Formal Notice in Refund or Surcharge Proceedings

In an opinion released this week regarding a motion to dismiss by the Circuit Court in Palm Beach County, the Fourth District Court of Appeal of Florida (“4th DCA”) in Kozinski v. Stabenow, 2014 Fla. App. LEXIS 18086 (Fla. 4th DCA 2014), reversed the order denying the motion to dismiss, and held that an order imposing a refund or surcharge against a fiduciary, and the immediate return of money to a trust or probate estate as a result of a breach of fiduciary duty was tantamount to a judgment for damages and therefore required personal service on the fiduciary as an individual, and not in any representative capacity. Therefore, because personal jurisdiction over the trustee in this case was not obtained, the order denying the motion to dismiss was reversed.

Kozinski, an attorney, served as the trustee of a trust created by her mother, and after her death, filed a notice of trust, noting that the trust would be liable to the mother’s creditors to the extent her estate was insufficient to pay them.  Thereafter, Kozinski was appointed personal representative of her mother’s estate, and the two cases were consolidated.  Kozinski, and the mother’s two other daughters, Stabenow and Faul, were beneficiaries under the will and trust.  Following what was thought to be an unreasonable amount of charged fees, Stabenow filed a petition to review the compensation of Kozinski as personal representative and as trustee, as well as fees paid to her law firm, claiming excessive fees from the estate and trust assets. The petition was not formally served upon Kozinski, but was sent via e-mail to her counsel.  In response, she filed a motion to dismiss the petition for lack of personal jurisdiction where Stabenow sought surcharge and disgorgement, a claim based on a breach of fiduciary duty, against her in her individual capacity.  The Circuit Court dismissed the motion, and Kozinski appealed.

The main issue the 4th DCA tackled was whether in probate court, a person who is determined to have received excessive compensation from a trust or estate for services rendered may be ordered to make appropriate refunds without formal notice under the Florida Probate Rules.  The Court starts out in their opinion discussing and reinforcing the fact that if the fee review proceeding is filed in a probate proceeding, the Florida Probate Rules regarding formal notice apply, but if the fee review proceeding is not filed in the probate proceeding, the Florida Rules of Civil Procedure and service of process apply. Furthermore, the requirement of service by formal notice also depends upon whether the proceeding is considered an “adversary proceeding” under the probate rules.  In turn, whether a “refund” ordered pursuant to Florida Statute is tantamount to a “surcharge,” as that term is used in the Florida Probate Rules and case law.

The 4th DCA explained that case law in Florida clearly indicates that a fee dispute is in essence, a surcharge proceeding, and therefore a surcharge to a personal representative is an adversary proceeding.  A surcharge, which is the amount a court may charge a fiduciary who has breached its duty, seeks to impose personal liability on a fiduciary for breach of trust through either intentional or negligent conduct.  A personal representative is a fiduciary who shall observe the standards of care applicable to trustees. 

Accordingly, the 4th DCA reasoned that a proceeding seeking an order or judgment imposing a refund or surcharge against a fiduciary, individually, and the return of money as a result of a breach of a fiduciary duty is tantamount to a judgment for damages, thus requires personal service on the fiduciary as an individual, and not in any representative capacity.  Therefore, the Court rejected Stabenow’s argument that a petition for review of fees does not initiate an adversary proceeding subject to the notice requirements of the Florida Probate Rules.  Formal notice served on the respondent individually is required for a proceeding to surcharge a personal representative, as well as for a petition filed in a probate case seeking to require the fiduciary to return overpayment of compensation.

Kozinski was not served individually, she did not waive in writing her right to receive such notice, and therefore the Circuit Court’s order denying Kozinski’s motion to dismiss was reversed without prejudice by the 4th DCA.

If you or anyone you know is in need of representation in actions involving Guardianship, Probate and/or Trust Disputes, or questions pertaining to such proceedings, please contact The Law Offices of Glenn M. Mednick, P.L., at (954) 315-1154 or gmednick@mednicklawgroup.com.