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IMO Estate of Clark

Court of Chancery of Delaware

July 9, 2019

IMO the Estate of Margaret Elaine Clark

          Draft Report: June 24, 2019

          Date Submitted: March 26, 2019

          Denise D. Nordheimer, Esquire Shana A. Pinter, Esquire The Law Office of Denise D. Nordheimer, Esquire, LLC

          David J. Ferry, Jr., Esquire James Gaspero, Jr., Esquire Ferry Joseph, P.A.

         Dear Counsel:

         Pending before me are exceptions to estate accountings. To borrow from then-Vice Chancellor Noble, "[c]ases like this one rarely lead to a doctrinally comfortable and precise outcome."[1] The exceptant seeks disallowance of a number of entries on the accountings, reimbursement for funds she expended on behalf of the estate, a surcharge against the personal representative, shifting of attorneys' fees, and a release of all claims. The personal representative, conversely, seeks approval of the amended first accounting "as is" and authority to file a final accounting, pay all listed expenses, make any remaining distributions, and close the estate.

         In this post-trial report, my recommendations are akin to a mixed bag, with no clear "winner" or "loser." I conclude that the personal representative has not met his burden to prove all listed expenses, fees, and commissions should be charged to the estate and, as such, I recommend that certain expenses be disallowed in full and in part. I further conclude that the exceptant has not met her burden to prove that the personal representative should be surcharged or should bear the exceptant's attorneys' fees and expenses. Although perhaps not the most "doctrinally comfortable" or "precise outcome", this report seeks to recommend the most equitable distribution of this relatively small estate to its two dueling beneficiaries. This is my post-trial final report.[2]

         I. BACKGROUND[3]

         Margaret Elaine Clark ("Decedent") died on February 16, 2016 at Arden Courts Alzheimer's Assisted Living.[4] She is survived by her two children Linda Kay Warming and Steve A. Batchelor. Following her death, Decedent's son (the "Personal Representative"), initiated probate proceedings in testate in the New Castle County Register of Wills.[5] Letters were issued to the Personal Representative on April 19, 2016, and he filed an inventory of the estate on September 1, 2016 and a first and proposed final accounting on July 19, 2017 (the "First Accounting").[6]

         On or about October 10, 2017, Decedent's daughter (the "Exceptant"), filed exceptions to the First Accounting pro se.[7] The Exceptant took issue with (1) the listed funeral expenses, (2) the attorneys' fees and commission, (3) the veracity of the affidavits submitted with the First Accounting, and (4) the Personal Representative's alleged lack of integrity in the administration of the estate.[8] The Personal Representative responded to the exceptions on October 30, 2017, denying any wrongdoing and attesting the First Accounting was accurate and reasonable and the Personal Representative performed his duties appropriately.[9]

         Following an unsuccessful mediation of the exceptions on June 20, 2018, trial was scheduled and discovery continued.[10] On December 5, 2018, the Personal Representative filed an amended first accounting (the "Amended Accounting").[11] The Amended Accounting reflected changes to the administrative expenses, funeral expenses, and attorneys' fees and expenses.[12] At the bottom line, the Amended Accounting reflected $0.00 remaining to be distributed to the estate beneficiaries compared to $1, 741.46 remaining in the First Accounting.[13] The Exceptant (now represented by counsel) filed exceptions to the Amended Accounting on March 6, 2019, renewing her prior exceptions and objecting to the altered portions of the Amended Accounting.[14] The Personal Representative responded on March 14, 2019 and a one-day trial was held on March 26, 2019.[15]

         II. ANALYSIS

         I am tasked with providing recommendations on the exceptions to the First Accounting and Amended Accounting, the Exceptant's request for fee shifting, and the Personal Representative's request to close the estate. I recommend that the challenged items be allowed in part and disallowed in part, attorneys' fees and expenses not be shifted, and the Personal Representative be permitted to file a final accounting, subject to the recommendations herein, and work to close out the estate.

         A. The Exceptions Should Be Allowed In Part And Disallowed In Part.

         With any estate accounting filed, heirs and beneficiaries are provided an opportunity to object to all or part of the accounting through exceptions. "[T]he Delaware Constitution provides that when exceptions are heard by the Court, 'the account shall be adjusted and settled according to the right of the matter and the law of the land.'"[16] Under Court of Chancery Rule 198, "the personal representative bears the initial burden of demonstrating that the account was properly prepared."[17]"That burden shifts, however, where the exceptant seeks a surcharge. In those instances, the exceptant 'must demonstrate affirmatively that a surcharge is warranted.'"[18] Because the Amended Accounting replaced the First Accounting, the Amended Accounting is my primary focus; although, the First Accounting is part of the record and informs my analysis.

         i. The Requested Commission Is Unreasonable Under The Circumstances.

         The Exceptant challenges the Personal Representative's requested commission of $5, 000.00. Because the Exceptant is not seeking a surcharge against the Personal Representative for the commission, the burden falls on the Personal Representative to prove the commission is reasonable.[19]

         Commissions represent "compensation to the personal representative for his own services in collecting the assets, checking into and paying bills, and performing the various duties which may be necessary, and his trouble and [i]ncidental expenses incurred thereby."[20] Court of Chancery Rule 192 provides in pertinent part:

In determining what constitutes reasonable commissions and fees, consideration may be given to the time spent, the risk and responsibility involved, the novelty and difficulty of the questions presented, the skill and experience of the personal representative …, comparable rates for similar services in the locality, the character and value of the estate assets, … the time constraints imposed upon the personal representative and the attorney, the loss of other business necessitated by acceptance of the administration, and the benefits obtained for the estate by the administration. Commissions and fees shall not be considered unreasonable merely because they are based exclusively on hourly rates, exclusively on the value of the probate estate, or exclusively on the value of the assets includible in the estate for the purpose of any tax.[21]

         Although arising in the surcharge context, the decisions in In re Marvel[22] and Stone v. Stant, [23] applying Rule 192, are informative. In reviewing the factors in Rule 192 in light of Marvel, Stone, the Personal Representative's testimony, and the exceptions, I find that the Personal Representative has not met his burden of proving that a $5, 000.00 commission is reasonable under the circumstances.

         The requested $5, 000.00 commission, a "flat rate" chosen by the Personal Representative, [24] represents roughly 13.4% of the total estate. Yet, based upon his own testimony, the Personal Representative did not spend substantial time on estate administration.[25] Most, if not all, of the Personal Representative's duties were performed by or with the assistance of his attorneys, who also billed the estate for their time and expense.[26] There was no substantial risk or responsibility involved with the Personal Representative's service, nor anything "novel" or "difficult" about the estate or its administration.[27] There is also no evidence of loss of business by the Personal Representative nor, conversely, cognizable benefits to the estate from his service or specialized knowledge or skills. Finally, looking to the character and value of the estate assets, the estate was not large and was comprised primarily of cash assets. Under these circumstances, I find that a commission of $5, 000.00, roughly 13.4% of the total estate, is unreasonable.[28]

         Like the exceptants in Stone, the Exceptant is "less than helpful when it comes to determining what an appropriate fee would have been" for the Personal Representative's service to the estate.[29] The Exceptant argues that the Personal Representative is not entitled to any commission because the Personal Representative's attorneys "did the work."[30] But, per Rule 192, "[c]ommissions of personal representatives, and fees of the attorneys who represent them, shall be allowed in a reasonable amount."[31]

         Because the Personal Representative did take steps to administer the estate by, for example, working with his counsel to finalize and file an inventory and accounting, I find that eliminating any commission is not reasonable. Based upon my review of the factors in Rule 192, the Personal Representative's and his estate counsel's testimony regarding the administration of the estate, and the determinations in Marvel and Stone, I find that a commission of $1, 000.00 would have been reasonable and fair under the circumstances.[32] Thus, the Personal Representative's commission should be disallowed by $4, 000.00.

         ii. The Personal Representative's Travel Expenses Should Be Allowed In Part And Disallowed In Part.

         The Exceptant challenges the addition of travel expenses incurred by the Personal Representative to the administrative expenses listed on the Amended Accounting. This Court utilizes a three-factor test to analyze "the appropriateness of [accounting] deductions: relevance, reasonableness, and timeliness."[33] The three factors are "intertwined yet unique" and one factor alone, if strong enough, can be determinative.[34] The scope of these factors was aptly explained in In re Rich, as follows:

Relevance goes to the heart of estate administration: Does the deduction serve the best interests of the estate? Does the deduction protect and preserve the estate? Is the deduction appropriate, given the general standards of estate administration?
Reasonableness speaks to the amount spent: Is the amount spent the fair market value of such goods or services? Is the amount spent proportionate to a benefit that the estate receives or a detriment that the estate avoids?
Timeliness is always an admired but elusive factor: Does the deduction occur in a timely manner so as to achieve a benefit (or avoid a detriment) for the estate?[35]

         Regarding timeliness, this Court has recognized "there can be absolute deadlines for deductions."[36] The Personal Representative bears the burden of proving the relevance, reasonableness, and timeliness of his listed expenses.

         The Amended Accounting lists travel expenses, within the administrative expenses, totaling $3, 541.67.[37] The travel expenses were incurred when the Personal Representative traveled to Delaware to meet with his counsel on three (3) occasions: November 23, 2016, July 14, 2017, and June 20, 2018.[38] The 2016 and 2017 expenses were incurred prior to the First Accounting, the proposed "final" accounting, but they were not included therein as administrative expenses. The Personal Representative provides no justification for his failure to list the 2016 and 2017 expenses in the First Accounting nor for his decision to add them, belatedly, to the Amended Accounting.

         I find the addition of the 2016 and 2017 travel expenses in the Amended Accounting untimely under these circumstances.[39] Conversely, the 2018 travel expenses were relevant to the estate administration, [40] reasonable, [41] and timely incurred.[42] As such, the Personal Representative's travel expenses should be allowed in the reduced amount of $1, 462.04.[43]

         iii. The Personal Representative's Attorneys' Fees Should Be Allowed In Part And Disallowed In Part.

         The Exceptant challenges the relevance and reasonableness of the attorneys' fees billed to the estate by Ferry Joseph, P.A., counsel to the Personal Representative. "[F]ees paid to the attorney for the personal representative are considered an expense of the estate."[44] "The rational[e] behind this rule is that the personal representative and his or her attorney is providing a service to the estate and its beneficiaries by properly and efficiently administering the estate."[45] But, the Personal Representative still bears the burden of proving the attorneys' fees and expenses were relevant, reasonable, and timely.

         I address each of the Exceptant's four subject-matter challenges-(a) investigation of possible claims arising from Decedent's death; (b) proceeding(s) in North Carolina; (c) this litigation; and (d) banking-in turn.

         (a) Attorneys' Fees And Expenses Incurred To Investigate Decedent's Death Should Be Allowed In Part And Disallowed In Part.

         The Personal Representative, through his counsel, investigated potential wrongful death and survival claims arising from Decedent's death.[46] Attorneys' fees and expenses for investigating a wrongful death action, which is pursued for the benefit of the decedent's heirs and not the estate, are not properly charged to a decedent's estate.[47] But, attorneys' fees and expenses for investigating whether a decedent had any pre-death survival claims (e.g., personal injury claims) that may, if successful, inure to the benefit of the estate, may be properly charged to the estate.[48] Because both wrongful death and survival actions were being investigated jointly, I find that the Personal Representative has not met his burden of proving this category of attorneys' fees and expenses was, in full, properly charged to the estate. I recommend these fees and expenses be disallowed by 50% in recognition of the two seemingly co-equal objectives.[49]

         (b) Attorneys' Fees And Expenses Related To Proceeding(s) In North Carolina Should Be Disallowed In Full.

         Second, the Exceptant objects to attorneys' fees and expenses incurred in connection with proceeding(s) in North Carolina. The Personal Representative explained that Decedent had property in North Carolina at the time of her death but that it was not a part of the Delaware estate, nor within Delaware's jurisdiction.[50] His attorney testified likewise.[51] And, they are correct-proceedings related to the North Carolina property were (and, to the extent they are still active, are) separate from the Delaware estate administration. Yet, the estate was billed for fees and expenses related to the North Carolina property and proceeding(s).[52] Those fees and expenses should be disallowed in full.[53]

         (c) Litigation-Related Attorneys' Fees And Expenses Should Be Allowed In Part And Disallowed In Part.

         Third, the Exceptant objects to the estate covering the attorneys' fees and expenses incurred in connection with the exceptions and this litigation. As I explained, "[t]he general rule is that fees paid to the attorney for the personal representative are considered an expense of the estate[, ]"[54] but this general rule does not apply to attorneys' fees and expenses incurred that do not provide a service or benefit to the estate and its beneficiaries.[55]

         The Personal Representative and his attorneys acted appropriately in administering the estate, including throughout discovery and mediation.[56] But, the Personal Representative crossed the line from administering and servicing the estate, for the benefit of the estate and its beneficiaries, by belatedly adding his 2016 and 2017 travel expenses to the Amended Accounting. The Personal Representative's decision to add the 2016 and 2017 travel expenses to the Amended Accounting was untimely and benefitted only himself, to the detriment of the Exceptant.[57] As such, it would be inequitable to force the estate and, in turn, the Exceptant to pay for the Personal Representative's untimely additions to the Amended Accounting and the successful exceptions thereto.[58] Thus, I recommend that all attorneys' ...


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