M.D.Fla.: Can You Be Found Guilty Of 'Defalcation' For Billing A Client In Accordance With Florida’s Statutory Fee Schedule?

West v. Chrisman, Slip Copy, 2014 WL 4683182 (M.D.Fla. September 19, 2014)

If there's anyone out there that still believes F.S. 733.6171 (the probate code's attorney's fee statute) or its trust-code equivalent ( F.S. 736.1007) establishes a fee that's "set" or otherwise blessed by Florida law, this case is going to be a rude awakening. Not only did billing in accordance with the statutory fee schedule not shield a probate attorney from getting his fees cut by 90%!, a bankruptcy court's ruled he was guilty of defalcation for doing so.

How bad is a finding of "defalcation"? Pretty bad.

In Bullock v. BankChampaign, N.A., 133 S.Ct. 1754 (2013), the Supreme Court recently held that a finding of "defalcation" requires evidence of either "an intentional wrong" or "reckless conduct of the kind set forth in the Model Penal Code." According to the Supreme Court, a person accused of defalcation satisfies the required state of mind when he or she acts with a conscious disregard of a substantial and unjustifiable risk that his or her conduct will violate a fiduciary duty. A "substantial and unjustifiable risk" is one that, "considering the nature and purpose of the actor's conduct and the circumstances known to him, its disregard involves a gross deviation from the standard of conduct that a law-abiding person would observe in the actor's situation." Id. at 1760.

How could billing in accordance with Florida's statutory fee schedule result in a court finding that you've acted in gross deviation from the standard of conduct a law-abiding person would observe? Read on . . .

Case Study:

This case involves a $23 million estate and a fee dispute between the decedent's former estate planning/probate attorney ("West"), and the decedent's daughter ("Aleta"). After her father's death Aleta signed West's fee agreement, which proposed that his legal fees be "calculated pursuant to the provisions of Florida Statutes § 733.6171 and § 737.2041," but included no calculation of the fees. In other words, the fee would be based on a percentage value of the estate, instead of West's billable hourly rate. When the fee agreement was signed West was also serving as co-trustee of the decedent's trust, a fact which plays a big part in the bankruptcy court's ruling. (Anytime an estate planner writes himself into his client's trust agreement as a trustee, it's an ethical red flag, see here.)

Applying the fee schedule contained in F.S. 733.6171, West estimated his firm's fees...