Attorney Fees… Be Sure You Understand Before You Sign The Fee Agreement!
Upon the death of a loved one, you may have to discuss certain issues with an attorney and this may be the first time that you have ever approached an attorney. When dealing with an estate or administering a trust, Florida law allows a “presumed reasonable fee” under § 733.6171 and § 736.1007 of the Florida Statutes. Unfortunately, many attorneys may forget that such a fee is PRESUMED reasonable which does not make such a fee automatic. A recent case illustrates that fact.
In West v. Chrisman, a Florida District Court affirmed the Bankruptcy Court’s Order finding that John West, as Co-Trustee and attorney for a trust administration, owed a non-dischargeable debt to a trust of $212,478.00 because his fee agreement was missing essential terms to form a valid contract.
Following the death of Mr. Chrisman, Aleta Chrisman and John became Co-Trustees of Mr. Chrisman’s Trust worth approximately $23 million dollars. On May 19, 2014, John and Aleta met to discuss how the trust would be administered. Aleta testified there was no discussion of attorneys’ fees and she was merely handed an unsigned copy of a fee agreement. On June 2nd, John and Aleta signed the fee agreement which proposed fees to be calculated “pursuant to the provisions of Florida Statutes § 733.6171 and §737.2041″ (the predecessor statute to 736.1007) but the agreement failed to include an actual calculation of the fees. Not until July 17th did John provide Aleta with a calculation of the fees. John told Aleta his $355,887 fee (paid in 3 installments) was set by Florida law and that Mr. Chrisman (prior to his death) had allegedly agreed to the fee schedule.
In late July, a disagreement arose on how trust assets should be invested. After months of opposition, John resigned as Co-Trustee but remained attorney for the Trust and Aleta paid John two out of the three installments for his fees. In November, Aleta fired John and brought suit against him seeking return of the fees already paid. While this case was pending, John filed bankruptcy.
During the bankruptcy proceedings, the Bankruptcy Court held that Aleta could not have understood the fee agreement until the fee schedule was provided. The amount of the fee was the “most important material provision” and Aleta justifiably relied on John’s statement that the schedule was set per Florida law. Thus, due to this fraudulent representation and lack of information, the Bankruptcy Court held that John owed Aleta fees already paid to him and this debt would not be discharged in John’s bankruptcy proceedings. John appealed and the District Court affirmed.
The District Court held that the amount of the fee is an essential term to the contract, and if an essential term is absent, ambiguous or open for negotiation, then the contract is unenforceable. Additionally, the Court noted that John’s provision stating the fee was based on “value of inventory and assets held in trust” did not resolve the ambiguity. Further, § 733.6171 and § 737.2041 do not set forth a “definite proposition” to fees and the fee schedule is “presumed to be reasonable.” John’s calculations were not reasonable and a more definitive amount should have been discussed with Aleta.
The District Court also upheld the Bankruptcy Court’s ruling that John’s debt would not be discharged. Generally, under bankruptcy law, a debtor wants the bankruptcy court to discharge debts so the debtor can have a “fresh start”. However, a creditor can make a debt non-dischargeable if a fiduciary relationship existed prior to the debt and the fiduciary consciously disregards a substantial and unjustifiable risk that will violate the fiduciary duty. The District Court echoed the Bankruptcy Court’s statements that John “had a duty to do more than simply not act unreasonable…He had to administer the trust in good faith…and solely in the interests of the beneficiaries.” Without affirmatively advising Aleta of the alternative fee options, coupled by alluding to her that his fees were set by Florida law, John recklessly disregarded his duties of loyalty and candor.
ADVICE: You should ALWAYS discuss fees with your attorney and make sure you understand the amount or how the fees will be calculated. You have choices. Attorneys should take a moment to review fee agreements and ensure your terms and conditions are carefully explained, especially when discussing how your fees will be paid. Also, have your legal assistant or paralegal read the agreement to make sure a non-lawyer would understand its terms and conditions.
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