APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (T. NOS. 02-1-0030 (EEH) and 06-1-0044(EEH))
NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER
MEMORANDUM OPINION NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER
(By: Foley, Presiding Judge, Leonard, J., and Circuit Judge Crandall, in place of Nakamura, C.J., and Fujise, J., all recused)
In this consolidated appeal, beneficiaries of the Thomas H. Gentry Revocable Trust and Marital Trust appeal from February 27, 2009 judgments of the Circuit Court of the First Circuit (Circuit Court) filed in two related matters: In re T.H.G. Marital Trusts, TR 06-1-0044 (Marital Trust), and In re Thomas H. Gentry Revocable Trust, TR 02-1-0030 (Revocable Trust). The Marital Trust appeal challenges the following orders and judgments, both filed on February 27, 2009: (1) Order Approving Sonnenschein Nath & Rosenthal LLP Fees as Set Forth in Co- Trustees' Petition for Income and Principal Accounts for the Period January 1, 2007 through December 31, 2007, Filed June 12, 2008; and (2) Judgment Regarding Order Approving Sonnenschein Nath & Rosenthal LLP Fees as set Forth in Co-Trustees' Petition for Approval of Income and Principal Accounts for the Period January 1, 2007 through December 31, 2007, Filed on June 12, 2008.*fn1 The Revocable Trust appeal challenges the following, also filed on February 27, 2009: (1) Order Granting in Part and Continuing in Part Co-Trustees' Petition for Approval of Income and Principal Accounts for the Period January 1, 2007 through December 31, 2007, Filed on June 12, 2008; and (2) Judgment Regarding Order Granting in Part and Continuing in Part Co- Trustees' Petition for Approval of Income and Principal Accounts for the Period January 1, 2007 through December 31, 2007, Filed on June 12, 2008. The judgments in both matters were certified for appeal in accordance with Hawaii Probate Rules (HPR) Rule 34(b) and Hawaii Rules of Civil Procedure (HRCP) Rule 54(b). The appealed orders and judgments collectively approved the trusts' 2007 accounts with respect to the payment of attorneys' fees totaling approximately $1.1 million from the two Gentry trusts to a California law firm, Sonnenschein Nath & Rosenthal LLP (SNR). Petitioners-Appellees Mark L. Vorsatz and First Hawaiian Bank (collectively, Trustees) incurred the fees in 2007 during the course of administering the trust, including litigation concerning several years of trust accounts. The appealing beneficiaries (collectively, Beneficiaries) are Diane "Kiana" Gentry (Kiana), the settlor's wife; Norman, Tania, and Mark Gentry, his children from a prior marriage; and Scott A. Makuakane, guardian ad litem for unborn, contingent beneficiaries. They argue that the Circuit Court erred in approving the accounts with respect to the payments of attorneys' fees from the trusts to SNR, contending that the fees were unreasonable, excessive, and not incurred for the benefit of the trusts. They also challenge SNR's billing invoices as a basis for the fees, arguing that the invoices reflect prohibited billing practices such as block billing, double billing, and non-compensable administrative work. We conclude that the Circuit Court did not abuse its discretion in approving the trusts' 2007 accounts, including the payment of the trustees' attorneys' fees as reasonable, necessary, and beneficial to the trusts.
This consolidated appeal concerns the reasonableness of trustees' payment of approximately $1.1 million to SNR for attorneys' fees and costs incurred in 2007. These fees were incurred during the course of trust administration, including litigation of several years of contested trust accountings. To understand the context in which the fees were incurred, it is necessary to briefly examine the history of the trusts' administration and the litigation that culminated in two settlement agreements in August and December of 2007. Thomas H. Gentry (Mr. Gentry), a prominent Hawaii real estate developer, died in 1998 after a catastrophic boating accident left him comatose for more than three years. His assets passed to his family primarily in two trusts, the Revocable Trust and a Marital Trust.
At the time of Mr. Gentry's accident, his assets were largely held in the Revocable Trust. Mr. Gentry executed the Revocable Trust in 1986 and restated it in 1992. Pursuant to the terms of the Revocable Trust, Mr. Gentry's long-time business associate, Mark L. Vorsatz (Vorsatz), was appointed as a trustee, together with a corporate trustee, Hawaiian Trust Company. After Hawaiian Trust Company indicated it would no longer be willing to serve as a trustee, First Hawaiian Bank was appointed to serve as a co-trustee, with Vorsatz, for both trusts. The terms of the Revocable Trust provided also that "[t]his instrument shall be construed and administered in accordance with the laws of the State of California."
The Revocable Trust terms provided for the creation of several subtrusts upon Mr. Gentry's death. After Mr. Gentry became incapacitated in 1994, the court gave effect to the Marital Trust. Its purpose was to provide for Kiana during Mr. Gentry's incapacity and after his death. Like the Revocable Trust, the Marital Trust directed that it be administered according to California law.
At the time of Mr. Gentry's accident, the trust assets, and particularly the Gentry Companies, faced significant financial difficulties. The Gentry Companies were saddled with nearly $300 million of indebtedness to third-party lenders; the Gentry Companies' assets and Mr. Gentry's personal assets were collateralized and cross-collateralized to secure the outstanding debt; the Gentry Companies carried over $100 million of inter- company indebtedness; and financial predictions for the Gentry Companies anticipated annual negative cash flow of $45 million. The Trustees exerted significant efforts to steer the trust assets toward financial stability. By 2007, the trusts were estimated to have a net worth over $100 million.
A. Early Administration of Trusts
On March 27, 2002, the Trustees filed a Petition for
Approval of Income and Principal Accounts for the Period January 16, 1998 through December 31, 1999. Kiana filed objections alleging that the Trustees breached their fiduciary duties by:
(1) failing to properly establish and fund the subtrusts; (2) failing to provide sufficient information regarding allocation of legal fees; and (3) failing to provide sufficient information to render clear and accurate accounts. Several other beneficiaries filed limited objections concerning the subtrusts. The Circuit Court approved, in part, the 1998-99 accounting, but deferred resolution of issues regarding funding of the subtrusts. Twelve issues regarding Kiana's objections to the 1998-99 accounting remained unresolved until 2007.
On October 1, 2004, the Trustees filed a Petition for Approval of Income and Principal Accounts for the Period January 1, 2000 through December 31, 2003. Kiana filed objections to the petition, arguing that the Trustees breached their fiduciary duties by: (1) failing to establish and fund the subtrusts in accordance with the Revocable Trust's terms; (2) failing to provide sufficient information to render clear and accurate accounts; (3) failing to properly allocate certain expenses between income and principal; and (4) failing to adequately diversify the Trust's holdings. These issues also remained unresolved until 2007.
On June 15, 2006, the Trustees filed a Petition for Instructions Regarding Initial Funding of Subtrusts. The petition sought to establish and fund the subtrusts in accordance with the terms of the Revocable Trust. Kiana filed objections, primarily contesting the proposed funding of the subtrusts, proposed distributions, and allocations between principal and income. She also requested the appointment of a master to oversee the increasingly complex disputes. The subtrust issues, including those raised in the 1998-99 accounts, remained largely unresolved until 2007.
On August 29, 2006, the Trustees filed a Petition for Approval of Income and Principal Accounts for the Period January 1, 2004 through December 31, 2005. Kiana filed objections, arguing that the Trustees breached their fiduciary duties by:
(1) providing incomplete accountings for both years; (2) failing to properly allocate expenses and sales proceeds between principal and income; (3) failing to make the trust assets productive; (4) failing to diversify; and (5) failing to distribute net income.
On March 30, 2007, the Trustees filed a Petition for
Approval of Income and Principal Accounts for the Period January 1, 2006 through December 31, 2006. Kiana filed objections, alleging that the Trustees breached their fiduciary duties by:
(1) failing to make trust assets productive; (2) failing to diversify the trust assets; (3) failing to properly allocate proceeds and expenses between principal and income; and (4) failing to distribute net income.
The Marital Trust accountings and objections largely mirrored those in the Revocable Trust matter. On March 30, 2006, the Trustees filed a Petition for Approval of Income and Principal Accounts for the Period July 15, 1997 through December 31, 2004 for the Marital Trust. On June 29, 2006, the Trustees filed a Petition for Approval of Income and Principal Accounts for the Period January 1, 2005 through December 31, 2005. On March 30, 2007, the Trustees filed a Petition for Approval of Income and Principal Accounts for the Period January 1, 2006 through December 31, 2006. Kiana filed objections to all three petitions, asserting substantially the same allegations of breach of fiduciary duty as she had in the Revocable Trust matter.
B. Initial Involvement of SNR
Because the terms of both the Revocable Trust and the Marital Trust directed that they be administered under California law, the Trustees engaged SNR, a California law firm, for guidance on various administrative issues. In late 2004, First Hawaiian Bank initially sought SNR's advice on California trust law. At that time, the Trustees were also represented by Hawaii counsel, Carroll Taylor (Taylor). In March of 2005, the Trustees also retained Keith Bartel (Bartel), a California trust lawyer, to assist in the Revocable Trust matter and provide expertise on California trust and estate law. Bartel was later admitted pro hac vice in the Marital Trust matter as well.
In July of 2006, the Trustees decided to have SNR take a more active role in the proceedings. SNR filed a notice of appearance in both the Revocable Trust and Marital Trust matters. In December of 2006, SNR began preparing a Request for a Private Letter Ruling (PLR Request) from the Internal Revenue Service on behalf of one of the subtrusts.
C. 2007 Trust Administration, Litigation, and Settlements
1. Litigation and Discovery
On December 12, 2006, the Circuit Court set all outstanding issues in the Revocable Trust and Marital Trust matters for a concurrent bench trial to begin on November 27, 2007. The trial was estimated to take twelve days.
Trial was set to encompass the following issues: (1) approval of accounting petitions in the Revocable Trust for 1998- 99, 2000-2003, 2004-2005, and 2006; (2) Kiana's objections to those accounts, including allocation of assets, income, distributions, and expenses, and the Trustees' alleged breaches of fiduciary duties; (3) initial and final funding of the subtrusts; (4) approval of accounting petitions in the Marital Trust for 1997-2004, 2005, and 2006; and (5) Kiana's objections to those accounts, including allocation of assets, income distribution, and expenses; and the Trustees' alleged breaches of fiduciary duty. The issues for trial thus concerned a combined total of nineteen accounting periods, numerous alleged breaches of fiduciary duty, and the funding of various subtrusts. Among the various beneficiaries, Kiana remained the sole objector to the accounting petitions before the court. In early 2007, counsel for the Trustees and counsel for several other beneficiaries reportedly urged Kiana to withdraw her objections and avoid the substantial expense of litigation. She declined to do so, as was her right.
In her pretrial statements, Kiana identified thirty lay witnesses and an unspecified number of expert witnesses to be called in both matters. The Trustees listed eleven lay witnesses and seven expert witnesses.
Kiana served Requests for Production of Documents on the Trustees in each trust matter. The Trustees asked SNR to coordinate the review of trustee files as well as responses to discovery requests.
In April of 2007, on behalf of the Trustees, SNR filed the PLR Request regarding the subtrust. SNR had been primarily responsible for researching issues, drafting the request, and ensuring compliance with the applicable tax and filing statutes, rules, and regulations.
In May of 2007, the Trustees served numerous discovery requests on Kiana, including Requests for Interrogatories, Production of Documents, and Admissions. SNR was primarily responsible for drafting and coordinating the discovery. On June 21, 2007, the Trustees filed a Motion for Summary Adjudication of Issues. The motion sought to adjudicate seven specific issues. It was the first of several planned motions for partial summary judgment that the Trustees asked SNR to research and prepare. The hearing on the motion was never held because the parties reached a partial settlement agreement in August of 2007 (discussed below).
In July of 2007, the parties had failed to reach a settlement following three-day mediation. Discovery continued. The Trustees deposed Kiana, and Kiana deposed James Lawhn of First Hawaiian Bank. SNR was primarily responsible for representing the Trustees in these depositions. The Trustees and Kiana collectively noticed at least sixteen depositions, with Kiana requesting leave to depose more than ten witnesses. Anticipating these numerous depositions, the Trustees sought the admission of SNR attorney Hank Zangwill (Zangwill) pro hac vice. A member of SNR's insurance and litigation groups, Zangwill supervised discovery and was prepared to participate in the depositions. Ultimately, however, Zangwill did not attend any depositions, as the parties only conducted two before reaching a settlement agreement.
2. August Settlement Agreement
On August 20, 2007, the Trustees reached a partial settlement with Kiana (August Settlement Agreement). Kiana agreed to withdraw, with prejudice, all claims of breach of fiduciary duty against the Trustees. The Trustees agreed to withdraw their Motion for Summary Adjudication, to suspend all existing discovery requests and scheduled depositions, and to the ...