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Marshall v. First National Bank Alaska (09/03/2004) sp-5830
Marshall v. First National Bank Alaska (09/03/2004) sp-5830
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
KATHERINE TATIANA )
MARSHALL, ) Supreme Court No. S-10989
)
Appellant, ) Superior Court No. 3AN-01-
1631 PR
)
v. ) O P I N I O N
)
FIRST NATIONAL BANK ) [No. 5830 - September 3, 2004]
ALASKA, )
)
Appellee. )
)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Mark Rindner, Judge.
Appearances: Tonja Woelber, Tonja Woelber,
Attorney at Law, P.C., Anchorage, for
Appellant. John R. Beard, Anchorage, for
Appellee.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
EASTAUGH, Justice.
I. INTRODUCTION
We consider here a trust beneficiarys claim that the
superior court should have ordered the former trustee to repay
fees it charged the trust for unsuccessfully opposing the
beneficiarys request for a change in trustee. Per AS 13.36.055,
an interested person may dispute the reasonableness of a
trustees compensation and seek recovery of excessive compensation
paid by the trust. Because the superior courts apparent reasons
for denying the repayment petition were legally erroneous, we
remand for determination of whether the compensation was
reasonable or excessive.
II. FACTS AND PROCEEDINGS
Katherine Tatiana Marshall, born in 1976, lives in
Longmont, Colorado. She is the sole beneficiary of a trust her
grandparents created in Alaska in 1984; the trust named First
National Bank of Anchorage, now First National Bank Alaska (First
National), as trustee. Marshalls grandfather had worked for
First National for many years. The trusts stated primary purpose
is providing for Marshalls postsecondary education and making
periodic distributions to her. The trustors both died in 1997,
and Marshall moved from Alaska to Colorado in 1999.
In October 2001 Marshall asked First National to resign
as trustee in favor of Morgan Stanley Dean Witter Trust (Morgan
Stanley), but First National refused. After fruitless
negotiations, Marshall on November 20, 2001 served on John Beard,
a lawyer whom First National had not then authorized to accept
service, a proposed petition for substitution of corporate
trustee under authority of AS 13.36.090; the proposed petition
would ask the superior court to substitute Morgan Stanley for
First National. More unsuccessful negotiations followed. On
December 5 Beard, for First National, acknowledged that service
was effective and asked that he be notified when Marshall filed
the petition so that First National would know when it needed to
respond. Marshall filed the petition with the court the next
day, December 6. She first notified First National of the filing
on December 11. In the meantime, on December 7, Standing Probate
Master John E. Duggan recommended approving the substitution
order lodged with Marshalls seemingly unopposed petition. The
superior court signed the order three days later, on December 10.
First National received the executed order on December 17. It
promptly moved for relief under Alaska Civil Rule 60(b), but the
probate master recommended that relief be denied. First National
objected to his recommendation. Marshall opposed First Nationals
Rule 60(b) motion, claiming that it had been due December 10.
She argued that granting it would cause First National to assess
more fees against her trust, because, she stated, the bank had
already spent eight to ten hours considering the petition and
would charge her trust for its work. The superior court
disapproved the probate masters recommendation and granted the
trustees Rule 60(b) motion, citing the lack of service and
insufficient notice that the petition had been filed.
The probate master held a hearing on Marshalls petition
to substitute and reported his findings and recommendations to
the court in April 2002. He recommended that Morgan Stanley be
substituted as trustee because AS 13.36.090 directs that an adult
beneficiarys views should be given weight in determining the
suitability of the trustee and the place of administration, and
Marshall wanted the trust administered from a place closer to her
residence. He noted that AS 13.36.090 provides that a trustee
should efficiently administer the trust at a place appropriate to
the trusts purpose. Neither side objected, and the court
accepted the recommendation and signed Marshalls proposed order
substituting the corporate trustee. On May 9, with the parties
agreement, the court entered a somewhat different substitution
order. The differences are immaterial to this appeal.
Morgan Stanley requested revisions to the May 9 order,
and on July 18 Marshall sought a corrected order appointing the
substitute trustee. She stated that correction was necessary
partly because the legal name of the substitute trustee is Morgan
Stanley Trust, whose corporate situs is Jersey City, New Jersey.
She stated that her contact person for trust matters would
continue to be her financial advisor in Boulder, Colorado. First
National opposed the July 18 request, and moved for vacation of
the May 9 substitution order. It argued that because the
national office of Morgan Stanleys trust department was in New
Jersey, convenience of administration was no basis for changing
the trustee to Morgan Stanley.
On September 17 the probate master recommended approval
of Marshalls proposed corrected order substituting corporate
trustee; the court entered the proposed order the next day. In
October First National transferred the trust funds to Morgan
Stanley and sent Morgan Stanley and Marshall its final
accounting.
Marshall filed a petition in January 2003 asking the
court to order First National to pay the trust $15,697.18, the
amount First National had charged the trust from November 2001
through October 2002 for attorneys fees and special trustee fees
in connection with the substitution petition. First National had
charged the trust $1,504 for special trustee fees and $9,905.68
for attorneys fees for the services performed before entry of the
May 9, 2002 substitution order. It had charged the trust an
additional $4,287.50 for fees incurred after May 9.
The probate master recommended denying Marshalls
request to surcharge First National.1 Although the superior
court apparently intended to follow that recommendation, on
January 31, 2003 it signed the surcharge order Marshall had
submitted with her surcharge petition. The court clarified its
intention on February 3 and denied Marshalls surcharge petition.
After Marshall asked for findings and conclusions to
explain the February 3 denial order, the probate master issued
findings and conclusions on March 10, stating:
The Probate court recommended denial of the
surcharge petition finding that there is no
statutory provision or court rule expressly
authorizing such a surcharge, that First
National Bank did not act in bad faith in its
opposition to the original petition and to
award such a surcharge would set a bad
precedent and likely have a chilling and
coercive effect on other similarly situated
trustees that might have a disagreement with
a trust beneficiary.
So far as we can determine from the record, the
superior court did not expressly approve or adopt the probate
masters March 10 findings and conclusions.
Marshall appeals from the February 3 order denying her
surcharge petition.
III. DISCUSSION
A. Standard of Review
We here review a decision denying a statutory repayment
request. We apply our independent judgment when reviewing a
courts interpretation of statutes and other rulings on legal
questions.2 When construing the meaning of a statute under this
standard, we look to the meaning of the language, the legislative
history, and the purpose of the statute 3 and adopt the rule of
law that is most persuasive in light of precedent, reason, and
policy. 4 We review fact findings under the clearly erroneous
standard; a finding is clearly erroneous if it leaves us with a
definite and firm conviction on the entire record that a mistake
has been made. 5 It appears, however, that both the courts
denial order and the probate masters findings of fact and
conclusions of law explaining why he recommended denial turn on
legal rulings, not fact findings.
B. First Nationals Procedural Arguments
We first consider several threshold procedural
arguments that First National advances for upholding the order
denying the surcharge petition. We can affirm a judgment on
alternative grounds not relied on by the superior court.6
Marshall contends that First Nationals procedural arguments are
barred either because First National raises them for the first
time on appeal, or because they are without merit. As we will
see, the denial of the surcharge petition cannot be sustained for
any of the procedural reasons First National advances.
1. Jurisdiction
The Uniform Probate Code (UPC), which Alaska has
adopted as AS 13.06-13.36, gives the court jurisdiction over
trust proceedings.7 First National argues that Marshall
unsuccessfully invoked this jurisdiction when she filed her
petition for surcharge. It first contends that, because she gave
no notice to First National or Morgan Stanley, as AS 13.06.110
requires, when she filed the surcharge petition, she failed to
initiate a trust proceeding. It next argues that the court
lacked jurisdiction, because the trust was not registered in
Alaska, had no assets in Alaska, and was no longer being
administered here.
Even though First National did not raise these
arguments before, we consider them for two reasons. First,
questions of subject matter jurisdiction or plain error can be
raised de novo before this court.8 First National in part argues
that the court did not have subject matter jurisdiction of the
surcharge dispute. Second, we can consider in defense of a
judgment below any matter appearing in the record, even if not
passed upon by the lower court.9
We are nonetheless unpersuaded by First Nationals
jurisdictional arguments. Alaska Statute 13.36.055 authorized
Marshall to file the surcharge petition.10 She served the
surcharge petition, as AS 13.06.110(a) requires, on First
Nationals attorney, Beard. He had represented First National in
the substitution litigation. Service of the surcharge petition
on him was service on First National. Marshall served no hearing
notice, but because no hearing was then scheduled, the lack of a
hearing notice would not have required dismissal of the petition.
Marshall did not serve the petition on Morgan Stanley. She
should have.11 But Morgan Stanley was her fiduciary, and its
interest was presumptively the same as hers as to the surcharge
dispute. First National has not explained how it was harmed by
this failure or why Morgan Stanley was an essential participant.
It also fails to explain how this procedural failure gives rise
to a jurisdictional defect. If First National had objected
below, Marshall could have promptly corrected the service
failure.
First National may assume that superior court
jurisdiction required that Marshall commence a new proceeding.
She filed the surcharge petition in the same superior court
proceeding in which the substitution issue had been litigated.
First National cites no authority that precluded Marshall from
filing the petition in the existing case, however. Certainly
that was far more efficient than commencing a new proceeding.
The surcharge petition was also timely. First National
apparently sent Marshall its final accounting in October 2002,
and Marshall filed the petition on January 17, 2003, within six
months of the final account, as AS 13.36.100 requires.12
First National seems to imply that it is significant
that the new trustee is in a different state. That circumstance
is irrelevant here. The surcharge petition was directed at First
National. It is possible that the beneficiary (and the trust,
acting through the successor trustee) could not have obtained
jurisdiction over First National in any court outside Alaska.
Depriving Alaska courts of jurisdiction under these circumstances
might allow the former trustee to avoid a claim for repayment.
In anticipation of equivalent jurisdictional issues, AS
13.36.045(a)(2) provides that [t]he court will not, over the
objection of a party, entertain proceedings under AS 13.36.035
involving a trust registered or having its principal place of
administration in another state, unless . . . the interests of
justice otherwise would seriously be impaired. That provision
does not apply here, because at all pertinent times (before the
final accounting and final substitution order) the trust was
situated and administered in Alaska and the former trustees
disputed services were performed here. That the savings clause
of subsection .045(a)(2) potentially extends Alaska jurisdiction
to foreign trusts does, however, implicitly confirm that Alaska
courts must have jurisdiction to consider a surcharge petition
directed at an Alaska trusts former trustee which is still
domiciled in Alaska.
2. Res judicata
First National also contends that res judicata bars
Marshalls surcharge claim as to those charges, totaling
$11,409.68, incurred and billed before entry on September 18,
2002 of the final order substituting trustees. First National
notes that although Marshall had complained that First Nationals
services were abusive or inefficient, she did not otherwise
object to those charges before entry of the September 18 order.
First Nationals theory is that the September 18 order was a final
judgment that prevents relitigation of the charges previously
paid and approved.
We assume that res judicata could apply to claims that
a trustee received excessive compensation. We stated in DeNardo
v. State that res judicata precludes relitigation by the same
parties, not only of claims raised in the first proceeding, but
also of those relevant claims that could have been raised.13
But we are unconvinced by First Nationals contention
that the claim is barred either because the fees issue was
actually litigated, or because it could have been litigated.
The propriety of the interim charges was not litigated
or adjudicated during the substitution dispute. The issue in
that dispute was whether First National could be removed as
trustee, not who should pay for the cost of its opposition. The
efficiency of administration, and the fact First National was
charging the trust for its opposition to the substitution
petition, were raised as additional reasons for substitution.
But we agree with Marshalls contention that she made it clear in
the superior court that she did not consider the propriety of the
trustees fees to be an issue in the substitution proceedings.
The charges were only relevant to the efficiency of the trusts
administration. Whether they should have been incurred at all or
whether they were excessive was not squarely at issue.
Nor, as we will see in discussing the merits of the
surcharge claim, did the findings of the probate master during
the substitution dispute finally resolve fact disputes central to
Marshalls surcharge petition. Moreover, the interim charges were
incurred during the substitution dispute, and that dispute was
not finally resolved until September 18, 2002, when the final
substitution order was entered.
We are also unconvinced that the claim is barred on the
theory Marshall could have, i.e., should have, raised the issue
previously. Accepting that argument would encourage interim
litigation between trustees and beneficiaries before the merits
of disputes are finally resolved. It would unduly enlarge the
scope of issue preclusion in this context. The Manual Text to
UPC 7-307, which corresponds to AS 13.36.100, states that
unless otherwise barred the beneficiary must
initiate a proceeding within six months for
anything that fully appeared on a final
account that shows a termination of the trust
relationship between the trustee and the
beneficiary. There is no such limitation on
interim accounts, so that they may be barred
only by adjudication or consent.[14]
This passage tends to confirm that issue preclusion does not bar
disputes over interim charges.
In McElroy v. Kennedy we stated that [w]here more than
one claim arises from the same transaction or series of
transactions, they must all be prosecuted in a single legal
action or be lost.15 But the amount and propriety of the trustees
charges were not litigated here before the surcharge petition was
filed. There was consequently no serial litigation of the
propriety of the charges.
Res judicata therefore did not bar Marshalls surcharge
petition.
3. Marshalls standing as to charges incurred after
substitution
After entry of the original substitution order on May
9, First National incurred $4,287.50 in fees in responding to
Marshalls petition seeking a corrected order; it charged this
amount to the trust and reported these charges to the new
trustee, Morgan Stanley. First National argues that this part of
the surcharge claim is the trusts asset, that Morgan Stanley owns
this claim, and that therefore only Morgan Stanley, and not
Marshall, can bring this claim.
But AS 13.36.055 permits an interested person to file
such a claim. Marshall is an interested person as that term is
defined in AS 13.06.050(24), because she is a beneficiar[y] . . .
having property rights in or claims against a trust estate.
Alaska Statute 13.36.055 therefore gave her authority to seek
review of the compensation of the trustee and the persons the
trustee employed and to seek recovery, for the trust, of fees
charged, including those charged after entry of the original
substitution order.
C. Recovery of Trustees Fees
Marshall contends that First National should be ordered
to repay the $15,697.18 it charged the trust in trustee and
attorneys fees as a result of the substitution dispute, or
alternatively that we should remand for a determination of the
fees reasonableness. First National argues that it is entitled
to retain all of the fees, because Marshalls surcharge claim is
without merit.
1. Grounds for the denial
As we noted above in Part II, the superior courts
denial order did not explain why the court denied the surcharge
petition. The court intended to follow the probate masters
recommendation that the petition be denied. After Marshall
requested entry of findings and conclusions to explain the
denial, the probate master entered findings and conclusions about
a month after the superior court denied the petition. The
probate masters findings and conclusions were apparently intended
to explain the basis for his prior denial recommendation. We
therefore assume that the courts denial is founded on the reasons
the probate master later formally entered.
The probate masters findings and conclusions expressed
three reasons for the recommendation that the petition be denied:
(1) there is no statutory provision or court rule expressly
authorizing such a surcharge; (2) the trustee did not act in bad
faith in opposing the substitution petition; and (3) awarding a
surcharge would set a bad precedent and likely have a chilling
and coercive effect on other similarly situated trustees that
might have a disagreement with the beneficiary.
There is no indication the court or the probate master
denied the surcharge petition because the charges were reasonable
or not excessive, i.e., after making fact findings about the
trustees compensation. We therefore apply our independent
judgment in reviewing the three reasons given for the denial
recommendation. We conclude that each is legally erroneous, and
that none justifies summary denial of the surcharge petition.
First, contrary to the recommendations assertion, there
is statutory authority expressly authorizing such a surcharge: AS
13.36.055.
Second, the absence of bad faith on the part of the
trustee does not completely preclude a surcharge sought under AS
13.36.055. The statute does not expressly require bad faith.
And because its only express criteria are reasonableness and
excessiveness, the statute does not implicitly require bad faith,
either. Even charges incurred in good faith are potentially
excessive or unreasonable.
Third, the legislature, in adopting section .055, set
the applicable public policy. A trustee paid excessive fees can
be ordered to repay them. If the concerns mentioned by the
probate master outweighed the legislatures interest in permitting
recovery of excessive fees, we are obliged to assume that the
legislature would not have enacted the statute in the first
place.
It was therefore legal error to deny the surcharge
petition for the reasons discussed in the findings and
conclusions. Nonetheless, there would be no reason to remand for
consideration of the merits of the surcharge petition if it could
be said as a matter of law that the disputed fees were not
excessive and were reasonable. We must therefore consider
whether there is a genuine dispute about the propriety of the
compensation.
2. The statutory criteria: reasonableness of the
compensation and excessive compensation
Because AS 13.36.055 does not give much guidance to
courts considering the merits of such a petition, we briefly
address the applicable substantive standards. The parties have
not proposed a substantive standard that would resolve all such
disputes. We therefore limit ourselves to determining whether,
in this case, the former trustees compensation was potentially
excessive.
Alaska Statute 13.36.055 contains two general standards
applicable here. It contemplates judicial review of the
reasonableness of the compensation determined by the trustee for
the trustees services. And it authorizes orders requiring a
person to refund to the trust excessive compensation.16 With
respect to disputes about a trustees compensation, we assume that
the two terms reasonableness of the compensation and excessive
compensation reflect standards that are exact opposites:
reasonable compensation is not excessive and excessive
compensation is not reasonable in the context of this case.
Section .055 does not elaborate on the meanings of those terms.
We hereafter use the terms in this sense.
The statutes terms should be given their common and
approved meaning.17 The common meanings of the terms are not
particularly helpful.18 Courts in Alaska have extensive
experience applying the standards of reasonableness and
excessiveness to fee disputes in context of Alaska Civil Rule 82.19
But attorneys fees cases discussing those standards rarely deal
with trusts or fiduciaries.
3. Determining what is excessive
Compensation could be unreasonable or excessive for at
least two reasons: because the services themselves were
unreasonable or excessive, or because the fees charged were
unreasonable or excessive. Marshalls surcharge petition
inherently raises a question about the excessiveness, and even
the propriety, of the trustees opposition to the substitution
petition. We therefore review the trust document, the applicable
statutes, and the common law to determine whether they either
approve or foreclose opposition to a petition for change of
trustee.
We first look generally at the duties of a trustee.
The general principles of trust law are well known. A trustee is
a fiduciary of the highest order and is held to a high standard
of conduct.20 A trustee must act fairly, justly, honestly, in the
utmost good faith, and with sound judgment and prudence, but she
is not the trust propertys insurer.21 In carrying out this duty,
a trustee shall observe the standards in dealing with the trust
assets that would be observed by a prudent man dealing with the
property of another.22 A trustee has a duty to use reasonable care
and skill to make the trust property productive,23 and to invest
and manage the funds of the trust as a prudent investor would, in
light of the purposes, terms, distribution requirements, and
other circumstances of the trust.24 A trustee has a duty to
invest so as to obtain the largest return possible consistent
with the principals safety.25
Alaskas statutes reflect these general principles.
Alaska Statute 13.36.230 requires the trustee to act with
reasonable care, skill and caution. Alaska Statute 13.36.070
recognizes that, absent specific provisions otherwise, a trustee
has the general duty . . . to administer a trust expeditiously
solely for the benefit of the beneficiaries.26
Alaska Statute 13.36.090 addresses trust
administration:
A trustee is under a continuing duty to
administer the trust at a place appropriate
to the purposes of the trust and to its
sound, efficient management. If the
principal place of administration becomes
inappropriate for any reason, the court may
enter any order furthering efficient
administration and the interests of
beneficiaries, including, if appropriate,
release of registration, removal of the
trustee and appointment of a trustee in
another state. Trust provisions relating to
the place of administration and to changes in
the place of administration or of trustee
control unless compliance would be contrary
to efficient administration or the purposes
of the trust. Views of adult beneficiaries
shall be given weight in determining the
suitability of the trustee and the place of
administration.
Per this section, First National had a continuing duty to
administer the trust efficiently, wherever Marshall lived. The
trust document is silent on the place of administration, although
it names First National as trustee. Section .090 also imposed a
duty on First National to give weight to Marshalls request to
have the trust transferred to Morgan Stanley, but the statute
does not specify how much weight a trustee must accord a
beneficiarys request.
The statutes control trust disputes, unless the trust
document permissibly deviates from the statute.27 The trust
document before us states its purposes. It grants the usual
powers to the trustee. And, of potential interest here, it gives
the trustee authority to [j]oin in, maintain, compromise, defend
or otherwise dispose of, any litigation or claim in any manner
arising in connection with the trust property upon such terms as
my Trustee may deem advisable. It also authorizes employing
attorneys and paying for their reasonable compensation and
expenses.28 It provides for reimbursing and compensating the
trustee.29
4. Genuine factual disputes
Marshall contends that the entire lengthy, costly,
legal proceeding was necessitated by [First National]s failure to
voluntarily resign as trustee when requested by Ms. Marshall in
September, 2001. She argues that she had a legal right under AS
13.36.090 to substitute a local trustee in her home state of
Colorado because she was an adult and her views were entitled to
weight. She asserts that the probate masters addition of a
requirement of bad faith to the breach of duty is not warranted
by the statutes.
Marshall alternatively argues that even if bad faith
were required, First National acted in bad faith. She contends
that First National opposed the change of trustee in an attempt
to maintain control of the trust for the remaining ten years of
its existence; a result which would have allowed it to continue
to collect its fees for serving as trustee. Quoting AS
13.36.070, Marshall asserts that First Nationals refusal to
resign voluntarily was a breach of its duty to administer a trust
expeditiously for the benefit of the beneficiar[y].
First National points out that Marshall began the
litigation and contends that it acted in good faith in defending
the trust.
The probate masters April 4, 2002 report found that
no evidence was presented nor serious
contention made that First National Bank
Alaska has been deficient in any way in
performing trustee duties regarding the
subject trust. There is no evidence of good
cause for removal of First National Bank
Alaska for any failure to perform trustee
duties in an efficient and appropriate matter
or for breach of fiduciary duty.
The probate master therefore apparently found that First National
performed every duty the statutes required it to perform with
regard to efficient administration of the trust. Nevertheless,
the probate master relied on the last sentence of AS 13.36.090 in
recommending substitution of Morgan Stanley for First National.
The probate master apparently gave more weight to Marshalls view
than First National did, although the statutes lack of
specificity about how much weight to accord to Marshalls view
means that First Nationals evaluation of her request was not
necessarily unreasonable. The probate master did not fault First
National and specifically stated that First National did not act
in bad faith in opposing the original petition. We assume that
the superior court accepted these findings, because it followed
the recommendation and ordered substitution.
These findings seem to encompass First Nationals
initial response to Marshalls requests to change trustees, but it
is not clear what bearing they should have on a repayment claim
under AS 13.36.055. They do not purport to apply the standards
specified in AS 13.36.055, and they fail to address other factors
that might be relevant. They were made before all of the fees
were incurred. Nor is there any indication the probate master
reviewed all the billing records and considered whether the fees
were specifically or globally reasonable. Furthermore, the
findings were made in context of the substitution dispute, which
was fully resolved on a different ground; given the reason for
ordering substitution, it was not necessary to consider these
alternative reasons.
The surcharge petition was filed only after the
substitution dispute was resolved. The issues of reasonableness
and excessiveness in context of a repayment claim under AS
13.36.055 were not litigated previously, except to the limited
extent they bore on the substitution petition. And because the
surcharge petition was denied on grounds that avoided application
of the statutory standards, there is no indication that the
probate master thought his earlier findings resolved the merits
of the statutory surcharge petition. We conclude that they did
not. We think that these findings are relevant, but not
dispositive.
We leave it to the court on remand to consider whether
prolonged opposition to a request to change trustees was
consistent with the statutes or the trust document. We assume
that First National, at least at first, had legitimate reasons
for opposing its removal as trustee before the court signed the
May 9 substitution order. Correspondence in the record indicates
that First National initially opposed Marshalls informal
substitution request because it believed Marshall sought the
change so she could influence the trust investment strategy in a
way that would potentially defeat the trustors purposes as
expressed in the trust. Cases elsewhere provide some support for
First Nationals initial opposition.30 Investment strategy remains
the trustees prerogative under terms of the trust. But First
National only briefly relied on those substantive grounds in
opposing Marshalls substitution petition, and its other reasons
seem unpersuasive. The probate masters report recommending
substitution implicitly recognizes the frailty of First Nationals
opposition.31
There is therefore an unresolved question whether First
Nationals efforts in opposing substitution before May 9, 2002
resulted in excessive compensation. We remand for determination
of whether the charges incurred before May 9, 2002 are
appropriate.
The court should consider even more critically the
reasons given for the services performed after May 9, 2002, when
the initial substitution order was entered. Marshall argues that
First National exacerbated the breach when it incurred charges of
$4,287.50 in objecting to the petition for a corrected order and
in pursuing relief under Civil Rule 60(b) in attempting to
overturn the May 9 substitution order. First National claims
that Marshalls July 18 petition for a corrected order raised
different issues from the administration issue, which was the
basis for her first petition.
Marshalls petition for a corrected order stated that
Morgan Stanleys national corporate situs is in Jersey City, New
Jersey, although Tatiana Marshalls contact person for trust
matters is and will continue to be her financial advisor in
Boulder, Colorado. This petition also requested other revisions,
but Marshall withdrew those requests. It should have been
reasonably apparent when Marshall first informally requested a
change that the trust assets administered by Morgan Stanley would
not be physically situated in Colorado, and that Marshalls
Colorado advisor would simply have electronic access to the trust
assets. Because First National had already agreed to resign as
trustee, its opposition to the petition for corrected order seems
particularly unpersuasive.
We are not in a position to determine whether
particular services or fees in this case were excessive. Drawing
all reasonable inferences in favor of Marshall, we think a court
carefully reviewing First Nationals efforts in opposing
substitution and the fees charged could find that the efforts and
fees were excessive at least in part.
Absence of bad faith will not preclude the recovery
claim on remand. Alaska Statute 13.36.055 does not explicitly or
implicitly require that the trustee have acted in bad faith as a
prerequisite to recovery of the litigation costs the trustee
charges the trust in opposing its removal as trustee. Even
opposition that was well-intended and not in bad faith may be
excessive.
The outcome of the underlying dispute does not
determine whether the charges were excessive. A trustee must be
able to expect compensation for the essential service of
determining whether a proposed change would defeat the trustors
expectations or the trusts terms. But a trustee cannot expect to
be compensated for excessive efforts after legitimate concerns
have been allayed.
A trustee must, by statute, administer the trust solely
for the beneficiarys benefit.32 This requires the trustee to act
at all times in good faith with respect to the trust. This is a
high standard, but a trustee is a fiduciary of the highest order.33
We therefore conclude that a trustee must incur only reasonable
charges and act in good faith with respect to the trust, in
addition to meeting any other requirements specific to the
particular case, if it is to be entitled to charge the trust its
legal and other costs.
Other factors may also be relevant on remand, such as
the total amount of the fees, the size of the trust relative to
the amount of the fees, the merits of the parties arguments on
the substitution dispute, the extent to which the opposition is
based on the beneficiarys best interests in accordance with the
trust document and the Alaska Statutes, and the duration, extent,
and expense of the trustees opposition. The parties or the court
on remand may identify other relevant factors.34
Authority elsewhere tends to support payment of fees to
the removed trustee. Some cases approve imposing on the trust
the costs incurred by a trustee who unsuccessfully opposes
removal in good faith. Thus, in In re Weinbergers Trust a New
York court permitted the transfer of a trust to California and
ordered all parties costs to be paid from the trust estate.35
Other cases are in accord.36
But there is some contrary authority. Bogerts Trusts &
Trustees states that
[w]here the trustee unsuccessfully resists a
proceeding for his removal, he may be
compelled to pay the costs personally. This
may be regardless of the grounds upon which
removal is decreed. It may be that he has
not been at fault in any way, but simply
become incapable of acting further, as by
reason of ill health. Nevertheless, if he
resists the action he may be required to pay
the costs.[37]
In In re Gilmakers Estate the court found that a trustee that
unsuccessfully resisted its removal was not entitled to have the
expenses incurred in defending its untenable and partisan
position paid from the trust estate.38 Although the lower court
found that the trustee acted in good faith, and the appellate
court did not overrule this finding, the court on appeal stated
that the trustee erred in its administration of the estate and
that it had no sound basis for its resistance to the beneficiarys
petition for its removal.39 The trustee also failed to administer
the trust in conformity with its terms and defended a position
for which no reasonable support can be found in the trust
provisions and the governing law.40
These authorities do not convince us either that the
former trustee, as a matter of law, must repay all of the
disputed fees or that a trustees good faith opposition to its
substitution forecloses a surcharge claim.
IV. CONCLUSION
We therefore REMAND this case for determination of
whether the disputed services and fees resulted in excessive
compensation, and, if necessary, for entry of an order for
repayment of fees.
_______________________________
1 Surcharge is used by the parties to describe the
repayment relief Marshall sought. We will use the term in this
opinion because the parties have used it. Cf. AS 13.16.485(d)
(providing that [i]ssues of liability between the estate and
personal representative individually may be determined in a
proceeding for accounting, surcharge, or indemnification or other
appropriate proceeding).
2 Cook Inlet Keeper v. State, 46 P.3d 957, 961 (Alaska
2002); Fancyboy v. Alaska Vill. Elec. Co-op., Inc., 984 P.2d
1128, 1132 (Alaska 1999).
3 Enders v. Parker, 66 P.3d 11, 13-14 (Alaska 2003)
(quoting Fancyboy, 984 P.2d at 1132).
4 Id. at 14 (quoting Fancyboy, 984 P.2d at 1132).
5 Dunn v. Dunn, 952 P.2d 268, 270 (Alaska 1998) (quoting
R.F. v. S.S., 928 P.2d 1194, 1196 n.2 (Alaska 1996)).
6 State v. Pete, 420 P.2d 338, 341 (Alaska 1966).
7 AS 13.36.035(a) states:
The court has exclusive jurisdiction of
proceedings initiated by interested parties
concerning the internal affairs of trusts
. . . . [P]roceedings that may be maintained
under this section are those concerning the
administration and distributions of trusts,
the declaration of rights, and the
determination of other matters involving
trustees and beneficiaries of trusts. These
include proceedings to . . . review trustees
fees and to review and settle interim or
final accounts.
8 Far N. Sanitation, Inc. v. Alaska Pub. Utils. Commn,
825 P.2d 867, 870 (Alaska 1992); see also Am. Tissue, Inc. v.
Arthur Andersen, L.L.P., 275 F. Supp. 2d 398, 403 n.5 (S.D.N.Y.
2003) (Because the instant motion challenges the Courts subject
matter jurisdiction, ATIs argument that the motion is untimely
under Rule 12(g) is misguided. An objection to subject matter
jurisdiction is always timely. (Original emphasis.)).
9 Pete, 420 P.2d at 341.
10 AS 13.36.055 provides:
On petition of an interested person, after
notice to all interested persons, the court
may review the propriety of employment of any
person by a trustee including any attorney,
auditor, investment advisor or other
specialized agent or assistant, and the
reasonableness of the compensation of any
person so employed, and the reasonableness of
the compensation determined by the trustee
for the trustees services. Any person who
has received excessive compensation from a
trust may be ordered to make appropriate
refunds.
See infra Part III.B.3.
11 AS 13.06.110(a).
12 AS 13.36.100 states:
Limitations on proceedings against trustees
after final account. Unless previously
barred by adjudication, consent or
limitation, any claim against a trustee for
breach of trust is barred as to any
beneficiary who has received a final account
or other statement fully disclosing the
matter and showing termination of the trust
relationship between the trustee and the
beneficiary unless a proceeding to assert the
claim is commenced within six months after
receipt of the final account or statement.
In any event and notwithstanding lack of full
disclosure, a trustee who has issued a final
account or statement received by the
beneficiary and has informed the beneficiary
of the location and availability of records
for examination by the beneficiary is
protected after three years. A beneficiary
is considered to have received a final
account or statement if, being an adult, it
is received by the beneficiary personally or
if, being a minor or disabled person, it is
received by a representative as described in
AS 13.06.120(1) and (2).
13 DeNardo v. State, 740 P.2d 453, 456 (Alaska 1987).
14 2 Richard V. Wellman, Uniform Probate Code Practice
Manual 598 (2d ed. 1977).
15 McElroy v. Kennedy, 74 P.3d 903, 908 (Alaska 2003).
16 AS 13.36.055.
17 AS 01.10.040(a).
18 Reasonableness is defined as the quality or state of
being reasonable. Websters Third New International Dictionary
1892 (1966). Reasonable is defined as:
being in agreement with right thinking or
right judgment: not conflicting with reason:
not absurd: not ridiculous . . . being or
remaining within the bounds of reason: not
extreme; not excessive . . . moderate . . .
not demanding too much . . . . not expensive
. . . that allows a fair profit . . . having
the faculty of reason: rational . . .
possessing good sound judgment: well
balanced; sensible.
Id. Excessive is defined as characterized by or present in
excess . . . exceeding the usual, proper, or normal . . . very
large, great, or numerous: greater than usual . . . given to
excess: intemperate. Id. at 792.
19 Alaska R. Civ. P. 82(b)(2), (b)(3).
20 90A C.J.S. Trusts 323 (2002).
21 Id.
22 2 Wellman, supra note 14, at 583.
23 Restatement (Third) of Trusts 181 (1992).
24 Id. 227.
25 90A C.J.S. Trusts, supra note 20, 485.
26 See also AS 13.36.245 (A trustee shall invest and
manage the trust assets solely in the interest of the
beneficiaries.).
27 Matter of Will of Allister, 545 N.Y.S.2d 483, 486 (Sur.
1989) (finding void clauses that conferred immunity on the
fiduciary and that exculpated him from loss caused by his
negligent conduct, because they conflicted with statute). Trust
documents do, however, control when they authorize deviating from
a statute restricting investment of trust funds. E.g., 20 Pa.
Cons. Stat. Ann. 7319(a) (West 2004); Plainfield Trust Co. v.
Hagedorn, 147 A.2d 254, 258-59 (N.J. 1958); In re Estate of
Libman, 203 N.Y.S.2d 559, 561 (Sur. 1960); Estate of McCredy, 470
A.2d 585, 594 (Pa. Super. 1983) (When the terms of a trust
instrument prescribing a trustees investment powers conflict with
the Fiduciaries Code, the trust instrument controls.).
28 The trust gives the trustee power to:
Employ agents and attorneys, including,
without limitation, investment counseling or
management firms or individuals, establish
discretionary trading accounts with brokerage
or other firms, and establish agency or other
similar accounts with banking institutions;
pay reasonable compensation and expenses for
such agents, attorneys or services without
liability for the acts or defaults of such
agents and attorneys, provided reasonable
care shall have been exercised in their
selection; to rely with acquittance on advice
of such counsel on questions of law.
29 The trust also provides:
My trustee shall be reimbursed for any
expenses incurred in connection with his
services as such and may receive compensation
in accordance with its then existing fee
schedule for such trust services.
. . . .
Trustee shall be entitled to be paid out
of the assets of the trust compensation
in accordance with its then prevailing
fee schedule for acceptance and
administration and for payments and
distributions made by Trustee, including
extra compensation for unusual or
extraordinary services performed by
Trustee, and Trustee shall be entitled
to reimbursement out of the assets of
each trust for all costs and expenses
reasonably incurred.
30 See, for example, In re Zoellner Trust, 325 N.W.2d 138
(Neb. 1982), relied upon by First National below and on appeal.
The Supreme Court of Nebraska there denied removing the trustee,
stating that [a] place of administration which may be less
efficient, less convenient, or less pleasant is not necessarily
improper or unsuitable unless, in combination with other
circumstances, it interferes with the proper administration of
the trust. Id. at 141. Zoellner is factually distinguishable,
but First National could have relied on a case like Zoellner in
initially resisting Marshalls petition.
31 The probate master reported:
The trustee contends that the requested
change is contrary to the expressed
provisions of the trust and unauthorized by
the statute. The bank does not cite any
specific language in the trust prohibiting
substitution of a trustee or change of venue
but it emphasizes the trustors thirty-two
year employment history with the bank and
argues that the trustors choice of First
National Bank Alaska as trustee was a
deliberate and fundamental preference of the
trustors evidencing their confidence in the
bank.
32 AS 13.36.070, .245.
33 90A C.J.S. Trusts, supra note 20, 323.
34 One such factor may be the extent to which Marshalls
failure to give timely notice of the petition to substitute to
First National resulted in added legal work.
35 In re Weinbergers Trust, 250 N.Y.S.2d 887, 888 (App.
Div. 1964).
36 McKennell v. Guar. Trust Co., 223 N.Y.S. 598, 598 (Sup.
1927); In re Pelgrams Estate, 262 N.Y.S. 848 (Sur. 1933); see
also Zaring v. Zaring, 39 N.E.2d 734, 737 (Ind. 1942) (stating
that it was possible both sides in trust dispute could
potentially be compensated from trust).
37 George Gleason Bogert and George Taylor Bogert, The Law
Of Trusts & Trustees 525, at 45-46 (2d ed. 1993).
38 In re Gilmakers Estate, 38 Cal. Rptr. 270, 272 (Dist.
App. 1964).
39 Id.
40 Id.
