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In re First and Final Account of Brown Brothers Harriman Trust Company, N.A.

Sur Ct, New York County

October 15, 2013

In the Matter of the First and Final Account of Brown Brothers Harriman Trust Company, N.A., as resigned Co-Trustee of that certain Trust known as Marital Trust A created for the benefit of Sandra Jarmuth Schulte under Article V of the Trust Agreement dated April 8, 2002, as restated and amended, made by DAVID A. SCHULTE, JR., Deceased, as Settlor. In the Matter of the First and Final Account of Brown Brothers Harriman Trust Company, N.A., as resigned Co-Trustee of that certain Trust known as Marital Trust B created for the benefit of Sandra Jarmuth Schulte under Article V of the Trust Agreement dated April 8, 2002, as restated and amended, made by DAVID A. SCHULTE, JR., Deceased, as Settlor

Unpublished Opinion

For Petitioner Brown Brothers Harriman Trust Company, N.A.: Katten Muchin Rosenman, LLP, by Ronni G. Davidowitz, Esq.

For Objectant Holly S. Ellison: Daniel P. Romano, Esq.

For Respondent Sandra Jarmuth Schulte: Farrell Fritz, P.C. by John Morken, Esq.

For Successor Co-Trustee Fiduciary Trust Company International: Windells Marx Lane & Mittendorf, LLP, by John Lyttle, Esq.

Rita M. Mella, J.

In each of these two contested trust accounting proceedings, the parties have filed stipulations withdrawing all the objections with the exception of those challenging the fees of counsel to the outgoing and accounting co-trustee, Brown Brothers Harriman Trust Company, N.A. ("Brown Brothers"). The stipulations further agreed that these legal fees shall be determined by the court based on certain submissions of the parties without the need for a hearing. This decision resolves those remaining objections as to legal fees and disbursements in each of these accountings.

The two trusts at issue were established pursuant to an April 8, 2002 trust agreement between settlor David Schulte, Jr., and himself and his only child, Holly Ellison, as co-trustees. Article V of that instrument provided that upon the settlor's death, which occurred on November 13, 2005, a marital trust was to be established for the benefit of settlor's surviving spouse, Sandra Jarmuth Schulte. The trustees were to be Sandra and a corporate trustee, but the latter declined to act, leading to the appointment of petitioner Brown Brothers as co-trustee, which served beginning June 23, 2006. The co-trustees, pursuant to a provision of Article V, divided the marital trust into two separate subtrusts, the trusts accounted for herein, known as Marital Trust A and Marital Trust B, both governed by identical terms. Sandra is the current beneficiary of these trusts during her life, while Ellison is their presumptive remainder beneficiary. Ellison filed eight objections to the accounting for Marital Trust A and four objections to the accounting for Marital Trust B, now all withdrawn with the exception of those to the fees of Katten Muchin Rosenman LLP ("Katten"), petitioner's counsel.

As an overview of the work done, according to Katten's affidavit of services, although the firm, beginning in April of 2010, worked to bring about the resolution of disagreements between them, "tensions between Brown Brothers and Sandra" eventually led to a petition by Brown Brothers to resign. Katten prepared the documents for and represented Brown Brothers on that petition, which was granted by this court. After a meeting among the parties and counsel for in-coming co-trustee, an agreement informally settling Brown Brother's account was prepared by Katten. That informal process broke down, however, as a result of various events, among them, the request by counsel to Sandra and the in-coming trustee (they were then represented by the same counsel) that the informal account include a provision paying its fees, which was unacceptable to Katten because Brown Brothers could not properly account for the payment of these fees after it had ceased to be a co-trustee.

The Katten firm then negotiated a turnover of the trusts' assets (less a reserve) to the successor trustee, and the assets were transferred on March 23, 2011. This was the end of the almost six-year period in accounts prepared for judicial settlement, which are currently before the court. These accounts show assets for Marital Trust A, of approximately $12 million in principal [1] and $600, 625 in income, and for Marital Trust B, $4.6 million in principal and almost $452, 000 in income.

There was a period of informal discovery based on a letter from Ellison's counsel approximately one month before the agreed upon deadline for Ellison to file objections. The firm provided Ellison's counsel with documents the day before that deadline, but Ellison filed her objections by the deadline. Then followed a period of more formal discovery based on a discovery order by the court, then a purported settlement of all outstanding issues, which eventually could not be consummated, and finally the stipulation agreeing to submission of the fee issues to the court for determination.

All told, the firm seeks $240, 060.55 in fees for 466.40 hours of work already billed, and a further $4, 000 in fees to be billed to prepare the decrees and to bring these matters to a conclusion. These are apportioned between the two trusts, $180, 045.41 to Marital Trust A, of which $55, 362.49 was incurred after the filing of objections, and $60, 015.14 to Marital Trust B, of which $18, 454.16 was incurred after the filing of objections.

Katten also seeks payment of $1, 524.89 in disbursements incurred on behalf of Marital Trust A and $508.29 in disbursements from Marital Trust B, for a total of $2, 033.18, to which Ellison also objects.

The Surrogate's Court determines the fees of counsel payable from a trust estate in the sound exercise of its discretion after review of the relevant criteria (Matter of Kinzler, 195 A.D.2d 464, 467 [2d Dept 1993]; Matter of Graham, 238 A.D.2d 682, 687 [3d Dept 1997]; see Matter of Freeman, 40 A.D.2d 397 [4th Dept 1973], affd 34 N.Y.2d 1 [1974]). In determining the proper fee, the court must consider several factors. As is well-established, the non-exclusive list of those to consider in determining the reasonableness of fees, under the Potts and Freeman cases, includes: (1) the time spent; (2) the difficulties involved; (3) the nature of the services rendered; (4) the professional standing and reputation of counsel; and (5) the results obtained (Matter of Potts, 213 A.D. 59 [4th Dept 1925]; see Matter of Freeman, 34 N.Y.2d at 9).

Ellison's opposition to the fees claimed focuses on the first three of these criteria, namely, the necessity to incur certain time charges, primarily those in response to what she considered were discrete and limited document requests. She further questions the need for counsel to have conducted a privilege review of those documents and the time spent to obtain invoices from those providing services to the co-trustees. [2]

Ellison specifically contests the fees for work done after she filed objections, claiming that the petitioner's failure to timely deliver documents based on her informal request "forced [her] to file my Objections;" that the petitioner "never offered to allow me to withdraw my Objections... or extend my time to refile the Objections;" and that the petitioner "never filed an Answer to our Objections." These specific claims have no merit based on the petitioner's uncontroverted statements that Ellison never sought an extension of time to file her objections, nor an agreement to withdraw them without prejudice to re-filing. Moreover, while the court may direct the filing of a verified reply to objections to sharpen the issues before the court, technically, an "answer" to them is not required, nor considered a pleading without such a direction by the court (see SCPA § 302). Also, the approximately 30-day period between the informal demand and the response thereto cannot be considered so grievous a delay that it somehow "forced" Ellison's hand into filing objections. Given Ellison's expressed concerns with the accounts and her eventual filing of objections, making this a litigated matter, it cannot be said as a matter of law that counsel's devotion of time to privilege review was improper (see Matter of Poster, 25 Misc.3d 780 [Sur Ct, Bronx County 2009]). Nor can Ellison, having actually interposed objections, claim that the petitioner should have overlooked or ignored them.

Nevertheless, Ellison's opposition makes some cogent criticisms of the time spent by counsel on these matters given the issues presented in the objections, which primarily concerned the substantiation of expenses paid by the trusts. The demands were discrete, [3] and sought documents that should have been more readily accessible to the petitioner despite counsel's professed need to go through "voluminous files to find the correct documents." The court also notes that the legal issues raised cannot be characterized as significant, necessitating neither substantial research nor lengthy briefing. No depositions or fact-finding hearings were scheduled. After review of the affidavit of legal services and the time records provided as well as the entire file, the court, upon consideration of the Potts and Freeman criteria, determines that the legal fee requested is fair and reasonable and is approved, except that the amount requested is reduced by $14, 548.75. This reduction reflects a finding that the number of hours spent as well as the hourly rate charged for the gathering and review of documents to be produced at Ellison's request are excessive. [4] Since there is no explanation of the allocation of the time between the two trusts, the court, without some additional showing, will consider this fee reduction applicable to both trusts in the ratio of the total fees sought against each in counsel's affidavit of legal services. The sum of $1, 000 is allowed to counsel to finalize and settle the decrees in these matters.

As to disbursements, the charges for in-house photocopying ($344), binding ($105) and local transportation ($229.02) are disallowed under Matter of Herlinger (NYLJ, Apr. 24, 1994, at 29, col 3 [Sur Ct, New York County]), and the petitioner is therefore allowed total disbursements in the sum of $1, 355.16. [5] The disbursements allowed, without some further showing of the allocation between the two trusts, shall likewise be apportioned between them in the ratio of the disbursements sought from the two trusts in counsel's affidavit of services.

Accordingly, the fees and disbursements of counsel to the petitioner from the trusts are fixed and determined as set forth in this decision.


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