Currently before the Court is a dispute involving the Beneficiaries of a testamentary instrument and the fiduciaries appointed to oversee its execution. The parties to these consolidated matters participated in a bench trial, during which they offered evidence concerning the amount of compensation owed to the fiduciaries, as well as the reasonableness of the fiduciaries' requests for reimbursement for legal fees incurred in their capacity as fiduciaries. This Court has jurisdiction over the subject matter of the dispute under G.L. 1956 § 8-2-13. Pursuant to Super. R. Civ. P. 52(a), the Court now states its findings of fact and conclusions of law regarding the above-mentioned issues.
Findings of Fact
1. Frederick Carrozza Jr. (Carrozza Jr.) established the Frederick Carrozza Jr. Testamentary Trust Under Will for the benefit of his widow, Angela Kumble (A. Kumble), and his daughter, Christine Tellefsen (Tellefsen) (collectively, the Beneficiaries).
2. The trust was established in part to prevent Carrozza Jr.'s father, Frederick Carrozza Sr., from obtaining control of the assets of Carrozza Jr.
3. Carrozza Jr. chose two of his longtime friends, Michael Voccola (Voccola) and Daniel Shedd (Shedd) (collectively, the Trustees), to serve as co-trustees with respect to the trust.
4. Prior to being chosen, Voccola had no experience acting as a trustee.
5. Voccola was also appointed by Carrozza Jr. as Executor of the latter's estate.
6. Voccola graduated from law school in 1997, but is not licensed to practice law in the State of Rhode Island.
7. While serving as a fiduciary, Voccola held a position as a Vice President at a real estate investment and management company known as The Procaccianti Group.
8. Under the terms of the trust, the Trustees were required to pay to A. Kumble and Tellefsen "so much of the net income arising from the trust estate as [the Trustees] shall deem advisable in all the circumstances for the health, maintenance, and support of [A. Kumble and Tellefsen], or for the welfare in other respects of my said wife, [A. Kumble]."
9. Upon A. Kumble's passing, the trust estate was to be distributed to Tellefsen, if Tellefsen had then reached the age of thirty-two.
10. For their services to the Beneficiaries, the Trustees were to receive "reasonable compensation."
11. On August 19, 2002, Carrozza Jr. died. At the time of his death, Carrozza Jr. was the owner of the following properties, all of which became part of the trust estate: a mixed-use building and an adjacent parking lot located on Bellevue Avenue in Newport (the Bellevue Avenue Property); a condominium unit on Canary Court in West Warwick (Canary Court); and a commercial property housing a rental car facility on Post Road in Warwick (the Post Road Property) (collectively, the Trust Properties).
12. Prior to Carrozza Jr.'s death, A. Kumble and Tellefsen, who are both licensed real estate brokers, had been involved in management of what became the Trust Properties.
13. Voccola deemed it prudent to allow A. Kumble and Tellefsen to continue to act as managers of the Trust Properties "given the historical nature of [A. Kumble and Tellefsen]'s management of the properties, and knowledge of the real estate, and knowledge of the vendors, and knowledge of the tenants and the rents, etc." Trial Tr. 118:20-24.
14. Neither Voccola nor Shedd possessed keys to the Trust Properties.
15. Voccola interacted with certain tenants of the Trust Properties. For example, he served as the "primary liaison" with respect to the Post Road Property tenant.
16. Tellefsen was paid for services she provided as a manager of the Trust Properties.
17. As property managers, A. Kumble and Tellefsen collected rents, handled routine repairs and maintenance, interacted with tenants, and paid bills and expenses.
18. A. Kumble communicated regularly with Voccola regarding the Trust Properties.
19. Tellefsen testified that Voccola provided assistance to her and A. Kumble concerning the Trust Properties when asked to do so.
20. Voccola maintained no contemporaneous time records evidencing the scope of his participation with respect to the management of the Trust Properties.
21. Shedd, who occasionally acted as a consultant to Voccola, had minimal involvement with the trust and the Beneficiaries.
22. Funds related to the trust and the Trust Properties were held in a Fleet Bank account that bore Carrozza Jr.'s name and which had existed prior to his death.
23. The Trustees had no signatory authority with respect to the Fleet Bank account and could not withdraw money from it.
24. Funds withdrawn from the Fleet Bank Account were withdrawn by the Beneficiaries.
25. As Executor, Voccola filed Carrozza Jr.'s will in the Probate Court of Middletown, Rhode Island.
26. Voccola took part in the process of resolving claims against the Estate.
27. Voccola marshaled the assets of the Estate and arranged for certain Estate assets to be appraised.
28. Voccola disposed of certain assets of the Estate to create liquidity for the Beneficiaries. For example, Voccola, with assistance from A. Kumble, coordinated the purchase by a third party of property located on Atwells Avenue in Providence, Rhode Island.
29. Voccola notified Fleet Bank of his appointment as the Executor of Carrozza Jr.'s Estate.
30. As a fiduciary, Voccola reviewed and signed tax returns prepared by an accountant on behalf of the trust and the Estate.
31. Voccola also engaged an attorney for the purposes of obtaining a reduced tax assessment with respect to the Bellevue Avenue Property in 2009.
32. In 2004, Voccola acted in his fiduciary capacity as trustee to contest a finding by the Newport Fire Department of a fire code violation at the Bellevue Avenue Property.
33. Voccola did not maintain contemporaneous records detailing the tasks he performed as Executor or the amount of time he spent completing those tasks.
34. Voccola did preserve emails and other documents produced in the course of the performance of his duties as Executor.
35. After reviewing the preserved emails and documents, Voccola concluded that he had worked 179 hours in his capacity as Executor.
36. A determination was not requested of and has not been made by the probate court as to the amount of compensation to which Voccola as Executor is entitled.
37. Shortly after Carrozza Jr.'s death, Carrozza Jr.'s father, Frederick Carrozza Sr. (Carrozza Sr.), and other members of the Carrozza family filed a lawsuit against the Executor of Carrozza Jr.'s Estate, as well as the Beneficiaries. Carrozza Sr. and his co-plaintiffs also filed notices of
38. The objective of the lawsuit Carrozza Sr. filed was to have a resulting trust imposed on the Trust Properties.
39. Carrozza Sr.'s other children—Phillip Carrozza, Freida Carrozza, and Laurie Carrozza-Conn—joined him as plaintiffs in that lawsuit.
40. Voccola and the Beneficiaries filed a counterclaim against Carrozza Sr. and his co-plaintiffs for slander of title.
41. Attorney Evan Leviss was hired to defend both Carrozza Jr.'s Estate and the Beneficiaries against the claims brought by Carrozza Sr. and his co-plaintiffs.
42. At A. Kumble's suggestion, Attorney Alan Baron, an out-of-state attorney, was retained to represent the interests of the Beneficiaries in the litigation.
43. Attorneys Leviss and Baron communicated frequently with one another and with Voccola regarding the matter.
44. Ultimately, the claims brought by Carrozza Sr. and his co-plaintiffs were dismissed.
45. Following trial, the Newport Superior Court entered a $2.5 million judgment, including a punitive damages award of $845,000, in favor of Voccola and the Beneficiaries.
46. For their services, Attorneys Leviss and Baron were paid $242,540.05 and $753.709.64, respectively.
47. Attorney Baron was paid by A. Kumble's husband, Steven Kumble.
48. Attorney Leviss was compensated with funds drawn from accounts held by A. Kumble, personally, or the trust itself.
49. A. Kumble provided funds to pay for improvements to the Trust Properties.
50. Between 2008 and 2010, A. Kumble provided approximately $310,000 to fund renovations made to the Bellevue Avenue Property.
51. In November 2010, Voccola expressed disappointment concerning Tellefsen's property management.
52. Voccola also expressed frustration because he had not yet been compensated for the services he was providing as a fiduciary.
53. In November 2010, Voccola resigned as trustee.
54. Steven Kumble, who had been informed of Voccola's intent to resign as trustee, requested that Voccola withdraw his resignation. Voccola acceded to that request.
55. As Trustee, Voccola created liquidity for the trust by refinancing the Trust Properties.
56. In 2012, for example, Voccola arranged a refinancing for the Trust Properties, which generated $662,000 in net proceeds for the trust.
57. Voccola intended that a portion of the proceeds from this transaction, as well as additional, similar transactions, be used to reimburse A. Kumble for expenditures made on behalf of the trust.
58. In connection with the 2012 refinancing, Voccola generated an invoice in the amount of $75,000 for "special services" provided to the trust.
59. The $75,000 fee was "neither a percentage-based fee [n]or an hourly fee," but a "flat fee for the work that [Voccola] did." Trial Tr. 271:4-7.
60. Prior to generating the invoice, Voccola had not received any compensation for his services as trustee.
61. Also in 2012, and with a mandate from A. Kumble, Voccola arranged for the disposition of Canary Court.
62. While he was coordinating the disposition of Canary Court, Voccola provided minimal information in response to certain inquiries made by Attorney Leviss and the Beneficiaries concerning the status of the transaction.
63. Voccola stated that he "didn't have an obligation, a need, or desire to communicate with Mr. Leviss about what my duties as a trustee [were] relative to the sale of [Canary Court]."
64. Voccola deposited the proceeds from the Canary Court transaction into a Washington Trust bank account that A. Kumble was not permitted to access.
65. Using funds withdrawn from the Washington Trust account, Voccola retained the law firm of Duffy & Sweeney in connection with the matters subject to this litigation.
66. Voccola did not disclose to the Beneficiaries his intent to use the proceeds from the Canary Court transaction to pay Duffy & Sweeney because he "did not feel as though [he] needed to."
67. A substantial portion of the proceeds from the Canary Court transaction were used to pay fees incurred by Duffy & Sweeney.
68. On June 20, 2012, Voccola informed the Beneficiaries that he had retained the services of the law firm of Duffy & Sweeney.
69. On June 20, 2012, Voccola also informed the Beneficiaries of his intent to retain a third-party management company, Olympus Group Management Company (Olympus Group), to manage the remaining Trust Properties.
70. Attorney Leviss refused to comply with a request by Voccola for documents to be transferred to Olympus Group.
71. On June 27, 2012, A. Kumble attempted to renounce her interest in the trust.
72. On June 29, 2012, the Beneficiaries sued the Trustees for specific performance and for conveyance of the trust estate to Tellefsen.
73. Also on June 29, 2012, the Beneficiaries moved for a Temporary Restraining Order concerning the engagement of Olympus Group, the termination of Attorney Leviss as trust counsel, and the disbursement of trust funds. The Court denied the Motion, and ordered the Beneficiaries to comply with the Trustees' request for documents.
74. Subsequently, the Beneficiaries filed two additional Motions to enjoin the Trustees' use of independent property managers. Both Motions were denied.
75. The Beneficiaries also moved to enjoin the Trustees' appointment of a new accountant.
76. On July 5, 2012, the Trustees brought a replevin action against the Beneficiaries, whereby they sought control of certain trust assets, including documents and records.
77. On August 3, 2012, the Beneficiaries filed counterclaims in the Trustees' replevin action. However, in 2014, the Beneficiaries amended their counterclaims alleging breaches of fiduciary duty and of the duty of loyalty.
78. On August 6, 2012, the Trustees filed an answer and counterclaims in the Beneficiaries' suit for specific performance. The Trustees counterclaimed that the Beneficiaries had committed acts of embezzlement, conversion, unlawful appropriation, larceny, tortious interference with business relations, and breaches of fiduciary duties owed to the Trustees.
79. On October 26, 2012, this Court issued a bench decision, granting specific performance to the Beneficiaries with respect to their request that the co-trustees distribute the trust assets to Tellefsen.
80. On December 10, 2012, this Court entered a Consent Order, directing that the assets of the trust estate be conveyed to Tellefsen.
81. Between June 27, 2012 and October 26, 2012, Duffy & Sweeney incurred fees in the amount of $175,425.25.
82. By a stipulation dated November 6, 2014, the parties to this litigation agreed to allow this Court to determine the amount of fees owed to Voccola for services he allegedly provided as Executor of the Estate of Carrozza Jr.
83. As of May 2015, Duffy & Sweeney have incurred upwards of $900,000 in attorneys' fees.
84. This Court authorized and ordered that on-account payments in the amount of $275,000 be made to Duffy & Sweeney toward the fees referenced in ¶ 83.
85. This Court further authorized and ordered that on-account payments in the amount of $15,000 be made to offset fees incurred by the Trustees in obtaining expert testimony.
Standard of Review
"In all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon." Super. R. Civ. P. 52(a). The Court "weighs and considers the evidence, passes upon the credibility of the witnesses, and draws proper inferences."
The first issue in this case is whether Voccola is entitled to compensation for the services he performed as Executor of Carrozza Jr.'s Estate. In Rhode Island, executors are allowed "such compensation for their services as the probate court shall consider just." G.L. 1956 § 33-14-8. Other courts may review determinations made by the probate court as to what constitutes just compensation,
Here, the probate court has not made a determination as to what would constitute just compensation for Voccola in his capacity as Executor. Absent such a determination, this Court would ordinarily be without jurisdiction to state a conclusion regarding whether Voccola is entitled to the fee he seeks.
Typically, `"no action of the parties can confer subject-matter jurisdiction upon a . . . court.'"
Section 1367 of Title 28 of the United States Code states that, except as expressly provided elsewhere, "in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy." The purposes of 28 U.S.C. § 1367 are to promote judicial economy, convenience, and fairness to litigants.
Thus, in order for this Court to assume jurisdiction with respect to the executor compensation question, it must find that there is a proceeding equitable in nature properly before it, that the executor compensation question arises out of the same transaction or occurrence as the equitable proceeding, and that the executor compensation question and the equitable proceeding were properly joined or made part of the same action.
Here, Voccola and Shedd have asserted a claim that is equitable in nature necessary for the Court to invoke supplemental jurisdiction over Voccola's claim for executor compensation. In addition to Voccola's own claim for executor compensation—and in addition to the Trustees' joint claim for trustees' fees—both Voccola and Shedd seek indemnification for the attorneys' fees they have incurred in their role as trustees. Because the Court must exercise its equitable authority in order for such fees to be awarded in the first place,
On at least two occasions, our Supreme Court has acknowledged the authority of the Superior Court to exercise jurisdiction of a matter under the supplemental jurisdiction provision of § 8-2-13.
Federal courts routinely apply one of four tests to determine whether two issues arise out of the same transaction or occurrence. The first test, known as the identity of issues test, invokes the following question: Are the issues raised by the two matters largely the same?
"A logical relationship exists when `the same operative facts serve as the basis of both claims or the aggregate core of facts upon which the claim rests activates additional legal rights, otherwise dormant, in the defendants.'"
Additionally, the Court's exercise of jurisdiction with respect to the executor compensation question serves to effectuate the intent that the General Assembly likely had when it enacted the supplemental jurisdiction provision of § 8-2-13. As noted above, the supplemental jurisdiction provision of § 8-2-13 is analogous to 28 U.S.C. § 1367,
Although the Court is not exercising jurisdiction over the executor compensation question pursuant to the above-mentioned Stipulation, it will, in accordance with the terms of the Stipulation "apply the legal, statutory and substantive standards that would apply had Mr. Voccola's Executor compensation been presented to the Middletown Probate Court in the first instance." Stipulation ¶ 3 (Nov. 6, 2014). Thus, in addition to § 33-14-8, which allows executors "compensation for their services as the probate court shall consider just," this Court will render its determination as to executor compensation consistent with the Rules of Practice of the Middletown Probate Court. Under the Middletown Probate Court Rule concerning Claims of Executors, all claims filed must state "the nature and approximate amount of the claim." Joint Ex. 56 at 2. Furthermore, all claims must be made consistent with the terms of § 33-11-4, see Joint Ex. 56 at 2, which requires all claimants to state the basis for their claims, and also assigns to claimants the "burden of establishing proper and timely presentation of the claim." Sec. 33-11-4. Finally, under the Middletown Probate Court rules concerning fees for attorneys, accountants, and other fiduciaries, "[p]etitions for fees shall be accompanied by, but not limited to, documents indicating hours spent, the nature of the work provided, and results obtained," and the Court "shall consider, but not require, approval by the beneficiaries/heirs at law." Joint Ex. 56 at 3;
Voccola argues that he is entitled to compensation for performing certain tasks as an executor, including the following: causing the will to be filed in Middletown Probate Court; coordinating the preparation of Estate tax returns; marshaling the assets of the Estate; arranging for the appraisal and disposal of certain Estate assets; and engaging in the claims resolution process. Based upon his review of records generated in the course of the performance of his duties as Executor, Voccola estimates that he spent 179 hours completing the above-mentioned tasks. In accordance with the testimony offered by his expert witness, Voccola states that a reasonable hourly rate for the services he provided as Executor is $150, and that he is entitled to a fee of $26,850. Conversely, the Beneficiaries note that none of the records maintained by Voccola in his capacity as Executor of Carrozza Jr.'s Estate evidence the amount of time he spent completing the above-mentioned tasks. On these grounds, the Beneficiaries argue that any estimate concerning the amount of time spent by Voccola working in his capacity as Executor is unreliable, and that there is no adequate basis in law for granting Voccola compensation for services he allegedly provided in his capacity as an executor.
After considering the evidence presented at trial, the Court finds that Voccola has presented evidence indicating that he is entitled to compensation as Executor of Carrozza Jr.'s Estate. Specifically, Voccola has offered testimony and exhibits confirming that he performed the tasks listed above, such as causing Carrozza Jr.'s will to be filed in the Middletown Probate Court, coordinating the preparation of Estate tax returns, marshaling the Estate's assets, arranging for the appraisal and disposal of certain Estate assets, and engaging in the claims resolution process. The parties do not dispute whether Voccola's claim for executor compensation was timely nor do they dispute whether Voccola has stated the amount of his claim. However, the Beneficiaries have not approved his claim for executor compensation, a factor the Court may consider under Middletown's Probate Court rules. Although the Court finds that Voccola is entitled to compensation for performing services as an executor, it does not award him the full amount that he has requested. Again, this Court looks to "the legal, statutory and substantive standards that would apply had Mr. Voccola's Executor compensation been presented to the Middletown Probate Court in the first instance." Stipulation ¶ 3 (Nov. 6, 2014). Under the Middletown Probate Rules, Voccola had to present documents detailing the tasks he performed as Executor, or the amount of time he spent completing those tasks. He has not fully complied with that requirement. Because the Court applies those rules, it must account for the inadequacy of the records Voccola has offered in evidence, and must reduce the compensation he seeks.
Next, the parties dispute whether the Trustees—Voccola and Shedd—should be fully compensated for their efforts in performing their fiduciary duties as co-trustees. Under Rhode Island law, by statute, trustees are entitled to "reasonable compensation for services rendered as trustee." G.L. 1956 § 18-6-1. The determination as to what constitutes reasonable compensation is left to the sound discretion of the trial justice.
The Court may also consider local custom.
In this case, the Trustees seek a total of $443,978.57 in compensation for their services as co-trustees. They base that dollar figure in large part on the testimony of their expert, Attorney Anthony Mignanelli. According to Attorney Mignanelli, in finding that the compensation that the Trustees seek is reasonable, this Court should consider the trustee fees charged by local bank trust departments, or what are otherwise known as institutional-type trustees. In his opinion, it is reasonable to award the Trustees an amount equal to an annual rate of 1.2% of the fair market value of the trust assets, or $320,828.57. Trial Tr. 1290:7-14, 1304:25-1305:6;
In addition to the $320,828.57 for general trustee services, the Trustees also seek compensation for special services that Voccola rendered on behalf of the trust. According to Voccola, he performed 1321 hours of special services on behalf of the trust and that a rate of $150 per hour should serve as a reasonable rate for compensation. Based on information Voccola provided to him, Attorney Mignanelli also concluded that a rate of $150 per hour was reasonable for the 1321 hours of work.
On the other side of the coin, the Beneficiaries argue that the Trustees should be denied any compensation for their services because of the Trustees' failure to maintain proper records, including records of time spent providing services on behalf of the trust, and to otherwise act in accordance with their fiduciary duties. In addition to that contention, the Beneficiaries presented an expert of their own, Attorney Marvin Homonoff. Attorney Homonoff, a probate judge who also co-edited
Under the express terms of the trust, the trustee is authorized and empowered "[t]o collect from the income and the principal of such trust estate a reasonable compensation for services in the trusteeship. . . ." Joint Ex. 32 § 5.5.5. Thus, it is clear that the Trustees are entitled to some form of compensation—it just must be "reasonable."
With respect to those factors, the Court looks to the Trustees' proffered evidence regarding the "special services" that Voccola performed on behalf of the trust. Generally, a trustee is deemed to have provided special services to a trust when he performs tasks on behalf of the trust in his capacity as something other than a trustee.
Therefore, in order for the trustee's exercise of discretion to be proper, it must be true that the trust derives a benefit from having him—as opposed to a third party—provide the required services.
Here, Voccola seeks compensation for the following "special services" he rendered on behalf of the trust: services related to the above-mentioned Carrozza Sr. litigation; his involvement in management of the Trust Properties, including his role as the primary contact person for the Post Road Property tenant; his work in preventing the issuance of a citation for a fire code violation at the Bellevue Avenue Property; his participation in arranging the sale of Canary Court; and his successful efforts to refinance the Trust Properties. Voccola asserts, based upon his expertise concerning legal and real estate matters, as well as expert testimony he offered at trial, that $150 is a reasonable hourly rate for the special services he provided. However, as the Beneficiaries point out, in 2012 Voccola—without first providing notice to the Beneficiaries—took for himself a $75,000 "flat fee" for the services he had provided in connection with a refinancing of one of the Trust Properties.
With respect to the first factor—"the trustee's skill, experience and facilities, and the time devoted to trust duties"—the Court accepts Voccola's estimation that he performed 1321 hours of services on behalf of the trustees, performing the above-mentioned tasks. Voccola, who has experience in real estate, estimates that his rate for those hours should be set at $150 per hour. He bases that rate on the experience he brought to the management of the Trust Properties, though the Beneficiaries contend that his involvement in the actual day-to-day management of the properties was nothing more than minimal. Nevertheless, Voccola performed a number of services relating to the litigation against Carrozza Sr. and his co-plaintiffs, as well as successfully refinancing the Trust Properties.
With regard to the second factor—"the degree of difficulty, responsibility, and risk assumed in administrating the trust and in making discretionary distributions"—the Court considers that the Beneficiaries did perform nearly all of the day-to-day management of the Trust Properties. However, they always had Voccola to turn to in the event of trouble, as evidenced by Voccola's handling of the fire code violation and the various complexities of the Carrozza Sr. litigation. Even though A. Kumble and Tellefsen handled the day-to-day management of the properties, the Court still finds that Voccola was more than a passive bystander in many of the services he rendered.
Furthermore, the third and fourth factors weigh in Voccola's favor. As noted above, Voccola, using his own experience in real estate, provided services on behalf of the trust. And, the Court finds that the overall quality of Voccola's performance in managing the trust was sufficiently adequate. This is true even in light of the $75,000 flat fee Voccola invoiced in 2012. The Trust empowered Voccola, as a co-Trustee, to interact with tenants, and to manage, refinance, and improve the Trust Properties.
Again, the record indicates that the Trustees performed certain services on behalf of the trust. The Trustees held title to the Trust Properties, reviewed and signed tax returns prepared on behalf of the trust, oversaw renovations to the Trust Properties, and obtained a reduced tax assessment with respect to the Bellevue Avenue Property. Moreover, the Beneficiaries acknowledged that Voccola provided assistance with respect to various trust-related matters, including the litigation involving Carrozza Sr., and the management of the Trust Properties. Under the Trustees' stewardship, the purposes of the trust were realized, including the provision of support for the health and maintenance of A. Kumble and Tellefsen as well as the protection of Carrozza Jr.'s holdings "from the grasp of his father and siblings." Trial Tr. 915:22-33.
On balance, after considering the evidence presented by both parties and the Restatement (Third) of
The Court concludes that the "special services" and "general trustee services" are nearly indistinguishable under the terms of the trust. In other words, the Trustees are being compensated for services they rendered on behalf of the trust, in the trust's interests, and the Court does not see a distinction, in this case, between the services rendered "specially" or "generally." The Court also notes that it based the award amount on the numbers used to calculate the value of the Trustees' "special services" and not on the percentage-based fee sought as "general trustee services." The Court did not apply the 1.2% annual rate because it considers that unreasonable based on the facts of this case, where individuals, not an institution, served as the trustees without an express fee agreement in place. Under § 18-6-1, the Trustees are entitled to "reasonable compensation for services rendered as trustee[s.]"
Because the Court has found that the Trustees are entitled to reasonable compensation for services rendered on behalf of the trust, the Court does not find in the Beneficiaries' favor as to their counterclaims asserted in the Trustees' replevin action.
Indemnification of Attorneys' Fees
Finally, the Court addresses what is perhaps the most pressing issue presented in this case: whether the Trustees are entitled to indemnification of the attorneys' fees and expenses that they claim were incurred on behalf of the trust. Under § 18-6-1 of our General Laws, trustees are entitled to indemnification for costs reasonably incurred pursuant to the execution of the trust instrument. Such costs may include fees paid to attorneys, including counsel retained for purposes of defending the trust in litigation.
The trustee's duty to defend persists regardless of the identity of the parties on the offensive.
Here, the Trustees seek indemnification for reasonable attorneys' fees and expenses incurred. The Trustees argue that they are entitled to indemnification for the attorneys' fees and expenses incurred by them in: attempting to prevent the termination of the trust by the Beneficiaries; administering the trust while the instant action was pending; seeking compensation for their services; and defending against claims by the Beneficiaries that they improperly managed the trust assets. The extent of the reimbursement to which trustees are entitled as to attorneys' fees and costs is left to the discretion of the trial court.
However, the Court considers those factors only after the parties follow the procedure outlined in
The Trustees have asked to be indemnified for the full amount of attorneys' fees and expenses that they accrued through March 31, 2015, and for any fees that they reasonably incurred thereafter. At this juncture, the Court need not determine or discuss the specific amounts at issue—such a determination is best left for the
In Rhode Island, "`we typically adhere steadfastly to the American Rule that, in the absence of a statute providing otherwise, each litigant is responsible for the litigant's own legal expenses.'"
Moreover, as noted above, § 18-6-1 provides that trustees are "entitled to reasonable expenses and costs incurred in the execution of the trust." Therefore, the Court has both contractual and statutory authorization to award indemnification of attorneys' fees and expenses.
Generally, trustees "can properly incur expenses for reasonable counsel fees and other costs in bringing, defending, or settling litigation as appropriate to proper administration or performance of the trustee's duties." Restatement (Third) of
The Trustees argue that all the attorneys' fees they incurred were done so on the trust's behalf. They also reason that the fees incurred are higher than they otherwise might have been because the Beneficiaries employed a litigation strategy intended to cause the Trustees to "fold." Conversely, the Beneficiaries argue that the Trustees' requests for indemnification should be denied because the expense categories listed above were not incurred on behalf of the trust. Specifically, with respect to the first category—the trust termination question—the Beneficiaries note that the Trustees were prepared to permit termination, had the Beneficiaries adopted a different approach to the process. The Beneficiaries contend that the difference between the approaches was immaterial, and that the Trustees' opposition to termination was therefore unreasonable. The Beneficiaries further assert that the Trustees failed to manage the costs of litigation so as to preserve the trust assets, and, citing this Court's decision in
Regarding the first category of attorneys' fees and expenses—the fees incurred litigating the termination question—the Trustees argue that when the Beneficiaries brought suit, the law in Rhode Island was unsettled as to the propriety of termination. The Trustees contend that they were therefore obligated to defend against the Beneficiaries' action, and that they executed their duties in a reasonable manner. Now, the Trustees assert that they are entitled to indemnification for costs incurred. In support of that argument, the Trustees rely most heavily upon
In the third and final case cited by the Trustees in support of their argument for reimbursement of fees incurred litigating the termination question, a court again stated the general rule that "a trustee is entitled to be allowed against the trust estate all the trustee's proper expenses, including all expenses reasonably necessary for the security, protection, and preservation of the trust property, or for the prevention of a failure of the trust."
Although the Court does not find that any of those three cases are directly on point, this Court still concludes that the Trustees are entitled to indemnification of the attorneys' fees and expenses incurred in litigating the trust termination question—the first category listed above. The Court finds that the fees incurred under that category were done on behalf of the trust. When the Trustees challenged the termination of the trust, Rhode Island law was not yet settled on the subject. This fact goes directly to the Court's conclusion that challenging the trust termination, even if done in opposition to the wishes of the Beneficiaries, was reasonably done on behalf of the trust estate. The Trustees' decision to engage legal counsel to oppose the Beneficiaries' trust termination was not unreasonable because they could have reasonably believed that allowing the trust to terminate was against the interests of the trust. Therefore, with respect to the first category, the Trustees are entitled to indemnification of reasonable attorneys' fees and expenses.
Next, with respect to the second category of attorneys' fees and expenses—those resulting from the Trustees' suing to secure trust records and defending against the Beneficiaries' efforts to enjoin the Trustees—the Court finds that the Trustees acted reasonably and for the benefit of the estate. With respect to obtaining those trust documents from the Beneficiaries, who had been acting as managers of the Trust Properties, the Trustees were empowered and authorized to manage the Trust Properties. Under that power, the Trustees were permitted to delegate that management to Olympus Group just as they had delegated to the Beneficiaries. Thus, it was not improper, nor unreasonable, for the Trustees to incur reasonable fees to have certain documents transferred, thereby facilitating the provision of the contracted-for service with Olympus Group. Furthermore, the Court also determines that the Trustees acted reasonably and for the benefit of the estate in defending against the Beneficiaries' efforts to enjoin the Trustees. The Beneficiaries asked the Court for injunctive relief to enjoin the Trustees' appointment of a new accountant and use of third-party property managers. In addition, the Beneficiaries also moved for temporary restraining orders concerning the engagement of Olympus Group, the termination of Attorney Leviss as trust counsel, and the disbursement of trust funds. Had the Trustees not defended against those actions, administration of the trust in a manner consistent with its underlying purpose would have been frustrated. The Trustees needed to ensure the continued management of the Trust Properties, and it was not unreasonable for them to defend against the Beneficiaries' injunctive requests to do so. Preservation of the trust estate remained necessary prior to the trust termination and the Trustees acted in accordance with their duty to properly administer the trust; therefore, the Trustees acted reasonably and on behalf of the trust here. Accordingly, the Court holds that the Trustees are entitled to be indemnified for reasonable attorneys' fees and expenses incurred under category two.
Moving to the third category of fees—those incurred in defending against the Beneficiaries' counterclaims and those incurred in defending against the tenants' lawsuit—the Court again concludes that the Trustees are entitled to indemnification. The Beneficiaries' counterclaims, which, as noted above, the Court has denied, were attacks on the Trustees' management of the trust—attacks against which the Trustees had a duty to defend.
With regard to the fourth category of fees—those that the Trustees incurred defending their right to trustee compensation—there is a dispute over whether these are merely "fees for fees," as the Beneficiaries maintain, or whether the fees were reasonably incurred on behalf of the trust, as the Trustees contend. The Beneficiaries cite to a case that stands for the proposition that "time spent litigating fees, as distinguished from time spent in actual administration of the estate, must be excluded in determining the proper attorney's fees which are chargeable against the estate."
This Court finds that the prevailing law on this issue entitles the Trustees to indemnification of the attorneys' fees and expenses incurred under category four.
However, the Court emphasizes that the Trustees are entitled to indemnification of only those attorneys' fees and expenses that were
As for the fifth category of fees—those incurred from the administration of the trust during the pendency of the present litigation—the Court finds that the Trustees acted reasonably and for the benefit of the trust estate. This is a far clearer decision for the Court. Put simply, the Trustees, in administering the trust while this litigation moved forward, did precisely what the trust required of them—administer the trust. Therefore, the Court finds that the Trustees are indemnified for the reasonable attorneys' fees and expenses incurred under category five.
Similarly, category six, or those fees incurred in connection with the preparation for and conducting the trial, is also clear to the Court. These attorneys' fees and expenses were reasonably generated in defense of the trust and on behalf of the trust.
Next, category seven, or those expenses generated in conjunction with category six—the attorneys' fees resulting from trial preparation and the conducting of trial—are also indemnified as they were reasonably incurred on behalf of the trust. The Trustees are entitled to incur reasonable expenses in the execution of the trust—these additional expenses fall under that umbrella. Thus, for the reasons discussed above, the Court finds that the Trustees are entitled to indemnification for the reasonable attorneys' fees and expenses characterized as category seven.
Finally, as for categories eight and nine—fees incurred through March 31, 2015 and fees reasonably incurred after March 31, 2015, respectively—the Trustees also seek indemnification on the basis that those fees were reasonably and properly incurred on behalf of the trust. The Trustees state that the fees generated under category eight were done so "in connection with the preparation, submission, and hearing on the proposed findings of fact and conclusions of law." Trustees' Proposed Findings of Fact and Conclusions of Law 58. The Court finds that those fees were reasonably incurred on behalf of the trust for the same reasons as the fees under category six. Thus, the Court determines that the Trustees are indemnified for the reasonable attorneys' fees and expenses generated under category eight—
In sum, the Court has found that the following categories of the Trustees' reasonable attorneys' fees and expenses are indemnified: one, two, three, four, five, six, seven, and eight. Furthermore, those fees incurred under category nine are subject to the above-stated process. At this juncture, the Court again mentions that the exact valuation for each of these categories has yet to be determined and is still subject to the
After reviewing the evidence in this case—including exhibits and testimony—and considering the thoughtful arguments presented by counsel, the Court finds that Voccola is entitled to $13,425 in executor compensation and that the Trustees are entitled to $123,150 in trustee compensation for services rendered. The Court also determines that the Trustees are indemnified as to the reasonable attorneys' fees and expenses incurred in a manner consistent with the reasoning articulated above. The amount of reasonable attorneys' fees and expenses to which the Trustees are entitled is still subject to procedure outlined in