David A. Hodges, Jr. & a. v. Alan Johnson & a. ( 2020 )

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THE SUPREME COURT OF NEW HAMPSHIRE
___________________________
7th Circuit Court-Dover Probate Division
No. 2019-0319
DAVID A. HODGES, JR. & a.
v.
ALAN JOHNSON & a.
Argued: May 13, 2020
Opinion Issued: September 23, 2020
Hage Hodes, Professional Association, of Manchester (Jamie N. Hage and
Katherine E. Hedges on the brief, and Mr. Hage orally), for Judith L. Bomster
and J. Daniel Marr, Co-Trustees of the 2004 David A. Hodges, Sr. Irrevocable
GST Exempt Trust and the 2004 David A. Hodges, Sr. Irrevocable GST Non-
Exempt Trust.
Barradale, O’Connell, Newkirk & Dwyer, P.A., of Bedford (Pamela J.
Newkirk on the brief and orally), and The Stein Law Firm, PLLC, of Concord
(Robert A. Stein on the brief), for defendants Alan Johnson and William S.
Saturley.
Flood Sheehan & Tobin, PLLC, of Concord, filed no brief, for Joanne M.
Hodges.
HICKS, J. Defendants Alan Johnson and William S. Saturley are the
former co-trustees of the 2004 David A. Hodges, Sr. Irrevocable GST Exempt
Trust and the 2004 David A. Hodges, Sr. Irrevocable GST Non-Exempt Trust
(collectively, the 2004 Trusts). For ease of reference, we refer to Johnson and
Saturley as the Former Co-Trustees. In 2017, we upheld a circuit court
decision, following a bench trial, that set aside “decantings” from the 2004
Trusts and removed the Former Co-Trustees. See Hodges v. Johnson, 170 N.H.
470, 473, 488 (2017). As explained in Hodges, “[d]ecanting is the term
generally used to describe the distribution of trust property to another trust
pursuant to the trustee’s discretionary authority to make distributions to, or
for the benefit of, one or more beneficiaries.” Id. at 473 (quotation omitted).
We specifically left “for another day the issue of whether [the Former Co-
Trustees] are entitled to indemnification for the fees and expenses incurred in
this proceeding” because, at that time, the trial court had not ruled upon the
issue. Id. at 488.
In this appeal, the Former Co-Trustees challenge the determination,
recommended by a Judicial Referee (Cassavechia, R.), and approved by the
Circuit Court (Alfano, J.), that, except for attorney’s fees and costs incurred for
certain administrative tasks: (1) they are not entitled to be reimbursed from the
2004 Trusts for the post-trial fees and costs they personally incurred to defend
the decantings; and (2) they must reimburse the 2004 Trusts for the fees and
costs the trusts incurred to defend the decantings at trial. We affirm.
I. Facts
We repeat the facts set forth in Hodges as necessary to decide the instant
appeal and supplement those facts with facts drawn from the content of
documents submitted in the record on appeal. The settlor of the 2004 Trusts,
David A. Hodges, Sr., died in 2015. Id. at 473. When the settlor created the
trusts in 2004, Johnson was the sole trustee; Saturley was later appointed to
be his co-trustee. Id. at 474. The beneficiaries of the trusts are: (1) the
settlor’s ex-wife, Joanne M. Hodges; (2) his three biological children, plaintiff
David A. Hodges, Jr. (David Jr.), Nancy Hodges-Friese, and Janice Hodges (now
Coville); (3) his two step-children, plaintiffs Barry R. Sanborn and Patricia
Sanborn Hodges; and (4) descendants, as defined by the trust instruments.1
Id. at 473-75. The 2004 Trusts are irrevocable, and both trust instruments
contain a provision in which the settlor specifically acknowledged that he had
“no right or power, whether alone or in conjunction with others, in whatever
capacity, to alter, amend, modify or revoke the trust instrument or to designate
the persons who shall possess or enjoy the trust property or its income.” Id. at
475 (quotations omitted). The 2004 Trusts were created to take advantage of
certain tax benefits related to the family’s closely-held business. See id.1The plaintiffs have not appeared in the instant appeal. According to the record submitted on
appeal, they settled their claims before the trial court decided the motions at issue in this appeal.
2
Each trust instrument provides that, during the settlor’s lifetime, the
trust beneficiaries had a right to withdraw from the trust whenever property
was contributed to it. Id. Another provision states that Joanne “during her life
should be deemed the primary beneficiary of the trust.” Id. at 476 (quotation
omitted). The instruments also specify that, upon the settlor’s and Joanne’s
deaths, provided that all five of the settlor’s children and step-children are then
living, the trust corpus is to be divided into five separate trusts for each of the
settlor’s children and step-children and their respective descendants. Id. at
475-76.
The trust instruments also provide for discretionary distributions during
the settlor’s lifetime to the beneficiaries and to so-called “distributee trusts,”
which are subject to the beneficiaries’ rights of withdrawal. Id. at 475(quotation omitted). The provision in each trust document regarding such
discretionary distributions allows the trustee(s) to “distribute all or any portion
of the net income and principal of the trust to any one or more of the group
consisting of [Joanne], [the settlor’s] descendants, and distributee trusts, in
such amounts and at such times as the Trustee, in the Trustee’s discretion,
may determine.” Id. (quotation omitted).
The 2004 Trusts also establish a “Committee of Business Advisors,” who,
by majority vote, have the exclusive authority, upon the settlor’s death or
incapacity, or upon such earlier date as he may designate, to make all business
decisions for the family’s business interests. Id. at 476 (quotation omitted).
The trust instruments empower the settlor, while living and competent, to
amend the provisions related to “the appointment, resignation, removal, and
number” of the members of the Committee of Business Advisors, as well as
“their powers, duties and liability.” Id. at 477 (quotations omitted).
In 2009, the settlor retained an attorney, Joseph McDonald, to assist
him in his estate plans.2 Id. at 473, 477. According to McDonald, at that time,
the settlor “was reconsidering his prior generosity toward” his step-children
(Sanborn and Sanborn Hodges). Id. at 477. McDonald advised the settlor that,
although the 2004 Trusts are irrevocable, the Former Co-Trustees could decant
the trust assets into distributee trusts that could be created for the benefit of
some, but not necessarily all, of the beneficiaries of the 2004 Trusts. Id.McDonald testified that he informed the Former Co-Trustees that he would be
willing to prepare new trusts for the settlor “that would reduce the beneficial
interests” of Sanborn and Sanborn Hodges. Id. at 477-78. He also testified
that he told the Former Co-Trustees that they had the discretion to decant the
assets of the 2004 Trusts into those new trusts and that he would be willing to
serve as the decanting trustee. Id. at 478.
2McDonald had been a defendant, but he settled the claims against him before the trial court
decided the motions at issue in this appeal.
3
The decanting documents were executed in 2010, 2012, and 2013. Id.As a result of the 2010 decanting, Sanborn and Sanborn Hodges were
specifically excluded from the definition of “descendants” under the trust
documents. Id. (quotation omitted). As a result of the 2012 decanting, which
superseded and replaced the 2010 decanting, all three plaintiffs (Sanborn,
Sanborn Hodges, and David Jr.) were specifically excluded from the definition
of “descendants” in the trust documents. Id. (quotation omitted). The 2013
decanting, which superseded and replaced the 2012 decanting, removed
Joanne’s beneficial interests as well as the plaintiffs’ future such interests. Id.
at 478. Each decanting was accomplished by Johnson resigning as co-trustee,
McDonald replacing Johnson as co-trustee, Saturley delegating his decanting
power to McDonald, McDonald executing the decanting documents and
resigning as co-trustee, and Johnson being reappointed as co-trustee. Id. at
478.
In April 2014, the plaintiffs filed a petition asking the trial court to
declare the decantings void ab initio and to remove the Former Co-Trustees.
Id. at 479. Following a three-day bench trial, the trial court granted both
requests. Id.As to the decantings, the trial court found that the evidence suggested
“that [they] were undertaken and completed at the request, with the blessing,
and at the direction of” the settlor. Id. (quotation omitted). Indeed, the trial
court stated that, based upon the totality of the evidence before it, it was
“inclined . . . to conclude that [the settlor’s] personal desire to disinherit: (1) a
daughter with whom he was estranged; (2) sons with whom he was fighting;
and (3) a soon-to-be ex-wife who had sided with the sons, took precedence over
any concern that the [plaintiffs] and Joanne were a threat to the continuation
of [the family business].” Accordingly, the court “deduce[d] that the driving
force behind the decision to decant was to honor and carry out the express
wishes of [the settlor] to disinherit family members with whom he was
unhappy.” The trial court did not find “particularly convincing” the evidence
offered by the Former Co-Trustees to support their contention that they
operated independently of the settlor’s “direct influence or direction,” observing
that there was “no evidence that [the Former Co-Trustees] . . . ever consulted
independent counsel specializing in trusts and estates.”
Additionally, the trial court stated that the “substantial beneficial
interest” held by one of the Former Co-Trustees in a separate revocable trust
controlled by the settlor and that Former Co-Trustee’s appointment as
president of the family business and his “long-term status” as the business’s
chief financial officer, “along with [the other Former Co-Trustee’s] position as
corporate counsel and member of the Committee of Business Advisors, and the
fact that . . . McDonald was hired by, and billed, [the settlor] for the specific
purpose and in the course of investigating removal of disfavored family
members from his irrevocable trusts, leastwise leave a taint that is not removed
4
by the very fact a law exists requiring trustees to act independently of a
grantor.”
However, the court did not invalidate the decantings on the basis that
they were directed by the settlor. Hodges, 170 N.H. at 479. The trial court
observed that doing so could “endanger the receipt of tax benefits due to the
irrevocable nature of the 2004 Trusts and trigger a large federal tax liability.”
The court also did not find that the Former Co-Trustees had acted in bad faith.
Id.
Rather, the court invalidated the decantings on the ground that the
Former Co-Trustees accomplished them without “giv[ing] due regard for the
diverse beneficial interests created by the terms of the trust.” Id. at 481
(quotation omitted). The trial court observed that the Former Co-Trustees gave
consideration “to the business purposes and effect of the decanting” on the
family business, and that they “were . . . acutely aware of personality conflicts
among [family] members” that might threaten that business. (Citation
omitted.) However, the trial court found, the Former Co-Trustees failed to
demonstrate sufficiently “that the beneficial interests” of the disinherited
beneficiaries “were ever taken account of or considered.” (Emphasis omitted.)
The court concluded that the Former Co-Trustees “did not make any
adjustments to the structure of the decanting or choice of the method with
which the beneficial interests might be permissibly modified in light of
consideration given to those interests.” Moreover, the court found “no
documentary evidence, and little or no testimonial evidence, that the [Former
Co-Trustees] ever considered less draconian measures — or to put it another
way — options that would have mitigated or neutralized the risk to the
company, but resulted in something less than the complete removal of the
[plaintiffs’] beneficial interests established under the 2004 Trusts.” As the trial
court explained, while the settlor “may or may not have had valid reasons to be
unhappy with members of his family, . . . having put them irrevocably in the
2004 trusts, the [Former Co-Trustees] had a duty to take their interests into
account and not dismissively ignore them.”
The trial court determined that the failure of the Former Co-Trustees to
consider the interests of the disinherited beneficiaries “was an abuse of their
discretionary powers to decant,” and that their removal as trustees was in the
best interests of the beneficiaries “given the obvious enmity and distrust
between the parties.” Id. at 487 (quotations omitted); see RSA 564-B:7-
706(b)(1) (2019) (authorizing court removal of a trustee when “the trustee has
committed a serious breach of trust”), (b)(3) (2019) (authorizing court removal
of a trustee when “because of unfitness, unwillingness, persistent failure of the
trustee to administer the trust effectively, . . . removal of the trustee best serves
the interests of the beneficiaries”).
5
We affirmed both aspects of the trial court’s decision on appeal pursuant
to the decanting statute as it existed when the decantings took place. Hodges,
170 N.H. at 473, 488; see RSA 564-B:4-418 (Supp. 2008) (amended 2014,
2015, 2017). In doing so, we clarified that the phrase the trial court used, “due
regard for the diverse beneficial interests created by the terms of the trust,”
denotes the fiduciary duty of impartiality. Hodges, 170 N.H. at 481-83
(quotation omitted); see RSA 564-B:8-803 (2019) (setting forth statutory duty of
impartiality under which a trustee of a trust with two or more beneficiaries
must “act impartially in administering, investing, managing, and distributing
the trust property, giving due regard to the beneficiaries’ respective interests”).
Thus, we interpreted the trial court’s decision as a determination that, by
failing to consider the plaintiffs’ future beneficial interests, the Former Co-
Trustees had violated the statutory duty of impartiality. See Hodges, 170 N.H.
at 481-82.
We made clear that neither making unequal distributions among
beneficiaries, see RSA 564-B:8-814(c) (2019), nor decanting, see RSA 564-B:4-
418, necessarily violates the duty of impartiality. Hodges, 170 N.H. at 483-84.
Rather, “a trustee, who makes unequal distributions among beneficiaries
and/or eliminates a beneficiary’s non-vested interest in an irrevocable trust
through decanting, violates the statutory duty of impartiality only when the
trustee fails to treat the beneficiaries equitably in light of the purposes and
terms of the trust.” Id. at 484 (quotation omitted; emphases added); see
Charles E. Rounds, Jr. & Charles E. Rounds, III, Loring and Rounds: A
Trustee’s Handbook § 6.2.5, at 661 & n.682 (2018 ed.).
We then examined the purposes and terms of the 2004 Trusts and
determined that one purpose was to support the beneficiaries. Hodges, 170
N.H. at 484. We upheld the trial court’s finding that the Former Co-Trustees
had failed to consider that purpose when they “failed to give any consideration
to the plaintiffs’ future beneficial interests, contrary to the statutory duty of
impartiality.” Hodges, 170 N.H. at 480, 485, 486.
As to the removal of the Former Co-Trustees, the trial court cited RSA
564-B:7-706(b)(1), which authorizes court removal of a trustee when “the
trustee has committed a serious breach of trust.” Hodges, 170 N.H. at 487
(quotation omitted). Based upon our review of the record, we held that “[t]he
trial court could reasonably have concluded that [the Former Co-Trustees]
committed a ‘serious breach of trust’ when they . . . violated their duty of
impartiality.” Id. at 488.
In July 2018, after the case had been returned to the trial court, the trial
court appointed Judith L. Bomster and J. Daniel Marr to be the successor co-
trustees of the 2004 Trusts (the Successor Co-Trustees). Thereafter, the
Former Co-Trustees filed a motion for attorney’s fees and costs, seeking to be
reimbursed by the 2004 Trusts for the fees and costs they personally incurred
6
while defending the decantings.3 The Successor Co-Trustees objected and filed
their own motion asking the court to order the Former Co-Trustees to repay the
2004 Trusts $89,586.91 in fees and costs the trusts incurred on behalf of the
Former Co-Trustees to defend the decantings at trial. After a non-evidentiary
hearing, the trial court denied the Former Co-Trustees’ motion, granted the
Successor Co-Trustees’ motion, and ordered the Former Co-Trustees to
reimburse the 2004 Trusts $89,586.91.
The trial court began by reviewing “multiple provisions of the New
Hampshire Trust Code, see RSA ch. 564-B, as supplemented by ‘the common
law of trusts and principles of equity.’” (Quoting RSA 564-B:1-106 (2019).)
Specifically, it reviewed “the laws authorizing a trustee to either seek
reimbursement for costs incurred, or [to] incur costs [in the first instance,] . . .
[and] statutes concerning the liability of trustees and right of persons dealing
with trustee[s], in particular those applicable in this matter, namely: the right
to remedies for breach of trust; damages for breach of trust; and importantly,
award of attorney’s fees and costs.” (Citations and quotation omitted.) See
RSA 564-B:7-709 (2019) (concerning the right of a trustee to seek
reimbursement for expenses incurred), :8-805 (2019) (concerning the right of a
trustee to incur costs in the first instance), :10-1001 (2019) (concerning
remedies for breach of trust), :10-1002 (2019) (concerning damages for breach
of trust), :10-1004 (2019) (concerning attorney’s fees and costs).
The trial court decided that the Former Co-Trustees are not entitled to be
reimbursed for their post-trial non-appellate fees and costs because the trial
court had found in Hodges that they had committed a serious breach of trust.
Under those circumstances, the court ruled that the fees and costs were not
“properly incurred” by the Former Co-Trustees and did not “constitute a
reasonable use of trust assets.” (Quotation omitted.) See RSA 564-B:7-
709(a)(1) (providing that a trustee may be reimbursed for “expenses that were
properly incurred”), :8-805 (allowing a trustee to “incur only costs that are
reasonable”). Thus, except as to fees and costs incurred responding to certain
trial court orders, the trial court denied the Former Co-Trustees’ motion for
reimbursement.
To the extent that the Former Co-Trustees sought reimbursement for
their appellate fees and costs, the trial court declined to award such fees and
costs on two alternative grounds. First, the court determined that it lacked
authority to award appellate fees and costs. See Sup. Ct. R. 23. Second, the
trial court determined that even if it had that authority, it would not direct
3 As the Former Co-Trustees explain in their brief, the 2004 Trusts paid their attorney’s fees and
costs through trial. However, while the appeal in Hodges was pending, the Former Co-Trustees
personally paid their attorney’s fees and costs. Thus, in their motion, the Former Co-Trustees
sought to be reimbursed for the post-trial attorney’s fees and costs that “they paid out of pocket,”
totaling approximately $39,573.
7
reimbursement of the appellate fees and costs incurred to defend the
decantings for the same reason that it would not direct reimbursement of the
non-appellate fees and costs incurred for that purpose.
As to the Successor Co-Trustees’ motion, the trial court determined that
“justice and equity” required the Former Co-Trustees to personally reimburse
the 2004 Trusts for the fees and costs the trusts paid to defend the decantings.
The court reasoned that “[t]he same facts that justif[ied] [its] decision to decline
reimbursement from the 2004 Trusts for fees and costs associated with defense
of the decantings . . . , support an order directing the [Former Co-Trustees] to
personally reimburse the 2004 Trusts.” The court concluded that this is a
“classic case” for such an order because the Former Co-Trustees had acted
“wrongfully” and the litigation had been “made necessary” by their misconduct.
(Quotations omitted.). The court found that it would be “unfair and unjust” to
“charge the 2004 Trusts with the cost of lengthy litigation in defense of what is
seen as an indefensible fiduciary breach of duty.” This appeal followed.
II. Analysis
A. Standards of Review
Our standard of review is determined by statute: “The findings of fact of
the judge of probate are final unless they are so plainly erroneous that such
findings could not be reasonably made.” RSA 567-A:4 (2019). Consequently,
we will not disturb the probate division’s decree unless it is unsupported by the
evidence or plainly erroneous as a matter of law. Hodges, 170 N.H. at 480.
“Our standard of review is not whether we would rule differently than the trial
court, but whether a reasonable person could have reached the same decision
as the trial court based upon the same evidence.” Cook v. Sullivan, 149 N.H.
774, 780 (2003). “Thus, we defer to the trial court’s judgment on such issues
as resolving conflicts in the testimony, measuring the credibility of witnesses,
and determining the weight to be given evidence.” Id. “We review questions of
law de novo.” Shelton v. Tamposi, 164 N.H. 490, 504 (2013).
We review the probate division’s statutory interpretation de novo.
Hodges, 170 N.H. at 480. Resolving the issues in this appeal requires that we
interpret provisions of the New Hampshire version of the Uniform Trust Code,
see RSA ch. 564-B (2019 & Supp. 2019). To do so, we rely upon our ordinary,
well-established rules of statutory construction. Hodges, 170 N.H. at 480; see
Shelton, 164 N.H. at 499. Under those rules, we are the final arbiter of the
legislature’s intent as expressed in the words of the statute considered as a
whole. Hodges, 170 N.H. at 480. We first look to the language of the statute
itself, and, if possible, construe that language according to its plain and
ordinary meaning. Id. We construe all parts of a statute together to effectuate
its overall purpose and avoid an absurd or unjust result. Id.
8
We also rely upon the official comments to the Uniform Trust Code. Id.
“When interpreting a uniform law, such as the Uniform Trust Code, the
intention of the drafters of a uniform act becomes the legislative intent upon
enactment.” Id. (quotation omitted).4
B. RSA 564-B:7-709
On appeal, the Former Co-Trustees first argue that the trial court erred
by failing to consider whether they had properly incurred the subject attorney’s
fees and costs pursuant to RSA 564-B:7-709 and RSA 564-B:8-805. In fact,
the trial court thoughtfully examined that issue. See Guy v. Town of Temple,
157 N.H. 642, 649 (2008) (“[T[he interpretation of a tribunal’s order presents a
question of law, which we review de novo.”).
The Former Co-Trustees next assert that the trial court erred by failing to
find that they are entitled to reimbursement under RSA 564-B:7-709 for the
post-trial fees and costs they personally incurred to defend the decantings.
RSA 564-B:7-709(a)(1) provides that a trustee is entitled “to be reimbursed out
of the trust property, with interest as appropriate” for “expenses that were
properly incurred in the administration of the trust.” According to the official
comments to the Uniform Trust Code, “[r[eimbursement under this section may
include attorney’s fees and expenses incurred by the trustee in defending an
action. However, a trustee is not ordinarily entitled to attorney’s fees and
expenses if it is determined that the trustee breached the trust.” Unif. Trust
Code § 709, Comment (2010) (emphasis added); see Rounds, Jr. & Rounds, III,
supra § 3.5.2.3, at 123 (“Certainly the obligation to pay any attorneys’ fees that
were incurred by a trustee in the unsuccessful defense of a breach of fiduciary
duty action ought not to be directly or indirectly imposed on those to whom the
duty ran.”).
The trial court found that the Former Co-Trustees are not entitled to be
reimbursed under RSA 564-B:7-709 because the post-trial fees and costs they
incurred to defend the decantings were not “properly incurred” as part of their
duties to administer the 2004 Trusts. The trial court explained that the
Former Co-Trustees “were found [in Hodges], and the record clearly supports,
to have committed a ‘serious breach of trust,’ justifying and necessitating their
removal and orders declaring the decantings void ab initio.” The court
described the breach of trust as “particularly egregious.” The court ruled that
the “failure [of the Former Co-Trustees] to undertake the unwaivable duty to
consider the interests of the beneficiaries . . . allowed the decantings to occur
4 Hodges was a 2-1 decision of a three-person court. It is the law of this case regardless of its
precedential value. See Saunders v. Town of Kingston, 160 N.H. 560, 566 (2010) (describing the
law of the case doctrine); Perrault v. Town of New Hampton, 171 N.H. 183, 187-88 (2018)
(describing the limited precedential value of plurality opinions).
9
and necessitated costly litigation on the part of the beneficiaries.” The Former
Co-Trustees do not directly challenge these findings and legal rulings on
appeal, nor could they do so given that the trial court accurately summarized
and applied the relevant law to factual findings upheld in Hodges. See Hodges,
170 N.H. at 485-87.
Rather, the Former Co-Trustees argue that the fees and costs they
incurred to defend the decantings were “properly incurred” because, had they
failed to defend the decantings, they would have violated their duties of good
faith, loyalty, and prudence to Hodges-Friese and Coville and their
descendants. The Former Co-Trustees assert that, had they “failed to defend
the decantings, the resulting beneficial interests of the [Hodges-]Friese and
Coville beneficiaries would have each been reduced from fifty percent . . . to
twenty percent.” In other words, the Former Co-Trustees contend, in effect,
that they had a fiduciary duty to defend the decantings.
However, the Former Co-Trustees had no fiduciary duty to defend their
misconduct. Nor can they rely upon the conflict that, by decanting, they
created between the interests of the Hodges-Friese and Coville beneficiaries, on
the one hand, and the plaintiffs’ beneficial interests, on the other hand, to
obtain reimbursement under RSA 564-B:7-709(a)(1). The settlor’s intent when
the 2004 Trusts were created, as evidenced by the structure of those trusts,
was that the trustee(s) treat all five of his children equally, except under
certain, specifically-enumerated circumstances. Under the 2004 Trusts: all five
children are included in the definition of “descendants”; all five children are
granted withdrawal rights during the settlor’s lifetime; and, upon the death of
the settlor and Joanne, the trust property was to be divided “into . . . equal
shares,” with one share allocated to each of the five children.
The circumstances under which the settlor intended the trustee(s) to
treat his children unequally are set forth in the 2004 trust documents. For
instance, the 2004 trust instruments state that it was the settlor’s “hope (but
not direction)” that the trustee(s) not make any distributions to a beneficiary
who is able to be gainfully employed, but who is not so employed “(except after
a reasonable retirement age).” Additionally, the 2004 trust instruments
provide that it was the settlor’s desire that no distribution be made to a
beneficiary who “has been convicted of a felony, is a regular gambler, or has a
substance abuse problem” until “the beneficiary has reformed his or her
behavior.” Thus, had the Former Co-Trustees not decanted, there would have
been no conflict between the beneficial interests of the Hodges-Friese and
Coville beneficiaries, on the one hand, and the beneficial interests of the
plaintiffs on the other hand. Accordingly, we are not persuaded that the
conflict the Former Co-Trustees themselves created by decanting entitles them
to reimbursement under RSA 564-B:7-709(a)(1).
10
Nor are we persuaded that the Former Co-Trustees are entitled to
reimbursement simply because there is little case law regarding the interplay
between a trustee’s fiduciary duties and the authority to decant. See Ivan
Taback & David Pratt, When the Rubber Meets the Road: A Discussion
Regarding a Trustee’s Exercise of Discretion, 49 Real Prop. Tr. & Est. L.J. 491,
518 (2015) (observing that there are “few, if any, cases . . . that clarify a
trustee’s fiduciary duties in the context of decanting”). The Former Co-
Trustees cite no authority for this proposition and do not develop this
argument. Regardless of the law related to decanting, there is ample case law
regarding a trustee’s duty of impartiality.
Instead of participating in the decantings based solely upon the advice of
the settlor’s own counsel under circumstances suggesting that the decantings
were “at the [settlor’s] direction” to disinherit disfavored family members, the
Former Co-Trustees could have obtained an independent legal opinion or
petitioned the trial court for instruction. Hodges, 170 at 479 (quotation
omitted); see RSA 564-B:2-201 (2019). They did neither.
The Former Co-Trustees assert that the trial court “inappropriately
relied” upon the fact that they did not file a petition for instruction. They argue
that the trial court’s reliance was improper because: (1) the court “failed to
establish a valid foundation or set out any criteria to support its assertion that
[they] should have filed a petition”; (2) there “was no established law”
suggesting that “their decision-making . . . was subject to doubt or conflicting
claims”; (3) they needed to act expeditiously to prevent the plaintiffs and
Joanne from acting detrimentally to the 2004 Trusts; (4) bringing a petition for
instruction would have resulted in “hotly contested” and “expensive” litigation;
(5) “[t]he decanting decision concerned contingencies that are not appropriate
for a petition for instruction”; and (6) even after Hodges, “we do not know how
the Former Co-Trustees should have exercised their duty of impartiality.”
(Emphases omitted.)
However, it is precisely when there is “uncertainty as to the proper
application of the law to the facts” that a petition for instruction is warranted.
Rock Springs Land and Timber, Inc. v. Lore, 75 P.3d 614, 623 (Wyo. 2003)
(quotation omitted). Section 71 of the Restatement (Third) of Trusts provides:
“A trustee . . . may apply to an appropriate court for instructions regarding the
administration or distribution of the trust if there is reasonable doubt about
the powers or duties of the trusteeship or about the proper interpretation of the
trust provisions.” Restatement (Third) of Trusts, § 71 (2007). “A trustee
commits a breach of trust not only by violating a duty as a result of negligence
or misconduct but also, ordinarily, by violating a duty because of a mistake
concerning the nature or extent of the trustee’s powers and duties under the
terms of the trust or applicable law.” Id. cmt. a at 9 (citation omitted).
Accordingly, “[t]o avoid undue risk of liability when reasonable doubt exists in
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these matters, a trustee may seek protection by applying for instructions from
an appropriate court.” Id. Contrary to the Former Co-Trustees’ assertions,
a trustee need not act at his or her peril in administering a trust.
Nor need a trustee act first and discover later whether a particular
act was in breach of trust. Instead, a trustee is entitled to judicial
instructions whenever there is reasonable doubt about the powers
or duties of the trusteeship or about the proper interpretation of
the trust provisions. Indeed, a trustee can properly pay the costs
of seeking instructions out of the trust estate, unless seeking them
was plainly unwarranted, because there was no reasonable
uncertainty about the matter in question.
3 Austin Wakeman Scott, William Franklin Fratcher & Mark L. Ascher, Scott
and Ascher on Trusts, § 16.8, at 1070-71 (5th ed. 2007) (quotation omitted).
To the extent that the trial court concluded that the circumstances in
this case should have caused the Former Co-Trustees to have reasonable doubt
as to whether the decantings at issue were proper, we agree. Here, the
decantings to exclude beneficiaries of irrevocable trusts were to be
accomplished under circumstances suggesting that the settlor directed them so
as to disinherit disfavored family members. Those circumstances should have
caused the Former Co-Trustees to have reasonable doubt as to the propriety of
the decantings.
Thus, we find no error in the trial court’s suggestion that, before
participating in the decantings, the Former Co-Trustees could have filed a
petition for instruction or obtained an independent legal opinion, instead of
relying exclusively upon McDonald’s advice under circumstances suggesting
that he was doing the settlor’s bidding to disinherit beneficiaries with whom
the settlor was unhappy. See Hodges, 170 N.H. at 477, 479.
For all of the above reasons, therefore, under the unique circumstances
in this case, we cannot conclude that the trial court erred when it determined
that the Former Co-Trustees are not entitled to reimbursement under RSA 564-
B:7-709(a)(1) for the fees and costs they personally incurred to defend the
decantings.
C. RSA 564-B:8-805
The Former Co-Trustees next contend that the trial court erred when it
ruled that RSA 564-B:8-805 does not entitle them to indemnification. RSA
564-B:8-805 provides: “In administering, investing, and managing the trust
and distributing the trust property, the trustee may incur only costs that are
reasonable in relation to the trust property, the purposes of the trust, and the
skills of the trustee.” See Restatement (Third) of Trusts, supra § 88 (“A trustee
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can properly incur and pay expenses that are reasonable in amount and
appropriate to the purposes and circumstances of the trust and to the
experience, skills, responsibilities, and other circumstances of the trustee.”).
A trustee may “properly incur expenses for reasonable counsel fees and
other costs in bringing, defending, or settling litigation as appropriate to proper
administration or performance of the trustee’s duties.” Id. cmt. d at 258. “The
right of indemnification applies even though the trustee is unsuccessful in the
action, as long as the trustee’s conduct was not imprudent or otherwise in
violation of a fiduciary duty.” Id. (emphasis added). Thus, “[t]o the extent the
trustee is successful in defending against charges of misconduct, the trustee is
normally entitled to indemnification for reasonable attorneys’ fees and other
costs.” Id. at 258-59. However, “to the extent the trustee is found to have
committed a breach of trust, indemnification is ordinarily unavailable.” Id. at
259; see Lattuca v. Robsham, 812 N.E.2d 877, 882-83 (Mass. 2004) (upholding
the trial court’s denial of the trustee’s claim against the trust for attorney’s fees
when the trial court “concluded that . . . this litigation would not have been
necessary if [the trustee] had performed his duties as he should have in the
first place” and “could have found [the trustee] at fault for the litigation
expenses that were subsequently incurred, even in the absence of wilful breach
of trust”); In re Trust Created Under Mitchell, 788 N.E.2d 433, 437 (Ind. Ct.
App. 2003) (“A trustee may be precluded from recovering attorney fees from the
trust if the litigation arose because of the misconduct and/or negligence of the
trustee.”); In re Estate of Stowell, 595 A.2d 1022, 1026-27 (Me. 1991) (affirming
the trial court’s denial of reimbursement to the trustee of his attorney’s fees
because the “costs incurred in defending his accounts resulted, at least in part,
from [his] breaches of fiduciary duty”); Wiglesworth v. Taylor, 391 S.E.2d 299,
303 (Va. 1990) (“Although a trustee is entitled to reimbursement from the trust
for reasonable attorney’s fees expended in protecting the trust, a trustee should
not receive such reimbursement when he caused the litigation.” (citations
omitted)); Citizens and Southern Nat. Bank v. Haskins, 327 S.E.2d 192, 203
(Ga. 1985) (“While a trustee may be entitled to attorney fees incurred in the
protection and preservation of the estate, he is not entitled to charge the trust
estate with fees for defending his own maladministration against the justifiable
complaint of the beneficiaries.” (quotation and brackets omitted)).
The Restatement (Third) of Trusts § 88 offers the following illustration:
2. B brought suit seeking T’s removal as trustee and damages
allegedly based on T’s breach of its duty of impartiality. The court
found that, although T had violated its duty of impartiality and its
duty to provide certain relevant information requested by B, it had
not acted in bad faith and that, under the terms of the trust as
properly interpreted, B had suffered no damages from T’s conduct.
In refusing either to surcharge T or remove it from office, the court
instructed T on relevant aspects of its fiduciary duties and its
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obligations to B; on these facts, it would not be an abuse of the
court’s discretion to refuse to award T some or all of its costs based
on a finding that the litigation initiated by B was reasonable and
was caused by T’s misconduct and a need to correct it.
Restatement (Third) of Trusts supra § 88, cmt. d at 259. “Ultimately, . . . the
matter of the trustee’s indemnification is within the discretion of the trial court,
subject to appeal . . . . ” Id.
The trial court ruled that the Former Co-Trustees are not entitled to
indemnification under RSA 564-B:8-805 because of their “serious and
egregious” breaches. The court found that the “use of trust funds to defend
these acts would not constitute a reasonable use of trust assets.”
The trial court’s ruling is supported by the evidence and is not contrary
to the law. Given the trial court’s finding in Hodges that the Former Co-
Trustees breached their duty of impartiality and given that such a breach could
reasonably be termed “serious,” we see no error in the trial court’s
determination that the use of trust funds to defend the decantings would not
be reasonable. Hodges, 170 N.H. at 488 (quotation omitted).
In arguing for a contrary result, the Former Co-Trustees assert that:
(1) they “had a well-founded basis in law to believe that the decantings were
valid”; (2) they had a good faith belief that the decantings were valid; (3) they
did not act in bad faith; and (4) they relied upon the expertise of the settlor’s
attorney, McDonald, who advised that the decantings were proper. However,
the trial court rejected these assertions, finding that the Former Co-Trustees’
reliance upon McDonald’s advice was unreasonable, and that the record does
not support a finding that they acted in good faith. The court specifically found
that the Former Co-Trustees did not make “a simple mistake,” but rather
engaged in a “long-term, deliberate, undertaking coordinated under the
direction of . . . McDonald to remove the beneficial interests of the [plaintiffs] at
the behest of [the settlor].” See Hodges, 170 N.H. at 479.
The Former Co-Trustees also contend that their defense of the
decantings was not, itself, a breach of a fiduciary duty. Even assuming this to
be the case, it does not persuade us that the trial court unsustainably
exercised its discretion when it declined to indemnify the Former Co-Trustees
for the fees and costs they personally incurred defending the decantings. See
Restatement (Third) of Trusts, supra § 88 cmt. d at 259 (“Ultimately, . . . the
matter of the trustee’s indemnification is within the discretion of the trial court
. . . .”). Because we have upheld the trial court’s decision to deny the Former
Co-Trustees’ request for indemnification of the fees and costs they incurred to
defend the decantings on other grounds, we need not address their assertion
that the trial court erroneously determined that it lacked the authority to
reimburse them for their appellate fees under Supreme Court Rule 23.
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D. RSA 564-B:10-1004
The Former Co-Trustees next argue that the trial court erred by ordering
them, pursuant to RSA 564-B:10-1004 and as requested by the Successor Co-
Trustees, to personally reimburse the 2004 Trusts for the attorney’s fees and
costs the trusts incurred to defend the decantings. RSA 564-B:10-1004
provides: “In a judicial proceeding involving the administration of a trust, the
court, as justice and equity may require, may award costs and expenses,
including reasonable attorney’s fees, to any party, to be paid by another party
or from the trust that is the subject of the controversy.” For the purposes of
this appeal, because the Former Co-Trustees have not argued otherwise, we
assume without deciding that RSA 564-B:10-1004 applies to the
circumstances in this case.
RSA 564-B:10-1004 constitutes a statutory exception to the American
Rule that generally each party is responsible for his or her own attorney’s fees.
Shelton, 164 N.H. at 502. The phrase “as justice and equity may require”
establishes “a broad standard . . . that . . . reaches beyond bad faith or
wrongful conduct.” Id. (quotation omitted). However, before a court may
award fees under this provision, it “must provide a reason, grounded in equity,
as to why such an award should be made.” Id. “While the statute does not
provide specific criteria for such an award, it gives the trial court flexibility to
determine what is fair on a case by case basis.” Id. The use of the word “any”
in RSA 564-B:10-1004 “conveys broad authority upon the trial court to award
attorney’s fees to any party to be paid by another party as justice and equity
may require.” Id. (quotations omitted). Thus, under certain circumstances,
RSA 564-B:10-1004 “authorize[s] the award of attorney’s fees against a trustee
personally.” Id.
We review the trial court’s award of attorney’s fees under our
unsustainable exercise of discretion standard, giving deference to the trial
court’s decision. Id. at 501. To be reversible on appeal, the discretion must
have been exercised for reasons clearly untenable or to an extent clearly
unreasonable to the prejudice of the objecting party. Id. If there is some
support in the record for the trial court’s determination, we will affirm it. Id.
The Former Co-Trustees argue that the trial court unsustainably
exercised its discretion by awarding fees against them personally under RSA
564-B:10-1004 without first considering the following factors: (1) the
“reasonableness of the parties’ claims, contentions, or defenses”; (2) whether
the litigation was unnecessarily prolonged; (3) the parties’ “relative ability to
bear the financial burden”; and (4) “whether a party has acted in bad faith,
vexatiously, wantonly, or for oppressive reasons in the bringing or conduct of
the litigation.” Atwood v. Atwood, 25 P.3d. 936, 947 (Okla. Civ. App. 2001); see
In Re Trust No. T–1 of Trimble, 826 N.W.2d 474, 491 (Iowa 2013) (adopting
Atwood factors).
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The factors the Former Co-Trustees identify are among those first
adopted in Atwood from “general criteria drawn from other types of cases” to
“provide nonexclusive guides” to trial courts and reviewing courts applying the
“highly subjective phrase ‘justice and equity.’” Atwood, 25 P.3d at 947. We
have not previously adopted the Atwood factors under New Hampshire law and
decline to do so in this case. Absent legislative direction, we will not cabin the
broad discretion the statute grants trial courts by requiring them to consider
pre-determined factors to decide “what is fair” in any particular case. Shelton,
164 N.H. at 502; see Rogers v. Rogers, 171 N.H. 738, 743 (2019) (“We interpret
legislative intent from the statute as written and will not consider what the
legislature might have said or add language that the legislature did not see fit
to include.”).
In this case, the trial court determined that because of the Former Co-
Trustees’ “serious breach; admitted and improper near total reliance on the
Settlor’s paid counsel, . . . McDonald; failure to seek independent advice
concerning their duties to the beneficiaries; and pursuit of decantings that
increased the likelihood of litigation, it would be unfair and unjust . . . to
charge the 2004 Trusts with the cost of lengthy litigation in defense of what is
seen as an indefensible fiduciary breach of duty.” See Hodges, 170 N.H. at
485-88. We cannot say that the trial court’s decision constituted an
unsustainable exercise of discretion. See Shelton, 164 N.H. at 503; cf.
Dardovitch v. Haltzman, 190 F.3d 125, 146 (3d Cir. 1999) (“[A] trustee may be
found liable for a beneficiary’s attorney’s fees when the trustee has acted
wrongfully, especially where the litigation itself is made necessary by the
trustee’s defalcation.”).
Affirmed.
BASSETT, HANTZ MARCONI, and DONOVAN, JJ., concurred; BROWN,
J., retired superior court justice, specially assigned under RSA 490:3, concurred.
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