IN THE MATTER OF THE ESTATE OF ORVILLE M. NELSON, Deceased, U.S. BANK, N.A., Executor of the Estate of ORVILLE M. NELSON, Deceased, Appellant.
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IN THE COURT OF APPEALS OF IOWA
No. 7-705 / 07-0131
Filed November 29, 2007
IN THE MATTER OF THE ESTATE OF
ORVILLE M. NELSON, Deceased,
U.S. BANK, N.A., Executor of the Estate
of ORVILLE M. NELSON, Deceased,
Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Allamakee County, Monica L.
Ackley, Judge.
An executor appeals the district court’s order denying his application for
extraordinary fees.
AFFIRMED IN PART AND REVERSED IN PART;
REMANDED WITH INSTRUCTIONS.
James Goodman of O’Connor & Thomas, P.C., Dubuque, for appellant.
W. Richard White of Morrow & White Law Offices, Waukon, for appellee.
Heard by Vogel, P.J., and Mahan and Zimmer, JJ.
2
VOGEL, P.J.
U.S. Bank, through its attorney, James E. Goodman, Jr., as executor of
the estate of Orville M. Nelson, appeals from the district court’s order denying its
request for executor’s fees and extraordinary attorney fees in a probate
proceeding. Because we agree with the executor, that the work undertaken by
the attorney for the estate was approved by the district court and was necessary
for the preservation of the assets of the estate, we reverse in part and affirm in
part.
I. Background Facts & Proceedings
Orville M. Nelson died on September 20, 2001 and his will was admitted to
probate on October 8, 2001. Nelson’s estate was valued at over two million
dollars, which included 1000 acres of farmland that Nelson operated with some
assistance from his disabled brother, Arthur Nelson. Nelson’s will provided that
one-third of his property was to be equally divided among six of his siblings and
two-thirds was to be held in trust for Arthur, to ensure he was well cared for as
long as he lived. Upon Arthur’s death, the trust was to be dissolved and the
remaining assets divided among Orville’s other six siblings. The will nominated
attorney James D. Bristol to serve as executor of the estate and he subsequently
designated himself as attorney for the executor. However, after a disagreement
with Orville’s siblings over the sale of some of the estate’s assets, Bristol
voluntarily withdrew from both roles.
On March 18, 2002, the district court
approved $9009.45, the full amount of fees and expenses Bristol requested for
his work prior to his withdrawal. The district court then appointed Arthur Nelson
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and James Rathbun as successor executors and appointed attorney Robert J.
Cowie as their attorney.
Five days prior to his appointment, Cowie filed an application for ordinary
and extraordinary attorney’s fees, requesting $250,000.
It appears he had
worked with at least some of the beneficiaries as his application states in part:
The undersigned attorneys undertook to represent all the residuary
beneficiaries of the above entitled estate concerning actions or
inactions taken by the former attorney and executor for the estate,
James Bristol.
As compensation for such undertaking, the
beneficiaries agreed with the attorneys to pay a one-third (1/3)
contingent fee agreement on dollars to be saved by the
beneficiaries in having Mr. Bristol withdraw as executor and
attorney; not sell real estate in the estate which is required to be
retained; and filing certain tax elections available for the estate if
such real estate is retained in the Nelson family.
Attorney Cowie purported to attach a calculation of anticipated dollars to be
saved, and to reduce the amount of fees should the savings not be achieved in
full. No documentation was attached. On the same day, the district court, finding
the fee to be “valid and reasonable” approved this request without notice to the
beneficiaries or setting a hearing.
Cowie later reached a family settlement
agreement with Orville’s siblings. The agreement provided that Arthur would
notify the social security office that he was no longer disabled and would assume
the operation of Orville’s farm. This would allow the estate to take a Family
Owned Business Deduction as well as use the Special Use Valuation, both
aimed at reducing the estate’s federal tax liability. 1
The settlement also
terminated the trust created for Arthur and paid a lump sum to the other six
siblings.
1
Arthur was responsible for all estate taxes, inheritance taxes, and
See IRC sections 2057 and 2032.
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penalties.
Additionally, Arthur assumed the responsibility to pay Cowie’s
attorney’s fees. In August of 2002, Cowie was paid $50,000 of his fees and
Arthur executed a mortgage on the farmland for the remaining $200,000.
On June 10, 2002, Kenneth Nelson, one of Orville’s siblings, filed a motion
for reconsideration of the $250,000 fee authorized for Cowie. Although Cowie’s
motion for extraordinary attorney’s fees claimed the beneficiaries agreed to his
$250,000 fee, Kenneth alleged not all of the beneficiaries had agreed, nor were
they given notice of Cowie’s request. Cowie’s actions in regards to the estate
were further scrutinized, resulting in a civil fraud and professional malpractice
action being filed against Cowie by attorney Thomas L. Staak representing
Arthur. Additionally, a petition to appoint a conservator for Arthur was filed.
In May of 2004, U.S. Bank was appointed as the next successor executor
for the estate with attorney James Goodman appointed as the attorney for the
executor.
Goodman filed a motion to set aside the $250,000 attorney’s fee
authorized to Cowie and requested the court’s permission to participate in
discovery in the fraud and malpractice case Arthur had filed against Cowie. The
district court ordered that Orville’s estate and Arthur’s malpractice action be
combined for the purposes of “conducting discovery including interrogatories,
request for production of documents and depositions.” The court then vacated
the $250,000 attorney’s fee authorized to Cowie. Cowie appealed the district
court’s order vacating the $250,000 attorney’s fee and Goodman defended the
appeal through final briefing, a remand order and further proceedings.
On
September 21, 2005, the district court renewed its previous order that Goodman
participate in discovery and stated:
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The Court made it clear that for the purposes of saving the estate
duplicative expenses, the law action and the estate action were to
be combined to allow the executor to participate in the discovery
process initiated by the Plaintiff’s attorney in the law action. The
Court confirms that this was the intention of the Court at the time
the order was entered.
In 2006, the malpractice action was settled and as part of the settlement Cowie
retained $50,000 of the $250,000 of attorney’s fees previously allowed and
moved to dismiss his appeal of the prior district court order that had vacated the
order allowing his extraordinary attorney’s fees.
In December of 2006, the work in Orville’s estate was nearing completion.
Goodman had previously been allowed $19,000 in attorney’s fees. U.S. Bank,
after a two-and-one-half year involvement, requested an executor’s fee of $5000
and Goodman requested an additional $106,916.04 in attorney’s fees, which
included $1016.04 of costs. After a hearing, 2 the district court authorized that
Goodman be paid an additional $30,430 in attorney’s fees and $374.88 in costs,
denying any further amounts. The district court set this reduced amount after
noting that multiple attorneys had already been paid for work done in the estate
and that some of Goodman’s participation in the discovery of the malpractice
action was unnecessary.
Goodman filed a motion to reconsider and after a
hearing, the district court denied U.S. Bank’s request for executor’s fees and
declined to award Goodman any further attorney’s fees.
U.S. bank, by
Goodman, appeals from this order.
2
Although the district court and the parties referred to this hearing in their briefs, a
transcript of the hearing was not included in the record.
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II. Standard of Review
Probate proceedings regarding attorney’s fees stand in equity; therefore
our review is de novo. Iowa Code § 633.33 (2001); Iowa R. App. P. 4; In re
Estate of Petersen, 570 N.W.2d 463, 465 (Iowa Ct. App. 1997). We give weight
to the factual findings of the district court, but are not bound by them. Iowa R.
App. P. 6.14(6)(g). To a considerable extent the compensation of an attorney
rests in the discretion of the district court, but this must be a reasonable degree
of discretion. In re Estate of Bruene, 350 N.W.2d 209, 217 (Iowa Ct. App. 1984)
(quoting In re Estate of Simon, 288 N.W.2d 549, 552 (Iowa 1980)).
III.
Discussion
On appeal, Goodman argues the district court erred in denying executor
fees and the majority of the executor’s attorney’s fees.
Iowa Code sections
633.197 to 633.199 (2005) govern the award of executor and attorney’s fees in
probate cases. A claim for extraordinary fees is governed by Iowa Code section
633.199, which provides:
Such further allowances as are just and reasonable may be made
to personal representatives and their attorneys for actual necessary
and extraordinary expenses or services.
Necessary and
extraordinary services shall be construed to also include services in
connection with real estate, tax matters, and litigated matters.
In determining what is a reasonable attorney fee, the court may consider many
factors, including the size of the estate, nature and difficulty of the services
performed, fee customarily charged for similar services, competency and
efficiency exercised in the estate, experience of the attorney or executor, actual
time devoted to the estate, and results obtained. In re Estate of Randeris, 523
N.W.2d 600, 607 (Iowa Ct. App. 1994). The person requesting compensation for
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services has the burden to show the services rendered and the value thereof. In
re Estate of Bruene, 350 N.W.2d 209, 217 (Iowa Ct. App. 1984).
In this case, Orville’s estate was valued at $2.15 million and involved
issues unique to the usual administration of an estate, including unraveling a
series of actions taken by previous executors which jeopardized the assets of the
estate.
Federal and Iowa tax issues were revisited and litigation ensued,
designed to reduce and recapture $250,000 of attorney’s fees that were
previously authorized.
See In re Estate of Seablom, 231 Iowa 608, 612, 1
N.W.2d 701, 703 (Iowa 1942) (discussing that an administrator performed
services not usually required in the administration of an estate). The district court
was presented with evidence of the standard hourly rates upon which attorneys
specializing in probate matters might charge and in an August 2004 court order,
approved an hourly rate for Goodman’s services. Furthermore, the district court
noted that Goodman’s competency was not in question as he has nearly
nineteen years of experience in the estate area with seventy-five percent of
Goodman’s law practice consisting of probate and estate planning. Goodman
has been involved in over 600 estates and numerous IRS audits. The district
court found “Goodman’s expertise came into play with regard to the IRS audit,
and he is commended for his efforts to resolve those issues with the IRS to the
benefit of the estate.” The benefit to the estate was also apparent in that Cowie’s
prior authorization of $250,000 in attorney’s fees was reduced to $50,000 and
complex tax issues were resolved to the benefit of the estate.
In denying Goodman’s request, the district court found that none of
Goodman’s actions regarding the tax matters were excessive, but that
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Goodman’s participation in the discovery phase of Arthur’s malpractice action
against Cowie was unnecessary.
The district court stated that “it is better
practice to obtain court authorization before commencement of the contemplated
action.” Goodman argues that the court had approved of his participation and
that his participation was necessary to preserve the assets of the estate. See In
re Estate of Petersen, 570 N.W.2d 463, 466 (Iowa Ct. App. 1997) (discussing
that although prior authorization of attorney’s fees for the defense of a will
contest is the better practice, it is not required or dispositive because just cause
must be established in either case).
The district court did approve of Goodman’s participation in discovery
multiple times. In a December 2004 order, the district court found that protection
of the estate was a paramount concern, and therefore combined discovery for
the estate and Arthur’s malpractice action in order to prevent duplicative
services. Goodman then participated and openly addressed the district court in
an August 2005 hearing regarding a defense motion in the malpractice action. In
a September 2005 order the district court again stated:
The Court made it clear that for purposes of saving the estate
duplicative expenses, the law action and the estate matter were to
be combined to allow the executor to participate in the discovery
processes initiated by the Plaintiff’s attorney in the law action. The
Court confirms that this was the intention of the Court at the time
that the order was entered.
We agree with Goodman that he did receive prior authorization by the district
court for the work he was directed to do and at the hourly rate he would charge.
In denying the fees, the district court stated in hindsight that it did not “provide
carte blanche to Attorney Goodman to duplicate services.” Unfortunately, there
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was no indication in the court’s previous orders as to how Goodman should
restrict his participation. Rather, it was just the opposite. The court had initially
indicated in its November 24, 2004 order that
combining the proceedings as requested by the Executors prevents
duplicative services and allows for all of the appropriate information
to be brought to the surface for analyzing all allegations raised in
the civil proceedings as well as those raised by the Executors
herein.
Attorney Thomas L. Staack, who represented Arthur in the malpractice action,
attested that while some duplication could not be avoided in the combined
proceedings, “Goodman took all necessary steps to reduce duplication of work.”
Additionally, we agree with Goodman that his participation was necessary
to recapture and preserve the assets of the estate as well as examine other
serious irregularities that had previously occurred in the administration of the
estate. He undertook to straighten out a convoluted estate, which had been
badly mismanaged, if not defrauded. Goodman’s participation in discovery and
litigation in the civil matter successfully and dramatically reduced the $250,000 in
attorney’s fees that were authorized in a previously obtained ex parte fee order.
See In re Estate of Wulf, 526 N.W.2d 154, 157 (Iowa 1994) (“[A]n action benefits
an estate if it involves increasing or preserving the size of the estate.”).
Moreover, Goodman accounted for all of his work, by attaching to his fee
application, a detailed and exhaustive itemization of time.
We find that Goodman has met the statutory requirements for claiming
extraordinary fees. Goodman is entitled to his fees for the services he provided
regarding the estate administration, the tax matters, the discovery conducted in
conjunction with Arthur’s attorney malpractice action, and defending the appeal
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of the district court’s order vacating the $250,000 fee granted to Cowie.
However, we do not disturb the district court’s ruling denying Goodman’s fees
stemming from the conservatorship action as he should have been compensated
for his time and expertise for that work from the conservatorship assets, rather
than from the estate. Accordingly, we reverse and remand, directing the district
court to enter an order approving an attorney’s fee of $102,516. We also reverse
the district court’s denial of executor’s fees without explanation and direct the
district court to enter an order approving the $5000 requested executor’s fee.
See Iowa Code § 633.197 (authorizing executors to be paid a reasonable fee for
services rendered).
AFFIRMED IN PART AND REVERSED IN PART; REMANDED WITH
INSTRUCTIONS.
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