Can I Recover My Attorneys’ Fees in the Pennsylvania Orphans’ Courts?

A common question I’m often asked during my first conversations with potential clients is: “Can I make [my brother/sister/the Executor/Trustee] pay my fees if I win in the Orphans’ Court?” Folks often have a vague idea that the American legal system works that way, or at least, they hope it does.  Interestingly enough, a litigant in the Orphans’ Courts does have a better chance of having his or her attorneys’ fees paid for than do most litigants—but only in very specific cases.  I‘m writing this blog post to explain this concept to my clients and to share it with others who are wondering about it.

The American Tradition is to Pay Your Own Way

Under the “American Rule,” litigants in all manners of civil cases pay their own legal fees, even if they win convincingly. But there are a few exceptions. In certain limited cases, a governing statute or a  contract between the parties requires  the losing party to pay the winning party’s fees. In most cases, however, no such statute or contract applies. Contrast that with the “British Rule.” It requires the loser to pay the winner’s attorneys’ fees and costs in civil cases. It’s the ultimate indignity, really. After you’ve just lost your case and paid your own lawyer, now you have to pay the legal fees of the party who just beat you – even if the decision was a close one.

Why is the American Rule different?  Law professors say it’s because we Americans think it’s more fair. We don’t like to think that, for instance, someone might be discouraged from seeking justice because they were afraid of having to pay double the attorneys fees, even for a close call. Nor would we like to think that a litigant with more money might be able to first “buy” a victory by overwhelming the adversary with legal papers, discovery requests, and so on and then force the loser to reimburse for those massive fees that led to the win.  Something about that seems unfair and  “un-American,” because it kicks the underdog when he is down.  In any event, whether you agree or disagree with it, the “American Rule” of pay-your-own-fees to protect your self-interests is the general rule in Pennsylvania and the rest of the United States.

There are Few Exceptions to the “American Rule”

In the Orphans’ Courts, we’re typically litigating over a defined fund of money, such as the assets of an estate or trust.  Certain Orphans’ Court disputes involve allegations that a fiduciary, such as an Executor or a Trustee, has breached a duty and caused economic harm to that fund. Maybe the fiduciary stole the money.  Maybe she lost it on a crazy investment. Maybe she loaned it to someone who couldn’t repay it. There are countless ways that a fiduciary can cause harm to a fund they are supposed to be protecting.

When a fiduciary screws up or misbehaves and the beneficiaries of the estate or trust lose money as a result, the beneficiaries can pursue a “surcharge” action in the Orphans’ Courts.  A surcharge action seeks to replenish the fund to the same amount that existed before the fiduciary’s misdeed or mistake. Oftentimes, the only way to make that happen is to force the fiduciary who caused the problem to repay the lost money out of his own pocket—to make the fund whole again, if you will. Typically, a beneficiary will hire a lawyer to help attain that relief.

Some estates or trusts, of course, have multiple beneficiaries.  What if only one or two of those beneficiaries has hired and paid the lawyer to get the fiduciary to pay back the money that she lost/stole/squandered?  Those one or two beneficiaries would have paid the legal fees for a result that would monetarily benefit all the beneficiaries.

Here’s a scenario to consider: A beneficiary might have a one-tenth interest in an estate or trust. If the fiduciary pays back $100,000 to the trust or estate, that beneficiary will receive only a $10,000 benefit of that pay-back – assuming that the money brought back in is ever distributed back out to the beneficiaries.    What if that beneficiary paid $20,000 to her lawyer to get that $100,000 result?  Would it be fair for the other beneficiaries to reap the benefits of the surcharge award without paying their fair share of the counsel fees and costs?  The Pennsylvania Orphans’ Courts think not. It is first and foremost a court “of equity.” And the Judges of the Orphans’ Courts uphold the concept of “no free riders.”

For centuries, the Pennsylvania Orphans’ Courts have declared that when a litigant’s efforts have helped to replenish all or some of the money wrongfully depleted from a trust, estate, or other fund, that litigant  can be reimbursed by the fund for the legal fees incurred to obtain that benefit for himself and for all of its other beneficiaries. This concept of replenishment, which is key, is often referred to as “creating a fund.”

Here’s another thing to consider. “Free rider” beneficiaries of a replenished trust could include minor beneficiaries, remainder beneficiaries, or even beneficiaries who have not yet been born but who have nevertheless benefited from the attorney’s work.  Let’s say that a trustee damaged a trust to the tune of $500,000, and the trustee is forced to repay that sum. In effect, the trust will not only be replenished by that $500,000 but also by the interest, dividends, stock splits, and so forth that otherwise would have been lost over the years without that $500,000. So, that trust’s beneficiaries who are not even yet born may benefit from the legal fees spent today by a beneficiary more senior to them.

Again, if a litigant’s efforts “created a fund,”—or in essence, “replenished” it— then it is only fair that the other beneficiaries who share in that fund should pay their proportionate share of the counsel fees that benefited them all.

Having said that, I must emphasize that these scenarios that lead to attorneys’ fees awards are unusual.

The Essential Question: Did You Protect the Fund or Protect Your Interest in the Fund?                  

A 2013 opinion by The Honorable Chad Kenney of the Delaware County Orphans’ Court reminds us not to get too excited at the prospect of making someone else pay our legal fees when we are thinking about litigating in the Orphans’ Court.  Pepper Trust, 4 Fiduc. Rep. 3d 49 (O.C. Delaware 2013).

In Pepper, Eulalie W. Pepper created a trust for her daughter Lalite Lewis under her will. Lalite had three children, each of whom had their own children.  At some point, Lalite’s son, Perry Lewis, adopted a 23-year old woman named Marian Francis Kerr.  In January 2010, the co-trustees PNC Bank N.A. and M.L. Lewis, filed a petition for adjudication in which they asked the Court to determine whether Marian, an “adult adoptee,” qualified as a beneficiary under the trust and in which they suggested the correct answer was “no.”  Marian, unsurprisingly, did not like that answer. She joined the fray in the Orphans’ Court and argued that the Court should declare her a beneficiary of the trust.  The co-trustees, apparently satisfied with raising the issue but not feeling obligated to defend their position, stepped to the sidelines—leaving it to the known and admitted beneficiaries of the Trust to either litigate or settle with Marian.

If Marian was a beneficiary of the Trust, then there would have been fewer dollars for each of the other beneficiaries.  Also unsurprisingly then, those beneficiaries joined the litigation and argued that Marian—who was adopted at the age of 23, for crying out loud—could not possibly be a beneficiary of the Trust.  Fortunately for those beneficiaries, Judge Kenney’s predecessor, Judge Joseph P. Cronin Jr. held that because Perry and Marian did not have a parent-child relationship during Marian’s minority, Marian was not properly a beneficiary of the Trust.  The attorneys for the beneficiaries billed 178.80 hours on that matter, for which they hoped to be paid and/or reimbursed by the Trust.

In March 2013, the trust beneficiaries who paid the lawyers who prevented Marian from becoming another beneficiary filed a Petition in which they asked the Orphans’ Court to order the Trust to pay their counsel fees and costs. In September 2013, Judge Kenney denied the Petition.

Judge Kenney noted, as discussed above, that under certain circumstances, the Orphans’ Courts will order “free-rider” beneficiaries to contribute proportionately to a litigant’s attorney’s fees.  The Court emphasized, however, that “where the fund is in the hands of the court and in no jeopardy, except from the possible mistake of the court in dealing with it, and an expectant is merely protecting his own interest, he will not be allowed counsel fees, although through his efforts others may also be benefited.”

Judge Kenney noted in Pepper that “attorneys’ fees may only be awarded from a common fund, such as the Trust in this case, when one’s efforts recover, preserve, protect, or increase the subject common fund.” Unfortunately for the trust beneficiaries seeking counsel fees in Pepper, they had not created a fund, brought in additional assets to the fund, or protected the fund from illegal activity or waste.  Judge Kenney emphasized that the petitioners only “maintained the status quo,” ensuring that the distributions from the trust would remain unchanged and they would not have to share with Marian.  Further, the trust was never in jeopardy, because although Marian thought she had the right to be a trust beneficiary, she was simply mistaken—no fraud or illegal activity had taken place.  So, the Court denied the request that the Trust reimburse for the beneficiaries’ attorneys’ fees. Consistent with centuries of law on this topic, Judge Kenney left them on their own to pay their lawyers.

What if, say, only one of the four beneficiaries had hired and paid the lawyer? Shouldn’t the other beneficiaries, whose one-quarter interests in the trust were “saved” from becoming one-fifth interests, have to pay too? In a word, no. Consider, for instance, that maybe those non-paying beneficiaries didn’t object to Marian becoming a co-beneficiary. While they certainly benefitted monetarily from the legal fees they didn’t pay, again, under my hypothetical scenario, the one party who paid for the legal action did not succeed in bringing any additional money to the Fund or protecting it from fraud or illegal activity. He was primarily protecting his self-interest in it.

In future blog posts, I will discuss some cases in which legal fees have been awarded in the Pennsylvania Orphans’ Courts—and sometimes even paid by the fiduciaries themselves or their counsel. However, it’s important to typically assume that you and only you will be paying your legal fees and costs in Orphans’ Court matters. If anyone (including a lawyer) tells you to expect otherwise, be sure to get an intelligent and written explanation as to why.

Important Take-Aways

— If you and your Orphans’ Court counsel succeed in increasing the current size of the Estate or Trust OR protecting it from illegal activity or waste, then you can ask the Judge to allow the fund to pay your legal fees. Otherwise, your fellow beneficiaries would be “free riders.”

–In most cases, you are not actually protecting or increasing a fund.  You are instead acting primarily to protect your own interests in that fund. That’s fine and to be expected, but doesn’t warrant payment of your associated attorneys’ fees by the fund or anyone else. As a general rule, if you reap the benefits (or not) of the work done by your lawyer—and the size of the fund is unchanged as the result of your counsel’s efforts —then you pay your own legal fees. It’s “the American Rule.”