In re: HoffmanÂ

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA17-972
Filed: 6 March 2018
Guilford County, Nos. 17 CVS 4578, 15 SP 1380
IN THE MATTER OF: The Administration of the MAYETTE E. HOFFMAN LIVING
TRUST U/A Dated August 4, 1997, as amended.
KIMBERLI HOFFMAN BULLARD, CO-TRUSTEE, Petitioner,
v.
JAMES HOFFMAN, CO-TRUSTEE, Respondent.
Appeal by respondent from order entered 23 May 2017 by Judge David L. Hall
in Guilford County Superior Court. Heard in the Court of Appeals 7 February 2018.
Booth Harrington & Johns of NC PLLC, by A. Frank Johns, for petitioner-
appellee.
Smith, James, Rowlett & Cohen, LLP, by Norman B. Smith, for respondent-
appellant.
ARROWOOD, Judge.
James Hoffman (“respondent”) appeals from an order entered in Guilford
County Superior Court denying his appeal from the Guilford County Clerk of
Superior Court’s award of attorneys’ fees in favor of Kimberli Hoffman Bullard
(“petitioner”). For the following reasons, we affirm.
I. Background
IN RE: HOFFMAN
Opinion of the Court
This appeal of an attorneys’ fees award arises out of a special proceeding
between petitioner and respondent in their roles as co-trustees of a trust, the primary
asset of which is a residence located at 4423 Oakcliffe Road in Greensboro, North
Carolina. Petitioner and respondent became solely responsible for the property as co-
trustees after their father, Mayette E. Hoffman, was adjudicated incompetent in
September 2010 and suffered health issues in May 2012 that forced him to
permanently move from the property into a retirement community, leaving the
property unoccupied. Letters by the father’s attorney, now petitioner’s attorney,
dated 10 May 2013 and by the father’s guardian’s attorney dated 3 December 2013
notified petitioner and respondent of their fiduciary duties as co-trustees to manage
the property, including dealing with the repair and maintenance issues that plagued
the property.
Over the next couple of years, because petitioner and respondent disagreed
over the management of the trust, the property remained vacant, bills went unpaid,
insurance lapsed, and the property continued to deteriorate. On 10 April 2015,
petitioner sent a certified letter to respondent outlining alleged breaches of
respondent’s fiduciary duties and requesting that he voluntarily resign as co-trustee.
Respondent signed a return receipt on 13 April 2015 acknowledging acceptance of the
letter, but did not otherwise respond.
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IN RE: HOFFMAN
Opinion of the Court
On 28 May 2015, petitioner filed a petition to remove respondent as co-trustee
for cause. In addition to removal, petitioner sought damages, costs, and attorneys’
fees. The petition sought removal and damages because
[r]espondent, by failing [to] agree to repairs and
renovations to ready and place the real property on the
market; by allowing the assets to waste and to continue to
deplete the cash assets of the guardianship estate; by
acting unilaterally to place the home for sale; and by
removing personal property of his father from the home,
has acted with bad faith and with improper motive and has
breached the duty to administer the trust in good faith, in
accordance with its terms, purposes and interests of the
beneficiaries in violation of N.C.G.S. § 36C-8-801 and 802.
Respondent filed a response and counterclaim on 4 June 2015. Respondent alleged
that he had expended his own time and money on the upkeep of the property and to
avert tax foreclosure. Thus, respondent sought reimbursement for amounts
expended. Respondent also sought to prevent petitioner from “hampering and
disrupting the efforts to sell the real estate.” Petitioner answered respondent’s
counterclaim.
The matter first came on for hearing 18 and 19 April 2016 before the
Honorable Lisa Johnson-Tonkins, Clerk of Guilford County Superior Court. That
hearing concluded with the parties agreeing to sell the property and requesting that
the clerk continue the matter to allow time for a sale. The clerk granted the
continuance. The matter came back on for hearing on 11 July 2016. At that time,
issues in the sale of the property were explained to the clerk and the matter was
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IN RE: HOFFMAN
Opinion of the Court
continued again until 11 August 2016. Issues with the sale continued with the
prospective buyer backing out of the purchase agreement and wanting a lower price.
As a result of the issues and the need to have the property occupied with some source
of income, petitioner’s counsel recommended a lease to the potential buyer until they
could proceed with a sale. Counsel for the parties worked together to construct a
lease but respondent would not agree. Therefore, petitioner sought court approval of
the lease by motion filed 26 July 2016. The clerk filed an order approving the lease
on 1 August 2016 “in order to stop the wasting of the asset of the trust and to receive
rental income.” The matter then came back on for hearing on 11 August 2016 as
scheduled. At that time, the clerk revisited petitioner’s petition to remove respondent
as co-trustee. An order granting the petition to remove respondent as co-trustee was
filed 16 September 2016.
Following the removal of respondent as co-trustee, petitioner filed a motion for
attorneys’ fees and costs on 12 October 2016. Petitioner sought a total of $26,096.70,
claiming it was expressly allowed under N.C. Gen. Stat. § 36C-10-1004.
Petitioner’s motion for attorneys’ fees and costs came on for hearing before the
clerk on 18 November 2016. On 22 November 2016, the clerk filed an order awarding
some attorneys’ fees and costs to petitioner. Specifically, the clerk found “[t]hat
[r]espondent’s behavior as [c]o-[t]rustee during July and August 2016 was egregious
and obstructionist, jeopardizing the health of the Mayette E. Hoffman Living Trust[.]”
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IN RE: HOFFMAN
Opinion of the Court
Therefore, the award was limited to $7,243.00 in attorneys’ fees and costs for services
rendered to petitioner from 7 July 2016 through 12 August 2016. The clerk
concluded the limited award for “services rendered . . . during the period of July and
August 2016[] is within the discretion of [the] [c]ourt and is appropriate because of
[r]espondent’s egregious and obstructionist behavior as [c]o-[t]rustee[.]” The clerk
further concluded that “[c]osts before and after July and August 2016 are not relevant
to the egregious and obstructionist behavior of . . . [r]espondent and are therefore
denied[.]”
Respondent filed notice of appeal to the superior court on 30 November 2016.
Following a hearing before the Honorable David L. Hall in Guilford County Superior
Court, on 23 May 2017, an order was filed by the superior court denying respondent’s
appeal. Respondent filed notice of appeal to this Court on 22 June 2017.
II. Discussion
The sole issue raised by respondent on appeal to this Court is whether the
superior court erred in finding there was a factual basis to support the clerk’s award
of attorneys’ fees and costs. Respondent does not challenge his removal as co-trustee.
Pertinent to this case, the North Carolina Uniform Trust Code (“UTC”),
Chapter 36C of the North Carolina General Statutes, provides that “[i]n a judicial
proceeding involving the administration of a trust, the court may award costs and
expenses, including reasonable attorneys’ fees, as provided in the General Statutes.”
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IN RE: HOFFMAN
Opinion of the Court
N.C. Gen. Stat. § 36C-10-1004 (2017). The “North Carolina Comment” to N.C. Gen.
Stat. § 36C-10-1004, in turn, directs attention specifically to N.C. Gen. Stat. § 6-21(2),
which provides that “[c]osts . . . shall be taxed against either party, or apportioned
among the parties, in the discretion of the court” in “any action or proceeding which
may require the construction of any . . . trust agreement, or fix the rights and duties
of parties thereunder . . . .” N.C. Gen. Stat. § 6-21(2) (2017).
Respondent acknowledges these statutes, but asserts the discretion of the
court to award attorneys’ fees and costs is “severely constrained” to those instances
where there is egregious conduct, such as bad faith or fraud. Respondent relies on
the “Official Comment” to N.C. Gen. Stat. § 36C-10-1004 and this Court’s decision in
Belk v. Belk, 221 N.C. App. 1, 728 S.E.2d 356 (2012). We are not convinced that the
discretion of the court to award attorneys’ fees and costs is so limited.
In Belk, the respondent was ordered to pay $138,043.55 in attorneys’ fees in an
action seeking an accounting of custodial funds. Belk, 221 N.C. App. at 5, 728 S.E.2d
at 358. Among the issues raised on appeal, the respondent argued the trial court
erred in awarding attorneys’ fees because there is no statutory authority for such an
award under the North Carolina Uniform Transfers to Minors Act (“UTMA”), Chapter
33A of our General Statutes. Id. at 12, 728 S.E.2d at 363. Recognizing that attorneys’
fees are not ordinarily recoverable in North Carolina absent express statutory
authority and that the UTMA is silent regarding attorneys’ fees, this Court looked to
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Opinion of the Court
N.C. Gen. Stat. § 6-21(2) and determined that “trust agreement” as used in that
section was not limited to trusts governed under the UTC, but included custodial
arrangements under the UTMA. Id. at 12-15, 728 S.E.2d at 363-64 (“[T]he generic
provision in N.C. Gen. Stat. § 6-21(2) allowing for the award of attorney’s fees in an
action to fix the rights and duties of a party under a trust agreement encompasses
actions under UTMA for the removal of a custodian and resulting accounting[.]”).
This Court bolstered its decision with a review of cases from other jurisdictions which
have allowed attorneys’ fees in actions to remove a custodian or for an accounting
under the UTMA. Id. at 15-17, 728 S.E.2d at 365-66.
Upon finding attorneys’ fees may be awarded in UTMA cases pursuant to N.C.
Gen. Stat. § 6-21(2), this Court went a step further, stating that “we believe there is
ample authority providing for not only an award of attorney’s fees in this case, but
also for that award to be assessed against respondent personally, as custodian, rather
than against the corpus of [the] UTMA account.” Id. at 18, 728 S.E.2d at 366. This
Court explained that
persuasive precedent from other jurisdictions on this issue
reason that the goal of a breach of fiduciary duty action
under UTMA is to make the minor beneficiary whole,
which cannot be accomplished if the minor, either
personally or by way of her account funds, must expend
more in attorney’s fees to recover the lost corpus of the
account than its original value.
Id. This Court also, again, looked to the UTC and N.C. Gen. Stat. § 36C-10-1004,
noting that the “Official Comment” to that section provides that
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IN RE: HOFFMAN
Opinion of the Court
[t]he court may award a party its own fees and costs from
the trust. The court may also charge a party’s costs and
fees against another party to the litigation. Generally,
litigation expenses were at common law chargeable against
another party only in the case of egregious conduct such as
bad faith or fraud.
Id. at 19, 728 S.E.2d at 367 (quoting N.C. Gen. Stat. § 36C-10-1004 official comment)
(emphasis in original).
Respondent contends that, in Belk, this Court “adopted and confirmed that
standard [in the official comment] and required egregious conduct on the part of the
respondent in order to justify the award of fees against him.” We disagree.
In Belk, this Court cited In re Jacobs, 91 N.C. App. 138, 370 S.E.2d 860 (1988),
explaining as follows:
Finding the assessment of costs, including attorney’s fees
assessable to a fiduciary, both as a matter of then-existing
statutory law and as a matter of common law in North
Carolina, we stated in Jacobs that “damages for breach of
trust are designed to restore the trust to the same position
it would have been in had no breach occurred[,]” and
therefore, “the court may fashion its order to fit the nature
and gravity of the breach and the consequences to the
beneficiaries and trustee.”
Belk, 221 N.C. App. at 19, 728 S.E.2d at 367 (quoting Jacobs, 91 N.C. App. at 146,
370 S.E.2d at 865) (emphasis added).
In Jacobs¸ the Court affirmed the order awarding costs, witness fees, and
attorneys’ fees without mention of whether the conduct of the defendant was
egregious. Jacobs, 91 N.C. App. at 145-46, 370 S.E.2d at 865. In fact, the Court noted
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IN RE: HOFFMAN
Opinion of the Court
there were no findings showing a breach of the UTC. Id. at 146, 370 S.E.2d at 865.
Similarly, in Belk, this Court held that the trial court’s finding of egregious conduct
“indicates that respondent undoubtedly would have been personally liable for the
attorney’s fees at issue, were this an ordinary breach of trust action.” Belk, 221 N.C.
App. at 21, 728 S.E.2d at 368.
This Court never addressed whether conduct that is not egregious would
support an award of attorneys’ fees. Although this Court noted that in most instances
an award of attorneys’ fees will not be taxable personally against a trustee or
custodian, id., the Court’s holding does not mandate that egregious conduct is
required for an award of attorneys’ fees.
Nowhere in N.C. Gen. Stat. §§ 36C-10-1004 or 6-21(2) is there a requirement
that egregious conduct must be found before attorneys’ fees are awarded. Read
together, those statutes provide that in a judicial proceeding involving the
administration of a trust, the court may award costs and expenses, including
reasonable attorneys’ fees, in the discretion of the court. Furthermore, it is important
to recognize that although Belk looks to the UTC for guidance, its decision that
attorneys’ fees may be awarded in a UTMA proceeding is not controlling in this case.
However, even if we had found that egregious conduct was necessary for
awarding fees, we find there was sufficient evidence of egregious conduct to support
the superior court’s denial of respondent’s appeal. N.C. Gen. Stat. § 1-301.3 governs
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IN RE: HOFFMAN
Opinion of the Court
the appeal of trust and estate matters determined by the clerk. Concerning the duty
of the judge on appeal, it provides as follows:
Upon appeal, the judge of the superior court shall review
the order or judgment of the clerk for the purpose of
determining only the following:
(1) Whether the findings of fact are supported by the
evidence.
(2) Whether the conclusions of law are supported by the
findings of facts.
(3) Whether the order or judgment is consistent with the
conclusions of law and applicable law. . . .
N.C. Gen. Stat. § 1-301.3(d) (2017).
Here, the clerk’s award of attorneys’ fees was limited to $7,243.00 for services
rendered from 7 July 2016 through 12 August 2016. The clerk found that during that
time frame, “[r]espondent’s behavior as [c]o-[t]rustee . . . was egregious, and
obstructionist, jeopardizing the health of [the trust].” Upon review of the record on
appeal to the superior court, the court determined that the clerk’s findings were
supported by the pleadings and hearings before her, that these findings supported
the clerk’s award of attorneys’ fees, and the clerk did not abuse her discretion in
awarding attorneys’ fees.
Respondent now argues the superior court erred because there is no basis for
the clerk’s finding that his behavior was egregious and obstructionist. We disagree.
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IN RE: HOFFMAN
Opinion of the Court
The record indicates that all parties were aware that there were issues with
the property that were causing the property to waste as it remained vacant. The
parties were attempting to sell the property and had an agreement to sell but the
buyer had reservations. During the relevant period from 7 July 2016 through
12 August 2016, respondent refused to accept alternative arrangements, maintaining
the position that the buyer must perform on the agreement to purchase. The record
is clear that all parties were concerned that the property was deteriorating while it
was vacant, without utilities, uninsured, and uninsurable. The lease agreement
proposed by petitioner’s counsel and negotiated by counsel for all parties addressed
these concerns and generated income while the parties continued to work towards a
sale of the property. Respondent’s counsel indicated that they did not oppose
petitioner’s motion for the clerk to approve the lease, but explained that respondent
refused to sign the lease as co-trustee. When the clerk made her decision to remove
respondent as co-trustee, the clerk indicated it was this unwillingness and delay by
respondent, which caused the clerk to intervene to approve the lease, that constituted
the change in circumstances warranting removal.
Based on the record before this Court, we hold the superior court did not err in
determining the record supported the clerk’s finding that respondent’s conduct “was
egregious and obstructionist, jeopardizing the health of the [trust].” The clerk did not
abuse her discretion in awarding attorneys’ fees.
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IN RE: HOFFMAN
Opinion of the Court
III. Conclusion
For the reasons discussed, we affirm the superior court’s denial of respondent’s
appeal from the clerk’s award of attorneys’ fees.
AFFIRMED.
Judges CALABRIA and ZACHARY concur.
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