Guardianship & Conservatorship of Novotny

#27418-rem-GAS
2016 S.D. 36
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
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GUARDIANSHIP AND CONSERVATORSHIP
OF MARY D. NOVOTNY
ALSO KNOWN AS MARY NOVOTNY,
a Protected Person.
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APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
TRIPP COUNTY, SOUTH DAKOTA
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THE HONORABLE KATHLEEN F. TRANDAHL
Judge
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JOHN M. FITZGERALD
KELLY M. PETERSON of
Fitzgerald Law Firm, PLC
Rapid City, South Dakota Attorneys for appellant and
beneficiary Catherine Novotny.
BRAD A. SCHREIBER of
Schreiber Law Firm, Prof. LLC
Pierre, South Dakota Attorneys for appellee
guardianship and
conservatorship of Mary D.
Novotny.
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CONSIDERED ON BRIEFS
ON MARCH 21, 2016
OPINION FILED 04/20/16
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SEVERSON, Justice
[¶1.] The guardians and conservators of this guardianship established the
Mary D. Novotny Trust. Caroline Novotny is the beneficiary of the trust, and the
conservators are the trustees. A dispute over the trust arose, after which the circuit
court granted reimbursement of expenses to the trustees. Caroline appeals the
circuit court’s decision. We remand.
Background
[¶2.] Teresa Novotny, Mark Novotny, and Paul Novotny (collectively,
“Conservators”) were appointed guardians and conservators of Mary Novotny on
July 12, 2012. After an inventory of Mary’s assets, a certified public accountant
recommended gifting some of Mary’s assets in order to reduce them for federal-
estate-tax purposes. In response, the Conservators gifted assets to the heirs
apparent of Mary. However, one of Mary’s daughters, Catherine Novotny, had no
contact with Mary or the Conservators. The Conservators hired a private
investigator to locate Catherine but were unable to find her. After failing to locate
her, they established a trust for Catherine’s benefit, which held assets of
approximately the same value as her siblings had received. Catherine was
eventually located, and in 2014, she petitioned to terminate the trust established for
her benefit. She alleged that creation of the trust was unlawful and that the
Conservators breached their fiduciary duty.
[¶3.] During the proceedings, the Conservators sought reimbursement of
expenses pursuant to SDCL 55-3-13. On December 24, 2014, the Conservators
stated in their motion:
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Prior to this motion, Co-Conservators have expended personal
funds defending the Trust as follows:
1. Mark Novotny - $11,237.48
2. Theresa Novotny - $4,145.39
3. Paul Novotny - $ 3,424[.]47
4. Mary Novotny checking account - $4,370.33
5. Mary Novotny Trust checking account - $344.50
On December 26, 2014, Catherine responded, opposing the motion. In her response
she stated:
These amounts alleged to have been paid have not been meant
to appear by affidavit, and are not under oath and therefore [the
Conservators’ attorney] has not [met] his burden in showing
these amounts have been “actually incurred,” by the trustees.
Moreover these amounts have not been itemized or even
reasonably described and so there is not a way for the [c]ourt to
judge whether or not these are expenses by which the trustees
are entitled to “repayment,” have been, “properly incurred by
the trustees in the performance of his or her trust.”
[¶4.] In response, Mark filed an affidavit on January 6, 2015, which stated
in part: “[A]s a direct result of Catherine Novotny’s actions, I have spent a total of
$11,237.28 in attorney’s fees. In addition, $4,370.33 has been spent from Mary
Novotny’s checking account and $344.50 from the Mary Novotny Trust Account.”
Paul Novotny filed a similar affidavit on January 6, 2015, stating: “[A]s a direct
result of Catherine Novotny’s actions, I have spent a total of $3,424.47 in attorney’s
fees. In addition, $4,370.33 has been spent from Mary Novotny’s checking account
and $344.50 from Mary Novotny’s Trust Account.” Also on that day, Teresa
Novotny filed an affidavit, stating: “[A]s a direct result of Catherine Novotny’s
actions, I have spent a total of $4,145.39 in attorney’s fees. In addition, $4,370.33
has been spent from Mary Novotny’s checking account and $344.50 from the Mary
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Novotny Trust Account.” On January 7, 2015, Catherine served an objection to the
affidavits and attorney-fee request.
[¶5.] In January 2015, both Catherine and the Conservators moved for
summary judgment on the underlying petition. On February 19, 2015, the court
granted summary judgment in favor of the Conservators and denied Catherine’s
motion for summary judgment. It also entered an order awarding the Conservators’
motion for attorney’s fees. On February 26, the Conservators filed an additional
motion to approve reimbursement of fees, costs, and expenses. The motion listed
sums that were paid to various persons or entities as follows:
6. Fenenga and Associates - $1,012.30
7. Ed Midgley - $20.14
8. Swier Law Firm - $1,799.35
9. Mary Novotny (Schreiber Law Firm) - $8,005.53
An amended motion to approve reimbursement was filed on March 18, 2015. The
amended motion listed an additional expenditure of $1,812.60 to Gunvordahl and
Gunvordahl. It also increased the expenditure to Swier Law Firm to $1,873.35.
The Conservators asked in the motion “that all future fees, costs and expenses
incurred in the defense of this matter be paid from the Mary D. Novotny Irrevocable
Trust.” A hearing on the motion was held March 26, at which time the court
granted the Conservators’ motion.
[¶6.] On appeal, Catherine contends that the court erred by awarding
reimbursement and future expenses under SDCL 55-3-13. She also alleges that the
court refused to allow her to participate in the motions hearing on March 26, 2015,
thereby depriving her of due process.
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Analysis
[¶7.] “A trustee must fulfill the purposes of the trust as declared at its
creation, or as subsequently amended, and must follow all the directions of the
trustor given at that time, except as modified by the consent of all parties
interested, and upon approval by the court.” SDCL 55-3-5. “[A] ‘trustee’s first duty
as a fiduciary is to act in all things wholly for the benefit of the trust.’” In re
Florence Y. Wallbaum Revocable Living Tr., 2012 S.D. 18, ¶ 32, 813 N.W.2d 111,
119 (quoting Willers v. Wettestad, 510 N.W.2d 676, 680 (S.D. 1994)). Trustees may
recover “expenses actually and properly incurred . . . in the performance of his or
her trust.” SDCL 55-3-13. “We review a trial court’s ruling on the allowance or
disallowance of costs and attorney fees under an abuse of discretion standard.”
Johnson v. Miller, 2012 S.D. 61, ¶ 7, 818 N.W.2d 804, 806 (quoting Stratmeyer v.
Engberg, 2002 S.D. 91, ¶ 12, 649 N.W.2d 921, 925).
[¶8.] In this case, Catherine contends that the information provided to the
court was insufficient to determine whether the expenses were actually and
properly incurred in the performance of the trustees’ duties. We agree. In support
of the December 2014 motion, the trustees provided, by way of affidavit, a list of
sums paid to certain individuals or entities. They have not provided any other
information related to those expenses. The second motion in February 2015 and
amended motion in March 2015 were not accompanied by affidavits. And the court
took no testimony or argument on the motion. 1
1. The Conservators contend that Catherine has not preserved this issue for
appeal because she failed to appear and object at the hearing on the matter.
(continued . . .)
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[¶9.] We have not previously addressed the requirements of SDCL 55-3-13.
However, our approach in estate matters is instructive in this case. In In re Estate
of Lingscheit, 387 N.W.2d 738, 741-42 (S.D. 1986), we construed SDCL 30-25-6,
which provided that the executor “is to be allowed all necessary expenses in the
care, management, and settlement of the estate.” SDCL 30-25-6 has since been
repealed, but our analysis is still relevant to this case. We explained in Estate of
Lingscheit that expenses awarded under SDCL 30-25-6 “must be supported by
evidence in the record, and cannot be solely based on the amount estimated and
listed in an inheritance tax report.” 387 N.W.2d at 742. We referred to our decision
in In re Estate of Hansen, 366 N.W.2d 852, 855 (S.D. 1985), where we said:
Whether the evidence of attorney’s fees consists of some
itemized statement of time or of the standard percentage
charged by attorneys in probate actions, some evidence must
exist to show the basis for [the attorney’s] fees and to support a
conclusion that the fees were reasonable for whatever time was
spent or for whatever portion of the probate [the attorney]
performed.
When considering properly reimbursed expenses in estate matters, we have
also explained that “[w]e look to the services provided and not just by whom
the attorney was employed.” In re Estate of Schuldt, 457 N.W.2d 837, 840
(S.D. 1990).
_________________________________________________
(. . . continued)
They contend that it is important to note the court’s reason for granting the
motion, as expressed at the hearing on March 26, 2014. The court stated: “I
have no objections to the motion that has been filed with the court, so the
court will grant your motion as requested.” However, the issue is preserved
for appeal as Catherine filed objections to the fees and expenses that the
trustees sought. She filed objections with the court in December 2014 and
again in January 2015 after the trustees filed their affidavits.
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[¶10.] We apply the same rationale to SDCL 55-3-13. There must be some
evidence in the record that allows a court to determine whether the amounts for
which a trustee seeks reimbursement were “expenses actually and properly
incurred . . . in the performance of his or her trust.” SDCL 55-3-13; see also Alan
Newman et al., The Law of Trusts & Trustees § 971, Westlaw (database updated
September 2015). 2 The Conservators filed affidavits in support of the initial motion
for reimbursement. “Affidavits, although made under oath, are ordinarily not
considered competent evidence. . . . Nevertheless, the ultimate determination of
whether issues of fact should be resolved by affidavit is left in the sound discretion
of the trial court.” In re Estate of Eberle, 505 N.W.2d 767, 771 (S.D. 1993); see also
SDCL 15-6-43(e) (“When a motion is based on facts not appearing of record the
court may hear the matter on affidavits presented by the respective parties . . . .”).
[¶11.] The January 2015 affidavits were the only evidence submitted to the
court that related to the fees and expenses for which the Conservators sought
reimbursement. In this case, the court’s reliance on those affidavits constitutes an
abuse of discretion because they provide insufficient information as to how the
trustees incurred attorney’s fees in those amounts. Further, neither the February
2015 motion nor the March 2015 amended motion seeking additional expenses was
accompanied by affidavits. No itemization of costs was presented to the circuit
2. The Law of Trusts and Trustees § 971 explains:
The burden is on the trustee to prove the items for which it
seeks credit on its accounting. . . . [I]t should be sufficient if the
trustee establishes that the expenses were reasonably incurred
through the prudent exercise of its discretion in performing its
duties to administer the trust in accordance with its terms and
purposes and the interests of the beneficiaries.
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court that demonstrated the basis for the alleged expenses in any of the motions.
Accordingly, the court erred when it awarded reimbursement of the fees and
expenses without evidence in the record to support that the fees and expenses were
actually and properly incurred in performance of the trust. See Restatement (Third)
of Trusts § 88 cmt. a (Am. Law Inst. 2007) (“The trustee’s right of
indemnification . . . entitles the trustee . . . to obtain reimbursement [of proper
expenses] from the trust . . . . Conversely, . . . if improper expenses have been paid
from the trustee’s personal funds, the trustee ordinarily is not entitled to
reimbursement for those expenditures.”). This Court is not in a position to find the
facts necessary to decide the issue. See Estate of Hansen, 366 N.W.2d at 855-56
(“While we have admitted to some expertise on the reasonable value of legal
services, as an appellate court, we are unprepared to take evidence or enter findings
on the services that were actually performed and which would support a conclusion
as to the reasonableness of the attorney fees.” (citation omitted)). Therefore, we
remand for further proceedings consistent with this opinion.
[¶12.] Catherine also contends that the court’s order improperly awarded
future expenses to the Conservators. The nature of reimbursement necessarily
requires an incurred expense prior to court approval for reimbursement.
Accordingly, the court cannot award “future expenses.” Although the motions filed
by the Conservators “request[ed] that all future fees, costs and expenses incurred in
the defense of this matter be paid from the Mary D. Novotny Irrevocable Trust[,]”
the Conservators concede this issue. They reply: “The trial court’s [o]rder dated
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March 26, 2015, does not award reimbursement of ‘all future’ expenses.” Thus, the
court’s order only applied to costs already incurred.
[¶13.] Finally, Catherine contends that she was deprived of due process
rights because the court excluded her from the March 2015 hearing on the
Conservators’ motions. There is nothing in the record to support Catherine’s
contention that she was excluded by the court from appearing at this hearing. The
hearing was appropriately noticed on March 18, 2015.
Appellate Attorney Fees
[¶14.] Both Catherine and the Conservators have moved this Court for their
appellate attorney’s fees. They have failed to cite any authority that would allow
appellate attorney fees in this appeal. However, because SDCL 55-3-13 allows
reimbursement to trustees for expenses, Conservators could be awarded their
appellate attorney’s fees if properly itemized and authorized by the circuit court as
an administrative expense of the trust.
Conclusion
[¶15.] Because there is no evidence in the record that supported the basis for
reimbursement under SDCL 55-3-13, the court erred in granting Conservators’
motions for expenses. We remand for further proceedings consistent with this
opinion.
[¶16.] GILBERTSON, Chief Justice, and ZINTER and WILBUR, Justices,
concur.
[¶17.] KERN, Justice, deeming herself disqualified, did not participate.
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