A San Francisco appeals court has rejected a law firm’s attempt to recover $3 million billed on a trust matter on the grounds that the work did not benefit the estate.
As reported in the Daily Journal on February 28, 2013, the fee dispute arose in connection with ongoing litigation over the $350 million estate of Herbalife Ltd. founder Mark R. Hughes. The law firm Mitchell, Silberberg & Knupp LLP sought the contested $3 million, which was on top of more than $3 million it had already been paid, for work performed on behalf of Hughes’s former wife, Suzan Hughes.
The trial court previously denied recovery of the additional fees, holding that Suzan hired the firm out of personal animosity towards the trustees rather than for the benefit of the estate. Specifically, the firm attempted to remove the trustees and halt a tax deal that the trustees had implemented.
As reported in the Daily Journal, the 1st District Court of Appeal in San Francisco affirmed that decision on Wednesday. Writing for the panel, Justice Martin J. Jenkins stated that the lower court’s findings were supported by substantial evidence “that petitioner’s litigation incentives were, for the most part, of no essential benefit to the guardianship.”
The decision angered Mitchell attorneys. The court “got it completely wrong,” Mitchell attorney Hillel Chodos, who performed much of the work at issue, told the Daily Journal. “The idea that what we were doing was not in [Suzan’s son’s] interest came from the trustees who think it is inappropriate to sue them,” he said.
The ruling indicates that, at a minimum, attorneys taking on a trust case must carefully consider whether their activities will benefit the trust if they want the estate to pay their bills. This is not always an easy call to make.