Piper Rudnick LLP v. Hartz, 84

• Court: Court of Appeals of Maryland
• Writing for the Court: RAKER, J.
• Citation: 386 Md. 201,872 A.2d 58
• Parties: PIPER RUDNICK LLP, et al. v. Carol HARTZ, et al.
• Docket Number: No. 84,84
• Decision Date: 08 April 2005

872 A.2d 58
386 Md. 201

PIPER RUDNICK LLP, et al.
v.
Carol HARTZ, et al

No. 84, September Term, 2004.

Court of Appeals of Maryland.

April 8, 2005.

872 A.2d 61

Shale D. Stiller (James D. Mathias, Evelyn W. Pasquier, of Piper Rudnick LLP, on brief), Baltimore, for appellants

872 A.2d 62

Steven F. Wrobel (Gerard P. Martin, Andrew H. Baida, of Rosenberg, Martin, Funk, Greenberg, LLP, on brief), Baltimore, for appellees

Argued before BELL, C.J., RAKER, WILNER, HARRELL, BATTAGLIA, GREENE and RAYMOND G. THIEME, JR., (Retired, specially assigned), JJ.

RAKER, J.

This is the latest chapter in the dispute between the late Sigmund Stanley Hartz's beneficiaries and his personal representative. Previously, the personal representative successfully defended against the beneficiaries' attempt to remove and surcharge him. In this case, we must decide, pursuant to Md.Code (1974, 2001 Repl.Vol., 2004 Cum.Supp.), § 7-603 of the Estates and Trusts Article,¹ whether the personal representative is entitled to pay counsel fees incurred in that defense from the corpus of the estate. We shall answer this question affirmatively and reverse.

I.

Appellants Brian Goldman, personal representative of the estate of Sigmund Stanley Hartz, and Piper Rudnick LLP,² counsel to Goldman, appeal the denial of their petition for attorney's fees by the Orphans' Court for Frederick County. Appellees Carol Hartz, Barbara Hartz Habermann, and Benjamin Hartz ("the beneficiaries") are Mr. Hartz's children and beneficiaries of his will.

Sigmund Stanley Hartz died on April 22, 1996, leaving an estate of approximately $4,456,783. Hartz's will named as beneficiaries his children and his wife, Natalie Hartz.³ The major assets of the estate were: (1) a one-third interest in the common stock of Hartz & Company, Inc. ("Company"), amounting to a one-half interest in the voting stock; and (2) a one-half interest in the Hughes Ford General Partnership ("Partnership").

Hartz's will named Brian Goldman as his personal representative. Goldman served as Hartz's personal attorney for twenty-five years. In addition, Goldman served as counsel to the Company, Partnership, and Abraham Cohen, Hartz's business partner. In naming Goldman as his personal representative, Hartz was aware that Cohen also had named Goldman as his personal representative. Hartz expressly waived any potential conflicts of interest that could arise from Goldman's representation of his estate, Cohen's estate, the Company, and the Partnership. The will granted to Goldman, as fiduciary, the power to appoint attorneys without court approval. Section 7.1 of the will provided as follows:

"I hereby grant to my Fiduciaries ... the following powers, without the need to apply for or obtain any order, ratification or approval of any court, for the exercise thereof, in addition to those conferred by common law, statute, or rule of court:... To appoint agents to act on behalf of my Fiduciaries, including, without limitation, attorneys, accountants and investment counsel, and to delegate discretionary power to such agents."

Following Hartz's death, Goldman functioned as personal representative of Hartz's estate. Goldman regularly wrote

872 A.2d 63

to the beneficiaries about the estate's assets and liabilities. Between Hartz's death and July 1999, Goldman filed six administration accounts, three inventories, and a number of petitions for attorney's fees in the Orphans' Court for Frederick County. The beneficiaries did not file exceptions to any of these documents

By August 1999, the relationship between Goldman and the beneficiaries had become acrimonious. The beneficiaries were critical of Goldman's role in the estate's efforts to enforce a Stockholder's Agreement, which stipulated that the Company would repurchase Hartz's stock. After a dispute developed between the Company and Hartz's estate, one of the Company's attorneys expressed his concern over Goldman's conflict of interest. In response, in June 1996, Goldman notified the beneficiaries that he would not represent the estate in the stock repurchase negotiations. The beneficiaries did not object, and they requested that the estate retain Alan Sachs to represent the estate in the negotiations. Over the next three years, Sachs negotiated interim and final stock redemption agreements with the Company.

The beneficiaries' recriminations against Goldman arose from his efforts as the Company and Cohen's attorney to transfer ownership of Cohen's life insurance policy from the Company to an insurance trust. This transfer was necessary to avoid adverse tax consequences. Since 1991, Hartz and Cohen had been aware that the survivor would have to restructure his life insurance policy to avoid these consequences. Goldman executed the insurance trust on April 12, 1999, one month after Sachs executed the final stock redemption agreement. Sachs and the beneficiaries accused Goldman of harming the estate by not informing Sachs of the plan to create the trust and the priority of paying beneficiaries under the trust's terms. According to Sachs and the Hartz beneficiaries, the trust harmed Hartz's estate by, among other things, placing the estate at the bottom of the distribution list for Cohen's life insurance. Goldman asserted that he was precluded by attorney-client privilege from informing Sachs and the beneficiaries of his plans.

The other source of acrimony was the estate's Partnership assets. Goldman urged Cohen to exercise his option to purchase the estate's Partnership interest. Cohen ultimately defaulted on this option, because he could not negotiate a suitable financing agreement. In addition, Goldman repeatedly pressured the Company to pay rent, back rent, and interest it owed the Hartz estate. With Goldman's consent, Sachs negotiated with the Company to pay the back rent. Later, these negotiations expanded to include an offer by the Company to purchase the estate's interest in the Partnership. On September 23, 1999, Sachs informed Goldman that the beneficiaries did not want Goldman to participate in the negotiations.

The growing rancor culminated in a showdown before the Orphans' Court. On November 22, 1999, Goldman filed a seventh administration account and a petition for termination of the estate and discharge from liability. The beneficiaries filed exceptions to Goldman's petition, requesting, inter alia, that the court deny the petition to close the estate, remove Goldman as personal representative, appoint Carol Hartz in his stead, and surcharge Goldman and/or his law firm for damages caused by his alleged breach of his fiduciary duty. Specifically, the beneficiaries requested that Goldman and his firm be surcharged the amount of their fees from March 1 to October 31, 1999. In support of their exceptions, the beneficiaries cited concerns involving the Partnership.

872 A.2d 64

The Orphans' Court held a hearing on March 13, 2000 and issued an order on March 15, 2000. The court ordered Goldman removed as personal representative, disapproved his seventh accounting, and denied his petition for termination of the estate and discharge of liability. At the same time, the court appointed Goldman special administrator and granted his petition for allowance of interim counsel fees.

Goldman appealed to the Circuit Court for Frederick County, and the beneficiaries cross-appealed from the denial of the surcharge petition. The Circuit Court found that Hartz was aware when he named Goldman personal representative that there were possible conflicts of interest. The court stated, however, that the level of conflicts eventually "rose to a level that Hartz could not have reasonably contemplated or foreseen" and "rose to a point where Goldman could not function effectively as Personal Representative for the Estate." Accordingly, the court ordered Goldman removed as personal representative.

The Circuit Court held a hearing to consider the beneficiaries' request that Goldman and his firm be surcharged. The court denied the surcharge request, because: (1) the Orphans' Court had approved the fee petitions, indicating that it had found that Goldman's actions were "for the benefit of the estate," and (2) Goldman's conflict of interest did not constitute bad faith or gross negligence. The court removed Goldman as special administrator and named Carol Hartz as personal representative of the estate.

Goldman appealed his removal to the Court of Special Appeals, and the beneficiaries cross-appealed, challenging the denial of the surcharge request. On July 28, 2003, in an unreported opinion ("Goldman I"), the Court of Special Appeals held that removal of Goldman "was neither necessary nor appropriate because the record before us indicates that the estate was ready to be closed."

The Court of Special Appeals affirmed the denial of the surcharge request, agreeing with the Circuit Court that Goldman had not acted in bad faith or gross negligence. The court based this holding on two factors. First, it stated, "We discern no facts recounted, and no findings made, that remotely suggest bad faith on the part of Goldman." Second, the court concluded that the beneficiaries failed "to show any measurable damages caused either by Goldman's personal profit from the conflicts of interest or monetary loss to the estate." The beneficiaries appealed, and we denied their petition for a Writ of Certiorari on December 16, 2003. 378 Md. 615, 837 A.2d 926 (2003).

In August 1999, faced with the beneficiaries' hostility, Goldman retained Piper Rudnick. On November 30, 2001, Piper Rudnick filed a petition for its fees in the Orphans' Court pursuant to § 7-602. Goldman signed the petition and, paraphrasing § 7-603, asserted that he was "entitled to receive his necessary expenses and disbursements from the Estate, including attorneys fees." This fee petition covered Piper Rudnick's work from August 1999 until June 2001, when the Circuit Court issued its opinion.⁴ The fees amounted to...