On certification to the Superior Court, Appellate Division.
The issue in this appeal is whether to create an exception, if one does not already exist, to the American Rule, which generally does not permit a prevailing party to recover counsel fees from a losing party.
This appeal arises out of three inter vivos trusts executed by Laura J. Niles, who was born on July 1, 1909. Laura Niles never married and had no children. She had only a younger brother, Henry. Laura and Henry Niles inherited a large fortune from their father's estate. Geoffrey Parkinson, a long-time neighbor and friend, become Laura and Henry's financial advisor in the 1980's.
By 1990. Henry's health had declined to the point that he could no longer handle his personal and financial affairs, prompting Parkinson and Leland Selby, Henry's New York attorney, to institute voluntary conservatorship proceedings in New York on Henry's behalf with Laura's approval. After those proceedings were commenced, Parkinson and Selby learned that Henry and Selena Bono, a woman whom Laura considered a "con artist" who wanted to marry Henry for his money, indeed planned to marry. Although Selby obtained a restraining order in April 1991 prohibiting the marriage, the couple nevertheless married in November 1992.
Prior thereto, in March 1992, Laura created two inter vivos trusts, one into which she placed most of her assets and which designated the Laura J. Niles Foundation, Inc. as her residuary beneficiary, and the other a charitable remainder trust into which she placed a small portion of her assets to generate income and tax savings. On her death, any money remaining in the trust would be paid to Henry and at his death, the principal and income of the trust would go to the Foundation. Laura created a third trust in August 1994, when she established a second charitable remainder unitrust designed to yield her a higher income from the corpus. Parkinson was named trustee of all three trusts and he served in that capacity until May 1997, when Laura was unduly influenced by Serena and her son, Salvatore Bono, to execute new estate and trust instruments modifying the original trust agreements.
Laura had been persuaded to execute new trust instruments after spending more time with Serena, following Serena's marriage to Henry. At some point, Serena began to pressure Laura to purchase a condominium in Naples, Florida for use by Serena, Henry, Laura and other family members. Laura purchased a condo in Naples in late 1995. A year earlier, she had begun to suffer from a variety of medical problems, including dementia. Following the condominium purchase, Laura began to spend more and more time with Serena and her son, Salvatore Bono in Florida, New Jersey, and New York.
By 1997, Laura allegedly began to voice dissatisfaction with Parkinson's handling of her financial affairs. In response, Bono recommended the New York law firm of Fischbein, Badillo, with which he had a prior relationship to review her trust documents. As noted, on May 21, 1997, Laura amended her will and modified the trust agreements. Under the modified documents, Bono became executor of Laura's will and he also replaced Parkinson as trustee under the three trust agreements. Significantly, the changes in Laura's will and trust agreements heavily favored the Bono family, including a bequest of Laura's interest in the $700,000 Florida condo to Serena; $125,000 to each of Bono's four children to be held in trust for them with Bono as trustee; and a reduction from $500,000 each to $100,000 each in a bequest to the two children of Laura's beloved goddaughter.
Following Laura's execution of the modified documents, Bono embarked on a sixteen-month looting spree of Laura's estate. Working as a team, Serena and Bono used Laura's trust accounts, checkbook, signature stamp, cash and credit cards to purchase thousands of dollars worth of goods. After Bono had been acting as Laura's fiduciary for approximately eight months, Parkinson filed a verified complaint and accounting on January 20, 1998, seeking among other things, the appointment of a guardian ad litem (GAL) for Laura because Serena and Bono had unduly influenced her into changing her will and trust agreements. The court appointed a GAL and ordered him to investigate the claim of undue influence. After that investigation, the GAL recommended that the court conduct a plenary hearing on the undue influence issue.
Thereafter, Bono filed his accounting with the trial court, to which Parkinson filed exceptions and further sought to remove Bono as trustee and to surcharge him for improper expenditures. At about the same time in August 1998, Laura slipped into a coma from which she never recovered before her death in February 2000. In September 1998, the trial court temporarily removed Bono pending a final determination on the merits. Subsequently, in January 1999, the Foundation filed a verified complaint seeking a determination that Bono and Serena unduly had influenced Laura to execute the trust documents to their benefit. The complaints filed by Parkinson and the Foundation were consolidated for trial.
The Chancery Division bifurcated the issues into two separate bench trials. At the conclusion of the first, which focused on Bono's accounting and whether he should be removed as trustee, the trial court permanently removed Bono as trustee, finding that his conduct was inexcusable and reprehensible because he had embezzled and misused Laura's assets. The trial court rejected Bono's accounting and directed him to pay surcharges to Laura's estate in the amount of $361,800 for his breach of fiduciary duty as trustee. At the conclusion of the second trial, which addressed the allegations of undue influence, finding "no clearer case of undue influence" by both Serena and Bono, the trial court declared null and void the modifications to the will and the trust instruments and restored Laura's original will and trust agreements. Finally, the trial court authorized Parkinson and the Foundation to file an application for additional surcharges, including counsel fees, against Bono and Serena, based on the court's finding of undue influence.
Parkinson and the Foundation then sought reimbursement of counsel fees incurred by the estate in connection with the litigation and various compensatory damages. The trial court granted the application in part and denied it in part, surcharging Bono individually for counsel fees for representation provided Bono by three law firms; Serena individually for counsel fees; and Bono and Serena jointly and severally for counsel fees. However, the trial court denied the part of the application that sought reimbursement for the counsel fees charged to the estate by the Foundation, Parkinson, and the other parties in the case, finding no basis in In re Landsman,
The opinion of the court was delivered by: Coleman, J.
In this appeal a mother and her son working as a team unduly influenced an eighty-eight-year-old, single, demented multimillionairess to modify three inter vivos trust agreements to name the son as trustee and to confer upon them substantial economic benefits under the altered trust agreements. The former trustee and the primary residuary beneficiary under the former trust agreements successfully prosecuted litigation to remove the illegitimate trustee and to require the mother-son team to make the estate whole except for certain counsel fees. The issue raised in this appeal is whether to create an exception, if one does not exist already, to the American Rule, which generally does not permit a prevailing party to recover counsel fees from a losing party. We hold that when, as in this case, an executor or trustee reaps a substantial economic or financial benefit from undue influence, the fiduciary may be assessed counsel fees incurred by plaintiffs and third parties in litigation to restore the estate's assets to what they would have been had the undue influence not occurred. We also hold that the mother-son team should be jointly and severally liable for all reasonable counsel fees authorized by this opinion.
This appeal arises out of three inter vivos trusts executed by Laura J. Niles (Laura) who was born on July 1, 1909. Laura never married and had no children. She had one brother, Henry E. Niles (Henry), who was two years younger. Laura and Henry inherited a large fortune from their father's estate. In 1997, Laura's assets were in excess of $17.5 million. Laura and Henry lived together in their jointly owned family home in Brightwaters, Long Island, New York until 1986.
Geoffrey Parkinson, an investment counselor, was a long time neighbor and friend of Laura and Henry while they resided in New York. In the 1980's, Parkinson became their financial advisor. In 1986, Laura moved into a newly acquired home in Blairstown, New Jersey and pursued a hobby of breeding show dogs. Henry, however, remained at the Brightwaters home because of declining physical and mental health. A friend of Laura, and a client of Parkinson, asked Serena Bono (Serena) to check on Henry periodically. Although Henry was thirty years older than Serena, between 1986 and 1989 they developed a close personal relationship. When Laura first met Serena in 1986, she was not fond of her. Indeed, Laura regarded Serena as a "con artist" and believed that Serena wanted to marry Henry for his money.
By 1990, Henry's health had declined to the point that he was unable to handle his personal and financial affairs. Henry's poor health prompted Parkinson and Leland Selby, Henry's New York attorney, to institute voluntary conservatorship proceedings in New York on Henry's behalf with Laura's approval. After those proceedings were commenced, Parkinson and Selby learned that Henry and Serena were considering marriage. Although Selby obtained a restraining order in April 1991 prohibiting the marriage, the couple nevertheless married on November 4, 1992. Despite Henry's refusal to participate voluntarily in the conservatorship proceedings after the marriage, Joseph J. Kunzeman, a former judge, was appointed conservator of Henry's property and Parkinson was continued as Henry's financial advisor. Kunzeman initiated annulment proceedings that were withdrawn when Serena entered into a post-nuptial agreement that would provide her $250,000 per year for every year she remained married to Henry and a $1 million bonus if she remained married to Henry for five years. Henry died December 27, 1997, leaving no children.
On March 31, 1992, Laura created the first two of the three inter vivos trusts: (1) a revocable trust into which Laura placed most of her assets and which designated the Laura J. Niles Foundation, Inc. (Foundation) as her residuary beneficiary, and (2) a charitable remainder unitrust with Laura as grantor and settlor (CRUT I) into which Laura placed a small portion of her assets to generate income and taX savings. On her death, any money remaining in the trust would be paid to Henry and at his death the principal and income of the CRUT I would go to the Foundation. The third trust was created on August 23, 1994, when Laura established a second charitable remainder unitrust (CRUT II) designed to yield her a higher income from the corpus. Parkinson was named as trustee of all three trusts and he served in that capacity until Laura was unduly influenced to execute new estate and trust instruments on May 21, 1997, that modified the original trust agreements.
As early as 1994, Laura was suffering from a variety of medical problems, including dementia. Although initially not necessary, on the advice of her treating physician, Laura obtained daily in-home nursing care from 8:00 a.m. to 11:00 p.m. Laura's organic brain condition continued to deteriorate and she suffered a moderately ...