Some wags who practice in the Probate Division here in Chicago say an estate is only “fully probated” when it has been fully eaten up by lawyers’ fees in litigation or other legal matters. For the literary, such quips bring to mind Jarndyce v. Jarndyce in Charles Dickens’ novel, Bleak House, lampooning the 19th century English chancery courts.
But before we snicker about the British courts of old or present-day Chicago cynics, take a look at the case of a Washington D.C. attorney who acted as the personal representative of a decedent’s estate and tried to collect more fees than the court was willing to approve. The lawyer was heavy handed in trying to get paid what he thought his services were worth. Yet the case stands as a warning that all estate lawyers need to heed what the probate courts say they can charge.
On March 3, 1993, Leroy Green died intestate in the District of Columbia. His estate consisted of liquid assets worth about $46,000 plus a home on Ames Street, N.E. On July 20, 1994, attorney John Pye was appointed as successor personal representative of Green’s estate.
Attorney Pye asked the court for $44,000 in fees and $1,000 in expenses for a year and a half’s worth of probate work. Five of the decedent’s 17 heirs filed an objection to this request.
On Aug. 5, 1998, the probate court approved only $28,041.84 of the $44,000 requested fee, and disallowed the request for expenses because of Pye’s “extraordinary failure” to justify and document either.
The court also ordered Pye to file receipts from all heirs to establish that their complete and accurate final distributions were received.
About a month later, Pye filed a “Motion for Application for Entry of Judgment, for Stay of Enforcement of Order Pending Appeal." In its order granting the motion, the court directed that the filing of distribution receipts be stayed pending appeal.
That winter, Pye wrote a letter to the decedent’s heirs asking if they’d pay the difference between his requested and approved fees. And here’s where he went too far: Pye also strongly implied that—because of the stay that had been granted by the probate court (at his request)—the heirs would not receive any portion of their share for at least a year if they didn’t settle with him, regardless of the outcome on appeal. Pye also stated that none of the heirs was “receiving a substantial distribution,” and that his additional fee would not significantly alter the amount of their shares. Pye concluded the letter by stating: “If you are willing to settle the matter on these terms, please sign the enclosed copy of this letter, and I will send you your distribution as originally shown on the second account after I have received everyone’s response. I will then note the appeal settled and dismissed.”
Six of the 17 heirs quickly signed and stated they were agreeing to a reduced “distributive share.” A seventh later agreed to pay Pye an additional fee.
Having pretty much gotten what he wanted from the heirs, Pye on April 6, 2000, filed a motion to voluntarily dismiss the appeal, stating: “The issues which prompted the appellant to file this appeal have been resolved with most of the interested persons of the Estate of Leroy Green.” The appellate court promptly granted Pye’s motion and dismissed the appeal. And, true to his implied threat, Pye did not distribute the remainder of the estate to those heirs who’d declined to pay the additional fee.
In October 2000, the Register of Wills notified Pye that a hearing would be held that December to address his failure to file receipts showing proper distribution to all of the heirs. At that hearing, the judge removed Pye as personal representative because of that failure to produce receipts. The court also held that the "side agreement" with the heirs was invalid and referred the matter to Washington’s office of bar counsel “for such action as is deemed appropriate.”
The judge stated that although "[i]t has long been recognized that the distributees of an estate may make arrangements with the Personal Representative for the payment of his fee with their funds, Pye's "representations to the beneficiaries in his letter requesting fees ... were not accurate" and he "effectively coerced each beneficiary into accepting a reduced share." The court also relied on the fact that Pye concealed the existence of the side agreement from the court and his successor personal representative for more than two years, never filed receipts, and never filed an amended final account advising the court of the true amount he paid to each heir. Pye appealed.
Pye's argument on appeal was that he had a valid side agreement for an additional fee with seven heirs of the estate. The appellate court concurred with the lower court that the agreement was invalid but reached this conclusion for a different reason.
The appellate court stated that Pye's actions -- asking for a stay, writing a letter to the heirs without the probate court's knowledge, violating the stay for those heirs who agreed to pay an additional fee, and initiating an appeal -- showed that he placed his interest in obtaining a larger fee before the heirs' best interests. The court opined that it would be reaching a different result if Pye had simply sought a stay and then appealed, or if he had paid the lesser (undisputed) amount to all the heirs and held the remainder in escrow pending resolution of his claim.
The court stated that while a personal representative has a right to reasonable compensation for his services, that right does not supersede the best interests of the heirs and, as recited in Section 170 of the Restatement of Trusts, the personal representative "is in a fiduciary relation to the [heirs] and as to matters within the scope of the relation he is under a duty not to profit at the expense of the [heirs]."
The court therefore held that Pye took advantage of the stay and the appellate process to further his own interest in obtaining a larger fee and, accordingly, the side agreement was invalid because Pye breached his fiduciary duty to the heirs.
Although the Washington appellate court states (in what is essentially dicta) that parties are free to make their own fee arrangements and that a less coercive approach by attorney Pye would not have breached his duty to the heirs, practitioners should also heed their jurisdiction's ethical rules. The issue is the reasonableness of the fee. Most, if not all, state ethics rules forbid a lawyer from charging unreasonable fees. At least one sitting judge/commentator has advanced the theory that once a court has determined the fee of a lawyer, that fee is the upper limit of the "reasonable" fee. Charge any more, even if by prior agreement with the client, and you have breached the ethical rule relating to fees. (See Hon. Jeffrey A. Malak, "Fee Simple: Attorneys' Fees in Probate Estates," 17 CBA Rec. 31 (May 2005).
In jurisdictions where courts (often guardianship courts) set limits on the hourly fee they will approve, the ethical rule concern, to the extent the logic is correct, will often have the effect of precluding large firm representation with its usually higher hourly rates. This would not seem fair to the consumer who sees value in the larger firm representation and is willing to pay the difference between the amount the court will allow to be paid from the estate or trust and what the lawyer charges.
For the appellate opinion, see In re Estate of Green, No. 99-PR-239 (D.C. Cir. April 14, 2000), aff'd, No. 03-P3-246 (D.C. December 21, 2006).
To subscribe, click here.