Hughes v. Cafferty

• Citation: 89 P.3d 148,2004 UT 22
• Decision Date: 12 March 2004
• Docket Number: No. 20020518.,20020518.
• Parties: Dwight Hughes, John Hughes, and Linnea Bennett, Plaintiffs and Respondents, v. Eva M. Cafferty and Joseph M. Hughes, Defendants and Petitioners.
• Court: Supreme Court of Utah

2004 UT 22

89 P.3d 148

Dwight Hughes, John Hughes, and Linnea Bennett, Plaintiffs and Respondents, v. Eva M. Cafferty and Joseph M. Hughes, Defendants and Petitioners.

No. 20020518.

Supreme Court of Utah.

FILED March 12, 2004.

This opinion is subject to revision before final publication in the Pacific Reporter.

Evan A. Schmutz, Lance N. Long, Provo, for plaintiffs.

Charles M. Bennett, Salt Lake City, for defendants.

PARRISH, Justice:

¶1 In this case, we address the issue of when a court, sitting in equity, may award attorney fees to a beneficiary who sues a trustee for breach of trust. The trial court found that petitioners Joseph Hughes and Eva M. Cafferty ("Joe" and "Rikki") breached family trust agreements by wrongfully assuming the roles of trustees, improperly excluding their siblings from trust management, failing to regularly account to trust beneficiaries, and paying themselves excessive and unauthorized trustee fees. Consequently, the trial court ordered Joe and Rikki to repay various expenses to the trust. Using its inherent equitable power, the trial court also ordered Joe and Rikki to pay attorney fees for trust beneficiary Linnea Bennett ("Linnea").

¶2 The court of appeals affirmed the trial court's judgment, including its award of attorney fees to Linnea. Joe and Rikki sought and obtained certiorari review by this court. They challenge the standard employed by the court of appeals for evaluating the propriety of the trial court's award of attorney fees. They also challenge the result reached by the court of appeals under the facts and circumstances of this case. We affirm the decision of the court of appeals.

BACKGROUND

¶3 This case arises from a dispute among five siblings regarding the administration and distribution of a trust estate established by their parents, McClure and Helen Hughes. In 1974, McClure and Helen created a trust that was to divide into two separate trusts upon either of their deaths. The two trusts were designated as the "Marital Trust" and the "Family Trust." The Marital Trust was subject to revocation or amendment until the deaths of both McClure and Helen, while the Family Trust was subject to neither.

¶4 The trust agreement specified the priority of trustees for the trusts. McClure and Helen had first priority to act together as trustees. Upon the death of either of them, priority passed to the survivor, their son Joe, and their son-in-law Robert Bennett to act by majority vote. Third priority was to all of the siblings collectively to act by majority vote.

¶5 When Helen died in 1978, the trust estate was divided into the Marital and Family Trusts, and trustee duties were assumed by McClure, Joe, and Robert Bennett. About a year later, McClure procured Robert Bennett's resignation as trustee and instated himself, Joe, and his daughter Rikki as trustees, although no formal amendment was made to the trust documents. By this time, McClure had married Leora Hughes ("Leora").

¶6 In 1987, McClure executed an "Amendment and Restatement" of the trust agreements ("1987 Amendment"). The 1987 Amendment ostensibly designated Joe and Rikki as co-trustees of both the Marital Trust and the Family Trust. Under the amendment, Joe and Rikki were to act unanimously as trustees during McClure's lifetime, unless one of them died or resigned, in which case the remaining individual would serve as sole trustee. The 1987 Amendment also provided that after McClure's death, "[a]ny Trustee may be removed and any successor Trustee shall be appointed by the majority vote of the children of McClure Hughes living from time to time."

¶7 Following the 1987 Amendment, Joe and Rikki acted as co-trustees of both trusts, and executed an agreement between themselves stating their intention to claim trustee fees for their services. This agreement was not discussed with McClure. At various times, Linnea asked Joe and Rikki for information about trust documents, trust properties, and trust issues, but she was consistently rebuffed.

¶8 In 1993, Joe and Rikki attempted to appoint Joe as conservator for McClure, who was edging into incompetence. They initiated a conservatorship proceeding in California, using money from the trusts to pay legal fees. The attempt was motivated primarily by a concern that McClure's second wife Leora would dissipate trust funds. Joe and Rikki had, on an earlier occasion, objected to Leora's use of Marital Trust funds and sought a return of those funds, despite legal advice that money taken from the Marital Trust and placed into the joint accounts of McClure and Leora legally belonged to McClure and Leora. The conservatorship proceeding in California was contested, and eventually, a Utah court appointed Leora as McClure's conservator.

¶9 Both McClure and Leora died in 1995. Within a few weeks of McClure's death, Linnea and her brothers Dwight Hughes ("Dwight") and John Hughes ("John") asserted their rights to participate as co-trustees in the management of the trusts. Joe and Rikki refused to recognize their siblings' claims, insisting they had exclusive rights to act as trustees. Unable to resolve the ongoing dispute, Linnea, Dwight, and John obtained a declaratory judgment in 1998 from the trial court that recognized the validity of the trusts and the right of all five siblings to act as co-trustees.

¶10 By 1999, the assets of the trusts had been sold, but the siblings could not agree on the distribution of the proceeds. Dwight and John, using Linnea's signature to assert majority will, filed various motions with the court in an attempt to effectuate a distribution of the estate that would give Joe and Rikki reduced shares. Joe and Rikki objected. The trial court eventually conducted an evidentiary hearing on whether any beneficiary should have his or her one-fifth share offset for expenses owed to the trusts. The hearing lasted five and one-half days, and the trial court made numerous findings of fact and conclusions of law.

¶11 The trial court found that McClure's attempt to change the priority of trustees in the 1987 Amendment was invalid as to the Family Trust because the Family Trust was not subject to revocation or amendment at that time. With regard to the Marital Trust, the court found that Joe and Rikki acted properly in excluding others from the trust's management only until McClure died and the majority of the siblings asserted their right to have all five siblings act as co-trustees. Thus, the trial court held:

From the death of Helen Hughes and subsequent resignation of Robert Bennett, the five children should have been co-trustees as to at least half of the trust funds. They should have been co-trustees as to the entire trust corpus since shortly after the death of McClure Hughes.

¶12 The trial court also found that Joe and Rikki had "disregarded the plain language of all of the trust documents regarding priority of the trustees," and had "failed to regularly account to trust beneficiaries as required by statute." It ordered Joe and Rikki to repay the trust for the amounts used to bring the California conservatorship proceeding, which it found to constitute an action "not in harmony with trust intent." In addition, the court found that Joe and Rikki had paid themselves excessive trustee fees. It ruled that the agreement executed between Joe and Rikki stating their right to be paid trustee fees had no legal effect, but that the 1987 Amendment nonetheless entitled them to reasonable fees. After allowance for what the trial court determined to be a reasonable fee, Joe and Rikki were directed to repay the trusts a combined amount of approximately $61,000.

¶13 Finally, relying on its inherent equitable power, the trial court ordered Joe and Rikki to pay Linnea's attorney fees. In awarding Linnea these fees, the court relied on Stewart v. Utah Public Service Commission, 885 P.2d 759, 782-83 (Utah 1994), in which this court recognized that courts "have exercised the inherent power to award attorney fees when a beneficiary sues a trustee for violation of the trust and obtains a recovery for all other beneficiaries whose rights were also violated by the trustee."

¶14 The parties appealed and cross-appealed the trial court's judgment. The court of appeals affirmed the trial court in all respects, including its determination that Linnea was entitled to an award of attorney fees from Joe and Rikki. Cafferty v. Hughes, 2002 UT App 105, 46 P.3d 233. We granted Joe and Rikki's petition for certiorari review of the portion of the court of appeals' decision affirming the award of attorney fees to Linnea.

ANALYSIS

¶15 In affirming the trial court's award of attorney fees to Linnea, the court of appeals stated:

[T]he award of fees was within the trial court's discretion and is supported by the record. Linnea sued Joe and Rikki, acting as trustees, "for violation of the trust" and obtained" a recovery for all other beneficiaries whose rights were also violated by the trustee[s]." The only relevant finding is whether Linnea obtained a recovery based on a violation of the trust. The record is clear that she did. Not only was the award of trustee fees that Rikki and Joe paid themselves substantially lowered, but also the costs associated with the California conservatorship proceeding were recaptured and charged against Rikki and Joe's distributive shares.

Cafferty v. Hughes, 2002 UT App 105, ¶ 24, 46 P.3d 233 (citations omitted).

¶16 Joe and Rikki argue that the court of appeals inappropriately limited its review of the award of attorney fees to the issue of whether Linnea obtained a recovery based on a violation of the trust agreement. They assert that the court of appeals was required to analyze whether the award served the interests of justice and equity by considering a number of additional factors. Specifically, Joe and Rikki argue that the court of appeals should have explicitly addressed Linnea's allegedly bad conduct, the alleged good-faith basis for their...