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March 11, 2019

Michigan Court of Appeals Ruling Addresses Recovery of Attorney Fees in Trust Litigation

A potential litigant in probate litigation will typically want to know whether his or her attorney fees may be recovered from another source. A recent decision by the Michigan Court of Appeals addresses two scenarios where a litigant’s attorney fees may be paid from the trust or by the adverse party. In re Mulloy Family Trust and the Althea H. Mulloy Trust, Docket No. 342526, 2019 Westlaw 691701 (Mich. Ct. App. Feb. 19, 2019) (unpublished).
 
In Mulloy, Althea Mulloy, co-created the Mulloy Family Trust with her predeceased husband, and she created the Althea Trust by herself. As of the litigation, Althea and certain children of hers were serving as the co-trustees of both trusts. Althea’s son John Mulloy petitioned the probate court to remove the co-trustees of both trusts, alleging that: (1) Althea had improperly removed John as a co-trustee of one of the trusts; (2) there was family discord; and (3) certain assets were being administered improperly. John asked the probate court to remove all co-trustees and replace them with an independent fiduciary.
 
The co-trustees of both trusts opposed John’s petition. The co-trustees noted: (1) that Althea (who possessed full mental capacity) had the right under the terms of the trust agreement to remove and replace John as a co-trustee; (2) the trusts were being properly administered; (3) the assets mentioned by John were not even owned by the trusts; and (4) there was no legal or factual reason to remove the co-trustees. The co-trustees filed a motion asking for immediate dismissal of John’s petition. The probate court granted, finding that John had not alleged any legitimate basis for removing the co-trustees.
 
The co-trustees also asked the probate court to award them their attorney fees incurred opposing John’s petition. The probate court authorized the co-trustees to pay part of their attorney fees ($27,500.00) from the trust assets, and the probate court ordered John to pay part of the co-trustees’ attorney fees ($10,000.00) as a sanction for filing a frivolous petition.
 
John appealed, and the Michigan Court of Appeals affirmed the probate court’s rulings. According to the appellate court, payment of the co-trustees’ attorney fees from the trust assets was permissible under MCL 700.7904(2): “[I]f a trustee participates in a civil action or proceeding in good faith, whether successful or not, the trustee is entitled to receive from trust property all expenses and disbursements including reasonable attorney fees that the trustee incurs in connection with its participation.” Sanctioning John for filing a frivolous petition was permissible under MCL 600.2591(1): “[I]f a court finds that a civil action or defense to a civil action was frivolous, the court that conducts the civil action shall award to the prevailing party the costs and fees incurred by that party in connection with the civil action by assessing the costs and fees against the nonprevailing party and their attorney.”
 
What can be learned from this case? Laypersons litigating in probate court are sometimes surprised to learn about the American rule of attorney fees (which provides that each party is responsible for paying its own fees, unless specific legal authority allows the assessment of those fees against another). The co-trustees in Mulloy were not responsible for paying their own attorney fees, based on the probate court’s application of MCL 700.7904 and MCL 600.2591 – legal authority allowing the co-trustees’ attorney fees to be shifted to another payer.
 
In practice, frivolous filing sanctions are awarded relatively infrequently, but as the Mulloy decision shows, such sanctions can be recovered in probate litigation if the claim or defense is found to be frivolous. Under MCL 600.2591, one of the following factors must be present in order for the court to find frivolousness: “(i) The party's primary purpose in initiating the action or asserting the defense was to harass, embarrass, or injure the prevailing party[;] (ii) The party had no reasonable basis to believe that the facts underlying that party's legal position were in fact true[; or] (iii) The party's legal position was devoid of arguable legal merit.”
 
If you need assistance with a probate court matter, please contact Warner attorneys David Skidmore (dskidmore@wnj.com) or Laura Morris (lmorris@wnj.com).

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