Appeal from orders of the Superior Court of Orange County, Robert J. Moss, Judge. Reversed and remanded with directions. Motion to augment denied. (Super. Ct. No. A225267).
The opinion of the court was delivered by: Aronson, J.
CERTIFIED FOR PUBLICATION
In separate orders, the trial court charged a trust with some $5 million in past and ongoing attorney fees incurred on behalf of a former trustee in defending against the beneficiary's allegations of self-dealing and conflict of interest. Eight attorneys from three major law firms comprised the former trustee's legal team, with four to five of those attorneys simultaneously appearing at the 14-day court trial.
We reverse the fee awards. While trustees are properly reimbursed for reasonable attorney fees to defend adverse claims against the trust, we cannot determine from the trial court's order whether the fee awards are consistent with applicable legal principles. Long- established principles of trust law impose a double-barreled reasonableness requirement: the fee award must be reasonable in amount and reasonably necessary to the conduct of the litigation, but it also must be reasonable and appropriate for the benefit of the trust. We remand for the trial court to review the evidence and to assess a fee reimbursement in accordance with these dual criteria.
I. Factual and Procedural Background
Appellant Michelle Donahue (Michelle) became involved in litigation with her brother-in-law, respondent Patrick S. Donahue (Patrick), over his administration of an irrevocable inter vivos trust established by her late husband, Daniel W. Donahue (decedent).*fn1 The trust's assets were highly concentrated in a private REIT (real estate investment trust) that owned and operated numerous shopping centers in the western United States. Patrick filled the roles of director, officer, and shareholder of the REIT. Michelle is a life income beneficiary of the trust; her three daughters are the remainder beneficiaries.
The decedent named Patrick as his successor trustee of the trust. Patrick served as trustee for nearly two years beginning in 2003 until his resignation in October 2004. He was succeeded by his brother, Terence Donahue (Terence)*fn2 , along with cotrustee Northern Trust Bank of California.*fn3
A. The First Appeal (G040259)
In April 2005, Patrick initiated the instant litigation under Probate Code section 17200 to secure court confirmation and approval of a final accounting and compensation for his service as a trustee.
Michelle objected. She claimed Patrick imprudently sold approximately 40 percent of the trust's interest in the REIT below fair- market value to the REIT, thereby losing about $20 million in potential appreciation.
The 14-day court trial took place in the fall of 2007. Patrick, as the former trustee, was represented by four attorneys and a paralegal from two major law firms, Loeb & Loeb and Jones Day. In addition, the current trustees retained two attorneys to represent the trust. The minor beneficiaries were represented by minors' counsel.
The court approved the accounting and overruled Michelle's objections. Michelle appealed from the trial court's final ruling on Patrick's accounting and her objections. In Donahue v. Donahue (Feb. 11, 2010, G040259) [nonpub. opn.], we affirmed the judgment on the accounting, concluding substantial evidence supported the trial court's determination that "`the Trust received fair value for the options and shares.'"
B. The Second Appeal (G040628)
In November 2007, Patrick petitioned for more than $5 million in attorney and trustee fees he incurred "to defend himself against unmeritorious allegations that virtually every act undertaken by him as trustee was a breach of trust." Patrick sought reimbursement from the trust for incurring through trial $4.85 million in attorney fees and $155,375 for personal compensation. Patrick's fee request included the sum of $184,453 simply to prepare the fee petitions. Another $366,000 was spent to prepare an 80-page case chronology and for "case administration." One attorney at Jones Day billed 3,661 hours, for a total of $1.5 million during his involvement.
Among Patrick's cost requests were $150,000 in charges billed by DecisionQuest, a trial consulting firm retained to provide "visual planning and development" and "multimedia design, programming & production" during the court trial. Patrick claimed he incurred these audio-visual expenses "in the ordinary course of business of administering the Trust as successor trustee and in the proceedings relating to my activities as successor trustee."
Patrick initially supported his fee claim with a declaration from Adam Streisand, a partner at Loeb & Loeb, who purported to authenticate spreadsheets to break down the attorney fees Patrick incurred through his 45-member legal team from three separate law firms.
In opposing the motion, Michelle requested limited discovery on the amount and necessity of the fees, including the retention of an expert. Michelle explained the basis of her request: "Given the large sum at issue, the number of attorneys involved, and billing rates up to $690/hour, it is appropriate to allow Beneficiary an opportunity to retain an expert witness in this field and allow that expert sufficient time to review bills, records and supporting documentation for purposes of formulating his opinion and advising the Court." Alternatively, Michelle sought to appoint a referee pursuant to Code of Civil Procedure section 639 to review the time entrees and make a recommendation to the court.
In his reply, Patrick explained that he was "predominantly represented" by a four-person legal team at Jones Day from 2005 to early 2007, but he also decided to retain Loeb & Loeb in May 2006 "based on its specialty in trusts and estates litigation to take the lead in the trial." About 86 percent of Patrick's requested attorney fees were billed by eight "key" individuals. Patrick justified the $1.5 million "`single-handedly'" billed by a Jones Day associate as "not surprising" given "Michelle's outrageous and limitless discovery . . . ." According to Patrick, "it was far more cost-effective in this highly complex case to build upon the experience and insight of the lawyers involved in the case up until the point that Loeb & Loeb assumed a lead role."*fn4 Patrick opposed Michelle's request to consult an expert because each side's experts would contradict the other, explaining, "For every `expert' Michelle could call upon who might testify that the fees are unreasonable, Patrick could do the same to testify that the fees are reasonable."
At the January 2008 hearing on the fee petition, the trial court denied Michelle's request for discovery, but ordered Patrick to provide admissible evidence to support his claim because "Mr. Streisand does not have personal knowledge of the work done by other firms and cannot supply the foundation for the business record exception to the hearsay rule for firms other than his own."
Patrick thereupon filed supplemental declarations to support the fee request from each of the three law firms that continued to represent him throughout the litigation. Michelle objected to the "excessive duplication of work performed simultaneously between three large law firms . . . ." (Underscoring & capitalization omitted.) She pointed out that Patrick's $5 million fee claim came after the trust paid another $3 million in attorney fees to represent the current trustees.*fn5 In contrast, Michelle argued, she was primarily represented by two attorneys, who billed at the rate of $375 per hour. Michelle renewed her request for limited discovery, and suggested the appointment of a discovery referee to place appropriate limits on any attorney depositions.
A second hearing on the fee request was held on April 25, 2008. Michelle's counsel argued that the $150,000 cost item by the DecisionQuest audio-visual technicians itself "approaches what some people could try the case for the three weeks that they were here."
The court issued a minute order on April 29, 2008, directing the current trustees "to reimburse the fees and costs prayed for in the petition with the following exceptions." The court specifically excluded fee charges for 11 named timekeepers, none of whom were attorneys or paralegals, and for indecipherable items on Loeb & Loeb's November 2007 invoices because they "are so severely redacted the court cannot assess the appropriateness of the charges ...