Matter of Cleveland

[*1] Matter of Cleveland 2006 NY Slip Op 51108(U) [12 Misc 3d 1168(A)] Decided on March 21, 2006 Sur Ct, Monroe County Calvaruso, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 21, 2006
Sur Ct, Monroe County

In the Matter of the Judicial Settlement of the Account of Bank of America, NA, as Executor of the Estate of Marjorie S. Cleveland, Deceased.



2003-2045



George Forsyth, Forsyth Law Firm, for attorney Scott Forsyth, attorney for the estate.

Audrey Cooper, Assistant Attorney General, for ultimate charitable beneficiaries.

Edmund A. Calvaruso, J.

BACKGROUND

This dispute involves the reasonableness of a $330,000 attorney fee on a $15.5 million estate. The residuary beneficiaries, two charities, have consented to the fee request as well as the judicial settlement of the estate. The fee is contested by the Attorney General, who argues that it is an unreasonable request, given that the time expended on this estate was minimal. She believes that the fee should be limited to $145,000.

FACTS

Marjorie Stuber Cleveland died on August 11, 2003, leaving a last will and testament dated May 9, 2003. Her will was drafted by Scott Forsyth of the Forsyth law firm. This firm had performed decedent's estate planning and other legal needs for years, in fact the relationship between decedent's family and the Forsyth family goes back three generations on a business as well as social basis. On the day decedent passed away, Forsyth was called immediately. He immediately began working on the estate administration and probate petition. Within a matter of weeks, the probate was concluded, Letters Testamentary granted, and a plan developed between Forsyth and the executor for the marshaling of assets.

Forsyth and the executor had discussed legal fees at their initial meeting. The parties signed a retainer agreement, stating that Forsyth would perform the legal work of the estate in exchange for a fee equivalent to one executor's commission. Part of the agreement was that Forsyth would be responsible for defending the estate in tax audits by the Internal Revenue Service and/or the New York State Department of Taxation and Finance, should either come to pass, as well as defending the executor if the accounting were contested.

[*2]OPINION

Attorneys' fees are to be evaluated by the Surrogate, who has the responsibility for ensuring that legal fees in estates are within the bounds of reasonableness. Matter of Middagh, 276 AD2d 593 (1999). As copious case law has discussed, the "reasonableness" of an attorney's fee is to be determined by an evaluation of several important factors, often referred to as the Freeman/Potts factors. They are as follows:

time and labor required, the difficulty of the questions involved, and the skill required to handle the problems presented; the lawyer's experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved. Matter of Freeman, 34 NY2d 1, 9 (1973).

The burden of showing reasonableness of fees is one born by the attorney. Cohen v. Ryan, 34 AD2d 789 (1970). Here, Scott Forsyth has made a prima facie showing of reasonableness. He has established his credentials, experience, skill and standing. He has shown that he aided the executor in marshaling this large estate and in ensuring that it was completed quickly. The legacies were maximized by his tax advice and skill in keeping this estate from incurring any tax liability whatsoever. The personal property division, anticipated to be an area of contention, was presided over by the attorney and was handled swiftly and without incident. The legatees began receiving substantial disbursements within a few months of the decedent's death. Both tax returns were accepted without audit and without any tax due, and the petition to close this large estate was filed less than two years after decedent's death, a year sooner than anticipated. The beneficiaries were paid a substantial portion of their legacies within only a few months of decedent's death, and the attorney filed the judicial settlement seeking to close this estate within two years of decedent's death- a very expeditious feat. For this, the attorney seeks a fee of slightly less than one executor's commission, a calculation which is customarily used as a guidepost in assessing attorney fees on estates in this community. Transcript- 28, Matter of Freeman, supra .

The Attorney General has not countered the evidence on any of these points. She has not disputed Forsyth's expertise, skill or standing in the community, she takes no issue with the quality of the legal work which was done. She accepts the guideline of attorneys fees being approximately equivalent to an executor's commission as a typical fee arrangement. In fact, her only complaint with the services rendered was that there were too little of them: her one objection to the legal fee is that it is disproportionate to the hours expended. The Attorney General did not support this objection with proof. Moreover, Forsyth testified that there were valid reasons for a lower-than-usual tally of hours: the firm's practice of not billing for time spent [*3]by anyone in the office other than the lead attorney [FN1] (T-61 & 62), the firm's familiarity with decedent's estate plan and her estate by virtue of the long standing representation which expedited the administration of the estate (as evidenced by the quick preparation of the probate petition and ability to efficiently review the proposed tax returns), and the lack of the materialization of two major and anticipated audits (T-50).

It is the last point, the lack of the materialization of tax audits, which requires more discussion. There was a valid retainer agreement executed in this estate, one which bound the attorney to provide any/all legal work necessary for the estate administration, including all defense of the estate in any audit by the taxing authorities. Audits, as Forsyth testified, are "a lot of work" (T-50) and the retainer was executed on the presumption that one or two audits would be necessary. As such, this was a contracted, flat-fee scenario. The benefits to the flat fees run to both sides: the client knows, up front, the total cost of the legal services, and the attorney is encouraged to perform the work with an emphasis on output rather than hourly billing. In exchange, both sides assume an element of risk: the client that s/he may have been able to purchase the hours of legal work for less, the attorney that s/he may need to expend unanticipated and therefore uncompensated time in order to complete the work required by the contract.

While a court is not bound by the terms of a retainer agreement, Matter of Gargaro, 80 NYS2d 214 (2005), Matter of Middagh, 267 AD2d 593 (1999), In re Cook, 41 AD2d 907 (1973), aff'd, 33 NY2d 919 (1973), retainers are due some deference where entered into by clients who fully understand the terms. See, Estate of Warhol, 165 Misc 2d 726 (1995).

Retainer agreements are not per se improper in matters involving estate administrations. In fact, the general rule is that a Surrogate will not interfere with a retainer agreement absent proof that the agreement was fraudulently procured. Warren's Heaton on Surrogate's Court, §106.03[2].

Here, the executor is a corporate fiduciary, well aware of retainer agreements and their terms, and fair and reasonable billing in estate matters, and supports the fee sought in this circumstance. The court is loathe to interfere too much in a contract that was mutually advantageous to both sides, and with a result that was acceptable not only to the contracting parties but also to the beneficiaries themselves.

The Attorney General seeks a 55% reduction in legal fees, consenting to a total of no more than $145,000. However, there was no proof at trial to justify such a reduction. There was no showing that $145,000 is more representative of a "reasonable" fee for an equally skilled attorney in their area for an estate of this size, neither was there any showing that $145,000 was representative of the "value" placed upon Forsyth's services to the estate or that his services were somehow worth less than what he requests. The Attorney General called no witness in this [*4]hearing and provided no proof of what would be representative of a typical amount of work for an estate of this size, or a typical hourly rate in a large estate such as this. While the court happens to agree with the Attorney General that the number of hours which the Forsyth law firm has spent on this estate is notably low, that fact in and of itself is not problematic. The true test ought to be the quality and quantity of the work done for the estate, quantity being measured by output and product rather than hours expended. As the Court in Matter of Snell, stated,

The timeclock approach, however necessary or appropriate in some fields, is, most certainly not that to be exclusively employed in the case of high professional skills directed to complex problems involving, among many other factors, the acceptance of heavy responsibility, commensurate with the subject of the retainer, and the utilization of advanced education and long experience.

Matter of Snell, 17 AD2d 490, 494 (1962).

The Potts court put it thus:

As has been said, the value of an attorney's services cannot be limited to specified and detailed bills of particulars with a specified amount for each time, as in the case of goods sold, or mere manual services rendered.....' That is necessarily so, for the real value of an attorney's services may be the result of his thought about the legal questions involved, while away from his office, at home or elsewhere. Matter of Potts, 213 AD 59, 62 (1925) (emphasis added).

To evaluate "work performed" any other way would encourage a problem from the opposite end of the spectrum- inflation of hours (padding), which would be more problematic than the current situation, See, Matter of Corya, 148 Misc 2d 723 (1990) , because it is disingenuous on the part of the attorney, id., and creates no benefit for the client or value to the estate.

Without strong proof in her favor, the Attorney General has argued simply that there comes a point at which an increase in estate size does not indicate a corresponding increase in legal fee. For this, she relies primarily upon two cases, Matter of Warhol, 165 Misc 2d 726 (1995) and Matter of Corya, 148 Misc 2d 723 (1990). Neither, however, convinces this court to cut the legal fee to the amount which she advocates.

In Warhol, the subject estate was originally estimated to be $100 million, but was not easily estimated initially because its fluctuating and hard-to-value corpus consisted primarily of the decedent's artwork. The executor and attorney signed an agreement for legal fees, based upon a payment of 2 1/2 % of the size of the estate. In Warhol, the court did not focus upon time spent specifically, it was apparent that the attorney had represented the estate almost full-time during its administration [FN2]. The Warhol Surrogate had given great deference to the retainer agreement, involving itself in the matter only because the retainer agreement did not create a cap on the size of the fee that could be requested. The problem, to the Warhol Surrogate, was the lack of a [*5]provision reducing the fee percentage for subsequent appreciation or discovery of assets. Warhol, at 730. The Surrogate was particularly concerned that the attorney could have given little more work than he already had expended on the matter (since he was working nearly exclusively on it) yet receive a "windfall" from the estate's quadrupling from the originally anticipated size. In finite or known estates this may be of little concern, but the Warhol estate kept "mushrooming" in value, with estimates up to $800 million, until it was finally fixed to be $570 million. The Surrogate went so far as to say that the terms of the original retainer agreement (2 1/2 % of the estate believed to be valued at $100 million), would likely have been held reasonable if the estate had remained close to the envisioned size.

Unlike the Warhol estate, the size of Marjorie Stuber Cleveland's estate could be easily prognosticated when the executor and the attorney met to negotiate legal fees. Though the Cleveland estate turned out to be slightly more than anticipated, it was not vast unknown as was Warhol. Furthermore, unlike in Warhol [FN3], the selection of the attorney to represent the estate was the most logical choice available: Scott Forsyth had represented the decedent for years on estate planning matters, had drafted her will, and had long been familiar with her assets since his law firm had represented decedent and her family for generations.

In the Corya case, the Surrogate reduced the legal fee of an attorney-executor from $250,000 to $75,000, stating that utilization of estate size to compute a fee results in a fee which often bears no relationship to the actual work performed". Corya, at 732. In Corya, however, the court's primary problem with the attorney's hourly time records was not an absence of hours spent but rather an apparent practice of padding- charging legal fees for executorial services, Corya at 734, charging excessive hours for routine procedures like a simple probate, Corya at 735, and duplication fo the accounting services performed by accountants, Corya at 736. The Surrogate seemed to consider the firm's billing practices inflated and of questionable ethics, as well it did the collusion between law firm and executor to have both be written in to the will as fiduciaries to begin with. The Corya court was concerned about fees disproportionate to the "work performed", Corya at 732, but discussed "work" only in terms of hours validly or invalidly spent. Presumably there was no showing of "work" having included value of services as there was here, or at least such proof was absent from the discussion. As discussed above, "work" is defined by more than hours billed.

The Attorney General argues that estate size should not be exclusively determinative of fee, and the court agrees. However, her argument to drastically reduce fees, based exclusively on the computed hourly rate relies too heavily upon "time spent", to the near exclusion of the other Freeman factors from consideration. Her means of fee calculation would, in this Court's opinion, be as lopsided as using the estate size exclusively as a guideline. Furthermore, weighing time spent above the size of the estate is contrary to precedent, which holds that time spent is the [*6]"least important part of the calculus in assessing the reasonableness of the sum requested". Estate of Gillet, 139 Misc 2d 188, 189 (1988). This was true in the Brehm case, where a Surrogate's "undue emphasis" on time spent on the estate, and subsequent reduction of the attorney fee by one-half was held to be an "improvident exercise in discretion". Matter of Brehm, 37 AD2d 95, 97 (1971). In Matter of Snell, the Appellate Court reversed the Surrogate and reinstated the fee requested by the estate attorney, holding that the time factor (a low tally of hours) did not trump "overwhelming evidence of the reasonableness of the requested fee, and its propriety as tested by every authoritative standard" 17 AD2d 490, 494 (1962). The Court believes that the same logic applies here.

The Freeman criteria are a balancing act: each relevant factor is to be weighed when determining the reasonableness of a fee. There is no one "controlling" factor. Warren's Heaton on Surrogate's Courts, §106.03[1]. Here, even accepting that the hourly expenditure is "unreasonably low" this one factor (time spent) must be given its relative weight and considered with the other evidence to determine whether a fee is reasonable.

Here the court is inclined to grant the fee in full, not because doing so is a stamp of approval upon the hours expended or the translating hourly rate, but because the attorney has proven that for the hours expended, he not only has passed the other Freeman considerations, but even given the low expenditure of hours, he has provided atypically high value to the estate, in his expeditious completion of the administration and the benefit rendered to the fiduciary and the beneficiaries because of it. Had the attorney not proven that his representation rendered a palpable benefit and value to the estate which justifies the fee despite a low hourly tally, the Court may have been more inclined to dock the legal fee. However that was not the case.

Finally, the valid retainer agreement, which on its face is within the bounds of reason both in services covered and fee recited, serves as an additional reason to grant the fee requested. Therefore, since the unusual circumstances present here, Matter of Gargaro, 23 AD3d 1099 (2005), justify the fee request, the Court hereby dismisses the objection and grants the fee in full.

So ordered.

March ___ , 2006____________________________________

Hon. Edmund A. Calvaruso, Surrogate Footnotes

Footnote 1:SCPA 2110 now allows for the billing of paralegals' time, however the firm's practice has not elected to incorporate this. See generally, Warren's Heaton on Surrogate's Courts, §106.02[2][b], regarding the historical compensation of paralegal services.

Footnote 2:The attorney did not account for his time, so there was no record of his hourly expenditure.

Footnote 3:The Warhol executor chose a high profile, well known criminal defense personality with no background in trust and estates law to represent the estate, a decision which the court deemed "unorthodox". Warhol, at 727.