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In re Estate of Vayda

June 29, 2005

IN THE MATTER OF THE ESTATE OF ELIZABETH HULL VAYDA, DECEASED


On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

This will contest between estranged siblings requires that the Court address yet again whether, in the absence of a mandate based on a statute, court rule or contract, attorneys' fees can be shifted from one party to another.

Elizabeth Hull Vayda died testate on January 12, 2000, survived by her son and daughter, Peter Vayda (Peter) and Katherine Rainey (Katherine). Under decedent's last will, Peter was entitled to 55% of the residuary estate, while Katherine was entitled to 45%. Peter was appointed executor of decedent's estate. For more than a year, Peter did little to administer the estate or carry out his duties. As ultimately described by the trial court, Peter was not administering the estate at all. The Appellate Division echoed the trial court's appraisal of Peter's discharge of his executor's duties.

Katherine sued, seeking to void the will as the product of undue influence and, alternatively, to remove Peter as executor of decedent's estate and to obtain an accounting. In response, Peter submitted an estate "summary" that purported to include distributions to him totaling more than $104,000 for Peter's daughter's college education and ballet lessons together with reimbursement for expenses Peter claimed to have incurred on decedent's behalf. Katherine amended her complaint to include a challenge to those proposed distributions and reimbursements. Peter's post-will contest claims against the estate constituted the entirety of Katherine's bad faith claim against him.

The trial court held that the will was not the product of undue influence, confirmed its earlier determination to remove Peter as executor, disallowed many of Peter's claims against the estate, and determined that all of Peter's activities, taken as a whole, amounted to breach of fiduciary duties to the beneficiaries of the estate. The trial court further found that Peter's post-will contest actions manifested obvious and blatant bad faith to his sister. The trial court concluded that Peter be required to pay Katherine's legal fees. The Appellate Division reversed the trial court's judgment that Peter pay Katherine the costs she incurred and remanded that issue to the trial court for consideration of whether, under R. 4:42-9(a)(3), the estate should pay Katherine's attorneys fees.

We granted Katherine's cross-petition for certification limited solely to the question of whether the trial court properly concluded that an executor who breached his duty to beneficiaries of the estate should be obligated for the payment of the prevailing party's counsel fees.

HELD: The circumstances here do not present sufficient cause to depart from New Jersey's deep-rooted adherence to the "American Rule," a rule that requires that each party bear their own attorneys' fees. In this case, the successful sibling's attorneys' fees nonetheless should be reimbursed by the estate.

1. Our analysis of whether a derelict executor should bear the burden of the successful contesting party's attorney's fees in an action seeking the executor's removal must start from the proposition that New Jersey has a strong public policy against the shifting of costs and that that this Court has embraced that policy by adopting the American Rule, which prohibits recovery of counsel fees by the prevailing party against the losing party. Rule 4:42-9 specifically provides that no fee for legal services shall be allowed in the taxed costs or otherwise, with a number of exceptions, one of which provides that in a probate action, if probate is granted, and it appears that the contestant had reasonable cause for contesting the validity of the will or codicil, the court may make an allowance to the proponent and the contestant, to be paid out of the estate. (pp. 6-7)

2. In a quartet of cases, we have created carefully limited and closely interrelated exceptions to the American Rule that are not otherwise reflected in the text of Rule 4:42-9. The evolution of these four cases, from Saffer v. Willoughby (allowing as permissible consequential damages the recovery of attorneys' fees incurred in the prosecution of an attorney malpractice case), to Packard-Bamberger & Co. v. Collier, allowing the recovery of attorneys' fee as part of recoverable damages for attorney malfeasance in an action on a surety bond, In re Estate of Lash, allowing attorneys' fees as part of recoverable damages for attorney malfeasance in an action on a surety bond, ultimately led to In re Niles, where we held that when an executor or trustee commits the pernicious tort of undue influence, an exception to the American Rule is created that permits the estate to be made whole by an assessment of all reasonable costs against the fiduciary that were incurred by the estate. We have created limited categories as exceptions to the principle that each party should bear its own costs, including only those instances involving claims against attorneys (for malpractice, misconduct, or malfeasance by way of a breach of fiduciary duty), or when an executor or trustee has committed the pernicious tort of undue influence. (pp. 7-11)

3. This case invites us to create yet another exception to the American Rule, one that would allow attorney fee shifting whenever a non-attorney executor is removed because of, among other things, breach of a fiduciary duty and bad faith against co-beneficiaries. According to Katherine, her status as a 45% beneficiary of the residuary estate means that her recovery is limited to only 55% of her attorneys' fee award and, thus, she would not be made whole. One cannot quarrel with either Katherine's arithmetic or the equitable gloss that arises from Katherine's quandary. That result, however, is compelled by the clear language of R. 4:42-9(a)(3) which, under the circumstances present here, allows an award of attorneys' fees to be paid out of the estate and not from another source. Given the availability of a specific remedy as provided in our Rules -- albeit one that does not, in Katherine's view, make her whole -- this case is unlike those where equity demands the fashioning of a remedy in the first instance. A remedy, as ordered by the Appellate Division and now upheld by this Court, exists, and the claim that it is inadequate simply because it is incomplete is insufficient impetus to warrant a further exception the American Rule, one to which we have repeatedly averted as a well-established feature of our jurisprudence. We therefore reaffirm New Jersey's strong public policy against the shifting of counsel fees and, under the circumstances presented here, we decline to extend recovery for attorneys' fees. (pp. 11-13)

Judgment of the Appellate Division is AFFIRMED.

CHIEF JUSTICE PORITZ and JUSTICES LONG, LaVECCHIA, ZAZZALI, ALBIN, and WALLACE join in ...


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