the established norm and community custom; (2) that this interpretation foreclosed the court from determining whether his fees were reasonable, as he claims is required under In re Powell, 68 Wn.2d 38, 411 P.2d 162 (1966); (3) that conclusion of law 5.1 is error because it holds the Powell criteria to be inapplicable to individual cotrustees, even though Powell itself relies on a case specifically dealing with an individual cotrustee serving with a bank; and (4) that there exists no case law to support the factual finding that his fees should be limited to one-half of the Seattle-First fees. [5] Black's Law Dictionary defines normal as not deviating from an established norm, rule, or principle; conformed to a type, standard or regular form; ... regular; average ... Black's Law Dictionary 955 (5th ed. 1981). This definition alone would appear to justify a court's interpreting normal compensation to mean the norm for compensation within the community. However, the findings of fact and oral opinion show that the court also applied the Powell criteria, urged by Holman, to the circumstances of the present case. In Powell, this court set out the elements relevant to fixing a trustee's fee: (1) The amount of risk and responsibility involved, (2) the time actually required of the trustee in the performance of the trust, (3) the size of the estate, (4) the amount of income received, and (5) the manual and overall services performed. Powell, 68 Wn.2d at 41. The trial court's findings closely track the Powell analysis and language. See findings of fact 6.1.1-6.1.5 and 13 (Fee Hearing). Furthermore, in its oral opinion, the trial court expressly applied the Powell factors, as well as its underlying authority, In re Estate of Dunlap, 38 Ariz. 525, 2 P.2d 1045 (1931), to the facts of this case. The trial court also properly acknowledged that the Powell court's identification of the maximum individual trustee fee (1.6 times the amount corporate trustee might charge) did not apply to a cotrustee, especially where, as here, the individual cotrustee assumed no administrative responsibilities and shared with the corporate trustee the risks and responsibilities of investment decisions. Hence, Holman misconstrues the import of conclusion of law 5.1 which only concluded that Powell does not govern the relationship between fees paid the corporate and individual cotrustees. Appellants argue that findings of fact 6.1 and 12, that a normal fee for an individual cotrustee is, at most, 50 percent of a corporate cotrustee's fee, are not supported by case law. Findings of fact need not be supported by case law. They will be approved unless shown to be against the weight of the evidence. Westland Constr. Co. v. Chris Berg, Inc., 35 Wn.2d 824, 832, 215 P.2d 683 (1950). Findings 6.1 and 12 are amply supported by the evidence in the record concerning a reasonable fee for an individual cotrustee of a comparable trust in the community. [6] While the evidence clearly supports the court's finding of normal compensation, it should be noted that the general rule is that when there is more than one trustee, they divide one fee among them, and do not, in any event, charge the equivalent of two fees to one trust. See, e.g., West Coast Hosp. Ass'n v. Florida Nat'l Bank, 100 So.2d 807 (Fla. 1958). This rule is succinctly stated in G. Bogert, supra, § 978, at 174: In the absence of statute, two or more trustees of the same trust are compensated according to the amount of services each has rendered, the whole sum paid the group amounting to what would have been paid a single trustee for like work. The single commission is not divided among them in proportion to the number of trustees, but on a quantum meruit basis. (Footnotes omitted.) The rationale for this rule is that the presence of two trustees should not, and does not, in any way enlarge or diminish the duty, responsibility and work of administering the trust: the assets, the investment judgment, the risk, the responsibilities, the accounting, the distribution of income, the other trustees' duties  in short, all the management and administration of that single trust  is the same whether there are 1, 2 or 10 trustees. Holman's basic arguments about the court's use of Powell and interpretation of normal compensation are meritless. He raises them again, however, in a series of challenges to the court's application of or failure to apply Powell. These challenges can be summarily dismissed. While the trial court did not expressly find Holman's fee to be unreasonable, declaring the fee to be abnormal, excessive, and unjustified, would have to constitute a reasonableness finding. The diminished responsibility of an individual cotrustee, challenged by Holman, has been partially discussed above. However, it should be noted that the corporate cotrustee is held to a higher standard of care because it represents itself as an expert in trust matters. Report of Proceedings, at 263 (July 24, 1984) (deposition of W.L. Schaumberg, manager of Rainier National Bank Trust Division). Holman, in contrast, expressly disavowed expert status and professed to rely heavily on the corporate trustee's research and expertise. These admissions raise further questions about the appropriateness of Holman's setting up an office to duplicate Seattle-First's investment research. Holman's arguments are not persuasive. The nature and applicability of the good faith provision. Holman claims the trial court erred in concluding (1) the good faith provision in the Stuart will was an exculpatory clause, rather than a power-embracing clause; (2) that the clause did not apply to Holman's fee-setting practice; and (3) that Holman could not rely on the clause because he was a drafter of the will. The reasons for determining why Holman's arguments lack merit need not be set forth because he has failed to overcome a more substantial obstacle. There is more than sufficient evidence in the record to support the court's finding that Holman's setting and taking of the excessive fees was done in bad faith. In 1980, Holman received Sharon L. Dean's determination, which he had requested, that a reasonable fee would be .2 to .3 percent of the annual value of the trust. Holman, himself, testified that investment counseling firms would have charged .5 to .6 percent of the annual value. Early on, Mr. Blanchard, manager of the Charitable Trust Administration Section of Seattle-First National Bank, told Holman that his fee should be 50 percent of the bank's fee. The record is replete with evidence that Blanchard and others advised Holman that his fees were excessive and unreasonable. Further evidence of a lack of good faith was Holman's allocating 80 percent of his fee to trust principal in order to keep Beneficiaries from coming after him like screaming eagles. He also encouraged his associate to bill more time to the trust to justify his fee. Several times he urged the bank to raise its fee to justify his own fee. [7] Substantial evidence supports the trial court's factual findings. Appellants' issues 6, 7, 10, 12, 15, 19, 20, 21, 22, 23, and 24 allege a lack of evidence to support various factual findings entered by the trial court in the fee hearing. In reviewing findings of fact entered by a trial court, an appellate court's role is limited to whether substantial evidence exists to support the findings. Ridgeview Properties v. Starbuck, 96 Wn.2d 716, 719, 638 P.2d 1231 (1982). Substantial evidence is evidence in sufficient quantum to persuade a fair-minded person of the truth of the declared premise. Nichols Hills Bank v. McCool, 104 Wn.2d 78, 82, 701 P.2d 1114 (1985). We have examined the record and find the exhibits and testimony overwhelmingly support the trial court's factual findings. Holman's claims that the trial court failed to consider various issues are in error. Reference to the record effectively rebuts these claims as well. Holman's counsel does not respond to Beneficiaries' rebuttal of most factual issues, but does raise anew Holman's affirmative defenses of laches, estoppel and waiver. He claims there are no findings to support the trial court's conclusion that Holman did not establish by any evidence his affirmative defenses of laches, waiver, [and] estoppel ... Finding of fact 14 (Fee Hearing). The waiver argument is unsupported in appellants' brief.
Holman quotes Restatement (Second) of Trusts § 219(1), at 511, for the proposition that a beneficiary waives his rights against a breaching trustee if the beneficiary waits to sue for so long a time and under such circumstances that it would be inequitable to permit him to hold the trustee liable. Holman then details several types of factors the court may consider in determining whether Beneficiaries' claims should be barred for laches. The factors focus on the length of Beneficiaries' delay after learning of the breach, the harm to the Beneficiaries, and the prejudice to the trustee because of the Beneficiaries' delay. Holman claims that Beneficiaries knew of his fees almost 3 years before filing this action on April 11, 1983. Beneficiaries point out that they were first apprised of Holman's method of computing fees in a July 23, 1981 letter (exhibit 32) and that they began inquiring about those fees within 5 months thereafter. This is only 18 months after the time Holman claims Beneficiaries first received notice of his fees. Our Court of Appeals has concluded that the standard by which disputed evidence is deemed substantial is any reasonable view [that] substantiates [the trial court's] findings, even though there may be other reasonable interpretations. Ebling v. Gove's Cove, Inc., 34 Wn. App. 495, 501, 663 P.2d 132 (1983). The testimony, while conflicting, on the extent of Beneficiaries' notice of the fees, substantiates the court's finding that Holman did not carry his burden to prove the affirmative defense of laches.
Holman asserts this claim without explaining how the law of equitable estoppel applies to his case. It may refer to the bank's payment of his fees prior to this action. Holman never explains, however, how his reliance on the bank was reasonable given the bank's early refusal to approve his fees. As with its other findings, the trial court's finding on this issue is supported by substantial evidence in the record.