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Bad Faith and Attorney’s Fees

Written by on Aug 10, 2009| Posted in: Estate Litigation

Bad Faith Required Before Any Assessment of Attorneys’ Fees Against Beneficiary’s Share of their Inheritance

In the law, the American Rule, which controls assessment of attorneys’ fees arising out of litigation, provides that each party is responsible to pay its own attorney’s fees unless specific authority granted by statute or contract the assessment of those fees against the other party. Under the American rule every party, even the winning party, must pay its own attorneys’ fees. The American rule contrasts with the English Rule, under which the losing party pays the prevailing party’s attorneys’ fees. The rationale for the American rule is that people should not be discouraged from seeking redress for perceived wrongs in court or from trying to extend coverage of the law. The rationale continues that society would suffer if a person was unwilling to pursue a meritorious claim merely because that person would have to pay the defendant’s expenses if they lost.

Does the American Rule apply in the context of Florida Probate?

The Florida Probate Code, at Section 733.106, provides that any attorney who has rendered services to an estate may be awarded reasonable compensation from the estate.  This section also provides that when costs and attorney’s fees are to be paid from the estate, the court may direct from what part of the estate they shall be paid.

Frequently the question of whether an unsuccessful will contestant must pay the attorneys fees for the winning proponent of the will is raised in the probate court after a verdict or dismissal.  If these questions were simply answered by resorting to the American Rule, then the answer would always be an unequivocal “no.” But the answer to the question is never that easy.

In order to understand the applicable legal standard for answering the question today, it is necessary first to examine the former mechanism of renunciation and the rule announced by the Florida Supreme Court in Carman v. Gilbert, 641 So.2d 1323 (Fla. 1994).  Under Florida law, a beneficiary under a will who desires to contest that will must first divest himself of any beneficial interest which he has under the will.  This typically takes the form of a beneficiary including a clause in the will contest complaint stating that he or she renounces any gift or inheritance under the will being contested.  The issue resolved in Carman was whether this was an absolute or qualified renunciation.  The question was an important one, because some courts were binding beneficiaries to the renunciation, thereby causing them to lose their entire inheritance should they fail by verdict or dismissal in their will contest.  The Florida Supreme Court clarified the issue by holding that beneficiaries do not lose their inheritance by simply making a qualified renunciation in the will contest.  However, the Supreme Court cautioned:

 “[we] caution that the attacker of a will should not be permitted to “have the cake and eat it, too.”… It would be contrary to this equitable duty to allow a contesting beneficiary to deplete the assets of the estate through an unsuccessful proceeding to revoke probate and still take an undiminished share under the will. Under such circumstances, the court has the discretion to direct that the resulting costs and attorney fees be charged against the contestant’s bequest under the will.”

This opened the door for the winning party in a will contest to ask the court to assess the attorneys’ fees incurred in defending a will contest against the losing party’s ultimate share of the estate.   Some courts began interpreting the Florida Probate Code decision as providing unbridled discretion to award and/or assess attorney fees against any beneficiaries share of the estate if they were on the losing end of a will contest or other adversary probate proceeding. 

This judicial discretion was clarified and limited by the Fourth District in In re Estate of Lane, 562 So.2d 352 (Fla. 4th DCA 1990) which made it well settled law that there must be a specific finding of bad faith by the probate court on the part of a beneficiary before attorneys’ fees can be assessed against that beneficiary’s share of the estate.

Lane involved a will contest by some of the specific beneficiaries under the Last Will of Ruth Lane. After litigation in the probate court in which the beneficiaries were unsuccessful in a will contest against the personal representative of the estate, they challenged the lower court’s order assessing attorneys’ fees, proportionally, against all of the specific beneficiaries’ shares in the estate and the residuary.  The Fourth District stated:

 “[s]ection [733.106]does not give the trial court unbridled discretion to award fees from any part of the estate. Before the trial court may assess fees against a beneficiary’s share of an estate there must be a finding of bad faith or wrongdoing by the beneficiary or other circumstances which would warrant such an assessment. [Emphasis added].

I believe the reasons for both the milder renunciation rule and for the requirement of bad faith announced in Lane is to promote beneficiaries ability and willingness to come forward with their concerns of undue influence and incapacity to the court without fear of reprisal or punishment.  This is the same reason why it is public policy in Florida to render all no contest provisions in testamentary instruments invalid.

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