Powell v. Tagami: One Court’s Expansive Interpretation of Probate Code Section 17211
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Powell v. Tagami1, a recently decided case out of the Fourth District of the California Court of Appeal,illustrates the Court’s expansive application of Probate Code section 17211 (“Section 17211”), which allows for attorney fee shifting in cases involving a bad faith contest of a trust accounting.
Specifically, Section 17211(a) provides that:
If a beneficiary contests the trustee’s account and the court determines that the contest was without reasonable cause and in bad faith, the court may award against the contestant the compensation and costs of the trustee and other expenses and costs of litigation, including attorney’s fees, incurred to defend the account. The amount awarded shall be a charge against any interest of the beneficiary in the trust. The contestant shall be personally liable for any amount that remains unsatisfied.
In the alternative, Probate Code section 17211(b) provides the same remedy if a beneficiary contests the trustee’s account and the court determines that the trustee’s opposition to the contest was without reasonable cause and in bad faith.
The court in Powell, however, takes the application of Section 17211 one step further, by not only holding a bad faith contestant liable for the trustee’s attorney’s fees incurred in their capacity as trustee, but also for the trustee’s attorney’s fees which were incurred in their individual capacity.2
In Powell, Kenneth Matazo and Kazu Tagami (collectively the “Grantors”) created a Trust on November 10, 1997. They had three children: Kenneth, Barbara, and Charles who were beneficiaries of the Trust. In September of 2011, the Grantors appointed Claudia Powell (“Trustee”), a professional fiduciary, to act as Trustee. The Trustee hired Kent Thompson (“Thompson”) to represent her in her fiduciary capacity as trustee of the Trust.
Prior to the objection at issue in Powell, the Trustee had already provided the beneficiaries with two trust accountings, both of which had been settled, allowed, and approved by the Court. And in each prior accounting, the Court determined that fees charged by both the Trustee and the Trustee’s counsel were reasonable and appropriate.3
Thereafter, Charles requested a third accounting, which the Trustee timely provided. This third accounting was properly formatted as required by the Probate Code, with all required information, and there were no significant changes in the administration of the Trust from the time that the first and second accountings were approved, to the time that the third accounting was produced. The Trustee had not adopted a new fee schedule, and had not hired any new professionals to assist in administration.
Nonetheless, Charles thereafter filed an extensive objection to the third account (including an objection to the Trustee’s fees and the Trustee’s attorney’s fees). In response, the Trustee submitted a supplement to the third account with an explanation of all administrative expenses and their necessity and benefit to the Trust, and Thompson submitted a declaration of fees, and provided Charles with the documentation to support the accounting. But even after receiving this documentation, Charles then proceeded to file an extensive list of supplemental objections (consisting of approximately 200 pages, including 38 exhibits) which made accusations against Powell both in his capacity as trustee and in his individual capacity (necessitating that Powel retain additional counsel to represent him individually), including objections to matters solely from the first and second accountings which had already been approved by the court. In fact, Charles’ attorney even admitted to the court that this “was a fishing expedition.” Nonetheless, the Trustee was forced to defend and respond to each of these additional objections (including those on previously settled issues) at a considerable cost to the Trust.
Unsurprisingly, the probate court rejected all of Charles’ objections. Furthermore, it concluded that Charles’ objections were made and maintained without reasonable cause and there was substantial evidence to support the court’s finding that the objections were brought in bad faith. The court awarded attorneys’ fees and costs and held Charles personally liable – both for Powell’s trustee’s counsel’s fees and for his personal attorney’s fees.
Charles appealed and the Court of Appeal affirmed the lower court’s decision, finding that there was substantial evidence to support the probate court’s conclusions that Charles’ objections were made without reasonable cause and in bad faith.
Reasonable Cause and Bad Faith Under Section 17211
In Powell, the Court evaluated the “reasonable cause” standard (as set forth in Probate Code section 17211)as an objective analysis of “whether any reasonable person would have filed and maintained the objection.”5 And the Court then determined whether the objections were made in bad faith by using a subjective determination of the contesting party’s state of mind, and specifically, whether they acted with an improper purpose.6
In so doing, the Court found all of Charles’ objections were brought without reasonable cause. For example, the court opined that “a substantial portion” of Charles’supplemental objections concerned issues which had already been settled in previous court-approved accountings (to which Charles was served and did not object), and were therefore not subject to re-litigation, noting that: “Settlement of an account is conclusive to all interested parties and releases the trustee from future claims arising from those actions.”7 Charles also objected to issues in the third account without ever objecting to those same issues in the first or second accounts (i.e., the reasonableness of the Trustee’s fee schedule),despite having no evidence of any material changes in the Third Account to warrant his objections. And Charles “raised irrelevant issues regarding actions in the post accounting period, which were not yet before the court.”8 Finally, Charles complained about billing amounts that were minimal when compared to the overall value of the trust estate.
The Court also affirmed the probate court’s finding that Charles’ objections were filed in bad faith. Charles never focused his objections on specific disbursements, and instead chose to make broad demands for bills and agreements without examining what was already provided by the Trustee, or whether there was even a need for such information.9 And Charles complained about the reasonableness of the Trustee’s attorney’s fees despite (as the court concluded): “the higher fees were a result of Charles’ contentious approach to the Trust administration.”10
The court concluded that “the only reasonable explanation for the unreasonable objections to the Third Account is that Charles intended to perpetuate family disputes; or to gain a personal advantage in distributions from the Trust; or both.”11 Charles made unfounded, inflammatory, and personal attacks on the Trustee, while simultaneously attacking his siblings and their attorneys. The Court described Charles’ pleadings and correspondence as “vitriolic and contentious” in nature, and his unmeritorious objections, and his personal attacks against the Trustee, the attorneys, and his siblings support the court’s inferred finding of bad faith.12
The Court found that the evidence of Charles’ unreasonable and bad faith objections justified an award of costs and fees under Probate Code section 17211, that Charles should be responsible both for fees incurred by the Trustee’s counsel as well as those incurred by counsel for the Trustee in his individual capacity, and that Charles would be required to pay these fees from his share of the Trust or personally if his share was inadequate.
* * *
Probate Code section 17211 is a remedial statute intended to protect against bad faith and unreasonable oppositions.13 In enacting Probate Code section 17211, the Legislature intended to discourage frivolous litigation and ensure that beneficiaries, trustees, and attorneys involved in trust administration or litigation continually evaluate their actions and claims to comply with the requirements of the Probate Code.14
The Court in Powell demonstrates the intent of the statute being put into practice by holding that “when objections are devoid of merit, the beneficiary who brought them should bear the cost”, which in this case, included attorneys’ fees incurred both by attorneys representing the office of the Trustee, and the Trustee in his individual capacity.
1 (2018) 26 Cal.App.5th 219.
2 When there are allegations levied against a trustee personally (for instance, that the trustee committed certain breaches of trust and should be surcharged and/or removed as a result), it often makes sense for the trustee to retain individual counsel separate and apart from their trust counsel. One reason to do this is to maintain privilege with respect to all attorney-client communications between the trustee and their individual counsel, as the trustee’s communications with trust counsel may be discoverable by a successor trustee. For a detailed discussion of this, see Keystone Quarterly: “Trustees Beware: Limitations of the Attorney-Client Privilege”, April 2018; and “Caution: Attorney-Trustee Communications Are Discoverable by a Successor Trustee — Even if the Trust Says Otherwise”, December 2018.
3 Id. at 223.
4 Id. at 227.
5 Id. at 234; see also Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 926-927.
6 Id.; see also Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 926.
7 Id. at 235-36; see also Prob. C. § 7250.
8 Id. at 236.
9 Id. at 235.
10 Id. at 228.
11 Id.at 235.
12 Id. at 236.
13 Leader v. Cords (2010) 182 Cal.App.4th 1588.
14 Chatard v. Oveross (2009) 179 Cal.App.4th 1098.