IN THE MATTER OF THE ESTATE OF MARGARET C. TKACHUK (P-242334-16, MIDDLESEX COUNTY AND STATEWIDE) ( 2021 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3578-19
IN THE MATTER OF THE
ESTATE OF MARGARET C.
TKACHUK, Deceased.
Submitted May 12, 2021 – Decided June 30, 2021
Before Judges Alvarez and Geiger.
On appeal from the Superior Court of New Jersey,
Chancery Division, Middlesex County, Docket No.
P-242334-16.
Kulzer & DiPadova, PA, attorneys for appellant Karen
Lesso Conover (Eric A. Feldhake and Daniel L. Mellor,
on the briefs).
Tiboni & Tiboni, LLP, attorneys for respondent Mark
M. Lesso (Joseph B. Tiboni and Jane Carro Tiboni, on
the brief).
PER CURIAM
The executrix and primary beneficiary of Margaret C. Tkachuk's estate,
Karen Lesso Conover, appeals a March 29, 2019 order 1 regarding counsel fees.
The order requires her to reimburse the estate some $33,129 2 in fees paid to three
law firms "in connection with [] litigation" initiated by Mark Lesso, a residual
beneficiary. The order further requires a payment of $25,986.85 from the estate
to Lesso's counsel. Conover also appeals the April 27, 2020 denial of
reconsideration, which further increased the amount by $5871.89, for a total of
$39,000.89. We affirm.
Tkachuk died June 3, 2013. Her will directed that the residue of her living
trust be used for specific bequests to eighteen named individuals, the balance to
be apportioned among those beneficiaries. They included Lesso and his mother,
who each had a thirteen percent interest, Conover a thirty-four percent interest,3
and five others an eight percent interest.
1
For reasons not explained in the record, the order was not filed with the
Surrogate's Office until January 31, 2020.
2
The figure included: $17,318.52 to the second law firm; $7392.98 to the third;
and $8417.50 to the first.
3
Conover received a substantial portion of the estate in addition to her share of
the residuary estate.
A-3578-19
2
The first law firm Conover hired to represent her in the administration of
the estate made a $61,878 error in the allocation of taxes to Conover's benefit.
In May 2016, Lesso filed a complaint and order to show cause seeking an
accounting, alleging that the payment of the $61,878 in taxes from the residuary
estate was incorrect. Conover retained a second law firm to represent her in the
litigation. While the action was pending, Conover reimbursed the $61,878 into
the estate account. Some months later, Conover retained a third firm to represent
her, both in the administration of the estate and the litigation.
On September 6, 2017, the parties settled the litigation by way of a consent
order. The order provided that Conover place the first law firm and its insurance
carrier on notice of a potential malpractice claim from the tax error. It further
stated:
3. Each [a]ttorney in this matter who is
seeking fees and expenses for services rendered in
connection with this case or who has already received
payment in this case, shall file a fee application to be
heard by the [c]ourt. A hearing shall be scheduled on
the 20th day of October, 2017, at 10:30 a.m.[,] at which
time the [c]ourt shall make a determination regarding
the payment of said fees and who shall be responsible
for payment.
4. Any [a]ttorney who has already been paid
legal fees and/or expenses in connection with this case,
whose fee application is not approved by the [c]ourt,
A-3578-19
3
shall be required to disgorge said fees and return them
to the [e]state.
On November 9, 2017, the court conducted oral argument regarding the
question of fees. A March 29, 2019 decision followed, which, for reasons not
explained on the record, was not filed until January 31, 2020. 4 Presumably, that
is also the date the order was received by counsel. In the opinion/order, the
judge made substantial findings of fact in twenty-one separately numbered
paragraphs. He concluded that Conover should reimburse the residuary estate
counsel fees charged by attorneys who represented her, who were paid from
estate funds for the litigation—thus creating a fund in court. Any unpaid fees
would become Conover's personal responsibility. Thus, he required Conover to
"reimburse the [e]state the amount of $33,129 for the fees already paid to the
three firms retained by the [e]xecutrix for all services rendered in connection
with this litigation . . . ." He further directed Lesso's attorneys be paid
$25,986.85 from the fund in court that would thereby be created, the balance to
be distributed to the residuary beneficiaries.
Conover then filed an application for reconsideration. The recording of
that argument was lost and had to be reconstructed. In his April 27, 2020 order,
4
It is suggested in one of the briefs the delays in this case were attributable to
the trial judge's health, although nothing in the record clearly explains it.
A-3578-19
4
the judge reiterated on reconsideration that Conover should reimburse the estate
for fees paid in connection with the litigation and be solely responsible for those
amounts. He required an additional $5871.89 to be reimbursed to the estate
account because the first law firm charged 1.5% of the total amount
administered, including the non-probate assets. The judge concluded that the
residuary beneficiaries should not be responsible for legal fees attributable to
non-probate assets, including Conover's inheritance under the terms of a pour-
over living trust.
The judge explained that the first firm's legal fees should not exceed
$15,000 because the probate assets totaled only approximately $1,000,000. The
court added that the earlier $8417.50 figure was the amount previously attributed
to the first law firm's litigation charges. Since the maximum fee from the estate
should not have exceeded $15,000, however, the surcharge amount should be
$14,289.39—in other words, the original $8417.50 he ordered repaid plus
$5871.89 in paid fees that were attributable to the administration of non-probate
assets. Thus, the judge calculated the total surcharge to be $5871.89 higher—
increasing the amount to $39,000.89.
Now on appeal, Conover raises the following points:
POINT I
A-3578-19
5
THE TRIAL COURT ERRED TO THE EXTENT IT
AWARDED [PLAINTIFF'S] LEGAL FEES TO BE
PAID FROM THE ESTATE UNDER [RULE] 4:42-
9(a)(3) BECAUSE THE MATTER WAS NOT A WILL
CONTEST, [DEFENDANT] WAS NOT REMOVED
AS EXECUTRIX, AND THERE WAS NO FINDING
[DEFENDANT] BREACHED HER FIDUCIARY
DUTY.
a. The Trial Court's Award of Counsel Fees Was Not
Permitted Under [Rule] 4:42-9(a)(3).
b. The Trial Court's Award of Counsel Fees Was Not
Permitted under In re Estate of Vayda.5
POINT II
THE TRIAL COURT ABUSED ITS DISCRETION BY
ORDERING [DEFENDANT] TO REIMBURSE THE
ESTATE FOR ATTORNEYS[] FEES IN ORDER TO
CREATE A “FUND IN COURT” WHERE SUCH
ORDER WAS MOTIVATED BY EQUITABLE
CONSIDERATIONS.
POINT III
THE TRIAL COURT ERRED BY MAKING
DETERMINATIONS AS TO DISPUTED FACTS ON
AN INCOMPLETE RECORD.
POINT IV
THE TRIAL COURT ABUSED ITS DISCRETION BY
AFFIRMING THE JANUARY 31[] ORDER UPON
RECONSIDERATION.
5
184 N.J. 115 (2005).
A-3578-19
6
Generally, we review awards of counsel fees under a clear abuse of
discretion standard. Occhifinto v. Olivo Constr. Co., LLC, 221 N.J. 443, 454
(2015); Rendine v. Pantzer, 141 N.J. 292, 317 (1995). An abuse of discretion
"arises when a decision is 'made without a rational explanation, inexplicably
departed from established policies, or rested on an impermissible basis.'" Flagg
v. Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002) (quoting Achacoso-Sanchez
v. I.N.S., 779 F.2d 1260, 1265 (7th Cir. 1985)). As always, we review the trial
judge's legal determinations employing a de novo standard. Occhifinto, 221 N.J.
at 453. During the reconsideration argument, the trial judge said his reference
to Rule 4:42-9(a)(3) was a typographical error, and that he had intended to cite
Rule 4:42-9(a)(2).
The fund in court exception to the American Rule, which bars payment of
fees to the prevailing party, reads:
The court in its discretion may make an
allowance out of such a fund, but no allowance shall be
made as to issues triable of right by a jury. A fiduciary
may make payments on account of fees for legal
services rendered out of a fund entrusted to the
fiduciary for administration, subject to approval and
allowance or to disallowance by the court upon
settlement of the account.
[R. 4:42-9(a)(2).]
A-3578-19
7
"'Fund in court' is an equitable term of art." Porreca v. City of Millville, 419
N.J. Super. 212, 225 (App. Div. 2011). "The fund in court exception generally
applies when a party litigates a matter that produces a tangible economic benefit
for a class of persons that did not contribute to the cost of the litigation."
Henderson v. Camden Cnty. Mun. Util. Auth., 176 N.J. 554, 564 (2003).
Both parties rely on In re Estate of Vayda, 184 N.J. 115 (2005), in support
of their respective positions. We read the case to mean that attorney fees paid
out of the residuary estate on Conover's behalf to defend the litigation must be
reimbursed. It also stands for the proposition that if the percentage of legal fees
charged by the first law firm was increased by inclusion of non-probate assets
to Conover's benefit, those fees must also be disgorged and returned to the
residuary estate.
The issue in Vayda centered around the question of whether an exception
should be made to the American Rule where a prevailing party could show
dereliction on the part of an executor. 184 N.J. at 120. The question arose
because when payment of counsel fees comes out of the residuary portion of an
estate, or an estate as a whole when that is relevant, a litigant who has
successfully challenged the administration of the estate is charged with a
proportionate share of the counsel fees expended. In Vayda, the successful
A-3578-19
8
litigant argued that it was inequitable to merely reimburse her 55% of her
attorney's fees (she was a 45% beneficiary), when it was her brother's inaction
and bad faith that caused her to commence the litigation and incur fees. But the
Court stated that the result, even if it did not make the litigant whole, was
required "by the clear language of Rule 4:42-9(a)(3) . . . ." Vayda, 184 N.J. at
124. The litigation did not result in an increase in value to the estate, only to
compel the executor to act and make final distribution.
Lesso argued before the judge and on appeal that by requiring Conover to
refund the taxes he created a fund in court that benefits all the residuary
beneficiaries, therefore his legal fees should be paid out of that sum. The judge
agreed. By compelling the executrix to reimburse the taxes, Lesso created a
fund in court. The judge also held Conover should pay for her defense to the
litigation out of her own pocket—adding to that sum.
That decision is not an abuse of discretion, nor a misinterpretation of the
law. To the extent Lesso's fees of $25,986.85 are paid out of the residuary estate,
it is a payment made from a fund in court created by Lesso's litigation.
"[A] court need not have jurisdiction over the disbursement of an actual
'fund' to justify an award of attorneys[] fees." Henderson, 176 N.J. at 564. "It
is sufficient if, as a result of the litigation, the fund is brought under the control
A-3578-19
9
of the court. An illustration of this is a suit to construe a will or a trust
agreement." Trimarco v. Trimarco, 396 N.J. Super. 207, 215-16 (App. Div.
2007) (quoting Cintas v. Am. Car & Foundry Co., 133 N.J. Eq. 301, 304 (Ch.
Div. 1943)).
Further, the earlier resolution of the accounting issue between the parties
does not, as Conover claims, negate the existence of a fund in court or the court's
authority to order the creation of a fund in court. In Trimarco, for example, the
court ordered a fund in court be created to address the matter of attorneys' fees
"[f]ollowing settlement of all claims, cross-claims, counterclaims and third party
claims . . . ." 396 N.J. Super. at 210. Resolution of the underlying claims does
not strip the court of its jurisdiction over a fund in court to address fee -shifting
under Rule 4:42-9(a)(2).
Porreca outlined the two-step process for assessing legal fees to be paid
out of a fund in court pursuant to Rule 4:42-9(a)(2):
First, the court must determine as a matter of law
whether plaintiff is entitled to seek an attorney fee
award under the fund in court exception as articulated
in Henderson. If the court determines plaintiff has met
the threshold, it then has the "discretion" to award the
amount, if any, it concludes is a reasonable fee under
the totality of the facts of the case.
[419 N.J. Super. at 228.]
A-3578-19
10
Accordingly, under that portion of the rule, the trial court did not abuse
its discretion in holding the money returned to the estate created a fund in court.
The return created "an economic benefit on a class of persons that did not
contribute to the cost of the litigation." Henderson, 176 N.J. at 565.6
Conover contends that by making all of Lesso's fees payable out of the
residuary estate, the judge violated the American Rule and Rule 4:42-9(a)(3).
We do not agree.
Lesso's lawsuit returned substantial monies to the residuary estate,
creating a fund in court. But for that litigation, the increase to the residuary
estate would never have occurred, including the judge's finding that a portion of
the percentage of fees was attributable to non-probate assets and therefore
should not have been paid out of the probate estate. Payment of Lesso's legal
fees from the residue is therefore appropriate. This analysis conforms to
subsection (2), permitting payment of counsel fees where a litigant creates a
6
Conover argues for the first time in her reply brief that the court should have
limited Lesso's recovery based on the partial nature of his success in the
litigation. First, we do not consider arguments raised for the first time in a reply
brief. State v. Lenihan, 219 N.J. 251, 265 (2014) ("To raise [an] issue initially
in a reply brief is improper." (alteration in original) (quoting Twp. of Warren
v. Suffness, 225 N.J. Super. 399, 412 (App. Div. 1988))). Additionally, we do
not agree with the characterization that his success was only partial.
A-3578-19
11
fund in court. Even by doing so, Lesso is not reimbursed 100% of his legal fees.
Mathematically, he receives 87% of his fees, not 100%.
Although the terms of the initial March 29, 2019 order are not entirely
transparent, the judge decreed that the legal fees would be paid from the
residuary estate, not directly by Conover out of her own pocket. Otherwise, the
relevant paragraph, after directing payment of legal fees, would not have stated:
"[T]he remainder shall be distributed in accord with the provisions of the Last
Will and Testament of [] Tkachuk . . . ." Whether viewed under subsection (2)
or subsection (3), the payment was proper. Those monies would not have passed
to the beneficiaries but for the litigation.
Conover also contends that the trial judge's findings of fact were not based
on evidence properly available to him from the record. Ultimately, however,
this does not affect the outcome. Whether or not Conover acted in bad faith
does not defeat the fundamental principle that her litigation legal fees should not
have been assessed against the probate estate. It is not a violation of the
American Rule to compel her to pay for the cost of defending herself in the
litigation out of her own pocket.
Finally, Conover contends that the court erred in compelling
reimbursement of any of the first law firm's legal fees, since the bulk of the fees
A-3578-19
12
were incurred before Lesso filed his complaint. However, the judge did not err
because the first firm acted as the attorney for Conover as the executor of the
estate, not for the estate. Thus, the first firm acted as her personal attorney,
providing services for which she should be personally responsible. See Barner
v. Sheldon, 292 N.J. Super. 258, 265 (Law Div. 1995). Conover agreed to notice
the first law firm of a potential malpractice claim and notice the firm's insurance
carrier. She elected not to do so. Had she prevailed, those legal fees would also
be returned to the residual estate.
Affirmed.
A-3578-19
13