The Estate of Peter Castruccio recently made its thirteenth trip from the Anne Arundel County Courthouse to Rowe Boulevard.  An earlier visit resulted in a new tort in Maryland–intentional interference with an inheritance.  The latest, Estate of Peter Castruccio et al v. Castruccio (No. 1023, Sept. Term 2018) (July 29, 2020), concerned the estate’s interim petition for payment of attorneys’ fees incurred at the behest of a special administrator.  It is to be another roundtrip, as the Court of Special Appeals remanded the case to allow the trial court to correct a number of errors it committed when it refused to authorize payment of more than half of the fees requested.  The court’s opinion included detailed instructions for assessing the reasonableness of attorneys’ fees in complex litigation.  

All 13 appeals arose from cases involving the same parties: the estate (acting through the special administrator qua personal representative (PR) named in the decedent’s will); the decedent’s widow (who elected to take her spousal share of the estate rather than what the will left to her); and the residuary beneficiary under the will (a long-time employee of the decedent). Litigation commenced immediately upon the decedent’s 2013 death, when the widow filed a series of actions to contest the will, challenge the PR’s interpretation of it, and to have him removed.  Id. at 3-4. These actions, the residuary beneficiary alleged, were intended solely to saddle the estate with large legal bills and deplete its value.

If that was the widow’s plan, it appeared to be working as early as 2015, when the estate filed an interim petition for the payment of its attorneys’ fees.  The petition sought approximately $1.7 million in fees and $262,000 in litigation expenses from an estate valued at approximately $6.6 million. Id. at 12. And, of course, the meter was still running; the petition was filed only two years into what ultimately became a new seven years’ war.  

The orphans’ court granted the fee petition, after first denying exceptions filed by the widow, who objected because the court never formally approved the hiring of the attorneys, and the residuary beneficiary, who believed that the fees should have been charged against the widow’s share of the estate.   Both appealed to the circuit court, which agreed with the orphans’ court rulings on the exceptions but disagreed strongly on the hourly rates used by some of the lawyers for the estate, and with the amount of time they spent on various matters.  

The circuit court was troubled by the difference between the rates charged by the estate’s Annapolis-based attorneys, and those charged by lawyers from the Baltimore office of a large firm hired by the estate shortly after the widow’s opening broadsides.  The local attorneys billed at $350/hour, while the Baltimore-based attorneys’ variously charged $750 to $500/hour.  The circuit court reduced the large firm rates to $450 to $350/hour, and then on top of that, determined that much of the time expended was unnecessary and, therefore, not payable by the estate.  The court approved only $785,000 of the roughly $1.7 million in fees requested by the estate. Id. at 16.  All parties found something offensive in trial court’s rulings, and all appealed to the Court of Special Appeals.  

After addressing several foundational issues–such as when a special administrator can hire counsel without court approval and when a fiduciary’s participation in litigation will be deemed to be for the benefit of the estate–the appellate court reviewed the denial of nearly $1 million in attorneys’ fees.  The court first addressed the question of proportionality, concluding that under §7-603 of the Estates and Trusts Article, a court should ordinarily “consider the amount of the fees requested in relation to the size of the estate.”  Id. at 37. Although it expressly rejected the estate’s invitation to adopt a lodestar approach (which the court deemed limited to situations in which the legislature intended to reward attorneys for undertaking socially beneficial cases), the court nonetheless recognized that “[a] proportionately high fee…may be justified when warranted by the complexities of the case and the size of the estate.”  Id. at 38. Suggesting that the size of the Castruccio estate was not an impediment to the fees claimed, the court further observed that courts may also “allow large fee awards if the beneficiaries or other interested parties have prolonged or complicated the litigation.” Id. at 55-6.   

The court then looked to the circuit court’s application of the factors listed in Rule 1.5 of the ABA’s Model Rules of Professional Conduct (Md. Rule 19-301.5), which governs fees. When it set the hourly rates for the Baltimore-based attorneys, the trial court focused on one factor in particular:  the fees customarily charged in the locality for similar legal services.  Slip Op. at 30.  The appellate court agreed that under Rule 1.5, the relevant market for determining an appropriate fee is ordinarily the community in which the action is pending.  It noted, however, that courts often “permit out-of-forum counsel to charge higher rates than those customary in their own locality in certain circumstances, such as when local counsel with the necessary expertise is unavailable, when the complexity of the case warrants the higher rates charged by attorneys who concentrate in a specialized area of the law, or when local counsel is unwilling to take a case.”  Id. at 41. On the record before it, “there [was] simply no basis to conclude that [the PR] could find counsel ‘readily available’ in Anne Arundel County with the specialized experience, staffing resources, and financial wherewithal necessary to handle a web of interconnected lawsuits, brought by a determined and well-funded adversary, with a battalion of lawyers, who was raising difficult questions in an arcane area of the law…[and] who could afford to work, for an extended period of time, on multiple pieces of litigation, without being paid, as the estate’s counsel was required to do.”  Id. at 45 (footnotes omitted). 

The court retorted bluntly to the trial judge’s conclusion that there was little complexity to the matters for which the Baltimore firm was retained: “From the perspective of the appellate court that has handled approximately 10 appeals involving the Castruccio estate, we could not disagree more. The circuit court’s statements are wrong as a matter of law.”  Id. at 46, n. 34.   The circuit court was admonished on remand to expand its consideration of hourly rates beyond “its conception of a reasonable rate in ordinary, conventional litigation in Anne Arundel County,” as this was no such undertaking. Id. 

The court was also critical of the trial court’s assessment that some services that should not have been billed to the estate including, for example, its denial of compensation for 245 hours logged in connection with unsuccessful pretrial motions. Id. at 49. Observing that even unsuccessful motions can be of benefit by educating the judge or narrowing the issues, the court held that the trial court “abused its discretion in applying an inflexible, categorical rule that the fiduciary of an estate cannot recover the attorneys’ fees in connection with pretrial motions unless those motions are granted.” Id. at 52.  On remand, the trial judge was instructed to “conduct a nuanced inquiry into the reasonableness of the arguments that were advanced in those motions and the extent, if any, to which they may have benefitted the estate.”  Id.  

Among the other errors noted was the trial court’s reluctance to accept testimony to explain certain time entries, but then disallowing payment for want of an explanation, and its refusal to allow payment for time spent defending its own rulings on appeal that the attorneys “knew or should have known” would be reversed.  Id. at 14, n. 11; 47-8.   Anticipating the next round of appeals, the Court also reminded the trial judge of the requirement that it provide clear and concise statements of its reasons for reducing the fees to enable effective appellate review.  Id. at 54. As the final chapters of this saga are still being written, the law elucidated and created on behalf of the Estate of Peter Castruccio will continue to guide practitioners and the courts for years to come.