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In re Estate of Lash

March 22, 2000

IN THE MATTER OF THE ESTATE OF HERBERT P. LASH, DECEASED.
FIREMAN'S FUND INSURANCE COMPANY,
PLAINTIFF-RESPONDENT,
V.
MANUEL LOPEZ, JR., CHERYL LOPEZ, HIS WIFE; DONALD J. MELIADO; PRUDENTIAL-BACHE SECURITIES, INCORPORATED; L & L ASSOCIATES; LOPEZ, LOPEZ & CRINGLOI; LOUIS H. MILLER; WILLIAM R. DENI; AND JACK LANCE, *FN1
DEFENDANTS,
AND
ESTATE OF HILDEGARD LASH, DECEASED,
DEFENDANT-APPELLANT.



Before Judges D'Annunzio, Newman and Fall.

The opinion of the court was delivered by: Fall, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: February 29, 2000

On appeal from the Superior Court of New Jersey, Chancery Division, Probate Part, Passaic County.

This appeal involves a determination of whether attorney fees incurred in litigation by the beneficiary of an estate seeking recovery of assets lost due to the breach of trust by an estate administrator are surchargeable against the administration bond. We conclude there is no authority in this State to surcharge counsel fees against the administration bond.

We are also asked to decide whether interest should be allowed on the amount of the stipulated surcharges paid under the bond and, if so, at what rate and from what date. We hold that lost interest is a component of the damages claim of the estate and may be assessed against the stipulated surcharges and paid under the administration bond. Here, we conclude the trial judge did not abuse his discretion in applying the simple interest rates embodied in R. 4:42-11. We also rule that interest shall be calculated from the date of each defalcation.

The issues in this appeal arise in the context of the following factual and procedural history. Herbert P. Lash died intestate in New Jersey on April 23, 1987, leaving his mother, Hildegard Lash, as his sole heir. Four days after his death, Hildegard Lash granted a power of attorney to defendant, Manuel Lopez, Jr. On May 13, 1987, Hildegard Lash renounced her right to administration on the estate of her son and, on June 17, 1987, Lopez was appointed by the Passaic County surrogate as administrator on Herbert Lash's estate. Fireman's Fund Insurance Company was the surety on an $800,000 surety bond required of Lopez.

On August 1, 1992, Hildegard Lash, living in Florida, instituted suit against Lopez and his wife, defendant Cheryl Lopez, in the Florida courts alleging Lopez improperly used the power of attorney to embezzle or waste much of the assets of both the Estate of Herbert Lash and the separate assets of Hildegard Lash; failed to distribute the assets of the estate; and sought an accounting. Fireman's Fund was dismissed from the Florida action by order entered on December 3, 1992, for lack of subject-matter jurisdiction. At some point thereafter, the Florida court indicated that the actual basis for dismissal as to Fireman's Fund was lack of personal jurisdiction.

Hildegard Lash obtained a judgment against Lopez in the Florida action for $800,000 based upon Lopez's breach of the administrator's bond.

On January 29, 1993, Fireman's Fund instituted suit in New Jersey against Manuel Lopez, Jr., Cheryl S. Lopez, his wife, Hildegard Lash, and Donald J. Meliado, an attorney retained by Manuel Lopez, Jr. to represent the Estate of Herbert P. Lash, by filing a verified complaint and obtaining an order to show cause imposing restraints. The complaint alleged Lopez breached his fiduciary duty to the Estate of Herbert Lash and misapplied or misappropriated the estate's assets. Hildegard Lash was named a defendant to force her to assert all claims she had against Fireman's Fund or Lopez and his wife.

Hildegard Lash died on December 19, 1993, leaving no heirs, and bequeathing all her assets to her personal representatives to distribute to charities benefitting orphans. B. Paul Katz, appellant's counsel, and Barnett Banks Trust Company were named co-personal representatives of the Estate of Hildegard Lash. The Bank subsequently renounced its right to act and on January 27, 1994, a Florida probate court appointed Katz as the sole personal representative of the estate.

The Estate of Hildegard Lash was unable to recover any of the $800,000 Florida judgment from Lopez and sought that amount from Fireman's Fund. The Estate also requested Fireman's Fund be "surcharged over and above the amount of the bond for the cost of attorney fees incurred by Hildegard Lash to protect her interest herein."

In July 1996, the parties to this appeal entered into a formal stipulation, agreeing Lopez, as principal under the administration bond, had breached that bond, resulting in surcharges in the amount of $337,168.60. Of that amount, $284,481.10 had been deposited with Ed Butrym, successor administrator of the Estate of Herbert Lash. The remaining $52,687.50, identified as "the Meliado surcharges," were later recovered. The parties further agreed interest chargeable to Fireman's Fund, as surety, would cease to accrue upon delivery of the money to Butrym. Additionally, the parties agreed:

This stipulation does not prevent or prohibit additional surcharges from being asserted by any party hereto, nor does it preclude the Surety from defending any claim for further surcharge.

On July 30, 1996, an order was entered approving and incorporating the terms of the stipulation.

The claims against all other defendants were either resolved, dismissed, or defaulted.

The case went to trial on all remaining issues on January 12 and 13, 1998. On the second day of trial, the parties stipulated to the resolution of all issues except for attorney fees and costs incurred by the Estate of Hildegard Lash in prosecuting its claims against Fireman's Fund and the bond, and the amount of interest on the monies wasted and taken by Lopez.

The judge ruled that because the claims had essentially been settled, there would be no pre- or post-judgment interest award; however, the Estate of Hildegard Lash was entitled to interest on the monies it was to receive from Fireman's Fund based upon the defalcation by Lopez. The interest rate, which was to be agreed upon by the parties based upon the guidelines contained in R. 4:42-11, would be calculated as simple interest once counsel agreed which particular rates applied to each item. The judge reserved decision on the issue of counsel fees.

On October 21, 1998, the trial judge entered a final judgment, in the form of a written opinion, imposing surcharges on the administration bond. The judge permitted the accrual of interest on the amount surcharged from January 1993, when the New Jersey complaint was filed, and relied upon a spreadsheet that calculated the interest based upon certain percentages, in determining the amount of interest on each item misappropriated by Lopez. *fn2

The final judgment awarded attorney fees and costs in the amount of $147,231.96 to Katz and $58,643.30 to New Jersey counsel for the Estate of Hildegard Lash, to be paid by the Estate of Herbert P. Lash. According to the judge, the estate, not Fireman's Fund, was responsible for the costs and fees because attorney fees were not a surcharge under the bond. Citing to Fengya v. Fengya, 156 N.J. Super. 340 (App. Div. 1978), the judge reasoned the bond was not a ...


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