Award for Attorneys Fees Prevails Against Undue Hardship Claim

Robert Borteck, PC v. Frederick Kennedy And Gabriel Yandoli, Co-Executors of the Estate of Francis P. Kennedy, deceased, Docket No. A-3819-21 (N.J. Super. App. Div. Jan. 22, 2024)

Defendants were the executors of the estate of Francis P. Kennedy (“defendants”). On April 14, 2008, defendants entered an agreement with the law firm of plaintiff Borteck & Sanders, LLP (“plaintiff” or “Law Firm”), for services related to administration of the estate and trust. The initial retainer was $15,000 for both the estate and trust matters.

On March 26, 2014, plaintiff notified defendants they owed $34,828.87 for legal services and requested payment. Plaintiff’s correspondence advised defendants of their right to request fee arbitration pursuant to R. 1 :20A-6, but defendants did not opt into arbitration.

By May 2016, defendants had an unpaid balance of $32,318.92 for the estate matter and $3,891.14 for the trust matter. Defendants sued plaintiff for malpractice on October 11, 2013 and March 23, 2016. Both cases were dismissed.

On June 5, 2016, plaintiff sued defendants for the outstanding fees.

Plaintiff’s complaint was dismissed without prejudice because there was a pending appeal regarding the dismissal of defendants’ malpractice claims, and plaintiff had filed a counterclaim for fees in the malpractice cases.

Plaintiff was successful on the appeal, and following the appeal sued defendants for $36,210.06 in fees. On July 26, 2021, plaintiff filed an offer of judgment with the court and offered to allow judgment in its favor for $25,000. Defendants responded as follows: “As you have been previously advised, [the estate] is insolvent and any payments . . . regarding any [o]ffer of [j]udgment would be a preference at this time. Therefore, we are unable to respond to your [o]ffer of [j]udgment.”

The matter proceeded to a bench trial. Defendants moved for a ruling regarding whether an affidavit of legal services was required under Rule 4:42-­9(b). They argued an affidavit was necessary for the court to determine whether the fees were reasonable because the estate would be paying the fees. The court ruled no affidavit was required because this was a collection case.

A member of the Law Firm was the sole witness at trial. He testified the estate was substantial when he was retained in April 2008—the federal estate tax return reflected “a gross estate of approximately [twelve] and a half million dollars.”  He also testified that the estate included seven inter vivos trusts and another six trusts were created in the decedent’s will for each of his children. The decedent was sole trustee of the inter vivos trusts, and defendants were co-trustees of the six trusts created under the will.  There were also irrevocable trusts created by the decedent.

When plaintiff billed the estate, it billed the “Estate of Frank Kennedy.”

The sole member of the plaintiff Law Firm testified that when he was retained, he sent defendants an engagement letter, which they signed and returned to him along with a payment of $10,000 against the $15,000 retainer. The engagement letter said defendants would be billed monthly.  Defendants never complained about the quality of his work or the reasonableness of the firm’s fees. Defendants paid the firm from the estate account. The sole member also testified he informs all fiduciaries in estate matters that if “part or all of the fees are not payable out of the estate, they remain personally responsible.”

Defendants became delinquent in payment in 2011. They owed the firm approximately $20,303.97.  The attorney-client relationship with defendants terminated in the summer of 2012.

The court found defendants were liable for the fees. The court entered judgment for plaintiff in the amount of $32,319.54, plus $3,289.07 in pre-judgment interest.

Plaintiff moved for attorney’s fees and costs pursuant to R. 4:58 and filed a certification in support of the motion. The court awarded plaintiff $18,555.00 in fees and $1,219.00 in prejudgment interest.

Defendants moved for reconsideration of the judgment and the attorney’s fees award. The court denied the motion.

On appeal, defendants argued that as executors they could not be held personally liable for legal fees pursuant to N.J.S.A. § 3B:14-31, which provides:  “Unless otherwise provided in the contract, a fiduciary is not
individually liable on a contract properly entered into in his fiduciary capacity in the course of administration of the estate unless he fails to reveal his fiduciary capacity and identify the estate in the contract.” N.J.S.A. § 3B: 14-31.

The Appellate Division rejected defendants’ argument and found that N.J.S.A. § 3B:14-31 did not apply to the parties’ attorney-client relationship because that statute pertains to defendants’ obligations to the estate and its beneficiaries in their capacity as fiduciaries and shields such fiduciaries from liability to contracting third parties unless they fail to disclose their fiduciary status.  N.J.S.A. § 3B:14-31 and its attendant statutory provisions look to the fiduciary-estate relationship and define the extent of responsibility and liability of fiduciaries vis-à-vis an estate and third parties who enter into contracts with them; they do not enter the realm of the attorney-client relationship between an attorney and an executor.

The appeals court also agreed with plaintiff that attorneys employed by a personal representative are the attorneys of the representative not the estate.

Defendants further claimed that the trial court erred in awarding plaintiff attorney’s fees because defendants demonstrated “undue hardship” under R. 4:58-2, namely, insolvency of the estate. They claimed plaintiff knew the estate was insolvent since at least 2012, as evidenced by multiple billing entries by the firm mentioning insolvency.

The Appellate Division enforced the offer-of-judgment rule:

“The offer-of-judgment rule is ‘designed particularly as a mechanism to encourage, promote, and stimulate early out-of-court settlement . . . without trial.'” Schettino v. Roizman Dev., 158 N.J. 476, 482 (1999) (quoting Crudup v. Marrero, 57 N.J. 353, 361 (1971)). It “imposes financial consequences on a party who rejects a settlement offer that turns out to be more favorable than the ultimate judgment.” Ibid. See R. 4:58-2; R. 4:58-3. The rule is meant “to encourage defendants to settle worthy cases.” McMahon v. N.J. Mfrs. Ins. Co., 364 N.J. Super. 188, 192 (App. Div. 2003).

The Supreme Court has stated, “it would thwart the rule to allow a party who has rejected a settlement to escape mandatory payment for any portion of the costs incurred as a result of his decision.” Wiese v. Dedhia, 188 N.J. 587, 593 (2006). Thus, “the consequences of non-acceptance . . . under Rule 4:58 are mandatory.” Id. at 589 (quoting McMahon, 364 N.J. at 194).

Pursuant to R. 4:58-2(c), if an offer of judgment is rejected, and an allowance for fees, costs, and interest would result in undue hardship, a trial court is authorized to either withhold the allowance or, alternatively, reduce the allowance to a lower sum. Under the rule, the court should fix a reasonable fee and then “consider whether an award of that fee will constitute an ‘undue hardship’ on the payor[.]” Kas Oriental Rugs, Inc. v. Ellman, 407 N.J. Super. 538, 562 (App. Div. 2009). “If the answer to the second part of that question is in the affirmative, then the judge has the discretion to reduce the allowance to remove the hardship.” Ibid. “The burden is on the offeree to establish the offeree’s claim of undue hardship or lack of fairness.” R. 4:58-2(c).

The Appellate Division concluded that there was no undue hardship warranting a reduction of the fee owed by defendants to plaintiff. Contrary to defendants’ assertions, plaintiff’s counsel submitted a certification of services to aid the trial court in its assessment of the reasonableness of the fees sought. The court reviewed the certification, noted that the case was a $36,201.06 collection action for which plaintiff had a $43,300 legal bill, and reduced the $43,300 because it was not reasonable in relation to the amount at issue.  As a result, the appellate court affirmed the trial court’s award of $18,550 in attorney’s fees and $1,219 in prejudgment interest.