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Johnson v. Hughes Thorsness Powell Huddleston & Bauman LLC (07/29/2005) sp-5928
Johnson v. Hughes Thorsness Powell Huddleston & Bauman LLC (07/29/2005) sp-5928
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
| IN THE MATTER OF THE
| ) |
|
ESTATE OF: | ) Supreme Court No. S-
11084 |
|
| ) |
|
CLIFFORD JOHNSON, | ) Superior Court
No. |
|
| ) 3AN-01-09418
CI |
|
| ) |
|
|
|
|
) O P I N I
O N
MAYNARD JOHNSON, )
) [No. 5928 - July 29, 2005]
Appellant, )
)
v. )
)
HUGHES THORSNESS POWELL )
HUDDLESTON & BAUMAN LLC, )
)
Appellee. )
)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Larry D. Card, Judge.
Appearances: Hugh G. Wade and Marion C.
Kelly, Wade Kelly & Sullivan, Anchorage, for
Appellant. James M. Gorski and Robert L.
Manley, Hughes Thorsness Powell Huddleston &
Bauman LLC, Anchorage, and Susan C. Orlansky,
Feldman & Orlansky, Anchorage, for Appellee.
Before: Bryner, Chief Justice, Eastaugh,
Fabe, and Carpeneti, Justices. [Matthews,
Justice, not participating.]
FABE, Justice.
I. INTRODUCTION
Maynard Johnson moved to reopen probate proceedings for
his fathers estate because he believed the legal fees incurred
during the closing of the estate were excessive. The superior
court denied his motion and Maynard Johnson appealed. We
remanded the case to the superior court to determine the
reasonableness of professional fees charged to the estate. The
probate master held an evidentiary hearing and concluded that the
legal fees were reasonable, and the superior court approved the
findings. Maynard Johnson appeals that determination and several
related matters. Because we conclude that the appellee did not
meet its burden of proving the reasonableness of all of the legal
fees charged to the estate, we reverse in part the superior
courts order.
II. FACTS AND PROCEEDINGS
A. Facts
Clifford M. Johnson died in 1983. His sister, Evva
Betts, was appointed as the personal representative for his
estate under his will. The will bequeathed $5,000 to Nancy
Wharton and the residue of the estate to Clifford Johnsons son,
Maynard Johnson. Maynard Johnson is the appellant in this case.
In 1984 attorneys for the personal representative
submitted an inventory of the estate assets. The total assets
were valued at $682,798. The principal assets in the estate were
a partnership in a drilling company, a bar and store in South
Naknek, several parcels of land, and $70,000 in accounts
receivable from the store.1
The estate debts totaled $185,746.2 The debts
consisted of a $100,321.95 obligation to Humana Hospital for
expenses associated with Clifford Johnsons illness, a bank note
in the amount of $17,961.82, federal taxes in the amount of
$41,695, promissory notes to private parties, trade accounts
relating to the bar and store, and additional medical bills.
Following his fathers death, Johnson continued to
operate the bar and store. He sold his fathers interest in the
drilling business for $50,000, as well as some fuel tanks and
other estate property. He used the proceeds from these sales to
pay some of the estate debts. In an earlier proceeding relating
to the estate, the probate master found that Johnson illegally
retained between $1,000 and $4,000 in proceeds from this sale
without depositing them into an estate account.
In 1984 Humana Hospital applied for creditors
protection. The probate master held a hearing and ordered the
personal representative to post a bond in the amount of $200,000.
The probate master found that Johnson had been acting as an agent
for the estate and ordered him appointed co-personal
representative. Acting as co-personal representatives, Evva
Betts and Johnson posted a $200,000 bond issued by Safeco in June
1984.
In April 1986 Johnson entered into an earnest money
contract to sell the bar and store. The transaction was
scheduled to close in June 1986, but the sale did not close
during Johnsons tenure as co-personal representative. Johnson
also entered into a verbal contract to sell two parcels of land
owned by the estate. In an earlier proceeding relating to this
case, the probate master found that Johnson personally retained
the proceeds from the land sales.
In May 1986 Humana Hospital filed a motion to remove
Evva Betts and Johnson as personal representatives for the
Clifford Johnson estate. Humana was represented by the law firm
of Hughes, Thorsness, Gantz, Powell & Brundin (Hughes,
Thorsness). Humana argued that for almost two years the estate
had not made payments on the balance owed to Humana. Humana also
pointed out that the estate had yet to pay other debts, including
the federal estate tax owed on the estate. Humana charged that
the co-personal representatives had exhibited nonfeasance in
their management of the estate. Although Betts and Johnson
disagreed with Humanas characterization of their estate
management, they agreed to resign as personal representatives.
On May 30, 1986, the superior court issued an order appointing
the public administrator as successor personal representative for
the estate. The order specifically authorized the public
administrator to employ Hughes, Thorsness to perform legal
services to assist with the administration of the estate.3
The public administrator employed Hughes, Thorsness to
perform legal services relating to the estate from May 1986
through the closing of the estate. Legal services provided for
the estate by Hughes, Thorsness included the sale of the bar and
store in South Naknek; resolution of a claim against the estate
by the Naknek Electric Company; resolution of a claim against the
estate by Peter Pan Seafoods; negotiation of an agreement tolling
the statute of limitations for potential claims that the estate
had against Betts and Johnson regarding their mismanagement of
the estate; transactions involving a motion to forfeit the
$200,000 Safeco surety bond that Betts and Johnson posted in
response to the probate courts 1984 order; resolution of a claim
filed against the estate by the Odom Company; collection of small
claims owed to the estate; and efforts to establish clear legal
title to the estates various real estate holdings. The fees and
expenses charged by Hughes, Thorsness for these and other legal
tasks are the subject of this appeal.
On October 29, 1992, Hughes, Thorsness submitted a
petition to the probate court for settlement, distribution, and
approval of the final accounting on the estate. The petition
included an accounting covering the period from May 30, 1986 (the
date the public administrator was appointed successor personal
representative) through July 31, 1992. The accounting reported
professional fees charged by Hughes, Thorsness in the amount of
$155,560 for legal fees and $11,791.43 for expenses during that
period, totaling $167,351.43. A subsequent accounting for the
period from August 1, 1992 through February 28, 1993 reflected
that payments in the amount of $30,409.87 were made to Hughes,
Thorsness for the closing fees and expenses. In total, Johnson
claims that Hughes, Thorsness received legal fees in the amount
of $197,761.30 during this period.
The superior court judge entered an order approving the
final accounting and decree of distribution on December 31, 1992.
Johnson claims that the total payments he received from the
estate were only $2,411.65. Hughes, Thorsness maintains that
Johnson also received an additional $18,722.80 and parcels of
real estate valued at $29,700.
Before closing the estate, Hughes, Thorsness
established a trust for liquidation of assets to satisfy any
outstanding potential claims that may be asserted against the
Estate or the successor Personal Representative by unsatisfied
creditors . . . . The superior court approved the transfer of
$25,000 from the estate to the liquidation trust. Christy Morse,
a former Hughes, Thorsness paralegal, was designated as trustee.
Between June 11, 1993 and April 18, 1996, payments were made to
Hughes, Thorsness from the trust to cover the firms expenses in
litigation regarding legal fees charged to the estate.
B. Proceedings
1. Johnson v. Doris
On November 3, 1993, Johnson filed a motion under
Alaska Civil Rule 60(b) to reopen the probate proceedings to
review the legal and accounting fees. The probate master
recommended that Johnsons motion be denied, and Superior Court
Judge Larry D. Card issued an order denying the motion. Johnson
appealed to this court. We reversed the superior courts denial
of Johnsons motion to set aside the final probate judgment and
remanded for review of the fees under AS 13.16.440,4 but we did
not decide whether the fees and costs were excessive.
2. Discovery for evidentiary hearing
On remand, Johnson submitted interrogatories to the
public administrator requesting a breakdown of professional fees.
Hughes, Thorsness responded by letter, stating that the public
administrator was no longer a party. Hughes, Thorsness also
submitted an itemized computer printout of its billing activity
relating to the estate. Johnson then filed a motion to compel
discovery, arguing that the billing records provided by Hughes,
Thorsness did not provide a breakdown of the time billed for work
on various legal projects.
The probate master recommended that the public
administrator appoint a successor personal representative to
execute responses to Johnsons discovery requests.5 The probate
master also recommended that the superior court deny Johnsons
motion to compel production because the billing records provided
by Hughes, Thorsness were the only billing records available. On
April 7, 1998, Superior Court Judge Larry D. Card issued an order
adopting all of the probate masters recommendations.
3. Motion for order to show cause
While in the process of conducting discovery on remand,
Johnson learned that the trustee for the liquidation trust had
withdrawn funds from the trust to compensate Hughes, Thorsness
for legal fees incurred while defending Johnsons motion to reopen
the estate and Johnsons first appeal to this court. On April 30,
1998, Johnson filed a motion for order to show cause requesting
sanctions against Hughes, Thorsness for withdrawing funds from
the trust for this purpose. Hughes, Thorsness opposed the
motion. The superior court did not take action on the motion.
4. Evidentiary hearing
The probate master held a four-day evidentiary hearing
on the reasonableness of the professional fees from June 10-15,
1998. On April 21, 1999, Probate Master John E. Duggan issued a
masters report recommending that the superior court re-approve
the order approving the final accounting and decree of
distribution, with one minor exception.6 On May 3, 1999, Johnson
moved for a new trial or, in the alternative, de novo review of
the record. On November 15, 1999, Superior Court Judge Card
denied Johnsons motion and adopted the probate masters
recommendations with respect to every issue except the invasion
of the liquidation trust, which Judge Card found had not been
addressed. Judge Card entered a separate order directing the
probate master to schedule a status conference regarding
attorneys fees paid from the liquidation trust.
5. Summary judgment regarding fees paid from the
liquidation trust
On March 14, 2000, Hughes, Thorsness moved for partial
summary judgment regarding the removal of attorneys fees from the
liquidation trust. On January 16, 2003, the superior court
issued an order granting partial summary judgment to Hughes,
Thorsness on the question of attorneys fees issued from the
liquidation trust. The order did not determine the
reasonableness of fees incurred.
6. Costs and attorneys fees
On April 28, 2003, the superior court entered an order
and judgment granting Hughes, Thorsness costs and attorneys fees
associated with Johnsons challenge to the professional fees. The
superior court awarded Hughes, Thorsness $23,501.25 in attorneys
fees, $3,336.88 in costs, and interest at the rate of 3.75% per
annum.
Maynard Johnson appeals four separate orders issued by
the superior court. First, he appeals the superior courts order
dated April 7, 1998 denying his motion for an order compelling
discovery relating to bills charged to the estate by Hughes,
Thorsness. Second, Johnson appeals the superior courts November
15, 1999 order approving the probate masters recommendations
regarding legal fees and expenses billed to the estate by Hughes,
Thorsness. Third, Johnson appeals the superior courts January
16, 2003 order granting partial summary judgment to Hughes,
Thorsness regarding attorneys fees paid from the liquidation
trust between March 1993 and September 1996. Finally, Johnson
appeals the superior courts April 28, 2003 order awarding
attorneys fees and costs in the amount of $26,838.13 to Hughes,
Thorsness.
III. DISCUSSION
A. Standard of Review
We review a lower courts discovery rulings for abuse of
discretion.7 A lower courts determination of the reasonableness
of attorneys fees and personal representatives fees in probate
matters is also reviewed for abuse of discretion.8 We find that
a trial court abused its discretion only when we are left with a
definite and firm conviction, after reviewing the whole record,
that the trial court erred in its ruling.9 Factual findings
issued by a probate master and adopted by the superior court
judge are reviewed under the clearly erroneous standard.10 A
lower courts decision to grant summary judgment is reviewed de
novo. Summary judgment is only appropriate where there are no
issues of material fact and the moving party is entitled to
judgment as a matter of law.11 We apply our independent judgment
to questions of law.12
B. The Probate Court Abused Its Discretion when It Denied
Johnsons Motion To Compel Discovery.
Johnson appeals the superior courts order dated April
7, 1998 denying his motion for an order to compel Hughes,
Thorsness to respond to Johnsons discovery requests.13 Johnson
requested that Hughes, Thorsness provide the amount of time
billed out for each service listed in the invoices presented to
the Estate for payment. In response, Hughes, Thorsness provided
Johnson computerized printouts of its billing records for the
firms work on the estate.14 The printouts included the date of
each task, the time spent on the task, the charges for the task,
and a brief description of the task, but the printouts did not
always specify the matter at issue. For example, one entry
states, Research on title, without specifying which title.
Johnsons principal complaint is that Hughes, Thorsness
did not provide breakdowns of the amount of time billed for each
legal project charged to the estate, as Johnson requested in his
initial discovery requests. For instance, Hughes, Thorsness did
not provide a breakdown of the time it billed for its work on the
sale of the South Naknek bar and store. In its recommendation to
deny Johnsons request to compel billing breakdowns, the probate
master found that Hughes, Thorsness made available to Johnson all
of the billing information it possessed.
As a result of the trial courts decision, Johnson was
left to sort through the billing records on his own in an attempt
to determine the amount billed by Hughes, Thorsness for each
matter. As Johnson points out in his brief, Hughes, Thorsness
was better positioned than Johnson to parse through the records
to determine the relevant matter for which each item was billed.
Under Rule 1.5 of the Alaska Rules of Professional Conduct, the
factors to be weighed when determining the reasonableness of a
lawyers fees include the time and labor required, the novelty and
difficulty of the questions involved, and the skill requisite to
perform the legal service properly.15 In order to make this
determination, it was critical for the superior court to
determine the amount billed for each legal service provided to
the estate. The billing records submitted by Hughes, Thorsness
during discovery made that task nearly impossible.
While we have not previously examined the required
level of specificity for billing records in probate matters, we
have indicated that some level of specificity is required in
billing records in disputes involving attorneys fees generally.
For instance, in Hayes v. Xerox Corp.,16 we reviewed attorneys
fees in the context of Alaska Civil Rule 82. We held that the
lower court should have required Xerox, the party receiving
attorneys fees for its own legal work, to itemize its fee
request.17 We reasoned that Xeroxs counsel should have specified
the services included in those hours submitted, and we remanded
the issue so that the superior court [could] order Xeroxs counsel
to itemize the hours and nature of the work spent on [the] case .
. . .18 Johnson also points us to a federal bankruptcy decision
originating in Alaska in which the court determined the
reasonableness of attorneys fees incurred during bankruptcy
proceedings. The bankruptcy court observed: Time records must
be adequate to show the amount of time spent and the manner in
which it was spent . . . [a]n entry of research or telephone call
is insufficient.19
These cases, together with factors set forth in Alaska
Rule of Professional Conduct 1.5, indicate that some level of
specificity in billing records must be submitted to the superior
court for purposes of resolving disputes regarding attorneys
fees. Because many of the billing entries submitted by Hughes,
Thorsness were so vague that Johnson could not discern which
legal matter corresponded to each entry, we conclude that the
superior court abused its discretion when it denied Johnsons
discovery request.
C. The Probate Master Improperly Placed the Burden of
Proof on Johnson at the Evidentiary Hearing.
Johnson argues that the probate master erroneously put
the burden of proof on him during the evidentiary hearing, in
part by requiring him to proceed first. According to our case
law, expenses must be reasonable and attorneys fees necessary in
order for a personal representative to receive reimbursement for
attorneys fees under AS 13.16.435,20 the statute that authorizes a
personal representative to receive reimbursement from the estate
for attorneys fees incurred in the administration of the estate.
Under the reasonable and necessary standard, the personal
representative and the attorneys are in the best position to
demonstrate that the fees were in fact reasonable and necessary.
In this case, Hughes, Thorsness performed extensive legal
services for the estate and was therefore the entity in the best
position to demonstrate the reasonableness of its own fees. Like
other jurisdictions that have considered this question,21 we
conclude that the burden of proving the reasonableness of
attorneys fees in estate actions falls on the attorney whose fees
are being challenged, particularly where the attorney is
effectively standing in the shoes of the personal representative.22
The burden of proof was on Hughes, Thorsness to demonstrate that
the expenses and fees charged to the Clifford Johnson estate were
necessary and reasonable.
Although the probate master stated in his report that
the burden of proof at the evidentiary hearing was on Hughes,
Thorsness, the report reflects that the probate master seemed to
expect Johnson to carry the burden at various points in the
proceedings. The superior court not only required Johnson to
proceed first,23 but indicated that Johnson had failed to produce
adequate evidence regarding the amount billed for some matters.
For instance, regarding fees relating to the Peter Pan Seafoods
claim, the superior court wrote, [Johnsons] evidence failed to
show that $25,000.00 was billed to the estate as he claimed or
that [Hughes, Thorsness] performed unnecessary legal services or
billed excessively for work done . . . . And regarding fees
incurred in the creation of the tolling agreement, the superior
court wrote, [Johnson] offered no evidence in support of his
calculations [of the amount billed] and argument and his expert
witness did not have an opinion whether [Hughes, Thorsnesss] fees
in this regard were unreasonable . . . . Statements such as
these indicate that the superior court expected Johnson, rather
than Hughes, Thorsness, to produce evidence as to the amount and
reasonableness of fees.
D. Hughes, Thorsness Should Have Been on Notice that Its
Fees Might Be Challenged.
Before we examine whether Hughes, Thorsness met its
burden of proving the reasonableness of the fees charged to the
estate, we note that Hughes, Thorsness should have been on notice
that its fees were challengeable and therefore should have been
prepared to present evidence establishing the reasonableness of
its fees. This is true for three reasons. First, our decision
in Johnson v. Doris made clear that Hughes, Thorsness would be
expected to demonstrate the reasonableness of its fees.24 Second,
the amount of fees was large in relation to the value of the
estate. And third, Hughes, Thorsness owed a fiduciary duty to
the estate.
When we remanded Johnson v. Doris to the probate court
for an inquiry into the reasonableness of the professional fees,
we noted that the fees were large in relation to the value of the
estate. We observed:
The personal representatives final accounting
did not adequately support [the professional
fees charged to the estate]. No showing was
made that particular services were needed; no
showing was made as to the number of hours
spent. We note that the probate court should
have been alerted by the amount of the
professional expenses relative to the size of
the estate, and should have given substantive
consideration to the proposed fees and
costs.[25]
Although we did not decide whether the fees and costs were
excessive, we concluded that review under AS 13.16.440 was
appropriate.26 This language made clear that the purpose of the
remand was to determine whether the fees incurred were necessary
and should have alerted Hughes, Thorsness that it would be
expected to account for the fees.
The fact that the attorneys fees were so large in
relation to the value of the estate should also have put Hughes,
Thorsness on notice that it might be expected to provide
justification for the fees. In general, courts consider the fee
amount in relation to the size of the estate when determining the
reasonableness of attorneys fees in the estate context.27 Courts
in a number of jurisdictions have found that attorneys fees in
probate matters were excessive because they were unreasonably
large relative to the size of the estate. For instance, a New
York court reduced the amount of attorneys fees approved in a
probate matter because the fees amounted to twenty-five percent
of the size of the estate.28 Similarly, a Florida appellate court
found attorneys fees in the sum of $37,500 for an estate worth
$180,000 to be so excessive that it shocks the conscience of this
court.29 While we do not think it necessary to determine exactly
what percentage, if any, is high enough to make attorneys fees
per se unreasonable, we note that the higher the attorneys fees
in relation to the total value of the estate, the more prepared
an attorney should be to defend those fees.
In this case, Hughes, Thorsness owed a particular
responsibility to the estate because of the fiduciary
relationship that existed between Hughes, Thorsness and the
estate. As the Washington Supreme Court concluded in a case
similar to this one, attorneys assisting personal representatives
in probate matters owe a fiduciary duty to the estate and its
beneficiaries. The court reasoned:
In probate, the attorney-client relationship
exists between the attorney and the personal
representative of the estate. The personal
representative stands in a fiduciary
relationship to those beneficially interested
in the estate. He is obligated to exercise
the utmost good faith and diligence in
administering the estate in the best
interests of the heirs. The personal
representative employs an attorney to assist
him in the proper administration of the
estate. Thus, the fiduciary duties of the
attorney run not only to the personal
representative but also to the heirs.[30]
In a recent case involving a challenge to attorneys fees incurred
in the administration of an estate, we observed that [t]he
fiduciary duty is the highest standard of duty implied by law. 31
Here, Hughes, Thorsnesss extensive activities on behalf of the
estate established a fiduciary duty that extended to the estate
and its beneficiaries. This duty obligated Hughes, Thorsness to
protect the interests of the estate and its beneficiaries. Given
the large amount of fees in relation to the value of the estate,
together with the fiduciary relationship between the law firm and
the estate, Hughes, Thorsness should have been on notice that it
might be called upon to explain the fees in detail.
E. Hughes, Thorsness Did Not Meet Its Burden of Proving
that All of Its Fees Were Reasonable and Necessary.
Having determined that Hughes, Thorsness had the burden
of proving that the fees and expenses were reasonable and
necessary, we now examine whether Hughes, Thorsness met that
burden. Because the evidence presented by Hughes, Thorsness
failed to justify approximately $68,500 of the total fees charged
to the estate, we conclude that Hughes, Thorsness did not meet
its burden as to that $68,500 in fees.
At the outset, we note that the reasonableness of
attorneys fees is governed by the factors in Rule 1.5(a) of the
Alaska Rules of Professional Conduct.32 Rule 1.5(a) of the Alaska
Rules of Professional Conduct states:
A lawyers fee shall be reasonable. The
factors to be considered in determining the
reasonableness of a fee include the
following:
(1) the time and labor required, the
novelty and difficulty of the questions
involved, and the skill requisite to perform
the legal service properly;
(2) the likelihood that the acceptance
of the particular employment will preclude
other employment by the lawyer;
(3) the fee customarily charged in the
locality for similar legal services;
(4) the amount involved and the results
obtained;
(5) the time limitations
imposed by the client or
by the circumstances;
(6) the nature and length of the
professional relationship with the client;
(7) the experience, reputation, and
ability of the lawyer or lawyers performing
the services; and
(8) whether the fee is fixed or
contingent.[33]
As discussed above, another factor that a trial court may
consider when determining the reasonableness of fees in the
estate context is the size of the estate.34
The parties disagree about the total amount that
Hughes, Thorsness actually billed to the estate. At the
evidentiary hearing, Johnson submitted evidence reflecting that
the total amount billed by the firm, including fees and expenses,
was approximately $201,000 at the time of the hearing.35 Johnson
arrived at this number by adding together all of the invoices
received by the estate from Hughes, Thorsness. Hughes,
Thorsnesss estimate was based on the testimony of the billing
partner in charge of the Clifford Johnson estate, Robert Manley.
He testified that the fees paid to the firm by the estate were
probably closer to $180,000.36 But Manley did not present any
evidence to indicate that the firm billed an amount less than
that reflected by the invoices. And on cross-examination, Manley
conceded that the estate had been billed approximately $185,000
in legal fees and another $16,000 in costs. The probate master
did not make any findings regarding the exact dollar amount
billed by the firm during its involvement with the estate; nor
did the probate master determine how many hours were spent on
each matter.37
Both parties presented expert testimony about the
reasonableness of the fees. Hughes, Thorsnesss expert, Trigg
Davis, testified that the matters that Hughes, Thorsness handled
were necessary to the estate. For instance, regarding one of the
most contested aspects of Hughes, Thorsnesss management of the
estate the decision to collect small claims owed to the estate
from debtors in remote villages Davis stated, the area where I
see the greatest problem . . . everybody sees it, is the small
claim area, but . . . thats not saying it wasnt necessary to do
something. Davis continued, in terms of dollars and cents [the
amount of small claims collected] wasnt the greatest result, but
thats different than saying it wasnt necessary, and thats
different than saying it wasnt a reasonable decision when it was
made. Davis also testified that the hourly fees charged by
Hughes, Thorsness were reasonable38 and that in his opinion the
overall fees charged to the estate were reasonable. On cross-
examination, Davis testified that he had not evaluated whether
time was efficiently spent on the estate. Davis did not provide
any testimony about the number of hours spent or amount of money
billed for various legal services provided by Hughes, Thorsness.
When asked whether he had formed an opinion as to whether the
time spent on any particular task was reasonable and necessary,
Davis responded that he didnt go through and break [the estate]
into its parts.
Johnsons expert, Robert Erwin, testified that he
believed the fees charged to the estate to be a staggering
amount. He stated of the billing, Its beyond the range of any
experience Ive ever had, and its the most Ive ever seen charged
in a probate case. Erwin testified that he sorted through
Hughes, Thorsnesss bills to determine how much was charged for
each matter handled by the firm. The probate master admitted
Erwins estimates as the basis for his expert opinion regarding
the reasonableness of the fees, but not as proof of the fees
actually charged. Manley disputed Erwins estimates for each
matter, maintaining that he had adjusted some of the billing
downward to reflect what he thought was a reasonable fee for each
task. Manley did provide his own figures for some of the
matters, but the transcript reveals, and the probate master
acknowledged, that Manleys figures, too, were merely estimates.
For instance, regarding the sale of a bar and store in South
Naknek, Manley stated of the amount billed, [Erwin] says 8,600
odd dollars, and I think the real number is is closer to 7,500
something like that. And regarding a summary judgment motion
that Hughes, Thorsness handled for the estate, Manley stated,
[Erwins] total assertion on [the matter] is about a little shy
of $24,000, and actually I think the total fees were about
$20,000 . . . . In most cases, Manley attributed the
discrepancies to writedowns.
By the end of the hearing, Manley had testified
regarding $112,550 worth of billing for various matters. After
subtracting $15,000 that was billed for costs, rather than legal
fees, Johnsons attorney asked Manley how he accounted for the
remaining $72,000 that the firm billed to the estate.39 Manley
attributed the remainder of the fees to tax matters and assisting
the personal representative in fiduciary matters. But aside from
an estimate that the law firm paid one accountant $1,500 and a
tax attorney $2,000, Manley did not provide any level of
specificity about actual bills for these services.40
According to Rule 1.5 of the Alaska Rules of
Professional Conduct, the first factor to be weighed when
determining the reasonableness of a lawyers fee is the time and
labor required.41 But the case presented by Hughes, Thorsness at
the evidentiary hearing focused on the necessity of the legal
services provided and the reasonableness of the firms hourly
rates without addressing the time and labor required for each
matter handled by the firm. In fact, outside of Manleys
estimates at the evidentiary hearing, Hughes, Thorsness presented
almost no evidence regarding the time and labor required to
provide various legal services to the Clifford Johnson estate.
Hughes, Thorsnesss timekeeping records did provide breakdowns of
the time spent on specific tasks such as telephone calls or
conferences, but many of the billing entries did not indicate the
matter associated with the entry. The result was that Johnson
was left to parse through the billing records to determine how
much time was spent on each matter even though the burden was on
Hughes, Thorsness.
Having reviewed the transcript and the probate masters
report, we conclude that the superior court erred in failing to
determine exactly what amount Hughes, Thorsness billed to the
Clifford Johnson estate. We also conclude that Hughes, Thorsness
failed to meet its burden of proving the reasonableness of at
least $68,500 in fees because the law firm did not account for
these fees at the evidentiary hearing, and many of the entries in
the billing records are too vague to establish whether the
charges were reasonable for any given matter. This number
represents approximately $72,000 for which Hughes, Thorsness did
not account during the evidentiary hearing, minus $3,500 that
Manley testified went to an accountant and a tax attorney. We
recognize that Hughes, Thorsness provided valuable legal services
to the estate. However, the firms billing records were not
sufficiently detailed for the superior court to determine the
reasonableness of fees not explained by Hughes, Thorsness during
the hearing.42
As we discussed above, Hughes, Thorsness was on notice
that it should have been prepared to prove the precise nature,
necessity, and reasonableness of all of its legal fees. This
included proof of the reasonableness of the time spent and amount
charged for the various matters handled by the estate. Because
Hughes, Thorsness failed to meet its burden as to $68,500 of the
fees, we must vacate the superior courts order to that extent.43
F. The Superior Court Erred in Granting Hughes, Thorsness
Partial Summary Judgment on the Question of Money
Withdrawn from the Liquidation Trust To Pay Legal Fees
and Expenses.
Johnson asserts several claims relating to the
liquidation trust established at the request of Hughes, Thorsness
at the time of the estate closing. As a general matter, Johnson
argues that the liquidation trust never served any real purpose.
Johnson contends that the only purpose ever served by the
liquidating trust is that it funded [Hughes, Thorsnesss] legal
efforts to resist review of its professional fees and argues that
the creation and administration of the trust generated
unnecessary legal fees. The probate master considered testimony
from Manley and the public administrator explaining that they
chose to establish the liquidation trust to indemnify the public
administrator and the estate from potential tax liability.
Because the probate master weighed credible testimony regarding
the purpose of the liquidating trust, we conclude that it was not
an abuse of discretion for the probate court to find that the
creation of the trust was necessary.
Johnson next challenges the superior courts order
granting partial summary judgment to Hughes, Thorsness regarding
attorneys fees paid from the liquidation trust between March 1993
and September 1996.44 Johnson asserts that Hughes, Thorsness
improperly used money from the trust to defend itself against
Johnsons claim that the firms fees were unreasonable. The
superior court found that the payments were appropriate and
authorized under the terms of the Trust which Trust Agreement has
been previously approved by the court. The superior court did
not determine the reasonableness of the fees incurred, but rather
determined that the submittal of billings and the payment of
those billings relating to probate closing matters, trust
administration matters and opposition to the Civil Rule 60(b)
motion . . . was appropriate and authorized under the terms of
the trust.
Hughes, Thorsness makes two arguments relating to the
payment of fees from the trust. First, Hughes, Thorsness argues
that payments from the trust were reimbursable expenses of the
personal representative under AS 13.16.435, which entitles the
personal representative or a person nominated as personal
representative to receive necessary expenses from the estate,
including reasonable attorneys fees.45 But Hughes, Thorsness was
neither a personal representative nor nominated as personal
representative, and it was seeking reimbursement for the expenses
incurred to defend its own fees, rather than for work performed
at the direction of the personal representative.
Hughes, Thorsnesss second theory for its recovery of
attorneys fees from the trust is that the payments were
authorized as an expense of the trust because they were made to
defend the trust from Johnsons motion to reopen it. But Hughes,
Thorsness only performed limited administrative matters on behalf
of the trust,46 and letters written by Hughes, Thorsness to the
public administrator during the relevant time period indicate
that the firm viewed itself as opposing Johnsons motion on behalf
of the public administrator, not the trustee. In any case, it is
not clear that the trustee had a direct interest in launching a
broad-based defense against Johnsons Rule 60(b) motion. We
conclude that the superior court erred in granting summary
judgment regarding funds withdrawn from the liquidation trust to
defend Johnsons challenge to Hughes, Thorsnesss bills and remand
this aspect of the case for further proceedings.47
G. Johnson Is Entitled to Rule 79 Costs and Rule 82
Attorneys Fees.
Johnson appeals the superior courts April 28, 2003
order awarding attorneys fees and costs in the amount of
$26,838.13 to Hughes, Thorsness. Because Johnson should have
prevailed in superior court on the main issue in the case that
Hughes, Thorsness failed to justify all of its fees and because
we are remanding to the superior court with instructions to
refund a significant amount of money to the estate, Johnson
should have been viewed in the superior court as the prevailing
party in this case. We have consistently held that the
prevailing party is the party who prevails on the main issues in
the case.48 We have also observed that [a] plaintiff may prevail
even if he or she failed to recover all of the relief prayed for.49
The purpose of attorneys fees under Civil Rule 82 is to partially
compensate a prevailing party where such compensation is
justified and not to penalize a party for litigating a good faith
claim.50 Here, our remand calls for a refund of a substantial
portion of the attorneys fees paid by the estate. On remand,
Johnson may apply for costs and fees pursuant to Rules 79 and 82.
IV. CONCLUSION
We REVERSE the superior courts order dated November 15,
1999 reapproving the order approving the final accounting and
decree of distribution for this estate, but AFFIRM the superior
courts order to disgorge $660 relating to the late renewal of the
liquor license. We also REVERSE the superior courts January 16,
2003 order granting partial summary judgment to Hughes, Thorsness
on the question of attorneys fees paid from the liquidation
trust. We VACATE the superior courts April 28, 2003 order
awarding attorneys fees and costs in the amount of $26,838.13 to
Hughes, Thorsness. This case is REMANDED for further proceedings
regarding the disbursements from the liquidation trust and for
the superior court to refund the estate $68,500.
_______________________________
1 The appellee claims there was also a plot of land not
listed in the inventory that was appraised at $41,100.
2 In Johnson v. Doris, we stated that [c]laims against
the estate totaled $228,419. 933 P.2d 1139, 1140 (Alaska 1997).
Johnson derived the revised figure of $185,746 from the estate
tax return. Hughes, Thorsness does not dispute the figure.
3 Johnson argues that the superior court should have
prevented Hughes, Thorsness, counsel for a creditor of the
estate, from arranging for the public administrators appointment
and then handling all of her legal work because this created a
conflict of interest and a situation where the public
administrator implemented no controls over Hughes, Thorsnesss
spending. We do not address the propriety of the public
administrators appointment because Johnson did not raise this
issue in his first appeal, and it is beyond the scope of our
remand in this case. See State, Commercial Fisheries Entries
Commn v. Carlson, 65 P.3d 851, 873-74 (Alaska 2003) (observing
that [s]uccessive appeals should narrow the issues in a case, not
expand them).
4 Johnson v. Doris, 933 P.2d at 1144, 1146. AS 13.16.440
states:
[T]he propriety of employment of any person
by a personal representative including any
attorney, auditor, investment advisor, or
other specialized agent or assistant, the
reasonableness of the compensation of any
person so employed, or the reasonableness of
the compensation determined by the personal
representative for the personal
representatives services, may be reviewed by
the court. Any person who has received
excessive compensation from an estate for
services rendered may be ordered to make
appropriate refunds.
5 Johnson directed his initial discovery requests to the
public administrator. Charlene Doris, the public administrator
who served as successor personal representative for the estate,
was no longer employed by the state when the probate master
issued its discovery recommendations. The probate master
determined that the public administrator was no longer an
appropriate party and recommended that the public administrator
designate a successor personal representative to respond to
discovery requests.
6 The probate masters report recommended that the court
order Hughes, Thorsness to disgorge $660 relating to the late
renewal of a liquor license at the store.
7 Fletcher v. S. Peninsula Hosp., 71 P.3d 833, 844
(Alaska 2003) (citation omitted).
8 Helgason v. Merriman, 36 P.3d 703, 705 (Alaska 2001)
(applying the abuse of discretion standard to a review of a
motion to remove a personal representative and noting that the
abuse of discretion standard is applied to reviews of attorneys
fees and personal representatives fees in the probate context)
(citing Gudschinsky v. Hartill, 815 P.2d 851, 854 (Alaska 1991)
(applying the abuse of discretion standard to review the lower
courts determination of reasonable compensation for a personal
representative in a probate matter) and In re Estate of Gregory,
487 P.2d 59, 64 (Alaska 1971) (reviewing an award of attorneys
fees to an estate administrator for abuse of discretion)).
9 Buster v. Gale, 866 P.2d 837, 841 n.9 (Alaska 1994)
(internal quotation marks omitted).
10 Bowman v. Blair, 889 P.2d 1069, 1072 n.5 (Alaska 1995);
C. St. Foodland v. Estate of Renner, 596 P.2d 1170, 1172 (Alaska
1979).
11 Odsather v. Richardson, 96 P.3d 521, 523 n.2 (Alaska
2004).
12 Summers v. Hagen, 852 P.2d 1165, 1169 (Alaska 1993).
13 We conclude in Part III.E of this decision that the
superior court should vacate the superior courts approval of
Hughes, Thorsnesss fees to the extent that Hughes, Thorsness has
not demonstrated their reasonableness. Therefore, no further
discovery is necessary on the issue of reasonableness of fees.
We nonetheless discuss the discovery issue here because Johnsons
discovery requests are relevant to our analysis of the
proceedings at trial.
14 The firm did not retain bills for the period from May
9, 1986 through November 25, 1986 because of a firm policy not to
retain billing memoranda for more than a six-year period. As we
discuss below, Hughes, Thorsness had the burden of proof in this
matter. To the extent that the firms policy impacted its ability
to satisfy its burden of proof, Hughes, Thorsness, not Johnson,
should bear the costs.
15 Alaska R. Prof. Conduct 1.5(a)(1).
16 718 P.2d 929 (Alaska 1986).
17 Id. at 939.
18 Id.
19 In re Four Star Terminals, Inc., 42 B.R. 419, 426 n.1
(Bankr. Alaska 1984).
20 See Enders v. Parker, 66 P.3d 11, 15 (Alaska 2003); see
also 31 Am. Jur. 2d Executors and Administrators 428 (2004).
21 See, e.g., In re Estate of McCranor, 575 N.Y.S.2d 181,
182-83 (N.Y. App. Div. 1991) (finding that the lower court had
incorrectly placed the burden on the party challenging the fees,
and time sheets submitted by the attorneys reflected that they
had billed the estate for ministerial tasks that could have been
performed by laypersons); In re Estate of Sonovick, 541 A.2d 374,
376 (Pa. Super. 1988) (finding that the trustee and her attorney
had not met their burden of proving the reasonableness of the
fees because they did not offer an explanation as to how the fees
were computed or what work was actually done); In re Estate of
Eisenberg, 433 So. 2d 542, 543 (Fla. Dist. App. 1983) (reversing
the trial courts approval of attorneys fees because expert
testimony about the reasonableness of fees did not examine the
reasonableness of the time expended, and the testimony as to time
expended was based upon reconstructed billing records); In re
Estate of Larson, 694 P.2d 1051, 1060 (Wash. 1985) (en banc) (An
estate attorney must assume the burden of proving that the hours
charged to the estate were reasonable and necessary.).
22 At the evidentiary hearing, Charlene Doris, the former
personal representative for the estate, testified that she had
relied upon the advice of [Hughes, Thorsness partner Robert
Manley] as the attorney for the estate when handling matters
relating to the estate.
23 Hughes, Thorsness correctly notes in its brief that
[t]rial courts are granted almost unlimited discretion in
determining the order of proof at trial. Fairbanks N. Star
Borough v. Lakeview Enters., Inc., 897 P.2d 47, 60 n.28 (Alaska
1995) (quoting American Natl Watermattress Corp. v. Manville, 642
P.2d 1330, 1339 (Alaska 1982)). In this case the order of proof
was only one factor indicating that the burden was not allocated
appropriately.
24 933 P.2d at 1143.
25 Id.
26 Id.
27 See Allen E. Korpela, Annotation, Amount of Attorneys
Compensation in Proceedings Involving Wills and Administration of
Decedents Estates, 58 A.L.R. 3d 317, 2 (2004).
28 Estate of McCranor, 575 N.Y.S.2d at 183.
29 Estate of Eisenberg, 433 So. 2d at 543.
30 Estate of Larson, 694 P.2d at 1054 (emphasis added)
(citations omitted). But see Trask v. Butler, 872 P.2d 1080,
1085 (Wash. 1994) (holding that an attorney hired by a personal
representative does not owe a duty to estate or beneficiaries
that would allow heirs to bring a malpractice action against
attorney because there is no privity of contract).
31 Enders, 66 P.3d at 16 (quoting Blacks Law Dictionary
625 (6th ed. 1990)).
32 Alaska Probate Rule 7.1 provides that [a] personal
representatives fee shall be reasonable. The factors in Probate
Rule 7.1 are similar to those in Rule 1.5 of the Alaska Rules of
Professional Conduct.
33 Alaska R. Prof. Conduct 1.5(a).
34 At least one court has considered this factor because
the attorneys own exposure to liability depends in part on the
size of the matter. In re Estate of Bolton, 403 N.W.2d 40, 43-44
(Iowa App. 1987).
35 Johnsons attorney argued at a post-hearing oral
argument before Judge Card that the exact amount billed to the
estate was $200,793.04.
36 Manley indicated during his testimony that he believed
the fees to be approximately $180,000, not including costs.
Manley argued at the post-hearing oral argument before Judge Card
that the total amount paid to Hughes, Thorsness was $199,747.53.
37 The probate master wrote that Hughes, Thorsness billed
the estate for legal services provided the successor personal
representative, the court public administrator, in the total sum
of $155,560 and $11,791.43 for costs through preparation of the
final accounting . . . and estimated an additional $20,000 to
close the estate. The probate master derived this figure from
the final accounting.
38 Johnson does not contend that the hourly rates charged
by Hughes, Thorsness were unreasonable in light of community
standards.
39 It appears that both parties were working from a total
billing figure of $200,000 at this point in the proceedings.
After subtracting $15,000, Johnsons attorney asked Manley, the
difference between 112,000 and 185,000 is what, $72,000? If the
total amount billed was approximately $201,000, as reflected in
the invoices, minus $15,000 in costs, Manleys testimony failed to
account for $73,450.
40 Johnsons attorney also asked Manley about $53,000 that
went to accountants. The final accounting for the estate
indicates that accountants fees in the amount of $53,395.82 were
paid out of the estate. These fees were in addition to the fees
and expenses paid to Hughes, Thorsness.
41 Alaska R. Prof. Conduct 1.5(a)(1).
42 Cf. In re Estate of ONeill, 425 N.W.2d 133, 135 (Mich.
App. 1988) (concluding that attorneys time sheets were unreliable
because attorney relied on cursory glance through his daily
calendars to compute his billing); In re Estate of Kiebler, 345
N.W.2d 713, 714 (Mich. App. 1984) (holding that attorneys had not
proven that expenses were reasonable even though they submitted a
fifty-two-page statement of services with itemized entries,
because some of the entries were vague); In re Estate of Gillett,
527 N.Y.S.2d 690, 692 (N.Y. Sur. 1988) (reducing the fee awarded
to the attorney/fiduciary of the estate because a good deal of
the services involved telephone calls to various people with no
indication as to the substance and purpose of the [calls]); In re
Estate of Sonovick, 541 A.2d at 376; In re Estate of Eisenberg,
433 So. 2d at 543.
43 Due to the lengthy delays in this case, we are
reluctant to remand the case for further proceedings. Cf. State
v. Kenaitze Indian Tribe, 83 P.3d 1060, 1071 (Alaska 2004)
(reaching the merits rather than remanding due to delays in
case). In fact, Johnson has specifically asked us not to remand
the case for further proceedings due to the time that has passed
since Clifford Johnsons death. We decline to remand this case
and instead vacate the superior courts judgment to the extent
that the fees were not supported by the evidence. Cf. Alaska
Statebank v. Fairco, 674 P.2d 288, 294 (Alaska 1983) (setting
aside portion of award not supported by evidence).
44 Johnson asserts that the trustee withdrew $20,666 as
compensation for the legal fees during this period. Hughes,
Thorsnesss estimate puts the amount at $20,088.62.
45 AS 13.16.435.
46 Hughes, Thorsness states in its brief: The total
amount attributable to Trust administrative matters amounts to
$1,279.06. The amount attributable to final closing expenses of
the probate proceedings amounts to $954.72.
47 Hughes, Thorsness also argues that Johnsons objections
to the payment of expenses from the liquidation trust were time-
barred by the terms of the trust. But because we conclude, as a
matter of law, that Hughes, Thorsness could not withdraw money
from the trust to defend a challenge to its fees, we decline to
interpret the trust as barring Johnsons complaint about the
withdrawals.
48 See, e.g., Blumenshine v. Baptiste, 869 P.2d 470, 474
(Alaska 1994); Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d
1321, 1327 (Alaska 1993); Hutchins v. Schwartz, 724 P.2d 1194,
1204 (Alaska 1986); Alaska Placer Co. v. Lee, 553 P.2d 54, 63
(Alaska 1976); Buza v. Columbia Lumber Co., 395 P.2d 511, 514
(Alaska 1964).
49 Blumenshine, 869 P.2d at 474 (determining plaintiff to
be prevailing party even though plaintiff only recovered small
fraction of the $700,000 in damages requested).
50 Id. (quoting Malvo v. J.C. Penny Co., Inc., 512 P.2d
575, 588 (Alaska 1973)) (internal quotation marks omitted).
