Court Opinion

ID: 4011732
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:15:23.678394+00
Date Added: 2024-06-11T07:44:46.077711
License: Public Domain

* Motion for rehearing denied, without costs, on March 7, 1950. *Page 243 
[EDITORS' NOTE:  THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 244 
Petition in a pending action for fees and expenses filed October 15, 1948, by defendant, Dick  Reuteman Company, as trustee, for reimbursement for expenses incurred in successfully defending a suit by plaintiff, McGeoch Building Company, mortgagor, charging the trustee with breach of trust. From a judgment entered August 17, 1949, for $3,203.04, both the trustee and the mortgagor appeal.
Defendant, Dick  Reuteman Company, was trustee under a trust-mortgage indenture executed in 1925 to secure a bond issue for the plaintiff, McGeoch Building Company. In 1942, plaintiff brought an action against the trustee and two of its officers, John G. Reuteman and H. L. Kadish, for breach of trust alleging, among other things, the purchase of some of the plaintiff's bonds for their own benefit. The suit was finally decided in favor of the defendants in this court inMcGeoch Building Co. v. Dick  Reuteman Co. (1948),253 Wis. 166, 33 N.W.2d 252, 33 N.W.2d 864. On October 15, 1948, the trustee filed a petition for fees and expenses with the circuit court for Milwaukee county. In that petition the trustee asked: Reasonable attorneys' fees and disbursements incurred in the defense of the action for alleged breach of trust; the $200 per year compensation provided in the 1940 extension agreement for the five years which had lapsed since the mortgage bonds were redeemed in 1944; and attorneys' fees upon this petition.
In the first decision the trial court held: (1) The trustee was entitled to reasonable attorneys' fees for the defense of the breach of trust action; (2) the reasonable value of the attorneys' services was $8,500; (3) because the defense of the suit had been for the trustee and for its officers as *Page 245 
individuals, the cost of counsel fees should be divided; therefore, the trustee could recover half the attorneys' fees; (4) the administration of the trust contemplated by the 1940 extension agreement terminated when the bonds were redeemed and, therefore, the trustee could not be allowed compensation claimed for the five-year period.
In a later decision the trial court changed the finding as to the amount of attorneys' fees from $8,500 to $2,755 on the basis of two bills which had been rendered to the trustee by its attorneys. The first bill, for $600, was sent December 29, 1942, for services from April 27, 1942, to and including December 23, 1942. This bill was marked "on account." The second statement, which was in the sum of $2,155 and was sent May 1, 1946, included items from November 23, 1943, through December 2, 1944. This bill was not marked "on account." The bill for $8,500 less the amounts of the previous bills was sent September 21, 1948. The trial court held that since no services had been rendered between December 2, 1944, the date of the last services on the second bill, and May 1, 1946, it was the duty of the trustee to insist that the bill of May 1, 1946, had been a statement in full. Therefore, the trustee was allowed one half of that sum as attorneys' fees.
For the services after May 1, 1946, which included the appeal to the supreme court and the application for fees and expenses, the trial court found $3,000 to be a reasonable fee, of which one half was allowed to the trustee.
From the judgment entered August 17, 1949, both parties appealed. The defendants' appeal was filed first; about one hour thereafter that of the plaintiff was filed. A stipulation was entered into providing "that in this appeal the defendants shall be referred to as the appellants and the plaintiff as the appellee."
The general rule is that a mortgage-indenture trustee is entitled to reimbursement for all necessary expenditures, "if the services were performed to preserve, protect or administer the fund under [his] control." 7 Fletcher, Cyc. Corp. (perm. ed.), p. 379, sec. 3211. Here the bonds were purchased in unusual circumstances. They were bought with full knowledge of the mortgagor — even with the mortgagor's implicit approval — to keep up the market for the bonds. They were purchased to keep them from falling into unfriendly hands which might endanger and embarrass the trust. In so doing, the trustee's officers clearly acted for the benefit of both the mortgagor and the bondholders. McGeoch Building Co. v. Dick  ReutemanCo. (1948), 253 Wis. 166, 176, 33 N.W.2d 252,33 N.W.2d 864. They were acting to preserve and protect the trust. Because of these purchases and other alleged delinquencies, there was an attempt to remove the trustee, it was charged with a breach of trust and thus involved in litigation. The first question on this appeal is, Can the mortgage-indenture trustee be allowed attorneys' fees against the mortgagor for the successful defense of the action for alleged breach of trust? Under the circumstances which exist here it is considered that the trustee is entitled to reimbursement for the attorneys' fees incurred in defending its administration of the trust. In Jessup v. Smith (1918),223 N.Y. 203, 207, 119 N.E. 403, Judge CARDOZO said of the trustee: "He owed a duty to the estate to stand his ground against unjust attack." The bondholders as well as the mortgagor had an interest to be considered. *Page 247 
The trustee complains because the final ruling below allowed only a portion of the amount claimed by it to be due. The amount of attorneys' fees allowed is in the discretion of the circuit court. Fuller v. Abbe (1900), 105 Wis. 235,81 N.W. 401; Bailey v. McLellan (1st Cir. 1947),159 F.2d 1014, and cases cited therein. However, it clearly appears from the record here that the circuit court erroneously reduced the amount of attorneys' fees from $8,500, which was established by the testimony as a reasonable amount, to $2,755 under a mistake as to the effect of the first two bills sent by the attorneys. The court said that it was not only the right, but also the duty, of the trustee to insist that the payment of the second bill was in full for services to date because of the form in which the bill was rendered. However, it appears that the experience of the parties was such that they must have known that the bill was not in full to date. The attorney explained that his secretary neglected to mark the bill "on account" and that he had credited the payment as "on account." In view of the apparent inadequacy of the bill, his explanation should have been accepted. The trustee, evidently understanding the situation, had not objected. The mortgagor should not be allowed to come in later and protest the charge when it is shown that the trustee acted in good faith.
The trustee objects to the division of the legal expense between it and the officers who were also defendants. There appears to be no abuse of discretion by the circuit judge in dividing the expense equally. The complaint had demanded that Dick  Reuteman Company, as trustee, refund compensation which it had received because it had been unfaithful. The complaint also included a demand that Dick  Reuteman Company and its officers turn over as trust funds the profits and interest made upon the bonds. It is evident that the defendants had both official (trustee) and private interests to defend. The trustee and the individual defendants were successful in maintaining their position against each charge. *Page 248 
The trustee was held to be faithful and was permitted to retain its compensation. The profits and interest were held to be private gains not subject to the trust, and the defendants in their private capacity were permitted to keep their gains.
It was no part of the trustee's duty to be concerned about title to private profits. It was optional with those to whom the earnings belonged to act or not to act in relation thereto. The defense of their rights should be at their own expense. They cannot be relieved of it by saying that the same amount of work would have had to be done by the attorneys if they had not been joined. Both the trustee and the officers profited by the successful prosecution of the defense; both had substantial interests to defend. If the individual defendants had employed their own counsel, they could not ask the trustee to pay his fees. Because they shared the trustee's counsel, they should not be exempted from bearing their share of the cost of the litigation.
There remains the question of the trustee's compensation for the years 1944-1948, inclusive, which the trial court disallowed. It is considered that this ruling is proper and must be sustained. The services for which the $200 yearly compensation was allowed by the 1940 agreement terminated with the redemption of the bonds in 1944.
By the Court. — Judgment modified and affirmed. Cause remanded with directions to enter judgment in accordance with this opinion.