Court Opinion

ID: 3196369
Source: CourtListenerOpinion
Date Created: 2016-04-21 13:08:33.347595+00
Date Added: 2024-06-11T14:37:08.118436
License: Public Domain

#27418-rem-GAS
2016 S.D. 36

                            IN THE SUPREME COURT
                                    OF THE
                           STATE OF SOUTH DAKOTA

                                   ****

                 GUARDIANSHIP AND CONSERVATORSHIP
                        OF MARY D. NOVOTNY
                   ALSO KNOWN AS MARY NOVOTNY,
                          a Protected Person.

                                   ****

                  APPEAL FROM THE CIRCUIT COURT OF
                     THE SIXTH JUDICIAL CIRCUIT
                     TRIPP COUNTY, SOUTH DAKOTA

                                   ****

                 THE HONORABLE KATHLEEN F. TRANDAHL
                                Judge

                                   ****

JOHN M. FITZGERALD
KELLY M. PETERSON of
Fitzgerald Law Firm, PLC
Rapid City, South Dakota                    Attorneys for appellant and
                                            beneficiary Catherine Novotny.

BRAD A. SCHREIBER of
Schreiber Law Firm, Prof. LLC
Pierre, South Dakota                        Attorneys for appellee
                                            guardianship and
                                            conservatorship of Mary D.
                                            Novotny.

                                   ****

                                            CONSIDERED ON BRIEFS
                                            ON MARCH 21, 2016
                                            OPINION FILED 04/20/16
#27418

SEVERSON, Justice

[¶1.]        The guardians and conservators of this guardianship established the

Mary D. Novotny Trust. Caroline Novotny is the beneficiary of the trust, and the

conservators are the trustees. A dispute over the trust arose, after which the circuit

court granted reimbursement of expenses to the trustees. Caroline appeals the

circuit court’s decision. We remand.

                                    Background

[¶2.]        Teresa Novotny, Mark Novotny, and Paul Novotny (collectively,

“Conservators”) were appointed guardians and conservators of Mary Novotny on

July 12, 2012. After an inventory of Mary’s assets, a certified public accountant

recommended gifting some of Mary’s assets in order to reduce them for federal-

estate-tax purposes. In response, the Conservators gifted assets to the heirs

apparent of Mary. However, one of Mary’s daughters, Catherine Novotny, had no

contact with Mary or the Conservators. The Conservators hired a private

investigator to locate Catherine but were unable to find her. After failing to locate

her, they established a trust for Catherine’s benefit, which held assets of

approximately the same value as her siblings had received. Catherine was

eventually located, and in 2014, she petitioned to terminate the trust established for

her benefit. She alleged that creation of the trust was unlawful and that the

Conservators breached their fiduciary duty.

[¶3.]        During the proceedings, the Conservators sought reimbursement of

expenses pursuant to SDCL 55-3-13. On December 24, 2014, the Conservators

stated in their motion:

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              Prior to this motion, Co-Conservators have expended personal
              funds defending the Trust as follows:

              1.    Mark Novotny - $11,237.48
              2.    Theresa Novotny - $4,145.39
              3.    Paul Novotny - $ 3,424[.]47
              4.    Mary Novotny checking account - $4,370.33
              5.    Mary Novotny Trust checking account - $344.50

On December 26, 2014, Catherine responded, opposing the motion. In her response

she stated:

              These amounts alleged to have been paid have not been meant
              to appear by affidavit, and are not under oath and therefore [the
              Conservators’ attorney] has not [met] his burden in showing
              these amounts have been “actually incurred,” by the trustees.
              Moreover these amounts have not been itemized or even
              reasonably described and so there is not a way for the [c]ourt to
              judge whether or not these are expenses by which the trustees
              are entitled to “repayment,” have been, “properly incurred by
              the trustees in the performance of his or her trust.”

[¶4.]         In response, Mark filed an affidavit on January 6, 2015, which stated

in part: “[A]s a direct result of Catherine Novotny’s actions, I have spent a total of

$11,237.28 in attorney’s fees. In addition, $4,370.33 has been spent from Mary

Novotny’s checking account and $344.50 from the Mary Novotny Trust Account.”

Paul Novotny filed a similar affidavit on January 6, 2015, stating: “[A]s a direct

result of Catherine Novotny’s actions, I have spent a total of $3,424.47 in attorney’s

fees. In addition, $4,370.33 has been spent from Mary Novotny’s checking account

and $344.50 from Mary Novotny’s Trust Account.” Also on that day, Teresa

Novotny filed an affidavit, stating: “[A]s a direct result of Catherine Novotny’s

actions, I have spent a total of $4,145.39 in attorney’s fees. In addition, $4,370.33

has been spent from Mary Novotny’s checking account and $344.50 from the Mary

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Novotny Trust Account.” On January 7, 2015, Catherine served an objection to the

affidavits and attorney-fee request.

[¶5.]        In January 2015, both Catherine and the Conservators moved for

summary judgment on the underlying petition. On February 19, 2015, the court

granted summary judgment in favor of the Conservators and denied Catherine’s

motion for summary judgment. It also entered an order awarding the Conservators’

motion for attorney’s fees. On February 26, the Conservators filed an additional

motion to approve reimbursement of fees, costs, and expenses. The motion listed

sums that were paid to various persons or entities as follows:

             6.    Fenenga and Associates - $1,012.30
             7.    Ed Midgley - $20.14
             8.    Swier Law Firm - $1,799.35
             9.    Mary Novotny (Schreiber Law Firm) - $8,005.53

An amended motion to approve reimbursement was filed on March 18, 2015. The

amended motion listed an additional expenditure of $1,812.60 to Gunvordahl and

Gunvordahl. It also increased the expenditure to Swier Law Firm to $1,873.35.

The Conservators asked in the motion “that all future fees, costs and expenses

incurred in the defense of this matter be paid from the Mary D. Novotny Irrevocable

Trust.” A hearing on the motion was held March 26, at which time the court

granted the Conservators’ motion.

[¶6.]        On appeal, Catherine contends that the court erred by awarding

reimbursement and future expenses under SDCL 55-3-13. She also alleges that the

court refused to allow her to participate in the motions hearing on March 26, 2015,

thereby depriving her of due process.

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                                        Analysis

[¶7.]         “A trustee must fulfill the purposes of the trust as declared at its

creation, or as subsequently amended, and must follow all the directions of the

trustor given at that time, except as modified by the consent of all parties

interested, and upon approval by the court.” SDCL 55-3-5. “[A] ‘trustee’s first duty

as a fiduciary is to act in all things wholly for the benefit of the trust.’” In re

Florence Y. Wallbaum Revocable Living Tr., 2012 S.D. 18, ¶ 32, 813 N.W.2d 111,

119 (quoting Willers v. Wettestad, 510 N.W.2d 676, 680 (S.D. 1994)). Trustees may

recover “expenses actually and properly incurred . . . in the performance of his or

her trust.” SDCL 55-3-13. “We review a trial court’s ruling on the allowance or

disallowance of costs and attorney fees under an abuse of discretion standard.”

Johnson v. Miller, 2012 S.D. 61, ¶ 7, 818 N.W.2d 804, 806 (quoting Stratmeyer v.

Engberg, 2002 S.D. 91, ¶ 12, 649 N.W.2d 921, 925).

[¶8.]         In this case, Catherine contends that the information provided to the

court was insufficient to determine whether the expenses were actually and

properly incurred in the performance of the trustees’ duties. We agree. In support

of the December 2014 motion, the trustees provided, by way of affidavit, a list of

sums paid to certain individuals or entities. They have not provided any other

information related to those expenses. The second motion in February 2015 and

amended motion in March 2015 were not accompanied by affidavits. And the court

took no testimony or argument on the motion. 1

1.      The Conservators contend that Catherine has not preserved this issue for
        appeal because she failed to appear and object at the hearing on the matter.
                                                                   (continued . . .)
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[¶9.]          We have not previously addressed the requirements of SDCL 55-3-13.

However, our approach in estate matters is instructive in this case. In In re Estate

of Lingscheit, 387 N.W.2d 738, 741-42 (S.D. 1986), we construed SDCL 30-25-6,

which provided that the executor “is to be allowed all necessary expenses in the

care, management, and settlement of the estate.” SDCL 30-25-6 has since been

repealed, but our analysis is still relevant to this case. We explained in Estate of

Lingscheit that expenses awarded under SDCL 30-25-6 “must be supported by

evidence in the record, and cannot be solely based on the amount estimated and

listed in an inheritance tax report.” 387 N.W.2d at 742. We referred to our decision

in In re Estate of Hansen, 366 N.W.2d 852, 855 (S.D. 1985), where we said:

               Whether the evidence of attorney’s fees consists of some
               itemized statement of time or of the standard percentage
               charged by attorneys in probate actions, some evidence must
               exist to show the basis for [the attorney’s] fees and to support a
               conclusion that the fees were reasonable for whatever time was
               spent or for whatever portion of the probate [the attorney]
               performed.

When considering properly reimbursed expenses in estate matters, we have

also explained that “[w]e look to the services provided and not just by whom

the attorney was employed.” In re Estate of Schuldt, 457 N.W.2d 837, 840

(S.D. 1990).

_________________________________________________
(. . . continued)
         They contend that it is important to note the court’s reason for granting the
         motion, as expressed at the hearing on March 26, 2014. The court stated: “I
         have no objections to the motion that has been filed with the court, so the
         court will grant your motion as requested.” However, the issue is preserved
         for appeal as Catherine filed objections to the fees and expenses that the
         trustees sought. She filed objections with the court in December 2014 and
         again in January 2015 after the trustees filed their affidavits.

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[¶10.]         We apply the same rationale to SDCL 55-3-13. There must be some

evidence in the record that allows a court to determine whether the amounts for

which a trustee seeks reimbursement were “expenses actually and properly

incurred . . . in the performance of his or her trust.” SDCL 55-3-13; see also Alan

Newman et al., The Law of Trusts & Trustees § 971, Westlaw (database updated

September 2015). 2 The Conservators filed affidavits in support of the initial motion

for reimbursement. “Affidavits, although made under oath, are ordinarily not

considered competent evidence. . . . Nevertheless, the ultimate determination of

whether issues of fact should be resolved by affidavit is left in the sound discretion

of the trial court.” In re Estate of Eberle, 505 N.W.2d 767, 771 (S.D. 1993); see also

SDCL 15-6-43(e) (“When a motion is based on facts not appearing of record the

court may hear the matter on affidavits presented by the respective parties . . . .”).

[¶11.]         The January 2015 affidavits were the only evidence submitted to the

court that related to the fees and expenses for which the Conservators sought

reimbursement. In this case, the court’s reliance on those affidavits constitutes an

abuse of discretion because they provide insufficient information as to how the

trustees incurred attorney’s fees in those amounts. Further, neither the February

2015 motion nor the March 2015 amended motion seeking additional expenses was

accompanied by affidavits. No itemization of costs was presented to the circuit

2.       The Law of Trusts and Trustees § 971 explains:
               The burden is on the trustee to prove the items for which it
               seeks credit on its accounting. . . . [I]t should be sufficient if the
               trustee establishes that the expenses were reasonably incurred
               through the prudent exercise of its discretion in performing its
               duties to administer the trust in accordance with its terms and
               purposes and the interests of the beneficiaries.

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court that demonstrated the basis for the alleged expenses in any of the motions.

Accordingly, the court erred when it awarded reimbursement of the fees and

expenses without evidence in the record to support that the fees and expenses were

actually and properly incurred in performance of the trust. See Restatement (Third)

of Trusts § 88 cmt. a (Am. Law Inst. 2007) (“The trustee’s right of

indemnification . . . entitles the trustee . . . to obtain reimbursement [of proper

expenses] from the trust . . . . Conversely, . . . if improper expenses have been paid

from the trustee’s personal funds, the trustee ordinarily is not entitled to

reimbursement for those expenditures.”). This Court is not in a position to find the

facts necessary to decide the issue. See Estate of Hansen, 366 N.W.2d at 855-56

(“While we have admitted to some expertise on the reasonable value of legal

services, as an appellate court, we are unprepared to take evidence or enter findings

on the services that were actually performed and which would support a conclusion

as to the reasonableness of the attorney fees.” (citation omitted)). Therefore, we

remand for further proceedings consistent with this opinion.

[¶12.]       Catherine also contends that the court’s order improperly awarded

future expenses to the Conservators. The nature of reimbursement necessarily

requires an incurred expense prior to court approval for reimbursement.

Accordingly, the court cannot award “future expenses.” Although the motions filed

by the Conservators “request[ed] that all future fees, costs and expenses incurred in

the defense of this matter be paid from the Mary D. Novotny Irrevocable Trust[,]”

the Conservators concede this issue. They reply: “The trial court’s [o]rder dated

                                           -7-
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March 26, 2015, does not award reimbursement of ‘all future’ expenses.” Thus, the

court’s order only applied to costs already incurred.

[¶13.]       Finally, Catherine contends that she was deprived of due process

rights because the court excluded her from the March 2015 hearing on the

Conservators’ motions. There is nothing in the record to support Catherine’s

contention that she was excluded by the court from appearing at this hearing. The

hearing was appropriately noticed on March 18, 2015.

Appellate Attorney Fees

[¶14.]       Both Catherine and the Conservators have moved this Court for their

appellate attorney’s fees. They have failed to cite any authority that would allow

appellate attorney fees in this appeal. However, because SDCL 55-3-13 allows

reimbursement to trustees for expenses, Conservators could be awarded their

appellate attorney’s fees if properly itemized and authorized by the circuit court as

an administrative expense of the trust.

                                     Conclusion

[¶15.]       Because there is no evidence in the record that supported the basis for

reimbursement under SDCL 55-3-13, the court erred in granting Conservators’

motions for expenses. We remand for further proceedings consistent with this

opinion.

[¶16.]       GILBERTSON, Chief Justice, and ZINTER and WILBUR, Justices,

concur.

[¶17.]       KERN, Justice, deeming herself disqualified, did not participate.

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