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In re Estate of Bernstein

September 2, 2010

IN RE ESTATE OF RUTH F. BERNSTEIN; DAVID M. ALBERT, APPELLANT.


Appeals from the Superior Court of the District of Columbia (ADM 340-99) (Hon. José M. López, Trial Judge) (Hon. Rhonda Reid-Winston, Trial Judge).

The opinion of the court was delivered by: Washington, Chief Judge

Argued May 25, 2010

Before WASHINGTON, Chief Judge, Fisher,Associate Judge, and PRYOR, Senior Judge.

This case comes to us after almost ten years of legal wrangling primarily surrounding the question of whether David M. Albert and his counsel were properly denied compensation for litigation expenses arising from Mr. Albert's efforts to administer the estate of Ruth F. Bernstein. For the reasons articulated below, we find that Mr. Albert is entitled to remuneration for the estate litigation expenses because he pursued the litigation in good faith and with just cause as required under D.C. Code § 20-752 (2001).

Accordingly, we reverse the trial court's order requiring Mr. Albert to reimburse the estate for the legal fees he incurred in the course of the litigation and remand the case for the recalculation, consistent with this opinion, of the amount of compensation owed to Mr. Albert.

I.

Bernstein died on January 8, 1999. She bequeathed her home to her nephew, Dr. Bruce D. Burtoff and his then-wife, Susan S. Burtoff ("Mrs. Burtoff"), and made specific bequests to several charities. She also left $1 million to be kept in trust (the "Trust") for the Burtoffs' children and designated Dr. Burtoff and Mrs. Burtoff as trustee and successor trustee. Dr. Burtoff also received all tangible personal property and Mrs. Burtoff was left the residue of the estate. Mr. Albert was designated in the will as personal representative of the estate, and he assumed that role in an unsupervised capacity on March 2, 1999.

Shortly after beginning his inventory of the estate, Mr. Albert became aware that approximately $4 million had been transferred out of Bernstein's accounts in the three years leading up to her death; approximately $1.7 million in several inter vivos transfers to Dr. Burtoff's accounts, and approximately $2.3 million transferred three weeks prior to her death as part of an annuity agreement (the "Annuity") with RB Investments, a limited liability company created by Dr. Burtoff for that purpose. The circumstances surrounding these transfers suggested to Mr. Albert that Bernstein, who was suffering from senile dementia and Alzheimer's disease before her death, had been taken advantage of by Dr. Burtoff. For example, Bernstein received a single prorated quarterly payment pursuant to the Annuity agreement, before dying, in the amount of $12,273 on December 31, 1998. Indeed, Mrs. Burtoff wrote Mr. Albert a letter on March 23, 1999, through her counsel, claiming that the signature of her name on the Annuity agreement was a forgery, that Bernstein was mentally and physically incapable of consenting to the transaction, and because the transaction depleted her residual interest in the estate, urging Mr. Albert to recover the Annuity principal for the estate. Also, Dr. Burtoff did not pay taxes on or disclose these transfers, which he avers were gifts or, in the case of the Annuity, a valid transaction, to the Internal Revenue Service. As a consequence of both the approximately $4 million depletion in assets and the potential tax liability to the estate of the unpaid taxes, Mr. Albert concluded that the estate lacked sufficient assets to fund the specific bequests in the will, and the Trust in particular.

Accordingly, on August 31, 1999, Mr. Albert filed suit to recover for the estate the monies transferred by and to Dr. Burtoff before Bernstein's death. In this effort, he was initially encouraged by Mrs. Burtoff because her marriage to Dr. Burtoff had collapsed around mid-1998, and the inter vivos transfers depleted the residuary estate to which she was entitled. Dr. Burtoff vigorously fought Mr. Albert's efforts through multiple objections and motions, counter-suits, and general uncooperativeness. There were settlement negotiations that failed to result in a settlement.*fn1 Ultimately, Mr. Albert voluntarily dismissed the suit, a move which was also aggressively opposed by Dr. Burtoff because he did not want Mr. Albert to be able to refile the suit. In approximately mid-2001, however, the Burtoffs reached a divorce settlement which apparently provided for Mrs. Burtoff's withdrawal of her support for Mr. Albert's litigation against Dr. Burtoff. This was made known to Mr. Albert in a letter dated August 22, 2001, in which both Burtoffs asked Mr. Albert to cease his pursuit of the $4 million transferred by Dr. Burtoff on the ground that they were the only interested parties under the will, and therefore, Mr. Albert's only duty was owed to them, not the Burtoff children. Subsequently, on December 14, 2001, Mr. Albert refiled his suit against Dr. Burtoff to recover the Annuity premium for the estate because he believed that he was obligated to fully fund the Trust irrespective of Dr. Burtoff's instructions as trustee to the contrary. The parties agreed to stay that action pending a decision from this court in a related matter.

On December 18, 2001, Mr. Albert filed a Petition for Aid and Direction ("Aid Petition") pursuant to D.C. Code § 20-742 that outlined the conflict of interest between Dr. Burtoff, who naturally opposed Mr. Albert's efforts to recover from him, and the Burtoff children, whose Trust would apparently not be fundable absent that recovery. The Aid Petition requested unspecified direction from the court as to whether the litigation should be pursued, and specifically called for the appointment of a guardian ad litem to protect the Burtoff children's interests. The court nominally denied the Aid Petition, but did recognize the potential conflict of interest between Dr. Burtoff and his children's interests and appointed a guardian ad litem on January 28, 2002. The guardian's March 18, 2002 report found that the children were in need of a guardian ad litem and stated that "[i]t is in the best interest of the minor children for the $1 million [Trust] to be funded . . .; therefore, any good faith efforts to retrieve sufficient funds to establish the [Trust] should be pursued . . . ." Dr. Burtoff vehemently opposed appointment of the guardian ad litem, and filed a civil suit against Mr. Albert as well as various motions to have Mr. Albert and the guardian ad litem removed from their respective positions. On July 8, 2002, Mr. Albert resubmitted the Aid Petition, which the trial court denied on September 10, 2002 while noting that D.C. Code § 20-742 must be read as "granting the personal representative permission to act in matters where there is not a specific grant of authority, or in matters where there may be an ambiguity," but that any further direction from the court would constitute the impermissible giving of legal advice. The trial court then held that its dismissal of the Aid Petition necessitated dismissal of the guardian ad litem, and as an aside, that the Burtoff children's only interest - and therefore, their standing - in the proceedings was generated by the civil litigation concerning the "financial transactions that took place prior to the creation of the estate" and consequently did not arise under the probate code.*fn2 Following the trial court's dismissal of the Aid Petition in September 2002, Mr. Albert did not initiate any further litigation. On September 13, 2004, the trial court ordered Mr. Albert to disburse and then close the estate, funding the Trust by conveying to it the claims against Dr. Burtoff. No appeal was taken from this order, and the closing of the estate rendered moot Mr. Albert's parallel litigation to recover the Annuity premium for the estate.

On December 6, 2004, Mr. Albert filed a request for $809,040.31 in compensation for his services as personal representative and his own and his counsel's litigation expenses. Dr. Burtoff again mounted a vigorous opposition, arguing that Mr. Albert breached his fiduciary duty of care in myriad ways, had already paid himself the full amount of compensation requested, and should refund the full amount to the estate with interest. The trial court, in an order issued on July 19, 2007, held that Mr. Albert had not breached his fiduciary duty of care and awarded him compensation for estate administration services, subject to a few deductions. With respect to compensation for litigation expenses, however, the trial court first cited Hopkins v. Akins, 637 A.2d 424 (D.C. 1993), for the proposition that a personal representative may not "promote the objectives of one group of legatees over the interest of conflicting claimants," and then cited In re Estate of Wilmotte, No. 294-00 (D.C. Super. Ct. May 16, 2002) (López, J.), as holding that "a personal representative may not deplete estate resources to pursue benefits solely on behalf of the residuary legatees to the detriment of the specific legatees."*fn3 The trial court then concluded that "[e]ven though [Mr. Albert] might have in good faith held a general belief that the Estate was unlikely to satisfy all general bequests and has now provided a reasonable accounting supporting that belief, . . . [he] has not shown the Court that he had any reasonable understanding of the Estate's capability from its inception to fund the general legacies and financially support the litigations. Therefore, this fully justifies the Court in concluding that the costs or compensation related to the lawsuits may only be provided from whatever funds would fall to the residuary estate at the time of Mrs. Bernstein's death." And, as Mr. Albert had testified that there were no funds in the residuary estate, "even if the Court were to find good faith and just cause for pursuing the trust action, the Estate had nothing to pay Mr. Albert's litigation expenses. . . . Accordingly, Mr. Albert must . . . bear the burden of funding the fees and costs associated therewith." The trial court granted attorney's fees to Mr. Albert's counsel, to be paid by Mr. Albert and not the estate, and also ordered that Mr. Albert refund the $503,101.17 difference between the compensation awarded and the $935,725.01 it found he had already disbursed from the estate to himself.*fn4 Prejudgment interest on that amount was denied. Both sides appealed.*fn5

II.

Mr. Albert argues that the trial court erred as a matter of law and as a matter of fact in concluding that he failed to ascertain the financial wherewithal of the estate prior to initiating litigation to recover the funds transferred to Dr. Burtoff, and was, therefore, as a remedial measure, limited to seeking compensation for litigation expenses from the funds in the residual estate. We review the trial court's conclusions of law de novo, but the reasonableness of a trial court's award of compensation is reviewed for abuse of discretion. In re Estate of Murrell, 878 A.2d 462, 464 (D.C. 2005). "[F]ailure to make appropriate findings of fact is itself an abuse of discretion." In re Estate of King, 769 A.2d 771, 777 (D.C. 2001) (quoting Williams v. Ray, 563 A.2d 1077, 1080 (D.C. 1981)).

A personal representative's remuneration for litigation pursued on behalf of an estate is governed by D.C. Code § 20-752, which provides that "when a personal representative . . . defends or prosecutes in good faith and with just cause any proceeding relating to the decedent's estate, whether successful or not, such personal representative shall be entitled to receive from the estate any necessary expenses and disbursements relating to such proceeding." There is no separate, "prudential" standard of care within the statute that must be satisfied before a personal representative can be compensated for litigation pursued in good faith and with just cause.*fn6 Similarly, nothing in D.C. Code ยง 20-752 or other relevant statutes provide for the partitioning of an estate with respect to the source of funds from which to pay a personal representative for litigation expenses to which he is "entitled" if he acted in "good faith and with just cause" in pursuing and continuing the litigation. Thus, the only appropriate inquiry precedent to awarding payment to a personal representative of necessary litigation fees and expenses is whether in fact the litigation was commenced and continued in good ...


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